```

[Federal Register: August 16, 2010 (Volume 75, Number 157)]
[Rules and Regulations]               
[Page 50041-50677]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16au10-14]                         
 

[[Page 50041]]

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Part II

Book 2 of 2 Books

Pages 50041-50681

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Parts 412, 413, 415, et al.

Medicare Program; Hospital Inpatient Prospective Payment Systems for 
Acute Care Hospitals and the Long Term Care Hospital Prospective 
Payment System Changes and FY2011 Rates; Provider Agreements and 
Supplier Approvals; and Hospital Conditions of Participation for 
Rehabilitation and Respiratory Care Services; Medicaid Program: 
Accreditation for Providers of Inpatient Psychiatric Services; Final 
Rule

[[Page 50042]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 412, 413, 415, 424, 440, 441, 482, 485, and 489

[CMS-1498-Fand CMS-1498-IFC; CMS-1406-F]
RIN 0938-AP80; RIN 0938-AP33

 
Medicare Program; Hospital Inpatient Prospective Payment Systems 
for Acute Care Hospitals and the Long-Term Care Hospital Prospective 
Payment System Changes and FY2011 Rates; Provider Agreements and 
Supplier Approvals; and Hospital Conditions of Participation for 
Rehabilitation and Respiratory Care Services; Medicaid Program: 
Accreditation for Providers of Inpatient Psychiatric Services

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

ACTION: Final rules and interim final rule with comment period.

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SUMMARY: We are revising the Medicare hospital inpatient prospective 
payment systems (IPPS) for operating and capital-related costs of acute 
care hospitals to implement changes arising from our continuing 
experience with these systems and to implement certain provisions of 
the Affordable Care Act and other legislation. In addition, we describe 
the changes to the amounts and factors used to determine the rates for 
Medicare acute care hospital inpatient services for operating costs and 
capital-related costs. We also are setting forth the update to the 
rate-of-increase limits for certain hospitals excluded from the IPPS 
that are paid on a reasonable cost basis subject to these limits.
    We are updating the payment policy and the annual payment rates for 
the Medicare prospective payment system (PPS) for inpatient hospital 
services provided by long-term care hospitals (LTCHs) and setting forth 
the changes to the payment rates, factors, and other payment rate 
policies under the LTCH PPS. In addition, we are finalizing the 
provisions of the August 27, 2009 interim final rule that implemented 
statutory provisions relating to payments to LTCHs and LTCH satellite 
facilities and increases in beds in existing LTCHs and LTCH satellite 
facilities under the LTCH PPS.
    We are making changes affecting the: Medicare conditions of 
participation for hospitals relating to the types of practitioners who 
may provide rehabilitation services and respiratory care services; and 
determination of the effective date of provider agreements and supplier 
approvals under Medicare.
    We are also setting forth provisions that offer psychiatric 
hospitals and hospitals with inpatient psychiatric programs increased 
flexibility in obtaining accreditation to participate in the Medicaid 
program. Psychiatric hospitals and hospitals with inpatient psychiatric 
programs will have the choice of undergoing a State survey or of 
obtaining accreditation from a national accrediting organization whose 
hospital accreditation program has been approved by CMS.
    We are also issuing an interim final rule with comment period to 
implement a provision of the Preservation of Access to Care for 
Medicare Beneficiaries and Pension Relief Act of 2010 relating to 
Medicare payments for outpatient services provided prior to a Medicare 
beneficiary's inpatient admission.

DATES: Effective Date: These rules are effective on October 1, 2010, 
except for amendments to Sec.  412.2(c)(5) introductory text, 
(c)(5)(iii), and (c)(5)(iv); Sec.  412.405; Sec.  412.521(b)(1); Sec.  
412.540; Sec.  412.604(f); Sec.  413.40(c)(2) introductory text, 
(c)(2)(iii), and (c)(2)(iv), that are effective on June 25, 2010 and 
apply to services furnished on or after June 25, 2010. In accordance 
with sections 1871(e)(1)(A)(i) and (ii) of the Social Security Act, the 
Secretary has determined that retroactive application of these 
regulatory amendments is necessary to comply with the statute and that 
failure to apply the changes retroactively would be contrary to public 
interest:
    Comment Period: To be assured consideration, comments on the 
interim final rule with comment period (CMS-1498-IFC) that appears as 
section IV.M., of the preamble of this document and includes amendments 
to Sec.  412.2(c)(5) introductory text, (c)(5)(iii), and (c)(5)(iv); 
Sec.  412.405; Sec.  412.521(b)(1); Sec.  412.540; Sec.  412.604(f); 
Sec.  413.40(c)(2) introductory text, (c)(2)(iii), and (c)(2)(iv) must 
be received at one of the addresses provided below, no later than 5 
p.m. EST on September 28, 2010. Comments on other sections of this 
document will not be considered.

ADDRESSES: When commenting on issues presented in the interim final 
rule with comment period, please refer to file code CMS-1498-IFC. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation at http://www.regulations.gov. Follow the instructions for 
``Comment or Submission'' and enter the file code CMS-1498-IFC to 
submit comments on this interim final rule.
    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address ONLY:

Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Attention: CMS-1498-IFC, 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-1406-IFC, 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),

[[Page 50043]]

Wage Index, New Medical Service and Technology Add-On Payments, 
Hospital Geographic Reclassifications, Acute Care Transfers, Capital 
Prospective Payment, Excluded Hospitals, Direct and Indirect Graduate 
Medical Education Payments, Disproportionate Share Hospital (DSH), and 
Critical Access Hospital (CAH) Issues.
    Michele Hudson, (410) 786-4487, and Judith Richter, (410) 786-2590, 
Long-Term Care Hospital Prospective Payment System and MS-LTC-DRG 
Relative Weights Issues.
    Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital 
Demonstration Program Issues.
    James Poyer, (410) 786-2261, Reporting of Hospital Quality Data for 
Annual Payment Update--Program Administration, Validation, and 
Reconsideration Issues.
    Shaheen Halim (410) 786-0641, Reporting of Hospital Quality Data 
for Annual Payment Update--Measures Issues Except Hospital Consumer 
Assessment of Healthcare Providers and Systems
    Elizabeth Goldstein (410) 786-6665 Reporting of Hospital Quality 
Data for Annual Payment Update--Hospital Consumer Assessment of 
Healthcare Providers and Systems Measures Issues.
    Marcia Newton, (410-786-5265) and CDR Scott Cooper (U.S. Public 
Health Service), (410) 786-9465, Hospital Conditions of Participation 
for Rehabilitation Services and Respiratory Therapy Care Issues.
    Marilyn Dahl, (410) 786-8665, Provider Agreement and Supplier 
Approval Issues.
    Melissa Harris, (410) 786-3397 or Adrienne Delozier, (410) 786-
0278, Accreditation of Providers of Inpatient Psychiatric Services to 
Individuals under Age 21 Issues.

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

Electronic Access

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

Acronyms

3M 3M Health Information System
AAHKS American Association of Hip and Knee Surgeons
AAMC Association of American Medical Colleges
ACGME Accreditation Council for Graduate Medical Education
AHA American Hospital Association
AHIC American Health Information Community
AHIMA American Health Information Management Association
AHRQ Agency for Healthcare Research and Quality
ALOS Average length of stay
ALTHA Acute Long Term Hospital Association
AMA American Medical Association
AMGA American Medical Group Association
AOA American Osteopathic Association
APR DRG All Patient Refined Diagnosis Related Group System
ARRA American Recovery and Reinvestment Act of 2009, Public Law 111-
5
ASC Ambulatory surgical center
ASCA Administrative Simplification Compliance Act of 2002, Public 
Law 107-105
ASITN American Society of Interventional and Therapeutic 
Neuroradiology
BBA Balanced Budget Act of 1997, Public Law 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Balanced Budget Refinement Act of 1999, Public 
Law 106-113
BIC Beneficiary Identification Code
BIPA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Benefits Improvement and Protection Act of 2000, 
Public Law 106-554
BLS Bureau of Labor Statistics
CAH Critical access hospital
CARE [Medicare] Continuity Assessment Record & Evaluation 
[Instrument]
CART CMS Abstraction & Reporting Tool
CBSAs Core-based statistical areas
CC Complication or comorbidity
CCR Cost-to-charge ratio
CDAC [Medicare] Clinical Data Abstraction Center
CDAD Clostridium difficile-associated disease
CIPI Capital input price index
CMI Case-mix index
CMS Centers for Medicare & Medicaid Services
CMSA Consolidated Metropolitan Statistical Area
COBRA Consolidated Omnibus Reconciliation Act of 1985, Public Law 
99-272
COLA Cost-of-living adjustment
CoP [Hospital] condition of participation
CPI Consumer price index
CRNA Certified Registered Nurse Anesthetist
CY Calendar year
DPP Disproportionate patient percentage
DRA Deficit Reduction Act of 2005, Public Law 109-171
DRG Diagnosis-related group
DSH Disproportionate share hospital
ECI Employment cost index
EDB [Medicare] Enrollment Database
EMR Electronic medical record
FAH Federation of Hospitals
FDA Food and Drug Administration
FFY Federal fiscal year
FHA Federal Health Architecture
FIPS Federal information processing standards
FQHC Federally qualified health center
FTE Full-time equivalent
FY Fiscal year
GAAP Generally Accepted Accounting Principles
GAF Geographic Adjustment Factor
GME Graduate medical education
HACs Hospital-acquired conditions
HCAHPS Hospital Consumer Assessment of Healthcare Providers and 
Systems
HCFA Health Care Financing Administration
HCO High-cost outlier
HCRIS Hospital Cost Report Information System
HHA Home health agency
HHS Department of Health and Human Services
HICANHealth 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

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HwH Hospital-within-a-hospital
ICD-9-CM International Classification of Diseases, Ninth Revision, 
Clinical Modification
ICD-10-CM International Classification of Diseases, Tenth Revision, 
Clinical Modification
ICD-10-PCS International Classification of Diseases, Tenth Revision, 
Procedure Coding System
ICR Information collection requirement
IHS Indian Health Service
IME Indirect medical education
I-O Input-Output
IOM Institute of Medicine
IPF Inpatient psychiatric facility
IPPS [Acute care hospital] inpatient prospective payment system
IRF Inpatient rehabilitation facility
LAMCs Large area metropolitan counties
LOS Length of stay
LTC-DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
MA Medicare Advantage
MAC Medicare Administrative Contractor
MCC Major complication or comorbidity
MCE Medicare Code Editor
MCO Managed care organization
MCV Major cardiovascular condition
MDC Major diagnostic category
MDH Medicare-dependent, small rural hospital
MedPAC Medicare Payment Advisory Commission
MedPAR Medicare Provider Analysis and Review File
MEI Medicare Economic Index
MGCRB Medicare Geographic Classification Review Board
MIEA-TRHCA Medicare Improvements and Extension Act, Division B of 
the Tax Relief and Health Care Act of 2006, 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
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Public 
Law 110-173
MPN Medicare provider number
MRHFP Medicare Rural Hospital Flexibility Program
MRSA Methicillin-resistant Staphylococcus aureus
MSA Metropolitan Statistical Area
MS-DRG Medicare severity diagnosis-related group
MS-LTC-DRG Medicare severity long-term care diagnosis-related group
NAICS North American Industrial Classification System
NALTH National Association of Long Term Hospitals
NCD National coverage determination
NCHS National Center for Health Statistics
NCQA National Committee for Quality Assurance
NCVHS National Committee on Vital and Health Statistics
NECMA New England County Metropolitan Areas
NP Nurse practitioner
NQF National Quality Forum
NTIS National Technical Information Service
NTTAA National Technology Transfer and Advancement Act of 1991 (Pub. 
L. 104-113)
NVHRI National Voluntary Hospital Reporting Initiative
OACT [CMS'] Office of the Actuary
OBRA 86 Omnibus Budget Reconciliation Act of 1996, Public Law 99-509
OES Occupational employment statistics
OIG Office of the Inspector General
OMB Executive Office of Management and Budget
OPM U.S. Office of Personnel Management
O.R. Operating room
OSCAR Online Survey Certification and Reporting [System]
PA Physician assistant
PIP Periodic interim payment
PLI Professional liability insurance
PMSAs Primary metropolitan statistical areas
POA Present on admission
PPACA Patient Protection and Affordable Care Act, Public Law 111-148
PPI Producer price index
PPS Prospective payment system
PRM Provider Reimbursement Manual
ProPAC Prospective Payment Assessment Commission
PRRB Provider Reimbursement Review Board
PRTFs Psychiatric residential treatment facilities
PSF Provider-Specific File
PS&R Provider Statistical and Reimbursement (System)
QIG Quality Improvement Group, CMS
QIO Quality Improvement Organization
RCE Reasonable compensation equivalent
RHC Rural health clinic
RHQDAPU Reporting hospital quality data for annual payment update
RNHCI Religious nonmedical health care institution
RPL Rehabilitation psychiatric long-term care (hospital)
RRC Rural referral center
RTI Research Triangle Institute, International
RUCAs Rural-urban commuting area codes
RY Rate year
SAF Standard Analytic File
SCH Sole community hospital
SFY State fiscal year
SIC Standard Industrial Classification
SNF Skilled nursing facility
SOCs Standard occupational classifications
SOM State Operations Manual
SSN Social Security number
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
UHDDS Uniform hospital discharge data set

Table of Contents

I. Background
    A. Summary
    1. Acute Care Hospital Inpatient Prospective Payment System 
(IPPS)
    2. Hospitals and Hospital Units Excluded from the IPPS
    3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)
    4. Critical Access Hospitals (CAHs)
    5. Payments for Graduate Medical Education (GME)
    B. Provisions of the Patient Protection and Affordable Care Act 
(Pub. L. 111-148) and the Health Care and Education Reconciliation 
Act of 2010 (Pub. L. 111-152)
    C. Provisions of the Preservation of Access to Care for Medicare 
Beneficiaries and Pension Relief Act of 2010 (Pub. L. 111-192)
    D. Issuance of Two Notices of Proposed Rulemaking for FY 2011
    1. Issuance of May 4, 2010 IPPS/LTCH PPS Proposed Rule
    a. Proposed Changes to MS-DRG Classifications and Recalibrations 
of Relative Weights
    b. Proposed Changes to the Hospital Wage Index for Acute Care 
Hospitals
    c. Other Decisions and Proposed Changes to the IPPS for 
Operating Costs and GME Costs
    d. Proposed FY 2011 Policy Governing the IPPS for Capital-
Related Costs
    e. Proposed Changes to the Payment Rates for Certain Excluded 
Hospitals: Rate-of-Increase Percentages
    f. Proposed Changes to the LTCH PPS
    g. Proposed Changes Relating to Effective Date of Provider 
Agreements and Supplier Approvals
    h. Proposed Changes to Medicare Conditions of Participation 
Affecting Hospital Rehabilitation Services and Respiratory Care 
Services
    i. Proposed Changes to the Accreditation Requirements for 
Medicaid Providers of Inpatient Psychiatric Services for Individuals 
under Age 21
    j. Determining Proposed Prospective Payment Operating and 
Capital Rates and Rate-of-Increase Limits for Acute Care Hospitals
    k. Determining Proposed Prospective Payments Rates for LTCHs
    l. Impact Analysis
    m. Recommendation of Update Factors for Operating Cost Rates of 
Payment for Hospital Inpatient Services
    n. Discussion of Medicare Payment Advisory Commission 
Recommendations
    2. Issuance of June 2, 2010 IPPS/LTCH PPS Proposed Rule
    E. Public Comments Received on the FY 2011 IPPS/LTCH Proposed 
Rule and Supplemental Proposed Rule
    F. Finalization of Interim Final Rule with Comment Period That 
Implemented Certain Provisions of the ARRA Relating to Payments to 
LTCHs and LTCH Satellite Facilities
II. Changes to Medicare Severity Diagnosis-Related Group (MS-DRG) 
Classifications and Relative Weights
    A. Background
    B. MS-DRG Reclassifications
    1. General
    2. Yearly Review for Making MS-DRG Changes
    C. Adoption of the MS-DRGs in FY 2008

[[Page 50045]]

    D. FY 2011 MS-DRG Documentation and Coding Adjustment, Including 
the Applicability to the Hospital-Specific Rates and the Puerto 
Rico-Specific Standardized Amount
    1. Background on the Prospective MS-DRG Documentation and Coding 
Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90
    2. Prospective Adjustment to the Average Standardized Amounts 
Required by Section 7(b)(1)(A) of Public Law 110-90
    3. Recoupment or Repayment Adjustments in FYs 2010 through 2012 
Required by Public Law 110-90
    4. Retrospective Evaluation of FY 2008 Claims Data
    5. Retrospective Analysis of FY 2009 Claims Data
    6. Prospective Adjustment for FY 2010 and Subsequent Years 
Authorized by Section 7(b)(1)(A) of Public Law 110-90 and Section 
1886(d)(3)(vi) of the Act
    7. Recoupment or Repayment Adjustment for FY 2010 Authorized by 
Section 7(b)(1)(B) of Public Law 110-90
    8. Background on the Application of the Documentation and Coding 
Adjustment to the Hospital-Specific Rates
    9. Documentation and Coding Adjustment to the Hospital-Specific 
Rates for FY 2011 and Subsequent Fiscal Years
    10. Background on the Application of the Documentation and 
Coding Adjustment to the Puerto Rico-Specific Standardized Amount
    11. Documentation and Coding Adjustment to the Puerto Rico-
Specific Standardized Amount
    E. Refinement of the MS-DRG Relative Weight Calculation
    1. Background
    a. Summary of FY 2009 Changes and Discussion for FY 2011
    b. Summary of the RAND Corporation Study of Alternative Relative 
Weight Methodologies
    2. FY 2011 Changes and Timeline for Changes to the Medicare Cost 
Report
    F. Preventable Hospital-Acquired Conditions (HACs), Including 
Infections
    1. Background
    a. Statutory Authority
    b. HAC Selection
    c. Collaborative Process
    d. Application of HAC Payment Policy to MS-DRG Classifications
    e. Public Input Regarding Selected and Potential Candidate HACs
    f. POA Indicator Reporting
    2. HAC Conditions for FY 2011
    3. RTI Program Evaluation Summary
    a. Background
    b. RTI Analysis on POA Indicator Reporting Across Medicare 
Discharges
    c. RTI Analysis on POA Indicator Reporting of Current HACs
    d. RTI Analysis of Frequency of Discharges and POA Indicator 
Reporting for Current HACs
    e. RTI Analysis of Circumstances When Application of HAC 
Provisions Would Not Result in MS-DRG Reassignment for Current HACs
    f. RTI Analysis of Coding Changes for HAC-Associated Secondary 
Diagnoses for Current HACs
    g. RTI Analysis of Estimated Net Savings for Current HACs
    h. Previously Considered Candidate HACs--RTI Analysis of 
Frequency of Discharges and POA Indicator Reporting
    i. Current and Previously Considered Candidate HACs--RTI Report 
on Evidence-Based Guidelines
    j. Current HACs and Previously Considered Candidate HACs
    G. Changes to Specific MS-DRG Classifications
    1. Pre-Major Diagnostic Categories (MDCs)
    a. Postsurgical Hypoinsulinemia (MS-DRG 008 (Simultaneous 
Pancreas/Kidney Transplant))
    b. Bone Marrow Transplants
    2. MDC 1 (Nervous System): Administration of Tissue Plasminogen 
Activator (tPA) (rtPA)
    3. MDC 5 (Diseases and Disorders of the Circulatory System): 
Intraoperative Fluorescence Vascular Angiography (IFVA) and X-Ray 
Coronary Angiography in Coronary Artery Bypass Graft Surgery
    a. New MS-DRGs for Intraoperative Fluorescence Vascular 
Angiography (IFVA) with CABG
    b. New MS-DRG for Intraoperative Angiography, by any Method, 
with CABG
    c. New Procedure Codes
    d. MS-DRG Reassignment of Intraoperative Fluorescence Vascular 
Angiography (IFVA)
    4. MDC 6 (Diseases and Disorders of the Digestive System): 
Gastrointestinal Stenting
    5. MDC 8 (Diseases and Disorders of the Musculoskeletal System 
and Connective Tissue): Pedicle-Based Dynamic Stabilization
    6. MDC 15 (Newborns and Other Neonates with Conditions 
Originating in the Perinatal Period)
    a. Discharges/Transfers of Neonates to a Designated Cancer 
Center or a Children's Hospital
    b. Vaccination of Newborns
    7. Medicare Code Editor (MCE) Changes
    a. Unacceptable Principal Diagnosis Edit: Addition of Code for 
Gastroparesis
    b. Open Biopsy Check Edit
    c. Noncovered Procedure Edit
    8. Surgical Hierarchies
    9. Complication or Comorbidity (CC) Exclusions List
    a. Background
    b. CC Exclusions List for FY 2011
    10. Review of Procedure Codes in MS-DRGs 981 through 983, 984 
through 986, and 987 through 989
    a. Moving Procedure Codes from MS-DRGs 981 through 983 or MS-
DRGs 987 through 989 to MDCs
    b. Reassignment of Procedures among MS-DRGs 981 through 983, 984 
through 986, and 987 through 989
    c. Adding Diagnosis or Procedure Codes to MDCs
    11. Changes to the ICD-9-CM Coding System, Including Discussion 
of the Replacement of the ICD-9-CM System with the ICD-10-CM and 
ICD-10-PCS Systems in FY 2014
    a. ICD-9-CM Coding System
    b. Code Freeze
    c. Processing of 25 Diagnosis Codes and 25 Procedure Codes on 
Hospital Inpatient Claims
    12. Other Issues Not Addressed in the Proposed Rule
    a. Rechargeable Dual Array Deep Brain Stimulation System
    b. IntraOperative Electron RadioTherapy (IOERT)
    c. Brachytherapy
    d. Excisional Debridement
    H. Recalibration of MS-DRG Weights
    I. Add-On Payments for New Services and Technologies
    1. Background
    2. Public Input Before Publication of a Notice of Proposed 
Rulemaking on Add-On Payments
    3. FY 2011 Status of Technologies Approved for FY 2010 Add-On 
Payments
    a. Spiration[supreg] IBV[supreg] Valve System
    b. CardioWestTM Temporary Total Artificial Heart 
System (CardioWestTM TAH-t)
    4. FY 2011 Applications for New Technology Add-On Payments
    a. Auto Laser Interstitial Thermal Therapy 
(AutoLITTTM) System
    b. LipiScanTM Coronary Imaging System
    c. LipiScanTM Coronary Imaging System with 
Intravascular Ultrasound (IVUS)
III. Changes to the Hospital Wage Index for Acute Care Hospitals
    A. Background
    B. Wage Index Reform
    1. Wage Index Study Required under the MIEA-TRHCA
    a. Legislative Requirement
    b. Interim and Final Reports on Results of Acumen's Study
    2. FY 2009 Policy Changes in Response to Requirements under 
Section 106(b) of the MIEA-TRHCA
    a. Reclassification Average Hourly Wage Comparison Criteria
    b. Budget Neutrality Adjustment for the Rural and Imputed Floors
    3. Floor for Area Wage Index for Hospitals in Frontier States
    4. Plan for Reforming the Wage Index under Section 3137(b) of 
Affordable Care Act
    C. Core-Based Statistical Areas for the Hospital Wage Index
    D. Occupational Mix Adjustment to the FY 2011 Wage Index
    1. Development of Data for the FY 2011 Occupational Mix 
Adjustment Based on the 2007-2008 Occupational Mix Survey
    2. New 2010 Occupational Mix Survey for the FY 2013 Wage Index
    3. Calculation of the Occupational Mix Adjustment for FY 2011
    E. Worksheet S-3 Wage Data for the FY 2011 Wage Index
    1. Included Categories of Costs
    2. Excluded Categories of Costs
    3. Use of Wage Index Data by Providers Other Than Acute Care 
Hospitals under the IPPS
    F. Verification of Worksheet S-3 Wage Data
    G. Method for Computing the FY 2011 Unadjusted Wage Index
    H. Analysis and Implementation of the Occupational Mix 
Adjustment and the

[[Page 50046]]

FY 2011 Occupational Mix Adjusted Wage Index
    I. Revisions to the Wage Index Based on Hospital Redesignations 
and Reclassifications
    1. General
    2. Effects of Reclassification/Redesignation
    3. FY 2011 MGCRB Reclassifications
    a. FY 2011 Reclassification Requirements and Approvals
    b. Applications for Reclassifications for FY 2012
    c. Appeals of MGCRB Denials of Withdrawals and Terminations
    4. Redesignations of Hospitals under Section 1886(d)(8)(B) of 
the Act
    5. Reclassifications under Section 1886(d)(8)(B) of the Act
    6. Reclassifications under Section 508 of Public Law 108-173
    J. FY 2011 Wage Index Adjustment Based on Commuting Patterns of 
Hospital Employees
    K. Process for Requests for Wage Index Data Corrections
    L. Labor-Market Share for the FY 2011 Wage Index
IV. Other Decisions and Changes to the IPPS for Operating Costs and 
GME Costs
    A. Reporting of Hospital Quality Data for Annual Hospital 
Payment Update
    1. Background
    a. Overview
    b. Hospital Quality Data Reporting under Section 501(b) of 
Public Law 108-173
    c. Hospital Quality Data Reporting under Section 5001(a) of 
Public Law 109-171
    d. Hospital Quality Data Reporting under Section 3001(a)(2) and 
3401(a)(2) of Public Law 111-148
    e. Quality Measures
    f. Maintenance of Technical Specifications for Quality Measures
    g. Public Display of Quality Measures
    2. Retirement of RHQDAPU Program Measures
    a. Considerations in Retiring Quality Measures from the RHQDAPU 
Program
    b. Retirement of Quality Measures under the RHQDAPU Program for 
the FY 2011 Payment Determination and Subsequent Years
    3. Expansion Plan for Quality Measures for the FY 2012, FY 2013, 
and FY 2014 Payment Determinations
    a. Considerations in Expanding and Updating Quality Measures 
under the RHQDAPU Program
    b. RHQDAPU Program Quality Measures for the FY 2012 Payment 
Determination
    c. RHQDAPU Program Quality Measures for the FY 2013 Payment 
Determination
    d. RHQDAPU Program Quality Measures for the FY 2014 Payment 
Determination
    4. Possible New Quality Measures for Future Years
    5. Form, Manner, and Timing of Quality Data Submission
    a. RHQDAPU Program Requirements for FY 2012, FY 2013, and FY 
2014
    b. Additional RHQDAPU Program Procedural Requirements for FY 
2012, FY 2013, and FY 2014 Payment Determinations
    6. RHQDAPU Program Disaster Extensions and Waivers
    7. Chart Validation Requirements for Chart-Abstracted Measures
    a. Chart Validation Requirements and Methods for the FY 2012 
Payment Determination
    b. Supplements to the Chart Validation Process for the FY 2013 
Payment Determination and Subsequent Years
    8. Data Accuracy and Completeness Acknowledgement Requirements 
for the FY 2012 Payment Determination and Subsequent Years
    9. Public Display Requirements for the FY 2012 Payment 
Determination and Subsequent Years
    10. Reconsideration and Appeal Procedures for the FY 2011 
Payment Determination
    11. RHQDAPU Program Withdrawal Deadlines
    12. Electronic Health Records
    a. Background
    b. EHR Testing of Quality Measures Submission
    c. HITECH Act EHR Provisions
    13. Qualification of Registries for RHQDAPU Data Submission
    14. RHQDAPU and Hospital Value-Based Purchasing
    B. Payment for Transfers of Cases from Medicare Participating 
Acute Care Hospitals to Nonparticipating Hospitals and CAHs
    1. Background
    2. Policy Change
    C. Rural Referral Centers (RRCs)
    1. Case-Mix Index (CMI)
    2. Discharges
    D. Payment Adjustment for Low-Volume Hospitals
    1. Background
    2. Temporary Changes for FYs 2011 and 2012
    E. Indirect Medical Education (IME) Adjustment
    1. Background
    2. IME Adjustment Factor for FY 2011
    3. IME-Related Changes in Other Sections of this Final Rule
    F. Payment Adjustment for Medicare Disproportionate Share 
Hospitals (DSHs): Supplemental Security Income (SSI) Fraction
    1. Background
    2. CMS' Current Data Matching Process for the SSI Fraction
    3. Baystate Medical Center v. Leavitt Court Decision
    4. CMS' Proposed Process for Matching Medicare and SSI 
Eligibility Data
    a. Inclusion of Stale Records and Forced Pay Records in the SSI 
Eligibility Data Files
    b. Use of SSNs in the Revised Match Process
    c. Timing of the Match
    5. CMS Ruling 1498-R
    6. Clarification of Language on Inclusion of Medicare Advantage 
Days in the SSI Fraction of the Medicare DSH Calculation
    G. Medicare-Dependent, Small Rural Hospitals (MDHs): Change to 
Criteria
    1. Background
    2. Medicare-Dependency: Counting Medicare Inpatients
    3. Extension of the MDH Program
    H. Payments for Direct Graduate Medical Education (GME) Costs
    1. Background
    2. Identifying ``Approved Medical Residency Programs''
    a. Residents in Approved Medical Residency Programs
    b. Determining Whether an Individual Is a Resident or a 
Physician
    c. Formal Enrollment and Participation in a Program
    3. Electronic Submission of Affiliation Agreements
    I. Certified Registered Nurse Anesthetist (CRNA) Services 
Furnished in Rural Hospitals and CAHs
    J. Additional Payments for Qualifying Hospitals with Lowest Per 
Enrollee Medicare Spending
    1. Background
    2. Eligible Counties
    a. Development of Risk Adjustment Model
    b. Calculation of County Level Part A and Part B Spending
    3. Application of the Age/Sex/Race Adjustment to Part A and Part 
B County Spending
    4. Qualifying Hospitals and Annual Payment Amounts
    5. Payment Determination and Distribution
    6. Hospital Weighting Factors
    7. Results
    8. Finalization of Eligible Counties, Qualifying Hospitals and 
Qualifying Hospitals' Weighting Factors
    K. Rural Community Hospital Demonstration Program
    L. Technical Change to Regulations
    M. Interim Final Rule with Comment Period: Bundling of Payments 
for Services Provided to Outpatients Who Later Are Admitted As 
Inpatients: 3-Day Payment Window
    1. Introduction
    2. Background for Policy
    3. Requirements of Section 102 of Public Law 111-192
    4. Application of the Provisions of Section 102 of Public Law 
111-192
    5. Waiver of Notice of Proposed Rulemaking
    6. Collection of Information Requirements
    7. Response to Public Comments
    8. Regulatory Impact Analysis
    N. Changes in the Inpatient Hospital Market Basket Update
    1. FY 2010 Inpatient Hospital Update
    2. FY 2011 Inpatient Hospital Update
    3. FY 2010 and FY 2011 Puerto Rico Hospital Update
V. Changes to the IPPS for Capital-Related Costs
    A. Overview
    B. Exception Payments
    C. New Hospitals
    D. Hospitals Located in Puerto Rico
    E. Changes for FY 2011: MS-DRG Documentation and Coding 
Adjustment
    1. Background on the Prospective MS-DRG Documentation and Coding 
Adjustments for FY 2008 and FY 2009
    2. Retrospective Evaluation of FY 2008 Claims Data
    3. Retrospective Analysis of FY 2009 Claims Data

[[Page 50047]]

    4. Prospective MS-DRG Documentation and Coding Adjustment to the 
National Capital Federal Rate for FY 2011 and Subsequent Years
    5. Documentation and Coding Adjustment to the Puerto Rico-
Specific Capital Rate
    F. Other Changes for FY 2011
VI. Changes for Hospitals Excluded from the IPPS
    A. Excluded Hospitals
    B. Critical Access Hospitals (CAHs)
    1. Background
    2. CAH Optional Method Election for Payment of Outpatient 
Services
    3. Costs of Provider Taxes as Allowable Costs for CAHs
    a. Background and Statutory Basis
    b. Clarification of Payment Policy for Provider Taxes
    C. Report of Adjustment (Exceptions) Payments
VII. Changes to the Long-Term Care Hospital Prospective Payment 
System (LTCH PPS) for FY 2011
    A. Background of the LTCH PPS
    1. Legislative and Regulatory Authority
    2. Criteria for Classification as a LTCH
    a. Classification as a LTCH
    b. Hospitals Excluded from the LTCH PPS
    3. Limitation on Charges to Beneficiaries
    4. Administrative Simplification Compliance Act (ASCA) and 
Health Insurance Portability and Accountability Act (HIPAA) 
Compliance
    B. Medicare Severity Long-Term Care Diagnosis-Related Group (MS-
LTC-DRG) Classifications and Relative Weights
    1. Background
    2. Patient Classifications into MS-LTC-DRGs
    a. Background
    b. Changes to the MS-LTC-DRGs for FY 2011
    3. Development of the FY 2011 MS-LTC-DRG Relative Weights
    a. General Overview of the Development of the MS-LTC-DRG 
Relative Weights
    b. Development of the MS-LTC-DRG Relative Weights for FY 2011
    c. Data
    d. Hospital-Specific Relative Value (HSRV) Methodology
    e. Treatment of Severity Levels in Developing the MS-LTC-DRG 
Relative Weights
    f. Low-Volume MS-LTC-DRGs
    g. Steps for Determining the RY 2011 MS-LTC-DRG Relative Weights
    C. Changes to the LTCH Payment Rates and Other Changes to the FY 
2011 LTCH PPS
    1. Overview of Development of the LTCH Payment Rates
    2. Market Basket for LTCHs Reimbursed under the LTCH PPS
    a. Overview
    b. Revision of Certain Market Basket Updates as Required by the 
Affordable Care Act
    c. Changes to Reflect the Market Basket Update for LTCHs for RY 
2010
    d. Market Basket under the LTCH PPS for FY 2011
    e. Market Basket Update for LTCHs for FY 2011
    f. Labor-Related Share under the LTCH PPS for FY 2011
    3. Adjustment for Changes in LTCHs' Case-Mix Due to Changes in 
Documentation and Coding Practices That Occurred in a Prior Period
    a. Background
    b. Evaluation of FY 2009 Claims Data
    c. FY 2011 Documentation and Coding Adjustment
    D. Change in Terminology from ``Rate Year'' to ``Fiscal Year'' 
and Other Changes
    E. Finalization of Interim Final Rule with Comment Period 
Implementing Section 4302 of the American Recovery and Reinvestment 
Act of 2009 (Pub. L. 111-5) Relating to Payments to LTCHs and LTCH 
Satellite Facilities
    1. Background
    2. Amendments Relating to Payment Adjustment to LTCHs and LTCH 
Satellite Facilities Made by Section 4302 of the ARRA
    3. Amendment to the Moratorium on the Increase in Number of Beds 
in Existing LTCHs or LTCH Satellite Facilities Made by Section 4302 
of the ARRA
    F. Extension of Certain Payment Rules for LTCH Services and 
Moratorium on the Establishment of Certain Hospitals and Facilities 
and the Increase in Number of Beds in Existing LTCHs and LTCH 
Satellite Facilities
VIII. Determination of Effective Date of Provider Agreements and 
Supplier Approvals
    A. Background
    B. Departmental Appeals Board Decision
    C. Revisions to Regulations
IX. Medicare Hospital Conditions of Participation Affecting 
Rehabilitation Services and Respiratory Care Services
X. Changes to the Accreditation Requirements for Medicaid Providers 
of Inpatient Psychiatric Services for Individuals under Age 21
    A. Background
    B. Revision of Policy and Regulations
XI. MedPAC Recommendations
XII. Other Required Information
    A. Requests for Data from the Public
    B. Collection of Information Requirements
    1. Legislative Requirement for Solicitation of Comments
    2. Requirements in Regulation Text
    a. ICRs Regarding Withdrawing an Application, Terminating an 
Approved 3 Year Reclassification, or Canceling a Previous Withdrawal 
or Termination (Revised Sec.  412.273)
    b. ICRs Regarding Condition of Participation: Respiratory Care 
Services (Sec.  482.57)
    3. Additional Information Collection Requirements
    a. Present on Admission (POA) Indicator Reporting
    b. Add-On Payments for New Services and Technologies
    c. Reporting of Hospital Quality Data for Annual Hospital 
Payment Update
    d. Occupational Mix Adjustment to the FY 2011 Index (Hospital 
Wage Index Occupational Mix Survey)
    e. Hospital Applications for Geographic Reclassifications by the 
MGCRB
    f. Direct GME Payments: General Requirements
Regulation Text
Addendum--Schedule of Standardized Amounts, Update Factors, and 
Rate-of-Increase Percentages Effective with Cost Reporting Periods 
Beginning on or after October 1, 2010
I. Summary and Background
II. Changes to the Prospective Payment Rates for Hospital Inpatient 
Operating Costs for Acute Care Hospitals for FY 2011
    A. Calculation of the Adjusted Standardized Amount
    B. Adjustments for Area Wage Levels and Cost-of-Living
    C. MS-DRG Relative Weights
    D. Calculation of the Prospective Payment Rates
III. Changes to Payment Rates for Acute Care Hospital Inpatient 
Capital-Related Costs for FY 2011
    A. Determination of Federal Hospital Inpatient Capital-Related 
Prospective Payment Rate Update
    B. Calculation of the Inpatient Capital-Related Prospective 
Payments for FY 2011
    C. Capital Input Price Index
IV. Changes to Payment Rates for Certain Excluded Hospitals: Rate-
of-Increase Percentages
V. Changes to the Payment Rates for the LTCH PPS for FY 2011
    A. LTCH PPS Standard Federal Rate for FY 2011
    B. Adjustment for Area Wage Levels under the LTCH PPS for FY 
2011
    C. Adjustment for LTCH PPS High-Cost Outlier (HCO) Cases
    D. Computing the Adjusted LTCH PPS Federal Prospective Payments 
for FY 2011
VI. Tables
    Table 1A--National Adjusted Operating Standardized Amounts, 
Labor/Nonlabor (68.8 Percent Labor Share/31.2 Percent Nonlabor Share 
If Wage Index Is Greater Than 1)
    Table 1B--National Adjusted Operating Standardized Amounts, 
Labor/Nonlabor (62 Percent Labor Share/38 Percent Nonlabor Share If 
Wage Index Is Less Than or Equal to 1)
    Table 1C--Adjusted Operating Standardized Amounts for Puerto 
Rico, Labor/Nonlabor
    Table 1D--Capital Standard Federal Payment Rate
    Table 1E--LTCH Standard Federal Prospective Payment Rate
    Table 2--Acute Care Hospitals Case-Mix Indexes for Discharges 
Occurring in Federal Fiscal Year 2009; Hospital Wage Indexes for 
Federal Fiscal Year 2011; Hospital Average Hourly Wages for Federal 
Fiscal Years 2009 (2005 Wage Data), 2010 (2006 Wage Data), and 2011 
(2007 Wage Data); and 3-Year Average of Hospital Average Hourly 
Wages
    Table 3A--FY 2011 and 3-Year Average Hourly Wage for Acute Care 
Hospitals in Urban Areas by CBSA
    Table 3B--FY 2011 and 3-Year Average Hourly Wage for Acute Care 
Hospitals in Rural Areas by CBSA
    Table 4A.--Wage Index and Capital Geographic Adjustment Factor 
(GAF) for

[[Page 50048]]

Acute Care Hospitals in Urban Areas by CBSA and by State--FY 2011
    Table 4B.--Wage Index and Capital Geographic Adjustment Factor 
(GAF) for Acute Care Hospitals in Rural Areas by CBSA and by State--
FY 2011
    Table 4C.--Wage Index and Capital Geographic Adjustment Factor 
(GAF) for Acute Care Hospitals That Are Reclassified by CBSA and by 
State--FY 2011
    Table 4D-1 (This table is discontinued due to section 3141 of 
the Affordable Care Act returning the rural floor budget neutrality 
to a uniform national adjustment.)
    Table 4D-2.--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 Statewide 
Rural Floor or Imputed Floor Wage Index--FY 2011
    Table 4E.--Urban CBSAs and Constituent Counties for Acute Care 
Hospitals--FY 2011
    Table 4F.--Puerto Rico Wage Index and Capital Geographic 
Adjustment Factor (GAF) for Acute Care Hospitals by CBSA--FY 2011
    Table 4J.--Out-Migration Adjustment for Acute Care Hospitals--FY 
2011
    Table 5.--List of Medicare Severity Diagnosis-Related Groups 
(MS-DRGs), Relative Weighting Factors, and Geometric and Arithmetic 
Mean Length of Stay--FY 2011
    Table 6A.--New Diagnosis Codes
    Table 6B.--New Procedure Codes
    Table 6C.--Invalid Diagnosis Codes
    Table 6D.--Invalid Procedure Codes
    Table 6E.--Revised Diagnosis Code Titles
    Table 6F.--Revised Procedure Code Titles
    Table 6G.--Additions to the CC Exclusions List (Available 
through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/)
    Table 6H.--Deletions from the CC Exclusions List (Available 
through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/)
    Table 6I.--Complete List of Complication and Comorbidity (CC) 
Exclusions (Available only through the Internet on the CMS Web site 
at: http://www.cms.hhs.gov/AcuteInpatientPPS/)
    Table 6J.--Major Complication and Comorbidity (MCC) List 
(Available through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/)
    Table 6K.--Complication and Comorbidity (CC) List (Available 
through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/)
    Table 7A.--Medicare Prospective Payment System Selected 
Percentile Lengths of Stay: FY 2009 MedPAR Update--March 2010 
GROUPER V27.0 MS-DRGs
    Table 7B.--Medicare Prospective Payment System Selected 
Percentile Lengths of Stay: FY 2009 MedPAR Update--March 2010 
GROUPER V28.0 MS-DRGs
    Table 8A.--Statewide Average Operating Cost-to-Charge Ratios 
(CCRs) for Acute Care Hospitals--July 2010
    Table 8B.--Statewide Average Capital Cost-to-Charge Ratios 
(CCRs) for Acute Care Hospitals--July 2010
    Table 8C.--Statewide Average Total Cost-to-Charge Ratios (CCRs) 
for LTCHs--July 2010
    Table 9A.--Hospital Reclassifications and Redesignations--FY 
2011
    Table 9C.--Hospitals Redesignated as Rural under Section 
1886(d)(8)(E) of the Act--FY 2011
    Table 10.--Geometric Mean Plus the Lesser of .75 of the National 
Adjusted Operating Standardized Payment Amount (Increased To Reflect 
the Difference Between Costs and Charges) or .75 of One Standard 
Deviation of Mean Charges by Medicare Severity Diagnosis-Related 
Groups (MS-DRGs)--July 2010
    Table 11.--MS-LTC-DRGs, Relative Weights, Geometric Average 
Length of Stay, Short-Stay Outlier Threshold, and IPPS Comparable 
Threshold for Discharges Occurring from October 1, 2010 through 
September 30, 2011 under the LTCH PPS
    Table 12A.--LTCH PPS Wage Index for Urban Areas for Discharges 
Occurring from October 1, 2010 through September 30, 2011
    Table 12B.--LTCH PPS Wage Index for Rural Areas for Discharges 
Occurring from October 1, 2010 through September 30, 2011
Appendix A--Regulatory Impact Analysis
I. Overall Impact
II. Objectives of the IPPS
III. Limitations of Our Analysis
IV. Hospitals Included in and Excluded from the IPPS
V. Effects on Hospitals and Hospital Units Excluded from the IPPS
VI. Quantitative Effects of the Policy Changes under the IPPS for 
Operating Costs
    A. Basis and Methodology of Estimates
    B. Analysis of Table I
    C. Effects of the Changes to the MS-DRG Reclassifications and 
Relative Cost-Based Weights (Column 1)
    D. Effects of the Application of Recalibration Budget Neutrality 
(Column 2)
    E. Effects of Wage Index Changes (Column 3)
    F. Application of the Wage Budget Neutrality Factor (Column 4)
    G. Combined Effects of MS-DRG and Wage Index Changes (Column 5)
    H. Effects of MGCRB Reclassifications (Column 6)
    I. Effects of the Rural Floor and Imputed Floor, Including 
Application of Budget Neutrality at the State Level (Column 7)
    J. Effects of the Wage Index Adjustment for Out-Migration 
(Column 8)
    K. Effects of All Changes Prior to Documentation and Coding (Or 
CMI) Adjustment (Column 9)
    L. Effects of All Changes With CMI Adjustment (Column 10)
    M. Effects of Policy on Payment Adjustments for Low-Volume 
Hospitals
    N. Impact Analysis of Table II
VII. Effects of Other Policy Changes
    A. Effects of Policy on HACs, Including Infections
    B. Effects of Policy Changes Relating to New Medical Service and 
Technology Add-On Payments
    C. Effects of Requirements for Hospital Reporting of Quality 
Data for Annual Hospital Payment Update
    D. Effects of Policy on Payment for Transfer Cases from Medicare 
Participating Hospitals to Nonparticipating Hospitals and CAHs
    E. Effects of Change in Criteria for MDHs
    F. Effects of Change Relating to Payment Adjustment for 
Disproportionate Share Hospitals
    G. Effects of Changes Relating to Payments for IME and Direct 
GME
    1. Background
    2. Identifying ``Approved Medical Residency Programs''
    3. Submission of Electronic Affiliation Agreements
    4. Technical Correction to the Regulations Relating to the Cost 
of Approved Nursing and Allied Health Education Activities
    H. Effects of Changes Relating to CRNA Services Furnished in 
Rural Hospitals and CAHs
    I. Effects of Implementation of Rural Community Hospital 
Demonstration Program
    J. Effects of Changes Relating to CAHs
    1. CAH Optional Method of Payment for Outpatient Services
    2. Consideration of Costs of Provider Taxes as Allowable Costs 
for CAHs
    K. Effects of Policy Relating to Effective Date of Provider 
Agreements and Supplier Approvals
    L. Effects of Changes Relating to Hospital Rehabilitation 
Services and Respiratory Care Services Conditions of Participation
VIII. Effects of Changes in the Capital IPPS
    A. General Considerations
    B. Results
IX. Effects of Payment Rate Changes and Policy Changes under the 
LTCH PPS
    A. Introduction and General Considerations
    B. Impact on Rural Hospitals
    C. Anticipated Effects of LTCH PPS Payment Rate Change and 
Policy Changes
    D. Effect on the Medicare Program
    E. Effect on Medicare Beneficiaries
X. Effects of Policy Changes Relating to Accreditation Requirements 
for Medicaid Providers of Inpatient Psychiatric Services to 
Individuals under Age 21
XI. Alternatives Considered
XII. Overall Conclusion
    A. Acute Care Hospitals
    B. LTCHs
XIII. Accounting Statements
    A. Acute Care Hospitals
    B. LTCHs
XIV. Executive Order 12866
Appendix B--Recommendation of Update Factors for Operating Cost 
Rates of Payment for Inpatient Hospital Services
I. Background
II. Inpatient Hospital Update for FY 2011
III. Secretary's Recommendation
IV. MedPAC Recommendation for Assessing Payment Adequacy and 
Updating Payments in Traditional Medicare

[[Page 50049]]

I. Background

A. Summary

1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)
    Section 1886(d) of the Social Security Act (the Act) sets forth a 
system of payment for the operating costs of acute care hospital 
inpatient stays under Medicare Part A (Hospital Insurance) based on 
prospectively set rates. Section 1886(g) of the Act requires the 
Secretary to pay for the capital-related costs of hospital inpatient 
stays under a prospective payment system (PPS). Under these PPSs, 
Medicare payment for hospital inpatient operating and capital-related 
costs is made at predetermined, specific rates for each hospital 
discharge. Discharges are classified according to a list of diagnosis-
related groups (DRGs).
    The base payment rate is comprised of a standardized amount that is 
divided into a labor-related share and a nonlabor-related share. The 
labor-related share is adjusted by the wage index applicable to the 
area where the hospital is located. If the hospital is located in 
Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of-
living adjustment factor. This base payment rate is multiplied by the 
DRG relative weight.
    If the hospital treats a high percentage of low-income patients, it 
receives a percentage add-on payment applied to the DRG-adjusted base 
payment rate. This add-on payment, known as the disproportionate share 
hospital (DSH) adjustment, provides for a percentage increase in 
Medicare payments to hospitals that qualify under either of two 
statutory formulas designed to identify hospitals that serve a 
disproportionate share of low-income patients. For qualifying 
hospitals, the amount of this adjustment may vary based on the outcome 
of the statutory calculations.
    If the hospital is an approved teaching hospital, it receives a 
percentage add-on payment for each case paid under the IPPS, known as 
the indirect medical education (IME) adjustment. This percentage 
varies, depending on the ratio of residents to beds.
    Additional payments may be made for cases that involve new 
technologies or medical services that have been approved for special 
add-on payments. To qualify, a new technology or medical service must 
demonstrate that it is a substantial clinical improvement over 
technologies or services otherwise available, and that, absent an add-
on payment, it would be inadequately paid under the regular DRG 
payment.
    The costs incurred by the hospital for a case are evaluated to 
determine whether the hospital is eligible for an additional payment as 
an outlier case. This additional payment is designed to protect the 
hospital from large financial losses due to unusually expensive cases. 
Any eligible outlier payment is added to the DRG-adjusted base payment 
rate, plus any DSH, IME, and new technology or medical service add-on 
adjustments.
    Although payments to most hospitals under the IPPS are made on the 
basis of the standardized amounts, some categories of hospitals are 
paid in whole or in part based on their hospital-specific rate based on 
their costs in a base year. For example, sole community hospitals 
(SCHs) receive the higher of a hospital-specific rate based on their 
costs in a base year (the highest of FY 1982, FY 1987, FY 1996, or FY 
2006) or the IPPS Federal rate based on the standardized amount. 
Through and including FY 2006, a Medicare-dependent, small rural 
hospital (MDH) received the higher of the Federal rate or the Federal 
rate plus 50 percent of the amount by which the Federal rate is 
exceeded by the higher of its FY 1982 or FY 1987 hospital-specific 
rate. As discussed below, for discharges occurring on or after October 
1, 2007, but before October 1, 2012, an MDH will receive the higher of 
the Federal rate or the Federal rate plus 75 percent of the amount by 
which the Federal rate is exceeded by the highest of its FY 1982, FY 
1987, or FY 2002 hospital-specific rate. SCHs are the sole source of 
care in their areas, and MDHs are a major source of care for Medicare 
beneficiaries in their areas. Specifically, section 1886(d)(5)(D)(iii) 
of the Act defines an SCH as a hospital that is located more than 35 
road miles from another hospital or that, by reason of factors such as 
isolated location, weather conditions, travel conditions, or absence of 
other like hospitals (as determined by the Secretary), is the sole 
source of hospital inpatient services reasonably available to Medicare 
beneficiaries. In addition, certain rural hospitals previously 
designated by the Secretary as essential access community hospitals are 
considered SCHs. Section 1886(d)(5)(G)(iv) of the Act defines an MDH as 
a hospital that is located in a rural area, has not more than 100 beds, 
is not an SCH, and has a high percentage of Medicare discharges (not 
less than 60 percent of its inpatient days or discharges in its cost 
reporting year beginning in FY 1987 or in two of its three most 
recently settled Medicare cost reporting years). Both of these 
categories of hospitals are afforded this special payment protection in 
order to maintain access to services for beneficiaries.
    Section 1886(g) of the Act requires the Secretary to pay for the 
capital-related costs of inpatient hospital services ``in accordance 
with a prospective payment system established by the Secretary.'' The 
basic methodology for determining capital prospective payments is set 
forth in our regulations at 42 CFR 412.308 and 412.312. Under the 
capital IPPS, payments are adjusted by the same DRG for the case as 
they are under the operating IPPS. Capital IPPS payments are also 
adjusted for IME and DSH, similar to the adjustments made under the 
operating IPPS. In addition, hospitals may receive outlier payments for 
those cases that have unusually high costs.
    The existing regulations governing payments to hospitals under the 
IPPS are located in 42 CFR part 412, subparts A through M.
2. Hospitals and Hospital Units Excluded From the IPPS
    Under section 1886(d)(1)(B) of the Act, as amended, certain 
hospitals and hospital units are excluded from the IPPS. These 
hospitals and units are: Rehabilitation hospitals and units; long-term 
care hospitals (LTCHs); psychiatric hospitals and units; children's 
hospitals; and cancer hospitals. Religious nonmedical health care 
institutions (RNHCIs) are also excluded from the IPPS. Various sections 
of the Balanced Budget Act of 1997 (BBA, Pub. L. 105-33), the Medicare, 
Medicaid and SCHIP [State Children's Health Insurance Program] Balanced 
Budget Refinement Act of 1999 (BBRA, Pub. L. 106-113), and the 
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act 
of 2000 (BIPA, Pub. L. 106-554) provide for the implementation of PPSs 
for rehabilitation hospitals and units (referred to as inpatient 
rehabilitation facilities (IRFs)), LTCHs, and psychiatric hospitals and 
units (referred to as inpatient psychiatric facilities (IPFs)). (We 
note that the annual updates to the LTCH PPS are now included as part 
of the IPPS annual update document. Updates to the IRF PPS and IPF PPS 
are issued as separate documents.) Children's hospitals, cancer 
hospitals, and RNHCIs continue to be paid solely under a reasonable 
cost-based system subject to a rate-of-increase ceiling on inpatient 
operating costs per discharge.
    The existing regulations governing payments to excluded hospitals 
and hospital units are located in 42 CFR parts 412 and 413.

[[Page 50050]]

3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)
    The Medicare prospective payment system (PPS) for LTCHs applies to 
hospitals described in section 1886(d)(1)(B)(iv) effective for cost 
reporting periods beginning on or after October 1, 2002. The LTCH PPS 
was established under the authority of sections 123(a) and (c) of 
Public Law 106-113 and section 307(b)(1) of Public Law 106-554 (as 
codified under section 1886(m)(1) of the Act). During the 5-year 
(optional) transition period, a LTCH's payment under the PPS was based 
on an increasing proportion of the LTCH Federal rate with a 
corresponding decreasing proportion based on reasonable cost 
principles. Effective for cost reporting periods beginning on or after 
October 1, 2006, all LTCHs are paid 100 percent of the Federal rate. 
The existing regulations governing payment under the LTCH PPS are 
located in 42 CFR part 412, subpart O. Beginning October 1, 2009, we 
issue the annual updates to the LTCH PPS in the same documents that 
update the IPPS (73 FR 26797 through 26798).
4. Critical Access Hospitals (CAHs)
    Under sections 1814(l), 1820, and 1834(g) of the Act, payments are 
made to critical access hospitals (CAHs) (that is, rural hospitals or 
facilities that meet certain statutory requirements) for inpatient and 
outpatient services are generally based on 101 percent of reasonable 
cost. Reasonable cost is determined under the provisions of section 
1861(v)(1)(A) of the Act and existing regulations under 42 CFR parts 
413 and 415.
5. Payments for Graduate Medical Education (GME)
    Under section 1886(a)(4) of the Act, costs of approved educational 
activities are excluded from the operating costs of inpatient hospital 
services. Hospitals with approved graduate medical education (GME) 
programs are paid for the direct costs of GME in accordance with 
section 1886(h) of the Act. The amount of payment for direct GME costs 
for a cost reporting period is based on the hospital's number of 
residents in that period and the hospital's costs per resident in a 
base year. The existing regulations governing payments to the various 
types of hospitals are located in 42 CFR part 413.

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

    On March 23, 2010, the Patient Protection and Affordable Care Act 
(PPACA), Public Law 111-148 was enacted. Following the enactment of 
Public Law 111-148, the Health Care and Education Reconciliation Act of 
2010, Public Law 111-152 (enacted on March 30, 2010), amended certain 
provisions of Public Law 111-148 and certain sections of the Social 
Security Act, and, in certain instances, included certain 
``freestanding'' provisions that affect implementation of the IPPS and 
the LTCH PPS. (Pub. L. 111-148 and Pub. L. 111-152 are collectively 
referred to as the ``Affordable Care Act.'') A number of the provisions 
of the Affordable Care Act affected the updates to the IPPS and the 
LTCH PPS and the providers and suppliers that were addressed in the FY 
2011 IPPS/LTCH PPS proposed rule that appeared in the Federal Register 
on May 4, 2010 (75 FR 23852). However, due to the timing of the passage 
of the legislation, we were unable to address those provisions in the 
May 4, 2010 proposed rule. Therefore, on June 2, 2010, we issued in the 
Federal Register two additional documents:
    1. A supplemental proposed rule (75 FR 30918) to the FY 2010 IPPS/
LTCH PPS proposed rule published on May 4, 2010, that proposed to 
implement certain provisions of the Affordable Care Act. These proposed 
provisions are outlined in section I.D.2. of this final rule, and are 
being finalized in the appropriate subject-matter sections of this 
final rule.
    2. A notice (75 FR 31118) that contained the final wage indices, 
hospital reclassifications, payment rates, impacts, and other related 
tables, effective for the FY 2010 IPPS and the RY 2010 LTCH PPS, that 
were required by or directly resulted from implementation of provisions 
of the Affordable Care Act.

C. Provisions of the Preservation of Access To Care for Medicare 
Beneficiaries and Pension Relief Act of 2010 (Pub. L. 111-192)

    On June 25, 2010, the Preservation of Access to Care for Medicare 
Beneficiaries and Pension Relief Act of 2010 (Pub. L. 111-192) was 
enacted. Section 102 of Public Law 111-192 amended section 1886(a)(4) 
and (d)(7) of the Act affecting Medicare payments for preadmission 
services furnished to outpatients who are later admitted as inpatients 
during a specified payment window. We are implementing this legislative 
provision as discussed under section IV.M. of the preamble of this 
document through an interim final rule with comment period.

D. Issuance of Two Notices of Proposed Rulemaking for FY 2011

1. Issuance of May 4, 2010 IPPS/LTCH PPS Proposed Rule
    On May 4, 2010, we issued in the Federal Register the FY 2011 IPPS/
LLTCH PPS proposed rule (75 FR 23852). In that proposed rule, we set 
forth proposed changes to the Medicare IPPS for operating costs and for 
capital-related costs of acute care hospitals in FY 2011. We also set 
forth proposed changes relating to payments for IME costs and payments 
to certain hospitals and units that continue to be excluded from the 
IPPS and paid on a reasonable cost basis.
    In addition, in that proposed rule, we set forth proposed changes 
to the payment rates, factors, and other payment rate policies under 
the LTCH PPS for FY 2011. We note that because the annual update of 
payment rates for the LTCH PPS now takes place on the same schedule and 
in the same publication as for the IPPS, for the sake of clarity, in 
section VII.D. of the proposed rule, we proposed to use ``fiscal year 
(FY)'' instead of ``rate year (RY)'' when referring to updates and 
changes to the LTCH PPS to be effective October 1, 2010. Therefore, 
throughout the proposed rule (and this final rule), we use the phrase 
``fiscal year (FY)'' in referring to updates and changes to the LTCH 
PPS.
    Below is a summary of the major changes that we proposed to make in 
the May 4, 2010 proposed rule:
a. Proposed Changes to MS-DRG Classifications and Recalibrations of 
Relative Weights
    In section II. of the preamble of the proposed rule, we included--
     Proposed changes to MS-DRG classifications based on our 
yearly review.
     Proposed application of the documentation and coding 
adjustment for FY 2011 resulting from implementation of the MS-DRG 
system.
     A discussion of the Research Triangle International, Inc. 
(RTI) and RAND Corporation reports and recommendations relating to 
charge compression.
     Proposed recalibrations of the MS-DRG relative weights.
    We also presented a listing and discussion of hospital-acquired

[[Page 50051]]

conditions (HACs), including infections, that are subject to the 
statutorily required quality adjustment in MS-DRG payments for FY 2011.
    We discussed the FY 2011 status of two new technologies approved 
for add-on payments for FY 2010 and presented our evaluation and 
analysis of the FY 2011 applicants for add-on payments for high-cost 
new medical services and technologies (including public input, as 
directed by Pub. L. 108-173, obtained in a town hall meeting).
b. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals
    In section III. of the preamble to the proposed rule, we proposed 
revisions to the wage index for acute care hospitals and the annual 
update of the wage data. Specific issues addressed included the 
following:
     Budget neutrality for the rural floor and imputed floor.
     Changes to titles and principal cities of CBSA 
designations.
     The proposed FY 2011 wage index update using wage data 
from cost reporting periods beginning in FY 2007.
     Analysis and implementation of the proposed FY 2011 
occupational mix adjustment to the wage index for acute care hospitals, 
including discussion of the 2010 occupational mix survey.
     Proposed revisions to the wage index for acute care 
hospitals based on hospital redesignations and reclassifications.
     The proposed adjustment to the wage index for acute care 
hospitals for FY 2011 based on commuting patterns of hospital employees 
who reside in a county and work in a different area with a higher wage 
index.
     The timetable for reviewing and verifying the wage data 
used to compute the proposed FY 2011 hospital wage index.
     Determination of the labor-related share for the proposed 
FY 2011 wage index.
c. Other Decisions and Proposed Changes to the IPPS for Operating Costs 
and GME Costs
    In section IV. of the preamble of the proposed rule, we discussed a 
number of the provisions of the regulations in 42 CFR parts 412, 413, 
and 489, including the following:
     The reporting of hospital quality data as a condition for 
receiving the full annual payment update increase.
     Payment for transfer cases from Medicare participating 
hospitals to nonparticipating hospitals and CAHs.
     A change to the definition criteria for MDHs.
     The proposed updated national and regional case-mix values 
and discharges for purposes of determining RRC status.
     The statutorily required IME adjustment factor for FY 
2011.
     The proposed policy change relating to the determination 
of the SSI ratio of the Medicare fraction in the formula for 
determining the payment adjustments for disproportionate share 
hospitals.
     A proposed clarification of ``approved medical residency 
programs'' policies relating to payment for IME and direct GME and our 
proposal to accept the electronic submission of Medicare GME 
affiliation agreements.
     Proposed policy change for payments for services furnished 
by certified registered nurse anesthetists (CRNAs) in rural hospitals 
and CAHs.
     Discussion of the status of the Rural Community Hospital 
Demonstration Program.
d. Proposed FY 2011 Policy Governing the IPPS for Capital-Related Costs
    In section V. of the preamble to the proposed rule, we discussed 
the proposed payment policy requirements for capital-related costs and 
capital payments to hospitals for FY 2011 and the proposed MS-DRG 
documentation and coding adjustment for FY 2011.
e. Proposed Changes to the Payment Rates for Certain Excluded 
Hospitals: Rate-of-Increase Percentages
    In section VI. of the preamble of the proposed rule, we discussed--
     Proposed changes to payments to excluded hospitals.
     Proposed changes relating to the election by CAHs of the 
optional method of payment for outpatient services
     Proposed clarification of the policies on costs of 
provider taxes as allowable costs for CAHs.
f. Proposed Changes to the LTCH PPS
    In section VII. of the preamble of the proposed rule, we set forth 
proposed changes to the payment rates, factors, and other payment rate 
policies under the LTCH PPS for FY 2011, including the annual update of 
the MS-LTC-DRG classifications and relative weights for use under the 
LTCH PPS for FY 2011 and the proposed documentation and coding 
adjustment under the LTCH PPS for FY 2011.
g. Proposed Changes Relating to Effective Date of Provider Agreements 
and Supplier Approvals
    In section VIII. of the preamble of the proposed rule, we set forth 
our proposed change in the provisions for determining the effective 
date of provider agreements and supplier approvals and to make changes 
to assure that accredited and nonaccredited facilities are treated in 
the same manner in determining this effective date.
h. Proposed Changes to Medicare Conditions of Participation Affecting 
Hospital Rehabilitation Services and Respiratory Care Services
    In section IX. of the preamble of the proposed rule, we proposed 
changes to the Medicare conditions of participation regarding which 
practitioners are allowed to order rehabilitation and respiratory care 
services in the hospital setting.
i. Proposed Changes to the Accreditation Requirements for Medicaid 
Providers of Inpatient Psychiatric Services for Individuals Under Age 
21
    In section X. of the preamble of the proposed rule, we proposed to 
remove the requirement for accreditation by The Joint Commission of 
psychiatric hospitals and hospitals with inpatient psychiatric 
programs. Hospitals with inpatient psychiatric programs would be 
afforded the flexibility in obtaining accreditation by a national 
accrediting organization whose hospital accrediting program has been 
approved by CMS. (We note that we proposed a similar change for 
psychiatric rehabilitation treatment facilities, which we are not 
adopting in this final rule.)
j. Determining Proposed Prospective Payment Operating and Capital Rates 
and Rate-of-Increase Limits for Acute Care Hospitals
    In the Addendum to the proposed rule, we set forth proposed changes 
to the amounts and factors for determining the proposed FY 2011 
prospective payment rates for operating costs and capital-related costs 
for acute care hospitals. We also proposed to establish the threshold 
amounts for outlier cases. In addition, we addressed the proposed 
update factors for determining the rate-of-increase limits for cost 
reporting periods beginning in FY 2011 for certain hospitals excluded 
from the IPPS.
k. Determining Proposed Prospective Payment Rates for LTCHs
    In the Addendum to the proposed rule, we set forth proposed changes 
to the amounts and factors for determining the proposed FY 2011 
prospective standard Federal rate. We also proposed to establish the 
proposed adjustments for wage levels, the labor-related share, the 
cost-of-living adjustment, and high-cost outliers, including the fixed-
loss

[[Page 50052]]

amount, and the LTCH cost-to-charge ratios (CCRs) under the LTCH PPS.
l. Impact Analysis
    In Appendix A of the proposed rule, we set forth an analysis of the 
impact that the proposed changes would have on affected acute care 
hospitals and LTCHs.
m. Recommendation of Update Factors for Operating Cost Rates of Payment 
for Hospital Inpatient Services
    In Appendix B of the proposed rule, as required by sections 
1886(e)(4) and (e)(5) of the Act, we provided our recommendations of 
the appropriate percentage changes for FY 2011 for the following:
     A single average standardized amount for all areas for 
hospital inpatient services paid under the IPPS for operating costs of 
acute care hospitals (and hospital-specific rates applicable to SCHs 
and MDHs).
     Target rate-of-increase limits to the allowable operating 
costs of hospital inpatient services furnished by certain hospitals 
excluded from the IPPS.
     The standard Federal rate for hospital inpatient services 
furnished by LTCHs.
n. Discussion of Medicare Payment Advisory Commission Recommendations
    Under section 1805(b) of the Act, MedPAC is required to submit a 
report to Congress, no later than March 1 of each year, in which MedPAC 
reviews and makes recommendations on Medicare payment policies. 
MedPAC's March 2010 recommendations concerning hospital inpatient 
payment policies address the update factor for hospital inpatient 
operating costs and capital-related costs under the IPPS, for hospitals 
and distinct part hospital units excluded from the IPPS. We addressed 
these recommendations in Appendix B of the proposed rule. For further 
information relating specifically to the MedPAC March 2008 report or to 
obtain a copy of the report, contact MedPAC at (202) 220-3700 or visit 
MedPAC's Web site at: http://www.medpac.gov.
2. Issuance of June 2, 2010 Proposed Rule
    A number of the provisions of the Affordable Care Act affected the 
IPPS and the LTCH PPS and the applicable providers and suppliers. Due 
to the timing of the passage of the legislation, we were unable to 
address these provisions in the FY 2011 IPPS/LTCH PPS proposed rule 
that appeared in the May 4, 2010 Federal Register (75 FR 23852). 
Therefore, various proposed policies and payment rates in that proposed 
rule did not reflect the new legislation. We noted in that proposed 
rule that we would issue separate Federal Register documents addressing 
the provisions of the Affordable Care Act that affected our proposed 
policies and payment rates for FY 2010 and FY 2011 under the IPPS and 
for RY 2010 and FY 2011 under the LTCH PPS.
    On June 2, 2010, we issued a supplemental proposed rule in the 
Federal Register (75 FR 30918) that addressed the following FY 2011 
policies and provisions of the Affordable Care Act:
     Hospital wage index improvement related to geographic 
reclassification criteria for FY 2011 (section 3137 of Pub. L. 111-
148).
     National budget neutrality in the calculation of the rural 
floor for hospital wage index (section 3141 of Pub. L. 111-148).
     Protections for frontier States (section 10324 of Pub. L. 
111-148).
     Revisions of certain market basket updates (sections 3401 
and 10319 of Pub. L. 111-148 and section 1105 of Pub. L. 111-152).
     Temporary improvements to the low-volume hospital 
adjustment (sections 3125 and 10314 of Pub. L. 111-148).
     Extension of Medicare-dependent hospitals (MDHs) (section 
3124 of Pub. L. 111-148).
     Additional payments in FYs 2011 and 2012 for qualifying 
hospitals in the lowest quartile of per capital Medicare spending 
(section 1109 of Pub. L. 111-152).
     Extension of the rural community hospital demonstration 
(sections 3123 and 10313 of Pub. L. 111-148).
     Technical correction related to CAH services (section 3128 
of Pub. L. 111-148).
     Extension of certain payment rules for LTCH services and 
of moratorium on the establishment of certain hospitals and facilities 
and increases in beds in existing LTCHs or LTCH satellite facilities 
(sections 3106 and 10312 of Pub. L. 111-148).
    We also noted that we planned to issue further instructions 
implementing the provisions of the Affordable Care Act that affect the 
policies and payment rates for FY 2010 under the IPPS and for RY 2010 
under the LTCH PPS in a separate document published elsewhere in June 
2, 2010 Federal Register.
    In this final rule, we are finalizing both the provisions of the 
May 4, 2010 proposed rule and the June 2, 2010 supplemental proposed 
rule in one document.

E. Public Comments Received on the FY 2011 IPPS/LTCH PPS Proposed Rule 
and Supplemental Proposed Rule

    We received over 700 public comments on the May 4, 2010 FY 2011 
IPPS/LTCH PPS proposed rule and approximately 33 public comments on the 
June 2, 2010 FY 2011 IPPS/LTCH PPS supplemental proposed rule. One 
comment addressed the comment period for the supplemental proposed 
rule.
    Comment: One commenter objected to our decision to shorten the 
usual 60-day comment period for the supplemental proposed rule. The 
commenter did not believe that CMS had the authority to shorten the 
comment period and stated that the period allowed for comment on the 
policies in the supplemental proposed rule was insufficient.
    Response: We disagree with the commenter that the waiver of the 
full 60-day comment period in the supplemental proposed rule was 
insufficient. As we explained in the supplemental proposed rule, due to 
the timing of the enactment of the Affordable Care Act, the policies 
and payment rates outlined in the FY 2011 IPPS/LTCH proposed rule 
published in the Federal Register on May 4, 2010, did not reflect the 
changes made by that law to the IPPS and LTCH PPS. The supplemental 
proposed rule addressed the changes that affect our policies and 
payment rates for FY 2011 under the IPPS and the LTCH PPS. We refer 
readers to the waiver of 60-day comment period discussion in the 
supplemental proposed rule (75 FR 30971), and we welcome the 
opportunity to provide additional details regarding our decision to 
waive the 60-day comment period.
    Our decision to shorten the customary 60-day comment period is 
consistent with past agency practice (see, for example, 74 FR 26603 
(June 3, 2009), 74 FR 43952 (August 27, 2009), and 68 FR 34772 (June 
10, 2003)), as well as the language of section 1871(b)(2)(C) of the 
Act. We read section 1871(b)(2)(C) of the Act to permit a waiver of any 
or all of the procedures set forth in section 1871(b)(1) of the Act, 
including the 60-day comment period, if good cause exists.
    We believe the commenter's description of the period allowed for 
comment overstated the inconvenience that the shortened comment period 
may have created. We believe that the detailed and thoughtful comments 
that we received in response to the contents of the supplemental 
proposed rule support our position that there was time for meaningful 
public participation in

[[Page 50053]]

the development of these policies. In addition, as the commenter 
admits, parties had 28 days from the posting of the supplemental 
proposed rule to submit comments to CMS, and a Listserv posting alerted 
outside parties to the posting of agency regulations.
    The FY 2011 IPPS/LTCH PSS final rule must be effective as of 
October 1, 2010, the start of FY 2011. Given this statutory deadline, 
we believe it was necessary to shorten the time period, as permitted by 
section 1871(b)(2)(C) of the Act. As we explained in the waiver of 60-
day comment period discussion in the supplemental proposed rule, unless 
we shortened the comment period, there would have been no opportunity 
for the agency to appropriately consider the comments we received and 
resolve whether any of the proposed policies would be modified in light 
of comments received. The comment period set forth in the supplemental 
proposed rule provided the agency with the minimum time needed for a 
careful consideration of the public comments on both the FY 2011 IPPS/
LTCH PPS final rules. Moreover, a full 60-day comment period from the 
date of publication in the Federal Register, which is what the comment 
period would be if the commenter's reading of section 1871(b)(2)(C) of 
the Act were adopted by the agency, would have extended into August, 
which would have been impracticable, given the required effective date 
of October 1, 2010.
    The remaining public comments we received on the two proposed rules 
addressed issues on multiple topics in both of the proposed rules. We 
present a summary of the public comments and our responses to them in 
the applicable subject-matter sections of this final rule.

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

    Section 4302 of the American Recovery and Reinvestment Act of 2009 
(ARRA, Pub. L. 111-5) included several amendments to section 114 of 
Public Law 110-173 (MMSEA) relating to payments to LTCHs and LTCH 
satellite facilities that were discussed under section X. of the FY 
2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43976 through 43990). 
These amendments are effective as if they were enacted as part of 
section 114 of Public Law 110-173 (MMSEA). We issued instructions to 
the fiscal intermediaries and Medicare administrative contractors 
(MACs) to interpret these amendments (Change Request 6444). In section 
XI. of the FY 2010/RY 2010 LTCH PPS final rule (74 FR 43990), we 
implemented the provisions of section 4302 of Public Law 111-5 through 
an interim final rule with comment period. Sections 3106 and 10312 of 
the Affordable Care Act added an additional 2 years to the 3-year 
implementation delay established by section 114(c) and (d)(1) of MMSEA. 
These provisions of the Affordable Care Act applicable to the LTCH PPS 
were discussed in the June 2, 2010 supplemental proposed rule (75 FR 
30967).
    In section VII.E. of the preamble of this final rule, we respond to 
the public comment that we received in a timely manner on this interim 
final rule with comment period and finalize the interim final rule.

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

A. Background

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

B. MS-DRG Reclassifications

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

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

    Currently, cases are classified into MS-DRGs for payment under the 
IPPS based on the following information reported by the hospital: the 
principal diagnosis, up to eight additional diagnoses, and up to six 
procedures performed during the stay. (We refer readers to section 
II.G.11.c. of this final rule for a discussion of our efforts to 
increase our internal systems capacity to process diagnosis and 
procedures on hospital claims to 25 diagnosis codes and 25 procedure 
codes prior to the use of the International Classification of Diseases, 
10th Revision, Clinical Modification (ICD-10-CM) for diagnosis coding 
and the International Classification of Diseases, 10th Revision, 
Procedure Coding System (ICD-10 PCS) for inpatient hospital procedure 
coding, effective October 1, 2013.) In a small number of MS-DRGs, 
classification is also based on the age, sex, and discharge status of 
the patient. The diagnosis and procedure information is reported by the 
hospital using codes from the International Classification of Diseases, 
Ninth Revision, Clinical Modification (ICD-9-CM) prior to October 1, 
2013. We refer readers to section II.G.11.b. of this final rule for a 
reference to the replacement of ICD-9-CM, Volumes 1 and 2, including 
the Official ICD-9-CM Guidelines for Coding and Reporting, Volume 3, 
with the ICD-10-CM and ICD-10-PCS, including the Official ICD-10-CM and 
ICD-10-PCS

[[Page 50054]]

Guidelines for Coding and Reporting, effective October 1, 2013 (FY 
2014).
    The process of developing the MS-DRGs was begun by dividing all 
possible principal diagnoses into mutually exclusive principal 
diagnosis areas, referred to as Major Diagnostic Categories (MDCs). The 
MDCs were formulated by physician panels to ensure that the DRGs would 
be clinically coherent. The diagnoses in each MDC correspond to a 
single organ system or etiology and, in general, are associated with a 
particular medical specialty. Thus, in order to maintain the 
requirement of clinical coherence, no final MS-DRG could contain 
patients in different MDCs. For example, MDC 6 is Diseases and 
Disorders of the Digestive System. This approach is used because 
clinical care is generally organized in accordance with the organ 
system affected. However, some MDCs are not constructed on this basis 
because they involve multiple organ systems (for example, MDC 22 
(Burns)). For FY 2010, cases were assigned to one of 746 MS-DRGs in 25 
MDCs. For FY 2011, cases will be assigned to one of 747 MS-DRGs in 25 
MDCs. The table below lists the 25 MDCs.

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

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

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

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

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

    Once the MDCs were defined, each MDC was evaluated to identify 
those additional patient characteristics that would have a consistent 
effect on hospital resource consumption. Because the presence of a 
surgical procedure that required the use of the operating room would 
have a significant effect on the type of hospital resources used by a 
patient, most MDCs were initially divided into surgical DRGs and 
medical DRGs. Surgical DRGs are based on a hierarchy that orders 
operating room (O.R.) procedures or groups of O.R. procedures by 
resource intensity. Medical DRGs generally are differentiated on the 
basis of diagnosis and age (0 to 17 years of age or greater than 17 
years of age). Some surgical and medical DRGs are further 
differentiated based on the presence or absence of a complication or 
comorbidity (CC) or a major complication or comorbidity (MCC).
    Generally, nonsurgical procedures and minor surgical procedures 
that are not usually performed in an operating room are not treated as 
O.R. procedures. However, there are a few non-O.R. procedures that do 
affect MS-DRG assignment for certain principal diagnoses. An example is 
extracorporeal shock wave lithotripsy for patients with

[[Page 50055]]

a principal diagnosis of urinary stones. Lithotripsy procedures are not 
routinely performed in an operating room. Therefore, lithotripsy codes 
are not classified as O.R. procedures. However, our clinical advisors 
believe that patients with urinary stones who undergo extracorporeal 
shock wave lithotripsy should be considered similar to other patients 
who undergo O.R. procedures. Therefore, we treat this group of patients 
similar to patients undergoing O.R. procedures.
    Once the medical and surgical classes for an MDC were formed, each 
diagnosis class was evaluated to determine if complications or 
comorbidities would consistently affect hospital resource consumption. 
Each diagnosis was categorized into one of three severity levels. These 
three levels include a major complication or comorbidity (MCC), a 
complication or comorbidity (CC), or a non-CC. Physician panels 
classified each diagnosis code based on a highly iterative process 
involving a combination of statistical results from test data as well 
as clinical judgment. As stated earlier, we refer readers to section 
II.D. of the FY 2008 IPPS final rule with comment period for a full 
detailed discussion of how the MS-DRG system was established based on 
severity levels of illness (72 FR 47141).
    A patient's diagnosis, procedure, discharge status, and demographic 
information is entered into the Medicare claims processing systems and 
subjected to a series of automated screens called the Medicare Code 
Editor (MCE). The MCE screens are designed to identify cases that 
require further review before classification into an MS-DRG.
    After patient information is screened through the MCE and further 
development of the claim is conducted, the cases are classified into 
the appropriate MS-DRG by the Medicare GROUPER software program. The 
GROUPER program was developed as a means of classifying each case into 
an MS-DRG on the basis of the diagnosis and procedure codes and, for a 
limited number of MS-DRGs, demographic information (that is, sex, age, 
and discharge status).
    After cases are screened through the MCE and assigned to an MS-DRG 
by the GROUPER, the PRICER software calculates a base MS-DRG payment. 
The PRICER calculates the payment for each case covered by the IPPS 
based on the MS-DRG relative weight and additional factors associated 
with each hospital, such as IME and DSH payment adjustments. These 
additional factors increase the payment amount to hospitals above the 
base MS-DRG payment.
    The records for all Medicare hospital inpatient discharges are 
maintained in the Medicare Provider Analysis and Review (MedPAR) file. 
The data in this file are used to evaluate possible MS-DRG 
classification changes and to recalibrate the MS-DRG weights. However, 
in the FY 2000 IPPS final rule (64 FR 41499 and 41500), we discussed a 
process for considering non-MedPAR data in the recalibration process. 
We stated that for use of non-MedPAR data to be feasible for purposes 
of DRG recalibration and reclassification, the data must, among other 
things: (1) Be independently verified; (2) reflect a complete set of 
cases (or a representative sample of cases); and (3) enable us to 
calculate appropriate DRG relative weights and ensure that cases are 
classified to the ``correct'' DRG, and to one DRG only, in the 
recalibration process. Further, in order for us to consider using 
particular non-MedPAR data, we must have sufficient time to evaluate 
and test the data. The time necessary to do so depends upon the nature 
and quality of the non-MedPAR data submitted. Generally, however, a 
significant sample of the non-MedPAR data should be submitted by mid-
October for consideration in conjunction with the next year's proposed 
rule. This date allows us time to test the data and make a preliminary 
assessment as to the feasibility of using the data. Subsequently, a 
complete non-MedPAR database should be submitted by early December for 
consideration in conjunction with the next year's proposed rule.
    As we indicated above, for FY 2008, we made significant 
improvements in the DRG system to recognize severity of illness and 
resource usage by adopting MS-DRGs that were reflected in the FY 2008 
GROUPER, Version 25.0, and were effective for discharges occurring on 
or after October 1, 2007. Our MS-DRG analysis for the FY 2011 proposed 
rule was based on data from the September 2009 update of the FY 2009 
MedPAR file, which contained hospital bills received through September 
30, 2009, for discharges occurring through September 30, 2009. For this 
FY 2011 final rule, our MS-DRG analysis is based on data from the March 
2010 update of the FY 2009 MedPAR file, which contained hospital bills 
received through March 31, 2010, for discharges occurring through 
September 30, 2009.
2. Yearly Review for Making MS-DRG Changes
    Many of the changes to the MS-DRG classifications we make annually 
are the result of specific issues brought to our attention by 
interested parties. We encourage individuals with comments about MS-DRG 
classifications to submit these comments no later than early December 
of each year so they can be carefully considered for possible inclusion 
in the annual proposed rule and, if included, may be subjected to 
public review and comment. Therefore, similar to the timetable for 
interested parties to submit non-MedPAR data for consideration in the 
MS-DRG recalibration process, comments about MS-DRG classification 
issues should be submitted no later than early December in order to be 
considered and possibly included in the next annual proposed rule 
updating the IPPS.
    The actual process of forming the MS-DRGs was, and will likely 
continue to be, highly iterative, involving a combination of 
statistical results from test data combined with clinical judgment. In 
the FY 2008 IPPS final rule (72 FR 47140 through 47189), we described 
in detail the process we used to develop the MS-DRGs that we adopted 
for FY 2008. In addition, in deciding whether to make further 
modification to the MS-DRGs for particular circumstances brought to our 
attention, we considered whether the resource consumption and clinical 
characteristics of the patients with a given set of conditions are 
significantly different than the remaining patients in the MS-DRG. We 
evaluated patient care costs using average charges and lengths of stay 
as proxies for costs and relied on the judgment of our medical advisors 
to decide whether patients are clinically distinct or similar to other 
patients in the MS-DRG. In evaluating resource costs, we considered 
both the absolute and percentage differences in average charges between 
the cases we selected for review and the remainder of cases in the MS-
DRG. We also considered variation in charges within these groups; that 
is, whether observed average differences were consistent across 
patients or attributable to cases that were extreme in terms of charges 
or length of stay, or both. Further, we considered the number of 
patients who will have a given set of characteristics and generally 
preferred not to create a new MS-DRG unless it would include a 
substantial number of cases.

C. Adoption of the MS-DRGs in FY 2008

    In the FY 2006, FY 2007, and FY 2008 IPPS final rules, we discussed 
a number of recommendations made by MedPAC regarding revisions to the 
DRG system used under the IPPS (70 FR 47473 through 47482; 71 FR 47881 
through 47939; and 72 FR 47140 through 47189). As we noted in the FY 
2006 IPPS final rule, we had insufficient time to

[[Page 50056]]

complete a thorough evaluation of these recommendations for full 
implementation in FY 2006. However, we did adopt severity-weighted 
cardiac DRGs in FY 2006 to address public comments on this issue and 
the specific concerns of MedPAC regarding cardiac surgery DRGs. We also 
indicated that we planned to further consider all of MedPAC's 
recommendations and thoroughly analyze options and their impacts on the 
various types of hospitals in the FY 2007 IPPS proposed rule.
    For FY 2007, we began this process. In the FY 2007 IPPS proposed 
rule, we proposed to adopt Consolidated Severity DRGs (CS DRGs) for FY 
2008 (if not earlier). Based on public comments received on the FY 2007 
IPPS proposed rule, we decided not to adopt the CS DRGs. In the FY 2007 
IPPS final rule (71 FR 47906 through 47912), we discussed several 
concerns raised by public commenters regarding the proposal to adopt CS 
DRGs. We acknowledged the many public comments suggesting the logic of 
Medicare's DRG system should continue to remain in the public domain as 
it has since the inception of the PPS. We also acknowledged concerns 
about the impact on hospitals and software vendors of moving to a 
proprietary system. Several commenters suggested that CMS refine the 
existing DRG classification system to preserve the many policy 
decisions that were made over the last 20 years and were already 
incorporated into the DRG system, such as complexity of services and 
new device technologies. Consistent with the concerns expressed in the 
public comments, this option had the advantage of using the existing 
DRGs as a starting point (which was already familiar to the public) and 
retained the benefit of many DRG decisions that were made in recent 
years. We stated our belief that the suggested approach of 
incorporating severity measures into the existing DRG system was a 
viable option that would be evaluated.
    Therefore, we decided to make interim changes to the existing DRGs 
for FY 2007 by creating 20 new DRGs involving 13 different clinical 
areas that would significantly improve the CMS DRG system's recognition 
of severity of illness. We also modified 32 DRGs to better capture 
differences in severity. The new and revised DRGs were selected from 40 
existing CMS DRGs that contained 1,666,476 cases and represented a 
number of body systems. In creating these 20 new DRGs, we deleted 8 
existing DRGs and modified 32 existing DRGs. We indicated that these 
interim steps for FY 2007 were being taken as a prelude to more 
comprehensive changes to better account for severity in the DRG system 
by FY 2008.
    In the FY 2007 IPPS final rule (71 FR 47898), we indicated our 
intent to pursue further DRG reform through two initiatives. First, we 
announced that we were in the process of engaging a contractor to 
assist us with evaluating alternative DRG systems that were raised as 
potential alternatives to the CMS DRGs in the public comments. Second, 
we indicated our intent to review over 13,000 ICD-9-CM diagnosis codes 
as part of making further refinements to the current CMS DRGs to better 
recognize severity of illness based on the work that CMS (then HCFA) 
did in the mid-1990's in connection with adopting severity DRGs. We 
describe below the progress we have made on these two initiatives and 
our actions for FYs 2008, 2009, and 2010, and our proposed and final 
actions for FY 2011 based on our continued analysis of reform of the 
DRG system. We note that the adoption of the MS-DRGs to better 
recognize severity of illness has implications for the outlier 
threshold, the application of the postacute care transfer policy, the 
measurement of real case-mix versus apparent case-mix, and the IME and 
DSH payment adjustments. We discuss these implications for FY 2011 in 
other sections of this preamble and in the Addendum to this final rule.
    In the FY 2007 IPPS proposed rule, we discussed MedPAC's 
recommendations to move to a cost-based HSRV weighting methodology 
using HSRVs beginning with the FY 2007 IPPS proposed rule for 
determining the DRG relative weights. Although we proposed to adopt the 
HSRV weighting methodology for FY 2007, we decided not to adopt the 
proposed methodology in the final rule after considering the public 
comments we received on the proposal. Instead, in the FY 2007 IPPS 
final rule, we adopted a cost-based weighting methodology without the 
HSRV portion of the proposed methodology. The cost-based weights were 
adopted over a 3-year transition period in \1/3\ increments between FY 
2007 and FY 2009. In addition, in the FY 2007 IPPS final rule, we 
indicated our intent to further study the HSRV-based methodology as 
well as other issues brought to our attention related to the cost-based 
weighting methodology adopted in the FY 2007 final rule. There was 
significant concern in the public comments that our cost-based 
weighting methodology does not adequately account for charge 
compression--the practice of applying a higher percentage charge markup 
over costs to lower cost items and services and a lower percentage 
charge markup over costs to higher cost items and services. Further, 
public commenters expressed concern about potential inconsistencies 
between how costs and charges are reported on the Medicare cost reports 
and charges on the Medicare claims. In the FY 2007 IPPS final rule, we 
used costs and charges from the cost reports to determine departmental 
level cost-to-charge ratios (CCRs) which we then applied to charges on 
the Medicare claims to determine the cost-based weights. The commenters 
were concerned about potential distortions to the cost-based weights 
that would result from inconsistent reporting between the cost reports 
and the Medicare claims. After publication of the FY 2007 IPPS final 
rule, we entered into a contract with RTI International (RTI) to study 
both charge compression and the extent, if any, to which our 
methodology for calculating DRG relative weights is affected by 
inconsistencies between how hospitals report costs and charges on the 
cost reports and how hospitals report charges on individual claims. 
Further, as part of its study of alternative DRG systems, the RAND 
Corporation analyzed the HSRV cost-weighting methodology. We refer 
readers to section II.E. of the preamble of this final rule for a 
discussion of the issue of charge compression and the cost-weighting 
methodology for FY 2011.
    We believe that revisions to the DRG system to better recognize 
severity of illness and changes to the relative weights based on costs 
rather than charges are improving the accuracy of the payment rates in 
the IPPS. We agree with MedPAC that these refinements should be 
pursued. Although we continue to caution that any prospective payment 
system based on grouping cases will always present some opportunities 
for providers to specialize in cases they believe have higher margins, 
we believe that the changes we have adopted and the continuing reforms 
we are making in this final rule for FY 2011 will improve payment 
accuracy and reduce financial incentives to create specialty hospitals.
    We refer readers to section II.D. of the FY 2008 IPPS final rule 
with comment period for a full discussion of how the MS-DRG system was 
established based on severity levels of illness (72 FR 47141).

[[Page 50057]]

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

1. Background on the Prospective MS-DRG Documentation and Coding 
Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90
    As we discussed earlier in this preamble, we adopted the MS-DRG 
patient classification system for the IPPS, effective October 1, 2007, 
to better recognize severity of illness in Medicare payment rates for 
acute care hospitals. The adoption of the MS-DRG system resulted in the 
expansion of the number of DRGs from 538 in FY 2007 to 745 in FY 2008. 
(Currently, there are 746 MS-DRGs for FY 2010; there will be 747 MS-
DRGs in FY 2011, with the deletion in this final rule of one MS-DRG and 
the creation of two new 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. Section 7(a) of Public Law 110-90 did not 
adjust the FY 2010 -1.8 percent documentation and coding adjustment 
promulgated in the FY 2008 IPPS final rule with comment period. To 
comply with section 7(a) of Public Law 110-90, we promulgated a final 
rule on November 27, 2007 (72 FR 66886) that modified the IPPS 
documentation and coding adjustment for FY 2008 to -0.6 percent, and 
revised the FY 2008 payment rates, factors, and thresholds accordingly. 
These revisions were effective on October 1, 2007.
    For FY 2009, section 7(a) of Public Law 110-90 required a 
documentation and coding adjustment of -0.9 percent instead of the -1.8 
percent adjustment established in the FY 2008 IPPS final rule with 
comment period. As discussed in the FY 2009 IPPS final rule (73 FR 
48447) and required by statute, we applied a documentation and coding 
adjustment of -0.9 percent to the FY 2009 IPPS national standardized 
amount. The documentation and coding adjustments established in the FY 
2008 IPPS final rule with comment period, as amended by Public Law 110-
90, are cumulative. As a result, the -0.9 percent documentation and 
coding adjustment for FY 2009 was in addition to the -0.6 percent 
adjustment for FY 2008, yielding a combined effect of -1.5 percent.
2. Prospective Adjustment to the Average Standardized Amounts Required 
by Section 7(b)(1)(A) of Public Law 110-90
    Section 7(b)(1)(A) of Public Law 110-90 requires that, if the 
Secretary determines that implementation of the MS-DRG system resulted 
in changes in documentation and coding that did not reflect real 
changes in case-mix for discharges occurring during FY 2008 or FY 2009 
that are different than the prospective documentation and coding 
adjustments applied under section 7(a) of Public Law 110-90, the 
Secretary shall make an appropriate adjustment under section 
1886(d)(3)(A)(vi) of the Act. Section 1886(d)(3)(A)(vi) of the Act 
authorizes adjustments to the average standardized amounts for 
subsequent fiscal years in order to eliminate the effect of such coding 
or classification changes. These adjustments are intended to ensure 
that future annual aggregate IPPS payments are the same as the payments 
that otherwise would have been made had the prospective adjustments for 
documentation and coding applied in FY 2008 and FY 2009 reflected the 
change that occurred in those years.
3. Recoupment or Repayment Adjustments in FYs 2010 Through 2012 
Required by Public Law 110-90
    If, based on a retroactive evaluation of claims data, the Secretary 
determines that implementation of the MS-DRG system resulted in changes 
in documentation and coding that did not reflect real changes in case-
mix for discharges occurring during FY 2008 or FY 2009 that are 
different from the prospective documentation and coding adjustments 
applied under section 7(a) of Public Law 110-90, section 7(b)(1)(B) of 
Public Law 110-90 requires the Secretary to make an additional 
adjustment to the standardized amounts under section 1886(d) of the 
Act. This adjustment must offset the estimated increase or decrease in 
aggregate payments for FYs 2008 and 2009 (including interest) resulting 
from the difference between the estimated actual documentation and 
coding effect and the documentation and coding adjustment applied under 
section 7(a) of Public Law 110-90. This adjustment is in addition to 
making an appropriate adjustment to the standardized amounts under 
section 1886(d)(3)(A)(vi) of the Act as required by section 7(b)(1)(A) 
of Public Law 110-90. That is, these adjustments are intended to recoup 
(or repay) spending in excess of (or less than) spending that would 
have occurred had the prospective adjustments for changes in 
documentation and coding applied in FY 2008 and FY 2009 precisely 
matched the changes that occurred in those years. Public Law 110-90 
requires that the Secretary make these recoupment or repayment 
adjustments for discharges occurring during FYs 2010, 2011, and 2012.
4. Retrospective Evaluation of FY 2008 Claims Data
    In order to implement the requirements of section 7 of Public Law 
110-90, we indicated in the FY 2009 IPPS final rule (73 FR 48450) that 
we planned a thorough retrospective evaluation of our claims data. We 
stated that the results of this evaluation would be used by our 
actuaries to determine any necessary payment adjustments to the 
standardized amounts under section 1886(d) of the Act to ensure the 
budget neutrality of the MS-DRGs implementation for FY 2008 and FY 
2009, as required by law. In the FY 2009 IPPS proposed rule (73 FR 
23541 through 23542), we described our preliminary plan for a 
retrospective analysis of inpatient hospital claims data and invited 
public input on our proposed methodology.

[[Page 50058]]

    In that proposed rule, we indicated that we intended to measure and 
corroborate the extent of the overall national average changes in case-
mix for FY 2008 and FY 2009. We expected that the two largest parts of 
this overall national average change would be attributable to 
underlying changes in actual patient severity of illness and to 
documentation and coding improvements under the MS-DRG system. In order 
to separate the two effects, we planned to isolate the effect of shifts 
in cases among base DRGs from the effect of shifts in the types of 
cases within-base DRGs.
    The MS-DRGs divide the base DRGs into three severity levels (with 
MCC, with CC, and without CC); the previously used CMS DRGs had only 
two severity levels (with CC and without CC). Under the CMS DRG system, 
the majority of hospital discharges had a secondary diagnosis which was 
on the CC list, which led to the higher severity level. The MS-DRGs 
significantly changed the code lists of what was classified as an MCC 
or a CC. Many codes that were previously classified as a CC are no 
longer included on the MS-DRG CC list because the data and clinical 
review showed these conditions did not lead to a significant increase 
in resource use. The addition of a new level of high severity 
conditions, the MCC list, also provided a new incentive to code more 
precisely in order to increase the severity level. We anticipated that 
hospitals would examine the MS-DRG MCC and CC code lists and then work 
with physicians and coders on documentation and coding practices so 
that coders could appropriately assign codes from the highest possible 
severity level. We note that there have been numerous seminars and 
training sessions on this particular coding issue. The topic of 
improving documentation practices in order to code conditions on the 
MCC list was also discussed extensively by participants at the March 
11-12, 2009 ICD-9-CM Coordination and Maintenance Committee meeting. 
Participants discussed their hospitals' efforts to encourage physicians 
to provide more precise documentation so that coders could 
appropriately assign codes that would lead to a higher severity level. 
Because we expected most of the documentation and coding changes under 
the MS-DRG system would occur in the secondary diagnoses, we believed 
that the shifts among base DRGs were less likely to be the result of 
the MS-DRG system and the shifts within-base DRGs were more likely to 
be the result of the MS-DRG system. We also anticipated evaluating data 
to identify the specific MS-DRGs and diagnoses that contributed 
significantly to the documentation and coding payment effect and to 
quantify their impact. This step entailed analysis of the secondary 
diagnoses driving the shifts in severity within specific base DRGs.
    In that same proposed rule, we also stated that, while we believed 
that the data analysis plan described previously would produce an 
appropriate estimate of the extent of case-mix changes resulting from 
documentation and coding changes, we might decide, if feasible, to use 
historical data from our Hospital Payment Monitoring Program (HPMP) to 
corroborate the within-base DRG shift analysis. The HPMP is supported 
by the Medicare Clinical Data Abstraction Center (CDAC).
    In the FY 2009 IPPS proposed rule, we solicited public comments on 
the analysis plans described above, as well as suggestions on other 
possible approaches for performing a retrospective analysis to identify 
the amount of case-mix changes that occurred in FY 2008 and FY 2009 
that did not reflect real increases in patient severity of illness.
    A few commenters, including MedPAC, expressed support for the 
analytic approach described in the FY 2009 IPPS proposed rule. A number 
of other commenters expressed concerns about certain aspects of the 
approach and/or suggested alternate analyses or study designs. In 
addition, one commenter recommended that any determination or 
retrospective evaluation by the actuaries of the impact of the MS-DRGs 
on case-mix be open to public scrutiny prior to the implementation of 
the payment adjustments beginning in FY 2010.
    We took these comments into consideration as we developed our 
proposed analysis plan and in the FY 2010 IPPS/RY 2010 LTCH PPS 
proposed rule (74 FR 24092 through 24101) solicited public comment on 
our methodology and analysis. For the FY 2010 IPPS/RY 2010 LTCH PPS 
proposed rule, we performed a retrospective evaluation of the FY 2008 
data for claims paid through December 2008. Based on this evaluation, 
our actuaries determined that implementation of the MS-DRG system 
resulted in a 2.5 percent change due to documentation and coding that 
did not reflect real changes in case-mix for discharges occurring 
during FY 2008.
    In the analysis of data for that proposed rule, we found that the 
within-base DRG increases were almost entirely responsible for the 
case-mix change, supporting our conclusion that the 2.5 percent 
estimate was an accurate reflection of the FY 2008 effect of changes in 
documentation and coding under the MS-DRG system. In fact, almost every 
base DRG that was split into different severity levels under the MS-DRG 
system experienced increases in the within-base DRGs. We then further 
analyzed the changes in the within-base DRGs to determine which MS-DRGs 
had the highest contributions to this increase. The results of the 
analysis for the proposed rule provided additional support for our 
conclusion that the proposed 2.5 percent estimate accurately reflected 
the FY 2008 increases in documentation and coding under the MS-DRG 
system. While we attempted to use the CDAC data to distinguish real 
increase in case-mix growth from documentation and coding in the 
overall case-mix number, we found aberrant data and significant 
variation across the FY 1999 through FY 2007 analysis period. It was 
not possible to distinguish changes in documentation and coding from 
changes in real case-mix in the CDAC data. Therefore, we concluded that 
the CDAC data would not support analysis of real case-mix growth that 
could be used in our retrospective evaluation of the FY 2008 claims 
data.
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43768 
through 43772), we responded to comments on our methodology for the 
retrospective evaluation of FY 2008 claims data. Commenters raised 
concerns that our estimate in the proposed rule did not fully consider 
other potential causes of increased case-mix, such as patients 
requiring less complex services receiving care in other settings and 
healthier patients enrolling in Medicare Advantage plans in increasing 
numbers. Other commenters indicated that factors such as the changes in 
the CC/MCC definitions, limitations on the number of codes used by CMS 
for payment and ratesetting, resequencing of secondary diagnoses, the 
transition to the cost-based weights, less use of not otherwise 
specified codes, and increases in real case-mix due to health care 
reform efforts also resulted in an inaccurate documentation and coding 
analysis. One commenter indicated that, of the overall case-mix 
increase, 1.0 percent to 1.5 percent is real case-mix increase, while 
1.0 percent to 1.5 percent is due to documentation and coding or other 
increases.
    In considering these comments concerning historical real case-mix, 
in the FY 2010 final rule, we calculated overall increases in case-mix 
for the period from FY 2000 to FY 2007 using

[[Page 50059]]

the cases from each year and the GROUPER and the relative weights 
applicable for each year. The results ranged from -0.7 to +1.4 percent.
    Overall case-mix growth is predominately comprised of three 
factors: real case-mix growth; a documentation and coding effect; and a 
measurement effect. Under the reasonable assumption that there has been 
a relatively small measurement effect in those years, the assertion 
that there is a historical pattern of steady annual increases of 1.2 to 
1.3 percent in real case-mix implies that the documentation and coding 
effect in many of the years in the FY 2000 to FY 2007 time period was 
negative. For example, as discussed in that rule (74 FR 43769), we 
estimated a recent measurement effect of +0.3 percent. There was an 
overall case-mix growth of -0.2 percent in FY 2007. The overall case-
mix growth of -0.2 percent net of a measurement effect of +0.3 percent 
results in growth of +0.1 percent. Had real case-mix growth been +1.2 
percent in FY 2007, therefore, it would imply a negative documentation 
and coding effect of approximately -1.1 percent. It is not obvious why 
documentation and coding would have had such a large negative effect in 
FY 2007, or in any other year where the overall case-mix change is 
significantly less than the average annual trend claimed by the 
commenters, calling into question the assertion that real case-mix 
growth is a steady 1.2 to 1.3 percent per year.
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43770 
through 43771), we indicated that our estimate of the overall case-mix 
growth for FY 2008 based on more recent data than the data used in the 
FY 2010 proposed rule was 2.0 percent, still less than our actuaries' 
estimate of a 2.5 percent documentation and coding increase. With 
respect to the concerns raised by commenters about our finding of 
negative real case-mix growth in FY 2008, a finding of negative real 
case-mix growth is consistent with the fact that, in some years, 
overall case-mix growth has been negative.
5. Retrospective Analysis of FY 2009 Claims Data
    We performed the same analysis for FY 2009 claims data using the 
same methodology as we did for FY 2008 claims in the FY 2010 final 
rule. We note that in the FY 2011 IPPS/LTCH PPS proposed rule, we 
performed this analysis using FY 2009 claims paid through December 
2009. In this FY 2011 IPPS/LTCH PPS final rule, we have updated the 
analysis with FY 2009 claims paid through March 2010, as we discussed 
in the proposed rule. We note that, for non-Puerto Rico IPPS hospitals, 
the estimates are unchanged from those in the proposed rule.
    We first divided the case-mix index (CMI) obtained by grouping the 
FY 2009 claims data through the FY 2009 GROUPER (Version 26.0) by the 
CMI obtained by grouping these same FY 2009 claims through the FY 2007 
GROUPER (Version 24.0). This resulted in a value of 1.056. Because 
these cases are the same FY 2009 cases grouped using Versions 24.0 and 
26.0 of the GROUPER, we attribute this increase primarily to two 
factors: (1) The effect of changes in documentation and coding under 
the MS-DRG system; and (2) the measurement effect from the calibration 
of the GROUPER. We estimated the measurement effect from the 
calibration of the GROUPER by dividing the CMI obtained by grouping 
cases in the FY 2007 claims data through the FY 2009 GROUPER by the CMI 
obtained by grouping cases in these same claims through the FY 2007 
GROUPER. This resulted in a value of 1.0019. In order to isolate the 
documentation and coding effect, we then divided the combined effect of 
the changes in documentation and coding and measurement (1.056) by the 
measurement effect (1.0019) to yield 1.054. Therefore, our estimate of 
the documentation and coding increase that did not reflect real changes 
in case-mix for discharges was 5.4 percent.
    In parallel to our analysis in the proposed rule, we then sought to 
corroborate this 5.4 percent estimate by examining the increases in the 
within-base DRGs as compared to the increases in the across base DRGs 
as described earlier in our analysis plan. In other words, we looked 
for improvements in code selection that would lead to a secondary 
diagnosis increasing the severity level to either a CC or an MCC level. 
We found that the within-base DRG increases were almost entirely 
responsible for the case mix change, supporting our conclusion that the 
5.4 percent estimate was an accurate reflection of the FY 2009 effect 
of changes in documentation and coding under the MS-DRG system. We then 
further analyzed the changes in the within-base DRGs to determine which 
MS-DRGs had the highest contributions to this increase. The results of 
the analysis for the proposed rule provided additional support for our 
conclusion that the proposed 5.4 percent estimate accurately reflected 
the FY 2009 increases in documentation and coding under the MS-DRG 
system.

[[Page 50060]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.000

    As reflected in the above chart, for short-term acute care 
hospitals, SCHs, and MDHs, there is approximately an 8 percentage point 
increase in the discharge severity with MCCs from 20 percent to 28 
percent, and a corresponding decrease of approximately 8 percentage 
points in discharge severity without CC/MCC from 57 percent to 49 
percent.
    Consistent with the expectations of our medical coding experts 
concerning areas with potential for documentation and coding 
improvements, the top contributors were heart failure, chronic 
obstructive pulmonary disease, and simple pneumonia and pleurisy. Heart 
failure is a very common secondary diagnosis among Medicare hospital 
admissions. The heart failure codes are assigned to all three severity 
levels. Some codes are classified as non-CCs, while other codes are on 
the CC and MCC lists. By changing physician documentation to more 
precisely identify the type of heart failure, hospitals are able to 
appropriately change the severity level of cases from the lowest level 
(non-CC) to a higher severity level (CC or MCC) through coding. This 
point was stressed repeatedly at the March 11-12, 2009 ICD-9-CM 
Coordination and Maintenance Committee meeting as coders discussed 
their work with physicians on this coding issue. Many of the 
participants indicated that additional work was still needed with their 
physicians in order to document conditions in the medical record more 
precisely.
    The results of this analysis provided additional support for our 
conclusion that the proposed 5.4 percent estimate accurately reflected 
the FY 2009 increases in documentation and coding under the MS-DRG 
system.
    As in prior years, the FY 2008 and FY 2009 MedPAR files are 
available to the public to allow independent analysis of the FY 2008 
and FY 2009 documentation and coding effect. Interested individuals may 
still order these files through the Web site at: http://www.cms.hhs.gov/LimitedDataSets/ by clicking on MedPAR Limited Data Set 
(LDS)-Hospital (National). This Web page describes the file and 
provides directions and further detailed instructions for how to order.
    Persons placing an order must send the following: a Letter of 
Request, the LDS Data Use Agreement and Research Protocol (refer to the 
Web site for further instructions), the LDS Form, and a check for 
$3,655 to:
    Mailing address if using the U.S. Postal Service: Centers for 
Medicare & Medicaid Services, RDDC Account, Accounting Division, P.O. 
Box 7520, Baltimore, MD 21207-0520.

    Mailing address if using express mail: Centers for Medicare & 
Medicaid Services, OFM/Division of Accounting--RDDC, 7500 Security 
Boulevard, C3-07-11, Baltimore. MD 21244-1850.
6. Prospective Adjustment for FY 2010 and Subsequent Years Authorized 
by Section 7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(vi) 
of the Act
    Based on our evaluation of FY 2008 Medicare claims data that were 
most current at the time of the FY 2010 IPPS/RY 2010 LTCH PPS proposed 
rule, the estimated 2.5 percent change in FY 2008 case-mix due to 
changes in documentation and coding that did not reflect real changes 
in case-mix for discharges occurring during FY 2008 exceeded the -0.6 
percent prospective documentation and coding adjustment applied under 
section 7(a) of Public Law 110-90 by 1.9 percentage points. Under 
section 7(b)(1)(A) of Public Law 110-90, the Secretary is required to 
make an appropriate adjustment under section 1886(d)(3)(A)(vi) of the 
Act to the average standardized amounts for subsequent fiscal years in 
order to eliminate the full effect of the documentation and coding 
changes on future payments. As we have consistently stated since the 
initial implementation of the MS-DRG system, we do not believe it is 
appropriate for expenditures to increase due to MS-DRG-related changes 
in documentation and coding that do not reflect real changes in case-
mix.
    We also estimated in the FY 2010 IPPS/RY 2010 LTCH PPS proposed and 
final rules that the additional change in case-mix due to changes in 
documentation and coding that do not reflect real changes in case-mix 
for discharges occurring during FY 2009 was 2.3 percent, which would 
exceed by

[[Page 50061]]

1.4 percentage points the -0.9 percent prospective documentation and 
coding adjustment for FY 2009 applied under section 7(a) of Public Law 
110-90. We had the statutory authority to adjust the FY 2010 rates for 
this estimated 1.4 percentage point increase. However, given that 
Public Law 110-90 requires a retrospective claims evaluation for the 
additional adjustments (as described in section II.D.3. of this 
preamble), we stated in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule 
and final rule (74 FR 24096 and 43772, respectively) that we believed 
our evaluation of the extent of the overall national average changes in 
case-mix for FY 2009 should also be based on a retrospective evaluation 
of all FY 2009 claims data. Because we did not receive all FY 2009 
claims data prior to publication of the FY 2010 final rule, we 
indicated we would address any difference between the additional 
increase in FY 2009 case-mix due to changes in documentation and coding 
that did not reflect real changes in case-mix for discharges occurring 
during FY 2009 and the -0.9 percent prospective documentation and 
coding adjustment applied under section 7(a) of Public Law 110-90 in 
the FY 2011 rulemaking cycle.
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24096), 
we solicited public comment on the proposed -1.9 percent prospective 
adjustment to the standardized amounts under section 1886(d) of the Act 
to address the effects of documentation and coding changes unrelated to 
changes in real case-mix in FY 2008. In addition, we solicited public 
comments on addressing in the FY 2011 rulemaking cycle any differences 
between the increase in FY 2009 case-mix due to changes in 
documentation and coding changes that do not reflect real changes in 
case-mix for discharges occurring during FY 2009 and the -0.9 percent 
prospective documentation and coding adjustment applied under section 
7(a) of Public Law 110-90. In response to the proposed rule, MedPAC 
summarized its comments on when CMS should reduce payment rates to 
prevent further overpayments and to recover overpayments occurring in 
2008 and 2009 as follows: ``We support CMS's proposal to reduce IPPS 
payments in 2010 by 1.9 percent to prevent further overpayments. While 
we and the CMS actuaries believe that a 1.9 percent reduction will not 
fully prevent overpayments from continuing in 2010, this is a 
reasonable first step toward reducing overpayments.'' Most of the other 
commenters opposed the proposed -1.9 percent prospective FY 2010 
adjustment for FY 2008 documentation and coding increases, but 
supported the proposal not to apply a FY 2010 prospective adjustment 
for estimated FY 2009 documentation and coding increases. Many 
commenters expressed concern over the financial impact of the proposed 
-1.9 percent adjustment and the methodology for calculating the 
adjustment. Other commenters recommended that CMS seek to extend the 
timeframe beyond 2 years to phase in the then-estimated -6.6 percent 
adjustment to the standardized amount.
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule in response to 
these commenters, we indicated that we fully understood that our 
proposed adjustment of -1.9 percent would reduce the increase in 
payments that affected hospitals would have received in FY 2009 in the 
absence of the adjustment. We explained that, although we are required 
to make a prospective adjustment to eliminate the full effect of coding 
or classification changes that did not reflect real changes in case-mix 
for discharges occurring during FY 2008, we believed we had some 
discretion regarding when to implement this adjustment. Section 
7(b)(1)(A) of Public Law 110-90 requires that if the Secretary 
determines that implementation of the MS-DRG system resulted in changes 
in documentation and coding that did not reflect real changes in case-
mix for discharges occurring during FY 2008 or FY 2009 that are 
different than the prospective documentation and coding adjustments 
applied under section 7(a) of Public Law 110-90, the Secretary shall 
make an ``appropriate'' adjustment under section 1886(d)(3)(A)(vi) of 
the Act.
    Therefore, we determined that it would be appropriate to postpone 
adopting documentation and coding adjustments as authorized under 
section 7(a) of Public Law 110-90 and section 1886(d)(3)(A)(vi) of the 
Act until a full analysis of case-mix changes could be completed. We 
indicated that, while we had the statutory authority to make this -1.9 
percent prospective adjustment entirely in FY 2010, we believed it 
would be prudent to wait until we had completed data on the magnitude 
of the documentation and coding effect in FY 2009. Specifically, we 
stated that if the documentation and coding effect were to be less in 
FY 2009 than our estimates at that time, it could lessen the 
anticipated adjustment that we had estimated we would have had to make 
for FY 2008 and FY 2009 combined. We indicated that, in future 
rulemaking, we would consider applying a prospective adjustment based 
upon a complete analysis of FY 2008 and FY 2009 claims data, beginning 
in FY 2011. We indicated that we intended to address any difference 
between the increase in FY 2009 case-mix due to changes in 
documentation and coding that did not reflect real changes in case-mix 
for discharges occurring during FY 2009 and the -0.9 percent 
prospective documentation and coding adjustment applied under section 
7(a) of Public Law 110-90 in the FY 2011 rulemaking cycle.
    After analysis of the FY 2009 claims data for this FY 2011 IPPS/
LTCH PPS final rule, we have found a total prospective documentation 
and coding effect of 1.054. After accounting for the -0.6 percent and 
the -0.9 percent documentation and coding adjustments in FYs 2008 and 
2009, we find a remaining documentation and coding effect of 3.9 
percent. As we have discussed, an additional cumulative adjustment of -
3.9 percent would be necessary to meet the requirements of section 
7(b)(1)(A) of Public Law 110-90 to make an adjustment to the average 
standardized amounts in order to eliminate the full effect of the 
documentation and coding changes on future payments. Unlike section 
7(b)(1)(B) of Public Law 110-90, section 7(b)(1)(A) does not specify 
when we must apply the prospective adjustment, but merely requires us 
to make an ``appropriate'' adjustment. Therefore, we believe we have 
some discretion as to the manner in which we apply the prospective 
adjustment of -3.9 percent. Applying the full prospective adjustment of 
-3.9 percent for FY 2011, in combination with the proposed recoupment 
adjustment of -2.9 percent, discussed below, would require an aggregate 
adjustment of -6.8 percent. As we discuss more fully below, it has been 
our practice to moderate payment adjustments when necessary to mitigate 
the effects of significant downward adjustments on hospitals, to avoid 
what could be widespread, disruptive effects of such adjustments on 
hospitals. As we also discuss below, we are required to implement the 
adjustment in section 7(b)(1)(B) of Public Law 110-90 no later than FY 
2012, and accordingly, in the FY 2011 proposed rule, we proposed an 
adjustment under that section for FY 2011 (75 FR 23870-23871). 
Therefore, we believe it is appropriate to not implement any or all of 
the -3.9 percent prospective adjustment in FY 2011. Accordingly, we did 
not propose a prospective adjustment under section 7(b)(1)(A) of Public 
Law 110-90 for FY 2011 (75 FR 23868-23870). We note

[[Page 50062]]

that, as a result, payments in FY 2011 (and in each future year until 
we implement the requisite adjustment) will be 3.9 percent higher than 
they would have been if we had implemented an adjustment under section 
7(b)(1)(A) of Public Law 110-90. Our actuaries estimate that this 3.9 
percentage point increase will result in an aggregate payment of 
approximately $4 billion. We also note that payments in FY 2010 are 
expected to be 3.9 percent higher than they would have been if we had 
implemented an adjustment under section 7(b)(1)(A) of Public Law 110-
90, which our actuaries estimate will increase aggregate payments by 
approximately $4 billion in FY 2010.
    In the FY 2011 IPPS/LTCH PPS proposed rule, we sought public 
comment on our proposal not to apply in FY 2011 the -3.9 percent 
prospective adjustment to the average standardized amounts required 
under section 7(b)(1)(A) of Public Law 110-90 in order to eliminate the 
full effect of the documentation and coding changes on future payments. 
We note that this proposal would require us to apply the -3.9 percent 
adjustment in future payment years, which may be applied all at once in 
a single year or phased in over more than one year. As noted earlier, 
we have updated our analysis with FY 2009 data on claims paid through 
March 2010 for this FY 2011 IPPS/LTCH PPS final rule.
    MedPAC addressed the issue of providing for the required -3.9 
percent prospective adjustment to the average standardized amounts 
required under section 7(b)(1)(A) of Public Law 110-90. We discuss its 
recommendation in the context of our proposal for a recoupment 
adjustment below.
7. Recoupment or Repayment Adjustment for FY 2010 Authorized by Section 
7(b)(1)(B) of Public Law 110-90
    As indicated in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 
43773), we estimated a 2.5 percent change (estimated from analysis of 
more recent data for the FY 2010 final rule than the data used for that 
proposed rule) due to documentation and coding that did not reflect 
real changes in case-mix for discharges occurring during FY 2008, 
exceeding the -0.6 percent prospective documentation and coding 
adjustment applied under section 7(a) of Public Law 110-90 by 1.9 
percentage points. We stated that our actuaries had estimated that this 
1.9 percentage point increase resulted in an increase in aggregate 
payments of approximately $2.2 billion. As described earlier, section 
7(b)(1)(B) of Public Law 110-90 requires an adjustment for discharges 
occurring in FYs 2010, 2011, and/or 2012 to offset the estimated amount 
of this increase in aggregate payments (including interest). Although 
section 7(b)(1)(B) of Public Law 110-90 requires us to make this 
adjustment in FYs 2010, 2011, and/or 2012, we have discretion as to 
when during this 3-year period we will apply the adjustment.
    We did not propose to make an adjustment to the FY 2010 average 
standardized amounts to offset, in whole or in part, the estimated 
increase in aggregate payments for discharges occurring in FY 2008, but 
stated in the proposed rule that we intended to address this issue in 
future rulemaking. That is, we stated that we would address recouping 
the additional expenditures that occurred in FY 2008 as a result of the 
1.9 percentage point difference between the actual changes in 
documentation and coding that do not reflect real changes in case-mix 
(2.5 percent), and the -0.6 percent adjustment applied under Public Law 
110-90 in FY 2011 and/or FY 2012, as required by law. We indicated 
that, while we had the statutory authority to make this -1.9 percent 
recoupment adjustment entirely in FY 2010, we were delaying the 
adjustment until FY 2011 and FY 2012 because we did not yet have any 
data on the magnitude of the documentation and coding effect in FY 
2009. We stated that as we have the authority to recoup the aggregate 
effect of this 1.9 percentage point difference in FY 2008 IPPS payments 
in FY 2011 or FY 2012 (with interest), delaying this adjustment would 
have no effect on Federal budget outlays. We indicated that we intended 
to wait until we have a complete year of data on the FY 2009 
documentation and coding effect before applying a recoupment adjustment 
for IPPS spending that occurred in FY 2008 or we estimate will occur in 
FY 2009.
    As discussed above, section 7(b)(1)(B) of Public Law 110-90 
requires the Secretary to make an adjustment to the standardized 
amounts under section 1886(d) of the Act to offset the estimated 
increase or decrease in aggregate payments for FY 2009 (including 
interest) resulting from the difference between the estimated actual 
documentation and coding effect and the documentation and coding 
adjustments applied under section 7(a) of Public Law 110-90. This 
determination must be based on a retrospective evaluation of claims 
data. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43774), we 
stated that because we would not receive all FY 2009 claims data prior 
to publication of the final rule, we would address any increase or 
decrease in FY 2009 payments in future rulemaking for FY 2011 and 2012 
after we perform a retrospective evaluation of the FY 2009 claims data. 
At that time, our actuaries estimated that this adjustment would be 
approximately -3.3 percent. This reflected the difference between the 
estimated 4.8 percent cumulative actual documentation and coding 
changes for FY 2009 (2.5 percent for FY 2008 and an additional 2.3 
percent for FY 2009) and the cumulative -1.5 percent documentation and 
coding adjustments applied under section 7(a) of Public Law 110-90 (-
0.6 percent in FY 2008 and -0.9 percent in FY 2009). We noted that the 
actual adjustments were multiplicative and not additive. This estimated 
4.8 percent cumulative actual documentation and coding changes for FY 
2009 included the impact of the changes in documentation and coding 
first occurring in FY 2008 because we believed hospitals would continue 
these changes in documentation and coding in subsequent fiscal years. 
Consequently, we believed that these documentation and coding changes 
would continue to impact payments under the IPPS absent a prospective 
adjustment to account for the effect of these changes.
    We note that, unlike the adjustment to the standardized amounts 
under section 7(b)(1)(A) of Public Law 110-90 described earlier, any 
adjustment to the standardized amounts under section 7(b)(1)(B) of 
Public Law 110-90 would not be cumulative, but would be removed for 
subsequent fiscal years once we have offset the increase in aggregate 
payments for discharges for FY 2008 expenditures and FY 2009 
expenditures, if any.
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24096), 
we did not propose to offset the 1.9 percent increase in aggregate 
payments (including interest) for discharges occurring in FY 2008 
resulting from the adoption of the MS-DRGs, but to instead address this 
issue in future rulemaking for FYs 2011 and 2012.
    In response to the FY 2010 proposed rule, MedPAC stated in its 
comments on the adjustment to the standardized amounts under section 
7(b)(1)(B) of Public Law 110-90: ``In addition, it would be desirable 
for CMS to minimize year-to-year changes in payment adjustments it must 
make to recover overpayments that were made in 2008 and 2009. To 
achieve this goal, CMS should consider spreading the recovery of 2008 
overpayments over 3 years, beginning in 2010.'' Some commenters 
recommended that CMS seek to extend the timeframe beyond 2 years to 
phase

[[Page 50063]]

in the estimated -6.6 percent adjustment to the standardized amount. 
The commenters asked CMS to seek necessary legislative action to 
accommodate such a policy. Most commenters expressed concern with the 
significant negative financial impacts that would be incurred by 
providers if CMS adopted that proposed -1.9 percent documentation and 
coding adjustment in FY 2010. The commenters cited providers' already 
small or negative margins for Medicare payments, and requested that CMS 
not further reduce payments during the current period of economic 
instability and reduced State funding. Other commenters indicated that 
it would be appropriate to delay any adjustment to the standardized 
amounts under section 7(b)(1)(B) of Public Law 110-90 until after CMS 
has the opportunity to fully examine the FY 2009 claims data.
    In response to these comments in FY 2010, we indicated that we 
recognized that any adjustment to account for the documentation and 
coding effect observed in the FY 2008 and FY 2009 claims data may 
result in significant future payment reductions for providers. However, 
we indicated that we are required under section 7(b)(1)(B) of Public 
Law 110-90 to recapture the difference of actual documentation and 
coding effect in FY 2008 and FY 2009 that is greater than the prior 
adjustments. We agreed with the commenters who requested that CMS delay 
any adjustment and, for the reasons stated above, indicated that we 
expect to address this issue in this FY 2011 rulemaking.
    As indicated in section II.D.4. of this preamble, the change due to 
documentation and coding that did not reflect real changes in case mix 
for discharges occurring during FY 2008 and FY 2009 exceeded the -0.6 
and -0.9 percent prospective documentation and coding adjustment 
applied under section 7(a) of Public Law 110-90 for those 2 years 
respectively by 1.9 percentage points in FY 2008 and 3.9 percentage 
points in FY 2009. In total, this change exceeded the cumulative 
prospective adjustments by 5.8 percentage points. Our actuaries 
currently estimate that this 5.8 percentage point increase resulted in 
an increase in aggregate payments of approximately $6.9 billion. We 
note that there may be a need to actuarially adjust the recoupment 
adjustment to accurately reflect accumulated interest. Therefore, an 
aggregate adjustment of -5.8 percent in FYs 2011 and 2012, subject to 
actuarial adjustment to reflect accumulated interest, is necessary in 
order to meet the requirements of section 7(b)(1)(B) of Public Law 110-
90 to adjust the standardized amounts for discharges occurring in FYs 
2010, 2011, and/or 2012 to offset the estimated amount of the increase 
in aggregate payments (including interest) in FYs 2008 and 2009. In the 
FY 2011 proposed rule (75 FR 23871), we stated that we intend to take 
into account the need to reflect accumulated interest in proposing a 
recoupment adjustment under section 7(b)(1)(B) of Public Law 110-90 for 
FY 2012. We indicated that we will invite public comments on our 
proposal at that time.
    It is often our practice to phase in rate adjustments over more 
than one year in order to moderate the effect on rates in any one year. 
Therefore, consistent with the policies we have adopted in many similar 
cases, in the FY 2011 proposed rule, we proposed to make an adjustment 
to the standardized amount of -2.9 percent, representing approximately 
half of the aggregate adjustment required under section 7(b)(1)(B) of 
Public Law 110-90, for FY 2011. An adjustment of this magnitude allows 
us to moderate the effects on hospitals in one year while 
simultaneously making it possible to implement the entire adjustment 
within the timeframe required under section 7(b)(1)(B) of Public Law 
110-90. As we have previously noted, unlike the prospective adjustment 
to the standardized amounts under section 7(b)(1)(A) of Public Law 110-
90 described earlier, the recoupment or repayment adjustment to the 
standardized amounts under section 7(b)(1)(B) of Public Law 110-90 is 
not cumulative, but would be removed for subsequent fiscal years once 
we have offset the increase in aggregate payments for discharges for FY 
2008 expenditures and FY 2009 expenditures. In keeping with our 
practice of moderating payment adjustments when necessary, we stated 
that we anticipated that the proposal will have an additional, and 
significant, moderating effect on implementing the requirements of 
section 7(b)(1)(B) of Public Law 110-90 for FY 2012. Specifically, we 
noted an advantage of the proposal for FY 2011 is that we anticipate 
removing the proposed FY 2011 -2.9 percent adjustment from the rates in 
FY 2012, when it would also be necessary under current law to apply the 
remaining approximately -2.9 percent adjustment required by section 
7(b)(1)(B) of Public Law 110-90. These two steps in FY 2012, restoring 
the FY 2011 -2.9 percent adjustment, and applying the remaining 
adjustment of approximately -2.9 percent, would effectively cancel each 
other out. The result would be an aggregate adjustment of approximately 
0.0 percent (subject to the need to account for accumulated interest, 
as discussed above) under section 7(b)(1)(B) of Public Law 110-90 in FY 
2012. However, while we noted this anticipated effect of the FY 2011 
proposal, we did not make a formal proposal for the further 
implementation of section 7(b)(1)(B) of Public Law 110-90 in FY 2012 in 
the FY 2011 proposed rule.
    In the FY 2011 IPPS/LTCH PPS proposed rule, we sought public 
comment on our proposal to offset part of the total 5.8 percent 
increase in aggregate payments (including interest) for discharges 
occurring in FY 2008 and FY 2009 resulting from the adoption of the MS-
DRGs in FY 2011, noting that this proposal would result in a -2.9 
percent adjustment to the standardized amount. We noted that we 
intended to update our analysis with FY 2009 data on claims paid 
through March 2009 (sic) for this FY 2011 IPPS/LTCH PPS final rule. (We 
note that the March 2009 update date for claims data in the proposed 
rule should have been March 2010.) As intended, we have updated our 
analysis with FY 2009 data on claims paid through March 2010 in this FY 
2011 IPPS/LTCH PPS final rule.
    We received numerous comments on our proposal, especially from 
national and regional hospital associations, hospital systems, and 
individual hospitals. MedPAC also commented on our proposal.
    Comment: One commenter requested that CMS refrain from using 
``negative terminology'' to refer the documentation and coding 
improvement practices that, in response to the introduction of MS-DRGs, 
resulted in overall case-mix increase. While CMS frequently refers to 
implementing negative payment adjustments to account for this case-mix 
increase, the commenter requested that CMS we refer to any such 
adjustment as a ``budget-neutrality adjustment.'' The commenter 
contended that referring to ``overpayments'' and ``negative payment 
adjustments'' inaccurately portrays coding professionals in a poor 
manner, and is counterproductive to CMS' goal of improving the quality 
and consistency of health care data.
    Response: When describing the MS-DRG documentation and coding 
adjustment, we have not intended to suggest that these adjustments are 
necessary because coders have acted inappropriately, unethically, or 
otherwise in bad faith by employing documentation and coding 
improvement practices associated with the adoption of the MS-DRG 
system.

[[Page 50064]]

Under the previous DRG definitions, it was possible for high-severity 
cases not to be paid more than cases with lower severity. The MS-DRGs 
were introduced as part of the effort to ensure that the relative 
Medicare payment rates that hospitals received more reasonably matched 
the resources that hospitals expended in furnishing care, and CMS 
encouraged hospitals to code as accurately as possible with that goal 
in mind.
    However, it is our finding that the systematic effect of changing 
documentation and coding in order to receive the fullest payment for 
providing care to beneficiaries under the MS-DRGs has led to an 
increase in aggregate payments that do not reflect real changes in 
case-mix severity, and the statute specifically requires that we adjust 
for and recover these associated overpayments due to such documentation 
and coding improvements. We believe our use of certain terminology (to 
which the commenter took exception) is the most accurate description of 
the specific statutorily required activities that CMS must pursue.
    Comment: Numerous commenters detailed the potentially severe 
negative fiscal impact that would be experienced by providers if the 
proposed documentation and coding improvement adjustment were to be 
implemented. Many commenters contended that their individual hospital 
documentation and coding practices were not specifically changed or did 
not change at the levels shown by our analysis with the introduction of 
MS-DRGs, and that they would be unfairly penalized by the payment 
adjustment. Some of these commenters provided examples that they 
believed supported their claims. Another commenter requested that CMS 
implement a more refined payment adjustment methodology that would not 
penalize hospitals with compliant and ethical documentation and coding 
standards.
    Response: We understand the concerns about possible financial 
disruption that may be caused by the proposed documentation and coding 
improvement payment adjustment. However, we are required by section 
7(b)(1)(B) of Public Law 110-90 to implement the appropriate recoupment 
or repayment adjustment based on our analysis no later FY 2012. These 
payment adjustments are necessary to correct past overpayments due to 
increases in aggregate payments that do not reflect real changes in 
case-mix severity, but instead are caused solely by documentation and 
coding improvements. We proposed a phase-in implementation of the 
required adjustments to allow hospitals time to adjust to future 
payment differences and to moderate the effect of this adjustment in 
any given year. We do not believe that it would prudent to postpone 
making any recoupment adjustment beyond FY 2011. A postponement would 
require us to make the entire -5.8 percent adjustment that is warranted 
by our analysis in just one year (FY 2012) in order to meet the 
statutory requirement of section 7(b)(1)(B) of Public Law 110-90. Such 
a delay in making the required adjustment would not be to the financial 
benefit of hospitals.
    Under Medicare's prospective payment systems, it is neither 
feasible nor possible to quantify any amount of case-mix increase due 
to documentation and coding improvements by a specific hospital. 
Therefore, it is necessary for CMS to propose a national adjustment to 
meet the statutory requirement of section 7(b)(1)(B) of Public Law 110-
90 to calculate and recover any overpayments caused by documentation 
and coding improvements due to the introduction of the MS-DRG system.
    Comment: In its public comment, MedPAC describes the history and 
nature of the documentation and coding adjustment. MedPAC stated that 
``CMS adopted the MS-DRGs to improve the distribution of payments.'' 
Specifically, it discussed how, under the DRG definitions used 
previously, high-severity cases may have been paid similarly to cases 
with low or moderate severity. MedPAC emphasized that ``the shift to 
MS-DRGs was taken to improve the distribution of payments, not change 
the aggregate level of payments.'' Further, MedPAC described the 
financial incentive for hospitals to improve documentation and coding 
under the MS-DRG system, and also the statutory requirement for CMS to 
ensure that changes in the DRGs and relative weights do not increase or 
decrease aggregate IPPS payments absent those changes, noting that 
Public Law 110-90 provided for specific requirements related to 
payments for FYs 2008 and 2009. MedPAC pointed out that, as a result of 
these combined legal requirements, our proposals ``do not represent 
payment cuts, but rather offset unintended overpayments to hospitals.''
    MedPAC performed an independent analysis of claims data to 
determine the effect of documentation and coding in FYs 2008 and 2009. 
MedPAC stated, ``[i]n our judgment, CMS's analytic methods are valid. 
Using similar methods, our analysis of Medicare hospital inpatient 
claims for 2007-2009 confirms all of CMS's findings.'' (We note that, 
in line with our evaluation of claims data in for this final rule, 
MedPAC's retrospective evaluation of the same claims data yielded 
nearly identical results.)
    MedPAC's analysis demonstrated that the cumulative effect of 
documentation and coding in FY 2009 was 5.4 percent and the cumulative 
overpayment in FY 2009 was 5.8 percent. Furthermore, because CMS has 
already implemented adjustments of -0.6 percent and -0.9 percent in FYs 
2008 and 2009 respectively, MedPAC concurred that the necessary 
adjustment under section 7(b)(1)(B) of Public Law 110-90 requires CMS 
to prospectively reduce payment rates by -3.9 percent to prevent 
further increases in aggregate spending due to the change to MS-DRGs. 
(As we discuss elsewhere in this section, unlike the recoupment 
adjustment, the statute does not prescribe a specific timeframe within 
which we must implement the prospective adjustment.) In fact, MedPAC 
concluded, ``CMS correctly estimated the effect of documentation and 
coding on case mix and patients.''
    However, while acknowledging the concerns we expressed in opting to 
phase in implementing the full retrospective adjustment (-5.8 percent) 
together with the prospective adjustment (-3.9 percent), noting that 
this combined adjustment of -9.7 percent ``may be financially 
disruptive''), MedPAC expressed concerns that our proposal to adjust 
rates by -2.9 percent, which is half of the retrospective adjustment 
needed to address the cumulative overpayment in FY 2011, is 
insufficient to fully offset unintended overpayments to hospitals. 
Furthermore, MedPAC stated that such a delay in implementing offsets 
for the operating and capital IPPS will cause a progressive 
accumulation in overpayments, which cannot be recovered based upon 
current statutory authority. MedPAC stated plainly that ``CMS will not 
achieve budget neutrality unless Congress directs it to recover all 
overpayments.''
    As such, MedPAC recommended, for both the operating and capital 
IPPS, that ``overpayments should be stopped [and] all overpayment 
should be recovered.'' In making that recommendation, MedPAC directed 
CMS to its March 2010 Report to Congress where it recommended that 
Congress change the law to require CMS to recover all overpayments with 
interest. It noted that this would shift our focus to the prevention of 
future overpayments in the operating and capital IPPS. MedPAC further 
noted that such a shift might be implemented as prospective adjustments 
and would results in slower

[[Page 50065]]

accumulation of future overpayments. Specifically, it summarized its 
recommendations for both the operating and capital IPPS as:
     MedPAC's approach would reduce payments in increments of 
no more than 2 percent for 3 years.
     Hospitals would continue to receive their scheduled 
updates, which would offset much of their reduction.
     After 3 years, hospitals would receive their scheduled 
updates without any additional offsets.
     After roughly 6 years, overpayments would be fully 
recovered, and hospitals would see an increase in payments of roughly 2 
percent in addition to their scheduled update.
    In the absence of the changes in law that would permit such an 
approach, MedPAC provided an alternative multiyear approach in its 
public comments in response to our request for comments on our proposal 
to offset part of the cumulative overpayment in FY 2011 and our 
proposal not to apply the remaining prospective adjustment in FY 2011. 
MedPAC recommended that CMS recover the FY 2008 and 2009 overpayments 
as quickly as possible to mitigate the need for further and more 
drastic payment corrections. In FY 2012, MedPAC recommended completing 
the retrospective adjustment, with accumulated interest, to fulfill the 
requirements of section 7(b)(1)(B) of Public Law 110-90 and then making 
additional prospective adjustments in that year of -2.0 percent. The 
nature of the retrospective adjustment would moderate the impact of the 
total adjustment for FY 2012, and MedPAC estimated the net effect to be 
roughly 2.0 percent. (As we discuss below, one reason for the 
moderating effect of the recoupment adjustment is that it is only a 1-
year adjustment, rather than a permanent and cumulative adjustment. As 
a result, the FY 2011 recoupment adjustment would be removed from the 
FY 2012 rate before any new adjustments are applied. For example, in FY 
2012, the -2.9 percent adjustment from FY 2011 would be removed by 
adding 2.9 percent to the FY 2012 rate before making any additional 
adjustments through rulemaking.) In FY 2013, MedPAC recommended 
completing the prospective adjustment for increases that occurred in 
FYs 2008 and 2009, noting that, again, in FY 2013, the impact of the 
prospective adjustment would be moderated by the expiration of the 
retrospective adjustment in the prior year.
    Response: We appreciate MedPAC's independent validation and support 
of our methodology. We note that MedPAC stated that its estimate for 
the cumulative documentation and coding effect for FYs 2008 and 2009 
net of measurement error is 5.4 percent. This estimate was derived 
using the same data sources and analogous methodologies as the analysis 
set forth by CMS in this FY 2011 IPPS/LTCH-PPS final rule and matches 
the CMS estimate in the prior discussion.
    Furthermore, we agree with MedPAC's conclusions on the overall 
financial implications of implementing our proposed -2.9 percent 
payment rate adjustment. We share MedPAC's concerns about delaying the 
prevention of future overpayments in both the capital and operating 
IPPS, but we appreciate its acknowledgment of CMS' discretion regarding 
the timing of implementation of the prospective adjustment and of the 
potential financial disruption from implementation of the full 
prospective reduction in FY 2011 (-3.9 percent) in addition to the 
proposed retroactive adjustment (-2.9 percent). We also appreciate 
MedPAC's concerns for prioritizing the recoupment of FYs 2008-2009 
overpayments for the operating IPPS because CMS lacks the statutory 
authority to adjust for further accumulation of these overpayments 
beyond FY 2012. MedPAC appropriately pointed out the moderating effect 
of the multiyear approach to implementing the retroactive adjustment to 
recover overpayments in FYs 2008 and 2009. The expiration of these 
adjustments in the following year mitigates any negative adjustments 
made in that following year. We thank MedPAC for its specificity in 
setting forth an approach for completing the adjustments prescribed 
under sections 7(b) and (c) of Public Law 110-90 and will take these 
recommendations into consideration in future rulemaking. Finally, we 
concur with MedPAC's statement that these adjustments associated with 
Public Law 110-90 and section 1886(d)(3)(vi) of the Act should not be 
seen as payment cuts, but as offsets to unintended overpayments to 
hospitals.
    Comment: Most commenters, including the AHA, agreed that there were 
documentation and classification increases that were in excess of the 
statutory 0.6 percent and 0.9 percent adjustments specified in Public 
Law 110-90. However, as in prior rulemaking on this issue, most 
commenters again questioned the methodology employed by MedPAC and our 
actuaries to determine the magnitude of the excess. These comments were 
generally similar to or cited the comment from the AHA, which stated in 
summary:
    ``The AHA believes there is a fundamental flaw in CMS' methodology 
for determining the effect of documentation and coding changes on the 
FY 2008 and FY 2009 CMIs. Specifically, in its analysis, CMS states 
that the increase in payments it found could not be due to real case-
mix change because its analysis looks at only one year of patient 
claims. However, we assert that the increase cannot be deemed 
documentation and coding change either, because, again, the analysis 
looks at only one year of patient claims.''
    ``Our analysis, which used multiple years of patient claims, 
clearly shows that a significant portion of the change CMS found is 
actually the continuation of historical trends, rather than the effect 
of documentation and coding changes due to implementation of MS-DRGs. 
This analysis found a documentation and coding effect of 0.9 percent 
for FYs 2008 and 2009.''
    The AHA also submitted trend analyses in support of its contention 
that real case-mix is increasing as corroboration of its alternative 
finding of a documentation and coding effect of 0.9 percent. These 
materials included a trend analysis of the percentage of Medicare 
discharges involving the ICU, a trend analysis of data from the Medical 
Expenditure Panel Survey (MEPS), and a trend analysis of data from the 
Healthcare Cost and Utilization Project (HCUP).
    Some commenters, including the AHA, also stated that even without 
taking into account the alternative analyses presented by the AHA, the 
CMS methodology overstates the documentation and classification growth 
due to an understatement in the CMI value obtained when grouping the FY 
2009 claims data through the FY 2007 pre MS-DRG GROUPER. This assertion 
was also based on a trend analysis.
    Response: As stated earlier, we agree with MedPAC's comment that 
``CMS correctly estimated the effect of DCI on case mix and payments * 
* * . In our judgment, CMS's analytic methods are valid. Using similar 
methods, our analysis of Medicare hospital inpatient claims for 2007-
2009 confirms all of CMS's findings.''
    We also agree with the commenters, including the AHA, to the extent 
that they indicated that there were documentation and classification 
increases that were in excess of the statutory 0.6 percent and 0.9 
percent adjustments specified in Public Law 110-90. However, we 
disagree with the

[[Page 50066]]

commenters' assertion that there is a fundamental flaw in the 
analytical approach used by our actuaries and MedPAC to determine the 
magnitude of the documentation and classification increase because our 
methodology primarily utilizes a single year (FY 2009) of claims data. 
As stated in prior rulemaking, most recently in the FY 2011 IPPS/LTCH 
PPS proposed rule (75 FR 23867), overall case-mix growth is 
predominately comprised of three factors: Real case-mix growth; a 
documentation and classification effect; and a measurement effect. 
Section 7(b)(1)(B) of Public Law 110-90 requires that the Secretary 
make appropriate adjustment following a determination that the 
implementation of the MS-DRG system ``resulted in changes in coding and 
classification that did not reflect real changes in case mix.'' Section 
7 of Public Law 110-90 does not require that we use a specific 
methodology when conducting this analysis, and we believe that the use 
of the FY 2009 claims data allows us to directly remove real changes in 
case-mix from the calculation, consistent with the statutory 
requirement. Differences in case-mix calculated using the pre- and 
post-MS-DRG GROUPERs on the FY 2009 data, as detailed previously in 
this final rule, cannot reflect real case-mix change, by definition, 
because the same set of patients and claims is being processed under 
the two GROUPERs. The corroborative analyses performed by MedPAC and 
our actuaries more directly examine shifts in cases from lower severity 
and cost MS-DRGs to higher severity and cost groups within the same 
base DRG than the alternative approach submitted by the commenters who 
asserted that real growth in case mix follows a historical trend line. 
The alternative approach does not disaggregate the overall growth in 
case mix into its three components as does the methodology we set forth 
that MedPAC corroborates. As MedPAC stated in its comment letter:
    ``The share of cases without a CC or MCC declined more than 6 
percentage points in 2008 and an additional 2 percentage points in 
2009, while the shares of cases with a MCC increased by more than 6 and 
3 percentage points, respectively * * * When we looked at all 259 base 
DRGs that are split in some fashion based on secondary diagnoses, we 
found that all but one had essentially the same pattern of shifts in 
2008 and 2009 toward the highest severity and cost MS-DRG and away from 
the lowest severity or cost MS-DRG. In 68 of these base DRGs, the 
cumulative shift from 2007 to 2009 in the share of cases toward the 
highest-weighted MS-DRG was at least 10 percentage points.''
    Nevertheless, despite our position that our methodology more 
directly measures the relevant increase, we did examine the alternative 
approach favored by commenters for calculating the documentation and 
classification increase. As a general statement, the approach of 
examining historical trends to estimate what case-mix would have been 
in the absence of the adoption of the MS-DRGs should not necessarily 
yield significantly different results from the analysis done by our 
actuaries and MedPAC if an appropriate historical trend can be 
determined. We have concerns about the determination of an appropriate 
historical trend.
    We believe that the determination of an appropriate historical 
trend is less straightforward than our methodology, which, as described 
above, simply removes real case-mix growth from the calculation. One 
issue with the trend analysis is the determination of the appropriate 
time period on which to base the trend. We note in our examination of 
the AHA approach that it begins with the case-mix change for FY 2001. 
MedPAC, in its comment letter, provided an analysis of the change in 
actual case-mix from FY 1998 to FY 2009:
    ``We calculated the annual percent change in the national aggregate 
case-mix index (CMI) for the period from 1997 to 2009. These actual CMI 
values are based on the DRG version, relative weights, and transfer 
policies that were in effect for each year. To calculate the percent 
change for each year, we used national aggregate average CMIs for the 
cohort of hospitals paid under the IPPS in each pair of adjacent years. 
We also excluded all hospitals that had converted to critical access 
hospital status (CAH) by the end of 2009.''
    We created the following table summarizing the results of MedPAC's 
analysis.

                 Changes in Case Mix for IPPS Hospitals
------------------------------------------------------------------------
                          Year                                Percent
------------------------------------------------------------------------
1998....................................................            -0.5
1999....................................................            -0.7
2000....................................................            -0.8
2001....................................................            -0.7
2002....................................................             0.7
2003....................................................             1.0
2994....................................................             0.9
2005....................................................             0.6
2006....................................................             0.4
2007....................................................            -0.2
2008....................................................             2.0
2009....................................................             2.6
------------------------------------------------------------------------

    We note that the sustained negative changes in actual CMI from FY 
1998 through FY 2000 are not reflected in the AHA analysis. If 
included, they would significantly increase the AHA estimate of 
documentation and coding growth because the slope of the AHA trend line 
would be significantly less.
    A second critical issue with the AHA approach is the determination 
of the appropriate cohort of hospitals to include in the calculation. 
For example, if a hospital converts to CAH status, decisions with 
respect to the inclusion or exclusion of data from the time period 
before the conversion will influence the trend analysis. In FY 2000, 
there were approximately 300 CAHs, but, by FY 2007, there were 
approximately 1,300 CAHs. We note that MedPAC excluded all hospitals 
that had converted to CAH status by the end of 2009. It was not 
apparent how the data from these hospitals was treated in the AHA 
approach. CAHs tend to have lower than average case-mix values; 
therefore, including the data from one or more years before the 
conversion and then excluding the data after the conversion 
artificially increases the trend line and decreases the magnitude of 
the documentation and classification estimate.
    Given these concerns about the appropriateness of the AHA 
historical trend, it follows that we are concerned about extrapolating 
the AHA historical trend into FY 2009. AHA's extrapolation assumes that 
changes in case-mix increase at a linear and, therefore, consistent 
rate, when, in fact, changes in case-mix do not necessarily follow a 
consistent pattern over time, as MedPAC's case-mix analysis pointed 
out.
    After a careful review of the comments, we continue to find the 
methodology used by our actuaries and MedPAC to determine the magnitude 
of the changes in coding and classification that did not reflect real 
changes in case mix to be the most appropriate methodology because it 
directly removes real changes in case-mix from the calculation 
consistent with the statutory requirement. We also question the time 
period and cohort selections made by the AHA in its analysis and the 
appropriateness of extrapolating this AHA trend to FY 2009 when a much 
more straightforward methodology exists for estimating documentation 
and coding growth.
    Comment: One commenter, while supporting the proposed FY 2011 
adjustment of -2.9 percent, stated that CMS should not implement any 
further adjustment in FY 2012 without a more detailed quantification of 
the factors

[[Page 50067]]

contributing to case-mix growth so that CMS can separate the factors 
that should be included in the adjustment from the factors that should 
be excluded. For example, the commenter appears to believe that the 
effect of resequencing the diagnosis codes on a claim (as opposed to 
the addition of new or different diagnosis codes) should not be 
included in the section 7 adjustments because the commenter believes 
this is not a documentation and coding change, even if the resequencing 
results in classification to a higher MS-DRG. Other factors cited by 
the commenter included new diagnosis codes and certain definitional 
changes to the base-DRGs.
    Response: Section 7 of Public Law 110-90 requires us to adjust for 
changes in ``coding and classification'' that do not reflect real 
changes in case-mix. We believe that the reclassifications cited by the 
commenter are properly accounted for in the documentation and coding 
adjustment; these factors may affect the MS-DRG classification and 
affect payment without a corresponding real increase in patient 
severity of illness. For this reason, we believe that the effects of 
these factors are appropriately included in the section 7 adjustments, 
consistent with section 7(b)(1)(B) of Public Law 110-90, which requires 
adjustments to the extent that ``implementation'' of the MS-DRG system 
results in ``coding and classification that did not reflect real change 
in case-mix.''
    After consideration of the public comments we received, as well as 
MedPAC's detailed analysis, we have decided to finalize our proposal to 
make an adjustment to the standardized amount of -2.9 percent, 
representing approximately half of the aggregate recoupment adjustment 
required under section 7(b)(1)(B) of Public Law 110-90, for FY 2011. We 
are persuaded by MedPAC's analysis, and by our own review of the 
methodologies recommended by various commenters, that the methodology 
we have employed to determine the required recoupment adjustment is 
sound. We understand the concerns expressed by many commenters about 
the potential adverse financial effects on hospitals. However, we are 
required by the statute to implement this adjustment no later than FY 
2012. We do not believe that it would be in the interest of hospitals 
to delay this required adjustment entirely until FY 2012. Rather, we 
have sought, as we commonly do, to moderate the potential impact on 
hospitals by phasing in the required adjustment over more than one 
year. The adjustment to the standardized amount of -2.9 percent that we 
are finalizing represents approximately half of the aggregate 
adjustment required under section 7(b)(1)(B) of Public Law 110-90 for 
FY 2011. As we noted in making the proposal, there is a distinct 
advantage to phasing in the required adjustment in this manner. As we 
stated above, a major advantage of making the -2.9 percent adjustment 
to the standardized amount in FY 2011 is that, because the required 
recoupment adjustment is not cumulative, we can anticipate removing the 
FY 2011 -2.9 percent adjustment from the rates in FY 2012, when it 
would also be necessary under current law to apply the remaining 
approximately -2.9 percent adjustment required by section 7(b)(1)(B) of 
Public Law 110-90. These two steps in FY 2012, restoring the FY 2011 -
2.9 percent adjustment and then applying the remaining adjustment of 
approximately -2.9 percent, would effectively cancel each other out. 
The result would be an aggregate adjustment of approximately 0.0 
percent (subject to the need to account for accumulated interest, as 
discussed above) under section 7(b)(1)(B) of Public Law 110-90 in FY 
2012. However, while we again note this anticipated effect of the FY 
2011 policy, we have not yet made a formal proposal for the further 
implementation of section 7(b)(1)(B) of Public Law 110-90 in FY 2012. 
Nevertheless, this anticipated consequence of adopting a -2.9 percent 
adjustment for FY 2011 should substantially reduce the potential 
financial impact of this required adjustment on hospitals. We believe 
that this is a reasonable and fair approach which satisfies the 
requirements of the statute while substantially moderating the impact 
on hospitals.

                               FY 2011 MS-DRG Documentation and Coding Adjustment
----------------------------------------------------------------------------------------------------------------
                                     Required        Required                       Recoupment
                                    prospective     recoupment         Total       adjustment to     Remaining
                                  adjustment for  adjustment for    adjustment        FY 2011       adjustment
                                   FYs 2008-2009   FYs 2008-2009                     payments
----------------------------------------------------------------------------------------------------------------
Level of adjustments............           -3.9%           -5.8%           -9.7%           -2.9%           -6.8%
----------------------------------------------------------------------------------------------------------------

8. Background on the Application of the Documentation and Coding 
Adjustment to the Hospital-Specific Rates
    Under section 1886(d)(5)(D)(i) of the Act, SCHs are paid based on 
whichever of the following rates yields the greatest aggregate payment: 
the Federal rate; the updated hospital-specific rate based on FY 1982 
costs per discharge; the updated hospital-specific rate based on FY 
1987 costs per discharge; the updated hospital-specific rate based on 
FY 1996 costs per discharge; or the updated hospital-specific rate 
based on FY 2006 costs per discharge. Under section 1886(d)(5)(G) of 
the Act, MDHs are paid based on the Federal national rate or, if 
higher, the Federal national rate plus 75 percent of the difference 
between the Federal national rate and the updated hospital-specific 
rate based on the greatest of the FY 1982, FY 1987, or FY 2002 costs 
per discharge. In the FY 2008 IPPS final rule with comment period (72 
FR 47152 through 47188), we established a policy of applying the 
documentation and coding adjustment to the hospital-specific rates. In 
that final rule with comment period, we indicated that because SCHs and 
MDHs use the same DRG system as all other hospitals, we believe they 
should be equally subject to the budget neutrality adjustment that we 
are applying for adoption of the MS-DRGs to all other hospitals. In 
establishing this policy, we relied on section 1886(d)(3)(A)(vi) of the 
Act, which provides us with the authority to adjust ``the standardized 
amount'' to eliminate the effect of changes in coding or classification 
that do not reflect real change in case-mix.
    However, in the final rule that appeared in the Federal Register on 
November 27, 2007 (72 FR 66886), we rescinded the application of the 
documentation and coding adjustment to the hospital-specific rates 
retroactive to October 1, 2007. In that final rule, we indicated that, 
while we still believe it would be appropriate to apply the 
documentation and coding adjustment to the hospital-specific rates, 
upon further review, we decided that the

[[Page 50068]]

application of the documentation and coding adjustment to the hospital-
specific rates is not consistent with the plain meaning of section 
1886(d)(3)(A)(vi) of the Act, which only mentions adjusting ``the 
standardized amount'' under section 1886(d) of the Act and does not 
mention adjusting the hospital-specific rates.
    In the FY 2009 IPPS proposed rule (73 FR 23540), we indicated that 
we continued to have concerns about this issue. Because hospitals paid 
based on the hospital-specific rate use the same MS-DRG system as other 
hospitals, we believe they have the potential to realize increased 
payments from documentation and coding changes that do not reflect real 
increases in patients' severity of illness. In section 
1886(d)(3)(A)(vi) of the Act, Congress stipulated that hospitals paid 
based on the standardized amount should not receive additional payments 
based on the effect of documentation and coding changes that do not 
reflect real changes in case-mix. Similarly, we believe that hospitals 
paid based on the hospital-specific rates should not have the potential 
to realize increased payments due to documentation and coding changes 
that do not reflect real increases in patient severity of illness. 
While we continue to believe that section 1886(d)(3)(A)(vi) of the Act 
does not provide explicit authority for application of the 
documentation and coding adjustment to the hospital-specific rates, we 
believe that we have the authority to apply the documentation and 
coding adjustment to the hospital-specific rates using our special 
exceptions and adjustment authority under section 1886(d)(5)(I)(i) of 
the Act. The special exceptions and adjustment provision authorizes us 
to provide ``for such other exceptions and adjustments to [IPPS] 
payment amounts * * * as the Secretary deems appropriate.'' In the FY 
2009 IPPS final rule (73 FR 48448 through 48449), we indicated that, 
for the FY 2010 rulemaking, we planned to examine our FY 2008 claims 
data for hospitals paid based on the hospital-specific rate. We further 
indicated that if we found evidence of significant increases in case-
mix for patients treated in these hospitals that do not reflect real 
changes in case-mix, we would consider proposing application of the 
documentation and coding adjustments to the FY 2010 hospital-specific 
rates under our authority in section 1886(d)(5)(I)(i) of the Act.
    In response to public comments received on the FY 2009 IPPS 
proposed rule, we stated in the FY 2009 IPPS final rule that we would 
consider whether such a proposal is warranted for FY 2010. To gather 
information to evaluate these considerations, we indicated that we 
planned to perform analyses on FY 2008 claims data to examine whether 
there has been a significant increase in case-mix for hospitals paid 
based on the hospital-specific rate. If we found that application of 
the documentation and coding adjustment to the hospital-specific rates 
for FY 2010 is warranted, we indicated that we would include a proposal 
to do so in the FY 2010 IPPS proposed rule.
9. Documentation and Coding Adjustment to the Hospital-Specific Rates 
for FY 2011 and Subsequent Fiscal Years
    In the FY 2010 IPPS/RY 2010 LTCH proposed rule and final rule (74 
FR 24098 through 24100 and 74 FR 43775 through 43776, respectively), we 
discussed our performance of a retrospective evaluation of the FY 2008 
claims data for SCHs and MDHs using the same methodology described 
earlier for other IPPS hospitals. We found that, independently for both 
SCHs and MDHs, the change due to documentation and coding that did not 
reflect real changes in case-mix for discharges occurring during FY 
2008 slightly exceeded the proposed 2.5 percent result discussed 
earlier, but did not significantly differ from that result.
    Again, for the FY 2010 proposed rule, we found that the within-base 
DRG increases were almost entirely responsible for the case-mix change. 
In that proposed rule, we presented two Figures to display our results.
    Therefore, consistent with our statements in prior IPPS rules, we 
proposed to use our authority under section 1886(d)(5)(I)(i) of the Act 
to prospectively adjust the hospital-specific rates by the proposed -
2.5 percent in FY 2010 to account for our estimated documentation and 
coding effect in FY 2008 that does not reflect real changes in case-
mix. We proposed to leave this adjustment in place for subsequent 
fiscal years in order to ensure that changes in documentation and 
coding resulting from the adoption of the MS-DRGs do not lead to an 
increase in aggregate payments for SCHs and MDHs not reflective of an 
increase in real case-mix. The proposed -2.5 percent adjustment to the 
hospital-specific rates exceeded the -1.9 percent adjustment to the 
national standardized amount under section 7(b)(1)(A) of Public Law 
110-90 because, unlike the national standardized rates, the FY 2008 
hospital-specific rates were not previously reduced in order to account 
for anticipated changes in documentation and coding that do not reflect 
real changes in case-mix resulting from the adoption of the MS-DRGs.
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24100), 
we solicited public comment on the proposed -2.5 percent prospective 
adjustment to the hospital-specific rates under section 
1886(d)(5)(I)(i) of the Act and our proposal to address in the FY 2011 
rulemaking cycle any changes in FY 2009 case-mix due to changes in 
documentation and coding that do not reflect real changes in case-mix 
for discharges occurring during FY 2009. We also indicated that we 
intended to update our analysis with FY 2008 data on claims paid 
through March 2008 [sic] for the FY 2010 IPPS final rule. (We note that 
the March 2008 update claims paid data date in the proposed rule should 
have been March 2009.)
    Consistent with our approach for IPPS hospitals discussed earlier, 
in the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we also delayed 
adoption of a documentation and coding adjustment to the hospital-
specific rate until FY 2011. Similar to our approach for IPPS 
hospitals, we indicated that we would consider, through future 
rulemaking, phasing in the documentation and coding adjustment over an 
appropriate period. We also indicated that we would address, through 
future rulemaking, any changes in documentation and coding that do not 
reflect real changes in case-mix for discharges occurring during FY 
2009. We noted that, unlike the national standardized rates, the FY 
2009 hospital-specific rates were not previously reduced in order to 
account for anticipated changes in documentation and coding that do not 
reflect real changes in case-mix resulting from the adoption of the MS-
DRGs. However, as we noted earlier with regard to IPPS hospitals, if 
the estimated documentation and coding effect determined based on a 
full analysis of FY 2009 claims data is more or less than our current 
estimates, it would change, possibly lessen, the anticipated cumulative 
adjustments that we currently estimate we would have to make for the FY 
2008 and FY 2009 combined adjustment. Therefore, we believed that it 
would be more prudent to delay implementation of the documentation and 
coding adjustment to allow for a more complete analysis of FY 2009 
claims data for hospitals receiving hospital-specific rates.
BILLING CODE 4120-01-P

[[Page 50069]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.001

BILLING CODE 4120-01-C
    Consistent with our analysis of IPPS hospitals, the two charts 
above show that we found after analysis of FY 2009 discharge data that 
the distribution of severity discharges for MDHs and SCHs both 
proportionally shifted from the without CC/MCC to with MCC category. 
This analysis was updated to include data for FY 2009 claims paid 
through March 2010. Similarly, we found using a methodology consistent 
with our analysis of IPPS hospitals that the change due to 
documentation and coding that did not reflect real changes in case-mix 
for discharges occurring during FY 2009 slightly exceeded the proposed 
2.5 percent result discussed earlier, but did not significantly differ 
from that result.
    As we have noted above, because SCHs and MDHs use the same MS-DRG 
system as all other hospitals, we believe they have the potential to 
realize increased payments from documentation and coding changes that 
do not reflect real increases in patient severity of illness. 
Therefore, we believe they should be equally subject to a prospective 
budget neutrality adjustment that we are applying for adoption of the 
MS-DRGs to all other hospitals. We believe the documentation and coding 
estimates for all subsection (d) hospitals should be the same. While 
the findings for the documentation and coding effect for all IPPS 
hospitals are similar to the effect for SCHs and slightly different to 
the effect for MDHs, we continue to believe that this is the 
appropriate policy so as to neither advantage or disadvantage

[[Page 50070]]

different types of providers. As we have also discussed above, our best 
estimate, based on the most recently available data, is that a 
cumulative adjustment of -5.4 percent is required to eliminate the full 
effect of the documentation and coding changes on future payments. 
Unlike the case of standardized amounts paid to IPPS hospitals, we have 
not made any previous adjustments to the hospital-specific rates paid 
to SCHs and MDHs to account for documentation and coding changes. 
Therefore, the entire -5.4 percent adjustment remains to be 
implemented.
    As discussed above, in the FY 2011 IPPS/LTCH PPS proposed rule, we 
proposed to make an adjustment to the standardized amount for IPPS 
hospitals of -2.9 percent under section 7(b)(1)(B) of Public Law 110-
90, for FY 2011. As we also discussed above, it has been our practice 
to moderate payment adjustments when necessary to mitigate the effects 
of significant downward adjustments on hospitals, to avoid what could 
be widespread, disruptive effects of such adjustments on hospitals. 
Because payments for non-SCH and non-MDH IPPS hospitals and SCHs and 
MDHs are determined on the basis of the same MS-DRG system, SCHs and 
MDHs have the potential to realize increased payments from 
documentation and coding changes that do not reflect real increases in 
patient severity of illness. Therefore, in determining the level and 
pace of adjustments to account for such documentation and coding 
changes, we believe that it is important to maintain, as much as 
possible, both consistency and equity among these classes of hospitals. 
In addition, as in the case of the documentation and coding adjustment 
for non-SCH and non-MDH IPPS hospitals, we also believe that it is 
important to provide as much as possible for moderating the effects of 
adjustments on hospital payments. Therefore, we proposed an adjustment 
of -2.9 percent in FY 2011 to the hospital-specific rates paid to SCHs 
and MDHs. This proposal is consistent with our proposed adjustment for 
IPPS hospitals in two ways. First, as in the case of the IPPS 
adjustment, we did not propose to implement the entire adjustment that 
is warranted by our data (in this case, 5.4 percent) in one year. 
Second, we proposed to maintain consistency by proposing the same 
numerical level of adjustment for both groups of hospitals in FY 2011. 
While this proposed adjustment to the hospital-specific rates 
represented somewhat over half of the entire adjustment that is 
appropriate for SCHs and MDHs, it would allow us to maintain complete 
consistency, at least for FY 2011, in the effects on the relevant 
classes of hospitals. Although the proposed adjustment for SCHs and 
MDHs is cumulative and prospective, as opposed to the noncumulative 
recoupment adjustment we proposed for other IPPS hospitals, we believe 
that proposing equal numerical adjustments in this first year is the 
most appropriate means to maintain such consistency and equity at this 
time. We indicated in the proposed rule that we will continue, as much 
as possible, consistent with sections 7(b)(1) of Public Law 110-90 and 
section 1886(d)(5)(I)(i) of the Act, to take such consistency and 
equity into account in developing future proposals for implementing 
documentation and coding adjustments.
    In the FY 2011 IPPS/LTCH PPS proposed rule, we sought public 
comment on the proposed -2.9 percent prospective adjustment to 
hospital-specific rates under section 1886(d)(5)(I)(i) of the Act and 
addressing in future rulemaking cycles changes in FY 2008 and FY 2009 
case-mix due to changes in documentation and coding that do not reflect 
real changes in case-mix for discharges occurring during FY 2008 and FY 
2009, noting that our current estimates of the remaining adjustment is 
-2.5 percent. We stated that we intended to update our analysis with FY 
2009 data on claims paid through March 2009 (sic) for this FY 2011 
IPPS/LTCH PPS final rule and have updated our analysis with FY 2009 
data on claims paid through March 2010 in this FY 2011 IPPS/LTCH PPS 
final rule. (We note that the March 2009 update date for claims paid 
data in the proposed rule should have been March 2010.)
    Comment: Numerous commenters requested that CMS withdraw its 
proposal to apply the documentation and coding adjustment to SCHs and 
MDHs and questioned CMS' statutory authority to apply this adjustment 
to providers receiving a hospital-specific rate. The commenters argued 
that because section 1886(d)(3)(A)(vi) of the Act only authorizes 
application of a documentation and coding adjustment to the 
standardized amount, Congress' specific instruction as to the 
applicability of this type of adjustment makes it impermissible for CMS 
to apply the adjustment to the hospital-specific rates. Furthermore, 
commenters contend that, due to their critical role in isolated 
communities, any negative documentation and coding adjustment to SCHs 
and MDHs would endanger their ability to provide the type of care that 
Congress specifically sought to protect by establishing their special 
Medicare payment systems.
    Response: We continue to disagree with the commenters that the 
Secretary's broad authority to make exceptions and adjustment to 
payment amounts under section 1886(d)(3)(A)(vi) of the Act cannot be 
applied in this instance. We have discussed the basis for applying such 
an adjustment in prior rules (in the FY 2009 proposed rule (73 FR 
23540), the FY 2009 final rule (73 FR 48448), and the FY 2010 proposed 
rule (74 FR 24098)) and do not agree that the language in section 
1886(d)(3)(A)(vi) of the Act limits our authority under section 
1886(d)(5)(I)(i) of the Act to make such an adjustment. We recognize 
that SCHs and MDHs are entitled, through legislation, to receive the 
hospital-specific rate in order to compensate for their unique service 
requirements in the provider community. Similar to our approach with 
IPPS hospitals, we are implementing a phase-in of the documentation and 
coding adjustment over an appropriate period, beginning in FY 2011. We 
will continue to separately analyze SCH and MDH claims data to ensure 
than any future adjustment is appropriate for these provider types.
    Comment: MedPAC responded to our request for comments regarding the 
level of adjustment for special categories of hospitals, such as 
hospitals paid under the hospital-specific payment rate, by pointing 
out that these hospitals have the same financial incentives for 
documentation and coding improvements and the same ability to benefit 
from increased payments that do not reflect real changes in case-mix 
severity of illness levels. Therefore, MedPAC recommended that ``all 
IPPS hospitals should be treated the same.'' At the same time, MedPAC 
also stated that ``delaying prevention of overpayments * * * creates a 
problem because overpayments will continue to accumulate in 2010 and 
later years until the effect of documentation and coding improvement is 
fully offset in the payment rates.'' In setting forward its multiyear 
recommendation to CMS for complying with the requirements of section 7 
of Public Law 110-90, MedPAC emphasized ``minimizing the accumulation 
of overpayments.''
    Response: We thank MedPAC for its comments and agree that it is 
appropriate to conclude that hospitals paid under the hospital-specific 
rate have experienced a 5.4 percent increase in documentation and 
coding in FYs 2008 and 2009, insofar as these hospitals had the same 
financial incentives to improve documentation and coding as other IPPS 
hospitals, as

[[Page 50071]]

confirmed by the analysis we have described above. We further agree 
with MedPAC that it is appropriate to focus on minimizing the 
accumulation of overpayments; we interpret this statement to mean that 
MedPAC recommends that CMS move forward as quickly as possible with 
appropriate prospective adjustments. We appreciate MedPAC's guidance 
that ``all hospitals be treated the same,'' and we agree that it is 
important to treat various classes of similarly situated hospitals in 
our payment policy determinations in a consistent manner.
    Therefore, we are finalizing our proposal to apply an adjustment of 
-2.9 percent in FY 2011 to the hospital-specific rates paid to SCHs and 
MDHs. This adjustment is prospective in nature. We continue to believe 
that such an adjustment is appropriate because, as MedPAC noted, all 
hospitals have the same financial incentives for documentation and 
coding improvements, and the same ability to benefit from the resulting 
increase in aggregate payments that do not reflect real change in case-
mix severity of illness levels. As we describe above, our analysis of 
claims data shows that the documentation and coding effect for all IPPS 
hospitals is similar to the effect for SCHs and slightly different to 
the effect for MDHs, and we believe the documentation and coding 
estimates for all subsection (d) hospitals should be the same. This 
adjustment also maintains, as much as possible, consistency in the 
treatment of various classes of hospitals that are similarly situated 
with respect to their ability to adjust their documentation and coding 
practices. Specifically, this adjustment is consistent with our 
adjustment for other IPPS hospitals in two ways. First, as in the case 
of the IPPS adjustment, we are not implementing the entire adjustment 
that is warranted by our data (in this case, 5.4 percent) in 1 year. 
Second, we are treating hospitals in a consistent manner by applying 
the same numerical level of adjustment for both groups of hospitals in 
FY 2011. While this adjustment to the hospital-specific rates 
represents somewhat over half of the entire adjustment that is 
appropriate for SCHs and MDHs, it would allow us to maintain complete 
consistency, at least for FY 2011, in the effects on the relevant 
classes of hospitals. Although the proposed adjustment for SCHs and 
MDHs is cumulative and prospective, as opposed to the noncumulative 
recoupment adjustment we proposed for other IPPS hospitals, we believe 
that applying equal numerical adjustments in this first year is the 
most appropriate means to maintain such consistency and equity at this 
time. As we indicated in the proposed rule, we will continue, as much 
as possible, consistent with sections 7(b)(1) of Public Law 110-90 and 
section 1886(d)(5)(I)(i) of the Act, to take such consistency and 
equity into account in developing future proposals for implementing 
documentation and coding adjustments.
10. Application of the Documentation and Coding Adjustment to the 
Puerto Rico-Specific Standardized Amount
a. Background
    Puerto Rico hospitals are paid based on 75 percent of the national 
standardized amount and 25 percent of the Puerto Rico-specific 
standardized amount. As noted previously, the documentation and coding 
adjustment we adopted in the FY 2008 IPPS final rule with comment 
period relied upon our authority under section 1886(d)(3)(A)(vi) of the 
Act, which provides the Secretary the authority to adjust ``the 
standardized amounts computed under this paragraph'' to eliminate the 
effect of changes in coding or classification that do not reflect real 
changes in case-mix. Section 1886(d)(3)(A)(vi) of the Act applies to 
the national standardized amounts computed under section 1886(d)(3) of 
the Act, but does not apply to the Puerto Rico-specific standardized 
amount computed under section 1886(d)(9)(C) of the Act. In calculating 
the FY 2008 payment rates, we made an inadvertent error and applied the 
FY 2008 -0.6 percent documentation and coding adjustment to the Puerto 
Rico-specific standardized amount, relying on our authority under 
section 1886(d)(3)(A)(vi) of the Act. However, section 
1886(d)(3)(A)(vi) of the Act authorizes application of a documentation 
and coding adjustment to the national standardized amount and does not 
apply to the Puerto Rico specific standardized amount. In the FY 2009 
IPPS final rule (73 FR 48449), we corrected this inadvertent error by 
removing the -0.6 percent documentation and coding adjustment from the 
FY 2008 Puerto Rico-specific rates.
    While section 1886(d)(3)(A)(vi) of the Act is not applicable to the 
Puerto Rico-specific standardized amount, we believe that we have the 
authority to apply the documentation and coding adjustment to the 
Puerto Rico-specific standardized amount using our special exceptions 
and adjustment authority under section 1886(d)(5)(I)(i) of the Act. 
Similar to SCHs and MDHs that are paid based on the hospital-specific 
rate, we believe that Puerto Rico hospitals that are paid based on the 
Puerto Rico-specific standardized amount should not have the potential 
to realize increased payments due to documentation and coding changes 
that do not reflect real increases in patient severity of illness. 
Consistent with the approach described for SCHs and MDHs, in the FY 
2009 IPPS final rule (73 FR 48449), we indicated that we planned to 
examine our FY 2008 claims data for hospitals in Puerto Rico. We 
indicated in the FY 2009 IPPS proposed rule (73 FR 23541) that if we 
found evidence of significant increases in case-mix for patients 
treated in these hospitals, we would consider proposing application of 
the documentation and coding adjustments to the FY 2010 Puerto Rico-
specific standardized amount under our authority in section 
1886(d)(5)(I)(i) of the Act.
b. Documentation and Coding Adjustment to the Puerto Rico-Specific 
Standardized Amount
    For the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we performed a 
retrospective evaluation of the FY 2008 claims data for Puerto Rico 
hospitals using the same methodology described earlier for IPPS 
hospitals paid under the national standardized amounts under section 
1886(d) of the Act. We found that, for Puerto Rico hospitals, the 
increase in payments for discharges occurring during FY 2008 due to 
documentation and coding that did not reflect real changes in case-mix 
for discharges occurring during FY 2008 was approximately 1.1 percent. 
When we calculated the within-base DRG changes and the across-base DRG 
changes for Puerto Rico hospitals, we found that responsibility for the 
case-mix change between FY 2007 and FY 2008 is much more evenly shared. 
Across-base DRG shifts accounted for 44 percent of the changes, and 
within-base DRG shifts accounted for 56 percent. Thus, the change in 
the percentage of discharges with an MCC was not as large as that for 
other IPPS hospitals. In Figure 4 in the FY 2010 proposed rule, we 
showed that, for Puerto Rico hospitals, there was a 3 percentage point 
increase in the discharges with an MCC from 22 percent to 25 percent 
and a corresponding decrease of 3 percentage points from 58 percent to 
55 percent in discharges without a CC or an MCC.
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24101), 
we solicited public comment on the proposed -1.1 percent prospective 
adjustment to the hospital-specific rates under section 
1886(d)(5)(I)(i) of the Act and our intent to address in the FY 2011

[[Page 50072]]

rulemaking cycle any changes in FY 2009 case-mix due to changes in 
documentation and coding that did not reflect real changes in case-mix 
for discharges occurring during FY 2009. We also stated that we 
intended to update our analysis with FY 2008 data on claims paid 
through March 2009 for the FY 2010 IPPS final rule.
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43777), we 
indicated that, given these documentation and coding increases, 
consistent with our statements in prior IPPS rules, we would use our 
authority under section 1886(d)(5)(I)(i) of the Act to adjust the 
Puerto Rico-specific rate. However, in parallel to our decision to 
postpone adjustments to the Federal standardized amount, we indicated 
that we were adopting a similar policy for the Puerto Rico-specific 
rate for FY 2010 and would consider the phase-in of this adjustment 
over an appropriate time period through future rulemaking. The 
adjustment would be applied to the Puerto Rico-specific rate that 
accounts for 25 percent of payments to Puerto Rico hospitals, with the 
remaining 75 percent based on the national standardized amount. 
Consequently, the overall reduction to the payment rates for Puerto 
Rico hospitals to account for documentation and coding changes will be 
slightly less than the reduction for IPPS hospitals paid based on 100 
percent of the national standardized amount. We noted that, as with the 
hospital-specific rates, the Puerto Rico-specific standardized amount 
had not previously been reduced based on estimated changes in 
documentation and coding associated with the adoption of the MS-DRGs. 
However, as we note earlier for IPPS hospitals and hospitals receiving 
hospital-specific rates, if the estimated documentation and coding 
effect determined based on a full analysis of FY 2009 claims data is 
more or less than our current estimates, it would change, possibly 
lessen, the anticipated cumulative adjustments that we currently 
estimate we would have to make for the FY 2008 and FY 2009 combined 
adjustment. Therefore, we believed that it would be more prudent to 
delay implementation of the documentation and coding adjustment to 
allow for a more complete analysis of FY 2009 claims data for Puerto 
Rico hospitals.
    Consistent with our approach for IPPS hospitals for FY 2010, we 
indicated that we would address in the FY 2011 rulemaking cycle any 
change in FY 2009 case-mix due to documentation and coding that did not 
reflect real changes in case-mix for discharges occurring during FY 
2009. We noted that, unlike the national standardized rates, the FY 
2009 hospital-specific rates were not previously reduced in order to 
account for anticipated changes in documentation and coding that do not 
reflect real changes in case-mix resulting from the adoption of the MS-
DRGs.
    As we have noted above, similar to SCHs and MDHs, hospitals in 
Puerto Rico use the same MS-DRG system as all other hospitals and we 
believe they have the potential to realize increased payments from 
documentation and coding changes that do not reflect real increases in 
patient severity of illness. Therefore, we believe they should be 
equally subject to the prospective budget neutrality adjustment that we 
intend to apply to prospective payment rates for IPPS hospitals 
including SCHs and MDHs in order to eliminate the full effect of the 
documentation and coding changes associated with implementation of the 
MS-DRG system.
[GRAPHIC] [TIFF OMITTED] TR16AU10.002

    In the above chart, consistent with our findings for IPPS 
hospitals, for Puerto Rico hospitals, there is a corresponding increase 
in the discharge severity with MCCs compared to a decrease in discharge 
severity in the without CC/MCC category. This analysis reflects FY 2009 
claims paid through March 2010.
    Using the same methodology we applied to estimate documentation and 
coding changes under IPPS for non-Puerto Rico hospitals, as we have 
also discussed above, our best estimate, based on the most recently 
available data (FY 2009 claims paid through March 2010), is that a 
cumulative adjustment of -2.6 percent is required to eliminate the full 
effect of the documentation and coding changes on future payments from 
the Puerto Rico-

[[Page 50073]]

specific rate. Unlike the case of standardized amounts paid to IPPS 
hospitals, we have not made any previous adjustments to the hospital-
specific rates paid to Puerto Rico hospitals to account for 
documentation and coding changes. Therefore, the entire -2.6 percent 
adjustment remains to be implemented.
    As we stated above, we believe it important to maintain both 
consistency and equity among all hospitals paid on the basis of the 
same MS-DRG system. At the same time, however, we recognize that the 
estimated cumulative impact on aggregate payment rates resulting from 
implementation of the MS-DRG system was smaller for Puerto Rico 
hospitals as compared to IPPS hospitals and SCHs and MDHs. Therefore, 
in the FY 2011 IPPS LTCH PPS proposed rule (75 FR 23876), we proposed 
an adjustment of -2.4 percent in FY 2011 to Puerto Rico-specific rate 
that accounts for 25 percent of payments to Puerto Rico hospitals, with 
the remaining 75 percent based on the national standardized amount, 
which we proposed to adjust as described above. Consequently, the 
overall reduction to rates for Puerto Rico hospitals to account for the 
documentation and coding changes will be slightly less than the 
reduction for IPPS hospitals based on 100 percent of the national 
standardized amount. We noted that the proposed prospective adjustment 
would have eliminated the full effect of the documentation and coding 
changes (as estimated at the time) on the portion of future payments to 
Puerto Rico hospitals based on the Puerto Rico-specific rate. We 
believe that this a full prospective adjustment is the most appropriate 
means to take into full account the effect of documentation and coding 
changes on payments, and to maintain equity as much as possible between 
hospitals paid on the basis of different prospective rates. (As 
discussed below, the estimated -2.4 percent adjustment that we 
calculated in the proposed rule no longer represents a ``full 
prospective adjustment.'') One reason for proposing the full 
prospective adjustment for the Puerto Rico-specific rate in FY 2011 was 
to maintain equity as much as possible in the documentation and coding 
adjustments applied to various hospital rates in FY 2011. Because our 
proposal was to make an adjustment that represents the full adjustment 
that is warranted for the Puerto Rico-specific rate, we indicated that 
we do not anticipate proposing any additional adjustments to the this 
rate for documentation and coding effects.
    In the FY 2011 proposed rule, we sought public comment on the 
proposed full prospective adjustment, which we estimated at that time 
to be -2.4 percent, to the Puerto Rico-specific standardized amount 
under section 1886(d)(5)(I)(i) of the Act. We stated that we intended 
to update our analysis with FY 2009 data on claim paid through March 
2009 (sic) for this FY 2011 IPPS/LTCH PPS final rule. (We note that the 
March 2009 update date for claims paid data in the proposed rule should 
have been March 2010.) We have updated our analysis, as planned, with 
FY 2009 data on claims paid through March 2010 in this FY 2011 IPPS/
LTCH PPS final rule. This updated data analysis shows that a cumulative 
adjustment of -2.6 percent is required to eliminate the full effect of 
the document and coding changes on future payments from the Puerto 
Rico-specific rate.
    Comment: MedPAC responded to our request for comments regarding the 
level of adjustment for special categories of hospitals, such as Puerto 
Rico hospitals, by pointing out that these hospitals have the same 
financial incentives for documentation and coding improvements and the 
same ability to benefit from increased payments that do not reflect 
real change in case-mix severity of illness levels. Therefore, MedPAC 
recommended that ``all IPPS hospitals should be treated the same.'' At 
the same time, MedPAC also stated that ``delaying prevention of 
overpayments * * * creates a problem because overpayments will continue 
to accumulate in 2010 and later years until the effect of documentation 
and coding improvement is fully offset in the payment rates.'' In 
setting forward its multiyear recommendation to CMS for complying with 
the requirements of section 7 of Public Law 110-90, MedPAC emphasizes 
``minimizing the accumulation of overpayments.''
    Response: We thank MedPAC for its comments and agree that Puerto 
Rico hospitals have had the same financial incentives to improve 
documentation and coding as other IPPS hospitals. We further agree with 
MedPAC that it is appropriate to focus on minimizing the accumulation 
of overpayments; we interpret this statement to mean that MedPAC 
recommends that CMS move forward as quickly as possible with 
appropriate prospective adjustments. We appreciate MedPAC's guidance 
that ``all hospitals be treated the same,'' and we agree that it is 
important for our payment policy determinations to treat various 
classes of hospitals that are similarly situated with respect to the 
ability to adjust their documentation and coding practices in as 
consistent a manner as possible.
    Therefore, we are finalizing our proposal to apply an adjustment to 
the Puerto Rico specific rate in FY 2011 using our authority under 
section 1886(d)(5)(I)(i) of the Act as proposed (that is, a full 
prospective adjustment). We note that our updated data analysis shows 
that this adjustment will be -2.6 percent. We continue to believe that 
such an adjustment is appropriate because, as MedPAC found, all 
hospitals have the same financial incentives for documentation and 
coding improvements and the same ability to benefit from the resulting 
change in case-mix. As we indicated in the proposed rule, we will 
continue, as much as possible, consistent with sections 7(b)(1) of 
Public Law 110-90 and section 1886(d)(5)(I)(i) of the Act, to take such 
consistency and equity into account in developing future proposals for 
implementing documentation and coding adjustments.

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background
    In the FY 2009 IPPS final rule (73 FR 48450), we continued to 
implement significant revisions to Medicare's inpatient hospital rates 
by completing our 3-year transition from charge-based relative weights 
to cost-based relative weights. Beginning in FY 2007, we implemented 
relative weights based on cost report data instead of based on charge 
information. We had initially proposed to develop cost-based relative 
weights using the hospital-specific relative value cost center (HSRVcc) 
methodology as recommended by MedPAC. However, after considering 
concerns expressed in the public comments we received on the proposal, 
we modified MedPAC's methodology to exclude the hospital-specific 
relative weight feature. Instead, we developed national CCRs based on 
distinct hospital departments and engaged a contractor to evaluate the 
HSRVcc methodology for future consideration. To mitigate payment 
instability due to the adoption of cost-based relative weights, we 
decided to transition cost-based weights over 3 years by blending them 
with charge-based weights beginning in FY 2007. (We refer readers to 
the FY 2007 IPPS final rule for details on the HSRVcc methodology and 
the 3-year transition blend from charge-based relative weights to cost-
based relative weights (71 FR 47882 through 47898).)
    In FY 2008, we adopted severity-based MS-DRGs, which increased the 
number of DRGs from 538 to 745. Many

[[Page 50074]]

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

[[Page 50075]]

offset the compression such that total payments to hospitals increase 
more rapidly than hospitals' costs.
    In the FY 2009 IPPS final rule (73 FR 48453 through 48457), we 
provided a summary of the RAND report and the public comments we 
received in response to the FY 2009 IPPS proposed rule. The report may 
be found on RAND's Web site at: http://www.rand.org/pubs/working_papers/WR560/.
2. Proposed and Final Policy Changes for FY 2011 and Timeline for 
Changes to the Medicare Cost Report
    In the FY 2009 IPPS final rule (73 FR 48458 through 48467), in 
response to the RTI's recommendations concerning cost report 
refinements, and because of RAND's finding that regression-based 
adjustments to the CCRs do not significantly improve payment accuracy, 
we discussed our decision to pursue changes to the cost report to split 
the cost center for Medical Supplies Charged to Patients into one line 
for ``Medical Supplies Charged to Patients'' and another line for 
``Implantable Devices Charged to Patients.'' We acknowledged, as RTI 
had found, that charge compression occurs in several cost centers that 
exist on the Medicare cost report. However, as we stated in the final 
rule, we focused on the CCR for Medical Supplies and Equipment because 
RTI found that the largest impact on the MS-DRG relative weights could 
result from correcting charge compression for devices and implants. In 
determining what should be reported in these respective cost centers, 
we adopted the commenters' recommendation that hospitals should use 
revenue codes established by AHA's National Uniform Billing Committee 
to determine what should be reported in the ``Medical Supplies Charged 
to Patients'' and the ``Implantable Devices Charged to Patients'' cost 
centers.
    When we developed the FY 2009 IPPS final rule, we considered all of 
the public comments we received both for and against adopting 
regression-based CCRs. Also noteworthy is RAND's belief that 
regression-based CCRs may not significantly improve payment accuracy, 
and that it is equally, if not more, important to consider revisions to 
the current IPPS hospital payment factor standardization method in 
order to improve payment accuracy. For FY 2010, we solicited comments 
on improving the standardization process, although we did not make any 
changes to the standardization process for FY 2010. We also stated that 
we continued to believe that, ultimately, improved and more precise 
cost reporting is the best way to minimize charge compression and 
improve the accuracy of the cost weights. Accordingly, a new 
subscripted line 55.30 for Implantable Devices Charged to Patients was 
created in July 2009 as part of CMS' Transmittal 20 update to the 
existing cost report Form CMS-2552-96. This new subscripted cost center 
is available for use for cost reporting periods beginning on or after 
May 1, 2009.
    With respect to the initiative to reform, update, and streamline 
the Medicare cost report, which has been the subject of many comments 
and our responses in the IPPS (and OPPS) Federal Register notices of 
rulemaking over the past several years, CMS is continuing to work on 
this project. The new draft hospital cost report Form CMS-2552-10 was 
published in the Federal Register on July 2, 2009, and was subject to a 
60-day review and comment period, which ended August 31, 2009. CMS 
received numerous comments on the draft hospital cost report Form CMS-
2552-10, specifically regarding the creation of new cost centers from 
which data would be ultimately used in the relative weights 
calculation. The public comments on the July 2, 2009 Federal Register 
notice were incorporated in a Federal Register notice that was issued 
on April 30, 2010 (75 FR 22810). We now plan to issue the final 
hospital cost report Form CMS-2552-10 later this summer. However, in 
part, in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23878 through 
23880), we provided a summary of the public comments received on the 
July 2, 2009 notice that specifically related to the relative weights 
and responded to those comments. Our responses to the comments in the 
FY 2011 IPPS/LTCH PPS proposed rule constituted our proposals for FY 
2011 regarding the relative weights.
    Several commenters asked that CMS create cost centers to house the 
costs of magnetic resonance imaging (MRI), Computed Tomography (CT), 
nuclear medicine services, cardiac catheterization, drugs that require 
detailed coding, and magnetoencephalography (MEG). One commenter 
indicated, that in RTI's July 2008 report (http://www.rti.org/reports/cms/), RTI made an argument that CMS should create new standard cost 
centers in which hospitals would report the costs of MRI scans, CT 
scans, cardiac catheterization, and drugs that require detailed coding, 
in addition to the new cost center for ``Implantable Devices Charged to 
Patients.'' The commenter stated that these additional lines are needed 
to distinguish items and services that hospitals tend to markup 
differently within existing revenue centers, citing RTI's finding that 
CT scans have a significantly higher markup than most other radiology 
services. The commenter indicated that when CMS uses the overall 
radiology department CCR to convert charges for CT scans to costs, it 
overestimates the cost of these services, resulting in overstated 
relative weights for MS-DRGs under the IPPS and for APCs under the OPPS 
that incorporate CT scanning. The commenter argued that having a 
separate cost center for each of these services would resolve the 
problem. The commenter also stated that, while CMS has done something 
similar with the creation of the cost center for high cost medical 
devices, making cost center changes for some services, but not others, 
where such changes are warranted could create additional distortion in 
the relative weights. The commenter further argued that cost center 
changes should be made for all service areas with significant volume 
where services with sizable differences in markup are currently 
combined in a single cost center. The commenter asserted that creating 
these cost centers should not create reporting burden for hospitals 
because the RTI report indicated that roughly one-third of the 
hospitals are already reporting costs for CT scans, MRI scans, and 
cardiac catheterization under the specific nonstandard cost centers 
currently available in the cost report.
    Another commenter also recommended the creation of the cost centers 
for CT scans, MRI scans, and nuclear medicine services, but for 
different reasons than the first commenter. Specifically, this 
commenter believed these new cost centers are necessary in order for 
the high capital costs to be appropriately allocated to these services 
and to be correctly reflected in the CCRs that are used in the 
establishment of the MS-DRG and APC payment rates for the services. The 
commenter stated that, under the existing cost report structure, some 
providers are allocating high capital costs for these services in a 
single radiology line, diluting the high capital costs associated with 
CT scans, MRI scans, and nuclear medicine services across all radiology 
services, including low cost services. Therefore, the commenter 
concluded that the resulting radiology CCRs that CMS applies to charges 
for CT scans, MRI scans, and nuclear medicine services to arrive at the 
relative costs used to set payment rates for both the IPPS and OPPS 
understate the cost of high cost radiology services and overstate the 
cost of low cost radiology services, resulting

[[Page 50076]]

in payments that are too low for the high cost services. The commenter 
indicated that CMS should not only create these new cost centers but 
should also require all hospitals to use them, and should issue 
explicit instructions on how to report the costs of these services in 
the new standard cost centers.
    We agree that it is appropriate to create standard cost centers for 
CT scans, MRI scans, and cardiac catheterization and to require that 
hospitals report the costs and charges for these services under new 
cost centers on the revised Medicare cost report Form CMS 2552-10. As 
we discussed in the FY 2009 IPPS and CY 2009 OPPS proposed and final 
rules, RTI found that the costs and charges of CT scans, MRI scans, and 
cardiac catheterization differ significantly from the costs and charges 
of other services included in the standard associated cost center. RTI 
also concluded that both the IPPS and OPPS relative weights would 
better estimate the costs of those services if CMS were to add standard 
costs centers for CT scanning, MRIs, and cardiac catheterization in 
order for hospitals to report separately the costs and charges for 
those services and in order for CMS to calculate unique CCRs to 
estimate the cost from charges on claims data.
    In its analysis, RTI concluded that the estimated costs for CT 
scanning and MRI scans would decline significantly and that the 
estimated cost for cardiac catheterization would increase modestly if 
specific standard cost centers were used. RTI found that cardiac 
catheterization has very different cost inputs from most cardiac 
testing (for example, electrocardiograms or cardiac stress testing) 
captured in the 5300 ``Electrocardiology'' cost center and that the 
accuracy of the CCR for both types of services, cardiac catheterization 
and other cardiac testing, would improve with creation of a standard 
cost center for cardiac catheterization. RTI also found that one-third 
of hospitals already report cardiac catheterization costs and charges 
separately through the available nonstandard cost center or through 
subscripted lines to the ``Electrocardiology'' cost center. Similarly, 
RTI found that approximately one-third of hospitals already separately 
report the costs for CT scanning and MRI scans on their Medicare cost 
report through subscripted lines and the available nonstandard cost 
centers. We believe the current prevalence of reporting for the 
nonstandard cost centers for these three services suggests a modest 
hospital burden required to adopt these cost centers.
    We discussed the possibility of creating standard cost centers for 
these three different services in our CY 2009 OPPS proposed and final 
rule with comment period (73 FR 41432 and 73 FR 68525) and solicited 
general comments on RTI's recommendations. The commenters who objected 
to the creation of the standard cost centers for CT scanning and MRI 
scans largely did so based on RTI projected lower estimated costs for 
these services if CMS created these cost centers. The commenters 
suggested that the current CCRs for advanced imaging may reflect a 
misallocation of capital costs and requested that CMS not adopt 
separate cost centers or statistical adjustment simulating lower CCRs 
for CT scanning and MRI until CMS could understand how providers are 
allocating the extensive capital costs for these services to the 
revenue producing cost centers. We also received comments suggesting 
that the accuracy of estimated costs would improve with better 
allocation, potentially increasing the CCR as more capital cost would 
be appropriately allocated to both CT scanning and MRI and not spread 
across all services in the radiology cost center. We noted in the CY 
2009 OPPS/ASC final rule with comment period (73 FR 68525) that our 
recommended allocation of moveable equipment costs in Worksheet B of 
the Medicare cost report is based on dollar value, and that it would be 
important to encourage improved accuracy of capital allocation through 
dollar value or direct assignment if we were to make these cost centers 
standard cost centers.
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23879), we stated 
that, at that time, we did not know the impact on CCRs and estimated 
costs of adopting standard cost centers specific to CT scanning and 
MRI. However, we stated our belief that these areas constitute 
significant payment under both the IPPS and OPPS and that these are 
common imaging services already widely reported by hospitals. 
Therefore, in the proposed rule, we proposed to adopt new standard cost 
centers for CT scanning and MRI. We agreed with those commenters who 
asserted that creation of standard cost centers for CT scanning and MRI 
would improve the accuracy of cost estimation for these services, in 
part by creating incentives for hospitals to more accurately allocate 
the capital and equipment associated with these services.
    With regard to cardiac catheterization, we received one comment on 
the CY 2009 OPPS/ASC proposed rule suggesting that hospitals might find 
it difficult to allocate costs for these services to specific cost 
centers, especially for cardiac catheterization, and that allocated 
overhead costs would, in most cases, be an estimate (73 FR 68527). 
However, given the number of hospitals already reporting the 
nonstandard cost center for cardiac catheterization and the number 
subscripting these costs and charges (approximately 50 percent, 
according to RTI's July 2008 report (pages 71 and 72) at: http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf), we believe that hospitals do 
allocate overhead costs to a cardiac catheterization-specific cost 
center.
    We also received public comments on the cost report notice urging 
us to create standard cost centers for nuclear medicine services, for 
drugs that require detailed coding, and for MEG. In the proposed rule, 
we indicated that we continue to believe that it is not appropriate to 
create standard cost centers for these three services. The Medicare 
cost report already contains standard cost center 4300 (Radioisotope) 
to capture the costs and charges for the radioisotopes used in nuclear 
medicine services, the items that may have significantly different 
costs and hospital markup than the supplies and equipment used in other 
radiology services. Moreover, the cost report already contains standard 
cost center 4100 (Diagnostic Radiology) in which the costs of staff, 
minor equipment, and supplies for diagnostic nuclear medicine services 
can be reported. Major moveable equipment should be allocated to this 
cost center on Worksheet B unless the provider received approval from 
its contractor for direct assignment of the costs (Provider 
Reimbursement Manual (PRM), Part I, Section 2307). Therefore, we 
continue to believe that creating a new standard cost center for 
nuclear medicine services is not necessary. We also continue to believe 
that it is not appropriate to create a standard cost center for drugs 
that require detailed coding. We refer readers to the CY 2009 OPPS/ASC 
final rule with comment period (73 FR 68655) for a detailed discussion 
on our final decision not to create this cost center. Finally, with 
respect to MEG services, the extremely low volume of claims for MEG 
services furnished to Medicare beneficiaries in the hospital outpatient 
setting and the extremely low number of hospitals that report these 
codes relative to the volumes we typically have considered in adding 
both standard and nonstandard cost centers to the cost report lead us 
to conclude that a specific cost center for MEG is not justified at 
this time.

[[Page 50077]]

    Comment: Commenters both supported and opposed our proposal to 
establish standard cost centers for the reporting of costs for CT 
scanning and for MRI. Some commenters supported the proposal because 
they agree with RTI's finding that there is aggregation bias in the 
radiology cost centers. RTI found that CT and MRI scans have a 
significantly higher markup in their respective nonstandard cost 
centers or subscripted standard cost center lines than most other 
radiology services. The commenters indicated that when CMS uses the 
overall radiology department CCR that ``ignores'' costs and charges 
reported in the CT and MRI nonstandard cost centers and other 
subscripted cost centers to convert charges to costs for CT and MRI 
scans, it overestimates the cost of these services, resulting in 
overstated relative weights for MS-DRGs under the IPPS and for APCs 
under the OPPS that incorporate CT scanning. These commenters believed 
that the creation of standard cost centers for CT scanning and MRI 
services will result in more accurate estimation of the cost of these 
services.
    Some commenters who objected to the proposal believed that it is 
premature to establish these new standard cost centers without 
understanding the payment implications of these changes on both IPPS 
relative weights and OPPS payments. The commenters were concerned that 
adoption of these cost centers would result in very low CCRs for these 
services, as already observed in the nonstandard cost centers and 
estimated by RTI in its July 2008 report. Some commenters stated that 
if the proposal were finalized, they believe that a chest CT scan would 
be paid at the same level as a routine chest X-ray under the OPPS. 
Commenters also were concerned that estimating costs on claims data 
using CCRs based on cost and charge data from standard cost centers for 
CT scanning and MRI services would adversely impact payment for the 
technical component of imaging services paid under the Medicare 
Physician Fee Schedule (MPFS), which is capped at the level paid under 
the OPPS fee schedule. Commenters suggested that CMS examine all the 
costs incorporated into CT scans and MRI services before accepting very 
low CCRs for these services. Some commenters suggested that CMS should 
analyze the CCR methodology by performing specific procedure cost 
comparisons of low value versus high value diagnostic imaging equipment 
for both inpatient and outpatient settings to ensure that the CCRs 
accurately reflect the cost of capital equipment used in the procedure 
cost.
    Response: After consideration of these comments, we continue to 
believe that the creation of standard cost centers for CT scanning and 
MRI services is necessary because of the potentially significant 
improvement in the accuracy of estimated costs, as recommended by RTI. 
We understand the commenters' concerns that the final CCRs for CT scans 
and MRI maybe low in light of current cost report data findings and 
that this may result in lower payment for CT scans and MRI services. We 
do not believe that we can assess whether inappropriate payments would 
result with our current data and, for that reason, we believe that we 
should collect standard cost center cost and charge data for these 
areas, using those data to assess the resulting CCRs specific to CT 
scanning and MRI services as a means of eliminating aggregation bias 
for these and other radiology services in the IPPS and OPPS. Therefore, 
we are establishing standard cost centers for CT scanning and MRI 
services in hospital cost reports for cost report periods beginning on 
or after May 1, 2010. We believe that establishing these standard cost 
centers is necessary to improving the accuracy of estimating costs for 
imaging services and will allow us to perform the impact assessment 
that some commenters want us to do.
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23880), we also 
noted that there is typically a 3-year lag between the availability of 
the cost report data that we use to calculate the relative weights both 
under the IPPS and the OPPS and a given fiscal or calendar year, and 
therefore, the data from the proposed standard cost centers for CT 
scans, MRI, and cardiac catheterization respectively, should they be 
finalized, would not even be available for possible use in calculating 
the relative weights earlier than 3 years after Form CMS-2552-10 
becomes available. We stated that at that time, we would analyze the 
data and determine if it is appropriate to use those data to create 
distinct CCRs from these cost centers for use in the relative weights 
for the respective payment systems. Therefore, we wish to reassure the 
commenters that there is no need for immediate concern regarding 
possible negative payment impacts on MRI and CT scans under the IPPS 
and OPPS because the cost report data that would be used for the 
calculation of the relative weights is at least 3 years from being 
available. We will first thoroughly analyze and run impacts on the data 
and provide the public with the opportunity to comment, as usual, 
before distinct CCRs for MRI and CT scans would be finalized for use in 
the calculation of the relative weights. Our decision to finalize our 
proposal regarding cost centers for these services is only the first 
step to a longer process during which we will continue to consider 
public comment.
    In this final rule, we are finalizing our proposal to create 
standard cost centers for MRI and CT scans on the new Medicare cost 
report Form CMS-2552-10, and urge all hospitals to properly report 
their costs and charges for MRI, CT scans, and all other services so 
that, in several years' time, we will have reliable data from all 
hospitals on which to base a decision as to whether to incorporate 
additional CCRs into the relative weight calculation. We note that the 
impact on physician payment for the technical component of these 
services that results from changes to payment to hospitals is not 
within scope of the proposed rule.
    Comment: Some commenters stated that the current reporting of the 
high cost of CT and MRI equipment results in inaccurate estimates of 
the cost of these services. Specifically, they asserted that some 
hospitals consider CT and MRI equipment costs to be capital costs, 
which are spread across various cost centers based on square footage or 
another allocation methodology, resulting in an underallocation of 
capital costs to the radiology department and CT and MRI nonstandard 
cost centers and inappropriately low CCRs for these services. In 
addition, the commenters believed that some hospitals report CT and MRI 
equipment costs as part of hospital fixtures and not as moveable 
equipment, allocating their direct capital costs across the whole 
hospital, rather than to the radiology cost center. One commenter 
stated the revised Medicare cost report Form 2552-10 recommended using 
a simplified cost allocation methodology where movable equipment is 
allocated on a square footage basis, which appeared contrary to the 
IPPS proposed rule that discussed that a dollar value could be used as 
the statistical basis for cost allocation.
    Finally, some commenters stated that hospitals do not have an 
incentive to report these costs accurately in disaggregated cost 
centers, given the time and resources to do the cost allocation. They 
believed that hospitals have a modest incentive to spread their capital 
cost across all services rather than allocating imaging equipment costs 
in the imaging cost centers. One commenter argued that because many

[[Page 50078]]

non-Medicare third party payers continue to pay hospitals on the basis 
of a percentage of charges and, to the extent that specific allocation 
of equipment and other capital costs to MRI and CT scans reduces the 
charges for other services, hospital may have a financial disincentive 
to specifically allocate those costs. The commenter also pointed out 
that, in some States, cost reporting practices are required to conform 
to State regulatory requirements, which may be inconsistent with 
specific allocation of capital costs.
    Response: Section 104 of the PRM-1 contains definitions of 
buildings (section 104.2), building equipment (section 104.3), major 
moveable equipment (section 104.4), and minor equipment (section 104.5) 
that apply for purposes of cost report completion. We believe that it 
is clear that CT and MRI equipment are ``major moveable equipment'' and 
are neither a building cost nor a building equipment cost. 
Specifically, section 104.4 of the PRM-1 defines ``major moveable 
equipment'' as follows: ``The general characteristics of this equipment 
are: (a) A relatively fixed location in the building; (b) capable of 
being moved, as distinguished from building equipment; (c) a unit cost 
sufficient to justify ledger control; (d) sufficient size and identity 
to make control feasible by means of identification tags; and (e) a 
minimum life of approximately three years. Major moveable equipment 
includes such items as accounting machines, beds, wheelchairs, desks, 
vehicles, x-ray machines, etc.'' In addition to this longstanding 
instruction, we believe that our view that CT scanning and MRI 
equipment are major moveable equipment is supported by the 2008 edition 
of ``Estimated Useful Lives of Depreciable Hospital Assets,'' which 
states that the estimated useful life of a CT scanner is 5 years, an 
MRI is 5 years, and an X-ray unit is 7 years. Therefore, we believe 
that our longstanding policy makes it clear that CT scanning and MRI 
equipment is major moveable equipment and should be reported as such on 
the cost report. As major moveable equipment, the costs should be 
reported together with the rest of the hospital's major moveable 
equipment cost in the ``Capital Related Cost--Moveable Equipment'' cost 
center(s) on Worksheet A (lines 2 and 4). The costs in this cost center 
are allocated to all the hospital's cost centers that use major 
moveable equipment (including CT and MRI) using ``dollar value'' or 
``square feet'' if the provider obtained the contractor's approval 
under Provider Reimbursement Manual, Part II (PRM-II), Section 3617, to 
use the simplified cost allocation methodology. However, a hospital 
that is concerned that this method of allocation may result in 
inaccurate CCRs (on Worksheet C, Part I) for the CT scan, MRI, and 
other ancillary cost centers may request contractor approval under 
section 2307 of the PRM-I to directly assign the cost of moveable 
equipment to all of the hospital's cost centers that use moveable 
equipment, including CT scans and MRI. If the hospital meets all of the 
criteria in section 2307 of the PRM-I, the contractor may approve the 
direct assignment method. This would ensure that the high cost of the 
CT scanning and MRI equipment would be reflected in the CCR that would 
be calculated for those departments and that would be used to estimate 
the cost of CT scanning and MRI services. In any case, hospitals with 
accounting systems that include the cost of CT scanning and MRI 
equipment in the ``Capital Related Costs--Building and Fixtures'' cost 
center should correct their cost reporting practices to come into 
compliance with CMS longstanding policy in this regard. Reporting of 
costs and charges on the Medicare cost report must be compliant with 
Medicare cost reporting principles, regardless of differing payment 
structures and incentives of other payers or State reporting 
requirements.
    Comment: Commenters raised concerns about rural hospitals being 
unable to accurately report costs in CT scanning, MRI and cardiac 
catheterization cost centers. One commenter noted that rural hospitals, 
like CAHs, provide some of these radiology services internally or 
through arrangement, and that it is difficult for them to track the 
costs for these cost centers. The commenter requested that CAHs be 
exempt from the requirement to report their costs in the proposed 
standard cost centers. Other commenters noted that the proposed 
creation of a standard cardiac catheterization cost center would pose a 
significant burden to hospitals to change their cost reporting to 
allocate costs to this cost center. In particular, they stated that 
smaller hospitals may have fewer resources to be able to separate their 
costs and charges for these cost centers, which would pose a 
significant burden. The commenters indicated that, for example, while 
revenue code 481 ``Cardiology-Catheterization Lab'' contains cardiac 
catheterization charges, there are some revenue codes that contain 
other charges for cardiac catheterization, like revenue codes 360 and 
361, ``Operating Room-General'' and ``Operating Room-Minor,'' 
respectively.
    Response: As we stated in the CY 2009 OPPS final rule (73 FR 
68522), with regard to creation of new cost centers, hospitals that do 
not currently maintain distinct departments or accounts in their 
internal accounting systems for CT scanning, MRI, or cardiac 
catheterization are not required to create distinct departments or 
accounts. We do not expect additional burden for reporting under these 
new standard cost centers to be significant because hospitals that 
provide these services and maintain a separate account for these 
services in their internal accounting records to capture the costs and 
charges are currently required in accordance with Sec.  413.53(a)(1) to 
report these cost centers in the cost report, even if CMS does not 
identify a cost center code for the department(s). Specifically, under 
those regulations defining the departmental method of cost 
apportionment, the hospital must separately apportion the cost of each 
ancillary department. CMS defines a cost center in PRM-I, Section 
2302.8, as an organizational unit, generally a department or its 
subunit, having a common functional purpose for which direct and 
indirect costs are accumulated, allocated, and apportioned. With 
respect to the comments regarding the revenue codes for cardiac 
catheterization, if the hospital operates a separate department for 
cardiac catheterization and maintains a separate General Ledger account 
for this department, the hospital would be expected to report the costs 
and charges in the new cardiac catheterization standard cost center and 
ensure that the charges are billed under appropriate UB revenue codes.
    Comment: Some commenters supported the proposal to create a 
standard cost center for cardiac catheterization services. However, 
some commenters objected to the proposal to create a standard cost 
center for Cardiac Catheterization. Some commenters were uncertain 
whether it would have a significant impact on charge compression and 
believed that it may not be necessary to secure more accurate estimated 
costs. Commenters were concerned that RTI's analysis of charge 
compression in the cardiology cost centers may be flawed; when RTI 
analyzed the costs and charges included in the current nonstandard 
cardiac catheterization cost center, RTI hypothesized that the 
nonstandard cardiac catheterization cost center contains costs from 
services that were not cardiac catheterization. As such,

[[Page 50079]]

commenters believed that hospitals may not be reporting their costs 
appropriately for this cost center.
    Response: We continue to believe that it is appropriate to create a 
standard cost center to capture the cost and charges of cardiac 
catheterization services in hospitals that maintain the cost of such 
services in distinct departments or accounts, and that standardizing 
where hospitals report their costs and charges for cardiac 
catheterization will improve the estimation of the cost of this high 
volume Medicare service for both the IPPS and the OPPS. Moreover, once 
the information from a standard cardiac catheterization cost center is 
available, we will carefully evaluate the effect on the CCRs that are 
derived from these data and will make the decision regarding whether to 
implement the resulting CCRs, as usual, through our public Federal 
Register proposed and final notice process. However, in this final 
rule, we are finalizing our proposal to add a standard cost center to 
the cost report for cardiac catheterization.
    Comment: Commenters opposed a regression-based approach for 
addressing charge compression in the relative weights where CMS would 
use regression-based CCRs in the relative weights methodology. The 
commenters preferred more accurate and uniform cost reporting, to 
mitigate charge compression in the cost-based relative weights.
    Response: We agree that more accurate cost reporting is a better 
means of mitigating charge compression than applying regression-based 
adjustments and, for this reason, have proposed to create certain cost 
centers that we believe will ultimately result in more refined CCRs, 
thereby leading to better estimates of hospital cost for MRI, CT 
scanning, and cardiac catheterization services about which the public 
has repeatedly raised concerns due to the hospital practice of setting 
charges for low cost services at a much higher percentage of cost than 
the percentage by which the charge for high cost services exceeds the 
cost of those services.
    Comment: One commenter stated that CMS should work closely with the 
hospital industry for comprehensive cost report reform rather than have 
piecemeal changes to the cost report. The commenter believed that CMS' 
collaboration with the industry would promote cost report 
simplification.
    Response: We have just completed a major redesign of the hospital 
cost report in which the public had multiple opportunities to provide 
input to the specific proposed revisions. However, that larger 
redesign, reassessment, and revision effort does not negate the need to 
make additional targeted changes as appropriate to resolve particular 
identified problems, such as aggregation bias in the payment for 
devices, CT scanning, MRI services and cardiac catheterization. As 
discussed above, the proposal to create standard cost centers for CT 
scanning, MRI services and cardiac catheterization evolved from the 
findings of the RTI report of aggregation bias in the payment of 
several types of services paid under the IPPS and OPPS, including, but 
not limited to, high cost medical devices for which CMS created a 
standard cost center for cost report periods beginning on and after May 
1, 2009. We believe that the creation of standard cost centers for CT 
scanning, MRI services, and cardiac catheterization is both appropriate 
and that CMS has provided numerous opportunities for public input.
    Comment: One commenter recommended that CMS issue explicit, 
unambiguous guidance to hospitals on how to improve allocation of large 
capital costs to the radiology cost center. The commenter noted that 
the draft Medicare cost report Form 2552-10 did not provide any 
mandatory reporting guidance to hospitals on how to improve the 
accuracy of cost allocation for imaging equipment.
    Response: We believe that the current instructions on allocation of 
the cost of major moveable equipment needed to provide CT scans, MRIs, 
and other radiology services are clear. We refer readers to the 
regulations at 42 CFR 413.24(b) and 413.24(f) and CMS instructions in 
Sections 2304 through 2320 of the PRM-I and Sections 3617 and 3618 of 
the PRM-II.
    Comment: One commenter raised a number of concerns about what CT 
and MRI information hospitals should report in these cost centers. 
Those concerns include whether equipment installation or de-
installation or equipment maintenance costs are reported in this cost 
center and whether costs associated with supplies related to MRI and CT 
equipment (like diagnostic contrast agents) are reported in this cost 
center. The commenter speculated whether each new item of advanced 
diagnostic equipment warranted a new cost center. The commenter 
requested that CMS provide guidance to the hospital industry on what 
types of costs should be reported in these cost centers.
    Response: As with any other ancillary cost center, the providers 
would report the direct cost accumulated in the CT scanning or MRI 
departmental accounts that are reflected in the general ledger working 
trial balance.
    Comment: One commenter recommended that CMS work with the Medicare 
contractors to simplify the cost allocation process, which the 
commenter found to be lengthy and burdensome. The commenter stated that 
if hospitals want to change the order of allocation or their allocation 
statistics, they must make a written request to their fiscal 
intermediary or MAC 90 days prior to the end of the cost reporting 
period. The commenter stated that the hospital must demonstrate that 
the change more accurately allocates costs and provide supporting 
documentation. The fiscal intermediary or MAC has 60 days to decide 
whether or not to approve or deny the request, while the provider must 
maintain both sets of cost allocation statistics in the meantime. The 
commenter requested that CMS simplify this process.
    Response: We believe that the current process provides Medicare 
contractors with the minimum time needed to evaluate a contractor 
request to change the order of allocation or their allocation 
statistics, given the importance of the decision and the need for the 
contractor to assess whether the change would result in a more valid 
determination of hospital costs.
    Comment: Commenters encouraged CMS to ensure that hospitals are 
appropriately allocating costs to the Implantable Devices Charged to 
Patients cost center, which was a standard cost center that we added 
for cost report periods beginning on and after May 1, 2009, as a result 
of the findings of the RTI report that there is aggregation bias in our 
estimates of the cost of expensive medical devices.
    Response: Hospitals are expected to comply with our regulations at 
42 CFR 413.24(b)(1) and 413.24(f) and to follow the instructions in 
Sections 2304 through 2320 of the PRM-I and Sections 3617 and 3618 of 
the PRM-II, as well as all other related instructions when allocating 
cost to the Implantable Devices Charged to Patients cost center. 
Medicare contractors review how hospitals allocate costs on the 
Medicare cost report for all cost centers, including the Implantable 
Devices Charged to Patients cost center, in accordance with their audit 
plans.
    Comment: One commenter opposed the HSRV methodology for 
standardization of the relative weights. The commenter found this 
methodology to be inappropriate in a cost-based relative weight 
methodology and only appropriate for removing the effects of different 
markup practices in a charge-based relative weight methodology.
    Response: We appreciate the comment but note that we did not

[[Page 50080]]

propose any changes with respect to the HSRV methodology for 
standardizing the relative weights.
    In summary, we are establishing standard cost centers for CT 
scanning, MRI services, and cardiac catheterization in hospital cost 
reports for cost report periods beginning on or after May 1, 2010.

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

1. Background
a. Statutory Authority
    Section 1886(d)(4)(D) of the Act addresses certain hospital-
acquired conditions (HACs), including infections. Section 1886(d)(4)(D) 
of the Act specifies that by October 1, 2007, the Secretary was 
required to select, in consultation with the Centers for Disease 
Control and Prevention (CDC), at least two conditions that: (a) Are 
high cost, high volume, or both; (b) are assigned to a higher paying 
MS-DRG when present as a secondary diagnosis (that is, conditions under 
the MS-DRG system that are CCs or MCCs); and (c) could reasonably have 
been prevented through the application of evidence-based guidelines. 
Section 1886(d)(4)(D) of the Act also specifies that the list of 
conditions may be revised, again in consultation with CDC, from time to 
time as long as the list contains at least two conditions.
    Section 1886(d)(4)(D)(iii) of the Act requires that hospitals, 
effective with discharges occurring on or after October 1, 2007, submit 
information on Medicare claims specifying whether diagnoses were 
present on admission (POA). Section 1886(d)(4)(D)(i) of the Act 
specifies that effective for discharges occurring on or after October 
1, 2008, Medicare no longer assigns an inpatient hospital discharge to 
a higher paying MS-DRG if a selected condition is not POA. Thus, if a 
selected condition that was not POA manifests during the hospital stay, 
it is considered a HAC and the case is paid as though the secondary 
diagnosis was not present. However, even if a HAC manifests during the 
hospital stay, if any nonselected CC/MCC appears on the claim, the 
claim will be paid at the higher MS-DRG rate. Under the HAC payment 
policy, all CCs/MCCs on the claim must be HACs in order to generate a 
lower MS-DRG payment. In addition, Medicare continues to assign a 
discharge to a higher paying MS-DRG if a selected condition is POA.
    The POA indicator reporting requirement and the HAC payment 
provision apply to IPPS hospitals only. Non-IPPS hospitals, including 
CAHs, LTCHs, IRFs, IPFs, cancer hospitals, children's hospitals, 
hospitals in Maryland operating under waivers, rural health clinics, 
federally qualified health centers, RNHCIs, and Department of Veterans 
Affairs/Department of Defense hospitals, are exempt from POA reporting 
and the HAC payment provision. Throughout this section, the term 
``hospital'' refers to an IPPS hospital.
    The HAC provision found in section 1886(d)(4)(D) of the Act is part 
of an array of Medicare value-based purchasing (VBP) tools that we are 
using to promote increased quality and efficiency of care. Those tools 
include measuring performance, using payment incentives, publicly 
reporting performance results, applying national and local coverage 
policy decisions, enforcing conditions of participation, and providing 
direct support for providers through Quality Improvement Organization 
(QIO) activities. The application of VBP tools, such as this HAC 
provision, is transforming Medicare from a passive payer to an active 
purchaser of higher value health care services. We are applying these 
strategies for inpatient hospital care and across the continuum of care 
for Medicare beneficiaries.
    These VBP tools are highly compatible with the underlying purposes 
as well as existing structural features of Medicare's IPPS. Under the 
IPPS, hospitals are encouraged to treat patients efficiently because 
they receive the same DRG payment for stays that vary in length and in 
the services provided, which gives hospitals an incentive to avoid 
unnecessary costs in the delivery of care. In some cases, conditions 
acquired in the hospital do not generate higher payments than the 
hospital would otherwise receive for cases without these conditions. To 
this extent, the IPPS encourages hospitals to avoid complications.
    However, the treatment of certain conditions can generate higher 
Medicare payments in two ways. First, if a hospital incurs 
exceptionally high costs treating a patient, the hospital stay may 
generate an outlier payment. Because the outlier payment methodology 
requires that hospitals experience large losses on outlier cases before 
outlier payments are made, hospitals have an incentive to prevent 
outliers. Second, under the MS-DRGs system that took effect in FY 2008 
and that has been refined through rulemaking in subsequent years, 
certain conditions can generate higher payments even if the outlier 
payment requirements are not met. Under the MS-DRG system, there are 
currently 259 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. However, since we 
implemented the HAC provisions, if a secondary diagnosis acquired 
during a hospital stay is a HAC and no other CCs or MCCs are present, 
the hospital receives a payment under the MS-DRGs as if the HACs were 
not present. (We refer readers to section II.D. of the FY 2008 IPPS 
final rule with comment period for a discussion of DRG reforms (72 FR 
47141).)
b. HAC Selection
    Beginning in FY 2007, we have proposed, solicited, and responded to 
public comments and have implemented section 1886(d)(4)(D) of the Act 
through the IPPS annual rulemaking process. For specific policies 
addressed in each rulemaking cycle, we direct readers to the following 
publications: 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); and the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule 
(74 FR 24106) and final rule (74 FR 43782). A complete list of the 10 
current categories of HACs is included in section II.F.2. of this 
preamble.
    In the FY 2011 IPPS/LTCH proposed rule (75 FR 23880 through 23898), 
we did not propose any additional HACs or changes to policies already 
established under the authority of section 1886(d)(4)(D) of the Act.
c. Collaborative Process
    As noted in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23881), 
in establishing the HAC payment policy under section 1886(d)(4)(D) of 
the Act, our experts have worked closely with public health and 
infectious disease professionals from across the Department of Health 
and Human Services, including CDC, the Agency for Healthcare Research 
and Quality (AHRQ), and the Office of Public Health and Science (OPHS), 
to identify the candidate preventable HACs, review comments, and select 
HACs. CMS and CDC have also collaborated on the process for hospitals 
to submit a POA indicator for each diagnosis listed on IPPS hospital 
Medicare claims and on the payment implications of the various POA 
reporting options. As discussed below, we have also used rulemaking

[[Page 50081]]

and Listening Sessions to obtain public input.
d. Application of HAC Payment Policy to MS-DRG Classifications
    As described above, in certain cases application of the HAC payment 
policy provisions can result in MS-DRG reassignment to a lower paying 
MS-DRG. The following diagram portrays the logic of the HAC payment 
policy provision as adopted in the FY 2008 IPPS final rule with comment 
period (72 FR 47200) and in the FY 2009 IPPS final rule (73 FR 48471):
[GRAPHIC] [TIFF OMITTED] TR16AU10.003

e. Public Input Regarding Selected and Potential Candidate HACs
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23880 through 
23898), we did not propose to add or remove categories of HACs, nor did 
we propose any changes to previously established policies.
    Given the timeliness of the HAC discussion, particularly when 
considered within the context of recent legislative health care reform 
initiatives, however, we remain eager to engage in an ongoing public 
dialogue about the various aspects of this policy. We plan to continue 
to include updates and findings from the RTI evaluation on CMS' 
Hospital-Acquired Conditions and Present on Admission Indicator Web 
site available at: http://www.cms.hhs.gov/HospitalAcqCond/.
f. POA Indicator Reporting
    Collection of POA indicator data is necessary to identify which 
conditions were acquired during hospitalization for the HAC payment 
provision as well as for broader public health uses of Medicare data. 
In the FY 2011 IPPS/LTCH PPS proposed rule, we listed the instructions 
and change requests that were issued to IPPS hospitals and also to non-
IPPS hospitals regarding the submission of POA indicator data for all 
diagnosis codes on Medicare claims and the processing of non-PPS claims 
(75 FR 23381) We also indicated that specific instructions on how to 
select the correct POA indicator for each diagnosis code were included 
in the ICD-9-CM Official Guidelines for Coding and Reporting, available 
on the CDC Web site at: http://www.cdc.gov/nchs/data/icd9/icdguide09.pdf. We reiterate that additional information regarding POA 
indicator reporting and application of the POA reporting options is 
available on the CMS Web site at: http://www.cms.hhs.gov/HospitalAcqCond although, historically we have not provided coding 
advice. Rather, we collaborate with the American Hospital Association 
(AHA) through the Coding Clinic for ICD-9-CM. We continue to 
collaborate with the AHA to promote the Coding Clinic for ICD-9-CM as 
the source for coding advice about the POA indicator.
    As discussed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 
23882) as well as in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 
FR 43784), there are five POA indicator reporting options, as defined 
by the ICD-9-CM Official Guidelines for Coding and Reporting:

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

[[Page 50082]]

    In the FY 2009 IPPS final rule (73 FR 48486 through 48487), we 
adopted final payment policies to: (1) Pay the CC/MCC MS-DRGs for those 
HACs coded with ``Y'' and ``W'' indicators; and (2) not pay the CC/MCC 
MS-DRGs for those HACs coded with ``N'' and ``U'' indicators.
    On or after January 1, 2011, hospitals are 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. The 
POA indicator of ``1'' is currently being used because of reporting 
restrictions from the use of the 4010 electronic transmittal standards 
format.
    Comment: Several commenters supported CMS' plans to no longer 
require a POA indicator of ``1'' for codes exempt from the POA 
reporting requirement with the implementation of the new 5010 
electronic transaction standards.
    Response: We appreciate the commenters' support of our efforts to 
move to the new 5010 electronic transaction standards format. We agree 
that the use of this format will prove beneficial for a number of 
reasons, including POA indicator reporting as well as facilitating the 
move to the use of ICD-10 coding systems.
    Hospitals reporting with the 5010 format on and after January 1, 
2011, will no longer report a POA indicator of ``1'' for POA exempt 
codes. The POA field will instead be left blank for codes exempt from 
POA reporting. We plan to issue CMS instructions on this reporting 
change.
2. HAC Conditions for FY 2011
    As changes to diagnosis codes and new diagnosis codes are proposed 
and finalized for the list of CCs and MCCs, we modify the list of 
selected HACs to reflect these changes. In Table 6A in the Addendum to 
the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24207), we listed the 
proposed addition of five new ICD-9-CM diagnosis codes to replace 
existing ICD-9-CM code 999.6 (ABO incompatibility reaction) for FY 
2011. ICD-9-CM code 999.6 is currently the only code identified under 
the Blood Incompatibility HAC category. We proposed to delete code 
999.6 and form a new subcategory of code 999.6 to identify new 
diagnoses relating to ABO incompatibility reaction due to transfusion 
of blood or blood products. These diagnoses meet the criteria for the 
Blood Incompatibility HAC category based on the predecessor code 999.6 
being a selected HAC.
    As shown in Table 6C in the Addendum to the FY 2011 IPPS/LTCH PPS 
proposed rule (75 FR 24210), we proposed that code 999.6 become invalid 
as a diagnosis code in FY 2011 with the creation of this new ICD-9-CM 
subcategory. This proposed new subcategory would allow room for 
expansion and the creation of the following new diagnosis codes:

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

    We invited public comments on the proposed adoption of the five 
ICD-9-CM diagnosis codes as CCs that are listed above which, if 
finalized, would be added to the current HAC Blood Incompatibility 
category.
    Comment: Several commenters supported CMS' proposal to add new ICD-
9-CM codes 999.60, 999.61, 999.62, 999.63, and 999.69, to replace code 
999.6, to specify ABO incompatibility reaction for FY 2011 and their 
classification as CCs.
    Response: We appreciate the support of the commenters. We are 
finalizing our proposal to make code 999.6 an invalid code and to add 
codes 999.60, 999.61, 999.62, 999.63, and 999.69 as CCs to the HAC 
blood incompatibility category for FY 2011.
    Comment: Some commenters questioned why the five ICD-9-CM codes 
(999.60, 999.61, 999.62, 999.63, and 999.69) were being proposed to 
replace the existing code (999.6) to identify blood incompatibility 
when the analysis indicated that only an extremely low volume of 
discharges (23) reported this condition as a secondary diagnosis.
    Response: The five ICD-9-CM codes listed above were proposed and 
finalized through the ICD-9-CM Coordination and Maintenance Committee 
meeting process. Further information regarding the diagnosis coding 
proposal for Hemolytic Transfusion Reactions (HTR) from the September 
17, 2009 meeting can be located at the following CDC Web site: http://www.cdc.gov/nchs/icd/icd9cm_maintenance.htm.
    For the reasons set forth in the proposed rule, we are finalizing 
our proposal to make code 999.6 an invalid code and to add codes 
999.60, 999.61, 999.62, 999.63, and 999.69 as CCs to the HAC blood 
incompatibility category for FY 2011.
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23882 and 23883), 
we also invited public comment on our proposal that the current list of 
HAC categories and the ICD-9-CM codes that had been finalized through 
FY 2010 continue to be subject to the HAC payment provision for FY 
2011. We also indicated that the final FY 2011 list of HAC conditions 
would include the proposed five new refinement codes to identify blood 
incompatibility as CCs if these codes were finalized. We received 
public comments on our proposal that the listed conditions continue to 
be subject to the HAC payment provisions which are summarized below.
    Comment: One commenter stated that the current HAC categories and 
codes finalized through FY 2010 are, for the most part, rational based 
on the statutory criteria that HACs must be high cost, high volume, or 
both and reasonably preventable through the application of evidence 
based guidelines. However, the commenter expressed reservations 
regarding the inclusion of deep vein thrombosis (DVT) and pulmonary 
embolism (PE) following certain orthopedic procedures. The commenter 
stated that the proportion of these events that can be prevented with 
evidence-based guidelines is unclear, given that there is uncertainty 
about the ideal length of time DVT prophylaxis should be continued 
postoperatively, differing practices and guidelines for DVT 
prophylaxis, and patient-specific factors (that is, thrombophilia) that 
can impact risk of postoperative venous thromboembolism. The commenter 
stated that an unintended consequence

[[Page 50083]]

of this HAC category could be excess bleeding occurrences from longer 
prescriptions of anticoagulation in attempts to comply with the 
measure. The commenter stated that, rather than including DVTs and PEs 
under the HAC provision, these conditions may be more appropriately 
managed as a measure under the RHQDAPU, as is being proposed for 
reducing avoidable readmissions.
    Response: We appreciate the commenter's support for the current HAC 
categories. We also appreciate the commenter's concern regarding 
whether DVTs and PEs following certain orthopedic procedures are 
reasonably preventable, given evidence-based guidelines. We are 
providing data on the frequency of our 10 categories of HACs for the 
first time in this year's rulemaking. As the public reviews these data 
and evaluates the effectiveness of the HAC program, we will be 
soliciting recommendations for refinements to this list. As discussed 
earlier, section 1886(d)(4)(D) of the Act specifies that the HAC list 
of conditions may be revised, in consultation with CDC, from time to 
time as long as the list contains at least two conditions. We did not 
propose any modification to the HAC list in the proposed rule. We 
instead shared data on the HACs, which we have discussed earlier. As we 
move forward, we will be working with the health care industry to 
refine and update the HAC list. Therefore, we will not remove DVTs and 
PEs following certain orthopedic procedures from the HAC list at this 
time.
    Comment: One commenter requested that CMS clarify how a hospital 
can appeal a decision under which a particular patient falls under the 
HAC policy and is ineligible for a higher DRG payment. The commenter 
believed that an appeals process is essential to ensure accountability.
    Response: As we explained in the FY 2008 IPPS final rule (72 FR 
47216), under 42 CFR 412.60(d), a hospital has 60 days after the date 
of the notice of the initial assignment of a discharge to an MS-DRG to 
request a review of that assignment. The hospital may submit additional 
information as part of its request. A hospital that believes a 
discharge was assigned to the incorrect MS-DRG as a result of the 
payment adjustment for HACs may request review of the MS-DRG assignment 
by its fiscal intermediary or MAC consistent with Sec.  412.60(d) of 
the regulations.
    As final policy for FY 2011, the following conditions will continue 
to be subject to the HAC payment provision:
BILLING CODE 4120-01-P

[[Page 50084]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.004

[[Page 50085]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.005

BILLING CODE 4120-01-C
    We refer readers to section II.F.6. of the FY 2008 IPPS final rule 
with comment period (72 FR 47202 through 47218) and to section II.F.7. 
of the FY 2009 IPPS final rule (73 FR 48474 through 48486) for detailed 
analyses supporting the selection of each of the HACs selected through 
FY 2010.
3. RTI Program Evaluation Summary
a. Background
    On September 30, 2009, a contract was awarded to Research Triangle 
Incorporated (RTI) to evaluate the impact of the Hospital-Acquired 
Condition-Present on Admission (HAC-POA) provisions on the changes in 
the incidence of selected conditions, effects on Medicare payments, 
impacts on coding accuracy, unintended consequences, and infection and 
event rates. This is an intra-agency project with funding and technical 
support coming from CMS, OPHS, AHRQ, and CDC. The evaluation will also 
examine the implementation of the program and evaluate additional 
conditions for future selection.
    RTI's evaluation of the HAC-POA provisions is divided into several 
parts, only some of which were completed prior to the publication date 
of the FY 2011 IPPS/LTCH PPS proposed rule. In the FY 2011 IPPS/LTCH 
PPS proposed rule (75 FR 23883 through 23898), we summarized the 
analyses that were completed. RTI's analyses of POA indicator 
reporting, frequencies and net savings associated with current HACs, 
and frequencies of previously considered candidate HACs reflect MedPAR 
claims from October 2008 through June 2009.
    We received a number of public comments regarding the evaluation 
conducted by RTI, despite the fact that we did not propose any new 
policies or policy revisions based on the evaluation. Several of these 
public comments are addressed later in another section of this 
preamble, but we believe that it is appropriate to acknowledge the 
following issues here.
    Comment: Several commenters expressed concern that the RTI 
evaluation did not include an analysis on the costs of complying with 
the HAC-POA provision. According to the commenters, compliance with our 
HAC-POA policy results in additional costs to providers and 
individuals, as well as to the Medicare program by necessitating 
additional expensive preadmission screening tests in order to achieve 
more accurate admission documentation. The commenters also stated that 
the estimated savings to Medicare is not accurate if providers are 
utilizing additional resources to perform these expensive tests on 
their patients.
    Response: We understand the seriousness of this concern and refer 
to our original discussion of HAC-POA issues in the FY 2009 IPPS final 
rule (73 FR 23547 through 23559) in which we included a comprehensive 
discussion of what we understood to be the full impact of this policy. 
We will continue to evaluate the financial costs of compliance with our 
HAC-POA program, as well as its impact on our overall goal of providing 
the highest quality of care for Medicare beneficiaries at the most 
reasonable costs.
    Comment: Several commenters commended CMS for making the early 
findings of the RTI study, as well as HAC-POA data, available to the 
public. The commenters encouraged CMS to continue to make additional 
findings available.
    Response: We agree with the commenters that it continues to be 
important to make HAC-POA data and findings available to the public 
prior to proposing any significant updates to the HAC list. As RTI 
continues its work, we will share the findings and additional HAC-POA 
data.
    Comment: Several commenters expressed interest in seeing data on 
the most common secondary diagnoses on the CC and MCC list that are 
reported along with an HAC code.
    Response: We have asked RTI to include a list of the most commonly 
reported secondary CC and MCC diagnoses and display this list along 
with the other HAC-POA data on its Web site at: http://www.rti.org/reports/cms.
    In this final rule, we are updating our summary of the analyses 
with additional data that have become available since issuance of the 
proposed rule.
b. RTI Analysis on POA Indicator Reporting Across Medicare Discharges
    To better understand the impact of HACs on the Medicare program, it 
is necessary to first examine the incidence of POA indicator reporting 
across all eligible Medicare discharges. As

[[Page 50086]]

mentioned previously, only IPPS hospitals are required to submit POA 
indicator data for all diagnosis codes on Medicare claims. Therefore, 
all non-IPPS hospitals were excluded, as well as providers in waiver 
States (Maryland) and territories other than Puerto Rico.
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23880 through 
23898), we provided a preliminary analysis on claims data from October 
2008 through June 2009. Since publication of that proposed rule, an 
additional 3 months of data for FY 2009 that include claims from July 
2009 through September 2009 have become available. Below we present the 
cumulative results of RTI's findings for FY 2009.
    Using MedPAR claims data from October 2008 through September 2009, 
RTI found a total of approximately 65.22 million secondary diagnoses 
across approximately 9.3 million discharges. As shown in Chart A below, 
the majority of all secondary diagnoses (83.69 percent) were reported 
with a POA indicator of ``Y,'' meaning the condition was POA.
[GRAPHIC] [TIFF OMITTED] TR16AU10.006

c. RTI Analysis on POA Indicator Reporting of Current HACs
    Following the initial analysis of POA indicator reporting for all 
secondary diagnoses, RTI then evaluated POA indicator reporting for 
specific HAC-associated secondary diagnoses. The term ``HAC-associated 
secondary diagnosis'' refers to those diagnoses that are on the 
selected HAC list and were reported as a secondary diagnosis. Chart B 
below shows a summary of the HAC categories with the frequency in which 
each HAC was reported as a secondary diagnosis and the corresponding 
POA indicators assigned on the claims. It is important to note that, 
because more than one HAC-associated diagnosis code can be reported per 
discharge (that is, on a single claim), the frequency of HAC-associated 
diagnosis codes may be more than the actual number of discharges that 
have a HAC-associated diagnosis code reported as a secondary diagnosis. 
Below we discuss the frequency of each HAC-associated diagnosis code 
and the POA indicators assigned to those claims.
    RTI analyzed the frequency of each reported HAC-associated 
secondary diagnosis (across all 9.3 million discharges) and the POA 
indicator assigned to the claim. Chart B below shows that the most 
frequently reported conditions were in the Falls and Trauma HAC 
category, with a total of 153,284 HAC-associated diagnosis codes being 
reported for that HAC category. Of these 153,284 diagnoses, 5,684 
reported a POA indicator of ``N'' for not POA and 147,257 diagnoses 
reported a POA indicator of ``Y'' for POA. The lowest frequency appears 
in the Surgical Site Infection (SSI) Following Bariatric Surgery for 
Obesity HAC category with only 17 HAC-associated secondary diagnosis 
codes (and procedure codes) reported. It is important to note that the 
number of secondary diagnosis codes classified as POA is likely 
overstated due to coding practices, and, therefore, the number of HACs 
not POA are expected to be greater than indicated in Charts B and C. As 
a result, these data likely underestimate the number of complications 
some would consider acquired in the hospital or other health care 
setting. For example, the HACs listed as present on admission (POA = 
``Y'') include those instances where the HAC condition was present on 
admission from the emergency room or other outpatient settings within 
the admitting institution. The POA indicator of ``Y'' is also used to 
identify cases where a patient was discharged and then readmitted one 
calendar day or more after the date of discharge due to complications 
from a HAC. In addition, the POA indicator of ``Y'' may also include 
patient transfers to the acute care hospital from other health care 
facilities, like nursing homes, or from a home health setting, where 
the secondary diagnosis considered to be a HAC was initially acquired. 
Using current coding guidelines, all of the above scenarios can be 
correctly and appropriately classified as POA (where POA = ``Y'') on an 
inpatient claim, and CMS does not have data from which to determine 
where the condition described in the secondary diagnisos was acquired. 
Therefore, while a fraction of the HACs reported as POA were acquired 
outside the hospital prior to admission, some conditions could also 
have been acquired at the hospital in an outpatient setting or through 
a prior admission.

[[Page 50087]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.007

BILLING CODE 4120-01-C
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23885), we 
welcomed public comments on the data presented that could provide 
insight into the accuracy of those data, the use of comparative data 
sets or analysis, and how aspects of the coding system might influence 
these data.
    Comment: One commenter expressed its past and continuing support of 
the HAC-POA program. This commenter applauded CMS' efforts to evaluate 
the payment and clinical impacts of the HAC-POA policy and for making 
the preliminary data available for public comment. However, the 
commenter reported that it found the preliminary published POA data for 
certain conditions interesting. Specifically, the commenter noted that 
the POA data for the catheter-associated urinary tract infection 
(CAUTI) condition was unexpected in that 85 percent of the cases 
reporting that condition as a secondary diagnosis were assigned a POA 
indicator of ``Y'' (meaning that the condition was present on 
admission). The commenter further noted that there were other 
conditions whose POA data analysis results were equally unexpected. 
This commenter stated it looked forward to reviewing further

[[Page 50088]]

analyses and understanding how the POA indicator is being documented 
and the accuracy of the documentation.
    Response: We appreciate and acknowledge the commenter's support of 
the HAC-POA provision. As stated earlier, one aspect of the HAC-POA 
program evaluation is to examine the accuracy of coding, which includes 
a review of the POA indicator data. RTI will continue to study these 
data and, when they become available, we plan to publish the results.
    Comment: Commenters expressed concern about the accuracy of POA 
indicator reporting for the HACs related to intracranial injury with 
loss of consciousness. One commenter stated that it has come to the 
attention of the American Hospital Association's Central Office on ICD-
9-CM that there have been different interpretations of the POA coding 
guidelines for the reporting of the following ICD-9-CM code categories:
     850 Concussions;
     851 Cerebral laceration and contusion;
     852 Subarachnoid, subdural, and extradural hemorrhage, 
following injury;
     853 Other and unspecified intracranial hemorrhage 
following injury; and
     854 Intracranial injury of other and unspecified nature.
    The commenter pointed out that the above mentioned ICD-9-CM code 
categories require a fifth digit to specify whether there was a loss of 
consciousness, and the approximate length of time that the patient was 
unconscious. The commenter stated that, currently, the POA guidelines 
state to ``assign `N' if any part of the combination code was not 
present on admission.'' The commenter further indicated that, in some 
instances, coders have assigned ``N'' to these codes if the patient 
lost consciousness after admission, even though the intracranial injury 
occurred prior to admission. The commenter stated that loss of 
consciousness is a component of intracranial injuries rather than a 
separate condition. The commenter believed that this guideline has 
resulted in data implying that the intracranial injuries were a result 
of trauma sustained after admission to the hospital, when the injury 
occurred prior to admission.
    The commenter stated that this POA guideline was discussed by the 
Editorial Advisory Board for Coding Clinic for ICD-9-CM. After review, 
the commenter stated that the Board determined that the POA guideline 
should be clarified so that coders will understand that these 
intracranial injury cases that have a loss of consciousness after 
admission should be assigned a POA indicator of ``Y'' rather than a 
``N.'' The commenter stated that this advice will be provided in a 
future issue of Coding Clinic for ICD-9-CM. The commenter pointed out 
that CMS collaborated in this decision.
    Response: We agree that there appears to be inconsistency in how 
coders interpret and apply the official POA coding guideline for these 
combination codes that include loss of consciousness. CMS participated 
as a voting member of the American Hospital Association's Editorial 
Advisory Board for Coding Clinic for ICD-9-CM to develop clarifications 
on the POA reporting for combination codes that involve loss of 
consciousness. We agree that this clarification will lead to greater 
consistency and accuracy in POA indicator reporting. CMS looks forward 
to continuing its efforts as part of the American Hospital 
Association's Editorial Advisory Board for Coding Clinic for ICD-9-CM 
to provide guidance on accuracy of coding and the reporting of POA 
indicators. Hospitals look to this publication to provide detailed 
guidance on ICD-9-CM code and POA reporting. We encourage hospitals to 
send any other questions about ICD-9-CM codes or POA indicator 
selection to the American Hospital Association so that the Editorial 
Advisory Board can continue its role of providing instruction on the 
accurate selection and reporting of both ICD-9-CM codes and POA 
indicators.
    As described earlier, in the FY 2009 IPPS final rule (73 FR 48486 
through 48487), we adopted as final our proposal to: (1) Pay the CC/MCC 
MS-DRGs for those HACs coded with ``Y'' and ``W'' indicators; and (2) 
not pay the CC/MCC MS-DRGs for those HACs coded with ``N'' and ``U'' 
indicators. We also discussed the comments we received urging CMS to 
strongly consider changing the policy and to pay for those HACs 
assigned a POA indicator of ``U'' (documentation is insufficient to 
determine if the condition was present at the time of admission). We 
stated we would monitor the extent to which and under what 
circumstances the ``U'' POA reporting option is used. In the FY 2010 
IPPS/RY 2010 LTCH PPS final rule, we also discussed and responded to 
comments regarding HACs coded with the ``U'' indicator (74 FR 43784 and 
43785). As shown in Chart B above, RTI's analysis provides some data on 
a total of 404 HAC-associated secondary diagnoses reported with a POA 
indicator of ``U.'' Of those diagnoses, 270 (0.2 percent) were assigned 
to the Falls and Trauma HAC category.
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23885), we stated 
that we continue to believe that better documentation will result in 
more accurate public health data. Because the RTI analysis we 
summarized in the FY 2011 IPPS/LTCH PPS proposed rule was based on 
preliminary data, we did not propose to change our policy under which 
CMS does not pay at the higher CC/MCC amount when a selected HAC 
diagnosis code is reported with a POA indicator of ``U.''
    Comment: Several commenters asked CMS to change our policy under 
which we do not pay at the higher CC/MCC amount when a HAC code 
reported with a POA of ``U.'' (A POA indicator of ``U'' means that 
documentation was insufficient to determine if the condition was 
present at the time of the inpatient admission.) The commenters stated 
that while hospitals are continuing to work on coding and documentation 
improvement issues with physicians who practice in their facilities, in 
some cases, hospitals have not been successful in obtaining clear 
documentation to clarify whether or not a condition was present on 
admission. They added that when physicians do not provide clear 
documentation in the medical record, a POA indicator of ``U'' is 
assigned. The commenters asked that CMS allow these cases with poor 
documentation to result in a higher payment if the HAC code is reported 
with a ``U.''
    Response: We are committed to improving the accuracy of health care 
data. Accurate and complete documentation within the health record is 
important for patient management, outcome measurement, and quality 
improvement, as well as payment accuracy. We believe that it would be 
inappropriate to pay a higher amount to hospitals based on incomplete 
or poor documentation. If accurate information is not available within 
the health record for a hospital to report a precise POA indicator, 
hospitals are encouraged to seek this additional documentation from 
their physicians and/or other hospitals if the hospital treated a 
patient who was transferred. For these reasons, we believe that 
reducing payment for conditions on the HAC list with poor documentation 
is appropriate. Therefore, we did not propose to change our approach to 
discounting the CC or MCC assignment for selected HACs reported with a 
POA indicator of ``U.'' We will maintain our existing policy and not 
allow HACs with a POA indicator of ``U'' to lead to the higher payment.

[[Page 50089]]

    In the FY 2011 IPPS/LTCH PPS proposed rule, we encouraged readers 
to further review the RTI detailed report which demonstrates the 
frequency of each individual HAC-associated diagnosis code within the 
HAC categories. For example, in the Foreign Object Retained After 
Surgery HAC category, there are two unique ICD-9-CM diagnosis codes to 
identify that condition: code 998.4 (Foreign body accidentally left 
during a procedure) and code 998.7 (Acute reaction to foreign substance 
accidentally left during a procedure). In the updated detailed RTI 
report, readers can view that code 998.4 was reported 428 times and 
code 998.7 was reported 13 times, for a total of 441 times, as shown in 
Chart B above. The RTI detailed report is available at the following 
Web site: http://www.rti.org/reports/cms/.
d. RTI Analysis of Frequency of Discharges and POA Indicator Reporting 
for Current HACs
    RTI further analyzed the effect of the HAC provision by studying 
the frequency in which a HAC-associated diagnosis was reported as a 
secondary diagnosis with a POA indicator of ``N'' or ``U'' and, of that 
number, how many resulted in MS-DRG reassignment. In Chart C below, 
Column A shows the number of discharges for each HAC category where the 
HAC-associated diagnosis was reported as a secondary diagnosis. For 
example, there were 33 discharges that reported Air Embolism as a 
secondary diagnosis. Column C shows the number of discharges for each 
HAC reported with a POA indicator of ``N'' or ``U.'' Continuing with 
the example of Air Embolism, the chart shows that, of the 33 reported 
discharges, 24 discharges (72.73 percent) had a POA indicator of ``N'' 
or ``U'' and was identified as a HAC discharge. There were a total of 
24 discharges to which the HAC policy applies and that could, 
therefore, have had an MS-DRG reassignment. Column E shows the number 
of discharges where an actual MS-DRG reassignment occurred. As shown in 
Column E, the number of discharges with an Air Embolism that resulted 
in actual MS-DRG reassignments is 12 (50 percent of the 24 discharges 
with a POA indicator of ``N'' or ``U''). Thus, while there were 24 
discharges (72.73 percent of the original 33) with an Air Embolism 
reported with a POA indicator of ``N'' or ``U'' identified as a HAC 
discharge that could have caused MS-DRG reassignment, the end result 
was 12 (50 percent) actual MS-DRG reassignments. There are a number of 
reasons why a selected HAC reported with a POA indicator of ``N'' or 
``U'' will not result in MS-DRG reassignment. These reasons were 
illustrated with the diagram in section II.F.1.c. of this preamble and 
will be discussed in further detail in section II.F.3.e. of this 
preamble.
    Chart C below also shows that, of the 264,810 discharges with a 
HAC-associated diagnosis as a secondary diagnosis, 3,416 discharges 
ultimately resulted in MS-DRG reassignment. As we discuss below, there 
were 15 claims that resulted in MS-DRG reassignment where two HACs were 
reported on the same admission. The four HAC categories that had the 
most discharges resulting in MS-DRG reassignment were: (1) Falls and 
Trauma; (2) Pulmonary Embolism and DVT Orthopedic (Orthopedic PE/DVT); 
(3) Pressure Ulcer Stages III & IV; and (4) Catheter-Associated Urinary 
Tract Infection (UTI). Codes falling under the Falls and Trauma HAC 
category were the most frequently reported secondary diagnoses with 
126,078 discharges. Of these 126,078 discharges, 5,312 (4.21 percent) 
were coded as not POA and identified as HAC discharges. This category 
also contained the greatest number of discharges that resulted in an 
MS-DRG reassignment. Of the 5,312 discharges within this HAC category 
that were not POA, 1,577 (29.69 percent) resulted in an MS-DRG 
reassignment.
    Of the 264,810 total discharges reporting HAC-associated diagnoses 
as a secondary diagnosis, 3,110 discharges were coded with a secondary 
diagnosis of Orthopedic PE/DVT. Of these 3,110 discharges, 2,335 (75.08 
percent) were coded as not POA and identified as HAC discharges. This 
category contained the second greatest number of discharges resulting 
in an MS-DRG reassignment. Of the 2,335 discharges in this HAC category 
that were not POA, 1,024 discharges (43.85 percent) resulted in an MS-
DRG reassignment.
    The Pressure Ulcer Stages III & IV category had the second most 
frequently coded secondary diagnoses, with 99,656 discharges. Of these 
discharges, 1,316 (1.32 percent) were coded as not POA and identified 
as HAC discharges. This category contained the third greatest number of 
discharges resulting in an MS-DRG reassignment. Of the 1,316 discharges 
in this HAC category that were not POA, 384 discharges (29.18 percent) 
resulted in an MS-DRG reassignment.
    The Catheter-Associated UTI category had the third most frequently 
coded secondary diagnoses, with 14,089 discharges. Of these discharges, 
2,333 (16.56 percent) were coded as not POA and identified as HAC 
discharges. This category contained the fourth greatest number of 
discharges resulting in an MS-DRG reassignment. Of the 2,333 discharges 
in this HAC category that were not POA, 223 discharges (9.56 percent) 
resulted in a MS-DRG reassignment.
    The remaining 6 HAC categories only had 208 discharges that 
ultimately resulted in MS-DRG reassignment. We note that, even in cases 
where a large number of HAC-associated secondary diagnoses were coded 
as not POA, this finding did not necessarily translate into a large 
number of discharges that resulted in MS-DRG reassignment. For example, 
only 26 of the 2,573 Vascular Catheter-Associated Infection secondary 
diagnoses that were coded as not POA and identified as HAC discharges 
resulted in a MS-DRG reassignment.
    There were a total of 417 discharges with a HAC-associated 
secondary diagnosis reporting a POA indicator of ``N'' or ``U'' that 
were excluded from acting as a HAC discharge (subject to MS-DRG 
reassignment) due to the CC Exclusion List logic within the GROUPER. 
The CC Exclusion List identifies secondary diagnosis codes designated 
as a CC or MCC that are disregarded by the GROUPER logic when reported 
with certain principal diagnoses. For example, a claim with the 
principal diagnosis code of 250.83 (Diabetes with other specified 
manifestations, type 1 [juvenile type], uncontrolled) and a secondary 
diagnosis code of 250.13 (Diabetes with ketoacidosis, type 1, [juvenile 
type], uncontrolled) with a POA indicator of ``N'' would result in the 
HAC-associated secondary diagnosis code 250.13 being ignored as a CC. 
According to the CC Exclusion List, code 250.13 is excluded from acting 
as a CC when code 250.83 is the principal diagnosis. As a result, the 
HAC logic would not be applicable to that case. For a detailed 
discussion on the CC Exclusion List, we refer readers to section 
II.G.9. of this preamble.
    Discharges where the HAC logic was not applicable due to the CC 
Exclusion List occurred among the following 4 HAC categories: Pressure 
Ulcer Stages III and IV (44 cases), Falls and Trauma (311 cases), 
Catheter-Associated UTI (9 cases), Vascular Catheter-Associated 
Infection (4 cases), and Manifestations of Poor Glycemic Control (49 
cases). Further information regarding the specific number of cases that 
were excluded for each HAC-associated secondary diagnosis code within 
each of the above mentioned HAC categories is also available. We refer 
readers to the RTI detailed report at the following Web site: http://www.rti.org/reports/cms/.

[[Page 50090]]

    In summary, Chart C below demonstrates that there were a total of 
264,810 discharges with a reported HAC-associated secondary diagnosis. 
Of the total 264,810 discharges, 14,681 (5.68 percent) discharges 
included HACs that were reported with a POA indicator of ``N'' or ``U'' 
and were identified as a HAC discharge. Of these 14,681 discharges, the 
number of discharges resulting in MS-DRG reassignments was 3,416 (22.72 
percent).
BILLING CODE 4120-01-P
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BILLING CODE 4120-01-C
    An extremely small number of discharges had multiple HACs reported 
during the same stay. In reviewing the 9.3 million claims, RTI found 60 
cases in which two HACs were reported on the same discharge. Chart D 
below summarizes these cases. There were 9 cases in which a Falls and 
Trauma HAC was reported in addition to a Pressure Ulcer Stages III & IV 
HAC. Twenty of the cases with two HACs involved Pressure Ulcer Stages 
III & IV and 24 cases involved Falls or Trauma. Other multiple HAC 
cases included 10 Catheter-Associated UTI cases and 6 Vascular 
Catheter-Associated Infection cases.
    Some of these cases with multiple HACs reported had both HAC codes 
ignored in the MS-DRG assignment. Of these 60 claims, 15 did not 
receive higher payments based on the presence of one or both of these 
reported HACs and we describe these claims below in section 
II.F.3.g.(2) of this preamble. Depending on the MS-DRG to which the 
cases were originally assigned, ignoring the HAC codes would have led 
to a MS-DRG reassignment if there were no other MCCs or CCs reported, 
if the MS-DRG was subdivided into severity levels, and if the case were 
not already in the lowest severity level prior to ignoring the HAC 
codes.

[[Page 50092]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.010

e. RTI Analysis of Circumstances When Application of HAC Provisions 
Would Not Result in MS-DRG Reassignment for Current HACs
    As discussed in section II.F.1. and illustrated in the diagram in 
section II.F.1.c. of this preamble, there are instances when the MS-DRG 
assignment does not change even when a HAC-associated secondary 
diagnosis has a POA indicator of either ``N'' or ``U.'' In analyzing 
our claims data, RTI identified four main reasons why a MS-DRG 
assignment would not change despite the presence of a HAC. Those four 
reasons are described below and are shown in Chart E below. Column A 
shows the frequency of discharges that included a HAC-associated 
secondary diagnosis. Column B shows the frequency of discharges where 
the HAC-associated secondary diagnosis was coded as not POA and 
identified as a HAC discharge. Column C shows the frequency of 
discharges in which the HAC-associated secondary diagnosis coded as not 
POA resulted in a change in MS-DRG. Columns D, E, F, and G show the 
frequency of discharges in which the HAC-associated secondary diagnosis 
coded as not POA did not result in a change in MS-DRG assignment. 
Columns D, E, F, and G are explained in more detail below.
(1) Other MCCs/CCs Prevent Reassignment
    Column D (Other MCC/CCs that Prevent Reassignment) in Chart E below 
indicates the number of cases reporting a HAC-associated secondary 
diagnosis code that did not have a MS-DRG reassignment because of the 
presence of other secondary diagnoses on the MCC or CC list. A claim 
that is coded with a HAC-associated secondary diagnoses and a POA 
status of either ``N'' or ``U'' may have other secondary diagnoses that 
are classified as an MCC or a CC. In such cases, the presence of these 
other MCC and CC diagnoses will still lead to the assignment of a 
higher severity level, despite the fact that the GROUPER software is 
disregarding the ICD-9-CM code that identifies the selected HAC in 
making the MS-DRG assignment for that claim. For example, there were 96 
cases in which the ICD-9-CM codes for the Foreign Object Retained After 
Surgery HAC category were present, but the presence of other secondary 
diagnoses that were MCCs or CCs resulted in no change to the MS-DRG 
assignment. Chart E shows that a total of 8,208 cases did not have a 
change in the MS-DRG assignment because of the presence of other 
reported MCCs and CCs.
(2) Two Severity Levels Where HAC Does Not Impact MS-DRG Assignment
    Column E (Number of MS-DRGs with Two Severity Levels Where HAC Does 
Not Impact MS-DRG Assignment) shows the frequency with which discharges 
with a HAC as a secondary diagnosis coded as not POA did not result in 
an MS-DRG change because the MS-DRG is subdivided solely by the 
presence or absence of an MCC. A claim with a HAC and a POA indicator 
of either ``N'' or ``U'' may be assigned to an MS-DRG that is 
subdivided solely by the presence or absence of an MCC. In such cases, 
removing a HAC ICD-9-CM CC code will not lead to further changes in the 
MS-DRG assignment. Examples of these MS-DRG subdivisions are shown in 
the footnotes to the chart and include the following examples:
     MS-DRGs 100 and 101 (Seizures with or without MCC, 
respectively)
     MS-DRGs 102 and 103 (Headaches with or without MCC, 
respectively)

[[Page 50093]]

    The codes that fall under the HAC category of Foreign Object 
Retained After Surgery are CCs. If this case were assigned to a MS-DRG 
with an MCC subdivision such as MS-DRGs 100 and 101, the presence of 
the HAC code would not affect the MS-DRG severity level assignment. In 
other words, if the Foreign Object Retained After Surgery code was the 
only secondary diagnosis reported, the case would be assigned to MS-DRG 
101. If the POA indicator was ``N,'' the HAC Foreign Object Retained 
After Surgery code would be ignored in the MS-DRG assignment logic. 
Despite the fact that the code was ignored, the case would still be 
assigned to the same, lower severity level MS-DRG. Therefore, there 
would be no impact on the MS-DRG assignment.
    Column E in Chart E below shows that there were a total of 1,793 
cases where the HAC code was ``N'' or ``U'' and the MS-DRG assignment 
did not change because the case was already assigned to the lowest 
severity level.
(3) No Severity Levels
    Column F (Number of MS-DRGs with No Severity Levels) shows the 
frequency with which discharges with an HAC as a secondary diagnosis 
coded as not POA did not result in an MS-DRG change because the MS-DRG 
is not subdivided by severity levels. A claim with a HAC and a POA of 
``N'' or ``U'' may be assigned to a MS-DRG with no severity levels. For 
instance, MS-DRG 311 (Angina Pectoris) has no severity level 
subdivisions; this MS-DRG is not split based on the presence of an MCC 
or a CC. If a patient assigned to this MS-DRG develops a secondary 
diagnosis such as a Stage III pressure ulcer after admission, the 
condition would be considered to be a HAC. The code for the Stage III 
pressure ulcer would be ignored in the MS-DRG assignment because the 
condition developed after the admission (the POA indicator was ``N''). 
Despite the fact that the ICD-9-CM code for the HAC Stage III pressure 
ulcer was ignored, the MS-DRG assignment would not change. The case 
would still be assigned to MS-DRG 311. Chart E below shows that 1,255 
cases reporting a HAC-associated secondary diagnosis did not undergo a 
change in the MS-DRG assignment based on the fact that the case was 
assigned to a MS-DRG that had no severity subdivisions (that is, the 
MS-DRG is not subdivided based on the presence or absence of an MCC or 
a CC, rendering the presence of the HAC irrelevant for payment 
purposes).
(4) MS-DRG Logic
    Column G (MS-DRG Logic Issues) shows the frequency with which a HAC 
as a secondary diagnosis coded as not POA did not result in an MS-DRG 
change because of MS-DRG assignment logic. There were nine discharges 
where the HAC criteria were met and the HAC logic was applied, however, 
due to the structure of the MS-DRG logic, these cases did not result in 
MS-DRG reassignment. These cases may appear similar to those discharges 
where the MS-DRG is subdivided into two severity levels by the presence 
or absence of an MCC and did not result in MS-DRG reassignment; 
however, these discharges differ slightly in that the MS-DRG logic also 
considers specific procedures that were reported on the claim. In other 
words, for certain MS-DRGs, a procedure may be considered the 
equivalent of an MCC or CC. The presence of the procedure code dictates 
the MS-DRG assignment despite the presence of the HAC-associated 
secondary diagnosis code with a POA indicator of ``N'' or ``U''.
    For example, a claim with the principal diagnosis code of 441.1 
(Thoracic aneurysm, ruptured) with HAC-associated secondary diagnosis 
code of 996.64 (Infection and inflammatory reaction due to indwelling 
urinary catheter) and diagnosis code 599.0 (Urinary tract infection, 
site not specified), having POA indicators of ``Y'', ``N'', ``N'', 
respectively, and procedure code 39.73 (Endovascular implantation of 
graft in thoracic aorta), results in an assignment to MS-DRG 237 (Major 
Cardiovascular Procedures with MCC or Thoracic Aortic Aneurysm Repair). 
In this case, the thoracic aortic aneurysm repair is what dictated the 
MS-DRG assignment and the presence of the HAC-associated secondary 
diagnosis code, 996.64, did not affect the MS-DRG assigned. Other 
examples of MS-DRGs that are subdivided in this same manner are as 
follows:
     MS-DRG 029 (Spinal procedures with CC or Spinal 
Neurostimulators)
     MS-DRG 129 (Major Head & Neck Procedures with CC/MCC or 
Major Device)
     MS-DRG 246 (Percutaneous Cardiovascular Procedure with 
Drug-Eluting Stent with MCC or 4+ Vessels/Stents)
    Column G in the chart below shows that four of the nine cases that 
did not result in MS-DRG reassignment due to the MS-DRG logic were in 
the Catheter Associated UTI HAC category, three cases were in the Falls 
and Trauma HAC category, one case was in the Foreign Body Retained 
After surgery HAC category, and one case was in the Vascular Catheter-
Associated Infection HAC Category.
    In conclusion, a total of 11,265 cases (8,208 + 1,793 + 1,255 + 9) 
did not have a change in MS-DRG assignment, regardless of the presence 
of a HAC. The reasons described above explain why only 3,416 cases had 
a change in MS-DRG assignment despite the fact that there were 14,681 
HAC cases with a POA of ``N'' or ``U.'' We refer readers to the RTI 
detailed report at the Web site: http://www.rti.org/reports/cms for 
further information.
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BILLING CODE 4120-01-C
f. RTI Analysis of Coding Changes for HAC-Associated Secondary 
Diagnoses for Current HACs
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23892), we 
discussed RTI's preliminary analysis on coding changes using 9 months 
of claims data from October 2008 through June 2009. We noted that, in 
addition to studying claims from October 2008 through June 2009, RTI 
evaluated claims data from 2 years prior to determine if there were 
significant changes in the number of discharges with a HAC being 
reported as a secondary diagnosis. For this FY 2011 IPPS/LTCH PPS final 
rule analysis, RTI examined an additional 3 months of claims data for 
each fiscal year (FY 2007 and FY 2008), and compared these data to the 
updated FY 2009 data. Below we summarize the results of the fiscal year 
to fiscal year comparison using 12 months of claims data.
    RTI's analysis found that there was an overall increase in the 
reporting of secondary diagnoses that are currently designated as HACs 
from FY 2007 to FY 2008. The most significant increase was in the 
Catheter-Associated UTI HAC category, with 12,459 discharges being 
reported in FY 2007, while 15,408 discharges were reported in FY 2008, 
an increase of 2,949 cases. The next significant increase was in the 
Falls and Trauma HAC category with 151,321 discharges being reported in 
FY 2007, while 153,600 discharges were reported in FY 2008, an increase 
of 2,279 cases.
    However, the analysis also found that there was an overwhelming 
decrease in the HAC-associated secondary diagnoses reported from FY 
2008 to FY 2009. The most significant decrease was in the Falls and 
Trauma HAC category, with 153,600 discharges being reported in FY 2008, 
while 125,505 discharges were reported in FY 2009, a decrease of 28,095 
cases. We point out that because diagnosis codes for the Pressure Ulcer 
Stages III & IV HAC did not become effective until October 1, 2008, 
there are

[[Page 50096]]

no data available for FY 2007 or FY 2008.
    We refer readers to the RTI detailed report for all the conditions 
in each fiscal year (FY 2007 through FY 2009) as described above at the 
following Web site: http://www.rti.org/reports/cms/.
g. RTI Analysis of Estimated Net Savings for Current HACs
    RTI estimated the net savings generated by the HAC payment policy 
based on 12 months of MedPAR claims from October 2008 through September 
2009.
(1) Net Savings Estimation Methodology
    The payment impact of a HAC is the difference between the IPPS 
payment amount under the initially assigned MS-DRG and the amount under 
the reassigned MS-DRG. The amount for the reassigned MS-DRG appears on 
the MedPAR files. To construct this, RTI modeled the IPPS payments for 
each MS-DRG following the same approach that we use to model the impact 
of IPPS annual rule changes. Specifically, RTI replicated the payment 
computations carried out in the IPPS PRICER program using payment 
factors for IPPS providers as identified in various CMS downloaded 
files. The files used are as follows:
     Version 26 of the Medicare Severity GROUPER software 
(applicable to discharges between October 1, 2008 and September 30, 
2009). IPPS MedPAR claims were run through this file to obtain needed 
HAC-POA output variables.
     The FY 2009 MS-DRG payment weight file. This file includes 
the weights, geometric mean length of stay (GLOS), and the postacute 
transfer payment indicators.
     CMS standardized operating and capital rates. Tables 1A 
through 1C, as downloaded from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/IPPS2009, include the full update and reduced update 
amounts, as well as the information needed to compute the blended 
amount for providers located in Puerto Rico.
     The IPPS impact files for FY 2009, also as downloaded from 
the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/IPPS2009/. 
This file includes the wage index and geographic adjustment factors, 
plus the provider type variable to identify providers qualifying for 
alternative hospital-specific amounts and their respective HSP rates.
     The IPPS impact files for FY 2010, as downloaded from the 
Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/10FR/. This file 
includes indirect medical education (IME) and disproportionate share 
(DSH) percent adjustments that were in effect as of March 2009.
     CMS historical provider-specific files (PSF). This 
includes the indicator to identify providers subject to the full or 
reduced standardized rates and the applicable operating and capital 
cost-to-charge ratios. A SAS version was downloaded from the Web site 
at: http://www.cms.hhs.gov/ProspMedicareFeeSvcPmtGen/04_psf_SAS.asp.
    There were 50 providers with discharges in the final HAC analysis 
file that did not appear in the FY 2009 impact file, of which 11 also 
did not appear in the FY 2010 impact file. For these providers, we 
identified the geographic CBSA from the historical PSF and assigned the 
wage index using values from Tables 4A and 4C as downloaded from the 
Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/IPPS2009/. For 
providers in the FY 2010 file but not the FY 2009 file, we used IME and 
DSH rates from FY 2010. The 11 providers in neither impact file were 
identified as non-IME and non-DSH providers in the historical PSF file.
    The steps for estimating the HAC payment impact are as follows:
    Step 1: Rerun the Medicare Severity Grouper on all records in the 
analysis file. This is needed to obtain information on actual HAC-
related MS-DRG reassignments in the file, and to identify the CCs and 
MCCs that contribute to each MS-DRG assignment.
    Step 2: Model the base payment and outlier amounts associated with 
the initial MS-DRG if the HAC were excluded using the computations laid 
out in the CMS file ``Outlier Example FY 2007 new.xls,'' as downloaded 
from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/04_outlier.asp#TopOfPage, and modified to accommodate FY 2009 factors.
    Step 3: Model the base payment and outlier amounts associated with 
the final MS-DRG where the HAC was excluded using the computations laid 
out in the CMS file ``Outlier Example FY 2007 new.xls,'' as downloaded 
from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/04_outlier.asp#TopOfPage and modified to accommodate FY 2009 factors.
    Step 4: Compute MS-DRG base savings as the difference between the 
nonoutlier payments for the initial and final MS-DRGs. Compute outlier 
amounts as the difference in outlier amounts due under the initial and 
final reassigned MS-DRG. Compute net savings due to HAC reassignment as 
the sum of base savings plus outlier amounts.
    Step 5: Adjust the model to incorporate short-stay transfer payment 
adjustments.
    Step 6: Adjust the model to incorporate hospital-specific payments 
for qualifying rural providers receiving the hospital-specific payment 
rates.
    It is important to mention that using the methods described above, 
the MS-DRG and outlier payments amounts that are modeled for the final 
assigned MS-DRG do not always match the DRG price and outlier amounts 
that appear in the MedPAR record. There are several reasons for this. 
Some discrepancies are caused by using single wage index, IME and DSH 
factors for the full period covered by the discharges, when in practice 
these payment factors can be adjusted for individual providers during 
the course of the fiscal year. In addition, RTI's approach disregards 
any Part A coinsurance amounts owed by individual beneficiaries with 
greater than sixty covered days in a spell of illness. Five percent of 
all HAC discharges showed at least some Part A coinsurance amount due 
from the beneficiary, although less than two percent of reassigned 
discharges (55 cases in the analysis file) showed Part A coinsurance 
amounts due. Any Part A coinsurance payments would reduce the actual 
savings incurred by the Medicare program.
    There are also a number of less common special IPPS payment 
situations that are not factored into RTI's modeling. These could 
include new technology add-on payments, payments for blood clotting 
factors, reductions for replacement medical devices, adjustments to the 
capital rate for new providers, and adjustments to the capital rate for 
certain classes of providers who are subject to a minimum payment level 
relative to capital cost.
(2) Net Savings Estimate
    Chart F below summarizes the estimated net savings of current HACs 
based on MedPAR claims from October 2008 through September 2009, based 
on the methodology described above. Column A shows the number of 
discharges where a MS-DRG reassignment for each HAC category occurred. 
For example, there were 12 discharges with an Air Embolism that 
resulted in an actual MS-DRG reassignment. Column B shows the total net 
savings caused by MS-DRG reassignments for each HAC category. 
Continuing with the example of Air Embolism, the chart shows that the 
12 discharges with an MS-DRG reassignment resulted in a total net

[[Page 50097]]

savings of $148,394. Column C shows the net savings per discharge for 
each HAC category. For the Air Embolism HAC category, the net savings 
per discharge is $12,366.
BILLING CODE 4120-01-P
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[[Page 50098]]

BILLING CODE 4120-01-C
    As shown in Chart F above, the total net savings calculated for the 
12-month period from October 2008 through September 2009 was roughly 
$18.78 million. The three HACs with the largest number of discharges 
resulting in MS-DRG reassignment, Falls and Trauma, Orthopedic PE/DVT, 
and Pressure Ulcer Stages III & IV, generated $17.17 million of net 
savings for the 12 month period. Estimated net savings for the 12-month 
period associated with the Falls and Trauma category were $8.09 
million. Estimated net savings associated with Orthopedic PE/DVT for 
the 12-month period were $6.92 million. Estimated net savings for the 
12-month period associated with Pressure Ulcer Stages III & IV were 
$2.16 million.
    The mean net savings per discharge calculated for the 12-month 
period from October 2008 through September 2009 was roughly $5,522. The 
HAC categories of Air Embolism; SSI, Mediastinitis, Following Coronary 
Artery Bypass Graft (CABG); and SSI Following Certain Orthopedic 
Procedures had the highest net savings per discharge, but represented a 
small proportion of total net savings because the number of discharges 
that resulted in MS-DRG reassignment for these HACs was low. With the 
exception of Blood Incompatibility, where no savings occurred because 
no discharges resulted in MS-DRG reassignment, SSI Following Bariatric 
Surgery for Obesity and Catheter-Associated UTI had the lowest net 
savings per discharge.
    We refer readers to the RTI detailed report available at the 
following Web site: http://www.rti.org/reports/cms/.
    As mentioned previously, an extremely small number of cases in the 
12-month period of FY 2009 analyzed by RTI had multiple HACs during the 
same stay. In reviewing our 9.3 million claims, RTI found 60 cases 
where two HACs were reported on the same admission as noted in section 
II.F.3. d. of this preamble. Of these 60 claims, 15 resulted in MS-DRG 
reassignment. Chart G below summarizes these cases. There were 15 cases 
that had two HACs not POA that resulted in an MS-DRG reassignment. Of 
these, 5 discharges involved Pressure Ulcer Stages III & IV and Falls 
and Trauma and 4 discharges involved Orthopedic PE/DVT and Falls and 
Trauma.
[GRAPHIC] [TIFF OMITTED] TR16AU10.014

    As we discuss in section II.F.1.b. of this preamble, implementation 
of this policy is part of an array of Medicare VBP tools that we are 
using to promote increased quality and efficiency of care. We again 
point out that a decrease over time in the number of discharges where 
these conditions are not POA is a desired consequence. We recognize 
that estimated net savings should likely decline as the number of such 
discharges decline. However, we believe that the sentinel effect 
resulting from CMS identifying these conditions is critical. (We refer 
readers to section IV.A. of this preamble for a discussion of the 
inclusion of the incidence of these conditions in the RHQDAPU program.) 
It is our intention to continue to monitor trends associated with the 
frequency of these HACs and the estimated net payment impact through 
RTI's program evaluation and possibly beyond.
h. Previously Considered Candidate HACs--RTI Analysis of Frequency of 
Discharges and POA Indicator Reporting
    RTI evaluated the frequency of conditions previously considered, 
but not adopted as HACs in prior rulemaking, that were reported as 
secondary diagnoses (across all 9.3 million discharges) as well as the 
POA indicator assignments for these conditions. Chart H below indicates 
that the three previously considered candidate conditions most 
frequently reported as a secondary diagnosis were: (1) Clostridium 
Difficile-Associated Disease (CDAD), which demonstrated the highest 
frequency, with a total of 85,096 secondary diagnoses codes being 
reported for that condition, of which 28,844 reported a POA indicator 
of ``N''; (2) Staphylococcus aureus Septicemia, with a total of 22,433 
secondary diagnoses codes being reported for that condition, with 5,004 
of those reporting a POA indicator of ``N''; and (3) Iatrogenic 
Pneumothorax, with a total of 20,673 secondary diagnoses codes being 
reported for that condition, with 17,602 of those reporting a POA 
indicator of ``N.'' As these three conditions had the most significant 
impact for reporting a POA indicator of ``N,'' it is reasonable to 
believe that these same three conditions would have the greatest number 
of potential MS-DRG reassignments. The frequency of discharges for the 
previously considered HACs that could lead to potential changes in MS-
DRG assignment is discussed in the next section. We take this 
opportunity to remind readers that because more than

[[Page 50099]]

one previously considered HAC diagnosis code can be reported per 
discharge (on a single claim) that the frequency of these diagnosis 
codes may be more than the actual number of discharges with a 
previously considered candidate condition reported as a secondary 
diagnosis.
[GRAPHIC] [TIFF OMITTED] TR16AU10.015

    In Chart I below, Column A shows the number of discharges for each 
previously considered candidate HAC category when the condition was 
reported as a secondary diagnosis. For example, there were 85,096 
discharges that reported CDAD as a secondary diagnosis. Previously 
considered candidate HACs reported with a POA indicator of ``N'' or 
``U'' may cause MS-DRG reassignment (which would result in reduced 
payment to the facility). Column C shows the discharges for each 
previously considered candidate HAC reported with a POA indicator of 
``N'' or ``U.'' Continuing with the example of CDAD, Chart I shows 
that, of the 85,096 discharges, 29,296 discharges (34.43 percent) had a 
POA indicator of ``N'' or ``U.'' Therefore, there were a total of 
29,296 discharges that could potentially have had an MS-DRG 
reassignment. Column E shows the number of discharges where an actual 
MS-DRG reassignment could have occurred; the number of discharges with 
CDAD that could have resulted in actual MS-DRG reassignments is 896 
(3.06 percent). Thus, while there were 29,296 discharges with CDAD 
reported with a POA indicator of ``N'' or ``U'' that could potentially 
have had an MS-DRG reassignment, the result was 896 (3.06 percent) 
potential MS-DRG reassignments. As discussed above, there are a number 
of reasons why a condition reported with a POA indicator of ``N'' or 
``U'' would not result in a MS-DRG reassignment.
    In summary, Chart I below demonstrates there were a total of 
203,844 discharges with a previously considered candidate HAC reported 
as a secondary diagnosis. Of those, 57,902 discharges were reported 
with a POA indicator of ``N'' or ``U.'' The total number of discharges 
that could have resulted in MS-DRG reassignments is 3,527.

[[Page 50100]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.016

i. Current and Previously Considered Candidate HACs--RTI Report on 
Evidence-Based Guidelines
    The RTI program evaluation includes an updated report that provides 
references for all evidence-based guidelines available for each of the 
selected and previously considered candidate HACs that provide 
recommendations for the prevention of the corresponding conditions. 
Guidelines were primarily identified using the AHRQ National Guidelines 
Clearing House (NGCH) and the CDC, along with relevant professional 
societies. Guidelines published in the United States were used, if 
available. In the absence of U.S. guidelines for a specific condition, 
international guidelines were included.
    Evidence-based guidelines that included specific recommendations 
for the prevention of the condition were identified for each of the 10 
selected conditions. In addition, evidence-based guidelines were also 
found for the previously considered candidate conditions.
    Comment: Several commenters stated that CMS should not pay for HACs 
only when evidence-based guidelines indicate that the occurrence of an 
event can be reduced to zero, or near zero. The commenters stated that 
some patients, particularly high-risk, co-morbid individuals, may still 
develop conditions on the HAC list even though protocols have been 
strictly followed.
    Response: We thank the commenters for this comment. The statute 
requires that CMS only choose conditions to be selected HACs if they 
could ``reasonably'' be prevented through the application of evidence-
based guidelines. We noted in the FY 2008 IPPS final rule that we only 
selected those conditions where, if hospital personnel are engaging in 
good medical practice, the additional costs of the hospital-acquired 
condition will, in most cases, be avoided (72 FR 47201).
    RTI prepared a final report to summarize its findings regarding 
evidence-based guidelines, which can be found on the Web site at: 
http://www.rti.org/reports/cms.
j. Final Policy Regarding Current HACs and Previously Considered 
Candidate HACs
    We believe that the updated RTI analysis summarized above does not 
provide additional information that would require us to change our 
previous determinations regarding either current HACs (as described in 
section II.F.2. of this preamble) or previously considered candidate 
HACs in the FY 2008 IPPS final rule with comment period and FY 2009 
IPPS final rule (72 FR 47200 through 47218 and 73 FR 48471 through 
48491, respectively). Accordingly, in the

[[Page 50101]]

FY 2011 IPPS/LTCH PPS proposed rule, we did not propose to add or 
remove categories of HACs, although we proposed to revise the Blood 
Incompatibility HAC category as discussed and finalized in section 
II.F.2. of this preamble. We also note that in section II.F.3.b. of 
this preamble, we discuss our current policy regarding the treatment of 
the ``U'' POA indicator. However, we continue to encourage public 
dialogue about refinements to the HAC list.
    We refer readers to section II.F.6. of the FY 2008 IPPS final rule 
with comment period (72 FR 47202 through 47218) and to section II.F.7. 
of the FY 2009 IPPS final rule (73 FR 48474 through 48491) for detailed 
discussion supporting our determination regarding each of these 
conditions.

G. Changes to Specific MS-DRG Classifications

    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23898 through 
23910), we invited public comment on each of the MS-DRG classification 
proposed changes described below, as well as our proposals to maintain 
certain existing MS-DRG classifications, which are also discussed 
below. In some cases, we proposed changes to the MS-DRG classifications 
based on our analysis of claims data. In other cases, we proposed to 
maintain the existing MS-DRG classification based on our analysis of 
claims data. Below, we also summarize the public comments that we 
received, if any, on our proposals, present our responses to these 
comments, and state our final policies.
1. Pre-Major Diagnostic Categories (MDCs)
a. Postsurgical Hypoinsulinemia (MS-DRG 008 (Simultaneous Pancreas/
Kidney Transplant))
    Diabetes mellitus is a pancreatic disorder in which the pancreas 
fails to produce sufficient insulin, or in which the body cannot 
process insulin. Many patients with diabetes will eventually experience 
complications of the disease, including poor kidney function. When 
these patients show signs of advanced kidney disease, they are usually 
referred for transplant evaluation. Currently, many doctors recommend 
that individuals with diabetes being evaluated for kidney 
transplantation also be considered for pancreas transplantation. A 
successful pancreas transplant may prevent, stop, or reverse the 
complications of diabetes.
    Occasionally, secondary diabetes may be surgically induced 
following a pancreas transplant. This condition would be identified by 
using ICD-9-CM diagnosis code 251.3 (Postsurgical hypoinsulinemia). 
However, currently the list of principal diagnosis codes assigned to 
surgical MS-DRG 008 (Simultaneous Pancreas/Kidney Transplant) does not 
include diagnosis code 251.3. Therefore, when diagnosis code 251.3 is 
assigned to a case as a principal diagnosis, the case is not assigned 
to MS-DRG 008. Instead, these cases are grouped to MS-DRG 652 (Kidney 
Transplant) under MDC 11 (Diseases and Disorders of the Kidney and 
Urinary Tract). The use of diagnosis code 251.3 as a principal 
diagnosis without a secondary diagnosis of diabetes mellitus and with a 
procedure code for pancreas transplant only during that admission 
results in assignment of the case to MS-DRG 628, 629, or 630 (Other 
Endocrine, Nutritional & Metabolic Operating Room Procedures with MCC, 
with CC, and without CC/MCC, respectively). These MS-DRGs are assigned 
to MDC 10 (Endocrine, Nutritional and Metabolic Diseases and 
Disorders).
    As we stated in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 
23898), we believe that the exclusion of diagnosis code 251.3 from the 
list of principal diagnosis codes assigned to surgical MS-DRG 008 is an 
error of omission. Therefore, in that proposed rule, we proposed to add 
diagnosis code 251.3 to the list of principal or secondary diagnosis 
codes assigned to MS-DRG 008. As a conforming change, we also proposed 
to add diagnosis code 251.3 to the list of principal or secondary 
diagnosis codes assigned to MS-DRG 010 (Pancreas Transplant).
    Comment: Commenters concurred with CMS' proposal to add diagnosis 
code 251.3 to the list of principal or secondary diagnosis codes 
assigned to MS-DRG 008. In addition, the commenters concurred with the 
proposal to add diagnosis code 251.3 to the list of principal or 
secondary diagnosis codes assigned to MS-DRG 010.
    Response: We appreciate the support for our proposals.
    We are adopting as final without modification our proposals to add 
diagnosis code 251.3 to the list of acceptable principal diagnoses in 
MS-DRG 008 and, as a conforming change, to add diagnosis code 251.3 to 
the list of acceptable principal or secondary diagnoses in MS-DRG 010.
b. Bone Marrow Transplants
    As we discussed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 
23898), we received two requests to review whether cost differences 
between an autologous bone marrow transplant (where the patient's own 
bone marrow or stem cells are used) and an allogeneic bone marrow 
transplant (where bone marrow or stem cells come from either a related 
or unrelated donor) necessitate the creation of separate MS-DRGs to 
more appropriately account for the clinical nature of the services 
being rendered as well as the costs. One of the requestors stated that 
there are dramatic differences in the costs between the two types of 
transplants where allogeneic cases are significantly more costly.
    Bone marrow transplantation and peripheral blood stem cell 
transplantation are used in the treatment of certain cancers and bone 
marrow diseases. These procedures restore stem cells that have been 
destroyed by high doses of chemotherapy and/or radiation treatment. 
Currently, all bone marrow transplants are assigned to MS-DRG 009 (Bone 
Marrow Transplant).
    For the FY 2011 IPPS/LTCH PPS proposed rule, we performed an 
analysis of the FY 2009 MedPAR data and found 1,664 total cases 
assigned to MS-DRG 009 with average costs of approximately $43,877 and 
an average length of stay of approximately 21 days. Of these MS-DRG 009 
cases, 395 of them were allogeneic bone marrow transplant cases 
reported with one of the following ICD-9-CM procedure codes: 41.02 
(Allogeneic bone marrow transplant with purging); 41.03 (Allogeneic 
bone marrow transplant without purging); 41.05 (Allogeneic 
hematopoietic stem cell transplant without purging); 41.06 (Cord blood 
stem cell transplant); or 41.08 (Allogeneic hematopoietic stem cell 
transplant). The average costs of these allogeneic cases, approximately 
$64,845, were higher than the overall average costs of all cases in MS-
DRG 009, approximately $43,877. The average length of stay for the 
allogeneic cases, approximately 28 days, was slightly higher than the 
average length of stay for all cases assigned to MS-DRG 009, 
approximately 21 days.
    We found 1,269 autologous bone marrow transplant cases reported 
with one of the following ICD-9-CM procedure codes: 41.00 (Bone marrow 
transplant, not otherwise specified); 41.01 (Autologous bone marrow 
transplant without purging); 41.04 (Autologous hematopoietic stem cell 
transplant without purging); 41.07 (Autologous hematopoietic stem cell 
transplant with purging); or 41.09 (Autologous bone marrow transplant 
with purging). The average costs of these cases, approximately $37,350, 
was less than the overall average costs of all

[[Page 50102]]

cases in MS-DRG 009 and the average costs associated with the 
allogeneic bone marrow transplant cases. The average length of stay, of 
approximately 19 days, was less than the average lengths of stay for 
all the cases assigned to MS-DRG 009 and for the allogeneic bone marrow 
transplant cases. We included in our analysis of the autologous bone 
marrow transplants cases, 5 cases that were reported with procedure 
code 41.00 (Bone marrow transplant, not otherwise specified). These 5 
cases had average costs of approximately $41,084 and an average length 
of stay of approximately 12 days, which was similar to the other 
autologous bone marrow transplant cases.
    The table below illustrates our findings:

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

    As a result of our analysis, the data support the requestor's 
suggestion that there are cost differences associated with the 
autologous bone marrow transplants and allogeneic bone marrow 
transplants and warrants a separate MS-DRG for these procedures. 
Therefore, in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23898 and 
23899), we proposed to delete MS-DRG 009 and create two new MS-DRGs: 
MS-DRG 014 (Allogeneic Bone Marrow Transplant) and MS-DRG 015 
(Autologous Bone Marrow Transplant). We proposed that proposed MS-DRG 
014 would include cases reported with one of the following ICD-9-CM 
procedure codes:
     41.02, Allogeneic bone marrow transplant with purging
     41.03, Allogeneic bone marrow transplant without purging
     41.05, Allogeneic hematopoietic stem cell transplant 
without purging
     41.06, Cord blood stem cell transplant
     41.08, Allogeneic hematopoietic stem cell transplant
    We proposed that proposed MS-DRG 015 would include cases reported 
with one of the following ICD-9-CM procedure codes:
     41.00 (Bone marrow transplant, not otherwise specified)
     41.01 (Autologous bone marrow transplant without purging)
     41.04 (Autologous hematopoietic stem cell transplant 
without purging)
     41.07 (Autologous hematopoietic stem cell transplant with 
purging)
     41.09 (Autologous bone marrow transplant with purging)
    Comment: Several commenters supported our proposed changes and 
stated that these proposed MS-DRGs more precisely recognize the 
substantial differences in clinical complexity and costs associated 
with allogeneic and autologous bone marrow transplants, allowing for 
more appropriate hospital reimbursement.
    Response: We appreciate the support of the commenters.
    Comment: Two commenters who supported the proposed reclassification 
of the proposed bone marrow transplant MS-DRGs requested further 
refinement to account for severity of illness. The commenters suggested 
a three-way split for each proposed MS-DRG: With MCC, with CC, and 
without MCC or CC. A few commenters stated that the clinical and cost 
differences between unrelated and related allogeneic transplants 
necessitate further reclassification of proposed MS-DRG 014. However, 
one of the commenters pointed out that there were no ICD-9-CM codes to 
classify allogeneic transplant cases by cell source.
    Response: As we outlined in our FY 2008 IPPS/LTCH PPS final rule 
with comment period published in the Federal Register on August 22, 
2007 (72 FR 47169), in designating an MS-DRG as one that would be 
subdivided into subgroups based on the presence of a CC or an MCC, we 
developed a set of criteria to facilitate our decision-making process. 
In order to warrant creation of a CC or an MCC subgroup within a base 
MS-DRG, the subgroup must meet all of the following five criteria:
     A reduction in variance of charges of at least 3 percent.
     At least 5 percent of the patients in the MS-DRG fall 
within the CC or MCC subgroup.
     At least 500 cases are in the CC or MCC subgroup.
     There is at least a 20-percent difference in average 
charges between subgroups.
     There is a $4,000 difference in average charges between 
subgroups.
    We did not further subdivide proposed MS-DRG 014 and MS-DRG 015 
into severity levels as the commenters suggested because the proposed 
MS-DRGs did not meet our criteria for subdivision. With regard to the 
commenter who stated that there were no ICD-9-CM codes to classify 
allogeneic transplant cases by cell source, we note that, contrary to 
the commenter's statement about the lack of being able to report the 
donor source, there are three ICD-9-CM procedure codes that identify 
the donor source of the transplant: 00.91 (Transplant from live related 
donor); 00.92 (Transplant from live non-related donor); and 00.93 
(Transplant from cadaver). We refer the commenter to section II.G.7. of 
this preamble for further information if the commenter is interested in 
submitting suggestions on coding issues.
    After consideration of the public comments we received, we are 
finalizing our proposal to delete MS-DRG 009, and to create two new MS-
DRGs: MS-DRG 014 (Allogeneic Bone Marrow Transplant) and MS-DRG 015 
(Autologous Bone Marrow Transplant). New MS-DRG 014 will include cases 
reported with one of the following ICD-9-CM procedure codes: 41.02; 
41.03; 41.05; 41.06; or 41.08.
    New MS-DRG 015 will include cases reported with one of the 
following ICD-9-CM procedure codes: 41.00; 41.01; 41.04; 41.07; or 
41.09.
2. MDC 1 (Nervous System): Administration of Tissue Plasminogen 
Activator (tPA) (rtPA)
    During the comment period for the FY 2010 IPPS/RY 2010 LTCH PPS 
proposed rule, we received a public comment that had not been the 
subject of a proposal in that proposed rule. The commenter had 
requested that CMS conduct an analysis of diagnosis code V45.88 (Status 
post administration of tPA (rtPA) in a different facility within the 
last 24 hours prior to admission to current facility) under MDC 1 
(Diseases and Disorders of the Nervous System). Diagnosis code V45.88 
was created for use beginning October 1, 2008, to identify patients who 
are given tissue plasminogen activator (tPA) at one institution, then 
transferred and admitted to a comprehensive stroke center for further 
care. This situation is referred to as the ``drip-and-ship'' issue that 
was discussed at detail in the FY 2009 IPPS final rule (73 FR 48493).
    According to the commenter, the concern at the receiving facilities 
is that the costs associated with [caring for]

[[Page 50103]]

more complex stroke patients that receive tPA are much higher than the 
cost of the drug, presumably because stroke patients initially needing 
tPA have more complicated strokes and outcomes. However, because these 
patients do not receive the tPA at the second or transfer hospital, the 
receiving hospital will not be assigned to one of the higher weighted 
tPA stroke MS-DRGs when it admits these patients whose care requires 
the use of intensive resources. The MS-DRGs that currently include 
codes for the use of tPA are: 061 (Acute Ischemic Stroke with Use of 
Thrombolytic Agent with MCC); 062 (Acute Ischemic Stroke with Use of 
Thrombolytic Agent with CC); and 063 (Acute Ischemic Stroke with Use of 
Thrombolytic Agent without CC/MCC). These MS-DRGs have higher relative 
weights in the hierarchy than the next six MS-DRGs relating to brain 
injury. The commenter requested an analysis of the use of diagnosis 
code V45.88 reflected in the MedPAR data for FY 2009 and FY 2010. The 
commenter believed that the data would show that the use of this code 
could potentially result in a new MS-DRG or a new set of MS-DRGs in FY 
2011.
    In addressing this public comment in the FY 2010 IPPS/RY 2010 LTCH 
PPS final rule (74 FR 43798), we noted that the comment was out of 
scope for the FY 2010 proposed rule and reiterated that the deadline 
for requesting data review and potential MS-DRG changes had been the 
previous December. In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 
23899), we indicated that we were then able to address the commenter's 
concern because we had been able to conduct an analysis of MedPAR 
claims data for this diagnosis code for that proposed rule.
    For the FY 2011 proposed rule, we undertook an analysis of MedPAR 
claims data for FY 2009. Our analysis reflected the data study 
specifically asked for by the requestor, that is, a review of the 
analysis of the presence or absence of diagnosis code V45.88. For our 
analysis in the proposed rule, we did not include claims for patient 
cases assigned to MS-DRGs 061, 062, or 063. Patients whose cases were 
assigned to these MS-DRGs would have been given the tPA at the initial 
hospital, had they been admitted there, with assignment of procedure 
code 99.10 (Injection or infusion of thrombolytic agent), prior to 
their transfer to a comprehensive stroke center. The tPA should not 
have been given at the receiving hospital if it had already been 
administered at the transferring hospital; therefore, inclusion of 
procedure code 99.10 on the receiving hospital's claims would 
constitute erroneous coding. Likewise, we did not include MS-DRGs 067 
and 068 (Nonspecific CVA & Precerebral Occlusion without Infarction 
with MCC, and without MCC, respectively), or MS-DRG 069 (Transient 
Ischemia). We believe that claims assigned to MS-DRGs 067, 068, and 069 
were unlikely to contain cases in which tPA had been administered.
    Our data analysis included MS-DRGs 064, 065, and 066 (Intracranial 
Hemorrhage or Cerebral Infarction with MCC, with CC, and without CC/
MCC, respectively) because claims involving diagnosis code V45.88 would 
be properly reported in the data for these MS-DRGs for FY 2009. This 
analysis can be viewed in the FY 2011 IPPS/LTCH PPS proposed rule 
published in the Federal Register on May 4, 2010 (75 FR 23899 through 
23900). Based on our review of the data for all cases in MS-DRGs 064, 
064, and 066, compared to the subset of cases containing the V45.88 
secondary diagnosis code, we concluded that the movement of cases with 
diagnosis code V45.88 as a secondary diagnosis from MS-DRGs 064, 065, 
and 066 into MS-DRGs 061, 062, and 063 was not warranted.
    We determined that the differences in the average lengths of stay 
and the average costs were too small to warrant an assignment to the 
higher weighted MS-DRGs. Likewise, neither the lengths of stay nor the 
average costs were deemed substantial enough to justify the creation of 
an additional MS-DRG for transferred tPA cases, or to create separate 
MS-DRGs that would mirror the MCC, CC or without CC/MCC severity 
levels.
    Therefore, for FY 2011, we did not propose any change to MS-DRGs 
061, 062, 063, 064, 065, or 066, or any change involving the assignment 
of diagnosis code V45.88.
    Comment: One commenter agreed with CMS' proposal to not make any 
changes to this group of MS-DRGs. The commenter also suggested 
revisiting this topic and reviewing the data after CMS begins capturing 
25 diagnosis codes and 25 procedure codes in future claims data. 
Another commenter suggested that diagnosis code V45.88 may be 
underreported, or, even if reported, may appear in a position [on the 
claim] that is lower than the nine diagnosis codes currently processed 
by Medicare.
    Response: The HIPAA ASC X12 Technical Reports Type 3, Version 
005010 (Version 5010) standards system update is discussed at length 
elsewhere in this preamble. Currently, CMS' claims processing system 
recognizes up to nine diagnosis codes and up to six procedure codes for 
MS-DRG determination. The ability to process up to 16 additional 
diagnosis codes and up to 19 additional procedure codes will begin on 
January 1, 2011, according to the Version 5010 update. We will be 
interested to see the difference in our MedPAR data that results from 
the additional diagnosis and procedure codes, and we will continue to 
follow the tPA, ``drip-and-ship,'' and diagnosis code V45.88 topic in 
our annual analysis.
    Comment: One commenter requested that CMS continue to monitor the 
costs and lengths of stays for these patients identified by diagnosis 
code V45.88 in order to determine whether, with improved coding 
compliance and accurate cost reporting, there will be any change to the 
initial findings such that MS-DRG assignments for the care of these 
patients need to be changed.
    Response: We review MS-DRG assignments annually and will continue 
to monitor this category of patients in the future.
    Comment: One commenter believed that the CMS data reported in the 
FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23899 through 23900) 
reflects that the V45.88 diagnosis code is being underused and that the 
numbers do not truly represent the much more common occurrence of 
stroke centers receiving stroke patients who already had tPA 
administered. With this underuse in mind, the commenter requested that 
CMS issue a transmittal or MLN Matters article that would inform 
physicians and coders alike about the existence of the code and 
simultaneously educate them on the proper use of the code.
    Response: While CMS is responsible for both changes to the ICD-9-CM 
procedure coding system through the ICD-9-CM Coordination and 
Maintenance Committee and the incorporation of the resulting diagnostic 
and procedure coding changes in CMS' initiatives, we do not provide 
coding advice. CMS looks to our partners in the industry to fulfill 
this responsibility, specifically through the AHA in their publication 
Coding Clinic for ICD-9-CM and through the AHIMA in their coding 
training programs.
    In addition, we suggest that this commenter encourage its societies 
to educate their members through their newsletter or through coding and 
documentation presentations at society meetings.
    Comment: One commenter was concerned that the data analysis 
described above and displayed in the proposed rule did not properly 
compare certain patient populations. The commenter suggested that 
patients with ICD-9-CM codes associated with

[[Page 50104]]

ischemic stroke that have an accompanying V-code be compared to those 
ischemic stroke patients with the ICD-9-CM codes who were not treated 
with tPA. The commenter suggested limiting the MS-DRGs to 064, 065, and 
066, as well as 067 and 068, and further noted that the V-code should 
only be used for ischemic stroke patients who have received tPA at 
another hospital. The commenter believed that ischemic stroke patients 
who have not received tPA at another hospital should not be included in 
the V-code count. The commenter also recommended that cases in which 
hemorrhage is the cause of the stroke should not be included with cases 
of ischemic stroke since costs associated with these diseases are often 
different from each other. The commenter indicated that a more refined 
analysis of the data would show that these cases should be split into 
separate MS-DRGs, which would allow the cost differences to become 
apparent.
    Response: With regard to use of the V-code for ischemic stroke 
patients who have received tPA at another hospital, we point out that 
the correct use of V45.88 was created for that category of patients. 
Correct coding practice as well as the code title itself of V45.88 
(Status post administration of tPA (rtPA) in a different facility 
within the last 24 hours prior to admission to current facility) 
precludes inclusion of this code by the sending hospital.
    With regard to the comment that ischemic stroke patients who have 
not received tPA at another hospital should not be included in the V-
code count, we point out that these patients had not been included in 
the analysis published in the proposed rule; neither were they included 
in the analysis presented in this final rule. They would not appear in 
the data as having received tPA at another facility. Instead, if they 
had received tPA at the second or receiving hospital, that hospital 
would have coded those cases with ICD-9-CM procedure code 99.10 
(Injection or infusion of thrombolytic agent), and the cases would have 
been assigned to MS-DRGs 061, 062, and 063 (Acute Ischemic Stroke with 
use of Thrombolytic Agent with MCC, with CC, or without CC/MCC, 
respectively).
    In our original analysis for the proposed rule, we believe that we 
did address all of the commenter's concerns. However, for this final 
rule, in response to the commenter's request, we have arrayed the data 
from the original analysis in the following table in a manner that is 
divided into more categories. We also have included MS-DRGs 067 and 068 
in the comparison as well, per the commenter's request.
BILLING CODE 4120-01-P

[[Page 50105]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.017

[[Page 50106]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.018

BILLING CODE 4120-01-C
    The analysis of MS-DRGs 067 and 068 above does not include a 
breakdown for cases of hemorrhage. That is because the principal 
diagnoses contained in these two MS-DRGs describe occlusion without 
infarct, by arterial site, except for diagnosis code 436 (Acute but 
ill-defined, cerebrovascular disease). The commenter believes diagnosis 
code 436 is often interpreted to be a ``stroke, not otherwise 
specified'' code and has been used to describe stroke events without a 
clear etiology, and wanted the analysis included for that reason.
    When CMS created the MS-DRGs for use beginning October 1, 2007 (FY 
2008), our purpose was, and remains, to accurately stratify groups of 
Medicare patients with varying levels of severity. Two of our major 
goals were to create DRGs that would more accurately reflect the 
severity of the cases assigned to them and to create groups that would 
have sufficient volume so that meaningful and stable payment weights 
could be developed. In designating an MS-DRG as one that could be 
subdivided into subgroups based on the presence of a CC or MCC, we 
developed a set of five criteria to facilitate our decision making 
process. The subgroup must meet all of the five criteria in order for 
division into CC or MCC splits to be considered. The entire discussion 
surrounding this process can be found in the FY 2008 IPPS/LTCH PPS 
final rule with comment period (72 FR 47169).
    Even with additional review of the data, we are unable to justify 
either moving the ``drip-and-ship'' cases to higher weighted MS-DRGs or 
to consider creation of unique MS-DRGs for these cases. There is a 
paucity of data to substantiate such a change, whether due to 
underreporting of diagnosis code V45.88, or whether the tPA 
administered in another hospital was not documented in the receiving 
hospital's records, or whether the code was reported to CMS but was 
further down the list than the nine diagnosis codes considered for MS-
DRG assignment. The differences in the average lengths of stay and the 
average costs represented in the above table are too small to warrant 
an assignment to the higher weighted MS-DRGs, and the differences in 
the length of stay and costs are not substantial enough to justify the 
creation of additional MS-DRGs. Therefore, for FY 2011, we are not 
making any changes to MS-DRGs 061, 062, 063, 064, 065, 066, 067, and 
068; nor are we making changes to the MS-DRG assignment of diagnosis 
code V45.88.
    We will continue to monitor these MS-DRGs and diagnosis code V45.88 
in upcoming annual reviews of the IPPS.
3. MDC 5 (Diseases and Disorders of the Circulatory System): 
Intraoperative Fluorescence Vascular Angiography (IFVA) and X-Ray 
Coronary Angiography in Coronary Artery Bypass Graft Surgery
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43785 
through 43787), we discussed a request we received to reassign cases 
reporting the use of intraoperative fluorescence vascular angiography 
(IFVA) with coronary artery bypass graft (CABG) procedures from MS-DRGs 
235 and 236 (Coronary Bypass without Cardiac Catheterization with and 
without MCC, respectively) to MS-DRG 233 (Coronary Bypass with Cardiac 
Catheterization with MCC) and MS-DRG 234 (Coronary Bypass with Cardiac 
Catheterization without MCC). Effective October 1, 2007, procedure code 
88.59 (Intraoperative fluorescence vascular angiography (IFVA)) was 
established to describe this technology.
    In addition, we also discussed receiving related requests (74 FR 
43798 through 43799) that were outside the scope of issues addressed 
for MDC 5 in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule. There 
were three components to these requests. The first component involved 
the creation of new MS-DRGs. One request was to create four new MS-DRGs 
that would differentiate the utilization of resources between 
intraoperative angiography and IFVA when utilized with CABG. A second 
request was to create only one new MS-DRG to separately identify the 
use of intraoperative angiography, by any method, in CABG surgery. The 
second component involved reviewing the ICD-9-CM procedure codes. 
Currently, the ICD-9-CM procedure codes do not distinguish between 
preoperative, intraoperative, and postoperative angiography. Procedure 
code 88.59 (Intraoperative fluorescence vascular angiography (IFVA)) is 
one intraoperative angiography technique that allows visualization of 
the coronary vasculature. The third component involved reassigning 
cases with

[[Page 50107]]

procedure code 88.59 to the ``Other Cardiovascular MS-DRGs'': MS-DRGs 
228, 229, and 230 (Other Cardiothoracic Procedures with MCC, CC, and 
without CC/MCC, respectively). We stated our intent to consider these 
requests during the FY 2011 rulemaking process.
    After publication of the FY 2010 IPPS/RY 2010 LTCH PPS final rule, 
we were contacted by one of the requestors, the manufacturer of the 
IFVA technology. We met with the requestor in mid-November 2009 to 
discuss evaluating the data for IFVA (procedure code 88.59) again in 
consideration of a proposal to create new MS-DRGs and to discuss a 
request for a new procedure code(s).
    IFVA technology consists of a mobile device imaging system with 
software. It is used to test cardiac graft patency and technical 
adequacy at the time of coronary artery bypass grafting (CABG). While 
this system does not involve fluoroscopy or cardiac catheterization, it 
has been suggested that it yields results that are similar to those 
achieved with selective coronary arteriography and cardiac 
catheterization. Intraoperative coronary angiography provides 
information about the quality of the anastomosis, blood flow through 
the graft, distal perfusion, and durability. For additional information 
regarding IFVA technology, we refer readers to the September 28-29, 
2006 ICD-9-CM Coordination and Maintenance Committee meeting handout at 
the following Web site: http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp#TopOfPage.
a. New MS-DRGs for Intraoperative Fluorescence Vascular Angiography 
(IFVA) With CABG
    As stated in the FY 2010 IPPS/LTCH PPS proposed rule (75 FR 23900), 
the manufacturer requested that we create four new MS-DRGs for CABG to 
distinguish CABG surgeries performed with IFVA and those performed 
without IFVA. According to the requestor, these four new MS-DRGs would 
correspond to the existing MS-DRG for CABG but would also include 
intraoperative angiography. The requestor proposed the following four 
new MS-DRGs:
    MS-DRG XXX (Coronary Bypass with Cardiac Catheterization with MCC 
with Intraoperative Angiography).
    MS-DRG XXX (Coronary Bypass with Cardiac Catheterization without 
MCC with Intraoperative Angiography).
    MS-DRG XXX (Coronary Bypass without Cardiac Catheterization with 
MCC with Intraoperative Angiography).
    MS-DRG XXX (Coronary Bypass without Cardiac Catheterization without 
MCC with Intraoperative Angiography).
    For the FY 2011 proposed rule, using claims data from the FY 2009 
MedPAR file, we examined cases identified by procedure code 88.59 in 
MS-DRGs 233, 234, 235, and 236. As shown in the table below, for both 
MS-DRGs 235 and 236, the cases utilizing IFVA technology (code 88.59) 
have a shorter length of stay and lower average costs compared to all 
cases in MS-DRGs 235 and 236. There were a total of 10,281 cases in MS-
DRG 235 with an average length of stay of 10.61 days and average costs 
of $34,639. There were 114 cases identified by procedure code 88.59 
with an average length of stay of 10.38 days with average costs of 
$28,238. In MS-DRG 236, there were a total of 22,410 cases with an 
average length of stay of 6.37 days and average costs of $23,402; and 
there were 186 cases identified by procedure code 88.59 with an average 
length of stay of 6.54 days and average costs of $19,305. Similar to 
the data reported last year, the data for FY 2009 clearly demonstrate 
that the IFVA cases (identified by procedure code 88.59) are assigned 
appropriately to MS-DRGs 235 and 236. We also examined cases identified 
by procedure code 88.59 in MS-DRGs 233 and 234. Likewise, in MS-DRGs 
233 and 234 cases identified by code 88.59 reflect shorter lengths of 
stay and lower average costs compared to the remainder of the cases in 
those MS-DRGs; and there were a total of 16,475 cases in MS-DRG 233 
with an average length of stay of 13.47 days and average costs of 
$42,662. There were 58 cases identified by procedure code 88.59 with an 
average length of stay of 12.12 days and average costs of $35,940. In 
MS-DRG 234, there were a total of 23,478 cases with an average length 
of stay of 8.61 days and average costs of $29,615; and there were 67 
cases identified by procedure code 88.59 with an average length of stay 
of 8.85 days and average costs of $25,379. The data clearly demonstrate 
the IFVA cases (identified by procedure code 88.59) are appropriately 
assigned to MS-DRGs 233 and 234.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average cost
----------------------------------------------------------------------------------------------------------------
235--All cases..................................................          10,281           10.61         $34,639
235--Cases with procedure code 88.59............................             114           10.38          28,238
235--Cases without procedure code 88.59.........................          10,167           10.62          34,711
236--All cases..................................................          22,410            6.37          23,402
236--Cases with code procedure 88.59............................             186            6.54          19,305
236--Cases without procedure code 88.59.........................          22,224            6.37          23,436
233--All cases..................................................          16,475           13.47          42,662
233--Cases with procedure code 88.59............................              58           12.12          35,940
233--Cases without procedure code 88.59.........................          16,417           13.47          42,686
234--All cases..................................................          23,478            8.61          29,615
234--Cases with procedure code 88.59............................              67            8.85          25,379
234--Cases without procedure code 88.59.........................          23,411            8.61          29,627
----------------------------------------------------------------------------------------------------------------

    We stated in the proposed rule that if the cases identified by 
procedure code 88.59 were proposed to be reassigned from MS-DRGs 235 
and 236 to MS-DRGs 233 and 234, they would be significantly overpaid. 
In addition, we indicated that because the cases in MS-DRGs 235 and 236 
did not actually have a cardiac catheterization performed, a proposal 
to reassign cases identified by procedure code 88.59 would result in 
lowering the relative weights of MS-DRGs 233 and 234 where a cardiac 
catheterization is truly performed.
    In summary, in the proposed rule, we indicated that the data do not 
support moving IFVA cases (procedure code 88.59) from MS-DRGs 235 and 
236 to MS-DRGs 233 and 234. Therefore, we did not propose to make any 
MS-DRG modifications for cases reporting procedure code 88.59 for FY 
2011.
    Comment: Several commenters agreed with CMS' proposal to not make 
any MS-DRG modifications in FY 2011 for cases reporting procedure code 
88.59. One commenter, the manufacturer, reported that they worked with 
a consulting group to conduct an analysis on a subset of MedPAR claims 
data that reported procedure code 88.59. According to the data 
presented, the consultant's methodology for the

[[Page 50108]]

analysis involved examining only cases from the facilities that 
reported procedure code 88.59, in any procedure code sequencing 
position, in each one of the four MS-DRGs previously discussed (233, 
234, 235, or 236). The manufacturer asserted that results of the 
consultant's analysis varied significantly from the CMS data and that 
their data supported reassignment of cases reporting procedure code 
88.59 from MS-DRGs 235 and 236 to MS-DRGs 233 and 234.
    Response: We acknowledge the commenters who supported our proposal 
to not make any MS-DRG modifications for cases reporting procedure code 
88.59 for FY 2011. In response to the manufacturer who worked with the 
consulting group, we point out that the process of evaluating MS-DRG 
reclassifications is not based on subsets of facility-specific data, 
but rather, as stated earlier in section II.B.2 of the preamble to this 
final rule, in deciding whether to make modifications to the MS-DRGs we 
consider whether the resource consumption and clinical characteristics 
of the patients with a given set of conditions are significantly 
different than the remaining patients in the MS-DRG. In addition, in 
evaluating resource costs, we consider both the absolute and percentage 
differences in average costs between the cases we select for review and 
the remainder of cases in the MS-DRG. As the manufacturer noted, the 
consultant's analysis submitted for consideration was based on a subset 
of facility-specific claims reporting code 88.59. Therefore, it is not 
comparable to the analysis conducted by CMS. While the consultant's 
analysis included cases that reported procedure code 88.59, it did not 
reflect the differences in comparison to MedPAR claims data, as the CMS 
analysis did, that are representative of the remaining Medicare 
patients grouped in the above mentioned relevant MS-DRGs.
    In addition, the manufacturer also submitted the consultant's 
summary of observations from the analysis which stated two key points:
    (1) The number of discharges they observed in the MedPAR data was 
slightly higher than the volumes reported in the proposed rule. They 
believed this may be the result of slightly different data files 
between what they examined and what CMS used. The volume differences 
are comparatively small.
    (2) They were unable to account for differences in their cost 
calculation for cases reporting procedure code 88.59 and the CMS 
published results. Their hypothesis was that, because these represent a 
small number of cases, cost report differences may be playing a 
significant role in the calculation.
    Currently, CMS' systems only process up to six procedure codes and, 
as the commenter stated, the consultant's methodology considered 
procedure code 88.59 in any sequencing position. Therefore, it is 
unclear how many cases may have been reported after the sixth position. 
Effective January 1, 2011, the HIPAA ASC X12 Technical Reports Type 3, 
Version 005010 (Version 5010) standards system update will become 
effective. The version 5010 format will allow facilities to report up 
to 25 diagnoses and 25 procedure codes, and CMS' systems will begin to 
process all 25 diagnosis and procedure codes. (Further detail regarding 
this issue is discussed in section II.G.11. of this final rule.).
    Lastly, the manufacturer concluded that ``the cost data continue to 
be unreliable due to the sample size and inherent limitations of cost 
reporting.'' We reiterate that the analysis conducted by the 
manufacturer and consultant were not comparable to the analysis 
conducted by CMS that examined cases reporting procedure code 88.59 
against all cases in the specified MS-DRGs versus the consultant's 
analysis that only provided data on those facilities that are using the 
technology and their associated costs. Therefore, we are finalizing our 
proposal to not reassign cases reporting procedure code 88.59 for FY 
2011.
b. New MS-DRG for Intraoperative Angiography, by Any Method, With CABG
    We also received a request to create a single MS-DRG for any type 
of intraoperative angiography utilized in CABG surgery. The requestor 
suggested the following title for the proposed new MS-DRG: XXX Coronary 
Bypass with Intraoperative Angiography, by any Method.
    As we indicated in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 
23901), currently, the only ICD-9-CM procedure code that identifies an 
intraoperative angiography is procedure code 88.59 (Intraoperative 
fluorescence vascular angiography), as described in the previous 
section. Due to the structure of the ICD-9-CM procedure classification 
system, it is not possible to distinguish when other types of 
angiography are performed intraoperatively. Therefore, we indicated 
that we were unable to evaluate any data, other than that for procedure 
code 88.59, as shown in the tables above. We did not propose to create 
a new MS-DRG in FY 2011 for coronary bypass with intraoperative 
angiography, by any method.
    Comment: Several commenters agreed with CMS' proposal to not create 
a new MS-DRG in FY 2011 for coronary bypass with intraoperative 
angiography, by any method. Another commenter, the manufacturer, 
acknowledged the limitations of the ICD-9-CM coding structure and the 
ability to currently only identify one method of intraoperative 
angiography. The manufacturer stated that the creation of a new ICD-9-
CM procedure code to identify intraoperative angiography by 
conventional X-ray angiography would allow CMS to obtain accurate data 
on intraoperative or completion angiography by either method.
    Response: We appreciate the commenter's support of our proposal to 
not create a new MS-DRG in FY 2011 for coronary bypass with 
intraoperative angiography, by any method. We also acknowledge the 
manufacturer's concern regarding the inability to identify 
intraoperative angiography by conventional X-ray angiography. As 
discussed previously (75 FR 23901) and in further detail below, 
proposals for creating a new procedure code must be submitted to the 
ICD-9-CM Coordination and Maintenance Committee for consideration.
c. New Procedure Codes
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23901), we 
indicated that, in response to our invitation to submit public comments 
regarding the proposal not to make any MS-DRG modifications for cases 
reporting procedure code 88.59 in the FY 2010 IPPS/RY 2010 LTCH PPS 
proposed rule (74 FR 24106-24107), one requestor presented another 
option involving the creation of new ICD-9-CM procedure codes. 
According to the requestor, the purpose of these new codes would be to 
separately identify the two technologies used to perform intraoperative 
coronary angiography in CABG surgery: X-ray coronary angiography with 
cardiac catheterization and fluoroscopy versus intraoperative 
fluorescence coronary angiography (IFVA). The requestor stated that due 
to the structure of the current codes and MS-DRGs for CABG, it is 
difficult to identify when x-ray angiography is performed.
    X-ray angiography is commonly performed as a separate procedure in 
a catheterization laboratory. Currently, there are no procedure codes 
to distinguish if this angiography was performed preoperatively, 
intraoperatively, and/or postoperatively. We informed the requestor 
that they

[[Page 50109]]

could submit a proposal for creating a new procedure code(s) to the 
ICD-9-CM Coordination and Maintenance Committee for its consideration. 
Therefore, in the FY 2011 proposed rule, we indicated that this topic 
would be further evaluated through the ICD-9-CM Coordination and 
Maintenance Committee meeting process.
    Comment: Similar to comments made at the March 9-10, 2010 ICD-9-CM 
Coordination and Maintenance Committee meeting, one commenter, the 
manufacturer, stated that the resource utilization costs for a 
diagnostic cardiac catheterization, which is routinely performed in a 
catheterization laboratory may differ from those costs incurred for 
performing intraoperative completion angiography concomitant with a 
coronary artery bypass graft procedure in a surgical suite. However, 
the manufacturer noted that, regardless of the technology (IFVA or X-
ray angiography), performance of intraoperative completion angiography 
in a surgical suite involves similar resources. The commenter further 
noted that an intraoperative completion angiography performed with X-
ray angiography cannot be separately identified from a diagnostic 
cardiac catheterization due to the coding structure. According to the 
commenter, this scenario creates a payment incentive for physicians to 
select X-ray technology to perform a completion angiography, despite 
the known risks to patients associated with exposure to radiation 
because the code used to report X-ray angiography (cardiac 
catheterization) is recognized in the MS-DRG assignment. The commenter 
urged CMS to remove this incentive by ensuring that procedure code 
88.59 will impact MS-DRG assignment in the same way that the code for 
X-ray angiography does.
    Response: As stated above, requests for updates and changes to the 
procedure coding system are discussed through the ICD-9-CM Coordination 
and Maintenance Committee meeting process. At the March 9-10, 2010 
meeting, a proposal was submitted by the manufacturer and presented. 
Details of the initial proposal regarding intraoperative angiography 
with coronary artery bypass graft discussed at the March 2010 ICD-9-CM 
Coordination and Maintenance Committee meeting along with the summary 
report of the meeting can be located at the following CMS Web site: 
http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp.
    Currently, there is not a mechanism to analyze if both technologies 
utilize similar resources in the surgical suite as the manufacturer 
asserts since, as stated several times, the coding structure does not 
currently distinguish between intraoperative X-ray angiography and 
IFVA. Despite the inability to currently differentiate between the two 
technologies in an intraoperative setting, we disagree that physicians 
have a payment incentive to utilize X-ray angiography over IFVA to 
perform a completion angiography. The current MS-DRG assignments are 
based on claims data for the purposes of maintaining clinically 
coherence, accounting for patient's severity of illness, ensuring 
similar utilization of resources and complexity of services and are not 
formulated to provide incentives as the commenter indicated. We believe 
that physicians provide the most clinically appropriate, quality of 
care and make decisions with respect to the individual patient's needs 
and not subject patients to inherent risk.
    In response to the manufacturer's request urging CMS to ensure that 
IFVA impacts the MS-DRG assignment in the same way as a cardiac 
catheterization currently does, as stated in the FY 2010 IPPS/LTCH PPS 
final rule (74 FR 43787), it would be inappropriate to reassign cases 
reporting the use of IFVA to higher weighted MS-DRGs merely as an 
incentive for hospitals to invest in the IFVA technology.
    As stated earlier, at the March 2010 meeting, an initial proposal 
was presented and, as a result, one aspect of the two-part proposal was 
finalized that involves an update to an existing code and the creation 
of a new code for IFVA. Effective October 1, 2010 (FY 2011), procedure 
code 88.59 has been revised to uniquely identify intraoperative 
coronary fluorescence vascular angiography and new code 17.71 has been 
created to identify noncoronary intraoperative fluorescence vascular 
angiography. We do not agree with the manufacturer's comment that these 
new code changes for FY 2011 will facilitates the MS-DRG case 
reassignment that the commenter proposed for procedure code 88.59 and 
believed was appropriate for policy. CMS does believe additional data 
are needed to fully evaluate the volume of cases and resources involved 
to perform intraoperative completion angiography using X-ray technology 
versus IFVA. Therefore, CMS is planning to discuss other options at a 
future ICD-9-CM Coordination and Maintenance Committee meeting.
    In summary, we are finalizing our proposal not to make any changes 
to MS-DRGs 233, 234, 235 or 236 for cases reporting the use of 
procedure code 88.59.
d. MS-DRG Reassignment of Intraoperative Fluorescence Vascular 
Angiography (IFVA)
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23901 and 23902), 
we indicated that we had received a request suggesting that we reassign 
procedure code 88.59 (Intraoperative Fluorescence Vascular 
Angiography), to the ``Other Cardiovascular MS-DRGs'': MS-DRGs 228, 
229, and 230 (Other Cardiothoracic Procedures with MCC, CC, and without 
CC/MCC, respectively). The requestor noted that these MS-DRGs have 
three levels of severity and that other procedures assigned to these 
MS-DRGs (for example, transmyocardial revascularization) are frequently 
performed at the same time as a CABG. The requestor believed that 
reassigning cases that report IFVA (procedure code 88.59) to these MS-
DRGs would not result in a significant overpayment to hospitals.
    In the FY 2011 proposed rule, we pointed out that, in the surgical 
hierarchy, MS-DRGs 228, 229, and 230 rank higher than MS-DRGs 233, 234, 
235, and 236, which were evaluated in the above tables for CABG 
procedures performed with IFVA (procedure code 88.59). The surgical 
hierarchy reflects the relative resource requirements of various 
surgical procedures. For example, if a CABG surgery were performed 
along with another procedure currently assigned to MS-DRGs 228, 229, 
and 230, the case would be assigned to one of the ``Other 
Cardiothoracic Procedures MS-DRGs'' (228, 229, and 230) because 
patients with multiple procedures are assigned to the highest surgical 
hierarchy to which one of the procedures is assigned.
    Therefore, as the data shown above did not demonstrate that IFVA 
utilized an equivalent (or additional) amount of resources as a cardiac 
catheterization to warrant a proposal to reassign IFVA cases to MS-DRGs 
233 and 234 and the fact that IFVA cases with CABG performed with a 
procedure assigned to MS-DRGs 228, 229, and 230 would already be 
grouped to those same MS-DRGs, we did not propose to reassign cases 
reporting procedure code 88.59 to MS-DRGs 228, 229, and 230 for FY 
2011.
    Comment: Several commenters supported the proposal not to reassign 
cases reporting procedure code 88.59 to MS-DRGs 228, 229, and 230.
    Response: We appreciate the commenters' support.
    We are finalizing our proposal to not reassign cases reporting 
procedure code 88.59 to MS-DRGs 228, 229, and 230 for FY 2011.

[[Page 50110]]

4. MDC 6 (Diseases and Disorders of the Digestive System): 
Gastrointestinal Stenting
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR43799), we 
discussed a request we received to create new MS-DRGs in FY 2011 to 
better identify patients who undergo the insertion of a 
gastrointestinal stent. The request was considered outside the scope of 
issues addressed in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule; 
therefore, we stated our intent to consider this request during the FY 
2011 rulemaking process.
    Gastrointestinal stenting is performed by inserting a tube (stent) 
into the esophagus, duodenum, biliary tract or colon to reestablish or 
maintain patency of these structures and allow swallowing, drainage, or 
passage of waste. The commenter requested that the new MS-DRGs be 
subdivided into three severity levels (with MCC, with CC, and without 
CC/MCC) to better align payment rates with resource consumption and 
improve the clinical coherence of these cases.
    In its own analysis using FY 2008 MedPAR data, the commenter 
identified gastrointestinal stenting cases using relevant diagnosis 
codes and a combination of procedure codes with revenue code 0278 in 
MS-DRGs 374, 375, and 376 (Digestive Malignancy with MCC, with CC, and 
without CC/MCC, respectively), MS-DRGs 391and 392 (Esophagitis, 
Gastroenteritis and Miscellaneous Digestive Disorders with MCC and 
without MCC, respectively), and MS-DRGs 393, 394, and 395 (Other 
Digestive System Diagnoses with MCC, with CC, and without CC/MCC, 
respectively) in MDC 6 (Diseases and Disorders of the Digestive 
System); and MS-DRGs 435, 436, and 437 (Malignancy of Hepatobiliary 
System or Pancreas with MCC, with CC, and without CC/MCC, respectively) 
in MDC 7 (Diseases and Disorders of the Hepatobiliary System and 
Pancreas).
    As stated above, the commenter utilized a combination of procedure 
codes along with revenue code 0278 for its analysis. There were a total 
of six procedure codes included, of which, only three (procedure codes 
42.81, 51.87, and 52.93) actually describe the insertion of a stent. 
The complete list of procedure codes is as follows:
     42.81 (Insertion of permanent tube into esophagus)
     45.13 (Other endoscopy of small intestine)
     45.22 (Endoscopy of large intestine through artificial 
stoma)
     46.85 (Dilation of intestine)
     51.87 (Endoscopic insertion of stent (tube) into bile 
duct)
     52.93 (Endoscopic insertion of stent (tube) into 
pancreatic duct)
    The commenter aggregated the results by the previously mentioned 
MS-DRG groupings and did not present results for individual stenting 
procedures. According to the commenter, mean standardized charges for 
gastrointestinal stenting procedures were higher than those for 
nonstenting procedures across all levels of severity of illness. In 
addition, the commenter believed that the difference in charges was not 
simply related to the costs of the stents, but rather that the extent 
of the difference in charges reflected the severity of illness and 
resource intensity associated with gastrointestinal stenting 
procedures.
    As indicated in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 
23902), in response to the commenter's request, we pointed out that we 
do not utilize revenue codes in our process to evaluate if new MS-DRGs 
are warranted. The use of revenue codes in the MS-DRG reclassification 
process would require a major structural change from the current 
process that has been utilized since the inception of the IPPS. In 
addition, the commenter included procedure codes in its analysis that 
do not identify the insertion of a stent; thereby, the data are 
unreliable. Furthermore, two procedure codes describing the insertion 
of a colonic stent were recently implemented, effective with discharges 
occurring on or after October 1, 2009--procedure code 46.86 (Endoscopic 
insertion of colonic stent(s)) and procedure code 46.87 (Other 
insertion of colonic stent(s)). However, we do not have data currently 
available on these two new procedure codes to include them in a 
comprehensive analysis. Lastly, as the commenter indicated, the 
differences between those procedures with and without stents is a 
reflection on the severity of illness and resource consumption 
associated with these types of procedures. The commenter also 
acknowledged that patients receiving a gastrointestinal stent who are 
severely debilitated due to prolonged illness are reflected by the fact 
that the majority of cases are assigned to MS-DRGs for patients with 
MCCs (major complications or comorbidities). Therefore, the medical MS-
DRGs to which these procedures are currently assigned already account 
for the severity of illness and intensity of resources utilized.
    For the FY 2011 IPPS/LTCH PPS proposed rule, using FY 2009 MedPAR 
data, we analyzed the three procedure codes that truly identify and 
describe the insertion of a stent (procedure codes 42.81, 51.87, and 
52.93) within the MS-DRGs referenced above. Similar to the commenter's 
findings, our analysis demonstrated a small volume of cases in which 
insertion of a gastrointestinal stent occurred in the specified MS-
DRGs. Of the 411,390 total cases across the digestive system MS-DRGs 
the requestor identified, there were only 2,011 cases that involved the 
actual insertion of a gastrointestinal stent. These cases had average 
costs ranging from a low of $5,846 to a high of $17,626. Based on these 
findings, in the proposed rule, we indicated that we did not believe it 
was appropriate to assign cases with such disparity in costs into a 
single, new MS-DRG. Furthermore, in applying the five criteria used to 
establish new MS-DRGs, we indicated that the data do not support the 
creation of new MS-DRGs with three severity levels (with MCC, with CC, 
and without CC/MCC).
    For the reasons stated above, we invited the public to submit 
comments on our proposal not to make any MS-DRG modifications to cases 
involving the use of gastrointestinal stents for FY 2011.
    Comment: Several commenters in general supported CMS' proposal not 
to make any MS-DRG modifications involving the use of gastrointestinal 
stents for FY 2011. One commenter expressed appreciation for CMS' 
efforts to consider its request to create a new series of MS-DRGs for 
gastrointestinal stent placement cases. The commenter acknowledged the 
lack of specific ICD-9-CM procedure codes for colonic and duodenal 
stent placement in the data and CMS' practice of not using revenue 
codes to help distinguish between different types of procedures. The 
commenter agreed that the lack of specific codes and not using revenue 
codes in the MS-DRG grouping logic precludes CMS' ability to implement 
the requested MS-DRG modifications for gastrointestinal stents for FY 
2011. The commenter indicated that it will continue to monitor these 
cases in future years and, if appropriate, request the creation of new 
MS-DRGs.
    Response: We agree with the commenters that our data and claims 
analysis support our proposal to not make any MS-DRG modifications to 
cases involving the use of gastrointestinal stents for FY 2011. 
Therefore, we are finalizing our proposal to not make any MS-DRG 
modifications to cases involving the use of gastrointestinal stents for 
FY 2011.

[[Page 50111]]

5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and 
Connective Tissue): Pedicle-Based Dynamic Stabilization
    As we did for FY 2009 (73 FR 45820), we received a request from a 
manufacturer to reassign procedure code 84.82 (Insertion or replacement 
of pedicle-based dynamic stabilization device(s)), effective October 1, 
2007, from MS-DRG 490 (Back and Neck Procedures Except Spinal Fusion 
with CC/MCC or Disc Device/Neurostimulator) to MS-DRG 460 (Spinal 
Fusion Except Cervical without MCC). According to the manufacturer, the 
technology that is identified by this procedure code, the 
Dynesys[supreg] Dynamic Stabilization System, is clinically similar to 
lumbar spinal fusion and requires similar utilization of resources.
    Dynamic stabilization is a concept that utilizes a flexible system 
to stabilize the spine without fusion. The primary goals of dynamic 
stabilization are to limit the amount of unnatural spinal motion and 
preserve as much of the patient's natural anatomic structures as 
possible. The Dynesys[supreg] Dynamic Stabilization System is comprised 
of three components with specific functions: titanium alloy pedicle 
screws that anchor the system to the spine; a polyethylene-
terephthalate (PET) cord that connects the Dynesys[supreg] screws; and 
a polycarbonate-urethane (PCU) spacer that runs over the cord between 
the Dynesys[supreg] screws. The system is placed under tension creating 
a dynamic interaction between the components.
    The MS-DRGs are comprised of clinically coherent groups of patients 
who consume similar utilization of resources and complexity of 
services. The insertion of a Dynesys[supreg] Dynamic Stabilization 
System is clinically not a lumbar fusion. As stated previously, dynamic 
stabilization is a concept that utilizes a flexible system to stabilize 
the spine without fusion. Therefore, in the FY 2011 IPPS/LTCH PPS 
proposed rule (75 FR 23903), we stated that it would be clinically 
inappropriate to reassign cases reporting procedure code 84.82 in the 
fusion MS-DRG.
    In conclusion, the Dynesys[supreg] Dynamic Stabilization System is 
currently FDA approved for use only as an adjunct to spinal fusion, 
there is uncertainty regarding the coding and reporting of procedure 
code 84.82, as well as off-label use, and currently, all other similar 
nonfusion devices are assigned to MS-DRG 490.
    For the reasons listed above, we did not propose to reassign cases 
reporting procedure code 84.82 from MS-DRG 490 to MS-DRG 460 for FY 
2011.
    Comment: Several commenters supported CMS' proposal not to reassign 
cases reporting procedure code 84.82 from MS-DRG 490 to MS-DRG 460 for 
FY 2011. One commenter, the manufacturer, stated that they conducted a 
clinical comparison of Dynesys[supreg] as well as an analysis of 
charges and costs associated with MS-DRGs 490 and 460, specifically 
procedure codes 84.82 (Insertion or replacement of pedicle-based 
dynamic stabilization device(s)), and 81.08 (Lumbar and lumbosacral 
fusion, posterior technique). According to the manufacturer, the 
analysis demonstrated that the resource utilization of Dynesys[supreg] 
as a nonfusion device is similar to that of fusion and is greater than 
that of other procedures grouped in MS-DRG 490.
    Response: We appreciate the manufacturer's analysis. As stated 
previously, and as the manufacturer stated in its comments, the FDA has 
not yet approved the Post-Market Approval (PMA) application to expand 
the indication of Dynesys[supreg] for use as a non-fusion device. 
Dynesys[supreg] is currently approved as an adjunct to spinal fusion; 
therefore, when reported correctly, cases utilizing the Dynesys[supreg] 
technology are appropriately assigned to the fusion MS-DRGs. We will 
continue to monitor the resource utilization of procedure codes 84.82 
and 81.08 to determine if future MS-DRG reassignments or new MS-DRGs 
are warranted. For FY 2011, we are finalizing our proposal not to 
reassign cases with procedure code 84.82 from MS-DRG 490 to MS-DRG 460.
6. MDC 15 (Newborns and Other Neonates With Conditions Originating in 
the Perinatal Period)
a. Discharges/Transfers of Neonates to a Designated Cancer Center or 
Children's Hospital
    As discussed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 
23903), we received a request to add patient discharge status code 05 
(Discharged/transferred to a designated cancer center or children's 
hospital) to the MS-DRG GROUPER logic for MS-DRG 789 (Neonates, Died or 
Transferred to Another Acute Care Facility). Currently, neonate cases 
with the discharge status code 05 are being assigned to MS-DRG 795 
(Normal Newborn).
    The definition of discharge status code 05 was changed on April 1, 
2008, from ``discharged/transferred to another type of health care 
institution not defined elsewhere in this code list'' to ``discharged/
transferred to a designated cancer center or children's hospital.'' For 
the FY 2011 proposed rule, we examined cases in the FY 2009 MedPAR file 
but did not find any cases with the discharge status code 05 that were 
assigned to either MS-DRG 789 or MS-DRG 795. However, we indicated that 
we believed the request has merit in identifying neonate cases 
appropriately. Therefore, for FY 2011, we proposed to add discharge 
status code 05 to the MS-DRG GROUPER logic for MS-DRG 789.
    Comment: Some commenters supported the proposed change to the MS-
DRG GROUPER logic for discharge status 05. A few commenters commended 
CMS for responding to industry requests related to MDC 15, especially 
in light of the limited impact on the Medicare population while 
acknowledging that other payers also utilize the MS-DRG classification 
system. One commenter recommended adding the logic for discharge status 
code 05 to the MS-DRG GROUPER logic for all newborn cases assigned to 
MS-DRGs: 790 (Extreme Immaturity or Respiratory Distress Syndrome, 
Neonate), 791 (Prematurity with Major Problems), 792 (Prematurity 
without Major Problems), 793 (Full Term Neonate with Major Problems), 
794 (Neonate with Other Significant Problems), and 795 so that these 
cases may be appropriately grouped to the MS-DRG 789 for transferred 
neonates.
    Response: We appreciate the support of the commenters. To clarify 
our proposed policy change, we are adding discharge status code 05 to 
the MS-DRG GROUPER logic for assigning cases to MS-DRG 789. This change 
will result in any case identified with discharge status 05, which 
would have normally been assigned to MS-DRGs 790 through 795, being 
reassigned to MS-DRG 789, as the commenter recommended.
    After consideration of the public comments we received, we contend 
that this logic change has merit and, therefore, are adopting it as 
final for FY 2011. All newborn cases assigned to MS-DRGs 790 through 
795 and indentified with discharge status 05 will be reassigned to MS-
DRG 789 for transferred neonates.
b. Vaccinations of Newborns
    As discussed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 
23903), we received a request to examine the assignment of code V64.05 
(Vaccination not carried out because of caregiver refusal) to MS-DRG 
794 (Neonate with Other Significant Problems). Code V64.05 is currently 
being reported when a physician documents that a parent/caregiver has 
refused immunization for a child. The reporting of this code as a 
principal or secondary diagnosis

[[Page 50112]]

impacts the MS-DRG assignment for normal newborns cases being assigned 
to MS-DRG 794.
    For the FY 2011 proposed rule, we examined cases in the FY 2009 
MedPAR file but did not find any cases of code V64.05 assigned to MS-
DRG 794. Our medical advisors agree that code V64.05 should not be 
assigned to MS-DRG 794. We determined that the presence of code V64.05 
does not indicate that there is a significant problem with the newborn 
and should not be assigned to MS-DRG 794. Therefore, as we indicated in 
the FY 2011 proposed rule, we believe that assignment of code V64.05 to 
MS-DRG 795 (Normal Newborn) would be more appropriate for this code 
because it does not identify a significant problem.
    The logic for MS-DRG 795 contains a list of principal diagnosis 
codes for normal newborn and no secondary diagnosis or a list of only 
secondary diagnosis codes. Therefore, in the proposed rule, for FY 
2011, we proposed to remove code V64.05 from MS-DRG 794 and add this 
code to the only secondary diagnosis list for MS-DRG 795.
    Comment: Commenters supported this proposed change.
    Response: We appreciate the commenters support. As stated above, we 
believe that the assignment of code V64.05 to MS-DRG 795 is 
appropriate.
    After consideration of the public comments we received, we are 
adopting our proposal to remove code V64.05 from MS-DRG 794 and to add 
it to the only secondary diagnosis list for MS-DRG 795 as final for FY 
2011.
7. Medicare Code Editor (MCE) Changes
    As explained under section II.B.1. of the preamble of this final 
rule, the Medicare Code Editor (MCE) is a software program that detects 
and reports errors in the coding of Medicare claims data. Patient 
diagnoses, procedure(s), and demographic information are entered into 
the Medicare claims processing systems and are subjected to a series of 
automated screens. The MCE screens are designed to identify cases that 
require further review before classification into a MS-DRG. In the FY 
2011 IPPS/LTCH PPS proposed rule (75 FR 23903), we indicated that we 
intended to make the following changes to the MCE edits and invited 
public input on whether or not we should do so:
a. Unacceptable Principal Diagnosis Edit: Addition of Code for 
Gastroparesis
    It was brought to our attention that diagnosis code 536.3 
(Gastroparesis) has a ``code first underlying disease'' note. This note 
indicates that diagnosis code 536.3 should not be used as a principal 
diagnosis. Therefore, diagnosis code 536.3 should have been included on 
the list of unacceptable principal diagnoses in the MCE.
    We agree that diagnosis code 536.3 should have been included on the 
list of unacceptable principal diagnoses in the MCE. Therefore, in the 
proposed rule for FY 2011, we indicated that we intended to add 
diagnosis code 536.3 to that list in the MCE.
    Comment: A number of commenters opposed the proposed change because 
they believed that this sequencing change in the order of reported 
codes would eliminate Medicare coverage for the condition of 
gastroparesis.
    Response: The commenters erroneously believed that this sequencing 
change in the order of reported codes would eliminate Medicare coverage 
for the condition of gastroparesis. Therefore, we are taking the 
opportunity in this final rule to clarify that at no time did we intend 
to withdraw coverage for gastroparesis. We believe that many commenters 
mistakenly assumed that if diagnosis code 536.3 were not permitted to 
be in the principal diagnosis position, it would become a noncovered 
condition by Medicare. This is not CMS' intent, nor would it have been 
the result of our proposed change. As one commenter stated: ``The 
effect of the proposed edit would be that idiopathic gastroparesis * * 
* could not be sequenced as a principal diagnosis. We recognize that an 
inconsistency currently exists between the MCE and the `code first 
underlying disease' associated with [code] 536.3. We understand the 
issue is not with the MCE, but rather the note.''
    We agree with the commenters and with the medical community that 
diagnosis code 536.3 should not be included in the MCE's Unacceptable 
Principal Diagnosis Edit, and hereby withdraw our suggestion to put it 
on that list. Diagnosis code 536.3 will not be added to the MCE in FY 
2011.
    We understand that the matter of the ``code first'' note will be 
addressed by the ICD-9-CM Coordination & Maintenance Committee in 
September 2010.
b. Open Biopsy Check Edit
    The Open Biopsy Check edit in the MCE dates back to the early years 
of the IPPS when the surgical and medical DRGs were not as expansive as 
they are today. In the mid-1980s when the Open Biopsy Check edit was 
created, the ICD-9-CM codes did not have many biopsy procedure codes 
that clearly showed the approach, such as codes for open, percutaneous, 
and closed biopsies. Furthermore, under the current MS-DRGs, the open 
biopsy codes do not have as significant an impact as they did in the 
early versions of the DRGs. We believe that the Open Biopsy Check edit 
no longer serves a useful purpose. Therefore, in the FY 2011 proposed 
rule, we indicated that we intended to delete the entire Open Biopsy 
Check edit from the MCE, which meant removing the following 63 codes 
from the edit:
     01.11 (Closed [Percutaneous] [Needle] biopsy of cerebral 
meninges)
     01.12 (Open biopsy of cerebral meninges)
     01.13 (Closed [Percutaneous] [Needle] biopsy of brain)
     01.14 (Open biopsy of brain)
     04.11 (Closed [Percutaneous] [Needle] biopsy of cranial or 
peripheral nerve or ganglion)
     04.12 (Open biopsy of cranial or peripheral nerve or 
ganglion)
     06.11 (Closed [Percutaneous] [Needle] biopsy of thyroid 
gland)
     06.12 (Open biopsy of thyroid gland)
     07.11 (Closed [Percutaneous] [Needle] biopsy of adrenal 
gland)
     07.12 (Open biopsy of adrenal gland)
     22.11 (Closed [Endoscopic] [Needle] biopsy of nasal sinus)
     22.12 (Open biopsy of nasal sinus)
     25.01 (Closed [Needle] biopsy of tongue)
     25.02 (Open biopsy of tongue)
     26.11 (Closed [Needle] biopsy of salivary gland or duct)
     26.12 (Open biopsy of salivary gland or duct)
     31.43 (Closed [Endoscopic] biopsy of larynx)
     31.44 (Closed [Endoscopic] biopsy of trachea)
     31.45 (Open biopsy of larynx or trachea)
     33.24 (Closed [Endoscopic] biopsy of bronchus)
     33.25 (Open biopsy of bronchus)
     33.26 (Closed [Percutaneous] [Needle] biopsy of lung)
     33.28 (Open biopsy of lung)
     34.25 (Closed [Percutaneous] [Needle] biopsy of 
mediastinum)
     34.26 (Open mediastinal biopsy)
     41.32 (Closed [Aspiration] [Percutaneous] biopsy of 
spleen)
     41.33 (Open biopsy of spleen)
     42.24 (Closed [Endoscopic] biopsy of esophagus)
     42.25 (Open biopsy of esophagus)
     44.14 (Closed [Endoscopic] biopsy of stomach)
     44.15 (Open biopsy of stomach)
     45.14 (Closed [Endoscopic] biopsy of small intestine)

[[Page 50113]]

     45.15 (Open biopsy of small intestine)
     45.25 (Closed [Endoscopic] biopsy of large intestine)
     45.26 (Open biopsy of large intestine)
     48.24 (Closed [Endoscopic] biopsy of rectum)
     48.25 (Open biopsy of rectum)
     50.11 (Closed (Percutaneous) [Needle] biopsy of liver)
     50.12 (Open biopsy of liver)
     51.12 (Percutaneous biopsy of gallbladder or bile ducts)
     51.13 (Open biopsy of gallbladder or bile ducts)
     52.11 (Closed [Aspiration] [Needle] [Percutaneous] biopsy 
of pancreas)
     52.12 (Open biopsy of pancreas)
     54.23 (Biopsy of peritoneum)
     54.24 (Closed [Percutaneous] [Needle] biopsy of intra-
abdominal mass)
     55.23 (Closed [Percutaneous] [Needle] biopsy of kidney)
     55.24 (Open biopsy of kidney)
     56.32 (Closed percutaneous biopsy of ureter)
     56.34 (Open biopsy of ureter)
     57.33 (Closed [Transurethral] biopsy of bladder)
     57.34 (Open biopsy of bladder)
     60.11 (Closed [Percutaneous] [Needle] biopsy of prostate)
     60.12 (Open biopsy of prostate)
     60.13 (Closed [Percutaneous] biopsy of seminal vesicles)
     60.14 (Open biopsy of seminal vesicles)
     62.11 (Closed [Percutaneous] [Needle] biopsy of testis)
     62.12 (Open biopsy of testis)
     68.13 (Open biopsy of uterus)
     68.14 (Open biopsy of uterine ligaments)
     68.15 (Closed biopsy of uterine ligaments)
     68.16 (Closed biopsy of uterus)
     85.11 (Closed [Percutaneous] [Needle] biopsy of breast)
     85.12 (Open biopsy of breast)
    We did not receive any public comments regarding the proposal to 
delete the Open Biopsy Check edit from the MCE. Therefore, because 
there were no objections to the proposal, we are deleting the Open 
Biopsy Check edit from the MCE. The edit containing the codes listed 
above will be removed, effective for October 1, 2010 (FY 2011).
c. Noncovered Procedure Edit
    The ICD-9-CM procedure codes 52.80 (Pancreatic transplant, not 
otherwise specified) and 52.82 (Homotransplant of pancreas) alone (that 
is, without procedure code 55.69 (Other kidney transplantation)) are 
considered noncovered procedures, except when either one is combined 
with at least one specific principal or secondary diagnosis code. These 
specific diagnosis codes identify Type I diabetes mellitus, not stated 
as uncontrolled, or else identified as uncontrolled.
    To conform to the proposed change to Pre-MDC MS-DRGs 008 and 010 as 
discussed in section II.G.1. of the FY 2011 IPPS/LTCH PPS proposed 
rule, in which we proposed to add code 251.3 (Postsurgical 
hypoinsulinemia) to those MS-DRGs, we indicated in that FY 2011 
proposed rule that we intended to add procedure code 251.3 to the list 
of acceptable principal or secondary diagnosis codes in the MCE.
    We did not receive any public comments on our proposal to add 
procedure code 251.3 to the list of acceptable principal or secondary 
diagnosis codes in the MCE. Therefore, because there were no objections 
to this proposal, we are adding procedure code 251.3 (Postsurgical 
hypoinsulinemia) to the MCE in the list of acceptable principal or 
secondary codes associated with procedure codes 52.80 (Pancreatic 
transplant, not otherwise specified) and 52.82 (Homotransplant of 
pancreas).
8. Surgical Hierarchies
    Some inpatient stays entail multiple surgical procedures, each one 
of which, occurring by itself, could result in assignment of the case 
to a different MS-DRG within the MDC to which the principal diagnosis 
is assigned. Therefore, it is necessary to have a decision rule within 
the GROUPER by which these cases are assigned to a single MS-DRG. The 
surgical hierarchy, an ordering of surgical classes from most resource-
intensive to least resource-intensive, performs that function. 
Application of this hierarchy ensures that cases involving multiple 
surgical procedures are assigned to the MS-DRG associated with the most 
resource-intensive surgical class.
    Because the relative resource intensity of surgical classes can 
shift as a function of MS-DRG reclassification and recalibrations, we 
reviewed the surgical hierarchy of each MDC, as we have for previous 
reclassifications and recalibrations, to determine if the ordering of 
classes coincides with the intensity of resource utilization.
    A surgical class can be composed of one or more MS-DRGs. For 
example, in MDC 11, the surgical class ``kidney transplant'' consists 
of a single MS-DRG (MS-DRG 652) and the class ``major bladder 
procedures'' consists of three MS-DRGs (MS-DRGs 653, 654, and 655). 
Consequently, in many cases, the surgical hierarchy has an impact on 
more than one MS-DRG. The methodology for determining the most 
resource-intensive surgical class involves weighting the average 
resources for each MS-DRG by frequency to determine the weighted 
average resources for each surgical class. For example, assume surgical 
class A includes MS-DRGs 1 and 2 and surgical class B includes MS-DRGs 
3, 4, and 5. Assume also that the average costs of MS-DRG 1 is higher 
than that of MS-DRG 3, but the average costs of MS-DRGs 4 and 5 are 
higher than the average costs of MS-DRG 2. To determine whether 
surgical class A should be higher or lower than surgical class B in the 
surgical hierarchy, we would weigh the average costs of each MS-DRG in 
the class by frequency (that is, by the number of cases in the MS-DRG) 
to determine average resource consumption for the surgical class. The 
surgical classes would then be ordered from the class with the highest 
average resource utilization to that with the lowest, with the 
exception of ``other O.R. procedures'' as discussed below.
    This methodology may occasionally result in assignment of a case 
involving multiple procedures to the lower-weighted MS-DRG (in the 
highest, most resource-intensive surgical class) of the available 
alternatives. However, given that the logic underlying the surgical 
hierarchy provides that the GROUPER search for the procedure in the 
most resource-intensive surgical class, in cases involving multiple 
procedures, this result is sometimes unavoidable.
    We note that, notwithstanding the foregoing discussion, there are a 
few instances when a surgical class with a lower average cost is 
ordered above a surgical class with a higher average cost. For example, 
the ``other O.R. procedures'' surgical class is uniformly ordered last 
in the surgical hierarchy of each MDC in which it occurs, regardless of 
the fact that the average costs for the MS-DRG or MS-DRGs in that 
surgical class may be higher than those for other surgical classes in 
the MDC. The ``other O.R. procedures'' class is a group of procedures 
that are only infrequently related to the diagnoses in the MDC, but are 
still occasionally performed on patients in the MDC with these 
diagnoses. Therefore, assignment to these surgical classes should only 
occur 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

[[Page 50114]]

hierarchy change, the average costs are likely to shift such that the 
higher-ordered surgical class has a lower average costs than the class 
ordered below it.
    As we proposed, based on the changes that we are making for FY 
2011, as discussed in section II.C.2. of this preamble, we are revising 
the surgical hierarchy for Pre-MDCs and MDC 10 (Endocrine, Nutritional 
and Metabolic Diseases and Disorders) to reflect the resource 
intensiveness of the MS-DRGs, as follows:
    In Pre-MDCs, we are reordering new MS-DRG 014 (Allogeneic Bone 
Marrow Transplant) above MS-DRG 007 (Lung Transplant); and new MS-DRG 
015 (Autologous Bone Marrow Transplant) above MS-DRG 010 (Pancreas 
Transplant).
    In MDC 10, we are reordering MS-DRG 614 (Adrenal and Pituitary 
Procedures With CC/MCC) and MS-DRG 615 (Adrenal and Pituitary 
Procedures Without CC/MCC) above MS-DRG 625 (Thyroid, Parathyroid and 
Thyroglossal Procedures With MCC).
    Comment: Commenters generally supported our proposals without any 
objections.
    Response: Based on the test of the proposed revisions using the 
March 2010 update of the FY 2009 MedPAR file and the revised GROUPER 
software, we found that the revisions are still supported by the data. 
Therefore, we are incorporating the proposed revisions to the surgical 
hierarchy as final for FY 2011.
9. Complications or Comorbidity (CC) Exclusions List
a. Background
    As indicated earlier in the preamble of this final rule, under the 
IPPS MS-DRG classification system, we have developed a standard list of 
diagnoses that are considered CCs. Historically, we developed this list 
using physician panels that classified each diagnosis code based on 
whether the diagnosis, when present as a secondary condition, would be 
considered a substantial complication or comorbidity. A substantial 
complication or comorbidity was defined as a condition that, because of 
its presence with a specific principal diagnosis, would cause an 
increase in the length of stay by at least 1 day in at least 75 percent 
of the patients. We refer readers to section II.D.2. and 3. of the 
preamble of the FY 2008 IPPS final rule with comment period for a 
discussion of the refinement of CCs in relation to the MS-DRGs we 
adopted for FY 2008 (72 FR 47121 through 47152).
b. CC Exclusions List for FY 2011
    In the September 1, 1987 final notice (52 FR 33143) concerning 
changes to the DRG classification system, we modified the GROUPER logic 
so that certain diagnoses included on the standard list of CCs would 
not be considered valid CCs in combination with a particular principal 
diagnosis. We created the CC Exclusions List for the following reasons: 
(1) To preclude coding of CCs for closely related conditions; (2) to 
preclude duplicative or inconsistent coding from being treated as CCs; 
and (3) to ensure that cases are appropriately classified between the 
complicated and uncomplicated DRGs in a pair. As we indicated above, we 
developed a list of diagnoses, using physician panels, to include those 
diagnoses that, when present as a secondary condition, would be 
considered a substantial complication or comorbidity. In previous 
years, we have made changes to the list of CCs, either by adding new 
CCs or deleting CCs already on the list.
    In the May 19, 1987 proposed notice (52 FR 18877) and the September 
1, 1987 final notice (52 FR 33154), we explained that the excluded 
secondary diagnoses were established using the following five 
principles:
     Chronic and acute manifestations of the same condition 
should not be considered CCs for one another.
     Specific and nonspecific (that is, not otherwise specified 
(NOS)) diagnosis codes for the same condition should not be considered 
CCs for one another.
     Codes for the same condition that cannot coexist, such as 
partial/total, unilateral/bilateral, obstructed/unobstructed, and 
benign/malignant, should not be considered CCs for one another.
     Codes for the same condition in anatomically proximal 
sites should not be considered CCs for one another.
     Closely related conditions should not be considered CCs 
for one another.
    The creation of the CC Exclusions List was a major project 
involving hundreds of codes. We have continued to review the remaining 
CCs to identify additional exclusions and to remove diagnoses from the 
master list that have been shown not to meet the definition of a CC.\2\
---------------------------------------------------------------------------

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

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

[[Page 50115]]

     V85.35 (Body mass index 35.0-35.9, adult)
     V85.36 (Body mass index 36.0-36.9, adult)
     V85.37 (Body mass index 37.0-37.9, adult)
     V85.38 (Body mass index 38.0-38.9, adult)
     V85.39 (Body mass index 39.0-39.9, adult)
    Several commenters recommended that CMS add the following diagnosis 
code, which is on the CC list, to the MCC list:
     V85.40 (Body mass index 40 and over, adult)
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we stated that we 
believed these comments were outside the scope of the proposals in the 
FY 2010 proposed rule. We did not propose significant revisions to the 
MS-DRGs in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 
24091) for these codes. We stated that we were encouraging individuals 
with comments about MS-DRG classifications to submit these comments no 
later than early December of each year so they can be carefully 
considered for possible inclusion in the annual proposed rule and, if 
included, may be subjected to public review and comment. Therefore, we 
did not add these codes to the MCC list or the CC list for FY 2010. We 
stated that we would consider their appropriateness for inclusion in 
next year's annual proposed rule.
    In addition to the diagnosis codes mentioned above, we also have 
received requests that we consider changing the following diagnosis 
codes from a non-CC to a CC:
     278.00 (Obesity NOS)
     278.01 (Morbid obesity)
     278.02 (Overweight)
    For the FY 2011 IPPS/LTCH PPS proposed rule, we analyzed claims 
data for the diagnosis codes mentioned above related to obesity and 
major osseous defects. We used the same approach we used in initially 
creating the MS-DRGs and classifying secondary diagnosis codes as non-
CCs, CCs, or MCC. A detailed discussion of the process and criteria we 
used in this process is described in the FY 2008 IPPS final rule (72 FR 
47158 through 47161). We refer the readers to this discussion for 
complete information on our approach to developing the non-CC, CC, and 
MCC lists. Each diagnosis for which Medicare data were available was 
evaluated to determine its impact on resource use and to determine the 
most appropriate CC subclass (non-CC, CC, or MCC) assignment. In order 
to make this determination, the average cost for each subset of cases 
was compared to the expected cost for cases in that subset. The 
following format was used to evaluate each diagnosis:

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

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

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

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

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

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

[[Page 50116]]

    We note that the C1 finding of 1.2323 does not support a 
reclassification of this diagnosis code from a CC to a MCC. This 
finding is much more consistent with classifying the code as a non-CC. 
Our clinical advisors recommended that CMS not reclassify this 
diagnosis code from a CC to a non-CC for FY 2011. They recommended that 
CMS analyze data associated with this diagnosis code again in the 
future to determine if it continues to act like a non-CC. For the FY 
2011 proposed rule, we did not recommend any change in the severity 
classification of diagnosis code V85.4. We proposed to retain it as a 
CC for FY 2011. We welcomed public comments on our proposal not to 
change the severity levels of the diagnosis codes mentioned above.
    Comment: Several commenters in general supported the proposal not 
to change the following codes from a non-CC to a CC or MCC based on our 
data and clinical analysis: 278.00; 278.01; 278.02; 731.3; V85.35; 
V85.36; V85.37; V85.38; and V85.39.
    The commenters also supported our proposal not to change code 
V85.40 from a CC to an MCC.
    One commenter stated that it understood that the request to change 
the severity level for the obesity related codes was not supported by 
the current hospital claim data. The commenter expressed appreciation 
for CMS' consideration of its recommendation. However, the commenter 
expressed concerns that hospitals may not be fully reporting codes that 
describe obesity, and, therefore, all resources associated with obesity 
related cases may not be included in the hospital claims data. The 
commenter requested that CMS actively encourage hospitals to report 
codes that more fully describe obesity and its related conditions. The 
commenter stated that if hospitals increased their reporting of obesity 
related conditions, our national data would be more accurate and would 
more fully reflect hospital resource use associated with these 
patients.
    Another commenter also acknowledged that the data did not support a 
change in the severity level for the obesity related codes. This 
commenter also expressed that hospitals may be underreporting obesity 
cases, and requested that hospitals be encouraged to more fully and 
accurately code and report these conditions. Once a more complete data 
set is available to describe these patients, the commenter recommended 
that the issue be reviewed again.
    Response: We agree with the commenters that our data and clinical 
analysis support our proposal not to change the severity level for the 
obesity related codes. We appreciate the commenters' statement about 
our consideration and review of this issue. We agree that it is 
important to provide clear documentation and accurate coding for all 
patient diagnoses and conditions, including obesity related conditions. 
As discussed in section II.G.11.c. of this preamble, we are expanding 
the number of diagnosis and procedure codes processed so that more 
codes are available to describe each patient's hospitalization. The 
clinical data and the comments received support our recommendation not 
to change the severity levels for the obesity related codes. Therefore, 
we are finalizing our proposal to continue classifying the following 
codes as non-CCs for FY 2011.
     278.00 (Obesity NOS)
     278.01 (Morbid obesity)
     278.02 (Overweight)
     731.3 (Major osseous defects)
     V85.35 (Body mass index 35.0-35.9, adult)
     V85.36 (Body mass index 36.0-36.9, adult)
     V85.37 (Body mass index 37.0-37.9, adult)
     V85.38 (Body mass index 38.0-38.9, adult)
     V85.39 (Body mass index 39.0-39.9, adult)
    We are also finalizing our proposal to continue classifying the 
following code as a CC for FY 2011.
     V85.40 (Body mass index 40 and over, adult)
(3) Suggested Change to the Severity Level for Alzheimer's Disease 
Diagnosis Code
    We received a request to change the severity classification for 
diagnosis code 331.0 (Alzheimer's disease). Currently, this diagnosis 
code is classified as a non-CC. For the FY 2011 IPPS/LTCH PPS proposed 
rule, we analyzed claims data for this diagnosis code. The following 
chart shows our findings:

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

    The C1 finding of 1.1381 for Alzheimer's disease supports the 
current classification of this diagnosis code as a non-CC. Our clinical 
advisors agree with this classification. Therefore, we did not propose 
to change the severity classification of diagnosis code 331.0 from a 
non-CC to a CC for FY 2011. We believe the code is appropriately 
classified as a non-CC.
    Comment: Several commenters in general supported CMS' proposal not 
to change diagnosis code 331.0 from a non-CC to a CC for FY 2011. They 
stated that the data supported this decision. One commenter stated that 
the analysis provided by CMS supports the proposal that diagnosis code 
331.0 should continue to be a non-CC. The commenter suggested that this 
issue be revisited after CMS begins processing 25 codes instead of the 
current limitation of 9 diagnosis codes.
    Response: We agree with the commenters that our data support our 
proposal not to change diagnosis code 331.0 from a non-CC to a CC for 
FY 2011. Therefore, we are finalizing our proposal to continue 
classifying diagnosis code 331.0 as a non-CC for FY 2011. We will 
revisit the severity level classification of diagnosis code 331.0 once 
we begin processing claims using the increase in the number of 
diagnosis codes to 25.
(4) Change to the Severity Level for Acute Renal Failure, Unspecified 
Diagnosis Code
    We received a request to reclassify the diagnosis code, which 
captures acute renal failure, 584.9 (Acute kidney failure, unspecified) 
from a MCC to a CC. The commenter stated that this code is being widely 
used to capture degrees of renal failure that range from that which is 
caused by mild dehydration with only minor laboratory abnormalities all 
the way through severe renal failure that requires dialysis. The 
commenter pointed out that there are no clinical criteria for assigning 
diagnosis code 584.9. The attending physician must simply document the 
presence of acute renal failure for the diagnosis code to be assigned. 
The concern is that the diagnosis code for acute kidney failure, 
unspecified (diagnosis code 584.9) is being assigned to patients with a 
low clinical severity level.
    We also point out that the Editorial Advisory Board of Coding 
Clinic for ICD-9-CM has received a number of requests to clarify the 
use of diagnosis code 584.9. Coders are observing the

[[Page 50117]]

terminology of ``acute renal failure'' being applied to patients who 
are simply dehydrated. These patients do not require renal dialysis, 
and they do not appear to be severely ill. Coders have stated that 
there appears to be an increase in the use of the terminology of acute 
renal failure for patients who were previously referred to as acute 
renal insufficiency. When acute renal insufficiency is documented, the 
ICD-9-CM index directs the use of code 593.9 (Unspecified disorder of 
kidney and ureter). Diagnosis code 593.9 includes acute renal 
insufficiency and is classified as a non-CC. The problem is further 
compounded by the fact that there is no consistent convention among 
clinicians for documenting acute renal insufficiency versus acute renal 
failure.
    For the FY 2011 IPPS/LTCH PPS proposed rule, we examined claims 
data on diagnosis code 584.9, and our findings are shown in the table 
below:

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

    The C1 finding of 1.8364 is more consistent with a classification 
of a CC. Our clinical advisors agreed that cases captured by diagnosis 
code 584.9 are more appropriately classified as a CC. This unspecified 
type of kidney failure is clearly not capturing patients with a MCC 
severity level. Therefore, we proposed to change the severity level for 
diagnosis code 584.9 from a MCC to a CC for FY 2011.
    Comment: Most commenters opposed our proposal to change diagnosis 
code 584.9 (Acute kidney failure, unspecified) from an MCC to a CC. 
However, one commenter supported the proposal to change the severity 
level classification of acute renal failure cases from an MCC to a CC. 
The commenter stated that there has been an increased reporting of 
acute renal failure which is primarily due to increased physician 
education by clinical documentation improvement programs. The commenter 
further stated that the statistical analysis offered in the proposed 
rule was sufficient to support this change.
    Response: We agree that the claims data support our proposal to 
change diagnosis code 584.9 from an MCC to a CC. We respond to the 
specific comments opposing our proposed changes in the following 
comments and responses.
    Comment: Several commenters suggested that the introduction of the 
terminology of acute kidney injury may have added to the inconsistent 
classification of the disease process. One commenter stated that, in 
2004, the Acute Dialysis Quality Initiative work group provided a 
definition and classification system for acute renal failure, described 
by the acronym RIFLE (Risk of renal dysfunction, Injury to the kidney, 
Failure or Loss of kidney function, and End-stage kidney disease). The 
commenter stated that clinical researchers have since applied the RIFLE 
system to the clinical evaluation of acute kidney injury. Several 
commenters stated that the FY 2009 update to the coding classification 
system, which classifies acute kidney injury and acute renal failure 
with the same code, may be diluting the patient mix. The commenters 
stated that inconsistency in the application of diagnosis code 584.9 
results in dilution of the data and an inaccurate reflection of the 
severity level for acute renal failure.
    Another commenter stated that claims data on diagnosis code 584.9 
may be flawed due to the variable terminology used by physicians and 
changes in the ICD-9-CM classification. This commenter stated that 
physicians often use the terms ``acute renal insufficiency'' and 
``acute renal failure'' interchangeably, and that this results in cases 
of acute renal insufficiency being classified as acute renal failure. 
The commenter also stated that physicians often use the term ``acute 
kidney injury'' to mean either acute renal insufficiency or acute renal 
failure, and that the term ``acute kidney injury'' is indexed in ICD-9-
CM to diagnosis code 584.9. Therefore, the commenter stated that cases 
of acute kidney injury are also being classified as acute renal 
failure. The commenter stated that these inconsistencies result in 
diagnosis code 584.9 capturing a mix of cases, including both acute 
renal insufficiency as well as true acute renal failure cases, and that 
this has diluted national data for diagnosis code 584.9 and is an 
inaccurate reflection of the severity level for acute renal failure. 
The commenters recommended that diagnosis code 584.9 remain an MCC 
while CMS works on ways to revise the codes or improve documentation 
guidelines.
    Response: We agree that diagnosis code 584.9 captures a range of 
severity levels. Patients are not consistently at the highest severity 
level as shown by our claims data. As discussed above, our claims data 
show that patients with this code as a secondary diagnosis are similar 
to those who are at a CC level. We do not believe it is appropriate to 
defer a decision on reclassification of the severity level of diagnosis 
code 584.9 until future coding or guideline modifications can be 
considered because our claims data clearly support the proposed change. 
Should a new range of codes be developed, we will consider what 
severity levels should be applied to each new code and include this 
analysis as part of future rulemaking.
    Comment: One commenter stated that the definition of conditions 
assigned to diagnosis code 584.9 is inadequate as it encompasses 
patients with both small and large elevations of creatinine that still 
meet the definition of acute kidney injury. Furthermore, the commenter 
pointed out that diagnosis code 584.9 does not identify severe cases of 
renal failure requiring dialysis. However, the commenter opposed 
changing diagnosis code 584.9 from an MCC to a CC as it would penalize 
those institutions treating more severe cases of renal failure. The 
commenter indicated its plans to contact the National Center for Health 
Statistics to request that fifth digits be added to diagnosis code 
584.9 to distinguish those in various stages of renal failure. Other 
commenters also agreed that diagnosis code 584.9 was vague and 
suggested that the code be subdivided to add additional information on 
the stages of the renal function. The commenters suggested using 
existing standards from the Acute Kidney Injury Network or the National 
Kidney Foundation to develop stages for kidney injury that could be 
captured with the new codes.
    Another commenter agreed that the diagnosis of acute renal failure 
should not be used to describe mild dehydration and renal insufficiency 
when only minor lab abnormalities are present. The commenter believed 
that criteria were needed to better define the stages of acute renal 
failure. The commenter stated that appropriate guidelines were needed 
for both physicians and coders who are attempting to differentiate 
between a mildly dehydrated patient and one with true acute renal 
failure. Until such time as these documentation guidelines are 
developed, the commenter asked that

[[Page 50118]]

diagnosis code 584.9 not be changed from an MCC to a CC.
    Response: We agree that diagnosis code 584.9 captures a wide range 
of severity levels. We also agree that the use of this code does not 
mean that the patient's renal capacity is so impaired as to require 
renal dialysis. As stated earlier, our data indicate that most of these 
cases are at a CC severity level, not an MCC. As stated earlier, we do 
not believe it is appropriate to defer a decision on reclassification 
of the severity level of diagnosis code 584.9 until future coding or 
guideline modifications can be considered. Should a new range of codes 
be developed, we will consider what severity levels should be applied 
to each new code and include this within future rulemaking.
    Comment: Several commenters objected to a change of severity levels 
for diagnosis code 584.9 from an MCC to a CC because of the financial 
impact the change would have on their hospitals. Several hospitals 
stated that this change would reduce their annual Medicare payments by 
$1.0 to $3.6 million per year. Other commenters stated that this change 
could lead to a reduction of 2 percent or more in total Medicare 
payments to their facilities. The commenters acknowledged that the code 
does not consistently capture patients at the highest severity level 
and that there was no clear convention among clinicians for documenting 
acute renal insufficiency versus acute renal failure. The commenters 
asked that the change not be made because of the payment impact on 
their hospitals.
    Response: We agree that diagnosis code 584.9 captures patients who 
are not consistently at the highest severity level. Classifying these 
patients at the highest severity level greatly distorts our national 
data. It gives the impression that a large number of patients have an 
MCC severity level when they may in fact have only minor renal 
symptoms. Our data support that patients with diagnosis code 584.9 are 
more appropriately classified at the CC severity level. These acute 
renal failure patients captured with this code do not utilize the 
resources of other conditions on the MCC list. We believe the data 
support changing the code from an MCC to a CC. We believe our claims 
data show that this change will lead to more accurate payment, even if 
it does reduce some hospital payments. We do not believe it is 
appropriate to inflate payments for hospitals that report a higher 
incidence of this code, yet are treating patients with a lower severity 
level.
    Comment: Other commenters who disagreed with the proposed change 
from an MCC to a CC, acknowledged that this unspecified code captures a 
range of severity levels from those patients with only a minimal 
elevation in serum creatinine or simple dehydration to those patients 
who are actually in acute renal failure. Some of the commenters stated 
that, while the code may currently capture patients with low severity 
levels, the patients still need treatment and monitoring to prevent any 
worsening in their conditions. The commenters also acknowledged that 
there is no clear convention among clinicians for documenting acute 
renal insufficiency versus acute renal failure. The commenters stated 
that this has been a problematic area on which there have been 
consensus conferences and publications from a variety of quality and 
renal organizations. The commenters stated that additional work was 
needed to develop a clear consensus for documenting acute renal 
failure. The commenters urged CMS to pursue greater standardization for 
the clinical documentation of acute renal failure. Until such time as 
the clinical documentation improves, the commenters recommended that 
CMS continue to classify diagnosis code 584.9 as an MCC.
    Response: We agree that there is not a consistent use of the term 
acute renal failure. As mentioned earlier, this term has been used to 
describe a wide range of severity levels. However, our claims data show 
that the term is being used predominately to describe those patients 
who are not at the highest severity level. The patients are more like 
others with a CC severity level. We do not believe that it is 
appropriate for CMS to wait for a consensus to build about how to use 
and document the term acute renal failure. We believe it is more 
appropriate to base our decision on current claims data and clinical 
review. Regardless of the different uses of the term ``acute renal 
failure'' and the inclusion of a wide range of severity levels, the 
current data show that the code is more properly a CC and not an MCC. 
As mentioned by a number of commenters, the term ``acute renal 
failure'' is being used for a wide variety of patients, most of which 
do not have a high severity level. We also point out that we proposed 
reclassifying only the unspecified acute renal failure code from an MCC 
to a CC. We are leaving the more precise acute renal failure codes as 
MCCs. For instance, these more precise acute renal failure codes will 
remain on the MCC list:
     584.5 (Acute kidney failure with lesion of tubular 
necrosis);
     584.6 (Acute kidney failure with lesion of renal cortical 
necrosis);
     584.7 (Acute kidney failure with lesion of renal medullary 
[papillary] necrosis); and
     584.8 (Acute kidney failure with other specified 
pathological lesion in kidney).
    We proposed to remove only the code for an unspecified type of 
acute kidney failure from the MCC list and to add it to the CC list. 
Our data support this reclassification.
    After consideration of the public comments we received, we are 
finalizing our proposal to change diagnosis code 584.9 (Acute kidney 
failure, unspecified) from an MCC to a CC.
    Comment: One commenter asked that CMS also examine whether the 
following encephalopathy codes should be removed from the MCC list. The 
commenter stated that claims analysis may show a justification for 
removing these codes from the MCC list.
     348.30 Encephalopathy, unspecified
     348.31 Metabolic encephalopathy
     348.39 Other encephalopathy
     349.82 Toxic encephalopathy
    Response: We believe this comment is outside the scope of the FY 
2011 IPPS/LTCH PPS proposed rule. We did not propose to change the 
severity level classification for any of the encephalopathy codes. We 
will examine this issue as part of next year's proposed rule. 
Therefore, we are not making any changes to the severity level 
classifications of the encephalopathy codes mentions above.
    Tables 6G and 6H, Additions to and Deletions from the CC Exclusion 
List, respectively, which are effective for discharges occurring on or 
after October 1, 2010, are not being published in the Addendum to this 
final rule because of the length of the two tables. Instead, we are 
making them available through the Internet on the CMS Web site at: 
http://www.cms.hhs.gov/AcuteInpatientPPS. Each of these principal 
diagnoses for which there is a CC exclusion is shown in Tables 6G and 
6H in the Addendum to this final rule with an asterisk, and the 
conditions that will not count as a CC, are provided in an indented 
column immediately following the affected principal diagnosis.
    A complete updated MCC, CC, and Non-CC Exclusions List is also 
available through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS. Beginning with discharges on or 
after October 1, 2010, the indented diagnoses will not be

[[Page 50119]]

recognized by the GROUPER as valid CCs for the asterisked principal 
diagnosis.
    To assist readers in identifying the changes to the MCC and CC 
lists that occurred as a result of updates to the ICD-9-CM codes, as 
described in Tables 6A, 6C, and 6E of the Addendum to this final rule, 
we are providing the following summaries of those MCC and CC changes.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR16AU10.019

[[Page 50120]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.020

[GRAPHIC] [TIFF OMITTED] TR16AU10.021

[[Page 50121]]

BILLING CODE 4120-01-C
    Alternatively, the complete documentation of the GROUPER logic, 
including the current CC Exclusions List, is available from 3M/Health 
Information Systems (HIS), which, under contract with CMS, is 
responsible for updating and maintaining the GROUPER program. The 
current MS-DRG Definitions Manual, Version 27.0, is available for 
$250.00, which includes shipping and handling. Version 27.0 of the 
manual is also available on a CD for $200.00; a combination hard copy 
and CD is available for $400.00. Version 28.0 of this manual, which 
includes the final FY 2011 MS-DRG changes, will be available in CD only 
for $225.00. These manuals may be obtained by writing 3M/HIS at the 
following address: 100 Barnes Road, Wallingford, CT 06492; or by 
calling (203) 949-0303, or by obtaining an order form at the Web site: 
http://www.3MHIS.com. Please specify the revision or revisions 
requested.
10. Review of Procedure Codes in MS DRGs 981 Through 983; 984 Through 
986; and 987 Through 989
    Each year, we review cases assigned to former CMS DRG 468 
(Extensive O.R. Procedure Unrelated to Principal Diagnosis), CMS DRG 
476 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis), and 
CMS DRG 477 (Nonextensive O.R. Procedure Unrelated to Principal 
Diagnosis) to determine whether it would be appropriate to change the 
procedures assigned among these CMS DRGs. Under the MS-DRGs that we 
adopted for FY 2008, CMS DRG 468 was split three ways and became MS-
DRGs 981, 982, and 983 (Extensive O.R. Procedure Unrelated to Principal 
Diagnosis with MCC, with CC, and without CC/MCC, respectively). CMS DRG 
476 became MS-DRGs 984, 985, and 986 (Prostatic O.R. Procedure 
Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, 
respectively). CMS DRG 477 became MS-DRGs 987, 988, and 989 
(Nonextensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, 
with CC, and without CC/MCC, respectively).
    MS-DRGs 981 through 983, 984 through 986, and 987 through 989 
(formerly CMS DRGs 468, 476, and 477, respectively) are reserved for 
those cases in which none of the O.R. procedures performed are related 
to the principal diagnosis. These MS-DRGs are intended to capture 
atypical cases, that is, those cases not occurring with sufficient 
frequency to represent a distinct, recognizable clinical group. MS-DRGs 
984 through 986 (previously CMS DRG 476) are assigned to those 
discharges in which one or more of the following prostatic procedures 
are performed and are unrelated to the principal diagnosis:
     60.0, Incision of prostate
     60.12, Open biopsy of prostate
     60.15, Biopsy of periprostatic tissue
     60.18, Other diagnostic procedures on prostate and 
periprostatic tissue
     60.21, Transurethral prostatectomy
     60.29, Other transurethral prostatectomy
     60.61, Local excision of lesion of prostate
     60.69, Prostatectomy, not elsewhere classified
     60.81, Incision of periprostatic tissue
     60.82, Excision of periprostatic tissue
     60.93, Repair of prostate
     60.94, Control of (postoperative) hemorrhage of prostate
     60.95, Transurethral balloon dilation of the prostatic 
urethra
     60.96, Transurethral destruction of prostate tissue by 
microwave thermotherapy
     60.97, Other transurethral destruction of prostate tissue 
by other thermotherapy
     60.99, Other operations on prostate
    All remaining O.R. procedures are assigned to MS-DRGs 981 through 
983 and 987 through 989, with MS-DRGs 987 through 989 assigned to those 
discharges in which the only procedures performed are nonextensive 
procedures that are unrelated to the principal diagnosis.\3\
---------------------------------------------------------------------------

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

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

[[Page 50122]]

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

[[Page 50123]]

    Copies of the minutes of the procedure codes discussions at the 
Committee's September 16-17, 2009 meeting and March 9-10, 2010 meeting 
can be obtained from the CMS Web site at: http://cms.hhs.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp. The minutes of the 
diagnosis codes discussions at the September 16-17, 2009 meeting and 
March 9-10, 2010 meeting are found at: http://www.cdc.gov/nchs/icd.htm. 
These Web sites also provide detailed information about the Committee, 
including information on requesting a new code, attending a Committee 
meeting, and timeline requirements and meeting dates.
    We encourage commenters to address suggestions on coding issues 
involving diagnosis codes to: Donna Pickett, Co-Chairperson, ICD-9-CM 
Coordination and Maintenance Committee, NCHS, Room 2402, 3311 Toledo 
Road, Hyattsville, MD 20782. Comments may be sent by e-mail to: 
dfp4@cdc.gov.
    Questions and comments concerning the procedure codes should be 
addressed to: Patricia E. Brooks, Co-Chairperson, ICD-9-CM Coordination 
and Maintenance Committee, CMS, Center for Medicare Management, 
Hospital and Ambulatory Policy Group, Division of Acute Care, C4-08-06, 
7500 Security Boulevard, Baltimore, MD 21244-1850. Comments may be sent 
by e-mail to: patricia.brooks2@cms.hhs.gov.
    The ICD-9-CM code changes that have been approved will become 
effective October 1, 2010. The new ICD-9-CM codes are listed, along 
with their MS-DRG classifications, in Tables 6A and 6B (New Diagnosis 
Codes and New Procedure Codes, respectively) in the Addendum to this 
final rule. As we stated above, the code numbers and their titles were 
presented for public comment at the ICD-9-CM Coordination and 
Maintenance Committee meetings. Both oral and written comments were 
considered before the codes were approved.
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23911), we 
solicited comments on the proposed classification of these new codes, 
which were shown in Tables 6A and 6B of the Addendum to the proposed 
rule.
    Comment: A few commenters supported our proposals. One commenter, 
representing one of the national hospital associations, recommended 
that the new codes 488.01 (Influenza due to identified avian influenza 
virus with pneumonia) and 488.11 (Influenza due to identified novel 
H1N1 influenza virus with pneumonia) be assigned to the pneumonia MS-
DRGs to be consistent with the MS-DRG definitions and classification of 
diagnosis code 487.0 (Influenza with pneumonia).
    Response: We agree with the commenters. Therefore, both codes 
488.01 and 488.11 will be assigned to MS-DRGs 193 through 195 (Simple 
Pneumonia with Pleurisy With MCC, Simple Pneumonia with Pleurisy With 
CC, and Simple Pneumonia with Pleurisy Without CC/MCC, respectively) as 
reflected in Table 6A of this final rule.
    Comment: The same commenter representing one of the hospital 
associations also questioned the CC designation for two new codes: 
780.33 (Post traumatic seizures) and 278.03 (Obesity hypoventilation 
syndrome). In the proposed rule (75 FR 24207 through 24208), both codes 
were listed as non-CCs in Table 6A. The commenter pointed out that 
specific seizures (convulsions) codes such as 780.31 (Febrile 
convulsion (simple), unspecified) and 780.32 (Complex febrile 
convulsions) are classified as a CC and to be consistent within the 
classification system, code 780.33 should also be classified as a CC.
    The commenter recommended further analysis for code 278.03 (Obesity 
hypoventilation syndrome) to determine if this condition meets the 
definition of a CC. The commenter pointed out that obesity 
hypoventilation syndrome is a condition where overweight patients 
cannot breathe appropriately resulting in low blood oxygen levels and 
high blood carbon dioxide levels. This condition puts a strain on the 
heart and lungs and may eventually lead to a more serious condition 
such as heart failure or respiratory failure. This condition would have 
to be closely monitored while the patient is in the hospital and may 
require respiratory treatment such as CPAP, BIPAP, or even mechanical 
ventilation depending on the severity of the condition. Such services 
involve intensive monitoring where, for example, in an intensive care 
unit, expensive and technically complex services or extensive care 
requiring a greater number of caregivers is required.
    Response: Our medical advisors agree with the commenter's 
assessment that both codes should be classified as CCs. Therefore, we 
are amending the proposed non-CC designation for both codes 788.03 and 
278.03 and classifying them as CCs in Table 6A. These changes are 
reflected in Table 6A in this final rule.
    Comment: Several commenters addressed the MS-DRG placement of new 
procedure code 35.97 (Percutaneous mitral valve repair with implant) 
that was created for use beginning on October 1, 2010. The commenters 
urged CMS to assign this code to the same MS-DRG as open surgery so 
that higher payment would result.
    Response: In addition to the MitraClip[supreg] device not yet being 
FDA approved, we have no claims data on which to evaluate such a MS-DRG 
assignment. However, the most important concept for denying these 
requests is that the MitraClip[supreg] device is delivered 
percutaneously. To assign this percutaneous procedure to MS-DRGs 
utilizing an open approach would not conform to the structure of the 
MS-DRGs, and disregards the concept of clinical coherence. We have no 
evidence-based data with which to justify any other MS-DRG assignment 
than those where the current percutaneous valve procedures are now 
assigned. Therefore, procedure code 35.97 is assigned to MS-DRGs 246, 
247, 248, 249, 250, and 251.
    Comment: Two comments urged CMS to assign new procedure code 37.37 
(Excision or destruction of other lesion or tissue of heart, 
thoracoscopic approach) to MS-DRGs 228, 229, and 230 (Other 
Cardiothoracic Procedure with MCC, with CC, and without CC/MCC, 
respectively).
    Response: CMS' practice has been, where practicable, to assign new 
ICD-9-CM codes to the same MS-DRG(s) as their predecessor codes. For 
this reason, procedure code 37.37 has been assigned to MS-DRGs 228, 
229, and 230, as described above.
    For codes that have been replaced by new or expanded codes, the 
corresponding new or expanded diagnosis codes are included in Table 6A 
in the Addendum to this final rule. New procedure codes are shown in 
Table 6B in the Addendum to this final rule. Diagnosis codes that have 
been replaced by expanded codes or other codes or have been deleted are 
in Table 6C (Invalid Diagnosis Codes) in the Addendum to this final 
rule. These invalid diagnosis codes will not be recognized by the 
GROUPER beginning with discharges occurring on or after October 1, 
2010. Table 6D in the Addendum to this final rule contains invalid 
procedure codes. These invalid procedure codes will not be recognized 
by the GROUPER beginning with discharges occurring on or after October 
1, 2010. Revisions to diagnosis code titles are in Table 6E (Revised 
Diagnosis Code Titles) in the Addendum to this final rule, which also 
includes the MS-DRG assignments for these revised codes. Table 6F in 
the Addendum to

[[Page 50124]]

this final rule includes revised procedure code titles for FY 2011.
    In the September 7, 2001 final rule implementing the IPPS new 
technology add-on payments (66 FR 46906), we indicated we would attempt 
to include proposals for procedure codes that would describe new 
technology discussed and approved at the Spring meeting as part of the 
code revisions effective the following October. As stated previously, 
ICD-9-CM codes discussed at the March 9-10, 2010 Committee meeting that 
receive consensus and that were finalized by May 2010 are included in 
Tables 6A through 6F in the Addendum to this final rule.
    Section 503(a) of Public Law 108-173 included a requirement for 
updating ICD-9-CM codes twice a year instead of a single update on 
October 1 of each year. This requirement was included as part of the 
amendments to the Act relating to recognition of new technology under 
the IPPS. Section 503(a) amended section 1886(d)(5)(K) of the Act by 
adding a clause (vii) which states that the ``Secretary shall provide 
for the addition of new diagnosis and procedure codes on April 1 of 
each year, but the addition of such codes shall not require the 
Secretary to adjust the payment (or diagnosis-related group 
classification) * * * until the fiscal year that begins after such 
date.'' This requirement improves the recognition of new technologies 
under the IPPS system by providing information on these new 
technologies at an earlier date. Data will be available 6 months 
earlier than would be possible with updates occurring only once a year 
on October 1.
    While section 1886(d)(5)(K)(vii) of the Act states that the 
addition of new diagnosis and procedure codes on April 1 of each year 
shall not require the Secretary to adjust the payment, or DRG 
classification, under section 1886(d) of the Act until the fiscal year 
that begins after such date, we have to update the DRG software and 
other systems in order to recognize and accept the new codes. We also 
publicize the code changes and the need for a mid-year systems update 
by providers to identify the new codes. Hospitals also have to obtain 
the new code books and encoder updates, and make other system changes 
in order to identify and report the new codes.
    The ICD-9-CM Coordination and Maintenance Committee holds its 
meetings in the spring and fall in order to update the codes and the 
applicable payment and reporting systems by October 1 of each year. 
Items are placed on the agenda for the ICD-9-CM Coordination and 
Maintenance Committee meeting if the request is received at least 2 
months prior to the meeting. This requirement allows time for staff to 
review and research the coding issues and prepare material for 
discussion at the meeting. It also allows time for the topic to be 
publicized in meeting announcements in the Federal Register as well as 
on the CMS Web site. The public decides whether or not to attend the 
meeting based on the topics listed on the agenda. Final decisions on 
code title revisions are currently made by March 1 so that these titles 
can be included in the IPPS proposed rule. A complete addendum 
describing details of all changes to ICD-9-CM, both tabular and index, 
is published on the CMS and NCHS Web sites in May of each year. 
Publishers of coding books and software use this information to modify 
their products that are used by health care providers. This 5-month 
time period has proved to be necessary for hospitals and other 
providers to update their systems.
    A discussion of this timeline and the need for changes are included 
in the December 4-5, 2005 ICD-9-CM Coordination and Maintenance 
Committee minutes. The public agreed that there was a need to hold the 
fall meetings earlier, in September or October, in order to meet the 
new implementation dates. The public provided comment that additional 
time would be needed to update hospital systems and obtain new code 
books and coding software. There was considerable concern expressed 
about the impact this new April update would have on providers.
    In the FY 2005 IPPS final rule, we implemented section 
1886(d)(5)(K)(vii) of the Act, as added by section 503(a) of Public Law 
108-173, by developing a mechanism for approving, in time for the April 
update, diagnosis and procedure code revisions needed to describe new 
technologies and medical services for purposes of the new technology 
add-on payment process. We also established the following process for 
making these determinations. Topics considered during the Fall ICD-9-CM 
Coordination and Maintenance Committee meeting are considered for an 
April 1 update if a strong and convincing case is made by the requester 
at the Committee's public meeting. The request must identify the reason 
why a new code is needed in April for purposes of the new technology 
process. The participants at the meeting and those reviewing the 
Committee meeting summary report are provided the opportunity to 
comment on this expedited request. All other topics are considered for 
the October 1 update. Participants at the Committee meeting are 
encouraged to comment on all such requests. There were no requests 
approved for an expedited April l, 2010 implementation of an ICD-9-CM 
code at the September 16-17, 2009 Committee meeting. Therefore, there 
were no new ICD-9-CM codes implemented on April 1, 2010.
    Current addendum and code title information is published on the CMS 
Web site at: http://www.cms.hhs.gov/icd9ProviderDiagnosticCodes/01_overview.asp#TopofPage. Information on ICD-9-CM diagnosis codes, along 
with the Official ICD-9-CM Coding Guidelines, can be found on the Web 
site at: http://www.cdc.gov/nchs/icd9.htm. Information on new, revised, 
and deleted ICD-9-CM codes is also provided to the AHA for publication 
in the Coding Clinic for ICD-9-CM. AHA also distributes information to 
publishers and software vendors.
    CMS also sends copies of all ICD-9-CM coding changes to its 
Medicare contractors for use in updating their systems and providing 
education to providers.
    These same means of disseminating information on new, revised, and 
deleted ICD-9-CM codes will be used to notify providers, publishers, 
software vendors, contractors, and others of any changes to the ICD-9-
CM codes that are implemented in April. The code titles are adopted as 
part of the ICD-9-CM Coordination and Maintenance Committee process. 
Thus, although we publish the code titles in the IPPS proposed and 
final rules, they are not subject to comment in the proposed or final 
rules. We will continue to publish the October code updates in this 
manner within the IPPS proposed and final rules. For codes that are 
implemented in April, we will assign the new procedure code to the same 
MS-DRG in which its predecessor code was assigned so there will be no 
MS-DRG impact as far as MS-DRG assignment. Any midyear coding updates 
will be available through the Web sites indicated above and through the 
Coding Clinic for ICD-9-CM. Publishers and software vendors currently 
obtain code changes through these sources in order to update their code 
books and software systems. We will strive to have the April 1 updates 
available through these Web sites 5 months prior to implementation 
(that is, early November of the previous year), as is the case for the 
October 1 updates.
b. Code Freeze
    The International Classification of Diseases, 10th Revision (ICD-
10) coding system applicable to hospital inpatient

[[Page 50125]]

services will be implemented on October 1, 2013, as described in the 
Health Insurance Portability and Accountability Act (HIPAA) 
Administrative Simplification: Modifications to Medical Data code Set 
Standards to Adopt ICD-10-CM and ICD-10-PCS final rule (74 FR 3328 
through 3362, January 16, 2009). The ICD-10 coding system includes the 
International Classification of Diseases, 10th Revision, Clinical 
Modification (ICD-10-CM) for diagnosis coding and the International 
Classification of Diseases, 10th Revision, Procedure Coding System 
(ICD-10-PCS) for inpatient hospital procedure coding, as well as the 
Official ICD-10-CM and ICM-10-PCS Guidelines for Coding and Reporting. 
In the January 16, 2009 ICD-10-CM and ICD-10-PCS final rule (74 FR 3328 
through 3362), there was a discussion of the need for a partial or 
total freeze in the annual updates to both ICD-9-CM and ICD-10-CM and 
ICD-10-PCS codes. The public comment addressed in that final rule 
stated that the annual code set updates should cease l year prior to 
the implementation of ICD-10. The commenters stated that this freeze of 
code updates would allow for instructional and/or coding software 
programs to be designed and purchased early, without concern that an 
upgrade would take place immediately before the compliance date, 
necessitating additional updates and purchases.
    We responded to comments in the ICD-10 final rule that the ICD-9-CM 
Coordination and Maintenance Committee has jurisdiction over any action 
impacting the ICD-9-CM and ICD-10 code sets. Therefore, the issue of 
consideration of a moratorium on updates to the ICD-9-CM, ICD-10-CM, 
and ICD-10-PCS code sets in anticipation of the adoption of ICD-10-CM 
and ICD-10-PCS would be addressed through the Committee at a future 
public meeting.
    At the March 11-12, 2009 ICD-9-CM Coordination and Maintenance 
Committee meeting, the public was notified that there would be a 
discussion of whether there was a need to freeze updates to ICD-9-CM 
and/or ICD-10-CM and ICD-10-PCS prior to the implementation of ICD-10. 
The audience was asked to consider this issue and be prepared to 
discuss the topic at the September 16-17, 2009 ICD-9-CM Coordination 
and Maintenance Committee meeting. Advance written comments on this 
topic were welcomed. The first part of the meeting was devoted to this 
topic.
    CMS received comments in advance of the meeting. CMS staff 
summarized these advanced comments at the meeting as follows:
    No ICD-9-CM or ICD-10-CM/PCS updates beginning October 1, 2010 (36 
months for implementation activities without annual code updates). This 
approach involves updating ICD-9-CM and ICD-10 codes on October 1, 
2010, and not updating them again until after ICD-10 implementation on 
October 1, 2013. The commenters mentioned the extensive work needed to 
prepare for the transition to ICD-10 which will affect vendors, payers, 
providers, trainers, clearinghouses, and all claims handling 
organizations. The commenters stated that the 36 months between the 
last ICD-9-CM and ICD-10 updates on October 1, 2010 and the 
implementation of ICD-10 on October 1, 2013, were necessary to prepare 
and train for the transition.
    No ICD-9-CM or ICD-10-CM/PCS updates beginning October 1, 2011 (24 
months for implementation activities without annual code updates). This 
approach involves updating ICD-9-CM and ICD-10 codes on October 1, 
2011, and not updating them again until after ICD-10 implementation on 
October 1, 2013. The commenters raised similar concerns to those 
mentioned above. The commenters stated that, if codes continue to 
change, the changes would make it difficult for vendors, payers, and 
providers to be ready and for coder training to be successful. One 
commenter suggested that a provision be developed to perform limited 
annual updates to capture new technologies or new diagnoses.
    No ICD-10-CM/PCS updates beginning October 1, 2012 but continue 
annual updates to ICD-9-CM. This commenter supported annual updates to 
ICD-9-CM to capture advances in medical science. However, the commenter 
supported a freeze of ICD-10 beginning October 1, 2012, to give the 
industry time to update systems and prepare for ICD-10 implementation.
    No ICD-10 updates on October 1, 2012, but update ICD-9-CM without 
interruption. (No period for implementation activities without annual 
code updates.) The commenter recommended no ICD-10 updates on October 
1, 2012, but then updating ICD-10 again on October 1, 2013. The 
commenter recommended updating ICD-9-CM continuously through a final 
update on October 1, 2012. The commenter stated that having a two or 
three year gap between updating the code books would lead to a loss of 
data. The commenter stated that there is a need to retain the ability 
to update the code books to capture conditions such as Swine flu.
    Update both ICD-9-CM and ICD-10-CM/PCS annually through October 1, 
2013 (no period for implementation activities without annual code 
updates). The commenter stated that codes should not be frozen prior to 
the implementation of ICD-10. The commenter stated that freezing the 
updates would inhibit the recognition of new technologies.
    Many of the commenters suggested a resumption of updates to ICD-10-
CM and ICD-10-PCS beginning on October 1, 2014. However, one commenter 
suggested annual updates of ICD-10-CM and ICD-10-PCS without 
interruptions, including on October 1, 2013.
    The topic was then opened for public discussion at the Committee 
meeting. CMS received a variety of comments from the participants that 
mirrored the advance written comments. These comments ranged from those 
supporting a complete freeze for both coding systems to those who 
recommended that both coding systems continue to be updated annually 
prior to ICD-10 implementation. There were also many comments that 
supported a more limited update process beginning on October 1, 2011, 
or October 1, 2012, which would allow only a small number of new codes 
to capture new technologies or new diseases. A number of commenters 
pointed out that section 503(a) of Public Law 108-173 included a 
requirement for updating ICD-9-CM codes twice a year to capture new 
technologies. The commenters stated that CMS must make a provision to 
capture new technologies despite any requests to freeze code updates.
    Commenters voiced concerns about the impact on vendors creating new 
ICD-10 products when both ICD-9-CM and ICD-10-CM and ICD-10-PCS codes 
were extensively updated on an annual basis. Commenters stated that 
vendors and educators were reluctant to begin ICD-10 products and 
training materials until there was a period of stability without 
extensive annual updates. Some commenters stated that it was important 
for physician offices to have time to prepare for the implementation of 
ICD-10. Reducing the annual ICD-9-CM and ICD-10 annual updates would be 
helpful to physician offices.
    Other commenters stated that it was important to update codes 
annually so that information on new diseases and technologies can be 
captured. These commenters stated that vendors, providers, system 
maintainers, and coders were used to annual code updates, and that they 
should continue.
    One commenter requested that ICD-10-CM codes be frozen on October 
1,

[[Page 50126]]

2011 so that ICD-10-CM codes could be coordinated with the Diagnostic 
and Statistical Manual of Mental Disorders (DSM), Fifth Edition. The 
commenter stated that the American Psychiatric Association plans to 
publish the fifth edition in 2012. Updates to ICD-10-CM on or after 
October 1, 2011, would disrupt those plans.
    One commenter suggested an approach that would greatly reduce the 
number of updates and provide more stability in the coding systems 
during the implementation period. This commenter suggested that the 
large, regular code updates on ICD-9-CM be discontinued beginning on 
October 1, 2011, or October 1, 2012. The commenter suggested that CMS 
and CDC raise the bar for new code requests at that time and only 
consider requests for new codes that clearly describe a new technology 
or a new disease. The commenter stated that this may lead to the 
creation of some new procedure codes which do not ultimately receive 
FDA approval, as is the case now.
    CMS and CDC have carefully reviewed the comments received at the 
ICD-9-CM Coordination and Maintenance Committee meeting as well as the 
written comments submitted. Most commenters proposed a limited freeze 
on code updates to both ICD-9-CM and ICD-10-CM and ICD-10-PCS code 
sets, with an exception made for adding codes for new technologies and 
diseases. Providing this exception would comply with section 503(a) of 
Public Law 108-173, which, as previously stated, includes a requirement 
for updating ICD-9-CM codes twice a year to capture new technologies. 
There was support for making the last regular update on October 1, 
2011. The commenters recommended that the ICD-9-CM Coordination and 
Maintenance Committee continue to discuss any new code updates for both 
coding systems. However, new codes would only be added to ICD-9-CM or 
ICD-10 to capture new technologies, as required by section 503(a) of 
Public Law 108-173. Other coding issues raised would be held for 
consideration after ICD-10 is implemented.
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23913), we 
solicited additional input on this subject, especially in light of the 
requirements on hospitals for meaningful use of electronic health 
records. We welcomed public comments that explore whether a freeze is 
needed to help with adoption of health IT, given other priorities such 
as achievement of meaningful use and implementation of ICD-10 by FY 
2013. We welcomed input on having the last regular, annual update to 
both ICD-9-CM and ICD-10 be made on October 1, 2011. On October 1, 
2012, there would be only limited code updates to both the ICD-9-CM and 
ICD-10 coding systems to capture new technologies and diseases. On 
October 1, 2013, there would be only limited code updates to ICD-10 to 
capture new technologies and diagnoses. Any other issues raised would 
be considered for implementation in ICD 10 on October 1, 2014, a year 
after ICD-10 is implemented. We agree with commenters that there is a 
need to provide the provider, payer, and vendor community time to 
prepare for the implementation of ICD-10 and the accompanying system 
and product updates. The vendor community is especially interested in 
providing a more stable code set for ICD-10 while they are developing 
new products.
    Comment: A number of commenters supported the recommendation that 
the last regular update to ICD-9-CM and ICD-10-CM/PCS be implemented on 
October 1, 2011, with only limited code updates to both ICD-9-CM and 
ICD-10-CM/PCS on October 1, 2012, to capture new technologies and 
procedures as well as new diseases. Commenters stated that successful 
implementation of ICD-10 will require significant planning, education, 
and systems modifications. Continuing regular updates to ICD-9-CM and 
ICD-10-CM/PCS would make the implementation of these new coding systems 
more costly and complex. The commenters recommended that updates 
occurring on October 1, 2012, be limited to proposals for urgently 
needed codes. They stated that such proposals should make a ``clear and 
convincing'' case to the ICD-9-CM Coordination and Maintenance 
Committee, including public comment as to why the proposal cannot wait 
for the next regularly scheduled updates. An example of the emergence 
of a new disease such as H1N1 influenzas was provided.
    Several commenters who supported the limited freeze stated that, by 
accommodating the process for the capture of new technologies and 
disease during this period, CMS is not only in compliance with section 
503(a) of Public Law 108-173 requirements for new technology, but also 
anticipates that new diagnosis codes may be needed to capture new 
diseases, as we have seen with the Avian and H1N1 influenzas. The 
commenters called this a thoughtful approach which should allow the 
freeze of code sets while still accommodating new codes for new 
technologies and procedures as well as urgent needs to capture new 
diseases. Several commenters also stated that most practicing 
physicians and their staff have not had sufficient opportunity to 
become familiar with ICD-10-CM. They believed that this freeze will 
allow physicians and physician specialty groups a better opportunity to 
become familiar with the codes common to their specialty prior to the 
implementation of ICD-10. Other comments who supported the 
recommendations for a limited code freeze recommended that CMS and CDC 
develop strict criteria that a code proposal must meet in order to 
qualify for the limited update during the freeze period.
    Several commenters recommended that there be no updates to ICD-10-
CM/PCS on October 1, 2013, unless absolutely necessary. They indicated 
that an example of an urgent need was that of a pandemic that could not 
be otherwise reported with existing codes. The commenters stated that 
they understood the statutory requirements for add-on payments for new 
technology under the inpatient payment system, and urged CMS to 
consider alternative solutions to recognize such new technologies. 
Other commenters opposed any ICD-10 code updates on October 1, 2013. 
The commenters stated that a total freeze was needed on October 1, 
2013, to enable users of the classification system the opportunity to 
prepare for ICD-10.
    One commenter who strongly supported the limited freeze offered an 
example of the possible impact of not pursuing a code freeze would have 
on its organization. This organization is currently working with 
clients to complete the necessary software updates for the adoption of 
ICD-10 by early next year. Based on its analysis, the work is not 
confined to systems but also involves coding and billing activities for 
healthcare claims. The commenter stated that there would be an impact 
on physician documentation, problem lists, decision support, 
laboratory, emergency department, radiology, nursing, scheduling, 
registration management, and other internal systems. The commenter 
opined that, by continuing regular code updates without a freeze, they 
would have to rework activities and spend cycle time doing maintenance 
updates to software and content updates they had already performed to 
include additional annual code updates. The ICD-10 updates they make 
will need to be tested and maintenance activities performed to build 
the necessary reference data to support production adoption of ICD-10.
    One commenter strongly opposed the partial freeze for FY 2012. The

[[Page 50127]]

commenter stated that accurate, specific code assignment is a 
prerequisite for accurate physician and hospital profiling and value-
based purchasing. The commenter stated that ICD-10-CM is an imperfect 
system and that refinements to ICD-9-CM should be carried over to ICD-
10 prior to its implementation date of October 1, 2013. The commenter 
urged CMS to continue to work on refining ICD-10. Another commenter 
opposed any freeze of ICD-9-CM or ICD-10 codes. The commenter stated 
that codes should continue to be updated as usual each year so that 
physician and hospital efficiency can be more accurately measured with 
accurate codes.
    Several commenters supported the limited freeze, but requested that 
the last regular code updates be on October 1, 2012, instead of 2011. 
The commenters stated that a 3-year freeze from October 1, 2011 through 
October 1, 2014 was overly long.
    Response: We will review all comments received on the partial 
freeze as part of the ICD-9-CM Coordination and Maintenance Committee 
process as well as these additional comments received and summarized 
above. A final decision on whether or not there will be a partial code 
freeze will be announced at the September 15-16, 2010 ICD-9-CM 
Coordination and Maintenance Committee. An agenda for this meeting will 
be posted on the CMS Web site by mid-August 2010 at http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp.
    We believe that this advance notice of a partial code freeze 
provides the health care industry ample time to request last major code 
updates to ICD-9-CM and ICD-10, which could be discussed at the 
September 15-16, 2010 and the March 2011 ICD-9-CM Coordination and 
Maintenance Committee meeting. Codes discussed at these two meetings 
would be considered for the final major code updates on October 1, 
2011. Any code issues raised after that time would be addressed at the 
ICD-9-CM Coordination and Maintenance Committee meetings in September 
2011 through March 2013 to determine if they represented new 
technologies or new diseases. Any new technologies and diseases would 
be added during the regular annual updates. Other code requests would 
be held for implementation on October 1, 2014.
    We welcome additional input on having the last regular code updates 
to ICD-9-CM and ICD-10 on October 1, 2011, and to only add codes for 
new technologies and diseases on October 1, 2012 and 2013. We also 
welcome additional input on having the next regular update to ICD-10 
occur again on October 1, 2014.
    Information on ICD-10 can be found on the CMS Web site at: http://www.cms.hhs.gov/ICD10. The final ICD-10 version of MS-DRGs would be 
adopted under the formal rulemaking process as part of our annual IPPS 
updates.
c. Processing of 25 Diagnosis Codes and 25 Procedure Codes on Hospital 
Inpatient Claims
    We have received repeated requests from the hospital community to 
process all 25 diagnosis codes and 25 procedure codes submitted on 
electronic hospital inpatient claims. Hospitals can submit up to 25 
diagnoses and 25 procedures; however, CMS' current system limitations 
allow for the processing of only the first 9 diagnoses and 6 
procedures. While CMS accepts all 25 diagnoses and 25 procedures 
submitted on the claims, we do not process all of the codes because of 
these system limitations. We recognize that much valuable information 
is lost by not processing the additional diagnosis and procedure codes 
that are reported by hospitals.
    We responded to hospitals' requests that we process up to 25 
diagnosis codes and 25 procedure codes in the FY 2010 IPPS/RY 2010 LTCH 
PPS final rule (74 FR 43798). In that final rule, we referred readers 
to the ICD-10 final rule (74 FR 3328 through 3362) where we discuss the 
updating of Medicare systems prior to the implementation of ICD-10 on 
October 1, 2013. We mentioned that part of the system updates in 
preparation for ICD-10 is the ``expansion of our ability to process 
more diagnosis and procedure codes.'' In the FY 2009 IPPS final rule 
(73 FR 48433 through 48444), we also responded to multiple requests to 
increase the number of codes processed from 9 diagnosis and 6 procedure 
codes to 25 diagnosis and 25 procedure codes.
    CMS is currently undergoing extensive system updates as part of the 
move to 5010, which includes the ability to accept ICD-10 codes. This 
complicated transition involves converting many internal systems prior 
to October 1, 2013, when ICD-10 will be implemented. One important step 
in this planned conversion process is the expansion of our ability to 
process additional diagnosis and procedure codes. We are currently 
planning to complete the expansion of this internal system capability 
so that we are able to process up to 25 diagnoses and 25 procedures on 
hospital inpatient claims as part of the HIPPA ASC X12 Technical 
Reports Type 3, Version 005010 (Version 5010) standards system update. 
CMS will be able to process up to 25 diagnosis codes and 25 procedure 
codes when received on the 5010 format starting on January 1, 2011. We 
recognize the value of the additional information provided by this 
coded data for multiple uses such as for payment, quality measures, 
outcome analysis, and other important uses. We will continue to pursue 
this additional processing capacity as aggressively as possible in 
response to the multiple requests from the hospital industry. We 
appreciate the support of the health care community for this extensive 
system update process that will allow us to process more of this 
important data. Therefore, for claims submitted on the 5010 format 
beginning January 1, 2011, we will increase the capacity to process 
diagnosis and procedure codes on hospital inpatient claims from the 
current 9 diagnoses and 6 procedures up to 25 diagnoses and 25 
procedures.
    Comment: Several commenters commended CMS on its plans to accept 
and process up to 25 diagnoses and 25 procedures on hospital inpatient 
claims submitted on the 5010 format beginning January 1, 2011. One 
commenter expressed appreciation for CMS' recognition that a complete 
picture of patients' clinical conditions and procedures is necessary in 
order to accurately measure quality, analyze outcomes, assess severity 
of illness, and determine reimbursement.
    Response: We appreciate the support for our plan to accept and 
process up to 25 diagnoses and 25 procedures on hospital inpatient 
claims submitted on the 5010 format beginning January 1, 2011. We will 
keep the providers updated on our progress in this activity.
ICD-10 MS-DRGs
    We received comments on the creation of the ICD-10 version of the 
MS-DRGs, which will be implemented on October 1, 2013 (FY 2014) when we 
implement the reporting of ICD-10 codes. While we did not propose an 
ICD-10 version of the MS-DRGs, CMS has 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. CMS 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 V26.0 
(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 our Web site at: http://www.cms.gov/ICD10/[[Page 50128]]17_ICD10_MS_DRG_Conversion_Project.asp. We will continue to keep 
the public updated on our maintenance efforts for ICD-10-CM and ICD-10-
PCS coding systems as well as the General Equivalence Mappings that 
assist in conversion through the ICD-9-CM Coordination and Maintenance 
Committee. Information on these committee meetings can be found at: 
http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp.
    Comment: Several commenters recommended that the ICD-10 MS-DRG 
GROUPER logic be available no later than the FY 2013 rulemaking period, 
with an extended public comment period in order to allow providers 
sufficient time to analyze and model the proposed MS-DRG groupings 
prior to its implementation on October 1, 2013.
    Response: CMS initiated early efforts to convert the MS-DRGs from 
ICD-9-CM codes to ICD-10 codes. As discussed earlier, the public was 
informed of this project through the ICD-9-CM Coordination and 
Maintenance Committee. Summary reports of those meetings where this 
ICD-10 conversion of MS-DRGs took place can be found at http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp. Currently, we 
have Version 26.0 of the ICD-10 MS-DRGs posted for public review. 
During FY 2011, we will post Version 28.0 of the ICD-10 MS-DRGS based 
on the FY 2011 MS-DRGs (Version 28.0) that we are finalizing in this 
final rule. This ICD-10 MS-DRG Version 28.0 will also include the CC 
Exclusion List, which was not posted with Version 26.0. We will be 
discussing this update at the September 15-16, 2010 ICD-9-CM 
Coordination and Maintenance Committee Meeting. A complete agenda for 
this meeting will be posted in mid-August 2010 at: http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp. The registration site for 
the meeting will open on August 13, 2010. 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 to be 
implemented in FY 2014 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.
12. Other Issues Not Addressed in the Proposed Rule
    We received a number of public comments on issues that were not 
within the scope of the proposals in the FY 2011 IPPS/LTCH PPS proposed 
rule.
a. Rechargeable Dual Array Deep Brain Stimulation System
    We received a public comment requesting that CMS assign the 
combination of procedure codes representing rechargeable systems for 
deep brain stimulation therapy, code 02.93 (Implantation or replacement 
of intracranial neurostimulator lead(s)), and code 86.98 (Insertion or 
replacement of dual array rechargeable neurostimulator pulse generator) 
to MS-DRGs 023 and 024 (Craniotomy with Major Device Implant/Acute 
Complex CNS PDX with MCC or Chemo Implant and Craniotomy with Major 
Device Implant/Acute Complex CNS PDX without MCC, respectively). The 
commenter stated that this would allow all full system dual array deep 
brain stimulation cases to be appropriately grouped to the same MS-
DRGs. The commenter stated that the procedures to implant the 
rechargeable and nonrechargeable dual array systems are similar 
clinically and with respect to resource utilization. Currently, codes 
02.93 and 86.98 are assigned to MS-DRGs 025 through 027 (Craniotomy and 
Endovascular Intracranial Procedures with MCC, Craniotomy and 
Endovascular Intracranial Procedures with CC, and Craniotomy and 
Endovascular Intracranial Procedures without MCC/CC, respectively).
    This comment is outside the scope of the FY 2011 IPPS/LTCH PPS 
proposed rule, as we did not propose any changes to MS-DRGs 023 and 024 
for rechargeable systems for deep brain stimulation therapy. Therefore, 
we are not addressing this issue for FY 2011. As we stated in FY 2011 
IPPS/LTCH PPS proposed rule (75 FR 23864), we encourage individuals 
with comments about MS-DRG classifications to submit these comments no 
later than early December of each year so they can be carefully 
considered for possible inclusion in the annual proposed rule and, if 
included, may be subject to public review and comment.
b. IntraOperative Electron RadioTherapy (IOERT)
    We received a public comment requesting that CMS update the MS-DRG 
mapping assignments for procedure code 92.41 (Intra-operative electron 
radiation therapy) to ensure the cost of this technology is captured in 
each MS-DRG involving tumor removal in the rectum, head/neck, pancreas, 
lung, genitourinary, soft tissue, and breast. IntraOperative Electron 
RadioTherapy (IOERT) is the direct application of radiation to a tumor 
and/or tumor bed while the patient is undergoing surgery for cancer. 
Currently, this code is not assigned to a specific MS-DRG.
    This comment is outside the scope of the FY 2011 IPPS/LTCH PPS 
proposed rule, as we did not propose any changes to the MS-DRG for 
IOERT. We refer the commenter to section II.B.2 of the proposed rule 
(75 FR 23864) where we discuss the timeline for submission of comments 
about MS-DRG classifications.
c. Brachytherapy
    We received a public comment requesting that CMS assign procedure 
code 92.27 (Implantation or insertion of radioactive elements) to 
various MS-DRGs where the use of brachytherapy sources has been 
expanded. In addition, it was recommended that appropriate separate 
payment for the brachytherapy sources be allowed so that hospitals may 
be reimbursed appropriately for the unique source cost per patient. 
Brachytherapy, also called seed implantation, involves placing 
radioactive sources in or near the tumor either as a permanent or 
temporary implant.
    This comment is outside the scope of the FY 2011 IPPS/LTCH PPS 
proposed rule, as we did not propose any changes to the MS-DRG for 
brachytherapy. We refer the commenter to section II.B.2 of the proposed 
rule (75 FR 23864) where we discuss the timeline for submission of 
comments about MS-DRG classifications.
d. Excisional Debridement
    We received a public comment recommending that procedure code 86.22 
(Excisional debridement of wound, infection, or burn) be reclassified 
from an OR procedure to a non-OR procedure. The commenter stated that 
many excisional debridements are not performed in the operating room 
setting, but instead are done in wound clinics, physician offices, and 
in patient rooms. The commenter interpreted the classification of code 
86.22 to be that of a proxy for severity of illness before MS-DRGs were 
implemented. With the more serious pressure ulcers, Stages 3 and 4, 
being classified as MCCs, according to the commenter, the need to 
classify code 86.22 as an OR is no longer necessary.
    This comment is outside the scope of the FY 2011 IPPS/LTCH PPS 
proposed rule, as we did not propose any changes for excisional 
debridement. We refer the commenter to section II.B.2 of the proposed 
rule (75 FR 23864) where we discuss the timeline for submission of

[[Page 50129]]

comments about MS-DRG classifications.

H. Recalibration of MS-DRG Weights

    As we proposed, in developing the FY 2011 system of weights, we 
used two data sources: Claims data and cost report data. As in previous 
years, the claims data source is the MedPAR file. This file is based on 
fully coded diagnostic and procedure data for all Medicare inpatient 
hospital bills. The FY 2009 MedPAR data used in this final rule include 
discharges occurring on October 1, 2008, through September 30, 2009, 
based on bills received by CMS through March 31, 2010, from all 
hospitals subject to the IPPS and short-term, acute care hospitals in 
Maryland (which are under a waiver from the IPPS under section 
1814(b)(3) of the Act). The FY 2009 MedPAR file used in calculating the 
proposed relative weights includes data for approximately 10,898,371 
Medicare discharges from IPPS providers. Discharges for Medicare 
beneficiaries enrolled in a Medicare Advantage managed care plan are 
excluded from this analysis. The data exclude CAHs, including hospitals 
that subsequently became CAHs after the period from which the data were 
taken. The second data source used in the cost-based relative weighting 
methodology is the FY 2008 Medicare cost report data files from HCRIS 
(that is, cost reports beginning on or after October 1, 2007, and 
before October 1, 2008), which represents the most recent full set of 
cost report data available. We used the March 31, 2010 update of the 
HCRIS cost report files for FY 2008 in setting the relative cost-based 
weights.
    The methodology we used to calculate the DRG cost-based relative 
weights from the FY 2009 MedPAR claims data and FY 2008 Medicare cost 
report data is as follows:
     To the extent possible, all the claims were regrouped 
using the proposed FY 2011 MS-DRG classifications discussed in sections 
II.B. and G. of the preamble of this final rule.
     The transplant cases that were used to establish the 
relative weights for heart and heart-lung, liver and/or intestinal, and 
lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively) 
were limited to those Medicare-approved transplant centers that have 
cases in the FY 2009 MedPAR file. (Medicare coverage for heart, heart-
lung, liver and/or intestinal, and lung transplants is limited to those 
facilities that have received approval from CMS as transplant centers.)
     Organ acquisition costs for kidney, heart, heart-lung, 
liver, lung, pancreas, and intestinal (or multivisceral organs) 
transplants continue to be paid on a reasonable cost basis. Because 
these acquisition costs are paid separately from the prospective 
payment rate, it is necessary to subtract the acquisition charges from 
the total charges on each transplant bill that showed acquisition 
charges before computing the average cost for each MS-DRG and before 
eliminating statistical outliers.
     Claims with total charges or total lengths of stay less 
than or equal to zero were deleted. Claims that had an amount in the 
total charge field that differed by more than $10.00 from the sum of 
the routine day charges, intensive care charges, pharmacy charges, 
special equipment charges, therapy services charges, operating room 
charges, cardiology charges, laboratory charges, radiology charges, 
other service charges, labor and delivery charges, inhalation therapy 
charges, emergency room charges, blood charges, and anesthesia charges 
were also deleted.
     At least 96.1 percent of the providers in the MedPAR file 
had charges for 10 of the 15 cost centers. Claims for providers that 
did not have charges greater than zero for at least 10 of the 15 cost 
centers were deleted.
     Statistical outliers were eliminated by removing all cases 
that were beyond 3.0 standard deviations from the mean of the log 
distribution of both the total charges per case and the total charges 
per day for each MS-DRG.
     Effective October 1, 2008, because hospital inpatient 
claims include a POA indicator field for each diagnosis present on the 
claim, only for purposes of relative weight-setting, the POA indicator 
field was reset to ``Y'' for ``Yes'' for all claims that otherwise have 
an ``N'' (No) or a ``U'' (documentation insufficient to determine if 
the condition was present at the time of inpatient admission) in the 
POA field.
    Under current payment policy, the presence of specific HAC codes, 
as indicated by the POA field values, can generate a lower payment for 
the claim. Specifically, if the particular condition is present on 
admission (that is, a ``Y'' indicator is associated with the diagnosis 
on the claim), then it is not a HAC, and the hospital is paid for the 
higher severity (and, therefore, the higher weighted MS-DRG). If the 
particular condition is not present on admission (that is, an ``N'' 
indicator is associated with the diagnosis on the claim) and there are 
no other complicating conditions, the DRG GROUPER assigns the claim to 
a lower severity (and, therefore, the lower weighted MS-DRG) as a 
penalty for allowing a Medicare inpatient to contract a HAC. While the 
POA reporting meets policy goals of encouraging quality care and 
generates program savings, it presents an issue for the relative 
weight-setting process. Because cases identified as HACs are likely to 
be more complex than similar cases that are not identified as HACs, the 
charges associated with HACs are likely to be higher as well. Thus, if 
the higher charges of these HAC claims are grouped into lower severity 
MS-DRGs prior to the relative weight-setting process, the relative 
weights of these particular MS-DRGs would become artificially inflated, 
potentially skewing the relative weights. In addition, we want to 
protect the integrity of the budget neutrality process by ensuring 
that, in estimating payments, no increase to the standardized amount 
occurs as a result of lower overall payments in a previous year that 
stem from using weights and case-mix that are based on lower severity 
MS-DRG assignments. If this would occur, the anticipated cost savings 
from the HAC policy would be lost.
    To avoid these problems, we reset the POA indicator field to ``Y'' 
only for relative weight-setting purposes for all claims that otherwise 
have a ``N'' or an ``U'' in the POA field. This resetting ``forced'' 
the more costly HAC claims into the higher severity MS-DRGs as 
appropriate, and the relative weights calculated for each MS-DRG more 
closely reflect the true costs of those cases.
    Once the MedPAR data were trimmed and the statistical outliers were 
removed, the charges for each of the 15 cost groups for each claim were 
standardized to remove the effects of differences in area wage levels, 
IME and DSH payments, and for hospitals in Alaska and Hawaii, the 
applicable cost-of-living adjustment. Because hospital charges include 
charges for both operating and capital costs, we standardized total 
charges to remove the effects of differences in geographic adjustment 
factors, cost-of-living adjustments, and DSH payments under the capital 
IPPS as well. Charges were then summed by MS-DRG for each of the 15 
cost groups so that each MS-DRG had 15 standardized charge totals. 
These charges were then adjusted to cost by applying the national 
average CCRs developed from the FY 2008 cost report data.
    The 15 cost centers that we used in the relative weight calculation 
are shown in the following table. The table shows the lines on the cost 
report and the corresponding revenue codes that

[[Page 50130]]

we used to create the 15 national cost center CCRs.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR16AU10.022

[[Page 50131]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.023

[[Page 50132]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.024

[[Page 50133]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.025

[[Page 50134]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.026

[[Page 50135]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.027

[[Page 50136]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.028

BILLING CODE 4120-01-C
    We developed the national average CCRs as follows:
    Taking the FY 2008 cost report data, we removed CAHs, Indian Health 
Service hospitals, all-inclusive rate hospitals, and cost reports that 
represented time periods of less than 1 year (365 days). We included 
hospitals located in Maryland as we are including their charges in our 
claims database. We then created CCRs for each provider for each cost 
center (see prior table for line items used in the calculations) and 
removed any CCRs that were greater than 10 or less than 0.01. We 
normalized the departmental CCRs by dividing the CCR for each 
department by the total CCR for the hospital for the purpose of 
trimming the data. We then took the logs of the normalized cost center 
CCRs and removed any cost center CCRs where the log of the cost center 
CCR was greater or less than the mean log plus/minus 3 times the 
standard deviation for the log of that cost center CCR. Once the cost 
report data were trimmed, we calculated a Medicare-specific CCR. The 
Medicare-specific CCR was determined by taking the Medicare charges for 
each line item from Worksheet D-4 and deriving the Medicare-specific 
costs by applying the hospital-specific departmental CCRs to the 
Medicare-specific charges for each line item from Worksheet D-4. Once 
each hospital's Medicare-specific costs were established, we summed the 
total Medicare-specific costs and divided by the sum of the total 
Medicare-specific charges to produce national average, charge-weighted 
CCRs.
    After we multiplied the total charges for each MS-DRG in each of 
the 15 cost centers by the corresponding national average CCR, we 
summed the 15 ``costs'' across each MS-DRG to produce a total 
standardized cost for the MS-DRG. The average standardized cost for 
each MS-DRG was then computed as the total standardized cost for the 
MS-DRG divided by the transfer-adjusted case count for the MS-DRG. The 
average cost for each MS-DRG was then divided by the national average 
standardized cost per case to determine the relative weight.
    The new cost-based relative weights were then normalized by an 
adjustment factor of 1.57489 so that the average case weight after 
recalibration was equal to the average case weight before 
recalibration. The normalization adjustment is intended to ensure that 
recalibration by itself neither increases nor decreases total payments 
under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act.
    The 15 national average CCRs for FY 2011 are as follows:

------------------------------------------------------------------------
                             Group                                 CCR
------------------------------------------------------------------------
Routine Days..................................................     0.539
Intensive Days................................................     0.473
Drugs.........................................................     0.202
Supplies & Equipment..........................................     0.345
Therapy Services..............................................     0.403
Laboratory....................................................     0.155
Operating Room................................................     0.272
Cardiology....................................................     0.169
Radiology.....................................................     0.152
Emergency Room................................................     0.263
Blood and Blood Products......................................     0.415
Other Services................................................     0.416
Labor & Delivery..............................................     0.470
Inhalation Therapy............................................     0.200
Anesthesia....................................................     0.128
------------------------------------------------------------------------

    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 the FY 2011 IPPS/LTCH PPS proposed rule 
(75 FR 23922), we proposed to use that same case threshold in 
recalibrating the MS-DRG weights for FY 2011. Using the FY 2009 MedPAR 
data set, there are 8 MS-DRGs that contain fewer than 10 cases. Under 
the MS-DRGs, we have fewer low-volume DRGs than under the CMS DRGs 
because we no longer have separate DRGs for patients age 0 to 17 years. 
With the exception of newborns, we previously separated some DRGs based 
on whether the patient was age 0 to 17 years or age 17 years and older. 
Other than the age split, cases grouping to these DRGs are identical. 
The DRGs for patients age 0 to 17 years generally have very low volumes 
because children are typically ineligible for Medicare. In the past, we 
have found that the low volume of cases for the pediatric DRGs could 
lead to significant year-to-year instability in their relative weights. 
Although we have always encouraged non-Medicare payers to develop 
weights applicable to their own patient populations, we have heard 
frequent complaints from providers about the use of the Medicare 
relative weights in the pediatric population. We believe that 
eliminating this age split in the MS-DRGs will provide more stable 
payment for pediatric cases by determining their payment using adult 
cases that are much higher in total volume. Newborns are unique and 
require separate MS-DRGs that are not mirrored in the adult population. 
Therefore, it remains necessary to retain separate MS-DRGs for 
newborns. All of the low-volume MS-DRGs listed below are for newborns. 
In FY 2011, because we do not have sufficient MedPAR data to set 
accurate and stable cost weights for these low-volume MS-DRGs, we 
proposed to compute weights for the low-volume MS-DRGs by adjusting 
their FY 2010 weights by the percentage change in the average weight of 
the cases in other MS-DRGs. The crosswalk table is shown below:

[[Page 50137]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.029

    We did not receive any public comment on this section. Therefore, 
we are adopting the national average CCRs as proposed, with the MS-DRG 
weights recalibrated based on these CCRs.

I. Add-On Payments for New Services and Technologies

1. Background
    Sections 1886(d)(5)(K) and (L) of the Act establish a process of 
identifying and ensuring adequate payment for new medical services and 
technologies (sometimes collectively referred to in this section as 
``new technologies'') under the IPPS. Section 1886(d)(5)(K)(vi) of the 
Act specifies that a medical service or technology will be considered 
new if it meets criteria established by the Secretary after notice and 
opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act 
specifies that a new medical service or technology may be considered 
for new technology add-on payment if, ``based on the estimated costs 
incurred with respect to discharges involving such service or 
technology, the DRG prospective payment rate otherwise applicable to 
such discharges under this subsection is inadequate.'' We note that 
beginning with FY 2008, CMS transitioned from CMS-DRGs to MS-DRGs.
    The regulations implementing these provisions specify three 
criteria for a new medical service or technology to receive the 
additional payment: (1) The medical service or technology must be new; 
(2) the medical service or technology must be costly such that the DRG 
rate otherwise applicable to discharges involving the medical service 
or technology is determined to be inadequate; and (3) the service or 
technology must demonstrate a substantial clinical improvement over 
existing services or technologies. These three criteria are explained 
below in the ensuing paragraphs in further detail.
    Under the first criterion, as reflected in 42 CFR 412.87(b)(2), a 
specific medical service or technology will be considered ``new'' for 
purposes of new medical service or technology add-on payments until 
such time as Medicare data are available to fully reflect the cost of 
the technology in the MS-DRG weights through recalibration. Typically, 
there is a lag of 2 to 3 years from the point a new medical service or 
technology is first introduced on the market (generally on the date 
that the technology receives FDA approval/clearance) and when data 
reflecting the

[[Page 50138]]

use of the medical service or technology are used to calculate the MS-
DRG weights. For example, data from discharges occurring during FY 2009 
are used to calculate the FY 2011 MS-DRG weights in this final rule. 
Section 412.87(b)(2) of the regulations therefore provides that ``a 
medical service or technology may be considered new within 2 or 3 years 
after the point at which data begin to become available reflecting the 
ICD-9-CM code assigned to the new medical service or technology 
(depending on when a new code is assigned and data on the new medical 
service or technology become available for DRG recalibration). After 
CMS has recalibrated the MS-DRGs, based on available data to reflect 
the costs of an otherwise new medical service or technology, the 
medical service or technology will no longer be considered `new' under 
the criterion for this section.''
    The 2-year to 3-year period during which a medical service or 
technology can be considered new would ordinarily begin on the date on 
which the medical service or technology received FDA approval or 
clearance. (We note that, for purposes of this section of this final 
rule, we generally refer to both FDA approval and FDA clearance as FDA 
``approval.'') However, in some cases, there may be few to no Medicare 
data available for the new service or technology following FDA 
approval. For example, the newness period could extend beyond the 2-
year to 3-year period after FDA approval is received in cases where the 
product initially was generally unavailable to Medicare patients 
following FDA approval, such as in cases of a national noncoverage 
determination or a documented delay in bringing the product onto the 
market after that approval (for instance, component production or drug 
production has been postponed following FDA approval due to shelf life 
concerns or manufacturing issues). After the MS-DRGs have been 
recalibrated to reflect the costs of an otherwise new medical service 
or technology, the medical service or technology is no longer eligible 
for special add-on payment for new medical services or technologies (as 
specified under Sec.  412.87(b)(2)). For example, an approved new 
technology that received FDA approval in October 2008 and entered the 
market at that time may be eligible to receive add-on payments as a new 
technology for discharges occurring before October 1, 2011 (the start 
of FY 2012). Because the FY 2012 MS-DRG weights would be calculated 
using FY 2010 MedPAR data, the costs of such a new technology would be 
fully reflected in the FY 2012 MS-DRG weights. Therefore, the new 
technology would no longer be eligible to receive add-on payments as a 
new technology for discharges occurring in FY 2012 and thereafter.
    We do not consider a service or technology to be new if it is 
substantially similar to one or more existing technologies. That is, 
even if a technology receives a new FDA approval, it may not 
necessarily be considered ``new'' for purposes of new technology add-on 
payments if it is ``substantially similar'' to a technology that was 
approved by FDA and has been on the market for more than 2 to 3 years. 
In the FY 2006 IPPS final rule (70 FR 47351), we explained our policy 
regarding substantial similarity in detail and its relevance for 
assessing if the hospital charge data used in the development of the 
relative weights for the relevant DRGs reflect the costs of the 
technology. In that final rule, we stated that, for determining 
substantial similarity, we consider (1) whether a product uses the same 
or a similar mechanism of action to achieve a therapeutic outcome, and 
(2) whether a product is assigned to the same or a different DRG. We 
indicated that both of the above criteria should be met in order for a 
technology to be considered ``substantially similar'' to an existing 
technology. However, in that same final rule, we also noted that, due 
to the complexity of issues regarding the substantial similarity 
component of the newness criterion, it may be necessary to exercise 
flexibility when considering whether technologies are substantially 
similar to one another. Specifically, we stated that we may consider 
additional factors, depending on the circumstances specific to each 
application.
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43813 and 
43814), we noted that the discussion of substantial similarity in the 
FY 2006 IPPS final rule related to comparing two separate technologies 
made by different manufacturers. Nevertheless, we stated that the 
criteria discussed in the FY 2006 IPPS final rule also are relevant 
when comparing the similarity between a new use and existing uses of 
the same technology (or a very similar technology manufactured by the 
same manufacturer). In other words, we stated that it is necessary to 
establish that the new indication for which the technology has received 
FDA approval is not substantially similar to that of the prior 
indication. We explained that such a distinction is necessary to 
determine the appropriate start date of the newness period in 
evaluating whether the technology would qualify for add-on payments 
(that is, the date of the ``new'' FDA approval or that of the prior 
approval), or whether the technology could qualify for separate new 
technology add-on payments under each indication.
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43814), we 
added a third factor of consideration to our analysis of whether a new 
technology is substantially similar to one or more existing 
technologies. Specifically, in making a determination of whether a 
technology is substantially similar to an existing technology, we will 
consider whether the new use of the technology involves the treatment 
of the same or similar type of disease and the same or similar patient 
population (74 FR 24130), in addition to considering the already 
established factors described in the FY 2006 IPPS final rule (that is, 
(1) whether a product uses the same or a similar mechanism of action to 
achieve a therapeutic outcome; and (2) whether a product is assigned to 
the same or a different DRG). As we noted in the FY 2010 IPPS/RY 2010 
LTCH PPS final rule, if all three components are present and the new 
use is deemed substantially similar to one or more of the existing uses 
of the technology (that is beyond the newness period), we would 
conclude that the technology is not new and, therefore, is not eligible 
for the new technology add-on payment.
    Under the second criterion, Sec.  412.87(b)(3) further provides 
that, to be eligible for the add-on payment for new medical services or 
technologies, the MS-DRG prospective payment rate otherwise applicable 
to the discharge involving the new medical services or technologies 
must be assessed for adequacy. Under the cost criterion, to assess the 
adequacy of payment for a new technology paid under the applicable MS-
DRG prospective payment rate, we evaluate whether the charges for cases 
involving the new technology exceed certain threshold amounts. In the 
FY 2004 IPPS final rule (68 FR 45385), we established the threshold at 
the geometric mean standardized charge for all cases in the MS-DRG plus 
75 percent of 1 standard deviation above the geometric mean 
standardized charge (based on the logarithmic values of the charges and 
converted back to charges) for all cases in the MS-DRG to which the new 
medical service or technology is assigned (or the case-weighted average 
of all relevant MS-DRGs, if the new medical service or technology 
occurs in more than one MS-DRG).
    However, section 503(b)(1) of Public Law 108-173 amended section

[[Page 50139]]

1886(d)(5)(K)(ii)(I) of the Act to provide that, beginning in FY 2005, 
CMS will apply ``a threshold * * * that is the lesser of 75 percent of 
the standardized amount (increased to reflect the difference between 
cost and charges) or 75 percent of one standard deviation for the 
diagnosis-related group involved.'' (We refer readers to section IV.D. 
of the preamble to the FY 2005 IPPS final rule (69 FR 49084) for a 
discussion of the revision of the regulations to incorporate the change 
made by section 503(b)(1) of Pub. L. 108-173.) Table 10 that was 
included in the IPPS/LTCH PPS final rule published in the Federal 
Register on August 27, 2009, contained the final thresholds that we 
used to evaluate applications for new technology add-on payments for 
the proposed rule for FY 2011 (74 FR 44173). However, we issued a 
supplemental proposed rule in the Federal Register on June 2, 2010 (75 
FR 30756) that addressed the provisions of the Affordable Care Act that 
affected our proposed policies and payment rates for FY 2011 under the 
IPPS and the LTCH PPS. In addition, we issued a Federal Register notice 
on June 2, 2010 (75 FR 31118) and further instructions that addressed 
the provisions of the Affordable Care Act that affected the policies 
and payment rates for FY 2010 under the IPPS and the LTCH PPS. In these 
documents, we updated Table 10 that was published in the Federal 
Register on August 27, 2009 and Table 10 in the Addendum to the FY 2011 
IPPS/LTCH PPS proposed rule to reflect the changes made by the 
Affordable Care Act.
    In the September 7, 2001 final rule that established the new 
technology add-on payment regulations (66 FR 46917), we discussed the 
issue of whether the HIPAA Privacy Rule at 45 CFR parts 160 and 164 
applies to claims information that providers submit with applications 
for new technology add-on payments. Specifically, we explained that 
health plans, including Medicare, and providers that conduct certain 
transactions electronically, including the hospitals that would be 
receiving payment under the FY 2001 IPPS final rule, are required to 
comply with the HIPAA Privacy Rule. We further explained how such 
entities could meet the applicable HIPAA requirements by discussing how 
the HIPAA Privacy Rule permitted providers to share with health plans 
information needed to ensure correct payment, if they had obtained 
consent from the patient to use that patient's data for treatment, 
payment, or health care operations. We also explained that, because the 
information to be provided within applications for new technology add-
on payment would be needed to ensure correct payment, no additional 
consent would be required. The HHS Office for Civil Rights has since 
amended the HIPAA Privacy Rule, but the results remain. The HIPAA 
Privacy Rule does not require a covered entity to obtain consent from 
patients to use or disclose protected health information for the 
covered entity's treatment, payment, or health care operations 
purposes, and expressly permits such entities to use or to disclose 
protected health information for these purposes and for the treatment 
purposes of another health care provider and the payment purposes of 
another covered entity or health care provider. (We refer readers to 45 
CFR 164.502(a)(1)(ii) and 164.506(c)(1) and (c)(3) and the Standards 
for Privacy of Individually Identifiable Health Information published 
in the Federal Register (67 FR 53208 through 53214) on August 14, 2002, 
for a full discussion of consent in the context of the HIPAA Privacy 
Rule.)
    Under the third criterion, Sec.  412.87(b)(1) of our existing 
regulations provides that a new technology is an appropriate candidate 
for an additional payment when it represents ``an advance that 
substantially improves, relative to technologies previously available, 
the diagnosis or treatment of Medicare beneficiaries.'' For example, a 
new technology represents a substantial clinical improvement when it 
reduces mortality, decreases the number of hospitalizations or 
physician visits, or reduces recovery time compared to the technologies 
previously available. (We refer readers to the September 7, 2001 final 
rule for a complete discussion of this criterion (66 FR 46902).)
    The new medical service or technology add-on payment policy under 
the IPPS provides additional payments for cases with relatively high 
costs involving eligible new medical services or technologies while 
preserving some of the incentives inherent under an average-based 
prospective payment system. The payment mechanism is based on the cost 
to hospitals for the new medical service or technology. Under Sec.  
412.88, if the costs of the discharge (determined by applying cost to 
charge ratios (``CCRs'') as described in Sec.  412.84(h)) exceed the 
full DRG payment (including payments for IME and DSH, but excluding 
outlier payments), Medicare will make an add-on payment equal to the 
lesser of: (1) 50 percent of the estimated costs of the new technology 
(if the estimated costs for the case including the new technology 
exceed Medicare's payment); or (2) 50 percent of the difference between 
the full DRG payment and the hospital's estimated cost for the case. 
Unless the discharge qualifies for an outlier payment, Medicare payment 
is limited to the full MS-DRG payment plus 50 percent of the estimated 
costs of the new technology.
    Section 1886(d)(4)(C)(iii) of the Act requires that the adjustments 
to annual MS-DRG classifications and relative weights must be made in a 
manner that ensures that aggregate payments to hospitals are not more 
or less than they were in the prior fiscal year (i.e., they are 
``budget neutral''). Therefore, in the past, we accounted for projected 
payments under the new medical service and technology provision during 
the upcoming fiscal year, while at the same time estimating the payment 
effect of changes to the MS-DRG classifications and recalibration. The 
impact of additional payments under this provision was then included in 
the budget neutrality factor, which was applied to the standardized 
amounts and the hospital-specific amounts. However, section 503(d)(2) 
of Public Law 108-173 provides that there shall be no reduction or 
adjustment in aggregate payments under the IPPS due to add-on payments 
for new medical services and technologies. Therefore, in accordance 
with section 503(d)(2) of Public Law 108-173, add-on payments for new 
medical services or technologies for FY 2005 and later years have not 
been subjected to budget neutrality.
    In the FY 2009 IPPS final rule (73 FR 48561 through 48563), we 
modified our regulations at Sec.  412.87 to codify our current practice 
of how CMS evaluates the eligibility criteria for new medical service 
or technology add-on payment applications. We also amended Sec.  
412.87(c) to specify that all applicants for new technology add-on 
payments must have FDA approval for their new medical service or 
technology by July 1 of each year prior to the beginning of the fiscal 
year that the application is being considered.
    The Council on Technology and Innovation (CTI) at CMS oversees the 
agency's cross-cutting priority on coordinating coverage, coding and 
payment processes for Medicare with respect to new technologies and 
procedures, including new drug therapies, as well as promoting the 
exchange of information on new technologies between CMS and other 
entities. The CTI, composed of senior CMS staff and clinicians, was 
established under section 942(a) of Public Law 108-173. The Council is 
co-chaired by the Director of the Office of

[[Page 50140]]

Clinical Standards and Quality (OCSQ) and the Director of the Center 
for Medicare (CM), who is also designated as the CTI's Executive 
Coordinator.
    The specific processes for coverage, coding, and payment are 
implemented by CM, OCSQ, and the local claims-payment contractors (in 
the case of local coverage and payment decisions). The CTI supplements, 
rather than replaces, these processes by working to assure that all of 
these activities reflect the agency-wide priority to promote high-
quality, innovative care. At the same time, the CTI also works to 
streamline, accelerate, and improve coordination of these processes to 
ensure that they remain up to date as new issues arise. To achieve its 
goals, the CTI works to streamline and create a more transparent coding 
and payment process, improve the quality of medical decisions, and 
speed patient access to effective new treatments. It is also dedicated 
to supporting better decisions by patients and doctors in using 
Medicare-covered services through the promotion of better evidence 
development, which is critical for improving the quality of care for 
Medicare beneficiaries.
    CMS plans to continue its Open Door forums with stakeholders who 
are interested in CTI's initiatives. In addition, to improve the 
understanding of CMS' processes for coverage, coding, and payment and 
how to access them, the CTI has developed an ``innovator's guide'' to 
these processes. The intent is to consolidate this information, much of 
which is already available in a variety of CMS documents and in various 
places on the CMS Web site, in a user-friendly format. This guide was 
published in August 2008 and is available on the CMS Web site at: 
http://www.cms.hhs.gov/CouncilonTechInnov/Downloads/InnovatorsGuide8_25_08.pdf.
    As we indicated in the FY 2009 IPPS final rule (73 FR 48554), we 
invite any product developers or manufacturers of new medical 
technologies to contact the agency early in the process of product 
development if they have questions or concerns about the evidence that 
would be needed later in the development process for the agency's 
coverage decisions for Medicare.
    The CTI aims to provide useful information on its activities and 
initiatives to stakeholders, including Medicare beneficiaries, 
advocates, medical product manufacturers, providers, and health policy 
experts. Stakeholders with further questions about Medicare's coverage, 
coding, and payment processes, or who want further guidance about how 
they can navigate these processes, can contact the CTI at 
CTI@cms.hhs.gov or from the ``Contact Us'' section of the CTI home page 
(http://www.cms.hhs.gov/CouncilonTechInnov/).
    We note that applicants for add-on payments for new medical 
services or technologies for FY 2012 must submit a formal request, 
including a full description of the clinical applications of the 
medical service or technology and the results of any clinical 
evaluations demonstrating that the new medical service or technology 
represents a substantial clinical improvement, along with a significant 
sample of data to demonstrate that the medical service or technology 
meets the high-cost threshold. Complete application information, along 
with final deadlines for submitting a full application, will be posted 
as it becomes available on our Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/08_newtech.asp. To allow interested parties to 
identify the new medical services or technologies under review before 
the publication of the proposed rule for FY 2012, the Web site also 
will list the tracking forms completed by each applicant.
    Comment: A number of commenters addressed topics relating to the 
substantial similarity criteria, marginal cost factor for the new 
technology add-on payment, the potential implementation of ICD-10-CM, 
the use of external data in determining the cost threshold, paying new 
technology add-on payments for 2 to 3 years, mapping new technologies 
to the appropriate MS-DRG, and the use of the date that a ICD-9-CM code 
is assigned to a technology or the FDA approval date (whichever is 
later) as the start of the newness period.
    Response: We did not request public comments nor propose to make 
any changes to any of the issues summarized above. Because these 
comments are outside of the scope of the provisions included in the 
proposed rule, we are not providing a complete summary of the comments 
or responding to them in this final rule.
2. Public Input Before Publication of a Notice of Proposed Rulemaking 
on Add-On Payments
    Section 1886(d)(5)(K)(viii) of the Act, as amended by section 
503(b)(2) of Public Law 108-173, provides for a mechanism for public 
input before publication of a notice of proposed rulemaking regarding 
whether a medical service or technology represents a substantial 
clinical improvement or advancement. The process for evaluating new 
medical service and technology applications requires the Secretary to--
     Provide, before publication of a proposed rule, for public 
input regarding whether a new service or technology represents an 
advance in medical technology that substantially improves the diagnosis 
or treatment of Medicare beneficiaries;
     Make public and periodically update a list of the services 
and technologies for which applications for add-on payments are 
pending;
     Accept comments, recommendations, and data from the public 
regarding whether a service or technology represents a substantial 
clinical improvement; and
     Provide, before publication of a proposed rule, for a 
meeting at which organizations representing hospitals, physicians, 
manufacturers, and any other interested party may present comments, 
recommendations, and data regarding whether a new medical service or 
technology represents a substantial clinical improvement to the 
clinical staff of CMS.
    In order to provide an opportunity for public input regarding add-
on payments for new medical services and technologies for FY 2011 prior 
to publication of the FY 2011 IPPS/RY 2011 LTCH PPS proposed rule, we 
published a notice in the Federal Register on November 27, 2009 (74 FR 
62339 through 62342), and held a town hall meeting at the CMS 
Headquarters Office in Baltimore, MD, on February 19, 2010. In the 
announcement notice for the meeting, we stated that the opinions and 
alternatives provided during the meeting would assist us in our 
evaluations of applications by allowing public discussion of the 
substantial clinical improvement criterion for each of the FY 2011 new 
medical service and technology add-on payment applications before the 
publication of the FY 2011 proposed rule.
    Approximately 80 individuals registered to attend the town hall 
meeting in person, while additional individuals listened over an open 
telephone line. Each of the three FY 2011 applicants presented 
information on its technology, including a discussion of data 
reflecting the substantial clinical improvement aspect of the 
technology. We considered each applicant's presentation made at the 
town hall meeting, as well as written comments submitted on the 
applications, in our evaluation of the new technology add-on 
applications for FY 2011 in the FY 2011 proposed rule and this final 
rule.

[[Page 50141]]

    In response to the published notice and the new technology town 
hall meeting, we received 11 written comments regarding applications 
for FY 2011 new technology add-on payments. We summarized these 
comments or, if applicable, indicated that there were no comments 
received, at the end of each discussion of the individual applications 
in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23926 and 23927).
3. FY 2011 Status of Technologies Approved for FY 2010 Add-On Payments
a. Spiration[supreg] IBV[supreg] Valve System
    Spiration, Inc. submitted an application for new technology add-on 
payments for the Spiration[supreg] IBV[supreg] Valve System 
(Spiration[supreg] IBV[supreg]). The Spiration[supreg] IBV[supreg] is a 
device that is used to place, via bronchoscopy, small, one-way valves 
into selected small airways in the lung in order to limit airflow into 
selected portions of lung tissue that have prolonged air leaks 
following surgery while still allowing mucus, fluids, and air to exit, 
thereby reducing the amount of air that enters the pleural space. The 
device is intended to control prolonged air leaks following three 
specific surgical procedures: lobectomy; segmentectomy; or lung volume 
reduction surgery (LVRS). According to the applicant, an air leak that 
is present on postoperative day 7 is considered ``prolonged'' unless 
present only during forced exhalation or cough. In order to help 
prevent valve migration, there are five anchors with tips that secure 
the valve to the airway. The implanted valves are intended to be 
removed no later than 6 weeks after implantation.
    With regard to the newness criterion, the Spiration[supreg] 
IBV[supreg] received a HDE approval from the FDA on October 24, 2008. 
We were unaware of any previously FDA-approved predicate devices, or 
otherwise similar devices, that could be considered substantially 
similar to the Spiration[supreg] IBV[supreg]. However, the applicant 
asserted that the FDA had precluded the device from being used in the 
treatment of any patients until the Institutional Review Board (IRB) 
granted approvals regarding its study sites. Therefore, the 
Spiration[supreg] IBV[supreg] met the newness criterion once it 
obtained at least one IRB approval because the device would then be 
available on the market to treat Medicare beneficiaries.
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology payments for the 
Spiration[supreg] IBV[supreg] and consideration of the public comments 
we received on the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, 
including the additional analysis of clinical data and supporting 
information submitted by the applicant, we approved the 
Spiration[supreg] IBV[supreg] for new technology add-on payments for FY 
2010. In that final rule, we noted that the Spiration[supreg] 
IBV[supreg] was the only device currently approved for the purpose of 
treating prolonged air leaks following lobectomy, segmentectomy, and 
LVRS patients in the United States. We stated that without the 
availability of this device, patients with prolonged air leaks 
(following lobectomy, segmentectomy, and LVRS) might otherwise remain 
inpatients in the hospital (and have a longer length of stay than they 
might otherwise have without the Spiration[supreg] IBV[supreg]) or 
might even require additional invasive surgeries to resolve the air 
leak. We also noted that use of the Spiration[supreg] IBV[supreg] may 
lead to more rapid beneficial resolution of prolonged air leaks and 
reduce recovery time following the three lung surgeries mentioned 
above.
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43823), we 
indicated that we remained interested in seeing whether the clinical 
evidence continues to find it to be effective. This approval was on the 
basis of using the Spiration[supreg] IBV[supreg] consistent with the 
FDA approval (HDE). Accordingly, we emphasized the need for appropriate 
patient selection. Therefore, we limited the add-on payment to cases 
involving prolonged air leaks following lobectomy, segmentectomy, and 
LVRS in MS-DRGs 163, 164, and 165. In the FY 2010 IPPS/RY 2010 LTCH PPS 
final rule (74 FR 43823), we stated that cases involving the 
Spiration[supreg] IBV[supreg] that are eligible for the new technology 
add-on payment are identified by assignment to MS-DRGs 163, 164, and 
165 with procedure code 33.71 or 33.73 in combination with one of the 
following procedure codes: 32.22, 32.30, 32.39, 32.41, or 32.49.
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we stated that the 
average cost of the Spiration[supreg] IBV[supreg] is reported as 
$2,750. Based on data from the FY 2010 application, the average amount 
of valves per case is 2.5. Therefore, the total maximum cost for the 
Spiration[supreg] IBV[supreg] was expected to be $6,875 per case 
($2,750 x 2.5). Under Sec.  412.88(a)(2) of our regulations, new 
technology add-on payments are limited to the lesser of 50 percent of 
the average cost of the device or 50 percent of the costs in excess of 
the MS-DRG payment for the case. As a result, we finalized a maximum 
add-on payment for a case involving the Spiration[supreg] IBV[supreg] 
as $3,437.50.
    In the FY 2011 IPPS/LTCH PPS proposed rule, we did not propose any 
changes to the new technology add-on payments for the Spiration[supreg] 
IBV[supreg]. We did not receive any public comments on whether to 
continue or discontinue the new technology add-on payment for the 
Spiration[supreg] IBV[supreg] for FY 2011. Therefore, for FY 2011, we 
are continuing new technology add-on payments for cases involving the 
Spiration[supreg] IBV[supreg] in FY 2011, with a maximum add-on payment 
of $3,437.50. However, we did receive one public comment on the MS-DRGs 
and codes used to identify which cases involving the Spiration[supreg] 
IBV[supreg] are eligible for the new technology add-on payment.
    Comment: One commenter, the manufacturer, explained that the coding 
requirements described above that identify cases of the 
Spiration[supreg] IBV[supreg] for new technology add-on payments do not 
account for all cases where a hospital may be using the device to treat 
patients with prolonged air leaks following lobectomy, segmentectomy, 
and LVRS consistent with the product's HDE approval. These cases occur 
when the hospital inserting the Spiration[supreg] IBV[supreg] did not 
perform the initial lobectomy, segmentectomy, or LVRS surgery; instead, 
the hospital inserting the device received the beneficiary as a 
transfer case. The commenter explained that there are instances when a 
hospital performs the initial surgery and then determines that 
treatment of the patient with the IBV[supreg] valve is appropriate but 
the hospital has not been approved to perform the IBV[supreg] valve 
insertion procedure under the HDE regulations. Therefore, the hospital 
must transfer the patient to an approved facility for treatment with 
the IBV[supreg] valve. If it were possible to consider this situation 
as one case, the commenter believed that, between the two hospitals, 
the new technology payment criteria as specified for FY 2010 
(identified by assignment to MS-DRGs 163, 164, and 165 with procedure 
code 33.71 or 33.73 in combination with one of the following procedure 
codes: 32.22, 32.30, 32.39, 32.41, or 32.49) would be met. However, 
because insertion of the IBV[supreg] valve is limited to approved 
facilities, the commenter believed that that the hospital receiving 
such a patient for treatment for prolonged air leak following 
lobectomy, segmentectomy, and LVRS likely reports the case under ICD-9-
CM diagnosis code 512.1 (Iatrogenic pneumothorax) as the principal 
diagnosis in the absence of a more specific code for prolonged air leak 
and because the second hospital did not perform the initial lobectomy,

[[Page 50142]]

segmentectomy, or LVRS surgery. Such cases would be assigned to MS-DRGs 
199, 200, or 201 (Pneumothorax with MCC, with CC, or with CC or MCC, 
respectively) based on the principal ICD-9-CM diagnosis code of 512.1 
and are therefore ineligible for the new technology add-on payment 
based on the specifications finalized in FY 2010. In this situation, 
because the transferring hospital that performed the initial surgery 
did not insert the IBV[supreg] valve, it would also be ineligible for 
the new technology add-on payment. The commenter recommended that CMS 
allow an add-on payment in such cases by linking transfer 
hospitalizations cases that had an IBV[supreg] valve inserted at the 
receiving hospital to a previous claim in the patient's history to 
ensure that the patient had previously undergone a lobectomy, 
segmentectomy, or LVRS as reported by one of the following procedure 
codes: 32.22, 32.30, 32.39, 32.41 or 32.49. This would ensure that the 
Spiration[supreg] IBV[supreg] is being used consistent with its FDA 
approved indication for the treatment of prolonged air leaks following 
lobectomy, segmentectomy, or LVRS.
    Response: We thank the commenter for the comments. We agree with 
the manufacturer that it is appropriate that all cases in which the 
Spiration[supreg] IBV[supreg] Valve is inserted consistent with its HDE 
approval be eligible for the approved new technology add-on payment. 
For this reason, we are expanding the new technology add-on payment for 
the Spiration[supreg] IBV[supreg] Valve to cases that map to MS-DRGs 
199, 200, and 201 with an assigned principal diagnosis code of 512.1. 
In accordance with the FDA HDE approval, only approved hospital centers 
with an Internal Review Board (IRB) may implant the device. According 
to the manufacturer, all sites must be approved before the device will 
be shipped for use. The approval process includes an evaluation of the 
facility, training of physicians, an institutional compliance 
agreement, IRB process and documentation, and a purchasing agreement. 
The IRB ensures that the patient had a lobectomy, segmentectomy, or 
LVRS and had a prolonged air leak and then approves the device to be 
implanted in the patient. Therefore, due to the strict requirements 
associated with the HDE approval of this technology, even if a patient 
was transferred to a hospital for device implantation and the 
lobectomy, segmentectomy, or LVRS was not performed at that hospital 
(and, therefore, the surgery is not billed on the same claim as the 
implantation of the device), we believe our concerns regarding patient 
selection are addressed and that the hospital implanting the device is 
doing so to treat prolonged post-surgical air leaks. The manufacturer 
asserted that, in this transfer situation, the beneficiary's case would 
typically be assigned to diagnosis code 512.1, which maps to MS-DRGs 
199, 200, and 201. For this reason, we are expanding the new technology 
add-on payment for the Spiration[supreg] IBV[supreg] Valve to cases 
that map to these MS-DRGs.
    We performed an analysis to determine if the technology would still 
meet the cost criteria by adding these additional MS-DRGs to the 
applicant's cost analysis in the FY 2010 IPPS/RY 2010 LTCH PPS final 
rule (74 FR 43820). The cases that map to MS-DRGs 199, 200, and 201 are 
small in number and, therefore, have a minimal effect on the case-
weighted average standardized per case and the case-weighted threshold 
published in the FY 2010/RY 2010 LTCH PPS final rule. Therefore, the 
Spiration[supreg] IBV[supreg] would still meet the cost criteria with 
the inclusion of these additional MS-DRGs.
    For FY 2011, in addition to making new technology add-on payments 
for cases of the Spiration[supreg] IBV[supreg] that map to MS-DRGs 163, 
164, and 165 (with procedure code 33.71 or 33.73 in combination with 
one of the following procedure codes: 32.22, 32.30, 32.39, 32.41, or 
32.49), we will make the new technology add-on payment for cases of the 
Spiration[supreg] IBV[supreg] that map to MS-DRGs 199, 200, and 201 
with the presence of a diagnosis code of 512.1 in combination with 
procedure code 33.71 and 33.73. This determination will ensure that the 
hospital implanting the device receives the new technology add-on 
payment. We note that, in these cases, the transferring hospital 
performing the surgery will be subject to the transfer policy and would 
not receive the new technology add-on payment because it did not 
implant the device.
b. CardioWestTM Temporary Total Artificial Heart System 
(CardioWestTM TAH-t)
    SynCardia Systems, Inc. submitted an application for approval of 
the CardioWestTM temporary Total Artificial Heart system 
(TAH-t) in FY 2009. The TAH-t is a technology that is used as a bridge 
to heart transplant device for heart transplant-eligible patients with 
end-stage biventricular failure. The TAH-t pumps up to 9.5 liters of 
blood per minute. This high level of perfusion helps improve 
hemodynamic function in patients, thus making them better heart 
transplant candidates.
    The TAH-t was approved by the FDA on October 15, 2004, for use as a 
bridge to transplant device in cardiac transplant-eligible candidates 
at risk of imminent death from biventricular failure. The TAH-t is 
intended to be used in hospital inpatients. One of the FDA's post-
approval requirements is that the manufacturer agrees to provide a 
post-approval study demonstrating that success of the device at one 
center can be reproduced at other centers. The study was to include at 
least 50 patients who would be followed up to 1 year, including (but 
not limited to) the following endpoints: survival to transplant; 
adverse events; and device malfunction.
    In the past, Medicare did not cover artificial heart devices, 
including the TAH-t. However, on May 1, 2008, CMS issued a final 
national coverage determination (NCD) expanding Medicare coverage of 
artificial hearts when they are implanted as part of a study that is 
approved by the FDA and is determined by CMS to meet CMS' Coverage with 
Evidence Development (CED) clinical research criteria. (The final NCD 
is available on the CMS Web site at: http://www.cms.hhs.gov/mcd/viewdecisionmemo.asp?id=211.)
    We indicated in the FY 2009 IPPS/RY 2009 LTCH PPS final rule (73 FR 
48555) that, because Medicare's previous coverage policy with respect 
to this device had precluded payment from Medicare, we did not expect 
the costs associated with this technology to be currently reflected in 
the data used to determine the relative weights of MS-DRGs. As we have 
indicated in the past, and as we discussed in the FY 2009 IPPS/RY 2009 
LTCH PPS final rule, although we generally believe that the newness 
period would begin on the date that FDA approval was granted, in cases 
where the applicant can demonstrate a documented delay in market 
availability subsequent to FDA approval, we would consider delaying the 
start of the newness period. This technology's situation represented 
such a case. We also noted that section 1886(d)(5)(K)(ii)(II) of the 
Act requires that we provide for the collection of cost data for a new 
medical service or technology for a period of at least 2 years and no 
more than 3 years ``beginning on the date on which an inpatient 
hospital code is issued with respect to the service or technology.'' 
Furthermore, the statute specifies that the term ``inpatient hospital 
code'' means any code that is used with respect to inpatient hospital 
services for which payment may be made under the

[[Page 50143]]

IPPS and includes ICD-9-CM codes and any subsequent revisions. Although 
the TAH-t has been described by the ICD-9-CM code(s) since the time of 
its FDA approval, because the TAH-t had not been covered under the 
Medicare program (and, therefore, no Medicare payment had been made for 
this technology), this code could not be ``used with respect to 
inpatient hospital services for which payment'' is made under the IPPS, 
and thus we assumed that none of the costs associated with this 
technology would be reflected in the Medicare claims data used to 
recalibrate the MS-DRG relative weights for FY 2009. For this reason, 
as discussed in the FY 2009 IPPS/RY 2009 LTCH PPS final rule, despite 
the FDA approval date of the technology, we determined that TAH-t would 
still be eligible to be considered ``new'' for purposes of the new 
technology add-on payment because the TAH-t met the newness criterion 
on the date that Medicare coverage began, consistent with issuance of 
the final NCD, effective on May 1, 2008.
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology add-on payments for the TAH-t 
and consideration of the public comments we received in response to the 
FY 2009 IPPS/RY 2009 LTCH PPS proposed rule, we approved the TAH-t for 
new technology add-on payments for FY 2009 (73 FR 48557). We indicated 
that we believed the TAH-t offered a new treatment option that 
previously did not exist for patients with end-stage biventricular 
failure. However, we indicated that we recognized that Medicare 
coverage of the TAH-t is limited to approved clinical trial settings. 
The new technology add-on payment status does not negate the 
restrictions under the NCD nor does it obviate the need for continued 
monitoring of clinical evidence for the TAH-t. We remain interested in 
seeing whether the clinical evidence demonstrates that the TAH-t 
continues to be effective. If evidence is found that the TAH-t may no 
longer offer a substantial clinical improvement, we reserve the right 
to discontinue new technology add-on payments, even within the 2- to 3-
year period that the device may still be considered to be new. We also 
continued to make new technology add-on payments for the TAH-t in FY 
2010. We welcome public comment regarding whether there is new evidence 
that demonstrates that the TAH-T continues to be effective and whether 
it should still be considered to be a substantial clinical improvement 
for FY 2011.
    The new technology add-on payment for the TAH-t for FY 2010 is 
triggered by the presence of ICD-9-CM procedure code 37.52 
(Implantation of total heart replacement system), condition code 30, 
and the diagnosis code reflecting clinical trial--V70.7 (Examination of 
participant in clinical trial). For FY 2010, we finalized a maximum 
add-on payment of $53,000 (that is, 50 percent of the estimated 
operating costs of the device of $106,000) for cases that involve this 
technology.
    Our practice has been to begin and end new technology add-on 
payments on the basis of a fiscal year. In general, we extend add-on 
payments for an additional year only if the 3-year anniversary date of 
the product's entry on the market occurs in the latter half of the 
fiscal year (70 FR 47362). The TAH-t is still eligible to be considered 
``new'' for purposes of the new technology add-on payment because the 
3-year anniversary date of the TAH-t entry on the market was in the 
second half of the fiscal year and the TAH-t met the newness criterion 
on the date that Medicare coverage began, consistent with issuance of 
the final NCD, effective on May 1, 2008. Therefore, for FY 2011, we 
proposed to continue new technology add-on payments for cases involving 
the TAH-t in FY 2011 with a maximum add-on payment of $53,000.
    Comment: Commenters supported our proposal to continue add-on 
payments for the TAH-t. The commenters believed that the TAH-t 
continues to represent a substantial clinical improvement for patients 
with biventricular heart failure in need of a heart transplant. One 
commenter, the manufacturer of the TAH-t, stated that the TAH-t 
continues to be the only biventricular replacement device that is 
available for patients, Medicare or otherwise, with biventricular 
failure. The commenter noted that the device is indicated for use as a 
``bridge to transplant'' in cardiac transplant-eligible patients who 
are at risk of imminent death. The commenter stated that the device is 
approved by the FDA ``* * * for use in-hospital, and, under a currently 
approved investigational device exemption (``IDE'') clinical study out 
of hospital as well.'' The commenter stated that the TAH-t has been 
implanted in over 865 patients worldwide and that between January 1, 
2009 and June 11, 2010, there were 15 TAH-t implants in the United 
States. Of these 15 patients, 10 were continuing on support, 4 received 
heart transplants, and 1 expired; the commenter stated that without the 
device, it is likely that all of the patients would have expired. The 
commenter asserted that it recently began to employ the use of a ``* * 
* smaller, portable driver, known as the ``Freedom Driver'' as part of 
the TAH-t system.'' The commenter noted that the Freedom Driver allows 
increased patient mobility so that patients may leave the hospital 
while waiting for a donor heart and that the Freedom Driver further 
demonstrated that the TAH-t was a substantial clinical improvement. The 
commenter asserted that the new driver increased the operating cost of 
the device from $106,000 to $124,700 and requested that the new 
technology add-on payment be increased from $53,000 to $62,350, 
accordingly.
    Response: We agree with the commenters that, for patients with 
biventricular heart failure, the TAH-t continues to represent a 
substantial clinical improvement. With respect to the manufacturer's 
request for an increase in the new technology add-on payment amount for 
FY 2011, we note that the version of the TAH-t that contains the 
Freedom Driver is not currently approved to be marketed by the FDA. 
Rather, the device is being studied in a clinical trial under an IDE. 
The IDE allows the investigational device to be used in a clinical 
study in order to collect safety and effectiveness data to support a 
Premarket Approval (PMA) application or a Premarket Notification 
[510(k)] submission to FDA. An approved IDE permits a device to be 
shipped lawfully for the purpose of conducting investigations of the 
device without complying with other requirements of the Federal Food, 
Drug, and Cosmetic Act that would apply to devices in commercial 
distribution. For example, sponsors are not required to have an 
approved PMA application or cleared Premarket Notification 510(k), 
register their establishment, or list the device while the device is 
under investigation. Sponsors of IDEs are also exempt from the Quality 
System (QS) Regulation except for the requirements for design control, 
if applicable (unless the sponsor states an intention to comply with 
these requirements). An IDE does not constitute FDA approval to market 
the device. Once the clinical trial conducted under an IDE has been 
completed, the device may receive FDA approval or clearance to be 
legally marketed. If the modified TAH-t device using the Freedom Driver 
does receive FDA approval, we would require that a new technology 
application be formally submitted for review for new technology add-on 
payments for the TAH-t device using the Freedom Driver at that time. 
Because we have not received such an

[[Page 50144]]

application and because the modified device is not yet approved by the 
FDA, we are unable to increase the new technology add-on payments for 
TAH-T for FY 2011. We would encourage the manufacturer to submit a new 
technology add-on payment application if and when it expects to receive 
FDA approval for the modified TAH-t with the Freedom Driver.
    Therefore, as we proposed, we are continuing new technology add-on 
payments for cases involving the TAH-t in FY 2011 with a maximum add-on 
payment of $53,000.
4. FY 2011 Applications for New Technology Add-On Payments
    We received five applications to be considered for new technology 
add-on payment for FY 2011. However, two applicants withdrew their 
applications: Nycomed Austria GmbH, which submitted an application for 
new technology add-on payments for FY 2011 for TachoSil[reg]; and 
Zimmer, which submitted an application for new technology add-on 
payments for FY 2011 for the Dynesys Dynamic Stabilization System. 
Nycomed Austria GmbH withdrew its application from further review in 
January 2010, and Zimmer withdrew its application in February 2010. 
Because both applications were withdrawn prior to the town hall meeting 
and publication of the FY 2011 IPPS/LTCH PPS proposed rule, we are not 
discussing these two applications in this final rule.
    A discussion of the remaining three applications is presented 
below. At the time the proposed rule was developed, one of the 
technologies had not yet received FDA approval. Since that time, that 
technology, the LipiScanTM IVUS, has received FDA approval.
a. Auto Laser Interstitial Thermal Therapy (AutoLITTTM) 
System
    Monteris Medical submitted an application for new technology add-on 
payments for FY 2011 for the AutoLITTTM. We note that the 
applicant submitted an application for new technology add-on payments 
for FY 2010 but withdrew its application prior to the FY 2010 IPPS/RY 
2010 LTCH PPS final rule. AutoLITTTM is a minimally 
invasive, MRI-guided 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 applicant asserts that the AutoLITTTM delivers laser 
energy to the lesion with a proprietary 3mm diameter probe that directs 
the energy radially (that is, at right angle to the axis of the probe, 
or side-firing) toward the targeted tumor tissue in a narrow beam 
profile and at the same time, a proprietary probe cooling system 
removes heat from tissue not directly in the path of the laser beam, 
ostensibly protecting it from thermal damage and enabling the physician 
to selectively ablate only targeted tissue. The AutoLITTTM 
received a 510K FDA clearance in May 2009. The AutoLITTTM is 
indicated for use to necrotize or coagulate soft tissue through 
interstitial irradiation or thermal therapy in medicine and surgery in 
the discipline of neurosurgery with 1064 nm lasers. The 
AutoLITTTM may be used in patients with glioblastoma 
multiforme brain (GBM) tumors. The applicant stated in its application 
and through supplemental information that, due to required updates, the 
technology was actually introduced to the market in December 2009. The 
applicant explained that it was necessary to reduce the thermal damage 
lines from three to one and complete International Electrotechnical 
Commission/Underwriter Laboratory testing, which led to the 
introduction of the technology to the market in December 2009, although 
the technology was approved by FDA in May 2009. The applicant also 
stated through supplementary information to its application that the 
first sale of the product took place on March 19, 2010. However, 
because the product was already available for use in December 2009, it 
appears that the newness date would begin in December 2009. In the FY 
2011 IPPS/LTCH PPS proposed rule, we welcomed public comments on this 
issue.
    With regard to the newness criterion, in the FY 2011 IPPS/LTCH PPS 
proposed rule, we expressed concern that the AutoLITTTM may 
be substantially similar to the device that it listed as its predicate 
device in its application to the FDA for approval. Specifically, in 
making a determination of substantial similarity, we consider the 
following: (1) Whether a product uses the same or similar mechanism of 
action to achieve a therapeutic action; (2) whether a product is 
assigned to the same or different MS-DRG; and (3) whether the new use 
of a technology involves the treatment of the same or similar type of 
disease and the same or similar patient population. The applicant 
identified Visual-ase as its predicate device (which was approved by 
the FDA in 2006), which is also used to treat tumors of the head and 
neck. The applicant maintains that AutoLITTTM can be 
distinguished from the Visual-ase by its mechanism of action (that is, 
side-firing laser versus elliptical firing). Additionally, as mentioned 
above, the technology contains a proprietary probe cooling system that 
removes heat from tissue not directly in the path of the laser beam. In 
the FY 2011 IPPS/LTCH PPS proposed rule, we welcomed comments from the 
public regarding whether or not the AutoLITTTM is 
substantially similar to the Visual-ase and if it meets the newness 
criteria.
    Comment: One commenter described the components of the 
AutoLITTTM that should qualify the AutoLITTTM as 
``new''. Specifically, the commenter noted that the probe uses side-
firing and has a gas-cooled tip. The commenter noted that probe drive 
is an MRI-compatible steering device and the software for the device 
provides thermal dose reporting in real time. In addition, the 
commenter explained that the software is designed to provide real time 
feedback to the surgeon and also to provide a discrete line of thermal 
dosage at the expanding boundary or isotherm. The commenter further 
explained that this isotherm is used by the surgeon to control 
treatment in comparison to the delineated pre-defined treatment or 
tumor boundary and also provides this information in a volume (that 
includes treatment and two axial planes) so that the surgeon can 
monitor and plan, in real time, the next heating cycle to complete the 
treatment regimen.
    Response: We thank the commenter for the additional information on 
the AutoLITTTM. After reviewing all of the information 
provided by the applicant and the public, we believe that the 
AutoLITTTM uses a different mechanism of action when 
compared to the Visual-ase. We agree with the applicant that the 
AutoLITTTM can be distinguished from the Visual-ase by its 
side-firing laser versus elliptical-firing. In addition, the 
AutoLITTTM contains a proprietary probe cooling system that 
removes heat from tissue not directly in the path of the laser beam, 
while the Visual-ase does not contain this cooling system. Therefore, 
we do not believe the AutoLITTTM is substantially similar to 
the Visual-ase. Because the AutoLITTTM was available on the 
market beginning with December 2009 (and is not substantially similar 
to its predicate device), the technology is still within the 2 to 3 
year newness period.

[[Page 50145]]

    In an effort to demonstrate that AutoLITTTM meets the 
cost criterion, the applicant used 2007 Medicare data from the 
Healthcare Cost and Utilization Project (HCUP). We first note that the 
applicant believes that cases eligible for the AutoLITTTM 
will map to MS-DRG 25 (Craniotomy and Endovascular Intracranial 
Procedures with MCC), MS-DRG 26 (Craniotomy and Endovascular 
Intracranial Procedures with CC), and MS-DRG 27 (Craniotomy and 
Endovascular Intracranial Procedures without CC or MCC). The applicant 
explained through supplemental information to its application that most 
cases of the AutoLITTTM would map to MS-DRG 25 in the near-
term. As the technology becomes more widely available, the applicant 
asserted that clinicians will use the technology instead of performing 
a craniotomy for brain cancer. Additionally, the applicant asserted 
that clinicians will expand their use of the technology beyond GBM to 
other different types of brain cancers, including metastases, which 
would map to other MS-DRGs aside from MS-DRG 25. The applicant further 
stated that life expectancy with brain cancer is predicated on the 
removal of as much of the cancer as possible and asserted that over 
time the AutoLITTTM will do a better job of removing the 
majority of the cancer that is present within the brain tissue compared 
to other procedures. The applicant believes that physicians using the 
AutoLITTTM have a better tool to remove more cancer, 
necrotize it more precisely, and access parts of the brain that 
surgical resection cannot access. Lastly, the applicant believes that 
the minimally invasive nature of the procedure will also result in 
broader usage to other less complicated procedures (as clinical and 
patient awareness expands).
    The applicant searched HCUP hospital data for cases potentially 
eligible for the AutoLITTTM that was assigned one of the 
following ICD-9-CM primary diagnosis codes: A diagnosis code that 
begins with a prefix of 191 (Malignant neoplasm of brain); diagnosis 
code 225.0 (Benign neoplasm of brain and other parts of nervous 
system); or diagnosis code 239.6 (Neoplasm of the brain of unspecified 
nature). The applicant found 41,021 cases and weighted the standardized 
charge per case based on the number of cases found within each of the 
diagnosis codes listed above rather than the percentage of cases that 
would group to different MS-DRGs. Based on this analysis, the applicant 
calculated an average standardized charge per case of $57,511. While 
the applicant's analysis established a case-weighted average charge per 
case in the aggregate, it did not provide a case-weighted average 
standardized charge per case by MS-DRG (as required by the 
application).
    The applicant also noted that their estimate of the case-weighted 
average standardized charge per case of $57,511 did not include charges 
related to the AutoLITTTM. Therefore, it is necessary to add 
the charges related to the device to the case-weighted average 
standardized charge per case in evaluating the cost threshold 
criterion. Although the applicant submitted data related to the 
estimated cost of the AutoLITTTM per case, the applicant 
stated that the cost of the device was proprietary information. Based 
on a study of charge compression data by RTI \4\ and charge master data 
from Stanford University and University of California, San Francisco, 
the applicant estimates $38,886 in charges related to the 
AutoLITTTM (we note that some of the data used a markup of 
294 percent of the costs). Adding the estimated charges related to the 
device to the average standardized charge per case resulted in a total 
average standardized charge per case of $96,397 ($57,511 plus $38,886). 
We note, in the applicant's discussion of substantial clinical 
improvement below, the applicant maintains that improved clinical 
outcomes using nonfocused LITT included reduced recovery time and a 
reduced rate of complications. Therefore, in the FY 2011 IPPS/LTCH PPS 
proposed rule, we sought public comment on how reduced recovery time 
and a reduced rate of complications would affect the total case-
weighted average standardized charge per case and the average length of 
stay (for cases eligible for the AutoLITTTM).
---------------------------------------------------------------------------

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

    Comment: The applicant submitted supplemental information and noted 
that, compared to a craniotomy, surgery involving the 
AutoLITTTM requires an MRI and/or interventional MRI. The 
commenter indicated that the addition of the MRI requires additional 
resources, namely a MRI technician, at a minimum, and a radiologist, as 
needed, to review images. In total, these additions would increase the 
level of resources a hospital would use to treat these patients, both 
in terms of direct costs (for example, labor, contracted physician 
resources, etc.), and fixed and indirect costs (for example, MRI, use 
of radiology office space, etc.) The commenter further added that 
overall additional time for the procedure (also a cost) is currently 
required to conduct an AutoLITTTM case compared to the 
standard of care (that is, craniotomy as asserted by the applicant). 
The commenter reported that during the clinical trials, cases of 
AutoLITTTM ranged from 10 to 12 hours (including OR, MRI, 
and Anesthesia time as opposed to 4 to 6 hours for a craniotomy). As 
efficiencies are gained in the hospitals working with the technology, 
the applicant predicts that this time will be reduced to 7 hours within 
the next year or so. In addition, the commenter believed that the 
updated HCUP analysis, which we discuss below, supports a standardized 
charge of $96,947. This supplemental data correlate to 2010 pricing 
information that the applicant received from two institutions 
demonstrating an approximate charge (not standardized) of $103,000 per 
case.
    Response: We thank the commenter for providing this information. We 
considered this information in our decision (indicated below) on 
whether the AutoLITTTM meets the cost criterion.
    As noted above, the applicant's analysis established a case-
weighted average charge per case in the aggregate, but it did not 
provide a case-weighted average standardized charge per case by MS-DRG. 
However, the applicant explained through supplemental information to 
its application that the total average standardized charge per case 
significantly exceeds the cost threshold established by CMS for FY 2011 
in Table 10 (74 FR 44173) of $84,185 for MS-DRG 25. As noted above, due 
to section 3401(a) of the Affordable Care Act which adjusted the FY 
2010 applicable percentage increase (thus requiring CMS to revise the 
FY 2010 standardized amounts), for this final rule, we used the revised 
FY 2011 thresholds as published in the FY 2010 IPPS/RY 2010 LTCH PPS 
notice issued in the Federal Register on June 2, 2010 (75 FR 31213) to 
determine if the AutoLITTTM met the cost criterion. 
Therefore, using the revised FY 2011 thresholds, the total average 
standardized charge per case would also exceed the cost thresholds 
established by CMS of $58,591 for MS-DRG 26 and $47,033 for MS-DRG 27. 
Because the total average standardized charge per case exceeds the 
threshold amount for each individual MS-DRG to which the technology 
would map (MS-DRGs 25, 26, and 27), the applicant maintains that the 
AutoLITTTM would meet the cost criterion. In the FY 2011 
IPPS/LTCH PPS proposed rule, we invited public comment on whether or 
not the

[[Page 50146]]

AutoLITTTM meets the cost criterion for a new technology 
add-on payment for FY 2011.
    Comment: In supplemental information provided to CMS, the applicant 
noted that, after further reviewing its cost analysis from the HCUP 
hospital data that was presented in the FY 2011 IPPS/LTCH PPS proposed 
rule, the applicant discovered that it inadvertently used discharges 
from all hospitals, including non-Medicare data, instead of only using 
Medicare data. Therefore, the applicant updated its analysis from the 
proposed rule and filtered the claims data in the HCUP database for 
Medicare claims with the same primary diagnosis codes listed above. 
Instead of the FY 2007 MedPAR database, the applicant used the most 
recent updated MedPAR database on the HCUP Web site, which was the FY 
2008 MedPAR file. The applicant found a total of 12,816 cases with an 
average standardized charge of $58,061. Similar to above, adding the 
estimated charges related to the device to the average standardized 
charge per case resulted in a total average standardized charge per 
case of $96,947 ($58,061 plus $38,886). As noted above, the analysis 
from the HCUP database established a case-weighted average charge per 
case in the aggregate, but it did not provide a case-weighted average 
standardized charge per case by MS-DRG. Similar to above, the applicant 
maintains that the total average standardized charge per case 
significantly exceeds the revised cost thresholds established by CMS 
for FY 2011 in Table 10 (75 FR 31213) of $84,164 for MS-DRG 25. 
Additionally, the applicant maintains that the total average 
standardized charge per case would also exceed the cost thresholds 
established by CMS of $58,591 for MS-DRG 26 and $47,033 for MS-DRG 27.
    Response: Even with the applicant's revised HCUP analysis, the 
applicant still did not establish a case-weighted average standardized 
charge per case by MS-DRG as required by 42 CFR 412.87(b)(3). To 
determine whether the applicant met the cost criterion, we performed an 
analysis of MedPAR data. We searched the FY 2009 MedPAR file for cases 
with a primary diagnosis that begins with a prefix of 191; diagnosis 
code 225.0; or diagnosis code 239.6. We found 1,711 cases (or 34.2 
percent of all cases) in MS-DRG 25, 1,587 cases (or 31.7 percent of all 
cases) in MS-DRG 26, and 1,702 cases (or 34 percent of all cases) in 
MS-DRG 27. The average standardized charge per case was $86,678 for MS-
DRG 25, $63,089 for MS-DRG 26, and $47,033 for MS-DRG 27, equating to a 
case-weighted average standardized charge per case of $65,685.
    The average standardized charge per case does not include charges 
related to the AutoLITTTM; therefore, it is necessary next 
to add the charges related to the device to the average standardized 
charge per case to evaluate whether the cost threshold criterion is 
met. As noted above, the applicant estimates $38,886 in charges related 
to the AutoLITTTM. Adding the estimated charges related to 
the device to the average standardized charge per case (based on the 
case distribution from the FY 2009 MedPAR claims data analysis) 
resulted in a case-weighted average standardized charge per case of 
$104,571 ($65,685 plus $38,886).
    Although we have established a case-weighted average standardized 
charge per case, the case-weighted average standardized charge per case 
above does not take into consideration reduced recovery time and a 
reduced rate of complications that would affect the total case-weighted 
average standardized charge per case and the average length of stay. 
Both would decrease the costs associated with the AutoLITT device. 
Therefore, we made the following calculations, taking into 
consideration our concerns as stated above, in order to determine if 
the AutoLITTTM meets the cost criteria. The average length 
of stay for cases we found in the FY 2009 MedPAR file was 7.4 days. 
This results in an average charge per day of $8,824 (the case-weighted 
average standardized charge of $65,685 divided by 7.4 days). However, 
we note that the first day of an inpatient hospitalization is typically 
more expensive than subsequent days in the stay. Nonetheless, absent 
specific charge per day data, we are equally dividing charges for 
purposes of evaluating the decreased costs associated with the reduced 
length of stay using AutoLITTTM. This should provide us with 
a lower charge estimate than what it otherwise would be if we had 
actual charge data. That is, if the device meets the cost criterion 
based on the lower estimate, it should meet it based on the actual 
data, which would be higher. Based on data from the applicant's 
clinical trial, the average length of stay for cases with the 
AutoLITTTM was 3.8 days. Using the difference of 3.6 days 
(7.4 days minus 3.8 days) from cases in the FY 2009 MedPAR file to the 
applicant's clinical trial, we determined it is necessary to deduct a 
total of $32,154 in charges (3.6 times $8,824) from the case-weighted 
average standardized charge per case of $65,685, as determined above. 
This resulted in a reduced case-weighted average standardized charge 
per case of $33,531. We then added the estimated charges related to the 
device to the reduced average standardized charge per case and 
determined a revised case-weighted average standardized charge per case 
of $72,417 ($33,531 plus $38,886 (charges related to the 
AutoLITTTM); all calculations above were performed using 
unrounded numbers).
    Using the revised FY 2010 thresholds published in Table 10 (75 FR 
31213), the case-weighted threshold for MS-DRGs 25, 26, and 27 was 
$63,408 (again, all calculations above were performed using unrounded 
numbers). Based on this analysis, the revised case-weighted average 
standardized charge per case for the applicable MS-DRGs exceed the 
case-weighted threshold amount. Additionally, we also conducted a 
sensitivity test with a majority of cases mapping to MS-DRG 25 (because 
the applicant maintained that most patients' conditions would be an MCC 
and the case would map to this MS-DRG and because patients with GBM are 
more likely to be more severely ill than patients with other types of 
tumors) and the remaining cases mapping to MS-DRGs 26 and 27. With a 
majority of cases mapping to MS-DRG 25, we used a higher percentage of 
charges from MS-DRG 25 to determine the case-weighted threshold and the 
case-weighted average standardized charge per case, which would make it 
more difficult for the case-weighted average standardized charge per 
case to exceed the case-weighted threshold (because the threshold for 
MS-DRG 25 is the highest of MS-DRGs 25, 26, and 27). The sensitivity 
test demonstrated that even with a majority of cases mapping to MS-DRG 
25, the case-weighted standardized charge per case would exceed the 
case-weighted threshold.
    After reviewing all of the data summarized above, we believe the 
applicant has provided a sufficient explanation for the additional 
charges associated with the AutoLITTTM, even with a reduced 
recovery time and a reduced rate of complications. Additionally, our 
analysis of the FY 2009 MedPAR data demonstrates that the average 
standardized charge per case (for cases eligible for the 
AutoLITTTM) does exceed the case-weighted cost threshold 
(even with a majority of cases mapping to a MS-DRG). Furthermore, the 
applicant did provide charge data from two centers verifying the 
expected high charges associated with the cases of the 
AutoLITTTM. Therefore, we believe that the 
AutoLITTTM meets the cost criterion.
    With respect to the substantial clinical improvement criterion, the

[[Page 50147]]

applicant maintains that it meets this criterion in its application. 
Specifically, the applicant stated that several non-
AutoLITTTM clinical trials have demonstrated that nonfocused 
LITT (and more recently, the use of LITT plus MRI) improved survival, 
quality of life, and recovery in patients with advanced GBM tumors and 
advanced metastatic brain tumors that cannot be effectively treated 
with surgery, radiosurgery, radiation, chemotherapy, or any currently 
available clinical procedure. In a number of these patients, nonfocused 
LITT was the treatment of last resort, due to either the 
unresponsiveness to or inability of these therapies to treat the brain 
tumor (due to tumor location, type, or size, among other reasons). The 
applicant also maintains that when compared to craniotomy, it offers 
improved clinical outcomes using nonfocused LITT, including reduced 
recovery time and a reduced rate of complications (that is, infection, 
brain edema). The applicant stated that these factors, as discussed in 
the FY 2001 final rule (66 FR 46914 through 46915) demonstrate that the 
AutoLITTTM meets the new technology criterion for 
substantial clinical improvement.
    The applicant further asserts that AutoLITTTM would 
represent a substantial clinical improvement over existing standards of 
care for a number of reasons and should build upon less sophisticated, 
nonfocused LITT therapies. These clinical improvements cited by the 
applicant include: a less invasive method of tumor ablation, 
potentially leading to lower complication rates post procedure 
(infection, edema); an ability to employ multiple interventions over 
shorter periods of time and an ability to be used as a treatment of 
last resort (radiosurgery is limited due to radiation dosing and 
craniotomy is limited to 1 to 2 procedures); an ability to be used in 
hard-to-reach brain tumors (the AutoLITTTM may be used as a 
treatment of last resort); and a shorter recovery time (the possibility 
for same day surgery, which has been demonstrated above with nonfocused 
LITT).
    In the FY 2011 IPPS/LTCH PPS proposed rule, we stated that, while 
we recognize the future potential of this interesting therapy, we have 
concerns that, to date, the AutoLITTTM has been used for the 
treatment of only a few patients as part of a safety evaluation with no 
comparative efficacy data and, therefore, there may not be sufficient 
objective clinical evidence to determine if the AutoLITTTM 
meets the substantial clinical improvement criteria. The applicant did 
note in its presentation at the new technology town hall meeting that 
it is currently conducting a clinical trial with a summary report 
expected in the near future. In the FY 2011 IPPS/LTCH PPS proposed 
rule, we welcomed additional clinical data to demonstrate whether the 
AutoLITTTM meets the substantial clinical improvement 
criterion and invited public comment on whether or not the 
AutoLITTTM meets the substantial clinical improvement 
criterion.
    Comment: A number of commenters who are physicians agreed with the 
applicant that the AutoLITTTM meets the substantial clinical 
improvement criterion. Two commenters (that conducted the clinical 
trial) described their experience with the AutoLITTTM in the 
clinical trial for use in patients with recurrent GBM who were 
demonstrated to be refractory to other treatment options. (We note that 
this clinical trial is also discussed below in a separate comment from 
the manufacturer). The commenters treated 10 patients with the 
AutoLITTTM and noted the following: (1) A short recovery 
time that allowed patient discharges within 2 to 3 days, compared to 3 
to 5 days following a craniotomy; (2) patients were able to ambulate 
more quickly, typically within 3 to 4 hours, compared to craniotomy 
which often takes 6 or more hours of recovery time prior to becoming 
ambulatory (The commenters noted that this is important in the 
prevention of venous thrombosis, commonly seen in patients with GBM.); 
and (3) adverse events have been minimal and do not exceed those 
published for first or second craniotomies for glioblastomas.\5\ The 
commenters noted that, over time, adverse events are likely to decrease 
as clinical experience is gained with the AutoLITTTM and 
will likely be less than those experienced with craniotomy, due to the 
less invasive nature of the AutoLITTTM.
---------------------------------------------------------------------------

    \5\ Chang et al., J. Neurosurg., vol. 98, pp. 1175-1181, 2003.
---------------------------------------------------------------------------

    Other commenters who have reviewed the most recent clinical data on 
the AutoLITTTM expressed their support for the clinical 
benefits of the AutoLITTTM. One commenter stated it foresees 
using the AutoLITTTM on deep seated primary tumors for which 
total resection would risk a major insult to the brain and/or its 
functional structures. The commenter further stated that use of the 
AutoLITTTM would minimize hospitalization, and possibly 
reduce complications, such as thromboembolic events, seen with other 
therapies. Another commenter added that there are many patients with 
metastases to the brain and more than 10 percent of patients who 
receive Gamma Knife treatment for such brain metastases have recurrence 
of the metastasis at or near the original site. The commenter stated it 
would consider the AutoLITTTM as an alternative to Gamma 
Knife treatment in these cases because Gamma Knife treatment 
dramatically increases the risk of symptomatic radiation necrosis. All 
of these commenters stated that the AutoLITTTM offers 
additional quality of life in patients with GBM due to its reduced 
recovery time and its use as a less invasive alternative treatment to 
other available treatment options.
    Response: We appreciate these comments. Some commenters described 
their positive experiences using the AutoLITTTM which 
reduced recovery time for the patient. Other commenters noted that they 
would use the AutoLITTTM as an alternative to other 
available treatments because it is less invasive and provides an 
improved quality of life for the patient outside the hospital. We 
considered the comments above in our determination (indicated below) on 
whether the AutoLITTTM represents a substantial clinical 
improvement.
    Comment: The manufacturer submitted two public comments that 
addressed the substantial clinical improvement criterion. The first 
comment reiterated that options available to treat patients with brain 
tumors are limited in general, and these limitations are magnified by 
the fact that many patients are refractory to currently available 
options such as surgical resection via craniotomy and radiotherapy. The 
comment further stated that the literature on AutoLITTTM and 
LITT has demonstrated that the AutoLITTTM offers another 
clinically viable option to brain cancer patients, especially after 
other options have failed.
    Below we highlight some of the results of the clinical studies 
cited by the commenter:
     Time to progression of disease and survival were longer 
for brachytherapy plus LITT compared to brachytherapy;\6\
---------------------------------------------------------------------------

    \6\ Sneed, PK et al. (1998). Survival benefit of hyperthermia in 
a prospective randomized trial of brachytherapy boost + hyperthermia 
for glioblastoma multiforme. International J. Radiation Oncology 
Biol. Phys.; 1998: 287-295.
---------------------------------------------------------------------------

     Survival time using LITT/MRI therapy was substantially 
longer than the natural history of the disease and longer than using 
chemotherapy alone. After a short surgeon learning curve, the

[[Page 50148]]

median survival time increase by up to a factor of 4x (p = 0.0267);\7\
---------------------------------------------------------------------------

    \7\ Schwarzmaier, HJ et al. (2006). MR guided laser-induced 
interstitial thermotherapy of recurrent glioblastoma multiforme: 
Preliminary results in 16 patients. Eur. J. Radiology; 59: 208-215.
---------------------------------------------------------------------------

     Use of MRI guidance in brain surgery alone has 
demonstrated a statistically significant reduction in major 
complications versus surgery without MRI guidance (p = 0.019);\8\ and
---------------------------------------------------------------------------

    \8\ Paleologos, TS et al. (2000). Clinical Utility and Cost-
Effectiveness of Interactive Image Guided Craniotomy: Clinical 
Comparison between Conventional and Image Guided Meningioma Surgery. 
Neurosurgery; 47: 40-48.
---------------------------------------------------------------------------

     The combination of LITT and MRI guidance for treating 
metastatic intracranial tumors has been evaluated for safety and 
feasibility \9\ in a study of four patients that were refractory to 
other treatments. The patients demonstrated on follow up that in all 
cases the procedure was well tolerated without secondary effect and 
patients were discharged within 14 hours after the procedure. Upon a 
90-day follow up, tumor volume demonstrated a gradual and steady 
decrease, with no recurrence within the thermal ablation zones.
---------------------------------------------------------------------------

    \9\ Carpentier, A. et al. (2008). Real-Time Magnetic Resonance 
Guided Laser Thermal Therapy for Focal Metastatic Brain Tumors. 
Neurosurgery; 63: ONS21-ONS29.
---------------------------------------------------------------------------

    The commenter concluded that it carefully reviewed the available 
literature on LITT and believes that the AutoLITTTM has 
demonstrated the following positive clinical benefits for patients: a 
robust and clinical validated integrated platform of clinically useful 
technologies (LITT, MRI guidance, real time MR monitoring of thermal 
energy applications) that works within the existing clinical frameworks 
available at major medical centers; effective abilation of targeted 
tumor tissue; short length of stay; ability to ambulate early; and 
minimally lasting or late developing side effects. As a result, the 
commenter believes that the AutoLITTTM represents a new, 
clinically viable option for brain cancer patients and meets the 
substantial clinical improvement criteria.
    The other comment from the manufacturer discussed the applicant's 
clinical trial. Some of these data were discussed above in the comments 
we received from physicians in support of the AutoLITTTM. 
The manufacturer provided more detail about the design of the clinical 
study. The manufacturer stated that it conducted a clinical trial of 10 
patients with tumors in locations that either made access to the tumor 
without risk of complications difficult or made total gross resection 
of the entire mass impossible or impractical without significant risk. 
All patients treated in the study had first or second GBM tumors with 
poor prognosis. The Karnofsky Performance Scale used to measure 
functional and mental status was assessed pre- and post-treatment and 
remained the same or improved during the post treatment interval. 
Finally, as also mentioned in the comments from the physicians in 
support of the AutoLITTTM, all patients in the clinical 
study were discharged within 2 to 7 days with a mean of 3.8 days, which 
compares favorably to a 12[dash]day average length of stay for cases 
that map to MS-DRG 25.
    Response: We thank the applicant and all of the commenters for 
providing additional clinical data to demonstrate that the 
AutoLITTTM meets the substantial clinical improvement 
criteria. With respect to substantial clinical improvement, we 
considered all of the case-specific clinical information presented by 
the applicant and the public to determine whether there is evidence to 
support a conclusion that use of the AutoLITTTM represents a 
substantial clinical improvement. Specifically, we focused our review 
on the peer-reviewed medical literature and the results of the clinical 
studies. We remain concerned that no prospective comparative data exist 
to help understand the benefit of the technology compared to other 
modalities.
    However, we agree that the AutoLITTTM can improve 
clinical outcomes by providing an alternative treatment for brain 
tumors that potentially has a lower risk of adverse events and is less 
invasive compared to craniotomy. Also, the comments we received from 
the physicians and the manufacturer noted that the 
AutoLITTTM provides a new treatment option in cases where no 
existing treatment was available due to the risk of complications or 
total gross resection of the entire mass made impossible or impractical 
without significant risk. Lastly, we received positive comments from 
physicians who indicated that the AutoLITTTM is a less 
invasive treatment than other alternative treatments such as craniotomy 
and produced positive clinical outcomes by reducing average length of 
stay, quicker ambulation, and a reduction of other adverse events that 
occur in cases of first or second craniotomies for glioblastomas. 
Although we continue to believe that limited, anecdotal reports from 
physicians using a new technology are insufficient to demonstrate 
substantial clinical improvement over existing technologies, such 
information, when considered together with peer-reviewed medical 
literature and results of clinical studies, can help to inform our 
decision. Therefore, after reviewing the totality of the evidence, we 
have determined that the AutoLITTTM meets the substantial 
clinical improvement criterion.
    Accordingly, after consideration of the clinical evidence received, 
we are approving the AutoLITTTM for new technology add-on 
payments in FY 2011. Consistent with the applicant's clinical trial, 
the add-on payment is intended only for use of the device in cases of 
Glioblastoma Multiforme. Therefore, we intend to limit the new 
technology add-on payment to cases involving the AutoLITTTM 
in MS-DRGs 25, 26, and 27. Cases involving the AutoLITTTM 
that are eligible for the new technology add-on payment will be 
identified by assignment to MS-DRGs 25, 26, and 27 with a procedure 
code of 17.61 in combination with a primary diagnosis codes that begins 
with a prefix of 191. We note that using the procedure and diagnosis 
codes above and restricting the add-on payment to cases that map to MS-
DRGs 25, 26, and 27 is consistent with information provided by the 
applicant, which demonstrated that cases of the AutoLITTTM 
would only map to MS-DRGs 25, 26, and 27. Procedure code 17.62 does not 
map to MS-DRGs 25, 26, or 27 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 Sec.  412.88(a)(2) of the regulations, new 
technology add-on payments are limited to the lesser of 50 percent of 
the average cost of the device or 50 percent of the costs in excess of 
the MS-DRG payment for the case. As a result, the maximum add-on 
payment for a case involving the AutoLITTTM is $5,300.
b. LipiScanTM Coronary Imaging System
    InfraReDx, Inc. submitted an application for new technology add-on 
payments for FY 2011 for the LipiScanTM Coronary Imaging 
System (LipiScanTM). We note that an application was also 
submitted for FY 2010, but the application was denied on the grounds 
that it did not meet the substantial clinical improvement criterion at 
that time. The application for FY 2011 contains some additional 
clinical and charge data that were not available at the time that the 
FY 2010 new technology add-on payment decisions were made.
    The LipiScanTM device is a diagnostic tool that uses 
Intravascular Near Infrared Spectroscopy (INIRS) during an invasive 
coronary catheterization to scan the artery wall in order to determine 
coronary plaque composition.

[[Page 50149]]

The purpose of the device is to identify lipid-rich areas in the artery 
because such areas have been shown to be more prone to rupture. The 
procedure does not require flushing or occlusion of the artery. INIRS 
identifies the chemical content of plaque by focusing near infrared 
light at the vessel wall and measuring reflected light at different 
wavelengths (that is, spectroscopy). The LipiScanTM system 
collects approximately 1,000 measurements per 12.5 mm of pullback, with 
each measurement interrogating an area of 1 to 2 mm\2\ of lumen surface 
perpendicular to the longitudinal axis of the catheter. When the 
catheter is in position, the physician activates the pullback and 
rotation device and the scan is initiated providing 360 degree images 
of the length of the artery. The rapid acquisition speed for the image 
freezes the motion of the heart and permits scanning of the inside of 
the arterial wall in less than 2 minutes. When the catheter pullback is 
completed, the console displays the scan results, which are referred to 
as a ``chemogram'' image. The chemogram image requires reading by a 
trained user, but, according to the applicant, was designed to be 
simple to interpret.
    With regard to the newness criterion, the LipiScanTM 
received a 510K FDA clearance for a new indication on April 25, 2008, 
and was available on the market immediately thereafter. On June 23, 
2006, InfraReDx, Inc. was granted a 510K FDA clearance for the 
``InfraReDx Near Infrared (NIR) Imaging System.'' Both devices are 
under the common name of ``Near Infrared Imaging System'' according to 
the 510K summary document from the FDA. However, the InfraReDx NIR 
Imaging System device that was approved by the FDA in 2006 was approved 
``for the near infrared imaging of the coronary arteries,'' whereas the 
LipiscanTM device cleared by the FDA in 2008 is for a 
modified indication. The modified indication specified that 
LipiscanTM is ``intended for the near-infrared examination 
of coronary arteries * * *, the detection of lipid-core-containing 
plaques of interest * * * [and] for the assessment of coronary artery 
lipid core burden.'' In the FY 2010 IPPS/RY 201 LTCH PPS proposed rule 
(74 FR 24132 through 24134), we noted that we had concerns with whether 
LipiscanTM was substantially similar to its predicate device 
that was approved by the FDA in 2006. However, those concerns were 
addressed by the manufacturer during the comment period. Specifically, 
the manufacturer stated that there were technical problems with the 
original device and that LipiScanTM had to be modified in 
the following ways:

------------------------------------------------------------------------
                                                        Marketed 2008
                                2006 NIRS device          LipiScan
------------------------------------------------------------------------
Console.....................  No display of         Results displayed
                               results of scan.      immediately.
Catheter....................  Saline-filled with    Air-filled with no
                               microbubble problem   microbubble
                               obscuring many        problem.
                               scans.
Algorithm...................  No algorithmic        Algorithm validated
                               processing of NIR     in over 1,000
                               signals--no means     autopsy
                               of certifying that    measurements
                               lipid core plaque     proving that NIRS
                               is present.           can detect lipid
                                                     core plaque, and
                                                     providing diagnosis
                                                     of lipid core
                                                     plaque to the MD
                                                     during the case.
------------------------------------------------------------------------

    The problems with the LipiScanTM device that was 
approved in 2006 were addressed in the second device that was granted 
FDA approval in April 2008. The LipiScanTM device was not 
marketed until after its second FDA clearance. Therefore, we no longer 
needed to make a determination as to whether the newer device was 
substantially similar to the predicate device and we determined in the 
FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43815) that 
LipiscanTM would be considered to be ``new'' to the market 
as of the date of its FDA approval in April 2008. Because a technology 
may be considered new for a period of up to 3 years if, during the 
third year, the technology is new for more than 6 months of the fiscal 
year, it appears that the technology would still be in the newness 
period for FY 2011. In the FY 2011 IPPS/LTCH PPS proposed rule, we 
welcomed public comment on whether LipiscanTM meets the 
newness criterion.
    Comment: One commenter, the manufacturer, stated that the 
LipiScanTM met the newness criterion based on its FDA 
approval date.
    Response: We agree that the LipiScanTM is new as of the 
date of its supplemental FDA approval, April 25, 2008, because the 
manufacturer provided information to us to show that the device was not 
marketed until after the supplemental FDA approval. Accordingly, 
LipiscanTM meets the newness criterion.
    We note that the LipiscanTM technology is identified by 
ICD-9-CM procedure code 38.23 (Intravascular spectroscopy), which 
became effective October 1, 2008, and cases involving the use of this 
device generally map to MS-DRG 246 (Percutaneous Cardiovascular 
Procedures with Drug-Eluting Stent(s) with MCC or 4+ Vessels/Stents); 
MS-DRG 247 (Percutaneous Cardiovascular Procedures with Drug-Eluting 
Stent(s) without MCC); MS-DRG 248 (Percutaneous Cardiovascular 
Procedures with Non-Drug-Eluting Stent(s) with MCC or 4+ Vessels/
Stents); MS-DRG 249 (Percutaneous Cardiovascular Procedures with Non-
Drug-Eluting Stent(s) without MCC); MS-DRG 250 (Percutaneous 
Cardiovascular Procedures without Coronary Artery Stent with MCC); and 
MS-DRG 251 (Percutaneous Cardiovascular Procedures without Coronary 
Artery Stent without MCC).
    In an effort to demonstrate that the technology meets the cost 
criterion, the applicant used the FY 2010 IPPS/RY 2010 LTCH PPS final 
rule After Outliers Removed (AOR) file (posted on the CMS Web site) to 
identify cases potentially eligible for LipiscanTM. The 
applicant believes that every case within MS-DRGs 246, 247, 248, 249, 
250, and 251 is eligible for LipiscanTM. In addition, the 
applicant believes that LipiscanTM will be evenly 
distributed across patients in each of those six MS-DRGs (16.7 percent 
within each MS-DRG). Using data from the AOR file, the applicant found 
the average standardized charge per case for MS-DRGs 246, 247, 248, 
249, 250, and 251 was $67,531, $44,485, $62,936, $40,149, $59,416, and 
$38,864, respectively, equating to a case-weighted average standardized 
charge per case of $52,230 (calculation performed using unrounded 
numbers). The applicant indicated that the case-weighted average 
standardized charge per case does not include charges related to 
LipiscanTM; therefore, it is necessary to add the charges 
related to the device to the average case-weighted standardized charge 
per case to evaluate the cost threshold criterion. Although the 
applicant submitted data related to the estimated cost per case of 
LipiscanTM, the applicant stated that the cost of the device 
is proprietary information. Based on a sampling of all 10 non-Veterans 
Administration

[[Page 50150]]

hospitals that are actively using the device, the applicant determined 
that the average charge for the device was $7,497. Adding the estimated 
average charge related for the device to the case-weighted standardized 
charge per case (based on the case distribution from the applicant's FY 
2010 AOR analysis) results in a total case-weighted average 
standardized charge per case of $59,727 ($52,230 plus $7,497). In the 
FY 2011 IPPS/LTCH PPS proposed rule, we used the FY 2011 thresholds 
published in Table 10 of the FY 2010 IPPS/RY 2010 LTCH PPS final rule 
(74 FR 44173) to determine if the LipiscanTM met the cost 
criterion. For this final rule, due to the provisions of section 
3401(a) of the Affordable Care Act which adjusted the FY 2010 
applicable percentage increase (thus requiring CMS to revise the FY 
2010 standardized amounts), we used the revised FY 2011 thresholds as 
published in the FY 2010 IPPS/RY 2010 LTCH PPS notice issued in the 
Federal Register on June 2, 2010 (75 FR 31213) to determine if the 
LipiscanTM meet the cost criterion. Based on the revised FY 
2011 Table 10 thresholds, the case-weighted threshold for MS-DRGs 246, 
247, 248, 249, 250, and 251 is $56,466 (all calculations above were 
performed using unrounded numbers). Because the applicant's calculation 
of the total case-weighted average standardized charge per case for the 
applicable MS-DRGs exceeds the case-weighted threshold amount, the 
applicant maintains that LipiscanTM meets the cost 
criterion.
    We note that in the applicant's analysis of the cost criterion, 
instead of determining the case-weighted average standardized charge 
per case and the case-weighted threshold amount based on the actual 
number of cases from the FY 2010 AOR file in the applicable MS-DRGs 
that are eligible for the LipiscanTM, the applicant's 
analysis assumed an even distribution of patients in the applicable MS-
DRGs. However, the data from the FY 2010 AOR file shows a varied 
distribution of cases in each of the applicable MS-DRGs. We believe the 
more appropriate way to determine the case-weighted average 
standardized charge per case and the case-weighted threshold amount for 
evaluating the cost criterion is to use the actual distribution of 
cases in the applicable MS-DRGs based on the number of cases from the 
AOR file because this would more accurately reflect the number and type 
of Medicare cases typically treated in the applicable MS-DRGs. 
Moreover, this would better conform to the applicant's assertion that 
the probability of use of LipiscanTM is the same in each of 
those six MS-DRGs. Using data from the FY 2011 AOR file (in the 
proposed rule, we used the FY 2010 AOR file; however, for this final 
rule, we used the most recent data available, which is the FY 2011 AOR 
file), for MS-DRGs 246, 247, 248, 249, 250, and 251, there were 30,663, 
141,780, 14,281, 46,037, 7,591, and 36,059 cases, respectively. Using 
this case distribution and the average standardized charge per case for 
MS-DRGs 246, 247, 248, 249, 250, and 251 (that is, $73,006, $48,275, 
$67,954, $44,336, $65,238, and $44,504, respectively, as stated above), 
we calculated that the case-weighted average standardized charge per 
case is $51,353. As the applicant indicated above, the case-weighted 
average standardized charge per case does not include charges related 
to LipiscanTM. Therefore, it is necessary to add the average 
charge of $7,497 related to the device to the case-weighted 
standardized charge per case to evaluate the cost threshold criterion. 
Adding the estimated charges related to the device to the case-weighted 
average standardized charge per case (based on the case distribution 
from the FY 2011 AOR final rule file) results in a total case-weighted 
average standardized charge per case of $58,850 ($51,353 plus $7,497). 
Using the revised FY 2011 thresholds published in Table 10 of the FY 
2010 IPPS/RY 2010 LTCH PPS notice (75 FR 31213) and the actual case 
distribution from the FY 2011 AOR file, the case-weighted threshold for 
MS-DRGs 246, 247, 248, 249, 250, and 251 is $52,940 (all calculations 
above were performed using unrounded numbers). Because this alternative 
calculation of total case-weighted average standardized charge per case 
for the applicable MS-DRGs also exceeds the case-weighted threshold 
amount, it appears that LipiscanTM would meet the cost 
criterion. In the FY 2011 IPPS/LTCH PPS proposed rule, we invited 
public comment on whether or not LipiscanTM meets the cost 
criterion. We did not receive any public comments on whether or not 
LipiscanTM meets the cost criterion. Therefore, for FY 2011, 
we have determined that LipiscanTM meets the cost criterion.
    With regard to substantial clinical improvement, we determined that 
the FY 2010 new technology add-on payment application for 
LipiscanTM did not meet the substantial clinical improvement 
criterion because the evidence and information available at the time 
the new technology decisions were made did not allow CMS to determine 
that the application represented a substantial clinical improvement 
over existing technologies. Specifically, we found that there was a 
lack of evidence that demonstrated that LipiscanTM affected 
the medical management of patients in which the device was used.
    The applicant maintains that the device meets this criterion for 
the following reasons. The applicant noted that from November 2008 to 
2009, the number of patients in whom LipiscanTM has been 
used for clinical purposes has increased from 100 to 500 and during the 
same period, the number of hospitals using the product has increased 
from 6 to 16. In addition, the applicant asserts that ``during the past 
year, two LipiscanTM publications demonstrate that dilation 
of a lipid core plaque is responsible for slow or no reflow and 
myocardial infarction during the procedure.'' The applicant noted that 
this is important because ``several treatments are available that could 
prevent this stenting complication.'' The applicant referenced the 
``700 patient PROSPECT Study'' which was presented at the Transcatheter 
Cardiovascular Therapeutics Conference in September 2009 and found that 
20.4 percent of patients experience a new event in the 3.4 years 
following stenting. The applicant pointed to that finding as evidence 
that there is a need for improved safety and efficacy of stenting and 
maintained that LipiscanTM offers clinicians the ability to 
make decisions that result in such improvements.
    The PROSPECT (Providing Regional Observations to Study Predictors 
of Events in the Coronary Tree) study is a cohort study of patients 
with acute coronary syndrome who underwent percutaneous coronary 
angioplasty and stenting (percutaneous coronary intervention). 
Following the procedure, angiography and intravascular ultrasound 
(IVUS) were performed. If a patient had a subsequent event, a new 
angiogram and IVUS image were obtained and compared to the original 
results. The investigators reported that ``angiographically mild 
lesions with certain morphologic features on grayscale and IVUS present 
with a 3 year cardiac event rate of 17%, versus other morphologies 
(indistinguishable by conventional angiograms) with three year event 
risks of less than 1%.'' We are concerned that with this type of study 
design, it is not possible to determine whether the information for the 
IVUS image would have altered the angioplasty and stenting procedures 
since the images were collected after the procedure. The results are 
suggestive, but a prospective study is needed to determine the clinical 
utility of IVUS

[[Page 50151]]

and whether use of IVUS leads to changes in clinical practice or 
improvements in health outcomes. The PROSPECT study generated a 
hypothesis that use of IVUS may help determine which plaques are 
vulnerable to future events but further clinical research is needed to 
confirm this hypothesis. We note that the PROSPECT study was presented 
at the Transcatheter Cardiovascular Therapeutics Conference in 
September 2009, but that the study results have yet to be published in 
a peer-reviewed journal. We also note that methods and conclusions from 
a study may change from what was verbally presented during the peer 
review process that is required to publish the study results.
    As it did in its prior application, the applicant noted that the 
September 1, 2001 final rule states that one facet of the criterion for 
substantial clinical improvement is ``the device offers the ability to 
diagnose a medical condition in a patient population where the medical 
condition is currently undetectable or offers the ability to diagnose a 
medical condition earlier in a patient population than allowed by 
currently available methods. There must also be evidence that use of 
the device to make a diagnosis affects the management of the patient'' 
(66 FR 46914). The applicant believes that LipiscanTM meets 
all facets of this criterion. The applicant asserted that the device is 
able to detect a condition that is not currently detectable. The 
applicant explained that LipiScanTM is the first device of 
its kind to be able to detect lipid-core-containing plaques of interest 
and to assess of coronary artery lipid core burden. The applicant 
further noted that FDA, in its approval documentation, has indicated 
that ``This is the first device that can help assess the chemical 
makeup of coronary artery plaques and help doctors identify those of 
particular concern.''
    In addition, the applicant stated that the LipiScanTM 
chemogram permits a clinician to detect lipid-core-containing plaques 
in the coronary arteries compared to other currently available devices 
that do not have this ability. The applicant explained that the 
angiogram, the conventional test for coronary atherosclerosis, shows 
only minimal coronary narrowing. However, the applicant indicated that 
the LipiScanTM chemogram has the ability to reveal when an 
artery contains extensive lipid-core-containing plaque at an earlier 
stage.
    The applicant also noted that the device has the ability to make a 
diagnosis that better affects the management of the patient. 
Specifically, the applicant asserted that LipiScanTM ``is 
currently used in the management of patients undergoing coronary 
stenting to improve the safety and efficacy of the procedure'' and that 
while stenting has steadily improved, its results are not optimal in 
approximately 30 percent of cases due to 3 problems: (1) Peri-stenting 
MI due to embolization of lipid core contents and side branch 
occlusion; (2) major adverse coronary events (MACE) post stenting from 
difficulties at the stented site; and (3) MACE post stenting for non-
stented vulnerable sites. We note that in order to demonstrate that the 
technology represents a substantial clinical improvement, there must be 
evidence that use of the device to make a diagnosis affects the medical 
management of the patient and leads to improved clinical outcomes.
    The applicant described three case studies where each of the above 
problems was addressed by use of the LipiScanTM. In 
addition, the applicant asserts that the chemogram results are 
available to the interventional cardiologist during the PCI procedure, 
and have been found to be useful in decision-making. According to the 
applicant, physicians have reported changes in therapy based on 
LipiScanTM findings in 20 to 50 percent of patients in which 
the device has been used. According to the applicant, the most common 
use of LipiScanTM results has been by physicians for 
selection of the length of artery to be stented. In some cases a longer 
stent has been used when there is a lipid-core-containing plaque 
adjacent to the area that is being stented because a flow-limiting 
stenosis is present. The applicant also noted that, in some cases, 
physicians have chosen to use down-stream protective devices during 
stenting procedures on the basis of information gathered by use of 
LipiscanTM in several patients, and that this has directly 
impacted their outcome by capturing emboli and preventing further 
cardiac damage. Therefore, the applicant contends that the use of 
LipiScanTM by clinicians to select the length of artery to 
be stented and as an aid in selection of intensity of lipid-altering 
therapy, demonstrates that LipiScanTM affects the management 
of patients.
    In the proposed rule, we stated that while we recognized that the 
identification of lipid-rich plaques in the coronary vasculature holds 
promise in the management of coronary artery disease, we were concerned 
that statements in the FDA approval documents, as well as statements 
made by investigators in the literature, suggest that the clinical 
implications of identifying these lipid-rich plaques are not yet 
certain and that further studies need to be done to understand the 
clinical implications of obtaining this information.
    The applicant also submitted commentary from a group of 
interventional cardiologists who currently utilize the 
LipiScanTM device explaining the clinical benefits of the 
device. The applicant further noted that the device may have other 
potential uses that would be of clinical benefit, and studies are 
currently being conducted to investigate these other potential uses. 
The applicant explained that LipiScanTM offers promise as a 
means to enhance progress against the two leading problems in coronary 
disease management: (1) The high rate of second events that occur even 
after catheterization, revascularization, and the institution of 
optimal medical therapy; and (2) the failure to diagnose coronary 
disease early, which results in sudden death or MI being the first sign 
of the disease in most patients. The applicant further stated that the 
identification of coronary lipid-core-containing plaques, which can 
most readily be done in those already undergoing catheterization, is 
likely to be of benefit in the prevention of second events. In the 
longer term, the applicant stated that the identification of lipid-
core-containing plaques by LipiScanTM may contribute to the 
important goal of primary prevention of coronary events, which, in the 
absence of adequate diagnostic methods, continue to cause extensive 
morbidity, mortality and health care expenditures in Medicare 
beneficiaries and the general population.
    In the FY 2011 IPPS/LTCH PPS proposed rule, we welcomed public 
comment regarding whether or not the LipiScanTM technology 
represents a substantial clinical improvement for the Medicare 
population.
    Comment: One commenter, a trade association for interventional 
cardiologists, stated that it appreciated CMS' clarification in the 
proposed rule that ``a new diagnostic technology can meet the 
substantial clinical improvement criterion not just by demonstrating 
improvement in clinical outcomes, but also on the basis of evidence 
showing changes in the management of the patient.'' This commenter 
stated that, in light of the ``clarification,'' it supported the 
approval of the LipiScanTM for new technology add-on 
payments.
    Response: This comment mischaracterizes CMS' position regarding the 
required showing for a diagnostic technology to meet the

[[Page 50152]]

substantial clinical improvement criterion. CMS has not stated that a 
new diagnostic technology can meet the substantial clinical improvement 
criterion not just by demonstrating improvement in clinical outcomes, 
but also on the basis of evidence showing changes in the management of 
the patient. As we stated in the September 7, 2001 Federal Register, we 
follow certain guidelines to determine whether a technology represents 
a substantial clinical improvement. For a diagnostic technology, we 
make this determination by judging whether the technology ``offers the 
ability to diagnose a medical condition in a patient population where 
that medical condition is currently undetectable or offers the ability 
to diagnose a medical condition earlier in a patient population than 
allowed by currently available methods. There must also be evidence 
that use of the device to make a diagnosis affects the management of 
the patient.'' (66 FR 46914)
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43818), we 
further discussed what evidence an applicant must show in order to meet 
the substantial clinical improvement criterion for diagnostic 
technologies. We continue to believe that it would not be appropriate 
to provide additional payments for new diagnostic tools that fail to 
significantly change the management of patients, thereby improving 
clinical outcomes.
    Comment: Commenters supported deeming the LipiscanTM to 
be a substantial clinical improvement over currently available 
technologies. The manufacturer stated that the use of 
LipiScanTM increased from 100 cases in late 2008 to 900 
cases by June 2010, and that the number of hospitals using the 
technology has increased from 16 to 22. Additionally, over 350 patients 
are enrolled in the manufacturer's registry of cases involving 
LipiScanTM, COLOR. The manufacturer asserted that the data 
now available clearly identify three specific clinical implications of 
the detection of lipid core plaque: (1) To predict and minimize the 
occurrence of peri-stenting MI; (2) to identify the length of artery to 
be stented; and (3) to assist in selection of the intensity of 
pharmacologic therapy following stenting.
    The manufacturer submitted the chemogram images of 44 stabilized 
patients who were stented and in whom enzymes are available to 
determine if an MI occurred during stenting. Some of the 44 patients 
had the presence of large lipid core plaque; others did not. Eight of 
these patients were found to have experienced an MI during stenting (as 
identified by a cardiac enzyme elevation of greater than or equal to 3x 
ULN).
    With respect to LipiScanTM's ability to predict and 
minimize the occurrence of peri-stenting MI, the manufacturer 
referenced a doctor who had used filters or embolic protection during 
stenting. That doctor's summary is presented is the next paragraph. 
With respect to identifying the length of artery to be stented, the 
manufacturer stated that ``a case has now been observed in which acute 
stent thrombosis occurred when a stent * * * ended in a lipid core 
plaque, as documented in vivo by LipiScanTM.'' The 
manufacturer asserted that the evidence linking stent thrombosis to 
termination of a stent in a lipid core plaque has led physicians to use 
the image provided by LipiScanTM as a factor determining the 
length of artery to be stented. With respect to LipiScanTM 
assisting in the selection of the intensity of medical therapy post-
stenting, the manufacturer maintained that ``the development of 
[LipiScanTM] now makes it possible to perform in vivo 
assessment of the relationship between the presence of lipid core 
plaque and coronary event.'' The manufacturer submitted before and 
after chemograms in which the baseline chemogram did not show lipid 
core plaque. In subsequent days, ranging from 42 to 316 days, the 
manufacturer added, the patients still had no lipid rich plaque. The 
manufacturer asserted that these cases ``correctly predicted the 
continued patency of the artery and the absence of a coronary event 
related to that artery.'' The manufacturer showed a baseline and 325 
day follow-up of a patient who did have lipid rich plaque at baseline 
and had a re-stenosis of the lipid rich area 325 later.
    The commenters who supported this technology generally made 
anecdotal assertions in which the information provided by 
LipiScanTM was useful to them in managing their patients. 
One commenter, a physician, stated that he had used the identification 
of lipid core plaque (as identified by LipiScanTM) in an 
attempt to protect patient from the high risk of peri-stenting MI by 
``placing a distal protection filter beyond the lipid core stenosis to 
be dilated.'' This commenter asserted that such filters are used in 
dilation of saphenous vein grafts which have rates of periprocedural MI 
that can be reduced by approximately 40 percent if embolic protection 
is used. The commenter used protection devices before stenting in the 
native coronary arteries seven patients with large lipid core plaque as 
assessed by LipiScanTM. A filter was used in six patients 
and a proximal embolic protection was used in one patient. The 
commenter stated that he believed that the rate of infarction was lower 
in these seven patients than it would have been had embolic protection 
devices not been utilized, and that the two infarctions that did occur 
were smaller than they would have been if the full load of debris 
mobilized by balloon inflation--included the debris collected in the 
first basket--would have lodged in the distal vessels.
    Another physician stated that there ``have been anecdotal cases by 
multiple operators of the catastrophic no reflow phenomenon in patients 
who underwent angioplasty of a lipid rich stenosis 
[LipiScanTM] imaging may be able to identify these patients 
and hopefully prevent this catastrophic complication'' The same 
commenter stated that the diagnostic information provided by the 
LipiScanTM chemogram ``can be combined with well-established 
treatments * * * as a means to reduce stenting complications and peri-
stenting MI.'' Some commenters believed they could reduce the incidence 
of heart attacks that occur during stenting by using a filter to remove 
the lipid-rich plaque.
    Another commenter stated that, although he does not perform 
interventional cardiology procedures, he was interested in how the 
information provided by LipiScanTM could contribute to the 
prevention of initial and secondary coronary events. He described an 
asymptomatic man who participated in a clinical research study designed 
to evaluate the noninvasive identification of patients at increased 
risk of coronary events. He stated that the patient had a ``noninvasive 
CTA'' and that positive results led to a cardiac catherization in which 
LipiScanTM was used. Based on the chemogram, which showed 
extensive lipid core plaque, the clinicians decided to treat this 
patient with intensive lipid altering therapy. The commenter did not 
describe any followup for that patient.
    Another commenter, a physician, stated that he performed 
approximately 70 procedures with the LipiScanTM since 2008. 
The commenter asserted that in roughly 75 percent of these procedures, 
the ``lesion characterization information provided by the Lipiscan 
image affected [his] diagnosis of the patient's condition.'' In 
approximately 50 percent of the procedures, the commenter stated that 
the imaging information affected his treatment of the patient's 
condition. The commenter further stated that the most significant 
changes involved his decisions about which segments of the artery 
required treatment, the length of stent to employ, and the type of 
stent he chose to

[[Page 50153]]

employ. The commenter provided information on three specific cases in 
which he used LipiScanTM. In two of the cases, he indicated 
that he was better able to choose the length of stent and in one case, 
the use of LipiScanTM helped guide the selection of the type 
of stent to be used; although the patient did suffer a heart attack, 
the stenting was able to proceed.
    Response: In the case of LipiScanTM, we note that 
existing technologies may not be able to adequately identify lipid-rich 
plaques. However, methods exist currently for diagnosing CAD, including 
intravascular ultrasound (IVUS) and optical coherence tomography (OCT). 
We also reiterate that such diagnostic capability must also be linked 
to ``evidence that use of the device to make a diagnosis affects the 
management of the patient.'' In this case, the evidence currently 
available to CMS consists of anecdotal claims made by the applicant and 
one other commenter that the identification of such plaques affects the 
management of the patient. A review of the literature yielded no 
additional evidence base to support the applicant's claim regarding the 
effect of this technology on patient management. Furthermore, as we 
stated last year, we continue to believe that the prognostic 
implications of detecting lipid-rich plaque are not yet sufficiently 
well understood and documented in the peer-reviewed evidence base to 
conclude that its identification will lead to widespread and evidence-
based changes in the management of CAD.
    We believe that a diagnostic technology must necessarily have 
evidence-based, significant, and positive effects on the management of 
patients, thereby resulting in improved clinical outcomes generally 
accepted by clinicians, in order to meet the threshold of representing 
an advance that substantially improves, relative to technologies 
previously available, the diagnosis of Medicare beneficiaries.
    In response to the comments that the LipiScan, combined with a 
filter could reduce the incidence of peri-stenting MI, we note that use 
of such a filter in the coronary vasculature is not currently approved 
by the FDA and therefore is ``off-label'' to the extent that it is 
already being employed by physicians. The most recent article submitted 
to us by the applicant (dated 2010), an ``Imaging Vignette'' which does 
not appear to have been published yet, concludes: ``Additional studies 
are needed to quantitate the ability of NIRS to predict the occurrence 
of peri-stenting infarction and to test, in a randomized trial, the 
strategy of NIRS guided use of a distal protection device'' (Goldstein, 
et al). We agree with the commenters that use of such filter may 
ultimately reduce the incidence of peri-stenting MI to the extent that 
it aides the physician in placing the stent such that it does not cause 
the lipid core plaque to rupture. However, absent FDA approval for this 
indication, we do not believe it is appropriate to consider this use as 
part of our evaluation of substantial clinical improvement for the 
LipiScanTM. We also agree with the vignette's conclusion 
that additional clinical studies are needed to evaluate this claim.
    Therefore, while we recognize that LipiscanTM provides 
the ability to detect lipid-rich plaque which is currently undetectable 
by any other means, we are nonetheless still concerned that there is 
significant uncertainty within the clinical community regarding the 
prognostic implications of obtaining this information. We believe the 
evidence supplied by the applicant and the commenters that the device 
is affecting the management of the patient is not able to be validated 
broadly and is still anecdotal. Further, the discussions of the 
technology in the scientific studies submitted by the applicant 
acknowledge the possible potential of the technology to affect 
treatment in the future, but all stated that additional studies are 
necessary to determine its actual clinical utility. Specifically, in an 
editorial published in 2008, the author wrote, ``In conclusion, further 
studies are warranted to determine if detection of [lipid core plaque 
of interest] by [near infrared spectroscopy] imaging will contribute to 
enhanced prediction of outcomes in patients with known CAD'' (Young, 
2008). Also, in a letter to the editor in the Journal of the College of 
Cardiology, another author wrote about his experience with three 
patients over a period of three weeks to share his ``initial 
observations.'' The author wrote that ``* * * preliminary results 
suggest that intravascular investigation of chemical composition of a 
coronary plaque has become a clinical reality [but] it remains to be 
seen whether chemograms would perform better than the ultrasound of 
whether they will be able to predict adverse events and faciltate 
development of clinically effective strategies for management of 
vulnerable plaques before it is too late.'' (Maini, 2008) (emphasis 
added).
    In addition, we are concerned that there continues to be relatively 
few cases in which LipiscanTM has been used relative to the 
patient population in which it could potentially be used. As we have 
previously explained, we do not consider merely anecdotal claims that a 
device affects the management of the patient as sufficient evidence to 
demonstrate that a new diagnostic device affects the management of the 
patient, particularly where the device could be used for a relatively 
large patient population. Specifically, the applicant claims that the 
device could potentially be used in every patient who undergoes 
coronary angiography. To date, the device is only in use in 22 
hospitals total and, as noted above, there has been no data published, 
or even reported, from the hospitals where the device has been used, to 
indicate that management of patients has changed and that patients who 
received LipiScanTM had better clinical outcomes than those 
who did not.
    We believe that the lack of comparative data from hospitals showing 
statistically valid improved outcomes for the patients who received 
LipiScanTM compared to those who did not receive the 
technology further supports our previously stated view that the 
prognostic implications of detecting lipid-rich plaque are still not 
well enough understood and therefore the detection of such plaque 
cannot be reasonably assumed to automatically lead to evidence-based, 
significant, and positive in the management of patients with CAD 
generally accepted by clinicians, much less lead to improved clinical 
outcomes. We agree with the commenters and applicant that the 
identification of lipid-rich plaques by LipiScanTM may 
potentially hold promise and ultimately lead to changes in the 
management of CAD and that LipiscanTM has the potential to 
provide additional benefits in clinical outcomes of patients with CAD. 
However, we do not believe the evidence and information available at 
this time allows us to determine that it meets the substantial clinical 
improvement criterion.
    Accordingly, we are not approving LipiscanTM for new 
technology add-on payments for FY 2011.
c. LipiScanTM Coronary Imaging System With Intravascular 
Ultrasound (IVUS)
    InfraReDx, Inc. submitted an application for new technology add-on 
payments for FY 2011 for the LipiScanTM Coronary Imaging 
System with Intravascular Ultrasound (LipiScanTM IVUS). The 
LipiScanTM IVUS device is a diagnostic device that uses 
Intravascular near infrared spectroscopy (INIRS) combined with 
intravascular ultrasound (IVUS) during an invasive coronary angiography 
to determine the chemical composition of coronary plaques, which is 
accomplished using near infrared spectroscopy (INIRS) and to visualize 
stents and the structural features of

[[Page 50154]]

coronary lesions, which is accomplished using IVUS. This new technology 
combines both capabilities in a single catheter. The IVUS part of the 
device utilizes sound to interrogate the artery and, according to the 
applicant, provides an image of the size of the plaque, the degree of 
stenosis produced by the plaque, the size of the artery and the degree 
of expansion of the stent. The device consists of a single-use 
catheter, a console and a ``single pullback with the artery.'' The 
device is intended to be used in patients already undergoing coronary 
stenting.
    We note that the LipiScanTM IVUS device is identified by 
ICD-9-CM procedure codes 38.23 (Intravascular spectroscopy) and 00.24 
(Intravascular imaging of coronary vessels). Cases involving the use of 
this device generally map to MS-DRG 246 (Percutaneous Cardiovascular 
Procedures with Drug-Eluting Stent(s) with MCC or 4+ Vessels/Stents); 
MS-DRG 247 (Percutaneous Cardiovascular Procedures with Drug-Eluting 
Stent(s) without MCC); MS-DRG 248 (Percutaneous Cardiovascular 
Procedures with Non-Drug-Eluting Stent(s) with MCC or 4+ Vessels/
Stents); MS-DRG 249 (Percutaneous Cardiovascular Procedures with Non-
Drug-Eluting Stent(s) without MCC); MS-DRG 250 (Percutaneous 
Cardiovascular Procedures without Coronary Artery Stent with MCC); and 
MS-DRG 251 (Percutaneous Cardiovascular Procedures without Coronary 
Artery Stent without MCC).
    With respect to the newness criterion, we noted in the proposed 
rule that this device was not currently approved by the FDA, but the 
manufacturer anticipated that FDA approval will be granted in the 
second quarter of 2010. We also noted that IVUS has existed for over 20 
years. Therefore, IVUS, on its own, would not meet the newness 
criterion. The applicant asserted that one difference from the 
LipiscanTM product, for which it has also submitted an 
application for new technology add-on payments, is that the catheter 
for the combined product is filled with saline (which is required for 
transmission of sound). The manufacturer has also stated that the 
combined device only requires the use of one catheter, as opposed to 
two separate ones. The manufacturer asserted that the single-use 
catheter for the combined technologies is only supplied by InfraReDx 
(the manufacturer of LipiScanTM). However, we noted that a 
physician could use LipiScanTM and IVUS as two separate 
products in the same patient (through the use of two catheters) and 
still be able to obtain the INIRS image and the ultrasound that are 
achieved through the combined product albeit separately.
    In the FY 2011 IPPS/LTCH PPS proposed rule, we welcomed public 
comments regarding whether the combined LipiScanTM IVUS 
device should be considered to be ``new'' as of the date of the 
existing LipiScanTM device received FDA approval or whether 
it should be considered new from the FDA approval date for 
LipiScanTM IVUS (should such an approval be granted). We 
also welcomed public comments regarding whether LipiScanTM 
IVUS, as a combined technology, should be considered to be 
substantially similar to each individual technology separately as of 
the date that each separate technology received FDA approval (or the 
date that each technology became available on the market, if either 
technology was not available on the market until a date after FDA 
approval).
    As stated above, in making a determination of substantial 
similarity, we consider the following: (1) Whether a product uses the 
same or similar mechanism of action to achieve a therapeutic action; 
(2) whether a product is assigned to the same or a different DRG; and 
(3) whether new use of a technology involves treatment of the same or 
similar type of disease and the same or similar patient population. In 
the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we stated that ``due to 
the complexity of issues regarding the substantial similarity component 
of the newness criterion, it may be necessary to exercise flexibility 
when considering whether technologies are substantially similar to one 
another'' (74 FR 43813).
    Comment: One comment, the manufacturer, stated that it agreed with 
the proposed rule statement of ``it appears that LipiScanTM 
IVUS meet the newness criterion.'' Additionally, the commenter stated 
that should the LipiScanTM IVUS receive FDA approval, it 
should be considered new because LipiScanTM IVUS provides 
the individual benefits of both LipiScan and IVUS, ``plus accurate co-
registration, synergistic benefits, and enhanced safety and ease of use 
we believe that the LipiScanTM IVUS multimodality imaging 
catheter should be considered new if and when it receives clearance by 
the FDA and is marketed.'' The commenter did not specifically address 
the three criteria considered under substantial similarity.
    Response: We note that the LipiScanTM IVUS received a 
510(k) approval from the FDA on June 30, 2010, prior to the July 1 
deadline that applicants for new technology must meet in order to be 
evaluated under the newness criterion. The FDA approval letter did not 
provide information that would distinguish the LipiScanTM 
IVUS from its predicate devices. In addition, the manufacturer did not 
provide enough information for us to distinguish the 
LipiScanTM IVUS from the LipiScanTM, which is 
what we specifically questioned in the proposed rule. (Indeed, we note 
that the uses for both devices appear to be markedly similar.) Also, we 
did not state in the proposed rule that the technology meets the 
newness criterion, as the commenter suggested. We note that under FDA's 
510(k) approval process, there must be at least one predicate device 
that is ``substantially equivalent.'' However, as we have stated 
previously, we do not believe that a determination of substantial 
equivalence by FDA under the 510(k) approval process necessarily means 
that a technology is substantially similar to its predicate device(s) 
for purposes of the new technology add-on payment.
    Moreover, none of the public commenters specifically addressed 
whether the LipiScanTM IVUS was substantially similar to the 
LipiScanTM. Specifically, none of the public commenters, 
including the manufacturer, addressed: (1) Whether the products use the 
same or similar mechanism of action to achieve a therapeutic action; 
(2) whether the products are assigned to the same or a different DRG; 
and (3) whether new use of a technology involves treatment of the same 
or similar type of disease and the same or similar patient population. 
As a result, we do not believe that we have sufficient information to 
make an affirmative decision regarding whether the 
LipiScanTM IVUS is substantially similar to the 
LipiScanTM. Accordingly, we are not making a determination 
regarding whether the LipiScanTM IVUS is substantially 
similar to its predicate device or the LipiScanTM in this 
final rule. However, we note that whether or not LipiScanTM 
IVUS was substantially similar to LipiScanTM, the 
LipiScanTM IVUS is still within its newness period for FY 
2011 (because the LipiScanTM was new as of April 2008 and is 
still within its ``newness'' window for FY 2011). Accordingly, we 
believe that LipiScanTM IVUS meets the newness criterion for 
FY 2011, but we do not have sufficient information regarding whether or 
not the start of the newness period began in April 2008 or June 2010. 
Therefore, we are not making a determination in this rulemaking 
regarding the start of the newness period.

[[Page 50155]]

    In an effort to demonstrate that the technology meets the cost 
criterion, the applicant used the FY 2010 IPPS/RY 2010 LTCH PPS final 
rule AOR file (posted on the CMS Web site) to identify cases 
potentially eligible for LipiscanTM IVUS. The applicant 
believes that every case within MS-DRGs 246, 247, 248, 249, 250, and 
251 is eligible for LipiscanTM IVUS. In addition, the 
applicant believes that LipiscanTM IVUS will be evenly 
distributed across patients in each of those six MS-DRGs (16.7 percent 
within each MS-DRG). Using data from the AOR file, the applicant found 
the average standardized charge per case for MS-DRGs 246, 247, 248, 
249, 250, and 251 was $67,531, $44,485, $62,936, $40,149, $59,416, and 
$38,864 respectively, equating to a case-weighted average standardized 
charge per case of $52,230 (calculation performed using unrounded 
numbers). The applicant indicated that the case-weighted average 
standardized charge per case does not include charges related to 
LipiscanTM IVUS. Therefore, it is necessary to add the 
charges related to the device to the average case-weighted standardized 
charge per case to evaluate the cost threshold criterion. Although the 
applicant submitted data related to the estimated cost per case of 
LipiscanTM IVUS, the applicant stated that the cost of the 
device is proprietary information. The applicant analyzed Hospital Cost 
Report Information System (HCRIS) data from 2008 to determine the 
charges related to the device. Specifically, the applicant searched for 
the 100 cardiac catheterization labs that had the highest volume of 
cases in the United States. Based on the HCRIS data from these 100 
laboratories, the applicant determined the mean CCR was 0.188 with a 
markup of 532 percent, yielding a charge of $15,960 for 
LipiscanTM IVUS. (We note that this estimate of charges 
related to the LipiscanTM IVUS is significantly higher than 
the estimate of charges related to the LipiscanTM device 
derived from a sample of hospitals.) Adding the estimated average 
charge related for the device to the case-weighted standardized charge 
per case (based on the case distribution from the applicant's FY 2010 
AOR analysis) results in a total case-weighted average standardized 
charge per case of $68,190 ($52,230 plus $15,960). In the FY 2011 IPPS/
LTCH PPS proposed rule, we used the FY 2011 thresholds published in 
Table 10 of the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44173) 
to determine if the LipiscanTM IVUS meets the cost 
criterion. For this final rule, due to the provisions of section 
3401(a) of the Affordable Care Act which adjusted the FY 2010 
applicable percentage increase (thus requiring CMS to revise the FY 
2010 standardized amounts), we used the revised FY 2011 thresholds as 
published in the FY 2010 IPPS/RY 2010 LTCH PPS notice that appeared in 
the Federal Register on June 2, 2010 (75 FR 31213) to determine if the 
LipiscanTM IVUS meets the cost criterion. Based on the 
revised FY 2011 Table 10 thresholds, the case-weighted threshold for 
MS-DRGs 246, 247, 248, 249, 250, and 251 is $56,466 (all calculations 
above were performed using unrounded numbers). Because the applicant's 
calculation of the total case-weighted average standardized charge per 
case for the applicable MS-DRGs exceeds the case-weighted threshold 
amount, the applicant maintains that LipiscanTM IVUS meets 
the cost criterion.
    We note that in the applicant's analysis of the cost criterion, 
instead of determining the case-weighted average standardized charge 
per case and the case-weighted threshold amount based on the actual 
number of cases from the FY 2010 AOR file in the applicable MS-DRGs 
that are eligible for the LipiscanTM IVUS, the applicant's 
analysis assumed an even distribution of patients in the applicable MS-
DRGs. However, the data from the FY 2010 AOR file shows a varied 
distribution of cases in each of the applicable MS-DRGs. We believe the 
more appropriate way to determine the case-weighted average 
standardized charge per case and the case-weighted threshold amount for 
evaluating the cost criterion is to use the actual distribution of 
cases in the applicable MS-DRGs based on the number of cases from the 
AOR file because this would more accurately reflect the number and type 
of Medicare cases typically treated in the applicable MS-DRGs. 
Moreover, this would better conform to the applicant's assertion that 
the probability of use of LipiscanTM IVUS is the same in 
each of those six MS-DRGs. Using data from the FY 2011 AOR file (in the 
proposed rule, we used the FY 2010 AOR file; however, for this final 
rule, we used the most recent data available, which are contained in 
the FY 2011 AOR file), for MS-DRGs 246, 247, 248, 249, 250, and 251, 
there were 30,663, 141,780, 14,281, 46,037, 7,591, and 36,059 cases 
respectively. Using this case distribution and the average standardized 
charge per case for MS-DRGs 246, 247, 248, 249, 250, and 251 (that is, 
$73,006, $48,275, $67,954, $44,336, $65,238, and $44,504, respectively, 
as stated above), the case-weighted average standardized charge per 
case is $46,949. As the applicant indicated above, the case-weighted 
average standardized charge per case does not include charges related 
to LipiscanTM IVUS. Therefore, it is necessary to add the 
average charge of $15,960 related to the device to the case-weighted 
standardized charge per case to evaluate the cost threshold criterion. 
Adding the estimated charges related to the device to the case-weighted 
average standardized charge per case (based on the case distribution 
from the FY 2010 AOR final rule file) results in a total case-weighted 
average standardized charge per case of $62,909 ($46,949 plus $15,960). 
Using the revised FY 2011 thresholds published in Table 10 of the FY 
2010 IPPS/RY 2010 LTCH PPS notice (75 FR 31215) and the actual case 
distribution from the AOR file, the case-weighted threshold for MS-DRGs 
246, 247, 248, 249, 250, and 251 is $52,940 (all calculations above 
were performed using unrounded numbers). Because this alternative 
calculation of total case-weighted average standardized charge per case 
for the applicable MS-DRGs exceeds the case-weighted threshold amount, 
it appears that LipiscanTM IVUS would meet the cost 
criterion.
    In addition to the analysis above, the applicant searched the FY 
2008 MedPAR file for cases potentially eligible for use of the 
LipiscanTM IVUS. Because the technology can potentially be 
used for all cases within MS-DRGs 246 through 251, the applicant 
searched the FY 2008 MedPAR file for all cases within these MS-DRGs. 
The applicant found 30,265 cases (or 9.7 percent of all cases) in MS-
DRG 246; 147,695 cases (or 47.4 percent of all cases) in MS-DRG 247; 
19,642 cases (or 6.3 percent of all cases) in MS-DRG 248; 67,840 cases 
(or 21.8 percent of all cases) in MS-DRG 249; 8,120 cases (or 2.6 
percent of all cases) in MS-DRG 250; and 38,022 cases (or 12.2 percent 
of all cases) in MS-DRG 251. The average standardized charge per case 
was $66,958 for MS-DRG 246, $50,192 for MS-DRG 247, $72,099 for MS-DRG 
248, $45,086 for MS-DRG 249, $71,355 for MS-DRG 250, and $46,141 for 
MS-DRG 251, equating to a case-weighted average standardized charge per 
case of $45,964.
    Similar to above, the average standardized charge per case does not 
include charges related to the LipiscanTM IVUS; therefore, 
it is necessary to add the charges related to the device to the average 
standardized charge per case in evaluating the cost threshold 
criterion. Although the applicant submitted data related to the 
estimated cost of LipiscanTM IVUS per case, the applicant 
noted that the cost of the device was proprietary information. Based on 
2008 HCRIS data from the

[[Page 50156]]

cardiac catheterization laboratories for all IPPS hospitals, the 
applicant determined a mean cost-to-charge ratio of 0.246 with a markup 
of 351 percent, yielding a charge of $10,543 for LipiscanTM 
IVUS. Assuming that the LipiscanTM IVUS device was marked up 
351 percent, the total case-weighted average standardized charge per 
case for cases involving the use of LipiscanTM IVUS would be 
$56,507 ($45,964 plus $10,543) across MS-DRGs 246 through 251.
    Using the revised FY 2011 thresholds published in Table 10 of the 
FY 2010 IPPS/RY 2010 LTCH PPS notice (75 FR 31215), the case-weighted 
threshold for MS DRGs 246, 247, 248, 249, 250, and 251 is $52,671 (all 
calculations above were performed using unrounded numbers). Because the 
applicant's calculation of the total case-weighted average standardized 
charge per case for the applicable MS-DRGs exceeds the case-weighted 
threshold amount, the applicant maintains that LipiscanTM 
IVUS meets the cost criterion. In the FY 2011 IPPS/LTCH PPS proposed 
rule, we invited public comment on whether or not LipiscanTM 
IVUS meets the cost criterion. We did not receive any public comments 
in this regard. Accordingly, we find that for FY 2011 
LipiscanTM IVUS meets the cost criterion.
    With regard to substantial clinical improvement, the applicant 
asserts that LipiScanTM IVUS lends all the same benefits of 
LipiScanTM by itself (see discussion of 
LipiScanTM with respect to clinical improvement in the above 
application analysis) and also gives added benefits of IVUS. 
Specifically, the applicant maintains that LipiScanTM IVUS 
is superior to perfusion imaging and coronary angiography because those 
procedures only provide information about the lumen, but not the wall 
of the vessel. The applicant asserts that it is superior to IVUS (by 
itself) because IVUS alone cannot identify plaque composition. The 
applicant further maintains that LipiScanTM IVUS provides a 
substantial clinical benefit over Optical Coherence Tomography (OCT) 
because OCT cannot be used if blood is present in the field of view and 
identification of lipid by OCT is ``time-consuming with a requirement 
for expert interpretation.'' In contrast, ``the LipiScanTM 
IVUS signal is available immediately after the coronary pullback and 
does not require expert interpretation.''
    The applicant also states that LipiScanTM IVUS makes it 
possible to find the lipid core plaques that are strongly associated 
with peri-stenting MI and adverse events post-MI that current methods 
of diagnosis fail to find.
    Finally, the applicant asserts that LipiScanTM IVUS 
affects the management of the patient by improving the safety and 
efficacy of stenting. Further, the applicant states that while stenting 
has steadily improved, its results are not optimal in approximately 30 
percent of cases due to three problems: (1) Peri-stenting MI due to 
embolization of lipid core contents and side branch occlusion; (2) 
major adverse coronary events (MACE) post stenting from difficulties at 
the stented site; and (3) MACE post stenting for non-stented vulnerable 
sites.
    The applicant described three case studies where each of the above 
problems were addressed by use of the LipiScanTM IVUS. 
LipiScanTM IVUS achieves its utility to differentiate lipid 
core plaque from fibrotic plaque, a differentiation that cannot be made 
by angiography or grayscale IVUS.
    The applicant referenced the ``700 patient PROSPECT Study'' which 
was presented at the Transcatheter Cardiovascular Therapeutic 
Conference in September 2009 and found that 20.4 percent of patients 
experience a new event in the 3.4 years following stenting. The 
applicant pointed to that finding as evidence that there is a need for 
improved safety and efficacy of stenting and maintained that 
LipiscanTM offers clinicians the ability to make decisions 
that result in such improvements. We note that the applicant did make 
this assertion with regard to LipiscanTM and not 
LipiscanTM IVUS.
    The PROSPECT (Providing Regional Observations to Study Predictors 
of Events in the Coronary Tree) study is a cohort study of patients 
with acute coronary syndrome who underwent percutaneous coronary 
angioplasty and stenting (percutaneous coronary intervention). 
Following the procedure, angiography and IVUS were performed. If a 
patient had a subsequent event, a new angiogram and IVUS image were 
obtained and compared to the original results. The investigators 
reported that ``angiographically mild lesions with certain morphologic 
features on grayscale and IVUS present with a 3 year cardiac event rate 
of 17%, versus other morphologies (indistinguishable by conventional 
angiograms) with three year event risks of less than 1%.'' We are 
concerned that with this type of study design, it is not possible to 
determine whether the information for the IVUS image would have altered 
the angioplasty and stenting procedures since the images were collected 
after the procedure. The results are suggestive, but a prospective 
study is needed to determine the clinical utility of 
LipiScanTM and whether use of IVUS leads to changes in 
clinical practice or improvements in health outcomes. The PROSPECT 
study generated a hypothesis that use of IVUS may help determine which 
plaques are vulnerable to future events but further clinical research 
is needed to confirm this hypothesis. We note that the PROSPECT study 
was presented at the Transcatheter Cardiovascular Therapeutics 
Conference in 2009, but that the study results have yet to be published 
in a peer-reviewed journal. We also note that methods and conclusions 
from a study may change from what was verbally presented during the 
peer review process that is required to publish the study results.
    We are concerned that, in the LipiScanTM IVUS 
application, the applicant has generally repeated the statements made 
regarding use of LipiScanTM alone and has not provided 
information that indicates that combined use of LipiScanTM 
plus IVUS offers additional clinical benefit, although the applicant 
did maintain that the use of one catheter to co-register of the near 
infrared (NIR) mirrors and the ultrasound transducer can enhance the 
accuracy of output and can have safety benefits. Indeed, we note that 
most of the studies that were presented in an effort to demonstrate 
that LipiScanTM by itself was a substantial clinical 
improvement were also included to support the LipiScanTM 
IVUS application. The applicant did not present any published peer-
reviewed journal articles that were specifically related to the 
clinical merits of the combined LipiScanTM IVUS device.
    In the FY 2011 IPPS/LTCH PPS proposed rule, we welcomed public 
comments on whether the LipiScanTM IVUS represents a 
substantial clinical improvement over existing technologies as well as 
public comments on what is the appropriate comparison device for 
LipiScanTM IVUS.
    Comment: Many of the commenters who supported the 
LipiScanTM application also stated that, should the 
LipiScanTM IVUS receive FDA approval, they believed that it 
would offer similar benefits to the LipiScanTM. For this 
reason, these commenters were supportive of LipiScanTM IVUS 
being approved for the new technology add-on payments. The manufacturer 
commented that the LipiScanTM IVUS ``has been constructed 
and used successfully in seven patients in Rotterdam, Netherlands'' and 
that it was featured in a live case presentation at ``EuroPCR,'' ``the 
leading meeting of interventional cardiologists in Europe.''

[[Page 50157]]

The manufacturer also stated that LipiScanTM IVUS provides 
the benefits of LipiScanTM and IVUS plus several synergistic 
benefits. Specifically, the manufacturer noted the co-registration of 
the near infrared (NIR) mirrors and the ultrasound transducer enhances 
the accuracy of the output. The IVUS shows the location of the catheter 
in the artery while the NIR enhances the interpretation of the 
grayscale IVUS image. The manufacturer stated that ``once NIR has 
clearly shown that a lipid core is present, it is possible to re-
examine the IVUS image for features such as an estimate of cap 
thickness.'' The manufacturer also stated that there are safety 
benefits associated with using one catheter to obtain both the NIR 
image and the IVUS image and noted that with each insertion of a 
catheter comes the risk of an adverse event such as a stroke or 
myocardial infarction. Additionally, the manufacturer stated that 
combining both technologies into one catheter reduces procedure time, 
radiation exposure and contrast utilization. The manufacturer stated 
that a peer-reviewed manuscript has been published by Garg, et al.
    Response: According to the applicant, there have only been seven 
cases in which the LipiScanTM IVUS has been used, none of 
them in the United States (and, ostensibly, none on a Medicare 
beneficiary). Despite the applicant's claims that the combined 
LipiScanTM IVUS technology enhances the benefits of either 
LipiScanTM or IVUS alone as well as LipiScanTM 
and IVUS used simultaneously, but with two separate catheters, we do 
not believe that there is enough clinical evidence relating to this 
technology to support this claim or to demonstrate that the technology 
is a substantial clinical improvement over other existing diagnostic 
technologies. That is, the evidence available at this time does not 
support that the LipiScanTM IVUS affects the medical 
management of the patient which, in turn, leads to improved clinical 
outcomes. We also note that we did not believe that there was enough 
clinical evidence available at this time to substantiate the claims 
that LipiScanTM by itself is a substantial clinical 
improvement. To the extent that the same information was submitted to 
support the applicant's LipiScanTM IVUS application, we also 
find, for the reasons discussed above, that the evidence is 
insufficient to demonstrate that the LipiScanTM IVUS 
represents a substantial clinical improvement over existing 
technologies. The manuscript that the applicant referred to simply 
describes what the technology does and how it is used; it does not 
provide any details as to how the technology affects the medical 
management of patients nor does it provide evidence that use of the 
LipiScanTM IVUS ultimately leads to improved clinical 
outcomes for patients. Although we recognize that the combination of 
these two existing technologies may ultimately lead to better clinical 
outcomes for patients undergoing coronary stenting, no data is 
available at this time to support that notion.
    Accordingly, we are not approving the LipiScanTM IVUS 
device for new technology add-on payments for FY 2011.

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

A. Background

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

B. Wage Index Reform

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

[[Page 50158]]

     The feasibility of applying all components of CMS' 
proposal to other settings.
     Methods to minimize the volatility of wage index 
adjustments while maintaining the principle of budget neutrality.
     The effect that the implementation of the proposal would 
have on health care providers and on each region of the country.
     Methods for implementing the proposal(s), including 
methods to phase in such implementations.
     Issues relating to occupational mix such as staffing 
practices and any evidence on quality of care and patient safety 
including any recommendation for alternative calculations to the 
occupational mix.
    In the FY 2009 IPPS final rule (73 FR 48563 through 48567), we 
discussed the MedPAC's study and recommendations, the CMS contract with 
Acumen, L.L.C. for assistance with impact analysis and study of wage 
index reform, and public comments we received on the MedPAC 
recommendations and the CMS/Acumen study and analysis.
b. Interim and Final Reports on Results of Acumen's Study
(1) Interim Report on Impact Analysis of Using MedPAC's Recommended 
Wage Index
    In the FY 2009 IPPS final rule (73 FR 48566 through 48567), we 
discussed the analysis conducted by Acumen comparing use of the MedPAC 
recommended wage indices to the current CMS wage index. We refer 
readers to section III.B.1.e. of that final rule for a full discussion 
of the impact analysis as well as to Acumen's interim report available 
on the Web site: http://www.acumenllc.com/reports/cms.
(2) Acumen's Final Report on Analysis of the Wage Index Data and 
Methodology
    Acumen's final report addressing the issues in section 106(b)(2) of 
the MIEA-TRHCA is divided into two parts. In the FY 2010 IPPS/RY 2010 
LTCH PPS final rule (74 FR 43824), we provided a description of 
Acumen's analyses for both parts. The first part of Acumen's final 
report analyzed the strengths and weaknesses of the data sources used 
to construct the MedPAC and CMS indexes. The first part of the report 
was published on Acumen's Web site after the publication of the FY 2010 
IPPS/RY 2010 LTCH PPS proposed rule. In its conclusion, Acumen 
suggested that MedPAC's recommended methods for revising the wage index 
represented an improvement over the existing methods, and that the BLS 
data should be used so that the MedPAC approach can be implemented.
    The second part of Acumen's final report focuses on the methodology 
of wage index construction and covers issues related to the definition 
of wage areas and methods of adjusting for differences among 
neighboring wage areas, as well as reasons for differential impacts of 
shifting to a new index. Acumen published the second part of its final 
report in March 2010 on its Web site at: http://www./acumenllc.com/reports/cms. In particular, the report analyzes MedPAC's recommended 
method of improving upon the definition of the wage areas used in the 
current wage index. MedPAC's method first blends MSA and county-level 
wages and then implements a ``smoothing'' step that limits differences 
in wage index values between adjacent counties to no more than 10 
percent. Acumen found MedPAC's method to be an improvement over the 
current wage index construct. However, although MedPAC's method 
diminishes the size of differences between adjacent areas, Acumen 
suggested that MedPAC's method does not guarantee an accurate 
representation of a hospital labor market and would not necessarily 
eliminate or reduce hospitals' desire to reclassify for a higher wage 
index. Acumen recommended further exploration of labor market area 
definitions using a wage area framework based on hospital-specific 
characteristics, such as commuting times from hospitals to population 
centers, to construct a more accurate hospital wage index. Acumen 
suggested that such an approach offers the greatest potential for 
replacing or greatly reducing the need for hospital reclassifications 
and exceptions.
    We indicated in the FY 2009 IPPS final rule (73 FR 48566) that, in 
developing any proposal(s) for additional wage index reform that may be 
included in the FY 2010 IPPS proposed rule, we would consider all of 
the public comments on the MedPAC recommendations that we had received 
in that proposed rulemaking cycle, along with the interim and final 
reports to be submitted to us by Acumen. As Acumen's study was not 
complete at the time of issuance of the FY 2010 IPPS/RY 2010 LTCH PPS 
proposed rule, we did not propose any additional changes to the 
hospital wage index for the FY 2010 IPPS. We also did not propose any 
additional changes regarding reforming the wage index for the FY 2011 
IPPS. We welcomed comments regarding the second part of Acumen's final 
report.
    Comment: Several commenters addressed the data source for 
constructing the wage index. One commenter supported the use of BLS 
data and suggested that a simplified, standard dataset will eliminate 
unnecessary reclassifications and inconsistencies among Medicare 
contractors and create a more valid wage index calculation. Other 
commenters reiterated the concerns about the shortcomings of the BLS 
data that they expressed in public comments summarized in the FY 2009 
IPPS final rule (73 FR 48564). One commenter suggested that CMS use 
data that reflect the price of labor rather than the cost of labor in 
constructing the wage index. The commenter also suggested that the wage 
index include data from SNFs and other postacute care settings because 
the wage index is also applied in those Medicare provider payment 
systems.
    Regarding the methodology for constructing the wage index, several 
commenters shared Acumen's concern that MedPAC's blending and smoothing 
methodology may not be well suited for the Medicare wage index because 
it may mask actual geographic variations in wage levels. However, the 
commenters supported MedPAC's suggestion of varying wage indices by 
more refined areas, such as counties. Several commenters also expressed 
interest in Acumen's suggestion for further exploration of labor market 
area definitions based on hospital specific characteristics, such as 
the commuting times from hospitals to population centers.
    One national hospital association recommended that CMS consider the 
following guiding principles as it evaluates options for improving the 
wage index system:

    ``Any new system should--
     Be fair and accurately reflect the labor marketplace 
for hospitals, e.g., consider only hospital wage and benefit costs 
rather than broader labor market costs;
     Provide predictable payments;
     Be stable;
     Be transparent so that the data may be examined and 
verified;
     Minimize the administrative burden on hospitals;
     Utilize the most current information possible;
     Define boundaries that capture meaningful relationships 
between labor markets, to reduce the need for exceptions and 
reclassifications;
     Due to the imperfection of any current labor market 
definition that we are aware of, provide an exception process for 
hospitals with labor costs atypical for areas to which they have 
been assigned;
     Use consistent definitions, methodologies, rules, and 
interpretations

[[Page 50159]]

across the nation for the acquisition and application of data;
     Include a transition from the old to the new system 
that is not disruptive; it should include a phased-in transition 
period if necessary to protect hospitals from abrupt reductions in 
payment levels; and
     Not let perfection be the enemy of the better.''

    Commenters generally urged CMS to move forward cautiously and 
ensure a thorough process for evaluating changes to the existing wage 
index.
    Response: As discussed in section III.B.4. of the preamble in this 
final rule, section 3137(b) of the Affordable Care Act requires the 
Secretary of Health and Human Services to submit to Congress, not later 
than December 31, 2011, a report that includes a plan to reform the 
Medicare wage index applied under the Medicare IPPS. We will consider 
the MedPAC's and Acumen's reports and findings, along with all of the 
public comments and suggestions we have received, as we evaluate ways 
for improving the wage index.
2. FY 2009 Policy Changes in Response to Requirements Under Section 
106(b) of the MIEA-TRHCA and Subsequent Changes Under Sections 3137(c) 
and 3141 of the Affordable Care Act
    To implement the requirements of section 106(b) of the MIEA-TRHCA 
and respond to MedPAC's recommendations in its June 2007 report to 
Congress, in the FY 2009 IPPS final rule (73 FR 48567 through 48574), 
we made policy changes to the wage index relating to geographic 
reclassification average hourly wage comparison criteria and rural and 
imputed floor budget neutrality. (We refer readers to the FY 2009 IPPS 
final rule for a full discussion of the basis for the proposals, the 
public comments received, and the FY 2009 final policy.) In the FY 2010 
IPPS/RY 2010 LTCH PPS final rule (74 FR 43825), we reiterated these 
policy changes, especially as they related to the FY 2010 IPPS. 
However, provisions of the Affordable Care Act recently changed the 
reclassification average hourly wage comparison criteria and rural and 
imputed floor budget neutrality policies that we adopted in FY 2009.
a. Reclassification Average Hourly Wage Comparison Criteria
    In the FY 2009 IPPS final rule, we adopted the policy to adjust the 
reclassification average hourly wage standard, comparing a 
reclassifying hospital's (or county hospital group's) average hourly 
wage relative to the average hourly wage of the area to which it seeks 
reclassification. (We refer readers to the FY 2009 IPPS final rule for 
a full discussion of the basis for the proposals the public comments 
received and the FY 2009 final policies.) We provided for a phase-in of 
the adjustment over 2 years. For applications for reclassification for 
the first transitional year, FY 2010, the average hourly wage standards 
were set at 86 percent for urban hospitals and group reclassifications, 
and 84 percent for rural hospitals. For applications for 
reclassification for FY 2011 (for which the application deadline was 
September 1, 2009) and for subsequent fiscal years, the average hourly 
wage standards were 88 percent for urban and group reclassifications 
and 86 percent for rural hospitals. Sections 412.230, 412.232, and 
412.234 of the regulations were revised accordingly. These policies 
were adopted in the FY 2009 IPPS final rule and were reflected in the 
wage index in the Addendum to the FY 2011 IPPS proposed rule, which 
appeared in the Federal Register on May 4, 2010.
    However, as we discussed in the supplemental proposed rule to the 
FY 2011 IPPS/LTCH PPS proposed rule issued in the Federal Register on 
June 2, 2010 (75 FR 30919), the provisions of section 3137(c) of the 
Affordable Care Act revised the average hourly wage standards. 
Specifically, section 3137(c) restored the average hourly wage 
standards that were in place for FY 2008 (that is, 84 percent for urban 
hospitals, 85 percent for group reclassifications, and 82 percent for 
rural hospitals) for applications for reclassification for FY 2011 and 
for each subsequent fiscal year until the first fiscal year beginning 
on or after the date that is one year after the Secretary of Health and 
Human Services submits a report to Congress on a plan for reforming the 
wage index under section 3137(b) of the Affordable Care Act. Section 
3137(c) of the Affordable Care Act also requires the revised average 
hourly wage standards to be applied in a budget neutral manner. We note 
that section 3137(c) of the Affordable Care Act does not provide for 
the revised average hourly wage standards to be applied retroactively, 
nor does it change the statutory deadline for applications for 
reclassification for FY 2011. Under section 1886(d)(10) of the Act, the 
Medicare Geographic Classification Review Board (MGCRB) considers 
applications by hospitals for geographic reclassification for purposes 
of payment under the IPPS. Hospitals must apply to the MGCRB to 
reclassify 13 months prior to the start of the fiscal year for which 
reclassification is sought (generally by September 1). For 
reclassifications for the FY 2011 wage index, the deadline for 
applications was September 1, 2009 (74 FR 43838).
    As we discussed in the June 2, 2010 FY 2011 supplemental proposed 
rule (75 FR 30919 and 30920), in our proposed implementation of section 
3137(c) of the Affordable Care Act, we requested the assistance of the 
MGCRB in determining, for applications received by September 1, 2009, 
whether additional hospitals would qualify for reclassification for FY 
2011 based on the revised average hourly wage standards of 84 percent 
for urban hospitals, 85 percent for group reclassifications, and 82 
percent for rural hospitals restored by section 3137(c). We determined 
that 18 additional hospitals would qualify for reclassification for FY 
2011. In addition, 5 hospitals, for which the MGCRB granted 
reclassifications to their secondary requested areas for FY 2011, would 
qualify for reclassifications instead to their primary requested areas 
because they now meet the average hourly wage criteria to reclassify to 
those areas. Therefore, in accordance with Sec.  412.278 of the 
regulations, in which paragraph (c) provides the Administrator 
discretionary authority to review any final decision of the MGCRB, we 
submitted a letter to the Administrator requesting that she review and 
amend the MGCRB's decision and grant the 23 hospitals their requested 
reclassifications (or primary reclassifications) for FY 2011. The 
proposed wage index in the Addendum to the June 2, 2010 supplemental 
proposed rule (75 FR 30984) reflected these changes in hospital 
reclassifications, although the Administrator had not issued all of her 
decisions by the issuance date of the supplemental proposed rule. We 
stated that any changes to the FY 2011 wage index, as a result of the 
Administrator's actual decision issued under Sec.  412.278(c), or an 
amendment of the Administrator's decision issued under Sec.  
412.278(g), would be reflected in the FY 2011 IPPS final rule. As a 
result of her review, the Administrator amended the MGCRB's decision 
for 22 of the 23 hospitals for the FY 2011 wage index. One hospital had 
decided to withdraw its approved reclassification for FYs 2011 through 
2013 and, instead, ``fall back'' to its prior reclassification for FYs 
2010 through 2012. (We refer readers to 42 CFR 412.273 and the 
discussion on withdrawals, terminations, and ``fall back'' 
reclassifications in section III.I.3.a. of the preamble in this final 
rule.)
    In the June 2, 2010 supplemental proposed rule (75 FR 30973), we 
proposed to amend Sec. Sec.  412.230, 412.232,

[[Page 50160]]

and 412.234 to reflect the average hourly wage reclassification 
criteria restored by section 3137(c) of the Affordable Care Act.
    Comment: Several commenters urged CMS to use its administrative 
discretion to open an additional short window of opportunity for FY 
2011 reclassification application. The commenters stated that some 
hospitals did not meet the average hourly wage criteria in effect as of 
the September 1, 2009 deadline, and, therefore, did not apply for 
reclassification for FY 2011; however, they meet the revised criteria 
and should be allowed a fair and equitable opportunity to reclassify. 
The commenters suggested that only a fairly limited number of hospitals 
would apply, so the workloads for CMS and the MGCRB should be 
manageable.
    Response: As we discussed above, the deadline for application for 
reclassification is established through statute, under section 
1886(d)(10) of the Act. Therefore, we believe that if the Congress had 
intended for hospitals to be afforded another opportunity to apply for 
reclassification for FY 2011 due to the revisions made by section 
3137(c) of the Affordable Care Act, the Congress also would have 
established such opportunity through a provision of the law. We also 
believe that the commenters may have underestimated the workload and 
time required for the suggested additional window of opportunity and 
that such opportunity, instead, would have been very disruptive to the 
development and publication of the IPPS proposed and final rates for FY 
2011. Given the amount of time it would have taken after the March 23, 
2010 enactment date of the law for CMS to (1) Establish and implement a 
process for the additional application period, (2) allow hospitals 
sufficient time to submit their applications to the MGCRB, and (3) 
allow a sufficient period of time for the MGCRB to review the 
applications and make its decisions, the additional reclassifications 
would not have been determined in time for inclusion in the FY 2011 
IPPS/LTCH PPS proposed rule or the supplemental proposed rule, and 
there would not be sufficient time to gather and consider comments 
regarding the effects of this application period on other 
nonreclassified hospitals as well as the hospitals that were able to 
take advantage of the second window for application.
    We believe that our proposed implementation of section 3137(c) is 
the least disruptive and intended approach. Therefore, we are adopting 
our proposal as final in this FY 2011 IPPS/LTCH PPS final rule. The 
wage index in the Addendum to this final rule reflects the 
reclassifications that resulted from the Administrator's reversal of 
the MGCRB's decision for 22 hospitals that applied by September 1, 2009 
and meet the revised average hourly wage criteria. In addition, we are 
adopting as final, without modification, the proposed revisions to 
Sec. Sec.  412.230, 412.232, and 412.234 of the regulations to codify 
the revised average hourly wage criteria.
b. Budget Neutrality Adjustment for the Rural and Imputed Floors
    In the FY 2009 IPPS final rule (73 FR 48574 through 48575), we 
adopted State level budget neutrality (rather than the national budget 
neutrality adjustment) for the rural and imputed floors, effective 
beginning with the FY 2009 wage index and incorporated this policy in 
our regulation at Sec.  412.64(e)(4). Specifically, the regulations 
specified that CMS makes an adjustment to the wage index to ensure that 
aggregate payments after implementation of the rural floor under 
section 4410 of the Balanced Budget Act of 1997 (Pub. L. 105-33) and 
the imputed floor under Sec.  412.64(h)(4) are made in a manner that 
ensures that aggregate payments to hospitals are not affected and that, 
beginning October 1, 2008, we would transition from a nationwide 
adjustment to a statewide adjustment, with a statewide adjustment fully 
in place by October 1, 2010.
    These policies for the rural and imputed floors were adopted in the 
FY 2009 IPPS final rule and were reflected in the proposed wage index 
in the Addendum to the FY 2011 IPPS/LTCH PPS proposed rule, published 
in the Federal Register on May 4, 2010 (75 FR 23937 and 23938). 
However, as we discussed in the June 2, 2010 supplemental FY 2011 IPPS/
LTCH PPS proposed rule (75 FR 30920), these policies were recently 
changed by the provisions of section 3141 of the Affordable Care Act. 
Specifically, section 3141 of the Affordable Care Act rescinded our 
policy that established a statewide budget neutrality adjustment for 
the rural and imputed floors and, instead, restored a uniform, national 
adjustment to the area wage index, beginning with the FY 2011 wage 
index.
    In addition, we note that the imputed floor is set to expire on 
September 30, 2011. As we indicated in the supplemental proposed rule, 
we are not reading the language of section 3141 of the Affordable Care 
Act as altering this expiration date. Section 3141 of the Affordable 
Care Act requires that the Secretary ``administer subsection (b) of 
such section 4410 and paragraph (e) of * * * section 412.64 in the same 
manner as the Secretary administered such subsection (b) and paragraph 
(e) for discharges occurring during fiscal year 2008 (through a 
uniform, national adjustment to the area wage index).'' Thus, section 
3141 of the Affordable Care Act is governing how we apply budget 
neutrality, under the authorities of Sec.  412.64(e) and section 
4410(b) of the Balanced Budget Act, but it does not alter Sec.  
412.64(h) of our regulations (which includes the imputed floor and its 
expiration date). To the extent there is an imputed floor, section 3141 
of the Affordable Care Act governs budget neutrality for that floor, 
but it does not continue the imputed floor beyond the expiration date 
already included in our regulations.
    In the FY 2011 IPPS/LTCH PPS supplemental proposed rule issued in 
the Federal Register on June 2, 2010, we proposed to revised the 
regulations at Sec.  412.64(e) to reflect the changes made by section 
3141 of the Affordable Care Act that restored a uniform, national 
adjustment to the area wage index, beginning with the FY 2011 wage 
index. We did not propose any other special rules or procedures for 
implementing the provisions of section 3141.
    Comment: A few commenters favored the provision of section 3141 to 
restore the national adjustment to the wage index; other commenters 
objected to the provision.
    Response: We appreciate the support of the commenters. Regarding 
the comment objecting to the provision, we are obligated to implement 
the provisions of the law.
    In accordance with the law, we are adopting as a final policy in 
this final rule, a uniform, national budget neutrality adjustment for 
the rural and imputed floors, which, for FY 2011, is a factor of 
0.996641. The wage index in the Addendum to this final rule reflects 
this policy. In addition, we are adopting as final, without 
modification, the proposed changes to Sec.  412.64(e) of the 
regulations to incorporate the restoration provisions of section 3141 
of the Affordable Care Act.
3. Floor for Area Wage Index for Hospitals in Frontier States
    Section 10324(a)(1) of the Affordable Care Act amended section 
1886(d)(3)(E) of the Act by adding a provision under new subsection 
(iii) to establish an adjustment to create a wage index floor of 1.00 
for all hospitals located in States determined to be ``frontier 
States,'' beginning in FY 2011. The new section 1886(d)(3)(E)(iii)(II) 
of the Act defines a ``frontier State'' as a State in which at least 50 
percent of the counties in the State are determined to be ``frontier

[[Page 50161]]

counties.'' The new section 1886(d)(3)(E)(iii)(III) of the Act defines 
a ``frontier county'' as a county in which the population per square 
mile is less than 6 persons. The new section 1886(d)(3)(E)(iii)(IV) of 
the Act specifies that this provision for the frontier State floor 
shall not apply to hospitals that are receiving a nonlabor-related 
share adjustment under section 1886(d)(5)(H) of the Act, that is, 
hospitals in Alaska or Hawaii.
    To implement the provision for the frontier State floor adjustment, 
in the FY 2011 IPPS/LTCH PPS supplemental proposed rule published in 
the Federal Register on June 2, 2010 (75 FR 30920), we proposed to 
identify frontier Counties by analyzing population data and county 
definitions based upon the most recent annual Population Estimates 
published by the U.S. Census Bureau. We proposed to divide each 
county's population total by each county's reported land area 
(according to the decennial census) in square miles to establish 
population density. We also proposed to update this analysis from time 
to time, such as upon publication of a subsequent decennial census and, 
if necessary, add or remove qualifying States from the list of frontier 
States based on the updated analysis.
    In accordance with section 1886(d)(3)(E)(iii) of the Act, as added 
by section 10324(a)(1) of the Affordable Care Act, all PPS hospitals 
located within a State that qualifies as a frontier State will receive 
either the higher of its post-reclassification wage index rate, or a 
wage index with a minimum value of 1.00. In the June 2, 2010 
supplemental proposed rule, we proposed that, for a hospital that is 
geographically located in a frontier State and is reclassified under 
section 1886(d)(10) of the Act to a CBSA in a non-frontier State, the 
hospital would receive a wage index that is the higher of the 
reclassified area wage index or the minimum wage index of 1.00. In 
accordance with section 10324(a)(2) of the Affordable Care Act, the 
frontier State adjustment will not be subject to budget neutrality 
under section 1886(d)(3)(E) of the Act, and will only be extended to 
hospitals geographically located within a Frontier State. In the June 
2, 2010 supplemental proposed rule, we proposed to calculate and apply 
the frontier State floor adjustments after rural and imputed floor 
budget neutrality adjustments are calculated for all labor market 
areas, so as to ensure that no hospital in a Frontier State will 
receive a wage index of less than 1.00 due to the rural and imputed 
floor adjustment. We invited public comment on these proposals 
regarding our methods for determining frontier States, and for 
calculation and application of the adjustment.
    In the June 2, 2010 supplemental proposed rule (75 FR 30971), we 
proposed to establish a new paragraph (m) under Sec.  412.64 to 
incorporate the provisions of section 1886(d)(3)(E)(iii) of the Act, as 
added by section 10324(a)(1) of the Affordable Care Act.
    Comment: Commenters supported the proposed methods for 
implementation of the frontier States floor adjustment to the area wage 
index provided for under section 1886(d)(3)(E)(iii) of the Act.
    Response: We appreciate the commenters' support.
    In this final rule, we are implementing the frontier State floor 
adjustment using the criteria described above that we are finalizing in 
this final rule. For the final FY 2011 IPPS wage indices, based on the 
criteria described above, we identified the following frontier States 
that will receive the floor adjustment for FY 2011. These frontier 
States also are identified by a footnote in Table 4D-2 of the Addendum 
to this final rule.

 Frontier States Identified for the FY 2011 Wage Index Floor Adjustment
            Under Section 10324(a) of the Affordable Care Act
------------------------------------------------------------------------
                                                              Percent of
                                      Total       Frontier     counties
              State                  counties     counties    identified
                                                             as frontier
------------------------------------------------------------------------
Montana..........................           56           45           80
Wyoming..........................           23           17           74
North Dakota.....................           53           36           68
Nevada...........................           17           11           65
South Dakota.....................           66           34           52
------------------------------------------------------------------------
Figures in table based on:
--Population Data set available at: http://www.census.gov/popest/  estimates.html (2009 County Total Population Estimates).
--Land Area Dataset available at: http://factfinder.census.gov/  (Decennial Census Geographic Comparison Tables: ``United States--
  County by State and for Puerto Rico'').

    After consideration of the public comments we received, we are 
adopting as final, without modification, the proposed addition of new 
paragraph (m) under Sec.  412.64 of the regulations to incorporate the 
provisions of section 1886(d)(3)(E)(iii) of the Act, as added by 
section 10324(a)(1) of the Affordable Care Act, by specifying the 
criteria for adjusting the wage index to account for the frontier State 
floor adjustment, the amount of the wage index adjustment, and our 
process for determining and posting the wage index adjustments.
4. Plan for Reforming the Wage Index Under Section 3137(b) of 
Affordable Care Act
    As we discussed in the June 2, 2010 supplemental proposed rule (75 
FR 30919), section 3137(b) of the Affordable Care Act requires the 
Secretary of Health and Human Services to submit to Congress, not later 
than December 31, 2011, a report that includes a plan to reform the 
Medicare wage index applied under the Medicare IPPS. In developing the 
plan, the Secretary of Health and Human Services must take into 
consideration the goals for reforming the wage index that were set 
forth by MedPAC in its June 2007 report entitled, ``Report to Congress: 
Promoting Greater Efficiency in Medicare'', including establishing a 
new system that--
     Uses Bureau of Labor of Statistics (BLS) data, or other 
data or methodologies, to calculate relative wages for each geographic 
area;
     Minimizes wage index adjustments between and within MSAs 
and statewide rural areas;
     Includes methods to minimize the volatility of wage index 
adjustments while maintaining budget neutrality in applying such 
adjustments;
     Takes into account the effect that implementation of the 
system would

[[Page 50162]]

have on health care providers and on each region of the country;
     Addresses issues related to occupational mix, such as 
staffing practices and ratios, and any evidence on the effect on 
quality of care or patient safety as a result of the implementation of 
the system; and
     Provides for a transition.
    In addition, section 3137(b)(3) of the Affordable Care Act requires 
the Secretary of Health and Human Services to consult with relevant 
affected parties in developing the plan. Although the provisions of 
section 3137(b) of the Affordable Care Act will not have an actual 
impact on the FY 2011 wage index, we notified the public of the 
provisions in the supplemental proposed rule so that they would have an 
opportunity to provide comments and suggestions on how they may 
participate in developing the plan.
    Comment: A few commenters encouraged CMS to involve the industry in 
the process. One commenter in particular suggested that CMS should 
adopt an advisory commission approach in addressing future changes to 
the wage index.
    Response: We will consider these suggestions in developing our plan 
for meeting the requirements of section 3137(b) of the Affordable Care 
Act.

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

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

D. Occupational Mix Adjustment to the FY 2011 Wage Index

    As stated earlier, section 1886(d)(3)(E) of the Act provides for 
the collection of data every 3 years on the occupational mix of 
employees for each short-term, acute care hospital participating in the 
Medicare program, in order to construct an occupational mix adjustment 
to the wage index, for application beginning October 1, 2004 (the FY 
2005 wage index). The purpose of the occupational mix adjustment is to 
control for the effect of hospitals' employment choices on the wage 
index. For example, hospitals may choose to employ different 
combinations of registered nurses, licensed practical nurses, nursing 
aides, and medical assistants for the purpose of providing nursing care 
to their patients. The varying labor costs associated with these 
choices reflect hospital management decisions rather than geographic 
differences in the costs of labor.
1. Development of Data for the FY 2011 Occupational Mix Adjustment 
Based on the 2007-2008 Occupational Mix Survey
    As provided for under section 1886(d)(3)(E) of the Act, we collect 
data every 3 years on the occupational mix of employees for each short-
term, acute

[[Page 50163]]

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

[[Page 50164]]

    To compute a hospital's occupational mix adjusted average hourly 
wage, divide the hospital's total occupational mix adjusted salaries 
and wage-related costs by the hospital's total hours (from Step 4 of 
the unadjusted wage index calculation in section III.G. of this 
preamble).
    Step 9--To compute the occupational mix adjusted average hourly 
wage for an urban or rural area, sum the total occupational mix 
adjusted salaries and wage-related costs for all hospitals in the area, 
then sum the total hours for all hospitals in the area. Next, divide 
the area's occupational mix adjusted salaries and wage-related costs by 
the area's hours.
    Step 10--To compute the national occupational mix adjusted average 
hourly wage, sum the total occupational mix adjusted salaries and wage-
related costs for all hospitals in the Nation, then sum the total hours 
for all hospitals in the Nation. Next, divide the national occupational 
mix adjusted salaries and wage-related costs by the national hours. The 
FY 2011 occupational mix adjusted national average hourly wage is 
$34.9664.
    Step 11--To compute the occupational mix adjusted wage index, 
divide each area's occupational mix adjusted average hourly wage (Step 
9) by the national occupational mix adjusted average hourly wage (Step 
10).
    Step 12--To compute the Puerto Rico specific occupational mix 
adjusted wage index, follow Steps 1 through 11 above. The FY 2011 
occupational mix adjusted Puerto Rico-specific average hourly wage is 
$14.7620.
    The table below is an illustrative example of the occupational mix 
adjustment.
BILLING CODE 4120-01-P

[[Page 50165]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.030

[[Page 50166]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.031

BILLING CODE 4120-01-C
    Because the occupational mix adjustment is required by statute, all 
hospitals that are subject to payments under the IPPS, or any hospital 
that

[[Page 50167]]

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 FY 2011 wage index. For the 
FY 2007-2008 survey, the response rate was 91.1 percent.
    In computing the FY 2011 wage index, if a hospital did not respond 
to the occupational mix survey, or if we determined that a hospital's 
submitted data were too erroneous to include in the wage index, we 
assigned the hospital the average occupational mix adjustment for the 
labor market area. This method has the least impact on the wage index 
for other hospitals in the area. For areas where no hospital submitted 
data for purposes of calculating the occupational mix adjustment, we 
applied the national occupational mix factor of 1.0000 in calculating 
the area's FY 2011 occupational mix adjusted wage index. In addition, 
if a hospital submitted a survey, but that survey data could not be 
used because we determine it to be aberrant, we also assigned the 
hospital the average occupational mix adjustment for its labor market 
area. For example, if a hospital's individual nurse category average 
hourly wages were out of range (that is, unusually high or low), and 
the hospital did not provide sufficient documentation to explain the 
aberrancy, or the hospital did not submit any registered nurse salaries 
or hours data, we assigned the hospital the average occupational mix 
adjustment for the labor market area in which it is located.
    In calculating the average occupational mix adjustment factor for a 
labor market area, we replicated Steps 1 through 6 of the calculation 
for the occupational mix adjustment. However, instead of performing 
these steps at the hospital level, we aggregated the data at the labor 
market area level. In following these steps, for example, for CBSAs 
that contain providers that did not submit occupational mix survey 
data, the occupational mix adjustment factor ranged from a low of 
0.9249 (CBSA 17780, College Station-Bryan, TX), to a high of 1.1196 
(CBSA 40980, Saginaw-Saginaw Township North, MI). Also, in computing a 
hospital's occupational mix adjusted salaries and wage-related costs 
for nursing employees (Step 7 of the calculation), in the absence of 
occupational mix survey data, we multiplied the hospital's total 
salaries and wage-related costs by the percentage of the area's total 
workers attributable to the area's total nursing category. For FY 2011, 
there are five CBSAs (that include six hospitals) for which we did not 
have occupational mix data for any of its hospitals. The CBSAs are:
     CBSA 21940 Fajardo, PR (one hospital)
     CBSA 22140 Farmington, NM (one hospital)
     CBSA 36140 Ocean City, NJ (one hospital)
     CBSA 41900 San German-Cabo Rojo, PR (two hospitals)
     CBSA 49500 Yauco, PR (one hospital)
    Since the FY 2007 IPPS final rule, we have periodically discussed 
applying a hospital-specific penalty to hospitals that fail to submit 
occupational mix survey data. (See 71 FR 48013 through 48014; 72 FR 
47314 through 47315; 73 FR 48580; and 74 FR 43832.) During the FY 2008 
rulemaking cycle, some commenters suggested a penalty equal to a 1- to 
2-percent reduction in the hospital's wage index value or a set 
percentage of the standardized amount. During the FY 2009 and FY 2010 
rulemaking cycles, several commenters reiterated their view that full 
participation in the occupational mix survey is critical, and that CMS 
should develop a methodology that encourages hospitals to report 
occupational mix survey data but does not unfairly penalize neighboring 
hospitals. We indicated in the FY 2010 IPPS/RY 2010 LTCH PPS proposed 
rule that, while we were not proposing a penalty at that time, we would 
consider the public comments we previously received, as well as any 
public comments on the proposed rule, as we develop the proposed FY 
2011 wage index.
    In the FY 2011 proposed rule, 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 will be effective beginning with the new 2010 occupational 
mix survey (the 2010 survey is discussed in section III.D.2. of this 
preamble). We will instruct fiscal intermediaries/MACs to begin 
gathering this information as part of the FY 2013 wage index desk 
review process. We note that we reserve the right to apply a different 
approach in future years, including potentially penalizing 
nonresponsive hospitals.
    Comment: One commenter stated that it is unfair that some hospitals 
do not submit occupational mix data, while others consistently submit 
their data. The commenter also stated that there are presently no 
incentives for hospitals to submit occupational mix data, but praised 
CMS for beginning to take steps to address the issue by proposing to 
require hospitals that do not submit the data to provide an explanation 
for their noncompliance. The commenter suggested that CMS should still 
implement some kind of penalty in the form of a negative percentage 
adjustment to hospitals that do not submit occupational mix data, 
similar to what is done with hospitals that fail to submit quality 
data, in order to provide a greater motivation for hospitals to submit 
their occupational mix data.
    Response: We appreciate this comment and will consider it as we 
continue to monitor and assess how to address hospitals' failure to 
submit occupational mix data for the wage index.

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

    The final FY 2011 wage index values are based on the data collected 
from the Medicare cost reports submitted by hospitals for cost 
reporting periods beginning in FY 2007 (the FY 2010 wage index was 
based on data from cost reporting periods beginning during FY 2006).
1. Included Categories of Costs
    The final FY 2011 wage index includes the following categories of 
data associated with costs paid under the IPPS (as well as outpatient 
costs):
     Salaries and hours from short-term, acute care hospitals 
(including paid lunch hours and hours associated with military leave 
and jury duty)
     Home office costs and hours
     Certain contract labor costs and hours (which includes 
direct patient care, certain top management, pharmacy, laboratory, and 
nonteaching physician Part A services, and certain contract indirect 
patient care services (as discussed in the FY 2008 final rule with 
comment period (72 FR 47315))
     Wage-related costs, including pensions and other deferred 
compensation costs. We note that, for developing pension and deferred 
compensation costs for purposes of the wage index, CMS requires 
hospitals to comply with the requirements in 42 CFR 413.100, the 
Provider Reimbursement Manual (PRM), Part I, Sections 2140, 2141, and 
2142, and related Medicare program instructions, as discussed in the 
cost reporting instructions (PRM, Part II, section 3605.2) for 
Worksheet S-3, Part II, Lines 13 through 20, and in the FY 2006 IPPS 
final rule (70 FR 47369). On March 28, 2008, CMS published Revision 
436, a technical clarification to the PRM, Part I policies for pension 
and deferred compensation costs. In addition, in

[[Page 50168]]

November 2009, CMS released, through a Joint Signature Memorandum, 
instructions and a spreadsheet to assist hospitals and Medicare 
contractors in determining the annual allowable defined benefit pension 
cost for the FY 2011 wage index (JSM/TDL-10061, 11-20-09, December 3, 
2009). These instructions and spreadsheet crosswalk the current 
interest, liability, and normal cost terminology found in the Medicare 
reimbursement policies under Section 2142 of the PRM, Part I to the new 
terminology applicable under the Pension Protection Act of 2006. The 
spreadsheet and instructions can be downloaded from the CMS Web site at 
http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/itemdetail.asp?filterType=none&filterByDID=0&sortByDID=3&sortOrder=desce
nding&itemID=CMS1231035&intNumPerPage=10.
2. Excluded Categories of Costs
    Consistent with the wage index methodology for FY 2010, the final 
wage index for FY 2011 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 final FY 2011 wage index also excludes the salaries, hours, 
and wage-related costs of hospital-based rural health clinics (RHCs), 
and Federally qualified health centers (FQHCs) because Medicare pays 
for these costs outside of the IPPS (68 FR 45395). In addition, 
salaries, hours, and wage-related costs of CAHs are excluded from the 
wage index, for the reasons explained in the FY 2004 IPPS final rule 
(68 FR 45397).
3. Use of Wage Index Data by Providers Other Than Acute Care Hospitals 
Under the IPPS
    Data collected for the IPPS wage index are also currently used to 
calculate wage indices applicable to other providers, such as SNFs, 
home health agencies (HHAs), and hospices. In addition, they are used 
for prospective payments to IRFs, IPFs, and LTCHs, and for hospital 
outpatient services. We note that, in the IPPS rules, we do not address 
comments pertaining to the wage indices for non-IPPS providers, other 
than for LTCHs. Such comments should be made in response to separate 
proposed rules for those providers.

F. Verification of Worksheet S-3 Wage Data

    The wage data for the final FY 2011 wage index were obtained from 
Worksheet S-3, Parts II and III of the Medicare cost report for cost 
reporting periods beginning on or after October 1, 2006, and before 
October 1, 2007. For wage index purposes, we refer to cost reports 
during this period as the ``FY 2007 cost report,'' the ``FY 2007 wage 
data,'' or the ``FY 2007 data.'' Instructions for completing Worksheet 
S-3, Parts II and III are in the Provider Reimbursement Manual (PRM), 
Part II, sections 3605.2 and 3605.3. The data file used to construct 
the wage index includes FY 2007 data submitted to us as of June 22, 
2010. As in past years, we performed an intensive review of the wage 
data, mostly through the use of edits designed to identify aberrant 
data.
    We asked our fiscal intermediaries/MACs to revise or verify data 
elements that resulted in specific edit failures. For the proposed FY 
2011 wage index, we identified and excluded 14 providers with data that 
was too aberrant to include in the proposed wage index, although if 
data elements for some of these providers are corrected, we intended to 
include some of these providers in the FY 2011 final wage index. We 
instructed fiscal intermediaries/MACs to complete their data 
verification of questionable data elements and to transmit any changes 
to the wage data no later than April 14, 2010. The data for none of the 
hospitals identified in the proposed rule were resolved. However, the 
data for three additional hospitals were identified as too aberrant to 
include in the final wage index. Therefore, we determined that the data 
for 17 hospitals (that is, 14+3=17) should not be included in the FY 
2011 final wage index.
    In constructing the final FY 2011 wage index, we included the wage 
data for facilities that were IPPS hospitals in FY 2007, inclusive of 
those facilities that have since terminated their participation in the 
program as hospitals, as long as those data did not fail any of our 
edits for reasonableness. We believe that including the wage data for 
these hospitals is, in general, appropriate to reflect the economic 
conditions in the various labor market areas during the relevant past 
period and to ensure that the current wage index represents the labor 
market area's current wages as compared to the national average of 
wages. However, we excluded the wage data for CAHs as discussed in the 
FY 2004 IPPS final rule (68 FR 45397). For this final rule, we removed 
11 hospitals that converted to CAH status between February 16, 2009, 
the cut-off date for CAH exclusion from the FY 2010 wage index, and 
February 15, 2010, the cut-off date for CAH exclusion from the FY 2011 
wage index. After removing hospitals with aberrant data and hospitals 
that converted to CAH status, the final FY 2011 wage index is 
calculated based on 3,511 hospitals.
    In the FY 2008 final rule with comment period (72 FR 47317) and the 
FY 2009 IPPS final rule (73 FR 48582), we discussed our policy for 
allocating a multicampus hospital's wages and hours data, by full-time 
equivalent (FTE) staff, among the different labor market areas where 
its campuses are located. During the FY 2011 wage index desk review 
process, we requested fiscal intermediaries/MACs to contact multicampus 
hospitals that had campuses in different labor market areas to collect 
the data for the allocation. The FY 2011 wage index in this final rule 
includes separate wage data for campuses of three multicampus 
hospitals.
    For FY 2011, we are again allowing hospitals to use FTE or 
discharge data for the allocation of a multicampus hospital's wage data 
among the different labor market areas where its campuses are located. 
The Medicare cost report was updated in May 2008 to provide for the 
reporting of FTE data by campus for multicampus hospitals. Because the 
data from cost reporting periods that begin in FY 2008 will not be used 
in calculating the wage index until FY 2012, a multicampus hospital 
will still have the option, through the FY 2011 wage index, to use 
either FTE or discharge data for allocating wage data among its 
campuses by providing the information from the applicable cost 
reporting period to CMS through its fiscal intermediary/MAC. Two of the 
three multicampus hospitals chose to have their wage data allocated by 
their Medicare discharge data for the FY 2011 wage index. One of the 
hospitals provided FTE staff data for the allocation. The average 
hourly wage associated with each geographical location of a multicampus 
hospital is reflected in Table 2 of the Addendum to this final rule.

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

    The method used to compute the FY 2011 wage index without an 
occupational mix adjustment follows:
    Step 1--As noted above, we are basing the final FY 2011 wage index 
on wage data reported on the FY 2007 Medicare cost reports. We gathered 
data from each of the non-Federal, short-

[[Page 50169]]

term, acute care hospitals for which data were reported on the 
Worksheet S-3, Parts II and III of the Medicare cost report for the 
hospital's cost reporting period beginning on or after October 1, 2006, 
and before October 1, 2007. In addition, we included data from some 
hospitals that had cost reporting periods beginning before October 2006 
and reported a cost reporting period covering all of FY 2007. These 
data are included because no other data from these hospitals would be 
available for the cost reporting period described above, and because 
particular labor market areas might be affected due to the omission of 
these hospitals. However, we generally describe these wage data as FY 
2007 data. We note that, if a hospital had more than one cost reporting 
period beginning during FY 2007 (for example, a hospital had two short 
cost reporting periods beginning on or after October 1, 2006, and 
before October 1, 2007), we included wage data from only one of the 
cost reporting periods, the longer, in the wage index calculation. If 
there was more than one cost reporting period and the periods were 
equal in length, we included the wage data from the later period in the 
wage index calculation.
    Step 2--Salaries--The method used to compute a hospital's average 
hourly wage excludes certain costs that are not paid under the IPPS. 
(We note that, beginning with FY 2008 (72 FR 47315), we include Lines 
22.01, 26.01, and 27.01 of Worksheet S-3, Part II for overhead services 
in the wage index. However, we note that the wages and hours on these 
lines are not incorporated into Line 101, Column 1 of Worksheet A, 
which, through the electronic cost reporting software, flows directly 
to Line 1 of Worksheet S-3, Part II. Therefore, the first step in the 
wage index calculation for FY 2011 is to compute a ``revised'' Line 1, 
by adding to the Line 1 on Worksheet S-3, Part II (for wages and hours 
respectively) the amounts on Lines 22.01, 26.01, and 27.01.) In 
calculating a hospital's average salaries plus wage-related costs, we 
subtract from Line 1 (total salaries) the GME and CRNA costs reported 
on Lines 2, 4.01, 6, and 6.01, the Part B salaries reported on Lines 3, 
5 and 5.01, home office salaries reported on Line 7, and exclude 
salaries reported on Lines 8 and 8.01 (that is, direct salaries 
attributable to SNF services, home health services, and other 
subprovider components not subject to the IPPS). We also subtract from 
Line 1 the salaries for which no hours were reported. To determine 
total salaries plus wage-related costs, we add to the net hospital 
salaries the costs of contract labor for direct patient care, certain 
top management, pharmacy, laboratory, and nonteaching physician Part A 
services (Lines 9 and 10), home office salaries and wage-related costs 
reported by the hospital on Lines 11 and 12, and nonexcluded area wage-
related costs (Lines 13, 14, and 18).
    We note that contract labor and home office salaries for which no 
corresponding hours are reported are not included. In addition, wage-
related costs for nonteaching physician Part A employees (Line 18) are 
excluded if no corresponding salaries are reported for those employees 
on Line 4.
    Step 3--Hours--With the exception of wage-related costs, for which 
there are no associated hours, we compute total hours using the same 
methods as described for salaries in Step 2.
    Step 4--For each hospital reporting both total overhead salaries 
and total overhead hours greater than zero, we then allocate overhead 
costs to areas of the hospital excluded from the wage index 
calculation. First, we determine the ratio of excluded area hours (sum 
of Lines 8 and 8.01 of Worksheet S-3, Part II) to revised total hours 
(Line 1 minus the sum of Part II, Lines 2, 3, 4.01, 5, 5.01, 6, 6.01, 
7, and Part III, Line 13 of Worksheet S-3). We then compute the amounts 
of overhead salaries and hours to be allocated to excluded areas by 
multiplying the above ratio by the total overhead salaries and hours 
reported on Line 13 of Worksheet S-3, Part III. Next, we compute the 
amounts of overhead wage-related costs to be allocated to excluded 
areas using three steps: (1) We determine the ratio of overhead hours 
(Part III, Line 13 minus the sum of lines 22.01, 26.01, and 27.01) to 
revised hours excluding the sum of lines 22.01, 26.01, and 27.01 (Line 
1 minus the sum of Lines 2, 3, 4.01, 5, 5.01, 6, 6.01, 7, 8, 8.01, 
22.01, 26.01, and 27.01). (We note that for the FY 2008 and subsequent 
wage index calculations, we are excluding the sum of lines 22.01, 
26.01, and 27.01 from the determination of the ratio of overhead hours 
to revised hours because hospitals typically do not provide fringe 
benefits (wage-related costs) to contract personnel. Therefore, it is 
not necessary for the wage index calculation to exclude overhead wage-
related costs for contract personnel. Further, if a hospital does 
contribute to wage-related costs for contracted personnel, the 
instructions for Lines 22.01, 26.01, and 27.01 require that associated 
wage-related costs be combined with wages on the respective contract 
labor lines.); (2) we compute overhead wage-related costs by 
multiplying the overhead hours ratio by wage-related costs reported on 
Part II, Lines 13, 14, and 18; and (3) we multiply the computed 
overhead wage-related costs by the above excluded area hours ratio. 
Finally, we subtract the computed overhead salaries, wage-related 
costs, and hours associated with excluded areas from the total salaries 
(plus wage-related costs) and hours derived in Steps 2 and 3.
    Step 5--For each hospital, we adjust the total salaries plus wage-
related costs to a common period to determine total adjusted salaries 
plus wage-related costs. To make the wage adjustment, we estimate the 
percentage change in the employment cost index (ECI) for compensation 
for each 30-day increment from October 14, 2004, through April 15, 
2006, for private industry hospital workers from the BLS' Compensation 
and Working Conditions. We use the ECI because it reflects the price 
increase associated with total compensation (salaries plus fringes) 
rather than just the increase in salaries. In addition, the ECI 
includes managers as well as other hospital workers. This methodology 
to compute the monthly update factors uses actual quarterly ECI data 
and assures that the update factors match the actual quarterly and 
annual percent changes. We also note that, since April 2006 with the 
publication of March 2006 data, the BLS' ECI uses a different 
classification system, the North American Industrial Classification 
System (NAICS), instead of the Standard Industrial Codes (SICs), which 
no longer exist. We have consistently used the ECI as the data source 
for our wages and salaries and other price proxies in the IPPS market 
basket, and we are not making any changes to the usage for FY 2011. The 
factors used to adjust the hospital's data were based on the midpoint 
of the cost reporting period, as indicated below.

                    Midpoint of Cost Reporting Period
------------------------------------------------------------------------
         After                    Before             Adjustment factor
------------------------------------------------------------------------
        10/14/2006               11/15/2006                  1.04377
        11/14/2006               12/15/2006                  1.04077

[[Page 50170]]

        12/14/2006               01/15/2007                  1.03786
        01/14/2007               02/15/2007                  1.03508
        02/14/2007               03/15/2007                  1.03243
        03/14/2007               04/15/2007                  1.02981
        04/14/2007               05/15/2007                  1.02709
        05/14/2007               06/15/2007                  1.02430
        06/14/2007               07/15/2007                  1.02153
        07/14/2007               08/15/2007                  1.01891
        08/14/2007               09/15/2007                  1.01643
        09/14/2007               10/15/2007                  1.01394
        10/14/2007               11/15/2007                  1.01127
        11/14/2007               12/15/2007                  1.00844
        12/14/2007               01/15/2008                  1.00556
        01/14/2008               02/15/2008                  1.00275
        02/14/2008               03/15/2008                  1.00000
        03/14/2008               04/15/2008                  0.99732
------------------------------------------------------------------------

    For example, the midpoint of a cost reporting period beginning 
January 1, 2007, and ending December 31, 2007, is June 30, 2007. An 
adjustment factor of 1.02153 would be applied to the wages of a 
hospital with such a cost reporting period. In addition, for the data 
for any cost reporting period that began in FY 2007 and covered a 
period of less than 360 days or more than 370 days, we annualize the 
data to reflect a 1-year cost report. Dividing the data by the number 
of days in the cost report and then multiplying the results by 365 
accomplishes annualization.
    Step 6--Each hospital is assigned to its appropriate urban or rural 
labor market area before any reclassifications under section 
1886(d)(8)(B), section 1886(d)(8)(E), or section 1886(d)(10) of the 
Act. Within each urban or rural labor market area, we add the total 
adjusted salaries plus wage-related costs obtained in Step 5 for all 
hospitals in that area to determine the total adjusted salaries plus 
wage-related costs for the labor market area.
    Step 7--We divide the total adjusted salaries plus wage-related 
costs obtained under both methods in Step 6 by the sum of the 
corresponding total hours (from Step 4) for all hospitals in each labor 
market area to determine an average hourly wage for the area.
    Step 8--We add the total adjusted salaries plus wage-related costs 
obtained in Step 5 for all hospitals in the Nation and then divide the 
sum by the national sum of total hours from Step 4 to arrive at a 
national average hourly wage. Using the data as described above, the 
final national average hourly wage (unadjusted for occupational mix) is 
$34.9895.
    Step 9--For each urban or rural labor market area, we calculate the 
hospital wage index value, unadjusted for occupational mix, by dividing 
the area average hourly wage obtained in Step 7 by the national average 
hourly wage computed in Step 8.
    Step 10--Following the process set forth above, we develop a 
separate Puerto Rico-specific wage index for purposes of adjusting the 
Puerto Rico standardized amounts. (The national Puerto Rico 
standardized amount is adjusted by a wage index calculated for all 
Puerto Rico labor market areas based on the national average hourly 
wage as described above.) We add the total adjusted salaries plus wage-
related costs (as calculated in Step 5) for all hospitals in Puerto 
Rico and divide the sum by the total hours for Puerto Rico (as 
calculated in Step 4) to arrive at an overall final average hourly wage 
(unadjusted for occupational mix) of $14.7404 for Puerto Rico. For each 
labor market area in Puerto Rico, we calculate the Puerto Rico-specific 
wage index value by dividing the area average hourly wage (as 
calculated in Step 7) by the overall Puerto Rico average hourly wage.
    Step 11--Section 4410 of Public Law 105-33 provides that, for 
discharges on or after October 1, 1997, the area wage index applicable 
to any hospital that is located in an urban area of a State may not be 
less than the area wage index applicable to hospitals located in rural 
areas in that State. The areas affected by this provision are 
identified in Table 4D-2 of the Addendum to this final rule.
    In the FY 2005 IPPS final rule (69 FR 49109), we adopted the 
``imputed'' floor as a temporary 3-year measure to address a concern by 
some individuals that hospitals in all-urban States were disadvantaged 
by the absence of rural hospitals to set a wage index floor in those 
States. The imputed floor was originally set to expire in FY 2007, but 
we extended it an additional year in the FY 2008 IPPS final rule with 
comment period (72 FR 47321). In the FY 2009 IPPS final rule (73 FR 
48570 through 48574 and 48584), we extended the imputed floor for an 
additional 3 years, through FY 2011.

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

    As discussed in section III.D. of this preamble, for FY 2011, we 
are applying the occupational mix adjustment to 100 percent of the 
final FY 2011 wage index. We calculated the final occupational mix 
adjustment using data from the 2007-2008 occupational mix survey data, 
using the methodology described in section III.D.3. of this preamble.
    Using the occupational mix survey data and applying the 
occupational mix adjustment to 100 percent of the final FY 2011 wage 
index results in a final national average hourly wage of $34.9664 and a 
final Puerto Rico-specific average hourly wage of $14.7620. After 
excluding data of hospitals that either submitted aberrant data that 
failed critical edits, or that do not have FY 2007 Worksheet S-3 cost 
report data for use in calculating the final FY 2011 wage index, we 
calculated the final FY 2011 wage index using the occupational mix 
survey data from 3,197 hospitals. Using the Worksheet S-3 cost report 
data of 3,511 hospitals and occupational mix survey data from 3,197 
hospitals represents a 91.1 percent survey response rate. The final FY 
2011 national average hourly wages for each occupational mix nursing 
subcategory as calculated in Step 2 of the occupational mix calculation 
are as follows:

[[Page 50171]]

------------------------------------------------------------------------
                                                         Average hourly
         Occupational mix nursing subcategory                 wage
------------------------------------------------------------------------
National RN...........................................     $36.073112086
National LPN and Surgical Technician..................      20.866432497
National Nurse Aide, Orderly, and Attendant...........      14.619357374
National Medical Assistant............................      16.479254498
National Nurse Category...............................      30.47379669
------------------------------------------------------------------------

    The final national average hourly wage for the entire nurse 
category as computed in Step 5 of the occupational mix calculation is 
$30.47379669. Hospitals with a nurse category average hourly wage (as 
calculated in Step 4) of greater than the national nurse category 
average hourly wage receive an occupational mix adjustment factor (as 
calculated in Step 6) of less than 1.0. Hospitals with a nurse category 
average hourly wage (as calculated in Step 4) of less than the national 
nurse category average hourly wage receive an occupational mix 
adjustment factor (as calculated in Step 6) of greater than 1.0.
    Based on the 2007-2008 occupational mix survey data, we determined 
(in Step 7 of the occupational mix calculation) that the national 
percentage of hospital employees in the nurse category is 44.29 
percent, and the national percentage of hospital employees in the all 
other occupations category is 55.71 percent. At the CBSA level, the 
percentage of hospital employees in the nurse category ranged from a 
low of 29.08 percent in one CBSA, to a high of 70.76 percent in another 
CBSA.
    We compared the final FY 2011 occupational mix adjusted wage 
indices for each CBSA to the final unadjusted wage indices for each 
CBSA. As a result of applying the occupational mix adjustment to the 
wage data, the final wage index values for 206 (52.7 percent) urban 
areas and 32 (68.1 percent) rural areas would increase. One hundred six 
(27.1 percent) urban areas would increase by 1 percent or more, and 6 
(1.5 percent) urban areas would increase by 5 percent or more. Eighteen 
(38.3 percent) rural areas would increase by 1 percent or more, and no 
rural areas would increase by 5 percent or more. However, the wage 
index values for 185 (47.3 percent) urban areas and 15 (31.9 percent) 
rural areas would decrease. Eighty nine (22.8 percent) urban areas 
would decrease by 1 percent or more, and no urban area would decrease 
by 5 percent or more. Seven (14.9 percent) rural areas would decrease 
by 1 percent or more, and no rural areas will decrease by 5 percent or 
more. The largest positive impacts are 7.81 percent for an urban area 
and 2.97 percent for a rural area. The largest negative impacts are 
3.97 percent for an urban area and 2.41 percent for a rural area. No 
urban or rural areas are unaffected. These results indicate that a 
larger percentage of rural areas (68.1 percent) benefit from the 
occupational mix adjustment than do urban areas (52.7 percent). While 
these results are more positive overall for rural areas than under the 
previous occupational mix adjustment that used survey data from 2006, 
approximately one-third (31.9 percent) of rural CBSAs will still 
experience a decrease in their wage indices as a result of the 
occupational mix adjustment.
    The final wage index values for FY 2011 (except those for hospitals 
receiving wage index adjustments under section 1886(d)(13) of the Act) 
included in Tables 4A, 4B, 4C, and 4F of the Addendum to this final 
rule include the final occupational mix adjustment.
    Tables 3A and 3B in the Addendum to this final rule list the 3-year 
average hourly wage for each labor market area before the redesignation 
or reclassification of hospitals based on FYs 2009, 2010, and 2011 cost 
reporting periods. Table 3A lists these data for urban areas and Table 
3B lists these data for rural areas. In addition, Table 2 in the 
Addendum to this final rule includes the adjusted average hourly wage 
for each hospital from the FY 2005 and FY 2006 cost reporting periods, 
as well as the FY 2007 period used to calculate the final FY 2011 wage 
index. The 3-year averages are calculated by dividing the sum of the 
dollars (adjusted to a common reporting period using the method 
described previously) across all 3 years, by the sum of the hours. If a 
hospital is missing data for any of the previous years, its average 
hourly wage for the 3-year period is calculated based on the data 
available during that period. The final average hourly wages in Tables 
2, 3A, and 3B in the Addendum to this final rule include the final 
occupational mix adjustment. The final wage index values in Tables 4A, 
4B, and 4C also include the final State-specific rural floor and 
imputed floor budget neutrality adjustments. (We note that Table 4D-1, 
Rural Floor Budget Neutrality Factors for Acute Care Hospitals, was 
included in the Addendum to the FY 2011 IPPS/LTCH PPS proposed rule. 
However, we are not including it in this final rule because section 
3141 of the Affordable Care Act restores rural floor and imputed floor 
budget neutrality to a uniform national adjustment.)

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

1. General
    Under section 1886(d)(10) of the Act, the MGCRB considers 
applications by hospitals for geographic reclassification for purposes 
of payment under the IPPS. Hospitals must apply to the MGCRB to 
reclassify 13 months prior to the start of the fiscal year for which 
reclassification is sought (generally by September 1). Generally, 
hospitals must be proximate to the labor market area to which they are 
seeking reclassification and must demonstrate characteristics similar 
to hospitals located in that area. The MGCRB issues its decisions by 
the end of February for reclassifications that become effective for the 
following fiscal year (beginning October 1). The regulations applicable 
to reclassifications by the MGCRB are located in 42 CFR 412.230 through 
412.280.
    Section 1886(d)(10)(D)(v) of the Act provides that, beginning with 
FY 2001, a MGCRB decision on a hospital reclassification for purposes 
of the wage index is effective for 3 fiscal years, unless the hospital 
elects to terminate the reclassification. Section 1886(d)(10)(D)(vi) of 
the Act provides that the MGCRB must use average hourly wage data from 
the 3 most recently published hospital wage surveys in evaluating a 
hospital's reclassification application for FY 2003 and any succeeding 
fiscal year.
    Section 304(b) of Public Law 106-554 provides that the Secretary 
must establish a mechanism under which a statewide entity may apply to 
have all of the geographic areas in the State treated as a single 
geographic area for purposes of computing and applying a single wage 
index, for reclassifications beginning in FY 2003. The implementing 
regulations for this provision are located at 42 CFR 412.235.
    Section 1886(d)(8)(B) of the Act requires the Secretary to treat a 
hospital located in a rural county adjacent to one

[[Page 50172]]

or more urban areas as being located in the labor market area to which 
the greatest number of workers in the county commute, if the rural 
county would otherwise be considered part of an urban area under the 
standards for designating MSAs and if the commuting rates used in 
determining outlying counties were determined on the basis of the 
aggregate number of resident workers who commute to (and, if applicable 
under the standards, from) the central county or counties of all 
contiguous MSAs. In light of the CBSA definitions and the Census 2000 
data that we implemented for FY 2005 (69 FR 49027), we undertook to 
identify those counties meeting these criteria. Eligible counties are 
discussed and identified under section III.I.5. of this preamble.
2. Effects of Reclassification/Redesignation
    Section 1886(d)(8)(C) of the Act provides that the application of 
the wage index to redesignated hospitals is dependent on the 
hypothetical impact that the wage data from these hospitals would have 
on the wage index value for the area to which they have been 
redesignated. These requirements for determining the wage index values 
for redesignated hospitals are applicable both to the hospitals deemed 
urban under section 1886(d)(8)(B) of the Act and hospitals that were 
reclassified as a result of the MGCRB decisions under section 
1886(d)(10) of the Act. Therefore, as provided in section 1886(d)(8)(C) 
of the Act, the wage index values were determined by considering the 
following:
     If including the wage data for the redesignated hospitals 
would reduce the wage index value for the area to which the hospitals 
are redesignated by 1 percentage point or less, the area wage index 
value determined exclusive of the wage data for the redesignated 
hospitals applies to the redesignated hospitals.
     If including the wage data for the redesignated hospitals 
reduces the wage index value for the area to which the hospitals are 
redesignated by more than 1 percentage point, the area wage index 
determined inclusive of the wage data for the redesignated hospitals 
(the combined wage index value) applies to the redesignated hospitals.
     If including the wage data for the redesignated hospitals 
increases the wage index value for the urban area to which the 
hospitals are redesignated, both the area and the redesignated 
hospitals receive the combined wage index value. Otherwise, the 
hospitals located in the urban area receive a wage index excluding the 
wage data of hospitals redesignated into the area.
    Rural areas whose wage index values would be reduced by excluding 
the wage data for hospitals that have been redesignated to another area 
continue to have their wage index values calculated as if no 
redesignation had occurred (otherwise, redesignated rural hospitals are 
excluded from the calculation of the rural wage index). The wage index 
value for a redesignated rural hospital cannot be reduced below the 
wage index value for the rural areas of the State in which the hospital 
is located.
    CMS also has adopted the following policies:
     The wage data for a reclassified urban hospital is 
included in both the wage index calculation of the urban area to which 
the hospital is reclassified (subject to the rules described above) and 
the wage index calculation of the urban area where the hospital is 
physically located.
     In cases where hospitals have reclassified to rural areas, 
such as urban hospitals reclassifying to rural areas under 42 CFR 
412.103, the hospital's wage data are: (a) Included in the rural wage 
index calculation, unless doing so would reduce the rural wage index; 
and (b) included in the urban area where the hospital is physically 
located. The effect of this policy, in combination with the statutory 
requirement at section 1886(d)(8)(C)(ii) of the Act, is that rural 
areas may receive a wage index based upon the highest of: (1) Wage data 
from hospitals geographically located in the rural area; (2) wage data 
from hospitals geographically located in the rural area, but excluding 
all data associated with hospitals reclassifying out of the rural area 
under section 1886(d)(8)(B) or section 1886(d)(10) of the Act; or (3) 
wage data associated with hospitals geographically located in the area 
plus all hospitals reclassified into the rural area.
    In addition, in accordance with the statutory language referring to 
``hospitals'' in the plural under sections 1886(d)(8)(C)(i) and 
1886(d)(8)(C)(ii) of the Act, our longstanding policy is to consider 
reclassified hospitals as a group when deciding whether to include or 
exclude them from both urban and rural wage index calculations.
    Comment: One commenter opposed CMS' longstanding methodology for 
calculating the wage index for reclassified hospitals, and suggested 
that CMS calculate a separate reclassified wage index for those 
hospitals that meet the reclassification proximate requirement and 
another wage index for those hospitals that do not meet the 
requirement. In addition, the commenter suggested another option which 
would provide for calculation of the reclassified wage index based on 
the hospitals physically located in the CBSA and each individual 
hospital, instead of combining all reclassified hospitals as a group.
    Response: We did not include any proposals in the FY 2011 proposed 
rule to change our longstanding methodology for calculating the wage 
index for reclassified hospitals. We believe that this methodology 
continues to be appropriate in order to calculate the wage index for 
hospitals for Medicare payment purposes.
3. FY 2011 MGCRB Reclassifications
a. FY 2011 Reclassifications Requirements and Approvals
    Under section 1886(d)(10) of the Act, the MGCRB considers 
applications by hospitals for geographic reclassification for purposes 
of payment under the IPPS. The specific procedures and rules that apply 
to the geographic reclassification process are outlined in 42 CFR 
412.230 through 412.280.
    At the time this final rule was constructed, the MGCRB had 
completed its review of FY 2011 reclassification requests. Based on 
such reviews, there were 285 hospitals approved for wage index 
reclassifications by the MGCRB for FY 2011. Because MGCRB wage index 
reclassifications are effective for 3 years, for FY 2011, hospitals 
reclassified during FY 2009 or FY 2010 are eligible to continue to be 
reclassified to a particular labor market area based on such prior 
reclassifications. There were 247 hospitals approved for wage index 
reclassifications in FY 2009 and 251 hospitals approved for wage index 
reclassifications in FY 2010. Of all of the hospitals approved for 
reclassification for FY 2009, FY 2010, and FY 2011, based upon the 
review at the time of this final rule, 823 hospitals are in a 
reclassification status for FY 2011.
    Under 42 CFR 412.273, hospitals that have been reclassified by the 
MGCRB are permitted to withdraw their applications within 45 days of 
the publication of a proposed rule. Generally stated, the request for 
withdrawal of an application for reclassification or termination of an 
existing 3-year reclassification that would be effective in FY 2011 had 
to be received by the MGCRB within 45 days of the publication of the FY 
2011 proposed rule. Hospitals also could cancel prior reclassification 
withdrawals or terminations in certain circumstances. For further 
information

[[Page 50173]]

about withdrawing, terminating, or canceling a previous withdrawal or 
termination of a 3-year reclassification for wage index purposes, we 
refer the reader to 42 CFR 412.273, as well as the FY 2002 IPPS final 
rule (66 FR 39887) and the FY 2003 IPPS final rule (67 FR 50065). 
Additional discussion on withdrawals and terminations, and 
clarifications regarding reinstating reclassifications and ``fallback'' 
reclassifications, were included in the FY 2008 IPPS final rule (72 FR 
47333).
    Changes to the wage index that result from withdrawals of requests 
for reclassification, terminations, wage index corrections, appeals, 
and the Administrator's review process for FY 2011 are incorporated 
into the wage index values published in this FY 2011 IPPS/LTCH PPS 
final rule. These changes affect not only the wage index value for 
specific geographic areas, but also the wage index value redesignated/
reclassified hospitals receive; that is, whether they receive the wage 
index that includes the data for both the hospitals already in the area 
and the redesignated/reclassified hospitals. Further, the wage index 
value for the area from which the hospitals are redesignated/
reclassified may be affected.
b. Applications for Reclassifications for FY 2012
    Applications for FY 2012 reclassifications are due to the MGCRB by 
September 1, 2010. We note that this is also the deadline for canceling 
a previous wage index reclassification withdrawal or termination under 
42 CFR 412.273(d). Applications and other information about MGCRB 
reclassifications may be obtained, beginning in mid-July 2010, via the 
CMS Internet Web site at: http://cms.hhs.gov/MGCRB/02_instructions_and_applications.asp, or by calling the MGCRB at (410) 786-1174. The 
mailing address of the MGCRB is: 2520 Lord Baltimore Drive, Suite L, 
Baltimore, MD 21244-2670.
c. Appeals of MGCRB Denials of Withdrawals and Terminations
    Section 412.278 of the regulations permits a hospital or a group of 
hospitals dissatisfied with the MGCRB's decision regarding its 
geographic designation to request the Administrator's review of the 
decision. Section 412.273(e) permits a hospital to file an appeal to 
the Administrator regarding the MGCRB's denial of the hospital's 
request for withdrawal of an application. However, this section of the 
regulations did not address Administrator review of the MGCRB's denial 
of a hospital's request for termination; that is, ``terminations'' not 
specified in the regulations at Sec.  412.273(e).
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23949), we 
proposed to revise the regulations to specify the availability of 
Administrator review of MGCRB decisions regarding withdrawals and 
terminations, as well as cancellations of withdrawals or terminations. 
Because reclassifications are considered budget neutral actions, we 
stated our belief that these proposed revisions would have no impact on 
total IPPS payments.
    In addition, during our review of Sec.  412.273, we determined that 
some of the existing language in the section could be clarified to make 
it more easily understood and proposed to revise the provision 
accordingly.
    We did not receive any public comments regarding our proposed 
changes to the regulations at Sec.  412.273. Therefore, in this final 
rule, we are adopting as final, without modification, the proposed 
changes to Sec.  412.273.
4. Redesignations of Hospitals Under Section 1886(d)(8)(B) of the Act
    Section 1886(d)(8)(B) of the Act requires us to treat a hospital 
located in a rural county adjacent to one or more urban areas as being 
located in the MSA if certain criteria are met. Effective beginning FY 
2005, we use OMB's 2000 CBSA standards and the Census 2000 data to 
identify counties in which hospitals qualify under section 
1886(d)(8)(B) of the Act to receive the wage index of the urban area. 
Hospitals located in these counties have been known as ``Lugar'' 
hospitals and the counties themselves are often referred to as 
``Lugar'' counties. We provide the FY 2011 chart below with the listing 
of the rural counties containing the hospitals designated as urban 
under section 1886(d)(8)(B) of the Act. For discharges occurring on or 
after October 1, 2010, hospitals located in the rural county in the 
first column of this chart will be redesignated for purposes of using 
the wage index of the urban area listed in the second column.
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BILLING CODE 4120-01-C
    As in the past, hospitals redesignated under section 1886(d)(8)(B) 
of the Act are also eligible to be reclassified to a different area by 
the MGCRB. Affected hospitals were permitted to compare the 
reclassified wage index for the labor market area in Table 4C in the 
Addendum to the proposed rule into which they would be reclassified by 
the MGCRB to the wage index for the area to which they are redesignated 
under section 1886(d)(8)(B) of the Act. Hospitals could have withdrawn 
from an MGCRB reclassification within 45 days of the publication of the 
FY 2011 proposed rule.
5. Reclassifications Under Section 1886(d)(8)(B) of the Act
    As discussed in the FY 2009 IPPS final rule (73 FR 48588), Lugar 
hospitals are treated like reclassified hospitals for purposes of 
determining their applicable wage index and receive the reclassified 
wage index for the urban area to which they have been redesignated. 
Because Lugar hospitals are treated like reclassified hospitals, when 
they are seeking reclassification by the MGCRB, they are subject to the 
rural reclassification rules set forth at 42 CFR 412.230. The 
procedural rules set forth at Sec.  412.230 list the criteria that a 
hospital must meet in order to reclassify as a rural hospital. Lugar 
hospitals are subject to the proximity criteria and payment thresholds 
that apply to rural hospitals. Specifically, the hospital must be no 
more than 35 miles from the area to which it seeks reclassification 
(Sec.  412.230(b)(1)); and the hospital must show that its average 
hourly wage is at least 106 percent of the average hourly wage of all 
other hospitals in the area in which the hospital is located (Sec.  
412.230(d)(1)(iii)(C)). In accordance with the requirements of section 
3137(c) of the Affordable Care Act, as discussed in section III.B.2.a 
of the preamble in this final rule, beginning with reclassifications 
for the FY 2011 wage index, a Lugar hospital must also demonstrate that 
its average hourly wage is equal to at least 82 percent of the average 
hourly wage of hospitals in the area to which it seeks redesignation 
(Sec.  412.230(d)(1)(iv)(C)).
    Hospitals not located in a Lugar county seeking reclassification to 
the urban area where the Lugar hospitals have been redesignated are not 
permitted to measure to the Lugar county to demonstrate proximity (no 
more than 15 miles for an urban hospital, and no more than 35 miles for 
a rural hospital or the closest urban or rural area for RRCs or SCHs) 
in order to be reclassified to such urban area. These hospitals must 
measure to the urban area exclusive of the Lugar County to meet the 
proximity or nearest urban or rural area requirement. We treat New 
England deemed counties in a manner consistent with how we treat Lugar 
counties. (We refer readers to FY 2008 IPPS final rule with comment 
period (72 FR 47337) for a discussion of this policy.)
6. Reclassifications Under Section 508 of Public Law 108-173
    Section 508 of Public Law 108-173 allowed certain qualifying 
hospitals to receive wage index reclassifications and assignments that 
they otherwise would not have been eligible to receive under the law. 
Although section 508 originally was scheduled to expire after a 3-year 
period, Congress extended the provision several times, as well as 
certain special exceptions that would have otherwise expired. For a 
discussion of the original section 508 provision and its various 
extensions, we refer readers to the FY 2010 notice issued in the 
Federal Register on June 2, 2010 (75 FR 31118). Prior to the enactment 
of the Afforable Care Act, the extension of the 508 provision was 
included in section 124 of Public Law 110-275 (MIPPA). Section 124 
extended, through FY 2009, section 508 reclassifications as well as 
certain special exceptions. The most recent extension of the provision 
was included in sections 3137(a) and 10317 of Affordable Care Act, as 
amended. Section 3137(a) of the Affordable Care Act, as amended by 
section 10317, extended, through FY 2010, section 508 reclassifications 
as well as certain special exceptions. Because the latest extension of 
these provisions expires on September 30, 2010, and will not be 
applicable in FY 2011, we are not making any changes related to these 
provisions in this final rule.

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

    In accordance with the broad discretion under section 1886(d)(13) 
of the Act, as added by section 505 of Public Law 108-173, beginning 
with FY 2005, we established a process to make adjustments to the 
hospital wage index based on commuting patterns of hospital employees 
(the ``out-migration'' adjustment). The process, outlined in the FY 
2005 IPPS final rule (69 FR 49061), provides for an increase in the 
wage index for hospitals located in certain counties that have a 
relatively high percentage of hospital employees who reside in the 
county but work in a different county (or counties) with a higher wage 
index. Such adjustments to the wage index are effective for 3 years, 
unless a hospital requests to waive the application of the adjustment. 
A county will not lose its status as a qualifying county due to wage 
index changes during the 3-year period, and counties will receive the 
same wage index increase for those 3 years. However, a county that 
qualifies in any given year

[[Page 50177]]

may no longer qualify after the 3-year period, or it may qualify but 
receive a different adjustment to the wage index level. Hospitals that 
receive this adjustment to their wage index are not eligible for 
reclassification under section 1886(d)(8) or section 1886(d)(10) of the 
Act. Adjustments under this provision are not subject to the budget 
neutrality requirements under section 1886(d)(3)(E) of the Act.
    Hospitals located in counties that qualify for the wage index 
adjustment are to receive an increase in the wage index that is equal 
to the average of the differences between the wage indices of the labor 
market area(s) with higher wage indices and the wage index of the 
resident county, weighted by the overall percentage of hospital workers 
residing in the qualifying county who are employed in any labor market 
area with a higher wage index. Beginning with the FY 2008 wage index, 
we use post-reclassified wage indices when determining the out-
migration adjustment (72 FR 47339).
    For the final FY 2011 wage index, we calculated the out-migration 
adjustment using the same formula described in the FY 2005 IPPS final 
rule (69 FR 49064), with the addition of using the post-reclassified 
wage indices, to calculate the out-migration adjustment. This 
adjustment is calculated as follows:
    Step 1--Subtract the wage index for the qualifying county from the 
wage index of each of the higher wage area(s) to which hospital workers 
commute.
    Step 2--Divide the number of hospital employees residing in the 
qualifying county who are employed in such higher wage index area by 
the total number of hospital employees residing in the qualifying 
county who are employed in any higher wage index area. For each of the 
higher wage index areas, multiply this result by the result obtained in 
Step 1.
    Step 3--Sum the products resulting from Step 2 (if the qualifying 
county has workers commuting to more than one higher wage index area).
    Step 4--Multiply the result from Step 3 by the percentage of 
hospital employees who are residing in the qualifying county and who 
are employed in any higher wage index area.
    These adjustments will be effective for each county for a period of 
3 fiscal years. For example, hospitals that received the adjustment for 
the first time in FY 2010 will be eligible to retain the adjustment for 
FY 2011. For hospitals in newly qualified counties, adjustments to the 
wage index are effective for 3 years, beginning with discharges 
occurring on or after October 1, 2010.
    Hospitals receiving the wage index adjustment under section 
1886(d)(13)(F) of the Act are not eligible for reclassification under 
sections 1886(d)(8) or (d)(10) of the Act unless they waive the out-
migration adjustment. Consistent with our FYs 2005 through 2010 IPPS 
final rules, we are specifying that hospitals redesignated under 
section 1886(d)(8) of the Act or reclassified under section 1886(d)(10) 
of the Act are deemed to have chosen to retain their redesignation or 
reclassification. Section 1886(d)(10) hospitals that wished to receive 
the out-migration adjustment, rather than their reclassification 
adjustment, were instructed to follow the termination/withdrawal 
procedures specified in 42 CFR 412.273 and section III.I.3. of the 
preamble of the FY 2011 proposed rule. Otherwise, they were deemed to 
have waived the out-migration adjustment. Hospitals redesignated under 
section 1886(d)(8) of the Act were deemed to have waived the out-
migration adjustment unless they explicitly notified CMS within 45 days 
from the publication of the FY 2011 proposed rule that they elected to 
receive the out-migration adjustment instead.
    Table 4J in the Addendum to this final rule lists the out-migration 
wage index adjustments for FY 2011. Hospitals that are not otherwise 
reclassified or redesignated under section 1886(d)(8) or section 
1886(d)(10) of the Act automatically receive the listed adjustment. In 
accordance with the procedures discussed above, redesignated/
reclassified hospitals were deemed to have waived the out-migration 
adjustment unless CMS was otherwise notified within the necessary 
timeframe. In addition, hospitals eligible to receive the out-migration 
wage index adjustment and that withdrew their application for 
reclassification will automatically receive the wage index adjustment 
listed in Table 4J in the Addendum to this final rule. The wage index 
is updated annually and, as such, hospitals that wish to waive their 
Lugar redesignation in order to receive their home area wage index plus 
the out-migration adjustment must request the waiver annually.
    Comment: A few commenters opposed our existing policy that 
hospitals waiving their Lugar redesignation in order to receive their 
home area wage index plus the out-migration adjustment must request 
such waiver annually.
    Response: We did not propose to change this policy and continue to 
believe the existing policy is appropriate for designation of the out-
migration adjustment annually. We addressed this comment in the FY 2010 
IPPS/RY 2010 LTCH PPS final rule and refer readers to that discussion 
(74 FR 43840).

K. Process for Requests for Wage Index Data Corrections

    The preliminary, unaudited Worksheet S-3 wage data and occupational 
mix survey data files for the proposed FY 2011 wage index were made 
available on October 5, 2009, through the Internet on the CMS Web site 
at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage.
    In the interest of meeting the data needs of the public, beginning 
with the proposed FY 2009 wage index, we post an additional public use 
file on our Web site that reflects the actual data that are used in 
computing the proposed wage index. The release of this new file does 
not alter the current wage index process or schedule. We notified the 
hospital community of the availability of these data as we do with the 
current public use wage data files through our Hospital Open Door 
forum. We encouraged hospitals to sign up for automatic notifications 
of information about hospital issues and the scheduling of the Hospital 
Open Door forums at: http://www.cms.hhs.gov/OpenDoorForums/.
    In a memorandum dated October 21, 2009, we instructed all fiscal 
intermediaries/MACs to inform the IPPS hospitals they service of the 
availability of the wage index data files and the process and timeframe 
for requesting revisions (including the specific deadlines listed 
below). We also instructed the fiscal intermediaries/MACs to advise 
hospitals that these data were also made available directly through 
their representative hospital organizations.
    If a hospital wished to request a change to its data as shown in 
the October 5, 2009 wage and occupational mix data files, the hospital 
was to submit corrections along with complete, detailed supporting 
documentation to its fiscal intermediary/MAC by December 7, 2009. 
Hospitals were notified of this deadline and of all other possible 
deadlines and requirements, including the requirement to review and 
verify their data as posted on the preliminary wage index data files on 
the Internet, through the October 21, 2009 memorandum referenced above.

[[Page 50178]]

    In the October 21, 2009 memorandum, we also specified that a 
hospital requesting revisions to its occupational mix survey data was 
to copy its record(s) from the CY 2007-2008 occupational mix 
preliminary files posted to our Web site in October, highlight the 
revised cells on its spreadsheet, and submit its spreadsheet(s) and 
complete documentation to its fiscal intermediary/MAC no later than 
December 7, 2009.
    The fiscal intermediaries/MACs notified the hospitals by mid-
February 2010 of any changes to the wage index data as a result of the 
desk reviews and the resolution of the hospitals' early-December 
revision requests. The fiscal intermediaries/MACs also submitted the 
revised data to CMS by mid-February 2010. CMS published the proposed 
wage index public use files that included hospitals' revised wage index 
data on February 22, 2010. Hospitals had until March 8, 2010, to submit 
requests to the fiscal intermediaries/MACs for reconsideration of 
adjustments made by the fiscal intermediaries/MACs as a result of the 
desk review, and to correct errors due to CMS's or the fiscal 
intermediary's (or, if applicable, the MAC's) mishandling of the wage 
index data. Hospitals also were required to submit sufficient 
documentation to support their requests.
    After reviewing requested changes submitted by hospitals, fiscal 
intermediaries/MACs were required to transmit any additional revisions 
resulting from the hospitals' reconsideration requests by April 14, 
2010. The deadline for a hospital to request CMS intervention in cases 
where the hospital disagrees with the fiscal intermediary's (or, if 
applicable, the MAC's) policy interpretations was April 21, 2010.
    Hospitals were given the opportunity to examine Table 2 in the 
Addendum to the proposed rule. Table 2 in the Addendum to the proposed 
rule contained each hospital's adjusted average hourly wage used to 
construct the wage index values for the past 3 years, including the FY 
2007 data used to construct the proposed FY 2011 wage index. We noted 
that the hospital average hourly wages shown in Table 2 only reflected 
changes made to a hospital's data and transmitted to CMS by March 2010.
    We released the final wage index data public use files in early May 
2010 on the Internet at http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage. The May 2010 public use files were made available 
solely for the limited purpose of identifying any potential errors made 
by CMS or the fiscal intermediary/MAC in the entry of the final wage 
index data that resulted from the correction process described above 
(revisions submitted to CMS by the fiscal intermediaries/MACs by April 
14, 2010). If, after reviewing the May 2010 final files, a hospital 
believed that its wage or occupational mix data were incorrect due to a 
fiscal intermediary/MAC or CMS error in the entry or tabulation of the 
final data, the hospital had to send a letter to both its fiscal 
intermediary/MAC and CMS that outlined why the hospital believed an 
error exists and provided 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) had to 
receive these requests no later than June 7, 2010.
    Each request also had to be sent to the fiscal intermediary/MAC. 
The fiscal intermediary/MAC reviewed requests upon receipt and 
contacted CMS immediately to discuss any findings.
    At this point in the process, that is, after the release of the May 
2010 wage index data files, changes to the wage and occupational mix 
data were only 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 approved the 
following types of requests:
     Requests for wage index data corrections that were 
submitted too late to be included in the data transmitted to CMS by 
fiscal intermediaries or the MACs on or before April 21, 2010.
     Requests for correction of errors that were not, but could 
have been, identified during the hospital's review of the February 22, 
2010 wage index public use files.
     Requests to revisit factual determinations or policy 
interpretations made by the fiscal intermediary or the MAC or CMS 
during the wage index data correction process.
    Verified corrections to the wage index data received timely by CMS 
and the fiscal intermediaries or the MACs (that is, by June 7, 2010) 
were incorporated into the final wage index in this FY 2011 IPPS/LTCH 
PPS final rule, which will be effective October 1, 2010.
    We created the processes described above to resolve all substantive 
wage index data correction disputes before we finalize the wage and 
occupational mix data for the FY 2011 payment rates. Accordingly, 
hospitals that did not meet the procedural deadlines set forth above 
will not be afforded a later opportunity to submit wage index data 
corrections or to dispute the fiscal intermediary's (or, if applicable, 
the MAC's) decision with respect to requested changes. Specifically, 
our policy is that hospitals that do not meet the procedural deadlines 
set forth above will not be permitted to challenge later, before the 
Provider Reimbursement Review Board, the failure of CMS to make a 
requested data revision. (See W. A. Foote Memorial Hospital v. Shalala, 
No. 99-CV-75202-DT (E.D. Mich. 2001) and Palisades General Hospital v. 
Thompson, No. 99-1230 (D.D.C. 2003).) We refer readers also to the FY 
2000 IPPS final rule (64 FR 41513) for a discussion of the parameters 
for appealing to the PRRB for wage index data corrections.
    Again, we believe the wage index data correction process described 
above provides hospitals with sufficient opportunity to bring errors in 
their wage and occupational mix data to the fiscal intermediary's (or, 
if applicable, the MAC's) attention. Moreover, because hospitals have 
access to the final wage index data by early May 2010, they have the 
opportunity to detect any data entry or tabulation errors made by the 
fiscal intermediary or the MAC or CMS before the development and 
publication of the final FY 2011 wage index by August 2010, and the 
implementation of the FY 2011 wage index on October 1, 2010. If 
hospitals availed themselves of the opportunities afforded to provide 
and make corrections to the wage and occupational mix data, the wage 
index implemented on October 1 should be accurate. Nevertheless, in the 
event that errors are identified by hospitals and brought to our 
attention after June 7, 2010, we retain the right to make midyear 
changes to the wage index under very limited circumstances.
    Specifically, in accordance with 42 CFR 412.64(k)(1) of our 
existing regulations, we make midyear corrections to the wage index for 
an area only if a hospital can show that: (1) The fiscal intermediary 
or the MAC or CMS made an error in tabulating its data; and (2) the 
requesting hospital could not have known about the error or did not 
have an opportunity to correct the error, before the beginning of the 
fiscal year. For purposes of this provision, ``before the beginning of 
the fiscal year'' means by the June 7 deadline for making corrections 
to the wage data for the following fiscal year's wage index. This 
provision is not available to a hospital seeking to revise another 
hospital's data that may be affecting the requesting hospital's wage 
index for the labor market area. As indicated earlier,

[[Page 50179]]

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

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

    Section 1886(d)(3)(E) of the Act directs the Secretary to adjust 
the proportion of the national prospective payment system base payment 
rates that are attributable to wages and wage-related costs by a factor 
that reflects the relative differences in labor costs among geographic 
areas. It also directs the Secretary to estimate from time to time the 
proportion of hospital costs that are labor-related: ``The Secretary 
shall adjust the proportion (as estimated by the Secretary from time to 
time) of hospitals' costs which are attributable to wages and wage-
related costs of the DRG prospective payment rates * * * '' We refer to 
the portion of hospital costs attributable to wages and wage-related 
costs as the labor-related share. The labor-related share of the 
prospective payment rate is adjusted by an index of relative labor 
costs, which is referred to as the wage index.
    Section 403 of Public Law 108-173 amended section 1886(d)(3)(E) of 
the Act to provide that the Secretary must employ 62 percent as the 
labor-related share unless this ``would result in lower payments to a 
hospital than would otherwise be made.'' However, this provision of 
Public Law 108-173 did not change the legal requirement that the 
Secretary estimate ``from time to time'' the proportion of hospitals' 
costs that are ``attributable to wages and wage-related costs.'' We 
believe that this reflected Congressional intent that hospitals receive 
payment based on either a 62-percent labor-related share, or the labor-
related share estimated from time to time by the Secretary, depending 
on which labor-related share resulted in a higher payment.
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43850 
through 43856), we rebased and revised the hospital market basket for 
operating costs. We established a FY-2006-based IPPS hospital market 
basket to replace the FY 2002-based IPPS hospital market basket, 
effective October 1, 2009. In that final rule, we presented our 
analysis and conclusions regarding the frequency and methodology for 
updating the labor-related share for FY 2010. We also recalculated a 
labor-related share of 68.8 percent, using the FY 2006-based IPPS 
market basket, for discharges occurring on or after October 1, 2009. In 
addition, we implemented this revised and rebased labor-related share 
in a budget neutral manner, but consistent with section 1886(d)(3)(E) 
of the Act, we did not take into account the additional payments that 
would be made as a result of hospitals with a wage index less than or 
equal to 1.0 being paid using a labor-related share lower than the 
labor-related share of hospitals with a wage index greater than 1.0.
    The labor-related share is used to determine the proportion of the 
national IPPS base payment rate to which the area wage index is 
applied. In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23955), we 
did not propose to make any further changes to the national average 
proportion of operating costs that are attributable to wages and 
salaries, fringe benefits, contract labor, the labor-related portion of 
professional fees, administrative and business support services, and 
all other labor-related services (previously referred to in the FY 
2002-based IPPS market basket as labor-intensive).
    We did not receive any public comments on this policy. Therefore, 
for FY 2011, we are continuing to use a labor-related share of 68.8 
percent for discharges occurring on or after October 1, 2010. Tables 1A 
and 1B in the Addendum to this final rule reflects this labor-related 
share. We note that section 403 of Public Law 108-173 amended sections 
1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act to provide that the 
Secretary must employ 62 percent as the labor-related share unless this 
employment ``would result in lower payments to a hospital than would 
otherwise be made.'' Therefore, for all IPPS hospitals whose wage 
indices are less than 1.0000, we are applying the wage index to a 
labor-related share of 62 percent of the national standardized amount. 
For all IPPS hospitals whose wage indices are greater than 1.0000, we 
are applying the wage index to a labor-related share of 68.8 percent of 
the national standardized amount.
    For Puerto Rico hospitals, the national labor-related share will 
always be 62 percent because the national wage index for all Puerto 
Rico hospitals is less than 1.0. As we proposed, in this final rule, we 
are continuing to use a labor-related share for the Puerto Rico-
specific standardized amounts of 62.1 percent for discharges occurring 
on or after October 1, 2010. This Puerto Rico labor-related share of 
62.1 percent was also adopted in the FY 2010 IPPS/LTCH PPS final rule 
(74 FR 43857) at the time the FY 2006-based hospital market basket was 
established, effective October 1, 2009. Consistent with our methodology 
for determining the national labor-

[[Page 50180]]

related share, we added the Puerto Rico-specific relative weights for 
wages and salaries, fringe benefits, contract labor, the labor-related 
portion of professional fees, administrative and business support 
services, and all other labor-related services (previously referred to 
in the FY 2002-based IPPS market basket as labor-intensive) to 
determine the labor-related share. Puerto Rico hospitals are paid based 
on 75 percent of the national standardized amounts and 25 percent of 
the Puerto Rico-specific standardized amounts. The labor-related share 
of a hospital's Puerto Rico-specific rate will be either the Puerto 
Rico-specific labor-related share of 62.1 percent or 62 percent, 
depending on which results in higher payments to the hospital. If the 
hospital has a Puerto Rico-specific wage index of greater than 1.0, we 
will set the hospital's rates using a labor-related share of 62.1 
percent for the 25 percent portion of the hospital's payment determined 
by the Puerto Rico standardized amounts because this amount will result 
in higher payments. Conversely, a hospital with a Puerto Rico-specific 
wage index of less than 1.0 will be paid using the Puerto Rico-specific 
labor-related share of 62 percent of the Puerto Rico-specific rates 
because the lower labor-related share will result in higher payments. 
We did not receive any public comments on the Puerto Rico-specific 
labor-related share. The Puerto Rico labor-related share of 62.1 
percent for FY 2011 is reflected in the Table 1C of the Addendum to 
this final rule.

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

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

1. Background
a. Overview
    CMS is seeking to promote higher quality and more efficient health 
care for Medicare beneficiaries. This effort is supported by the 
adoption of an increasing number of widely-agreed upon quality 
measures. CMS has worked with relevant stakeholders to define measures 
of quality in almost every setting and currently measures some aspect 
of care for almost all Medicare beneficiaries. These measures assess 
structural aspects of care, clinical processes, patient experiences 
with care, and, increasingly, outcomes.
    CMS has implemented quality measure reporting programs for multiple 
settings of care. To measure the quality of hospital inpatient 
services, CMS implemented the Reporting Hospital Quality Data for 
Annual Payment Update (RHQDAPU) program. In addition, CMS has 
implemented quality reporting programs for hospital outpatient 
services, the Hospital Outpatient Quality Data Reporting Program (HOP 
QDRP), and for physicians and other eligible professionals, the 
Physician Quality Reporting Initiative (PQRI). CMS has also implemented 
quality reporting programs for home health agencies and skilled nursing 
facilities that are based on conditions of participation, and an end-
stage renal disease quality reporting program that is based on 
conditions for coverage. In implementing RHQDAPU and other quality 
reporting programs, CMS has 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 RHQDAPU and various other 
programs including HITECH so that burden for reporting would be 
reduced.
    Comment: Some commenters commended CMS' commitment to raise 
quality, transparency, and efficiency in the health care world and 
applauded its efforts to integrate with other programs and initiatives.
    Response: We thank these comments regarding our implementation of 
the RHQDAPU program.
    Comment: A commenter noted that the proposed rule did not reference 
the quality-related provisions of the Affordable Care Act (Pub. L. 111-
148) and the Health Care and Education Reconciliation Act of 2010 
(HCERA) (Pub. L. 111-152). The Affordable Care Act requires the 
Secretary to establish a national quality strategy to include 
priorities and goals for quality improvement with input from 
stakeholders, such as the NQF.
    Response: The timing of the FY 2011 IPPS/LTCH PPS proposed rule did 
not allow us to address the many quality-related provisions of the 
Affordable Care Act. The Affordable Care Act modified the RHQDAPU 
statutory provisions, authorized the Secretary to implement quality-
related programs for various settings of care, and also added new 
requirements for collaborative goal setting regarding quality (as noted 
by the commenter). The focus of this specific section of this final 
rule is the RHQDAPU program, and we are addressing changes to the 
RHQDAPU program under the Affordable Care Act in this final rule. We 
plan to propose requirements for the Hospital Value-Based Purchasing 
(HVBP) program (section 3001 of Affordable Care Act) and other quality-
related Affordable Care Act provisions through future rulemaking. 
Additionally, section 3011 of the Affordable Care Act requires the 
Secretary to establish and update a national strategy to improve the 
delivery of health care services, patient health outcomes and 
population health. The initial submission of the national strategy to 
Congress must be no later than January 1, 2011. The national strategy 
as directed by section 3011 is broader in scope than hospital inpatient 
services, which are the focus of the RHQDAPU program. However, the 
national strategy may include guidance for future RHQDAPU program 
implementation.
b. Hospital Quality Data Reporting Under Section 501(b) of Public Law 
108-173
    Section 501(b) of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA), Public Law 108-173, added section 
1886(b)(3)(B)(vii) to the Act. This section established the authority 
for the RHQDAPU program and revised the mechanism used to update the 
standardized payment amount for inpatient hospital operating costs. 
Specifically, section 1886(b)(3)(B)(vii)(I) of the Act, before it was 
amended by section 5001(a) of Public Law 109-171, provided for a 
reduction of 0.4 percentage points to the update percentage increase 
(also known as the market basket update) for FY 2005 through FY 2007 
for any subsection (d) hospital that did not submit data on a set of 10 
quality indicators established by the Secretary as of November 1, 2003. 
It also provides that any reduction would apply only to the fiscal year 
involved, and would not be taken into account in computing the 
applicable percentage increase for a subsequent fiscal year. The 
statute thereby established an incentive for IPPS hospitals to submit 
data on the quality measures established by the Secretary, and also 
built upon the previously established Voluntary Hospital Quality Data 
Reporting Program that we described in the FY 2009 IPPS final rule (73 
FR 48598).
    We implemented section 1886(b)(3)(B)(vii) of the Act in the FY 2005 
IPPS final rule (69 FR 49078) and codified the applicable percentage 
change in Sec.  412.64(d) of our regulations. We adopted additional 
requirements under the RHQDAPU program in the FY 2006 IPPS final rule 
(70 FR 47420).

[[Page 50181]]

c. Hospital Quality Data Reporting Under Section 5001(a) of Public Law 
109-171
    Section 5001(a) of the Deficit Reduction Act of 2005 (DRA), Public 
Law 109-171, further amended section 1886(b)(3)(B) of the Act to revise 
the mechanism used to update the standardized payment amount for 
hospital inpatient operating costs, in particular, by adding new 
section 1886(b)(3)(B)(viii) to the Act. Specifically, sections 
1886(b)(3)(B)(viii)(I) and (II) of the Act as added by the DRA provide 
that the payment update for FY 2007 and each subsequent fiscal year be 
reduced by 2.0 percentage points for any subsection (d) hospital that 
does not submit quality data in a form and manner, and at a time, 
specified by the Secretary. (Section 4102(b)(1)(A) of the American 
Recovery and Reinvestment Act of 2009 (Public Law 111-5) and section 
3401(a)(2) of the Affordable Care Act (Public Law 111-148) amended 
section 1886(b)(3)(B)(viii)(I) of the Act to provide that, beginning in 
FY 2015, the reduction will be by one-quarter of such applicable 
percentage increase (determined without regard to reductions under 
sections 1886(b)(3)(B)(ix), (xi), or (xii) of the Act).) Section 
1886(b)(3)(B)(viii)(I) of the Act also provides that any reduction in a 
hospital's payment update will apply only with respect to the fiscal 
year involved, and will not be taken into account for computing the 
applicable percentage increase for a subsequent fiscal year. In the FY 
2007 IPPS final rule (71 FR 48045), we amended our regulations at Sec.  
412.64(d)(2) to reflect the 2.0 percentage point reduction in the 
payment update for FY 2007 and subsequent fiscal years for subsection 
(d) hospitals that do not comply with requirements for reporting 
quality data, as provided for under section 1886(b)(3)(B)(viii) of the 
Act before it was amended by the American Recovery and Reinvestment Act 
and the Affordable Care Act.
d. Hospital Quality Data Reporting Under Sections 3001(a)(2) and 
3401(a)(2) of Public Law 111-148
    Section 3001(a)(2) of the Affordable Care Act, Public Law 111-148, 
amended section 1886(b)(3)(B)(viii) of the Act. Specifically, section 
3001(a)(2)(A) of the Affordable Care Act amended section 
1886(b)(3)(B)(viii)(II) of the Act to state that the Secretary may 
require hospitals to submit data on measures that are not used for the 
determination of value-based incentive payments under the HVBP program. 
Section 3001(a)(2)(C) of the Affordable Care Act amended section 
1886(b)(3)(B)(viii)(VII) of the Act to require that the Secretary 
establish procedures for making information regarding measures 
submitted (instead of data submitted) available to the public. In 
addition, section 3001(a)(2)(B) of the Affordable Care Act amended 
section 1886(b)(3)(B)(viii)(V) of the Act to limit the requirement that 
measures added by the Secretary reflect consensus among affected 
parties and, to the extent feasible and practicable, include measures 
set forth by one or more national consensus building entities to 
payments for FYs 2008 through 2012.
    Section 3001(a)(2)(D) of the Affordable Care Act added section 
1886(b)(3)(B)(viii)(IX) of the Act to require, for payments beginning 
with FY 2013, each measure specified by the Secretary under section 
1886(b)(3)(B)(viii) of the Act to be endorsed by the entity with a 
contract under section 1890(a) regarding consensus entities (the 
``consensus entity'') except, 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 consensus 
entity, the Secretary may specify a measure that is not endorsed so 
long as due consideration is given to measures that have been endorsed 
or adopted by a consensus organization identified by the Secretary.
    Section 3001(a)(2)(D) of the Affordable Care Act also added new 
sections 1886(b)(3)(B)(viii)(VIII), 1886(b)(3)(B)(viii)(X) and 
1886(b)(3)(B)(viii)(XI) to the Act, which require the Secretary to do 
the following, respectively: (1) Provide for such risk adjustment as 
the Secretary determines appropriate to maintain incentives for 
hospitals to treat patients with severe illnesses or conditions with 
respect to quality measures for outcomes of care effective for payments 
beginning with FY 2013; (2) to the extent practicable and with input 
from consensus organizations and other stakeholders, take steps to 
ensure that the measures specified by the Secretary under 
1886(b)(3)(B)(viii) of the Act are coordinated and aligned with quality 
measures applicable to physicians under section 1848(k) of the Act and 
other providers of services and suppliers under Medicare; and (3) 
establish a process to validate measures specified under section 
1886(b)(3)(B)(viii) of the Act, which includes the auditing of a number 
of randomly selected hospitals sufficient to ensure validity of the 
reporting program under this clause as a whole and shall provide a 
hospital with an opportunity to appeal the validation of measures 
reported by such hospital.
    Additionally, section 3401(a)(2) of the Affordable Care Act amended 
section 1886(b)(3)(B)(viii)(I) of the Act by adding the phrase ``of 
such applicable percentage increase (determined without regard to 
clause (ix), (xi), or (xii))'' after the word ``one-quarter'' so that, 
beginning in FY 2015, the reduction under the RHQDAPU program will be 
by one-quarter of such applicable percentage increase determined 
without regard to other reductions in the annual payment update set 
forth in sections 1886(b)(3)(B)](ix), (xi), or (xii) of the Act.
e. Quality Measures
    Section 1886(b)(3)(B)(viii)(III) of the Act requires that the 
Secretary expand the ``starter set'' of 10 quality measures that was 
established by the Secretary as of November 1, 2003, as the Secretary 
determines to be appropriate for the measurement of the quality of care 
furnished by a hospital in inpatient settings. In expanding this set of 
measures, section 1886(b)(3)(B)(viii)(IV) of the Act requires that, 
effective for payments beginning with FY 2007, the Secretary begin to 
adopt the baseline set of performance measures as set forth in a report 
issued by the Institute of Medicine (IOM) of the National Academy of 
Sciences under section 238(b) of Public Law 108-173.\10\
---------------------------------------------------------------------------

    \10\ Institute of Medicine, ``Performance Measurement: 
Accelerating Improvement,'' December 1, 2005, available at: http://www.iom.edu/CMS/3809/19805/31310.aspx. IOM set forth these baseline 
measures in a November 2005 report. However, the IOM report was not 
released until December 1, 2005 on the IOM Web site.
---------------------------------------------------------------------------

    Section 1886(b)(3)(B)(viii)(V) of the Act, as amended by section 
3001(a)(2)(B) of the Affordable Care Act, requires that, effective for 
payments for FYs 2008 through 2012, the Secretary add other quality 
measures that reflect consensus among affected parties, and to the 
extent feasible and practicable, have been set forth by one or more 
national consensus building entities. The NQF is a voluntary consensus 
standard-setting organization with a diverse representation of 
consumer, purchaser, provider, academic, clinical, and other health 
care stakeholder organizations. The NQF was established to standardize 
health care quality measurement and reporting through its consensus 
development process. We have generally adopted NQF-endorsed measures. 
However, we believe that consensus among affected parties also can be 
reflected by other means,

[[Page 50182]]

including consensus achieved during the measure development process, 
consensus shown through broad acceptance and use of measures, and 
consensus through public comment.
    As discussed previously, section 3001(a)(2) of the Affordable Care 
Act amended section 1886(b)(3)(B)(viii) of the Act to provide a 
different standard for quality measures included in the RHQDAPU program 
for payments beginning with FY 2013. Under section 
1886(b)(3)(B)(viii)(IX) of the Act, for payments beginning with FY 
2013, each measure specified by the Secretary must be endorsed by a 
consensus entity, currently NQF, except in certain circumstances. 
Specifically, 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 consensus entity, the 
Secretary may specify a measure that is not endorsed by the consensus 
entity if due consideration is given to measures that have been 
endorsed or adopted by a consensus organization identified by the 
Secretary.
    Section 1886(b)(3)(B)(viii)(VI) of the Act authorizes the Secretary 
to replace any quality measures or indicators in appropriate cases, 
such as where all hospitals are effectively in compliance with a 
measure, or the measures or indicators have been subsequently shown to 
not represent the best clinical practice. Thus, the Secretary is 
granted broad discretion to replace measures that are no longer 
appropriate for the RHQDAPU program.
    In the FY 2007 IPPS final rule, we began to expand the RHQDAPU 
program measures by adding 11 quality measures to the 10-measure 
starter set to establish an expanded set of 21 quality measures for the 
FY 2007 payment determination (71 FR 48033 through 48037, 48045).
    In the CY 2007 OPPS/ASC final rule (71 FR 68201), we adopted 6 
additional quality measures for the FY 2008 payment determination, for 
a total of 27 measures. Two of these measures (30-Day Risk Standardized 
Mortality Rates for Heart Failure and 30-Day Risk Standardized 
Mortality Rates for AMI) were calculated using existing administrative 
Medicare claims data; thus, no additional data submission by hospitals 
was required for these two measures. The measures used for the FY 2008 
payment determination included, for the first time, the HCAHPS patient 
experience of care survey.
    In the FY 2008 IPPS final rule (72 FR 47348 through 47358) and the 
CY 2008 OPPS/ASC final rule with comment period (72 FR 66875 through 
66877), we added three additional process measures to the RHQDAPU 
program measure set. (These three measures are SCIP-Infection-4: 
Cardiac Surgery Patients with Controlled 6AM Postoperative Serum 
Glucose, SCIP-Infection-6: Surgery Patients with Appropriate Hair 
Removal, and Pneumonia 30-day mortality (Medicare patients).) The 
addition of these 3 measures brought the total number of RHQDAPU 
program measures to be used for the FY 2009 payment determination to 30 
(72 FR 66876). The 30 measures used for the FY 2009 annual payment 
determination are listed in the FY 2009 IPPS final rule (73 FR 48600 
through 48601).
    For the FY 2010 payment determination, we added 15 new measures to 
the RHQDAPU program measure set and retired 1 measure from the program 
(PN-1: Oxygenation Assessment). Of the new measures, 13 were adopted in 
the FY 2009 IPPS final rule (73 FR 48602 through 48611) and 2 
additional measures were finalized in the CY 2009 OPPS/ASC final rule 
with comment period (73 FR 68780 through 68781). This resulted in an 
expansion of the RHQDAPU program measures from 30 measures for the FY 
2009 payment determination to 44 measures for the FY 2010 payment 
determination. The RHQDAPU program measures for the FY 2010 payment 
determination consist of: 26 chart-abstracted process measures, which 
measure quality of care provided for Acute Myocardial Infarction (AMI), 
Heart Failure (HF), Pneumonia (PN), and Surgical Care Improvement 
(SCIP); 6 claims-based measures, which evaluate 30-day mortality and 
30-day readmission rates for AMI, HF, or PN; 9 claims-based AHRQ 
patient safety indicators and inpatient quality indicators; 1 claims-
based nursing sensitive measure; 1 structural measure that assesses 
participation in a systematic database for cardiac surgery; and the 
HCAHPS patient experience of care survey. The measures are listed in 
the FY 2009 IPPS final rule (73 FR 46809) and in the CY 2009 OPPS/ASC 
final rule with comment period (73 FR 68781).
    On December 31, 2008, we advised hospitals that they would no 
longer be required to submit data for the RHQDAPU program measure AMI-
6-Beta blocker at arrival, beginning with discharges occurring on April 
1, 2009. This change was based on the evolving evidence regarding AMI 
patient care, as well as changes in the American College of Cardiology/
American Heart Association (ACC/AHA) practice guidelines for ST-segment 
elevation myocardial infarction and non-ST segment elevation myocardial 
infarction, upon which AMI-6 is based. We took action to remove the 
measure from reporting initiatives based on the lack of support by the 
measure developer and the clinical and scientific considerations 
described in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 
43863).
    We had previously discussed considerations relating to retiring or 
replacing measures in the FY 2008 IPPS final rule with comment period 
and the FY 2009 IPPS final rule, including the ``topping out'' of 
hospitals' performance under a measure (72 FR 47358 through 47359 and 
73 FR 48603 through 48604, respectively). However, in this instance, 
the measure no longer ``represent[s] the best clinical practice,'' an 
additional basis under section 1886(b)(3)(B)(viii)(VI) of the Act for 
retiring a measure. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we 
formally retired the AMI-6 measure from the RHQDAPU program for the FY 
2011 payment determination and subsequent payment determinations.
    For the FY 2011 payment determination, we retained 41 of the FY 
2010 quality measures; harmonized 2 FY 2010 RHQDAPU program quality 
measures (combining PSI 04--Death among surgical patients with 
treatable serious complications; and Nursing Sensitive--Failure to 
rescue into a single measure (Death among surgical inpatients with 
serious, treatable complications); added 2chart-abstracted measures 
(SCIP-Infection-9: Postoperative Urinary Catheter Removal on Post 
Operative Day 1 or 2 and SCIP-Infection-10: Perioperative Temperature 
Management); and added 2 structural measures: (1) Participation in a 
Systematic Clinical Database Registry for Stroke Care; and (2) 
Participation in a Systematic Clinical Database Registry for Nursing 
Sensitive Care) (74 FR 43868 through 43873). The 46 measures we adopted 
for the FY 2011 payment determination are:
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[[Page 50184]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.036

BILLING CODE 4120-01-C
f. Maintenance of Technical Specifications for Quality Measures
    The technical specifications for the RHQDAPU program measures, or 
links to Web sites hosting technical specifications, are contained in 
the CMS/The Joint Commission Specifications Manual for National 
Hospital Inpatient Quality Measures (Specifications Manual). This 
Specifications Manual is posted on the CMS QualityNet Web site at 
https://www.QualityNet.org/. We maintain the technical specifications 
by updating this Specifications Manual semiannually, or more frequently 
in unusual cases, and include detailed instructions and calculation 
algorithms for hospitals to use when collecting and submitting data on 
required measures. These semiannual updates are accompanied by 
notifications to users, providing sufficient time between the change 
and the effective date in order to allow users to incorporate changes 
and updates to the specifications into data collection systems.
    We did not receive any public comments on this section and we will 
continue to use this process to maintain the technical specifications 
for the RHQDAPU program measures.
g. 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. To meet 
this requirement, data from the RHQDAPU program are typically displayed 
on CMS Web sites such as the Hospital Compare Web site, http://www.hospitalcompare.hhs.gov after a 30-day preview period. An 
interactive Web tool, this Web site assists beneficiaries by providing 
information on hospital quality of care to those who need to select a 
hospital. It further serves to encourage beneficiaries to work with 
their doctors and hospitals to discuss the quality of care hospitals 
provide to patients, thereby providing an additional incentive to 
hospitals to improve the quality of care that they furnish. The RHQDAPU 
program currently includes process of care measures, risk-adjusted 
outcome measures, the HCAHPS patient experience-of-care survey, and

[[Page 50185]]

structural measures, all of which are featured on the Hospital Compare 
Web site.
    However, information that may not be relevant to or understood by 
beneficiaries and information for which there are unresolved display 
issues or design considerations for inclusion on Hospital Compare may 
be made available on other CMS Web sites that are not intended to be 
used as an interactive Web tool, such as http://www.cms.hhs.gov/HospitalQualityInits/. Publicly reporting the information in this 
manner, though not on the Hospital Compare Web site, allows CMS to meet 
the requirement under section 1886(b)(3)(B)(viii)(VII) of the Act for 
establishing procedures to make quality data used for RHQDAPU payment 
determinations available to the public following a preview period. In 
such circumstances, affected parties are notified via CMS listservs, 
CMS e-mail blasts, national provider calls, and QualityNet 
announcements regarding the release of preview reports followed by the 
posting of data on a Web site other than Hospital Compare.
    Comment: One commenter supported CMS' current policy of identifying 
quality measures rates based on fewer than 25 cases as potentially 
unreliable for judging a hospital's performance when displaying data on 
Hospital Compare. The commenter indicated that this is currently 
accomplished by footnoting the data but it would be better to simply 
not display the rates that are based on fewer than 25 cases.
    Response: We thank the commenter for the suggestion. Although data 
display and Web site design issues are not subject to the rulemaking 
process, we will take this suggestion under consideration for future 
releases of the Hospital Compare Web site.
    Comment: One commenter requested that CMS describe in greater 
detail the rationale for publicly reporting measures on CMS Web sites 
other than Hospital Compare on a case-by-case basis.
    Response: Section 1886(b)(3)(B)(viii)(VII) of the Act requires that 
the Secretary establish procedures for making information regarding 
measures submitted for the RHQDAPU payment determinations available to 
the public after ensuring that a hospital has the opportunity to review 
its data before they are made public. While we strive to make as much 
of this information available on the Hospital Compare Web site, there 
are instances where we need further time to develop a method of 
displaying the information so that it does not confuse or mislead 
consumers intending to use the data in healthcare decision making. To 
satisfy the statutory requirement for transparency of the information 
used to make RHQDAPU payment determinations available to the public, we 
would display the data on another CMS Web site such as http://www.cms.gov, but not on the Hospital Compare Web site, which is meant 
to be a consumer oriented decision tool. Once an appropriate display 
mechanism has been determined, the information would be added to the 
Hospital Compare Web site.
    We will continue to use this public display process for the RHQDAPU 
program.
2. Retirement of RHQDAPU Program Measures
a. Considerations in Retiring Quality Measures From the RHQDAPU Program
    Unless stated otherwise, we generally retain measures from the 
current year's RHQDAPU program measure set for subsequent years' 
measure sets. We have previously retired one measure, PN-1: Oxygenation 
Assessment for Pneumonia, from the RHQDAPU program on the basis of high 
unvarying performance among hospitals, as measures with very high 
performance among hospitals present little opportunity for improvement, 
and do not provide meaningful distinctions in performance for 
consumers. We also have retired one measure from the program because it 
no longer ``represent[ed] the best clinical practice,'' as stated under 
section 1886(b)(3)(B)(viii)(VI) of the Act. In this latter situation, 
we stated that when there is reason to believe that the continued 
collection of a measure as it is currently specified raises potential 
patient safety concerns that it is appropriate for CMS to take 
immediate action to remove a measure from the RHQDAPU program and not 
wait for the annual rulemaking cycle. Therefore, in the FY 2010 IPPS/RY 
2010 LTCH PPS final rule (74 FR 43864 and 43865), we stated that we 
would promptly retire such measures followed by subsequent confirmation 
of the retirement in the next IPPS rulemaking. When we do so, we will 
notify hospitals and the public through the usual hospital and QIO 
communication channels used for the RHQDAPU program, which include memo 
and e-mail notification and QualityNet Web site articles and postings.
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we invited 
public comment regarding additional RHQDAPU program measures that 
should be considered for retirement along with criteria that should be 
used for retiring measures. In the FY 2010 IPPS/RY 2010 LTCH PPS final 
rule, commenters recommended 11 RHQDAPU program measures for retirement 
for various reasons (74 FR 43865). Among the criteria suggested by 
commenters that CMS should consider when determining whether to retire 
RHQDAPU program measures were: (1) Measure performance among hospitals 
is so high and unvarying that meaningful distinctions and improvements 
in performance can no longer be made; (2) performance or improvement on 
a measure does not result in better patient outcomes; (3) a measure 
does not align with current clinical guidelines or practice; (4) the 
availability of a more broadly applicable (across settings, 
populations, or conditions) quality measure for the topic; (5) the 
availability of a measure that is more proximal in time to desired 
patient outcomes for the particular topic; (6) the availability of a 
measure that is more strongly associated with desired patient outcomes 
for the particular topic; (7) collection and/or public reporting of a 
measure leads to negative unintended consequences other than patient 
harm. We agreed with commenters that these criteria should be among 
those considered in evaluating current RHQDAPU program measures for 
retirement. We again invited commenters to submit suggestions for 
additional measure retirement criteria for CMS to consider.
    Comment: One commenter asked for the CMS definition of 
``retirement'' and the relationship of retired measures to the RHQDAPU 
program.
    Response: Retirement of a measure from the RHQDAPU program 
constitutes permanent removal of a measure from the RHQDAPU program 
measurement set for future payment determinations.
    Comment: Some commenters agreed with CMS' quality measure 
retirement criteria including measures with consistent high performance 
(topped-out), measures not supported by evidence, measures that no 
longer represent the best clinical practice, and measures that have 
become a cause for potential patient safety concerns. A commenter 
recommended that CMS add the following two criteria to its list of 
criteria to be considered when determining whether to retire a RHQDAPU 
measure: (1) The measure should be modified or deleted if new clinical 
evidence exists that demonstrates that the measure should be modified 
or deleted; and (2) a previous process measure should be retired in 
favor of a new risk-adjusted outcomes measure. Some commenters

[[Page 50186]]

suggested CMS collaborate with organizations such as the NQF and the 
HQA in reviewing all current RHQDAPU quality measures for retirement 
determinations.
    A few commenters supported the retirement of topped-out measures 
but some commenters were concerned that the retirement of topped-out 
measures would lead to subsequent declining performance. The commenters 
further suggested that the process measures are also accountability 
measures and should not be retired just because they are topped-out. 
Some commenters recommended that CMS should continue data collection 
for topped out measures on a 3-year cycle, or consider incorporating 
the measure into a meaningful composite measure set. Another commenter 
recommended that CMS conduct demonstration projects to ascertain the 
impact of the proposed measures for retirement and assess the 
organizations' ability to sustain improvement over time for measures 
that are considered to be taken out of the RHQDAPU program. The 
commenter believed that demonstration projects would enable the cycling 
of measures in and out of the RHQDAPU program as desired for public 
reporting and incentive payment programs.
    Response: We thank the commenters for sharing these suggestions and 
criteria for quality measure retirement. We will consider the 
commenters' recommendations for evaluating current RHQDAPU program 
measures for retirement. We agree that changing scientific evidence 
should be considered in deciding whether to modify or retain a measure. 
We also agree that risk-adjusted outcome measures could potentially 
serve to replace process measures, although we believe other factors 
should be considered such as the performance on the process measures 
and the degree to which the measures address the same populations. 
While sustaining quality improvement gains for measures is important, 
it currently is not feasible for us to conduct continued surveillance 
on measures that have been retired from the RHQDAPU program. Further, 
we do not believe that the one measure that we have retired requires 
continued surveillance. This is because measuring oxygen saturation is 
part of ongoing monitoring functions built into equipment used for all 
hospitalized patients, and therefore would not suffer a decline in 
practice from lack of inclusion in this reporting program. We will 
consider the feasibility of the commenters' suggestions to periodically 
monitor performance of measures that we may subsequently retire. As for 
collaboration with NQF and HQA, we consider changes in NQF endorsement 
status for measures adopted and considered for RHQDAPU, and as HQA 
members, we participate in HQA activities, which include reviewing 
measures which may be considered for retirement. We will consider the 
feasibility and appropriateness of the suggestion to use Medicare 
demonstrations as a potential mechanism to monitor measure performance 
for measures that may in the future be retired from the RHQDAPU program 
and suffer a decline in desired practices as a result of retirement.
b. Retirement of Quality Measures Under the RHQDAPU Program for the FY 
2011 Payment Determination and Subsequent Years
    In the FY 2009 IPPS final rule for the FY 2010 payment 
determination, we adopted nine measures that were developed by the 
Agency for Healthcare Research and Quality (AHRQ), and in the FY 2010 
IPPS/RY 2010 LTCH PPS we subsequently retained these measures for the 
FY 2011 payment determination. One of these measures was the AHRQ 
Mortality for Selected Surgical Procedures Composite, which is 
comprised of measures from the AHRQ Inpatient Quality Indicator (IQI) 
measure set. In late June of 2009, following an NQF steering committee 
evaluation of the AHRQ Mortality for Selected Surgical Procedures 
composite, the AHRQ issued guidance \11\ that this composite is ``not 
recommended for comparative reporting'' as specified due to significant 
evidence gaps, and that these significant evidence gaps are unlikely to 
be addressed with further development or validation work. This guidance 
is available at: http://www.qualityindicators.ahrq.gov/downloads/publications/AHRQ%20QI%20Guide%20to%20Comparative%20Reporting%20v10.pdf.
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    \11\ AHRQ. Guidance on Using the AHRQ QI for Hospital-Level 
Comparative Reporting. June 2009. http://www.qualityindicators.ahrq.gov/downloads/publications/AHRQ%20QI%20Guide%20to%20Comparative%20Reporting%20v10.pdf.
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    For this reason, we proposed to retire the Mortality for Selected 
Procedures Composite from the RHQDAPU program measure set for the FY 
2011 payment determination and for subsequent payment determinations 
because the measure is not considered suitable for purposes of 
comparative reporting by the measure developer. We will neither 
calculate this measure for the FY 2011 payment determination, nor 
display results for this measure on Hospital Compare. We invited 
comment on our proposal to retire this measure from the RHQDAPU program 
for the FY 2011 payment determination and for subsequent payment 
determinations. We also invited commenters to submit suggestions and 
rationales for retirement of other RHQDAPU program measures.
    Comment: Commenters overwhelmingly supported the proposed 
retirement of the Mortality for Selected Procedures Composite from the 
RHQDAPU program measure set for the FY 2011 payment determination and 
for subsequent payment determinations due to its unsuitability for 
comparative reporting.
    Response: We thank the commenters for their support and we are 
finalizing the retirement of this measure for the FY 2011 and 
subsequent payment determinations.
    Set out below are the 45 RHQDAPU program quality measures for the 
FY 2011 payment determination reflecting our retirement of 1 measure:
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BILLING CODE 4120-01-C
3. Expansion Plan for Quality Measures for the FY 2012, FY 2013, and FY 
2014 Payment Determinations
a. Considerations in Expanding and Updating Quality Measures Under the 
RHQDAPU Program
    In the FY 2009 IPPS final rule (73 FR 48613) and the FY 2010 IPPS/
RY 2010 LTCH PPS final rule (74 FR 43866 through 43869), we 
acknowledged the data collection burden for hospitals participating in 
the RHQDAPU program, and reiterated our desire to expand the RHQDAPU 
program measure set while minimizing burden and seeking to provide 
alternative mechanisms for data submission for the RHQDAPU program. In 
the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we also stated that in 
future expansions and updates to the RHQDAPU program measure set, we 
would be taking into consideration several important goals. These goals 
include: (a) Expanding the types of measures beyond process of care 
measures to include an increased number of outcome measures, efficiency 
measures, and patients' experience-of-care measures; (b) expanding the 
scope of hospital services to which the measures apply; (c) considering 
the burden on hospitals in collecting chart-abstracted data; (d) 
harmonizing the measures used in the RHQDAPU program with other CMS 
quality programs to align incentives and promote coordinated efforts to 
improve quality; (e) seeking to use measures based on alternative 
sources of data that do not require chart abstraction or that utilize 
data already being reported by many hospitals, such as data that 
hospitals report to clinical data registries, or all-payer claims data 
bases; and (f) weighing the relevance and utility of the measures 
compared to the burden on hospitals in submitting data under the 
RHQDAPU program.
    Specifically, we give priority to quality measures that assess 
performance on: (a) Conditions that result in the greatest mortality 
and morbidity in the Medicare population; (b) conditions that are high 
volume and high cost for the Medicare program; and (c) conditions for 
which wide cost and treatment variations have been reported, despite 
established clinical guidelines. We have used and continue to use these 
criteria to guide our decisions regarding what measures to add to the 
RHQDAPU program measure set. In addition, in selecting measures, we 
seek to address the six quality aims of effective, safe, timely, 
efficient, patient-centered, and

[[Page 50189]]

equitable healthcare. Current and long term priority topics include: 
prevention and population health; safety; chronic conditions; high cost 
and high volume conditions; elimination of health disparities; 
healthcare-associated infections and other adverse healthcare outcomes; 
improved care coordination; improved efficiency; improved patient and 
family experience of care; effective management of acute and chronic 
episodes of care; reduced unwarranted geographic variation in quality 
and efficiency; and adoption and use of interoperable health 
information technology.
    These criteria, priorities, and goals are consistent with section 
1886(b)(3)(B)(viii)(X) of the Act, as added by section 3001(a)(2)(D) of 
the Affordable Care Act, which requires the Secretary, to the extent 
practicable and with input from consensus organizations and other 
stakeholders, to take steps to ensure that the RHQDAPU measures are 
coordinated and aligned with quality measures applicable to physicians 
and other providers of services and suppliers under Medicare.
    RHQDAPU program measures were initially based solely on a 
hospital's submission of chart-abstracted quality measure data. 
However, in recent years we have adopted measures that do not require 
chart abstraction, including structural and claims-based quality 
measures which we can calculate using other data sources. This supports 
our goal of expanding the measures for the RHQDAPU program while 
minimizing the burden on hospitals and, in particular, without 
significantly increasing the chart abstraction burden.
    In addition to claims-based and structural measures, we previously 
noted that registries \12\ and electronic health records (EHRs) are 
potential alternative sources of hospital data for the RHQDAPU program. 
We observed that many hospitals already submit data to and participate 
in existing registries, and that registries often capture outcome 
information and provide ongoing quality improvement feedback to 
registry participants. We envisioned that instead of requiring 
hospitals to submit the same data to CMS that many hospitals are 
already submitting to registries, that we would collect the data 
directly from the registries. This could enable the expansion of the 
RHQDAPU program measure set without increasing the burden of data 
collection for those hospitals participating in the registries. We 
cited as examples of registries actively used by hospitals the Society 
of Thoracic Surgeons (STS) Cardiac Surgery Registry (with approximately 
90 percent participation by cardiac surgery programs), the AHA Stroke 
Registry (with approximately 1200 hospitals participating), and the 
American Nursing Association (ANA) Nursing Sensitive Measures Registry 
(with approximately 1400 hospitals participating). In the FY 2009 IPPS 
final rule (73 FR 48608 through 48609), we adopted the first RHQDAPU 
program measure related to registries: Participation in a Systematic 
Database for Cardiac Surgery. Subsequently, in the FY 2010 IPPS/RY 2010 
LTCH PPS (74 FR 43870 through 43872), we adopted two additional 
structural measures of registry participation for the topics of Stroke 
and Nursing Sensitive Care. We continue to evaluate the feasibility of 
leveraging registry-based data collection mechanisms for the RHQDAPU 
program.
---------------------------------------------------------------------------

    \12\ A registry is a collection of clinical data for purposes of 
assessing clinical performance, quality of care, and opportunities 
for quality improvement.
---------------------------------------------------------------------------

    We also stated our intention to explore mechanisms for data 
submission using EHRs (73 FR 48614; 74 FR 43866, 43892). Establishing 
such a system will require interoperability between EHRs and CMS data 
collection systems, additional infrastructure development on the part 
of hospitals and CMS, and the adoption of standards for the capturing, 
formatting, and transmission of data elements that make up the 
measures. However, once these activities are accomplished, the adoption 
of measures that rely on data obtained directly from EHRs will enable 
us to expand the RHQDAPU program measure set with less cost and burden 
to hospitals.
    In the FY 2009 IPPS final rule, we adopted nine AHRQ measures for 
the RHQDAPU program, one of which is now retired for the FY 2011 
payment determination and subsequent payment determinations in this 
final rule. We stated that we would initially calculate the measures 
using Medicare claims data (73 FR 48608). However, we also stated that 
we remained interested in using all-payer claims data to calculate them 
and that we might propose to collect such data in the future. In the FY 
2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24169), we invited 
input and suggestions on how all-payer claims data can be collected and 
used by CMS to calculate these measures, as well as on additional AHRQ 
measures that we should consider adopting for future RHQDAPU program 
payment determinations.
    In summary, we noted in the FY 2011 IPPS/LTCH PPS proposed rule 
that we will continue to pursue goals regarding the expansion and 
updating of quality measures under the RHQDAPU program while minimizing 
burden. We will take into account the public comments we receive on the 
possible uses of EHRs, registries, and all-payer claims data in the 
RHQDAPU program. We also will consider the measure selection criteria 
suggested by various commenters in prioritizing and selecting quality 
measures for the future.
    Comment: A few commenters supported the use of EHR-based data 
collection. One commenter was concerned that the clinical quality 
measures in the RHQDAPU program do not align with the electronic 
quality measure reporting requirements as part of the meaningful use 
criteria under the HITECH EHR incentive program rule.
    Response: We appreciate these supportive comments for EHR-based 
data collection as an alternative data source for quality measures. One 
of our priorities in the RHQDAPU program is to align clinical quality 
measures in the RHQDAPU program with the electronic quality measure 
reporting requirements under the meaningful use criteria under the 
HITECH EHR Incentive program in the future, and to specify current 
RHQDAPU measures for EHR-based collection. We note that some of the 
RHQDAPU program quality measures do not lend themselves to EHR 
reporting, for example HCAHPS experience of care measures. We are 
mindful of the need for alignment of the clinical measures used in the 
two programs as more measures are implemented in the future.
    Comment: Several commenters stated that CMS should delay the 
implementation of additional quality measures and spend time 
prioritizing future electronic quality measures during this transition 
to EHR.
    Response: Given the time that will be needed for building of 
infrastructure, interoperability, testing and development of e-
specifications of measures, and the proposal and finalization of 
clinical quality measures, we believe we should not wait for the 
complete transition to EHR-based measure collection in order to move 
forward with the expansion of the RHQDAPU program. In determining 
whether to adopt new quality measures for the RHQDAPU program, we weigh 
the potential benefit of improvement that would result from reporting a 
given measure against the potential resource burden associated with 
reporting a measure. However, in the future, our intent is to develop 
and specify electronic measures of quality that will be aligned and 
meet the requirements for both programs.

[[Page 50190]]

    Comment: One commenter questioned the value of claims-based and 
registry-based data collection when EHR data collection is fully 
implemented.
    Response: We believe that claims may still be needed to identify 
prior events and diagnoses for measures that require look-back periods, 
involving the matching of data for a single patient over long periods 
of time (for example, 1 year of prior history) across multiple 
settings. EHR data provides a cross-sectional snapshot of data, and 
such matching is not possible with a snapshot of data from a single 
provider or setting because it would not have all events and diagnoses 
for a particular patient outside of the particular setting or episode 
of care. This is possible, however, when claims for Medicare 
beneficiaries are utilized for such historical information across 
providers. Such data could be used to supplement cross-sectional 
clinical EHR data. Furthermore, registries provide services beyond data 
collection, such as quality improvement support, feedback and best 
practices.
    Comment: A commenter requested that CMS only implement measures 
that are aligned with identical technical specifications as other 
national data collection projects. For instance, the proposed Stroke 
registry measure has different population definitions from the Joint 
Commission stroke core measures, Disease certification program and 
designated Stroke Centers.
    Response: We agree that measures used in the RHQDAPU program should 
be based on a single set of harmonized population definitions and 
measure specifications. As discussed in later sections, we are not 
finalizing the registry-based submission mechanism proposal.
    Comment: One commenter asked for clarification on the requirements 
for measures that are calculated based on ICD-9 CM codes as well as the 
timeline and impact of transitioning to ICD-10-CM codes.
    Response: CMS has announced the transition to ICD-10-CM codes 
effective October 1, 2013, at the start of FY 2014. Prior to that date, 
we will be respecifying measures that are implemented in quality data 
reporting programs to incorporate ICD-10-CM codes.
    Comment: Several commenters noted that CMS' intent to reduce burden 
by proposing different reporting mechanism may in fact create more 
burden on hospitals. Hospitals are most familiar with chart 
abstraction.
    Response: We agree with commenters that hospitals are most familiar 
with chart abstraction as a data collection method. However, we also 
recognize that this is a burdensome mechanism. Therefore, we believe, 
that it is desirable to leverage other collection mechanisms, 
especially where they are already actively being used by hospitals. We 
introduced two alternative reporting mechanisms in the proposed rule, 
the National Healthcare Safety Network (NHSN) and registry-based 
reporting. Although we are not adopting registry-based reporting, we 
envisioned that most hospitals would already be reporting one of the 
measures sets to at least one registry. Accordingly, we anticipated 
that in most cases there would be no new reporting required, only the 
selection of a registry to which hospitals were already reporting.
    With respect to the NHSN, many States are introducing requirements 
that hospitals report HAI data to the Centers for Disease Control and 
Prevention (CDC) via NHSN. Although we could have required that 
hospitals report HAI measures to CMS via chart abstraction, this would 
require duplicate effort on the part of hospitals submitting data 
through the NHSN on HAIs. Therefore, we proposed and are finalizing the 
CDC NHSN as the mechanism to submit data on HAI measures. In this way, 
we have aligned the CDC reporting efforts, and reporting mandated by 
many States. We believe that this is good policy and something 
commenters have urged.
    Comment: A number of commenters supported the use of registries as 
an alternative source of hospital-specific data on quality measures and 
as a means to reduce hospital burden. Several commenters indicated that 
the use of registries to collect hospital-level data would reduce 
administrative burden and ensure appropriate risk-adjustment for 
quality improvement and public reporting purposes, as well as other 
benefits, including broadening the information for quality improvement 
and Hospital Compare, but cautioned that registry data could weaken the 
validity and reliability of the information unless strict standards for 
data quality were imposed. A commenter suggested that CMS consider 
additional measures that could be compiled from registry data.
    Response: We thank the commenters for acknowledging the potential 
efficiencies and quality improvement support that could be gained 
through registry-based quality data reporting. We agree that standards 
for data quality would be necessary should CMS adopt registry-based 
measures for RHQDAPU in the future. The qualification criteria we 
proposed for registries were meant to establish standards for data 
quality for the measures we proposed to receive from registries. We 
will continue to pursue registry-based data submission as an 
alternative mechanism for receiving data for quality measures adopted 
into the RHQDAPU measurement set.
    Comment: Many commenters opposed the inclusion of quality measures 
that require participation in registries. Several commenters expressed 
concern regarding the possibility that they may be required to 
participate in proprietary registries in the future. These commenters 
saw registry-based data collection as costly and labor intensive 
because many of the measures collected by registries require chart 
abstraction. Some commenters recommended that CMS first standardize the 
data collection and submission process across registries to ensure data 
quality. One commenter asked for clarification on how would the 
registry-based measures which are only used by a subset of hospitals be 
utilized in a value based purchasing program. Some commenters 
encouraged CMS to promote the study of regional variation to enable 
comparisons within/across systems and among regional registries in 
order to give hospitals more options in data reporting.
    Response: We are not finalizing the registry-based submission 
proposal. Among other reasons for not finalizing this proposal, we 
agree that it would be difficult to use the measures for value based 
purchasing if only a subset of hospitals with such cases report the 
measures, as the commenter suggests. Regional registries may be 
appropriate for registry-based submission, so long as there are a 
sufficient number of other registries to allow submission nationwide. 
We agree with the importance of standardizing data collection and 
submission processes by registries. Many hospitals are currently 
participating in a number of registries that collect data on quality 
measures that are topics of interest to us. We did not intend to 
require hospitals to participate in a proprietary registry, but rather 
to leverage existing participation in registries as an efficient 
alternative source from which to collect the data. However, we 
acknowledge the commenters' concern regarding the cost and labor 
associated with participation in certain registries which may make this 
alternative mechanism for data submission less feasible for some 
hospitals.
    In considering registry-based submission for the future, we will 
consider whether registry-based data collection should be one means, 
but not an exclusive means, of submitting data for RHQDAPU quality 
measures.

[[Page 50191]]

    Comment: Some commenters encouraged CMS to look to the National 
Priorities Partnership goals as a framework for the types of measures 
that should be included in the RHQDAPU program. Another commenter 
suggested the RHQDAPU program should only include those quality 
measures that meet a high threshold of accountability criteria. Another 
commenter stated CMS should develop a core measure set for inclusion in 
the pay-for-performance program.
    Response: The National Priorities Partnership is a 28 member 
organization convened by the NQF for the purpose of identifying 
improvement goals and action steps for the U.S. healthcare system. We 
are a member of the National Priorities Partnership and participate in 
its framework-setting activity. Our measure selection activity and 
measure development activity takes into account the priorities 
established by this framework as well as other criteria described 
earlier. Since measure selection for the HVBP program is dependent upon 
the pool of measures that have been adopted for the RHQDAPU program, 
the measures to be selected for inclusion in the HVBP program would be 
guided by these same frameworks and criteria.
    Comment: Several commenters stated that measures selected for the 
RHQDAPU program should be both endorsed by the NQF and adopted by the 
HQA. Some commenters suggested that these steps were required by the 
Deficit Reduction Act of 2005 (DRA).
    Response: Section 1886(b)(3)(B)(viii)(V) of the Act, as added by 
the DRA and prior to the amendment made by section 3001(a)(2)(B) of the 
Affordable Care Act, requires that, effective for payments beginning 
with FY 2008, the Secretary add quality measures that reflect consensus 
among affected parties and, to the extent feasible and practicable, 
have been set forth by one or more national consensus building 
entities. This provision does not require that the measures we adopt 
for the RHQDAPU program be endorsed by any particular entity, and we 
believe that consensus among affected parties can be reflected by means 
other than endorsement by a voluntary consensus organization, including 
consensus achieved during the measure development process, consensus 
shown through broad acceptance and use of measures, and consensus 
through public comment (74 FR 24165 through 24166). Nevertheless, we 
have stated on numerous occasions that we prefer quality measures that 
are endorsed by the NQF. The NQF uses a formal consensus development 
process. As the NQF notes on its Web site at: http://www.qualityforum.org/Measuring_Performance/Consensus_Development_Process.aspx, it has been recognized as a voluntary consensus 
standards-setting organization as defined by the National Technology 
Transfer and Advancement Act of 1995 (Pub. L. 104-113) (NTTAA) and 
Office of Management and Budget Circular A-119. We are unaware of any 
other organizations that qualify as an NTTAA consensus organization for 
the endorsement of quality measures.
    We also take into consideration the measures adopted by the HQA as 
well as an array of input from the public. The HQA is a national 
public-private collaboration that is committed to making meaningful, 
relevant, and easily understood information about hospital performance 
accessible to the public and to informing and encouraging efforts to 
improve quality. We appreciate HQA's integral efforts to improve 
hospital quality of care and its support of our public quality 
reporting programs. As discussed previously, section 3001(a)(2) of the 
Affordable Care Act amended section 1886(b)(3)(B)(viii)(V) of the Act 
and limited its applicability effective for payments for FYs 2008 
through 2012. However, section 3001(a)(2) of the Affordable Care Act 
added a new section 1886(b)(3)(B)(viii)(IX) to the Act. This provision 
requires, for payments beginning with FY 2013, that each measure 
specified by the Secretary be endorsed by a consensus entity, except in 
certain circumstances. 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 consensus entity, the 
Secretary may specify a measure that is not endorsed by the consensus 
entity if due consideration is given to measures that have been 
endorsed or adopted by a consensus organization identified by the 
Secretary.
    In the past, we have proposed to add new RHQDAPU program measures 
for one year's payment determination in a given rulemaking cycle. 
Although in prior years we have identified various measures for future 
consideration, we have not proposed or finalized measures for RHQDAPU 
beyond those to be collected for the purpose of the next sequential 
payment determination. In the FY 2011 IPPS/LTCH PPS proposed rule (75 
FR 23965), we proposed an expansion to the RHQDAPU program that will 
take place over 3 payment years, and proposed to add measures not only 
for the FY 2012 payment determination, but also for FY 2013 and FY 2014 
payment determinations. To the extent we finalize some or all of these 
proposed measures this year, we believe that we will be providing 
greater certainty for hospitals to plan to meet future reporting 
requirements and implement related quality improvement efforts. We will 
also have more time to prepare, organize and implement the necessary 
infrastructure to collect data on the measures and make payment 
determinations. Finally, in section IV.A.5.a.(2) of the proposed rule 
(75 FR 23985), we discussed a proposal to make RHQDAPU payment 
determinations beginning with FY 2013 using, in part, a consecutive 
calendar year of quality measure data. This proposed approach, of 
synchronizing the quarters for which data on these measures must be 
submitted during each year with the quarters we will use to make 
payment determinations, would apply beginning with January 1, 2011 
discharges although it would not affect our payment determinations 
until FY 2013. We invited public comment on the measures and timeframe 
for their addition to the RHQDAPU program measure set.
    Comment: Many commenters expressed support of our proposal to 
propose and finalize RHQDAPU quality measures for 3 years in a single 
rulemaking in order to provide hospitals with advanced notice for 
planning purpose.
    Response: We appreciate the commenters' support of our proposal to 
finalize measures for 3 consecutive payment determinations. Although we 
will finalize measures for 3 consecutive years, we may add or remove 
measures for these years in future rulemaking cycles should we need to 
respond to agency and statutory changes.
    Comment: A few commenters urged CMS not to finalize the proposed 3-
year RHQDAPU quality measure plan until the availability of adequate 
information to align RHQDAPU program quality measures with the upcoming 
health care priorities of the Affordable Care Act becomes available. A 
commenter stated it is crucial to assure data quality given the various 
data sources that CMS proposed.
    Response: We retain the ability to change or replace measures in 
future rulemaking, which could be based on the national strategy to be 
developed under the Affordable Care Act. The measures that we finalize 
reflect important HHS priorities. Establishing them as RHQDAPU measures 
allows hospitals, CMS, and the public to have a longer time to prepare 
for collection and quality improvement efforts related to the measure. 
We have also previously

[[Page 50192]]

stated that should agency priorities or legislative changes require us 
to alter the measures selected, we will do so through the rulemaking 
process. We intend to examine and assure data quality for new sources 
of data if adopted for RHQDAPU.
    Comment: Some commenters questioned CMS' authority to add measures 
to the RHQDAPU program beyond the FY 2012 payment determination as 
section 3001(a)(2)(B) of the Affordable Care Act revises section 
1886(b)(3)(B)(viii)(V) of the Act.
    Response: We do not believe that the commenters are correctly 
reading the amendment to section 1886(b)(3)(B)(viii)(V) of the Act made 
by section 3001(a)(2)(B) of the Affordable Care Act in conjunction with 
section 1886(b)(3)(B)(viii)(III) of the Act. As amended, section 
1886(b)(3)(B)(viii)(V) of the Act states that, for payments for FYs 
2008 through 2012, the Secretary shall add other measures that reflect 
consensus among affected parties and, to the extent feasible and 
practicable, shall include measures set forth by one or more national 
consensus building entities. For payments for FY 2013 and beyond, the 
Secretary would be able to add measures because section 
1886(b)(3)(B)(viii)(III) of the Act provides the Secretary with the 
authority to expand the measures consistent with the succeeding 
statutory provisions. Section 1886(b)(3)(B)(viii)(V) of the Act simply 
would not apply to payments for FYs 2013 and beyond.
    In summary, we are finalizing our proposal to select measures for 
three consecutive payment years. As discussed in section IV.A.5.a.(2) 
of this final rule, where we respond to comments on synchronizing the 
quarterly submission of data, we are finalizing our proposal to 
synchronize the quarterly submission of data for RHQDAPU. We will 
continue to pursue goals regarding the expansion and updating of 
quality measures under the RHQDAPU program while minimizing burden. We 
will take into account the public comments we received on the possible 
uses of EHRs, registries, and all-payer claims data in the RHQDAPU 
program. We also will consider the measure selection criteria suggested 
by various commenters in prioritizing and selecting quality measures 
for the future.
b. RHQDAPU Program Quality Measures for the FY 2012 Payment 
Determination
(1) Retention of 45 Existing RHQDAPU Program Quality Measures for the 
FY 2012 Payment Determination
    As noted above, we are retiring the AHRQ Mortality for Selected 
Surgical Procedures Composite for the FY 2011 payment determination. We 
proposed that the remaining 45 of the 46 quality measures for the FY 
2011 RHQDAPU program payment determination will be used for the FY 2012 
RHQDAPU program payment determination. Details regarding data 
submission requirements were discussed in section IV.A.5. of the 
proposed rule. We invited comment on the proposal to include all FY 
2011 measures except for the AHRQ Mortality for Selected Surgical 
Procedures Composite in the FY 2012 RHQDAPU measure set.
    Comment: A commenter suggested CMS further discuss risk-adjustment, 
co-morbid conditions, exclusion criteria, and interpretation of the 
collected data before making decisions to retain the 45 measures as 
proposed.
    Response: In general, we retain measures from one payment 
determination to the next unless we specifically retire them. 
Currently, risk adjustment of comorbidities for outcome measures and 
exclusion criteria for all measures are maintained on an ongoing basis 
as part of routine measure maintenance, and are submitted every 3 years 
to NQF for reevaluation. We do not address measure maintenance or data 
display and interpretation issues in annual rulemaking. These issues 
are addressed in sub-regulatory processes.
    Comment: Some commenters were concerned that the Pneumonia Measure 
PN[middot]6 (including PN[middot]6a and PN-6b) relating to the initial 
antibiotic selection for Community Acquired Bacterial Pneumonia (CABP) 
in immune-competent patients is at risk of not representing the best 
clinical practice if its technical specifications are not updated in a 
timely manner. The commenters suggested that, for PN-6, CMS should 
clearly define the process for hospitals to prescribe newly approved 
antibiotics to treat CABP with flexibility. Furthermore, the commenters 
noted that CMS also should add Ceftaroline Fosamil to the Pneumonia 
Antibiotic Consensus Recommendations upon FDA approval.
    Response: As stated earlier, we maintain and update the technical 
specifications for RHQDAPU program measures regularly, which includes 
regular updating of drug lists to include new FDA approved medications, 
including antibiotics that could be used for patients included in the 
PN-6 measure. Appropriate documentation for hospital prescribing 
practices for measures such as PN-6 is also maintained in the technical 
specifications.
    After consideration of the public comments we received, we are 
adopting as final our proposal to retain 45 existing measures from the 
FY 2011 RHQDAPU payment determinations as RHQDAPU quality measures for 
the FY 2012 payment determination.
    In proposing to retain 45 of the 46 FY 2011 measures, we recognized 
that we were not significantly reducing the burden for hospitals, since 
the 1 measure that we proposed to remove is a measure that currently is 
calculated based on Medicare claims. At the same time, our proposal to 
expand the measures for FY 2012 and beyond may add additional reporting 
burdens and new focus areas for hospital quality improvement efforts. 
In view of our concern about the burden of reporting for hospitals, 
especially when it comes to reporting chart-abstracted measures, 
another option that we have considered to accommodate the expansion of 
the measure set is the retirement of additional measures. Specifically, 
we have considered retiring one or more of those measures suggested by 
various commenters that were listed in the FY 2010 IPPS/RY 2010 LTCH 
PPS final rule (74 FR 43865). We noted in that final rule that 11 
RHQDAPU program chart-abstracted measures were recommended for 
retirement by commenters. Seven of these 11 measures were recommended 
for retirement based on their performance being uniformly high 
nationwide, with little variability among hospitals. Information on the 
performance rates for hospitals reporting is available at: http://www.cms.hhs.gov/HospitalQualityInits/downloads/HospitalNationalLevelPerformance.pdf. These measures are:
     AMI-1 Aspirin at arrival
     AMI-3 ACEI/ARB for left ventricular systolic dysfunction
     AMI-4 Adult smoking cessation advice/counseling
     AMI-5 Beta-blocker prescribed at discharge
     HF-4 Adult smoking cessation advice/counseling
     PN-4 Adult smoking cessation advice/counseling
     SCIP-Infection-6: Surgery patients with appropriate hair 
removal
    In addition to these ``topped-out'' measures, commenters 
recommended we retire four additional measures listed below for reasons 
unrelated to high

[[Page 50193]]

unvarying performance. These measures are:
     HF-1 Discharge instructions
     PN-3b Blood culture performed before first antibiotic 
received in hospital
     SCIP-Infection-2: Prophylactic antibiotic selection for 
surgical patients
     SCIP-Infection-4: Cardiac Surgery Patients with Controlled 
6AM Postoperative Serum Glucose
    Reasons given by commenters included the following: (1) Care 
process measured has weak or no relationship to better outcomes, (2) 
collection burden of measure negates or outweighs the benefit of 
reporting the measure, and (3) measure perceived to be discordant with 
current guidelines.
    We invited comments on the option to retire 1 or more of these 11 
measures that were suggested for retirement by commenters to the FY 
2010 IPPS/RY 2010 LTCH PPS proposed rule. We acknowledged that some of 
these measures were proposed for electronic reporting under the program 
for incentive payment for meaningful use of electronic health records 
(75 FR 1896).
    In addition, we stated that we were considering an option under 
which if we propose and finalize measures that are specified to more 
broadly address a clinical topic, and thus would require hospitals to 
submit the same data that they are already submitting on more narrowly 
specified measures that we previously adopted for the RHQDAPU program, 
we would propose to retire the more narrowly specified measures from 
the RHQDAPU measure set. An example of this option that we were 
considering would be retirement of the current Influenza and 
Pneumoccocal vaccination measures that apply only to the Pneumonia 
admission inpatient population (PN-2 Pneumococcal vaccination status; 
and PN-7 Influenza vaccination status) if we proposed and finalized 
measures of Influenza and Pneumoccocal vaccination that apply to all 
inpatients. We invited comments on this option to retire narrowly 
specified measures in order to accommodate more broadly specified 
measures on a given topic.
    Comment: A few commenters supported retiring narrowly specified 
measures such as the vaccination measures that are specific to 
Pneumonia inpatients, as a way to reduce burden, especially when 
broader measures are available.
    Response: We thank the commenters for their support of the concept 
of retiring narrowly specified measures and replacing them with 
measures that could be applied to a broader population. As we discuss 
below in section IV.A.3.d. of this final rule, we are using this 
strategy and retiring the pneumonia-specific immunization measures for 
the FY 2014 payment determination because we are adopting the global 
immunization measures.
    Comment: Some commenters supported the retirement of one or more of 
the measures listed. Others also suggested additional measures to 
consider for retirement including: PN-2 Pneumococcal vaccination status 
and PN-7 Influenza vaccination status, and the AHRQ Abdominal Aortic 
Aneurysm (AAA) Mortality Rate (with or without volume) (IQI 11).
    Response: We appreciate the commenters' specific suggestions 
regarding retirement of particular measures. As discussed in section 
IV.A.3.d. of this final rule, we are retiring PN-2 and PN-7 for the FY 
2014 payment determination because we are adopting the global 
immunization measures.
    Comment: A commenter pointed out that three of the measures listed 
(AM1-1, AMI-5, and SCIP-INF-2) for the FY 2011 payment determination 
overlap with the HITECH EHR incentive program Stage 1 meaningful use 
criteria and, therefore, they should be retired for burden reduction 
purposes. The commenter recommended that when the retirement of 
overlapped measures occurs in one program, they should also be retired 
in other programs as well.
    Response: The final rule for the HITECH EHR incentive program (75 
FR 44314) did not include the AMI and SCIP measures identified by the 
commenter. Rather, the measures that were finalized for HITECH EHR 
program hospital reporting are not currently included in the RHQDAPU 
program. As discussed previously, an important objective for the 
RHQDAPU program is to align the reporting of quality measures by 
hospitals for both the RHQDQPU and HITECH EHR programs. However, this 
alignment must be consistent with the data needs for the RHQDAPU 
program. The HITECH EHR program does not require the submission of 
patient level data, as is the case for the RHQDAPU program. Therefore, 
in order to completely align the clinical quality measure reporting if 
RHQDAPU measures were required in Stage 2 HITECH, changes to HITECH 
requirements would need to be made through the rule making process and 
also standardize other processes such as technology platform standards 
and submission processes. In aligning the HITECH EHR and RHQDAPU 
program measures, we anticipate developing electronic specifications 
for all of the currently chart abstracted measures. This could provide 
an EHR reporting alternative for measures that are currently chart 
abstracted. However, in developing alternative data submission 
mechanisms, we will be mindful of the specific uses of data submitted 
for RHQDAPU measures, that go beyond uses for clinical quality measures 
under the HITECH EHR program. Specifically, section 
1886(b)(3)(B)(viii)(VII) of the Act, unlike the HITECH provisions, 
requires the public reporting of information regarding measures 
submitted to the RHQDAPU program, and the Affordable Care Act requires 
that measures for the HVBP program be specified under the RHQDAPU 
program. In view of the specific uses for RHQDAPU data, we must be 
satisfied that the measures results are equivalent, whether the data 
upon which the results are based are submitted based on chart 
abstraction or through use of certified EHR technology.
    Comment: One commenter stated that, although the mortality measures 
exclude patients who have a history of Medicare hospice enrollment 
prior to or on admission, the measures do not take into account 
decisions made by the patient or family to withhold treatments and opt 
for comfort care later in the hospital course as part of end-of-life 
care. The commenter was concerned that hospitals would transfer these 
patients or over-treat patients to avoid penalty. The commenter 
suggested that CMS develop a mechanism, such as the POA flag, to 
accurately and properly report the care that they deliver to the 
patient.
    Response: We thank the commenter for the input. However, we do not 
use rulemaking to define the parameters of the measures, such as 
exclusions. Rather, we depend on the processes of measure development 
and, if applicable, the NQF endorsement review. In the case of this 
measure, the exclusions in the measure were considered in the original 
endorsement process and at a subsequent maintenance process conducted 
by NQF. During the maintenance process, the measure was only modified 
to exclude cases where the patient had been a prior hospice patient.
(2) New Claims-Based Measures
    We proposed to add 10 claims-based measures to the RHQDAPU program 
measure set for the FY 2012 payment determination: 2 AHRQ Patient 
Safety Indicators and 8 Hospital Acquired Condition measures. These 
proposed measures address important HHS priorities of Patient Safety 
and healthcare associated infections. They would be calculated using up 
to 3 years

[[Page 50194]]

of Medicare claims for discharges prior to January 1, 2011. These 
measures are discussed below.
(A) AHRQ Patient Safety Indicators
    In the FY 2009 IPPS final rule, we adopted a number of AHRQ Patient 
Safety Indicators and Inpatient Quality Indicators for the RHQDAPU 
program to be calculated using Medicare claims. The addition of these 
measures to the RHQDAPU program allowed us to expand the RHQDAPU 
program measure set to include measures of patient safety, in-hospital 
mortality, adverse events and complications without increasing the data 
submission burden on hospitals. In the FY 2010 IPPS/RY 2010 LTCH PPS 
final rule, we retained these measures for the FY 2011 payment 
determination. As we proposed in the FY 2011 IPPS/LTCH PPS proposed 
rule (75 FR 23960 and 23961), we are retiring one of those measures 
(Mortality for Selected Surgical Procedures Composite) from the RHQDAPU 
program measure set for the FY 2011 payment determination. For the FY 
2012 payment determination, we proposed to adopt 2 additional Patient 
Safety Indicators developed by the AHRQ. These were: PSI-11: Post-
Operative Respiratory Failure and PSI-12: Post-Operative Pulmonary 
Embolism (PE) or Deep Vein Thrombosis (DVT). Both measures address 
post-operative complications, a topic that is currently not well 
represented in the RHQDAPU program measure set. Both measures are NQF-
endorsed, and have a Tier 1 evidence rating by AHRQ, the measure 
developer. Indicators given this level of evidentiary rating by AHRQ 
have the strongest evidence base, with established evidence in several 
or most evidentiary areas established by AHRQ, no substantial evidence 
suggesting that the indicator may not be useful for comparative 
reporting purposes, and in most cases have been endorsed by the 
National Quality Forum (NQF).\13\ The specific measures that we 
proposed to add are NQF-endorsed, thus, reflecting consensus among 
affected parties, and are deemed appropriate for comparative public 
reporting by the measure developer. Like the current AHRQ measures in 
the RHQDAPU program, these indicators are both risk-adjusted outcome 
measures that can be calculated based on existing Medicare claims, 
placing no additional reporting burden on hospitals while allowing us 
to expand outcomes measurement in the RHQDAPU program. The 
specifications for these measures can be found at http: //
www.qualityindicators.ahrq.gov/TechnicalSpecs41.htm#PSI41. We invited 
comment on our proposal to adopt these two AHRQ Patient Safety 
Indicators for the FY 2012 payment determination.
---------------------------------------------------------------------------

    \13\ http://www.qualityindicators.ahrq.gov/downloads/publications/AHRQ%20QI%20Guide%20to%20Comparative%20Reporting%20v10.pdf.
---------------------------------------------------------------------------

    Comment: Some commenters believed that claims data are not an 
accurate source of quality measures compared to medically-abstracted 
data. One commenter was concerned about the limitation of the claim-
based measures used in Hospital Compare because the claims used were 
for the Medicare fee-for-service population only.
    Response: We believe that claims data/administrative data are an 
appropriate data source upon which quality measures selected by the 
Secretary may be based. We note that many NQF-endorsed evidence-based 
quality measures which have been found appropriate for public reporting 
and quality improvement rely upon claims and administrative data as 
data sources. Furthermore, the use of claims-based measures reduces 
reliance upon chart abstraction and its associated burden for quality 
measurement. We acknowledge that all-payer claims/administrative data 
would further enhance the claims-based measures shown on Hospital 
Compare. We plan to continue to explore mechanisms to collect all-payer 
claims/administrative data.
    Comment: Many commenters did not support the proposed inclusion of 
PSI-11 and PSI-12 measures because they have time-limited NQF-
endorsement due to validation issues, and the delay in the AHRQ update 
hampers hospitals' ability to monitor the PSI results timely. The 
commenters believed the PSI-11 and PSI-12 measures need more refinement 
and testing before they can be used for public reporting. One commenter 
asked CMS to ensure that the PSI-12 measure is not reported twice as it 
is also currently reported as part of PSI-90. Some commenters felt that 
PSI-12 may be redundant with the SCIP VTE measure and the VTE 
measurement set listed under the future measure section.
    Response: NQF designates some measures as having a 2-year ``time-
limited'' endorsement when additional information like testing results 
are needed. All other NQF-endorsed measures have a 3-year endorsement 
period. However, in both instances, the measures have a status of 
endorsed by NQF, and undergo re-evaluation at the end of the 
endorsement period. Therefore, we do not agree with the suggestion to 
treat endorsed measures with time limitations as not endorsed. We also 
note that PSI-11 is endorsed without time limitation. Further, both 
measures are recommended for public reporting by AHRQ. We also do not 
agree that PSI-12 is duplicative of SCIP VTE. The PSI-12 measure 
reflects the actual occurrence of DVT (outcome) following a broad set 
of procedures. The SCIP VTE and VTE measurement set covers processes of 
care intended to prevent DVT.
    We have carefully considered all comments received and we are 
finalizing the PSI-11 and PSI-12 measures for the FY 2012 payment 
determination. These measures are NQF-endorsed and address adverse 
surgical outcomes, a high HHS priority and a topic area that is 
currently not represented in the RHQDAPU measurement set. We will 
calculate these measures using the same process used for other measures 
based on Medicare fee for service claims.
(B) Hospital Acquired Condition (HAC) Measures
    Section 1886(d)(4)(D) of the Act required the Secretary to select, 
in consultation with the Centers for Disease Control and Prevention 
(CDC), at least two conditions that: (a) Are high cost, high volume, or 
both; (b) are assigned to a higher paying MS-DRG when present as a 
secondary diagnosis (that is, conditions under the MS-DRG system that 
are CCs or MCCs); and (c) could reasonably have been prevented through 
the application of evidence based guidelines. We currently have 10 
categories of Hospital Acquired Conditions (HACs). We refer readers to: 
section II.F. of the FY 2008 IPPS final rule with comment period (72 FR 
47202 through 47218); section II.F. of the FY 2009 IPPS final rule with 
comment period (73 FR 48474 through 48486); and section II.F. of the FY 
2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43782 through 43785) for 
detailed discussions regarding the selection of the current 10 HAC 
categories. We refer readers to section II.F. of this final rule for 
additional discussion and our HAC policy for FY 2011.
    We have worked collaboratively with public health and infectious 
disease professionals from across HHS, including CDC, AHRQ, and the 
Office of Public Health and Science, to identify and select preventable 
HACs with input and comment from affected parties. CMS and CDC have 
also collaborated on the process for hospitals to submit a present on 
admission (POA) indicator for each diagnosis listed on IPPS hospital 
Medicare claims and on the

[[Page 50195]]

payment implications for POA reporting (74 FR 43783).
    CMS, CDC and AHRQ held jointly sponsored HAC and POA Listening 
Sessions (December 17, 2007 and December 18, 2008) to receive input 
from affected parties, individuals, and organizations regarding the 
selection and definition of HACs. The adoption of HACs were informed 
and continue to be informed by feedback received during the listening 
sessions, as well as through public comment received during the IPPS 
rulemaking process. In addition to receiving comments regarding the 
selection of conditions and POA indicator reporting, in the FY 2010 
IPPS/RY 2010 LTCH PPS final rule (74 FR 43785), commenters suggested 
that CMS consider making aggregate POA information publicly available, 
and providing comparative information as a means of facilitating 
improvements in preventing the incidence of HACs.
    We proposed to adopt as RHQDAPU measures for the FY 2012 payment 
determination 8 (of 10) current HACs defined in section II.F. of the FY 
2011 IPPS/LTCH PPS proposed rule (75 FR 23966), 6 of which have been 
identified by NQF as serious reportable events, and to publicly report 
these measures as we do other RHQDAPU program measures. These measures 
are:
     Foreign Object Retained After Surgery
     Air Embolism
     Blood Incompatibility
     Pressure Ulcer Stages III & IV
     Falls and Trauma: (Includes: Fracture, Dislocation, 
Intracranial Injury, Crushing, Injury, Burn, Electric Shock)
     Vascular Catheter-Associated Infection
     Catheter-Associated UTI
     Manifestations of Poor Glycemic Control
    We did not believe that it was necessary to propose to adopt the 
other two current HAC categories as RHQDAPU measures because the topics 
that they deal with would substantially overlap with other RHQDAPU 
program measures discussed below that we proposed to adopt for future 
payment determinations as chart-abstracted measures (which allows us to 
collect data on all patients). By contrast, the eight proposed HAC 
measures are claims-based measures for which we can only (at this time) 
collect data on Medicare beneficiaries.
    We proposed to utilize Medicare claims data to calculate measure 
rates for these eight HACs using the ICD-9-CM codes in conjunction with 
POA coding of ``N'' or ``U,'' as defined in IPPS rulemaking. We refer 
readers to section II.F.6. of the FY 2008 IPPS final rule with comment 
period (72 FR 47202 through 47218), section II.F.7. of the FY 2009 IPPS 
final rule (73 FR 48474 through 48486), section II.F.6. (74 FR 43782 
through 43785) of the FY 2010 IPPS/RY 2010 LTCH PPS final rule, and 
section II.F. of the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23880) 
for detailed discussions regarding the use of the POA indicator in 
conjunction with ICD-9-CM coding to determine the presence of HACs. We 
also refer readers to the current ICD-9-CM codes and updates for these 
eight HAC categories in this final rule. We proposed to use the ICD-9-
CM codes in conjunction with the ``N'' and ``U'' POA indicators for the 
HAC categories that will be finalized in this FY 2011 IPPS/LTCH PPS 
final rule to calculate the eight HAC measures for the RHQDAPU program.
    We believe that these HAC measures reflect consensus among affected 
parties as required for RHQDAPU program measures by section 
1886(b)(3)(B)(viii)(V) of the Act. In addition to meeting the consensus 
requirement through rulemaking and public comment, Vascular Catheter-
Associated Infection and Catheter-Associated UTI are the subject of a 
quality measure which gained NQF endorsement in August 2009. The 
remaining six HAC categories have been identified as serious reportable 
events through the NQF consensus process and have also been selected as 
HACs through rulemaking and public comment. Data reporting requirements 
for these measures are provided in section IV.A.5.b.(6) of the FY 2011 
IPPS/LTCH PPS proposed rule (75 FR 23990). We invited comment on our 
proposal to adopt these eight HAC measures for the FY 2012 payment 
determination.
    Comment: Some commenters supported inclusion of the HACs as 
measures for the RHQDAPU program as public reporting would encourage 
improvement. Other commenters supported inclusion, but also stressed 
that appropriate risk adjustment, comprehensive exclusion criteria, and 
NQF endorsement should be pursued.
    Response: We agree that public reporting of the HACs on the 
Hospital Compare Web site would encourage improvement. We also note 
that section 3008 of the Affordable Care Act contains a provision for 
the reporting of HACs on the Hospital Compare Web site as well. We 
intend to publish measure specifications for the rates (including 
numerators, denominators, and exclusion criteria) in the Specifications 
Manual. We agree risk-adjustment may be appropriate for some of the 
indicators, and intend to apply appropriate risk adjustment for those 
HACs that are not considered Never Events, and are considered outcome 
measures, such as infection-related HACs. We will also consider the 
suggestion that we pursue NQF endorsement.
    Comment: Many commenters opposed the inclusion of HACs in the 
RHQDAPU program for various reasons. Some commenters did not believe 
the HACs as currently defined by ICD-9-CM codes constitute measures as 
there are no measure specifications. Commenters believed that they are 
tied to variables which are indications of documentation and coding and 
may inadvertently cause unintended consequences. Other commenters also 
believed that present on admission (POA) reporting is in its infancy 
and since the HACs would rely upon POA coding, they are not reliable. 
Other commenters indicated that some of the HACs are too rare to be 
meaningful. Other commenters believed that NQF endorsement or HQA 
adoption would be necessary prior to adoption of the HACs.
    Response: As stated in the response to the previous comment, we 
intend to include measure specifications in the Specifications Manual. 
We also believe that the HACs reflect consensus among affected parties 
because they were refined during two public listening sessions and 
underwent public comment through rulemaking. Furthermore, six of the 
eight HACs proposed as measures for the FY 2012 payment determination 
are also NQF-endorsed ``never events.'' We acknowledge that the rates 
of never events may be rare. However, because these are considered 
events that should never happen, reporting their prevalence, though 
rare, is still meaningful. Although POA coding is relatively new, it is 
subject to the same level of monitoring and oversight as diagnoses and 
procedures reported on claims, and therefore, is accurate and reliable 
to the best of hospitals' abilities.
    Comment: One commenter asked CMS to address perceived overlap in 
the proposed HAC measures, the proposed HAI measures, and the nursing 
sensitive measure set.
    Response: While two of the HACs topically address HAIs, they are 
not the same measures as the HAIs proposed for collection via NHSN. 
They have a close relationship but they are not identical. In our FY 
2011 IPPS/LTCH PPS proposed rule, we proposed the addition of the CDC 
central line catheter associated bloodstream infection rate for ICU and 
high-risk nursery patients and Surgical Site Infection Rate measure for 
inclusion in the RHQDAPU program (75

[[Page 50196]]

FR 23970 and 23971). These measures align with the topic areas of the 
Vascular Catheter-Associated Infection and Surgical Site Infection 
HACs. The information for determining the HACs is derived from claims 
data, while the central line catheter associated bloodstream infection 
rate for ICU and high-risk nursery patients and SSI measures are 
derived from chart abstraction. The central line catheter associated 
bloodstream infection rate for ICU and high-risk nursery patients 
measure (NQF 0139) is part of the NQF Nursing Sensitive Set. 
Section 1886(d)(4)(iv) of the Act requires the Secretary to select at 
least two conditions as HACs that are: (a) 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. The Hospital Acquired Conditions are based on NQF's Serious 
Reportable Events.
    After careful consideration of comments received, we are finalizing 
the adoption of the eight HAC measures into the RHQDAPU program for the 
FY 2012 payment determination. We will calculate these rates using 
Medicare Part A fee for service claims, and we intend to publicly 
report these measures on Hospital Compare starting in the fall of 2010 
after an appropriate preview period. The data to be used for this 
initial calculation will include claims from Q4 2008, and at least Q1 
and Q2 of 2009. We also note that section 3008 of the Affordable Care 
Act contains a provision for public reporting of the HACs on Hospital 
Compare and that initiation of public reporting of the HACs now will 
enable us to better fulfill the requirements of this section in the 
future. Since the RHQDAPU program requires hospitals to submit data for 
measures, hospitals have an obligation to accurately report the 
diagnosis and events defined for the HACs, including POA codes, on 
their claims, because their claims will be the source of data for these 
measures under the RHQDAPU program.
(3) All-Patient Volume Data for Selected MS-DRGs
    We currently display volume data for 70 MS-DRGs, 55 of which relate 
to RHQDAPU program measures on the Hospital Compare Web site. However, 
the volume data currently shown on Hospital Compare is based on 
Medicare claims only. Although we do not consider volume alone to be a 
quality measure unless volume has been determined to be an indicator of 
quality, we believe that to the extent all-patient volume data are 
related to the measures, as they provide context for the quality 
measures in the inpatient hospital setting, and may assist Hospital 
Compare users in understanding the measure calculations. In general, in 
implementing RHQDAPU program measures, we have sought where currently 
possible to measure the care rendered to all patients within a 
hospital, and not just Medicare patients. For this reason, the chart-
abstracted process of care measures we collect and display on Hospital 
Compare are based on the entire inpatient population for the hospital.
    We proposed that hospitals begin submitting as data on measures 
selected for the RHQDAPU program the all-patient data elements 
discussed in section IV.A.5.b.(5) of the FY 2011 IPPS/LTCH PPS proposed 
rule (75 FR 23990) for 55 MS-DRGs displayed on Hospital Compare that 
relate to adopted RHQDAPU program measures (75 FR 23967). The specific 
MS-DRGs were listed in the proposed rule (75 FR 23970). As stated 
above, we believe that the addition of this data will enable us and 
Medicare beneficiaries to better understand and evaluate the quality of 
care provided by hospitals with respect to both the chart-abstracted 
and claims-based measures. We intend to publicly display this volume 
data along with the corresponding measure results on Hospital Compare. 
Hospitals would begin reporting these data once annually beginning with 
January 1, 2011 discharges by submitting the all-patient data elements 
needed to calculate MS-DRG volume to QualityNet so we can determine the 
volume of cases treated by a hospital for the 55 MS-DRGs currently 
displayed on Hospital Compare. Rather than require hospitals to group 
their all-patient claims data by MS-DRG category themselves, CMS would 
use the data to be submitted by hospitals to group the data.
    We invited comments on this proposal. We also invited comments on 
an alternative that hospitals submit all-patient volume data based upon 
specific ICD-9-CM codes related to the proposed MS-DRGs rather than all 
data necessary to calculate the MS-DRGs.
    Comment: Many commenters opposed the collection of all-patient 
volume data in the RHQDAPU program as proposed, and stated that: (1) 
Volume does not constitute a quality measure and, therefore, would not 
fall under the Secretary's authority under the Act to select measures 
for the RHQDAPU program; (2) submitting all-patient volume would 
require the transmission of Protected Health Information or Patient 
Identifiable Information that is not related to either quality or 
reimbursement and therefore is not in compliance with the requirements 
of the Health Insurance Portability and Accountability Act of 1996 
(HIPAA); (3) it is not clear how the collection of all-patient volume 
data would be helpful to Medicare beneficiaries; (4) there are concerns 
about whether CMS infrastructure can handle data collection of a large 
amount of additional data; and (5) there are concerns regarding how the 
data will be displayed on Hospital Compare and fear that CMS and the 
public will equate high volume with high quality.
    Response: We disagree with the commenters about our authority to 
collect all-patient volume data in relation to RHQDAPU quality 
measures. However, based on the public comment received, we are not 
finalizing this proposal because commenters indicated that, as 
proposed, the reporting requirement would be overly burdensome for 
hospitals. We plan to explore how all-patient volume may be collected 
in an efficient manner and reintroduce the proposal in a subsequent 
rulemaking.
    Comment: Some commenters argued that CMS has underestimated the 
potential burden on hospitals which have to group the cases into one of 
the 55 MS-DRGs before sending the ICD-9 codes and other related data 
such as procedure date, discharge status, admission date, to name a 
few. A commenter asked CMS to provide a MS-DRG to ICD-9-CM codes 
equivalent table to ensure no overlapping as well as specifics on the 
data submission process. Another commenter suggested CMS provide an 
alternate method which allows hospitals already grouping data 
internally into MS-DRGs to post the all-patient volumes for these 55 
MS-DRGs onto QualityNet on an annual basis. A commenter recommended CMS 
explore the possibility of getting the all-payer information from the 
Joint Commission's vendors, State healthcare organizations or AHRQ.
    Response: We agree with the commenters that submission of the 
required data that would be necessary to determine the MS-DRG would be 
burdensome. Further, we believe that the alternative of requiring 
volume based on diagnosis codes would provide substantially equivalent 
information, even though we could not relate the volume data to a 
specific MS-DRG. As a result, we are not adopting our proposal to 
require the submission of all-payer volume in this final rule. We 
expect to refine the requirements for all-patient volume data 
submission based

[[Page 50197]]

on diagnosis codes and reintroduce the proposal in a subsequent 
rulemaking.
    Comment: Some commenters supported the inclusion of all-patient 
volume data for selected MS-DRGs and considered the inclusion of these 
data a move in the right direction.
    Response: We appreciate the supportive comments. As discussed 
previously, we expect to reintroduce the proposal in a subsequent 
rulemaking.
    Comment: Many commenters asked CMS to provide more details about 
the all-patient volume data submission process. Specifically, the 
commenters inquired if ICD-9-CM codes have to be submitted; what data 
elements have to be submitted; the data formats and transmission 
methods; frequency of data submissions; and deadlines for data 
submission.
    Response: We expect to reintroduce the proposal in a subsequent 
rulemaking as discussed previously and we would provide more details 
for the data submission process at that time.
    After consideration of the public comments we received, we are not 
finalizing this proposal to collect all-patient volume data for 
selected MS-DRGs. We currently require hospitals to submit all-patient 
counts to assess the adequacy of sampling for the current RHQDAPU 
measures, and will examine whether this requirement can be expanded 
upon in the future for public reporting, and to accommodate future 
quality measures adopted into the RHQDAPU program.
    In summary, for the FY 2012 payment determination, we are retaining 
45 measures adopted for the FY 2011 payment determination, and adding 
10 claims-based measures (2 AHRQ surgical outcome measures, and 8 HAC 
measures) for a total of 55 measures.
    The RHQDAPU measure set for the FY 2012 payment determination is 
listed below:
BILLING CODE 4120-01-P

[[Page 50198]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.039

[[Page 50199]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.040

[[Page 50200]]

BILLING CODE 4120-01-C
c. RHQDAPU Program Quality Measures for the FY 2013 Payment 
Determination
(1) Retention of FY 2012 Payment Determination Measures for the FY 2013 
Payment Determination
    We generally propose to retain RHQDAPU program measures from 1 year 
to the next. Consistent with this approach, we proposed to retain all 
of the proposed measures for the FY 2012 RHQDAPU payment determination, 
if finalized, for the FY 2013 payment determination. We invited public 
comment on the proposal to retain the 55 FY 2012 measures for the FY 
2013 payment determination.
    We did not receive any public comments for this section. We are 
finalizing the retention of the 55 FY 2012 measures for the FY 2013 
payment determination. We believe that all of the 55 finalized FY 2012 
measures meet the requirements for RHQDAPU program measure selection 
for FY 2013 and subsequent payment determinations under sections 
1886(b)(3)(B)(viii)(VIII) and (IX) of the Act. As discussed previously, 
section 1886(b)(3)(B)(viii)(VIII) of the Act requires the Secretary to 
provide for such risk adjustment as the Secretary determines 
appropriate to maintain incentives for hospitals to treat patients with 
severe illnesses or conditions with respect to quality measures for 
outcomes of care effective for payments beginning with FY 2013. Section 
1886(b)(3)(B)(viii)(IX) of the Act requires, for payments beginning 
with FY 2013, each measure specified by the Secretary to be endorsed by 
a consensus entity, currently NQF, except in certain circumstances. 
Specifically, 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 consensus entity, the 
Secretary may specify a measure that is not endorsed by the consensus 
entity if due consideration is given to measures that have been 
endorsed or adopted by a consensus organization identified by the 
Secretary.
    The process of care measures for AMI, HF, PN, and SCIP, the three 
structural measures regarding participation in a registry, and the 
HCAHPS patient experience of care survey being retained for the FY 2013 
payment determination are all NQF-endorsed. The outcome measures being 
retained for the FY 2013 payment determination include the 30-day 
mortality and 30-day readmission measures for AMI, HF, and PN as well 
as the AHRQ PSIs and IQIs, the two AHRQ composite measures, and the 
Death among surgical inpatients for serious treatable complications 
measure that is both part of the AHRQ PSI measure set, and the Nursing 
Sensitive measure set. These measures are all NQF-endorsed and provide 
for such risk adjustment as the Secretary determines to be appropriate 
to maintain incentives for hospitals to treat patients with severe 
illnesses or conditions.
    The eight HAC measures adopted for the FY 2012 payment 
determination that are being retained for the FY 2013 payment 
determination represent a specified area or medical topic determined 
appropriate by the Secretary (CDC, CMS, AHRQ) for which a feasible and 
practical measure has not been endorsed by the consensus entity, and 
due consideration was given to measures that have been endorsed or 
adopted by a consensus organization identified by the Secretary. In 
fact, six of the HACs are NQF Never Events. The remaining two HACs are 
claims-based measures of HAIs, and consideration was given to chart 
abstracted NQF endorsed measures prior to determining that they would 
not be feasible to implement for the FY 2012 payment determination.
(2) New Chart-Abstracted Measure for the FY 2013 Payment Determination
    We proposed to add one new chart-abstracted measure for the FY 2013 
payment determination--AMI-Statin prescribed at Discharge. This measure 
is NQF-endorsed (NQF  0639), and is similar to the NQF-
endorsed stroke measure ``Ischemic stroke patients with LDL >/= 100 mg/
dL, or LDL not measured, or, who were on cholesterol reducing therapy 
prior to hospitalization are discharged on a statin medication'' (NQF 
0439), only specified for the AMI population. Current 
scientific evidence supports the continuation of statins more strongly 
for AMI patients than for stroke patients. Several randomized clinical 
trials have proven the benefits of statin drugs (also known as HMG Co-A 
reductase inhibitors) in reducing the risk of death and recurrent 
cardiovascular events in a broad range of patients with established 
cardiovascular disease, including those with prior myocardial 
infarction. Current ACC/AHA guidelines place a strong emphasis on the 
initiation or maintenance of statin drugs for patients hospitalized 
with AMI, particularly those with LDL-cholesterol levels at or above 
100 mg/dL. As a result of the strength of the evidence and guideline 
support, the ACC/AHA has developed a performance measure to assess this 
aspect of care for AMI patients.
    Because statins are generally well-tolerated, most AMI patients are 
appropriate candidates for this therapy. As a result of this clinical 
evidence, the NQF was asked to review whether it should broaden the 
current endorsed measure specification to include the AMI population. 
Information on this project can be found at: http://www.qualityforum.org/Projects/a-b/Ad_Hoc_Reviews/Statin_Medication/Ad_Hoc_Review__Discharged_on_Statin.aspx. In the FY 2011 IPPS/
LTCH PPS proposed rule (75 FR 23970), we stated that we would decide 
whether to finalize this measure based on whether it achieves NQF 
endorsement and public comments. We believe that minimal additional 
burden would result from adoption of this measure into the RHQDAPU 
program because the AMI population that is the focus of this measure is 
already part of data collection efforts for the RHQDAPU program, and 
very few additional data elements would be needed to be abstracted for 
the proposed new measure on this existing measurement population. We 
proposed that hospitals would begin submission of data for the measure 
AMI-Statin Prescribed at Discharge beginning with January 1, 2011 
discharges for the RHQDAPU 2013 payment determination.
    Comment: The majority of the commenters supported the proposed 
addition of the AMI-Statin Prescribed at Discharge measure. Some 
commenters supported the addition of Statins at Discharge for AMI 
patients contingent on NQF endorsement.
    Response: We thank the commenters for their support of this 
proposed measure. We note that this measure was fully endorsed by the 
NQF on June 11, 2010, thus meeting the requirement under section 
1886(b)(3)(B)(viii)(IX) of the Act.
    After consideration of the public comments, we are finalizing the 
measure for Statins Prescribed at Discharge for AMI patients for the FY 
2013 payment determination.
(3) New Healthcare Associated Infection (HAI) Measures for the FY 2013 
Payment Determination
    HHS has placed high priority on reducing Healthcare Associated 
Infections and adopted an action plan in January of 2009. The HHS 
action plan identified seven HAI measures and measure targets. One of 
these measures, SSI-2 (as identified in the HHS Action Plan), is 
currently included in the RHQDAPU program (identified as SCIP-1). In 
the FY 2009 and FY 2010 IPPS rulemakings, we listed several Healthcare 
Associated Infection (HAI)

[[Page 50201]]

measures as being under consideration for future adoption. Commenters 
on the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule supported the HAI 
measures that were listed as being under consideration for the future 
and encouraged us to consider others as well (74 FR 43876). For the 
measure set to be used for the FY 2013 payment determination, we 
proposed adopting two new HAI measures that are currently being 
collected by CDC via the National Healthcare Safety Network (NHSN). 
These measures are: (1) Central Line Associated Blood Stream Infection 
(CLABSI) (NQF 0139) and (2) Surgical Site Infection (SSI) (NQF 
0299).
    The NHSN is a secure, Internet-based surveillance system maintained 
and managed by the CDC, and can be utilized by all types of healthcare 
facilities in the United States, including acute care hospitals, long 
term acute care hospitals, psychiatric hospitals, rehabilitation 
hospitals, outpatient dialysis centers, ambulatory surgery centers, and 
long term care facilities. The NHSN enables healthcare facilities to 
collect and use data about HAIs, adherence to clinical practices known 
to prevent HAIs, the incidence or prevalence of multidrug-resistant 
organisms within their organizations, and other adverse events. Some 
States use NHSN as a means for healthcare facilities to submit data on 
HAIs mandated through their specific State legislation. NHSN data 
collection occurs via a Web-based tool hosted by the CDC provided free 
of charge to hospitals. Additionally, the ability of CDC to receive 
NHSN measures data from EHRs may be possible in the near future. 
Currently, 21 States require hospitals to report HAIs using NHSN, and 
the CDC supports more than 2000 hospitals that are using NHSN.\14\
---------------------------------------------------------------------------

    \14\ http://www.cdc.gov/nhsn/.
---------------------------------------------------------------------------

    Both the Central Line Associated Blood Stream Infection measure and 
the Surgical Site Infection measure are NQF-endorsed, and therefore 
meet the statutory requirement under section 1886(b)(3)(B)(viii)(IX) of 
the Act. The measures address HAIs, a topic area widely acknowledged by 
the HHS, IOM, the National Priorities Partnership and others as a high 
priority requiring measurement and improvement. HAIs are among the 
leading causes of death in the United States. The CDC estimates that as 
many as 2 million infections are acquired each year in hospitals and 
result in approximately 90,000 deaths per year.\15\ 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.
---------------------------------------------------------------------------

    \15\ McKibben L, Horan T Guidance on public reporting of 
healthcare-associated infections: recommendations of the Healthcare 
Infection Control Practices Advisory Committee. AJIC 2005;33:217-26.
---------------------------------------------------------------------------

    HAIs are largely preventable through interventions such as better 
hygiene and advanced scientifically tested techniques for surgical 
patients. Therefore, many health care consumers and organizations are 
calling for public disclosure of HAIs, arguing that public reporting of 
HAI rates provides the information health care consumers need to choose 
the safest hospitals, and gives hospitals an incentive to improve 
infection control efforts. We solicited comment on the inclusion of 
quality measures that assess performance on HAIs as a high priority 
topic. We also solicited public comment on additional measures that 
could be added to those proposed in the FY 2011 IPPS/LTCH PPS proposed 
rule for public reporting and quality improvement.
    Comment: Many commenters supported the proposed use of the CDC/NHSN 
to collect HAI measures. However, some commenters stated that the NHSN 
data input process is burdensome and commenters questioned the CDC/
NHSN's readiness to handle the new enrollment of one fourth of the 
RHQDAPU participating hospitals. Many commenters recommended that CMS 
collaborate with the CDC to streamline and synchronize the data 
collection mechanism and measure specifications prior to 
implementation, and to limit the surgical procedures for inclusion in 
data reporting. Commenters recommended development of robust training 
and technical support for NHSN collection. Many commenters supported 
phasing in these measures in order to allow hospitals to adjust to the 
reporting requirement, adopting one measure for collection in FY 2011 
and another for collection in FY 2012.
    Response: We thank the commenters for their support and 
suggestions. Concurrently with the development of the FY 2011 IPPS/LTCH 
PPS final rule, we have been in extensive discussions with the CDC 
regarding the development and enhancements to the existing NHSN and CMS 
infrastructure that would enable utilization of the NHSN to report one 
or more measures to CMS. These enhancements include improved user 
support and training materials as well as streamlined specifications 
for collection of required data needed to calculate the HAI measures 
adopted for RHQDAPU. In the future, we will also be working toward the 
ability to receive reports electronically from hospital EHRs. We agree 
that phasing in these measures will allow more time for hospitals to 
adjust to the reporting requirements of the NHSN and, as discussed 
below, are finalizing the CLABSI measure for the FY 2013 payment 
determination and the SSI measure for the FY 2014 payment 
determination. We intend to limit the data elements required for 
RHQDAPU reporting to the subset of data elements, populations and 
procedures needed to calculate the NQF-endorsed measures we have 
proposed.
    Comment: A few commenters asked CMS to clarify how the proposed HAI 
measures reported via NHSN would be validated and publicly reported. 
Specifically, the commenters requested clarification whether the data 
will be stratified by type of hospitals in Hospital Compare.
    Response: We are considering adding CDC/NHSN measures to our 
validation process, as outlined in section IV.A.7.b. of this final 
rule. We acknowledge the need for uniformity in the data that will be 
publicly reported and used in the HVBP program. We will examine the 
need to validate these data, and may propose validation requirements 
for these data in the future, should we determine a need. We plan to 
publicly report the data for HAI measures collected through the NHSN on 
the Hospital Compare Web site as we do for other RHQDAPU program 
measures. Currently, the NQF specification stratifies the measure by 
type of unit within a hospital. We note NQF-endorsed measure 
specifications for measures adopted into the RHQDAPU program are 
subject to periodic revision, and such revisions will also be reflected 
in what we require hospitals to submit to the RHQDAPU program.
    Comment: Some commenters were concerned that publishing 
administrative data via the HAC list, hospitals reporting to NHSN, and 
collecting data in another format could cause confusion for 
stakeholders.
    Response: We will take steps to determine how best to display these 
data so that they do not cause confusion for viewers.
(A) Central Line Associated Blood Stream Infection (CLABSI)
    This HAI measure assesses the rate of laboratory-confirmed cases of 
bloodstream infection or clinical sepsis among ICU patients. It was 
endorsed by the NQF in 2004 and was adopted by the HQA in 2007. The 
measure can be stratified by the type of ICU.

[[Page 50202]]

(B) Surgical Site Infection (SSI)
    This HAI measure assesses the number of NHSN-defined operative 
procedures with a surgical site infection (deep incisional or organ 
space) within 30 days, or 1 year if an implant is in place. Infections 
are identified on original admission or upon readmission to the 
facility of original operative procedure within the relevant time frame 
(30 days for no implants; within 1 year for implants). The measure can 
be stratified by procedure type or risk factors. This measure was NQF-
endorsed in 2007 (and adopted by the HQA in 2008).
    We invited comment on our proposal to adopt these two HAI measures 
into the RHQDAPU program for the FY 2013 payment determination. 
Collection of these measures would begin with January 1, 2011 
discharges for the FY 2013 payment determination. We proposed that 
hospitals use the NHSN infrastructure to report the measures for 
RHQDAPU program purposes. The proposed reporting mechanism for these 
HAI measures is discussed in greater detail in section IV.A.5.b.(6) of 
the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23990).
    Comment: A few commenters supported the inclusion of CLABSI for the 
FY 2013 annual payment determination, stating that CLABSI is the only 
measure that can be adopted quickly to meet the statutory requirement 
for inclusion in the HVBP program without undue burden on hospitals. 
Some commenters indicated that a phased in approach starting with the 
inclusion of the CLABSI measure is appropriate. The commenters provided 
several suggestions to implement the CLABSI: (1) Provide clarification 
whether the CLABSI data collection is unit-based or hospital-based; (2) 
provide clarification whether any or all surgical procedures apply to 
specific populations like adult, pediatric or both; (3) limit the 
number of surgeries reported for the 1st year; and (4) States with 
existing HAI reporting mandates be deemed to meet the CMS reporting 
requirements by meeting their State mandate.
    Response: We agree that because more hospitals are submitting the 
CLABSI measure, this measure would be the most feasible of the two 
proposed measures for hospitals to implement quickly, and that a phased 
in approach to adopting the HAI measures is warranted. The CLABSI 
measure is the one that is most commonly required by States, and 
currently most commonly reported among the HAI measures collected 
through the NHSN system. The CLABSI measure is currently stratified by 
type of ICU unit within the hospital, but is aggregated to the 
hospital-level by the NHSN. For the RHQDAPU program, we would limit the 
required data elements, populations and procedures to only those needed 
to calculate the NQF-endorsed measure. For the NQF-endorsed measure, 
the procedures that apply are: Coronary artery bypass graft and other 
cardiac surgery, hip or knee arthroplasty, colon surgery, hysterectomy 
(abdominal and vaginal), and vascular surgery, and the populations that 
apply are both the adult and pediatric populations. These procedures 
also correspond to the procedure categories used in SCIP. Capturing 
SCIP process-of-care data and NHSN SSI data for the same procedure 
categories will provide process and outcome data for the same patient 
populations. Regarding the extent that a State requirement can be used 
to satisfy the RHQDAPU program requirement, if the data submission 
requirement overlaps 100 percent with the requirements for the RHQDAPU 
program, it will be possible to satisfy both requirements with one 
submission. However, a State may mandate additional requirements beyond 
what is required for RHQDAPU, for example States may also be requiring 
the release of information to the State for public reporting at the 
State level, which would of course be in addition to the RHQDAPU 
requirement for public reporting. If a State mandate requires fewer 
data elements than what is required for RHQDAPU, hospitals 
participating in RHQDAPU will be required to submit the additional data 
in order to satisfy the RHQDAPU requirement.
    Comment: Many commenters did not support the SSI measure for FY 
2013, citing resource constraints, a lack of clarification in data 
collection procedure, the absence of risk-adjustment for data 
presentation in Hospital Compare; and a lack of clarification in 
exemptions for small hospitals.
    Response: We are finalizing only one HAI measure for the FY 2013 
payment determination, the CLABSI measure, in order to allow hospitals 
to gain more experience with these types of measures and the new 
collection mechanism. We are finalizing the SSI measure for the FY 2014 
payment determination. In our view, both measures are equally 
important. However, we believe this approach of phasing in the measures 
will minimize the additional reporting burden on hospitals that are in 
States that do not currently mandate reporting of infection data to the 
NHSN, and will also allow time to address any measurement issues, such 
as those raised by commenters, for the SSI measure.
    Comment: One commenter strongly urged CMS to incorporate all seven 
HAI metrics from the DHHS Action Plan into the RHQDAPU program to 
ensure the corresponding HVBP program HAI topic is developed and 
included in performance scoring by FY 2013. Another commenter suggested 
CMS address the execution of the HVBP program with respect to the 
targeted outcome metrics from HAIs as required by the Affordable Care 
Act.
    Response: We thank the commenters for their recommendations and 
will consider them in future rulemaking. This FY 2011 IPPS/LTCH PPS 
final rule does not directly address the HVBP program authorized by 
section 3001 of the Affordable Care Act. We refer readers to section 
IV.A.14. of this final rule where we discuss the relationship between 
the RHQDAPU and HVBP programs.
    After consideration of the public comments we received, we are 
finalizing the CLABSI measure for the FY 2013 payment determination. 
Collection for the CLABSI measure will begin with January 1, 2011 
discharges. Also, based upon public comment, we are finalizing the SSI 
measure for the FY 2014 payment determination with collection to begin 
with January 1, 2012 discharges. We expect the CLABSI measure and the 
SSI measure to be risk-adjusted consistent with section 
1886(b)(3)(B)(viii)(VIII) of the Act for the FY 2013 and FY 2014 
payment determinations, respectively.
(4) New Registry-Based Measures
    For the FY 2013 payment determination, we proposed that hospitals 
choose one of the following four proposed measure topics: (1) 
Implantable Cardioverter Defibrillator (ICD) Complications, (2) Cardiac 
Surgery, (3) Stroke, or (4) Nursing-Sensitive Care. With respect to the 
proposed measure topic selected by a hospital, we proposed that the 
hospital report data on the proposed measure(s) applicable to the 
measure topic (discussed below) to a qualified registry for the 
specific topic, and direct the registry to both calculate the measure 
results for the hospital and release those results (along with the 
numerator/denominator information and exclusion information) to CMS for 
the RHQDAPU program. We proposed that hospitals begin submitting data 
to the qualified registry of its choosing for discharges on or after 
January 1, 2011, and we intend to release a list of qualified 
registries

[[Page 50203]]

before that date. In section IV.A.13. of the FY 2011 IPPS/LTCH PPS 
proposed rule (75 FR 23997), we specified the self-nomination process 
we proposed to use to qualify registries for each proposed registry-
based measure topic. Proposed submission requirements for the proposed 
registry-based measures were discussed in section IV.A.5.b.(7) of the 
FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23990 through 23991).
    Comment: Some commenters stated that the use of registries has the 
potential for inconsistent reporting on Hospital Compare and inaccurate 
comparisons across hospitals. Hospitals may cherry-pick the measures 
they do best on and yet the measures may not fully reflect the care 
they provide. One commenter stated that if registries are used, 
hospitals should be required to report to more than one registry so 
that they cannot just pick the registry in which they have the best 
data.
    Response: After consideration of the public comments received, we 
are persuaded that we should not finalize any registry-based measures 
at this time.
    As noted above, after consideration of public comments received, we 
are not finalizing any registry-based measures at this time.
    Below is a discussion of the four proposed registry-based measure 
topics and specific registry-based measures that fall within each topic 
that we proposed to add to the RHQDAPU program for the FY 2013 payment 
determination.
(A) Implantable Cardioverter Defibrillator (ICD) Complications 
Registry-Based Topic and Measure
    Implantable Cardioverter Defibrillators (ICDs) reduce the risk of 
sudden cardiac death for select high risk patients, and the number of 
patients undergoing ICD implantation increased from 5,600 in 1990 to 
108,680 by 2005.\16\ ICD implantation is an expensive procedure 
performed on patients with advanced cardiovascular disease and, often, 
significant comorbidities. Despite improvements in technology and 
increasing experience with device implantation, the procedure carries a 
significant risk of complications, \17\ which in turn increases its 
cost, the patient's length of stay, and the patient's risk of 
mortality.\18\ In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 
43873 through 43875), our list of potential future quality measures 
under consideration included a measure of implantable cardioverter 
defibrillator (ICD) complications. This measure is a risk standardized 
complication and mortality rate following implantation of ICDs in 
Medicare Fee for Service (FFS) patients at least 65 years of age, with 
complication specific outcome time frames. The measure (NQF 
OT1-007-09) is currently undergoing NQF review under Phase 1 
of a call for Patient Outcome Measures initiated in fall of 2009. We 
proposed to add the ICD complications topic and measure to the RHQDAPU 
measure set for collection beginning with January 1, 2011 discharges 
for the FY 2013 RHQDAPU payment determination pending NQF endorsement. 
We anticipated a final endorsement decision in the fall of 2010 after 
publication of this FY 2011 IPPS/LTCH PPS final rule.
---------------------------------------------------------------------------

    \16\ Brown, D.W., Croft, J.B., et al. (2008). ``Trends in 
Hospitalizations for the Implantation of Cardioverter-Defibrillators 
in the United States, 1990-2005.'' American Journal of Cardiology 
101 (12): 1753-1755.
    \17\ Hammill S and Curtis J. Publicly Reporting Implantable 
Cardioverter Defibrillator Outcomes--Grading the Report Card. Circ 
Arrhythmia Electrophysiol. 2008;1:235-237).
    \18\ Al-Khatib SM, Greiner MA, Peterson ED, Hernandez AF, 
Schulman KA, Curtis LH. Patient and Implanting Physician Factors 
Associated With Mortality and Complications \9\After Implantable 
Cardioverter-Defibrillator Implantation, 2002-2005. Circ Arrhythmia 
Electrophysiol. 2008;1:240-249.
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    The proposed ICD complications measure was developed based upon 
data submitted to the American College of Cardiology-National 
Cardiovascular Data Registry's (ACC-NCDR) ICD registry, and data from 
that registry has been linked with CMS administrative claims data used 
to identify procedural complications. For this proposed measure, the 
measured outcome for each ICD index admission is one or more 
complications or mortality within 30 or 90 days (depending on the 
complication) following ICD implantation. Complications are counted in 
the measure only if they occur during a hospital admission. 
Complications measured for 30 days include: (1) Pneumothorax or 
hemothorax plus a chest tube, (2) Hematoma plus a blood transfusion or 
evacuation, (3) Cardiac tamponade or pericardiocentesis, and (4) Death. 
Complications measured for 90 days include: (5) Mechanical 
complications requiring a system revision, (6) Device related infection 
and (7) Additional ICD implantation.
    To comply with a January 2005 National Coverage Determination for 
ICDs for primary prevention, all hospitals in which ICD procedures are 
performed are currently submitting to the ACC-NCDR ICD registry patient 
information needed for CMS to determine whether the procedure was 
reasonable and necessary. This requirement is documented in section 
20.4 of the following Medicare National Coverage Determination Manual: 
http://www.cms.hhs.gov/manuals/downloads/ncd103c1_Part1.pdf. For 
purposes of the 2005 National Coverage Determination, CMS requires that 
hospitals submit data to the ACC-NCDR ICD registry for primary 
prevention patients only and does not require hospitals to submit data 
on patients undergoing ICD implantation for secondary prevention. 
However, the ICD complication measure as submitted to the NQF for 
endorsement is specified such that it includes all ICD patients, 
regardless of whether they receive an ICD for the primary or secondary 
prevention of sudden cardiac death.
    Therefore, hospitals that choose this registry-based measure topic 
for the RHQDAPU program would submit data on the ICD complications 
measure for both primary and secondary prevention patients to the 
qualified registry. For risk adjustment, data matching, and secondary 
prevention population identification purposes, we proposed that 
hospitals also submit to the qualified ICD complications registry 11 
additional data elements not currently required under the NCD in order 
for the measure to be calculated for RHQDAPU program purposes.
    In summary, we proposed to add the ICD complications measure topic 
as one of four proposed measure topics that hospitals can choose from 
to submit required data elements to a qualified registry for the FY 
2013 RHQDAPU payment determination. The only measure that we proposed 
to include in this proposed topic at this time would be the ICD 
complications measure. Because the ICD complications measure is a risk-
adjusted outcome measure, it is necessary that all data for the measure 
be collected by a single qualified registry in order for that registry 
to be able to accurately calculate the risk adjustment model and 
subsequent measure results. Therefore, we proposed to qualify one 
registry for this topic. Proposed registry qualification criteria were 
discussed in section IV.A.13. of the FY 2011 IPPS/LTCH PPS proposed 
rule (75 FR 23997). We note that the ACC-NCDR ICD registry has already 
been qualified to receive and transmit data to CMS for a Medicare 
National Coverage Determination, and is currently the only registry to 
which hospitals submit data for this NCD. However, this would not 
preclude another registry from self-nominating to become a qualified 
registry for this proposed topic for the RHQDAPU program. Because the 
ICD complication measure is a risk adjusted measure, it

[[Page 50204]]

requires that all data be collected at a single repository for 
calculation of the measure. Therefore, we anticipate qualifying a 
single registry to collect all of the data for the proposed ICD 
complications registry topic.
    Comment: Several commenters supported the inclusion of the ICD 
complications measure. One commenter was concerned with the quality of 
data collected by the ACC-NCDR ICD Registry and the STS Cardiac Surgery 
Registry, specifically related to data definition ambiguity and varying 
levels of expertise amongst abstractors across hospitals. One commenter 
pointed out the problem of lack of standardization of data and measure 
quality and data submission process across registries. One commenter 
suggested that CMS provide information on the impact of the ICD measure 
on hospital's management of cardiac patients.
    Response: As stated previously, we have decided not to finalize any 
registry-based measures at this time. We understand the commenters' 
concerns and will consider them in future rulemaking.
    Comment: One commenter suggested that CMS provide detailed data 
definitions to guide hospital coders to code complications in order to 
avoid over or under documentation of complications by physicians.
    Response: As stated previously, we have decided not to finalize any 
registry-based measures at this time. We will take this into 
consideration for future rulemaking.
    As stated previously, we are not finalizing any registry-based 
measures in this final rule.
(B) Stroke Registry-Based Topic and Measures
    We previously proposed to add five stroke measures to the RHQDAPU 
measure set in the FY 2009 IPPS proposed rule (73 FR 23648). We 
indicated that we would again consider these measures once NQF reviewed 
and endorsed the measures. Since that time, eight stroke measures have 
received NQF endorsement in July of 2008, and in the FY 2010 IPPS/RY 
2010 LTCH PPS final rule we included these measures in the list of 
potential future measures. We also included these measures in the 
preview section of the Specifications Manual, and have worked with the 
Office of the National Coordinator for Health Information Technology 
(ONC) and its partners to create a set of electronic specifications for 
these measures to facilitate collection through EHRs.
    We are also aware that a number of hospitals are already submitting 
these measures to registries, and in the FY 2010 IPPS/RY 2010 LTCH PPS 
final rule, we finalized a structural measure of participation in a 
systematic clinical database registry for stroke care. Stroke is a 
topic of great relevance to the Medicare population due to its impact 
on morbidity and mortality, and is an area of great potential 
improvement for hospitals. Commenters on the FY 2010 IPPS/RY 2010 LTCH 
PPS proposed rule expressed support for these measures, indicating that 
they accurately measure evidence-based care of the stroke patient to 
minimize secondary strokes and other complications, are widely 
recognized, and have great potential for quality improvement (74 FR 
43875).
    Therefore, we proposed to include the following eight measures in 
the Stroke registry-based topic:
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    We proposed to add the stroke registry-based topic, which would 
include these eight registry-based stroke measures, to the RHQDAPU 
measure set as one of the four proposed measure topics that hospitals 
can choose from to submit data to a qualified registry for the FY 2013 
payment determination beginning with January 1, 2011 discharges. We 
invited comment on the measures as well as the timing of their addition 
to the RHQDAPU measure set.
    Comment: Several commenters supported the stroke measures, and 
suggested the measures be accepted by conventional chart abstraction, 
EHRs or registry submission.
    Response: As stated previously, we have decided not to finalize any 
registry-based measures at this time. We thank the commenters for their 
support and suggestions and will take them into consideration in future 
rulemaking.
    Comment: Some commenters did not support the Stroke registry-based 
topic until the measure specifications are harmonized with the Get with 
the Guidelines stroke registry, the NHIQM Stroke specifications, and 
meaningful use requirements. A commenter recommended delaying the 
implementation of any stroke measure set until they can be obtained 
electronically. Another commenter requested CMS to allow the Joint 
Commission-accredited organizations to use ORYX[supreg] stroke measure 
data as a means for and in lieu of participating in a registry. One 
commenter asked that CMS add an exclusion to the Stroke thrombolytic 
therapy measure for patients who do not have an ER/admitting diagnosis 
of stroke.
    Response: We thank the commenters for their support and 
suggestions. Because we are not finalizing registry-based measures at 
this time, we will consider these suggestions in future rulemaking. We 
intend to propose the Stroke measurement set for inclusion in a future 
payment determination.
    As stated previously, we are not finalizing any registry-based 
measures in this final rule.
(C) Nursing Sensitive Care Registry-Based Topic and Measures
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we indicated that 
we were considering adopting a number of nursing-sensitive care 
measures for future RHQDAPU program payment determinations. Also in 
that rule, we adopted a structural measure of participation in a 
registry for nursing-sensitive care, under which hospitals submit data 
directly to the QIO Clinical Warehouse.
    For the FY 2013 payment determination, we proposed to add a nursing 
sensitive care registry-based topic to the RHQDAPU measure set, which 
would include the eight nursing-sensitive care measures listed below. 
All

[[Page 50206]]

of the proposed nursing sensitive measures are NQF endorsed. Hospitals 
selecting this topic would begin reporting data on the eight proposed 
nursing-sensitive care registry-based measures to a qualified nursing-
sensitive care registry beginning with January 1, 2011 discharges. 
Hospitals would continue reporting the nursing-sensitive care 
structural measure previously adopted for the RHQDAPU program directly 
to the QIO Clinical Warehouse.
    We invited comment on the proposed addition of a nursing sensitive 
care registry-based topic, which would include eight proposed nursing 
sensitive care measures, as well as the timing of this addition to the 
RHQDAPU program for the FY 2013 payment determination.

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

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

    Comment: Many commenters supported the nursing sensitive care 
measures/measure set, but objected to registry-based submission of the 
measures for various reasons.
    Response: We thank the commenters for their support of the proposed 
measures. We will not be finalizing any of the registry-based measures 
in this final rule.
    Comment: One commenter did not support the inclusion of the eight 
Nursing Sensitive measures proposed earlier unless significant 
restructuring of the specifications were conducted and these 
specifications were made available to the public. Another commenter 
supported the proposed addition of Nursing Sensitive Care HAC measure 
and topic.
    Response: As stated earlier, we are not finalizing any of the 
registry-based measures in this final rule. We thank the commenters for 
their support and suggestions. We will consider these suggestions in 
future rulemaking.
    As stated earlier, we are not finalizing any of the registry-based 
measures in this final rule.
(D) Cardiac Surgery Registry-Based Topic and Measures
    We have previously proposed to add several measures on the topic of 
cardiac surgery to the RHQDAPU measure set (73 FR 48608), and have also 
listed a set of NQF-endorsed cardiac surgery measures in prior rules as 
being under consideration for future adoption (74 FR 43874). We also 
adopted a structural measure of cardiac surgery participation in the FY 
2010 IPPS/RY 2010 LTCH PPS final rule. Cardiac surgery procedures carry 
a significant risk of morbidity and mortality. We believe that the 
nationwide public reporting of the 15 proposed cardiac surgery 
registry-based measures would provide highly meaningful information for 
Medicare beneficiaries because they address procedures widely performed 
on Medicare beneficiaries. Analysis of the structural measure data we 
have received from hospitals indicates that nearly 90 percent of 
hospitals performing these procedures already report these data to 
clinical registries, which means that if they choose this registry-
based topic for purposes of the FY 2013 payment determination and the 
registry to which they already submit data is qualified for this 
proposed topic, they will not face any additional data submission 
burden.
    For the FY 2013 payment determination, we proposed to include 15 
cardiac surgery registry-based measures in the cardiac surgery 
registry-based measure topic. These proposed registry-based measures 
are listed below, and hospitals would submit data on these measures to 
a qualified registry for the cardiac surgery registry-based topic. We 
did not propose to retire the structural measure for cardiac surgery 
participation.

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    These measures were endorsed by the NQF in May of 2007 and meet the 
statutory requirement of reflecting consensus among affected parties. 
We proposed that hospitals selecting this topic would begin submitting 
data on the proposed measures to a qualified cardiac surgery registry 
beginning with January 1, 2011 discharges. We note that five of these 
measures (indicated with an asterisk in the table above) must be risk 
adjusted in order to be calculated properly, which requires that the 
data needed to calculate these measures be collected by a single 
registry. While the remaining measures do not require risk adjustment, 
we believe it may be overly burdensome for hospitals to submit data for 
this topic to more than one registry. For this reason, we anticipate 
qualifying a single registry to collect all of the data for the 
proposed cardiac surgery registry-based topic. We invited public 
comment on this proposal.
    Comment: Many commenters supported the cardiac surgery measures/
measure set, but objected to registry-based submission of the measures.
    Response: We thank the commenters for their support of the proposed 
measures. As stated earlier, we are not finalizing any registry-based 
measures in this final rule.
    Comment: One commenter was concerned with the quality of data 
collected by the STS Cardiac Surgery Registry, specifically related to 
data definition ambiguity and varying levels of expertise amongst 
abstractors across hospitals. Another commenter recommended requiring 
all hospitals to participate in registries to report specific measures 
sets, and to phase in the measures sets starting with cardiac surgery 
and nursing sensitive measures.
    Response: We agree with the importance of cardiac surgery measures 
that include both processes of care and outcomes in view of the 
significance of such surgery and the benefit of having such measures 
publicly reported. Although we have decided not to adopt registry-based 
reporting in this final rule, we continue to believe that cardiac 
surgery measures are a priority for the RHQDAPU program.
    Comment: Some commenters stated that the use of registries has the 
potential for inconsistent reporting on Hospital Compare and inaccurate 
comparisons across hospitals. Hospitals may select to participate in 
registries for measures that they expect the best performance. Thus, 
allowing hospitals to report on only one registry-based measures set 
may not fully reflect the care the hospital provides. One commenter 
stated that if registries are used, hospitals should be required to 
report to more than one registry so that they cannot just pick the 
registry in which they have the best data.
    Response: We continue to believe that registry participation is 
very beneficial, providing ongoing measurement of quality of care, 
feedback to participants, and the ability to measure outcomes. We 
intend to continue considering how best to implement registry reporting 
as a means for data submission. In doing so, we will consider allowing 
registry-based reporting as an option, rather than a requirement, and 
to address the issues of data comparability. We agree that if the 
option to report measures by a registry is adopted, is important to 
assure that measures specifications are standardized.
    After consideration of public comments received, we will not 
finalize any registry-based measures at this time.
    In summary, based on the public comments received, for the FY 2013 
payment determination, we are retaining the 55 measures adopted for the 
FY 2012 payment determination, and are adding 1 chart abstracted 
measure (AMI-Statin at Discharge) and 1 HAI measure to be collected via 
NHSN (Catheter Associated Bloodstream Infection) for the FY 2013 
payment determination. Collection of these two new measures for the FY 
2013 payment determination will begin with January 1, 2011 discharges. 
We refer readers to section IV.A.5. of this final rule for further 
information about submission requirements. We are not finalizing our 
proposal for hospitals to pick one of four topics in which to initiate 
registry-based measure submission to a qualified registry. As discussed 
in section IV.A.13., we also are not finalizing our proposal to qualify 
registries for these four topics. In the future, we anticipate offering 
registry-based submission as a mechanism to submit data for

[[Page 50208]]

RHQDAPU measures, but not necessarily the sole mechanism to submit data 
for RHQDAPU measures.
    Set out below are the 57 RHQDAPU program quality measures to be 
used for the FY 2013 payment determination:
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d. RHQDAPU Program Quality Measures for the FY 2014 Payment 
Determination
(1) Retention of FY 2013 Payment Determination Measures for the FY 2014 
Payment Determination
    We proposed to retain all of the measures adopted for the FY 2013 
payment determination for the FY 2014 payment determination. Collection 
of data for these measures would begin with January 1, 2012 discharges. 
We invited public comment on this proposal. We did not receive any 
specific comments on this proposal. As discussed below, in response to 
comments, we are retiring 2 FY 2013 narrowly specified measures (PN-2 
and PN-7) and adopting in their place 2 global immunization measures. 
We are adopting as final our proposal to retain all of the measures 
adopted for the FY 2013 payment determination for the FY 2014 payment 
determination, as modified by our retirement of these FY 2013 measures.
(2) New Chart-Abstracted Measures for the FY 2014 Payment Determination
    We also proposed to add the following four new chart-abstracted 
measures to the RHQDAPU program measure set for the FY 2014 payment 
determination: (1) Emergency Department (ED) Throughput--Admit Decision 
Time to ED Departure Time for Admitted Patients (NQF 0497), 
(2) ED Throughput--Median time from emergency department arrival to ED 
departure for admitted patients (NQF 0495), (3) Global Flu 
Immunization, and (4) Global Pneumonia Immunization. In proposing to 
adopt these chart-abstracted measures, we recognized that we were 
proposing to increase the chart-abstraction burden on hospitals with 
respect to the RHQDAPU program. However, we stated that the burden 
associated with the proposed immunization measures for all inpatients 
could be counterbalanced by future retirement of the two current 
immunization measures that apply only to pneumonia inpatients. This 
measure retirement option is discussed earlier in section IV.A.2.b.(1) 
of the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23965). Furthermore, 
we note that the ED Throughput measures have been specified for EHR-
based collection, which may also serve to reduce burden associated with 
these measures in the future. We proposed to adopt these four chart-
abstracted measures into the RHQDAPU program measure set for the FY 
2014 payment determination. We proposed that data submission for these 
measures would begin with January 1, 2012 discharges. We invited 
comment on these proposed measures as well as on the proposed timing of 
their addition to the RHQDAPU program for the FY 2014 payment 
determination.
(A) Emergency Department (ED) Throughput Measures
    The two ED Throughput measures we proposed for the FY 2014 payment 
determination were: (1) Median time from admit decision time to time of 
departure from the emergency department for emergency department 
patients admitted to inpatient status, and (2) Median time from 
emergency department arrival to time of departure from the emergency 
room for patients admitted to the facility from the emergency 
department.
    The ED-Throughput measures reflect not only the processes of care 
that occur while the patient is in the emergency department, but also 
reflect the coordination of care, communication, and efficiency of 
service provision beyond the walls of the emergency department. These 
measures have been NQF-endorsed (NQF 0497 and 0495); 
thereby, meeting the requirement of section 1886(b)(3)(B)(viii)(IX) of 
the Act. They also have been adopted by HQA. Specifications for these 
measures are available in the preview section of the current 
Specification Manual available on QualityNet.
    These measures also address ED overcrowding, which the IOM 
identified as a major quality issue. Reducing the time patients remain 
in the ED can improve access to treatment and increase the quality of 
care, and capability of the hospital to provide adequate treatment to 
patients. ED overcrowding may result in delays in the administration of 
medication such as antibiotics for pneumonia and has been associated 
with perceptions of compromised emergency care. For patients with non-
ST-segment-elevation myocardial infarction, long ED stays were 
associated with decreased use of guideline-recommended therapies and a 
higher risk of recurrent myocardial infarction. Overcrowding and heavy 
emergency resource demand have led to a number of problems, including 
ambulance refusals, prolonged patient waiting times, increased 
suffering for those who wait, rushed and unpleasant treatment 
environments, and potentially poor patient outcomes. Finally, when EDs 
are overwhelmed, their ability to respond to community emergencies and 
disasters may be compromised.
    Comment: Many commenters supported the inclusion of the proposed ED 
Throughput--Admit Decision Time to ED Departure Time for Admitted 
Patients (NQF 0497), and ED Throughput--Median time from 
emergency department arrival to ED departure for admitted patients (NQF 
0495) measures. Some commenters supporting these measures 
agreed that the measures should reflect not only processes within the 
emergency department but also reflect coordination of care, 
communication and efficiency of provision beyond the walls of the 
emergency department. However, some of the commenters believed that the 
measures need to be refined, terminology needs to be clearly defined, 
and a percentile should be used to identify outliers. Some commenters 
stated that implementation of the ED measures should be contingent upon 
successful EHR testing by CMS so the measures can be reported 
electronically and not via manual chart abstraction. Several commenters 
opposed the proposed ED Throughput measures, stating there are multiple 
factors affecting the ED admit decision time to ED departure time for 
admitted patients as well as the median time from ED arrival to ED 
departure for admitted patients and the proposed measures cannot be 
adequately interpreted to evaluate quality. Commenters requested that 
CMS take into consideration timing factors that are outside the control 
of the ED, for example, bed availability and patient characteristics.
    Response: We appreciate the supportive comments as to the 
importance of the ED throughput measures. Specifications are handled 
through a sub-regulatory process previously described with 
specifications updated as needed. In order to gain experience prior to 
the date of required RHQDAPU submission, we encourage hospitals to take 
advantage of the voluntary submission process, which we plan to have 
available starting in October 2010. Although we believe that the 
measures are well specified, experience gained through the voluntary 
reporting mechanism will assist us to identify any needed refinements, 
prior to the beginning of required submission for the RHQDAPU program 
to begin with January 1, 2012 discharges. We will consider the 
suggestion regarding showing the percentile distribution to allow 
consumers to discern outliers when publicly reporting the measures. 
With regard to electronic submission, we are working to provide an 
optional mechanism for electronic submission for ED and other RHQDAPU 
chart-abstracted measures.
    After consideration of the public comments received, we are 
finalizing the two ED-Throughput measures as

[[Page 50211]]

proposed for the FY 2014 payment determination.
(B) Global Immunization Measures
    For the FY 2014 payment determination, we proposed to adopt two 
global immunization measures: (1) Pneumoccocal Immunization; and (2) 
Influenza Immunization. Increasing influenza (flu) and pneumonia 
vaccination could reduce unnecessary hospitalizations and secondary 
complications particularly among high risk populations such as the 
elderly. About 36,000 adults die annually and over 200,000 are 
hospitalized for flu-related causes. Older adults are more vulnerable, 
and adults over 65 comprise about 90 percent of deaths related to flu. 
Vaccinations can significantly reduce the number of flu related 
illnesses and deaths. The measures being proposed are currently 
endorsed by the NQF, which occurred as part of a consensus development 
project titled ``National Voluntary Consensus Standards for Influenza 
and Pneumococcal Immunizations'' which concluded in 2008. This project 
resulted in the endorsement of immunization measures that reflect 
current consensus among affected parties that standard measure 
specifications for influenza and pneumonia immunization should be 
broadly applicable across conditions, populations, and care settings. 
The technical specifications for these global measures will be 
available in an upcoming release of the Specifications Manual to be 
published in October 2010. The difference between these proposed 
immunization measures, and the two immunization measures that are 
currently part of the RHQDAPU program is that the current measures only 
apply to inpatients admitted for pneumonia, whereas the proposed 
measures apply to all inpatients regardless of admission diagnosis.
    Comment: Some commenters strongly supported the proposed addition 
of the Global Immunization measures ((1) Pneumoccocal Immunization; and 
(2) Influenza Immunization) to the RHQDAPU program. The commenters also 
recommended a measure threshold and exemptions, for example, in times 
of vaccine shortage.
    Response: We thank the commenters for supporting these measures. We 
will take into consideration these suggestions for exemptions during 
vaccine shortages. We are finalizing these measures for the FY 2014 
payment determination.
    Comment: Some commenters expressed concerned that the proposed FY 
2014 global immunization measures overlap with previously adopted 
immunization measures that are specific to the Pneumonia population 
(PN-2: Pneumoccocal Vaccination Status and PN-7: Influenza Vaccination 
Status). Commenters also recommended that we retire the two pneumonia-
specific measures if we elect to adopt the global immunization measures 
into the RHQDAPU program.
    Response: We agree with the commenters and are retiring the PN-2 
and PN-7 measures from the RHQDAPU measure set for the FY 2014 payment 
determination because these measures overlap with the global 
immunization measures that we are adopting for the FY 2014 payment 
determination.
    Comment: Several commenters opposed the inclusion of the Global 
Influenza or Global Pneumococcal measures into the RHQDAPU program 
because of perceived burden of collection. In addition, some commenters 
stated that vaccination during the acute phase of illness treated in 
the hospital inpatient setting is not an optimum practice, and that 
miscommunication with patients' primary care provider may lead to 
unnecessary vaccinations.
    Response: We understand the burden concern and have attempted to 
mitigate this by adopting the ED throughput and Global immunization 
measures concurrently as they utilize the same global population, and 
adopting the measures several years in advance. We believe that 
finalizing the global immunization measures for FY 2014 in this final 
rule will give hospitals adequate time to develop efficient collection 
plans for future collection. We agree with the commenters that the 
current RHQDAPU immunizations specified for the pneumonia inpatient 
population should be replaced in favor of these broadly applicable 
immunization measures. The NQF also recommends the use of the global 
immunization measures over the condition specific immunization measures 
that are currently in the program. Based on the public comments 
received, we are adopting the two global immunization measures for the 
FY 2014 payment determination, and we are retiring the PN-2: 
Pneumoccocal Vaccination Status and PN-7: Influenza Vaccination Status 
measures for the FY 2014 payment determination in order to accommodate 
these more broadly applicable immunization measures.
    As for the commenter's point that a patient's primary care provider 
would ordinarily be the locus for immunization, the current NQF-
endorsed measures recognize a role for the acute care setting to assess 
the vaccination status of and to intervene in the appropriate 
vaccination of acutely hospitalized patients against influenza and 
pneumonia. This is consistent with the indications for these vaccines 
which are global in nature in the sense that they are generally 
recommended for patients over a certain age, not those with only who 
have contracted pneumonia. We will provide specifications for these new 
measures in the upcoming Specifications Manual release.
    After consideration of the public comments received, we are 
finalizing all four chart-abstracted measures into the RHQDAPU program 
measure set for the FY 2014 payment determination. Also based upon 
public comments received, and discussed in section IV.A.3.c.(3) of this 
final rule, we are finalizing the adoption of the SSI measure to be 
collected via NHSN for the FY 2014 payment determination. Data 
submission for these five measures would begin with January 1, 2012 
discharges. In addition, based on comments received regarding 
retirement of narrowly specified measures when broader measures are 
available, we are retiring the PN-2 and PN-7 measures for the FY 2014 
and subsequent payment determinations, which will be replaced by the 
two global measures for influenza and pneumococcal vaccination 
beginning with January 1, 2012 discharges. We will retain the remaining 
FY 2013 measures for the FY 2014 payment determination. We expect the 
CLABSI measure and the SSI measure to be risk-adjusted consistent with 
section 1886(b)(3)(B)(viii)(VIII) of the Act for the FY 2013 and FY 
2014 payment determinations, respectively.
    The complete list of 60 quality measures to be used for the FY 2014 
payment determination is set out below.
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4. Possible New Quality Measures for Future Years
    We invited public comment on the following quality measures and 
topics set out below that we are considering for the future. We also 
sought suggestions and rationales to support the adoption of measures 
and topics that were not included in this list for the RHQDAPU program.

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     General comments
    Comment: A commenter recommended that any long-range planning must 
be consistent with the Secretary's strategic plan and priorities which 
are unknown at this time for the future years. A commenter stated that 
CMS needs to have a more systematic quality measure strategy and 
framework to align measures in order to achieve the overall goals of 
quality improvement and attainment. Another commenter stated that 
hospitals should be allowed to prioritize measures based on risks of 
their populations and programs and questioned the reason why hospitals 
are not given the option as physicians to select from a list of 
measures to focus on their quality improvement efforts. The commenters 
suggested that we follow a more methodical framework to prioritize and 
integrate measures into the RHQDAPU program and the HITECH EHR 
incentive program with a long-term goal of transitioning from the 
RHQDAPU program to the meaningful use criteria under the HITECH EHR 
program. One commenter noted that in moving forward, CMS should focus 
on developing measures collected through EHRs rather than using 
manually intensive, chart-based measures through the RHQDAPU program. 
Several commenters believed that many of the proposed measures for 
future years overlap with the current RHQDAPU measures. Another 
commenter recommended that CMS focus reporting on a variety of aspects 
for fewer conditions rather than adding one or two measures in a 
particular medical condition or significantly increasing the overall 
number of conditions being measured at any one time. The commenter 
believed that the second approach would stretch hospital resources. 
Another commenter noted that it is unnecessary to put a single measure 
under different composite measures or under different reporting 
requirements. The commenter gave the PSI-4 measure as an example which 
is required in both the Nursing sensitive composite measure as well as 
in the AHRQ Patient Safety Indicators measurement set. A commenter 
suggested that CMS take a more aggressive approach and add more 
measures in high priority areas.
    Response: We have retained the ability to modify the measure set in 
the future in order to respond to changes in our priorities as well as 
changes in legislation. One of our goals is to align the quality 
measures across programs including the HITECH EHR program in order to 
reduce the burden on hospitals reporting quality measures to multiple 
programs. We generally try to adopt measures for the RHQDAPU program 
that are broadly applicable across IPPS hospitals, because RHQDAPU 
measures are made publicly available in comparative reporting tools, 
and will be the basis for measure selection for hospital value based 
purchasing in the future. Allowing hospitals to pick among measure sets 
may not be ideal for comparative public reporting and performance-based 
incentive programs.
    With respect to long-range planning and the Affordable Care Act 
required strategic plan and priorities, we agree that the RHQDAPU 
program priorities will be guided by this plan. Although this plan is 
yet to be developed, the measures that we include in this final rule 
represent established HHS priorities, which include some of the 
priorities selected by the NQF National Priorities Partners process. 
These include patient safety, population health, and care coordination.
    The new outcomes measures, the HACs and HAIs, the immunization 
measures, AMI statin at discharge, and ED throughput measures finalized 
in this final rule reflect these priorities as we discuss in the 
portions of this final rule dealing with those measures. To the extent 
that these or other measures are incompatible with any revision to HHS 
priorities and new strategic framework, the measures can be modified. 
Because IPPS hospitals provide a broad array of services, we believe 
that it is important have an array of measures that cover very 
substantially inpatient services. We also believe it is beneficial to 
consumers to measure and report many topics governing aspects of health 
care delivered in hospital settings, and thus, we have been 
systematically expanding the RHQDAPU program quality measures in scope 
and topic. Currently, AHRQ PSI-4 is in both the AHRQ Patient Safety 
Indicator measure set and the Nursing Sensitive Care measure set. We 
have not adopted the Nursing Sensitive Measure set at this time, but 
would address this overlap in the future should we propose to require 
this measure set of participating hospitals. We will also continue to 
assess the feasibility of alternative data sources for measures, such 
as registries and EHRs to lessen the data collection burden on 
hospitals. We agree with the importance of transitioning to EHR 
submission of RHQDAPU measures and plan to actively move toward 
implementation. However, we expect that, at least in the short term, it 
would not be practical to require all hospitals to report using EHR 
technology, but rather to provide this reporting method as an option.
     Comment on Measure Topic: Atrial fibrillation
    Comment: A commenter indicated that atrial fibrillation measures is 
the root cause of several conditions upon which CMS has focused and 
that quality measures for atrial fibrillation help alert hospitals and 
clinicians to diagnose and manage the condition.
    Response: We agree and we did propose the STK-3: Anticoagulation 
therapy for atrial fibrillation/flutter (NQF 0436) in the FY 
2011 IPPS/LTCH proposed rule under proposed measures for the Stroke 
registry-based topic. As discussed previously, we are not finalizing 
any registry-based measures in this final rule. We will take the 
commenter's suggestion into

[[Page 50217]]

consideration in determining whether to adopt this measure for the 
RHQDAPU program in the future.
     Comment on prioritization of Measure Topics
    Comment: One commenter recommended that CMS prioritize the 
cardiovascular-related conditions that are in the CMS top 20 based on 
root cause and prevention of subsequent conditions as follows: 
Diabetes, ischemic heart disease, atrial fibrillation, acute myocardial 
infarction, congestive heart failure, stroke, Alzheimer's disease, and 
depression.
    Response: We thank the commenter for the suggestions and we will 
take the commenter's suggestion into consideration in determining the 
priorities of the measures for the RHQDAPU program in the future.
     Comments on Measure Topic: Cardiac rehabilitation referral 
for AMI, HF, and Cardiac Surgery
    Comment: A few commenters strongly endorsed the proposal to 
consider ``Cardiac Rehabilitation Referral for AMI, HF, and Cardiac 
Surgery'' for possible RHQDAPU program futures measure and topics.
    Response: We thank the commenters for their support of the proposed 
measure. We will take that into consideration in determining whether to 
adopt this measure for the RHQDAPU program in the future.
     Comments on Measure Topic: Percutaneous coronary 
intervention (PCI)
    Comment: A few commenters requested the addition of percutaneous 
coronary intervention (PCI) in the RHQDAPU measures for future years.
    Response: We thank the commenters for the suggestion and we will 
take it into consideration in determining whether to adopt this measure 
for the RHQDAPU program in the future.
     Comment on Measure Topic: Participation in a systematic 
database for general thoracic surgery
    Comment: One commenter suggested the inclusion of participation in 
a systematic database for general thoracic surgery as a structural 
measure.
    Response: We thank the commenter for the suggestion and we will 
take it into consideration in determining whether to adopt this measure 
for the RHQDAPU program in the future.
     Comments on Measure Topic: 30-day AMI and heart failure 
care transition composites
    Comment: A few commenters urged CMS not to include composite 
measures for 30-day AMI and heart failure care transition composites 
because they believed they do not accurately identify differences in 
performance that are due to failure to provide adequate care 
coordination and may penalize providers unfairly from serving 
disadvantaged population served or providing unrelated emergency 
department visits. One commenter recommended the inclusion of more AMI 
measures.
    Response: We acknowledge these concerns. These measures are 
currently undergoing NQF review and endorsement. We also thank the 
commenter that supported the addition of AMI measures.
     Comment on Measure Topic: Initiation of statin therapy in 
patients with ischemic stroke or acute AMI prior to discharge
    Comment: One commenter recommended adding a measure for the 
initiation of statin therapy in patients with ischemic stroke or acute 
AMI prior to discharge when there is no contraindication.
    Response: We thank the commenter for the suggestion and we will 
consider it in future rulemaking.
     Comment on Measure Topic: Smoking cessation screening, 
treatment, and post-discharge follow-up
    Comment: One commenter suggested the inclusion of measures like the 
smoking cessation screening, treatment, and post-discharge follow-up 
measures which are being pilot tested by the Joint Commission.
    Response: We thank the commenter for the suggestion and we will 
take it into consideration in determining whether to adopt this measure 
for the RHQDAPU program in the future.
     Comment on Measure Topic: 30-Day PCI Readmission Measures
    Comment: One commenter supported the PCI mortality and readmission 
measures and urged CMS to reconsider delayed implementation of the 
measures after FY 2014 and consider implementing PSI-9 and/or other 
measures to track severe bleeding as a preventable readmission from 
PCI. One commenter opposed the PCI readmission measure. This commenter 
opposed the data quality (probability matching with CMS data), 
timeframe (30-day) and numerator (readmission for all-cause) of the 
measure and the validity of the risk adjustment model (as indicated by 
the low C-statistic).
    Response: The PCI readmission measure was developed using a 
probabilistic match to link the registry data with the Medicare data 
but would be implemented using direct patient identifiers. As to the 
time frame of the measures, we selected 30-day period of assessment 
based on empirical analysis of available data, clinical judgment and 
the advice of expert consultants. The consensus was that a 30-day time 
provided the correct balance by capturing the bulk of excess 
readmissions occurring after PCI and maintaining a high likelihood that 
the readmission was attributable to the hospital care. Moreover from a 
patient perspective, readmission for any reason is likely to be an 
undesirable outcome of care. Readmissions not associated with a cardiac 
diagnosis may be directly related to the care delivered during the 
index hospitalization. Finally in regard to the low C-statistic, two 
factors affect the C-statistic--patient factors and hospital care. 
Since the patient-level predictors included in the risk adjustment 
model for the PCI measure were robust based on registry clinical data, 
the C-statistic of 0.663 indicates that the quality of care delivered 
to patients by hospitals (that are not part of the model) plays a 
larger role. We will consider the comment regarding adoption of other 
companion measures, such as PSI-9, that may address preventability.
    Comment: One commenter supported the inclusion of Catheter-
Associated UTI and VAP in FY 2014.
    Response: We thank the commenter for the support of the proposed 
measure. We will take it into consideration in determining whether to 
adopt these measures for the RHQDAPU program in a future rulemaking 
cycle.
     Comment on Measure Topic: HACs
    Comment: One commenter recommended that CMS make a long-term goal 
to cultivate more global hospital-wide assessments of harm rather than 
targeting individual organisms or HACs.
    Response: We thank the commenter for the suggestion and we will 
take it into consideration in determining whether to adopt this kind of 
measure for the RHQDAPU program in the future.
     Comments on Measure Topic: HAI
    Comment: One commenter recommended the inclusion of HAI--ventilator 
associated pneumonia, HAI--multidrug-resistant organism infection, and 
HAI--CDAD. Another commenter cautioned that for the possible inclusion 
of the VAP measures, the term ``VAP'' must be clearly defined so that 
trauma or immune-compromised patients can be diagnosed correctly for 
VAP and recommended that CMS take into consideration the inadvertent 
penalty of academic medical centers and hospitals that treat complex 
and critically-ill patients who are at risk for MDRO, and experience 
high volume of patient transfer.
    Response: We thank the commenters for their suggestion for other 
HAIs and

[[Page 50218]]

we will take this into consideration in determining whether to adopt 
the measures for the RHQDAPU program in the future. We plan to propose 
additional HAI measures in a future rulemaking cycle as they gain NQF 
endorsement.
    Comment: A commenter recommended that the HHS Action Plan to 
Prevent Healthcare-associated Infections must be assessed for whether 
the Plan's metrics and targets have been met and to provide the results 
to the public at the hospital level, especially measures related to 
MRSA, CDAD, and UTI. A commenter urged CMS to add the Catheter-
Associated UTI in FY 2012. The commenter suggested CMS and CDC 
collaborate to develop a workable guideline for identifying hospital-
acquired VAP infections, moving surveillance and reporting of central 
line associated bloodstream infections beyond the ICU. The commenter 
did not recommend using NQF-endorsement alone as adoption criteria. 
Another commenter recommended that no further data submission plan be 
proposed for VAP, MRSA, and CDAD until after fall of 2010 when the HHS 
HAI Action Plan Review and Update is released.
    Response: We will take these comments into consideration for 
planning and measure selection. We appreciate the commenter's 
suggestion that we add the Catheter-Associated UTI in FY 2012, but we 
have determined that we will consider it for future years. The HHS 
Action Plan is currently undergoing a process of interdepartmental 
review and update that will include an examination of the metrics and 
targets. We anticipate that this will be complete in October 2010.
     Comments on Measure Topic: VTE
    Comment: One commenter suggested the inclusion of a thromboembolism 
(VTE) measure into the RHQDAPU program for future years. One commenter 
requested clarification for the documentation requirements for the VTE-
1 VTE Prophylaxis and for the VTE-2 ICU VTE Prophylaxis. The commenter 
also agreed with the exclusion of patients with reasons for not 
administering mechanical and pharmacological prophylaxis.
    Response: We appreciate the suggestion and agree with the high 
importance of the VTE topic. With respect to specifications and 
documentation requirements these are handled through a sub-regulatory 
process.
     Comment on Measure Topic: Surgical Safety
    Comment: One commenter supported the continued development of 
Surgical Safety measures.
    Response: We thank the commenter for the encouragement and we will 
take that into consideration in determining whether to adopt more of 
these types of measures for the RHQDAPU program in the future.
     Comment on Measure Topic: NQF-approved serious reportable 
events.
    Comment: One commenter suggested that CMS adopt NQF-endorsed 
serious reportable events in future years.
    Response: We thank the commenter for the suggestion and we will 
take it into consideration in determining whether to adopt this measure 
for the RHQDAPU program in the future.
     Comments on Measure Topic: Influenza vaccination of 
healthcare personnel
    Comment: Many commenters recommended the inclusion of Influenza 
vaccination of healthcare personnel.
    Response: We agree that Influenza vaccination of healthcare 
personnel is an important practice that may prevent the spread of 
influenza and we thank the commenters for their recommendation. We will 
take this into consideration in determining whether to adopt this 
measure for the RHQDAPU program in the future.
     Comment on Measure Topic: Mortality measures
    Comment: A commenter strongly opposed the inclusion of mortality 
measures because they are inconsistent and unreliable indicators of the 
quality of patient care. Furthermore, the commenter stated that 
mortality measures do not take into account terminal, end-of-life 
issues, or withhold treatment decisions made by patients and families.
    Response: These comments were related to the prospect of 
inconsistent approaches to mortality measures resulting from inclusion 
of various registry-based measures sets. We have withdrawn the 
registry-based reporting proposal. We have added no additional 
mortality measures beyond the CMS 30-day mortality measures and the 
AHRQ PSI and IQI mortality measures. These measures and their 
underlying methodologies are all endorsed by NQF.
    We thank the commenters for all their suggestions for quality 
measures for the future years. We also note that, although we did not 
adopt the proposed registry-based measures: Stroke, Cardiac Surgery, 
and Nurse Sensitive measures for the FY 2013 payment determination in 
this final rule, we are still very interested in reconsidering them for 
future adoption. While the stroke measures were proposed only for 
registry-based participation in the proposed rule, and not finalized, 
these measures are currently specified for chart abstraction and 
electronically specified for EHR submission and included in the HITECH 
EHR incentive program for 2011 and 2012. We intend to propose to add 
these measures to the RHQDAPU program in future rulemaking. In 
addition, while we did not propose the VTE measures set in the FY 2011 
IPPS/LTCH PPS proposed rule, which are also included in the HITECH EHR 
incentive program for 2011 and 2012, we intend to propose to add these 
measures to the RHQDAPU program in future rulemaking.
5. Form, Manner, and Timing of Quality Data Submission
    Sections 1886(b)(3)(B)(viii)(I) and (II) of the Act state that the 
payment update, for FY 2007 and each subsequent fiscal year, be reduced 
by 2.0 percentage points (or, beginning with FY 2015, by one-quarter of 
such applicable percentage increase (determined without regard to 
clause (ix), (xi), or (xii)) for any subsection (d) hospital that does 
not submit quality data in a form and manner, and at a time, specified 
by the Secretary. The data submission requirements, Specifications 
Manual, and submission deadlines are posted on the QualityNet Web site 
at: http://www.QualityNet.org/. CMS requires that hospitals submit data 
in accordance with the specifications for the appropriate discharge 
periods.
    Hospitals submit quality data through the secure portion of the 
QualityNet Web site (formerly known as QualityNet Exchange) (http://www.QualityNet.org). This Web site meets or exceeds all current Health 
Insurance Portability and Accountability Act (HIPAA) requirements for 
security of protected health information.
a. RHQDAPU Program Requirements for FY 2012, FY 2013 and FY 2014
(1) Procedural Requirements for the FY 2012, FY 2013 and FY 2014 
Payment Determinations
    For the FY 2012, FY 2013, and FY 2014 payment determinations, we 
proposed that the following procedures would apply to hospitals 
participating in the RHQDAPU program. These procedures are, for the 
most part, the same as the procedures that apply to the FY 2011 payment 
determination. We identified where we proposed to modify a procedure.
     Register with QualityNet, before participating hospitals 
initially begin reporting data, regardless of the method used for 
submitting data.

[[Page 50219]]

     Identify a QualityNet Administrator who follows the 
registration process located on the QualityNet Web site (http://www.QualityNet.org).
     Complete a Notice of Participation. New subsection (d) 
hospitals and existing hospitals that wish to participate in the 
RHQDAPU program for the first time must complete a revised ``Reporting 
Hospital Quality Data for Annual Payment Update Notice of 
Participation'' form (Notice of Participation form) that includes the 
name and address of each hospital campus that shares the same CMS 
Certification Number (CCN). We will revise the Notice of Participation 
form as needed and will provide appropriate notification of any 
revisions to hospitals and QIOs through the routine RHQDAPU 
communication channels which include memo and e-mail notification and 
QualityNet Web site articles and postings.
    We proposed that, consistent with our policy for the FY 2011 
payment determination, any hospital that receives a new CCN on or after 
October 15, 2009 (including new subsection (d) hospitals and hospitals 
that have merged) that wishes to participate in the RHQDAPU program and 
has not otherwise submitted a Notice of Participation form using the 
new CCN must submit a completed Notice of Participation form no later 
than 180 days from the date identified as the open date (that is, the 
Medicare acceptance date) on the approved CMS Online System 
Certification and Reporting (OSCAR) system to participate in the 
RHQDAPU program for FY 2012 and future years. We believe that this 
deadline will give these hospitals a sufficient amount of time to get 
their operations up and running while simultaneously providing CMS with 
clarity regarding whether they intend to participate in the RHQDAPU 
program for FY 2012.
    We did not receive any public comments related to our proposal for 
procedural requirements for the FY 2012, FY 2013 and FY 2014 payment 
determinations. We are adopting as final our proposal regarding the 
procedural requirements discussed above for the FY 2012, FY 2013 and FY 
2014 payment determinations.
(2) Synchronization of RHQDAPU Program Data Submission and Validation 
Quarters With Quarters Used To Make Payment Determinations
    Currently, we determine, in part, whether a hospital has met the 
RHQDAPU program requirements for a given fiscal year by looking at 
whether the hospital properly submitted data with respect to a number 
of quarterly discharge periods. However, the quarters that we look at 
for HCAHPS data, chart-abstracted RHQDAPU program measures, and 
structural measures may not be the same for a single payment 
determination. For example, for the FY 2011 payment determination, we 
looked at discharge data submitted by hospitals from 4th quarter 2008 
through 3rd quarter 2009 for AMI, HF, and PN chart-abstracted RHQDAPU 
program measures, 1st quarter 2010 for the newly added SCIP Infection 9 
and 10 measures, April 2008 through March 2009 data for HCAHPS, and 
January 1, 2010 through June 30, 2010 data for structural measures.
    This lack of synchronization has developed because we have 
generally made payment decisions using the four earliest occurring 
discharge quarters for each measure topic that we did not include in a 
previous year's payment determination, and we have not synchronized 
when hospitals must begin reporting data on new measures.
    Starting with the FY 2013 payment determination, we proposed to 
determine whether the hospital meets the data submission requirement 
for quality measure data by looking at whether the hospital properly 
submitted data on the applicable measures during the same quarterly 
discharge periods. Specifically, the quarterly discharge periods that 
will apply to a particular payment determination will be the four 
quarters that occur within a calendar year. In other words, beginning 
with the FY 2013 payment determination, we will look at whether the 
hospital properly submitted data for HCAHPS, CDC NHSN, chart-abstracted 
measures, and structural measure quality measure data during the four 
calendar year quarters of FY 2011.
    With respect to our requirement that hospital data be successfully 
validated in order for the hospital to earn the full payment update for 
a given fiscal year, we also proposed, beginning with the FY 2013 
payment determination, to validate four discharge quarters, but the 
quarters will be the 4th calendar quarter of the year that occurs 2 
years before the payment determination and the first 3 calendar 
quarters of the following calendar year. Thus, for the FY 2013 payment 
determination, we will validate data from the 4th calendar quarter of 
2010 through the 3rd calendar quarter of 2011. We believe this is 
appropriate given the time required for the validation abstraction and 
appeal process.
    This proposed synchronization will give us a more complete picture 
of the quality of care provided by a hospital during a given time 
period, thus enabling us to link that quality of care to the applicable 
RHQDAPU payment determination. In addition, this proposal will provide 
clarity to hospitals regarding what data we will look at to make 
payment determinations for a given fiscal year. We believe that this 
synchronization will also assist us to more effectively implement the 
RHQDAPU program because we will be able to achieve operational 
consistency regarding what data applies to what payment determination. 
Further, we believe that this proposal may assist the agency in 
implementing the Hospital Value-Based Purchasing Program as authorized 
by section 3001(a)(1) of the Affordable Care Act because it will 
improve the link between quality as measured during a single period of 
time and the payment amounts provided to hospitals. For example, under 
our proposal, HCAHPS patient experience of care measures and chart-
abstracted measures for a single set of discharge quarters will be used 
together for a single payment determination. Finally, we believe that 
this proposal will improve hospitals' ability to implement quality 
improvement strategies that affect RHQDAPU program measures and their 
quality of care.
    We would post a table outlining the discharge quarters that would 
be used to make each fiscal year payment determination no later than 
September 15th annually on the QualityNet Web site (http://www.QualityNet.org). We invited public comment on this proposal.
    Comment: Many commenters supported the proposal to move all 
measures to a consistent timeframe, beginning with the FY 2013 payment 
determination, in anticipation of the transition to the HVBP program 
when all measures need to be calculated across a consistent timeframe. 
Commenters also indicated that the move provides clarity for the 
timeframe of data for each fiscal year.
    Response: We thank the commenters for their support of this 
proposal.
    Comment: Many commenters questioned CMS' intent related to the HVBP 
program requirements under section 3001 of the Affordable Care Act.
    Response: We appreciate the comments and intend to propose 
regulations for the HVBP program consistent with the legislative 
mandates of section 3001 of the Affordable Care Act in the FY 2012 
IPPS/LTCH PPS proposed rule.
    After consideration of the public comments we received, we are 
adopting as final our proposal for synchronization of RHQDAPU program

[[Page 50220]]

data submission and validation quarters with quarters used to make 
payment determinations.
(3) HCAHPS Requirements for the FY 2012, FY 2013 and FY 2014 Payment 
Determinations
    We proposed that, for the FY 2012, FY 2013 and FY 2014 payment 
determinations, except as noted below, the RHQDAPU program HCAHPS 
requirements we adopted for FY 2011 would continue to apply. Under 
these requirements, a hospital must continuously collect and submit 
HCAHPS data in accordance with the current HCAHPS Quality Assurance 
Guidelines and the quarterly data submission deadlines, both of which 
are posted at http://www.hcahpsonline.org. In order for a hospital to 
participate in the collection of HCAHPS data, a hospital must either: 
(1) Contract with an approved HCAHPS survey vendor that will conduct 
the survey and submit data on the hospital's behalf to the QIO Clinical 
Warehouse; or (2) self-administer the survey without using a survey 
vendor provided that the hospital attends HCAHPS training and meets 
Minimum Survey Requirements as specified on the Web site at: http://www.hcahpsonline.org. A current list of approved HCAHPS survey vendors 
can be found on the HCAHPS Web site at: http://www.hcahpsonline.org.
    We proposed that the FY 2012 payment determination for the RHQDAPU 
program for HCAHPS will be based on discharges from April 1, 2010 
through December 31, 2010.
    We proposed that the FY 2013 payment determination for the RHQDAPU 
program for HCAHPS will be based on discharges from January 1, 2011 
through December 31, 2011.
    We proposed that the FY 2014 payment determination for the RHQDAPU 
program for HCAHPS will be based on discharges from January 1, 2012 
through December 31, 2012.
    Every hospital choosing to contract with a survey vendor should 
provide the sample frame of HCAHPS-eligible discharges to its survey 
vendor with sufficient time to allow the survey vendor to begin 
contacting each sampled patient within 6 weeks of discharge from the 
hospital. (We refer readers to the Quality Assurance Guidelines located 
at http://www.hcahpsonline.org for details about HCAHPS eligibility and 
sample frame creation.) In addition, the hospital must authorize the 
survey vendor to submit data via My QualityNet, the secure part of the 
QualityNet Web site, on the hospital's behalf.
    After the survey vendor submits the data to the QIO Clinical 
Warehouse, we strongly recommend that hospitals employing a survey 
vendor promptly review the two HCAHPS Feedback Reports (the Provider 
Survey Status Summary Report and the Data Submission Detail Report) 
that are available. These reports enable a hospital to ensure that its 
survey vendor has submitted the data on time and the data has been 
accepted into the QIO Clinical Warehouse.
    Any hospital that has five or fewer HCAHPS-eligible discharges in 
any month is no longer required to submit HCAHPS surveys for that 
month, although the hospital may voluntarily choose to submit these 
data. However, the hospital still must submit its total number of 
HCAHPS-eligible cases for that month to the QIO Clinical Warehouse as 
part of its quarterly HCAHPS data submission.
    In order to ensure compliance with HCAHPS survey and administration 
protocols, hospitals and survey vendors must participate in all 
oversight activities. As part of the oversight process, during the 
onsite visits or conference calls, the HCAHPS Project Team will review 
the hospital's or survey vendor's survey systems and assess protocols 
based upon the most recent HCAHPS Quality Assurance Guidelines. All 
materials relevant to survey administration will be subject to review. 
The systems and program review includes, but is not limited to: (a) 
Survey management and data systems; (b) printing and mailing materials 
and facilities; (c) telephone and Interactive Voice Response (IVR) 
materials and facilities; (d) data receipt, entry and storage 
facilities; and (e) written documentation of survey processes. 
Organizations will be given a defined time period in which to correct 
any problems and provide follow-up documentation of corrections for 
review. As needed, hospitals and survey vendors will be subject to 
follow-up site visits or conference calls. If CMS determines that a 
hospital is not compliant with HCAHPS program requirements, CMS may 
determine that the hospital is not submitting HCAHPS data that meet the 
requirements of the RHQDAPU program.
    We continue to strongly recommend that each new hospital 
participate in an HCAHPS dry run, if feasible, prior to beginning to 
collect HCAHPS data on an ongoing basis to meet RHQDAPU program 
requirements. New hospitals can conduct a dry run in the last month of 
a calendar quarter. The dry run will give newly participating hospitals 
the opportunity to gain first-hand experience collecting and 
transmitting HCAHPS data without the public reporting of results. Using 
the official survey instrument and the approved modes of administration 
and data collection protocols, hospitals/survey vendors will collect 
HCAHPS dry-run data and submit the data to My QualityNet, the secure 
portion of QualityNet.
    We again encouraged hospitals to regularly check the HCAHPS Web 
site at http://www.hcahpsonline.org for program updates and 
information.
    Comment: Commenters expressed support for the use of the HCAHPS 
survey, but they suggested the development of additional survey 
domains.
    Response: We thank the commenters for their input and will take 
their suggestions into consideration in developing future rulemaking.
    After consideration of the public comments we received, we are 
adopting as final our proposed HCAHPS requirements for the FY 2012, FY 
2013 and FY 2014 payment determinations.
b. Additional RHQDAPU Program Procedural Requirements for the FY 2012, 
FY 2013 and FY 2014 Payment Determinations
(1) Chart-Abstracted Measures for Which Data Are Submitted Directly to 
CMS (via QualityNet)
    Hospitals must begin submitting RHQDAPU program data starting with 
the first day of the quarter following the date when the hospital 
registers to participate in the program. For purposes of meeting this 
requirement, we interpret the registration date to be the date that the 
hospital submits a completed Notice of Participation form. As proposed 
previously in this section, hospitals must also register with 
QualityNet and identify a QualityNet Administrator who follows the 
QualityNet registration process before submitting RHQDAPU program data.
    Hospitals must continuously collect and report data to CMS (via 
QualityNet) for each of the quality measures under the topic areas that 
require chart abstraction (and are not registry-based topic areas). For 
the FY 2012 and FY 2013 payment determinations, the proposed topic 
areas are AMI, HF, PN, and SCIP. For the FY 2014 payment determination, 
the proposed topic areas are AMI, HF, PN, SCIP, Emergency Department 
Throughput (EDT), and Global Immunization (GIM).
    For FY 2012, we proposed that hospitals must submit data for five 
calendar year discharge quarters as follows: 4Q CY 2009, 1Q CY 2010 
(AMI,

[[Page 50221]]

HF and PN only), 2Q CY 2010, 3Q CY 2010 and 4Q CY 2010. For the FY 2013 
payment determination, we proposed that hospitals must submit data for 
four consecutive calendar year discharge quarters as follows: 1Q CY 
2011, 2Q CY 2011, 3Q CY 2011 and 4Q CY 2011. For the FY 2014 payment 
determination, hospitals must submit data for four consecutive calendar 
year discharge quarters as follows: 1Q CY 2012, 2Q CY 2012, 3Q CY 2012 
and 4Q CY 2012. Hospitals must report these data by each quarterly 
deadline.
    We did not receive any public comments related to this proposal. We 
are adopting as final our proposal related to chart-abstracted measures 
for which data is submitted directly to CMS (via QualityNet).
    Hospitals must submit the data to the QIO Clinical Warehouse using 
the CMS Abstraction & Reporting Tool (CART), The Joint Commission 
ORYX[supreg] Core Measures Performance Measurement System, or another 
third-party vendor tool that meets the measurement specification 
requirements for data transmission to QualityNet. All submissions will 
be executed through My QualityNet, the secure part of the QualityNet 
Web site. Because the information in the QIO Clinical Warehouse is 
considered QIO information, it is subject to the stringent QIO 
confidentiality regulations in 42 CFR part 480. The QIO Clinical 
Warehouse will submit the data to CMS on behalf of the hospitals.
    Hospitals must submit complete data for each quality measure that 
requires chart abstraction in accordance with the joint CMS/The Joint 
Commission sampling requirements located on the QualityNet Web site. 
These requirements specify that hospitals must submit a random sample 
or complete population of cases for each of the topics covered by the 
quality measures. Hospitals must meet the sampling requirements for 
these quality measures for discharges in each quarter.
    For the FY 2012 payment determination, we proposed that hospitals 
must submit population and sampling data for three consecutive calendar 
year discharge quarters as follows: 2Q CY 2010, 3Q CY 2010 and 4Q CY 
2010.
    For the FY 2013 payment determination, we proposed that hospitals 
must submit population and sampling data for four consecutive calendar 
year discharge quarters as follows: 1Q CY 2011, 2Q CY 2011, 3Q CY 2011 
and 4Q CY 2011.
    For the FY 2014 payment determination, we proposed that hospitals 
must submit population and sampling data for four consecutive calendar 
year discharge quarters as follows: 1Q CY 2012, 2Q CY 2012, 3Q CY 2012 
and 4Q CY 2012.
    We did not receive any public comments related to these proposals. 
We are adopting these proposals as final.
    Hospitals must submit to CMS on a quarterly basis aggregate 
population and sample size counts for Medicare and non-Medicare 
discharges for the topic areas for which chart-abstracted data must be 
submitted (currently AMI, HF, PN, and SCIP). For clarification, we 
proposed that hospitals are required to submit a numeric representation 
of their aggregate population and sample size count for each topic area 
even if the hospital has not treated patients in a specific topic area. 
For example, if a hospital has not treated AMI patients, the hospital 
is still required to submit a zero for its quarterly aggregate 
population and sample count for that topic in order to meet the 
requirement.
    In order to reduce the burden on hospitals that treat a low number 
of patients in an RHQDAPU program topic area, a hospital that has five 
or fewer discharges (Medicare and non-Medicare combined) in a topic 
area during a quarter in which data must be submitted is not required 
to submit patient-level data for that topic area for the quarter. The 
hospital must still submit its aggregate population and sample size 
counts for Medicare and non-Medicare discharges for the topic areas 
each quarter. We also noted that hospitals meeting the five or fewer 
patient discharge exception may voluntarily submit these data.
    The quarterly data submission deadline for hospitals to submit 
patient level data for the proposed measures that require chart 
abstraction is 4\1/2\ months following the last discharge date in the 
calendar quarter. CMS will post the quarterly submission deadline 
schedule on the QualityNet Web site (http://www.QualityNet.org). Chart-
abstracted measures have not been added for the FY 2012 payment 
determination. The collection of new chart-abstracted measures proposed 
for the FY 2013 payment determination would begin with the 1st calendar 
quarter 2011 discharges, for which the submission deadline would be 
August 15, 2011. The collection of new chart-abstracted measures 
proposed for the FY 2014 payment determination would begin with the 1st 
calendar quarter 2012 discharges, for which the submission deadline 
would be August 15, 2012. Hospitals must comply with the discharge 
quarter submission deadlines in any fiscal year for each quarter for 
which data submission is required (Quarter 1--August 15th; Quarter 2--
November 15th; Quarter 3--February 15th; Quarter 4--May 15th).
    The data submission deadline for hospitals to submit aggregate 
population and sample size count data for the measures requiring chart 
abstraction is four months following the last discharge date in the 
calendar quarter. This requirement allows CMS to advise hospitals 
regarding their submission status in enough time for them to make 
appropriate revisions before the data submission deadline. We will post 
the aggregate population and sample size count data submission 
deadlines on the QualityNet Web site (http://www.QualityNet.org).
    CMS strongly recommends that hospitals review the QIO Clinical 
Warehouse Feedback Reports and the RHQDAPU Program Provider 
Participation Reports that are available after patient level data are 
submitted to the QIO Clinical Warehouse. CMS generally updates these 
reports on a daily basis to provide accurate information to hospitals 
about their submissions. These reports enable hospitals to ensure that 
their data were submitted on time and accepted into the QIO Clinical 
Warehouse.
    We did not receive any public comments related to this proposal. We 
are adopting as final our proposal related to the submission of 
aggregate population and sampling data for AMI, HF, PN, and SCIP 
topics.
(2) Data Submission Requirements for HCAHPS
    Hospitals must continuously collect and submit HCAHPS data in 
accordance with the current HCAHPS Quality Assurance Guidelines, which 
can be found on the HCAHPS Web site, http://www.hcahpsonline.org. If a 
hospital has zero HCAHPS-eligible discharges, the hospital must submit 
this information through the QIO Clinical Warehouse. The QIO Clinical 
Warehouse will accept zero HCAHPS-eligible discharges. Hospitals with 
zero HCAHPS-eligible discharges must submit their total number of 
HCAHPS-eligible cases to the QIO Clinical Warehouse for that month as 
part of their quarterly HCAHPS data submission.
    In order to reduce the burden on hospitals that treat a low number 
of patients that would be otherwise covered by the HCAHPS submission 
requirements, a hospital that has five or fewer HCAHPS-eligible 
discharges during a month is not required to submit HCAHPS surveys for 
that month. However, hospitals that meet this

[[Page 50222]]

exception may voluntarily submit this data. Hospitals with five or 
fewer HCAHPS-eligible discharges must submit their total number of 
HCAHPS-eligible cases to the QIO Clinical Warehouse for that month as 
part of their quarterly HCAHPS data submission.
    We did not receive any public comments related to this proposal. We 
are adopting as final our proposal related to data submission 
requirements for HCAHPS.
(3) Procedures for Claims-Based Measures
    Hospitals are encouraged to regularly check the QualityNet Web 
site, http://www.QualityNet.org, for program updates and information.
     The following RHQDAPU program claims-based measures would 
be calculated using Medicare claims:
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR16AU10.050

BILLING CODE 4120-01-C
    For the claims-based RHQDAPU program measures listed above, 
hospitals are not required to submit the data to the QIO Clinical 
Warehouse. We use the existing Medicare fee-for-service claims to 
calculate the measures. For the FY 2012 payment determination, we would 
use up to 3 years of discharges prior to January 1, 2011 (as 
appropriate for the measure), to calculate the 30-day mortality and 30-
day readmission

[[Page 50223]]

measures AHRQ PSI, IQI and Composite measures (including the AHRQ PSI 
and Nursing Sensitive Care measure, Death among surgical inpatients 
with serious, treatable complications), and the proposed new HAC 
Measures. For the FY 2013 and FY 2014 payment determinations, we would 
use up to 3 years of discharges (as appropriate for the measure) prior 
to January 1, 2012, and January 1, 2013, respectively. Hospitals are 
required to appropriately report the POA indicator in conjunction with 
ICD-9-CM coding to determine the presence of HACs so that the proposed 
HAC measures can be calculated for the RHQDAPU program using Medicare 
claims.
    We did not receive any public comments on this proposal. We are 
finalizing our proposal to use up to 3 years of discharges (based on 
Medicare claims) to calculate the claims-based measures as appropriate. 
For the FY 2012 payment determination, we would use up to 3 years of 
discharges prior to January 1, 2011 as appropriate for the measure. For 
the FY 2013 and FY 2014 payment determinations, we would use up to 3 
years of discharges as appropriate for the measure prior to January 1, 
2012, and January 1, 2013, respectively. In addition, hospitals are 
required to appropriately report the POA indicator in conjunction with 
ICD-9-CM coding to determine the presence of HACs so that the proposed 
HAC measures can be calculated for the RHQDAPU program using Medicare 
claims.
(4) Data Submission Requirements for Structural Measures
     We proposed that for the FY 2012 payment determination, 
hospitals submit the required registry participation information once 
for the structural measures via a Web-based collection tool between 
July 1, 2011-August 15, 2011 with respect to the time period of July 1, 
2010 through December 31, 2010.
    Below is the list of structural measures we proposed to adopt for 
the FY 2012 payment determination:

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

    We did not receive any public comments related to this proposal. We 
are adopting as final our proposal related to data submission 
requirements for structural measures.
(5) Data Submission of All-Patient Volume Data for Selected DRGs 
Related to RHQDAPU Program Measures
    For submission of the all-patient volume data for selected DRGs, we 
proposed that hospitals submit patient level information needed for CMS 
to apply the MS-DRG GROUPER software to calculate the all-patient MS-
DRG volumes, the data elements for which would be defined in the 
Hospital Measure Specification Manual. Hospitals would begin submitting 
this data quarterly via QualityNet beginning with January 1, 2011 
discharges.
    We invited comment on an alternative that hospitals submit 
hospital-level all-patient volume data based upon specific ICD-9-CM 
codes that are related to the proposed MS-DRGs (rather than the 
patient-level data) necessary for CMS to calculate the MS-DRGs. 
Hospitals would begin submitting this data quarterly via QualityNet 
beginning with January 1, 2011 discharges.
    As we stated in our responses to comments on all-patient volume in 
section IV.A.3.b.(3) of this final rule, we are not finalizing the 
collection of all-patient volume data for selected MS-DRGs; therefore, 
we are not adopting the data submission requirements for all-patient 
volume data for selected MS-DRGs.
(6) Data Submission and Reporting Requirements for HAI Measures 
Reported via NHSN
    We proposed that hospitals participating in the RHQDAPU program 
submit the data elements needed to calculate the Central Line 
Associated Blood Stream Infection and Surgical Site Infection measures 
to the NHSN using the standard procedures that have been set forth by 
CDC for NHSN participation in general and for submission of these two 
measures to NHSN in particular. This would include NHSN participation 
forms and indications to CDC allowing CMS to access data for these two 
measures for RHQDAPU program purposes, adherence to training 
requirements, use of standard CDC measure specifications, data element 
definitions, data collection requirements and instructions, and data 
reporting timeframes. Detailed requirements for NHSN participation, 
measure specifications, and data collection can be found at http://www.cdc.gov/nhsn/. Hospitals must use the current specifications and 
data collection tools available on the CDC Web site to submit data for 
the Central Line Associated Bloodstream Infection and Surgical Site 
Infection measures. We proposed that hospitals would submit data for 
these two measures to CDC's NHSN on a monthly basis for discharges 
occurring on or after January 1, 2011.
    For the FY 2013 payment determination, we proposed that hospitals 
must submit HAI data via the NHSN for four consecutive calendar year 
discharge quarters as follows: 1Q CY 2011, 2Q CY 2011, 3Q CY 2011 and 
4Q CY 2011.
    For the FY 2014 payment determination, hospitals must submit HAI 
data for four consecutive calendar year discharge quarters as follows: 
1Q CY 2012, 2Q CY 2012, 3Q CY 2012 and 4Q CY 2012.
    We proposed that once quarterly each hospital would utilize an 
automated report function that will be made available to submitters in 
the NHSN, to generate a quarterly report containing hospital-level 
numerator, denominator, and exclusion counts for these two CDC measures 
specifically for the RHQDAPU program. The CDC will create this 
automated RHQDAPU report function and add it to NHSN's reporting 
functionalities in the next few months. While hospitals may be 
reporting other data elements to CDC for other reporting programs (that 
is, State mandated surveillance programs), the quarterly RHQDAPU report 
that would be generated within NHSN would only contain those data 
elements needed to calculate the two measures currently being proposed 
for the RHQDAPU program. We will access the reports in the NHSN and 
will compile the reports for RHQDAPU program and public reporting 
purposes.
    We invited comment on the proposed mechanism for submitting data 
for the Central Line Associated Blood Stream Infection measure and the 
Surgical Site Infection measure for the RHQDAPU program beginning with 
the FY 2012 payment determination.

[[Page 50224]]

    We previously discussed public comments on these data submission 
and reporting requirements for HAI measures reported via NHSN in 
section IV.A.3.(c)(3) of this final rule. We are adopting the CLABSI 
HAI measure for the FY 2013 payment determination and the SSI HAI 
measure for the FY 2014 payment determination. We are also finalizing 
the quarterly NHSN submission requirement. Requirements for NHSN 
participation, measure specifications, and data collection can be found 
at http://www.cdc.gov/nhsn/. Hospitals are encouraged to visit this Web 
site in order to enroll, and obtain the NHSN enrollment and reporting 
requirements. Training resources are also available there.
    The collection of the CLABSI measure via the NHSN will begin with 
January 1, 2011 discharges, and the collection of the SSI measure will 
begin with January 1, 2012 discharges. The data collection and 
submission timeframes for the CLABSI measure for the FY 2012 payment 
determination are shown below. Hospitals must submit their quarterly 
data to NHSN for RHQDAPU purposes on or around the dates shown in the 
table below (updates to this will be posted on the QualityNet Web 
site).

    Submission Timeframes for CLABSI Measure for the FY 2012 Payment
                              Determination
------------------------------------------------------------------------
                                       CDC-NHSN        Final submission
                                    collection and       deadline for
     CY 2011 Discharge dates       quarterly report     RHQDAPU FY 2012
                                    generation time         payment
                                         frame           determination
------------------------------------------------------------------------
Q1 (Jan-Mar 2011)...............  April 30-August     August 15, 2011.
                                   15th.
Q2 (Apr-Jun 2011)...............  July 30-November    November 15, 2011.
                                   15th.
Q3 (Jul-Sep 2011)...............  September 30-Feb    February 15, 2012.
                                   15th.
Q4 (Oct-Dec 2011)...............  October 30th-May    May 15, 2012.
                                   15th.
------------------------------------------------------------------------

    Hospitals have until the RHQDAPU final submission deadline to 
submit their quarterly data to NHSN. After the final RHQDAPU submission 
deadline has occurred for each CY 2011 quarter, CMS will obtain the 
hospital-specific calculations that have been generated by the NHSN for 
the RHQDAPU program. Further details regarding data submission and 
reporting requirements for HAI measures specified for the RHQDAPU 
program to be reported via NHSN will be posted on CMS' QualityNet Web 
site in the fall of 2010.
(7) Data Submission Requirements for Registry-Based Measures
    We proposed that hospitals participating in RHQDAPU would be 
required to choose at least one of four registry based measure topics 
(ICD Complications, Stroke, Nursing Sensitive Care, or Cardiac 
Surgery), and would submit the data needed to calculate the measures 
included in the chosen registry-based topic to a qualified registry in 
order to meet the requirements to receive the full FY 2013 annual 
payment update.
    We proposed that hospitals then would arrange to have the qualified 
registry calculate the measures and submit to the QIO Clinical 
Warehouse the results, as well as the numerator, denominator, and 
exclusions. Any arrangement reached between the hospital and the 
qualified registry must comply with the HIPAA. The qualified registry 
would also submit registry-derived hospital-level measure calculations 
to the QIO Clinical Warehouse using a CMS-specified record layout and 
file format that we will make available.
    Our program and its data system must maintain compliance with the 
HIPAA requirements for requesting, processing, storing, and 
transmitting data. For the FY 2013 RHQDAPU payment determination, 
hospitals would need to submit data for the proposed registry-based 
measures to the qualified registry in the form and manner and by the 
deadline(s) specified by the registry.
    CMS proposed to begin qualifying registries for the four proposed 
registry-based topics so that hospitals may begin submitting data for 
discharges beginning January 1, 2011. Proposed registry qualification 
criteria were discussed in a section IV.A.13. of the FY 2011 IPPS/LTCH 
PPS proposed rule. We proposed to post on the RHQDAPU program section 
of the QualityNet Web site http:[sol][sol]www.qualitynet.org a list of 
qualified registries for the FY 2013 RHQDAPU payment determination, 
including the registry name, contact information, and the measure(s) 
that the registry has been qualified to collect and report for the 
RHQDAPU program.
    We anticipated posting the list of qualified FY 2011 registries as 
soon as we have completed vetting the registries interested in 
participating in the FY 2013 RHQDAPU program payment determination and 
identified the qualified registries for the FY 2013 RHQDAPU program 
payment determination, which we anticipated would be completed by 
December 31, 2010.
(A) Hospitals That Choose To Report the ICD Complications Measure
    We proposed that if the hospital chooses the ICD Complications 
measure, it would submit specified data elements for specified 
populations to the qualified ICD registry, and that CMS intended to 
establish criteria and begin qualifying registries for this topic so 
that hospitals can begin submitting data for discharges beginning 
January 1, 2011. We proposed that the hospital would follow the 
standard participation and reporting procedures set by the registry 
regarding the submission of data elements for the particular measures 
CMS has specified for the topic. These data elements and population 
definitions will be listed in the Specifications Manual.
    Hospitals must allow the qualified registry it is using to report 
the patient-level data to CMS in order to calculate the ICD 
complications measure.
(B) Hospitals That Choose To Report Either the Stroke, Nursing 
Sensitive Care, or Cardiac Surgery Measures
    If a hospital chooses the Stroke, Nursing Sensitive Care, or 
Cardiac Surgery measure topics, we proposed that it would submit data 
on the measures listed for these topics to a qualified registry for the 
topic and that we intend to establish criteria and begin qualifying 
registries for these topics so that hospitals can begin submitting data 
for discharges beginning January 1, 2011. The hospital would follow the 
standard participation and reporting procedures set by the registry 
regarding the submission of data elements for the particular measures 
CMS has specified for the topic. In addition, the hospital would agree 
to allow the registry to send calculations of the measures, numerator, 
denominator and exclusion counts to CMS for the RHQDAPU program.
    As we stated previously in section IV.A.3.(c) of this final rule, 
we are not finalizing the proposed registry-based measure topics. 
Therefore, we are not finalizing these proposed data submission 
requirements or the registry

[[Page 50225]]

qualification process discussed in section IV.A.13. of this final rule.
6. RHQDAPU Program Disaster Extensions and Waivers
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24176), 
we solicited public comment about rules we could adopt that would 
enable hospitals to request either an extension or a waiver of various 
RHQDAPU program requirements in the event of a disaster (such as a 
hurricane that damages or destroys the hospital).
    Specifically, we solicited public comment on the following issues:
     Recommendations for rules that we could follow when 
considering whether to grant an extension or waiver of RHQDAPU program 
requirements in the event of a disaster, including suggested criteria 
that we should take into account (for example, specific hospital 
infrastructure damage, hospital closure time period, degree of 
destruction of medical records, impact on data vendors, and long-term 
evacuation of discharged patients impacting HCAHPS survey 
participation).
     The role that QIOs and QIO support contractors should play 
in the event of a disaster, including communicating with affected 
hospitals, communicating with State hospital associations, and 
collecting information directly from hospitals.
     How CMS extension or waiver decisions should be 
communicated to affected hospitals.
     Any other issues commenters deem relevant to a hospital's 
request for an extension or waiver of RHQDAPU program requirements in 
the event of a disaster.
    We responded to public comments in the FY 2010 IPPS/RY 2010 LTCH 
PPS final rule (74 FR 43881). We recognized that there were times when 
hospitals are unable to submit quality data due to extraordinary 
circumstances that are not within their control. It is our goal to not 
penalize hospitals for such circumstances and we do not want to unduly 
increase their burden during these times.
    Therefore, we proposed a process for hospitals to request and for 
CMS to grant extensions or waivers with respect to the reporting of 
required quality data when there are extraordinary circumstances beyond 
the control of the hospital. Under the proposed process, in the event 
of extraordinary circumstances not within the control of the hospital, 
for the hospital to receive consideration for an extension or waiver of 
the requirement to submit quality data for one or more quarters, a 
hospital must submit to the QIO in the hospital's State a request form 
that will be made available on the QualityNet Web site. The following 
information should be noted on the form:
     Hospital CCN;
     Hospital Name;
     CEO and any other designated personnel contact 
information, including name, e-mail address, telephone number, and 
mailing address (must include a physical address, a post office box 
address is not acceptable);
     Hospital's reason for requesting an extension or waiver;
     Evidence of the impact of the extraordinary circumstances, 
including but not limited to photographs, newspaper and other media 
articles; and
     A date when the hospital will again be able to submit 
RHQDAPU data, and a justification for the proposed date.
    The request form must be signed by the hospital's CEO. A request 
form must be submitted within 45 days of the date that the 
extraordinary circumstance occurred. The QIO in the hospital's state 
will forward the request form to CMS. Following receipt of the request 
form, CMS will: (1) Provide a written acknowledgement using the contact 
information provided in the request, to the CEO and any additional 
designated hospital personnel, notifying them that the hospital's 
request has been received; and (2) provide a formal response to the CEO 
and any additional designated hospital personnel using the contact 
information provided in the request notifying them of our decision.
    This proposal does not preclude CMS from granting waivers or 
extensions to hospitals that have not requested them when we determine 
that an extraordinary circumstance, such as an act of nature (for 
example, hurricane), affects an entire region or locale. If CMS makes 
the determination to grant a waiver or extension to hospitals in a 
region or locale, CMS will communicate this decision through routine 
communication channels to hospitals, vendors and QIOs, including but 
not limited to issuing memos, e-mails and notices on the QualityNet Web 
site. We invited public comment on this proposal.
    Comment: A few commenters supported this proposal.
    Response: We thank the commenters for their support of this 
proposal.
    After consideration of the public comments we received, we are 
adopting as final our proposal related to RHQDAPU program disaster 
extensions and waivers.
7. Chart Validation Requirements for Chart-Abstracted Measures
a. Chart Validation Requirements and Methods for the FY 2012 Payment 
Determination
    For the FY 2012 payment determination, we will use the chart 
validation requirements and methods that we adopted for FY 2012 in the 
FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43884 through 43889). 
These requirements, as well as additional information on these 
requirements, will be posted on the QualityNet Web site after we issue 
the FY 2011 IPPS/LTCH PPS final rule.
    Specifically, we will:
     Randomly select on an annual basis 800 participating 
hospitals that submitted chart-abstracted data for at least 100 
discharges combined in the measure topics to be validated. To determine 
whether a hospital meets this ``100-case threshold,'' we will look to 
the discharge data submitted by the hospital during the calendar year 
three years prior to the fiscal year of the relevant payment 
determination. For example, if the 100-case threshold applied for the 
FY 2011 payment determination (which it will not), the applicable 
measure topics would be AMI, HF, PN, and SCIP, and we would choose 800 
hospitals that submitted discharge data for at least 100 cases combined 
in these topics during calendar year 2008. If a hospital did not submit 
discharge data for at least 100 cases in these topics during CY 2008, 
we would not select the hospital for validation. We will announce the 
topic areas that apply for the FY 2012 payment determination at a later 
date, and we plan to select the first 800 hospitals in July 2010. We 
will select hospitals for the FY 2012 validation if they meet the 100-
case threshold during CY 2009. We adopted this 100-case threshold 
because we believe that it strikes the appropriate balance between 
ensuring that the selected hospitals have a large enough patient 
population to be able to submit sufficient data to allow us to complete 
an accurate validation, while not requiring validation for hospitals 
with a low number of submitted quarterly cases and relatively 
unreliable measure estimates. Based on previously submitted data, we 
estimate that 98 percent of participating RHQDAPU program hospitals 
will meet this threshold and, thus, be eligible for validation. As 
noted below, we solicited comments and suggestions on how we might be 
able to target the remaining 2 percent of hospitals for validation.
     Validate for each of the 800 hospitals a randomly selected 
stratified sample for each quarter of the validation

[[Page 50226]]

period. Each quarterly sample will include 12 cases, with at least one 
but no more than three cases per topic for which chart-abstracted data 
was submitted by the hospital. However, we recognize that some selected 
hospitals might not have enough cases in all of the applicable topics 
to submit data (for example, if they have 5 or fewer discharges in a 
topic area in a quarter). For those hospitals, we will validate 
measures in only those topic areas for which they have submitted data. 
For the FY 2012 payment determination, we will validate 1st calendar 
quarter 2010 through 3rd calendar quarter 2010 discharge data. We will 
validate 3 quarters of data for FY 2012 in order to provide hospitals 
with enough time to assess their medical record documentation and 
abstraction practices, and to take necessary corrective actions to 
improve these practices, before documenting their 1st calendar quarter 
2010 discharges into medical records that may be sampled as part of 
this proposed validation process.
    The CDAC contractor will, each quarter that applies to the 
validation, ask each of the 800 selected hospitals to submit 12 
randomly selected medical charts from which data was abstracted and 
submitted by the hospital to the QIO Clinical Warehouse. We noted that, 
under our current requirements, hospitals must begin submitting RHQDAPU 
program data starting with the first day of the quarter following the 
date when the hospital registers to participate in the program. For 
purposes of meeting this requirement, we interpret the registration 
date to be the date that the hospital submits a completed Notice of 
Participation form. As proposed previously in section IV.A.5.a. of the 
proposed rule, hospitals must also register with QualityNet and 
identify a QualityNet Administrator who follows the QualityNet 
registration process before submitting RHQDAPU program data.
    In addition, we will continue the following timeline with respect 
to CDAC contractor requests for paper medical records for the purpose 
of validating RHQDAPU program data. Beginning with CDAC contractor 
requests for second calendar quarter 2009 paper medical records, the 
CDAC contractor will request paper copies of the randomly selected 
medical charts from each hospital via certified mail (or other 
trackable method that requires a hospital representative to sign for 
the letter), and the hospital will have 45 days from the date of the 
request (as documented on the request letter) to submit the requested 
records to the CDAC contractor. If the hospital does not comply within 
30 days, the CDAC contractor will send a second certified letter to the 
hospital, reminding the hospital that it must return paper copies of 
the requested medical records within 45 calendar days following the 
date of the initial CDAC contractor medical record request. If the 
hospital still does not comply, then the CDAC contractor will assign a 
``zero'' score to each measure in each missing record. The letter from 
the CDAC contractor is addressed to the hospital's medical record staff 
identified by the hospital to their state Quality Improvement 
Organization (QIO). CMS recommends that hospitals routinely check with 
their State QIO to ensure the correct person is listed to receive the 
record request. If CMS has evidence from the CDAC contractor that the 
hospital received both letters requesting medical records (as 
determined by the tracking system used by CDAC contractor), the 
hospital is responsible for not returning their charts and will not be 
able to submit charts as part of their reconsideration request.
    Under the validation methodology, once the CDAC contractor receives 
the charts, it will re-abstract the same data submitted by the 
hospitals and calculate the percentage of matching RHQDAPU program 
measure numerators and denominators for each measure within each chart 
submitted by the hospital. Specifically, we will estimate the accuracy 
by calculating a match rate percent agreement for all of the variables 
submitted in all of the charts. For any selected record, a measure's 
numerator and denominator can have two possible states, included or 
excluded, depending on whether the hospital accurately included the 
cases in the measure numerator(s) and denominator(s). We will count 
each measure in a selected record as a match if the hospital submitted 
measure numerator and denominator sets match the measure numerator and 
denominator states independently abstracted by our contractor. For 
example, one heart failure case from which data has been abstracted for 
four RHQDAPU program chart-abstracted measures (that is, HF-1, HF-2, 
HF-3, and HF-4) would receive a 75 percent match if three out of four 
of the hospital-reported heart failure measure numerator and 
denominator states matched the re-abstracted numerator and denominator 
states. This proposed scoring approach is the same as recommended in 
the CMS Hospital Value-Based Purchasing Report to Congress, and is 
illustrated in further detail using an example in pages 83-84 of the 
report which can be found on our Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/downloads/HospitalVBPPlanRTCFINALSUBMITTED2007.pdf. 
We believe that this approach is appropriate, and it was supported by 
many commenters when we requested comment in the FY 2009 and FY 2010 
IPPS final rules for input about the RHQDAPU program validation process 
(73 FR 48622 and 48623, 74 FR 43886 and 43887).
    Under the validation methodology, we will:
     Use, as we currently do, each selected case as a cluster 
comprising one or multiple measures utilized in a validation score 
estimate. Each selected case will have multiple measures included in 
the validation score (for example, for the FY 2011 payment 
determination, a heart failure record will include 4 heart failure 
measures). Specifically, we will continue using the design-specific 
estimate of the variance for the confidence interval calculation, 
which, in this case, is a stratified single stage cluster sample, with 
unequal cluster sizes. (For reference, see Cochran, William G.: 
Sampling Techniques, John Wiley & Sons, New York, chapter 3, section 
3.12 (1977); and Kish, Leslie.: Survey Sampling, John Wiley & Sons, New 
York, chapter 3, section 3.3 (1964).) Each quarter and clinical topic 
is treated as a stratum for variance estimation purposes.
    We believe that the clustering approach is a statistically 
appropriate technique for calculating the annual validation confidence 
interval. Because we will not be validating all hospital records, we 
need to calculate a confidence interval that incorporates a potential 
sampling error. Our clustering approach incorporates the degree of 
correlation at the individual data record level, because our previous 
validation experience indicates that hospital data mismatch errors tend 
to be clustered in individual data records. We have used this 
clustering since the inception of the RHQDAPU program validation 
requirement to calculate variability estimates needed for calculating 
confidence intervals (70 FR 47423).
     Use the upper bound of a one-tailed 95 percent confidence 
interval to estimate the validation score; and
     Require all RHQDAPU program participating hospitals 
selected for validation to attain at least a 75 percent validation 
score per quarter to pass the validation requirement.
    We believe that this modified validation methodology incorporates 
many of the principles supported by the vast majority of commenters in 
response

[[Page 50227]]

to our solicitation for public comments in the FY 2009 and FY 2010 IPPS 
proposed rule (73 FR 23658 through 23659, 74 FR 43886 and 43887). 
Specifically, we believe that the increased annual sample size per 
hospital will provide more reliable estimates of validation accuracy. 
The sample size of 12 records per quarter would provide a total of 36 
records across the three sampled quarters for the FY 2012 payment 
determination, and 48 records in subsequent years. This estimate would 
improve the reliability of our validation estimate, as compared to the 
current RHQDAPU program annual validation sample of 20 cases per year. 
We also believe that modifying the validation score to reflect measure 
numerator and denominator accuracy will ensure that accurate data are 
posted on the Hospital Compare Web site.
    In addition, we believe that stratified quarterly samples by topic 
will improve the feedback provided to hospitals. CMS will provide 
validation feedback to hospitals about all sampled topics submitted by 
the hospitals each quarter. Because all relevant data elements 
submitted by the hospital must match the independently re-abstracted 
data elements to count as a match, we reduced the passing threshold 
from 80 percent to 75 percent. We will use a one-tail confidence 
interval to calculate the validation score because we strongly believe 
that a one-tail test most appropriately reflects the pass or fail 
dichotomous nature of the statistical test regarding whether the 
confidence interval includes or is completely above the 75 percent 
passing validation score.
    We also will continue to allow hospitals that fail to meet the 
passing threshold for the quarterly validation an opportunity to appeal 
the validation results to their State QIO. QIOs are currently tasked by 
CMS to provide education and technical assistance about RHQDAPU program 
data abstraction and measures to hospitals, and the quarterly 
validation appeals process will provide hospitals with an opportunity 
to both appeal their quarterly results and receive education free of 
charge from their State QIO. This State QIO quarterly validation 
appeals process is independent of the proposed RHQDAPU program 
reconsideration procedures for hospital reconsideration requests 
involving validation for the FY 2011 payment update adopted in this 
final rule.
b. Supplements to the Chart Validation Process for the FY 2013 Payment 
Determination and Subsequent Years
    For FY 2013 and future years, we also proposed to adopt the same 
validation requirements that we adopted for the FY 2012 payment 
determination, except as set forth below. For FY 2013 and future years, 
we proposed to modify our FY 2012 criteria by adding a targeting 
criterion, refining our random sample approach, and changing our data 
discharge quarters validated as part of our proposed synchronization of 
RHQDAPU timelines. Specifically, we proposed the following changes for 
FY 2013:
    We proposed to validate the data submitted by a hospital if the 
hospital failed the previous year's RHQDAPU program validation. We 
proposed this targeting criterion to improve data accuracy for all 
hospitals failing our validation requirement in a previous year. We 
believe that this proposal is an appropriate method to ensure data 
accuracy, since it targets our resources on the hospitals with the 
least accurate data based on FY 2012 validation results. We also 
believe that these hospitals must correct the data inaccuracies 
identified in RHQDAPU validation for their internal quality improvement 
and RHQDAPU measures publicly reported on Hospital Compare. Our 
proposal allows CMS to assess the accuracy of these hospitals' data and 
provide feedback to hospitals until they comply with our RHQDAPU 
validation requirement.
    Specifically, we proposed that all hospitals selected for 
validation for the FY 2012 payment determination and that fail the 
validation will be selected for validation for the FY 2013 payment 
determination. Based on data analysis of past validation results, we 
estimate that targeting these hospitals would add about 20 to 40 
hospitals to our list of validated hospitals to be selected in the FY 
2013 validation sample.
    For FY 2013, we also proposed the following changes to the FY 2012 
RHQDAPU validation random sample approach:
    Starting in FY 2013, we proposed to discontinue the 100 case 
minimum threshold for selection in the RHQDAPU 800 hospital random 
sample. We believe that discontinuing this requirement would improve 
the robustness of the RHQDAPU program validation sample by including 
the smallest hospitals participating in the RHQDAPU program in the 
sample. All hospitals successfully submitting at least one RHQDAPU case 
for the third calendar quarter of the year two years prior to the year 
to which the validation applies would be eligible to be selected for 
validation. For example, for the FY 2013 payment determination, we 
would select the sample in early 2011, and all hospitals that submitted 
at least one RHQDAPU case for third quarter 2010 discharges would be 
eligible to be selected. Starting in FY 2013, we proposed this change 
to the RHQDAPU random validation sample, rather than including these 
hospitals in a targeted sample, to ensure that all RHQDAPU 
participating hospitals are equally likely to be selected in the random 
validation sample.
    For FY 2013, we proposed to modify the quarterly stratified sample 
selection by reallocating sample cases when a hospital has submitted 
fewer than three cases in a topic within a quarter. In these rare 
cases, we proposed to randomly reallocate the extra sample cases to 
other topics with more than 3 submitted quarterly cases. This proposed 
modification is designed to ensure that CMS selects 12 cases for all 
hospitals in a quarter, including those hospitals specializing in only 
one topic. For example, an orthopedic specialty surgery hospital 
submitting only SCIP measure cases in a given quarter would have only 
SCIP measure cases randomly selected in the validation sample for that 
quarter. This would provide a more reliable estimate of abstraction and 
measure accuracy by maintaining the same 12 case total quarterly 
validation sample.
    For the FY 2013 payment determination, we also proposed to validate 
data from the 4th calendar quarter of 2010 through the 3rd calendar 
quarter of 2011 in accordance with our proposed synchronization of 
RHQDAPU data as outlined in section IV.A.5.a.(2) of the proposed rule 
(75 FR 23985 and 23986). This lag between the time a hospital submits 
data and the time we can validate that data is necessary because data 
is not due to the QIO Clinical Warehouse until 4\1/2\ months after the 
end of each quarter, and we need additional time to select hospitals 
and complete the validation process.
    Comment: One commenter was pleased that the proposed chart audit 
validation process takes into account all applicable chart-abstracted 
measures.
    Response: We appreciate the comment and agree that the proposed 
approach ensures validation of all submitted RHQDAPU chart-abstracted 
measures by sampled hospitals.
    Comment: One commenter recommended that all hospitals should be 
validated as opposed to a random sample to hold hospitals equally 
accountable.
    Response: We thank the commenter for the recommendation. We weighed 
burden to hospitals, reliability of hospital validation results in 
sample size, and cost to the taxpayers through validation expenses when 
proposing the random sample. The annual random

[[Page 50228]]

sampling approach ensures equal probability of selection for all 
hospitals submitting sufficient data each year. Our proposed targeting 
approach also ensures that all hospitals will be validation at least 
once every four years. This targeting approach will increase equity in 
accountability in the validation of all hospitals' data over a four 
year period, while reducing burden to hospitals to copy and return 
validation records through random sampling.
    Comment: One commenter supported CMS' proposal to implement the new 
validation process for FY 2012, as it minimizes burden for many 
hospitals and implements a more rigorous validation process compared to 
what is currently in place.
    Response: We appreciate and agree with the commenter.
    Comment: One commenter believed that CMS should understand 
specific, timely and frequent feedback from hospitals would prevent 
serial abstraction mistakes. The commenter gave an example of an 
abstractor who makes a mistake at the top of the algorithm and does not 
have any validation for 12-24 months. In this example, the commenter 
believed that serious validation mismatches could go unchecked for such 
long periods of time that a hospital could be put on the ``targeted 
list'' for validation because of failing previous validations as CMS 
describes and that the potential for a longstanding mismatch is greater 
when a mistake is not corrected through the quarterly educational 
comments specific to each facility. The commenter did not agree with 
CMS that providing validation feedback to a group of hospitals that did 
not get validated will correct abstraction errors for all.
    Response: We appreciate the comment, but believe that the process 
we are finalizing starting in FY 2012 will improve the reliability of 
RHQDAPU annual and quarterly validation scores through the increased 
sample size from 5 records per quarter to 12 records per quarter. In 
addition, sample stratification of measure topics will ensure that CMS 
validates all chart-abstracted measures, thereby providing a more valid 
estimate of a hospital's overall abstraction accuracy for chart-
abstracted RHQDAPU data.
    We believe that the improved precision and reliability of our 
random and targeted validation proposed approaches outweigh the benefit 
of providing hospital-specific feedback to all hospitals. Hospitals 
have generally improved in their RHQDAPU abstraction accuracy since the 
program's inception, thereby lessening the need for regular quarterly 
hospital-specific feedback to all hospitals. In past several years, the 
vast majority of hospitals have submitted accurate data, as evidenced 
by 99.5 percent average percentage of hospitals passing our annual 
RHQDAPU validation requirement.
    Comment: A commenter stated that the timeline for turn-in of 
medical charts of 45 days is fair and appreciated that a certified 
letter follows-up when records have not been received in 30 days by the 
CDAC. However, the commenter would like the opportunity to address when 
CDAC abstractions have missed key documentation that changes an answer. 
For example, the commenter had several cases where evidence of passing 
a measure on smoking cessation or CHF discharge instructions were in 
the chart, but the CDAC missed it.
    Response: The CDAC reabstraction process is an independent 
reabstraction of the hospital's official medical record documentation. 
Additionally, hospitals may appeal quarterly scores below the passing 
threshold to their State QIO for an independent review. Hospitals that 
do not pass our annual RHQDAPU program validation requirement are 
eligible to appeal validation mismatched data elements reabstracted by 
CDAC for CMS reconsideration.
    Comment: A commenter believed that CMS should be accountable 
regarding their CDAC abstractors and should require attestation by the 
CDAC abstractors that they received appropriate training on the 
Specifications Manual and its proper interpretation.
    Response: Our abstractors receive extensive training from CDAC 
management and assisted by our contractors responsible for RHQDAPU 
measure maintenance and abstraction education to our QIOs. 
Additionally, we require our CDAC abstractors to pass inter-rater 
reliability tests relative to CDAC expert adjudicators. Historically, 
CDAC abstractor inter-rater reliability rates have averaged greater 
than 95 percent. We recognize that CDAC abstractors are not 100 percent 
accurate in their reabstraction, and the CDAC adjudicates all potential 
mismatches. Additionally, hospitals are eligible to appeal quarterly 
scores below the passing threshold to their state QIO for an 
independent review. Hospitals that do not pass our annual RHQDAPU 
validation requirement are eligible to appeal validation mismatched 
data elements reabstracted by CDAC for CMS reconsideration. 
Collectively, we believe that the CDAC abstraction process is accurate, 
but do provide multiple independent methods of appeal for hospitals 
that believe their abstraction is correct as compared to the CDAC 
reabstraction.
    Comment: One commenter opposed modifying the quarterly stratified 
sample selection by reallocating sample cases when a hospital has 
submitted fewer than three cases in a topic within a quarter.
    Response: We believe that our approach provides a more reliable 
validation estimate to ensure that hospitals are submitting accurate 
quality measure information. Our approach prevents reduction in sample 
size and retains reliability by maintaining a total quarterly sample 
size of 12 cases across all topics. We believe that this approach 
creates equal and minimal burden for all sampled hospitals.
    Comment: A commenter disagreed with addition of two validation 
samples of three cases per hospital. The commenter believed that this 
process is very labor intensive as records have transitioned from paper 
to electronic records, requiring multiple queries within an electronic 
health record to obtain all of the necessary information.
    Response: We appreciate the comment, and will consider adding 
technology to accept electronic health records in the future to reduce 
validation burden to hospitals using electronic health records. We 
recognize that many more hospitals will transition their recordkeeping 
to EHRs, and we want to provide the public with accurate quality data 
and maintain alignment with hospital recordkeeping practices. We also 
believe that validating all RHQDAPU chart-abstracted measures is one of 
many important elements to ensure accurate publicly reported RHQDAPU 
data.
    Comment: Some commenters were concerned about the lack of CDC/NHSN 
data validation process in place that is similar to the current RHQDAPU 
program validation process. The commenters recommended that, before any 
measure is included in public reporting, an adequate validation 
mechanism must be in place.
    Response: We agree with the commenter that CDC/NHSN should be 
validated. We are considering validating self-reported CDC/NHSN data by 
proposing two additional quarterly samples. One quarterly additional 
sample would validate NHSN measure data. We will solicit public comment 
when we propose improvements to our validation approach in future 
rulemaking.
    After considering the public comments we received, we are adopting 
as final our proposed supplements to the chart validation process for 
the FY

[[Page 50229]]

2013 payment determination and subsequent FYs.
    This RHQDAPU validation process meets the requirements set forth in 
section 1886(b)(3)(B)(viii)(XI) of the Act. This section states that:

    The Secretary shall establish a process to validate measures 
specified under this clause as appropriate. Such process shall 
include the auditing of a number of randomly selected hospitals 
sufficient to ensure validity of the reporting program under this 
clause as a whole and shall provide a hospital with an opportunity 
to appeal the validation of measures reported by such hospital.

    Starting with the FY 2012 payment determination and continuing in 
subsequent fiscal years, the chart validation process audits 800 
randomly selected hospitals for the discharge quarters as outlined in 
this section. This sample size is sufficient to validate more than 22 
percent of subsection (d) hospitals for FY 2012 and ensure validity of 
the reporting program. Currently, this process validates 27 chart 
abstracted measures, including 7 AMI measures (AMI 1 through 8a), 4 
Heart Failure measures (HF 1 through HF 4), 6 Pneumonia measures, and 
all 10 SCIP measures.
    Validation of the HCAHPHS measure is conducted through our 
oversight activities. We provide oversight of all HCAHPS survey vendors 
and hospitals self-administering the survey in order to ensure that the 
data collection protocols are followed. We also provide oversight and 
validation through our review of Quality Assurance Plans, site visits, 
conference calls and detailed data analyses each quarter to ensure 
there are no anomalies found in the data. In particular, we use site 
visits to review all data collection activities, including data reviews 
tracking a discharged patient from sampling, survey administration and 
data submission.
    Information reported through claims for the 24 RHQDAPU program 
measures for FY 2012 as described in this rule is already validated for 
accuracy by Medicare Administrative Contractors (MACs) to ensure 
accurate Medicare payments. We are considering validation methodologies 
for structural measures and NHSN data and will propose validation 
methodologies as appropriate in the future.
    We believe that the validation processes described above ensures 
validity of measures used under the RHQDAPU reporting program. Our 
reconsideration process outlined in this section provides hospitals 
that do not meet our validation requirement with the opportunity to 
appeal mismatched data elements that result in mismatched measures. We 
believe that our reconsideration process provides hospitals with appeal 
opportunities when mismatched measures result in potential payment 
reduction.
    In the proposed rule, we state that we are also considering 
additional changes to our validation approach for future years. 
Starting in FY 2014, we are considering adding two strata to the 
current RHQDAPU program validation sample of SCIP, AMI, HF, and PN 
cases. We are considering selecting two additional validation samples 
of three cases per selected hospital per quarter. One additional 
quarterly sample would enable us to validate the CLABSI and SSI 
measures that we proposed to add to the RHQDAPU program measure set for 
the FY 2013 payment determination, and the second additional quarterly 
sample would enable us to validate the ED-Throughput and the 
Immunization for Influenza and Immunization for Pneumonia global 
measures that we proposed to add to the RHQDAPU measure set for FY 
2014. Thus, we would be validating a total of 18 records per quarter 
per validated hospital in 6 strata (1) SCIP, (2) AMI, (3) HF, (4) PN, 
(5) CLABSI/SSI, and (6) ED-Throughput/immunization measures). We are 
also considering requiring hospitals to sign a written form explicitly 
granting CMS access to their patient level data submitted to NHSN for 
the proposed CLABSI measure and the SSI measure. We believe that the 
CLABSI/SSI stratum is necessary to validate the data in the reports 
that we will access from NHSN for the RHQDAPU program. We invited 
public comment on our validation proposals and considerations.
    Comment: Regarding FY 2014, the commenter believed that the 
proposal to add 2 strata (increasing from 12-18 records per quarter) to 
the current program validation sample did not add value, but rather 
adds busywork with more cases to validate. The commenter believed that 
this makes annual validation a potential of near 80-100 records per 
validated facility and believed that this number was excessive and 
burdensome on the hospital to produce this volume in a short period of 
time.
    Response: We understand the commenter's concern about burden, but 
must also consider accuracy of all chart-abstracted measures. Our 
random sampling approach reduces this burden to the majority of 
hospitals, since not all hospitals' data will be validated in a 
particular year. We will consider this comment in the future for future 
supplements to the RHQDAPU validation approach.
    We noted that, starting with the FY 2015 payment determination, we 
are considering proposing to add hospitals to our validation sample if 
they were open under their current CCNs in FY 2012 but not selected for 
validation in the three previous annual RHQDAPU validation samples. We 
are considering this addition to supplement our validation approach to 
ensure that all eligible RHQDAPU hospitals are selected for validation 
at least once every 4 years. We are considering this addition starting 
in FY 2015 because FY 2015 would be the fourth year that CMS would use 
the random validation approach (which begins in FY 2012 as adopted in 
this final rule).
    We intend to propose this supplement starting with the FY 2015 
payment determination to further improve the targeting criteria that we 
are adopting in this final rule beginning with FY 2013.
8. Data Accuracy and Completeness Acknowledgement Requirements for the 
FY 2011 Payment Determination and Subsequent Years
    For the FY 2011 payment determination and subsequent years, in the 
FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24180), we proposed 
to require hospitals to electronically acknowledge on an annual basis 
the completeness and accuracy of the data submitted for the RHQDAPU 
program payment determination. Hospitals will be able to submit this 
acknowledgement on the same Web page that they use to submit data 
necessary to calculate the structural measures, and we believe that 
this Web page will provide a secure vehicle for hospitals to directly 
acknowledge that their information is complete and accurate to the best 
of their knowledge. A single annual electronic acknowledgement will 
provide us with explicit documentation acknowledging that the 
hospital's data is accurate and complete, but will not unduly burden 
hospitals. We noted that commenters generally supported the idea of 
electronic attestation in the FY 2009 IPPS final rule (73 FR 48625) at 
the point of data submission to the QIO Clinical Warehouse.
    In addition, the Government Accountability Office (GAO) recommended 
in a 2006 report (GAO-06-54) that hospitals self-report that their data 
are complete and accurate. Therefore, in the FY 2010 IPPS/RY 2010 LTCH 
PPS final rule (74 FR 43890) for the FY 2010 payment determination, we 
required hospitals to electronically acknowledge their data accuracy 
and completeness once between July 1, 2009, and August 15, 2009. 
Hospitals

[[Page 50230]]

will acknowledge that all information that is, or will be, submitted as 
required by the RHQDAPU program for the FY 2010 payment determination 
is complete and accurate to the best of their knowledge.
    We proposed requiring hospitals to electronically acknowledge their 
data accuracy and completeness once between July 1, 2010 and August 15, 
2010 for data to be used for the FY 2012 RHQDAPU program payment 
determination.
    Comment: A commenter stated that the July 1, 2010 through August 
15, 2010 period to report acknowledgement of data accuracy and 
completeness is over 1 year prior to the October 2011 start of FY 2012. 
Much of the data reported by hospitals to CMS occurs following this 
date.
    Response: We agree with the commenter. Consistent with our FY 2010 
requirement (74 FR 43890), we believe that a more appropriate period to 
report FY 2012 data accuracy and completeness is July 1, 2011 through 
August 15, 2011, not 2010 as proposed in the FY 2011 IPPS/LTCH PPS 
proposed rule. We are modifying the reporting period from our original 
proposal to provide hospitals with time to report more data applicable 
to the FY 2012 payment determination. We also intend to propose in the 
FY 2012 IPPS rule using the same July 1 through August 15 time 
reporting period in future payment years.
    After consideration of the public comments we received, we are 
adopting as final our data accuracy and completeness acknowledgement 
requirements for the FY 2012 payment determination and subsequent 
years. However, we are requiring hospitals to electronically 
acknowledge their data accuracy and completeness once between July 1, 
2011 and August 15, 2011 for data to be used for the FY 2012 RHQDAPU 
program payment determination instead of the proposed July 1, 2010 
through August 15, 2010 timeframe.
9. Public Display Requirements for the FY 2012 Payment Determination 
and Subsequent Years
    Section 1886(b)(3)(B)(viii)(VII) of the Act provides that the 
Secretary shall establish procedures for information regarding measures 
submitted under the RHQDAPU program available to the public. As we 
noted in section IV.A.1.g. of this final rule, the RHQDAPU program 
quality measures are typically reported on the Hospital Compare Web 
site (http://www.hospitalcompare.hhs.gov), but on occasion are reported 
on other CMS Web sites. We require that hospitals sign a Notice of 
Participation form when they first register to participate in the 
RHQDAPU program. Once a hospital has submitted a form, the hospital is 
considered to be an active RHQDAPU program participant until such time 
as the hospital submits a withdrawal form to CMS (72 FR 47360). 
Hospitals signing this form agree that they will allow CMS to publicly 
report the quality measures included in the RHQDAPU program.
    We will continue to display quality information for public viewing 
as required by section 1886(b)(3)(B)(viii)(VII) of the Act. Before we 
display this information, hospitals will be permitted to review their 
information as recorded in the QIO Clinical Warehouse.
    We did not receive any public comments on our proposal to continue 
using FY 2011 requirements for FY 2012 and subsequent years. We adopt 
as final our proposal regarding public display requirements.
10. Reconsideration and Appeal Procedures for the FY 2011 Payment 
Determination
    The general deadline for submitting a request for reconsideration 
in connection with the FY 2011 payment determination is November 1, 
2010. As discussed more fully below, we proposed that all hospitals 
submit a request for reconsideration and receive a decision on that 
request before they can file an appeal with the Provider Reimbursement 
Review Board (PRRB).
    For the FY 2011 payment determination, we proposed to continue 
utilizing most of the same procedures that we utilized for the FY 2010 
requests for reconsideration. Under these proposed procedures, the 
hospital must--
    Submit to CMS, via QualityNet, a Reconsideration Request form 
(available on the QualityNet Web site) containing the following 
information:

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

    For the FY 2011 payment determination, the RHQDAPU program data 
that will be validated is 4th calendar quarter 2008 through 3rd quarter 
calendar year 2009 discharge data. Hospitals must provide a written 
justification for each appealed data element classified during the 
validation process as a mismatch. We will review the data elements that 
were labeled as mismatched, as well as the written justifications 
provided by the hospitals, and make a decision on the reconsideration 
request. As we mentioned above, we proposed that all hospitals submit a 
reconsideration request to CMS and receive a decision on that request 
prior to submitting a

[[Page 50231]]

PRRB appeal. We believe that the reconsideration process is less costly 
for both CMS and hospitals, and that this requirement will decrease the 
number of PRRB appeals by resolving issues earlier in the appeals 
process.
    Following receipt of a request for reconsideration, we will--
     Provide an e-mail acknowledgement, using the contact 
information provided in the reconsideration request, to the CEO and the 
QualityNet Administrator that the request has been received.
     Provide written notification to the hospital CEO, using 
the contact information provided in the reconsideration request, 
regarding our decision. We expect the process to take approximately 90 
days from the reconsideration request due date of November 1, 2010.
    As we stated in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 
43892), the scope of our review when a hospital requests 
reconsideration because it failed our validation requirements will be 
as follows:
    1. Hospital requests reconsideration for CDAC contractor-abstracted 
data elements classified as mismatches affecting validation scores. 
Hospitals must timely submit a copy of the entire requested medical 
record to the CDAC contractor during the quarterly validation process 
for the requested case to be eligible to be reconsidered on the basis 
of mismatched data elements.
    2. Hospital requests reconsideration for medical record copies 
submitted during the quarterly validation process and classified as 
invalid record selections. Invalid record selections are defined as 
medical records submitted by hospitals during the quarterly validation 
process that do not match the patient's episode of care information as 
determined by the CDAC contractor (in other words, the contractor 
determines that the hospital returned a medical record that is 
different from that which was requested). If the CDAC contractor 
determines that the hospital has submitted an invalid record selection 
case, it awards a zero validation score for the case because the 
hospital did not submit the entire copy of the medical record for that 
requested case. During the reconsideration process, our review of 
invalid record selections will initially be limited to determining 
whether the record submitted to the CDAC contractor was actually an 
entire copy of the requested medical record. If we determine during 
reconsideration that the hospital did submit the entire copy of the 
requested medical record, then we would abstract data elements from the 
medical record submitted by the hospital.
    3. Hospital requests reconsideration for medical records not 
submitted to the CDAC contractor within the 45 calendar day deadline. 
Our review will initially be limited to determining whether the CDAC 
contractor received the requested record within 45 calendar days, and 
whether the hospital received the initial medical record request and 
reminder notice. If we determine during reconsideration that the CDAC 
contractor did receive a paper copy of the requested medical record 
within 45 calendar days, then we would abstract data elements from the 
medical record submitted by the hospital. If we determine that the 
hospital received two letters requesting medical records and still did 
not submit the requested records within the 45 day period, CMS will not 
accept these records as part of the reconsideration. CMS will not 
abstract data from charts not received timely by the CDAC contractor.
    In sum, we are initially limiting the scope of our reconsideration 
reviews involving validation to information already submitted by the 
hospital during the quarterly validation process, and we will not 
abstract medical records that were not submitted to the CDAC contractor 
during the quarterly validation process. We will expand the scope of 
our review only if we find during the initial review that the hospital 
correctly and timely submitted the requested medical records. In that 
case, we would abstract data elements from the medical record submitted 
by the hospital as part of our review of its reconsideration request.
    If a hospital is dissatisfied with the result of a RHQDAPU program 
reconsideration decision, the hospital may file a claim under 42 CFR 
part 405, subpart R (a PRRB appeal). We solicited public comments on 
the extent to which these proposed procedures will be less costly for 
hospitals, and whether they will lead to fewer PRRB appeals.
    Comment: With respect to a hospital needing to receive a decision 
from CMS prior to submitting a PRRB appeal, some commenters requested 
that CMS consider the impact of 90 days without the annual payment 
update to a facility. Commenters stated that the wait for CMS's 
decision and an appeal to the PRRB would delay the process of appeal by 
months if not half of the year.
    Response: We appreciate the commenters' concern with the timeframe 
of our reconsideration process. Our goal is to provide a thorough 
technical and programmatic reconsideration of our initial RHQDAPU 
decision in a timely manner. Generally, our review requires 60 to 90 
days, and hospitals granted their full payment update during this 
process would not need PRRB review. We are reviewing and standardizing 
our reconsideration process in an effort to reduce the wait time, but 
this wait time is largely dependent on the number of received requests. 
We hope to reduce the 90-day wait period in future years.
    Comment: A commenter disagreed with the proposed process to require 
hospitals to resubmit all paperwork submitted to the CDAC contractor 
for RHQDAPU reconsideration purposes, and instead proposed that the 
CDAC store all medical record documentation.
    Response: We appreciate the comment. We considered the relative 
cost to CMS and the taxpayers for storing all hospitals' submitted 
validation records for an additional 12 to 18 months, relative to the 
proposed process. We estimate from previous RHQDAPU results that the 
proposed process would impact 20 or fewer hospitals annually, and 
believe that this total burden to hospital is less than the extra 
storage cost to CMS and the taxpayers.
    After consideration of the public comments we received, we are 
adopting the proposed RHQDAPU reconsideration and appeals requirements 
without any changes.
11. RHQDAPU Program Withdrawal Deadlines
    We proposed to accept RHQDAPU program withdrawal forms for the FY 
2012 payment determination from hospitals until August 15, 2011. We 
proposed this deadline so that we would have sufficient time to update 
the FY 2012 payment to hospitals starting on October 1, 2011. If a 
hospital withdraws from the program for the FY 2012 payment 
determination, it will receive a 2.0 percentage point reduction in its 
FY 2012 annual payment update. We noted that once a hospital has 
submitted a Notice of Participation form, it is considered to be an 
active RHQDAPU program participant until such time as the hospital 
submits a withdrawal form to CMS.
    We did not receive any comments on our proposal. We are adopting as 
final our proposal regarding withdrawal deadlines without any changes.
12. Electronic Health Records (EHRs)
a. Background
    Starting with the FY 2006 IPPS final rule, we have encouraged 
hospitals to take steps toward the adoption of EHRs (also referred to 
in previous rulemaking documents as electronic medical

[[Page 50232]]

records) that will allow for reporting of clinical quality data from 
the EHRs directly to a CMS data repository (70 FR 47420 through 47421). 
We encouraged hospitals that are implementing, upgrading, or developing 
EHR systems to ensure that the technology obtained, upgraded, or 
developed conforms to standards adopted by HHS. We suggested that 
hospitals also take due care and diligence to ensure that the EHR 
systems accurately capture quality data and that, ideally, such systems 
provide point-of-care decision support that promotes optimal levels of 
clinical performance.
    We also continue to work with standard setting organizations and 
other entities to explore processes through which EHRs could speed the 
collection of data and minimize the resources necessary for quality 
reporting as we have done in the past.
    We note that we have initiated work directed toward enabling EHR 
submission of quality measures through EHR standards development and 
adoption. We have sponsored the creation of electronic specifications 
for quality measures that are currently proposed for the RHQDAPU 
program and measures under future consideration. We look to continue 
this activity in the future.
    Comment: Many commenters applauded our work toward developing 
measure specifications for EHR-based data collection in the future. The 
commenters believed this approach would substantially reduce the 
reporting burden on hospitals. Commenters recommended that CMS adopt 
specifications that would limit inclusions to ADT, bed tracking, or ED 
tracking board tools for these data elements.
    Response: We thank the commenters for their encouragement of our 
efforts to integrate EHR technology with the RHQDAPU program. We will 
take these comments regarding specifications into consideration when we 
look to adopt measures that can be collected via EHRs in the future.
    Comment: Some commenters requested that CMS clarify whether 
becoming a meaningful user of EHR certified technology is a path to 
fulfill both the RHQDAPU participation requirement and the eligibility 
requirements for the HITECH incentive program for being a meaningful 
user of certified EHR technology.
    Response: As we have indicated, we are actively seeking to provide 
an alternative of EHR-based submission for RHQDAPU measures that 
otherwise would require chart or manual abstraction. Prior to accepting 
measures through EHRs for RHQDAPU, as commenters have suggested, it 
would be necessary to assure that data submitted and results calculated 
are equivalent to that from chart or manual abstraction so that results 
would be reliable and consistent. As we proceed with new measures 
development we would anticipate that testing during the measure 
development process and EHR certification process would become 
sufficiently standardized that additional implementation testing would 
not be needed.
    We note that some important RHQDAPU quality measures such as HCAHPS 
experience of care measures are based on survey data and do not lend 
themselves to EHR reporting. Similarly, certain outcome quality 
measures, such as the current RHQDAPU readmission measures, are based 
on claims rather than clinical data. Thus, not all RHQDAPU measures 
will necessarily be capable of being submitted through EHRs. As a 
consequence, not all RHQDAPU measures would necessarily be included in 
the HITECH EHR incentive program.
b. EHR Testing of Quality Measures Submission
    As we have previously stated, we are interested in the reporting of 
quality measures using EHRs, and we continue to encourage hospitals to 
adopt and use EHRs that conform to the certification criteria as will 
be defined by the Secretary through the Office of the National 
Coordinator for Health Information Technology, HHS at 45 CFR Part 170. 
We believe that the testing of EHR submission is an important and 
necessary step to establish the ability of EHRs to report clinical 
quality measures and the capacity of CMS to receive such data.
    The electronic specifications and interoperability standards for 
EHR-based collection and transmission of the data elements for the ED 
Throughput, Stroke, and Venous Thromboembolism (VTE) measures have been 
finalized by the Health Information Technology Standards Panel (HITSP) 
and are available for review and testing at http://www.HITSP.org. We 
anticipate testing the components required for the submission of 
clinical quality data extracted from EHRs for these measures, and are 
exploring different mechanisms and formats that will aid the submission 
process, as well as ensure that the summary measure results extracted 
from the EHRs are reliable.
    We anticipate moving forward with testing CMS' technical ability to 
accept data from EHRs for the ED, Stroke, and VTE measures as early as 
summer of 2011. We anticipate building upon the work completed by the 
HITSP in both the Connectathon and Health Information Management 
Systems Society (HIMSS) Interoperability Showcase. This testing will 
encompass an ``end to end'' view of data transmission. Pursuant to the 
Paperwork Reduction Act, we have previously published a Federal 
Register notice and information collection request for CMS-10296 (74 FR 
44366) seeking public comments on the process we intended to follow to 
select EHR vendors/hospitals for testing CMS ability to accept EHR-
based data submissions. We will notify interested parties of changes in 
the process and timeline for testing via the Inpatient EHR testing Web 
site at: http://www.cms.hhs.gov/HospitalQualityInits/15_HospitalInpatientEHRTesting.asp.
    The test measures described above are not currently required under 
the RHQDAPU program. In addition, the posting of the electronic 
specifications for any particular measure should not be interpreted as 
a signal that we intend to select the measure for inclusion in the 
RHQDAPU program measure set.
    Comment: A few commenters supported CMS in launching the EHR 
Testing of Inpatient Quality Measures voluntary pilot established in 
the FY 2010 IPPS/RY 2010 LTCH PPS final rule. The commenters suggested 
that the implementation of the electronic metrics effective January 1, 
2012, should be contingent upon successful EHR testing by CMS so that 
the measures can be reported electronically and not via manual chart 
abstraction. A commenter stated that electronic-specified clinical 
quality measures should not be included in the RHQDAPU program until 
they are fully tested. The commenter cited the examples of the 
collection and transmission for the ED Throughput, Stroke and VTE 
measures which are undergoing HITSP and CMS testing. The commenter 
urged CMS to expedite its development and testing of eMeasures to no 
later than year end CY 2010. The commenter asked for clarification on 
the possibility of retirement of the chart-abstracted specifications 
for these three measure sets once they can be collected and transmitted 
electronically.
    Response: As discussed previously, we agree with the commenter's 
concern about the importance of testing the electronic specifications 
of the clinical quality measures prior to accepting submission for EHRs 
for the RHQDAPU program. We note that the January 2010 Connectathon, 
and the 2010 Healthcare and Information Management Systems Society 
(HIMSS) Interoperability

[[Page 50233]]

Showcase conducted initial testing and demonstration of some of the 
Emergency Department (ED) Throughput, Venous Thromboembolism (VTE), and 
Stroke measures. It is our intent not to require duplicative reporting 
across programs. When the data collection and transmission can be 
achieved through certified EHR technology, we may be able to rely upon 
EHRs to transmit the data. However, whether chart abstraction remains 
an option as a data collection mechanism for a given measure set 
adopted for the RHQDAPU program will largely depend upon the prevalence 
of EHR adoption among RHQDAPU participating hospitals.
    As additional electronic specifications for clinical quality 
measures are developing, we plan to conduct testing of the 
electronically specified measures simultaneously. Also, we expect that 
vendors and providers will continue the testing for data collection and 
transmission.
c. HITECH Act EHR Provisions
    The HITECH Act (Title IV of Division B of the ARRA, together with 
Title XIII of Division A of the ARRA) authorizes payment incentives 
under Medicare for the adoption and use of certified EHR technology 
beginning in FY 2011. Hospitals are eligible for these payment 
incentives if they meet requirements for meaningful use of certified 
EHR technology, which include reporting on quality measures using 
certified EHR technology. With respect to the selection of quality 
measures for this purpose, under section 1886(n)(3)(A)(ii) of the Act, 
as added by section 4102 of the HITECH Act, the Secretary shall select 
measures, including clinical quality measures, that hospitals must 
provide to CMS in order to be eligible for the EHR incentive payments. 
With respect to the clinical quality measures, section 1886(n)(3)(B)(i) 
of the Act requires the Secretary to give preference to those clinical 
quality measures that have been selected for the RHQDAPU program under 
section 1886(b)(3)(B)(viii) of the Act or that have been endorsed by 
the entity with a contract with the Secretary under section 1890(a) of 
the Act. Any measures must be proposed for public comment prior to 
their selection, except in the case of measures previously selected for 
the RHQDAPU program under section 1886(b)(3)(B)(viii) of the Act.
    Thus, the RHQDAPU program and the HITECH Act have important areas 
of overlap and synergy with respect to the reporting of quality 
measures using EHRs. We believe the financial incentives under the 
HITECH Act for the adoption and meaningful use of certified EHR 
technology by hospitals will encourage the adoption and use of 
certified EHRs for the reporting of clinical quality measures under the 
RHQDAPU program. Further, these efforts to test the submission of 
quality data through EHRs may provide a foundation for establishing the 
capacity of hospitals to send, and for CMS to receive, quality measures 
via hospital EHRs for future RHQDAPU program measures.
    We again note that the provisions in this FY 2011 IPPS/LTCH PPS 
final rule do not implicate or implement any HITECH statutory 
provisions. Those provisions are the subject of separate rulemaking and 
public comment.
    Comment: One commenter noted that in moving forward, CMS should 
focus on developing measures collected through EHRs rather than using 
manually intensive, chart-based measures through the RHQDAPU program. 
The commenter suggested that we follow a more methodical framework to 
prioritize and integrate measures into the RHQDAPU and EHR incentive 
program with a long-term goal of transitioning from RHQDAPU to the 
meaningful use criteria under the HITECH EHR program.
    Response: We agree with the importance of developing electronic 
specifications for new measures that are developed. We expect over time 
that EHRs will be the primary source of quality measures data. To this 
end, we have spearheaded electronic refinement and standardization of 
data transmission and performance measures.
    Comment: A number of commenters requested that CMS address the 
potential duplication of clinical quality measures selected for use in 
the RHQDAPU program, and the clinical quality measures chosen for 
eligible professionals (EPs), eligible hospitals and critical access 
hospitals (CAHs) to demonstrate meaningful use of certified EHR 
technology under the HITECH EHR incentive program. The commenters urged 
CMS to avoid duplicative reporting burden by considering only clinical 
quality measures chosen for the RHQDAPU program for the meaningful use 
criteria in the EHR incentive program for eligible professionals, 
eligible hospitals and CAHs.
    Response: The rationale for the selection of the eligible hospital 
and CAH measure under HITECH Act are discussed in the HITECH EHR final 
rule (75 FR 44314). The 15 hospital and CAH measures were 
electronically specified for use in the RHQDAPU program, with 
anticipated implementation once the necessary development and 
infrastructure implementation had been completed. We have included two 
of the HITECH measures in this final rule for FY 2014 payment 
determination, based on chart abstraction. We anticipate that we will 
provide an option of electronic submission of these measures.
    Comment: Some commenters recommended that EPs, eligible hospitals 
and CAHs reporting to RHQDAPU program via a certified EHR should be 
deemed to have successfully reported in the EHR incentive program to 
satisfy the meaningful use criteria for clinical quality measures.
    Response: The HITECH Act requires the Secretary to strive to avoid 
duplicative and redundant reporting for HITECH with respect to the 
RHQDAPU program. However, as discussed previously, RHQDAPU and HITECH 
are established as separate incentive programs with separate 
requirements. The authorizing statutes do not provide that qualifying 
for one program should result in a hospital being deemed to have 
qualified for the other. As the two programs would have little overlap 
in measures as finalized in this rule, we do not believe it would be 
appropriate to deem participation in the RHQDAPU program as meeting the 
requirements for successful reporting in the EHR incentive program. 
However, where feasible, we intend to align the data submission 
requirements for measures included in each program. As HIT enabled 
clinical data will allow for new measures to be developed, we will 
consider aligning the requirements of the two programs.
    Comment: Many commenters suggested aligning clinical quality 
measure reporting across federal agencies such as with the Health 
Resources and Services Administration, and across programs, such as 
with the Children's Health Insurance Program, to avoid duplicative and 
redundant quality performance reporting.
    Response: As discussed, we have always sought to avoid duplicative 
and redundant reporting across federal programs. We will seek to align 
more quality initiative programs in future rulemaking.
13. Qualification of Registries for RHQDAPU Data Submission
    In section IV.A.3.c.(4) of the proposed rule, we proposed that 
hospitals would select at least one of four registry-based measure 
topics for which they will report data on proposed measures to a 
qualified registry beginning with January 1, 2011 discharges, and allow 
the registry to calculate and report

[[Page 50234]]

measure data for the specified measures to CMS (via QualityNet) for 
RHQDAPU program purposes. We are not adopting our proposal for the 
registry-based measure topics in this final rule. We also will not be 
pursuing the qualification of registries for these topics at this time. 
Below is the process and requirements that we had proposed to use to 
determine whether a registry is qualified to collect and submit quality 
measure data for RHQDAPU and the comments received on the process.
    We proposed to post on the RHQDAPU program section of the 
QualityNet Web site http://www.qualitynet.org no later than December 
31, 2010 a list of qualified registries for the FY 2013 RHQDAPU payment 
determination, including the registry name, contact information, and 
the measure(s) for which the registry is qualified and will report for 
the FY 2013 RHQDAPU payment determination. We proposed measures for 
inclusion in each of the four registry-based topics, and a registry 
seeking to be qualified for a particular topic would have to agree to 
collect and report the measures included in the topic. The proposed 
measures support CMS and HHS priorities for improved quality and 
efficiency of care for Medicare beneficiaries (such as, prevention; 
chronic conditions; high cost and high volume conditions; elimination 
of health disparities; healthcare-associated infections and other 
conditions; and effective management of acute and chronic episodes of 
care). We noted, however, that none of the registries that we qualify 
for this purpose will be acting as a CMS contractor or agent. In other 
words, hospitals will still be responsible for making sure that the 
data it submits to the qualified registry is successfully processed and 
transmitted by the registry to CMS.
    We proposed to implement a self-nomination process for registries 
seeking to submit FY 2013 RHQDAPU program quality measures (including 
measure calculations, numerators, denominators, and exclusions) on 
behalf of hospitals beginning with January 1, 2011 discharges. A 
registry would be able to self-nominate if it meets the following 
requirements:
     The registry has been collecting data elements needed to 
calculate the particular measures that are being proposed for inclusion 
in the registry-based topic for which the registry is seeking 
qualification for at least 3 years prior to January 1, 2010.
     As of January 1, 2010, the registry has been collecting 
such data from at least 750 hospitals.
     The registry must have the capability to collect from 
hospitals all of the data elements which are included in the measure 
specifications and calculate the results for the specified measures. 
The measures are NQF-endorsed and will be listed in the Hospital 
Measure Specification Manual.
     The registry must agree to report the hospital level 
measure data to CMS (via QualityNet). During the registry qualification 
process, CMS will inform the registries of the specified reporting 
format which will include:
    [cir] The volume of eligible cases (reporting denominator);
    [cir] The volume of numerator events for the quality measure 
(reporting numerator);
    [cir] The number of cases excluded from the measure; and
    [cir] The measure results.
     The registry must agree to transmit quality measure data 
in a CMS-approved format. We expected that this CMS-specified record 
layout would be made available in late 2010;
     The registry must be able to perform data quality 
validation checks on the data received from hospitals to determine if 
the data submitted by the hospitals are accurate and agree to submit an 
acceptable ``validation strategy'' to CMS by December 15, 2011. A 
validation strategy ascertains whether hospitals have submitted data 
accurately to the registry. An acceptable validation strategy may 
include such provisions as the registry being able to verify the 
accuracy of hospital data through random sampling or through the 
hospital's adherence to a required sampling method;
     The registry must agree to enter into and maintain with 
its participating hospitals an appropriate Business Associate agreement 
that complies with HIPAA.
     The registry must obtain and keep on file signed 
documentation showing that each of its participating hospitals has 
authorized the registry to calculate and submit the quality measure 
hospital-level data specified by CMS to CMS. This documentation must be 
obtained at the time the hospital arranges to submit RHQDAPU program 
quality measure data to the registry;
     The registry must agree to provide CMS with access (if 
requested) to review the data that the hospital submitted to it for 
purposes of the RHQDAPU program;
     The registry must agree to indicate to CMS upon request 
whether a particular hospital has satisfied the registry's 
participation requirements;
     The registry must agree to provide CMS with a signed, 
written attestation statement via mail or e-mail which states that the 
quality measure data that the registry has submitted to CMS on behalf 
of its participating hospitals is accurate and complete.
     The registry must agree to provide at least 1 feedback 
report per year to participating hospitals;
     The registry must agree to provide on-going technical 
assistance to its participating hospitals with respect to the 
hospitals' submission of RHQDAPU data; and
     The registry must agree to participate in periodic RHQDAPU 
program support calls hosted by CMS.
    To apply to be a qualified registry for any of the four proposed 
registry-based topics, a registry must submit a self-nomination letter 
by October 15, 2010 to http://www.RHQDAPU_Registries@cms.hhs.gov 
containing the registry name, point of contact, the proposed registry-
based measure topic for which qualification is being sought, and 
detailed information regarding how the registry satisfies the criteria 
listed above.
    Comment: In general, while commenters agreed that the concept of 
registry qualification criteria would lead to more standardized 
collection and quality control of data collected by registries, they 
had numerous suggestions for improvement of the criteria listed, and 
believed that the proposed timeframe for qualification and subsequent 
implementation of data collection was overly ambitious. Some commenters 
recommended that any approved registry must have a robust, CMS-
certified validation system that can test the data submitted and 
identify missing data. Some commenters suggested that there should be 
an alternative approach for data submission that does not mandate 
participation in a registry with an associated fee. Numerous commenters 
noted that the proposed requirement that as of January 1, 2010, the 
registry has been collecting such data from at least 750 hospitals is 
arbitrary and precludes smaller registries such as State and regional 
registries from participating. These commenters urged CMS to revise its 
criteria for the number of participating hospitals as of January 1, 
2010, or to not consider a number of participating hospitals at all. 
Commenters also stated that the one-day interval between the 
publication of a list of qualified registries and the starting date for 
the reporting of measures beginning with required discharges is 
unreasonable. One commenter was concerned that the proposed timeline 
for registries gives little advance notice to hospitals to research 
options, budget

[[Page 50235]]

resources and prepare for participation. Commenters recommended that 
the registry eligibility criteria include current performance, data 
integrity, and capacity to support hospitals to capture reliable and 
valid data, and suggested that of core measure vendors and other 
specialty registries such as the acute stroke care registry created by 
Congress be eligible to qualify (The Paul Coverdell National Acute 
Stroke Registry (PCNASR/CDC)).
    Response: We thank the commenters for their recommendations. We 
acknowledge the commenters' concerns and intend to reexamine our 
criteria and timeline based upon the public comment received. We are 
not finalizing our proposal to qualify registries for data collection 
for the four topics listed earlier in this final rule for data 
collection beginning with January 1, 2011 discharges. If we propose to 
qualify registries for RHQDAPU data collection in the future, we will 
take into considerations all of the comments we received.
14. RHQDAPU and Hospital Value Based Purchasing Program
    CMS received many comments about the HVBP program under section 
3001(a)(1) of the Affordable Care Act, including the potential use of 
RHQDAPU measures and the infrastructure for the HVBP program. We 
address comments related to RHQDAPU measures in the appropriate RHQDAPU 
measures section categorized by payment year for the measure. We did 
not propose any requirements for implementation of section 3001(a)(1) 
of the Affordable Care Act in this rule. In the coming months, we plan 
to convene at least one listening session or Open Door Forum to listen 
to public feedback about the HVBP program. We will consider this 
feedback when proposing HVBP program requirements in the future.

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

1. Background
    Existing regulations at Sec.  412.4(a) provide that an inpatient is 
considered discharged from a hospital paid under the IPPS when the 
patient is either formally released from the hospital or dies in the 
hospital. Under certain circumstances, a discharge is considered a 
transfer for purposes of payment under the IPPS. Section 412.4(b) 
defines acute care transfers, and Sec.  412.4(c) identifies those 
discharges considered a postacute care transfer. In accordance with 
Sec.  412.4(f), when a patient is transferred and his or her length of 
stay is less than the geometric mean length of stay for the MS-DRG to 
which the case is assigned, the transferring hospital is generally paid 
based on a graduated per diem rate for each day of the stay, not to 
exceed the full MS-DRG payment that would have been made if the patient 
had been discharged without being transferred. In the case of acute 
care transfers, the receiving hospital that ultimately discharges the 
transferred patient receives the full MS-DRG payment, regardless of 
whether the length of the patient's inpatient stay exceeds the 
geometric mean length of stay for the applicable MS-DRG.
    The per diem rate paid to a transferring hospital is calculated by 
dividing the full MS-DRG payment by the geometric mean length of stay 
for the MS-DRG. Based on an analysis that showed that the first day of 
hospitalization is the most expensive (60 FR 5804), our policy 
generally provides for payment that is double the per diem amount for 
the first day, with each subsequent day paid at the per diem amount up 
to the full DRG payment (Sec.  412.4(f)(1)). Transfer cases also are 
eligible for outlier payments. In general, the outlier threshold for 
transfer cases, as described in Sec.  412.80(b) of the regulations, is 
equal to the fixed-loss outlier threshold for nontransfer cases 
(adjusted for geographic variations in costs), divided by the geometric 
mean length of stay for the MS-DRG, and multiplied by the length of 
stay for the case plus one day.
    The transfer policy adjusts the payments of the transferring 
hospital to approximate the reduced costs of transfer cases. Medicare 
adopted its IPPS transfer policy because, if Medicare were to pay the 
full MS-DRG payment regardless of whether a patient is transferred or 
discharged, there would be a strong incentive for hospitals to transfer 
patients to another IPPS hospital early in their stay in order to 
minimize costs while still receiving the full MS-DRG payment.
b. Policy Change
    The regulations at Sec.  412.4(b) state that a discharge of a 
hospital inpatient is considered to be an acute care transfer when the 
patient is readmitted on the same day to another hospital that is paid 
under the IPPS, or to a hospital that is excluded from the IPPS because 
of participation in a statewide cost control program, unless the 
readmission is unrelated to the initial discharge. These regulations 
were developed under the authority granted in section 1886(d)(5)(I)(ii) 
of the Act. Because a discharge is only considered an acute care 
transfer if the receiving hospital either is paid under IPPS or 
participates in a statewide cost control program, the current acute 
care transfer policy only applies to transfers between acute care 
hospitals that participate in the Medicare program (``participating 
acute care hospitals''); it does not currently apply to acute care 
hospitals that would otherwise be eligible to be paid under the IPPS, 
but do not have an agreement to participate in the Medicare program 
(``nonparticipating acute care hospitals''). The acute care transfer 
policy also does not currently apply to IPPS acute care hospital 
transfers to CAHs.
    As discussed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 
23997 and 23998), the intent of the acute care transfer policy is to 
make payment to the transferring hospital commensurate with the 
resources it expends in treating Medicare beneficiaries. As stated 
above, a participating acute care hospital that admits a beneficiary 
from a transferring hospital receives a full MS-DRG payment, as long as 
the receiving hospital does not subsequently transfer the beneficiary 
prior to the geometric mean length of stay for that MS-DRG. The 
transferring hospital receives a reduced per diem payment amount. If 
the acute care transfer policy did not exist, Medicare would make 
separate full MS-DRG payments to each of the hospitals involved with 
the treatment of the beneficiary, even though the hospitals shared in 
one episode of care for the same beneficiary and neither provided the 
full spectrum of care for that beneficiary for that episode of care. 
Such a policy would inappropriately pay a ``double'' Medicare payment 
and would be inconsistent with the intent of the acute care transfer 
policy.
    Although a nonparticipating acute care hospital is generally 
ineligible to receive payments under Medicare, such a hospital may 
still treat Medicare patients. In addition, acute care hospitals that 
do participate in the Medicare program are not precluded from 
transferring a Medicare patient to a nonparticipating acute care 
hospital. We note that a hospital that transfers a patient early in the 
patient's stay (that is, prior to the geometric mean length of stay of 
the patient's MS-DRG) incurs reduced costs for that case, regardless of 
whether the patient is transferred to a Medicare participating acute 
care hospital or a nonparticipating acute care hospital. A hospital 
that sends such a transfer to a CAH incurs similarly reduced costs, 
despite the fact that transfers to CAHs are not currently

[[Page 50236]]

included under the Medicare acute care transfer policy.
    In the FY 2011 IPPS/LTCH PPS proposed rule, we proposed policy 
changes in order to avoid creating a financial incentive for an IPPS 
hospital to transfer cases to one type of provider versus another. A 
transfer decision should be made based on the clinical merits of the 
beneficiary's situation and the transferring hospital's capabilities. 
More pointedly, we want to avoid providing a Medicare participating 
acute care hospital with an incentive to transfer cases to a 
nonparticipating acute care hospital or a CAH. Without a policy change, 
these incentives still exist as payment issues relating to the IPPS 
transfer policy. With respect to nonparticipating acute care hospitals, 
it is frequently explained that the Medicare conditions of 
participation provide a certain minimum standard of care that 
beneficiaries can expect, and that Medicare does not make payments to 
nonparticipating acute care hospitals because these hospitals do not 
commit to adhering to these conditions of participation. As such, the 
lack of a policy with regard to transfers to nonparticipating acute 
care hospitals results in an inappropriate payment incentive.
    Accordingly, in order to further align the IPPS regulations 
relating to transfer of cases under Sec.  412.4(b) with its original 
intent (that is, that a hospital's payment should be commensurate with 
the resources it expends for the case), in the proposed rule (75 FR 
23997 through 23998), we proposed to add a new paragraph (b)(3) to 
Sec.  412.4 to specify that an acute care hospital ``transfer case'' 
includes a transfer to an acute care hospital that would otherwise be 
eligible to be paid under the IPPS, but does not have an agreement to 
participate in the Medicare program, and a new paragraph (b)(4) to 
state that an acute care hospital ``transfer'' also includes a transfer 
to a CAH.
    We also stated that, under the proposed policy, hospitals would be 
required to use patient discharge status code ``66'' (Discharged/
Transferred to a Critical Access Hospital) on IPPS claims to identify 
transfers to CAHs. For transfers to nonparticipating acute care 
hospitals, hospitals would be required to continue to use patient 
status code ``02'' (Discharged/Transferred to a Short-Term General 
Hospital for Inpatient Care) on IPPS claims. We noted that the National 
Uniform Billing Committee (NUBC) periodically updates or changes 
patient status codes; therefore, hospitals should check NUBC guidance 
periodically to determine whether there have been any changes to these 
codes.
    Comment: One commenter asked whether there was an exemption from 
the policy for an acute care discharge to a SNF that was unrelated to 
the acute care inpatient stay.
    Response: We did not propose to make any changes to the postacute 
transfer policy with respect to acute care discharges to SNFs. 
Therefore, we consider this comment to be outside the scope of the 
proposed rule. However, we note that the statute governing the 
postacute transfer policy does not provide for an exemption for 
unrelated discharges to SNFs. In other words, a case involving a 
patient who is transferred from an acute care hospital to a SNF for the 
provision of skilled nursing services would be covered under the 
postacute transfer policy whether or not the services provided at the 
SNF were related to the services provided in the acute care hospital.
    Because we did not receive any other public comments on this 
proposal, we are adopting it as final, without modification. 
Specifically, we are adding a new paragraph (b)(3) to Sec.  412.4 to 
specify that an acute care hospital ``transfer case'' includes a 
transfer to an acute care hospital that would otherwise be eligible to 
be paid under the IPPS, but does not have an agreement to participate 
in the Medicare program, and a new paragraph (b)(4) to state that an 
acute care hospital ``transfer'' also includes a transfer to a CAH.

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

    Under the authority of section 1886(d)(5)(C)(i) of the Act, the 
regulations at Sec.  412.96 set forth the criteria that a hospital must 
meet in order to qualify under the IPPS as an RRC. For discharges that 
occurred before October 1, 1994, RRCs received the benefit of payment 
based on the other urban standardized amount rather than the rural 
standardized amount (as discussed in the FY 1993 IPPS final rule (59 FR 
45404 through 45409)). Although the other urban and rural standardized 
amounts are the same for discharges occurring on or after October 1, 
1994, RRCs continue to receive special treatment under both the DSH 
payment adjustment and the criteria for geographic reclassification.
    Section 402 of Public Law 108-173 raised the DSH adjustment for 
RRCs such that they are not subject to the 12-percent cap on DSH 
payments that is applicable to other rural hospitals. RRCs are also not 
subject to the proximity criteria when applying for geographic 
reclassification. In addition, they do not have to meet the requirement 
that a hospital's average hourly wage must exceed, by a certain 
percentage, the average hourly wage of the labor market area where the 
hospital is located.
    Section 4202(b) of Public Law 105-33 states, in part, ``[a]ny 
hospital classified as an RRC by the Secretary * * * for fiscal year 
1991 shall be classified as such an RRC for fiscal year 1998 and each 
subsequent year.'' In the August 29, 1997 IPPS final rule with comment 
period (62 FR 45999), CMS reinstated RRC status for all hospitals that 
lost the status due to triennial review or MGCRB reclassification. 
However, CMS did not reinstate the status of hospitals that lost RRC 
status because they were now urban for all purposes because of the OMB 
designation of their geographic area as urban. Subsequently, in the 
August 1, 2000 IPPS final rule (65 FR 47089), we indicated that we were 
revisiting that decision. Specifically, we stated that we would permit 
hospitals that previously qualified as an RRC and lost their status due 
to OMB redesignation of the county in which they are located from rural 
to urban, to be reinstated as an RRC. Otherwise, a hospital seeking RRC 
status must satisfy all of the other applicable criteria. We use the 
definitions of ``urban'' and ``rural'' specified in subpart D of 42 CFR 
part 412. One of the criteria under which a hospital may qualify as an 
RRC is to have 275 or more beds available for use (Sec.  
412.96(b)(1)(ii)). A rural hospital that does not meet the bed size 
requirement can qualify as an RRC if the hospital meets two mandatory 
prerequisites (a minimum CMI and a minimum number of discharges), and 
at least one of three optional criteria (relating to specialty 
composition of medical staff, source of inpatients, or referral 
volume). (We refer readers to Sec.  412.96(c)(1) through (c)(5) and the 
September 30, 1988 Federal Register (53 FR 38513).) With respect to the 
two mandatory prerequisites, a hospital may be classified as an RRC 
if--
     The hospital's CMI is at least equal to the lower of the 
median CMI for urban hospitals in its census region, excluding 
hospitals with approved teaching programs, or the median CMI for all 
urban hospitals nationally; and
     The hospital's number of discharges is at least 5,000 per 
year, or, if fewer, the median number of discharges for urban hospitals 
in the census region in which the hospital is located. (The number of 
discharges criterion for an osteopathic hospital is at least 3,000 
discharges per year, as specified in section 1886(d)(5)(C)(i) of the 
Act.)
1. Case-Mix Index (CMI)
    Section 412.96(c)(1) provides that CMS establish updated national 
and

[[Page 50237]]

regional CMI values in each year's annual notice of prospective payment 
rates for purposes of determining RRC status. The methodology we used 
to determine the national and regional CMI values is set forth in the 
regulations at Sec.  412.96(c)(1)(ii). The national median CMI value 
for FY 2011 includes data from all urban hospitals nationwide, and the 
regional values for FY 2011 are the median CMI values of urban 
hospitals within each census region, excluding those hospitals with 
approved teaching programs (that is, those hospitals that train 
residents in an approved GME program as provided in Sec.  413.75). 
These values are based on dischares occurring during FY 2009 (October 
1, 2008 through September 30, 2009), and include bills posted to CMS' 
records through March 2010.
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24000), we 
proposed that, in addition to meeting other criteria, if rural 
hospitals with fewer than 275 beds are to qualify for initial RRC 
status for cost reporting periods beginning on or after October 1, 
2010, they must have a CMI value for FY 2009 that is at least--
     1.5127; or
     The median CMI value (not transfer-adjusted) for urban 
hospitals (excluding hospitals with approved teaching programs as 
identified in Sec.  413.75) calculated by CMS for the census region in 
which the hospital is located. (We refer readers to the table set forth 
in the FY 2011 IPPS/LTCH PPS proposed rule at 75 FR 24000.)
    Based on the latest available data (FY 2009 bills received through 
March 2010), in addition to meeting other criteria, if rural hospitals 
with fewer than 275 beds are to qualify for initial RRC status for cost 
reporting periods beginning on or after October 1, 2010, they must have 
a CMI value for FY 2009 that is at least--
     1.5136; or
     The median CMI value (not transfer-adjusted) for urban 
hospitals (excluding hospitals with approved teaching programs as 
identified in Sec.  413.75) calculated by CMS for the census region in 
which the hospital is located.
    The final median CMI values by region are set forth in the 
following table:

------------------------------------------------------------------------
                                                          Case-Mix index
                         Region                                value
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT).................          1.2993
2. Middle Atlantic (PA, NJ, NY).........................          1.3582
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)..          1.4567
4. East North Central (IL, IN, MI, OH, WI)..............          1.4251
5. East South Central (AL, KY, MS, TN)..................          1.3771
6. West North Central (IA, KS, MN, MO, NE, ND, SD)......          1.4407
7. West South Central (AR, LA, OK, TX)..................          1.5240
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............          1.6204
9. Pacific (AK, CA, HI, OR, WA).........................          1.4861
------------------------------------------------------------------------

    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. In the FY 2011 IPPS/LTCH PPS 
proposed rule (75 FR 24000 and 24001), we proposed to update the 
regional standards based on discharges for urban hospitals' cost 
reporting periods that began during FY 2008 (that is, October 1, 2007 
through September 30, 2008), which were the latest cost report data 
available at the time the proposed rule was developed.
    Therefore, in the FY 2011 IPPS/LTCH PPS proposed rule, we proposed 
that, in addition to meeting other criteria, a hospital, if it is to 
qualify for initial RRC status for cost reporting periods beginning on 
or after October 1, 2010, must have, as the number of discharges for 
its cost reporting period that began during FY 2008, at least--
     5,000 (3,000 for an osteopathic hospital); or
     The median number of discharges for urban hospitals in the 
census region in which the hospital is located. (We refer readers to 
the table set forth in the FY 2011 IPPS/LTCH PPS proposed rule at 75 FR 
24001.)
    Based on the latest discharge data available at this time, that is, 
for cost reporting periods that began during FY 2008, the final median 
numbers of discharges for urban hospitals by census region are set 
forth in the following table:

------------------------------------------------------------------------
                                                             Number of
                         Region                             discharges
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT).................           7,713
2. Middle Atlantic (PA, NJ, NY).........................          11,346
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)..          11,393
4. East North Central (IL, IN, MI, OH, WI)..............           9,232
5. East South Central (AL, KY, MS, TN)..................           7,016
6. West North Central (IA, KS, MN, MO, NE, ND, SD)......           8,159
7. West South Central (AR, LA, OK, TX)..................           7,081
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............           9,282
9. Pacific (AK, CA, HI, OR, WA).........................           8,622
------------------------------------------------------------------------

[[Page 50238]]

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

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

1. Background
    As discussed in the June 2, 2010 supplemental proposed rule (75 FR 
309023 through 30925), section 1886(d)(12) of the Act, as added by 
section 406(a) of Public Law 108-173, provides for a payment adjustment 
to account for the higher costs per discharge for low-volume hospitals 
under the IPPS, effective beginning FY 2005. Sections 3125 and 10314 of 
the Affordable Care Act amended the definition of a low-volume hospital 
under section 1886(d)(12)(C) of the Act. Sections 3125 and 10314 of the 
Affordable Care Act also revised the methodology for calculating the 
payment adjustment for low-volume hospitals.
    Prior to the amendments made by the Affordable Care Act, section 
1886(d)(12)(C)(i) of the Act defined a low-volume hospital as ``a 
subsection (d) hospital (as defined in paragraph (1)(B)) that the 
Secretary determines is located more than 25 road miles from another 
subsection (d) hospital and that has less than 800 discharges during 
the fiscal year.'' Section 1886(d)(12)(C)(ii) of the Act further 
stipulates that the term ``discharge'' means ``an inpatient acute care 
discharge of an individual regardless of whether the individual is 
entitled to benefits under Part A.'' Therefore, the term ``discharge'' 
refers to total discharges, not merely 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. The statute also limits the adjustment to no more than 25 
percent.
    Based on an analysis we conducted for the FY 2005 IPPS final rule 
(69 FR 49099 through 49102), a 25 percent low-volume adjustment to all 
qualifying hospitals with less than 200 discharges was found to be most 
consistent with the statutory requirement to provide relief to low-
volume hospitals where there is empirical evidence that higher 
incremental costs are associated with low numbers of total discharges. 
In the FY 2006 IPPS final rule (70 FR 47432 through 47434), we stated 
that a multivariate analyses supported the existing low-volume 
adjustment implemented in FY 2005. Therefore, the low-volume adjustment 
of an additional 25 percent would continue to be provided for 
qualifying hospitals with less than 200 discharges.
2. Temporary Changes for FYs 2011 and 2012
    As stated above, section 1886(d)(12) of the Act was amended by 
sections 3125 and 10314 of the Affordable Care Act. The changes made by 
these sections of the Affordable Care Act are effective only for 
discharges occurring during FYs 2011 and 2012. Beginning with FY 2013, 
the preexisting low-volume hospital payment adjustment and qualifying 
criteria, as implemented in FY 2005, will resume.
    Sections 3125(3) and 10314(1) of the Affordable Care Act amended 
the qualifying criteria for low-volume hospitals under section 
1886(d)(12)(C)(i) of the Act to make it easier for hospitals to qualify 
for the low-volume adjustment. Specifically, the revised provision 
specifies that, for FYs 2011 and 2012, a hospital qualifies as a low-
volume hospital if it is ``more than 15 road miles from another 
subsection (d) hospital and has less than 1,600 discharges of 
individuals entitled to, or enrolled for, benefits under Part A during 
the fiscal year.'' In addition, section 1886(d)(12)(D) of the Act, as 
added by section 3125(4) and amended by section 10314 of the Affordable 
Care Act, provides that the payment adjustment (the applicable 
percentage increase) is to be determined ``using a continuous linear 
sliding scale ranging from 25 percent for low-volume hospitals with 200 
or fewer discharges of individuals entitled to, or enrolled for, 
benefits under Part A in the fiscal year to 0 percent for low-volume 
hospitals with greater than 1,600 discharges of such individuals in the 
fiscal year.''
    Section 3125(3)(A) of the Affordable Care Act revised the distance 
requirement for FYs 2011 and 2012 from ``25 road miles'' to ``15 road 
miles'' such that a low-volume hospital is required to be only more 
than 15 road miles, rather than more than 25 road miles, from another 
subsection (d) hospital for purposes of qualifying for the low-volume 
payment adjustment in FYs 2011 and 2012. Therefore, in the June 2, 2010 
supplemental proposed rule, we proposed to revise our regulations at 42 
CFR 412.101(b)(2)(ii) to provide that, to qualify for the low-volume 
adjustment in FYs 2011 and 2012, a hospital must be located more than 
15 road miles from the nearest subsection (d) hospital. The statute 
specifies the 15 mile distance in ``road miles.'' The existing 
regulations at Sec.  412.101 also specify the current 25 mile distance 
requirement in ``road miles,'' but do not provide a definition of the 
term ``road miles.'' In the June 2, 2010 supplemental proposed rule, we 
proposed to define the term ``road miles'' consistent with the term 
``miles'' as defined at Sec.  412.92 for purposes of determining 
whether a hospital qualifies as a SCH. Specifically, Sec.  412.92(c)(i) 
defines ``miles'' as ``the shortest distance in miles measured over 
improved roads. An improved road for this purpose is any road that is 
maintained by a local, State, or Federal government entity and is 
available for use by the general public. An improved road includes the 
paved surface up to the front entrance of the hospital.'' We noted that 
while the proposed change in the qualifying criteria from 25 to 15 road 
miles is applicable only for FYs 2011 and 2012, the proposed definition 
of ``road miles'' would continue to apply even after the distance 
requirement reverts to 25 road miles beginning in FY 2013.
    Sections 3125(3)(B) and 10314(1) of the Affordable Care Act revised 
the discharge requirement for FYs 2011 and 2012 to less than 1,600 
discharges of individuals entitled to, or enrolled for, benefis under 
Medicare Part A during a fiscal year. Prior to enactment of the 
Affordable Care Act, under section 1886(d)(12) of the Act, as added by 
section 406(a) of Public Law 108-173, the discharge requirement to 
qualify as a low-volume hospital is less than 800 total discharges 
annually, which includes discharges of both Medicare and non-Medicare 
patients. This discharge requirement will apply also for fiscal years 
after FY 2012.
    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

[[Page 50239]]

202 of the Act. Once a person becomes entitled to Medicare Part A, the 
individual does not lose such entitlement simply because there is no 
Part A coverage of a specific inpatient stay. For example, a patient 
does not lose entitlement to Medicare Part A simply because the 
individual's Part A hospital benefits have been exhausted; other items 
and services (for example, skilled nursing services) still might be 
covered under Part A, and the patient would qualify for an additional 
90 days of Part A hospital benefits if at least 60 days elapsed between 
the individual's first and second hospital stay (Sec.  409.60(a) and 
(b)(1) and Sec.  409.61(a)(1) and (c) of the regulations).
    In addition, beneficiaries who are enrolled in Medicare Advantage 
(MA) plans provided under Medicare Part C continue to meet all of the 
statutory criteria for entitlement to Part A benefits under section 
226. 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 Part C plan forfeit their 
entitlement to Part A benefits. Second, once a beneficiary enrolls in 
Part C, the MA plan must provide the beneficiary with the benefits to 
which the enrollee 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 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). Thus, a patient enrolled in a Part C plan remains entitled to 
benefits under Medicare Part A.
    Accordingly, for purposes of determining the number of discharges 
for ``individuals entitled to, or enrolled for, benefits under Part 
A,'' we proposed to include all discharges associated with individuals 
entitled to Part A, including discharges of individuals whose inpatient 
benefits are exhausted or whose stay was not covered by Medicare and 
discharges of individuals enrolled in an MA plan under Medicare Part C. 
Because a hospital may only qualify for this adjustment if the hospital 
has fewer than 1,600 discharges for patients entitled to Part A, the 
hospital must submit a claim to Medicare on behalf of all Part A 
entitled individuals, including a no-pay claim for patients who are 
enrolled in Part C, in order for Medicare to assure that these 
discharges are included in the determination of whether the hospital 
has fewer than 1,600 discharges for patients entitled to Part A.
    Section 3125(4) of the Affordable Care Act added section 
1886(d)(12)(D) to the Act, and section 10314(2) of the Affordable Care 
Act modified section 1886(d)(12)(D) of the Act. Section 1886(d)(12)(D) 
of the Act modified the methodology for calculating the payment 
adjustment under section 1886(d)(12)(A) of the Act for low-volume 
hospitals for discharges occurring in FYs 2011 and 2012. For FY 2010 
and prior fiscal years, and beginning again in FY 2013, sections 
1886(d)(12)(A) and (B) of the Act require the Secretary to determine an 
applicable percentage increase for 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 requires 
the Secretary to develop an empirically justifiable adjustment based on 
the relationship between costs and discharges for these low-volume 
hospitals. The statute also limits the adjustment to no more than 25 
percent. Based on analyses we conducted for the FY 2005 IPPS final rule 
(69 FR 49099 through 49102) and the FY 2006 IPPS final rule (70 FR 
47432 through 47434), a 25 percent low-volume adjustment to all 
qualifying hospitals with less than 200 discharges was found to be most 
consistent with the statutory requirement to provide relief to low-
volume hospitals where there is empirical evidence that higher 
incremental costs are associated with low numbers of total discharges. 
However, section 1886(d)(12)(D) of the Act, as added by the Affordable 
Care Act, provides that, for discharges occurring in FYs 2011 and 2012, 
the Secretary shall determine the applicable percentage increase using 
a continuous, linear sliding scale ranging from an additional 25 
percent payment adjustment for hospitals with 200 or fewer Medicare 
discharges to 0 percent additional payment for hospitals with more than 
1,600 Medicare discharges. In the June 2, 2010 supplemental proposed 
rule (75 FR 30925), we proposed to apply this payment adjustment based 
on increments of 100 discharges (beginning with more than 200 
discharges), with the applicable percentage increase decreasing 
linearly in equal amounts by 1.6667 percent for every additional 100 
Medicare discharges, with no payment adjustment for hospitals with more 
than 1,599 Medicare discharges. We did not propose an adjustment for a 
hospital with exactly 1,600 discharges because, as specified in section 
1886(d)(12)(C)(i) of the Act, as amended, a hospital must have ``less 
than'' 1,600 discharges in order to qualify as a low-volume hospital. 
Consistent with the statute, we proposed that hospitals with 200 or 
fewer Medicare discharges would receive an applicable percentage 
increase of 25 percent. We proposed that the payment adjustment would 
be as determined below:

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[GRAPHIC] [TIFF OMITTED] TR16AU10.051

    While we proposed to revise the qualifying criteria and the payment 
adjustment for low-volume hospitals for FYs 2011 and 2012, consistent 
with the amendments made by the Affordable Care Act, we noted that we 
did not propose to modify the process for requesting and obtaining the 
low-volume hospital payment adjustment. In order to qualify, a hospital 
must provide to its fiscal intermediary or MAC sufficient evidence to 
document that it meets the number of Medicare discharges 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 and, if so, the add-on 
percentage. 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 status, in order to determine whether or not the hospital 
meets the qualifying criteria. In the June 2, 2010 supplemental 
proposed rule (75 FR 30925), we also noted that currently a prior cost 
reporting period is used to determine if the hospital meets the 
discharge criteria to receive the low-volume payment adjustment in the 
current year.
    In the June 2, 2010 supplemental proposed rule (75 FR 30925), we 
also noted that as compared to the existing methodology for determining 
the payment adjustment for low-volume hospitals, no hospital would 
receive a lower payment adjustment under our proposed methodology for 
FYs 2011 and 2012. Although the statute specifies that, for years other 
than FYs 2011 and 2012, a hospital is a low-volume hospital if it has 
less than 800 discharges, currently only hospitals with fewer than 200 
discharges receive a payment adjustment, an additional 25 percent, 
because the statute requires that the adjustment be empirically based 
to provide relief to low-volume hospitals where there is empirical 
evidence that higher incremental costs are associated with low numbers 
of total discharges. Consistent with section 1886(d)(12)(D) of the Act, 
for FYs 2011 and 2012, we indicated that under our proposal we would 
continue to pay hospitals with fewer than 200 discharges a payment 
adjustment amount equal to an additional 25 percent.
    We proposed to revise our regulations at Sec.  412.101 to reflect 
our proposal outlined above. We also proposed a clarification to the 
existing regulations to indicate that a hospital must continue to 
qualify as a low-volume hospital in order to receive the payment 
adjustment in that year; that is, it is not based on a one-time 
qualification. Specifically, existing Sec.  412.101(a)(3) states that 
``The fiscal intermediary makes the determination of the discharge 
count for purposes of determining a hospital's qualification for the 
adjustment based on the hospital's most recent submitted cost report.'' 
This may mistakenly be interpreted to mean that once a hospital 
qualifies as a low-volume hospital, no further qualification is needed.
    Comment: Several commenters stated that the statute requires the 
low-volume payment adjustment to be made using a ``continuous linear 
sliding scale,'' but that the proposed payment adjustments based on 
increments of 100 discharges are not continuous. The commenters 
requested the low-volume adjustment for FYs 2011 and 2012 be determined 
using a specific continuous, linear equation that they included in 
their comments. The commenters also stated that determining the payment 
adjustment using their submitted linear equation, rather than the 
proposed 100-discharge increments, would avoid a significant change in 
the payment adjustment for a hospital if the hospital experienced only 
a small change in its number of Medicare discharges from one year to 
the next.
    Response: We disagree with the commenters that our proposal to 
determine the low-volume payment adjustment for FYs 2011 and 2012 based 
on increments of 100 discharges does not meet the ``continuous linear 
sliding scale'' statutory requirement. Our proposed methodology 
provided for a continuous linearly decreasing adjustment in the amount 
of a fixed percentage for every additional 100 Medicare discharges. 
However, after consideration of public comments regarding the 
``continuous linear sliding scale'' specified by the statute for the 
low-volume payment adjustment for FYs 2011 and 2012, we agree that an 
adjustment based on the linear equation provided by the commenters 
would result in less fluctuation in the payment amount in situations in 
which the number of discharges varied slightly in both years. We 
believe this will assist hospitals in their annual fiscal planning. 
Therefore, in this final rule, we are

[[Page 50241]]

adopting the continuous linear sliding scale equation suggested by 
commenters, to determine the low-volume payment adjustment for FYs 2011 
and 2012 for eligible low-volume hospitals with Medicare discharges of 
more than 200 and less than 1,600 (that is, from 201 to 1,599 Medicare 
discharges). Consistent with the statute and as we proposed, for FYs 
2011 and 2012 for eligible low-volume hospitals with 200 or fewer 
Medicare discharges, we are finalizing a low-volume payment adjustment 
of 25 percent. Therefore, under new Sec.  412.101(c)(2), for FYs 2011 
and 2012, the low-volume adjustment will be determined as follows:
     Low-volume hospitals with 200 or fewer Medicare discharges 
will receive a low-volume adjustment of an additional 25 percent for 
each discharge.
     Low-volume hospitals with Medicare discharges of more than 
200 and fewer than 1,600 will receive for each discharge a low-volume 
adjustment of an additional percent calculated using the formula: [(4/
14)-(Medicare discharges/5600)].
    Commenters have suggested that the correct formula to apply the 
linear scale specified in section 1886(d)(12)(D) of the Act is (4/14)-
(Medicare discharges/5600). This mathematical interpretation is 
consistent with the plain language of section 1886(d)(12)(D) of the 
Act. For qualifying hospitals with fewer than 1,600 Medicare discharges 
but more than 200 Medicare discharges, the low-volume add-on payment is 
calculated by subtracting from 25 percent the proportion of payments 
associated with the Medicare discharges in excess of 200. That 
proportion is calculated by multiplying the Medicare discharges in 
excess of 200 by a fraction that is equal to the maximum available add-
on payment (25 percent) divided by a number represented by the range of 
Medicare discharges for which this policy applies (1,600 minus 200, or 
1,400).
    In other words, for qualifying hospitals with fewer than 1,600 
Medicare discharges but more than 200 Medicare discharges, the add-on 
payment is calculated using the following formula:

Low volume add-on payment = 0.25-[(0.25/1400)*(Number of Medicare 
discharges-200)] = (4/14)-(Medicare discharges/5600).

    Our proposal had been to apply this formula through use of a linear 
scale that represented this formula for every 100 discharges. In light 
of the commenters' suggestion, we will apply this formula for each 
discharge. We believe this is an equally appropriate application of the 
statutory provision and that it creates a more precise calculation for 
the add-on payment.
    As we proposed and described in greater detail above, in this final 
rule, we are revising the regulations to specify at Sec.  412.101(a) 
that ``Medicare discharges'' means a discharge of inpatients entitled 
to Medicare Part A, including discharges associated with individuals 
whose inpatient benefits are exhausted or whose stay was not covered by 
Medicare and also discharges of individuals enrolled in a MA 
organization under Medicare Part C. As stated above, beginning with FY 
2013, that is, with discharges occurring on or after October 1, 2012, 
the existing low-volume hospital payment adjustment and qualifying 
criteria as implemented in FY 2005 will resume.
    Comment: A few commenters asked for clarification regarding what is 
required of the hospital in order to receive the low-volume adjustment 
for FYs 2011 and 2012, that is, what is the process, what documentation 
is required to verify Medicare discharges, which data will be used, and 
can the distance from comparable hospitals be documented with Web-based 
tools such as MapQuest.
    Response: In order to determine the low-volume adjustment for FYs 
2011 and 2012, CMS will determine the number of Medicare discharges 
from the most recent available Medicare discharge data from the MedPAR 
files. These data will provide the number of discharges for individuals 
that are entitled to or enrolled for Medicare Part A, as required by 
statute. As noted elsewhere in this final rule, the MedPAR discharge 
data now include discharges for individuals enrolled in a MA 
organization under Medicare Part C and discharges for patients who are 
entitled to Medicare Part A, but whose Part A inpatient benefits have 
been exhausted or whose stay was not covered by Medicare. Therefore, 
for FY 2011, the low-volume payment adjustment will be determined using 
Medicare discharge data for FY 2009 from the March 2010 update of the 
MedPAR files, as these are the most recent available data. (We expect 
to use Medicare claims data for FY 2010 to determine the low-volume 
payment adjustment for FY 2012, as these will be the most recent 
available data at that time.)
    Below we are providing a chart that lists the hospitals with fewer 
than 1,600 Medicare discharges based on the March 2010 update of the FY 
2009 MedPAR files. Eligibility for the low-volume payment adjustment 
for FY 2011 and FY 2012 is also dependent upon meeting the mileage 
criteria specified at Sec.  412.101(b)(2)(ii), as finalized in this 
final rule.
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BILLING CODE 4120-01-C
    We note that this list of hospitals with fewer than 1,600 Medicare 
discharges does not reflect whether or not the hospital meets the 
mileage criterion, that is, the hospital also must be located more than 
15 road miles from any other IPPS hospital. In order to receive the 
applicable low-volume percentage add-on payment, a hospital must notify 
and provide documentation to its fiscal intermediary or MAC that it 
meets this mileage criterion. The use of a Web-based mapping tool, such 
as MapQuest, as part of documenting that the hospital meets the mileage 
criterion for low-volume hospitals is acceptable. The fiscal 
intermediary or MAC will determine if the information submitted by the 
hospital, such as the name and street address of the nearest hospitals, 
location on a map, and distance (in road miles, as defined in the 
regulations at Sec.  412.101(a)) from the hospital requesting low-
volume hospital status, is sufficient to document that it meets the 
mileage criterion. If not, the fiscal intermediary or MAC will follow 
up with the hospital in order to obtain additional necessary 
information to determine whether or not the hospital meets the low-
volume mileage criterion. The fiscal intermediary or MAC will refer to 
the hospital's Medicare discharge data determined by CMS (as shown in 
the chart above for FY 2011 and posted on the CMS Web site at: http://www.cms.gov) to determine whether or not the hospital meets the 
discharge criterion, and the amount of the payment adjustment, once it 
is determined that both the mileage and discharge criteria are met. The 
Medicare discharge data shown in the chart above, as well as the 
Medicare discharge data for all hospitals with claims in the March 2010 
update of the FY 2009 MedPAR files, also will be available on the CMS 
Web site for hospitals to check their Medicare discharges to help them 
to decide whether or not to apply for low-volume hospital status. We 
are revising the regulations at Sec.  412.101(b) to reflect the policy 
of basing the discharge criterion for FYs 2011 and 2012 (using Medicare 
discharges) on the most recently available MedPAR data. We will 
continue to base the discharge criterion (using total discharges, 
Medicare and non-Medicare) on the hospital's most recently submitted 
cost report data, as we do under the existing policy, for FY 2005 
through FY 2010 and FY 2013 and subsequent fiscal years.
    For FY 2011, the hospital should make its request for low-volume 
hospital status in writing to its fiscal intermediary or MAC by 
September 1, 2010, so that the applicable low-volume percentage add-on 
will be applied to payments for its discharges beginning on or after 
October 1, 2010. For FY 2012, a hospital that qualified for the low-
volume adjustment in FY 2011 may continue to receive the add-on 
payment, without reapplying, if it continues to

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meet the Medicare discharge criterion based on the latest available 
MedPAR data. However, the hospital must verify in writing to its fiscal 
intermediary or MAC that it continues to be more than 15 miles from any 
other IPPS hospital. (As noted above, we expect Medicare claims data 
from FY 2010 to be available to determine the low-volume payment 
adjustment for FY 2012.) A hospital that was not a low-volume hospital 
in FY 2011, and believes it meets the discharge and mileage criterion 
for FY 2012, should make its request in writing, with documentation 
that it meets the mileage criterion, to its fiscal intermediary or MAC 
by September 1, 2011, in order for the applicable low-volume percentage 
add-on to be applied beginning with discharges on or after October 1, 
2011.
    Comment: A few commenters requested clarification regarding the 
application of the low-volume payment adjustment at section 1886(d)(12) 
of the Act to SCHs and MDHs, given that these types of hospitals are 
also subsection (d) hospitals. These commenters also requested that CMS 
explicitly state that the applicable low-volume percentage add-on is 
applied to an SCH's or a MDH's payments at the Federal rate or the 
hospital-specific rate.
    Response: Section 1886(d)(12)(C)(i) defines a low-volume hospital, 
in part, as a ``subsection (d) hospital.'' SCHs and MDHs are 
``subsection (d) hospitals'' although they can be paid under a 
hospital-specific rate instead of under the Federal standardized amount 
under the IPPS. As subsection (d) hospitals, SCHs and MDHs are eligible 
to receive the low-volume adjustment if the hospital meets the 
discharge and mileage criteria. Section 1886(d)(12)(A) states that the 
applicable low-volume percentage add-on payment will be ``[i]n addition 
to any payments calculated [under section 1886]''. For SCHs and MDHs, 
payment under section 1886 is determined using either the Federal rate 
or the hospital-specific rate, whichever results in a greater payment.
    After consideration of the public comments we received, we are 
adopting the continuous linear sliding scale equation set forth by 
commenters to determine the low-volume payment adjustment for FYs 2011 
and 2012 for eligible low-volume hospitals with Medicare discharges of 
more than 200 and less than 1,600 (that is, from 201 to 1,599 Medicare 
discharges), and we have modified Sec.  412.101(c)(2) of the 
regulations in this final rule accordingly. We are revising Sec.  
412.101 to reflect the final changes as discussed above. In addition, 
we note that we are making structural changes to the final regulation 
text at Sec.  412.101 as compared to the proposed regulation text at 
Sec.  412.101(for example, we are combining proposed paragraph 
(b)(2)(iii) into paragraph (b)(2)(i) to more concisely reflect the 
final policy that we are establishing in this final rule).

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

1. Background
    Section 1886(d)(5)(B) of the Act provides for an additional payment 
amount under the IPPS for hospitals that have residents in an approved 
graduate medical education (GME) program in order to reflect the higher 
indirect patient care costs of teaching hospitals relative to 
nonteaching hospitals. The regulations regarding the calculation of 
this additional payment, known as the indirect medical education (IME) 
adjustment, are located at Sec.  412.105.
    Public Law 105-33 (BBA 1987) established a limit on the number of 
allopathic and osteopathic residents that a hospital may include in its 
full-time equivalent (FTE) resident count for direct GME and IME 
payment purposes. Under section 1886(h)(4)(F) of the Act, for cost 
reporting periods beginning on or after October 1, 1997, a hospital's 
unweighted FTE count of residents for purposes of direct GME may not 
exceed the hospital's unweighted FTE count for its most recent cost 
reporting period ending on or before December 31, 1996. Under section 
1886(d)(5)(B)(v) of the Act, a similar limit on the FTE resident count 
for IME purposes is effective for discharges occurring on or after 
October 1, 1997.
2. IME Adjustment Factor for FY 2011
    The IME adjustment to the MS-DRG payment is based in part on the 
applicable IME adjustment factor. The IME adjustment factor is 
calculated by using a hospital's ratio of residents to beds, which is 
represented as r, and a formula multiplier, which is represented as c, 
in the following equation: c x [{1 + r{time} \.405\ - 1]. The formula 
is traditionally described in terms of a certain percentage increase in 
payment for every 10-percent increase in the resident-to-bed ratio.
    Section 502(a) of Public Law 108-173 modified the formula 
multiplier (c) to be used in the calculation of the IME adjustment. 
Prior to the enactment of Public Law 108-173, the formula multiplier 
was fixed at 1.35 for discharges occurring during FY 2003 and 
thereafter. In the FY 2005 IPPS final rule, we announced the schedule 
of formula multipliers to be used in the calculation of the IME 
adjustment and incorporated the schedule in our regulations at Sec.  
412.105(d)(3)(viii) through (d)(3)(xii). Section 502(a) modified the 
formula multiplier beginning midway through FY 2004 and provided for a 
new schedule of formula multipliers for FYs 2005 and thereafter as 
follows:
     For discharges occurring on or after April 1, 2004, and 
before October 1, 2004, the formula multiplier is 1.47.
     For discharges occurring during FY 2005, the formula 
multiplier is 1.42.
     For discharges occurring during FY 2006, the formula 
multiplier is 1.37.
     For discharges occurring during FY 2007, the formula 
multiplier is 1.32.
     For discharges occurring during FY 2008 and fiscal years 
thereafter, the formula multiplier is 1.35.
    Accordingly, for discharges occurring during FY 2011, the formula 
multiplier is 1.35. We estimate that application of this formula 
multiplier for the FY 2011 IME adjustment will result in an increase in 
IPPS payment of 5.5 percent for every approximately 10-percent increase 
in the hospital's resident-to-bed ratio.
3. IME-Related Changes in Other Sections of this Final Rule
    We refer readers to section IV.H.2. and IV.H.3. of the preamble of 
this final rule for a discussion of changes to the policies for 
identifying ``approved medical residency programs'' and the electronic 
submission of Medicare GME affiliation agreements.

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

1. Background
    Section 1886(d)(5)(F) of the Act provides for additional Medicare 
payments to subsection (d) hospitals that serve a significantly 
disproportionate number of low-income patients. The Act specifies two 
methods by which a hospital may qualify for the Medicare 
disproportionate share hospital (DSH) adjustment. Under the first 
method, hospitals that are located in an urban area and have 100 or 
more beds may receive a Medicare DSH payment adjustment if the hospital 
can demonstrate that, during its cost reporting period, more than 30 
percent of its net inpatient care revenues are derived from State and 
local government payments for care furnished to needy patients with low 
incomes. This method is commonly referred to as the ``Pickle method.''
    The second method for qualifying for the DSH payment adjustment, 
which is

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the most common, is based on a complex statutory formula under which 
the DSH payment adjustment is based on the hospital's geographic 
designation, the number of beds in the hospital, and the level of the 
hospital's disproportionate patient percentage (DPP). A hospital's DPP 
is the sum of two fractions: the ``Supplemental Security Income (SSI) 
fraction'' and the ``Medicaid fraction.'' The SSI fraction (also known 
as the ``SSI ratio'' or the ``Medicare fraction'') is computed by 
dividing the number of the hospital's inpatient days that are furnished 
to patients who were entitled to both Medicare Part A (including 
patients who are enrolled in a Medicare Advantage (Part C) plan) and 
SSI benefits by the hospital's total number of patient days furnished 
to patients entitled to benefits under Medicare Part A (including 
patients who are enrolled in a Medicare Advantage (Part C) plan). The 
Medicaid fraction is computed by dividing the hospital's number of 
inpatient days furnished to patients who, for such days, were eligible 
for Medicaid, but were not entitled to benefits under Medicare Part A, 
by the hospital's total number of inpatient days in the same period.
    Because the DSH payment adjustment is part of the IPPS, the DSH 
statutory references (under section 1886(d)(5)(F) of the Act) to 
``days'' apply only to hospital acute care inpatient days. Regulations 
located at 42 CFR 412.106 govern the Medicare DSH payment adjustment 
and specify how the DPP is calculated as well as how beds and patient 
days are counted in determining the DSH payment adjustment. Under Sec.  
412.106(a)(1)(i), the number of beds for the Medicare DSH payment 
adjustment is determined in accordance with bed counting rules for the 
IME adjustment under Sec.  412.105(b).
2. CMS' Current Data Matching Process for the SSI Fraction
    As we discussed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 
24002), from the inception of the Medicare DSH adjustment in 1986, CMS 
(formerly HCFA) has calculated the SSI fraction for each acute care 
hospital paid under the IPPS. This fraction, in combination with the 
Medicaid fraction, is used to determine whether the provider qualifies 
for a DSH payment adjustment and the amount of any such payment (51 FR 
16772, 16777, May 6, 1986 interim final rule). In determining the 
number of inpatient days for individuals entitled to both Medicare Part 
A and SSI, as required for calculation of the numerator of the SSI 
fraction, CMS matches the Medicare records and SSI eligibility records 
for each hospital's patients during the Federal fiscal year, unless the 
provider requests calculation of the SSI fraction on a cost reporting 
period basis (in which case the provider would receive its SSI fraction 
based on its own cost reporting period). The data underlying the match 
process are drawn from: (a) The Medicare Provider Analysis and Review 
(MedPAR) data file; and (b) SSI eligibility data provided by the Social 
Security Administration (SSA). CMS has matched Medicare and SSI 
eligibility records using Title II numbers (included in the SSI 
records) and Health Insurance Claims Account Numbers (HICANs) 
(contained in the MedPAR file). Below we provide a more detailed 
description of both a Title II number and a HICAN.
    Title II Number: If a person qualifies for retirement or disability 
benefits under Title II of the Act (42 U.S.C. 401 et seq.), SSA assigns 
a ``Title II number'' to the individual. If the Title II beneficiary's 
own earnings history (or the individual's disability) were the basis 
for such benefits, the person's Social Security number (SSN) would 
constitute the ``root'' of the individual's Title II number. However, 
if the person's Title II benefits were based on the earnings history of 
another individual (for example, a spouse), that other person's SSN 
would provide the root for the beneficiary's Title II number. In 
addition to a root SSN, each Title II number ends with a Beneficiary 
Identification Code (BIC) that identifies the basis for an individual's 
entitlement to benefits. For example, a person who becomes eligible for 
benefits under his or her own account would be described by his or her 
SSN followed by the BIC ``A'' whereas a wife who becomes eligible for 
benefits under her husband's account would be described by his SSN 
followed by the BIC ``B.'' Children who become eligible under a 
parent's account would be described by the parent's SSN followed by the 
BIC ``C1,'' ``C2,'' etc.
    HICAN: When a person becomes entitled to Medicare benefits, he or 
she is assigned a HICAN for purposes of processing claims submitted on 
his or her behalf for Medicare services. A beneficiary's HICAN (which 
may not necessarily contain his or her SSN) is included on the Medicare 
inpatient hospital claim.
    Each HICAN for a beneficiary should be identical, at the same point 
in time, to that individual's Title II number. This is because HICANs 
and Title II numbers are both assigned on the basis of the same data 
source, the SSA-maintained Master Beneficiary Record, and by using the 
same rules (that is, the rules for determining which person's SSN will 
serve as the root for an individual's HICAN and Title II number and for 
determining the BIC for both types of numbers).
    We note that a person's Title II number and HICAN can change over 
time. For example, if the individual's entitlement to Title II and 
Medicare benefits was originally based on the earnings history of a 
first spouse, but the beneficiary later qualified for such benefits on 
the basis of a second spouse's earnings history, the beneficiary's 
HICAN and Title II number would change accordingly. Specifically, the 
first spouse's SSN would be the root of the beneficiary's original 
HICAN and Title II number; later, the second spouse's SSN would become 
the root of the beneficiary's second HICAN and Title II number.
    The SSI eligibility data that CMS receives from SSA contain monthly 
indicators to denote which month(s) each person was eligible for SSI 
benefits during a specific time period. The current matching process 
uses only one Title II number (which is included in the SSI file) and 
one HICAN (found in the MedPAR file) for each beneficiary. In the 
current matching process, CMS has used the HICAN because it is the 
patient identifier that is provided by hospitals on the Medicare claim. 
Because SSNs are not included on Medicare inpatient claims, CMS has not 
historically used SSNs in the match process.
    For a given fiscal year, CMS determines the numerator of the 
hospital's SSI fraction (that is, the number of the hospital's 
inpatient days for all of its patients who were simultaneously entitled 
to Medicare Part A benefits and SSI benefits) by calculating the sum of 
the number of the hospital's inpatient days that are associated with 
all of the identical Title II numbers and HICANs for the hospital's 
claims that are found through the data matching process. In turn, CMS 
determines the denominator of the hospital's SSI fraction by 
calculating the sum of the number of the hospital's inpatient days for 
patients entitled to benefits under Medicare Part A (regardless of SSI 
eligibility) that are included in the hospital's inpatient claims for 
the period.
3. Baystate Medical Center v. Leavitt Court Decision
    In Baystate Medical Center v. Leavitt, 545 F. Supp. 2d 20, as 
amended, 587 F. Supp. 2d 37, 44 (D.D.C. 2008), the district court 
concluded that, in certain respects, CMS' current matching process (as 
described above) did not use the

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``best available data'' to match Medicare patient day information with 
SSI eligibility data when calculating the plaintiff's SSI fractions for 
FYs 1993 through 1996. Specifically, the court found that:
     Stale SSI Records and Forced Pay SSI Records. For the 
earliest years in question in Baystate, the SSI eligibility data did 
not include ``stale'' records--that is, records for individuals whose 
SSI records were no longer active from SSA's perspective. (We note that 
it is our understanding that, as of the year 2000, SSA no longer 
differentiates between inactive and active records and therefore, no 
longer uses the ``stale record'' indicator in its databases.) The court 
also found that the SSI data file only included SSI eligibility 
information for SSI payments that were automated (as opposed to 
manual), thereby excluding those people who, for whatever reason, 
received manual or ``forced pay'' payments. Baystate, 545 F. Supp. 2d 
at 44-46.
     Match Based on Only One Title II Number and One HICAN. The 
court found fault with CMS' use of only a single Title II number and 
one HICAN in the match process. As a beneficiary may receive SSI and 
Medicare Part A benefits under more than one Title II number and HICAN 
over a period of time, CMS would not have matched a beneficiary's 
records if there had been a change in the person's Title II number and 
HICAN between the time of an inpatient stay and when the match process 
was completed. Baystate, 545 F. Supp. 2d at 46-49.
     Retroactive SSI Eligibility Determinations and Lifting of 
Payment Suspensions. The court found that the match process did not 
appropriately account for retroactive eligibility determinations of SSI 
eligibility and the lifting of payment suspensions because the match 
process used SSI eligibility data that did not include more recent 
retroactive determinations of SSI eligibility and the lifting of SSI 
payment suspensions. By not using more recent SSI eligibility 
information that was available to CMS at the time of the hospital's 
cost report settlement, the court concluded that CMS did not use the 
``best available data'' to calculate the provider's SSI fraction. 
Baystate, 545 F. Supp. 2d at 42-44.
    CMS continues to believe that its current data matching process and 
the resultant SSI fraction and DSH payments were lawful. Nonetheless, 
the agency did not appeal the Baystate decision. Accordingly, CMS 
implemented the court's decision by recalculating the plaintiff's SSI 
fractions for 1993 through 1996. In recalculating the SSI fractions at 
issue in the Baystate case, we worked closely with SSA to ensure that 
stale and forced pay SSI records were included in the SSI eligibility 
data. Also, we used a revised data matching process (described in more 
detail below) that comports with the court's decision. As the revised 
data matching process was completed using SSI eligibility data compiled 
between 13 and 16 years beyond the fiscal years at issue in the 
Baystate case, we believe any issues associated with retroactive 
determinations of SSI eligibility and the lifting of payment 
suspensions had been long since resolved. Furthermore, because we 
believe that the revised match process used to implement the Baystate 
decision addressed all of the concerns found by the court, in the FY 
2011 IPPS/LTCH PPS proposed rule we proposed to use the same revised 
data matching process for calculating hospitals' SSI fractions for FY 
2011 and subsequent fiscal years.
4. CMS' Process for Matching Medicare and SSI Eligibility Data
a. Inclusion of Stale Records and Forced Pay Records in the SSI 
Eligibility Data Files
    In recalculating the SSI fractions at issue in the Baystate case, 
stale records and forced pay records were included in the SSI 
eligibility data files that CMS used in the revised data match for the 
four fiscal years at issue. All SSI payment records, whether the 
payments were automated or manual or were for an individual whose 
record was active or stale, are now included in the data files provided 
by SSA and will continue to be included in the future.
b. Use of SSNs in the Revised Match Process
    As indicated above, the current matching process only uses one 
Title II number and one HICAN in the data match process. As we 
discussed in the FY 2011 IPPS/LTCH PPS proposed rule, by contrast, our 
revised match process would make use of the Medicare Enrollment 
Database (EDB), which is CMS' system of records for all individuals who 
have ever been enrolled in Medicare. The EDB includes SSNs as well as 
all of an individual's HICANs. In our proposed revised match process, 
the individual's SSN, contained in the SSI eligibility data file, would 
be compared to the SSNs in the Medicare EDB, and each matched SSN would 
then be ``cross-walked'' within the EDB to find any and all HICANs 
associated with the individual's SSN. The resulting HICANs would then 
be matched against those HICANs contained in the MedPAR claims data 
files.
    As stated in the proposed rule, before explaining our proposed 
revised match process in more detail, we believe it is appropriate to 
provide some background regarding SSNs and the three databases that 
would be used in our proposed match process. An individual should have 
only one SSN, which should be unique to that individual. The SSN may be 
assigned by SSA when the individual begins gainful employment (if not 
earlier). However, if an applicant for SSI benefits does not already 
have a SSN, SSA then assigns a SSN to the person. Thus, in the SSI 
eligibility data that SSA provides to CMS, each individual identified 
in those data should have a unique SSN.
    The first database that we proposed to use in our revised match 
process was the SSI eligibility data file, which contains a unique SSN 
for every SSI record and could include as many as 10 different 
historical Title II numbers for the records related to one individual. 
We proposed to use 10 as the maximum number of Title II numbers for a 
beneficiary because that is likewise the maximum number of HICANs that 
can be attributed to any one individual in our EDB. However, we noted 
that, as a practical matter, the greatest number of historical HICANs 
associated with any beneficiary appears to be 7. The SSI eligibility 
file serves as the system of record for whether or not SSA made a 
payment of SSI benefits to an individual who applied for SSI benefits.
    The second relevant database, the Medicare EDB, contains a SSN for 
virtually every record in the EDB. Furthermore, the EDB has the 
capacity to hold up to 10 historical HICANs for a specific Medicare 
enrollee. (It is important to note that, of the more than 100 million 
records in the EDB, less than 0.07 percent (that is, fewer than 7 of 
every 10,000 records) relate to individuals for whom the EDB does not 
include a SSN for the person. The EDB might not include a SSN for an 
individual if, for example, the person lives in another country but is 
entitled to Medicare benefits through his or her spouse.)
    The third relevant database that we proposed to use in our revised 
match process was the MedPAR file. Hospitals submit claims to Medicare 
for inpatient services provided to Medicare beneficiaries. These claims 
are eventually accumulated in the MedPAR database. We noted that the 
MedPAR database does not contain SSNs. The MedPAR database contains one 
HICAN number for each and every record of services provided to a 
Medicare

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beneficiary who was admitted to a Medicare-certified hospital or 
skilled nursing facility. This database allows us to calculate the 
number of Medicare inpatient hospital days, which we use in determining 
each hospital's DSH SSI fraction.
    Utilizing the steps set forth below, in the proposed rule, we 
proposed to use these three databases in a revised match process for FY 
2011 and subsequent fiscal years:
    Step 1--Use SSNs to find any and all relevant HICANs. We proposed 
to use the SSI eligibility file provided by SSA to compare the 
individual SSNs in that file to the SSNs contained in the Medicare EDB. 
Each matched SSN would then be ``cross-walked'' (within the EDB) to 
find any and all HICANs associated with the individual's SSN. The 
resulting HICANs would then be matched against those HICANs contained 
in the MedPAR claims data files. This process should identify all 
relevant SSI records in which a SSN is associated with an individual 
who is simultaneously enrolled in Medicare Part A and in the SSI 
program.
    Step 2--Utilize any and all Title II numbers. In order to provide 
further assurance that all of the Title II numbers and HICANs for SSI-
eligible individuals have been identified, next we proposed to compare 
the complete list of Title II numbers from the SSI data file (up to 10 
Title II numbers for any one individual) to the list of HICANs 
generated through Step 1 above. If the SSI data file includes any Title 
II numbers that were not already identified in Step 1, the Title II 
number would be included in our revised match process and compared to 
any and all HICANs in MedPAR. We noted that by including this second 
step (that is, adding all Title II numbers not previously identified by 
Step 1), we were addressing the very small universe of individuals for 
whom the EDB does not include a SSN. If an individual is entitled to 
SSI benefits and Medicare benefits, the new format of the SSI 
eligibility file will contain up to 10 Title II numbers and, if they 
have not already been captured, each of those numbers will be included 
in our revised match process. Even if an individual does not have a SSN 
in the EDB, this second step should ensure that our revised match 
process will include that individual.
    Step 3--Ensure consistency between the HICANs in the EDB, Title II 
numbers, and the HICANs in the MedPAR file. The EDB stores the 
beneficiary's record at the most specific level of detail. For example, 
if the beneficiary's Medicare eligibility was originally based on the 
earnings history of a spouse who subsequently dies, the beneficiary 
would have two HICANs. Both HICANs, which would have the same root, but 
different BICs, would be stored in the EDB. However, the inpatient 
claim in the MedPAR file will only have the individual's HICAN at a 
more general level of detail; in the preceding example, the BIC would 
identify the beneficiary only as a spouse without specifying whether 
the spouse (that is, the ``primary'' beneficiary) was alive or 
deceased. This third step should ensure consistency between the HICANs 
from Step 1 and the Title II numbers from Step 2 by ``equating'' (or 
converting) the BIC identifiers to the identifiers that are on the 
inpatient claim that is included in the MedPAR file. In addition, we 
proposed that, for any SSI-eligible beneficiary who is receiving 
Medicare benefits based on his or her own account but whose records 
have not been matched already, we would attempt to match the 
beneficiary's HICAN in the MedPAR file. Specifically, we proposed to 
simply add an ``A'' to all the SSNs in the SSI eligibility data file so 
that, if that individual was not captured by Steps 1 and 2 above (for 
whatever unlikely reason) but MedPAR indicated that the person had 
received Medicare services, the individual would be included in the 
data match process by this third step.
    Step 4--Calculate the SSI fraction. We did not propose any changes 
with respect to the final step in determining the SSI fraction. To 
calculate the numerator of the SSI fraction, CMS would continue to sum 
a hospital's Medicare inpatient days in the acute care part of the 
hospital (excluding IPPS-exempt units such as rehabilitation and 
psychiatric units) where the Medicare beneficiary was simultaneously 
entitled to SSI benefits. To calculate the denominator, CMS would 
continue to sum a hospital's total Medicare inpatient days in the acute 
care part of the hospital.
    Comment: Many commenters supported the proposed data matching 
process and applauded CMS for working to refine the data matching 
process and for sharing details of the process in the proposed rule. 
Some commenters stated that it was difficult to determine the accuracy 
of the proposed data matching process without more details about the 
matching process, including more information on steps, testing, and 
validation processes or, alternatively, providing the underlying data 
files to the hospitals. Some commenters asked that CMS ensure that all 
HICANs included in the MedPAR file match to a HICAN in the EDB. The 
commenters requested that CMS exclude any HICANs from the MedPAR file 
that did not match to the EDB so that the SSI fractions would not be 
understated. Commenters also asked that CMS ensure that the proposed 
data matching process is consistent with Federal Information Processing 
Standards (FIPS). One commenter asked that CMS include SSI indicators 
in the EDB and give access to authorized parties so that hospitals can 
calculate their own SSI fractions and litigation over the SSI fractions 
would be reduced.
    Response: We appreciate the commenters' support of our proposed 
data matching process. We believe that the proposed data matching 
process will produce more accurate SSI fractions. We also believe that 
we have shared all relevant details about the proposed revised data 
matching process in order to allow the public a meaningful opportunity 
to submit comments. Specifically, we have described the specific data 
files we intend to use, provided information and background about those 
data files along with a detailed, step-by-step description of how we 
intend to use those files for purposes of the data matching process, 
and provided specific information, including examples, of the specific 
timeframes in which we intend to conduct the various aspects of the 
data matching processes. However, per the commenters' request, we are 
sharing additional details in this final rule about the testing and 
validation procedures we intend to use. Specifically, as part of our 
internal data validation processes, we will track certain summary 
statistics in an effort to minimize any errors or omissions of data 
that might lead to inaccurate SSI fractions. The summary statistics we 
produce when calculating each fiscal year's SSI fractions for FY 2011 
and beyond will include the number of SSI records received from SSA and 
will include at least all of the following information about SSI 
records that ``matched'' to Medicare inpatient hospital claims using 
the revised data matching process: (1) The number of SSI records 
matched using the new data matching process; (2) the number of records 
indicating that the individual is deceased; and (3) the number of 
records where at least one SSI monthly indicator reflects that the 
individual was in forced pay or forced due status. Additionally, we 
will produce summary statistics relating to SSI records that did not 
match to a Medicare inpatient claim, and will include at least all of 
the following information: (1) The number of unmatched SSI records with 
no Title II numbers; (2) the number of unmatched SSI records with one 
or

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more Title II numbers; and (3) the number of records in the EDB with a 
HICAN, but no SSN. As these data will be used as part of our internal 
data validation process, we do not intend to provide them to the 
public.
    In response to the comment requesting that we ensure that every 
HICAN on the MedPAR file match a HICAN in the EDB, we agree that every 
HICAN in the MedPAR file should match a HICAN in the EDB. We believe 
that this is necessarily the case because a Medicare claim must be 
submitted with a valid HICAN in order to populate the MedPAR database. 
As we stated in the proposed rule, the EDB is CMS' system of records 
for all individuals who have ever been enrolled in Medicare and 
includes SSNs as well as all of an individual's (current and 
historical) HICANs. The MedPAR file includes the HICAN under which the 
Medicare beneficiary received hospital benefits for a particular 
inpatient stay. Therefore, there should not be a HICAN in the MedPAR 
file that does not match to a HICAN in the EDB. Because there is no 
apparent reason for there to be a case where a HICAN in the MedPAR file 
did not match to a HICAN in the EDB, we did not propose to match HICANs 
in the MedPAR file to those in the EDB. We also note that ``Step 3'' of 
our proposed process should ensure consistency between the HICANs in 
the EDB and those in the MedPAR file by ``equating'' (or converting) 
the BIC identifiers in the EDB to the identifiers that are on the 
inpatient claim that is included in the MedPAR file. We also proposed 
that, for any SSI-eligible beneficiary who is receiving Medicare 
benefits based on his or her own account but whose records have not 
been matched in steps 1 or 2 of the proposed data matching process, we 
would attempt to match directly to the beneficiary's HICAN in the 
MedPAR file. Specifically, we proposed to add an ``A'' to all the SSNs 
in the SSI eligibility data file so that, if that individual was not 
captured by Steps 1 and 2 above, but the MedPAR file indicated that the 
person had received Medicare services, the individual would be included 
in the data match process by this third step. We believe that this step 
further helps us to capture any SSI-entitled individual who is 
receiving Medicare benefits based on his or her own account. However, 
after consideration of this public comment, in an attempt to provide 
even more assurances that our data matching process will yield accurate 
SSI fractions and capture all Medicare beneficiaries who were entitled 
to SSI at the time of their inpatient hospital stay, we will add this 
step to our validation procedures when conducting the data matching 
process. That is, we will test the MedPAR data to determine whether 
each HICAN in the MedPAR file matches to a HICAN in the EDB. In the 
unlikely event that we find a HICAN in the MedPAR file that we are not 
able to locate in the EDB, we will investigate the record to determine 
whether the HICAN is valid (in which case we would include it in our 
data matching process). However, if we find that the HICAN is not 
valid, we are adopting a policy to exclude that record from the data 
matching process, and we also will exclude that invalid record from the 
calculation of both the numerator and the denominator of the SSI 
fraction.
    With respect to the comment about FIPS, we note that the data 
matching process is consistent with the FIPS, to the extent the data 
used in the data matching process are covered under FIPS.
    In response to the comment that we populate the EDB with the 
monthly SSI indicators and grant access to certain members of the 
public so that hospitals could calculate their own SSI fractions, we 
note that the EDB contains several elements of protected personally 
identifiable information and is the sole system of records for Medicare 
eligibility. As such, we may only provide access to the EDB to persons 
authorized under the Privacy Act or the HIPAA Privacy Rule. However, we 
agree that there are advantages to allowing hospitals to compute their 
own SSI fraction and provide supporting documentation for the amount of 
DSH claimed, consistent with the process under the regulations for 
computing the Medicaid fraction. We are open to suggestions from the 
public regarding how CMS and SSA could provide the data necessary for 
hospitals to compute their own SSI fractions without compromising 
protected personally identifiable information and other protected 
information. We also welcome suggestions describing how CMS or its 
contractors should verify the accuracy of the hospitals' computations 
without significantly increasing administrative burden.
    Comment: A few commenters requested that CMS release each 
hospital's detailed SSI fraction data or give hospitals access to 
patient-level detail data, including SSI eligibility information, so 
each hospital could determine the accuracy of its SSI fractions. One 
commenter asked that CMS publish both the Federal fiscal year SSI 
fractions and each hospital's cost reporting period SSI fractions. Some 
commenters asked that CMS provide assurances that there are no other 
data errors or omissions in the SSI file or the data matching process 
and asked that CMS work collaboratively with SSA to ensure the accuracy 
of the SSI file and to obtain SSNs for records in the EDB that are 
missing an SSN.
    Response: Under the proposed data matching process for FY 2011 and 
beyond, CMS will continue to share certain detailed SSI fraction data 
used to calculate the hospital's SSI fraction as long as the hospital 
has a valid data use agreement with CMS and submits a request for such 
data. More detail on obtaining these data may be found on our Web site 
at: http://www.cms.gov/PrivProtectedData/07_DSHRateData.asp and the 
data use agreement application may be found on our Web site at: http://cmsnet.cms.hhs.gov/hpages/oisnew/sysndata/access_to_data/cms-DUA.pdf. 
As we stated in the proposed rule, we publish these data for every 
hospital based on the Federal fiscal year but, under the regulations at 
Sec.  412.106(b)(3), a hospital with a cost reporting period that 
differs from the Federal fiscal year may request a revised SSI fraction 
that is based on its own cost reporting period rather than the Federal 
fiscal year. In such a case, we would revise the hospital's SSI 
fraction using SSI and Medicare data derived from the data match 
process for the two Federal fiscal years that spanned the hospital's 
cost reporting period. We believe that the statute governing the SSI 
fraction (section 1886(d)(5)(F)(vi)(I) of the Act) requires that one 
SSI fraction be calculated and used for purposes of determining a 
hospital's disproportionate patient percentage. We believe that 
allowing individual hospitals to request their own cost reporting 
period SSI fractions is sufficient and goes above and beyond what the 
statute requires. The current policy of calculating all hospitals' SSI 
fractions based on the Federal fiscal year does not require that we 
maintain a list of each individual hospital's cost reporting period, 
nor does it require that we perform multiple iterations of the data 
matching process. It would be administratively unwieldy to not only 
track every hospital's cost reporting period, but to calculate SSI 
fractions based on the many different cost reporting periods that 
hospitals across the country may have.
    With respect to the comment requesting that CMS work with SSA to 
ensure accuracy of the SSI file, we note that CMS has worked 
collaboratively with SSA throughout the development of the data 
matching process that was described in the FY 2011 proposed rule.

[[Page 50280]]

We are committed to continue working with SSA to ensure that the file 
we receive from SSA for the purposes of the SSI fraction data matching 
process is complete and comprehensive and includes all individuals who 
are entitled to SSI. To our knowledge, there are no omissions or data 
errors on the SSI file that we receive from SSA. If we become aware of 
any such omissions or errors, we will work with SSA to correct them as 
quickly as possible. With respect to obtaining an SSN for each record 
in the EBD that does not have an SSN, we remind the commenters that 
``of the more than 100 million records in the EDB, less than 0.07 
percent (that is, fewer than 7 of every 10,000 records) relate to 
individuals for whom the EDB does not include a SSN for the person.'' 
There are valid reasons that a person in the EDB may not have an SSN. 
For example, as we noted in the proposed rule, a person could live in a 
country other than the United States, but be entitled to Medicare 
benefits through his or her spouse. Another example of a record in the 
EDB that may validly lack an SSN is if the person filed for a spouse's 
or widow/er's benefit prior to the 1980's because SSA did not require 
that the person filing for benefits have an SSN at that time. There may 
be other valid reasons that a record in the EDB does not have an SSN, 
and as we previously stated, less than 0.07 percent of records in the 
EDB lack an SSN. We do not believe that it is possible to add an SSN 
for every record if the person became entitled to Title II or Medicare 
benefits without ever applying or receiving an SSN. However, we note 
that the EDB is populated by SSA on a frequent basis; to the extent 
that a record is added to the EDB, the SSN that SSA has on file for 
that person should be included in the EDB as well. Moreover, even if 
there were instances in which a record in the EDB was missing an SSN, 
the lack of an SSN for certain records in the EDB should have no effect 
on the data matching process because, in order to be entitled to SSI 
benefits, an individual must have an SSN. That is, a person who does 
not have an SSN, by definition, cannot be entitled to SSI. (We refer 
readers to the proposed rule language at 75 FR 24003 that states: 
``However, if an applicant for SSI benefits does not already have a 
SSN, SSA then assigns a SSN to the person.'') Thus, in the SSI 
eligibility data that SSA provides to CMS, each individual identified 
in those data should have a unique SSN. Additionally, as we stated 
under Step 2 of the proposed data matching process, if an individual is 
entitled to SSI benefits and Medicare benefits, the new format of the 
SSI eligibility file will contain up to 10 Title II numbers and, if 
they have not already been captured, each of those numbers will be 
included in our revised match process. Even if an individual does not 
have a SSN in the EDB, this second step should ensure that our revised 
match process will include that individual.
    In response to the comment that CMS share the SSI file data with 
hospitals, the SSI program is under the authority of SSA and CMS is not 
authorized to share SSA data. Additionally, CMS is only permitted to 
use the SSI data for the sole purpose of conducting the data match 
process and calculating the SSI fractions. To the extent that a third 
party wishes to obtain direct access to the SSI file, it must contact 
SSA directly and meet SSA's requirements to become an authorized user.
    Comment: One commenter stated that CMS uses total (that is, ``paid 
and unpaid'') Medicare days in the denominator of the SSI fraction, but 
uses paid SSI days in the numerator of the SSI fraction. The commenter 
requested that CMS interpret the word ``entitled'' to mean ``paid'' for 
both SSI-entitled days used for the numerator and Medicare-entitled 
days used in the denominator, or alternatively, that CMS include both 
paid and unpaid days for both SSI entitlement and Medicare entitlement 
such that there is consistency between the numerator and the 
denominator of the SSI fraction. The commenter stated that there were 
several SSI codes that represent individuals who were eligible for SSI, 
but not eligible for SSI payments, that should be included as SSI-
entitled for purposes of the data matching process. Specifically, the 
commenter stated that at least the following codes should be considered 
to be SSI-entitlement:
     E01 and E02
     N06, N10, N11, N18, N35, N39, N42, N43, N46, N50, and N54
     P01
     S04, S05, S06, S07, S08, S09, S10, S20, S21, S90, and S91
     T01, T20, T22, and T31
    Response: In response to the comment that we are incorrectly 
applying a different standard in interpreting the word ``entitled'' 
with respect to SSI entitlement versus Medicare entitlement, we 
disagree. The authorizing DSH statute at section 1886(d)(5)(F)(vi)(I) 
of the Act limits the numerator to individuals entitled to Medicare 
benefits who are also ``entitled to supplemental security income 
benefits (excluding any State supplementation)'' (emphasis added).\19\ 
Consistent with this requirement, we have requested, and are using in 
the data matching process, those SSA codes that reflect ``entitlement 
to'' receive SSI benefits. Section 1602 of the Act provides that 
``[e]very aged, blind, or disabled individual who is determined under 
Part A to be eligible on the basis of his income and resources shall, 
in accordance with and subject to the provisions of this title, be paid 
benefits by the Commissioner of the Social Security'' (emphasis added). 
However, eligibility for SSI benefits does not automatically mean that 
an individual will receive SSI benefits for a particular month. For 
example, section 1611(c)(7) of the Act provides that an application for 
SSI benefits becomes effective on the later of either the month 
following the filing of an application for SSI benefits or the month 
following eligibility for SSI benefits.
---------------------------------------------------------------------------

    \19\ As a side note, we have used the phrase ``SSI-eligible'' 
interchangeably with the term ``SSI-entitled'' in the FY 2011 
proposed rule as well as prior proposed and final rules, but the 
statute requires that we include individuals who were entitled to 
SSI benefits in the SSI fractions. Although we have used these terms 
interchangeably, we intended no different meaning, and our policy 
has always been to include only Medicare beneficiaries who are 
entitled to receive SSI benefits in the numerator of the SSI 
fraction.
---------------------------------------------------------------------------

    On the other hand, section 226 of the Act provides that an 
individual is automatically ``entitled'' to Medicare Part A when the 
person reaches age 65 and is entitled to Social Security benefits under 
section 202 of the Act (42 U.S.C. 402) or becomes disabled and has been 
entitled to disability benefits under section 223 of the Act (42 U.S.C. 
423) for 24 calendar months. Section 226A of the Act provides that 
qualifying individuals with end-stage renal disease shall be entitled 
to Medicare Part A. In addition, section 1818(a)(4) of the Act provides 
that, ``unless otherwise provided, any reference to an individual 
entitled to benefits under [Part A] includes an individual entitled to 
benefits under [Part A] pursuant to enrollment under [section 1818] or 
section 1818A.'' We believe that Congress used the phrase ``entitled to 
benefits under part A'' in section 1886(d)(5)(F)(vi) of the Act to 
refer individuals who meet the criteria for entitlement under these 
sections.
    Moreover, unlike the SSI program (in which entitlement to receive 
SSI benefits is based on income and resources and, therefore, can vary 
from time to time), once a person becomes entitled to Medicare Part A, 
the individual does not lose such entitlement simply because there was 
no Medicare Part A coverage of a

[[Page 50281]]

specific inpatient stay. Entitlement to Medicare Part A reflects an 
individual's entitlement to Medicare Part A benefits, not the 
hospital's entitlement or right to receive payment for services 
provided to such individual. Such Medicare entitlement does not cease 
to exist simply because Medicare payment for an individual inpatient 
hospital claim is not made. Again, we are bound by section 
1886(d)(5)(F)(vi)(I) of the Act, which defines the SSI fraction 
numerator as the number of SSI-entitled inpatient days for persons who 
were ``entitled to benefits under [P]art A,'' and the denominator as 
the total number of inpatient days for individuals who were 
``entitled'' to Medicare Part A benefits.
    In response to the comment about specific SSI status codes, SSA has 
provided information regarding all of the SSI status codes mentioned by 
the commenter to assist in the determination of whether any of these 
codes represent individuals who were entitled to SSI benefits for the 
purposes of calculating the SSI fraction for Medicare DSH. With respect 
to the codes that begin with the letter ``T,'' SSA informed us that all 
of the codes represent individuals whose SSI entitlement was 
terminated. Code ``T01'' represents records that were terminated 
because of the death of the individual, but we confirmed that this code 
would not be used until the first full month after the death of the 
individual. That is, for example, if a Medicare individual was entitled 
to SSI during the month of October, was admitted to the hospital on 
October 1 and died in the hospital on October 15, the individual would 
show up as entitled to SSI for the entire month of October on the SSI 
file (code T01 would not be used on the SSI file until November) and 15 
Medicare/SSI inpatient hospital days for that individual would be 
counted in the numerator and the denominator of the SSI fraction for 
that hospital.
    Codes beginning with the letter ``S'' reflect records that are in a 
``suspended'' status and, according to SSA, do not represent 
individuals who are entitled to SSI benefits.
    SSA maintains that code ``P01'' is obsolete and has not been used 
since the mid-1980s. Therefore, it would not be used on any SSI files 
reflecting SSI entitlement for FY 2011 and beyond.
    Codes that begin with the letter ``N'' represent records on 
``nonpayment'' and are not used for individuals who are entitled to SSI 
benefits.
    Code ``E01'' represents an individual who is a resident of a 
medical treatment facility and is subject to a $30 payment limit, but 
has countable income of $30 or more. Such an individual is not entitled 
to receive SSI payment. Alternatively, an individual who is a resident 
of a medical treatment facility and is subject to a $30 payment limit, 
but does not have countable income of at least $30, would be reflected 
on the SSI file as a ``C01'' (which denotes SSI entitlement) for any 
month in which the requirements described in this sentence are met. 
Code ``E02'' is used to identify a person who is not entitled to SSI 
payments in the month in which that code is used pursuant to section 
1611(c)(7) of the Act, which provides that an application for SSI 
benefits shall be effective on the later of (1) the first day of the 
month following the date the application is filed, or (2) the first day 
of the month following the date the individual becomes eligible for SSI 
based on that application. Such an individual is not entitled to SSI 
benefits during the month that his or her application is filed or is 
determined to be eligible for SSI, but, for the following month, would 
be coded as a ``C01'' because he or she would then be entitled to SSI 
benefits.
    Therefore, both codes E01 and E02 represent individuals who are not 
entitled to SSI benefits and are reflected accordingly on the SSI file. 
If the individual's entitlement to SSI benefits is initiated the 
ensuing month, that individual would then be coded as a ``C01'' on the 
SSI file and would be included as SSI-entitled for purposes of the data 
matching process.
    As we have described above, none of the SSI status codes that the 
commenter mentioned would be used to describe an individual who was 
entitled to receive SSI benefits during the month that one of those 
status codes was used. SSI entitlement can change from time to time, 
and we believe that including SSI codes of C01, M01, and M02 accurately 
captures all SSI-entitled individuals during the month(s) that they are 
entitled to receive SSI benefits.
    After consideration of the public comments we received, we are 
adopting the proposed data matching process for FY 2011 and beyond as 
final. The only modification we are making to the proposed data 
matching process is adopting a policy to exclude a record from the data 
matching process if we find a HICAN in the MedPAR file that we are not 
able to locate in the EDB, which is an extremely unlikely situation as 
noted in the prior discussion in this final rule. We are adopting this 
additional step in our validation process in response to public 
comments to provide even more assurances that our data matching process 
will yield accurate SSI fractions and capture all Medicare 
beneficiaries who were entitled to SSI at the time of their inpatient 
hospital stay.
c. Timing of the Match
    One of the district court's findings in the Baystate decision was 
that CMS did not use a more recent SSI entitlement file to calculate 
the provider's SSI fractions. As a result, it might be possible that if 
a beneficiary treated at the hospital was later determined 
retroactively to be SSI entitled, or if a suspension of the 
individual's SSI payments was later lifted, that inpatient stay might 
not be included in the numerator of the SSI fraction. We believe that, 
in our recalculation of the Baystate hospital's SSI fractions and DSH 
payments, retroactive SSI entitlement determinations and the lifting of 
SSI payment suspensions were not an issue due to the long period of 
time that elapsed between the provider's 1993 through 1996 fiscal years 
and our use of updated SSI entitlement data during our completion of 
the revised match process in 2009. However, we stated our belief that 
further consideration of the timing of both the SSI entitlement 
information that SSA provides to CMS and our proposed revised match 
process for FY 2011 and subsequent fiscal years was warranted.
    At present, SSA provides an annual file to CMS with SSI entitlement 
information that is current through March 31, or 6 months after the end 
of the prior Federal fiscal year on September 30 (70 FR 47278, 47440, 
August 12, 2005). Based on this date, for a hospital with an October 1 
to September 30 cost reporting period, the SSI entitlement information 
we currently use contains 6 to 18 months worth of retroactive SSI 
entitlement determinations and payment suspension closures--6 months 
from September (that is, the end of the cost reporting period), and 18 
months from October (that is, the beginning of the cost reporting 
period). The time lag between the close of a hospital's cost reporting 
period and the date that CMS receives SSI entitlement information could 
actually be longer or shorter for some hospitals, depending on the 
hospital's specific cost reporting period. The SSI fractions are 
generally based on the Federal fiscal year; however, under the 
regulations at Sec.  412.106(b)(3), a hospital with a cost reporting 
period that differs from the Federal fiscal year may request a revised 
SSI fraction that is based on its own cost reporting period rather than 
the Federal fiscal year. In such a case, we would revise the hospital's 
SSI fraction using SSI and Medicare data derived from the data match 
process for the two Federal fiscal years that

[[Page 50282]]

spanned the hospital's cost reporting period.
    As we stated in the FY 2006 IPPS final rule, we believe that 
administrative finality with respect to the calculation of a hospital's 
SSI fraction is important (70 FR 47440). We continue to believe that it 
is important to find an appropriate balance between administrative 
finality (that is, the final settlement of a hospital's cost report) 
and the inclusion of retroactive SSI eligibility determinations and the 
lifting of SSI payment suspensions by using the best and latest 
available SSI eligibility data at the time of cost report settlement. 
Further, we believe it is important to account for the time period in 
which hospitals are allowed to submit timely Medicare claims in order 
to ensure that the point in time that we perform the match process 
includes as many timely submitted inpatient hospital claims as are 
administratively practicable.
    In accordance with the regulations at 42 CFR 424.44 and the 
Medicare Claims Processing Manual (Pub. 100-04), Chapter 1, Section 70, 
a hospital must generally file a claim by December 31 of the following 
year (for services furnished during the first 9 months of a calendar 
year) and by December 31 of the second following year (for services 
provided during the last 3 months of the calendar year). Section 6404 
of the Affordable Care Act recently changed these deadlines to no more 
than ``1 calendar year after the date of service'' effective for 
services provided on or after January 1, 2010. Therefore, Medicare 
claims for hospital services furnished in FY 2011 would have to be 
submitted no later than September 30, 2012.
    Generally speaking, providers have a financial incentive to submit 
fee-for-service claims as close as possible to the date of the 
patient's discharge, and providers have no incentive to wait until the 
claims submission deadline. Thus, while conducting a data match with 
MedPAR files that were updated 6 months after the end of the Federal 
fiscal year may not capture all of a provider's Medicare inpatient 
claims, we believe that, in large part, the provider's fee-for-service 
claims are very likely to be included in that MedPAR file. The same may 
not be true for the ``information only'' or ``no pay'' claims that 
hospitals are required to submit to their fee-for-service contractor 
for Medicare Advantage (MA) beneficiaries. Because claims for MA 
beneficiaries are paid by MA plans and not the fee-for-service 
contractor, hospitals may not have the same incentive to file these 
claims as close as possible to the date of the patient's discharge.\20\ 
However, in accordance with Transmittal 1396 (issued December 14, 2007) 
and Transmittal 1695 (issued March 6, 2009), which changed the 
instructions in the Medicare Claims Processing Manual (Pub. 100-04), 
all IPPS hospitals that do not qualify for IME payments, direct GME 
payments, or nursing and allied health (N&AH) payments are specifically 
directed to submit informational-only claims for all MA inpatients to 
ensure that all data for MA beneficiaries are included in the SSI 
fraction. Accordingly, we indicated that we also were considering 
changes to the timing of the data match process to ensure that all of a 
hospital's MA claims are included in the revised matching process, 
given the current timing requirements for when hospitals must submit 
these claims after the time of the patient's discharge.
---------------------------------------------------------------------------

    \20\ Teaching hospitals have an incentive to submit these claims 
as close as possible to the date of the patient's discharge because 
these claims are used, in part, to compute those hospitals' indirect 
graduate medical education payments. The claims are also used for a 
teaching hospital's direct medical education payments. Non-teaching 
DSH hospitals do not have the same direct incentives to submit these 
claims as close as possible to the date of the patient's discharge, 
but to the extent that the MA beneficiary is also SSI eligible, it 
would be to the hospital's advantage to ensure these claims are 
included in the match process. However, nonteaching DSH hospitals 
are required to submit MA claims for all MA beneficiaries, 
regardless of whether the beneficiaries were eligible for SSI 
benefits.
---------------------------------------------------------------------------

    In addition, in matching eligibility records for Medicare 
beneficiaries and SSI recipients to calculate the SSI fractions for FY 
2011 and future fiscal years, we proposed to use more recent SSI 
eligibility information from SSA and a more updated version of the 
MedPAR file that is likely to contain more claims data. We currently 
use SSI eligibility data and MedPAR claims data that are updated 6 
months after the close of the Federal fiscal year. We proposed to use, 
for FY 2011 and subsequent years, SSI eligibility data files compiled 
by SSA and MedPAR claims information that are updated 15 months after 
the close of each Federal fiscal year. This proposal would more closely 
align the timing of the match process with the timing of our 
requirements (described above) for the timely submission of claims. For 
example, under our proposal, to calculate the FY 2011 SSI fractions, we 
would use the December 2012 update of the FY 2011 MedPAR file 
(containing claims information for patient discharges between October 
1, 2010 and September 30, 2011), and a December 2012 SSI eligibility 
file (containing FY 2011 SSI eligibility data updated through December 
2012, with a lag time relative to the Federal fiscal year of between 15 
and 27 months). We expect that the FY 2011 SSI fractions would be 
published around March 2013 and would be used to settle cost reports 
for cost reporting periods that began in FY 2011. In addition, we would 
continue our practice of using each hospital's latest available SSI 
fraction in determining IPPS interim payments from the time that the 
SSI fractions are published until the SSI fractions for the next fiscal 
year are published.
    Under current law as amended by section 6404 of the Affordable Care 
Act, Medicare inpatient claims for FY 2011 can be submitted no later 
than 1 calendar year from the date of service or by September 30, 2012, 
for claims with a September 30, 2011 date of service. Therefore, we 
believe that using the version of MedPAR that is updated 15 months 
after the end of the fiscal year would contain more accurate and 
complete inpatient claims information, as we would be using claims data 
from 3 months after the filing deadline for claims with a date of 
service occurring on the last day of the second preceding fiscal year. 
Furthermore, a later update of the SSI eligibility file would contain 
more accurate eligibility information and would account for all 
retroactive changes in SSI eligibility and the lifting of SSI payment 
suspensions through that date.
    We proposed that the FY 2011 SSI fractions would be used to 
determine the hospitals' Medicare DSH payments for cost reporting 
periods beginning in FY 2011 (that is, October 1, 2010 through 
September 30, 2011). The proposed timing of the data match for the SSI 
fractions, effective for FY 2011, would result in FY 2011 SSI fractions 
being published around March 2013 and would generally coincide with the 
final settlement of cost reports for cost reporting periods beginning 
in FY 2011.
    We believe that, by calculating SSI fractions on the basis of SSI 
eligibility data and MedPAR claims data that are updated 15 months 
after the end of the Federal fiscal year, we would be using the best 
data available to us, given the deadlines for the submission and final 
settlement of Medicare cost reports. Cost reports must be submitted to 
the Medicare fiscal intermediary or MAC no later than 5 months after 
the end of the provider's cost reporting period; the fiscal 
intermediary or MAC must make a determination of cost report 
acceptability within 30 days of receipt of the provider's cost report 
(42 CFR 413.24(f)(2)(i) and 413.24(f)(5)(iii)). In accordance with the 
Medicare Financial Manual (Pub. 100-06), Chapter 8,

[[Page 50283]]

Section 90, the fiscal intermediary or MAC is expected to settle each 
cost report that is not scheduled for audit within 12 months of the 
contractor's acceptance of the cost report. We believe that our 
proposed timing of the data match would achieve an appropriate balance 
between accounting for additional retroactive SSI eligibility 
determinations and the lifting of SSI payment suspensions using all 
timely submitted Part A inpatient claims, and facilitating 
administrative finality through the timely final settlement of Medicare 
cost reports.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR16AU10.085

[[Page 50284]]

BILLING CODE 4120-01-C
    Comment: Many commenters supported the proposed timing of the data 
matching process. Some commenters asked that CMS explain how cost 
report settlement would coincide with the proposed timing. 
Specifically, commenters asked whether contractors would issue Notices 
of Program Reimbursement prior to the availability of the SSI 
fractions. One commenter asked that CMS calculate an additional SSI 
fraction at the time of cost report audit for cost reports that are 
audited after the initial SSI fractions are published. One commenter 
noted that under the proposed timeline for calculating the SSI 
fractions, some hospitals would have already submitted their cost 
reports and had desk reviews and audits before the release of the SSI 
fractions. In particular, some commenters were concerned that hospitals 
with fiscal years beginning between October 1 and December 1 would have 
their cost reports settled before the release of the SSI fractions. One 
commenter cited Medicare Financial Management Manual Publication 100-
06, Chapter 8, Section 90 that requires final settlement of cost 
reports within 12 months of acceptance. Commenters are concerned that 
the 12-month cost report settlement deadline may occur before the 
publication of the SSI fractions for certain cost reporting periods. 
Commenters questioned whether CMS will instruct Medicare contractors to 
hold the Notice of Program Reimbursement until the SSI fractions are 
released or will the contractors settle cost reports using the prior 
year's SSI fraction. In addition, commenters questioned whether 
contractors would automatically re-open cost reports to use the current 
year's SSI fractions if they were settled using the prior year's SSI 
fraction before the publication of the current year's SSI fractions.
    Response: We appreciate the support for our proposal to change the 
timing of our match and calculation of the SSI fractions from 6 months 
after the end of the Federal fiscal year to 15 months after the end of 
the Federal fiscal year. We believe that our proposal to conduct the 
SSI eligibility match and calculate the SSI fractions 15 months after 
the end of the Federal fiscal year will ensure that the SSI fractions 
are calculated with the best data available to us at that time. We note 
that the 15-month timeframe proposed is an approximation and subject to 
the data validation protocols as described previously in this final 
rule. We believe that the match will be conducted no sooner than 15 
months after the end of the Federal fiscal year and the match process, 
including all appropriate validation steps as finalized, will be 
performed as efficiently as possible and in accordance with the 
production cycles of the required data files.
    Hospitals submit their cost reports based on their cost reporting 
period, which varies by hospital. Thus, it would be administratively 
unwieldy to conduct the SSI match in ``real-time'' and calculate an 
individual hospital's SSI fraction whenever that hospital's cost report 
needed to be settled. By calculating the SSI fractions 15 months after 
the end of the Federal fiscal year, we believe that we are striking an 
appropriate balance between the best data available to us at the time 
and the agency's operational needs, using the best available data that 
does not unduly hinder the cost report settlement process. As we 
discussed in the proposed rule, hospital cost reports are submitted to 
the Medicare contractor no later than 5 months after the end of the 
provider's cost reporting period. The Medicare contractor must accept 
the cost report within 30 days of receipt (in accordance with 42 CFR 
413.24(f)(2)(i) and 413.24(f)(5)(iii)), and is expected to settle the 
cost reports that are not audited within 12 months of acceptance of the 
cost report (in accordance with Medicare Financial Management Manual 
Publication 100-06, Chapter 8, Section 90). Generally, hospital cost 
reports are not final settled without the SSI fraction that corresponds 
to the fiscal year in which the cost report began. Commenters raised 
concerns that hospitals with fiscal years beginning October 1, 2010 or 
December 1, 2010 (thus, ending September 30, 2011 or November 30, 2011) 
would be settled before the release of the SSI fractions. Those cost 
reports would be submitted by the end of February 2012 or April 2012; 
they would be accepted by March 2012 or May 2012 and would need to be 
final settled no later than March 2013 or May 2013. We believe that 
under our proposal to calculate the SSI match 15 months after the end 
of the Federal fiscal year, cost reports will be settled with the 
appropriate SSI fraction within the timeframe of cost report settlement 
and that cost reports will be final settled with the SSI fraction of 
the given year. In the case where a cost report is required to be 
settled before the SSI fractions are published, CMS may instruct that 
the contractors settle the cost report with the latest SSI fraction 
available and may reopen the cost report to issue a revised notice of 
program reimbursement once the appropriate SSI fraction is available, 
or we may instruct the contractors to wait to settle the cost report 
until the appropriate SSI fractions are published. We will continue to 
evaluate what would be the best approach in such a scenario.
    Comment: One commenter stated that the chart in the proposed rule 
that displayed the timeline for the revised match process indicated 
that, for FY 2011, the timely filing of claims ends in December 2012 
when it should be September 2012. The commenter asked that CMS correct 
the deadline for the timely filing of claims for FY 2011 to read 
September 2012.
    Response: We agree with the commenter. Under section 6404 of the 
Affordable Care Act, the deadline for timely filing of claims has been 
revised to be one year after the end of the Federal fiscal year, 
effective January 1, 2010. Therefore, hospitals will have until 
September 2012 to file their FY 2011 claims. The chart has been revised 
in this final rule to reflect this change. Although the deadline for 
the timely filing of claims is 12 months after the end of the Federal 
fiscal year, we are finalizing our proposal to conduct the data 
matching process and calculate SSI fractions approximately 15 months 
after the end of the Federal fiscal year to ensure we have captured all 
of the inpatient claims and to capture as many retroactive SSI 
entitlement determinations as possible.
    After consideration of the public comments that we received, we are 
adopting a policy to conduct the data matching process approximately 15 
months after the end of the Federal fiscal year.
5. CMS Ruling 1498-R
    On April 28, 2010, the CMS Administrator issued a CMS Ruling, CMS-
1498-R (Ruling), that addresses three Medicare DSH issues, including 
CMS' process for matching Medicare and SSI eligibility data and 
calculating hospitals' SSI fractions. With respect to the data matching 
process issue, the Ruling requires the Medicare administrative appeals 
tribunal (that is, the Administrator of CMS, the PRRB, the fiscal 
intermediary hearing officer, or the CMS reviewing official) to remand 
each qualifying appeal to the appropriate Medicare contractor. The 
Ruling also explains how, on remand, CMS and the contractor will 
recalculate the provider's DSH payment adjustment and make any payment 
deemed owing. The Ruling further provides that CMS and the Medicare 
contractors will apply the provisions of the Ruling on the data 
matching process issue (and two other DSH issues, as applicable), in 
calculating the DSH payment

[[Page 50285]]

adjustment for each hospital cost reporting period where the contractor 
has not yet final settled the provider's Medicare cost report through 
the issuance of an initial notice of program reimbursement (NPR) (42 
CFR 405.1801(a) and 405.1803).
    More specifically, the Ruling provides that, for qualifying appeals 
of the data matching issue and for cost reports not yet final settled 
by an initial NPR, CMS will apply any new data matching process that is 
adopted in the forthcoming FY 2011 IPPS final rule for each appeal that 
is subject to the Ruling. The data matching process provisions of the 
Ruling would apply to properly pending appeals and open cost reports 
for cost reporting periods beginning prior to October 1, 2010 (that is, 
those preceding the effective date of the FY 2011 IPPS final rule).
    The Ruling further states that, if a new data matching process is 
not adopted in the forthcoming FY 2011 IPPS final rule, CMS would apply 
to claims subject to the Ruling the same data matching process as the 
agency used to implement the Baystate decision by recalculating that 
provider's SSI fractions. As indicated above, we have adopted the 
proposed data matching process for FY 2011 and beyond as final. The 
only modification we are making to the proposed matching process is 
adopting a policy to exclude a record from the data matching process if 
we find a HICAN in the MedPAR file that we are not able to locate in 
the EDB, which is an extremely unlikely situation as noted in the prior 
discussion in this final rule. We are adopting this additional step in 
our validation process to respond to public comment and provide even 
more assurances that our data matching process will yield accurate SSI 
fractions and capture all Medicare beneficiaries who were entitled to 
SSI at the time of their inpatient hospital stay. The same data 
matching process will be used to calculate SSI fractions for cost 
reporting periods covered under the Ruling.
    Comment: Several commenters addressed a variety of issues related 
to the Ruling.
    Response: We note that Administrator Rulings are not subject to 
public comment and that we did not seek public comment on CMS Ruling 
1498-R. Accordingly, we are not summarizing or providing responses to 
comments related to the Ruling in this final rule.
6. Clarification of Language on Inclusion of Medicare Advantage Days in 
the SSI Fraction of the Medicare DSH Calculation
    In the FY 2005 IPPS final rule (69 FR 49099), we discussed in the 
preamble the codification of our policy of including the days 
associated with Medicare + Choice (now Medicare Advantage (MA)) 
beneficiaries under Medicare Part C in the SSI fraction of the DSH 
calculation. In that rule, we indicated that we were revising the 
regulation text at Sec.  412.106(b)(2)(i) to incorporate this policy. 
However, we inadvertently did not make a change in the regulation text 
to conform to the preamble language. We also inadvertently did not 
propose to change Sec.  412.106(b)(2)(iii) in the FY 2005 final rule, 
although we intended to do so. Accordingly, in the FY 2007 IPPS final 
rule (72 FR 47384), we made a technical correction to amend the 
regulations at Sec.  412.106(b)(2)(i) and Sec.  412.106(b)(2)(iii) to 
make them consistent with the preamble language of the FY 2005 IPPS 
final rule and to conform to the policy implemented in that rule. 
Section 412.106(b)(2)(i) of the regulations discusses the numerator of 
the SSI fraction of the Medicare disproportionate patient percentage 
(DPP) calculation, while Sec.  412.106(b)(2)(iii) of the regulations 
discusses the denominator of the SSI fraction of the Medicare DPP.
    In the proposed rule, we indicated that we were aware that there 
might be some confusion about our policy to include MA days in the SSI 
fraction, specifically regarding whether we have implied that MA 
beneficiaries are not actually ``entitled to receive benefits under 
Part A'' by using the word ``or'' in Sec.  412.106(b)(2)(i)(B) and 
Sec.  412.106 (b)(2)(iii)(B) with respect to MA days. We note that, in 
the FY 2005 final rule, we stated that we believed that Medicare + 
Choice (now MA) beneficiaries are patients who are entitled to benefits 
under Medicare Part A. With respect to the change to the regulatory 
text that we intended to make in the FY 2005 IPPS final rule, we stated 
``* * * we are adopting a policy to include patient days for M+C 
beneficiaries in the Medicare fraction'' (69 FR 49099) (emphasis 
added). In order to further clarify our policy that patients days 
associated with MA beneficiaries are to be included in the SSI fraction 
because they are still entitled to benefits under Medicare Part A, in 
the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24006 and 24007), we 
proposed to replace the word ``or'' with the word ``including'' in 
Sec.  412.106(b)(2)(i)(B) and Sec.  412.106(b)(2)(iii)(B).
    Comment: We did not receive any public comments on this specific 
proposal. However, several commenters urged CMS to reconsider its 
policy to include Medicare Advantage days and days for which a 
beneficiary exhausted his or her Medicare inpatient hospital benefits 
in the SSI fraction. The commenters stated that such days did not 
represent days that individuals were ``entitled to benefits under 
Medicare [P]art A'' (because the patient days were not paid for under 
Medicare Part A) and as such, should not be included in either the 
numerator or denominator of the SSI fraction. The commenters stated 
that, to the extent that dually eligible (that is, simultaneously 
enrolled in Medicare and Medicaid) Medicare Advantage patients or 
exhausted benefits patients had an inpatient hospital stay, those days 
should be included in the Medicaid fraction. Additionally, a commenter 
stated that CMS did not have sufficient processes in place to assure 
that the agency is properly counting all of the days in the SSI 
fraction and ``is not double counting any of them in both the numerator 
of the Medicaid fraction and the denominator of the SSI fraction.'' The 
commenter asked that CMS address why it ``* * * thinks it need not 
properly capture all of these days in the denominator of the SSI 
fraction or the precise steps that CMS has or will take to assure that 
the agency is capturing all of these days in that denominator.''
    Response: We did not propose any changes to the categories of 
Medicare days that we include in the SSI fractions. Specifically, the 
proposed rule states that ``We did not propose any changes with respect 
to the final step in determining the SSI fraction. As we stated in the 
proposed rule, to calculate the numerator of the SSI fraction, CMS will 
continue to sum a hospital's Medicare inpatient days in the acute care 
part of the hospital (excluding IPPS-exempt units such as 
rehabilitation and psychiatric units) where the Medicare beneficiary 
was simultaneously entitled to SSI benefits. To calculate the 
denominator, CMS will continue to sum a hospital's total Medicare 
inpatient days in the acute care part of the hospital.''
    Accordingly, we are not responding to these comments in detail. 
However, we disagree that Medicare Advantage days and exhausted benefit 
days should be excluded from the SSI fraction. We believe that the days 
of all patients who are entitled to SSI and Medicare Part A should be 
included in the Medicare fraction. We adopted a policy to include

[[Page 50286]]

exhausted benefit and other noncovered days in the SSI fraction, after 
notice and comment rulemaking, in FY 2005 (69 FR 49099). We adopted a 
policy to include Medicare health maintenance organization (HMO) days 
in the September 4, 1990 final IPPS rule (55 FR 35994), and this 
longstanding policy has continued as Medicare HMOs have evolved, and 
these patient days have been included with every iteration of Medicare 
HMOs, including patient days for beneficiaries entitled to Medicare 
Part A but who elect to obtain their benefits through Medicare 
Advantage. As discussed above, we codified this policy in our 
regulations in the FY 2005 IPPS final rule (69 FR 49099).
    As we have previously explained, we believe that, in the statutory 
section which sets forth the Medicare DSH fraction, the phrase 
``entitled to benefits under [P]art A'' refers to individuals who are 
entitled to Part A benefits under Part A pursuant to section 226, 
section 226A, section 1818, or section 1818A (42 U.S.C. 426, 42 U.S.C. 
426-1, 42 U.S.C. 1395i-2, or 42 U.S.C. 1395i-2(a), respectively). We 
note that the statute uses mandatory language, unambiguously stating 
that qualifying individuals ``shall be entitled to benefits under 
[P]art A.'' Patients who have exhausted their Part A hospital benefits 
or enrolled in Medicare Advantage still meet the statutory criteria for 
entitlement to Medicare Part A benefits, even though Medicare Part A 
does not directly pay for a particular inpatient day.
    With respect to exhausted benefit days, we note that a 
beneficiary's right to have Medicare make a payment is subject to the 
limitations in Part A. The rule that Medicare will not pay for days 
after Part A hospital benefits are exhausted is an example of one of 
those restrictions. Thus, a patient remains entitled to benefits under 
Part A on days where Medicare does not make a payment because of those 
limitations, and consistent with section 1886(d)(5)(F)(vi)(I) of the 
Act, these days should be included in the SSI fraction.
    With respect to the days of patients enrolled in Medicare Advantage 
plans, we believe that the sections of the Social Security Act which 
create Part C clearly demonstrate that Part C enrollees remain entitled 
to Medicare Part A benefits, and we do not believe that Congress 
intended to alter the calculation of the DSH payment adjustment when it 
enacted Medicare Part C. Moreover, we also believe that the commenters' 
objections to including the days of patients enrolled in Medicare 
Advantage would be equally applicable to patients enrolled in section 
1876 risk plans, but section 1876 of the Act repeatedly makes clear 
that patients enrolled in section 1876 risk plans remain entitled to 
benefits under Medicare Part A.
    Finally, while the commenters suggest that patients who have 
exhausted their Part A hospital benefits or enrolled in Medicare 
Advantage should be counted in the Medicaid fraction, we note that not 
all patients who are entitled to SSI are also eligible for Medicaid. 
Thus, adopting the commenters' proposal would result in some patients 
entitled to SSI and Medicare Part A not being counted in the numerator 
of either of the DSH fractions. We believe that this result would be 
contrary to Congressional intent. Consequently, we see no reason to 
revise our policy at this time.
    In response to the comment requesting that CMS assure that it is 
including all exhausted days and Medicare Advantage days in the SSI 
fraction and asserting that CMS does not have sufficient processes in 
place to assure accurate counting, we believe that we are properly 
counting these types of days, to the extent that hospitals comply with 
Medicare requirements and submit claims for those days. We do not 
believe it is necessary to go into further detail about our processes 
for capturing these types of days in this final rule because we did not 
make any proposal related to that issue.
    We are adopting our proposed revision of Sec.  412.106(b)(2)(i)(B) 
and Sec.  412.106(b)(2)(iii)(B) as final, without modification.

G. Medicare-Dependent, Small Rural Hospitals (MDHs) (Sec.  412.108)

1. Background
    Under the IPPS, separate special payment protections are provided 
to a Medicare-dependent, small rural hospital (MDH). MDHs are paid 
based on the higher of the Federal rate for their hospital inpatient 
services or a blended rate based in part on the Federal rate and in 
part on the MDH's hospital-specific rate. Section 1886(d)(5)(G)(iv) of 
the Act defines an MDH as a hospital that is located in a rural area, 
has not more than 100 beds, is not an SCH, and has a high percentage of 
Medicare discharges (that is, not less than 60 percent of its inpatient 
days or discharges either in its 1987 cost reporting year or in two of 
its most recent three settled Medicare cost reporting years). The 
regulations at 42 CFR 412.108 set forth the criteria that a hospital 
must meet to be classified as an MDH.
    Although MDHs are paid under an adjusted payment methodology, they 
are still IPPS hospitals paid under section 1886(d) of the Act. Like 
all IPPS hospitals paid under section 1886(d) of the Act, MDHs are paid 
for their discharges based on the DRG weights calculated under section 
1886(d)(4) of the Act.
    Through and including FY 2006, under section 1886(d)(5)(G) of the 
Act, MDHs are paid based on the Federal rate or, if higher, the Federal 
rate plus 50 percent of the amount by which the Federal rate is 
exceeded by the updated hospital-specific rate based on the hospital's 
FY 1982 or FY 1987 costs per discharge, whichever of these hospital-
specific rates is higher. Section 5003(b) of Public Law 109-171 (DRA 
2005) amended section 1886(d)(5)(G) of the Act to provide that, for 
discharges occurring on or after October 1, 2006, MDHs are paid based 
on the Federal rate or, if higher, the Federal rate plus 75 percent of 
the amount by which the Federal rate is exceeded by the updated 
hospital-specific rate based on FY 1982, FY 1987, or FY 2002 costs per 
discharge, whichever of these hospital-specific rates is highest.
    For each cost reporting period, the fiscal intermediary or MAC 
determines which of the payment options will yield the highest 
aggregate payment. Interim payments are automatically made at the 
highest rate using the best data available at the time the fiscal 
intermediary or MAC makes the determination. However, it may not be 
possible for the fiscal intermediary or MAC to determine in advance 
precisely which of the rates will yield the highest aggregate payment 
by year's end. In many instances, it is not possible to accurately 
forecast the outlier payments, the amount of the DSH adjustment or the 
IME adjustment, all of which are applicable only to payments based on 
the Federal rate and not to payments based on the hospital-specific 
rate. The fiscal intermediary or MAC makes a final adjustment at the 
settlement of the cost report after it determines precisely which of 
the payment rates would yield the highest aggregate payment to the 
hospital.
    If a hospital disagrees with the fiscal intermediary's or the MAC's 
determination regarding the final amount of program payment to which it 
is entitled, it has the right to appeal the determination in accordance 
with the procedures set forth in 42 CFR part 405, subpart R, which 
govern provider payment determinations and appeals.

[[Page 50287]]

2. Medicare-Dependency: Counting Medicare Inpatients
    Currently, as specified in the regulations at Sec.  
412.108(a)(1)(iii), in order for an IPPS hospital to qualify as an MDH, 
at least 60 percent of its inpatient days or discharges must be 
attributable to individuals receiving Medicare Part A benefits.
    The MDH policy, as explained in the FY 1991 final rule (55 FR 35994 
through 35998), does not include in the count of Medicare inpatients 
those Medicare beneficiaries who have exhausted their Medicare Part A 
inpatient benefits. In addition, section 1886(d)(5)(G)(iv)(IV) of the 
Act specifies that a hospital is Medicare-dependent if ``not less than 
60 percent of its inpatient days or discharges during the cost 
reporting period beginning in fiscal year 1987, or two of the three 
most recently audited cost reporting periods for which the Secretary 
has a settled cost report, were attributable to inpatients entitled to 
benefits under part A.'' The use of the word ``entitled'' in the 
statute would encompass individuals who are entitled to Medicare Part A 
even though they have exhausted their Part A hospital days. Individuals 
who have exhausted their Part A inpatient benefit coverage remain 
``entitled'' to Medicare Part A because they retain the Medicare Part A 
insurance benefit coverage (for example, covered SNF days), and they 
continue to meet all statutory criteria for entitlement to Part A 
benefits under section 226, 226A, 1818, or 1818A of the Act 
(Entitlement to Hospital Insurance Benefits). In fact, for purposes of 
determining DSH payment adjustments under the IPPS in accordance with 
section 1886(d)(5)(F)(vi)(I) of the Act, our policy includes, in the 
Medicare inpatient count, all individuals entitled to Medicare Part A 
benefits, including Medicare patients who have exhausted Medicare Part 
A coverage. This policy is discussed in the FY 2005 IPPS final rule (69 
FR 49090 through 49099).
    Accordingly, in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 
23999), we proposed to revise the Medicare-dependency criterion at 
Sec.  412.108(a)(1)(iii) of the regulations to replace the term 
``receiving'' with the phrase ``entitled to.'' As a result, we would 
include in the count of Medicare inpatient days or discharges all days 
or discharges attributable to individuals entitled to the Medicare Part 
A insurance benefit, including individuals who have exhausted their 
Medicare Part A inpatient hospital coverage benefit, as well as 
individuals enrolled in Medicare Advantage plans and section 1876 cost 
contracts (health maintenance organizations (HMOs) and competitive 
medical plans (CMPs)). We note that, for inpatient care provided to 
Medicare Part A entitled beneficiaries enrolled with an HMO or a CMP, 
we provided that the days and discharges for those stays are counted 
for purposes of determining Medicare-dependency for MDH purposes (55 FR 
35995). This was the case when HMOs and CMPs were included under 
Medicare Part A, and continues to be the case since 1997 when HMOs and 
CMPs were placed under Medicare Part C.
    Comment: Several commenters supported the proposed change to the 
MDH policy to include in the count of Medicare inpatient days or 
discharges individuals entitled to Medicare Part A, not just those 
receiving Medicare Part A benefits. Another commenter asked if the 
proposed change in policy would be effective October 1, 2010, applying 
to MDH status determinations from that date forward, or if the proposed 
change would be considered a clarification of current policy and, 
therefore, would apply retroactively.
    Response: The MDH proposal to better conform the regulations to the 
statute by including in the count of Medicare inpatient days or 
discharges individuals entitled to Medicare Part A even if they are not 
receiving Part A hospital inpatient benefits because they have 
exhausted these benefits is a proposed change in policy. Because we are 
finalizing the proposed change in this final rule, the final policy 
change will be effective beginning October 1, 2010, at which time all 
Medicare days or discharges of patients entitled to Medicare Part A 
will be counted as Medicare days or discharges, affecting the 
determination of MDH status for hospitals from October 1, 2010 forward.
    After consideration of the public comments we received, we are 
adopting the proposed revision to the Medicare-dependency criterion at 
Sec.  412.108(a)(1)(iii) as final.
3. Extension of the MDH Program
    As we discussed in the June 2, 2010 supplemental proposed rule to 
the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 30926), section 3124 of 
the Affordable Care Act extended the MDH program from the end of FY 
2011 (that is, for discharges occurring before October 1, 2011) to the 
end of FY 2012 (that is, for discharges occurring before October 1, 
2012). Under prior law, as specified in section 5003(a) of Public Law 
109-171 (DRA 2005), the MDH program was to be in effect through the end 
of FY 2011 only. Section 3124(a) of the Affordable Care Act amended 
sections 1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II) of the Act to 
extend the MDH program and payment methodology from the end of FY 2011 
to the end of FY 2012, by striking ``October 1, 2011'' and inserting 
``October 1, 2012''. Section 3124(b) of the Affordable Care Act also 
made conforming amendments to sections 1886(b)(3)(D)(i) and 
1886(b)(3)(D)(iv) of the Act. Section 3124(b)(2) of the Affordable Care 
Act also amended section 13501(e)(2) of OBRA 1993 to extend the 
provision permitting hospitals to decline reclassification as an MDH 
through FY 2012. We proposed to amend the regulations at Sec.  
412.108(a)(1) and (c)(2)(iii) to reflect these legislative changes.
    Comment: One commenter supported the extension of the MDH program 
for an additional year, through FY 2012.
    Response: We appreciate the support of the commenter.
    We are adopting as final, without modification, the proposed 
changes to Sec.  412.108(a)(1) and (c)(2)(iii) to reflect the statutory 
extension of the MDH program for an additional year, through FY 2012.

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

1. Background
    Under section 1886(a)(4) of the Act, costs of approved educational 
activities are excluded from the operating costs of hospital inpatient 
services. Section 1886(h) of the Act, as implemented in regulations at 
Sec.  413.75 through Sec.  413.83, establishes a methodology for 
determining payments to hospitals for the direct costs of approved GME 
programs. Section 1886(h)(2) of the Act sets forth a methodology for 
the determination of a hospital-specific, base-period per resident 
amount (PRA) that is calculated by dividing a hospital's allowable 
direct costs of GME for a base period by its number of residents in the 
base period. The base period is, for most hospitals, the hospital's 
cost reporting period beginning in FY 1984 (that is, the period of 
October 1, 1983, through September 30, 1984). Medicare direct GME 
payments are calculated by multiplying the PRA by the weighted number 
of full-time equivalent (FTE) residents working in all areas of the 
hospital complex (and nonhospital sites, when applicable), and the 
hospital's Medicare share of total inpatient days. The base year PRA is 
updated annually for inflation.
    Hospitals may receive direct GME and IME payments for residents in 
``approved medical residency training programs.'' Section 1886(h)(5)(A) 
of the Act defines an ``approved medical

[[Page 50288]]

residency training program'' as ``a residency or other postgraduate 
medical training program participation in which may be counted toward 
certification in a specialty or subspecialty and includes formal 
postgraduate training programs in geriatric medicine approved by the 
Secretary.'' Section 1886(h)(4)(F) of the Act established a limit on 
the number of allopathic and osteopathic FTE residents that a hospital 
may include in its FTE resident count for purposes of calculating 
direct GME payments. For most hospitals, the limit, or cap, is the 
unweighted number of allopathic and osteopathic FTE residents training 
in the hospital's most recent cost reporting period ending on or before 
December 31, 1996.
2. Identifying ``Approved Medical Residency Programs''
    As we discussed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 
24007), despite the fact that current policies regarding the counting 
of FTE residents for IME and direct GME purposes have been in effect 
since October 1985, we continue to receive questions as to whether 
certain residents are training in approved medical residency programs, 
and whether these residents should be included in the Medicare direct 
GME and IME FTE counts. Although the fundamental rules defining an 
approved medical residency training program seem straightforward, some 
confusion apparently exists regarding whether certain trainees in a 
teaching hospital should be included in the FTE count for IME and 
direct GME purposes, or whether certain trainees should be treated as 
physicians and should instead bill for their services under Medicare 
Part B. These questions arise most often with regard to subspecialty 
training and ``fellows.'' It is important for hospitals to understand 
when each of these types of payment applies.
a. Residents in Approved Medical Residency Programs
    As stated earlier, section 1886(h)(5)(A) of the Act defines an 
``approved medical residency training program'' as ``a residency or 
other postgraduate medical training program participation in which may 
be counted toward certification in a specialty or subspecialty and 
includes formal postgraduate training programs in geriatric medicine 
approved by the Secretary.'' The regulations at Sec.  413.75(b) define 
an ``approved medical residency program'' as a program that meets one 
of the following criteria (emphasis added):
    (1) Is approved by one of the national organizations listed in 
Sec.  415.152 of the regulations.
    (2) May count towards certification of the participant in a 
specialty or subspecialty listed in the current edition of either of 
the following publications:
    (i) The Directory of Graduate Medical Education Programs published 
by the American Medical Association; or
    (ii) The Annual Report and Reference Handbook published by the 
American Board of Medical Specialties.
    (3) Is approved by the Accreditation Council for Graduate Medical 
Education (ACGME) as a fellowship program in geriatric medicine.
    (4) Is a program that would be accredited except for the 
accrediting agency's reliance upon an accreditation standard that 
requires an entity to perform an induced abortion or require, provide, 
or refer for training in the performance of induced abortions, or make 
arrangements for such training, regardless of whether the standard 
provides exceptions or exemptions.
    The regulations at Sec.  415.152 define an ``approved graduate 
medical education program'' as a residency program approved by one of 
the following national organizations (or their predecessors): The 
Accreditation Council for Graduate Medical Education (ACGME) of the 
American Medical Association, the American Osteopathic Association 
(AOA), the Commission on Dental Accreditation (CODA) of the American 
Dental Association, and the Council on Podiatric Medical Education 
(CPME) of the American Podiatric Medical Association. (We note that the 
ACGME is now a separate entity from the American Medical Association. 
Therefore, in this final rule, we are making a technical amendment to 
the regulations at Sec.  415.152 to remove the words ``of the American 
Medical Association.'') The statutory basis for this regulation is at 
section 1861(b)(6) of the Act, which cites these accrediting bodies for 
residency programs. Thus, in general, under Sec.  413.75(b), an 
``approved'' program can be a program that is accredited by one of 
these national organizations, or one that leads toward board 
certification by the American Board of Medical Specialties (ABMS). In 
the September 29, 1989 final rule (54 FR 40295), we explained that, in 
order to reconcile the two statutory definitions of approved programs 
at sections 1861(b)(6) and 1886(h)(5)(A) of the Act, we did not limit 
our regulatory definition of ``approved medical residency program'' to 
one that may count toward certification in a specialty, but added that 
a program is also ``approved'' for purposes of IME and direct GME if it 
is approved by one of the national accrediting bodies. Furthermore, we 
understood that, especially with respect to subspecialty training, 
there historically were some formal programs for which none of the 
listed national accrediting bodies had established standards. However, 
the ABMS had established a national board examination for some of those 
unaccredited programs and, consequently, those programs do count toward 
certification. Accordingly, such programs also meet the definition of 
an ``approved medical residency training program.''
b. Determining Whether an Individual Is a Resident or a Physician
    The statute and the regulations (in at least two places in the 
teaching context) define the term ``resident.'' Section 1861(b)(6) of 
the Act refers to services provided in a hospital by an ``intern or 
resident-in-training under a teaching program approved'' by one of the 
listed accrediting bodies for residency programs. In addition, section 
1886(h)(5)(I) of the Act states that the term ``resident'' includes 
``an intern or other participant in an approved medical residency 
training program.'' The regulations at Sec.  413.75(b) state that the 
term resident means ``an intern, resident, or fellow who participates 
in an approved medical residency program, including programs in 
osteopathy, dentistry, and podiatry, as required in order to become 
certified by the appropriate specialty board.''
    As discussed above, an ``approved'' program is one that is 
accredited by one of the listed national organizations, or one that may 
count towards board certification. Generally, residency programs today, 
whether they are core or subspecialty programs, are both accredited, 
and lead toward board certification through an explicit board 
examination for that field. Thus, in the typical instance, a resident 
is accepted into an accredited program in a particular specialty, 
completes that program over the course of what is typically 3 to 5 
years, and then qualifies to take the board certifying examination in 
the particular specialty of that program. This resident may or may not 
train in an additional accredited subspecialty program, which would 
typically last for 1 to 3 years, and which would also lead to board 
certification through an additional board certifying examination which 
the individual would be qualified to take upon completion.
    We receive questions from time to time regarding whether 
individuals are considered to be trainees in approved

[[Page 50289]]

programs or whether they are considered to be physicians and should 
bill accordingly. These questions frequently involve programs of 
further training that certain senior and junior faculty at hospitals, 
typically at large academic medical centers, undertake on their own, 
not under the auspices of any accrediting body, and in an area of 
practice for which there is no board certification. Therefore, there is 
no actual standardized curriculum or formally organized ``program'' in 
which the individual trainee is participating. Another type of trainee 
about which we have received questions is one that has completed an 
accredited program in a certain specialty, but subsequently 
participates in additional training in that specialty that he or she 
could have participated in while still within the accredited program. 
Sometimes this individual may even train with residents who are 
actually still training in that accredited program (for example, an 
individual who has completed a dermatology residency may choose to do 
additional training with PGY4 dermatology residents). In these 
scenarios, in order to decide whether an individual is considered a 
resident or a physician for purposes of Medicare payment, the pertinent 
questions are whether--
    (1) The individual actually needs the training in order to meet 
board certification requirements in that specialty; and
    (2) Whether the individual is formally participating in an 
organized, standardized, structured course of study.
    With regard to the junior faculty who are ``training'' with senior 
faculty to learn highly specialized skills, we believe that individuals 
participating in a course of training that one or more senior 
physicians creates absent the involvement and approval of an 
accrediting body, and for which there is no specific existing board 
certification examination, should not be considered ``residents'' or 
counted for IME and direct GME purposes. Similarly, individuals that 
already completed an accredited residency program, but subsequently 
participate in additional training in that same specialty that they 
could have participated in while still within that accredited program, 
should also not be considered ``residents'' or be included in the IME 
and direct GME count. This is because these individuals have already 
completed accredited residency programs in a particular specialty or 
subspecialty, and do not need to complete the additional training in 
order to meet board certification requirements in that field in which 
they continue to ``train.'' The definition of ``resident'' at Sec.  
413.75(b) is ``an intern, resident, or fellow who participates in an 
approved medical residency program, including programs in osteopathy, 
dentistry, and podiatry, as required in order to become certified by 
the appropriate specialty board'' (emphasis added). Accordingly, the 
individuals described in the scenarios above do not meet the definition 
of ``resident'' at Sec.  413.75(b) for IME and direct GME purposes. 
Instead, these individuals should be treated and receive payment as 
physicians.
    As we explained in the September 29, 1989 Federal Register rule: 
``The costs relating to patient care services of licensed physicians 
who are classified as ``fellows'' but who are not in an identifiable 
formal program leading to certification as defined in section 
1886(h)(5) of the Act but remain at a teaching hospital/medical school 
complex to enhance their expertise in a field of study are payable on a 
Part B reasonable charge basis [now under the Medicare physician fee 
schedule] as physicians' services'' (54 FR 40295). Similarly, in the 
Provider Reimbursement Manual, Part I, section 2405.3.F.2, we state, 
``Intermediaries must not count an individual in the indirect medical 
education adjustment if * * * [A]n individual designated as a 
``fellow'' has elected to remain at a teaching hospital/university 
complex for additional work to gain expertise in a particular field but 
is no longer in a formally organized program to fulfill certification 
requirements. The services of such an individual are generally covered 
as physicians' services payable on a reasonable charge basis'' 
(emphasis added). (Note: Although we used the term ``fellow,'' which is 
defined synonymously with ``resident'' in the regulations at Sec.  
413.75, in these paragraphs in the September 29, 1989 Federal Register 
and in the PRM-I, by stating that such ``fellows'' are not in 
identifiable, formally organized programs and their services should be 
billed under Part B as physician services, we clearly were indicating 
that these ``fellows'' are licensed physicians, not residents, and 
should not be included in the IME and direct GME FTE counts. Perhaps 
``junior faculty'' would have been a more apt characterization of these 
individuals.)
    The passage from the September 29, 1989 Federal Register also 
mentions an ``identifiable formal program leading to certification as 
defined in section 1886(h)(5) of the Act'' which refers to the 
statutory definition of ``approved medical residency program.'' The 
word ``approved'' connotes formality; a planned, structured course of 
study with a curriculum based on national (rather than individual 
physician or hospital) standards with a standardized outcome based on 
standardized evaluations. Since the early days of Medicare, prior to 
the enactment of section 1886(h) of the Act, when hospitals received 
payment on a reasonable cost basis for ``approved educational 
activities,'' we defined such activities as ``formally organized or 
planned programs of study operated or supported by an institution, as 
distinguished from `on-the-job,' `inservice,' or similar work-learning 
programs'' (emphasis added) (PRM-I, section 402.1). We believe the 
education that junior faculty receive when working closely with senior 
faculty to gain highly specialized skills is more appropriately 
characterized as on-the-job, or inservice training, rather than 
training in an ``approved medical residency program.''
    In order for the training to be considered an ``approved medical 
residency program,'' the training must prepare the individual for 
certification in the particular specialty or subspecialty in which the 
individual is training. The mere possibility that the training could be 
construed as leading toward or counting toward certification in some 
existing board examination is insufficient. For example, an individual 
who is enrolled and participating in a two year accredited subspecialty 
program in allergy and immunology and, as part of that program, 
completes an elective in allergic reactions to insect stings is 
considered a resident during that elective, and may be included in the 
IME and direct GME FTE count (assuming all other requirements are met). 
However, if, after completion of the 2-year allergy and immunology 
subspecialty program, this individual decides to remain at the teaching 
hospital for a year to shadow a physician who has unique expertise in 
allergic reactions to insect stings, this individual would not be 
considered a resident, nor would this training be considered an 
approved program, because this individual is not formally enrolled in a 
planned, structured, standardized course of study, nor is this year of 
training required for any individual to qualify to take the board 
examination in allergy and immunology. This individual already 
completed the 2-year subspecialty program, and therefore, the extra 
year spent studying allergic reactions to insect stings is extraneous. 
Accordingly, this individual would not be viewed as a resident 
participating in an approved

[[Page 50290]]

medical residency training program. Rather, this individual is 
considered a physician and should bill Medicare for services furnished 
under the physician fee schedule.
c. Formal Enrollment and Participation in a Program
    We understand that the participation of individuals in an approved 
medical residency program under which they would be considered 
residents as defined at Sec.  413.75 is marked by a formal application, 
acceptance, and enrollment process. We believe that in order for an 
individual to be considered a resident for purposes of inclusion in the 
IME and direct GME counts, whether the individual is a graduate of an 
allopathic medical school, an osteopathic medical school, or a school 
of podiatry or dentistry, the individual must be:
    (1) Formally accepted and enrolled in the training program, and
    (2) Fully participating in that training (unless there is a 
documented arrangement for the resident to work part time).
    In general, we would expect formal acceptance to include an 
application process (for example, the national residency match 
process), and an enrollment process which would include letters or 
other official notifications from the hospital or program sponsor 
regarding the resident's acceptance to train in a particular program. 
We also would expect the resident to have an employment contract with 
the institution(s) sponsoring the program and/or the institution(s) in 
which he or she is training. A hospital must be able to document that 
the individual's participation in the particular course of training 
represents a definitive (not hypothetical) path for that individual's 
certification, and that satisfactory completion of such training would 
fulfill all required elements in order for the individual to qualify to 
take a specific board examination.
    In order to make these rules clearer for the future, in the FY 2011 
IPPS/LTCH PPS proposed rule, we proposed to revise the definition of 
``resident'' to specify that the trainee must be ``formally accepted 
and enrolled'' in the approved program in order to be considered a 
resident for IME and direct GME purposes. Specifically, we proposed to 
revise the definition of ``resident'' at Sec.  413.75(b) to mean ``an 
intern, resident, or fellow who is formally accepted, enrolled, and 
participating in an approved medical residency program, including 
programs in osteopathy, dentistry, and podiatry, as required in order 
to become certified by the appropriate specialty board.'' We also 
proposed to make a similar conforming change to the definition of 
``primary care resident'' at Sec.  413.75(b). We proposed that this 
change in the definitions of ``resident'' and ``primary care resident'' 
would be effective for IME and direct GME for cost reporting periods 
beginning on or after October 1, 2010.
    Comment: Several commenters expressed appreciation for CMS' 
clarifications regarding which programs are ``approved medical 
residency training programs'' and which individuals are residents or 
physicians. Other commenters indicated CMS' clarification is consistent 
with their understanding of when an individual is treated as a resident 
or physician.
    Response: We appreciate the commenters' support and understanding 
of our policy regarding approved medical residency training programs 
described in the proposed rule.
    Comment: Some commenters noted that CMS did not specifically 
address the applicability of existing Line 70 on Worksheet B, Part I of 
the Medicare cost report, which historically has been used to report 
the costs of interns and residents in unapproved programs, nor did CMS 
discuss the treatment of residents with limited medical licenses. The 
commenters requested that CMS clarify its position regarding these 
categories of residents in unapproved programs and hoped that CMS did 
not intend to eliminate the use of Line 70 of Worksheet B, Part I.
    Another commenter noted that CMS clarified that residents and 
fellows only fall into two categories: (1) Residents and fellows in 
programs recognized as approved for GME purposes; and (2) residents and 
fellows in non-approved programs classified as physicians who would 
bill under the MPFS. The commenter noted that many residents, such as 
the residents in the transplant surgery program or other advanced but 
unaccredited training programs, would not fall under either category 
(1) or category (2) because they are not fully licensed. Another 
commenter noted that States also have different licensure laws, with 
some states requiring residents to have temporary licenses, while other 
States expect residents to be fully licensed by the second or third 
year of residency after completion of an internship (the first year of 
training after medical school), and taking Step III of the United 
States Medical Licensing Examination (USMLE). The commenter added that 
bylaws in academic medical centers differ, and that the trainees in 
unapproved programs cannot always bill for services provided because 
they may not be authorized under their institution's bylaws to do so 
because they are ``in a formal training program.''
    Response: The commenters are correct that the Medicare cost report 
does include a line (Line 70 on Worksheets A and B) for hospitals to 
receive payment for the services provided by residents who are not in 
approved programs. In the case of programs that are not either 
accredited or do not count toward board certification, in the September 
29, 1989 final rule (54 FR 40295), we explained that:
    ``Medicare would pay its share of the costs of residents not in 
approved programs as described in Sec.  405.523 of our regulations 
regarding residents not in approved teaching programs. Under Sec.  
405.523, hospitals are paid under Part B for up to 80 percent of the 
reasonable costs of services (that is, salaries and salary-related 
fringe benefits) of interns and residents who are not in approved 
programs, after payment of the Part B deductible by the Medicare 
beneficiary. No other educational program costs (that is, faculty 
compensation costs and other direct and indirect program expenses) in 
connection with such residents are payable. The Medicare beneficiary 
incurs the expense of deductible and coinsurance amounts as determined 
on the basis of the hospital's charges under Part B of the Medicare 
program.''
    ``The costs relating to patient care services of licensed 
physicians who are classified as fellows but who are not in an 
identifiable formal program leading to certification as defined in 
section 1886(h)(5) of the Act but remain at a teaching hospital/medical 
school complex to enhance their expertise in a field of study are 
payable on a Part B reasonable charge basis as physicians' services.''
    (We note that the regulations that were previously located at Sec.  
405.523 are currently located at Sec.  415.202.)
    The regulation at Sec.  415.202(a) state, as a general rule, that 
``For services of a physician employed by a hospital who is authorized 
to practice only in a hospital setting and for the services of a 
resident who is not in any approved GME program, payment is made to the 
hospital on a Part B reasonable cost basis regardless of whether the 
services are furnished to hospital inpatients or outpatients.''
    We understand that there are advanced training programs that exist, 
such as those in transplant surgery and surgical oncology, which are 
not accredited by the ACGME, nor do they lead to board certification in 
those subspecialties, yet they are ``accredited''

[[Page 50291]]

by their respective medical societies. As such, they are formally 
organized, planned, structured courses of study that are at least one 
year in duration. We also understand that, although the participants in 
these advanced training programs have already completed at least one 
residency, there may be reasons unique to them, their teaching 
institution, or state as to why these trainees are not always fully 
licensed. Therefore, we understand that some trainees who are not 
participating in an ``approved medical residency program'' are not 
currently billing under the MPFS for the services they provide in the 
programs.
    We believe Part B reasonable cost payment under Sec.  415.202 may 
be applicable only in the instance where the trainee is not fully 
licensed in the State in which he or she is participating in an 
unapproved program. Services provided by fully licensed physicians, for 
example, those who are shadowing an experienced senior physician but 
are not in a formally organized, planned, standard course of study, or 
who are gaining practice experience, would not be paid under Sec.  
415.202. However, we are contemplating future rulemaking that would 
revise the regulations at Sec.  415.202 to not allow Part B reasonable 
cost payment for the services of any individuals who have already 
completed one residency program, regardless of licensure status.
    Comment: Some commenters requested that fellowship programs that 
are approved by the American Society of Transplant Surgeons (ASTS) be 
considered approved programs for purposes of direct GME and IME 
payment, even though the ASTS is not listed currently as one of the 
accrediting agencies at Sec.  413.75(b), nor is there any board 
certification examination. The commenters noted that the ASTS is a 
national accrediting body, the programs are ``formally organized, 
standardized, structured courses of study,'' and residents desiring to 
complete these programs participate in a formal match through the 
National Resident Matching Program (NRMP). A commenter also pointed out 
that training of these fellows occurs in ``Medicare approved transplant 
programs'' approved by CMS to receive Medicare payment.
    Another commenter asked that CMS clarify the proposed rule to state 
that an ``approved'' program can be (1) one that is accredited by a 
national organization listed at Sec.  415.152 or (2) one that leads to 
certification by its governing body or toward board certification by 
the ABMS. The commenter added that as medical training evolves over 
time, many specialties are not currently part of CMS' ``approved'' 
list, even though they are recognized by national organizations, such 
as the ASTS. Another commenter added that the ACGME's Green Book lists 
some subspecialty training programs approved by various specialty 
societies and academies, and that often this level of approval is the 
first step to becoming eventually accredited by the ACGME. The 
commenters requested that CMS update and expand the list of 
``approved'' accrediting agencies accordingly.
    Response: As we noted above, section 1886(h)(5)(A) of the Act 
defines an approved medical residency training program as a ``residency 
or other postgraduate medical training program participation in which 
may be counted toward certification in a specialty or subspecialty.'' 
Our regulations at Sec.  415.152 define an ``approved graduate medical 
education (GME) program'' to include a residency program approved by 
one of the accrediting bodies identified at section 1861(b)(6) of the 
Act, or ``a program otherwise recognized as an `approved medical 
residency program' under Sec.  413.75(b)'' of our regulations. Section 
1861(b)(6) of the Act lists only four accrediting bodies--the Council 
on Medical Education of the American Medical Association (now the 
ACGME), the Committee on Hospitals of the Bureau of Professional 
Education of the American Osteopathic Association (now the AOA), the 
Council on Dental Education of the American Dental Association (now 
known as CODA), and the Council on Podiatric Medical Education of the 
American Podiatric Association. The ASTS is not listed in the Act. We 
cannot update or expand this list without a change in the law. In 
addition, the regulation at Sec.  413.75(b) defines an ``approved 
medical residency program'' as one that is either approved by one of 
the four national organizations noted above or one that ``may count 
towards certification of the participant in a specialty or subspecialty 
listed in the current edition'' of either the AMA or the ABMS 
directory. Because there is no board certification examination 
specifically for these transplant and other advanced training programs, 
they cannot be recognized as approved medical residency training 
programs for purposes of receiving direct GME and IME payments under 
Medicare under our current regulations.
    Comment: One commenter asked for clarification regarding 
participants in programs that are accredited by the ACGME and lead to 
receipt of a Certificate of Additional Qualifications (CAQs) from a 
specialty board. The commenter indicated that the participants in these 
programs, often referred to as ``fellows,'' already received board 
certification in the initial specialty. The commenter requested 
assurance that these fellows can still be counted as residents for GME 
purposes, even though they are not required to sit for an additional 
board examination, and indicated that completion of the fellowship is 
sufficient for receipt of the CAQ.
    Response: As we noted previously, there are numerous subspecialty 
programs that the ACGME accredits. Because these programs are 
accredited by the ACGME, which is one of the accrediting bodies 
specified at section 1861(b)(6) of the Act and the regulations at Sec.  
415.152 for an approved medical residency training program, the 
participants in the program are considered to be residents for IME and 
direct GME payment purposes, even though they have already received an 
initial board certification.
    Comment: One commenter requested that CMS more clearly define what 
constitutes a ``fellowship'' for the direct GME and IME FTE counts. 
Another commenter also requested clarification regarding fellows, 
stating that there are four types of fellows: (1) Fellows in formal 
programs that qualify as Medicare approved programs; (2) fellows in 
formal programs that qualify as nonapproved programs; (3) junior 
faculty with a dual appointment as a fellow but who are not in a formal 
program at all; and (4) fellows solely engaged in research outside the 
scope of an approved program. The commenter stated that most major 
academic medical center bylaws distinguish between these individuals 
based on whether they have patient billing privileges. The commenter 
believed that the last two cited categories of fellows should be 
categorized as physicians, not residents.
    Response: The existing regulations at Sec.  413.75(b) define 
``resident'' as an intern, resident, or fellow who participates in an 
approved medical residency program, including programs in osteopathy, 
dentistry, and podiatry, as required in order to become certified by 
the appropriate specialty board. In the FY 2011 IPPS/LTCH PPS proposed 
rule (75 FR 24009), we proposed to revise the definition of 
``resident'' at Sec.  413.75(b) to mean ``an intern, resident, or 
fellow who is formally accepted, enrolled, and participating in an 
approved medical residency program, including programs in osteopathy, 
dentistry, and podiatry, as required in order to become certified by 
the appropriate specialty board.'' In both the existing and proposed 
revised

[[Page 50292]]

definitions, a ``resident'' is defined to include interns, fellows, and 
residents. In other words, regardless of the term used by the academic 
medical community, as long as the individual is participating in an 
``approved medical residency program,'' the ``fellow'' is considered to 
be a ``resident'' for Medicare IME and direct GME payment purposes.
    To respond to the commenter that mentioned the four categories of 
fellows, as we have explained in response to other comments, we do not 
agree that ``fellows'' in formal but nonapproved programs, such as 
those recognized by specialty medical societies, should be categorized 
as residents for IME and direct GME purposes. However, we do agree with 
the commenter that junior faculty not in an approved or any training 
program, whether approved or nonapproved, and fellows engaged in 
research that is outside the scope of any approved residency program, 
should not be categorized as residents.
    Comment: One commenter disagreed with the statement in the proposed 
rule that additional training in the same specialty or subspecialty 
should not be counted for IME and direct GME payment purposes. The 
commenter believed that this type of training should be included if a 
board considers such training necessary to be admitted to the board. 
The commenter asserted that qualifying for an examination is based on 
skill level, rather than only completion of time requirements, and that 
most boards rely on the residency program director's attestation about 
the individual physician's readiness. For example, after a physician 
completes the minimum years of training, the program director may 
require additional formal training in one or more subspecialties to 
raise the resident's skill level. The commenter noted that there is no 
rule that a candidate must apply for admission to an examination after 
he or she completes the minimum training required, and that the boards 
consider quality, not quantity, which can include a broad range of 
formal training.
    Response: As we stated in the proposed rule, in instances where an 
individual has already completed a residency program, and is continuing 
to participate in additional training, in order to decide whether an 
individual is considered a resident or a physician for purposes of 
Medicare payment, the pertinent considerations are: (1) Whether the 
individual actually needs the training in order to meet the generally 
applicable board certification requirements in that specialty; and (2) 
whether the individual is formally participating and enrolled in an 
organized, standardized, structured course of study. The commenter 
believed that additional training in the same specialty or subspecialty 
should be considered part of an approved program for IME and direct GME 
payment purposes if a board considers such training necessary for the 
individual to be admitted to the board. However, we do not agree that 
training in the specialty or subspecialty that is not part of the 
generally applicable requirements for board certification, but is 
supplemental training to raise the skill level of a particular 
individual, is considered to be participation in an approved program as 
required in order to become certified. The ACGME and the ABMS establish 
minimum, generally applicable standards for successful completion of 
training and qualifications for board certification. While certain 
individuals may need to pursue additional supplemental training in 
order to ensure their personal skill levels are sufficient prior to 
pursuing actual board certification, we do not believe such training 
would be part of the generally applicable requirements for taking a 
board examination. The ACGME and the ABMS are national organizations 
that establish and apply these minimum standards nationally across all 
programs, and not on a resident-by-resident basis. The regulations at 
Sec.  413.75(b) state that the term resident means ``an intern, 
resident, or fellow who participates in an approved medical residency 
program, including programs in osteopathy, dentistry, and podiatry, as 
required in order to become certified by the appropriate specialty 
board'' (emphasis added). ``As required'' means nationally applicable 
standards, not requirements that are determined on an individual, case-
by-case basis. Medicare is also a national program. It would be highly 
impractical for hospital administrators and the Medicare contractors to 
determine whether each individual trainee (particularly in large 
teaching hospitals where there could be many such individuals) is 
participating in training that may or may not be considered necessary 
for board certification for that specific individual.
    Accordingly, we believe that training that is only intended to 
enhance an individual's skills beyond the minimum required level is not 
part of an approved medical residency program. While it is true that 
there is no rule that a candidate must apply for a board examination 
immediately after he or she completes the minimum amount of training, 
the completion of additional training is not part of the generally 
applicable requirements for the board examination. Therefore, an 
individual who undertakes such additional training is not considered a 
resident for IME and direct GME payment purposes.
    We recognize that a board may look favorably upon an individual's 
additional training beyond the minimum requirements in the process of 
considering a particular individual for certification. While we 
understand that there could be some degree of personalized 
consideration when an individual applies to sit for a board 
examination, as stated in response to the previous comment, this does 
not mean that all of the training that the individual has completed is 
actually required. It could be true that, in certain cases, completion 
of the minimum training requirements does not guarantee admittance to a 
board examination. However, because the boards set forth national 
standards, in most cases, the minimum training requirements are 
sufficient. Further, we are not convinced that additional GME payments 
should be made with respect to trainees who choose a customized 
approach to their training (that is, one that differs from their 
colleagues in the same program), extending that training beyond the 
minimum requirements established by the ACGME and the ABMS. At the 
point where a trainee has completed the national standard minimum 
requirements for certification, and chooses to pursue additional 
training that is not generally required for board certification in that 
specialty, that individual should no longer be considered a resident 
for IME and direct GME purposes.
    Comment: One commenter believed that the proposed revision to Sec.  
413.75(b) that seeks to clarify which trainees are allowable for 
Medicare GME payment by including the terms ``formally accepted, 
enrolled, and participating in'' to the definition of a ``resident'' 
needs to be more comprehensive and more focused. The commenter stated 
that codifying that an approved program must be formally organized does 
not help to resolve questions regarding unaccredited programs, 
particularly for ``services of residents not in approved GME programs'' 
(42 CFR 415.202) or attending or junior attending physicians 
participating in informal training or ``nontraining.'' The commenter 
suggested that expansing the definition of an ``approved program'' 
would be more appropriate than expanding the definition of a 
``resident.'' According to the commenter, the main issue is ``formal 
unaccredited programs,'' and ``it

[[Page 50293]]

would be more helpful to define what they are rather than focus on a 
few obvious examples of what they are not.'' The commenter suggested 
the following expanded definition of an ``approved residency program'' 
that ``may count toward certification of the participant in a specialty 
or subspecialty'' (42 CFR 413.75(b)): ``A training program that `may 
count toward certification' would be one that is a formally organized 
unaccredited program and may be counted by individual ABMS boards when 
accepting a candidate's admission to a board certification examination. 
Allowable training includes training considered by an individual 
board's application process.''
    The commenter also referred to the original conference language 
accompanying the original Medicare legislation. The commenter quoted 
the following: ``Medicare shares in the hospital's training cost 
because it increases the quality of care in the institution'' (Senate 
Finance Committee Report 89-404, June 30, 1965). The commenter was 
concerned that the proposed rule discussion appears to state that 
Medicare will not share in the hospital's medical education costs for 
an individual training beyond the minimum requirements, but rather 
treat these costs as nonhospital costs to be paid under the MPFS. Yet, 
the commenter added, section 1832(a)(2) of the Act clearly states that 
residents are not paid as physicians. The distinction is that resident 
services are hospital costs because training involves a group of 
patients, whereas physicians' services are billed professional fees for 
services to a specific patient. The commenter did not believe that it 
was the Congressional intent to change training activities of residents 
once they completed minimum accredited specialty and subspecialty 
requirements.
    Response: We disagree with the commenter's assertion that our 
proposed revised definition of ``resident'' at Sec.  413.75(b) is not 
sufficiently comprehensive or focused. Rather, we believe our proposed 
revised definition of ``resident'' correctly characterizes what a 
resident is for IME and direct GME payment purposes. We do not believe 
that residents not in approved programs (as discussed at Sec.  415.202) 
should be counted as residents for IME and direct GME payment purposes. 
Perhaps the commenter is confused because ``resident'' is defined in 
two places in the regulations, first at Sec.  413.75(b) for purposes of 
direct GME and IME payment, and second at Sec.  415.152 for purposes of 
payment for physician services in teaching settings. Furthermore, we do 
not believe that attending and junior attending physicians 
participating in informal training or nontraining should be counted as 
residents for IME and direct GME payment purposes either. We believe 
that formal unaccredited programs are easy to identify, in that they 
are not accredited by the ACGME or AOA. If there is no explicit board 
certification for these programs, the participants in these programs 
cannot be counted for IME and direct GME payment purposes. Therefore, 
we do not agree with the commenter's recommended expanded definition of 
``approved residency program.''
    With regard to the commenter's reference to section 1832(a)(2) of 
the Act, section 1832 addresses the scope of benefits for which payment 
is made under Medicare Part B, including physician services. Section 
1832(a)(2) specifically addresses services other than inpatient 
hospital services furnished by or under arrangements with a provider of 
services by residents of a hospital. We do not believe this refers to 
individuals who are licensed (in other words, those are physicians as 
defined at section 1861(r) of the Act) and are not in approved 
programs. Therefore, because the individuals are licensed and are not 
in approved programs, we believe they should be billing for their 
services under the MPFS. If an individual is in an approved program, he 
or she is a resident for purposes of a hospital's IME and direct GME 
FTE count. Further, although the commenter is correct that Congress did 
not limit Medicare direct GME payment or IME payment to training only 
occurring within the initial residency period, the ACGME and the ABMS 
have established minimum standards required for successful completion 
of a particular specialty or subspecialty. If a physician is involved 
in training that is not part of the established requirements, payment 
for the services provided by that physician should be made under the 
MPFS, not as part of direct GME or IME. Further, we note that it is 
specious for the commenter to assert that it was not ``Congressional 
intent to change training activities of residents once they completed 
minimum accredited specialty and subspecialty requirements.'' In fact, 
as expressed in the conference report accompanying the original 
Medicare legislation, funding for GME activities was intended to be 
time limited. Specifically, the conference report stated, ``Educational 
activities enhance the quality of care in an institution and it is 
intended, until the community undertakes to bear such education costs 
in some other way, that a part of the net cost of such activities 
(including stipends of trainees as well as compensation of teachers and 
other costs) should be considered as an element in the cost of patient 
care, to be borne to an appropriate extent by the hospital insurance 
program'' (emphasis added) (S. Rep. No. 404, 89th Cong., 1st Sess. 36 
(1965); H.R. No. 213, 89th Cong., 1st Sess. 32 (1965)). Accordingly, we 
believe that Medicare GME funding for trainees should be ``time 
limited'' and not be made in perpetuity for trainees that are not in an 
approved medical residency training program or for whom the training is 
not required in order to meet the standard requirements for board 
certification.
    Comment: One commenter read the proposed rule discussion to suggest 
that if all training must be necessary to meet board certification, 
formal training beyond the minimum amount specified in the board 
certification requirements should not be included for GME payment 
purposes. The commenter believed this statement contradicts policy 
expressed in the September 29, 1989 Federal Register (54 FR 40306), 
which states, ``If it is clear that these individuals are actually in 
formally approved programs, we believe that they should be counted as 
residents in approved programs even if the individual has completed the 
requirements for board certification.'' The commenter believed that 
chief residents are enrolled in accredited programs and are eligible 
for inclusion in the IME and direct GME FTE counts, even though certain 
chief residencies extend beyond the minimum accredited length of the 
program. The commenter also noted that there are several instances, 
particularly in prestigious teaching institutions, where the ACGME 
allows a hospital to offer a program length that is longer than the 
typical minimum accredited length for that specialty. For example, a 
hospital may choose to operate a 6- or 7-year (as opposed to the usual 
5-year) surgery program, wherein accreditation accrues to the entire 
program, candidates compete for slots through the National Residency 
Match Program, and sign formal contracts upon entering these programs. 
The commenter referred to a letter from CMS (then HCFA) written in 1996 
that acknowledged that, in some cases, a university's formal program 
may be longer than the ACGME's published accreditation length, and 
stated that the school length, rather than the accreditation length, 
would apply. The commenter urged CMS to clarify

[[Page 50294]]

that training beyond the accredited length of a formally organized 
program is included in the IME and direct GME FTE resident counts.
    Response: We made the statement in the September 29, 1989 Federal 
Register (54 FR 40305) that was referenced by the commenter in response 
to a comment we received from representatives of the specialties of 
internal medicine and family practice who requested clarification of 
the status of individuals who are spending a fourth year in internal 
medicine or family practice (both 3-year programs). The commenters 
noted that some programs add a fourth year for a variety of reasons, 
and in some instances, ``individuals who have completed their 
requirements for board certification spend a fourth year as a chief 
resident and are technically no longer in a program leading to 
certification in a specialty or subspecialty'' (54 FR 40305). Our 
response was as follows:
    ``If it is clear that these individuals are actually in formally 
approved programs, we believe that they should be counted as residents 
in approved programs even if the individual has completed the 
requirements for board certification. The situation is not unlike those 
we discussed in the proposed rule concerning Transitional Year programs 
and General Dentistry programs, neither of which, in itself, lead to 
certification in a specialty or subspecialty. We do not believe that 
Congress enacted section 1886(h) of the Act to reduce the types of 
programs recognized by Medicare. Thus, if the ACGME and other 
accrediting bodies recognize such individuals as residents in the 
General Internal Medicine or Family Practice program, we would count 
them for purposes of direct GME payment at .5 or 1.0 FTE depending on 
whether they are still in their initial residency period. We would 
differentiate these individuals from those who have completed their 
residency but remain for an additional period of time with the academic 
settings to continue their training outside the context of a formally 
organized approved program. Individuals in the latter group should be 
paid as physicians.'' (54 FR 40305 and 40306)
    We recently consulted with the ACGME to determine what its policy 
is regarding individuals, such as ``chief residents,'' that, in certain 
programs, stay beyond the minimum accredited length of the program. We 
learned that in the surgical specialties and a few of the other 
hospital-based specialties, all fifth year (or final year of training) 
residents are considered ``chief resident,'' or in their chief resident 
year. This is the final year of the ACGME-accredited program. 
Therefore, we consider ``chief residents'' in surgery programs to be 
residents for IME and direct GME payment purposes. However, we learned 
from the ACGME that in internal medicine and pediatrics, acting as a 
``chief resident'' is not a requirement. There are only a select few 
``chief residents'' per program, and the chief residency is completed 
after the final year of the ACGME-accredited residency. According to 
the ACGME, it is not part of the accredited training. Therefore, 
although our policy in the September 29, 1989 Federal Register allowed 
chief residency years that were completed after the minimum 
requirements for board certification have been met to be considered 
part of an approved program for IME and direct GME payment purposes, 
effective for cost reporting periods beginning on or after October 1, 
2010, we are revising our policy regarding chief residencies that occur 
after the accredited program is completed and when minimum requirements 
for board certification are already satisfied. That is, individuals 
that act as chief residents after they have completed the accredited 
program and have satisfied minimum requirements for board certification 
are no longer considered residents for IME and direct GME payment 
purposes. (We understand they would be considered junior faculty in 
many teaching hospitals.) This is consistent with our policy as 
expressed in the proposed rule, which states that in order to decide 
whether an individual is considered a resident or a physician for 
purposes of Medicare payment, the pertinent questions are (1) whether 
the individual actually needs the training in order to meet board 
certification requirements in that specialty; and (2) whether the 
individual is formally enrolled and participating in an organized, 
standardized, structured course of study. Because the chief residents 
in internal medicine and pediatrics do not need the training in order 
to meet board certification requirements, effective for cost reporting 
periods beginning on or after October, 1, 2010, we are not considering 
them to be residents for IME and direct GME payment purposes.
    With regard to the comment asserting that the ACGME allows a 
hospital to offer a program length that is longer than the typical 
minimum accredited length for that specialty, and that accreditation 
accrues to the entire program, we consulted with the ACGME on this 
point as well. We were informed that this additional time is not part 
of the accredited program, nor is the ACGME aware of when the 
situations described by the commenter occur. Therefore, individuals 
training in a hospital's program that extend beyond the actual 
accredited length are not considered residents for IME and direct GME 
payment purposes because they are no longer training in an accredited 
program according to the ACGME. Thus, for example, an individual 
training in a 6- or 7-year general surgery program would only be 
counted as a resident for IME and direct GME purposes in PGYs 1 through 
5. The commenter references a letter that CMS (then HCFA) wrote in 1996 
that addresses this point of hospitals that operate programs that 
extend beyond the minimum accredited length. CMS was asked ``What are 
the criteria for determining [sic] approved program length for IME?'' 
We responded, in part, as follows:
    ``* * * we do believe the length of an approved program may be of 
relevance in the intermediary's IME determination. The question then 
is, what is to be considered the program's recognized length? In your 
letter, you stated that BCCA's (Blue Cross of California) position is 
that `the approved program length is the ACGME published accreditation 
length for the specific university.' We generally agree with this 
position. However, we acknowledge that the ACGME published 
accreditation length may reflect only the minimum number of years and 
that in some cases, the university's formal program may be longer. For 
the intermediary to recognize a program length that is longer than that 
published by the ACGME, the intermediary should expect to see that a 
majority of residents are in the program for the same length of time. 
This establishes a base by which aberrancies can be identified. There 
may be a legitimate reason for a full-time resident to be formally 
enrolled in an approved program for a length of time that is greater 
than the norm, but, again, this would need to be explained and 
documented by the provider. If residents are serving as fellows or 
chief residents, they must be doing so under an approved program to be 
counted.''
    In this response above, we were allowing participants in a program 
that extends beyond the minimum accredited length to be counted as 
residents for IME (and direct GME) purposes if the hospital could 
document to the intermediary that the majority of participants were 
training in the program for the same length of time. However, based on 
what we have recently learned from the ACGME, this position expressed 
in the 1996 letter is not consistent with the ACGME's policy. That is, 
the time spent in a

[[Page 50295]]

program beyond the minimum accredited length is not recognized by the 
ACGME, even if the majority of the participants in the program are 
training beyond the accredited length for the same length of time. 
Accordingly, effective for cost reporting periods beginning on or after 
October 1, 2010, we are changing our policy regarding programs that 
hospitals operate for longer than the accredited (that is, the minimum) 
length. That is, individuals training in a program that extends beyond 
the actual accredited length are not considered residents for IME and 
direct GME payment purposes for the period of time extending beyond the 
minimum accredited length, because they are no longer training in an 
accredited program according to the ACGME.
    Comment: One commenter recommended that CMS adopt a policy that in 
order for a program to be approved, it should be at least a year in 
length. The commenter believed that this would distinguish formal 
programs from shorter continuing medical education and inservice 
training of physicians.
    Response: We are sympathetic to the commenter's recommendation 
because it seems consistent with our existing policy regarding what an 
approved, formal, structured program is. As we indicated in the 
proposed rule, since the early days of Medicare, prior to the enactment 
of section 1886(h) of the Act, when hospitals received payment on a 
reasonable cost basis for ``approved educational activities,'' we 
defined such activities as ``formally organized or planned programs of 
study operated or supported by an institution, as distinguished from 
`on-the-job,' `inservice,' or similar work-learning programs'' 
(emphasis added) (PRM-I, section 402.1). However, we do not believe we 
need to change the regulations text to specify that an approved program 
must be ``at least 1 year in length'' because we believe that programs 
that meet the definition of ``approved'' are 1 year in length. We may 
consider this recommendation for future rulemaking if we find that it 
is necessary.
    Comment: One commenter indicated that from its experience, 
certifying boards do allow unaccredited training as part of the 
required training, and the boards may not want to provide specific 
statements regarding the types of allowable unaccredited training in 
order to maintain flexibility in the requirements. The commenter 
mentioned that the requirements listed by the American Board of 
Radiology for certification in vascular and interventional radiology 
include one year of training in an ACGME accredited subspecialty 
program and ``one year of practice or additional training (one-third of 
that time) in the subspecialty.'' Accordingly, the commenter stated 
that a hospital may only be able to document that unaccredited training 
was accepted by a board after a resident achieved certification.
    Response: A distinction should be made between training that an 
individual pursues that is in addition to the minimum standards 
required for completion of the accredited program and for board 
certification, and unaccredited training that is actually required for 
board certification. As we stated in response to a previous comment, 
while we understand that there could be some degree of personalized 
consideration when an individual applies to sit for a board 
examination, this does not mean that all of the training that the 
individual has completed is actually required. Accordingly, GME 
payments should not be made with respect to training that extends 
beyond the minimum requirements. With regard to unaccredited training 
that is actually required for board certification, we understand that, 
in certain cases, a board may accept unaccredited training as 
fulfilling part of the requirements for certification. However, the 
board would not typically accept only unaccredited training, nor would 
a hospital or trainee know with certainty whether a particular 
``training'' experience will ultimately be accepted, if, as the 
commenter mentioned (as in the case of vascular and interventional 
radiology), often the training, and its content and quality, must be 
verified by the program director and then reviewed by the board. 
Further, we do not believe it is prudent or practical to wait until 
after an individual's training was accepted by a board to know if that 
individual should be included in the IME and direct GME resident 
counts. To encourage simplicity in administering a national program, it 
is not unreasonable for CMS to establish guidelines for determining 
whether an individual should be included in the FTE count. Therefore, 
in the absence of accreditation and foreknowledge as to whether 
unaccredited training would be accepted by a board, it is simpler and 
more practical for such an individual to be categorized as a physician, 
not a resident, even if the particular ``training'' is ultimately 
accepted by the board.
    In the case of vascular and interventional radiology subspecialty 
programs, the American Board of Radiology (ABR) states that the 
requirements for board certification in vascular and interventional 
radiology are (in part) as follows: ``You must successfully complete 
one year of fellowship training (after residency) in a vascular and 
interventional radiology program accredited by the ACGME or by the 
RCPSC (Canada). You must also complete one year of practice or 
additional approved training, with one-third of that year spent in 
vascular and interventional radiology'' (emphasis added). (http://www.theabr.org/ic/ic_vir/ic_vir_req.html). The commenter excluded 
the word ``approved'' from its comment. We have spoken with the ABR and 
learned that ``approved'' means some kind of one year experience (July 
to June) that the ABR would approve, not before the training begins, 
but during or toward the end of the training year, when the individual 
registers with the ABR in order to schedule the examination in vascular 
and interventional radiology. Again, we believe that when it is not 
known with certainty at the time an individual begins a course of 
``training'' whether the board will ultimately accept that training, 
that experience should not be counted as a residency for IME and direct 
GME payment purposes.
    A clear example of time that may be counted toward board 
certification but certainly should not be considered residency training 
for inclusion in the IME and direct GME resident counts is practice 
experience. Regarding the time spent in ``one year of practice,'' while 
the ABR clearly accepts such time as counting toward certification, we 
do not believe that during that time in which the individual is 
``practicing'' that he or she is considered a resident, particularly 
not for IME and direct GME payment purposes. It is appropriate for an 
individual who is practicing to be billing under the MPFS. With regard 
to the DIRECT pathway (http://www.theabr.org/ic/ic_vir/ic_vir_direct.html), which is another method of attaining board certification 
in vascular and interventional radiology, PGYs 1 through 6 are training 
years that are accredited by the ACGME. Therefore, the trainee can be 
considered a resident during those 6 years. However, PGY7 is 12 months 
of clinical practice, and an individual would be considered a physician 
during this year and should bill under the MPFS accordingly.
    Comment: One commenter urged CMS to work with the ABMS to identify 
unaccredited training programs that the certifying boards accept toward 
meeting the requirements for board certification, so as to establish 
more clearcut guidelines for hospitals to use to

[[Page 50296]]

identify which programs would be considered residencies for GME payment 
purposes under Medicare.
    Response: We believe it is important to consult with the 
accrediting and certifying agencies to ensure that our policies are 
consistent with theirs, and we welcome communication with them now and 
in the future. However, for the purpose of this final rule, we are 
providing clear policy guidance to hospitals and Medicare contractors 
for purposes of determining whether an individual should be treated as 
a resident or a physician. Essentially, a resident for IME and direct 
GME payment purposes is an individual who, in accordance with our 
revised definition of ``resident'' at Sec.  413.75(b), is formally 
accepted, enrolled, and participating in an approved medical residency 
program, including programs in osteopathy, dentistry, and podiatry, as 
required in order to become certified by the appropriate specialty 
board. The program would be ``approved'' if it is either accredited by 
one of the four recognized accrediting bodies, or if not accredited, 
the individual may be counted as a ``resident'' if the individual 
actually needs the training in order to meet the standard board 
certification requirements established for that specialty.
    Comment: One commenter noted that, in addition to clarifying 
whether an individual is a resident or a physician, CMS proposed to 
revise the definitions of ``resident'' and ``primary care resident'' 
effective for cost reporting periods beginning on or after October 1, 
2010. The commenter asked whether these definitions reflect a 
clarification of existing policy, or, as the existence of a prospective 
effective date suggests, a change in policy. If it is a change in 
policy, the commenter asked what criteria should be applied for periods 
prior to October 1, 2010, in determining whether an individual is a 
resident because some contractors have been using criteria similar to 
those described in the proposed rule's preamble to determine which 
individuals should be included in the IME and direct GME FTE counts.
    Response: In the recent past, we had been made aware of a situation 
at a hospital where graduates of allopathic medical schools were 
training in programs that were accredited by the AOA. The AOA has had a 
longstanding policy that only graduates of osteopathic schools may 
enroll and participate in osteopathic residency programs; graduates of 
allopathic medical schools may not be accepted and train in osteopathic 
programs. Nevertheless, despite this rule, a hospital did train 
allopathic individuals in an osteopathic accredited program and sought 
to count those allopathic FTEs in the IME and direct GME counts. 
Because the hospital was able to show that at least one of those 
allopathic individuals was able to use the osteopathic training toward 
fulfillment of the allopathic board's requirements (and, in fact, 
successfully achieved allopathic board certification), the hospital 
argued that although the allopathic individuals were not formally 
enrolled in the AOA accredited program (since doing so was against AOA 
policy), the training did count toward board certification, as 
evidenced by the one trainee who did successfully sit for the 
allopathic board. Therefore, the hospital added, the training of these 
allopathic individuals in the osteopathic program was sufficient for 
all the allopathic individuals in the osteopathic program to be counted 
as residents for IME and direct GME purposes.
    Because the existing definition of ``resident'' at Sec.  413.75(b) 
states, ``Resident means an intern, resident, or fellow who 
participates in an approved medical residency program, including 
programs in osteopathy, dentistry, and podiatry, as required in order 
to become certified by the appropriate specialty board'' (emphasis 
added), we were persuaded to allow the hospital to count as residents 
those allopathic individuals who trained in the AOA accredited program. 
We were persuaded because those individuals arguably did 
``participate'' in an otherwise AOA-approved medical residency program 
as required ``in order to become certified by the appropriate specialty 
board.'' (We understand that the hospital has since stopped training 
allopathic graduates in the osteopathic accredited program.) We note 
that, in part, the statutory and regulatory intent behind the 
definitions of ``approved medical residency training program'' and 
``resident'' is to protect the ``approved'' status of training in 
typical accredited programs for residents who may participate in the 
formal program but, on rare occasions, may not complete their course of 
training. We do not believe the definitions were intended to include a 
program such as the particular hospital's program, which, from its 
inception, in its entirety, was not accredited by the AOA, and where 
only on rare occasions did participation in the osteopathic program 
count towards certification in an ACGME accredited program. However, 
the previous regulation could be read differently such that if even one 
trainee went on to become board certified on the basis of that 
training, all participants in that program could be counted as 
residents for IME and direct GME payment purposes. We believe that it 
is appropriate to close the loopholes that, for example, had previously 
allowed the allopathic graduates to be counted as residents while 
inappropriately training in an AOA program by clarifying that a 
resident must actually be formally enrolled and participating in an 
approved medical residency program. Therefore, we proposed to make a 
prospective change to the definition of ``resident,'' effective for 
cost reporting periods beginning on or after October 1, 2010, to 
emphasize that it is not sufficient for an individual to merely 
``participate'' in an otherwise approved medical residency program 
which may ultimately be counted toward board eligibility for his or her 
own certification, or the certification of any of the other trainees in 
the program. Rather, under the proposed revised definition of 
``resident'' and ``primary care resident'' which we are finalizing in 
this final rule, the individual must be ``formally accepted, enrolled, 
and participating in an approved medical residency program, including 
programs in osteopathy, dentistry, and podiatry, as required in order 
to become certified by the appropriate specialty board.'' We believe 
this addition to the definition of ``resident'' that the individual 
must be formally accepted and enrolled in the program also will further 
ensure that junior faculty or other advanced trainees who merely 
``participate'' in some training but are not actually formally accepted 
and enrolled in the program are not counted as FTEs for IME and direct 
GME purposes.
    To respond to the commenter's specific question as to what criteria 
should be applied for periods prior to October 1, 2010, in determining 
whether an individual is a resident, because some contractors have been 
using criteria similar to those described in the preamble of the 
proposed rule to determine which individuals should be included in the 
IME and direct GME FTE counts, we believe that prior to October 1, 
2010, the existing regulations text would be controlling. Thus, much of 
the policy prior to and after October 1, 2010, is the same. However, as 
explained in response to a previous comment, we are changing our policy 
with respect to chief residencies and to programs that hospitals 
operate that extend beyond the accredited length. Prior to cost 
reporting periods beginning on or after October 1, 2010, according to 
the September 29, 1989 Federal Register (54 FR 40305), if it is clear 
that chief residents are actually in formally organized approved 
programs, they

[[Page 50297]]

could be counted as residents even if they have completed the 
requirements for board certification. However, effective for cost 
reporting periods beginning on or after October 1, 2010, we are 
changing our policy regarding chief residencies that occur after the 
accredited program is completed and when minimum requirements for board 
certification are already satisfied. That is, individuals that act as 
chief residents after they have completed the accredited program and 
have satisfied minimum requirements for board certification are not 
considered residents for IME and direct GME payment purposes.
    With regard to programs that are offered for longer than the 
minimum accredited length for that specialty, prior to cost reporting 
periods beginning on or after October 1, 2010, we are allowing 
participants in a program that extends beyond the minimum accredited 
length to be counted as residents for IME and direct GME purposes if 
the hospital could document to the fiscal intermediary or MAC that the 
majority of participants were training in the program for the same 
length of time. However, effective for cost reporting periods beginning 
on or after October 1, 2010, we are changing our policy regarding 
programs that hospitals extend beyond the minimum accredited program 
length for the specialty. That is, individuals training in a program 
that extends beyond the actual accredited length are not considered 
residents for IME and direct GME purposes for the time extending beyond 
the minimum accredited length because such training is not part of the 
accredited program according to the ACGME. We would expect that an 
individual who has trained in an accredited program for the number of 
years for which the program is accredited (for example, in a surgery 
program, this would be 5 years) would have satisfied the minimum 
requirements for board certification in that specialty.
    Comment: One commenter listed several examples of specialties where 
the boards for those specialties require unaccredited training for 
certification. The commenter pointed out that, in addition to some 
subspecialties of radiology, the American Board of Pathology used to 
require a ``credentialing'' year in addition to ACGME-accredited 
training in pathology. In addition, in the late 1990s, the American 
Board of Pediatrics offered several new certificates in subspecialties 
such as Adolescent Medicine, Pediatric Emergency Medicine, 
Developmental-Behavioral Pediatrics, although ACGME accreditation for 
these subspecialties did not yet exist at that time. Between 2005 to 
2009, the Board of Psychology and Neurology allowed a ``grandfathering 
period'' for certain fellows who did not participate in ACGME-
accredited vascular neurology programs since 2003. Subspecialties of 
obstetrics and gynecology are currently not accredited by the ACGME, 
but it is well known that board certificates are available from the 
American Board of Obstetrics and Gynecology for these subspecialties. 
The commenter listed other examples of unaccredited training accepted 
by various boards, with the point being that CMS should allow 
participants in these programs to be counted in the IME and direct GME 
FTE counts.
    Response: We understand that, historically, it was not unusual for 
a particular board to begin offering certificates in a subspecialty 
prior to the ACGME's establishment of accreditation standards for those 
programs. Training in a specialized area may go on for several years 
before it is recognized by ACGME as an accredited sub-specialty. We 
understand that the certifying boards, in certain instances, allow for 
individuals who have received applicable training prior to the 
existence of board certification in a subspecialty to be 
``grandfathered'' and receive a board certificate even though there was 
no board examination in existence yet at the time of the individual's 
training, and the training was not accredited by ACGME. However, this 
practice varies by board and subspecialty; there is no uniform policy. 
Regardless, for Medicare IME and direct GME purposes, if at the time of 
the individual's training, there did not exist either ACGME 
accreditation or a specific board certificate in that subspecialty, 
those individuals could not be considered residents during their 
training, nor could a hospital subsequently request reopening of its 
contemporaneous cost reports to include those individuals in the FTE 
count after the fact once board certification or ACGME accreditation 
becomes available for that program. As we stated above, in the absence 
of accreditation and foreknowledge as to whether unaccredited training 
would be accepted by a board, the individual should be categorized as a 
resident for IME and direct GME purposes, even if the particular 
``training'' is ultimately accepted by the board.
    With respect to subspecialties of obstetrics and gynecology, those 
subspecialties continue to not be accredited by the ACGME. It is widely 
known that the American Board of Obstetrics and Gynecology 
independently recognizes and offers certification to participants in 
those subspecialties. We believe that trainees in subspecialties of 
obstetrics and gynecology for which an explicit board certification is 
offered are considered residents, in accordance with the definition of 
``approved medical residency training program'' at Sec.  413.75(b).
    We received some comments that were not within the scope of the 
proposals, such as funding for second year pharmacy residencies and 
what constitutes a new medical residency training program. We are not 
responding to these comments at this time.
    After consideration of the public comments we received, we are 
adopting as final, with some modification, our proposed revisions. 
Specifically, we are clarifying that individuals participating in a 
specialized course of training created by a senior physician, and not 
under the auspices of a national accrediting body, and for which there 
is no explicit existing board certification examination, may not be 
counted for IME and direct GME payment purposes. Such individuals 
should be treated as physicians (assuming full licensure) and their 
services billed to Medicare for payment as physicians' services. If an 
individual has already successfully completed at least one residency 
program and has met the generally applicable requirements to be board 
eligible in a specialty (regardless of whether the individual has 
passed the board examination for that specialty), and is engaged in 
subsequent training that will not provide additional knowledge or 
skills that could be applied for board certification in another 
different subspecialty, the individual will be treated and bill for 
services provided as a physician (assuming full licensure). We are 
making a technical change to the definition of ``approved medical 
residency program'' under Sec.  415.152 relating to payment for 
physician services in teaching settings. We also are revising the 
definition of ``resident'' at Sec.  413.75(b) to mean ``an intern, 
resident, or fellow who is formally accepted, enrolled, and 
participating in an approved medical residency program, including 
programs in osteopathy, dentistry, and podiatry, as required in order 
to become certified by the appropriate specialty board.'' We are making 
a conforming change to the definition of ``primary care resident'' to 
mean ``a resident who is formally accepted, enrolled, and participating 
in an approved medical residency training program in family medicine, 
general

[[Page 50298]]

internal medicine, general pediatrics, preventive medicine, geriatric 
medicine or osteopathic general practice.'' These change in the 
definitions of ``resident'' and ``primary care resident'' are effective 
for IME and direct GME for cost reporting periods beginning on or after 
October 1, 2010. Essentially, a resident for IME and direct GME 
purposes is an individual who, in accordance with our revised 
definition of ``resident'' at Sec.  413.75(b), is formally accepted, 
enrolled, and participating in an approved medical residency program, 
including programs in osteopathy, dentistry, and podiatry, as required 
in order to become certified by the appropriate specialty board. The 
program would be an ``approved program'' if it is either accredited by 
one of the four recognized accrediting bodies, or if not accredited, 
the individual who is formally accepted, enrolled, and participating in 
the program actually needs the training in order to meet the 
established minimum standards for board certification requirements in 
that specialty.
    With regard to chief residencies, effective for cost reporting 
periods beginning on or after October 1, 2010, we are changing our 
policy to provide that individuals that act as chief residents after 
they have completed the accredited program and have satisfied minimum 
requirements for board certification are not considered residents for 
IME and direct GME payment purposes. With regard to programs that are 
extended by a hospital for longer than the minimum accredited length 
for that specialty, effective for cost reporting periods beginning on 
or after October 1, 2010, we are changing our policy to provide that 
such training is not part of an approved program. That is, individuals 
training in a program that extends beyond the actual accredited program 
length are not considered residents for IME and direct GME purposes 
because they are no longer training in an accredited program according 
to the ACGME.
3. Electronic Submission of Affiliation Agreements
    Sections 1886(h)(4)(F) and 1886(d)(5)(B)(v) of the Act establish 
limits on the number of allopathic and osteopathic FTE residents that 
hospitals may count for purposes of calculating direct GME payments and 
the IME adjustment. In addition, under the authority granted by section 
1886(h)(4)(H)(ii) of the Act, the Secretary issued regulations on May 
12, 1998 (63 FR 26358) to allow institutions that are members of the 
same Medicare GME affiliated group to elect to apply their direct GME 
and IME FTE resident caps based on the aggregate cap of all hospitals 
that are part of the Medicare GME affiliated group. Under the 
regulations, specified at Sec.  413.79(f) for direct GME and at Sec.  
412.105(f)(1)(vi) for IME, hospitals that are part of the same Medicare 
GME affiliated group are permitted to adjust their caps to reflect the 
rotation of residents among affiliated hospitals during an academic 
year. Under Sec.  413.75(b), a Medicare GME affiliated group may be 
formed by two or more hospitals (1) If the hospitals are located in the 
same urban or rural area or in a contiguous area and have a shared 
rotational arrangement as specified at Sec.  413.79(f)(2); or (2) if 
the hospitals are not located in the same or in a contiguous area, but 
have a shared rotational arrangement and they are jointly listed as the 
sponsor, primary clinical site, or major participating institution for 
one or more programs as these terms are used in the most recent 
publication of the Graduate Medical Education Directory, or are jointly 
listed as the sponsor is listed under ``affiliations and outside 
rotations'' for one or more programs in Opportunities, Directory of 
Osteopathic Post-doctoral Education Programs; or (3) effective 
beginning July 1, 2003, if the hospitals are under common ownership and 
have a shared rotational arrangement under Sec.  413.79(f)(2).
    The existing regulations at Sec.  413.79(f)(1) specify that each 
hospital in a Medicare GME affiliated group must submit a Medicare GME 
affiliation agreement (as defined under Sec.  413.75(b)) to the CMS 
fiscal intermediary or MAC servicing the hospital and send a copy of 
the agreement to CMS' Central Office no later than July 1 of the 
residency program year during which the Medicare GME affiliation 
agreement will be in effect. For example, in order for a hospital to 
receive a temporary adjustment to its FTE resident caps to reflect 
participation in a Medicare GME affiliated group for the academic year 
July 1, 2009-June 30, 2010, each hospital in the affiliated group had 
to submit a Medicare GME affiliation agreement to the fiscal 
intermediary or MAC servicing the hospital and send a copy of the 
agreement to CMS' Central Office no later than July 1, 2009.
    As we discussed in the FY 2011 IPPS/LTCH PPS proposed rule, over 
the last several years, we have received numerous inquiries regarding 
the possibility of submitting the Medicare GME affiliation agreement 
electronically. To date, CMS has only accepted signed hard copies of 
Medicare GME affiliation agreements. Facsimile (FAX) and other 
electronic submissions of affiliation agreements have not been 
acceptable means of transmission of affiliation agreements to CMS 
Central Office in order for a hospital to meet the requirements of 
Sec. Sec.  413.79(f) and 412.105(f)(1)(vi).
    The increasing frequency of these inquiries and our concerns 
regarding the environment and paperwork reduction have prompted us to 
reconsider our procedure for hospitals to submit Medicare GME 
affiliation agreements to the CMS Central Office. Accordingly, in the 
FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24008) we proposed to change 
our policy to provide for electronic submission of the affiliation 
agreement that is required to be sent to the CMS Central Office. We 
indicated that this proposal would not affect the authority of the 
fiscal intermediary or MAC to continue to specify its requirements for 
submission for hospitals in its servicing area.
    We proposed an electronic submission process that would consist of 
either an e-mail mailbox or a Web site where hospitals would submit 
their Medicare GME affiliation agreements to the CMS Central Office. As 
part of this process, a copy of the Medicare GME affiliation agreement 
would need to be received through the electronic system no later than 
11:59 p.m. on July 1 of each academic year. We proposed that the 
electronic affiliation agreement would need to be submitted either as a 
scanned copy or a Portable Document Format (PDF) version of that hard 
copy agreement or in another electronic format that cannot be subject 
to manipulation. This requirement will enable CMS to ensure that the 
agreements are signed and dated as required in the regulations at Sec.  
413.75.
    Comment: Commenters supported the proposal for the electronic 
submission process for affiliation agreements and stated that it would 
help reduce hospitals' administrative burdens. Many commenters also 
stated that the proposed electronic process was a logical and more 
administratively simple method of submitting affiliation agreements. 
Several commenters suggested that CMS provide hospitals with 
documentation of the agency's receipt of the electronic submissions of 
their affiliation agreements, due to the time sensitive nature of this 
policy.
    Response: We appreciate these commenters' support for the proposed 
process. As we begin the development of the electronic submission 
system for affiliation agreements, we intend to include a mechanism 
within that system for acknowledging receipt of the agreements to 
hospitals upon the

[[Page 50299]]

submission of their agreements, as the commenters suggested.
    Comment: One commenter praised CMS' efforts to ease the paperwork 
burden for hospitals, but also claimed that the proposal was not far-
reaching enough toward that end. The commenter requested that CMS 
establish an electronic submission process that was easy to use and 
that fiscal intermediaries and MACs are required to use to receive 
affiliation agreements as well. The commenter also recommended that CMS 
ease the Medicare GME affiliation agreement criteria in general and 
allow affiliation agreements to become effective as of the date that 
the agreement is filed with the CMS Central Office.
    Response: We appreciate these comments, and we will take them into 
consideration for the future as we plan to implement the electronic 
submission system that will accept affiliation agreements. One of the 
goals in planning the development of the system is to make the system 
user-friendly as possible.
    The comments that we received regarding the criteria for 
affiliation agreements are not within the scope of the proposed rule. 
Therefore we are not addressing them in this final rule. We did not 
propose to make any additional changes to our policies regarding 
Medicare GME affiliation agreements for FY 2011.
    After consideration of the public comments we received, we are 
finalizing our proposed policy for accepting electronic submission of 
Medicare GME affiliation agreements. We believe that allowing the 
electronic submission of affiliation agreements to the CMS Central 
Office will assist CMS in more effectively tracking the groups of 
hospitals that affiliate as well as the numbers of FTE cap slots that 
are being transferred within those groups. In addition, we believe an 
electronic submission process will minimize the paperwork burden for 
hospitals.
    We are currently in the process of developing the electronic 
submission system for Medicare GME affiliation agreements. If a system 
is developed that is ready to receive affiliation agreements for the 
academic year beginning July 1, 2011, we will notify teaching hospitals 
by May 2011 of the electronic submission process in order to allow 
ample time for the preparation and electronic submission of affiliation 
agreements before the July 1, 2011 deadline. We will continue to accept 
hard copies of affiliation agreements even if the electronic submission 
system is in operation for the academic year beginning July 1, 2011. 
Hard copies of affiliation agreements should continue to be sent to: 
Director, Division of Acute Care, Centers for Medicare and Medicaid 
Services, Attn: Tzvi Hefter, Mailstop C4-08-06, 7500 Security 
Boulevard, Baltimore, MD 21244.
4. Technical Correction to the Regulations Relating to the Cost of 
Approved Nursing and Allied Health Education Activities
    Medicare has historically paid providers for the program's share of 
the costs that providers incur in connection with approved educational 
activities, which can be divided into three categories: (1) The costs 
of approved GME programs in medicine, osteopathy, dentistry and 
podiatry; (2) approved nursing and allied health education activities 
operated by a provider; and (3) all other costs that can be categorized 
as educational programs and activities that are considered to be part 
of normal operating costs. Existing regulations on nursing and allied 
health education program costs are located at Sec.  413.85. Costs of 
approved nursing and allied health education programs that are operated 
by a provider are excluded from the definition of inpatient hospital 
operating costs and are not included in the calculation of the payment 
rates for hospitals paid under the IPPS or in the calculation of the 
payments to hospitals and hospital units excluded from the IPPS. These 
costs are separately identified and ``passed through'' (that is, paid 
separately on a reasonable cost basis).
    We recently discovered that a passage in the January 12, 2001 
Nursing and Allied Health Education final rule (66 FR 3371) incorrectly 
states that pass-through payment for the time students train in 
hospital outpatient departments is not allowed. That is, the passage 
incorrectly indicates that pass-through payment is only allowed for 
training while providing care directly to hospital inpatients. The 
regulations in two places at Sec.  413.85 also incorrectly limit the 
allowable costs to the inpatient areas of the hospital as follows: (1) 
``Approved educational activities'' are defined at Sec.  413.85(c)(2), 
in part, as programs that ``Enhance the quality of inpatient care at 
the provider,'' (emphasis added); and (2) under the general payment 
rules at Sec.  413.85(d)(1)(i)(C), payment for the net costs of nursing 
and allied health education activities is determined on a reasonable 
cost basis, if, in part, the approved medical education activity 
``Enhances the quality of inpatient care at the provider'' (emphasis 
added). However, we note that the Provider Reimbursement Manual, Part 
1, section 402.1.A, states that the ``approved educational activity'' 
must be ``designed to enhance the quality of health care in the 
institution or to improve the administration of the institution'' 
(emphasis added). The PRM expresses the correct longstanding policy, 
indicating that both inpatient and outpatient training costs are 
allowable for pass-through payment. We are correcting the regulations 
at Sec.  413.85(c)(2) and Sec.  413.85(d)(1)(i)(C) to indicate that 
``approved educational activities'' are those that ``Enhance the 
quality of health care at the provider.'' However, costs of training 
activities occurring in areas of the hospital other than the IPPS or 
OPPS areas or in nonprovider settings continue to not be allowed for 
pass-through payment.

I. Certified Registered Nurse Anesthetist (CRNA) Services Furnished in 
Rural Hospitals and CAHs (Sec.  412.113)

    Section 2312 of the Deficit Reduction Act of 1984 (Pub. L. 98-369) 
provided for reimbursement to hospitals on a reasonable cost basis for 
the costs that hospitals incur in connection with the services of 
certified registered nurse anesthetists (CRNAs). Section 2312(c) 
provided that pass-through of CRNA costs was effective for cost 
reporting periods beginning on or after October 1, 1984, and before 
October 1, 1987. Section 9320 of the Omnibus Budget Reconciliation Act 
of 1986 (Pub. L. 99-509) (which established a fee schedule for the 
services of nurse anesthetists) amended section 2312(c) of Pub. L. 98-
369 by extending the CRNA pass-through provision through cost reporting 
periods beginning before January 1, 1989. In addition, Public Law 99-
509 amended section 1861 of the Act to add a new subsection (bb), which 
provides that CRNA services include anesthesia services and related 
care furnished by a CRNA. Section 608 of the Family Support Act of 1988 
(Pub. L. 100-485) extended pass-through payments for CRNA services 
through 1991 and amended section 9320 of Public Law 99-509 by including 
language referring to eligibility for pass-through payments for CRNA 
services if the facility is ``* * * a hospital located in a rural area 
(as defined for purposes of section 1886(d) of the Social Security 
Act). * * *'' Reasonable cost-based payment for CRNA services was 
extended indefinitely by section 6132 of the Omnibus Budget 
Reconciliation Act of 1989 (Pub. L. 101-239).
    Section 1886(d) of the Act defines ``rural'' as any area outside an 
urban area. This definition of ``rural'' was in effect when Public Law 
100-485 was implemented. In 1999, the Balanced Budget Refinement Act 
(Pub. L. 106-

[[Page 50300]]

113) amended section 1886(d)(8) of the Act by adding a new subparagraph 
(E), which permits a hospital physically located in an urban area to 
apply for reclassification to be treated as rural. In addition, Public 
Law 106-113 made a corresponding change to section 1820(c)(2)(B)(i) of 
the Act, which specifies the location requirements for CAH designation, 
by adding the phrase ``or is treated as being located in a rural area 
pursuant to section 1886(d)(8)(E).''
    The regulations implementing pass-through payments for anesthesia 
services and related care furnished by qualified nonphysician 
anesthetists employed by a hospital or CAH, including CRNAs, are 
located at Sec.  412.113(c). Section 412.113(c)(2)(i)(A) specifies the 
location requirement for facilities that furnish these services and are 
eligible to be paid based on reasonable cost for the services. The 
regulations require that the hospital or CAH be located in a rural area 
as defined at Sec.  412.62(f) and not be deemed to be located in an 
urban area under the provisions of Sec.  412.64(b)(3). The regulations 
at Sec.  412.62(f) mirror section 1886(d)(2)(D) of the Act and define a 
rural area as ``* * * any area outside an urban area.'' The regulations 
at Sec.  412.64(b)(3) implement section 1886(d)(8)(B) of the Act, also 
known as the ``Lugar'' provision, which requires a hospital located in 
a rural county adjacent to one or more urban areas to be treated as 
being located in the urban metropolitan statistical area to which the 
greatest number of workers in the county commute.
    Under existing regulations, neither CAHs nor hospitals that have 
reclassified from urban to rural under the regulations at Sec.  412.103 
and neither CAHs nor hospitals located in Lugar counties are eligible 
to receive pass-through payments for anesthesia services and related 
care furnished by qualified nonphysician anesthetists. However, because 
the statute, as revised by section 608 of Public Law 100-485, allows 
reasonable cost payments for CRNA services if the facility is a 
hospital located in a rural area as defined for purposes of section 
1886(d) of the Act, we believe our regulations should likewise permit 
urban hospitals that have been reclassified as rural under section 
1886(d)(8)(E) of the Act to qualify for these payments. Therefore, in 
the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24010), we proposed to 
revise Sec.  412.113(c)(2)(i)(A) to state that, effective for cost 
reporting periods beginning on or after October 1, 2010, CAHs and 
hospitals that have reclassified pursuant to section 1886(d)(8)(E) of 
the Act and Sec.  412.103 of the regulations also are rural for 
purposes of section 1886(d) of the Act and, therefore, are eligible to 
be paid based on reasonable cost for anesthesia services and related 
care furnished by a qualified nonphysician anesthetist.
    We did not propose to change our regulations to permit Lugar 
facilities to be paid based on reasonable cost for anesthesia services 
and related care furnished by qualified nonphysician anesthetists. As 
noted above, in order to be paid based on reasonable cost for 
anesthesia services and related care furnished by a qualified 
nonphysician anesthetist, a hospital or CAH must be considered rural 
for purposes of section 1886(d) of the Act. Lugar facilities 
(facilities that have been reclassified under Sec. Sec.  412.63(b)(3) 
and 412.64(b)(3)) are considered urban for purposes of section 1886(d) 
of the Act. As a result, in the proposed rule, we stated that we do not 
believe it would be consistent with the statute and our regulations to 
permit these facilities to also be paid on a reasonable cost basis for 
anesthesia services and related care furnished by qualified 
nonphysician anesthetists.
    Comment: Several commenters supported CMS' proposal to provide for 
reasonable cost-based payment for anesthesia services and related care 
furnished by qualified nonphysician anesthetists in rural hospitals and 
CAHs that have reclassified under Sec.  412.103. One commenter stated 
there are three facilities in its State that would now qualify for CRNA 
reasonable cost-based payments and that the State hospital association 
had been working with CMS and Congress for several years to address 
this issue. One commenter stated that the role of CRNAs in small rural 
CAHs includes, in addition to administering and maintaining anesthesia, 
airway management, IV starts, and other triage, trauma, and emergency 
services. The commenter stated that, at its facility, CRNAs take call 
24 hours a day, 7 days a week and their clinical skills help to provide 
constant emergency and obstetric services. Another commenter in a large 
State noted that the proposed policy would increase access to essential 
anesthesia services in rural areas of the State, allowing CAHs and 
rural hospitals to provide continuous surgical and maternity coverage. 
One commenter stated the proposed policy would allow three CAHs in its 
State, which previously received CRNA reasonable cost-based payments 
and were excluded from such payment in 2005, to once again be paid 
based on reasonable cost for anesthesia services and related care 
furnished by qualified nonphysician anesthetists.
    Response: We appreciate the commenters' support of CMS' proposed 
policy to provide rural hospitals and CAHs that have reclassified under 
Sec.  412.103 with reasonable cost-based payments for anesthesia 
services and related care furnished by qualified nonphysician 
anesthetists.
    Comment: Although commenters supported the proposed policy 
regarding payment for services provided by qualified nonphysician 
anesthetists, the majority of commenters disagreed with CMS' statement 
in the proposed rule that it was not proposing to change its policy to 
provide for reasonable cost-based payment for services furnished by 
qualified nonphysician anesthetists in facilities located in Lugar 
counties (75 FR 24011). Several commenters stated that, in the proposed 
rule, CMS proposed to revise the regulations, which limited 
reimbursement for CRNA services provided in CAHs to the Medicare 
Resource-Based Relative Value Scale, to allow for cost-based 
reimbursement for these services. The commenters stated that while the 
proposed rule would allow for reimbursement for CRNA services based on 
cost, the proposal does not include CAHs located in Lugar counties; 
instead, these facilities would continue to be reimbursed using the 
Medicare Physician Fee Schedule. The commenters stated that this policy 
approach is inappropriate. Commenters stated that they believed there 
may be some confusion that CAHs located in Lugar counties receive a 
financial advantage. These commenters stated that CAHs located in Lugar 
counties do not receive any benefit from being located in such counties 
because CAHs are reimbursed based on cost and not based on Medicare DRG 
payments. Commenters stated that CAHs located in Lugar counties are 
faced with ``double jeopardy'' because these CAHs do not receive the 
higher DRG payments that IPPS hospitals receive as a result of being 
located in a Lugar county, nor do they receive CRNA reasonable cost-
based payments. Commenters stated that very few CAHs are located in 
Lugar counties and therefore a change in CMS' policy to enable these 
CAHs to receive CRNA reasonable cost-based payments would have a very 
small financial impact on the Medicare program. Another commenter 
stated that in its State, there are at least 13 CAHs that would be 
negatively affected by the proposed provision.
    Commenters referenced the FY 2006 IPPS final rule (70 FR 47469), 
where CMS stated the Lugar provision does not apply in determining CAH 
status because the Lugar provision applies for

[[Page 50301]]

purposes of payment under the IPPS and CAHs are not subject to the 
IPPS. The commenters stated that as a result of the policy published in 
the FY 2006 IPPS final rule, CAHs located in Lugar counties have not 
sought to reclassify as rural for purposes of CAH designation. Many 
commenters stated that it is inappropriate for CMS to state that Lugar 
designation does not apply to CAHs in one context, for determining CAH 
eligibility, but does apply for the purpose of determining whether a 
CAH will receive CRNA reasonable cost-based payments. One commenter 
requested that if CMS does not change its policy with respect to CAHs 
located in Lugar counties and CRNA reasonable cost-based payment that 
``* * * the broad powers conferred upon the Secretary by Congress be 
used to resolve such conflict and correct this issue for CAHs located 
in Lugar counties.'' One commenter stated that, in 2005-2006, CMS 
issued provisions allowing facilities already certified as CAHs, which 
were classified as urban, an opportunity to reclassify as rural based 
on either the CAH's ability to comply with either the Federal or State 
definition of rural. The commenter referenced language included in an 
April 25, 2005 memorandum which referred to a proposal discussed in the 
FY 2006 IPPS proposed rule, in which CMS proposed to clarify that CAHs 
that were located in a county that, in FY 2004, was not part of a Lugar 
county, but as of FY 2005 were included in such a county as a result of 
the labor market area definitions announced by OMB on June 6, 2003, had 
through September 30, 2006, to reclassify as rural under Sec.  412.103 
of the regulations. The commenter stated that the two CAHs in its State 
located in Lugar counties were reclassified as rural prior to October 
2006, and these facilities were able to maintain their CAH status. The 
commenter stated that ``Excluding CAHs located in Lugar counties, 
because of lack of clarity with [the] definition and fear [that] Lugar 
county reimbursement is an advantage for CRNAs, is not accurate.'' One 
commenter stated that CMS' proposal not to permit CAHs located in Lugar 
counties to receive CRNA reasonable cost-based payments is not 
supported by section 1886(d)(8)(B) of the Act. The commenter stated 
that the only basis for excluding rural CAHs such as its facility, is 
that CMS believes that section 1886(d)(8)(B) of the Act converts these 
CAHs into urban facilities if they are located in Lugar counties. The 
commenter quoted the statutory language at section 1886(d)(8)(B) of the 
Act: ``For purposes of this section, the Secretary shall treat a 
hospital located in a rural county adjacent to one or more urban areas 
as being located in the urban metropolitan statistical area * * *'' 
(emphasis added by commenter). The commenter further referred to 
section 1861(e) of the Act, which states the ``* * * term `hospital' 
does not include, unless the context otherwise requires, a critical 
access hospital (as defined in section 1861(mm)(1)).'' The commenter 
stated that because section 1886(d)(8)(B) of the Act describes the 
geographic classification for subsection 1886(d) hospitals, which CAHs 
are not, ``it is clear that the `context does not require' 
incorporating CAHs into the definition of hospital for such purposes.'' 
Therefore, the commenter believes section 1886(d)(8)(B) of the Act, 
does not change CAHs located in Lugar counties into urban facilities. 
The commenter stated that because CAHs in Lugar counties do not lose 
their rural status, they must remain eligible for CRNA reasonable cost-
based payments despite being located in a Lugar county. The commenter 
stated that its facility did not apply for reclassification under Sec.  
412.103 when it applied for CAH designation, which supports the claim 
that its facility (a CAH located in a Lugar county) is a rural 
facility.
    Response: We thank the commenters for their comments. In response 
to the commenters who stated that CMS proposed to revise a longstanding 
regulation that limited Medicare reimbursement for CRNA services 
provided in CAHs to the Medicare Resource-Based Relative Value Scale 
amounts in lieu of cost, we note that CAHs located in a rural area as 
defined at section 1886(d)(2)(D) of the Act were eligible to receive 
CRNA reasonable cost-based payments prior to this final rule. In 
response to the commenter who referred to a provision included in the 
FY 2006 IPPS proposed rule, where CMS proposed to clarify that CAHs 
located in Lugar counties as a result of the labor market areas 
definitions announced by OMB on June 6, 2003, could reclassify as rural 
through September 30, 2006, we note that, in the FY 2006 IPPS final 
rule, we adopted a policy that, for purposes of CAH participation, a 
CAH located in a Lugar county is considered to be located in a rural 
area. In response to the commenters who disagreed with our proposal not 
to extend reasonable cost-based payments for nonphysician anesthesia 
services to facilities located in Lugar counties, we continue to 
believe, consistent with the plain language of the applicable statutory 
provisions, that it is appropriate to exclude hospitals and CAHs 
located in Lugar counties from reasonable cost-based payment for 
anesthesia services and related care furnished by qualified 
nonphysician anesthetists. Section 608 of the Family Support Act of 
1988 (Pub. L. 100-485) amended section 9320 of the Omnibus Budget 
Reconciliation Act of 1986 (Pub. L. 99-509) to state: ``* * * the 
amendments made by this section shall not apply during 1989, 1990, and 
1991 to a hospital located in a rural area (as defined for purposes of 
section 1886(d) of the Social Security Act) * * *'' (emphasis added). 
Section 1886(d) of the Act includes both sections 1886(d)(8)(B), the 
Lugar provision, and section 1886(d)(8)(E), the reclassification 
provision. Section 1886(d)(8)(B) of the Act treats facilities located 
in Lugar counties as urban facilities and section 1886(d)(8)(E), treats 
urban facilities that have reclassified under that section as rural 
facilities. Therefore, ``as defined for purposes of section 1886(d) of 
the Social Security Act'' clearly indicates that Lugar facilities are 
urban for purposes of receiving CRNA reasonable cost-based payment and 
those facilities that have reclassified under section 1886(d)(8)(E) of 
the Act are rural for purposes of receiving CRNA reasonable cost-based 
payments.
    In response to commenters who stated CMS' position that facilities 
located in Lugar counties can be granted CAH status but these same 
facilities are not eligible to receive CRNA reasonable cost-based 
payments is inconsistent, CAH status and CRNA reasonable cost-based 
payments are determined through the application of two separate and 
distinct provisions under the Act. Section 1820(c)(2)(B)(i) of the Act 
permits a facility to qualify for designation as a CAH only if it is 
located ``in a rural area (as defined in section 1886(d)(2)(D)) or is 
being treated as being located in a rural area pursuant to section 
1886(d)(8)(E). * * *'' Because section 1820(c)(2)(B)(i) of the Act does 
not include any reference to the Lugar provision (section 1886(d)(8)(B) 
of the Act), we do not believe that the statute requires CMS to treat a 
facility as being in an urban area for purposes of CAH participation if 
it is in a Lugar county. That is, the specific omission of section 
1886(d)(8)(B) from section 1820(c)(2)(B)(i) of the Act indicates that 
being located in a Lugar county may be considered irrelevant for 
purposes of CAH designation. Consistent with this reading of section 
1820(c)(2)(B)(i) of the Act, in the FY 2006 IPPS final rule, we amended 
the CAH regulations at

[[Page 50302]]

Sec.  485.610(b)(1)(i) to remove all references to a facility being 
recognized as urban under the regulations implementing the Lugar 
provision. The effect of this change was that facilities in Lugar 
counties are now considered to be located in rural areas for purposes 
of CAH participation. In the FY 2006 IPPS final rule, we emphasized 
that this change was ``effective only for purposes of CAH participation 
and will not otherwise affect the status of hospitals or CAHs in Lugar 
counties (70 FR 47469).
    In contrast, in order to qualify for reasonable cost-based payments 
for CRNA services, a facility must be rural ``as defined for purposes 
of section 1886(d) of the Social Security Act,'' which we believe 
includes all of the designations at section 1886(d) of the Act, 
including sections 1886(d)(8)(B) and 1886(d)(8)(E). Because section 608 
of the Family Support Act of 1988 refers to all of section 1886(d) of 
the Act, we interpret this to encompass all of the area designations 
included in section 1886(d) of the Act, including section 
1886(d)(8)(B). That is, because section 608 of the Family Support Act 
referenced section 1886(d) of the Act and not just section 
1886(d)(2)(D), we continue to believe it is appropriate to preclude 
CRNA reasonable cost-based payments to those hospitals and CAHs located 
in Lugar counties. In addition, we believe that if we recognize as 
rural the urban-to-rural hospitals that have reclassified under section 
1886(d)(8)(E) of the Act, we should also recognize as urban the Lugar 
hospitals that are redesignated pursuant to section 1886(d)(8)(B) of 
the Act. Both of these provisions are incorporated within subsection 
(d), and we believe it is most internally consistent to recognize both 
reclassifications, rather than recognizing one type of reclassification 
without recognizing the other. Finally, we note that hospitals and CAHs 
located in Lugar counties could apply to reclassify under Sec.  412.103 
of the regulations and thus become eligible to receive reasonable cost-
based payments for anesthesia services and related care furnished by 
qualified nonphysician anesthetists.
    Comment: One commenter opposed CMS' proposal to reimburse 
facilities that have reclassified under Sec.  412.103 at 100 percent of 
reasonable cost for anesthesia and related services provided by 
qualified nonphysician anesthetists. The commenter stated that, 
starting in 2002, when the regulations were revised to increase the cap 
on surgical procedures from 500 to 800 to qualify for CRNA reasonable 
cost-based payments, the commenter requested that CMS review the law 
and its regulations to determine whether the regulations could be 
revised to include anesthesiologists in the same reasonable cost-based 
payments that other anesthesia providers receive. The commenter stated 
that not providing equitable payment to anesthesiologists who work in 
rural settings prohibits patients from receiving high-level anesthesia 
services, which CRNAs lack the training or licensure to provide. The 
commenter stated CMS' current regulations regarding reasonable cost-
based payment for anesthesia services discourages rural hospitals from 
employing or contracting with anesthesiologists. The commenter stated 
that, due to the lack of anesthesiologists in rural hospitals, these 
hospitals are forced to transfer medically complex patients to large 
urban hospitals, which results in greater risk and inconvenience to the 
patient. The commenter urged CMS not to finalize its proposal until all 
anesthesia providers are eligible to be paid based on reasonable cost. 
The commenter stated that not finalizing CMS' proposal is reasonable 
due to the uncertainty of how many facilities would be affected by the 
proposed change. The commenter urged CMS to extend reasonable cost-
based payments to services provided by anesthesiologists in rural 
hospitals and CAHs, and if such a change cannot be made through 
regulations and CMS makes this determination publicly, that CMS 
recommend to Congress that the statute be amended to provide for 
reasonable cost-based payments for anesthesiologist services provided 
by anesthesiologists in rural hospitals and CAHs. The commenter 
requested if CMS cannot establish the current number of facilities that 
would be eligible for reasonable cost-based payments, prior to making 
any change which would expand the number of facilities that could be 
eligible for reasonable cost-based payments, CMS should provide a list 
of hospitals or CAHs that would have been eligible to receive 
reasonable cost-based payments in previous years.
    Response: Reasonable cost-based payment for anesthesia services and 
related care does not apply to physician anesthesiologists under 
section 6132 of the Omnibus Budget Reconciliation Act of 1989 (Pub. L. 
101-239) and prior applicable legislation. Physician anesthesiologists 
receive payment under the Medicare Physician Fee Schedule. Therefore, 
under current law, CMS does not have the authority to extend reasonable 
cost-based payment to rural hospitals and CAHs for anesthesia services 
and related care furnished by physician anesthesiologists. We 
appreciate the commenter's concern that access to high-level anesthesia 
services may not be adequate in rural areas because there may be a 
limited number of physician anesthesiologists practicing in these 
areas. However, we believe that not finalizing our proposal to extend 
reasonable cost-based payments for services furnished by qualified 
nonphysician anesthetists in rural hospitals and CAHs that reclassified 
under Sec.  412.103 would run counter to this very concern, that access 
to anesthesia services is limited in rural areas. That is, not 
extending reasonable cost-based payment for anesthesia services and 
related care furnished by qualified nonphysician anesthetists to rural 
hospitals and CAHs that reclassify under Sec.  412.103 would, in fact, 
further limit access to anesthesia services.
    Comment: One commenter requested that the effective date of the 
proposed policy on payment for anesthesia services and related care for 
qualified nonphysician services be changed from cost reporting periods 
beginning on or after October 1, 2010 to calendar years beginning on or 
after January 1, 2011 because the CRNA reasonable cost-based payment 
elections are made on a calendar year basis rather than a cost 
reporting year basis. Another commenter stated CMS should not force 
rural hospitals and CAHs affected by this proposed provision to engage 
in appeals of this issue due to CMS' unwillingness to revise the 
regulations as a result of the statute as revised by the Family Support 
Act of 1988. The commenter stated court cases such as Bayside Community 
Hospital v. Sebelius have considered this issue and have maintained 
``It is true that the physical location of the hospital does not 
change; however, Congress has directed that a hospital qualifying under 
1886(d)(8)(E) be treated as if it were in a rural location. The purpose 
of this is to overcome the actual physical location and cause a 
hospital to qualify as rural. Thus, the deeming provision does impact 
the definition of rural at section 1886(d). A regulation does not 
override a clearly stated statute.'' The commenter stated that, to 
prevent litigation for all parties involved, it would be efficient if 
CMS modified the proposed provision as a clarification effective as of 
1988 and direct that for all cost reports that have an appropriate 
pending appeal, all open cost reports, and all cost reports that are 
within three years of settlement, CAHs and hospitals that have 
reclassified under section 1886(d)(8)(E) of the Act are eligible to be 
paid on a reasonable cost basis for anesthesia services and

[[Page 50303]]

related care furnished by qualified nonphysician anesthetists.
    Response: The provisions published in the IPPS final rule for each 
respective year are generally effective October 1 of that respective 
year. Therefore, we proposed that this provision be effective for cost 
reporting periods beginning on or after October 1, 2010. Although the 
commenter requested that the proposal be amended to state that it would 
be effective for calendar years beginning on or after January 1, 2011, 
we do not believe this change is necessary because if the provision is 
effective for cost reporting periods beginning on or after October 1, 
2010, it will also be in effect for the calendar year beginning January 
1, 2011.
    In response to the commenter who requested that the proposed 
provision be applied retroactively to the effective date of the Family 
Support Act of 1988, section 1871(e)(1)(A) of the Act generally 
prohibits the Secretary from making retroactive substantive changes in 
policy unless retroactive application of the change is necessary to 
comply with statutory requirements or failure to apply the change 
retroactively would be contrary to the public interest. We do not 
believe this provision meets such a threshold.
    Comment: Several commenters addressed issues regarding reasonable 
cost-based payment for on-call services provided by CRNAs as well as 
stand-by costs. In general, commenters requested that reasonable cost-
based payments include on-call CRNA costs as allowable costs. One 
commenter requested that CMS consider amending the regulations to 
provide for an exception to the requirement that a hospital or CAH must 
have employed or contracted with a qualified nonphysician anesthetist 
as of January 1, 1988, as one of the requirements to be eligible for 
reasonable cost-based payments.
    Response: We consider these comments to be outside of the scope of 
the proposed rule and, therefore, are not responding to them in this 
final rule.
    Comment: One commenter requested that CMS change the CoPs to remove 
the requirement for physician supervision in CAHs.
    Response: We consider this comment to be outside of the scope of 
the proposed rule. Therefore we are not responding to the comment in 
this final rule.
    After consideration of the public comments that we received, we are 
adopting, as final without modification, our proposal to revise Sec.  
412.113(c)(2)(i)(A) to state that, effective for cost reporting periods 
beginning on or after October 1, 2010, CAHs and hospitals that have 
reclassified pursuant to section 1886(d)(8)(E) of the Act and Sec.  
412.103 of the regulations are also rural for purposes of section 
1886(d) of the Act and, therefore, are eligible to be paid based on 
reasonable cost for anesthesia services and related care furnished by a 
qualified nonphysician anesthetist.

J. Additional Payments for Qualifying Hospitals With Lowest Per 
Enrollee Medicare Spending

1. Background
    Section 1109 of Public Law 111-152 provides for additional payments 
for FY 2011 and 2012 for ``qualifying hospitals.'' Section 1109(d) 
defines a ``qualifying hospital'' as a ``subsection (d) hospital * * * 
that is located in a county that ranks, based upon its ranking in age, 
sex and race adjusted spending for benefits under parts A and B * * * 
per enrollee within the lowest quartile of such counties in the United 
States.'' Therefore, a ``qualifying hospital'' is one that meets the 
following conditions: (1) A ``subsection (d) hospital'' as defined in 
section 1886(d)(1)(B) of the Act; and (2) located in a county that 
ranks within the lowest quartile of counties based upon its spending 
for benefits under Medicare Part A and Part B per enrollee adjusted for 
age, sex, and race. Section 1109(b) of Public Law 111-152 makes 
available $400 million to qualifying hospitals for FY 2011 and FY 2012. 
Section 1109(c) of Public Law 111-152 requires the $400 million to be 
divided among each qualifying hospital in proportion to the ratio of 
the individual qualifying hospital's FY 2009 IPPS operating hospital 
payments to the sum of total FY 2009 IPPS operating hospital payments 
made to all qualifying hospitals.
2. Eligible Counties
    Section 1109 of Public Law 111-152 provides $400 million for FYs 
2011 and 2012 for supplemental payments to qualifying hospitals located 
in counties that rank within the lowest quartile of counties in the 
United States for spending for benefits under Medicare Part A and Part 
B. The provision requires that the Medicare Part A and Part B county-
level spending per enrollee be adjusted by age, sex and race. In the FY 
2011 IPPS/LTCH PPS supplemental proposed rule (75 FR 30926 through 
30960), we proposed our methodology for determining the bottom quartile 
of counties with the lowest Medicare Part A and Part B spending 
adjusted by age, sex, and race and invited public comment on the 
methodology we proposed to use to adjust for age, sex, and race 
described below. We further proposed that we would determine this 
bottom quartile of counties one time in this FY 2011 IPPS/LTCH PPS 
final rule for the purpose of disbursing the $400 million as required 
by section 1109 of Public Law 111-152.
    We developed an adjustment model by age, sex, and race, as required 
under the provision. We then applied this adjustment to the county 
Medicare Part A and Part B spending data to account for the 
demographics of the Medicare beneficiaries in those counties. After 
those adjustments are applied, we determined the Medicare Part A and 
Part B spending by county per enrollee. Our proposed methodology to 
determine the Medicare Part A and Part B spending per enrollee by 
county adjusted for age, sex, and race is similar to how we calculate 
risk adjustment models for Medicare Advantage (MA) ratesetting. Risk 
adjustment for MA ratesetting is discussed in the annual announcement 
of calendar year MA capitation rates and MA and Part D payment 
policies. For more information on the methodology for risk adjustment 
used for MA ratesetting, we refer readers to the CMS Web site where we 
announce MA rates through our 45-day notice (http://www.cms.gov/MedicareAdvtgSpecRateStats/Downloads/Announcement2010.pdf).
a. Development of Risk Adjustment Model
    As required by section 1109(d) of Public Law 111-152, we proposed a 
risk adjustment model that accounts for differentials in Medicare 
spending by age, sex, and race. Consistent with how we develop our risk 
adjustment models for MA ratesetting as described above, we developed a 
prospective risk adjustment model using 2006 data for beneficiary 
characteristics and 2007 data for Part A and Part B spending. However, 
unlike the risk adjustment model used for MA which includes diseases 
and demographic factors, the only independent variables or prospective 
factors in the model for payments under section 1109 of Public Law 111-
152 are age, sex and race, as required by the provision. The dependent 
variable was annualized Medicare Part A and B spending at the 
beneficiary level for 2007 as it is the most recent and complete data 
available. The categorization of age, sex, and race variables are 
described below.
    The age, sex, race (ASR) model(s) was estimated using 5-percent of 
the Standard Analytic Denominator File, a standard 5-percent sample 
from the 2007 Denominator File which is also used to estimate CMS risk 
adjustment

[[Page 50304]]

models for payment to MA organizations. We chose to use the 5-percent 
Standard Analytic Denominator File from 2007 in order to optimize the 
amount of time after the timely claim submission deadlines and the 
latest available data; in other words, because it is the most complete 
data currently available. This file has the demographic and enrollment 
characteristics of all Medicare beneficiaries. The Denominator File is 
an abbreviated file of the Enrollment Data Base (EDB). The Denominator 
File contains data on all Medicare beneficiaries enrolled and/or 
entitled to be enrolled in Medicare in a given year while the EDB is 
the source of enrollment and entitlement information for all people who 
are or were ever entitled to Medicare. The model was estimated using 
all beneficiaries residing in the community and long-term care 
institutions. The sample had 1,603,998 beneficiaries.
    The Denominator File contains a sex variable where the 
beneficiaries can identify themselves as male or female. The file also 
contains an age variable which is defined as the beneficiary's age at 
the end of the prior year. Beneficiaries with an age greater than 98 
are coded as age 98. The race demographic variable in the Denominator 
File is populated by data from the Social Security Administration 
(SSA). The SSA's data for this race demographic variable are collected 
on Form SS-5. Prior to 1980, Form SS-5 included three categories for 
race: White, Black or Other. Since that time, Form SS-5 instructed a 
beneficiary to voluntarily select one of the following five categories: 
(1) Asian, Asian-American or Pacific Islander; (2) Hispanic; (3) Black 
(Not Hispanic); (4) North American Indian or Alaskan Native; and (5) 
White (Not Hispanic). Form SS-5 is completed when an individual does 
the following: (1) Applies for a Social Security number; (2) requests a 
replacement of the Social Security card; or (3) requests changes to 
personal information on their record such as a name change. (We refer 
readers to the SSA Web site for instructions at: http://ssa.gov/online/ss-5.pdf). Each January, CMS obtains data from SSA to update the EDB 
for beneficiaries who were added during the previous calendar year as 
well as all living beneficiaries whose race is identified as ``Other'' 
or ``Unknown.''
    Discussed in the context of the ESRD payment system in the ESRD 
proposed rule on September 29, 2009 (74 FR 49962), we noted concerns 
with using the EDB as a data source due to missing data, and that 
racial and ethnic categories are not well defined. However, we believe 
that the current EDB, particularly with respect to the more recent and 
ongoing updates we perform, remains a useful source of race and 
ethnicity data on 46 million Medicare beneficiaries. Additionally, 
because this is our only currently available data source on the racial 
and ethnic demographics of Medicare beneficiaries, we proposed to the 
use the EDB as our data source for beneficiary race so that we can 
fulfill the requirements of section 1109(d) of Public Law 111-152 to 
adjust county Medicare Part A and Part B spending by race.
    We used the MedPAR claims file as the source to determine Medicare 
inpatient spending. We used the National Claims History File to 
determine spending on DMEPOS and supplies. The other spending under 
Medicare Part A and Part B was determined using the Standard Analytic 
File. The Standard Analytic File and MedPAR claims file are subsets of 
the National Claims History File. These data files are also used in the 
MA ratesetting process and are our data source for Medicare spending 
stored at the beneficiary level.
    In order to determine annual spending (the dependent variable in 
the risk adjustment model), we annualized the Medicare Part A and Part 
B spending for beneficiaries with less than a full year of eligibility, 
and these amounts were weighted in the analysis by the fraction of the 
year they were in the data.
    We used a linear regression model to determine the demographic 
adjustments. This is consistent with how we model our risk adjustment 
for the MA rates. The linear regression used 24 age-sex regression 
categories, 12 age categories each for males and females. The age 
categories are as follows; 0-34, 35-44, 45-49, 50-54, 55-59, 60-64, 65-
69, 70-74, 75-79, 80-84, 85-89, and 90+. The age-sex coefficients 
displayed in the table below reflect the difference in Medicare Part A 
and Part B spending per enrollee in those age-sex categories relative 
to national average Part A and Part B spending based on our linear 
regression model.
    In addition, we used the same linear regression model to determine 
how to adjust Medicare Part A and Part B spending for race. In addition 
to the age-sex regression categories described above, we included 
variables to adjust for race. We considered two methods to adjust for 
race in county spending because of the way that Form SS-5 collects race 
information, which is then reported in the same format in the EDB. As 
discussed earlier, the EDB currently categorizes race by the following 
five categories, as reported by the Medicare beneficiary: (1) Asian, 
Asian-American or Pacific Islander; (2) Hispanic; (3) Black (Not 
Hispanic); (4) North American Indian or Alaskan Native; and (5) White 
(Not Hispanic). One method categorized race by White, Black, Hispanic, 
and Other (WBHO). The ``Other'' category includes Asian/Pacific 
Islander, American Indian/Alaska Native, and all others. The second 
method categorized race by White, Black, and Other (WBO), where 
beneficiaries who identified themselves as Hispanic were categorized as 
Other. The race/ethnicity categories are mutually exclusive; if a 
beneficiary identified themselves as Hispanic he or she was not further 
classified as another category, such as White or Black. In our 
regression modeling, we used the largest group, White, as the reference 
group; the coefficients on the difference in spending by race, 
displayed in the table below, are additive to the reference group. In 
other words, the coefficients for each race category represent the 
difference in predicted Medicare Part A and Part B spending relative to 
our reference group. Where the coefficients are positive, this implies 
that the predicted spending for that category is higher than that of 
the reference group. Conversely, where the coefficients are negative, 
this implies that the predicted spending for that category is lower 
than that of the reference group.
    Below are two tables representing the coefficients used to adjust 
Medicare Part A and Part B spending by county. The first table shows 
the coefficients for each age and sex category. The second table shows 
the coefficients for race. These national coefficients are applied to 
each counties' relative demographic for age, sex and race, so that each 
county has a risk score by age, sex and race.

[[Page 50305]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.086

    We proposed to adjust for race using the WBHO method where we 
separately account for cost differences associated with Hispanic 
beneficiaries. The Office of Management and Budget (OMB) has 
promulgated standards for the classification of federal data on race 
and ethnicity. Under OMB's classification standards, the category of 
Hispanic is treated as an ethnic category as opposed to a race 
category. The current OMB Standards of 1997 require collection of 
specific demographic data using a total of five race categories, plus 
other (62 FR 58782 through 58790). The five race categories are--(1) 
American Indian or Alaska Native; (2) Asian; (3) Black or African 
American; (4) Native Hawaiian or Other Pacific Islander; and (5) White. 
In addition, OMB specified two separate ethnic categories--Hispanic or 
Latino, and not Hispanic or Latino. However, as explained above, 
Hispanic or Latino ethnicity is treated as a race category by EDB, and 
beneficiaries can self-identify as Hispanic among mutually exclusive 
racial categories. Despite the inconsistency in reporting by the OMB 
and the EDB, we proposed to treat the category of Hispanic as a 
separate category for purposes of the race adjustment required by 
section 1109 of Public Law 111-152. We found that the coefficient for 
the Hispanic category was statistically significant, suggesting that 
Medicare Part A and Part B spending associated with this category of 
beneficiaries is different from the spending for our reference group 
and that it should be a separate coefficient to adjust county spending. 
In addition, the EDB treats Hispanic as a separate racial 
classification, consistent with our WBHO method. Therefore, we believe 
that our proposal appropriately interpreted the required race 
adjustment. In the supplemental proposed rule, we proposed to adjust 
for race using the WBHO method.
    For purposes of the supplemental proposed rule, we also adjusted 
county spending using the WBO methodology to compare the two 
approaches. We found minimal difference in the county rankings under 
the two methodologies. We found that some counties would qualify as an 
eligible county only under the WBO methodology, and others would no 
longer qualify as an eligible county using this alternative. The 
decision to use the WBHO methodology affects whether nine subsection 
(d) hospitals, located in five counties, would be eligible to receive a 
payment under section 1109 of Public Law 111-152. In Table 3 of the 
supplemental proposed rule (75 FR 30949 through 30958), we published 
the differences in counties, eligible hospitals, and payments by State 
under the two methodologies. This was the first time we had developed 
an adjustment for Medicare spending based on race, and we welcomed 
public comment on our proposal to use the WBHO methodology to adjust 
for race as required by section 1109 of Public Law 111-152. We also 
welcomed public comment on the WBO methodology to adjust for race 
though we noted that we were not proposing this methodology at this 
time.
b. Calculation of County Level Part A and Part B Spending
    In order to rank counties by Medicare Part A and B spending, we 
first calculated Medicare Part A and Part B county level spending for 
each county in the 50 States and the District of Columbia using a 
similar methodology used to establish county level fee-for-service 
rates for MA payments. Using a 5-year average of each county's actual 
spending (from 2002 to 2006), our actuaries calculated an average 
geographic adjuster (AGA), which reflects the county's expenditure 
relative to the national expenditure. We believe a 5-year average is 
appropriate, as it accounts for fluctuations in year-to-year 
expenditures, which could distort the counties' historic level of 
spending and is consistent with how MA rates are calculated. The AGA 
was then applied to the 2009 United States Per Capita Cost (USPCC) 
estimate, which is the national average cost per Medicare beneficiary, 
to determine 2009 Medicare Part A and Part B spending for each county. 
We welcomed public comment on this methodology to calculate county-
level Medicare Part A and Part B spending.
3. Application of the Age/Sex/Race Adjustment to Part A and Part B 
County Spending
    To estimate the county level risk scores for 2009, beneficiary 
enrollment information was first extracted from the EDB. We chose to 
calculate Medicare Part A and Part B county spending for 2009 to be 
consistent with how we are required to determine qualifying hospitals' 
payment amounts, under section 1109(c) of Public Law 111-152. That is, 
section 1109(c) of Public Law 111-152 requires that qualifying 
hospitals located in the bottom quartile

[[Page 50306]]

of counties with the lowest Medicare Part A and Part B spending per 
enrollee will receive a portion of the allotted $400 million based on 
their FY 2009 operating payments. Therefore, we proposed to calculate 
Medicare Part A and Part B county spending for 2009 as well. We only 
included beneficiaries enrolled in Medicare Part A and/or Part B, 
consistent with the language of section 1109(d) of Public Law 111-152, 
which refers to spending under Medicare Part A and Part B. Based on 
these criteria, there were 30,666,295 beneficiaries included in the 
adjustment process. To determine the age, sex and race makeup of the 
Part A and/or Part B beneficiaries for each county, we used the EDB to 
identify date of birth, sex, race, and State/county of residence to 
create a person-level file with the data needed to run the ASR model.
    A county-level average risk score was developed for each county in 
the United States by applying the ASR model to each individual in the 
county enrolled in Medicare Part A and/or Part B, summing the resulting 
risk scores and dividing by the number of beneficiaries by county 
enrolled in Medicare Part A and/or Part B. The county-level Medicare 
Part A and/or Part B spending was adjusted by dividing the county-level 
Medicare Part A and/or Part B spending by the county-level average risk 
score. The resulting spending distribution was then sorted lowest to 
highest dollars; the 786 counties in the lowest quartile of spending 
(that is, lowest adjusted spending per enrollee) were determined to be 
eligible counties under section 1109 of Public Law 111-152.
    We invited comment on our methodology for determining the age, sex, 
race adjustments for determining adjusted Medicare Part A and B 
spending by county for the purpose of determining eligible counties 
under section 1109 of Public Law 111-152.
    Comment: Some commenters supported the proposed methodology for 
determining the eligible counties, calculating the county rates, 
identifying the qualifying hospitals and allocating the allotted 
payments.
    Response: We appreciate the comments in support of our methodology. 
We are finalizing our proposed methodology, with a few adjustments in 
response to specific comments discussed below, in this final rule.
    Comment: Some commenters expressed disappointment that CMS did not 
provide data to determine which hospitals qualify for payments, 
including those used for the risk-adjustment model, calculation of the 
county-level spending and application of the risk-adjustments to the 
Part A and Part B spending. Commenters requested that CMS publish the 
data used to calculate the ASR model, the county spending, and the FY 
2009 IPPS operating payments for the qualifying hospitals.
    Response: As the commenters noted, several data sources were used 
to calculate our age-sex-race adjustments, the county-level Medicare 
Part A and Part B spending per enrollee, and our qualifying providers' 
payment weighting factors. As discussed above, our data source to 
calculate the ASR model was the 2007 Standard Analytic File, which is a 
5-percent sample of the Denominator File. In addition, to calculate 
spending for the ASR model, we used the MedPAR claims file to calculate 
inpatient spending, the National Claims History File to calculate 
DMEPOS and supplies spending, and the Standard Analytic File to 
calculate other Medicare Part A and Part B spending from 2007. The 
Standard Analytic File is available for purchase from CMS (as discussed 
in section IV.J.6. of this preamble). Additional information on this 
file can be found on the CMS Web site at: http://www.cms.gov/LimitedDataSets/12_StandardAnalyticalFiles.asp.
    As described above, to calculate the 2009 unadjusted county 
spending, we used a 5-year average (from 2002 to 2006) of each county's 
Medicare Part A and Part B spending to calculate an AGA for each county 
and applied that to the 2009 USPCC. We calculated the county age-sex-
race risk scores based on county demographics from the EDB from 2009 
and applied the county age-sex-race risk score to the unadjusted county 
spending to determine the Medicare Part A and Part B spending adjusted 
for age, sex and race. We divided this adjusted county-level spending 
by the number of Medicare Part A and Part B beneficiaries from 2009 in 
each county.
    Soon after the publication of the FY 2011 IPPS/LTCH PPS 
supplemental proposed rule, we published the proposed unadjusted county 
rates, the age-sex-race adjustments applied to the county rates, and 
the county rates adjusted for age-sex-race for the eligible counties on 
the CMS Web site at: http://www.cms.gov/ AcuteInpatientPPS/IPPS2010/
itemdetail.asp?filterType=none&filterByDID=-
99&sortByDID=1&sortOrder=ascending&itemID=CMS1235590&intNumPerPage=10.
    We are publishing the final unadjusted county rates, the age-sex-
race adjustments applied to the county rates, and the county rates 
adjusted for age-sex-race for the eligible counties that are included 
in this final rule on the CMS Web site at: http://www.cms.gov/AcuteInpatientPPS/IPPS2011/list.asp#TopOfPage.
    To calculate the final payment weighting factors for the qualifying 
hospitals, we used the actual payments reported on the March 2010 
update of the FY 2009 MedPAR file, which, as discussed in section 
IV.J.6. of this preamble, the public can purchase. As required by the 
statute, a hospital receives the proportion of the $400 million based 
on its FY 2009 IPPS operating payments made under section 1886(d) of 
the Act relative to the FY 2009 IPPS operating payments made to all the 
qualifying hospitals under section 1886(d) of the Act. We defined IPPS 
operating payments to include DRG and wage-adjusted payments made under 
the IPPS standardized amount with add-on payments for operating DSH, 
operating IME, operating outliers and new technology. We excluded 
capital PPS payments. As we proposed, we also included IME MA payments 
made to IPPS hospitals because these payments are made under section 
1886(d) of the Act. We only included section 1886(d) IPPS operating 
payments for cases that occurred in IPPS acute care units of the 
qualifying hospitals.
    Comment: Some commenters opposed the proposed methodology to 
calculate the Medicare Part A and Part B county spending per enrollee 
adjusted for age, sex and race. Commenters believed that the 
methodology should include adjustments for poor health status, 
incidence of chronic disease or other factors that drive utilization 
and health care spending.
    Response: Section 1109(d) of the Public Law 111-152 specified that 
we are to calculate Medicare Part A and Part B spending per enrollee 
adjusted for age, sex and race by county. This specific statutory 
language did not provide us with any flexibility to include, as part of 
our adjustment, other factors that may influence Medicare spending. 
Therefore, we are finalizing our proposed model, which only adjusts 
Medicare Part A and Part B spending per enrollee at the county level 
for age, sex and race, as specified by the statute.
    Comment: Some commenters requested that CMS use a 3 year's worth of 
spending data to calculate the AGA instead of our proposal to include 5 
years' worth of Medicare spending data to reflect fluctuations in year-
to-year spending. Some commenters also requested that CMS use the most 
recent

[[Page 50307]]

spending data through 2008 to calculate the AGA.
    Response: In the supplemental proposed rule (75 FR 30928), we 
discussed our rationale for using a 5-year average of each county's 
actual spending from 2002 to 2006 to calculate the average geographic 
adjuster, which reflects a county's expenditure relative to the 
national expenditure. We believe that a 5-year average accounts for 
fluctuations in year-to-year spending that could distort counties' 
level of spending. As explained in the supplemental proposed rule, in 
order to calculate county spending adjusted for age, sex and race, we 
followed a methodology similar to the development of the MA fee-for-
service (FFS) rates under section 1853(c)(1)(D) of the Act. MA FFS 
ratesetting uses 5 years' worth of Medicare spending data to calculate 
the fee-for-service county spending rates. Due to fluctuations in 
county spending that occur, particularly in counties with few Medicare 
beneficiaries, our actuaries used 5 years' worth of county-level fee-
for-service Medicare spending data to minimize variability for purposes 
of MA FFS ratesetting. We chose to apply a methodology consistent with 
MA FFS ratesetting because of our experience under MAFFS ratesetting in 
calculating Medicare Part A and Part B spending per enrollee at the 
county level and our experience under MA FFS ratesetting in adjusting 
for factors that can influence spending such as age and gender. We 
believe that, subject to the specific requirements of section 1109 of 
Public Law 111-152, we should use the same methodology that we use to 
develop the fee-for-service rates under section 1853(c)(1)(D) of the 
Act in MA ratesetting.
    In response to the commenters' suggestions that we use data through 
2008, we are not adopting these suggestions. Instead, we are using 2002 
to 2006 data to calculate the AGA to be consistent with how 2009 MA FFS 
rates were calculated for the reasons explained above. We note that the 
average geographic adjuster using 2002 to 2006 data is then applied to 
2009 USPCC to calculate the 2009 spending rates, where the USPCC 
includes more recent spending data.
    After consideration of the public comments we received, we are 
finalizing, without change, our proposed methodology to calculate our 
Medicare Part A and Part B county spending per enrollee, which uses 5 
years' worth of Medicare spending data from 2002 to 2006 to calculate 
the AGA and adjusts for age, sex, and race.
4. Qualifying Hospitals and Annual Payment Amounts
    We have developed a methodology to identify the qualifying 
hospitals located in our list of eligible counties. Consistent with 
section 1109(d) of Public Law 111-152, a qualifying hospital is a 
``subsection (d) hospital'' (as defined for purposes of section 1886(d) 
of the Act) that is ``located in'' an eligible county (as identified 
using the methodology we proposed and discuss in section IV.J.2. of 
this preamble). 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 50 States or the District of Columbia''. The term ``subsection (d) 
hospital'' does not include hospitals located in the territories or 
hospitals located in Puerto Rico. Section 1886(d)(9)(A) of the Act 
separately defines a ``subsection (d) Puerto Rico hospital'' as a 
hospital that is located in Puerto Rico and that ``would be a 
subsection (d) hospital * * * if it were located in one of the 50 
States.'' Therefore, Puerto Rico hospitals are not eligible for these 
additional payments. Indian Health Services hospitals enrolled as 
Medicare providers meet the definition of a subsection (d) hospital and 
can qualify to receive this payment if they are located in an eligible 
county. In addition, hospitals that are MDHs and SCHs, although they 
can be paid under a hospital-specific rate instead of under the Federal 
standardized amount under the IPPS, are ``subsection (d)'' hospitals. 
The statutory definition of a ``subsection (d)'' hospital in section 
1886(d)(1)(B) of the Act specifically excludes hospitals and hospital 
units excluded from the IPPS, such as psychiatric, rehabilitation, long 
term care, children's, and cancer hospitals. In addition, CAHs are not 
considered qualifying hospitals because they do not meet the definition 
of a ``subsection (d) hospital'' as they are paid under section 1814(l) 
of the Act. CAHs are not paid under the IPPS. Rather, they are paid 
under a reasonable cost methodology and, therefore, do not meet the 
definition of ``qualifying hospital'' under section 1109(d) of Public 
Law 111-152.
    For the purposes of section 1109 of Public Law 111-152, we proposed 
to identify ``qualifying hospitals'' based on their Medicare provider 
number or CMS certification number (CCN), because one of these numbers 
is also how hospitals identify themselves when they file their Medicare 
cost reports. We also proposed that, in order to meet the definition of 
a ``qualifying hospital,'' the hospital, as identified by the Medicare 
provider number or CCN, must: (1) Have existed as a subsection (d) 
hospital as of April 1, 2010; (2) be geographically located in an 
eligible county; and (3) have received IPPS operating payments (in 
accordance with section 1886(d)) of the Act) under its Medicare 
provider number or CNN in FY 2009. We used the Online Survey, 
Certification and Reporting (OSCAR) database to determine a hospital's 
county location associated with that Medicare provider number or CCN. 
County data in OSCAR is supplied by the U.S Postal Service and is 
crosswalked to the address reported by the provider. Under this 
proposal, the address listed for a hospital's Medicare provider number 
must be currently located in a qualifying county in order for a 
hospital to meet the definition of a ``qualifying hospital.''
    We published a list of the qualifying IPPS hospitals that we 
identified based on the factors described above in Table 3 of the 
supplemental proposed rule. We invited comment on our methodology for 
identifying qualifying hospitals. We also invited comment on whether 
our list was accurate and whether any providers were missing from this 
list using the methodology described above.
    Comment: Several commenters identified specific providers that were 
located in an eligible county, but were not included in the listing of 
qualifying hospitals in Table 3 of the supplemental proposed rule. 
Commenters stated that Augusta Medical Center (provider number 490018) 
and Carilion New River Valley (provider number 490042) are located in 
eligible counties but were not listed in Table 3 as qualifying 
hospitals. Commenters requested that these providers be included as 
qualifying hospitals.
    Response: We have verified the locations of these providers and 
have found them to be located in eligible counties. These providers 
will receive a portion of the $400 million for FY 2011 and FY 2012. We 
have included these providers in Table 2 of this final rule and have 
included a payment weighting factor for them.
    Comment: Commenters stated that the county locations of certain 
qualifying hospitals were mislabeled. Specifically, commenters stated 
that the county locations of Halifax Regional Hospital (provider number 
490013), North Hawaii Community Hospital, Cibola General Hospital 
(provider number 320037) and Acoma Canoncito Laquna PHS hospital 
(provider number 320070) were mislabeled.
    Response: We listed these providers as qualifying hospitals in the 
proposed rule, but had misidentified their SSA county location. (The 
SSA county

[[Page 50308]]

location is found in the OSCAR database used to identify hospitals 
located in eligible counties.) We have corrected the SSA county 
locations of these providers and they remain qualifying hospitals under 
section 1109 of Public Law 111-152 because their correct SSA county 
locations are eligible counties.
    Comment: Several commenters stated that the names associated with 
the county codes in supplemental county data posted on the CMS Web site 
were incorrectly labeled. Specifically, commenters stated that the 
labels for both SSA county codes 06064 and 06060 were listed as Boulder 
County, CO. In addition, commenters stated that the labels for both SSA 
county codes 12020 and 12030 were listed as Honolulu County, HI.
    Response: We verified our SSA county code listing. We have 
determined that SSA county code 06064 is Broomfield County, CO, and SSA 
county code 06060 is Boulder County, CO. We are finalizing that SSA 
county code 06064 (Broomfield County CO) is an eligible county, but SSA 
county code 06060 (Boulder County CO) is not an eligible county. In 
addition, SSA county code 12020 has been corrected to be the sole 
county code for Honolulu County, HI, and SSA county code 12030 is 
corrected to indicate that it refers to Kalawao County, HI. Hawaii 
County, HI, with an SSA county code of 12030, is an eligible county, as 
proposed. Kalawao County, HI, with an SSA county code of 12030, is not 
an eligible county. Correcting the county names associated with these 
county codes does not impact the list of qualifying hospitals. We have 
corrected the supplemental county data that is posted on the CMS Web 
site.
    Comment: One commenter stated that CMS had failed to list several 
Colorado hospitals located in SSA county code 06060, which the 
commenter believed to be an eligible county, and that these hospitals 
are qualifying hospitals under section 1109 of Public Law 111-152. In 
addition, the commenter stated that a hospital located in SSA county 
code 06500 should be included as a qualifying hospital.
    Response: SSA county code 06060 is Boulder County, CO. In Table 2 
of the supplemental proposed rule, we inadvertently labeled SSA county 
code 06064 as Boulder County, CO, when, as the commenter stated, SSA 
county code 06064 is Broomfield County, CO. As explained above, SSA 
county code 06064 (Broomfield County CO) is an eligible county. 
However, SSA county code 06060 (Boulder County, CO) is not an eligible 
county. Therefore, Colorado hospitals located in SSA county code 06060 
(Boulder County, CO) are not qualifying hospitals under section 1109 of 
Public Law 111-152 using the methodology we are finalizing in this 
final rule. In Table 1 below, we have corrected the information that 
appeared in Table 2 of the supplement proposed rule.
    We disagree that the hospital located in SSA county code 06500 
(Pueblo County, CO) is a qualifying hospital. SSA county code 06500 
(Pueblo County, CO) was not listed as an eligible county using the 
methodology we proposed in the supplemental proposed rule, and remains 
ineligible in this final rule. Therefore, IPPS hospitals located in 
that county are not qualifying hospitals under section 1109 of Public 
Law 111-152.
    Comment: Commenters stated that SSA county code 43650 (Washabaugh 
County, SD) was incorrectly listed as a eligible county. Commenters 
stated that this county has been incorporated into county code 43350 
(Jackson County, SD). Commenters also stated that SSA county code 49867 
(South Boston City, VA) is incorporated into SSA county code 49410 
(Halifax County, VA).
    Response: We verified our SSA county code listing and agree with 
the commenters that Washabaugh County, SD and Jackson County, SD should 
not be listed as separate counties. We have rerun the relevant 
calculations for determining an eligible county using the methodology 
finalized in this rule, treating Washabaugh County, SD and the Jackson 
County, SD as a single county; the result is that Jackson County, SD 
remains an eligible county as proposed. Therefore, we have removed 
Washabaugh County, SD from the eligible county list. In addition, when 
we reran the relevant calculations for determining an eligible county 
using the methodology finalized in this rule, treating Halifax County, 
VA and South Boston City, VA as a single county, Halifax County remains 
an eligible county as proposed.
    In the FY 2011 IPPS/LTCH PPS supplemental proposed rule, we had 
stated that there were 3,144 counties nationwide, with 786 counties in 
the lowest quartile eligible to receive payments under section 1109 of 
the Public Law 111-152. With these changes, there are 3,142 counties, 
with the lowest quartile having 785.50 eligible counties, which rounds 
to 786 eligible counties. While the number of counties in the lowest 
quartile has remained the same, the removal of two counties has allowed 
two additional counties to be added. The additional counties added to 
the list are SSA county code 38060 (Crook County, OR) and SSA county 
code 35040 (Bottineu County, ND). We have not identified any qualifying 
IPPS hospitals located in Crook County, OR or in Bottineu County, ND.
    Because we have replaced two counties on our list of eligible 
counties, we are providing the public an opportunity to notify CMS 
whether there are any qualifying IPPS hospitals located in either of 
these two newly added counties. We note that the list of eligible 
counties and qualifying hospitals is otherwise finalized in this rule 
in Tables 2 and 3 in this section IV.J. We are soliciting public input 
until August 30, 2010, solely on the issue of whether there are any 
IPPS hospitals located in Crooks County, OR and Bottineu County, ND. 
The public may submit input via e-mail to Nisha Bhat at 
Nisha.Bhat@cms.hhs.gov. All information must be received by August 30, 
2010. If we add qualifying hospitals in these counties as a result of 
accurate notification from the public, we will publish a revised list 
of qualifying hospitals and their payment weighting factors on the CMS 
Web site at: http://www.cms.gov/AcuteInpatientPPS/IPPS2011/list.asp#TopOfPage.
5. Payment Determination and Distribution
    As mentioned above, under section 1109(b) of Public Law 111-152, 
the total pool of payments available to qualifying hospitals for FY 
2011 and FY 2012 is $400 million. The statute is not specific as to the 
timing of these payments. Because Congress has allocated a set amount 
($400 million) for hospitals for FYs 2011 and 2012 under this 
provision, we believe it is consistent with the statute to spread these 
payments over the 2-year period. In the supplemental proposed rule, we 
proposed to distribute $150 million for FY 2011 and $250 million for FY 
2012. Because this is a new policy, we proposed to distribute a smaller 
amount of money for the first year, $150 million for FY 2011 and gave 
the public an opportunity to review our policy and notify us of any 
possible revisions to the list of qualifying hospitals, so that we 
could adjust payments for FY 2012. This would ensure that we correctly 
identified qualifying hospitals and their proper payment amounts 
without exceeding the program's funding. We invited public comment to 
give hospitals the opportunity to request necessary changes to the 
qualifying hospital list for FY 2011 in order to ensure the accuracy of 
the qualifying hospital list based on the methodology that we proposed 
(and are finalizing in

[[Page 50309]]

this final rule). However, we proposed to identify eligible counties, 
qualifying hospitals, and their payment amounts under section 1109 of 
Public Law 111-152 only once. Because Congress allocated a specific 
amount of money, we proposed to identify eligible counties, qualifying 
hospitals, and their payment amounts once to ensure that we do not 
exceed the fixed amount of money and to ensure predictability of 
payments.
    We proposed to distribute payments through the individual 
hospital's Medicare contractor through an annual one-time payment 
during each of FY 2011 and FY 2012. We believe that annual payments 
made by the fiscal intermediaries and MACs would be an expeditious way 
to give the qualifying hospitals the money allotted under section 1109 
of Public Law 111-152. Alternatively, these payments could be 
distributed to qualifying hospitals at the time of cost report 
settlement for the qualifying providers' fiscal year end FY 2011 and FY 
2012 cost reports. However, cost report settlement typically takes 
several years beyond a hospital's fiscal year end. If we distributed 
these additional payments at the time of cost report settlement, it may 
take several years until hospitals receive these additional payments. 
Therefore, we believe our proposal to give hospitals their section 1109 
payments as annual payments during FY 2011 and FY 2012 presents the 
most expedient method to distribute these payments to hospitals, and is 
in the spirit of the intent of Congress. We welcomed public comment on 
our proposal to distribute $150 million in FY 2011 and $250 million in 
FY 2012 through an annual payment in each of those years made to the 
qualifying providers through their fiscal intermediary or MAC.
    We proposed that qualifying hospitals report these additional 
payments on their Medicare hospital cost report corresponding to the 
appropriate cost reporting period that the hospitals receive the 
payments. The Medicare hospital cost report, Form 2552, has an ``Other 
adjustment'' line on Worksheet E, Part A, that can used by hospitals to 
report the payments received under section 1109 of Public Law 111-152. 
We plan to issue additional cost reporting instructions for qualifying 
hospitals to report these additional payments on a subscripted line of 
the ``Other adjustment'' line to identify this payment. We noted that 
we are requiring these payments be reported on the cost report for 
tracking purposes only. These additional payments will not be adjusted 
or settled by the fiscal intermediary or MAC on the cost report.
    Comment: One commenter suggested that, for the purposes of cost 
reporting, payments received under the provision of section 1109 of 
Public Law 111-152 be reported on Worksheet S-2, instead of Worksheet 
E, Part A on the ``other adjustment'' line. The commenter recommended 
that these payments be reported on Worksheet S-2 so that the payments 
would not be mixed with the Medicare Part A settlement amounts.
    Response: We proposed that hospitals report this information on the 
``Other adjustment'' line of Worksheet E, Part A, on the Medicare 
hospital cost report, Form 2552, because the funding from section 1109 
has been allocated from the Federal Hospital Insurance Trust Fund. 
Funding from the Federal Hospital Insurance Trust Fund is generally 
reported on Worksheet E, Part A. Therefore, we do not believe that it 
is appropriate to report these payments on Worksheet S-2. The funding 
will not be reconciled through the Medicare cost report because 
payments will be distributed through a one-time payment made in FY 2011 
and a one-time payment made in FY 2012 to the qualifying hospitals by 
the Medicare contractor. Rather, hospitals will report the payments 
received under this provision for tracking purposes.
    Comment: Several commenters disagreed with the proposal to 
distribute $150 million for FY 2011 and $250 million for FY 2012 and, 
instead, recommended that funding be distributed in equal amounts of 
$200 million for FY 2011 and $200 million for FY 2012. One commenter 
suggested that, due to the current economic conditions, $250 million be 
distributed for FY 2011 and $150 million for FY 2012. Several 
commenters requested that if hospitals are left off the list of 
qualifying hospitals for FY 2011 and added for FY 2012, they should be 
given their full share of the $400 million allotted by Congress.
    Response: Section 1109(b) of the Public Law 111-152 makes available 
$400 million from the Federal Hospital Insurance Trust Fund to be 
allocated for FY 2011 and for FY 2012 for qualifying hospitals. We 
proposed to allocate $150 million for FY 2011 and $250 million for FY 
2012 because of concerns that we might need to revise our list of 
qualifying hospitals after the publication of FY 2011 IPPS/LTCH PPS 
final rule. If we determine that we need to revise the list, we also 
would need to ensure that we allocated the proper amount without 
exceeding the program's funding. We invited public comment on the 
accuracy of our list of eligible counties and qualifying hospitals in 
those counties. As discussed earlier, based on the public comments that 
we received, we identified two additional qualifying hospitals. We also 
have added two additional eligible counties with no qualifying 
hospitals and are inviting public input as to whether there are 
qualifying hospitals located in those two new qualifying counties. 
Because we are allowing the public to notify us on the issue of whether 
our determination that there are no qualifying hospitals in the two 
additional eligible counties is accurate, and we want to ensure that we 
do not exceed the allotted amount of funding from the provision, we 
continue to believe it is prudent to disburse less funds in FY 2011. 
Therefore, we are finalizing our proposal to distribute $150 million 
for FY 2011 and $250 million for FY 2012 through two annual payments 
made by the Medicare contractors.
    It was not our intention to allocate a lesser share of the $400 
million to hospitals that were not on the qualifying list in this final 
rule, but later found to qualify. We are committed to ensuring that 
qualifying hospitals, regardless of when their qualification is 
confirmed, receive their appropriate share of the $400 million. As 
discussed in the supplemental proposed rule, because this is a new 
provision, we were uncertain as to whether we had correctly identified 
all of the qualifying hospitals in the eligible counties to receive 
money under section 1109 of the Public Law 111-152. However, based on 
the public comments, we believe we have been able to identify the 
qualifying hospitals. In the supplemental proposed rule, we proposed to 
make only one determination of eligible counties and qualifying 
hospitals for FY 2011 and FY 2012.
    We have concluded that our comment period allowed the public the 
opportunity to comment on the accuracy of the list of eligible counties 
and qualifying hospitals. Therefore, after consideration of the 
comments we received, we are finalizing the list of the hospitals that 
qualify to receive their payments and their payment amounts in this 
final rule, with the caveat that we will accept additional public input 
on the limited issue of whether there are any qualifying hospitals in 
the two newly identified eligible counties. We also are finalizing our 
proposal to make only one determination of eligible counties and 
qualifying hospitals for FY 2011 and FY 2012, also with the caveat that 
we will accept additional public input on the limited issue of whether 
there are any qualifying hospitals in the two newly identified eligible 
counties. We are finalizing our proposal to

[[Page 50310]]

distribute $150 million for FY 2011 and $250 million for FY 2012. To 
the extent that there are qualifying hospitals that were not identified 
in this final rule after we receive any additional public input, we 
will review that issue in future rulemaking, and those hospitals will 
be eligible for their allocation of the entire $400 million.
6. Hospital Weighting Factors
    Section 1109(c) of Public Law 111-152 requires that the payment 
amount for a qualifying hospital shall be determined ``in proportion to 
the portion of the amount of the aggregate payments under section 
1886(d) of the Social Security Act to the hospital for fiscal year 2009 
bears to the sum of all such payments to all qualifying hospitals for 
such fiscal year.'' We proposed that the portion of a hospital's 
payment under section 1109 is based on the proportion of its IPPS 
operating payments made in FY 2009 under section 1886(d) of the Act 
relative to the total IPPS operating payments made to all qualifying 
hospitals in FY 2009 under section 1886(d) of the Act. These FY 2009 
IPPS operating payments made under section 1886(d) of the Act include 
DRG and wage-adjusted payments made under the IPPS standardized amount 
with add-on payments for operating DSH, operating IME, operating 
outliers and new technology (collectively referred to in the proposed 
rule and this final rule as the IPPS operating payment amount). We 
proposed to include IME MA payments made to IPPS hospitals because 
these payments are made under section 1886(d) of the Act. Under 42 CFR 
412.105(g) of the regulations and as implemented in Transmittal A-98-21 
(Change Request 332), hospitals that are paid under the IPPS and train 
residents in approved GME programs may submit claims associated with MA 
enrollees to the fiscal intermediary or MAC for the purpose of 
receiving an IME payment. No IPPS operating payment or other add-on 
payment is made for these MA enrollees. This is consistent with how the 
IPPS includes these IME MA payments when adjusting for budget 
neutrality of the IPPS standardized amounts.
    In addition, we included in the FY 2009 IPPS operating payment 
amount beneficiary liabilities (coinsurance, copayments, and 
deductibles) because the payments made under section 1886(d) of the Act 
``are subject to the provisions of section 1813.'' That is, the payment 
received by the hospital includes the amount paid by Medicare, as well 
as the amount for which the beneficiary is responsible, as set forth in 
section 1813 of the Act. We proposed to exclude IPPS capital payments 
because they are payments made under section 1886(g) of the Act. We 
also proposed to exclude payments for organ acquisition costs because 
they are payments made under section 1881(d) of the Act. In addition, 
we proposed to exclude payments for blood clotting factor because they 
are payments made under section 1886(a)(4) of the Act.
    Consistent with our IPPS ratesetting process, we proposed to use 
the FY 2009 MedPAR inpatient claims data to determine the FY 2009 IPPS 
operating payments made to qualifying hospitals in order to set the 
ratio for determining a qualifying hospital's share of the $400 million 
payment under section 1109 of Public Law 111-152. Although these claim 
payments may be later changed and adjusted at cost report settlement, 
this settlement generally occurs after FY 2011 and FY 2012. 
Furthermore, we believe that the use of the FY 2009 MedPAR inpatient 
claims data is consistent with our proposal to make the payments under 
section 1109 of Public Law 111-152 in two annual payments in FY 2011 
and FY 2012 instead of waiting for cost report settlement. Furthermore, 
we used MedPAR data in other areas of the IPPS, including calculating 
IPPS MS-DRG relative weights, budget neutrality factors, outlier 
thresholds, and the standardized amount. The FY 2009 MedPAR data can be 
ordered to allow the public to verify qualifying hospitals' FY 2009 
IPPS operating payments. Interested individuals may order these files 
through the CMS Web site at: http://www.cms.hhs.gov/ LimitedDataSets/ 
by clicking on MedPAR Limited Data Set (LDS)--Hospital (National). This 
Web page describes the file and provides directions and further 
detailed instructions for how to order.
    Persons placing an order must send the following: a Letter of 
Request, the LDS Data Use Agreement and Research Protocol (refer to the 
Web site for further instructions), the LDS Form, and a check for 
$3,655 to:

Mailing address if using the U.S. Postal Service: Centers for Medicare 
& Medicaid Services, RDDC Account, Accounting Division, P.O. Box 7520, 
Baltimore, MD 21207-0520.
Mailing address if using express mail: Centers for Medicare & Medicaid 
Services, OFM/Division of Accounting--RDDC, Mailstop C3-07-11, 7500 
Security Boulevard, Baltimore, MD 21244-1850.

    For the supplemental proposed rule, we used the December 2009 
update to the FY 2009 MedPAR claims data file (which was the latest 
available update to the file at that time) to determine the proposed 
qualifying hospitals' IPPS operating payment amounts. For this FY 2011 
IPPS/LTCH PPS final rule, we used the March 2010 update to the FY 2009 
MedPAR data to determine qualifying hospitals' IPPS operating payment 
amounts, which is used to set the hospital weighting factors for FYs 
2011 and 2012.
    As discussed previously in section IV.J.3. of this preamble, 
qualifying hospitals can include SCHs and MDHs because they meet the 
definition of subsection (d) hospitals. SCHs are paid in the interim 
(prior to cost report settlement) on a claim-by-claim basis at the 
amount that is the higher of the payment based on the hospital-specific 
rate or the IPPS Federal rate based on the standardized amount. At cost 
report settlement, the fiscal intermediary or MAC determines if the 
hospital would receive higher IPPS payments in the aggregate using the 
hospital's specific rate (on all claims) or the Federal rate (on all 
claims). The fiscal intermediary or MAC then assigns the hospital the 
higher payment amount (either the hospital specific rate for all claims 
or the Federal rate amount for all claims) for the cost reporting 
period. To determine the FY 2009 operating payment amount for SCHs that 
meet the definition of a qualifying hospital, we proposed to use the 
IPPS operating payment made on the Medicare IPPS claim in the FY 2009 
MedPAR file rather than the SCH's final payment rate that is determined 
at cost report settlement. We believe this approach is consistent with 
the treatment of other qualifying hospitals under our proposal, and 
again allows for the timely distribution of funds in two annual 
payments, as discussed above. MDHs are paid the sum of the Federal 
payment amount plus 75 percent of the amount by which the hospital-
specific rate exceeds the Federal payment amount. This amount is 
considered their IPPS operating payment reported on their Medicare IPPS 
claims.
    In order to calculate payment amounts consistent with section 
1109(c) of Public Law 111-152, we proposed to use a weighting factor 
for each qualifying hospital that is equal to the qualifying hospital's 
FY 2009 IPPS operating payment amount (as described above) divided by 
the sum of FY 2009 IPPS operating payment amounts for all qualifying 
hospitals. We believe this methodology is consistent with the 
requirement of section 1109(c) of Public Law 111-152, because a 
qualifying hospital with a larger proportion of operating payments 
would have a

[[Page 50311]]

proportionately higher weighting factor and would receive the 
proportionately larger share of the $400 million, while a hospital with 
a smaller proportion of operating payments would have a proportionately 
smaller weighting factor and would receive proportionately smaller 
shares of the $400 million. We welcomed public comment on our 
methodology to determine the amount of money distributed to qualifying 
hospitals consistent with the language in section 1109(c) of Public Law 
111-152.
    Comment: One commenter suggested that payments made under 
reasonable cost contracts under section 1876 of the Act be included in 
the calculation of a qualifying hospital's payment weighting factor. 
The commenter stated that there are a significant number of Medicare 
beneficiaries enrolled in these cost plans in Hawaii and that they 
comprise a large proportion of Hawaii hospitals' payments. Payments to 
hospitals are made using the Medicare fee-for-service rate or the 
reasonable cost for treating inpatients in these cost plans. The 
commenter believed that, because these hospitals are paid at the 
Medicare fee-for-service rate, those payments should be included in the 
qualifying hospitals' payment weighting factors.
    Response: Section 1876 reasonable cost contracts are entered into 
with Medicare managed care cost plans (HMOs/CMPs) that cover Medicare-
eligible beneficiaries. The commenter suggested that inpatient hospital 
payments for Medicare enrollees in the section 1876 cost plans that 
directly pay for inpatient hospital benefits should be included in the 
qualifying hospital's weighting factor. Section 1109(c) of Public Law 
111-152 specifies that the proportion of the $400 million given to a 
qualifying hospital is based on the qualifying hospital's payments 
under section 1886(d) of the Act for FY 2009 relative to the total 
payments under section 1886(d) of the Act for all of the qualifying 
hospitals for FY 2009. Payments to hospitals that treat Medicare 
enrollees in these managed care cost plans that pay directly for 
inpatient hospital benefits are paid by the managed care cost plan 
under section 1876 of the Act; the payments are not under section 
1886(d) of the Act. Therefore, we believe that these payments do not 
meet the requirement under section 1109(c) of Public Law 111-152, and 
we are excluding inpatient hospital payments made under section 1876 of 
the Act from qualifying hospitals' payment weighting factors.
    Additionally, we proposed to use the FY 2009 MedPAR inpatient 
claims data to determine the FY 2009 IPPS operating payments to 
calculate the qualifying hospitals' payment weighting factors. IPPS 
hospitals submit these inpatient claims to receive IPPS operating 
payments under section 1886(d) of the Act. Because Medicare 
beneficiaries enrolled in these managed care cost plans have their 
inpatient services paid for by their cost plan under section 1876 of 
the Act, the MedPAR file does not have their hospital inpatient payment 
information. Therefore, we believe that hospital payments received for 
beneficiaries in section 1876 reasonable cost plans should not qualify 
as a ``payment[ ] under section 1886(d)'' of the Act for purposes of 
section 1109(c) of Public Law 111-152.
    Comment: One commenter was concerned with the proposal to base 
payments on the FY 2009 MedPAR data for SCHs and MDHs. The commenter 
suggested that MedPAR would not accurately calculate payments for SCHs 
and MDHs, which are IPPS hospitals that are paid under the higher of 
the IPPS Federal rate or the hospital-specific rate. The commenter 
stated that the MedPAR file assumes that a high level of outlier 
payments exists for most SCHs and MDHs, and therefore 
disproportionately understates their actual payment, which is 
determined at cost report settlement. The MedPAR file contains interim 
payments where outlier payments may be higher or lower than the actual 
outlier payment amount, which is reconciled at cost report settlement. 
The commenter requested that CMS use the cost report to determine SCH 
and MDH payment weighting factors because the cost report contains the 
final IPPS operating payment amounts.
    Response: We note that interim payments to SCH and MDHs are made on 
the basis of the best available data at the time and can include other 
interim payment amounts, such as DSH and IME. Interim payments can be 
adjusted and changed at cost report settlement. However, these interim 
payment changes are not limited to SCHs and MDHs, as IPPS hospitals 
that are not SCHs or MDHs receive interim payments for DSH and IME that 
are paid through the inpatient claim. Therefore, SCHs and MDHs are not 
necessarily more or less disadvantaged than other IPPS hospitals under 
our proposal to use inpatient claims in the MedPAR file as opposed to 
finalized cost reports to determine qualifying hospitals' payment 
weighting factors. Additionally, section 1109(a) of Public Law 111-152 
requires the Secretary to make payments ``to qualifying hospitals * * * 
for fiscal years 2011 and 2012,'' and section 1109(b) of Public Law 
111-152 makes $400 million available for payments ``for fiscal years 
2011 and 2012'' based on qualifying hospitals' IPPS operating payments 
from FY 2009. It generally takes several years to finalize hospitals' 
Medicare cost report. If we waited for cost report settlement to 
finalize interim values such as DSH, IME, and interim payment to SCHs 
and MDHs, we would be delaying making these additional payments well 
beyond FYs 2011 and 2012. As we noted in the preamble to the 
supplemental proposed rule (75 FR 30929), we proposed to make payments 
under section 1109 of Public Law 111-152 during FYs 2011 and 2012 based 
on available interim MedPAR data, because of this delay. Although 
waiting until cost reports are settled might yield somewhat more 
precise payment information for some qualifying hospitals receiving 
interim payments, including SCHs and MDHs, we believe it is in the 
interest of the hospitals to use the best available at this time to 
expedite disbursement of the funds in FY 2011 and FY 2012. We believe 
the FY 2009 MedPAR file contains the best data available, and using 
these data is the most expeditious method to determine a hospital's 
weighting factor and is consistent with this decision to make payments 
in the relevant fiscal years.
    Comment: One commenter supported determining qualifying hospitals 
only once in FY 2011 for the purposes of making payments in FY 2011 and 
FY 2012. The commenter stated that this approach provides certainty to 
qualifying hospitals to allow them to budget for the next 2 fiscal 
years.
    Response: We agree that finalizing the list of eligible counties 
and qualifying hospitals once will ease implementation of the provision 
and will allow hospitals to plan their budgets accordingly. As 
discussed earlier, we have modified our proposed approach because we 
have replaced two eligible counties and have not identified any 
qualifying IPPS hospitals located in those counties. We are allowing 
the public until August 30, 2010 to give input via e-mail as to whether 
there are any qualifying hospitals located in those two additional 
eligible counties. If there are any changes to the list, we will 
republish that information on the CMS Web site. To the extent that 
there are any other issues that arise after the publication of this 
final rule, we would consider those issues in future rulemaking.
    We are finalizing our methodology to calculate the qualifying 
hospitals' payment weighting factors as proposed using the March 2010 
update of the FY

[[Page 50312]]

2009 MedPAR inpatient claims information. We are finalizing our 
proposal to distribute $150 million for FY 2011 and $250 million for FY 
2012.
7. Results
    In calculating county-level Medicare Part A and B spending and 
after consideration of the public comments we received, we have found 
that there are 3,142 counties in the United States. Therefore, there 
are 786 counties that rank in the lowest quartile of counties with 
regards to adjusted Medicare Part A and Part B spending per enrollee. 
Of those 786 eligible counties, there are only 273 counties in which 
qualifying hospitals are located, using the methodology we proposed in 
section II.E.3. of the preamble to the supplemental proposed rule and 
that we are finalizing in this final rule. Using Medicare provider 
numbers, we identified 416 IPPS hospitals that are currently located in 
those eligible counties and received IPPS operating payments in FY 
2009.
    In accordance with our responses to the comments and our final 
methodology, we have set out the final list of eligible counties in 
Table 1 below. In addition, we have set out the final list of 
qualifying hospitals, location, and payment weighting factors (subject 
to our consideration of any comments we receive regarding whether there 
are any qualifying hospitals in the two newly added eligible counties) 
based on the March 2010 update of the FY 2009 MedPAR in Table 2 below. 
Finally, we have set out the payments under section 1109 by State for 
FY 2011 (again, subject to our consideration of any public input we 
receive regarding whether there are any qualifying hospitals in the two 
newly added eligible counties) in Table 3 below.
8. Finalization of Eligible Counties, Qualifying Hospitals and 
Qualifying Hospitals' Weighting Factors
    We noted in the proposed rule that, based on public comments, it 
would be possible that we finalized a methodology to determine the list 
of eligible counties and hospitals that differs from our current 
proposal. A change in our methodology could, in turn, result in changes 
to the list of eligible counties or qualifying hospitals. We note again 
that we proposed to identify eligible counties, qualifying providers, 
and their payments under section 1109 of Public Law 111-152 only once 
in the FY 2011 IPPS/LTCH PPS final rule, and we are finalizing this 
proposal in this final rule. As we proposed, the methodology for 
determining a final list of eligible counties produced the actual list 
of eligible counties that are being finalized in this FY 2011 IPPS/LTCH 
PPS final rule and will not be updated in a future fiscal year based on 
updated data.
    However, as discussed earlier, we replaced two counties in the 
eligible counties list and did not identify qualifying hospitals 
located in those new counties and we are seeking public input via e-
mail by August 30, 2010, as to whether there are any qualifying 
hospitals located in those counties. If there are additional changes to 
our qualifying hospitals list, we will publish that information on the 
CMS Web site soon after August 30, 2010.
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BILLING CODE 4120-01-C

K. Rural Community Hospital Demonstration Program

    We note that we included a discussion of continued implementation 
of the rural community hospital demonstration program in the FY 2011 
IPPS/LTCH PPS proposed rule (75 FR 24011). We issued a supplemental 
proposed rule (75 FR 30961) to the FY 2011 proposed rule (75 FR 23852) 
to address the provisions of the Affordable Care Act, which made 
changes to the demonstration program, and full implementation of the 
program for FY 2011. The discussion below reflects the provisions of 
both the proposed rule and the supplemental proposed rule.
1. Background
    Section 410A(a) of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA), Public Law 108-173, required the 
Secretary to establish a demonstration program to test the feasibility 
and advisability of establishing ``rural community hospitals'' to 
furnish covered inpatient hospital services to Medicare beneficiaries. 
The demonstration pays rural community hospitals for such services 
under a cost-based methodology for Medicare payment purposes for 
covered inpatient hospital services furnished to Medicare 
beneficiaries. A rural community hospital, as defined in section 
410A(f)(1) of MMA, is a hospital that--
     Is located in a rural area (as defined in section 
1886(d)(2)(D) of the Act) or is treated as being located in a rural 
area under section 1886(d)(8)(E) of the Act;
     Has fewer than 51 beds (excluding beds in a distinct part 
psychiatric or rehabilitation unit) as reported in its most recent cost 
report;
     Provides 24-hour emergency care services; and
     Is not designated or eligible for designation as a CAH 
under section 1820 of the Act.
    Section 410A(a)(4) of Public Law 108-173, in conjunction with 
subsections (2) and (3) of section 410A(a), provided 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).
    We originally solicited applicants for the demonstration in May 
2004; 13 hospitals began participation with cost reporting years 
beginning on or after October 1, 2004. (Four of these 13 hospitals 
withdrew from the program and became CAHs). In a notice published in 
the Federal Register on February 6, 2008 (73 FR 6971), we announced a 
solicitation for up to 6 additional hospitals to participate in the 
demonstration program. Four additional hospitals were selected to 
participate under this solicitation. These four additional hospitals 
began under the demonstration payment methodology with the hospital's 
first cost reporting period starting on or after July 1, 2008. Three 
hospitals (2 of the hospitals were among the 13 hospitals that were 
original participants in the demonstration and 1 of the hospitals was 
among the 4 hospitals that began the demonstration in 2008) withdrew 
from the demonstration during CY 2009. (Two of these hospitals 
indicated that they will be paid more for Medicare inpatient services 
under the rebasing allowed under the SCH methodology allowed by the 
Medicare Improvement for Patients and Providers Act of 2008 (Pub. L. 
110-275). The other hospital restructured to become a CAH.)
    Section 410A(a)(5) of Public Law 108-173 originally required a 5-
year demonstration period of participation. Prior to the enactment of 
the Affordable Care Act, for the seven currently participating 
hospitals that began the demonstration during FY 2005 (``originally 
participating hospitals''), the demonstration was scheduled to end for 
each of these hospitals on the last day of its cost reporting period 
that ends in FY 2010. The end of the participation for the three 
participating hospitals that began the demonstration in CY 2008 was 
scheduled to be September 30, 2010.
    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

[[Page 50343]]

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 to be implemented 
by reducing other payments for these same hospitals.
    In the past six IPPS final regulations, spanning the period for 
which the demonstration has been implemented, we have adjusted the 
national inpatient PPS rates by an amount sufficient to account for the 
added costs of this demonstration program, thus applying budget 
neutrality across the payment system as a whole rather than merely 
across the participants in the demonstration program. As we discussed 
in the FY 2005, FY 2006, FY 2007, FY 2008, FY 2009, and FY 2010 IPPS 
final rules (69 FR 49183; 70 FR 47462; 71 FR 48100; 72 FR 47392; 73 FR 
48670; and 74 FR 43922, respectively), we believe that the language of 
the statutory budget neutrality requirements permits the agency to 
implement the budget neutrality provision in this manner.
    In light of the statute's budget neutrality requirement, we 
proposed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24012) a 
methodology to calculate a budget neutrality adjustment factor to the 
FY 2011 national IPPS rates. In the FY 2011 IPPS/LTCH PPS proposed 
rule, the only amount that was identified to be offset for the FY 2011 
IPPS/LTCH final rule was that by which the costs of the demonstration 
program, as indicated by settled cost reports beginning in FY 2007 for 
hospitals participating in the demonstration during FY 2007, exceeded 
the amount that was identified in the FY IPPS 2007 final rule as the 
budget neutrality offset for FY 2007. No dollar amount was specified 
for purpose of this offset, because of a delay in the settlement 
process of FY 2007 cost reports. Due to the timing of the proposed rule 
in relation to the enactment of the Affordable Care Act, we were unable 
to include in the proposed budget neutrality adjustment factor to the 
FY 2011 national IPPS rates an offset that would account for the 
estimated financial impact that the demonstration would have for 
certain timeframes under the extension required by the Affordable Care 
Act.
2. Changes to the Demonstration Program Made by the Affordable Care Act
    Section 3123 of Public Law 111-148 and section 10313 of Public Law 
111-152 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 under section 410A(a)(5) of Public Law 108-173, 
as amended (section 410A(g)(1) 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). Further, the Affordable Care Act requires 
that, 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 shall 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 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). Additionally, the Affordable 
Care Act provides that the amount of payment under the demonstration 
program for covered inpatient hospital services furnished in a rural 
community hospital, other than services furnished in a psychiatric or 
rehabilitation unit of the hospital that is a distinct part, is the 
reasonable costs of providing such services for discharges occurring in 
the first cost reporting period beginning on or after the first day of 
the 5-year extension period (section 410A(g)(4)(b) 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). For discharges occurring 
in a subsequent cost reporting period paid under the demonstration, the 
formula in section 410A(b)(1)(B) of Public Law 108-173, as amended, 
would apply. In addition, various other technical and conforming 
changes were made to section 410A of Public Law 108-173 by section 
3123(a) of the Affordable Care Act and as further amended by section 
10313 of such Act.
3. FY 2011 Budget Neutrality Adjustment
    In order to ensure that the demonstration is budget neutral as is 
required by the statute, in the June 2, 2010 supplemental proposed 
rule, we proposed to adjust the national IPPS rates in the FY 2011 IPPS 
final rule to account for any added costs attributable to the 
demonstration. Specifically, the proposed budget neutrality adjustment 
would account for: (1) The estimated costs of the demonstration in FY 
2011 for the 10 currently participating hospitals; (2) the estimated FY 
2010 costs of the demonstration that were not accounted for in the FY 
2010 IPPS/RY 2010 LTCH PPS final rule for the 7 ``originally 
participating hospitals''

[[Page 50344]]

because we estimated those hospitals' FY 2010 costs under the 
assumption that the demonstration would be concluding before the end of 
FY 2010 for those hospitals; (3) the estimated FY 2011 costs for up to 
20 new hospitals selected to participate in the demonstration; and (4) 
the amount by which the costs of the demonstration program, as 
indicated by settled cost reports for cost reporting periods beginning 
in FY 2007 for hospitals participating in the demonstration during FY 
2007, exceeded the amount that was identified in the FY 2007 IPPS final 
rule as the budget neutrality offset for FY 2007.
a. Component of the FY 2011 Budget Neutrality Adjustment That Accounts 
for Estimated FY 2011 Costs of the Demonstration of the 10 Currently 
Participating Hospitals
    In the June 2, 2010 supplemental proposed rule (75 FR 30962 and 
30963), we indicated that the component of the proposed FY 2011 budget 
neutrality adjustment to the national IPPS rates that accounts for the 
estimated cost of the demonstration in FY 2011 for the 10 currently 
participating hospitals would be calculated by utilizing separate 
methodologies for the 7 hospitals that have participated in the 
demonstration since its inception and that we consider to be continuing 
to participate in the demonstration (``originally participating 
hospitals''), and the 3 hospitals that are currently participating in 
the demonstration that were among the 4 hospitals that joined the 
demonstration in 2008. Different methods are used because fiscal 
intermediaries' most recent final settlements of cost reports are for 
periods beginning in FY 2006 for the ``originally participating 
hospitals,'' whereas we relied on available submitted documentation for 
the hospitals that began participation in the demonstration in 2008. 
Because the hospitals that began the demonstration in 2008 have no 
settled cost reports for the demonstration, we proposed to use ``as 
submitted'' cost reports. The proposed budget neutrality analysis was 
based on the assumption that all 10 of these hospitals would continue 
in the demonstration under the 5-year extension provided by the 
Affordable Care Act. We note that all 10 participating hospitals, 
whether they began participation in 2005 or in 2008, have elected to 
continue participation in the extension period mandated by the 
Affordable Care Act.
    The estimate of the portion of the proposed budget neutrality 
adjustment that accounts for the estimated costs of the demonstration 
in FY 2011 for the 7 ``originally participating hospitals'' was based 
on data from their second year cost reports--that is, for cost 
reporting periods beginning in FY 2006. We proposed to use these cost 
reports because they were the most recent complete cost reports and, 
thus, we believed they enabled us to estimate FY 2011 costs as 
accurately as possible. In addition, we estimated the cost of the 
demonstration in FY 2011 for 2 of the 4 hospitals that joined the 
demonstration in 2008 based on data from each of their cost reporting 
periods beginning January 1, 2008. Similarly, we proposed to use these 
cost reports because they were the most recent cost reports and, thus, 
we believed they enabled us to estimate FY 2011 costs for these 2 
hospitals as accurately as possible. Because 1 of the 4 hospitals that 
began in 2008 has withdrawn, there is 1 hospital remaining among those 
that began in that year. The remaining hospital of the 4 hospitals that 
began in 2008 is an Indian Health Service provider. Historically, the 
hospital has not filed standard Medicare cost reports. Therefore, in 
order to estimate its costs, we proposed to use an analysis of Medicare 
inpatient costs and payments submitted by the hospital for the cost 
reporting period of October 1, 2005 through September 30, 2006. In 
addition, we proposed that we may revise this estimate [that is, the 
estimated cost of the demonstration in FY 2011 for the 10 currently 
participating hospitals] for the final rule if updated cost report data 
became available. This is because we believe that updated data would 
enable us to estimate costs as accurately as possible.
    For this final rule, we are finalizing an estimate of the costs of 
the demonstration in FY 2011 for the 10 currently participating 
hospitals. Consistent with our proposal, updated data have become 
available for this final rule, and we are using them to estimate the 
costs of the demonstration in FY 2011. The finalized amount differs 
from that stated in the proposed rule in two respects: (1) A more 
recently available IPPS market basket update factor for FY 2011 is 
applied to the difference between the dollar amount attributable to 
Medicare inpatient costs calculated under the applicable reasonable 
cost methodology in section 410A of Public Law 108-173, as amended, and 
what would have otherwise been paid under the IPPS. (An IPPS market 
basket update is applied for every year between the year of the 
respective cost report and 2011.) (2) The updated cost report data have 
become available for the Indian Health Service provider because the 
provider has filed a full cost report for its cost reporting period 
ending September 30, 2009.
    For this final rule, the estimated costs under the demonstration 
for FY 2011 for the 10 currently participating hospitals is calculated 
as follows: Consistent with the proposed rule, in order to estimate the 
FY 2011 costs of the demonstration for the seven ``originally 
participating hospitals,'' for each hospital we subtracted the amount 
it would have been paid under the IPPS from the amount paid for FY 2006 
under the applicable reasonable cost methodology in section 410A of 
Public Law 108-173 as amended. We summed these differences for the 
seven hospitals and applied the IPPS market basket updates and a 2-
percent annual volume adjustment for the years between 2006 and 2011. 
As proposed, for this final rule for the two hospitals that began the 
demonstration in 2008, for each of these hospitals we subtracted the 
amount it would have been paid under the IPPS from the amount to be 
paid under the applicable reasonable cost methodology in section 410A 
of Public Law 108-173 as amended for FY 2008 using as submitted 2008 
cost reports. We summed these differences and applied the IPPS market 
basket updates and a 2-percent annual volume adjustment for the years 
between 2008 and 2011. For the Indian Health Service provider, we used 
its as submitted cost report ending in September 2009 to estimate its 
FY 2011 costs under the applicable reasonable cost methodology set 
forth in section 410A of Public Law 108-173 as amended and what its 
Medicare inpatient payment would have been absent the demonstration. We 
added the amounts for all 10 hospitals, resulting in an estimated 
amount of $21,331,721.
b. Portion of the FY 2011 Budget Neutrality Adjustment That Accounts 
for Estimated FY 2010 Costs of the Demonstration That Were Not 
Accounted for in the FY 2010 IPPS/RY 2010 LTCH PPS Final Rule for the 
Seven ``Originally Participating Hospitals''
    As explained above, 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, provided for the continued participation 
of rural community hospitals that were participating in the 
demonstration as of the last day of the initial 5-year [demonstration] 
period. One of the effects of this extension is that the seven 
``originally participating hospitals'' (those hospitals that have 
participated in the demonstration since its inception

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and that continue to participate in the demonstration or were 
participating in the demonstration as of the last day of their initial 
5-year demonstration period, that is, the two rural community hospitals 
that concluded their initial period of performance in December 2009) 
that were scheduled to end their participation in the demonstration 
before the end of FY 2010 would continue to participate for the 
remainder of FY 2010 and beyond, as applicable. However, we note that 
the portion of the FY 2010 budget neutrality adjustment to the national 
IPPS rates that was included in the FY 2010 IPPS final rule that 
accounted for the estimated costs of the demonstration in FY 2010 did 
not take into account costs of the demonstration for those hospitals 
beyond the anticipated end date of their initial demonstration period. 
(For example, for a hospital whose cost report ended in June 30, 2010, 
we counted only 9 months for the budget neutrality adjustment for the 
FY 2010 IPPS/LTCH PPS final rule. Under our proposal, we would adjust 
the national IPPS rates to account for the estimated costs for this 
hospital for the remaining 3 months of FY 2010.) Therefore, as 
proposed, in this final rule, we are including a component in the FY 
2011 budget neutrality adjustment to account for the estimated costs of 
the demonstration in FY 2010 that were not accounted for in the FY 2010 
IPPS/RY 2010 LTCH PPS final rule for the seven ``originally 
participating hospitals'' because we calculated the FY 2010 cost 
estimate for that year's final rule assuming that the demonstration 
would end before the end of that fiscal year for those hospitals. As we 
proposed, we are using the following methodology to account for such 
estimated costs:
     Step One. For each of the seven ``originally participating 
hospitals,'' we divide the number of months that were not included in 
the estimate of the FY 2010 demonstration costs included in the FY 2010 
IPPS/RY 2010 LTCH PPS final rule by 12. This step is necessary to 
determine for each of the seven ``originally participating hospitals'' 
the fraction of FY 2010 for which the estimate of the FY 2010 
demonstration was not included.
     Step Two. For each of the seven ``originally participating 
hospitals,'' the percentage that results in step one is multiplied by 
the estimate of the cost attributable to the demonstration in FY 2010 
for the hospital. The estimate for the fraction of the hospital's cost 
for FY 2010 not included in the estimate in the FY 2010 IPPS/RY 2010 
LTCH PPS final rule is arrived at by multiplying this fraction by the 
estimate of costs for the entire year.
    The estimate of the costs of the demonstration for FY 2010 for the 
seven ``originally participating'' hospitals is derived from data found 
in their cost reports for cost reporting years beginning in FY 2006. 
These cost reports show dollar amounts for costs for Medicare inpatient 
services (that is, the Medicare payment amount in that cost reporting 
year for Medicare inpatient services that results from application of 
the applicable methodology set forth in section 410A of Pub. L. 108-
173) and the dollar amount that would have been paid under the IPPS. 
Because these cost reporting years all ended during FY 2007, this 
difference (that is, the difference between the Medicare payment amount 
in that cost reporting year for Medicare inpatient services that is 
calculated under the methodology set forth in section 410A of Pub. L. 
108-173 and the dollar amount that would have been paid under the 
IPPS), respective to each of the seven ``originally participating 
hospitals,'' is updated according to the market basket updates for 
inpatient hospital costs reported by the CMS Office of the Actuary for 
the years from FY 2008 through FY 2011. (We also have assumed an annual 
2 percent volume increase in accordance with guidance from the CMS 
Office of the Actuary.) The difference for each hospital is summed to 
arrive at the estimate of additional costs attributable to the 
demonstration in FY 2010 for such hospitals. (This calculation is not 
necessary for the hospitals that began participating in the 
demonstration in 2008 because the portion of the FY 2010 budget 
neutrality adjustment that accounts for estimated FY 2010 demonstration 
costs in the FY 2010 IPPS/RY 2010 LTCH PPS final rule incorporates a 
cost estimate for each of these hospitals based on the entirety of the 
Federal fiscal year.) The estimate of additional costs attributable to 
the demonstration in FY 2010 for the seven ``originally participating 
hospitals'' that were not accounted for in the FY 2010 final rule is 
$6,488,221.
c. Portion of the FY 2011 Budget Neutrality Adjustment That Accounts 
for Estimated FY 2011 Costs for Hospitals Newly Selected To Participate 
in the Demonstration
    Section 410A(g)(3) of Public Law 108-173, as added by section 3123 
of the Affordable Care Act and as further amended by section 10313 of 
such Act, provides that ``[n]otwithstanding subsection (a)(4), during 
the 5-year extension period, not more than 30 rural community hospitals 
may participate in the demonstration program under this section.'' 
Consequently, up to 20 additional hospitals may be added to the 
demonstration (30 hospitals minus the 10 currently participating 
hospitals). In order to ensure budget neutrality for 20 new 
participating hospitals, as we proposed in the June 2, 2010 
supplemental proposed rule, we are including a component in the budget 
neutrality adjustment factor to the FY 2011 national IPPS rates to 
account for the estimated FY 2011 costs of those new hospitals. As 
proposed, for this final rule, for purposes of estimating the FY 2011 
costs of the demonstration for 20 new hospitals, we are estimating such 
costs from the average annual cost per hospital derived from the 
estimate of the 10 currently participating hospitals' costs 
attributable to the demonstration for FY 2011. Because the statute 
allows the potential for 20 additional hospitals for the demonstration, 
we are basing this estimate on the assumption that 20 hospitals will 
join. Our experience analyzing the cost reports so far for 
demonstration hospitals shows a wide variation in costs among the 
hospitals. Given the wide variation in cost profiles that might occur 
for additional hospitals, we believe that estimating the total 
demonstration cost for FY 2011 for 20 additional hospitals from the 
average annual cost of the currently existing hospitals yields the most 
accurate prediction because it is reflective of the historical trend of 
participant behavior under the demonstration and should give an 
accurate as possible prediction of future participant behavior. We 
believe that, although there is variation in costs, formulating an 
estimate from the average costs of as many as 10 hospitals gives as 
good as possible a prediction of what the demonstration costs for each 
of 20 additional hospitals would be. We are estimating the average cost 
for each of the 20 additional hospitals, not a range of costs. 
According to the estimate of this average cost per hospital, obtained 
by dividing $21,331,721, the cost amount for FY 2011 identified for the 
10 participating hospitals in IV.F.3.a. of this preamble, by 10 and 
then multiplying by 20, the estimate for costs attributable to the 
demonstration for 20 additional hospitals in FY 2011 is $42,663,442. 
(In the proposed rule, we neglected to state that the estimated costs 
attributable to the demonstration for 20 additional hospitals in FY 
2011 was the average cost attributable to the demonstration per 
hospital for FY 2011 times 20,

[[Page 50346]]

although the estimated costs for such hospitals reflected this 
calculation).
d. Portion of the FY 2011 Budget Neutrality Adjustment To Offset the 
Amount by Which the Costs of the Demonstration in FY 2007 Exceeded the 
Amount That Was Identified in the FY 2007 IPPS Final Rule as the Budget 
Neutrality Offset for FY 2007
    In addition, in order to ensure that the demonstration in FY 2007 
was budget neutral, in the June 2, 2010 supplemental proposed rule (75 
FR 30964), we proposed to incorporate a component into the budget 
neutrality adjustment factor to the FY 2011 national IPPS rates, which 
would offset the amount by which the costs of the demonstration program 
as indicated by settled cost reports beginning in FY 2007 for hospitals 
participating in the demonstration during FY 2007 exceeded the amount 
that was identified in the FY 2007 IPPS final rule as the budget 
neutrality offset for FY 2007. Specifically, we proposed the following 
methodology:
     Step One: Calculate the FY 2007 costs of the demonstration 
program according to the settled cost reports that began in FY 2007 for 
the then participating hospitals (which represent the third year of the 
demonstration for each of the then participating hospitals). (We 
proposed to use these settled cost reports, which represent the third 
year of the demonstration for each of the then participating hospitals, 
because they correspond most precisely to FY 2007 and, therefore, we 
believe correctly represent FY 2007 inpatient costs for the 
demonstration during that period.)
     Step Two: Subtract the amount that was offset by the 
budget neutrality adjustment for FY 2007 ($9,197,870) from the costs of 
the demonstration in FY 2007 as calculated in step one.
     Step Three: The result of step two is a dollar amount, for 
which we would calculate a factor that would offset such amounts and 
would be incorporated into the overall budget neutrality adjustment to 
national IPPS rates for FY 2011. This specific component to the overall 
budget neutrality adjustment for FY 2011 would account for the 
difference between the costs of the demonstration in FY 2007 and the 
amount of the budget neutrality adjustment published in the FY 2007 
IPPS final rule and, therefore, would ensure that the demonstration is 
budget neutral for FY 2007.
    Because the settlement process for the demonstration hospitals' 
third year cost reports, that is, for cost reporting periods starting 
in FY 2007, had experienced a delay, for the FY 2011 IPPS/LTCH PPS 
proposed rule and the supplemental propose rule, we were unable to 
state the costs of the demonstration corresponding to FY 2007 and as a 
result were unable to propose the specific numeric adjustment 
representing this offsetting process that would be applied to the 
national IPPS rates. Due to operational issues in the cost report 
settlement process, settled cost reports for the hospitals that 
participate in the demonstration in FY 2007 are not available in time 
for this final rule either, although we expected them to be available. 
Therefore, the estimated adjustment to the national IPPS rates in this 
final rule cannot include a component to account for these costs. We 
anticipate that this information may be available for the FY 2012 IPPS/
LTCH PPS proposed rule, at which time we would include a similar 
proposal.
    For this final FY 2011 IPPS/LTCH PPS final rule, the estimated 
amount for the adjustment to the national IPPS rates is the sum of the 
amounts specified in sections V.K.3.a. through c. of this final rule, 
which is $70,483,384. Section V.K.3.a. through c. of this final rule 
state dollar amounts, which represent estimated costs attributable to 
the demonstration for the respective component of the overall estimated 
calculation of the budget neutrality factor for FY 2011. This estimated 
amount is based on the specific assumptions identified, as well as from 
data sources that are used because they represent either the most 
recently finalized or, if as submitted, recent available cost reports.
    We did not receive any public comments on the proposed provisions 
for extension of the rural hospital community demonstration program.

L. Technical Change to Regulations

    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43939 
through 43940), in response to public comments we received on the FY 
2010 proposed rule relating to the effects on CAH status arising from 
the redesignation by OMB of three Micropolitan Statistical Areas as 
MSAs, we amended our regulations at Sec.  485.610 by adding a paragraph 
(b)(4) to provide for a transition period for the CAHs that are located 
in counties that are reclassified from rural to urban to obtain a rural 
redesignation. However, when we added the new paragraph (b)(4) to Sec.  
485.610, we inadvertently failed to make a conforming change to the 
introductory text of paragraph (b) to include a reference to paragraph 
(b)(4) as one of the requirements that the CAH must meet in order to 
satisfy the conditions of participation for CAHs. In the FY 2011 IPPS/
LTCH PPS proposed rule (75 FR 23998), we proposed to make this 
conforming change. We did not receive any public comments on our 
proposal. Therefore, we are adopting the proposed conforming change as 
final without modification.

M. Interim Final Rule With Comment Period: Bundling of Payments for 
Services Provided to Outpatients Who Later Are Admitted as Inpatients: 
3-Day Payment Window

1. Introduction
    On June 25, 2010, the Preservation of Access to Care for Medicare 
Beneficiaries and Pension Relief Act of 2010 (Pub. L. 111-192) was 
enacted. Section 102 of Public Law 111-192 pertains to Medicare's 
policy for payment of outpatient services provided on either the day of 
or during the 3 days (or, in the case of a hospital that is not a 
subsection (d) hospital, during the 1 day) prior to a Medicare 
beneficiary's inpatient admission. This policy is generally known as 
the ``3-day payment window''. Under the 3-day payment window, a 
hospital (or an entity that is wholly owned or wholly operated by the 
hospital) must include on the claim for a Medicare beneficiary's 
inpatient stay, the charges for all outpatient diagnostic services and 
admission-related nondiagnostic services provided during the payment 
window. The new law makes the policy pertaining to admission-related 
nondiagnostic services more consistent with common hospital billing 
practices. Section 102 is effective for services furnished on or after 
the date of enactment, June 25, 2010.
2. Background for Policy
    Section 1886(a)(4) of the Act originally defined the operating 
costs of inpatient hospital services to include ``all routine operating 
costs, ancillary service operating costs, and special care unit 
operating costs with respect to inpatient hospital services as such 
costs are determined on an average per admission or per discharge 
basis.'' On November 5, 1990, the Omnibus Budget Reconciliation Act of 
1990 (Pub. L. 101-508) was enacted. Section 4003(a) of Public Law 101-
508 amended the statutory definition of ``operating costs of inpatient 
hospital services'' to include the costs of certain services furnished 
prior to admission. These preadmission services are to be included on 
the Medicare Part A bill for the subsequent inpatient stay. As amended, 
section 1886(a)(4) of the Act defines the operating costs of inpatient 
hospital services to include diagnostic services

[[Page 50347]]

(including clinical diagnostic laboratory tests) or other services 
related to the admission (as defined by the Secretary) furnished by the 
hospital (or by an entity that is wholly owned or wholly operated by 
the hospital) to the patient during the 3 days prior to the date of the 
patient's admission to the hospital. The provisions of section 4003(b) 
of Public Law 101-508 were fully implemented by October 1, 1991.
    On January 12, 1994, we published an interim final rule with 
comment period (59 FR 1654) regarding section 4003 of Public Law 101-
508. In that final rule with comment period, we revised the regulations 
at 42 CFR 412.2 relating to hospitals paid under the IPPS (also 
referred to as ``subsection (d) hospitals'') and 42 CFR 413.40(c) 
relating to hospitals excluded from the IPPS (also referred to as 
``non-subsection (d) hospitals''). Specifically, we added Sec.  412.2 
(c)(5) and revised Sec.  413.40(c) to provide that a hospital is 
considered the sole operator of an entity if the hospital has exclusive 
responsibility for conducting or overseeing the entity's routine 
operations, regardless of whether the hospital also has policymaking 
authority over the entity. In addition, we stated that ambulance 
services are excluded from preadmission services subject to the payment 
window and defined ``services related to the admission'' as those 
nondiagnostic services that are furnished in connection with the 
principal diagnosis that requires the beneficiary to be admitted as an 
inpatient.
    Section 1886(a)(4) of the Act was further amended by section 110 of 
the Social Security Amendments of 1994 (Pub. L. 103-432, enacted on 
October 31, 1994). That provision revised the payment window for 
hospitals that are excluded from the IPPS to include only those 
services furnished by the hospital or an entity wholly owned or 
operated by the hospital during the 1 day (not 3 days) prior to a 
patient's hospital inpatient admission. In a September 1, 1995 final 
rule (60 FR 45840), we revised Sec.  413.40(c)(2) of the regulations to 
provide for the 1-day payment window for hospitals and hospital units 
excluded from the IPPS. The hospitals and hospital units excluded from 
the IPPS and affected by this policy are psychiatric hospitals and 
units, inpatient rehabilitation hospitals and units, long-term care 
hospitals (LTCHs), children's hospitals, and cancer hospitals. CMS also 
noted that the term ``day'' refers to the entire calendar day 
immediately preceding the date of admission, not the 24-hour time 
period that immediately precedes the hour of admission.
    On February 11, 1998, we published a final rule (63 FR 6864) that 
responded to public comments received on the January 12, 1994 interim 
final rule with comment period. In that final rule, CMS stated again 
that ambulance services are excluded from the payment window provision 
and also stated that chronic maintenance renal dialysis are excluded, 
as reflected in Sec. Sec.  412.2(c)(5)(iii) and Sec. Sec.  
413.40(c)(2)(iii) of the regulations. We also clarified in that final 
rule that the payment window applies to outpatient services that are 
otherwise billable under Part B and does not apply to nonhospital 
services that are generally covered under Part A (such as home health, 
skilled nursing facility, and hospice). In addition, we further 
clarified the terms ``admission-related'' and ``wholly owned or 
operated.''
    In an April 2006 update to the Medicare Claims Processing Manual 
(Pub. 100-4), Chapter 3, section 40.3 (Change Request 4089, Transmittal 
714), we revised the manual instructions to clarify that the 3-day (or 
1-day) payment window policy also applies to outpatient services 
provided on the date of a beneficiary's admission, consistent with 
Medicare's longstanding administrative policy for treating preadmission 
outpatient services as inpatient. We also clarified that critical 
access hospitals (CAHs) are not subject to the 3-day (nor 1-day) 
payment window.
3. Requirements of Section 102 of Public Law 111-192
    Section 102(a)(1) of Public Law 111-192 added a provision to 
section 1886(a)(4) of the Act to specify that the term ``other services 
related to the admission'' includes ``all services that are not 
diagnostic services (other than ambulance and maintenance renal 
dialysis services) for which payment may be made under this title 
[Title XVIII] that are provided by a hospital (or an entity wholly 
owned or wholly operated by the hospital) to a patient--(A) on the date 
of the patient's inpatient admission; or (B) during the 3 days (or, in 
the case of a hospital that is not a subsection (d) hospital, during 
the 1 day) immediately preceding the date of admission unless the 
hospital demonstrates (in a form and manner, and at a time, specified 
by the Secretary) that such services are not related (as determined by 
the Secretary) to such admission.''
    Section 102(b) specifies that the amendments made by section 102(a) 
of the law apply ``to services furnished on or after the date of the 
enactment'' (that is, June 25, 2010).
    The law makes no changes to the billing of ``diagnostic services'' 
furnished during this period, which are included in the ``operating 
costs of inpatient hospital services'' pursuant to section 1886(a)(4) 
of the Act (which we discuss in our regulations and in section 40.3(B), 
Chapter 3, of the Medicare Claims Processing Manual). All diagnostic 
services provided to a Medicare beneficiary by a hospital (or an entity 
wholly owned or operated by the hospital) on the date of the 
beneficiary's inpatient admission and during the 3 calendar days (1 
calendar day for a nonsubsection (d) hospital) immediately preceding 
the date of admission would continue to be required to be included on 
the bill for the inpatient stay.
    Section 102(c) of Public Law 111-192 also prohibits Medicare from 
reopening a claim, adjusting a claim, or making payments pursuant to 
any request for payment under Title 18, submitted by an entity 
(including a hospital or an entity wholly owned or operated by the 
hospital), for services (as described in section 102(c)(2) of Pub. L. 
111-192), for purposes of treating, as unrelated to a patient's 
inpatient admission, services provided during the 3 days (or, in the 
case of a hospital that is not a subsection (d) hospital, during the 1 
day) immediately preceding the date of the patient's inpatient 
admission. Services described in section 102(c)(2) of Public Law 111-
192 are other services related to the admission which were previously 
included on a claim or request for payment submitted under part A of 
Title XVIII for which a reopening, adjustment, or request for payment 
under part B of Title XVIII, was not submitted prior to June 25, 2010 
for purposes of treating, as unrelated to a patient's inpatient 
admission.
4. Application of the Provisions of Section 102 of Public Law 111-192
    In accordance with section 1886(a)(4) of the Act, outpatient 
nondiagnostic services that are related to an inpatient admission must 
be bundled with the billing for the inpatient stay. An outpatient 
service is related to the admission if it is clinically associated with 
the reason for a patient's inpatient admission. In accordance with 
section 102 of Public Law 111-192, for outpatient services furnished on 
or after June 25, 2010, all nondiagnostic services, other than 
ambulance and maintenance renal dialysis services, provided by the 
hospital (or an entity wholly owned or wholly operated by the hospital) 
on the date of a

[[Page 50348]]

beneficiary's inpatient admission are deemed related to the admission 
and, therefore, must be billed with the inpatient stay. In addition, 
outpatient nondiagnostic services, other than ambulance and maintenance 
renal dialysis services, provided by the hospital (or an entity wholly 
owned or wholly operated by the hospital) on the first, second, and 
third calendar days (first calendar day for nonsubsection (d) 
hospitals) preceding the date of a beneficiary's admission are deemed 
related to the admission and, therefore, must be billed with the 
inpatient stay, unless the hospital attests to certain nondiagnostic 
services as unrelated to the hospital claim (that is, the preadmission 
services are clinically distinct or independent from the reason for the 
beneficiary's admission). Outpatient nondiagnostic services provided 
during the applicable payment window that are unrelated to the 
admission, and are covered by Medicare Part B, should be separately 
billed to Medicare Part B.
    We intend to establish a process for hospitals to attest to 
nondiagnostic services as being unrelated to the hospital claim when a 
hospital submits an outpatient claim. As part of the process, hospitals 
would be required to maintain documentation in the beneficiary's 
medical record to support their claim that the outpatient nondiagnostic 
services are unrelated to the beneficiary's inpatient admission. We 
note that hospitals have experience with making similar attestations on 
the outpatient or inpatient claim. For example, under Medicare's 
current policy, when a patient is discharged or transferred from an 
acute care prospective payment system (PPS) hospital, and is readmitted 
to the same acute care PPS hospital on the same day for symptoms 
related to the prior stay, the second stay is bundled into payment for 
the first stay and not separately paid. However, when a patient is 
discharged or transferred from an acute care PPS hospital and is 
readmitted to the same acute care PPS hospital on the same day for 
symptoms unrelated to the prior stay, hospitals can place condition 
code (CC) B4 on the inpatient claim that contains an admission date 
equal to the prior admissions discharge date that would allow the 
second stay to be paid separately. If the condition code is not 
included on the claim for a same day readmission, edits will bundle the 
claim for the second admission into the first one and Medicare will 
only pay for one inpatient discharge. (We refer readers to section 
40.2.5, Chapter 3 of the Medicare Claims Processing Manual and the FY 
2003 IPPS final rule (68 FR 45404-06) for further details of Medicare's 
policy on this issue.) We plan to develop a similar process using a 
condition code, modifier, or some other indicator for the 3-day (1-day) 
payment window.
    In accordance with the requirements of section 1886(a)(4) of the 
Act, as amended by section 102(a) of Public Law 111-192, we are 
modifying the Medicare regulations at Sec.  412.2 by revising paragraph 
(c)(5) and adding a new paragraph (c)(5)(iv) to specify that all 
nondiagnostic services provided on or after June 25, 2010, other than 
ambulance and maintenance renal dialysis services, provided by a 
subsection (d) hospital (or by an entity wholly owned or operated by 
the subsection (d) hospital) on the date of a beneficiary's inpatient 
admission are deemed related to and, therefore, part of the 
beneficiary's inpatient stay. In addition, outpatient nondiagnostic 
services provided on the first, second, and third calendar day prior to 
admission by a subsection (d) hospital are also deemed related to and, 
therefore, part of the beneficiary's inpatient stay, unless a hospital 
attests that specific nondiagnostic services are clinically unrelated 
to the inpatient admission (that is, the preadmission services are 
distinct or independent from the admission) when the hospital submits 
an outpatient claim.
    For nonsubsection (d) hospitals, in accordance with section 
1886(a)(4) of the Act, the payment window is 1 day. Therefore, in this 
interim final rule with comment period, we are amending Sec.  413.40 by 
revising paragraph (c)(2) and (c)(2)(iii) and adding a new paragraph 
(c)(2)(iv) to provide that all nondiagnostic services provided on or 
after June 25, 2010 (other than ambulance and maintenance renal 
dialysis services) that are provided on the date of a beneficiary's 
admission by a nonsubsection (d) hospital (or by an entity wholly owned 
or operated by the nonsubsection (d) hospital) are deemed related to 
and, thus, part of the beneficiary's inpatient stay at that 
nonsubsection (d) hospital. In addition, nondiagnostic services 
provided by a nonsubsection (d) hospital (or by an entity wholly owned 
or operated by the nonsubsection (d) hospital) during the 1 calendar 
day immediately preceding the date of admission to that nonsubsection 
(d) hospital are deemed related to and, thus, part of the inpatient 
stay, unless the hospital attests that specific nondiagnostic services 
are clinically unrelated to the inpatient admission when the hospital 
submits an outpatient claim.
    In this interim final rule with comment period, we also are 
codifying the same statutory requirements of the payment window for 
IPFs, LTCHs, and IRFs by adding a new Sec.  412.405 applicable to 
payments to IPFs for treating preadmission services as inpatient 
operating costs under the IPF prospective payment system, a new Sec.  
412.540 applicable to payments to LTCHs for treating preadmission 
services as inpatient operating costs under the LTCH prospective 
payment system, and a new paragraph (f) (existing paragraph (f) is 
redesignated as paragraph (g)) to Sec.  412.604 to be applicable to 
payments to IRFs for treating preadmission services as inpatient 
operating costs under the IRF PPS.
    In addition, we are making a technical correction to our existing 
regulation at Sec.  412.521(b)(1), which sets forth our policy under 
the LTCH PPS for what constitutes payment in full to providers for 
covered operating costs for inpatient services. This is a conforming 
change that is necessary to recognize the addition of Sec.  412.540 
described previously. Consequently, we are amending the cross-reference 
at Sec.  412.521(b) to read instead ``Sec.  412.2(c)(1) through (c)(4) 
of this Part and Sec.  412.540.'' This correction results in an 
accurate description of the policy under the LTCH PPS for determining 
Medicare payment in full for inpatient operating costs.
    Section 102(c) of Public Law 111-192 also prohibits Medicare from 
reopening a claim, adjusting a claim, or making payments pursuant to 
any request for payment under Title XVIII, submitted by an entity 
(including a hospital or an entity wholly owned or operated by the 
hospital), for services (as described under section 102(c)(2) of Pub. 
L. 111-192) for purposes of treating, as unrelated to a patient's 
inpatient admission, services provided during the 3 days (or, in the 
case of a hospital that is not a subsection (d) hospital, during the 1 
day) immediately preceding the date of the patient's inpatient 
admission. Services described in section 102(c)(2) of Public Law 111-
192 are other services related to the admission which were previously 
included on a claim or request for payment submitted under Part A of 
Title XVIII for which a reopening, adjustment, or request for payment 
under Part B of Title XVIII, was not submitted prior to June 25, 2010 
for purposes of treating, as unrelated to a patient's inpatient 
admission.
    For example, if a beneficiary presented with chest pain at the 
emergency department of a subsection (d) hospital on June 1, 2010, was

[[Page 50349]]

retained for observation until admitted as an inpatient on June 3, 2010 
(with a principal diagnosis of myocardial infarction), was released 
from the hospital on June 7, 2010, and the hospital billed Medicare 
Part A on June 10, 2010, for the beneficiary's entire stay (bundling 
all of the outpatient charges and procedures on the inpatient stay 
bill), Medicare will make no payment to the hospital for any Part A 
adjustment claims submitted on or after June 25, 2010, to remove 
unrelated outpatient nondiagnostic services, nor for any new Part B 
claims submitted on or after June 25, 2010, to separately bill Medicare 
for unrelated outpatient nondiagnostic services, that the hospital had 
previously included on its June 10, 2010 bill for services furnished to 
the beneficiary.
    In the near future, we also expect to update the instructions in 
the Medicare Claims Processing Manual, Chapter 3, section 40.3, to 
conform to the requirements of section 102 of Public Law 111-192. Even 
before the final regulations, instructions, and process for attesting 
to certain services as being unrelated to an admission are in place, 
hospitals are required by law to comply with the requirements of 
section 102 of Public Law 111-192. That is, hospitals must include on a 
Medicare claim for a beneficiary's inpatient stay the diagnoses, 
procedures, and charges for all outpatient preadmission diagnostic 
services and all outpatient preadmission nondiagnostic services that 
meet the requirements of section 1886(a)(4) of the Act, as amended by 
section 102 of Public Law 111-192. If a hospital believes that 
outpatient nondiagnostic services provided during the first, second, 
and third calendar days (first calendar day for a nonsubsection (d) 
hospital) preceding the date of a beneficiary's admission are unrelated 
to the inpatient admission, the hospital may separately bill for the 
service to Medicare Part B, provided that the hospital can document, 
and maintain such documentation as part of the beneficiary's medical 
record to support its belief, that the service is unrelated to the 
admission. Such separately billed outpatient preadmission services may 
be subject to subsequent CMS review.
5. Waiver of Notice of Proposed Rulemaking
    In section IV.M. of this document, we are implementing section 102 
of Pub. L. 111-192, which addresses Medicare payment for outpatient 
services provided prior to a Medicare beneficiary's inpatient 
admission, through an interim final rule with comment period. We 
ordinarily publish a notice of proposed rulemaking in the Federal 
Register to provide for public comment before the provisions of a rule 
take effect, in accordance with section 553(b) of the Administrative 
Procedure Act (APA) and section 1871 of the Act. This process may be 
waived, however, if an agency finds good cause that a notice and 
comment procedure is impracticable, unnecessary, or contrary to the 
public interest. In such cases, the agency must incorporate a statement 
of this finding and its reasons in the rule, or explain that the agency 
is promulgating interpretive rules, general statements of policy, or 
rules of agency procedure or practice outside the scope of notice and 
comment rulemaking.
    We believe that there is good cause to implement the requirements 
of section 102 of Public Law 111-192 through an interim final rule with 
comment period. Notice and comment rulemaking would be unnecessary and 
contrary to the public interest in this case. The provisions of section 
102 are self-implementing; we are conforming our regulations to 
specific statutory requirements contained in that section or that 
directly result from those statutory requirements and informing the 
public of the procedures and practices the agency will follow to ensure 
compliance with those statutory provisions. Moreover, section 102 of 
Public Law 111-192 was effective on June 25, 2010, and it is imperative 
that the regulatory provisions be set forth as soon as possible to 
deliver the guidance necessary for providers to comply with 
requirements that are already in place.
    In addition, the requirements of section 102 of Public Law 111-192 
may be implemented as an interim final rule with comment period because 
they fall under the exception to notice and comment rulemaking 
contained in section 1871(b)(1)(B) of the Act. Section 1871(b)(1)(B) of 
the Act provides that the Secretary is not required to issue a notice 
of proposed rulemaking before issuing a final rule if ``a statute 
establishes a specific deadline for the implementation of a provision 
and the deadline is less than 150 days after the date of the enactment 
of the statute in which the deadline is contained.'' Section 102 of 
Public Law 111-192 was effective on the date of enactment, thereby 
meeting this requirement.
    Section 553(d) of the APA and section 1871(e)(1)(B)(i) of the Act 
ordinarily require that a regulation be effective no earlier than 30 
days after publication. Under section 553(d)(3), this requirement can 
be waived for good cause, and under section 1871(e)(1)(B)(ii) of the 
Act, this requirement can be waived if necessary to comply with 
statutory requirements, or if a delay is contrary to the public 
interest. As noted above, section 102 of Public Law 111-192 is required 
by statute to be in effect on the date of enactment. For the reasons 
identified above for waiving notice and comment procedures under the 
APA and the Act, we find good cause to waive the 30-day delay in 
effective date that would otherwise apply.
    In addition, 5 U.S.C. 801 generally requires that agencies submit 
major rules to the Congress 60 days before the rules are scheduled to 
become effective. This delay does not apply, however, when there has 
been a finding of good cause for waiver of prior notice and comment as 
set forth above.
6. Collection of Information Requirements
    This document does not impose any new information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995.
7. Response to Public 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 public comments we 
receive by the date and time specified in the DATES section of this 
preamble, and, when we proceed with a subsequent document, we will 
respond to the comments in the preamble of that document.
8. Regulatory Impact Analysis
    We have examined the impacts of this final rule as required by 
Executive Order 12866 (September 1993, Regulatory Planning and Review), 
the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-
354), section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), Executive Order 13132 on 
Federalism, and the Congressional Review Act (5 U.S.C. 804(2)).
    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more in any 1 year).

[[Page 50350]]

    As discussed earlier in this interim final rule with comment 
period, section 1886(a)(4) of the Act defines the operating costs of 
inpatient hospital services to include diagnostic services (including 
clinical diagnostic laboratory tests) or other services related to the 
admission (as defined by the Secretary) furnished by the hospital (or 
by an entity that is wholly owned or wholly operated by the hospital) 
to the patient during the 3 days (or, in the case of a hospital that is 
not a subsection (d) hospital, during the 1 day) prior to the date of 
the patient's admission to the hospital. This policy is generally known 
as the ``3-day payment window.'' Section 102(a)(1) of Public Law 111-
192, enacted June 25, 2010, added a provision to section 1886(a)(4) of 
the Act to specify that the term ``other services related to the 
admission'' includes ``all services that are not diagnostic services 
(other than ambulance and maintenance renal dialysis services) for 
which payment may be made under this title [Title XVIII] that are 
provided by a hospital (or an entity wholly owned or wholly operated by 
the hospital) to a patient (A) on the date of the patient's inpatient 
admission; or (B) during the 3 days (or, in the case of a hospital that 
is not a subsection (d) hospital, during the 1 day) immediately 
preceding the date of admission unless the hospital demonstrates (in a 
form and manner, and at a time, specified by the Secretary) that such 
services are not related (as determined by the Secretary) to such 
admission.'' Section 102(b) specifies that the amendments made by 
section 102(a) of Public Law 111-192 apply ``to services furnished on 
or after the date of the enactment'' (that is, June 25, 2010).
    The law makes no changes to the existing policy regarding billing 
of ``diagnostic services'' furnished during this period, which are 
included in the ``operating costs of inpatient hospital services'' 
pursuant to section 1886(a)(4) (which we discuss in our regulations and 
in section 40.3(B), Chapter 3, of the MCPM). All diagnostic services 
provided to a Medicare beneficiary by a hospital (or an entity wholly 
owned or operated by the hospital) on the date of the beneficiary's 
inpatient admission and during the 3 calendar days (1 calendar day for 
a nonsubsection (d) hospital) immediately preceding the date of 
admission would continue to be required to be included on the bill for 
the inpatient stay.
    Section 102(c) of Public Law 111-192 also prohibits Medicare from 
reopening a claim, adjusting a claim, or making payments pursuant to 
any request for payment under Title 18, submitted by an entity 
(including a hospital or an entity wholly owned or operated by the 
hospital), for services (as described in section 102(c)(2) of Public 
Law 111-192), for purposes of treating, as unrelated to a patient's 
inpatient admission, services provided during the 3 days (or, in the 
case of a hospital that is not a subsection (d) hospital, during the 1 
day) immediately preceding the date of the patient's inpatient 
admission. Services described in section 102(c)(2) of Public Law 111-
192 are other services related to the admission which were previously 
included on a claim or request for payment submitted under part A of 
Title 18 for which a reopening, adjustment, or request for payment 
under part B of Title 18, was not submitted prior to June 25, 2010 for 
purposes of treating the services as unrelated to a patient's inpatient 
admission.
    We note that, in a final rule published on February 11, 1998 (63 FR 
6864), we had defined ``other services'' as being ``related to the 
admission'' only when there was an exact match (for all 5 digits, if 
applicable) between the principal (or primary) ICD-9-CM diagnosis codes 
assigned for both the preadmission services (provided by the admitting 
hospital or by an entity that is wholly owned or operated by the 
admitting hospital) and the inpatient stay. If hospitals, prior to the 
June 25, 2010 effective date of section 102 of Public Law 111-192, were 
applying the definition of ``related'' as adopted in that final rule, 
we estimate that the impact of the provisions of section 102 of Public 
Law 111-192, for FY 2011, would be a savings of approximately $2.6 
billion to Medicare Part B, and the impact on Medicare Part A would be 
negligible. In addition, we estimate that the impact on beneficiaries 
would be a savings of about $0.5 billion for FY 2011. However, we were 
informed by many hospitals, Medicare contractors, and others in the 
hospital community that the policy established in 1998 was generally 
unknown to hospitals and that the policy being enacted under section 
102(a) is more consistent with hospitals' longstanding billing 
practices. The hospitals and others asserted that, for the most part, 
hospitals have been treating virtually all outpatient services 
furnished to a patient during the payment window as admission-related 
and bundling the services onto the Part A claim for the patient's 
inpatient stay, particularly when a patient is admitted as an inpatient 
directly from an outpatient department of the hospital, such as the 
emergency department. If this assertion is correct, then the impact of 
the provisions of section 102 of Public Law 111-192 for FY 2011 on the 
Medicare program and its beneficiaries would be negligible.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis for any proposed or final rule that may have 
a significant impact on the operations of a substantial number of small 
rural hospitals. This analysis must conform to the provisions of 
section 604 of the RFA. With the exception of hospitals located in 
certain New England counties, for purposes of section 1102(b) of the 
Act, we now define a small rural hospital as a hospital that is located 
outside of an urban area and has fewer than 100 beds. Section 601(g) of 
the Social Security Amendments of 1983 (Pub. L. 98-21) designated 
hospitals in certain New England counties as belonging to the adjacent 
urban area. Thus, for purposes of the IPPS and LTCH PPS, we continue to 
classify these hospitals as urban hospitals. We believe that this rule 
will not have a significant impact on small rural hospitals. 
Accordingly, the Secretary certifies that this interim final rule with 
comment period would not have a significant economic impact on the 
operations of a substantial number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4) also requires that agencies assess anticipated costs and 
benefits before issuing any rule whose mandates require spending in any 
1 year of $100 million in 1995 dollars, updated annually for inflation. 
That threshold level is currently approximately $133 million. This 
interim final rule with comment period would not mandate any 
requirements for State, local, or tribal governments, nor would it 
affect private sector costs.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. Because this interim final rule with comment period does 
not impose any costs on State or local government, the requirements of 
Executive Order 13132 are not applicable.
    In accordance with the provisions of Executive Order 12866, this 
interim final rule with comment period was reviewed by the Office of 
Management and Budget.

[[Page 50351]]

N. Changes in the Inpatient Hospital Market Basket Update

    Below we discuss the adjustments to the FY 2010 and FY 2011 market 
basket as required by the Affordable Care Act and our incorporation of 
the statutory provisions in the Medicare regulations. In this final 
rule, we are not addressing the provisions of section 3401 of the 
Affordable Care Act that provide for a productivity adjustment for FY 
2012 and subsequent fiscal years. This statutory change will be 
addressed in future rulemaking.
1. FY 2010 Inpatient Hospital Update
    In accordance with section 1886(b)(3)(B)(i) of the Act, each year 
we update the national standardized amount for inpatient operating 
costs by a factor called the ``applicable percentage increase.'' Prior 
to enactment of the Affordable Care Act, section 1886(b)(3)(B)(i)(XX) 
of the Act set the applicable percentage increase equal to the rate-of-
increase in the hospital market basket for IPPS hospitals in all areas, 
subject to the hospital submitting quality data information under rules 
established by the Secretary in accordance with section 
1886(b)(3)(B)(viii) of the Act. For hospitals that do not provide these 
quality data, the update is equal to the market basket percentage 
increase less an additional 2.0 percentage points. In accordance with 
these statutory provisions, in the FY 2010 IPPS/RY 2010 LTCH PPS final 
rule (74 FR 43850), we finalized an applicable percentage increase 
equal to the full market basket update of 2.1 percent based on IHS 
Global Insight, Inc.'s second quarter 2009 forecast of the FY 2010 
market basket increase, provided the hospital submits quality data in 
accordance with our rules. For hospitals that do not submit quality 
data, in the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we finalized an 
applicable percentage increase equal to 0.1 percent (that is, the FY 
2010 estimate of the market basket rate-of-increase minus 2.0 
percentage points).
    Sections 3401(a) and 10319 of the Affordable Care Act amended 
section 1886(b)(3)(B)(i) of the Act. As amended, section 
1886(b)(3)(B)(i) sets the FY 2010 applicable percentage increase for 
IPPS hospitals equal to the rate-of-increase in the hospital market 
basket for IPPS hospitals in all areas minus a 0.25 percentage point, 
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. For hospitals that do not provide these data, the update is equal 
to the market basket percentage increase minus 0.25 percentage point 
less an additional 2.0 percentage points. Section 3401(a)(4) of the 
Affordable Care Act further states that these amendments may result in 
the applicable percentage increase being less than zero. Although these 
amendments modify the applicable percentage increase applicable to the 
FY 2010 rates under the IPPS, section 3401(p) of the Affordable Care 
Act states that the amendments do not apply to discharges occurring 
prior to April 1, 2010. In other words, for discharges occurring on or 
after October 1, 2009 and prior to April 1, 2010, the rate for a 
hospital's inpatient operating costs under the IPPS will be based on 
the applicable percentage increase set forth in the FY 2010 IPPS/RY 
2010 LTCH PPS final rule.
    In the FY 2011 IPPS/LTCH PPS supplemental proposed rule (75 FR 
30922), we proposed to revise the regulations at 42 CFR 412.64(d) to 
reflect current law. Specifically, 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 proposed to revise Sec.  412.64(d) to 
state that, for the first half of FY 2010 (that is, discharges on or 
after October 1, 2009 through March 30, 2010), the applicable 
percentage change equals the market basket index for IPPS hospitals 
(which is defined under Sec.  413.40(a)) in all areas for hospitals 
that submit quality data in accordance with our rules, and the market 
basket index for IPPS hospitals in all areas less 2.0 percentage points 
for hospitals that fail to submit quality data in accordance with our 
rules. As noted above, in the FY 2010 IPPS/RY 2010 LTCH PPS final rule, 
we calculated that the full market basket update equals 2.1 percent 
based on IHS Global Insight, Inc.'s second quarter 2009 forecast of the 
FY 2010 market basket increase. In addition, in the supplemental 
proposed rule, we proposed to revise Sec.  412.64(d) to state that, for 
the second half of FY 2010 (discharges on or after April 1, 2010 
through September 30, 2010), in accordance with section 3401(a) of the 
Affordable Care Act, the applicable percentage change equal to the 
market basket index for IPPS hospitals in all areas reduced by 0.25 
percentage points for hospitals that submit quality data in accordance 
with our rules. For those hospitals that fail to submit quality data, 
in accordance with our rules, we proposed to specify that the market 
basket index for IPPS hospitals is reduced by an additional 2.0 
percentage points (which is in addition to the 0.25 percentage point 
reduction required by section 1886(b)(3)(B)(i) of the Act as amended by 
section 3401(a) of the Affordable Care Act and as further amended by 
section 10319(a) of that Act). Based on IHS Global Insight, Inc.'s 
second quarter 2009 forecast of the FY 2010 market basket increase, the 
FY 2010 applicable percentage change that applies to rates for 
inpatient hospital operating costs under the IPPS for discharges 
occurring in the second half of FY 2010 is 1.85 percent (that is, the 
FY 2010 estimate of the market basket rate-of-increase of 2.1 percent 
minus 0.25 percentage points) for hospitals in all areas, provided the 
hospital submits quality data in accordance with our rules. For 
hospitals that do not submit quality data, the payment update to the 
operating standardized amount is -0.15 percent (that is, the adjusted 
FY 2010 estimate of the market basket rate-of-increase of 1.85 percent 
minus 2.0 percentage points). We received one public comment which we 
respond to below on our proposal to revise Sec.  412.64(d) to reflect 
current law. However, due to the statutory requirement, in this final 
rule, we are adopting as final, without modification, the proposed 
changes to Sec.  412.64(d).
    Section 1886(b)(3)(B)(iv) of the Act provides that the applicable 
percentage increase applicable to the hospital-specific rates for SCHs 
and MDHs equals the applicable percentage increase set forth in section 
1886(b)(3)(B)(i) of 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 and MDHs equal to the update factor for all other IPPS 
hospitals, the update to the hospital specific rates for SCHs and MDHs 
is also subject to the amendments to section 1886(b)(3)(B)(i) made by 
section 3401(a) of the Affordable Care Act. Accordingly, for hospitals 
paid for their inpatient operating costs on the basis of a hospital-
specific rate, the rates paid to such hospitals for discharges 
occurring during the first half of FY 2010 are based on an annual 
update estimated to be 2.1 percent for hospitals submitting quality 
data or 0.1 percent for hospitals that fail to submit quality data; and 
the rates paid to such hospitals for the second half of FY 2010 are 
based on an update that is estimated to be 1.85 percent for hospitals 
submitting quality data or -0.15 percent for hospitals that fail to 
submit quality data. In the FY 2011 IPPS/LTCH PPS supplemental proposed 
rule, we proposed to revise Sec. Sec.  412.73(c)(15), 412.75(d), 
412.77(e), 412.78(e), and 412.79(d) to reflect current law. We did

[[Page 50352]]

not receive any public comments on this proposal. Therefore, in this 
final rule, we are adopting as final, without modification, the 
proposed changes to Sec. Sec.  412.73(c)(15), 412.75(d), 412.77(e), 
412.78(e), and 412.79(d).
2. FY 2011 Inpatient Hospital Update
    As with the FY 2010 applicable percentage increase, sections 
3401(a) and 10319(a) of the Affordable Care Act amended section 
1886(b)(3)(B)(i) of the Act to provide that the FY 2011 applicable 
percentage increase for IPPS hospitals equals the rate-of-increase in 
the hospital market basket for IPPS hospitals in all areas reduced by 
0.25 percentage point, 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. For hospitals that do not provide these 
data, the update is equal to the market basket percentage increase 
minus a 0.25 percentage point less an additional 2.0 percentage points. 
Section 3401(a)(4) of the Affordable Care Act further states that this 
amendment may result in the applicable percentage increase being less 
than zero.
    In Appendix B of the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 
24321), we announced that due to the timing of the passage of the 
Affordable Care Act, we were unable to address those provisions in the 
proposed rule. In that proposed rule, consistent with current law, 
based on IHS Global Insight, Inc.'s first quarter 2010 forecast, with 
historical data through the 2009 fourth quarter, of the FY 2011 IPPS 
market basket increase, we estimated that the FY 2011 update to the 
operating standardized amount would be 2.4 percent (that is, the 
current estimate of the market basket rate-of-increase) for hospitals 
in all areas, provided the hospital submits quality data in accordance 
with our rules. For hospitals that do not submit quality data, we 
estimated that the update to the operating standardized amount would be 
0.4 percent (that is, the current estimate of the market basket rate-
of-increase minus 2.0 percentage points). In the FY 2011 IPPS/LTCH PPS 
supplemental proposed rule (75 FR 30923), we stated that, consistent 
with the amendments to section 1886(b)(3)(B)(i) of the Act made by 
section 3401 of the Affordable Care Act, for FY 2011 we are required to 
reduce the hospital market basket update by a 0.25 percentage point. 
Therefore, based on IHS Global Insight, Inc.'s first quarter 2010 
forecast of the FY 2011 market basket increase, the estimated update to 
the FY 2011 operating standardized amount was 2.15 percent (that is, 
the FY 2011 estimate of the market basket rate-of-increase of 2.4 
percent minus 0.25 percentage point) for hospitals in all areas, 
provided the hospital submits quality data in accordance with our 
rules. For hospitals that do not submit quality data, the estimated 
update to the operating standardized amount is 0.15 percent (that is, 
the adjusted FY 2011 estimate of the market basket rate-of-increase of 
2.15 percent minus 2.0 percentage points). Since publication of the FY 
2011 IPPS/LTCH PPS supplemental proposed rule, our estimate of the 
market basket for FY 2011 has been updated based on more recently 
available data. Therefore, based on IHS Global Insight, Inc.'s second 
quarter 2010 forecast of the FY 2011 market basket increase, the update 
to the FY 2011 operating standardized amount is 2.35 percent (that is, 
the FY 2011 estimate of the market basket rate-of-increase of 2.6 
percent minus 0.25 percentage point) for hospitals in all areas, 
provided the hospital submits quality data in accordance with our 
rules. For hospitals that do not submit quality data, the update to the 
operating standardized amount is 0.35 percent (that is, the adjusted FY 
2011 market basket rate-of-increase of 2.35 percent minus 2.0 
percentage points). In the FY 2011 IPPS/LTCH PPS supplemental proposed 
rule, we proposed to revise Sec.  412.64(d) to reflect the provisions 
of section 3401(a) of the Affordable Care Act for FY 2011.
    Comment: Some commenters opposed the reduction to the market basket 
by 0.25 percentage point for updating the operating standardized 
amounts for FY 2010 and FY 2011 that was mandated by the Affordable 
Care Act. The commenters believed that the reduction of payments due to 
the reduction of the market basket would cause serious harm to 
hospitals.
    Response: As stated above, the reduction to the market basket for 
updating the operating standardized amounts is a statutory requirement 
that must be implemented for FY 2010 and FY 2011. Therefore, in this 
final rule, we are adopting as final, without modification, the 
proposed changes to Sec.  412.64(d) to reflect current law.
    Section 1886(b)(3)(B)(iv) of the Act provides that the FY 2011 
applicable percentage increase in the hospital-specific rates for SCHs 
and MDHs equals the applicable percentage increase set forth in section 
1886(b)(3)(B)(i) of the Act (that is, the same update factor as for all 
other hospitals subject to the IPPS). Similar to the FY 2010 applicable 
percentage increase in the hospital-specific rates, because the Act 
requires us to apply to the hospital-specific rates the update factor 
for all other IPPS hospitals, the update to the hospital-specific rates 
for SCHs and MDHs is also subject to section 1886(b)(3)(B)(i) of the 
Act, as amended by the Affordable Care Act. Accordingly, the update to 
the hospital-specific rates applicable to SCHs and MDHs for FY 2011 is 
2.35 percent for hospitals that submit quality data or 0.35 percent for 
hospitals that fail to submit quality data. In the FY 2010 IPPS/LTCH 
PPS supplemental proposed rule (75 FR 30923), we proposed to revise 
Sec. Sec.  412.73(c)(15), 412.75(d), 412.77(e), 412.78(e), and 
412.79(d) to incorporate these provisions.
    We did not receive any public comments on this proposal. Therefore, 
we are adopting as final, without modification, the proposed changes to 
Sec. Sec.  412.73(c)(15), 412.75(d), 412.77(e), 412.78(e), and 
412.79(d).
3. FY 2010 and FY 2011 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 1886(d)(9)(C)(i) of the Act provides that the Puerto 
Rico standardized amount shall be adjusted in accordance with the final 
determination of the Secretary under section 1886(d)(4) of the Act. 
Section 1886(e)(4)(1) of the Act in turn directs the Secretary to 
recommend an appropriate change factor for Puerto Rico hospitals taking 
in to account amounts necessary for the efficient and effective 
delivery of medically appropriate and necessary care of high quality, 
as well as the recommendations of MedPAC. In order to maintain 
consistency between the portion of the rates paid to Puerto Rico 
hospitals under the IPPS based on the national standardized amount and 
the portion based on the Puerto Rico-specific standardized rate, 
beginning in FY 2004 we have set the update to the Puerto Rico-specific 
operating standardized amount equal to the update to the national 
operating standardized amount for all IPPS hospitals. This policy is 
reflected in our regulations at 42 CFR 412.211.
    The amendments made to section 1886(b)(3)(B)(i) of the Act by 
sections 3401(a) and 10319(a) of the Affordable Care Act affected only 
the update factor

[[Page 50353]]

applicable to the national standardized rate for IPPS hospitals and the 
hospital-specific rates; they do not mandate any revisions to the 
update factor applicable to the Puerto Rico-specific standardized 
amount. Rather, as noted above, sections 1886(d)(9)(C)(i) and (e)(4) of 
the Act direct us to adopt an appropriate change factor for the FY 2010 
Puerto Rico-specific standardized amount, which we did in the FY 2010 
IPPS/LTCH PPS final rule after notice and consideration of public 
comments. Therefore, as we indicated in the FY 2011 IPPS/LTCH PPS 
supplemental proposed rule, we do not believe we have the authority to 
set the FY 2010 update factor for the Puerto Rico-specific operating 
standardized amount for the second half of FY 2010 equal to the update 
factor applicable to the national standardized amount or the hospital-
specific rates (that is the market basket minus a 0.25 percentage 
point). Accordingly, the FY 2010 update to the Puerto Rico-specific 
operating standardized amount is 2.1 percent (that is, the FY 2010 
estimate of the market basket rate-of-increase) for the entire FY 2010.
    For FY 2011, consistent with our past practice of applying the same 
update factor to the Puerto Rico-specific standardized amount as 
applied to the national standardized amount, in the FY 2011 IPPS/LTCH 
PPS supplemental proposed rule (75 FR 30923), we proposed to revise 
Sec.  412.211(c) to set the update factor for FY 2011 for the Puerto 
Rico-specific operating standardized amount equal to the update factor 
applied to the national standardized amount for all IPPS hospitals. We 
proposed an update factor for the Puerto Rico-specific standardized 
amount equal to the FY 2011 IPPS operating market basket rate-of-
increase, which at that time was estimated to be 2.4 percent minus 0.25 
percentage points, or 2.15 percent, for FY 2011. Since publication of 
the FY 2011 IPPS/LTCH PPS supplemental proposed rule, the estimate of 
the market basket for FY 2011 has been updated based on more recently 
available data. Therefore, based on the current estimate of the IPPS 
operating market basket rate-of-increase, the update factor for the 
Puerto Rico-specific standardized amount is 2.6 percent minus 0.25 
percentage point, or 2.35 percent, for FY 2011. We did not receive any 
public comments on our proposal to revise Sec.  412.211(c) to set the 
update factor for FY 2011 for the Puerto Rico-specific operating 
standardized amount equal to the update factor applied to the national 
standardized amount for all IPPS hospitals. Therefore, we are adopting 
as final, without modification, the proposed changes to Sec.  
412.211(c).

V. Changes to the IPPS for Capital-Related Costs

    On March 23, 2010, the Patient Protection and Affordable Care Act 
(PPACA), Public Law 111-148 was enacted. Following the enactment of 
Public Law 111-148, the Health Care and Education Reconciliation Act of 
2010, Public Law 111-152 (enacted on March 30, 2010), amended certain 
provisions of Public Law 111-148. A number of the provisions of Public 
Law 111-148, as amended by Public Law 111-152 (collectively referred to 
as the Affordable Care Act) affected the IPPS and the LTCH PPS and the 
providers and suppliers addressed in this proposed rule. However, due 
to the timing of the passage of the legislation, we were unable to 
address those provisions in the FY 2011 IPPS/LTCH PPS proposed rule 
issued in the Federal Register on May 4, 2010 (75 FR 23852). On June 2, 
2010, we issued a supplemental proposed rule to the FY 2011 IPPS/LTCH 
PPS proposed rule (75 FR 30918) that included proposed policies and 
payment rates to implement certain provisions of the Affordable Care 
Act.
    Although the provisions of the Affordable Care Act do not directly 
affect the payment rates and policies for the IPPS for capital-related 
costs, in section II. of the Addendum of the June 2, 2010 supplemental 
proposed rule, we proposed revised capital IPPS standard Federal rates 
for FY 2011. This was necessary because the wage index changes required 
by the provisions of the Affordable Care Act (discussed in section III. 
of this preamble) affected the proposed budget neutrality adjustment 
factor for changes in DRG classifications and weights and the 
geographic adjustment factor (GAF) (that were issued in the FY 2011 
IPPS/LTCH PPS proposed rule) because the GAF values are derived from 
the wage index values (Sec.  412.316(a)). In addition, certain 
provisions of the Affordable Care Act also necessitated a revision to 
the proposed outlier payment adjustment factor that were issued in the 
FY 2011 IPPS/LTCH PPS proposed rule because a single set of thresholds 
is used to identify outlier cases for both inpatient operating and 
inpatient capital-related payments (Sec.  412.312(c)). The outlier 
thresholds are set so that operating outlier payments are projected to 
be 5.1 percent of total operating IPPS DRG payments. Section 
412.308(c)(2) provides that the standard Federal rate for inpatient 
capital-related costs be reduced by an adjustment factor equal to the 
estimated proportion of capital-related outlier payments to total 
inpatient capital-related PPS payments. The revised proposed capital 
IPPS standard Federal rates for FY 2011 were discussed in section II. 
of the Addendum to the June 2, 2010 supplemental proposed rule and are 
discussed and being finalized in section III. of the Addendum to this 
final rule.

A. Overview

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

B. Exception Payments

    The regulations at Sec.  412.348(f) provide that a hospital may 
request an additional payment if the hospital incurs unanticipated 
capital expenditures in excess of $5 million due

[[Page 50354]]

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

C. New Hospitals

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

D. Hospitals Located in Puerto Rico

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

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

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

[[Page 50355]]

percent for FY 2009, and -1.8 percent for FY 2010. However, to comply 
with section 7(a) of Public Law 110-90, enacted on September 29, 2007, 
in a final rule published in the Federal Register on November 27, 2007 
(72 FR 66886 through 66888), we modified the documentation and coding 
adjustment for FY 2008 to -0.6 percent, and consequently revised the FY 
2008 IPPS operating and capital payment rates, factors, and thresholds 
accordingly, with these revisions effective October 1, 2007.
    For FY 2009, section 7(a) of Public Law 110-90 required a 
documentation and coding adjustment of -0.9 percent instead of the -1.8 
percent adjustment established in the FY 2008 IPPS final rule with 
comment period. As discussed in the FY 2008 IPPS final rule with 
comment period (72 FR 48447 and 48733 through 48774), we applied a 
documentation and coding adjustment of 7-0.9 percent to the FY 2009 
IPPS national standardized amounts and the capital Federal rate. The 
documentation and coding adjustments established in the FY 2009 IPPS 
final rule, as amended by Pub. L. 110-90, are cumulative. As a result, 
the -0.9 percent documentation and coding adjustment in FY 2009 was in 
addition to the -0.6 percent adjustment in FY 2008, yielding a combined 
effect of -1.5 percent. (For additional details on the development and 
implementation of the documentation and coding adjustments for FY 2008 
and FY 2009, we refer readers to section II.D. of this preamble and the 
following rules published in the Federal Register: August 22, 2007 (72 
FR 47175 through 47186 and 47431 through 47432); November 27, 2007 (72 
FR 66886 through 66888); and August 19, 2008 (73 FR 48447 through 48450 
and 48773 through 48775).)
2. Retrospective Evaluation of FY 2008 Claims Data
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we presented 
the results of a retrospective evaluation of the FY 2008 data for 
claims paid through December 2008. Based on this evaluation, our 
actuaries determined that implementation of the MS-DRG system resulted 
in a 2.5 percent change due to documentation and coding that did not 
reflect real changes in case-mix for discharges occurring during FY 
2008 (74 FR 24092 through 24101). We also sought public comment on our 
methodology and analysis and the proposed -1.9 percent prospective 
adjustment to address the effect of documentation and coding changes 
unrelated to changes in real case-mix in FY 2008 (that is, the 
estimated -2.5 percent documentation and coding effect for FY 2008 
minus the -0.6 percent documentation and coding adjustment that was 
applied to the national capital Federal rate for FY 2008). In addition, 
we sought public comment on addressing in the FY 2011 rulemaking cycle 
any differences between the increase in FY 2009 case-mix due to 
documentation and coding changes that do not reflect real changes in 
case-mix for discharges occurring during FY 2009 and the -0.9 percent 
prospective documentation and coding adjustment applied in determining 
the FY 2009 capital Federal rate established in the FY 2009 IPPS final 
rule. However, after consideration of the public comments received on 
the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, consistent with the 
application of the documentation and coding adjustment to the operating 
IPPS standardized amounts, we determined that it would be appropriate 
to postpone the adoption of any additional documentation and coding 
adjustments to the capital IPPS rates until a full analysis of FY 2009 
case-mix changes could be completed. We stated that although we only 
proposed to make a -1.9 percent adjustment to account for the portion 
of the estimated 2.5 percent change in FY 2008 case-mix due to 
documentation and coding changes that exceeds the -0.6 percent 
prospective documentation and coding adjustment applied to the FY 2008 
capital Federal rate (that is, -2.5 percent minus -0.6 percent = -1.9 
percent), our then current estimate of the MS-DRG documentation and 
coding effect for FY 2009 was 2.3 percent (that is, the 4.8 percent 
total increase minus the 2.5 percent increase from FY 2008). We 
indicated that if the estimated documentation and coding effect 
determined based on a full analysis of FY 2009 claims data is more or 
less than our then current estimates, it would change the anticipated 
cumulative adjustments that we then estimated we would have to make for 
FY 2008 and FY 2009 combined. We indicated that, in future rulemaking, 
we would consider applying a prospective documentation and coding 
adjustment to the capital IPPS rates based on a complete analysis of FY 
2008 and FY 2009 claims data (74 FR 43926 through 43928).
3. Retrospective Analysis of FY 2009 Claims Data
    For the FY 2011 IPPS/LTCH PPS proposed rule, we performed a 
thorough retrospective evaluation of the most recent available claims 
data, and the results of this evaluation were used by our actuaries to 
determine any necessary payment adjustments beyond the cumulative -1.5 
percent adjustment that has already been applied to the national 
capital Federal rate to ensure budget neutrality for the implementation 
of MS-DRGs (75 FR 24014). Specifically, as discussed in greater detail 
in section II.D.5. of the preamble of the proposed rule and this final 
rule, we performed a retrospective evaluation of the FY 2009 claims 
data updated through December 2009 using the same analysis methodology 
as we did for FY 2008 claims in the FY 2010 IPPS/RY 2010 LTCH PPS 
proposed and final rules. Based on this evaluation, our actuaries 
determined that the implementation of the MS-DRG system resulted in a 
5.4 percent change in case-mix due to documentation and coding that did 
not reflect real changes in case-mix for discharges occurring during FY 
2009. We also noted our intent to update our analysis with FY 2009 data 
on claims paid through March 2009 (sic) for this FY 2011 IPPS/LTCH PPS 
final rule. (We note that the March 2009 update date for claims paid 
data in the proposed rule should have been March 2010.) As intended, we 
have updated our analysis with FY 2009 data on claims paid through 
March 2010 in this FY 2011 IPPS/LTCH PPS final rule.
    For this final rule, applying the same analysis methodology as we 
did for the proposed rule to an FY 2009 claims data updated through 
March 2010 verified the 5.4 percent change in case-mix due to 
documentation and coding that did not reflect real changes in case-mix 
for discharges occurring during FY 2009. As we discussed in the FY 2011 
IPPS/LTCH PPS proposed rule (75 FR 24014), the 5.4 percent estimate of 
the cumulative effect of changes in documentation and coding under the 
MS-DRG system that did not reflect real changes in case-mix for FYs 
2008 and 2009 exceeds the cumulative -1.5 percent prospective 
documentation and coding adjustment that has already been applied to 
the national capital Federal rate by 3.9 percentage points (5.4 percent 
minus 1.5 percent). We indicated that an additional cumulative 
adjustment of -3.9 percent to the national capital Federal rate would 
be necessary to eliminate the full effect of the documentation and 
coding changes due to the adoption of the MS-DRGs on future payments.
4. Prospective MS-DRG Documentation and Coding Adjustment to the 
National Capital Federal Rate for FY 2011 and Subsequent Years
    We continue to believe that it is appropriate to make adjustments 
to the capital IPPS rates to eliminate the effect

[[Page 50356]]

of any documentation and coding changes as a result of the 
implementation of the MS-DRGs. These adjustments are intended to ensure 
that future annual aggregate IPPS payments are the same as payments 
that otherwise would have been made had the prospective adjustments for 
documentation and coding applied in FY 2008 and FY 2009 accurately 
reflected the change due to documentation and coding that occurred in 
those years. As noted in section V.A. of this preamble, under section 
1886(g) of the Act, the Secretary has broad authority in establishing 
and implementing the IPPS for acute care hospital inpatient capital-
related costs (that is, the capital IPPS). We have consistently stated 
since the initial implementation of the MS-DRG system that we do not 
believe it is appropriate for Medicare expenditures under the capital 
IPPS to increase due to MS-DRG related changes in documentation and 
coding. Accordingly, we believe that it is appropriate under the 
Secretary's broad authority under section 1886(g) of the Act, in 
conjunction with section 1886(d)(3)(A)(vi) of the Act and section 7(b) 
of Public Law 110-90, to make adjustments to the capital Federal rate 
to eliminate the full effect of the documentation and coding changes 
resulting from the adoption of the MS-DRGs. We believe that this is 
appropriate because, in absence of such adjustments, the effect of the 
documentation and coding changes resulting from the adoption of the MS-
DRGs results in inappropriately high capital IPPS payments because that 
portion of the increase in aggregate payments is not due to an increase 
in patient severity of illness (and costs).
    As we discussed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 
24014) and as noted above, based on our retrospective evaluation of the 
FY 2009 claims, our actuaries' determined that implementation of the 
MS-DRG system resulted in a 5.4 percent change in case-mix due to 
documentation and coding that did not reflect real changes in case-mix 
for discharges occurring during FY 2009. The estimated 5.4 percent 
cumulative documentation and coding effect for FYs 2008 and 2009 
exceeds the cumulative 1.5 percent prospective documentation and coding 
reduction that has already been applied to the national capital Federal 
rate. In that same proposed rule, we also discussed that for FY 2011, 
we proposed a retrospective adjustment of -2.9 percent under the 
authority of section 7(b)(1)(B) of Public Law 110-90. Under that 
proposal, although an additional cumulative adjustment of -3.9 percent 
would be necessary to meet the requirements of section 7(b)(1)(A) of 
Public Law 110-90 to make an appropriate prospective adjustment to the 
IPPS operating average standardized amounts in order to eliminate the 
full effect of the documentation and coding changes on future payments, 
we did not proposed a prospective adjustment to the IPPS operating 
average standardized amounts under section 7(b)(1)(A) of Public Law 
110-90 for FY 2011.
    Given the increase in IPPS payments that we have determined is due 
to documentation and coding (discussed above in this section), in the 
FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24014), we explained that we 
believe it is necessary and appropriate under the Secretary's broad 
authority under section 1886(g) of the Act, consistent with section 
1886(d)(3)(A)(vi) of the Act and section 7(b) of Public Law 110-90, to 
make further adjustments to the capital Federal rate to eliminate the 
full effect of the documentation and coding changes resulting from the 
adoption of the MS-DRGs. We also discussed that 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 transitional policies we have adopted in many similar cases and in 
order to maintain consistency as far as possible with the adjustments 
that we proposed to apply to IPPS hospitals, under the Secretary's 
broad authority under section 1886(g) of the Act, in conjunction with 
section 1886(d)(3)(A)(vi) of the Act and section 7(b) of Public Law 
110-90, we proposed an adjustment of -2.9 percent in FY 2011 to the 
national capital Federal rate to account for a portion of the 
cumulative effect of the estimated changes in documentation and coding 
changes under the MS-DRG system through FY 2009 that did not reflect 
real changes in case-mix. We stated that we believe that this proposed 
adjustment would allow us to moderate the effects to hospitals in one 
year and to maintain equity between hospitals paid on the basis of 
different prospective rates. Furthermore, consistent with our proposal 
for the hospital-specific rates under the operating IPPS, we proposed 
to leave that proposed -2.9 percent adjustment in place for subsequent 
fiscal years to account for the effect of that documentation and coding 
change in subsequent years. We also sought public comment on the 
proposed -2.9 percent prospective adjustment to the national capital 
Federal rate for FY 2011 and our plans to address in future rulemaking 
cycles the cumulative effect of changes in case-mix due to changes in 
documentation and coding that do not reflect real changes in case-mix 
based on an analysis of occurring during FY 2008 and FY 2009, noting 
that our current estimates of the remaining adjustment to the national 
capital Federal rate is -1.0 percent (that is, the estimated cumulative 
effect of documentation and coding changes under the MS-DRG system for 
FYs 2008 and 2009 of -5.4 percent minus the existing -0.6 percent and -
0.9 adjustments and the proposed FY 2011 of -2.9 percent adjustment).
    Comment: Several commenters opposed the proposed -2.9 percent 
prospective adjustment to the national capital Federal rate for FY 2011 
to partially account for the cumulative effect of the estimated changes 
in documentation and coding changes under the MS-DRG system that did 
not reflect real changes in case-mix. Most of these commenters cited 
the potentially severe negative fiscal impact that would be experienced 
by providers if the proposed documentation and coding adjustment were 
to be implemented.
    Response: We understand commenters' concern about the possible 
financial disruption that may be caused by the proposed documentation 
and coding improvement payment adjustment. However, as discussed in the 
FY 2011 IPPS/LTCH PPS proposed rule and reiterated above, given the 
increase in IPPS payments that we have determined is due to changes in 
documentation and coding under the MS-DRG system, we believe it is 
necessary and appropriate under the Secretary's broad authority under 
section 1886(g) of the Act, consistent with section 1886(d)(3)(A)(vi) 
of the Act and section 7(b) of Public Law 110-90, to make further 
adjustments to the capital Federal rate to eliminate the full effect of 
the documentation and coding changes resulting from the adoption of the 
MS-DRGs which have resulted in an inappropriate increase in IPPS 
payments. These payment adjustments are necessary to correct these past 
overpayments due to increases in aggregate payments that do not reflect 
real change in case-mix severity of illness levels, but instead are 
caused solely by documentation and coding improvements. In addition, we 
proposed a transitional implementation of the full adjustment to 
provide hospitals with time to adjust to future payment differences and 
to moderate the effect of this adjustment in any given year.
    Comment: In its public comments, MedPAC discussed that ``the shift 
to

[[Page 50357]]

MS-DRGs was taken to improve the distribution of payments, not change 
the aggregate level of payments.'' MedPAC performed an independent 
analysis of claims data to determine the effect of documentation and 
coding in FYs 2008 and 2009. MedPAC stated, ``In our judgment, CMS's 
analytic methods are valid. Using similar methods, our analysis of 
Medicare hospital inpatient claims for 2007-2009 confirms all of CMS's 
findings.'' Consistent with our analysis, MedPAC's analysis 
demonstrated that the cumulative effect of documentation and coding in 
FY 2009 is 5.4 percent and they recommend for both the operating and 
capital IPPS that ``overpayments should be stopped [and] all 
overpayment should be recovered.'' In making that recommendation, 
MedPAC directed CMS to its March 2010 Report to Congress where it 
recommended that Congress change the law to require CMS to recover all 
overpayments with interest. MedPAC noted that this would shift CMS' 
focus to the prevention of future overpayments in the operating and 
capital IPPS. Such a shift might be implemented as prospective 
adjustments and would result in slower accumulation of future 
overpayments. A detailed summary of MedPAC's comment on our proposed 
documentation and coding adjustments for FY 2011 for all hospitals paid 
under the operating and capital IPPS and our full response can be found 
in section II.D.7. of the preamble of this final rule.
    Response: We appreciate MedPAC's independent validation and support 
of our methodology, which corroborates our estimate of the cumulative 
documentation and coding effect net of measurement error of 5.4 
percent. Furthermore, we agree with MedPAC's conclusions on the overall 
financial implications of implementing our proposed -2.9 percent 
payment rate adjustment. We share MedPAC's concerns about delaying the 
prevention of future overpayments in both the capital and operating 
IPPS, but we appreciate its acknowledgment of CMS' discretion on this 
policy and of the potential financial disruption from implementation of 
the full prospective reduction in FY 2011 (-3.9 percent).
    As discussed in section II.D.7. of the preamble of this final rule, 
after considering the public comments we received, as well as MedPAC's 
detailed analysis, we believe that the methodology we have employed to 
determine the cumulative effect of documentation and coding changes is 
sound. Therefore, we have decided to finalize our proposal to make an 
adjustment to the national capital Federal rate of -2.9 percent, which 
represents a portion of the remaining prospective adjustment of 3.9 
percent (5.4 percent documentation and coding effect minus the 1.5 
percent adjustment already applied the national capital Federal rate). 
The adjustment we are finalizing in this final rule is consistent with 
the magnitude of the retrospective adjustment of -2.9 percent that we 
are applying under section 7(b)(1)(B) of Public Law 110-90 to the 
operating IPPS standardized amount for FY 2011 (discussed in section 
II.D.7. of this preamble). As discussed above, while we are sympathetic 
to the concerns expressed by many commenters about the potential 
adverse financial effects on hospitals, given the increase in IPPS 
payments that we have determined is due to changes in documentation and 
coding under the MS-DRG system, as we proposed, we believe it is 
necessary and appropriate to make further adjustments to the capital 
Federal rate to eliminate the full effect of the documentation and 
coding changes resulting from the adoption of the MS-DRGs. We also 
believe the proposed transitional approach is a reasonable and fair way 
to accomplish the elimination of the full effect of these documentation 
and coding changes while moderating the fiscal impact on hospitals.
    Therefore, in this final rule, under the Secretary's broad 
authority under section 1886(g) of the Act, consistent with section 
1886(d)(3)(A)(vi) of the Act and section 7(b) of Public Law 110-90, as 
we proposed, in FY 2011 we are implementing an adjustment to the 
capital Federal rate of -2.9 percent to account for the effect of the 
estimated changes in documentation and coding changes under the MS-DRG 
system that occurred in FYs 2008 and 2009 that did not reflect real 
changes in case-mix. Furthermore, consistent with our proposal and the 
policy we are adopting in this final rule for the hospital-specific 
rates under the operating IPPS, we will leave the -2.9 percent 
adjustment in place for subsequent fiscal years to account for the 
effect of that documentation and coding change in subsequent years. As 
discussed in the FY 2011 IPPS/LTCH PPS proposed rule and reiterated 
above, we intend to address in future rulemaking cycles the remaining 
estimated adjustment to the national capital Federal rate of -1.0 
percent (that is, the estimated effect of documentation and coding 
changes under the MS-DRG system of -5.4 percent minus the existing -0.6 
percent and -0.9 percent adjustments and the -2.9 percent adjustment 
for FY 2011).
5. Documentation and Coding Adjustment to the Puerto Rico-Specific 
Capital Rate
    Under Sec.  412.74, Puerto Rico hospitals are currently paid based 
on 75 percent of the national capital Federal rate and 25 percent of 
the Puerto Rico-specific capital rate. In the FY 2009 IPPS final rule 
(73 FR 48775), consistent with our development of the FY 2009 Puerto 
Rico-specific operating standardized amount, we did not apply the 
additional -0.9 percent documentation and coding adjustment (or the 
cumulative -1.5 percent adjustment) to the FY 2009 Puerto Rico-specific 
capital rate. However, the statute gives broad authority to the 
Secretary under section 1886(g) of the Act, with respect to the 
development of and adjustments to a capital PPS, and therefore we would 
not be outside the authority of section 1886(g) of the Act in applying 
the documentation and coding adjustment to the Puerto Rico-specific 
portion of the capital payment rate. To date, we had not applied a 
documentation and coding adjustment to the Puerto Rico-specific capital 
rate because we have historically made changes to the capital IPPS 
consistent with those changes made to the operating IPPS. We stated 
that we may propose to apply such an adjustment to the Puerto Rico 
capital rates in the future.
    As discussed in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 
43928), when we performed a retrospective evaluation of the FY 2008 
claims data of hospitals located in Puerto Rico using the same 
methodology discussed above, we found that the change in case-mix due 
to documentation and coding that did not reflect real changes in case-
mix for discharges occurring during FY 2008 from hospitals located in 
Puerto Rico was approximately 1.3 percent. Given this case-mix increase 
due to changes in documentation and coding under the MS-DRGs, we had 
proposed to adjust the Puerto Rico-specific capital rate by -1.3 
percent in FY 2010 for the FY 2008 increase in case-mix due to changes 
in documentation and coding under the MS-DRGs. However, in that same 
final rule, we postponed the adoption of any documentation and coding 
adjustments to the capital IPPS rates until a full analysis of FY 2009 
case-mix changes could be completed. We indicated that any future 
documentation and coding adjustment to the capital Puerto Rico-specific 
IPPS rates based on a complete analysis of FY 2008 and FY 2009 claims 
data for Puerto Rico hospitals would be established

[[Page 50358]]

through the notice and comment rulemaking process.
    As discussed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 
24015), when we performed a retrospective evaluation of the FY 2009 
claims data from the December 2009 update of the MedPAR file of 
hospitals located in Puerto Rico using the same methodology to estimate 
documentation and coding changes under IPPS for non-Puerto Rico 
hospitals, we found that the change in case-mix due to documentation 
and coding that did not reflect real changes in case-mix for discharges 
occurring during FYs 2008 and 2009 from hospitals located in Puerto 
Rico was approximately 2.4 percent. (As discussed in section II.D.10.b. 
of this preamble, our updated analysis of FY 2009 claims paid through 
March 2010 using the same methodology as the one used for the proposed 
rule, shows that the change in case-mix due to documentation and coding 
that did not reflect real changes in case-mix for discharges occurring 
during FYs 2008 and 2009 from hospitals located in Puerto Rico is 
approximately 2.6 percent.) Given this case-mix increase due to changes 
in documentation and coding under the MS-DRGs, consistent with our 
proposal to adjust the FY 2011 capital Federal rate (discussed above) 
and consistent with our proposed adjustment to the FY 2011 Puerto Rico-
specific standardized amount discussed in section II.D.9. of the 
preamble of that same proposed rule, under the Secretary's broad 
authority under section 1886(g) of the Act, we proposed to adjust the 
Puerto Rico-specific capital rate by -2.4 percent in FY 2011 for the 
cumulative increase in case-mix due to changes in documentation and 
coding under the MS-DRGs for FYs 2008 and 2009. In addition, consistent 
with our other proposals concerning prospective MS-DRG documentation 
and coding adjustments to the capital Federal rate and operating IPPS 
standardized amounts presented in this proposed rule, we proposed to 
leave that proposed -2.4 percent adjustment in place for subsequent 
fiscal years in order to ensure that changes in documentation and 
coding resulting from the adoption of the MS-DRGs do not lead to an 
increase in aggregate payments not reflective of an increase in real 
case-mix.
    In the FY 2011 IPPS/LTCH PPS proposed rule, we sought public 
comment on the proposed prospective adjustment of -2.4 percent to 
Puerto Rico-specific standardized amount and the Puerto Rico-specific 
capital rate. We noted our intent to update our analysis with FY 2009 
data on ``claims paid through March 2009'' (sic) for this FY 2011 IPPS/
LTCH PPS final rule. (We note that the March 2009 update date for 
claims paid data in the proposed rule should have been March 2010.) As 
intended, we have updated our analysis with FY 2009 data on claims paid 
through March 2010 in this FY 2011 IPPS/LTCH PPS final rule, as 
discussed below.
    As described section II.D.10.b. of this preamble, MedPAC responded 
to our request for comments regarding the level of adjustment for 
special categories of hospitals, such as Puerto Rico hospitals, by 
pointing out that these hospitals have the same financial incentives 
for documentation and coding improvements and the same ability to 
benefit from increased payments that do not reflect real change in 
case-mix. Therefore, MedPAC recommended that ``all IPPS hospitals 
should be treated the same.'' At the same time, MedPAC also stateds 
that ``delaying prevention of overpayments * * * creates a problem 
because overpayments will continue to accumulate in 2010 and later 
years until the effect of documentation and coding improvement is fully 
offset in the payment rates.''
    We agree with MedPAC that Puerto Rico hospitals have had the same 
financial incentives to improve documentation and coding as other IPPS 
hospitals. We further agree with MedPAC that it is appropriate to focus 
on minimizing the accumulation of overpayments; we interpret this 
statement to mean that MedPAC recommends that CMS should move forward 
as quickly as possible with appropriate prospective adjustments. We 
appreciate MedPAC's guidance that ``all hospitals be treated the 
same,'' and we agree that it is important to treat various classes of 
hospitals that are similarly situated with respect to their ability to 
adjust their documentation and coding changes consistently in our 
payment policy determinations.
    Therefore, consistent with the policy we are implementing to adjust 
the FY 2011 capital Federal rate (discussed above) and consistent with 
the adjustment we are establishing in FY 2011 Puerto Rico-specific 
standardized amount (discussed in section II.D.10.b. of this preamble), 
under the Secretary's broad authority under section 1886(g) of the Act, 
we are finalizing our proposal to adjust the Puerto Rico-specific 
capital rate in FY 2011 for the increase in case-mix due to changes in 
documentation and coding under the MS-DRGs through FY 2009. As 
discussed in section II.D.10.b. of this preamble and as noted above, 
our updated analysis of FY 2009 claims paid through March 2010 using 
the same methodology as the one used for the proposed rule, shows that 
the change in case-mix due to documentation and coding that did not 
reflect real changes in case-mix for discharges occurring during FY 
2009 from hospitals located in Puerto Rico is approximately 2.6 
percent. Accordingly, in this final rule, we are establishing an 
adjustment of -2.6 percent to the Puerto Rico-specific capital rate in 
FY 2011 to account for changes in case-mix due to documentation and 
coding that did not reflect real changes in case-mix. As we proposed, 
we will leave this -2.6 percent adjustment in place for subsequent 
fiscal years in order to ensure that changes in documentation and 
coding resulting from the adoption of the MS-DRGs do not lead to an 
increase in aggregate payments not reflective of an increase in real 
case-mix. We continue to believe that such an adjustment is appropriate 
because, as MedPAC noted, all hospitals have the same financial 
incentives for documentation and coding improvements, and the same 
ability to benefit from the resulting increase in aggregate payments 
that do not reflect real changes in case-mix.
    As we proposed, the -2.6 percent documentation and coding 
adjustment that we are establishing in this final rule applies to the 
Puerto Rico-specific capital rate that accounts for 25 percent of 
capital IPPS payments to hospitals located in Puerto Rico, with the 
remaining 75 percent based on the national capital Federal rate, which 
is being further adjusted for the effects of documentation and coding 
as described above. Consequently, the overall reduction to the FY 2011 
payment rates for hospitals located in Puerto Rico to account for 
documentation and coding changes is slightly less than the reduction 
for IPPS hospitals paid based on 100 percent of the national capital 
Federal rate. As discussed above, the Puerto Rico-specific capital rate 
was not adjusted for the cumulative effects of documentation and coding 
changes in FY 2008 or FY 2009 as is the case with the national capital 
Federal rate.

F. Other Changes for FY 2011

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

[[Page 50359]]

VI. Changes for Hospitals Excluded From the IPPS

A. Excluded Hospitals

    Historically, hospitals and hospital units excluded from the 
prospective payment system received payment for inpatient hospital 
services they furnished on the basis of reasonable costs, subject to a 
rate-of-increase ceiling. A per discharge limit (the target amount as 
defined in Sec.  413.40(a)) was set for each hospital or hospital unit 
based on the hospital's own cost experience in its base year, and 
updated annually by a rate-of-increase percentage. The updated target 
amount was multiplied by total Medicare discharges during that period 
and applied as an aggregate upper limit (the ceiling as defined in 
Sec.  413.40(a)) on total inpatient operating costs for a hospital's 
cost reporting period. Prior to October 1, 1997, these payment 
provisions applied consistently to all categories of excluded 
providers, which included rehabilitation hospitals and units (now 
referred to as IRFs), psychiatric hospitals and units (now referred to 
as IPFs), LTCHs, children's hospitals, and cancer hospitals.
    Payment to children's hospitals and cancer hospitals that are 
excluded from the IPPS continues to be subject to the rate-of-increase 
ceiling based on the hospital's own historical cost experience. (We 
note that, in accordance with Sec.  403.752(a) of the regulations, 
RNHCIs are also subject to the rate-of-increase limits established 
under Sec.  413.40 of the regulations.)
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24016), we 
proposed that the rate-of-increase percentage to be applied to the 
target amount for cancer and children's hospitals and RNHCIs was the 
proposed FY 2011 percentage increase in the IPPS operating market 
basket. Beginning with FY 2006, we have used the percentage increase in 
the IPPS operating market basket to update the target amounts for 
children's and cancer hospitals. As explained in the FY 2006 IPPS final 
rule (70 FR 47396 through 47398), with IRFs, IPFs, and LTCHs being paid 
under their own PPS, the remaining number of providers being paid based 
on reasonable cost subject to a ceiling (that is, children's and cancer 
hospitals and RNHCIs) is too small and the cost report data are too 
limited to be able to create a market basket solely for these 
hospitals. For FY 2011, we proposed to continue to use the IPPS 
operating market basket to update the target amounts for children's and 
cancer hospitals and RNHCIs for the reasons discussed in the FY 2006 
IPPS final rule.
    In the FY 2011 IPPS/LTCH PPS we proposed to use the revised and 
rebased FY 2006-based IPPS operating market basket to update the target 
amounts for children's and cancer hospitals and RNHCIs for FY 2011. 
Therefore, based on IHS Global Insight, Inc.'s 2010 first quarter 
forecast, with historical data through the 2009 fourth quarter, we 
estimated that the FY 2011 update to the IPPS operating market basket 
would be 2.4 percent (that is, the estimate of the market basket rate-
of-increase).
    Consistent with our historical approach, we calculated the proposed 
rate-of-increase in the IPPS operating market basket for FY 2011 using 
the most recent data available. However, we proposed that if more 
recent data became available for the final rule, we would use them to 
calculate the IPPS operating market basket update for FY 2011. 
Therefore, based on IHS Global Insight's 2010 second quarter forecast, 
with historical data through the 2010 first quarter, the final IPPS 
operating market basket update factor for FY 2011 is 2.6 percent. 
Moreover, consistent with our proposal that the percentage increase in 
the rate-of-increase limits for cancer and children's hospitals and 
RNHCIs would be the percentage increase in the FY 2011 IPPS operating 
market basket, the FY 2011 rate-of-increase percentage that is applied 
to the FY 2010 target amounts in order to calculate the final FY 2011 
target amounts for cancer and children's hospitals and RNHCIs is 2.6 
percent, in accordance with the applicable regulations in 42 CFR 
413.40.
    We note that IRFs, IPFs, and LTCHs, which were paid previously 
under the reasonable cost methodology, now receive payment under their 
own prospective payment systems, in accordance with changes made to the 
statute. In general, the prospective payment systems for IRFs, IPFs, 
and LTCHs provided transition periods of varying lengths during which 
time a portion of the prospective payment was based on cost-based 
reimbursement rules under part 413. (However, certain providers do not 
receive a transition period or may elect to bypass the transition 
period as applicable under 42 CFR part 412, subparts N, O, and P.) We 
note that the various transition periods provided for under the IRF 
PPS, the IPF PPS, and the LTCH PPS have ended.
    The IRF PPS, the IPF PPS, and the LTCH PPS are updated annually. We 
refer readers to section IV. of the Addendum to this final rule for the 
specific proposed update changes to the Federal payment rates for LTCHs 
under the LTCH PPS for FY 2011. The annual updates for the IRF PPS and 
the IPF PPS are issued by the agency in separate Federal Register 
documents.

B. Critical Access Hospitals (CAHs)

1. Background
    Section 1820 of the Act provides for the establishment of Medicare 
Rural Hospital Flexibility Programs (MRHFPs) under which individual 
States may designate certain facilities as critical access hospitals 
(CAHs). Facilities that are so designated and that meet the CAH 
conditions of participation under 42 CFR part 485, subpart F, will be 
certified as CAHs by CMS. Regulations governing payments to CAHs for 
services to Medicare beneficiaries are located in 42 CFR part 413.
2. CAH Optional Method Election for Payment of Outpatient Services
    Section 1834(g) of the Act establishes the payment rules for 
outpatient services furnished by a CAH. Section 403(d) of Public Law 
106-113 (BBRA) amended section 1834(g) of the Act to provide for two 
methods of payment for outpatient services furnished by a CAH. 
Specifically, section 1834(g)(1) of the Act, as amended by Public Law 
106-113, provided that the amount of payment for outpatient services 
furnished by a CAH is equal to the reasonable cost of providing such 
services (unless the CAH makes an election, under section 1834(g)(2) of 
the Act). The physician or other practitioner providing the 
professional service receives payment under the Medicare Physician Fee 
Schedule (MPFS). In the alternative, the CAH may make an election under 
section 1834(g)(2) of the Act to receive amounts that are equal to the 
``reasonable costs'' of the CAH for facility services, plus, with 
respect to the professional services, the amount otherwise paid for 
professional services under Medicare, less the applicable Medicare 
deductible and coinsurance amount. The election made under section 
1834(g)(2) of the Act is sometimes referred to as ``method II'' or 
``the optional method.'' Throughout this section of this preamble, we 
refer to this election as the ``optional method.'' Section 202 of 
Public Law 106-554 (BIPA) amended section 1834(g)(2)(B) of the Act to 
increase the payment for professional services under the optional 
method to 115 percent of the amount otherwise paid for professional 
services under Medicare. In addition, section 405(a)(1) of Pub. L. 108-
173 (MMA) amended section 1834(g)(l) of the Act by inserting the phrase 
``equal to 101 percent of'' before the phrase ``the

[[Page 50360]]

reasonable costs.'' However, the MMA made no changes to the amount of 
reasonable cost payment under the optional method at section 
1834(g)(2)(A) of the Act.
    Accordingly, section 1834(g) of the Act provides for two methods of 
payment for outpatient CAH services. Under the method specified at 
section 1834(g)(1) of the Act, facility services are paid at 101 
percent of reasonable costs to the CAH through the Medicare fiscal 
intermediary or the Medicare Part A/B MAC, while payments for physician 
and other professional services are made to the physician or other 
practitioner under the MPFS through the Medicare carriers. Under 
section 1834(g)(2) of the Act (the optional method), a CAH submits 
bills for both the facility and the professional services to its 
Medicare fiscal intermediary or its Medicare Part A/B MAC. If a CAH 
chooses this optional method for outpatient services, the physician or 
other practitioner must reassign his or her billing rights to the CAH 
to bill the Medicare program for those services. In accordance with 
section 1834(g)(2) of the Act in effect prior to implementation of 
section 3128 of the Affordable Care Act, under this optional method, 
the CAH received reasonable cost payment for its facility costs and, 
with respect to the professional services, 115 percent of the amount 
otherwise paid for professional services under Medicare. (We refer 
readers to section VI.B.3. of this preamble for a discussion of the 
policy changes to payments for outpatient facility services made by 
section 3128 of the Affordable Care Act.)
    The existing regulations at Sec.  413.70(b)(3)(i)(A) require that 
if a CAH wishes to elect the optional method, that election must be 
made in writing, made on an annual basis, and delivered to the fiscal 
intermediary servicing the CAH at least 30 days before the start of the 
cost reporting period for which the election is made. The regulations 
at Sec.  413.70(b)(3)(i)(B) specify that once an election is made for a 
cost reporting period, that election remains in effect for all of that 
period. Therefore, under the existing regulations, a CAH that is being 
paid under the optional method is required to submit an election on an 
annual basis if it wishes to continue to be paid under the optional 
method for a subsequent cost reporting period.
    We have been informed that, in past years, there have been 
instances where some CAHs have submitted their elections several days 
late, which has caused these CAHs to lose their optional method 
election for the entire cost reporting year and has resulted in 
financial hardship for these providers. Such untimely submission of the 
optional method election may be due to staffing turnovers at the CAH as 
well as a change in fiscal intermediary or MAC assignments because, in 
the past, some CAHs received correspondence from their fiscal 
intermediaries or MACs reminding them to elect the optional method on 
an annual basis. Due to the significant consequences if a CAH fails to 
make a timely election, in the FY 2011 IPPS/LTCH PPS proposed rule (75 
FR 24017), we proposed to amend the regulations at Sec.  
413.70(b)(3)(i) to state that, effective for CAH cost reporting periods 
beginning on or after October 1, 2010, if a CAH has elected the 
optional method for its most recent cost reporting period beginning 
prior to October 1, 2010 or chooses to elect the optional method for 
its upcoming cost reporting period, that election will remain in place 
until it is terminated.
    We believe that removing the annual election requirement will 
reduce any perceived burden associated with the election process and 
make it easier for CAHs to maintain their election if they experience 
administrative staffing changes. If a CAH is being paid under the 
traditional method and wishes to elect the optional method, it must 
submit its election in writing to its servicing fiscal intermediary or 
MAC at least 30 days prior to the first cost reporting period for which 
the election is effective. Once that initial election is made, it will 
remain in place until it is terminated.
    We proposed to revise the regulations to include a mechanism for 
CAHs that are being paid under the optional method to terminate that 
election. Specifically, we proposed that if a CAH is being paid under 
the optional method and wishes to terminate that election, it must 
submit its termination request to the fiscal intermediary or MAC 
servicing the CAH at least 30 days prior to the start of the next cost 
reporting period. Because the proposed effective date for this 
provision was for cost reporting periods beginning on or after October 
1, 2010, we acknowledged that CAHs that have cost reporting periods 
beginning in October 2010 or November 2010 may not have sufficient time 
to terminate their optional method election at least 30 days prior to 
the start of the cost reporting period. Therefore, we proposed that 
CAHs that have cost reporting periods beginning in October 2010 or 
November 2010 and elected the optional method in 2009 that wish to 
terminate that election would have until December 1, 2010, to terminate 
their prior year election. The termination would be effective for the 
entire FY 2011 cost reporting period. Thus, if a CAH with a cost 
reporting period beginning in October 2010 or November 2010 terminates 
its optional method election after the beginning of its cost reporting 
period but before December 1, 2010, the fiscal intermediary or MAC 
would be instructed to reprocess any payments made under the optional 
method for services provided during that period, as efficiently as 
possible.
    Section 1834(g)(2)(B) of the Act provides that if a CAH elects the 
optional method, it is not required that each physician or other 
practitioner providing professional services in the CAH must reassign 
billing rights with respect to the services. Rather, the reassignment 
of billing rights is physician/practitioner specific. For this reason, 
the optional payment method should not apply to the computation of 
payments to the CAH for its facility services in conjunction with 
services furnished by physicians and practitioners who have not 
reassigned such billing rights. Accordingly, if a physician or 
practitioner has not reassigned his or her billing rights to the CAH, 
the CAH will be paid for its facility services at 101 percent of 
reasonable cost, as specified at Sec.  413.70(b)(2)(i) of the 
regulations. If a CAH experiences changes in its physician or 
practitioner staffing, there may be a change in which physicians or 
practitioners choose to reassign their billing rights in order to 
permit the CAH to bill for their professional services. In order to 
ensure appropriate payments, and specifically, in order to ensure that 
there is no duplicate billing for a physician's or practitioner's 
professional services by the CAH to the fiscal intermediary or MAC and 
by the physician or practitioner providing the service to the carrier, 
a CAH must continue to notify its fiscal intermediary or MAC when 
changes in reassignment occur.
    Comment: Many commenters supported the proposal that, effective for 
cost reporting periods beginning on or after October 1, 2010, if a CAH 
has elected the optional method for its most recent cost reporting 
period beginning prior to October 1, 2010, or chooses to elect the 
optional method for its upcoming cost reporting period, that election 
will remain in place until it is terminated. The commenters stated the 
proposed change would reduce CAHs' administrative burdens and ensure 
continued access to payment under the optional method. One commenter 
stated its State has 77 CAHs and the proposed change would help provide 
continued access to the optional method. Another commenter stated that 
most CAHs in its

[[Page 50361]]

State have elected the optional method and the proposed change would 
save staff time and help prevent billing errors. One commenter stated 
approximately 72 out of 82 CAHs in its State have elected the optional 
method and the proposed change will help eliminate an annual 
administrative burden. Another commenter stated the proposed change 
would help ensure continued access to care in rural areas of its State.
    Response: We thank the commenters for their support of the proposed 
provision, which we are adopting as final in this final rule.
    Comment: One commenter stated that because physician bills under 
the traditional method (the method specified at section 1834(g)(1) of 
the Act) are paid by the carrier instead of by the fiscal intermediary 
or the MAC, the CAH should be required to inform the carrier, in 
addition to the fiscal intermediary or the MAC, of any billing 
assignment changes.
    Response: In the proposed rule, we stated that in order to ensure 
there is no duplicate billing and that appropriate payments are made, a 
CAH must continue to notify its fiscal intermediary or MAC when changes 
in reassignment occur. We agree with the commenter that the carrier 
should be notified of any billing reassignment changes. Therefore, if a 
physician/practitioner reassignment changes such that there is a change 
in which physician/practitioner bills would be paid by the carrier, in 
addition to notifying the fiscal intermediary or MAC, the CAH must also 
notify the carrier. We believe this practice will help ensure 
appropriate payments are made to the CAH and the physician/
practitioner.
    Comment: Several commenters requested that CMS apply the same 
policy as it proposed for the CAH optional method election to hospitals 
redesignated under section 1886(d)(8)(B) of the Act.
    Response: We did not propose any changes to the redesignation 
requirements. Therefore, these requests are not within the scope of 
this final rule. We will consider these comments as we develop future 
rulemaking.
    Accordingly, after consideration of the public comments we 
received, we are adopting our proposal as final, as follows: We are 
adopting as final, with some technical revisions discussed below, the 
proposed revision of Sec.  413.70(b)(3)(i) to specify that for CAH cost 
reporting periods beginning on or after October 1, 2010, once a CAH 
elects the optional method, including an election made for its most 
recent cost reporting period beginning prior to October 1, 2010, its 
election will remain in place until it is terminated. That is, CAHs 
will no longer be required to make an annual election in order to 
continue to be paid under the optional method in a subsequent year. 
However, we are making some technical revisions to the proposed 
language of Sec.  413.70(b)(3)(i)(A)(2) in order to state more clearly 
that if a CAH did not elect the optional method in its most recent 
preceding cost reporting period and chooses to be paid under the 
optional method for a cost reporting period beginning on or after 
October 1, 2010, it must submit a request in writing to the fiscal 
intermediary or MAC at least 30 days prior to the start of the cost 
reporting period for which the election is to be effective. Finally, we 
are adopting as final our revision of the regulations to specify that 
if a CAH wishes to terminate its optional method election, it must 
submit its termination request to the fiscal intermediary or MAC 
servicing the CAH at least 30 days prior to the start of the next cost 
reporting period. CAHs will have until December 1, 2010, to terminate 
their prior year election if they have cost reporting periods beginning 
in October 2010 or November 2010, had elected the optional method in 
2009, and wish to terminate that election in 2010. The termination will 
be effective for the entire FY 2011 cost reporting period.
    We also are adopting as final the conforming change to Sec.  413.70 
(b)(3)(i)(D).
3. Changes in Payments to CAHs Made by the Affordable Care Act
    As stated earlier in this preamble, section 1834(g) of the Act 
establishes the payment rules for outpatient services furnished by a 
CAH. Section 403(d) of Public Law 106-113 (BBRA) amended section 
1834(g) of the Act to provide for two methods of payment for outpatient 
services furnished by a CAH. Section 1834(g)(1) of the Act, as amended 
by Public Law 106-113, provided that the amount of payment for 
outpatient services furnished by a CAH is equal to the reasonable costs 
of the CAH in providing such services. Under the optional method, 
described under section 1834(g)(2) of the Act, the CAH may make an 
election to receive amounts that are equal to ``the reasonable costs'' 
of the CAH for facility services plus, with respect to professional 
services, the amount otherwise paid for professional services under 
Medicare, less the applicable Medicare deductible and coinsurance 
amount. Section 202 of Public Law 106-554 (BIPA) amended section 
1834(g)(2)(B) of the Act to increase the payment for professional 
services under the optional method to 115 percent of the amount 
otherwise paid for professional services under Medicare. In addition, 
section 405(a)(1) of Public Law 108-173 (MMA) amended section 
1834(g)(l) of the Act by inserting the phrase ``equal to 101 percent 
of'' before the phrase ``the reasonable costs.'' However, the MMA made 
no changes to the amount of payment under the optional method at 
section 1834(g)(2)(A) of the Act.
    Section 1834(l)(8), as added by section 205 of Public Law 106-554, 
establishes the payment methodology for ambulance services furnished by 
a CAH or by an entity that is owned and operated by a CAH. This 
provision states that payment is made based on the reasonable costs 
incurred in furnishing ambulance services if such services are 
furnished by a CAH (as defined in section 1861(mm)(1) of the Act), or 
by an entity that is owned and operated by a CAH, but only if the CAH 
or entity is the only provider or supplier of ambulance services that 
is located within a 35-mile drive of such CAH.
    Section 3128(a) of the Affordable Care Act amended sections 
1834(g)(2)(A) and 1834(l)(8) of the Act by inserting ``101 percent of'' 
before ``the reasonable costs.'' As such, section 3128(a) increases 
payment for outpatient facility services under the optional method and 
payment for ambulance services furnished by a CAH or an entity owned 
and operated by a CAH, to 101 percent of reasonable costs. Section 
3128(b) of the Affordable Care Act states that the amendments made 
under section 3128(a) shall take effect as if they were included in the 
enactment of section 405(a) of Public Law 108-173. Section 405(a) of 
Public Law 108-173 provided that, in general, inpatient, outpatient, 
and covered SNF services provided by a CAH would be reimbursed at 101 
percent of reasonable costs, and was applicable to payments for 
services furnished during cost reporting periods beginning on or after 
January 1, 2004.
    Because of the date of enactment of the Affordable Care Act, we 
were unable to include these provisions in the FY 2011 IPPS/LTCH PPS 
proposed rule. Therefore, in a separate supplemental proposed rule 
which appeared in the Federal Register on June 2, 2010 (75 FR 30965), 
we included proposals to implement the changes made by section 3128. 
The final policies discussed below take into consideration public 
comments that we received on the supplemental proposed rule.
    In order to implement section 3128 of the Affordable Care Act, in 
the supplemental proposed rule, we

[[Page 50362]]

proposed to amend the regulations at Sec.  413.70(b)(3)(ii)(A) to state 
that, effective for cost reporting periods beginning on or after 
January 1, 2004, under the optional method, payment for facility 
services will be made at 101 percent of reasonable costs. Accordingly, 
regardless of whether a physician or practitioner has reassigned his or 
her billing rights to the CAH, payment for CAH facility services would 
be made at 101 percent of reasonable costs. In addition, we proposed to 
implement the change in payment for ambulance services provided by 
section 3128 of the Affordable Care Act by amending the regulations at 
Sec.  413.70(b)(5)(i) to state that, effective for cost reporting 
periods beginning on or after January 1, 2004, payment for ambulance 
services furnished by a CAH or an entity that is owned and operated by 
a CAH is 101 percent of the reasonable costs of the CAH or the entity 
in furnishing those services, but only if the CAH or the entity is the 
only provider or supplier of ambulance services located within a 35-
mile drive of the CAH or the entity.
    Comment: Several commenters supported the proposed provisions 
implementing section 3128 of the Affordable Care Act. One commenter 
stated that, in Iowa, there are 82 CAHs and 72 of them have elected to 
be paid under the optional method. The commenter stated the proposed 
provision will have a positive impact on these small hospitals.
    Another commenter disagreed with CMS' finalized policy in the FY 
2010 IPPS/LTCH PPS final rule, which reduced payment for CAH facility 
services under the optional method to 100 percent of reasonable costs. 
The commenter had requested CMS ``* * * to reference the MMA conference 
report which clearly indicated that Congress intended to set all CAH 
outpatient reimbursement at 101 percent of reasonable cost.'' The 
commenter further stated that, as part of the supplemental proposed 
rule, ``CMS proposed to restore 101 percent of cost-based reimbursement 
for CAHs election Method II billing, and is proposing to extend this 
change retroactively to FFY 2010.''
    Response: We appreciate the commenters' support of the proposed 
implementation of the provision to increase payment for CAH outpatient 
facility services paid under the optional method and increase payment 
for CAH ambulance services to 101 percent of reasonable costs. In the 
response to the commenter who stated we were proposing to extend this 
change retroactively to FY 2010, we note that we proposed to make this 
change in payment to 101 percent of reasonable costs effective for cost 
reporting periods beginning on or after January 1, 2004, to conform to 
the requirements of section 3128(b) of the Affordable Care Act.
    After consideration of the public comments we received, we are 
adopting our proposed revisions to the regulations at Sec. Sec.  
413.70(b)(3)(ii)(A) and 413.70(b)(5)(i) as final, without modification. 
Accordingly, effective for cost reporting periods beginning on or after 
January 1, 2004, CAHs that are paid under the optional method will be 
paid based on 101 percent of reasonable costs for outpatient facility 
services and all CAHs will be paid based on 101 percent of reasonable 
cost for ambulance services. We note that, as we indicated in the 
proposed rule, we do not believe these revisions will result in 
additional payments to CAHs for prior periods because we believe, in 
fact, that CMS has paid CAHs for these services at 101 percent of 
reasonable costs during these prior periods.
4. Costs of Provider Taxes as Allowable Costs for CAHs
a. Background and Statutory Basis
    Currently, certain taxes assessed against a provider may be 
allowable costs under Medicare to the extent that such taxes are 
related to the reasonable and necessary cost of providing patient care 
and represent costs actually incurred. Reasonable cost reimbursement is 
addressed in section 1861(v)(1)(A) of the Act. Section 1861(v)(1)(A) of 
the Act defines ``reasonable cost,'' in part, as the cost actually 
incurred, excluding costs found to be unnecessary in the efficient 
delivery of needed health services and are determined in accordance 
with regulations establishing the method or methods to be used and the 
items to be included. Section 1861(v)(1)(A) of the Act does not 
specifically address the determination of reasonable costs, but 
authorizes the Secretary to promulgate regulations and principles to be 
applied in determining reasonable costs.
    We have issued regulations implementing this provision of the Act, 
including 42 CFR 413.9(a), which provide that the determination of 
reasonable cost ``must be based on the reasonable cost of services 
covered under Medicare and related to the care of beneficiaries.'' In 
addition, Sec.  413.9(c) requires that the provision for payment of 
reasonable cost of services is intended to meet the actual costs 
incurred in providing services. Therefore, in accordance with the 
statute, the regulations include two principles that help guide the 
determination of which expenses may be considered allowable reasonable 
costs that can be paid under Medicare; that is, such costs must be 
``related'' to the care of Medicare beneficiaries, and such costs must 
actually be ``incurred.''
    Consistent with these provisions, we also have issued policy 
instructions in the Provider Reimbursement Manual, Part 1 (PRM-1) for 
determining allowable reasonable costs under Medicare. Specifically, 
section 2122 of the PRM-1 sets forth Medicare policy on determining 
when taxes levied on providers are allowable costs and provides a list 
of taxes that are considered unallowable costs. Specifically, section 
2122.1 (General Rule) of the PRM-1 states: ``The general rule is that 
taxes assessed against the provider, in accordance with the levying 
enactments of the several States and lower levels of government and for 
which the provider is liable for payment, are allowable costs. Tax 
expenses should not include fines and penalties.'' Section 2122.2 
(Taxes Not Allowable as Costs) of the PRM-1 lists certain taxes that 
are levied on providers that are not allowable costs. The listed taxes 
are:
     Federal income and excess profit taxes, including any 
interest or penalties paid thereon (A).
     State or local income and excess profit taxes (B).
     Taxes in connection with financing, refinancing, or 
refunding operations, such as taxes on the issuance of bonds, property 
transfers, issuance or transfer of stocks, etc. Generally, these costs 
are either amortized over the life of the securities or depreciated 
over the life of the asset. However, they are not recognized as tax 
expense. (C)
     Taxes from which exemptions are available to the provider. 
(D)
     Special assessments on land which represent capital 
improvements such as sewers, water, and pavements should be capitalized 
and depreciated over their estimated useful lives. (E)
     Taxes on property which is not used in the rendition of 
covered services. (F)
     Taxes, such as sales taxes, levied against the patient and 
collected and remitted by the provider. (G)
     Self-employment (FICA) taxes applicable to individual 
proprietors, partners, members of a joint venture, etc. (H)
b. Clarification of Payment Policy for Provider Taxes
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24019), we stated 
that we have learned that there is some

[[Page 50363]]

confusion relating to the determination of whether a tax is an 
allowable cost. We believe that much of this confusion has arisen 
because it may be possible to read sections 2122.1 and 2122.2 of the 
PRM-1 as permitting all taxes assessed on a provider by a State that 
are not specifically listed in section 2122.2 to be treated as 
allowable costs. Section 2122 of the PRM-1 was last updated in 1979 
when States typically raised revenue only from income, sales, and 
property taxes. The list in section 2212.2 is incomplete now, as it 
does not reflect the variety of provider taxes imposed by States. In 
addition, we are concerned that, even if a particular tax may be an 
allowable cost that is related to the care of Medicare beneficiaries, 
providers may not, in fact, ``incur'' the entire amount of these 
assessed taxes. For example, in accordance with the Medicaid statute 
and regulations, some States levy tax assessments on hospitals. The 
assessed taxes may be paid by the hospitals into a fund that includes 
all taxes paid, all Federal matching monies, and any penalties for 
nonpayment. The State is then authorized to disburse monies from the 
fund to the hospitals. We believe that these types of subsequent 
disbursements to providers are associated with the assessed taxes and 
may, in fact, offset some, if not all, of the taxes originally paid by 
the hospitals.
    We believe that the treatment of these types of payments on the 
Medicare cost report should be analogous to the adjustments described 
at Sec.  413.98 of the regulations. Specifically, Sec.  413.98(d) 
provides that the ``true cost of the goods or services is the net 
amount actually paid for them.'' Section 413.98 specifically addresses 
the purchase of goods and services and reflects the statutory mandate 
that a provider's allowable costs are the net expenses it incurs for 
items and services. In situations in which payments that are associated 
with the assessed tax are made to providers specifically to make the 
provider whole or partly whole for the tax expenses, Medicare should 
similarly recognize only the net expense incurred by the provider. 
Thus, while a tax may be an allowable Medicare cost in that it is 
related to beneficiary care, the provider may only treat as a 
reasonable cost the net tax expense; that is, the tax paid by the 
provider, reduced by payments the provider received that are associated 
with the assessed tax. In addition, we do not believe that 
determinations made regarding whether the structure of specific taxes 
and subsequent reimbursements are consistent with Medicaid ``hold 
harmless'' provisions necessarily require the Medicare program to find 
that the same tax is an allowable cost. The Medicare statute and 
regulations set forth a different standard that requires a 
determination of how much of the allowable tax expense is actually 
``incurred'' by the provider.
    Therefore, in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 
24018), we proposed to clarify our policy concerning when provider 
taxes may be considered allowable costs under Medicare. As stated 
above, section 2122 of the PRM was last updated in 1979, and it no 
longer reflects the variety of provider taxes that may be imposed by 
States. Although some of the more recently enacted provider taxes may 
be allowable costs, we were concerned that some of these taxes may not 
be ``related to the care of beneficiaries'' and that some, if not all, 
of the costs of these taxes might not be actually ``incurred'' by the 
providers. This payment policy may not directly affect providers that 
are paid under a Medicare prospective payment system unless a cost-
based prospective payment system is rebased on more current reported 
reasonable costs. However, we stated that this policy clarification 
could impact certain providers that are paid on the basis of their 
incurred reasonable costs, such as CAHs. Therefore, we proposed to 
clarify the policy set forth in sections 2122.1 and 2122.2 of the PRM-1 
to reflect our concerns set forth above regarding when certain provider 
taxes may be allowable costs under the Medicare program.
    Comment: Commenters disagreed with our statement that the provision 
in the proposed rule was a clarification in policy. They expressed 
concern that the provision was a policy change that could be applied 
retroactively and could potentially have serious negative fiscal 
impact. A number of commenters also raised concern that the language in 
the proposed rule did not clearly articulate the revisions to the PRM 
and is vague regarding when certain provider taxes may be allowable. 
Specifically, the commenters were concerned that Medicare would not 
reimburse the cost of these taxes. Specifically, the commenters were 
concerned that the payment of the net expense of a provider tax, as 
reported on a CAH's Medicare cost report, would have a negative 
financial impact on the CAH.
    Response: We believe that this provision, as articulated in the 
proposed rule, is a clarification of our current, longstanding policy 
which requires that ``reasonable costs'' claimed by providers must be 
``actually incurred.'' Currently, CMS and its Medicare contractors 
apply the longstanding reasonable cost principles at section 
1861(v)(1)(A) of the Act and at 42 CFR 413.9 of the regulations to 
determine if a particular expense is an allowable cost under Medicare. 
One such principle, as discussed above, is that a ``reasonable cost'' 
must be ``actually incurred.''
    We disagree that sections 2122.1 and 2122.2 of the PRM-1 take a 
contrary position. The discussion of taxes and allowable costs in the 
PRM-1 does not specifically address the requirement that costs must be 
``actually incurred.'' However, the discussion of provider taxes in the 
PRM-1 should be considered in conjunction with the reasonable costs 
requirements set forth in the statute and regulations. To the extent 
that providers considered the list in section 2122.2 of the PRM-1 to 
permit a facility from counting, as part of its allowable costs, all 
but the listed provider taxes, regardless of whether the taxes listed 
were ``actually incurred,'' we are now clarifying that this approach is 
inconsistent with reasonable cost principles.
    We believe that it is consistent with the current and longstanding 
principles of cost reimbursement, as set forth in the statute and 
regulations, to remind both providers and our contractors, that 
although a particular tax may be an allowable cost, the amount of that 
tax that providers may claim for reasonable cost purposes, must reflect 
the amount of these assessed taxes that are actually incurred. Thus, in 
accordance with the Medicare statute, regulations, and PRM policies, 
Medicare contractors will continue to apply the current reasonable cost 
principles to determine if a provider tax incurred is an allowable cost 
and how much of that allowable cost is actually incurred to determine 
reimbursement.
    As stated in the proposed rule, we intended to address the 
potential confusion that arises when providers interpret sections of 
the PRM-1 to allow taxes assessed against a provider that are not 
specifically listed in section 2122.2, regardless of whether those 
costs are actually incurred. We believe that clarifying the PRM-1 to 
explain that the list of taxes is only an example of the enumerated 
taxes is consistent with the current and longstanding reasonable cost 
principles. Moreover, to the extent that a particular tax might be an 
allowable expense, it still must be ``actually incurred.''
    This clarification will not have an effect of disallowing any 
particular tax but rather make clear that our Medicare contractors will 
continue to make a determination of whether a provider tax is 
allowable, on a case-by-case basis, using our current and longstanding

[[Page 50364]]

reasonable cost principles. In addition, the Medicare contractors will 
continue to determine if an adjustment to the amount of allowable 
provider taxes is warranted to account for payments a provider receives 
that are associated with the assessed tax.
    After consideration of the public comments we received, we are 
adopting our proposed clarification, as final, without modification. We 
will modify section 2122 of the PRM-1 to specifically reference our 
current, longstanding reasonable cost principles.

C. Report of Adjustment (Exceptions) Payments

    Section 4419(b) of Public Law 105-33 requires the Secretary to 
publish annually in the Federal Register a report describing the total 
amount of adjustment payments made to excluded hospitals and hospital 
units by reason of section 1886(b)(4) of the Act, during the previous 
fiscal year.
    The process of requesting, adjusting, and awarding an adjustment 
payment is likely to occur over a 2-year period or longer. First, 
generally, an excluded hospital or an excluded unit of a hospital must 
file its cost report for a fiscal year in accordance with Sec.  
413.24(f)(2). The fiscal intermediary or MAC reviews the cost report 
and issues a notice of program reimbursement (NPR). Once the hospital 
receives the NPR, if its operating costs are in excess of the ceiling, 
the hospital or hospital unit may file a request for an adjustment 
payment. After the fiscal intermediary or MAC receives the hospital's 
or hospital unit's request in accordance with applicable regulations, 
the fiscal intermediary or MAC or CMS, depending on the type of 
adjustment requested, reviews the request and determines if an 
adjustment payment is warranted. This determination is sometimes not 
made until more than 6 months after the date the request is filed 
because there are times when the applications are incomplete and 
additional information must be requested in order to have a completed 
application. However, in an attempt to provide interested parties with 
data on the most recent adjustments for which we do have data, we are 
publishing data on adjustment payments that were processed by the 
fiscal intermediary or MAC or CMS during FY 2009.
    The table below includes the most recent data available from the 
fiscal intermediaries or MACs and CMS on adjustment payments that were 
adjudicated during FY 2009. As indicated above, the adjustments made 
during FY 2009 only pertain to cost reporting periods ending in years 
prior to FY 2008. Total adjustment payments given to excluded hospitals 
and hospital units during FY 2009 are $7,824,339. The table depicts for 
each class of hospitals, in the aggregate, the number of adjustment 
requests adjudicated, the excess operating costs over the ceiling, and 
the amount of the adjustment payments.

----------------------------------------------------------------------------------------------------------------
                                                                                    Excess cost     Adjustment
                        Class of hospital                             Number       over ceiling      payments
----------------------------------------------------------------------------------------------------------------
Psychiatric.....................................................               4      $2,878,357      $1,396,564
Children's......................................................               3       1,414,635         902,889
Cancer..........................................................               2      12,949,901       4,753,072
Religious Nonmedical Health Care Institution (RNHCI)............               7       1,570,555         771,814
                                                                 -----------------------------------------------
    Total.......................................................  ..............  ..............       7,824,339
----------------------------------------------------------------------------------------------------------------

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

A. Background of the LTCH PPS

1. Legislative and Regulatory Authority
    Section 123 of the Medicare, Medicaid, and SCHIP (State Children's 
Health Insurance Program) Balanced Budget Refinement Act of 1999 (BBRA) 
(Pub. L. 106-113) as amended by section 307(b) of the Medicare, 
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 
(BIPA) (Pub. L. 106-554) provides for payment for both the operating 
and capital-related costs of hospital inpatient stays in long-term care 
hospitals (LTCHs) under Medicare Part A based on prospectively set 
rates. The Medicare prospective payment system (PPS) for LTCHs applies 
to hospitals that are described in section 1886(d)(1)(B)(iv) of the 
Social Security Act (the Act), effective for cost reporting periods 
beginning on or after October 1, 2002.
    Section 1886(d)(1)(B)(iv)(I) of the Act defines a LTCH as ``a 
hospital which has an average inpatient length of stay (as determined 
by the Secretary) of greater than 25 days.'' Section 
1886(d)(1)(B)(iv)(II) of the Act also provides an alternative 
definition of LTCHs: specifically, a hospital that first received 
payment under section 1886(d) of the Act in 1986 and has an average 
inpatient length of stay (LOS) (as determined by the Secretary of 
Health and Human Services (the Secretary)) of greater than 20 days and 
has 80 percent or more of its annual Medicare inpatient discharges with 
a principal diagnosis that reflects a finding of neoplastic disease in 
the 12-month cost reporting period ending in FY 1997.
    Section 123 of the BBRA requires the PPS for LTCHs to be a ``per 
discharge'' system with a diagnosis-related group (DRG) based patient 
classification system that reflects the differences in patient 
resources and costs in LTCHs.
    Section 307(b)(1) of the BIPA, among other things, mandates that 
the Secretary shall examine, and may provide for, adjustments to 
payments under the LTCH PPS, including adjustments to DRG weights, area 
wage adjustments, geographic reclassification, outliers, updates, and a 
disproportionate share adjustment.
    In the August 30, 2002 Federal Register, we issued a final rule 
that implemented the LTCH PPS authorized under the BBRA and BIPA (67 FR 
55954). 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

[[Page 50365]]

with a cost reporting period beginning on or after October 1, 2002. 
(The regulations implementing the TEFRA reasonable cost-based payment 
provisions are located at 42 CFR part 413.) With the implementation of 
the PPS for acute care hospitals authorized by the Social Security 
Amendments of 1983 (Pub. L. 98-21), which added section 1886(d) to the 
Act, certain hospitals, including LTCHs, were excluded from the PPS for 
acute care hospitals and were paid their reasonable costs for inpatient 
services subject to a per discharge limitation or target amount under 
the TEFRA system. For each cost reporting period, a hospital-specific 
ceiling on payments was determined by multiplying the hospital's 
updated target amount by the number of total current year Medicare 
discharges. (Generally, in section VIII. of this preamble, when we 
refer to discharges, the intent is to describe Medicare discharges.) 
The August 30, 2002 final rule further details the payment policy under 
the TEFRA system (67 FR 55954).
    In the August 30, 2002 final rule, we provided for a 5-year 
transition period. During this 5-year transition period, a LTCH's total 
payment under the PPS was based on an increasing percentage of the 
Federal rate with a corresponding decrease in the percentage of the 
LTCH PPS payment that is based on reasonable cost concepts. However, 
effective for cost reporting periods beginning on or after October 1, 
2006, total LTCH PPS payments are based on 100 percent of the Federal 
rate.
    In addition, in the August 30, 2002 final rule, we presented an in-
depth discussion of the LTCH PPS, including the patient classification 
system, relative weights, payment rates, additional payments, and the 
budget neutrality requirements mandated by section 123 of the BBRA. The 
same final rule that established regulations for the LTCH PPS under 42 
CFR part 412, subpart O also contained LTCH provisions related to 
covered inpatient services, limitation on charges to beneficiaries, 
medical review requirements, furnishing of inpatient hospital services 
directly or under arrangement, and reporting and recordkeeping 
requirements. We refer readers to the August 30, 2002 final rule for a 
comprehensive discussion of the research and data that supported the 
establishment of the LTCH PPS (67 FR 55954).
    In the June 6, 2003 Federal Register, we published a final rule 
that set forth the FY 2004 annual update of the payment rates for the 
Medicare PPS for inpatient hospital services furnished by LTCHs (68 FR 
34122). It also changed the annual period for which the payment rates 
were to be effective, such that the annual updated rates were effective 
from July 1 through June 30 instead of from October 1 through September 
30. We referred to the July through June time period as a ``long-term 
care hospital rate year'' (LTCH PPS rate year). In addition, we changed 
the publication schedule for the annual update to allow for an 
effective date of July 1. The payment amounts and factors used to 
determine the annual update of the LTCH PPS Federal rate are based on a 
LTCH PPS rate year. In the past, while the LTCH payment rate updates 
were effective July 1, the annual update of the DRG classifications and 
relative weights for LTCHs continued to be linked to the annual 
adjustments of the acute care hospital inpatient DRGs and were 
effective each October 1.
    As discussed in detail in the RY 2009 LTCH PPS final rule (73 FR 
26797 through 26798), we again changed the schedule for the annual 
updates of the LTCH PPS Federal payment rates beginning with RY 2010. 
We consolidated the rulemaking cycle for the annual update of the LTCH 
PPS Federal payment rates and description of the methodology and data 
used to calculate these payment rates with the annual update of the MS-
LTC-DRG classifications and associated weighting factors for LTCHs so 
that the updates to the rates and the weights now occur on the same 
schedule and appear in the same publication. As a result, the updates 
to the rates and the weights are now effective on October 1 (on a 
Federal fiscal year schedule), and the annual updates to the LTCH PPS 
Federal rates are no longer published with a July 1 effective date.
    Public Law 110-173 (MMSEA), enacted on December 29, 2007, included 
provisions that have various effects on the LTCH PPS. In addition to 
amending section 1861 of the Act to add a subsection (ccc) which 
provided an additional definition of LTCHs, Public Law 110-173 also 
required the Secretary to submit, no later than 18 months after the 
date of enactment of the law, a report to Congress on a study of 
national long-term care hospital facility and patient criteria that 
included ``recommendations for such legislation and administrative 
actions, including timelines for the implementation of LTCH patient 
criteria or other actions, as the Secretary determines appropriate.'' 
The payment policy provisions under sections 114(c)(1) and 114(c)(2) of 
Pub. L. 110-173 focused on providing 3 years of relief for certain 
LTCHs from the percentage threshold payment adjustment policy at 42 CFR 
412.534 and 412.536. However, because of the original implementation 
schedule of those sections of the regulations, the payment provisions 
had varying timeframes of applicability (73 FR 29701 through 29704). In 
addition, section 114(c)(3) of Public Law 110-173 provided that the 
Secretary shall not apply, for the 3-year period beginning on the date 
of enactment of the Act the revision to the short-stay outlier (SSO) 
policy that was finalized in the RY 2008 LTCH PPS final rule (72 FR 
26904 and 26992). In addition, section 114(c)(4) of Public Law 110-173 
provided that the Secretary shall not, for the 3-year period beginning 
on the date of enactment of the Act, make the one-time adjustment to 
the payment rates provided for in Sec.  412.523(d)(3) or any similar 
provision (73 FR 26800 through 26804). The statute also provided that 
the base rate for RY 2008 be the same as the base rate for RY 2007 (the 
revised base rate, however, does not apply to discharges occurring on 
or after July 1, 2007, and before April 1, 2008) (73 FR 24875 through 
24877). Section 114(d) of Public Law 110-173 established a 3-year 
moratorium (with specified exceptions) on the establishment and 
classification of new LTCHs, LTCH satellites, and on the increase in 
the number of LTCH beds in existing LTCHs or satellite facilities. 
Finally, section 114(f) of Public Law 110-173 provided for an expanded 
review of medical necessity for admission and continued stay at LTCHs.
    In the RY 2009 LTCH PPS final rule (73 FR 26804 through 26812), we 
established the applicable Federal rates for RY 2009, consistent with 
section 1886(m)(2) of the Act as amended by Public Law 110-173. We also 
revised the regulations at Sec.  412.523(d)(3) to change the 
methodology for the one-time budget neutrality adjustment and to comply 
with section 114(c)(4) of Public Law 110-173. Other policy revisions 
that were necessary as a result of the statutory changes of Public Law 
110-173 were addressed in separate interim final rules with comment 
period (73 FR 24871 and 73 FR 29699). In the FY 2010 IPPS/RY 2010 LTCH 
PPS final rule (74 FR 43976 through 43990), we addressed all of the 
public comments received and finalized these two interim final rules 
with comment period.
    Section 4302 of the ARRA, Public Law 111-5, enacted on February 17, 
2009, included several amendments to the provisions set forth in 
section 114 of Public Law 110-173. Specifically, section 4302(a) 
modified the effective dates of the provisions of section 114(c) of 
Public Law 110-173, described

[[Page 50366]]

above, and added an additional category of LTCHs or satellite 
facilities that would not be subject to the percentage threshold 
payment adjustment at Sec.  412.536 for a 3-year period. In addition, 
section 4302(a)(2)(A) of Public Law 111-5 added ``grandfathered'' 
satellites (specified in Sec.  412.22(h)(3)(i) of the regulations) to 
those ``applicable'' LTCHs (specified in Sec.  412.534(g) of the 
regulations) originally granted relief under section 114(c) of Pub. L. 
110-173. We issued instructions to the fiscal intermediaries and MACs 
interpreting the provisions of section 4302 of Public Law 111-5 (Change 
Request 6444). In addition, in the FY 2010 IPPS/RY 2010 LTCH PPS final 
rule (43990 through 43992), we implemented the provisions of section 
4302 of Public Law 111-5 through an interim final rule with comment 
period. We received one piece of timely correspondence regarding the 
provisions of section 4302 of Public Law 111-5 that were implemented 
through the interim final rule with comment period that was included in 
the FY 2010 IPPS/RY 2010 LTCH PPS final rule. We address this public 
comment and finalize the interim final rule with comment period in 
section VII.F. of the preamble of this final rule.
    As discussed in section I.C. of this preamble, a number of the 
provisions of the Affordable Care Act affected the policies, payment 
rates and factors under the LTCH PPS. Due to the timing of the passage 
of the legislation, we were unable to address those provisions in the 
May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule, and some of the 
proposed policies and payment rates in that proposed rule did not 
reflect the new legislation. On June 2, 2010, we issued a FY 2011 IPPS/
LTCH PPS supplemental proposed rule that addressed the provisions of 
the Affordable Care Act that affected our proposed policies and payment 
rates for FY 2011 under the LTCH PPS. In this final rule, we address 
both the provisions of the May 4, 2010 proposed rule and the June 2, 
2010 supplemental proposed rule and respond to public comments 
received.
2. Criteria for Classification as a LTCH
a. Classification as a LTCH
    Under the existing regulations at Sec.  412.23(e)(1) and (e)(2)(i), 
which implement section 1886(d)(1)(B)(iv)(I) of the Act, to qualify to 
be paid under the LTCH PPS, a hospital must have a provider agreement 
with Medicare and must have an average Medicare inpatient length of 
stay (LOS) of greater than 25 days. Alternatively, Sec.  
412.23(e)(2)(ii) states that for cost reporting periods beginning on or 
after August 5, 1997, a hospital that was first excluded from the PPS 
in 1986 and can demonstrate that at least 80 percent of its annual 
Medicare inpatient discharges in the 12-month cost reporting period 
ending in FY 1997 have a principal diagnosis that reflects a finding of 
neoplastic disease must have an average inpatient length of stay for 
all patients, including both Medicare and non-Medicare inpatients, of 
greater than 20 days.
b. Hospitals Excluded From the LTCH PPS
    The following hospitals are paid under special payment provisions, 
as described in Sec.  412.22(c), and therefore, are not subject to the 
LTCH PPS rules:
     Veterans Administration hospitals.
     Hospitals that are reimbursed under State cost control 
systems approved under 42 CFR Part 403.
     Hospitals that are reimbursed in accordance with 
demonstration projects authorized under section 402(a) of the Social 
Security Amendments of 1967 (Pub. L. 90-248) (42 U.S.C. 1395b-1) or 
section 222(a) of the Social Security Amendments of 1972 (Pub. L. 92-
603) (42 U.S.C. 1395b-1 (note)) (Statewide all-payer systems, subject 
to the rate-of-increase test at section 1814(b) of the Act).
     Nonparticipating hospitals furnishing emergency services 
to Medicare beneficiaries.
3. Limitation on Charges to Beneficiaries
    In the August 30, 2002 final rule, we presented an in-depth 
discussion of beneficiary liability under the LTCH PPS (67 FR 55974 
through 55975). In the RY 2005 LTCH PPS final rule (69 FR 25676), we 
clarified that the discussion of beneficiary liability in the August 
30, 2002 final rule was not meant to establish rates or payments for, 
or define Medicare-eligible expenses. Under Sec.  412.507, if the 
Medicare payment to the LTCH is the full LTC-DRG payment amount, as 
consistent with other established hospital prospective payment systems, 
a LTCH may not bill a Medicare beneficiary for more than the deductible 
and coinsurance amounts as specified under Sec.  409.82, Sec.  409.83, 
and Sec.  409.87 and for items and services as specified under Sec.  
489.30(a). However, under the LTCH PPS, Medicare will only pay for days 
for which the beneficiary has coverage until the SSO threshold is 
exceeded. Therefore, if the Medicare payment was for a SSO case (Sec.  
412.529) that was less than the full LTC-DRG payment amount because the 
beneficiary had insufficient remaining Medicare days, the LTCH could 
also charge the beneficiary for services delivered on those uncovered 
days (Sec.  412.507).
4. Administrative Simplification Compliance Act (ASCA) and Health 
Insurance Portability and Accountability Act (HIPAA) Compliance
    Claims submitted to Medicare must comply with both the 
Administrative Simplification Compliance Act (ASCA) (Pub. L. 107-105), 
and the Health Insurance Portability and Accountability Act of 1996 
(HIPAA) (Pub. L. 104-191). Section 3 of the ASCA requires that the 
Medicare Program deny payment under Part A or Part B for any expenses 
incurred for items or services ``for which a claim is submitted other 
than in an electronic form specified by the Secretary.'' Section 
1862(h) of the Act (as added by section 3(a) of the ASCA) provides that 
the Secretary shall waive such denial in two specific types of cases 
and may also waive such denial ``in such unusual cases as the Secretary 
finds appropriate'' (68 FR 48805). Section 3 of the ASCA operates in 
the context of the HIPAA regulations, which include, among other 
provisions, the transactions and code sets standards requirements 
codified 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 healthcare transactions according to the 
applicable transactions and code sets standards.

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

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

[[Page 50367]]

beginning on or after October 1, 2002, we adopted the same DRG patient 
classification system (that is, the CMS DRGs) that was utilized at that 
time under the IPPS. As a component of the LTCH PPS, we refer to this 
patient classification system as the ``long-term care diagnosis-related 
groups (LTC-DRGs).'' Although the patient classification system used 
under both the LTCH PPS and the IPPS are the same, the relative weights 
are different. The established relative weight methodology and data 
used under the LTCH PPS result in relative weights under the LTCH PPS 
that reflect ``the differences in patient resource use * * *'' of LTCH 
patients (section 123(a)(1) of the BBRA (Pub. L. 106-113)).
    As part of our efforts to better recognize severity of illness 
among patients, in the FY 2008 IPPS final rule with comment period (72 
FR 47130), the MS-DRGs and the Medicare severity long-term care 
diagnosis-related groups (MS-LTC-DRGs) were adopted under the IPPS and 
the LTCH PPS, respectively, effective beginning October 1, 2007 (FY 
2008). For a full description of the development and implementation and 
rationale for the use of the MS-DRGs and MS-LTC-DRGs, we refer readers 
to the FY 2008 IPPS final rule with comment period (72 FR 47141 through 
47175 and 47277 through 47299). (We note that, in that same final rule, 
we revised the regulations at Sec.  412.503 to specify that for LTCH 
discharges occurring on or after October 1, 2007, when applying the 
provisions of 42 CFR part 412, subpart O applicable to LTCHs for policy 
descriptions and payment calculations, all references to LTC-DRGs would 
be considered a reference to MS-LTC-DRGs. For the remainder of this 
section, we present the discussion in terms of the current MS-LTC-DRG 
patient classification system unless specifically referring to the 
previous LTC-DRG patient classification system that was in effect 
before October 1, 2007.) We believe the MS-DRGs (and by extension, the 
MS-LTC-DRGs) represent a substantial improvement over the previous CMS 
DRGs in their ability to differentiate cases based on severity of 
illness and resource consumption.
    The MS-DRGs adopted in FY 2008 represent an increase in the number 
of DRGs by 207 (that is, from 538 to 745) (72 FR 47171). In FY 2009, an 
additional MS-DRG was adopted for a total of 746 distinct groupings (73 
FR 48497). For FY 2011, we are finalizing our proposal to delete one 
MS-DRG and create two new MS-DRGs, for a net gain of one MS-DRG, as 
noted in section II. of the preamble of this final rule. This results 
in 747 distinct MS-DRG groupings for FY 2011. Consistent with section 
123 of the BBRA, as amended by section 307(b)(1) of the BIPA, and Sec.  
412.515, we use information derived from LTCH PPS patient records to 
classify LTCH discharges into distinct MS-LTC-DRGs based on clinical 
characteristics and estimated resource needs. We then assign an 
appropriate weight to the MS-LTC-DRGs to account for the difference in 
resource use by patients exhibiting the case complexity and multiple 
medical problems characteristic of LTCHs.
    In a departure from the IPPS, and as discussed in greater detail 
below in section VII.B.3.f. of this preamble, we use low-volume MS-LTC-
DRGs (that is, MS-LTC-DRGs with less than 25 LTCH cases) in determining 
the MS-LTC-DRG relative weights because LTCHs do not typically treat 
the full range of diagnoses as do acute care hospitals. For purposes of 
determining the relative weights for the large number of low-volume MS-
LTC-DRGs, we group all of the low-volume MS-LTC-DRGs into five 
quintiles based on average charge per discharge. (A detailed discussion 
of the initial development and application of the quintile methodology 
appears in the August 30, 2002 LTCH PPS final rule (67 FR 55978).) We 
also account for adjustments to payments for short-stay outlier (SSO) 
cases (that is, cases where the covered LOS at the LTCH is less than or 
equal to five-sixths of the geometric ALOS for the MS-LTC-DRG). 
Furthermore, we make adjustments to account for nonmonotonically 
increasing weights, when necessary. That is, theoretically, cases under 
the MS-LTC-DRG system that are more severe require greater expenditure 
of medical care resources and will result in higher average charges 
such that, in the severity levels within a base MS-LTC-DRG, the weights 
should increase monotonically with severity from the lowest to highest 
severity level. (We discuss nonmonotonicity in greater detail and our 
methodology to adjust the RY 2010 MS-LTC-DRG relative weights to 
account for nonmonotonically increasing relative weights in section 
VII.B.3.g. (Step 6) of this preamble).
2. Patient Classifications Into MS-LTC-DRGs
a. Background
    The MS-DRGs (used under the IPPS) and the MS-LTC-DRGs (used under 
the LTCH PPS) are based on the CMS DRG structure. As noted above in 
this section, we refer to the DRGs under the LTCH PPS as MS-LTC-DRGs 
although they are structurally identical to the MS-DRGs used under the 
IPPS.
    The MS-DRGs are organized into 25 major diagnostic categories 
(MDCs), most of which are based on a particular organ system of the 
body; the remainder involve multiple organ systems (such as MDC 22, 
Burns). Within most MDCs, cases are then divided into surgical DRGs and 
medical DRGs. Surgical DRGs are assigned based on a surgical hierarchy 
that orders operating room (O.R.) procedures or groups of O.R. 
procedures by resource intensity. The GROUPER software program does not 
recognize all ICD-9-CM procedure codes as procedures affecting DRG 
assignment. That is, procedures that are not surgical (for example, 
EKG), or minor surgical procedures (for example, biopsy of skin and 
subcutaneous tissue (procedure code 86.11)) do not affect the MS-LTC-
DRG assignment based on their presence on the claim.
    Generally, under the LTCH PPS, a Medicare payment is made at a 
predetermined specific rate for each discharge and that payment varies 
by the MS-LTC-DRG to which a beneficiary's stay is assigned. Cases are 
classified into MS-LTC-DRGs for payment based on the following six data 
elements:
     Principal diagnosis;
     Additional or secondary diagnoses;
     Surgical procedures;
     Age;
     Sex; and
     Discharge status of the patient.
    Through FY 2010, the number of secondary or additional diagnoses 
and the number of surgical procedures considered for MS-DRG assignment 
was limited to eight and six, respectively. Elsewhere in this final 
rule, however, as proposed, we are establishing that, for claims 
submitted on the 5010 format beginning January 1, 2011, we will 
increase the capacity to process diagnosis and procedure codes up to 25 
diagnoses and 25 procedures. This will include one principal diagnosis 
and up to 24 secondary diagnoses for severity of illness 
determinations. We refer readers to section II.G.11.c. of this preamble 
for a complete discussion of this change.
    Upon the discharge of the patient from a LTCH, the LTCH must assign 
appropriate diagnosis and procedure codes from the most current version 
of the International Classification of Diseases, Ninth Revision, 
Clinical Modification (ICD-9-CM). HIPAA Transactions and Code Sets 
Standards regulations at 45 CFR parts 160 and 162 require that no later 
than October 16, 2003, all covered entities must comply with the 
applicable requirements of

[[Page 50368]]

Subparts A and I through R of Part 162. Among other requirements, those 
provisions direct covered entities to use the ASC X12N 837 Health Care 
Claim: Institutional, Volumes 1 and 2, Version 4010, and the applicable 
standard medical data code sets for the institutional health care claim 
or equivalent encounter information transaction (45 CFR 162.1002 and 45 
CFR 162.1102). For additional information on the ICD-9-CM Coding 
System, we refer readers to the FY 2008 IPPS final rule with comment 
period (72 FR 47241 through 47243 and 47277 through 47281). We also 
refer readers to the detailed discussion on correct coding practices in 
the August 30, 2002 LTCH PPS final rule (67 FR 55981 through 55983). 
Additional coding instructions and examples are published in the Coding 
Clinic for ICD-9-CM, a product of the American Hospital Association. 
(We refer readers to section II.G.11. of this preamble for additional 
information on the annual revisions to the ICD-9-CM codes.)
    With respect to the ICD-9-CM coding system, we have been discussing 
the conversion to the ICD-10-CM and the ICD-10-PCS coding systems for 
many years. As is discussed in detail in section II.G.11. of this 
preamble, the ICD-10 coding systems applicable to hospital inpatient 
services will be implemented on October 1, 2013. In order for the 
industry to make the necessary conversions from ICD-9-CM to ICD-10-CM 
and ICD-10-PCS, we proposed, through the ICD-9-CM Coordination and 
Maintenance Committee, to consider a moratorium on updates to the ICD-
9-CM and ICD-10 coding sets. We refer readers to section II.G.11. of 
this preamble for additional information on the adoption of ICD-10-CM 
and ICD-10-PCS.
    To create the MS-DRGs (and by extension, the MS-LTC-DRGs), 
individual DRGs were subdivided according to the presence of specific 
secondary diagnoses designated as complications or comorbidities (CCs) 
into three, two, or one level, depending on the impact of the CCs on 
resources used for those cases. Specifically, there are sets of MS-DRGs 
that are split into 2 or 3 subgroups based on the presence or absence 
of a CC or a major complication and comorbidity (MCC). We refer readers 
to section II.D. of the FY 2008 IPPS final rule with comment period for 
a detailed discussion about the creation of MS-DRGs based on severity 
of illness levels (72 FR 47141 through 47175).
    Medicare contractors (that is, fiscal intermediaries and MACs) 
enter the clinical and demographic information submitted by LTCHs into 
their claims processing systems and subject this information to a 
series of automated screening processes called the Medicare Code Editor 
(MCE). These screens are designed to identify cases that require 
further review before assignment into a MS-LTC-DRG can be made. During 
this process, certain cases are selected for further development (74 FR 
43949).
    After screening through the MCE, each claim is classified into the 
appropriate MS-LTC-DRG by the Medicare LTCH GROUPER software on the 
basis of diagnosis and procedure codes and other demographic 
information (age, sex, and discharge status). The GROUPER software used 
under the LTCH PPS is the same GROUPER software program used under the 
IPPS. Following the MS-LTC-DRG assignment, the Medicare contractor 
determines the prospective payment amount by using the Medicare PRICER 
program, which accounts for hospital-specific adjustments. Under the 
LTCH PPS, we provide an opportunity for LTCHs to review the MS-LTC-DRG 
assignments made by the Medicare contractor and to submit additional 
information within a specified timeframe as provided in Sec.  
412.513(c).
    The GROUPER software is used both to classify past cases to measure 
relative hospital resource consumption to establish the MS-LTC-DRG 
weights and to classify current cases for purposes of determining 
payment. The records for all Medicare hospital inpatient discharges are 
maintained in the MedPAR file. The data in this file are used to 
evaluate possible MS-DRG and MS-LTC-DRG classification changes and to 
recalibrate the MS-DRG and MS-LTC-DRG relative weights during our 
annual update under both the IPPS (Sec.  412.60(e)) and the LTCH PPS 
(Sec.  412.517), respectively.
b. Changes to the MS-LTC-DRGs for FY 2011
    As specified by our regulations at Sec.  412.517(a), which requires 
that the LTC-MS-DRG classifications and relative weights be updated 
annually and consistent with our historical practice of using the same 
patient classification system under the LTCH PPS as is used under the 
IPPS, in this final rule, as was proposed we are updating the MS-LTC-
DRG classifications effective October 1, 2010, through September 30, 
2011 (FY 2011) consistent with the changes to specific MS-DRG 
classifications presented above in section II.G. of this final rule 
(that is, GROUPER Version 28.0). Therefore, the MS-LTC-DRGs for FY 2011 
presented in this final rule are the same as the MS-DRGs that will be 
used under the IPPS for FY 2011. In addition, because the MS-LTC-DRGs 
for FY 2011 are the same as the MS-DRGs for FY 2011, the other changes 
that affect MS-DRG (and by extension MS-LTC-DRG) assignments under 
Version 28.0 of the GROUPER discussed in section II.G. of the preamble 
of this final rule, including the changes to the MCE software and 
changes to the ICD-9-CM coding system, are also applicable under the 
LTCH PPS for FY 2011.
3. Development of the FY 2011 MS-LTC-DRG Relative Weights
a. General Overview of the Development of the MS-LTC-DRG Relative 
Weights
    As we stated in the August 30, 2002 LTCH PPS final rule (67 FR 
55984), one of the primary goals for the implementation of the LTCH PPS 
is to pay each LTCH an appropriate amount for the efficient delivery of 
medical care to Medicare patients. The system must be able to account 
adequately for each LTCH's case-mix in order to ensure both fair 
distribution of Medicare payments and access to adequate care for those 
Medicare patients whose care is more costly. To accomplish these goals, 
we have annually adjusted the LTCH PPS standard Federal prospective 
payment system rate by the applicable relative weight in determining 
payment to LTCHs for each case.
    Although the adoption of the MS-LTC-DRGs resulted in some 
modifications of existing procedures for assigning weights in cases of 
zero volume and/or nonmonotonicity (as discussed in the FY 2008 IPPS 
final rule with comment period (72 FR 47289 through 47295) and the FY 
2009 IPPS final rule (73 FR 48542 through 48550)), the basic 
methodology for developing the FY 2011 MS-LTC-DRG relative weights in 
this final rule continues to be determined in accordance with the 
general methodology established in the August 30, 2002 LTCH PPS final 
rule (67 FR 55989 through 55991). Under the LTCH PPS, relative weights 
for each MS-LTC-DRG are a primary element used to account for the 
variations in cost per discharge and resource utilization among the 
payment groups (Sec.  412.515). To ensure that Medicare patients 
classified to each MS-LTC-DRG have access to an appropriate level of 
services and to encourage efficiency, we calculate a relative weight 
for each MS-LTC-DRG that represents the resources needed by an average 
inpatient LTCH case in that MS-LTC-DRG. For example, cases in an MS-
LTC-DRG with a relative weight of 2 will, on average, cost twice as 
much to treat as

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cases in an MS-LTC-DRG with a relative weight of 1.
b. Development of the MS-LTC-DRG Relative Weights for FY 2011
    Beginning with the FY 2008 update, we established a budget neutral 
requirement for the annual update to the MS-LTC-DRG classifications and 
relative weights at Sec.  412.517(b) (in conjunction with Sec.  
412.503), such that estimated aggregate LTCH PPS payments would be 
unaffected, that is, would be neither greater than nor less than the 
estimated aggregate LTCH PPS payments that would have been made without 
the classification and relative weight changes (RY 2008 LTCH PPS final 
rule (May 11, 2007; 72 FR 26882 through 26884)). Consistent with Sec.  
412.517(b), we apply a two-step budget neutrality methodology, which is 
based on the current year MS-LTC-DRG classifications and relative 
weights. (For additional information on the established two-step budget 
neutrality methodology, we refer readers to the FY 2008 IPPS final rule 
(72 FR 47295 through 47296).) As was proposed, for this final rule the 
annual update to the MS-LTC-DRG classifications and relative weights 
for FY 2011 is based on the FY 2010 MS-LTC-DRG classifications and 
relative weights.
c. Data
    In both the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule (75 FR 
24023 through 24043) and the June 2, 2010 FY 2011 IPPS/LTCH PPS 
supplemental proposed rule (75 FR 30970 and 30971), we proposed to 
calculate the proposed MS-LTC-DRG relative weights for FY 2011 using 
total charges from FY 2009 Medicare LTCH bill data from the December 
2009 update of the FY 2009 MedPAR file, which were the best available 
data at that time, and to use the proposed Version 28.0 of the GROUPER 
to classify LTCH cases. We also proposed that if more recent data 
become available, we would use those data and the finalized Version 
28.0 of the GROUPER in establishing the FY 2011 MS-LTC-DRG relative 
weights in the final rule.
    In this final rule, to calculate the MS-LTC-DRG relative weights 
for FY 2011, we obtained total charges from FY 2009 Medicare LTCH bill 
data from the March 2010 update of the MedPAR file, which are the best 
available data at this time, and used the final Version 28.0 of the 
GROUPER to classify LTCH cases.
    Consistent with our historical methodology, we proposed 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. In addition, as is the case with the IPPS, 
Medicare Advantage (Part C) claims are now included in the MedPAR files 
(74 FR 43808). Consistent with IPPS policy, we proposed to exclude such 
claims in the calculations for the relative weights under the LTCH PPS 
that are used to determine payments for fee-for-service Medicare 
claims. Specifically, we added an edit to the relative weight 
calculation to remove any claims from the MedPAR files that have a GHO 
Paid indicator value of ``1,'' which effectively removes Medicare 
Advantage claims from the relative weight calculations (73 FR 48532). 
We received one comment on these proposals. Therefore, in the 
development of the FY 2011 MS-LTC-DRG relative weights in this final 
rule, as we proposed, we excluded the data of 13 all-inclusive rate 
providers and the 2 LTCHs that are paid in accordance with 
demonstration projects that had claims in the FY 2009 MedPAR file, as 
well as any Medicare Advantage claims.
    Comment: One commenter expressed concern that the proposed FY 2011 
MS-LTC-DRG relative weights were computed using covered charges instead 
of total charges. The commenter requested that CMS explain the 
rationale if it changed its methodology for computing the MS-LTC-DRG 
relative weights using covered charges.
    Response: When we implemented the LTCH PPS in the FY 2003 LTCH PPS 
final rule (67 FR 55984), we established a policy of determining the 
LTC-DRG relative weights and average length of stay based on total 
charges and total days. Consistent with our established policy, in the 
FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24024), we proposed to 
calculate the proposed MS-LTC-DRG relative weights for FY 2011 using 
``total'' charges from FY 2009 Medicare LTCH bill data from the MedPAR 
file. We did not change our methodology and we have verified that the 
proposed FY 2011 MS-LTC-DRG relative weights were calculated using 
total charges, not covered charges. Furthermore, as stated above, the 
FY 2011 MS-LTC-DRG relative weights established in this final rule were 
calculated using total charges.
d. Hospital-Specific Relative Value (HSRV) Methodology
    By nature, LTCHs often specialize in certain areas, such as 
ventilator-dependent patients and rehabilitation and wound care. Some 
case types (DRGs) may be treated, to a large extent, in hospitals that 
have, from a perspective of charges, relatively high (or low) charges. 
This nonrandom distribution of cases with relatively high (or low) 
charges in specific MS-LTC-DRGs has the potential to inappropriately 
distort the measure of average charges. To account for the fact that 
cases may not be randomly distributed across LTCHs, consistent with the 
methodology we have used since the implementation of the LTCH PPS, as 
we proposed, we continue to use a hospital-specific relative value 
(HSRV) methodology to calculate the MS-LTC-DRG relative weights. We 
believe this method removes this hospital-specific source of bias in 
measuring LTCH average charges (67 FR 55985). Specifically, we reduce 
the impact of the variation in charges across providers on any 
particular 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, as we proposed, we 
continue to standardize charges for each case by first dividing the 
adjusted charge for the case (adjusted for SSOs under Sec.  412.529 as 
described in section VII.B.3.g. (step 3) of the preamble of this final 
rule) by the average adjusted charge for all cases at the LTCH in which 
the case was treated. SSO cases are cases with a length of stay that is 
less than or equal to five-sixths the average length of stay of the MS-
LTC-DRG (Sec.  412.529 and Sec.  412.503). The average adjusted charge 
reflects the average intensity of the health care services delivered by 
a particular LTCH and the average cost level of that LTCH. The 
resulting ratio is multiplied by that LTCH's case-mix index to 
determine the standardized charge for the case. (67 FR 55989)
    Multiplying by the LTCH's case-mix index accounts for the fact that 
the same

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relative charges are given greater weight at a LTCH with higher average 
costs than they would at a LTCH with low average costs, which is needed 
to adjust each LTCH's relative charge value to reflect its case-mix 
relative to the average case-mix for all LTCHs. Because we standardize 
charges in this manner, we count charges for a Medicare patient at a 
LTCH with high average charges as less resource intensive than they 
would be at a LTCH with low average charges. For example, a $10,000 
charge for a case at a LTCH with an average adjusted charge of $17,500 
reflects a higher level of relative resource use than a $10,000 charge 
for a case at a LTCH with the same case-mix, but an average adjusted 
charge of $35,000. We believe that the adjusted charge of an individual 
case more accurately reflects actual resource use for an individual 
LTCH because the variation in charges due to systematic differences in 
the markup of charges among LTCHs is taken into account.
e. Treatment of Severity Levels in Developing the MS-LTC-DRG Relative 
Weights
    For purposes of determining the MS-LTC-DRG relative weights, there 
are three different categories of DRGs based on volume of cases within 
specific MS-LTC-DRGs. MS-LTC-DRGs with at least 25 cases are each 
assigned a unique 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 were 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 provide 
in-depth discussions of our policy regarding weight-setting for low-
volume MS-LTC-DRGs in section VII.B.3.f. of the preamble of this final 
rule and for no-volume MS-LTC-DRGs, under Step 5 in section VII.B.3.g. 
of the preamble of this final rule.)
    As also noted above, while the LTCH PPS and the IPPS use the same 
patient classification system, the methodology that is used to set the 
DRG relative weights for use in each payment system differs because the 
overall volume of cases in the LTCH PPS is much less than in the IPPS. 
In general, consistent with our existing methodology, as we proposed, 
we used the following steps to determine the FY 2011 MS-LTC-DRG 
relative weights: (1) If a MS-LTC-DRG has at least 25 cases, it is 
assigned its own relative weight; (2) if a MS-LTC-DRG has between 1 and 
24 cases, it is assigned to a quintile for which we compute a relative 
weight for all of the MS-LTC-DRGs assigned to that quintile; and (3) if 
a MS-LTC-DRG has no cases, it is cross-walked to another MS-LTC-DRG 
based upon clinical similarities to assign an appropriate relative 
weight (as described below in detail in Step 5 of section VII.B.3.g. of 
this preamble). Furthermore, in determining the FY 2011 MS-LTC-DRG 
relative weights, when necessary, as we proposed, we made adjustments 
to account for nonmonotonicity, as discussed in greater detail below in 
Step 6 of section VII.B.3.g. of this preamble. We refer readers to the 
discussion in the FY 2010 IPPS/RY LTCH PPS final rule for our rationale 
for including an adjustment for nonmonotonicity (74 FR 43953 through 
43954).
f. Low-Volume MS-LTC-DRGs
    In order to account for MS-LTC-DRGs with low volume (that is, with 
fewer than 25 LTCH cases), consistent with our existing methodology and 
as we proposed, for purposes of determining the MS-LTC-DRG relative 
weights, we continue to employ the quintile methodology for low-volume 
MS-LTC-DRGs, such that we group those ``low-volume MS-LTC-DRGs'' (that 
is, MS-LTC-DRGs that contained between 1 and 24 cases annually) into 
one of five categories (quintiles) based on average charges (67 FR 
55984 through 55995 and 72 FR 47283 through 47288). In determining the 
FY 2011 MS-LTC-DRG relative weights in this final rule, in cases where 
the initial assignment of a low-volume MS-LTC-DRG to quintiles resulted 
in nonmonotonicity within a base-DRG, in order to ensure appropriate 
Medicare payments, consistent with our historical methodology and as we 
proposed, we made adjustments to the treatment of low-volume MS-LTC-
DRGs to preserve monotonicity, as discussed in detail below in section 
VII.B.3.g. (Step 6) in this preamble.
    In this final rule, using LTCH cases from the March 2010 update of 
the FY 2009 MedPAR file, we identified 283 MS-LTC-DRGs that contained 
between 1 and 24 cases. This list of MS-LTC-DRGs was then divided into 
one of the 5 low-volume quintiles, each containing a minimum of 56 MS-
LTC-DRGs (283/5 = 56 with 3 MS-LTC-DRG as the remainder). We assigned a 
low-volume MS-LTC-DRG to a specific low-volume quintile by sorting the 
low-volume MS-LTC-DRGs in ascending order by average charge in 
accordance with our established methodology. Furthermore, because the 
number of MS-LTC-DRGs with less than 25 cases was not evenly divisible 
by 5, the average charge of the low-volume quintile was used to 
determine which of the low-volume quintiles would contain the 3 
additional low-volume MS-LTC-DRGs. Specifically, after organizing the 
MS-LTC-DRGs by ascending order by average charge, we assigned the first 
fifth (1st through 56th) of low-volume MS-LTC-DRGs (with the lowest 
average charge) into Quintile 1. The MS-LTC-DRGs with the highest 
average charge cases are assigned into Quintile 5. Because the average 
charge of the 57th low-volume MS-LTC-DRG in the sorted list is closer 
to the average charge of the 56th low-volume MS-LTC-DRG (assigned to 
Quintile 1) than to the average charge of the 58th low-volume MS-LTC-
DRG (assigned to Quintile 2), we assigned it to Quintile 1 (such that 
Quintile 1 contains 57 low-volume MS-LTC-DRGs before any adjustments 
for nonmonotonicity, as discussed below). This process was repeated 
through the remaining low-volume MS-LTC-DRGs so that 2 of the 5 low-
volume quintiles contain 56 MS-LTC-DRGs (Quintiles 4 and 5) and the 
other 3 low-volume quintiles contain 57 MS-LTC-DRGs (Quintiles 1, 2, 
and 3).
    Accordingly, in order to determine the FY 2011 relative weights for 
the MS-LTC-DRGs with low volume, we used the 5 low-volume quintiles 
described above. The composition of each of the 5 low-volume quintiles 
shown in the chart below was used in determining the FY 2011 MS-LTC-DRG 
relative weights (as shown in Table 11 of the Addendum to this final 
rule). We determined a relative weight and (geometric) average length 
of stay for each of the 5 low-volume quintiles using the methodology 
that we applied to the MS-LTC-DRGs (25 or more cases), as described in 
section VII.B.3.g. of the preamble of this final rule. We assigned the 
same relative weight and average length of stay to each of the 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. We used the best available claims data in the 
MedPAR file to identify low-volume MS-LTC-DRGs and to calculate the 
relative weights based on our methodology.
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    We note that we will continue to monitor the volume (that is, the 
number of LTCH cases) in the low-volume quintiles to ensure that our 
quintile assignments used in determining the 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 FY 2011 MS-LTC-DRG Relative Weights
    In the FY 2011 IPPS/LTCH PPS proposed and supplemental proposed 
rules, we proposed, in general, to determine the FY 2011 MS-LTC-DRG 
relative weights based on our existing methodology. We received no 
comment on this proposal and are adopting it as final in this final 
rule. For additional information on the original development of this 
methodology, and modifications to it since the adoption of the MS-LTC-
DRGs, we refer readers to the August 30, 2002 LTCH PPS final rule (67 
FR 55989 through 55995) and the FY 2010 IPPS/RY 2010 LTCH PPS final 
rule (74 FR 43951 through 43966).
    In summary, for FY 2011, to determine the FY 2011 MS-LTC-DRG 
relative weights, we grouped LTCH cases to the appropriate MS-LTC-DRG, 
while taking into account the low-volume MS-LTC-DRGs (as described 
above). After grouping the cases to the appropriate MS-LTC-DRG (or low-
volume quintile), we calculated the FY 2011 relative weights by first 
removing statistical outliers and cases with a length of stay of 7 days 
or less (as discussed in greater detail below). Next, we adjusted the 
number of cases in each MS-LTC-DRG (or low-volume quintile) for the 
effect of SSO cases (step 3 below). After removing statistical outliers 
(step 1 below) and cases with a length of stay of less than 8 days 
(step 2 below), the SSO adjusted discharges and corresponding charges 
were then used to calculate ``relative adjusted weights'' for each MS-
LTC-DRG (or low-volume quintile) using the HSRV method.
    Below we discuss in detail the steps for calculating the FY 2011 
MS-LTC-DRG relative weights. We received no comments on our proposed 
steps for calculating the FY 2011 MS-LTC-DRG relative weights. 
Therefore, for the reasons described above, we are employing our 
proposed methodology to calculate the FY 2011 MS-LTC-DRG relative 
weights discussed below. We note that, as we stated in section 
VII.B.3.c. of this preamble, we excluded the data of all-inclusive rate 
LTCHs, LTCHs that are paid in accordance with demonstration projects, 
and any Medicare Advantage claims in the FY 2009 MedPAR file.
    Step 1--Remove statistical outliers.
    The first step in the calculation of the FY 2011 MS-LTC-DRG 
relative weights is to remove statistical outlier cases. Consistent 
with our historical relative weight methodology, we 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 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 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 FY 2011 MS-LTC-DRG relative 
weights, the value of many relative weights would decrease and, 
therefore, payments would decrease to a level that may no longer be 
appropriate. We do not believe that it would be appropriate to 
compromise the integrity of the payment determination for those LTCH 
cases that actually benefit from and receive a full course of treatment 
at a LTCH by including data from these very short-stays. Therefore, 
consistent with our historical relative weight methodology, in 
determining the FY 2011 MS-LTC-DRG relative weights, as proposed, we 
removed LTCH cases with a length of stay of 7 days or less. (For 
additional information on this step of the relative weight methodology, 
we refer readers to 67 FR 55989 and 74 FR 43959.)
    Step 3--Adjust charges for the effects of SSOs.
    After removing cases with a length of stay of 7 days or less, we 
are left with cases that have a length of stay of greater than or equal 
to 8 days. As the next step

[[Page 50378]]

in the calculation of the FY 2011 MS-LTC-DRG relative weights, 
consistent with our historical relative weight methodology, as 
proposed, we adjusted each LTCH's charges per discharge for those 
remaining cases for the effects of SSOs (as defined in Sec.  412.529(a) 
in conjunction with Sec.  412.503).
    We make this adjustment by counting an SSO case as a fraction of a 
discharge based on the ratio of the length of stay of the case to the 
average length of stay for the MS-LTC-DRG for non-SSO cases. This has 
the effect of proportionately reducing the impact of the lower charges 
for the SSO cases in calculating the average charge for the MS-LTC-DRG. 
This process produces the same result as if the actual charges per 
discharge of an SSO case were adjusted to what they would have been had 
the patient's length of stay been equal to the average length of stay 
of the MS-LTC-DRG.
    Counting SSO cases as full discharges with no adjustment in 
determining the RY 2011 MS-LTC-DRG relative weights would lower the FY 
2011 MS-LTC-DRG relative weight for affected MS-LTC-DRGs because the 
relatively lower charges of the SSO cases would bring down the average 
charge for all cases within an MS-LTC-DRG. This would result in an 
``underpayment'' for non-SSO cases and an ``overpayment'' for SSO 
cases. Therefore, as proposed, we adjust for SSO cases under Sec.  
412.529 in this manner because it results in more appropriate payments 
for all LTCH cases. (For additional information on this step of the 
relative weight methodology, we refer readers to 67 FR 55989 and 74 FR 
43959.)
    Step 4--Calculate the FY 2011 MS-LTC-DRG relative weights on an 
iterative basis.
    Consistent with our historical relative weight methodology, we 
calculate the FY 2011 MS-LTC-DRG relative weights using the HSRV 
methodology, which is an iterative process. First, for each LTCH case, 
we calculate a hospital-specific relative charge value by dividing the 
SSO adjusted charge per discharge (see Step 3) of the LTCH case (after 
removing the statistical outliers (see Step 1)) and LTCH cases with a 
length of stay of 7 days or less (see Step 2) by the average charge per 
discharge for the LTCH in which the case occurred. The resulting ratio 
is then multiplied by the LTCH's case-mix index to produce an adjusted 
hospital-specific relative charge value for the case. An initial case-
mix index value of 1.0 is used for each LTCH.
    As proposed, for each MS-LTC-DRG, the FY 2011 relative weight was 
calculated by dividing the average of the adjusted hospital-specific 
relative charge values (from above) for the MS-LTC-DRG by the overall 
average hospital-specific relative charge value across all cases for 
all LTCHs. Using these recalculated MS-LTC-DRG relative weights, each 
LTCH's average relative weight for all of its cases (that is, its case-
mix) was 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 above were multiplied by these 
hospital-specific case-mix indexes. These hospital-specific case-mix 
adjusted relative charge values were then used to calculate a new set 
of MS-LTC-DRG relative weights across all LTCHs. This iterative process 
was continued until there was convergence between the weights produced 
at adjacent steps, for example, when the maximum difference was less 
than 0.0001.
    Step 5--Determine a FY 2011 relative weight for MS-LTC-DRGs with no 
LTCH cases.
    As we stated above, as proposed, we determined the FY 2011 relative 
weight for each MS-LTC-DRG using total Medicare allowable total charges 
reported in the best available LTCH claims data (that is, the March 
2010 update of the FY 2009 MedPAR file for this final rule). Using 
these data, we identified a number of MS-LTC-DRGs for which there were 
no LTCH cases in the database, such that no patients who would have 
been classified to those MS-LTC-DRGs were treated in LTCHs during FY 
2009 and, therefore, no charge data were available for these MS-LTC-
DRGs. Thus, in the process of determining the MS-LTC-DRG relative 
weights, we were unable to calculate relative weights for the 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 MS-LTC-DRGs may be treated at LTCHs, consistent 
with our historical methodology, as proposed, we assigned a relative 
weight to each of the no-volume MS-LTC-DRGs based on clinical 
similarity and relative costliness (with the exception of 
``transplant'' MS-LTC-DRGs and ``error'' MS-LTC-DRGs, as discussed 
below). (For additional information on this step of the relative weight 
methodology, we refer readers to 67 FR 55991 and 74 FR 43959 through 
43960.)
    In general, we determined FY 2011 relative weights for the MS-LTC-
DRGs with no LTCH cases in the FY 2009 MedPAR file used in this final 
rule (that is, ``no-volume'' MS-LTC-DRGs) by cross-walking each no-
volume MS-LTC-DRG to another MS-LTC-DRG with a calculated relative 
weight (determined in accordance with the methodology described above). 
Then, the ``no-volume'' MS-LTC-DRG was assigned the same relative 
weight (and average length of stay) of the MS-LTC-DRG to which it was 
cross-walked (as described in greater detail below).
    Of the 747 MS-LTC-DRGs for FY 2011, we identified 223 MS-LTC-DRGs 
for which there were no LTCH cases in the database (including the 8 
``transplant'' MS-LTC-DRGs and 2 ``error'' MS-LTC-DRGs). As stated 
above, as proposed, for this final rule we assigned relative weights 
for each of the 213 no-volume MS-LTC-DRGs (with the exception of the 8 
``transplant'' MS-LTC-DRGs and the 2 ``error'' MS-LTC-DRGs, which are 
discussed below) based on clinical similarity and relative costliness 
to one of the remaining 524 (747-223 = 524) MS-LTC-DRGs for which we 
were able to determine relative weights based on FY 2009 LTCH claims 
data using the steps described above. (For the remainder of this 
discussion, we refer to the ``cross-walked'' MS-LTC-DRGs as the MS-LTC-
DRGs to which we crosswalk one of the 213 ``no volume'' MS-LTC-DRGs for 
purposes of determining a relative weight.) Then, we assigned the no-
volume MS-LTC-DRG the relative weight of the cross-walked MS-LTC-DRG. 
(As explained below in Step 6, when necessary, we made adjustments to 
account for nonmonotonicity.)
    For this final rule, there are the same 213 ``no volume'' MS-LTC-
DRGs that there were in the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed 
rule (75 FR 24036 through 24041). We did not receive any public 
comments on our proposed methodology for determining FY 2011 relative 
weights for these no-volume MS-LTC-DRGs and, therefore, for the reasons 
described above, we are adopting it as final. For reference, below we 
describe the methodology that was used to determine FY 2011 relative 
weights for the no-volume MS-LTC-DRGs. We crosswalked the no-volume MS-
LTC-DRG to a MS-LTC-DRG for which there were LTCH cases in the FY 2009 
MedPAR file and to which it was 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 MS-LTC-DRG to which a no-
volume MS-LTC-DRG was cross-walked in order to assign an appropriate 
relative

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weight for the no-volume MS-LTC-DRGs in FY 2011. (For more detail on 
our process for evaluating relative costliness, we refer readers to the 
FY 2010 IPPS/RY 2010 LTCH PPS final rule (73 FR 48543).) We believe in 
the rare event that there would be a few LTCH cases grouped to one of 
the no-volume MS-LTC-DRGs in FY 2011, the relative weights assigned 
based on the cross-walked MS-LTC-DRGs would result in an appropriate 
LTCH PPS payment because the crosswalks, which are based on similar 
clinical similarity and relative costliness, generally require 
equivalent relative resource use.
    We then assigned the relative weight of the cross-walked MS-LTC-DRG 
as the relative weight for the no-volume MS-LTC-DRG such that both of 
these MS-LTC-DRGs (that is, the no-volume MS-LTC-DRG and the cross-
walked MS-LTC-DRG) have the same relative weight for FY 2011. We note 
that if the cross-walked MS-LTC-DRG had 25 cases or more, its relative 
weight, which was calculated using the methodology described in Steps 1 
through 4 above, was assigned to the no-volume MS-LTC-DRG as well. 
Similarly, if the MS-LTC-DRG to which the no-volume MS-LTC-DRG is 
cross-walked had 24 or less cases and, therefore, was designated to one 
of the low-volume quintiles for purposes of determining the relative 
weights, we assigned the relative weight of the applicable low-volume 
quintile to the no-volume MS-LTC-DRG such that both of these MS-LTC-
DRGs (that is, the no-volume MS-LTC-DRG and the cross-walked MS-LTC-
DRG) have the same relative weight for FY 2011. (As we noted above, in 
the infrequent case where nonmonotonicity involving a no-volume MS-LTC-
DRG results, additional adjustments as described in Step 6 are required 
in order to maintain monotonically increasing relative weights.)
    For this final rule, a list of the no-volume MS-LTC-DRGs and the 
MS-LTC-DRG to which it is cross-walked (that is, the cross-walked MS-
LTC-DRG) for FY 2011 is shown in the chart below.
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    To illustrate this methodology for determining the relative weights 
for the FY 2011 MS-LTC-DRGs with no LTCH cases, we are providing the 
following example, which refers to the no-volume MS-LTC-DRGs crosswalk 
information for FY 2011 provided in the chart above.
    Example: There were no cases in the FY 2009 MedPAR file used for 
this final rule for MS-LTC-DRG 61 (Acute Ischemic Stroke with Use of 
Thrombolytic Agent with MCC). We determined that MS-LTC-DRG 70 
(Nonspecific Cebrovascular Disorders with MCC) was similar clinically 
and based on resource use to MS-LTC-DRG 61. Therefore, we assigned the 
same relative weight of MS-LTC-DRG 70 of 0.9165 for FY 2011 to MS-LTC-
DRG 61 (Table 11 of the Addendum to this final rule).
    Again, we note that, as this system is dynamic, it is entirely 
possible that the

[[Page 50385]]

number of MS-LTC-DRGs with no volume of LTCH cases based on the system 
will vary in the future. We used the most recent available claims data 
in the MedPAR file to identify no-volume MS-LTC-DRGs and to determine 
the relative weights in this final rule.
    Furthermore, for FY 2011, consistent with our historical relative 
weight methodology and as we proposed, we established MS-LTC-DRG 
relative weights of 0.0000 for the following 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 transplant MS-LTC-DRGs in the 
GROUPER program for administrative purposes only. Because we use the 
same GROUPER program for LTCHs as is used under the IPPS, removing 
these MS-LTC-DRGs would be administratively burdensome. (For additional 
information regarding our treatment of transplant MS-LTC-DRGs, we refer 
readers to the RY 2010 LTCH PPS final rule (74 FR 43964).)
    Step 6--Adjust the FY 2011 MS-LTC-DRG relative weights to account 
for nonmonotonically increasing relative weights.
    As discussed earlier in this section, the MS-DRGs contain base DRGs 
that have been subdivided into one, two, or three severity of illness 
levels. Where there are three severity levels, the most severe level 
has at least one code that is referred to as an MCC (that is, major 
complication or comorbidity). The next lower severity level contains 
cases with at least one code that is a CC (that is, complication or 
comorbidity). Those cases without an MCC or a CC are referred to as 
``without CC/MCC.'' When data do not support the creation of three 
severity levels, the base DRG is subdivided into either two levels or 
the base DRG is not subdivided. The two-level subdivisions could 
consist of the DRG with CC/MCC and the DRG without CC/MCC. 
Alternatively, the other type of two-level subdivision may consist of 
the DRG with MCC and the DRG without MCC.
    In those base MS-LTC-DRGs that are split into either two or three 
severity levels, cases classified into the ``without CC/MCC'' MS-LTC-
DRG are expected to have a lower resource use (and lower costs) than 
the ``with CC/MCC'' MS-LTC-DRG (in the case of a two-level split) or 
both the ``with CC'' and the ``with MCC'' MS-LTC-DRGs (in the case of a 
three-level split). That is, theoretically, cases that are more severe 
typically require greater expenditure of medical care resources and 
will result in higher average charges. Therefore, in the three severity 
levels, relative weights should increase by severity, from lowest to 
highest. If the relative weights decrease as severity decreased (that 
is, if within a base MS-LTC-DRG, an MS-LTC-DRG with CC has a higher 
relative weight than one with MCC, or the MS-LTC-DRG without CC/MCC has 
a higher relative weight than either of the others), they are 
nonmonotonic. We continue to believe that utilizing nonmonotonic 
relative weights to adjust Medicare payments would result in 
inappropriate payments because the payment for the cases in the higher 
severity level in a base MS-LTC-DRG (which are generally expected to 
have higher resource use and costs) would be lower than the payment for 
cases in a lower severity level within the same base MS-LTC-DRG (which 
are generally expected to have lower resource use and costs). 
Consequently, in determining the FY 2011 MS-LTC-DRG relative weights in 
this rule, consistent with our historical methodology and as we 
proposed, we combined MS-LTC-DRG severity levels within a base MS-LTC-
DRG for the purpose of computing a relative weight when necessary to 
ensure that monotonicity is maintained. For a comprehensive description 
of our existing methodology to adjust for nonmonotonicity, we refer 
readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43964 
through 43966). Any adjustments for nonmonotonicity that were made in 
determining the FY 2011 MS-LTC-DRG relative weights in this final rule 
by applying this methodology are denoted in Table 11 of the Addendum to 
this final rule.
    Step 7--Calculate the FY 2011 budget neutrality factor.
    As we established in the RY 2008 LTCH PPS final rule (72 FR 26882), 
under the broad authority conferred upon the Secretary to develop the 
LTCH PPS under section 123 of Public Law 106-113, as amended by section 
307(b) of Public Law 106-554, beginning with the MS-LTC-DRG update for 
FY 2008, the annual update to the MS-LTC-DRG classifications and 
relative weights is done in a budget neutral manner such that estimated 
aggregate LTCH PPS payments would be unaffected, that is, would be 
neither greater than nor less than the estimated aggregate LTCH PPS 
payments that would have been made without the MS-LTC-DRG 
classification and relative weight changes (Sec.  412.517(b) in 
conjunction with Sec.  412.503). (For a detailed discussion on the 
establishment of the budget neutrality requirement 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).)
    The MS-LTC-DRG classifications and relative weights are updated 
annually based on the most recent available LTCH claims data to reflect 
changes in relative LTCH resource use (Sec.  412.517(a) in accordance 
with Sec.  412.503). Under the budget neutrality requirement at Sec.  
412.517(b), for each annual update, the MS-LTC-DRG relative weights are 
uniformly adjusted to ensure that estimated aggregate payments under 
the LTCH PPS would not be affected (that is, decreased or increased). 
Consistent with that provision, in both the May 4, 2010 FY 2011 IPPS/
LTCH PPS proposed rule (75 FR 24042 through 24043) and the June 2, 2010 
FY 2011 IPPS/LTCH PPS supplemental proposed rule (75 FR 30970 through 
30971), we proposed to update the MS-LTC-DRG classifications and 
relative weights for FY 2011 based on the most recent available LTCH 
data, and to apply a budget neutrality adjustment in determining the FY 
2011 MS-LTC-DRG relative weights.
    Comment: One commenter objected to the budget neutrality 
requirement for the annual update to the MS-LTC-DRG relative weights. 
The commenter asserted that LTCHs with high acuity patients are being 
penalized because of the growth in lower acuity cases, and that CMS' 
budget neutrality methodology dilutes the LTCH aggregate case-mix from 
year-to-year.
    Response: We disagree with the commenter that our budget neutrality 
methodology dilutes a LTCH's case-mix or that LTCHs with more resource-
intensive cases are being penalized because of the growth in lower 
resource-intensive cases. By definition, the MS-LTC-DRG relative 
weights ``reflect the estimated relative cost of hospital resources 
used with that group compared to discharges classified within other 
groups'' (Sec.  412.515). Thus, the relative weights themselves are not 
intended to increase or decrease aggregate payments under the LTCH PPS. 
If in fact there is growth in less intensive, lower acuity cases, then 
our established budget neutrality methodology would act to increase the

[[Page 50386]]

relative weights for all MS-LTC-DRGs. This is because under our 
established budget neutrality methodology, each MS LTC DRG relative 
weight is uniformly adjusted to ensure that estimated aggregate 
payments under the LTCH PPS would not be affected. As we discussed when 
we established the budget neutrality requirement for the annual update 
of the MS-LTC-DRG classifications and relative weights, we believe the 
LTC-DRG relative weights should reflect the true costs of treating LTCH 
patients and should be updated annually, based on the latest available 
data, to reflect relative LTCH resource without affecting aggregate 
LTCH PPS (72 FR 26881 through 26883). For these reasons, we continue to 
believe that it is appropriate to update the MS-LTC-DRG classifications 
and relative weights in a budget neutral manner, and are not modifying 
our existing budget neutrality requirement or methodology in this final 
rule.
    As noted above, in section VII.A.1. of this preamble, a number of 
the provisions of the Affordable Care Act affected the policies, 
payment rates and factors under the LTCH PPS. Due to the timing of the 
passage of the legislation, we were unable to address those provisions 
in the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule, and the 
proposed policies and payment rates in that proposed rule did not 
reflect the new legislation. On June 2, 2010, we issued a FY 2011 IPPS/
LTCH PPS supplemental proposed rule that addressed the provisions of 
the Affordable Care Act that affected our proposed policies and payment 
rates for FY 2011 under the LTCH PPS. In that supplemental proposed 
rule, we proposed a standard Federal rate for FY 2011 that incorporates 
the ``other adjustment'' required in section 1886(m)(3)(A)(ii) as 
amended and described in section 1886(m)(4) as amended. This revision 
to the proposed standard Federal rate for FY 2011 also required us to 
revise the proposed relative weights for the MS-LTC-DRGs for FY 2011 
since our established methodology for updating the annual update to the 
MS-LTC-DRG classifications and relative weights in a budget neutral 
manner requires that estimated aggregate LTCH PPS payments would be 
unaffected. That is, under the budget neutrality requirement estimated 
aggregate LTCH PPS payments 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. (75 
FR 30970)
    To ensure budget neutrality in the update to the MS-LTC-DRG 
classifications and relative weights under Sec.  412.517(b), in both 
the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24042 
through 24043) and the June 2, 2010 FY 2011 IPPS/LTCH PPS supplemental 
proposed rule (75 FR 30970 through 30971), we proposed to continue to 
use our established two-step budget neutrality methodology. We received 
no specific comments on our proposal to continue to apply our 
established two-step budget neutrality methodology in determining the 
FY 2011 MS-LTC-DRG relative weights. Therefore, we are adopting it in 
this final rule. In this final rule, in the first step of our MS-LTC-
DRG budget neutrality methodology, we calculated and applied 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 MS-LTC-DRG relative 
weights (that is, the process itself) neither increases nor decreases 
the average CMI.
    To calculate the normalization factor for FY 2011 (the first step 
of our budget neutrality methodology), we used the following three 
steps: (1.a.) We used the most recent available LTCH claims data (FY 
2009) and grouped them using the FY 2011 GROUPER (Version 28.0) and the 
recalibrated FY 2011 MS-LTC-DRG relative weights (determined in steps 1 
through 6 of the Steps for Determining the FY 2011 MS-LTC-DRG Relative 
Weights above) to calculate the average CMI; (1.b.) we grouped the same 
LTCH claims data (FY 2009) using the FY 2010 GROUPER (Version 27.0) and 
FY 2010 MS-LTC-DRG relative weights and calculated the average CMI; and 
(1.c) we computed the ratio of these average CMIs by dividing the 
average CMI for FY 2010 (determined in Step 1.b.) by the average CMI 
for FY 2011 (determined in step 1.a.). In determining the MS-LTC-DRG 
relative weights for FY 2011, each recalibrated MS-LTC-DRG relative 
weight was multiplied by 1.10382 in the first step of the budget 
neutrality methodology, which produced ``normalized relative weights.''
    In this final rule, in the second step of our MS-LTC-DRG budget 
neutrality methodology, we determined 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 FY 2011 MS-LTC-DRG classifications and 
relative weights) are equal to estimated aggregate LTCH PPS payments 
before reclassification and recalibration (that is, the FY 2010 MS-LTC-
DRG classifications and relative weights). Accordingly, consistent with 
our existing methodology, we used FY 2009 discharge data to simulate 
payments and compare estimated aggregate LTCH PPS payments using the FY 
2010 MS-LTC-DRGs and relative weights to estimate aggregate LTCH PPS 
payments using the FY 2011 MS-LTC-DRGs and relative weights. 
Furthermore, consistent with our historical policy of using the best 
available data, we used the most recently available claims data for 
determining the budget neutrality adjustment factor in the final rule, 
that is, data from the March 2010 update of the FY 2009 MedPAR file.
    For this final rule, we determined the FY 2011 budget neutrality 
adjustment factor using the following three steps: (2.a.) We simulated 
estimated total LTCH PPS payments using the normalized relative weights 
for FY 2011 and GROUPER Version 28.0 (as described above); (2.b.) we 
simulated estimated total LTCH PPS payments using the FY 2010 GROUPER 
(Version 27.0) and the FY 2010 MS-LTC-DRG relative weights shown in 
Table 11 of the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44183 
through 44192); and (2.c.) we calculated the ratio of these estimated 
total LTCH PPS payments by dividing the estimated total LTCH PPS 
payments using the FY 2010 GROUPER (Version 27.0) and the FY 2010 MS-
LTC-DRG relative weights (determined in step 2.b.) by the estimated 
total LTCH PPS payments using the FY 2011 GROUPER (Version 28.0) and 
the normalized MS-LTC-DRG relative weights for FY 2011 (determined in 
Step 2.a.). In determining the FY 2011 MS-LTC-DRG relative weights, 
each normalized relative weight was multiplied by a budget neutrality 
factor of 0.988124 in the second step of the budget neutrality 
methodology to determine the budget neutral FY 2011 relative weight for 
each MS-LTC-DRG.
    Accordingly, in determining the FY 2011 MS-LTC-DRG relative weights 
in this final rule, consistent with our existing methodology and as we 
proposed, we applied a normalization factor of 1.10382 and a budget 
neutrality factor of 0.988124 (computed as described above). Table 11 
in the Addendum to this final rule lists the MS-LTC-DRGs and their 
respective relative weights, geometric mean length of stay, and five-
sixths of the geometric mean length of stay (used in determining SSO 
payments under

[[Page 50387]]

Sec.  412.529) for FY 2011. The FY 2011 MS-LTC-DRG relative weights in 
Table 11 in the Addendum to this final rule reflect both the 
normalization factor of 1.10382 and the budget neutrality factor of 
0.988124.

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

1. Overview of Development of the LTCH Payment Rates
    The LTCH PPS was effective beginning with a LTCH's first cost 
reporting period beginning on or after October 1, 2002. Effective 
beginning with that cost reporting period, LTCHs were paid, during a 5-
year transition period, a total LTCH prospective payment that was 
comprised of an increasing proportion of the LTCH PPS Federal rate and 
a decreasing proportion based on reasonable cost-based principles, 
unless the hospital made a one-time election to receive payment based 
on 100 percent of the Federal rate, as specified in Sec.  412.533. New 
LTCHs (as defined at Sec.  412.23(e)(4)) are paid based on 100 percent 
of the Federal rate, with no phase-in transition payments.
    The basic methodology for determining LTCH PPS Federal prospective 
payment rates is set forth at Sec.  412.515 through Sec.  412.536. In 
this section, we discuss the factors that will be used to update the 
LTCH PPS standard Federal rate for FY 2011, that is, effective for LTCH 
discharges occurring on or after October 1, 2010 through September 30, 
2011.
    For further details on the development of the FY 2003 standard 
Federal rate, we refer readers to the August 30, 2002 LTCH PPS final 
rule (67 FR 56027 through 56037). For subsequent updates to the LTCH 
PPS Federal rate, we refer readers to the following final rules: RY 
2004 LTCH PPS final rule (68 FR 34134 through 34140), RY 2005 LTCH PPS 
final rule (69 FR 25682 through 25684), RY 2006 LTCH PPS final rule (70 
FR 24179 through 24180), RY 2007 LTCH PPS final rule (71 FR 27819 
through 27827), RY 2008 LTCH PPS final rule (72 FR 26870 through 
27029), RY 2009 LTCH PPS final rule (73 FR 26800 through 26804), and RY 
2010 LTCH PPS final rule (74 FR 44021 through 44030). The update to the 
LTCH PPS standard Federal rate for FY 2011 is presented in section V.A. 
of the Addendum to this final rule. The two components of the update to 
the LTCH PPS standard Federal rate for FY 2011 are discussed below.
2. Market Basket for LTCHs Reimbursed Under the LTCH PPS
a. Overview
    Historically, the Medicare program has used a market basket to 
account for price increases in the services furnished by providers. The 
market basket used for the LTCH PPS includes both operating and 
capital-related costs of LTCHs because the LTCH PPS uses a single 
payment rate for both operating and capital-related costs. With the 
initial implementation of the LTCH PPS for FY 2003, we established the 
use of the excluded hospital with capital market basket as the LTCH PPS 
market basket (67 FR 56016 through 56017). The development of the 
initial LTCH PPS standard Federal rate for FY 2003, using the excluded 
hospital with capital market basket, is discussed in further detail in 
the August 30, 2002 LTCH PPS final rule (67 FR 56027 through 56033). 
For further details on the development of the excluded hospital with 
capital market basket, we refer readers to the RY 2004 LTCH PPS final 
rule (68 FR 34134 through 34137).
    Beginning in RY 2007, we adopted the rehabilitation, psychiatric, 
long-term care (RPL) hospital market basket based on FY 2002 data as 
the appropriate market basket of goods and services under the LTCH PPS 
for discharges occurring on or after July 1, 2006. As discussed in the 
RY 2007 LTCH PPS final rule (71 FR 27810), based on our research, we 
did not develop a market basket specific to LTCH services. We were 
unable to create a separate market basket specifically for LTCHs at 
that time due to the small number of facilities and the limited amount 
of data that was reported.
    For further details on the development of the FY 2002-based RPL 
market basket, we refer readers to the RY 2007 LTCH PPS final rule (71 
FR 27810 through 27817).
b. Revision of Certain Market Basket Updates as Required by the 
Affordable Care Act
    As discussed in the FY 2011 IPPS/LTCH PPS supplemental proposed 
rule issued on June 2, 2010 (75 FR 30965 through 30971), several 
provisions of the Affordable Care Act affected the policies and payment 
rates for RY 2010 and FY 2011 under the LTCH PPS. Section 
1886(m)(3)(A)(ii) of the Act, as added by section 3401(c) of the 
Affordable Care Act, specifies that for each of rate years 2010 through 
2019, any annual update to the standard Federal rate shall be reduced 
by the other adjustment specified in new section 1886(m)(4) of the Act. 
Furthermore, section 1886(m)(3)(A)(i) of the Act specifies that, for 
rate year 2012 and subsequent rate years, any annual update to the 
standard Federal rate shall be reduced by the productivity adjustment 
described in section 1886(b)(3)(B)(xi)(II) of the Act. Section 
1886(m)(3)(A)(ii) and sections 1886(m)(4)(A) and (B) of the Act require 
a 0.25 percentage point reduction for rate year 2010 and a 0.50 
percentage point reduction for rate year 2011. 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. Furthermore, 
section 3401(p) of the Affordable Care Act specifies that the 
amendments made by section 3401(c) of such Act shall not apply to 
discharges occurring before April 1, 2010. (75 FR 30968 through 30971)
    We note that in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 
24026 through 24027), since the annual update to the LTCH PPS policies, 
rates and factors now occurs on October 1, we proposed to adopt 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. Consequently, in that proposed rule and 
in the FY 2011 IPPS/LTCH PPS supplemental proposed rule, for purposes 
of clarity, when discussing the annual update for the LTCH PPS, we 
employed ``fiscal year'' rather than ``rate year'' because it is our 
intent that the phrase ``fiscal year'' be used prospectively in all 
circumstances dealing with the LTCH PPS. Similarly, although the 
language of section 3401(c) and section 10319 and section 1105(b) of 
the Affordable Care Act refer to years 2010 and thereafter under the 
LTCH PPS as ``rate year,'' consistent with our proposal to change the 
terminology used under the LTCH PPS from ``rate year'' to ``fiscal 
year,'' for purposes of clarity, in both the FY 2011 IPPS/LTCH PPS 
proposed and supplemental proposed rules, when discussing the annual 
update for the LTCH PPS, including the provisions of the Affordable 
Care Act, we employed ``fiscal year'' rather than ``rate year'' for 
2011 and subsequent years because it is our intent that ``fiscal year'' 
be used prospectively in all circumstances dealing with the LTCH PPS. 
(As discussed below in VII.D. of this preamble, we are finalizing our

[[Page 50388]]

proposal to adopt the term ``fiscal year'' (FY) rather than ``rate 
year'' (RY) under the LTCH PPS beginning October 1, 2010. Therefore, in 
this final rule, we employ ``fiscal year'' rather than ``rate year'' 
for 2011 and subsequent years in all circumstances dealing with the 
LTCH PPS.)
c. Change to Reflect the Market Basket Update for LTCHs for RY 2010 
(Sec.  412.523(c)(3)(vi))
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule appearing in the 
Federal Register on August 27, 2009 (74 FR 43754), we established 
policies, payment rates and factors for determining payments under the 
LTCH PPS for RY 2010 (October 1, 2009 through September 30, 2010). 
Several provisions of the Affordable Care Act affected some of the 
policies, payment rates, and factors for determining payments under the 
LTCH PPS for RY 2010. In a notice issued on June 2, 2010 in the Federal 
Register (75 FR 31128 through 31130), we established revised RY 2010 
LTCH PPS rates and factors consistent with the provisions of sections 
1886(m)(3) and (4) of the Act, as added and amended by sections 
3401(c), 3401(p), 10319(b), and 1105(b) of the Affordable Care Act. 
Section 1886(m)(3)(A)(ii) of the Act provides for each of RYs 2010 
through 2019, the annual update to the standard Federal rate is reduced 
by the ``other adjustment'' described in section 1886(m)(4) of the Act. 
Specifically, sections 1886(m)(3)(A)(ii) and (m)(4)(A) of the Act 
require a 0.25 percentage point reduction to the annual update to the 
standard Federal rate for RY 2010. Section 1886(m)(3)(A) of the Act, on 
its face, explicitly provides for a revised annual update to the 
standard Federal rate beginning RY 2010, thus resulting in a single 
revised RY 2010 standard Federal rate. Section 3401(p) of the 
Affordable Care Act provides that, notwithstanding the previous 
provisions of this section, the amendments made by subsections (a), (c) 
and (d) shall not apply to discharges occurring before April 1, 2010. 
When read in conjunction, we believe section 1886(m)(3)(A) of the Act 
and section 3401(p) of the Affordable Care Act provide for a single 
revised RY 2010 standard Federal rate. However, for payment purposes, 
discharges occurring on or after October 1, 2009 and before April 1, 
2010, simply will not be based on the revised RY 2010 standard Federal 
rate.
    As discussed in the June 2, 2010 Federal Register notice (75 FR 
31128 through 31129), consistent with our historical practice and the 
methodology used in the FY 2010 IPPS/RY 2010 final rule, we announced 
an update to the LTCH PPS standard Federal rate for RY 2010 of 1.74 
percent. This annual update for RY 2010 is based on the full forecasted 
estimated increase in the LTCH PPS market basket for RY 2010 of 2.5 
percent, adjusted by the 0.25 percentage point reduction required by 
sections 1886(m)(3)(A)(ii) and (m)(4)(A) of the Act, and an adjustment 
to account for the increase in case-mix in a prior period (FY 2007) 
resulting from changes in documentation and coding practices of -0.5 
percent. In the FY 2011 IPPS/LTCH PPS supplemental proposed rule (75 FR 
30969), under the authority of sections 1886(m)(3)(A)(ii) and (m)(4)(A) 
of the Act, we proposed to amend Sec.  412.523(c)(3)(vi) to specify 
that the standard Federal rate for the LTCH PPS rate year beginning 
October 1, 2009 and ending September 30, 2010, is the standard Federal 
rate for the previous rate year updated by 1.74 percent. Furthermore, 
in that same supplemental proposed rule, consistent with section 
3401(p) of the Affordable Care Act, we also proposed to revise Sec.  
412.523(c)(3)(vi) to specify that, with respect to discharges occurring 
on or after October 1, 2009 and before April 1, 2010, payments are 
based on the standard Federal rate specified under Sec.  
412.523(c)(3)(v) updated by 2.0 percent (that is, a standard Federal 
rate of $39,896.65 (74 FR 44022)). We also noted that the provisions of 
the law that add sections 1886(m)(3) and (m)(4) of the Act are self-
implementing, and in the FY 2011 IPPS/LTCH PPS supplemental proposed 
rule, we proposed to incorporate existing law regarding the 0.25 
percentage point reduction to the annual update to the standard Federal 
rate for RY 2010 (including the application of the revised standard 
Federal rate that reflects that 0.25 percentage point reduction in 
making payments for discharges on or after April 1, 2010) into the 
regulations at Sec.  412.529(c)(3)(vi) to reflect this required policy 
change.
    Comment: One commenter on the June 2, 2010 notice stated that the 
methodology CMS used to apply the market basket adjustment required by 
the Affordable Care Act appears to be a departure from what is intended 
by the statute and questions why CMS did not simply subtract the 
required 0.25 percentage point reduction for RY 2010 from the 
previously established RY 2010 update (implemented in the FY 2010 IPPS/
RY 2010 LTCH PPS final rule). The commenter believed that the required 
market basket reduction should be implemented by subtraction and 
requested that CMS explain its method for implementing the required 
0.25 percentage point reduction for RY 2010.
    Response: We disagree with the commenter that our implementation of 
the required market basket reduction for RY 2010 required by the 
Affordable Care Act is inconsistent with the intent of that statutory 
provision. As we stated in the notice that implemented the required 
0.25 percentage point reduction for RY 2010, ``consistent with sections 
1886(m)(3)(A)(ii) and (m)(4)(A) of the Act, the market basket update 
under the LTCH PPS for RY 2010 is 2.25 percent (that is, the second 
quarter 2009 forecast estimate of the RY 2010 LTCH PPS market basket 
increase of 2.5 percent minus the 0.25 percentage point required by 
sections 1886(m)(3)(A)(ii) and (m)(4)(A) of the Act.)'' (emphasis 
added; 75 FR 31128). Thus, we implemented the statutorily required 
market basket reduction (0.25 percentage point for RY 2010) by 
subtraction from the full market basket update (2.5 percent) that was 
established in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (2.5 
percent minus 0.25 percentage point = 2.25 percent).
    However, in addition to the full market basket update, in 
determining the update for the standard Federal rate for RY 2010, we 
applied an adjustment to account for the increase in case-mix due to 
changes in documentation and coding in a prior period that do not 
reflect increased severity of illness. Specifically, in the FY 2010 
IPPS/RY 2010 LTCH PPS final rule (74 FR 43972), we established a -0.5 
percent adjustment to account for the increase in case-mix due to 
changes in documentation and coding in a prior period (FY 2007) that do 
not reflect increased severity of illness. Therefore, consistent with 
our methodology for determining the update to the standard Federal rate 
for RY 2010 (74 FR 44022), in the June 2, 2010 notice (75 FR 31128), we 
established an update factor to the standard Federal rate for RY 2010 
of 1.74 percent calculated as 1.0225 x (1 divided by 1.005) = 1.0174 or 
1.74 percent. For the reasons explained above, we believe the 
determination of the 1.74 percent update for RY 2010 based on the 
market basket update of 2.25 percent (computed as the full RY 2010 
market basket increase of 2.5 percent minus the 0.25 percentage point 
required by sections 1886(m)(3)(A)(ii) and (m)(4)(A) of the Act) and an 
adjustment of -0.5 percent to account for the increase in case-mix due 
to changes in documentation and coding in a prior period that do not 
reflect increased severity of illness is

[[Page 50389]]

consistent with the provisions of the Affordable Care Act.
    In this final rule, we are adopting as final the proposed changes 
to the update for RY 2010 to the standard Federal rate at Sec.  
412.523(c)(3)(vi) to reflect the provisions of the Affordable Care Act. 
Accordingly, under the authority of sections 1886(m)(3)(A)(ii) and 
(m)(4)(A) of the Act, we are revising Sec.  412.523(c)(3)(vi) to 
specify that the standard Federal rate for the LTCH PPS rate year 
beginning October 1, 2009 and ending September 30, 2010, is the 
standard Federal rate for the previous rate year updated by 1.74 
percent. Furthermore, consistent with section 3401(p) of the Affordable 
Care Act, we also are revising Sec.  412.523(c)(3)(vi) to specify that, 
with respect to discharges occurring on or after October 1, 2009 and 
before April 1, 2010, payments are based on the standard Federal rate 
in Sec.  412.523(c)(3)(v) updated by 2.0 percent.
d. Market Basket Under the LTCH PPS for FY 2011
    As discussed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 
24044), when we initially created the FY 2002-based RPL market basket, 
we were unable to create a separate market basket specifically for 
LTCHs due, in part, to the small number of facilities and the limited 
data that were provided in the Medicare cost reports. Over the last 
several years, however, the number of LTCH facilities submitting valid 
Medicare cost report data has increased. Based on this development, as 
well as our desire to move from one RPL market basket to three stand-
alone and provider-specific market baskets (for IRFs, IPFs, and LTCHs, 
respectively), we plan to begin exploring the viability of creating 
these market baskets for future use. However, as we discussed in the RY 
2010 LTCH PPS final rule (74 FR 43967 through 43968), we are conducting 
further research to assist us in understanding the reasons for the 
variations in costs and cost structure between freestanding IRFs and 
hospital-based IRFs. We also are researching the reasons for similar 
variations in costs and cost structure between freestanding IPFs and 
hospital-based IPFs. Therefore, as we continue to explore the 
development of stand-alone market baskets for LTCHs, IRFs and IPFs, 
respectively, as we stated in the FY 2011 IPPS/LTCH PPS proposed rule, 
we believe that it is appropriate to continue to use the FY 2002-based 
RPL market basket for LTCHs, IRFs and IPFs under their respective PPSs.
    As we also stated in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 
24044), for the reasons discussed when we adopted the RPL market basket 
for use under the LTCH PPS in the RY 2007 LTCH PPS final rule (71 FR 
27810 through 27817), we continue to believe that the RPL market basket 
appropriately reflects the cost structure of LTCHs. For the reasons 
explained above, in that same proposed rule, we proposed to continue to 
use the FY 2002-based RPL market basket under the LTCH PPS for FY 2011. 
We also stated that we are hopeful that progress can be made in the 
near future with respect to creating stand-alone market baskets for 
LTCHs, IRFs, and IPFs and, as a result, may propose to rebase the 
appropriate market basket(s) for subsequent updates in the future.
    Comment: One commenter stated that there are sufficient LTCHs now 
to support the development of a separate LTCH market basket. The 
commenter stated that in order for the LTCH PPS to accurately reflect 
the costs of providing services in an LTCH, CMS should adopt a market 
basket that is limited to LTCH goods and services.
    Response: As stated in the FY 2011 IPPS/LTCH PPS proposed rule (75 
FR 24044), we continue to explore the possibility of implementing three 
separate, stand-alone market baskets for hospitals excluded from the 
IPPS, rather than use a single RPL market basket for IRFs, IPFs, and 
LTCHs. We addressed a similar comment in the FY 2010 IPPS/LTCH PPS 
final rule (74 FR 43968) where we stated that while the number of LTCHs 
submitting cost report data has increased, we believe further research 
is required to determine the feasibility of developing stand-alone 
market baskets for LTCHs, IRFs, and IPFs. Furthermore, we stated that 
we will be exploring the viability and technical appropriateness of a 
stand-alone market basket. At this time, we are still conducting 
further research to assist us in understanding the reasons for the 
variations in costs and cost structure between freestanding and 
hospital based providers, specifically IRFs and IPFs. Therefore, as we 
continue to explore the development of stand-alone market baskets for 
LTCHs, IRFs and IPFs, respectively, we believe that it is appropriate 
to continue to use the FY 2002-based RPL market basket for LTCHs, IRFs 
and IPFs under their respective PPSs.
    In this final rule, under the authority of section 123 of the BBRA 
as amended by section 307(b) of the BIPA, we are establishing the 
continued use of the FY 2002-based RPL market basket under the LTCH PPS 
for FY 2011. For the reasons explained above in this section, we 
continue to believe that the RPL market basket appropriately reflects 
the cost structure of LTCHs.
e. Market Basket Update for LTCHs for FY 2011
    Consistent with our historical practice, we estimate the RPL market 
basket update based on IHS Global Insight, Inc.'s forecast using the 
most recent available data. IHS Global Insight, Inc. is a nationally 
recognized economic and financial forecasting firm that contracts with 
CMS to forecast the components of the hospital market baskets. In the 
FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24044), based on IHS Global 
Insight Inc.'s first quarter 2010 forecast, the proposed FY 2011 market 
basket estimate for the LTCH PPS using the FY 2002-based RPL market 
basket was 2.4 percent, as this was the best available data at that 
time. In addition, consistent with our historical practice of using 
market basket estimates based on the most recent available data, we 
proposed that if more recent data are available when we develop the 
final rule, we would use such data, if appropriate.
    Section 1886(m)(3)(A)(ii) of the Act as added by section 3401(c) of 
the Affordable Care Act specifies that, for each of RYs 2010 through 
2019, any annual update to the standard Federal rate shall be reduced 
by the other adjustment specified in new section 1886(m)(4) of the Act. 
Furthermore, section 1886(m)(3)(A)(i) of the Act specifies that, for 
rate year 2012 and each subsequent rate year, any annual update to the 
standard Federal rate shall be reduced by the productivity adjustment 
described in section 1886(b)(3)(B)(xi)(II) of the Act.
    As discussed in the FY 2011 IPPS/LTCH PPS supplemental proposed 
rule (75 FR 30969 through 30970), for FY 2011, section 1886(m)(4)(B) of 
the Act, as added and amended by sections 3401(c), 10319(b), and 
1105(b) of the Affordable Care Act, requires a 0.50 percentage point 
reduction to the annual update to the standard Federal rate for rate 
year 2011. Therefore in that same supplemental proposed rule, we 
proposed a market basket update under the LTCH PPS for FY 2011 of 1.9 
percent (that is, the most recent estimate of the LTCH PPS market 
basket update at that time of 2.4 percent minus the 0.50 percentage 
point required in section 1886(m)(4)(B) of the Act. Again, consistent 
with our historical practice of using market basket estimates based on 
the most recent available data, we proposed that if more recent data 
are available when we develop the final rule, we would use such data, 
if appropriate, in determining the final

[[Page 50390]]

market basket update under the LTCH PPS for FY 2011. (We note that in 
the FY 2011 IPPS/LTCH PPS supplemental proposed rule (75 FR 30969 
through 30970), we proposed to update the LTCH PPS standard Federal 
rate by -0.59 percent for FY 2011, which reflected the proposed market 
basket update of 1.9 percent (discussed above) and a proposed 
adjustment to account for the increase in case-mix in the prior periods 
that resulted from changes in documentation and coding practices rather 
than increases in patients' severity of illness (discussed in the FY 
2011 IPPS/LTCH PPS proposed rule (75 FR 24045 through 24046)).
    We did not receive any public comments on our proposed market 
basket update under the LTCH PPS for FY 2011 of 1.9 percent. However, 
we received a few comments that stated that the market basket update 
for FY 2011 should not be adjusted to account for the increase in case-
mix in the prior periods that resulted from changes in documentation 
and coding practices rather than increases in patients' severity of 
illness. We summarize and respond to these comments below in section 
VII.C.3. of this preamble.
    In this final rule, as proposed and consistent with our historical 
practice, we estimate the RPL market basket update based on IHS Global 
Insight, Inc.'s forecast using the most recent available data. IHS 
Global Insight, Inc. is a nationally recognized economic and financial 
forecasting firm that contracts with CMS to forecast the components of 
the hospital market baskets. Based on IHS Global Insight, Inc.'s second 
quarter 2010 forecast, the FY 2011 market basket estimate for the LTCH 
PPS using the FY 2002-based RPL market basket is 2.5 percent.
    As discussed above, for FY 2011, section 1886(m)(4)(B) of the Act 
as added and amended by sections 3401(c), 10319 and 1105(b) of the 
Affordable Care Act, requires a 0.50 percentage point reduction to the 
annual update to the standard Federal rate for rate year 2011. 
Therefore, in this final rule, we are establishing a market basket 
update under the LTCH PPS for FY 2011 of 2.0 percent (that is, the most 
recent estimate of the LTCH PPS market basket of 2.5 percent minus the 
0.50 percentage point required in section 1886(m)(4)(B) of the Act. (We 
note that in section III.A. of the Addendum to this final rule, for FY 
2011, we are establishing an update to the LTCH PPS standard Federal 
rate of -0.49 percent, based on the market basket update for FY 2011 of 
2.0 percent (discussed above) and an adjustment of -2.5 percent to 
account for the increase in case-mix in the prior periods that resulted 
from changes in documentation and coding practices rather than 
increases in patient severity of illness (discussed below in section 
VII.C.3. of this preamble).)
f. Labor-Related Share Under the LTCH PPS for FY 2011
    As discussed in section V.B. of the Addendum to this final rule, 
under the authority of section 123 of the BBRA as amended by section 
307(b) of the BIPA, we established an adjustment to the LTCH PPS 
payments to account for differences in LTCH area wage levels at Sec.  
412.525(c). The labor-related portion of the LTCH PPS Federal rate, 
hereafter referred to as the labor-related share, is adjusted to 
account for geographic differences in area wage levels by applying the 
applicable LTCH PPS wage index.
    The labor-related share is determined by identifying the national 
average proportion of operating and capital costs that are related to, 
influenced by, or vary with the local labor market. We continue to 
classify a cost category as labor-related if the costs are labor-
intensive and vary with the local labor market. In the FY 2011 IPPS/
LTCH PPS proposed rule (75 FR 24044), consistent with our proposal to 
continue to use the FY 2002-based RPL market basket under the LTCH PPS 
for FY 2011 discussed above, we proposed to continue to define the 
labor-related share as the national average proportion of operating 
costs that are attributable to wages and salaries, employee benefits, 
contract labor, professional fees, labor-intensive services, and a 
labor-related portion of capital based on the FY 2002-based RPL market 
basket. (Additional information on the development of the FY 2002-based 
RPL market basket used under the LTCH PPS can be found in the RY 2007 
LTCH PPS final rule (71 FR 27809 through 27818).) Furthermore, 
consistent with our historical practice of using the best available 
data, in the FY 2011 IPPS/LTCH PPS proposed rule, we proposed to use 
IHS Global Insight, Inc.'s first quarter 2010 forecast of the FY 2002-
based RPL market basket for FY 2011 to determine the proposed labor-
related share for the LTCH PPS for FY 2011 that would be effective for 
discharges occurring on or after October 1, 2010, and through September 
30, 2011, as these were the most recent available data at that time. 
Consistent with our historical practice of using the best data 
available, we also proposed that if more recent data are available to 
determine the labor-related share used under the LTCH PPS for FY 2011, 
we would use these data for determining the FY 2011 LTCH PPS labor-
related share in the final rule.
    As discussed in the FY 2011 IPPS/LTCH PPS proposed rule, the labor-
related share for FY 2011 would continue to be determined as the sum of 
the FY 2011 relative importance of each labor-related cost category, 
and would reflect the different rates of price change for these cost 
categories between the base year (FY 2002) and FY 2011. Using the best 
available data at that time and our proposed methodology, we proposed a 
labor-related share of 75.407 percent for use under the LTCH PPS in FY 
2011. We did not receive any public comments on our proposed labor-
related share for FY 2011. Therefore, we are adopting our proposed 
methodology for determining the labor-related share as final and 
applying it to the best available data consistent with our historical 
practice in this final rule.
    In this final rule, as we proposed, for FY 2011 we continue to 
define the labor-related share as the national average proportion of 
operating costs that are attributable to wages and salaries, employee 
benefits, contract labor, professional fees, labor-intensive services, 
and a labor-related portion of capital based on the FY 2002-based RPL 
market basket. Consistent with our historical practice of using the 
best available data, for this final rule, we are using IHS Global 
Insight, Inc.'s second quarter 2010 forecast of the FY 2002-based RPL 
market basket for FY 2011 to determine the labor-related share under 
the LTCH PPS for FY 2011 that will be effective for discharges 
occurring on or after October 1, 2010, and through September 30, 2011, 
as these are the most recent available data.
    Based on IHS Global Insight, Inc.'s second quarter 2010 forecast of 
the FY 2002-based RPL market based basket for FY 2011, which is 
currently the best available data, the sum of the relative importance 
for FY 2011 for operating costs (wages and salaries, employee benefits, 
professional fees, and all-other labor-intensive services) is 71.384 
percent, as shown in the chart below. As stated in the FY 2011 IPPS/
LTCH PPS proposed rule (75 FR 24044), the portion of capital that is 
influenced by the local labor market is estimated to be 46 percent. 
Because the relative importance for capital in FY 2011 is 8.450 percent 
of the FY 2002-based RPL market basket, we are taking 46 percent of 
8.450 percent to determine the labor-related share of capital for FY 
2011. The result is 3.887 percent, which we added to 71.384 percent for 
the operating cost amount to determine the total labor-related share 
for FY 2011. Accordingly, under the authority set forth in section

[[Page 50391]]

123 of the BBRA as amended by section 307(b) of the BIPA, we are 
establishing a labor-related share of 75.271 percent under the LTCH PPS 
for the FY 2011.
    The chart below shows the FY 2011 relative importance labor-related 
share using the FY 2002-based RPL market basket.

FY 2011 Labor-Related Share Based on the FY 2002-Based RPL Market Basket
------------------------------------------------------------------------
                                                               FY 2011
                                                               relative
                       Cost category                          importance
                                                              (percent)
------------------------------------------------------------------------
Wages and Salaries.........................................       52.449
Employee Benefits..........................................       13.971
Professional Fees..........................................        2.855
All Other Labor-Intensive Services.........................        2.109
                                                            ------------
    Subtotal...............................................       71.384
Labor-Related Share of Capital Costs (46 percent x 8.450)..        3.887
                                                            ------------
    Total Labor-Related Share..............................       75.271
------------------------------------------------------------------------

3. Adjustment for Changes in LTCHs' Case-Mix Due to Changes in 
Documentation and Coding Practices That Occurred in a Prior Period
a. Background
    Beginning in RY 2007, in updating the standard Federal rate for the 
LTCH PPS, we have accounted for increases in payments from a past 
period that were due to changes in case-mix due to changes in 
documentation and coding practices. For additional information on the 
adjustments established for changes in LTCHs' case-mix due to changes 
in documentation and coding practices that occurred in a prior period, 
we refer readers to the following final rules published in the Federal 
Register: the RY 2007 LTCH PPS final rule (71 FR 27820); the RY 2008 
LTCH PPS final rule (72 FR 26880 through 26890); the RY 2009 LTCH PPS 
final rule (73 FR 26805 through 26812); and the FY 2010 IPPS/RY 2010 
LTCH PPS final rule (74 FR 43969 through 43970).
    For RY 2010, we performed an analysis of LTCHs' case-mix index 
(CMI) changes in the prior periods (FY 2007 and FY 2008) and 
established a methodology to determine if an adjustment to account for 
changes in documentation and coding practices was applicable (74 FR 
43969 through 43970). This methodology is consistent with the 
methodology established for case-mix analysis under the IPPS. In 
general, under our established methodology, in order to isolate the 
documentation and coding effect, we divided the combined effect of the 
changes in documentation and coding and measurement by the measurement 
effect (74 FR 43970).
    For the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we performed a 
retrospective evaluation of the FY 2007 and FY 2008 data for LTCH 
claims paid through December 2008. Based on this evaluation, our 
actuaries determined that case-mix increased 0.5 percent in FY 2007 and 
1.3 percent in FY 2008 due to documentation and coding that did not 
reflect real changes in case-mix. In light of this analysis, in the FY 
2010 IPPS/RY 2010 LTCH PPS proposed rule, we proposed to apply a 
cumulative adjustment for the effect of documentation and coding that 
do not reflect an increase in patients' severity of illness of -1.8 
percent (that is, -0.5 percent for FY 2007 plus -1.3 percent for FY 
2008). We also invited public comment on our proposed methodology and 
analysis. (For additional information on our methodology and the 
results of the retrospective evaluation, we refer reader to sections 
VIII.C.3. of the preamble of the FY 2010 IPPS/RY 2010 LTCH PPS proposed 
and final rules (74 FR 24229 through 24230 and 74 FR 43970 through 
43972, respectively).)
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we responded to 
comments on our methodology for the retrospective evaluation of FY 2007 
and FY 2008 claims data, as well as our proposed -1.8 percent 
documentation and coding adjustment for RY 2010. In that same final 
rule, we finalized our proposal and established an adjustment of -0.5 
percent to account for the effect of documentation and coding increase 
that occurred in FY 2007. After consideration of public comments, and 
consistent with the decision to postpone the application of the 
prospective adjustment for estimated FY 2008 documentation and coding 
effect under the IPPS, we delayed the application of the FY 2008 
documentation and coding adjustment of -1.3 percent that was proposed 
under the LTCH PPS for RY 2010. We also stated our intent to address 
any future documentation and coding adjustment to the LTCH PPS standard 
Federal rate based on our analysis of the FY 2008 LTCH claims data in 
the FY 2011 rulemaking cycle through the notice-and-comment rulemaking 
process. (74 FR 43970 through 43972)
b. Evaluation of FY 2009 Claims Data
    For the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24045 through 
24046), we performed a thorough retrospective evaluation of the most 
recent available claims data (that is, FY 2009 claims updated through 
December 2009) using the methodology that was adopted in the FY 2010 
IPPS/RY 2010 LTCH PPS final rule and that was used to assess whether an 
adjustment for RY 2010 to account for the effect of documentation and 
coding practices that occurred in a prior period was appropriate. (We 
refer readers to the explanation of our rationale for adopting this 
methodology as well as its intended purpose in the FY 2010 IPPS/RY 2010 
LTCH PPS final rule (74 FR 43970 through 43972).) Based on the results 
of this analysis, we estimated that the effect of documentation and 
coding changes that occurred in FYs 2008 and 2009 was 2.5 percent. (We 
refer readers to the discussion in the FY 2011 IPPS/LTCH PPS proposed 
rule (74 FR 24045 through 24046) for additional details on the 
methodology and results of the retrospective evaluation of the FY 2009 
claims updated through December 2009.) We also noted in the FY 2010 
IPPS/RY 2010 LTCH PPS proposed and final rules that we applied our 
methodology separately to FY 2007 and FY 2008 LTCH claims data because 
those data were generated under different patient classification 
systems (that is, FY 2007 was the last year under the CMS LTC-DRGs and 
FY 2008 was the first year under the MS-LTC-DRGs). Because the same 
patient classification system was in effect for both FY 2008 and FY 
2009 (that is, the MS-LTC-DRGs), consistent with the application of 
this methodology under the IPPS, in the FY 2011 IPPS/LTCH PPS proposed 
rule, we explained that we believe it is appropriate to propose to 
apply our established methodology for determining the cumulative 
effects of documentation and coding for FYs 2008 and 2009, rather than 
proposing to applying the methodology separately to FY 2008 and FY 2009 
LTCH claims data. We sought public comment on this proposal. We did not 
receive any public comments on the proposal to apply our established 
methodology for determining the cumulative effects of documentation and 
coding for FYs 2008 and 2009. Therefore, we are adopting this proposal 
as final in this final rule.
    For this final rule, consistent with our historical practice and as 
we proposed, we updated our analysis using FY 2010 claims updated 
through March 2010 and the same methodology employed in the FY 2011 
IPPS/LTCH PPS proposed rule. This analysis also resulted in an 
estimated effect of documentation and coding in FYs 2008 and 2009 of 
2.5 percent. We received several comments on our proposed methodology 
for estimating the effect of documentation

[[Page 50392]]

and coding in FYs 2008 and 2009 and our proposal to apply an adjustment 
for the effect of documentation and coding in a prior period (FYs 2008 
and 2009) that do not reflect an increase in severity of illness of -
2.5 percent (discussed below), especially from national LTCH 
associations, hospital systems, and individual hospitals. MedPAC also 
commented on these proposals. A summary of these comments and our 
responses are presented below in the section VII.C.3.c. of this 
preamble.
c. FY 2011 Documentation and Coding Adjustment
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24046), based on 
retrospective analysis of FY 2009 LTCH claims data (discussed above), 
we proposed to apply an adjustment for changes in documentation and 
coding in a prior period (FYs 2008 and 2009) that do not reflect an 
increase in severity of illness of -2.5 percent. Accordingly, we 
proposed to update the standard Federal rate for FY 2011 based on the 
most recent estimate of the market basket increase, including the 
required percentage point reduction and a proposed adjustment to 
account for changes in documentation and coding practices of -2.5 
percent. We received the following public comments on that proposal:
    Comment: MedPAC concurred with CMS' methodology used to estimate 
the documentation and coding effect for LTCH and CMS' proposal to 
reduce LTCH payment rates by 2.5 percent, noting that the 
implementation of MS-LTC-DRGs in 2008 gave LTCHs a financial incentive 
to improve documentation and coding to more fully account for each 
patient's severity of illness and that there was a need for 
``counterbalancing adjustments to LTCH payments to offset the effects 
of case-mix increases due to changes in documentation and coding 
practice.''
    Response: We appreciate MedPAC's independent validation and support 
of our methodology, and its support of our proposal to reduce LTCH 
payment rates by 2.5 percent to prevent overpayments under the LTCH 
PPS.
    Comment: Most commenters questioned our proposed methodology for 
determining the magnitude of the effect of documentation and coding due 
to the adoption of the MS-LTC-DRGs. As commenters have argued in 
response to prior rulemaking, most of these commenters again asserted 
that our proposed methodology made assumptions about the cause of the 
case-mix increase that were unsupported and that failed to consider 
``other explanations'' for those case-mix changes, in particular 
whether actual patient severity of illness (that is, ``real'' case-mix) 
has increased or whether the adoption of a more refined patient 
classification system (that is, the MS-LTC-DRGs) by its design reflects 
increased case-mix.
    Response: We disagree that the methodology employed by our 
actuaries to determine the effect of documentation and coding due to 
the adoption of the MS-LTC-DRGs is based on unsupported assumptions. As 
discussed in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 
43971), overall case-mix change is predominately comprised of three 
factors: ``real'' case-mix change; a documentation and coding effect 
(``apparent'' change); and a measurement effect. Because our proposed 
methodology uses the same year of claims data, it is not necessary to 
account for ``real'' case-mix-growth. This is because there can be no 
real case-mix growth measured if the same claims are used since the 
same set of patients (that is, the same claims data) is being used 
under the two GROUPERs classifications and relative weights.
    We agree that the MS-LTC-DRGs were designed to better recognize 
severity of illness among patients and may reflect case-mix increase. 
However, consistent with the budget neutrality requirement that was 
established concurrent with the adoption of the MS-LTC-DRG patient 
classification system in FY 2008, the annual update to the 
classifications and weights should not increase or decrease aggregate 
LTCH PPS payments. In other words, these changes were intended to be 
done in a budget neutral manner. Therefore, to the extent that the 
adoption of the MS-LTC-DRGs themselves reflects a change in case-mix 
that results in an increase or decrease in aggregate LTCH PPS payments, 
it is appropriate to make an adjustment to account for such changes. In 
other words, a documentation and coding adjustment is now necessary 
because the changes in the classifications and weights associated with 
the adoption of the MS-LTC-DRGs should not increase or decrease the 
aggregate LTCH PPS payments.
    Furthermore, as summarized above, in its public comments on our 
proposal, MedPAC concurred with our proposed methodology to estimate 
the documentation and coding effect for LTCH and independently verified 
our results that the effect is 2.5 percent. MedPAC also noted that the 
implementation of MS-LTC-DRGs in 2008 gave LTCHs a financial incentive 
to improve documentation and coding to more fully account for each 
patient's severity of illness.
    Accordingly, we continue to find the methodology used by our 
actuaries and endorsed by MedPAC to determine the magnitude of the 
increase in case-mix due to the changes in documentation and coding in 
FYs 2008 and 2009 that do not reflect patient severity of illness to be 
the most appropriate methodology.
    Comment: Most commenters opposed the proposed -2.5 percent 
adjustment to account for the increase in case-mix due to the effects 
of documentation and coding in FYs 2008 and 2009 that do not reflect 
severity of illness. As in prior rulemaking on this issue, most 
commenters again questioned the methodology used by our actuaries and 
endorsed by MedPAC to estimate LTCH case-mix increase due to the 
effects of documentation and coding that do not reflect increased 
severity of illness. Many of these comments were similar to or 
referenced the comment by NALTH, which in summary stated: ``NALTH takes 
issue with the proposed adjustment of -2.5 percent to the update factor 
for changes in documentation and coding practices that CMS claims 
occurred between FYs 2007 through 2009. * * * In summary, we have made 
findings that CMS' methodology does not result in an accurate 
identification of `apparent' as differentiated from `real' case-mix 
severity change from FY 2007 to FY 2009.''
    NALTH asserted that this conclusion is supported by a number of 
factors. First, NALTH stated that changes in the law have led to 
changes in the distribution of patients admitted to LTCHs between FY 
2007 and FY 2009. Second, NALTH asserted that, under our methodology, a 
finding of no increase in case-mix due to documentation and coding 
changes ``could only occur by pure chance'' and that the adoption of 
the ``decompressed'' MS-LTC-DRG GROUPER results in a more accurate 
measurement of severity for high acuity patients. Third, NALTH 
indicated that changes between primary and secondary diagnosis codes 
led to a decrease, not increase, in case-mix. Fourth, NALTH used a 
regression analysis to compare the actual and predicted prevalence of 
diagnoses and procedure codes for FY 2009 LTCH discharges. Fifth, NALTH 
cited standards of ethical coding applied by coding professionals that 
prevent changing a primary diagnosis to a secondary diagnosis to 
maximize reimbursement. Sixth, NALTH cited ``resequencing guidelines'' 
that have been in effect since 2005 and the SSO policy, under which 
NALTH believes

[[Page 50393]]

that 50 percent to 60 percent of all LTCH cases are typically paid less 
than a full MS-LTC-DRG payment, as reasons that there is no evidence to 
conclude that documentation and coding practices contribute 
significantly to case-mix changes. Lastly, NALTH stated that 
approximately 60 percent of the change in FY 2009 GROUPER case-mix from 
FY 2007 to FY 2009 is due to a redistribution in case-mix from FY 2007 
through FY 2009 and approximately 25 percent of the case-mix growth is 
due to an increase in the comorbidities of certain high volume ICD-9-CM 
codes from FY 2007 through FY 2009. NALTH stated that the remaining 15 
percent could be due to an ``apparent'' increase in case-mix and, 
therefore, believed that, at most, the proposed coding adjustment 
should be -0.8 percent.
    Response: Both the adoption of the severity-adjusted MS-LTC-DRGs as 
the patient classification system under the LTCH PPS and the 
establishment of the budget neutrality requirement for the annual 
update to the MS-LTC-DRG classifications and relative weights were 
effective beginning in FY 2008. The changes in the classifications and 
relative weights associated with FY 2008 and FY 2009 MS-LTC-DRGs were 
established to improve the accuracy of the distribution of payments 
among LTCH patients, not to increase or decrease aggregate LTCH PPS 
payments. In other words, these changes were intended to be done in a 
budget neutral manner. A retrospective review of LTCH claims data 
allows a determination to be made as to the extent to which these 
changes resulted in an increase or decrease in aggregate LTCH PPS 
payments, so an offsetting budget neutrality adjustment can be made. 
Specifically, a retrospective analysis of the LTCH claims data can 
examine the change in the average case-mix under the old (for example, 
FY 2007) and new (for example, FY 2009) classifications and weights. As 
stated above in our discussion of the documentation and classification 
adjustment for IPPS hospitals in section II.D. of this preamble and 
also in prior rulemaking (74 FR 43771 and 43971), overall case-mix 
change is predominately comprised of three factors: ``real'' case-mix 
change; a documentation and coding effect (``apparent'' change); and a 
measurement effect. Because year-to-year changes in real case-mix are 
not intended to be budget neutral, this must be accounted for in the 
analysis of case-mix change. The simplest and most straightforward way 
to account for changes in real case-mix is to directly remove them from 
the calculation. This is exactly what the proposed methodology employed 
by our actuaries and endorsed by MedPAC does. Our actuaries compare the 
case-mix calculated using the same FY 2009 cases grouped using the FY 
2009 MS-LTC-DRG classifications and relative weights and the FY 2007 
LTC-DRG classifications and relative weights to determine the combined 
effect of documentation and coding changes and measurement. An 
adjustment is then made to net out the measurement effect. Therefore, 
differences in case-mix calculated using the FY 2007 and FY 2009 
classifications and relative weights on the FY 2009 data are not 
affected by real case-mix change, by definition, because the same set 
of patients (that is, the same claims data) is being used under the two 
GROUPERs classifications and relative weights. This simple fact refutes 
the NALTH assertion that our methodology ``does not result in an 
accurate identification of `apparent' as differentiated from `real' 
case mix severity change from FY 2007 to FY 2009.''
    Furthermore, none of the supporting factors listed by NALTH refute 
our methodology. The first factor, changes in the distribution of 
patients admitted to LTCHs between FY 2007 and FY 2009, and the portion 
of the seventh factor involving increases in patient acuity, would 
influence the change in real case-mix. As explained above, our 
methodology directly removes the changes in real case-mix from the 
determination of the increase in case-mix due to the effects of 
documentation and coding in FYs 2008 and 2009 that do not reflect 
increased severity of illness.
    A number of the remaining factors (specifically, factors two, 
three, four and seven) listed by NALTH involve differences in the 
distribution of cases between FY 2007 and FY 2009. Again, the purpose 
of the proposed documentation and coding adjustment is to ensure that 
the changes in the classification and relative weights associated with 
FY 2008 and FY 2009 MS-LTC-DRGs do not increase or decrease the 
aggregate LTCH PPS payments. We agree that there is a difference 
between the distribution of cases in FY 2007 and the distribution of 
cases in FY 2009. However, this is not a refutation of our methodology. 
In fact, it supports the necessity of our proposed documentation and 
coding adjustment. Had we known the actual distribution of FY 2009 
cases when we initially determined the FY 2009 budget neutral update to 
the MS-LTC-DRG classifications and relative weights back in 2008, we 
would have used this information at that time and no further adjustment 
would now be necessary to ensure that the FY 2009 update did not 
increase or decrease the aggregate LTCH PPS payments. As this 
information was unknown in 2008, we used the most recent full year of 
LTCH claims data available to us to update the MS-LTC-DRG 
classifications and relative weights for FY 2009 in a budget neutrality 
manner. A finding that the actual distribution of cases differs from 
the distribution used in determining the initial budget neutral 
relative weights is precisely the reason that an additional adjustment 
is now necessary: we do not want changes in the classifications and 
weights associated with FY 2008 and FY 2009 MS-LTC-DRGs to increase or 
decrease the aggregate LTCH PPS payments.
    In response to the assertion that the standards of ethical coding 
applied by coding professionals prevent changing a primary diagnosis to 
a secondary diagnosis to maximize reimbursement, we have never asserted 
that any party acted inappropriately, unethically, or otherwise in bad 
faith by employing documentation and coding improvement practices 
associated with the adoption the MS-LTC-DRG system. Under the previous 
DRG definitions, it was possible for high-severity cases to be paid the 
same as cases with lower severity if they grouped to the same DRG. The 
MS-LTC-DRGs were introduced as part of the effort to ensure that the 
relative Medicare payment rates that hospitals received more reasonably 
matched the resources hospitals expended in furnishing care, and CMS 
encouraged hospitals to code as accurately as possible with that goal 
in mind. However, it is our finding that the systematic effect of 
changing documentation and coding practices has led to an increase in 
LTCHs' overall case-mix that does not reflect a commensurate increase 
in LTCH patient severity of illness, and as we discuss in greater 
detail below, it is appropriate to adjust the LTCH PPS payment rates to 
account for the increased level of LTCH PPS payments due to such 
documentation and coding.
    The sixth factor noted by NALTH, which contends that ``resequencing 
guidelines'' that have been effective since April 2005 and the SSO 
policy may result in a decrease in payment upon the adoption of the MS-
LTC-DRGs, is not evidence that changes in documentation and coding 
practices do not contribute significantly to case-mix changes. We agree 
that, in some cases, the ICD-9-CM coding guidelines may result in a 
case being grouped to a MS-LTC-DRG with a lower weight

[[Page 50394]]

compared to an alternative sequencing of ICD-9-CM codes for that case 
and, therefore, will receive a lower payment. However, in other 
instances, the ICD-9-CM coding guidelines may result in a case being 
grouped to a MS-LTC-DRG with a higher weight and, therefore, will 
receive a higher payment. This fact demonstrates that documentation and 
coding practices have an impact on case-mix and, therefore, also on 
aggregate LTCH PPS payments. As we have discussed above, we believe it 
is appropriate to make an adjustment to the LTCH PPS payment rates to 
account for any changes in aggregate LTCH PPS payments due to such 
documentation and coding under the MS-LTC-DRGs as compared to the 
effect of the CMS LTC-DRGs (that were in effect prior to the adoption 
of the MS-LTC-DRGs) on LTCHs' case-mix.
    Similarly, with regard to the SSO policy, we agree that when a case 
is grouped to a higher weighted MS-LTC-DRG for FY 2009 (relative to the 
weight of the FY 2007 LTC-DRG to which it groups), it may become a SSO 
case (and receive a payment that is less than the full LTC-DRG 
payment). This is the case because the average length of stay for the 
``higher weighted'' FY 2009 MS LTC-DRG is based on the data for higher 
severity, more resource intensive cases, which generally have a 
relatively longer length of stay. However, it is also true that the 
cases in a ``lower weighted'' FY 2009 MS-LTC-DRGs will generally have a 
relatively shorter length of stay under the MS-LTC-DRGs, as compared to 
the FY 2007 LTC-DRGs, because the lower weighted MS-LTC-DRG will 
require less resources. Therefore, a case that would have been a SSO 
under the FY 2007 LTC-DRG classifications may no longer be a SSO case 
under the FY 2009 MS-LTC-DRGs (and is paid a full MS-LTC-DRG payment).
    As discussed above, under our budget neutrality requirement for the 
annual update to the MS-LTC-DRGs, we believe it is appropriate to make 
an adjustment to the LTCH PPS payment rates to account for any changes 
in aggregate LTCH PPS payments as a result of the transition from the 
LTC-DRGs to the MS-LTC-DRGs. Furthermore, we disagree with the 
commenter that 50 percent to 60 percent of all LTCH cases are typically 
paid less than a full MS-LTC-DRG payment under the SSO policy. 
Historically, approximately 30 to 35 percent of all LTCH cases are 
typically paid under the SSO policy. Specifically, an analysis of FY 
2009 LTCH claims data shows that approximately 31 percent of all LTCH 
cases were paid under the SSO policy (and received less than a full MS-
LTC-DRG payment). Moreover, of those cases paid under the SSO policy, 
the payment for approximately 40 percent of those SSO cases is 
determined in part based on the MS-LTC-DRG relative weight for the 
case. Thus, the LTCH PPS payment to the vast majority of LTCH cases is 
determined based on the MS-LTC-DRG relative weight. Therefore, 
documentation and coding under the FY 2009 MS-LTC-DRGs that results in 
the aggregate grouping to a higher weighted MS-LTC-DRG do affect 
aggregate LTCH PPS payments. To the extent this occurs, as discussed in 
greater detail above, it is appropriate to make an adjustment to the 
LTCH PPS payment rates to account for any changes in aggregate LTCH PPS 
payments.
    After consideration of these public comments, we continue to find 
the methodology used by our actuaries and endorsed by MedPAC to 
determine the magnitude of the increase in case-mix due to the effects 
of documentation and coding resulting from the adoption of the MS-LTC-
DRGs in FYs 2008 and 2009 that do not reflect increased severity of 
illness to be the most appropriate methodology because it directly 
removes real changes in case-mix from the calculation. The 
distributional analyses submitted by NALTH also indicate that the 
classifications and relative weights associated with FY 2008 and FY 
2009 MS-LTC-DRGs increased aggregate LTCH PPS payments and support the 
need for a documentation and coding adjustment.
    Comment: In addition to challenging the proposed methodology for 
determining the proposed -2.5 percent documentation and coding 
adjustment, some commenters argued, as they have in response to past 
rulemaking, that there is no statutory authority to apply the proposed 
-2.5 percent documentation and coding adjustment. Again, these 
commenters stated that Public Law 110-90 contains explicit authority to 
make a documentation and coding adjustment to IPPS hospitals, but does 
not extend that authority to hospitals paid under the LTCH PPS. One 
commenter argues that the Secretary lacks the authority to make a 
documentation and coding adjustment under the LTCH PPS based on the 
statutory construct, wherein the LTCH PPS is explicitly omitted from 
the requirements of Public Law 110-90. The commenter also asserted that 
the Secretary's ``broad authority'' under section 123 of the BBRA, as 
amended by section 307(b) of the BIPA, is ``misplaced,'' given such a 
statutory construct.
    Response: We continue to disagree with commenters that the 
Secretary's broad authority under section 123 of the BBRA, as amended 
by section 307(b) of the BIPA, ``to provide for appropriate 
adjustments,'' including updates, is misplaced and cannot be applied in 
this instance. We have discussed the basis for applying an adjustment 
for the effects of documentation and coding that do not reflect 
increased severity of illness in prior rules (most recently in the FY 
2010 IPPS/RY 2010 LTCH final rule (74 FR 43970)) and do not agree that 
the omission of the applicability of the requirements of Pub. L. 110-90 
to the LTCH PPS limits our authority under section 123 of the BBRA, as 
amended by section 307(b) of the BIPA, to make such an adjustment.
    Comment: Some commenters believed that, in proposing a -2.5 percent 
adjustment to account for ``apparent'' case-mix increases from prior 
years, CMS is not appropriately applying the market basket update, 
whose purpose is to account for the expected increase in the prices of 
goods and services for the upcoming year. The commenters stated that 
CMS provides no data that prices in FY 2011 will increase less than the 
full market basket estimate, nor does CMS explain how case-mix changes 
relate to the changes in the price of inputs measured by the market 
basket. A few commenters also argued that there is no basis in the 
existing regulations to adjust for changes in case-mix in determining 
an appropriate market basket increase. The commenters stated that CMS 
should update the standard Federal rate by ``the full market basket 
update'' for FY 2011.
    Response: In the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule 
(75 FR 24046), we proposed to update to the standard Federal rate for 
FY 2011 based on the most recent estimate of the full market basket 
increase at that time and based on a proposed adjustment to account for 
changes in documentation and coding practices. As noted above, due to 
the timing of the passage of the Affordable Care Act, we were unable to 
address those provisions in the May 4, 2010 FY 2011 IPPS/LTCH PPS 
proposed rule, and the proposed policies and payment rates in that 
proposed rule did not reflect the new legislation. Consequently, in the 
June 2, 2010 FY 2011 IPPS/LTCH PPS supplemental proposed rule (75 FR 
30968 through 30970), we revised our proposed update to the standard 
Federal rate for FY 2011, consistent with the provisions of the 
Affordable Care Act, which added sections 1886(m)(3)(A)(ii) and 
1886(m)(4)(B) to the Act that require a

[[Page 50395]]

0.50 percentage point reduction to the annual update for rate year 
2011.
    Consistent with this requirement, in that same supplemental 
proposed rule, we proposed an update to the standard Federal rate for 
FY 2011 based on the most recent estimate of the full market basket 
increase at that time minus the 0.50 percentage point required in 
section 1886(m)(4)(B) of the Act and based on a proposed adjustment to 
account for changes in documentation and coding practices. Therefore, 
we disagree with the commenters that we did not appropriately apply the 
market basket update because our proposed update did include the full 
market basket increase to account for the expected increase in prices 
for FY 2011, adjusted by the statutorily required 0.50 percentage point 
reduction. However, the full market basket increase (including the 
required statutory reduction) is not the only factor used in 
determining our proposed update for FY 2011. As discussed above, the 
Secretary has broad authority under the statute to determine 
appropriate updates under the LTCH PPS, and we believe it is 
appropriate that the update to the standard Federal rate reflect an 
adjustment to account for changes in case-mix due to the effects of 
documentation and coding that do not reflect increased patient severity 
of illness and costs (``apparent'' case-mix changes).
    The component of our proposed update to the standard Federal rate 
for FY 2011 to account for ``apparent'' case-mix changes is not 
intended to adjust for the expected changes in the price of inputs for 
the upcoming year, FY 2011 (as measured by the market basket), but to 
prospectively adjust the rate so that the increased level of payments 
that occurred due to the effects of documentation and coding that do 
not reflect increased patient severity of illness do not continue into 
future years. As MedPAC stated in its public comment, LTCH payment 
rates should be reduced by the proposed adjustment for the effects of 
documentation and coding in FYs 2008 and 2009 that do not reflect 
increased severity of illness ``to prevent further overpayments.''
    We disagree that prior annual updates to the LTCH PPS have 
addressed the effects of documentation and coding practices in FYs 2008 
and 2009. Although we have made adjustments for the effects of 
documentation and coding practices that do not reflect increased 
patient severity of illness in establishing an update to the standard 
Federal rate for the past 4 years (RYs 2007 through 2010), those 
adjustments were based on LTCH claims data from FYs 2004 through 2007, 
respectively. To date, we have never based any adjustment based on the 
change in case-mix identified in FYs 2008 or FY 2009 claims data. 
Specifically, in the FY 2008 and FY 2009 final rules, we explained that 
we believe that the adoption of the MS-LTC-DRGs would create a risk of 
increased aggregate levels of payment as a result of changes in 
documentation and coding practices. However, we did not establish any 
prospective adjustment to account for the effect of documentation and 
coding for FY 2008 or FY 2009 resulting from the adoption of the MS-
LTC-DRG system because, at the time, we had not been able to determine 
an appropriate adjustment factor for LTCHs and because we had an 
established mechanism to adjust LTCH PPS payments to account for the 
effects of documentation and coding practices in a prior period based 
on actual LTCH data. Instead, we indicated that we would continue to 
monitor the LTCH payment system, and should we find any ``apparent'' 
case-mix increase due to the adoption of the MS-LTC-DRG classification 
system, we would propose appropriate adjustments to account for that 
case-mix increase that is not due to increased severity of illness. We 
also discussed our intended future evaluation of LTCH claims data and 
resulting case-mix growth from the implementation of the MS-LTC-DRG 
system, similar to the evaluation that we intended for the MS-DRG 
system under the IPPS, and stated that the analysis, findings, and any 
resulting proposals to adjust payments to offset the estimated amount 
of increase or decrease in aggregate payments that occurred in FY 2008 
and FY 2009 for LTCHs as a result of the effect of documentation and 
coding, will be discussed in future years' proposed rules, which would 
be open for public comment. ((72 FR 47297 through 47299) and (73 FR 
26809))
    With respect to the comment that there is no basis in the existing 
regulations to adjust for changes in case-mix in determining an 
appropriate market basket increase, as we discuss above, we are not 
accounting for case-mix changes in determining an appropriate market 
basket increase. Rather, as explained above, our proposed update to the 
standard Federal rate for FY 2011 is based on the full market increase 
(including the required statutory reduction) and a separate component 
to adjust for the effect of case-mix changes in a prior period (FYs 
2008 and 2009). Furthermore, we point out that the existing regulations 
in 42 CFR part 412, subpart 0 (the subpart governing the LTCH PPS) do 
not address future updates to the standard Federal rate, including the 
update for FY 2011.
    Comment: Many of the commenters expressed concern that many of the 
proposals affecting the LTCH PPS payment rates for FY 2011, including 
the proposed decrease to the standard Federal rate and the proposed 
increase to the fixed-loss amount, violates the premise that the 
Medicare program will adequately reimburse LTCHs for the costs of 
treating Medicare beneficiaries and will result in payments that are 
below the costs incurred for treating these patients. The commenters 
contended that CMS did not consider all of its payment rate and policy 
changes in developing its proposals for FY 2011, especially the impact 
of the proposed increase in the high-cost outlier threshold, nor did 
CMS consider the combined impact of the proposed -2.5 percent 
documentation and coding adjustment and the reductions to the market 
basket update mandated by the Affordable Care Act.
    Response: We understand the commenters' concern regarding the 
possible financial impact that may be caused by the proposed changes to 
the LTCH payment rates and factors for FY 2011. However, we disagree 
that we did not consider the overall impact of all proposed policy 
changes in developing our proposals for FY 2011 under the LTCH PPS. As 
we discussed in greater detail above in this preamble and in section V. 
of the Addendum of this final rule, we believe that the changes we 
proposed (and are finalizing) to the payment rates and factors for FY 
2011 will result in an appropriate level of payments under the LTCH 
PPS. Specifically, with regard to the update to the standard Federal 
rate, which includes the reductions to the market basket update 
mandated by the Affordable Care Act (discussed in V. of the Addendum to 
this final rule), we agree with MedPAC that it is appropriate to focus 
on minimizing the accumulation of overpayments resulting from the 
effects of documentation and coding practices that do not reflect 
increased severity of illness (and costs) and should not further delay 
making the -2.5 percent adjustment to account for changes in 
documentation and coding practices in FYs 2008 and 2009 that do not 
reflect patient severity of illness. With regard to the increase to the 
high-cost outlier fixed-loss amount, as discussed in section V. C. of 
the Addendum of this final rule, based on the latest available data and 
payment rate changes we are establishing in this final rule, it is 
necessary to increase the fixed-loss amount for FY 2011 in order

[[Page 50396]]

to maintain the regulatory requirement that estimated high-cost outlier 
payments would be equal to 8 percent of estimated aggregate LTCH PPS 
payments.
    Comment: Some commenters contended that the proposed -2.5 percent 
adjustment to account for the increase in case-mix due to the effects 
of documentation and coding practices that do not reflect increased 
severity of illness is ``punitive,'' ``excessive'' and 
``unprecedented,'' stating that ``the size, scope and timing of the 
proposed adjustment will have a severe impact on LTCHs.'' The 
commenters pointed out that CMS has never imposed an adjustment for the 
effect of documentation and coding practices that reduced the standard 
Federal rate to a level that falls below the rate of the prior year. 
The commenters stated further that CMS has never implemented a single 
adjustment based on multiple years of data, and asserted that adopting 
a reduction to the rates in a single fiscal year to reflect changes in 
case-mix that occurred over a 2-year period will have a significant 
financial impact on LTCHs. Although disagreeing that the proposed -2.5 
percent adjustment to account for the increase case-mix due to the 
effects of documentation and coding practices that do not reflect 
increased severity of illness is warranted, the commenters recommended 
that, to mitigate the financial impact, CMS maintain the RY 2010 
standard Federal rate or phase-in the proposed 2.5 percent reduction 
over a 3-year period.
    Response: We understand the commenters' concern regarding the 
possible financial impact that may be caused by the proposed changes to 
the LTCH payment rates and factors for FY 2011. However, we disagree 
that we did not consider the overall impact of all proposed policy 
changes in developing our proposals for FY 2011 under the LTCH PPS. As 
we discussed in the regulatory impact analysis of the June 2, 2010 
supplemental proposed rule, which reflected the provisions of the 
Affordable Care Act as well as other proposed rate and policy, we 
believe that the changes we proposed to the payment rates and factors 
for FY 2011 will result in an appropriate level of payments under the 
LTCH PPS. In that impact analysis, we projected an average 0.3 percent 
increase in aggregate LTCH PPS payments in FY 2011 as compared to RY 
2010. In this final rule, we projected an average 0.5 percent increase 
in aggregate LTCH PPS payments in FY 2011, as compared to RY 2010.
    It is true that we never implemented an adjustment for the effect 
of documentation and coding practices that reduced the standard Federal 
rate to a level below the rate that is currently in effect. It is also 
true that we previously have not implemented a single adjustment based 
on multiple years of data. However, as we have discussed in great 
detail in this section, we believe that documentation and coding 
adjustments to LTCH payments is necessary to offset the effects of 
case-mix increases due to documentation and coding practices under the 
MS-LTC-DRGs. We have consistently stated since the adoption of the MS-
LTC-DRGs beginning in FY 2008 that we believe that the adoption of the 
MS-LTC-DRGs would create a risk of increased aggregate levels of 
payment as a result of the effects of documentation and coding 
practices. However, we did not establish any prospective adjustment to 
account for improved coding practices for FY 2008 or FY 2009 resulting 
from the adoption of the MS-LTC-DRG system because, at the time, we had 
not been able to determine an appropriate adjustment factor for LTCHs 
and because we had an established mechanism to adjust LTCH PPS payments 
to account for the effects in documentation and coding practices in a 
prior period based on actual LTCH data. Furthermore, as stated above, 
we agree with MedPAC that it is appropriate to focus on minimizing the 
accumulation of overpayments resulting from the effects of 
documentation and coding practices that do not reflect increased 
severity of illness (and costs) and should not further delay making the 
-2.5 percent adjustment to account for the effects of documentation and 
coding practices in FYs 2008 and 2009 that do not reflect severity of 
illness. Therefore, we are not adopting the commenters' suggestion to 
limit the adjustment so that the standard Federal rate remains at its 
current level or to phase-in the adjustment over more than one year. 
Accordingly, for the reasons discussed above, in this final rule, we 
are finalizing our proposal to apply a -2.5 percent adjustment to 
account for the effect of documentation and coding practices that do 
not reflect an increase in severity of illness due to the adoption of 
the MS-LTC-DRGs.
    Therefore, in this final rule, under the Secretary's broad 
authority under section 123 of the BBRA, as amended by section 307(b) 
of the BIPA, to provide for appropriate adjustments, including updates, 
we are applying an adjustment for the effect of documentation and 
coding in a prior period (FYs 2008 and 2009) that do not reflect an 
increase in patient severity of illness of -2.5 percent. Accordingly, 
as discussed in section V. of the Addendum to this final rule, the 
update to the standard Federal rate for FY 2011 is -0.49 percent, which 
is based on the most recent estimate of the market basket increase, 
including the required percentage point reduction, of 2.0 percent and 
an adjustment to account for the effect of documentation and coding 
practices of -2.5 percent.

D. Change in Terminology From ``Rate Year'' to ``Fiscal Year''

    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24046), we made 
several proposals that were designed to promote clarity regarding the 
changes that have been made to the schedule and terminology associated 
with the annual update for the LTCH standard Federal payment rates and 
the MS-LTC-DRG relative weights as well as the publication cycle for 
rulemaking for the LTCH PPS. A historical review of these changes is as 
follows:
     Initially, the standard Federal rates and the LTC-DRG 
classification and relative weights were established on a Federal 
Fiscal year (FY) cycle of October 1 through September, beginning 
October 1, 2002 (FY 2003).
     In the June 6, 2003 Federal Register (68 FR 34125), the 
LTCH PPS final rule changed the annual update of the standard Federal 
rate to a July 1 to June 30 cycle (the LTCH PPS rate year (RY)) while 
it continued to provide for an update of the LTC-DRG classification and 
relative weights on the FY schedule, effective from October 1 through 
September 30 in conformity with the IPPS.
     Beginning with the annual update to the LTCH PPS that took 
effect on October 1, 2009, we consolidated the rulemaking cycle for the 
annual update of the LTCH PPS Federal payment rates with the annual 
update of the MS-LTC-DRG classifications and weights for LTCHs so that 
the updates to the rates and factors have an October 1 effective date 
and occur on the same schedule and appear in the same Federal Register 
document. To reflect this change to the annual payment rate update 
cycle, we revised the regulations at Sec.  412.503 to specify that, 
beginning on or after October 1, 2009, the LTCH PPS rate year is 
defined as October 1 through September 30 (73 FR 26797 through 26798 
and 26838).
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24046 and 24047), 
we proposed to change the terminology used under the LTCH PPS with 
respect to the annual update to the standard

[[Page 50397]]

Federal rate and the MS-LTC-DRG relative weight recalibration cycle. 
Specifically, we proposed to change from using the term ``rate year'' 
to ``fiscal year,'' in order to conform with the standard definition of 
the Federal fiscal year (October 1 through September 30) used by the 
IPPS. Because the annual updates to both the LTCH PPS standard Federal 
rate (and associated factors) and the MS-LTC-DRG classifications and 
relative weights now occur at the same time as the annual updates under 
the IPPS, we believe this change eliminates any possible confusion that 
may be caused by continuing to identify the LTCH update cycle as a 
``rate year.'' Therefore, we proposed to use the term ``fiscal year'' 
when referring to the annual updates for the LTCH standard Federal 
payment rates and the MS-LTC-DRG relative weights as well as to the 
publication cycle for rulemaking for the LTCH PPS. We proposed to add a 
definition of ``long-term care hospital prospective payment system 
fiscal year'' at Sec.  412.503 (75 FR 24058). We also proposed to 
revise our definition of ``long-term care hospital prospective payment 
system rate year'' in the regulations at Sec.  412.503 to reflect that 
such term does not apply to time periods after September 30, 2010 (75 
FR 24046 and 24058).
    For a detailed description of our rationale regarding the above-
described proposed changes, we refer the reader to the discussion in 
the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24046 and 24047).
    In addition, we proposed to add a definition of ``long-term care 
hospital prospective payment system payment year'' to Sec.  412.503 in 
order to encompass both the long-term care hospital prospective payment 
system rate year and the long-term care hospital prospective payment 
system fiscal year. It is our intent that this term would be used when 
describing ongoing policy features of the LTCH PPS for which, depending 
upon the time period, either the term ``long-term care hospital 
prospective payment system rate year'' or ``long-term care hospital 
prospective payment system fiscal year'' would be applicable. We refer 
readers to the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24046) for a 
discussion of our rationale for this change. Also, as a conforming 
change, we proposed to change the terminology in Sec.  412.525(a)(1) 
and (a)(2), which describes the high-cost outlier policy (an ongoing 
feature of the LTCH PPS from its inception), from ``long-term care 
hospital prospective payment system rate year'' to ``long-term care 
hospital prospective payment system payment year.'' We believe that 
this change, which would reference the proposed new definition of the 
long-term care hospital prospective payment system payment year period 
at Sec.  412.503, reflects the application of the high-cost outlier 
policy for the period encompassed by both the current ``rate year'' 
terminology and the proposed change to ``fiscal year'' terminology, 
described above. We believe that these changes present a 
straightforward way to provide additional clarity to our regulations in 
a circumstance that reflects changes in terminology but does not entail 
any change to the high-cost outlier policy.
    We received several comments on this proposed clarification and 
revision of terminology, all of them strongly in favor of the proposed 
changes. Therefore, for the reasons set forth in the FY 2011 IPPS/LTCH 
PPS proposed rule (75 FR 24046 through 24047) and in light of the 
public's support for our proposals, we are adopting as final without 
modification the proposed change in terminology from LTCH PPS ``rate 
year'' to LTCH PPS ``fiscal year'' beginning October 1, 2010 (FY 2011) 
and the proposed changes to Sec.  412.503 with the addition of the 
definition of ``long-term care hospital prospective payment system 
fiscal year'' and the modification of the definition of ``long-term 
care hospital prospective payment system rate year.'' We also are 
finalizing the addition of the term ``long-term care hospital 
prospective payment system payment year'' at Sec.  412.503 and the 
conforming regulation text changes at Sec.  412.525(a)(1) and (a)(2) to 
capture this new term.

E. Finalization of Interim Final Rule With Comment Period Implementing 
Section 4302 of the American Recovery and Reinvestment Act of 2009 
(Pub. L. 111-5) Relating to Payments to LTCHs and LTCH Satellite 
Facilities

1. Background
    On August 27, 2009, we published in the Federal Register (74 FR 
43990 through 43992), an interim final rule with comment period to 
implement certain provisions of section 4302 of the American Recovery 
and Reinvestment Act of 2009 (ARRA) (Pub. L. 111-5). Section 4302 of 
the ARRA amended several provisions of section 114 of the MMSEA 
relating to LTCHs. Specifically, section 4302(a) amended sections 
114(c)(1) and (c)(2) of the MMSEA, and section 4302(b) amended section 
114(d)(3)(A) of the MMSEA. In both cases, these ARRA provisions were to 
be effective and applicable as if the amendments had been included in 
the MMSEA. (The enactment of the Affordable Care Act amended certain 
provisions of the MMSEA which had been amended by the ARRA.) Below we 
briefly review the amendments made to sections 114(c)(1) and (c)(2) and 
section 114(d) of the MMSEA by section 4302(a) and (b), respectively, 
of the ARRA, respond to the one public comment that we received on the 
August 27, 2009 interim final rule with comment period, and finalize 
the policies as described below. (We note that the timeframes in these 
provisions were subsequently amended by the provisions of the 
Affordable Care Act as discussed below in section VII.F. of this 
preamble.)
2. Amendments Relating to Payment Adjustment to LTCHs and LTCH 
Satellite Facilities Made by Section 4302 of the ARRA
    Section 114(c)(1)(A) and (B) of the MMSEA established a 3-year 
delay, for cost reporting periods beginning on or after December 29, 
2007, for freestanding LTCHs (defined at Sec.  412.23(e)(5)) and 
``grandfathered'' long-term care hospitals-within-hospitals (HwHs), 
from the application of the percentage threshold payment adjustment 
established under Sec.  412.536 or Sec.  412.534, respectively, or any 
similar provision. Section 4302(a)(1) of the ARRA amended the 
provisions of sections 114(c)(1)(A) and (B) of the MMSEA as follows:
    First, under section 4302(a)(1)(A) of the ARRA, the heading of 
section 114(c)(1) is changed to ``Delay in Application of 25 Percent 
Patient Threshold Payment Adjustment'' from the original ``No 
Application of 25 Percent Patient Threshold Payment Adjustment to 
Freestanding and Grandfathered LTCHs.''
    Second, under section 4302(a)(1)(B) of the ARRA, the effective date 
of the delay in application of the 25-percent patient threshold payment 
adjustment found in section 114(c)(1) of the MMSEA is changed from the 
date of enactment of the MMSEA (that is, December 29, 2007) to July 1, 
2007. As a result, for a ``grandfathered'' long-term care HwH or a 
``freestanding'' LTCH with a cost reporting period beginning before 
December 29, 2007, the applicable payment adjustments at Sec.  
412.534(h) and Sec.  412.536 would be delayed 3 years. This is the case 
because our regulations at Sec.  412.534(h), with respect to 
``grandfathered'' LTCHs, and Sec.  412.536 with respect to all LTCHs, 
were to be effective beginning with cost reporting periods beginning on 
or after July 1, 2007. Therefore, the amendment made by section 
4302(a)(1)(B) of the ARRA to section 114(c)(1) of the MMSEA results

[[Page 50398]]

in a uniform application of the statutory 3-year relief from the 25 
percentage threshold payment adjustment.
    Third, section 4302(a)(1)(C) of the ARRA added, for 3 years, a 
third category of LTCHs that will not be subject to Sec. Sec.  412.534 
and 412.536, or any similar provisions of the regulations for a 3-year 
period for cost reporting periods beginning on or after July 1, 2007. 
Specifically, section 4302(a)(1)(C) of the ARRA extended the 3-year 
exemption from the percentage threshold payment adjustments at 
Sec. Sec.  412.534 and 412.536 to include ``* * * a long-term care 
hospital, or satellite facility, that as of December 29, 2007, was co-
located with an entity that is a provider-based, off-campus location of 
a subsection (d) hospital which did not provide services payable under 
section 1886(d) of the Social Security Act at the off-campus location * 
* *.'' Therefore, no percentage threshold (and therefore, no payment 
adjustment) will be applied for patients discharged from an acute care 
hospital who are admitted to a LTCH or LTCH satellite facility that is 
co-located with an entity that is a provider-based, off-campus location 
of an acute care hospital (as set forth in our regulations at Sec.  
413.65) as long as there are no inpatient acute care hospital services 
payable under section 1886(d) of the Act offered at that off-campus 
location. For example, this would apply to a situation where an acute 
care hospital, that Medicare pays under the IPPS, is located on the 
main campus of a multicampus entity and, on a second campus of that 
acute care hospital, the LTCH shares a building with an IRF unit or an 
outpatient clinic that is provider-based to the acute care hospital as 
long as there are no services payable under the IPPS hospital provided 
at that second campus.
    Section 114(c)(2) of the MMSEA provided, for a 3-year period, 
increases in the percentage thresholds (``payment adjustments'') 
established under Sec.  412.534 for ``applicable'' LTCHs or satellite 
facilities for cost reporting periods beginning on or after December 
29, 2007. Specifically, if the threshold percentage would have been 25 
percent, for 3 years it will increase to 50 percent; and if the 
threshold would have been 50 percent prior to the enactment of the 
MMSEA, it will increase to 75 percent. The term ``applicable'' was 
defined as ``* * * a hospital or satellite facility that is subject to 
the transition rules under section 412.534(g) of title 42 of the Code 
of Federal Regulations.'' The revisions made by section 114(c)(2) of 
the MMSEA were limited to a hospital or a satellite subject to the 
transition rules at Sec.  412.534(g) of the regulations. However, 
because ``grandfathered'' LTCH satellite facilities are subject to the 
transition at Sec.  412.534(h) of the regulations, not at Sec.  
412.534(g), the percentage increase resulting from the application of 
section 114(c)(2) did not apply to them (73 FR 29703).
    Section 4302(a)(2)(A) of the ARRA modified the definition of 
``applicable long-term care hospital or satellite facility.'' This 
provision amended section 114(c)(2)(B)(ii) of the MMSEA by specifying 
that those ``grandfathered satellites'' described in Sec.  
412.22(h)(3)(i) of the regulations were to be included in the 
definition. (Under Sec.  412.22(h)(3)(i), ``grandfathered'' satellites 
were exempted from compliance with the ``separateness and control'' 
rules specified in Sec.  412.22(h) if they had been structured as a 
satellite facility on or before September 30, 1999.) However, we note 
that ``grandfathered satellites'' under Sec.  412.22(h)(3) continue to 
be subject to the applicable percentage thresholds outlined in Sec.  
412.536 for patients admitted from any individual hospital with which 
they were not co-located because there were no exceptions for such 
entities for purposes of payment as provided in Sec.  412.536. Section 
4302(a)(1)(C) of the ARRA provided that grandfathered satellite 
facilities under Sec.  412.22(h)(3) will not be subject to Sec. Sec.  
412.534 and 412.536, or any similar provision of the regulations, for a 
3-year period for cost reporting periods beginning on or after July 1, 
2007. Specifically, under section 4302(a)(1)(C) of the ARRA that 
amended section 114(c)(1) of the MMSEA, no percentage threshold (and, 
therefore, no payment adjustment) will be applied for patients 
discharged from an acute care hospital who are admitted to a LTCH or 
LTCH satellite facility that, as of December 29, 2007, was co-located 
with an entity that is a provider-based, off-campus location of an 
acute care hospital (as set forth in the regulations at Sec.  413.65) 
as long as there are no inpatient acute care hospital services payable 
under section 1886(d) of the Act provided at that off-campus location.
    Section 114(c)(2)(C) of the MMSEA applied the 3-year increase in 
the percentage thresholds at Sec.  412.534 of the regulations for cost 
reporting periods beginning on or after the date of enactment of the 
MMSEA (December 29, 2007). Section 4302(a)(2)(B) of the ARRA revised 
the effective date of the MMSEA provisions to cost reporting periods 
beginning on or after October 1, 2007, for LTCHs and LTCH satellite 
facilities that were subject to the transition rules under Sec.  
412.534(g) and also established the effective date as cost reporting 
periods beginning on or after July 1, 2007, ``* * * in the case of a 
satellite facility described in section 412.22(h)(3)(i) of title 42 of 
the Code of Federal Regulations.'' (Different dates are applicable 
because the effective date for the 25 percent threshold payment 
adjustment policy for LTCHs and LTCH satellite facilities governed 
under Sec.  412.534(g) was October 1, 2005, while the percent threshold 
for ``grandfathered'' LTCH satellite facilities policy was effective 
for cost reporting periods beginning on or after July 1, 2007.)
    The result of this modification in the effective date of the 3-year 
increase in the percentage threshold for ``applicable'' LTCHs and LTCH 
satellite facilities (now including ``grandfathered satellites'') is 
that LTCHs and LTCH satellite facilities will not have the fully 
phased-in 25 percentage threshold payment adjustment applied for cost 
reporting periods beginning on or after October 1, 2007, and 
``grandfathered'' satellite facilities will not be subject to the 
transition to the 25 percentage threshold for cost reporting periods 
beginning on or after July 1, 2007.
    To implement the provisions of section 4302 of the ARRA, in the 
August 27, 2009 interim final rule with comment period, we revised the 
regulations at Sec. Sec.  412.534 and 412.536 to reflect the statutory 
revisions described above.
    Comment: One commenter stated that CMS had failed to specify that a 
``grandfathered'' LTCH satellite facility that met the description of 
the third category of LTCHs and LTCH satellite facilities included in 
the amendment to section 114(c)(1) of the MMSEA by section 
4302(a)(1)(C) of the ARRA (that is, ``* * * a long-term care hospital, 
or satellite facility, that as of December 29, 2007, was co-located 
with an entity that is a provider-based, off-campus location of a 
subsection (d) hospital which did not provide services payable under 
section 1886(d) of the Social Security Act at the off-campus 
location'') was also exempt from compliance with the 25-percent policy 
for 3 years.
    Response: We agree all those LTCH satellite facilities described 
above are exempt from the 25-percent policy at Sec.  412.536 for 3 
years.
    In this final rule, we are finalizing the provisions of the August 
27, 2009 interim final rule with comment period which revised the 
regulations at Sec. Sec.  412.534 and 412.536 to reflect the ARRA 
statutory revisions.

[[Page 50399]]

3. Amendment to the Moratorium on the Increase in Number of Beds in 
Existing LTCHs or LTCH Satellite Facilities Made by Section 4302 of the 
ARRA
    Section 114(d) of the MMSEA provided a 3-year moratorium on any 
increase in the number of hospital beds in existing LTCHs and LTCH 
satellite facilities. (The definition of an existing LTCH and LTCH 
satellite facility for purposes of this policy is codified at Sec.  
412.23(e)(7)(i).) Section 114(d) of the MMSEA included an exception to 
the moratorium on the increase in hospital beds in existing LTCHs and 
LTCH satellite facilities. Specifically, section 114(d)(3)(A) of the 
MMSEA provided that the moratorium on the increase in beds in an 
existing LTCH or LTCH satellite facility would not apply to an increase 
in beds if an existing LTCH or LTCH satellite facility is ``located in 
a State where there is only one other long-term care hospital; and 
requests an increase in beds following the closure or the decrease in 
the number of beds of another long-term care hospital in the State.''
    Section 4302(b) of the ARRA added an additional exception to the 
bed-increase moratorium in an existing LTCH or LTCH satellite facility 
``* * * if the hospital or facility obtained a certificate of need for 
an increase in beds that is in a State for which such certificate of 
need is required and that was issued on or after April 1, 2005, and 
before December 29, 2007.''
    Accordingly, in the August 27, 2009 interim final rule with comment 
period, we revised our regulations at Sec.  412.23(e)(7)(ii)(B) to 
include the new exception to the moratorium on an increase in the 
number of beds in existence in an existing LTCH or LTCH satellite 
facility beyond those in existence on December 29, 2007.
    Section 4302(c) of the ARRA specifies that the ``* * * effective 
date of the amendments made by this section shall be effective and 
apply as if included in the enactment of the Medicare, Medicaid, and 
SCHIP Extension Act of 2007'' (Pub. L. 110-173).
    We did not receive any public comments on this provision in the 
August 27, 2009 interim final rule with comment period. Therefore, we 
are finalizing, without modification, our revision of Sec.  
412.23(e)(7)(ii)(B) to include the new exception to the moratorium on 
an increase in the number of beds in existence in an existing LTCH or 
LTCH satellite facility beyond those in existence on December 29, 2007.

F. Extension of Certain Payment Rules for LTCH Services and Moratorium 
on the Establishment of Certain Hospitals and Facilities and the 
Increase in Number of Beds in Existing LTCHs or LTCH Satellite 
Facilities

1. Background
    As explained in the June 2, 2010 FY 2011 IPPS/LTCH PPS supplemental 
proposed rule, sections 114(c) and (d) of MMSEA (Pub. L. 110-173, 
enacted December 29, 2007), made various changes to certain LTCH PPS 
policies. These changes were implemented in two interim final rules 
published in May 2008 (73 FR 24871 and 73 FR 29699). The ARRA (Pub. L. 
111-5) was enacted on February 17, 2009, and section 4302 of the ARRA 
amended sections 114(c) and (d) of the MMSEA. These changes were 
implemented in an interim final rule with comment period, which was 
published with the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 
43990 through 43994). In that same rule, the MMSEA provisions that were 
not affected by the passage of ARRA were finalized. (For a more 
complete description of the MMSEA, as amended by ARRA changes to LTCH 
PPS policies, we refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS 
final rule (74 FR 43976 through 43990).
    Subsequent to the passage of the ARRA, the Patient Protection and 
Affordable Care Act and the Health Care Education Reconciliation Act of 
2010 (collectively referred to as the Affordable Care Act) was passed. 
Sections 3106 and 10312 of the Affordable Care Act together provide for 
a 2-year extension to the payment policies applicable to LTCHs and LTCH 
satellite facilities set forth in sections 114(c) and (d)(1) of the 
MMSEA, as amended by the ARRA. Specifically, sections 3106 and 10312 of 
the Affordable Care Act together result in the phrase ``3-year period'' 
being replaced with the phrase ``5-year period'' each place it appears 
in sections 114(c) and (d)(1) of MMSEA, as amended by the ARRA. (The 
ARRA amendments, which were implemented in the FY 2010 IPPS/RY 2010 
LTCH PPS final rule (74 FR 43990 through 43994) are finalized in 
section VII. E. of this final rule.) We note that the changes required 
by sections 3106 and 10312 of the Affordable Care Act are self-
implementing and were announced in the FY 2011 IPPS/LTCH PPS 
supplemental proposed rule. In that same proposed rule, we also 
proposed to revise the regulation text to incorporate such existing 
law.
    Sections 3106 and 10312 of the Affordable Care Act, which amended 
sections 114(c) and (d)(1) of the MMSEA, as amended by the ARRA, result 
in the following:
     An additional 2-year delay in the application of the SSO 
payment adjustment, which would have applied the additional payment 
option of an ``IPPS comparable'' payment to LTCHs for certain SSO cases 
where the covered length of stay is less than or equal to the ``IPPS 
comparable threshold'' (75 FR 30966 and 72 FR 26904 through 26918). 
Therefore, the Secretary will not apply this SSO payment adjustment for 
the 5-year period beginning on the date of enactment of MMSEA (December 
29, 2007). As proposed, in this final rule the regulations at Sec.  
412.529(c)(2) and (c)(3) are revised to incorporate this additional 2-
year delay provided for under the Affordable Care Act.
     An additional 2-year delay in the one-time prospective 
budget neutrality adjustment to the standard Federal rate (Sec.  
412.523(d)(3)). Thus, the Secretary is precluded from making the one-
time adjustment to standard Federal rate until December 29, 2012. For a 
detailed description of this change, we refer readers to the discussion 
in the FY 2011 IPPS/LTCH PPS supplemental proposed rule (75 FR 30966). 
As proposed, in this final rule the regulations at Sec.  412.523(d)(3) 
are revised to incorporate this additional 2-year delay.
     An increase from 3 years to 5 years to the timeframes set 
forth in section 114(c) of the MMSEA as amended by the ARRA, thereby 
extending for an additional 2 years the delay in the application of the 
25-percent payment threshold policy for certain LTCHs and LTCH 
satellite facilities (Sec. Sec.  412.534 and 412.536), and extending 
for an additional 2 years, the increased percentage thresholds outlined 
at section 114(c)(2) of the MMSEA as amended by the ARRA (which is 
discussed in detail in section VII. E. of this final rule). As 
proposed, in this final rule we are amending the regulations at Sec.  
412.534(c)(1) through (c)(3), (d)(1) through (d)(3), (e)(1) through 
(e)(3), (h)(4) through (h)(5) and Sec.  412.536(a)(2) to incorporate 
the 2-year delay and extension, as applicable, provided for under the 
Affordable Care Act. For a detailed description of sections 114(c)(1) 
and (c)(2) of the MMSEA as amended by the ARRA and the regulations 
implementing those provisions, we refer readers to the LTCH PPS interim 
final rule with comment period at 73 FR 29701 through 29704, the FY 
2010 IPPS/RY 2010 LTCH PPS final rule at 74 FR 43980 through 43984, and 
section VII. E. of this final rule where we finalize the interim final 
rule with comment period implementing

[[Page 50400]]

section 4302 of the ARRA, which we published in the FY 2010 IPPS/RY 
2010 LTCH PPS final rule (74 FR 43990 through 43993).
     Additional 2-year extensions of the moratorium on the 
establishment of new LTCHs and LTCH satellite facilities and the 
moratorium on the increase of LTCH beds in existing LTCHs or satellite 
facilities as provided by section 114(d) of the MMSEA as amended by the 
ARRA. In general, section 114(d) of the MMSEA as amended by the ARRA 
precluded the establishment and classification of new LTCHs or LTCH 
satellite facilities or additional beds from being added to existing 
LTCHs or LTCH satellite facilities unless one of the specified 
exceptions to the particular moratorium was met. For a detailed 
description of the moratoriums, we refer readers to the discussions at 
73 FR 29704 through 29707, 74 FR 43985 through 43992, and 75 FR 30968. 
As proposed, in this final rule we are amending the regulations at 
Sec.  412.23(e)(6)(i) and (e)(7)(ii) to incorporate the additional 2-
year extension of the moratoriums, discussed above.
    We did not receive any public comments on the provisions as 
presented in the June 2, 2010 supplemental proposed rule, and 
therefore, in this final rule, we are finalizing these provisions as 
presented.

VIII. Effective Date of Provider Agreements and Supplier Approvals

A. Background

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

[[Page 50401]]

survey of a facility seeking a Medicare provider agreement or supplier 
approval until after the MAC, the legacy fiscal intermediary, or the 
legacy carrier has completed its review of the enrollment application 
and notified the applicant that its review has been completed and a 
recommendation has been made to CMS.
    Therefore, historically, in the normal course of events, the survey 
(including the Life Safety Code survey, if applicable) of a prospective 
provider or supplier has usually occurred after it has demonstrated 
that it meets the Medicare enrollment requirements (that is, CMS 
contractor processing of the Form CMS-855 application), and, as a 
result, the effective date of a provider agreement or supplier approval 
is generally later than the date when the contractor has verified that 
all enrollment requirements have been met. However, on occasion, a 
survey can take place before the CMS contractor has verified that 
enrollment requirements have been met. This has tended to happen more 
frequently in the case of facilities that seek to satisfy Medicare 
participation requirements through accreditation by a CMS-approved 
accreditation program, because the accreditation organization relies 
upon the facility to advise it when it has received notice of 
completion of the review of its enrollment application. This can result 
in the date of an accreditation decision preceding the date when the 
CMS contractor determination has occurred. In addition, in order to 
prevent fraud and abuse, there may be other situations in which the CMS 
contractor performs additional enrollment verification activities even 
after a health and safety survey has been performed.
    In cases where the CMS contractor finds that the prospective 
provider's or supplier's compliance with enrollment requirements did 
not occur until after a survey by the State survey agency or after the 
accreditation survey and accreditation decision take place, it is our 
policy, consistent with our interpretation of Sec.  489.13(b), to make 
the effective date of the provider agreement or supplier approval the 
date when the enrollment requirements are considered to have been met. 
Specifically, the effective date would be the date that CMS determines, 
pursuant to its contractor review and verification activities, that the 
applicant is in compliance with all enrollment requirements and CMS is 
prepared to convey Medicare billing privileges to the provider or 
supplier. However, if there are still other Federal requirements that 
remain to be satisfied, such as submission of required civil rights 
compliance documentation or satisfaction of the specialized 
requirements governing IPPS-excluded hospitals, the effective date 
would be the date when the last requirement has been satisfied, as 
determined by CMS.

B. Departmental Appeals Board Decision

    In a decision dated September 28, 2009, the Appellate Division of 
the Departmental Appeals Board (DAB), in the case of Renal CarePartners 
of Delray Beach, LLC v. Centers for Medicare and Medicaid Services (DAB 
Decision No. 2271), rejected our longstanding interpretation of Sec.  
489.13(b). In this case, a State survey agency completed an initial 
certification survey on July 6, 2007, of an end-stage renal disease 
supplier, Renal CarePartners, prior to the CMS contractor's November 
21, 2007 recommendation of approval of the supplier's enrollment 
application. The DAB concluded that there was no basis in regulation or 
policy issuances for our position that CMS contractor approval is a 
requirement a supplier must satisfy ``before it may furnish services 
for which it will be reimbursed under Medicare once it is enrolled and 
obtains billing privileges'' (DAB Decision No. 2271, page 2). The DAB 
further characterized the issue as ``* * * not whether the effective 
date may be earlier than the date Renal CarePartners complied with a 
prerequisite it was required to meet in order to enroll, but whether 
the effective date must be delayed until the date the Medicare 
contractor notified CMS that the requirements were met'' (DAB Decision 
No. 2271, page 5) (emphasis in original). The DAB agreed with Renal 
CarePartners that the requirement for the Medicare contractor to verify 
and determine whether an application should be approved is not a 
requirement for the supplier to meet, but a requirement for Medicare 
contractor action (DAB Decision No. 2271, page 5). The DAB further 
cited the provisions of Sec.  489.13(d), concerning accredited 
facilities, as an example to bolster its contention that there is 
precedent for providers or suppliers to be retroactively reimbursed for 
services provided before the date of approval of the supplier or 
provider agreement (DAB Decision No. 2271, page 7).
    We disagree with the DAB's reading of our existing regulations. We 
believe that the intent of the existing regulations is to require that 
all applicable Federal requirements, including a determination of 
whether the enrollment requirements have been satisfied, must be met 
before a provider agreement or supplier approval may be effective. Any 
other reading of the regulations could result in a provider or supplier 
being permitted to bill the Medicare program for services provided at a 
time when its compliance with Medicare's requirements is unknown and 
possibly deficient. For example, in the event a State survey precedes 
the CMS contractor's review of the enrollment application of a 
prospective provider or supplier, it might be possible that the 
application originally submitted to the CMS contractor is not complete 
or accurate, or both, and the applicant must provide additional 
information to the CMS contractor to demonstrate compliance with the 
enrollment requirements. It would not be consistent with our duty to 
protect the Medicare Trust Funds from unsupported claims against it to 
permit payment for services furnished by a health care facility after 
it has passed a State survey or been accredited, but before it has 
satisfied all other Medicare participation requirements, including 
enrollment requirements.
    Such a reading also might undermine the incentives inherent in our 
longstanding policy, affirmed in the June 1, 1994 decision of the U.S. 
Court of Appeals for the Fifth Circuit in U.S. v. Vernon Home Health, 
Inc. (21 F. 3d 693 (5th Cir. 1994), cert. denied, 115 S.Ct. 575 
(1994)).
    Under CMS regulations at 42 CFR 489.18(c), a ``change of 
ownership'' includes accepting assignment of the seller's existing 
provider agreement or supplier approval. Section 489.18(d) states that 
the provider or supplier continues to be subject to the same statutes 
and regulations, and to the terms and conditions under which it was 
originally issued. This means that the new owner receives the assets 
and liabilities associated with that agreement or approval. This has 
proven to be an important tool in protecting the Medicare Trust Funds 
through continuity in the ability to recover outstanding overpayments.
    Under that policy, if a buyer of a Medicare-participating facility 
chooses not to accept assignment of the provider agreement or supplier 
approval, the provider agreement or supplier approval terminates. Then, 
the new owner must be treated as an initial applicant to the Medicare 
program. In this situation, Medicare will not reimburse the provider or 
supplier for services it provides before the date on which the provider 
or supplier qualifies as an initial applicant.
    Any requirement to make payments retroactive to the date of a State 
survey or accreditation decision, despite the fact that all other 
Federal requirements

[[Page 50402]]

may not yet have been met, could provide an incentive for more buyers 
to refuse assumption of the seller's provider agreement or supplier 
approval, because there would potentially be no break in payments. 
Therefore, effectively, a buyer who does not accept assignment of the 
seller's active provider agreement could potentially begin receiving 
Medicare payments immediately (assuming it meets all the requirements), 
but not be responsible for any existing liabilities of the provider 
agreement. This would also be an incentive for existing providers or 
suppliers with civil money penalties or overpayments to sell their 
facilities in order to escape any financial responsibility to the 
Medicare program.

C. Revisions to Regulations

    In the FY 2011 IPPS/LTCH proposed rule (75 FR 24047), we proposed 
to amend Sec.  489.13 and make a technical amendment to Sec.  489.1 in 
order to clarify our policy. Specifically, we proposed to revise Sec.  
489.13(a) to make it clearer that it is only CMS that determines 
whether health care facilities have satisfied the requirements for 
participation in the Medicare program, not State survey agencies or 
national accreditation organizations. We noted that, although this CMS 
determination is sometimes referred to as a ``certification,'' or 
``certification decision,'' Sec.  488.1 defines ``certification'' as 
``a recommendation made by the State survey agency on the compliance of 
providers and suppliers with the conditions of participation, 
requirements (for SNFs and NFs), and conditions of coverage.'' Further, 
Sec.  488.12 provides that CMS makes the determination on whether a 
provider or supplier is eligible to participate in or be covered by the 
Medicare program, based on the State survey agency's recommendation, or 
on the facility's accreditation.
    We also proposed to add language to Sec.  489.13(a) in order to 
clarify that surveys of nonaccredited facilities may be conducted not 
only by State survey agencies, but also by CMS staff or contractors, as 
appropriate. We have used contractors to conduct certain types of 
surveys, such as life safety code, transplant program and psychiatric 
hospital special conditions surveys, and may continue to do so in the 
future. In addition, certain types of facilities, such as Indian Health 
Services (IHS) facilities and RNHCIs, have traditionally been surveyed 
by CMS employees rather than State survey agencies.
    We proposed to revise Sec.  489.13(b) to make explicit that the 
effective date of a provider agreement or supplier approval may not be 
earlier than the latest of the dates on which each applicable Federal 
requirement is determined to be met. We also proposed to state 
explicitly that ``Federal requirements'' include, but are not limited 
to, the enrollment requirements established in 42 CFR part 424, subpart 
P, that have been determined by CMS to have been met. In addition, we 
proposed to revise Sec.  489.13(b) to include language concerning 
accredited facilities, to assure that accredited and nonaccredited 
facilities are treated in the same manner.
    In the proposed rule, we further explained the rationale behind the 
proposed change to Sec.  489.13(b), particularly with respect to the 
requirements in the provider/supplier enrollment process.
    A CMS contractor will review and conduct an initial assessment of a 
prospective provider's or supplier's enrollment. If the contractor 
finds that a prospective provider or supplier meets the basic 
enrollment requirements to participate in the Medicare program for its 
identified certified provider or supplier type, the contractor will 
notify the appropriate CMS Regional Office. Essentially, the 
contractor's initial assessment means that it has concluded its 
preliminary review of the enrollment application and has concluded that 
the survey and certification process can be initiated, and, 
consequently, it issues a recommendation of approval. In order to help 
ensure compliance with enrollment requirements throughout this process, 
the contractor may continue to perform a number of enrollment 
verification tasks even after it has issued a recommendation for 
approval. These include, but are not limited to, conducting onsite 
visits of the prospective provider or supplier to ensure that it is 
still operational; verifying an HHA applicant's compliance with the 
capitalization provisions in 42 CFR 489.28; and requesting the provider 
or supplier applicant to reaffirm the accuracy of the information it 
furnished on its initial enrollment application. Given the potentially 
significant length of time between when the contractor issues its 
recommendation of approval after its initial assessment and when the 
health and safety survey (or accreditation) and certification process 
is completed, we believe that it is essential for the contractor to 
verify that a provider or supplier applicant continues to meet 
enrollment requirements prior to the issuance of a Medicare provider 
agreement or supplier approval and the issuance of Medicare billing 
privileges.
    To that end, we believe that the CMS contractor should verify that 
a provider or supplier is in compliance with all enrollment 
requirements when an enrollment application is submitted, during the 
period in which a provider or supplier is undergoing the health and 
safety survey and certification process and before the issuance of a 
Medicare provider agreement or supplier approval and billing 
privileges. If a provider or supplier is determined to be in compliance 
with all Medicare requirements, including the enrollment requirements, 
the enrollment and initial certification process will be completed, and 
the Medicare provider agreement or supplier approval and billing 
privileges will be issued to the applicant. However, if a provider or 
supplier is determined to be out of compliance with Medicare enrollment 
requirements prior to the issuance of a Medicare provider agreement or 
supplier approval and billing privileges to the applicant, we believe 
that CMS must deny Medicare billing privileges using the applicable 
denial reason found in 42 CFR 424.530 and afford the applicant with the 
applicable Medicare appeal rights.
    We proposed to revise Sec.  489.13(c) to make clear that this 
paragraph addresses those situations in which a facility has met all 
other Federal requirements but, upon survey, has been found to not meet 
all applicable CoPs, long-term care requirements, CfCs, or conditions 
for certification. We also proposed to revise this paragraph to include 
language concerning accredited facilities, to assure that accredited 
and nonaccredited facilities are treated in the same manner.
    We proposed to remove Sec.  489.13(d), concerning the determination 
of the effective date for accredited facilities. We indicated that we 
saw no reason for differential treatment of accredited and 
nonaccredited facilities with respect to the determination of their 
effective date, and, in practice, we have not treated them 
differentially. In particular, as a matter of policy, we noted that we 
have not exercised the discretion permitted under Sec.  489.13(d)(2) to 
grant accredited facilities an effective date retroactive up to 1 year 
prior to what otherwise would be their effective date. Permitting such 
retroactive payment would provide accredited facilities an unwarranted 
advantage when compared to nonaccredited facilities. It would also 
seriously undermine our policy concerning change of ownership without 
assumption of the seller's provider agreement or supplier approval. 
However, the existence of this discretionary provision appears to cause

[[Page 50403]]

confusion among accredited providers and suppliers who incorrectly 
believe they are entitled to a retroactive effective date.
    In the proposed rule, we explained that this discretionary 
provision was included in the 1997 final rule as a result of public 
comments that concerned the Medicaid program. The commenters were 
concerned that the proposed rule would not have allowed for a 
retroactive agreement for a facility that was already accredited and 
cited two Medicaid program scenarios to illustrate their concern. In 
one scenario, a facility participates in its own State's Medicaid 
program and provides services to a Medicaid recipient from another 
State. In the other scenario, a facility does not participate in 
Medicaid but provides services to a Medicaid recipient before learning 
of the individual's Medicaid status. Neither of these scenarios is 
pertinent to the Medicare program because Medicare beneficiary 
enrollment is managed nationally. However, the stated intent of the 
1997 final rule was to use a standard approach for both Medicare and 
Medicaid to determine the effective date of a provider agreement and a 
supplier approval, and, as a result, the provisions of Sec.  
489.13(d)(2) are identical to those at Sec.  431.108(d)(2) for the 
Medicaid program.
    Upon further consideration, we believe it is important to recognize 
the significant differences resulting from a State-based versus 
national system of beneficiary enrollment, and to ensure that the 
provisions of Sec.  489.13 are tailored to the requirements of the 
Medicare program. As stated, as a matter of longstanding policy, 
reflected in issuances dating back at least as far as 1994, we have 
required new owners who do not accept the seller's Medicare provider 
agreement or supplier approval to be treated as initial applicants to 
the Medicare program. In a 1999 issuance, reaffirmed in several 
subsequent issuances, including the 2004 publication of the online 
version of the SOM and in Survey and Certification Memorandum S&C-09-08 
issued on October 17, 2008, we explicitly state that this policy 
applies to accredited facilities as well. Therefore, in the proposed 
rule, we stated that we believed it was appropriate to remove Sec.  
489.13(d), and to instead make appropriate reference to the situation 
of accredited facilities in Sec. Sec.  489.13(b) and (c).
    Finally, we proposed to make several technical amendments to Sec.  
489.1. Specifically, we proposed to revise that section to add a 
reference to section 1865 of the Act, which permits CMS to ``deem'' 
facilities that have been accredited by a national accreditation 
organization under a CMS-approved accreditation program as having met 
the Medicare health and safety standards. We also proposed to revise 
and renumber the existing provision of Sec.  489.1 and to add 
references to ``the Act'' where the section refers to a provision of 
the Social Security Act.
    Comment: One commenter expressed concern that the new post-survey 
reviews by the contractor [that is, the Medicare Administrative 
Contractor (MAC) or legacy fiscal intermediary or carrier] will 
significantly delay the effective date of new provider agreements, 
particularly for home health agencies that must meet certain 
capitalization requirements. The commenter recommended that CMS direct 
its contractors to perform all possible tasks in the pre-survey 
timeframe and to limit the post-survey tasks. The commenter also called 
for the contractor in the post-survey review of a home health agency 
application to merely require certification that the provider retains 
capitalization for the first 3 months of operation. The commenter 
further recommended that CMS establish processing timeframes for the 
post-survey activities of its contractors, and also require the 
contractors to notify the applicant's accreditation organization when 
the contractor recommends approval of enrollment. Finally, the 
commenter recommended that CMS require the accreditation organization 
to notify the contractor and the CMS Regional Office when a provider 
applicant has satisfied accreditation requirements.
    Response: CMS has the regulatory authority to verify the 
information on an enrollment application at any time, including post-
survey or post-accreditation. Further, the regulatory requirements in 
Sec.  489.13 can accommodate whatever contractor (MAC or legacy fiscal 
intermediary/carrier) verification processes for providers and 
suppliers that CMS employs; such contractor verification processes are 
governed by the regulations under 42 CFR part 424 and associated policy 
instructions issued by CMS. In the proposed rule at Sec.  489.13(b)(1), 
it states that CMS determines the date on which the completeness and 
accuracy of the enrollment application has been verified by the CMS 
contractor. However, we note that a second contractor review that takes 
place after the survey will only delay the effective date of a provider 
agreement or supplier approval if that review identifies noncompliance 
with any Federal requirements. If a provider or supplier that is 
subject to Sec.  489.13 is found upon a post-survey second contractor 
review to continue to meet all requirements, there would be no change 
in the compliance determination date previously provided by the 
contractor to the CMS Regional Office or State survey agency. On the 
other hand, if the provider or supplier does not meet all Federal 
requirements, there would be a delay in the effective date of any 
provider agreement or supplier approval that might eventually be issued 
to the applicant.
    The issues of processing timeframes or the criteria to be used in 
the case of a post-survey review of a home health agency applicant by 
the contractor, such as for capitalization, as well as the issue of 
notices to or from accreditation organizations are matters that are 
specified through manual and policy instructions by CMS rather than 
through regulation. However, with respect to the accreditation 
organizations, we note that they are already required to provide notice 
of their survey results and accreditation decisions to the CMS Regional 
Office. Further, the contractor is already required to notify the 
applicant when it has completed its pre-survey review of an enrollment 
application, and CMS instructs accreditation organizations not to 
conduct a survey related to an initial application for Medicare 
participation until the applicant provides evidence to the 
accreditation organization of the notice from the contractor.
    Comment: One commenter expressed concern in response to our 
statement in the proposal that other Federal requirements that must be 
satisfied before a provider agreement could be effective included 
compliance with Office of Civil Rights (OCR) requirements. The 
commenter stated that the proposal to include OCR clearance before the 
provider agreement is made effective will significantly delay the 
effective date of the agreement for all but the largest entities that 
have a Corporate Agreement with OCR. The commenter noted that currently 
the provider agreement is made effective while OCR performs its 
compliance review. The commenter recommended that the State survey 
agencies and accreditation organizations review the provider's civil 
rights policies and procedures as part of the survey process. The 
commenter referred to the requirements at 42 CFR 484.12 for home health 
agencies and 42 CFR 418.116 for hospices as evidence of the commenter's 
view that State survey agencies and accreditation organizations already 
perform assessments of compliance with OCR requirements.

[[Page 50404]]

    Response: We do not intend to change our current policy related to 
OCR compliance. Currently, in the transmittal letter sent to a 
prospective provider or supplier informing that a provider agreement 
(including its effective date) is being issued, it states that the 
applicant's Medicare participation is contingent upon compliance with 
all civil rights requirements, as determined by OCR, usually at a date 
later than the effective date of the provider agreement. Thus, the 
commenter's concern that we are changing this policy, with the result 
that the effective date of a provider agreement would be delayed until 
OCR completes its review, is unfounded; therefore, it is not necessary 
to consider adopting the commenter's recommendation concerning how to 
ameliorate the impact of a change by having State survey agency or 
accreditation organization assessment of OCR compliance. In our 
proposal, we referred to ``submission of required civil rights 
compliance documentation'' as an example of other Federal requirements 
that must be met. There are occasions where an applicant's required 
documentation of assurance of compliance with civil rights laws and 
regulations, Form HHS-690, and related documents, are not submitted 
until after a survey is conducted. In such cases, the effective date of 
the provider agreement may not be prior to the date when the complete 
required civil rights compliance documentation was received by CMS.
    Although it is not necessary to consider the commenter's 
recommendation of State or accreditation organization assessment of 
compliance with OCR requirements in view of there being no change in 
our current practice concerning OCR compliance determinations, we do 
note that the commenter's assumption concerning who makes such 
compliance determinations is not correct. OCR has the authority to 
determine compliance with Federal civil rights requirements; CMS does 
not have such authority. Although there generally are requirements in 
the various CMS regulations for providers, including home health and 
hospice agencies, to comply with applicable Federal, State, and local 
law, such requirements do not mean that CMS has in all, or even most, 
cases the authority to determine compliance with such law. Where CMS 
does not have such authority, CMS and the State survey agencies and 
accreditation organizations must rely upon the determinations of the 
agencies that do have such authority before they find a provider to be 
noncompliant with a CMS provision requiring compliance with other laws.
    Comment: Two commenters expressed concern with the proposal to 
remove the provisions of Sec.  489.13(d)(2), which gives CMS the 
discretion to make the effective date of a provider agreement or 
supplier approval retroactive up to 1 year. One commenter stated that 
this would remove an important flexibility in how the effective date is 
established, resulting in unnecessary delays in enrollment, and may 
inadvertently limit access to Medicare services or inappropriately 
shift the costs of caring for Medicare beneficiaries to providers. This 
commenter indicated that CMS provided no analysis of how this change 
would reduce fraud and abuse. Another commenter stated that a ``snafu'' 
in an accreditation organization may result in excessive delay in its 
issuing its accreditation decision, and recommended that CMS retain its 
authority for retroactive effective dates for deemed accredited 
facilities and specify in the regulation that such authority will be 
exercised only when equity so requires and when the accrediting 
determination delay was due to no fault of the provider or supplier.
    Response: The commenters' concerns that removal of Sec.  
489.13(d)(2) would eliminate a current flexibility and, therefore, 
would result in unnecessary delays in Medicare enrollment are not 
warranted because we have not exercised the discretion afforded to us 
in this provision. This was a discretionary provision that we have not 
utilized for the reasons noted in the preamble to the proposed rule. 
Further, we do not believe that the accreditation of a facility should 
afford the facility preferential treatment in its provider agreement or 
supplier approval effective date determination compared to a 
nonaccredited facility that chooses to be surveyed by the State agency 
or CMS.
    With respect to the rationale for deleting this provision in order 
to protect the Medicare Trust Funds, as we stated in the proposed rule, 
exercising the discretion to permit such retroactive effective dates 
for accredited facilities would seriously undermine our policy 
concerning accepting assignment of the seller's provider agreement or 
supplier approval. As a matter of longstanding policy reflected in 
issuances dating as far back as 1994, new owners of existing providers 
or suppliers who do not accept the seller's existing Medicare provider 
agreement or supplier approval and who intend to continue Medicare 
participation are treated as new applicants to the Medicare program and 
must submit to the same process as any new provider or supplier. This 
process necessarily entails a break in Medicare payment for services 
provided during the period between the termination of the seller's 
provider agreement and the issuance of a new provider agreement to the 
new owner. As a result, new owners of a Medicare participating facility 
must carefully weigh the costs and benefits of their decision of 
whether or not to assume the seller's existing Medicare provider 
agreement. Thus, the Medicare Trust Funds are better protected because 
new owners generally decide to assume the seller's provider agreement, 
including outstanding liabilities (such as any overpayments or money 
penalties) owed to the Medicare program. In some cases, this would also 
result in the new owner receiving any outstanding Medicare 
underpayments owed under the existing agreement. In the State 
Operations Manual (Pub. 100-07) and in the October 17, 2008 Survey and 
Certification Memorandum S&C-09-08, we explicitly stated that 
accredited facilities also are subject to the policy requiring new 
owners who reject assignment of the seller's existing provider 
agreement to be treated as an initial applicant to the Medicare 
program, with the break in coverage that this entails. If, on the other 
hand, a new owner of an accredited provider who chooses not to accept 
assignment of the seller's existing Medicare provider agreement could 
be issued a new provider agreement on the basis of deemed status with a 
retroactive effective date that bridged the coverage gap since the 
termination of the seller's provider agreement, then this would provide 
a strong incentive for new owners to routinely refuse to accept 
assignment of the seller's provider agreement. The resulting impact on 
the Medicare Trust Funds would be negative, in terms of both any 
outstanding liabilities owed to the Medicare program under the seller's 
terminated provider agreement or supplier approval and the cost of 
paying for services provided by a new applicant prior to the date when 
that applicant satisfies all Federal requirements.
    Finally, delay in issuance of an accreditation decision due solely 
to internal administrative issues within the accreditation organization 
should not, contrary to the commenter's concern, delay the effective 
date of the accreditation decision, and thus the effective date of the 
applicant's provider agreement or supplier approval. The standard 
practice expected for Medicare-approved accreditation

[[Page 50405]]

programs is for the accreditation organizations to make their 
accreditation decision effective as of the date that all accreditation 
program requirements were met, regardless of when the decision is 
actually issued. We are revising the regulatory text upon adoption to 
make this clearer. In view of this standard practice and in light of 
the fact that the retroactive effective date provision for accredited 
providers and suppliers has not been utilized by us, we do not believe 
there is need to retain the ability to make retroactive provider 
agreement or supplier approval effective date determinations in the 
case of accredited facilities.
    Comment: One commenter stated that it was not clear whether CMS 
intended Sec.  489.13 to apply to durable medical equipment, 
prosthetics, orthotics, and supplies (DMEPOS) applicants, but indicated 
that the issues presented in the proposed rule do not apply to DMEPOS 
supplier enrollment.
    Response: We did not propose any changes with respect to the 
entities that are covered by the provisions of Sec.  489.13. Generally, 
these provisions do not apply to DMEPOS applicants because they are not 
subject to our survey and certification process. However, because there 
are now Medicare accreditation requirements for certain types of 
suppliers that are not subject to the survey and certification process, 
we understand why the commenter was unclear about this application. As 
a result, we have revised the final regulatory text at Sec.  
489.13(a)(1)(ii) to indicate that this provision applies to providers 
and suppliers that are subject to survey by a State survey agency or 
CMS, or, in lieu of such survey, are accredited by an accreditation 
organization whose program has CMS approval in accordance with section 
1865 of the Act at the time of the accreditation survey and 
accreditation decision. Because accreditation requirements for certain 
Medicare suppliers, such as DMEPOS and imaging services suppliers, are 
established under sections 1834(a) and (e) of the Act rather than 
section 1865 of the Act, this revision to the regulation makes it clear 
that the provisions of Sec.  489.13 do not apply to these other 
supplier types.
    After consideration of the public comments we received, we are 
adopting as final our proposed revisions of Sec.  489.13(a), (b), and 
(c), removal of existing Sec.  489.13(d), and technical amendments to 
Sec.  489.1, with the following modifications and technical 
corrections:
    We have revised Sec.  489.13(a)(1)(i) to delete the word ``staff'' 
after ``CMS''. This word was inadvertently included in the proposed 
text, but, as we stated in the preamble to the proposed rule, the 
intent is to cover surveys conducted by CMS staff or contractors.
    We have revised Sec.  489.13(a)(1)(ii) to add a reference to 
accreditation programs approved in accordance with section 1865 of the 
Act, thus making it clear that Sec.  489.13 is applicable only to 
providers and suppliers that are subject to CMS or State survey or, in 
lieu of such survey, are accredited by an accreditation organization 
whose program has CMS approval in accordance with section 1865 of the 
Act. Also, we are adding the word ``survey'' in paragraph (a)(1)(ii) so 
that it states ``State survey agency''; this change will make this 
paragraph consistent with Sec.  489.13(a)(1)(i).
    We have revised Sec.  489.13(b) to add the word ``effective'' prior 
to ``date of the accreditation decision'' in order to make clear our 
intent that we are referring to the date an accreditation organization 
indicates its accreditation was effective.
    We have revised Sec.  489.13(c) to reword the final sentence of the 
introductory text as follows: ``However, if other Federal requirements 
remain to be satisfied, notwithstanding the provisions of paragraphs 
(c)(1) through (c)(3) of this section, the effective date of the 
agreement or approval may not be earlier than the latest of the dates 
on which CMS determines that each applicable Federal requirement is 
met'' We added the phrase ``CMS determines that'' prior to ``each 
applicable Federal requirement is met'' to correct an inadvertent 
omission that could have created ambiguity as to our intent and makes 
the language in paragraph (c) match that employed in Sec.  489.13(b) 
for the same purpose. We also added the above language to make it clear 
that the provisions in paragraphs (c)(1) through (c)(3) apply when all 
other Federal requirements have been met, but where this is not the 
case, the effective date would be the latest date.
    We have renumbered proposed Sec.  489.13(c)(2)(ii)(C) as final 
Sec.  489.13(c)(3), which was our original intent; this paragraph is a 
logically distinct provision from other provisions contained in Sec.  
489.13(c)(2).
    We have made conforming changes to Sec.  424.510(c) and Sec.  
424.520(a) by removing the cross-reference to paragraph (d) of Sec.  
489.13.

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

    Recently, CMS received several public requests for clarification of 
the Medicare conditions of participation (CoPs) for hospitals relating 
to rehabilitation services at Sec.  482.56 and respiratory care 
services at Sec.  482.57. The questions concerning these conditions 
have been in the context of apparent inconsistencies between the two 
CoPs themselves, and between the two CoPs and many State laws, 
regarding which practitioners are allowed to order rehabilitation and 
respiratory care services in the hospital setting.
    Many States, under their scope-of-practice laws and other 
regulations, allow only specific qualified, licensed practitioners 
(including physicians, nurse practitioners (NPs), and physician 
assistants (PAs)) to order rehabilitation services and respiratory care 
services, in addition to other common hospital services such as dietary 
and social work services. However, the current standard at Sec.  
482.56(b) (Delivery of services) requires only that hospital 
rehabilitation services (for example, physical therapy, occupational 
therapy, audiology, and speech-pathology services) be ordered by 
``practitioners who are authorized by the medical staff to order the 
services.'' We believe that this requirement is too open to 
interpretation and does not explicitly acknowledge various State laws 
that limit the ordering of hospital services (including diagnostic 
tests, drugs and biologicals, and inpatient treatment modalities) to 
specific qualified, licensed practitioners who are responsible for the 
care of the patient.
    By contrast, the current requirement for respiratory care services 
at Sec.  482.57(b)(3), which explicitly states that these services 
``must be provided only on, and in accordance with, the orders of a 
doctor of medicine or osteopathy,'' is too narrow. While doctors of 
medicine or doctors of osteopathy have the option of delegating this 
task to NPs and PAs, this delegation requires physicians to countersign 
all orders by NPs or PAs for respiratory care services. We have not 
found any evidence that indicates that the ordering of respiratory care 
services should be kept to a different, and possibly higher, standard 
than rehabilitation and other hospital services. Nor have we found any 
documented studies indicating that qualified, licensed practitioners 
such as NPs and PAs should be restricted from ordering these necessary 
services for their patients. Further, we believe that the process of 
physician countersignature of orders written by qualified, licensed NPs 
and PAs, specifically for common hospital services such as 
rehabilitation and respiratory care services, is burdensome to 
practitioners (physicians as well as NPs and PAs) and the hospitals 
that they serve. In addition, we believe that

[[Page 50406]]

this process also runs counter to what many States have already decided 
for NPs and PAs in their individual State regulations and scope-of-
practice laws.
    As a result of our analysis of the issues surrounding conflict of 
the Medicare CoPs with State laws, and conflict of the Medicare CoPs 
with each other, in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 
24050), we proposed several revisions to the existing regulations. We 
proposed to revise Sec.  482.56 to clarify the types of practitioners 
that are allowed to order rehabilitation services. Further, we proposed 
to limit those types of individuals to qualified, licensed 
practitioners who are responsible for the care of the patient and who 
are acting within the scope of practice under State law. We also 
proposed that these practitioners would need to be authorized to order 
rehabilitation services by the hospital's medical staff, in accordance 
with both hospital policies and procedures and State laws.
    In addition, we proposed changes to the existing requirements for 
the ordering of respiratory care services at Sec.  482.57. Existing 
requirements only allow for services to be provided on the orders of a 
doctor of medicine or osteopathy. As stated above, we recently received 
several public requests (including requests from various hospitals as 
well as from The Joint Commission) for clarification of this 
requirement in the context of what is currently allowed under many 
State laws. Many States, under their scope-of-practice laws and other 
regulations, allow qualified, licensed practitioners (including NPs and 
PAs) to order respiratory care services. We proposed to revise the 
existing requirements at Sec.  482.57 to allow these practitioners, in 
addition to physicians as currently allowed, to order these services as 
long as such privileges are authorized by the medical staff and are in 
accordance with both hospital policies and procedures and State laws. 
As is required under the CoPs for all patient orders, the ordering 
practitioner must also be an individual who is responsible for the care 
of the patient.
    In both of the CoPs for rehabilitation services and respiratory 
care services, we also proposed that all orders for these services be 
documented in accordance with the requirements at Sec.  482.24, Medical 
records.
    Comment: The majority of commenters supported the proposed changes 
for the CoPs for rehabilitation services and respiratory care services. 
Some of the commenters commended CMS for proposing changes that they 
believed accurately reflected current standards of practice. Many of 
the commenters supported the proposed changes focused exclusively on 
the proposed requirements for respiratory care services.
    Response: We appreciate the commenters' support for the proposed 
changes. We believe that many of the commenters focused exclusively on 
the proposed revisions to the respiratory care services CoP because 
these revisions would allow for qualified, licensed practitioners, such 
as NPs and PAs, to order respiratory care services in addition to 
physicians, that is, doctors of medicine and doctors of osteopathy, as 
is currently allowed under the requirements. While we believe that the 
proposed change to the rehabilitation services CoP is more of a 
clarification of which types of practitioners (as delineated by State 
law, hospital policy, and medical staff authorization) would be allowed 
to order such services, we believe that the proposed revision to the 
respiratory care services CoP represents a regulatory recognition of 
the qualifications that nonphysician practitioners, such as NPs and 
PAs, bring to hospital patient care and that this recognition accounts 
for many of the commenters focusing exclusively on the change to this 
CoP.
    Comment: Several commenters questioned what they saw as an 
exclusion from the proposed rule of other types of advanced practice 
registered nurses (APRNs) (for example, clinical nurse specialists 
(CNSs), certified registered nurse anesthetists (CRNAs), and certified 
nurse midwives (CNMs)), as well as rehabilitation professionals such as 
physical therapists (PTs) and speech-language pathologists (SLPs).
    Response: Our intention was not to exclude other types of 
nonphysician practitioners such as APRNs, PTs, SLPs, or other types of 
rehabilitation professionals from the proposed rule provisions. We 
recognize the important role that these practitioners and professionals 
play in the delivery of quality care to hospital patients. We point out 
that the proposed regulatory language does not specifically mention any 
``type ``of practitioner, including NPs and PAs. Instead, the proposed 
revisions to both CoPs would require that services be provided only 
under the orders of a qualified, licensed practitioner, responsible for 
the care of the patient, acting within his or her scope of practice, 
and authorized by the medical staff to order the services in accordance 
with hospital policies and procedures and all State laws. Although NPs 
and PAs were the only examples of practitioner types that we used in 
our discussion of the proposed changes in the preamble of the proposed 
rule, our intention, as reflected in the proposed regulation text, is 
to include those qualified, licensed practitioners who meet the 
parameters of the proposed requirements discussed above.
    Comment: A few commenters took exception to our discussion in the 
preamble of conflict of interest and coordination of care issues in the 
context of rehabilitation professionals (such as PTs and SLPs) who 
might order their own rehabilitation services for a hospital patient 
without the knowledge of the attending physician or of the practitioner 
responsible for the overall care of the patient (such as APRNs and 
PAs). They questioned ``why CMS would conclude that these problems 
[conflict of interest and coordination of care] would occur in the 
outpatient hospital setting when patients receive rehabilitation 
services,'' and asked that the final rule not adopt language that would 
exclude rehabilitation professionals from acting within their 
individual State's scope of practice. One commenter suggested that 
language distinguishing between hospital inpatient and outpatient 
rehabilitation services be added to the proposed requirement at Sec.  
482.56(b).
    Response: The proposed requirements would apply to both inpatient 
and outpatient hospital services. Because the language allows for the 
ordering of rehabilitation services based on (and in deference to) 
State laws and scope-of-practice acts, medical staff authorization, and 
hospital policies and procedures, we firmly believe that nothing in our 
proposed requirement would preclude a hospital rehabilitation 
professional from acting within the scope of practice under State law. 
For this reason also, we disagree that the requirement needs to make 
distinctions between inpatients and outpatients.
    Comment: A few commenters correctly pointed out that the hospital 
CoPs apply to both inpatient and outpatient services. With regard to 
this application of the hospital CoPs to the outpatient services of a 
hospital, they commented that the proposed changes would be in direct 
conflict with both CMS payment policy, which they state allows for 
rehabilitation professionals to order their own services for hospital 
outpatients without physician referral, and the regulations of some 
States, which they state allow for ``direct access'' to rehabilitation 
services for hospital outpatients.
    Response: As we have previously stated, we do not believe that the 
proposed changes would conflict with either CMS payment policy or State

[[Page 50407]]

regulations. In fact, we have drafted the regulatory text in a way that 
would not only defer to hospital policy and medical staff authority in 
granting ordering privileges for these services to qualified, licensed 
practitioners, but also to State laws and scope-of-practice acts. We 
believe that these proposed regulations would give hospitals and their 
medical staffs as much flexibility in determining which types of 
practitioners could order these services as they would choose to 
exercise within the constraints of their own State laws and 
regulations.
    Comment: One commenter noted that as many as 35 States have some 
form of regulatory language that states, in effect, that hospital 
respiratory care services orders must be ``written by a licensed 
physician only.''
    Response: As stated in our previous response, the proposed 
regulations are written in such a way as to avoid the preemption of 
State law and regulation. We expect hospitals to apply the laws of 
their respective States to their policy regarding which types of 
practitioners would be allowed to order respiratory care services. For 
those States that allow APRNs and PAs to order respiratory care 
services without the need for a physician co-signature, we expect 
hospitals in those States to determine which types of practitioners 
would be authorized by the medical staff to write these orders in 
accordance with State law. We also expect that practitioners will act 
within the limitations of their individual State laws and hospitals' 
policies.
    Comment: One commenter requested that changes similar to the ones 
proposed be made to other hospital CoPs, such as nuclear medicine and 
dietary services, and their interpretive guidelines, and also 
specifically proposed changes to Sec.  482.25(b)(6) to require that 
``drug administration errors, adverse drug reactions, and 
incompatibilities be immediately reported to the ordering 
practitioner.'' In addition, the commenter recommended that the 
interpretative guidelines issued for Sec.  482.24(c)(1) be revised.
    Response: While we appreciate the input from the commenter 
regarding the other hospital CoPs and the interpretative guidelines, 
changes to other CoPs are outside the scope of this final rule. Any 
revisions to the interpretative guidelines are outside the purview of 
the rulemaking process.
    Comment: A few commenters, in addition to voicing full support for 
the proposed changes, encouraged CMS to revise the CoPs and 
interpretative guidelines regarding the administration of propofol (a 
rapidly acting, short duration, intravenous hypnotic anesthetic 
induction agent used as a general anesthetic or as an adjunct to 
anesthesia) by an anesthesiologist or CRNA in the context of 
recognition of State laws addressing this issue.
    Response: As we stated in our previous response, while we 
appreciate the input from commenters, we cannot address it at this time 
because the issues are outside the scope of this rule. Furthermore, any 
revision of the interpretative guidelines would be outside the purview 
of the rulemaking process.
    After consideration of the public comments we received, we are 
adopting as final without modification, our proposals to revise Sec.  
482.56 and Sec.  482.57 to clarify the types of practitioners who are 
allowed to order rehabilitation services and respiratory care services, 
respectively in accordance with both hospital policies and procedures 
and State laws; and to provide that all orders for these services be 
documented in accordance with existing requirements at Sec.  482.24.

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

A. Background

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

B. Revision of Policy and Regulations

    In response to the concerns described above, in the FY 2011 IPPS/
LTCH PPS proposed rule (75 FR 24051), we proposed to remove the 
requirement that psychiatric hospitals and hospitals with inpatient 
psychiatric programs providing inpatient psychiatric services to 
individuals under age 21 obtain accreditation from The Joint Commission 
in order to provide these services under the Medicaid program. Under 
our proposed policy change, psychiatric hospitals would have the choice 
of undergoing a State survey to determine whether the hospital meets 
the requirements to participate in Medicare as a psychiatric hospital 
under 42 CFR 482.60 or obtaining accreditation from a national 
accrediting organization whose psychiatric hospital accrediting program 
has been approved by CMS. Likewise, hospitals with inpatient 
psychiatric programs would have the choice of undergoing a State survey 
to determine whether the hospital meets the requirements for 
participation in Medicare as a hospital as specified in 42 CFR Part 482 
or obtaining accreditation from a national accrediting organization 
whose hospital accreditation program has been approved by CMS. These 
national accreditation bodies must provide reasonable assurance to CMS 
that their hospital accrediting programs require adherence to 
requirements that are at least as stringent as the Medicare 
requirements.
    In addition, we proposed to revise the accreditation requirements 
for PRTFs by removing any specific references to accreditation 
organizations, to afford them flexibility in obtaining accreditation by 
a national accrediting organization whose program has been approved by 
CMS, or by any other accrediting organization with comparable standards 
that is recognized by the State. This proposed revision would have 
removed specific reference to national accrediting bodies to provide 
appropriate administrative flexibility to account for any changes in 
qualifying

[[Page 50408]]

accrediting organizations. Accrediting bodies approved by CMS must have 
accrediting requirements for a provider or supplier type that are 
comparable to the CMS requirements for the type of provider or 
supplier, and must have survey procedures comparable to those of State 
survey agencies. For the reasons described below, we are not finalizing 
this proposed change to the PRTF accreditation requirements, and will 
retain the language currently set out at 42 CFR 440.160 (b)(2) and 
441.151(a)(2)(ii).
    To incorporate the proposed changes described above in our 
regulations, we proposed to revise Sec.  440.160(b)(1) and Sec.  
441.151(a)(2)(i) by removing the requirement for accreditation by The 
Joint Commission of psychiatric hospitals and hospitals with inpatient 
psychiatric programs. We also proposed to revise Sec.  440.160(b)(2) 
and Sec.  441.151(a)(2)(ii) by removing references to specific 
accreditation organizations.
    Comment: Several commenters supported the proposed revisions. These 
commenters agreed with CMS' assessment that allowing increased 
flexibility for psychiatric hospitals and inpatient psychiatric 
programs within general hospitals to either obtain accreditation from a 
CMS-approved accrediting organization or adhere to Medicare standards 
would not negatively impact the quality of service provision. Most of 
these commenters were silent regarding the proposed changes to the PRTF 
language, which would have removed reference to specific accrediting 
organizations. However, one commenter expressed support for this 
proposed change as well.
    Response: We appreciate the commenters' support. However, we are 
not finalizing the proposed changes to the PRTF accreditation 
requirements. We have decided that changes to these provisions are 
unnecessary because our regulations already permit a PRTF to be 
accredited by a variety of accrediting bodies. Our current provisions 
are not proscriptive. The Joint Commission on Accreditation of 
Healthcare Organizations, the Council on Accreditation of Services for 
Families and Children, and the Commission on Accreditation of 
Rehabilitation Facilities will remain available to accredit PRTFS, as 
will any other accrediting organizations with comparable standards that 
are recognized by the States.
    Comment: One comment indicated that ``CMS must remain the sole 
accreditation agency for psychiatric facilities as well as emergency 
rooms (ERs)''. The commenter further stated that third party 
accreditation would not maintain the same level of adherence to the 
restraint and seclusion regulatory requirement.
    Response: We have never been the ``sole accreditation agency'' for 
these providers. CMS approves third party accrediting organizations to 
perform the accreditation reviews. The restraint and seclusion CoP is a 
requirement that is surveyed by CMS and/or the accreditation 
organizations, as applicable.
    Comment: One commenter offered suggestions to improve the care 
provided to individuals in psychiatric settings. The commenter's 
suggestions included telling patients the names of all medications 
being given; developing a written treatment plan; keeping patients 
clean; and utilizing a ``comfort room'' for patients who are in 
critical condition.
    Response: Although we appreciate these suggestions, they fall 
outside the scope of the proposed rule. We did solicit public comments 
on our proposed accreditation revisions for inpatient psychiatric 
services provided to children. However, these comments appear to 
address the overall care furnished in psychiatric settings. Existing 
regulations governing psychiatric hospitals, general hospitals, and 
PRTFs currently require that the beneficiary receive care based upon an 
individualized treatment plan. We do not anticipate that patients in 
critical condition (life-threatening medical situations) would be 
maintained in the psychiatric inpatient setting, but rather would be 
transferred to a medically appropriate facility. We encourage all 
providers, including those furnishing inpatient psychiatric services to 
individuals under age 21, to bring an attitude of respect to the 
treatment process, caring for patients in a way that maximizes 
information sharing and comprehensive care. However, we are not 
modifying the regulations for this specific service to include these 
suggestions.
    After consideration of the public comments we received, we are 
adopting as final, without modification, our proposed revision of Sec.  
440.160(b)(1) and Sec.  441.151(a)(2)(i) by removing the requirement 
for accreditation by The Joint Commission of psychiatric hospitals and 
hospitals with inpatient psychiatric programs. Under the final 
regulations, psychiatric hospitals will have the choice of undergoing a 
State survey to determine whether the hospital meets the requirements 
to participate in Medicare as a psychiatric hospital under 42 CFR 
482.60 or obtaining accreditation from a national accrediting 
organization whose psychiatric hospital accrediting program has been 
approved by CMS. Likewise, hospitals with inpatient psychiatric 
programs will have the choice of undergoing a State survey to determine 
whether the hospital meets the requirements for participation in 
Medicare as a hospital as specified in 42 CFR part 482 or obtaining 
accreditation by a national accrediting organization whose hospital 
accrediting program has been approved by CMS.
    As described above, we are not finalizing our proposed revision of 
Sec.  440.160(b)(2) and Sec.  441.151(a)(2)(ii) to remove specific 
references to accreditation organizations to afford PRTFs the 
flexibility in obtaining accreditation by a national accrediting 
organization whose program has been approved by CMS, or by any other 
accrediting organization with comparable standards that is recognized 
by the State. The language currently specified in Sec.  440.160(b)(2) 
and Sec.  441.151(a)(2)(ii) is being retained.

XI. MedPAC Recommendations

    Under section 1886(e)(4)(B) of the Act, the Secretary must consider 
MedPAC's recommendations regarding hospital inpatient payments. Under 
section 1886(e)(5) of the Act, the Secretary must publish in the annual 
proposed and final IPPS rules the Secretary's recommendations regarding 
MedPAC's recommendations. We have reviewed MedPAC's March 2010 ``Report 
to the Congress: Medicare Payment Policy'' and have given the 
recommendations in the report consideration in conjunction with the 
policies set forth in this final rule.
    MedPAC's Recommendation 2A-1 states that ``The Congress should 
increase payment rates for the acute inpatient and outpatient 
prospective payment systems in 2011 by the projected rate of increase 
in the hospital market basket index, concurrent with implementation of 
a quality incentive payment program.'' This recommendation for the IPPS 
is discussed in Appendix B to this final rule.
    MedPAC's Recommendation 2A-2 states that ``To restore budget 
neutrality, the Congress should require the Secretary to fully offset 
increases in inpatient payments due to hospitals' documentation and 
coding improvements. To accomplish this goal, the Secretary must reduce 
payment rates in the inpatient prospective payment system by the same 
percentage (not to exceed 2 percentage points) each year in 2011, 2012, 
and 2013. The lower rates

[[Page 50409]]

would remain in place until overpayments are fully recovered.''
    Response to Recommendation 2A-2: Beginning in FY 2008, CMS adopted 
the new MS-DRG patient classification system for the IPPS to better 
recognize severity of illness in Medicare payment rates. Adoption of 
the MS-DRGs resulted in the expansion of the number of DRGs from 538 in 
FY 2007 to 745 in FY 2008. The increase in the number of DRGs provides 
incentives for hospitals to change documentation and coding that can 
increase Medicare expenditures without any corresponding increase in 
underlying patient severity. Consistent with the statutory requirement 
to maintain budget neutrality, we established prospective documentation 
and coding adjustments of -1.2 percent for FY 2008, -1.8 percent for FY 
2009, and -1.8 percent for FY 2010 when the new MS-DRG system was 
implemented in FY 2008. Subsequent to issuance of the FY 2008 IPPS 
final rule, section 7 of the TMA of 2007 (Pub. L. 110-90) divided in 
half the documentation and coding adjustments for the MS-DRG system 
that we adopted in the FY 2008 IPPS final rule to -0.6 percent for FY 
2008 and -0.9 percent for FY 2009. Section 7 requires that, if the 
implementation of the new MS-DRG payment system resulted in actual 
changes in documentation and coding in FY 2008 or FY 2009, or both 
years, that are different from those reflected in the -0.6 percent and 
-0.9 percent documentation and coding adjustments applied to payment 
rates in FY 2008 and FY 2009, respectively, the Secretary further 
adjust operating IPPS rates. This further adjustment must offset the 
estimated amount of the increase or decrease in aggregate payments for 
discharges occurring during FY 2008 and FY 2009, and must be made 
during FY 2010, FY 2011, and/or FY 2012. These adjustments are referred 
to as the recoupment adjustments and apply only to acute IPPS operating 
payments. In addition, the law requires that the Secretary eliminate 
the effect of all actual documentation and coding changes occurring in 
FY 2008 and FY 2009 incorporated into FY 2010 IPPS operating rates not 
already accounted for beyond the -0.6 and -0.9 percent adjustments. 
These adjustments are referred to as the prospective adjustments. As 
discussed in section II.D. of the preamble of this final rule, our 
current estimate is that an aggregate adjustment of 9.7 percent (in 
addition to the -0.6 percent adjustment and the -0.9 percent adjustment 
previously made in FY 2008 and FY 2009, respectively) is necessary to 
satisfy these requirements.
    We discuss the public comments we received on the FY 2011 IPPS/LTCH 
PPS proposed rule, and our responses, regarding our proposed 
adjustments to correct for the effects of improved documentation and 
coding on Medicare payments to hospitals in section II.D. of the 
preamble of this final rule for IPPS operating payments, in section 
V.E. of the preamble of this final rule for IPPS capital payments, and 
in section VII.C.3. of the preamble of this final rule for LTCH PPS 
payments. In this context, we note that, in considering whether to 
adopt MedPAC's recommendation, we took into consideration the statutory 
requirement that the adjustment must offset the estimated amount of the 
increase or decrease in aggregate payments for discharges occurring 
during FY 2008 and FY 2009 must be made during FY 2010, FY 2011, and/or 
FY 2012.
    For further information relating specifically to the MedPAC reports 
or to obtain a copy of the reports, contact MedPAC at (202) 653-7226, 
or visit MedPAC's Web site at: http://www.medpac.gov.

XII. Other Required Information

A. Requests for Data From the Public

    In order to respond promptly to public requests for data related to 
the prospective payment system, we have established a process under 
which commenters can gain access to raw data on an expedited basis. 
Generally, the data are now available on compact disc (CD) format. 
However, many of the files are available on the Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS. We listed the data files and the 
cost for each file, if applicable, in the FY 2011 IPPS/LTCH PPS 
proposed rule (75 FR 24052 and 24053).
    Commenters interested in discussing any data used in constructing 
this final rule should contact Nisha Bhat at (410) 786-5320.

B. Collection of Information Requirements

1. Legislative Requirement for Solicitation of Comments
    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
2. Requirements in Regulation Text
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24054 through 
24056), we solicited public comment on each of these issues listed in 
section XII.B.1. of this preamble for the following sections of this 
document that contain information collection requirements (ICRs). We 
discuss and respond to any public comments we received in each 
individual section.
a. ICRs Regarding Withdrawing an Application, Terminating an Approved 
3-Year Reclassification, or Canceling a Previous Withdrawal or 
Termination (Revised Sec.  412.273)
    We have revised much of Sec.  412.273 to make the provisions 
clearer and more easily understood. Although the majority of the 
information collections under this section exist under current law, as 
we are modifying the provision, in this section we discuss the 
information collections that will exist under the revised Sec.  
412.273.
    As discussed in section III.I. of this preamble, revised Sec.  
412.273(b) states that the MGCRB allows a hospital, or group of 
hospitals, to withdraw its application or to terminate an already 
existing 3-year reclassification. Revised Sec.  412.273(c) further 
specifies the timing requirements for the withdrawal or termination 
requirements. Revised Sec.  412.273(c)(1) provides that a request for 
withdrawal must be received by the MGCRB at any time before the MGCRB 
issues a decision on the application; or after the MGCRB issues a 
decision, provided that the request for withdrawal is received by the 
MGCRB within 45 days of publication of CMS' annual notice of proposed 
rulemaking concerning changes to the IPPS and proposed payment rates 
for the fiscal year for which the application has been filed.
    The burden associated with this requirement is the time and effort 
necessary for a hospital to submit a written withdrawal request to the 
MGCRB. While this requirement is subject to the PRA, we cannot 
accurately quantify the burden

[[Page 50410]]

associated with this requirement. We currently review each request on a 
case-by-case basis. We believe the associated burden is thereby exempt 
from the PRA as stipulated under 5 CFR 1320.3(h)(6).
    Revised Sec.  412.273(c)(2) provides that a request for termination 
must be received by the MGCRB within 45 days of the publication of CMS' 
annual notice of proposed rulemaking concerning changes to the IPPS and 
proposed payment rates for the fiscal year for which the termination is 
to apply. The burden associated with this requirement is the time and 
effort necessary for a hospital to submit a written termination request 
to the MGCRB. While this requirement is subject to the PRA, we cannot 
accurately quantify the burden associated with this requirement. We 
currently review each request on a case-by-case basis. We believe the 
associated burden is thereby exempt from the PRA as stipulated under 5 
CFR 1320.3(h)(6).
    Revised Sec.  412.273(d)(1) states that a hospital (or group of 
hospitals) may cancel a withdrawal or termination in a subsequent year 
and request the MGCRB to reinstate the wage index reclassification for 
the remaining fiscal year(s) of the 3-year period. Revised Sec.  
412.273(d)(2) requires that cancellation requests be received in 
writing by the MGCRB no later than the deadline for submitting 
reclassification applications for the following fiscal year, as 
specified in Sec.  412.256(a)(2). The burden associated with this 
requirement is the time and effort necessary for a hospital to submit a 
written request to the MGCRB, requesting that the current withdrawal or 
termination request be cancelled. While this requirement is subject to 
the PRA, we cannot accurately quantify the burden associated with this 
requirement. We currently review each request on a case-by-case basis. 
We believe the associated burden is thereby exempt from the PRA as 
stipulated under 5 CFR 1320.3(h)(6).
    Section 412.273(d)(3) states that a hospital will be able to apply 
for reclassification to a different area (that is, an area different 
from the one to which it was originally reclassified for the 3-year 
period). If the application is approved, the reclassification will be 
effective for 3 years. Once a 3-year reclassification becomes 
effective, a hospital may no longer cancel a withdrawal or termination 
of another 3-year reclassification, regardless of whether the 
withdrawal or termination request is made within 3 years from the date 
of the withdrawal or termination. The burden associated with the 
reapplication requirement is the time and effort necessary for a 
hospital to submit a reclassification request to the MGCRB. While this 
requirement is subject to the PRA, the associated burden is approved 
under OMB control number 0938-0573, with an expiration date of December 
31, 2011.
    Section 412.273(f)(1) states that a hospital may file an appeal of 
the MGCRB's denial of its request for withdrawal or termination, or of 
the MGCRB's denial of its request for a cancellation of such withdrawal 
or termination, to the Administrator. The appeal must be received 
within 15 days of the date of the notice of the denial. The burden 
associated with this requirement is the time and effort necessary for a 
hospital to file a written appeal of the MGCRB's denial. While this 
requirement is subject the PRA, the associated burden is exempt under 5 
CFR 1320.4. The burden associated with collection information as part 
of or subsequent to an administrative action is not subject to the PRA.
b. ICRs Regarding Condition of Participation: Respiratory Care Services 
(Sec.  482.57)
    Section IX. of this preamble discusses the revisions to Sec.  
482.57(b)(4), which impose a recordkeeping requirement. Section 
482.57(b)(4) requires all respiratory care services orders to be 
documented in the patient's medical record in accordance with the 
requirements at Sec.  482.24. The burden associated with this 
requirement is the time and effort necessary for hospital staff to 
document and maintain the respiratory care services orders in a 
patient's medical record. While these requirements are subject to the 
PRA, the associated burden is exempt from the PRA under 5 CFR 
1320.3(b)(2). We believe hospitals will not incur any burden above and 
beyond that associated with the usual and customary business practice 
of maintaining detailed patient medical records.
3. Additional Information Collection Requirements
    This final rule imposes collection of information requirements as 
outlined in the regulation text and specified above. However, this 
final rule also makes reference to several associated information 
collections that are not discussed in the regulation text contained in 
this document. The following is a discussion of these information 
collections, some of which have already received OMB approval.
a. Present on Admission (POA) Indicator Reporting
    Section II.F.6. of the preamble of this final rule discusses the 
POA indicator reporting program. As stated earlier, collection of POA 
indicator data is necessary to identify which conditions were acquired 
during hospitalization for the HAC payment provision and for broader 
public health uses of Medicare data. Through Change Request 5499 dated 
May 11, 2007, CMS issued instructions that require IPPS hospitals to 
submit POA indicator data for all diagnosis codes on Medicare claims.
    The burden associated with this requirement is the time and effort 
necessary to place the appropriate POA indicator codes on Medicare 
claims. This requirement is subject to the PRA; however, the associated 
burden is currently approved under OMB control number 0938-0997, with 
an expiration date of October 31, 2012.
b. Add-On Payments for New Services and Technologies
    Section II.I.1. of the preamble of this final rule discusses add-on 
payments for new services and technologies. Specifically, this section 
states that applicants for add-on payments for new medical services or 
technologies for FY 2011 must submit a formal request. A formal request 
includes a full description of the clinical applications of the medical 
service or technology and the results of any clinical evaluations 
demonstrating that the new medical service or technology represents a 
substantial clinical improvement. In addition, the request must contain 
a significant sample of the data to demonstrate that the medical 
service or technology meets the high-cost threshold. We detailed the 
burden associated with this requirement in the September 7, 2001, IPPS 
final rule (66 FR 46902). As stated in that final rule, collection of 
the information for this requirement is conducted on an individual 
case-by-case basis. We believe the associated burden is thereby exempt 
from the PRA as stipulated under 5 CFR 1320.3(h)(6). Similarly, we also 
believe the burden associated with this requirement is exempt from the 
PRA under 5 CFR 1320.3(c), which defines the agency collection of 
information subject to the requirements of the PRA as information 
collection imposed on 10 or more persons within any 12-month period. 
This information collection does not impact 10 or more entities in a 
12-month period. In FYs 2008, 2009, 2010, and 2011, we received 1, 4, 
5, and 3 applications, respectively.
c. Reporting of Hospital Quality Data for Annual Hospital Payment 
Update
    As discussed in section IV.A. of this final rule, the RHQDAPU 
program was originally established to implement section 501(b) of 
Public Law 108-173.

[[Page 50411]]

The RHQDAPU program originally consisted of a ``starter set'' of 10 
quality measures. OMB approved the collection of data associated with 
the original starter set of quality measures under OMB control number 
0938-0918, with a current expiration date of January 31, 2011.
    As part of our implementation of section 5001(a) of the DRA, we 
expanded the number of quality measures reported in the RHQDAPU 
program. Specifically, section 1886(b)(3)(B)(viii)(III) of the Act, 
added by section 5001(a) of the DRA, requires that the Secretary expand 
the ``starter set'' of 10 quality measures that were established by the 
Secretary as of November 1, 2003, to include measures ``that the 
Secretary determines to be appropriate for the measurement of the 
quality of care (including medication errors) furnished by hospitals in 
inpatient settings.'' Under this provision, we established additional 
program measures to bring the total number of measures to 30. The 
burden associated with these reporting requirements is currently 
approved under OMB control number 0938-1022, with a current expiration 
date of June 30, 2011.
    In the FY 2010 IPPS proposed rule (74 FR 24168), we solicited 
public comments on several considerations for expanding and updating 
quality measures. We responded to the public comments received in the 
FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43866 through 43868). 
We also expanded and finalized the RHQDAPU program measure set for the 
FY 2011 payment determination. As part of the expansion effort, we 
finalized 46 measures in the FY 2010 IPPS/RY 2010 LTCH PPS final rule 
(74 FR 43872).
    In the FY 2011 IPPS/LTCH PPS proposed rule, we proposed to retire 
one measure for the FY 2011 payment determination (75 FR 23961). For 
the FY 2012 through FY 2014 payment determinations, we proposed to 
retain the remaining 45 of the 46 current measures; and for FY 2012, to 
add 10 new measures and to require all-patient volume data for selected 
MS-DRGs that relate to RHQDAPU program measures; for FY 2013, to retain 
the FY 2012 measures and add 35 new measures; and for FY 2014, to 
retain the FY 2013 measures and to add 4 new measures. In addition, we 
listed 28 new measures that are under consideration for adoption in 
future years. We proposed that, beginning with CY 2011 discharges, 
hospitals submit some of the new measure data to a qualified registry.
    We also solicited public comments on retiring one or more of the 11 
additional measures suggested by commenters in the FY 2010 IPPS/RY 2010 
LTCH PPS final rule based on topped out performance and other 
rationales.
    In summary, we proposed to retire one measure for the FY 2011 
annual payment update and sought comments on whether to retire 11 
additional measures suggested by commenters in the FY 2010 IPPS/RY 2010 
LTCH PPS final rule. In addition, we proposed to expand the RHQDAPU 
program measure set to: 55 measures for the FY 2012 annual payment 
update (taking into account our proposal to retire one measure for the 
FY 2011 annual payment update); 90 measures for the FY 2013 annual 
payment update, and 94 measures for the FY 2014 annual payment update. 
We also proposed 28 possible measures and topics for future years. 
Finally, we proposed that, beginning with the FY 2012 annual payment 
update, hospitals that participate in the RHQDAPU program submit all-
patient volume data for selected MS-DRGs that relate to RHQDAPU program 
measures beginning with CY 2011 discharges.
    We submitted a revised version of the information collection 
request approved under OMB control number 0938-1022, to obtain approval 
for the proposed new measures.
    Section IV.A.10. of the FY 2011 IPPS/LTCH PPS proposed rule 
addressed the reconsideration and appeal procedures for a hospital that 
we believe did not meet the RHQDAPU program requirements. If a hospital 
disagrees with our determination, it may submit a written request to 
CMS to reconsider our decision. The hospital's request for 
reconsideration must explain the reasons why it believes it satisfied 
the RHQDAPU program requirements.
    While this is a reporting requirement, the burden associated with 
it is not subject to the PRA under 5 CFR 1320.4(a)(2). The burden 
associated with information collection requirements imposed subsequent 
to an administrative action is not subject to the PRA.
    For the FY 2011 annual payment update, we are retiring the AHRQ 
mortality for selected surgical procedures composite measure. We refer 
readers to section IV.A.3. of this final rule for the list of RHQDAPU 
measures that we are adopting as final for FY 2012 through FY 2014. 
Over the three year period, we are retiring 2 additional measures from 
the measurement set (PN-2, and PN-7) and adding 17 new measures to the 
measure set, for a total of 60 measures. We are not adopting any of our 
proposed registry-based measures, or our proposal for all-patient 
volume reporting.
    In summary, after consideration of the public comments we received, 
we are:
     Retiring one measure for the FY 2011 annual payment 
update.
     Retaining the measures used for the FY 2011 annual payment 
update (except for the 1 we are retiring) and adopting 10 additional 
claims--based measures for reporting in 2011 that will be used to 
determine the FY 2012 annual payment update.
     Retaining the measures used for the FY 2012 annual payment 
update and adopting an additional 1 chart-abstracted measure and 1 HAI 
measure (to be reported through the NHSN) for reporting in 2011 that 
will be used to determine the FY 2013 annual payment update.
     Retaining the measures used for the FY 2013 annual payment 
update (except for 2 measures we are retiring) and adopting 5 
additional measures for reporting in 2012 that will be used to 
determine the FY 2014 annual payment update.
d. Occupational Mix Adjustment to the FY 2011 Index (Hospital Wage 
Index Occupational Mix Survey)
    Section II.D. of the preamble of this final rule discusses the 
occupational mix adjustment to the FY 2011 wage index. While the 
preamble does not contain any new ICRs, it is important to note that 
there is an OMB approved information collection request associated with 
the hospital wage index.
    Section 304(c) of Public Law 106-554 amended section 1886(d)(3)(E) 
of the Act to require CMS to collect data at least once every 3 years 
on the occupational mix of employees for each short-term, acute care 
hospital participating in the Medicare program in order to construct an 
occupational mix adjustment to the wage index. We collect the data via 
the occupational mix survey.
    The burden associated with this information collection requirement 
is the time and effort required to collect and submit the data in the 
Hospital Wage Index Occupational Mix Survey to CMS. The aforementioned 
burden is subject to the PRA; however, it is currently approved under 
OMB control number 0938-0907, with an expiration date of February 28, 
2013.
e. Hospital Applications for Geographic Reclassifications by the MGCRB
    Section III.I.3. of the preamble of this final rule discusses 
revisions to the wage index based on hospital redesignations. As stated 
in that section, under section 1886(d)(10) of the Act, the

[[Page 50412]]

MGCRB has the authority to accept short-term IPPS hospital applications 
requesting geographic reclassification for wage index or standardized 
payment amounts and to issue decisions on these requests by hospitals 
for geographic reclassification for purposes of payment under the IPPS.
    The burden associated with this application process is the time and 
effort necessary for an IPPS hospital to complete and submit an 
application for reclassification to the MGCRB. While this requirement 
is subject to the PRA, the associated burden is currently approved 
under OMB control number 0938-0573, with an expiration date of December 
31, 2011.
f. Direct GME Payments: General Requirements
    Existing regulations at Sec.  413.75(b) permit hospitals that share 
residents to elect to form a Medicare GME affiliated group if they are 
in the same or contiguous urban or rural areas, if they are under 
common ownership, or if they are jointly listed as program sponsors or 
major participating institutions in the same program. The purpose of a 
Medicare GME affiliated group is to provide flexibility to hospitals in 
structuring rotations under an aggregate FTE resident cap when they 
share residents. The existing regulations at Sec.  413.79(f)(1) specify 
that each hospital in a Medicare GME affiliated group must submit a 
Medicare GME affiliation agreement (as defined under Sec.  413.75(b)) 
to the Medicare fiscal intermediary or MAC servicing the hospital and 
send a copy to CMS' Central Office no later than July 1 of the 
residency program year during which the Medicare GME affiliation 
agreement will be in effect.
    In section V.H.3. of the preamble of this final rule, as we 
proposed, we are allowing hospitals to electronically submit the copy 
of the affiliation agreement that is required to be sent to the CMS 
Central Office. As stated earlier in the preamble, the electronic 
submission process will consist of either an e-mail mailbox or a Web 
site where hospitals will submit their Medicare GME affiliation 
agreements to the CMS Central Office to a designated online mailbox. We 
are providing that a copy of the Medicare GME affiliation agreement 
will need to be received through the electronic system no later than 
11:59 p.m. on July 1 of each academic year. We are specifying that the 
electronic affiliation agreement will need to be submitted either as a 
scanned copy or a Portable Document Format (PDF) version of that hard 
copy agreement; we will not accept an agreement in any electronic 
format that could be subject to manipulation. The scanned and/or PDF 
format will enable CMS to ensure that the agreements are signed and 
dated as required in the regulations at Sec.  413.75. Under this 
policy, hospitals will have the option to continue to submit a hard 
copy of its affiliation agreement to the CMS Central Office. In 
addition, each fiscal intermediary or MAC will continue to have the 
authority to specify its requirements for submittal of the Medicare GME 
affiliation agreement by hospitals that are part of the affiliation.
    The burden associated with this requirement is the time and effort 
it would take for the new hospital to develop and submit the Medicare 
GME affiliation agreement, to submit the agreement to its fiscal 
intermediary or MAC, and to submit a copy to CMS. In the proposed and 
final rules that published on May 22, 2009 (74 FR 24080) and August 27, 
2009 (74 FR 43754), we stated that it was difficult for us to estimate 
the annual burden associated with this requirement because we cannot 
estimate the additional number of hospitals that will be permitted to 
submit Medicare GME affiliation agreements in any given year as a 
result of the change. However, we now have better data available to 
quantify the burden associated with the existing requirement for 
hospitals to submit GME affiliation agreements to the fiscal 
intermediary or MAC servicing the hospital and new requirement for the 
electronic submission of a copy of the affiliation agreement to CMS. We 
are submitting a new information collection request to OMB for review 
and approval of the associated burden.
    We anticipate receiving between 100 and 150 GME affiliation 
agreements annually. For the purposes of our information collection 
request, we estimate that we will receive 125 agreements annually. CMS 
provides a two-page sample agreement for hospitals; however, some 
facilities may submit additional information that is not required. We 
estimate that it will take 1 hour for a hospital to develop a GME 
affiliation agreement or to follow the format provided by CMS. 
Similarly, we estimate that it will take each hospital 15 minutes to 
submit a hard copy of the affiliation agreement to its fiscal 
intermediary or MAC. Finally, we estimate that it will take each 
hospital 5 minutes to submit an electronic copy of its GME affiliation 
agreement to CMS. The total annual burden associated with developing 
the affiliation agreement is 125 hours. The total annual burden 
associated with submitting a hard copy of the affiliation agreement is 
31 hours. The total annual burden associated with submitting the 
agreement electronically is 10 hours. The total annual burden 
associated with all of the requirements in this section is 166 hours. 
The total cost associated with this requirement is $5,000 ($40.00 x 125 
agreements).

List of Subjects

42 CFR Part 412

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

42 CFR Part 413

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

42 CFR Part 415

    Health facilities, Health professions, Medicare and Reporting and 
recordkeeping requirements.

42 CFR Part 424

    Conditions for Medicare payment.

42 CFR Part 440

    Grant program--health, Medicaid.

42 CFR Part 441

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

42 CFR Part 482

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

0
For the reasons stated in the preamble of this final rule, the Centers 
for Medicare & Medicaid Services is amending 42 CFR chapter IV as 
follows:

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL 
SERVICES

0
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).

0
2. Section 412.2 is amended by--
0
a. Revising paragraph (c)(5) introductory text.

[[Page 50413]]

0
b. Revising paragraph (c)(5)(iii).
0
c. Adding a new paragraph (c)(5)(iv).
    The revision and addition read as follows:

Sec.  412.2  Basis of payment.

* * * * *
    (c) * * *
    (5) Preadmission services otherwise payable under Medicare Part B 
furnished to a beneficiary on the date of the beneficiary's admission 
to the hospital and during the 3 calendar days immediately preceding 
the date of the beneficiary's admission to the hospital that meet the 
condition specified in paragraph (c)(5)(i) of this section and at least 
one of the conditions specified in paragraphs (c)(5)(ii) through 
(c)(5)(iv).
* * * * *
    (iii) For services furnished on or after October 1, 1991, through 
June 24, 2010, the services are furnished in connection with the 
principal diagnosis that requires the beneficiary to be admitted as an 
inpatient and are not the following:
    (A) Ambulance services.
    (B) Maintenance renal dialysis.
    (iv) Nondiagnostic services furnished on or after June 25, 2010, 
other than ambulance services and maintenance renal dialysis services, 
that are furnished on the date of the beneficiary's inpatient admission 
or on the first, second, or third calendar day immediately preceding 
the date of the beneficiary's inpatient admission and the hospital does 
not attest that such services are unrelated to the beneficiary's 
inpatient admission.

0
3. Section 412.4 is amended by--
0
a. Republishing the introductory text of paragraph (b).
0
b. Removing the word ``or'' at the end of paragraph (b)(1).
0
c. Removing the period at the end of paragraph (b)(2) and adding in its 
place a semicolon.
0
d. Adding new paragraphs (b)(3) and (b)(4).
    The additions read as follows:

Sec.  412.4  Discharges and transfers.

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

Sec.  412.23  [Amended]

0
4. In Sec.  412.23, paragraphs (e)(6)(i) and (e)(7)(ii) are amended by 
removing the date ``December 28, 2010'' and adding the date ``December 
28, 2012'' in its place.

0
5. Section 412.64 is amended by--
0
a. Revising paragraphs (d)(1) and (e)(4).
0
b. Adding a new paragraph (m).

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

* * * * *
    (d) * * *
    (1) Subject to the provisions of paragraph (d)(2) of this section, 
the applicable percentage change for updating the standardized amount 
is--
    (i) For fiscal year 2005 through fiscal year 2009, the percentage 
increase in the market basket index for prospective payment hospitals 
(as defined in Sec.  413.40(a) of this subchapter) for hospitals in all 
areas.
    (ii) For fiscal year 2010, for discharges--
    (A) On or after October 1, 2009 and before April 1, 2010, the 
percentage increase in the market basket index for prospective payment 
hospitals (as defined in Sec.  413.40(a) of this subchapter) for 
hospitals in all areas; and
    (B) On or after April 1, 2010 and before October 1, 2010, the 
percentage increase in the market basket index minus 0.25 percentage 
points for prospective payment hospitals (as defined in Sec.  413.40(a) 
of this subchapter) for hospitals in all areas.
    (iii) For fiscal year 2011, the percentage increase in the market 
basket index minus 0.25 percentage points for prospective payment 
hospitals (as defined in Sec.  413.40(a) of this subchapter) for 
hospitals in all areas.
* * * * *
    (e) * * *
    (4) CMS makes an adjustment to the wage index to ensure that 
aggregate payments after implementation of the rural floor under 
section 4410 of the Balanced Budget Act of 1997 (Pub. L. 105-33) and 
the imputed floor under paragraph (h)(4) of this section are equal to 
the aggregate prospective payments that would have been made in the 
absence of such provisions as follows:
    (i) Beginning October 1, 2008, such adjustment is transitioned from 
a nationwide to a statewide adjustment as follows:
    (A) From October 1, 2008 through September 30, 2009, the wage index 
is a blend of 20 percent of a wage index with a statewide adjustment 
and 80 percent of a wage index with a nationwide adjustment.
    (B) From October 1, 2009 through September 30, 2010, the wage index 
is a blend of 50 percent of a wage index with a statewide adjustment 
and 50 percent of a wage index with a nationwide adjustment.
    (ii) Beginning October 1, 2010, such adjustment is a full 
nationwide adjustment.
* * * * *
    (m) Adjusting the wage index to account for the Frontier State 
floor.
    (1) General criteria. For discharges occurring on or after October 
1, 2010, CMS adjusts the hospital wage index for hospitals located in 
qualifying States to recognize the wage index floor established for 
frontier States. A qualifying frontier State meets both of the 
following criteria:
    (i) At least 50 percent of counties located within the State have a 
reported population density less than 6 persons per square mile.
    (ii) The State does not receive a nonlabor-related share adjustment 
determined by the Secretary to take into account the unique 
circumstances of hospitals located in Alaska and Hawaii.
    (2) Amount of wage index adjustment. A hospital located in a 
qualifying State will receive a wage index value not less than 1.00.
    (3) Process for determining and posting wage index adjustments. (i) 
CMS uses the most recent Population Estimate data published by the U.S. 
Census Bureau to determine county definitions and population density. 
This analysis will be periodically revised, such as for updates to the 
decennial census data.
    (ii) CMS will include a listing of qualifying frontier States and 
denote the hospitals receiving a wage index increase attributable to 
this provision in its annual updates to the hospital inpatient 
prospective payment system published in the Federal Register.

0
6. Section 412.73 is amended by--
0
a. Revising paragraph (c)(15).
0
b. Adding a new paragraph (c)(16).
    The revision and addition read as follows:

Sec.  412.73  Determination of the hospital-specific rate based on a 
Federal fiscal year 1982 base period.

* * * * *
    (c) * * *
    (15) For Federal fiscal year 2003 through Federal fiscal year 2009. 
For Federal fiscal year 2003 through Federal fiscal year 2009, the 
update factor is the percentage increase in the market basket

[[Page 50414]]

index for prospective payment hospitals (as defined in Sec.  413.40(a) 
of this chapter).
    (16) For Federal fiscal year 2010 and subsequent years. For Federal 
fiscal year 2010 and subsequent years, the update factor is the 
percentage increase specified in Sec.  412.64(d).
* * * * *

Sec.  412.75  [Amended]

0
7. In Sec.  412.75, paragraph (d) is amended by removing the citation 
``Sec.  412.73(c)(15)'' and adding the citation ``Sec.  412.73(c)(15) 
and Sec.  412.73(c)(16)'' in its place.

Sec.  412.77  [Amended]

0
8. In Sec.  412.77, paragraph (e) is amended by removing the reference 
``(c)(15)'' and adding the reference ``(c)(16)'' in its place.

Sec.  412.78  [Amended]

0
9. In Sec.  412.78, paragraph (e) is amended by removing the citation 
``Sec.  412.73(c)(15)'' and adding the citation ``Sec.  412.73(c)(15) 
and Sec.  412.73(c)(16)'' in its place.

Sec.  412.79  [Amended]

0
10. In Sec.  412.79, paragraph (d) is amended by removing the phrase 
``and (c)(15)'' and adding the phrase ``through (c)(16)'' in its place.

0
11. Section 412.101 is revised to read as follows:

Sec.  412.101  Special treatment: Inpatient hospital payment adjustment 
for low-volume hospitals.

    (a) Definitions. Beginning in FY 2011, the terms used in this 
section are defined as follows:
    Medicare discharges means discharge of inpatients entitled to 
Medicare Part A, including discharges associated with individuals whose 
inpatient benefits are exhausted or whose stay was not covered by 
Medicare and also discharges of individuals enrolled in a MA 
organization under Medicare Part C.
    Road miles means ``miles'' as defined in Sec.  412.92(c)(1).
    (b) General considerations. (1) CMS provides an additional payment 
to a qualifying hospital for the higher incremental costs associated 
with a low volume of discharges. The amount of any additional payment 
for a qualifying hospital is calculated in accordance with paragraph 
(c) of this section.
    (2) In order to qualify for this adjustment, a hospital must meet 
the following criteria:
    (i) For FY 2005 through FY 2010 and FY 2013 and subsequent fiscal 
years, a hospital must have fewer than 200 total discharges, which 
includes Medicare and non-Medicare discharges, during the fiscal year, 
based on the hospital's most recently submitted cost report, and be 
located more than 25 road miles (as defined in paragraph (a) of this 
section) from the nearest ``subsection (d)'' (section 1886(d) of the 
Act) hospital.
    (ii) For FY 2011 and FY 2012, a hospital must have fewer than 1,600 
Medicare discharges, as defined in paragraph (a) of this section, 
during the fiscal year, based on the hospital's Medicare discharges 
from the most recently available MedPAR data as determined by CMS, and 
be located more than 15 road miles, as defined in paragraph (a) of this 
section, from the nearest ``subsection (d)'' (section 1886(d) of the 
Act) hospital.
    (3) In order to qualify for the adjustment, a hospital must provide 
its fiscal intermediary or Medicare administrative contractor with 
sufficient evidence that it meets the distance requirement specified 
under paragraph (b)(2) of this section. The fiscal intermediary or 
Medicare administrative contractor will base its determination of 
whether the distance requirement is satisfied upon the evidence 
presented by the hospital and other relevant evidence, such as maps, 
mapping software, and inquiries to State and local police, 
transportation officials, or other government officials.
    (c) Determination of the adjustment amount. The low-volume 
adjustment for hospitals that qualify under paragraph (b) of this 
section is as follows for the applicable fiscal year:
    (1) For FY 2005 through FY 2010 and FY 2013 and subsequent fiscal 
years, the adjustment is an additional 25 percent for each Medicare 
discharge.
    (2) For FY 2011 and FY 2012, the adjustment is as follows:
    (i) For low-volume hospitals with 200 or fewer Medicare discharges 
(as defined in paragraph (a) of this section), the adjustment is an 
additional 25 percent for each Medicare discharge.
    (ii) For low-volume hospitals with Medicare discharges (as defined 
in paragraph (a) of this section) of more than 200 and fewer than 
1,600, the adjustment for each Medicare discharge is an additional 
percent calculated using the formula [(4/14)--(number of Medicare 
discharges/5600)]. The ``number of Medicare discharges'' is determined 
as described in paragraph (b)(2)(ii) of this section.
    (d) Eligibility of new hospitals for the adjustment. For FYs 2005 
through 2010 and FY 2013 and subsequent fiscal years, a new hospital 
will be eligible for a low-volume adjustment under this section once it 
has submitted a cost report for a cost reporting period that indicates 
that it meets discharge requirements during the applicable fiscal year 
and has provided its fiscal intermediary or Medicare administrative 
contractor with sufficient evidence that it meets the distance 
requirement, as specified under paragraph (b)(2) of this section.

Sec.  412.106  [Amended]

0
12. Section 412.106 is amended by--
0
a. In paragraph (b)(2)(i)(B), removing the word ``or'' and adding in 
its place the word ``including''.
0
b. In paragraph (b)(2)(iii)(B), removing the word ``or'' and adding in 
its place the word ``including''.

Sec.  412.108  [Amended]

0
13. Section 412.108 is amended as follows:
0
a. In paragraph (a)(1) introductory text, the phrase ``before October 
1, 2011'' is removed and the phrase ``before October 1, 2012'' is added 
in its place.
0
b. In paragraph (a)(1)(iii) introductory text, the word ``receiving'' 
is removed and the phrase ``entitled to'' is added in its place.
0
c. In paragraph (c)(2)(iii) introductory text, the phrase ``before 
October 1, 2011'' is removed and the phrase ``before October 1, 2012'' 
is added in its place.
0
14. Section 412.113 is amended by revising paragraph (c)(2)(i)(A) to 
read as follows:

Sec.  412.113  Other payments.

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

0
15. Section 412.211 is amended by revising paragraph (c) to read as 
follows:

Sec.  412.211  Puerto Rico rates for Federal fiscal year 2004 and 
subsequent fiscal years.

* * * * *
    (c) Computing the standardized amount. CMS computes a Puerto Rico 
standardized amount that is applicable to all hospitals located in all 
areas. The applicable percentage change for updating the Puerto Rico 
specific standardized amount is as follows:

[[Page 50415]]

    (1) For fiscal year 2004 through fiscal year 2009, increased by the 
applicable percentage change specified in Sec.  412.64(d)(1)(ii)(A).
    (2) For fiscal year 2010, increased by the market basket index for 
prospective payment hospitals (as defined in Sec.  413.40(a) of this 
subchapter) for hospitals in all areas.
    (3) For fiscal year 2011, increased by the applicable percentage 
change specified in Sec.  412.64(d)(1)(iii).
* * * * *

Sec.  412.230  [Amended]

0
16. In Sec.  412.230 paragraph (d)(1)(iv)(E) is amended by removing the 
figures ``86'' and ``88'' adding the figures ``82'' and ``84'' in their 
place, respectively.

Sec.  412.232  [Amended]

0
17. In Sec.  412.232, paragraph (c)(3) is amended by removing the 
figure ``88'' and adding the figure ``85'' in its place.

Sec.  412.234  [Amended]

0
18. In Sec.  412.234, paragraph (b)(3) is amended by removing the 
figure ``88'' and adding the figure ``85'' in its place.

0
19. Section 412.273 is revised to read as follows:

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

    (a) Definitions. For purposes of this section, the following 
definitions apply.
    Termination refers to the termination of an already existing 3-year 
MGCRB reclassification where such reclassification has already been in 
effect for 1 or 2 years, and there are 1 or 2 years remaining on the 3-
year reclassification. A termination is effective only for the full 
fiscal year(s) remaining in the 3-year period at the time the request 
is received. Requests for terminations for part of a fiscal year are 
not considered.
    Withdrawal refers to the withdrawal of a 3-year MGCRB 
reclassification that has not yet gone into effect or where the MGCRB 
has not yet issued a decision on the application.
    (b) General rule. The MGCRB allows a hospital, or group of 
hospitals, to withdraw its application or to terminate an already 
existing 3-year reclassification, in accordance with this section.
    (c) Timing. (1) A request for withdrawal must be received by the 
MGCRB--
    (i) At any time before the MGCRB issues a decision on the 
application; or
    (ii) After the MGCRB issues a decision, provided that the request 
for withdrawal is received by the MGCRB within 45 days of publication 
of CMS' annual notice of proposed rulemaking concerning changes to the 
inpatient hospital prospective payment system and proposed payment 
rates for the fiscal year for which the application has been filed.
    (2) A request for termination must be received by the MGCRB within 
45 days of the publication of CMS' annual notice of proposed rulemaking 
concerning changes to the inpatient hospital prospective payment system 
and proposed payment rates for the fiscal year for which the 
termination is to apply.
    (d) Reapplication within the approved 3-year period, cancellations 
of terminations and withdrawals, and prohibition on overlapping 
reclassification approvals. (1) Cancellation of terminations or 
withdrawals. Subject to the provisions of this section, a hospital (or 
group of hospitals) may cancel a withdrawal or termination in a 
subsequent year and request the MGCRB to reinstate the wage index 
reclassification for the remaining fiscal year(s) of the 3-year period. 
(Withdrawals may be cancelled only in cases where the MGCRB issued a 
decision on the geographic reclassification request.)
    (2) Timing and process of cancellation request. Cancellation 
requests must be received in writing by the MGCRB no later than the 
deadline for submitting reclassification applications for the following 
fiscal year, as specified in Sec.  412.256(a)(2).
    (3) Reapplications. A hospital may apply for reclassification to a 
different area (that is, an area different from the one to which it was 
originally reclassified for the 3-year period). If the application is 
approved, the reclassification will be effective for 3 years. Once a 3-
year reclassification becomes effective, a hospital may no longer 
cancel a withdrawal or termination of another 3-year reclassification, 
regardless of whether the withdrawal or termination request is made 
within 3 years from the date of the withdrawal or termination.
    (4) Termination of existing 3-year reclassification. In a case in 
which a hospital with an existing 3-year wage index reclassification 
applies to be reclassified to another area, its existing 3-year 
reclassification will be terminated when a second 3-year wage index 
reclassification goes into effect for payments for discharges on or 
after the following October 1.
    (e) Written request only. A request to withdraw an application must 
be made in writing to the MGCRB by all hospitals that are party to the 
application. A request to terminate an approved reclassification must 
be made in writing to the MGCRB by an individual hospital or by an 
individual hospital that is party to a group classification.
    (f) Appeal of the MGCRB's denial of a hospital's request for 
withdrawal or termination, or for cancellation of a withdrawal or 
termination. (1) A hospital may file an appeal of the MGCRB's denial of 
its request for withdrawal or termination, or of the MGCRB's denial of 
its request for a cancellation of such withdrawal or termination, to 
the Administrator. The appeal must be received within 15 days of the 
date of the notice of the denial.
    (2) Within 20 days of receipt of the hospital's request for appeal, 
the Administrator affirms or reverses the denial.

0
20. A new Sec.  412.405 is added to read as follows:

Sec.  412.405  Preadmission services as inpatient operating costs under 
the inpatient psychiatric facility prospective payment system.

    The prospective payment system includes payment for inpatient 
operating costs of preadmission services if the inpatient operating 
costs are for--
    (a) Preadmission services otherwise payable under Medicare Part B 
furnished to a beneficiary on the date of the beneficiary's inpatient 
admission, and during the calendar day immediately preceding the date 
of the beneficiary's inpatient admission, to the inpatient psychiatric 
facility that meet the following conditions:
    (1) The services are furnished by the inpatient psychiatric 
facility or by an entity wholly owned or wholly operated by the 
inpatient psychiatric facility. An entity is wholly owned by the 
inpatient psychiatric facility if the inpatient psychiatric facility is 
the sole owner of the entity. An entity is wholly operated by an 
inpatient psychiatric facility if the inpatient psychiatric facility 
has exclusive responsibility for conducting and overseeing the entity's 
routine operations, regardless of whether the inpatient psychiatric 
facility also has policymaking authority over the entity.
    (2) The services are diagnostic (including clinical diagnostic 
laboratory tests).
    (3) The services are nondiagnostic when furnished on the date of 
the beneficiary's inpatient admission, the services are nondiagnostic 
when furnished on the calendar day preceding the date of the 
beneficiary's inpatient admission and the hospital does not demonstrate 
that such services are unrelated to the beneficiary's inpatient

[[Page 50416]]

admission, and are not one of the following:
    (i) Ambulance services.
    (ii) Maintenance renal dialysis services.
    (b) The preadmission services are furnished on or after June 25, 
2010.

0
21. Section 412.503 is amended by--
0
a. Adding a definition of ``Long-term care hospital prospective payment 
system fiscal year''.
0
b. Adding a definition of ``Long-term care hospital prospective payment 
system payment year''.
0
c. Revising paragraph (3) of the definition of ``Long-term care 
hospital prospective payment system rate year''.
    The additions and revision read as follows:

Sec.  412.503  Definitions.

* * * * *
    Long-term care hospital prospective payment system fiscal year 
means, beginning October 1, 2010, the 12-month period of October 1 
through September 30.
    Long-term care hospital prospective payment system payment year 
means the general term that encompasses both the definition of ``long-
term care hospital prospective payment system rate year'' and ``long-
term care hospital prospective payment system fiscal year'' specified 
in this section.
    Long-term care hospital prospective payment system rate year 
means--
* * * * *
    (3) From October 1, 2009 through September 30, 2010, the 12-month 
period of October 1 through September 30.
* * * * *

Sec.  412.521  [Amended]

0
22. In paragraph (b)(1) of Sec.  412.521, remove the reference ``Sec.  
412.2(c)'' and add in its place the reference ``Sec. Sec.  412.2(c)(1) 
through (c)(4) of this Part and Sec.  412.540''.

0
23. Section 412.523 is amended by--
0
a. Revising paragraph (c)(3)(vi).
0
b. Adding paragraph (c)(3)(vii).
0
c. In paragraph (d)(3), removing the phrase ``December 29, 2010, and by 
no later than October 1, 2012'' and adding the phrase ``December 29, 
2012,'' in its place.
    The revision and addition read as follows:

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

* * * * *
    (c) * * *
    (3) * * *
    (vi) For long-term care hospital prospective payment system rate 
year beginning October 1, 2009 and ending September 30, 2010. (A) The 
standard Federal rate for long-term care hospital prospective payment 
system rate year beginning October 1, 2009 and ending September 30, 
2010 is the standard Federal rate for the previous long-term care 
hospital prospective payment system rate year updated by 1.74 percent. 
The standard Federal rate is adjusted, as appropriate, as described in 
paragraph (d) of this section.
    (B) With respect to discharges occurring on or after October 1, 
2009 and before April 1, 2010, payments are based on the standard 
Federal rate in paragraph (c)(3)(v) of this section updated by 2.0 
percent.
    (vii) For long-term care hospital prospective payment system fiscal 
year beginning October 1, 2010, and ending September 30, 2011. The 
standard Federal rate for the long-term care hospital prospective 
payment system fiscal year beginning October 1, 2010, and ending 
September 30, 2011, is the standard Federal rate for the previous long-
term care hospital prospective payment system rate year updated by -
0.49 percent. The standard Federal rate is adjusted, as appropriate, as 
described in paragraph (d) of this section.
* * * * *

0
24. Section 412.525 is amended by revising paragraphs (a)(1) and (a)(2) 
to read as follows:

Sec.  412.525  Adjustments to the Federal prospective payment.

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

Sec.  412.529  [Amended]

0
25. In Sec.  412.529, paragraphs (c)(2) introductory text and (c)(3) 
introductory text are amended by removing the date ``December 29, 
2010'' and adding in its place the date ``December 29, 2012'' each time 
it appears.

Sec.  412.534  [Amended]

0
26. Section 412.534 is amended as follows:
0
a. Paragraphs (c)(1) introductory text, (c)(1)(i), (c)(1)(ii), (c)(2) 
introductory text, (d)(1) introductory text, (d)(1)(i), (d)(2) 
introductory text, (e)(1) introductory text, (e)(1)(i), and (e)(2) 
introductory text are amended by removing the date ``October 1, 2010'' 
and adding in its place the date ``October 1, 2012'' each time it 
appears.
0
b. Paragraphs (c)(3), (d)(3), (e)(3), (h)(4), and (h)(5) are amended by 
removing the date ``July 1, 2010'' and adding in its place the date 
``July 1, 2012'' each time it appears.

Sec.  412.536  [Amended]

0
27. In Sec.  412.536, paragraph (a)(2) introductory text is amended by 
removing the date ``July 1, 2010'' and adding in its place the date 
``July 1, 2012'' in its place.

0
28. A new Sec.  412.540 is added to read as follows:

Sec.  412.540  Method of payment for preadmission services under the 
long-term care hospital prospective payment system.

    The prospective payment system includes payment for inpatient 
operating costs of preadmission services that are--
    (a) Otherwise payable under Medicare Part B;
    (b) Furnished to a beneficiary on the date of the beneficiary's 
inpatient admission, and during the calendar day immediately preceding 
the date of the beneficiary's inpatient admission, to the long-term 
care hospital, or to an entity wholly owned or wholly operated by the 
long-term care hospital; and
    (1) An entity is wholly owned by the long-term care hospital if the 
long-term care hospital is the sole owner of the entity.
    (2) An entity is wholly operated by a long-term care hospital if 
the long-term care hospital has exclusive responsibility for conducting 
and overseeing the entity's routine operations, regardless of whether 
the long-term care hospital also has policymaking authority over the 
entity.
    (c) Related to the inpatient stay. A preadmission service is 
related if--
    (1) It is diagnostic (including clinical diagnostic laboratory 
tests); or
    (2) It is nondiagnostic when furnished on the date of the 
beneficiary's inpatient admission; or
    (3) On or after June 25, 2010, it is nondiagnostic when furnished 
on the

[[Page 50417]]

calendar day preceding the date of the beneficiary's inpatient 
admission and the hospital does not attest that such service is 
unrelated to the beneficiary's inpatient admission.
    (d) Not one of the following--
    (1) Ambulance services.
    (2) Maintenance renal dialysis services.

0
29. Section 412.604 is amended by--
0
a. Redesignating paragraph (f) as paragraph (g).
0
b. Adding a new paragraph (f).
    The addition reads as follows:

Sec.  412.604  Conditions for payment under the prospective payment 
system for inpatient rehabilitation services.

* * * * *
    (f) The prospective payment system includes payment for inpatient 
operating costs of preadmission services that are--
    (1) Otherwise payable under Medicare Part B;
    (2) Furnished to a beneficiary on the date of the beneficiary's 
inpatient admission, and during the calendar day immediately preceding 
the date of the beneficiary's inpatient admission, to the inpatient 
rehabilitation facility, or to an entity wholly owned or wholly 
operated by the inpatient rehabilitation facility; and
    (i) An entity is wholly owned by the inpatient rehabilitation 
facility if the inpatient rehabilitation facility is the sole owner of 
the entity.
    (ii) An entity is wholly operated by an inpatient rehabilitation 
facility if the inpatient rehabilitation facility has exclusive 
responsibility for conducting and overseeing the entity's routine 
operations, regardless of whether the inpatient rehabilitation facility 
also has policymaking authority over the entity.
    (3) Related to the inpatient stay. A preadmission service is 
related if--
    (i) It is diagnostic (including clinical diagnostic laboratory 
tests); or
    (ii) It is nondiagnostic when furnished on the date of the 
beneficiary's inpatient admission; or
    (iii) On or after June 25,, 2010, it is nondiagnostic when 
furnished on the calendar day preceding the date of the beneficiary's 
inpatient admission and the hospital does not attest that such service 
is unrelated to the beneficiary's inpatient admission.
    (4) Not one of the following--
    (i) Ambulance services.
    (ii) Maintenance renal dialysis services.
* * * * *

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

0
30. The authority citation for part 413 continues to read as follows:

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

0
31. Section 413.40 is amended by--
0
a. Revising paragraph (c)(2) introductory text.
0
b. Revising paragraph (c)(2)(iii).
0
c. Adding a new paragraph (c)(2)(iv).
    The revision and addition read as follows:

Sec.  413.40  Ceiling on the rate of increase in hospital inpatient 
costs.

* * * * *
    (c) * * *
    (2) Preadmission services otherwise payable under Medicare Part B 
furnished to a beneficiary on the date of the beneficiary's admission 
to the hospital and during the calendar day immediately preceding the 
date of the beneficiary's admission to the hospital that meet the 
condition specified in paragraph (c)(2)(i) of this section and at least 
one of the conditions specified in paragraphs (c)(2)(ii) through 
(c)(2)(iv):
* * * * *
    (iii) For services furnished on or after October 1, 1991 through 
June 24, 2010, the services are furnished in connection with the 
principal diagnosis that requires the beneficiary to be admitted as an 
inpatient and are not the following:
    (A) Ambulance services.
    (B) Maintenance renal dialysis services.
    (iv) Nondiagnostic services furnished on or after June 25, 2010, 
other than ambulance services and maintenance renal dialysis services, 
that are furnished on the date of the beneficiary's inpatient admission 
or on the calendar day immediately preceding the date of the 
beneficiary's inpatient admission and the hospital does not attest that 
such services are unrelated to the beneficiary's inpatient admission.
* * * * *
0
32. Section 413.70 is amended by--
0
a. Revising paragraph (b)(3)(i)(A).
0
b. Revising paragraph (b)(3)(i)(B).
0
c. Revising paragraph (b)(3)(i)(D).
0
d. Revise paragraph (b)(3)(ii)(A).
0
e. Redesignate paragraph (b)(5)(i) as (b)(5)(i)(A).
0
f. In newly redesignated paragraph (b)(5)(i)(A), the phrase ``on or 
after December 21, 2000,'' is removed and the phrase ``on or after 
December 21, 2000 and on or before December 31, 2003,'' is added in its 
place.
0
g. Add a new paragraph (b)(5)(i)(B).
    The revision and addition read as follows:

Sec.  413.70  Payment for services of a CAH.

* * * * *
    (b) * * *
    (3) * * *
    (i) * * *
    (A)(1) For cost reporting periods beginning before October 1, 2010. 
The election must be made in writing, made on an annual basis, and 
delivered to the fiscal intermediary or MAC servicing the CAH at least 
30 days before the start of the cost reporting period for which the 
election is made. An election, once made for a cost reporting period, 
remains in effect for all of that period.
    (2) For cost reporting periods beginning on or after October 1, 
2010. If a CAH had elected the method specified in paragraph (b)(3)(i) 
of this section in its most recent cost reporting period beginning 
prior to October 1, 2010, that election remains in effect for all of 
that period and for all subsequent cost reporting periods, unless the 
CAH submits a termination request to the fiscal intermediary or MAC 
servicing the CAH at least 30 days before the start of the next cost 
reporting period. However, for cost reporting periods beginning in 
October 2010 and November 2010, if a CAH wishes to terminate its 
previous election, the CAH must submit a termination request to the 
fiscal intermediary or MAC servicing the CAH prior to December 1, 2010. 
If a CAH had no election in effect in its most recent preceding cost 
reporting period and chooses to elect the method specified in paragraph 
(b)(3)(i) of this section on or after October 1, 2010, the election 
must be made in writing and delivered to the fiscal intermediary or MAC 
servicing the CAH at least 30 days before the start of the first cost 
reporting period for which the election is made. Once the election is 
made, it remains in effect for all of that period and for all 
subsequent cost reporting periods unless the CAH submits a termination 
request to the fiscal intermediary or MAC servicing the CAH at least 30 
days before the start of the next cost reporting period.

[[Page 50418]]

    (B) An election of the payment method specified under paragraph 
(b)(3)(i) of this section applies to all services furnished to 
outpatients by a physician or other practitioner who has reassigned his 
or her rights to bill for those services to the CAH in accordance with 
subpart F of part 424 of this chapter. If a physician or other 
practitioner does not reassign his or her billing rights to the CAH in 
accordance with subpart F of Part 424 of this chapter, payment for the 
physician's or practitioner's services furnished to CAH outpatients 
will be made on a fee schedule or other applicable basis as specified 
in subpart B of part 414 of this subchapter.
* * * * *
    (D) An election made under paragraph (b)(3)(i) of this section is 
effective as provided for under paragraph (b)(3)(i)(A) or paragraph 
(b)(3)(i)(C) of this section and does not apply to an election that was 
terminated prior to the start of the cost reporting period for which it 
would otherwise apply.
    (ii) * * *
    (A) Effective for cost reporting periods beginning on or after 
January 1, 2004, for facility services not including any services for 
which payment may be made under paragraph (b)(3)(ii)(B) of this 
section, 101 percent of the reasonable costs of the services as 
determined under paragraph (b)(2)(i) of this section; and
* * * * *
    (5) * * *
    (i) * * *
    (B) Effective for cost reporting periods beginning on or after 
January 1, 2004, payment for ambulance services furnished by a CAH or 
an entity that is owned and operated by a CAH is 101 percent of the 
reasonable costs of the CAH or the entity in furnishing those services, 
but only if the CAH or the entity is the only provider or supplier of 
ambulance services located within a 35-mile drive of the CAH or the 
entity.
* * * * *

0
33. Section 413.75(b) is amended by revising the definitions of 
``Primary care resident'', and ``Resident'' to read as follows:

Sec.  413.75  Direct GME payments: General requirements.

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

0
34. Section 413.85 is amended by--
0
a. Revising paragraph (c)(2).
0
b. Revising paragraph (d)(1)(i)(C).
    The revisions read as follows:

Sec.  413.85  Cost of approved nursing and allied health education 
activities.

* * * * *
    (c) * * *
    (2) Enhance the quality of health care at the provider; and
* * * * *
    (d) * * *
    (1) * * *
    (i) * * *
    (C) Enhance the quality of health care at the provider.
* * * * *

PART 415--SERVICES FURNISHED BY PHYSICIANS IN PROVIDERS, 
SUPERVISING PHYSICIANS IN TEACHING SETTINGS, AND RESIDENTS IN 
CERTAIN SETTINGS

0
35. The authority citation for Part 415 continues to read as follows:

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

0
36. In Sec.  415.152, the definition of ``Approved graduate medical 
education'' is amended by revising paragraph (1) to read as follows:

Sec.  415.152  Definitions.

* * * * *
    Approved graduate medical education program means one of the 
following:
    (1) A residency program approved by the Accreditation Council for 
Graduate Medical Education, by the American Osteopathic Association, by 
the Commission on Dental Accreditation of the American Dental 
Association, or by the Council on Podiatric Medical Education of the 
American Podiatric Medical Association.
* * * * *

PART 424--CONDITIONS FOR MEDICARE PAYMENT

0
37. The authority citation for part 424 continues to read as follows:

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

Sec.  424.510  [Amended]

0
38. In 424.510, paragraph (c), remove the reference ``Sec.  489.13(d)'' 
and add the reference ``Sec.  489.13'' in its place.

Sec.  424.520  [Amended]

0
39. In 424.520, paragraph (a), remove the reference ``Sec.  489.13(d)'' 
and add the reference ``Sec.  489.13'' in its place.

PART 440--SERVICES: GENERAL PROVISIONS

0
40. The authority citation for part 440 continues to read as follows:

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

0
41. Section 440.160 is amended by revising paragraph (b)(1) to read as 
follows:

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

* * * * *
    (b) * * *
    (1) A psychiatric hospital that undergoes a State survey to 
determine whether the hospital meets the requirements for participation 
in Medicare as a psychiatric hospital as specified in Sec.  482.60 of 
this chapter, or is accredited by a national organization whose 
psychiatric hospital accrediting program has been approved by CMS; or a 
hospital with an inpatient psychiatric program that undergoes a State 
survey to determine whether the hospital meets the requirements for 
participation in Medicare as a hospital, as specified in part 482 of 
this chapter, or is accredited by a national accrediting organization 
whose hospital accrediting program has been approved by CMS.
* * * * *

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

0
42. The authority citation for part 441 continues to read as follows:

[[Page 50419]]

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

0
43. Section 441.151 is amended by revising paragraph (a)(2)(i) to read 
as follows:

Sec.  441.151  General requirements.

    (a) * * *
    (2) * * *
    (i) A psychiatric hospital that undergoes a State survey to 
determine whether the hospital meets the requirements for participation 
in Medicare as a psychiatric hospital as specified in Sec.  482.60 of 
this chapter, or is accredited by a national organization whose 
psychiatric hospital accrediting program has been approved by CMS; or a 
hospital with an inpatient psychiatric program that undergoes a State 
survey to determine whether the hospital meets the requirements for 
participation in Medicare as a hospital, as specified in part 482 of 
this chapter, or is accredited by a national accrediting organization 
whose hospital accrediting program has been approved by CMS.
* * * * *

PART 482--CONDITIONS OF PARTICIPATION FOR HOSPITALS

0
44. The authority citation for part 482 continues to read as follows:

    Authority:  Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395(hh)).
0
45. Section 482.56 is amended by revising paragraph (b) to read as 
follows:

Sec.  482.56  Condition of participation: Rehabilitation services.

* * * * *
    (b) Standard: Delivery of services. Services must only be provided 
under the orders of a qualified and licensed practitioner who is 
responsible for the care of the patient, acting within his or her scope 
of practice under State law, and who is authorized by the hospital's 
medical staff to order the services in accordance with hospital 
policies and procedures and State laws.
    (1) All rehabilitation services orders must be documented in the 
patient's medical record in accordance with the requirements at Sec.  
482.24.
    (2) The provision of care and the personnel qualifications must be 
in accordance with national acceptable standards of practice and must 
also meet the requirements of Sec.  409.17 of this chapter.
0
46. Section 482.57 is amended by revising paragraph (b)(3) and by 
adding paragraph (b)(4) to read as follows:

Sec.  482.57  Condition of participation: Respiratory care services.

* * * * *
    (b) * * *
    (3) Services must only be provided under the orders of a qualified 
and licensed practitioner who is responsible for the care of the 
patient, acting within his or her scope of practice under State law, 
and who is authorized by the hospital's medical staff to order the 
services in accordance with hospital policies and procedures and State 
laws.
    (4) All respiratory care services orders must be documented in the 
patient's medical record in accordance with the requirements at Sec.  
482.24.

PART 485--CONDITIONS OF PARTICIPATION: SPECIALIZED PROVIDERS

0
47. 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)).

0
48. Section 485.610 is amended by revising the introductory text of 
paragraph (b) to read as follows:

Sec.  485.610  Condition of participation: Status and location.

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

PART 489--PROVIDER AGREEMENTS AND SUPPLIER APPROVAL

0
49. The authority citation for part 489 continues to read as follows:

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

0
50. Section 489.1 is revised to read as follows:

Sec.  489.1  Statutory basis.

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

0
52. Section 489.13 is revised to read as follows:

Sec.  489.13  Effective date of agreement or approval.

    (a) Applicability--(1) General rule. Except as provided in 
paragraph (a)(2) of this section, this section applies to Medicare 
provider agreements with, and supplier approval of, entities that, as a 
basis for participation in Medicare are subject to a determination by 
CMS on the basis of--
    (i) A survey conducted by the State survey agency or CMS surveyors; 
or
    (ii) In lieu of such State survey agency or CMS conducted survey, 
accreditation by an accreditation organization whose program has CMS 
approval in accordance with section 1865 of the Act at the time of the 
accreditation survey and accreditation decision.
    (2) Exceptions. (i) For an agreement with a community mental health 
center (CMHC) or a federally qualified health center (FQHC), the 
effective date is the date on which CMS accepts a signed agreement 
which assures that the CMHC or FQHC meets all Federal requirements.
    (ii) A Medicare supplier approval of a laboratory is effective only 
while the laboratory has in effect a valid CLIA certificate issued 
under part 493 of this chapter, and only for the specialty and 
subspecialty tests it is authorized to perform.

[[Page 50420]]

    (b) All health and safety standards are met on the date of survey. 
The agreement or approval is effective on the date the State agency, 
CMS, or the CMS contractor survey (including the Life Safety Code 
survey, if applicable) is completed, or on the effective date of the 
accreditation decision, as applicable, if on that date the provider or 
supplier meets all applicable Federal requirements as set forth in this 
chapter. (If the agreement or approval is time-limited, the new 
agreement or approval is effective on the day following the expiration 
of the current agreement or approval.) However, the effective date of 
the agreement or approval may not be earlier than the latest of the 
dates on which CMS determines that each applicable Federal requirement 
is met. Federal requirements include, but are not limited to--
    (1) Enrollment requirements established in part 424, subpart P, of 
this chapter. CMS determines, based upon its review and verification of 
the prospective provider's or supplier's enrollment application, the 
date on which enrollment requirements have been met;
    (2) The requirements identified in Sec. Sec.  489.10 and 489.12; 
and
    (3) The applicable Medicare health and safety standards, such as 
the applicable conditions of participation, the requirements for 
participation, the conditions for coverage, or the conditions for 
certification.
    (c) All health and safety standards are not met on the date of 
survey. If, on the date the survey is completed, the provider or 
supplier has failed to meet any one of the applicable health and safety 
standards, the following rules apply for determining the effective date 
of the provider agreement or supplier approval, assuming that no other 
Federal requirements remain to be satisfied. However, if other Federal 
requirements remain to be satisfied, notwithstanding the provisions of 
paragraphs (c)(1) through (c)(3) of this section, the effective date of 
the agreement or approval may not be earlier than the latest of the 
dates on which CMS determines that each applicable Federal requirement 
is met.
    (1) For an agreement with an SNF, the effective date is the date on 
which--
    (i) The SNF is in substantial compliance (as defined in Sec.  
488.301 of this chapter) with the requirements for participation; and
    (ii) CMS or the State survey agency receives from the SNF, if 
applicable, an approvable waiver request.
    (2) For an agreement with, or an approval of, any other provider or 
supplier, (except those specified in paragraph (a)(2) of this section), 
the effective date is the earlier of the following:
    (i) The date on which the provider or supplier meets all applicable 
conditions of participation, conditions for coverage, or conditions for 
certification; or, if applicable, the date of a CMS-approved 
accreditation organization program's positive accreditation decision, 
issued after the accreditation organization has determined that the 
provider or supplier meets all applicable conditions.
    (ii) The date on which a provider or supplier is found to meet all 
conditions of participation, conditions for coverage, or conditions for 
certification, but has lower-level deficiencies, and--
    (A) CMS or the State survey agency receives an acceptable plan of 
correction for the lower-level deficiencies (the date of receipt is the 
effective date regardless of when the plan of correction is approved); 
or, if applicable, a CMS-approved accreditation organization program 
issues a positive accreditation decision after it receives an 
acceptable plan of correction for the lower-level deficiencies; or
    (B) CMS receives an approvable waiver request (the date of receipt 
is the effective date regardless of when CMS approves the waiver 
request).
    (3) For an agreement with any other provider or an approval of any 
other supplier (except those specified in paragraph (a)(2) of this 
section) that is found to meet all conditions of participation, 
conditions for coverage, or conditions for certification, but has 
lower-level deficiencies and has submitted both an approvable plan of 
correction/positive accreditation decision and an approvable waiver 
request, the effective date is the later of the dates that result when 
calculated in accordance with paragraph (c)(2)(ii)(A) or (c)(2)(ii)(B) 
of this section.

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

    Dated: July 23, 2010.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: July 28, 2010
Kathleen Sebelius,
Secretary.

    Note: The following Addendum will not appear in the Code of 
Federal Regulations.

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

I. Summary and Background

    Several provisions of the Affordable Care Act affect the 
hospital inpatient update for both FYs 2010 and 2011. However, due 
to the timing of the passage of the legislation, we were unable to 
address those provisions in the FY 2011 IPPS/LTCH PPS proposed rule 
issued in the Federal Register on May 4, 2010 (75 FR 23852). On June 
2, 2010, we issued a supplemental proposed rule to the FY 2011 IPPS/
LTCH PPS proposed rule (75 FR 30756) to address these provisions. 
The discussion below reflects both the provisions of the initial FY 
2011 proposed rule and the supplemental proposed rule relative to 
the FY 2011 payment rates and factors and any public comments that 
we received on both documents.
    In this Addendum, we are setting forth a description of the 
methods and data we used to determine the prospective payment rates 
for Medicare hospital inpatient operating costs and Medicare 
hospital inpatient capital-related costs for FY 2011 for acute care 
hospitals. In this final rule, we also are setting forth the final 
rate-of-increase percentages for updating the target amounts for 
certain hospitals excluded from the IPPS for FY 2011. We note that, 
because certain hospitals excluded from the IPPS are paid on a 
reasonable cost basis subject to a rate-of-increase ceiling (and not 
by the IPPS), these hospitals are not affected by the figures for 
the standardized amounts, offsets, and budget neutrality factors. 
Therefore, in this final rule, we are finalizing the rate-of-
increase percentages for updating the target amounts for certain 
hospitals excluded from the IPPS that are effective for cost 
reporting periods beginning on or after October 1, 2010.
    In addition, we are setting forth a description of the methods 
and data we used to determine the final standard Federal rate that 
will be applicable to Medicare LTCHs for FY 2011.
    In general, except for SCHs, MDHs, and hospitals located in 
Puerto Rico, each hospital's payment per discharge under the IPPS is 
based on 100 percent of the Federal national rate, also known as the 
national adjusted standardized amount. This amount reflects the 
national average hospital cost per case from a base year, updated 
for inflation.
    Currently, SCHs are paid based on whichever of the following 
rates yields the greatest aggregate payment: the Federal national 
rate; the updated hospital-specific rate based on FY 1982 costs per 
discharge; the updated hospital-specific rate based on FY 1987 costs 
per discharge; the updated hospital-specific rate based on FY 1996 
costs per discharge; or the updated hospital-specific rate based on 
the FY 2006 costs per discharge.
    Under section 1886(d)(5)(G) of the Act, MDHs historically have 
been paid based on the Federal national rate or, if higher, the 
Federal national rate plus 50 percent of the difference between the 
Federal national rate

[[Page 50421]]

and the updated hospital-specific rate based on FY 1982 or FY 1987 
costs per discharge, whichever was higher. However, section 
5003(a)(1) of Public Law 109-171 extended and modified the MDH 
special payment provision that was previously set to expire on 
October 1, 2006, to include discharges occurring on or after October 
1, 2006, but before October 1, 2011. Section 3124(a) of the 
Affordable Care Act amended sections 1886(d)(5)(G)(i) and 
1886(d)(5)(G)(ii)(II) of the Act to extend the MDH program and 
payment methodology from the end of FY 2011 to the end of FY 2012, 
by striking ``October 1, 2011'' and inserting ``October 1, 2012''. 
Section 3124(b) of the Affordable Care Act also made conforming 
amendments to sections 1886(b)(3)(D)(i) and 1886(b)(3)(D)(iv) of the 
Act. Section 3124(b)(2) of the Affordable Care Act also amended 
section 13501(e)(2) of OBRA 1993 to extend the provision permitting 
hospitals to decline reclassification as an MDH through FY 2012. In 
section IV.G.2. of the preamble to this final rule, we are adopting 
as final the proposed changes to Sec.  412.108(a)(1) and (c)(2)(iii) 
to reflect the legislative extension of the MDH program for an 
additional year, through FY 2012. Under section 5003(b) of Pub. L. 
109-171, if the change results in an increase to an MDH's target 
amount, we must rebase an MDH's hospital-specific rates based on its 
FY 2002 cost report. Section 5003(c) of Public Law 109-171 further 
required that MDHs be paid based on the Federal national rate or, if 
higher, the Federal national rate plus 75 percent of the difference 
between the Federal national rate and the updated hospital-specific 
rate. Further, based on the provisions of section 5003(d) of Public 
Law 109-171, MDHs are no longer subject to the 12-percent cap on 
their DSH payment adjustment factor.
    For hospitals located in Puerto Rico, the payment per discharge 
is based on the sum of 25 percent of an updated Puerto Rico-specific 
rate based on average costs per case of Puerto Rico hospitals for 
the base year and 75 percent of the Federal national rate. (We refer 
readers to section II.D.3. of this Addendum for a complete 
description.)
    As discussed below in section II. of this Addendum, we are 
making changes in the determination of the prospective payment rates 
for Medicare inpatient operating costs for acute care hospitals for 
FY 2011. In section III. of this Addendum, we discuss our policy 
changes for determining the prospective payment rates for Medicare 
inpatient capital-related costs for FY 2011. In section IV. of this 
Addendum, we are setting forth our changes for determining the rate-
of-increase limits for certain hospitals excluded from the IPPS for 
FY 2011. In section V. of this Addendum, we are making changes in 
the determination of the standard Federal rate for LTCHs under the 
LTCH PPS for FY 2011. The tables to which we refer in the preamble 
of this final rule are presented in section VI. of this Addendum.

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

    The basic methodology for determining prospective payment rates 
for hospital inpatient operating costs for acute care hospitals for 
FY 2005 and subsequent fiscal years is set forth at Sec.  412.64. 
The basic methodology for determining the prospective payment rates 
for hospital inpatient operating costs for hospitals located in 
Puerto Rico for FY 2005 and subsequent fiscal years is set forth at 
Sec. Sec.  412.211 and 412.212. Below we discuss the factors used 
for determining the prospective payment rates for FY 2011.
    In summary, the standardized amounts set forth in Tables 1A, 1B, 
and 1C of section VI. of this Addendum reflect--
     Equalization of the standardized amounts for urban and 
other areas at the level computed for large urban hospitals during 
FY 2004 and onward, as provided for under section 
1886(d)(3)(A)(iv)(II) of the Act.
     The labor-related share that is applied to the 
standardized amounts and Puerto Rico-specific standardized amounts 
to give the hospital the highest payment, as provided for under 
sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act.
     Updates of 2.35 percent for all areas (that is, the 
estimated full market basket percentage increase of 2.6 percent 
minus 0.25 percentage points), as required by section 
1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a) 
and10319(a) of the Affordable Care Act, and reflecting the 
requirements of section 1886(b)(3)(B)(viii) of the Act, as added by 
section 5001(a)(3) of Public Law 109-171, to reduce the applicable 
percentage increase by 2.0 percentage points for a hospital that 
fails to submit data, in a form and manner, and at the time 
specified by the Secretary, relating to the quality of inpatient 
care furnished by the hospital.
     An update of 2.35 percent to the Puerto Rico-specific 
standardized amount (that is, the estimated full market basket 
percentage increase of 2.6 percent minus 0.25 percentage point), as 
finalized in the preamble of this final rule under Sec.  412.211(c), 
which states that we update the Puerto Rico-specific standardized 
amount using the percentage increase specified in Sec.  
412.64(d)(1), or the percentage increase in the market basket index 
for prospective payment hospitals for all areas.
     An adjustment to the standardized amount to ensure 
budget neutrality for DRG recalibration and reclassification, as 
provided for under section 1886(d)(4)(C)(iii) of the Act.
     An adjustment to ensure the wage index changes are 
budget neutral, as provided for under section 1886(d)(3)(E)(i) of 
the Act. We note that section 1886(d)(3)(E)(i) of the Act requires 
that we do not consider the labor-related share of 62 percent to 
compute wage index budget neutrality.
     An adjustment to ensure the effects of geographic 
reclassification are budget neutral, as provided for in section 
1886(d)(8)(D) of the Act, by removing the FY 2010 budget neutrality 
factor and applying a revised factor.
     An adjustment to ensure the effects of the rural 
community hospital demonstration required under section 410A of 
Public Law 108-173 as amended by sections 3123 and 10313 of Public 
Law 111-148 which extends the demonstration 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 2010 outlier offset and 
apply an offset for FY 2011, as provided for in section 
1886(d)(3)(B) of the Act.
     As discussed below and in section II.D. of the preamble 
to this final rule, an adjustment to meet the requirements of 
section 7(b)(1)(B) of Public Law 110-90 to adjust the standardized 
amounts to offset the estimated amount of the increase in aggregate 
payments (including interest) due to the effect of documentation and 
coding that did not reflect real changes in case-mix for discharges 
occurring during FY 2008 and FY 2009.
    We note that, beginning in FY 2008, we applied the budget 
neutrality adjustment for the rural floor to the hospital wage 
indices rather than the standardized amount. As we did for FY 2010, 
for FY 2011, we are continuing to apply the rural floor budget 
neutrality adjustment to hospital wage indices rather than the 
standardized amount. In addition, instead of applying the budget 
neutrality adjustment for the imputed floor adopted under section 
1886(d)(3)(E) of the Act to the standardized amount, for FY 2011, we 
are continuing to apply the imputed floor budget neutrality 
adjustment to the wage indices. For this final rule, consistent with 
section 3141 of the Affordable Care Act, instead of applying a State 
level rural floor budget neutrality adjustment on the wage index, we 
are restoring the budget neutrality adjustment for the rural and 
imputed floors to a uniform, national adjustment, beginning with the 
FY 2011 wage index.

A. Calculation of the Adjusted Standardized Amount

1. Standardization of Base-Year Costs or Target Amounts

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

[[Page 50422]]

to-time, the proportion of hospitals' costs that are attributable to 
wages and wage-related costs. In general, the standardized amount is 
divided into labor-related and nonlabor-related amounts; only the 
proportion considered to be the labor-related amount is adjusted by 
the wage index. Section 1886(d)(3)(E) of the Act requires that 62 
percent of the standardized amount be adjusted by the wage index, 
unless doing so would result in lower payments to a hospital than 
would otherwise be made. (Section 1886(d)(9)(C)(iv)(II) of the Act 
extends this provision to the labor-related share for hospitals 
located in Puerto Rico.)
    For FY 2011, we are continuing to use a labor-related share of 
68.8 percent for discharges occurring on or after October 1, 2010 
for the national standardized amounts and 62.1 percent for the 
Puerto Rico-specific standardized amount. Consistent with section 
1886(d)(3)(E) of the Act, we are applying the wage index to a labor-
related share of 62 percent for all IPPS hospitals whose wage index 
values are less than or equal to 1.0000. For all IPPS hospitals 
whose wage indices are greater than 1.0000, we are applying the wage 
index to a labor-related share of 68.8 percent of the national 
standardized amount. For FY 2011, all Puerto Rico hospitals have a 
wage index less than 1.0. Therefore, the national labor-related 
share will always be 62 percent because the wage index for all 
Puerto Rico hospitals is less than 1.0.
    For hospitals located in Puerto Rico, we are applying a labor-
related share of 62.1 percent if its Puerto Rico-specific wage index 
is greater than 1.0000. For hospitals located in Puerto Rico whose 
Puerto-Rico specific wage index values are less than or equal to 
1.0000, we are applying a labor share of 62 percent.
    The standardized amounts for operating costs appear in Table 1A, 
1B, and 1C of the Addendum to this final rule.

2. Computing the Average Standardized Amount

    Section 1886(d)(3)(A)(iv)(II) of the Act requires that, 
beginning with FY 2004 and thereafter, an equal standardized amount 
be computed for all hospitals at the level computed for large urban 
hospitals during FY 2003, updated by the applicable percentage 
update. Section 1886(d)(9)(A)(ii)(II) of the Act equalizes the 
Puerto Rico-specific urban and rural area rates. Accordingly, we are 
calculating the FY 2011 national and Puerto Rico standardized 
amounts irrespective of whether a hospital is located in an urban or 
rural location.

3. Updating the Average Standardized Amount

    In accordance with section 1886(b)(3)(B)(i) of the Act, as 
amended by sections 3401(a) and 10319(a) of the Affordable Care Act, 
we are updating the standardized amount for FY 2011 by the estimated 
market basket percentage increase minus 0.25 percentage points for 
hospitals in all areas. Section 3401(a)(4) of Pub. L. 111-148 
further states that this amendment 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 IHS Global Insight, Inc.'s 
2010 second quarter forecast of the hospital market basket increase 
(as discussed in Appendix B of this final rule), the most recent 
forecast of the hospital market basket increase for FY 2011 is 2.6 
percent. Thus, for FY 2011, the update to the average standardized 
amount is 2.35 percent for hospitals in all areas (that is, the 
estimated full market basket percentage increase of 2.6 percent 
minus 0.25 percentage point).
    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. Section 
1886(b)(3)(B)(viii) of the Act, as added by section 5001(a)(3) of 
Public Law 109-171, provides for a reduction of 2.0 percentage 
points from the applicable percentage increase (the market basket 
update) for FY 2007 and each subsequent fiscal year for any 
``subsection (d) hospital'' that does not submit quality data, as 
discussed in section V.A. of the preamble of this final rule. Thus, 
for hospitals that do not submit quality data, the estimated update 
to the operating standardized amount is 0.35 percent (that is, the 
adjusted FY 2011 estimate of the market basket rate-of-increase of 
2.35 percent minus 2.0 percentage points). The standardized amounts 
in Tables 1A through 1C of section VI. of this Addendum reflect 
these differential amounts.
    Section 412.211(c) states that we update the Puerto Rico-
specific standardized amount using the percentage increase specified 
in Sec.  412.64(d)(1), or the percentage increase in the market 
basket index for prospective payment hospitals for all areas. As 
finalized in the preamble to this final rule, we are applying the 
full rate-of-increase in the hospital market basket minus 0.25 
percentage point to the Puerto Rico-specific standardized amount. 
Therefore, the update to the Puerto Rico-specific standardized 
amount is also 2.35 percent.
    Although the update factors for FY 2011 are set by law, we are 
required by section 1886(e)(4) of the Act to recommend, taking into 
account MedPAC's recommendations, appropriate update factors for FY 
2011 for both IPPS hospitals and hospitals and hospital units 
excluded from the IPPS. Section 1886(e)(5)(A) of the Act requires 
that we publish our proposed recommendations in the Federal Register 
for public comment. Our recommendation on the update factors is set 
forth in Appendix B of this final rule.

4. Other Adjustments to the Average Standardized Amount

    As in the past, we are adjusting the FY 2011 standardized amount 
to remove the effects of the FY 2010 geographic reclassifications 
and outlier payments before applying the FY 2011 updates. We then 
apply budget neutrality offsets for outliers and geographic 
reclassifications to the standardized amount based on FY 2011 
payment policies.
    We do not remove the prior year's budget neutrality adjustments 
for reclassification and recalibration of the DRG weights and for 
updated wage data because, in accordance with sections 
1886(d)(4)(C)(iii) and 1886(d)(3)(E) of the Act, estimated aggregate 
payments after updates in the DRG relative weights and wage index 
should equal estimated aggregate payments prior to the changes. If 
we removed the prior year's adjustment, we would not satisfy these 
conditions.
    Budget neutrality is determined by comparing aggregate IPPS 
payments before and after making changes that are required to be 
budget neutral (for example, changes to DRG classifications, 
recalibration of the DRG relative weights, updates to the wage 
index, and different geographic reclassifications). We include 
outlier payments in the simulations because they may be affected by 
changes in these parameters.
    Similar to last year, because IME Medicare Advantage payments 
are made to IPPS hospitals under section 1886(d) of the Act, we 
believe these payments must be part of these budget neutrality 
calculations. However, we note that it is not necessary to include 
Medicare Advantage IME payments in the outlier threshold calculation 
or the outlier offset to the standardized amount because the statute 
requires that outlier payments be not less than 5 percent nor more 
than 6 percent of total ``operating DRG payments,'' which does not 
include IME and DSH payments. In order to account for these Medicare 
Advantage IME payments in determining the budget neutrality 
adjustments for this final rule, we identified Medicare Advantage 
claims from IPPS teaching hospitals in the MedPAR data. The GHO Paid 
indicator with a value of ``1'' on the MedPAR file indicates that 
the claim was paid by a Medicare Advantage plan (other than the IPPS 
IME payment specified at Sec.  412.105(g)). We note that we also 
modified our method for identifying MA claims from IPPS teaching 
hospitals in the MedPAR data pursuant to public comment. We describe 
this modification below in our response to that comment. For these 
Medicare Advantage claims from IPPS teaching hospitals, we computed 
a transfer-adjusted CMI by provider based on the FY 2009 MS-DRG 
GROUPER Version 27.0 assignment and relative weights. We also 
computed a transfer-adjusted CMI for these Medicare Advantage claims 
from IPPS teaching hospitals based on the FY 2010 MS-DRG GROUPER 
Version 28.0 assignments and relative weights. These transfer-
adjusted CMIs (and corresponding case counts) were used to calculate 
an IME teaching add-on payment in accordance with Sec.  412.105(g). 
The total Medicare Advantage IME payment amount was then added to 
the total Federal payment amount for each provider (where 
applicable) in order to account for the Medicare Advantage IME 
payment in determining the budget neutrality adjustments. We note 
that we did not include Medicare Advantage IME claims when 
estimating outlier payments for providers because Medicare Advantage 
claims are not eligible for outlier payments under the IPPS.
    Comment: Commenters noted that it appeared CMS had inadvertently 
included approximately 74,000 MA claims submitted by teaching 
hospitals as regular IPPS claims instead of identifying these claims 
as MA claims. The commenter explained that these

[[Page 50423]]

claims lacked an ``HMO Paid'' designation but the only payment made 
on the claim was the IME payment. Therefore, in the commenters 
opinion these claims should have been considered MA IME claims for 
the purpose of our calculations.
    Response: We examined the MedPAR file and have determined that 
there are claims that do not have a GHO Paid indicator with a value 
of ``1'' but the IME payment field is equal to the DRG payment 
field. We agree with the commenter and included these claims in our 
determination of the total Medicare Advantage IME payment amount. 
Specifically, we first searched the MedPAR file for all claims with 
an IME payment greater than zero. We then filtered these claims for 
a subset of claims with a GHO Paid indicator with a value of ``1'' 
or with the IME payment field equal to the DRG payment field. As 
mentioned above, we then added the total Medicare Advantage IME 
payment amount to the total Federal payment amount for each provider 
(where applicable) in order to account for the Medicare Advantage 
IME payment in determining the budget neutrality adjustments.
    Comment: Commenters also noted that it is likely that CMS 
included charges for anti hemophilic blood factor for the budget 
neutrality adjustments.
    Response: With respect to charges for anti hemophilic blood 
factor, we examined the MedPAR and have removed pharmacy charges 
with an indicator of `3' for blood clotting with a revenue code of 
`0636'from the covered charge field. We also removed organ 
acquisition charges from the covered charge field since organ 
acquisition is a pass through payment not paid under the IPPS.
    We finally note that on June 2, 2010, we issued a notice that 
contains the final wage indices, hospital reclassifications, payment 
rates, impacts, and other related tables effective for the FY 2010 
IPPS and RY 2010 LTCH PPS. The rates, tables, and impacts included 
in the FY 2010 IPPS/LTCH PPS notice reflect changes required by or 
resulting from the implementation of several provisions from the 
Affordable Care Act. Specifically, sections 3401(a) and 10319(a) of 
the Affordable Care Act amended section 1886(b)(3)(B)(i) of the Act 
to set the FY 2010 applicable percentage increase for IPPS hospitals 
equal to the rate-of-increase in the hospital market basket for IPPS 
hospitals in all areas minus a 0.25 percentage point, subject to the 
hospital submitting quality information under rules established by 
the Secretary in accordance with section 1886(b)(3)(B)(viii) of the 
Act. Section 1886(b)(3)(B)(i) of the Act establishes the applicable 
percentage increase used for annual updates to the Federal rates. 
Section 1886(b)(3)(B)(xii)(I) explicitly adjusts the applicable 
percentage for the FY 2010 Federal rates. Section 3401(p) of the 
Affordable Care Act provides that, notwithstanding the previous 
provisions of this section, the amendments made by subsections (a), 
(c) and (d) shall not apply to discharges occurring before April 1, 
2010. When read together, we believe sections 1886(b)(3)(B)(i) and 
1886(b)(3)(B)(xii) of the Act and section 3401(p) of the Affordable 
Care Act provide for revised FY 2010 Federal rates for the entire 
fiscal year; however, discharges occurring on or after October 1, 
2009 and before April 1, 2010, are not paid be based on the updated 
FY 2010 standard Federal rate. When we refer to FY 2010 payments in 
the discussion below, these payments are modeled for the entire FY 
2010 based on the revised rates consistent with the Affordable Care 
Act. Also, because there were no updates to the pre-reclassified 
wage file for FY 2010, when we refer below to the pre-reclassified 
wage data for FY 2010, this is the same pre reclassified wage data 
from the FY 2010 IPPS/LTCH PPS final rule.

a. Recalibration of DRG Weights and Updated Wage Index--Budget 
Neutrality Adjustment

    Section 1886(d)(4)(C)(iii) of the Act specifies that, beginning 
in FY 1991, the annual DRG reclassification and recalibration of the 
relative weights must be made in a manner that ensures that 
aggregate payments to hospitals are not affected. As discussed in 
section II. of the preamble of this final rule, we normalized the 
recalibrated DRG weights by an adjustment factor so that the average 
case weight after recalibration is equal to the average case weight 
prior to recalibration. However, equating the average case weight 
after recalibration to the average case weight before recalibration 
does not necessarily achieve budget neutrality with respect to 
aggregate payments to hospitals because payments to hospitals are 
affected by factors other than average case weight. Therefore, as we 
have done in past years, we are making a budget neutrality 
adjustment to ensure that the requirement of section 
1886(d)(4)(C)(iii) of the Act is met.
    Section 1886(d)(3)(E)(i) of the Act requires us to update the 
hospital wage index on an annual basis beginning October 1, 1993. 
This provision also requires us to make any updates or adjustments 
to the wage index in a manner that ensures that aggregate payments 
to hospitals are not affected by the change in the wage index. 
Section 1886(d)(3)(E)(i) of the Act requires that we implement the 
wage index adjustment in a budget neutral manner. However, section 
1886(d)(3)(E)(ii) of the Act sets the labor-related share at 62 
percent for hospitals with a wage index less than or equal to 1.0, 
and section 1886(d)(3)(E)(i) of the Act provides that the Secretary 
shall calculate the budget neutrality adjustment for the adjustments 
or updates made under that provision as if section 1886(d)(3)(E)(ii) 
of the Act had not been enacted. In other words, this section of the 
statute requires that we implement the updates to the wage index in 
a budget neutral manner, but that our budget neutrality adjustment 
should not take into account the requirement that we set the labor-
related share for hospitals with indices less than or equal to 1.0 
at the more advantageous level of 62 percent. Therefore, for 
purposes of this budget neutrality adjustment, section 
1886(d)(3)(E)(i) of the Act prohibits us from taking into account 
the fact that hospitals with a wage index less than or equal to 1.0 
are paid using a labor-related share of 62 percent. Consistent with 
current policy, for FY 2011, we are adjusting 100 percent of the 
wage index factor for occupational mix. We describe the occupational 
mix adjustment in section III.D. of the preamble of this final rule.
    For FY 2011, to comply with the requirement that DRG 
reclassification and recalibration of the relative weights be budget 
neutral for the Puerto Rico standardized amount and the hospital-
specific rates, we used FY 2009 discharge data to simulate payments 
and compared aggregate payments using the FY 2010 labor-related 
share percentages, the FY 2010 relative weights, and the FY 2010 
pre-reclassified wage data to aggregate payments using the FY 2010 
labor-related share percentages, the FY 2011 relative weights, and 
the FY 2010 pre-reclassified wage data. Based on this comparison, we 
computed a budget neutrality adjustment factor equal to 0.996731. As 
discussed in section IV. of this Addendum, we apply the DRG 
reclassification and recalibration budget neutrality factor of 
0.996731 to the hospital-specific rates that are to be effective for 
cost reporting periods beginning on or after October 1, 2010.
    Comment: One commenter commented that CMS' current methodology 
for reclassifying and recalibrating the DRGs does not comport with 
the statutory requirement in section 1886(d)(4)(C)(iii) of the Act. 
The commenter noted that CMS attempts to achieve budget neutrality 
by calculating a separate, subsequent budget neutrality factor, 
which it then applies to the standardized amount and the HSP, rather 
than to the DRG weights. The commenter further noted that CMS has 
broad discretion in implementing the technical details of the 
Medicare program, and the commenter understood the rationale for 
CMS's methodology. However, the commenter maintains that this 
methodology fails to satisfy the express directive set forth in 
section 1886(d)(4)(C)(iii) of the Act. The commenter explained that 
section 1886(d)(4)(C)(iii) of the Act provides that the annual 
adjustments to DRG classifications and weighting factors must ``be 
made in a manner that assures'' budget neutrality. The commenter 
believes that the statute directs that the budget neutrality 
adjustment and the reclassifications and recalibrations themselves 
are the subject of the budget neutrality requirement (instead of 
applying an adjustment factor to the payment rates). The commenter 
asserts that this meaning is evident on the face of the statute.
    Response: As stated above, 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. In order to ensure budget neutrality, we normalize 
the recalibrated DRG weights by an adjustment factor so that the 
average case weight after recalibration is equal to the average case 
weight prior to recalibration. However, equating the average case 
weight after recalibration to the average case weight before 
recalibration does not necessarily achieve budget neutrality with 
respect to aggregate payments to hospitals because payments to 
hospitals are affected by factors other than average case weight. 
Therefore, we make a budget neutrality adjustment to the

[[Page 50424]]

payment rates to ensure that the requirement of section 
1886(d)(4)(C)(iii) of the Act is met. We believe our methodology of 
applying the DRG reclassification and recalibration budget 
neutrality adjustment to the payment rates is the correct 
interpretation of the statute since this ensures that ``aggregate 
payments to hospitals'' are not affected, which is consistent with 
the statute in section 1886(d)(4)(C)(iii) of the Act.
    In order to meet the statutory requirements that we do not take 
into account the labor-related share of 62 percent when computing 
wage index budget neutrality, it was necessary to use a three-step 
process to comply with the requirements that DRG reclassification 
and recalibration of the relative weights and the updated wage index 
and labor-related share have no effect on aggregate payments for 
IPPS hospitals. We first determined a DRG reclassification and 
recalibration budget neutrality factor of 0.996731 by using the same 
methodology described above to determine the DRG reclassification 
and recalibration budget neutrality factor for the Puerto Rico 
standardized amount and hospital-specific rates. Secondly, to 
compute a budget neutrality factor for wage index and labor-related 
share changes, we used FY 2009 discharge data to simulate payments 
and compared aggregate payments using FY 2011 relative weights and 
FY 2010 pre-reclassified wage indices, and applied the FY 2010 
labor-related share of 68.8 percent to all hospitals (regardless of 
whether the hospital's wage index was above or below 1.0) to 
aggregate payments using the FY 2011 relative weights and the FY 
2011 pre-reclassified wage indices, and applied the labor-related 
share for FY 2011 of 68.8 percent to all hospitals (regardless of 
whether the hospital's wage index was above or below 1.0). In 
addition, we applied the DRG reclassification and recalibration 
budget neutrality factor (derived in the first step) to the rates 
that were used to simulate payments for this comparison of aggregate 
payments from FY 2010 to FY 2011. By applying this methodology, we 
determined a budget neutrality factor of 1.000013 for changes to the 
wage index. Finally, we multiplied the DRG reclassification and 
recalibration budget neutrality factor of 0.996731 (derived in the 
first step) by the budget neutrality factor of 1.000013 for changes 
to the wage index (derived in the second step) to determine the DRG 
reclassification and recalibration and updated wage index budget 
neutrality factor of 0.996744.

b. Reclassified Hospitals--Budget Neutrality Adjustment

    Section 1886(d)(8)(B) of the Act provides that, effective with 
discharges occurring on or after October 1, 1988, certain rural 
hospitals are deemed urban. In addition, section 1886(d)(10) of the 
Act provides for the reclassification of hospitals based on 
determinations by the MGCRB. Under section 1886(d)(10) of the Act, a 
hospital may be reclassified for purposes of the wage index.
    Under section 1886(d)(8)(D) of the Act, the Secretary is 
required to adjust the standardized amount to ensure that aggregate 
payments under the IPPS after implementation of the provisions of 
sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act are equal 
to the aggregate prospective payments that would have been made 
absent these provisions. We note that the wage index adjustments 
provided under section 1886(d)(13) of the Act are not budget 
neutral. Section 1886(d)(13)(H) of the Act provides that any 
increase in a wage index under section 1886(d)(13) shall not be 
taken into account ``in applying any budget neutrality adjustment 
with respect to such index'' under section 1886(d)(8)(D) of the Act. 
To calculate the budget neutrality factor for FY 2011, we used FY 
2009 discharge data to simulate payments and compared total IPPS 
payments with FY 2011 relative weights, FY 2011 labor share 
percentages, and FY 2011 wage data prior to any reclassifications 
under sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act to 
total IPPS payments with FY 2011 relative weights, FY 2011 labor 
share percentages, and FY 2011 wage data after such 
reclassifications. Based on these simulations, we calculated an 
adjustment factor of 0.991264 to ensure that the effects of these 
provisions are budget neutral, consistent with the statute.
    The FY 2011 budget neutrality adjustment factor is applied to 
the standardized amount after removing the effects of the FY 2010 
budget neutrality adjustment factor. We note that the FY 2011 budget 
neutrality adjustment reflects FY 2011 wage index reclassifications 
approved by the MGCRB or the Administrator. We note that for this 
final rule, as discussed in section III.B. of the preamble to this 
final rule, section 3137(c) of Public Law 111-148 resulted in some 
additional hospitals receiving reclassifications, or some hospitals 
receiving reclassifications to a different area. These 
reclassifications are included in the calculation of 
reclassification budget neutrality.

c. Rural Floor and Imputed Floor Budget Neutrality Adjustment

    We make an adjustment to the wage index to ensure that aggregate 
payments after implementation of the rural floor under section 4410 
of the BBA (Pub. L. 105-33) and the imputed floor under Sec.  
412.64(h)(4) of the regulations are made in a manner that ensures 
that aggregate payments to hospitals are not affected. As discussed 
in section III.B. of the preamble of the FY 2009 IPPS final rule (73 
FR 48570 through 48574), we adopted as final State level budget 
neutrality for the rural and imputed floors, effective beginning 
with the FY 2009 wage index. In response to the public's concerns 
and taking into account the potentially significant payment cuts 
that could occur to hospitals in some States if we implemented this 
change with no transition, we decided to phase in, over a 3-year 
period, the transition from the national rural floor budget 
neutrality adjustment on the wage index to the State level rural 
floor budget neutrality adjustment on the wage index. In the FY 2011 
IPPS/LTCH PPS proposed rule, in the absence of provisions of Public 
Law 111-148, the proposed adjustment would have been completely 
transitioned to the State level methodology, such that the wage 
index that was proposed in the FY 2011 IPPS/LTCH PPS proposed rule 
was determined by applying 100 percent of the State level budget 
neutrality adjustment. However, section 3141 of Public Law 111-148 
restores the budget neutrality adjustment for the rural and imputed 
floors to a uniform, national adjustment, beginning with the FY 2011 
wage index.
    Using the same methodology in prior final rules to calculate the 
national rural and imputed floor budget neutrality adjustment factor 
(which was part of the methodology to calculate the blended rural 
and imputed floor budget neutrality adjustment factors), to 
determine the wage index adjusted by the national rural and imputed 
floor budget neutrality adjustment, we used FY 2009 discharge data 
and FY 2011 wage indices to simulate IPPS payments. First, we 
compared the national simulated payments without the rural and 
imputed floors applied to national simulated payments with the rural 
and imputed floors applied to determine the national rural and 
imputed floor budget neutrality adjustment factor of 0.996641. This 
national adjustment was then applied to the wage indices to produce 
a national rural and imputed floor budget neutral wage index.

d. Case-Mix Budget Neutrality Adjustment

(1) Adjustment to the FY 2011 IPPS Standardized Amount

    As stated earlier, beginning in FY 2008, we adopted the MS-DRG 
patient classification system for the IPPS to better recognize 
patients' severity of illness in Medicare payment rates. In the FY 
2008 IPPS final rule with comment period (73 FR 47175 through 
47186), we indicated that we believe the adoption of the MS-DRGs had 
the potential to lead to increases in aggregate payments without a 
corresponding increase in actual patient severity of illness due to 
the incentives for changes in documentation and coding. In that 
final rule, using the Secretary's authority under section 
1886(d)(3)(A)(vi) of the Act to maintain budget neutrality by 
adjusting the national standardized amounts to eliminate the effect 
of changes in documentation and coding that do not reflect real 
change in case-mix, we established prospective documentation and 
coding adjustments of -1.2 percent for FY 2008, -1.8 percent for FY 
2009, and -1.8 percent for FY 2010 (for a total adjustment of -4.8 
percent). On September 29, 2007, Public Law 110-90 was enacted. 
Section 7 of Public Law 110-90 included a provision that reduces the 
documentation and coding adjustment for the MS-DRG system that we 
adopted in the FY 2008 IPPS final rule with comment period to -0.6 
percent for FY 2008 and -0.9 percent for FY 2009. To comply with the 
provision of section 7(a) of Pub. L. 110-90, in a final rule that 
appeared in the Federal Register on November 27, 2007 (72 FR 66886), 
we changed the IPPS documentation and coding adjustment for FY 2008 
to -0.6 percent, and revised the FY 2008 national standardized 
amounts (as well as other payment factors and thresholds) 
accordingly, with these revisions being effective as of October 1, 
2007. For FY 2009, section 7(a) of Public Law 110-90 required a 
documentation and coding adjustment of -0.9 percent instead of the -
1.8 percent adjustment specified in the FY 2008 IPPS

[[Page 50425]]

final rule with comment period. As required by statute, we applied a 
documentation and coding adjustment of -0.9 percent to the FY 2009 
IPPS national standardized amounts. The documentation and coding 
adjustments established in the FY 2008 IPPS final rule with comment 
period are cumulative. As a result, the -0.9 percent documentation 
and coding adjustment in FY 2009 was in addition to the -0.6 percent 
adjustment in FY 2008, yielding a combined effect of -1.5 percent.
    In the FY 2010 IPPS proposed and final rules, we discussed our 
analysis of FY 2008 claims data which showed an increase in case-mix 
of 2.5 percent due to changes in documentation and coding that do 
not reflect real changes in case-mix for discharges occurring during 
FY 2008. For FY 2010, we proposed to reduce the average standardized 
amounts under section 1886(d) of the Act in FY 2010 by -1.9 percent, 
which represents the difference between changes in documentation and 
coding that do not reflect real changes in case-mix for discharges 
occurring during FY 2008 and the prospective adjustment applied 
under Public Law 110-90. As discussed in section II.D. of the 
preamble of the FY 2010 IPPS final rule, after consideration of the 
public comments we received on our analysis and proposals presented 
in the proposed rule, we decided to postpone adopting documentation 
and coding adjustments as authorized under section 7(a) of Public 
Law 110-90 and section 1886(d)(3)(A)(vi) of the Act until a full 
analysis of FY 2009 case-mix changes could be completed. 
Accordingly, in the FY 2010 IPPS final rule, for FY 2010, we did not 
apply any additional documentation and coding adjustments to the 
average standardized amounts under section 1886(d) of the Act.
    As indicated in section II.D.4 in the preamble to this final 
rule, the change due to documentation and coding that did not 
reflect real changes in case mix for discharges occurring during FY 
2008 and FY 2009 exceeded the -0.6 and -0.9 percent prospective 
documentation and coding adjustment applied under section 7(a) of 
Public Law 110-90 for those 2 years respectively by 1.9 percentage 
points in FY 2008 and 3.9 percentage points in FY 2009. In total, 
this change exceeded the cumulative prospective adjustments by 5.8 
percentage points. Our actuaries currently estimate that this 5.8 
percentage point increase resulted in an increase in aggregate 
payments of approximately $6.9 billion. We note that there may be a 
need to actuarially adjust the recoupment adjustment in FY 2012 to 
accurately reflect accumulated interest. Therefore, an aggregate 
adjustment of -5.8 percent in FYs 2011 and 2012, subject to 
actuarial adjustment to reflect accumulated interest, is necessary 
in order to meet the requirements of section 7(b)(1)(B) of Public 
Law 110-90 to adjust the standardized amounts for discharges 
occurring in FYs 2010, 2011, and/or 2012 to offset the estimated 
amount of the cumulative increase in aggregate payments (including 
interest) in FYs 2008 and 2009. We refer the reader to section II.D. 
of the preamble to this final rule for more discussion.
    It is often our practice to phase in rate adjustments over more 
than one year in order to moderate the effect on rates in any one 
year. Therefore, we are making an adjustment in FY 2011 to the 
standardized amount of -2.9 percent, representing half of the 
aggregate adjustment required under section 7(b)(1)(B) of Public Law 
110-90, for FY 2011. As we have previously noted, unlike the 
prospective adjustment to the standardized amounts under section 
7(b)(1)(A) of Public Law 110-90 described earlier, the recoupment or 
repayment adjustment to the standardized amounts under section 
7(b)(1)(B) of Public Law 110-90 is not cumulative, but would be 
removed for subsequent fiscal years once we have offset the increase 
in aggregate payments for discharges for FY 2008 expenditures and FY 
2009 expenditures. We note that we are not establishing an 
adjustment for the further implementation of section 7(b)(1)(B) of 
Public Law 110-90 in FY 2012 in this final rule.

(2) Adjustment to the FY 2011 Hospital-Specific Rates for SCHs and MDHs

    As discussed in section II.D. of the preamble of this final 
rule, because hospitals (SCHs and MDHs) paid based in whole or in 
part on the hospital-specific rate use the same MS-DRG system as 
other hospitals, we believe they have the potential to realize 
increased payments from documentation and coding changes that do not 
reflect real increases in patients' severity of illness. Under 
section 1886(d)(3)(A)(vi) of the Act, Congress stipulated that 
hospitals paid based on the standardized amount should not receive 
additional payments based on the effect of documentation and coding 
changes that do not reflect real changes in case-mix. Similarly, we 
believe that hospitals paid based on the hospital-specific rate 
should not have the potential to realize increased payments due to 
documentation and coding changes that do not reflect real increases 
in patients' severity of illness. While we continue to believe that 
section 1886(d)(3)(A)(vi) of the Act does not provide explicit 
authority for application of the documentation and coding adjustment 
to the hospital-specific rates, we believe that we have the 
authority to apply the documentation and coding adjustment to the 
hospital-specific rates using our special exceptions and adjustment 
authority under section 1886(d)(5)(I)(i) of the Act.
    As discussed in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, 
based on our analysis of FY 2008 claims data, we found that, 
independently for both SCHs and MDHs, the change due to 
documentation and coding that did not reflect real changes in case-
mix for discharges occurring during FY 2008 slightly exceeded the 
2.5 percent result discussed earlier, but did not significantly 
differ from that result.
    Therefore, in FY 2010, we proposed to use our authority under 
section 1886(d)(5)(I)(i) of the Act to prospectively adjust the 
hospital-specific rates by -2.5 percent in FY 2011 for our estimated 
documentation and coding effect in FY 2008 that does not reflect 
real changes in case-mix. We also noted that, unlike the national 
standardized rates, the FY 2010 hospital-specific rates were not 
previously reduced in order to account for anticipated changes in 
documentation and coding that do not reflect real changes in case-
mix resulting from the adoption of the MS-DRGs.
    Consistent with our approach for determining the national 
average standardized amounts discussed earlier, after consideration 
of the public comments we received on our analysis and proposals 
presented in the FY 2010 IPPS proposed rule, for FY 2010, we also 
postponed adoption of a documentation and coding adjustment to the 
hospital-specific rate until a full analysis of FY 2009 case-mix 
changes could be completed. Accordingly, for FY 2010, we did not 
apply a documentation and coding adjustment to the hospital-specific 
rates.
    As we discuss in section II.D. of the preamble of this final 
rule, because SCHs and MDHs use the same DRG system as all other 
hospitals, we believe they have the potential to realize increased 
payments from documentation and coding changes that do not reflect 
real increases in patients' severity of illness. Therefore, we 
believe they should be equally subject to a prospective budget 
neutrality adjustment that we are applying for adoption of the MS-
DRGs to all other hospitals. While the findings of the effects of 
documentation and coding are different for SCHs/MDHs and other IPPS 
hospitals, we continue to believe that the documentation and coding 
adjustments for all subsection (d) hospitals should be the same. We 
continue to believe that this is the appropriate policy so as to 
neither advantage nor disadvantage different types of providers.
    As we have also discussed in section II.D of the preamble to 
this final rule, our best estimate, based on the most recently 
available data, is that a cumulative adjustment of -5.4 percent is 
required to eliminate the full effect of the documentation and 
coding changes on future payments. Unlike the case of standardized 
amounts paid to IPPS hospitals, we have not made any previous 
adjustments to the hospital specific rates paid to SCHs and MDHs to 
account for documentation and coding changes. Therefore, the entire 
-5.4 percent adjustment remains to be implemented. Consequently, in 
order to maintain consistency as far as possible with the 
adjustments applied to IPPS hospitals, we are making an adjustment 
of -2.9 percent in FY 2011 to the hospital-specific rates paid to 
SCHs and MDHs. We believe that this adjustment is the most 
appropriate means to take into full account the effect of 
documentation and coding changes on payments, and to maintain equity 
between hospitals paid on the basis of different prospective rates.

(3) Adjustment to the FY 2011 Puerto Rico Standardized Amount

    As stated in section II.D. of the preamble of this final rule, 
we believe that we have the authority to apply the documentation and 
coding adjustment to the Puerto Rico-specific standardized amount 
using our special exceptions and adjustment authority under section 
1886(d)(5)(I)(i) of the Act. Similar to SCHs and MDHs that are paid 
based on the hospital-specific rate, we believe that Puerto Rico 
hospitals that are paid based on the

[[Page 50426]]

Puerto Rico-specific standardized amount should not have the 
potential to realize increased payments due to documentation and 
coding changes that do not reflect real increases in patients' 
severity of illness. In the FY 2010 IPPS proposed rule, we discussed 
our analysis of FY 2008 claims data for Puerto Rico hospitals, which 
showed that, for Puerto Rico hospitals, the increase in payments for 
discharges occurring during FY 2008 due to documentation and coding 
changes that did not reflect real changes in case-mix for discharges 
occurring during FY 2008 was approximately 1.1 percent. We noted 
that, unlike the national standardized rates, the FY 2009 Puerto 
Rico-specific standardized amount was not previously reduced in 
order to account for anticipated changes in documentation and coding 
that do not reflect real changes in case-mix resulting from the 
adoption of the MS-DRGs. Therefore, for FY 2010, we proposed to use 
our authority under section 1886(d)(5)(I)(i) of the Act to adjust 
the Puerto Rico-specific standardized amount by -1.1 percent in FY 
2010 to account for the FY 2008 documentation and coding changes 
that are not due to changes in real case-mix and to leave that 
adjustment in place for subsequent fiscal years.
    Consistent with our approach for determining the national 
average standardized amounts and hospital-specific rates of SCHs and 
MDHs discussed above, after consideration of the public comments we 
received on our analysis and proposals presented in the FY 2010 IPPS 
proposed rule, for FY 2010, we also postponed adoption of a 
documentation and coding adjustment to the Puerto Rico-specific 
rates until a full analysis of FY 2009 case-mix changes could be 
completed. Accordingly, in the FY 2010 IPPS final rule, for FY 2010, 
we did not apply a documentation and coding adjustment to the Puerto 
Rico-specific rates.
    As we have noted above, similar to SCHs and MDHs, hospitals in 
Puerto Rico use the same DRG system as all other hospitals and we 
believe they have the potential to realize increased payments from 
documentation and coding changes that do not reflect real increases 
in patients' severity of illness. Therefore, we believe they should 
be equally subject to a prospective budget neutrality adjustment 
that we are applying for adoption of the MS-DRGs to all other 
hospitals.
    As we have discussed in section II.D. of the preamble of this 
final rule, our best estimate, based on the most recently available 
data, is that a cumulative adjustment of -2.6 percent is required to 
eliminate the full effect of the documentation and coding changes on 
future payments from the Puerto Rico-specific rate. Unlike the case 
of standardized amounts paid to IPPS hospitals, we have not made any 
previous adjustments to the hospital-specific rates paid to Puerto 
Rico hospitals to account for documentation and coding changes. 
Therefore, the entire -2.6 percent adjustment remains to be 
implemented. In order to maintain consistency as far as possible 
with the adjustments applied to IPPS hospitals but to take into 
consideration the fact that the cumulative impact was smaller in 
Puerto Rico hospitals, we are therefore making an adjustment of -2.6 
percent in FY 2011 to the Puerto Rico-specific rate that accounts 
for 25 percent of payments to Puerto Rico hospitals, with the 
remaining 75 percent based on the national standardized amount, 
which we are adjusting as described above. Consequently, the overall 
reduction to rates for Puerto Rico hospitals to account for the 
documentation and coding changes will be slightly less than the 
reduction for IPPS hospitals based on 100 percent of the national 
standardized amount. We note that this -2.6 percent prospective 
adjustment would eliminate the full effect of the documentation and 
coding changes on future payments from the Puerto Rico-specific 
rate. We believe that this adjustment is the most appropriate means 
to take into full account the effect of documentation and coding 
changes on payments, and to maintain equity between hospitals paid 
on the basis of different prospective rates.

e. Rural Community Hospital Demonstration Program Adjustment

    As discussed in section IV.K. of the preamble to this final 
rule, section 410A of Public Law 108-173 originally required the 
Secretary to establish a demonstration that modifes 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.'' In the May 4, 2010 
FY 2011 IPPS/LTCH PPS proposed rule, although we proposed to apply 
an adjustment to the IPPS rates to account for the amount by which 
the costs of the demonstration as indicated by the settled cost 
reports beginning in FY 2007 for hospitals participating in the 
demonstration during FY 2007 exceeded the amount that was identified 
in the FY 2007 IPPS final rule as the budget neutrality offset for 
2007, we were unable to calculate a numeric adjustment to the 
standardized amount to ensure the effects of the rural community 
hospital demonstration are budget neutral. This is because we were 
waiting for settled cost reports. In addition, we noted that the 
proposed rule did not account for changes to the demonstration 
required by the Affordable Care Act. Specifically, among other 
things, sections 3123 and 10313 of the Affordable Care Act extended 
the demonstration for an additional 5 year period, and allow not 
more than 30 hospitals to participate in 20 States with low 
population densities determined by the Secretary. (In determining 
which States to include in the expansion, the Secretary is 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 2011 IPPS/LTCH PPS supplemental proposed rule, we proposed to 
adjust the IPPS rate by an amount sufficient to account for the 
added costs of this demonstration. We proposed an adjustment factor 
to account for the added costs associated with the demonstration for 
certain time periods as a result of the Affordable Care Act, as 
explained at 75 FR 30961 through 30965, as well as proposed to 
offset the IPPS standardized rate for the added costs of the 
demonstration in FY 2007, although we were unable to propose a 
specific numeric adjustment to correspond to FY 2007 in the 
supplemental proposed rule.
    In order to achieve budget neutrality, as proposed (except as 
indicated later in this section and elsewhere in the preamble of 
this final rule), we are making an adjustment to the national IPPS 
rates by an amount sufficient to account for the added costs of this 
demonstration as described in section IV.K of this final rule. In 
other words, we are applying budget neutrality across the payment 
system as a whole rather than merely across the participants of this 
demonstration, consistent with past practice. 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. As mentioned in section IV.K of the preamble to this final 
rule, the estimated amount for the adjustment to the national IPPS 
rates for FY 2011 is $70,483,384. Accordingly, to account for the 
changes to the demonstration required by the Affordable Care Act for 
specific time periods as explained in detail in section IV.K of this 
final rule, for FY 2011 we computed a factor of 0.999302 for the 
rural community hospital demonstration program adjustment that will 
be applied to the IPPS standardized rate. We note that because the 
settlement process for the demonstration hospitals' third year cost 
reports, that is, for cost reporting periods starting in FY 2007, 
has experienced a delay, for the FY 2011 IPPS/LTCH PPS proposed rule 
and the supplemental proposed rule, we were unable to state the 
costs of the demonstration corresponding to FY 2007 and as a result 
were unable to propose the specific numeric adjustment representing 
this offsetting process that would be applied to the national IPPS 
rates. Due to operational issues in the cost report settlement 
process, settled cost reports for the hospitals that participated in 
the demonstration in FY 2007 are not available in time for this 
final rule either although we expected them to be available. 
Therefore, the estimated adjustment to the national IPPS rate in 
this final rule cannot include a component to account for these 
costs. We anticipate that this information may be available for the 
FY 2012 IPPS/LTCH PPS proposed rule, at which time we would include 
a similar proposal.

f. 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

[[Page 50427]]

payments in order to qualify for an outlier payment). We refer to 
the sum of the prospective payment rate for the DRG, any IME and DSH 
payments, any new technology add-on payments, and the outlier 
threshold as the outlier ``fixed-loss cost threshold.'' To determine 
whether the costs of a case exceed the fixed-loss cost threshold, a 
hospital's CCR is applied to the total covered charges for the case 
to convert the charges to estimated costs. Payments for eligible 
cases are then made based on a marginal cost factor, which is a 
percentage of the estimated costs above the fixed-loss cost 
threshold. The marginal cost factor for FY 2011 is 80 percent, the 
same marginal cost factor we have used since FY 1995 (59 FR 45367).
    In accordance with section 1886(d)(5)(A)(iv) of the Act, outlier 
payments for any year are projected to be not less than 5 percent 
nor more than 6 percent of total operating DRG payments plus outlier 
payments. We note that the statute requires outlier payments to be 
not less than 5 percent nor more than 6 percent of total ``operating 
DRG payments'' (which does not include IME and DSH payments) plus 
outlier payments. When setting the outlier threshold, we compute the 
5.1 percent target by dividing the total operating outlier payments 
by the total operating DRG payments plus outlier payments. We do not 
include any other payments such as IME and DSH within the outlier 
target amount. Therefore, it is not necessary to include Medicare 
Advantage IME payments in the outlier threshold calculation. Section 
1886(d)(3)(B) of the Act requires the Secretary to reduce the 
average standardized amount by a factor to account for the estimated 
proportion of total DRG payments made to outlier cases. Similarly, 
section 1886(d)(9)(B)(iv) of the Act requires the Secretary to 
reduce the average standardized amount applicable to hospitals 
located in Puerto Rico to account for the estimated proportion of 
total DRG payments made to outlier cases. More information on 
outlier payments may be found on the CMS Web site at http://www.cms.hhs.gov/AcuteInpatientPPS/04_outlier.asp#TopOfPage.

(1) FY 2011 Outlier Fixed-Loss Cost Threshold

    The FY 2011 IPPS/LTCH PPS supplemental proposed rule contained a 
summary of the provisions from the Affordable Care Act that affected 
the initial FY 2011 proposed outlier threshold and then specified 
our proposed revised FY 2011 outlier threshold (74 FR 30975). The 
revised FY 2011 proposed outlier threshold used the same methodology 
as the initial FY 2011 proposed outlier threshold but did not repeat 
the entire methodology that was discussed in the FY 2011 IPPS/LTCH 
PPS proposed rule (74 FR 24068 through 24069). Below we discuss in 
full the methodology used to compute the revised FY 2011 proposed 
outlier threshold.
    For FY 2011, we proposed to continue to use the same methodology 
used for FY 2009 (73 FR 48763 through 48766) to calculate the 
outlier threshold. Similar to the methodology used in the FY 2009 
IPPS final rule, for FY 2011, we proposed to apply an adjustment 
factor to the CCRs to account for cost and charge inflation (as 
explained below). As we have done in the past, to calculate the 
proposed FY 2011 outlier threshold, we simulated payments by 
applying FY 2011 rates and policies using cases from the FY 2009 
MedPAR files. Therefore, in order to determine the proposed FY 2011 
outlier threshold, we inflated the charges on the MedPAR claims by 2 
years, from FY 2009 to FY 2011.
    We proposed to continue to use a refined methodology that takes 
into account the lower inflation in hospital charges that are 
occurring as a result of the outlier final rule (68 FR 34494), which 
changed our methodology for determining outlier payments by 
implementing the use of more current CCRs. Our refined methodology 
uses more recent data that reflect the rate-of-change in hospital 
charges under the new outlier policy.
    Using the most recent data available, we calculated the 1-year 
average annualized rate-of-change in charges-per-case from the last 
quarter of FY 2008 in combination with the first quarter of FY 2009 
(July 1, 2008 through December 31, 2008) to the last quarter of FY 
2009 in combination with the first quarter of FY 2010 (July 1, 2009 
through December 31, 2009). This rate of change was 5.16 percent 
(1.0516) or 10.59 percent (1.1059) over 2 years.
    As we have done in the past, we established the proposed FY 2011 
outlier threshold using hospital CCRs from the December 2009 update 
to the Provider-Specific File (PSF)--the most recent available data 
at the time of the proposed rule. This file includes CCRs that 
reflect implementation of the changes to the policy for determining 
the applicable CCRs that became effective August 8, 2003 (68 FR 
34494).
    As discussed in the FY 2007 IPPS final rule (71 FR 48150), we 
worked with the Office of Actuary to derive the methodology 
described below to develop the CCR adjustment factor. For FY 2011, 
we proposed to continue to use the same methodology to calculate the 
CCR adjustment by using the FY 2009 operating cost per discharge 
increase in combination with the actual FY 2009 operating market 
basket percentage increase determined by IHS Global Insight, Inc., 
as well as the charge inflation factor described above to estimate 
the adjustment to the CCRs. (We note that the FY 2009 actual 
(otherwise referred to as ``final'') operating market basket 
percentage increase reflects historical data, whereas the published 
FY 2009 operating market basket update factor was based on IHS 
Global Insight, Inc.'s 2008 second quarter forecast with historical 
data through the first quarter of 2008. We also note that while the 
FY 2009 published operating market basket update was based on the FY 
2002-based IPPS market basket, the actual or ``final'' market basket 
percentage increase is based on the FY 2006-based IPPS market 
basket. Similarly, the FY 2009 published capital market basket 
update factor was based on the FY 2002-based capital market basket 
and the actual or ``final'' capital market basket percentage 
increase is based on the FY 2006-based capital market basket.) By 
using the operating market basket percentage increase and the 
increase in the average cost per discharge from hospital cost 
reports, we are using two different measures of cost inflation. For 
FY 2011, we determined the adjustment by taking the percentage 
increase in the operating costs per discharge from FY 2007 to FY 
2008 (1.0513) from the cost report and dividing it by the final 
operating market basket percentage increase from FY 2008 (1.040). 
This operation removes the measure of pure price increase (the 
market basket) from the percentage increase in operating cost per 
discharge, leaving the nonprice factors in the cost increase (for 
example, quantity and changes in the mix of goods and services). We 
repeated this calculation for 2 prior years to determine the 3-year 
average of the rate of adjusted change in costs between the 
operating market basket percentage increase and the increase in cost 
per case from the cost report (the FY 2005 to FY 2006 percentage 
increase of operating costs per discharge of 1.0577 divided by the 
FY 2006 final operating market basket percentage increase of 1.040, 
the FY 2006 to FY 2007 percentage increase of operating costs per 
discharge of 1.0466 divided by FY 2007 final operating market basket 
percentage increase of 1.036). For FY 2011, we averaged the 
differentials calculated for FY 2006, FY 2007, and FY 2008, which 
resulted in a mean ratio of 1.0127. We multiplied the 3-year average 
of 1.0127 by the FY 2009 final operating market basket percentage 
increase of 1.027, which resulted in an operating cost inflation 
factor of 4.00 percent or 1.0400. We then divided the operating cost 
inflation factor by the 1-year average change in charges (1.0515) 
and applied an adjustment factor of 0.989016 to the operating CCRs 
from the PSF (calculation performed on unrounded numbers).
    As stated in the FY 2009 IPPS final rule (73 FR 48763), we 
continue to believe it is appropriate to apply only a 1-year 
adjustment factor to the CCRs. On average, it takes approximately 9 
months for a fiscal intermediary or MAC to tentatively settle a cost 
report from the fiscal year end of a hospital's cost reporting 
period. The average ``age'' of hospitals' CCRs from the time the 
fiscal intermediary or the MAC inserts the CCR in the PSF until the 
beginning of FY 2009 is approximately 1 year. Therefore, as stated 
above, we believe a 1-year adjustment factor to the CCRs is 
appropriate.
    We used the same methodology for the capital CCRs and determined 
the adjustment by taking the percentage increase in the capital 
costs per discharge from FY 2007 to FY 2008 (1.0800) from the cost 
report and dividing it by the final capital market basket percentage 
increase from FY 2008 (1.015). We repeated this calculation for 2 
prior years to determine the 3-year average of the rate of adjusted 
change in costs between the capital market basket percentage 
increase and the increase in cost per case from the cost report (the 
FY 2005 to FY 2006 percentage increase of capital costs per 
discharge of 1.0464 divided by the FY 2006 final capital market 
basket percentage increase of 1.011, the FY 2006 to FY 2007 
percentage increase of capital costs per discharge of 1.0512 divided 
by the FY 2007 final capital market basket percentage increase of 
1.012). For FY 2011,

[[Page 50428]]

we averaged the differentials calculated for FY 2006, FY 2007, and 
FY 2008, which resulted in a mean ratio of 1.0459. We multiplied the 
3-year average of 1.0459 by the FY 2009 final capital market basket 
percentage increase of 1.014, which resulted in a capital cost 
inflation factor of 6.06 percent or 1.0606. We then divided the 
capital cost inflation factor by the 1-year average change in 
charges (1.0516) and applied an adjustment factor of 1.008534 to the 
capital CCRs from the PSF (calculation performed on unrounded 
numbers). We proposed to use the same charge inflation factor for 
the capital CCRs that was used for the operating CCRs. The charge 
inflation factor is based on the overall billed charges. Therefore, 
we believe it is appropriate to apply the charge factor to both the 
operating and capital CCRs.
    As stated above, for FY 2011, we applied the proposed FY 2011 
rates and policies using cases from the FY 2009 MedPAR files in 
calculating the proposed outlier threshold. As discussed in section 
II.A. of the preamble to the FY 2011 IPPS/LTCH PPS supplemental 
proposed rule (75 FR 30975), in accordance with section 10324(a) of 
Public Law 111-148, 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, so 
as 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 2011, 
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 2011. If we did not take into account this 
provision, our estimate of total FY 2011 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.
    Also, in FY 2010, for purposes of estimating the proposed 
outlier threshold, we took into account the remaining projected 
case-mix growth when calculating the outlier threshold that results 
in outlier payments being 5.1 percent of total payments for FY 2010. 
As explained in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 
44008), for the FY 2010 analysis, we inflated the FY 2008 claims 
data by an additional 1.6 percent for the additional case-mix growth 
projected to have occurred since FY 2008. If we did not take into 
account the remaining 1.6 percent projected case-mix growth, our 
estimate of total FY 2010 payments would have been too low, and, as 
a result, the FY 2010 final outlier threshold would have been too 
high, such that estimated outlier payments would be less than our 
projected 5.1 percent of total payments. For the proposed rule, we 
used the FY 2009 claims data to calculate the FY 2011 proposed 
outlier threshold. Our estimate of the cumulative effect of changes 
in documentation and coding due to the adoption of the MS-DRGs 
through FY 2009 is 5.4 percent, which is already included within the 
claims data (FY 2009 MedPAR files) used to calculate the proposed FY 
2011 outlier threshold. Furthermore, we estimated that there would 
be no continued changes in documentation and coding in FYs 2010 and 
2011. Therefore, the cumulative effect of documentation and coding 
that has occurred is already reflected within the FY 2009 MedPAR 
claims data, and we do not believe there is any need to inflate FY 
2009 claims data for any additional case-mix growth projected to 
have occurred since FY 2009.
    Using this methodology, in the supplemental proposed rule, we 
proposed an outlier fixed-loss cost threshold for FY 2011 equal to 
the prospective payment rate for the DRG, plus any IME and DSH 
payments, and any add-on payments for new technology, plus $24,165.
    As we did in establishing the FY 2009 outlier threshold (73 FR 
57891), in our projection of FY 2011 outlier payments, we did not 
propose 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 
proposed not to make any assumptions about the effects of 
reconciliation on the outlier threshold calculation.
    Comment: Many commenters, including major hospital associations, 
noted that CMS currently estimates outlier payments in FY 2010 at 
4.7 percent of total payments. The commenters commended CMS for 
making refinements such as applying an adjustment factor to CCRs 
when computing the outlier threshold but noted that, because CMS is 
still not reaching the 5.1 percent target, there is still room for 
improvement. The commenters further stated that although CMS 
currently projects outlier payments in FY 2010 to be estimated at 
4.7 percent of total payments, which is lower than the 5.1 percent 
target, this estimate is based on discharges from a prior year 
(2009) and will likely not reflect the actual result. The commenters 
noted that in prior years when CMS provided its projected estimate 
of outlier payments for a given fiscal year, once the actual claims 
were available to determine the actual outlier payment (in the 
following fiscal year), the estimate declined between 0.2 percent 
and 0.3 percent from the projection.
    The commenters also suggested that the methodology developed by 
the CMS Office of the Actuary to determine a cost adjustment factor 
to the CCRs (which is then divided by the charge adjustment factor) 
is unnecessarily complicated and does not lead to a more accurate 
result. The commenters urged CMS to adopt a methodology that uses 
recent historical industry wide average rate of change, similar to 
the methodology used to develop the charge inflation factor. 
Further, in addition to recommending that CMS apply a cost 
adjustment to the CCRs based on historical data, the commenters 
suggested that the charge adjustment to the CCRs be projected over 
different periods of time, some less or more than one year, based on 
variations in hospital fiscal year ends. The commenters opposed 
CMS's use of the December 2009 update of the PSF without projecting 
CCRs over different periods of time for purposes of estimating FY 
2010 outlier payments and asserted that CMS's methodology is 
oversimplified. The commenters believed that their methodology would 
more accurately project the decline in CCRs.
    The commenters also suggested that if CMS did not incorporate 
their recommended changes to the methodology for estimating outlier 
payments, that they would recommend incorporating an ``estimate 
adjustment factor'' into the outlier projections. The commenters 
explained that outlier payments have been underpaid in every year 
since 2004. Based on actual payments, the commenters estimate that 
underpayment has exceeded 0.24 percent in all years. The commenters 
recommended that CMS maintain the outlier threshold at 5.1 percent 
but should apply an estimate adjustment factor when projecting the 
outlier threshold. The commenters provided an example and computed 
this factor for FY 2008 and FY 2009 by taking the average variance 
in the actual payment (from the annual estimate of maintaining 
outliers at 5.1 percent) for FY 2008 and FY 2009 which was 0.385 
percent. Based on this factor, the commenters suggest CMS would 
model the threshold to a level of 5.485 percent (5.1 plus .385 
percent). If CMS were to overpay outliers in a specific year, then 
the adjustment would be become negative. The commenters stated that 
this would fulfill the statutory requirement in section 
1886(d)(5)(A) of the Act that requires that CMS establish thresholds 
such that outlier payments will be projected to achieve at least 5.1 
percent of DRG payments and would more closely achieve a result that 
is fully consistent with the statute.
    Response: Commenters to previous rules have raised similar 
concerns regarding our estimates of outlier payments. We refer 
readers to a similar discussion in the FY 2008 final rule (72 FR 
47418). As we have mentioned in the past, in response to the comment 
that CCRs should be projected over different periods of time, it is 
possible that some of the CCRs in the March PSF will be used in FY 
2009 for actual outlier payments, while other CCRs may be one year 
old. Therefore, we apply a 1-year adjustment to

[[Page 50429]]

the CCRs. With respect to the comment on our methodology used to 
adjust the CCRs, as we stated in the FY 2008 IPPS final rule with 
comment period (72 FR 47418), we continue to believe this 
calculation of an adjustment to the CCRs is more accurate and stable 
than the commenter's methodology because it takes into account the 
costs per discharge and the market basket percentage increase when 
determining a cost adjustment factor. There are times where the 
market basket and the cost per discharge will be constant, while 
other times these values will differ from each other, depending on 
the fiscal year. Therefore, as mentioned above, using the market 
basket in conjunction with the cost per discharge takes into account 
two sources that measure potential cost inflation and ensures a more 
accurate and stable cost adjustment factor. Therefore, we continue 
to believe that our methodology for adjusting the cost-to-charge 
ratios is an appropriate method for use in determining the outlier 
threshold. We also note that with respect to FY 2009 calculations, 
we are currently projecting FY 2009 payments at an estimate of 5.4 
percent of overall payments. The commenter noted that once actual 
data is available to determine the outlier payment, the outlier 
estimate tends to decline by 0.2 percent or 0.3 percent. If this 
trend stays constant, it appears the FY 2009 threshold would result 
in an outlier payout very close to 5.1 percent according to the 
commenters.
    With respect to the comment of computing an ``estimate 
adjustment factor'', our outlier policy is intended to reimburse 
hospitals for treating extraordinarily costly cases and, under the 
statute, outlier payments are intended to approximate the marginal 
cost of providing care above the outlier fixed-loss cost threshold. 
Any ``estimate adjustment factor'' to the outlier threshold or 
standardized amount in a given year to account for ``overpayments'' 
or ``underpayments'' of outliers in other years would result in us 
making outlier payments that were not directly related to the cost 
of furnishing care in extraordinarily costly cases. Additionally, 
when we conduct our modeling to determine the outlier threshold, we 
factor all in all payments and policies that would affect actual 
payments for the fiscal year at hand (as discussed above, including 
the frontier wage index for FY 2011 and the cumulative effect of 
documentation and coding that has occurred that is already reflected 
within the FY 2009 MedPAR claims data) in order to ensure accuracy 
when determining outlier payments that are 5.1 percent of total DRG 
payments. Including an ``estimate adjustment factor'' that is not 
relative to the current fiscal year does not lend greater accuracy 
to the estimate of payments that are 5.1 percent of total DRG 
payments. Finally, consistent with the policy and statutory 
interpretation we have maintained since the inception of the IPPS, 
we do not make retroactive adjustments to outlier payments to ensure 
that total outlier payments in a past year are equal to 5.1 percent 
of total DRG payments. In short, we believe our outlier policies are 
consistent with the statute and the goals of the prospective payment 
system.
    Comment: One commenter was concerned that CMS did not include 
outlier reconciliations in developing the outlier threshold. The 
commenter requested that CMS disclose in the final rule and future 
proposed and final IPPS rules the amount of money it has recovered 
through reconciliation. The commenter explained that this 
information will allow others to comment specifically on how this 
provision would impact the threshold.
    Response: We thank the commenter for their concern regarding not 
including outlier reconciliation within the development of the 
outlier threshold. However, as stated above, 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 proposed and are finalizing our 
policy not to make any assumptions about the effects of 
reconciliation on the outlier threshold calculation.
    Comment: Commenters noted that it appears CMS has inadvertently 
included approximately 74,000 MA claims submitted by teaching 
hospitals, which appear in the MedPAR file when hospitals submit no-
pay bills for purposes of IME payment. The commenter explained that 
these claims lacked an ``HMO Paid'' designation but the only payment 
made on the claim was the IME payment. The commenter recommended 
that CMS exclude these claims from the outlier threshold calculation 
since they are not paid under the IPPS.
    Commenters also noted that it is likely that CMS included 
charges for anti hemophilic blood factor, which are paid separately 
under the IPPS. The commenter further noted that in the FY 2010 
IPPS/LTCH PPS final rule, CMS agreed that the clotting factor issue 
was a problem and CMS stated it would seek a solution in future 
years. The commenter requested that CMS disclose if a solution has 
been determined.
    Response: We examined the MedPAR file and have determined that 
there are claims that do not have a GHO Paid indicator with a value 
of ``1'' but the IME payment field is equal to the DRG payment 
field. We agree with the commenter and have excluded claims from the 
outlier calculation that have a GHO Paid indicator with a value of 
``1'' or do not have a GHO Paid indicator with a value of ``1'' but 
do have an IMEPAY filed equal to the DRGPAY field since these are 
probably MA claims that are likely not paid under the IPPS and 
therefore would not incur an outlier payment.
    With respect to charges for anti hemophilic blood factor, we 
examined the MedPAR and have removed pharmacy charges with an 
indicator of ``3'' for blood clotting with a revenue code of 
``0636''from the covered charge field. We also removed organ 
acquisition charges from the covered charge field since organ 
acquisition is a pass through payment not paid under the IPPS.
    Because we are not making any changes to our methodology for 
this final rule, for FY 2011, we are using the same methodology we 
proposed to calculate the outlier threshold.
    Using the most recent data available, we calculated the 1-year 
average annualized rate-of-change in charges-per-case from the first 
quarter of FY 2009 in combination with the second quarter of FY 2009 
(October 1, 2008 through March 31, 2009) to the first quarter of FY 
2010 in combination with the second quarter of FY 2010 (October 1, 
2009 through March 31, 2010). This rate of change was 4.8257 percent 
(1.048257) or 9.8843 percent (1.098843) over 2 years.
    As we have done in the past, we established the final FY 2011 
outlier threshold using hospital CCRs from the March 2010 update to 
the Provider-Specific File (PSF)--the most recent available data at 
the time of this final rule. This file includes CCRs that reflect 
implementation of the changes to the policy for determining the 
applicable CCRs that became effective August 8, 2003 (68 FR 34494).
    For FY 2010, we calculated the CCR adjustment by using the 
operating cost per discharge increase in combination with the actual 
FY 2009 operating market basket percentage increase determined by 
IHS Global Insight, Inc., as well as the charge inflation factor 
described above to estimate the adjustment to the CCRs. (We note 
that the FY 2009 actual--otherwise referred to as ``final''--
operating market basket percentage increase reflects historical 
data, whereas the published FY 2009 operating market basket update 
factor was based on IHS Global Insight, Inc.'s 2008 second quarter 
forecast with historical data through the first quarter of 2008. We 
also note that while the FY 2009 published operating market basket 
update was based on the FY 2002-based IPPS market basket, the actual 
or ``final'' market basket percentage increase is based on the FY 
2006-based IPPS market basket. Similarly, the FY 2009 published 
capital market basket update factor was based on the FY 2002-based 
capital market basket and the actual or ``final'' capital market 
basket percentage increase is based on the FY 2006-based capital 
market basket.) By using the operating market basket percentage 
increase and the increase in the average cost per discharge from 
hospital cost reports, we are using two different measures of cost 
inflation. For FY 2011, we determined the adjustment by taking the 
percentage increase in the operating costs per discharge from FY 
2007 to FY 2008 (1.0511) from the cost report and dividing it by the 
final operating market basket percentage increase from FY 2008 
(1.040). This operation removes the measure of pure price increase 
(the market basket) from the percentage increase in operating cost 
per discharge, leaving the nonprice factors in the cost increase 
(for example, quantity and changes in the mix of goods and 
services). We repeated this calculation for 2 prior years to 
determine the 3-year average of the rate of adjusted change in costs 
between the operating market basket percentage increase

[[Page 50430]]

and the increase in cost per case from the cost report (the FY 2005 
to FY 2006 percentage increase of operating costs per discharge of 
1.0574 divided by the FY 2006 final operating market basket 
percentage increase of 1.040, the FY 2006 to FY 2007 percentage 
increase of operating costs per discharge of 1.0464 divided by FY 
2007 final operating market basket percentage increase of 1.036). 
For FY 2011, we averaged the differentials calculated for FY 2006, 
FY 2007, and FY 2008, which resulted in a mean ratio of 1.0125. We 
multiplied the 3-year average of 1.0125 by the FY 2009 final 
operating market basket percentage increase of 1.026, which resulted 
in an operating cost inflation factor of 3.88 percent or 1.0388. We 
then divided the operating cost inflation factor by the 1-year 
average change in charges (1.048257) and applied an adjustment 
factor of 0.990983 to the operating CCRs from the PSF (calculation 
performed on unrounded numbers).
    We used the same methodology for the capital CCRs and determined 
the adjustment by taking the percentage increase in the capital 
costs per discharge from FY 2007 to FY 2008 (1.0813) from the cost 
report and dividing it by the final capital market basket percentage 
increase from FY 2008 (1.015). We repeated this calculation for 2 
prior years to determine the 3-year average of the rate of adjusted 
change in costs between the capital market basket percentage 
increase and the increase in cost per case from the cost report (the 
FY 2005 to FY 2006 percentage increase of capital costs per 
discharge of 1.0470 divided by the FY 2006 final capital market 
basket percentage increase of 1.011, the FY 2006 to FY 2007 
percentage increase of capital costs per discharge of 1.0504 divided 
by the FY 2007 final capital market basket percentage increase of 
1.013). For FY 2011, we averaged the differentials calculated for FY 
2006, FY 2007, and FY 2008, which resulted in a mean ratio of 
1.0459. We multiplied the 3-year average of 1.0459 by the FY 2009 
final capital market basket percentage increase of 1.014, which 
resulted in a capital cost inflation factor of 6.06 percent or 
1.0606. We then divided the capital cost inflation factor by the 1-
year average change in charges (1.048257) and applied an adjustment 
factor of 1.011768 to the capital CCRs from the PSF (calculation 
performed on unrounded numbers). We are using the same charge 
inflation factor for the capital CCRs that was used for the 
operating CCRs. The charge inflation factor is based on the overall 
billed charges. Therefore, we believe it is appropriate to apply the 
charge factor to both the operating and capital CCRs.
    As stated above, for FY 2011, we applied the FY 2011 rates and 
policies using cases from the FY 2009 MedPAR files in calculating 
the final outlier threshold. As discussed in section II.B.3. of the 
preamble to this final rule, in accordance with section 10324(a) of 
Public Law 111-148, 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, so 
as 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 final outlier threshold for FY 2011, 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 2011. If we did not take into account this 
provision, our estimate of total FY 2011 payments would be too low, 
and as a result, our final outlier threshold would be too high, such 
that estimated outlier payments would be less than our projected 5.1 
percent of total payments.
    Also, in FY 2010, for purposes of estimating the final outlier 
threshold, we took into account the remaining projected case-mix 
growth when calculating the outlier threshold that results in 
outlier payments being 5.1 percent of total payments for FY 2010. As 
explained in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 
44008), for the FY 2010 analysis, we inflated the FY 2008 claims 
data by an additional 1.6 percent for the additional case-mix growth 
projected to have occurred since FY 2008. If we did not take into 
account the remaining 1.6 percent projected case-mix growth, our 
estimate of total FY 2010 payments would have been too low, and, as 
a result, the FY 2010 final outlier threshold would have been too 
high, such that estimated outlier payments would be less than our 
projected 5.1 percent of total payments. For the final rule, we used 
the FY 2009 claims data to calculate the FY 2011 final outlier 
threshold. Our estimate of the cumulative effect of changes in 
documentation and coding due to the adoption of the MS-DRGs through 
FY 2009 is 5.4 percent, which is already included within the claims 
data (FY 2009 MedPAR files) used to calculate the final FY 2011 
outlier threshold. Furthermore, we estimate that there would be no 
continued changes in documentation and coding in FYs 2010 and 2011. 
Therefore, the cumulative effect of documentation and coding that 
has occurred is already reflected within the FY 2009 MedPAR claims 
data, and we do not believe there is any need to inflate FY 2009 
claims data for any additional case-mix growth projected to have 
occurred since FY 2009.
    Using this methodology, we calculated a final outlier fixed-loss 
cost threshold for FY 2011 equal to the prospective payment rate for 
the DRG, plus any IME and DSH payments, and any add-on payments for 
new technology, plus $23,075.
    We note that the final threshold is lower than the proposed 
outlier threshold in the FY 2011 IPPS/LTCH PPS supplemental proposed 
rule (and is similar to the estimate of the outlier threshold 
calculated by the commenters above). We believe that the increase in 
the market basket from 2.15 percent in the FY 2011 IPPS/LTCH PPS 
supplemental proposed rule (that is, the estimated full market 
basket percentage increase of 2.4 percent minus 0.25 percentage 
point) to 2.35 percent for this final rule (that is, the estimated 
full market basket percentage increase of 2.6 percent minus 0.25 
percentage point) contributed to a lower final fixed loss outlier 
threshold for FY 2011. Specifically, adding an extra 0.2 percent to 
the standardized amount increases funds to typical cases and 
requires that we lower the outlier threshold to increase the amount 
of atypical cases in order to reach the 5.1 percent target.

(2) Other Changes Concerning Outliers

    As stated in the FY 1994 IPPS final rule (58 FR 46348), we 
establish an outlier threshold that is applicable to both hospital 
inpatient operating costs and hospital inpatient capital-related 
costs. When we modeled the combined operating and capital outlier 
payments, we found that using a common threshold resulted in a lower 
percentage of outlier payments for capital-related costs than for 
operating costs. We project that the thresholds for FY 2011 will 
result in outlier payments that will equal 5.1 percent of operating 
DRG payments and 5.96 percent of capital payments based on the 
Federal rate.
    In accordance with section 1886(d)(3)(B) of the Act, we are 
reducing the FY 2011 standardized amount by the same percentage to 
account for the projected proportion of payments paid as outliers.
    The outlier adjustment factors that would be applied to the 
standardized amount based on the FY 2011 outlier threshold are as 
follows:

------------------------------------------------------------------------
                                                 Operating     Capital
                                               standardized    Federal
                                                  amounts        rate
------------------------------------------------------------------------
National.....................................      0.948999     0.940415
Puerto Rico..................................      0.948079     0.918951
------------------------------------------------------------------------

    We are applying apply the outlier adjustment factors to the FY 
2011 rates after removing the effects of the FY 2010 outlier 
adjustment factors on the standardized amount.
    To determine whether a case qualifies for outlier payments, we 
apply hospital-specific CCRs to the total covered charges for the 
case. Estimated operating and capital costs for the case are 
calculated separately by applying separate operating and capital 
CCRs. These costs are then combined and compared with the outlier 
fixed-loss cost threshold.
    Under our current policy at Sec.  412.84, for hospitals for 
which the fiscal intermediary or MAC computes operating CCRs greater 
than 1.175 or capital CCRs greater than 0.159, or hospitals for 
which the fiscal intermediary or MAC is unable to calculate a CCR 
(as described at Sec.  412.84(i)(3) of our regulations), we use 
statewide average CCRs to determine whether a hospital qualifies for 
outlier payments.\21\ Table 8A in this Addendum contains the 
statewide average operating CCRs for urban hospitals and for rural

[[Page 50431]]

hospitals for which the fiscal intermediary or MAC is unable to 
compute a hospital-specific CCR within the above range. Effective 
for discharges occurring on or after October 1, 2010, these 
statewide average ratios would replace the ratios published in the 
IPPS final rule for FY 2010 (74 FR 44159). Table 8B in this Addendum 
contains the comparable statewide average capital CCRs. Again, the 
CCRs in Tables 8A and 8B would be used during FY 2011 when hospital-
specific CCRs based on the latest settled cost report are either not 
available or are outside the range noted above. Table 8C contains 
the statewide average total CCRs used under the LTCH PPS as 
discussed in section V. of this Addendum.
---------------------------------------------------------------------------

    \21\ These figures represent 3.0 standard deviations from the 
mean of the log distribution of CCRs for all hospitals.
---------------------------------------------------------------------------

    We finally note that we published a manual update (Change 
Request 3966) to our outlier policy on October 12, 2005, which 
updated Chapter 3, Section 20.1.2 of the Medicare Claims Processing 
Manual. The manual update covered an array of topics, including 
CCRs, reconciliation, and the time value of money. We encourage 
hospitals that are assigned the statewide average operating and/or 
capital CCRs to work with their fiscal intermediary or MAC on a 
possible alternative operating and/or capital CCR as explained in 
Change Request 3966. Use of an alternative CCR developed by the 
hospital in conjunction with the fiscal intermediary or MAC can 
avoid possible overpayments or underpayments at cost report 
settlement, thus ensuring better accuracy when making outlier 
payments and negating the need for outlier reconciliation. We also 
note that a hospital may request an alternative operating or capital 
CCR ratio at any time as long as the guidelines of Change Request 
3966 are followed. To download and view the manual instructions on 
outlier and CCRs, we refer readers to CMS Web site: http://www.cms.hhs.gov/manuals/downloads/clm104c03.pdf.

(3) FY 2009 and FY 2010 Outlier Payments

    In the FY 2010 IPPS final rule (74 FR 44012), we stated that, 
based on available data, we estimated that actual FY 2009 outlier 
payments would be approximately 5.4 percent of actual total DRG 
payments. This estimate was computed based on simulations using the 
FY 2008 MedPAR file (discharge data for FY 2008 claims). That is, 
the estimate of actual outlier payments did not reflect actual FY 
2009 claims, but instead reflected the application of FY 2009 rates 
and policies to available FY 2008 claims.
    Our current estimate, using available FY 2009 claims data, is 
that actual outlier payments for FY 2009 were approximately 5.3 
percent of actual total DRG payments. Thus, the data indicate that, 
for FY 2009, the percentage of actual outlier payments relative to 
actual total payments is higher than we projected for FY 2009. 
Consistent with the policy and statutory interpretation we have 
maintained since the inception of the IPPS, we do not plan to make 
retroactive adjustments to outlier payments to ensure that total 
outlier payments for FY 2009 are equal to 5.1 percent of total DRG 
payments.
    We currently estimate that actual outlier payments for FY 2010 
will be approximately 4.7 percent of actual total DRG payments, 
approximately 0.4 percentage points lower than the 5.1 percent we 
projected when setting the outlier policies for FY 2010. This 
estimate of 4.7 percent is based on simulations using the FY 2009 
MedPAR file (discharge data for FY 2009 claims).
    Comment: Commenters requested that CMS clarify and review how 
the actual outlier payments for FY 2009, as reported in the proposed 
rule, were calculated. The commenters noted that in the proposed 
rule, CMS indicated that the actual outlier payments for FY 2009 
will be 5.3 percent of actual DRG payments. However, the commenter 
performed their own analysis using payment information in the MedPAR 
and concluded that actual outlier payments for FY 2009 would be 4.9 
percent of actual DRG payments. The commenter recommended that CMS 
determine the FY 2009 outlier payment percentage using a data 
element that they asserted represented actual payments rather than 
using a modeled estimate of actual payments. The commenter also 
noted that, while they differed on the FY 2009 estimate, they were 
able to match the FY 2010 and FY 2011 outlier percentages we 
published in the proposed rule.
    Response: We believe that modeling the estimated actual payments 
for FY 2009 is a reasonable approach to approximating the outlier 
payment percentage for FY 2009. In modeling the FY 2009 payments we 
use the same programming approach used in determining the FY 2010 
and FY 2011 outlier payment percentages. We continue to believe that 
our modeling approach is sound; we note that the commenters were 
able to match our published percentages for FY 2010 and 2011 using 
their own models,. In calculating the estimated FY 2009 outlier 
payment percentage we use the FY 2009 payment rates, rules and 
factors and the latest update of the FY 2009 MedPAR file. This is 
consistent with our approach for the rate setting for FY 2011 (which 
also models the FY 2010 payments for use in the FY 2011 rate 
setting). Although the MedPAR file contains a field labeled the DRG 
PRICE that represents the actual amounts paid to hospitals by claim, 
we believe that modeling enhances the completeness and the accuracy 
of our estimates of actual payments. While accurate at the time the 
MedPAR file is constructed, claims can be cancelled, edited and 
resubmitted to NCH after the MedPAR file is built, and therefore the 
payment field shown on MedPAR is subject to change and does not 
necessarily represent the final payment on that claim. Additionally, 
various payment exceptions under the IPPS such as the hospital 
specific rate payment adjustment for Sole Community Hospitals and 
Medicare Dependant Hospitals complicate the use of the payment field 
shown on the MedPAR file. PRICER, the IPPS payment software, 
calculates payments on a claim by claim basis and consequently 
claims may be paid on either the federal rate or the hospital 
specific rate depending on which produces a greater payment; the 
payments to these hospitals are not finalized until the cost report 
settlement and at that time must either be based on one hundred 
percent of either the hospital specific amount or the federal 
amount. Due to these additional concerns, the DRG PRICE field would 
also only generate an estimate, rather than an actual, amount of 
outlier payments. For these reasons, we continue to believe that 
modeling is an acceptable and accurate approach to estimating the 
outlier payment percentage in a given year. We also note that our 
model has been replicated by the commenters.

5. FY 2011 Standardized Amount

    The adjusted standardized amount is divided into labor-related 
and nonlabor-related portions. Tables 1A and 1B of this Addendum 
contain the national standardized amounts that we are applying to 
all hospitals, except hospitals located in Puerto Rico, for FY 2011. 
The Puerto Rico-specific amounts are shown in Table 1C of this 
Addendum. The amounts shown in Tables 1A and 1B differ only in that 
the labor-related share applied to the standardized amounts in Table 
1A is the labor-related share of 68.8 percent, and Table 1B is 62 
percent. In accordance with sections 1886(d)(3)(E) and 
1886(d)(9)(C)(iv) of the Act, we are applying a labor-related share 
of 62 percent, unless application of that percentage would result in 
lower payments to a hospital than would otherwise be made. In 
effect, the statutory provision means that we will apply a labor-
related share of 62 percent for all hospitals (other than those in 
Puerto Rico) whose wage indices are less than or equal to 1.0000.
    In addition, Tables 1A and 1B include the standardized amounts 
reflecting the applicable percentage increase of 2.35 percent update 
for FY 2011, and standardized amounts reflecting the 2.0 percentage 
point reduction to that update (a 0.35 percent update) applicable 
for hospitals that fail to submit quality data consistent with 
section 1886(b)(3)(B)(viii) of the Act.
    Under section 1886(d)(9)(A)(ii) of the Act, the Federal portion 
of the Puerto Rico payment rate is based on the discharge-weighted 
average of the national large urban standardized amount (this amount 
is set forth in Table 1A). The labor-related and nonlabor-related 
portions of the national average standardized amounts for Puerto 
Rico hospitals for FY 2011 are set forth in Table 1C of this 
Addendum. This table also includes the Puerto Rico standardized 
amounts. The labor-related share applied to the Puerto Rico specific 
standardized amount is the labor-related share of 62.1 percent, or 
62 percent, depending on which provides higher payments to the 
hospital. (Section 1886(d)(9)(C)(iv) of the Act, as amended by 
section 403(b) of Public Law 108-173, provides that the labor-
related share for hospitals located in Puerto Rico be 62 percent, 
unless the application of that percentage would result in lower 
payments to the hospital.)
    The following table illustrates the changes from the FY 2010 
national standardized amount. The second column shows the changes 
from the FY 2010 standardized amounts for hospitals that satisfy the 
quality data submission requirement for receiving the update of 2.35 
percent. The third column shows the changes for hospitals receiving 
the reduced update of 0.35 percent. The first row of the table shows 
the updated (through FY 2010) average standardized amount after 
restoring the FY 2010 offsets for outlier

[[Page 50432]]

payments, demonstration budget neutrality and the geographic 
reclassification budget neutrality. The DRG reclassification and 
recalibration wage index budget neutrality factors are cumulative. 
Therefore, the FY 2010 factor is not removed from this table.
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B. Adjustments for Area Wage Levels and Cost-of-Living

    Tables 1A through 1C, as set forth in this Addendum, contain the 
labor-related and nonlabor-related shares that we are using to 
calculate the prospective payment rates for hospitals located in the 
50 States, the District of Columbia, and Puerto Rico for FY 2011. 
This section addresses two types of adjustments to the standardized 
amounts that are made in determining the prospective payment rates 
as described in this Addendum.

1. 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 final rule, we discuss the data and methodology for 
the FY 2011 wage index.

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

    Section 1886(d)(5)(H) of the Act authorizes the Secretary to 
make an adjustment to take into account the unique circumstances of 
hospitals in Alaska and Hawaii. Higher labor-related costs for these 
two States are taken into account in the adjustment for area wages 
described above. For FY 2011, we are adjusting the payments for 
hospitals in Alaska and Hawaii by multiplying the nonlabor-related 
portion of the standardized amount by the applicable adjustment 
factor contained in the table below. These factors were obtained 
from the U.S. Office of Personnel Management (OPM) and are the same 
as the factors currently in use under the IPPS for FY 2010.

[[Page 50433]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.130

(The above factors are based on data obtained from the U.S. Office 
of Personnel Management Web site at: http://www.opm.gov/oca/cola/rates.asp.)

C. MS-DRG Relative Weights

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

D. Calculation of the Prospective Payment Rates

General Formula for Calculation of the Prospective Payment Rates for FY 
2011

    In general, the operating prospective payment rate for all 
hospitals paid under the IPPS located outside of Puerto Rico, except 
SCHs and MDHs, for FY 2011 equals the Federal rate.
    Currently, SCHs are paid based on whichever of the following 
rates yields the greatest aggregate payment: The Federal national 
rate; the updated hospital-specific rate based on FY 1982 costs per 
discharge; the updated hospital-specific rate based on FY 1987 costs 
per discharge; the updated hospital-specific rate based on FY 1996 
costs per discharge; or the updated hospital-specific rate based on 
the FY 2006 costs per discharge to determine the rate that yields 
the greatest aggregate payment.
    The prospective payment rate for SCHs for FY 2011 equals the 
higher of the applicable Federal rate, or the hospital-specific rate 
as described below. The prospective payment rate for MDHs for FY 
2011 equals the higher of the Federal rate, or the Federal rate plus 
75 percent of the difference between the Federal rate and the 
hospital-specific rate as described below. For MDHs, the updated 
hospital-specific rate is based on FY 1982, FY 1987 or FY 2002 costs 
per discharge, whichever yields the greatest aggregate payment.
    The prospective payment rate for hospitals located in Puerto 
Rico for FY 2011 equals 25 percent of the Puerto Rico rate plus 75 
percent of the applicable national rate.

1. Federal Rate

    The Federal rate is determined as follows:
    Step 1--Select the applicable average standardized amount 
depending on whether the hospital submitted qualifying quality data 
(full update for qualifying hospitals, update minus 2.0 percentage 
points for nonqualifying hospitals).
    Step 2--Multiply the labor-related portion of the standardized 
amount by the applicable wage index for the geographic area in which 
the hospital is located or the area to which the hospital is 
reclassified.
    Step 3--For hospitals in Alaska and Hawaii, multiply the 
nonlabor-related portion of the standardized amount by the 
applicable cost-of-living adjustment factor.
    Step 4--Add the amount from Step 2 and the nonlabor-related 
portion of the standardized amount (adjusted, if applicable, under 
Step 3).
    Step 5--Multiply the final amount from Step 4 by the relative 
weight corresponding to the applicable MS-DRG (see Table 5 of this 
Addendum).
    The Federal rate as determined in Step 5 may then be further 
adjusted if the hospital qualifies for either the IME or DSH 
adjustment. In addition, for hospitals that qualify for a low-volume 
payment adjustment under section 1886(d)(12) of the Act and 42 CFR 
412.101(b), the payment in Step 5 would be increased by 25 percent.

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

a. Calculation of Hospital-Specific Rate

    Section 1886(b)(3)(C) of the Act provides that currently SCHs 
are paid based on whichever of the following rates yields the 
greatest aggregate payment: The Federal rate; the updated hospital-
specific rate based on FY 1982 costs per discharge; the updated 
hospital-specific rate based on FY 1987 costs per discharge; the 
updated hospital-specific rate based on FY 1996 costs per discharge; 
or the updated hospital-specific rate based on the FY 2006 costs per 
discharge to determine the rate that yields the greatest aggregate 
payment.
    As discussed previously, currently MDHs are paid based on the 
Federal national rate or, if higher, the Federal national rate plus 
75 percent of the difference between the Federal national rate and 
the greater of the updated hospital-specific rates based on either 
FY 1982, FY 1987 or FY 2002 costs per discharge.
    Hospital-specific rates have been determined for each of these 
hospitals based on the FY 1982 costs per discharge, the FY 1987 
costs per discharge, or, for SCHs, the FY 1996 costs per discharge 
or the FY 2006 costs per discharge, and for MDHs, the FY 2002 cost 
per discharge. For a more detailed discussion of the calculation of 
the hospital-specific rates, we refer the reader to the FY 1984 IPPS 
interim final rule (48 FR 39772); the April 20, 1990 final rule with 
comment period (55 FR 15150); the FY 1991 IPPS final rule (55 FR 
35994); and the FY 2001 IPPS final rule (65 FR 47082). In addition, 
for both SCHs and MDHs, the hospital-specific rate effective is 
adjusted by the DRG reclassification and recalibration budget 
neutrality factor of 0.996731 as discussed in section III. of this 
Addendum. The resulting rate will be used in determining the payment 
rate an SCH or MDH will receive for its discharges beginning on or 
after October 1, 2010.

b. Updating the FY 1982, FY 1987, FY 1996, FY 2002, and FY 2006 
Hospital-Specific Rates for FY 2011

    Section 1886(b)(3)(B)(iv) of the Act provides that the 
applicable percentage increase applicable to the hospital-specific 
rates for SCHs and MDHs equals the applicable percentage increase 
set forth in section 1886(b)(3)(B)(i) of 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 and MDHs equal to 
the update factor for all other IPPS hospitals,

[[Page 50434]]

the update to the hospital specific rates for SCHs and MDHs is 
subject to the amendments to section 1886(b)(3)(B)(i) of the Act 
made by section 3401(a) of the Affordable Care Act. Accordingly, the 
applicable percentage increase to the hospital-specific rates 
applicable to SCHs and MDHs is 2.35 percent (that is, the FY 2011 
estimate of the market basket rate-of-increase of 2.6 percent minus 
0.25 percentage points) for hospitals that submit quality data or 
0.35 percent (that is, the FY 2011 applicable percentage increase of 
2.35 percent minus 2.0 percentage points) for hospitals that fail to 
submit quality data.

3. General Formula for Calculation of Prospective Payment Rates for 
Hospitals Located in Puerto Rico Beginning On or After October 1, 2010, 
and Before October 1, 2011

    Section 1886(d)(9)(E)(iv) of the Act provides that, effective 
for discharges occurring on or after October 1, 2004, hospitals 
located in Puerto Rico are paid based on a blend of 75 percent of 
the national prospective payment rate and 25 percent of the Puerto 
Rico-specific rate.

a. Puerto Rico Rate

    The Puerto Rico prospective payment rate is determined as 
follows:
    Step 1--Select the applicable average standardized amount 
considering the applicable wage index (Table 1C of this Addendum).
    Step 2--Multiply the labor-related portion of the standardized 
amount by the applicable Puerto Rico-specific wage index.
    Step 3--Add the amount from Step 2 and the nonlabor-related 
portion of the standardized amount.
    Step 4--Multiply the amount from Step 3 by the applicable MS-DRG 
relative weight (Table 5 of this Addendum).
    Step 5--Multiply the result in Step 4 by 25 percent.

b. National Rate

    The national prospective payment rate is determined as follows:
    Step 1--Select the applicable average standardized amount.
    Step 2--Multiply the labor-related portion of the standardized 
amount by the applicable wage index for the geographic area in which 
the hospital is located or the area to which the hospital is 
reclassified.
    Step 3--Add the amount from Step 2 and the nonlabor-related 
portion of the national average standardized amount.
    Step 4--Multiply the amount from Step 3 by the applicable MS-DRG 
relative weight (Table 5 of this Addendum).
    Step 5--Multiply the result in Step 4 by 75 percent.
    The sum of the Puerto Rico rate and the national rate computed 
above equals the prospective payment for a given discharge for a 
hospital located in Puerto Rico. This rate would then be further 
adjusted if the hospital qualifies for either the IME or DSH 
adjustment.

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

    The PPS for acute care hospital inpatient capital-related costs 
was implemented for cost reporting periods beginning on or after 
October 1, 1991. Effective with that cost reporting period, 
hospitals were paid during a 10-year transition period (which 
extended through FY 2001) to change the payment methodology for 
Medicare acute care hospital inpatient capital-related costs from a 
reasonable cost-based methodology to a prospective methodology 
(based fully on the Federal rate).
    The basic methodology for determining Federal capital 
prospective rates is set forth in the regulations at 42 CFR 412.308 
through 412.352. Below we discuss the factors that we used to 
determine the capital Federal rate for FY 2011, which will be 
effective for discharges occurring on or after October 1, 2010.
    The 10-year transition period ended with hospital cost reporting 
periods beginning on or after October 1, 2001 (FY 2002). Therefore, 
for cost reporting periods beginning in FY 2002, all hospitals 
(except ``new'' hospitals under Sec.  412.304(c)(2)) are paid based 
on the capital Federal rate. For FY 1992, we computed the standard 
Federal payment rate for capital-related costs under the IPPS by 
updating the FY 1989 Medicare inpatient capital cost per case by an 
actuarial estimate of the increase in Medicare inpatient capital 
costs per case. Each year after FY 1992, we update the capital 
standard Federal rate, as provided at Sec.  412.308(c)(1), to 
account for capital input price increases and other factors. The 
regulations at Sec.  412.308(c)(2) provide that the capital Federal 
rate be adjusted annually by a factor equal to the estimated 
proportion of outlier payments under the capital Federal rate to 
total capital payments under the capital Federal rate. In addition, 
Sec.  412.308(c)(3) requires that the capital Federal rate be 
reduced by an adjustment factor equal to the estimated proportion of 
payments for (regular and special) exceptions under Sec.  412.348. 
Section 412.308(c)(4)(ii) requires that the capital standard Federal 
rate be adjusted so that the effects of the annual DRG 
reclassification and the recalibration of DRG weights and changes in 
the geographic adjustment factor (GAF) are budget neutral.
    For FYs 1992 through 1995, Sec.  412.352 required that the 
capital Federal rate also be adjusted by a budget neutrality factor 
so that aggregate payments for inpatient hospital capital costs were 
projected to equal 90 percent of the payments that would have been 
made for capital-related costs on a reasonable cost basis during the 
respective fiscal year. That provision expired in FY 1996. Section 
412.308(b)(2) describes the 7.4 percent reduction to the capital 
Federal rate that was made in FY 1994, and Sec.  412.308(b)(3) 
describes the 0.28 percent reduction to the capital Federal rate 
made in FY 1996 as a result of the revised policy for paying for 
transfers. In FY 1998, we implemented section 4402 of Public Law 
105-33, which required that, for discharges occurring on or after 
October 1, 1997, the budget neutrality adjustment factor in effect 
as of September 30, 1995, be applied to the unadjusted capital 
standard Federal rate and the unadjusted hospital-specific rate. 
That factor was 0.8432, which was equivalent to a 15.68 percent 
reduction to the unadjusted capital payment rates. An additional 2.1 
percent reduction to the rates was effective from October 1, 1997 
through September 30, 2002, making the total reduction 17.78 
percent. As we discussed in the FY 2003 IPPS final rule (67 FR 
50102) and implemented in Sec.  412.308(b)(6), the 2.1 percent 
reduction was restored to the unadjusted capital payment rates 
effective October 1, 2002.
    To determine the appropriate budget neutrality adjustment factor 
and the regular exceptions payment adjustment during the 10-year 
transition period, we developed a dynamic model of Medicare 
inpatient capital-related costs; that is, a model that projected 
changes in Medicare inpatient capital-related costs over time. With 
the expiration of the budget neutrality provision, the capital cost 
model was only used to estimate the regular exceptions payment 
adjustment and other factors during the transition period. As we 
explained in the FY 2002 IPPS final rule (66 FR 39911), beginning in 
FY 2002, an adjustment for regular exception payments is no longer 
necessary because regular exception payments were only made for cost 
reporting periods beginning on or after October 1, 1991, and before 
October 1, 2001 (see Sec.  412.348(b)). Because payments are no 
longer made under the regular exception policy effective with cost 
reporting periods beginning in FY 2002, we discontinued use of the 
capital cost model. The capital cost model and its application 
during the transition period are described in Appendix B of the FY 
2002 IPPS final rule (66 FR 40099).
    Section 412.374 provides for blended payments to hospitals 
located in Puerto Rico under the IPPS for acute care hospital 
inpatient capital-related costs. Accordingly, under the capital PPS, 
we compute a separate payment rate specific to hospitals located in 
Puerto Rico using the same methodology used to compute the national 
Federal rate for capital-related costs. In accordance with section 
1886(d)(9)(A) of the Act, under the IPPS for acute care hospital 
operating costs, hospitals located in Puerto Rico are paid for 
operating costs under a special payment formula. Prior to FY 1998, 
hospitals located in Puerto Rico were paid a blended operating rate 
that consisted of 75 percent of the applicable standardized amount 
specific to Puerto Rico hospitals and 25 percent of the applicable 
national average standardized amount. Similarly, prior to FY 1998, 
hospitals located in Puerto Rico were paid a blended capital rate 
that consisted of 75 percent of the applicable capital Puerto Rico-
specific rate and 25 percent of the applicable capital Federal rate. 
However, effective October 1, 1997, in accordance with section 4406 
of Public Law 105-33, the methodology for operating payments made to 
hospitals located in Puerto Rico under the IPPS was revised to make 
payments based on a blend of 50 percent of the applicable 
standardized amount specific to Puerto Rico hospitals and 50 percent 
of the applicable national average standardized amount. In 
conjunction with this change to the operating blend percentage, 
effective with discharges occurring on or after October 1, 1997, we 
also revised the methodology for computing

[[Page 50435]]

capital payments to hospitals located in Puerto Rico to be based on 
a blend of 50 percent of the Puerto Rico capital rate and 50 percent 
of the national capital Federal rate.
    As we discussed in the FY 2005 IPPS final rule (69 FR 49185), 
section 504 of Public Law 108-173 increased the national portion of 
the operating IPPS payments for hospitals located in Puerto Rico 
from 50 percent to 62.5 percent and decreased the Puerto Rico 
portion of the operating IPPS payments from 50 percent to 37.5 
percent for discharges occurring on or after April 1, 2004 through 
September 30, 2004 (refer to the March 26, 2004 One-Time 
Notification (Change Request 3158)). In addition, section 504 of 
Public Law 108-173 provided that the national portion of operating 
IPPS payments for hospitals located in Puerto Rico is equal to 75 
percent and the Puerto Rico-specific portion of operating IPPS 
payments is equal to 25 percent for discharges occurring on or after 
October 1, 2004. Consistent with that change in operating IPPS 
payments to hospitals located in Puerto Rico, for FY 2005 (as we 
discussed in the FY 2005 IPPS final rule), we revised the 
methodology for computing capital payments to hospitals located in 
Puerto Rico to be based on a blend of 25 percent of the Puerto Rico-
specific capital rate and 75 percent of the national capital Federal 
rate for discharges occurring on or after October 1, 2004.

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

    In the correction notice to the FY 2010 IPPS/RY 2010 LTCH PPS 
final rule published on October 7, 2009 (74 FR 51499), we 
established a capital Federal rate of $429.26 for FY 2010. However, 
as discussed earlier in this final rule, in the June 2, 2010 Federal 
Register, we announced the revised policies and payment rates for FY 
2010 under the IPPS that reflected the provisions of the Affordable 
Care Act. Specifically, in the FY 2010 IPPS/RY 2010 LTCH PPS final 
notice (75 FR 31127), we established a capital Federal rate of 
$429.56 for FY 2010. For comparison purposes, the payment rates and 
factors in this section are based on the revised FY 2010 rates and 
factors announced in that final notice published in Federal Register 
on June 2, 2010.
    As also discussed previously in this final rule, several 
provisions of the Affordable Care Act affected our proposed IPPS 
policies and payment rates for FY 2011. However, due to the timing 
of the passage of that legislation we were unable to address those 
provisions in the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule, 
and the proposed policies and payment rates in that proposed rule 
did not reflect the new legislation. Although the provisions of the 
Affordable Care Act do not directly affect capital IPPS payment 
rates and factors, we revised our proposed FY 2011 capital rates and 
factors in the June 2, 2010 FY 2011 IPPS/LTCH PPS supplemental 
proposed rule (75 FR 30977 through 30972) due to the effect of 
certain provisions of the Affordable Care Act.
    In the discussion that follows, we explain the factors that we 
used to determine the capital Federal rate for FY 2011. In 
particular, we explain why the FY 2011 capital Federal rate will 
decrease approximately 2.27 percent, compared to the FY 2010 capital 
Federal rate. As discussed in the impact analysis in Appendix A of 
this final rule, we estimate that capital payments per discharge 
will decrease 0.5 percent during that same period. Because capital 
payments constitute about 10 percent of hospital payments, a 1-
percent change in the capital Federal rate yields only about a 0.1 
percent change in actual payments to hospitals.

1. Projected Capital Standard Federal Rate Update

a. Description of the Update Framework

    Under Sec.  412.308(c)(1), the capital standard Federal rate is 
updated on the basis of an analytical framework that takes into 
account changes in a capital input price index (CIPI) and several 
other policy adjustment factors. Specifically, we adjust the 
projected CIPI rate-of-increase as appropriate each year for case-
mix index-related changes, for intensity, and for errors in previous 
CIPI forecasts. The update factor for FY 2011 under that framework 
is 1.5 percent based on the best data available at this time. The 
update factor under that framework is based on a projected 1.2 
percent increase in the CIPI, a 0.0 percent adjustment for 
intensity, a 0.0 percent adjustment for case-mix, a 0.0 percent 
adjustment for the FY 2009 DRG reclassification and recalibration, 
and a forecast error correction of 0.3 percent. As discussed below 
in section III.C. of this Addendum, we continue to believe that the 
CIPI is the most appropriate input price index for capital costs to 
measure capital price changes in a given year. We also explain the 
basis for the FY 2011 CIPI projection in that same section of this 
Addendum. We note, as discussed in section VI.E.1. of the preamble 
of this final rule, we applied a -2.9 percent adjustment to the 
capital rate in FY 2011 to account for the cumulative effect of 
changes in documentation and coding under the MS-DRGs that do not 
correspond to changes in real increases in patients' severity of 
illness. Below we describe the policy adjustments that we applied in 
the update framework for FY 2011.
    The case-mix index is the measure of the average DRG weight for 
cases paid under the IPPS. Because the DRG weight determines the 
prospective payment for each case, any percentage increase in the 
case-mix index corresponds to an equal percentage increase in 
hospital payments.
    The case-mix index can change for any of several reasons:
     The average resource use of Medicare patients changes 
(``real'' case-mix change);
     Changes in hospital documentation and coding of patient 
records result in higher weight DRG assignments (``coding 
effects''); and
     The annual DRG reclassification and recalibration 
changes may not be budget neutral (``reclassification effect'').
    We define real case-mix change as actual changes in the mix (and 
resource requirements) of Medicare patients as opposed to changes in 
documentation and coding behavior that result in assignment of cases 
to higher weighted DRGs but do not reflect higher resource 
requirements. The capital update framework includes the same case-
mix index adjustment used in the former operating IPPS update 
framework (as discussed in the May 18, 2004 IPPS proposed rule for 
FY 2005 (69 FR 28816)). (We no longer use an update framework to 
make a recommendation for updating the operating IPPS standardized 
amounts as discussed in section II. of Appendix B in the FY 2006 
IPPS final rule (70 FR 47707).)
    Absent any increase in case-mix resulting from changes in 
documentation and coding due to the adoption of the MS-DRGs, for FY 
2011, we are projecting a 1.0 percent total increase in the case-mix 
index. We estimated that the real case-mix increase will also equal 
1.0 percent for FY 2011. The net adjustment for change in case-mix 
is the difference between the projected real increase in case-mix 
and the projected total increase in case-mix. Therefore, the net 
adjustment for case-mix change in FY 2011 is 0.0 percentage points.
    The capital update framework also contains an adjustment for the 
effects of DRG reclassification and recalibration. This adjustment 
is intended to remove the effect on total payments of prior year's 
changes to the DRG classifications and relative weights, in order to 
retain budget neutrality for all case-mix index-related changes 
other than those due to patient severity. Due to the lag time in the 
availability of data, there is a 2-year lag in data used to 
determine the adjustment for the effects of DRG reclassification and 
recalibration. For example, we have data available to evaluate the 
effects of the FY 2009 DRG reclassification and recalibration as 
part of our update for FY 2011. To adjust for reclassification and 
recalibration effects, under our historical methodology, we ran the 
FY 2009 cases through the FY 2008 GROUPER and through the FY 2009 
GROUPER. The resulting ratio of the case-mix indices equated to 1.0. 
If the resulting ratio of the case-mix indices had not equated to 
1.0 under our historical methodology, in the update framework for FY 
2011 we would have made an adjustment to adjust for the 
reclassification and recalibration effects in FY 2009. As discussed 
in detail in section II.B. of the preamble of this final rule, 
however, when we adopted the MS-DRGs beginning in FY 2008 to better 
recognize severity of illness in Medicare payment rates, we also 
recognized that changes in documentation and coding could 
potentially lead to increases in aggregate payments without a 
corresponding increase in patients' severity of illness (that is, 
increased case-mix index other than real case-mix index increase). 
To maintain budget neutrality for the adoption of the MS-DRGs, as 
discussed in greater detail in section V.E. of the preamble of this 
final rule, we made an adjustment to the capital Federal rate for FY 
2011 based on actuarial estimates of the cumulative effects of 
documentation and coding changes that occurred in FYs 2008 and 2009 
(based on FYs 2008 and 2009 claims data). Therefore, as we proposed, 
we did not adjust for reclassification and

[[Page 50436]]

recalibration effects from FY 2009 in the update framework for FY 
2011 because it is already accounted for in the documentation and 
coding adjustment to the capital Federal rates for FY 2011. 
Consequently, there is a 0.0 percent adjustment for DRG 
reclassification and recalibration in the FY 2011 update framework.
    The capital update framework also contains an adjustment for 
forecast error. The input price index forecast is based on 
historical trends and relationships ascertainable at the time the 
update factor is established for the upcoming year. In any given 
year, there may be unanticipated price fluctuations that may result 
in differences between the actual increase in prices and the 
forecast used in calculating the update factors. In setting a 
prospective payment rate under the framework, we make an adjustment 
for forecast error only if our estimate of the change in the capital 
input price index for any year is off by 0.25 percentage points or 
more. There is a 2-year lag between the forecast and the 
availability of data to develop a measurement of the forecast error. 
A forecast error of 0.3 percentage points was calculated for the FY 
2011 update. That is, current historical data indicate that the 
forecasted FY 2009 CIPI (1.4 percent) used in calculating the FY 
2009 update factor slightly understated the actual realized price 
increases (1.7 percent) by 0.3 percentage points. This is due to the 
prices associated with both the depreciation and interest cost 
categories growing faster than anticipated. Historically, when the 
estimation of the change in the CIPI is greater than 0.25 percentage 
points, it is reflected in the update recommended under this 
framework. Therefore, we made a 0.3 percent adjustment for forecast 
error in the update for FY 2011.
    Under the capital IPPS update framework, we also make an 
adjustment for changes in intensity. Historically, we have 
calculated this adjustment using the same methodology and data that 
were used in the past under the framework for operating IPPS. The 
intensity factor for the operating update framework reflects how 
hospital services are utilized to produce the final product, that 
is, the discharge. This component accounts for changes in the use of 
quality-enhancing services, for changes within DRG severity, and for 
expected modification of practice patterns to remove non-cost-
effective services. Our intensity measure is based on a 5-year 
average.
    Historically, we have calculated case-mix constant intensity as 
the change in total charges per admission, adjusted for price level 
changes (the CIPI for hospital and related services) and changes in 
real case-mix. Without reliable estimates of the proportions of the 
overall annual intensity increases that are due, respectively, to 
ineffective practice patterns and the combination of quality-
enhancing new technologies and complexity within the DRG system, we 
assume that one-half of the annual increase is due to each of these 
factors. The capital update framework thus provides an add-on to the 
input price index rate of increase of one-half of the estimated 
annual increase in intensity, to allow for increases within DRG 
severity and the adoption of quality-enhancing technology.
    We have developed a Medicare-specific intensity measure based on 
a 5-year average. Past studies of case-mix change by the RAND 
Corporation (Has DRG Creep Crept Up? Decomposing the Case Mix Index 
Change Between 1987 and 1988 by G.M. Carter, J.P. Newhouse, and D.A. 
Relles, R-4098-HCFA/ProPAC (1991)) suggest that real case-mix change 
was not dependent on total change, but was usually a fairly steady 
increase of 1.0 to 1.5 percent per year. However, we used 1.4 
percent as the upper bound because the RAND study did not take into 
account that hospitals may have induced doctors to document medical 
records more completely in order to improve payment.
    As we noted above, in accordance with Sec.  412.308(c)(1)(ii), 
we began updating the capital standard Federal rate in FY 1996 using 
an update framework that takes into account, among other things, 
allowable changes in the intensity of hospital services. For FYs 
1996 through 2001, we found that case-mix constant intensity was 
declining, and we established a 0.0 percent adjustment for intensity 
in each of those years. For FYs 2002 and 2003, we found that case-
mix constant intensity was increasing, and we established a 0.3 
percent adjustment and a 1.0 percent adjustment for intensity, 
respectively. For FYs 2004 and 2005, we found that the charge data 
appeared to be skewed as a result of hospitals attempting to 
maximize outlier payments, while lessening costs, and we established 
a 0.0 percent adjustment in each of those years. Furthermore, we 
stated that we would continue to apply a 0.0 percent adjustment for 
intensity until any increase in charges can be tied to intensity 
rather than attempts to maximize outlier payments. For FYs 2006 
through 2010, we continued to apply a 0.0 percent adjustment for 
intensity in the capital update framework.
    In an effort to further refine the intensity adjustment and more 
accurately reflect allowable changes in hospital intensity, as we 
proposed, we used changes in hospital costs per discharge over a 5-
year average rather than changes in hospital charges, which have 
been the basis of the intensity adjustment in prior years. The 
unique nature of capital--how and when it is purchased, its 
longevity, and how it is financed--creates a greater degree of 
variance in capital cost among hospitals than does operating cost. 
We believe that using changes in capital costs per discharge as the 
basis for the intensity adjustment in lieu of changes in charges 
will decrease some of the variability of this adjustment. A case in 
point is the charge data over much of the last decade: The annual 
change in hospital charges has fluctuated erratically from as little 
as 3 percent to as large as 16 percent. As we have discussed for 
several years in past rulemaking, we believe the effects of 
hospitals' charge practices prior to the implementation of the 
outlier policy revisions established in the June 9, 2003 final rule 
were the main cause of the variability and large annual increases in 
hospital charges for much of the past decade. However, even after 
the outlier policy was implemented, we continued to see evidence of 
these charge practices in the data, as it may have taken hospitals 
some time to adopt changes in their behavior in response to the new 
outlier policy. Thus, we believe that the charge data for much of 
the past decade was skewed because if hospitals were treating new or 
different types of cases, which would result in an appropriate 
increase in charges per discharge, we would expect hospitals' case-
mix to increase proportionally, and it did not.
    Therefore, for the reasons discussed above, we believe it would 
be more appropriate to use our intensity adjustment based on the 
change in capital cost per discharge. To determine the intensity 
adjustment for FY 2011, and as we proposed, we replaced charge data 
with capital cost per discharge data. As expected, there are 
significantly smaller increases in cost per discharge over this time 
period and less fluctuation from year to year. As we did when using 
charge data, we based the intensity measure on a 5-year average. 
Therefore, the intensity measure for FY 2011 is based on an average 
of cost per discharge data from the 5-year period beginning with FY 
2004 and extending through FY 2008. Based on these data, we 
estimated that case-mix constant intensity declined during FYs 2004 
through 2008. In the past (FYs 1996 through 2001) when we found 
intensity to be declining, we believed a zero (rather than negative) 
intensity adjustment was appropriate. Because we estimated that 
intensity declined during that 5-year period, we believe that it is 
appropriate to continue to apply a zero intensity adjustment for FY 
2011. Therefore, we made a 0.0 percent adjustment for intensity in 
the update for FY 2011.
    Above, we described the basis of the components used to develop 
the 1.5 percent capital update factor under the capital update 
framework for FY 2011 as shown in the table below.

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

------------------------------------------------------------------------
Capital Input Price Index....................................        1.2
Intensity....................................................        0.0
Case-Mix Adjustment Factors:
    Real Across DRG Change...................................       -1.0
    Projected Case-Mix Change................................        1.0
                                                              ----------
        Subtotal.............................................        1.2

[[Page 50437]]

Effect of FY 2009 Reclassification and Recalibration.........        0.0
    Forecast Error Correction................................        0.3
                                                              ----------
    Total Update.............................................        1.5
------------------------------------------------------------------------

b. Comparison of CMS and MedPAC Update Recommendation

    In its March 2010 Report to Congress, MedPAC did not make a 
specific update recommendation for capital IPPS payments for FY 
2011. (MedPAC's Report to the Congress: Medicare Payment Policy, 
March 2010, Section 2A.)

2. Outlier Payment Adjustment Factor

    Section 412.312(c) establishes a unified outlier payment 
methodology for inpatient operating and inpatient capital-related 
costs. A single set of thresholds is used to identify outlier cases 
for both inpatient operating and inpatient capital-related payments. 
Section 412.308(c)(2) provides that the standard Federal rate for 
inpatient capital-related costs be reduced by an adjustment factor 
equal to the estimated proportion of capital-related outlier 
payments to total inpatient capital-related PPS payments. The 
outlier thresholds are set so that operating outlier payments are 
projected to be 5.1 percent of total operating IPPS DRG payments.
    For FY 2010, we estimated that outlier payments for capital 
would equal 5.22 percent of inpatient capital-related payments based 
on the capital Federal rate in FY 2010. Based on the thresholds as 
set forth in section II.A. of this Addendum, we estimate that 
outlier payments for capital-related costs will equal 5.96 percent 
for inpatient capital-related payments based on the capital Federal 
rate in FY 2011. Therefore, we applied an outlier adjustment factor 
of 0.9404 in determining the capital Federal rate. Thus, we estimate 
that the percentage of capital outlier payments to total capital 
standard payments for FY 2011 would be higher than the percentage 
for FY 2010. This increase in capital outlier payments is primarily 
due to the estimated decrease in capital IPPS payments per 
discharge. That is, because capital payments per discharge are 
projected to be slightly lower in FY 2011 compared to FY 2010, as 
shown in Table III. in section VIII. of Appendix A to this final 
rule, more cases would qualify for outlier payments.
    The outlier reduction factors are not built permanently into the 
capital rates; that is, they are not applied cumulatively in 
determining the capital Federal rate. The FY 2011 outlier adjustment 
of 0.9404 is a -0.78 percent change from the FY 2010 outlier 
adjustment of 0.9478. Therefore, the net change in the outlier 
adjustment to the capital Federal rate for FY 2011 is 0.9922 
(0.9404/0.9478). Thus, the outlier adjustment decreases the FY 2011 
capital Federal rate by 0.78 percent compared with the FY 2010 
outlier adjustment.

3. Budget Neutrality Adjustment Factor for Changes in DRG 
Classifications and Weights and the GAF

    Section 412.308(c)(4)(ii) requires that the capital Federal rate 
be adjusted so that aggregate payments for the fiscal year based on 
the capital Federal rate after any changes resulting from the annual 
DRG reclassification and recalibration and changes in the GAF are 
projected to equal aggregate payments that would have been made on 
the basis of the capital Federal rate without such changes. Because 
we implemented a separate GAF for Puerto Rico, we apply separate 
budget neutrality adjustments for the national GAF and the Puerto 
Rico GAF. We apply the same budget neutrality factor for DRG 
reclassifications and recalibration nationally and for Puerto Rico. 
Separate adjustments were unnecessary for FY 1998 and earlier 
because the GAF for Puerto Rico was implemented in FY 1998.
    In the past, we used the actuarial capital cost model (described 
in Appendix B of the FY 2002 IPPS final rule (66 FR 40099)) to 
estimate the aggregate payments that would have been made on the 
basis of the capital Federal rate with and without changes in the 
DRG classifications and weights and in the GAF to compute the 
adjustment required to maintain budget neutrality for changes in DRG 
weights and in the GAF. During the transition period, the capital 
cost model was also used to estimate the regular exception payment 
adjustment factor. As we explained in section III.A. of this 
Addendum, beginning in FY 2002, an adjustment for regular exception 
payments was no longer necessary. Therefore, we no longer use the 
capital cost model. Instead, we use historical data based on 
hospitals' actual cost experiences to determine the exceptions 
payment adjustment factor for special exceptions payments.
    To determine the factors for FY 2011, we compared (separately 
for the national capital rate and the Puerto Rico capital rate) 
estimated aggregate capital Federal rate payments based on the FY 
2010 MS-DRG classifications and relative weights and the FY 2010 GAF 
to estimated aggregate capital Federal rate payments based on the FY 
2010 MS-DRG classifications and relative weights and the FY 2011 
GAFs. In making the comparison, we set the exceptions reduction 
factor to 1.00. To achieve budget neutrality for the changes in the 
national GAFs, based on calculations using updated data, we applied 
an incremental budget neutrality adjustment of 0.9999 for FY 2011 to 
the previous cumulative FY 2010 adjustment of 0.9911, yielding an 
adjustment of 0.9910, through FY 2011 (calculated with unrounded 
numbers). For the Puerto Rico GAFs, we applied an incremental budget 
neutrality adjustment of 1.0005 for FY 2011 to the previous 
cumulative FY 2010 adjustment of 0.9969, yielding a cumulative 
adjustment of 0.9974 through FY 2011.
    We then compared estimated aggregate capital Federal rate 
payments based on the FY 2010 DRG relative weights and the FY 2011 
GAFs to estimated aggregate capital Federal rate payments based on 
the cumulative effects of the FY 2011 MS-DRG classifications and 
relative weights and the FY 2011 GAFs. The incremental adjustment 
for DRG classifications and changes in relative weights is 0.9991 
both nationally and for Puerto Rico. The cumulative adjustments for 
MS-DRG classifications and changes in relative weights and for 
changes in the GAFs through FY 2011 are 0.9902 nationally and 0.9965 
for Puerto Rico. The following table summarizes the adjustment 
factors for each fiscal year:
BILLING CODE 4120-01-P

[[Page 50438]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.131

BILLING CODE 4120-01-C
    The methodology used to determine the recalibration and 
geographic adjustment factor (GAF/DRG) budget neutrality adjustment 
is similar to the methodology

[[Page 50439]]

used in establishing budget neutrality adjustments under the IPPS 
for operating costs. One difference is that, under the operating 
IPPS, the budget neutrality adjustments for the effect of geographic 
reclassifications are determined separately from the effects of 
other changes in the hospital wage index and the DRG relative 
weights. Under the capital IPPS, there is a single GAF/DRG budget 
neutrality adjustment factor (the national capital rate and the 
Puerto Rico capital rate are determined separately) for changes in 
the GAF (including geographic reclassification) and the DRG relative 
weights. In addition, there is no adjustment for the effects that 
geographic reclassification has on the other payment parameters, 
such as the payments for DSH or IME.
    For FY 2010, we calculated a revised final GAF/DRG budget 
neutrality factor of 0.9994 (75 FR 31125). For FY 2011, we 
established a GAF/DRG budget neutrality factor of 0.9990. The GAF/
DRG budget neutrality factors are built permanently into the capital 
rates; that is, they are applied cumulatively in determining the 
capital Federal rate. This follows the requirement that estimated 
aggregate payments each year be no more or less than they would have 
been in the absence of the annual DRG reclassification and 
recalibration and changes in the GAFs. The incremental change in the 
adjustment from FY 2010 to FY 2011 is 0.9990. The cumulative change 
in the capital Federal rate due to this adjustment is 0.9902 (the 
product of the incremental factors for FYs 1995 though 2010 and the 
incremental factor of 0.9990 for FY 2011). (We note that averages of 
the incremental factors that were in effect during FYs 2005 and 
2006, respectively, were used in the calculation of the cumulative 
adjustment of 0.9902 for FY 2011.)
    The factor accounts for the MS-DRG reclassifications and 
recalibration and for changes in the GAFs. It also incorporates the 
effects on the GAFs of FY 2011 geographic reclassification decisions 
made by the MGCRB compared to FY 2010 decisions. However, it does 
not account for changes in payments due to changes in the DSH and 
IME adjustment factors.

4. Exceptions Payment Adjustment Factor

    Section 412.308(c)(3) of our regulations requires that the 
capital standard Federal rate be reduced by an adjustment factor 
equal to the estimated proportion of additional payments for both 
regular exceptions and special exceptions under Sec.  412.348 
relative to total capital PPS payments. In estimating the proportion 
of regular exception payments to total capital PPS payments during 
the transition period, we used the actuarial capital cost model 
originally developed for determining budget neutrality (described in 
Appendix B of the FY 2002 IPPS final rule (66 FR 40099)) to 
determine the exceptions payment adjustment factor, which was 
applied to both the Federal and hospital-specific capital rates.
    An adjustment for regular exception payments is no longer 
necessary in determining the FY 2011 capital Federal rate because, 
in accordance with Sec.  412.348(b), regular exception payments were 
only made for cost reporting periods beginning on or after October 
1, 1991 and before October 1, 2001. Accordingly, as we explained in 
the FY 2002 IPPS final rule (66 FR 39949), in FY 2002 and subsequent 
fiscal years, no payments are made under the regular exceptions 
provision. However, in accordance with Sec.  412.308(c), we still 
need to compute a budget neutrality adjustment for special exception 
payments under Sec.  412.348(g). We describe our methodology for 
determining the exceptions adjustment used in calculating the FY 
2011 capital Federal rate below.
    Under the special exceptions provision specified at Sec.  
412.348(g)(1), eligible hospitals include SCHs, urban hospitals with 
at least 100 beds that have a disproportionate share percentage of 
at least 20.2 percent or qualify for DSH payments under Sec.  
412.106(c)(2), and hospitals with a combined Medicare and Medicaid 
inpatient utilization of at least 70 percent. An eligible hospital 
may receive special exceptions payments if it meets the following 
criteria: (1) A project need requirement as described at Sec.  
412.348(g)(2), which, in the case of certain urban hospitals, 
includes an excess capacity test as described at Sec.  
412.348(g)(4); (2) an age of assets test as described at Sec.  
412.348(g)(3); and (3) a project size requirement as described at 
Sec.  412.348(g)(5).
    Based on information compiled from our fiscal intermediaries and 
MACs, six hospitals have qualified for special exceptions payments 
under Sec.  412.348(g). One of these hospitals closed in May 2005. 
Because we have cost reports covering FY 2008 for four of these five 
hospitals, we calculated the adjustment based on actual cost 
experience. (We note that the one hospital for which we do not have 
FY 2008 cost report data has had zero special exception payments for 
all available past cost reports. Consequently, we expect that this 
hospital would not have any special exceptions payments in FY 2008, 
and the lack of this hospital's FY 2008 cost report data would not 
distort the calculation of the adjustment.) Using data from cost 
reports covering FY 2008 from the March 2010 update of the HCRIS 
data, we divided the capital special exceptions payment amounts for 
the four available hospitals that qualified for special exceptions 
by the total capital PPS payment amounts (including special 
exception payments) for all hospitals. Based on the data from cost 
reports covering FY 2008, this ratio rounds to 0.0004, and we made 
an adjustment of 0.0004. Because special exceptions are budget 
neutral, we offset the capital Federal rate by 0.04 percent for 
special exceptions payments for FY 2011. Therefore, the exceptions 
adjustment factor is equal to 0.9996 (1 - 0.0004) to account for 
special exceptions payments in FY 2011.
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44019), 
we estimated that total (special) exceptions payments for FY 2010 
would equal 0.02 percent of aggregate payments based on the capital 
Federal rate. Therefore, we applied an exceptions adjustment factor 
of 0.9998 (1 - 0.0002) to determine the FY 2010 capital Federal 
rate. As we stated above, we applied an exceptions payment 
adjustment factor of 0.9996 (1 - 0.0004) to the capital Federal rate 
for FY 2011 based on our estimate that exceptions payments in FY 
2011 would equal 0.04 percent of aggregate payments based on the FY 
2011 capital Federal rate. The exceptions reduction factors are not 
built permanently into the capital rates; that is, the factors are 
not applied cumulatively in determining the capital Federal rate. 
Therefore, the net change in the exceptions adjustment factor used 
in determining the FY 2011 capital Federal rate is 0.9998 (0.9996/
0.9998).

5. Capital Standard Federal Rate for FY 2011

    For FY 2010, we established a final capital Federal rate of 
$429.56. Consistent with section 3401(p) of Public Law 111-148, this 
rate is applicable to discharges occurring on or after April 1, 2010 
(75 FR 31127). We established an update of 1.5 percent in 
determining the FY 2011 capital Federal rate for all hospitals. 
However, as discussed in greater detail in section V.E. of the 
preamble of this final rule, under the statutory authority at 
section 1886(g) of the Act, consistent with section 
1886(d)(3)(A)(vi) of the Act and section 7(b) of Public Law 110-90, 
we are making an additional 2.9 percent reduction to the national 
capital Federal payment rate in FY 2011. The -2.9 percent adjustment 
is based on our actuary's analysis of the effect of changes in case-
mix resulting from documentation and coding changes that do not 
reflect real changes in the case-mix in light of the adoption of MS-
DRGs. Accordingly, we applied a cumulative documentation and coding 
adjustment factor of 0.9574 in determining the FY 2011 capital 
Federal rate (that is, the existing -0.6 percent adjustment in FY 
2008 plus the -0.9 percent adjustment in FY 2009 plus the additional 
-2.9 percent adjustment, computed as 1 divided by (1.006 x 1.009 x 
1.029). (We note that we did not apply a documentation and coding 
adjustment to the capital Federal rate in FY 2010 (74 FR 43927).) As 
a result of the 1.5 percent update and other budget neutrality 
factors discussed above, we established a national capital Federal 
rate of $420.01 for FY 2011. The national capital Federal rate for 
FY 2011 was calculated as follows:
     The FY 2011 update factor is 1.015, that is, the update 
is 1.5 percent.
     The FY 2011 budget neutrality adjustment factor that is 
applied to the capital standard Federal payment rate for changes in 
the MS-DRG classifications and relative weights and changes in the 
GAFs is 0.9990.
     The FY 2011 outlier adjustment factor is 0.9404.
     The FY 2011 (special) exceptions payment adjustment 
factor is 0.9996.
     The cumulative adjustment factor for FY 2011 applied to 
the national capital Federal rate for changes in documentation and 
coding under the MS-DRGs is 0.9574.
    Because the 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 did not make 
additional adjustments in the capital standard Federal rate for 
these factors, other than the budget neutrality factor for changes 
in the MS-DRG

[[Page 50440]]

classifications and relative weights and for changes in the GAFs.
    We are providing the following chart that shows how each of the 
factors and adjustments for FY 2011 affects the computation of the 
FY 2011 national capital Federal rate in comparison to the FY 2010 
national capital Federal rate. The FY 2011 update factor has the 
effect of increasing the capital Federal rate by 1.5 percent 
compared to the FY 2010 capital Federal rate. The GAF/DRG budget 
neutrality factor of 0.9990 has the effect of decreasing the capital 
Federal rate by 0.10 percent. The FY 2011 outlier adjustment factor 
has the effect of decreasing the capital Federal rate by 0.78 
percent compared to the FY 2010 capital Federal rate. The FY 2011 
exceptions payment adjustment factor has the effect of decreasing 
the capital Federal rate by 0.02 percent compared to the FY 2010 
capital Federal rate. Furthermore, as shown in the chart below, the 
resulting cumulative adjustment for changes in documentation and 
coding that do not reflect real changes in patients' severity of 
illness (that is, the cumulative adjustment factor of 0.9574 has the 
net effect of decreasing the FY 2011 national capital Federal rate 
by 2.80 percent as compared to the FY 2010 national capital Federal 
rate. (As discussed in section VI.E.1. of the preamble of this final 
rule, a cumulative adjustment of -1.5 percent (that is, the -0.6 
percent in FY 2008 and -0.9 percent in FY 2009) or a cumulative 
adjustment factor of 0.985 has already been applied to the FY 2010 
capital Federal rate for changes in documentation and coding that do 
not reflect real changes in patients' severity of illness. We did 
not apply any additional documentation and coding adjustments to the 
capital Federal rate in FY 2010). The combined effect of all the 
changes will decrease the national capital Federal rate by 
approximately 2.2 percent compared to the FY 2010 national capital 
Federal rate.
[GRAPHIC] [TIFF OMITTED] TR16AU10.132

    We also are providing the following chart that shows how the 
final FY 2011 capital Federal rate differs from the proposed FY 2011 
capital Federal rate as presented in the June 2, 2010 FY 2011 IPPS/
LTCH PPS supplemental proposed rule.

[[Page 50441]]

[GRAPHIC] [TIFF OMITTED] TR16AU10.133

6. Special Capital Rate for Puerto Rico Hospitals

    Section 412.374 provides for the use of a blended payment system 
for payments to hospitals located in Puerto Rico under the PPS for 
acute care hospital inpatient capital-related costs. Accordingly, 
under the capital PPS, we compute a separate payment rate specific 
to hospitals located in Puerto Rico using the same methodology used 
to compute the national Federal rate for capital-related costs. 
Under the broad authority of section 1886(g) of the Act, as 
discussed in section V. of the preamble of this final rule, 
beginning with discharges occurring on or after October 1, 2004, 
capital payments to hospitals located in Puerto Rico are based on a 
blend of 25 percent of the Puerto Rico capital rate and 75 percent 
of the capital Federal rate. The Puerto Rico capital rate is derived 
from the costs of Puerto Rico hospitals only, while the capital 
Federal rate is derived from the costs of all acute care hospitals 
participating in the IPPS (including Puerto Rico).
    To adjust hospitals' capital payments for geographic variations 
in capital costs, we apply a GAF to both portions of the blended 
capital rate. The GAF is calculated using the operating IPPS wage 
index, and varies depending on the labor market area or rural area 
in which the hospital is located. We use the Puerto Rico wage index 
to determine the GAF for the Puerto Rico part of the capital-blended 
rate and the national wage index to determine the GAF for the 
national part of the blended capital rate.
    Because we implemented a separate GAF for Puerto Rico in FY 
1998, we also apply separate budget neutrality adjustments for the 
national GAF and for the Puerto Rico GAF. However, we apply the same 
budget neutrality factor for DRG reclassifications and recalibration 
nationally and for Puerto Rico. The national GAF budget neutrality 
factor is 1.0005 and the DRG adjustment is 0.9991, for a combined 
cumulative adjustment of 0.9965.
    In computing the payment for a particular Puerto Rico hospital, 
the Puerto Rico portion of the capital rate (25 percent) is 
multiplied by the Puerto Rico-specific GAF for the labor market area 
in which the hospital is located, and the national portion of the 
capital rate (75 percent) is multiplied by the national GAF for the 
labor market area in which the hospital is located (which is 
computed from national data for all hospitals in the United States 
and Puerto Rico). In FY 1998, we implemented a 17.78 percent 
reduction to the Puerto Rico capital rate as a result of Pub. L. 
105-33. In FY 2003, a small part of that reduction was restored.
    For FY 2010, the special capital rate for hospitals located in 
Puerto Rico was $203.57 (75 FR 31128). Consistent with our 
development of the FY 2010 Puerto Rico-specific operating 
standardized amount, we have not applied the -0.6 percent adjustment 
in FY 2008 or the -0.9 percent documentation and coding adjustment 
in FY 2009 (that is, the cumulative -1.5 percent adjustment) that 
was applied to the national capital Federal rate to the Puerto Rico-
specific capital rate. However, we noted in the FY 2009 IPPS final 
rule (73 FR 48449 through 48550) that we may propose to apply such 
an adjustment to the Puerto Rico operating and capital rates in the 
future.
    As noted above and discussed in greater detail in section V.E.4. 
of the preamble of this final rule, consistent with our development 
of the Puerto Rico-specific operating standardized amount, we 
applied a -2.6 percent adjustment to account for changes in 
documentation and coding that resulted from the adoption of the MS-
DRGs in determining the FY 2011 Puerto Rico-specific capital rate. 
With the changes we made to the other factors used to determine the 
capital rate, the FY 2011 special capital rate for hospitals in 
Puerto Rico is $197.66.

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

    Because the 10-year capital PPS transition period ended in FY 
2001, all hospitals (except ``new'' hospitals under Sec.  412.324(b) 
and under Sec.  412.304(c)(2)) are paid based on 100 percent of the 
capital Federal rate in FY 2011.
    For purposes of calculating payments for each discharge during 
FY 2011, the capital standard Federal rate is adjusted as follows: 
(Standard Federal Rate) x (DRG weight) x (GAF) x (COLA for hospitals 
located in Alaska and Hawaii) x (1 + DSH Adjustment Factor + IME 
Adjustment Factor, if applicable). The result is the adjusted 
capital Federal rate.
    Hospitals also may receive outlier payments for those cases that 
qualify under the thresholds established for each fiscal year. 
Section 412.312(c) provides for a single set of thresholds to 
identify outlier cases for both inpatient operating and inpatient 
capital-related payments. The outlier thresholds for FY 2011 are in 
section II.A. of this Addendum. For FY 2011, a case would qualify as 
a cost outlier if the cost for the case plus the (operating) IME and 
DSH payments is greater than the prospective payment rate for the 
MS-DRG plus the fixed-loss amount of $23,075.
    An eligible hospital may also qualify for a special exceptions 
payment under Sec.  412.348(g) up through the 10th year beyond the 
end of the capital transition period if it meets the following 
criteria: (1) A project need requirement described at Sec.  
412.348(g)(2), which in the case of certain urban hospitals includes 
an excess capacity test as described at Sec.  412.348(g)(4); and (2) 
a project size requirement as described at Sec.  412.348(g)(5). 
Eligible hospitals include SCHs, urban hospitals with at least 100 
beds that have a DSH patient percentage of at least 20.2 percent or 
qualify for DSH payments under Sec.  412.106(c)(2), and hospitals 
that have a combined Medicare and Medicaid inpatient utilization of 
at least 70 percent. Under Sec.  412.348(g)(8), the amount of a 
special exceptions payment is determined by comparing the cumulative 
payments made to the hospital under the capital PPS to the 
cumulative minimum payment level. This amount is offset by: (1) Any 
amount by which a hospital's cumulative capital payments exceed its 
cumulative minimum payment levels applicable under the regular 
exceptions process for cost reporting periods beginning during which 
the hospital has been subject to the capital PPS; and (2) any amount 
by which a hospital's current year operating and capital payments 
(excluding 75 percent of operating DSH payments) exceed its 
operating and capital costs. Under Sec.  412.348(g)(6), the minimum 
payment level is 70 percent for all eligible hospitals. We note that 
this was a 10-year provision. Therefore, FY 2012 is the final year 
hospitals

[[Page 50442]]

will be eligible for the special exceptions payment.
    Currently, as provided in Sec.  412.304(c)(2), we pay a new 
hospital 85 percent of its reasonable costs during the first 2 years 
of operation unless it elects to receive payment based on 100 
percent of the capital Federal rate. Effective with the third year 
of operation, we pay the hospital based on 100 percent of the 
capital Federal rate (that is, the same methodology used to pay all 
other hospitals subject to the capital PPS).

C. Capital Input Price Index

1. Background

    Like the operating input price index, the capital input price 
index (CIPI) is a fixed-weight price index that measures the price 
changes associated with capital costs during a given year. The CIPI 
differs from the operating input price index in one important 
aspect--the CIPI reflects the vintage nature of capital, which is 
the acquisition and use of capital over time. Capital expenses in 
any given year are determined by the stock of capital in that year 
(that is, capital that remains on hand from all current and prior 
capital acquisitions). An index measuring capital price changes 
needs to reflect this vintage nature of capital. Therefore, the CIPI 
was developed to capture the vintage nature of capital by using a 
weighted-average of past capital purchase prices up to and including 
the current year.
    We periodically update the base year for the operating and 
capital input price indexes to reflect the changing composition of 
inputs for operating and capital expenses. In the FY 2010 IPPS/RY 
2010 LTCH PPS final rule (74 FR 44021), we rebased and revised the 
CIPI to a FY 2006 base year to reflect the more current structure of 
capital costs in hospitals. A complete discussion of this rebasing 
is provided in section IV. of the preamble of that final rule.

2. Forecast of the CIPI for FY 2011

    Based on the latest forecast by IHS Global Insight, Inc. (second 
quarter of 2010), we are forecasting the FY 2006-based CIPI to 
increase 1.2 percent in FY 2011. This reflects a projected 1.7 
percent increase in vintage-weighted depreciation prices (building 
and fixed equipment, and movable equipment), and a 1.6 percent 
increase in other capital expense prices in FY 2011, partially 
offset by 2.1 percent decline in vintage-weighted interest expenses 
in FY 2011. The weighted average of these three factors produces the 
1.2 percent increase for the FY 2006-based CIPI as a whole in FY 
2011.

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

    Historically, hospitals and hospital units excluded from the 
prospective payment system received payment for inpatient hospital 
services they furnished on the basis of reasonable costs, subject to 
a rate-of-increase ceiling. An annual per discharge limit (the 
target amount as defined in Sec.  413.40(a)) was set for each 
hospital or hospital unit based on the hospital's own cost 
experience in its base year, and updated annually by a rate-of-
increase percentage. The updated target amount for that period was 
multiplied by the Medicare discharges during that period and applied 
as an aggregate upper limit (the ceiling as defined in Sec.  
413.40(a)) on total inpatient operating costs for a hospital's cost 
reporting period. Prior to October 1, 1997, these payment provisions 
applied consistently to all categories of excluded providers 
(rehabilitation hospitals and units (now referred to as IRFs), 
psychiatric hospitals and units (now referred to as IPFs), LTCHs, 
children's hospitals, and cancer hospitals).
    Payments for services furnished in children's hospitals and 
cancer hospitals that are excluded from the IPPS continue to be 
subject to the rate-of-increase ceiling based on the hospital's own 
historical cost experience. (We note that, in accordance with Sec.  
403.752(a), RNHCIs are also subject to the rate-of-increase limits 
established under Sec.  413.40 of the regulations.)
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24016 and 
24082), we proposed that the FY 2011 rate-of-increase percentage for 
updating the target amounts for cancer and children's hospitals and 
RNHCIs was the estimated percentage increase in the FY 2011 IPPS 
operating market basket, estimated to be 2.4 percent, in accordance 
with applicable regulations at Sec.  413.40. We also proposed to use 
the most recent data when determining the estimated percentage 
increase for the FY 2011 IPPS market basket for the final rule, to 
the extent these data were available. For this final rule, we are 
using the most recent data available to determine the FY 2011 IPPS 
operating market basket. Based on IHS Global Insight, Inc.'s second 
quarter 2010 forecast, with historical data through the 2010 first 
quarter, the IPPS operating market basket is 2.6 percent for FY 
2011. Therefore, for cancer and children's hospitals and RNHCIs, the 
FY 2011 rate-of-increase percentage that is applied to the FY 2010 
target amounts in order to determine the FY 2011 target amount is 
2.6 percent.
    IRFs, IPFs, and LTCHs were previously paid under the reasonable 
cost methodology. However, the statute was amended to provide for 
the implementation of prospective payment systems for IRFs, IPFs, 
and LTCHs. In general, the prospective payment systems for IRFs, 
IPFs, and LTCHs provide transitioning periods of varying lengths of 
time during which a portion of the prospective payment is based on 
cost-based reimbursement rules under 42 CFR part 413 (certain 
providers do not receive a transitioning period or may elect to 
bypass the transition as applicable under 42 CFR part 412, subparts 
N, O, and P.) We note that all of the various transitioning periods 
provided for under the IRF PPS, the IPF PPS, and the LTCH PPS have 
ended.
    The IRF PPS, the IPF PPS, and the LTCH PPS are updated annually. 
We refer readers to section VII. of the preamble and section V. of 
the Addendum to this final rule for the update changes to the 
Federal payment rates for LTCHs under the LTCH PPS for FY 2011. The 
annual updates for the IRF PPS and the IPF PPS are issued by the 
agency in separate Federal Register documents.

V. Changes to the Payment Rate for the LTCH PPS for FY 2011

A. LTCH PPS Standard Federal Rate for FY 2011

1. Background

    In section VII. of the preamble of this final rule, we discuss 
our changes to the payment rates, factors, and specific policies 
under the LTCH PPS for FY 2011. As discussed earlier, we note that 
the Affordable Care Act made a number of changes that affected the 
LTCH PPS for FY 2010 and FY 2011. Because we were unable to 
incorporate the provisions of the Affordable Care Act in the FY 2011 
IPPS/LTCH PPS proposed rule that appeared in the Federal Register on 
May 4, 2010 due to the timing of enactment of the Affordable Care 
Act, we issued in the Federal Register on June 2, 2010, a 
supplemental proposed rule that proposed to implement the provisions 
of the Affordable Care Act affecting the IPPS and LTCH PPS for FY 
2011. The final policies and payment rates in this final rule 
reflect the applicable provisions of this new legislation and 
address the public comments that we received on both the May 4, 2010 
proposed rule and the June 2, 2010 supplemental proposed rule. We 
also note that we issued a final notice in the Federal Register on 
June 2, 2010, to implement the provisions of the Affordable Care Act 
that affect the policies and payment rates for RY 2010 under the 
LTCH PPS.
    At Sec.  412.523(c)(3)(ii) of the regulations, for LTCH PPS rate 
years beginning RY 2004 through RY 2006, we updated the standard 
Federal rate by a factor to adjust for the most recent estimate of 
the increases in prices of an appropriate market basket of goods and 
services for LTCHs. We established a policy of annually updating the 
standard Federal rate because, at that time, we believed that was 
the most appropriate method for updating the LTCH PPS standard 
Federal rate annually for years after the initial implementation of 
the LTCH PPS in FY 2003. Thus, under Sec.  412.523(c)(3)(ii), for 
RYs 2004 through 2006, the annual update to the LTCH PPS standard 
Federal rate was equal to the previous rate year's Federal rate 
updated by the most recent estimate of increases in the appropriate 
market basket of goods and services included in covered inpatient 
LTCH services.
    In determining the annual update to the standard Federal rate 
for RY 2007, based on our ongoing monitoring activity, we believed 
that, rather than solely using the most recent estimate of the LTCH 
PPS market basket as the basis of the 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 regulations at Sec.  412.523(c)(3)(iii) 
to specify that the 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 in FY 2004. For RYs 2008 through 2010, we also

[[Page 50443]]

considered the effect of documentation and coding that was unrelated 
to patients' severity of illness in establishing the annual update 
to the standard Federal rate as set forth in the regulations at 
Sec. Sec.  412.523(c)(3)(iv) through (c)(3)(vi). (We note that 
section 114(e)(1) of Public Law 110-173 provided that the standard 
Federal rate for RY 2008 shall be the same as the standard Federal 
rate for RY 2007. In addition, section 114(e)(2) of Public Law 110-
173 specified that the revised standard Federal rate provided for 
under section 114(e)(1) ``shall not apply to discharges occurring on 
or after July 1, 2007, and before April 1, 2008,'' effectively 
resulting in a delay of the application of the updated standard 
Federal rate for RY 2007 established in the RY 2008 LTCH PPS final 
rule (72 FR 26890).)
    Consistent with our historical practice, in the FY 2010 IPPS/RY 
2010 LTCH PPS final rule (74 FR 44022), we established an annual 
update to the standard Federal rate for RY 2010 based on the most 
recent estimate of the increase in the LTCH PPS market basket at 
that time of 2.5 percent and an adjustment of -0.5 percent to 
account for the increase in case-mix in a prior period (FY 2007) due 
to the effect of documentation and coding unrelated to an increase 
in patients' severity of illness. Accordingly, we established 
regulations at Sec.  412.523(c)(3)(vi) to specify that the update to 
the standard Federal rate for RY 2010 is 2.0 percent. However, as 
noted above, the Affordable Care Act revised the update to the 
standard Federal rate for RY 2010. Newly added section 
1886(m)(3)(A)(ii) of the Act provides that, for each of RYs 2010 
through 2019, any annual update to the standard Federal rate is 
reduced by the ``other adjustment'' described in section 1886(m)(4) 
of the Act. Specifically, newly added sections 1886(m)(3)(A)(ii) and 
(m)(4)(A) of the Act require a 0.25 percentage point reduction to 
the annual update to the standard Federal rate for RY 2010. Section 
1886(m)(3)(A) of the Act, on its face, explicitly provides for a 
revised annual update to the standard Federal rate beginning RY 
2010, thus resulting in a single revised RY 2010 standard Federal 
rate. Section 3401(p) of Public Law 111-148 provides that, 
notwithstanding the previous provisions of this section, the 
amendments made by subsections (a), (c) and (d) shall not apply to 
discharges occurring before April 1, 2010. When read in conjunction, 
we believe section 1886(m)(3)(A) of the Act and section 3401(p) of 
Public Law 111-148 provide for a single revised RY 2010 standard 
Federal rate. However, for payment purposes, discharges occurring on 
or after October 1, 2009, and before April 1, 2010, simply will not 
be paid based on the revised RY 2010 standard Federal rate (and will 
be paid based on the standard Federal rate of $39,896.65 as 
established in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 
44022)).
    Accordingly, in the June 2, 2010 FY 2010 IPPS/RY 2010 LTCH PPS 
notice (75 FR 31128), we established an update to the LTCH PPS 
standard Federal rate for RY 2010 of 1.74 percent, based on the full 
forecasted estimated increase in the LTCH PPS market basket (2.5 
percent), adjusted by the 0.25 percentage point reduction required 
by sections 1886(m)(3)(A)(ii) and (m)(4)(A) of the Act, and an 
adjustment to account for the increase in case-mix in a prior period 
(FY 2007) resulting from the effect of documentation and coding of -
0.5 percent.
    As discussed in section VII.C.2.c. of the preamble of this final 
rule, we are finalizing the proposal contained in the June 2, 2010 
FY 2011 IPPS/LTCH PPS supplemental proposed rule (75 FR 30969) to 
revise Sec.  412.523(c)(3)(vi) to specify that the standard Federal 
rate for the LTCH PPS rate year beginning October 1, 2009 and ending 
September 30, 2010, is the standard Federal rate for the previous 
rate year updated by 1.74 percent. Furthermore, consistent with 
section 3401(p) of Public Law 111-148, in this final rule, we also 
are finalizing our proposal to revise Sec.  412.523(c)(3)(vi) to 
specify that with respect to discharges occurring on or after 
October 1, 2009 and before April 1, 2010, payments are based on the 
standard Federal rate in Sec.  412.523(c)(3)(v) updated by 2.0 
percent (75 FR 30969).

2. Development of the FY 2011 LTCH PPS Standard Federal Rate

    While we continue to believe that an update to the LTCH PPS 
standard Federal rate should be based on the most recent estimate of 
the increase in the LTCH PPS market basket, we also believe it is 
appropriate that the standard Federal rate be offset by an 
adjustment to account for any effect of documentation and coding 
practices that does not reflect increased severity of illness. Such 
an adjustment protects the integrity of the Medicare Trust Funds by 
ensuring that the LTCH PPS payment rates better reflect the true 
costs of treating LTCH patients. Furthermore, as we discussed most 
recently in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 
44022), we did not establish a case-mix budget neutrality factor 
(that is, a documentation and coding adjustment for changes in case-
mix that are not due to changes in patients' severity of illness) 
for the adoption of the severity adjusted MS-LTC-DRG patient 
classification system. Rather, we noted that, consistent with past 
LTCH payment policy, we would continue to monitor LTCH data, and we 
could propose to make adjustments when updating the LTCH PPS 
standard Federal rate in the future to account for the effect of 
documentation and coding that does not reflect any real changes in 
case-mix during these years that we are implementing MS-LTC-DRGs. As 
described above, in the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we 
applied a -0.5 percent adjustment to account for the effect of 
documentation and coding on the increase in case-mix in FY 2007. 
Although we proposed a -1.3 percent adjustment to account for the 
effect of documentation and coding on the increase in case-mix in FY 
2008, in that same final rule after consideration of public comments 
and consistent with IPPS policy, we delayed the application of that 
adjustment (74 FR 43970 through 43972).
    For FY 2011, as discussed in the May 4, 2010 FY 2011 IPPS/LTCH 
PPS proposed rule (75 FR 24045 through 24047), we performed a case-
mix analysis using the most recent available LTCH claims data (FY 
2009) under both the current MS-LTC-DRG and the former CMS LTC-DRG 
patient classification systems. Based on this evaluation, we 
determined that there was a cumulative increase in LTCH case-mix of 
2.5 percent due to the effect of documentation and coding that did 
not reflect real changes in severity of illness for LTCH discharges 
occurring in FY 2008 and FY 2009. Consistent with our historical 
practice, in that same proposed rule, we proposed to update the LTCH 
PPS standard Federal rate for FY 2011 based on the full proposed 
LTCH PPS market basket increase estimate at that time (2.4 percent) 
and a proposed adjustment to account for the increase in case-mix in 
prior periods (FYs 2008 and 2009) that resulted from the effect of 
documentation and coding practices of -2.5 percent. As noted above 
in this section, although a number of the provisions of the 
Affordable Care Act affect the LTCH PPS, due to the timing of the 
passage of that legislation, we were unable to address those 
provisions in the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule. 
Therefore, the proposed policies and payment rates in that proposed 
rule did not reflect the new legislation. We addressed the 
provisions of the Affordable Care Act that affected our proposed 
policies and payment rates for FY 2011 under the LTCH PPS in the 
June 2, 2010 IPPS/LTCH PPS supplemental proposed rule (75 FR 30918).
    As discussed in the June 2, 2010 FY 2010 IPPS/LTCH PPS 
supplemental proposed rule (75 FR 30969), section 1886(m)(3)(A)(ii) 
of the Act provides that, for each of RYs 2010 through 2019, any 
annual update to the standard Federal rate is reduced by the ``other 
adjustment'' described in section 1886(m)(4) of the Act. 
Specifically, sections 1886(m)(3)(A)(ii) and (m)(4)(B) of the Act 
require a 0.50 percentage point reduction to the annual update to 
the standard Federal rate for FY 2011. Consistent with our 
historical practice, in that same supplemental proposed rule, we 
proposed to update the LTCH PPS standard Federal rate for FY 2011 
based on the full proposed LTCH PPS market basket increase estimate 
at that time (2.4 percent), adjusted by the 0.50 percentage point 
reduction required by sections 1886(m)(3)(A)(ii) and (m)(4)(B) of 
the Act, and a proposed adjustment to account for the increase in 
case-mix in prior periods (FYs 2008 and 2009) that resulted from the 
effect of documentation and coding practices (-2.5 percent). 
Consequently, we proposed an update factor to the standard Federal 
rate for FY 2011 of -0.59 percent (that is, we proposed to apply a 
factor of 0.9941 in determining the LTCH PPS standard Federal rate 
for FY 2011, calculated as 1.019 x 1 divided by 1.025 = 0.9941 or -
0.59 percent (0.9941 minus 1 equals 0.59 percent)).
    Consistent with our historical practice of updating the standard 
Federal rate for the previous rate year, we applied the proposed 
update factor of 0.9941 to the revised RY 2010 standard Federal rate 
that was established in accordance with the provisions of sections 
1886(m)(3)(A)(ii) and (m)(4)(A) of the Act (that is, $39,794.95 as 
established in the FY 2010 IPPS/RY 2010 LTCH PPS final notice (75 FR 
31128 through 31129). Consequently, the proposed standard Federal 
rate for FY 2011 was $39,560.16.

[[Page 50444]]

Furthermore, in the June 2, 2010 FY 2010 IPPS/LTCH PPS supplemental 
proposed rule (75 FR 30971), we proposed to amend Sec.  412.523 to 
add a new paragraph (c)(3)(vii) to specify that the standard Federal 
rate for discharges occurring on or after October 1, 2010 through 
September 30, 2011, is the standard Federal rate for the previous 
rate year updated by -0.59 percent. We also proposed that if more 
recent data become available, we would use those data, if 
appropriate, to determine the update to the standard Federal rate 
for FY 2011 in the final rule, and, thus, the standard Federal rate 
update specified in the proposed regulation text at Sec.  
412.523(c)(3)(vii) could change accordingly.
    In this final rule, as discussed in greater detail in section 
VII.C.3. of the preamble of this final rule, we are finalizing our 
proposal to apply a -2.5 percent adjustment to the standard Federal 
rate to account for the effect of documentation and coding that did 
not reflect real changes in patient severity of illness for LTCH 
discharges that occurred in FYs 2008 and 2009 based on our case-mix 
analysis using the most recent available LTCH claims data (FY 2009) 
under both the current MS-LTC-DRG and the former CMS LTC-DRG patient 
classification systems. At this time, as discussed in section 
VII.C.2. of the preamble of this final rule, the most recent 
estimate of the increase in the LTCH PPS market basket (that is, the 
FY 2002-based RPL market basket) for FY 2011 is 2.5 percent. 
Consistent with our historical practice and as we proposed, in this 
final rule, we are establishing an update to the LTCH PPS standard 
Federal rate for FY 2011 based on the full LTCH PPS market basket 
increase estimate, including the statutorily required 0.50 
percentage point reduction, of 2.0 percent and an adjustment to 
account for the increase in case-mix in prior periods (FYs 2008 and 
2009) that resulted from the effect of documentation and coding 
practices of -2.5 percent. Accordingly, the update factor to the 
standard Federal rate for FY 2011 is -0.49 percent (that is, we are 
applying a factor of 0.9951 in determining the LTCH PPS standard 
Federal rate for FY 2011, calculated as 1.020 x 1 divided by 1.025 = 
0.9951 or -0.49 percent).
    Therefore, in this final rule, under the broad authority 
conferred upon the Secretary under the BBRA and the BIPA to 
determine appropriate updates under the LTCH PPS and under the 
authority of sections 1886(m)(3)(A)(ii) and (m)(4)(B) of the Act, 
consistent with our proposal, we are revising Sec.  412.523 to add a 
new paragraph (c)(3)(vii) to specify that the standard Federal rate 
for discharges occurring on or after October 1, 2010 through 
September 30, 2011, is the standard Federal rate for the previous 
rate year updated by -0.49 percent. Consistent with our historical 
practice, and as we proposed, in determining the standard Federal 
rate for FY 2011, we are applying the update factor of 0.9951 to the 
RY 2010 Federal rate of $39,794.95 (as established in the June 2, 
2010 FY 2010 IPPS/RY 2010 LTCH PPS notice (75 FR 31128 through 
31129)). Consequently, in this final rule, we are establishing a 
standard Federal rate for FY 2011 of $39,599.95, which will apply to 
LTCH PPS discharges occurring on or after October 1, 2010 through 
September 30, 2011.

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

1. Background

    Under the authority of section 123 of the BBRA as amended by 
section 307(b) of the BIPA, we established an adjustment to the LTCH 
PPS standard Federal rate to account for differences in LTCH area 
wage levels at Sec.  412.525(c). The labor-related share of the LTCH 
PPS standard Federal rate is adjusted to account for geographic 
differences in area wage levels by applying the applicable LTCH PPS 
wage index. The applicable LTCH PPS wage index is computed using 
wage data from inpatient acute care hospitals without regard to 
reclassification under section 1886(d)(8) or section 1886(d)(10) of 
the Act.
    As we discussed in the August 30, 2002 LTCH PPS final rule (67 
FR 56015), when we implemented the LTCH PPS, we established a 5-year 
transition to the full wage index adjustment. The wage index 
adjustment was completely phased in for cost reporting periods 
beginning in FY 2007. Therefore, for cost reporting periods 
beginning on or after October 1, 2006, the applicable LTCH wage 
index values are the full (five-fifths) LTCH PPS wage index values 
calculated based on acute care hospital inpatient wage index data 
without taking into account geographic reclassification under 
section 1886(d)(8) and section 1886(d)(10) of the Act. For 
additional information on the phase-in of the wage index adjustment 
under the LTCH PPS, we refer readers to the August 30, 2002 LTCH PPS 
final rule (67 FR 56017 through 56019) and the RY 2008 LTCH PPS 
final rule (72 FR 26891).

2. Updates to the Geographic Classifications/Labor Market Area 
Definitions

a. Background

    As discussed in the August 30, 2002 LTCH PPS final rule, which 
implemented the LTCH PPS (67 FR 56015 through 56019), in 
establishing an adjustment for area wage levels, the labor-related 
portion of a LTCH's Federal prospective payment is adjusted by using 
an appropriate wage index based on the labor market area in which 
the LTCH is located. Specifically, the application of the LTCH PPS 
wage index adjustment at Sec.  412.525(c) is made on the basis of 
the location of the LTCH in either an urban area or a rural area as 
defined in Sec.  412.503. Currently under the LTCH PPS at Sec.  
412.503, an ``urban area'' is defined as a Metropolitan Statistical 
Area (which would include a metropolitan division, where applicable) 
as defined by the Executive OMB and a ``rural area'' is defined as 
any area outside of an urban area.
    In the RY 2006 LTCH PPS final rule (70 FR 24184 through 24185), 
in regulations at Sec.  412.525(c), we revised the labor market area 
definitions used under the LTCH PPS effective for discharges 
occurring on or after July 1, 2005, based on the Executive OMB's 
CBSA designations, which are based on 2000 Census data. We made this 
revision because we believe that the CBSA-based labor market area 
definitions will ensure that the LTCH PPS wage index adjustment most 
appropriately accounts for and reflects the relative hospital wage 
levels in the geographic area of the hospital as compared to the 
national average hospital wage level. We note that these are the 
same CBSA-based designations implemented for acute care hospitals 
under the IPPS at Sec.  412.64(b), effective October 1, 2004 (69 FR 
49026 through 49034). (For further discussion of the CBSA-based 
labor market area (geographic classification) definitions currently 
used under the LTCH PPS, we refer readers to the RY 2006 LTCH PPS 
final rule (70 FR 24182 through 24191).) We have updated the LTCH 
PPS CBSA-based labor market area definitions annually since they 
were adopted for RY 2006 (73 FR 26812 through 26814, and 74 FR 44023 
through 44204).

b. Update to the CBSA-Based Labor Market Area Titles and Principal 
Cities

    On December 1, 2009, the Executive OMB announced changes to the 
principal cities and titles of a number of CBSAs and Metropolitan 
Divisions (OMB Bulletin No. 10-02). In the FY 2011 IPPS/LTCH PPS 
proposed rule (75 FR 24084), 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 presented the following update to our titles and definitions 
using the Executive OMB's bulletin, which is effective for 
discharges occurring on or after October 1, 2010. We did not receive 
any public comments on our update to the CBSA titles and definitions 
for FY 2011.
    For FY 2011, as presented in the FY 2011 IPPS/LTCH PPS proposed 
rule, the following CBSAs have new titles and new principal cities:
     San Marcos, TX qualifies as a new principal city of the 
Austin-Round Rock, TX CBSA. The new title is Austin-Round Rock-San 
Marcos, TX CBSA (CBSA Code 12420).
     Delano, CA qualifies as a new principal city of the 
Bakersfield, CA CBSA. The new title: Bakersfield-Delano, CA CBSA 
(CBSA Code 12540).
     Conroe, TX qualifies as a new principal city of the 
Houston-Sugar Land-Baytown, TX CBSA (CBSA Code 26420). The CBSA 
title is unchanged.
     North Port, FL qualifies as a new principal city of the 
Bradenton-Sarasota-Venice, FL CBSA (currently CBSA Code 14600). The 
new title is North Port-Bradenton-Sarasota, FL CBSA. The new code is 
CBSA 35840.
     Sanford, FL qualifies as a new principal city of the 
Orlando-Kissimmee, FL CBSA (CBSA Code 36740). The new title is 
Orlando-Kissimmee-Sanford, FL CBSA.
     Glendale, AZ qualifies as a new principal city of the 
Phoenix-Mesa-Scottsdale, AZ CBSA. The new title is Phoenix-Mesa-
Glendale, AZ CBSA (CBSA Code 38060).
     Palm Desert, CA qualifies as a new principal city of 
the Riverside-San Bernardino-Ontario, CA CBSA (CBSA Code 40140). The 
CBSA title is unchanged.
     New Braunfels, TX qualifies as a new principal city of 
the San Antonio, TX CBSA. The new title is San Antonio-New 
Braunfels, TX CBSA (CBSA Code 41700).

[[Page 50445]]

     Auburn, WA qualifies as a new principal city of the 
Seattle-Tacoma-Bellevue, WA CBSA (CBSA Code 42644). The CBSA title 
is unchanged.
    In addition, the following CBSAs have new titles as a result of 
changes to the order of principal cities based on population:
     Rockville, MD replaces Frederick, MD as the second most 
populous principal city in the Bethesda-Frederick-Rockville, MD 
Metropolitan Division. The new title is Bethesda-Rockville-
Frederick, MD Metropolitan Division (CBSA Code 13644).
     Rock Hill, SC replaces Concord, NC as the third most 
populous principal city in the Charlotte-Gastonia-Concord, NC-SC 
CBSA. The new title is Charlotte-Gastonia-Rock Hill, NC-SC CBSA 
(CBSA Code 16740).
     Joliet, IL replaces Naperville, IL as the second most 
populous principal city in the Chicago-Naperville-Joliet, IL 
Metropolitan Division. The new title is Chicago-Joliet-Naperville, 
IL Metropolitan Division (CBSA Code 16974).
     Crestview, FL replaces Fort Walton Beach, FL as the 
most populous principal city in the Fort Walton Beach-Crestview-
Destin, FL CBSA (currently CBSA Code 23020). The new title is 
Crestview-Fort Walton Beach-Destin, FL CBSA. The new code is 18880.
     Hillsboro, OR replaces Beaverton, OR as the third most 
populous principal city in the Portland-Vancouver-Beaverton, OR-WA 
CBSA. The new title is Portland-Vancouver-Hillsboro, OR-WA CBSA 
(CBSA Code 38900).
     Steubenville, OH replaces Weirton, WV as the most 
populous principal city in the Weirton-Steubenville, WV-OH CBSA 
(currently CBSA Code 48260). The new title is Steubenville-Weirton, 
OH-WV CBSA. The new CBSA code is 44600.
    OMB Bulletin No. 10-02 is available on the OMB Web site at 
http://www.whitehouse.gov/OMB_go to ``Bulletins'' or ``Statistical 
Programs and Standards.''
    The FY 2011 LTCH PPS wage index values presented in Tables 12A 
and 12B in the Addendum of this final rule reflect the updates to 
the CBSA-based labor market area titles and codes described above.

3. LTCH PPS Labor-Related Share

    As noted above in this section, under the adjustment for 
difference in area wage levels at Sec.  412.525(c), the labor-
related share of a LTCH's PPS Federal prospective payment is 
adjusted by the applicable wage index for the labor market area in 
which the LTCH is located. The LTCH PPS labor-related share 
represents the sum of the labor-related portion of operating costs 
(wages and salaries, employee benefits, professional fees, and all 
other labor-intensive services) and a labor-related portion of 
capital costs using the applicable LTCH PPS market basket. 
Currently, as established in the RY 2007 LTCH PPS final rule (71 FR 
27829 through 27830), the LTCH PPS labor-related share is based on 
the relative importance of the labor-related share of operating 
costs and capital costs of the rehabilitation psychiatric long-term 
care (hospital) (RPL) market basket based on FY 2002 data, as they 
are the best available data that reflect the cost structure of 
LTCHs. For the past 3 years (RYs 2008, 2009, and 2010), we updated 
the LTCH PPS labor-related share annually based on the latest 
available data for the RPL market basket. For RY 2010, the labor-
related share is 75.779 percent, as established in the RY 2010 LTCH 
PPS final rule (74 FR 43968 and 44024). (Additional background 
information on the historical development of the labor-related share 
under the LTCH PPS and the development of the RPL market basket can 
be found in the RY 2007 LTCH PPS final rule (71 FR 27810 through 
27817 and 27829 through 27830) and the RY 2010 LTCH PPS final rule 
(74 FR 43968).)
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24085), we 
proposed a labor-related share under the LTCH PPS for FY 2011 of 
75.407 percent based on IHS Global Insight, Inc.'s first quarter 
2010 forecast of the FY 2002-based RPL market basket for FY 2011, as 
these were the most recent available data at that time. Consistent 
with our historical practice of using the best data available, we 
also proposed that if more recent data were available to determine 
the labor-related share used under the LTCH PPS for FY 2011, we 
would use these data for determining the FY 2011 LTCH PPS labor-
related share in the final rule. We did not receive any public 
comments on our proposed update to the labor-related share for FY 
2011.
    As discussed in greater detail in section VII.C.2.d. of the 
preamble of this final rule, we are using IHS Global Insight, Inc.'s 
second quarter 2010 forecast of the FY 2002-based RPL market basket 
for FY 2011 to determine the labor-related share for the LTCH PPS 
for FY 2011 that will be effective for discharges occurring on or 
after October 1, 2010, and through September 30, 2011, as these are 
the most recent available data. As we proposed, the labor-related 
share for FY 2011 is the sum of the FY 2011 relative importance of 
each labor-related cost category, and reflects the different rates 
of price change for these cost categories between the base year (FY 
2002) and FY 2011. The sum of the relative importance for FY 2011 
for operating costs (wages and salaries, employee benefits, 
professional fees, and all-other labor-intensive services) is 71.384 
percent and the labor-related share of capital costs is 3.887 
percent. Thus, under the authority set forth in section 123 of the 
BBRA as amended by section 307(b) of the BIPA, we are establishing a 
labor-related share of 75.271 percent (71.384 percent + 3.887 
percent) under the LTCH PPS for the FY 2011, as shown in the chart 
in section VII.C.2.d. of the preamble of this final rule.

4. LTCH PPS Wage Index for FY 2011

    Historically, under the LTCH PPS, we have established LTCH PPS 
wage index values calculated from acute care IPPS hospital wage data 
without taking into account geographic reclassification under 
sections 1886(d)(8) and 1886(d)(10) of the Act (67 FR 56019). The 
wage adjustment established under the LTCH PPS is based on a LTCH's 
actual location without regard to the urban or rural designation of 
any related or affiliated provider.
    In the RY 2010 LTCH PPS final rule (74 FR 44024 through 44026), 
we calculated the LTCH PPS wage indices using the same data used for 
the FY 2010 acute care hospital IPPS (that is, data from cost 
reporting periods beginning during FY 2006), without taking into 
account geographic reclassification under sections 1886(d)(8) and 
1886(d)(10) of the Act.
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24085 through 
24086), to determine the applicable wage index values under the LTCH 
PPS for FY 2011, consistent with our historical methodology, we 
proposed to use wage data collected from cost reports submitted by 
IPPS hospitals for cost reporting periods beginning during FY 2007, 
without taking into account geographic reclassification under 
sections 1886(d)(8) and 1886(d)(10) of the Act, because these data 
(FY 2007) are the most recent complete data available. These are the 
same data used to compute the proposed FY 2011 acute care hospital 
inpatient wage index, as discussed in section III. of the preamble 
of that 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).) In that same 
proposed rule, we proposed to compute the FY 2011 LTCH PPS wage 
index values consistent with the urban and rural geographic 
classifications (labor market areas) and consistent with the pre-
reclassified IPPS wage index policy (that is, our historical policy 
of not taking into account IPPS geographic reclassifications in 
determining payments under the LTCH PPS). We also proposed to 
continue to use our existing policy for determining wage index 
values in areas where there are no IPPS wage data. We received no 
comments on our proposed wage index for FY 2011, and are adopting 
our proposed methodology as final in this final rule, which is 
described below.
    For this final rule, consistent with our historical methodology 
and as we proposed, to determine the applicable wage index values 
under the LTCH PPS for FY 2011, under the broad authority conferred 
upon the Secretary by section 123 of the BBRA, as amended by section 
307(b) of BIPA, to determine appropriate adjustments under the LTCH 
PPS, we are using wage data collected from cost reports submitted by 
IPPS hospitals for cost reporting periods beginning during FY 2007, 
without taking into account geographic reclassification under 
sections 1886(d)(8) and 1886(d)(10) of the Act. We are using FY 2007 
data because these data are the most recent complete data available. 
These are the same data used to compute the FY 2011 acute care 
hospital inpatient wage index, as discussed in section III. of the 
preamble of this final rule. (As noted above, 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).)
    As we proposed, the FY 2011 LTCH PPS wage index values we are 
establishing in this final rule are computed consistent with the 
urban and rural geographic classifications (labor market areas) 
discussed above in section V.B.2. of the Addendum to this final rule 
and consistent with the pre-reclassified

[[Page 50446]]

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 we noted in the proposed rule, as 
with the IPPS wage data, wage data for multicampus hospitals with 
campuses located in different labor market areas (CBSAs) are 
apportioned to each CBSA where the campus or campuses are located 
(discussed in section III.C. of the preamble of this final rule). 
Furthermore, as we proposed, in determining the FY 2011 LTCH PPS 
wage index values in this final rule, we continued to use our 
existing policy for determining wage index values in areas where 
there are no IPPS wage data.
    As discussed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 
2408), we established a methodology for determining a LTCH PPS wage 
index values for areas that have no IPPS wage data in the RY 2009 
LTCH PPS final rule, and as we proposed, we continued to use this 
methodology for FY 2011. (We refer readers to 73 FR 26817 through 
26818 for an explanation of and rationale for our policy.) Under 
this methodology, the LTCH PPS wage index value for urban CBSAs with 
no IPPS wage data is determined by using an average of all of the 
urban areas within the State. As was the case in RY 2010, there are 
currently no LTCHs located in labor areas without IPPS hospital wage 
data (or IPPS hospitals) for FY 2011. However, we calculate LTCH PPS 
wage index values for these areas using our established methodology 
in the event that, in the future, a LTCH should open in one of those 
areas.
    Based on the FY 2007 IPPS wage data that we are using to 
determine the FY 2011 LTCH PPS wage index values in this final rule, 
there are no IPPS wage data for the urban area Hinesville-Fort 
Stewart, GA (CBSA 25980). (We note, based on the data used for the 
proposed rule, there were no IPPS wage data for the urban area of 
Anderson, SC (CBSA 11340). However, based on the updated IPPS wage 
data used for this final rule, there is now data to compute a wage 
index value for CBSA 11340; therefore, it is no longer necessary to 
use our established methodology for determining a wage index value 
for areas that have no IPPS wage data for CBSA 11340 for FY 2011 in 
this final rule.) Consistent with the methodology discussed above, 
as proposed, we calculated the FY 2011 wage index value for CBSA 
25980 as the average of the wage index values for all of the other 
urban areas within the State of Georgia (that is, CBSAs 10500, 
12020, 12060, 12260, 15260, 16860, 17980, 19140, 23580, 31420, 
40660, 42340, 46660 and 47580) (reflected in Table 12A of the 
Addendum to this final rule). (As noted above, there are currently 
no LTCHs located in CBSA 25980.) As noted in the proposed rule, as 
IPPS wage data are dynamic, it is possible that urban areas without 
IPPS wage data will vary in the future.
    As we proposed, in this final rule for FY 2011, using our 
established methodology, we calculated a LTCH PPS wage index value 
for rural areas with no IPPS wage data using the unweighted average 
of the wage indices from all of the CBSAs that are contiguous to the 
rural counties of the State (for an explanation of this policy, we 
refer readers to 73 FR 26818). For this purpose, we define 
``contiguous'' as sharing a border. Based on the FY 2007 IPPS wage 
data that we are using to determine the FY 2011 LTCH PPS wage index 
values in this final rule, there are no IPPS wage data for the rural 
area of Massachusetts (CBSA code 22). Consistent with the 
methodology discussed above, as proposed, the FY 2011 wage index 
value for rural Massachusetts is computed using the unweighted 
average of the wage indices from all of the CBSAs contiguous to the 
rural counties in that State. Specifically, the entire Massachusetts 
rural area consists of Dukes and Nantucket counties. The borders of 
Dukes and Nantucket counties are ``contiguous'' with Barnstable 
County, MA, and Bristol County, MA. Therefore, the FY 2011 LTCH PPS 
wage index value for rural Massachusetts is computed as the 
unweighted average of the FY 2011 wage indexes for Barnstable County 
and Bristol County (reflected in Tables 12A and 12B in the Addendum 
to this final rule). (There are currently no LTCHs located in rural 
Massachusetts.) As noted above, as IPPS wage data are dynamic, it is 
possible that rural areas without IPPS wage data will vary in the 
future.
    The FY 2011 LTCH wage index values that will be applicable for 
LTCH discharges occurring on or after October 1, 2010, through 
September 30, 2011, are presented in Table 12A (for urban areas) and 
Table 12B (for rural areas) in the Addendum of this final rule.

5. LTCH PPS Cost-of-Living Adjustment for LTCHs Located in Alaska and 
Hawaii

    In the August 30, 2002 final rule (67 FR 56022), we established, 
under Sec.  412.525(b), a cost-of-living adjustment (COLA) for LTCHs 
located in Alaska and Hawaii to account for the higher costs 
incurred in those States. In the FY 2010 IPPS/RY 2010 LTCH PPS final 
rule (74 FR 44026) (under the broad authority conferred upon the 
Secretary by section 123 of the BBRA as amended by section 307(b) of 
BIPA to determine appropriate adjustments under the LTCH PPS), for 
RY 2010, we applied a COLA to payments to LTCHs located in Alaska 
and Hawaii by multiplying the standard Federal payment rate by the 
factors listed in Table III of that same rule.
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24086), for FY 
2011, consistent with our current policy, we proposed to apply a 
COLA to payments to LTCHs located in Alaska and Hawaii by 
multiplying the standard Federal payment rate by the factors listed 
in the chart in section V.B.5. of the Addendum to the proposed rule 
because those factors were the most recent available data at that 
time. The proposed factors were obtained from the U.S. Office of 
Personnel Management (OPM) and were also proposed to be used under 
the IPPS, effective October 1, 2010 (section II.B.2. of the Addendum 
to the proposed rule). We also noted that there had been no change 
in the COLA factors since the current factors were established in 
the FY 2010 IPPS/RY 2010 LTCH PPS final rule. Furthermore, we 
proposed that if OPM released revised COLA factors before 
publication of the final rule, we would use the revised factors for 
the development of LTCH PPS payments for FY 2011 and publish those 
revised COLA factors in the final rule. We did not receive any 
public comments on our proposed COLA to payments to LTCHs located in 
Alaska and Hawaii for FY 2011. We note OPM has not released revised 
COLA factors since the publication of the proposed rule.
    In this final rule, for FY 2011, under the broad authority 
conferred upon the Secretary by section 123 of the BBRA, as amended 
by section 307(b) of BIPA, to determine appropriate adjustments 
under the LTCH PPS, consistent with our current policy, we will 
apply a COLA to payments to LTCHs located in Alaska and Hawaii by 
multiplying the standard Federal payment rate by the factors listed 
in the chart below because they are the most recent available data 
at this time. These factors were obtained from the U.S. Office of 
Personnel Management (OPM) and will also be used under the IPPS, 
effective October 1, 2010 (section II.B.2. of the Addendum to this 
final rule). As noted above, there has been no change in the COLA 
factors since the current factors were established in the FY 2010 
IPPS/RY 2010 LTCH PPS final rule.

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

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

[[Page 50447]]

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

1. Background

    Under the broad authority conferred upon the Secretary by 
section 123 of the BBRA as amended by section 307(b) of BIPA, in the 
regulations at Sec.  412.525(a), we established an adjustment for 
additional payments for outlier cases that have extraordinarily high 
costs relative to the costs of most discharges. We refer to these 
cases as high cost outliers (HCOs). Providing additional payments 
for outliers strongly improves the accuracy of the LTCH PPS in 
determining resource costs at the patient and hospital level. These 
additional payments reduce the financial losses that would otherwise 
be incurred when treating patients who require more costly care and, 
therefore, reduce the incentives to underserve these patients. We 
set the outlier threshold before the beginning of the applicable 
rate year so that total estimated outlier payments are projected to 
equal 8 percent of total estimated payments under the LTCH PPS.
    Under Sec.  412.525(a) in the regulations (in conjunction with 
Sec.  412.503), we make outlier payments for any discharges if the 
estimated cost of a case exceeds the adjusted LTCH PPS payment for 
the MS-LTC-DRG plus a fixed-loss amount. Specifically, in accordance 
with Sec.  412.525(a)(3) (in conjunction with Sec.  412.503), we pay 
outlier cases 80 percent of the difference between the estimated 
cost of the patient case and the outlier threshold, which is the sum 
of the adjusted Federal prospective payment for the MS-LTC-DRG and 
the fixed-loss amount. The fixed-loss amount is the amount used to 
limit the loss that a hospital will incur under the outlier policy 
for a case with unusually high costs. This results in Medicare and 
the LTCH sharing financial risk in the treatment of extraordinarily 
costly cases. Under the LTCH PPS HCO policy, the LTCH's loss is 
limited to the fixed-loss amount and a fixed percentage of costs 
above the outlier threshold (MS-LTC-DRG payment plus the fixed-loss 
amount). The fixed percentage of costs is called the marginal cost 
factor. We calculate the estimated cost of a case by multiplying the 
Medicare allowable covered charge by the hospital's overall hospital 
CCR.
    Under the LTCH PPS, we determine a fixed-loss amount, that is, 
the maximum loss that a LTCH can incur under the LTCH PPS for a case 
with unusually high costs before the LTCH will receive any 
additional payments. We calculate the fixed-loss amount by 
estimating aggregate payments with and without an outlier policy. 
The fixed-loss amount results in estimated total outlier payments 
being projected to be equal to 8 percent of projected total LTCH PPS 
payments. Currently, MedPAR claims data and CCRs based on data from 
the most recent Provider-Specific File (PSF) (or from the applicable 
statewide average CCR if a LTCH's CCR data are faulty or 
unavailable) are used to establish a fixed-loss threshold amount 
under the LTCH PPS.

2. Determining LTCH CCRs Under the LTCH PPS

a. Background

    The following is a discussion of CCRs that are used in 
determining payments for HCO and SSO cases under the LTCH PPS, at 
Sec.  412.525(a) and Sec.  412.529, respectively. Although this 
section is specific to HCO cases, because CCRs and the policies and 
methodologies pertaining to them are used in determining payments 
for both HCO and SSO cases (to determine the estimated cost of the 
case at Sec.  412.529(d)(2)), we are discussing the determination of 
CCRs under the LTCH PPS for both of these types of cases 
simultaneously.
    In determining both HCO payments (at Sec.  412.525(a)) and SSO 
payments (at Sec.  412.529), we calculate the estimated cost of the 
case by multiplying the LTCH's overall CCR by the Medicare allowable 
charges for the case. In general, we use the LTCH's overall CCR, 
which is computed based on either the most recently settled cost 
report or the most recent tentatively settled cost report, whichever 
is from the latest cost reporting period, in accordance with Sec.  
412.525(a)(4)(iv)(B) and Sec.  412.529(f)(4)(ii) for HCOs and SSOs, 
respectively. (We note that, in some instances, we use an 
alternative CCR, such as the statewide average CCR in accordance 
with the regulations at Sec.  412.525(a)(4)(iv)(C) and Sec.  
412.529(f)(4)(iii), or a CCR that is specified by CMS or that is 
requested by the hospital under the provisions of the regulations at 
Sec.  412.525(a)(4)(iv)(A) and Sec.  412.529(f)(4)(i).) Under the 
LTCH PPS, a single prospective payment per discharge is made for 
both inpatient operating and capital-related costs. Therefore, we 
compute a single ``overall'' or ``total'' LTCH-specific CCR based on 
the sum of LTCH operating and capital costs (as described in Section 
150.24, Chapter 3, of the Medicare Claims Processing Manual (Pub. 
100-4)) as compared to total charges. Specifically, a LTCH's CCR is 
calculated by dividing a LTCH's total Medicare costs (that is, the 
sum of its operating and capital inpatient routine and ancillary 
costs) by its total Medicare charges (that is, the sum of its 
operating and capital inpatient routine and ancillary charges).

b. LTCH Total CCR Ceiling

    Generally, a LTCH is assigned the applicable statewide average 
CCR if, among other things, a LTCH's CCR is found to be in excess of 
the applicable maximum CCR threshold (that is, the LTCH CCR 
ceiling). This is because CCRs above this threshold are most likely 
due to faulty data reporting or entry, and, therefore, CCRs based on 
erroneous data should not be used to identify and make payments for 
outlier cases. Thus, under our established policy, generally, if a 
LTCH's calculated CCR is above the applicable ceiling, the 
applicable LTCH PPS statewide average CCR is assigned to the LTCH 
instead of the CCR computed from its most recent (settled or 
tentatively settled) cost report data.
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44027), 
in accordance with Sec.  412.525(a)(4)(iv)(C)(2) for HCOs and Sec.  
412.529(f)(4)(iii)(B) for SSOs, using our established methodology 
for determining the LTCH total CCR ceiling, based on IPPS total CCR 
data from the March 2009 update of the PSF, we established a total 
CCR ceiling of 1.232 under the LTCH PPS, effective October 1, 2009, 
through September 30, 2010. (For further detail on our current 
methodology for annually determining the LTCH total CCR ceiling, we 
refer readers to the FY 2007 IPPS final rule (71 FR 48119 through 
48121).)
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24087), in 
accordance with Sec.  412.525(a)(4)(iv)(C)(2) for HCOs and Sec.  
412.529(f)(4)(iii)(B) for SSOs, using our established methodology 
for determining the LTCH total CCR ceiling (described above), based 
on IPPS total CCR data from the December 2009 update of the PSF, we 
proposed to establish a total CCR ceiling of 1.230 under the LTCH 
PPS that would be effective for discharges occurring on or after 
October 1, 2010, through September 30, 2011.
    In this final rule, in accordance with Sec.  
412.525(a)(4)(iv)(C)(2) for HCOs and Sec.  412.529(f)(4)(iii)(B) for 
SSOs, consistent with our policy of using the best available data 
and using our established methodology for determining the LTCH total 
CCR ceiling (described above), based on IPPS total CCR data from the 
March 2010 update of the PSF, we are establishing a total CCR 
ceiling of 1.231 under the LTCH PPS that will be effective for 
discharges occurring on or after October 1, 2010, through September 
30, 2011.

c. LTCH Statewide Average CCRs

    Our general methodology established for determining the 
statewide average CCRs used under the LTCH PPS is similar to our 
established methodology for determining the LTCH total CCR ceiling 
(described above) because it is based on ``total'' IPPS CCR data. 
Under the LTCH PPS HCO policy at Sec.  412.525(a)(4)(iv)(C) and the 
SSO policy at Sec.  412.529(f)(4)(iii), the fiscal intermediary or 
MAC may use a statewide average CCR, which is established annually 
by CMS, if it is unable to determine an accurate CCR for a LTCH in 
one of the following circumstances: (1) new LTCHs that have not yet 
submitted their first Medicare cost report (for this purpose, 
consistent with current policy, a new LTCH is defined as an entity 
that has not accepted assignment of an existing hospital's provider 
agreement in accordance with Sec.  489.18); (2) LTCHs whose CCR is 
in excess of the LTCH CCR ceiling; and (3) other LTCHs for whom data 
with which to calculate a CCR are not available (for example, 
missing or faulty data). (Other sources of data that the fiscal 
intermediary or MAC may consider in determining a LTCH's CCR include 
data from a different cost reporting period for the LTCH, data from 
the cost reporting period preceding the period in which the hospital 
began to be paid as a LTCH (that is, the period of at least 6 months 
that it was paid as a short-term acute care hospital), or data from 
other comparable LTCHs, such as LTCHs in the same chain or in the 
same region.)
    In Table 8C of the Addendum to the FY 2010 IPPS/RY 2010 LTCH PPS 
final rule (74 FR 44160 through 44161), in accordance with the 
regulations at Sec.  412.525(a)(4)(iv)(C) for HCOs and Sec.  
412.529(f)(4)(iii) for SSOs, using our established methodology for 
determining

[[Page 50448]]

the LTCH statewide average CCRs, based on using the most recent 
complete IPPS total CCR data from the March 2009 update of the PSF, 
we established the LTCH PPS statewide average total CCRs for urban 
and rural hospitals effective for discharges occurring on or after 
October 1, 2009, through September 30, 2010. (For further detail on 
our current methodology for annually determining the LTCH statewide 
average CCRs, we refer readers to the FY 2007 IPPS final rule (71 FR 
48119 through 48121).)
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24087), using 
our established methodology for determining the LTCH statewide 
average CCRs, based on the most recent complete IPPS total CCR data 
from the December 2009 update of the PSF, we proposed to establish 
LTCH PPS statewide average total CCRs for urban and rural hospitals 
that would be effective for discharges occurring on or after October 
1, 2010, through September 30, 2011, in Table 8C of the Addendum to 
that proposed rule.
    In this final rule, consistent with our historical practice of 
using the best available data and using our established methodology 
for determining the LTCH statewide average CCRs, based on the most 
recent complete IPPS total CCR data from the March 2010 update of 
the PSF, we are establishing LTCH PPS statewide average total CCRs 
for urban and rural hospitals that will be effective for discharges 
occurring on or after October 1, 2010, through September 30, 2011, 
in Table 8C of the Addendum to this final rule.
    As we noted in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 
24088), all areas in the District of Columbia, New Jersey, Puerto 
Rico, and Rhode Island are classified as urban. Therefore, there are 
no rural statewide average total CCRs listed for those jurisdictions 
in Table 8C of the Addendum to this final rule. This policy is 
consistent with the policy that we established when we revised our 
methodology for determining the applicable LTCH statewide average 
CCRs in the FY 2007 IPPS final rule (71 FR 48119 through 48121) and 
is the same as the policy applied under the IPPS. In addition, 
although Massachusetts has areas that are designated as rural, there 
are no short-term acute care IPPS hospitals or LTCHs located in 
those areas as of March 2010. Therefore, there is no rural statewide 
average total CCR listed for rural Massachusetts in Table 8C of the 
Addendum to this final rule.
    In addition, as we discussed in the FY 2011 IPPS/LTCH PPS 
proposed rule (75 FR 24088), consistent with our existing 
methodology, in determining the urban and rural statewide average 
total CCRs for Maryland LTCHs paid under the LTCH PPS, in this final 
rule, we use, as a proxy, the national average total CCR for urban 
IPPS hospitals and the national average total CCR for rural IPPS 
hospitals, respectively. We use this proxy because we believe that 
the CCR data on the PSF for Maryland hospitals may not be entirely 
accurate (as discussed in greater detail in the FY 2007 IPPS final 
rule (71 FR 48120)).

d. Reconciliation of LTCH HCO and SSO Payments

    We note that under the LTCH PPS HCO policy at Sec.  
412.525(a)(4)(iv)(D) and the LTCH PPS SSO policy at Sec.  
412.529(f)(4)(iv), the payments for HCO and SSO cases, respectively, 
are subject to reconciliation. Specifically, any reconciliation of 
outlier payments is based on the CCR that is calculated based on a 
ratio of CCRs computed from the relevant cost report and charge data 
determined at the time the cost report coinciding with the discharge 
is settled. For additional information, we refer readers to the RY 
2009 LTCH PPS final rule (73 FR 26820 through 26821).

3. Establishment of the LTCH PPS Fixed-Loss Amount for FY 2011

    When we implemented the LTCH PPS, as discussed in the August 30, 
2002 LTCH PPS final rule (67 FR 56022 through 56026), under the 
broad authority of section 123 of the BBRA as amended by section 
307(b) of BIPA, we established a fixed-loss amount so that total 
estimated outlier payments are projected to equal 8 percent of total 
estimated payments under the LTCH PPS. To determine the fixed-loss 
amount, we estimate outlier payments and total LTCH PPS payments for 
each case using claims data from the MedPAR files. Specifically, to 
determine the outlier payment for each case, we estimate the cost of 
the case by multiplying the Medicare covered charges from the claim 
by the applicable CCR. Under Sec.  412.525(a)(3) (in conjunction 
with Sec.  412.503), if the estimated cost of the case exceeds the 
outlier threshold (the sum of the adjusted Federal prospective 
payment for the MS-LTC-DRG and the fixed-loss amount), we pay an 
outlier payment equal to 80 percent of the difference between the 
estimated cost of the case and the outlier threshold (the sum of the 
adjusted Federal prospective payment for the MS-LTC-DRG and the 
fixed-loss amount).
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44028), 
we used our existing methodology to calculate the fixed-loss amount 
for RY 2010 in order to maintain estimated HCO payments at the 
projected 8 percent of total estimated LTCH PPS payments. 
Specifically, we used LTCH claims data from the March 2009 update of 
the FY 2008 MedPAR files and CCRs from the March 2009 update of the 
PSF to determine a fixed-loss amount that would result in estimated 
outlier payments projected to be equal to 8 percent of total 
estimated payments in RY 2010 because those data were the most 
recent complete LTCH data available at that time. In that same final 
rule, we established a fixed-loss amount of $18,425 for RY 2010.
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24088), we 
proposed to continue to use our existing methodology to calculate 
the proposed fixed-loss amount for FY 2011 (based on updated data 
and the proposed rates and policies presented in that proposed rule) 
in order to maintain estimated HCO payments at the projected 8 
percent of total estimated LTCH PPS payments. (For an explanation of 
our rationale for establishing an HCO payment ``target'' of 8 
percent of total estimated LTCH payments, we refer readers to the 
August 30, 2002 LTCH PPS final rule (67 FR 56022 through 56024).) 
Consistent with our historical practice of using the best data 
available, in determining the proposed fixed-loss amount for FY 
2011, we used the most recent available LTCH claims data and CCR 
data at that time. Specifically, we used LTCH claims data from the 
December 2009 update of the FY 2009 MedPAR files and CCRs from the 
December 2009 update of the PSF to determine a fixed-loss amount 
that would result in estimated outlier payments projected to be 
equal to 8 percent of total estimated payments in FY 2011 because 
these data are the most recent complete LTCH data currently 
available. Consistent with the historical practice of using the best 
available data, we also proposed that if more recent LTCH claims 
data become available, we would use them for determining the fixed-
loss amount for FY 2011 in the final rule. Furthermore, we proposed 
to determine the FY 2011 fixed-loss amount based on the MS-LTC-DRG 
classifications and relative weights from the version of the GROUPER 
that will be in effect as of the beginning of FY 2011, that is, 
proposed Version 28.0 of the GROUPER.
    As noted above in section V.A. of this Addendum, although a 
number of the provisions of the Affordable Care Act affected the 
LTCH PPS, due to the timing of the passage of the legislation, we 
were unable to address those provisions in the May 4, 2010 FY 2011 
IPPS/LTCH PPS proposed rule, and therefore, the proposed policies 
and payment rates in that proposed rule did not reflect the new 
legislation. We addressed the provisions of the Affordable Care Act 
that affected our proposed policies and payment rates for FY 2011 
under the LTCH PPS in the June 2, 2010 FY 2010 IPPS/LTCH PPS 
supplemental proposed rule (75 FR 30918). In that supplemental 
proposed rule (75 FR 30980 through 30981), we proposed a revised 
standard Federal rate for FY 2011 that was developed consistent with 
the provisions of newly added sections 1886(m)(3)(A)(ii) and 
(m)(4)(B) of the Act. This revision to the proposed standard Federal 
rate for FY 2011 also required us to revise the proposed HCO fixed-
loss amount for FY 2011. This was necessary in order to maintain the 
requirement that the fixed-loss amount results in estimated total 
outlier payments being projected to be equal to 8 percent of 
projected total LTCH PPS payments.
    In the June 2, 2010 FY 2010 IPPS/LTCH PPS supplemental proposed 
rule (75 FR 30981), under the broad authority of section 123(a)(1) 
of the BBRA and section 307(b)(1) of BIPA, we proposed to establish 
a fixed-loss amount of $19,254 for FY 2011. Thus, we would pay an 
outlier case 80 percent of the difference between the estimated cost 
of the case and the outlier threshold (the sum of the adjusted 
Federal LTCH payment for the MS-LTC-DRG and the fixed-loss amount of 
$19,254). We also discussed that the proposed fixed-loss amount of 
$19,254 for FY 2011 is slightly higher than the revised RY 2010 
fixed-loss amount of $18,615 (established in the June 2, 2010 FY 
2010 IPPS/RY 2010 LTCH PPS notice (75 FR 31130)). Based on our 
payment simulations using the most recent available data at that 
time and the proposed 0.59 percent reduction to the standard Federal 
rate for FY 2011, the proposed increase in the fixed-loss amount for 
FY 2011 would be necessary to maintain the existing requirement that 
estimated

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outlier payments would equal 8 percent of estimated total LTCH PPS 
payments. (For further information on the existing 8 percent HCO 
``target'' requirement, as noted above, we refer readers to the 
August 30, 2002 LTCH PPS final rule (67 FR 56022 through 56024.) 
Maintaining the fixed-loss amount at the current level would result 
in HCO payments that are greater than the current regulatory 
requirement 8 percent requirement because a higher fixed-loss amount 
would result in fewer cases qualifying as outlier cases as well as 
decreases the amount of the additional payment for a HCO case 
because the maximum loss that a LTCH must incur before receiving an 
HCO payment (that is, the fixed-loss amount) would be larger. For 
these reasons, we believed that proposing to raise the fixed-loss 
amount was appropriate and necessary to maintain that estimated 
outlier payments would equal 8 percent of estimated total LTCH PPS 
payments as required under Sec.  412.525(a).
    Comment: One commenter expressed concern that CMS erred in its 
calculation or changed its methodology for determining the proposed 
fixed-loss amount of $19,254 for FY 2011, and requested that CMS 
review its calculation of the FY 2011 fixed-loss amount for the 
final rule. The commenter stated that its calculation of the fixed-
loss amount for FY 2011 was ``significantly lower'' than the 
proposed fixed-loss amount of $19,254. The commenter suggested that 
CMS may have failed to account for cost inflation when using the FY 
2009 LTCH claims data or that CMS may have incorrectly computed the 
``blend'' for SSO cases (that is, the SSO payment option at Sec.  
412.529(c)(2)(iv)) that are also eligible for HCO payments.
    Response: We reviewed our calculation of the proposed FY 2011 
fixed-loss amount of $19,254 from the FY 2011 IPPS/LTCH PPS proposed 
rule, and we have found no errors or misapplication of our stated 
methodology. Specifically, we have ensured that our calculation 
accounts for cost inflation when using the FY 2009 claims data to 
estimate HCO and SSO payments for FY 2011 as we noted in the FY 2011 
IPPS/LTCH PPS proposed rule. Consistent with our historical 
practice, we stated in the FY 2011 IPPS/LTCH PPS proposed rule that 
to model HCO and SSO payments for FY 2011 we applied an inflation 
factor of 1.049 (determined by our actuaries) to the estimated costs 
of each case determined from the charges reported on the claims in 
the FY 2009 MedPAR files and the best available CCRs from the 
December 2009 update of the PSF (75 FR 31113). We also reviewed our 
calculations to ensure that we were correctly determining SSO 
payments, especially for those SSO cases that are eligible for HCO 
payments, and found no miscalculations. As noted below, generally it 
is only in rare circumstances that a LTCH case qualifies as both a 
SSO case and a HCO case. In fact, SSO cases that are eligible for 
HCO payments typically represent less than 1 percent of all LTCH 
cases and, therefore, have little effect on the derivation of the 
fixed-loss amount. Therefore, we are adopting our proposed 
methodology as final and consistent with our proposal, we applied 
that methodology to the latest available data to determine the FY 
2011 fixed-loss amount in this final rule.
    For FY 2011, in this final rule, as proposed, we continue to use 
our existing methodology to calculate the fixed-loss amount (based 
on updated data and the rates and policies presented in this final 
rule) in order to maintain estimated HCO payments at the projected 8 
percent of total estimated LTCH PPS payments. (For an explanation of 
our rationale for establishing an HCO payment ``target'' of 8 
percent of total estimated LTCH PPS payments, we refer readers to 
the August 30, 2002 LTCH PPS final rule (67 FR 56022 through 
56024).) Consistent with our historical practice of using the best 
data available, as we proposed, in determining the fixed-loss amount 
for FY 2011, we use the most recent available LTCH claims data and 
CCR data. Specifically, for this final rule, we used LTCH claims 
data from the March 2010 update of the FY 2009 MedPAR files and CCRs 
from the March 2010 update of the PSF to determine a fixed-loss 
amount that would result in estimated outlier payments projected to 
be equal to 8 percent of total estimated payments in FY 2011 because 
these data are the most recent complete LTCH data currently 
available. Furthermore, as we proposed, we determined the FY 2011 
fixed-loss amount based on the MS-LTC-DRG classifications and 
relative weights from the version of the GROUPER that will be in 
effect as of the beginning of FY 2011, that is, Version 28.0 of the 
GROUPER (discussed in section VII.B. of the preamble of this final 
rule).
    In this final rule, under the broad authority of section 
123(a)(1) of the BBRA and section 307(b)(1) of BIPA, we are 
establishing a fixed-loss amount of $18,785 for FY 2011. Thus, we 
will pay an outlier case 80 percent of the difference between the 
estimated cost of the case and the outlier threshold (the sum of the 
adjusted Federal LTCH payment for the MS-LTC-DRG and the fixed-loss 
amount of $18,785).
    The fixed-loss amount for FY 2011 of $18,785 is slightly higher 
than the RY 2010 fixed-loss amount of $18,425. As discussed in the 
FY 2011 IPPS/LTCH PPS supplemental proposed rule (75 FR 30981) and 
as reiterated above, we believe that increasing the fixed-loss 
amount is appropriate and necessary to maintain that estimated 
outlier payments would equal 8 percent of estimated total LTCH PPS 
payments as required under Sec.  412.525(a). We also note that the 
FY 2011 fixed-loss amount of $18,785 is slightly less than the 
proposed FY 2011 fixed-loss amount of $19,254. We believe that the 
increase in the LTCH PPS FY 2011 market basket estimate from 1.9 
percent in the FY 2011 IPPS/LTCH PPS supplemental proposed rule 
(that is, the estimated full market basket percentage increase of 
2.4 percent minus 0.50 percentage point) to 2.0 percent for this 
final rule (that is, the estimated full market basket percentage 
increase of 2.5 percent minus 0.50 percentage point) contributed to 
a slightly lower final HCO fixed-loss amount for FY 2011. 
Specifically, the additional 0.1 percentage point increase to the 
standard federal rate increases payments to all cases, which reduces 
the amount of HCO payments for ``unusually costly'' cases, and 
therefore requires that we establish a lower fixed-loss amount for 
FY 2011 (as compared to the proposed FY 2011 fixed-loss amount) to 
increase HCO payments in order to maintain the established HCO 
payment ``target'' of 8 percent of total estimated LTCH PPS 
payments.

4. Application of Outlier Policy to SSO Cases

    As we discussed in the August 30, 2002 final rule (67 FR 56026), 
under some rare circumstances, a LTCH discharge could qualify as a 
SSO case (as defined in the regulations at Sec.  412.529 in 
conjunction with Sec.  412.503) and also as a HCO case. In this 
scenario, a patient could be hospitalized for less than five-sixths 
of the geometric average length of stay for the specific MS-LTC-DRG, 
and yet incur extraordinarily high treatment costs. If the costs 
exceeded the HCO threshold (that is, the SSO payment plus the fixed-
loss amount), the discharge is eligible for payment as a HCO. Thus, 
for a SSO case in FY 2011, the HCO payment would be 80 percent of 
the difference between the estimated cost of the case and the 
outlier threshold (the sum of the fixed-loss amount of $18,785 and 
the amount paid under the SSO policy as specified in Sec.  412.529).

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

    In accordance with Sec.  412.525, 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 appropriate 
LTCH PPS wage index (as shown in Tables 12A and 12B of the Addendum 
of this final rule). The standard Federal rate is also adjusted to 
account for the higher costs of hospitals in Alaska and Hawaii by 
multiplying the nonlabor-related share of the standard Federal rate 
by the appropriate cost-of-living factor (shown in the chart in 
section V.C.5. of the Addendum of this final rule). In this final 
rule, we are establishing a standard Federal rate for FY 2011 of 
$39,599.95, as discussed in section VII.C.2. of the Addendum of this 
final rule. We illustrate the methodology to adjust the LTCH PPS 
Federal rate for FY 2011 in the following example:
    Example:
    During FY 2011, a Medicare patient is in a LTCH located in 
Chicago, Illinois (CBSA 16974). The FY 2011 LTCH PPS wage index 
value for CBSA 16974 is 1.0593 (Table 12A of the Addendum of this 
final rule). The Medicare patient is classified into MS-LTC-DRG 28 
(Spinal Procedures with MCC), which has a relative weight for FY 
2011 of 1.0928 (Table 11 of the Addendum of this final rule).
    To calculate the LTCH's total adjusted Federal prospective 
payment for this Medicare patient, we compute the wage-adjusted 
Federal prospective payment amount by multiplying the unadjusted 
standard Federal rate ($39,599.05) by the labor-related share 
(75.271 percent) and the wage index value (1.0593). This wage-
adjusted amount is then added to the nonlabor-related portion of the 
unadjusted standard Federal rate (24.729 percent; adjusted for cost 
of living, if applicable) to determine the adjusted Federal rate, 
which is then multiplied by the MS-LTC-DRG relative weight (1.0928) 
to calculate the total

[[Page 50450]]

adjusted Federal LTCH PPS prospective payment for FY 2011 
($45,206.43). The table below illustrates the components of the 
calculations in this example.

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

----------------------------------------------------------------------------------------------------------------
Unadjusted Standard Federal Prospective Payment Rate..                                                $39,599.95
Labor-Related Share...................................                                                 x 0.75271
Labor-Related Portion of the Federal Rate.............                                              = $29,807.28
Wage Index (CBSA 16974)...............................                                                  x 1.0593
Wage-Adjusted Labor Share of Federal Rate.............                                              = $31,574.85
Nonlabor-Related Portion of the Federal Rate                                                         + $9,792.67
 ($39,599.95 x 0.24729)...............................
Adjusted Federal Rate Amount..........................                                              = $41,367.52
MS-LTC-DRG 28 Relative Weight.........................                                                  x 1.0928
                                                       ---------------------------------------------------------
    Total Adjusted Federal Prospective Payment........                                              = $45,206.43
----------------------------------------------------------------------------------------------------------------

VI. Tables

    This section contains the tables referred to throughout the 
preamble to this final rule and in this Addendum. Tables 1A, 1B, 1C, 
1D, 1E, 2, 3A, 3B, 4A, 4B, 4C, 4D-2, 4E, 4F, 4J, 5, 7A, 7B, 8A, 8B, 
8C, 9A, 9C, 10, 11, 12A, and 12B are presented below. The following 
tables are available only through the Internet on the CMS Web site 
at http://www.cms.hhs.gov/AcuteInpatientPPS/:

Table 6G.--Additions to the CC Exclusions List
Table 6H.--Deletions From the CC Exclusions List
Table 6I.--Complete MCC List
Table 6I.1.--Additions to the MCC List
Table 6I.2.--Deletions to the MCC List
Table 6J.--Complete CC List
Table 6J.1.--Additions to the CC List
Table 6J.2.--Deletions to the CC List
Table 6K.--Complete List of CC Exclusions

    The tables presented below are as follows:

Table 1A.--National Adjusted Operating Standardized Amounts, Labor/
Nonlabor (68.8 Percent Labor Share/31.2 Percent Nonlabor Share If 
Wage Index Is Greater Than 1)
Table 1B.--National Adjusted Operating Standardized Amounts, Labor/
Nonlabor (62 Percent Labor Share/38 Percent Nonlabor Share If Wage 
Index Is Less Than or Equal To 1)
Table 1C.--Adjusted Operating Standardized Amounts for Puerto Rico, 
Labor/Nonlabor
Table 1D.--Capital Standard Federal Payment Rate
Table 1E.--LTCH Standard Federal Prospective Payment Rate
Table 2.--Acute Care Hospitals Case-Mix Indexes for Discharges 
Occurring in Federal Fiscal Year 2009; Hospital Wage Indexes for 
Federal Fiscal Year 2011; Hospital Average Hourly Wages for Federal 
Fiscal Years 2009 (2005 Wage Data), 2010 (2006 Wage Data), and 2011 
(2007 Wage Data); and 3-Year Average of Hospital Average Hourly 
Wages
Table 3A.--FY 2011 and 3-Year Average Hourly Wage for Acute Care 
Hospitals in Urban Areas by CBSA
Table 3B.--FY 2011 and 3-Year Average Hourly Wage for Acute Care 
Hospitals in Rural Areas by CBSA
Table 4A.--Wage Index and Capital Geographic Adjustment Factor (GAF) 
for Acute Care Hospitals in Urban Areas by CBSA and by State--FY 
2011
Table 4B.--Wage Index and Capital Geographic Adjustment Factor (GAF) 
for Acute Care Hospitals in Rural Areas by CBSA and by State--FY 
2011
Table 4C.--Wage Index and Capital Geographic Adjustment Factor (GAF) 
for Acute Care Hospitals That Are Reclassified by CBSA and by 
State--FY 2011
Table 4D-2.--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 Statewide 
Rural Floor or Imputed Floor Wage Index--FY 2011
Table 4E.--Urban CBSAs and Constituent Counties for Acute Care 
Hospitals--FY 2011
Table 4F.--Puerto Rico Wage Index and Capital Geographic Adjustment 
Factor (GAF) for Acute Care Hospitals by CBSA--FY 2011
Table 4J.--Out-Migration Adjustment for Acute Care Hospitals--FY 
2011
Table 5.--List of Medicare Severity Diagnosis-Related Groups (MS-
DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean 
Length of Stay
Table 6A.--New Diagnosis Codes
Table 6B.--New Procedure Codes
Table 6C.--Invalid Diagnosis Codes
Table 6D.--Invalid Procedure Codes
Table 6E.--Revised Diagnosis Code Titles
Table 6F.--Revised Procedure Code Titles
Table 7A.--Medicare Prospective Payment System Selected Percentile 
Lengths of Stay: FY 2009 MedPAR Update--March 2010 GROUPER V27.0 MS-
DRGs
Table 7B.--Medicare Prospective Payment System Selected Percentile 
Lengths of Stay: FY 2009 MedPAR Update--March 2010 GROUPER V28.0 MS-
DRGs
Table 8A.--Statewide Average Operating Cost-to-Charge Ratios (CCRs) 
for Acute Care Hospitals--July 2010
Table 8B.--Statewide Average Capital Cost-to-Charge Ratios (CCRs) 
for Acute Care Hospitals-- July 2010
Table 8C.--Statewide Average Total Cost-to-Charge Ratios (CCRs) for 
LTCHs-- July 2010
Table 9A.--Hospital Reclassifications and Redesignations--FY 2011
Table 9C.--Hospitals Redesignated as Rural Under Section 
1886(d)(8)(E) of the Act--FY 2011
Table 10.--Geometric Mean Plus the Lesser of .75 of the National 
Adjusted Operating Standardized Payment Amount (Increased to Reflect 
the Difference Between Costs and Charges) or .75 of One Standard 
Deviation of Mean Charges by Medicare Severity Diagnosis-Related 
Group (MS-DRG)--July 2010
Table 11.--MS-LTC-DRGs, Relative Weights, Geometric Average Length 
of Stay, and Short-Stay Outlier (SSO) Threshold for Discharges 
Occurring From October 1, 2010 through September 30, 2011 Under the 
LTCH PPS
Table 12A.--LTCH PPS Wage Index for Urban Areas for Discharges 
Occurring from October 1, 2010 Through September 30, 2011
Table 12B.--LTCH PPS Wage Index for Rural Areas for Discharges 
Occurring From October 1, 2010 Through September 20, 2011
BILLING CODE 4120-01-P

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[[Page 50647]]

BILLING CODE 4120-01-C

    Note:  The following Appendices will not appear in the Code of 
Federal Regulations.

Appendix A: Regulatory Impact Analysis

I. Overall Impact

    We have examined the impacts of this final rule as required by 
Executive Order 12866 (September 1993, Regulatory Planning and 
Review), the Regulatory Flexibility Act (RFA) (September 19, 1980, 
Pub. L. 96-354), section 1102(b) of the Social Security Act, the 
Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), Executive 
Order 13132 on Federalism, and the Congressional Review Act (5 
U.S.C. 804(2)).
    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net 
benefits (including potential economic, environmental, public health 
and safety effects, distributive impacts, and equity). A regulatory 
impact analysis (RIA) must be prepared for major rules with 
economically significant effects ($100 million or more in any 1 
year).
    We have determined that this final rule is a major rule as 
defined in 5 U.S.C. 804(2). We estimate that the final changes for 
FY 2011 acute care hospital operating and capital payments will 
redistribute amounts in excess of $100 million among different types 
of inpatient cases. The final applicable percentage increase to the 
IPPS rates required by the statute, in conjunction with other final 
payment changes in this final rule, will result in an estimated $440 
million decrease in FY 2011 operating payments (or -0.4 percent 
decrease) and an estimated $21 million decrease in FY 2011 capital 
payments (or -0.5 percent change). The impact analysis of the 
capital payments can be found in section VIII. of this Appendix. In 
addition, as described in section IX. of this Appendix, LTCHs are 
expected to experience an increase in payments by $22.3 million (or 
0.5 percent).
    Our operating impact estimate includes the final -2.9 percent 
documentation and coding adjustment applied to the hospital-specific 
rates, the final -2.6 percent documentation and coding adjustment 
applied to the Puerto Rico-specific rates and the final -2.9 percent 
adjustment for documentation and coding changes to the IPPS 
standardized amounts. In addition, our operating impact estimate 
includes the final 2.35 percent market basket update to the 
standardized amount (which includes the final 2.6 percent update 
with the 0.25 percentage point reduction required under the 
Affordable Care Act). The estimates of IPPS operating payments to 
acute care hospitals do not reflect any changes in hospital 
admissions or real case-mix intensity, which would also affect 
overall payment changes.
    The RFA requires agencies to analyze options for regulatory 
relief of small businesses. For purposes of the RFA, small entities 
include small businesses, nonprofit organizations, and small 
government jurisdictions. Most hospitals and most other providers 
and suppliers are considered to be small entities, either by being 
nonprofit organizations or by meeting the Small Business 
Administration definition of a small business (having revenues of 
$34.5 million or less in any 1 year). (For details on the latest 
standards for health care providers, we refer readers to the Table 
of Small Business Size Standards for NAIC 622 found on the Small 
Business Administration Office of Size Standards Web site at: http://www.sba.gov/contractingopportunities/officials/table/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 final rule relating to acute 
care hospitals would have a significant impact on small entities as 
explained in this Appendix. Because we lack data on individual 
hospital receipts, we cannot determine the number of small 
proprietary LTCHs. Therefore, we are assuming that all LTCHs are 
considered small entities for the purpose of the analysis in section 
IX. of this Appendix. Medicare fiscal intermediaries and MACs are 
not considered to be small entities. Because we acknowledge that 
many of the affected entities are small entities, the analysis 
discussed throughout the preamble of this final rule constitutes our 
final regulatory flexibility analysis. Therefore, in the FY 2011 
IPPS/LTCH PPS proposed rule and the supplemental proposed rule (75 
FR 24287 and 31093, respectively), we solicited public comments on 
our estimates and analysis of the impact of our proposals on those 
small entities. We address any public comments that we received on 
the impact of the changes that we are finalizing in the applicable 
sections of this Appendix.
    The Small Business Regulatory Enforcement Fairness Act of 1996 
(SBREFA), Public Law 104-121, as amended by section 8302 of Public 
Law 110-28, requires an agency to provide compliance guides for each 
rule or group of related rules for which an agency is required to 
prepare a final regulatory flexibility analysis. The compliance 
guides associated with this final rule are available on the CMS IPPS 
Web page at http://www.cms.hhs.gov/AcuteInpatientPPS/01_overview.asp. We also note that the Hospital Center Web page at 
http://www.cms.hhs.gov/center/hospital.asp was developed to assist 
hospitals in understanding and adapting to changes in Medicare 
regulations and in billing and payment procedures. This Web page 
provides hospitals with substantial downloadable explanatory 
materials.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis for any proposed or final rule that may 
have a significant impact on the operations of a substantial number 
of small rural hospitals. This analysis must conform to the 
provisions of section 603 of the RFA. With the exception of 
hospitals located in certain New England counties, for purposes of 
section 1102(b) of the Act, we now define a small rural hospital as 
a hospital that is located outside of an urban area and has fewer 
than 100 beds. Section 601(g) of the Social Security Amendments of 
1983 (Pub. L. 98-21) designated hospitals in certain New England 
counties as belonging to the adjacent urban area. Thus, for purposes 
of the IPPS and the LTCH PPS, we continue to classify these 
hospitals as urban hospitals. (We refer readers to Table 1 and 
section VI. of this Appendix for the quantitative effects of the 
final policy changes under the IPPS for operating costs.)
    Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4) also requires that agencies assess anticipated costs and 
benefits before issuing any rule whose mandates require spending in 
any 1 year of $100 million in 1995 dollars, updated annually for 
inflation. That threshold level is currently approximately $133 
million. This final rule would not mandate any requirements for 
State, local, or tribal governments, nor would it affect private 
sector costs.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on 
State and local governments, preempts State law, or otherwise has 
Federalism implications. As stated above, this final rule would not 
have a substantial effect on State and local governments.
    The following analysis, in conjunction with the remainder of 
this document, demonstrates that this final rule is consistent with 
the regulatory philosophy and principles identified in Executive 
Order 12866, the RFA, and section 1102(b) of the Act. The final rule 
would affect payments to a substantial number of small rural 
hospitals, as well as other classes of hospitals, and the effects on 
some hospitals may be significant.

II. Objectives of the IPPS

    The primary objective of the IPPS is to create incentives for 
hospitals to operate efficiently and minimize unnecessary costs 
while at the same time ensuring that payments are sufficient to 
adequately compensate hospitals for their legitimate costs. In 
addition, we share national goals of preserving the Medicare 
Hospital Insurance Trust Fund.
    We believe the changes in this final 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 finalized changes 
would ensure that the outcomes of the prospective payment systems 
are reasonable and equitable while avoiding or minimizing unintended 
adverse consequences.

III. Limitations of Our Analysis

    The following quantitative analysis presents the projected 
effects of our finalized policy changes, as well as statutory 
changes effective for FY 2011, on various hospital groups. We 
estimate the effects of individual policy changes by estimating 
payments per case while holding all other payment policies constant. 
We use the best data available, but, generally, we do not attempt to 
make adjustments for future changes in such

[[Page 50648]]

variables as admissions, lengths of stay, or case-mix.

IV. Hospitals Included in and Excluded From the IPPS

    The prospective payment systems for hospital inpatient operating 
and capital-related costs of acute care hospitals encompass most 
general short-term, acute care hospitals that participate in the 
Medicare program. There were 33 Indian Health Service hospitals in 
our database, which we excluded from the analysis due to the special 
characteristics of the prospective payment methodology for these 
hospitals. Among other short-term, acute care hospitals, only the 46 
such hospitals in Maryland remain excluded from the IPPS pursuant to 
the waiver under section 1814(b)(3) of the Act.
    As of June 2010, there are 3,472 IPPS acute care hospitals to be 
included in our analysis. This represents about 64 percent of all 
Medicare-participating hospitals. The majority of this impact 
analysis focuses on this set of hospitals. There also are 
approximately 1,317 CAHs. These small, limited service hospitals are 
paid on the basis of reasonable costs rather than under the IPPS. 
(We refer readers to section VII. of this Appendix for a further 
description of the impact of CAH-related final policy changes.) 
There are also 1,260 IPPS-excluded hospitals and 2,150 IPPS-excluded 
hospital units. These IPPS-excluded hospitals and units include 
IPFs, IRFs, LTCHs, RNHCIs, children's hospitals, and cancer 
hospitals, which are paid under separate payment systems. Changes in 
the prospective payment systems for IPFs and IRFs are made through 
separate rulemaking. Payment impacts for these IPPS-excluded 
hospitals and units are not included in this final rule. The impact 
of the final update and policy changes to the LTCH PPS for FY 2011 
are discussed in section IX. of this Appendix.

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

    As of June 2010, there were 3,415 hospitals and hospital units 
excluded from the IPPS. Of these, 78 children's hospitals, 11 cancer 
hospitals, and 17 RNHCIs are being paid on a reasonable cost basis 
subject to the rate-of-increase ceiling under Sec.  413.40. The 
remaining providers, 230 rehabilitation hospitals and 953 
rehabilitation units, and 433 LTCHs, are paid the Federal 
prospective per discharge rate under the IRF PPS and the LTCH PPS, 
respectively, and 507 psychiatric hospitals and 1,197 psychiatric 
units are paid the Federal per diem amount under the IPF PPS. As 
stated above, IRFs and IPFs are not affected by rate updates 
discussed in this final rule. The impacts of the changes to LTCHs 
are discussed in section IX. of this Appendix.
    In the past, certain hospitals and units excluded from the IPPS 
have been paid based on their reasonable costs subject to limits as 
established by the Tax Equity and Fiscal Responsibility Act of 1982 
(TEFRA). Cancer and children's hospitals continue to be paid on a 
reasonable cost basis subject to TEFRA limits for FY 2011. For these 
hospitals (cancer and children's hospitals), consistent with the 
authority provided in section 1886(b)(3)(B)(ii) of the Act, the 
update is the percentage increase in the FY 2011 IPPS operating 
market basket. In compliance with section 404 of the MMA, in the FY 
2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43930), we replaced the 
FY 2002-based IPPS operating and capital market baskets with the 
revised and rebased FY 2006-based IPPS operating and capital market 
baskets. Therefore, consistent with current law, based on IHS Global 
Insight, Inc.'s 2010 second quarter forecast, with historical data 
through the 2010 first quarter, the final FY 2011 update to the IPPS 
operating market basket is 2.6 percent (that is, the current 
estimate of the market basket rate-of-increase). However, the 
Affordable Care Act requires a 0.25 percentage point reduction to 
the market basket update resulting in a final 2.35 percent 
applicable percentage increase for IPPS hospitals. RNCHIs, 
children's hospitals and cancer hospitals are not subject to the 
reduction in the applicable percentage increase required under the 
Affordable Care Act. In accordance with Sec.  403.752(a) of the 
regulations, RNHCIs are paid under Sec.  413.40. Therefore, for 
RNHCIs, the final update is the same as for children's and cancer 
hospitals, which is the percentage increase in the FY 2011 IPPS 
operating market basket, estimated to be 2.6 percent, without the 
reductions required under the Affordable Care Act.
    The impact of the final update in the rate-of-increase limit on 
those excluded hospitals depends on the cumulative cost increases 
experienced by each excluded hospital since its applicable base 
period. For excluded hospitals that have maintained their cost 
increases at a level below the rate-of-increase limits since their 
base period, the major effect is on the level of incentive payments 
these excluded hospitals receive. Conversely, for excluded hospitals 
with per-case cost increases above the cumulative update in their 
rate-of-increase limits, the major effect is the amount of excess 
costs that will not be reimbursed.
    We note that, under Sec.  413.40(d)(3), an excluded hospital 
that continues to be paid under the TEFRA system and whose costs 
exceed 110 percent of its rate-of-increase limit receives its rate-
of-increase limit plus 50 percent of the difference between its 
reasonable costs and 110 percent of the limit, not to exceed 110 
percent of its limit. In addition, under the various provisions set 
forth in Sec.  413.40, cancer and children's hospitals can obtain 
payment adjustments for justifiable increases in operating costs 
that exceed the limit.

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

A. Basis and Methodology of Estimates

    In this final rule, we are announcing final policy changes and 
payment rate updates for the IPPS for operating costs of acute care 
hospitals. Updates to the capital payments to acute care hospitals 
are discussed in section VIII. of this Appendix. Based on the 
overall percentage change in payments per case estimated using our 
payment simulation model, we estimate that total FY 2011 operating 
payments would decrease by 0.4 percent compared to FY 2010, largely 
due to the documentation and coding adjustments and the applicable 
percentage increase applied to the IPPS rates. This amount reflects 
the FY 2011 documentation and coding adjustments described in 
Section X of this final rule: -2.9 percent for the IPPS national 
standardized amounts, -2.9 percent for the IPPS hospital-specific 
rates, and -2.6 percent for the IPPS Puerto Rico-specific 
standardized amount. The impacts do not illustrate changes in 
hospital admissions or real case-mix intensity, which will also 
affect overall payment changes.
    We have prepared separate impact analyses of the finalized 
changes to each system. This section deals with 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 final rule. However, there are other 
finalized changes for which we do not have data available that would 
allow us to estimate the payment impacts using this model. For those 
finalized changes, we have attempted to predict the payment impacts 
based upon our experience and other more limited data.
    The data used in developing the quantitative analyses of changes 
in payments per case presented below are taken from the FY 2009 
MedPAR file and the most current Provider-Specific File that is used 
for payment purposes. Although the analyses of the final 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 2009 MedPAR file, we simulated payments 
under the operating IPPS given various combinations of payment 
parameters. Any short-term, acute care hospitals not paid under the 
IPPS (Indian Health Service hospitals and hospitals in Maryland) 
were excluded from the simulations. The impact of payments under the 
capital IPPS, or the impact of payments for costs other than 
inpatient operating costs, are not analyzed in this section. 
Estimated payment impacts of the capital IPPS for FY 2011 are 
discussed in section VIII. of this Appendix.
    We discuss the following changes below:
     The effects of the annual reclassification of diagnoses 
and procedures, full implementation of the MS-DRG system and 100 
percent cost-based MS-DRG relative weights.
     The effects of the changes in hospitals' wage index 
values reflecting updated wage

[[Page 50649]]

data from hospitals' cost reporting periods beginning during FY 
2007, compared to the FY 2006 wage data.
     The effects of the recalibration of the MS-DRG relative 
weights as required by section 1886(d)(4)(C) of the Act, including 
the wage and recalibration budget neutrality factors.
     The effects of geographic reclassifications by the 
MGCRB that will be effective in FY 2011.
     The effects of the frontier wage index provision that 
requires that hospitals located in States that qualify as frontier 
states cannot have a wage index less than 1.0. This provision is not 
budget neutral.
     The effects of the rural floor and imputed floor with a 
national budget neutrality applied to the wage index, as required by 
the Affordable Care Act.
     The effects of section 505 of Public Law 108-173, which 
provides for an increase in a hospital's wage index if the hospital 
qualifies by meeting a threshold percentage of residents of the 
county where the hospital is located who commute to work at 
hospitals in counties with higher wage indexes.
     The total estimated change in payments based on the FY 
2011 policies relative to payments based on FY 2010 policies that 
include the applicable percentage increase of 2.35 percent (or 2.6 
percent market basket with a 0.25 percentage point reduction, as 
required under the Affordable Care Act). The FY 2010 operating 
payments also account for provisions under the Affordable Care Act 
that were effective for FY 2010.
    To illustrate the impact of the FY 2011 changes, our analysis 
begins with a FY 2010 baseline simulation model using: The FY 2011 
applicable percentage increase of 2.35 percent; the FY 2010 MS-DRG 
GROUPER (Version 27.0); the most current CBSA designations for 
hospitals based on OMB's MSA definitions; the FY 2010 wage index; 
and no MGCRB reclassifications. Outlier payments are set at 5.1 
percent of total operating MS-DRG and outlier payments.
    Section 1886(b)(3)(B)(viii) of the Act, as added by section 
5001(a) of Public Law 109-171, as amended by section 4102(b)(1)(A) 
of the ARRA (Pub. L. 111-5) and by section 3401(a)(2) of the 
Affordable Care Act (Pub. L. 111-148), provides that, for FY 2007 
through FY 2014, the update factor will be reduced by 2.0 percentage 
points for any hospital that does not submit quality data in a form 
and manner and at a time specified by the Secretary. (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, 104 hospitals did not receive the full market basket rate-
of-increase for FY 2010 because they failed the quality data 
submission process or did not choose to participate. For purposes of 
the simulations shown below, we modeled the payment changes for FY 
2011 using a reduced update for these 104 hospitals. However, we do 
not have enough information at this time to determine which 
hospitals will not receive the full market basket rate-of-increase 
for FY 2011.
    Each policy change, statutory or otherwise, is then added 
incrementally to this baseline, finally arriving at an FY 2011 model 
incorporating all of the changes. This simulation allows us to 
isolate the effects of each change.
    Our final comparison illustrates the percent change in payments 
per case from FY 2010 to FY 2011. Three factors not discussed 
separately have significant impacts here. The first factor is the 
update to the standardized amount. In accordance with section 
1886(b)(3)(B)(i) of the Act, we are updating the standardized 
amounts for FY 2011 using an applicable percentage increase of 2.35 
percent. This includes our forecasted hospital market basket 
increase of 2.6 percent with a 0.25 percentage point reduction as 
required under the Affordable Care Act. (Hospitals that fail to 
comply with the quality data submission requirements to receive the 
full update will receive an update reduced by 2.0 percentage points 
from 2.35 percent to 0.35 percent.) Under section 1886(b)(3)(B)(iv) 
of the Act, the updates to the hospital-specific amounts for SCHs 
and for MDHs are also equal to the market basket percentage 
increase, or 2.35 percent. In addition, we are updating the Puerto 
Rico specific amount by an applicable percentage increase of 2.35 
percent.
    A second significant factor that affects the changes in 
hospitals' payments per case from FY 2010 to FY 2011 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 2010 that are no longer reclassified in FY 2011. 
Conversely, payments may increase for hospitals not reclassified in 
FY 2010 that are reclassified in FY 2011.
    A third significant factor is that we currently estimate that 
actual outlier payments during FY 2010 will be 4.7 percent of total 
MS-DRG payments. Our updated FY 2010 outlier estimate accounts for 
changes to the FY 2010 IPPS payments required under the Affordable 
Care Act. When the FY 2010 final rule was published, we projected FY 
2010 outlier payments would be 5.1 percent of total MS-DRG plus 
outlier payments; the average standardized amounts were offset 
correspondingly. The effects of the lower than expected outlier 
payments during FY 2010 (as discussed in the Addendum to this 
proposed rule) are reflected in the analyses below comparing our 
current estimates of FY 2010 payments per case to estimated FY 2011 
payments per case (with outlier payments projected to equal 5.1 
percent of total MS-DRG payments).

B. Analysis of Table I

    Table I displays the results of our analysis of the final 
changes for FY 2011. The table categorizes hospitals by various 
geographic and special payment consideration groups to illustrate 
the varying impacts on different types of hospitals. The top row of 
the table shows the overall impact on the 3,472 acute care hospitals 
included in the analysis.
    The next four rows of Table I contain hospitals categorized 
according to their geographic location: All urban, which is further 
divided into large urban and other urban; and rural. There are 2,494 
hospitals located in urban areas included in our analysis. Among 
these, there are 1,362 hospitals located in large urban areas 
(populations over 1 million), and 1,132 hospitals in other urban 
areas (populations of 1 million or fewer). In addition, there are 
978 hospitals in rural areas. The next two groupings are by bed-size 
categories, shown separately for urban and rural hospitals. The 
final groupings by geographic location are by census divisions, also 
shown separately for urban and rural hospitals.
    The second part of Table I shows hospital groups based on 
hospitals' FY 2011 payment classifications, including any 
reclassifications under section 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 2,551; 
1,404; 1,147; and 921, respectively.
    The next three groupings examine the impacts of the changes on 
hospitals grouped by whether or not they have GME residency programs 
(teaching hospitals that receive an IME adjustment) or receive DSH 
payments, or some combination of these two adjustments. There are 
2,429 nonteaching hospitals in our analysis, 805 teaching hospitals 
with fewer than 100 residents, and 238 teaching hospitals with 100 
or more residents.
    In the DSH categories, hospitals are grouped according to their 
DSH payment status, and whether they are considered urban or rural 
for DSH purposes. The next category groups together hospitals 
considered urban or rural, in terms of whether they receive the IME 
adjustment, the DSH adjustment, both, or neither.
    The next five rows examine the impacts of the changes on rural 
hospitals by special payment groups (SCHs, RRCs, and MDHs). There 
were 180 RRCs, 332 SCHs, 194 MDHs, and 117 hospitals that are both 
SCHs and RRCs, and 13 hospitals that are both an MDH and an RRC.
    The next series of groupings are based on the type of ownership 
and the hospital's Medicare utilization expressed as a percent of 
total patient days. These data were taken from the FY 2008 or FY 
2007 Medicare cost reports.
    The next two groupings concern the geographic reclassification 
status of hospitals. The first grouping displays all urban hospitals 
that were reclassified by the MGCRB for FY 2011. The second grouping 
shows the MGCRB rural reclassifications. These groupings account for 
the change in the MGCRB reclassification policy as required under 
the Affordable Care Act.
    The final category shows the impact of the policy changes on the 
19 cardiac hospitals in our analysis.
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C. Effects of the Changes to the MS-DRG Reclassifications and 
Relative Cost-Based Weights (Column 1)

    In Column 1 of Table I, we present the effects of the final MS-
DRG reclassifications, as discussed in section II. of the preamble 
to this final rule. Section 1886(d)(4)(C)(i) of the Act requires us 
annually to make appropriate classification changes in order to 
reflect changes in treatment patterns, technology, and any other 
factors that may change the relative use of hospital resources.
    As discussed in section II.E. of the preamble of this final 
rule, the FY 2011 MS-DRG relative weights will be 100 percent cost-
based and 100 percent MS-DRGs. For FY 2011, the MS-DRGs are 
calculated using the FY 2009 MedPAR data grouped to the Version 28.0 
(FY 2011) MS-DRGs. The methods of calculating the relative weights 
and the reclassification changes to the GROUPER are described in 
more detail in section II.H. of this final rule. The changes to the 
relative weights and MS-DRGs shown in Column 2 are prior to any 
offset for budget neutrality. Overall, hospitals will experience a 
0.3 percent increase and a 0.4 percent increase, respectively, in 
payments due to the changes in the MS-DRGs and relative weights 
prior to budget neutrality. Urban hospitals and rural hospitals will 
experience a 0.3 percent increase in payments under the updates to 
the relative weights and MS-DRGs.

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

    Column 2 shows the effects of the changes to the MS-DRGs and 
relative weights with the application of the recalibration budget 
neutrality factor to the standardized amounts. Consistent with 
section 1886(d)(4)(C)(iii) of the Act, we are calculating a 
recalibration budget neutrality factor to account for the changes in 
MS-DRGs and relative weights to ensure that the overall payment 
impact is budget neutral.
    The ``All Hospitals'' line in Column 1 indicates that changes 
due to MS-DRGs and relative weights will increase payments by 0.3 
percent before application of the budget neutrality factor. The 
recalibration budget neutrality factor is 0.996731, which is applied 
to the standardized amount. Thus, the impact after accounting only 
for budget neutrality for changes to the MS-DRG relative weights and 
classification is somewhat lower than the figures shown in Column 1 
(approximately 0.3 percent). Consequentially, urban hospitals will 
not experience a change in payments, while rural hospitals will 
experience a 0.1 percent increase in payments when recalibration 
budget neutrality is applied.

E. Effects of Wage Index Changes (Column 3)

    Section 1886(d)(3)(E) of the Act requires that, beginning 
October 1, 1993, we annually update the wage data used to calculate 
the wage index. In accordance with this requirement, the wage index 
for acute care hospitals for FY 2011 is based on data submitted for 
hospital cost reporting periods beginning on or after October 1, 
2006 and before October 1, 2007. The estimated impact of the updated 
wage data and labor share on hospital payments is isolated in Column 
3 by holding the other payment parameters constant in this 
simulation. That is, Column 3 shows the percentage change in 
payments when going from a model using the FY 2010 wage index, based 
on FY 2006 wage data, the current labor-related share and having a 
100-percent occupational mix adjustment applied, to a model using 
the FY 2011 pre-reclassification wage index with the labor-related 
share, also having a 100-percent occupational mix adjustment 
applied, based on FY 2007 wage data (while holding other payment 
parameters such as use of the Version 28.0 MS-DRG GROUPER constant). 
The occupational mix adjustment is based on the FY 2008/2009 
occupational mix survey.
    Column 3 shows the impacts of updating the wage data using FY 
2007 cost reports. Overall, the new wage data will lead to a 0.0 
percent change for all hospitals before being combined with the wage 
budget neutrality adjustment shown in Column 5. Among the regions, 
the largest increase is in the rural New England region, which 
experiences a 0.5 percent increase before applying an adjustment for 
budget neutrality. The largest decline from updating the wage data 
is seen in the urban New England region (0.5 percent decrease).
    In looking at the wage data itself, the national average hourly 
wage increased 4.3 percent compared to FY 2010. Therefore, the only 
manner in which to maintain or exceed the previous year's wage index 
was to match or exceed the national 4.3 percent increase in average 
hourly wage. Of the 3,441 hospitals with wage data for both FYs 2010 
and 2011, 1,621, or 47.1 percent, experienced an average hourly wage 
increase of 4.3 percent or more.
    The following chart compares the shifts in proposed wage index 
values for hospitals for FY 2011 relative to FY 2010. Among urban 
hospitals, 38 will experience an increase of more than 5 percent and 
less than 10 percent and 8 will experience an increase of more than 
10 percent. Among rural hospitals, 2 will experience an increase of 
more than 5 percent and less than 10 percent, and none will 
experience an increase of more than 10 percent. However, 939 rural 
hospitals will experience increases or decreases of less than 5 
percent, while 2,424 urban hospitals will experience increases or 
decreases of less than 5 percent. Thirteen urban hospitals will 
experience decreases in their wage index values of more than 5 
percent and less than 10 percent. Sixteen urban hospitals will 
experience decreases in their wage index values of greater than 10 
percent. One rural hospital will experience a decrease of more than 
10 percent. These figures reflect changes in the wage index which is 
an adjustment to either 68.8 percent or 62 percent of a hospital's 
standardized amount, depending upon whether its wage index is 
greater than 1.0 or less than or equal to 1.0. Therefore, these 
figures illustrate a somewhat larger change in the wage index than 
will occur to the hospital's total payment.
    The following chart shows the projected impact for urban and 
rural hospitals.

------------------------------------------------------------------------
                                                   Number of hospitals
  Percentage change in area wage index values  -------------------------
                                                   Urban        Rural
------------------------------------------------------------------------
Increase more than 10 percent.................            8            0
Increase more than 5 percent and less than 10            38            2
 percent......................................
Increase or decrease less than 5 percent......        2,424          939
Decrease more than 5 percent and less than 10            13            0
 percent......................................
Decrease more than 10 percent.................           16            1
------------------------------------------------------------------------

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

    Column 4 shows the impact of the new wage data with the 
application of the wage budget neutrality factor. In FY 2010, we 
began calculating separate wage budget neutrality and recalibration 
budget neutrality factors, in accordance with section 1886(d)(3)(E) 
of the Act, which specifies that budget neutrality to account for 
wage changes or updates made under that subparagraph must be made 
without regard to the 62 percent labor-related share guaranteed 
under section 1886(d)(3)(E)(ii) of the Act. Therefore, for FY 2011, 
we are calculating the wage budget neutrality factor to ensure that 
payments under updated wage data and the labor-related share are 
budget neutral without regard to the lower labor-related share of 62 
percent applied to hospitals with a wage index less than or equal to 
1. In other words, the wage budget neutrality is calculated under 
the assumption that all hospitals receive the higher labor-related 
share of the standardized amount. Because the wage data changes did 
not change overall payments (displayed in Column 3), the revised 
wage budget neutrality factor is 1.000013, and the overall payment 
change is 0.0 percent.

G. Combined Effects of the 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

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adjustments to the wage index are to be budget neutral. We computed 
a wage budget neutrality factor of 1.000013, and a recalibration 
budget neutrality factor of 0.996731 (which is applied to the Puerto 
Rico-specific standardized amount and the hospital-specific rates). 
The product of the two budget neutrality factors is the cumulative 
wage and recalibration budget neutrality factor. The cumulative wage 
and recalibration budget neutrality adjustment is 0.996744, or 
approximately -0.3 percent, which is applied to the national 
standardized amounts. Because the wage budget neutrality and the 
recalibration budget neutrality are calculated under different 
methodologies according to the statute, when the two budget 
neutralities are combined and applied to the standardized amount, 
the overall payment impact is not necessarily budget neutral. 
However, in this rule, we are estimating that the changes in the MS-
DRG relative weights and updated wage data with wage and budget 
neutrality applied will result in a 0.0 change in payments.
    We estimate that the combined impact of the changes to the 
relative weights and MS-DRGs and the updated wage data with budget 
neutrality applied will result in no change in payments for urban or 
rural hospitals. Urban New England would experience a 0.7 decrease 
in payments due to reductions in their case-mix and wages compared 
to the national average, while the urban Pacific area would 
experience a 0.6 percent increase in payments because of above 
average increases in wages and case-mix. Among the rural hospital 
categories, rural South Atlantic hospitals would experience the 
greatest decline in payment (-0.9 percent) primarily due to the 
changes to MS-DRGs and the relative cost weights, while the rural 
West South Central area would experience a 0.8 percent increase in 
payments.

H. Effects of MGCRB Reclassifications (Column 6)

    Our impact analysis to this point has assumed acute care 
hospitals are paid on the basis of their actual geographic location 
(with the exception of ongoing policies that provide that certain 
hospitals receive payments on other bases than where they are 
geographically located). The changes in Column 6 reflect the per 
case payment impact of moving from this baseline to a simulation 
incorporating the MGCRB decisions for FY 2011 which affect 
hospitals' wage index area assignments.
    By spring of each year, the MGCRB makes reclassification 
determinations that will be effective for the next fiscal year, 
which begins on October 1. The MGCRB may approve a hospital's 
reclassification request for the purpose of using another area's 
wage index value. Hospitals may appeal denials of MGCRB decisions to 
the CMS Administrator. Further, hospitals have 45 days from 
publication of the IPPS rule in the Federal Register to decide 
whether to withdraw or terminate an approved geographic 
reclassification for the following year. Provisions in the 
Affordable Care Act required us to revert to FY 2008 average hourly 
wage reclassification criteria for reclassifications effective in FY 
2011. Therefore, additional hospitals qualify for MGCRB 
reclassification.
    The overall effect of geographic reclassification is required by 
section 1886(d)(8)(D) of the Act to be budget neutral. Therefore, 
for the purposes of this impact analysis, we are applying an 
adjustment of 0.991264 to ensure that the effects of the section 
1886(d)(10) reclassifications are budget neutral (section II.A. of 
the Addendum to this final rule). Geographic reclassification 
generally benefits hospitals in rural areas. We estimate that 
geographic reclassification will increase payments to rural 
hospitals by an average of 1.7 percent. By region, all the rural 
hospital categories will experience increases in payments due to 
MGCRB reclassification where rural hospitals in the Mountain region 
will experience a 0.4 percent increase in payments and rural 
hospitals in the New England region will experience a 2.5 percent 
increase in payments.
    Table 9A of the Addendum to this final rule reflects the 
approved reclassifications for FY 2011.

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

    As discussed in section III.B. of the preamble of the FY 2009 
IPPS final rule, the FY 2010 IPPS/RY 2010 LTCH final rule and this 
final rule, section 4410 of Public Law 105-33 established the rural 
floor by requiring that the wage index for a hospital in any urban 
area cannot be less than the wage index received by rural hospitals 
in the same State. In FY 2008, we changed how we applied budget 
neutrality to the rural floor. Rather than applying a budget 
neutrality adjustment to the standardized amount, a uniform budget 
neutrality adjustment is applied to the wage index. In the FY 2009 
final rule, we finalized the policy to apply the rural floor budget 
neutrality at the State level with a 3-year transition. In FY 2009, 
hospitals received a blended wage index that is 20 percent of a wage 
index with the State level rural and imputed floor budget neutrality 
adjustment and 80 percent of a wage index with the national budget 
neutrality adjustment. In FY 2010, hospitals received a blended wage 
index that is 50 percent of a wage index with the State level rural 
and imputed floor budget neutrality and 50 percent of a wage index 
with the national budget neutrality adjustment. For FY 2011, the 
Affordable Care Act requires that we apply one rural floor budget 
neutrality factor to the wage index, nationally. The FY 2011 rural 
floor budget neutrality factor applied to the wage index is 
0.996641.
    Furthermore, the FY 2005 IPPS final rule (69 FR 49109) 
established a temporary imputed floor for all urban States from FY 
2005 to FY 2007. The rural floor requires that an urban wage index 
cannot be lower than the wage index for any rural hospital in that 
State. Therefore, an imputed floor was established for States that 
do not have rural areas or rural IPPS hospitals. In the FY 2008 IPPS 
final rule with comment period (72 FR 47321), we finalized our 
proposal to extend the imputed floor for 1 additional year. In the 
FY 2009 IPPS final rule (73 FR 48573), we extended the imputed floor 
for an additional 3 years through FY 2011. The Affordable Care Act 
requires that, effective for FY 2011, we apply rural floor and 
imputed floor budget neutrality at the national level, as we did in 
FY 2008.
    Column 7 shows the projected impact of the rural floor and the 
imputed floor with the national rural and imputed floor budget 
neutrality factor applied to the wage index. The column compares the 
post-reclassification FY 2011 wage index of providers before the 
rural floor adjustment and the post-reclassification FY 2011 wage 
index of providers with the rural floor and imputed floor 
adjustment. Only urban hospitals can benefit from the rural floor 
provision. Because the provision is budget neutral, all other 
hospitals (that is, all rural hospitals and those urban hospitals to 
which the adjustment is not made) experience a decrease in payments 
due to the budget neutrality adjustment applied nationally to their 
wage index.
    We project that, in aggregate, rural hospitals will experience a 
0.1 percent decrease in payments as a result of the application of 
rural floor budget neutrality because the rural hospitals do not 
benefit from the rural floor, but have their wage indexes downwardly 
adjusted to ensure that the application of the rural floor is budget 
neutral overall. We project hospitals located in other urban areas 
(populations of 1 million or fewer) will experience a 0.1 percent 
increase in payments because those providers benefit from the rural 
floor. Urban hospitals in the New England region can expect 0.8 
percent increase in payments because a large percentage of hospitals 
in this region receive the rural floor. Urban hospitals in the 
Middle Atlantic can expect a 0.2 percent increase in payments 
because New Jersey hospitals benefit from the imputed floor. Rural 
hospitals in most regions can expect a 0.1 to 0.2 percent decrease 
in payments because the rural and imputed floors only benefit urban 
hospitals.

J. Effects of the Application of the Frontier Wage Index (Column 8)

    Section 10324(a) of Affordable Care Act requires that we 
establish a minimum post-reclassified wage-index of 1.00 for all 
hospitals located in ``frontier States.'' ``Frontier States'' is 
defined in the statute as a State in which at least 50 percent of 
its counties have a population density lesser than 6 persons per 
square mile. Based on these criteria, five states (Montana, North 
Dakota, Nevada, South Dakota, and Wyoming) are considered frontier 
States and 51 hospitals located in those States will receive a 
frontier wage index of 1.0. This provision is not budget neutral and 
is estimated to increase IPPS operating payments by approximately 
$50 million.
    Urban hospitals located in the West North Central region and 
urban hospitals located in the Mountain region will experience an 
increase in payments by 0.5 percent and 0.3 percent, respectively 
because many of the hospitals located in this region are frontier 
hospitals. Similarly, rural hospitals located in the Mountain region 
and rural hospitals in the West North Central region will

[[Page 50658]]

experience an increase in payments by 0.5 and 0.1, respectively.

K. Effects of the 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. With the out-migration adjustment, small rural 
providers with less than 100 beds will experience a 0.4 percent 
increase in payments in FY 2011 relative to no adjustment at all. We 
included these additional payments to providers in the impact table 
shown above, and we estimate the impact of these providers receiving 
the out-migration increase to be approximately $30 million.

L. Effects of All Changes Prior to Documentation and Coding (or 
CMI) Adjustment (Column 10)

    Column 10 shows our estimate of the changes in payments per 
discharge from FY 2010 and FY 2011, resulting from all changes 
reflected in this final rule, other than the documentation and 
coding adjustment. Column 10 reflects the impact of all other FY 
2011 changes relative to FY 2010, including those shown in Columns 1 
through 9. We note that our baseline FY 2010 operating estimates 
account for the provisions under the Affordable Care Act that 
affected the FY 2010 operating payments. The average increase in 
payments under the IPPS for all hospitals is approximately 2.5 
percent. This includes the 2.35 percent applicable percentage 
increase (including the -0.25 reduction to the market basket 
increase required under the Affordable Care Act). The application of 
-0.25 percentage point reduction to the FY 2010 required by the 
Affordable Care Act only affected payments for discharges on or 
after April 1, 2010, reducing payments by 0.1 percent in FY 2010. 
However, the 0.25 percentage point reduction for FY 2011 required 
under the Affordable Care Act was a cumulative reduction on the FY 
2010 reduction, resulting in an additional 0.1 percent decrease in 
payments in FY 2011. In addition, it reflects the estimated 0.4 
percentage point difference between the projected outlier payments 
in FY 2010 (5.1 percent of total MS-DRG payments) and the current 
estimate of the percentage of actual outlier payments in FY 2010 
(4.7 percent), as described in the introduction to this Appendix and 
the Addendum to this final rule. It accounts for the non-budget 
neutral wage index provisions, including the frontier State wage 
index and the Section 505 out-commuting adjustment that increases 
payments by 0.1 percent. Finally, it accounts for -0.1 percent 
decrease in payments due to the expiration of section 508 
reclassifications that had been extended for FY 2010 under the 
Affordable Care Act.
    There might also be interactive effects among the various 
factors comprising the payment system that we are not able to 
isolate. For these reasons, the values in Column 10 may not equal 
the sum of the percentage changes described above.

M. Effects of All FY 2011 Changes With CMI Adjustment (Column 11)

    Column 11 shows our estimate of the changes in payments per 
discharge from FY 2010 and FY 2011, resulting from all changes 
reflected in this final rule for FY 2011. The FY 2010 baseline 
estimates account for the provisions under the Affordable Care Act 
that affected the FY 2010 operating payments. Specifically, the FY 
2010 baseline payment estimates account for the additional -0.25 
reduction in the applicable percentage increase (hospitals are paid 
based on the updated FY 2010 rate for discharges occurring on or 
after April 1, 2010), and accounts for the extension of section 508 
reclassifications for FY 2010. As discussed in section II.D. of the 
preamble of this final rule, this column includes the FY 2011 
documentation and coding adjustment of -2.9 percent on the national 
standardized amount, -2.9 percent on the hospital-specific rates, 
and -2.6 percent on the Puerto Rico-specific standardized amount, 
which overall accounts for a 2.9 percent decrease in payments.
    The average decrease in payments under the IPPS for all 
hospitals is approximately -0.4 percent. As described in Column 10, 
this average decrease includes the effects of the 2.35 percent 
applicable increase (including the 0.25 percentage point reduction) 
to the market basket update required under the Affordable Care Act), 
the 0.4 percentage point difference between the projected outlier 
payments in FY 2011 (5.1 percent of total MS-DRG payments), and the 
current estimate of the percentage of actual outlier payments in FY 
2010 (4.7 percent). In addition, it includes a -0.1 percent decrease 
in payments due to the expiration of section 508 reclassifications 
that had been extended for FY 2010 under the Affordable Care Act. 
Section 508 reclassification was not a budget-neutral provision. 
There might also be interactive effects among the various factors 
comprising the payment system that we are not able to isolate. For 
these reasons, the values in Column 11 may not equal the sum of the 
percentage changes described above.
    The overall change in payments per discharge for hospitals paid 
under the IPPS in FY 2011 is estimated to decrease by 0.4 percent. 
The payment decreases among the hospital categories are largely 
attributed to the documentation and coding adjustments. Hospitals in 
urban areas would experience an estimated 0.4 percent decrease in 
payments per discharge in FY 2011 compared to FY 2010. Hospital 
payments per discharge in rural areas are estimated to decrease by 
0.4 percent in FY 2011 as compared to FY 2010.
    Among urban census divisions, the largest estimated payment 
decreases will be 0.9 percent in the Middle Atlantic region because 
many of the urban providers in this region had benefited from 
section 508 reclassifications in FY 2010 that has expired for FY 
2011. Urban hospitals in the Pacific will see the largest payment 
increases (0.4 percent) because urban providers in this region will 
experience increases in their wage index above the national average. 
Among the rural regions, the providers in the Middle Atlantic and 
South Atlantic region will experience the largest decrease in 
payments (1.2 percent) while rural hospitals in the Mountain region 
will experience an increase in payments by 0.3 percent because the 
rural providers in this region benefit from MGCRB reclassification 
and the frontier State wage index provision, implemented under the 
Affordable Care Act.
    Among special categories of rural hospitals, MDHs will receive 
an estimated payment decrease 0.8 percent. MDHs are paid the higher 
of the IPPS rate based on the national standardized amount, that is, 
the Federal rate, or, if the hospital-specific rate exceeds the 
Federal rate, the Federal rate plus 75 percent of the difference 
between the Federal rate and the hospital-specific rate. MDHs will 
experience a decrease in payments because of the documentation and 
coding adjustments applied to both the hospital-specific rate and 
the Federal rate. SCHs are also paid the higher of their hospital-
specific rate or the Federal rate. Overall, SCHs will experience an 
estimated decrease in payments by 0.6 percent due to the 
documentation and coding adjustments to the national standardized 
amount and the hospital-specific rates.
    Rural hospitals reclassified for FY 2011 are anticipated to 
receive a 0.1 percent payment decrease, and rural hospitals that are 
not reclassifying are estimated to receive a payment decrease of 0.7 
percent.
    Cardiac hospitals are expected to experience a payment increase 
of 0.3 percent in FY 2011 relative to FY 2010 due to increases in 
payments attributable to changes in the MS-DRGs and relative 
weights.

N. Impact Analysis of Table II

    Table II presents the projected impact of the changes for FY 
2011 for urban and rural hospitals and for the different categories 
of hospitals shown in Table I. It compares the estimated average 
payments per discharge for FY 2010 with the payments per discharge 
for FY 2011, as calculated under our models. The estimated FY 2010 
payments per discharge incorporate the provisions in the Affordable 
Care Act. Thus, this table presents, in terms of the average dollar 
amounts paid per discharge, the combined effects of the changes 
presented in Table I. The estimated percentage changes shown in the 
last column of Table II equal the estimated percentage changes in 
average payments per discharge from Column 11 of Table I.
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VII. Effects of Other Policy Changes

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

A. Effects of Proposed Policy on HACs, Including Infections

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

------------------------------------------------------------------------
                                                             Savings (in
                            Year                              millions)
------------------------------------------------------------------------
FY 2011....................................................          $20
FY 2012....................................................           22
FY 2013....................................................           23
FY 2014....................................................           25
FY 2015....................................................           27
------------------------------------------------------------------------

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

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

[[Page 50662]]

Valve System. Therefore, based on the applicant's estimate from FY 
2010, we currently estimate that payments for the Spiration[supreg] 
IBV[supreg] Valve System will increase overall FY 2011 payments by 
$7.80 million.
    In addition to continuing to make new technology add-on payments 
in FY 2011 for the CardiowestTM Temporary Total 
Artificial Heart System (TAH-t) and the Spiration[supreg] 
IBV[supreg] Valve System, as discussed in section II.I. of the 
preamble to this final rule, we are approving the 
AutoLITTTM for new technology add-on payments for FY 
2011. The applicant, Monteris Medical, estimates that approximately 
170 Medicare beneficiaries would be eligible for the 
AutoLITTTM. Therefore, based on the applicant's estimate 
and 50 percent of the estimated operating cost per case ($5,300), we 
currently estimate that payments for the AutoLITTTM will 
increase overall FY 2011 payments by $900,000.

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

    In Appendix A, section VII.C. of the FY 2010 IPPS/RY 2010 LTCH 
PPS final rule (74 FR 44224), we discussed the impact of the FY 2011 
RHQDAPU program requirements. In this final rule, we are retiring 
one of the FY 2011 quality measures. We believe that this will not 
have a significant effect on our previous analysis. We note that, in 
that final rule, we estimated that 96 hospitals would not receive 
the full payment update in FY 2010 and that 96 hospitals would not 
receive the full payment update in FY 2011. As noted above, at the 
time this analysis was prepared, 104 hospitals did not receive the 
full payment update in FY 2010.
    In section IV.A. of this final rule, we discuss our requirements 
for hospitals to report quality data in order to receive the full 
annual payment update for FY 2011, FY 2012, FY 2013, and FY 2014. We 
estimate that approximately 95 hospitals may not receive the full 
annual payment update in any fiscal year. Most of these hospitals 
are either small rural or small urban hospitals. However, at this 
time, information is not available to determine the number of 
hospitals that will not meet the requirements for the full payment 
update for FY 2011, FY 2012, FY 2013, and FY 2014.
    For the FY 2012 payment determination, we did not adopt our 
proposal to require hospitals to submit all-patient volume data for 
selected MS-DRGs that relate to RHQDAPU program measures.
    For the FY 2013 payment determination, we did not adopt our 
proposal that hospitals would choose one of four proposed registry-
based topics for which there are currently a number of nationwide 
registries each individually collecting data from a significant 
proportion of IPPS hospitals. We believe that the AMI-statin at 
discharge measure, which we adopted for FY 2013 payment 
determination, will create minimal additional burden as hospitals 
can collect the data elements from the same charts already being 
pulled for existing RHQDAPU program AMI measures.
    For the FY 2014 payment determination, the addition of four 
chart-abstracted measures and the one measure collected via NHSN 
that require hospitals to submit data on all inpatients is expected 
to create an additional burden for hospitals. The information needed 
for the 2 ED-Throughput measures is captured as routine 
documentation, and therefore is not expected to impose much 
additional burden. The 2 Global Immunization measures will require 
hospitals to collect information on all inpatients regarding flu and 
pneumonia vaccinations that they are currently only collecting for 
patients admitted for pneumonia. Therefore, the number of patients 
for which these data need to be collected will increase. However, 
this additional burden will be offset to some extent by our decision 
to retire two measures (PN-2 and PN-7). The information needed for 
the fifth measure, an SSI measure to be collected via NHSN, is 
structured to keep additional burden to a minimum, since hospitals 
in 21 States are already using NHSN and CDC supports more than 2000 
hospitals that are already using NHSN.
    We discussed the validation requirements for the FY 2011 annual 
payment update in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 
FR 43883 through 43884). In the FY 2011 IPPS/LTCH PPS proposed rule, 
we noted that for the FY 2012 payment update, hospitals must pass 
our validation requirement of a minimum of 75 percent reliability, 
based upon our chart-audit validation process, for three quarters of 
data from first quarter CY 2010 through third quarter CY 2010 (75 FR 
23991 through 23993). These data are due to the QIO Clinical 
Warehouse by August 15, 2010 (first quarter CY 2010 discharges), 
November 15, 2010 (second quarter CY 2010 discharges), and February 
15, 2011 (third quarter CY 2010 discharges). We have continued our 
efforts to ensure that QIOs provide assistance to all hospitals that 
wish to participate in the RHQDAPU program. The requirement of 12 
charts per hospital submitted for validation will result in 
approximately 9,600 charts per quarter being submitted to CMS.
    We reimburse hospitals for the cost of sending charts to the 
Clinical Data Abstraction Center (CDAC) contractor at the rate of 12 
cents per page for copying and approximately $4.00 per chart for 
postage. Our experience shows that the average chart received by the 
CDAC contractor is approximately 150 pages. Thus as a result of the 
validation requirements effective for the FY 2012 annual payment 
update, CMS will have expenditures of approximately $212,000 per 
quarter, which is a reduction from the $597,600 per quarter to 
collect the charts for the FY 2010 and FY 2011 annual payment 
updates. Given that we reimburse for the data collection effort, we 
believe that a requirement for twelve charts per hospital per 
quarter represents a minimal burden to the participating hospital.
    We are adopting as final our proposal to modify our validation 
process for FY 2012. We believe that our FY 2012 policy, which will 
only validate data submitted by 800 hospitals for the FY 2012 
RHQDAPU payment determination (as compared with our previous policy 
under which we validated data submitted by all hospitals 
participating in the RHQDAPU program), will not change the number of 
hospitals that fail the validation requirement for FY 2012 from 
previous years. We have changed the way we calculate the validation 
matches (that is, all relevant data elements submitted by the 
hospital must match the independently re-abstracted data elements to 
count as a match), which will make it more difficult for hospitals 
to satisfy the validation requirement. However, we also are adopting 
as final our proposal to validate data for a smaller number of 
hospitals each year. In combination, we believe that these two 
proposed revisions will counterbalance each other and result in no 
additional impact to the number of hospitals failing our validation 
requirement for FY 2012. In addition, CMS conducted analysis in FY 
2010 of past validation data which indicates that at least 95 
percent of sampled hospitals are expected to pass the current 75 
percent validation threshold starting in FY 2012.
    If we determine that a hospital is not entitled to receive the 
full FY 2012 payment update because it failed to satisfy the 
validation requirement, and the hospital asks for a reconsideration 
of that decision, the hospital must submit complete copies of the 
medical records that it submitted to the CDAC contractor for 
purposes of the validation for which the hospital incurs the cost. 
We estimate that no greater than 20 hospitals would fail this 
requirement for FY 2012. We estimate that this requirement would 
cost hospitals approximately 12 cents per page for copying and 
approximately $4.00 per chart for postage. We have found based on 
experience that an average sized medical chart is approximately 150 
pages. Hospitals would be required to return all 36 sampled medical 
records for the three quarters of data from FY 2010. We estimate 
that the total cost to the 40 impacted hospitals would be 
approximately $17,600, or $440 per hospital. We believe that this 
cost is minimal, compared with the 2.0 percent RHQDAPU component of 
the annual payment update at risk. This requirement is necessary so 
that CMS has all the information it needs to fairly and timely make 
a decision on the hospital's reconsideration request. We also 
anticipate that this requirement will benefit hospitals seeking 
reconsiderations because it will enable us to resolve potential 
issues earlier in the appeals process, obviating the need for a 
hearing before the Provider Reimbursement Review Board (PRRB). We 
believe that this benefit will greatly outweigh the burden of 
copying and mailing the requested records.
    We note that beginning with FY 2014 and future years, we are 
considering adding two strata to the current RHQDAPU validation 
sample of SCIP, AMI, HF, and PN cases. We will consider selecting 2 
additional samples of 3 cases per selected hospital per quarter to 
validate proposed surgical site infection, blood stream infection, 
ED-Throughput and global immunization measures, If proposed and 
adopted as final through a later rulemaking, CMS would randomly 
select a total of 18 records per quarter per validated hospital in 
six strata (SCIP, AMI, HF, PN, CDC/NHSN measures and ED-Throughput/
Global Immunization). The requirement of an

[[Page 50663]]

additional 6 charts per hospital submitted for validation will 
result in approximately 4800 additional charts per quarter being 
submitted to CMS. We reimburse hospitals for the cost of sending 
charts to the Clinical Data Abstraction Center (CDAC) contractor at 
the rate of 12 cents per page for copying and approximately $4.00 
per chart for postage. Our experience shows that the average chart 
received by the CDAC contractor is approximately 150 pages. Thus, as 
a result of the validation requirements effective for the FY 2014 
annual payment update, CMS will have expenditures of approximately 
$105,600 per quarter to collect the charts for the FY 2014 and 
future years annual payment update. Given that we reimburse for the 
data collection effort, we believe that a requirement of the 
additional records in FY 2014 per hospital per quarter represents a 
minimal burden to the participating hospital.

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

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

E. Effects of the Low-Volume Hospital Payment Adjustment: Changes 
for FYs 2011 and 2012

    As discussed in section IV.D. of the preamble to this final 
rule, the low-volume hospital payment adjustment changes for FYs 
2011 and 2012 expand eligibility for the low-volume hospital payment 
adjustment to hospitals with less than 1,600 Medicare discharges 
(instead of the prior requirement of less than 800 total, Medicare 
and non-Medicare, discharges) and more than 15 miles from other IPPS 
hospitals (rather than the prior requirement of more than 25 miles). 
The payment adjustment is changed also from an empirically 
determined additional 25-percent payment adjustment to qualifying 
hospitals with less than 200 total discharges (69 FR 49099 through 
49102 and 70 FR 47432 through 47434), to a continuous, linear 
sliding scale adjustment ranging from an additional 25 percent 
payment adjustment to qualifying hospitals with 200 or fewer 
Medicare discharges to no additional payment to hospitals with 1,600 
or more Medicare discharges.
    We estimate, based on FY 2009 claims data (March 2010 update of 
the MedPAR file), an additional 1,444 hospitals would meet the 
Medicare discharges criterion to qualify as a low-volume hospital. 
However, we are not able to estimate the number of these 1,444 
hospitals that would also meet the distance criterion. The actual 
number of hospitals that would also meet the distance criterion to 
qualify as a low-volume hospital would be less, very likely much 
less, than the estimated 1,444 maximum number of potential low-
volume hospitals for FY 2011. If all 1,444 hospitals that meet the 
Medicare discharge requirement also meet the distance requirement, 
an additional estimated $835 million would be required for FY 2011, 
based on each hospital's number of Medicare discharges and the 
corresponding payment adjustment amount. At this time, we are not 
able to estimate the impact of the change for FY 2012.
    Our actuaries chose a 40-percent factor to estimate the 
percentage of hospitals that would meet the distance requirement, in 
addition to the discharge requirement, to be a low-volume hospital. 
For FY 2011, our actuaries estimate that there will be an additional 
cost of $380 million; for FY 2012, $450 million; and an additional 
$50 million being paid in FY 2013, for hospital stays at the end of 
FY 2012 that are paid at the beginning of FY 2013.

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

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

[[Page 50664]]

    Finally, our revised data matching process includes the use of 
SSNs and a greater number of Title II numbers and HICANs. As a 
result, we might be able to identify some individuals who are 
entitled to both Part A and SSI benefits that our current data 
matching process might not have identified. Therefore, we would 
expect an increase in the SSI fraction for certain providers, but we 
are unable to determine the extent to which DSH adjustment payments 
will increase.
    We did not receive any specific public comments on this impact 
section.

G. Effects of Change in Policy Relating to MDHs

1. Medicare Dependency: Counting Medicare Inpatients

    In section IV.G.2. of the preamble of this final rule, we 
discuss our revision of the existing Medicare-dependency criterion 
for MDHs at Sec.  412.108(a)(1)(iii) of the regulations which 
specify that ``At least 60 percent of the hospital's inpatient days 
or discharges were attributable to individuals receiving Medicare 
Part A benefits during the hospital's cost reporting period * * * 
'', by replacing the word ``receiving'' with the phrase ``entitled 
to.'' As a result, we will include in the count of Medicare 
inpatient days or discharges, all days or discharges attributable to 
individuals entitled to Medicare Part A benefits, including 
individuals who have exhausted their Medicare Part A hospital 
inpatient coverage benefit.
    Based on our analysis of data for cost reporting periods 
beginning in FYs 2007 and 2008, we estimate that this change to the 
MDH definition of Medicare dependency may allow 48 more IPPS 
hospitals to qualify as an MDH. We estimate that this change will 
result in increased expenditure of $3.6 million in FY 2011.

2. Extension of the MDH Program

    In section IV.G.3. of the preamble to this final rule, we 
discuss section 3124 of the Affordable Care Act, which extended the 
MDH program for 1 additional year, from the end of FY 2011 (that is, 
for discharges before October 1, 2011) to the end of FY 2012 (that 
is, for discharges before October 1, 2012). The extension of the MDH 
program has no impact for FY 2011. For FY 2012, the extension allows 
the continuation of MDH status and the payment methodology for an 
MDH to be paid its hospital-specific rate, based on its FY 1982, 
1987, or 2002 costs per discharge, rather than the Federal rate, if 
this results in a greater aggregate payment. Therefore, the impact 
of the MDH program extension is 1 additional year of updated 
hospital-specific rate payments for each MDH, if this results in a 
greater aggregate payment than Federal rate payments, rather than 
Federal rate payments for IPPS hospitals without special treatment 
as MDHs. Our actuaries estimate that this 1-year extension of the 
MDH program through FY 2012 will cost an additional $110 million.

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

1. Identifying ``Approved Medical Residency Programs''

    In section IV.H.2. of the preamble of this final rule, we 
discuss our clarification of policy regarding whether an individual 
is considered to be training in an approved medical residency 
program such that the individual's time should be included in the 
FTE count for IME and direct GME purposes, or whether that 
individual should be treated and bill as a physician. Specifically, 
our clarification states that individuals should be treated as and 
bill as physicians if they have already successfully completed at 
least one residency program (regardless of whether they have passed 
the board examination for that specialty program), and are engaged 
in subsequent training that is not required for additional board 
certification in another subspecialty. We also are revising the 
definition of ``resident'' at Sec.  413.75(b) to mean ``an intern, 
resident, or fellow who is formally accepted, enrolled, and 
participating in an approved medical residency program, including 
programs in osteopathy, dentistry, and podiatry, as required in 
order to become certified by the appropriate specialty board.''
    With respect to the policy regarding the treatment of trainees 
that have already successfully completed at least one residency 
program, there is no financial impact on the Medicare program 
because this is a clarification of existing policy and is not a 
policy revision or addition of a new policy. The policy change to 
the regulations might have some limited financial impact to the 
extent that a hospital previously included trainees who were not 
formally enrolled in an approved program in its FTE counts, and as a 
result of the change to the regulations, will no longer be able to 
include such trainees in its FTE count for IME and direct GME 
purposes. We believe it would be rare for a hospital to have 
included in its FTE count trainees who are not formally enrolled in 
a residency program in the typical fashion. Further, we believe that 
it would be rare for such a hospital to have sufficient room under 
its IME and direct GME FTE resident caps to include any such 
``informally enrolled'' residents in addition to the typically 
enrolled residents. Thus, the financial impact of the change in the 
regulatory definition of ``resident'' would be insignificant.

2. Submission of Electronic Affiliation Agreements

    In section IV.H.3. of the preamble of this final rule, we 
discuss our finalized policy to allow hospitals to submit Medicare 
GME affiliation agreements to the CMS Central Office by electronic 
submission. Over the last several years, we have received numerous 
inquiries regarding the possibility of submitting the Medicare GME 
affiliation agreement electronically. To date, CMS has only accepted 
signed hard copies of Medicare GME affiliation agreements that are 
received through the mail. Facsimile (FAX) and other electronic 
submissions of affiliation agreements have not been an acceptable 
means of transmission of affiliation agreements to CMS Central 
Office in order for a hospital to meet the requirements of 
Sec. Sec.  413.79(f) and 412.105(f)(1)(vi).
    The increasing frequency of these inquiries and our concerns 
regarding environmental and paperwork reduction have prompted us to 
reconsider our procedure for hospitals to submit Medicare GME 
affiliation agreements to the CMS Central Office. Accordingly, we 
are changing our policy to provide for electronic submission of the 
affiliation agreement that is required to be sent to the CMS Central 
Office. This policy change will not affect the authority of the 
fiscal intermediary or MAC to continue to specify its requirements 
for submission for hospitals in its servicing area.
    We are establishing an electronic submission process that will 
consist of either an e-mail mailbox or a Web site where hospitals 
will be able to submit their Medicare GME affiliation agreements to 
the CMS Central Office. As part of this process, a copy of the 
Medicare GME affiliation agreement must be received through the 
electronic system no later than 11:59 p.m. on July 1 of each 
academic year. We are requring that the electronic affiliation 
agreement must be submitted either as a scanned copy, a Portable 
Document Format (PDF) version of that hard copy agreement, or in 
another electronic format that cannot be subject to manipulation. 
This requirement will ensure that the agreements are signed and 
dated as required in the regulations at Sec.  413.75.
    We believe that allowing an electronic submission of the 
affiliation agreement to the CMS Central Office will assist us in 
more effectively tracking the groups of hospitals that become an 
affiliation as well as the numbers of FTE cap slots that are being 
transferred within those groups. In addition, we believe an 
electronic submission process will minimize the paperwork burden for 
hospitals.

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

    In section IV.I. of the preamble of this final rule, we discuss 
our amendment to the regulations at Sec.  412.113(c)(2)(i)(A) to 
state that, effective for cost reporting periods beginning on or 
after October 1, 2010, hospitals and CAHs that have reclassified 
under section 1886(d)(8)(E) of the Act and Sec.  412.103 are 
eligible to be paid based on reasonable cost for anesthesia and 
related care furnished by qualified nonphysician anesthetists. Under 
existing regulations, a hospital or CAH is not eligible to be paid 
based on reasonable cost for anesthesia and related care furnished 
by qualified nonphysician anesthetists if the hospital or CAH has 
been granted rural status under Sec.  412.103. However, because the 
Act, as revised by section 608 of Public Law 100-485, allows for 
reasonable cost payments for CRNA services if the facility is a 
hospital located in a rural area as defined for purposes of section 
1886(d) of the Act, we are revising the regulations to permit urban 
hospitals that have been reclassified as rural, in accordance with 
section 1886(d)(8)(E) of the Act, to qualify for these payments. We 
are revising the regulations to state that, effective for cost 
reporting periods beginning on or after October 1, 2010, hospitals 
and CAHs that have reclassified as rural pursuant to section

[[Page 50665]]

1886(d)(8)(E) of the Act and Sec.  412.103 of the regulations are 
eligible to be paid based on reasonable cost for anesthesia services 
and related care provided by qualified nonphysician anesthetists.
    We believe it is difficult to quantify the payment impact of 
this change because, in order to qualify for reasonable cost-based 
payment for anesthesia and related services provided by qualified 
nonphysician anesthetists, a rural hospital or CAH cannot exceed an 
annual limit of 800 surgical procedures requiring anesthesia. We 
cannot establish the number of facilities that will meet this 
threshold. In addition, although a hospital or CAH may contract with 
more than one qualified nonphysician anesthetist and be paid based 
on reasonable cost for anesthesia and related services performed by 
these nonphysician anesthetists, the total number of hours of 
service furnished by the nonphysician anesthetists may not exceed 
2,080 hours annually. We also cannot determine the number of 
facilities that will exceed this threshold. Therefore, while we 
believe the impact will be relatively minor, we are unable to 
quantify the impact of the change.

J. Effect of the Additional Payments to Qualifying Hospitals in Low 
Medicare Spending Counties

    Under section 1109 of Public Law 111-152, Congress allocated 
$400 million to be spent for FYs 2011 and 2012 to qualifying 
hospitals located in the bottom quartile of counties with the lowest 
Medicare Part A and Part B spending per enrollee. In section IV.J. 
of the preamble to this final rule, we have identified the list of 
eligible counties and the qualifying hospitals located in those 
counties that will receive the $400 million. We are finalizing our 
proposal to spend $150 million in FY 2011 and $250 million in FY 
2012. This money will be given to the qualifying hospitals by the 
fiscal intermediaries or MAC through a one-time annual payment. In 
section IV.J. of the preamble to this final rule, Table 1 lists the 
distribution of payments among the list of qualifying hospitals. In 
addition, Table 2 in section IV.J. of the preamble to this final 
rule lists the distribution of payment by State for FY 2011.

K. Effects of Implementation of Rural Community Hospital 
Demonstration Program

    In section IV.K of the preamble of this final rule, we discuss 
our implementation of section 410A of Public Law 108-173, which 
required the Secretary to establish a demonstration that would 
modify reimbursement for inpatient services for up to 15 small rural 
hospitals. Section 410A(c)(2) requires that ``[i]n conducting the 
demonstration program under this section, the Secretary shall ensure 
that the aggregate payments made by the Secretary do not exceed the 
amount which the Secretary would have paid if the demonstration 
program under this section was not implemented.'' As discussed in 
section V.K. of the preamble of this final rule, in the IPPS final 
rule for each of the previous 6 fiscal years, we have estimated the 
additional payments as a result of the demonstration for each of the 
participating hospitals. In order to achieve budget neutrality, we 
are adjusting the national IPPS rates by an amount sufficient to 
account for the added costs of this demonstration. In other words, 
we are applying 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.
    In addition, an extension of this demonstration was mandated by 
the Affordable Care Act. The demonstration is extended for an 
additional 5 years and will be expanded to up to 30 hospitals. We 
are making an adjustment in this final rule of $70,483,384 to the 
national IPPS rates. This amount accounts for an estimate of the 
demonstration cost for FY 2011 for the 10 hospitals that are 
currently participating in the demonstration, and an estimate of the 
cost of the continuation of the 7 hospitals that have participated 
in the demonstration since its inception and that are still 
participating. This amount accounts for the portions of their cost 
reporting periods in FY 2010 that were not covered in the estimated 
cost of the demonstration in the FY 2010 IPPS final rule because we 
formulated these estimates under the assumption that the 
demonstration would end in FY 2010. The adjustment for this final 
rule also includes an estimate of the cost of participation in the 
demonstration for 20 additional hospitals in FY 2011. In addition, 
for this final rule, we had proposed in the May 4, 2010 proposed 
rule to account for any differences between the cost of the 
demonstration program for hospitals participating in the 
demonstration during FY 2007, represented by their cost reports 
beginning in FY 2007, and the amount that was offset by the budget 
neutrality adjustment for FY 2007. However, this final rule does not 
contain this adjustment because the specific numeric value 
associated with this component of the adjustment to the national 
IPPS rates cannot be known because settled cost reports beginning in 
FY 2007 of the hospitals participating during FY 2007 in the 
demonstration are not available yet. We anticipate that those 
settled cost reports may be available prior to the publication of 
the FY 2012 IPPS proposed rule, at which time we would include a 
similar proposal.

L. Effects of Proposed Changes Relating to CAHs

1. CAH Optional Method of Payment for Outpatient Services

    In section VI.B.2. of the preamble of this final rule, we 
discuss our amendment to the regulations to permit a CAH's election 
to be paid for outpatient services under the optional method to stay 
in effect until it is terminated. Under existing regulations, if a 
CAH wishes to be paid under the optional method for outpatient 
services on a continuous basis, it must submit an annual election to 
the fiscal intermediary or MAC servicing the CAH at least 30 days 
prior to the cost reporting period for which the election is made. 
Due to the significant consequences that result if a CAH fails to 
make a timely election, we are amending the regulations at Sec.  
413.70(b)(3)(i) to state that, effective for CAH cost reporting 
periods beginning on or after October 1, 2010, if a CAH has elected 
the optional method for its most recent cost reporting period 
beginning prior to October 1, 2010, or chooses to elect the optional 
method for its upcoming cost reporting period, that election will 
remain in place until it is terminated. If a CAH chooses to 
terminate its election, it must submit a termination request to the 
fiscal intermediary or MAC servicing the CAH at least 30 days prior 
to the start of the next cost reporting period. In order to provide 
CAHs that have cost reporting periods beginning in October or 
November 2010 time to choose to terminate an existing election of 
the optional method, we are specifying that these CAHs will have 
until December 1, 2010, to terminate their election. We anticipate 
that there will be no additional Medicare expenditure associated 
with this change because we are not making any changes that govern 
payment rules for CAHs. Rather, we believe the regulatory changes 
will reduce any perceived burden associated with the election 
process and make it easier for CAHs to maintain their election of 
the optional method on a continuous basis.

2. Effects of the Payment for CAH Outpatient Services and Ambulance 
Services

    In section VII.B.3. of the preamble of this final rule, we 
discuss our implementation of section 3128 of Public Law 111-148, 
which amends the regulations at Sec.  413.70(b)(3)(ii)(A) to state 
that, effective for cost reporting periods beginning on or after 
January 1, 2004, payment for outpatient facility services under the 
optional method will be made at 101 percent of reasonable costs. We 
also are amending the regulations at Sec.  413.70(b)(5)(i) to state 
that, effective for cost reporting periods beginning on or after 
January 1, 2004, payment for ambulance services furnished by a CAH 
or an entity that is owned and operated by a CAH is 101 percent of 
the reasonable costs of the CAH or the entity in furnishing those 
services, but only if the CAH or the entity is the only provider or 
supplier of ambulance services located within a 35-mile drive of the 
CAH or the entity. We do not believe these amendments will result in 
additional payments to CAHs for prior periods because we believe 
that, in fact, we have paid CAHs for these services at 101 percent 
of reasonable costs during these prior periods.

3. Consideration of Costs of Provider Taxes as Allowable Costs for CAHs

    In section VI.B.4. of the preamble of this final rule, we 
discuss our clarification of our policy regarding the extent to 
which certain provider taxes may be considered allowable costs under 
Medicare, as described in sections 2212.1 and 2212.2 of the PRM-1. 
This is a clarification of our longstanding policy. Therefore, we 
have determined that there is no financial impact of the change.

[[Page 50666]]

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

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

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

    In section IX. of the preamble of this final rule, we discuss 
our changes to the conditions of participation for hospital 
rehabilitation services and respiratory care services to clarify the 
categories of practitioners allowed to order rehabilitation services 
and respiratory care services. We believe that these changes will 
impose minimal additional costs on hospitals. In fact, hospitals may 
realize some minimal cost savings due to the regulatory flexibility 
of these changes, which may allow for greater consistency with 
existing State laws and with hospital policies and procedures. The 
cost of implementing these changes will largely be limited to the 
one-time cost related to the revision of a hospital's medical staff 
bylaws and its policies and procedures as they relate to the 
requirements for the categories of practitioners allowed to order 
rehabilitation and respiratory care services. There also may be some 
minimal cost associated with communicating these changes to affected 
hospital staff. However, we believe that these costs will be offset 
by the benefits derived from the overall intent of these changes to 
allow qualified, licensed practitioners, who are authorized by the 
medical staff, to order these services as long as they are 
responsible for the care of the patient for whom they are ordering 
the services and as long as such privileges are in accordance with 
hospital policies and applicable State laws and regulations. 
Furthermore, the changes will clarify existing hospital CoPs to make 
them more consistent not only with each other, but also with many 
State laws and with current practice. Therefore, no burden is being 
assessed as a result of the revisions of these CoPs, or on the 
communication of these revisions to staff that will be required by 
this final rule, as these practices are usual and customary business 
practices.

VIII. Effects of Changes in the Capital IPPS

A. General Considerations

    Provisions of the Affordable Care Act necessitated revising the 
May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule. While the IPPS 
payment rates for capital-related costs were not directly affected 
by provisions of the Affordable Care Act, changes to the wage index 
as well as to the outlier payment adjustment factor were required by 
the law. Changes to the wage index affect the geographic adjustment 
factor (GAF) under the capital IPPS which is used in conjunction 
with a factor for changes in DRG classifications and weights to 
determine a budget neutrality adjustment factor in calculating the 
capital IPPS rate. A revision of the outlier payment adjustment 
factor was required because both inpatient operating and inpatient 
capital-related payments use a single set of thresholds to identify 
outlier cases. Changes resulting from the provisions of the 
Affordable Care Act are discussed in more detail in section II.A. of 
the preamble of the FY 2011 IPPS//LTCH PPS supplemental proposed 
rule published in the Federal Register on June 2, 2010.
    For the impact analysis presented below, we used data from the 
March 2010 update of the FY 2009 MedPAR file and the March 2010 
update of the Provider-Specific File (PSF) that is used for payment 
purposes. Although the analyses of the changes to the capital 
prospective payment system do not incorporate cost data, we used the 
March 2010 update of the most recently available hospital cost 
report data (FYs 2007 and 2008) to categorize hospitals. Our 
analysis has several qualifications. We use the best data available 
and make assumptions about case-mix and beneficiary enrollment as 
described below. In addition, as discussed in section V.E. of the 
preamble to this final rule, we made a -2.9 percent documentation 
and coding adjustment to the national capital rate for FY 2011 in 
addition to the -0.6 percent adjustment established for FY 2008, and 
the -0.9 percent adjustment for FY 2009. This results in a 
cumulative adjustment factor of 0.9574 that we applied to the 
national capital rate to account for improvements in documentation 
and coding that do not reflect real changes in case mix under the 
MS-DRGs in FY 2011. We also adjusted the Puerto Rico-specific 
capital rate in FY 2011 to account for changes in documentation and 
coding resulting from the adoption of the MS-DRGs.
    Due to the interdependent nature of the IPPS, it is very 
difficult to precisely quantify the impact associated with each 
change. In addition, we draw upon various sources for the data used 
to categorize hospitals in the tables. In some cases (for instance, 
the number of beds), there is a fair degree of variation in the data 
from different sources. We have attempted to construct these 
variables with the best available sources overall. However, it is 
possible that some individual hospitals are placed in the wrong 
category.
    Using cases from the March 2010 update of the FY 2009 MedPAR 
file, we simulated payments under the capital IPPS for revised FY 
2010 and revised FY 2011 (both years have been revised to account 
for provisions in the Affordable Care Act that required changes to 
the wage index and outlier threshold, as discussed above in this 
section) for a comparison of total payments per case. Any short-
term, acute care hospitals not paid under the general IPPS (Indian 
Health Service hospitals and hospitals in Maryland) are excluded 
from the simulations.
    The methodology for determining a capital IPPS payment is set 
forth at Sec.  412.312. The basic methodology for calculating 
capital IPPS payments in FY 2011 is as follows:

(Standard Federal Rate) x (DRG weight) x (GAF) x (COLA for hospitals 
located in Alaska and Hawaii) x (1 + DSH Adjustment Factor + IME 
adjustment factor, if applicable).

    In addition to the other adjustments, hospitals may also receive 
outlier payments for those cases that qualify under the threshold 
established for each fiscal year. We modeled payments for each 
hospital by multiplying the capital Federal rate by the GAF and the 
hospital's case-mix. We then added estimated payments for indirect 
medical education, disproportionate share, and outliers, if 
applicable. For purposes of this impact analysis, the model includes 
the following assumptions:
     We estimate that the Medicare case-mix index will 
increase by 1.0 percent in both FYs 2010 and 2011.
     We estimate that the Medicare discharges will be 
approximately 11.3 million in FY 2010 and 11.5 million in FY 2011.
     The capital Federal rate was updated beginning in FY 
1996 by an analytical framework that considers changes in the prices 
associated with capital-related costs and adjustments to account for 
forecast error, changes in the case-mix index, allowable changes in 
intensity, and other factors. As discussed in section III.A.1.a. of 
this final rule, the update is 1.5 percent for FY 2011.
     In addition to the FY 2011 update factor, the FY 2011 
capital Federal rate was calculated based on a GAF/DRG budget 
neutrality factor of 0.9990, an outlier adjustment factor of 0.9404, 
and a (special) exceptions adjustment factor of 0.9996.
     For FY 2011, as discussed above and in section V.E. of 
the preamble to this final rule, we applied a 0.9574 adjustment to 
the FY 2011 national capital rate for changes in documentation and 
coding that are expected to increase case-mix under the MS-DRGs but 
do not reflect real case-mix change.

B. Results

    We used the actuarial model described above to estimate the 
potential impact of our changes for FY 2011 on total capital 
payments per case, using a universe of 3,472 hospitals. As described 
above, the individual hospital payment parameters are taken from the 
best available data, including the March 2010 update of the FY 2009 
MedPAR file, the March 2010 update to the PSF, and the most recent 
cost report data from the March 2010 update of HCRIS. In Table III, 
we present a comparison of estimated total payments per case for FY 
2010, as revised per the Affordable Care Act, compared to FY 2011 
based on the FY 2011 payment policies. Column 2 shows estimates of 
payments per case under our model for FY 2010 (as revised). Column 3 
shows estimates of payments per case under our model for FY 2011. 
Column 4 shows the total percentage change in payments from revised 
FY 2010 to FY 2011. The change represented in Column 4 includes the 
1.5 percent update to the capital Federal rate and other 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

[[Page 50667]]

2011 are expected to decrease as compared to capital payments per 
case in FY 2010. The capital rate for FY 2011 will increase 1.5 
percent as compared to the FY 2010 capital rate. The changes to the 
GAFs are expected to result, on average, in a slight decrease in 
capital payments, although, for rural regions, it is more of a 
contributing factor to the overall decrease in capital payments than 
to urban areas, mostly due to the application of the rural floor to 
the wage index. We also are estimating an increase in outlier 
payments from FY 2010 to FY 2011 due primarily to an estimated 
decrease in capital IPPS payments per discharge. Since capital 
payments per discharge are projected to be slightly lower in FY 2011 
compared to FY 2010, more cases would qualify for outlier payments. 
The net impact of these changes is an estimated -0.5 percent change 
in capital payments per discharge from FY 2010 to FY 2011 for all 
hospitals (as shown below in Table III).
    The geographic comparison shows that, on average, all urban 
hospitals, as well as hospitals in large urban areas, are expected 
to experience a 0.5 percent decrease in capital IPPS payments per 
case in FY 2011 as compared to FY 2010. Capital IPPS payments per 
case for rural hospitals are expected to decrease 0.7 percent.
    The change comparisons by regions show some regions experiencing 
slight increases in total capital payments, while most other regions 
are estimated to experience slight decreases in capital payments 
from FY 2010 to FY 2011. For the urban regions, changes in capital 
payments range from a -1.0 percent in both the New England region 
and Middle Atlantic region to an increase of 0.2 percent for the 
Pacific region. The rural regions show estimates of a 1.7 percent 
change in capital payments from FY 2010 to FY 2011 in the Middle 
Atlantic region and Pacific region to a 1.9 percent increase for the 
Mountain region.
    By type of ownership, proprietary and government hospitals are 
estimated to experience a 0.3 percent decrease in capital payments, 
while voluntary hospitals are estimated to experience a 0.6 percent 
decrease in capital payments per case from FY 2010 to FY 2011.
    Section 1886(d)(10) of the Act established the MGCRB. Hospitals 
may apply for reclassification for purposes of the wage index for FY 
2011. Reclassification for wage index purposes also affects the GAFs 
because that factor is constructed from the hospital wage index.
    To present the effects of the hospitals being reclassified for 
FY 2011, we show the average capital payments per case for 
reclassified hospitals for FY 2010, as revised per the Affordable 
Care Act. All reclassified and non-reclassified hospitals are 
expected to experience a decrease in capital payments in FY 2011 as 
compared to FY 2010. Urban reclassified and rural reclassified 
hospitals are expected to have a decrease in capital payments of 0.6 
percent and 0.5 percent, respectively. For non-reclassified 
hospitals, the estimated decrease in capital payments is 0.4 percent 
for urban non-reclassified hospitals, and 0.9 percent for rural non-
reclassified hospitals. Other reclassified hospitals (that is, 
hospitals reclassified under section 1886(d)(8)(B) of the Act) are 
expected to experience a decrease of 1.2 percent in capital payments 
from FY 2010 to FY 2011.
BILLING CODE 4120-01-P

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BILLING CODE 4120-01-C

IX. Effects of Payment Rate Changes and Policy Changes Under the LTCH 
PPS

A. Introduction and General Considerations

    In section VII. of the preamble and section VII. of the Addendum 
to this final rule, we set forth the annual update to the payment 
rates for the LTCH PPS for FY 2011. In the preamble, we specify the 
statutory authority for the provisions that are presented, identify 
the policies and rationales for our decisions as well as 
alternatives that were considered. In this section IX. of Appendix 
A. to this final rule, we discuss the impact of the final changes to 
the payment rates, factors, and other payment rate policies related 
to the LTCH PPS that are presented in the preamble of this final 
rule in terms of their estimated fiscal impact on the Medicare 
budget and on LTCHs.
    A number of the provisions of the Affordable Care Act affected 
the LTCH PPS. The provisions of the Affordable Care Act that 
affected LTCH payments for FY 2011 are reflected in this impact 
analysis.
    Currently, our database of 423 LTCHs includes the data for 78 
nonprofit (voluntary ownership control) LTCHs and 306 proprietary 
LTCHs. Of the remaining 39 LTCHs, 13 LTCHs are government-owned and 
operated and the ownership type of the other 26 LTCHs is unknown. In 
the impact analysis, we used the final rates, factors, and policies 
presented in this final rule, including the 0.50 percentage point 
reduction to the market basket update required by sections 
1886(m)(3) and (m)(4) of the Act and the updated wage index values 
and the labor-related share, and the best available claims and CCR 
data to estimate the change in payments for FY 2011. The standard 
Federal rate for RY 2010 is $39,794.95, which reflects the 0.25 
percentage point reduction applied to the RY 2010 market basket 
update required under sections 1886(m)(3) and (m)(4) of the Act (as 
established in the FY 2010 IPPS/LTCH PPS notice published in the 
Federal Register on June 2, 2010). Discharges in RY 2010 occurring 
on or after April 1, 2010 are paid under the revised RY 2010 
standard Federal rate consistent with section 3401(p) of the 
Affordable Care Act. Discharges in RY 2010 occurring on or after 
October 1, 2009, and on or before March 31, 2010, are paid under the 
standard Federal rate of $39,896.65 (74 FR 44022). As discussed in 
section VII.A.2. of the Addendum to this final rule, consistent with 
our historical practice, we are finalizing an update to the standard 
Federal rate for FY 2011 by -0.49 percent and establishing a 
standard Federal rate of $39,599.95 for FY 2011. This includes a 
market basket update of 2.5 percent with a 0.50 percentage point 
reduction as required under sections 1886(m)(3) and (m)(4) of the 
Act, and the documentation and coding adjustment of -2.5 percent to 
account for increases in case-mix associated with the adoption of 
the MS-LTC-DRGs. Based on the best available data for the 423 LTCHs 
in our database, we estimate that the update to the standard Federal 
rate for FY 2011 (discussed in section VII.A.2. of the Addendum to 
this final rule) and the changes to the area wage adjustment for FY 
2011 (discussed in section VII.B. of the Addendum to this final 
rule), in addition to an estimated increase in HCO payments and an 
estimated increase in SSO payments, would result in an increase in 
estimated payments from RY 2010 of approximately $22.3 million (or 
about 0.5 percent). Based on the 423 LTCHs in our database, we 
estimate FY 2011 LTCH PPS payments to be approximately $4.932 
billion, an increase from RY 2010 LTCH PPS payments of approximately 
$4.909 billion. Because the combined distributional effects and 
estimated changes to the Medicare program payments would be greater 
than $100 million, this final rule is considered a major economic 
rule, as defined in this section. We note the approximately $22.3 
million projected increase in estimated aggregate LTCH PPS payments 
from RY 2010 to FY 2011 does not reflect changes in LTCH admissions 
or case-mix intensity in estimated LTCH PPS payments, which also 
would affect overall payment changes.
    The projected 0.5 percent increase in estimated payments per 
discharge from RY 2010 to FY 2011 is attributable to several 
factors, including the -0.49 percent decrease to the standard 
Federal rate, changes in the

[[Page 50670]]

wage index values (including the change to the labor-related share) 
presented in section VII.B. of the Addendum to this final rule and 
projected increases in estimated HCO and SSO payments. As Table IV 
shows, the change attributable solely to the standard Federal rate 
is projected to result in an decrease of 0.4 percent in estimated 
payments per discharge from RY 2010 to FY 2011, on average, for all 
LTCHs, while the changes to the area wage adjustment are projected 
to result in an increase in estimated payments of 0.1 percent, on 
average, for all LTCHs.
    As discussed in section VII.B. of this final rule, we are 
updating the wage index values for FY 2011 based on the most recent 
available data. In addition, we are finalizing a slight decrease in 
the labor-related share from 75.779 percent to 75.271 percent under 
the LTCH PPS for FY 2011 based on the most recent available data on 
the relative importance of the labor-related share of operating and 
capital costs of the RPL market basket. The wage data and the labor-
related share are expected to increase LTCH PPS payments by 0.1 
percent.
    Table IV below shows the impact of the final payment rate and 
final policy changes on LTCH PPS payments for FY 2011 presented in 
this final rule by comparing RY 2010 estimated payments to FY 2011 
estimated payments. The projected increase in payments per discharge 
from RY 2010 to FY 2011 is 0.5 percent (shown in Column 8). This 
projected increase in payments is attributable to the impacts of the 
change to the standard Federal rate (-0.4 percent in Column 6) and 
the change due to the area wage adjustment (0.1 percent in Column 
7), as well as the effect of the estimated increase in payments for 
HCO cases and SSO cases in FY 2011 as compared to RY 2010 (0.6 
percent and 0.3 percent, respectively). That is, estimated total HCO 
payments are projected to increase from RY 2010 to FY 2011 in order 
to ensure that estimated HCO payments will be 8 percent of the total 
estimated LTCH PPS payments in FY 2011. An analysis of the most 
recent available LTCH PPS claims data (that is, FY 2009 claims data 
from the March 2010 update of the MedPAR file) indicates that the RY 
2010 HCO threshold of $18,615 (as announced in the June 2, 2010 FY 
2010 IPPS/LTCH PPS notice) may result in HCO payments in RY 2010 
that fall below the estimated 8 percent. Specifically, we currently 
estimate that HCO payments will be approximately 7.4 percent of the 
estimated total LTCH PPS payments in RY 2010. We note that the RY 
2010 outlier payment estimate in this impact analysis takes into 
account for the revised RY 2010 rate and outlier threshold 
determined consistent with sections 1886(m)(3) and (4) of the Act 
and section 3401(p) of the Affordable Care Act that are used to make 
payments for discharges in RY 2010 that occur on or after April 1, 
2010. We estimate that the impact of the increase in HCO payments 
would result in approximately a 0.6 percent increase in estimated 
payments from RY 2010 to FY 2011, on average, for all LTCHs. 
Furthermore, in calculating the estimated increase in payments from 
RY 2010 to FY 2011 for HCO and SSO cases, we increased estimated 
costs by the applicable market basket percentage increase as 
projected by our actuaries, which increases payments by 0.3 percent 
relative to last year. We note that estimated payments for all SSO 
cases comprise approximately 14 percent of the estimated total LTCH 
PPS payments, and estimated payments for HCO cases comprise 
approximately 8 percent of the estimated total 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 (over 65 percent) are based on the estimated 
cost of the SSO case.
    As we discuss in detail throughout this final rule, based on the 
most recent available data, we believe that the provisions of this 
final rule relating to the LTCH PPS will result in an increase in 
estimated aggregate LTCH PPS payments and that the resulting LTCH 
PPS payment amounts result in appropriate Medicare payments.

B. Impact on Rural Hospitals

    For purposes of section 1102(b) of the Act, we define a small 
rural hospital as a hospital that is located outside of an urban 
area and has fewer than 100 beds. As shown in Table IV, we are 
projecting a 0.9 percent increase in estimated payments per 
discharge for FY 2011 as compared to RY 2010 for rural LTCHs that 
will result from the changes presented in this final rule, as well 
as the effect of estimated changes to HCO and SSO payments. This 
estimated impact is based on the data for the 26 rural LTCHs in our 
database (out of 423 LTCHs), for which complete data were available. 
The RY 2010 average payment per case in Table IV accounts for the 
changes required by sections 1886(m)(3) and (4) of the Act and 
section 3401(p) of the Affordable Care Act, which affects payments 
for discharges occurring on or after April 1, 2010, as described 
below in section IX.C.3. of the Appendix to this final rule.
    The estimated increase in LTCH PPS payments from RY 2010 to FY 
2011 for rural LTCHs is primarily due to the higher than average 
impacts from the changes to the area wage adjustment and the 
reduction in the labor-related share from 75.779 to 75.271, which 
results in an estimated 0.6 percent increase in payments.

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

1. Budgetary Impact

    Section 123(a)(1) of the BBRA requires that the PPS developed 
for LTCHs ``maintain budget neutrality.'' We believe that the 
statute's mandate for budget neutrality applies only to the first 
year of the implementation of the LTCH PPS (that is, FY 2003). 
Therefore, in calculating the FY 2003 standard Federal rate under 
Sec.  412.523(d)(2), we set total estimated payments for FY 2003 
under the LTCH PPS so that estimated aggregate payments under the 
LTCH PPS were estimated to equal the amount that would have been 
paid if the LTCH PPS had not been implemented.
    As discussed in section IX.A. of this Appendix, we project an 
increase in aggregate LTCH PPS payments in FY 2011 of approximately 
$22.3 million (or 0.5 percent) based on the 423 LTCHs in our 
database.

2. Impact of Moratorium and Other Provisions

    Section 114(c) and (d) of the Medicare, Medicaid, and SCHIP 
Extension Act of 2007 (MMSEA), as amended by section 4302 of the 
American Recovery and Reinvestment Act of 2009 (ARRA), provided for 
a 3-year delay in certain payment policies relating to LTCHs and 
LTCH satellite facilities. Sections 3106 and 10312 of the Affordable 
Care Act together provide for a 2-year extension of the 3-year delay 
in implementation of certain payment policies relating to certain 
LTCHs and LTCH satellite facilities. Specifically, these provisions 
affect payment adjustments for ``very'' short stay outliers (SSOs), 
the one-time adjustment to the standard Federal rate, the 25 percent 
payment threshold policy, and the moratorium on the establishment of 
new LTCHs and LTCH satellite facilities and the moratorium on the 
increase in LTCH beds in existing LTCHs or satellite facilities.
    Sections 3106 and 10312 of the Affordable Care Act together 
provide for a 2-year extension of the 3-year delay in implementation 
of the revision to the SSO policy at Sec.  412.529(c)(3)(i) that was 
finalized in the RY 2008 final rule. We estimate that the extension 
of the SSO provision will result in a projected increase in 
estimated aggregate LTCH PPS payments of approximately $20 million 
in FY 2011. Sections 3106 and 10312 of the Affordable Care Act 
together provide for a 2-year extension to several modifications to 
the regulations at Sec.  412.534 and Sec.  412.536 required by 
section 114(c) of MMSEA, as amended by section 4302 of the ARRA, 
which addressed the percentage thresholds between referring 
hospitals and LTCHs and satellites of LTCHs. We estimate that the 
implementation of this extension of the MMSEA provisions, as amended 
by the ARRA, pertaining to Sec.  412.534 and Sec.  412.536 will 
result in a projected increase in estimated aggregate LTCH PPS 
payments of approximately $20 million for FY 2011.
    Regarding the 2-year extension of the moratorium on the 
development of new LTCHs and LTCH satellites and on the increase in 
beds in existing LTCHs and LTCH satellites, as we noted in the May 
22, 2008 interim final rule with comment period when the original 3-
year delay required by section 114(d) of the MMSEA, as amended by 
the ARRA, was implemented, we are unable to quantify the impact of 
the additional 2-year moratorium on the establishment of LTCHs, LTCH 
satellite facilities, and on the increase of LTCH beds in existing 
LTCHs or satellite facilities with limited exceptions. We are unable 
to provide an estimate of the impact of the 2-year extension of this 
provision because we have no way of determining how many LTCHs would 
have opened in the absence of the moratorium, nor do we have 
sufficient information at this time to determine how many new LTCHs 
will meet the criteria for an exception described in the statute.

3. Impact on Providers

    The basic methodology for determining a per discharge LTCH PPS 
payment is set forth in Sec.  412.515 through Sec.  412.536. In 
addition to

[[Page 50671]]

the basic MS-LTC-DRG payment (the standard Federal rate multiplied 
by the MS-LTC-DRG relative weight), we make adjustments for 
differences in area wage levels, the COLA for Alaska and Hawaii, and 
SSOs. Furthermore, LTCHs may also receive HCO payments for those 
cases that qualify based on the threshold established each year.
    To understand the impact of the changes to the LTCH PPS payments 
presented in this final rule on different categories of LTCHs for FY 
2011, it is necessary to estimate payments per discharge for RY 2010 
using the rates, factors (including the FY 2010 GROUPER (Version 
27.0), and relative weights and the policies established in the FY 
2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43945 through 43994 and 
44021 through 44030) and to include any changes to payments due to 
the provisions under sections 1886(m)(3) and (4) of the Act and 
section 3401(p) of the Affordable Care Act, which affects payments 
for discharges occurring on or after April 1, 2010 in RY 2010 (as 
announced in the June 2, 2010 FY 2010 IPPS/LTCH PPS notice). It is 
also necessary to estimate the payments per discharge that would be 
made under the final LTCH PPS rates, factors, policies, and GROUPER 
(Version 28.0) for FY 2011 (as discussed in III. of the preamble and 
section VII. of the Addendum to this final rule). These estimates of 
RY 2010 and FY 2011 LTCH PPS payments are based on the best 
available LTCH claims data and other factors, such as the 
application of inflation factors to estimate costs for SSO and HCO 
cases in each year. We also evaluated the change in estimated RY 
2010 payments to estimated FY 2011 payments (on a per discharge 
basis) for each category of LTCHs.
    Hospital groups were based on characteristics provided in the 
OSCAR data, FY 2007 through FY 2008 cost report data in HCRIS, and 
PSF data. Hospitals with incomplete characteristics were grouped 
into the ``unknown'' category. Hospital groups include the 
following:
     Location: large urban/other urban/rural.
     Participation date.
     Ownership control.
     Census region.
     Bed size.

To estimate the impacts of the payment rates and policy changes 
among the various categories of existing providers, we used LTCH 
cases from the FY 2009 MedPAR file to estimate payments for RY 2010 
and to estimate payments for FY 2011 for 423 LTCHs. We believe that 
the discharges based on the FY 2009 MedPAR data for the 423 LTCHs in 
our database, which includes 306 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.

4. Calculation of Prospective Payments

    For purposes of this impact analysis, to estimate per discharge 
payments under the LTCH PPS, we simulated payments on a case-by-case 
basis using LTCH claims from the FY 2009 MedPAR files. For modeling 
estimated LTCH PPS payments for RY 2010, we calculated a blended RY 
2010 payment to account for changes in the rate in accordance with 
sections 1886(m)(3) and (m)(4) of the Act and section 3401(p) of the 
Affordable Care Act. Specifically, we applied the RY 2010 standard 
Federal rate (that is, $39,896.65, under which LTCH discharges 
occurring on or after October 1, 2009, and through March 31, 2010 
are paid, and $39,794.95, under which LTCH discharges occurring on 
or after April 1, 2010 and through September 30, 2010 are paid). For 
modeling estimated LTCH PPS payments for FY 2011, we applied the FY 
2011 standard Federal rate of $39,599.95, which will be effective 
for LTCH discharges occurring on or after October 1, 2010, and 
through September 30, 2011.
    Furthermore, in modeling estimated LTCH PPS payments for both RY 
2010 and FY 2011 in this impact analysis, we applied the RY 2010 and 
the FY 2011 adjustments for area wage differences and the COLA for 
Alaska and Hawaii. Specifically, we adjusted for area wage 
differences for estimated RY 2010 payments using the current LTCH 
PPS labor-related share of 75.779 percent (74 FR 43968), the wage 
index values established in the Tables 12A and 12B of the Addendum 
to the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44192 through 
44213) and the RY 2010 COLA factors shown in the table in section V. 
of the Addendum to that final rule (74 FR 44026). Similarly, we 
adjusted for area wage differences for estimated FY 2011 payments 
using the finalized LTCH PPS FY 2011 labor-related share of 75.271 
percent, the FY 2011 wage index values presented in Tables 12A and 
12B of the Addendum to this final rule, and the FY 2011 COLA factors 
shown in the table in section VII.B.5. of the Addendum to the final 
rule.
    As discussed above, our impact analysis reflects an estimated 
change in payments for SSO cases, as well as an estimated increase 
in payments for HCO cases (as described in section VII.C. of the 
Addendum to this final rule). In modeling payments for SSO and HCO 
cases in RY 2010, we applied an inflation factor of 1.025 percent 
(determined by OACT) to the estimated costs of each case determined 
from the charges reported on the claims in the FY 2009 MedPAR files 
and the best available CCRs from the March 2010 update of the PSF. 
In modeling payments for SSO and HCO cases in FY 2011, we applied an 
inflation factor of 1.050 (determined by OACT) to the estimated 
costs of each case determined from the charges reported on the 
claims in the FY 2009 MedPAR files and the best available CCRs from 
the March 2010 update of the PSF. Furthermore, in modeling estimated 
LTCH PPS payments for both RY 2010 and FY 2011 in this impact 
analysis, we applied the RY 2010 HCO fixed-loss amount of $18,425 
(74 FR 44029) for the first half of RY 2010, the revised RY 2010 HCO 
fixed-loss amount of $18,615 established in conjunction with 
implementing the provisions of sections 1886(m)(3) and (m)(4) of the 
Act and section 3401(p) of the Affordable Care Act for the second 
half of RY 2010, and the FY 2011 fixed loss amount of $18,785 (as 
discussed in section VII.C. of the Addendum to this final rule).
    These impacts reflect the estimated ``losses'' or ``gains'' 
among the various classifications of LTCHs from the RY 2010 to FY 
2011 based on the payment rates and policy changes presented in this 
final rule. Table IV illustrates the estimated aggregate impact of 
the LTCH PPS among various classifications of LTCHs.
     The first column, LTCH Classification, identifies the 
type of LTCH.
     The second column lists the number of LTCHs of each 
classification type.
     The third column identifies the number of LTCH cases.
     The fourth column shows the estimated payment per 
discharge for RY 2010 (as described above).
     The fifth column shows the estimated payment per 
discharge for FY 2011 (as described above).
     The sixth column shows the percentage change in 
estimated payments per discharge from RY 2010 to FY 2011 for changes 
to the standard Federal rate (as discussed in section VII.A.2. of 
the Addendum to this final rule).
     The seventh column shows the percentage change in 
estimated payments per discharge from RY 2010 to FY 2011 for changes 
to the area wage adjustment at Sec.  412.525(c) (as discussed in 
section VII.B. of the Addendum to the final rule).
     The eighth column shows the percentage change in 
estimated payments per discharge from RY 2010 (Column 4) to FY 2011 
(Column 5) for all finalized and statutory changes (and includes the 
effect of estimated changes to HCO and SSO payments).
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5. Results

    Based on the most recent available data for 423 LTCHs, we have 
prepared the following summary of the impact (as shown in Table IV) 
of the LTCH PPS payment rate and policy changes presented in this 
final rule. The impact analysis in Table IV shows that estimated 
payments per discharge are expected to increase approximately 0.5 
percent, on average, for all LTCHs from RY 2010 to FY 2011 as a 
result of the finalized payment rate and policy changes presented in 
this final rule, as well as estimated increases in HCO and SSO 
payments. We note that we applied a -0.49 percent update to the 
standard Federal rate for FY 2011, based on the latest market basket 
estimate (2.5 percent), the -0.50 percentage point reduction 
required under sections 1886(m)(3) and (m)(4) of the Act, and the 
adjustment for the effect of changes in documentation and coding in 
FY 2008 and FY 2009 of -2.5 percent. We noted earlier in this 
section that for most categories of LTCHs, as shown in Table IV 
(Column 6), the impact of the decrease of approximately -0.5 percent 
to the standard Federal rate is projected to result in approximately 
a -0.4 percent change in estimated payments per discharge for all 
LTCHs from RY 2010 to FY 2011. Because payments to cost-based SSO 
cases and a portion of payments to SSO cases that are paid based on 
the ``blend'' option of the SSO payment formula at Sec.  
412.529(c)(2)(iv) are not affected by the update to the standard 
Federal rate, we estimate that the effect of the 0.49 percent 
reduction to the standard Federal rate would result in a 0.4 percent 
reduction on estimated aggregate LTCH PPS payments to all LTCH PPS 
cases, including SSO cases. Furthermore, as discussed previously in 
this regulatory impact analysis, the average increase in estimated 
payments per discharge from the RY 2010 to FY 2011 for all LTCHs of 
approximately 0.5 percent (as shown in Table IV) was determined by 
comparing estimated FY 2011 LTCH PPS payments (using the final 
rates, final policies and statutory changes discussed in this final 
rule) to estimated RY 2010 LTCH PPS payments (as described above in 
section IX.C.3. of this Appendix).

a. Location

    Based on the most recent available data, the vast majority of 
LTCHs are located in urban areas. Only approximately 6 percent of 
the LTCHs are identified as being located in a rural area, and 
approximately 4 percent of all LTCH cases are treated in these rural 
hospitals. The impact analysis presented in Table IV shows that the 
average percent increase in estimated payments per discharge from RY 
2010 to FY 2011 for all hospitals is 0.5 percent for all changes. 
For rural LTCHs, the percent change for all changes is estimated to 
be 0.9 percent, while for urban LTCHs, we estimate the increase to 
be 0.4 percent. Large urban LTCHs are projected to experience an 
increase of 0.5 percent in payments per discharge from RY 2010 to FY 
2011, while other urban LTCHs are projected to experience an 
increase of 0.3 percent in payments per discharge from RY 2010 to FY 
2011, as shown in Table IV.

b. Participation Date

    LTCHs are grouped by participation date into four categories: 
(1) Before October 1983; (2) between October 1983 and September

[[Page 50674]]

1993; (3) between October 1993 and September 2002; and (4) after 
October 2002. Based on the most recent available data, the majority 
(approximately 49 percent) of the LTCH cases are in hospitals that 
began participating in the Medicare program between October 1993 and 
September 2002. These hospitals are projected to experience nearly 
the average increase (0.3 percent) in estimated payments per 
discharge from RY 2010 to FY 2011, as shown in Table IV.
    In the participation category where LTCHs began participating in 
the Medicare program before October 1983, LTCHs are projected to 
experience a higher than average percent increase (0.6 percent) in 
estimated payments per discharge from RY 2010 to FY 2011, as shown 
in Table IV. Approximately 4 percent of LTCHs began participating in 
Medicare before October 1983. The LTCHs in this category are 
projected to experience a slightly higher than average increase in 
estimated payments because of increases in their wage data, increase 
under the MS-LTC-DRG GROUPER (Version 28) and relative weights, and 
estimated increases in their SSO payments relative to last year. 
Approximately 10 percent of LTCHs began participating in Medicare 
between October 1983 and September 1993. These LTCHs are also 
projected to experience a slightly higher than average increase (0.6 
percent) in estimated payments from RY 2010 to FY 2011. LTCHs that 
began participating in Medicare after October 2002 currently 
represent approximately 39 percent of all LTCHs, and are projected 
to experience an average increase (0.5 percent) in estimated 
payments from RY 2010 to FY 2011.

c. Ownership Control

    Other than LTCHs whose ownership control type is unknown, LTCHs 
are grouped into three categories based on ownership control type: 
Voluntary, proprietary, and government. Based on the most recent 
available data, approximately 18 percent of LTCHs are identified as 
voluntary (Table IV). We expect that, for these LTCHs in the 
voluntary category, estimated FY 2011 LTCH payments per discharge 
will increase higher than the average (0.8 percent) in comparison to 
estimated payments in RY 2010 primarily because we project an 
increase in estimated HCO payments and SSO payments to be higher 
than the average for these LTCHs. The majority (72 percent) of LTCHs 
are identified as proprietary and these LTCHs are projected to 
experience an average increase (0.4 percent) in estimated payments 
per discharge from RY 2010 to FY 2011. Finally, government-owned and 
operated LTCHs (3 percent) are expected to experience a higher than 
the average increase (1.0 percent) in estimated payments primarily 
due to a larger than the average increase in estimated HCO payments 
and increases under the MS-LTC-DRG GROUPER (Version 28) and relative 
weights.

d. Census Region

    Estimated payments per discharge for FY 2011 are projected to 
increase for LTCHs located in all regions in comparison to RY 2010. 
Of the 9 census regions, we project that the increase in estimated 
payments per discharge will have the largest positive impact on 
LTCHs in the Pacific region (0.7 percent, as shown in Table IV). The 
estimated percent increase in payments per discharge from RY 2010 to 
FY 2011 for the Pacific is largely attributable to the projected 
increase in estimated HCO and SSO payments and changes in their wage 
adjustment.
    In contrast, LTCHs located in the Middle Atlantic region are 
projected to experience the smallest increase in estimated payments 
per discharge from RY 2010 to FY 2011. The average estimated 
increase in payments of 0.2 percent for LTCHs in the Middle Atlantic 
region is primarily due to estimated decreases in payments 
associated with the wage index because 50 percent of LTCHs located 
in this region will have a FY 2011 wage index value that is less 
than their RY 2010 wage index value.

e. Bed Size

    LTCHs were grouped into six categories based on bed size: 0-24 
beds; 25-49 beds; 50-74 beds; 75-124 beds; 125-199 beds; and greater 
than 200 beds. We project that payments for small LTCHs (0-24 beds) 
would experience a 1.0 percent increase in payments due to increases 
in their wage index while large LTCHs (200+ beds) would experience a 
0.2 percent increase in payments. LTCHs with between 75 and 124 beds 
and between 125 and 199 beds are expected to experience an above 
average increase in payments per discharge from RY 2010 to FY 2011 
(0.8 percent and 0.6 percent, respectively) primarily due to a 
larger than average estimated increase in payments from the FY 2011 
changes to the area wage adjustment.

D. Effect on the Medicare Program

    As noted previously, we project that the provisions of this 
final rule would result in an increase in estimated aggregate LTCH 
PPS payments in FY 2011 of approximately $22.3 million (or about 0.5 
percent) for the 423 LTCHs in our database.

E. Effect on Medicare Beneficiaries

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

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

    In section X. of the preamble of this final rule, we discuss the 
removal of the Medicaid requirement for Joint Commission 
accreditation of psychiatric hospitals and hospitals with inpatient 
psychiatric programs. Psychiatric hospitals will have the choice of 
undergoing a State survey to determine whether the hospital meets 
the requirements to participate in Medicare as a psychiatric 
hospital under 42 CFR 482.60, or obtaining accreditation from a 
national accrediting organization whose psychiatric hospital 
accrediting program has been approved by CMS. Likewise, hospitals 
with inpatient psychiatric programs will have the choice of 
undergoing a State survey to determine whether the hospital meets 
the requirements for participation in Medicare as a hospital as 
specified in 42 CFR part 482 or obtaining accreditation from a 
national accrediting organization whose hospital accreditation 
program has been approved by CMS.
    Ensuring access to services is a priority for CMS, and we 
believe that this revision to the regulations will result in an 
increased number of psychiatric hospitals and hospitals with 
inpatient psychiatric programs being able to provide services. In 
addition, the revision to the accreditation requirement aligns 
Medicaid standards with existing standards in the Medicare program. 
We believe that this flexibility in obtaining accreditation will 
facilitate the provision of medically necessary, Medicaid-
reimbursable psychiatric services to vulnerable children, while 
maintaining the high quality of care demanded by the Medicaid 
program.
    We are not preparing an analysis for this policy under the RFA 
because we have determined that the policy will not have a 
significant economic impact on a substantial number of small 
entities.
    We are not preparing an analysis for section 1102(b) of the Act 
because this policy will not have a significant impact on the 
operations of a substantial number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule that may result in expenditure in any one year of 
$100 million in 1995 dollars, updated annually for inflation. That 
threshold level is currently approximately $135 million. This policy 
will not result in an impact of $135 million or more on State, local 
or tribal governments, in the aggregate, or on the private sector.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on 
State and local governments, preempts State law, or otherwise has 
Federalism implications. Because this policy does not impose any 
costs on State or local governments, the requirements of Executive 
Order 13132 are not applicable.

XI. Alternatives Considered

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

XII. Overall Conclusion

A. Acute Care Hospitals

    Table I of section VI. of this Appendix demonstrates the 
estimated distributional impact of the IPPS budget neutrality 
requirements for the final MS-DRG and wage index changes, and for 
the wage index reclassifications under the MGCRB. Table I also shows 
an overall decrease of 0.4 percent

[[Page 50675]]

in operating payments. We estimate that operating payments will 
decrease by approximately $440 million in FY 2011. In addition, we 
estimates the reporting of hospital quality data program costs at 
$2.4 million, a savings of $20 million associated with the HACs 
policies, an additional spending of $18.2 million for new technology 
add-on payments, an additional $150 million to hospitals that 
qualify for an additional payment as provided under section 1109 of 
Public Law 111-152, and all other operating payment policies 
described in section VII. of this Appendix. These estimates, added 
to our FY 2011 operating estimate of -$440 million, result in a 
decrease of $290 million for FY 2011. We estimate that capital 
payments will experience -0.5 percent change in payments per case, 
as shown in Table III of section VIII. of this Appendix. We project 
that there will be a $21 million decrease in capital payments in FY 
2011 compared to FY 2010. The cumulative operating and capital 
payments should result in a net decrease of $311 million to IPPS 
providers. The discussions presented in the previous pages, in 
combination with the rest of this final rule constitute a regulatory 
impact analysis.

B. LTCHs

    Overall, LTCHs are projected to experience an increase in 
estimated payments per discharge in FY 2011. In the impact analysis, 
we are using the final rates, factors, and policies presented in 
this final rule, including final updated wage index values and 
relative weights, and the best available claims and CCR data to 
estimate the change in payments under the LTCH PPS for FY 2011. 
Accordingly, based on the best available data for the 423 LTCHs in 
our database, we estimate that FY 2011 LTCH PPS payments will 
increase approximately $22 million (or about 0.5 percent).

XIII. Accounting Statements

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 final rule 
as they relate to acute care hospitals. This table provides our best 
estimate of the change in Medicare payments to providers as a result 
of the finalized changes to the IPPS presented in this final rule. 
All expenditures are classified as transfers to Medicare providers.

 Table V--Accounting Statement: Classification of Estimated Expenditures
                 Under the IPPS From FY 2010 to FY 2011
------------------------------------------------------------------------
                 Category                             Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers............  -$311 million.
From Whom to Whom.........................  Federal Government to IPPS
                                             Medicare Providers.
                                           -----------------------------
    Total.................................  -$311 million.
------------------------------------------------------------------------

B. LTCHs

    As discussed in section IX. of this Appendix, the impact 
analysis for the finalized changes under the LTCH PPS for this final 
rule projects an increase in estimated aggregate payments of 
approximately $22 million (or about 0.5 percent) for the 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 final 
rule as they relate to changes to the LTCH PPS. Table VI provides 
our best estimate of the estimated increase in Medicare payments 
under the LTCH PPS as a result of the finalized provisions presented 
in this final rule based on the data for the 423 LTCHs in our 
database. All expenditures are classified as transfers to Medicare 
providers (that is, LTCHs).

Table VI--Accounting Statement: Classification of Estimated Expenditures
        From the 2010 LTCH PPS Rate Year to the FY 2011 LTCH PPS
------------------------------------------------------------------------
                 Category                             Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers.             Positive transfer--Estimated
                                             increase in expenditures:
                                             $22 million.
From Whom to Whom.........................  Federal Government to LTCH
                                             PPS Medicare Providers.
                                           -----------------------------
    Total.................................  $22 million.
------------------------------------------------------------------------

XIV. Executive Order 12866

    In accordance with the provisions of Executive Order 12866, the 
Executive Office of Management and Budget reviewed this final 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 the MedPAC, 
recommend update factors for inpatient hospital services for each 
fiscal year that take into account the amounts necessary for the 
efficient and effective delivery of medically appropriate and 
necessary care of high quality. Under section 1886(e)(5) of the Act, 
we are required to publish update factors recommended by the 
Secretary in the proposed and final IPPS rules, respectively. 
Accordingly, this Appendix provides the recommendations for the 
update factors for the IPPS national standardized amount, the Puerto 
Rico-specific standardized amount, the hospital-specific rates for 
SCHs and MDHs, and the rate-of-increase limits for certain hospitals 
excluded from the IPPS, as well as LTCHs, IPFs, and IRFs. We also 
discuss our response to MedPAC's recommended update factors for 
inpatient hospital services.

II. Inpatient Hospital Update for FY 2011

    Several provisions of the Affordable Care Act (Pub. L. 111-148 
and Pub. L. 111-152, collectively) affected the hospital inpatient 
update for both FYs 2010 and 2011. However, due to the timing of the 
passage of the legislation, we were unable to address those 
provisions in the FY 2011 IPPS/LTCH PPS proposed rule issued in the 
Federal Register on May 4, 2010 (75 FR 30756). On June 2, 2010, we 
issued a supplemental proposed rule (75 FR 30918) to the FY 2011 
IPPS/LTCH PPS proposed rule to address these provisions. The 
discussion below reflects both the provisions of the initial FY 2011 
proposed rule and the supplemental proposed rule relative to the FY 
2011 hospital inpatient update and any public comments that we 
received on both documents. We note that, in the June 2, 2010 
supplemental proposed rule, we did not propose to address the 
provisions of section 3401 of the Affordable Care Act, which 
provided for a productivity adjustment for FY 2012 and subsequent 
fiscal years. Rather, we indicated that the provisions of section 
3401 that affect FY 2012 would be addressed in future rulemaking.

A. FY 2011 Inpatient Hospital Update

    Section 3401(a) of the Affordable Care Act amended section 
1886(b)(3)(B)(i) of the Act to provide that the FY 2011 applicable 
percentage increase for IPPS hospitals equals the rate-of-increase 
in the hospital market basket for IPPS hospitals in all areas is 
reduced by 0.25 percentage point, 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. For hospitals that do 
not provide quality data, the update is equal to the market basket 
percentage increase minus a 0.25 percentage point less an additional 
2.0 percentage points. Section 3401(a)(4) of the Affordable Care Act 
further states that this amendment may result in the applicable 
percentage increase being less than zero.
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24321 and 
24322), we announced that, due to the timing of the passage of the 
Affordable Care Act, we were unable to address those statutory 
provisions in that proposed rule. In that proposed rule, consistent 
with current law, based on IHS Global Insight, Inc.'s first quarter 
2010 forecast, with historical data through the 2009 fourth quarter, 
of the FY 2011 IPPS market basket increase, we estimated that the FY 
2011 update to the operating standardized

[[Page 50676]]

amount would be 2.4 percent (that is, the then estimate of the 
market basket rate-of-increase) for hospitals in all areas, provided 
the hospital submits quality data in accordance with our rules. For 
hospitals that do not submit quality data, we estimated that the 
update to the operating standardized amount would be 0.4 percent 
(that is, the then current estimate of the market basket rate-of-
increase minus 2.0 percentage points).
    In the FY 2011 IPPS/LTCH PPS supplemental proposed rule (75 FR 
30921 through 30923), we stated that, consistent with the amendments 
to section 1886(b)(3)(B)(i) of the Act made by section 3401 of the 
Affordable Care Act, for FY 2011, we are required to reduce the 
hospital market basket update by 0.25 percentage points. Therefore, 
based on IHS Global Insight, Inc.'s first quarter 2010 forecast of 
the FY 2011 market basket increase, the estimated update to the FY 
2011 operating standardized amount was 2.15 percent (that is, the FY 
2011 estimate of the market basket rate-of-increase of 2.4 percent 
minus 0.25 percentage points) for hospitals in all areas, provided 
the hospital submits quality data in accordance with our rules. For 
hospitals that do not submit quality data, the estimated update to 
the operating standardized amount was 0.15 percent (that is, the 
adjusted FY 2011 estimate of the market basket rate-of-increase of 
2.15 percent minus 2.0 percentage points).
    Since publication of the FY 2011 IPPS/LTCH PPS supplemental 
proposed rule, our estimate of the market basket for FY 2011 has 
changed. Therefore, we are adopting in this final rule, based on IHS 
Global Insight, Inc.'s second quarter 2010 forecast of the FY 2011 
market basket increase, with historical data through the 2010 first 
quarter, an applicable percentage increase for FY 2011 of 2.35 
percent (that is, the current FY 2011 estimate of the market basket 
rate-of-increase of 2.6 percent minus 0.25 percentage point) for 
hospitals in all areas, provided the hospital submits quality data 
in accordance with our rules. For hospitals that do not submit 
quality data, the update to the operating standardized amount is 
0.35 percent (that is, the FY 2011 applicable percentage increase of 
2.35 percent minus 2.0 percentage points). As discussed in section 
IV.N. of the preamble to this final rule, we are adopting as final, 
without modification, our proposed changes to Sec.  412.64(d) to 
reflect current law.

B. Update for SCHs and MDHs for FY 2011

    Section 1886(b)(3)(B)(iv) of the Act provides that the 
applicable percentage increase applicable to the hospital-specific 
rates for SCHs and MDHs equals the applicable percentage increase 
set forth in section 1886(b)(3)(B)(i) of 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 and MDHs equal to 
the update factor for all other IPPS hospitals, the update to the 
hospital specific rates for SCHs and MDHs is also subject to the 
amendments to section 1886(b)(3)(B)(i) of the Act made by section 
3401(a) of the Affordable Care Act. Because the Act requires us to 
apply to the hospital-specific rates the update factor for all other 
IPPS hospitals, the update to the hospital specific rates for FY 
2011 for SCHs and MDHs is also subject to section 1886(b)(3)(B)(i) 
of the Act, as amended by the Affordable Care Act. Accordingly, the 
FY 2011 update to the hospital-specific rates applicable to SCHs and 
MDHs is 2.35 percent for hospitals that submit quality data or 0.35 
percent for hospitals that fail to submit quality data. As discussed 
in section IV.N. of the preamble to this final rule, we are adopting 
as final our proposed changes to the regulations at Sec. Sec.  
412.73(c)(15), 412.75(d), 412.77(e), 412.78(e), and 412.79(d) to 
implement the statutory reduction to the FY 2011 market basket.

C. FY 2011 Puerto Rico Hospital Update

    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 1886(d)(9)(C)(i) of the Act 
provides that the Puerto Rico standardized amount shall be adjusted 
in accordance with the final determination of the Secretary under 
section 1886(d)(4) of the Act. Section 1886(e)(4)(1) of the Act in 
turn directs the Secretary to recommend an appropriate change factor 
for Puerto Rico hospitals taking into account amounts necessary for 
the efficient and effective delivery of medically appropriate and 
necessary care of high quality, as well as the recommendations of 
MedPAC. In order to maintain consistency between the portion of the 
rates paid to Puerto Rico hospitals under the IPPS based on the 
national standardized amount and the portion based on the Puerto 
Rico-specific standardized rate, beginning in FY 2004, we have set 
the update to the Puerto Rico-specific operating standardized amount 
equal to the update to the national operating standardized amount 
for all IPPS hospitals.
    As discussed in the preamble to this final rule, the amendments 
to section 1886(b)(3)(B)(i) of the Act by sections 3401(a) and 
10319(a) of the Affordable Care Act affected only the update factor 
applicable to the national standardized rate for IPPS hospitals and 
the hospital-specific rates; they do not mandate any revisions to 
the update factor applicable to the Puerto Rico-specific 
standardized amount. Rather, as noted above, sections 
1886(d)(9)(C)(i) and (e)(4) of the Act direct us to adopt an 
appropriate change factor for the FY 2010 Puerto Rico-specific 
standardized amount, which we did in the FY 2010 IPPS/LTCH PPS final 
rule after notice and consideration of public comments. Therefore, 
we do not believe we have the authority to adjust the FY 2010 update 
factor for the Puerto Rico-specific operating standardized amount 
for the second half of FY 2010 equal to the update factor applicable 
to the national standardized amount or the hospital-specific rates 
(that is the market basket minus 0.25 percentage points). 
Accordingly, the FY 2010 update to the Puerto Rico-specific 
operating standardized amount is 2.1 percent (that is, the FY 2010 
estimate of the market basket rate-of-increase) for the entire FY 
2010.
    In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24321), for FY 
2011, consistent with our past practice, we proposed to apply the 
full rate-of-increase in the hospital market basket for IPPS 
hospitals to the Puerto Rico-specific standardized amount. In the 
June 2, 2010 supplemental proposed rule (75 FR 30923), consistent 
with our past practice of applying the same update factor to the 
Puerto Rico-specific standardized amount as applied to the national 
standardized amount (and to conform to the changes to calculation of 
the national standardized amount made by the Affordable Care Act), 
for FY 2011, we proposed to revise the regulations at Sec.  
412.211(c) to 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. We did not 
receive any public comments on our proposal. Therefore, in the 
preamble of this final rule, we adopted as final, without 
modification, the proposed changes to revise Sec.  412.211(c). 
Consequently, we are applying an update factor for the Puerto Rico-
specific standardized amount equal to the FY 2011 IPPS applicable 
percentage increase (the market basket rate-of-increase of 2.6 
percent minus 0.25 percentage point, or 2.35 percent), for FY 2011.

D. Update for Hospitals Excluded From the IPPS

    Section 1886(b)(3)(B)(ii) of the Act is used for purposes of 
determining the percentage increase in the rate-of-increase limits 
for children's and cancer hospitals. Section 1886(b)(3)(B)(ii) of 
the Act sets the percentage increase in the rate-of-increase limits 
equal to the market basket percentage increase. In accordance with 
Sec.  403.752(a) of the regulations, RNHCIs are paid under Sec.  
413.40, which also uses section 1886(b)(3)(B)(ii) of the Act to 
update the percentage increase in the rate-of-increase limits. 
Section 1886(j)(3)(C) of the Act addresses the increase factor for 
the Federal prospective payment rate of IRFs. Section 123 of Public 
Law 106-113, as amended by section 307(b) of Public Law 106-554, 
provides the statutory authority for updating payment rates under 
the LTCH PPS. In addition, section 124 of Public Law 106-113 
provides the statutory authority for updating all aspects of the 
payment rates for IPFs.
    Currently, children's hospitals, cancer hospitals, and RNHCIs 
are the remaining three types of hospitals still reimbursed under 
the reasonable cost methodology. As we proposed, we are providing 
our current estimate of the FY 2011 IPPS operating market basket 
percentage increase (2.6 percent) to update the target limits for 
children's hospitals, cancer hospitals, and RNHCIs.
    For FY 2011, as discussed in section VII. of the preamble to 
this final rule, we are establishing an update to the LTCH PPS 
standard Federal rate for FY 2011 based on the full LTCH PPS market 
basket increase estimate (2.5 percent), including the requirement 
that we reduce the LTCH PPS market basket increase by 0.50 
percentage point reduction in accordance with sections 3401(c), 
10319(b) and 1105(b) of the Affordable Care Act which amended 
section 1886(m) of the Act, of 2.0 percent and an adjustment to 
account for the increase in case-mix in prior periods (FYs 2008 and

[[Page 50677]]

2009) that resulted from changes in documentation and coding 
practices of -2.5 percent. Accordingly, the update factor to the 
standard Federal rate for FY 2011 is -0.49 percent (that is, we are 
applying a factor of 0.9951 in determining the LTCH PPS standard 
Federal rate for FY 2011, calculated as 1.020 x 1 divided by 1.025 = 
0.9951 or -0.49 percent).
    Effective for cost reporting periods beginning on or after 
January 1, 2005, IPFs are paid under the IPF PPS. IPF PPS payments 
are based on a Federal per diem rate that is derived from the sum of 
the average routine operating, ancillary, and capital costs for each 
patient day of psychiatric care in an IPF, adjusted for budget 
neutrality. Section 1886(s)(3)(A) of the Act, which was added by 
section 3401(f) of the Affordable Care Act, as further amended by 
section 10319(e) and by section 1105 of such Act, requires the 
application of an ``Other Adjustment'' that reduces any update to 
the IPF PPS base rate by 0.25 percentage point for the rate year 
beginning in 2010. Therefore, as announced in the IPF RY 2011 notice 
(75 FR 23109), we reduced the update to the IPF PPS base rate of 2.4 
percent (based on the FY 2002-based RPL market basket and IHS Global 
Insight, Inc.'s first quarter 2010 forecast) by 0.25 percentage 
point for RY 2011.
    IRFs are paid under the IRF PPS for cost reporting periods 
beginning on or after January 1, 2002. For cost reporting periods 
beginning on or after October 1, 2002 (FY 2003), and thereafter, the 
Federal prospective payments to IRFs are based on 100 percent of the 
adjusted Federal IRF prospective payment amount, updated annually 
(69 FR 45721). Section 1886(j)(3)(D) of the Act, which was added by 
Section 3401(d) of the Affordable Care Act, as further amended by 
section 10319 and by section 1105 of such Act, requires the 
Secretary to reduce the market basket factor by 0.25 percentage 
point for FY 2011. Therefore, as announced in the IRF FY 2011 notice 
(75 FR 42848 and 42849), we reduced the update to the IRF PPS 
Federal rate of 2.5 percent (based on the FY 2002-based RPL market 
basket and IHS Global Insight, Inc.'s second quarter 2010 forecast) 
by 0.25 percentage point for FY 2011. Thus, the adjusted RPL market 
basket increase factor is 2.25 percent for FY 2011.

III. Secretary's Final Recommendations

    MedPAC is recommending an inpatient hospital update equal to the 
market basket rate of increase for FY 2011. MedPAC's rationale for 
this update recommendation is described in more detail below. As 
mentioned above, section 1886(e)(4)(A) of the Act requires that the 
Secretary, taking into consideration the recommendations of the 
MedPAC, recommend update factors for inpatient hospital services for 
each fiscal year that take into account the amounts necessary for 
the efficient and effective delivery of medically appropriate and 
necessary care of high quality. Consistent with the update factor in 
the President's budget (and prior to other adjustments required 
under the statute), we are recommending an update to the 
standardized amount of 2.9 percent. We are recommending that this 
same update factor apply to SCHs and MDHs.
    Section 1886(d)(9)(C)(i) of the Act is the basis for determining 
the percentage increase to the Puerto Rico-specific standardized 
amount. As discussed above, we finalized our proposal to revise 
Sec.  412.211(c) to 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, we are applying an update factor for the Puerto Rico-
specific standardized amount equal to the FY 2011 IPPS applicable 
percentage increase (the market basket rate-of-increase of 2.6 
percent minus 0.25 percentage points), or 2.35 percent, for FY 2011.
    In addition to making a recommendation for IPPS hospitals, in 
accordance with section 1886(e)(4)(A) of the Act, we also are 
recommending update factors for all other types of hospitals. 
Consistent with the update factor in the President's budget, we are 
recommending an update for children's hospitals, cancer hospitals, 
and RNHCIs of 2.9 percent.
    For FY 2011, consistent with policy set forth in section VII. of 
the preamble of this final rule, we are recommending an update of -
0.49 percent to the LTCH PPS standard Federal rate. In addition, 
consistent with the update specified in the FY 2011 IRF PPS notice 
(as described above), we are recommending an update of 2.25 percent 
to the IRF PPS Federal rate for FY 2011. Finally, consistent with 
the update specified in the FY 2011 IPF PPS notice (as described 
above), we are recommending an update of 2.4 percent reduced by 0.25 
percentage point to the IPF PPS Federal rate for RY 2011 for the 
Federal per diem payment amount.

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

    In its March 2010 Report to Congress, MedPAC assessed the 
adequacy of current payments and costs, and the relationship between 
payments and an appropriate cost base. MedPAC recommended an update 
to the hospital inpatient rates equal to the increase in the 
hospital market basket in FY 2011, concurrent with implementation of 
a quality incentive program. MedPAC's reasoning is that under a 
quality program, an individual hospital's quality performance should 
determine whether its net increase in payments is above or below the 
market basket increase. MedPAC noted the importance of hospitals to 
control their costs rather than accommodate the current rate of cost 
growth.
    MedPAC also noted that indicators of payment adequacy are 
positive. MedPAC expects Medicare margins to remain low in 2011. At 
the same time though, MedPAC's analysis finds that high-performing 
hospitals have been able to maintain relatively low costs while 
maintaining a relatively high quality of care. In addition, roughly 
half of these providers are generating a profit on their Medicare 
business.
    Response: Similar to our response last year, we agree with 
MedPAC that hospitals should control costs rather than have Medicare 
accommodate the current rate of growth. As MedPAC noted, the lack of 
financial pressure at certain hospitals can lead to higher costs and 
in turn bring down the overall Medicare margin for the industry.
    In addition to the quality data that hospitals are required to 
submit to CMS, as discussed in section II. of the preamble of this 
final rule, CMS implemented the MS-DRGs in FY 2008 to better account 
for severity of illness under the IPPS and is basing the DRG weights 
on costs rather than charges. We continue to believe that these 
refinements will better match Medicare payment of the cost of care 
and provide incentives for hospitals to be more efficient in 
controlling costs.
    We note that, because the operating and capital prospective 
payment systems remain separate, we are continuing to use separate 
updates for operating and capital payments. The update to the 
capital rate is discussed in section III. of the Addendum to this 
final rule.
    We did not receive any public comments on MedPAC's 
recommendation.

[FR Doc. 2010-19092 Filed 7-30-10; 4:15 pm]
BILLING CODE 4120-01-P
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