Vol. 79 Thursday, 

No. 94 May 15, 2014 

Part II 

Department of Health and Human Services 

Centers for Medicare & Medicaid Services 

42 CFR Parts 405, 412, 413, et al. 

Medicare Program; Hospital Inpatient Prospective Payment Systems for 

Acute Care Hospitals and the Long Term Care Hospital Prospective 

Payment System and Proposed Fiscal Year 2015 Rates; Quality Reporting 

Requirements for Specific Providers; Reasonable Compensation Equivalents 

for Physician Services in Excluded Teaching Hospitals; Provider 

Administrative Appeals and Judicial Review; Enforcement Provisions for 

Organ Transplant Centers; and Electronic Health Record (EHR) Incentive 

Program; Proposed Rule 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

27978 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 405, 412, 413, 415, 422, 

424, 485, and 488 

[CMS–1607–P] RIN 0938–AS11 

Medicare Program; Hospital Inpatient 

Prospective Payment Systems for 

Acute Care Hospitals and the LongTerm Care Hospital Prospective 

Payment System and Proposed Fiscal 

Year 2015 Rates; Quality Reporting 

Requirements for Specific Providers; 

Reasonable Compensation 

Equivalents for Physician Services in 

Excluded Teaching Hospitals; Provider 

Administrative Appeals and Judicial 

Review; Enforcement Provisions for 

Organ Transplant Centers; and 

Electronic Health Record (EHR) 

Incentive Program 

AGENCY: Centers for Medicare and 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: We are proposing to revise the 

Medicare hospital inpatient prospective 

payment systems (IPPS) for operating 

and capital-related costs of acute care 

hospitals to implement changes arising 

from our continuing experience with 

these systems. Some of the proposed 

changes implement certain statutory 

provisions contained in the Patient 

Protection and Affordable Care Act and 

the Health Care and Education 

Reconciliation Act of 2010 (collectively 

known as the Affordable Care Act), the 

Protecting Access to Medicare Act of 

2014, and other legislation. These 

proposed changes would be applicable 

to discharges occurring on or after 

October 1, 2014, unless otherwise 

specified in this proposed rule. We also 

are proposing to update the rate-ofincrease limits for certain hospitals 

excluded from the IPPS that are paid on 

a reasonable cost basis subject to these 

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

cost reporting periods beginning on or 

after October 1, 2014. 

We also are proposing to update the 

payment policies and the annual 

payment rates for the Medicare 

prospective payment system (PPS) for 

inpatient hospital services provided by 

long-term care hospitals (LTCHs) and to 

implement certain statutory changes to 

the LTCH PPS under the Affordable 

Care Act and the Pathway for 

Sustainable Growth Rate (SGR) Reform 

Act of 2013 and the Protecting Access 

to Medicare Act of 2014. In addition we 

are proposing to revise the interruption 

of stay policy for LTCHs and to retire 

the ‘‘5 percent’’ payment adjustment for 

co-located LTCHs. While many of the 

statutory mandates of the Pathway for 

SGR Reform Act will apply to 

discharges occurring on or after October 

1, 2014, others will not begin to apply 

until 2016 and beyond. However, in 

light of the degree of forthcoming 

change, we discuss changes infra and 

request public feedback to inform our 

proposals for FY 2016 in this proposed 

rule as well. 

In addition, we are proposing to make 

a number of changes relating to direct 

graduate medical education (GME) and 

indirect medical education (IME) 

payments. We are proposing to establish 

new requirements or revise 

requirements for quality reporting by 

specific providers (acute care hospitals, 

PPS-exempt cancer hospitals, and 

LTCHs) that are participating in 

Medicare. 

We are proposing to update policies 

relating to the Hospital Value-Based 

Purchasing (VBP) Program, the Hospital 

Readmissions Reduction Program, and 

the Hospital-Acquired Condition (HAC) 

Reduction Program. In addition, we are 

proposing changes to the regulations 

governing provider administrative 

appeals and judicial review relating to 

appropriate claims in provider cost 

reports; updates to the reasonable 

compensation equivalent (RCE) limits 

for services furnished by physicians to 

teaching hospitals excluded from the 

IPPS; regulatory revisions to broaden 

the specified uses of risk adjustment 

data and to specify the conditions for 

release of risk adjustment data to 

entities outside of CMS; and changes to 

the enforcement procedures for organ 

transplant centers. 

We are proposing to align the 

reporting and submission timelines for 

clinical quality measures for the 

Medicare EHR Incentive Program for 

eligible hospitals and critical access 

hospitals (CAHs) with the reporting and 

submission timelines for the Hospital 

IQR Program. In addition, we provide 

guidance and clarification of certain 

policies for eligible hospitals and CAHs 

such as our policy for reporting zero 

denominators on clinical quality 

measures and our policy for case 

threshold exemptions. 

DATES: Comment Period: To be assured 

consideration, comments must be 

received at one of the addresses 

provided below, no later than 5 p.m. 

EDT on June 30, 2014. 

ADDRESSES: In commenting, please refer 

to file code CMS–1607–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (no duplicates, please): 

1. Electronically. You may (and we 

encourage you to) submit electronic 

comments on this regulation to http://

www.regulations.gov. Follow the 

instructions under the ‘‘submit a 

comment’’ tab. 

2. By regular mail. You may mail 

written comments to the following 

address ONLY: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–1607–P, P.O. Box 8011, Baltimore, 

MD 21244–1850. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments via express 

or overnight mail to the following 

address ONLY: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–1607–P, Mail Stop C4–26–05, 

7500 Security Boulevard, Baltimore, MD 

21244–1850. 

4. By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments before the close 

of the comment period to either of the 

following addresses: 

a. For delivery in Washington, DC— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Room 445–G, Hubert 

H. Humphrey Building, 200 

Independence Avenue SW., 

Washington, DC 20201. 

(Because access to the interior of the 

Hubert H. Humphrey 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. For delivery in Baltimore, MD— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

If you intend to deliver your 

comments to the Baltimore address, 

please call the 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, we refer readers to the 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 27979 

beginning of the SUPPLEMENTARY

INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: 

Donald Thompson, (410) 786–4487, 

and Tiffany Swygert, (410) 786–4465, 

Operating Prospective Payment, MS– 

DRGs, Hospital-Acquired Conditions 

(HAC), Wage Index, New Medical 

Service and Technology Add-On 

Payments, Hospital Geographic 

Reclassifications, Graduate Medical 

Education, Capital Prospective Payment, 

Excluded Hospitals, and Medicare 

Disproportionate Share Hospital (DSH) 

Issues. 

Michele Hudson, (410) 786–4487, and 

Judith Richter, (410) 786–2590, LongTerm Care Hospital Prospective 

Payment System and MS–LTC–DRG 

Relative Weights Issues. 

Siddhartha Mazumdar, (410) 786– 

6673, Rural Community Hospital 

Demonstration Program Issues. 

James Poyer, (410) 786–2261, Hospital 

Inpatient Quality Reporting and 

Hospital Value-Based Purchasing— 

Program Administration, Validation, 

and Reconsideration Issues. 

Karen Nakano, (410) 786–6889, 

Hospital Inpatient Quality Reporting— 

Measures Issues Except Hospital 

Consumer Assessment of Healthcare 

Providers and Systems Issues; and 

Readmission Measures for Hospitals 

Issues. 

Elizabeth Goldstein, (410) 786–6665, 

Hospital Inpatient Quality Reporting— 

Hospital Consumer Assessment of 

Healthcare Providers and Systems 

Measures Issues. 

Mary Pratt, (410) 786–6867, LTCH 

Quality Data Reporting Issues. 

Kim Spalding Bush, (410) 786–3232, 

Hospital Value-Based Purchasing 

Efficiency Measures Issues. 

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

Reporting Issues. 

Kellie Shannon, (410) 786–0416, 

Appropriate Claims in Provider Cost 

Reports; Administrative Appeals by 

Providers and Judicial Review Issues. 

Amelia Citerone, (410) 786–3901, and 

Robert Kuhl (410) 786–4597, Reasonable 

Compensation Equivalent (RCE) Limits 

for Physician Services Provided in 

Providers. 

Ann Hornsby, (410) 786–1181, and 

Jennifer Harlow, (410) 786–4549, 

Medicare Advantage Encounter Data 

Issues. 

Thomas Hamilton, (410) 786–6763, 

Organ Transplant Center Issues. 

Jennifer Phillips, (410) 786–1023, 2- 

Midnight Rule Benchmark Issues. 

SUPPLEMENTARY INFORMATION: 

Inspection of Public Comments: All 

public 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 

public comments received before the 

close of the comment period on the 

following Web site as soon as possible 

after they have been received: http://

www.regulations.gov. Follow the search 

instructions on that Web site to view 

public comments. 

Electronic Access 

This Federal Register document is 

also available from the Federal Register 

online database through Federal Digital 

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

Government Printing Office. This 

database can be accessed via the 

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

Tables Available Only Through the 

Internet on the CMS Web Site 

In the past, a majority of the tables 

referred to throughout this preamble 

and in the Addendum to the proposed 

rule and the final rule were published 

in the Federal Register as part of the 

annual proposed and final rules. 

However, beginning in FY 2012, some of 

the IPPS tables and LTCH PPS tables are 

no longer published in the Federal 

Register. Instead, these tables are 

available only through the Internet. The 

IPPS tables for this proposed rule are 

available only through the Internet on 

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

hhs.gov/Medicare/medicare-Fee-forService-Payment/AcuteInpatientPPS/

index.html. Click on the link on the left 

side of the screen titled, ‘‘FY 2015 IPPS 

Proposed Rule Home Page’’ or ‘‘Acute 

Inpatient—Files for Download’’. The 

LTCH PPS tables for this FY 2015 

proposed rule are available only through 

the Internet on the CMS Web site at: 

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

Medicare-Fee-for-Service-Payment/Long

TermCareHospitalPPS/index.html 

under the list item for Regulation 

Number CMS–1607–P. For complete 

details on the availability of the tables 

referenced in this proposed rule, we 

refer readers to section VI. of the 

Addendum to this proposed rule. 

Readers who experience any problems 

accessing any of the tables that are 

posted on the CMS Web sites identified 

above should contact Michael Treitel at 

(410) 786–4552. 

Acronyms 

3M 3M Health Information System 

AAMC Association of American Medical 

Colleges 

ACGME Accreditation Council for Graduate 

Medical Education 

ACoS American College of Surgeons 

AHA American Hospital Association 

AHIC American Health Information 

Community 

AHIMA American Health Information 

Management Association 

AHRQ Agency for Healthcare Research and 

Quality 

AJCC American Joint Committee on Cancer 

ALOS Average length of stay 

ALTHA Acute Long Term Hospital 

Association 

AMA American Medical Association 

AMGA American Medical Group 

Association 

AMI Acute myocardial infarction 

AOA American Osteopathic Association 

APR DRG All Patient Refined Diagnosis 

Related Group System 

APRN Advanced practice registered nurse 

ARRA American Recovery and 

Reinvestment Act of 2009, Public Law 

111–5 

ASCA Administrative Simplification 

Compliance Act of 2002, Public Law 107– 

105 

ASITN American Society of Interventional 

and Therapeutic Neuroradiology 

ATRA American Taxpayer Relief Act of 

2012, Public Law 112–240 

BBA Balanced Budget Act of 1997, Public 

Law 105–33 

BBRA Medicare, Medicaid, and SCHIP 

[State Children’s Health Insurance 

Program] Balanced Budget Refinement Act 

of 1999, Public Law 106–113 

BIPA Medicare, Medicaid, and SCHIP [State 

Children’s Health Insurance Program] 

Benefits Improvement and Protection Act 

of 2000, Public Law 106–554 

BLS Bureau of Labor Statistics 

CABG Coronary artery bypass graft 

[surgery] 

CAH Critical access hospital 

CARE [Medicare] Continuity Assessment 

Record & Evaluation [Instrument] 

CART CMS Abstraction & Reporting Tool 

CAUTI Catheter-associated urinary tract 

infection 

CBSAs Core-based statistical areas 

CC Complication or comorbidity 

CCN CMS Certification Number 

CCR Cost-to-charge ratio 

CDAC [Medicare] Clinical Data Abstraction 

Center 

CDAD Clostridium difficile-associated 

disease 

CDC Center for Disease Control and 

Prevention 

CERT Comprehensive error rate testing 

CDI Clostridium difficile (C. difficile) 

CFR Code of Federal Regulations 

CLABSI Central line-associated 

bloodstream infection 

CIPI Capital input price index 

CMI Case-mix index 

CMS Centers for Medicare & Medicaid 

Services 

CMSA Consolidated Metropolitan 

Statistical Area 

COBRA Consolidated Omnibus 

Reconciliation Act of 1985, Public Law 99– 

272 

COLA Cost-of-living adjustment 

CoP [Hospital] condition of participation 

COPD Chronis obstructive pulmonary 

disease 

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27980 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

CPI Consumer price index 

CQM Clinical quality measure 

CRNA Certified registered nurse anesthetist 

CY Calendar year 

DACA Data Accuracy and Completeness 

Acknowledgement 

DPP Disproportionate patient percentage 

DRA Deficit Reduction Act of 2005, Public 

Law 109–171 

DRG Diagnosis-related group 

DSH Disproportionate share hospital 

EBRT External Bean Radiotherapy 

ECI Employment cost index 

eCQM Electronic clinical quality measure 

EDB [Medicare] Enrollment Database 

EHR Electronic health record 

EMR Electronic medical record 

EMTALA Emergency Medical Treatment 

and Labor Act of 1986, Public Law 99–272 

EP Eligible professional 

FAH Federation of American Hospitals 

FDA Food and Drug Administration 

FFY Federal fiscal year 

FPL Federal poverty line 

FQHC Federally qualified health center 

FR Federal Register 

FTE Full-time equivalent 

FY Fiscal year 

GAF Geographic Adjustment Factor 

GME Graduate medical education 

HAC Hospital-acquired condition 

HAI Healthcare-associated infection 

HCAHPS Hospital Consumer Assessment of 

Healthcare Providers and Systems 

HCFA Health Care Financing 

Administration 

HCO High-cost outlier 

HCRIS Hospital Cost Report Information 

System 

HHA Home health agency 

HHS Department of Health and Human 

Services 

HICAN Health Insurance Claims Account 

Number 

HIPAA Health Insurance Portability and 

Accountability Act of 1996, Public Law 

104–191 

HIPC Health Information Policy Council 

HIS Health information system 

HIT Health information technology 

HMO Health maintenance organization 

HPMP Hospital Payment Monitoring 

Program 

HSA Health savings account 

HSCRC [Maryland] Health Services Cost 

Review Commission 

HSRV Hospital-specific relative value 

HSRVcc Hospital-specific relative value 

cost center 

HQA Hospital Quality Alliance 

HQI Hospital Quality Initiative 

IBR Intern- and Resident-to-Bed Ratio 

ICD–9–CM International Classification of 

Diseases, Ninth Revision, Clinical 

Modification 

ICD–10–CM International Classification of 

Diseases, Tenth Revision, Clinical 

Modification 

ICD–10–PCS International Classification of 

Diseases, Tenth Revision, Procedure 

Coding System 

ICR Information collection requirement 

IGI IHS Global Insight, Inc. 

IHS Indian Health Service 

IME Indirect medical education 

I–O Input-Output 

IOM Institute of Medicine 

IPF Inpatient psychiatric facility 

IPFQR Inpatient Psychiatric Facility 

Quality Reporting [Program] 

IPPS [Acute care hospital] inpatient 

prospective payment system 

IRF Inpatient rehabilitation facility 

IQR Inpatient Quality Reporting 

LAMCs Large area metropolitan counties 

LOS Length of stay 

LTC–DRG Long-term care diagnosis-related 

group 

LTCH Long-term care hospital 

LTCHQR Long-Term Care Hospital Quality 

Reporting 

MA Medicare Advantage 

MAC Medicare Administrative Contractor 

MAP Measure Application Partnership 

MCC Major complication or comorbidity 

MCE Medicare Code Editor 

MCO Managed care organization 

MDC Major diagnostic category 

MDH Medicare-dependent, small rural 

hospital 

MedPAC Medicare Payment Advisory 

Commission 

MedPAR Medicare Provider Analysis and 

Review File 

MEI Medicare Economic Index 

MGCRB Medicare Geographic Classification 

Review Board 

MIEA–TRHCA Medicare Improvements and 

Extension Act, Division B of the Tax Relief 

and Health Care Act of 2006, Public Law 

109–432 

MIPPA Medicare Improvements for Patients 

and Providers Act of 2008, Public Law 

110–275 

MMA Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003, Public Law 108–173 

MMEA Medicare and Medicaid Extenders 

Act of 2010, Public Law 111–309 

MMSEA Medicare, Medicaid, and SCHIP 

Extension Act of 2007, Public Law 110–173 

MRHFP Medicare Rural Hospital Flexibility 

Program 

MRSA Methicillin-resistant Staphylococcus 

aureus 

MSA Metropolitan Statistical Area 

MS–DRG Medicare severity diagnosisrelated group 

MS–LTC–DRG Medicare severity long-term 

care diagnosis-related group 

MU Meaningful Use [EHR Incentive 

Program] 

NAICS North American Industrial 

Classification System 

NALTH National Association of Long Term 

Hospitals 

NCD National coverage determination 

NCHS National Center for Health Statistics 

NCQA National Committee for Quality 

Assurance 

NCVHS National Committee on Vital and 

Health Statistics 

NECMA New England County Metropolitan 

Areas 

NHSN National Healthcare Safety Network 

NOP Notice of Participation 

NQF National Quality Forum 

NQS National Quality Strategy 

NTIS National Technical Information 

Service 

NTTAA National Technology Transfer and 

Advancement Act of 1991, Public Law 

104–113 

NVHRI National Voluntary Hospital 

Reporting Initiative 

OACT [CMS] Office of the Actuary 

OBRA 86 Omnibus Budget Reconciliation 

Act of 1986, Public Law 99–509 

OES Occupational employment statistics 

OIG Office of the Inspector General 

OMB [Executive] Office of Management and 

Budget 

OPM [U.S.] Office of Personnel 

Management 

OQR [Hospital] Outpatient Quality 

Reporting 

O.R. Operating room 

OSCAR Online Survey Certification and 

Reporting [System] 

PCH PPS-exempt cancer hospital 

PCHQR PPS-exempt cancer hospital quality 

reporting 

PMSAs Primary metropolitan statistical 

areas 

POA Present on admission 

PPI Producer price index 

PPS Prospective payment system 

PRM Provider Reimbursement Manual 

ProPAC Prospective Payment Assessment 

Commission 

PRRB Provider Reimbursement Review 

Board 

PRTFs Psychiatric residential treatment 

facilities 

PSF Provider-Specific File 

PSI Patient safety indicator 

PS&R Provider Statistical and 

Reimbursement [System] 

PQRS Physician Quality Reporting System 

QIG Quality Improvement Group [CMS] 

QIO Quality Improvement Organization 

QRDA Quality Reporting Data Architecture 

RCE Reasonable compensation equivalent 

RFA Regulatory Flexibility Act, Public Law 

96–354 

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 

RSMR Risk-standardized mortality rate 

RSRR Risk-standard readmission rate 

RTI Research Triangle Institute, 

International 

RUCAs Rural-urban commuting area codes 

RY Rate year 

SAF Standard Analytic File 

SCH Sole community hospital 

SCIP Surgical Care Improvement Project 

SFY State fiscal year 

SIC Standard Industrial Classification 

SNF Skilled nursing facility 

SOCs Standard occupational classifications 

SOM State Operations Manual 

SSI Surgical site infection 

SSI Supplemental Security Income 

SSO Short-stay outlier 

SUD Substance use disorder 

TEFRA Tax Equity and Fiscal 

Responsibility Act of 1982, Public Law 97– 

248 

TEP Technical expert panel 

THA/TKA Total hip arthroplasty/Total 

knee arthroplasty 

TMA TMA [Transitional Medical 

Assistance], Abstinence Education, and QI 

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Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 27981 

[Qualifying Individuals] Programs 

Extension Act of 2007, Public Law 110–90 

TPS Total Performance Score 

UHDDS Uniform hospital discharge data set 

UMRA Unfunded Mandate Reform Act, 

Public Law 104–4 

VBP [Hospital] Value Based Purchasing 

[Program] 

VTE Venous thromboembolism 

Table of Contents 

I. Executive Summary and Background 

A. Executive Summary 

1. Purpose and Legal Authority 

2. Summary of the Major Provisions 

3. Summary of Costs and Benefits 

B. Summary 

1. Acute Care Hospital Inpatient 

Prospective Payment System (IPPS) 

2. Hospitals and Hospital Units Excluded 

From the IPPS 

3. Long-Term Care Hospital Prospective 

Payment System (LTCH PPS) 

4. Critical Access Hospitals (CAHs) 

5. Payments for Graduate Medical 

Education (GME) 

C. Summary of Provisions of Recent 

Legislation Discussed in This Proposed 

Rule 

1. Patient Protection and Affordable Care 

Act (Pub. L. 111–148) and the Health 

Care and Education Reconciliation Act of 

2010 (Pub. L. 111–152) 

2. American Taxpayer Relief Act of 2012 

(Pub. L. 112–240) 

3. Pathway for Sustainable Growth Rate 

(SGR) Reform Act of 2013 (Pub. L. 113– 

67) 

4. Protecting Access to Medicare Act of 

2014 (Pub. L. 113–93) 

D. Summary of the Provisions of This 

Proposed Rule 

II. Proposed Changes to Medicare Severity 

Diagnosis-Related Group (MS–DRG) 

Classifications and Relative Weights 

A. Background 

B. MS–DRG Reclassifications 

C. Adoption of the MS–DRGs in FY 2008 

D. Proposed FY 2015 MS–DRG 

Documentation and Coding Adjustment 

1. Background on the Prospective MS–DRG 

Documentation and Coding Adjustments 

for FY 2008 and FY 2009 Authorized by 

Public Law 110–90 

2. Adjustment to the Average Standardized 

Amounts Required by Public Law 110– 

90 

a. Prospective Adjustment Required by 

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

b. Recoupment or Repayment Adjustments 

in FYs 2010 Through 2012 Required by 

Section 7(b)(1)(B) Public Law 110–90 

3. Retrospective Evaluation of FY 2008 and 

FY 2009 Claims Data 

4. Prospective Adjustments for FY 2008 

and FY 2009 Authorized by Section 

7(b)(1)(A) of Public Law 110–90 

5. Recoupment or Repayment Adjustment 

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

Public Law 110–90 

6. Recoupment or Repayment Adjustment 

Authorized by Section 631 of the 

American Taxpayer Relief Act of 2012 

(ATRA) 

7. Prospective Adjustment for the MS–DRG 

Documentation and Coding Effect 

Through FY 2010 

E. Refinement of the MS–DRG Relative 

Weight Calculation 

1. Background 

2. Discussion for FY 2015 

F. Proposed Adjustment to MS–DRGs for 

Preventable Hospital-Acquired 

Conditions (HACs), Including Infections 

1. Background 

2. HAC Selection 

3. Present on Admission (POA) Indicator 

Reporting 

4. HACs and POA Reporting in Preparation 

for Transition to ICD–10–CM and ICD– 

10–PCS 

5. Proposal Regarding Current HACs and 

Previously Considered Candidate HACs 

6. RTI Program Evaluation 

7. Current and Previously Considered 

Candidate HACs—RTI Report on 

Evidence-Based Guidelines 

G. Proposed Changes to Specific MS–DRG 

Classifications 

1. Discussion of Changes to Coding System 

and Basis for Proposed MS–DRG 

Updates 

a. Conversion of MS–DRGs to the 

International Classification of Diseases, 

10th Edition (ICD–10) 

b. Basis for FY 2015 MS–DRG Updates 

2. MDC 1 (Diseases and Disorders of the 

Nervous System) 

a. Intracerebral Therapies: Gliadel® Wafer 

b. Endovascular Embolization or Occlusion 

of Head and Neck 

3. MDC 4 (Diseases and Disorders of the 

Ear, Nose, Mouth and Throat): Avery 

Breathing Pacemaker System 

4. MDC 5 (Diseases and Disorders of the 

Circulatory System) 

a. Exclusion of Left Atrial Appendage 

b. Transcatheter Mitral Valve Repair: 

MitraClip®

c. Endovascular Cardiac Valve 

Replacement Procedures 

d. Abdominal Aorta Graft 

5. MDC 8 (Diseases and Disorders of the 

Musculoskeletal System and Connective 

Tissue) 

a. Shoulder Replacement Procedures 

b. Ankle Replacement Procedures 

c. Back and Neck Procedures 

6. MDC 10 (Endocrine, Nutritional and 

Metabolic Diseases and Disorders): 

Disorders of Porphyria Metabolism 

7. MDC 15 (Newborns and Other Neonates 

With Conditions Originating in the 

Perinatal Period) 

8. Proposed Medicare Code Editor (MCE) 

Changes 

9. Proposed Changes to Surgical 

Hierarchies 

10. Proposed Changes to the MS–DRG 

Diagnosis Codes for FY 2015 

a. Major Complications or Comorbidities 

(MCCs) and Complications or 

Comorbidities (CCs) Severity Levels for 

FY 2015 

b. Coronary Atherosclerosis Due to 

Calcified Coronary Lesion 

11. Complications or Comorbidity (CC) 

Exclusions List 

a. Background of the CC List and the CC 

Exclusions List 

b. Proposed CC Exclusions List for FY 2015 

12. Review of Procedure Codes in MS– 

DRGs 981 Through 983, 984 Through 

986, and 987 Through 989 

a. Moving Procedure Codes From MS– 

DRGs 981 Through 983 or MS–DRGs 987 

Through 989 Into MDCs 

b. Reassignment of Procedures Among MS– 

DRGs 981 Through 983, 984 Through 

986, and 987 Through 989 

c. Adding Diagnosis or Procedure Codes to 

MDCs 

13. Proposed Changes to the ICD–9–CM 

Coding System 

a. ICD–10 Coordination and Maintenance 

Committee 

b. Code Freeze 

H. Recalibration of the Proposed FY 2015 

MS–DRG Relative Weights 

1. Data Sources for Developing the 

Proposed Relative Weights 

2. Methodology for Calculation of the 

Proposed Relative Weights 

3. Development of National Average CCRs 

4. Bundled Payments for Care 

Improvement (BPCI) Initiative 

I. Proposed Add-On Payments for New 

Services and Technologies 

1. Background 

2. Public Input Before Publication of a 

Notice of Proposed Rulemaking on AddOn Payments 

3. FY 2015 Status of Technologies 

Approved for FY 2014 Add-On Payments 

a. Glucarpidase (Trade Brand Voraxaze®) 

b. DIFICIDTM (Fidaxomicin) Tablets 

c. Zenith® Fenestrated Abdominal Aortic 

Aneurysm (AAA) Endovascular Graft 

d. KcentraTM

e. Argus® II Retinal Prosthesis System 

f. Zilver® PTX® Drug Eluting Stent 

4. FY 2015 Applications for New 

Technology Add-On Payments 

a. Dalbavancin (Durata Therapeutics, Inc.) 

b. Heli-FXTM EndoAnchor System (Aptus 

Endosystems, Inc.) 

c. WATCHMAN® Left Atrial Appendage 

Closure Technology 

d. CardioMEMSTM HF (Heart Failure) 

System 

e. MitraClip® System 

f. Responsive Neurostimulator (RNS®) 

System 

III. Proposed Changes to the Hospital Wage 

Index for Acute Care Hospitals 

A. Background 

B. Proposed Core-Based Statistical Areas 

for the Hospital Wage Index 

1. Background 

2. Proposed Implementation of New Labor 

Market Area Delineations 

a. Micropolitan Statistical Areas 

b. Urban Counties That Would Become 

Rural Under the New OMB Delineations 

c. Rural Counties That Would Become 

Urban Under the New OMB Delineations 

d. Urban Counties That Would Move to a 

Different Urban CBSA Under the New 

OMB Delineations 

e. Proposed Transition Period 

C. Worksheet S–3 Wage Data for the 

Proposed FY 2015 Wage Index 

1. Included Categories of Costs 

2. Excluded Categories of Costs 

3. Use of Wage Index Data by Providers 

Other Than Acute Care Hospitals Under 

the IPPS 

D. Verification of Worksheet S–3 Wage 

Data 

E. Method for Computing the Proposed FY 

2015 Unadjusted Wage Index 

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F. Proposed Occupational Mix Adjustment 

to the Proposed FY 2015 Wage Index 

1. Development of Data for the Proposed 

FY 2015 Occupational Mix Adjustment 

Based on the 2010 Occupational Mix 

Survey 

2. New 2013 Occupational Mix Survey for 

the FY 2016 Wage Index 

3. Calculation of the Proposed 

Occupational Mix Adjustment for FY 

2015 

G. Analysis and Implementation of the 

Proposed Occupational Mix Adjustment 

and the Proposed FY 2015 Occupational 

Mix Adjusted Wage Index 

1. Analysis of the Proposed Occupational 

Mix Adjustment and the Proposed 

Occupational Mix Adjusted Wage Index 

2. Proposed Application of the Rural, 

Imputed, and Frontier Floors 

a. Proposed Rural Floor 

b. Proposed Imputed Floor and Alternative, 

Temporary Methodology for Computing 

the Rural Floor for FY 2015 

c. Proposed Frontier Floor 

3. Proposed FY 2015 Wage Index Tables 

H. Revisions to the Wage Index Based on 

Hospital Redesignations and 

Reclassifications 

1. General Policies and Effects of 

Reclassification and Redesignation 

2. FY 2015 MGCRB Reclassifications 

a. FY 2015 Reclassification Requirements 

and Approvals 

b. Effects of Implementation of New OMB 

Labor Market Area Delineations on 

Reclassified Hospitals 

c. Applications for Reclassifications for FY 

2016 

3. Hospitals Redesignated Under Section 

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

a. Proposed New Lugar Areas for FY 2015 

b. Hospitals Redesignated Under Section 

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

Reclassification by the MGCRB 

c. Rural Counties No Longer Meeting the 

Criteria To Be Redesignated as Lugar 

4. Waiving Lugar Redesignation for the 

Out-Migration Adjustment 

5. Update of Application of Urban to Rural 

Reclassification Criteria 

I. Proposed FY 2015 Wage Index 

Adjustment Based on Commuting 

Patterns of Hospital Employees 

J. Process for Requests for Wage Index Data 

Corrections 

K. Notice of Change to Wage Index 

Development Timetable 

L. Labor-Related Share for the Proposed FY 

2015 Wage Index 

IV. Other Decisions and Proposed Changes to 

the IPPS for Operating Costs and 

Graduate Medical Education (GME) 

Costs 

A. Proposed Changes to MS–DRGs Subject 

to the Postacute Care Transfer Policy 

(§ 412.4) 

B. Proposed Changes in the Inpatient 

Hospital Updates for FY 2015 

(§§ 412.64(d) and 412.211(c)) 

1. Proposed FY 2015 Inpatient Hospital 

Update 

2. Proposed FY 2015 Puerto Rico Hospital 

Update 

C. Rural Referral Centers (RRCs): Proposed 

Annual Updates to Case-Mix Index (CMI) 

and Discharge Criteria (§ 412.96) 

1. Case-Mix Index (CMI) 

2. Discharges 

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

1. Background 

2. Provisions of the Protecting Access to 

Medicare Act of 2014 

3. Low-Volume Hospital Definition and 

Payment Adjustment for FY 2015 

E. Indirect Medical Education (IME) 

Payment Adjustment (§ 412.105) 

1. IME Adjustment Factor for FY 2015 

2. Proposed IME Medicare Part C Add-On 

Payments to Sole Community Hospitals 

(SCHs) That Are Paid According to Their 

Hospital-Specific Rates and Proposed 

Change in Methodology in Determining 

Payment to SCHs 

3. Other Proposed Policy Changes 

Affecting IME 

F. Payment Adjustment for Medicare 

Disproportionate Share Hospitals (DSHs) 

(§ 412.106) 

1. Background 

2. Impact on Medicare DSH Payment 

Adjustment of Proposed Implementation 

of New OMB Labor Market Area 

Delineations 

3. Payment Adjustment Methodology for 

Medicare Disproportionate Share 

Hospitals (DSHs) Under Section 3133 of 

the Affordable Care Act (§ 412.106) 

a. General Discussion 

b. Eligibility for Empirically Justified 

Medicare DSH Payments and 

Uncompensated Care Payments 

c. Empirically Justified Medicare DSH 

Payments 

d. Uncompensated Care Payments 

e. Limitations on Review 

G. Medicare-Dependent, Small Rural 

Hospital (MDH) Program (§ 412.108) 

1. Background 

2. Provisions of Public Law 113–93 for FY 

2015 

3. Expiration of the MDH Program 

H. Hospital Readmissions Reduction 

Program: Proposed Changes for FY 2015 

Through FY 2017 (§§ 412.150 Through 

412.154) 

1. Statutory Basis for the Hospital 

Readmissions Reduction Program 

2. Regulatory Background 

3. Overview of Proposals and Policies for 

the FY 2015 Hospital Readmissions 

Reduction Program 

4. Proposed Refinement of the 

Readmissions Measures and Related 

Methodology for FY 2015 and 

Subsequent Years Payment 

Determinations 

a. Proposed Refinement of Planned 

Readmission Algorithm for Acute 

Myocardial Infarction (AMI), Heart 

Failure (HF), Pneumonia (PN), Chronic 

Obstructive Pulmonary Disease (COPD), 

and Total Hip Arthroplasty and Total 

Knee Arthroplasty (THA/TKA) 30-Day 

Readmission Measures 

b. Proposed Refinement of Total Hip 

Arthroplasty and Total Knee 

Arthroplasty (THA/TKA) 30-Day 

Readmission Measure Cohort 

c. Anticipated Effect of Proposed 

Refinements on Measures 

5. No Proposed Expansion of the 

Applicable Conditions for FY 2016 

6. Proposed Expansion of the Applicable 

Conditions for FY 2017 To Include 

Patients Readmitted Following Coronary 

Artery Bypass Graft (CABG) Surgery 

Measure 

a. Background 

b. Overview of the Proposed CABG 

Readmissions Measure: Hospital-Level, 

30-Day, All-Cause, Unplanned 

Readmission Following Coronary Artery 

Bypass Graft (CABG) Surgery 

c. Proposed Methodology for the CABG 

Measure: Hospital-Level, 30-Day, AllCause, Unplanned Readmission 

Following Coronary Artery Bypass Graft 

(CABG) Surgery 

7. Maintenance of Technical Specifications 

for Quality Measures 

8. Waiver From the Hospital Readmissions 

Reduction Program for Hospitals 

Formerly Paid Under Section 1814(b)(3) 

of the Act (§ 412.152 and § 412.154(d)) 

9. Floor Adjustment Factor for FY 2015 

(§ 412.154(c)(2)) 

10. Applicable Period for FY 2015 

11. Proposed Inclusion of THA/TKA and 

COPD Readmissions Measures To 

Calculate Aggregate Payments for Excess 

Readmissions Beginning in FY 2015 

12. Hospital Readmissions Reduction 

Program Extraordinary Circumstances 

Exceptions 

I. Hospital Value-Based Purchasing (VBP) 

Program 

1. Statutory Background 

2. Overview of Previous Hospital VBP 

Program Rulemaking 

3. FY 2015 Payment Details 

a. Payment Adjustments 

b. Base Operating DRG Payment Amount 

Definition for Medicare-Dependent 

Small Rural Hospitals (MDHs) 

4. Measures for the FY 2017 Hospital VBP 

Program 

a. Measures Previously Adopted 

b. Proposed Changes Affecting Topped-Out 

Measures 

c. Proposed New Measures for the FY 2017 

Hospital VBP Program 

d. Proposed Adoption of the Current 

CLABSI Measure (NQF #0139) for the FY 

2017 Hospital VBP Program 

e. Summary of Previously Adopted and 

Proposed New Measures for the FY 2017 

Hospital VBP Program 

5. Proposed Additional Measures for the 

FY 2019 Hospital VBP Program 

a. Hospital-Level Risk-Standardized 

Complication Rate (RSCR) Following 

Elective Primary Total Hip Arthroplasty 

(THA) and Total Knee Arthroplasty 

(TKA) 

b. PSI–90 Measure 

6. Possible Measure Topics for Future 

Program Years 

a. Care Transition Measure (CTM–3) Items 

for HCAHPS Survey 

b. Possible Future Efficiency and Cost 

Reduction Domain Measure Topics 

7. Previously Adopted and Proposed 

Performance Periods and Baseline 

Periods for the FY 2017 Hospital VBP 

Program 

a. Background 

b. Previously Adopted Baseline and 

Performance Periods for the FY 2017 

Hospital VBP Program 

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c. Proposed Clinical Care—Process Domain 

Performance Period and Baseline Period 

for the FY 2017 Hospital VBP Program 

d. Proposed Patient and Caregiver-Centered 

Experience of Care/Care Coordination 

Domain Performance Period and 

Baseline Period for the FY 2017 Hospital 

VBP Program 

e. Proposed Safety Domain Performance 

Period and Baseline Period for NHSN 

Measures for the FY 2017 Hospital VBP 

Program 

f. Proposed Efficiency and Cost Reduction 

Domain Performance Period and 

Baseline Period for the FY 2017 Hospital 

VBP Program 

g. Summary of Previously Adopted and 

Proposed Performance Periods and 

Baseline Periods for the FY 2017 

Hospital VBP Program 

8. Previously Adopted and Proposed 

Performance Periods and Baseline 

Periods for Certain Measures for the FY 

2019 Hospital VBP Program 

a. Previously Adopted and Proposed 

Performance Period and Baseline Period 

for the FY 2019 Hospital VBP Program 

for Clinical Care—Outcomes Domain 

Measures 

b. Proposed Performance Period and 

Baseline Period for the PSI–90 Safety 

Domain Measure for the FY 2019 

Hospital VBP Program 

c. Summary of Previously Adopted and 

Proposed Performance Periods and 

Baseline Periods for Certain Measures for 

the FY 2019 Hospital VBP Program 

9. Proposed Performance Period and 

Baseline Period for the Clinical Care— 

Outcomes Domain for the FY 2020 

Hospital VBP Program 

10. Proposed Performance Standards for 

the Hospital VBP Program 

a. Background 

b. Performance Standards for the FY 2016 

Hospital VBP Program 

c. Previously Adopted Performance 

Standards for the FY 2017, FY 2018, and 

FY 2019 Hospital VBP Programs 

d. Proposed Additional Performance 

Standards for the FY 2017 Hospital VBP 

Program 

e. Proposed Performance Standards for the 

FY 2019 and FY 2020 Hospital VBP 

Programs 

f. Proposed Technical Updates Policy for 

Performance Standards 

g. Request for Public Comments on ICD– 

10–CM/PCS Transition 

11. Proposed FY 2017 Hospital VBP 

Program Scoring Methodology 

a. Proposed General Hospital VBP Program 

Scoring Methodology 

b. Proposed Domain Weighting for the FY 

2017 Hospital VBP Program for Hospitals 

That Receive a Score on All Domains 

c. Proposed Domain Weighting for the FY 

2017 Hospital VBP Program for Hospitals 

Receiving Scores on Fewer than Four 

Domains 

12. Proposed Minimum Numbers of Cases 

and Measures for the FY 2016 and FY 

2017 Hospital VBP Program’s Quality 

Domains 

a. Previously Adopted Minimum Numbers 

of Cases and FY 2016 Proposed 

Minimum Numbers of Cases 

b. Proposed Minimum Number of 

Measures—Safety Domain 

c. Proposed Minimum Number of 

Measures—Clinical Care Domain 

d. Proposed Minimum Number of 

Measures—Efficiency and Cost 

Reduction Domain 

e. Proposed Minimum Number of 

Measures—Patient and Caregiver 

Centered Experience of Care/Care 

Coordination (PEC/CC) Domain 

13. Applicability of the Hospital VBP 

Program to Maryland Hospitals 

14. Disaster/Extraordinary Circumstance 

Exception Under the Hospital VBP 

Program 

J. Hospital-Acquired Condition (HAC) 

Reduction Program 

1. Background 

2. Statutory Basis for the HAC Reduction 

Program 

3. Implementation of the HAC Reduction 

Program for FY 2015 

a. Overview 

b. Payment Adjustment Under the HAC 

Reduction Program, Including 

Exemptions 

c. Measure Selection and Conditions, 

Including Risk Adjustment Scoring 

Methodology 

d. Criteria for Applicable Hospitals and 

Performance Scoring Policy 

e. Reporting Hospital-Specific Information, 

Including the Review and Correction of 

Information 

f. Limitation on Administrative and 

Judicial Review 

4. Proposed Maintenance of Technical 

Specifications for Quality Measures 

5. Extraordinary Circumstances 

Exceptions/Exemptions 

6. Implementation of the HAC Reduction 

Program for FY 2016 

a. Measure Selection and Conditions, 

Including a Risk-Adjustment Scoring 

Methodology 

b. Criteria for Applicable Hospitals and 

Performance Scoring 

7. Future Consideration for the Use of 

Electronically Specified Measures 

K. Payments for Indirect and Direct 

Graduate Medical Education (GME) 

Costs (§§ 412.105 and 413.75 Through 

413.83) 

1. Background 

2. Proposed Changes in the Effective Date 

of the FTE Resident Cap, 3-Year Rolling 

Average, and Interim- and Resident-toBed (IRB) Ratio Cap for New Programs in 

Teaching Hospitals 

3. Proposed Changes to IME and Direct 

GME Policies as a Result of New OMB 

Labor Market Area Delineations 

a. New Program FTE Cap Adjustment for 

Rural Hospitals Redesignated as Urban 

b. Participation of Redesignated Hospitals 

in Rural Training Track 

4. Proposed Clarification of Policies on 

Counting Resident Time in Nonprovider 

Settings Under Section 5504 of the 

Affordable Care Act 

5. Proposed Changes to the Review and 

Award Process for Resident Slots Under 

Section 5506 of the Affordable Care Act 

a. Effective Date of Slots Awarded Under 

Section 5506 of the Affordable Care Act 

b. Proposal To Remove Seamless 

Requirement 

c. Proposed Revisions to Ranking Criteria 

One, Seven, and Eight for Applications 

Under Section 5506 

d. Clarification to Ranking Criterion Two 

Regarding Emergency Medicare GME 

Affiliation Agreements 

6. Proposed Regulatory Clarification 

Applicable To Direct GME Payments to 

Federally Qualified Health Centers 

(FQHCs) and Rural Health Clinics 

(RHCs) for Training Residents in 

Approved Programs 

L. Rural Community Hospital 

Demonstration Program 

1. Background 

2. Proposed FY 2015 Budget Neutrality 

Offset Amount 

M. Requirement for Transparency of 

Hospital Charges Under the Affordable 

Care Act 

1. Overview 

2. Transparency Requirement Under the 

Affordable Care Act 

N. Medicare Payment for Short Inpatient 

Hospital Stays 

O. Suggested Exceptions to the 2-Midnight 

Benchmark 

V. Proposed Changes to the IPPS for CapitalRelated Costs 

A. Overview 

B. Additional Provisions 

1. Exception Payments 

2. New Hospitals 

3. Hospitals Located in Puerto Rico 

C. Proposed Annual Update for FY 2015 

VI. Proposed Changes for Hospitals Excluded 

From the IPPS 

A. Proposed Rate-of-Increase in Payments 

to Excluded Hospitals for FY 2015 

B. Proposed Updates to the Reasonable 

Compensation Equivalent (RCE) Limits 

on Compensation for Physician Services 

Provided in Providers (§ 415.70) 

1. Background 

2. Overview of the Current RCE Limits 

a. Application of the RCE Limits 

b. Exceptions to the RCE Limits 

c. Methodology for Establishing the RCE 

Limits 

3. Proposed Changes to the RCE Limits 

C. Critical Access Hospitals (CAHs 

1. Background 

2. Proposed Changes Related to 

Reclassifications as Rural for CAHs 

3. Proposed Revision of the Requirements 

for Physician Certification of CAH 

Inpatient Services 

VII. Proposed Changes to the Long-Term Care 

Hospital Prospective Payment System 

(LTCH PPS) for FY 2015 

A. Background of the LTCH PPS 

1. Legislative and Regulatory Authority 

2. Criteria for Classification as an LTCH 

a. Classification as an LTCH 

b. Hospitals Excluded From the LTCH PPS 

3. Limitation on Charges to Beneficiaries 

4. Administrative Simplification 

Compliance Act (ASCA) and Health 

Insurance Portability and Accountability 

Act (HIPAA) Compliance 

B. Proposed Medicare Severity Long-Term 

Care Diagnosis-Related Group (MS–LTC– 

DRG) Classifications and Relative 

Weights for FY 2015 

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1. Background 

2. Patient Classifications Into MS–LTC– 

DRGs 

a. Background 

b. Proposed Changes to the MS–LTC–DRGs 

for FY 2015 

3. Development of the Proposed FY 2015 

MS–LTC–DRG Relative Weights 

a. General Overview of the Development of 

the MS–LTC–DRG Relative Weights 

b. Proposed Development of the MS–LTC– 

DRG Relative Weights for FY 2015 

c. Data 

d. Hospital-Specific Relative Value (HSRV) 

Methodology 

e. Treatment of Severity Levels in 

Developing the Proposed MS–LTC–DRG 

Relative Weights 

f. Proposed Low-Volume MS–LTC–DRGs 

g. Steps for Determining the Proposed FY 

2015 MS–LTC–DRG Relative Weights 

C. Proposed LTCH PPS Payment Rates for 

FY 2015 

1. Overview of Development of the LTCH 

Payment Rates 

2. Proposed FY 2015 LTCH PPS Annual 

Market Basket Update 

a. Overview 

b. Proposed Revision of Certain Market 

Basket Updates as Required by the 

Affordable Care Act 

c. Proposed Adjustment to the Annual 

Update to the LTCH PPS Standard 

Federal Rate Under the Long-Term Care 

Hospital Quality Reporting (LTCHQR) 

Program 

1. Background 

2. Proposed Reduction to the Annual 

Update to the LTCH PPS Standard 

Federal Rate Under the LTCHQR 

Program 

d. Proposed Market Basket Under the 

LTCH PPS for FY 2015 

e. Proposed Annual Market Basket Update 

for LTCHs for FY 2015 

3. Proposed Adjustment for the Final Year 

of the Phase-In of the One-Time 

Prospective Adjustment to the Standard 

Federal Rate Under § 412.523(d)(3) 

D. Proposed Revision of LTCH PPS 

Geographic Classifications 

1. Background 

2. Proposed Use of New OMB Labor Market 

Area Delineations (‘‘New OMB 

Delineations’’) 

a. Micropolitan Statistical Areas 

b. Urban Counties That Became Rural 

Under the New OMB Labor Market Area 

Delineations 

c. Rural Counties That Became Urban 

Under the New OMB Labor Market Area 

Delineations 

d. Urban Counties Moved to a Different 

Urban CBSA Under the New OMB Labor 

Market Area Delineations 

e. Proposed Transition Period 

E. Reinstatement and Extension of Certain 

Payment Rules for LTCH Services—The 

25-Percent Threshold Payment 

Adjustment 

1. Background 

2. Proposed Implementation of Section 

1206(b)(1) of Public Law 113–67 

F. Proposed Changes to the Fixed-Day 

Thresholds Under the Greater Than 3- 

Day Interruption of Stay Policy Under 

the LTCH PPS 

1. Background 

2. Thresholds Used in Recent Statutory 

Programs 

3. Proposed Changes to the Greater Than 3- 

Day Interruption of Stay Policy 

G. Moratoria on the Establishment of 

LTCHs and LTCH Satellite Facilities and 

on the Increase in the Number of Beds 

in Existing LTCHs or LTCH Satellite 

Facilities 

H. Evaluation and Proposed Treatment of 

LTCHs Classified Under Section 

1886(d)(1)(B)(iv)(II) of the Act 

I. Description of Statutory Framework for 

Patient-Level Criteria-Based Payment 

Adjustment Under the LTCH PPS Under 

Public Law 113–67 

1. Overview 

2. Provisions of Section 1206(a) of Public 

Law 113–67 

3. Additional LTCH PPS Issues 

J. Proposed Technical Change 

VIII. Appropriate Claims in Provider Cost 

Reports; Administrative Appeals by 

Providers and Judicial Review 

A. Background 

1. Payment and Cost Reporting 

Requirements 

2. Administrative Appeals by Providers 

and Judicial Review 

3. Appropriate Claims in Provider Cost 

Reports 

B. Proposed Changes Regarding the Claims 

Required in Provider Cost Reports and 

for Provider Administrative Appeals 

1. Proposed Addition to the Cost Reporting 

Regulations of the Substantive 

Reimbursement Requirement of an 

Appropriate Cost Report Claim 

2. Proposed Revisions to the Provider 

Reimbursement Appeal Regulations 

C. Proposed Conforming Changes to the 

Board Appeal Regulations and 

Corresponding Revisions to the 

Contractor Hearing Regulations 

1. Technical Corrections and Conforming 

Changes to §§ 405.1801 and 405.1803 

2. Technical Corrections and Conforming 

Changes to §§ 405.1811, 405.1813, and 

405.1814 

3. Proposed New § 405.1832 

4. Proposed Revisions to § 405.1834 

5. Technical Corrections and Conforming 

Changes to §§ 405.1836, 405.1837, and 

405.1839 

6. Technical Corrections to 42 CFR Part 

405, Subpart R and All Subparts of 42 

CFR Part 413 

IX. Quality Data Reporting Requirements for 

Specific Providers and Suppliers 

A. Hospital Inpatient Quality Reporting 

(IQR) Program 

1. Background 

a. History of the Hospital IQR Program 

b. Maintenance of Technical Specifications 

for Quality Measures 

c. Public Display of Quality Measures 

2. Removal and Suspension of Hospital 

IQR Program Measures 

a. Considerations in Removing Quality 

Measures From the Hospital IQR 

Program 

b. Proposed Removal of Hospital IQR 

Program Measures for the FY 2017 

Payment Determination and Subsequent 

Years 

3. Process for Retaining Previously 

Adopted Hospital IQR Program Measures 

for Subsequent Payment Determinations 

4. Additional Considerations in Expanding 

and Updating Quality Measures Under 

the Hospital IQR Program 

5. Previously Adopted Hospital IQR 

Program Measures for the FY 2016 

Payment Determination and Subsequent 

Years 

6. Proposed Refinements to Existing 

Measures in the Hospital IQR Program 

a. Proposed Refinement of Planned 

Readmission Algorithm for 30-Day 

Readmission Measures 

b. Proposed Refinement of Total Hip 

Arthroplasty and Total Knee 

Arthroplasty (THA/TKA) 30-Day 

Complication and Readmission Measures 

c. Anticipated Effect of Proposed 

Refinements to Existing Measures 

7. Proposed Additional Hospital IQR 

Program Measures for the FY 2017 

Payment Determination and Subsequent 

Years 

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

Unplanned, Risk-Standardized 

Readmission Rate (RSRR) Following 

Coronary Artery Bypass Graft (CABG) 

Surgery 

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

Risk-Standardized Mortality Rate 

(RSMR) Following Coronary Artery 

Bypass Graft (CABG) Surgery 

c. Proposed Hospital-level, RiskStandardized 30-Day Episode-of-Care 

Payment Measure for Pneumonia 

d. Proposed Hospital-Level, RiskStandardized 30-Day Episode-of-Care 

Payment Measure for Heart Failure 

e. Proposed Severe Sepsis and Septic 

Shock: Management Bundle Measure 

(NQF #0500) 

f. Electronic Health Record-Based 

Voluntary Measures 

g. Proposed Readoption of Measures as 

Voluntarily Reported Electronic Clinical 

Quality Measures 

h. Electronic Clinical Quality Measures 

8. Possible New Quality Measures and 

Measure Topics for Future Years 

a. Mandatory Electronic Clinical Quality 

Measure Reporting for FY 2018 Payment 

Determination 

b. Possible Future Electronic Clinical 

Quality Measures 

9. Form, Manner, and Timing of Quality 

Data Submission 

a. Background 

b. Procedural Requirements for the FY 

2017 Payment Determination and 

Subsequent Years 

c. Data Submission Requirements for 

Chart-Abstracted Measures 

d. Alignment of the EHR Incentive Program 

Reporting and Submission Timelines for 

Clinical Quality Measures with Hospital 

IQR Program Reporting and Submission 

Timelines 

e. Sampling and Case Thresholds for the 

FY 2017 Payment Determination and 

Subsequent Years 

f. HCAHPS Requirements for the FY 2017 

Payment Determination and Subsequent 

Years 

g. Data Submission Requirements for 

Structural Measures for the FY 2017 

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Payment Determination and Subsequent 

Years 

h. Data Submission and Reporting 

Requirements for Healthcare-Associated 

Infection (HAI) Measures Reported via 

NHSN 

10. Submission and Access of HAI 

Measures Data Through the CDC’s NHSN 

Web site 

11. Proposed Modifications to the Existing 

Processes for Validation of Chartabstracted Hospital IQR Program Data 

a. Eligibility Criteria for Hospitals Selected 

for Validation 

b. Number of Charts to be Submitted per 

Hospital for Validation 

c. Combining Scores for HAI and Clinical 

Process of Care Topic Areas 

d. Processes To Submit Patient Medical 

Records for Chart-abstracted Measures 

e. Plans To Validate Electronic Clinical 

Quality Measure Data 

12. Data Accuracy and Completeness 

Acknowledgement Requirements for the 

FY 2017 Payment Determination and 

Subsequent Years 

13. Public Display Requirements for the FY 

2017 Payment Determination and 

Subsequent Years 

14. Reconsideration and Appeal 

Procedures for the FY 2017 Payment 

Determination and Subsequent Years 

15. Hospital IQR Program Extraordinary 

Circumstances Extensions or Exemptions 

B. PPS-Exempt Cancer Hospital Quality 

Reporting (PCHQR) Program 

1. Statutory Authority 

2. Covered Entities 

3. Previously Finalized PCHQR Program 

Quality Measures 

4. Proposed Update to the Clinical Process/ 

Oncology Care Measures Beginning With 

the 2016 Program 

5. Proposed New Quality Measures 

Beginning With the FY 2017 Program 

a. Considerations in the Selection of 

Quality Measures 

b. Proposed New Quality Measure 

Beginning With the FY 2017 Program 

6. Possible New Quality Measure Topics 

for Future Years 

7. Maintenance of Technical Specifications 

for Quality Measures 

8. Public Display Requirements Beginning 

With the FY 2014 Program 

9. Form, Manner, and Timing of Data 

Submission Beginning With the FY 2017 

Program 

a. Background 

b. Proposed Reporting Requirements for 

the Proposed New Measure: External 

Beam Radiotherapy for Bone Metastases 

(NQF #1822) Beginning With the FY 

2017 Program 

c. Proposed Reporting Options for the 

Clinical Process/Cancer Specific 

Treatment Measures Beginning With the 

FY 2015 Program and the SCIP and 

Clinical Process/Oncology Care 

Measures Beginning With the FY 2016 

Program 

d. Proposed New Sampling Methodology 

for the Clinical Process/Oncology Care 

Measures Beginning With the FY 2016 

Program 

10. Exceptions From Program 

Requirements 

C. Long-Term Care Hospital Quality 

Reporting (LTCHQR) Program 

1. Background 

2. General Considerations Used for 

Selection of Quality Measures for the 

LTCHQR Program 

3. Policy for Retention of LTCHQR Program 

Measures Adopted for Previous Payment 

Determinations 

4. Policy for Adopting Changes to LTCHQR 

Program Measures 

5. Previously Adopted Quality Measures 

a. Previously Adopted Quality Measures 

for the FY 2015 and FY 2016 Payment 

Determinations and Subsequent Years 

b. Previously Adopted Quality Measures 

for the FY 2017 and FY 2018 Payment 

Determinations and Subsequent Years 

6. Proposed Revision to Data Collection 

Timelines and Submission Deadlines for 

Previously Adopted Quality Measures 

a. Proposed Revisions to Data Collection 

Timelines and Submission Deadlines for 

Percent of Residents or Patients Who 

Were Assessed and Appropriately Given 

the Seasonal Influenza Vaccine (Short 

Stay) (NQF #0680) 

b. Proposed Revisions to Data Collection 

Timelines and Submission Deadlines for 

the Application of Percent of Residents 

Experiencing One or More Falls With 

Major Injury (Long Stay) (NQF #0674) 

7. Proposed New LTCHQR Program 

Quality Measures for the FY 2018 

Payment Determination and Subsequent 

Years 

a. Proposed New LTCHQR Program 

Functional Status Quality Measures for 

the FY 2018 Payment Determination and 

Subsequent Years 

b. Proposed Quality Measure: National 

Healthcare Safety Network (NHSN) 

Ventilator-Associated Event (VAE) 

Outcome Measure 

8. LTCHQR Program Quality Measures and 

Concepts Under Consideration for Future 

Years 

9. Form, Manner, and Timing of Quality 

Data Submission for the FY 2016 

Payment Determinations and Subsequent 

Years 

a. Background 

b. Finalized Timeline for Data Submission 

Under the LTCHQR Program for the FY 

2016 and FY 2017 Payment 

Determinations (Except NQF #0680 and 

NQF #0431) 

c. Proposed Revision to the Previously 

Adopted Data Collection Timelines and 

Submission Deadlines for Percent of 

Residents or Patients Who Were 

Assessed and Appropriately Given the 

Seasonal Influenza Vaccine (Short-Stay) 

(NQF #-680) for the FY 2016 Payment 

Determination and Subsequent Years 

d. Proposed Data Submission Mechanisms 

for the FY 2018 Payment Determination 

and Subsequent Years for Proposed New 

LTCHQR Program Quality Measures and 

for Proposed Revision to Previously 

Adopted Quality Measure 

e. Proposed Data Collection Timelines and 

Submission Deadlines Under the 

LTCHQR Program for the FY 2018 

Payment Determination 

f. Proposed Data Collection Timelines and 

Submission Deadlines for the 

Application of Percent of Residents 

Experiencing One or More Falls With 

Major Injury (Long Stay) (NQF #0674) 

Measure for the FY 2018 Payment 

Determination and Subsequent Years 

g. Proposed Data Collection Timelines and 

Submission Deadlines Under the 

LTCHQR Program for the FY 2019 

Payment Determination 

10. Proposed LTCHQR Program Data 

Completion Threshold for the FY 2016 

Payment Adjustment and Subsequent 

Years 

a. Overview 

b. Proposed LTCHQR Program Data 

Completion Threshold for the Required 

LTCH CARE Data Set (LCDS) Data Items 

c. LTCHQR Program Data Completion 

Threshold for Measures Submitted Using 

the Centers for Disease Control and 

Prevention (CDC) National Healthcare 

Safety Network (NHSN) 

d. Application of the 2 Percentage Point 

Reduction for LTCHs That Fail To Meet 

the Proposed Data Completion 

Thresholds 

11. Proposed Data Validation Process for 

the FY 2016 Payment Determination and 

Subsequent Years 

a. Proposed Data Validation Process 

b. Application of the 2 Percentage Point 

Reduction for LTCHs That Fail To Meet 

the Proposed Data Accuracy Threshold 

12. Public Display of Quality Measure Data 

for the LTCHQR Program 

13. Proposed LTCHQR Program 

Submission Exception and Extension 

Requirements for the FY 2017 Payment 

Determination and Subsequent Years 

14. Proposed LTCHQR Program 

Reconsideration and Appeals Procedures 

for the FY 2016 Payment Determination 

and Subsequent Years 

a. Previously Finalized LTCHQR Program 

Reconsideration and Appeals Procedures 

for the FY 2014 and FY 2015 Payment 

Determinations 

b. Proposed LTCHQR Program 

Reconsideration and Appeals Procedures 

for the FY 2016 Payment Determination 

and Subsequent Years 

15. Electronic Health Records (EHR) and 

Health Information Exchange (HIE) 

D. Electronic Health Record (EHR) 

Incentive Program and Meaningful Use 

(MU) 

1. Background 

2. Alignment of the Medicare EHR 

Incentive Program Reporting and 

Submission Timelines for Clinical 

Quality Measures With Hospital IQR 

Program Reporting and Submission 

Timelines 

3. Quality Reporting Data Architecture 

Category III (QRDA–III) Option in 2015 

4. Electronically Specified Clinical Quality 

Measures (CQMs) Reporting for 2015 

5. Clarification Regarding Reporting Zero 

Denominators 

6. Case Threshold Exemption Policy; 

Clarification for 2014 and Proposed 

Change for 2015 

X. Proposed Revision of Regulations 

Governing Use and Release of Medicare 

Advantage Risk Adjustment Data 

A. Background 

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B. Proposed Regulatory Changes 

1. Proposed Expansion of Uses and 

Reasons for Disclosure of Risk 

Adjustment Data 

2. Proposed Conditions for CMS Release of 

Data 

3. Proposed Technical Change 

XI. Proposed Changes to Enforcement 

Provisions for Organ Transplant Centers 

A. Background 

B. Basis for Proposals in This Proposed 

Rule 

1. Proposed Expansion of Mitigating 

Factors Based on CMS’ Experience 

2. Coordination With Efforts of the Organ 

Procurement and Transplantation 

Network (OPTN) and Health Resources 

and Services Administration 

C. Provisions of the Proposed Changes 

1. Proposed Expansion of Mitigating 

Factors List 

2. Content and Timeframe for Mitigating 

Factors Requests 

3. System Improvement Agreements (SIAs) 

a. Purpose and Intent of an SIA 

b. Description and Contents of an SIA 

c. Effective Period for an SIA 

XII. MedPAC Recommendations 

XIII. Other Required Information 

A. Requests for Data From the Public 

B. Collection of Information Requirements 

1. Statutory Requirement for Solicitation of 

Comments 

2. ICRs for Add-On Payments for New 

Services and Technologies 

3. ICRs for the Occupational Mix 

Adjustment to the Proposed FY 2015 

Wage Index (Hospital Wage Index 

Occupational Mix Survey) 

4. Hospital Applications for Geographic 

Reclassifications by the MGCRB 

5. ICRs for Application for GME Resident 

Slots 

6. ICRs for the Hospital Inpatient Quality 

Reporting (IQR) Program 

7. ICRs for PPS-Exempt Cancer Hospital 

Quality Reporting (PCHQR) Program 

8. ICRs for Hospital Value-Based 

Purchasing (VBP) Program 

9. ICRs for the Long-Term Care Hospital 

Quality Reporting (LTCHQR) Program 

10. ICR Regarding Electronic Health Record 

(EHR) Incentive Program and Meaningful 

Use (MU) 

11. ICR Regarding Proposed Revision of 

Regulations Governing Use and Release 

of Medicare Advantage (MA) Risk 

Adjustment Data (§ 422.310(f)) 

Regulation Text 

Addendum—Proposed Schedule of 

Standardized Amounts, Update Factors, 

and Rate-of-Increase Percentages 

Effective With Cost Reporting Periods 

Beginning on or After October 1, 2014 

and Payment Rates for LTCHs Effective 

With Discharges Occurring on or After 

October 1, 2014 

I. Summary and Background 

II. Proposed Changes to the Prospective 

Payment Rates for Hospital Inpatient 

Operating Costs for Acute Care Hospitals 

for FY 2015 

A. Calculation of the Adjusted 

Standardized Amount 

B. Proposed Adjustments for Area Wage 

Levels and Cost-of-Living 

C. Calculation of the Prospective Payment 

Rates 

III. Proposed Changes to Payment Rates for 

Acute Care Hospital Inpatient CapitalRelated Costs for FY 2015 

A. Determination of Federal Hospital 

Inpatient Capital-Related Prospective 

Payment Rate Update 

B. Calculation of the Proposed Inpatient 

Capital-Related Prospective Payments for 

FY 2015 

C. Capital Input Price Index 

IV. Proposed Changes to Payment Rates for 

Excluded Hospitals: Rate-of-Increase 

Percentages for FY 2015 

V. Proposed Updates to the Payment Rates 

for the LTCH PPS for FY 2015 

A. Proposed LTCH PPS Standard Federal 

Rate for FY 2015 

1. Background 

2. Development of the Proposed FY 2015 

LTCH PPS Standard Federal Rate 

B. Proposed Adjustment for Area Wage 

Levels Under the LTCH PPS for FY 2015 

1. Background 

2. Proposed Geographic Classifications 

Based on the New OMB Delineations 

3. Proposed LTCH PPS Labor-Related 

Share 

4. Proposed LTCH PPS Wage Index for FY 

2015 

5. Proposed Budget Neutrality Adjustment 

for Proposed Changes to the Area Wage 

Level Adjustment 

C. Proposed LTCH PPS Cost-of-Living 

Adjustment (COLA) for LTCHs Located 

in Alaska and Hawaii 

D. Proposed Adjustment for LTCH PPS 

High-Cost Outlier (HCO) Cases 

1. Background 

2. Determining LTCH CCRs Under the 

LTCH PPS 

3. Establishment of the Proposed LTCH 

PPS Fixed-Loss Amount for FY 2015 

4. Application of the Outlier Policy to SSO 

Cases 

E. Proposed Update to the IPPS 

Comparable/Equivalent Amounts To 

Reflect the Statutory Changes to the IPPS 

DSH Payment Adjustment Methodology 

F. Computing the Proposed Adjusted LTCH 

PPS Federal Prospective Payments for 

FY 2015 

VI. Tables Referenced in This Proposed Rule 

and Available Through the Internet on 

the CMS Web site 

Appendix A—Economic Analyses 

I. Regulatory Impact Analysis 

A. Introduction 

B. Need 

C. Objectives of the IPPS 

D. Limitations of Our Analysis 

E. Hospitals Included in and Excluded 

From the IPPS 

F. Effects on Hospitals and Hospital Units 

Excluded From the IPPS 

G. Quantitative Effects of the Proposed 

Policy Changes Under the IPPS for 

Operating Costs 

1. Basis and Methodology of Estimates 

2. Analysis of Table I 

3. Impact Analysis of Table II 

H. Effects of Other Proposed Policy 

Changes 

1. Effects of Proposed Policy on MS–DRGs 

for Preventable HACs, Including 

Infections 

2. Effects of Proposed Policy Relating to 

New Medical Service and Technology 

Add-On Payments 

3. Effects of Proposed Changes to List of 

MS–DRGs Subject to Postacute Care 

Transfer and DRG Special Pay Policy 

4. Effects of Proposed Payment Adjustment 

for Low-Volume Hospitals for FY 2015 

5. Effects of Proposal Related to IME 

Medicare Part C Add-On Payments to 

SCHs Paid According to Their HospitalSpecific Rates 

6. Effects of the Extension of the MDH 

Program for the First Half of FY 2015 

7. Effects of Proposed Changes Under the 

FY 2015 Hospital Value-Based 

Purchasing (VBP) Program 

8. Effects of the Proposed Changes to the 

HAC Reduction Program for FY 2015 

9. Effects of Proposed Policy Changes 

Relating to Payments for Direct GME and 

IME 

10. Effects of Implementation of Rural 

Community Hospital Demonstration 

Program 

11. Effects of Proposed Changes Related to 

Reclassifications as Rural for CAHs 

12. Effects of Proposed Revision of the 

Requirements for Physician Certification 

of CAH Inpatient Services 

13. Effects of Proposed Changes Relating to 

Administrative Appeals by Providers 

and Judicial Review for Appropriate 

Claims in Provider Cost Reports 

I. Effects of Proposed Changes to Updates 

to the Reasonable Compensation 

Equivalent (RCE) Limits for Physician 

Services Provided to Providers 

J. Effects of Proposed Changes in the 

Capital IPPS 

1. General Considerations 

2. Results 

K. Effects of Proposed Payment Rate 

Changes and Policy Changes Under the 

LTCH PPS 

1. Introduction and General Considerations 

2. Impact on Rural Hospitals 

3. Anticipated Effects of Proposed LTCH 

PPS Payment Rate Changes and Policy 

Changes 

4. Effect on the Medicare Program 

5. Effect on Medicare Beneficiaries 

L. Effects of Proposed Requirements for 

Hospital Inpatient Quality Reporting 

(IQR) Program 

M. Effects of Proposed Requirements for 

the PPS-Exempt Cancer Hospital Quality 

Reporting (PCHQR) Program for FY 2015 

N. Effects of Proposed Requirements for the 

LTCH Quality Reporting (LTCHQR) 

Program for FY 2015 Through FY 2019 

O. Effects of Proposals Regarding 

Electronic Health Record (EHR) 

Incentive Program and Hospital IQR 

Program 

P. Effects of Proposed Revision of 

Regulations Governing Use and Release 

of Medicare Advantage Risk Adjustment 

Data 

Q. Effects of Proposed Changes to 

Enforcement Provisions for Organ 

Transplant Centers 

II. Alternatives Considered 

III. Overall Conclusion 

A. Acute Care Hospitals 

B. LTCHs 

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IV. Accounting Statements and Tables 

A. Acute Care Hospitals 

B. LTCHs 

V. Regulatory Flexibility Act (RFA) Analysis 

VI. Impact on Small Rural Hospitals 

VII. Unfunded Mandate Reform Act (UMRA) 

Analysis 

VIII. Executive Order 12866 

Appendix B: Recommendation of Update 

Factors for Operating Cost Rates of 

Payment for Inpatient Hospital Services 

I. Background 

II. Inpatient Hospital Update for FY 2015 

A. Proposed FY 2015 Inpatient Hospital 

Update 

B. Proposed Update for SCHs for FY 2015 

C. Proposed FY 2015 Puerto Rico Hospital 

Update 

D. Proposed Update for Hospitals Excluded 

From the IPPS for FY 2015 

E. Proposed Update for LTCHs for FY 2015 

III. Secretary’s Recommendation 

IV. MedPAC Recommendation for Assessing 

Payment Adequacy and Updating 

Payments in Traditional Medicare 

I. Executive Summary and Background 

A. Executive Summary 

1. Purpose and Legal Authority 

This proposed rule would make 

payment and policy changes under the 

Medicare inpatient prospective payment 

systems (IPPS) for operating and capitalrelated costs of acute care hospitals as 

well as for certain hospitals and hospital 

units excluded from the IPPS. In 

addition, it would make payment and 

policy changes for inpatient hospital 

services provided by long-term care 

hospitals (LTCHs) under the long-term 

care hospital prospective payment 

system (LTCH PPS). It also would make 

policy changes to programs associated 

with Medicare IPPS hospitals, IPPSexcluded hospitals, and LTCHs. 

Under various statutory authorities, 

we are proposing to make changes to the 

Medicare IPPS, to the LTCH PPS, and to 

other related payment methodologies 

and programs for FY 2015 and 

subsequent fiscal years. These statutory 

authorities include, but are not limited 

to, the following: 

• Section 1886(d) of the Social 

Security Act (the Act), which sets forth 

a system of payment for the operating 

costs of acute care hospital inpatient 

stays under Medicare Part A (Hospital 

Insurance) based on prospectively set 

rates. Section 1886(g) of the Act requires 

that, instead of paying for capital-related 

costs of inpatient hospital services on a 

reasonable cost basis, the Secretary use 

a prospective payment system (PPS). 

• Section 1886(d)(1)(B) of the Act, 

which specifies that certain hospitals 

and hospital units are excluded from the 

IPPS. These hospitals and units are: 

Rehabilitation hospitals and units; 

LTCHs; psychiatric hospitals and units; 

children’s hospitals; cancer hospitals; 

and short-term acute care hospitals 

located in the Virgin Islands, Guam, the 

Northern Mariana Islands, and 

American Samoa. Religious nonmedical 

health care institutions (RNHCIs) are 

also excluded from the IPPS. 

• Sections 123(a) and (c) of Public 

Law 106–113 and section 307(b)(1) of 

Public Law 106–554 (as codified under 

section 1886(m)(1) of the Act), which 

provide for the development and 

implementation of a prospective 

payment system for payment for 

inpatient hospital services of long-term 

care hospitals (LTCHs) described in 

section 1886(d)(1)(B)(iv) of the Act. 

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

of the Act, which specify that payments 

are made to critical access hospitals 

(CAHs) (that is, rural hospitals or 

facilities that meet certain statutory 

requirements) for inpatient and 

outpatient services and that these 

payments are generally based on 101 

percent of reasonable cost. 

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

by section 3005 of the Affordable Care 

Act, which establishes a quality 

reporting program for hospitals 

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

the Act, referred to as ‘‘PPS-Exempt 

Cancer Hospitals.’’ 

• Section 1886(d)(4)(D) of the Act, 

which addresses certain hospitalacquired conditions (HACs), including 

infections. Section 1886(d)(4)(D) of the 

Act specifies that, by October 1, 2007, 

the Secretary was required to select, in 

consultation with the Centers for 

Disease Control and Prevention (CDC), 

at least two conditions that: (a) Are high 

cost, high volume, or both; (b) are 

assigned to a higher paying MS–DRG 

when present as a secondary diagnosis 

(that is, conditions under the MS–DRG 

system that are CCs or MCCs); and (c) 

could reasonably have been prevented 

through the application of evidencebased guidelines. Section 1886(d)(4)(D) 

of the Act also specifies that the list of 

conditions may be revised, again in 

consultation with CDC, from time to 

time as long as the list contains at least 

two conditions. Section 

1886(d)(4)(D)(iii) of the Act requires that 

hospitals, effective with discharges 

occurring on or after October 1, 2007, 

submit information on Medicare claims 

specifying whether diagnoses were 

present on admission (POA). Section 

1886(d)(4)(D)(i) of the Act specifies that 

effective for discharges occurring on or 

after October 1, 2008, Medicare no 

longer assigns an inpatient hospital 

discharge to a higher paying MS–DRG if 

a selected condition is not POA. 

• Section 1886(a)(4) of the Act, which 

specifies that costs of approved 

educational activities are excluded from 

the operating costs of inpatient hospital 

services. Hospitals with approved 

graduate medical education (GME) 

programs are paid for the direct costs of 

GME in accordance with section 1886(h) 

of the Act. A payment for indirect 

medical education (IME) is made under 

section 1886(d)(5)(B) of the Act. 

• Section 1886(b)(3)(B)(viii) of the 

Act, which requires the Secretary to 

reduce the applicable percentage 

increase in payments to a subsection (d) 

hospital for a fiscal year if the hospital 

does not submit data on measures in a 

form and manner, and at a time, 

specified by the Secretary. 

• Section 1886(o) of the Act, which 

requires the Secretary to establish a 

Hospital Value-Based Purchasing (VBP) 

Program under which value-based 

incentive payments are made in a fiscal 

year to hospitals meeting performance 

standards established for a performance 

period for such fiscal year. 

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

by section 3008 of the Affordable Care 

Act, which establishes an adjustment to 

hospital payments for hospital-acquired 

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

Program, under which payments to 

applicable hospitals are adjusted to 

provide an incentive to reduce hospitalacquired conditions. 

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

by section 3025 of the Affordable Care 

Act and amended by section 10309 of 

the Affordable Care Act, which 

establishes the ‘‘Hospital Readmissions 

Reduction Program’’ effective for 

discharges from an ‘‘applicable 

hospital’’ beginning on or after October 

1, 2012, under which payments to those 

hospitals under section 1886(d) of the 

Act will be reduced to account for 

certain excess readmissions. 

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

by section 3133 of the Affordable Care 

Act, which provides for a reduction to 

disproportionate share payments under 

section 1886(d)(5)(F) of the Act and for 

a new uncompensated care payment to 

eligible hospitals. Specifically, section 

1886(r) of the Act now requires that, for 

‘‘fiscal year 2014 and each subsequent 

fiscal year,’’ ‘‘subsection (d) hospitals’’ 

that would otherwise receive a 

‘‘disproportionate share payment . . . 

made under subsection (d)(5)(F)’’ will 

receive two separate payments: (1) 25 

percent of the amount they previously 

would have received under subsection 

(d)(5)(F) for DSH (‘‘the empirically 

justified amount’’), and (2) an additional 

payment for the DSH hospital’s 

proportion of uncompensated care, 

determined as the product of three 

factors. These three factors are: (1) 75 

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percent of the payments that would 

otherwise be made under subsection 

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

in the percent of individuals under the 

age of 65 who are uninsured (minus 0.1 

percentage points for FY 2014, and 

minus 0.2 percentage points for FY 2015 

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

uncompensated care amount relative to 

the uncompensated care amount of all 

DSH hospitals expressed as a 

percentage. 

• Section 1886(m)(6) of the Act, as 

added by section 1206(a)(1) of the 

Pathway for SGR Reform Act of 2013, 

which provided for the establishment of 

patient criteria for payment under the 

LTCH PPS for implementation 

beginning in FY 2016. 

• Section 1206(b)(1) of the Pathway 

for SGR Reform Act of 2013, which 

further amended section 114(c) of the 

MMSEA, as amended by section 4302(a) 

of the ARRA and sections 3106(c) and 

10312(a) of the Affordable Care Act, by 

retroactively reestablishing and 

extending the statutory moratorium on 

the full implementation of the 25- 

percent threshold payment adjustment 

policy under the LTCH PPS so that the 

policy will be in effect for 9 years 

(except for ‘‘grandfathered’’ hospitalwithin-hospitals (HwHs), which are 

permanently exempt from this policy); 

and section 1206(b)(2) (as amended by 

section 112(b) of the Protecting Access 

to Medicare Act of 2014 (Pub. L. 113– 

93)), which together further amended 

section 114(d) of the MMSEA, as 

amended by section 4302(a) of the 

ARRA and sections 3106(c) and 

10312(a) of the Affordable Care Act to 

establish a new moratoria (subject to 

certain defined exceptions) on the 

development of new LTCHs and LTCH 

satellite facilities and a new moratorium 

on increases in the number of beds in 

existing LTCHs and LTCH satellite 

facilities beginning January 1, 2015 and 

ending on September 30, 2017; and 

section 1206(d), which instructs the 

Secretary to evaluate payments to 

LTCHs classified under section 

1886(b)(1)(C)(iv)(II) of the Act and to 

adjust payment rates in FY 2015 or FY 

2016 under the LTCH PPS, as 

appropriate, based upon the evaluation 

findings. 

• Section 1886(m)(5)(D)(iv) of the 

Act, as added by section 1206(c) of the 

Pathway for SGR Reform Act of 2013, 

which provides for the establishment, 

no later than October 1, 2015, of a 

functional status quality measure under 

the LTCHQR Program for change in 

mobility among inpatients requiring 

ventilator support. 

To conform regulations to the 

statutory requirements of the Provider 

Reimbursement Review Board (Board) 

appeals based on untimely 

determinations of the Medicare 

Administrative Contractor (MAC), in 

this proposed rule, we are proposing to 

amend the regulations to eliminate the 

provider dissatisfaction requirement as 

a condition for Board jurisdiction over 

such appeals. We are proposing a 

similar amendment to the regulations 

for appeals to MAC hearing officers, to 

maintain consistency between the 

regulations for MAC and Board appeals. 

We also are proposing to codify in the 

cost reporting regulations our existing 

policy, implemented in section 115 of 

the Provider Reimbursement Manual, 

requiring providers to include an 

appropriate claim for an item in its cost 

report. In addition, we are proposing 

that providers’ failure to include an 

appropriate claim for an item in its cost 

report will result in foreclosure of 

payment in the notice of program 

reimbursement and in any decision or 

order issued by a reviewing entity in an 

administrative appeal filed by the 

provider. 

We are proposing to align the 

reporting and submission timelines for 

clinical quality measures for the 

Medicare EHR Incentive Program for 

eligible hospitals and critical access 

hospitals (CAHs) with the reporting and 

submission timelines for the Hospital 

IQR Program. In addition, we provide 

guidance and clarification of certain 

policies for eligible hospitals and CAHs 

such as our policy for reporting zero 

denominators on clinical quality 

measures and our policy for case 

threshold exemptions. 

In addition, this proposed rule 

contains several proposals that are not 

directly related to these Medicare 

payment systems, such as regulatory 

revisions to broaden the specified uses 

and reasons for disclosure of risk 

adjustment data and to specify the 

conditions for release of risk adjustment 

data to entities outside of CMS and 

changes to the enforcement procedures 

for organ transplant centers. The 

specific statutory authority for these 

other proposals is discussed in the 

relevant sections below. 

2. Summary of the Major Provisions 

a. MS–DRG Documentation and Coding 

Adjustment 

Section 631 of the American Taxpayer 

Relief Act (ATRA, Pub. L. 112–240) 

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

Law 110–90 to require the Secretary to 

make a recoupment adjustment to the 

standardized amount of Medicare 

payments to acute care hospitals to 

account for changes in MS–DRG 

documentation and coding that do not 

reflect real changes in case-mix, totaling 

$11 billion over a 4-year period of FYs 

2014, 2015, 2016, and 2017. This 

adjustment represents the amount of the 

increase in aggregate payments as a 

result of not completing the prospective 

adjustment authorized under section 

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

FY 2013. Prior to the ATRA, this 

amount could not have been recovered 

under Public Law 110–90. 

While our actuaries estimated that a 

¥9.3 percent adjustment to the 

standardized amount would be 

necessary if CMS were to fully recover 

the $11 billion recoupment required by 

section 631 of the ATRA in FY 2014, it 

is often our practice to delay or phase 

in rate adjustments over more than one 

year, in order to moderate the effects on 

rates in any one year. Therefore, 

consistent with the policies that we 

have adopted in many similar cases, we 

made a ¥0.8 percent recoupment 

adjustment to the standardized amount 

in FY 2014. We are proposing to make 

an additional ¥0.8 percent recoupment 

adjustment to the standardized amount 

in FY 2015. 

b. Reduction of Hospital Payments for 

Excess Readmissions 

We are proposing changes in policies 

to the Hospital Readmissions Reduction 

Program, which is established under 

section 1886(q) of the Act, as added by 

section 3025 of the Affordable Care Act. 

The Hospital Readmissions Reduction 

Program requires a reduction to a 

hospital’s base operating DRG payment 

to account for excess readmissions of 

selected applicable conditions. For FYs 

2013 and 2014, these conditions are 

acute myocardial infarction, heart 

failure, and pneumonia. For FY 2014, 

we established additional exclusions to 

the three existing readmission measures 

(that is, the excess readmission ratio) to 

account for additional planned 

readmissions. We also established 

additional readmissions measures, 

Chronic Obstructive Pulmonary Disease 

(COPD), and Total Hip Arthroplasty and 

Total Knee Arthroplasty (THA/TKA), to 

be used in the Hospital Readmissions 

Reduction Program for FY 2015 and 

future years. We are proposing to 

expand the readmissions measures for 

FY 2017 and future years by adding a 

measure of patients readmitted 

following coronary artery bypass graft 

(CABG) surgery. We also are proposing 

to refine the readmission measures and 

related methodology for FY 2015 and 

subsequent years payment 

determinations. In addition, we are 

proposing that the readmissions 

payment adjustment factors for FY 2015 

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can be no more than a 3-percent 

reduction in accordance with the 

statute. We also are proposing to revise 

the calculation of aggregate payments 

for excess readmissions to include THA/ 

TKA and COPD readmissions measures 

beginning in FY 2015. 

c. Hospital Value-Based Purchasing 

(VBP) Program 

Section 1886(o) of the Act requires the 

Secretary to establish a Hospital ValueBased Purchasing (VBP) Program under 

which value-based incentive payments 

are made in a fiscal year to hospitals 

meeting performance standards 

established for a performance period for 

such fiscal year. Both the performance 

standards and the performance period 

for a fiscal year are to be established by 

the Secretary. 

In this proposed rule, we are 

proposing to adopt quality measures for 

the FY 2017, FY 2019, and FY 2020 

Hospital VBP Program years and to 

establish performance periods and 

performance standards for measures to 

be adopted for those fiscal years. We 

also are proposing to adopt additional 

policies related to performance 

standards and to revise the domain 

weighting previously adopted for the FY 

2017 Hospital VBP Program. 

d. Hospital-Acquired Condition (HAC) 

Reduction Program 

In this proposed rule, we are 

proposing a change in the scoring 

methodology with the addition of a 

previously finalized measure for the FY 

2016 payment adjustment under the 

HAC Reduction Program. Section 

1886(p) of the Act, as added under 

section 3008(a) of the Affordable Care 

Act, establishes an adjustment to 

hospital payments for HACs, or a HAC 

Reduction program, under which 

payments to applicable hospitals are 

adjusted to provide an incentive to 

reduce HACs, effective for discharges 

beginning on October 1, 2014 and for 

subsequent program years. This 1- 

percent payment reduction applies to a 

hospital whose ranking is in the top 

quartile (25 percent) of all applicable 

hospitals, relative to the national 

average, of conditions acquired during 

the applicable period and on all of the 

hospital’s discharges for the specified 

fiscal year. The amount of payment 

shall be equal to 99 percent of the 

amount of payment that would 

otherwise apply to such discharges 

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

the Act, as applicable. 

e. Proposed Changes to the DSH 

Payment Adjustment and the Provision 

of Additional Payment for 

Uncompensated Care 

Section 3133 of the Affordable Care 

Act modified the Medicare 

disproportionate share hospital (DSH) 

payment methodology beginning in FY 

2014. Under section 1886(r) of the Act, 

which was added by section 3133 of the 

Affordable Care Act, starting in FY 

2014, DSHs will receive 25 percent of 

the amount they previously would have 

received under the current statutory 

formula for Medicare DSH payments. 

The remaining amount, equal to 75 

percent of what otherwise would have 

been paid as Medicare DSH payments, 

will be paid as additional payments 

after the amount is reduced for changes 

in the percentage of individuals that are 

uninsured. Each Medicare DSH hospital 

will receive its additional amount based 

on its share of the total amount of 

uncompensated care for all Medicare 

DSH hospitals for a given time period. 

In this proposed rule, we are proposing 

updates to the uncompensated care 

amount to be distributed for FY 2015, 

and we are proposing changes to the 

methodology to calculate the 

uncompensated care payment amounts 

to be distributed such that we combine 

uncompensated care data for hospitals 

that have underwent a merger in order 

to calculate their relative share of 

uncompensated care. 

f. Hospital Inpatient Quality Reporting 

(IQR) Program 

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

the Act, hospitals are required to report 

data on measures selected by the 

Secretary for the Hospital IQR Program 

in order to receive the full annual 

percentage increase. In past rules, we 

have established measures for reporting 

and the process for submittal and 

validation of the data. 

In this proposed rule, we are 

proposing to add nine new measures for 

the Hospital IQR Program for the FY 

2017 payment determination and 

subsequent years. We are proposing to 

remove five measures for the FY 2016 

payment determination and subsequent 

years. We also are proposing to remove 

15 chart-abstracted measures from the 

FY 2016 payment determination’s 

measure set. However, we are proposing 

to retain an electronic clinical quality 

measure version of 10 of those chartabstracted measures for the program. 

g. Proposed Changes to the LTCH PPS 

Section 1206(b) of the Pathway for 

SGR Reform Act provides for the 

retroactive reinstatement and extension, 

for an additional 4 years, of the 

moratorium on the full implementation 

of the 25-percent threshold payment 

adjustment under the LTCH PPS 

established under section 114(c) of the 

MMSEA, as further amended by 

subsequent legislation. In keeping with 

this mandate, we are proposing to 

reinstate this payment adjustment 

retroactively for LTCH cost reporting 

periods beginning on or after July 1, 

2013 or October 1, 2013. 

Section 1206(b)(2) of the Pathway for 

SGR Reform Act, as amended by section 

112(b) of the Protecting Access to 

Medicare Act of 2014, provides for new 

statutory moratoria on the establishment 

of new LTCHs and LTCH satellite 

facilities (subject to certain defined 

exceptions) and a new statutory 

moratorium on bed increases in existing 

LTCHs effective for the period 

beginning April 1, 2014 and ending 

September 30, 2017. 

In accordance with section 1206(d) of 

the Pathway for SGR Reform Act of 

2013, we are proposing to apply a 

payment adjustment under the LTCH 

PPS to subclause (II) LTCHs beginning 

in FY 2015 that would result in 

payments to this type of LTCH 

resembling reasonable cost payments 

under the TEFRA payment system 

model. 

We also are proposing to make 

changes to the LTCH interruption of 

stay policy, which is a payment 

adjustment that is applied when, during 

the course of an LTCH hospitalization, 

a patient is discharged to an inpatient 

acute care hospital, an IRF, or a SNF for 

treatment or services not available at the 

LTCH for a specified period followed by 

readmittance to the same LTCH. 

3. Summary of Costs and Benefits 

• Proposed Adjustment for MS–DRG 

Documentation and Coding Changes. 

We are proposing a ¥0.8 percent 

recoupment adjustment to the 

standardized amount for FY 2015 to 

implement, in part, the requirement of 

section 631 of the ATRA that the 

Secretary make an adjustment totaling 

$11 billion over a 4-year period of FYs 

2014, 2015, 2016, and 2017. This 

recoupment adjustment represent the 

amount of the increase in aggregate 

payments as a result of not completing 

the prospective adjustment authorized 

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

110–90 until FY 2013. Prior to the 

ATRA, this amount could not have been 

recovered under Public Law 110–90. 

While our actuaries estimated that a 

¥9.3 percent recoupment adjustment to 

the standardized amount would be 

necessary if CMS were to fully recover 

the $11 billion recoupment required by 

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section 631 of the ATRA in FY 2014, it 

is often our practice to delay or phase 

in rate adjustments over more than one 

year, in order to moderate the effects on 

rates in any one year. Therefore, 

consistent with the policies that we 

have adopted in many similar cases and 

the adjustment we made for FY 2014, 

we are proposing to make a ¥0.8 

percent recoupment adjustment to the 

standardized amount in FY 2015. We 

estimated that this level of adjustment, 

combined with leaving the ¥0.8 percent 

adjustment made for FY 2014 in place, 

will recover up to $2 billion in FY 2015. 

Taking into account the approximately 

$1 billion recovered in FY 2014, this 

will leave approximately $8 billion 

remaining to be recovered by FY 2017. 

• Reduction to Hospital Payments for 

Excess Readmissions. The provisions of 

section 1886(q) of the Act which 

establishes the Hospital Readmissions 

Reduction Program are not budget 

neutral. For FY 2015, a hospital’s 

readmissions payment adjustment factor 

is the higher of a ratio of a hospital’s 

aggregate payments for excess 

readmissions to its aggregate payments 

for all discharges, or 0.97 (that is, or a 

3-percent reduction). In this proposed 

rule, we estimate that the reduction to 

a hospital’s base operating DRG 

payment amount to account for excess 

readmissions of selected applicable 

conditions under the Hospital 

Readmissions Reduction Program will 

result in a 0.2 percent decrease in 

payments to hospitals for FY 2015 

relative to FY 2014. 

• Value-Based Incentive Payments 

Under the Hospital Value-Based 

Purchasing (VBP) Program. We estimate 

that there will be no net financial 

impact to the Hospital VBP Program for 

FY 2015 in the aggregate because, by 

law, the amount available for valuebased incentive payments under the 

program in a given fiscal year must be 

equal to the total amount of base 

operating DRG payment amount 

reductions for that year, as estimated by 

the Secretary. The estimated amount of 

base operating DRG payment amount 

reductions for FY 2015, and therefore 

the estimated amount available for 

value-based incentive payments for FY 

2015 discharges, is approximately $1.4 

billion. We believe that the program’s 

benefits will be seen in improved 

patient outcomes, safety, and in the 

patient’s experience of care. However, 

we cannot estimate these benefits in 

actual dollar and patient terms. 

• Proposed Payment Adjustment 

Under the HAC Reduction Program for 

FY 2015. Under section 1886(p) of the 

Act, (as added by section 3008 of the 

Affordable Care Act), the incentive to 

reduce hospital-acquired conditions 

with a payment adjustment to 

applicable hospitals under the HAC 

Reduction Program is made beginning 

FY 2015. We estimate that, under this 

proposal, 753 hospitals would be 

subject to the 1-percent reduction, and 

that overall payments will decrease 

approximately 0.3 percent or $330 

million. 

• Proposed Changes Relating to the 

Medicare DSH Payment Adjustment and 

Provision of Additional Payment for 

Uncompensated Care. Under section 

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

3313 of the Affordable Care Act), 

disproportionate share payments to 

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

the Act are reduced and an additional 

payment to eligible hospitals is made 

beginning in FY 2014. Hospitals that 

receive Medicare DSH payments will 

receive 25 percent of the amount they 

previously would have received under 

the current statutory formula for 

Medicare DSH payments. The 

remainder, equal to 75 percent of what 

otherwise would have been paid as 

Medicare DSH payments, will be the 

basis for additional payments after the 

amount is reduced for changes in the 

percentage of individuals that are 

uninsured and additional statutory 

adjustments. Each hospital that receives 

Medicare DSH payments will receive an 

additional payment based on its share of 

the total uncompensated care amount 

reported by Medicare DSHs. The 

reduction to Medicare DSH payments is 

not budget neutral. 

For FY 2015, we are proposing that 

the 75 percent of what otherwise would 

have been paid for Medicare DSH is 

adjusted to approximately 80.4 percent 

of the amount for changes in the 

percentage of individuals that are 

uninsured and additional statutory 

adjustments. In other words, Medicare 

DSH payments prior to the application 

of section 3133 of the Affordable Care 

Act are adjusted to approximately 60.3 

percent (the product of 75 percent and 

80.4 percent) and that resulting payment 

amount is used to create an additional 

payment for a hospital’s relative 

uncompensated care. As a result, we 

project that the proposed reduction of 

Medicare DSH payments and the 

inclusion of the additional payments for 

uncompensated care will reduced 

payments overall by 1.1 percent as 

compared to the Medicare DSH 

payments and uncompensated care 

payments distributed in FY 2014. The 

proposed additional payments have 

redistributive effects based on a 

hospital’s uncompensated care amount 

relative to the uncompensated care 

amount to all hospitals that are 

estimated to receive Medicare DSH 

payments, and the payment amount is 

not tied to a hospital’s discharges. 

• Hospital Inpatient Quality 

Reporting (IQR) Program. In this 

proposed rule, we are proposing to add 

nine new measures for the FY 2017 

payment determination and subsequent 

years. We are proposing to remove five 

measures from the hospital IQR Program 

for the FY 2016 payment determination 

and subsequent years. We also are 

proposing to remove 15 chart-abstracted 

from the FY 2016 payment 

determination’s measure set, but we are 

proposing to retain an electronic clinical 

quality measure version of 10 of those 

measures for the program. We estimate 

that our proposals for the adoption and 

removal of measures will decrease 

hospital costs by $39.8 million. 

• Proposed Update to the LTCH PPS 

Standard Federal Rate and Other 

Payment Factors. Based on the best 

available data for the 423 LTCHs in our 

database, we estimate that the proposed 

changes to the payment rates and factors 

we are presenting in the preamble and 

Addendum of this proposed rule, 

including the proposed update to the 

standard Federal rate for FY 2015, the 

proposed changes to the area wage 

adjustment for FY 2015, and the 

expected changes to short-stay outliers 

and high-cost outliers, would result in 

an increase in estimated payments from 

FY 2014 of approximately $44 million 

(or 0.8 percent). In addition, we estimate 

that net effect of the projected impact of 

certain other proposed LTCH PPS policy 

changes (that is, the reinstatement of the 

moratorium on the full implementation 

of the ‘‘25 percent threshold’’ payment 

adjustment; the reinstatement of the 

moratorium on the development of new 

LTCHs and LTCH satellite facilities and 

additional LTCH beds; the proposed 

revision of the ‘‘greater than 3-day 

interruption of stay’’ policy; the 

proposed revocation of onsite 

discharges and readmissions policy; and 

the proposed payment adjustment for 

‘‘subclause (II)’’ LTCHs) is estimated to 

result in a reduction in LTCH PPS 

payments of approximately $14 million. 

The impact analysis of the proposed 

payment rates and factors presented in 

this proposed rule under the LTCH PPS, 

in conjunction with the estimated 

payment impacts of certain other 

proposed LTCH PPS policy changes 

would result in a net increase of $30 

million to LTCH providers. 

Additionally, we estimate that the costs 

to LTCHs associated with the 

completion of the proposed data for the 

LTCHQR Program at $3.96 million or 

approximately $1 million more than FY 

2014. 

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B. Summary 

1. Acute Care Hospital Inpatient 

Prospective Payment System (IPPS) 

Section 1886(d) of the Social Security 

Act (the Act) sets forth a system of 

payment for the operating costs of acute 

care hospital inpatient stays under 

Medicare Part A (Hospital Insurance) 

based on prospectively set rates. Section 

1886(g) of the Act requires the Secretary 

to use a prospective payment system 

(PPS) to pay for the capital-related costs 

of inpatient hospital services for these 

‘‘subsection (d) hospitals.’’ Under these 

PPSs, Medicare payment for hospital 

inpatient operating and capital-related 

costs is made at predetermined, specific 

rates for each hospital discharge. 

Discharges are classified according to a 

list of diagnosis-related groups (DRGs). 

The base payment rate is comprised of 

a standardized amount that is divided 

into a labor-related share and a 

nonlabor-related share. The laborrelated share is adjusted by the wage 

index applicable to the area where the 

hospital is located. If the hospital is 

located in Alaska or Hawaii, the 

nonlabor-related share is adjusted by a 

cost-of-living adjustment factor. This 

base payment rate is multiplied by the 

DRG relative weight. 

If the hospital treats a high percentage 

of certain low-income patients, it 

receives a percentage add-on payment 

applied to the DRG-adjusted base 

payment rate. This add-on payment, 

known as the disproportionate share 

hospital (DSH) adjustment, provides for 

a percentage increase in Medicare 

payments to hospitals that qualify under 

either of two statutory formulas 

designed to identify hospitals that serve 

a disproportionate share of low-income 

patients. For qualifying hospitals, the 

amount of this adjustment varies based 

on the outcome of the statutory 

calculations. The Affordable Care Act 

revised the Medicare DSH payment 

methodology and provides for a new 

additional Medicare payment that 

considers the amount of uncompensated 

care beginning on October 1, 2013. 

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 hospitalspecific rate, which is determined from 

their costs in a base year. For example, 

sole community hospitals (SCHs) 

receive the higher of a hospital-specific 

rate based on their costs in a base year 

(the highest of FY 1982, FY 1987, FY 

1996, or FY 2006) or the IPPS Federal 

rate based on the standardized amount. 

Through and including FY 2006, a 

Medicare-dependent, small rural 

hospital (MDH) received the higher of 

the Federal rate or the Federal rate plus 

50 percent of the amount by which the 

Federal rate is exceeded by the higher 

of its FY 1982 or FY 1987 hospitalspecific rate. As discussed below, for 

discharges occurring on or after October 

1, 2007, but before April 1, 2015, an 

MDH will receive the higher of the 

Federal rate or the Federal rate plus 75 

percent of the amount by which the 

Federal rate is exceeded by the highest 

of its FY 1982, FY 1987, or FY 2002 

hospital-specific rate. (We note that the 

statutory provision for payments to 

MDHs expires on March 31, 2015, under 

current law.) SCHs are the sole source 

of care in their areas, and MDHs are a 

major source of care for Medicare 

beneficiaries in their areas. Specifically, 

section 1886(d)(5)(D)(iii) of the Act 

defines an SCH as a hospital that is 

located more than 35 road miles from 

another hospital or that, by reason of 

factors such as isolated location, 

weather conditions, travel conditions, or 

absence of other like hospitals (as 

determined by the Secretary), is the sole 

source of hospital inpatient services 

reasonably available to Medicare 

beneficiaries. In addition, certain rural 

hospitals previously designated by the 

Secretary as essential access community 

hospitals are considered SCHs. Section 

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

MDH as a hospital that is located in a 

rural area, has not more than 100 beds, 

is not an SCH, and has a high 

percentage of Medicare discharges (not 

less than 60 percent of its inpatient days 

or discharges in its cost reporting year 

beginning in FY 1987 or in two of its 

three most recently settled Medicare 

cost reporting years). Both of these 

categories of hospitals are afforded this 

special payment protection in order to 

maintain access to services for 

beneficiaries. 

Section 1886(g) of the Act requires the 

Secretary to pay for the capital-related 

costs of inpatient hospital services ‘‘in 

accordance with a prospective payment 

system established by the Secretary.’’ 

The basic methodology for determining 

capital prospective payments is set forth 

in our regulations at 42 CFR 412.308 

and 412.312. Under the capital IPPS, 

payments are adjusted by the same DRG 

for the case as they are under the 

operating IPPS. Capital IPPS payments 

are also adjusted for IME and DSH, 

similar to the adjustments made under 

the operating IPPS. In addition, 

hospitals may receive outlier payments 

for those cases that have unusually high 

costs. 

The existing regulations governing 

payments to hospitals under the IPPS 

are located in 42 CFR part 412, Subparts 

A through M. 

2. Hospitals and Hospital Units 

Excluded From the IPPS 

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

Act, as amended, certain hospitals and 

hospital units are excluded from the 

IPPS. These hospitals and units are: 

Rehabilitation hospitals and units; longterm care hospitals (LTCHs); psychiatric 

hospitals and units; children’s hospitals; 

certain cancer hospitals; and short-tern 

acute care hospitals located in Guam, 

the U.S. Virgin Islands, the Northern 

Mariana Islands, and American Samoa. 

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, certain cancer 

hospitals, short-tern acute care hospitals 

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located in Guam, the U.S. Virgin 

Islands, the Northern Mariana Islands, 

and American Samoa, and RNHCIs 

continue to be paid solely under a 

reasonable cost-based system subject to 

a rate-of-increase ceiling on inpatient 

operating costs, as updated annually by 

the percentage increase in the IPPS 

operating market basket. 

The existing regulations governing 

payments to excluded hospitals and 

hospital units are located in 42 CFR 

Parts 412 and 413. 

3. Long-Term Care Hospital Prospective 

Payment System (LTCH PPS) 

The Medicare prospective payment 

system (PPS) for LTCHs applies to 

hospitals described in section 

1886(d)(1)(B)(iv) of the Act effective for 

cost reporting periods beginning on or 

after October 1, 2002. The LTCH PPS 

was established under the authority of 

section 123 of the BBRA and section 

307(b) of the BIPA (as codified under 

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

the 5-year (optional) transition period, a 

LTCH’s payment under the PPS was 

based on an increasing proportion of the 

LTCH Federal rate with a corresponding 

decreasing proportion based on 

reasonable cost principles. Effective for 

cost reporting periods beginning on or 

after October 1, 2006, all LTCHs are 

paid 100 percent of the Federal rate. The 

existing regulations governing payment 

under the LTCH PPS are located in 42 

CFR Part 412, Subpart O. Beginning 

with FY 2009, annual updates to the 

LTCH PPS are published in the same 

documents that update the IPPS (73 FR 

26797 through 26798). 

4. Critical Access Hospitals (CAHs) 

Under sections 1814(l), 1820, and 

1834(g) of the Act, payments made to 

critical access hospitals (CAHs) (that is, 

rural hospitals or facilities that meet 

certain statutory requirements) for 

inpatient and outpatient services are 

generally based on 101 percent of 

reasonable cost. Reasonable cost is 

determined under the provisions of 

section 1861(v)(1)(A) of the Act and 

existing regulations under 42 CFR Parts 

413 and 415. 

5. Payments for Graduate Medical 

Education (GME) 

Under section 1886(a)(4) of the Act, 

costs of approved educational activities 

are excluded from the operating costs of 

inpatient hospital services. Hospitals 

with approved graduate medical 

education (GME) programs are paid for 

the direct costs of GME in accordance 

with section 1886(h) of the Act. The 

amount of payment for direct GME costs 

for a cost reporting period is based on 

the hospital’s number of residents in 

that period and the hospital’s costs per 

resident in a base year. The existing 

regulations governing payments to the 

various types of hospitals are located in 

42 CFR Part 413. 

C. Summary of Provisions of Recent 

Legislation Discussed in This Proposed 

Rule 

The Patient Protection and Affordable 

Care Act (Pub. L. 111–148), enacted on 

March 23, 2010, the Health Care and 

Education Reconciliation Act of 2010 

(Pub. L. 111–152), enacted on March 30, 

2010, made a number of changes that 

affect the IPPS and the LTCH PPS. (Pub. 

L. 111–148 and Pub. L. 111–152 are 

collectively referred to as the 

‘‘Affordable Care Act.’’) A number of the 

provisions of the Affordable Care Act 

affect the updates to the IPPS and the 

LTCH PPS and providers and suppliers. 

The provisions of the Affordable Care 

Act that were applicable to the IPPS and 

the LTCH PPS for FYs 2010, 2011, and 

2012 were implemented in the June 2, 

2010 Federal Register notice (75 FR 

31118), the FY 2011 IPPS/LTCH PPS 

final rule (75 FR 50042) and the FY 

2012 IPPS/LTCH PPS final rule (76 FR 

51476). 

The American Taxpayer Relief Act of 

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

on January 2, 2013, also made a number 

of changes that affect the IPPS. We 

announced changes related to certain 

IPPS provisions for FY 2013 in 

accordance with sections 605 and 606 of 

Public Law 112–240 in a notice issued 

in the Federal Register on March 7, 

2013 (78 FR 14689). 

The Pathway for SGR Reform Act of 

2013 (Pub. L. 113–67), enacted on 

December 26, 2013, also made a number 

of changes that affect the IPPS and the 

LTCH PPS. We implemented changes 

related to the low-volume hospital 

payment adjustment and MDH 

provisions for FY 2014 in accordance 

with sections 1105 and 1106 of Public 

Law 113–67 in an interim final rule 

with comment period that appeared in 

the Federal Register on March 18, 2014 

(79 FR 15022). 

The Protecting Access to Medicare 

Act of 2014 (Pub. L. 113–93), enacted on 

April 1, 2014, also made a number of 

changes that affect the IPPS and LTCH 

PPS. 

1. The Patient Protection and Affordable 

Care Act (Pub. L. 111–148) and the 

Health Care and Education 

Reconciliation Act of 2010 (Pub. L. 111– 

152) 

In this proposed rule, we are 

proposing policy changes to implement 

(or, as applicable, continuing to 

implement in FY 2015) the following 

provisions (or portions of the following 

provisions) of the Affordable Care Act 

that are applicable to the IPPS, the 

LTCH PPS, and PPS-exempt cancer 

hospitals for FY 2015: 

• Section 3001(a) of Public Law 111– 

148, which requires the establishment of 

a hospital inpatient value-based 

purchasing program under which valuebased incentive payments are made in a 

fiscal year to hospitals that meet 

performance standards for the 

performance period for that fiscal year. 

• Section 3004 of Public Law 111– 

148, which provides for the submission 

of quality data by LTCHs in order for 

them to receive the full annual update 

to the payment rates beginning with the 

FY 2014 rate year. 

• Section 3005 of Public Law 111– 

148, which provides for the 

establishment of a quality reporting 

program for PPS-exempt cancer 

hospitals beginning with FY 2014, and 

for subsequent program years. 

• Section 3008 of Public Law 111– 

148, which establishes the HospitalAcquired Condition (HAC) Reduction 

Program and requires the Secretary to 

make an adjustment to hospital 

payments for applicable hospitals, 

effective for discharges beginning on 

October 1, 2014, and for subsequent 

program years. 

• Section 3025 of Public Law 111– 

148, which establishes a hospital 

readmissions reduction program and 

requires the Secretary to reduce 

payments to applicable hospitals with 

excess readmissions effective for 

discharges beginning on or after October 

1, 2012. 

• Section 3133 of Public Law 111– 

148, as amended by section 10316 of 

Public Law 111–148 and section 1104 of 

Public Law 111–152, which modifies 

the methodologies for determining 

Medicare DSH payments and creates a 

new additional payment for 

uncompensated care effective for 

discharges beginning on or after October 

1, 2013. 

• Section 3401 of Public Law 111– 

148, which provides for the 

incorporation of productivity 

adjustments into the market basket 

updates for IPPS hospitals and LTCHs. 

• Section 10324 of Public Law 111– 

148, which provides for a wage 

adjustment for hospitals located in 

frontier States. 

• Sections 3401 and 10319 of Public 

Law 111–148 and section 1105 of Public 

Law 111–152, which revise certain 

market basket update percentages for 

IPPS and LTCH PPS payment rates for 

FY 2015. 

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• Section 5506 of Public Law 111– 

148, which added a provision to the Act 

that instructs the Secretary to establish 

a process by regulation under which, in 

the event a teaching hospital closes, the 

Secretary will permanently increase the 

FTE resident caps for hospitals that 

meet certain criteria up to the number 

of the closed hospital’s FTE resident 

caps. 

2. American Taxpayer Relief Act of 2012 

(ATRA) (Pub. L. 112–240) 

In this proposed rule, we are 

proposing policy changes to implement 

section 631 of the American Taxpayer 

Relief Act of 2012 that are applicable to 

the IPPS for FY 2015, which amended 

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

and requires a recoupment adjustment 

to the standardized amounts under 

section 1886(d) of the Act based upon 

the Secretary’s estimates for discharges 

occurring in FY 2014 through FY 2017 

to fully offset $11 billion (which 

represents the amount of the increase in 

aggregate payments from FYs 2008 

through 2013 for which an adjustment 

was not previously applied). 

3. Pathway for SGR Reform Act of 2013 

(Pub. L. 113–67) 

In this proposed rule, we are 

proposing policy changes to implement, 

or the need for future policy changes, to 

carry out provisions under section 1206 

of the Pathway for SGR Reform Act of 

2013. These include: 

• Section 1206(a), which provides the 

establishment of patient criteria for ‘‘site 

neutral’’ payment rates under the LTCH 

PPS, portions of which will begin to be 

implemented in FY 2016. 

• Section 1206(b)(1), which further 

amended section 114(c) of the MMSEA, 

as amended by section 4302(a) of the 

ARRA and sections 3106(c) and 

10312(a) of the Affordable Care Act by 

retroactively reestablishing, and 

extending, the statutory moratorium on 

the full implementation of the 25- 

percent threshold payment adjustment 

policy under the LTCH PPS so that the 

policy will be in effect for 9 years 

(except for grandfathered HwHs, which 

are permanently exempt from this 

policy). 

• Section 1206(b)(2), which amended 

section 114(d) of the MMSEA, as 

amended by section 4302(a) of the 

ARRA and sections 3106(c) and 

10312(a) of the Affordable Care Act to 

establish new moratoria (subject to 

certain defined exceptions) on the 

development of new LTCHs and LTCH 

satellite facilities and a new moratorium 

on increases in the number of beds in 

existing LTCHs and LTCH satellite 

facilities. 

• Section 1206(d), which instructs the 

Secretary to evaluate payments to 

LTCHs classified under section 

1886(d)(1)(B)(iv)(II) of the Act and to 

adjust payment rates in FY 2015 or 2016 

under the LTCH PPS, as appropriate, 

based upon the evaluation findings. 

4. Protecting Access to Medicare Act of 

2014 (Pub. L. 113–93) 

In this proposed rule, we are 

proposing policy changes to implement, 

or make conforming changes to 

regulations in accordance with, the 

following provisions (or portions of the 

following provisions) of the Protecting 

Access to Medicare Act of 2014 that are 

applicable to the IPPS and the LTCH 

PPS for FY 2015: 

• Section 105, which extends the 

temporary changes to the Medicare 

inpatient hospital payment adjustment 

for low-volume subsection (d) hospitals 

through March 31, 2015. 

• Section 106, which extends the 

MDH program through March 31, 2015. 

• Section 112, which makes certain 

changes to Medicare LTCH provisions, 

including modifications to the statutory 

moratoria on the establishment of new 

LTCHs and LTCH satellite facilities and 

on increases in bed size in LTCH and 

LTCH satellite facilities. 

• Section 212, which prohibits the 

Secretary from requiring 

implementation of ICD–10 code sets 

before October 1, 2015. 

D. Summary of the Provisions of This 

Proposed Rule 

In this proposed rule, we are setting 

forth proposed changes to the Medicare 

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

FY 2015. We also are setting forth 

proposed changes relating to payments 

for IME and GME costs and payments to 

certain hospitals that continue to be 

excluded from the IPPS and paid on a 

reasonable cost basis. In addition, in 

this proposed rule, we are setting forth 

proposed changes to the payment rates, 

factors, and other payment rate policies 

under the LTCH PPS for FY 2015. 

Below is a summary of the major 

changes that we are proposing to make: 

1. Proposed Changes to MS–DRG 

Classifications and Recalibrations of 

Relative Weights 

In section II. of the preamble of this 

proposed rule, we include— 

• Proposed changes to MS–DRG 

classifications based on our yearly 

review, including a discussion of the 

conversion of MS–DRGs to ICD–10 and 

the status of the implementation of the 

ICD–10–CM and ICD–10–PCS systems. 

• Proposed application of the 

documentation and coding adjustment 

for FY 2015 resulting from 

implementation of the MS–DRG system. 

• Proposed recalibrations of the MS– 

DRG relative weights. 

• Proposed changes to hospitalacquired conditions (HACs) and a 

listing and discussion of HACs, 

including infections, that would be 

subject to the statutorily required 

adjustment in MS–DRG payments for 

FY 2015. 

• A discussion of the FY 2015 status 

of new technologies approved for addon payments for FY 2014 and a 

presentation of our evaluation and 

analysis of the FY 2015 applicants for 

add-on payments for high-cost new 

medical services and technologies 

(including public input, as directed by 

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

meeting). 

2. Proposed Changes to the Hospital 

Wage Index for Acute Care Hospitals 

In section III. of the preamble to this 

proposed rule, we are proposing 

revisions to the wage index for acute 

care hospitals and the annual update of 

the wage data. Specific issues addressed 

include the following: 

• Proposed changes in CBSAs as a 

result of new OMB labor market area 

delineations and proposed policies 

related to the proposed changes in 

CBSAs. 

• The proposed FY 2015 wage index 

update using wage data from cost 

reporting periods beginning in FY 2011. 

• Analysis and implementation of the 

proposed FY 2015 occupational mix 

adjustment to the wage index for acute 

care hospitals, including the proposed 

application of the rural floor, the 

proposed imputed rural floor, and the 

proposed frontier State floor. 

• Proposed revisions to the wage 

index for acute care hospitals based on 

hospital redesignations and 

reclassifications. 

• The proposed adjustment to the 

wage index for acute care hospitals for 

FY 2015 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 2015 hospital wage 

index and proposed revisions to that 

timetable. 

• Determination of the labor-related 

share for the proposed FY 2015 wage 

index. 

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3. Other Decisions and Proposed 

Changes to the IPPS for Operating Costs 

and GME Costs 

In section IV. of the preamble of this 

proposed rule, we discuss proposed 

changes or clarifications of a number of 

the provisions of the regulations in 42 

CFR Parts 412 and 413, including the 

following: 

• Proposed changes in postacute care 

transfer policies as a result of proposed 

new MS–DRGs. 

• Proposed changes to the inpatient 

hospital updates for FY 2015, including 

incorporation of the adjustment for 

hospitals that are not meaningful EHR 

users under section 1886(b)(3)(B)(ix) of 

the Act. 

• The proposed updated national and 

regional case-mix values and discharges 

for purposes of determining RRC status. 

• Proposed payment adjustment for 

low-volume hospitals for FY 2015. 

• The statutorily required IME 

adjustment factor for FY 2015 and 

proposed IME Medicare Part C 

payments to SCHs that are paid 

according to their hospital-specific 

rates. 

• Effect of expiration of the MDH 

program on April 1, 2015. 

• Proposed changes to the 

methodologies for determining 

Medicare DSH payments and the 

additional payments for uncompensated 

care. 

• Proposed changes to the measures 

and payment adjustments under the 

Hospital Readmissions Reduction 

Program. 

• Proposed changes to the 

requirements and provision of valuebased incentive payments under the 

Hospital Value-Based Purchasing 

Program. 

• Proposed requirements for payment 

adjustments to hospitals under the HAC 

Reduction Program for FY 2015. 

• Proposed IME and direct GME 

policy changes regarding the effective 

date of the FTE resident cap, 3-year 

rolling average, and IRB ratio cap in 

new programs in teaching hospitals; 

effect of new OMB labor market area 

delineations on certain teaching 

hospitals training residents in rural 

areas; clarification of effective date of 

provisions on counting resident time in 

nonprovider settings; proposed changes 

to the process for reviewing applications 

for and awarding slots made available 

under section 5506 of the Affordable 

Care Act by teaching hospitals that 

close; and clarification regarding direct 

GME payment to FQHCs and RHCs that 

train residents in approved programs. 

• Discussion of the Rural Community 

Hospital Demonstration Program and a 

proposal for making a budget neutrality 

adjustment for the demonstration 

program. 

• Discussion of the requirements for 

transparency of hospital charges under 

the Affordable Care Act. 

• Discussion of and solicitation of 

comments on an alternative payment 

methodology under the Medicare 

program for short inpatient hospital 

stays. 

• Discussion of the process for 

submitting suggested exceptions to the 

2-midnight benchmark. 

4. Proposed FY 2015 Policy Governing 

the IPPS for Capital-Related Costs 

In section V. of the preamble to this 

proposed rule, we discuss the proposed 

payment policy requirements for 

capital-related costs and capital 

payments to hospitals for FY 2015 and 

other related proposed policy changes. 

5. Proposed Changes to the Payment 

Rates for Certain Excluded Hospitals: 

Rate-of-Increase Percentages 

In section VI. of the preamble of this 

proposed rule, we discuss— 

• Proposed changes to payments to 

certain excluded hospitals for FY 2015. 

• Proposed updates to the RCE limits 

for services furnished by physicians to 

excluded hospitals. 

• Proposed CAH related changes 

regarding reclassifications as rural. 

• Proposed changes to the physician 

certification requirements for services 

furnished in CAHs. 

6. Proposed Changes to the LTCH PPS 

In section VII. of the preamble of this 

proposed rule, we set forth— 

• Proposed changes to the payment 

rates, factors, and other payment rate 

policies under the LTCH PPS for FY 

2015. 

• Proposed revisions to the LTCH 

PPS geographic classifications based on 

the new OMB delineations. 

• Proposals to implement section 

1206(b)(1) of the Pathway for SGR 

Reform Act, which provides for the 

retroactive reinstatement and extension, 

for an additional 4 years, of the statutory 

moratorium on the full implementation 

of the 25-percent threshold payment 

adjustment established under section 

114(c) of the MMSEA, as further 

amended by subsequent legislation. 

• Proposals to implement section 

1206(b)(2) of the Pathway for SGR 

Reform Act, as amended by section 

112(b) of the Protecting Access to 

Medicare Act of 2014, which provides 

for moratoria (subject to certain defined 

exceptions) on the establishment of new 

LTCHs and LTCH satellite facilities and 

a moratorium on bed increases in 

LTCHs effective for the period 

beginning April 1, 2014, and ending 

September 30, 2017. 

• Proposed changes to the LTCH 

interruption of stay policy by revising 

the fixed-day thresholds under the 

‘‘greater than 3-day interruption of stay 

policy’’ to apply a uniform 30-day 

threshold as an ‘‘acceptable standard’’ 

for determining a linkage between an 

index discharge and a readmission. 

• Proposal to remove the discharge 

and readmission requirement, ‘‘Special 

Payment Provisions for Patients Who 

Are Transferred to Onsite Providers and 

Readmitted to an LTCH’’ (the ‘‘5 percent 

payment threshold’’) beginning in FY 

2015. 

• Proposal to apply a payment 

adjustment under the LTCH PPS to 

subclause (II) LTCHs beginning in FY 

2015 that would result in payments to 

this type of LTCH resembling reasonable 

cost payment under the TEFRA 

payment system model, consistent with 

the provisions of section 1206(d) of the 

Pathway for SGR Reform Act of 2013. 

7. Proposed Changes to Regulations 

Governing Administrative Appeals by 

Providers and Judicial Review of 

Provider Claims 

In section VIII. of the preamble of this 

proposed rule, we set forth proposals to 

revise the regulations governing 

administrative appeals and judicial 

review of provider claims in Medicare 

cost reports. 

8. Proposed Changes Relating to Quality 

Data Reporting for Specific Providers 

and Suppliers 

In section IX. of the preamble of this 

proposed rule, we address— 

• Proposed requirements for the 

Hospital Inpatient Quality Reporting 

(IQR) Program as a condition for 

receiving the full applicable percentage 

increase. 

• Proposed changes to the 

requirements for the quality reporting 

program for PPS-exempt cancer 

hospitals (PCHQR Program). 

• Proposed changes to the 

requirements under the LTCH Quality 

Reporting (LTCHQR) Program. 

9. Proposed Uses and Release of 

Medicare Advantage Risk Adjustment 

Data 

In section X. of the preamble of this 

proposed rule, we set forth proposed 

regulatory revisions to broaden the 

specified uses of risk adjustment data 

and to specify the conditions for release 

of risk adjustment data to entities 

outside of CMS. 

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10. Proposed Changes to Enforcement 

Provisions for Organ Transplant Centers 

In section XI. of the preamble of this 

proposed rule, we are proposing to 

revise the regulations governing organ 

transplant centers that request approval, 

based on mitigating factors for initial 

approval and re-approval, for 

participation in Medicare when the 

centers have not met one or more of the 

conditions of participation. 

11. Determining Prospective Payment 

Operating and Capital Rates and Rate-ofIncrease Limits for Acute Care Hospitals 

In the Addendum to this proposed 

rule, we set forth proposed changes to 

the amounts and factors for determining 

the proposed FY 2015 prospective 

payment rates for operating costs and 

capital-related costs for acute care 

hospitals. We also are proposing to 

establish the threshold amounts for 

outlier cases. In addition, we addressed 

the proposed update factors for 

determining the rate-of-increase limits 

for cost reporting periods beginning in 

FY 2015 for certain hospitals excluded 

from the IPPS. 

12. Determining Prospective Payment 

Rates for LTCHs 

In the Addendum to this proposed 

rule, we set forth proposed changes to 

the amounts and factors for determining 

the proposed FY 2015 LTCH PPS 

standard Federal rate. We are proposing 

to establish the adjustments for wage 

levels (including proposed changes to 

the LTCH PPS labor market area 

delineations based on the new OMB 

delineations), the labor-related share, 

the cost-of-living adjustment, and highcost outliers, including the fixed-loss 

amount, and the LTCH cost-to-charge 

ratios (CCRs) under the LTCH PPS. 

13. Impact Analysis 

In Appendix A of this proposed rule, 

we set forth an analysis of the impact 

that the proposed changes would have 

on affected acute care hospitals, LTCHs, 

and PCHs. 

14. Recommendation of Update Factors 

for Operating Cost Rates of Payment for 

Hospital Inpatient Services 

In Appendix B of this proposed rule, 

as required by sections 1886(e)(4) and 

(e)(5) of the Act, we provided our 

recommendations of the appropriate 

percentage changes for FY 2015 for the 

following: 

• A single average standardized 

amount for all areas for hospital 

inpatient services paid under the IPPS 

for operating costs of acute care 

hospitals (and hospital-specific rates 

applicable to SCHs). 

• Target rate-of-increase limits to the 

allowable operating costs of hospital 

inpatient services furnished by certain 

hospitals excluded from the IPPS. 

• The standard Federal rate for 

hospital inpatient services furnished by 

LTCHs. 

15. Discussion of Medicare Payment 

Advisory Commission 

Recommendations 

Under section 1805(b) of the Act, 

MedPAC is required to submit a report 

to Congress, no later than March 15 of 

each year, in which MedPAC reviews 

and makes recommendations on 

Medicare payment policies. MedPAC’s 

March 2014 recommendations 

concerning hospital inpatient payment 

policies address the update factor for 

hospital inpatient operating costs and 

capital-related costs for hospitals under 

the IPPS. We address these 

recommendations in Appendix B of this 

proposed rule. For further information 

relating specifically to the MedPAC 

March 2014 report or to obtain a copy 

of the report, contact MedPAC at (202) 

220–3700 or visit MedPAC’s Web site at: 

http://www.medpac.gov. 

II. Proposed Changes to Medicare 

Severity Diagnosis-Related Group (MS– 

DRG) Classifications and Relative 

Weights 

A. Background 

Section 1886(d) of the Act specifies 

that the Secretary shall establish a 

classification system (referred to as 

diagnosis-related groups (DRGs)) for 

inpatient discharges and adjust 

payments under the IPPS based on 

appropriate weighting factors assigned 

to each DRG. Therefore, under the IPPS, 

Medicare pays for inpatient hospital 

services on a rate per discharge basis 

that varies according to the DRG to 

which a beneficiary’s stay is assigned. 

The formula used to calculate payment 

for a specific case multiplies an 

individual hospital’s payment rate per 

case by the weight of the DRG to which 

the case is assigned. Each DRG weight 

represents the average resources 

required to care for cases in that 

particular DRG, relative to the average 

resources used to treat cases in all 

DRGs. 

Congress recognized that it would be 

necessary to recalculate the DRG 

relative weights periodically to account 

for changes in resource consumption. 

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

the Act requires that the Secretary 

adjust the DRG classifications and 

relative weights at least annually. These 

adjustments are made to reflect changes 

in treatment patterns, technology, and 

any other factors that may change the 

relative use of hospital resources. 

B. MS–DRG Reclassifications 

For general information about the 

MS–DRG system, including yearly 

reviews and changes to the MS–DRGs, 

we refer readers to the previous 

discussions in the FY 2010 IPPS/RY 

2010 LTCH PPS final rule (74 FR 43764 

through 43766), the FY 2011 IPPS/LTCH 

PPS final rule (75 FR 50053 through 

50055), the FY 2012 IPPS/LTCH PPS 

final rule (76 FR 51485 through 51487), 

the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53273), and the FY 2014 IPPS/ 

LTCH PPS final rule (78 FR 50512). 

C. Adoption of the MS–DRGs in FY 2008 

For information on the adoption of 

the MS–DRGs in FY 2008, we refer 

readers to the FY 2008 IPPS final rule 

with comment period (72 FR 47140 

through 47189). 

D. Proposed FY 2015 MS–DRG 

Documentation and Coding Adjustment 

1. Background on the Prospective MS– 

DRG Documentation and Coding 

Adjustments for FY 2008 and FY 2009 

Authorized by Public Law 110–90 

In the FY 2008 IPPS final rule with 

comment period (72 FR 47140 through 

47189), we adopted the MS–DRG 

patient classification system for the 

IPPS, effective October 1, 2007, to better 

recognize severity of illness in Medicare 

payment rates for acute care hospitals. 

The adoption of the MS–DRG system 

resulted in the expansion of the number 

of DRGs from 538 in FY 2007 to 745 in 

FY 2008. (In FY 2014, there are 751 MS– 

DRGs.) By increasing the number of 

MS–DRGs and more fully taking into 

account patient severity of illness in 

Medicare payment rates for acute care 

hospitals, MS–DRGs encourage 

hospitals to improve their 

documentation and coding of patient 

diagnoses. 

In the FY 2008 IPPS final rule with 

comment period (72 FR 47175 through 

47186), we indicated that the adoption 

of the MS–DRGs had the potential to 

lead to increases in aggregate payments 

without a corresponding increase in 

actual patient severity of illness due to 

the incentives for additional 

documentation and coding. In that final 

rule with comment period, we exercised 

our authority under section 

1886(d)(3)(A)(vi) of the Act, which 

authorizes us to maintain budget 

neutrality by adjusting the national 

standardized amount, to eliminate the 

estimated effect of changes in coding or 

classification that do not reflect real 

changes in case-mix. Our actuaries 

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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 (Pub. L. 110–90). 

Section 7(a) of Public Law 110–90 

reduced the documentation and coding 

adjustment made as a result of the MS– 

DRG system that we adopted in the FY 

2008 IPPS final rule with comment 

period to ¥0.6 percent for FY 2008 and 

¥0.9 percent for FY 2009, and we 

finalized the FY 2008 adjustment 

through rulemaking, effective October 1, 

2007 (72 FR 66886). 

For FY 2009, section 7(a) of Public 

Law 110–90 required a documentation 

and coding adjustment of ¥0.9 percent, 

and we finalized that adjustment 

through rulemaking effective October 1, 

2008 (73 FR 48447). The documentation 

and coding adjustments established in 

the FY 2008 IPPS final rule with 

comment period, which reflected the 

amendments made by section 7(a) of 

Public Law 110–90, are cumulative. As 

a result, the ¥0.9 percent 

documentation and coding adjustment 

for FY 2009 was in addition to the ¥0.6 

percent adjustment for FY 2008, 

yielding a combined effect of ¥1.5 

percent. 

2. Adjustment to the Average 

Standardized Amounts Required by 

Public Law 110–90 

a. Prospective Adjustment Required by 

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

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

90 requires that, if the Secretary 

determines that implementation of the 

MS–DRG system resulted in changes in 

documentation and coding that did not 

reflect real changes in case-mix for 

discharges occurring during FY 2008 or 

FY 2009 that are different than the 

prospective documentation and coding 

adjustments applied under section 7(a) 

of Public Law 110–90, the Secretary 

shall make an appropriate adjustment 

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

Act. Section 1886(d)(3)(A)(vi) of the Act 

authorizes adjustments to the average 

standardized amounts for subsequent 

fiscal years in order to eliminate the 

effect of such coding or classification 

changes. These adjustments are 

intended to ensure that future annual 

aggregate IPPS payments are the same as 

the payments that otherwise would have 

been made had the prospective 

adjustments for documentation and 

coding applied in FY 2008 and FY 2009 

reflected the change that occurred in 

those years. 

b. Recoupment or Repayment 

Adjustments in FYs 2010 Through 2012 

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

Law 110–90 

If, based on a retroactive evaluation of 

claims data, the Secretary determines 

that implementation of the MS–DRG 

system resulted in changes in 

documentation and coding that did not 

reflect real changes in case-mix for 

discharges occurring during FY 2008 or 

FY 2009 that are different from the 

prospective documentation and coding 

adjustments applied under section 7(a) 

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

of Public Law 110–90 requires the 

Secretary to make an additional 

adjustment to the standardized amounts 

under section 1886(d) of the Act. This 

adjustment must offset the estimated 

increase or decrease in aggregate 

payments for FYs 2008 and 2009 

(including interest) resulting from the 

difference between the estimated actual 

documentation and coding effect and 

the documentation and coding 

adjustment applied under section 7(a) of 

Public Law 110–90. This adjustment is 

in addition to making an appropriate 

adjustment to the standardized amounts 

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

Act as required by section 7(b)(1)(A) of 

Public Law 110–90. That is, these 

adjustments are intended to recoup (or 

repay, in the case of underpayments) 

spending in excess of (or less than) 

spending that would have occurred had 

the prospective adjustments for changes 

in documentation and coding applied in 

FY 2008 and FY 2009 matched the 

changes that occurred in those years. 

Public Law 110–90 requires that the 

Secretary only make these recoupment 

or repayment adjustments for discharges 

occurring during FYs 2010, 2011, and 

2012. 

3. Retrospective Evaluation of FY 2008 

and FY 2009 Claims Data 

In order to implement the 

requirements of section 7 of Public Law 

110–90, we performed a retrospective 

evaluation of the FY 2008 data for 

claims paid through December 2008 

using the methodology first described in 

the FY 2009 IPPS/LTCH PPS final rule 

(73 FR 43768 and 43775) and later 

discussed in the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 43768 

through 43772). We performed the same 

analysis for FY 2009 claims data using 

the same methodology as we did for FY 

2008 claims (75 FR 50057 through 

50068). The results of the analysis for 

the FY 2011 IPPS/LTCH PPS proposed 

and final rules, and subsequent 

evaluations in FY 2012, supported that 

the 5.4 percent estimate accurately 

reflected the FY 2009 increases in 

documentation and coding under the 

MS–DRG system. We were persuaded by 

both MedPAC’s analysis (as discussed 

in the FY 2011 IPPS/LTCH PPS final 

rule (75 FR 50064 through 50065)) and 

our own review of the methodologies 

recommended by various commenters 

that the methodology we employed to 

determine the required documentation 

and coding adjustments was sound. 

As in prior years, the FY 2008, FY 

2009, and FY 2010 MedPAR files are 

available to the public to allow 

independent analysis of the FY 2008 

and FY 2009 documentation and coding 

effects. Interested individuals may still 

order these files through the CMS Web 

site at: http://www.cms.gov/ResearchStatistics-Data-and-Systems/Files-forOrder/LimitedDataSets/ by clicking on 

MedPAR Limited Data Set (LDS)- 

Hospital (National). This CMS 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 (refer to the Web site for the 

required payment amount) to: 

Mailing address if using the U.S. 

Postal Service: Centers for Medicare & 

Medicaid Services, RDDC Account, 

Accounting Division, P.O. Box 7520, 

Baltimore, MD 21207–0520. 

Mailing address if using express mail: 

Centers for Medicare & Medicaid 

Services, OFM/Division of 

Accounting—RDDC, 7500 Security 

Boulevard, C3–07–11, Baltimore, MD 

21244–1850. 

4. Prospective Adjustments for FY 2008 

and FY 2009 Authorized by Section 

7(b)(1)(A) of Public Law 110–90 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule (74 FR 43767 through 

43777), we opted to delay the 

implementation of any documentation 

and coding adjustment until a full 

analysis of case-mix changes based on 

FY 2009 claims data could be 

completed. We refer readers to the FY 

2010 IPPS/RY LTCH PPS final rule for 

a detailed description of our proposal, 

responses to comments, and finalized 

policy. After analysis of the FY 2009 

claims data for the FY 2011 IPPS/LTCH 

PPS final rule (75 FR 50057 through 

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50073), we found a total prospective 

documentation and coding effect of 5.4 

percent. After accounting for the ¥0.6 

percent and the ¥0.9 percent 

documentation and coding adjustments 

in FYs 2008 and 2009, we found a 

remaining documentation and coding 

effect of 3.9 percent. As we have 

discussed, an additional cumulative 

adjustment of ¥3.9 percent would be 

necessary to meet the requirements of 

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

to make an adjustment to the average 

standardized amounts in order to 

eliminate the full effect of the 

documentation and coding changes that 

do not reflect real changes in case-mix 

on future payments. Unlike section 

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

7(b)(1)(A) does not specify when we 

must apply the prospective adjustment, 

but merely requires us to make an 

‘‘appropriate’’ adjustment. Therefore, as 

we stated in the FY 2011 IPPS/LTCH 

PPS final rule (75 FR 50061), we 

believed the law provided some 

discretion as to the manner in which we 

applied the prospective adjustment of 

¥3.9 percent. As we discussed 

extensively in the FY 2011 IPPS/LTCH 

PPS final rule, it has been our practice 

to moderate payment adjustments when 

necessary to mitigate the effects of 

significant downward adjustments on 

hospitals, to avoid what could be 

widespread, disruptive effects of such 

adjustments on hospitals. Therefore, we 

stated that we believed it was 

appropriate to not implement the ¥3.9 

percent prospective adjustment in FY 

2011 because we finalized a ¥2.9 

percent recoupment adjustment for that 

fiscal year. Accordingly, we did not 

propose a prospective adjustment under 

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

for FY 2011 (75 FR 23868 through 

23870). We noted that, as a result, 

payments in FY 2011 (and in each 

future fiscal year until we implemented 

the requisite adjustment) would be 

higher than they would have been if we 

had implemented an adjustment under 

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

In the FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51489 and 51497), we 

indicated that, because further delay of 

this prospective adjustment would 

result in a continued accrual of 

unrecoverable overpayments, it was 

imperative that we implement a 

prospective adjustment for FY 2012, 

while recognizing CMS’ continued 

desire to mitigate the effects of any 

significant downward adjustments to 

hospitals. Therefore, we implemented a 

¥2.0 percent prospective adjustment to 

the standardized amount instead of the 

full ¥3.9 percent. 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53274 through 53276), we 

completed the prospective portion of 

the adjustment required under section 

7(b)(1)(A) of Public Law 110–90 by 

finalizing a ¥1.9 percent adjustment to 

the standardized amount for FY 2013. 

We stated that this adjustment would 

remove the remaining effect of the 

documentation and coding changes that 

do not reflect real changes in case-mix 

that occurred in FY 2008 and FY 2009. 

We believed that it was imperative to 

implement the full remaining 

adjustment, as any further delay would 

result in an overstated standardized 

amount in FY 2013 and any future fiscal 

years until a full adjustment was made. 

We noted again that delaying full 

implementation of the prospective 

portion of the adjustment required 

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

110–90 until FY 2013 resulted in 

payments in FY 2010 through FY 2012 

being overstated. These overpayments 

could not be recovered by CMS as 

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

limited recoupments to overpayments 

made in FY 2008 and FY 2009. 

5. Recoupment or Repayment 

Adjustment Authorized by Section 

7(b)(1)(B) of Public Law 110–90 

Section 7(b)(1)(B) of Public Law 110– 

90 requires the Secretary to make an 

adjustment to the standardized amounts 

under section 1886(d) of the Act to 

offset the estimated increase or decrease 

in aggregate payments for FY 2008 and 

FY 2009 (including interest) resulting 

from the difference between the 

estimated actual documentation and 

coding effect and the documentation 

and coding adjustments applied under 

section 7(a) of Public Law 110–90. This 

determination must be based on a 

retrospective evaluation of claims data. 

Our actuaries estimated that there was 

a 5.8 percentage point difference 

resulting in an increase in aggregate 

payments of approximately $6.9 billion. 

Therefore, as discussed in the FY 2011 

IPPS/LTCH PPS final rule (75 FR 50062 

through 50067), we determined that an 

aggregate adjustment of ¥5.8 percent in 

FYs 2011 and 2012 would be necessary 

in order to meet the requirements of 

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

to adjust the standardized amounts for 

discharges occurring in FYs 2010, 2011, 

and/or 2012 to offset the estimated 

amount of the increase in aggregate 

payments (including interest) in FYs 

2008 and 2009. 

It is often our practice to phase in 

payment rate adjustments over more 

than one year in order to moderate the 

effect on payment rates in any one year. 

Therefore, consistent with the policies 

that we have adopted in many similar 

cases, in the FY 2011 IPPS/LTCH PPS 

final rule, we made an adjustment to the 

standardized amount of ¥2.9 percent, 

representing approximately half of the 

aggregate adjustment required under 

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

for FY 2011. An adjustment of this 

magnitude allowed us to moderate the 

effects on hospitals in one year while 

simultaneously making it possible to 

implement the entire adjustment within 

the timeframe required under section 

7(b)(1)(B) of Public Law 110–90 (that is, 

no later than FY 2012). For FY 2012, in 

accordance with the timeframes set 

forth by section 7(b)(1)(B) of Public Law 

110–90, and consistent with the 

discussion in the FY 2011 IPPS/LTCH 

PPS final rule, we completed the 

recoupment adjustment by 

implementing the remaining ¥2.9 

percent adjustment, in addition to 

removing the effect of the ¥2.9 percent 

adjustment to the standardized amount 

finalized for FY 2011 (76 FR 51489 and 

51498). Because these adjustments, in 

effect, balanced out, there was no yearto-year change in the standardized 

amount due to this recoupment 

adjustment for FY 2012. In the FY 2013 

IPPS/LTCH PPS final rule (77 FR 

53276), we made a final +2.9 percent 

adjustment to the standardized amount, 

completing the recoupment portion of 

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

We note that with this positive 

adjustment, according to our estimates, 

all overpayments made in FY 2008 and 

FY 2009 have been fully recaptured 

with appropriate interest, and the 

standardized amount has been returned 

to the appropriate baseline. 

6. Recoupment or Repayment 

Adjustment Authorized by Section 631 

of the American Taxpayer Relief Act of 

2012 (ATRA) 

Section 631 of the ATRA amended 

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

to require the Secretary to make a 

recoupment adjustment or adjustments 

totaling $11 billion by FY 2017. This 

adjustment represents the amount of the 

increase in aggregate payments as a 

result of not completing the prospective 

adjustment authorized under section 

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

FY 2013. As discussed earlier, this delay 

in implementation resulted in 

overstated payment rates in FYs 2010, 

2011, and 2012. The resulting 

overpayments could not have been 

recovered under Public Law 110–90. 

Similar to the adjustments authorized 

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

110–90, the adjustment required under 

section 631 of the ATRA is a one-time 

recoupment of a prior overpayment, not 

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a permanent reduction to payment rates. 

Therefore, any adjustment made to 

reduce payment rates in one year would 

eventually be offset by a positive 

adjustment, once the necessary amount 

of overpayment is recovered. 

As we stated in the FY 2014 IPPS/

LTCH PPS final rule (78 FR 50515 

through 50517), our actuaries estimate 

that a ¥9.3 percent adjustment to the 

standardized amount would be 

necessary if CMS were to fully recover 

the $11 billion recoupment required by 

section 631 of the ATRA in FY 2014. It 

is often our practice to phase in 

payment rate adjustments over more 

than one year, in order to moderate the 

effect on payment rates in any one year. 

Therefore, consistent with the policies 

that we have adopted in many similar 

cases, and after consideration of the 

public comments we received, in the FY 

2014 IPPS/LTCH PPS final rule (78 FR 

50515 through 50517), we implemented 

a ¥0.8 percent recoupment adjustment 

to the standardized amount in FY 2014. 

We stated that if adjustments of 

approximately ¥0.8 percent are 

implemented in FYs 2014, 2015, 2016, 

and 2017, using standard inflation 

factors, we estimate that the entire $11 

billion will be accounted for by the end 

of the statutory 4-year timeline. As 

estimates of any future adjustments are 

subject to slight variations in total 

savings, we did not provide for specific 

adjustments for FYs 2015, 2016, or 2017 

at that time. We stated that we believed 

that this level of adjustment for FY 2014 

was a reasonable and fair approach that 

satisfies the requirements of the statute 

while mitigating extreme annual 

fluctuations in payment rates. In 

addition, we again noted that this ¥0.8 

percent recoupment adjustment, and 

future adjustments under this authority, 

will be eventually offset by an 

equivalent positive adjustment once the 

full $11 billion recoupment requirement 

has been realized. 

Consistent with the approach 

discussed in the FY 2014 rulemaking for 

recouping the $11 billion required by 

section 631 of the ATRA, we are 

proposing an additional ¥0.8 percent 

recoupment adjustment to the 

standardized amount for FY 2015. We 

estimated that this level of adjustment, 

combined with leaving the ¥0.8 percent 

adjustment made for FY 2014 in place, 

will recover up to $2 billion in FY 2015. 

Taking into account the approximately 

$1 billion recovered in FY 2014, this 

will leave approximately $8 billion 

remaining to be recovered by FY 2017. 

We continue to believe that if 

adjustments of approximately ¥0.8 

percent are implemented in FYs 2014, 

2015, 2016, and 2017, using standard 

inflation factors, the entire $11 billion 

will be accounted for by the end of the 

statutory 4-year timeline. As we 

explained in the FY 2014 rulemaking, 

estimates of any future adjustments are 

subject to slight variations in total 

savings; therefore, we are not proposing 

specific adjustments for FY 2016 and FY 

2017 at this time. We continue to 

believe that our proposed ¥0.8 percent 

adjustment for FY 2015 is a reasonable 

and fair approach that will help satisfy 

the requirements of the statute while 

mitigating extreme annual fluctuations 

in payment rates. In addition, we again 

note that this ¥0.8 percent recoupment 

adjustment, and future adjustments 

under this authority, will be eventually 

offset by an equivalent positive 

adjustment once the full $11 billion 

recoupment requirement has been 

realized. 

7. Prospective Adjustment for the MS– 

DRG Documentation and Coding Effect 

Through FY 2010 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50515 through 50517), we 

discussed the possibility of applying an 

additional prospective adjustment to 

account for the cumulative MS–DRG 

documentation and coding effect 

through FY 2010. In that final rule, we 

stated that if we were to apply such an 

adjustment, we believe the most 

appropriate additional adjustment is 

¥0.55 percent. However, we decided 

not to apply such an adjustment in FY 

2014, in light of the need to make the 

retrospective adjustments required by 

the ATRA. We continue to believe that 

if we were to apply an additional 

prospective adjustment for the 

cumulative MS–DRG documentation 

and coding effect through FY 2010, the 

most appropriate additional adjustment 

is ¥0.55 percent. However, we are not 

proposing such an adjustment in FY 

2015, in light of the ongoing 

recoupment required by the ATRA. We 

will consider whether such an 

additional adjustment is appropriate in 

future years’ rulemaking. 

E. Refinement of the MS–DRG Relative 

Weight Calculation 

1. Background 

Beginning in FY 2007, we 

implemented relative weights for DRGs 

based on cost report data instead of 

charge information. We refer readers to 

the FY 2007 IPPS final rule (71 FR 

47882) for a detailed discussion of our 

final policy for calculating the costbased DRG relative weights and to the 

FY 2008 IPPS final rule with comment 

period (72 FR 47199) for information on 

how we blended relative weights based 

on the CMS DRGs and MS–DRGs. 

As we implemented cost-based 

relative weights, some public 

commenters raised concerns about 

potential bias in the weights due to 

‘‘charge compression,’’ which is the 

practice of applying a higher percentage 

charge markup over costs to lower cost 

items and services, and a lower 

percentage charge markup over costs to 

higher cost items and services. As a 

result, the cost-based weights would 

undervalue high-cost items and 

overvalue low-cost items if a single CCR 

is applied to items of widely varying 

costs in the same cost center. To address 

this concern, in August 2006, we 

awarded a contract to the Research 

Triangle Institute, International (RTI) to 

study the effects of charge compression 

in calculating the relative weights and 

to consider methods to reduce the 

variation in the cost-to-charge ratios 

(CCRs) across services within cost 

centers. For a detailed summary of RTI’s 

findings, recommendations, and public 

comments that we received on the 

report, we refer readers to the FY 2009 

IPPS/LTCH PPS final rule (73 FR 48452 

through 48453). In addition, we refer 

readers to RTI’s July 2008 final report 

titled ‘‘Refining Cost to Charge Ratios 

for Calculating APC and MS–DRG 

Relative Payment Weights’’ (http://

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

2005-0029I/PDF/Refining_Cost_to_

Charge_Ratios_200807_Final.pdf). 

In the FY 2009 IPPS final rule (73 FR 

48458 through 48467), in response to 

the RTI’s recommendations concerning 

cost report refinements, we discussed 

our decision to pursue changes to the 

cost report to split the cost center for 

Medical Supplies Charged to Patients 

into one line for ‘‘Medical Supplies 

Charged to Patients’’ and another line 

for ‘‘Implantable Devices Charged to 

Patients.’’ We acknowledged, as RTI had 

found, that charge compression occurs 

in several cost centers that exist on the 

Medicare cost report. However, as we 

stated in the FY 2009 IPPS final rule, we 

focused on the CCR for Medical 

Supplies and Equipment because RTI 

found that the largest impact on the 

MS–DRG relative weights could result 

from correcting charge compression for 

devices and implants. In determining 

the items that should be reported in 

these respective cost centers, we 

adopted the commenters’ 

recommendations that hospitals should 

use revenue codes established by the 

AHA’s National Uniform Billing 

Committee to determine the items that 

should be reported in the ‘‘Medical 

Supplies Charged to Patients’’ and the 

‘‘Implantable Devices Charged to 

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Patients’’ cost centers. Accordingly, a 

new subscripted line for ‘‘Implantable 

Devices Charged to Patients’’ was 

created in July 2009. This new 

subscripted cost center has been 

available for use for cost reporting 

periods beginning on or after May 1, 

2009. 

As we discussed in the FY 2009 IPPS 

final rule (73 FR 48458) and in the CY 

2009 OPPS/ASC final rule with 

comment period (73 FR 68519 through 

68527), in addition to the findings 

regarding implantable devices, RTI also 

found that the costs and charges of 

computed tomography (CT) scans, 

magnetic resonance imaging (MRI), and 

cardiac catheterization differ 

significantly from the costs and charges 

of other services included in the 

standard associated cost center. RTI also 

concluded that both the IPPS and the 

OPPS relative weights would better 

estimate the costs of those services if 

CMS were to add standard cost centers 

for CT scans, MRIs, and cardiac 

catheterization in order for hospitals to 

report separately the costs and charges 

for those services and in order for CMS 

to calculate unique CCRs to estimate the 

costs from charges on claims data. In the 

FY 2011 IPPS/LTCH PPS final rule (75 

FR 50075 through 50080), we finalized 

our proposal to create standard cost 

centers for CT scans, MRIs, and cardiac 

catheterization, and to require that 

hospitals report the costs and charges 

for these services under new cost 

centers on the revised Medicare cost 

report Form CMS–2552–10. (We refer 

readers to the FY 2011 IPPS/LTCH PPS 

final rule (75 FR 50075 through 50080) 

for a detailed discussion of the reasons 

for the creation of standard cost centers 

for CT scans, MRIs, and cardiac 

catheterization.) The new standard cost 

centers for CT scans, MRIs, and cardiac 

catheterization are effective for cost 

reporting periods beginning on or after 

May 1, 2010, on the revised cost report 

Form CMS–2552–10. 

In the FY 2009 IPPS final rule (73 FR 

48468), we stated that, due to what is 

typically a 3-year lag between the 

reporting of cost report data and the 

availability for use in ratesetting, we 

anticipated that we might be able to use 

data from the new ‘‘Implantable Devices 

Charged to Patients’’ cost center to 

develop a CCR for ‘‘Implantable Devices 

Charged to Patients’’ in the FY 2012 or 

FY 2013 IPPS rulemaking cycle. 

However, as noted in the FY 2010 IPPS/ 

RY 2010 LTCH PPS final rule (74 FR 

43782), due to delays in the issuance of 

the revised cost report Form CMS 2552– 

10, we determined that a new CCR for 

‘‘Implantable Devices Charged to 

Patients’’ might not be available before 

FY 2013. Similarly, when we finalized 

the decision in the FY 2011 IPPS/LTCH 

PPS final rule to add new cost centers 

for CT scans, MRIs, and cardiac 

catheterization, we explained that data 

from any new cost centers that may be 

created will not be available until at 

least 3 years after they are first used (75 

FR 50077). In preparation for the FY 

2012 IPPS/LTCH PPS rulemaking, we 

checked the availability of data in the 

‘‘Implantable Devices Charged to 

Patients’’ cost center on the FY 2009 

cost reports, but we did not believe that 

there was a sufficient amount of data 

from which to generate a meaningful 

analysis in this particular situation. 

Therefore, we did not propose to use 

data from the ‘‘Implantable Devices 

Charged to Patients’’ cost center to 

create a distinct CCR for ‘‘Implantable 

Devices Charged to Patients’’ for use in 

calculating the MS–DRG relative 

weights for FY 2012. We indicated that 

we would reassess the availability of 

data for the ‘‘Implantable Devices 

Charged to Patients’’ cost center for the 

FY 2013 IPPS/LTCH PPS rulemaking 

cycle and, if appropriate, we would 

propose to create a distinct CCR at that 

time. 

During the development of the FY 

2013 IPPS/LTCH PPS proposed and 

final rules, hospitals were still in the 

process of transitioning from the 

previous cost report Form CMS–2552– 

96 to the new cost report Form CMS– 

2552–10. Therefore, we were able to 

access only those cost reports in the FY 

2010 HCRIS with fiscal year begin dates 

on or after October 1, 2009, and before 

May 1, 2010; that is, those cost reports 

on Form CMS–2552–96. Data from the 

Form CMS–2552–10 cost reports were 

not available because cost reports filed 

on the Form CMS–2552–10 were not 

accessible in the HCRIS. Further 

complicating matters was that, due to 

additional unforeseen technical 

difficulties, the corresponding 

information regarding charges for 

implantable devices on hospital claims 

was not yet available to us in the 

MedPAR file. Without the breakout in 

the MedPAR file of charges associated 

with implantable devices to correspond 

to the costs of implantable devices on 

the cost report, we believed that we had 

no choice but to continue computing the 

relative weights with the current CCR 

that combines the costs and charges for 

supplies and implantable devices. We 

stated in the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53281 through 53283) 

that when we do have the necessary 

data for supplies and implantable 

devices on the claims in the MedPAR 

file to create distinct CCRs for the 

respective cost centers for supplies and 

implantable devices, we hoped that we 

would also have data for an analysis of 

creating distinct CCRs for CT scans, 

MRIs, and cardiac catheterization, 

which could then be finalized through 

rulemaking. In the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53281), we stated 

that prior to proposing to create these 

CCRs, we would first thoroughly 

analyze and determine the impacts of 

the data, and that distinct CCRs for 

these new cost centers would be used in 

the calculation of the relative weights 

only if they were first finalized through 

rulemaking. 

At the time of the development of the 

FY 2014 IPPS/LTCH PPS proposed rule 

(78 FR 27506 through 27507), we had a 

substantial number of hospitals 

completing all, or some, of these new 

cost centers on the FY 2011 Medicare 

cost reports, compared to prior years. 

We stated that we believed that the 

analytic findings described using the FY 

2011 cost report data and FY 2012 

claims data supported our original 

decision to break out and create new 

cost centers for implantable devices, 

MRIs, CT scans, and cardiac 

catheterization, and we saw no reason to 

further delay proposing to implement 

the CCRs of each of these cost centers. 

Therefore, beginning in FY 2014, we 

proposed to calculate the MS–DRG 

relative weights using 19 CCRs, creating 

distinct CCRs from cost report data for 

implantable devices, MRIs, CT scans, 

and cardiac catheterization (78 FR 

27509). 

We refer readers to the FY 2014 IPPS/ 

LTCH PPS proposed rule (78 FR 27507 

through 27509) and final rule (78 FR 

50518 through 50523) in which we 

presented data analyses using distinct 

CCRs for implantable devices, MRIs, CT 

scans, and cardiac catheterization. The 

FY 2014 IPPS/LTCH PPS final rule also 

set forth our responses to public 

comments we received on our proposal 

to implement these CCRs. As explained 

in more detail in the FY 2014 IPPS/

LTCH PPS final rule, we finalized our 

proposal to use 19 CCRs to calculate 

MS–DRG relative weights beginning in 

FY 2014—the then existing 15 cost 

centers and the 4 new CCRs for 

implantable devices, MRIs, CT scans, 

and cardiac catheterization. Therefore, 

beginning in FY 2014, we calculated the 

IPPS MS–DRG relative weights using 19 

CCRs, creating distinct CCRs for 

implantable devices, MRIs, CT scans, 

and cardiac catheterization. 

2. Discussion for FY 2015 

To calculate the proposed MS–DRG 

relative weights for FY 2015, we use two 

data sources: the MedPAR file as the 

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claims data source and the HCRIS as the 

cost report data source. We adjust the 

charges from the claims to costs by 

applying the 19 national average CCRs 

developed from the cost reports. The 

description of the calculation of the 

proposed 19 CCRs and the proposed 

MS–DRG relative weights for FY 2015 is 

included in section II.H. of the preamble 

of this proposed rule. 

F. Proposed Adjustment to MS–DRGs for 

Preventable Hospital-Acquired 

Conditions (HACs), Including Infections 

for FY 2015 

1. Background 

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

addresses certain hospital-acquired 

conditions (HACs), including infections. 

This provision is part of an array of 

Medicare tools that we are using to 

promote increased quality and 

efficiency of care. Under the IPPS, 

hospitals are encouraged to treat 

patients efficiently because they receive 

the same DRG payment for stays that 

vary in length and in the services 

provided, which gives hospitals an 

incentive to avoid unnecessary costs in 

the delivery of care. In some cases, 

conditions acquired in the hospital do 

not generate higher payments than the 

hospital would otherwise receive for 

cases without these conditions. To this 

extent, the IPPS encourages hospitals to 

avoid complications. 

However, the treatment of certain 

conditions can generate higher Medicare 

payments in two ways. First, if a 

hospital incurs exceptionally high costs 

treating a patient, the hospital stay may 

generate an outlier payment. Because 

the outlier payment methodology 

requires that hospitals experience large 

losses on outlier cases before outlier 

payments are made, hospitals have an 

incentive to prevent outliers. Second, 

under the MS–DRG system that took 

effect in FY 2008 and that has been 

refined through rulemaking in 

subsequent years, certain conditions can 

generate higher payments even if the 

outlier payment requirements are not 

met. Under the MS–DRG system, there 

are currently 261 sets of MS–DRGs that 

are split into 2 or 3 subgroups based on 

the presence or absence of a 

complication or comorbidity (CC) or a 

major complication or comorbidity 

(MCC). The presence of a CC or an MCC 

generally results in a higher payment. 

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

specifies that, by October 1, 2007, the 

Secretary was required to select, in 

consultation with the Centers for 

Disease Control and Prevention (CDC), 

at least two conditions that: (a) Are high 

cost, high volume, or both; (b) are 

assigned to a higher paying MS–DRG 

when present as a secondary diagnosis 

(that is, conditions under the MS–DRG 

system that are CCs or MCCs); and (c) 

could reasonably have been prevented 

through the application of evidencebased guidelines. Section 1886(d)(4)(D) 

of the Act also specifies that the list of 

conditions may be revised, again in 

consultation with the CDC, from time to 

time as long as the list contains at least 

two conditions. 

Effective for discharges occurring on 

or after October 1, 2008, under the 

authority of section 1886(d)(4)(D) of the 

Act, Medicare no longer assigns an 

inpatient hospital discharge to a higher 

paying MS–DRG if a selected condition 

is not present on admission (POA). 

Thus, if a selected condition that was 

not POA manifests during the hospital 

stay, it is considered a HAC and the case 

is paid as though the secondary 

diagnosis was not present. However, 

even if a HAC manifests during the 

hospital stay, if any nonselected CC or 

MCC appears on the claim, the claim 

will be paid at the higher MS–DRG rate. 

In addition, Medicare continues to 

assign a discharge to a higher paying 

MS–DRG if a selected condition is POA. 

When a HAC is not POA, payment can 

be affected in a manner shown in the 

diagram below. 

2. HAC Selection 

Beginning in FY 2007, we have set 

forth proposals, and solicited and 

responded to public comments, to 

implement section 1886(d)(4)(D) of the 

Act through the IPPS annual rulemaking 

process. For specific policies addressed 

in each rulemaking cycle, including a 

detailed discussion of the collaborative 

interdepartmental process and public 

input regarding selected and potential 

candidate HACs, we refer readers to the 

following rules: the FY 2007 IPPS 

proposed rule (71 FR 24100) and final 

rule (71 FR 48051 through 48053); the 

FY 2008 IPPS proposed rule (72 FR 

24716 through 24726) and final rule 

with comment period (72 FR 47200 

through 47218); the FY 2009 IPPS 

proposed rule (73 FR 23547) and final 

rule (73 FR 48471); the FY 2010 IPPS/ 


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RY 2010 LTCH PPS proposed rule (74 

FR 24106) and final rule (74 FR 43782); 

the FY 2011 IPPS/LTCH PPS proposed 

rule (75 FR 23880) and final rule (75 FR 

50080); the FY 2012 IPPS/LTCH PPS 

proposed rule (76 FR 25810 through 

25816) and final rule (76 FR 51504 

through 51522); the FY 2013 IPPS/LTCH 

PPS proposed rule (77 FR 27892 

through 27898) and final rule (77 FR 

53283 through 53303); and the FY 2014 

IPPS/LTCH PPS proposed rule (78 FR 

27509 through 27512) and final rule (78 

FR 50523 through 50527). A complete 

list of the 11 current categories of HACs 

is included on the CMS Web site at: 

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

Medicare-Fee-for-Service-Payment/

HospitalAcqCond/Hospital-Acquired_

Conditions.html. 

3. Present on Admission (POA) 

Indicator Reporting 

Collection of POA indicator data is 

necessary to identify which conditions 

were acquired during hospitalization for 

the HAC payment provision as well as 

for broader public health uses of 

Medicare data. In previous rulemaking, 

we provided both CMS and CDC Web 

site resources that are available to 

hospitals for assistance in this reporting 

effort. For detailed information 

regarding these sites and materials, 

including the application and use of 

POA indicators, we refer the reader to 

the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51506 through 51507). 

Currently, as we have discussed in the 

prior rulemaking cited under section 

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

rule, the POA indicator reporting 

requirement only applies to IPPS 

hospitals because they are subject to this 

HAC provision. Non-IPPS hospitals, 

including CAHs, LTCHs, IRFs, IPFs, 

cancer hospitals, children’s hospitals, 

RNHCIs, and the Department of 

Veterans Affairs/Department of Defense 

hospitals, are exempt from POA 

reporting. 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50525), we noted that 

hospitals in Maryland operating under a 

statutory waiver are not paid under the 

IPPS, but rather were paid under the 

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

Act and therefore exempt from reporting 

POA indicators. However, we believed 

it was appropriate to require them to use 

POA indicator reporting on their claims 

so that we can include their data and 

have as complete a dataset as possible 

when we analyze trends and make 

further payment policy determinations, 

such as those authorized under section 

1886(p) of the Act. Therefore, in the FY 

2014 IPPS/LTCH PPS final rule, we 

finalized our policy that hospitals in 

Maryland that formerly operated under 

section 1814(b)(3) of the Act were no 

longer exempted from the POA 

indicator reporting requirement 

beginning with claims submitted on or 

after October 1, 2013, including all 

claims for discharges on or after October 

1, 2013. We note that, while this 

requirement was not effective until 

October 1, 2013, hospitals in Maryland 

could submit data with POA indicators 

before that date with the expectation 

that these data will be accepted by 

Medicare’s claims processing systems. 

(We refer readers to the FY 2014 IPPS/ 

LTCH PPS final rule (78 FR 50707 

through 50712) for a discussion of our 

FY 2014 final policies to implement 

section 1886(p) of the Act that are 

applicable to Maryland hospitals.) 

Subsequent to our FY 2014 

rulemaking, the State of Maryland 

entered into an agreement with CMS, 

effective January 1, 2014, to participate 

in CMS’ new Maryland All-Payer 

Model, a 5-year hospital payment 

model. This model is being 

implemented under section 1115A of 

the Act, as added by section 3021 of the 

Affordable Care Act, which authorizes 

the testing of innovative payment and 

service delivery models, including 

models that allow States to ‘‘test and 

evaluate systems of all-payer payment 

reform for the medical care of residents 

of the State, including dual eligible 

individuals.’’ Section 1115A of the Act 

authorizes the Secretary to waive such 

requirements of titles XI and XVIII of 

the Act as may be necessary solely for 

purposes of carrying out section 1115A 

of the Act with respect to testing 

models. 

Under the agreement with CMS, 

Maryland will limit per capita total 

hospital cost growth for all payers, 

including Medicare. In order to 

implement the new model, effective 

January 1, 2014, Maryland elected to no 

longer have Medicare make payments to 

Maryland hospitals in accordance with 

section 1814(b)(3) of the Act. Maryland 

also represented that it is no longer in 

continuous operation of a 

demonstration project reimbursement 

system since July 1, 1977, as specified 

under section 1814(b)(3) of the Act. 

Because Maryland hospitals are no 

longer paid under section 1814(b)(3) of 

the Act, they are no longer subject to 

those provisions of the Act and related 

implementing regulations that are 

specific to section 1814(b)(3) hospitals. 

Although CMS has waived certain 

provisions of the Act for Maryland 

hospitals, as set forth in the agreement 

between CMS and Maryland and subject 

to Maryland’s compliance with the 

terms of the agreement, CMS has not 

waived the POA indicator reporting 

requirement. In other words, the 

changes to the status of Maryland 

hospitals under section 1814(b)(3) of the 

Act as described above do not in any 

way change the POA indicator reporting 

requirement for Maryland hospitals. 

There are currently four POA 

indicator reporting options, ‘‘Y’’, ‘‘W’’, 

‘‘N’’, and ‘‘U’’, as defined by the ICD– 

9–CM Official Guidelines for Coding 

and Reporting. We note that prior to 

January 1, 2011, we also used a POA 

indicator reporting option ‘‘1’’. 

However, beginning on or after January 

1, 2011, hospitals were required to begin 

reporting POA indicators using the 5010 

electronic transmittal standards format. 

The 5010 format removes the need to 

report a POA indicator of ‘‘1’’ for codes 

that are exempt from POA reporting. We 

issued CMS instructions on this 

reporting change as a One-Time 

Notification, Pub. No. 100–20, 

Transmittal No. 756, Change Request 

7024, effective on August 13, 2010, 

which can be located at the following 

link on the CMS Web site: http://

www.cms.gov/manuals/downloads/

Pub100_20.pdf.) The POA indicator 

reporting process will not change when 

ICD–10–CM and ICD–10–PCS are 

implemented on October 1, 2014. The 

current POA indicators and their 

descriptors are shown in the chart 

below: 

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. 

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Under the HAC payment policy, we 

treat HACs coded with ‘‘Y’’ and ‘‘W’’ 

indicators as POA and allow the 

condition on its own to cause an 

increased payment at the CC and MCC 

level. We treat HACs coded with ‘‘N’’ 

and ‘‘U’’ indicators as Not Present on 

Admission (NPOA) and do not allow the 

condition on its own to cause an 

increased payment at the CC and MCC 

level. We refer readers to the following 

rules for a detailed discussion of POA 

indicator reporting: The FY 2009 IPPS 

proposed rule (73 FR 23559) and final 

rule (73 FR 48486 through 48487); the 

FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule (74 FR 24106) and final 

rule (74 FR 43784 through 43785); the 

FY 2011 IPPS/LTCH PPS proposed rule 

(75 FR 23881 through 23882) and final 

rule (75 FR 50081 through 50082); the 

FY 2012 IPPS/LTCH PPS proposed rule 

(76 FR 25812 through 25813) and final 

rule (76 FR 51506 through 51507); the 

FY 2013 IPPS/LTCH PPS proposed rule 

(77 FR 27893 through 27894) and final 

rule (77 FR 53284 through 53285); and 

the FY 2014 IPPS/LTCH PPS proposed 

rule (78 FR 27510 through 27511) and 

final rule (78 FR 50524 through 50525). 

In addition, as discussed previously 

in the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53324), the 5010 format 

allows the reporting and, effective 

January 1, 2011, the processing of up to 

25 diagnoses and 25 procedure codes. 

As such, it is necessary to report a valid 

POA indicator for each diagnosis code, 

including the principal diagnosis and 

all secondary diagnoses up to 25. 

4. HACs and POA Reporting in 

Preparation for Transition to ICD–10– 

CM and ICD–10–PCS 

In the FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51506 and 51507), in 

preparation for the transition to the 

ICD–10–CM and ICD–10–PCS code sets, 

we indicated that further information 

regarding the use of the POA indicator 

with the ICD–10–CM/ICD–10–PCS 

classifications as they pertain to the 

HAC policy would be discussed in 

future rulemaking. 

At the March 5, 2012 and the 

September 19, 2012 meetings of the 

ICD–9–CM Coordination and 

Maintenance Committee, an 

announcement was made with regard to 

the availability of the ICD–9–CM HAC 

list translation to ICD–10–CM and ICD– 

10–PCS code sets. Participants were 

informed that the list of the ICD–9–CM 

selected HACs has been translated into 

codes using the ICD–10–CM and ICD– 

10–PCS classification system. It was 

recommended that the public review 

this list of ICD–10–CM/ICD–10–PCS 

code translations of the selected HACs 

available on the CMS Web site at: 

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

ICD10/ICD-10-MS-DRG-ConversionProject.html. The translations can be 

found under the link titled ‘‘ICD–10– 

CM/PCS MS–DRG v30 Definitions 

Manual Table of Contents—Full Titles— 

HTML Version in Appendix I—Hospital 

Acquired Conditions (HACs).’’ This 

CMS Web site regarding the ICD–10– 

MS–DRG Conversion Project is also 

available on the CMS Web site at: 

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

-Fee-for-Service-Payment/Hospital

AcqCond/icd10_hacs.html. We 

encouraged the public to submit 

comments on these translations through 

the HACs Web page using the CMS ICD– 

10–CM/PCS HAC Translation Feedback 

Mailbox that was set up for this purpose 

under the Related Links section titled 

‘‘CMS HAC Feedback.’’ 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50525), we stated that the 

final HAC list translation from ICD–9– 

CM to ICD–10–CM/ICD–10–PCS would 

be subject to formal rulemaking. We 

encouraged readers to review the 

educational materials and draft code 

sets available for ICD–10–CM/ICD–10– 

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

www.cms.gov/ICD10/. In addition, we 

stated that the draft ICD–10–CM/ICD– 

10–PCS Coding Guidelines could be 

viewed on the CDC Web site at: 

http://www.cdc.gov/nchs/icd/

icd10cm.htm. 

The HACs code translation list from 

ICM–9–CM to ICD–10–CM/ICD–10–PCS 

is available to the public on the CMS 

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

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

that Appendix I of the ICD–10 MS– 

DRGs Version 31.0–R file posted on the 

Web site contains the DRA HACs 

translated to ICD–10. 

We note that section 212 of the 

Protecting Access to Medicare Act of 

2014 (Pub. L. 113–93), enacted on April 

1, 2014, delayed the transition from the 

ICD–9–CM to the ICD–10 code set. 

5. Proposals Regarding Current HACs 

and Previously Considered Candidate 

HACs 

In this FY 2015 IPPS/LTCH PPS 

proposed rule, we are not proposing to 

add or remove categories of the HACs. 

However, we continue to encourage 

public dialogue about refinements to the 

HAC list by written stakeholder 

comments about both previously 

selected and potential candidate HACs. 

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

FY 2008 IPPS final rule with comment 

period (72 FR 47202 through 47218) and 

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

final rule (73 FR 48774 through 48491) 

for detailed discussion supporting our 

determination regarding each of these 

conditions. We also refer readers to 

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

LTCH PPS proposed rule (77 FR 27892 

through 27898), the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53285 through 

53292) for the HAC policy for FY 2013, 

and the FY 2014 IPPS/LTCH PPS 

proposed rule (78 FR 27509 through 

27512) and the FY 2014 IPPS/LTCH PPS 

final rule (78 FR 50523 through 50527) 

for the HAC policy for FY 2014. 

6. RTI Program Evaluation 

On September 30, 2009, a contract 

was awarded to RTI to evaluate the 

impact of the Hospital-Acquired 

Condition-Present on Admission (HAC– 

POA) provisions on the changes in the 

incidence of selected conditions, effects 

on Medicare payments, impacts on 

coding accuracy, unintended 

consequences, and infection and event 

rates. This was an intra-agency project 

with funding and technical support 

from CMS, OPHS, AHRQ, and CDC. The 

evaluation also examined the 

implementation of the program and 

evaluated additional conditions for 

future selection. The contract with RTI 

ended on November 30, 2012. Summary 

reports of RTI’s analysis of the FYs 

2009, 2010, and 2011 MedPAR data files 

for the HAC–POA program evaluation 

were included in the FY 2011 IPPS/

LTCH PPS final rule (75 FR 50085 

through 50101), the FY 2012 IPPS/LTCH 

PPS final rule (76 FR 51512 through 

51522), and the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53292 through 

53302). Summary and detailed data also 

were made publicly available on the 

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

HospitalAcqCond/01_Overview.asp and 

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

reports/cms/. 

In addition to the evaluation of HAC 

and POA MedPAR claims data, RTI also 

conducted analyses on readmissions 

due to HACs, the incremental costs of 

HACs to the health care system, a study 

of spillover effects and unintended 

consequences, as well as an updated 

analysis of the evidence-based 

guidelines for selected and previously 

considered HACs. Reports on these 

analyses have been made publicly 

available on the CMS Web site at: 

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

Medicare-Fee-for-Service-Payment/

HospitalAcqCond/index.html. 

7. Current and Previously Considered 

Candidate HACs—RTI Report on 

Evidence-Based Guidelines 

The RTI program evaluation includes 

a report that provides references for all 

evidence-based guidelines available for 

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each of the selected and previously 

considered candidate HACs that provide 

recommendations for the prevention of 

the corresponding conditions. 

Guidelines were primarily identified 

using the AHRQ National Guidelines 

Clearing House (NGCH) and the CDC, 

along with relevant professional 

societies. Guidelines published in the 

United States were used, if available. In 

the absence of U.S. guidelines for a 

specific condition, international 

guidelines were included. 

Evidence-based guidelines that 

included specific recommendations for 

the prevention of the condition were 

identified for each of the selected 

conditions. In addition, evidence-based 

guidelines also were found for the 

previously considered candidate 

conditions. RTI prepared a final report 

to summarize its findings regarding 

evidence-based guidelines. This report 

can be found on the CMS Web site at: 

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

Medicare-Fee-for-Service-Payment/

HospitalAcqCond/Downloads/EvidenceBased-Guidelines.pdf. Subsequent to 

this final report, RTI was awarded an FY 

2014 Evidence-Based Guidelines 

Monitoring contract. Under the contract, 

RTI will provide a summary report of all 

evidence-based guidelines available for 

each of the selected and previously 

considered candidate HACs that provide 

recommendations for the prevention of 

the corresponding conditions. This 

report is usually delivered to CMS 

annually in a May/June timeframe. 

Updates to the guidelines will be made 

available to the public. 

G. Proposed Changes to Specific MS– 

DRG Classifications 

1. Discussion of Changes to Coding 

System and Basis for Proposed MS–DRG 

Updates 

a. Conversion of MS–DRGs to the 

International Classification of Diseases, 

10th Revision (ICD–10) 

Providers use the code sets under the 

ICD–9–CM coding system to report 

diagnoses and procedures for Medicare 

hospital inpatient services under the 

MS–DRG system. 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 ICD–10– 

PCS Guidelines for Coding and 

Reporting. The ICD–10 coding system 

was initially adopted for transactions 

conducted on or after October 1, 2013, 

as described in the Health Insurance 

Portability and Accountability Act of 

1996 (HIPAA) Administrative 

Simplification: Modifications to 

Medical Data Code Set Standards to 

Adopt ICD–10–CM and ICD–10–PCS 

Final Rule published in the Federal 

Register on January 16, 2009 (74 FR 

3328 through 3362) (hereinafter referred 

to as the ‘‘ICD–10–CM and ICD–10–PCS 

final rule’’). However, the Secretary of 

Health and Human Services issued a 

final rule that delays the compliance 

date for ICD–10 from October 1, 2013, 

to October 1, 2014. That final rule, 

entitled ‘‘Administrative Simplification: 

Adoption of a Standard for a Unique 

Health Plan Identifier; Addition to the 

National Provider Identifier 

Requirements; and a Change to the 

Compliance Date for ICD–10–CM and 

ICD–10–PCS Medical Data Code Sets,’’ 

CMS–0040–F, was published in the 

Federal Register on September 5, 2012 

(77 FR 54664) and is available for 

viewing on the Internet at: http://

www.gpo.gov/fdsys/pkg/FR-2012-09-05/

pdf/2012-21238.pdf. On April 1, 2014, 

the Protecting Access to Medicare Act of 

2014 (Pub. L. 113–93) was enacted. 

Section 212 of Public Law 113–93, titled 

‘‘Delay in Transition from ICD–9 to 

ICD–10 Code Sets,’’ provides that ‘‘[t]he 

Secretary of Health and Human Services 

may not, prior to October 1, 2015, adopt 

ICD–10 code sets as the standard for 

code sets under section 1173(c) of the 

Social Security Act (42 U.S.C. 1320d– 

2(c)) and section 162.1002 of title 45, 

Code of Federal Regulations.’’ As of 

now, the Secretary has not implemented 

this provision under HIPPA. 

The anticipated move to ICD–10 

necessitated the development of an 

ICD–10–CM/ICD–10–PCS version of the 

MS–DRGs. CMS began a project to 

convert the ICD–9–CM-based MS–DRGs 

to ICD–10 MS–DRGs. In response to the 

FY 2011 IPPS/LTCH PPS proposed rule, 

we received public comments on the 

creation of the ICD–10 version of the 

MS–DRGs, which will be implemented 

at the same time as ICD–10 (75 FR 

50127 and 50128). While we did not 

propose an ICD–10 version of the MS– 

DRGs in the FY 2011 IPPS/LTCH PPS 

proposed rule, we noted that we have 

been actively involved in converting 

current MS–DRGs from ICD–9–CM 

codes to ICD–10 codes and sharing this 

information through the ICD–10 

(previously ICD–9–CM) Coordination 

and Maintenance Committee. We 

undertook this early conversion project 

to assist other payers and providers in 

understanding how to implement their 

own conversion projects. We posted 

ICD–10 MS–DRGs based on Version 

26.0 (FY 2009) of the MS–DRGs. We 

also posted a paper that describes how 

CMS went about completing this project 

and suggestions for other payers and 

providers to follow. Information on the 

ICD–10 MS–DRG conversion project can 

be found on the ICD–10 MS–DRG 

Conversion Project Web site at: 

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

ICD10/ICD-10-MS-DRG-ConversionProject.html. We have continued to keep 

the public updated on our maintenance 

efforts for ICD–10–CM and ICD–10–PCS 

coding systems, as well as the General 

Equivalence Mappings that assist in 

conversion through the ICD–10 

(previously ICD–9–CM) Coordination 

and Maintenance Committee. 

Information on these committee 

meetings can be found on the CMS Web 

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

Medicare/Coding/

ICD9ProviderDiagnosticCodes/

index.html. 

During FY 2011, we developed and 

posted Version 28.0 of the ICD–10 MS– 

DRGs based on the FY 2011 MS–DRGs 

(Version 28.0) that we finalized in the 

FY 2011 IPPS/LTCH PPS final rule on 

the CMS Web site. This ICD–10 MS– 

DRGs Version 28.0 also included the CC 

Exclusion List and the ICD–10 version 

of the hospital-acquired conditions 

(HACs), which was not posted with 

Version 26.0. We also discussed this 

update at the September 15–16, 2010 

and the March 9–10, 2011 meetings of 

the ICD–9–CM Coordination and 

Maintenance Committee. The minutes 

of these two meetings are posted on the 

CMS Web site at: http://

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

ICD9ProviderDiagnosticCodes/

index.html. 

We reviewed comments on the ICD– 

10 MS–DRGs Version 28.0 and made 

updates as a result of these comments. 

We called the updated version the ICD– 

10 MS–DRGs Version 28–R1. We posted 

a Definitions Manual of ICD–10 MS– 

DRGs Version 28–R1 on our ICD–10 

MS–DRG Conversion Project Web site. 

To make the review of Version 28–R1 

updates easier for the public, we also 

made available pilot software on a CD 

ROM that could be ordered through the 

National Technical Information Service 

(NTIS). A link to the NTIS ordering page 

was provided on the CMS ICD–10 MS– 

DRGs Web page. We stated that we 

believed that, by providing the ICD–10 

MS–DRGs Version 28–R1 Pilot Software 

(distributed on CD ROM), the public 

would be able to more easily review and 

provide feedback on updates to the ICD– 

10 MS–DRGs. We discussed the updated 

ICD–10 MS–DRGs Version 28–R1 at the 

September 14, 2011 ICD–9–CM 

Coordination and Maintenance 

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Committee meeting. We encouraged the 

public to continue to review and 

provide comments on the ICD–10 MS– 

DRGs so that CMS could continue to 

update the system. 

In FY 2012, we prepared the ICD–10 

MS–DRGs Version 29.0, based on the FY 

2012 MS–DRGs (Version 29.0) that we 

finalized in the FY 2012 IPPS/LTCH 

PPS final rule. We posted a Definitions 

Manual of ICD–10 MS–DRGs Version 

29.0 on our ICD–10 MS–DRG 

Conversion Project Web site. We also 

prepared a document that describes 

changes made from Version 28.0 to 

Version 29.0 to facilitate a review. The 

ICD–10 MS–DRGs Version 29.0 was 

discussed at the ICD–9–CM 

Coordination and Maintenance 

Committee meeting on March 5, 2012. 

Information was provided on the types 

of updates made. Once again the public 

was encouraged to review and comment 

on the most recent update to the ICD– 

10 MS–DRGs. 

CMS prepared the ICD–10 MS–DRGs 

Version 30.0 based on the FY 2013 MS– 

DRGs (Version 30.0) that we finalized in 

the FY 2013 IPPS/LTCH PPS final rule. 

We posted a Definitions Manual of the 

ICD–10 MS–DRGs Version 30.0 on our 

ICD–10 MS–DRG Conversion Project 

Web site. We also prepared a document 

that describes changes made from 

Version 29.0 to Version 30.0 to facilitate 

a review. We produced mainframe and 

computer software for Version 30.0, 

which was made available to the public 

in February 2013. Information on 

ordering the mainframe and computer 

software through NTIS was posted on 

the ICD–10 MS–DRG Conversion Project 

Web site. The ICD–10 MS–DRGs 

Version 30.0 computer software 

facilitated additional review of the ICD– 

10 MS–DRGs conversion. 

We provided information on a study 

conducted on the impact of converting 

MS–DRGs to ICD–10. Information on 

this study is summarized in a paper 

entitled ‘‘Impact of the Transition to 

ICD–10 on Medicare Inpatient Hospital 

Payments.’’ This paper was posted on 

the CMS ICD–10 MS–DRGs Conversion 

Project Web site and was distributed 

and discussed at the September 15, 2010 

ICD–9–CM Coordination and 

Maintenance Committee meeting. The 

paper described CMS’ approach to the 

conversion of the MS–DRGs from ICD– 

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

was undertaken using the ICD–9–CM 

MS–DRGs Version 27.0 (FY 2010) which 

was converted to the ICD–10 MS–DRGs 

Version 27.0. The study estimated the 

impact on aggregate payment to 

hospitals and the distribution of 

payments across hospitals. The impact 

of the conversion from ICD–9–CM to 

ICD–10 on Medicare MS–DRG hospital 

payments was estimated using FY 2009 

Medicare claims data. The study found 

a hospital payment increase of 0.05 

percent using the ICD–10 MS–DRGs 

Version 27.0. 

CMS provided an overview of this 

hospital payment impact study at the 

March 5, 2012 ICD–9–CM Coordination 

and Maintenance Committee meeting. 

This presentation followed 

presentations on the creation of ICD–10 

MS–DRGs Version 29.0. A summary 

report of this meeting can be found on 

the CMS Web site at: http://

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

ICD9ProviderDiagnosticCodes/

index.html. At this March 2012 meeting, 

CMS announced that it would produce 

an update on this impact study based on 

an updated version of the ICD–10 MS– 

DRGs. This update of the impact study 

was presented at the March 5, 2013 

ICD–9–CM Coordination and 

Maintenance Committee meeting. The 

study found that moving from an ICD– 

9–CM-based system to an ICD–10 MS– 

DRG replicated system would lead to 

DRG reassignments on only 1 percent of 

the 10 million MedPAR sample records 

used in the study. Ninety-nine percent 

of the records did not shift to another 

MS–DRG when using an ICD–10 MS– 

DRG system. For the 1 percent of the 

records that shifted, 45 percent of the 

shifts were to a higher weighted MS– 

DRG, while 55 percent of the shifts were 

to lower weighted MS–DRGs. The net 

impact across all MS–DRGs was a 

reduction by 4/10000 or minus 4 

pennies per $100. The updated paper is 

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

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

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

section. Information on the March 5, 

2013 ICD–9–CM Coordination and 

Maintenance Committee meeting can be 

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

cms.hhs.gov/Medicare/Coding/

ICD9ProviderDiagnosticCodes/ICD-9- 

CM-C-and-M-Meeting-Materials.html. 

This update of the impact paper and the 

ICD–10 MS–DRG Version 30.0 software 

provided additional information to the 

public who were evaluating the 

conversion of the MS–DRGs to ICD–10 

MS–DRGs. 

CMS prepared the ICD–10 MS–DRGs 

Version 31.0 based on the FY 2014 MS– 

DRGs (Version 31.0) that we finalized in 

the FY 2014 IPPS/LTCH PPS final rule. 

In November 2013, we posted a 

Definitions Manual of the ICD–10 MS– 

DRGs Version 31.0 on the ICD–10 MS– 

DRG Conversion Project Web site at: 

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

Coding/ICD10/ICD-10-MS-DRGConversion-Project.html. We also 

prepared a document that described 

changes made from Version 30.0 to 

Version 31.0 to facilitate a review. We 

produced mainframe and computer 

software for Version 31.0, which was 

made available to the public in 

December 2013. Information on ordering 

the mainframe and computer software 

through NTIS was posted on the CMS 

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

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

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

MS–DRGs Version 31.0 computer 

software facilitated additional review of 

the ICD–10 MS–DRGs conversion. We 

encouraged the public to submit to CMS 

any comments on areas where they 

believed the ICD–10 MS–DRGs did not 

accurately reflect grouping logic found 

in the ICD–9–CM MS–DRGs Version 

31.0. 

We reviewed comments received and 

developed an update of ICD–10 MS– 

DRGs Version 31.0, which we called 

ICD–10 MS–DRGs Version 31.0–R. We 

have posted a Definitions Manual of the 

ICD–10 MS–DRGs Version 31.0–R on 

the ICD–10 MS–DRG Conversion Project 

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

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

prepared a document that describes 

changes made from Version 31.0 to 

Version 31.0–R to facilitate a review. We 

will continue to share ICD–10–MS–DRG 

conversion activities with the public 

through this Web site. 

b. Basis for FY 2015 MS–DRG Updates 

CMS encourages input from our 

stakeholders concerning the annual 

IPPS updates when that input is made 

available to us by December 7 of the 

year prior to the next annual proposed 

rule update. For example, to be 

considered for any updates or changes 

in FY 2016, comments and suggestions 

should be submitted by December 7, 

2014. The comments that were 

submitted in a timely manner for FY 

2015 are discussed below in this 

section. 

Following are the changes we are 

proposing to the MS–DRGs. We are 

inviting public comment on each of the 

MS–DRG classification proposed 

changes described below, as well as our 

proposals to maintain certain existing 

MS–DRG classifications, which also are 

discussed below. In some cases, we are 

proposing changes to the MS–DRG 

classifications based on our analysis of 

claims data. In other cases, we are 

proposing to maintain the existing MS– 

DRG classification based on our analysis 

of claims data. For this FY 2015 

proposed rule, our MS–DRG analysis is 

based on claims data from the December 

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2013 update of the FY 2013 MedPAR 

file, which contains hospital bills 

received through September 30, 2013, 

for discharges occurring through 

September 30, 2013. In our discussion 

of the proposed MS–DRG 

reclassification changes that follows, we 

refer to our analysis of claims data from 

the ‘‘December 2013 update of the FY 

2013 MedPAR file.’’ For the FY 2015 

final rule, we intend to calculate the 

final relative weights on claims data 

from the March 2014 update of the FY 

2013 MedPAR file, which will contain 

hospital bills received through 

December 31, 2013, for discharges 

occurring through December 31, 2013. 

As explained in previous rulemaking 

(76 FR 51487), in deciding whether to 

propose 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 costs and lengths of stay 

and relied on the judgment of our 

clinical 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 costs 

between the cases we selected for 

review and the remainder of cases in the 

MS–DRG. We also considered variation 

in costs within these groups; that is, 

whether observed average differences 

were consistent across patients or 

attributable to cases that were extreme 

in terms of costs 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. 

2. MDC 1 (Diseases and Disorders of the 

Nervous System) 

a. Intracerebral Therapies: Gliadel®

Wafer 

During the comment period for the FY 

2014 IPPS/LTCH PPS proposed rule, we 

received a public comment that we 

considered to be outside the scope of 

that proposed rule. We stated in the FY 

2014 IPPS/LTCH PPS final rule (78 FR 

50550) that we would consider this 

issue in future rulemaking as part of our 

annual review process. The commenter 

requested that a new MS–DRG be 

created for intracerebral therapies, 

including implantation of 

chemotherapeutic agents. Specifically, 

the commenter referred to the Gliadel®

Wafer for the treatment of High-Grade 

Malignant Gliomas (HGGs) defined as 

aggressive tumors originating in the 

brain. 

The Gliadel® Wafer has been 

discussed in prior rulemaking, 

including the FY 2004 IPPS proposed 

rule (68 FR 27187) and final rule (68 FR 

45354 through 45355 and 68 FR 45391 

through 45392); the FY 2005 IPPS 

proposed rule (69 FR 28221 through 

28222) and final rule (69 FR 48957 

through 48971); and the FY 2008 IPPS/ 

LTCH PPS final rule (72 FR 47252 

through 47253). We refer readers to 

these prior discussions for further 

background information regarding the 

Gliadel® Wafer. 

Effective October 1, 2002, ICD–9–CM 

procedure code 00.10 (Implantation of 

chemotherapeutic agent) was created to 

identify and describe insertion of the 

Gliadel® Wafer. This procedure code is 

assigned to MS–DRG 023 (Craniotomy 

with Major Device Implant/Acute 

Complex Central Nervous System (CNS) 

PDX with MCC or Chemo Implant) in 

MDC 1. According to the commenter, 

this current MS–DRG assignment does 

not compensate providers adequately 

for the expenses incurred to perform the 

surgery and implantation of the wafer 

device. The commenter noted that MS– 

DRG 023 has a national average 

payment rate of approximately $28,016. 

However, the commenter stated, ‘‘the 

acquisition cost for 1 box of the Gliadel®

Wafer alone (typical utilization per 

procedure is 8 wafers or 1 box) is 

$29,035.’’ 

We conducted an analysis using 

claims data from the December 2013 

update of the FY 2013 MedPAR file. Our 

findings are shown in the table below. 

MS–DRG Number of 

cases 

Average 

length of stay Average costs 

MS–DRG 023—All cases ............................................................................................................ 5,383 10.98 $36,982 

MS–DRG 023—Cases with procedure code 00.10 .................................................................... 158 7.0 34,027 

As shown in the table above, there 

were a total of 5,383 cases in MS–DRG 

023 with an average length of stay of 

10.98 days and average costs of $36,982. 

The number of cases reporting 

procedure code 00.10 in MS–DRG 023 

totaled 158, with an average length of 

stay of 7.0 days and average costs of 

$34,027. 

The data clearly demonstrate that the 

volume of cases reporting procedure 

code 00.10 within MS–DRG 023 have a 

shorter average length of stay and are 

lower in average costs in comparison to 

all the cases in the MS–DRG. Given the 

low volume of cases, shorter average 

length of stay, and lower average costs, 

the data do not support the creation of 

a new MS–DRG for cases utilizing the 

Gliadel® Wafer. In addition, our clinical 

advisors determined that cases reporting 

procedure code 00.10 are appropriately 

assigned within MS–DRG 023. As 

discussed in the FY 2005 IPPS final rule 

(69 FR 48959), Gliadel® Wafer cases 

were assigned to a new DRG that was 

clinically coherent and reflected the 

resources used to treat those cases, 

which appropriately addressed the 

concerns of commenters who raised 

questions regarding DRG assignment for 

those cases at that time. Subsequently, 

with the adoption of the MS–DRGs, in 

the FY 2008 IPPS/LTCH PPS final rule 

(72 FR 47252 through 47253), we 

assigned all cases utilizing the Gliadel®

Wafer technology to MS–DRG 023, the 

higher severity level, and revised the 

title of this MS–DRG in recognition of 

the complexity and costs associated 

with the implantation. Our clinical 

advisors continue to support this 

assignment for these same reasons. 

Therefore, we are not proposing to 

create a new MS–DRG for FY 2015 for 

cases where ICD–9–CM procedure code 

00.10 is reported. We are inviting public 

comments on our proposal to maintain 

the current MS–DRG structure. 

b. Endovascular Embolization or 

Occlusion of Head and Neck 

We received a request to change the 

MS–DRG assignment for the following 

three ICD–9–CM procedure codes 

representing endovascular embolization 

or occlusion procedures of the head and 

neck: 

• 39.72 (Endovascular (total) 

embolization or occlusion of head and 

neck vessels); 

• 39.75 (Endovascular embolization 

or occlusion of vessel(s) of head or neck 

using bare coils); and 

• 39.76 (Endovascular embolization 

or occlusion of vessel(s) of head or neck 

using bioactive coils). 

These three procedure codes are 

currently assigned to the following eight 

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MS–DRGs under MDC 1. Cases assigned 

to MS–DRGs 020, 021, and 022 require 

a principal diagnosis of hemorrhage. 

Cases assigned to MS–DRGs 023 and 

024 require the insertion of a major 

implant or an acute complex central 

nervous system (CNS) principal 

diagnosis. Cases assigned to MS–DRGs 

025, 026, and 027 do not have a 

principal diagnosis of hemorrhage, an 

acute complex CNS principal diagnosis, 

or a major device implant. 

• MS–DRG 020 (Intracranial Vascular 

Procedures with Principal Diagnosis of 

Hemorrhage with MCC) 

• MS–DRG 021 (Intracranial Vascular 

Procedures with Principal Diagnosis of 

Hemorrhage with CC) 

• MS–DRG 022 (Intracranial Vascular 

Procedures with Principal Diagnosis of 

Hemorrhage without CC/MCC) 

• MS–DRG 023 (Craniotomy with 

Major Device Implant/Acute Complex 

CNS Principal Diagnosis with MCC or 

Chemo Implant) 

• MS–DRG 024 (Craniotomy with 

Major Device Implant/Acute Complex 

CNS Principal Diagnosis without MCC) 

• MS–DRG 025 (Craniotomy & 

Endovascular Intracranial Procedures 

with MCC) 

• MS–DRG 026 (Craniotomy & 

Endovascular Intracranial Procedures 

with CC) 

• MS–DRG 027 (Craniotomy & 

Endovascular Intracranial Procedures 

without CC/MCC) 

The requestor recommended that 

cases with procedure codes 39.72, 

39.75, and 39.76 be moved from MS– 

DRGs 025, 026, and 027 to MS–DRGs 

023 and 024, even when there is no 

reported acute complex CNS principal 

diagnosis or a major device implant. 

The requestor stated that unruptured 

aneurysms can be treated by a 

minimally invasive technique utilizing 

endovascular coiling. The requester 

noted that a microcatheter is inserted 

into a groin artery and navigated 

through the vascular system to the 

location of the aneurysm. The coils are 

inserted through the microcatheter into 

the aneurysm in order to occlude (fill) 

the aneurysm from inside the blood 

vessel. Once the coils are implanted, the 

blood flow pattern within the aneurysm 

is altered. The requestor stated that 

these cases do not have a principal 

diagnosis of hemorrhage because the 

treatment is for an unruptured 

aneurysm which has not hemorrhaged. 

Furthermore, the requestor stated that 

only a few of these cases without 

hemorrhage have a complex CNS 

principal diagnosis. Therefore, the 

requester believed that most of the cases 

should be assigned to MS–DRGs 025, 

026, and 027. 

The requestor stated that the average 

costs of coil cases captured by 

procedure codes 39.72, 39.75, and 39.76 

are significantly higher than other cases 

within MS–DRGs 025, 026, and 027 

where most of the coil cases are 

assigned. As stated earlier, the requester 

recommended that cases with procedure 

codes 39.72, 39.75, and 39.76 be moved 

to MS–DRGs 023 and 024, even when 

there is not an acute complex CNS 

principal diagnosis or a major device 

implant reported. 

We examined claims data from the 

December 2013 update of the FY 2013 

MedPAR file for cases of endovascular 

embolization or occlusion of head and 

neck. The table below shows our 

findings. For MS–DRGs 025, 026, and 

027, the cases identified by procedure 

code 39.72, 39.75, or 39.76 

(endovascular embolization or occlusion 

of head and neck) have higher average 

costs and shorter lengths of stay in 

comparison to all the cases within each 

of those respective MS–DRGs. The 

average costs of cases in MS–DRG 024 

are $4,049 higher than the average costs 

of the 1,731 endovascular embolization 

or occlusion of head and neck 

procedures cases in MS–DRG 027 

($26,250 versus $22,201). The findings 

also show that the 524 cases with 

procedure code 39.72, 39.75, or 39.76 

with average costs of $41,030 in MS– 

DRG 025 are closer to the average costs 

of $36,982 for cases in MS–DRG 023. 

Lastly, we found that the 721 

endovascular embolization or occlusion 

of head and neck procedure cases in 

MS–DRG 026 have average costs of 

$27,998 compared to average costs of 

$26,250 for cases in MS–DRG 024. 

MS–DRG Number of 

cases 

Average 

length of stay Average costs 

MS–DRG 23—All cases .............................................................................................................. 5,383 10.98 $36,982 

MS–DRG 24—All cases .............................................................................................................. 1,745 6.30 26,250 

MS–DRG 25—All cases .............................................................................................................. 15,937 9.68 29,722 

MS–DRG 25—Cases with procedure code 39.72, 39.75, or 39.76 ............................................ 524 7.97 41,030 

MS–DRG 26—All cases .............................................................................................................. 8,520 6.16 21,194 

MS–DRG 26—Cases with procedure code 39.72, 39.75, or 39.76 ............................................ 721 3.14 27,998 

MS–DRG 27—All cases .............................................................................................................. 10,326 3.30 16,389 

MS–DRG 27—Cases with procedure code 39.72, 39.75, or 39.76 ............................................ 1,731 1.66 22,201 

Our clinical advisors reviewed the 

results of our examination and 

determined that the endovascular 

embolization or occlusion of head and 

neck procedures are appropriately 

classified within MS–DRGs 025, 026, 

and 027 because they do not have an 

acute complex CNS principal diagnosis 

or a major device implant which would 

add to their clinical complexity. Cases 

in MS–DRG 024 have average costs that 

are $4,049 higher than cases in MS–DRG 

027 with procedure code 39.72, 39.75, 

or 39.76. We acknowledge that the 1,245 

cases with procedure code 39.72, 39.75, 

or 39.76 in MS–DRGs 025 and 026 have 

average costs that are closer to those in 

MS–DRGs 024 and 025. However, these 

cases are 1,245 of the total 2,976 cases 

that would be involved if we moved all 

MS–DRGs 025, 026, and 027 cases with 

procedure code 39.72, 39.75, or 39.76 to 

MS–DRGs 024 and 025, even if they did 

not have an acute complex CNS 

principal diagnosis or a major device 

implant. Based on these findings and 

the recommendations from our clinical 

advisors, we have determined that 

proposing to move endovascular 

embolization or occlusion of head and 

neck procedures from MS–DRGs 025, 

026, and 027 to MS–DRGs 023 and 024 

is not warranted. Therefore, we are 

proposing to maintain the current MS– 

DRG assignments for endovascular 

embolization or occlusion of head and 

neck procedures. We are inviting public 

comments on our proposal. 

3. MDC 4 (Diseases and Disorders of the 

Ear, Nose, Mouth and Throat): Avery 

Breathing Pacemaker System 

We received a request to create a new 

MS–DRG for the Avery Breathing 

Pacemaker System. This system is also 

called a diaphragmatic pacemaker and 

is captured by ICD–9–CM procedure 

code 34.85 (Implantation of 

diaphragmatic pacemaker). The 

requestor stated that the diaphragmatic 

pacemaker is indicated for adult and 

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pediatric patients with chronic 

respiratory insufficiency that would 

otherwise be dependent on ventilator 

support. The procedure consists of 

surgically implanted receivers and 

electrodes mated to an external 

transmitter by antennas worn over the 

implanted receivers. The external 

transmitter and antennas send 

radiofrequency energy to the implanted 

receivers under the skin. The receivers 

then convert the radio waves into 

stimulating pulses sent down the 

electrodes to the phrenic nerves, 

causing the diaphragm to contract. The 

requestor stated that this normal pattern 

is superior to mechanical ventilators 

that force air into the chest. The 

requestor also stated that the system is 

expensive; the device cost is 

approximately $57,000. According to 

the requestor, given the cost of the 

device, hospitals are reluctant to use it. 

The requestor did not make a specific 

MS–DRG reassignment request. 

When used for a respiratory failure 

patient, procedure code 34.85 is 

assigned to MS–DRGs 163, 164, and 165 

(Major Chest Procedures with MCC, 

with CC, and without CC/MCC, 

respectively). 

We examined claims data from the 

December 2013 update of the FY 2013 

MedPAR file for diaphragmatic 

pacemaker cases. The following table 

shows our findings. 

MS–DRG Number of 

cases 

Average 

length of stay Average costs 

MS–DRG 163—All cases ............................................................................................................ 11,766 13.13 $34,308 

MS–DRG 163—Cases with procedure code 34.85 .................................................................... 13 2.23 29,406 

MS–DRG 164—All cases ............................................................................................................ 16,087 6.58 18,352 

MS–DRG 164—Cases with procedure code 34.85 .................................................................... 34 1.71 23,406 

MS–DRG 165—All cases ............................................................................................................ 9,207 3.91 13,081 

MS–DRG 165—Cases with procedure code 34.85 .................................................................... 1 1.00 22,977 

There were only 48 cases of 

diaphragmatic pacemakers within MS– 

DRGs 163, 164, and 165. The average 

costs of these diaphragmatic pacemaker 

cases ranged from $22,977 for the single 

case in MS–DRG 165 to $29,406 for the 

cases in MS–DRG 163, compared to the 

average costs for all cases in MS–DRGs 

163, 164, and 165, which range from 

$13,081 to $34,308. The average cost for 

diaphragmatic pacemaker cases in MS– 

DRG 163 was lower than that for all 

cases in MS–DRG 163, $29,406 

compared to $34,308 for all cases. The 

average cost for diaphragmatic 

pacemaker cases was higher for MS– 

DRG 164, $23,406 compared to $18,352 

for all cases. While the average cost for 

the single diaphragmatic pacemaker 

case was significantly higher for MS– 

DRG 165, $22,977 compared to $13,081, 

we were unable to determine if 

additional factors might have impacted 

the higher cost for this single case. 

Given the small number of 

diaphragmatic pacemaker cases that we 

found, we do not believe that there is 

justification for creating a new MS– 

DRG. Basing a new MS–DRG on such a 

small number of cases could lead to 

distortions in the relative payment 

weights for the MS–DRG because 

several expensive cases could impact 

the overall relative payment weight. 

Having larger clinical cohesive groups 

within an MS–DRG provides greater 

stability for annual updates to the 

relative payment weights. We note that, 

as discussed in section II.G.4.c. of the 

preamble of this proposed rule, one of 

the criteria we apply in evaluating 

whether to create new severity 

subgroups within an MS–DRG is 

whether there are at least 500 cases in 

the CC or MCC subgroup. While this 

criterion is used to evaluate whether to 

create a severity subgroup within an 

MS–DRG, applying it here suggests that 

creating a new MS–DRG for only 48 

cases would not be appropriate. 

Although the average costs of these 

diaphragmatic pacemaker cases are 

higher than the average costs of all cases 

in MS–DRGs 163 and 164, we believe 

the current MS–DRG assignment is 

appropriate and that the data do not 

support creating an MS–DRG because 

there are so few cases. 

Our clinical advisors reviewed this 

issue and determined that the 

diaphragmatic pacemaker cases are 

appropriately classified within MS– 

DRGs 163, 164, and 165 because they 

are clinically similar to other cases of 

patients with major chest procedures 

within MS–DRGs 163, 164, and 165. 

Our clinical advisors did not support 

creating a new MS–DRG for such a 

small number of cases. 

Based on the results of the 

examination of the claims data, the 

recommendations from our clinical 

advisors, and the small number of 

diaphragmatic pacemaker cases, we are 

not proposing to create a new MS–DRG 

for diaphragmatic pacemaker cases at 

this time. We are proposing to maintain 

the current MS–DRG assignments for 

diaphragmatic pacemaker cases. We are 

inviting public comments on our 

proposal. 

4. MDC 5 (Diseases and Disorders of the 

Circulatory System) 

a. Exclusion of Left Atrial Appendage 

We received a request to move the 

exclusion of the left atrial appendage 

procedure, which is a non-O.R. 

procedure and captured by ICD–9–CM 

procedure code 37.36 (Excision, 

destruction or exclusion of left atrial 

appendage (LAA)), from MS–DRGs 250 

(Percutaneous Cardiovascular without 

Coronary Artery Stent with MCC) and 

251 (Percutaneous Cardiovascular 

without Coronary Artery Stent without 

MCC) to MS–DRGs 237 (Major 

Cardiovascular Procedures with MCC) 

and 238 (Major Cardiovascular 

Procedures without MCC). The 

requestor stated that the exclusion of the 

left atrial appendage procedure code 

37.36 is not clinically coherent with the 

other procedures in MS–DRGs 250 and 

251 and that this current assignment to 

MS–DRGs 250 and 251 does not 

compensate providers adequately for the 

expenses incurred to perform this 

procedure and placement of the device. 

The exclusion of the left atrial 

appendage procedure involves a 

percutaneous placement of a snare/

suture around the left atrial appendage 

to close it off. The exclusion of the left 

atrial appendage procedure takes place 

in the cardiac catheterization laboratory 

under general anesthesia and is a 

catheter based closed-chest procedure 

instead of an open heart surgical 

technique to treat the same clinical 

condition, with the same intended 

results. The procedure can be performed 

by either an interventional cardiologist 

or an electrophysiologist. 

We analyzed claims data from the 

December 2013 update of the FY 2013 

MedPAR file for cases assigned to MS– 

DRGs 250 and 251 and MS–DRGs 237 

and 238. Our findings are shown in the 

table below. 

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MS–DRG Number of 

cases 

Average 

length of stay Average costs 

MS–DRG 250—All cases ............................................................................................................ 9,174 6.90 $21,319 

MS–DRG 250—Cases with procedure code 37.36 .................................................................... 61 7.21 29,637 

MS–DRG 251—All cases ............................................................................................................ 26,331 3.01 14,614 

MS–DRG 251—Cases with procedure code 37.36 .................................................................... 341 3.01 18,298 

MS–DRG 237—All cases ............................................................................................................ 17,813 9.66 35,642 

MS–DRG 238—All cases ............................................................................................................ 33,644 3.73 24,511 

The data in the table above show that, 

while the average costs of the atrial 

appendage exclusion procedures are 

higher ($29,637) than those for all cases 

($21,319) within MS–DRG 250 and are 

higher ($18,298) than for all cases 

($14,614) within MS–DRG 251, they are 

lower than those in MS–DRGs 237 

($35,642) and 238 ($24,511). Our 

clinical advisors reviewed this issue and 

recommended not moving these standalone percutaneous cases to MS–DRGs 

237 and 238 because they do not 

consider them to be major 

cardiovascular procedures. Our clinical 

advisors stated that cases reporting ICD– 

9–CM procedure code 37.36 are 

appropriately assigned within MS–DRG 

250 and 251 because they are 

percutaneous cardiovascular procedures 

and are clinically similar to other 

procedures within the MS–DRG. 

Therefore, we are not proposing to 

reassign exclusion of atrial appendage 

procedure cases from MS–DRGs 250 and 

251 to MS–DRGs 237 and 238 for FY 

2015. We are inviting public comments 

on our proposal to maintain the current 

MS–DRG structure for the exclusion of 

the left atrial appendage. 

b. Transcatheter Mitral Valve Repair: 

MitraClip®

The MitraClip® System (hereafter 

referred to as MitraClip®) for 

transcatheter mitral valve repair has 

been discussed in extensive detail in 

previous rulemaking, including the FY 

2012 IPPS/LTCH PPS proposed rule (76 

FR 25822) and final rule (76 FR 51528 

through 51529) and the FY 2013 IPPS/ 

LTCH PPS proposed rule (77 FR 27902 

through 27903) and final rule (77 FR 

53308 through 53310), in response to 

requests for MS–DRG reclassification, as 

well as, in the FY 2014 IPPS/LTCH PPS 

proposed rule (78 FR 27547 through 

27552) under the new technology addon payment policy. In the FY 2014 

IPPS/LTCH PPS final rule (78 FR 

50575), the application for a new 

technology add-on payment for 

MitraClip® was unable to be considered 

further due to lack of FDA approval by 

the July 1, 2013 deadline. 

Subsequently, on October 24, 2013, 

MitraClip® received FDA approval. As a 

result, the manufacturer has submitted 

new requests for both an MS–DRG 

reclassification and new technology 

add-on payment for FY 2015. We refer 

readers to section II.I. of the preamble of 

this proposed rule for discussion 

regarding the application for MitraClip®

under the new technology add-on 

payment policy. Below we discuss the 

MS–DRG reclassification request. 

The manufacturer’s request for MS– 

DRG reclassification involves two 

components. The first component 

consists of reassigning cases reporting a 

transcatheter mitral valve repair using 

the MitraClip® from MS–DRGs 250 and 

251(Percutaneous Cardiovascular 

Procedure without Coronary Artery 

Stent with MCC and without MCC, 

respectively) to MS–DRGs 216 (Cardiac 

Valve & Other Major Cardiothoracic 

Procedures with Cardiac Catheterization 

with MCC), 217 (Cardiac Valve & Other 

Major Cardiothoracic Procedures with 

Cardiac Catheterization with CC), 218 

(Cardiac Valve & Other Major 

Cardiothoracic Procedures with Cardiac 

Catheterization without CC/MCC), 219 

(Cardiac Valve & Other Major 

Cardiothoracic Procedures without 

Cardiac Catheterization with MCC), 220 

(Cardiac Valve & Other Major 

Cardiothoracic Procedures without 

Cardiac Catheterization with CC), and 

221 (Cardiac Valve & Other Major 

Cardiothoracic Procedures without 

Cardiac Catheterization without CC/

MCC). The second component of the 

manufacturer’s request was for CMS to 

examine the creation of a new base MS– 

DRG for transcatheter valve therapies. 

Effective October 1, 2010, ICD–9–CM 

procedure code 35.97 (Percutaneous 

mitral valve repair with implant) was 

created to identify and describe the 

MitraClip® technology. 

To address the first component of the 

manufacturer’s request, we conducted 

an analysis of claims data from the 

December 2013 update of the FY 2013 

MedPAR file for cases reporting 

procedure code 35.97 in MS–DRGs 250 

and 251. The table below shows our 

findings. 

MS–DRG Number of 

cases 

Average 

length of stay Average costs 

MS–DRG 250—All cases ............................................................................................................ 9,174 6.90 $21,319 

MS–DRG 250—Cases with procedure code 35.97 .................................................................... 67 8.48 39,103 

MS–DRG 251—All cases ............................................................................................................ 26,331 3.01 14,614 

MS–DRG 251—Cases with procedure code 35.97 .................................................................... 127 3.94 25,635 

As displayed in the table above, the 

data demonstrate that, for MS–DRG 250, 

there were a total of 9,174 cases with an 

average length of stay of 6.90 days and 

average costs of $21,319. The number of 

cases reporting the ICD–9–CM 

procedure code 35.97 in MS–DRG 250 

totaled 67 with an average length of stay 

of 8.48 days and average costs of 

$39,103. For MS–DRG 251, there were a 

total of 26,331 cases with an average 

length of stay of 3.01 days and average 

costs of $14,614. There were 127 cases 

found in MS–DRG 251 reporting the 

procedure code 35.97 with an average 

length of stay of 3.94 days and average 

costs of $25,635. We recognize that the 

cases reporting procedure code 35.97 

have a longer length of stay and higher 

average costs in comparison to all the 

cases within MS–DRGs 250 and 251. 

However, as stated in prior rulemaking 

(77 FR 53309), it is a fundamental 

principle of an averaged payment 

system that half of the procedures in a 

group will have above average costs. It 

is expected that there will be higher cost 

and lower cost subsets, especially when 

a subset has low numbers. 

We also evaluated the claims data 

from the December 2013 update of the 

FY 2013 MedPAR file for MS–DRGs 216 

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through 221. Our findings are shown in 

the table below. 

MS–DRG Number of 

cases 

Average 

length of stay Average costs 

MS–DRG 216—All cases ............................................................................................................ 10,131 15.41 $65,478 

MS–DRG 217—All cases ............................................................................................................ 5,374 9.51 44,695 

MS–DRG 218—All cases ............................................................................................................ 882 6.88 39,470 

MS–DRG 219—All cases ............................................................................................................ 17,856 11.63 54,590 

MS–DRG 220—All cases ............................................................................................................ 21,059 7.13 38,137 

MS–DRG 221—All cases ............................................................................................................ 4,586 5.32 34,310 

The data in our findings do not 

warrant reassignment of cases reporting 

use of the MitraClip®. If we were to 

propose reassignment of cases reporting 

procedure code 35.97 to MS–DRGs 216 

through 221, they would be significantly 

overpaid, as the average costs range 

from $34,310 to $65,478 for those MS– 

DRGs. In addition, our clinical advisors 

do not support reassigning these cases. 

They noted that the current MS–DRG 

assignment is appropriate for the 

reasons stated in the FY 2013 IPPS/

LTCH PPS final rule (77 FR 53309). To 

reiterate, our clinical advisors note that 

the current MS–DRG assignment is 

reasonable because the operating room 

resource utilizations of percutaneous 

procedures, such as those found in MS– 

DRGs 250 and 251, tend to group 

together, and are generally less costly 

than open procedures, such as those 

found in MS–DRGs 216 through 221. 

Percutaneous procedures by organ 

system represent groups that are 

reasonably clinically coherent. More 

significantly, our clinical advisors state 

that postoperative resource utilization is 

significantly higher for open procedures 

with much greater morbidity and 

consequent recovery needs. Because the 

equipment, technique, staff, patient 

populations, and physician specialty all 

tend to group by type of procedure 

(percutaneous or open), separately 

grouping percutaneous procedures and 

open procedures is more clinically 

consistent. Therefore, we are not 

proposing to modify the current MS– 

DRG assignment for cases reporting 

procedure code 35.97 from MS–DRGs 

250 and 251 to MS–DRGs 216 through 

221 for FY 2015. We are inviting public 

comments on our proposal to not make 

any modifications to the current MS– 

DRG logic for these cases. 

As indicated above, the second 

component of the manufacturer’s 

request involved the creation of a new 

base MS–DRG for transcatheter valve 

therapies. We also received a similar 

request from another manufacturer 

recommending that we create a new 

MS–DRG for procedures referred to as 

endovascular cardiac valve replacement 

procedures. We reviewed each of these 

requests using the same data analysis, as 

set forth below. The discussion for 

endovascular cardiac valve replacement 

procedures is included in section 

II.G.4.c. of the preamble of this 

proposed rule and includes findings 

from the analysis and our proposals for 

each of these similar, but distinct 

requests. 

c. Endovascular Cardiac Valve 

Replacement Procedures 

As noted in the previous section 

related to the MitraClip® technology, we 

received two requests to create a new 

base MS–DRG for what was referred to 

as ‘‘transcatheter valve therapies’’ by 

one manufacturer and ‘‘endovascular 

cardiac valve replacement’’ procedures 

by another manufacturer. Below we 

summarize the details of each request 

and review results of the data analysis 

that was performed. 

Transcatheter Valve Therapies 

The request related to transcatheter 

valve therapies consisted of creating a 

new MS–DRG that would include the 

MitraClip® technology (ICD–9–CM 

procedure code 35.97 (Percutaneous 

mitral valve repair with implant)), along 

with the following list of ICD–9–CM 

procedure codes that identify the 

various types of valve replacements 

performed by an endovascular or 

transcatheter technique: 

• 35.05 (Endovascular replacement of 

aortic valve); 

• 35.06 (Transapical replacement of 

aortic valve); 

• 35.07 (Endovascular replacement of 

pulmonary valve); 

• 35.08 (Transapical replacement of 

pulmonary valve); and 

• 35.09 (Endovascular replacement of 

unspecified valve). 

We performed analysis of claims data 

from the December 2013 update of the 

FY 2013 MedPAR file for both the 

percutaneous mitral valve repair and the 

transcatheter/endovascular cardiac 

valve replacement codes in their 

respective MS–DRGs. The percutaneous 

mitral valve repair with implant 

(MitraClip®) procedure code is currently 

assigned to MS–DRGs 250 and 251, 

while the transcatheter/endovascular 

cardiac valve replacement procedure 

codes are currently assigned to MS– 

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

As illustrated in the table below, the 

data demonstrate that, for MS–DRGs 250 

and 251, there were a total of 194 cases 

reporting procedure code 35.97, with an 

average length of stay of 5.5 days and 

average costs of $30,286. 

MS–DRG Number of 

cases 

Average 

length of stay Average costs 

MS–DRG 250 through 251—Cases with procedure code 35.97 ................................................ 194 5.5 $30,286 

Upon analysis of cases in MS–DRGs 

216 through 221 reporting the cardiac 

valve replacement procedure codes, we 

found a total of 7,287 cases with an 

average length of stay of 8.1 days and 

average costs of $53,802, as shown in 

the table below. 

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MS–DRG Number of 

cases 

Average 

length of stay Average costs 

MS–DRGs 216 through 221—Cases with procedure codes 35.05, 35.06, 35.07, 35.08 and 

35.09 ........................................................................................................................................ 7,287 8.1 $53,802 

MS–DRGs 216 through 221—Cases without procedure codes 35.05, 35.06, 35.07, 35.08 and 

35.09 ........................................................................................................................................ 52,601 10.1 47,177 

The data clearly demonstrate that the 

volume of cases for the transcatheter/

endovascular cardiac valve replacement 

procedures are much higher in 

comparison to the volume of cases for 

the percutaneous mitral valve repair 

(MitraClip®) procedure (7,287 compared 

to 194). In addition, the average costs of 

the transcatheter/endovascular cardiac 

valve replacement procedures are 

significantly higher than the average 

costs of the percutaneous mitral valve 

repair with implant ($53,802 compared 

to $30,286). 

Our clinical advisors do not support 

grouping a percutaneous valve repair 

procedure with transcatheter/

endovascular valve replacement 

procedures. They do not believe that 

these procedures are clinically coherent 

or similar in terms of resource 

consumption because the MitraClip®

technology identified by procedure code 

35.97 is utilized for a percutaneous 

mitral valve repair, while the other 

technologies, identified by procedure 

codes 35.05 through 35.09, are utilized 

for transcatheter/endovascular cardiac 

valve replacements. Consequently, the 

data analysis and our clinical advisors 

do not support the creation of a new 

MS–DRG. Therefore, for FY 2015, we 

are not proposing to create a new MS– 

DRG to group cases reporting the 

percutaneous mitral valve repair 

(MitraClip®) procedure with 

transcatheter/endovascular cardiac 

valve replacement procedures. We are 

inviting public comments on our 

proposal. 

Endovascular Cardiac Valve 

Replacement 

The similar but separate request 

relating to endovascular cardiac valve 

replacement procedures consisted of 

creating a new MS–DRG that would 

only include the various types of 

cardiac valve replacements performed 

by an endovascular or transcatheter 

technique. In other words, this request 

specifically did not include the 

MitraClip® technology (ICD–9–CM 

procedure code 35.97 (Percutaneous 

mitral valve repair with implant)) and 

only included the list of ICD–9–CM 

procedure codes that identify the 

various types of valve replacements 

performed by an endovascular or 

transcatheter technique (ICD–9–CM 

procedure codes 35.05 through 35.09) as 

described earlier in this section. 

The human heart contains four major 

valves—the aortic, mitral, pulmonary, 

and tricuspid valves. These valves 

function to keep blood flowing through 

the heart. When conditions such as 

stenosis or insufficiency/regurgitation 

occur in one or more of these valves, 

valvular heart disease may result. 

Cardiac valve replacement surgery is 

performed in an effort to correct these 

diseased or damaged heart valves. The 

endovascular or transcatheter technique 

presents a viable option for high-risk 

patients who are not candidates for the 

traditional open surgical approach. 

We reviewed the claims data from the 

December 2013 update of the FY 2013 

MedPAR file for cases in MS–DRGs 216 

through 221. Our findings are shown in 

the chart below. The data analysis 

shows that cardiac valve replacements 

performed by an endovascular or 

transcatheter technique represent a total 

of 7,287 of the cases in MS–DRGs 216 

through 221, with an average length of 

stay of 8.1 days and higher average costs 

($53,802 compared to $47,177) in 

comparison to all of the cases in MS– 

DRGs 216 through 221. 

MS–DRG Number of 

cases 

Average 

length of stay Average costs 

MS–DRGs 216 through 221—Cases with procedure codes 35.05, 35.06, 35.07, 35.08 and 

35.09 ........................................................................................................................................ 7,287 8.1 $53,802 

MS–DRGs 216 through 221—Cases without procedure codes 35.05, 35.06, 35.07, 35.08 and 

35.09 ........................................................................................................................................ 52,601 10.1 47,177 

As the data appear to indicate support 

for the creation of a new base MS–DRG, 

based on our evaluation of resource 

consumption, patient characteristics, 

volume, and costs between the cardiac 

valve replacements performed by an 

endovascular or transcatheter technique 

and the open surgical technique, we 

then applied our established criteria to 

determine if these cases would meet the 

requirements to create subgroups. We 

use five criteria established in the FY 

2008 IPPS final rule (72 FR 47169) to 

review requests involving the creation 

of a new CC or an MCC subgroup within 

a base MS–DRG. As outlined in the FY 

2012 IPPS proposed rule (76 FR 25819), 

the original criteria were based on 

average charges but were later converted 

to average costs. In order to warrant 

creation of a CC or an MCC subgroup 

within a base MS–DRG, this subgroup 

must meet all of the following five 

criteria: 

• A reduction in variance of costs of 

at least 3 percent. 

• At least 5 percent of the patients in 

the MS–DRG fall within the CC or the 

MCC subgroup. 

• At least 500 cases are in the CC or 

the MCC subgroup. 

• There is at least a 20-percent 

difference in average costs between 

subgroups. 

• There is a $2,000 difference in 

average costs between subgroups. 

In applying the five criteria, we found 

that the data support the creation of a 

new MS–DRG subdivided into two 

severity levels. We also consulted with 

our clinical advisors. Our clinical 

advisors stated that patients receiving 

endovascular cardiac valve 

replacements are significantly different 

from those patients who undergo an 

open chest cardiac valve replacement. 

They noted that patients receiving 

endovascular cardiac valve 

replacements are not eligible for open 

chest cardiac valve procedures because 

of a variety of health constraints. This 

highlights the fact that peri-operative 

complications and post-operative 

morbidity have significantly different 

profiles for open chest procedures 

compared with endovascular 

interventions. This is also substantiated 

by the different average lengths of stay 

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demonstrated by the two cohorts. Our 

clinical advisors further noted that 

separately grouping these endovascular 

valve replacement procedures provides 

greater clinical cohesion for this subset 

of high-risk patients. 

We are proposing to create the 

following MS–DRGs for endovascular 

cardiac valve replacements: 

• Proposed new MS–DRG 266 

(Endovascular Cardiac Valve 

Replacement with MCC); and 

• Proposed new MS–DRG 267 

(Endovascular Cardiac Valve 

Replacement without MCC). 

Proposed new MS–DRGs for endovascular cardiac valve replacement Number of 

cases 

Average 

length of stay Average costs 

Proposed New MS–DRG 266 with MCC .................................................................................... 3,516 10.6 $61,891 

Proposed New MS–DRG 267 without MCC ............................................................................... 3,771 5.7 46,259 

We are inviting public comments on 

our proposal to create these new MS– 

DRGs for FY 2015. 

d. Abdominal Aorta Graft 

We received a request that we change 

the MS–DRG assignment for procedure 

code 39.71 (Endovascular implantation 

of other graft in abdominal aorta), which 

is assigned to MS–DRGs 237 and 238 

(Major Cardiovascular Procedures with 

MCC and without MCC, respectively). 

The requestor asked that we reassign 

procedure code 39.71 to MS–DRGs 228, 

229, and 230 (Other Cardiothoracic 

Procedures with MCC, with CC, and 

without CC/MCC, respectively). The 

requestor stated that the average cost of 

endovascular abdominal aorta graft 

implantation cases is significantly 

higher than other cases in MS–DRGs 

237 and 238. The requestor stated that 

the average cost of endovascular 

abdominal aorta graft implantation cases 

is closer to those in MS–DRGs 228, 229, 

and 230. 

The requestor stated that the goal of 

endovascular repair for abdominal 

aneurysm is to isolate the diseased, 

aneurismal portion of the aorta and 

common iliac arteries from continued 

exposure to systemic blood pressure. 

The procedure involves the delivery and 

deployment of endovascular prostheses, 

also referred to as a graft, as required to 

isolate the aneurysm above and below 

the extent of the disease. The requestor 

stated that this significantly reduces 

patient morbidity and death caused by 

leakage and/or sudden rupture of an 

untreated aneurysm. 

We examined claims data from the 

December 2013 update of the FY 2013 

MedPAR file for cases of endovascular 

abdominal aorta graft implantations. 

The following table shows our findings. 

MS–DRG Number of 

cases 

Average 

length of stay Average costs 

MS–DRG 237—All cases ............................................................................................................ 17,813 9.66 $35,642 

MS–DRG 237—Cases with procedure code 39.71 .................................................................... 2,093 8.30 44,898

MS–DRG 238—All cases ............................................................................................................ 33,644 3.73 24,511 

MS–DRG 238—Cases with procedure code 39.71 .................................................................... 15,483 2.30 28,484 

MS–DRG 228—All cases ............................................................................................................ 1,543 13.48 52,315 

MS–DRG 229—All cases ............................................................................................................ 2,003 7.47 32,070 

MS–DRG 230—All cases ............................................................................................................ 493 4.95 29,281 

As this table shows, endovascular 

abdominal aorta graft implantation cases 

have higher average costs and shorter 

lengths of stay than all cases within 

MS–DRGs 237 and 238. The average 

cost for endovascular abdominal aorta 

graft implantation cases in MS–DRG 237 

is $9,256 greater than that for all cases 

in MS–DRG 237 ($44,898 compared to 

$35,642). The average cost for 

endovascular abdominal aorta graft 

implantation cases in MS–DRG 238 is 

$3,973 higher than that for all cases in 

MS–DRG 238 ($28,484 compared to 

$24,511). Cases in MS–DRG 228 have 

average costs that are $7,417 higher than 

the endovascular abdominal aorta graft 

implantation cases in MS–DRG 237 

($52,315 compared to $44,898). MS– 

DRG 228 and MS–DRG 237 both contain 

cases with MCCs. Cases in MS–DRG 

229, which contain a CC, have average 

costs that are $3,586 higher than average 

costs of the endovascular abdominal 

aorta graft implantation cases in MS– 

DRG 238, which do not contain an MCC 

($32,070 compared to $28,484). Cases in 

MS–DRG 230, which have neither an 

MCC nor a CC, have average costs that 

are $797 higher than the endovascular 

abdominal aorta graft implantation cases 

in MS–DRG 238 ($29,281 compared to 

$28,484). While the average costs were 

higher for endovascular abdominal aorta 

graft implantation cases compared to all 

cases within MS–DRGs 237 and 238, 

each MS–DRG has some cases that are 

higher and some cases that are lower 

than the average costs for the entire MS– 

DRG. MS–DRGs were developed to 

capture cases that are clinically 

consistent with similar overall average 

resource requirements. This results in 

some cases within an MS–DRG having 

costs that are higher than the overall 

average and other cases having costs 

that are lower than the overall average. 

This may be due to specific types of 

cases included within the MS–DRGs or 

to the fact that some cases will simply 

require additional resources on a 

specific admission. However, taken as a 

whole, the hospital will be paid an 

appropriate amount for the group of 

cases that are assigned to the MS–DRG. 

We believe the endovascular abdominal 

aorta graft implantation cases are 

appropriately grouped with other 

procedures within MS–DRGs 237 and 

238. 

Our clinical advisors reviewed this 

issue and determined that the 

endovascular abdominal aorta graft 

implantation cases are appropriately 

classified within MS–DRGs 237 and 238 

because they are clinically similar to the 

other procedures in MS–DRGs 237 and 

238, which include other procedures on 

the aorta. While the endovascular 

abdominal aorta graft implantation cases 

have higher average costs than the 

average for all cases within MS–DRGs 

237 and 238, our clinical advisors do 

not believe this justifies moving the 

cases to MS–DRGs 228, 229 and 230, 

which involve a different set of 

cardiothoracic surgeries. 

Based on the results of examination of 

the claims data and the 

recommendations of our clinical 

advisors, we do not believe that 

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proposing to reclassify endovascular 

abdominal aorta graft implantation cases 

from MS–DRGs 237 and 238 is 

warranted. We are proposing to 

maintain the current MS–DRG 

assignments for endovascular 

abdominal aorta graft implantation 

cases. We are inviting public comments 

on our proposal. 

5. MDC 8 (Diseases and Disorders of the 

Musculoskeletal System and Connective 

Tissue) 

a. Shoulder Replacement Procedures 

We received a request to change the 

MS–DRG assignment for shoulder 

replacement procedures. This request 

involved the following two procedure 

codes: 

• 81.88 (Reverse total shoulder 

replacement); and 

• 81.97 (Revision of joint replacement 

of upper extremity). 

With respect to procedure code 81.88, 

the requestor asked that reverse total 

shoulder replacements be reassigned 

from MS–DRGs 483 and 484 (Major 

Joint/Limb Reattachment Procedure of 

Upper Extremities with CC/MCC and 

without CC/MCC, respectively) to MS– 

DRG 483 only. The reassignment of 

procedure code 81.88 from MS–DRGs 

483 and 484 was discussed previously 

in the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50534 through 50536). The 

result of reassigning reverse shoulder 

replacements from MS–DRGs 483 and 

484 to MS–DRG 483 only would be that 

this procedure would be assigned to 

MS–DRG 483 whether or not the case 

had a CC or an MCC. The requestor 

stated that reverse shoulder replacement 

procedures are more clinically cohesive 

with higher severity MS–DRGs due to 

the complexity and resource 

consumption of these procedures. We 

refer readers to the FY 2014 IPPS/LTCH 

PPS final rule (78 FR 50534 through 

50536) for a discussion of the reverse 

total shoulder replacement. 

The requestor also recommended that 

we reassign what it described as another 

shoulder procedure involving procedure 

code 81.97, which is assigned to MS– 

DRGs 515, 516, and 517 (Other 

Musculoskeletal System and Connective 

Tissue O.R. Procedures with MCC, with 

CC, and without CC/MCC, respectively), 

to MS–DRG 483. We point out that MS– 

DRG 483 contains upper joint 

replacements, including shoulder 

replacements. MS–DRG 483 does not 

contain any joint revision procedures. 

Similar to the request for reassignment 

of procedure code 81.88, this would 

mean that procedure code 81.97 would 

be assigned to MS–DRG 483 whether or 

not the case had a CC or an MCC. If CMS 

did not support this recommendation 

for moving procedure code 81.97 to 

MS–DRG 483, the requestor 

recommended an alternative 

reassignment to MS–DRG 515 (Other 

Musculoskeletal System and Connective 

Tissue O.R. procedures with MCC) even 

if the case had no MCC. 

We point out that, while the requestor 

refers to procedure code 81.97 as a 

shoulder procedure, the code 

description actually includes revisions 

of joint replacements of a variety of 

upper extremity joints, including those 

in the elbow, hand, shoulder, and wrist. 

As stated earlier, reverse shoulder 

replacements are assigned to MS–DRGs 

483 and 484. Revisions of upper joint 

replacements are assigned to MS–DRGs 

515, 516, and 517. We examined claims 

data from the December 2013 update of 

the FY 2013 MedPAR file for MS–DRGs 

483 and 484. The following table shows 

our findings of cases of reverse shoulder 

replacement. 

MS–DRG Number of 

cases 

Average 

length of stay Average costs 

MS–DRG 483—All cases ............................................................................................................ 14,220 3.20 $18,807 

MS–DRG 483—Cases with procedure code 81.88 .................................................................... 7,086 3.19 20,699

MS–DRG 484—All cases ............................................................................................................ 23,183 1.95 16,354 

MS–DRG 484—Cases with procedure code 81.88 .................................................................... 9,633 2.03 18,719

Proposed Revised MS–DRG 483 with all severity levels included ............................................. 37,403 2.4 17,287 

As the above table shows, MS–DRG 

484 reverse shoulder replacement cases 

have similar average costs to those in 

MS–DRG 483 ($18,719 for reverse 

shoulder replacements in MS–DRG 484 

compared to $18,807 for all cases in 

MS–DRG 483). However, in reviewing 

the data, we observed that the claims 

data no longer support two severity 

levels for MS–DRGs 483 and 484. 

We use the five criteria established in 

FY 2008 (72 FR 47169) to review 

requests involving the creation of a new 

CC or MCC subgroup within a base MS– 

DRG. As outlined in the FY 2012 IPPS/ 

LTCH PPS proposed rule (76 FR 25819), 

the original criteria were based on 

average charges but were later converted 

to average costs. 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 costs 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 costs between 

subgroups. 

• There is a $2,000 difference in 

average costs between subgroups. 

We found through our examination of 

the claims data from the December 2013 

update of the FY 2013 MedPAR file that 

the two severity subgroups of MS–DRG 

483 and 484 no longer meet the fourth 

criterion of at least a 20-percent 

difference in average costs between 

subgroups. We found that there is a 

$2,453 difference in average costs 

between MS–DRG 483 and MS–DRG 

484. The difference in average costs 

would need to be $3,761 to meet the 

fourth criterion. Therefore, our claims 

data support collapsing MS–DRGs 483 

and 484 into a single MS–DRG. Our 

clinical advisors reviewed this issue and 

agree that there is no longer enough 

difference between the two severity 

levels to justify separate severity 

subgroups for MS–DRGs 483 and 484, 

which include a variety of upper joint 

replacements. Therefore, our clinical 

advisors support our recommendation 

to collapse MS–DRGs 483 and 484 into 

a single MS–DRG. 

Based on the results of examination of 

the claims data and the advice of our 

clinical advisors, we are proposing to 

collapse MS–DRGs 483 and 484 into a 

single MS–DRG by deleting MS–DRG 

484 and revising the title of MS–DRG 

483 to read ‘‘Major Joint/Limb 

Reattachment Procedure of Upper 

Extremities’’. 

The following table shows our 

findings of cases of revisions of upper 

joint replacement from the December 

2013 update of the FY 2013 MedPAR 

file. 

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MS–DRG Number of 

cases 

Average 

length of stay Average costs 

MS–DRG 515—All cases ............................................................................................................ 3,407 9.22 $22,191 

MS–DRG 515—Cases with procedure code 81.97 .................................................................... 88 5.66 22,085 

MS–DRG 516—All cases ............................................................................................................ 8,502 5.34 14,356 

MS–DRG 516—Cases with procedure code 81.97 .................................................................... 799 2.84 18,214 

MS–DRG 517—All cases ............................................................................................................ 5,794 3.28 12,172 

MS–DRG 517—Cases with procedure code 81.97 .................................................................... 1,256 2.07 15,920

MS–DRG 483—All cases ............................................................................................................ 14,220 3.20 18,807 

Cases identified by code 81.97 in MS– 

DRGs 515, 516, and 517 have lower 

average costs and shorter lengths of stay 

than all cases in MS–DRG 515. The 

average costs of cases in MS–DRG 515 

are $3,977 higher than the average costs 

of the cases with procedure code 81.97 

in MS–DRG 516 ($22,191 compared to 

$18,214). The average costs of cases in 

MS–DRG 515 are $6,271 higher than 

cases with procedure code 81.97 in MS– 

DRG 517 ($22,191 compared to 

$15,920). 

The table above shows that the 

average costs of cases in MS–DRG 483 

are $3,278 lower than the average costs 

of cases with procedure code 81.97 in 

MS–DRG 515 ($18,807 compared to 

$22,085). The average costs of cases in 

MS–DRG 483 are $593 higher than the 

average costs of cases with procedure 

code 81.97 in MS–DRG 516 ($18,807 

compared to $18,214). The average costs 

of cases in MS–DRG 483 are $2,887 

higher than the average costs of cases 

with procedure code 81.97 in MS–DRG 

517 ($18,807 compared to $15,920). 

The claims data do not support 

moving all procedure code 81.97 cases 

to MS–DRG 515 or MS–DRG 483, 

whether or not there is a CC or an MCC. 

We also point out once again that 

procedure code 81.97 is a nonspecific 

code that captures revisions to not only 

the shoulder, but also a variety of upper 

extremity joints including those in the 

elbow, hand, shoulder, and wrist. 

Therefore, we have no way of 

determining how many cases reporting 

procedure code 81.97 were actually 

shoulder procedures as opposed to 

procedures on the elbow, hand, or wrist. 

Our clinical advisors reviewed this 

issue and determined that the revisions 

of upper joint replacement procedures 

are appropriately classified within MS– 

DRGs 515, 516, and 517, which include 

other joint revision procedures. They do 

not support moving revisions of upper 

joint replacement procedures to MS– 

DRG 515, whether or not there is an 

MCC. They support the current 

classification, which bases the severity 

level on the presence of a CC or an 

MCC. They also do not support moving 

revisions of upper joint replacement 

procedures to MS–DRG 483, whether or 

not there is a CC or an MCC, because 

these revisions are not joint 

replacements. Based on the results of 

our examination and the advice of our 

clinical advisors, we are not proposing 

moving revisions of upper joint 

replacement procedures to MS–DRG 515 

or MS–DRG 483, whether or not there is 

a CC or an MCC. 

In summation, we are proposing to 

collapse MS–DRGs 483 and 484 into a 

single MS–DRG by deleting MS–DRG 

484 and revising the title of MS–DRG 

483 to read ‘‘Major Joint/Limb 

Reattachment Procedure of Upper 

Extremities’’. We are proposing to 

maintain the current MS–DRG 

assignments for revisions of upper joint 

replacement procedures in MS–DRGs 

515, 516, and 517. We are inviting 

public comments on our proposals. 

b. Ankle Replacement Procedures 

We received a request to change the 

MS–DRG assignment for two ankle 

replacement procedures. The request 

involved the following two procedure 

codes: 

• 81.56 (Total ankle replacement); 

and 

• 81.59 (Revision of joint replacement 

of lower extremity, not elsewhere 

classified). 

The reassignment of procedure code 

81.56 from MS–DRGs 469 and 470 

(Major Joint Replacement or 

Reattachment of Lower Extremity with 

CC and without MCC, respectively) to a 

new MS–DRG or, alternatively, to MS– 

DRG 469 was discussed in the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50536 

through 50537). We refer readers to this 

final rule for a discussion of ankle 

replacement procedures. The requestor 

asked that we again evaluate reassigning 

total ankle replacement procedures. The 

requestor also asked that we reassign 

what it referred to as another ankle 

replacement revision procedure 

captured by procedure code 81.59 

(Revision of joint replacement of lower 

extremity, not elsewhere classified), 

which is assigned to MS–DRGs 515, 

516, and 517 (Other Musculoskeletal 

System and Connective Tissue O.R. 

Procedures with MCC, with CC, and 

without CC/MCC, respectively). 

The requestor asked that we reassign 

procedure code 81.56 from MS–DRGs 

469 and 470 to MS–DRG 483 (Major 

Joint/Limb Reattachment Procedure of 

Upper Extremities with CC/MCC) and 

rename the MS–DRG to better capture 

the additional lower extremity cases. 

The requestor stated that the result 

would be assignment of lower joint 

procedures to an MS–DRG that 

currently captures only upper extremity 

cases and assignment to the highest 

severity level even if the case did not 

have a CC or an MCC. If CMS did not 

find this acceptable, the requestor made 

an alternative recommendation of 

assigning procedure code 81.56 to MS– 

DRG 469 and renaming the MS–DRG to 

better capture the additional cases. 

Cases would be assigned to the highest 

severity level whether or not the case 

had an MCC. 

The requestor also recommended that 

procedure code 81.59, which is assigned 

to MS–DRGs 515, 516, and 517 be 

reassigned to MS–DRG 483 and that the 

MS–DRG be given a new title to better 

capture the additional lower extremity 

cases. The requestor stated that the 

result would be assignment of lower 

joint procedures to an MS–DRG that 

currently captures only upper extremity 

cases and assignment to the highest 

severity level even if the patient did not 

have a CC or an MCC. If CMS did not 

support this recommendation, the 

requestor suggested two additional 

recommendations. One involves moving 

procedure code 81.59 to MS–DRG 515 

even when the case had no MCC. The 

other recommendation was to move 

procedure code 81.59 to MS–DRG 469, 

whether or not the case had a MCC. 

We point out that while the requestor 

refers to procedure code 81.59 as a 

revision of an ankle replacement, the 

code actually includes revisions of joint 

replacements of a variety of lower 

extremity joints including the ankle, 

foot, and toe. 

The following table shows the number 

of total ankle replacement cases, average 

length of stay, and average costs for 

procedure code 81.56 in MS–DRGs 469 

and 470 found in claims data from the 

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MedPAR file compared to all cases 

within MS–DRGs 469, 470, and 483. 

MS–DRG Number of 

cases 

Average length 

of stay Average costs 

MS–DRG 469—All cases .......................................................................................................... 25,916 722 $22,548 

MS–DRG 469—Cases with procedure code 81.56 .................................................................. 32 6 .19 27,419 

MS–DRG 470—All cases .......................................................................................................... 406,344 3 .25 15,119 

MS–DRG 470—Cases with procedure code 81.56 .................................................................. 1,379 2 .13 19,332 

MS–DRG 483 ............................................................................................................................ 14,220 3 .20 18,807 

In summary, the requestor asked us to 

reassign procedure code 81.56 in MS– 

DRGs 469 and 470 to one of the 

following two options: MS–DRG 483 

(highest severity level); or MS–DRG 469 

(highest severity level). 

As the table for total ankle 

replacement above shows, the average 

cost of cases with procedure code 81.56 

in MS–DRG 469 is $27,419 and $19,332 

in MS–DRG 470. This compares with 

the average costs of all cases in MS– 

DRGs 469 and 470 of $22,548 and 

$15,119, respectively. While the average 

cost of cases reporting procedure code 

81.56 in MS–DRG 469 is $4,871 higher 

than the average cost for all cases in 

MS–DRG 469, we point out that there 

were only 32 cases. The relatively small 

number of cases may have been 

impacted by other factors such as 

complications or comorbidities. Several 

expensive cases could impact the 

average costs for a very small number of 

patients. The average cost of cases 

reporting procedure code 81.56 in MS– 

DRG 470 is $4,213 higher than the 

average cost for all cases in MS–DRG 

470. While the average costs are higher, 

within all MS–DRGs, some cases have 

higher and some cases have lower 

average costs. MS–DRGs are groups of 

clinically similar cases that have similar 

overall costs. Within a group of cases, 

one would expect that some cases have 

costs that are higher than the overall 

average and some cases have costs that 

are lower than the overall average. 

MS–DRG 469 ankle replacement cases 

have average costs that are $8,612 

higher than the average costs of all cases 

in MS–DRG 483 ($27,419 compared to 

$18,807). Moving these cases (procedure 

code 81.56) to MS–DRG 483 would 

result in payment below average costs 

compared to the current MS–DRG 

assignment in MS–DRG 469. 

Furthermore, as noted earlier, moving 

total ankle replacement cases to MS– 

DRG 483 would result in a lower 

extremity procedure being added to 

what is now an upper extremity MS– 

DRG. This would significantly disrupt 

the clinical cohesion of MS–DRG 483. 

The average costs of all cases in MS– 

DRG 469 are $3,216 higher than the 

average costs of those cases with 

procedure code 81.56 in MS–DRG 470 

($22,548 compared to $19,332) The data 

do not support moving procedure code 

81.56 cases to MS–DRG 483 or 469 

because it would not result in payments 

that more accurately reflect their current 

average costs. Our clinical advisors 

reviewed this issue and determined that 

the ankle replacement cases are 

appropriately classified within MS– 

DRGs 469 and 470 with the severity 

level leading to the MS–DRG 

assignment. They do not support 

moving these cases to MS–DRG 483 

because ankle replacements, which are 

lower joint procedures, are not 

clinically similar to upper joint 

replacement procedures. Based on the 

results of examination of the claims 

data, the issue of clinical cohesion, and 

the recommendations from our clinical 

advisors, we are not proposing to move 

total ankle procedures to MS–DRG 483 

or MS–DRG 469 when there is no MCC. 

We are proposing to maintain the 

current MS–DRG assignments for ankle 

replacement cases. We are inviting 

public comments on our proposal. 

The following table shows our 

findings from examination of the claims 

data from the December 2013 update of 

the FY 2013 MedPAR file for the 

number of cases reporting procedure 

code 81.59 in MS–DRGs 515, 516, and 

517 (revision of joint replacement of 

lower extremity) and their average 

length of stay and average costs as 

compared to all cases within MS–DRGs 

515, 516, and 517 (where procedure 

code 81.59 is currently assigned), as 

well as data for MS–DRGs 469 and 483. 

MS–DRG Number of 

cases 

Average length 

of stay Average costs 

MS–DRG 515—All cases .......................................................................................................... 3,407 9 .22 $22,191 

MS–DRG 515—Cases with procedure code 81.59 .................................................................. 5 6 .00 16,988 

MS–DRG 516—All cases .......................................................................................................... 8,502 5 .34 14,356 

MS–DRG 516—Cases with procedure code 81.59 .................................................................. 16 3 .00 16,998 

MS–DRG 517—All cases .......................................................................................................... 5,794 3 .28 12,172 

MS–DRG 517—Cases with procedure code 81.59 .................................................................. 40 1 .80 13,704 

MS–DRG 483—All cases .......................................................................................................... 25,916 722 22,548 

MS- DRG 469—All cases .......................................................................................................... 14,220 3 .20 18,807 

The requestor asked that all cases 

with procedure code 81.59 in MS–DRGs 

515, 516, and 517 be assigned to one of 

the following three choices: 

• MS–DRG 483 (highest severity 

level); 

• MS–DRG 515 (highest severity 

level) whether or not there is an MCC; 

or 

• MS–DRG 469 (highest severity 

level). 

Our review of data from the above 

revision of joint replacement of lower 

extremity table shows that cases in MS– 

DRG 483 have average costs that are 

$5,560 higher than the average costs of 

cases with procedure code 81.59 in MS– 

DRG 515; $5,550 greater than those in 

MS–DRG 516; and $8,844 greater than 

those in MS–DRG 517 ($22,548 

compared to $16,988; $22,548 compared 

to $16,998, and $22,548 compared to 

$13,704, respectively). As mentioned 

earlier, MS–DRG 483 is currently 

composed of only upper extremity 

procedures. Moving lower extremity 

procedures into this MS–DRG would 

disrupt the clinical cohesiveness of MS– 

DRG 483. 

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The average costs of all cases in MS– 

DRG 469 are $18,807, compared to 

average costs of $16,988, $16,998, and 

$13,703 for procedure code 81.59 cases 

in MS–DRGs 515, 516, and 517, 

respectively. The data do not support 

moving all procedure code 81.59 cases 

to MS–DRG 469 even when there is no 

MCC. We also point out that moving 

cases with procedure code 81.59 to MS– 

DRG 469 would disrupt the clinical 

cohesiveness of MS–DRG 469, which 

currently captures major joint 

replacement or reattachment procedures 

of the lower extremity. Procedure code 

81.59 includes revisions of joint 

replacements of a variety of lower 

extremity joints including the ankle, 

foot, and toe. This nonspecific code 

would not be considered a major joint 

procedure. The code captures revisions 

of an ankle replacement as well as a 

more minor revision of the toe. 

Our clinical advisors reviewed this 

issue and determined that the revision 

of joint replacement of lower extremity 

cases are appropriately classified within 

MS–DRGs 515, 516, and 517 where 

revisions of other joint replacements are 

captured. They support the current 

severity levels in MS–DRGs 515, 516, 

and 517, which allow the presence of a 

CC or an MCC to determine the severity 

level assignment. They do not support 

moving these cases to MS–DRG 483, 

which is applied to upper extremity 

procedures because these procedures 

are not clinically consistent with 

revisions of lower joint procedures. 

They also do not support moving these 

cases to MS–DRG 469 when there is no 

MCC because these procedures are not 

joint replacement procedures. Based on 

the findings of our examination of the 

claims data, the issue of clinical 

cohesion, and the recommendations 

from our clinical advisors, we are not 

proposing to move the revision of joint 

replacement of lower extremity cases to 

MS–DRGs 483 or 469, whether or not 

there is an MCC. We are proposing to 

maintain the current MS–DRG 

assignments for revision of joint 

replacement of lower extremity cases. 

In summary, we are proposing to 

maintain the current MS–DRG 

assignment for total ankle replacements 

in MS–DRGs 469 and 470 and revision 

of joint replacement of lower extremity 

procedures in MS–DRGs 515, 516, and 

517. We are inviting public comments 

on our proposals. 

c. Back and Neck Procedures 

We received a request to reassign 

cases identified with a complication or 

comorbidity (CC) in MS–DRG 490 (Back 

& Neck Procedures Except Spinal 

Fusion with CC/MCC or Disc Device/

Neurostimulator) to MS–DRG 491 (Back 

& Neck Procedures Except Spinal 

Fusion without CC/MCC or Disc Device/ 

Neurostimulator). The requester 

suggested that we create a new MS–DRG 

that would be subdivided based solely 

on the ‘‘with MCC or Disc Device/

Neurostimulator’’ and the ‘‘without 

MCC’’ (and no device) criteria. 

For the FY 2008 rulemaking cycle, we 

performed a comprehensive analysis of 

all the spinal DRGs as we proposed (72 

FR 24731 through 24735) and finalized 

(72 FR 47226 through 47232) adoption 

of the MS–DRGs. With the revised 

spinal MS–DRGs, we were better able to 

identify a patient’s level of severity, 

complexity of service, and utilization of 

resources. This was primarily attributed 

to the new structure for the severity 

level designations of ‘‘with MCC,’’ 

‘‘with CC,’’ and ‘‘non-CC’’ (or without 

CC/MCC). Another contributing factor 

was that we incorporated specific 

procedures and technologies into the 

GROUPER logic for some of those spinal 

MS–DRGs. Specifically, as noted above, 

in the title of MS–DRG 490, we 

accounted for disc devices and 

neurostimulators because the data 

demonstrated that the procedures 

utilizing those technologies were more 

complex and required greater utilization 

of resources. 

According to the requester, since that 

time, concerns have been expressed in 

the provider community regarding 

inadequate payment for MS–DRG 490 

when these technologies are utilized. 

An analysis conducted by the requester 

alleged that the subset of patients 

identified in the ‘‘with MCC or disc 

device/neurostimulator’’ group are 

different with regard to resource use 

from the ‘‘without CC/MCC’’ (and no 

device) patient group. 

We examined claims data from the 

December 2013 update of the FY 2013 

MedPAR file for MS–DRGs 490 and 491. 

The table below shows our findings. 

MS–DRG Number of 

cases 

Average 

length of stay Average costs 

MS–DRG 490—All cases ............................................................................................................ 16,930 4.53 $13,727 

MS–DRG 491—All cases ............................................................................................................ 25,778 2.20 8,151 

As shown in the table above, there 

were a total of 16,930 cases in MS–DRG 

490 with an average length of stay of 

4.53 days and average costs of $13,727. 

For MS–DRG 491, there were a total of 

25,778 cases with an average length of 

stay of 2.20 days and average costs of 

$8,151. 

We then analyzed the data for MS– 

DRGs 490 and 491 by subdividing cases 

based on the ‘‘with MCC or Disc Device/ 

Neurostimulator’’ and the ‘‘without 

MCC’’ (and no device) criteria. We 

found a total of 3,379 cases with an 

average length of stay of 6.6 days and 

average costs of $21,493 in the ‘‘with 

MCC or Disc Device/Neurostimulator’’ 

group and a total of 39,329 cases with 

an average length of stay of 2.8 days and 

average costs of $9,405 in the ‘‘without 

MCC’’ and no device group. Due to the 

wide range in the volume of cases, 

length of stay, and average costs 

between these two subgroups, we 

concluded that further analysis of the 

data using a separate ‘‘with CC’’ (and no 

device) subset of patients was 

warranted. 

Therefore, we evaluated the data 

using a three-way severity level split 

that consisted of the three subgroups 

shown in the table below. 

ADDITIONAL ANALYSIS FOR BACK & NECK PROCEDURES EXCEPT SPINAL FUSION: DISC DEVICE/NEUROSTIMULATOR

Severity level split Number of 

cases 

Average 

length of stay Average costs 

—With MCC or disc device/neurostimulator ............................................................................... 3,379 6.6 $21,493 

—With CC .................................................................................................................................... 13,551 3.9 11,791 

—Without CC/MCC ...................................................................................................................... 25,778 2.2 8,151 

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For the first subgroup, ‘‘with MCC or 

Disc Device/Neurostimulator,’’ we 

found a total of 3,379 cases with an 

average length of stay of 6.6 days and 

average costs of $21,493. In the second 

subgroup, ‘‘with CC’’ (no device), we 

found a total of 13,551 cases with an 

average length of stay of 3.9 days and 

average costs of $11,791. In the third 

subgroup, ‘‘without CC/MCC’’ (no 

device), we found a total of 25,778 cases 

with an average length of stay of 2.2 

days and average costs of $8,151. 

The results of this additional data 

analysis demonstrate a better 

distribution of cases with regard to 

length of stay and average costs. Our 

clinical advisors agree that a patient’s 

severity of illness is captured more 

appropriately with this subdivision. The 

data also meet the established criteria 

for creating subgroups within a base 

MS–DRG as discussed earlier in this 

proposed rule. 

As the subdivision of the claims data 

based on these subgroups better 

captures a patient’s severity level and 

utilization of resources and is supported 

by our clinical advisors, we are 

proposing to create three new MS–DRGs 

and to delete MS–DRGs 490 and 491. 

These proposed new MS–DRGs would 

be titled as follows and would be 

effective as of October 1, 2014: 

• Proposed new MS–DRG 518 (Back 

& Neck Procedures Except Spinal 

Fusion with MCC or Disc Device/

Neurostimulator); 

• Proposed new MS–DRG 519 (Back 

& Neck Procedures Except Spinal 

Fusion with CC); and 

• Proposed new MS–DRG 520 (Back 

& Neck Procedures Except Spinal 

Fusion without CC/MCC). 

We are inviting public comments on 

our proposal to create these proposed 

new MS–DRGs for FY 2015. 

6. MDC 10 (Endocrine, Nutritional and 

Metabolic Diseases and Disorders): 

Disorders of Porphyrin Metabolism 

We received a comment on the FY 

2014 IPPS/LTCH PPS proposed rule that 

we considered out of scope for the 

proposed rule. We stated in the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50550) 

that we would consider this issue in 

future rulemaking as part of our annual 

review process. The request was for the 

creation of a new MS–DRG to better 

identify cases where patients with 

disorders of porphyrin metabolism 

exist, to recognize the resource 

requirements in caring for these 

patients, to ensure appropriate payment 

for these cases, and to preserve patient 

access to necessary treatments. This 

issue has been discussed previously in 

the FY 2013 IPPS/LTCH PPS proposed 

rule (77 FR 27904 and 27905) and final 

rule (77 FR 53311 through 53313). 

Porphyria is defined as a group of rare 

disorders (‘‘porphyrias’’) that interfere 

with the production of hemoglobin that 

is needed for red blood cells. While 

some of these disorders are genetic 

(inborn) and others can be acquired, 

they all result in the abnormal 

accumulation of hemoglobin building 

blocks, called porphyrins, which can be 

deposited in the tissues where they 

particularly interfere with the 

functioning of the nervous system and 

the skin. Treatment for patients 

suffering from disorders of porphyrin 

metabolism consists of an intravenous 

injection of Panhematin® (hemin for 

injection). In 1984, this pharmaceutical 

agent became the first approved drug for 

a rare disease to be designated under the 

Orphan Drug Act. The requestor stated 

that it is the only FDA-approved 

prescription treatment for acute 

intermittent porphyria. ICD–9–CM 

diagnosis code 277.1 (Disorders of 

porphyrin metabolism) describes these 

cases, which are currently assigned to 

MS–DRG 642 (Inborn and Other 

Disorders of Metabolism). 

We analyzed claims data from the 

December 2013 update of the FY 2013 

MedPAR file for cases assigned to MS– 

DRG 642. Our findings are shown in the 

table below. 

MS–DRG Number of 

cases 

Average 

length of stay Average costs 

MS–DRG 642—All cases ............................................................................................................ 1,486 4.61 $8,151 

MS–DRG 642—Cases with principal diagnosis code 277.1 ....................................................... 299 5.98 13,303 

As shown in the table above, we 

found a total of 1,486 cases in MS–DRG 

642, with an average length of stay of 

4.61 days and average costs of $8,151. 

We then analyzed the data for cases 

reporting diagnosis code 277.1 as the 

principal diagnosis in this same MS– 

DRG. We found a total of 299 cases, 

with an average length of stay of 5.98 

days and average costs of $13,303. 

While the data show that the average 

costs for the 299 cases reporting a 

principal diagnosis code of 277.1 were 

higher than the average costs for all 

cases in MS–DRG 642 ($13,303 

compared to $8,151), the number of 

cases is small. Given the small number 

of porphyria cases, we do not believe 

there is justification for creating a new 

MS–DRG. Basing a new MS–DRG on 

such a small number of cases could lead 

to distortions in the relative payment 

weights for the MS–DRG because 

several expensive cases could impact 

the overall relative payment weight. 

Having larger clinical cohesive groups 

within an MS–DRG provides greater 

stability for annual updates to the 

relative payment weights. In addition, 

as discussed earlier, one of the criteria 

we apply in evaluating whether to 

create new severity subgroups within an 

MS–DRG is whether there are at least 

500 cases in the CC or MCC subgroup. 

While this criterion is used to evaluate 

whether to create a severity subgroup 

within an MS–DRG, applying it here 

suggests that creating a new MS–DRG 

for cases reporting a principal diagnosis 

of code 277.1 would not be appropriate. 

Our clinical advisors reviewed this 

issue and recommended no MS–DRG 

change for porphyria cases because they 

fit clinically within MS–DRG 642. 

In summary, we are not proposing to 

create a new MS–DRG for porphyria 

cases. We are inviting public comments 

on our proposal to maintain porphyria 

cases in MS–DRG 642. 

7. MDC 15 (Newborns and Other 

Neonates With Conditions Originating 

in the Perinatal Period) 

We received a request to evaluate the 

MS–DRG assignment of seven ICD–9– 

CM diagnosis codes in MS–DRG 794 

(Neonate With Other Significant 

Problems) under MDC 15. The requestor 

stated that these codes have no bearing 

on the infant, and are not representative 

of a neonate with a significant problem. 

The requestor recommended that we 

change the MS–DRG logic so that the 

following seven ICD–9–CM codes would 

not lead to assignment of MS–DRG 794. 

The requestor recommended that the 

diagnoses be added to the ‘‘only 

secondary diagnosis’’ list under MS– 

DRG 795 (Normal newborn) so that the 

case would be assigned to MS–DRG 795 

(Normal newborn). 

• V17.0 (Family history of psychiatric 

condition) 

• V17.2 (Family history of other 

neurological Diseases) 

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• V17.49 (Family history of other 

cardiovascular diseases) 

• V18.0 (Family history of diabetes 

mellitus) 

• V18.19 (Family history of other 

endocrine and metabolic diseases) 

• V18.8 (Family history of infectious 

and parasitic diseases) 

• V50.3 (Ear piercing) 

In the case of a newborn with one of 

these diagnosis codes reported as a 

secondary diagnosis, the case would be 

assigned to MS–DRG 794. The 

commenter believed that any of these 

seven diagnosis codes (noted above), 

when reported as a secondary diagnosis 

for a newborn case, should be assigned 

to MS–DRG 795 instead of MS–DRG 

794. 

Our clinical advisors reviewed this 

request and concur with the commenter 

that the seven ICD–9–CM diagnosis 

codes noted above should not continue 

to be assigned to MS–DRG 794, as there 

is no clinically usable information 

reported in those codes identifying 

significant problems. Therefore, for FY 

2015, we are proposing to reassign these 

following seven diagnoses to the ‘‘only 

secondary diagnosis list’’ under MS– 

DRG 795 so that the case would be 

assigned to MS–DRG 795. 

• V17.0 (Family history of psychiatric 

condition) 

• V17.2 (Family history of other 

neurological diseases) 

• V17.49 (Family history of other 

cardiovascular diseases) 

• V18.0 (Family history of diabetes 

mellitus) 

• V18.19 (Family history of other 

endocrine and metabolic diseases) 

• V18.8 (Family history of infectious 

and parasitic diseases) 

• V50.3 (Ear piercing) 

We are inviting public comments on 

this proposal. 

8. Proposed Medicare Code Editor 

(MCE) Changes 

The Medicare Code Editor (MCE) is a 

software program that detects and 

reports errors in the coding of Medicare 

claims data. Patient diagnoses, 

procedure(s), and demographic 

information are entered into the 

Medicare claims processing systems and 

are subjected to a series of automated 

screens. The MCE screens are designed 

to identify cases that require further 

review before classification into an MS– 

DRG. 

As discussed in section II.G.1.a. of the 

preamble of this proposed rule, we 

developed an ICD–10 version of the 

current MS–DRGs, which are based on 

ICD–9–CM codes. We refer to this 

version of the MS–DRGs as the ICD–10 

MS–DRGs Version 31.0–R. In November 

2013, we also posted a Definitions of 

Medicare Code Edits Manual of the 

ICD–10 MCE Version 31.0 on the ICD– 

10 MS–DRG Conversion Project Web 

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

Coding/ICD10/ICD-10-MS-DRGConversion-Project.html. We produced 

mainframe and computer software for 

Version 31.0 of the MS–DRG GROUPER 

with Medicare Code Editor, which was 

made available to the public in 

December 2013. Information on ordering 

the mainframe and computer software 

through NTIS was posted on the CMS 

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

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

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

MS–DRG GROUPER with Medicare 

Code Editor Version 31.0 computer 

software facilitated additional review of 

the ICD–10 MS–DRGs conversion. We 

encouraged the public to submit to CMS 

any comments on areas where they 

believed the ICD–10 MS–DRG 

GROUPER and MCE did not accurately 

reflect the logic and edits found in the 

ICD–9–CM MS–DRG GROUPER and 

MCE Version 31.0. 

We also have posted an ICD–10 

version of the current MCE, which is 

based on ICD–9–CM codes, and refer to 

that version of the MCE as the ICD–10 

MCE Version 31.0–R. Both of these 

documents are posted on our ICD–10 

MS–DRG Conversion Project Web site 

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

Coding/ICD10/ICD-10-MS-DRGConversion-Project.html. We will 

continue to share ICD–10 MS–DRG and 

MCE conversion activities with the 

public through this Web site. 

For FY 2015, we are proposing to 

remove extracranial-intracranial (EC–IC) 

bypass surgery from the ‘‘Noncovered 

Procedure’’ edit code list for Version 

32.0 of the MCE. This procedure is 

identified by ICD–9–CM procedure code 

39.28 (Extracranial-intracranial (EC–IC) 

vascular bypass). 

Because of the complexity of 

appropriately classifying the 

circumstances under which the EC–IC 

bypass surgery may, or may not, be 

considered reasonable and necessary for 

certain conditions, we are proposing to 

remove the MCE ‘‘Noncovered 

Procedure’’ edit for EC–IC bypass 

surgery from the ‘‘Noncovered 

Procedure’’ edit code list for Version 

32.0 of the MCE. We are inviting public 

comments on this proposal. 

9. Proposed Changes to Surgical 

Hierarchies 

Some inpatient stays entail multiple 

surgical procedures, each one of which, 

occurring by itself, could result in 

assignment of the case to a different 

MS–DRG within the MDC to which the 

principal diagnosis is assigned. 

Therefore, it is necessary to have a 

decision rule within the GROUPER by 

which these cases are assigned to a 

single MS–DRG. The surgical hierarchy, 

an ordering of surgical classes from 

most resource-intensive to least 

resource-intensive, performs that 

function. Application of this hierarchy 

ensures that cases involving multiple 

surgical procedures are assigned to the 

MS–DRG associated with the most 

resource-intensive surgical class. 

Because the relative resource intensity 

of surgical classes can shift as a function 

of MS–DRG reclassification and 

recalibrations, for FY 2015, we reviewed 

the surgical hierarchy of each MDC, as 

we have for previous reclassifications 

and recalibrations, to determine if the 

ordering of classes coincides with the 

intensity of resource utilization. 

A surgical class can be composed of 

one or more MS–DRGs. For example, in 

MDC 11, the surgical class ‘‘kidney 

transplant’’ consists of a single MS–DRG 

(MS–DRG 652) and the class ‘‘major 

bladder procedures’’ consists of three 

MS–DRGs (MS–DRGs 653, 654, and 

655). Consequently, in many cases, the 

surgical hierarchy has an impact on 

more than one MS–DRG. The 

methodology for determining the most 

resource-intensive surgical class 

involves weighting the average 

resources for each MS–DRG by 

frequency to determine the weighted 

average resources for each surgical class. 

For example, assume surgical class A 

includes MS–DRGs 001 and 002 and 

surgical class B includes MS–DRGs 003, 

004, and 005. Assume also that the 

average costs of MS–DRG 001 are higher 

than that of MS–DRG 003, but the 

average costs of MS–DRGs 004 and 005 

are higher than the average costs of MS– 

DRG 002. To determine whether 

surgical class A should be higher or 

lower than surgical class B in the 

surgical hierarchy, we would weigh the 

average costs of each MS–DRG in the 

class by frequency (that is, by the 

number of cases in the MS–DRG) to 

determine average resource 

consumption for the surgical class. The 

surgical classes would then be ordered 

from the class with the highest average 

resource utilization to that with the 

lowest, with the exception of ‘‘other 

O.R. procedures’’ as discussed below. 

This methodology may occasionally 

result in assignment of a case involving 

multiple procedures to the lowerweighted MS–DRG (in the highest, most 

resource-intensive surgical class) of the 

available alternatives. However, given 

that the logic underlying the surgical 

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hierarchy provides that the GROUPER 

search for the procedure in the most 

resource-intensive surgical class, in 

cases involving multiple procedures, 

this result is sometimes unavoidable. 

We note that, notwithstanding the 

foregoing discussion, there are a few 

instances when a surgical class with a 

lower average cost is ordered above a 

surgical class with a higher average cost. 

For example, the ‘‘other O.R. 

procedures’’ surgical class is uniformly 

ordered last in the surgical hierarchy of 

each MDC in which it occurs, regardless 

of the fact that the average costs for the 

MS–DRG or MS–DRGs in that surgical 

class may be higher than those for other 

surgical classes in the MDC. The ‘‘other 

O.R. procedures’’ class is a group of 

procedures that are only infrequently 

related to the diagnoses in the MDC, but 

are still occasionally performed on 

patients with cases assigned to the MDC 

with these diagnoses. Therefore, 

assignment to these surgical classes 

should only occur if no other surgical 

class more closely related to the 

diagnoses in the MDC is appropriate. 

A second example occurs when the 

difference between the average costs for 

two surgical classes is very small. We 

have found that small differences 

generally do not warrant reordering of 

the hierarchy because, as a result of 

reassigning cases on the basis of the 

hierarchy change, the average costs are 

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

costs than the class ordered below it. 

Based on the changes that we are 

proposing to make for FY 2015, as 

discussed in sections II.G.4.c., II.G.5.a., 

and II.G.5.c. of the preamble of this FY 

2015 IPPS/LTCH PPS proposed rule, we 

are proposing to revise the surgical 

hierarchy for MDC 5 (Diseases and 

Disorders of the Circulatory System) and 

MDC 8 (Diseases and Disorders of the 

Musculoskeletal System and Connective 

Tissue) as follows: 

In MDC 5, we are proposing to 

sequence proposed new MS–DRG 266 

(Endovascular Cardiac Valve 

Replacement with MCC) and proposed 

new MS–DRG 267 (Endovascular 

Cardiac Valve Replacement without 

MCC) above MS–DRG 222 (Cardiac 

Defibrillator Implant with Cardiac 

Catheterization with AMI/HF/Shock 

with MCC). 

In MDC 8, we are proposing to delete 

MS–DRGs 490 (Back & Neck Procedures 

Except Spinal Fusion with CC/MCC or 

Disc Device/Neurostimulator) and MS– 

DRG 491 (Back & Neck Procedures 

Except Spinal Fusion without CC/MCC 

or Disc Device/Neurostimulator) from 

the surgical hierarchy. We are proposing 

to sequence proposed new MS–DRG 518 

(Back & Neck Procedure Except Spinal 

Fusion with MCC or Disc Device/

Neurostimulator), proposed new MS– 

DRG 519 (Back & Neck Procedure 

Except Spinal Fusion with CC), and 

proposed new MS–DRG 520 (Back & 

Neck Procedure Except Spinal Fusion 

without CC/MCC) above MS–DRG 492 

(Lower Extremity and Humerus 

Procedure Except Hip, Foot, Femur with 

MCC). 

We are inviting public comments on 

our proposals. 

10. Proposed Changes to the MS–DRG 

Diagnosis Codes for FY 2015 

a. Major Complications or Comorbidities 

(MCCs) and Complications or 

Comorbidities (CC) Severity Levels for 

FY 2015 

A complete updated MCC, CC, and 

Non-CC Exclusion List is available via 

the Internet on the CMS Web site at: 

http://cms.hhs.gov/Medicare/MedicareFee-for-Service-Payment/

AcuteInpatientPPS/index.html as 

follows: 

• Table 6I (Complete MCC list); 

• Table 6J (Complete CC list); and 

• Table 6K (Complete list of CC 

Exclusions). 

b. Coronary Atherosclerosis Due to 

Calcified Coronary Lesion 

We received a request that we change 

the severity level for ICD–9–CM 

diagnosis code 414.4 (Coronary 

atherosclerosis due to calcified coronary 

lesion) from a non-CC to an MCC. This 

issue was previously discussed in the 

FY 2014 IPPS/LTCH PPS proposed rule 

(78 FR 27522) and the FY 2014 IPPS/

LTCH PPS final rule (78 FR 50541 

through 50542). 

We examined claims data from the 

December 2013 update of the FY 2013 

MedPAR file for ICD–9–CM diagnosis 

code 414.4. The following chart shows 

our findings. 

Code Diagnosis description CC Level Cnt 1 Cnt 1 

Impact Cnt 2 Cnt 2 Impact Cnt 3 Cnt 3 Impact 

414.4 ............ Coronary atherosclerosis 

due to calcified lesion.

Non-CC ..... 1,796 1.16 3,056 2.18 2,835 3.01 

We ran the above data as described in 

the FY 2008 IPPS final rule with 

comment period (72 FR 47158 through 

47161). The C1 value reflects a patient 

with no other secondary diagnosis or 

with all other secondary diagnoses that 

are non-CCs. The C2 value reflects a 

patient with at least one other secondary 

diagnosis that is a CC, but none that is 

an MCC. The C3 value reflects a patient 

with at least one other secondary 

diagnosis that is an MCC. 

The chart above shows that the C1 

finding is 1.16. A value close to 1.0 in 

the C1 field suggests that the diagnosis 

produces the same expected value as a 

non-CC. A value close to 2.0 suggests 

the condition is more like a CC than a 

non-CC, but not as significant in 

resource usage as an MCC. A value close 

to 3.0 suggests the condition is expected 

to consume resources more similar to an 

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

finding was 2.18. A C2 value close to 2.0 

suggests the condition is more like a CC 

than a non-CC, but not as significant in 

resource usage as an MCC when there is 

at least one other secondary diagnosis 

that is a CC but none that is an MCC. 

While the C1 value of 1.16 is above the 

1.0 value for a non-CC, it does not 

support reclassification to an MCC. As 

stated earlier, a value close to 3.0 

suggests the condition is expected to 

consume resources more similar to an 

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

finding of 2.18 also does not support 

reclassifying this diagnosis code to an 

MCC. Our clinical advisors reviewed the 

data and evaluated this condition. They 

recommended that we not change the 

severity level of diagnosis code 414.4 

from a non-CC to an MCC. They do not 

believe that this diagnosis would 

increase the severity level of patients. 

They pointed out that a similar code, 

diagnosis code 414.2 (Chronic total 

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

diagnosis code 414.4 represents patients 

who are less severe than diagnosis code 

414.2. Considering the C1 and C2 

ratings and the input from our clinical 

advisors, we are not proposing to 

reclassify diagnosis code 414.4 to an 

MCC; the diagnosis code would 

continue to be considered a non-CC. 

Therefore, based on the data and 

clinical analysis, we are proposing to 

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

FR 38485, September 30, 1988) for the revision 

made for the discharges occurring in FY 1989; the 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

the FY 2012 final rule (76 FR 51542); the FY 2013 

final rule (77 FR 53315); and the FY 2014 final rule 

(78 FR 50541). 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. 

CC. We are inviting public comments on 

our proposal. 

11. Complications or Comorbidity (CC) 

Exclusions List 

a. Background of the CC List and the CC 

Exclusions List 

Under the IPPS MS–DRG 

classification system, we have 

developed a standard list of diagnoses 

that are considered CCs. Historically, we 

developed this list using physician 

panels that classified each diagnosis 

code based on whether the diagnosis, 

when present as a secondary condition, 

would be considered a substantial 

complication or comorbidity. A 

substantial complication or comorbidity 

was defined as a condition that, because 

of its presence with a specific principal 

diagnosis, would cause an increase in 

the length of stay by at least 1 day in 

at least 75 percent of the patients. 

However, depending on the principal 

diagnosis of the patient, some diagnoses 

on the basic list of complications and 

comorbidities may be excluded if they 

are closely related to the principal 

diagnosis. In FY 2008, we evaluated 

each diagnosis code to determine its 

impact on resource use and to 

determine the most appropriate CC 

subclassification (non-CC, CC, or MCC) 

assignment. We refer readers to sections 

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

2008 IPPS final rule with comment 

period for a discussion of the refinement 

of CCs in relation to the MS–DRGs we 

adopted for FY 2008 (72 FR 47152 

through 47171). 

b. Proposed CC Exclusions List for FY 

2015 

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; and 

• Closely related conditions should 

not be considered CCs for one another. 

The creation of the CC Exclusions List 

was a major project involving hundreds 

of codes. We have continued to review 

the remaining CCs to identify additional 

exclusions and to remove diagnoses 

from the master list that have been 

shown not to meet the definition of a 

CC.1

For FY 2015, we are not proposing 

any changes to the CC Exclusion List. 

Therefore, we are not developing or 

publishing Tables 6G (Additions to the 

CC Exclusion List) or Table 6H 

(Deletions from the CC Exclusion List). 

We have developed Table 6K (Complete 

List of CC Exclusions), which is 

available only via the Internet on the 

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

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

index.html. Because of the length of 

Table 6K, we are not publishing it in the 

Addendum to this proposed rule. Each 

of these principal diagnosis codes for 

which there is a CC exclusion is shown 

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. Beginning with discharges on 

or after October 1 of each year, the 

indented diagnoses are not recognized 

by the GROUPER as valid CCs for the 

asterisked principal diagnoses. 

A complete updated MCC, CC, and 

Non-CC Exclusions List is available via 

the Internet on the CMS Web site at: 

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

Medicare-Fee-for-Service-Payment/

AcuteInpatientPPS/index.html. 

Because there are no proposed new, 

revised, or deleted diagnosis or 

procedure codes for FY 2015, we are not 

developing 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), and Table 6F (Revised 

Procedure Codes) to this proposed rule 

and they are not published as part of 

this proposed rule. 

We are proposing no additions or 

deletions to the MS–DRG MCC List for 

FY 2015 and no additions or deletions 

to the MS–DRG CC List for FY 2015. 

Therefore, we are not developing Tables 

6I.1 (Additions to the MCC List), 6I.2 

(Deletions to the MCC List), 6J.1 

(Additions to the CC List), and 6J.2 

(Deletions to the CC List), and they are 

not published as part of this proposed 

rule. 

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 31.0, 

is available on a CD for $225.00. This 

manual 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. Version 

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28020 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

2The original list of the ICD–9–CM procedure 

codes for the procedures we consider nonextensive 

procedures, if performed with an unrelated 

principal diagnosis, was published in Table 6C in 

section IV. of the Addendum to the FY 1989 final 

rule (53 FR 38591). As part of the FY 1991 final rule 

(55 FR 36135), the FY 1992 final rule (56 FR 43212), 

the FY 1993 final rule (57 FR 23625), the FY 1994 

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

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

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

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

other procedures from DRG 468 to DRG 477, and 

some procedures from DRG 477 to DRG 468. No 

procedures were moved in FY 1999, as noted in the 

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

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

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

FR 49999), we did not move any procedures from 

DRG 477. However, we did move procedure codes 

from DRG 468 and placed them in more clinically 

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

45365), we moved several procedures from DRG 

468 to DRGs 476 and 477 because the procedures 

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

48950), we moved one procedure from DRG 468 to 

477. In addition, we added several existing 

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

FR 47317), we moved one procedure from DRG 468 

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

one procedure from DRG 468 and assigned it to 

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

2011, 2012, 2013, and 2014, no procedures were 

moved, as noted in the FY 2008 final rule with 

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

rule (73 FR 48513), in the FY 2010 final rule (74 

FR 43796), in the FY 2011 final rule (75 FR 50122), 

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

2013 final rule (77 FR 53321), and in the FY 2014 

final rule (78 FR 50545). 

32.0 of this manual, which will include 

the final FY 2015 MS–DRG changes, 

will be available after publication of the 

FY 2015 final rule on a CD for $225.00. 

This manual may be obtained by writing 

3M/HIS at the address provided above; 

or by calling (203) 949–0303; or by 

obtaining an order form at the Web site 

at: http://www/3MHIS.com. Please 

specify the revision or revisions 

requested. 

12. 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); and 

• 60.99 (Other operations on 

prostate). 

All remaining O.R. procedures are 

assigned to MS–DRGs 981 through 983 

and 987 through 989, with MS–DRGs 

987 through 989 assigned to those 

discharges in which the only procedures 

performed are nonextensive procedures 

that are unrelated to the principal 

diagnosis.2

Our review of MedPAR claims data 

showed that there were no cases that 

merited movement or should logically 

be assigned to any of the other MDCs. 

Therefore, for FY 2015, we are not 

proposing to change the procedures 

assigned among these MS–DRGs. 

a. Moving Procedure Codes From MS– 

DRGs 981 Through 983 or MS–DRGs 

987 Through 989 Into MDCs 

We annually conduct a review of 

procedures producing assignment to 

MS–DRGs 981 through 983 (Extensive 

O.R. procedure unrelated to principal 

diagnosis with MCC, with CC, and 

without CC/MCC, respectively) or MS– 

DRGs 987 through 989 (Nonextensive 

O.R. procedure unrelated to principal 

diagnosis with MCC, with CC, and 

without CC/MCC, respectively) on the 

basis of volume, by procedure, to see if 

it would be appropriate to move 

procedure codes out of these MS–DRGs 

into one of the surgical MS–DRGs for 

the MDC into which the principal 

diagnosis falls. The data are arrayed in 

two ways for comparison purposes. We 

look at a frequency count of each major 

operative procedure code. We also 

compare procedures across MDCs by 

volume of procedure codes within each 

MDC. 

We identify those procedures 

occurring in conjunction with certain 

principal diagnoses with sufficient 

frequency to justify adding them to one 

of the surgical MS–DRGs for the MDC in 

which the diagnosis falls. As noted 

above, there were no cases that merited 

movement or that should logically be 

assigned to any of the other MDCs. 

Therefore, for FY 2015, we are not 

proposing to remove any procedures 

from MS–DRGs 981 through 983 or MS– 

DRGs 987 through 989 into one of the 

surgical MS–DRGs for the MDC into 

which the principal diagnosis is 

assigned. 

b. Reassignment of Procedures Among 

MS–DRGs 981 Through 983, 984 

Through 986, and 987 Through 989 

We also annually review the list of 

ICD–9–CM procedures that, when in 

combination with their principal 

diagnosis code, result in assignment to 

MS–DRGs 981 through 983, 984 through 

986 (Prostatic O.R. procedure unrelated 

to principal diagnosis with MCC, with 

CC, or without CC/MCC, respectively), 

and 987 through 989, to ascertain 

whether any of those procedures should 

be reassigned from one of these three 

MS–DRGs to another of the three MS– 

DRGs based on average costs and the 

length of stay. We look at the data for 

trends such as shifts in treatment 

practice or reporting practice that would 

make the resulting MS–DRG assignment 

illogical. If we find these shifts, we 

would propose to move cases to keep 

the MS–DRGs clinically similar or to 

provide payment for the cases in a 

similar manner. Generally, we move 

only those procedures for which we 

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have an adequate number of discharges 

to analyze the data. 

There were no cases representing 

shifts in treatment practice or reporting 

practice that would make the resulting 

MS–DRG assignment illogical, or that 

merited movement so that cases should 

logically be assigned to any of the other 

MDCs. Therefore, for FY 2015, we are 

not proposing to move any procedure 

codes among these MS–DRGs. 

c. Adding Diagnosis or Procedure Codes 

to MDCs 

Based on the review of cases in the 

MDCs as described above in sections 

II.G.2. through 7. of the preamble of this 

proposed rule, we are not proposing to 

add any diagnosis or procedure codes to 

MDCs for FY 2015. 

13. Proposed Changes to the ICD–9–CM 

System 

a. ICD–10 Coordination and 

Maintenance Committee 

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 

final update to ICD–9–CM codes was to 

be made on October 1, 2013. Thereafter, 

the name of the Committee was changed 

to the ICD–10 Coordination and 

Maintenance Committee, effective with 

the March 19–20, 2014 meeting. The 

ICD–10 Coordination and Maintenance 

Committee will address updates to the 

ICD–10–CM, ICD–10–PCS, and ICD–9– 

CM coding systems. The Committee is 

jointly responsible for approving coding 

changes, and developing errata, 

addenda, and other modifications to the 

coding systems to reflect newly 

developed procedures and technologies 

and newly identified diseases. The 

Committee is also responsible for 

promoting the use of Federal and nonFederal educational programs and other 

communication techniques with a view 

toward standardizing coding 

applications and upgrading the quality 

of the classification system. 

The official list of ICD–9–CM 

diagnosis and procedure codes by fiscal 

year can be found on the CMS Web site 

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

ICD9ProviderDiagnosticCodes/

codes.html. The official list of ICD–10– 

CM and ICD–10–PCS codes can be 

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

www.cms.gov/Medicare/Coding/ICD10/

index.html. 

The NCHS has lead responsibility for 

the ICD–10–CM and ICD–9–CM 

diagnosis codes included in the Tabular 

List and Alphabetic Index for Diseases, 

while CMS has lead responsibility for 

the ICD–10–PCS and 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 2015 at a public meeting held on 

September 18–19, 2013, and finalized 

the coding changes after consideration 

of comments received at the meetings 

and in writing by November 15, 2013. 

The Committee held its 2014 meeting 

on March 19–20, 2014. Any new ICD– 

10–CM/PCS codes for which there was 

consensus of public support and for 

which complete tabular and indexing 

changes will be made by May 2014 will 

be included in the October 1, 2014 

update to ICD–10–CM/ICD–10–PCS. For 

FY 2015, there are no proposed new, 

revised, or deleted ICD–9–CM diagnosis 

or procedure codes. 

Copies of the minutes of the 

procedure codes discussions at the 

Committee’s September 18–19, 2013 

meeting and March 19–20, 2014 meeting 

can be obtained from the CMS Web site 

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

ICD9ProviderDiagnosticCodes/

index.html?redirect=/

icd9ProviderDiagnosticCodes/03_

meetings.asp. The minutes of the 

diagnosis codes discussions at the 

September 18–19, 2013 meeting and 

March 19–20, 2014 meeting are found 

at: http://www.cdc.gov/nchs/icd/

icd9cm.html. These Web sites also 

provide detailed information about the 

Committee, including information on 

requesting a new code, attending a 

Committee meeting, and timeline 

requirements and meeting dates. 

We encourage commenters to address 

suggestions on coding issues involving 

diagnosis codes to: Donna Pickett, CoChairperson, ICD–10 Coordination and 

Maintenance Committee, NCHS, Room 

2402, 3311 Toledo Road, Hyattsville, 

MD 20782. Comments may be sent by 

Email to: dfp4@cdc.gov. 

Questions and comments concerning 

the procedure codes should be 

addressed to: Patricia Brooks, CoChairperson, ICD–10 Coordination and 

Maintenance Committee, CMS, Center 

for Medicare Management, Hospital and 

Ambulatory Policy Group, Division of 

Acute Care, C4–08–06, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

Comments may be sent by Email to: 

patricia.brooks2@cms.hhs.gov. 

In the September 7, 2001 final rule 

implementing the IPPS new technology 

add-on payments (66 FR 46906), we 

indicated we would attempt to include 

proposals for procedure codes that 

would describe new technology 

discussed and approved at the Spring 

meeting as part of the code revisions 

effective the following October. 

Section 503(a) of Public Law 108–173 

included a requirement for updating 

ICD–9–CM codes twice a year instead of 

a single update on October 1 of each 

year. This requirement was included as 

part of the amendments to the Act 

relating to recognition of new 

technology under the IPPS. Section 

503(a) amended section 1886(d)(5)(K) of 

the Act by adding a clause (vii) which 

states that the ‘‘Secretary shall provide 

for the addition of new diagnosis and 

procedure codes on April 1 of each year, 

but the addition of such codes shall not 

require the Secretary to adjust the 

payment (or diagnosis-related group 

classification) . . . until the fiscal year 

that begins after such date.’’ This 

requirement improves the recognition of 

new technologies under the IPPS system 

by providing information on these new 

technologies at an earlier date. Data will 

be available 6 months earlier than 

would be possible with updates 

occurring only once a year on 

October 1. 

While section 1886(d)(5)(K)(vii) of the 

Act states that the addition of new 

diagnosis and procedure codes on April 

1 of each year shall not require the 

Secretary to adjust the payment, or DRG 

classification, under section 1886(d) of 

the Act until the fiscal year that begins 

after such date, we have to update the 

DRG software and other systems in 

order to recognize and accept the new 

codes. We also publicize the code 

changes and the need for a mid-year 

systems update by providers to identify 

the new codes. Hospitals also have to 

obtain the new code books and encoder 

updates, and make other system changes 

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28022 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

in order to identify and report the new 

codes. 

The ICD–10 (previously 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 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 diagnosis and procedure coding 

changes, both tabular and index, is 

published on the CMS and NCHS Web 

sites in May of each year. Publishers of 

coding books and software use this 

information to modify their products 

that are used by health care providers. 

This 5-month time period has proved to 

be necessary for hospitals and other 

providers to update their systems. 

A discussion of this timeline and the 

need for changes are included in the 

December 4–5, 2005 ICD–9–CM 

Coordination and Maintenance 

Committee Meeting minutes. The public 

agreed that there was a need to hold the 

fall meetings earlier, in September or 

October, in order to meet the new 

implementation dates. The public 

provided comment that additional time 

would be needed to update hospital 

systems and obtain new code books and 

coding software. There was considerable 

concern expressed about the impact this 

new April update would have on 

providers. 

In the FY 2005 IPPS final rule, we 

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

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

of Public Law 108–173, by developing a 

mechanism for approving, in time for 

the April update, diagnosis and 

procedure code revisions needed to 

describe new technologies and medical 

services for purposes of the new 

technology add-on payment process. We 

also established the following process 

for making these determinations. Topics 

considered during the Fall ICD–10 

(previously 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, 2014 implementation of a code 

at the September 18–19, 2013 

Committee meeting. Therefore, there 

were no new codes implemented on 

April 1, 2014. 

ICD–9–CM addendum and code title 

information is published on the CMS 

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

Medicare/Coding/ICD9Provider

DiagnosticCodes/index.html?redirect=/

icd9ProviderDiagnosticCodes/

01overview.asp#TopofPage. ICD–10–CM 

and ICD–10–PCS addendum and code 

title information is published on the 

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

Medicare/Coding/ICD10/index.html. 

Information on ICD–10–CM diagnosis 

codes, along with the Official ICD–10– 

CM Coding Guidelines, can also be 

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

www.cdc.gov/nchs/icd/icd10cm.html. 

Information on new, revised, and 

deleted ICD–10–CM/ICD–10–PCS codes 

is also provided to the AHA for 

publication in the Coding Clinic for 

ICD–10. 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. 

The code titles are adopted as part of 

the ICD–10 (previously ICD–9–CM) 

Coordination and Maintenance 

Committee process. Therefore, although 

we publish the code titles in the IPPS 

proposed and final rules, they are not 

subject to comment in the proposed or 

final rules. 

b. Code Freeze 

In the January 16, 2009 ICD–10–CM 

and ICD–10–PCS final rule (74 FR 

3340), there was a discussion of the 

need for a partial or total freeze in the 

annual updates to both ICD–9–CM and 

ICD–10–CM and ICD–10–PCS codes. 

The public comment addressed in that 

final rule stated that the annual code set 

updates should cease l year prior to the 

implementation of ICD–10. The 

commenters stated that this freeze of 

code updates would allow for 

instructional and/or coding software 

programs to be designed and purchased 

early, without concern that an upgrade 

would take place immediately before 

the compliance date, necessitating 

additional updates and purchases. 

HHS responded to comments in the 

ICD–10 final rule that the ICD–9–CM 

Coordination and Maintenance 

Committee has jurisdiction over any 

action impacting the ICD–9–CM and 

ICD–10 code sets. Therefore, HHS 

indicated that the issue of consideration 

of a moratorium on updates to the ICD– 

9–CM, ICD–10–CM, and ICD–10–PCS 

code sets in anticipation of the adoption 

of ICD–10–CM and ICD–10–PCS would 

be addressed through the Committee at 

a future public meeting. 

The code freeze was discussed at 

multiple meetings of the ICD–9–CM 

Coordination and Maintenance 

Committee and public comment was 

actively solicited. The Committee 

evaluated all comments from 

participants attending the Committee 

meetings as well as written comments 

that were received. The Committee also 

considered the delay in implementation 

of ICD–10 until October 1, 2014. There 

was an announcement at the September 

19, 2012 ICD–9–CM Coordination and 

Maintenance Committee meeting that a 

partial freeze of both ICD–9–CM and 

ICD–10 codes will be implemented as 

follows: 

• The last regular annual update to 

both ICD–9–CM and ICD–10 code sets 

was made on October 1, 2011. 

• On October 1, 2012 and October 1, 

2013, there will be only limited code 

updates to both ICD–9–CM and ICD–10 

code sets to capture new technology and 

new diseases. 

• On October 1, 2014, there were to 

be only limited code updates to ICD–10 

code sets to capture new technology and 

diagnoses as required by section 503(a) 

of Public Law 108–173. There were to 

be no updates to ICD–9–CM on October 

1, 2014. 

• On October 1, 2015, one year after 

the originally scheduled 

implementation of ICD–10, regular 

updates to ICD–10 were to begin. 

The ICD–10 (previously ICD–9–CM) 

Coordination and Maintenance 

Committee announced that it would 

continue to meet twice a year during the 

freeze. At these meetings, the public 

will be encouraged to comment on 

whether or not requests for new 

diagnosis and procedure codes should 

be created based on the need to capture 

new technology and new diseases. Any 

code requests that do not meet the 

criteria will be evaluated for 

implementation within ICD–10 one year 

after the implementation of ICD–10, 

once the partial freeze is ended. 

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Complete information on the partial 

code freeze and discussions of the 

issues at the Committee meetings can be 

found on the ICD–10 Coordination and 

Maintenance Committee Web site at: 

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

Coding/ICD9ProviderDiagnosticCodes/

meetings.html. A summary of the 

September 19, 2012 Committee meeting, 

along with both written and audio 

transcripts of this meeting, is posted on 

the Web site at: http://

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

ICD9ProviderDiagnosticCodes/ICD-9- 

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

2012-09-19-MeetingMaterials.html. 

This partial code freeze has 

dramatically decreased the number of 

codes created each year as shown by the 

following information. 

TOTAL NUMBER OF CODES AND CHANGES IN TOTAL NUMBER OF CODES PER FISCAL YEAR

ICD–9–CM codes ICD–10–CM and ICD–10–PCS codes 

Fiscal year Number Change Fiscal year Number Change 

FY 2009 (October 1, 2008): FY 2009: 

Diagnoses .......................................... 14,025 348 ICD–10–CM ....................................... 68,069 +5 

Procedures ......................................... 3,824 56 ICD–10–PCS ..................................... 72,589 ¥14,327 

FY 2010 (October 1, 2009): FY 2010: 

Diagnoses .......................................... 14,315 290 ICD–10–CM ....................................... 69,099 +1,030 

Procedures ......................................... 3,838 14 ICD–10–PCS ..................................... 71,957 ¥632 

FY 2011 (October 1, 2010): ..............................................................

Diagnoses .......................................... 14,432 117 ICD–10–CM ....................................... 69,368 +269 

Procedures ......................................... 3,859 21 ICD–10–PCS ..................................... 72,081 +124 

FY 2012 (October 1, 2011): FY 2012: 

Diagnoses .......................................... 14,567 135 ICD–10–CM ....................................... 69,833 +465 

Procedures ......................................... 3,877 18 ICD–10–PCS ..................................... 71,918 ¥163 

FY 2013 (October 1, 2012): FY 2013: 

Diagnoses .......................................... 14,567 0 ICD–10–CM ....................................... 69,832 ¥1 

Procedures ......................................... 3,878 1 ICD–10–PCS ..................................... 71,920 +2 

FY 2014 (October 1, 2013): FY 2014: ...................................................

Diagnoses .......................................... 14,567 0 ICD–10–CM ....................................... 69,823 ¥9 

Procedures ......................................... 3,882 4 ICD–10–PCS ..................................... 71,924 +4 

As mentioned earlier, the public is 

provided the opportunity to comment 

on any requests for new diagnosis or 

procedure codes discussed at the ICD– 

10 Coordination and Maintenance 

Committee meeting. The public has 

supported only a limited number of new 

codes during the partial code freeze, as 

can be seen by data shown above. We 

have gone from creating several 

hundred new codes each year to 

creating only a limited number of new 

ICD–9–CM and ICD–10 codes. 

At the September 18–19, 2013 and 

March 19–20, 2014 Committee 

meetings, we discussed any requests we 

had received for new ICD–10–CM 

diagnosis and ICD–10–PCS procedure 

codes that were to be implemented on 

October 1, 2014. We did not discuss 

ICD–9–CM codes. The public was given 

the opportunity to comment on whether 

or not new ICD–10–CM and ICD–10– 

PCS codes should be created, based on 

the partial code freeze criteria. The 

public was to use the criteria as to 

whether codes were needed to capture 

new diagnoses or new technologies. If 

the codes do not meet those criteria for 

implementation during the partial code 

freeze, consideration was to be given as 

to whether the codes should be created 

after the partial code freeze ends one 

year after the implementation of ICD– 

10–CM/PCS. We invited public 

comments on any code requests 

discussed at the September 18–19, 2013 

and March 19–20, 2014 Committee 

meetings for implementation as part of 

the October 1, 2014 update. The 

deadline for commenting on code 

proposals discussed at the September 

18–19, 2013 Committee meeting was 

November 15, 2013. The deadline for 

commenting on code proposals 

discussed at the March 19–20, 2014 

Committee meeting was April 18, 2014. 

H. Recalibration of the Proposed FY 

2015 MS–DRG Relative Weights 

1. Data Sources for Developing the 

Proposed Relative Weights 

In developing the proposed FY 2015 

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 2013 

MedPAR data used in this proposed rule 

include discharges occurring on October 

1, 2012, through September 30, 2013, 

based on bills received by CMS through 

December 31, 2013, from all hospitals 

subject to the IPPS and short-term, acute 

care hospitals in Maryland (which at 

that time were under a waiver from the 

IPPS under section 1814(b)(3) of the 

Act). The FY 2013 MedPAR file used in 

calculating the proposed relative 

weights includes data for approximately 

10,050,984 Medicare discharges from 

IPPS providers. Discharges for Medicare 

beneficiaries enrolled in a Medicare 

Advantage managed care plan are 

excluded from this analysis. These 

discharges are excluded when the 

MedPAR ‘‘GHO Paid’’ indicator field on 

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

the MedPAR DRG payment field, which 

represents the total payment for the 

claim, is equal to the MedPAR ‘‘Indirect 

Medical Education (IME)’’ payment 

field, indicating that the claim was an 

‘‘IME only’’ claim submitted by a 

teaching hospital on behalf of a 

beneficiary enrolled in a Medicare 

Advantage managed care plan. In 

addition, the December 31, 2013 update 

of the FY 2013 MedPAR file complies 

with version 5010 of the X12 HIPAA 

Transaction and Code Set Standards, 

and includes a variable called ‘‘claim 

type.’’ Claim type ‘‘60’’ indicates that 

the claim was an inpatient claim paid as 

fee-for-service. Claim types ‘‘61,’’ ‘‘62,’’ 

‘‘63,’’ and ‘‘64’’ relate to encounter 

claims, Medicare Advantage IME 

claims, and HMO no-pay claims. 

Therefore, the calculation of the 

proposed relative weights for FY 2015 

also excludes claims with claim type 

values not equal to ‘‘60.’’ The data 

exclude CAHs, including hospitals that 

subsequently became CAHs after the 

period from which the data were taken. 

We note that the FY 2015 proposed 

relative weights are based on the ICD– 

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28024 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

9–CM diagnoses and procedures codes 

from the MedPAR claims data, grouped 

through the ICD–9–CM version of the 

FY 2015 GROUPER (Version 32). The 

second data source used in the costbased relative weighting methodology is 

the Medicare cost report data files from 

the HCRIS. Normally, we use the HCRIS 

dataset that is 3 years prior to the IPPS 

fiscal year. Specifically, we used cost 

report data from the December 31, 2013 

update of the FY 2012 HCRIS for 

calculating the proposed FY 2015 costbased relative weights. 

2. Methodology for Calculation of the 

Proposed Relative Weights 

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

preamble of this proposed rule, we are 

calculating the proposed FY 2015 

relative weights based on 19 CCRs, as 

we did for FY 2014. The methodology 

we used to calculate the proposed FY 

2015 MS–DRG cost-based relative 

weights based on claims data in the FY 

2013 MedPAR file and data from the FY 

2012 Medicare cost reports is as follows: 

• To the extent possible, all the 

claims were regrouped using the 

proposed FY 2015 MS–DRG 

classifications discussed in sections II.B. 

and II.G. of the preamble of this 

proposed rule. 

• The transplant cases that were used 

to establish the proposed 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 2012 MedPAR 

file. (Medicare coverage for heart, heartlung, liver and/or intestinal, and lung 

transplants is limited to those facilities 

that have received approval from CMS 

as transplant centers.) 

• Organ acquisition costs for kidney, 

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

and intestinal (or multivisceral organs) 

transplants continue to be paid on a 

reasonable cost basis. Because these 

acquisition costs are paid separately 

from the prospective payment rate, it is 

necessary to subtract the acquisition 

charges from the total charges on each 

transplant bill that showed acquisition 

charges before computing the average 

cost for each MS–DRG and before 

eliminating statistical outliers. 

• Claims with total charges or total 

lengths of stay less than or equal to zero 

were deleted. Claims that had an 

amount in the total charge field that 

differed by more than $10.00 from the 

sum of the routine day charges, 

intensive care charges, pharmacy 

charges, special equipment charges, 

therapy services charges, operating 

room charges, cardiology charges, 

laboratory charges, radiology charges, 

other service charges, labor and delivery 

charges, inhalation therapy charges, 

emergency room charges, blood charges, 

and anesthesia charges were also 

deleted. 

• At least 92.2 percent of the 

providers in the MedPAR file had 

charges for 14 of the 19 cost centers. All 

claims of providers that did not have 

charges greater than zero for at least 14 

of the 19 cost centers were deleted. In 

other words, a provider must have no 

more than five blank cost centers. If a 

provider did not have charges greater 

than zero in more than five cost centers, 

the claims for the provider were deleted. 

(We refer readers to the FY 2014 IPPS/ 

LTCH PPS final rule (78 FR 50551) for 

the edit threshold related to FY 2014 

and prior fiscal years). 

• Statistical outliers were eliminated 

by removing all cases that were beyond 

3.0 standard deviations from the 

geometric mean of the log distribution 

of both the total charges per case and 

the total charges per day for each MS– 

DRG. 

• Effective October 1, 2008, because 

hospital inpatient claims include a POA 

indicator field for each diagnosis 

present on the claim, only for purposes 

of relative weight-setting, the POA 

indicator field was reset to ‘‘Y’’ for 

‘‘Yes’’ for all claims that otherwise have 

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

insufficient to determine if the 

condition was present at the time of 

inpatient admission) in the POA field. 

Under current payment policy, the 

presence of specific HAC codes, as 

indicated by the POA field values, can 

generate a lower payment for the claim. 

Specifically, if the particular condition 

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

indicator is associated with the 

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

and the hospital is paid for the higher 

severity (and, therefore, the higher 

weighted MS–DRG). If the particular 

condition is not present on admission 

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

with the diagnosis on the claim) and 

there are no other complicating 

conditions, the DRG GROUPER assigns 

the claim to a lower severity (and, 

therefore, the lower weighted MS–DRG) 

as a penalty for allowing a Medicare 

inpatient to contract a HAC. While the 

POA reporting meets policy goals of 

encouraging quality care and generates 

program savings, it presents an issue for 

the relative weight-setting process. 

Because cases identified as HACs are 

likely to be more complex than similar 

cases that are not identified as HACs, 

the charges associated with HAC cases 

are likely to be higher as well. 

Therefore, if the higher charges of these 

HAC claims are grouped into lower 

severity MS–DRGs prior to the relative 

weight-setting process, the relative 

weights of these particular MS–DRGs 

would become artificially inflated, 

potentially skewing the relative weights. 

In addition, we want to protect the 

integrity of the budget neutrality process 

by ensuring that, in estimating 

payments, no increase to the 

standardized amount occurs as a result 

of lower overall payments in a previous 

year that stem from using weights and 

case-mix that are based on lower 

severity MS–DRG assignments. If this 

would occur, the anticipated cost 

savings from the HAC policy would be 

lost. 

To avoid these problems, we reset the 

POA indicator field to ‘‘Y’’ only for 

relative weight-setting purposes for all 

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

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

‘‘forced’’ the more costly HAC claims 

into the higher severity MS–DRGs as 

appropriate, and the relative weights 

calculated for each MS–DRG more 

closely reflect the true costs of those 

cases. 

Once the MedPAR data were trimmed 

and the statistical outliers were 

removed, the charges for each of the 19 

cost groups for each claim were 

standardized to remove the effects of 

differences in area wage levels, IME and 

DSH payments, and for hospitals 

located in Alaska and Hawaii, the 

applicable cost-of-living adjustment. 

Because hospital charges include 

charges for both operating and capital 

costs, we standardized total charges to 

remove the effects of differences in 

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

under the capital IPPS as well. Charges 

were then summed by MS–DRG for each 

of the 19 cost groups so that each MS– 

DRG had 19 standardized charge totals. 

These charges were then adjusted to 

cost by applying the national average 

CCRs developed from the FY 2012 cost 

report data. 

The 19 cost centers that we used in 

the proposed relative weight calculation 

are shown in the following table. The 

table shows the lines on the cost report 

and the corresponding revenue codes 

that we used to create the 19 national 

cost center CCRs. 

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Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 28025 

Cost center group 

name 

(19 total) 

MedPAR charge 

field 

Revenue codes 

contained in 

MedPAR charge 

field 

Cost report line 

description 

Cost from 

HCRIS 

(Worksheet C, 

Part 1, Column 

5 and line number) Form CMS– 

2552–10 

Charges from 

HCRIS 

(Worksheet C, 

Part 1, Column 

6 & 7 and line 

number) Form 

CMS–2552–10 

Medicare 

charges from 

HCRIS 

(Worksheet D–3, 

Column & line 

number) Form 

CMS–2552–10 

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

Charges.

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

(General Routine 

Care).

C_1_C5_30 C_1_C6_30 D3_HOS_C2_30 

Semi-Private Room 

Charges.

012X, 013X and 

016X–019X 

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

Intensive Days ....... Intensive Care 

Charges.

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

Coronary Care 

Charges.

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

Burn Intensive Care 

Unit.

C_1_C5_33 C_1_C6_33 D3_HOS_C2_33 

Surgical Intensive 

Care Unit.

C_1_C5_34 C_1_C6_34 D3_HOS_C2_34 

Other Special Care 

Unit.

C_1_C5_35 C_1_C6_35 D3_HOS_C2_35 

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

063X.

Intravenous Therapy.C_1_C5_64 C_1_C6_64 

C_1_C7_64 

D3_HOS_C2_64 

Drugs Charged To 

Patient.

C_1_C5_73 C_1_C6_73 

C_1_C7_73 

D3_HOS_C2_73 

Supplies and Equipment.Medical/Surgical 

Supply Charges.

0270, 0271, 0272, 

0273, 0274, 

0277, 0279, and 

0621, 0622, 0623.

Medical Supplies 

Charged to Patients.

C_1_C5_71 C_1_C6_71 

C_1_C7_71 

D3_HOS_C2_71 

Durable Medical 

Equipment 

Charges.

0290, 0291, 0292 

and 0294–0299.

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

C_1_C7_96 

D3_HOS_C2_96 

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

C_1_C7_97 

D3_HOS_C2_97 

Implantable Devices ................................ 0275, 0276, 0278, 

0624.

Implantable Devices 

Charged to Patients.

C_1_C5_72 C_1_C6_72 

C_1_C7_72 

D3_HOS_C2_72 

Therapy Services ... Physical Therapy 

Charges.

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

C_1_C7_66 

D3_HOS_C2_66 

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

C_1_C7_67 

D3_HOS_C2_67 

Speech Pathology 

Charges.

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

C_1_C7_68 

D3_HOS_C2_68 

Inhalation Therapy Inhalation Therapy 

Charges.

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

C_1_C7_65 

D3_HOS_C2_65 

Operating Room .... Operating Room 

Charges.

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

C_1_C7_50 

D3_HOS_C2_50 

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

C_1_C7_51 

D3_HOS_C2_51 

Labor & Delivery .... Operating Room 

Charges.

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

Labor Room.

C_1_C5_52 C_1_C6_52 

C_1_C7_52 

D3_HOS_C2_52 

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

C_1_C7_53 

D3_HOS_C2_53 

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

C_1_C7_69 

D3_HOS_C2_69 

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

C_1_C7_59 

D3_HOS_C2_59 

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

075X.

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

C_1_C7_60 

D3_HOS_C2_60 

PBP Clinic Laboratory Services.C_1_C5_61 C_1_C6_61 

C_1_C7_61 

D3_HOS_C2_61 

074X, 086X ............ Electro-Encephalography.C_1_C5_70 C_1_C6_70 

C_1_C7_70 

D3_HOS_C2_70 

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

C_1_C7_54 

D3_HOS_C2_54 

028x, 0331, 0332, 

0333, 0335, 

0339, 0342.

Radiology—Therapeutic.C_1_C5_55 C_1_C6_55 D3_HOS_C2_55 

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

C_1_C7_56 

D3_HOS_C2_56 

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

C_1_C7_57 

D3_HOS_C2_57 

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28026 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

Cost center group 

name 

(19 total) 

MedPAR charge 

field 

Revenue codes 

contained in 

MedPAR charge 

field 

Cost report line 

description 

Cost from 

HCRIS 

(Worksheet C, 

Part 1, Column 

5 and line number) Form CMS– 

2552–10 

Charges from 

HCRIS 

(Worksheet C, 

Part 1, Column 

6 & 7 and line 

number) Form 

CMS–2552–10 

Medicare 

charges from 

HCRIS 

(Worksheet D–3, 

Column & line 

number) Form 

CMS–2552–10 

Magnetic Resonance Imaging 

(MRI).

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

(MRI).

C_1_C5_58 C_1_C6_58 

C_1_C7_58 

D3_HOS_C2_58 

Emergency Room .. Emergency Room 

Charges.

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

C_1_C7_91 

D3_HOS_C2_91 

Blood and Blood 

Products.

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

Packed Red 

Blood Cells.

C_1_C5_62 C_1_C6_62 

C_1_C7_62 

D3_HOS_C2_62 

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

Transfusing.

C_1_C5_63 C_1_C6_63 

C_1_C7_63 

D3_HOS_C2_63 

Other Services ....... Other Service 

Charge.

0002–0099, 022X, 

023X, 024X, 

052X, 053X.

055X–060X, 064X– 

070X, 076X– 

078X, 090X– 

095X and 099X.

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

ESRD Revenue 

Setting Charges.

080X and 082X– 

088X.

................................ ........................... C_1_C7_74 

Home Program Dialysis.C_1_C5_94 C_1_C6_94 

C_1_C7_94 

D3_HOS_C2_94 

Outpatient Service 

Charges.

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

Part).

C_1_C5_75 C_1_C6_75 D3_HOS_C2_75 

Lithotripsy Charge .. 079X ...................... ................................ ........................... C_1_C7_75 

Other Ancillary ....... C_1_C5_76 C_1_C6_76 

C_1_C7_76 

D3_HOS_C2_76 

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

C_1_C7_90 

D3_HOS_C2_90 

Observation beds ... C_1_C5_92.01 C_1_C6_92.01 

C_1_C7_92.01 

D3_HOS_C2_

92.01 

Professional Fees 

Charges.

096X, 097X, and 

098X.

Other Outpatient 

Services.

C_1_C5_93 C_1_C6_93 

C_1_C7_93 

D3_HOS_C2_93 

Ambulance 

Charges.

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

C_1_C7_95 

D3_HOS_C2_95 

Rural Health Clinic C_1_C5_88 C_1_C6_88 

C_1_C7_88 

D3_HOS_C2_88 

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

C_1_C7_89 

D3_HOS_C2_89 

We refer readers to the FY 2009 IPPS/ 

LTCH PPS final rule (73 FR 48462) for 

a discussion on the revenue codes 

included in the Supplies and 

Equipment and Implantable Devices 

CCRs, respectively. 

3. Development of National Average 

CCRs 

We developed the national average 

CCRs as follows: 

Using the FY 2012 cost report data, 

we removed CAHs, Indian Health 

Service hospitals, all-inclusive rate 

hospitals, and cost reports that 

represented time periods of less than 1 

year (365 days). We included hospitals 

located in Maryland because we include 

their charges in our claims database. We 

then created CCRs for each provider for 

each cost center (see prior table for line 

items used in the calculations) and 

removed any CCRs that were greater 

than 10 or less than 0.01. We 

normalized the departmental CCRs by 

dividing the CCR for each department 

by the total CCR for the hospital for the 

purpose of trimming the data. We then 

took the logs of the normalized cost 

center CCRs and removed any cost 

center CCRs where the log of the cost 

center CCR was greater or less than the 

mean log plus/minus 3 times the 

standard deviation for the log of that 

cost center CCR. Once the cost report 

data were trimmed, we calculated a 

Medicare-specific CCR. The Medicarespecific CCR was determined by taking 

the Medicare charges for each line item 

from Worksheet D–3 and deriving the 

Medicare-specific costs by applying the 

hospital-specific departmental CCRs to 

the Medicare-specific charges for each 

line item from Worksheet D–3. Once 

each hospital’s Medicare-specific costs 

were established, we summed the total 

Medicare-specific costs and divided by 

the sum of the total Medicare-specific 

charges to produce national average, 

charge-weighted CCRs. 

After we multiplied the total charges 

for each MS–DRG in each of the 19 cost 

centers by the corresponding national 

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

across each MS–DRG to produce a total 

standardized cost for the MS–DRG. The 

average standardized cost for each MS– 

DRG was then computed as the total 

standardized cost for the MS–DRG 

divided by the transfer-adjusted case 

count for the MS–DRG. The average cost 

for each MS–DRG was then divided by 

the national average standardized cost 

per case to determine the relative 

weight. 

The proposed FY 2015 cost-based 

relative weights were then normalized 

by an adjustment factor of 1.642112 so 

that the average case weight after 

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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 proposed 19 national average 

CCRs for FY 2015 are as follows: 

Group CCR 

Routine Days .................................... 0.483 

Intensive Days .................................. 0.405 

Drugs ................................................ 0.191 

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

Implantable Devices ......................... 0.355 

Therapy Services .............................. 0.345 

Laboratory ......................................... 0.128 

Operating Room ............................... 0.212 

Cardiology ......................................... 0.124 

Cardiac Catheterization .................... 0.131 

Radiology .......................................... 0.164 

MRIs ................................................. 0.086 

CT Scans .......................................... 0.043 

Emergency Room ............................. 0.197 

Blood and Blood Products ................ 0.360 

Other Services .................................. 0.398 

Labor & Delivery ............................... 0.393 

Inhalation Therapy ............................ 0.182 

Anesthesia ........................................ 0.115 

Since FY 2009, the relative weights 

have been based on 100 percent cost 

weights based on our MS–DRG grouping 

system. 

When we recalibrated the DRG 

weights for previous years, we set a 

threshold of 10 cases as the minimum 

number of cases required to compute a 

reasonable weight. In this FY 2015 

IPPS/LTCH PPS proposed rule, we are 

proposing to use that same case 

threshold in recalibrating the proposed 

MS–DRG relative weights for FY 2015. 

Using data from the FY 2013 MedPAR 

file, there were 8 MS–DRGs that contain 

fewer than 10 cases. Under the MS– 

DRGs, we have fewer low-volume DRGs 

than under the CMS DRGs because we 

no longer have separate DRGs for 

patients aged 0 to 17 years. With the 

exception of newborns, we previously 

separated some DRGs based on whether 

the patient was age 0 to 17 years or age 

17 years and older. Other than the age 

split, cases grouping to these DRGs are 

identical. The DRGs for patients aged 0 

to 17 years generally have very low 

volumes because children are typically 

ineligible for Medicare. In the past, we 

have found that the low volume of cases 

for the pediatric DRGs could lead to 

significant year-to-year instability in 

their relative weights. Although we have 

always encouraged non-Medicare payers 

to develop weights applicable to their 

own patient populations, we have 

received frequent complaints from 

providers about the use of the Medicare 

relative weights in the pediatric 

population. We believe that eliminating 

this age split in the MS–DRGs will 

provide more stable payment for 

pediatric cases by determining their 

payment using adult cases that are 

much higher in total volume. Newborns 

are unique and require separate MS– 

DRGs that are not mirrored in the adult 

population. Therefore, it remains 

necessary to retain separate MS–DRGs 

for newborns. All of the low-volume 

MS–DRGs listed below are for 

newborns. In FY 2015, because we do 

not have sufficient MedPAR data to set 

accurate and stable cost relative weights 

for these low-volume MS–DRGs, we are 

proposing to compute relative weights 

for the low-volume MS–DRGs by 

adjusting their final FY 2014 relative 

weights by the percentage change in the 

average weight of the cases in other MS– 

DRGs. The crosswalk table is shown 

below: 

Low-volume 

MS–DRG MS–DRG title Crosswalk to MS–DRG 

768 ............... Vaginal Delivery with O.R. Procedure Except Sterilization and/or D&C.Final FY 2014 relative weight (adjusted by percent change in average weight of the 

cases in other MS–DRGs). 

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

Acute Care Facility.

Final FY 2014 relative weight (adjusted by percent change in average weight of the 

cases in other MS–DRGs). 

790 ............... Extreme Immaturity or Respiratory Distress Syndrome, Neonate.Final FY 2014 relative weight (adjusted by percent change in average weight of the 

cases in other MS–DRGs). 

791 ............... Prematurity with Major Problems .............. Final FY 2014 relative weight (adjusted by percent change in average weight of the 

cases in other MS–DRGs). 

792 ............... Prematurity without Major Problems ......... Final FY 2014 relative weight (adjusted by percent change in average weight of the 

cases in other MS–DRGs). 

793 ............... Full-Term Neonate with Major Problems .. Final FY 2014 relative weight (adjusted by percent change in average weight of the 

cases in other MS–DRGs). 

794 ............... Neonate with Other Significant Problems Final FY 2014 relative weight (adjusted by percent change in average weight of the 

cases in other MS–DRGs). 

795 ............... Normal Newborn ....................................... Final FY 2014 relative weight (adjusted by percent change in average weight of the 

cases in other MS–DRGs). 

4. Bundled Payments for Care 

Improvement (BPCI) Initiative 

The Bundled Payments for Care 

Improvement (BPCI) initiative, 

developed under the authority of 

section 3021 of the Affordable Care Act 

(codified at section 1115A of the Act), 

is comprised of four broadly defined 

models of care, which link payments for 

multiple services beneficiaries receive 

during an episode of care. Under the 

BPCI initiative, organizations enter into 

payment arrangements that include 

financial and performance 

accountability for episodes of care. On 

January 31, 2013, CMS announced the 

health care organizations selected to 

participate in the BPCI initiative. For 

additional information on the BPCI 

initiative, we refer readers to the CMS’ 

Center for Medicare and Medicaid 

Innovation’s Web site at http://

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

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

IPPS/LTCH PPS final rule (77 FR 53341 

through 53343) for a discussion on the 

BPCI initiative. 

In the FY 2013 IPPS/LTCH PPS final 

rule, for FY 2013 and subsequent fiscal 

years, we finalized a policy to treat 

hospitals that participate in the BPCI 

initiative the same as prior fiscal years 

for the IPPS payment modeling and 

ratesetting process without regard to a 

hospital’s participation within these 

bundled payment models (that is, as if 

a hospital were not participating in 

those models under the BPCI initiative). 

Therefore, for FY 2015, we are 

proposing to continue to include all 

applicable data from subsection (d) 

hospitals participating in BPCI Models 

1, 2, and 4 in our IPPS payment 

modeling and ratesetting calculations. 

We refer readers to the FY 2013 IPPS/ 

LTCH PPS final rule for a complete 

discussion on our final policy for the 

treatment of hospitals participating in 

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28028 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

the BPCI initiative in our ratesetting 

process. 

I. Proposed Add-On Payments for New 

Services and Technologies 

1. Background 

Sections 1886(d)(5)(K) and (L) of the 

Act establish a process of identifying 

and ensuring adequate payment for new 

medical services and technologies 

(sometimes collectively referred to in 

this section as ‘‘new technologies’’) 

under the IPPS. Section 

1886(d)(5)(K)(vi) of the Act specifies 

that a medical service or technology will 

be considered new if it meets criteria 

established by the Secretary after notice 

and opportunity for public comment. 

Section 1886(d)(5)(K)(ii)(I) of the Act 

specifies that a new medical service or 

technology may be considered for new 

technology add-on payment if, ‘‘based 

on the estimated costs incurred with 

respect to discharges involving such 

service or technology, the DRG 

prospective payment rate otherwise 

applicable to such discharges under this 

subsection is inadequate.’’ We note that 

beginning with discharges occurring in 

FY 2008, CMS transitioned from CMS– 

DRGs to MS–DRGs. 

The regulations at 42 CFR 412.87 

implement these provisions and specify 

three criteria for a new medical service 

or technology to receive the additional 

payment: (1) The medical service or 

technology must be new; (2) the medical 

service or technology must be costly 

such that the DRG rate otherwise 

applicable to discharges involving the 

medical service or technology is 

determined to be inadequate; and (3) the 

service or technology must demonstrate 

a substantial clinical improvement over 

existing services or technologies. Below 

we highlight some of the major statutory 

and regulatory provisions relevant to the 

new technology add-on payment criteria 

as well as other information. For a 

complete discussion on the new 

technology add-on payment criteria, we 

refer readers to the FY 2012 IPPS/LTCH 

PPS final rule (76 FR 51572 through 

51574). 

Under the first criterion, as reflected 

in § 412.87(b)(2), a specific medical 

service or technology will be considered 

‘‘new’’ for purposes of new medical 

service or technology add-on payments 

until such time as Medicare data are 

available to fully reflect the cost of the 

technology in the MS–DRG weights 

through recalibration. We note that we 

do not consider a service or technology 

to be new if it is substantially similar to 

one or more existing technologies. That 

is, even if a technology receives a new 

FDA approval, it may not necessarily be 

considered ‘‘new’’ for purposes of new 

technology add-on payments if it is 

‘‘substantially similar’’ to a technology 

that was approved by FDA and has been 

on the market for more than 2 to 3 years. 

In the FY 2006 IPPS final rule (70 FR 

47351) and the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 43813 and 

43814), we explained our policy 

regarding substantial similarity in 

detail. 

Under the second criterion, 

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

be eligible for the add-on payment for 

new medical services or technologies, 

the MS–DRG prospective payment rate 

otherwise applicable to the discharge 

involving the new medical services or 

technologies must be assessed for 

adequacy. Under the cost criterion, to 

assess the adequacy of payment for a 

new technology paid under the 

applicable MS–DRG prospective 

payment rate, we evaluate whether the 

charges for cases involving the new 

technology exceed certain threshold 

amounts. Table 10 that was released 

with the FY 2014 IPPS/LTCH PPS final 

rule contains the final thresholds that 

we use to evaluate applications for new 

technology add-on payments for FY 

2015. We refer readers to the CMS Web 

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

Medicare-Fee-for-Service-Payment/

AcuteInpatientPPS/FY2014-IPPS-FinalRule-Home-Page.html for a complete 

viewing of Table 10 from the FY 2014 

IPPS/LTCH PPS final rule. 

In the September 7, 2001 final rule 

that established the new technology 

add-on payment regulations (66 FR 

46917), we discussed the issue of 

whether the Health Insurance 

Portability and Accountability Act 

(HIPAA) Privacy Rule at 45 CFR Parts 

160 and 164 applies to claims 

information that providers submit with 

applications for new technology add-on 

payments. We refer readers to the FY 

2012 IPPS/LTCH PPS final rule (76 FR 

51573) for complete information on this 

issue. 

Under the third criterion, 

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

provides that a new technology is an 

appropriate candidate for an additional 

payment when it represents ‘‘an 

advance that substantially improves, 

relative to technologies previously 

available, the diagnosis or treatment of 

Medicare beneficiaries.’’ For example, a 

new technology represents a substantial 

clinical improvement when it reduces 

mortality, decreases the number of 

hospitalizations or physician visits, or 

reduces recovery time compared to the 

technologies previously available. (We 

refer readers to the September 7, 2001 

final rule for a more detailed discussion 

of this criterion (66 FR 46902).) 

The new medical service or 

technology add-on payment policy 

under the IPPS provides additional 

payments for cases with relatively high 

costs involving eligible new medical 

services or technologies while 

preserving some of the incentives 

inherent under an average-based 

prospective payment system. The 

payment mechanism is based on the 

cost to hospitals for the new medical 

service or technology. Under § 412.88, if 

the costs of the discharge (determined 

by applying cost-to-charge ratios (CCRs) 

as described in § 412.84(h)) exceed the 

full DRG payment (including payments 

for IME and DSH, but excluding outlier 

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

percent of the estimated costs of the 

new technology (if the estimated costs 

for the case including the new 

technology exceed Medicare’s payment); 

or (2) 50 percent of the difference 

between the full DRG payment and the 

hospital’s estimated cost for the case. 

Unless the discharge qualifies for an 

outlier payment, the additional 

Medicare payment is limited to the full 

MS–DRG payment plus 50 percent of 

the estimated costs of the new 

technology. 

Section 503(d)(2) of Public Law 108– 

173 provides that there shall be no 

reduction or adjustment in aggregate 

payments under the IPPS due to add-on 

payments for new medical services and 

technologies. Therefore, in accordance 

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

108–173, add-on payments for new 

medical services or technologies for FY 

2005 and later years have not been 

subjected to budget neutrality. 

In the FY 2009 IPPS final rule (73 FR 

48561 through 48563), we modified our 

regulations at § 412.87 to codify our 

longstanding practice of how CMS 

evaluates the eligibility criteria for new 

medical service or technology add-on 

payment applications. That is, we first 

determine whether a medical service or 

technology meets the newness criterion, 

and only if so, do we then make a 

determination as to whether the 

technology meets the cost threshold and 

represents a substantial clinical 

improvement over existing medical 

services or technologies. We also 

amended § 412.87(c) to specify that all 

applicants for new technology add-on 

payments must have FDA approval or 

clearance for their new medical service 

or technology by July 1 of each year 

prior to the beginning of the fiscal year 

that the application is being considered. 

The Council on Technology and 

Innovation (CTI) at CMS oversees the 

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agency’s cross-cutting priority on 

coordinating coverage, coding and 

payment processes for Medicare with 

respect to new technologies and 

procedures, including new drug 

therapies, as well as promoting the 

exchange of information on new 

technologies between CMS and other 

entities. The CTI, composed of senior 

CMS staff and clinicians, was 

established under section 942(a) of 

Public Law 108–173. The Council is cochaired by the Director of the Center for 

Clinical Standards and Quality (CCSQ) 

and the Director of the Center for 

Medicare (CM), who is also designated 

as the CTI’s Executive Coordinator. 

The specific processes for coverage, 

coding, and payment are implemented 

by CM, CCSQ, and the local claimspayment contractors (in the case of local 

coverage and payment decisions). The 

CTI supplements, rather than replaces, 

these processes by working to assure 

that all of these activities reflect the 

agency-wide priority to promote highquality, innovative care. At the same 

time, the CTI also works to streamline, 

accelerate, and improve coordination of 

these processes to ensure that they 

remain up to date as new issues arise. 

To achieve its goals, the CTI works to 

streamline and create a more 

transparent coding and payment 

process, improve the quality of medical 

decisions, and speed patient access to 

effective new treatments. It is also 

dedicated to supporting better decisions 

by patients and doctors in using 

Medicare-covered services through the 

promotion of better evidence 

development, which is critical for 

improving the quality of care for 

Medicare beneficiaries. 

To improve the understanding of 

CMS’ processes for coverage, coding, 

and payment and how to access them, 

the CTI has developed an ‘‘Innovator’s 

Guide’’ to these processes. The intent is 

to consolidate this information, much of 

which is already available in a variety 

of CMS documents and in various 

places on the CMS Web site, in a userfriendly format. This guide was 

published in August 2008 and is 

available on the CMS Web site at: 

http://www.cms.gov/CouncilonTech

Innov/Downloads/InnovatorsGuide5_

10_10.pdf. 

As we indicated in the FY 2009 IPPS 

final rule (73 FR 48554), we invite any 

product developers or manufacturers of 

new medical technologies to contact the 

agency early in the process of product 

development if they have questions or 

concerns about the evidence that would 

be needed later in the development 

process for the agency’s coverage 

decisions for Medicare. 

The CTI aims to provide useful 

information on its activities and 

initiatives to stakeholders, including 

Medicare beneficiaries, advocates, 

medical product manufacturers, 

providers, and health policy experts. 

Stakeholders with further questions 

about Medicare’s coverage, coding, and 

payment processes, or who want further 

guidance about how they can navigate 

these processes, can contact the CTI at 

CTI@cms.hhs.gov. 

We note that applicants for add-on 

payments for new medical services or 

technologies for FY 2016 must submit a 

formal request, including a full 

description of the clinical applications 

of the medical service or technology and 

the results of any clinical evaluations 

demonstrating that the new medical 

service or technology represents a 

substantial clinical improvement, along 

with a significant sample of data to 

demonstrate that the medical service or 

technology meets the high-cost 

threshold. Complete application 

information, along with final deadlines 

for submitting a full application, will be 

posted as it becomes available on the 

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

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

newtech.html. To allow interested 

parties to identify the new medical 

services or technologies under review 

before the publication of the proposed 

rule for FY 2016, the CMS Web site also 

will post the tracking forms completed 

by each applicant. 

2. Public Input Before Publication of a 

Notice of Proposed Rulemaking on AddOn Payments 

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

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

Public Law 108–173, provides for a 

mechanism for public input before 

publication of a notice of proposed 

rulemaking regarding whether a medical 

service or technology represents a 

substantial clinical improvement or 

advancement. The process for 

evaluating new medical service and 

technology applications requires the 

Secretary to— 

• Provide, before publication of a 

proposed rule, for public input 

regarding whether a new service or 

technology represents an advance in 

medical technology that substantially 

improves the diagnosis or treatment of 

Medicare beneficiaries; 

• Make public and periodically 

update a list of the services and 

technologies for which applications for 

add-on payments are pending; 

• Accept comments, 

recommendations, and data from the 

public regarding whether a service or 

technology represents a substantial 

clinical improvement; and 

• Provide, before publication of a 

proposed rule, for a meeting at which 

organizations representing hospitals, 

physicians, manufacturers, and any 

other interested party may present 

comments, recommendations, and data 

regarding whether a new medical 

service or technology represents a 

substantial clinical improvement to the 

clinical staff of CMS. 

In order to provide an opportunity for 

public input regarding add-on payments 

for new medical services and 

technologies for FY 2015 prior to 

publication of the FY 2015 IPPS/LTCH 

PPS proposed rule, we published a 

notice in the Federal Register on 

November 29, 2013 (78 FR 71555 

through 71557), and held a town hall 

meeting at the CMS Headquarters Office 

in Baltimore, MD, on February 12, 2014. 

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 2015 new medical service and 

technology add-on payment 

applications before the publication of 

the FY 2015 proposed rule. 

Approximately 91 individuals 

registered to attend the town hall 

meeting in person, while additional 

individuals listened over an open 

telephone line. We also live-streamed 

the town hall meeting and posted the 

town hall on the CMS YouTube Web 

page at: http://www.youtube.com/

watch?v=WXyR_TILfKo&list=TLiu1B_

AxXsinTW6EEn4BVUdR4iEM61eV4. 

We considered each applicant’s 

presentation made at the town hall 

meeting, as well as written comments 

submitted on the applications that were 

received by the due date of January 21, 

2014, in our evaluation of the new 

technology add-on payment 

applications for FY 2015 in this 

proposed rule. 

In response to the published notice 

and the New Technology Town Hall 

meeting, we received written comments 

regarding the applications for FY 2015 

new technology add-on payments. We 

summarize these comments below or, if 

applicable, indicate that there were no 

comments received, at the end of each 

discussion of the individual 

applications in this proposed rule. 

A number of attendees at the New 

Technology Town Hall meeting 

provided comments that were unrelated 

to the ‘‘substantial clinical 

improvement’’ criterion. As explained 

above and in the Federal Register notice 

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announcing the New Technology Town 

Hall meeting (78 FR 71555 through 

71557), the purpose of the meeting was 

specifically to discuss the substantial 

clinical improvement criterion in regard 

to pending new technology add-on 

payment applications for FY 2015. 

Therefore, we are not summarizing 

those comments in this proposed rule. 

Commenters are welcome to resubmit 

these comments in response to 

proposals presented in this proposed 

rule. 

3. FY 2015 Status of Technologies 

Approved for FY 2014 Add-On 

Payments 

a. Glucarpidase (Trade Brand 

Voraxaze®) 

BTG International, Inc. submitted an 

application for new technology add-on 

payments for Glucarpidase (trade brand 

Voraxaze®) for FY 2013. Glucarpidase is 

used in the treatment of patients who 

have been diagnosed with toxic 

methotrexate (MTX) concentrations as 

of result of renal impairment. The 

administration of Glucarpidase causes a 

rapid and sustained reduction of toxic 

MTX concentrations. 

Voraxaze® was approved by the FDA 

on January 17, 2012. Beginning in 1993, 

certain patients could obtain expanded 

access for treatment use to Voraxaze® as 

an investigational drug. Since 2007, the 

applicant has been authorized to recover 

the costs of making Voraxaze® available 

through its expanded access program. 

We describe expanded access for 

treatment use of investigational drugs 

and authorization to recover certain 

costs of investigational drugs in the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53346 through 53350). Voraxaze® was 

available on the market in the United 

States as a commercial product to the 

larger population as of April 30, 2012. 

In the FY 2013 IPPS/LTCH PPS 

proposed rule (77 FR 27936 through 

27939), we expressed concerns about 

whether Voraxaze® could be considered 

new for FY 2013. After consideration of 

all of the public comments received, in 

the FY 2013 IPPS/LTCH PPS final rule, 

we stated that we considered Voraxaze®

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

is the date of market availability. 

After evaluation of the newness, costs, 

and substantial clinical improvement 

criteria for new technology payments for 

Voraxaze® and consideration of the 

public comments we received in 

response to the FY 2013 IPPS/LTCH 

PPS proposed rule, we approved 

Voraxaze® for new technology add-on 

payments for FY 2013. Cases of 

Voraxaze® are identified with ICD–9– 

CM procedure code 00.95 (Injection or 

infusion of glucarpidase). The cost of 

Voraxaze® is $22,500 per vial. The 

applicant stated that an average of four 

vials is used per Medicare beneficiary. 

Therefore, the average cost per case for 

Voraxaze® is $90,000 ($22,500 × 4). 

Under § 412.88(a)(2), new technology 

add-on payments are limited to the 

lesser of 50 percent of the average cost 

of the technology or 50 percent of the 

costs in excess of the MS–DRG payment 

for the case. As a result, the maximum 

new technology add-on payment for 

Voraxaze® is $45,000 per case. 

As stated above, the new technology 

add-on payment regulations provide 

that ‘‘a medical service or technology 

may be considered new within 2 or 3 

years after the point at which data begin 

to become available reflecting the ICD– 

9–CM code assigned to the new service 

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

practice has been to begin and end new 

technology add-on payments on the 

basis of a fiscal year, and we have 

generally followed a guideline that uses 

a 6-month window before and after the 

start of the fiscal year to determine 

whether to extend the new technology 

add-on payment for an additional fiscal 

year. In general, we extend add-on 

payments for an additional year only if 

the 3-year anniversary date of the 

product’s entry on the market occurs in 

the latter half of the fiscal year (70 FR 

47362). 

With regard to the newness criterion 

for Voraxaze®, as stated above, we 

consider the beginning of the newness 

period to commence when Voraxaze®

was first available on the market on 

April 30, 2012. Because the 3-year 

anniversary date for Voraxaze® will 

occur in the latter half of FY 2015 (April 

30, 2015), we are proposing to continue 

new technology add-on payments for 

this technology for FY 2015. We are 

inviting public comments on this 

proposal. 

b. DIFICIDTM (Fidaxomicin) Tablets 

Optimer Pharmaceuticals, Inc. 

submitted an application for new 

technology add-on payments for FY 

2013 for the use of DIFICIDTM tablets. 

As indicated on the labeling submitted 

to the FDA, the applicant noted that 

Fidaxomicin is taken twice a day as a 

daily dosage (200 mg tablet twice daily 

= 400 mg per day) as an oral antibiotic. 

The applicant asserted that Fidaxomicin 

provides potent bactericidal activity 

against C. Diff., and moderate 

bactericidal activity against certain 

other gram-positive organisms, such as 

enterococcus and staphylococcus. 

Unlike other antibiotics used to treat 

CDAD, the applicant noted that the 

effects of Fidaxomicin preserve 

bacteroides organisms in the fecal flora. 

These are markers of normal anaerobic 

microflora. The applicant asserted that 

this helps prevent pathogen 

introduction or persistence, which 

potentially inhibits the re-emergence of 

C. Diff., and reduces the likelihood of 

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

this narrow spectrum of activity, the 

applicant asserted that Fidaxomicin 

does not alter this native intestinal 

microflora. 

In the FY 2013 IPPS/LTCH PPS 

proposed rule (77 FR 27939 through 

27941), we expressed concern that 

DIFICIDTM may not be eligible for new 

technology add-on payments because 

eligibility is limited to new technologies 

associated with procedures described by 

ICD–9–CM codes. We further stated that 

drugs that are only taken orally (such as 

DIFICIDTM) may not be eligible for 

consideration for new technology addon payments because there is no 

procedure associated with these drugs 

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

the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53350 through 53358), after 

consideration of the public comments 

received, we revised our policy to allow 

the use of National Drug Codes (NDCs) 

to identify oral medications that have no 

inpatient procedure for the purposes of 

new technology add-on payments. The 

revised policy is effective for payments 

for discharges occurring on or after 

October 1, 2012. We refer readers to the 

FY 2013 IPPS/LTCH PPS final rule for 

a complete discussion on this issue. 

With regard to the newness criterion, 

Fidaxomicin was approved by the FDA 

on May 27, 2011, for the treatment of 

CDAD in adult patients, 18 years of age 

and older. In the FY 2013 IPPS/LTCH 

PPS final rule, we established that the 

beginning of the newness period for this 

technology is its FDA approval date of 

May 27, 2011. 

After evaluation of the newness, costs, 

and substantial clinical improvement 

criteria for new technology add-on 

payments for DIFICIDTM and 

consideration of the public comments 

we received in response to the FY 2013 

IPPS/LTCH PPS proposed rule, we 

approved DIFICIDTM for new technology 

add-on payments for FY 2013. Cases of 

DIFICIDTM are identified with ICD–9– 

CM diagnosis code 008.45 (Intestinal 

infection due to Clostridium difficile) in 

combination with NDC code 52015– 

0080–01. Providers must report the NDC 

on the 837i Health Care Claim 

Institutional form (in combination with 

ICD–9–CM diagnosis code 008.45) in 

order to receive the new technology 

add-on payment. According to the 

applicant, the cost of DIFICIDTM is 

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

cost per day for DIFICIDTM is $280 

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

the inpatient setting typically incur an 

average dosage of 6.2 days, which 

results in an average cost per case for 

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

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

payments are limited to the lesser of 50 

percent of the average cost of the 

technology or 50 percent of the costs in 

excess of the MS–DRG payment for the 

case. As a result, the maximum new 

technology add-on payment for 

DIFICIDTM is $868. 

As stated above, the new technology 

add-on payment regulations provide 

that ‘‘a medical service or technology 

may be considered new within 2 or 3 

years after the point at which data begin 

to become available reflecting the ICD– 

9–CM code assigned to the new service 

or technology’’ (§ 412.87(b)(2)). 

The manufacturer commented 

through a letter to CMS, prior to the 

publication of this proposed rule, 

requesting that CMS extend the 

eligibility for a third year of new 

technology add-on payments for 

DIFICIDTM in FY 2015. The 

manufacturer maintained that the 

technology still meets all three criteria 

for new technology add-on payments. 

Regarding the substantial clinical 

improvement criterion, the applicant 

stated that DIFICIDTM continues to 

remain the only FDA-approved 

treatment to demonstrate substantial 

clinical improvement over existing 

therapies. No new treatments for CDAD 

have been approved by the FDA since 

DIFICIDTM. The applicant further stated 

that a third year of new technology addon payments for DIFICIDTM would 

continue to reduce access barriers in the 

acute care hospital inpatient setting, 

which would support the appropriate 

use of DIFICIDTM, a treatment that offers 

a substantial clinical improvement over 

existing therapies. 

With respect to the cost criterion, the 

applicant stated that DIFICIDTM

continues to meet the cost criterion. 

Using claims data from the FY 2012 

MedPAR file, the applicant provided 

updated data from the two analyses 

described in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53350 through 

53358), and demonstrated that the 

average case-weighted standardized 

charge per case exceeded the average 

case-weighted thresholds under both 

analyses. The applicant stated that the 

new technology add-on payment is 

intended to offer additional payments to 

support patient access and appropriate 

use of new technologies for a period of 

time until the MS–DRGs are adjusted to 

reflect the cost of the new technology. 

The applicant believed that the analyses 

conducted with the most recent 

MedPAR claims data available 

demonstrate that the MS–DRG 

recalibrations are insufficient to 

accommodate the cost associated with 

CDAD and new technologies to treat 

CDAD under the IPPS within the 

allotted timeframe of 2 years. According 

to the applicant, these payment amounts 

remain an obstacle for the appropriate 

use of new technologies for CDAD that 

demonstrate substantial clinical 

improvement over existing treatments, 

such as DIFICIDTM. The applicant 

concluded that a third year of new 

technology add-on payments for 

DIFICIDTM is needed to allow sufficient 

data for future MS–DRG recalibration 

analyses. 

With regard to newness criterion, the 

manufacturer commented that it 

believed that the technology still meets 

the newness criterion for the following 

reason: § 412.87(b)(2) states 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 International 

Classification of Diseases, Ninth 

Revision, Clinical Modification (ICD–9– 

CM) code assigned to the new service or 

technology (depending on when a new 

code is assigned and data on the new 

service or technology become available 

for DRG recalibration). After CMS has 

recalibrated the DRGs, based on 

available data, to reflect the costs of an 

otherwise new medical service or 

technology, the medical service or 

technology will no longer be considered 

‘new’ under the criterion of this 

section.’’ The manufacturer noted that 

DIFICIDTM was not assigned an ICD–9– 

CM procedure code and DIFICIDTM is 

the first product for which no inpatient 

procedure is associated to receive a new 

technology add-on payment since the 

implementation of the new technology 

add-on payment policy. 

The manufacturer also cited the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53352), which indicated that ‘‘Hospitals 

currently code and report procedures 

and more invasive services such as 

surgeries, infusion of drugs, and 

specialized procedures such as cardiac 

catheterizations. Hospitals neither code 

nor report self-administered drugs.’’ 

Therefore, the manufacturer contended 

that, as an oral therapy, neither 

DIFICIDTM nor its administration was 

assigned an ICD–9–CM procedure code 

and, therefore, the technology should 

still be eligible for the new technology 

add-on payments. 

The manufacturer further noted that, 

in the FY 2013 IPPS/LTCH PPS final 

rule, because an ICD–9–CM procedure 

code for the administration of an oral 

medication did not exist and hospitals 

had no other mechanism to report the 

use of DIFICIDTM, for FY 2013, CMS 

instructed hospitals to report the 

DIFICIDTM NDC on hospital inpatient 

claims to receive the new technology 

add-on payment for DIFICIDTM. Prior to 

October 1, 2012, hospitals did not use 

NDCs on hospital inpatient claims, 

which prevented CMS from isolating 

DIFICIDTM cases and their associated 

costs. The manufacturer further stated 

that the NDC methodology was a bold 

change in policy and inpatient billing 

processes, and it stands to reason that, 

because of hospitals unfamiliarity with 

reporting NDCs on inpatient claims, 

hospitals’ use of the DIFICIDTM NDC 

would greatly lag behind the traditional 

use of ICD–9–CM procedure codes. As 

such, the manufacturer reasoned that 

any lag in hospital reporting would 

directly impact CMS’ ability to track 

and analyze the cost data associated 

with DIFICIDTM cases. 

The manufacturer also noted that on 

August 31, 2012, CMS issued 

Transmittal 2539, which is a change 

request for Medicare Administrative 

Contractors concerning updates for the 

upcoming fiscal year. The manufacturer 

stated that because the new technology 

add-on heading was omitted in the 

transmittal, this change request did not 

highlight the NDC billing approach to 

ensure that hospitals recognized the 

important change, which may have 

caused hospitals to overlook the claim 

reporting instructions for DIFICIDTM. 

The manufacturer added that 

Transmittal 2539 and a Medicare 

Learning Network® Matters (MLN) 

article were rescinded and replaced by 

Transmittal 2627 on January 4, 2013. 

The manufacturer noted that among 

CMS’ reasons for replacing the 

transmittal was to insert the omitted 

new technology add-on section heading. 

The manufacturer stated that, although 

the original transmittal further supports 

that collection of DIFICIDTM-specific 

data did not begin until at least October 

1, 2012, CMS’ reissuance of the claims 

processing instructions, and the missing 

header in the initial instructions, 

effectively delayed implementation of 

the new technology add-on payments 

for 3 months past the October 2012 

beginning date. The manufacturer also 

believed that the need to replace the 

transmittal underlies hospitals’ 

difficulties instituting claims’ reporting 

instructions to receive new technology 

add-on payments for DIFICIDTM at the 

hospital level. 

The manufacturer noted that 

anecdotal feedback from hospitals, 

which was shared with CMS during a 

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28032 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

meeting in June 2013, suggests that 

some hospitals faced challenges 

implementing the appropriate billing 

and coding processes. The manufacturer 

was concerned that that these 

challenges were, in part, caused by the 

missing header, and that these 

challenges may have impacted whether 

eligible cases were properly billed and 

coded to receive the new technology 

add-on payment for DIFICIDTM. The 

manufacturer was further concerned 

that the effects of any lag or delay 

caused by unfamiliarity with reporting 

NDCs and the missing header would 

also impact the data available to CMS to 

recalibrate the MS–DRGs and, 

separately, to evaluate the impact of the 

new technology add-on payment for 

DIFICIDTM. The manufacturer further 

explained that, while DIFICIDTM was 

available to hospitals after its launch in 

July 2011, hospitals had no experience 

reporting NDCs until October 2012, and 

may not have recognized the 

opportunity to, or understood the 

mechanism for doing so, until after 

January 2013. For the purposes of 

inpatient data collection and ratesetting, 

the manufacturer believed that this 

meant that 2 complete years of 

DIFICIDTM costs would not be fully 

reflected in the Medicare claims data for 

the FY 2015 MS–DRG recalibrations. 

The manufacturer also analyzed the 

100 percent sample of the Standard 

Analytical File (SAF) for calendar year 

2012, which contained first quarter 

claims data for FY 2013, the first 3 

months that DIFICIDTM was eligible for 

the new technology add-on payments. 

The manufacturer found a total of 

43,608 cases with a diagnosis of CDI. Of 

these 43,608 cases, the manufacturer 

found 38 cases across 26 hospitals that 

reported new technology add-on 

payments for DIFICIDTM on submitted 

claims. The manufacturer stated that 

this preliminary data suggests that the 

number of cases available for MS–DRG 

recalibrations for FY 2015 is limited. 

The manufacturer stated that it is 

currently attempting to secure FY 2013 

MedPAR claims data and that it will 

likely provide further insights on these 

issues. 

In addition, the manufacturer noted 

that prior new technology add-on 

payment application approvals have 

involved technologies with much 

narrower patient populations compared 

to DIFICIDTM, allowing the costs of 

those technologies to influence the MS– 

DRG relative payment weights for the 

small number of MS–DRGs with which 

they are associated. The manufacturer 

explained that, unlike other 

technologies approved for new 

technology add-on payments, the 

DIFICIDTM therapeutic value, while 

limited to patients with CDAD, is used 

in patients across a wide range of MS– 

DRGs due to it being reported as a 

secondary diagnosis in two-thirds of the 

cases compared to other technologies, 

which are assigned to a relatively small 

number of MS–DRGs. For example, 

cases involving the Spiration IBV®

Valve System, which was granted 

approval for new technology add-on 

payments in FY 2010, primarily mapped 

to three MS–DRGs: 163 (Major Chest 

Procedures with MCC), 164 (Major 

Chest Procedures with CC), and 165 

(Major Chest Procedures without CC/ 

MCC). In its analysis of the FY 2012 

MedPAR data for the cost criterion, the 

manufacturer found cases using 

DIFICIDTM mapped to 544 unique MS– 

DRGs. Under the 100 percent sample of 

the SAF for calendar year 2012, the 38 

cases mentioned above mapped to 20 

different MS–DRGs. The manufacturer 

maintained that because of the diffuse 

nature of the DIFICIDTM cases mapping 

to many MS–DRGs, it believed an 

extension of the newness period is 

required for the costs to be adequately 

reflected in the MS–DRG relative 

payment weights. In the unique case of 

DIFICIDTM for the treatment of CDAD, 

the manufacturer stated that 2 years of 

new technology add-on payments is 

insufficient to allow the 544 MS–DRGs 

to be recalibrated to sufficiently reflect 

the cost of the use of DIFICIDTM, a 

treatment that offers significant clinical 

improvement over existing therapies. 

With regard to the technology’s 

newness, as discussed in the FY 2005 

IPPS final rule (69 FR 49003), the 

timeframe that a new technology can be 

eligible to receive new technology addon payments begins when data become 

available. Section 412.87(b)(2) clearly 

states that, ‘‘a medical service or 

technology may be considered new 

within 2 or 3 years after the point at 

which data begin to become available 

reflecting the ICD–9–CM code assigned 

to the new service or technology 

(depending on when a new code is 

assigned and data on the new service or 

technology become available for DRG 

recalibration).’’ Section 412.87(b)(2) also 

states, ‘‘[a]fter CMS has recalibrated the 

DRGs, based on available data, to reflect 

the costs of an otherwise new medical 

service or technology, the medical 

service or technology will no longer be 

considered ‘new’ under the criterion of 

this section.’’ Therefore, regardless of 

whether a technology can be 

individually identified by a separate 

ICD–9–CM code or whether it can only 

be identified using a NDC code, if the 

costs of the technology are included in 

the charge data, and the MS–DRGs have 

been recalibrated using that data, then 

the technology can no longer be 

considered ‘‘new’’ for the purposes of 

this provision. We further stated in that 

final rule that the period of newness 

does not necessarily start with the 

approval date for the medical service or 

technology, and does not necessarily 

start with the issuance of a distinct 

code. Instead, it begins with availability 

of the product on the U.S. market, 

which is when data become available. 

We have consistently applied this 

standard, and believe that it is most 

consistent with the purpose of new 

technology add-on payments. 

In addition, similar to our discussion 

in the FY 2006 IPPS final rule (70 FR 

47349), we do not believe that case 

volume is a relevant consideration for 

making the determination as to whether 

a product is ‘‘new.’’ Consistent with the 

statute, a technology no longer qualifies 

as ‘‘new’’ once it is more than 2 to 3 

years old, irrespective of how frequently 

it has been used in the Medicare 

population. Similarly, this same 

determination is applicable no matter 

how many MS–DRGs the technology is 

spread across. Therefore, if a product is 

more than 2 to 3 years old, we consider 

its costs to be included in the MS–DRG 

relative weights whether its use in the 

Medicare population has been frequent 

or infrequent. We recognize that using 

an NDC was a novel billing practice 

under the IPPS. Nevertheless, even 

though hospitals may not have coded all 

uses of DIFICIDTM with the NDC, 

hospital bills would still include 

charges for all items and services 

furnished to a Medicare patient, 

including use of DIFICIDTM. Therefore, 

even though we may be not be able to 

identify all uses of DIFICIDTM in the 

Medicare charge data, hospital charges 

for the MS–DRGs would continue to 

reflect use of this technology. 

With respect to the Transmittal 2539 

omitting the header referenced above, as 

noted above, CMS corrected this issue 

as soon as possible by rescinding and 

reissuing this transmittal. Additionally, 

as noted by the manufacturer, this 

transmittal was meant for MACs and not 

hospitals. We believe the guidance 

issued in Transmittal 2539 clearly 

described to MACs how hospitals were 

to report the NDC on the inpatient claim 

in order to identify cases using 

DIFICIDTM for purposes of new 

technology add-on payments. 

Additionally, the MLN article that the 

manufacturer referred to above (MLN 

articles are typically a summary of 

transmittals for the general public) 

clearly indicated that DIFICIDTM was 

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on payments and clearly described how 

to properly code DIFICIDTM on the 

inpatient bill in order to receive the new 

technology add-on payment for FY 

2013. The MLN article can be 

downloaded from the CMS Web site at: 

http://www.cms.gov/Outreach-andEducation/Medicare-Learning-NetworkMLN/MLNMattersArticles/downloads/ 

MM8041.pdf. 

After considering the manufacturer’s 

comments above, we still consider the 

beginning of the newness period to 

commence when DIFICIDTM was first 

approved by the FDA on May 27, 2011. 

Because the 3-year anniversary date of 

the product’s entry on the U.S. market 

occurred in the second half of the fiscal 

year (after April 1, 2014), we continued 

new technology add-on payments for 

DIFICIDTM for FY 2014. However, for FY 

2015, the 3-year anniversary date of the 

product’s entry on the U.S. market 

would occur on May 27, 2014, which is 

prior to the beginning of FY 2015. 

Therefore, we are proposing to 

discontinue new technology add-on 

payments for DIFICIDTM for FY 2015. 

We are inviting public comments on 

this proposal. 

c. Zenith® Fenestrated Abdominal 

Aortic Aneurysm (AAA) Endovascular 

Graft 

Cook® Medical submitted an 

application for new technology add-on 

payments for the Zenith® Fenestrated 

Abdominal Aortic Aneurysm (AAA) 

Endovascular Graft (Zenith® F. Graft) for 

FY 2013. The applicant stated that the 

current treatment for patients who have 

had an AAA is an endovascular graft. 

The applicant explained that the 

Zenith® F. Graft is an implantable 

device designed to treat patients who 

have an AAA and who are anatomically 

unsuitable for treatment with currently 

approved AAA endovascular grafts 

because of the length of the infrarenal 

aortic neck. The applicant noted that, 

currently, an AAA is treated through an 

open surgical repair or medical 

management for those patients not 

eligible for currently approved AAA 

endovascular grafts. 

With respect to newness, the 

applicant stated that FDA approval for 

the use of the Zenith® F. Graft was 

granted on April 4, 2012. In the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53360 

through 53365), we stated that because 

the Zenith® F. Graft was approved by 

the FDA on April 4, 2012, we believed 

that the Zenith® F. Graft met the 

newness criterion as of that date. 

After evaluation of the newness, costs, 

and substantial clinical improvement 

criteria for new technology add-on 

payments for the Zenith® F. Graft and 

consideration of the public comments 

we received in response to the FY 2013 

IPPS/LTCH PPS proposed rule, we 

approved the Zenith® F. Graft for new 

technology add-on payments for FY 

2013. Cases involving the Zenith® F. 

Graft that are eligible for new 

technology add-on payments are 

identified by ICD–9–CM procedure code 

39.78 (Endovascular implantation of 

branching or fenestrated graft(s) in 

aorta). In the application, the applicant 

provided a breakdown of the costs of the 

Zenith® F. Graft. The total cost of the 

Zenith® F. Graft utilizing bare metal 

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

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

Graft, $921 are for components that are 

used in a standard Zenith AAA 

Endovascular Graft procedure. Because 

the costs for these components are 

already reflected within the MS–DRGs 

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

2013 IPPS/LTCH PPS final rule, we 

stated that we do not believe it is 

appropriate to include these costs in our 

calculation of the maximum cost to 

determine the maximum add-on 

payment for the Zenith® F. Graft. 

Therefore, the total maximum cost for 

the Zenith® F. Graft is $16,343 

($17,264¥$921). Under § 412.88(a)(2), 

new technology add-on payments are 

limited to the lesser of 50 percent of the 

average cost of the device or 50 percent 

of the costs in excess of the MS–DRG 

payment for the case. As a result, the 

maximum add-on payment for a case 

involving the Zenith® F. Graft is 

$8,171.50. 

As stated above, the new technology 

add-on payment regulations provide 

that ‘‘a medical service or technology 

may be considered new within 2 or 3 

years after the point at which data begin 

to become available reflecting the ICD– 

9–CM code assigned to the new service 

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

regard to the newness criterion for the 

Zenith® F. Graft, as stated above, we 

consider the beginning of the newness 

period to commence when the Zenith®

F. Graft was approved by the FDA on 

April 4, 2012. Because the 3-year 

anniversary date of the entry of the 

Zenith® F. Graft on the U.S. market will 

occur in the second half of the fiscal 

year (April 4, 2015), we are proposing 

to continue new technology add-on 

payments for this technology for FY 

2015. We are inviting public comments 

on this proposal. 

d. KcentraTM

CSL Behring submitted an application 

for new technology add-on payments for 

KcentraTM for FY 2014. KcentraTM is a 

replacement therapy for fresh frozen 

plasma (FFP) for patients with an 

acquired coagulation factor deficiency 

due to warfarin and who are 

experiencing a severe bleed. KcentraTM

contains the Vitamin K dependent 

coagulation factors II, VII, IX and X, 

together known as the prothrombin 

complex, and antithrombotic proteins C 

and S. Factor IX is the lead factor for the 

potency of the preparation. The product 

is a heat-treated, non-activated, virus 

filtered and lyophilized plasma protein 

concentrate made from pooled human 

plasma. KcentraTM is available as a 

lyophilized powder that needs to be 

reconstituted with sterile water prior to 

administration via intravenous infusion. 

The product is dosed based on Factor IX 

units. Concurrent Vitamin K treatment 

is recommended to maintain blood 

clotting factor levels once the effects of 

KcentraTM have diminished. 

KcentraTM was approved by the FDA 

on April 29, 2013. In the FY 2014 IPPS/ 

LTCH PPS final rule, we approved new 

ICD–9–CM procedure code 00.96 

(Infusion of 4-Factor Prothrombrin 

Complex Concentrate) which uniquely 

identifies KcentraTM. 

In the FY 2014 IPPS/LTCH PPS 

proposed rule (78 FR 27538), we noted 

that we were concerned that KcentraTM

may be substantially similar to FFP and/ 

or Vitamin K therapy. In the FY 2014 

IPPS/LTCH PPS final rule, in response 

to comments submitted by the 

manufacturer, we stated that we agree 

that KcentraTM may be used in a patient 

population that is experiencing an 

acquired coagulation factor deficiency 

due to Warfarin and who are 

experiencing a severe bleed currently 

but are ineligible for FFP, particularly 

for use by IgA deficient patients and 

other patient populations that have no 

other treatment option to resolve severe 

bleeding in the context of an acquired 

Vitamin K deficiency. In addition, FFP 

is limited because it requires special 

storage conditions while KcentraTM is 

stable for up to 36 months at room 

temperature thus allowing hospitals that 

otherwise would not have access to FFP 

(for example, small rural hospitals as 

discussed by the applicant in its 

comments) to keep a supply of 

KcentraTM and treat patients who would 

possibly have no access to FFP. We 

noted that FFP is considered perishable 

and can be scarce by nature (due to 

production and other market 

limitations) thus making some hospitals 

unable to store FFP, which limits access 

to certain patient populations in certain 

locations. Therefore, we stated that we 

believe that KcentraTM provides a 

therapeutic option for a new patient 

population and is not substantially 

similar to FFP. Also, we gave credence 

to the information presented by the 

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28034 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

manufacturer that KcentraTM provides a 

simple and rapid repletion relative to 

FFP and reduces the risk of a 

transfusion reaction relative to FFP 

because it does not contain ABO 

antibodies and does not require ABO 

typing. As a result, we concluded that 

KcentraTM is not substantially similar to 

FFP, and that it meets the newness 

criterion. 

After evaluation of the newness, cost, 

and substantial clinical improvement 

criteria for new technology add-on 

payments for KcentraTM and 

consideration of the public comments 

we received in response to the FY 2014 

IPPS/LTCH PPS proposed rule, we 

approved KcentraTM for new technology 

add-on payments for FY 2014 (78 FR 

50575 through 50580). Cases involving 

KcentraTM that are eligible for new 

technology add-on payments are 

identified by ICD–9–CM procedure code 

00.96. In the application, the applicant 

estimated that the average Medicare 

beneficiary would require an average 

dosage of 2500 International Units (IU). 

Vials contain 500 IU at a cost of $635 

per vial. Therefore, cases of KcentraTM

would incur an average cost per case of 

$3,175 ($635 × 5). Under § 412.88(a)(2), 

new technology add-on payments are 

limited to the lesser of 50 percent of the 

average cost of the technology or 50 

percent of the costs in excess of the MS– 

DRG payment for the case. As a result, 

the maximum add-on payment for a 

case of KcentraTM is $1,587.50 for FY 

2014. 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50579), we stated that new 

technology add-on payments for 

KcentraTM would not be available with 

respect to discharges for which the 

hospital received an add-on payment for 

a blood clotting factor administered to a 

Medicare beneficiary with hemophilia 

who is a hospital inpatient. Under 

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

national adjusted DRG prospective 

payment rate is ‘‘the amount of the 

payment with respect to the operating 

costs of inpatient hospital services (as 

defined in subsection (a)(4) of this 

section)’’ for discharges on or after April 

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

excludes from the term ‘‘operating costs 

of inpatient hospital services’’ the costs 

with respect to administering blood 

clotting factors to individuals with 

hemophilia. The costs of administering 

a blood clotting factor to a Medicare 

beneficiary who has hemophilia and is 

a hospital inpatient are paid separately 

from the IPPS. (For information on how 

the blood clotting factor add-on 

payment is made, we refer readers to 

Section 20.7.3 of Chapter Three of the 

Medicare Claims Processing Manual, 

which can be downloaded from the 

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

Regulations-and-Guidance/Guidance/

Manuals/Downloads/clm104c03.pdf.) In 

addition, we stated that if KcentraTM is 

approved by the FDA as a blood clotting 

factor, we believed that it may be 

eligible for blood clotting factor add-on 

payments when administered to 

Medicare beneficiaries with hemophilia. 

We make an add-on payment for 

KcentraTM for such discharges in 

accordance with our policy for payment 

of a blood clotting factor, and the costs 

would be excluded from the operating 

costs of inpatient hospital services as set 

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

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

requires the Secretary to ‘‘establish a 

mechanism to recognize the costs of 

new medical services and technologies 

under the payment system established 

under this subsection’’ beginning with 

discharges on or after October 1, 2001. 

We believe that it is reasonable to 

interpret this requirement to mean that 

the payment mechanism established by 

the Secretary recognizes only costs for 

those items that would otherwise be 

paid based on the prospective payment 

system (that is, ‘‘the payment system 

established under this subsection’’). As 

noted above, under section 

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

adjusted DRG prospective payment rate 

is the amount of payment for the 

operating costs of inpatient hospital 

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

of the Act, for discharges on or after 

April 1, 1988. We understand this to 

mean that a new medical service or 

technology must be an operating cost of 

inpatient hospital services paid based 

on the prospective payment system, and 

not excluded from such costs, in order 

to be eligible for the new technology 

add-on payment. We pointed out that 

new technology add-on payments are 

based on the operating costs per case 

relative to the prospective payment rate 

as described in § 412.88. Therefore, we 

believe that new technology add-on 

payments are appropriate only when the 

new technology is an operating cost of 

inpatient hospital services and are not 

appropriate when the new technology is 

excluded from such costs. 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50579), we stated that we 

believe that hospitals may only receive 

new technology add-on payments for 

discharges where KcentraTM is an 

operating cost of inpatient hospital 

services. In other words, a hospital 

would not be eligible to receive the new 

technology add-on payment when it is 

administering KcentraTM in treating a 

Medicare beneficiary who has 

hemophilia. In those instances, 

KcentraTM is specifically excluded from 

the operating costs of inpatient hospital 

services in accordance with section 

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

from the IPPS. However, when a 

hospital administers KcentraTM to a 

Medicare beneficiary who does not have 

hemophilia, the hospital would be 

eligible for a new technology add-on 

payment because KcentraTM would not 

be excluded from the operating costs of 

inpatient hospital services. Therefore, 

discharges where the hospital receives a 

blood clotting factor add-on payment 

are not eligible for a new technology 

add-on payment for the blood clotting 

factor. We refer readers to Chapter 

Three, Section 20.7.3 of the Medicare 

Claims Processing Manual for a 

complete discussion on when a blood 

clotting factor add-on payment is made. 

The manual can be downloaded from 

the CMS Web site at: http://

www.cms.gov/Regulations-andGuidance/Guidance/Manuals/

Downloads/clm104c03.pdf. 

As stated above, the new technology 

add-on payment regulations provide 

that ‘‘a medical service or technology 

may be considered new within 2 or 3 

years after the point at which data begin 

to become available reflecting the ICD– 

9–CM code assigned to the new service 

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

regard to the newness criterion for 

KcentraTM, as stated above, we consider 

the beginning of the newness period to 

commence when KcentraTM was 

approved by the FDA on April 29, 2013. 

Because KcentraTM is still within the 3- 

year newness period, we are proposing 

to continue new technology add-on 

payments for this technology for FY 

2015. We are inviting public comments 

on this proposal. 

e. Argus® II Retinal Prosthesis System 

Second Sight Medical Products, Inc. 

submitted an application for new 

technology add-on payments for the 

Argus® II Retinal Prosthesis System 

(Argus® II System) for FY 2014. The 

Argus® II System is an active 

implantable medical device that is 

intended to provide electrical 

stimulation of the retina to induce 

visual perception in patients who are 

profoundly blind due to retinitis 

pigmentosa (RP). These patients have 

bare or no light perception in both eyes. 

The system employs electrical signals to 

bypass dead photo-receptor cells and 

stimulate the overlying neurons 

according to a real-time video signal 

that is wirelessly transmitted from an 

externally worn video camera. The 

Argus® II implant is intended to be 

implanted in a single eye, typically the 

worse-seeing eye. Currently, bilateral 

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implants are not intended for this 

technology. According to the applicant, 

the surgical implant procedure takes 

approximately 4 hours and is performed 

under general anesthesia. 

The Argus® II System consists of three 

primary components: (1) An implant 

which is an epiretinal prosthesis that is 

fully implanted on and in the eye (that 

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

external components worn by the user; 

and (3) a ‘‘fitting’’ system for the 

clinician that is periodically used to 

perform diagnostic tests with the system 

and to custom-program the external unit 

for use by the patient. We describe these 

components more fully below. 

• Implant: The retinal prosthesis 

implant is responsible for receiving 

information from the external 

components of the system and 

electrically stimulating the retina to 

induce visual perception. The retinal 

implant consists of: (a) A receiving coil 

for receiving information and power 

from the external components of the 

Argus® II System; (b) electronics to 

drive stimulation of the electrodes; and 

(c) an electrode array. The receiving coil 

and electronics are secured to the 

outside of the eye using a standard 

scleral band and sutures, while the 

electrode array is secured to the surface 

of the retina inside the eye by a retinal 

tack. A cable, which passes through the 

eye wall, connects the electronics to the 

electrode array. A pericardial graft is 

placed over the extra-ocular portion on 

the outside of the eye. 

• External Components: The implant 

receives power and data commands 

wirelessly from an external unit of 

components, which include the Argus II 

Glasses and Video Processing Unit 

(VPU). A small lightweight video 

camera and transmitting coil are 

mounted on the glasses. The telemetry 

coils and radio-frequency system are 

mounted on the temple arm of the 

glasses for transmitting data from the 

VPU to the implant. The glasses are 

connected to the VPU by a cable. This 

VPU is worn by the patient, typically on 

a belt or a strap, and is used to process 

the images from the video camera and 

convert the images into electrical 

stimulation commands, which are 

transmitted wirelessly to the implant. 

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

the Argus® II System, a patient’s VPU 

needs to be custom-programmed. This 

process, which the applicant called 

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

shortly after the implant surgery and 

then periodically thereafter as needed. 

The clinician/physician also uses the 

‘‘Fitting System’’ to run diagnostic tests 

(for example, to obtain electrode and 

impedance waveform measurements or 

to check the radio-frequency link 

between the implant and external unit). 

This ‘‘Fitting System’’ can also be 

connected to a ‘‘Psychophysical Test 

System’’ to evaluate patients’ 

performance with the Argus® II System 

on an ongoing basis. 

These three components work 

together to stimulate the retina and 

allow a patient to perceive phosphenes 

(spots of light), which they then need to 

learn to interpret. While using the 

Argus® II System, the video camera on 

the patient-worn glasses captures a 

video image. The video camera signal is 

sent to the VPU, which processes the 

video camera image and transforms it 

into electrical stimulation patterns. The 

electrical stimulation data are then sent 

to a transmitter coil mounted on the 

glasses. The transmitter coil sends both 

data and power via radio-frequency (RF) 

telemetry to the implanted retinal 

prosthesis. The implant receives the RF 

commands and delivers stimulation to 

the retina via an array of electrodes that 

is secured to the retina with a retinal 

tack. 

In patients with RP, the photoreceptor 

cells in the retina, which normally 

transduce incoming light into an 

electro-chemical signal, have lost most 

of their function. The stimulation pulses 

delivered to the retina via the electrode 

array of the Argus® II Retinal Prosthesis 

System are intended to mimic the 

function of these degenerated 

photoreceptors cells. These pulses 

induce cellular responses in the 

remaining, viable retinal nerve cells that 

travel through the optic nerve to the 

visual cortex where they are perceived 

as phosphenes (spots of light). Patients 

learn to interpret the visual patterns 

produced by these phosphenes. 

With respect to the newness criterion, 

according to the applicant, the FDA 

designated the Argus® II System a 

Humanitarian Use Device in May 2009 

(HUD designation #09–0216). The 

applicant submitted a Humanitarian 

Device Exemption (HDE) application 

(#H110002) to the FDA in May 2011 to 

obtain market approval for the Argus® II 

System. The HDE was referred to the 

Ophthalmic Devices Panel of the FDA’s 

Medical Devices Advisory Committee 

for review and recommendation. At the 

Panel’s meeting held on September 28, 

2012, the Panel voted 19 to 0 that the 

probable benefits of the Argus® II 

System outweigh the risks of the system 

for the proposed indication for use. The 

applicant received the HDE approval 

from the FDA on February 14, 2013. 

Currently there are no other approved 

treatments for patients with severe to 

profound RP. The Argus® II System has 

an IDE number of G050001 and is a 

Class III device. In the FY 2014 IPPS/

LTCH PPS final rule (78 FR 50580 

through 50583), we approved new ICD– 

9–CM procedure code 14.81 

(Implantation of Epiretinal Visual 

Prosthesis), which uniquely identifies 

the Argus® II System. The other two 

codes approved by CMS are for removal, 

revision, or replacement of the device. 

More information on these codes can be 

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

cms.gov/Medicare/Coding/

ICD9ProviderDiagnosticCodes/ICD-9- 

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

2013-03-05-MeetingMaterials.html. 

After evaluation of the new 

technology add-on payment application 

and consideration of public comments 

received, we concluded that the Argus®

II System met all of the new technology 

add-on payment policy criteria. 

Therefore, we approved the Argus® II 

System for new technology add-on 

payments in FY 2014 (78 FR 50580 

through 50583). Cases involving the 

Argus® II System that are eligible for 

new technology add-on payments are 

identified by ICD–9–CM procedure code 

14.81. We note that section 

1886(d)(5)(K)(i) of the Act requires that 

the Secretary establish a mechanism to 

recognize the costs of new medical 

services or technologies under the 

payment system established under that 

subsection, which establishes the 

system for paying for the operating costs 

of inpatient hospital services. The 

system of payment for capital costs is 

established under section 1886(g) of the 

Act, which makes no mention of any 

add-on payments for a new medical 

service or technology. Therefore, it is 

not appropriate to include capital costs 

in the add-on payments for a new 

medical service or technology. In the 

application, the applicant provided a 

breakdown of the costs of the Argus® II 

System. The total operating cost of the 

Argus® II System is $144,057.50. Under 

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

payments are limited to the lesser of 50 

percent of the average cost of the device 

or 50 percent of the costs in excess of 

the MS–DRG payment for the case. As 

a result, the maximum add-on payment 

for a case involving the Argus® II 

System for FY 2014 is $72,028.75. 

As stated above, the new technology 

add-on payment regulations provide 

that ‘‘a medical service or technology 

may be considered new within 2 or 3 

years after the point at which data begin 

to become available reflecting the ICD– 

9–CM code assigned to the new service 

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

regard to the newness criterion for the 

Argus® II System, as stated above, we 

consider the beginning of the newness 

period to commence when the Argus® II 

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System was approved by the FDA on 

February 14, 2013. Because the Argus®

II System is still within the 3-year 

newness period, we are proposing to 

continue new technology add-on 

payments for this technology for FY 

2015. We are inviting public comments 

on this proposal. 

f. Zilver® PTX® Drug Eluting Peripheral 

Stent 

Cook® Medical submitted an 

application for new technology add-on 

payments for the Zilver® PTX® Drug 

Eluting Peripheral Stent (Zilver® PTX®) 

for FY 2014. The Zilver® PTX® is 

intended for use in the treatment of 

peripheral artery disease (PAD) of the 

above–the-knee femoropopliteal arteries 

(superficial femoral arteries). According 

to the applicant, the stent is 

percutaneously inserted into the 

artery(s), usually by accessing the 

common femoral artery in the groin. The 

applicant stated that an introducer 

catheter is inserted over the wire guide 

and into the target vessel where the 

lesion will first be treated with an 

angioplasty balloon to prepare the 

vessel for stenting. The applicant 

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

titanium), and is coated with the drug 

Paclitaxel. Paclitaxel is a drug approved 

for use as an anticancer agent and for 

use with coronary stents to reduce the 

risk of renarrowing of the coronary 

arteries after stenting procedures. 

The applicant received FDA approval 

on November 15, 2012, for the Zilver®

PTX®. The applicant maintains that the 

Zilver® PTX® is the first drug-eluting 

stent used for superficial femoral 

arteries. The technology is currently 

described by ICD–9–CM procedure code 

00.60 (Insertion of drug-eluting stent(s) 

of the superficial femoral artery). 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50583 through 50585), after 

evaluation of the new technology addon payment application and 

consideration of the public comments 

received, we approved the Zilver® PTX®

for new technology add-on payments in 

FY 2014. Cases involving the Zilver®

PTX® that are eligible for new 

technology add-on payments are 

identified by ICD–9–CM procedure code 

00.60. As explained in the FY 2014 

IPPS/LTCH PPS final rule, to determine 

the amount of Zilver® PTX® stents per 

case, instead of using the amount of 

stents used per case based on the ICD– 

9–CM codes, the applicant used an 

average of 1.9 stents per case based on 

the Zilver® PTX® Global Registry 

Clinical Study. The applicant stated in 

its application that the anticipated cost 

per stent is approximately $1,795. 

Therefore, cases of the Zilver® PTX®

would incur an average cost per case of 

$3,410.50 ($1,795 × 1.9). Under 

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

payments are limited to the lesser of 50 

percent of the average cost of the device 

or 50 percent of the costs in excess of 

the MS–DRG payment for the case. As 

a result, the maximum add-on payment 

for a case of the Zilver® PTX® is 

$1,705.25 for FY 2014. 

As stated above, the new technology 

add-on payment regulations provide 

that ‘‘a medical service or technology 

may be considered new within 2 or 3 

years after the point at which data begin 

to become available reflecting the ICD– 

9–CM code assigned to the new service 

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

regard to the newness criterion for the 

Zilver® PTX®, as stated above, we 

consider the beginning of the newness 

period to commence when the Zilver®

PTX® was approved by the FDA on 

November 15, 2012. Because the Zilver®

PTX® is still within the 3-year newness 

period, we are proposing to continue 

new technology add-on payments for 

this technology for FY 2015. We are 

inviting public comments on this 

proposal. 

4. FY 2015 Applications for New 

Technology Add-On Payments 

We received seven applications for 

new technology add-on payments for FY 

2015, three of which were applications 

resubmitted from FY 2014. However, 

one applicant withdrew its application 

prior to the publication of this proposed 

rule. In accordance with the regulations 

under § 412.87(c), applicants for new 

technology add-on payments must have 

FDA approval by July 1 of each year 

prior to the beginning of the fiscal year 

that the application is being considered. 

A discussion of the six remaining 

applications is presented below. 

a. Dalbavancin (Durata Therapeutics, 

Inc.) 

Durata Therapeutics, Inc. submitted 

an application for new technology addon payments for FY 2015 for the use of 

Dalbavancin. Dalbavancin is an 

intravenous (IV) lipoglycopeptide 

antibiotic administered as a onceweekly 30-minute infusion via a 

peripheral line for the treatment of 

patients with acute bacterial skin and 

skin structure infections, or ABSSSI. 

According to the applicant, 

Dalbavancin’s unique pharmacokinetic 

profile demonstrates rapid bactericidal 

activity that is potent and sustained 

against serious gram-positive bacteria, 

including methicillin-resistant 

Staphylococcus aureus (MRSA). 

With respect to the newness criterion, 

the applicant stated that Dalbavancin’s 

once-weekly dosing, a simpler regimen 

than the current standard of care 

(Vancomycin) of daily or multiple-times 

daily intravenous dosing, allows for the 

discontinuation of IV access with its 

attendant risks of line-related 

thrombosis and infection. The applicant 

submitted a New Drug Approval 

Application (NDA) on September 26, 

2013, and anticipates FDA approval of 

Dalbavancin sometime in May of 2014. 

To date, no ICD–10–PCS code 

specifically describes the administration 

of Dalbavancin. The applicant applied 

for a new ICD–10–PCS code to describe 

the administration of Dalbavancin, 

which was presented at the March 19– 

20, 2014 ICD–10 Coordination and 

Maintenance Committee meeting. If 

approved, the code will be effective on 

October 1, 2014. We are inviting public 

comments on whether the technology 

meets the newness criterion. 

We note that in the FY 2010 IPPS/RY 

2010 LTCH PPS final rule (74 FR 43813 

through 43814), we established criteria 

for evaluating whether a new 

technology is substantially similar to an 

existing technology, specifically: (1) 

Whether a product uses the same or a 

similar mechanism of action to achieve 

a therapeutic outcome; (2) whether a 

product is assigned to the same or a 

different MS–DRG; and (3) whether the 

new use of the technology involves the 

treatment of the same or similar type of 

disease and the same or similar patient 

population. If a technology meets all 

three of the criteria above, it would be 

considered substantially similar to an 

existing technology and would not be 

considered ‘‘new’’ for purposes of new 

technology add-on payments. 

In evaluating the first criterion, the 

applicant stated that Dalbavancin’s 

mechanism of action is unique 

compared to other antibiotics as it 

involves the interruption of cell wall 

synthesis resulting in bacterial cell 

death. Furthermore, the applicant cited 

Dalbavancin’s long half-life as the factor 

that differentiates itself from existing 

antibacterial agents active against 

MRSA. With respect to the second 

criterion, we believe that cases of 

ABSSSI that use Dalbavancin or other 

antibiotics for treatment would be 

assigned to the same MS–DRGs. Finally, 

with respect to the third criterion, we 

believe that Dalbavancin and other 

antibiotics used to treat cases of ABSSSI 

treat the same disease and patient 

population. Based on evaluation of the 

substantially similarity criteria, it 

appears that Dalbavancin is not 

substantially similar to other antibiotics 

for the treatment of ABSSSI because it 

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3 ‘‘Bad Bugs, No Drugs,’’ July 2004. 

does not use the same or a similar 

mechanism of action to achieve a 

therapeutic outcome. We are inviting 

public comments regarding whether 

Dalbavancin is substantially similar to 

existing antibiotics and whether 

Dalbavancin meets the newness 

criterion. 

According to the applicant, 

Dalbavancin is indicated to treat grampositive ABSSSIs, such as cellulitis or 

erysipelas, and MRSA. These conditions 

may be a primary diagnosis, but are 

often secondary to an underlying 

condition such as diabetes, heart failure, 

pressure ulcers, etc. Therefore, the 

technology is eligible to be used across 

all MS–DRGs. To demonstrate that it 

meets the cost criterion, the applicant 

searched the FY 2012 MedPAR file 

(across all MS–DRGs) for cases where at 

least one ABSSSI ICD–9–CM code was 

present on the claim, including those 

where MRSA was present on a claim 

with an ABSSSI diagnosis. Specifically, 

the applicant searched for cases with 

one of the following diagnosis codes: 

035 (Erysipelas); 681.00 (Cellulitis and 

abscess of finger, unspecified); 681.01 

(Felon); 681.02 (Onychia and 

paronychia of finger); 681.10 (Cellulitis 

and abscess of toe, unspecified); 681.11 

(Onychia and paronychia of toe); 681.9 

(Cellulitis and abscess of unspecified 

digit); 682.0–682.9 (Other cellulitis and 

abscess of face, neck, trunk, upper arm 

and forearm, hand except fingers and 

thumb, buttock, leg except foot, foot 

except toes, specified sites, unspecified 

sites); 686.00 (Pyoderma, unspecified); 

686.01 (Pyoderma gangrenosum); 686.09 

(Other pyoderma); 686.1 (Pyogenic 

granuloma of skin and subcutaneous 

tissue); 686.8 (Other specified local 

infections of skin and subcutaneous 

tissue); 686.9 (Unspecified local 

infection of skin and subcutaneous 

tissue); 958.3 (Posttraumatic wound 

infection not elsewhere classified); 

998.51 (Infected postoperative seroma); 

and 998.59 (Other postoperative 

infection). The applicant believed that 

these cases represent potential cases 

eligible for the administration of 

Dalbavancin. 

The applicant found 570,698 cases 

across 682 MS–DRGs and noted that 

almost 25 percent of the total number of 

cases would map to MS–DRGs 603 

(Cellulitis without MCC), while the top 

10 MS–DRGs accounted for almost half 

(or 49 percent) of the total number of 

cases. Of the 682 MS–DRGs, only 90 of 

these MS–DRGs accounted for 1,000 

cases or more. The applicant 

standardized the charges for all 570,698 

cases, which equated to an average caseweighted standardized charge per case 

of $46,138. We note that the applicant 

did not inflate the charges nor did it 

include charges for Dalbavancin in the 

average case-weighted standardized 

charge per case. The applicant 

calculated an average case-weighted 

threshold of $44,255 across all MS– 

DRGs. Therefore, the applicant asserted 

the average case-weighted standardized 

charge per case (without inflating and 

including charges for Dalbavancin) 

exceeds the average case-weighted 

threshold of $44,255 (as indicated in 

Table 10 of the FY 2014 IPPS/LTCH PPS 

final rule). Therefore, the applicant 

maintained that Dalbavancin meets the 

cost criterion. We are inviting public 

comments regarding whether 

Dalbavancin meets the cost criterion, 

particularly with regard to the 

assumptions and methodology used in 

the applicant’s analysis. 

With regard to substantial clinical 

improvement, as previously stated by 

the applicant, Dalbavancin is a new 

intravenous (IV) lipoglycopeptide 

antibiotic administered as a onceweekly 30 minute infusion via a 

peripheral line for the treatment of 

patients with acute bacterial skin and 

skin structure infections, or ABSSSI. 

The applicant noted that, in the setting 

of continuing emergence of resistance 

among gram-positive pathogens 

worldwide, there is an increasing 

medical need for new antibacterial 

agents with enhanced gram-positive 

activity. The applicant cited the 

Infectious Diseases Society of America 

(IDSA),3 stating the need for a multipronged approach to address the impact 

of antibiotic resistance. In addition, the 

applicant stated the FDA has also 

designated MRSA as a pathogen of 

special interest which allows an 

antibiotic effective against this organism 

to be designated as a ‘‘Qualified 

Infectious Disease Product,’’ recognizing 

the medical need for drugs to treat 

infections caused by this pathogen. The 

applicant believed that having a 

medicinal agent with clinical efficacy 

against gram-positive pathogens, 

including MRSA and CA–MRSA, a 

favorable benefit/risk ratio, and a 

favorable pharmacokinetics profile 

allowing convenient dosing in 

inpatients and outpatients with the 

potential for minimizing patient 

noncompliance would be a valuable 

addition to the antibacterial 

armamentarium for the treatment of 

ABSSSI. The applicant also noted that, 

when taking Dalbavancin, there is no 

need for oral step-down therapy. 

The applicant suggested that 

Dalbavancin offers treatment advantages 

over other available options for therapy 

for skin infections as a result of the 

following: 

• Improved potency against key 

bacterial pathogens with the 

concentration of Dalbavancin required 

to kill key target pathogens lower 

relative to other antibiotics commonly 

used to treat such pathogens; 

• Retained activity against 

staphylococcus aureus resistant to other 

antibiotics; 

• Improved safety profile as 

Dalbavancin exhibits more favorable 

tolerability and safety than alternative 

approved antibacterial drugs in areas 

such as no evidence of 

thrombocytopenia as seen with 

linezolid and tedezolid, superior 

infusion related tolerability relative to 

other antiobiotics, an absence or 

reduction of drug specific toxicities, and 

once a week dosing of IV Dalbavancin 

avoids pitfalls of patient noncompliance 

with an oral medication; 

• Lack of drug interactions due to 

metabolic profile which minimizes risk 

of unexpected adverse events when coadministered with other compounds as 

seen with linezolid and quinupristin/

dalfopristin; 

• Decreased requirement for 

therapeutic interventions, specifically 

the need for an intravenous catheter as 

Dalbavancin is administered once a 

week, thus reducing catheter related 

infection as well; 

• Reduced time to patient defined 

recovery; 

• Reduced mortality rate as 

demonstrated in the combined phase of 

the Discover 1 and Discover 2 clinical 

trials; 

• The potential for avoidance of 

admission to the hospital as 

Dalbavancin allows the utilization of a 

weekly treatment regimen, thus 

potentially increasing the convenience 

of outpatient therapy for patients. 

The applicant conducted three phase 

three randomized, controlled, double 

blinded clinical trials. The first was the 

pivotal VER001–9 study with a total of 

873 patients with cSSSIs, which 

compared the safety and efficacy of IV 

Dalbavancin with possible switch to 

oral placebo to IV Linezolid with 

possible switch to oral Linezolid. 

According to the applicant, the primary 

efficacy endpoint of clinical response at 

test of 14 days with a plus or minus of 

2 days after completion of therapy 

demonstrated comparable clinical 

efficacy to linezolid and met the 

requirement of statistical demonstration 

of noninferiority. In the clinically 

evaluable population, 88.9 percent of 

patients who received Dalbavancin 

compared to 91.2 percent of patients 

who received vancomycin/linezolid 

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were clinical successes. The applicant 

also noted that Dalbavancin had an 

improved safety profile compared to 

Linezolid as the overall incidence and 

percentage of adverse events and deaths 

were lower in the Dalbavancin group, 

which was statistically significant. 

The second and third clinical trials 

were the Discover 1 and Discover 2 

trials, which enrolled a total of 1,312 

patients with ABSSSI and compared IV 

Dalbavancin with IV placebo every 12 

hours to match Vancomycin with 

possible switch to oral Vancomycin to 

IV Vancomycin with IV placebo to 

match IV Dalbavancin with possible 

switch to oral Linezolid. The applicant 

reported that in both studies, the 

primary efficacy outcome measure was 

clinical response in 48 to 72 hours poststudy drug initiation and a secondary 

outcome measure was clinical status at 

the end of treatment visit (day 14) in the 

Intent to Treat (ITT) and clinically 

evaluable at End of Treatment 

populations. Clinical status was also 

determined at the short-term follow-up 

and long-term follow-up visits. 

According to the applicant, the 

Discover 1 trial demonstrated that 83.3 

percent of patients in the ITT 

population who received Dalbavancin 

were responders at 48 to 72 hours after 

the start of therapy compared to 81.8 

percent of patients who received 

Vancomycin/Linezolid. The applicant 

also noted that Dalbavancin was 

noninferior to Vancomycin/Linezolid 

(Absolute Difference in Success Rates 

(95 percent confidence interval): ¥4.6 

percent; 7.9 percent). 

The applicant further noted that the 

Discover 2 trial showed similar results 

to the Discover 1 trial. Specifically, the 

trial demonstrated that 76.8 percent of 

patients in the ITT population who 

received Dalbavancin were responders 

at 48 to 72 hours after the start of 

therapy compared to 78.3 percent of 

patients who received Vancomycin/

Linezolid. The applicant again noted 

that Dalbavancin was noninferior to 

Vancomycin/Linezolid (Absolute 

Difference in Success Rates (95 percent 

confidence interval): ¥7.4 percent; 4.6 

percent). 

The applicant found Dalbavancin to 

be effective against MRSA and other 

gram-positive bacteria associated with 

ABSSSI. The applicant stated that 25 

percent of patients in the study were 

treated without an inpatient admission. 

We are concerned with the details of 

the trial design and the primary efficacy 

endpoints used within those trials that 

were used to provide the clinical data 

supplied by the applicant. All of the 

trials were noninferiority studies, which 

prevent any determination as to 

substantial clinical improvement from 

the trial data. The primary efficacy 

endpoint was defined as having no 

increase in lesion size, and no fever 48 

to 72 hours after drug initiation. The 

secondary endpoint was a >20 percent 

reduction in infection area at defined 

points in time. At neither endpoint is 

the patient oriented endpoint of 

resolution of infection increased. With 

these limitations in using efficacy data 

to establish substantial clinical 

improvement, the applicant suggested 

that the outpatient treatment, 

elimination of central lines and 

avoidance of hospitalization all may 

improve safety, avoid treatmentassociated infections and improve 

patient satisfaction, and that these 

factors demonstrate substantial clinical 

improvement. While the factors 

mentioned may be true, the applicant 

did not present any evidence to support 

its assertions. We are inviting public 

comments on whether Dalbavancin 

meets the substantial clinical 

improvement criterion, including public 

comments in response to our concern 

that the applicant has only provided 

efficacy data of noninferiority, and no 

data for the other suggested benefits. 

We did not receive any public 

comments in response to the New 

Technology Town Hall meeting held on 

February 12, 2014 regarding this 

technology. 

b. Heli-FXTM EndoAnchor System 

(Aptus Endosystems, Inc.) 

The Heli-FXTM EndoAnchor System is 

indicated for use in the treatment of 

patients whose endovascular grafts 

during treatment of aortic aneurysms 

have exhibited migrations or endoleaks, 

or in the treatment of patients who are 

at risk of such complications, and in 

whom augmented radial fixation and/or 

sealing is required to regain or maintain 

adequate aneurysm exclusion. 

The Heli-FXTM EndoAnchor System is 

comprised of the following three 

components: (1) The EndoAnchor 

Implant; (2) the Heli-FXTM Applier; and 

(3) the Heli-FXTM Guide with Obturator. 

The Heli-FXTM EndoAnchor System is a 

mechanical fastening device that is 

designed to enhance the long-term 

durability and reduce the risk of repeat 

interventions in endovascular aneurysm 

repair (EVAR) and thoracic 

endovascular aneurysm repair (TEVAR). 

By deploying a small helical screw (the 

Heli-FXTM EndoAnchors) to connect the 

endograft to the aorta, the Heli-FXTM

System seeks to provide a permanent 

seal and fixation, similar to the stability 

achieved with an open surgical 

anastomosis. 

The original Heli-FXTM EndoAnchor 

System, designed for treating abdominal 

aortic aneurysms (AAA), was cleared by 

the FDA through the ‘‘de novo’’ 510(k) 

process on November 21, 2011 

(reference K102333). The Heli-FXTM

Thoracic System, which allows the 

expanded use of the Heli-FXTM

EndoAnchor System technology to the 

treatment of thoracic aortic aneurysms 

(TAA), was cleared by the FDA on 

August 14, 2012 (reference K121168). 

The applicant submitted two 

applications for approval for new 

technology add-on payment in FY 2015: 

one for the treatment of AAAs and the 

other for the treatment of TAA repair. 

We note that, as stated in the Inpatient 

New Technology Add-on Payment Final 

Rule (66 FR 46915), two applications are 

necessary in this instance, because 

patients that may be eligible for use of 

the technology under the first indication 

are not expected to be assigned to the 

same MS–DRGs as patients receiving 

treatment using the new technology 

under the second indication. 

Specifically, patients who have 

endovascular grafts implanted for the 

treatment of AAA map to MS–DRGs 237 

(Major Cardiovascular Procedures with 

MCC) and 238 (Major Cardiovascular 

Procedures without MCC), while 

patients who have endovascular grafts 

implanted for the treatment of TAA map 

to MS–DRGs 219 (Cardiac Valve and 

Other Major Cardiothoracic Procedure 

without Cardiac Catheter with MCC), 

220 (Cardiac Valve and Other Major 

Cardiothoracic Procedure without 

Cardiac Catheter with CC), and 221 

(Cardiac Valve and Other Major 

Cardiothoracic Procedure without 

Cardiac Catheter without CC/MCC). 

Each indication/application must also 

meet the cost criterion and the 

substantial clinical improvement 

criterion in order to be eligible for new 

technology add-on payments beginning 

in FY 2015. We discuss both of these 

applications below. 

(1) Heli-FXTM EndoAnchor System for 

the Treatment of AAA 

As mentioned above, the original 

Heli-FXTM EndoAnchor System, 

designed for treating patients diagnosed 

with AAA, was cleared by the FDA 

through the ‘‘de novo’’ 510(k) process 

on November 21, 2011 (reference 

K102333). According to the applicant, 

the device became available to Medicare 

beneficiaries following the product 

launch at the Society of Vascular 

Surgery (SVS) Annual Meeting held on 

June 7–9, 2012. Therefore, the applicant 

maintained that the Heli-FXTM

EndoAnchor System meets the 

‘‘newness’’ criterion because the 

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technology was not available on the U.S. 

market until June 2012. The applicant 

explained that the delay in the general 

market availability of the original HeliFXTM EndoAnchor System, following 

initial FDA clearance, was mainly 

because of the regulatory uncertainty 

inherent in the ‘‘de novo’’ 510(k) 

process. This uncertainty prevented the 

manufacturer from being able to secure 

the venture capital funding that was 

necessary to prepare for 

commercialization before obtaining 

market clearance. The ability to secure 

venture capital through the fundraising 

process was dependent upon the FDA 

clearance. According to the applicant, 

funding to commercially market the 

technology was not obtained until June 

2012. In subsequent discussions with 

the applicant, the applicant confirmed 

that the Heli-FXTM EndoAnchor System 

was available on the U.S. market as of 

November 2011. Further, the applicant 

acknowledged that four implantations 

were performed on Medicare 

beneficiaries between November 2011 

and June 2012. Therefore, the Heli-FXTM

EndoAnchor System is considered 

‘‘new’’ as of November 2011 when the 

technology was cleared by the FDA and 

became available on the U.S. market. 

Section 412.87(b)(2) of the regulations 

state that, ‘‘a medical service or 

technology may be considered new 

within 2 or 3 years after the point at 

which data begin to become available 

reflecting the ICD–9–CM code assigned 

to the new service or technology.’’ Our 

past practice has been to begin and end 

the eligibility for new technology addon payments on a fiscal year basis. We 

have generally followed a guideline that 

uses a 6-month window, before and 

after the beginning of the fiscal year, to 

determine whether to still consider a 

technology ‘‘new’’ and extend approved 

new technology add-on payments for an 

additional fiscal year. In general, a 

technology is still considered ‘‘new’’ 

(and eligible to receive new technology 

add-on payments) only if the 3-year 

anniversary date of the product’s entry 

on the market occurs in the latter half 

of the fiscal year. (We refer readers to 70 

FR 47362.) With regard to the newness 

criterion for the Heli-FXTM EndoAnchor 

System, as stated above, we consider the 

beginning of the newness period for the 

device to begin when the technology 

first became available on the U.S. 

market in November 2011. As 

previously stated, the applicant 

acknowledged that four implantations 

were performed on Medicare 

beneficiaries between November 2011 

and June 2012. Therefore, the costs of 

the Heli-FXTM EndoAnchor System are 

currently reflected in the MS–DRGs, and 

the 3-year anniversary date under the 

newness criterion for the product’s 

entry on the U.S. market will occur 

during November 2014 (the first half of 

FY 2015). As such, we do not believe 

that the Heli-FXTM EndoAnchor System 

meets the newness criterion. We are 

inviting public comments on whether 

the Heli-FXTM EndoAnchor System 

meets the newness criterion. 

The applicant requested an ICD–10– 

PCS code, and presented comments at 

the March 2014 ICD–10 Coordination & 

Maintenance Committee meeting. 

To demonstrate that the technology 

meets the cost criterion, the applicant 

researched claims data from the 100 

percent sample of the 2012 Inpatient 

Hospital Standard Analytical File (SAF) 

for cases reporting either procedure 

code 39.71 (Endovascular implantation 

of other graft in abdominal aorta), or 

procedure code 39.79 (Other 

endovascular procedures on other 

vessels) in the first or second procedure 

position on the claim, in combination 

with one of the following primary 

diagnosis codes: 441.4 (Abdominal 

aneurysm without mention of rupture); 

996.1 (Mechanical complication of other 

vascular device, implant, and graft); or 

996.74 (Other complications due to 

other vascular device, implant, and 

graft). The applicant believed that this 

combination of ICD–9–CM codes 

identifies cases treated for AAA. We 

note that the 2012 SAF dataset includes 

all claims submitted from hospitals paid 

under the IPPS for calendar year 2012. 

The applicant focused its analysis on 

MS–DRGs 237 and 238 because these 

are the MS–DRGs that cases treated with 

the implantation of endovascular grafts 

for AAAs would most likely map to. 

The applicant found a total of 8,142 

cases, and noted that 9.35 percent of the 

total number of cases would map to 

MS–DRG 237, and 90.65 percent of the 

total number of cases would map to 

MS–DRG 238. The applicant 

standardized the charges for all 8,142 

cases. Using the inflation factor of 

1.47329 published in the FY 2014 IPPS/ 

LTCH final rule (78 FR 50982), the 

applicant inflated the standardized 

charges by 14.88 percent (the applicant 

multiplied 1.47329 × 1.47329 × 1.47329 

in order to inflate the charges from 2012 

to 2015). The applicant then added the 

charges for the Heli-FXTM EndoAnchor 

System to the standardized charges by 

dividing the cost of the Heli-FXTM

EndoAnchor System device by each 

individual hospital specific CCR from 

the FY 2012 impact file. This equated to 

an average case-weighted inflated 

standardized charge per case of 

$111,613. The applicant noted that the 

average case-weighted inflated 

standardized charge per case did not 

contain additional operating room 

charges that relate to the Heli-FXTM

EndoAnchor System. Therefore, the 

applicant determined that it was 

necessary to add an additional $1,440 

for operating room charges, which was 

based on an additional half hour of 

operating room time from one hospital, 

to the average case-weighted 

standardized charge per case. This 

resulted in an average case-weighted 

standardized charge per case of 

$113,053. The applicant calculated an 

average case-weighted threshold of 

$86,278 across both MS–DRGs 237 and 

238. The applicant noted that the 

average case-weighted standardized 

charge per case, computed without 

including the additional operating room 

charges that relate to the Heli-FXTM

EndoAnchor System, exceeded the 

average case-weighted threshold of 

$86,278. Therefore, the applicant 

maintained that the technology meets 

the cost criterion. 

The applicant also submitted claims 

data from the ANCHOR (Aneurysm 

Treatment Using the Heli-FX Aortic 

Securement System Global Registry) 

study to demonstrate that the 

technology meets the cost criterion. A 

total of 51 cases were submitted with 

11.76 percent of all the cases mapping 

to MS–DRG 237, and 88.24 percent of 

all the cases mapping to MS–DRG 238. 

The applicant standardized the charges 

for all 51 cases, and determined an 

average case-weighted standardized 

charge per case of $128,196. The 

applicant calculated an average caseweighted threshold of $87,118 across 

MS–DRGs 237 and 238. Therefore, 

because the average case-weighted 

standardized charge per case exceeds 

the average case-weighted threshold, the 

applicant maintained that the 

technology meets the cost criterion. We 

are inviting public comments on 

whether the Heli-FXTM EndoAnchor 

System meets the cost criterion, 

particularly with regard to the 

assumptions and methodology used in 

the applicant’s analyses. We discuss 

whether the Heli-FXTM EndoAnchor 

System represents a substantial clinical 

improvement over other treatments used 

for the repair of both abdominal and 

thoracic aortic aneurysms in one 

discussion below. 

(2) Heli-FXTM EndoAnchor System for 

the Treatment of Thoracic Aortic 

Aneurysms 

The Heli-FXTM Thoracic System, 

which allows the expanded use of the 

Heli-FXTM EndoAnchor System 

technology to TAA repair, was cleared 

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28040 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

4Abbruzzese, T.A., Kwolek, C.J., Brewster, D.C., 

et al, ‘‘Outcomes following endovascular abdominal 

aortic aneurysm repair (EVAR): An anatomic and 

device-specific analysis,’’ Journal of Vascular 

Surgery, 2008, Vol. 48, pp. 19–28. 

5 Dangas, G., O’Connor, D., Firwana, B., et al, 

‘‘Open Versus Endovascular Stent Graft Repair of 

Abdominal Aortic Aneurysms: A Meta-Analysis of 

Randomized Trials,’’ JACC, 2012, Vol. 5 (10), pp. 

1072–1080. 

6 De Bruin, J.L., Baas, A.F., Buth, J., et al, ‘‘LongTerm Outcome of Open or Endovascular Repair of 

Abdominal Aortic Aneurysm,’’ New England 

Journal of Medicine, May 2010, Vol. 362(20), pp. 

1881–1889. 

7 Greenhalgh, R.M., Brown, L.C., Powell, J.T., et 

al, ‘‘Endovascular versus open repair of abdominal 

aortic aneurysm,’’ New England Journal of 

Medicine, May 2010, Vol. 362(20), pp. 1863–1871. 

by the FDA on August 14, 2012 

(reference K121168). The new system 

consists of a longer delivery device with 

additional tip configurations to allow 

the helical EndoAnchor technology to 

treat TAA. A line extension to the 

original Heli-FXTM EndoAnchor System, 

allowing improved treatment of AAA 

patients with larger aortic neck 

diameters, was cleared by the FDA on 

April 12, 2013 (reference K130677). 

With regard to the newness criterion 

for the Heli-FXTM Thoracic System, we 

consider the beginning of the newness 

period for the device to begin when the 

technology was approved by the FDA on 

August 14, 2012. Because the 3-year 

anniversary date of the product’s entry 

on the U.S. market would occur in the 

second half of FY 2015 (August 14, 

2015), we believe that the Heli-FXTM

Thoracic System meets the newness 

criterion. We are inviting public 

comments on whether the Heli-FXTM

Thoracic System meets the newness 

criterion. As stated above, the applicant 

requested an ICD–10–PCS code, and 

presented comments at the March 2014 

ICD–10 Coordination & Maintenance 

Committee meeting. 

To demonstrate that the Heli-FXTM

Thoracic System meets the cost 

criterion, similar to the analysis 

performed for the Heli-FXTM

EndoAnchor System for the treatment of 

AAA, the applicant researched claims 

data from the 100 percent sample of the 

2012 SAF for cases reporting procedure 

code 39.73 (Endovascular implantation 

of graft in thoracic aorta) in the first or 

second procedure position on the claim, 

in combination with one of the 

following primary diagnosis codes: 

404.93 (Hypertensive heart and chronic 

kidney disease, unspecified, with heart 

failure and chronic kidney disease stage 

V or end-stage renal disease); 441.01 

(Dissection of aorta, thoracic); 441.03 

(Dissection of aorta, thoracoabdominal); 

441.2 (Thoracic aneurysm without 

mention of rupture); 441.4 (Abdominal 

aneurysm without mention of rupture); 

441.7 (Thoracoabdominal aneurysm, 

without mention of rupture); 996.1 

(Mechanical complication of other 

vascular device, implant, and graft); or 

996.74 (Other complications due to 

other vascular device, implant, and 

graft). The applicant believed that this 

combination of ICD–9–CM codes 

identifies cases treated for TAA. We 

note that the 2012 SAF dataset includes 

all claims submitted from hospitals paid 

under the IPPS for CY 2012. 

The applicant focused its analysis on 

MS–DRGs 219, 220, and 221 because 

these are the MS–DRGs to which cases 

treated with the implantation of 

endovascular grafts for TAA repair 

would most likely map. The applicant 

found a total of 642 cases, and noted 

that 27.88 percent of the total number of 

cases would map to MS–DRG 219, 40.50 

percent of the total number of cases 

would map to MS–DRG 220, and 31.62 

percent of the total number of cases 

would map to MS–DRG 221. The 

applicant standardized the charges for 

all 642 cases. Using the inflation factor 

of 1.47329 published in the FY 2014 

IPPS/LTCH final rule (78 FR 50982), the 

applicant inflated the standardized 

charges by 14.88 percent (the applicant 

multiplied 1.47329 × 1.47329 × 1.47329 

in order to inflate the charges from 2012 

to 2015). The applicant then added the 

charges for the Heli-FXTM EndoAnchor 

System to the standardized charges by 

dividing the cost of the Heli-FXTM

EndoAnchor System device by each 

individual hospital specific CCR from 

the FY 2012 impact file. This equated to 

an average case-weighted inflated 

standardized charge per case of 

$156,625. The applicant noted that the 

average case-weighted inflated 

standardized charge per case did not 

contain additional operating room 

charges related to the use of this 

technology. Therefore, the applicant 

determined that it was necessary to add 

an additional $2,160 for operating room 

charges, which was based on an 

additional 45 minutes of operating room 

time from one hospital, to the average 

case-weighted standardized charge per 

case. This resulted in an average caseweighted standardized charge per case 

of $158,785. The applicant calculated an 

average case-weighted threshold of 

$141,194 across MS–DRGs 219, 220, and 

221. The applicant noted that the 

average case-weighted standardized 

charge per case, without including 

charges for additional operating room 

time, exceeded the average caseweighted threshold of $141,194. 

Therefore, the applicant maintained that 

the technology meets the cost criterion. 

We are inviting public comments on 

whether the Heli-FXTM Thoracic System 

meets the cost criterion, particularly 

with regard to the assumptions and 

methodology used in the applicant’s 

analysis. 

(3) Evaluation of the Substantial Clinical 

Improvement Criterion for the HeliFXTM EndoAnchor System for the 

Treatment of Abdominal and Thoracic 

Aortic Aneurysms 

The applicant stated that the HeliFXTM EndoAnchor System represents a 

substantial clinical improvement for the 

following reasons: The technology 

improves overall rates of aneurysm 

exclusion and long-term success after 

EVAR by increasing the integrity and 

long-term durability of the proximal seal 

and fixation; the technology reduces the 

risk and rate of secondary interventions 

and readmissions due to aneurysmrelated complications (for example, 

endoleaks, migration, aneurysm 

enlargement) caused by failure of the 

proximal seal; the technology improves 

the general applicability of EVAR to 

patients with a broader spectrum of 

aortoiliac anatomy, including those with 

hostile proximal neck anatomy; and the 

technology reduces the rigor of life-long 

imaging follow-up for EVAR patients by 

reducing the rate of late failure and 

increasing the post-EVAR rates of 

aneurysm sac regression due to 

complete, endoleak-free durable 

aneurysm exclusion. 

While current devices and capabilities 

are greatly improved over the first 

generation of devices, the applicant 

noted that EVAR treatments using the 

first generation of devices has not 

proven to be as durable, anatomically 

applicable, or complication-free as open 

surgery. 4567 Several critical and lifethreatening limitations continue to 

require improvement to these devices 

and procedures, including the need to 

reduce serious early and late device and 

procedure-related complications, such 

as loss of stability, and integrity and 

robustness of the clinical proximal 

aortic landing zone, and to offer an 

alternative method of EVAR to a broader 

segment of the patient population. 

The applicant provided literature, 

analyses of data from the ‘‘STAPLE–2’’ 

clinical trial and the ANCHOR Registry, 

and a meta-analysis of EVAR trials to 

demonstrate that the Heli-FXTM

EndoAnchor System represents a 

substantial clinical improvement above 

current treatments available. We 

summarize the information provided by 

the applicant that supports the 

clinically beneficial results of using the 

Heli-FXTM EndoAnchor System. 

The ‘‘STAPLE–2’’ clinical trial 

enrolled 155 patients at 25 U.S. centers 

between September 2007 and January 

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2009. Clinical (and imaging) data are 

available for 147, 139 and 125 patients 

at 1-year, 2-year, and 3-year follow-up, 

respectively, representing the complete 

data sets at these time points. Patients 

enrolled in the clinical trial and 

observed under the study will continue 

to be followed per protocol for 5 years 

following aneurysm repair. According to 

the applicant, the results of the trial and 

study demonstrate that the Heli-FXTM

EndoAnchor System is associated with 

an extremely low rate of proximal neckrelated issues in long-term follow-up. 

The applicant maintained that this 

determination results in improved 

outcomes for aortic aneurysm patients, 

and reduced rate of re-interventions, 

which are associated with hospital 

admissions, procedural risks, and 

reversions to increased follow-up 

frequency requiring more physician 

visits and radiographic imaging studies. 

The data used for this analysis was 

extracted from the clinical database on 

February 1, 2013, and are identical to 

those used to generate the most recent 

Annual Progress Report (APR) 

submitted to the FDA, as required under 

the U.S. IDE regulations. 

While the ‘‘STAPLE–2’’ clinical trial 

was conducted exclusively with the 

Aptus AAA endograft (which remains 

investigational), the applicant believed 

that the use of the Heli-FXTM

EndoAnchor System-related data is 

applicable to the use of the anchor with 

the compatible Cook, Gore, and 

Medtronic manufactured endografts in 

treatment anatomies for AAA and TAA 

cases. 

Through 3-year follow-up, the 

applicant noted that there have been no 

anchor fractures as observed by the core 

lab. Further, there have been no relative 

migrations of the Heli-FXTM

EndoAnchor System as compared to 

other endografts reported by the core 

laboratory. 

In the analysis of the ‘‘STAPLE–2’’ 

clinical trial data at 1-year follow-up, 

the applicant noted that the core lab 

observed no proximal migrations, and a 

single case of Type I endoleak. A single 

secondary intervention was required to 

address the Type I endoleak in a patient 

with a circumferentially incomplete 

proximal neck within the 1-year followup period. 

The applicant further noted that no 

additional Type I endoleaks have been 

observed beyond the 1-year follow-up in 

any patient enrolled in the trial. In 

addition, there were no reported 

instances of aneurysm rupture, vessel 

perforation, vessel dissection, catheter 

embolization, enteric fistula, infection, 

Type III endoleak, conversion, allergic 

reactions, renal emboli, or patient death 

associated with the use of the Heli-FXTM

EndoAnchor System. Further, there 

have been no reports of bleeding or 

hematoma at the EndoAnchor 

penetration locations in the aortic neck. 

Beyond the 1-year follow-up, three 

patients have demonstrated proximal 

migrations less than 1 cm. None of these 

cases were associated with Type I 

endoleaks or aneurysm sac expansions. 

The applicant then compared 

migrations and Type I endoleaks data 

from the ‘‘STAPLE–2’’ clinical trial to 

analogous data from five compatible 

AAA endografts that were not anchored 

(data taken from published SSE data 

obtained from the FDA’s Web site). One 

year of data was compared because this 

timeframe is what is reported in a 

standard fashion from IDE trials of 

endografts. The applicant noted that the 

Heli-FXTM EndoAnchor System data 

compares favorably against the data 

obtained in U.S. pivotal trials of devices 

that did not employ discrete 

independent fixation means, 

particularly when viewed in light of the 

shorter average neck lengths treated in 

the ‘‘STAPLE–2’’ clinical trial versus 

those involving the Cook, Gore, and 

Medtronic manufactured endografts. 

According to the applicant, the number 

of proximal migrations were low across 

devices as reported in the SSE data, and 

an analysis using the Fisher’s exact 

method demonstrated no statistically 

significant differences when compared 

to the anchored endografts used in the 

‘‘STAPLE–2’’ clinical trial (all p = NS). 

The incidence of Type I endoleaks and 

the need for secondary interventions to 

address them was significantly lower for 

the Heli-FXTM EndoAnchor System 

endografts analyzed under the 

‘‘STAPLE–2’’ clinical trial versus the 

Medtronic, AneuRx, and Talent 

manufactured endografts (p = 0.026 

versus AneuRx and p = 0.015 versus 

Talent). The applicant stated that the 

applicability of post-hoc statistical 

analyses is limited. However, the 

applicant believed that because the data 

being compared under the analyses 

were collected through similar protocols 

and with the same endpoint definitions, 

post-hoc comparisons were deemed 

appropriate. The applicant further 

believed that the comparison of this 

data demonstrates that the Heli-FXTM

EndoAnchor System is associated with 

very low rates of Type I endoleaks and 

migrations. 

The applicant also provided data from 

the ANCHOR Registry, which is a postmarket, prospective, observational, 

multi-center, international, dual-arm 

study designed to capture real-world 

data on the usage patterns and clinical 

results associated with the use of the 

Heli-FXTM EndoAnchor System as a 

method of treatment for patients in need 

of EVAR. The applicant explained that 

the ANCHOR Registry represents a 

growing body of data on the application 

of the Heli-FXTM EndoAnchor System 

used as a method of endovascular aortic 

aneurysm repair. The applicant noted 

that to its knowledge, the anatomical 

challenges present in the registry are 

greater than those in any large scale 

published series. The applicant further 

noted that, although long-term results 

are limited, the acute results 

demonstrate a high level of device 

safety, technical feasibility and acute 

success in a patient population with few 

viable options. 

Primary safety for the ANCHOR 

Registry is being measured as a 

composite of freedom from device or 

procedure-related serious adverse 

events through 1-year follow-up 

following the Heli-FXTM EndoAnchor 

System implantation. Primary 

effectiveness is being measured as a 

composite of acute technical success 

and freedom from Type Ia endoleaks 

and endograft migrations through 1-year 

follow-up. Inclusion and exclusion 

criteria are minimal, essentially 

following the IFU requirements. Patients 

are being followed in the registry by 

their physician’s standard of care for 5 

years. 

Enrollment in the ANCHOR Registry 

began in March 2012. Through August 

2013, a total of 258 patients were 

enrolled at 40 participating centers (29 

located in the United States and 11 

located in the European Union), and 

data are available in the registry’s 

database. Of these, 195 patients (76 

percent) were enrolled in the primary 

arm, having the Heli-FXTM EndoAnchor 

System implanted at the time of their 

initial aneurysm treatment, either as a 

prophylactic measure, or to address an 

acute leak seen on completion 

arteriography. The remaining patients 

(63 or 24 percent) were enrolled in the 

revision arm, having the Heli-FXTM

EndoAnchor Systems implanted at a 

secondary procedure to arrest migration, 

or address endoleaks discovered on 

follow-up in previously implanted 

endografts. 

The applicant noted that physicians 

are choosing to apply the Heli-FXTM

EndoAnchor System in a subset of 

patients that are at a higher risk for 

proximal neck-related complications 

during follow-up. The large average sac 

diameter in the revision arm suggested 

that these patients’ initial treatments 

were unsuccessful and, as such, they 

have experienced continued sac 

expansion post-EVAR. These patients 

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28042 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

8 Deaton, D.H., Mehla, M., Kasirajan, K., et al., 

‘‘The Phase I Multi-center Trial (Staple-1) of the 

Aptus Endovascular Repair System: Results at 6 

Months and 1 Year,’’ Journal of Vascular Surgery, 

2009, Vol. 49, pp. 851–857 (discussion on pp. 857– 

858.) 

also represent a high-risk subset of 

patients. 

Acute results are measured in terms of 

technical success. In the primary arm, 

193 of 194 procedures were successful, 

and in the revision arm, 57 of 63 

procedures were successful. All 

technical failures were persistence of 

Type Ia endoleaks. There has been a 

single re-intervention at 69 days postEndoanchor implantation for a 

persistent Type Ia endoleak in one 

patient in the revision arm, in which the 

Heli-FXTM EndoAnchor System 

combined with a proximal cuff were 

unable to completely resolve the 

endoleak. There have been no devicerelated serious adverse events. 

As mentioned above, because the 

‘‘STAPLE–1,’’ 8 and ‘‘STAPLE–2’’ 

clinical trials were single-arm studies, 

no data are available from them to 

assess the impact of the Heli-FXTM

EndoAnchor System on endograft 

performance. To make this assessment, 

a meta-analysis was conducted. The 

meta-analysis combined long-term AAA 

endograft performance from endografts 

marketed in the United States, and 

compared these measures to those from 

long-term follow-up in the ‘‘STAPLE–2’’ 

trial. 

According to the applicant, the key 

findings from the meta-analysis are as 

follows: 

• Heli-FXTM EndoAnchors reduced 

the proportion of treated aneurysms 

with enlargement greater than 5 mm at 

3 years from 12.7 percent to 3.9 percent 

(p = .002). 

• Heli-FX EndoAnchor System 

reduced the proportion of leaks 

requiring treatment at 3 years from 12 

percent to 1.3 percent (p < .001). 

• Heli-FXTM EndoAnchor System 

reduced (all-cause) mortality at 3 years 

from 18.8 percent to 8.4 percent (p = 

.002). However, this does not appear to 

have been totally mediated by AAArelated mortality, which was reduced by 

the Heli-FXTM EndoAnchor System from 

2.5 percent to 0.7 percent at 3 years (but 

was not statistically significant, p = 

.372). 

According to the applicant, in general, 

patients in the ANCHOR Registry were 

similar to the patients in the AAA 

endograft studies. The applicant noted 

that the results of the analysis using the 

Fisher’s Exact Tests were consistent 

between the All-Studies’ comparisons 

and the IDE-Studies’ comparisons: AllCause Mortality, Leaks requiring 

Treatment, and Enlargement were all 

significantly lower at 3 years in the 

endografts implanted with the HeliFXTM EndoAnchor System than in 

standard endografts. 

The applicant asserted that the metaanalysis shows that there is objective 

evidence that the Heli-FXTM

EndoAnchor System effectively reduces 

well-documented problems with 

endografts. By providing the endograft 

with better apposition to the native 

artery, the applicant noted that the HeliFXTM EndoAnchor System reduces the 

rates of enlargement and endoleaks 

requiring treatment. The applicant 

further noted that these results were 

consistent in the All-Studies’ and IDE 

Studies’ meta-analyses. The applicant 

believed that lower rates of leaks 

requiring intervention would save 

payers money over the long term. 

The applicant observed that, while 

there was no significant improvement in 

the rate of ruptures with the Heli-FXTM

EndoAnchor System, this may be due to 

the fact that leaks were treated and, 

thereby, prevented any ruptures. The 

applicant believed that the higher rate of 

treated endoleaks in endografts 

implanted without the Heli-FXTM

EndoAnchor System provides for this 

hypothesis. Also, migration did not 

appear to be significantly reduced by 

the Heli-FXTM EndoAnchor System (3.5 

percent at 3 years in both groups; p = 

1.0). 

Finally, the applicant concluded that, 

overall, the lower complication rates 

seen with the Heli-FXTM EndoAnchor 

System in the meta-analysis provide 

evidence of the clinical benefits and 

likely economic benefits associated with 

the use of the Heli-FXTM EndoAnchor 

System. The applicant believed that the 

technology may be especially helpful in 

patients with difficult anatomy, and that 

it may be reasonable to consider using 

the Heli-FXTM EndoAnchor System 

prophylactically in the treatment of all 

such patients. 

In addition to the formal study data 

from the ‘‘STAPLE–2’’ trial, the Global 

ANCHOR Registry, and the metaanalysis based on these, the applicant 

provided published peer-reviewed 

literature that represent an early state of 

scientific data dissemination outside of 

non-company sponsored clinical 

studies, which is commensurate with 

the recent market approvals of the HeliFXTM EndoAnchor System technology. 

The applicant believed that this data 

demonstrates strong initial physician 

enthusiasm and resulting favorable 

clinical results in their experience to 

date. The applicant noted that the 

general body of scientific literature is 

considered meaningful and growing for 

this early stage of market introduction. 

However, the applicant asserted that the 

literature supports the study and metaanalysis data above that documents that 

improved clinical outcomes were 

observed, including outcomes in a 

broader range of patients that are often 

ineligible for, or at greatest risk with, 

EVAR. 

We are concerned that the three 

sources of data, the ‘‘STAPLE–2’’ 

clinical trial, the Anchor registry, and 

the literature review that the applicant 

submitted to support their application 

are not high quality evidence. The 

‘‘STAPLE–2’’ study was a single-arm 

study and only used one endograft, the 

registry is an observational study, and 

the literature review does not provide 

clinical data. Also, the meta-analysis of 

all the submitted data is only as good as 

the data used. While the clinical data 

submitted suggests that some outcomes 

such as EVAR failure are improved, we 

are concerned that there is not enough 

clinical evidence to support the 

substantial clinical improvement 

criterion. We are inviting public 

comments on whether the submitted 

data demonstrate that the Heli-FXTM

EndoAnchor System represents a 

substantial clinical improvement in the 

treatment of Medicare beneficiaries, 

particularly in regard to the concerns we 

have identified. 

We received public comments in 

response to the New Technology Town 

Hall meeting held on February 12, 2014. 

We summarize these comments below. 

Comment: Several commenters 

supporting new technology add-on 

payments for the Heli-FXTM

EndoAnchor System. In addition, one 

commenter believed that EndoAnchors 

would broaden the applicability of 

endovascular aneurysm repair. The 

commenter noted that use of 

EndoAnchors increases the force needed 

to dislodge the proximal neck of the 

graft by several times, and in some cases 

even stronger than a hand-sewn 

anastomosis. This commenter further 

noted that this would allow patients 

with short, or otherwise difficult aortic 

necks to be treated more safely with 

endovascular aneurysm repair. The 

commenter stated that the technology is 

beneficial for patients who have medical 

problems or advanced age as 

contraindications to open surgery 

because endovascular repair can be 

made possible with the Heli-FXTM

EndoAnchor System. 

The commenter further stated that 

patients with endoleaks identified 

during follow-up are frequently not 

candidates for extension prostheses and 

would otherwise require open 

explantation of the graft and aneurysm 

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Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 28043 

repair. The commenter explained that 

these are far more challenging and risky 

operations than primary open aneurysm 

repairs, and are routinely associated 

with blood loss of several liters as well 

as prolonged lower extremity, renal, and 

visceral ischemia. The commenter noted 

that many of these often elderly patients 

can be successfully treated in a 

minimally invasive manner using the 

Heli-FXTM EndoAnchor System, 

reestablishing proximal fixation and 

seal while avoiding the morbidity and 

mortality associated with graft 

explantation and open repair. The 

commenter concluded that if new 

technology add-on payments are 

approved for the Heli-FXTM

EndoAnchor System, many patients 

would realize the advantages of this 

unique and necessary device, improving 

their care and reducing overall cost. 

Another commenter stated that the 

Heli-FXTM EndoAnchor System 

provides an opportunity to extend a less 

mortal procedure (EVAR) to patients 

whose anatomy may predispose them to 

late failure, including patients with 

large proximal neck diameters, 

increased iliac diameters, or abnormal 

neck anatomy. In primary repair, the 

applicant stated that endoanchors have 

been demonstrated to mimic a surgical 

anastomosis. The commenter believed 

that this would lead to less 

reinterventions and less aneurysm 

related mortality. Given the cost of 

reintervention or treating a ruptured 

AAA, the commenter believed that this 

technology should have a real impact in 

the overall cost of EVAR in this patient 

population. 

Response: We appreciate the 

commenters’ support. We considered 

these comments in our evaluation of the 

Heli-FXTM EndoAnchor System 

application for new technology add-on 

payments for FY 2015 and in the 

development of this proposed rule. As 

stated above, we are inviting additional 

public comments on whether the HeliFXTM EndoAnchor System represents a 

substantial clinical improvement in the 

treatment of Medicare beneficiaries, 

particularly in regard to the concerns we 

have identified. 

c. WATCHMAN® Left Atrial Appendage 

Closure Technology 

Boston Scientific Corporation 

submitted an application for new 

technology add-on payments for the 

WATCHMAN® Left Atrial Appendage 

Closure Technology (Watchman®

System) for FY 2015. When a patient 

has an arrhythmia known as atrial 

fibrillation (AF), the left atrium does not 

expand and contract normally. As a 

result, the left atrium is not capable of 

completely emptying itself of blood. 

Blood may pool, particularly in the part 

of the left atrium called the left atrial 

appendage. This pooled blood is prone 

to clotting, causing formation of a 

thrombus (that is, a blood clot). When 

a thrombus breaks off, it is called an 

embolism (or thromboembolism). An 

embolism can cause a stroke or other 

peripheral arterial blockage. 

The WATCHMAN® Left Atrial 

Appendage (LAA) Closure Device is an 

implant that acts as a physical barrier, 

sealing the LAA to prevent 

thromboemboli from entering into the 

arterial circulation from the LAA, 

thereby reducing the risk of stroke and 

potentially eliminating the need for 

Warfarin therapy in those patients 

diagnosed with nonvalvular AF and 

who are eligible for Warfarin therapy. 

The applicant anticipates FDA 

premarket approval of the 

WATCHMAN® System in the first half 

of 2014. According to the applicant, the 

WATCHMAN® System is the first LAA 

closure device that would be approved 

by the FDA. Therefore, the applicant 

believes that the technology meets the 

newness criterion. The device is 

currently identified by ICD–9–CM 

procedure code 37.90 (Insertion of Left 

Atrial Appendage Device), which was 

issued on October 1, 2004. We are 

inviting public comments on if, and 

how, the WATCHMAN® System meets 

the newness criterion. 

With regard to the cost criterion, the 

applicant used the FY 2012 MedPAR 

file and searched the claims data for 

cases reporting with ICD–9–CM 

procedure code 37.90. The applicant 

provided two analyses. The first 

analysis includes all claims that 

contained ICD–9–CM procedure code 

37.90 regardless of whether it was the 

principle procedure that determined the 

MS–DRG assignment of the case. This 

returned 243 cases spread across 21 

MS–DRGs. The applicant noted that the 

MedPAR file contained claims that were 

returned to the provider reporting 

charges for actual cases from clinical 

trials that used the WATCHMAN®

System that were well below post-FDA 

approval pricing. Therefore, the 

applicant removed the premarket device 

related charges. The applicant then 

standardized the charges, applied an 

inflation factor of 1.096898 based on the 

2-year charge inflation factor listed in 

the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50982) and then added post-FDA 

approval charges for the WATCHMAN®

System. This resulted in an average 

case-weighted standardized charge per 

case of $176,943. The applicant 

calculated an average case-weighted 

threshold of $107,345 across all MS– 

DRGs. Therefore, the applicant asserted 

that the average case-weighted 

standardized charge per case exceeds 

the average case-weighted threshold and 

maintained that the technology meets 

the cost criterion. 

The second analysis focused on cases 

reporting ICD–9–CM procedure code 

37.90, and assigned to MS–DRGs 250 

(Percutaneous Cardiovascular Procedure 

without Coronary Artery Stent with 

MCC) and 251 (Percutaneous 

Cardiovascular Procedure without 

Coronary Artery Stent without MCC). 

According to the applicant, these are the 

MS–DRGs to which cases using the 

WATCHMAN® System in the delivery 

of treatment as the principal procedure 

performed during the inpatient stay are 

assigned. The applicant found a total of 

122 cases, and noted that 9.02 percent 

of the total number of cases would map 

to MS–DRG 250, and 90.98 percent of 

the total number of cases would map to 

MS–DRG 252. Similar to above, the 

applicant noted that the MedPAR file 

contained claims that were returned to 

the provider reporting charges for actual 

cases from clinical trials that used the 

WATCHMAN® System that were well 

below post-FDA approval pricing. 

Therefore, the applicant removed the 

premarket device-related charges. The 

applicant then standardized the charges, 

applied an inflation factor of 1.096898 

based on the 2-year charge inflation 

factor listed in the FY 2014 IPPS/LTCH 

final rule (78 FR 50982), and then added 

post FDA-approval charges for the 

WATCHMAN® System. This resulted in 

an average case-weighted standardized 

charge per case of $113,210. The 

applicant calculated an average caseweighted threshold of $68,093. The 

applicant asserted that the average caseweighted standardized charge per case 

exceeds the average case-weighted 

threshold. Therefore, the applicant 

maintained that the technology meets 

the cost criterion. We are inviting public 

comments on whether the 

WATCHMAN® System meets the cost 

criterion, particularly with regard to the 

assumptions and methodology used in 

the applicant’s analysis. 

The applicant asserted in its 

application that the WATCHMAN®

System meets the substantial clinical 

improvement criterion. The applicant 

believed that the WATCHMAN® System 

provides a permanent solution proven 

to reduce the risk of thromboembolic 

stroke in patients diagnosed with highrisk, nonvalvular AF, and who are 

eligible for Warfarin therapy. Therefore, 

the applicant believed that the 

WATCHMAN® System fulfills a major 

unmet clinical need. According to the 

applicant, clinical trial data 

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28044 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

9Wrigley, B., Lip, G., ‘‘Can the WATCHMAN 

device truly PROTECT from stroke in atrial 

fibrillation?’’, Lancet Neurology, 2009. 

10Reddy, V., Holmes, D., Doshi, S., et al. ‘‘Safety 

of percutaneous left atrial appendage closure: 

Results from the WATCHMAN left atrial appendage 

system for embolic protection in patients With AF 

(PROTECT AF) clinical trial and the Continued 

Access Registry. Circulation.’’ Vol. 123, 2011. 

11Reddy, V., Doshi, S., Sievert, H., et. al., 

‘‘Percutaneous left atrial appendage closure for 

stroke prophylaxis in patients with atrial 

fibrillation: 2.3-year follow up of the PROTECT AF 

(Watchman Left Atrial Appendage System for 

embolic protection in patients with atrial 

fibrillation) trial,’’ Circulation., 2013, Vol. 127, pp. 

720–729. 

12Alli, O., Doshi, S., Kar, S., et al., ‘‘Quality of 

Life Assessment in the Randomized PROTECT AF 

Trial of Patients at Risk for Stroke With NonValvular Atrial Fibrillation,’’ Journal of American 

College of Cardiology, Vol. 61, No 17, 2013, pp. 

1790–1798. 

13Landmesser, U., Holmes, D., ‘‘Left atrial 

appendage closure: A percutaneous transcatheter 

approach for stroke prevention in atrial 

fibrillation,’’ European Heart Journal, Vol. 33, 2012. 

14Homes, D.R. PREVAIL Results CIT, 2013. 

demonstrated non-inferiority of the 

WATCHMAN® System compared to 

Warfarin therapy. Further, long-term 

follow-up data suggested superiority 

compared to Warfarin therapy by 

demonstrating 40 percent relative 

reduction of primary efficacy events, 

and 60 percent relative reduction for CV 

mortality. The applicant also stated that, 

procedure complication rate is low, 

with the majority of events occurring 

soon before, during, or soon after the 

procedure. 

The applicant submitted multiple 

clinical trial studies to demonstrate that 

the technology represents a substantial 

clinical improvement. Specifically, the 

WATCHMAN® System United States 

clinical program included five studies 

with approximately 2000 patients. 

There were two prospective, 

randomized-controlled trials (PROTECT 

AF 9 10 11 12 and PREVAIL 13 14), two 

continued access registries for patients 

who completed PROTECT AF and 

PREVAIL (CAP and CAP2, respectively), 

and the ASAP feasibility study. 

According to the applicant, PROTECT 

AF was a prospective, randomizedcontrolled trial comparing the outcomes 

of patients who received care for LAA 

closure using the WATCHMAN®

System (463 patients) with those of 

patients who were anticoagulated with 

Warfarin therapy (244 patients). The 

trial was designed to show that the 

WATCHMAN® System was noninferior 

to Warfarin therapy. The primary 

outcome was anticipated to occur at a 

rate of 6.15 per 100 patient-years in the 

control group, and the sample size was 

chosen using a ‘‘two-fold non-inferiority 

margin.’’ Because patients could be 

randomized to Warfarin therapy, all 

patients were eligible to continue 

Warfarin, and did not have an excessive 

risk of bleeding. By design, all patients 

in PROTECT AF continued Warfarin 

therapy for 45 days after the device 

implantation procedure. 

Outcome data from PROTECT AF 

have been reported after mean followups of 1.5 years, 2.3 years, and 3.7 years. 

The primary efficacy endpoint was the 

composite of stroke, systemic embolism, 

cardiovascular death, or unexplained 

death. This primary endpoint occurred 

in the control group at a lower rate than 

was assumed in the sample size 

calculations: The observed rate was 

between 3.8 and 4.9 per 100 patientyears compared with the design 

estimate of 6.15 per 100 patient-years. 

According to the applicant, patients 

randomly assigned to receive the 

WATCHMAN® System device in the 

PROTECT AF trial had numerically 

lower rates of the primary endpoint than 

the patients randomly assigned to 

Warfarin (also known as Coumadin) at 

all time points. We note that, although 

the point estimates favor the device for 

the primary endpoint, the differences 

were not statistically significant because 

the upper 95 percent confidence 

intervals are all above 1.0. However, the 

secondary endpoint of cardiovascular 

death was reduced significantly, as was 

all-cause mortality with a rate ratio of 

0.66 (CL 0.45–0.98). 

The criteria for noninferiority of the 

primary endpoint were met over all 

follow-up intervals. According to the 

applicant, the probability is >99 percent 

that device-treated patients have no 

more than twice the rate of stroke, 

embolism, or death than Warfarintreated patients. 

Also, the incidence of proceduralrelated complications in this trial was 

8.7 percent. The applicant noted that 

complications early in the trial were 

related to procedures performed by new 

users. As a result, changes were made to 

the procedure and physician training, 

and the complication rate subsequently 

decreased. 

The applicant stated in its application 

that the Circulatory System Devices 

Advisory Panel to the Division of 

Cardiovascular Devices (DCD) within 

the Center for Devices and Radiological 

Health (CDRH) of the FDA reviewed the 

1-year PROTECT AF data on April 23, 

2009. The panel voted 7:5 in favor of the 

device, resulting in a positive 

recommendation for ‘‘approval with 

conditions.’’ However, noting the 

complication rate, the FDA required 

additional data collection on procedural 

safety to confirm the lower rates 

observed in the second half of the trial. 

As a result of this requirement, the 

PREVAIL trial study was designed in a 

similar fashion to PROTECT AF, but 

with modifications to trial entry criteria 

and a minimum number of new 

operators. 

According to the applicant, in the 

interim, FDA also recognized the 

effectiveness of the WATCHMAN®

System and the need for a new 

therapeutic option for patients receiving 

Warfarin therapy, and a continued 

access program (CAP) was authorized. 

With 460 patients enrolled, according to 

the applicant, efficacy rates in the CAP 

trial study were similar to those seen in 

the PROTECT AF trial study, and 

procedural complications were reduced 

by over 50 percent compared to the 

PROTECT AF trial study, from 8.7 

percent to 4.1 percent. 

From November 2010 to June 2012, 

the PREVAIL trial enrolled a total of 407 

patients, 269 of whom received 

treatment for LAA closure with the 

WATCHMAN® System, and 138 who 

received Warfarin therapy. The 

applicant noted that the procedural 

complication rate was 4.4 percent, 

confirming the rate seen in the second 

half of the PROTECT AF trial study and 

the CAP trial study. After the PREVAIL 

trial closed, the FDA authorized a 

second CAP (specifically, CAP2), which 

has enrolled 336 patients as of the date 

the applicant submitted its application. 

The applicant also submitted data 

concerning patients diagnosed with AF 

who are not on an oral anticoagulant. 

These patients are not protected from 

stroke by an oral anticoagulant. There 

may be increased periprocedural risk of 

device implantation because thrombus 

might form on the device surface more 

readily in patients with no 

anticoagulation (patients in the 

PROTECT AF trial were treated with 

Warfarin for 45 days after the device 

implantation procedure). Specifically, 

the ASAP Registry (5) enrolled 150 

patients, at one of four centers, that had 

a contraindication to even short-term 

anticoagulation, mostly a history of 

prior bleeding. There was no control 

group. Device implantation led to a 

serious adverse event in 13 patients (8.7 

percent), including one case of device 

thrombus leading to ischemic stroke. 

Five other patients had a device-related 

thrombus that did not lead to stroke 

(four of these patients were treated with 

low molecular weight heparin), 

resulting in an overall 4.0 percent 

incidence (6 out of 150) of deviceassociated thrombus. In the PROTECT 

AF trail study, 20 of the 473 patients 

(4.2 percent) had device-associated 

thrombus, 3 of which led to an ischemic 

stroke. The rates of device-related 

thrombus are similar in the two studies 

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15Holmes, D.R., et. al., ‘‘Left Atrial Occlusion,’’ 

Journal of American College of Cardiology, 2014, 

Vol. 63, pp. 291–8. 

(4.0 percent versus 4.2 percent), but the 

number of patient studied is smaller in 

the ASAP Registry (5) study compared 

to the PROTECT AF clinical trial study. 

In the 14-month follow-up data for the 

ASAP Registry (5) study, the rate of 

stroke or systemic embolism was 2.3 

percent per year, which was said to be 

‘‘lower than expected’’ based on prior 

data for patients diagnosed with AF 

who were not treated with Warfarin 

(there was no concurrent control group). 

The data provided suggested efficacy in 

this patient population. However, we 

are concerned that there is not strong 

evidence that the device prevents 

stroke. 

All trials in the U.S. clinical program 

allowed for continued follow-up of 

patients out to 5 years postrandomization. According to the 

applicant, the patients enrolled in the 

PROTECT AF clinical trial now have an 

average of 3.8 years of follow-up. The 

applicant asserted that an analysis of 

this long-term data demonstrates 

superior primary efficacy outcomes of 

the WATCHMAN® System over 

Warfarin therapy. 

The applicant concluded that the 

WATCHMAN® System provides a 

permanent solution to reduce the risk of 

ischemic strokes caused by 

thromboemboli originating in the LAA 

in patients diagnosed with nonvalvular 

AF. The applicant further stated that, 

the data demonstrate that LAA closure 

using the WATCHMAN® System is a 

substantial improvement in care as 

compared to currently available 

pharmacologic therapy, such as 

Warfarin therapy. 

The WATCHMAN® System may be 

used in two populations: (1) Patients 

who could take Warfarin (or other oral 

anticoagulant), but would prefer to 

avoid the risk of bleeding from 

anticoagulant therapy; (2) patients who 

are not eligible for oral anticoagulation 

therapy because of an unacceptable risk 

of bleeding. Most of the clinical 

evidence presented by the applicant is 

from the former group, and the 

applicant has requested from the FDA 

that the label indication be for ‘‘high 

risk patients with nonvalvular atrial 

fibrillation who are eligible for warfarin 

therapy, but, for whom the risks posed 

by long-term warfarin therapy outweigh 

the benefits.’’ 

We are concerned that the evidence 

presented by the applicant 

demonstrating the superiority of the 

WATCHMAN® System compared to 

Warfarin therapy is insufficient. The 

clinical study discussed above was 

designed to demonstrate that the 

WATCHMAN® is noninferior to 

Warfarin therapy. Specifically, in the 

PREVAIL AF trial study, the primary 

endpoint was not significantly 

improved in the conventional 

hypothesis testing statistical analysis at 

any time point. The longer term data has 

improved efficacy and safety data, but 

still remain sparse. Even for the 

secondary patient population ineligible 

for anticoagulation therapy, the 

evidence remains weak as the only data 

comes from the ASAP Registry (5) 

observational study of 150 patients 

without a concurrent control group. 

A recent article in the Journal of the 

American College of Cardiology echoes 

these concerns: ‘‘Current issues 

compromising the implementation of 

procedural approaches for stroke 

prevention in AF are discussed herein 

and include: (1) Lack of multiple 

randomized clinical trials; (2) lack of 

consensus regarding the appropriate 

target population to study; and (3) 

ability to obtain approval of devices for 

outcome measures of unconfirmed 

clinical importance, such as, the use of 

complete closure of the LAA at the time 

of the index procedure as a surrogate for 

clinical efficacy.’’ 15

We are inviting public comments on 

whether this technology meets the 

substantial clinical improvement 

criterion, particularly regarding our 

concerns discussed above. 

We did not receive any public 

comments in response to the New 

Technology Town Hall meeting held on 

February 12, 2014 in regard to this 

technology. 

d. CardioMEMSTM HF (Heart Failure) 

System 

CardioMEMS, Inc. submitted an 

application for new technology add-on 

payment for FY 2015 for the 

CardioMEMSTM HF (Heart Failure) 

System, which is an implantable 

hemodynamic monitoring system 

comprised of an implantable sensor/

monitor placed in the distal pulmonary 

artery. Pulmonary artery hemodynamic 

monitoring is used in the management 

of heart failure. The CardioMEMSTM HF 

System measures multiple pulmonary 

artery pressure parameters for an 

ambulatory patient to measure and 

transmit data via a wireless sensor to a 

secure Web site. 

The CardioMEMSTM HF System 

utilizes radiofrequency (RF) energy to 

power the sensor and to measure 

pulmonary artery (PA) pressure and 

consists of three components: An 

Implantable Sensor with Delivery 

Catheter, an External Electronics Unit, 

and a Pulmonary Artery Pressure 

Database. The system provides the 

physician with the patient’s PA pressure 

waveform (including systolic, diastolic, 

and mean pressures) as well as heart 

rate. The sensor is permanently 

implanted in the distal pulmonary 

artery using transcatheter techniques in 

the catheterization laboratory where it is 

calibrated using a Swan-Ganz catheter. 

PA pressures are transmitted by the 

patient at home in a supine position on 

a padded antenna, pushing one button 

which records an 18-second continuous 

waveform. The data also can be 

recorded from the hospital, physician’s 

office or clinic. 

The hemodynamic data, including a 

detailed waveform, are transmitted to a 

secure Web site that serves as the 

Pulmonary Artery Pressure Database, so 

that information regarding PA pressure 

is available to the physician or nurse at 

any time via the Internet. Interpretation 

of trend data allows the clinician to 

make adjustments to therapy and can be 

used along with heart failure signs and 

symptoms to adjust medications. 

The applicant believed that a large 

majority of patients receiving the sensor 

would be admitted as an inpatient to a 

hospital with a diagnosis of acute or 

chronic heart failure, which is typically 

described by ICD–9–CM diagnosis code 

428.43 (Acute or chronic combine 

systolic and diastolic heart failure) and 

the sensor would be implanted during 

the inpatient stay. The applicant stated 

that for safety considerations, a small 

portion of these patients may be 

discharged and the sensor would be 

implanted at a future date in the 

hospital outpatient setting. In addition, 

there would likely be a group of patients 

diagnosed with chronic heart failure 

who are not currently hospitalized, but 

who have been hospitalized in the past 

few months for whom the treating 

physician believes that regular 

pulmonary artery pressure readings are 

necessary to optimize patient 

management. Depending on the 

patient’s status, the applicant stated that 

these patients may have the sensor 

implanted in the hospital inpatient or 

outpatient setting. 

The applicant anticipates FDA 

approval and commercial launch in the 

second quarter of 2014. The 

CardioMEMSTM HF System is currently 

described by ICD–9–CM procedure code 

38.26 (Insertion of implantable pressure 

sensor without lead for intracardiac or 

great vessel hemodynamic monitoring). 

We are inviting public comments 

regarding how the CardioMEMSTM HF 

System meets the newness criterion. 

With respect to cost criterion, the 

applicant submitted actual claims from 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

28046 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

16Abraham WT, Adamson PB, Bourge RC, Aaron 

MF, Costanzo MR, Stevenson LW, Strickland W, 

Neelagaru S, Raval N, Krueger S, Weiner S, Shavelle 

D, Jeffries B, Yadav JS; for the CHAMPION Trial 

Study Group. Wireless pulmonary artery 

haemodynamic monitoring in chronic heart failure: 

a randomised controlled trial, Lancet, February 19, 

2011, Vol. 377(9766), pp:658–666. 

the CHAMPION 16 clinical trial. Of the 

550 patients enrolled in the trial, the 

applicant received 310 hospital bills. 

The applicant excluded the following 

claims: Incomplete or missing 

procedure codes, incomplete charge 

information and bills that were 

statistical outliers (three standard 

deviations away from the geometric 

mean). This resulted in a final cohort of 

138 claims. The applicant noted that 

cases treated with the CardioMEMSTM

HF System would typically map to MS– 

DRG 264 (Other Circulatory System 

Operating Room Procedures). Using the 

138 clinical trial claims, the applicant 

standardized the charges and added 

charges for the CardioMEMSTM HF 

System (because the clinical trial claims 

did not contain charges for the 

CardioMEMSTM HF System). This 

resulted in an average case-weighted 

standardized charge per case of $79,218. 

Using the FY 2014 Table 10 

thresholds, the threshold for MS–DRG 

264 is $60,172. Because the average 

case-weighted standardized charge per 

case exceeded the threshold amount, the 

applicant maintained that the 

CardioMEMSTM HF System would meet 

the cost criterion. We are inviting public 

comments on whether or not the 

CardioMEMSTM HF System meets the 

cost criterion. 

With regard to substantial clinical 

improvement, the applicant asserted 

that elevated PA pressures occur prior 

to signs and symptoms of heart failure 

and changes in PA pressures provide a 

sound physiologic basis for its 

management. The applicant also 

contended that, until the creation of the 

CardioMEMS wireless PA implant, 

knowledge of PA pressure was only 

feasible in the hospital with the 

performance of a right heart 

catheterization. According to the 

applicant, the CardioMEMSTM HF 

System provides physicians knowledge 

of PA pressure while the patient is at 

home, allowing proactive management 

to prevent heart failure decompensation 

and hospitalization. 

The applicant cited clinical data from 

the CHAMPION trial. The trial is a 

prospective, multicenter, randomized, 

single-blinded clinical trial conducted 

in the United States, designed to 

evaluate the safety and efficacy of the 

CardioMEMSTM HF System in reducing 

heart failure-related hospitalizations in 

a subset of subjects suffering from heart 

failure. The applicant shared several 

major findings from the CHAMPION 

trial as described below. 

The primary efficacy endpoint of the 

CHAMPION trial was the rate of HF 

hospitalizations during the first 6 

months of randomized access. There 

were 84 heart failure hospitalizations in 

the treatment group compared with 120 

heart failure hospitalizations in the 

control group. This difference between 

the groups represented a 28-percent 

reduction in the rate of hospitalization 

for heart failure in the treatment group 

(0.32 hospitalizations per patient in the 

treatment group versus 0.44 

hospitalizations per patient in the 

control group, p = 0.0002). Although not 

a primary end point, the rate of HF 

hospitalizations after 18 months was 33 

percent lower in the treatment group 

than in the control group. 

According to the applicant, secondary 

endpoints of the CHAMPION trial are 

changes in pulmonary artery pressures, 

proportion of subjects hospitalized, days 

alive outside of the hospital, quality of 

life (QOL), and heart failure 

management which demonstrated the 

following results: 

• Pulmonary Artery Pressures: At 

baseline, both treatment and control 

patients had similar PA mean pressures. 

The change in pressure over the first 6 

months was evaluated by integrating the 

area under the pressure curve (AUC). At 

6 months of follow-up, the treatment 

group had a significantly greater 

reduction in AUC of ¥155.7 mmHg 

days compared to the control group 

which had an increase in AUC of +33.1 

mmHg-days; p = 0.0077. 

• Proportion of Subjects Hospitalized: 

During the 6-month follow-up period, 

the proportion of subjects hospitalized 

for 1 or more HF hospitalizations was 

significantly lower in the treatment 

group (55 out of 270 patients) than in 

the control group (80 out of 280 

patients) (20.4 percent versus 28.6 

percent; p = 0.0292). 

• Days Alive Outside of the Hospital: 

At 6 months, treatment patients had a 

nonsignificant and clinically not 

meaningful increase in days alive 

outside of the hospital (174.4 versus 

172.1; p = 0.0280) and fewer average 

days in the hospital (2.2 versus 3.8; p = 

0.0246) compared to control patients. 

• Quality of Life: The heart failure 

specific quality of life was assessed with 

the MLHFQ total score at 6 months. The 

average total score in the treatment 

group was 45.2 ± 26.4 which was 

significantly better than the average 

total score in the control group 50.6 ± 

24.8 (p = 0.0236). The difference in total 

quality of life was primarily due to the 

physical domain. The average physical 

score for the treatment group (19.8 ± 

11.2) was significantly better than the 

control group (22.4 ± 10.9) (p = 0.0096). 

There was also a significant difference 

in the emotional domain with an 

average score of 9.5 ± 8.1 for the 

treatment group and 11.0 ± 7.7 for the 

control group (p = 0.0398). 

• Heart Failure Management: 

Physicians responded to treatment of 

patients’ elevated PA pressures by 

making medication changes to lower PA 

pressures and reduce the risk for HF 

hospitalization. Physicians documented 

all medication changes for all patients 

and indicated whether the change was 

made in response to PA pressures or 

standard of care information. During the 

6-month follow-up period, physicians 

made approximately one additional HF 

medication change per patient per 

month in the treatment group when 

compared to the control group. 

Specifically, treatment patients had 1.55 

medication changes per month on 

average compared to control patients 

having 0.65 medication changes per 

month (p < 0.0001). The difference in 

HF management between the treatment 

and control group was due to HF 

medication changes made in response to 

PA pressures. 

The study met the two primary safety 

endpoints: (1) Freedom from device/

system related complications (DSRC); 

and (2) freedom from sensor failure. The 

protocol pre-specified objective 

performance criterion (OPC) were that at 

least 80 percent of patients were to be 

free from DSRC and at least 90 percent 

were to be free from pressure sensor 

failure. Of the 575 patients in the safety 

population, 567 (98.6 percent) were free 

from DSRC at 6 months (lower 

confidence limit 97.3 percent, p 

< 0.0001). This lower limit of 97.3 

percent is greater than the pre-specified 

OPC of 80 percent. There were no 

sensor explants or repeat implants and 

all sensors were operational at 6 months 

for a freedom from sensor failure of 100 

percent (lower confidence limit 99.3 

percent, p < 0.0001). This lower limit of 

99.3 percent is greater than the prespecified OPC of 90 percent. 

The applicant also noted that the 

CardioMEMSTM HF System reduces the 

occurrence of HF hospitalizations in 

NYHA Class III heart failure patients. 

According to the applicant, the device 

had very few device and system related 

complications occurring over the course 

of the clinical trial. All primary and 

secondary study endpoints were 

successfully achieved. In addition, the 

CHAMPION trial suggests the safety and 

effectiveness of the device was 

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Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 28047 

maintained during longer term followup. 

After reviewing the information 

provided by the applicant, we have the 

following concerns. The applicant did 

not discuss long-term outcomes, 

specifically death. We believe 

additional long-term outcome 

information and how the technology 

changes long-term outcomes would 

further assist in our determination of 

whether the technology represents a 

substantial clinical improvement. With 

regard to the clinical trial, information 

from the randomized access period and 

the open access period did not include 

the total number of deaths in each 

group. While the data support a 

reduction in total hospitalizations, the 

rate of hospitalization in each group 

(0.32 versus 0.44) does not appear to be 

clinically meaningful. This is supported 

by total days alive out of the hospital 

being virtually identical in both groups. 

Finally, we are concerned about the 

cause of the significant dropouts in the 

Kaplan Meier curves which further 

demonstrates lack of impact on survival. 

We are inviting public comments on 

whether or not the CardioMEMSTM HF 

Monitoring System technology 

represents a substantial clinical 

improvement in the Medicare 

population. 

We received public comments via 

email in response to the February 12, 

2014 New Technology Town Hall 

meeting in regard to this technology. We 

summarize these comments below. 

Comment: Commenters supported the 

approval of new technology add-on 

payments for the CardioMEMSTM HF 

System. One commenter stated that it 

had personal experience with the 

CardioMEMSTM HF System. The 

commenter explained that having access 

to a patient’s daily pressures provides 

trend data. The commenter further 

explained that if there is a variation or 

increase in a patient’s pressure, the 

physician can contact the patient over 

the phone and conduct an evaluation to 

look for increased symptoms or to learn 

if the patient has skipped their 

diuretics. The device prompts the 

clinician to ask questions such as what 

is different today than yesterday and if 

the patient is feeling okay, especially if 

the patient has not taken a pressure rate 

in a few days. Based on the answer to 

these questions or if the clinician has 

concerns, the primary investigator or the 

patient’s primary cardiologist can assess 

the pressures and symptoms and decide 

the next course of treatment for the 

patient. The commenter believed that 

this structured and consistent 

monitoring has kept many patients out 

of the hospital. 

The commenter noted that the 

monitoring of pressures to assess 

clinical status before the patient 

recognizes symptoms for chronic CHF 

patients with significant left ventricular 

dysfunction can be very useful. The 

commenter explained that these patients 

are accustomed to being sick and tend 

to ignore the first symptoms and do not 

seek treatment until they are unable to 

breathe. The commenter noted that 

often a clinician can increase the 

patient’s home medications before 

pressures get too high. 

The commenter also noted that, for 

patients who go to a CHF clinic on a 

regular basis, typically patient 

information of pressure trends, along 

with symptoms and laboratory results, 

can help determine if medications 

should be given that day. The 

commenter stated that extra information 

from the CardioMEMSTM HF System can 

change the way physicians treat the 

patient and has, in many instances, at 

its site. The commenter concluded the 

CardioMEMSTM HF System provides a 

substantial clinical benefit versus 

current methods for managing heart 

failure. 

Another commenter stated that the 

implant procedure was very simple and 

straightforward for patients, especially 

compared to having a pacemaker or 

defibrillator implanted. The commenter 

further stated that the device is 

compatible with defibrillators and 

cardiac resynchronization therapy, 

which are present in many advanced 

heart failure patients. The commenter 

added that the CardioMEMSTM HF 

System is a wireless device and does not 

involve addition of another intracardiac 

lead. Aside from regular pressure 

readings, the commenter noted that it 

found unexpected intake issues for 

some patients who were unknowingly 

consuming certain high-sodium foods. 

The commenter noted that they were 

able to reduce sodium intake further to 

help reduce pressures. The commenter 

also noted that it presented a case report 

of increasing pressures in a patient in 

whom the primary investigator adjusted 

diuretic therapy and later the patient’s 

ACE-Inhibitor and nitrates. The 

commenter stated that it successfully 

lowered pressures and avoided a 

probable heart failure hospitalization. 

The commenter added that the 

CardioMEMSTM HF System allows 

hospitals to easily obtain pressures at 

home for transmission and the ability to 

check pressures rather than perform 

right heart catheterization if a patient 

was admitted to the hospital. 

The commenter also stated that 

patients found transmission of their data 

easy and were surprised how quickly 

the data was sent to the clinic. The 

commenter added that it had patients 

that liked the portability of the home 

electronic equipment, which allowed 

them to take it with them on long 

weekends or vacations. The commenter 

added that this information was 

advantageous as it further allowed 

clinicians to implement changes in a 

timely manner. 

The commenter noted the following 

trial results in its clinic, which the 

commenter believed confirm the benefit 

of hemodynamic monitoring: A 28- 

percent reduction in heart failure 

hospitalization at 6 months and a 15- 

percent reduction at 15 months. The 

commenter noted that there were no 

sensor failures and 98.6 percent of 

patients remained free from device or 

system complications. The commenter 

further noted that it did not experience 

any complications in patients who were 

implanted with the device. The 

commenter did explain that inevitably, 

due to the nature of heart failure, several 

patients eventually required advanced 

therapies with transplantation or 

ventricular assist device support 

without any issue from the sensor. The 

commenter also noted some additional 

key points such as: A reduction in 

hospitalization for patients with 

preserved ejection fraction; in addition 

to diuretic adjustment, the study found 

nitrates were also adjusted, which 

further supports use of the device to 

optimize vasodilator therapy for 

pulmonary hypertension and afterload 

reduction in this patient population. 

The commenter concluded that, for the 

reasons stated above, the 

CardioMEMSTM HF System provides a 

substantial clinical benefit versus 

current methods for managing heart 

failure. 

One commenter stated that the 

CardioMEMSTM HF System provides 

clinicians with daily remotely 

monitored pulmonary artery pressure 

and has been proven clinically and 

dramatically to reduce heart failure 

hospitalizations. The commenter cited 

the CHAMPION IDE trial, which was a 

prospective, multicenter, single-blind, 

clinical study that enrolled 550 patients 

randomized to treatment guided by the 

CardioMEMSTM HF System verses 

optimal medical therapy. The 

commenter stated that the trial met all 

of its primary safety and efficacy 

endpoints; reducing heart failure 

hospitalizations by 28 percent 6 months 

after implant (p = 0.0002). The 

commenter further stated that the 

reduction in heart failure 

hospitalizations increased over time 

reaching 33 percent (p < 0.0001) at 17 

months after implant. In addition, the 

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28048 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

commenter asserted that the system was 

shown to be extremely safe, with almost 

99 percent of patients free from device 

or system complications. 

The commenter also stated that one 

criterion CMS uses to evaluate 

substantial clinical improvement is that 

the device offers the ability to diagnose 

a medical condition earlier in a patient 

population than allowed by currently 

available methods. The commenter 

believed that there is evidence that use 

of the CardioMEMSTM HF System to 

make a diagnosis affects the 

management of the patient. The 

commenter added that the CHAMPION 

trial demonstrated that therapy guided 

by CardioMEMSTM HF System allows 

physicians to titrate medications earlier 

and more effectively reduce heart failure 

hospitalizations. The commenter noted 

that this information is not available 

with any other device or treatment 

alternative. 

The commenter further stated that 

another of CMS’ criteria is that use of 

the device significantly improves 

clinical outcomes for a patient 

population as compared to currently 

available treatments, such as a 

decreased number of future 

hospitalizations. The commenter stated 

that evidence provided in the 

CHAMPION trial at 6 months showed a 

28-percent reduction in heart failure 

hospitalizations and even a larger 

reduction of 33 percent during longterm follow-up at 17 months. Based on 

the criteria outlined by CMS and the 

evidence supporting the 

CardioMEMSTM HF System, the 

commenter believed that the 

CardioMEMSTM HF System meets the 

criteria for substantial clinical 

improvement. 

Another commenter, the applicant, 

reiterated the statements set forth above 

in the substantial clinical improvement 

discussion. 

Response: We appreciate the 

commenters’ support. We considered 

these comments in our evaluation of the 

CardioMEMSTM HF System for new 

technology add-on payments for FY 

2015 and in the development of this 

proposed rule. As stated above, we are 

inviting additional public comments on 

whether or not the CardioMEMSTM HF 

System represents a substantial clinical 

improvement in the Medicare 

population. 

e. MitraClip® System 

Abbott Vascular submitted an 

application for new technology add-on 

payments for the MitraClip® System for 

FY 2015. (We note that the applicant 

submitted an application for new 

technology add-on payments for FY 

2014 but failed to receive FDA approval 

by the July 1 deadline.) The MitraClip®

System is a transcatheter mitral valve 

repair system that includes a MitraClip®

device implant, a Steerable Guide 

Catheter, and a Clip Delivery System. It 

is designed to perform reconstruction of 

the insufficient mitral valve for highrisk patients who are not candidates for 

conventional open mitral valve repair 

surgery. 

Mitral regurgitation (MR), also 

referred to as mitral insufficiency or 

mitral incompetence, occurs when the 

mitral valve fails to close completely 

causing the blood to leak or flow 

backwards (regurgitate) into the left 

ventricle. If the amount of blood that 

leaks backwards into the left ventricle is 

minimal, then intervention is usually 

not necessary. However, if the amount 

of blood that is regurgitated becomes 

significant, this can cause the left 

ventricle to work harder to meet the 

body’s need for oxygenated blood. 

Severity levels of MR can range from 

grade 1+ through grade 4+. If left 

untreated, severe MR can lead to heart 

failure and death. The American College 

of Cardiology (ACC) and the American 

Heart Association (AHA) issued practice 

guidelines in 2006 that recommended 

intervention for moderate/severe or 

severe MR (grade 3+ to 4+). The 

applicant stated that the MitraClip®

System is ‘‘indicated for percutaneous 

reduction of significant mitral 

regurgitation . . . in patients who have 

been determined to be at prohibitive 

risk for mitral value surgery by a heart 

team, which includes a cardiac surgeon 

experienced in mitral valve surgery and 

a cardiologist experienced in mitral 

valve disease and in whom existing 

comorbidities would not preclude the 

expected benefit from correction of the 

mitral regurgitation.’’ 

The MitraClip ® System mitral valve 

repair procedure is based on the doubleorifice surgical repair technique that has 

been used as a surgical technique in 

open chest, arrested-heart surgery for 

the treatment of MR since the early 

1990s. According to the applicant, in 

utilizing ‘‘the double-orifice technique, 

a portion of the anterior leaflet is 

sutured to the corresponding portion of 

the posterior leaflet using standard 

techniques and forceps and suture, 

creating a point of permanent coaptation 

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

When the suture is placed in the middle 

of the valve, the valve will have a 

functional double orifice during 

diastole.’’ 

With regard to the newness criterion, 

the MitraClip® System received a 

premarket approval from the FDA on 

October 24, 2013. The MitraClip®

System is indicated ‘‘for the 

percutaneous reduction of significant 

symptomatic mitral regurgitation (MR 

>= 3+) due to primary abnormality of 

the mitral apparatus (degenerative MR) 

in patients who have been determined 

to be at prohibitive risk for mitral valve 

surgery by a heart team, which includes 

a cardiac surgeon experienced in mitral 

valve surgery and a cardiologist 

experienced in mitral valve disease, and 

in whom existing comorbidities would 

not preclude the expected benefit from 

reduction of the mitral regurgitation.’’ 

The MitraClip® System became 

immediately available on the U.S. 

market following FDA approval. The 

MitraClip® System is a Class III device, 

and has an investigational device 

exemption (IDE) for the EVEREST study 

(Endovascular Valve Edge-to-Edge 

Repair Study)—IDE G030061, and for 

the COAPT study (Cardiovascular 

Outcomes Assessment of the MitraClip 

Percutaneous Therapy for Health 

Failure Patients with Functional Mitral 

Regurgitation)—IDE G120024. Effective 

October 1, 2010, ICD–9–CM procedure 

code 35.97 (Percutaneous mitral valve 

repair with implant) was created to 

identify and describe the MitraClip®

System technology. 

Abbott Vascular has also submitted an 

application for a National Coverage 

Decision (NCD) for the MitraClip®

System device. We refer readers to the 

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

medicare-coverage-database/details/

nca-tracking-sheet.aspx?NCAId=273&

NcaName=Transcatheter+Mitral+Valve

+(TMV)+Procedures&TimeFrame=90&

DocType=All&bc=AAAAIAAACAAAAA

%3d%3d& for information related to 

this ongoing NCD. The tracking sheet for 

this National Coverage Analysis (NCA) 

indicates an expected NCA completion 

date of August 16, 2014, which is after 

the FY 2015 IPPS/LTCH PPS final rule 

is scheduled to be published. The 

processes for evaluation and 

determination of an NCD, and the 

processes for evaluation and approval of 

an application for new technology addon payments are made independent of 

each other. However, any payment 

made under the Medicare program for 

services provided to a beneficiary would 

be contingent on CMS’ coverage of the 

item, and any restrictions on the 

coverage would apply. We are inviting 

public comments on how the 

MitraClip® System meets the newness 

criterion for purposes of new technology 

add-on payments and the issues that 

may arise from concurrent NCD requests 

and new technology add-on payment 

application review and approval 

processes. 

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Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 28049 

17Feldman, et al., ‘‘Percutaneous Repair or 

Surgery for Mitral Regurgitation,’’ New England 

Journal of Medicine, 2011, Vol. 364, pp. 1395–1406. 

18Foster, et al., ‘‘Percutaneous Mitral Valve 

Repair in the Initial EVEREST Cohort: Evidence of 

Reverse Left Ventricular Remodeling,’’ Circulation 

Continued 

With regard to the cost criterion, the 

applicant conducted two analyses. The 

applicant noted that, while ICD–9–CM 

procedure code 35.97 maps to MS– 

DRGs 246 (Percutaneous Cardiovascular 

Procedure with Drug- Eluting Stent with 

Major Complication or Comorbidity 

(MCC) or 4+ Vessels/Stents), 247 

(Percutaneous Cardiovascular Procedure 

with Drug-Eluting Stent without MCC), 

248 (Percutaneous Cardiovascular 

Procedure with Non-Drug-Eluting Stent 

with MCC or 4+ Vessels/Stents), 249 

(Percutaneous Cardiovascular Procedure 

with Non-Drug-Eluting Stent without 

MCC), 250 (Percutaneous 

Cardiovascular Procedure without 

Coronary Artery Stent or AMI with 

MCC), and 251 (Percutaneous 

Cardiovascular Procedure without 

Coronary Artery Stent or AMI without 

MCC), clinical experience with the 

MitraClip® System device has 

demonstrated that it is extremely rare 

for a patient to receive stents 

concurrently during procedures using 

the MitraClip® System device. The 

applicant further cited the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53308) 

which stated, ‘‘According to the Food 

and Drug Administration’s (FDA’s) 

terms of the clinical trial for 

MitraClipTM, the device is to be 

implanted in patients without any 

additional surgeries performed. 

Therefore, based on these terms, we 

stated that while the procedure code is 

assigned to MS–DRGs 246 through 251, 

the most likely MS–DRG assignments 

would be MS–DRGs 250 and 251.’’ As 

a result, the applicant stated that it 

conducted its analyses solely for MS– 

DRGs 250 and 251 to demonstrate that 

the cases involving the MitraClip®

System device meet the incremental 

cost thresholds provided in Table 10 for 

those MS–DRGs. 

The applicant researched the FY 2012 

MedPAR file for claims for cases 

reporting ICD–9–CM procedure code 

35.97. Under the first analysis and 

methodology, the applicant noted that 

this search yielded actual claims for 

cases in which the MitraClip® System 

device was used in procedures 

performed in an IDE study type setting, 

and hospitals obtained the MitraClip®

System device at a reduced 

investigational price. The applicant 

further stated that it is likely that 

hospitals did not report the charges for 

the investigational device, or submitted 

claims for charges that were 

significantly less than the actual device 

acquisition costs (we refer readers to the 

explanation below). The applicant 

found 57 cases in MS–DRG 250 (29.38 

percent of the total number of cases), 

and 137 cases in MS–DRG 251 (70.61 

percent of the total number of cases), 

which resulted in an average caseweighted standardized charge per case 

of $232,670. 

The applicant standardized the 

charges using the FY 2014 IPPS final 

rule impact file, and inflated the result 

using three different inflation factors. 

We note that, since the applicant used 

FY 2012 MedPAR data, we believe it is 

appropriate to use comparable data for 

standardization. Therefore, we believe 

use of the FY 2012 final rule impact file 

is more appropriate rather than the FY 

2014 final rule impact file. The first 

analysis and methodology used an 

inflation factor of 4.57 percent, which 

was based on data from the BLS’ nonseasonally adjusted CPI for all urban 

consumers between January 2011 and 

January 2013. This resulted in an 

average case-weighted standardized 

charge per case of $94,517. The second 

methodology under the first analysis 

used an inflation factor of 9.92 percent, 

which was based on the 2-year charge 

inflation factor listed in the FY 2014 

IPPS/LTCH PPS final rule (78 FR 

50982). This resulted in an average caseweighted standardized charge per case 

of $96,199. The third methodology used 

under the first analysis used an inflation 

factor of 4.63 percent, which was based 

on the Medicare Economic Index (MEI) 

from the IPPS market basket update 

between the third quarter of 2012 

projected through the third quarter of 

2014. This resulted in an average caseweighted standardized charge per case 

of $91,570. The applicant noted that all 

three methodologies used under the first 

analysis to determine each respective 

average case-weighted standardized 

charge per case were calculated without 

any adjustments to reflect the reduced 

investigational price, or inadequate 

hospital claim reporting and billing. 

Using the FY 2014 IPPS Table 10 

thresholds, the average case-weighted 

threshold for MS–DRGs 250 and 251 is 

$71,467 (all calculations above were 

performed using unrounded numbers). 

Because the average case-weighted 

standardized charge per case for the 

applicable MS–DRGs calculated under 

each methodology under the first 

analysis discussed above exceeds the 

average case-weighted threshold 

amount, the applicant maintained that 

the technology meets the cost criterion. 

Under the second analysis, which 

used the same premise as the first 

analysis, the applicant researched the 

FY 2012 MedPAR file for claims for 

cases reporting procedure code 35.97 

that mapped to MS–DRGs 250 and 251, 

except that the applicant excluded 

charges related to the MitraClip®

System by removing all charges from the 

claim that would map to the 

implantable cost center on the cost 

report. The applicant then standardized 

the charges, inflated the result using the 

three inflation factors above, and added 

a fixed amount of commercial charges 

based on post-FDA approval pricing. 

This resulted in an average case 

weighted standardized charge per case 

of $139,536 under the first inflation 

factor (4.57 percent), $142,364 under the 

second inflation factor (9.2 percent), and 

$139,568 under the third inflation factor 

(4.63 percent). 

Using the FY 2014 IPPS Table 10 

thresholds, the average case-weighted 

threshold for MS–DRGs 250 and 251 is 

$71,467 (all calculations above were 

performed using unrounded numbers). 

Because the average case-weighted 

standardized charge per case for the 

applicable MS–DRGs calculated under 

all three methodologies discussed above 

exceeds the average case-weighted 

threshold amount, the applicant 

maintained that the MitraClip® System 

meets the cost criterion. 

We are inviting public comments on 

whether or not the MitraClip® System 

meets the cost criterion. In addition, we 

are inviting public comments on the 

methodologies used by the applicant in 

its two analyses. 

The applicant asserted that the 

MitraClip® System meets the substantial 

clinical improvement criterion. Severe 

MR is associated with significant 

morbidity and mortality rates, and is a 

progressive condition. For symptomatic 

patients diagnosed with significant MR, 

surgical repair or replacement is 

considered the gold standard—offering 

improvements in symptoms and longer 

survival rates. However, the applicant 

explained that studies have indicated 

that a significant proportion of patients 

are not eligible for mitral valve repair 

and/or replacement surgery because of 

risk factors, including reduced left 

ventricular function, significant 

comorbidities, and advanced age. As a 

result, the applicant stated that there is 

a significant unmet clinical need for 

patients diagnosed with severe MR who 

are too high-risk for surgery, who are 

receiving palliative medical 

management. 

The applicant also stated that the 

MitraClip® System meets the substantial 

clinical improvement criterion based on 

clinical studies 17,18,19,20,21,22,23,24,25

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28050 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

in Cardivascular Imaging, July 2013, Vol. 6(4), pp. 

522–530. 

19 Grayburn, et al., ‘‘The Relationship between the 

Magnitude of Reduction in Mitral Regurgitation 

Severity and Left Ventricular and Left Atrial 

Reverse Remodeling after MitraClip Therapy,’’ 

Circulation in Cardiovascular Imaging, September 

2013, epub, September 6, 2013. 

20Lim, et al., ‘‘Improved Functional Status and 

Quality of Life in Prohibitive Surgical Risk Patients 

With Degenerative Mitral Regurgitation Following 

Transcatheter Mitral Valve Repair With the 

MitraClip® System,’’ Journal of American College of 

Cardiology, 2013, In Press, Accepted Manuscript, 

Available online, October 31, 2013. 

21Maisano, F., et al., ‘‘Percutaneous Mitral Valve 

Interventions in the Real World: Early and One Year 

Results From the ACCESS–EU, a Prospective, 

Multicenter, Non-Randomized Post-Approval Study 

of the MitraClip Therapy in Europ,’’ Journal of 

American College of Cardiology, 2013, doi: 10.1016/ 

j.jacc.2013.02.094. 

22Mauri, et al., ‘‘4-Year Results of a Randomized 

Controlled Trial of Percutaneous Repair Versus 

Surgery for Mitral Regurgitation,’’ Journal of 

American College of Cardiology, Volume 62, Issue 

4, 2013, pp. 317–328. 

23Munkholm, et al., ‘‘Asystemic Review on the 

Safety and Efficacy of Percutaneousedge-to-edge 

Mitral Valve Repair with the MitraClip System for 

high surgical risk candidates,’’ Heart, June 27, 2013. 

24Reichenspurner, H., et al., ‘‘Clinical Outcomes 

Through 12 Months in Patients With Degenerative 

Mitral Regurgitation Treated With the MitraClip 

Device in the ACCESS–EUrope Phase I Trial,’’ 

European Journal of Cardiology-and Thoracic 

Surgy, 2013, Vol. 15, pp. 919–927. 

25Whitlow, et al,. ‘‘Acute and 12-Month Results 

With Catheter-Based Mitral Valve Leaflet Repair: 

The EVEREST II (Endovascular Valve Edge-to-Edge 

Repair) High Risk Study,’’ Journal of American 

College of Cardiology, 2012, Vol. 59, pp. 130–139. 

26 Grayburn, et al., ‘‘The Relationship between the 

Magnitude of Reduction in Mitral Regurgitation 

Severity and Left Ventricular and Left Atrial 

Reverse Remodeling after MitraClip Therapy,’’ 

Circulation in Cardiovascular Imaging, September 

2013, epub, September 6, 2013. 

that have consistently shown that 

procedures performed using the 

MitraClip ® System device lead to a 

significant reduction of MR; 

improvements in left ventricular (LV) 

function including LV volumes and 

dimensions; improved patient outcomes 

as measured by improvements in New 

York Heart Association (NYHA) 

functional class, improvement in healthrelated quality of life measures, and 

reductions in heart-failure related 

hospitalizations; and significantly lower 

mortality rates than predicted surgical 

mortality rates. 

The applicant cited clinical data from 

the EVEREST II High-Risk Study and 

the EVEREST II (REALISM) Continued 

Access Study/Registry. The applicant 

also cited clinical data from a high-risk 

cohort of patients (the EVEREST II HighRisk Cohort), which is an integrated 

analysis of the following: (1) Patients 

within the EVEREST II High-Risk Study 

who met eligibility criteria for being too 

high-risk to undergo mitral valve repair 

surgery; and (2) patients within the 

EVEREST II (REALISM) Continued 

Access Study/Registry who were too 

high-risk for surgery using identical 

eligibility inclusion criteria. The 

applicant also cited data from the 

Prohibitive Risk Degenerative Mitral 

Regurgitation (DMR) Cohort, which is 

an analysis of retrospectively evaluated 

high-risk patients diagnosed with DMR 

enrolled in the EVEREST II studies that 

had 1-year follow-up available. 

In addition to the published clinical 

experience from the EVEREST studies, 

the applicant cited data on the use of 

the MitraClip® System device in a ‘‘realworld’’ setting published recently by a 

select number of European centers as 

part of their individual and/or multicenter commercial experience or 

enrollment in the MitraClip® System 

device group of the ACCESS–EU postapproval clinical trial in Europe. The 

European use of the MitraClip® System 

device is focused on patients who are 

too high-risk for surgery, and patients 

who are selected for therapy using a 

multi-disciplinary ‘‘heart team’’ 

approach. 

The applicant stated that published 

reports on the MitraClip® System device 

and the procedures in which the device 

was used have consistently 

demonstrated a significant reduction in 

MR incidents that have been durable out 

to 1, 2, 3, and 4 years. The applicant 

cited the EVEREST II High-Risk Study 

(an analysis of 78 patients diagnosed 

with degenerative or functional MR 

enrolled in the trial), which stated that 

‘‘objective measures of MR grade 

improved in the MitraClipTM group, 

including MR grade of <=2+ in 78 

percent of surviving patients at 1 year. 

These patients also experienced 

clinically significant improvements in 

left ventricular volume measurements. 

The clinical significance of these 

improvements is reflected in the NYHA 

class improvements. At baseline, 89 

percent of patients were NYHA III/IV, 

improving to Class I/II in 74 percent of 

surviving patients at 12 months. Quality 

of life scores also improved 

significantly. Finally, the number of 

admissions for heart failure was 

significantly reduced compared to the 

year prior to MitraClipTM therapy.’’ 

The applicant cited clinical outcomes 

from the Prohibitive Risk DMR cohort. 

These results are the basis of the FDA 

premarket approval. Major effectiveness 

endpoints evaluated at 12 months 

demonstrated clinically important 

improvements in MR severity, with MR 

severity grades of 3+/4+ decreasing from 

90.4 percent at baseline to 16.7 percent 

at 1 year; NYHA Class III/IV decreasing 

from 86.6 percent at baseline to 13.1 

percent at 1 year; and the SF–36 

Physical/Mental scale measuring 33.4/

46.6 at baseline increasing to 39.4/52.2 

at 1 year. 

The applicant stated in its new 

technology add-on payment application 

that, ‘‘Heart failure hospitalizations 

were reduced by 73 percent in the 12 

months post MitraClipTM procedure 

from the 12 month pre-MitraClipTM

procedure . . .,’’ and ‘‘the primary 

safety analysis indicated low procedural 

(30-day) mortality (6.3 percent) after 

MitraClipTM in comparison with the 

STS predicted surgical mortality risk 

score for these patients (13.2 percent).’’ 

The applicant discussed published 

results 26 ‘‘assessing the relationship 

between the magnitude of reduction in 

MR and left ventricular (LV) and left 

atrial (LA) remodeling after the 

MitraClipTM therapy.’’ In this study of 

patients diagnosed with significant 

(grade 3+ or 4+) DMR or functional MR 

(FMR), the authors found that, ‘‘even 

reduction of MR severity to moderate 

(2+) is associated with LV and LA 

reverse remodeling. In both DMR and 

FMR, reduction in left ventricular enddiastolic volume (LVEDV) and LA 

volumes were improved proportionally 

to the degree of MR reduction at one 

year.’’ 

In conclusion, the applicant cited data 

from the ACCESS–EU study, which 

noted improvement in disease-specific 

quality of life measures, including the 

Minnesota Living with Heart Failure 

Questionnaire and Six-Minute Walk 

Test. The applicant also provided data 

supporting the overall safety and 

effectiveness of the MitraClip® System 

device in European ‘‘real-world’’ 

outcome studies. 

As noted in the FY 2014 IPPS/LTCH 

PPS proposed rule (78 FR 27547 

through 27552), we are concerned that 

the applicant revised its initial FDA 

request for the use of the MitraClip®

System device in all patients diagnosed 

with significant MR, after learning that 

the FDA expressed concern that the 

initial study, EVEREST II, demonstrated 

that, while the MitraClip® System 

device had clinically meaningful 

improvements in LV volume and QOL, 

the surgical option had better outcomes 

than the MitraClip® System device in 

surgical candidates. The FDA then 

required a second trial focused on high 

surgical risk patients. We note that the 

data evaluated by the FDA and 

presented by the applicant in its 

application for new technology add-on 

payments included information from 

the following: 

D EVEREST I feasibility trial; 

enrollment 2003–2006; 55 patients. 

D EVEREST II RCT; enrollment 2005– 

2008; 279 patients. 

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D EVEREST II High-Risk Study; 

enrollment 2007–2008; 78 patients. (A 

comparator group of 36 patients was 

identified from patients who were 

screened for the study, but did not meet 

the mitral valve anatomic criteria for 

placement of the device.) 

D EVEREST (REALISM) Continued 

Access Study and compassionate use; 

enrollment 2009–2013; 49 patients. 

The applicant provided comparisons 

of various outcomes prior to the 

procedure using the MitraClip® System 

device and outcomes 12 months later. 

MR severity, LV end diastolic volume, 

NYHA Class, SF36 Physical/Mental 

scale, and heart failure hospitalization 

rates all had clinically meaningful 

improvements. For the EVEREST II 

HRS, the applicant provided analysis 

demonstrating a significant survival 

benefit (76 percent versus 55 percent/p 

<0.047) over the comparator group. 

In our review of the clinical trials’ 

data, we have the following key points 

of concern: 

• Post-hoc analyses of pooled data 

sets retain all of the individual 

shortcomings of the individual data sets; 

• Pooling does not enhance the utility 

and scientific value of uncontrolled 

single-arm registries with no 

comparators; and 

• Inappropriate pooling introduces 

additional confounders. 

It is also unclear if the appropriate 

target population for the MitraClip®

System device has been identified 

because the clinical trials conducted by 

the applicant included patients 

diagnosed with both DMR and FMR. 

This makes it difficult to determine 

which group of patients may benefit 

more, or less, from the new technology. 

For example, in a subgroup analysis of 

the EVEREST II RCT, the authors 

concluded that, older patients and those 

patients diagnosed with FMR or 

abnormal left ventricular function had 

results more comparable to surgical 

repair. Data results from 2 years of the 

EVEREST II RCT also demonstrated that 

surgery reduced incidents of MR more 

than the procedures performed using 

the percutaneous MitraClip® System 

device. However, both the surgical 

patients and the patients who were 

treated using the MitraClip® System 

device showed comparable results for 

improved left ventricular function, 

NYHA functional class, and quality of 

life. 

We are inviting public comments on 

whether this technology meets the 

substantial clinical improvement 

criterion, particularly in comparison to 

other surgical therapies, such as mitral 

valve repair or replacement, and the 

appropriate target population for this 

technology. 

We did not receive any public 

comments in response to the New 

Technology Town Hall meeting held on 

February 12, 2014 in regard to this 

technology. 

f. Responsive Neurostimulator (RNS®) 

System 

NeuroPace, Inc. submitted an 

application for new technology add-on 

payments for FY 2015 for the use of the 

RNS® System. (We note that the 

applicant submitted an application for 

new technology add-on payments for FY 

2014, but failed to receive FDA approval 

prior to the July 1 deadline.) Seizures 

occur when brain function is disrupted 

by abnormal electrical activity. Epilepsy 

is a brain disorder characterized by 

recurrent, unprovoked seizures. 

According to the applicant, the RNS®

System is the first implantable medical 

device (developed by NeuroPace, Inc.) 

for treating persons diagnosed with 

epilepsy whose partial onset seizures 

have not been adequately controlled 

with antiepileptic medications. The 

applicant further stated that, the RNS®

System is the first closed-loop, 

responsive system to treat partial onset 

seizures. Responsive electrical 

stimulation is delivered directly to the 

seizure focus in the brain when 

abnormal brain activity is detected. A 

cranially implanted programmable 

neurostimulator senses and records 

brain activity through one or two 

electrode-containing leads that are 

placed at the patient’s seizure focus/

foci. The neurostimulator detects 

electrographic patterns previously 

identified by the physician as abnormal, 

and then provides brief pulses of 

electrical stimulation through the leads 

to interrupt those patterns. Stimulation 

is delivered only when abnormal 

electrocorticographic activity is 

detected. The typical patient is treated 

with a total of 5 minutes of stimulation 

a day. The RNS® System incorporates 

remote monitoring, which allows 

patients to share information with their 

physicians remotely. 

With respect to the newness criterion, 

the applicant stated that some patients 

diagnosed with partial onset seizures 

that cannot be controlled with 

antiepileptic medications may be 

candidates for the vagus nerve 

stimulator (VNS) or for surgical removal 

of the seizure focus. According to the 

applicant, these treatments are not 

appropriate for, or helpful to, all 

patients. Therefore, the applicant 

believed that there is an unmet clinical 

need for additional therapies for partial 

onset seizures. The applicant further 

stated that the RNS® System addresses 

this unmet clinical need by providing a 

novel treatment option for treating 

persons diagnosed with medically 

intractable partial onset seizures. The 

applicant received FDA premarket 

approval in November 2013. The 

following ICD–9–CM procedure codes 

are used to identify this technology: 

01.20 (Cranial implantation or 

replacement of neurostimulator pulse 

generator); 01.29 (Removal of cranial 

neurostimulator pulse generator); and 

02.93 (Implantation or replacement of 

intracranial neurostimulator lead(s)). 

We are inviting public comments on 

whether the technology meets the 

newness criterion. 

With regard to the cost criterion, the 

applicant stated that substantially all 

cases eligible for the RNS® System 

would map to MS–DRG 024 

(Craniotomy with Major Device 

Implant/Acute Complex Central 

Nervous System Principal Diagnosis 

without MCC). The applicant further 

stated that, while it is possible for some 

cases to occur in MS–DRG 023 

(Craniotomy with Major Device 

Implant/Acute Complex Central 

Nervous System Principal Diagnosis 

with MCC or Chemotherapy Implant), it 

would be extremely rare because the 

applicant believed that these major 

complications and/or comorbidities 

would probably preclude a patient from 

receiving treatment using the RNS®

System because the technology is an 

elective procedure. 

The applicant submitted two analyses 

to demonstrate that the technology 

meets the cost criterion. For the first 

analysis, the applicant used clinical trial 

claims data collected in the RNS®

System Pivotal Clinical Investigation to 

calculate the anticipated average caseweighted standardized charge per case. 

The applicant maintained that this 

analysis best represents the anticipated 

charges for the technology because it is 

based on actual cases treated using this 

technology. The applicant analyzed 163 

claims from 28 hospitals participating in 

the clinical trial. Five claims from one 

hospital were excluded because no 

hospital-specific information regarding 

standardization was available. The 

resulting 158 claims included dates of 

service ranging from May 2006 through 

May 2009. The average case-weighted 

standardized charge per case for these 

158 claims was $54,691. 

The applicant then standardized the 

charges for each claim. The applicant 

noted that it was not necessary to 

remove any charges from these claims 

because the technology was provided at 

no charge in the trial. After 

standardizing the charges for each 

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claim, the applicant inflated the charges 

reported on each claim using the BLS’ 

CPI–IP data covering the same period. 

Specifically, because the publicly 

available FY 2012 MedPAR data do not 

identify the month of the discharge on 

inpatient claims, but do identify the 

calendar quarter, the applicant used a 

mid-month convention to determine the 

relevant monthly CPI–IP for each 

calendar quarter. The applicant then 

calculated the percentage change from 

the relevant quarter to the quarter of the 

most recently available CPI–IP, which 

was the August 2013 CPI–IP. 

Specifically, the applicant used the 

following assumptions: 

FY 2012 calendar quarter Midpoint of quarter CPI IP 

Percent 

change to 

August 2013 

Q4 2011 ........................................................................ Nov–11 ......................................................................... 242.672 7.93 

Q1 2012 ........................................................................ Feb–11 .......................................................................... 245.721 6.59 

Q2 2012 ........................................................................ May–11 ......................................................................... 247.646 5.76 

Q3 2012 ........................................................................ Aug–11 ......................................................................... 248.856 5.25 

Most recent as of application ....................................... Aug–13 ......................................................................... 261.915 

Source as cited by applicant: Bureau of Labor Statistics’ Web site, accessed October 13, 2013; Base Period: December 1996 = 100. 

After inflating the charges, the 

applicant estimated charges for the 

RNS® System by multiplying the device 

cost to the hospital by an anticipated 

hospital markup of 100 percent, or 

conversely by dividing the device cost 

by a CCR of 0.50. The applicant based 

its estimated CCR on four analyses. 

First, the applicant reviewed the 2007 

and 2008 reports prepared by RTI for 

CMS on charge compression, which 

found that the national aggregate CCR 

for devices and implants was 0.43 and 

0.467, as presented in the respective 

reports. Second, the applicant queried 

hospitals participating in the RNS®

System Pivotal trial, and these queries 

yielded a mean and median CCR for 

implantable devices of 0.37 and 0.36, 

respectively. Third, the applicant 

reviewed data from the (All Payor) 

Premier database for cases performed 

during 2000 through 2010 that reported 

ICD–9 CM procedure codes 02.93 and/ 

or 86.95 on a claim, and calculated a 

mean and median CCR for implanted 

leads and neurostimulators of 0.50 and 

0.44, respectively. The applicant then 

reviewed other discussions of past new 

technology add-on payment 

applications published in the Federal 

Register, and noted that other 

applicants used lower CCRs (higher 

markups) for implanted devices than the 

CCR of 0.50 used in the applicant’s 

analyses. 

Using this approach, the applicant 

added the anticipated hospital charge 

for the implantable RNS® System to the 

average case-weighted standardized 

charge per case, and determined a final 

average case-weighted standardized 

charge per case of $128,723. The 

anticipated hospital charge for the 

implantable RNS® System is $73,900. 

Using the FY 2014 IPPS Table 10 

thresholds, the threshold for MS–DRG 

024 is $91,197. Because the final 

average case-weighted standardized 

charge per case of $128,723 for MS–DRG 

024 exceeds the average case-weighted 

threshold amount, the applicant 

maintained that the RNS® System meets 

the cost criterion. 

In the second analysis, which the 

applicant characterizes as 

supplementary, the applicant 

researched the FY 2012 MedPAR file for 

cases reporting the following 

combinations of ICD–9–CM procedures 

codes: 02.93 and 86.95, or procedures 

codes 02.93 and 01.20 that mapped to 

MS–DRG 024. The applicant found 383 

claims for cases reporting the 

combination of ICD–9–CM procedures 

codes 02.93 and 01.20, and pointed out 

that these cases were coded with 

procedure code 01.20 in error because 

no new RNS® System implantations 

occurred after May 2009. The applicant 

analyzed these 383 claims, and found 

that more than 90 percent of these cases 

had a primary or secondary diagnosis of 

Parkinson’s disease, essential tremor, or 

dystonia. These diagnoses are FDAapproved indications for deep brain 

stimulation (DBS). In addition, the 

applicant noted that the total covered 

charges for these cases were less than 

the estimated charges for a full DBS 

system, and hypothesized that these 

cases did not represent implantation of 

a full DBS system, but did represent the 

implantation of leads only. The 

applicant contacted two hospitals that 

reported claims for cases where total 

covered charges were less than the 

charges for a full DBS system, and the 

hospitals confirmed that their claims 

represented lead implantations only. 

Therefore, for the second analysis, the 

applicant included all of the cases 

assigned to MS–DRG 024 reporting a 

combination of ICD–9–CM procedures 

codes 02.93 and 86.95, and all of the 

cases assigned to MS–DRG 024 

reporting a combination of ICD–9–CM 

procedures codes 02.93 and 01.20 where 

the covered charges were greater than, 

or equal to, the estimated charges of a 

full DBS system. The applicant 

maintained that 374 claims from 106 

providers met this criterion, and data 

represented claims from the fourth 

calendar quarter of 2011 through the 

third calendar quarter of 2012. Based on 

this assumption, the applicant 

calculated an average case-weighted 

standardized charge per case of $65,555. 

The applicant then removed DBS 

charges from the average case-weighted 

standardized charge per case. The 

applicant estimated charges for a full 

DBS system, and maintained that the 

average cost for a full DBS system is 

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

applicant assumed a CCR of 0.50, or 100 

percent markup, which resulted in 

estimated charges for a full DBS system 

of $51,958. After removing the DBS 

system charges, the applicant inflated 

the charges to the current period using 

the same methodology in the first 

analysis, added charges for the RNS®

System, and determined a final average 

case-weighted standardized charge per 

case of $130,233. As noted above, the 

anticipated hospital charge for the 

implantable RNS® System is $73,900. 

Using the FY 2014 IPPS Table 10 

thresholds, the average case-weighted 

threshold for MS–DRG 024 is $91,197. 

Because the final average standardized 

charge per case of $130,233 for MS–DRG 

024 exceeds the threshold amount, the 

applicant maintained that the RNS®

System meets the cost criterion. 

Under either analysis, the applicant 

maintained that the final average caseweighted standardized charge per case 

would exceed the average case-weighted 

threshold. We are inviting public 

comments on whether the RNS® System 

meets the cost criterion, particularly 

based on the assumptions and 

methodology used in the applicant’s 

analyses. 

With regard to substantial clinical 

improvement, as previously stated, 

some patients diagnosed with partial 

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onset seizures may not be able to control 

their seizures with antiepileptic 

medications, VNS, or with surgical 

removal of the seizure focus. The 

applicant stated that the RNS® System 

provides treatment for those patients 

diagnosed with partial onset seizures 

who fail treatment with antiepileptic 

medications, or VNS therapy, and who 

are ineligible for resective surgery 

because of the extent and/or location of 

the seizure focus, or patients who do not 

elect surgery. According to the 

applicant, the RNS® System clinical 

trials provide Class I evidence that 

treatment using the RNS® System 

substantially reduces disabling seizures 

in patients diagnosed with severe 

epilepsy, who have tried and failed 

treatment with antiepileptic 

medications, and in many cases, VNS or 

epilepsy surgery. The applicant 

maintained that the results from their 

clinical trials demonstrate significant 

and sustained improvements in health 

outcomes over the controlled period and 

over the long term. The applicant 

conducted a feasibility trial, which was 

designed to demonstrate adequate safety 

of its treatment, and provide evidence of 

effectiveness to support commencement 

of a randomized double-blinded pivotal 

trail. In addition, the applicant has an 

ongoing long-term treatment clinical 

investigation trial (LTT trial) to assess 

the long-term safety and effectiveness of 

the treatment on patients who have 

completed either the Feasibility trial, or 

the RNS® System Pivotal trial for an 

additional seven years. The LTT trial 

started in April 2006, and the final 

patient is expected to complete the trial 

in 2018. The applicant noted that 

patients enrolled in the LTT trial 

continued to experience a reduction in 

seizures over several years of follow-up, 

further demonstrating the positive effect 

of responsive stimulation from the 

RNS® System is durable. 

The applicant stated that their pivotal 

trial met its primary effectiveness 

endpoint by proving that there was a 

statistically significant greater reduction 

in seizures in the treatment group&fnl; 

compared to the control group (p = 

0.012). Significant improvements at 1 

and 2 years post-implant included: 

• A significant reduction in disabling 

seizures of 44 percent and 53 percent at 

1 and 2 years, respectively; 

• Fifty-five percent of patients who 

reached 2 years post-implant 

experienced a 50 percent or greater 

reduction in seizures; and 

• Significant improvements in overall 

quality of life, as well as individual 

quality of life measures including 

memory, language, attention, 

concentration and medication effects. 

The applicant asserted that there was 

no negative effect of treatment using the 

RNS® System on neuropsychological 

function (including verbal functioning, 

visual spatial processing, and memory) 

or mood. The applicant concluded that 

the RNS® System Pivotal trial provides 

Class I evidence that responsive cortical 

stimulation is effective in significantly 

reducing seizure frequency in adults 

with one or two seizure foci who have 

failed two or more antiepileptic 

medication trials. The applicant stated 

that experience across all of the RNS®

System trials demonstrates the 

reduction in seizure frequency of 

disabling partial onset seizures 

improves over time. In addition, the 

applicant noted that sustained 

improvements were also seen in quality 

of life. Finally, the applicant noted that 

safety and tolerability measures 

compare favorably to alternative 

treatments, such as antiepileptic 

medications, VNS, and epilepsy surgery. 

With regard to the substantial clinical 

improvement criterion, we are 

concerned that the average age of the 

patients enrolled in the applicant’s trials 

was 35 years. Although the applicant 

maintained that 31 percent of the 

patients enrolled in the pivotal trial 

were Medicare beneficiaries, we are 

unsure of the extent to which this 

technology would be used by Medicare 

beneficiaries because of the relatively 

young age of the majority of the patients 

enrolled in the pivotal trial. We also are 

concerned that further clarification on 

how the RNS® System compares to 

other neurostimulation treatments was 

not provided by the applicant. 

Because the applicant included 

claims with DBS charges in one of its 

cost analyses, we believe that the 

similarities and differences between 

DBS and the RNS® System may also be 

relevant under the substantial clinical 

improvement criterion. In addition, we 

are concerned that the time period in 

the clinical trial may not be sufficient to 

confirm durability. In the RNS® System 

Pivotal Clinical Investigation, the 

primary effectiveness endpoint 

considered seizure frequency over the 

last 3 months of the blinded period of 

the trial. We note that the applicant is 

currently conducting a 5-year study. We 

are inviting public comments on 

whether the RNS® System meets the 

substantial clinical improvement 

criterion, particularly in regard to the 

degree in which the technology would 

be used by Medicare beneficiaries, the 

comparison to other neurostimulation 

treatments, and its durability. 

We received public comments in 

response to the New Technology Town 

Hall meeting held on February 12, 2014, 

regarding this technology and the 

application for new technology add-on 

payments. We summarize these 

comments below. 

Comment: One commenter, a 

physician, stated that even with the 

release of multiple new antiepileptic 

medications in the past 20 years, over 

one-third of people diagnosed with 

epilepsy cannot obtain adequate seizure 

control. The commenter noted that 

seizures lead to loss of employment and 

driving licenses and are socially 

disabling. The commenter further noted 

that uncontrolled seizures can cause 

physical injury and even significantly 

increased risk of death. The commenter 

stated that only a fraction of these 

patients are candidates for potentially 

curative resective brain surgery and 

antiepileptic medications can have 

disabling or severe adverse effects, such 

as lethargy, ataxia, organ or blood cell 

damage, Stevens-Johnson syndrome, 

and psychiatric changes including 

suicidal ideation. For this reason, the 

commenter believed that new 

treatments are still needed. 

The commenter asserted that the 

RNS® System represents a much needed 

new therapy for patients who are 

desperate to get seizures under control 

and lead a productive life. The 

commenter stated that of its patients 

that participated in the clinical trials, 

these patients have demonstrated 

significant and sustained benefits from 

treatment with the RNS® System. The 

commenter noted that two patients had 

a significant reduction in the amount of 

seizures per month, and are now able to 

obtain driver licenses and both show 

improved quality of life. 

The commenter also noted that the 

RNS® System is a unique therapy for the 

following reasons: (1) While 

medications are chemicals that circulate 

to every organ, the RNS® System 

delivers therapy directly to the epileptic 

focus; (2) RNS® therapy is delivered 

automatically, avoiding compliance 

problems that occur with medications; 

and (3) the RNS® System constantly 

records data on seizure occurrences that 

is available to the clinician at any time 

which can track a patient’s progress 

without depending on the patient’s 

memory or willingness to report 

seizures. The commenter asserted that 

no other therapy offers this capability. 

The commenter urged CMS to 

approve the new technology add-on 

payment application for the RNS®

System, which the commenter believed 

would help ensure access to this novel 

therapy for Medicare beneficiaries for 

whom there are otherwise no good 

treatment options available. 

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Another commenter, also a physician, 

stated that some of the benefits of the 

RNS® System therapy include a 

significant reduction in the seizure 

frequency and severity, and for some 

patients, extended periods of seizure 

freedom. The commenter explained that 

this reduction in the seizure frequency 

improves over time, is sustained over 

several years of follow-up, and can 

result in improved cognition and a 

better quality of life. The commenter 

further stated that some patients have 

been able to live independently for the 

first time in their life, take care of 

children, resume driving, go back to 

school and/or obtain employment. The 

commenter concluded the following 

comparisons between the RNS® System 

and the vagus nerve stimulator (VNS): 

• In clinical trials, the RNS® System 

subjects experienced a greater reduction 

in seizures than VNS subjects. The 

median percent reduction in seizures 

was: 1 year: RNS—44 percent and 

VNS—31 percent; 2 years: RNS—53 

percent and VNS—41 percent. 

• VNS therapy results in stimulationrelated side effects, including coughing, 

difficulties with speech and throat pain. 

RNS® therapy does not result in chronic 

side effects. 

• About one-third of patients in RNS®

System pivotal trial had previously 

failed therapy with a VNS. These 

subjects achieved the same positive 

improvements in health outcomes from 

the RNS® System as patients that had 

not previously tried a VNS. 

• In the commenter’s experience, not 

only is the frequency of the seizure 

activity improved but also the severity 

of the seizures can improve with the 

RNS® System. 

The commenter further noted the 

‘‘positive long-term results of RNS 

therapy.’’ The commenter stated that 

therapy is being evaluated in the 

ongoing LTT trial, in which patients are 

enrolled for an additional 7 years after 

completing the initial 2-year clinical 

trial with some patients having the 

implant for over 9 years. The 

commenter asserted that the long-term 

data clearly show that the therapy is 

durable. Specifically, the commenter 

noted that seizure reductions are 

maintained at 50 percent or greater 

through 7 years (that is, the median 

percent reduction in seizures is about 60 

percent at 7 years). The commenter 

added that the vast majority of its 

patients have elected to continue 

treatment with the device given their 

response to the RNS® therapy. The 

commenter encouraged CMS to approve 

new technology add-on payments for 

the RNS® System. 

Response: We appreciate the 

commenters’ support. We considered 

these comments in our evaluation of the 

RNS® System new technology add-on 

payment application for FY 2015 and in 

the development of this proposed rule. 

As stated above, we are inviting 

additional public comments on whether 

the RNS® System meets the substantial 

clinical improvement criterion, 

particularly in regard to the degree in 

which the technology would be used by 

Medicare beneficiaries, the comparison 

to other neurostimulation treatments, 

and its durability. 

III. Proposed Changes to the Hospital 

Wage Index for Acute Care Hospitals 

A. Background 

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

requires that, as part of the methodology 

for determining prospective payments to 

hospitals, the Secretary adjust the 

standardized amounts ‘‘for area 

differences in hospital wage levels by a 

factor (established by the Secretary) 

reflecting the relative hospital wage 

level in the geographic area of the 

hospital compared to the national 

average hospital wage level.’’ We 

currently define hospital labor market 

areas based on the delineations of 

statistical areas established by the Office 

of Management and Budget (OMB). A 

discussion of the proposed FY 2015 

hospital wage index based on the 

statistical areas appears under section 

III.B. of the preamble of this proposed 

rule. 

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

requires the Secretary to update the 

wage index annually and to base the 

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

hospitals. This provision also requires 

that any updates or adjustments to the 

wage index be made in a manner that 

ensures that aggregate payments to 

hospitals are not affected by the change 

in the wage index. The proposed 

adjustment for FY 2015 is discussed in 

section II.B. of the Addendum to this 

proposed rule. 

As discussed in section III.H. of the 

preamble of this proposed rule, 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), 1886(d)(8)(C), 

and 1886(d)(10) of the Act are equal to 

the aggregate prospective payments that 

would have been made absent these 

provisions. The proposed budget 

neutrality adjustment for FY 2015 is 

discussed in section II.A.4.b. of the 

Addendum to this proposed rule. 

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

provides for the collection of data every 

3 years on the occupational mix of 

employees for short-term, acute care 

hospitals participating in the Medicare 

program, in order to construct an 

occupational mix adjustment to the 

wage index. A discussion of the 

occupational mix adjustment that we 

are proposing to apply to the FY 2015 

wage index appears under section III.F. 

of the preamble of this proposed rule. 

B. Proposed Core-Based Statistical 

Areas for the Hospital Wage Index 

1. Background 

The wage index is calculated and 

assigned to hospitals on the basis of the 

labor market area in which the hospital 

is located. Under section 1886(d)(3)(E) 

of the Act, beginning with FY 2005, we 

delineate hospital labor market areas 

based on the Core-Based Statistical 

Areas (CBSAs) established by the Office 

of Management and Budget (OMB). The 

current statistical areas used in FY 2014 

are based on OMB standards published 

on December 27, 2000 (65 FR 82228) 

and Census 2000 data and Census 

Bureau population estimates for 2007 

and 2008 (OMB Bulletin No. 10–02). For 

a discussion of OMB’s delineations of 

CBSAs and our implementation of the 

CBSA definitions, we refer readers to 

the preamble of the FY 2005 IPPS final 

rule (69 FR 49026 through 49032). We 

also discussed in the FY 2012 IPPS/

LTCH PPS final rule (76 FR 51582) and 

the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53365) that, in 2013, OMB 

planned to announce new labor market 

area delineations based on new 

standards adopted in 2010 (75 FR 

37246) and the 2010 Census of 

Population and Housing data. As stated 

in the FY 2014 IPPS/LTCH PPS 

proposed rule (78 FR 27552) and final 

rule (78 FR 50586), on February 28, 

2013, OMB issued OMB Bulletin No. 

13–01, which established revised 

delineations for Metropolitan Statistical 

Areas, Micropolitan Statistical Areas, 

and Combined Statistical Areas, and 

provided guidance on the use of the 

delineations of these statistical areas. A 

copy of this bulletin may be obtained at 

http://www.whitehouse.gov/sites/

default/files/omb/bulletins/2013/b-13- 

01.pdf. According to OMB, ‘‘[t]his 

bulletin provides the delineations of all 

Metropolitan Statistical Areas, 

Metropolitan Divisions, Micropolitan 

Statistical Areas, Combined Statistical 

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Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 28055 

Areas, and New England City and Town 

Areas in the United States and Puerto 

Rico based on the standards published 

on June 28, 2010, in the Federal 

Register (75 FR 37246–37252) and 

Census Bureau data.’’ In this FY 2015 

IPPS/LTCH PPS proposed rule, when 

referencing the new OMB geographic 

boundaries of statistical areas, we are 

using the term ‘‘delineations’’ rather 

than the term ’’ definitions’’ that we 

have used in the past, consistent with 

OMB’s use of the terms (75 FR 37249). 

In order to implement these changes 

for the IPPS, it is necessary to identify 

the new labor market area delineation 

for each county and hospital in the 

country. While the revisions OMB 

published on February 28, 2013 are not 

as sweeping as the changes OMB 

announced in 2003, the February 28, 

2013 bulletin does contain a number of 

significant changes. For example, under 

the new OMB delineations, there would 

be new CBSAs, urban counties that 

would become rural, rural counties that 

would become urban, and existing 

CBSAs would be split apart. In addition, 

the effect of the new OMB delineations 

on various hospital reclassifications, the 

out-migration adjustment (established 

by section 505 of Pub. L. 108–173), and 

treatment of hospitals located in certain 

rural counties (that is, ‘‘Lugar’’ 

hospitals) provided for under section 

1886(d)(8)(B) of the Act must be 

considered. These are just a few of the 

many issues that need to be reviewed 

regarding the effects of the new OMB 

labor market area delineations prior to 

proposing and establishing policies. 

However, because the bulletin was 

not issued until February 28, 2013, with 

supporting data not available until later, 

and because the changes made by the 

bulletin and their ramifications needed 

to be extensively reviewed and verified, 

we were unable to undertake such a 

lengthy process before publication of 

the FY 2014 IPPS/LTCH PPS proposed 

rule and, thus, did not implement 

changes to the wage index for FY 2014 

based on these new OMB delineations. 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50586), we stated that we 

intended to propose changes to the wage 

index based on the new OMB 

delineations in this FY 2015 proposed 

rule. As discussed below, in this 

proposed rule, we are proposing to 

implement the new OMB delineations 

as described in the February 28, 2013 

OMB Bulletin No. 13–01, effective for 

the FY 2015 IPPS wage index. 

2. Proposed Implementation of New 

Labor Market Area Delineations 

As discussed previously, CMS 

delayed implementing the new OMB 

labor market area delineations to allow 

for sufficient time to assess the new 

changes. We believe it is important for 

the IPPS to use the latest labor market 

area delineations available as soon as is 

reasonably possible in order to maintain 

a more accurate and up-to-date payment 

system that reflects the reality of 

population shifts and labor market 

conditions. While CMS and other 

stakeholders have explored potential 

alternatives to the current CBSA-based 

labor market system (we refer readers to 

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

Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/WageIndex-Reform.html), no consensus has 

been achieved regarding how best to 

implement a replacement system. As 

discussed in the FY 2005 IPPS final rule 

(69 FR 49027), ‘‘While we recognize that 

MSAs are not designed specifically to 

define labor market areas, we believe 

they do represent a useful proxy for this 

purpose.’’ We further believe that using 

the most current delineations will 

increase the integrity of the IPPS wage 

index system by creating a more 

accurate representation of geographic 

variations in wage levels. We have 

reviewed our findings and impacts 

relating to the new OMB delineations, 

and find no compelling reason to further 

delay implementation. Therefore, we are 

proposing to implement the new OMB 

delineations as described in the 

February 28, 2013 OMB Bulletin No. 

13–01, effective for the FY 2015 IPPS 

wage index. We are proposing to use 

these new delineations to calculate area 

wage indexes in a manner that is 

generally consistent with the CBSAbased methodologies finalized in the FY 

2005 IPPS final rule, and refined in 

subsequent rulemaking. We also are 

proposing a wage index transition 

period applicable to all hospitals that 

experience negative impacts due to the 

proposed implementation of the new 

OMB delineations. This transition is 

discussed in more detail below. 

a. Micropolitan Statistical Areas 

As discussed in the FY 2005 IPPS 

final rule (69 FR 49029 through 49032), 

CMS considered whether to use 

Micropolitan Statistical Areas to define 

the labor market areas for the purpose 

of the IPPS wage index. OMB defines a 

‘‘Micropolitan Statistical Area’’ as a 

CBSA ‘‘associated with at least one 

urban cluster that has a population of at 

least 10,000, but less than 50,000’’ (75 

FR 37252). We refer to these areas as 

Micropolitan Areas. After extensive 

impact analysis, CMS determined the 

best course of action would be to treat 

all hospitals located in Micropolitan 

Areas as ‘‘rural’’ and include them in 

the calculation of each State’s rural 

wage index. Because Micropolitan areas 

tend to encompass smaller population 

centers and contain fewer hospitals than 

MSAs, we determined that if 

Micropolitan Areas were to be treated as 

separate labor market areas, the IPPS 

wage index would have included 

drastically more single-provider labor 

market areas. This larger number of 

labor market areas with fewer hospitals 

could create instability in year-to-year 

wage index values for a large number of 

hospitals; could reduce the averaging 

effect of the wage index, thus lessening 

some of the efficiency incentive 

inherent in a system based on the 

average hourly wages for a large number 

of hospitals; and could arguably create 

an inequitable system when so many 

hospitals have wage indexes based 

solely on their own wage data while 

other hospitals’ wage indexes are based 

on an average hourly wage across many 

hospitals. For these reasons, we adopted 

a policy to include Micropolitan Areas 

in the State’s rural wage area, and have 

continued this policy through the 

present. 

Based upon the new 2010 Decennial 

Census data, a number of urban counties 

have switched status and have joined or 

became Micropolitan Areas, and some 

counties that once were part of a 

Micropolitan Area, under current OMB 

delineations, have become urban. 

Overall, there are fewer Micropolitan 

Areas (541) under the new OMB 

delineations based on the 2010 Census 

than existed under the latest data from 

the 2000 Census (581). We believe that 

the best course of action would be to 

continue the policy established in the 

FY 2005 IPPS final rule and include 

hospitals located in Micropolitan Areas 

in each State’s rural wage index. These 

areas continue to be defined as having 

relatively small urban cores 

(populations of 10,000–49,999). We do 

not believe it would be appropriate to 

calculate a separate wage index for areas 

that typically may include only a few 

hospitals for the reasons set forth in the 

FY 2005 IPPS/LTCH PPS final rule, as 

discussed above. Therefore, in 

conjunction with our proposal to 

implement the new OMB labor market 

area delineations beginning in FY 2015, 

we are proposing to continue to treat 

Micropolitan Areas as ‘‘rural’’ and to 

include the Micropolitan Areas in the 

calculation of each State’s rural wage 

index. 

b. Urban Counties That Would Become 

Rural Under the New OMB Delineations 

As previously discussed, we are 

proposing to implement the new OMB 

labor market area delineations (based 

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28056 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

upon the 2010 Decennial Census data) 

beginning in FY 2015. Our analysis 

shows that a total of 37 counties (and 

county equivalents) and 12 hospitals 

that were once considered part of an 

urban CBSA would be considered to be 

located in a rural area, beginning in FY 

2015, under these new OMB 

delineations. The following chart lists 

the 37 urban counties that would be 

rural if we finalize our proposal to 

implement the new OMB delineations. 

COUNTIES THAT WOULD LOSE URBAN STATUS

County State 

Previous 

CBSA 

number 

CBSA 

Greene County ...................................... IN 14020 Bloomington, IN. 

Anson County ........................................ NC 16740 Charlotte-Gastonia-Rock Hill, NC-SC. 

Franklin County ...................................... IN 17140 Cincinnati-Middletown, OH-KY-IN. 

Stewart County ...................................... TN 17300 Clarksville, TN-KY. 

Howard County ...................................... MO 17860 Columbia, MO. 

Delta County .......................................... TX 19124 Dallas-Fort Worth-Arlington, TX. 

Pittsylvania County ................................ VA 19260 Danville, VA. 

Danville City ........................................... VA 19260 Danville, VA. 

Preble County ........................................ OH 19380 Dayton, OH. 

Gibson County ....................................... IN 21780 Evansville, IN-KY. 

Webster County ..................................... KY 21780 Evansville, IN-KY. 

Franklin County ...................................... AR 22900 Fort Smith, AR-OK. 

Ionia County ........................................... MI 24340 Grand Rapids-Wyoming, MI. 

Newaygo County ................................... MI 24340 Grand Rapids-Wyoming, MI. 

Greene County ...................................... NC 24780 Greenville, NC. 

Stone County ......................................... MS 25060 Gulfport-Biloxi, MS. 

Morgan County ...................................... WV 25180 Hagerstown-Martinsburg, MD-WV. 

San Jacinto County ............................... TX 26420 Houston-Sugar Land-Baytown, TX. 

Franklin County ...................................... KS 28140 Kansas City, MO-KS. 

Tipton County ........................................ IN 29020 Kokomo, IN. 

Nelson County ....................................... KY 31140 Louisville/Jefferson County, KY-IN. 

Geary County ......................................... KS 31740 Manhattan, KS. 

Washington County ............................... OH 37620 Parkersburg-Marietta-Vienna, WV-OH. 

Pleasants County ................................... WV 37620 Parkersburg-Marietta-Vienna, WV-OH. 

George County ...................................... MS 37700 Pascagoula, MS. 

Power County ........................................ ID 38540 Pocatello, ID. 

Cumberland County ............................... VA 40060 Richmond, VA. 

King and Queen County ........................ VA 40060 Richmond, VA. 

Louisa County ........................................ VA 40060 Richmond, VA. 

Washington County ............................... MO 41180 St. Louis, MO-IL. 

Summit County ...................................... UT 41620 Salt Lake City, UT. 

Erie County ............................................ OH 41780 Sandusky, OH. 

Franklin County ...................................... MA 44140 Springfield, MA. 

Ottawa County ....................................... OH 45780 Toledo, OH. 

Greene County ...................................... AL 46220 Tuscaloosa, AL. 

Calhoun County ..................................... TX 47020 Victoria, TX. 

Surry County .......................................... VA 47260 Virginia Beach-Norfolk-Newport News, VA-NC. 

We are proposing that the wage data 

for all hospitals located in the counties 

listed above would now be considered 

rural when calculating their respective 

State’s rural wage index. We recognize 

that rural areas typically have lower 

area wage index values than urban 

areas, and hospitals located in these 

counties may experience a negative 

impact in their IPPS payment due to the 

proposed adoption of the new OMB 

delineations. We refer readers to section 

III.B.2.e. of the preamble of this 

proposed rule for a discussion of the 

proposed wage index transition period, 

in particular, the discussion regarding 

the 3-year transition for hospitals 

located in these specific counties. 

c. Rural Counties That Would Become 

Urban Under the New OMB 

Delineations 

As previously discussed, we are 

proposing to implement the new OMB 

labor market area delineations (based 

upon the 2010 Decennial Census data) 

beginning in FY 2015. Analysis of these 

OMB labor market area delineations 

shows that a total of 105 counties (and 

county equivalents) and 81 hospitals 

that were located in rural areas would 

be located in urban areas under the new 

OMB delineations. The following chart 

lists the 105 rural counties that would 

be urban if we finalize our proposal to 

implement the new OMB delineations. 

COUNTIES THAT WOULD GAIN URBAN STATUS

County State New CBSA 

number CBSA. 

Utuado Municipio ................................... PR 10380 Aguadilla-Isabela, PR. 

Linn County ............................................ OR 10540 Albany, OR. 

Oldham County ...................................... TX 11100 Amarillo, TX. 

Morgan County ....................................... GA 12060 Atlanta-Sandy Springs-Roswell, GA. 

Lincoln County ....................................... GA 12260 Augusta-Richmond County, GA-SC. 

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COUNTIES THAT WOULD GAIN URBAN STATUS—Continued 

County State New CBSA 

number CBSA. 

Newton County ....................................... TX 13140 Beaumont-Port Arthur, TX. 

Fayette County ....................................... WV 13220 Beckley, WV. 

Raleigh County ....................................... WV 13220 Beckley, WV. 

Golden Valley County ............................ MT 13740 Billings, MT. 

Oliver County ......................................... ND 13900 Bismarck, ND. 

Sioux County .......................................... ND 13900 Bismarck, ND. 

Floyd County .......................................... VI 13980 Blacksburg-Christiansburg-Radford, VA. 

De Witt County ....................................... IL 14010 Bloomington, IL. 

Columbia County .................................... PA 14100 Bloomsburg-Berwick, PA. 

Montour County ...................................... PA 14100 Bloomsburg-Berwick, PA. 

Allen County ........................................... KY 14540 Bowling Green, KY. 

Butler County ......................................... KY 14540 Bowling Green, KY. 

St. Mary’s County ................................... MD 15680 California-Lexington Park, MD. 

Jackson County ...................................... IL 16060 Carbondale-Marion, IL. 

Williamson County ................................. IL 16060 Carbondale-Marion, IL. 

Franklin County ...................................... PA 16540 Chambersburg-Waynesboro, PA. 

Iredell County ......................................... NC 16740 Charlotte-Concord-Gastonia, NC-SC. 

Lincoln County ....................................... NC 16740 Charlotte-Concord-Gastonia, NC-SC. 

Rowan County ........................................ NC 16740 Charlotte-Concord-Gastonia, NC-SC. 

Chester County ...................................... SC 16740 Charlotte-Concord-Gastonia, NC-SC. 

Lancaster County ................................... SC 16740 Charlotte-Concord-Gastonia, NC-SC. 

Buckingham County ............................... VA 16820 Charlottesville, VA. 

Union County ......................................... IN 17140 Cincinnati, OH-KY-IN. 

Hocking County ...................................... OH 18140 Columbus, OH. 

Perry County .......................................... OH 18140 Columbus, OH. 

Walton County ........................................ FL 18880 Crestview-Fort Walton Beach-Destin, FL. 

Hood County .......................................... TX 23104 Dallas-Fort Worth-Arlington, TX. 

Somervell County ................................... TX 23104 Dallas-Fort Worth-Arlington, TX. 

Baldwin County ...................................... AL 19300 Daphne-Fairhope-Foley, AL. 

Monroe County ....................................... PA 20700 East Stroudsburg, PA. 

Hudspeth County ................................... TX 21340 El Paso, TX. 

Adams County ........................................ PA 23900 Gettysburg, PA. 

Hall County ............................................. NE 24260 Grand Island, NE. 

Hamilton County ..................................... NE 24260 Grand Island, NE. 

Howard County ...................................... NE 24260 Grand Island, NE. 

Merrick County ....................................... NE 24260 Grand Island, NE. 

Montcalm County ................................... MI 24340 Grand Rapids-Wyoming, MI. 

Josephine County .................................. OR 24420 Grants Pass, OR. 

Tangipahoa Parish ................................. LA 25220 Hammond, LA. 

Beaufort County ..................................... SC 25940 Hilton Head Island-Bluffton-Beaufort, SC. 

Jasper County ........................................ SC 25940 Hilton Head Island-Bluffton-Beaufort, SC. 

Citrus County ......................................... FL 26140 Homosassa Springs, FL. 

Butte County .......................................... ID 26820 Idaho Falls, ID. 

Yazoo County ......................................... MS 27140 Jackson, MS. 

Crockett County ..................................... TN 27180 Jackson, TN. 

Kalawao County ..................................... HI 27980 Kahului-Wailuku-Lahaina, HI. 

Maui County ........................................... HI 27980 Kahului-Wailuku-Lahaina, HI. 

Campbell County .................................... TN 28940 Knoxville, TN. 

Morgan County ....................................... TN 28940 Knoxville, TN. 

Roane County ........................................ TN 28940 Knoxville, TN. 

Acadia Parish ......................................... LA 29180 Lafayette, LA. 

Iberia Parish ........................................... LA 29180 Lafayette, LA. 

Vermilion Parish ..................................... LA 29180 Lafayette, LA. 

Cotton County ........................................ OK 30020 Lawton, OK. 

Scott County ........................................... IN 31140 Louisville/Jefferson County, KY-IN. 

Lynn County ........................................... TX 31180 Lubbock, TX. 

Green County ......................................... WI 31540 Madison, WI. 

Benton County ....................................... MS 32820 Memphis, TN-MS-AR. 

Midland County ...................................... MI 33220 Midland, MI. 

Martin County ......................................... TX 33260 Midland, TX. 

Le Sueur County .................................... MN 33460 Minneapolis-St. Paul-Bloomington, MN-WI. 

Mille Lacs County ................................... MN 33460 Minneapolis-St. Paul-Bloomington, MN-WI. 

Sibley County ......................................... MN 33460 Minneapolis-St. Paul-Bloomington, MN-WI. 

Maury County ......................................... TN 34980 Nashville-Davidson-Murfreesboro-Franklin, TN. 

Craven County ....................................... NC 35100 New Bern, NC. 

Jones County ......................................... NC 35100 New Bern, NC. 

Pamlico County ...................................... NC 35100 New Bern, NC. 

St. James Parish .................................... LA 35380 New Orleans-Metairie, LA. 

Box Elder County ................................... UT 36260 Ogden-Clearfield, UT. 

Gulf County ............................................ FL 37460 Panama City, FL. 

Custer County ........................................ SD 39660 Rapid City, SD. 

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COUNTIES THAT WOULD GAIN URBAN STATUS—Continued 

County State New CBSA 

number CBSA. 

Fillmore County ...................................... MN 40340 Rochester, MN. 

Yates County .......................................... NY 40380 Rochester, NY. 

Sussex County ....................................... DE 41540 Salisbury, MD-DE. 

Worcester County .................................. MA 41540 Salisbury, MD-DE. 

Highlands County ................................... FL 42700 Sebring, FL. 

Webster Parish ....................................... LA 43340 Shreveport-Bossier City, LA. 

Cochise County ...................................... AZ 43420 Sierra Vista-Douglas, AZ. 

Plymouth County .................................... IA 43580 Sioux City, IA-NE-SD. 

Union County ......................................... SC 43900 Spartanburg, SC. 

Pend Oreille County ............................... WA 44060 Spokane-Spokane Valley, WA. 

Stevens County ...................................... WA 44060 Spokane-Spokane Valley, WA. 

Augusta County ...................................... VA 44420 Staunton-Waynesboro, VA. 

Staunton City .......................................... VA 44420 Staunton-Waynesboro, VA. 

Waynesboro City .................................... VA 44420 Staunton-Waynesboro, VA. 

Little River County .................................. AR 45500 Texarkana, TX-AR. 

Sumter County ....................................... FL 45540 The Villages, FL. 

Pickens County ...................................... AL 46220 Tuscaloosa, AL. 

Gates County ......................................... NC 47260 Virginia Beach-Norfolk-Newport News, VA-NC. 

Falls County ........................................... TX 47380 Waco, TX. 

Columbia County .................................... WA 47460 Walla Walla, WA. 

Walla Walla County ................................ WA 47460 Walla Walla, WA. 

Peach County ......................................... GA 47580 Warner Robins, GA. 

Pulaski County ....................................... GA 47580 Warner Robins, GA. 

Culpeper County .................................... VA 47894 Washington-Arlington-Alexandria, DC-VA-MD-WV. 

Rappahannock County ........................... VA 47894 Washington-Arlington-Alexandria, DC-VA-MD-WV. 

Jefferson County .................................... NY 48060 Watertown-Fort Drum, NY. 

Kingman County ..................................... KS 48620 Wichita, KS. 

Davidson County .................................... NC 49180 Winston-Salem, NC. 

Windham County .................................... CT 49340 Worcester, MA-CT. 

We are proposing that when 

calculating the area wage index, the 

wage data for hospitals located in these 

counties would be included in their 

new respective urban CBSAs. Typically, 

hospitals located in an urban area 

would receive a higher wage index 

value than hospitals located in their 

State’s rural area. However, with regard 

to the wage index applicable to 

individual hospitals, we are proposing 

to implement a transitional wage index 

adjustment for any hospital that would 

receive a lower wage index under the 

new OMB delineations than it would 

have received under the current CBSA 

definitions. We refer readers to section 

III.B.2.e. of the preamble of this 

proposed rule for further discussion of 

this proposed transition. 

d. Urban Counties That Would Move to 

a Different Urban CBSA Under the New 

OMB Delineations 

In addition to rural counties becoming 

urban and urban counties becoming 

rural, several urban counties would shift 

from one urban CBSA to another urban 

CBSA under our proposal to adopt the 

new OMB delineations. In certain cases, 

adopting the new OMB delineations 

would involve a change only in CBSA 

name or number, while the CBSA 

continues to encompass the same 

constituent counties. For example, 

CBSA 29140 (Lafayette, IN) would 

experience both a change to its number 

and its name, and become CBSA 29200 

(Lafayette-West Lafayette, IN), while all 

of its three constituent counties would 

remain the same. We have identified 19 

counties that would remain in a CBSA 

that experienced a change in name or 

number under the new delineations, but 

would retain the same constituent 

counties, as shown in the following 

table. 

COUNTIES THAT WOULD REMAIN IN CBSA THAT CHANGED NUMBER

Prior CBSA No. New CBSA No. County State 

14484 ................ 14454 Norfolk County ................................................................................................................................. MA. 

14484 ................ 14454 Plymouth County ............................................................................................................................. MA. 

14484 ................ 14454 Suffolk County ................................................................................................................................. MA. 

47644 ................ 47664 Lapeer County ................................................................................................................................. MI. 

47644 ................ 47664 Livingston County ............................................................................................................................ MI. 

47644 ................ 47664 Macomb County .............................................................................................................................. MI. 

47644 ................ 47664 Oakland County ............................................................................................................................... MI. 

47644 ................ 47664 St. Clair County ............................................................................................................................... MI. 

26180 ................ 46520 Honolulu County .............................................................................................................................. HI. 

29140 ................ 29200 Benton County ................................................................................................................................. IN. 

29140 ................ 29200 Carroll County .................................................................................................................................. IN. 

29140 ................ 29200 Tippecanoe County ......................................................................................................................... IN. 

42044 ................ 11244 Orange County ................................................................................................................................ CA. 

42060 ................ 42200 Santa Barbara County ..................................................................................................................... CA. 

44600 ................ 48260 Jefferson County ............................................................................................................................. OH. 

44600 ................ 48260 Brooke County ................................................................................................................................. WV. 

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Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 28059 

COUNTIES THAT WOULD REMAIN IN CBSA THAT CHANGED NUMBER—Continued 

Prior CBSA No. New CBSA No. County State 

44600 ................ 48260 Hancock County .............................................................................................................................. WV. 

13644 ................ 43524 Frederick County ............................................................................................................................. MD. 

13644 ................ 43524 Montgomery County ........................................................................................................................ MD. 

We are not discussing further in this 

section these proposed changes because 

they are inconsequential changes with 

respect to the IPPS wage index. 

However, in other cases, if we adopt the 

new OMB delineations, counties would 

shift between existing and new CBSAs, 

changing the constituent makeup of the 

CBSAs. 

In one type of change, an entire CBSA 

would be subsumed by another CBSA. 

For example, CBSA 37380 (Palm Coast, 

FL) currently is a single county (Flagler, 

FL) CBSA. Flagler County would 

become a part of CBSA 19660 (DeltonaDaytona Beach-Ormond Beach, FL) 

under the new OMB delineations. 

In another type of change, some 

CBSAs have counties that would split 

off to become part of or to form entirely 

new labor market areas. For example, 

CBSA 37964 (Philadelphia Metropolitan 

Division) currently is comprised of five 

Pennsylvania counties (Bucks, Chester, 

Delaware, Montgomery, and 

Philadelphia). If we adopt the new OMB 

delineations, Montgomery, Bucks, and 

Chester counties would split off and 

form the new CBSA 33874 (Montgomery 

County-Bucks County-Chester County, 

PA Metropolitan Division), while 

Delaware and Philadelphia counties 

would remain in CBSA 37964. 

Finally, in some cases, a CBSA would 

lose counties to another existing CBSA 

if we adopt the new OMB delineations. 

For example, Lincoln County and 

Putnam County, WV would move from 

CBSA 16620 (Charleston, WV) to CBSA 

26580 (Huntington-Ashland, WV–KY– 

OH). CBSA 16620 still would exist in 

the new labor market delineations with 

fewer constituent counties. 

The following chart lists the urban 

counties that would move from one 

urban CBSA to another urban CBSA if 

we adopted the new OMB delineations. 

COUNTIES THAT WOULD CHANGE TO ANOTHER CBSA 

Prior CBSA New CBSA County State 

11300 ................ 26900 Madison County ............................................................................................................................... IN. 

11340 ................ 24860 Anderson County ............................................................................................................................. SC. 

14060 ................ 14010 McLean County ............................................................................................................................... IL. 

37764 ................ 15764 Essex County .................................................................................................................................. MA. 

16620 ................ 26580 Lincoln County ................................................................................................................................. WV. 

16620 ................ 26580 Putnam County ................................................................................................................................ WV. 

16974 ................ 20994 DeKalb County ................................................................................................................................ IL. 

16974 ................ 20994 Kane County .................................................................................................................................... IL. 

21940 ................ 41980 Ceiba Municipio ............................................................................................................................... PR. 

21940 ................ 41980 Fajardo Municipio ............................................................................................................................ PR. 

21940 ................ 41980 Luquillo Municipio ............................................................................................................................ PR. 

26100 ................ 24340 Ottawa County ................................................................................................................................. MI. 

31140 ................ 21060 Meade County ................................................................................................................................. KY. 

34100 ................ 28940 Grainger County .............................................................................................................................. TN. 

35644 ................ 35614 Bergen County ................................................................................................................................. NJ. 

35644 ................ 35614 Hudson County ................................................................................................................................ NJ. 

20764 ................ 35614 Middlesex County ............................................................................................................................ NJ. 

20764 ................ 35614 Monmouth County ........................................................................................................................... NJ. 

20764 ................ 35614 Ocean County .................................................................................................................................. NJ. 

35644 ................ 35614 Passaic County ................................................................................................................................ NJ. 

20764 ................ 35084 Somerset County ............................................................................................................................. NJ. 

35644 ................ 35614 Bronx County ................................................................................................................................... NY. 

35644 ................ 35614 Kings County ................................................................................................................................... NY. 

35644 ................ 35614 New York County ............................................................................................................................ NY. 

35644 ................ 20524 Putnam County ................................................................................................................................ NY. 

35644 ................ 35614 Queens County ................................................................................................................................ NY. 

35644 ................ 35614 Richmond County ............................................................................................................................ NY. 

35644 ................ 35614 Rockland County ............................................................................................................................. NY. 

35644 ................ 35614 Westchester County ........................................................................................................................ NY. 

37380 ................ 19660 Flagler County ................................................................................................................................. FL. 

37700 ................ 25060 Jackson County ............................................................................................................................... MS. 

37964 ................ 33874 Bucks County .................................................................................................................................. PA. 

37964 ................ 33874 Chester County ................................................................................................................................ PA. 

37964 ................ 33874 Montgomery County ........................................................................................................................ PA. 

39100 ................ 20524 Dutchess County ............................................................................................................................. NY. 

39100 ................ 35614 Orange County ................................................................................................................................ NY. 

41884 ................ 42034 Marin County ................................................................................................................................... CA. 

41980 ................ 11640 Arecibo Municipio ............................................................................................................................ PR. 

41980 ................ 11640 Camuy Municipio ............................................................................................................................. PR. 

41980 ................ 11640 Hatillo Municipio .............................................................................................................................. PR. 

41980 ................ 11640 Quebradillas Municipio .................................................................................................................... PR. 

48900 ................ 34820 Brunswick County ............................................................................................................................ NC. 

49500 ................ 38660 Gua ́nica Municipio ........................................................................................................................... PR. 

49500 ................ 38660 Guayanilla Municipio ....................................................................................................................... PR. 

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28060 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

COUNTIES THAT WOULD CHANGE TO ANOTHER CBSA—Continued 

Prior CBSA New CBSA County State 

49500 ................ 38660 Pen ̃uelas Municipio ......................................................................................................................... PR. 

49500 ................ 38660 Yauco Municipio .............................................................................................................................. PR. 

If hospitals located in these counties 

move from one CBSA to another under 

the new OMB delineations, there may 

be impacts, both negative and positive, 

upon their specific wage index values. 

We refer readers to section III.B.2.e. of 

the preamble of this proposed rule for 

a discussion of our proposals to 

moderate the impact of our proposed 

adoption of the new OMB delineations. 

e. Proposed Transition Period 

(1) Background 

Overall, we believe implementing the 

new OMB labor market area 

delineations would result in wage index 

values being more representative of the 

actual costs of labor in a given area. 

However, we recognize that some 

hospitals would experience decreases in 

wage index values as a result of our 

proposed implementation of the new 

labor market area delineations. We also 

realize that some hospitals would have 

higher wage index values due to our 

proposed implementation of the new 

labor market area delineations. 

In the past, we have provided for 

transition periods when adopting 

changes that have significant payment 

implications, particularly large negative 

impacts. As discussed in the FY 2005 

IPPS final rule (69 FR 49032 through 

49034), we evaluated several options to 

ease the transition to the new CBSA 

system, which we implemented starting 

in FY 2005 and which is the system 

currently in use. 

As discussed in that rule, we 

determined that the transition to the 

current wage index system would have 

the largest negative impacts upon 

hospitals that were originally 

considered urban, but would be 

considered rural under the new 

definitions. To alleviate the decreased 

payments associated with having a rural 

wage index, in calculating the area wage 

index, in the FY 2005 IPPS final rule, 

we allowed urban hospitals that became 

rural under new definitions to maintain 

their assignment to the labor market 

area where they were located for FY 

2004. This adjustment was granted for a 

period of 3 fiscal years. 

In the FY 2005 IPPS final rule, for all 

hospitals that experienced negative 

payment impacts due to new definitions 

(for example, they were moved to an 

urban CBSA with a lower wage index 

value than their previous rural or urban 

labor market area), we implemented a 1- 

year blended adjustment. We calculated 

wage indexes for all hospitals using 

both old and new labor market 

definitions. Hospitals received 50 

percent of their wage index based on the 

new OMB delineations, and 50 percent 

of their wage index based on their 

current labor market area. This 

adjustment only applied to hospitals 

that would have experienced a drop in 

wage index values due to a change in 

labor market definitions. Hospitals that 

benefitted from the labor market area 

transition received their new wage 

index at the time the new labor market 

definitions became effective. 

We continue to have the same 

concerns expressed in the FY 2005 IPPS 

final rulemaking. Therefore, we are 

proposing a similar transition 

methodology to mitigate any negative 

financial impacts experienced by 

hospitals due to our proposal to 

implement the new OMB labor market 

area delineations for FY 2015. 

(2) Proposed Transition for Hospitals in 

Urban Areas That Would Become Rural 

For hospitals that are currently 

located in an urban county that would 

become rural under the new OMB 

delineations, and would have no form of 

wage index reclassification or 

redesignation in place for FY 2015 (that 

is, MGCRB reclassifications under 

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

redesignations under section 

1886(d)(8)(B) of the Act, or rural 

reclassifications under section 

1886(d)(8)(E) of the Act), we are 

proposing a policy to assign them the 

urban wage index value of the CBSA in 

which they are physically located for FY 

2014 for a period of 3 fiscal years (with 

the rural and imputed floors applied 

and with the rural floor budget 

neutrality adjustment applied to the 

area wage index). As stated in the FY 

2005 IPPS proposed rule (69 FR 28252), 

we have in the past provided transitions 

when adopting changes that have 

significant payment implications, 

particularly large negative impacts. We 

believe it is appropriate to apply a 3- 

year transition period for hospitals 

located in urban counties that would 

become rural under the new OMB 

delineations, given the potentially 

significant payment impacts for these 

hospitals. This is consistent with the 

transition policy adopted in FY 2005 (69 

FR 49032 through 49034). We continue 

to believe, as we stated in the FY 2005 

IPPS final rule (69 FR 49033), that the 

longer transition period is appropriate 

because, as a group, we expect these 

hospitals would experience a steeper 

and more abrupt reduction in their wage 

index due to the labor market revisions 

compared to other hospitals. Assigning 

these hospitals the urban wage index 

value of the CBSA in which they are 

physically located for FY 2014 for a 

period of 3 fiscal years (with the rural 

and imputed floors applied and with the 

rural floor budget neutrality adjustment 

applied to the area wage index) would 

be the most similar to the actual 

payment wage index that these hospitals 

received in FY 2014, thereby 

minimizing the negative impact of 

adopting the new OMB delineations for 

these hospitals. Accordingly, for FYs 

2015, 2016, and 2017, assuming no 

other form of wage index 

reclassification or redesignation is 

granted, we are proposing to assign 

these hospitals the area wage index 

value of the urban CBSA to which they 

geographically were located in FY 2014 

(with the rural and imputed floors 

applied and with the rural floor budget 

neutrality adjustment applied to the 

area wage index). For example, if urban 

CBSA 12345 consisted of three counties 

in FY 2014, and, under the new OMB 

delineations, one of those counties, 

County X, would no longer be part of 

CBSA 12345 and would become rural 

for FY 2015, we are proposing that 

hospitals in County X would be 

assigned the FY 2015 wage index of 

CBSA 12345, computed using the 

remaining two counties, with the rural 

and imputed floors applied and with the 

rural floor budget neutrality adjustment 

applied to the area wage index. We 

believe that assigning the wage index of 

the hospitals’ current area is the 

simplest and most effective method for 

mitigating negative payment impacts 

due to the proposed adoption of the new 

OMB delineations. We have identified 

relatively few hospitals that are located 

in urban counties that would become 

rural, and fewer yet that do not have a 

reclassification or redesignation in effect 

for FY 2015. Because we believe that 

these urban to rural transitions would 

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be the most likely to cause significant 

negative payment impacts, we believe 

that these hospitals should be granted a 

longer transition period than hospitals 

that may be switching between urban 

labor market areas, which as discussed 

later, we are proposing may receive 1- 

year blended wage index. 

We note that there are situations 

where a hospital cannot be assigned the 

wage index value of the CBSA to which 

it geographically belonged in FY 2014 

because that CBSA would be split and 

no longer exist and some or all of the 

constituent counties would be added to 

another urban labor market area under 

the new OMB delineations. If the 

hospital cannot be assigned the wage 

index value of the CBSA to which it is 

geographically located in FY 2014 

because that CBSA would be split apart 

and no longer exist, and some or all of 

its constituent counties would be added 

to another urban labor market area 

under the new OMB delineations, we 

are proposing that hospitals located in 

such counties that would become rural 

under the new OMB delineations would 

be assigned the wage index of the FY 

2015 urban labor market area that 

contains the urban county in their FY 

2014 CBSA to which they are closest 

(with the rural and imputed floors 

applied and with the rural floor budget 

neutrality adjustment applied) for a 

period of 3 fiscal years. We believe this 

approach of assigning the wage index of 

the FY 2015 urban labor market area 

that contains the urban county in their 

FY 2014 CBSA to which they are closest 

(with the rural and imputed floors 

applied and with the rural floor budget 

neutrality adjustment applied) would 

most closely approximate the hospitals’ 

FY 2014 actual payment wage index, 

thereby minimizing the negative effects 

of the proposed change in the OMB 

delineations. For example, George 

County, MS and Jackson County, MS, 

together, in FY 2014, comprise the 

urban CBSA 37700 (Pascagoula, MS). 

Under the new OMB delineations, 

George County would be considered 

rural and Jackson County, MS would 

become part of the urban labor market 

area of Gulfport-Biloxi-Pascagoula, MS 

(CBSA 25060). In this instance, we are 

proposing that hospitals in George 

County, MS would be assigned the FY 

2015 wage index for CBSA 25060 

(Gulfport-Biloxi-Pascagoula, MS), with 

the rural and imputed floors applied 

and with the rural floor budget 

neutrality adjustment applied. 

Furthermore, we are proposing that 

any hospital that is currently located in 

an urban county that would become 

rural for FY 2015 under the new OMB 

delineations, but also has a 

reclassification or redesignation in effect 

for FY 2015 (from a pre-existing 

reclassification or redesignation granted 

prior to FY 2015), would not be eligible 

for the 3-year transition wage index. 

This is because if the hospital is 

reclassified or redesignated in some 

manner, it would instead receive a wage 

index that reflects its own choice to 

obtain its reclassified or redesignated 

status. Accordingly, if a hospital is 

currently located in an urban county 

that would become rural for FY 2015 

under the new OMB delineations and 

such hospital sought and was granted 

reclassification or redesignation for FY 

2015 or such hospital seeks and is 

granted any reclassification or 

redesignation for FY 2016 or FY 2017, 

we are proposing that the hospital 

would permanently lose its 3-year 

transitional assigned wage index status, 

and would not be eligible to reinstate it. 

For example, if a hospital that is 

currently urban but would become rural 

under the new OMB delineations 

received a 3-year transition wage index 

in FY 2015 based on the wage index of 

the urban CBSA to which it was 

geographically located in FY 2014 and 

then by its own choice, reclassifies to 

obtain a different area wage index in FY 

2016, the hospital would not be eligible 

to reinstate the transition wage index, 

even if it opts to cancel its 

reclassification for FY 2017. We are 

proposing the transition adjustment to 

assist hospitals if they experience a 

negative payment impact specifically 

due to the proposed adoption of the new 

OMB delineations in FY 2015. If a 

hospital chooses in a future fiscal year 

to forego this transition adjustment by 

obtaining some form of reclassification 

or redesignation, we do not believe 

reinstatement of this transition 

adjustment would be appropriate. The 

purpose of the adjustment is to assist 

hospitals that may be negatively 

impacted by the new OMB delineations 

in transitioning to a wage index based 

on these delineations. By obtaining a 

reclassification or redesignation, we 

believe that the hospital has made the 

determination that the transition 

adjustment is not necessary because it 

has other viable options for mitigating 

the impact of the transition to the new 

OMB delineations. 

With respect to the wage index 

computation, we are proposing to follow 

our existing policy regarding the 

inclusion of a hospital’s wage index 

data in the CBSA in which it is 

geographically located (we refer readers 

to Step 6 of the method for computing 

the unadjusted wage index in the FY 

2012 IPPS/LTCH PPS final rule (76 FR 

51592)). Accordingly, beginning with 

FY 2015, we are proposing that the wage 

data of all hospitals receiving this type 

of 3-year transition adjustment would be 

included in the statewide rural area in 

which they are geographically located 

under the new OMB labor market area 

delineations of FY 2015. After the 3-year 

transition period, beginning in FY 2018, 

we are proposing that these formerly 

urban hospitals discussed above would 

receive their statewide rural wage index, 

absent any reclassification or 

redesignation. 

In addition, we are proposing that the 

hospitals receiving this 3-year transition 

because they are in counties that were 

urban under the current CBSA 

definitions, but would be rural under 

the new OMB delineations, would not 

be considered urban hospitals. Rather, 

they would maintain their status as 

rural hospitals for other payment 

considerations. This is because our 

proposal to apply a 3-year transitional 

wage index for these newly rural 

hospitals only applies for the purpose of 

calculating the wage index under our 

proposal to adopt the new CBSA 

delineations. We are not proposing 

transitions for other IPPS payment 

policies that may be impacted by the 

proposed adoption of the new CBSA 

delineations. However, we will continue 

to apply the existing regulations at 

§ 412.102 with respect to determining 

DSH payments in the first year after a 

hospital loses urban status (we refer 

readers to section II.B.2.e.(7) of the 

preamble of this proposed rule). 

(3) Proposed Transition for Hospitals 

Deemed Urban Under Section 

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

Urban Area Would Become Rural Under 

the New OMB Delineations 

As discussed in section II.H.3. of the 

preamble of this proposed rule, there are 

some hospitals that currently are 

geographically located in rural areas but 

are deemed to be urban under section 

1886(d)(8)(B) of the Act. For FY 2015, 

some of these hospitals currently 

redesignated under section 

1886(d)(8)(B) of the Act would no longer 

be eligible for deemed urban status 

under the new OMB delineations, as 

discussed in detail in section III.H.3. of 

the preamble of this proposed rule. 

Similar to the policy implemented in 

the FY 2005 IPPS final rule (69 FR 

49059), and consistent with the policy 

we are proposing for other hospitals in 

counties that were urban and would 

become rural under the new OMB 

delineations, we are proposing to apply 

the 3-year transition to these hospitals 

currently redesignated to urban areas 

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

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that would no longer be deemed urban 

under the new OMB delineations and 

would revert to being rural. That is, for 

FYs 2015, 2016, and 2017, assuming no 

other form of wage index 

reclassification or redesignation is 

granted, we are proposing to assign 

these hospitals the FY 2015 area wage 

index value of hospitals reclassified to 

the urban CBSA (that is, the attaching 

wage index) to which they were 

redesignated in FY 2014 (with the rural 

and imputed floors applied and with the 

rural floor budget neutrality adjustment 

applied). If the hospital cannot be 

assigned the reclassified wage index 

value of the CBSA to which it was 

redesignated in FY 2014 because that 

CBSA would split apart and no longer 

exist, and some or all of its constituent 

counties would be added to another 

urban labor market area under the new 

OMB delineations, we are proposing 

that such hospitals would be assigned 

the wage index of the hospitals 

reclassified to the FY 2015 urban labor 

market area that contains the urban 

county in their FY 2014 redesignated 

CBSA to which they are closest for a 

period of 3 fiscal years. We are 

proposing to assign these hospitals the 

area wage index of hospitals reclassified 

to a CBSA because hospitals deemed 

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

Act are treated as reclassified under 

current policy, under which such 

hospitals receive an area wage index 

that includes wage data of all hospitals 

reclassified to the area. 

(4) Proposed Transition for Hospitals 

That Would Experience a Decrease in 

Wage Index Under the New OMB 

Delineations 

While we believe that instituting the 

latest OMB labor market area 

delineations would create a more 

accurate wage index system, we also 

recognize that implementing the new 

OMB delineations may cause some 

short-term instability in hospital 

payments. Therefore, in addition to the 

3-year transition adjustment for 

hospitals being transitioned from urban 

to rural status as discussed above, we 

are proposing a 1-year blended wage 

index for all hospitals that would 

experience any decrease in their actual 

payment wage index (that is, a 

hospital’s actual wage index used for 

payment, which accounts for all 

applicable effects of reclassification and 

redesignation) exclusively due to the 

proposed implementation of the new 

OMB delineations. Similar to the policy 

adopted in the FY 2005 IPPS final rule 

(69 FR 49033), we are proposing that a 

post-reclassified wage index with the 

rural and imputed floor applied would 

be computed based on the hospital’s FY 

2014 CBSA (that is, using all of its FY 

2014 constituent county/ies), and 

another post-reclassified wage index 

with the rural and imputed floor 

applied would be computed based on 

the hospital’s new FY 2015 CBSA (that 

is, the FY 2015 constituent county/ies). 

We are proposing to compare these two 

wage indexes. If the proposed FY 2015 

wage index with FY 2015 CBSAs would 

be lower than the proposed FY 2015 

wage index with FY 2014 CBSAs, we 

are proposing that a blended wage index 

would be computed, consisting of 50 

percent of each of the two wage indexes 

added together. We are proposing that 

this blended wage index would be the 

hospital’s wage index for FY 2015. We 

believe a 1-year, 50/50 blend would 

mitigate the short-term instability and 

negative payment impacts due to the 

proposed implementation of the new 

OMB delineations, providing hospitals 

with a transition period during which 

they may adjust to their new geographic 

CBSA or may assess any reclassification 

options that would be available to them 

starting in FY 2016. We are proposing 

a longer 3-year transition adjustment for 

hospitals losing urban status because 

there are significantly fewer affected 

urban-to-rural hospitals, and we believe 

the negative impacts to a hospital 

shifting from urban to rural status 

would typically be greater than other 

types of transitions. We believe that a 

transition period longer than 1 year to 

address other impacts of the proposed 

adoption of new OMB delineations 

would reduce the accuracy of the 

overall labor market area wage index 

system because far more hospitals 

would be affected. 

In addition, for FY 2015, for hospitals 

that would receive the proposed 3-year 

transition, it is possible that receiving 

the FY 2015 wage index (with the rural 

and imputed floors applied and with the 

rural floor budget neutrality adjustment 

applied) of the CBSA where the hospital 

is geographically located for FY 2014 

might still be less than the FY 2015 

wage index that the hospital would have 

received in the absence of the adoption 

of the new OMB delineations 

(particularly in States where the rural 

floor is historically very high). 

Therefore, such a hospital may 

additionally benefit from application of 

the 50/50 blended wage indexes. 

Accordingly, we are proposing to 

include the assignment of the 3-year 

transitional wage index in our 

calculation of the FY 2015 portion of the 

50/50 blended wage index for that 

hospital. After FY 2015, such a hospital 

may revert to the second year of the 3- 

year transition. For example, if Hospital 

X (formerly part of CBSA 12345, now 

rural) is assigned CBSA 12345’s FY 

2015 wage index value of 1.0000 as part 

of the 3-year transition, but that FY 2015 

wage index value would have been 

1.1000 under the previous OMB 

delineations, that hospital would 

receive a 50/50 blended wage index of 

1.0500 for FY 2015. In FY 2016 and FY 

2017, Hospital X would still be eligible 

to receive the remaining 2 years of the 

3-year transition wage index of CBSA 

12345 (that is, in FY 2016, Hospital X 

would receive the FY 2016 wage index 

of CBSA 12345 (with the rural and 

imputed floors applied and with the 

rural floor budget neutrality adjustment 

applied)), and in FY 2017, Hospital X 

would receive the FY 2017 wage index 

of CBSA 12345 (with the rural and 

imputed floors applied and with the 

rural floor budget neutrality adjustment 

applied). 

(5) Impact of Proposed Adoption of New 

OMB Labor Market Area Delineations 

To illustrate how the proposed 

adoption of the new OMB labor market 

area delineations would impact 

hospitals’ proposed FY 2015 wage 

indexes, we compared the proposed FY 

2015 occupational mix adjusted postreclassified wage indexes with rural 

floor budget neutrality applied under 

the FY 2014 CBSAs and under the 

proposed FY 2015 CBSAs using the new 

OMB delineations. (This analysis does 

not include the effects of the outmigration adjustment, the frontier floor, 

the proposed 3-year hold harmless 

transition wage indexes, or the proposed 

1-year transition blended wage indexes). 

As a result of applying the proposed 

new OMB delineations to the wage data, 

the proposed wage index values for 

2,362 urban hospitals (83.8 percent) and 

396 (64.0 percent) rural hospitals would 

increase. The wage index values of 

2,337 (82.9 percent) urban hospitals 

would increase by less than 5 percent, 

and the wage index values of 13 (0.5 

percent) urban hospitals would increase 

by at least 5 percent but less than 10 

percent. The wage index values of 12 

(0.4 percent) urban hospitals would 

increase by greater than or equal to 10 

percent. The wage index values of 369 

(59.6 percent) rural hospitals would 

increase by less than 5 percent, 18 rural 

hospitals (2.9 percent) would increase 

by at least 5 percent but less than 10 

percent, and 9 rural hospitals (1.5 

percent) would increase by greater than 

or equal to 10 percent. However, the 

wage index values for 451 urban 

hospitals (16.0 percent) and 223 (36.0 

percent) rural hospitals would decrease. 

The wage index values of 396 (14.0 

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percent) urban hospitals would decrease 

by less than 5 percent, 40 urban 

hospitals (1.4 percent) would decrease 

by at least 5 percent but less than 10 

percent, and 15 urban hospitals (0.5 

percent) would decrease by greater than 

or equal to 10 percent. The wage index 

values of 198 (32.0 percent) rural 

hospitals would decrease by less than 5 

percent, 24 rural hospitals (3.9 percent) 

would decrease by 5 percent and less 

than 10 percent, and 1 rural hospital 

(0.2 percent) would decrease by greater 

than or equal to 10 percent. The wage 

index values of 6 (0.2 percent) urban 

hospitals and zero rural hospitals would 

remain unchanged by the adoption of 

the new OMB CBSA delineations. The 

largest positive impacts would be for 8 

hospitals in 5 States (Texas, Minnesota, 

Louisiana, Alabama, and Michigan) that 

would be moving from a rural to an 

urban area (ranging from a 16.57 percent 

to a 22.91 percent increase in wage 

index), and for 10 hospitals that would 

be moving from one urban CBSA (FY 

2014 CBSA 20764, Edison-New 

Brunswick, NJ) to new urban CBSA 

35614 (New York-Jersey City-White 

Plains, NY-NJ), representing a 15.12 

percent increase in wage index. The 

largest negative impacts would be for 5 

hospitals in 4 States (New York, 

Alabama, Idaho, and North Carolina) 

that would be moving from an urban to 

a rural area (ranging from a 13.08 

percent to a 27.25 percent decrease in 

wage index), and for 8 hospitals that 

would be moving from one urban CBSA 

(FY 2014 CBSA 35644, New York-White 

Plains-Wayne, NY-NJ) to new urban 

CBSA 20524 (Dutchess County-Putnam 

County, NY), representing a 11.42 

percent decrease in wage index. These 

results illustrate that hospitals that 

would move from rural CBSAs to urban 

CBSAs generally would benefit 

significantly, while hospitals that would 

move from urban to rural CBSAs 

generally would have larger negative 

impacts. For all hospitals combined, the 

wage index values of 2,758 (80.2 

percent) overall would be increasing, 

and 674 (19.6 percent) overall would be 

decreasing, indicating that most 

hospitals would be positively affected 

by the adoption of the new OMB 

delineations. Furthermore, the 

magnitude of the changes would be 

relatively small overall, with only 132 

hospitals (3.8 percent) experiencing 

either an increase or decrease of at least 

5 percent. 

The following table shows the impact 

of the proposed adoption of the new 

OMB delineations on hospitals’ 

proposed FY 2015 wage indexes, 

comparing the proposed FY 2015 

occupational mix adjusted postreclassified wage indexes with rural 

floor budget neutrality applied under 

the FY 2014 CBSAs and the proposed 

FY 2015 CBSAs using the new OMB 

delineations. (This analysis does not 

include the effects of the out-migration 

adjustment, the frontier floor, the 

proposed 3-year hold harmless 

transition wage indexes, or the proposed 

1-year transition blended wage indexes). 

Percent change in FY 2015 wage index 

Number of postreclassified rural 

hospitals based 

on FY 2014 

CBSA 

Number of postreclassified 

urban hospitals 

based on FY 

2014 CBSA 

Total number of 

hospitals 

Decrease greater than or equal to 10.0 .......................................................................... 1 15 16 

Decrease greater than or equal to 5.0 but less than 10.0 .............................................. 24 40 64 

Decrease greater than or equal to 2.0 but less than 5.0 ................................................ 36 94 130 

Decrease greater than 0.0 but less than 2.0 .................................................................. 162 302 464 

No change ....................................................................................................................... 0 6 6 

Increase greater than 0.0 but less than 2.0 .................................................................... 365 2,304 2,669 

Increase greater than or equal to 2.0 but less than 5.0 ................................................. 4 33 37 

Increase greater than or equal to 5.0 but less than 10.0 ............................................... 18 13 31 

Increase greater than or equal to 10.0 ............................................................................ 9 12 21 

Total .......................................................................................................................... 619 2,819 3,438 

(6) Proposed Budget Neutrality 

For FY 2015, we are proposing to 

apply both the 3-year transition and 

50/50 blended wage index adjustments 

in a budget neutral manner. We are 

proposing to make an adjustment to the 

standardized amount to ensure that the 

total payments, including the effect of 

the transition provisions, would equal 

what payments would have been if we 

would not be providing for any 

transitional wage indexes under the new 

OMB delineations. For a complete 

discussion on this proposed budget 

neutrality adjustment for FY 2015, we 

refer the reader to section II.A.4.b. of the 

Addendum to this proposed rule. 

We note that, consistent with past 

practice (69 FR 49034), we are not 

adopting the new OMB delineations 

themselves in a budget neutral manner. 

We do not believe that the revision to 

the labor market areas in and of itself 

constitutes an ‘‘adjustment or update’’ 

to the adjustment for area wage 

differences, as provided under section 

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

(7) Proposals With Respect To 

Determining Disproportionate Share 

Hospital (DSH) Payments 

As noted in the FY 2005 IPPS final 

rule (69 FR 49033), the provisions of 

§ 412.102 of the regulations would 

continue to apply with respect to 

determining DSH payments. 

Specifically, in the first year after a 

hospital loses urban status, the hospital 

would receive an additional payment 

that equals two-thirds of the difference 

between the urban DSH payments 

applicable to the hospital before its 

redesignation from urban to rural and 

the rural DSH payments applicable to 

the hospital subsequent to its 

redesignation from urban to rural. In the 

second year after a hospital loses urban 

status, the hospital would receive an 

additional payment that equals onethird of the difference between the 

urban DSH payments applicable to the 

hospital before its redesignation from 

urban to rural and the rural DSH 

payments applicable to the hospital 

subsequent to its redesignation from 

urban to rural. 

We also are proposing to make 

changes to the regulations to delete 

§ 412.64(b)(1)(ii)(D). In this regulation 

section, we currently define a ‘‘hospital 

reclassified as rural’’ as a hospital 

located in a county that, in FY 2004, 

was urban but was redesignated as rural 

after September 30, 2004, as a result of 

the most recent census data and 

implementation of the new MSA 

definitions announced by OMB on June 

6, 2003. Because this term is not used 

in § 412.64, but is used in § 412.102, we 

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28064 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

are proposing to delete 

§ 412.64(b)(1)(ii)(D) and revise the 

language at § 412.102 to address the 

circumstances set forth in 

§ 412.64(b)(1)(ii)(D). The regulation at 

§ 412.102, which addresses special 

treatment of hospitals located in areas 

that are changing from urban to rural as 

a result of a geographic redesignation, is 

the only location that currently 

references a ‘‘hospital reclassified as 

rural’’, as defined at § 412.64(b)(1)(ii)(D). 

To avoid confusion with urban hospitals 

that choose to reclassify as rural under 

§ 412.103, we are proposing to revise the 

regulation text at § 412.102 so that it no 

longer refers to the defined term 

‘‘hospital reclassified as rural,’’ and 

instead specifically states the 

circumstances in which § 412.102 

applies. In addition, we are proposing to 

modify the regulation text so that it 

would apply to all transitions from 

urban to rural status that occur as a 

result of any future adoption of new or 

revised OMB standards for delineating 

statistical areas adopted by CMS. 

Specifically, we are proposing to revise 

the regulations at § 412.102 to state that 

‘‘An urban hospital that was part of an 

MSA, but was redesignated as rural as 

a result of the most recent OMB 

standards for delineating statistical 

areas adopted by CMS, may receive an 

adjustment to its rural Federal payment 

amount for operating costs for 2 

successive fiscal years as provided in 

paragraphs (a) and (b) of this section. 

. . .’’ 

C. Worksheet S–3 Wage Data for the 

Proposed FY 2015 Wage Index 

The proposed FY 2015 wage index 

values are based on the data collected 

from the Medicare cost reports 

submitted by hospitals for cost reporting 

periods beginning in FY 2011 (the FY 

2014 wage indexes were based on data 

from cost reporting periods beginning 

during FY 2010). 

1. Included Categories of Costs 

The proposed FY 2015 wage index 

includes the following categories of data 

associated with costs paid under the 

IPPS (as well as outpatient costs): 

• Salaries and hours from short-term, 

acute care hospitals (including paid 

lunch hours and hours associated with 

military leave and jury duty); 

• Home office costs and hours; 

• Certain contract labor costs and 

hours (which includes direct patient 

care, certain top management, 

pharmacy, laboratory, and nonteaching 

physician Part A services, and certain 

contract indirect patient care services 

(as discussed in the FY 2008 final rule 

with comment period (72 FR 47315 

through 47318)); and 

• Wage-related costs, including 

pension costs (based on policies 

adopted in the FY 2012 IPPS/LTCH PPS 

final rule (76 FR 51586 through 51590)) 

and other deferred compensation costs. 

2. Excluded Categories of Costs 

Consistent with the wage index 

methodology for FY 2014, the proposed 

wage index for FY 2015 also excludes 

the direct and overhead salaries and 

hours for services not subject to IPPS 

payment, such as skilled nursing facility 

(SNF) services, home health services, 

costs related to GME (teaching 

physicians and residents) and certified 

registered nurse anesthetists (CRNAs), 

and other subprovider components that 

are not paid under the IPPS. The 

proposed FY 2015 wage index also 

excludes the salaries, hours, and wagerelated 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 wagerelated costs of CAHs are excluded from 

the wage index, for the reasons 

explained in the FY 2004 IPPS final rule 

(68 FR 45397 through 45398). 

3. Use of Wage Index Data by Providers 

Other Than Acute Care Hospitals Under 

the IPPS 

Data collected for the IPPS wage 

index are also currently used to 

calculate wage indexes 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 indexes for non-IPPS 

providers, other than for LTCHs. Such 

comments should be made in response 

to separate proposed rules for those 

providers. 

D. Verification of Worksheet S–3 Wage 

Data 

The wage data for the proposed FY 

2015 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, 

2010, and before October 1, 2011. For 

wage index purposes, we refer to cost 

reports during this period as the ‘‘FY 

2011 cost report,’’ the ‘‘FY 2011 wage 

data,’’ or the ‘‘FY 2011 data.’’ 

Instructions for completing the wage 

index sections of Worksheet S–3 are 

included in the Provider 

Reimbursement Manual (PRM), Part 2 

(Pub. No. 15–2), Chapter 40, Sections 

4005.2 through 4005.4 for Form CMS– 

2552–10. The data file used to construct 

the proposed FY 2015 wage index 

includes FY 2011 data submitted to us 

as of February 27, 2014. As in past 

years, we performed an extensive 

review of the wage data, mostly through 

the use of edits designed to identify 

aberrant data. 

We asked our MACs to revise or verify 

data elements that result in specific edit 

failures. For the proposed FY 2015 wage 

index, we identified and excluded 50 

providers with data that were too 

aberrant to include in the proposed 

wage index, although if data elements 

for some of these providers are 

corrected, we intend to include some of 

these providers in the final FY 2015 

wage index. We instructed MACs to 

complete their data verification of 

questionable data elements and to 

transmit any changes to the wage data 

no later than April 9, 2014. We intend 

that all unresolved data elements will be 

resolved by the date the FY 2015 final 

rule is issued. The revised data will be 

reflected in the FY 2015 IPPS final rule. 

In constructing the proposed FY 2015 

wage index, we included the wage data 

for facilities that were IPPS hospitals in 

FY 2011, inclusive of those facilities 

that have since terminated their 

participation in the program as 

hospitals, as long as those data did not 

fail any of our edits for reasonableness. 

We believe that including the wage data 

for these hospitals is, in general, 

appropriate to reflect the economic 

conditions in the various labor market 

areas during the relevant past period 

and to ensure that the current wage 

index represents the labor market area’s 

current wages as compared to the 

national average of wages. However, we 

excluded the wage data for CAHs as 

discussed in the FY 2004 IPPS final rule 

(68 FR 45397 through 45398). For this 

proposed rule, we removed 6 hospitals 

that converted to CAH status on or after 

February 14, 2013, the cut-off date for 

CAH exclusion from the FY 2014 wage 

index, and through and including 

February 13, 2014, the cut-off date for 

CAH exclusion from the FY 2015 wage 

index. After removing hospitals with 

aberrant data and hospitals that 

converted to CAH status, the proposed 

FY 2015 wage index is calculated based 

on 3,400 hospitals. 

For the proposed FY 2015 wage 

index, we allotted the wages and hours 

data for a multicampus hospital among 

the different labor market areas where 

its campuses are located in the same 

manner that we allotted such hospitals’ 

data in the FY 2014 wage index (78 FR 

50587). Table 2 containing the proposed 

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FY 2015 wage index associated with 

this proposed rule (available via the 

Internet on the CMS Web site) includes 

separate wage data for the campuses of 

6 multicampus hospitals. 

Questions have been raised recently 

regarding the reporting of contract 

housekeeping and dietary services on 

Worksheet S–3, Part II, lines 33 and 35 

of the Medicare cost report. CMS 

finalized its proposal to begin collecting 

contract labor costs and hours for 

housekeeping, and dietary (along with 

management services and the overhead 

services of administrative and general) 

in the FY 2003 IPPS final rule (67 FR 

50022 through 50023). At that time, we 

stated, ‘‘We continue to consider 

whether to expand our contract labor 

definition to include more types of 

contract services in the wage index. In 

particular, we have examined whether 

to include the costs for acquired dietary 

and housekeeping services, as many 

hospitals now provide these services 

through contracts. Costs for these 

services tend to be below the average 

wages for all hospital employees. 

Therefore, excluding the costs and 

hours for these services if they are 

provided under contract, while 

including them if the services are 

provided directly by the hospital, 

creates an incentive for hospitals to 

contract for these services in order to 

increase their average hourly wage for 

wage index purposes’’ (67 FR 50022). In 

the FY 2003 IPPS proposed rule, we 

explained that we selected the three 

overhead services of administrative and 

general, housekeeping, and dietary 

because they are provided at all 

hospitals, either directly or through 

contracts, and together they comprise 

about 60 percent of a hospital’s 

overhead hours (67 FR 31433). In the FY 

2003 IPPS final rule, we stated that we 

‘‘will monitor the hospital industry for 

information regarding the hospitals’ 

ability to provide the data. Further, we 

will work with hospitals and 

intermediaries [MACs] to develop 

acceptable methods for tracking the 

costs and hours. Finally, before 

including these additional costs in the 

wage index, we will provide a detailed 

analysis of the impact of including these 

additional costs in the wage index 

values in the Federal Register and 

provide for public comment. Our final 

decision on whether to include contract 

indirect patient care labor costs in our 

calculation of the wage index will 

depend on the outcome of our analyses 

and public comments’’ (67 FR 50023). 

Subsequent to the issuance of the FY 

2003 IPPS final rule, we revised 

Worksheet S–3, Part II of the Medicare 

cost report (CMS Form 2552–96) to add 

four lines for the reporting of contract 

labor salaries, wages, and hours. The 

lines added for contract housekeeping 

and dietary services were lines 26.01 

and 27.01, respectively. (Line 9.03 for 

contract management and line 22.01 for 

contract administrative and general 

(A&G) services were also added at that 

time). These lines were effective with 

cost reporting periods beginning on or 

after October 1, 2003 (that is, FY 2004). 

Because the cost report data used for the 

wage index are on a 4-year lag, data 

from these new contract labor lines 

would first be available for the FY 2008 

wage index. 

In the FY 2008 rulemaking process, 

we provided an analysis of the effect on 

the inclusion in the wage index of the 

wages and hours related to the new 

contract labor lines. At that time, 56 

hospitals (1.6 percent) failed edits for 

contract housekeeping line 26.01; and 

99 hospitals (2.8 percent) failed edits for 

contract dietary line 27.01 (72 FR 24680 

and 24782). We also noted that ‘‘many 

of these edit failures are for wage data 

that are not to be included in the wage 

index and will be excluded through the 

wage index calculation. . . . In 

addition, some of the aberrant data will 

be resolved by the final rule through the 

correction process’’ (72 FR 24680 and 

24782). The small percentage of 

hospitals that failed edits for these 

contract labor lines indicates that the 

vast majority of hospitals completing 

these contract labor lines were able to 

obtain and report reasonable salaries, 

wages, and hours associated with 

contract housekeeping and dietary 

services. In the FY 2008 IPPS final rule, 

we stated that we believe that ‘‘the 

impact of this policy is generally very 

minor, and we do not believe the 

additional complexity of a transition 

wage index is warranted for an impact 

this small. Further, we continue to 

believe it is prudent policy to include in 

the wage index the costs for these 

contract indirect patient care services’’ 

(72 FR 47316). Therefore, we adopted 

the policy to include the new contract 

labor lines in the wage index, beginning 

with the FY 2008 wage index. 

The questions that have recently come 

to our attention involve hospitals that 

consistently do not provide 

documentable salaries, wages, and 

hours for their contracted housekeeping 

and/or dietary services. (On the 

Medicare cost report (CMS Form 2552– 

10), contract housekeeping is on 

Worksheet S–3, Part II, line 33 and 

contract dietary is on line 35). When 

this situation occurs, CMS has 

instructed the Medicare contractors to 

use reasonable estimates, such as 

regional average hourly rates, as a 

substitute for actual wages and hours, 

and to report the estimates on the 

hospital’s Worksheet S–3, Part II, line 33 

or line 35, respectively. Our policy has 

been to use reasonable estimates for 

these housekeeping and dietary lines, 

rather than report zeroes for wages and 

hours, because, as discussed above and 

as stated in the FY 2003 IPPS final rule, 

‘‘[c]osts for these services tend to be 

below the average wages for all hospital 

employees. Therefore, excluding the 

costs and hours for these services if they 

are provided under contract, while 

including them if the services are 

provided directly by the hospital, 

creates an incentive for hospitals to 

contract for these services in order to 

increase their average hourly wage for 

wage index purposes’’ (57 FR 50022). 

We understand that the reason many 

hospitals provide for failing to report 

such contract wages and hours is that 

their contracts do not clearly specify 

this information, often because they use 

a single vendor to provide several 

different contract labor services. We 

believe that allowing hospitals to 

routinely use contracts that do not 

clearly break out the salaries, wages, 

and hours associated with these services 

as a reason for not being able to report 

proper salaries, wages, and hours for 

these cost report lines undermines the 

purpose of instituting these lines in the 

first place. Furthermore, because every 

hospital must provide housekeeping 

and dietary services, and because the 

wage index is a relative measure of the 

value of the labor provided to a hospital 

in a particular labor market area, to 

report zeroes for salaries, wages, and 

hours for housekeeping and dietary 

services is not only unrealistic (in that 

every hospital provides for these 

services), but also misrepresents the 

labor costs in that area and undermines 

our policy. Consequently, CMS has 

instructed the Medicare contractors not 

to zero out these line items when a 

hospital cannot document the 

housekeeping or dietary salaries, wages, 

and hours, but instead to use a 

reasonable estimation of these wages 

and hours. 

In this proposed rule, we are 

reiterating our requirement that all 

hospitals must document salaries, 

wages, and hours for the purpose of 

reporting this information on Worksheet 

S–3, Part II, lines 32, 33, 34, and/or 35 

(for either directly employed 

housekeeping and dietary employees on 

lines 32 and 34, and contract labor on 

lines 33 and 35). It is not acceptable for 

a hospital to request that the Medicare 

contractor zero out these line items if 

the hospital’s contract does not 

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28066 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

specifically break out the actual wages 

and hours. As indicated above, and 

stated in the FY 2008 IPPS proposed 

rule (72 FR 24680 and 24782), a small 

percentage of hospitals failed edits 

associated with the contract 

housekeeping and dietary lines, 

showing that the vast majority of 

hospitals reporting data on these lines 

were able to obtain and report 

reasonable salaries, wages, and hours 

associated with contract housekeeping 

and dietary services. We encourage 

hospitals to ensure that their contracts 

clearly specify the salaries, wages, and 

hours related to all of their contract 

labor. Because these line items have 

been included in the cost report since 

FY 2004, we believe that hospitals have 

had adequate notice and time to 

structure their contracts so that the 

wages and hours of contract employees 

can be determined and included in the 

cost reports. We expect hospitals to 

provide accurate data on their cost 

reports. 

We understand that there may be rare 

situations where a hospital would not 

have documentable salaries, wages, and 

hours for contract housekeeping and 

dietary services. In these situations, we 

believe that it is appropriate and 

necessary to use reasonable estimates 

for these numbers in order to 

determinate the best, most realistic, 

wage index that we can. As discussed 

previously, housekeeping and dietary 

services are unique in that the costs for 

housekeeping and dietary services tend 

to be below the average wages for all 

hospital employees. Thus, an incentive 

is created for hospitals to avoid 

reporting these contract labor salaries, 

wages, and hours on the cost report in 

order to increase their average hourly 

wage for wage index purposes. To deter 

hospitals from not reporting this 

information and to ensure that the wage 

index more accurately reflects the labor 

costs in an area, we believe that it is 

both necessary and appropriate for the 

Medicare contractors to estimate such 

salaries, wages, and hours in the rare 

instance where a hospital cannot 

provide such information. Therefore, in 

the absence of documentable wages and 

hours for contract housekeeping and 

dietary services, Medicare contractors 

would continue to use reasonable 

estimates for these services. Examples of 

reasonable estimates are regional 

average hourly rates, including an 

average of the wages and hours for 

dietary and housekeeping services of 

other hospitals in the same CBSA as the 

hospital in question. Hospitals also may 

conduct time studies to determine hours 

worked. If, for whatever reason, regional 

averages or time studies cannot be used, 

Medicare contractors may use data from 

the Bureau of Labor Statistics to obtain 

average wages and hours for 

housekeeping and dietary services. 

Commenters may also suggest 

alternatives for imputing reasonable 

estimates for possible consideration by 

CMS. In all cases, Medicare contractors 

must determine that the data used are 

reasonable. 

E. Method for Computing the Proposed 

FY 2015 Unadjusted Wage Index 

The method used to compute the 

proposed FY 2015 wage index without 

an occupational mix adjustment follows 

the same methodology that we used to 

compute the FY 2012, FY 2013, and FY 

2014 final wage indexes without an 

occupational mix adjustment (76 FR 

51591 through 51593, 77 FR 53366 

through 53367, and 78 FR 50587 

through 50588, respectively). 

As discussed in the FY 2012 final 

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

adjust the total salaries plus wagerelated costs to a common period to 

determine total adjusted salaries plus 

wage-related costs. To make the wage 

adjustment, we estimate the percentage 

change in the employment cost index 

(ECI) for compensation for each 30-day 

increment from October 14, 2010, 

through April 15, 2012, for private 

industry hospital workers from the BLS’ 

Compensation and Working Conditions. 

We have consistently used the ECI as 

the data source for our wages and 

salaries and other price proxies in the 

IPPS market basket, and we are not 

proposing any changes to the usage for 

FY 2015. The factors used to adjust the 

hospital’s data were based on the 

midpoint of the cost reporting period, as 

indicated in the following table. 

MIDPOINT OF COST REPORTING

PERIOD

After Before Adjustment 

factor 

10/14/2010 11/15/2010 1.02230 

11/14/2010 12/15/2010 1.02078 

12/14/2010 01/15/2011 1.01929 

01/14/2011 02/15/2011 1.01782 

02/14/2011 03/15/2011 1.01637 

03/14/2011 04/15/2011 1.01494 

04/14/2011 05/15/2011 1.01355 

05/14/2011 06/15/2011 1.01219 

06/14/2011 07/15/2011 1.01084 

07/14/2011 08/15/2011 1.00948 

08/14/2011 09/15/2011 1.00811 

09/14/2011 10/15/2011 1.00674 

10/14/2011 11/15/2011 1.00538 

11/14/2011 12/15/2011 1.00403 

12/14/2011 01/15/2012 1.00269 

01/14/2012 02/15/2012 1.00134 

02/14/2012 03/15/2012 1.00000 

MIDPOINT OF COST REPORTING

PERIOD—Continued 

After Before Adjustment 

factor 

03/14/2012 04/15/2012 0.99866 

For example, the midpoint of a cost 

reporting period beginning January 1, 

2011, and ending December 31, 2011, is 

June 30, 2011. An adjustment factor of 

1.01084 would be applied to the wages 

of a hospital with such a cost reporting 

period. 

Using the data as described above and 

in the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50587 through 50588), the 

proposed FY 2015 national average 

hourly wage (unadjusted for 

occupational mix) is $39.1525. The 

proposed FY 2015 Puerto Rico overall 

average hourly wage (unadjusted for 

occupational mix) is $17.0010. 

F. Proposed Occupational Mix 

Adjustment to the Proposed FY 2015 

Wage Index 

As stated earlier, section 1886(d)(3)(E) 

of the Act provides for the collection of 

data every 3 years on the occupational 

mix of employees for each short-term, 

acute care hospital participating in the 

Medicare program, in order to construct 

an occupational mix adjustment to the 

wage index, for application beginning 

October 1, 2004 (the FY 2005 wage 

index). The purpose of the occupational 

mix adjustment is to control for the 

effect of hospitals’ employment choices 

on the wage index. For example, 

hospitals may choose to employ 

different combinations of registered 

nurses, licensed practical nurses, 

nursing aides, and medical assistants for 

the purpose of providing nursing care to 

their patients. The varying labor costs 

associated with these choices reflect 

hospital management decisions rather 

than geographic differences in the costs 

of labor. 

1. Development of Data for the Proposed 

FY 2015 Occupational Mix Adjustment 

Based on the 2010 Occupational Mix 

Survey 

As provided for under section 

1886(d)(3)(E) of the Act, we collect data 

every 3 years on the occupational mix 

of employees for each short-term, acute 

care hospital participating in the 

Medicare program. 

As discussed in the FY 2014 IPPS/ 

LTCH PPS final rule (78 FR 50588), the 

occupational mix adjustment to the FY 

2014 wage index was based on data 

collected on the 2010 Medicare Wage 

Index Occupational Mix Survey (Form 

CMS–10079 (2010)). For the FY 2015 

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wage index, we are proposing to again 

use occupational mix data collected on 

the 2010 survey to compute the 

occupational mix adjustment for FY 

2015. We are including data for 3,165 

hospitals that also have wage data 

included in the proposed FY 2015 wage 

index. 

2. New 2013 Occupational Mix Survey 

for the FY 2016 Wage Index 

As stated earlier, section 304(c) of 

Public Law 106–554 amended section 

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

to collect data every 3 years on the 

occupational mix of employees for each 

short-term, acute care hospital 

participating in the Medicare program. 

We used occupational mix data 

collected on the 2010 survey to compute 

the occupational mix adjustment for FY 

2013, FY 2014, and the proposed FY 

2015 wage index associated with this 

proposed rule. Therefore, a new 

measurement of occupational mix will 

be required for FY 2016. 

On December 7, 2012, we published 

in the Federal Register a notice 

soliciting comments on the proposed 

2013 Medicare Wage Index 

Occupational Mix Survey (77 FR 73032 

through 73033). The new 2013 survey, 

which will be applied to the FY 2016 

wage index, includes the same data 

elements and definitions as the 2010 

survey and provides for the collection of 

hospital-specific wages and hours data 

for nursing employees for calendar year 

2013 (that is, payroll periods ending 

between January 1, 2013 and December 

31, 2013). The comment period for the 

notice ended on February 5, 2013. After 

considering the public comments that 

we received on the December 2012 

notice, we made a few minor editorial 

changes and published the 2013 survey 

in the Federal Register on February 28, 

2013 (78 FR 13679). This survey was 

approved by OMB on May 14, 2013, and 

is available on the CMS Web site at: 

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

Medicare-Fee-for-Service-Payment/ 

AcuteInpatientPPS/Downloads/WAGEINDEX-OCCUPATIONAL-MIXSURVEY2013.pdf. 

The 2013 Occupational Mix Survey 

Hospital Reporting Form CMS–10079 

for the Wage Index Beginning FY 2016 

(in excel format) is available on the CMS 

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

Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/WageIndex-Files-Items/FY2016-Wage-IndexOccupationalMix.html. Hospitals are 

required to submit their completed 2013 

surveys to their MACs by July 1, 2014. 

The preliminary, unaudited 2013 survey 

data will be released afterward, along 

with the FY 2012 Worksheet S–3 wage 

data, for the FY 2016 wage index review 

and correction process. 

3. Calculation of the Proposed 

Occupational Mix Adjustment for FY 

2015 

For FY 2015, we are proposing to 

calculate the occupational mix 

adjustment factor using the same 

methodology that we used for the FY 

2012, FY 2013, and FY 2014 wage 

indexes (76 FR 51582 through 51586, 77 

FR 53367 through 53368, and 78 FR 

50588 through 50589, respectively). As 

a result of applying this methodology, 

the proposed FY 2015 occupational mix 

adjusted national average hourly wage 

(based on the proposed new OMB 

delineations) is $39.1177. The proposed 

FY 2015 occupational mix adjusted 

Puerto Rico-specific average hourly 

wage (based on the proposed new OMB 

delineations) is $17.0526. 

Because the occupational mix 

adjustment is required by statute, all 

hospitals that are subject to payments 

under the IPPS, or any hospital that 

would be subject to the IPPS if not 

granted a waiver, must complete the 

occupational mix survey, unless the 

hospital has no associated cost report 

wage data that are included in the 

proposed FY 2015 wage index. For the 

FY 2015 proposed wage index, because 

we are using the Worksheet S–3, Parts 

II and III wage data of 3,400 hospitals, 

and we are using the occupational mix 

surveys of 3,165 hospitals for which we 

also have Worksheet S–3 wage data, that 

represents a ‘‘response’’ rate of 93.1 

percent (3,165/3,400). In the proposed 

FY 2015 wage index established in this 

proposed rule, we applied proxy data 

for noncompliant hospitals, new 

hospitals, or hospitals that submitted 

erroneous or aberrant data in the same 

manner that we applied proxy data for 

such hospitals in the FY 2012 wage 

index occupational mix adjustment (76 

FR 51586). 

In the FY 2011 IPPS/LTCH PPS 

proposed rule and final rule (75 FR 

23943 and 75 FR 50167, respectively), 

we stated that, in order to gain a better 

understanding of why some hospitals 

are not submitting the occupational mix 

data, we will require hospitals that do 

not submit occupational mix data to 

provide an explanation for not 

complying. This requirement was 

effective beginning with the 2010 

occupational mix survey. We instructed 

fiscal intermediaries/MACs to continue 

gathering this information as part of the 

FY 2014 and FY 2015 wage index desk 

review process. We stated that we 

would review these data for future 

analysis and consideration of potential 

penalties for noncompliant hospitals. 

G. Analysis and Implementation of the 

Proposed Occupational Mix Adjustment 

and the Proposed FY 2015 Occupational 

Mix Adjusted Wage Index 

1. Analysis of the Proposed 

Occupational Mix Adjustment and the 

Proposed Occupational Mix Adjusted 

Wage Index 

As discussed in section III.F. of the 

preamble of this proposed rule, for FY 

2015, we are proposing to apply the 

proposed occupational mix adjustment 

to 100 percent of the proposed FY 2015 

wage index. We calculated the proposed 

occupational mix adjustment using data 

from the 2010 occupational mix survey 

data, using the methodology described 

in the FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51582 through 51586). 

Using the occupational mix survey 

data and applying the occupational mix 

adjustment to 100 percent of the 

proposed FY 2015 wage index results in 

a proposed national average hourly 

wage (based on the new OMB 

delineations) of $39.1177 and a 

proposed Puerto-Rico specific average 

hourly wage of $17.0526. After 

excluding data of hospitals that either 

submitted aberrant data that failed 

critical edits, or that do not have FY 

2011 Worksheet S–3, Parts II and III, 

cost report data for use in calculating 

the proposed FY 2015 wage index, we 

calculated the proposed FY 2015 wage 

index using the occupational mix 

survey data from 3,165 hospitals. For 

the FY 2015 proposed wage index, 

because we are using the Worksheet S– 

3, Parts II and III wage data of 3,400 

hospitals, and we are using the 

occupational mix survey data of 3,165 

hospitals for which we also have 

Worksheet S–3 wage data, those data 

represent a ‘‘response’’ rate of 93.1 

percent (3,165/3,400). The proposed FY 

2015 national average hourly wages for 

each occupational mix nursing 

subcategory as calculated in Step 2 of 

the occupational mix calculation are as 

follows: 

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28068 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

Occupational mix nursing subcategory Proposed average 

hourly wage 

National RN ......................................................................................................................................................................... 37.388291241 

National LPN and Surgical Technician ................................................................................................................................ 21.767178303 

National Nurse Aide, Orderly, and Attendant ...................................................................................................................... 15.31155016 

National Medical Assistant .................................................................................................................................................. 17.246724132 

National Nurse Category ..................................................................................................................................................... 31.744397958 

The proposed national average hourly 

wage for the entire nurse category as 

computed in Step 5 of the occupational 

mix calculation is $31.744397958. 

Hospitals with a nurse category average 

hourly wage (as calculated in Step 4) of 

greater than the national nurse category 

average hourly wage receive an 

occupational mix adjustment factor (as 

calculated in Step 6) of less than 1.0. 

Hospitals with a nurse category average 

hourly wage (as calculated in Step 4) of 

less than the national nurse category 

average hourly wage receive an 

occupational mix adjustment factor (as 

calculated in Step 6) of greater than 1.0. 

Based on the 2010 occupational mix 

survey data, we determined (in Step 7 

of the occupational mix calculation) that 

the national percentage of hospital 

employees in the nurse category is 43.43 

percent, and the national percentage of 

hospital employees in the all other 

occupations category is 56.57 percent. 

At the CBSA level, using the new OMB 

delineations proposed for FY 2015, the 

percentage of hospital employees in the 

nurse category ranged from a low of 

21.88 percent in one CBSA to a high of 

73.27 percent in another CBSA. 

We compared the proposed FY 2015 

occupational mix adjusted wage indexes 

for each CBSA to the proposed 

unadjusted wage indexes for each 

CBSA. We used the proposed FY 2015 

new OMB delineations for this analysis. 

As a result of applying the proposed 

occupational mix adjustment to the 

wage data, the proposed wage index 

values for 215 (52.8 percent) urban areas 

and 29 (61.7 percent) rural areas would 

increase. One hundred and sixteen (28.5 

percent) urban areas would increase by 

1 percent but less than 5 percent, and 

4 (1.0 percent) urban areas would 

increase by 5 percent or more. Fourteen 

(29.8 percent) rural areas would 

increase by 1 percent but less than 5 

percent, and no rural areas would 

increase by 5 percent or more. However, 

the wage index values for 190 (46.7 

percent) urban areas and 18 (38.3 

percent) rural areas would decrease. 

Eighty (19.7 percent) urban areas would 

decrease by 1 percent but less than 5 

percent, and 1 (0.2 percent) urban area 

would decrease by 5 percent or more. 

Seven (14.9 percent) rural areas would 

decrease by 1 percent and less than 5 

percent, and no rural areas would 

decrease by 5 percent or more. The 

largest positive impacts would be 6.56 

percent for an urban area and 3.35 

percent for a rural area. The largest 

negative impacts would be 5.32 percent 

for an urban area and 1.71 percent for 

a rural area. Two urban areas’ wage 

indexes, but no rural area wage indexes, 

would remain unchanged by application 

of the occupational mix adjustment. 

These results indicate that a larger 

percentage of rural areas (61.7 percent) 

would benefit from the occupational 

mix adjustment than would urban areas 

(52.8 percent). However, approximately 

one-third (38.3 percent) of rural CBSAs 

would still experience a decrease in 

their wage indexes as a result of the 

occupational mix adjustment. 

2. Proposed Application of the Rural, 

Imputed, and Frontier Floors 

a. Proposed Rural Floor 

Section 4410(a) of Public Law 105–33 

provides that, for discharges on or after 

October 1, 1997, the area wage index 

applicable to any hospital that is located 

in an urban area of a State may not be 

less than the area wage index applicable 

to hospitals located in rural areas in that 

State. This provision is referred to as the 

‘‘rural floor.’’ Section 3141 of Public 

Law 111–148 also requires that a 

national budget neutrality adjustment be 

applied in implementing the rural floor. 

In the proposed FY 2015 wage index 

associated with this proposed rule and 

available on the CMS Web site, based on 

the proposed implementation of the 

new OMB delineations discussed in 

section III.B. of the preamble of this 

proposed rule, we estimated that 441 

hospitals would receive an increase in 

their FY 2015 proposed wage index due 

to the application of the rural floor. 

b. Proposed Imputed Floor for FY 2015 

In the FY 2005 IPPS final rule (69 FR 

49109 through 49111), we adopted the 

‘‘imputed floor’’ policy as a temporary 

3-year regulatory measure to address 

concerns from hospitals in all-urban 

States that have argued that they are 

disadvantaged by the absence of rural 

hospitals to set a wage index floor for 

those States. Since its initial 

implementation, we have extended the 

imputed floor policy four times, the last 

of which was adopted in the FY 2014 

IPPS/LTCH PPS final rule and is set to 

expire on September 30, 2014. (We refer 

readers to further discussion of the 

imputed floor in the FY 2014 IPPS/ 

LTCH PPS final rule (78 FR 50589 

through 50590) and to our regulations at 

42 CFR 412.64(h)(4).) There were 

previously two all-urban States, New 

Jersey and Rhode Island, that have a 

range of wage indexes assigned to 

hospitals in the State, including through 

reclassification or redesignation (we 

refer readers to discussions of 

geographic reclassifications and 

redesignations in section III.H. of the 

preamble of this proposed rule). 

However, as we explain below, the 

method as of FY 2012 for computing the 

imputed floor (the original 

methodology) benefitted only New 

Jersey, and not Rhode Island. 

In computing the imputed floor for an 

all-urban State under the original 

methodology, we calculated the ratio of 

the lowest-to-highest CBSA wage index 

for each all-urban State as well as the 

average of the ratios of lowest-to-highest 

CBSA wage indexes of those all-urban 

States. We then compared the State’s 

own ratio to the average ratio for allurban States and whichever is higher is 

multiplied by the highest CBSA wage 

index value in the State—the product of 

which established the imputed floor for 

the State. Under the current OMB labor 

market area delineations that we used 

for the FY 2014 wage index, Rhode 

Island has only one CBSA (ProvidenceNew Bedford-Fall River, RI–MA) and 

New Jersey has 10 CBSAs. Therefore, 

under the original methodology, Rhode 

Island’s own ratio equaled 1.0, and its 

imputed floor was equal to its original 

CBSA wage index value. However, 

because the average ratio of New Jersey 

and Rhode Island was higher than New 

Jersey’s own ratio, this methodology 

provided a benefit for New Jersey, but 

not for Rhode Island. 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53368 through 53369), we 

retained the imputed floor calculated 

under the original methodology as 

discussed above, and established an 

alternative methodology for computing 

the imputed floor wage index to address 

the concern that the original imputed 

floor methodology guaranteed a benefit 

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for one all-urban State with multiple 

wage indexes (New Jersey) but could not 

benefit the other all-urban State (Rhode 

Island). The alternative methodology for 

calculating the imputed floor was 

established using data from the 

application of the rural floor policy for 

FY 2013. Under the alternative 

methodology, we first determined the 

average percentage difference between 

the post-reclassified, pre-floor area wage 

index and the post-reclassified, rural 

floor wage index (without rural floor 

budget neutrality applied) for all CBSAs 

receiving the rural floor. (Table 4D 

associated with the FY 2013 IPPS/LTCH 

PPS final rule (which is available on the 

CMS Web site) included the CBSAs 

receiving a State’s rural floor wage 

index.) The lowest post-reclassified 

wage index assigned to a hospital in an 

all-urban State having a range of such 

values then is increased by this factor, 

the result of which establishes the 

State’s alternative imputed floor. We 

amended § 412.64(h)(4) of the 

regulations to add new paragraphs to 

incorporate the finalized alternative 

methodology, and to make reference and 

date changes. 

In summary, for the FY 2013 wage 

index, we did not make any changes to 

the original imputed floor methodology 

at § 412.64(h)(4) and, therefore, made no 

changes to the New Jersey imputed floor 

computation for FY 2013. Instead, for 

FY 2013, we adopted a second, 

alternative methodology for use in cases 

where an all-urban State has a range of 

wage indexes assigned to its hospitals, 

but the State cannot benefit from the 

methodology in existing § 412.64(h)(4). 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50589 through 50590), we 

extended the imputed floor policy (both 

the original methodology and the 

alternative methodology) for 1 

additional year, through September 30, 

2014, while we continued to explore 

potential wage index reforms. 

For FY 2015, we are proposing to 

continue the extension of the imputed 

floor policy (both the original 

methodology and alternative 

methodology) for another year, through 

September 30, 2015, as we continue to 

explore potential wage index reforms. 

As discussed in section III.B. of the 

preamble of this proposed rule, we are 

proposing to adopt the new OMB labor 

market area delineations beginning in 

FY 2015. Under OMB’s new labor 

market area delineations based on 

Census 2010 data, Delaware would 

become an all-urban State, along with 

New Jersey and Rhode Island. Under the 

new OMB delineations, Delaware would 

have three CBSAs, New Jersey would 

have seven CBSAs, and Rhode Island 

would continue to have only one CBSA 

(Providence-Warwick, RI–MA). We refer 

readers to a detailed discussion of our 

proposal to adopt the new OMB labor 

market area delineations in section III.B. 

of the preamble of this proposed rule. 

We are proposing to revise the 

regulations at § 412.64(h)(4) and 

(h)(4)(vi) to reflect the proposed 1-year 

extension of the imputed floor. We are 

inviting public comments on our 

proposal regarding the 1-year extension 

of the imputed floor. 

The wage index and impact tables 

associated with this FY 2015 IPPS/ 

LTCH PPS proposed rule that are 

available on the CMS Web site reflect 

the proposed continued application of 

the imputed floor policy at 

§ 412.64(h)(4) and a national budget 

neutrality adjustment for the imputed 

floor for FY 2015. There are 12 

providers in New Jersey, and 1 provider 

in Delaware that would receive an 

increase in their FY 2015 wage index 

due to the proposed continued 

application of the imputed floor policy 

under the original methodology. The 

wage index and impact tables for this 

FY 2015 proposed rule also reflect the 

proposed application of the second 

alternative methodology for computing 

the imputed floor, which would benefit 

four hospitals in Rhode Island. 

c. Proposed State Frontier Floor 

Section 10324 of Public Law 111–148 

requires that hospitals in frontier States 

cannot be assigned a wage index of less 

than 1.0000 (we refer readers to 

regulations at 42 CFR 412.64(m) and to 

a discussion of the implementation of 

this provision in the FY 2011 IPPS/ 

LTCH PPS final rule (75 FR 50160 

through 50161)). Based on the proposed 

implementation of the new OMB 

delineations discussed in section III.B. 

of the preamble of this proposed rule, 46 

hospitals would receive the frontier 

floor value of 1.0000 for their proposed 

FY 2015 wage index in this proposed 

rule. These hospitals are located in 

Montana, North Dakota, South Dakota, 

and Wyoming. Although Nevada is also 

defined as a frontier State, its proposed 

FY 2015 rural floor value of 1.1373 is 

greater than 1.0000, and therefore, no 

Nevada hospitals would receive a 

frontier floor value for their proposed 

FY 2015 wage index. 

The areas affected by the proposed 

rural, imputed, and frontier floor 

policies for the proposed FY 2015 wage 

index are identified in Table 4D 

associated with this proposed rule, 

which is available on the CMS Web site. 

3. Proposed FY 2015 Wage Index Tables 

The proposed wage index values for 

FY 2015 (except those for hospitals 

receiving wage index adjustments under 

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

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

on the CMS Web site, include the 

proposed occupational mix adjustment, 

geographic reclassification or 

redesignation as discussed in section 

III.H. of the preamble of this proposed 

rule, and the application of the rural, 

imputed, and frontier State floors as 

discussed in section III.G.2. of the 

preamble of this proposed rule. We note 

that because we are proposing to adopt 

the new OMB labor market area 

delineations for FY 2015, these tables 

have additional tabulations to account 

for wage index calculations computed 

under the previous and the new OMB 

delineations. 

Tables 3A and 3B, available on the 

CMS Web site, list the proposed 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, which is available on the CMS Web 

site, includes the proposed adjusted 

average hourly wage for each hospital 

from the FY 2009 and FY 2010 cost 

reporting periods, as well as the FY 

2011 period used to calculate the 

proposed FY 2015 wage index. The 

proposed 3-year averages are calculated 

by dividing the sum of the dollars 

(adjusted to a common reporting period 

using the method described in Step 5 in 

section III.G. of the preamble of this 

proposed rule) across all 3 years, by the 

sum of the hours. If a hospital is missing 

data for any of the previous years, its 

proposed average hourly wage for the 3- 

year period is calculated based on the 

data available during that period. The 

proposed average hourly wages in 

Tables 2, 3A, and 3B, which are 

available on the CMS Web site, include 

the proposed occupational mix 

adjustment. The proposed wage index 

values in Tables 4A, 4B, 4C, and 4D also 

include the proposed national rural 

floor budget neutrality adjustment 

(which includes the proposed imputed 

floor). The proposed wage index values 

in Table 2 also include the proposed 

out-migration adjustment for eligible 

hospitals. As stated above, because we 

are proposing to adopt the new OMB 

labor market area delineations for FY 

2015, these tables have additional 

tabulations to account for wage index 

calculations computed under the 

current labor market definitions and the 

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28070 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

new OMB labor market area 

delineations. In addition, for certain 

applicable hospitals, the proposed wage 

index values included in Table 2 are 

computed to reflect the proposed 

transitional wage index or the 50/50 

blended wage index discussed in detail 

in section III.B.2.e. of the preamble of 

this proposed rule. 

H. Revisions to the Wage Index Based 

on Hospital Redesignations and 

Reclassifications 

1. General Policies and Effects of 

Reclassification and Redesignation 

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

the MGCRB considers applications by 

hospitals for geographic reclassification 

for purposes of payment under the IPPS. 

Hospitals must apply to the MGCRB to 

reclassify not later than 13 months prior 

to the start of the fiscal year for which 

reclassification is sought (generally by 

September 1). Generally, hospitals must 

be proximate to the labor market area to 

which they are seeking reclassification 

and must demonstrate characteristics 

similar to hospitals located in that area. 

The MGCRB issues its decisions by the 

end of February for reclassifications that 

become effective for the following fiscal 

year (beginning October 1). The 

regulations applicable to 

reclassifications by the MGCRB are 

located in 42 CFR 412.230 through 

412.280. (We refer readers to a 

discussion in the FY 2002 IPPS final 

rule (66 FR 39874 and 39875) regarding 

how the MGCRB defines mileage for 

purposes of the proximity 

requirements.) The general policies for 

reclassifications and redesignations that 

we are proposing for FY 2015, and the 

policies for the effects of hospitals’ 

reclassifications and redesignations on 

the wage index, are the same as those 

discussed in the FY 2012 IPPS/LTCH 

PPS final rule for the FY 2012 final 

wage index (76 FR 51595 and 51596). 

Also, in the FY 2012 IPPS/LTCH PPS 

final rule, we discussed the effects on 

the wage index of urban hospitals 

reclassifying to rural areas under 42 CFR 

412.103. Hospitals that are 

geographically located in States without 

any rural areas are ineligible to apply for 

rural reclassification in accordance with 

the provisions of 42 CFR 412.103. While 

our general policies on geographic 

reclassification, redesignations under 

section 1886(d)(8)(B) of the Act, and 

urban hospitals reclassifying to rural 

under 42 CFR 412.103 will remain 

unchanged for FY 2015, we note that, 

due to our proposed adoption of the 

new OMB labor market area 

delineations for FY 2015, there are 

numerous unique classification 

considerations for FY 2015 that are 

discussed in more detail in section III.H. 

of the preamble of this proposed rule. 

For a discussion of the new CBSA 

changes based on the new OMB labor 

market area delineations and our 

proposed implementation of those 

changes, we refer readers to sections 

III.B. and VI.C. of the preamble of this 

proposed rule. 

2. FY 2015 MGCRB Reclassifications 

a. FY 2015 Reclassification 

Requirements and Approvals 

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

the MGCRB considers applications by 

hospitals for geographic reclassification 

for purposes of payment under the IPPS. 

The specific procedures and rules that 

apply to the geographic reclassification 

process are outlined in regulations 

under 42 CFR 412.230 through 412.280. 

In February 2014, the MGCRB 

completed its review of FY 2015 

reclassification requests. Based on such 

reviews, there were 379 hospitals 

approved for wage index 

reclassifications by the MGCRB starting 

in FY 2015. Because MGCRB wage 

index reclassifications are effective for 3 

years, for FY 2015, hospitals reclassified 

beginning during FY 2013 or FY 2014 

are eligible to continue to be reclassified 

to a particular labor market area based 

on such prior reclassifications for the 

remainder of their 3-year period. There 

were 172 hospitals approved for wage 

index reclassifications in FY 2013, and 

287 hospitals approved for wage index 

reclassifications in FY 2014. Of all the 

hospitals approved for reclassification 

for FY 2013, FY 2014, and FY 2015, as 

of February 2014, 838 hospitals are in a 

reclassification status for FY 2015. 

Under the regulations at 42 CFR 

412.273, hospitals that have been 

reclassified by the MGCRB are 

permitted to withdraw their 

applications within 45 days of the 

publication of a proposed rule. For 

information about withdrawing, 

terminating, or canceling a previous 

withdrawal or termination of a 3-year 

reclassification for wage index 

purposes, we refer readers to 42 CFR 

412.273, as well as the FY 2002 IPPS 

final rule (66 FR 39887 through 39888) 

and the FY 2003 IPPS final rule (67 FR 

50065 through 50066). Additional 

discussion on withdrawals and 

terminations, and clarifications 

regarding reinstating reclassifications 

and ‘‘fallback’’ reclassifications, were 

included in the FY 2008 IPPS final rule 

(72 FR 47333). 

Changes to the wage index that result 

from withdrawals of requests for 

reclassification, terminations, wage 

index corrections, appeals, and the 

Administrator’s review process for FY 

2015 will be incorporated into the wage 

index values published in the FY 2015 

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. Effects of Implementation of New 

OMB Labor Market Area Delineations 

on Reclassified Hospitals 

Because hospitals that have been 

reclassified beginning in FY 2013, 2014, 

or 2015 were reclassified based on the 

current labor market delineations, if we 

adopt the new OMB labor market area 

delineations beginning in FY 2015, the 

areas to which they have been 

reclassified, or the areas where they are 

located, may change. Under the new 

OMB delineations, many existing 

CBSAs would be reconfigured. 

Hospitals with current reclassifications 

are encouraged to verify area wage 

indexes on Tables 4A–2 and 4B–2 

associated with this proposed rule 

(which are available via the Internet on 

the CMS Web site), and confirm that the 

areas to which they have been 

reclassified for FY 2015 would continue 

to provide a higher wage index than 

their geographic area wage index. 

Hospitals may withdraw their FY 2015 

reclassifications by contacting the 

MGCRB within 45 days from the 

publication of this proposed rule. 

In some cases, adopting the new OMB 

delineations would result in counties 

splitting apart from CBSAs to form new 

CBSAs, or counties shifting from one 

CBSA designation to another CBSA. 

Reclassifications granted under section 

1886(d)(10) of the Act are effective for 

3 fiscal years so that a hospital or 

county group of hospitals would be 

assigned a wage index based upon the 

wage data of hospitals in a nearby labor 

market area for a 3-year period. If 

CBSAs are split apart, or if counties 

shift from one CBSA to another under 

the new OMB delineations, it raises the 

question of how to continue a hospital’s 

reclassification for the remainder of its 

3-year reclassification period, if that 

area to which the hospital reclassified 

no longer exists, in whole or in part. We 

dealt with this question in FY 2005 as 

well when CMS adopted the current 

OMB labor market area definitions. 

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Consistent with the policy CMS 

implemented in the FY 2005 IPPS final 

rule (69 FR 49054 through 49056), if a 

CBSA would be reconfigured due to the 

new OMB delineations and it would not 

be possible for the reclassification to 

continue seamlessly to the reconfigured 

CBSA, we believe it is appropriate for us 

to determine the best alternative 

location to reassign current 

reclassifications for the remaining 3 

years. Therefore, to maintain the 

integrity of a hospital’s 3-year 

reclassification period, we are proposing 

a policy to assure that current 

geographic reclassifications 

(applications approved in FY 2013, FY 

2014, or FY 2015) that would be affected 

by CBSAs that are split apart or counties 

that shift to another CBSA under the 

new OMB delineations, would 

ultimately be assigned to a CBSA under 

the new OMB delineations that contains 

at least one county from the reclassified 

CBSA under the current FY 2014 OMB 

definitions, and would be generally 

consistent with rules that govern 

geographic reclassification. That is, 

consistent with policy finalized in FY 

2005 (69 FR 49054 and 49055), we are 

proposing a general policy that affected 

reclassified hospitals would be assigned 

to a CBSA that (1) would contain the 

most proximate county that is located 

outside of the hospital’s proposed FY 

2015 geographic labor market area, and 

(2) is part of the original FY 2014 CBSA 

to which the hospital is reclassified. We 

believe that by assigning 

reclassifications to the CBSA that 

contains the nearest eligible county (as 

described above) satisfies the statutory 

requirement at section 1886(d)(10)(v) of 

the Act by maintaining reclassification 

status for a period of 3 fiscal years, 

while generally respecting the 

longstanding principle of geographic 

proximity in the labor market 

reclassification process. The hospitals 

that we are proposing to reassign to a 

different CBSA based on our proposed 

policy above are listed in a special Table 

9A–2 for this proposed rule, which is 

available via the Internet on the CMS 

Web site. In addition, we are proposing 

to allow a hospital, or county group of 

hospitals, to request reassignment to 

another CBSA that would contain a 

county that is part of the current FY 

2014 CBSA to which they are 

reclassified, if the hospital or county 

group of hospitals can demonstrate 

compliance with applicable 

reclassification proximity rules, as 

described later in this section. 

We recognize that this proposed 

reclassification reassignment described 

for hospitals that are reclassified to 

CBSAs that would split apart or to 

counties that would shift to another 

CBSA under the new OMB delineations 

may result in the reassignment of the 

hospital for the remainder of its 3-year 

reclassification period to a CBSA having 

a lower wage index than the wage index 

that would have been assigned for the 

reclassified hospital in the absence of 

the proposed adoption of the new OMB 

delineations. Therefore, as discussed in 

section III.B.2.e.(4) of the preamble of 

this proposed rule, we are proposing 

that all hospitals that would experience 

a decrease in their FY 2015 wage index 

value due to the proposed 

implementation of the new OMB 

delineations would receive a 50/50 

blended wage index adjustment in FY 

2015. For FY 2015, using FY 2015 wage 

data, we are proposing to calculate a 

wage index value based on the current 

FY 2014 OMB definitions, and a wage 

index value based upon the proposed 

new OMB delineations (including 

reclassification assignments discussed 

in this section). If the wage index under 

the proposed new OMB delineations 

would be lower than the wage index 

calculated with the current (FY 2014) 

OMB definitions, the hospital would be 

assigned a blended wage index (50 

percent of the current; 50 percent of the 

proposed). We believe that this 

proposed transitional adjustment would 

mitigate negative payment impacts for 

FY 2015, and would afford hospitals 

additional time to fully assess any 

additional reclassification options 

available to them under the new OMB 

delineations. 

We are including the following 

descriptions of specific situations where 

we have determined that reassignment 

of reclassification areas would be 

appropriate. 

(1) Reclassifications to CBSAs That 

Would Be Subsumed by Other CBSAs 

We identified 66 counties that are 

currently located in CBSAs that would 

be subsumed by another CBSA under 

the new OMB labor market area 

delineations. As a result, hospitals 

reclassifying to those CBSAs would now 

find that their reclassifications are to a 

CBSA that no longer exists. For these 

hospitals, we are proposing to reassign 

reclassifications to the newly configured 

CBSA to which all of the original 

constituent counties in the FY 2014 

CBSA are transferred. For example, 

CBSA 11300 (Anderson, IN) would no 

longer exist under the proposed FY 

2015 delineations. The only constituent 

county in CBSA 11300, Madison 

County, IN, would be moving to CBSA 

26900 (Indianapolis-Carmel-Anderson, 

IN). Because the original Anderson, IN 

labor market area no longer exists, we 

are proposing to reassign 

reclassifications from the original 

Anderson, IN labor market area to a 

newly configured CBSA where the 

original constituent county or counties 

are transferred, which is IndianapolisCarmel-Anderson, IN. For hospitals 

reclassified to a CBSA that would be 

subsumed by another CBSA, the 

following table reflects the hospitals’ 

current reclassified CBSA, and the 

CBSA to which CMS is proposing to 

assign them for FY 2015. 

PROPOSED HOSPITAL RECLASSIFICATION REASSIGNMENTS FOR HOSPITALS RECLASSIFIED TO A CBSA 

THAT WOULD BE SUBSUMED BY ANOTHER CBSA 

CMS 

certification 

No. (CCN) 

Current 

reclassified 

CBSA 

Proposed 

CBSA 

050022 42044 11244 

050054 42044 11244 

050102 42044 11244 

050243 42044 11244 

050292 42044 11244 

050329 42044 11244 

050390 42044 11244 

050423 42044 11244 

050534 42044 11244 

050573 42044 11244 

050684 42044 11244 

050686 42044 11244 

050701 42044 11244 

050765 42044 11244 

050770 42044 11244 

140067 14060 14010 

150089 11300 26900 

220001 14484 14454 

220002 14484 14454 

220008 14484 14454 

220011 14484 14454 

220019 14484 14454 

220020 14484 14454 

220049 14484 14454 

220058 14484 14454 

220062 14484 14454 

220063 14484 14454 

220070 14484 14454 

220073 14484 14454 

220074 14484 14454 

220082 14484 14454 

220084 14484 14454 

220090 14484 14454 

220095 14484 14454 

220098 14484 14454 

220101 14484 14454 

220105 14484 14454 

220163 14484 14454 

220171 14484 14454 

220175 14484 14454 

220176 14484 14454 

230002 47644 47664 

230020 47644 47664 

230024 47644 47664 

230053 47644 47664 

230089 47644 47664 

230104 47644 47664 

230142 47644 47664 

230146 47644 47664 

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PROPOSED HOSPITAL RECLASSIFICATION REASSIGNMENTS FOR HOSPITALS RECLASSIFIED TO A CBSA 

THAT WOULD BE SUBSUMED BY ANOTHER CBSA—Continued 

CMS 

certification 

No. (CCN) 

Current 

reclassified 

CBSA 

Proposed 

CBSA 

230165 47644 47664 

230176 47644 47664 

230244 47644 47664 

230270 47644 47664 

230273 47644 47664 

230297 47644 47664 

300017 37764 15764 

300023 37764 15764 

300029 37764 15764 

390151 13644 43524 

410001 14484 14454 

410004 14484 14454 

410005 14484 14454 

410007 14484 14454 

410010 14484 14454 

410011 14484 14454 

410012 14484 14454 

(2) Reclassification to CBSAs Where the 

CBSA Number or Name Has Changed or 

to CBSAs Containing Counties That 

Would Be Moving to Another CBSA 

We identified six CBSAs with current 

reclassifications that would maintain 

the same constituent counties, but the 

CBSA number or name would change if 

we adopted the new OMB delineations. 

For example, CBSA 29140 (Lafayette, 

IN) currently contains three counties 

(Benton, Carroll, and Tippecanoe 

Counties). The CBSA name and number 

for these counties would change to 

CBSA 29200 (Lafayette-West Lafayette, 

IN) under the new OMB delineations. 

Because the constituent counties in 

these CBSAs would not change under 

the new delineations, we would 

consider these CBSAs to be unchanged, 

and we are not proposing any 

reassignment for hospitals reclassified 

to those labor market areas. Table 9A– 

2 for this proposed rule (which is 

available via the Internet on the CMS 

Web site) reflects the proposed revised 

CBSA number effective in FY 2015. 

We identified eight CBSAs with 

current reclassifications that have one or 

more counties that would split off and 

move to a new CBSA or to a different 

existing CBSA under the new OMB 

delineations. These CBSAs are shown in 

the following table. 

Current 

FY 2014 

CBSA 

Current FY 2014 CBSA name 

16620 ... Charleston, WV. 

16974 ... Chicago-Joliet-Naperville, IL. 

20764 ... Edison-New Brunswick, NJ. 

31140 ... Louisville/Jefferson County, KY-IN. 

Current 

FY 2014 

CBSA 

Current FY 2014 CBSA name 

35644 ... New York-White Plains-Wayne, 

NY-NJ. 

37964 ... Philadelphia, PA. 

39100 ... Poughkeepsie-Newburgh-Middletown, NY. 

48900 ... Wilmington, NC. 

We have determined that 69 hospitals 

have current reclassifications to one of 

these CBSAs. Similar to the 

methodology finalized in the FY 2005 

IPPS final rule (69 FR 49054 through 

49055), we are proposing to follow the 

general policy discussed in section 

III.H.2.b. of the preamble of this 

proposed rule. Specifically, we are 

proposing that affected reclassified 

hospitals would be assigned to a CBSA 

(under the new OMB delineations) that 

would contain the most proximate 

county that is (1) located outside of the 

hospital’s proposed FY 2015 geographic 

labor market area; and (2) is included in 

the current CBSA to which they are 

reclassified. For each of the 69 

hospitals, we conducted a mapping 

analysis and determined driving 

distances from their geographic location 

to the borders of each county (that is in 

the reclassified CBSA under the FY 

2014 delineations) and is also included 

in a CBSA under the new OMB 

delineations, excluding any counties 

that would be located in the hospital’s 

proposed FY 2015 geographic labor 

market area. Following the general 

reassignment principle that we are 

proposing, we are proposing to reassign 

those reclassified hospitals to the CBSA 

which contains the geographically 

closest county. For example, there are 

hospitals that currently are reclassified 

to CBSA 39100 (PoughkeepsieNewburgh-Middletown, NY) under the 

FY 2014 delineations, which is 

comprised of Dutchess County and 

Orange County, NY. Under the new 

OMB delineations, Dutchess County 

would become part of new CBSA 20524 

(Dutchess County-Putnam County, NY), 

while Orange County would join CBSA 

35614 (New York-Jersey City-White 

Plains, NY-NJ Metropolitan Division). 

Therefore, we mapped the distances 

from one reclassified hospital to the 

border of Dutchess County and Orange 

County, NY (the two counties that were 

part of CBSA 39100 under the FY 2014 

delineations). Our analysis showed that 

the hospital is 2.2 miles from Dutchess 

County, and 25.9 miles from Orange 

County. Therefore, we are proposing to 

reassign this hospital’s reclassification 

from the FY 2014 CBSA 39100 to the 

new CBSA 20524. 

We also identified affected county 

group reclassifications. For these 

reclassifications, we would follow our 

proposed policy discussed above, 

except that, for county group 

reclassifications, we are proposing to 

reassign hospitals in a county group 

reclassification to the CBSA under the 

new OMB delineations to which the 

majority of hospitals in the group 

reclassification are geographically 

closest. Because hospitals in a county 

group applied as a group, we believe the 

reassignment should also be applied to 

the whole group. For example, the 

hospitals of Fairfield County, CT are 

reclassified as a group to CBSA 35644 

under the FY 2014 delineations. Under 

the new OMB delineations, CBSA 35644 

would no longer exist and would be 

split into the following two new CBSAs: 

20524 (Dutchess County-Putnam 

County, NY) and 35614 (New YorkJersey City-White Plains, NY-NJ). Of the 

six hospitals in the group 

reclassification, all but one would be 

closer to an eligible county 

(Westchester, NY) in CBSA 35614 than 

to an eligible county (Putnam, NY) in 

CBSA 20524. Because these hospitals in 

Fairfield, CT applied as a group, we 

believe the reassignment should also be 

applied to the whole group. Therefore, 

we are proposing to assign the hospitals 

in this group reclassification to CBSA 

35614, the reconfigured CBSA to which 

the majority of the hospitals in the 

group reclassification are geographically 

closest. 

To summarize, of the 69 hospitals 

reclassified to one of the 8 CBSAs in the 

preceding table that have counties that 

would split off and move to a new 

CBSA or a different existing CBSA 

under the new OMB delineations, there 

are 27 hospitals that would maintain the 

same reclassified CBSA number under 

our proposals. Another 28 hospitals 

would be reassigned to a reconfigured 

CBSA that would contain a similar 

number of counties from their current 

reclassified CBSA. For example, the 

new CBSA 35614 (New York-Jersey 

City-White Plains, NY-NJ Metropolitan 

Division) would contain 10 out of 11 

counties from current (FY 2014) CBSA 

35644 (New York-White Plains-Wayne, 

NY-NJ Metropolitan Division). 

For the remaining 14 reclassified 

hospitals, we are proposing to assign 

them to a CBSA (under the new OMB 

delineations) that would have a 

different CBSA number from the labor 

market area to which they are currently 

reclassified (under the current FY 2014 

delineations). This is because if the 

original CBSA to which the hospitals 

are reclassified is losing counties to 

another urban CBSA, it may be that the 

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original reclassification determination 

would not be reflective of the new 

delineations. In addition, because 

proximity to a CBSA is a requirement of 

reclassifications approved under section 

1886(d)(10) of the Act, we believe it is 

appropriate to propose to reassign 

reclassification status to an urban CBSA 

that contains the county (from the 

hospital’s current CBSA reclassification) 

that is closest to the hospital. We 

believe this would more accurately 

reflect the geographic labor market area 

of the reclassified hospital. For example, 

under the FY 2014 delineations, CBSA 

37964 (Philadelphia, PA Metropolitan 

Division) is comprised of five counties 

(Bucks, Chester, Delaware, Montgomery, 

and Philadelphia Counties, PA). Under 

the new OMB delineations, CBSA 37964 

would retain the same CBSA name and 

number, but three counties (Bucks, 

Chester, and Montgomery) would split 

off to form the new CBSA 33874 

(Montgomery County-Bucks CountyChester County, PA Metropolitan 

Division). While CBSA 37964 exists 

under the FY 2014 and proposed new 

labor market area delineations, the fact 

that three counties would be moved to 

another CBSA means that current 

reclassifications to CBSA 37964 

(Philadelphia) may be more proximate 

to new CBSA 33874. Therefore, if 

reclassified hospitals, or the majority of 

hospitals in a county group, are 

geographically closer to a county in 

CBSA 33874 than to a county in CBSA 

37964, we are proposing to reassign the 

reclassification to that area, new CBSA 

33874 (Montgomery County-Bucks 

County-Chester County, PA 

Metropolitan Division). 

Consistent with refinements 

implemented in the FY 2005 IPPS final 

rule (69 FR 49055), we are proposing to 

allow hospitals that reclassified under 

section 1886(d)(10) of the Act to one of 

the eight CBSAs that split (that is, 

current FY 2014 CBSAs 16620, 16974, 

20764, 31140, 35644, 37964, 39100, 

48900) to be reclassified to any CBSA 

containing a county from their original 

reclassification labor market area, 

provided that the hospital demonstrates 

that it meets the applicable proximity 

requirements under 42 CFR 412.230(b) 

and (c) (for individual hospitals), 42 

CFR 412.232(a)(1) (for a rural group), 

and 42 CFR 412.234(a)(2) and (a)(3) (for 

an urban group) to that CBSA. Hospitals 

that wish to be reassigned to an 

alternate CBSA (other than the CBSA to 

which their reclassification would be 

reassigned in this proposed rule) for 

which they meet the applicable 

proximity criteria may request 

reassignment within 45 days from the 

publication of this proposed rule. 

Hospitals must send a request to 

WageIndex@cms.hhs.gov and provide 

documentation certifying that they meet 

the requisite proximity criteria for 

reassignment to an alternate CBSA, as 

described above. We believe this option 

of allowing hospitals to submit a request 

to CMS would provide hospitals with 

greater flexibility with respect to their 

reclassification reassignment, while 

ensuring that the proximity 

requirements are met. We believe that 

where the proximity requirements are 

met, the reclassified wage index would 

be consistent with the labor market area 

to which the hospitals were originally 

approved for reclassification. Under this 

proposed policy, a hospital may request 

to be assigned a reclassification to any 

CBSA that contains any county from the 

CBSA to which it is currently 

reclassified. However, to be reassigned 

to an area that is not the most proximate 

to the hospital (or the majority of 

hospitals in a county group), we believe 

it is necessary that the hospital 

demonstrates that it complies with the 

applicable proximity criteria. If a 

hospital cannot demonstrate proximity 

to an alternate CBSA, the hospital 

would not be considered for 

reclassification to that labor market area, 

and reassignment would remain with 

the closest eligible (new) CBSA. 

As discussed previously in this 

section, under the new OMB 

delineations, we identified CBSA 35644 

(New York-White Plains-Wayne, NY-NJ 

Metropolitan Division) as one of the 

examples of the eight CBSAs that would 

have at least one county that would split 

off and join another new CBSA (Putnam 

County joined Dutchess County, NY to 

form new CBSA 20524), while also 

having multiple counties assigned to a 

reconfigured CBSA 35614 (New YorkJersey City-White Plains, NY-NJ 

Metropolitan Division). CBSA 35614 

would also add Orange County, NY 

under the new OMB delineations. The 

hospitals that are currently located in 

CBSA 39100 (Poughkeepsie-NewburghMiddletown, NY) are currently part of a 

group reclassification of Orange County, 

NY to CBSA 35644 (New York-White 

Plains-Wayne, NY-NJ Metropolitan 

Division). As discussed above, we are 

proposing to reassign current 

reclassifications to the CBSA that 

contains the most proximate county that 

is located outside of the reclassified 

hospital’s proposed geographic labor 

market area, and is currently part of the 

original CBSA to which the hospital is 

reclassified. In the case of the Orange 

County, NY group reclassification, the 

closest (and only) county from the 

original reclassified area (CBSA 35644), 

that would not be located in Orange 

County’s proposed home labor market 

area (CBSA 35614) is Putnam County, 

NY. Therefore, we are proposing to 

reassign the Orange County group 

reclassification to CBSA 20524 (Putnam 

County-Dutchess County, NY). If the 

hospitals from the Orange County, NY 

group reclassification do not wish to 

maintain this assignment, we encourage 

them to formally terminate the current 

group reclassification within 45 days 

from the publication of this proposed 

rule, as discussed earlier in this section. 

The following table shows proposed 

hospital reclassification assignments for 

hospitals reclassified to CBSAs from 

which counties would be split off and 

moved to a different CBSA under the 

new OMB delineations. The following 

table shows the current reclassified 

CBSA and the CBSA to which CMS is 

proposing reassignment. 

PROPOSED HOSPITAL RECLASSIFICATION REASSIGNMENTS FOR HOSPITALS THAT ARE RECLASSIFIED TO

CBSAS FROM WHICH COUNTIES

WOULD BE SPLIT OFF AND MOVED

TO A DIFFERENT CBSA 

CMS Certification number (CCN) Current reclassified 

CBSA 

Proposed reassigned 

CBSA 

070006 35644 35614 

070010 35644 35614 

070018 35644 35614 

070028 35644 35614 

070033 35644 35614 

070034 35644 35614 

140B10 16974 16974 

140012 16974 20994 

140033 16974 16974 

140084 16974 16974 

140100 16974 16974 

140110 16974 16974 

140130 16974 16974 

140155 16974 16974 

140161 16974 16974 

140186 16974 16974 

140202 16974 16974 

140291 16974 16974 

150002 16974 16974 

150004 16974 16974 

150008 16974 16974 

150034 16974 16974 

150090 16974 16974 

150125 16974 16974 

150126 16974 16974 

150165 16974 16974 

150166 16974 16974 

180012 31140 31140 

180048 31140 31140 

310002 35644 35614 

310009 35644 35614 

310014 37964 37964 

310015 35644 35614 

310017 35644 35614 

310031 20764 35614 

310038 35644 20524 

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PROPOSED HOSPITAL RECLASSIFICATION REASSIGNMENTS FOR HOSPITALS THAT ARE RECLASSIFIED TO

CBSAS FROM WHICH COUNTIES

WOULD BE SPLIT OFF AND MOVED

TO A DIFFERENT CBSA—Continued 

CMS Certification number (CCN) Current reclassified 

CBSA 

Proposed reassigned 

CBSA 

310039 35644 20524 

310050 35644 35614 

310054 35644 35614 

310070 35644 20524 

310076 35644 35614 

310083 35644 35614 

310096 35644 35614 

310108 35644 20524 

310119 35644 35614 

330027 35644 35614 

330106 35644 35614 

330126 35644 20524 

330135 35644 20524 

330167 35644 35614 

330181 35644 35614 

330182 35644 35614 

330198 35644 35614 

330205 35644 20524 

330224 39100 20524 

330225 35644 35614 

330259 35644 35614 

330264 35644 20524 

330331 35644 35614 

330332 35644 35614 

330372 35644 35614 

340042 48900 48900 

340068 48900 34820 

390044 37964 33874 

390096 37964 33874 

390316 37964 33874 

420085 48900 48900 

510062 16620 16620 

510070 16620 16620 

Table 9A–2 for this proposed rule 

(which is available via the Internet on 

the CMS Web site) reflects all proposed 

reassignments of hospital 

reclassifications. We are proposing that 

hospitals that disagree with our 

determination of the most proximate 

county must provide an alternative 

method for determining proximity to 

CMS within 45 days from the 

publication of this proposed rule. 

The hospital’s request for 

reassignment should contain the 

hospital’s name, address, CCN, and 

point of contact information. All 

requests must be sent to WageIndex@

cms.hhs.gov. Changes to a hospital’s 

CBSA assignment on the basis of a 

hospital’s disagreement with our 

determination of closest county, or on 

the basis of being granted a 

reassignment due to meeting applicable 

proximity criteria to an eligible CBSA 

will be announced in the FY 2015 IPPS 

final rule. 

(3) Reclassifications to CBSAs That 

Would Contain Hospital’s Geographic 

County 

We identified 14 reclassified hospitals 

that would be geographically located in 

their reclassified labor market area 

under the new OMB delineations. For 

example, hospital 34–0015 is located in 

Rowan County, NC. Rowan County is 

currently a Micropolitan Statistical Area 

in NC, and treated as rural. The hospital 

is reclassified to CBSA 16740 (CharlotteConcord-Rock Hill, NC–SC). Under the 

new OMB delineations, CBSA 16740 

(Charlotte-Concord-Gastonia, NC–SC) 

would include Rowan County. 

Therefore, the current reclassification 

would become redundant. CBSA 16740 

did not lose any counties to another 

labor market area; therefore, assignment 

to another alternate CBSA would not be 

an option under our proposed 

methodology. Because, by definition, a 

hospital would not be ‘‘reclassified’’ to 

its own geographic labor market area, 

and maintaining that ‘‘reclassified’’ 

status to its own geographic labor 

market area would serve no beneficial 

purpose for a hospital, we expect that 

all such affected hospitals would wish 

to terminate their reclassification status. 

Therefore, we are assuming for purposes 

of this proposed rule that the affected 

hospitals would be terminating their 

reclassification status for the remaining 

years of their 3-year reclassification 

period, and for FY 2015, we are 

proposing to assign them the wage 

index of the CBSA in which they are 

geographically located. Affected 

hospitals should inform CMS if they 

wish to retain their current 

reclassification by sending notice to 

WageIndex@cms.hhs.gov within 45 days 

from the publication of this proposed 

rule. If an affected hospital does not 

inform us that they wish to retain their 

current reclassification, we will assume 

that the hospital has elected to 

terminate the reclassification. For 

purposes of this proposed rule, we are 

presenting tables under the presumption 

that all 14 hospitals will opt to cancel 

their reclassification status. We are 

proposing to assign these hospitals the 

wage index value of their home area 

from Table 4A–2 for this proposed rule 

(which is available via the Internet on 

the CMS Web site), and not include 

them as reclassified hospitals in Table 

9A–2 for this proposed rule (which is 

available via the Internet on the CMS 

Web site). 

HOSPITALS RECLASSIFIED TO PROPOSED HOME LABOR MARKET AREA

CMS 

certification 

No. (CCN) 

Current 

geographic 

CBSA 

Proposed 

geographic 

CBSA 

340015 34 16740 

340129 34 16740 

340144 34 16740 

420036 42 16740 

450596 45 23104 

420027 11340 24860 

150088 11300 26900 

150113 11300 26900 

190003 19 29180 

440073 44 34980 

460017 46 36260 

460039 46 36260 

190144 19 43340 

490019 49 47894 

We have included a footnote for Table 

9A–2 for this proposed rule indicating 

that these hospitals have been removed 

from this table, pending notification by 

the hospitals. 

c. Applications for Reclassifications for 

FY 2016 

Applications for FY 2016 

reclassifications are due to the MGCRB 

by September 2, 2014 (the first working 

day of September 2014). We note that 

this is also the deadline for canceling a 

previous wage index reclassification 

withdrawal or termination under 42 

CFR 412.273(d). As discussed in section 

III.B. of the preamble of this proposed 

rule, we are proposing to adopt the new 

OMB labor market area delineations 

announced on February 28, 2013. 

Therefore, hospitals would apply for 

reclassifications based on the new OMB 

delineations we are proposing to use for 

FY 2015. Applications and other 

information about MGCRB 

reclassifications may be obtained via the 

Internet on the CMS Web site at: 

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

index.html, or by calling the MGCRB at 

(410) 786–1174. The mailing address of 

the MGCRB is: 2520 Lord Baltimore 

Drive, Suite L, Baltimore, MD 21244– 

2670.3. 

We also are proposing changes to the 

regulations at § 412.232(b)(2) and 

§ 412.234(a)(3)(iv) to include reference 

to the most recent OMB standards for 

delineating statistical areas (using the 

most recent Census Bureau data and 

estimates) that were adopted by CMS. 

For rural groups, the group of hospitals 

must demonstrate that the county in 

which the hospitals are located meets 

the standards for redesignation to an 

MSA as an ‘‘outlying county.’’ For urban 

groups, hospitals located in counties 

that are in the same combined statistical 

area or CBSA as the urban area to which 

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they seek redesignation qualify as 

meeting the proximity requirements for 

reclassification to the urban area to 

which they seek redesignation. We are 

not proposing any changes to the 

reclassification policy, but would 

include language to reflect use of the 

most recent OMB standards for 

delineating statistical areas (using the 

most recent Census Bureau data and 

estimates) that were adopted by CMS in 

consideration of group reclassification 

applications submitted for review in FY 

2015 (that is submitted by September 

30, 2014, reviewed by the MGCRB in FY 

2015, to be effective in FY 2016) and 

future years. 

3. Redesignation of Hospitals Under 

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

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

requires the Secretary to ‘‘treat a 

hospital located in a rural county 

adjacent to one or more urban areas as 

being located in the urban metropolitan 

statistical area to which the greatest 

number of workers in the county 

commute’’ if certain adjacency and 

commuting criteria are met. The criteria 

utilize standards for designating 

Metropolitan Statistical Areas published 

in the Federal Register by the Director 

of the Office of Management and Budget 

(OMB) based on the most recently 

available decennial population data. 

Effective beginning FY 2005, we used 

OMB’s CBSA standards based on the 

2000 Census and the 2000 Census 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. 

As discussed in section III.B. of the 

preamble to this proposed rule, we are 

proposing to implement OMB’s revised 

labor market area delineations based on 

the Census 2010 data for purposes of 

determining applicable wage indexes for 

acute care hospitals beginning in FY 

2015. As we have done in the past, we 

also are proposing to use the new OMB 

delineations to identify rural counties 

that would qualify as ‘‘Lugar’’ under 

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

therefore would be redesignated to 

urban areas for FY 2015. We are 

proposing to revise the regulations at 

§ 412.64(b)(3)(i) to reflect the most 

recent OMB standards for delineating 

statistical areas adopted by CMS. By 

applying the new OMB delineations, the 

number of qualifying counties, shown in 

the following chart, would increase 

from 98 to 127. After evaluating and 

analyzing the 2010 Census commuting 

data, we are proposing that, effective for 

discharges on or after October 1, 2014, 

in accordance with section 1886(d)(8)(B) 

of the Act, hospitals located in the rural 

counties listed in the first column of the 

following table would be designated as 

part of the urban area listed in the 

second column based on the criteria 

discussed above. We note that rural 

counties that no longer meet the 

qualifying criteria to be Lugar are 

discussed below in section III.H.3.c. of 

the preamble of this proposed rule. 

RURAL COUNTIES CONTAINING HOSPITALS REDESIGNATED AS URBAN UNDER SECTION 1886(d)(8)(B) OF THE ACT (BASED

ON NEW OMB DELINEATIONS AND CENSUS 2010 DATA) 

Rural county Lugar designated CBSA 

NEW 

County name State CBSA CBSA name 

Chambers County ............................... AL ..... 12220 Auburn-Opelika, AL ......................................................................................... New. 

Cherokee County ................................ AL ..... 40660 Rome, GA ........................................................................................................

Cleburne County ................................. AL ..... 11500 Anniston-Oxford-Jacksonville, AL .................................................................... New. 

Macon County ..................................... AL ..... 12220 Auburn-Opelika, AL .........................................................................................

Talladega County ................................ AL ..... 11500 Anniston-Oxford-Jacksonville, AL ....................................................................

Denali Borough ................................... AK ..... 21820 Fairbanks, AK .................................................................................................. New. 

Hot Spring County .............................. AR ..... 26300 Hot Springs, AR ...............................................................................................

Litchfield County ................................. CT ..... 35300 New Haven-Milford, CT ...................................................................................

Bradford County .................................. FL ...... 27260 Jacksonville, FL ...............................................................................................

Levy County ........................................ FL ...... 23540 Gainesville, FL .................................................................................................

Washington County ............................. FL ...... 37460 Panama City, FL .............................................................................................. New. 

Chattooga County ............................... GA ..... 40660 Rome, GA ........................................................................................................

Jackson County .................................. GA ..... 12060 Atlanta-Sandy Springs-Roswell, GA ................................................................

Lumpkin County .................................. GA ..... 12060 Atlanta-Sandy Springs-Roswell, GA ................................................................

Polk County ......................................... GA ..... 40660 Rome, GA ........................................................................................................

Talbot County ...................................... GA ..... 17980 Columbus, GA-AL ............................................................................................

Oneida County .................................... ID ...... 36260 Ogden-Clearfield, UT ....................................................................................... New. 

Christian County ................................. IL ....... 44100 Springfield, IL ...................................................................................................

Iroquois County ................................... IL ....... 28100 Kankakee, IL ....................................................................................................

Logan County ...................................... IL ....... 44100 Springfield, IL ...................................................................................................

Mason County ..................................... IL ....... 37900 Peoria, IL .........................................................................................................

Ogle County ........................................ IL ....... 40420 Rockford, IL .....................................................................................................

Union County ...................................... IL ....... 16060 Carbondale-Marion, IL .....................................................................................

Clinton County .................................... IN ...... 29200 Lafayette-West Lafayette, IN ...........................................................................

Greene County .................................... IN ...... 14020 Bloomington, IN ............................................................................................... New. 

Henry County ...................................... IN ...... 26900 Indianapolis-Carmel-Anderson, IN ..................................................................

Marshall County .................................. IN ...... 43780 South Bend-Mishawaka, IN-MI ........................................................................ New. 

Parke County ...................................... IN ...... 45460 Terre Haute, IN ................................................................................................ New. 

Spencer County .................................. IN ...... 21780 Evansville, IN-KY .............................................................................................

Starke County ..................................... IN ...... 16980 Chicago-Naperville-Elgin, IL-IN-WI ..................................................................

Tipton County ...................................... IN ...... 26900 Indianapolis-Carmel-Anderson, IN .................................................................. New. 

Warren County .................................... IN ...... 29200 Lafayette-West Lafayette, IN ...........................................................................

Boone County ..................................... IA ...... 11180 Ames, IA ..........................................................................................................

Buchanan County ............................... IA ...... 47940 Waterloo-Cedar Falls, IA .................................................................................

Cedar County ...................................... IA ...... 26980 Iowa City, IA ....................................................................................................

Delaware County ................................ IA ...... 20220 Dubuque, IA ..................................................................................................... New. 

Iowa County ........................................ IA ...... 26980 Iowa City, IA .................................................................................................... New. 

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RURAL COUNTIES CONTAINING HOSPITALS REDESIGNATED AS URBAN UNDER SECTION 1886(d)(8)(B) OF THE ACT (BASED

ON NEW OMB DELINEATIONS AND CENSUS 2010 DATA)—Continued 

Rural county Lugar designated CBSA 

NEW 

County name State CBSA CBSA name 

Jasper County ..................................... IA ...... 19780 Des Moines-West Des Moines, IA .................................................................. New. 

Franklin County ................................... KS ..... 28140 Kansas City, MO-KS ....................................................................................... New. 

Nelson County .................................... KY ..... 31140 Louisville/Jefferson County, KY-IN .................................................................. New. 

Assumption Parish .............................. LA ..... 12940 Baton Rouge, LA .............................................................................................

Jefferson Davis Parish ........................ LA ..... 29340 Lake Charles, LA ............................................................................................. New. 

St. Landry Parish ................................ LA ..... 29180 Lafayette, LA ................................................................................................... New. 

Oxford County ..................................... ME .... 30340 Lewiston-Auburn, ME ...................................................................................... New. 

Caroline County .................................. MD .... 12580 Baltimore-Columbia-Towson, MD .................................................................... New. 

Franklin County ................................... MA .... 44140 Springfield, MA ................................................................................................ New. 

Allegan County .................................... MI ...... 24340 Grand Rapids-Wyoming, MI ............................................................................

Ionia County ........................................ MI ...... 24340 Grand Rapids-Wyoming, MI ............................................................................ New. 

Lenawee County ................................. MI ...... 11460 Ann Arbor, MI .................................................................................................. New. 

Newaygo County ................................. MI ...... 24340 Grand Rapids-Wyoming, MI ............................................................................ New. 

Shiawassee County ............................ MI ...... 29620 Lansing-East Lansing, MI ................................................................................

Tuscola County ................................... MI ...... 40980 Saginaw, MI .....................................................................................................

Goodhue County ................................. MN .... 33460 Minneapolis-St. Paul-Bloomington, MN-WI ..................................................... New. 

Meeker County .................................... MN .... 33460 Minneapolis-St. Paul-Bloomington, MN-WI ..................................................... New. 

Rice County ........................................ MN .... 33460 Minneapolis-St. Paul-Bloomington, MN-WI ..................................................... New. 

Pearl River County .............................. MS .... 25060 Gulfport-Biloxi-Pascagoula, MS .......................................................................

Stone County ...................................... MS .... 25060 Gulfport-Biloxi-Pascagoula, MS ....................................................................... New. 

Dade County ....................................... MO .... 44180 Springfield, MO ................................................................................................

Otoe County ........................................ NE ..... 30700 Lincoln, NE ...................................................................................................... New. 

Douglas County .................................. NV ..... 16180 Carson City, NV ............................................................................................... New. 

Lyon County ........................................ NV ..... 16180 Carson City, NV ...............................................................................................

Los Alamos County ............................. NM .... 42140 Santa Fe, NM ..................................................................................................

Cayuga County ................................... NY ..... 45060 Syracuse, NY ...................................................................................................

Cortland County .................................. NY ..... 27060 Ithaca, NY ........................................................................................................ New. 

Genesee County ................................. NY ..... 40380 Rochester, NY .................................................................................................

Greene County .................................... NY ..... 10580 Albany-Schenectady-Troy, NY ........................................................................

Lewis County ...................................... NY ..... 48060 Watertown-Fort Drum, NY ............................................................................... New. 

Montgomery County ............................ NY ..... 10580 Albany-Schenectady-Troy, NY ........................................................................ New. 

Schuyler County .................................. NY ..... 27060 Ithaca, NY ........................................................................................................

Seneca County ................................... NY ..... 40380 Rochester, NY ................................................................................................. New. 

Camden County .................................. NC ..... 47260 Virginia Beach-Norfolk-Newport News, VA-NC ............................................... New. 

Caswell County ................................... NC ..... 15500 Burlington, NC .................................................................................................

Granville County ................................. NC ..... 20500 Durham-Chapel Hill, NC ..................................................................................

Greene County .................................... NC ..... 24780 Greenville, NC ................................................................................................. New. 

Harnett County .................................... NC ..... 39580 Raleigh, NC .....................................................................................................

Polk County ......................................... NC ..... 43900 Spartanburg, SC ..............................................................................................

Wilson County ..................................... NC ..... 40580 Rocky Mount, NC ............................................................................................ New. 

Traill County ........................................ ND ..... 24220 Grand Forks, ND-MN ...................................................................................... New. 

Ashtabula County ................................ OH .... 17460 Cleveland-Elyria, OH .......................................................................................

Champaign County ............................. OH .... 44220 Springfield, OH ................................................................................................

Columbiana County ............................ OH .... 49660 Youngstown-Warren-Boardman, OH-PA .........................................................

Harrison County .................................. OH .... 48260 Weirton-Steubenville, WV-OH ......................................................................... New. 

Preble County ..................................... OH .... 19380 Dayton, OH ...................................................................................................... New. 

Clinton County .................................... PA ..... 48700 Williamsport, PA ..............................................................................................

Fulton County ...................................... PA ..... 25180 Hagerstown-Martinsburg, MD-WV ................................................................... New. 

Greene County .................................... PA ..... 38300 Pittsburgh, PA ..................................................................................................

Lawrence County ................................ PA ..... 38300 Pittsburgh, PA .................................................................................................. New. 

Schuylkill County ................................. PA ..... 39740 Reading, PA ....................................................................................................

Susquehanna County ......................... PA ..... 13780 Binghamton, NY ..............................................................................................

Adjuntas Municipio .............................. PR ..... 38660 Ponce, PR ....................................................................................................... New. 

Coamo Municipio ................................ PR ..... 41980 San Juan-Carolina-Caguas, PR ...................................................................... New. 

Las Marı ́as Municipio .......................... PR ..... 32420 Mayagu ̈ez, PR ................................................................................................. New. 

Maricao Municipio ............................... PR ..... 32420 Mayagu ̈ez, PR ................................................................................................. New. 

Salinas Municipio ................................ PR ..... 25020 Guayama, PR .................................................................................................. New. 

Clarendon County ............................... SC ..... 44940 Sumter, SC ......................................................................................................

Colleton County .................................. SC ..... 16700 Charleston-North Charleston, SC .................................................................... New. 

Lee County .......................................... SC ..... 44940 Sumter, SC ......................................................................................................

Marion County ..................................... SC ..... 22500 Florence, SC .................................................................................................... New. 

Newberry County ................................ SC ..... 17900 Columbia, SC .................................................................................................. New. 

Meigs County ...................................... TN ..... 17420 Cleveland, TN ..................................................................................................

Blanco County ..................................... TX ..... 12420 Austin-Round Rock, TX ................................................................................... New. 

Bosque County ................................... TX ..... 47380 Waco, TX .........................................................................................................

Calhoun County .................................. TX ..... 47020 Victoria, TX ...................................................................................................... New. 

Fannin County ..................................... TX ..... 19100 Dallas-Fort Worth-Arlington, TX ......................................................................

Grimes County .................................... TX ..... 17780 College Station-Bryan, TX ...............................................................................

Harrison County .................................. TX ..... 30980 Longview, TX ...................................................................................................

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RURAL COUNTIES CONTAINING HOSPITALS REDESIGNATED AS URBAN UNDER SECTION 1886(d)(8)(B) OF THE ACT (BASED

ON NEW OMB DELINEATIONS AND CENSUS 2010 DATA)—Continued 

Rural county Lugar designated CBSA 

NEW 

County name State CBSA CBSA name 

Henderson County .............................. TX ..... 46340 Tyler, TX ..........................................................................................................

Hill County ........................................... TX ..... 19100 Dallas-Fort Worth-Arlington, TX ...................................................................... New. 

Milam County ...................................... TX ..... 12420 Austin-Round Rock, TX ...................................................................................

Van Zandt County ............................... TX ..... 19100 Dallas-Fort Worth-Arlington, TX ......................................................................

Willacy County .................................... TX ..... 15180 Brownsville-Harlingen, TX ...............................................................................

King and Queen County ..................... VA ..... 40060 Richmond, VA .................................................................................................. New. 

Louisa County ..................................... VA ..... 40060 Richmond, VA .................................................................................................. New. 

Madison County .................................. VA ..... 16820 Charlottesville, VA ........................................................................................... New. 

Orange County .................................... VA ..... 47900 Washington-Arlington-Alexandria, DC-VA-MD-WV ......................................... New. 

Page County ....................................... VA ..... 25500 Harrisonburg, VA .............................................................................................

Shenandoah County ........................... VA ..... 49020 Winchester, VA-WV .........................................................................................

Southampton County .......................... VA ..... 47260 Virginia Beach-Norfolk-Newport News, VA-NC ............................................... New. 

Surry County ....................................... VA ..... 47260 Virginia Beach-Norfolk-Newport News, VA-NC ............................................... New. 

Island County ...................................... WA .... 42660 Seattle-Tacoma-Bellevue, WA ........................................................................

Mason County ..................................... WA .... 36500 Olympia-Tumwater, WA ..................................................................................

Jackson County .................................. WV .... 16620 Charleston, WV ...............................................................................................

Morgan County ................................... WV .... 25180 Hagerstown-Martinsburg, MD-WV ................................................................... New. 

Roane County ..................................... WV .... 16620 Charleston, WV ...............................................................................................

Green Lake County ............................. WI ..... 22540 Fond du Lac, WI ..............................................................................................

Jefferson County ................................. WI ..... 33340 Milwaukee-Waukesha-West Allis, WI ..............................................................

Walworth County ................................. WI ..... 33340 Milwaukee-Waukesha-West Allis, WI ..............................................................

a. Proposed New Lugar Areas for FY 

2015 

Of the 127 qualifying counties 

identified as Lugar counties based on 

the new OMB delineations, 58 counties 

would be newly designated as Lugar for 

FY 2015 if we finalize our proposed 

adoption of the new OMB delineations. 

Hospitals in these counties, with at least 

25 percent of their workers commuting 

to a higher wage area, effective October 

1, 2014, will be deemed to be located in 

the CBSA to which the highest number 

of their workers commute (which is 

identified in the column titled ‘‘Lugar 

Designated CBSA’’ in the table above). 

Hospitals in these counties would 

receive the reclassified urban wage 

index of the corresponding Lugar 

Designated CBSA, unless they choose to 

waive their Lugar status, as discussed 

later in this section. 

Some areas that are currently urban 

counties would be geographically rural 

if we adopted the new OMB 

delineations and would meet the 

requirements for redesignation as Lugar 

areas. As described in section 

III.B.2.e.(2) of the preamble of this 

proposed rule, we are proposing a 3- 

year hold harmless transitional wage 

index adjustment for hospitals located 

in urban counties that become rural 

under the new OMB delineations. 

Because Lugar status is a form of 

redesignation, hospitals that currently 

are located in urban counties that would 

become rural under the new OMB 

delineations and are also considered 

Lugar areas under the new OMB 

delineations would not be eligible for 

the 3-year transition wage index 

adjustment unless they choose to waive 

Lugar status for FY 2015 (as discussed 

later in this section) and seek no other 

form of wage index reclassification. 

b. Hospitals Redesignated Under 

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

Reclassification by the MGCRB 

As in the past, hospitals redesignated 

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

are also eligible to be reclassified to a 

different area by the MGCRB. Using 

Table 4C associated with this proposed 

rule (which is available via the Internet 

on the CMS Web site), affected hospitals 

may compare the reclassified wage 

index for the labor market area into 

which they would be reclassified by the 

MGCRB to the reclassified wage index 

for the area to which they are 

redesignated under section 

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

withdraw from an MGCRB 

reclassification within 45 days of the 

publication of this FY 2015 proposed 

rule. (We refer readers to the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51598 

through 51599) for the procedural rules 

and requirements for a hospital that is 

redesignated under section 

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

reclassification under the MGCRB, as 

well as our policy of measuring the 

urban area, exclusive of the Lugar 

County, for purposes of meeting 

proximity requirements.) 

We treat New England deemed 

counties in a manner consistent with 

how we treat Lugar counties. (We refer 

readers to the FY 2008 IPPS final rule 

with comment period (72 FR 47337 

through 47338) for a discussion of this 

policy.) 

c. Rural Counties No Longer Meeting the 

Criteria To Be Redesignated as Lugar 

If we adopt the new OMB 

delineations, 29 rural counties would no 

longer meet the qualifying criteria to be 

redesignated as Lugar effective October 

1, 2014, either because they would be 

geographically located in an urban area, 

or they would fail to meet the 25- 

percent cumulative out-migration 

threshold with application of the new 

2010 Census commuting data. 

Counties that were deemed urban 

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

FY 2014, but would be geographically 

located in an urban area under the new 

OMB delineations for FY 2015 are: 

Windham County, CT 

Flagler County, FL 

Walton County, FL 

Morgan County, GA 

Peach County, GA 

De Witt County, IL 

Allen County, KY 

St. James Parrish, LA 

Montcalm County, MI 

Fillmore County, MN 

Lincoln County, NC 

Cotton County, OK 

Linn County, OR 

Adams County, PA 

Monroe County, PA 

Falls County, TX 

Buckingham County, VA 

Floyd County, VA 

Green County, WI 

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Counties that would fail to meet the 

25-percent threshold in FY 2015 are: 

Banks County, GA 

Hendry County, FL 

Bingham County, ID 

Oceana County, MI 

Columbia County, NY 

Sullivan County, NY 

Wyoming County, NY 

Oconee County, SC 

Middlesex County, VA 

Wahkiakum County, WA 

In section III.B.2.e.(2) of the preamble 

of this proposed rule, to help ease 

dramatic negative impacts in payment 

for hospitals designated as urban under 

the current FY 2014 OMB delineations, 

but would be classified as rural under 

the new OMB delineations, for FYs 

2015, 2016, and 2017, assuming no 

other form of wage index 

reclassification or redesignation is 

granted, we are proposing to assign 

these hospitals the FY 2015 area wage 

index value of the urban CBSA to which 

they geographically belonged in FY 

2014 (with the rural and imputed floors 

applied and with the rural floor budget 

neutrality adjustment applied to the 

area wage index). (For purposes of the 

wage index computation, the wage data 

of these hospitals would remain 

assigned to the statewide rural area in 

which they are located.) Similarly, we 

are proposing that the same 3-year 

transition apply to hospitals located in 

those counties that would lose their 

deemed urban designation under 

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

would become rural if we adopt the new 

OMB delineations. Because these 

hospitals would, in fact, lose their 

designated urban status, we are 

proposing to extend the 3-year hold 

harmless transitional wage index 

adjustment to these hospitals located in 

counties formerly designated as urban 

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

That is, for FYs 2015, 2016, and 2017, 

assuming no other form of wage index 

reclassification or redesignation is 

granted, we are proposing to assign 

these hospitals the FY 2015 area wage 

index value of the urban CBSA to which 

they were designated as urban in FY 

2014 (with the rural and imputed floors 

applied and with the rural floor budget 

neutrality adjustment applied). We are 

proposing to use the wage data from 

these hospitals as part of computing the 

rural wage index. In addition, during 

this 3-year transition period, these 

hospitals would be eligible to apply for 

reclassification by the MGCRB. As 

discussed in section III.B.2.e.(3) of the 

preamble of this proposed rule, we are 

proposing that if a hospital is currently 

located in an urban county that would 

become rural for FY 2015 under the new 

OMB delineations, and such hospital 

seeks and is granted any reclassification 

or redesignation during FYs 2015, 2016, 

or 2017, the hospital would 

permanently lose its 3-year transitional 

assigned wage index, and would not be 

able to reinstate it. Similarly, we are 

proposing that this policy also apply to 

hospitals located in those counties that 

would lose their deemed urban 

designation under section 1886(d)(8)(B) 

of the Act and would become rural if we 

adopt the new OMB delineations. In FY 

2018, we are proposing that these 

hospitals would receive their statewide 

rural wage index. 

4. Waiving Lugar Redesignation for the 

Out-Migration Adjustment 

In the FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51599 through 51600), we 

adopted the policy that, beginning with 

FY 2012, an eligible hospital that waives 

its Lugar status in order to receive the 

out-migration adjustment has effectively 

waived its deemed urban status and, 

thus, is rural for all purposes under the 

IPPS, including being considered rural 

for the DSH payment adjustment, 

effective for the fiscal year in which the 

hospital receives the out-migration 

adjustment. (We refer readers to a 

discussion of DSH payment adjustment 

under section IV.F. of the preamble of 

this proposed rule.) 

In addition, we adopted a minor 

procedural change that would allow a 

Lugar hospital that qualifies for and 

accepts the out-migration adjustment 

(through written notification to CMS 

within 45 days from the publication of 

the proposed rule) to waive its urban 

status for the full 3-year period for 

which its out-migration adjustment is 

effective. By doing so, such a Lugar 

hospital would no longer be required 

during the second and third years of 

eligibility for the out-migration 

adjustment to advise us annually that it 

prefers to continue being treated as rural 

and receive the out-migration 

adjustment. Therefore, under the 

procedural change, a Lugar hospital that 

requests to waive its urban status in 

order to receive the rural wage index in 

addition to the out-migration 

adjustment would be deemed to have 

accepted the out-migration adjustment 

and agrees to be treated as rural for the 

duration of its 3-year eligibility period, 

unless, prior to its second or third year 

of eligibility, the hospital explicitly 

notifies CMS in writing, within the 

required period (generally 45 days from 

the publication of the proposed rule), 

that it instead elects to return to its 

deemed urban status and no longer 

wishes to accept the out-migration 

adjustment. If the hospital does notify 

CMS that it is electing to return to its 

deemed urban status, it would again be 

treated as urban for all IPPS payment 

purposes. 

We refer readers to the FY 2012 IPPS/ 

LTCH PPS final rule (76 FR 51599 

through 51600) for a detailed discussion 

of the policy and process for waiving 

Lugar status for the out-migration 

adjustment. 

5. Update of Application of Urban to 

Rural Reclassification Criteria 

Section 401(a) of the Medicare, 

Medicaid, and SCHIP Balanced Budget 

Refinement Act of 1999 (Pub. L. 106– 

113), which amended section 1886(d)(8) 

of the Act by adding a new paragraph 

(E), directed the Secretary to treat any 

subsection (d) hospital located in an 

urban area as being located in the rural 

area of the State in which the hospital 

is located, providing that the hospital 

applied for reclassification in a manner 

determined by the Secretary and met 

certain criteria. As discussed in the FY 

2001 interim final rule (65 FR 47029 

through 47031), we codified in 

regulation at § 412.103 the application 

process and the qualifying criteria for 

any hospital seeking rural 

reclassification. 

In order to be approved for a rural 

reclassification, a hospital must meet 

one of three criteria. The first criterion, 

located at § 412.103(a)(1), qualifies a 

hospital located in a rural census tract 

of an MSA area, as determined under 

the most recent version of the 

Goldsmith Modification, the RuralUrban Commuting Area (RUCA) codes. 

On February 28, 2013, OMB issued 

OMB Bulletin No. 13–01, which 

established revised delineations for 

Metropolitan Statistical Areas, 

Micropolitan Statistical Areas, and 

Combined Statistical Areas, and 

provided guidance on the use of the 

delineations of these statistical areas. 

These delineations are based on 2010 

decennial Census data. Several 

modifications of RUCA codes were 

necessary to take into account updated 

commuting data and revised OMB 

delineations. We refer readers to the 

U.S. Department of Agriculture’s 

Economic Research Service Web site for 

a detailed listing of updated RUCA 

codes found at: http://

www.ers.usda.gov/data-products/ruralurban-commuting-area-codes.aspx. The 

updated RUCA code definitions were 

introduced in late 2013. As discussed at 

§ 412.103(f), the duration of an 

approved rural reclassification remains 

in effect without need for reapproval 

unless there is a change in the 

circumstances under which the 

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classification was approved. If a 

hospital located in an urban area was 

approved for a rural reclassification 

under § 412.103(a)(1), that 

reclassification would no longer be 

valid if the hospital is no longer located 

within a rural census tract of an MSA 

defined as an RUCA. Therefore, we 

encourage all hospitals with active rural 

reclassifications under section 

1886(d)(8)(E) of the Act to review their 

original reclassification application and 

determine whether the reclassification 

status would still apply. As discussed in 

section VI.C.2. of the preamble of this 

proposed rule, we are proposing a 2- 

year grace period allowing affected 

CAHs additional time to seek a new 

rural reclassification without the threat 

of losing its CAH status. As discussed in 

section VI.C.2. of the preamble of this 

proposed rule, we are not proposing a 

grace period for other types of hospitals 

to seek a new rural reclassification. We 

note that rural reclassification status 

under § 412.103 is effective as of the 

filing date of the application. Therefore, 

if the change in RUCA codes invalidates 

any hospital’s rural reclassification 

status, we believe hospitals will have 

adequate time to apply for a new 

reclassification using an alternative 

qualification criterion specified at either 

§ 412.103(a)(2) or § 412.103(a)(3). A 

rural referral center (RRC) or a sole 

community hospital (SCH) that 

continues to meet the appropriate 

qualification criteria would, in itself, 

qualify for a rural reclassification. If a 

complete application is received before 

October 1, 2014, and is approved by the 

CMS Regional Office, the hospital 

would experience no interruption in its 

rural status. 

I. Proposed FY 2015 Wage Index 

Adjustment Based on Commuting 

Patterns of Hospital Employees 

In accordance with 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. 

When this provision was 

implemented for the FY 2005 wage 

index, we analyzed commuting data 

compiled by the U.S. Census Bureau 

which was derived from a special 

tabulation of the 2000 Census journeyto-work data for all industries (CMS 

extracted data applicable to hospitals). 

These data were compiled from 

responses to the ‘‘long-form’’ survey, 

which the Census Bureau used at the 

time, and it contained questions on 

where residents in each county worked 

(69 FR 49062). However, the 2010 

Census was ‘‘short form’’ only; 

therefore, this information was not 

collected as part of the 2010 Census. 

The Census Bureau is working with 

CMS to provide an alternative dataset 

based on the latest available data that is 

expected to meet our needs for 

developing a new out-migration 

adjustment. We believe we will have the 

necessary time to obtain, review and 

analyze the data in order to propose 

new out-migration adjustments based on 

new commuting patterns developed 

from the 2010 Census data beginning 

with FY 2016. Section 1886(d)(13)(B) of 

the Act requires the Secretary to use 

data the Secretary determines to be 

appropriate to establish the qualifying 

counties. The data used for the FY 2014 

out-migration adjustment are the most 

recent data that have been analyzed, and 

we believe that these data are 

appropriate to establish the qualifying 

counties. Therefore, we are proposing 

that the FY 2015 out-migration 

adjustments continue to be based on the 

2000 Census data. We also are 

proposing that the FY 2015 outmigration adjustments continue to be 

based on the policies, procedures, and 

computation that were used for the FY 

2014 out-migration adjustment. (We 

refer readers to a full discussion of the 

adjustment, including rules on deeming 

hospitals reclassified under section 

1886(d)(8) or section 1886(d)(10) of the 

Act to have waived the out-migration 

adjustment, in the FY 2012 IPPS/LTCH 

PPS final rule (76 FR 51601 through 

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

the Internet on the CMS Web site, lists 

the proposed out-migration adjustments 

for the proposed FY 2015 wage index. 

Section 1886(d)(13)(F) of the Act 

states that ‘‘[a] wage index increase 

under this paragraph shall be effective 

for a period of 3 fiscal years, except that 

the Secretary shall establish procedures 

under which a subsection (d) hospital 

may elect to waive the application of 

such wage index increase.’’ Therefore, 

for FY 2015, because we are proposing 

to continue to use the out-migration 

adjustment data used for FY 2014, 

consistent with the statute, we also are 

proposing to allow hospitals that 

qualified in FY 2013 or FY 2014 to 

receive the out-migration adjustment 

based on the commuting data and the 

CBSA delineations used for FY 2014 to 

continue to receive the same outmigration adjustment for the remainder 

of their 3-year qualification period. 

Similarly, if a hospital qualifies for and 

opts to receive the out-migration 

adjustment for the first time in FY 2015, 

we also are proposing to allow that 

hospital to receive the out-migration 

adjustment based on the data used for 

FY 2014 for FYs 2015, 2016, and 2017. 

Accordingly, even if we propose to 

adopt new out-migration adjustment 

data for FY 2016, as we believe we will 

be able to do, hospitals that are already 

receiving an out-migration adjustment 

beginning with a fiscal year prior to FY 

2016 would still receive their outmigration adjustment based on the data 

used for FY 2014 for the years that 

remain of their 3-year qualification 

period in FY 2016 and after. 

We intend to address application of 

the FY 2016 out-migration adjustment 

in greater detail in the FY 2016 

proposed rule. However, in this FY 2015 

proposed rule, we are soliciting 

comments on how to implement the 

new out-migration adjustment data for 

FY 2016, given the statutory 

requirement at section 1886(d)(13)(F) of 

the Act that an out-migration 

adjustment be effective for 3 fiscal years. 

As discussed in section III.B. of the 

preamble of this proposed rule, we are 

proposing to use OMB’s new labor 

market area delineations based on the 

2010 Census data to identify counties 

qualifying as Lugar counties for FY 

2015. In section III.H.3 of the preamble 

of this proposed rule, we discuss 

hospitals located in rural counties that 

are deemed to be urban under section 

1886(d)(8)(B) of the Act. These rural 

counties are known as ‘‘Lugar’’ counties. 

Under the new OMB delineations, there 

would be counties newly qualifying as 

Lugar as well as counties that were 

previously Lugar counties that would no 

longer meet the criteria to be 

redesignated as Lugar. As discussed in 

section III.H.4. of the preamble of this 

proposed rule, if a Lugar hospital 

qualifies for and accepts the outmigration adjustment, it must waive its 

deemed urban status and can do so for 

the 3-year period for which the outmigration adjustment is effective. 

Therefore, hospitals located in counties 

newly designated as Lugar due to the 

new OMB delineations would have the 

choice to either maintain their Lugar 

status or waive it in order to receive the 

out-migration adjustment in FY 2015 

based on the out-migration adjustment 

data used for FY 2014. 

On the other hand, there are hospitals 

in counties deemed to be Lugar under 

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the previous CBSA delineations that 

waived their Lugar status for the outmigration adjustment, but are not Lugar 

under the new OMB delineations. These 

hospitals would continue to receive the 

out-migration adjustment for the 3-year 

eligibility period through FY 2015 or FY 

2016. However, these hospitals that are 

located in urban counties under the new 

OMB delineations, and wish to continue 

to maintain their rural status effective 

October 1, 2014, must do so by 

reclassifying from urban to rural under 

§ 412.103. Section 1886(d)(13)(G) of the 

Act states that a hospital cannot 

simultaneously receive the outmigration adjustment and be subject to 

a reclassification under section 

1886(d)(8) or 1886(d)(10) of the Act. 

Therefore, if such hospital is not located 

in a geographically rural area under the 

new OMB delineations, and reclassifies 

under § 412.103 of the regulations in 

order to be treated as rural for IPPS 

purposes, the hospital would be 

ineligible to receive an out-migration 

adjustment, even if the 3-year eligibility 

period has not expired. 

As discussed in section III.B.5. of the 

preamble of this proposed rule, we are 

proposing a 1-year blended wage index 

for any provider that experiences a 

decrease in wage index value due to the 

proposed implementation of the new 

OMB labor market area delineations. 

This proposal would create a wage 

index that is 50 percent of the wage 

index derived using the current FY 2014 

OMB delineations, and 50 percent of the 

wage index based on the proposed new 

OMB delineations. As discussed in 

section III.B.2.e.(4) of the preamble of 

this proposed rule, we are proposing to 

apply this blended wage index value to 

any affected hospital in a budget neutral 

manner. However, we are proposing that 

hospitals receiving the out-migration 

adjustment would have it added to the 

result of the 50/50 blended wage index, 

after budget neutrality is applied. We 

are proposing the blended wage index 

transition adjustment specifically to 

address any negative impact that may be 

caused by the proposed adoption of the 

new OMB delineations in FY 2015. To 

specifically identify and address any 

such negative payment impact, we are 

proposing to apply the out-migration 

adjustment independent of the blended 

wage index and other wage index 

adjustments (for example, the rural 

floor) and related budget neutrality 

adjustments. This is consistent with our 

current policy to apply the outmigration adjustment after all other 

wage index adjustments and related 

budget neutrality adjustments have been 

applied. Therefore, we believe the outmigration adjustment would be properly 

applied as a supplemental addition to a 

hospital’s final wage index value, 

similar to our treatment of hospitals 

receiving the frontier State floor value of 

1.00, as described under 42 CFR 

412.64(m), that also qualify for an outmigration adjustment and would receive 

that adjustment. 

J. Process for Requests for Wage Index 

Data Corrections 

The preliminary, unaudited 

Worksheet S–3 wage data and 

occupational mix survey data files for 

the proposed FY 2015 wage index were 

made available on September 13, 2013, 

through the Internet on the CMS Web 

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

Medicare-Fee-for-Service-Payment/

AcuteInpatientPPS/Wage-Index-FilesItems/FY-2015-Wage-Index-HomePage.html. 

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 file does not 

alter the current wage index process or 

schedule. We notify the hospital 

community of the availability of these 

data as we do with the current public 

use wage data files through our Hospital 

Open Door forum. We encourage 

hospitals to sign up for automatic 

notifications of information about 

hospital issues and the scheduling of 

the Hospital Open Door forums at the 

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

Outreach-and-Education/Outreach/

OpenDoorForums/index.html. 

In a memorandum dated September 

16, 2013, we instructed all 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 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 

September 13, 2013 wage and 

occupational mix data files, the hospital 

was to submit corrections along with 

complete, detailed supporting 

documentation to its MAC by November 

21, 2013. Hospitals were notified of this 

deadline and of all other deadlines and 

requirements, including the requirement 

to review and verify their data as posted 

in the preliminary wage index data files 

on the Internet, through the September 

16, 2013 memorandum referenced 

above. 

In the September 16, 2013 

memorandum, we also specified that a 

hospital requesting revisions to its 

occupational mix survey data was to 

copy its record(s) from the CY 2010 

occupational mix preliminary files 

posted to the CMS Web site in 

September, highlight the revised cells 

on its spreadsheet, and submit its 

spreadsheet(s) and complete 

documentation to its MAC no later than 

November 21, 2013. 

The MACs notified the hospitals by 

early-February 2014 of any changes to 

the wage index data as a result of the 

desk reviews and the resolution of the 

hospitals’ late-November revision 

requests. The MACs also submitted the 

revised data to CMS by late January 

2014. CMS published the proposed 

wage index public use files that 

included hospitals’ revised wage index 

data on February 20, 2014. Hospitals 

had until March 3, 2014, to submit 

requests to the MACs for 

reconsideration of adjustments made by 

the MACs as a result of the desk review, 

and to correct errors due to CMS’ or 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, MACs were 

required to transmit to CMS any 

additional revisions resulting from the 

hospitals’ reconsideration requests by 

April 9, 2014. The deadline for a 

hospital to request CMS intervention in 

cases where the hospital disagreed with 

the MAC’s policy interpretations was 

April 16, 2014. We note that, beginning 

with the FY 2015 wage index, per the 

FY 2015 wage index timeline posted on 

the CMS Web site at http://

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

AcuteInpatientPPS/Downloads/FY2015- 

WI-Timeline.pdf, the April appeals must 

be sent via mail and email. We refer 

readers to the wage index timeline for 

complete details. 

Upon release of this proposed rule, 

hospitals should examine Table 2, 

which is listed in section VI. of the 

Addendum to this proposed rule and 

available via the Internet on the CMS 

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

Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/WageIndex-Files-Items/FY-2015-Wage-IndexHome-Page.html. Table 2 contains each 

hospital’s proposed adjusted average 

hourly wage used to construct the wage 

index values for the past 3 years, 

including the FY 2011 data used to 

construct the proposed FY 2015 wage 

index. We note that the proposed 

hospital average hourly wages shown in 

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Table 2 only reflect changes made to a 

hospital’s data that were transmitted to 

CMS by February 26, 2014. 

The final wage index data public use 

files are posted on May 2, 2014 on the 

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

Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/WageIndex-Files-Items/FY-2015-Wage-IndexHome-Page.html. The May 2014 public 

use files are made available solely for 

the limited purpose of identifying any 

potential errors made by CMS or the 

MAC in the entry of the final wage 

index data that resulted from the 

correction process described above 

(revisions submitted to CMS by the 

MACs by April 9, 2014). 

After the release of the May 2014 

wage index data files, changes to the 

wage and occupational mix data will 

only be made in those very limited 

situations involving an error by the 

MAC or CMS that the hospital could not 

have known about before its review of 

the final wage index data files. 

Specifically, neither the MAC nor CMS 

will approve the following types of 

requests: 

• Requests for wage index data 

corrections that were submitted too late 

to be included in the data transmitted to 

CMS by the MACs on or before April 9, 

2014. 

• Requests for correction of errors 

that were not, but could have been, 

identified during the hospital’s review 

of the February 20, 2014 wage index 

public use files. 

• Requests to revisit factual 

determinations or policy interpretations 

made by the MAC or CMS during the 

wage index data correction process. 

If, after reviewing the May 2014 final 

public use files, a hospital believes that 

its wage or occupational mix data are 

incorrect due to a MAC or CMS error in 

the entry or tabulation of the final data, 

the hospital should notify both its MAC 

and CMS regarding why the hospital 

believes an error exists and provide all 

supporting information, including 

relevant dates (for example, when it first 

became aware of the error). The hospital 

is required to send its request to CMS 

and to the MAC no later than June 2, 

2014. Similar to the April appeals, 

beginning with the FY 2015 wage index, 

in accordance with the FY 2015 wage 

index timeline posted on the CMS Web 

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

Medicare-Fee-for-Service-Payment/

AcuteInpatientPPS/Downloads/FY2015- 

WI-Timeline.pdf, the June appeals must 

be sent via mail and email to CMS and 

the MACs. We refer readers to the wage 

index timeline for complete details. (We 

refer readers to section II.K. of the 

preamble to this proposed rule where 

we are proposing revisions to the wage 

index timetable.) 

Verified corrections to the wage index 

data received timely by CMS and the 

MACs (that is, by June 2, 2014) will be 

incorporated into the final wage index 

in the FY 2015 IPPS/LTCH PPS final 

rule, which will be effective October 1, 

2014. 

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 2015 payment rates. 

Accordingly, hospitals that do not meet 

the procedural deadlines set forth above 

will not be afforded a later opportunity 

to submit wage index data corrections or 

to dispute the 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 

PRRB, the failure of CMS to make a 

requested data revision. We refer 

readers also to the FY 2000 IPPS final 

rule (64 FR 41513) for a discussion of 

the parameters for appeals to the PRRB 

for wage index data corrections. 

Again, we believe the wage index data 

correction process described above 

provides hospitals with sufficient 

opportunity to bring errors in their wage 

and occupational mix data to the MAC’s 

attention. Moreover, because hospitals 

have access to the final wage index data 

by early May 2014, they have the 

opportunity to detect any data entry or 

tabulation errors made by the MAC or 

CMS before the development and 

publication of the final FY 2015 wage 

index by August 2014, and the 

implementation of the FY 2015 wage 

index on October 1, 2014. If hospitals 

avail themselves of the opportunities 

afforded to provide and make 

corrections to the wage and 

occupational mix data, the wage index 

implemented on October 1 should be 

accurate. Nevertheless, in the event that 

errors are identified by hospitals and 

brought to our attention after June 2, 

2014, 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 

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 deadline for making 

corrections to the wage data for the 

following fiscal year’s wage index (for 

example, June 2, 2014 for the FY 2015 

wage index). This provision is not 

available to a hospital seeking to revise 

another hospital’s data that may be 

affecting the requesting hospital’s wage 

index for the labor market area. As 

indicated earlier, because CMS makes 

the wage index data available to 

hospitals on the CMS Web site prior to 

publishing both the proposed and final 

IPPS rules, and the MACs notify 

hospitals directly of any wage index 

data changes after completing their desk 

reviews, we do not expect that midyear 

corrections will be necessary. However, 

under our current policy, if the 

correction of a data error changes the 

wage index value for an area, the 

revised wage index value will be 

effective prospectively from the date the 

correction is made. 

In the FY 2006 IPPS final rule (70 FR 

47385 through 47387 and 47485), we 

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

that, effective on October 1, 2005, that 

is, beginning with the FY 2006 wage 

index, a change to the wage index can 

be made retroactive to the beginning of 

the Federal fiscal year only when CMS 

determines all of the following: (1) The 

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 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 2, 2014 deadline for the FY 

2015 wage index); and (3) CMS agreed 

before October 1 that 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 

2, 2014 deadline for the FY 2015 wage 

index), and CMS acknowledges that the 

error in the hospital’s wage index data 

was caused by CMS’ or the MAC’s 

mishandling of the data, we believe that 

the hospital should not be penalized by 

our delay in publishing or 

implementing the correction. As with 

our current policy, we indicated that the 

provision is not available to a hospital 

seeking to revise another hospital’s data. 

In addition, the provision cannot be 

used to correct prior years’ wage index 

data; and it can only be used for the 

current Federal fiscal year. In situations 

where our policies would allow midyear 

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corrections other than those specified in 

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

believe that it is appropriate to make 

prospective-only corrections to the wage 

index. 

We note that, as with prospective 

changes to the wage index, the final 

retroactive correction will be made 

irrespective of whether the change 

increases or decreases a hospital’s 

payment rate. In addition, we note that 

the policy of retroactive adjustment will 

still apply in those instances where a 

final judicial decision reverses a CMS 

denial of a hospital’s wage index data 

revision request. 

K. Notice of Change to Wage Index 

Development Timetable 

As explained in section III.J. the 

preamble of this proposed rule, the 

preliminary, unaudited Worksheet S–3 

wage data and occupational mix survey 

data files for the proposed FY 2015 

wage index were made available on 

September 13, 2013, through the 

Internet on the CMS Web site. The 

posting of these preliminary files 

initiate what is virtually a year-long 

cycle for developing the wage index 

associated with the following IPPS fiscal 

year. This lengthy, almost year-long 

cycle is unique to the development of 

the IPPS wage index, and occurs 

independently from the development of 

the IPPS proposed and final rules, 

which typically are published in the 

spring and summer each year. In 

addition, the wage index, which is 

based on hospitals’ wage data reported 

on Worksheets S–3, Parts II and III of 

the Form CMS–2552–10 of the Medicare 

cost report and occupational mix data, 

is the only portion of the IPPS that 

historically has been subject to its own 

annual review process, first by the 

MACs, and then by CMS, followed by 

distinct opportunities for hospitals to 

appeal decisions made by the MACs or 

CMS. This process is separate and 

independent from the standard cost 

report settlement and appeals processes 

established under the regulations at 42 

CFR 405.1800 through 405.1889. 

Although this unique wage index 

development timetable has been in 

place since the early days of the IPPS, 

the current timetable is rooted in 

changes adopted in the FY 1998 IPPS 

final rule with comment period (62 FR 

45990 through 45993). However, with 

numerous legislative and regulatory 

changes made to the IPPS since FY 

1998, the demands on hospitals, MACs, 

and CMS have increased substantially. 

As a result, it has become increasingly 

challenging for wage index stakeholders 

to manage the wage index timetable 

with competing priorities. For the FY 

2015 wage index, CMS made slight 

changes to the wage index development 

timetable, by posting the preliminary 

public use file (PUF) in September 2013 

rather than in October 2013, which, in 

turn, moved back the deadline for 

hospitals to request revisions to the data 

displayed in that preliminary PUF to 

November 2013, instead of December 

2013. In addition, the date for the MACs 

to complete desk reviews on that data 

was similarly moved to a slightly earlier 

deadline in early CY 2014. The FY 2015 

Wage Index Development Timetable, 

which is posted on the CMS Web site at 

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

Medicare-Fee-for-Service-Payment/

AcuteInpatientPPS/Downloads/FY2015- 

WI-Timeline.pdf, shows that hospitals 

have a little more than 2 months to 

request revisions to their data displayed 

in the September 13, 2013 preliminary 

PUF, until the commencement of the 

desk review process by the MACs on 

November 21, 2013. The MACs also 

have a little more than 2 months to 

complete the desk reviews and submit 

revised cost report data to CMS by 

January 29, 2014. Less than a month 

later, on February 20, 2014, the revised 

FY 2015 wage index and occupational 

mix PUFs were posted on the CMS Web 

site. Ensuring the accuracy of the 

February PUF is extremely important 

and beneficial to hospitals because, as 

the timetable shows, it is the basis for 

hospitals to appeal data that are 

incorrect, with March 3, 2014 being the 

last date that hospitals can request 

revisions to errors in the February 20, 

2014 PUF. 

Therefore, we have concluded that 

steps should be taken to improve the 

accuracy of the February PUF, most 

importantly by proposing changes to the 

wage index timetables for future IPPS 

fiscal years that are much more 

significant and fundamental than the 

slight revisions to the timetable 

implemented for FY 2015. We believe 

that the changes we are proposing below 

would not only improve the accuracy of 

the February PUF, but also would 

reduce the number of hospital appeals 

based on the February PUF. For 

example, as specified below, instead of 

the current timetable which only 

provides CMS with less than a month to 

review the MACs’ desk reviews and 

prepare the February PUF, we are 

proposing approximately 3 months 

between the date that the MACs’ desk 

reviews would end and the date that 

CMS would post the subsequent PUF. 

To allow hospitals and MACs adequate 

time to prepare for the changes to the 

wage index development timetable, we 

are proposing to make the following 

significant changes beginning with the 

FY 2017 wage index cycle. We are 

listing the proposed changes for FY 

2017 below in a table side by side with 

the existing timetable, so that 

commenters may read the proposed 

changes in the context of the existing 

timetable. Under the proposed changes 

for FY 2017, although we are not 

providing exact dates for the FY 2017 

wage index timetable, we note that, with 

every change listed below, we intend to 

provide hospitals and MACs with the 

same or somewhat more time than 

under the current timetable to complete 

reviews and request revisions. The 

proposed revisions would not reduce 

the amount of time that either hospitals 

or MACs have to review wage data. 

Therefore, these proposed changes 

would not result in additional work on 

the part of the hospitals or MACs; in 

fact, in shifting the various dates, we 

expect that more time would be 

provided to hospitals, MACs, and CMS 

to ensure an even more accurate wage 

index. 

Deadlines FY 2015 Timetable Proposed FY 2017 timetable 

Posting of Preliminary PUF on CMS Web site ........................................................ September 13, 2013 ................ Mid May 2015. 

Deadline for Hospitals to Request Revisions to Preliminary PUF .......................... November 21, 2013 ................. Early August 2015. 

Deadline for MACs to Complete Desk Reviews ...................................................... January 29, 2014 ..................... Mid-October 2015. 

Posting of February PUF on CMS Web site ........................................................... February 20, 2014 .................... Late January 2016. 

Deadline Following Posting of February PUF for Hospitals to Request Revisions March 3, 2014 .......................... Mid-February 2016. 

Completion of Appeals by MACs and Transmission of Final Wage Data to CMS April 9, 2014 ............................. Mid- to Late March 2016. 

Deadline for Hospitals to Appeal in April ................................................................. April 16, 2014 ........................... Early April 2016. 

Posting of Final Rule PUF ....................................................................................... May 2, 2014 ............................. Late April 2016. 

Deadline for Hospitals to Appeal in June ................................................................ June 2, 2014 ............................ Late May 2016. 

Expected Issuance of IPPS final rule ...................................................................... August 1, 2014 ......................... August 1, 2016. 

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With regard to the FY 2016 wage 

index cycle, we believe it can serve as 

a transition to the more significant 

changes we are proposing for the FY 

2017 wage index cycle. We believe that 

there are steps we can take to improve 

the accuracy of the February 2016 PUF 

by building in more time to the FY 2016 

wage index review process as well. 

Specifically, we are notifying hospitals 

of changes to the deadlines only in the 

beginning of the FY 2016 wage index 

timetable, as a transition to the more 

significant proposed changes for the 

entire FY 2017 wage index timetable. 

That is, for FY 2016, we are only 

changing the following four dates: the 

posting of the preliminary wage index 

PUF; the posting of the CY 2013 

occupational mix survey data 

preliminary PUF; the deadline for 

hospitals to request revisions to the 

wage data and occupational mix data 

preliminary PUFs; and the deadline for 

MACs to complete the desk reviews. We 

are not changing the remainder of the 

FY 2016 timetable at this time. We 

expect that making these changes for the 

FY 2016 timetable would improve the 

accuracy of the February 2016 PUF, and 

also mitigate the number of hospital 

appeals based on the February 2016 

PUF. In addition, we believe these 

changes would help hospitals, MACs, 

and CMS adjust to the more significant 

timeline changes proposed for FY 2017. 

We are listing only the changes for FY 

2016 in the following table side by side 

with the existing FY 2015 timetable, so 

that commenters may read the FY 2016 

changes in the context of the existing 

timetable. We are not listing dates that 

would remain unchanged for FY 2016. 

Deadlines FY 2015 Timetable Adjusted 

FY 2016 timetable 

Posting of Preliminary Wage Data PUF on CMS Web site .................................... September 13, 2013 ................ Late May 2014. 

Posting of Preliminary CY 2013 Occupational Mix Data PUF on CMS Web site .. September 13, 2013 ................ Early to Mid-July 2014. 

Deadline for Hospitals to Request Revisions to Preliminary PUF .......................... November 21, 2013 ................. Early October 2014. 

Deadline for MACs to Complete Desk Reviews ...................................................... January 29, 2014 ..................... Mid-December 2014. 

Typically, the preliminary PUF 

initiating the start of an IPPS wage 

index fiscal year contains one 

spreadsheet with the Worksheet S–3 

wage data for the applicable fiscal year 

on one tab, and another tab with the 

preliminary occupational mix data for 

that fiscal year. For the FY 2016 wage 

index, new occupational mix survey 

data will be available for use, based on 

the CY 2013 occupational mix survey. 

Hospitals are required to submit their 

CY 2013 occupational mix surveys to 

their MACs no later than July 1, 2014. 

Therefore, we will not have the 

preliminary CY 2013 occupational mix 

survey data in time to post it 

simultaneously in late May 2014 with 

the preliminary FY 2016 wage data. 

Accordingly, as the table above 

indicates, we would post the 

preliminary FY 2016 wage data by itself 

first in late May 2014, to be followed by 

a separate posting of the preliminary CY 

2013 occupational mix survey data 

when the data are available, in early to 

mid-July 2014. 

We are inviting public comments on 

our proposals set forth above to make 

revisions to the wage index timetables 

for FY 2017. 

L. Labor-Related Share for the FY 2015 

Wage Index 

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

directs the Secretary to adjust the 

proportion of the national prospective 

payment system base payment rates that 

are attributable to wages and wagerelated costs by a factor that reflects the 

relative differences in labor costs among 

geographic areas. It also directs the 

Secretary to estimate from time to time 

the proportion of hospital costs that are 

labor-related: ‘‘The Secretary shall 

adjust the proportion (as estimated by 

the Secretary from time to time) of 

hospitals’ costs which are attributable to 

wages and wage-related costs of the 

DRG prospective payment rates. . . .’’ 

We refer to the portion of hospital costs 

attributable to wages and wage-related 

costs as the labor-related share. The 

labor-related share of the prospective 

payment rate is adjusted by an index of 

relative labor costs, which is referred to 

as the wage index. 

Section 403 of Public Law 108–173 

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

Act to provide that the Secretary must 

employ 62 percent as the labor-related 

share unless this ‘‘would result in lower 

payments to a hospital than would 

otherwise be made.’’ However, this 

provision of Public Law 108–173 did 

not change the legal requirement that 

the Secretary estimate ‘‘from time to 

time’’ the proportion of hospitals’ costs 

that are ‘‘attributable to wages and 

wage-related costs.’’ Thus, hospitals 

receive payment based on either a 62- 

percent labor-related share, or the laborrelated share estimated from time to 

time by the Secretary, depending on 

which labor-related share resulted in a 

higher payment. 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50596 through 50607), we 

rebased and revised the hospital market 

basket. We established a FY 2010-based 

IPPS hospital market basket to replace 

the FY 2006-based IPPS hospital market 

basket, effective October 1, 2013. In that 

final rule, we presented our analysis 

and conclusions regarding the frequency 

and methodology for updating the laborrelated share for FY 2014. Using the FY 

2010-based IPPS market basket, we 

finalized a labor-related share for FY 

2014 of 69.6 percent. 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 laborrelated share lower than the laborrelated share of hospitals with a wage 

index greater than 1.0. 

The labor-related share is used to 

determine the proportion of the national 

IPPS base payment rate to which the 

area wage index is applied. In this FY 

2015 proposed rule, we are not 

proposing to make any further changes 

to the national average proportion of 

operating costs that are attributable to 

wages and salaries, employee benefits, 

contract labor, the labor-related portion 

of professional fees, administrative and 

facilities support services, and all other 

labor-related services. 

Therefore, for FY 2015, we are 

proposing to continue to use a laborrelated share of 69.6 percent for 

discharges occurring on or after October 

1, 2014. Tables 1A and 1B, which are 

published in section VI. of the 

Addendum to this proposed rule and 

available via the Internet, reflect this 

proposed labor-related share. For FY 

2015, for all IPPS hospitals whose wage 

indexes are less than or equal to 1.0000, 

we are proposing to apply the wage 

index to a labor-related share of 62 

percent of the national standardized 

amount. For all IPPS hospitals whose 

wage indexes are greater than 1.0000, 

for FY 2015, we are proposing to apply 

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related share of 69.6 percent of the 

national standardized amount. We note 

that, for Puerto Rico hospitals, the 

national labor-related share is 62 

percent because the national wage index 

for all Puerto Rico hospitals is less than 

1.0. 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50601 through 50603), we 

also rebased and revised the laborrelated share for the Puerto Rico-specific 

standardized amounts using FY 2010 as 

a base year. We finalized a labor-related 

share for the Puerto Rico-specific 

standardized amounts for FY 2014 of 

63.2 percent. In this FY 2015 proposed 

rule, we are not proposing to make any 

further changes to the Puerto Rico 

specific average proportion of operating 

costs that are attributable to wages and 

salaries, employee benefits, contract 

labor, the labor-related portion of 

professional fees, administrative and 

facilities support services, and all other 

labor-related services. Therefore, for FY 

2015, we are proposing to continue to 

use a labor-related share for the Puerto 

Rico-specific standardized amounts of 

63.2 percent for discharges occurring on 

or after October 1, 2014. Puerto Rico 

hospitals are paid based on 75 percent 

of the national standardized amounts 

and 25 percent of the Puerto Ricospecific standardized amounts. For FY 

2015, we are proposing to adopt that the 

labor-related share of a hospital’s Puerto 

Rico-specific rate would be either the 

Puerto Rico-specific labor-related share 

of 63.2 percent or 62 percent, depending 

on which results in higher payments to 

the hospital. If the hospital has a Puerto 

Rico-specific wage index of greater than 

1.0 for FY 2015, we are proposing to set 

the hospital’s rates using a labor-related 

share of 63.2 percent for the 25 percent 

portion of the hospital’s payment 

determined by the Puerto Rico 

standardized amounts because this 

amount would result in higher 

payments. Conversely, a hospital with a 

Puerto Rico-specific wage index of less 

than or equal to 1.0 for FY 2015 would 

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 would result 

in higher payments. The proposed 

Puerto Rico labor-related share of 63.2 

percent for FY 2015 is reflected in Table 

1C, which is published in section VI. of 

the Addendum to this proposed rule 

and available via the Internet. 

IV. Other Decisions and Proposed 

Changes to the IPPS for Operating Costs 

and Graduate Medical Education 

(GME) Costs 

A. Proposed Changes to MS–DRGs 

Subject to the Postacute Care Transfer 

Policy (§ 412.4) 

1. Background 

Existing regulations at § 412.4(a) 

define discharges under the IPPS as 

situations in which a patient is formally 

released from an acute care hospital or 

dies in the hospital. Section 412.4(b) 

defines acute care transfers, and 

§ 412.4(c) defines postacute care 

transfers. Our policy, set forth in 

§ 412(f), provides that 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 

stay, not to exceed the full MS–DRG 

payment that would have been made if 

the patient had been discharged without 

being transferred. 

The per diem rate paid to a 

transferring hospital is calculated by 

dividing the full 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 45804), our policy generally 

provides for payment that is twice the 

per diem amount for the first day, with 

each subsequent day paid at the per 

diem amount up to the full MS–DRG 

payment (§ 412.4(f)(1)). Transfer cases 

are also eligible for outlier payments. In 

general, the outlier threshold for transfer 

cases, as described in § 412.80(b), 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. 

We established the criteria set forth in 

§ 412.4(d) for determining which DRGs 

qualify for postacute care transfer 

payments in the FY 2006 IPPS final rule 

(70 FR 47419 through 47420). The 

determination of whether a DRG is 

subject to the postacute care transfer 

policy was initially based on the 

Medicare Version 23.0 GROUPER (FY 

2006) and data from the FY 2004 

MedPAR file. However, if a DRG did not 

exist in Version 23.0 or a DRG included 

in Version 23.0 is revised, we use the 

current version of the Medicare 

GROUPER and the most recent complete 

year of MedPAR data to determine if the 

DRG is subject to the postacute care 

transfer policy. Specifically, if the MS– 

DRG’s total number of discharges to 

postacute care equals or exceeds the 

55th percentile for all MS–DRGs and the 

proportion of short-stay discharges to 

postacute care to total discharges in the 

MS–DRG exceeds the 55th percentile for 

all MS–DRGs, CMS will apply the 

postacute care transfer policy to that 

MS–DRG and to any other MS–DRG that 

shares the same base MS–DRG. In the 

preamble to the FY 2006 IPPS final rule 

(70 FR 47419), we stated that ‘‘we will 

not revise the list of DRGs subject to the 

postacute care transfer policy annually 

unless we are making a change to a 

specific DRG.’’ 

To account for MS–DRGs subject to 

the postacute care transfer policy that 

exhibit exceptionally higher shares of 

costs very early in the hospital stay, 

§ 412.4(f) also includes a special 

payment methodology. For these MS– 

DRGs, hospitals receive 50 percent of 

the full MS–DRG payment, plus the 

single per diem payment, for the first 

day of the stay, as well as a per diem 

payment for subsequent days (up to the 

full MS–DRG payment (§ 412.4(f)(6)). 

For an MS–DRG to qualify for the 

special payment methodology, the 

geometric mean length of stay must be 

greater than 4 days, and the average 

charges of 1-day discharge cases in the 

MS–DRG must be at least 50 percent of 

the average charges for all cases within 

the MS–DRG. MS–DRGs that are part of 

an MS–DRG group will qualify under 

the DRG special payment policy if any 

one of the MS–DRGs that share that 

same base MS–DRG qualifies 

(§ 412.4(f)(6)). 

2. Proposed Changes to the Postacute 

Care Transfer MS–DRGs 

Based on our annual review of MS– 

DRGs, we have identified a number of 

MS–DRGs that should be included on 

the list of MS–DRGs subject to the 

postacute care transfer policy. As we 

discuss in section II.G. of this proposed 

rule, in response to public comments 

and based on our analysis of FY 2013 

MedPAR claims data, we are proposing 

to make several changes to MS–DRGs to 

better capture certain severity of illness 

levels, to be effective for FY 2015. 

Specifically, we are proposing to modify 

the assignment of endovascular cardiac 

valve replacements currently assigned 

to MS–DRGs 216 (Cardiac Valve & Other 

Major Cardiothoracic Procedures with 

Cardiac Catheterization with MCC), 217 

(Cardiac Valve & Other Major 

Cardiothoracic Procedures with Cardiac 

Catheterization with CC), 218 (Cardiac 

Valve & Other Major Cardiothoracic 

Procedures with Cardiac Catheterization 

without CC/MCC), 219 (Cardiac Valve & 

Other Major Cardiothoracic Procedures 

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without Cardiac Catheterization with 

MCC), 220 (Cardiac Valve & Other Major 

Cardiothoracic Procedures without 

Cardiac Catheterization with CC), and 

221 (Cardiac Valve & Other Major 

Cardiothoracic Procedures without 

Cardiac Catheterization without CC/

MCC) to MS–DRGs 266 and 267 

(Endovascular Cardiac Valve 

Replacement with and without MCC, 

respectively) to better reflect the 

differences in patients receiving 

endovascular cardiac valve 

replacements from patients who 

undergo an open chest cardiac valve 

replacement. We also are proposing to 

further refine back and neck procedures 

currently assigned to MS–DRGs 490 and 

491 (Back & Neck Procedure Except 

Spinal Fusion with CC/MCC or Disc 

Device/Neurostimulator and without 

CC/MCC or Disc Device/

Neurostimulator, respectively) into 

additional severity levels, now 

identified as MS–DRGs 518, 519, and 

520 (Back & Neck Procedure Except 

Spinal Fusion with MCC or Disc Device/ 

Neurostimulator, with CC, and without 

MCC/CC, respectively). Finally, we are 

proposing to remove the severity levels 

for reverse shoulder replacements, 

merging MS–DRGs 483 and 484 (Major 

Joint & Limb Reattachment Procedure of 

Upper Extremity with CC/MCC and 

without CC/MCC, respectively) into 

MS–DRG 483 (Major Joint/Limb 

Reattachment Procedure of Upper 

Extremities). A discussion of these 

proposed changes can be found in 

section II.G.4.c., II.G.5.c. and II.G.5.a., 

respectively, of the preamble of this 

proposed rule. 

In light of these proposed changes to 

the MS–DRGs, according to the 

regulations under § 412.4(c), we 

evaluated these proposed FY 2015 MS– 

DRGs against the general postacute care 

transfer policy criteria using the FY 

2013 MedPAR data. If an MS–DRG 

qualified for the postacute care transfer 

policy, we also evaluated that MS–DRG 

under the special payment methodology 

criteria according to regulations at 

§ 412.4(f)(6). We continue believe it is 

appropriate to reassess MS–DRGs when 

proposing reassignment of diagnostic 

codes that would result in material 

changes to an MS–DRG. As a result of 

our review, we found that MS–DRGs 

216 through 221 would require no 

revisions in postacute care transfer or 

special payment policy status. However, 

we are proposing to update the list of 

MS–DRGs that are subject to the 

postacute care transfer policy to include 

the proposed new MS–DRGs 266, 267, 

518, 519, and 520. (These MS–DRGs are 

reflected in Table 5, which is listed in 

section VI. of the Addendum to this 

proposed rule and available via the 

Internet on the CMS Web site, and also 

are listed in the charts at the end of this 

section.) 

In addition, based on our evaluation 

of the proposed FY 2015 MS–DRGs 

using the FY 2013 Med PAR data, we 

have determined that proposed revised 

MS–DRG 483 would no longer meet the 

postacute care transfer criteria. 

Therefore, we are proposing that it be 

removed from the list of MS–DRGs 

subject to the postacute care transfer 

policy, effective FY 2015. We refer 

readers to the asterisk (*) bolded text in 

the following table for which criterion 

was not met in our analysis for each 

MS–DRG removed from the postacute 

care transfer policy list. 

LIST OF MS–DRGS THAT WOULD CHANGE POSTACUTE CARE TRANSFER POLICY STATUS IN FY 2015 

MS– 

DRG MS–DRG Title Total cases 

Postacute care 

transfers (55th 

percentile: 1,471) 

Short-stay 

postacute care 

transfers 

Percent of 

short-stay 

postacute care 

transfers to all 

cases (55th 

percentile: 

7.9060%) 

(percent) 

Postacute 

transfer policy 

status 

266 ....... Endovascular Cardiac Valve .............

Replacement with MCC ....................

4,086 2,851 1,030 25.21 YES. 

267 ....... Endovascular Cardiac Valve Replacement w/o MCC.4,476 2,800 835 18.66 YES. 

483 ....... Major Joint/Limb Reattachment Procedure of Upper Extremities.41,372 17,289 2,271 * 5.49 NO. 

518 ....... Back & Neck Procedure Except Spinal Fusion with MCC or Disc Device/Neurostimulator.3,844 2,136 412 10.72 YES. 

519 ....... Back & Neck Procedure Except Spinal Fusion with CC.15,238 7,405 1,126 * 7.39 YES.** 

520 ....... Back & Neck Procedure Except Spinal Fusion without CC/MCC).31,792 7,859 0 * 0.00 YES.** 

* Indicates a current postacute care transfer policy criterion that the MS–DRG did not meet. 

** As described in the policy at 42 CFR 412.4(d)(3)(ii)(D), MS–DRGs that share the same base MS–DRG will all qualify under the postacute 

care transfer policy if any one of the MS–DRGs that share that same base MS–DRG qualifies. 

Finally, we have determined that MS– 

DRGs 266, 267, 518, 519, and 520 also 

would meet the criteria for the special 

payment methodology. Therefore, we 

are proposing that they would be subject 

to the MS–DRG special payment 

methodology, effective FY 2015. 

LIST OF MS–DRGS THAT WOULD CHANGE DRG SPECIAL PAYMENT POLICY STATUS IN FY 2015 

MS–DRG MS–DRG Title Geometric mean 

length of stay 

Average 

charges of 1-day 

discharges 

50% of average 

charges for all 

cases within 

MS–DRG 

Special pay 

policy status 

266 ........... Endovascular Cardiac Valve Replacement with 

MCC.

8.3643 $42,081 $126,326 YES.* 

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LIST OF MS–DRGS THAT WOULD CHANGE DRG SPECIAL PAYMENT POLICY STATUS IN FY 2015—Continued 

MS–DRG MS–DRG Title Geometric mean 

length of stay 

Average 

charges of 1-day 

discharges 

50% of average 

charges for all 

cases within 

MS–DRG 

Special pay 

policy status 

267 ........... Endovascular Cardiac Valve Replacement 

without MCC.

5.0271 128,013 95,141 YES. 

518 ........... Back & Neck Procedure Except Spinal Fusion 

with MCC or Disc Device/Neurostimulator.

4.2882 68,515 43,514 YES. 

519 ........... Back & Neck Procedure Except Spinal Fusion 

with CC.

3.0507 0 0 YES.* 

520 ........... Back & Neck Procedure Except Spinal Fusion 

without CC/MCC.

1.7315 0 0 YES.* 

* As described in the policy at 42 CFR 412.4(d)(6)(iv), MS–DRGs that share the same base MS–DRG will all qualify under the DRG special 

payment policy if any one of the MS–DRGs that share that same base MS–DRG qualifies. 

B. Proposed Changes in the Inpatient 

Hospital Update for FY 2015 

(§ 412.64(d)) 

1. Proposed FY 2015 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.’’ In FY 2014, 

consistent with section 1886(b)(3)(B) of 

the Act, as amended by sections 3401(a) 

and 10319(a) of the Affordable Care Act, 

we set the applicable percentage 

increase under the IPPS by applying the 

following adjustments in the following 

sequence. Specifically, the applicable 

percentage increase under the IPPS is 

equal to the rate-of-increase in the 

hospital market basket for IPPS 

hospitals in all areas, subject to a 

reduction of 2.0 percentage points if the 

hospital fails to submit quality 

information under rules established by 

the Secretary in accordance with section 

1886(b)(3)(B)(viii) of the Act, and then 

subject to an adjustment based on 

changes in economy-wide productivity 

(the multifactor productivity (MFP) 

adjustment), and an additional 

reduction of 0.3 percentage point as 

required by section 1886(b)(3)(B)(xii) of 

the Act. Sections 1886(b)(3)(B)(xi) and 

(b)(3)(B)(xii) of the Act, as added by 

section 3401(a) of the Affordable Care 

Act, state that application of the MFP 

adjustment and the additional FY 2014 

adjustment of 0.3 percentage point may 

result in the applicable percentage 

increase being less than zero. 

For FY 2015, there are three statutory 

changes to the applicable percentage 

increase compared to FY 2014. First, 

under section 1886(b)(3)(B)(viii) of the 

Act, beginning with FY 2015, the 

reduction in the applicable percentage 

increase for hospitals that fail to submit 

quality information under rules 

established by the Secretary is onequarter of the applicable percentage 

increase (prior to the application of 

statutory adjustments under sections 

1886(b)(3)(B)(ix), 1886(b)(3)(B)(xi), and 

1886(b)(3)(B)(xii) of the Act) or onequarter of the applicable market basket 

update. For FY 2014, the reduction to 

the applicable percentage increase for 

hospitals that failed to submit quality 

information under rules established by 

the Secretary was 2.0 percentage points. 

Second, beginning with FY 2015, 

section 1886(b)(3)(B)(ix) requires that 

any hospital that is not a meaningful 

electronic health record (EHR) user (as 

defined in section1886(n)(3) of the Act 

and not subject to an exception under 

section1886(b)(3)(B)(ix) of the Act)) will 

have ‘‘three-quarters’’ of the applicable 

percentage increase (prior to the 

application of statutory adjustments 

under sections 1886(b)(3)(B)(viii), 

1886(b)(3)(B)(xi), and 1886(b)(3)(B)(xii) 

of the Act), or three-quarters of the 

applicable market basket update, 

reduced by 331⁄3 percent. The reduction 

to three-quarters of the applicable 

percentage increase for those hospitals 

that are not meaningful EHR users 

increases to 662⁄3 percent for FY 2016, 

and, for FY 2017 and subsequent fiscal 

years, to 100 percent. Third, for FY 

2015, section 1886(b)(3)(B)(xii) of the 

Act applies an additional reduction of 

0.2 percentage point compared to 0.3 

percentage point for FY 2014. 

To summarize, for FY 2015, 

consistent with section 1886(b)(3)(B) of 

the Act, as amended by sections 3401(a) 

and 10319(a) of the Affordable Care Act, 

we are setting the applicable percentage 

increase by applying the following 

adjustments in the following sequence. 

Specifically, the applicable percentage 

increase under the IPPS is equal to the 

rate-of-increase in the hospital market 

basket for IPPS hospitals in all areas, 

subject to a reduction of one-quarter of 

the applicable percentage increase (prior 

to the application of other statutory 

adjustments; also referred to as the 

market basket update or rate-of-increase 

(with no adjustments)) for hospitals that 

fail to submit quality information under 

rules established by the Secretary in 

accordance with section 

1886(b)(3)(B)(viii) of the Act and a 331⁄3

percent reduction to three-fourths of the 

applicable percentage increase (prior to 

the application of other statutory 

adjustments; also referred to as the 

market basket update or rate-of-increase 

(with no adjustments)) for hospitals not 

considered to be meaningful EHR users 

in accordance with section 

1886(b)(3)(B)(ix) of the Act, and then 

subject to an adjustment based on 

changes in economy-wide productivity 

(the multifactor productivity (MFP) 

adjustment), and an additional 

reduction of 0.2 percentage point as 

required by section 1886(b)(3)(B)(xii) of 

the Act. As noted previously, sections 

1886(b)(3)(B)(xi) and (b)(3)(B)(xii) of the 

Act, as added by section 3401(a) of the 

Affordable Care Act, state that 

application of the MFP adjustment and 

the additional FY 2015 adjustment of 

0.2 percentage point may result in the 

applicable percentage increase being 

less than zero. 

We note that, in compliance with 

section 404 of the MMA, in the FY 2014 

IPPS/LTCH PPS final rule, we replaced 

the FY 2006-based IPPS operating and 

capital market baskets with the revised 

and rebased FY 2010-based IPPS 

operating and capital market baskets for 

FY 2014. We are proposing to continue 

to use the FY 2010-based IPPS operating 

and capital market baskets for FY 2015. 

We also are proposing to continue to use 

a labor-related share that is reflective of 

the FY 2010 base year. For FY 2015, we 

are proposing to continue using the 

labor-related share of 69.6 percent, 

which is based on the FY 2010-based 

IPPS market basket. 

Based on the most recent data 

available for this FY 2015 proposed 

rule, in accordance with section 

1886(b)(3)(B) of the Act, we are 

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proposing to base the proposed FY 2015 

market basket update used to determine 

the applicable percentage increase for 

the IPPS on IHS Global Insight, Inc.’s 

(IGI’s) first quarter 2014 forecast of the 

FY 2010-based IPPS market basket rateof-increase with historical data through 

fourth quarter 2013, which is estimated 

to be 2.7 percent. 

In the FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51689 through 51692), we 

finalized our methodology for 

calculating and applying the MFP 

adjustment. For FY 2015, we are not 

proposing to make any change in our 

methodology for calculating and 

applying the MFP adjustment. For FY 

2015, we are proposing a MFP 

adjustment of ¥0.4 percentage point. 

Similar to the market basket adjustment, 

for this proposed rule, we used the most 

recent data available to compute the 

MFP adjustment. 

For FY 2015, depending on whether 

a hospital submits quality data under 

the rules established in accordance with 

section 1886(b)(3)(B)(viii) of the Act 

(hereafter referred to as a hospital that 

submits quality data) and is a 

meaningful EHR user under section 

1886(b)(3)(B)(ix) of the Act (hereafter 

referred to as a hospital that is a 

meaningful EHR user), there are four 

possible applicable percentage increases 

that can be applied to the standardized 

amount. Below we discuss these four 

options. 

• For a hospital that submits quality 

data and is a meaningful EHR user, we 

are proposing an applicable percentage 

increase to the FY 2015 operating 

standardized amount of 2.1 percent (that 

is, the FY 2015 estimate of the market 

basket rate-of-increase of 2.7 percent 

less an adjustment of 0.4 percentage 

point for economy-wide productivity 

(that is, the MFP adjustment) and less 

0.2 percentage point). 

• For a hospitals that submits quality 

data and is not a meaningful EHR user, 

we are proposing an applicable 

percentage increase to the operating 

standardized amount of 1.425 percent 

(that is, the FY 2015 estimate of the 

market basket rate-of-increase of 2.7 

percent, less an adjustment of 0.675 

percentage point (the market basket rateof-increase of 2.7 percent × 0.75)/3) for 

failure to be a meaningful EHR user, less 

an adjustment of 0.4 percentage point 

for the MFP adjustment, and less an 

additional adjustment of 0.2 percentage 

point). 

• For a hospital that does not submit 

quality data and is a meaningful EHR 

user, we are proposing an applicable 

percentage increase to the operating 

standardized amount of 1.425 percent 

(that is, the FY 2015 estimate of the 

market basket rate-of-increase of 2.7 

percent, less an adjustment of 0.675 

percentage point (the market basket rateof-increase of 2.7 percent/4) for failure 

to submit quality data, less an 

adjustment of 0.4 percentage point for 

the MFP adjustment, and less an 

additional adjustment of 0.2 percentage 

point). 

• For a hospital that does not submit 

quality data and is not a meaningful 

EHR user, we are proposing an 

applicable percentage increase to the 

operating standardized amount of 0.75 

percent (that is, the FY 2015 estimate of 

the market basket rate-of-increase of 2.7 

percent, less an adjustment of 0.675 

percentage point (the market basket rateof-increase of 2.7 percent/4) for failure 

to submit quality data, less an 

adjustment of 0.675 percentage point 

(the market basket rate-of-increase of 2.7 

percent × 0.75)/3) for failure to be a 

meaningful EHR user, less an 

adjustment of 0.4 percentage point for 

the MFP adjustment, and less an 

additional adjustment of 0.2 percentage 

point). 

If more recent data become 

subsequently available (for example, a 

more recent estimate of the market 

basket and the MFP adjustment), we are 

proposing to use such data, if 

appropriate, to determine the FY 2015 

market basket update and MFP 

adjustment in the final rule. Below we 

provide a table summarizing the four 

proposed applicable percentage 

increases. 

FY 2015 

Hospital 

submitted 

quality 

data and is 

a 

meaningful 

EHR user 

Hospital submitted 

quality data 

and is NOT 

a 

meaningful 

EHR user 

Hospital did 

NOT submit 

quality data 

and is a 

meaningful 

EHR user 

Hospital did 

NOT submit 

quality data 

and is NOT a 

meaningful 

EHR user 

Market Basket Rate-of-Increase ...................................... 2.7 2.7 2.7 2.7 

Adjustment for Failure to Submit Quality Data under 

Section 1886(b)(3)(B)(viii) of the Act ........................... 0.0 0.0 ¥0.675 ¥0.675 

Adjustment for Failure to be a Meaningful EHR User 

under Section 1886(b)(3)(B)(ix) of the Act .................. 0.0 ¥0.675 0.0 ¥0.675 

MFP Adjustment under Section 1886(b)(3)(B)(xi) of the 

Act ................................................................................ ¥0.4 ¥0.4 ¥0.4 ¥0.4 

Statutory Adjustment under Section 1886(b)(3)(B)(xii) of 

the Act .......................................................................... ¥0.2 ¥0.2 ¥0.2 ¥0.2 

Proposed Applicable Percentage Increase Applied to Standardized Amount ........................... 2.1 1.425 1.425 0.75 

We are proposing to revise the 

existing regulations at 42 CFR 412.64(d) 

to reflect the current law for the FY 

2015 update. Specifically, in accordance 

with section 1886(b)(3)(B) of the Act, we 

are proposing to add a new paragraph 

(vi) to § 412.64(d)(1) to reflect the 

applicable percentage increase to the FY 

2015 operating standardized amount as 

the percentage increase in the market 

basket index, subject to a reduction of 

one-fourth of the applicable percentage 

increase (prior to the application of 

other statutory adjustments) if the 

hospital fails to submit quality 

information (under rules established by 

the Secretary in accordance with section 

1886(b)(3)(B)(viii) of the Act) and a 331⁄3

percent reduction to three-fourths of the 

applicable percentage increase (prior to 

the application of other statutory 

adjustments) for a hospital that is not a 

meaningful EHR user in accordance 

with section 1886(b)(3)(B)(ix) of the Act, 

less an MFP adjustment and less an 

additional reduction of 0.2 percentage 

point. 

In addition, we are proposing to make 

technical changes to §§ 412.64(d)(1), 

(d)(1)(i) through (d)(1)(v), (d)(2)(i), 

(d)(2)(ii), and (d)(3) introductory text to 

reflect the order in which CMS applies 

the statutory adjustments to the 

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applicable percentage increase under 

section 1886(b)(3)(B) of the Act. As 

mentioned above, consistent with 

section 1886(b)(3)(B) of the Act, CMS 

sets the applicable percentage increase 

under the IPPS by applying the 

following adjustments in the following 

sequence. Specifically, we set the 

applicable percentage increase under 

the IPPS equal to the rate-of-increase in 

the hospital market basket for IPPS 

hospitals in all areas subject to a 

reduction for hospitals that fail to 

submit quality information under rules 

established by the Secretary in 

accordance with section 

1886(b)(3)(B)(viii) of the Act and, 

beginning in FY 2015, a reduction for 

hospitals not considered to be 

meaningful EHR users in accordance 

with section 1886(b)(3)(B)(ix) of the Act; 

and then subject to an adjustment based 

on changes in economy-wide 

productivity (the MFP adjustment), and 

an additional reduction as required by 

section 1886(b)(3)(B)(xii) of the Act. 

The existing regulation text at 

§ 412.64(d)(2) and (d)(3) describes the 

reductions for hospitals that fail to 

submit quality information under rules 

established by the Secretary in 

accordance with section 

1886(b)(3)(B)(viii) of the Act and 

hospitals not considered to be 

meaningful EHR users in accordance 

with section 1886(b)(3)(B)(ix) of the Act 

as reductions to ‘‘the applicable 

percentage change specified in 

paragraph (d)(1) of this section.’’ Section 

412.64(d)(1) describes the applicable 

percentage change for the applicable 

fiscal year as the percentage increase in 

the market basket index less the MFP 

adjustment and less the additional 

reduction required by section 

1886(b)(3)(B)(xii) of the Act. This text 

suggests that CMS applies the reduction 

for hospitals that fail to submit quality 

information and, beginning in FY 2015, 

the reduction for hospitals not 

considered to be meaningful EHR users, 

after it applies the MFP adjustment and 

the additional reduction under section 

1886(b)(3)(B)(xii) of the Act. Therefore, 

we are proposing to revise the 

regulations in § 412.64(d) to reflect the 

order in which CMS applies the 

adjustments to the applicable 

percentage increase under section 

1886(b)(3)(B) of the Act. We note that 

we also are proposing clarifying 

amendments to the regulatory text for 

prior fiscal years under 

§§ 412.64(d)(1)(i) through (d)(1)(v) to 

reflect the determination of the 

applicable percentage change for those 

prior years as well as other technical 

changes for readability. 

Section 1886(b)(3)(B)(iv) of the Act 

provides that the applicable percentage 

increase 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). Therefore, 

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 sections 3401(a) and 

10319(a) of the Affordable Care Act. 

Accordingly, for FY 2015, we are 

proposing the following updates to the 

hospital-specific rates applicable to 

SCHs and MDHs: An update of 2.1 

percent for a hospital that submits 

quality data and is a meaningful EHR 

user; an update of 1.425 percent for a 

hospital that fails to submit quality data 

and is a meaningful EHR user; an 

update of 1.425 percent for a hospital 

that submits quality data and is not a 

meaningful EHR user; an update of 0.75 

percent for a hospital that fails to submit 

quality data and is not a meaningful 

EHR user. (As noted below, under 

current law, the MDH program is 

effective for discharges occurring on or 

before March 31, 2015.) For FY 2015, 

the existing regulations in 

§§ 412.73(c)(16), 412.75(d), 412.77(e), 

412.78(e), and 412.79(d) contain 

provisions that set the update factor for 

SCHs and MDHs equal to the update 

factor applied to the national 

standardized amount for all IPPS 

hospitals. Therefore, we are not 

proposing to make any further changes 

to these five regulatory provisions to 

reflect the FY 2015 update factor for the 

hospital-specific rates of SCHs and 

MDHs. As mentioned above, for this 

proposed rule, we used IGI’s first 

quarter 2014 forecast of the FY 2010- 

based IPPS market basket update with 

historical data through fourth quarter 

2013. Similarly, we used IGI’s first 

quarter 2014 forecast of the MFP 

adjustment. For the final rule, we are 

proposing to use the most recent data 

available. 

We note that, as discussed in section 

IV.G. of the preamble of this proposed 

rule, section 1106 of the Pathway for 

SGR Reform Act of 2013 (Pub. L. 113– 

67), enacted on December 26, 2013, 

extended the MDH program from the 

end of FY 2013 through the first half of 

FY 2014 (that is, for discharges 

occurring before April 1, 2014). 

Subsequently, section 106 of the 

Protecting Access to Medicare Act of 

2014, Public Law 113–93, enacted on 

April 1, 2014, further extended the 

MDH program through the first half of 

FY 2015 (that is, for discharges 

occurring before April l, 2015). Prior to 

the enactment of Public Law 113–67, 

the MDH program was to be in effect 

through the end of FY 2013 only. The 

MDH program expires for discharges 

beginning on April 1, 2015 under 

current law. Accordingly, the proposed 

update of the hospital-specific rates for 

FY 2015 for MDHs will apply in 

determining payments for FY 2015 

discharges occurring before April 1, 

2015. 

2. FY 2015 Puerto Rico Hospital Update 

Puerto Rico hospitals are paid a 

blended rate for their inpatient 

operating costs based on 75 percent of 

the national standardized amount and 

25 percent of the Puerto Rico-specific 

standardized amount. Section 

1886(d)(9)(C)(i) of the Act is the basis 

for determining the applicable 

percentage increase applied to the 

Puerto Rico-specific standardized 

amount. Section 401(c) of Public Law 

108–173 amended section 

1886(d)(9)(C)(i) of the Act, which states 

that, for discharges occurring in a fiscal 

year (beginning with FY 2004), the 

Secretary shall compute an average 

standardized amount for hospitals 

located in any area of Puerto Rico that 

is equal to the average standardized 

amount computed under subclause (I) 

for fiscal year 2003 for hospitals in a 

large urban area (or, beginning with FY 

2005, for all hospitals in the previous 

fiscal year) increased by the applicable 

percentage increase under subsection 

(b)(3)(B) for the fiscal year involved. 

Therefore, the update to the Puerto 

Rico-specific operating standardized 

amount equals the applicable 

percentage increase set forth in section 

1886(b)(3)(B)(i) of the Act, as amended 

by sections 3401(a) and 10319(a) of the 

Affordable Care Act (that is, the same 

update factor as for all other hospitals 

subject to the IPPS). Accordingly, we are 

proposing an applicable percentage 

increase to the Puerto Rico-specific 

operating standardized amount of 2.1 

percent for FY 2015. We note that the 

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

of the Act, which specify the 

adjustments to the applicable 

percentage increase for ‘‘subsection (d)’’ 

hospitals that do not submit quality data 

under the rules established by the 

Secretary, and the provisions of section 

1886(b)(3)(B)(ix) of the Act, which 

specify the adjustments to the 

applicable percentage increase for 

‘‘subsection (d)’’ hospitals that are not 

meaningful EHR users, are not 

applicable to hospitals located in Puerto 

Rico. 

For FY 2015, the existing regulations 

in § 412.211(c) set the update factor for 

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Puerto Rico-specific standardized 

amount equal to the update factor 

applied to the national standardized 

amount for all IPPS hospitals. Therefore, 

we are not proposing to make any 

further changes to this regulatory 

provision to reflect the FY 2015 update 

factor for the Puerto Rico-specific 

standardized amount. 

As mentioned previously, for this 

proposed rule, we used IGI’s first 

quarter 2014 forecast of the FY 2010- 

based IPPS market basket update with 

historical data through fourth quarter 

2013. For the final rule, we are 

proposing to use the most recent data 

available. Similarly, we used IGI’s first 

quarter 2014 forecast of the MFP 

adjustment. For the final rule, we are 

proposing to use the most recent data 

available. 

C. Rural Referral Centers (RRCs): 

Proposed Annual Updates to Case-Mix 

Index and Discharge Criteria (§ 412.96) 

Under the authority of section 

1886(d)(5)(C)(i) of the Act, the 

regulations at § 412.96 set forth the 

criteria that a hospital must meet in 

order to qualify under the IPPS as a 

rural referral center (RRC). RRCs receive 

some special treatment under both the 

DSH payment adjustment and the 

criteria for geographic reclassification. 

Section 402 of Public Law 108–173 

raised the DSH payment adjustment for 

RRCs such that they are not subject to 

the 12-percent cap on DSH payments 

that is applicable to other rural 

hospitals. RRCs are also not subject to 

the proximity criteria when applying for 

geographic reclassification. In addition, 

they do not have to meet the 

requirement that a hospital’s average 

hourly wage must exceed, by a certain 

percentage, the average hourly wage of 

the labor market area where the hospital 

is located. 

Section 4202(b) of Public Law 105–33 

states, in part, ‘‘[a]ny hospital classified 

as an RRC by the Secretary . . . for 

fiscal year 1991 shall be classified as 

such an RRC for fiscal year 1998 and 

each subsequent year.’’ In the August 

29, 1997 IPPS final rule with comment 

period (62 FR 45999), CMS reinstated 

RRC status for all hospitals that lost the 

status due to triennial review or MGCRB 

reclassification. However, CMS did not 

reinstate the status of hospitals that lost 

RRC status because they were now 

urban for all purposes because of the 

OMB designation of their geographic 

area as urban. Subsequently, in the 

August 1, 2000 IPPS final rule (65 FR 

47089), we indicated that we were 

revisiting that decision. Specifically, we 

stated that we would permit hospitals 

that previously qualified as an RRC and 

lost their status due to OMB 

redesignation of the county in which 

they are located from rural to urban, to 

be reinstated as an RRC. Otherwise, a 

hospital seeking RRC status must satisfy 

all of the other applicable criteria. We 

use the definitions of ‘‘urban’’ and 

‘‘rural’’ specified in Subpart D of 42 CFR 

Part 412. One of the criteria under 

which a hospital may qualify as an RRC 

is to have 275 or more beds available for 

use (§ 412.96(b)(1)(ii)). A rural hospital 

that does not meet the bed size 

requirement can qualify as an RRC if the 

hospital meets two mandatory 

prerequisites (a minimum CMI and a 

minimum number of discharges), and at 

least one of three optional criteria 

(relating to specialty composition of 

medical staff, source of inpatients, or 

referral volume). (We refer readers to 

§ 412.96(c)(1) through (c)(5) and the 

September 30, 1988 Federal Register (53 

FR 38513).) With respect to the two 

mandatory prerequisites, a hospital may 

be classified as an RRC if— 

• The hospital’s CMI is at least equal 

to the lower of the median CMI for 

urban hospitals in its census region, 

excluding hospitals with approved 

teaching programs, or the median CMI 

for all urban hospitals nationally; and 

• The hospital’s number of discharges 

is at least 5,000 per year, or, if fewer, the 

median number of discharges for urban 

hospitals in the census region in which 

the hospital is located. (The number of 

discharges criterion for an osteopathic 

hospital is at least 3,000 discharges per 

year, as specified in section 

1886(d)(5)(C)(i) of the Act.) 

1. Case-Mix Index (CMI) 

Section 412.96(c)(1) provides that 

CMS establish updated national and 

regional CMI values in each year’s 

annual notice of prospective payment 

rates for purposes of determining RRC 

status. The methodology we used to 

determine the national and regional CMI 

values is set forth in the regulations at 

§ 412.96(c)(1)(ii). The proposed national 

median CMI value for FY 2015 includes 

data from all urban hospitals 

nationwide, and the proposed regional 

values for FY 2015 are the median CMI 

values of urban hospitals within each 

census region, excluding those hospitals 

with approved teaching programs (that 

is, those hospitals that train residents in 

an approved GME program as provided 

in § 413.75). These proposed values are 

based on discharges occurring during 

FY 2013 (October 1, 2012 through 

September 30, 2013), and include bills 

posted to CMS’ records through 

December 2013. 

We are proposing that, in addition to 

meeting other criteria, if rural hospitals 

with fewer than 275 beds are to qualify 

for initial RRC status for cost reporting 

periods beginning on or after October 1, 

2014, they must have a CMI value for 

FY 2013 that is at least— 

• 1.5730; or 

• The median CMI value (not 

transfer-adjusted) for urban hospitals 

(excluding hospitals with approved 

teaching programs as identified in 

§ 413.75) calculated by CMS for the 

census region in which the hospital is 

located. 

The proposed CMI values by region 

are set forth in the following table: 

Region 

Proposed 

case-mix index 

value 

1. New England (CT, ME, MA, NH, RI, VT) ........................................................................................................................................ 1.3602 

2. Middle Atlantic (PA, NJ, NY) ........................................................................................................................................................... 1.4334 

3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV) ............................................................................................................... 1.4815 

4. East North Central (IL, IN, MI, OH, WI) .......................................................................................................................................... 1.4915 

5. East South Central (AL, KY, MS, TN) ............................................................................................................................................. 1.4099 

6. West North Central (IA, KS, MN, MO, NE, ND, SD) ...................................................................................................................... 1.5498 

7. West South Central (AR, LA, OK, TX) ............................................................................................................................................ 1.6041 

8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY) ............................................................................................................................... 1.6583 

9. Pacific (AK, CA, HI, OR, WA) ......................................................................................................................................................... 1.5680 

We intend to update the preceding 

numbers in the FY 2015 final rule to 

reflect the updated FY 2013 MedPAR 

file, which would contain data from 

additional bills received through March 

2014. 

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A hospital seeking to qualify as an 

RRC should obtain its hospital-specific 

CMI value (not transfer-adjusted) from 

its fiscal intermediary or MAC. Data are 

available on the Provider Statistical and 

Reimbursement (PS&R) System. In 

keeping with our policy on discharges, 

the CMI values are computed based on 

all Medicare patient discharges subject 

to the IPPS MS–DRG-based payment. 

2. Discharges 

Section 412.96(c)(2)(i) provides that 

CMS set forth the national and regional 

numbers of discharges in each year’s 

annual notice of prospective payment 

rates for purposes of determining RRC 

status. As specified in section 

1886(d)(5)(C)(ii) of the Act, the national 

standard is set at 5,000 discharges. We 

are proposing to update the regional 

standards based on discharges for urban 

hospitals’ cost reporting periods that 

began during FY 2012 (that is October 

1, 2011 through September 30, 2012), 

which are the latest cost report data 

available at the time this proposed rule 

was developed. 

We are proposing that, in addition to 

meeting other criteria, a hospital, if it is 

to qualify for initial RRC status for cost 

reporting periods beginning on or after 

October 1, 2014, must have, as the 

number of discharges for its cost 

reporting period that began during FY 

2012, at least— 

• 5,000 (3,000 for an osteopathic 

hospital); or 

• The median number of discharges 

for urban hospitals in the census region 

in which the hospital is located, as 

indicated in the following table. 

Region Number of 

discharges 

1. New England (CT, ME, MA, NH, RI, VT) ........................................................................................................................................ 7,679 

2. Middle Atlantic (PA, NJ, NY) ........................................................................................................................................................... 10,661 

3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV) ............................................................................................................... 10,591 

4. East North Central (IL, IN, MI, OH, WI) .......................................................................................................................................... 8,130 

5. East South Central (AL, KY, MS, TN) ............................................................................................................................................. 7,065 

6. West North Central (IA, KS, MN, MO, NE, ND, SD) ...................................................................................................................... 7,925 

7. West South Central (AR, LA, OK, TX) ............................................................................................................................................ 4,524 

8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY) ............................................................................................................................... 8,830 

9. Pacific (AK, CA, HI, OR, WA) ......................................................................................................................................................... 8,261 

We intend to update these numbers in 

the FY 2015 final rule based on the 

latest available cost report data. 

We reiterate that, if an osteopathic 

hospital is to qualify for RRC status for 

cost reporting periods beginning on or 

after October 1, 2014, the hospital 

would be required to have at least 3,000 

discharges for its cost reporting period 

that began during FY 2012. 

D. Proposed Payment Adjustment for 

Low-Volume Hospitals (§ 412.101) 

1. Background 

Section 1886(d)(12) of the Act 

provides for an additional payment to 

each qualifying low-volume hospital 

that is paid under IPPS beginning in FY 

2005. Sections 3125 and 10314 of the 

Affordable Care Act provided for a 

temporary change in the low-volume 

hospital payment policy for FYs 2011 

and 2012. Section 605 of the American 

Taxpayer Relief Act of 2012 (ATRA) 

extended, for FY 2013, the temporary 

changes in the low-volume hospital 

payment policy provided for in FYs 

2011 and 2012 by the Affordable Care 

Act. Prior to the enactment of the 

Pathway for SGR Reform Act of 2013 

(Pub. L. 113–67) on December 26, 2013 

and section 106 of the Protecting Access 

to Medicare Act of 2014 (Pub. L. 113– 

93) on April l, 2014, beginning with FY 

2014, the low-volume hospital 

qualifying criteria and payment 

adjustment returned to the statutory 

requirements under section 1886(d)(12) 

of the Act that were in effect prior to the 

amendments made by the Affordable 

Care Act and the ATRA. (For additional 

information on the expiration of the 

temporary changes in the low-volume 

hospital payment policy for FYs 2011 

through 2013 provided for by the 

Affordable Care Act and the ATRA, we 

refer readers to the FY 2014 IPPS/LTCH 

PPS final rule (78 FR 50610 through 

50613).) 

Section 1105 of the Pathway for SGR 

Reform Act extended, for the first 6 

months of FY 2014 (that is, through 

March 31, 2014), the temporary changes 

in the low-volume hospital payment 

policy provided for in FYs 2011 and 

2012 by the Affordable Care Act and 

extended through FY 2013 by the 

ATRA. We addressed the extension of 

the temporary changes to the lowvolume hospital payment policy 

through March 31, 2014 under the 

Pathway for SGR Reform Act in an 

interim final rule with comment period 

that appeared in the Federal Register on 

March 18, 2014 (79 FR 15022 through 

15025). In that March 18, 2014 interim 

final rule with comment period, we also 

amended the regulations at 42 CFR 

412.101 to reflect the extension of the 

temporary changes to the qualifying 

criteria and the payment adjustment for 

low-volume hospitals through March 

31, 2014. 

2. Provisions of the Protecting Access to 

Medicare Act of 2014 

Section 105 of the Protecting Access 

to Medicare Act of 2014 (Pub. L. 113– 

93) extends, for an additional year (that 

is, through March 31, 2015), the 

temporary changes in the low-volume 

hospital payment policy provided for in 

FYs 2011 and 2012 by the Affordable 

Care Act and extended through FY 2013 

by the ATRA and the first half of FY 

2014 by the Pathway for SGR Reform 

Act. We intend to address the extension 

of the temporary changes to the lowvolume hospital payment policy for the 

second half of FY 2014 (that is, from 

April 1, 2014 through September 30, 

2014) under Public Law 113–93 in a 

forthcoming Federal Register notice. 

However, in this proposed rule, we are 

proposing to make conforming changes 

to the existing regulations text at 

§ 412.101 to reflect the extension of the 

changes to the qualifying criteria and 

the payment adjustment methodology 

for low-volume hospitals through the 

first half of FY 2015 (that is, through 

March 31, 2015) in accordance with 

section 105 of Public Law 113–93. 

Specifically, we are proposing to revise 

paragraphs (b)(2)(i), (b)(2)(ii), (c)(1), 

(c)(2), and (d) of § 412.101. Under these 

proposed changes to § 412.101, 

beginning with FY 2015 discharges 

occurring on or after April 1, 2015, 

consistent with section 1886(d)(12) of 

the Act, as amended, the low-volume 

hospital qualifying criteria and payment 

adjustment methodology would revert 

to that which was in effect prior to the 

amendments made by the Affordable 

Care Act and subsequent legislation 

(that is, the low-volume hospital 

payment adjustment policy in effect for 

FYs 2005 through 2010). 

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3. Low-Volume Hospital Definition and 

Payment Adjustment for FY 2015 

As discussed above, under section 

1886(d)(12) of the Act, as amended, the 

temporary changes in the low-volume 

hospital payment policy originally 

provided by the Affordable Care Act and 

extended through subsequent 

legislation, are effective for FY 2015 

discharges occurring before April 1, 

2015. To implement the extension of the 

temporary change in the low-volume 

hospital payment policy through the 

first half of FY 2015 (that is, for 

discharges occurring through March 31, 

2015) provided for by Public Law 113– 

93, in accordance with proposed 

§ 412.101(b)(2)(ii) and consistent with 

our historical approach, we are 

proposing to update the discharge data 

source used to identify qualifying lowvolume hospitals and calculate the 

payment adjustment (percentage 

increase) for FY 2015 discharges 

occurring before April 1, 2015. Under 

existing § 412.101(b)(2)(ii), for the 

applicable fiscal years, a hospital’s 

Medicare discharges from the most 

recently available MedPAR data, as 

determined by CMS, are used to 

determine if the hospital meets the 

discharge criteria to receive the lowvolume payment adjustment in the 

current year. The applicable lowvolume percentage increase, as 

originally provided for by the 

Affordable Care Act, is determined 

using a continuous linear sliding scale 

equation that results in a low-volume 

hospital payment adjustment ranging 

from an additional 25 percent for 

hospitals with 200 or fewer Medicare 

discharges to a zero percent additional 

payment adjustment for hospitals with 

1,600 or more Medicare discharges. For 

FY 2015 discharges occurring before 

April 1, 2015, consistent with our 

historical policy, we are proposing that 

qualifying low-volume hospitals and 

their payment adjustment would be 

determined using the most recently 

available Medicare discharge data from 

the FY 2013 MedPAR file, as these data 

are the most recent data available. Table 

14 listed in the Addendum of this 

proposed rule (which is available only 

through the Internet on the CMS Web 

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

AcuteInpatientPPS/01_overview.asp) 

lists the ‘‘subsection (d)’’ hospitals with 

fewer than 1,600 Medicare discharges 

based on the December 2013 update of 

the FY 2013 MedPAR file and their 

proposed low-volume payment 

adjustment for FY 2015 discharges 

occurring before April 1, 2015 (if 

eligible). Eligibility for the low-volume 

hospital payment adjustment for the 

first 6 months of FY 2015 would also be 

dependent upon meeting (in the case of 

a hospital that did not qualify for the 

low-volume hospital payment 

adjustment in FY 2014) or continuing to 

meet (in the case of a hospital that did 

qualify for the low-volume hospital 

payment adjustment in FY 2014) the 

mileage criterion specified at proposed 

§ 412.101(b)(2)(ii). A hospital also must 

be located more than 15 road miles from 

any other IPPS hospital in order to 

qualify for a low-volume hospital 

payment adjustment for FY 2015 

discharges occurring before April 1, 

2015. We note that the list of hospitals 

with fewer than 1,600 Medicare 

discharges in Table 14 does not reflect 

whether or not the hospital meets the 

mileage criterion. If more recent 

Medicare discharge data become 

available, we intend to use updated data 

to determine the list of ‘‘subsection (d)’’ 

hospitals with fewer than 1,600 

Medicare discharges based on the March 

2014 update of the FY 2013 MedPAR 

file and their potential low-volume 

payment adjustment for FY 2015 

discharges occurring before April 1, 

2015 (if eligible) in Table 14 of the final 

rule. 

Furthermore, in accordance with 

section 1886(d)(12) of the Act, as 

amended, beginning with FY 2015 

discharges occurring on or after April 1, 

2015, the low-volume hospital 

definition and payment adjustment 

methodology will revert back to the 

statutory requirements that were in 

effect prior to the amendments made by 

the Affordable Care Act and subsequent 

legislation (including the Protecting 

Access to Medicare Act). Therefore, 

consistent with section 1886(d)(12) of 

the Act, as amended, under the 

proposed conforming changes to 

§ 412.101(b)(2), effective for FY 2015 

discharges occurring on or after April 1, 

2015 and subsequent years, in order to 

qualify as a low-volume hospital, a 

subsection (d) hospital must be more 

than 25 road miles from another 

subsection (d) hospital and have less 

than 200 discharges (that is, less than 

200 discharges total, including both 

Medicare and non-Medicare discharges) 

during the fiscal year. Under our 

existing policy, effective for FY 2015 

discharges occurring on or after April 1, 

2015 and subsequent years, qualifying 

hospitals would receive the low-volume 

hospital payment adjustment of an 

additional 25 percent for discharges 

occurring during the fiscal year (or 

portion of the fiscal year). Consistent 

with our existing policy for FYs 2005 

through 2010, for FY 2015 discharges 

occurring on or after April 1, 2015 (and 

subsequent years), the discharge 

determination for the low-volume 

hospital payment adjustment would be 

made based on the hospital’s number of 

total discharges, that is, Medicare and 

non-Medicare discharges, as specified at 

proposed § 412.101(b)(2)(i). The 

hospital’s most recently submitted cost 

report is used to determine if the 

hospital meets the discharge criterion to 

receive the low-volume hospital 

payment adjustment in the current fiscal 

year. We use cost report data to 

determine if a hospital meets the 

discharge criterion because these data 

are the best available data source that 

includes information on both Medicare 

and non-Medicare discharges. In 

addition to a discharge criterion, 

eligibility for the low-volume hospital 

payment adjustment also depends on 

the hospital meeting a mileage criterion. 

As specified at proposed 

§ 412.101(b)(2)(i), to meet the mileage 

criterion to qualify for the low-volume 

hospital payment adjustment for FY 

2015 discharges occurring on or after 

April 1, 2015 (and subsequent years), a 

hospital must be located more than 25 

road miles from the nearest subsection 

(d) hospital. 

Consistent with our previously 

established procedure, for FY 2015, we 

are proposing the following process for 

requesting and obtaining the lowvolume hospital payment adjustment. 

That is, in order to receive a low-volume 

hospital payment adjustment under 

§ 412.101, a hospital must notify and 

provide documentation to its MAC that 

it meets the discharge and distance 

requirements under proposed 

§ 412.101(b)(2)(ii) for FY 2015 

discharges occurring before April 1, 

2015, and under proposed 

§ 412.101(b)(2)(i) for FY 2015 discharges 

occurring on or after April 1, 2015, if 

also applicable. The MAC will 

determine, based on the most recent 

data available, if the hospital qualifies 

as a low-volume hospital, so that the 

hospital would know in advance 

whether or not it will receive a payment 

adjustment. The MAC and CMS may 

review available data, in addition to the 

data the hospital submits with its 

request for low-volume hospital status, 

in order to determine whether or not the 

hospital meets the qualifying criteria. 

Consistent with our previously 

established procedure, for FY 2015, we 

are proposing that a hospital must make 

a written request for low-volume 

hospital status that is received by its 

MAC no later than September 1, 2014, 

in order for the applicable low-volume 

hospital payment adjustment to be 

applied to payments for its discharges 

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occurring on or after October 1, 2014, 

and through March 31, 2015, under 

proposed § 412.101(b)(2)(ii) or through 

September 30, 2015, for hospitals that 

also qualify under proposed 

§ 412.101(b)(2)(i)). A hospital that 

qualified for the low-volume payment 

adjustment in FY 2014 may continue to 

receive a low-volume payment 

adjustment for FY 2015 discharges 

occurring before April 1, 2015, without 

reapplying if it continues to meet the 

Medicare discharge criterion established 

for FY 2015 (shown in Table 14, which 

is available via the Internet on the CMS 

Web site) and the distance criterion. 

However, the hospital must send 

written verification that is received by 

its MAC no later than September 1, 

2014, that it continues to be more than 

15 miles from any other ‘‘subsection 

(d)’’ hospital. 

If a hospital’s written request for lowvolume hospital status for FY 2015 is 

received after September 1, 2014, and if 

the MAC determines that the hospital 

meets the criteria to qualify as a lowvolume hospital under proposed 

§ 412.101(b)(2)(ii), the MAC would 

apply the applicable low-volume 

hospital payment adjustment to 

determine the payment for the hospital’s 

FY 2015 discharges, effective 

prospectively within 30 days of the date 

of its low-volume hospital status 

determination through discharges 

occurring on or before March 31, 2015. 

If the hospital also qualifies under 

proposed § 412.101(b)(2)(i), the MAC 

would apply the 25-percent low-volume 

hospital payment adjustment to 

determine the payment for the hospital’s 

FY 2015 discharges occurring on or after 

April 1, 2015. If a hospital’s written 

request for low-volume hospital status 

for FY 2015 is received on a later date 

such that the prospective effective date 

would be on or after April 1, 2015, and 

the hospital qualifies under proposed 

§ 412.101(b)(2)(i), the MAC would apply 

the 25-percent low-volume hospital 

payment adjustment to determine the 

payment for the hospital’s FY 2015 

discharges occurring from the 

prospective effective date through 

September 30, 2015. (For additional 

details on our established process for 

the low-volume hospital payment 

adjustment, we refer readers to the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53408).) 

E. Indirect Medical Education (IME) 

Payment Adjustment (§ 412.105) 

1. IME Adjustment Factor for FY 2015 

Under the IPPS, an additional 

payment amount is made to hospitals 

with residents in an approved graduate 

medical education (GME) program in 

order to reflect the higher indirect 

patient care costs of teaching hospitals 

relative to nonteaching hospitals. The 

payment amount is determined by use 

of a statutorily specified adjustment 

factor. The regulations regarding the 

calculation of this additional payment, 

known as the IME adjustment, are 

located at § 412.105. We refer readers to 

the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51680) for a full discussion of the 

IME adjustment and IME adjustment 

factor. Section 1886(d)(5)(B) of the Act 

states that, for discharges occurring 

during FY 2008 and fiscal years 

thereafter, the IME formula multiplier is 

1.35. Accordingly, for discharges 

occurring during FY 2015, the formula 

multiplier is 1.35. We estimate that 

application of this formula multiplier 

for the FY 2015 IME adjustment will 

result in an increase in IPPS payment of 

5.5 percent for every approximately 10 

percent increase in the hospital’s 

resident to bed ratio. 

2. Proposed IME Medicare Part C AddOn Payments to Sole Community 

Hospitals (SCHs) That Are Paid 

According to Their Hospital-Specific 

Rates and Proposed Change in 

Methodology in Determining Payment 

to SCHs 

Section 1886(d)(11) of the Act 

provides for an additional payment 

amount to a subsection (d) teaching 

hospital that has an approved medical 

residency training program for each 

applicable discharge of any individual 

who is enrolled under Medicare 

Managed Care under Part C. The amount 

of such payment is specified in section 

1886(d)(11)(C) of the Act and ‘‘shall be 

equal to the applicable percentage (as 

defined in subsection (h)(3)(D)(ii)) of the 

estimated average per discharge amount 

that would otherwise have been paid 

under paragraph (5)(B) if the individuals 

had not been enrolled as described in 

subparagraph (B).’’ 

Under section 1886(d)(5)(D) of the 

Act, sole community hospitals (SCHs) 

are paid based on their hospital-specific 

rate from specified base years or the 

IPPS Federal rate, whichever yields the 

greatest aggregate payment for the 

hospital’s cost reporting period. 

Payments based on the Federal rate are 

based on the IPPS standardized amount 

and include all applicable IPPS add-on 

payments, such as outliers, DSH, and 

IME, while payments based on the 

hospital-specific rate include no add-on 

payments. Under CMS’ current payment 

system, both the IME add-on payment 

for Medicare Part A patient discharges 

under section 1886(d)(5)(B) of the Act 

and the IME add-on payment for 

Medicare Part C patient discharges 

under section 1886(d)(11) of the Act are 

included as part of the Federal rate 

payment, whereas neither of these addon payments are included as part of the 

hospital-specific rate payment. We note 

that SCHs that are paid based on their 

hospital-specific rate do not receive an 

IME add-on payment for Medicare Part 

A patient discharges because, generally, 

the hospital-specific rate already reflects 

the additional costs that a teaching 

hospital incurs for its Medicare Part A 

patients, but they also do not receive the 

IME add-on payment for Medicare Part 

C patient discharges under section 

1886(d)(11) of the Act. Therefore, in the 

case of Medicare Part C patients, there 

is no component of the hospital-specific 

rate that already accounts for the 

additional costs that SCHs incur for 

their Medicare Part C patients, and there 

is currently no payment mechanism for 

SCHs paid based on their hospitalspecific rate to receive the IME add-on 

payment for Medicare Part C patients. 

For the reasons specified below, 

effective for discharges occurring in cost 

reporting periods beginning on or after 

October 1, 2014, we are proposing: (1) 

To provide all SCHs that are subsection 

(d) teaching hospitals IME add-on 

payments for applicable discharges of 

Medicare Part C patients in accordance 

with section 1886(d)(11) of the Act, 

regardless of whether the SCH is paid 

based on the Federal rate or its hospitalspecific rate; and (2) that, for purposes 

of the comparison of payments based on 

the Federal rate and payments based on 

the hospital-specific rate under section 

1886(d)(5)(D) of the Act, IME payments 

under section 1886(d)(11) of the Act for 

Medicare Part C patients will no longer 

be included as part of the Federal rate 

payment. After the higher of the Federal 

rate payment amount or the hospitalspecific rate payment amount is 

determined, any IME add-on payments 

under section 1886(d)(11) of the Act 

would be added to that payment for 

purposes of determining the hospital’s 

total payment amount. 

As noted above, under section 

1886(d)(5)(D) of the Act, SCHs are paid 

based on their hospital-specific rate or 

the IPPS Federal rate, whichever yields 

the higher payment for the hospital’s 

cost reporting period. For each cost 

reporting period, the MAC determines 

which of the payment options will yield 

the higher aggregate payment. Interim 

payments are automatically made on a 

claim-by-claim basis at the higher rate 

using the best data available at the time 

the MAC makes the payment 

determination for each discharge. 

However, it may not be possible for the 

MAC to determine in advance precisely 

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which of the rates will yield the higher 

aggregate payment by year’s end. In 

many cases, it is not possible to forecast 

outlier payments or the final amount of 

the DSH payment adjustment or the IME 

adjustment until cost report settlement. 

As noted above, these adjustment 

amounts are applicable only to 

payments based on the Federal rate and 

not to payments based on the hospitalspecific rate. The MAC makes a final 

adjustment at cost report settlement 

after it determines precisely which of 

the two payment rates would yield the 

higher aggregate payment to the hospital 

for its cost reporting period. This 

payment methodology makes SCHs 

unique because SCH payments can 

change on a yearly basis from payments 

based on the hospital-specific rate to 

payments based on the Federal rate, or 

vice versa. 

As we stated earlier, section 

1886(d)(11) of the Act provides for an 

additional payment for each applicable 

discharge of any subsection (d) teaching 

hospital for treating Medicare Part C 

patients. Section 1886(d)(11)(C) of the 

Act specifies that the amount of the 

payment ‘‘shall be equal to the 

applicable percentage (as defined in 

subsection (h)(3)(D)(ii)) of the estimated 

average per discharge amount that 

would otherwise have been paid under 

paragraph (5)(B) if the individuals had 

not been enrolled as described in 

subparagraph (B)’’ (emphasis added). 

Because an SCH that is paid based on 

its hospital-specific rate does not 

receive any IME add-on payment for 

Medicare Part A patients as provided 

under section 1886(d)(5)(B) of the Act 

because, generally, the hospital-specific 

rate already reflects the additional costs 

that a teaching hospital incurs for its 

Medicare Part A patients, CMS has 

interpreted section 1886(d)(11)(C) of the 

Act to mean that an SCH that is paid 

based on its hospital-specific rate also is 

not entitled to receive an additional 

payment for discharges of Medicare Part 

C patients under section 1886(d)(11) of 

the Act. 

After further consideration of the 

language at section 1886(d)(11) of the 

Act, we believe that the statute would 

allow an SCH that is paid based on its 

hospital-specific rate to receive IME 

add-on payments for its Medicare Part C 

patient discharges. Section 

1886(d)(11)(A) of the Act provides for 

an additional payment amount for each 

applicable discharge of a Medicare Part 

C patient of a subsection (d) hospital 

that has an approved medical residency 

training program. Section 1886(d)(11)(C) 

of the Act sets forth the amount of this 

additional payment, by reference to the 

amount that would otherwise have been 

paid under section 1886(d)(5)(B) of the 

Act. Although an SCH that is paid based 

on its hospital-specific rate does not 

receive any amount under section 

1886(d)(5)(B) of the Act for discharges of 

Medicare Part A patients, we believe 

that section 1886(d)(11)(C) of the Act 

can be interpreted as simply 

establishing the methodology for 

calculating the amount of the add-on 

payment, without limiting the 

applicability of the add-on payment to 

those SCHs that are paid based on the 

Federal rate. 

As noted earlier, in making the 

comparison of SCH payments under the 

Federal rate and the hospital-specific 

rate under section 1886(d)(5)(D) of the 

Act, the aggregate Federal rate payments 

are based on the IPPS standardized 

amount and include IME add-on 

payments for both Medicare Part A and 

Medicare Part C patient discharges. 

Payments based on the hospital-specific 

rate do not include the Medicare Part A 

IME add-on payment under section 

1886(d)(5)(B) of the Act, under the 

rationale that, generally, the hospitalspecific rate already reflects the 

additional costs that a teaching hospital 

incurs for its Medicare Part A patients. 

Payments based on the hospital-specific 

rate also do not include the IME add-on 

payment for Medicare Part C patient 

discharges under section 1886(d)(11) of 

the Act. As a result, under the current 

methodology, if an SCH that is a 

teaching hospital is paid based on its 

hospital-specific rate, it receives no 

IPPS payment that accounts for the 

additional costs that a teaching hospital 

incurs for its Medicare Part C patients. 

In conjunction with our proposal to 

provide IME add-on payments under 

section 1886(d)(11) of the Act to SCHs, 

regardless of whether the SCH is paid 

based on the Federal rate or its hospitalspecific rate, we also believe that, for 

purposes of the comparison of payments 

under the Federal rate and the hospitalspecific rate for SCHs under section 

1886(d)(5)(D) of the Act, it is no longer 

appropriate for IME add-on payments 

under section 1886(d)(11) of the Act to 

be included as part of the Federal rate 

payment. Therefore, we are proposing to 

no longer include these payments in the 

comparison in order to more accurately 

reflect comparable payments for 

Medicare Part A patient discharges. In 

addition, because the IME add-on 

payment for Medicare Part C patient 

discharges for a given SCH would be the 

same, regardless of whether it is paid 

based on the Federal rate or its hospitalspecific rate, there would be no need to 

include the IME add-on payment for 

Medicare Part C patient discharges in 

the comparison. This is because the Part 

C IME adjustment is always multiplied 

by the Federal rate that is used under 

section 1886(d)(5)(B) of the Act, 

regardless of whether the hospitalspecific rate is higher, in accordance 

with section 1886(d)(11) of the Act, 

which states that the IME Part C add-on 

amount ‘‘shall be equal to the applicable 

percentage . . . of the estimated average 

per discharge amount that would 

otherwise have been paid under 

paragraph (5)(B).’’ 

In summary, effective with discharges 

occurring in cost reporting periods 

beginning on or after October 1, 2014, 

we are proposing: (1) To provide all 

SCHs that are subsection (d) teaching 

hospitals IME add-on payments for 

Medicare Part C patient discharges in 

accordance with section 1886(d)(11) of 

the Act; and (2) that, for purposes of the 

comparison of payments based on the 

Federal rate and the hospital-specific 

rate for SCHs under section 

1886(d)(5)(D) of the Act, IME add-on 

payments under section 1886(d)(11) of 

the Act for Medicare Part C patient 

discharges will no longer be included in 

the aggregate payment under the Federal 

rate. That is, for purposes of 

determining payment to an SCH under 

section 1886(d)(5)(D) of the Act, we are 

proposing to compare aggregate 

payments based on the Federal rate, 

including the IME add-on payment for 

Medicare Part A patients (where 

applicable), but not the IME add-on 

payment for Medicare Part C patients, to 

aggregate payments based on the 

hospital-specific rate, which as 

explained earlier, do not include any 

IME add-on payments for either 

Medicare Part A or Part C patients. After 

the higher of the Federal rate payment 

amount or the hospital-specific rate 

payment amount under section 

1886(d)(5)(D) of the Act is determined, 

the Part C IME adjustment factor would 

be multiplied by the Federal rate 

payment amount to determine the addon payment amount under section 

1886(d)(11) of the Act, and then any 

IME add-on payments under section 

1886(d)(11) of the Act would be added 

to the payment amount under section 

1886(d)(5)(D) of the Act for purposes of 

determining the hospital’s total payment 

amount. We are inviting public 

comments on both of these proposals 

and any alternatives that we should 

consider. 

3. Other Proposed Policy Changes 

Affecting IME 

In section IV.K. of the preamble of 

this proposed rule, we present other 

proposed policy changes relating to 

GME payments, which may also apply 

to IME payments. We refer readers to 

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28094 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

that section of the preamble of this 

proposed rule where we present the 

proposed policies. 

F. Payment Adjustment for Medicare 

Disproportionate Share Hospitals 

(DSHs) (§ 412.106) 

1. Background 

Section 1886(d)(5)(F) of the Act 

provides for additional Medicare 

payments to subsection (d) hospitals 

that serve a significantly 

disproportionate number of low-income 

patients. The Act specifies two methods 

by which a hospital may qualify for the 

Medicare disproportionate share 

hospital (DSH) adjustment. Under the 

first method, hospitals that are located 

in an urban area and have 100 or more 

beds may receive a Medicare DSH 

payment adjustment if the hospital can 

demonstrate that, during its cost 

reporting period, more than 30 percent 

of its net inpatient care revenues are 

derived from State and local 

government payments for care furnished 

to needy patients with low incomes. 

This method is commonly referred to as 

the ‘‘Pickle method.’’ The second 

method for qualifying for the DSH 

payment adjustment, which is the most 

common, is based on a complex 

statutory formula under which the DSH 

payment adjustment is based on the 

hospital’s geographic designation, the 

number of beds in the hospital, and the 

level of the hospital’s disproportionate 

patient percentage (DPP). A hospital’s 

DPP is the sum of two fractions: The 

‘‘Medicare fraction’’ and the ‘‘Medicaid 

fraction.’’ The Medicare fraction (also 

known as the ‘‘SSI fraction’’ or ‘‘SSI 

ratio’’) is computed by dividing the 

number of the hospital’s inpatient days 

that are furnished to patients who were 

entitled to both Medicare Part A and 

Supplemental Security Income (SSI) 

benefits by the hospital’s total number 

of patient days furnished to patients 

entitled to benefits under Medicare Part 

A. The Medicaid fraction is computed 

by dividing the hospital’s number of 

inpatient days furnished to patients 

who, for such days, were eligible for 

Medicaid, but were not entitled to 

benefits under Medicare Part A, by the 

hospital’s total number of inpatient days 

in the same period. 

Because the DSH payment adjustment 

is part of the IPPS, the DSH statutory 

references (under section 1886(d)(5)(F) 

of the Act) to ‘‘days’’ apply only to 

hospital acute care inpatient days. 

Regulations located at § 412.106 govern 

the Medicare DSH payment adjustment 

and specify how the DPP is calculated 

as well as how beds and patient days are 

counted in determining the Medicare 

DSH payment adjustment. Under 

§ 412.106(a)(1)(i), the number of beds for 

the Medicare DSH payment adjustment 

is determined in accordance with bed 

counting rules for the IME adjustment 

under § 412.105(b). 

2. Impact on Medicare DSH Payment 

Adjustment of Proposed 

Implementation of New OMB Labor 

Market Delineations 

As discussed in section III.B. of the 

preamble of this proposed rule, we are 

proposing to implement the new OMB 

labor market area delineations (which 

are based on 2010 Decennial Census 

data) for the FY 2015 wage index. This 

proposal also would have an impact on 

the calculation of Medicare DSH 

payments to certain hospitals. Hospitals 

that are designated as rural with less 

than 500 beds and that are not rural 

referral centers (RRCs) are subject to a 

maximum DSH payment adjustment of 

12 percent. Accordingly, hospitals with 

less than 500 beds that are currently in 

urban counties that would become rural 

if we adopt the new OMB delineations, 

and that do not become RRCs, would be 

subject to a maximum DSH payment 

adjustment of 12 percent. (We note that 

urban hospitals are only subject to a 

maximum DSH payment adjustment of 

12 percent if they have less than 100 

beds.) 

Under existing regulations at 42 CFR 

412.102, a hospital located in an area 

that is reclassified from urban to rural, 

as defined in the regulations, may 

receive an adjustment to its rural 

Federal payment amount for operating 

costs for two successive fiscal years. 

Specifically, the regulations state that, 

in the first year after a hospital loses 

urban status, the hospital will receive an 

additional payment that equals twothirds of the difference between the 

urban standardized amount and 

disproportionate share payments as 

applicable to the hospital before its 

redesignation from urban to rural and 

the rural standardized amount and 

disproportionate share payments 

otherwise applicable to the hospital 

subsequent to its redesignation from 

urban to rural. In the second year after 

a hospital loses urban status, the 

hospital will receive an additional 

payment that equals one-third of the 

difference between the urban 

standardized amount and 

disproportionate share payments 

applicable to the hospital before its 

redesignation from urban to rural and 

the rural standardized amount and 

disproportionate share payments 

otherwise applicable to the hospital 

subsequent to its redesignation from 

urban to rural. 

We note that we no longer make a 

distinction between the urban 

standardized amount and the rural 

standardized amount. Rather, hospitals 

receive the same standardized amount 

regardless of their geographic 

designation. Accordingly, we are 

proposing to revise the regulation at 

§ 412.102 to remove references to the 

urban and rural standardized amounts. 

The provisions of § 412.102 would 

continue to apply with respect to the 

calculation of the DSH payments to 

hospitals that are currently located in 

urban counties that would become rural 

if we adopt the new OMB delineations. 

Specifically, the regulations would state 

that in the first year after a hospital 

loses urban status, the hospital will 

receive an additional payment that 

equals two-thirds of the difference 

between disproportionate share 

payments as applicable to the hospital 

before its redesignation from urban to 

rural and the disproportionate share 

payments otherwise applicable to the 

hospital subsequent to its redesignation 

from urban to rural. In the second year 

after a hospital loses urban status, the 

hospital will receive an additional 

payment that equals one-third of the 

difference between the disproportionate 

share payments applicable to the 

hospital before its redesignation from 

urban to rural and the disproportionate 

share payments otherwise applicable to 

the hospital subsequent to its 

redesignation from urban to rural. 

For the purposes of ratesetting, 

calculating budget neutrality, and 

modeling payment impacts for this 

proposed rule, any hospital that was 

previously urban but would be changed 

to rural status in FY 2015 as a result of 

the proposed adoption of the new OMB 

labor market area delineations would 

have its DSH payments modeled such 

that the payment equals the amount of 

the rural disproportionate share 

payments plus two-thirds of the 

difference between the urban 

disproportionate share payments and 

the rural disproportionate share 

payments. 

3. Payment Adjustment Methodology for 

Medicare Disproportionate Share 

Hospitals (DSHs) Under Section 3133 of 

the Affordable Care Act (§ 412.106) 

a. General Discussion 

Section 3133 of the Patient Protection 

and Affordable Care Act, as amended by 

section 10316 of the same act and 

section 1104 of the Health Care and 

Education Reconciliation Act (Pub. L. 

111–152), added a new section 1886(r) 

to the Act that modifies the 

methodology for computing the 

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Medicare DSH payment adjustment 

beginning in FY 2014. For purposes of 

this proposed rule, we refer to these 

provisions collectively as section 3133 

of the Affordable Care Act. 

Medicare DSH adjustment payments 

are calculated under a statutory formula 

that considers the hospital’s Medicare 

utilization attributable to beneficiaries 

who also receive Supplemental Security 

Income (SSI) benefits and the hospital’s 

Medicaid utilization. Beginning with 

discharges in FY 2014, hospitals that 

qualify for Medicare DSH payments 

under section 1886(d)(5)(F) of the Act 

receive 25 percent of the amount they 

previously would have received under 

the statutory formula for Medicare DSH 

payments. This provision applies 

equally to hospitals that qualify for DSH 

payments under section 

1886(d)(5)(F)(i)(I) of the Act and those 

hospitals that qualify under the Pickle 

method under section 1886(d)(5)(F)(i)(II) 

of the Act. 

The remaining amount, equal to an 

estimate of 75 percent of what otherwise 

would have been paid as Medicare DSH 

payments, reduced to reflect changes in 

the percentage of individuals under age 

65 who are uninsured, is available to 

make additional payments to each 

hospital that qualifies for Medicare DSH 

payments and that has uncompensated 

care. The payments to each hospital for 

a fiscal year are based on the hospital’s 

amount of uncompensated care for a 

given time period relative to the total 

amount of uncompensated care for that 

same time period reported by all 

hospitals that receive Medicare DSH 

payments for that fiscal year. 

As provided by section 3133 of the 

Affordable Care Act, section 1886(r) of 

the Act requires that, for FY 2014 and 

each subsequent fiscal year, a 

‘‘subsection (d) hospital’’ that would 

otherwise receive a ‘‘disproportionate 

share hospital payment . . . made 

under subsection (d)(5)(F)’’ receives two 

separately calculated payments. 

Specifically, section 1886(r)(1) of the 

Act provides that the Secretary shall pay 

to such a subsection (d) hospital 

(including a Pickle hospital) 25 percent 

of the amount the hospital would have 

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

the Act for disproportionate share 

hospital payments, which represents 

‘‘the empirically justified amount for 

such payment, as determined by the 

Medicare Payment Advisory 

Commission in its March 2007 Report to 

the Congress.’’ We refer to this payment 

as the ‘‘empirically justified Medicare 

DSH payment.’’ 

In addition to this payment, section 

1886(r)(2) of the Act provides that, for 

FY 2014 and each subsequent fiscal 

year, the Secretary shall pay to ‘‘such 

subsection (d) hospital an additional 

amount equal to the product of’’ three 

factors. The first factor is the difference 

between ‘‘the aggregate amount of 

payments that would be made to 

subsection (d) hospitals under 

subsection (d)(5)(F) if this subsection 

did not apply’’ and ‘‘the aggregate 

amount of payments that are made to 

subsection (d) hospitals under 

paragraph (1)’’ for each fiscal year. 

Therefore, this factor amounts to 75 

percent of the payments that would 

otherwise be made under section 

1886(d)(5)(F) of the Act. 

The second factor is, for FYs 2014 

through 2017, 1 minus the percent 

change in the percent of individuals 

under the age of 65 who are uninsured, 

determined by comparing the percent of 

such individuals who are uninsured in 

2013, the last year before coverage 

expansion under the Affordable Care 

Act (as calculated by the Secretary 

based on the most recent estimates 

available from the Director of the 

Congressional Budget Office before a 

vote in either House on the Health Care 

and Education Reconciliation Act of 

2010 that, if determined in the 

affirmative, would clear such Act for 

enrollment), minus 0.1 percentage 

points for FY 2014, and minus 0.2 

percentage points for FYs 2015 through 

2017. For FYs 2014 through 2017, the 

baseline for the estimate of the change 

in uninsurance is fixed by the most 

recent estimate of the Congressional 

Budget Office before the final vote on 

the Health Care and Education 

Reconciliation Act of 2010, which is 

contained in a March 20, 2010 letter 

from the Director of the Congressional 

Budget Office to the Speaker of the 

House. (A link to this letter is included 

in section IV.F.3.d.(2) of the preamble of 

this proposed rule). 

For FY 2018 and subsequent years, 

the second factor is 1 minus the percent 

change in the percent of individuals 

who are uninsured, as determined by 

comparing the percent of individuals 

‘‘who are uninsured in 2013 (as 

estimated by the Secretary, based on 

data from the Census Bureau or other 

sources the Secretary determines 

appropriate, and certified by the Chief 

Actuary’’ of CMS, and the percent of 

individuals ‘‘who are uninsured in the 

most recent period for which data is 

available (as so estimated and certified), 

minus 0.2 percentage points for FYs 

2018 and 2019.’’ Therefore, for FY 2018 

and subsequent years, the statute 

provides some greater flexibility in the 

choice of the data sources to be used for 

the estimate of the change in the percent 

of uninsured individuals. 

The third factor is a percent that, for 

each subsection (d) hospital, ‘‘represents 

the quotient of . . . the amount of 

uncompensated care for such hospital 

for a period selected by the Secretary (as 

estimated by the Secretary, based on 

appropriate data . . .),’’ including the 

use of alternative data ‘‘where the 

Secretary determines that alternative 

data is available which is a better proxy 

for the costs of subsection (d) hospitals 

for . . . treating the uninsured,’’ and 

‘‘the aggregate amount of 

uncompensated care for all subsection 

(d) hospitals that receive a payment 

under this subsection.’’ Therefore, this 

third factor represents a hospital’s 

uncompensated care amount for a given 

time period relative to the 

uncompensated care amount for that 

same time period for all hospitals that 

receive Medicare DSH payments in that 

fiscal year, expressed as a percent. For 

each hospital, the product of these three 

factors represents its additional 

payment for uncompensated care for the 

applicable fiscal year. We refer to the 

additional payment determined by these 

factors as the ‘‘uncompensated care 

payment.’’ 

Section 1886(r) of the Act applies to 

FY 2014 and each subsequent fiscal 

year. In the FY 2014 IPPS/LTCH PPS 

final rule (78 FR 50620 through 50647) 

and the FY 2014 IPPS interim final rule 

with comment period (78 FR 61191 

through 61197), we set forth our policies 

for implementing the required changes 

to the DSH payment methodology made 

by section 3133 of the Affordable Care 

Act for FY 2014. In those rules, we 

noted that, because section 1886(r) of 

the Act modifies the payment required 

under section 1886(d)(5)(F) of the Act, 

it affects only the DSH payment under 

the operating IPPS. It does not revise or 

replace the capital IPPS DSH payment 

provided under the regulations at 42 

CFR Part 412, Subpart M, which were 

established through the exercise of the 

Secretary’s discretion in implementing 

the capital IPPS under section 

1886(g)(1)(A) of the Act. 

Finally, section 1886(r)(3) of the Act 

provides that there shall be ‘‘no 

administrative or judicial review under 

section 1869, section 1878, or 

otherwise’’ of ‘‘any estimate of the 

Secretary for purposes of determining 

the factors described in paragraph (2),’’ 

or of ‘‘any period selected by the 

Secretary’’ for the purpose of 

determining those factors. Therefore, 

there is no administrative or judicial 

review of the estimates developed for 

purposes of applying the three factors 

used to determine uncompensated care 

payments, or the periods selected in 

order to develop such estimates. 

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b. Eligibility for Empirically Justified 

Medicare DSH Payments and 

Uncompensated Care Payments 

As indicated earlier, the payment 

methodology under section 3133 of the 

Affordable Care Act applies to 

‘‘subsection (d) hospitals’’ that would 

otherwise receive a ‘‘disproportionate 

share payment . . . made under 

subsection (d)(5)(F).’’ Therefore, 

eligibility for empirically justified 

Medicare DSH payments is unchanged 

under section 3133 of the Affordable 

Care Act. Consistent with the law, 

hospitals must receive empirically 

justified Medicare DSH payments in a 

fiscal year to receive an additional 

Medicare uncompensated care payment 

for that year. Specifically, section 

1886(r)(2) of the Act states that ‘‘[i]n 

addition to the payment made to a 

subsection (d) hospital under paragraph 

(1) . . . the Secretary shall pay to such 

subsection (d) hospital an additional 

amount . . .’’ (emphasis supplied). 

Because paragraph (1) refers to 

empirically justified Medicare DSH 

payments, the additional payment 

under section 1886(r)(2) of the Act 

therefore, is limited to hospitals that 

receive empirically justified Medicare 

DSH payments in accordance with 

section 1886(r)(1) of the Act for the 

applicable fiscal year. 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50622) and the FY 2014 

IPPS interim final rule with comment 

period (78 FR 61193), we provided that 

hospitals that are not eligible to receive 

empirically justified Medicare DSH 

payments in a fiscal year will not 

receive uncompensated care payments 

for that year. We also specified that we 

would make a determination concerning 

eligibility for interim uncompensated 

care payments based on each hospital’s 

estimated DSH status for the applicable 

fiscal year (using the most recent data 

that are available). We indicated that 

our final determination on the hospital’s 

eligibility for uncompensated care 

payments would be based on the 

hospital’s actual DSH status on the cost 

report for that payment year. 

In the FY 2014 IPPS/LTCH PPS final 

rule, we also considered whether 

several specific classes of hospitals are 

included within the scope of section 

1886(r) of the Act. As we specified in 

that final rule (78 FR 50623), subsection 

(d) Puerto Rico hospitals that are 

eligible for DSH payments also are 

eligible to receive empirically justified 

Medicare DSH payments and 

uncompensated care payments under 

the new payment methodology. 

In addition, in the FY 2014 IPPS/

LTCH PPS final rule, we considered 

whether Maryland hospitals that were 

paid under section 1814(b)(3) of the Act, 

would be eligible to receive 

uncompensated care payments. We 

explained that, under section 1814(b) of 

the Act, hospitals in the State of 

Maryland were subject to a waiver from 

the Medicare payment methodologies 

under which they would otherwise be 

paid. Because Maryland waiver 

hospitals were not paid under the IPPS 

(section 1886(d) of the Act), in the FY 

2014 IPPS/LTCH PPS final rule, we 

determined that Maryland hospitals that 

operated under a waiver under section 

1814(b)(3) of the Act were not eligible 

to receive empirically justified Medicare 

DSH payments and uncompensated care 

payments under the payment 

methodology of section 1886(r) of the 

Act (78 FR 50623). As stated in section 

IV.H. of the preamble of this proposed 

rule, effective January 1, 2014, the State 

of Maryland elected to no longer have 

Medicare pay Maryland hospitals in 

accordance with section 1814(b)(3) of 

the Act and entered into an agreement 

with CMS that Maryland hospitals 

would be paid under the Maryland AllPayor Model. However, under the 

Maryland All-Payor Model, Maryland 

hospitals still are not paid under the 

IPPS. Therefore, they remain ineligible 

to receive empirically justified Medicare 

DSH payments or the uncompensated 

care payments under section 1886(r) of 

the Act. 

SCHs are paid based on their hospitalspecific rate from certain specified base 

years or the IPPS Federal rate, 

whichever yields the greater aggregate 

payment for the hospital’s cost reporting 

period. If an SCH is paid under its 

hospital-specific rate, it is not eligible 

for Medicare DSH payments. In order to 

implement the provisions of section 

1886(r) of the Act, in the FY 2014 IPPS/ 

LTCH PPS final rule (78 FR 50624), we 

specified that we will continue to 

determine interim payments for SCHs 

based on what we estimate and project 

their DSH status to be prior to the 

beginning of the Federal fiscal year 

(based on the best available data at that 

time), subject to settlement through the 

cost report. We also specified that SCHs 

that receive interim empirically justified 

Medicare DSH payments in a fiscal year 

would receive interim uncompensated 

care payments for that fiscal year on a 

per discharge basis, subject as well to 

settlement through the cost report. Final 

eligibility determinations will be made 

at the end of the cost reporting period 

at settlement, and both interim 

empirically justified Medicare DSH 

payments and uncompensated care 

payments will be adjusted accordingly. 

Therefore, we follow the same processes 

of interim and final payments for SCHs 

that we follow for eligible IPPS DSH 

hospitals generally. 

MDHs are paid based on the IPPS 

Federal rate or, if higher, the IPPS 

Federal rate plus 75 percent of the 

amount by which the Federal rate is 

exceeded by the updated hospitalspecific rate from certain specified base 

years (76 FR 51684). The IPPS Federal 

rate used in the MDH payment 

methodology is the same IPPS Federal 

rate that is used in the SCH payment 

methodology. Uncompensated care 

payments to MDHs were not explicitly 

addressed in the FY 2014 IPPS/LTCH 

PPS final rule because, at the time of the 

publication of the final rule, the MDH 

program was set to expire at the end of 

FY 2013. Since the publication of the 

FY 2014 IPPS/LTCH PPS final rule, the 

MDH program was extended from 

October 1, 2013, to March 31, 2014, 

under the Pathway for SGR Reform Act 

(Pub. L. 113–67) and was further 

extended an additional year from April 

1, 2014, to March 31, 2015, by the 

Protecting Access to Medicare Act of 

2014 (Pub. L. 113–93). Because MDHs 

are paid under the IPPS Federal rate 

and, therefore, are eligible to receive 

Medicare DSH payments if their 

disproportionate patient percentage is at 

least 15 percent, we apply the same 

process to determine eligibility for 

Medicare DSH and the uncompensated 

care payment as we do for all other IPPS 

hospitals. That is, we make a 

determination concerning eligibility for 

interim uncompensated care payments 

based on each hospital’s estimated DSH 

status for the applicable fiscal year 

(using the most recent data that are 

available) and our final determination 

on the hospital’s eligibility for 

uncompensated care payments would 

be based on the hospital’s actual DSH 

status on the cost report for that 

payment year. In addition, as we do for 

all IPPS hospitals, we would calculate a 

numerator for Factor 3 for all MDHs, 

regardless of whether they are projected 

to be eligible for DSH during the fiscal 

year, but the denominator for Factor 3 

would be based on the uncompensated 

care data from the hospitals that we 

have projected to be eligible for DSH 

during the fiscal year. 

Furthermore, in the FY 2014 IPPS 

interim final rule with comment period 

(79 FR 15027), which addressed MDH 

payments for the first 6 months of FY 

2014, we established a policy of 

including a pro rata share of the 

uncompensated care payment amount 

for that period as part of the Federal rate 

payment in the comparison of payments 

under the hospital-specific rate and the 

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Federal rate. Consistent with that 

policy, for MDH payments for the first 

6 months of FY 2015, a pro rata share 

of the uncompensated care payment 

amount for that period will be included 

as part of the Federal rate payment in 

the comparison of payments under the 

hospital-specific rate and the Federal 

rate. That is, in making this comparison 

at cost report settlement, we will 

include the pro rata share of the 

uncompensated care payment amount 

that reflects the period of time the 

hospital was paid under the MDH 

program for its discharges occurring on 

or after October 1, 2014, and before 

April 1, 2015. Consistent with the 

policy for hospitals with Medicare cost 

reporting periods that span more than 1 

Federal fiscal year, this pro rata share 

will be determined based on the 

proportion of the applicable Federal 

fiscal year that is included in that cost 

reporting period (78 FR 61192 through 

61194). As noted previously, section 

106 of Public Law 113–93 provides for 

an extension of the MDH program 

through March 31, 2015, only. 

Therefore, beginning April 1, 2015, all 

hospitals that previously qualified for 

MDH status will no longer have MDH 

status under current law. 

IPPS hospitals that have elected to 

participate in the Bundled Payments for 

Care Improvement initiative receive a 

payment that links multiple services 

furnished to a patient during an episode 

of care. We have stated in previous 

rulemaking that those hospitals 

continue to be paid under the IPPS (77 

FR 53342). Hospitals that elect to 

participate in the initiative can still 

receive DSH payments while 

participating in the initiative, if they 

otherwise meet the requirements for 

receiving such payments. In the FY 

2014 IPPS/LTCH PPS final rule (78 FR 

50625), we specified that we will apply 

the new DSH payment methodology to 

the hospitals participating in this 

initiative, so that eligible hospitals will 

receive empirically justified Medicare 

DSH payments and uncompensated care 

payments. 

Section 410A of the Medicare 

Modernization Act established the Rural 

Community Hospital Demonstration 

Program. After the initial 5-year period, 

the demonstration was extended for an 

additional 5-year period by sections 

3123 and 10313 of the Affordable Care 

Act. There are 23 hospitals currently 

participating in the demonstration. 

Under the payment methodology 

provided in section 410A, participating 

hospitals receive payment for Medicare 

inpatient services on the basis of a cost 

methodology. Specifically, for 

discharges occurring in the hospitals’ 

first cost reporting period of the initial 

5-year demonstration or the first cost 

reporting period of the 5-year extension, 

the hospitals participating in the 

demonstration receive payments for the 

reasonable cost of providing such 

services. For discharges occurring in 

subsequent cost reporting periods 

during the applicable 5-year period, 

hospitals receive the lesser of the 

current year’s reasonable cost-based 

amount, or the previous year’s amount 

updated by the percentage increase in 

the IPPS market basket (the target 

amount). The instructions (Change 

Request 5020 (April 14, 2006) and 

Change Request 7505 (July 22, 2011) for 

the demonstration require that the MAC 

not pay Medicare DSH payments in 

addition to the amount received under 

the reasonable cost-based payment 

methodology. Because hospitals 

participating in the demonstration do 

not receive DSH payments, we 

determined in the FY 2014 IPPS/LTCH 

PPS final rule that these hospitals also 

are excluded from receiving empirically 

justified Medicare DSH payments and 

uncompensated care payments under 

the new payment methodology (78 FR 

50625). 

c. Empirically Justified Medicare DSH 

Payments 

As we have discussed earlier, section 

1886(r)(1) of the Act requires the 

Secretary to pay 25 percent of the 

amount of the DSH payment that would 

otherwise be made under subsection 

(d)(5)(F) to a subsection (d) hospital. 

Because section 1886(r)(1) of the Act 

merely requires the program to pay a 

designated percentage of these 

payments, without revising the criteria 

governing eligibility for DSH payments 

or the underlying payment 

methodology, we stated in the FY 2014 

IPPS/LTCH PPS final rule that we did 

not believe that it is necessary to 

develop any new operational 

mechanisms for making such payments. 

Therefore, in the FY 2014 IPPS/LTCH 

PPS final rule (78 FR 50626), we 

implemented this provision simply by 

revising the claims payment 

methodologies to adjust the interim 

claim payments to the requisite 25 

percent of what would have otherwise 

been paid. We also made corresponding 

changes to the hospital cost report so 

that these empirically justified Medicare 

DSH payments can be settled at the 

appropriate level at the time of cost 

report settlement. We provided more 

detailed operational instructions and 

cost report instructions following 

issuance of the final rule that can be 

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

www.cms.gov/Regulations-andGuidance/Guidance/Transmittals/2014- 

Transmittals-Items/R5P240.html. 

d. Uncompensated Care Payments 

As we have discussed earlier, section 

1886(r)(2) of the Act provides that, for 

each eligible hospital in FY 2014 and 

subsequent years, the new 

uncompensated care payment is the 

product of three factors. These three 

factors represent our estimate of 75 

percent of the amount of Medicare DSH 

payments that would otherwise have 

been paid, an adjustment to this amount 

for the percent change in the national 

rate of uninsurance compared to the rate 

of uninsurance in 2013, and each 

eligible hospital’s estimated 

uncompensated care amount relative to 

the estimated uncompensated care 

amount for all eligible hospitals. Below 

we review the data sources and 

methodologies for computing each of 

these factors, our final policies for FY 

2014, and our proposed policies for FY 

2015. 

(1) Proposed Calculation of Factor 1 for 

FY 2015 

Section 1886(r)(2)(A) of the Act 

establishes Factor 1 in the calculation of 

the uncompensated care payment. 

Section 1886(r)(2)(A) of the Act states 

that it is a factor ‘‘equal to the difference 

between (i) the aggregate amount of 

payments that would be made to 

subsection (d) hospitals under 

subsection (d)(5)(F) if this subsection 

did not apply for such fiscal year (as 

estimated by the Secretary); and (ii) the 

aggregate amount of payments that are 

made to subsection (d) hospitals under 

paragraph (1) for such a fiscal year (as 

so estimated).’’ Therefore, section 

1886(r)(2)(A)(i) of the Act represents the 

estimated Medicare DSH payment that 

would have been made under section 

1886(d)(5)(F) if section 1886(r) of the 

Act did not apply for such fiscal year. 

Under a prospective payment system, 

we would not know the precise 

aggregate Medicare DSH payment 

amount that would be paid for a Federal 

fiscal year until cost report settlement 

for all IPPS hospitals is completed, 

which occurs several years after the end 

of the Federal fiscal year. Therefore, 

section 1886(r)(2)(A)(i) of the Act 

provides authority to estimate this 

amount, by specifying that, for each 

fiscal year to which the provision 

applies, such amount is to be ‘‘estimated 

by the Secretary.’’ Similarly, section 

1886(r)(2)(A)(ii) of the Act represents 

the estimated empirically justified 

Medicare DSH payments to be made in 

a fiscal year, as prescribed under section 

1886(r)(1) of the Act. Again, section 

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28098 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

1886(r)(2)(A)(ii) of the Act provides 

authority to estimate this amount. 

Therefore, Factor 1 is the difference 

between our estimates of: (1) The 

amount that would have been paid in 

Medicare DSH payments for the fiscal 

year, in the absence of the new payment 

provision; and (2) the amount of 

empirically justified Medicare DSH 

payments that are made for the fiscal 

year, which takes into account the 

requirement to pay 25 percent of what 

would have otherwise been paid under 

section 1886(d)(5)(F) of the Act. In other 

words, this factor represents our 

estimate of 75 percent (100 percent 

minus 25 percent) of our estimate of 

Medicare DSH payments that would 

otherwise be made, in the absence of 

section 1886(r) of the Act, for the fiscal 

year. 

In order to determine Factor 1 in the 

uncompensated care payment formula, 

in the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50628 through 50630) and 

in the FY 2014 IPPS interim final rule 

with comment period (78 FR 61194), we 

adopted a policy under which we 

develop final estimates of both the 

aggregate amount of Medicare DSH 

payments that would be made in the 

absence of section 1886(r)(1) of the Act 

and the aggregate amount of empirically 

justified Medicare DSH payments to 

hospitals under section 1886(r)(1) of the 

Act prior to each fiscal year to which 

the new provision applies. These 

estimates are not revised or updated 

after we know the final Medicare DSH 

payments for the fiscal year. 

Specifically, in order to determine the 

two elements of Factor 1 (Medicare DSH 

payments prior to the application of 

section 1886(r)(1) of the Act, and 

empirically justified Medicare DSH 

payments after application of section 

1886(r)(1) of the Act), we use the most 

recently available projections of 

Medicare DSH payments for the fiscal 

year, as calculated by CMS’ Office of the 

Actuary. The Office of the Actuary 

projects Medicare DSH payments on a 

biannual basis, typically in February of 

each year (based on data from December 

of the previous year) as part of the 

President’s Budget, and in July (based 

on data from June) as part of the 

Midsession Review. The estimates are 

based on the most recently filed 

Medicare hospital cost report with 

Medicare DSH payment information, 

supplemental cost report data provided 

by Indian Health Service (IHS) hospitals 

to CMS, and the most recent Medicare 

DSH patient percentages and Medicare 

DSH payment adjustments provided in 

the IPPS Impact File. 

Therefore, for the Office of the 

Actuary’s February 2014 estimate, the 

data are based on the December 2013 

update of the Medicare Hospital Cost 

Report Information System (HCRIS), 

supplemental cost report data provided 

by IHS hospitals to CMS as of December 

2013 and the FY 2014 IPPS/LTCH PPS 

final rule IPPS Impact file, published in 

conjunction with the publication of the 

FY 2014 IPPS/LTCH PPS final rule. For 

the July 2014 estimate, we anticipate 

that the data will be based on the March 

2014 update of the HCRIS data, 

supplemental cost report data provided 

by IHS hospitals to CMS as of March 

2014, and the FY 2015 proposed rule’s 

IPPS Impact file, published in 

conjunction with this proposed rule 

(and which is available via the Internet 

on the CMS Web site). For purposes of 

this proposed rule, we are using the 

February 2014 Medicare DSH estimates 

to calculate Factor 1 and to model the 

proposed impact of this provision. For 

the final rule, we intend to use the July 

2014 Medicare DSH estimates to 

determine Factor 1 and to model the 

impact of this provision. In addition, 

because SCHs paid under their hospitalspecific payment rate are excluded from 

the application of section 1886(r) of the 

Act, we also exclude SCHs that are 

projected to be paid under their 

hospital-specific rate from our Medicare 

DSH estimates. Similarly, because 

Maryland hospitals participating in the 

Maryland All-Payer Model and 

hospitals participating in the Rural 

Community Hospital Demonstration do 

not receive DSH payments, we also 

exclude these hospitals from our 

Medicare DSH estimates. 

Using the data sources discussed 

above, the Office of the Actuary uses the 

most recently submitted Medicare cost 

report data to identify current Medicare 

DSH payments, supplemental cost 

report data provided by IHS hospitals to 

CMS, and the most recent DSH payment 

adjustments provided in the IPPS 

Impact File, and applies inflation 

updates and assumptions for future 

changes in utilization and case-mix to 

estimate Medicare DSH payments for 

the upcoming fiscal year. The February 

2014 Office of the Actuary estimate for 

Medicare DSH payments for FY 2015, 

without regard to the application of 

section 1886(r)(1) of the Act, is $14.205 

billion. This estimate excludes 

Maryland hospitals participating in the 

Maryland All-Payer Model, SCHs paid 

under their hospital-specific payment 

rate, and hospitals participating in the 

Rural Community Hospital 

Demonstration as discussed above. 

Therefore, based on this estimate, the 

estimate for empirically justified 

Medicare DSH payments for FY 2015, 

with the application of section 

1886(r)(1) of the Act, is $3.551 billion 

(25 percent of the total amount 

estimated). Under § 412.l06(g)(1)(i) of 

the regulations, Factor 1 is the 

difference between these two estimates 

of the Office of the Actuary. Therefore, 

for the purpose of modeling Factor 1, we 

are proposing that Factor 1 for FY 2015 

would be $10.654 billion ($14.205 

billion minus $3.551 billion). We are 

inviting public comment on our 

proposed calculation of Factor 1 for FY 

2015. 

(2) Proposed Calculation of Factor 2 for 

FY 2015 

Section 1886(r)(2)(B) of the Act 

establishes Factor 2 in the calculation of 

the uncompensated care payment. 

Specifically, section 1886(r)(2)(B)(i) of 

the Act provides: ‘‘For each of fiscal 

years 2014, 2015, 2016, and 2017, a 

factor equal to 1 minus the percent 

change in the percent of individuals 

under the age of 65 who are uninsured, 

as determined by comparing the percent 

of such individuals (I) who are 

uninsured in 2013, the last year before 

coverage expansion under the Patient 

Protection and Affordable Care Act (as 

calculated by the Secretary based on the 

most recent estimates available from the 

Director of the Congressional Budget 

Office before a vote in either House on 

the Health Care and Education 

Reconciliation Act of 2010 that, if 

determined in the affirmative, would 

clear such Act for enrollment); and (II) 

who are uninsured in the most recent 

period for which data is available (as so 

calculated), minus 0.1 percentage points 

for fiscal year 2014 and minus 0.2 

percentage points for each of fiscal years 

2015, 2016, and 2017.’’ 

Section 1886(r)(2)(B)(i)(I) of the Act 

further indicates that the percent of 

individuals under 65 without insurance 

in 2013 must be the percent of such 

individuals ‘‘who are uninsured in 

2013, the last year before coverage 

expansion under the Patient Protection 

and Affordable Care Act (as calculated 

by the Secretary based on the most 

recent estimates available from the 

Director of the Congressional Budget 

Office before a vote in either House on 

the Health Care and Education 

Reconciliation Act of 2010 that, if 

determined in the affirmative, would 

clear such Act for enrollment).’’ The 

Health Care and Education 

Reconciliation Act (Pub. L. 111–152) 

was enacted on March 30, 2010. It was 

passed in the House of Representatives 

on March 21, 2010, and by the Senate 

on March 25, 2010. Because the House 

of Representatives was the first House to 

vote on the Health Care and Education 

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Reconciliation Act of 2010 on March 21, 

2010, we have determined that the most 

recent estimate available from the 

Director of the Congressional Budget 

Office ‘‘before a vote in either House on 

the Health Care and Education 

Reconciliation Act of 2010 . . .’’ 

(emphasis added) appeared in a March 

20, 2010 letter from the director of the 

CBO to the Speaker of the House. 

Therefore, we believe that only the 

estimates in this March 20, 2010 letter 

meet the statutory requirement under 

section 1886(r)(2)(B)(i)(I) of the Act. (To 

view the March 20, 2010 letter, we refer 

readers to the Web site at: http://

www.cbo.gov/sites/default/files/cbo

files/ftpdocs/113xx/doc11379/amend

reconprop.pdf.) 

In its March 20, 2010 letter to the 

Speaker of the House of Representatives, 

the CBO provided two estimates of the 

‘‘post-policy uninsured population.’’ 

The first estimate is of the ‘‘Insured 

Share of the Nonelderly Population 

Including All Residents’’ (82 percent) 

and the second estimate is of the 

‘‘Insured Share of the Nonelderly 

Population Excluding Unauthorized 

Immigrants’’ (83 percent). In the FY 

2014 IPPS/LTCH PPS final rule (78 FR 

50631), we used the first estimate that 

includes all residents, including 

unauthorized immigrants. We stated 

that we believe this estimate is most 

consistent with the statute which 

requires us to measure ‘‘the percent of 

individuals under the age of 65 who are 

uninsured,’’ and provides no exclusions 

except for individuals over the age of 

65. In addition, we stated that we 

believe that this estimate more fully 

reflects the levels of uninsurance in the 

United States that influence 

uncompensated care for hospitals than 

the estimate that reflects only legal 

residents. The March 20, 2010 CBO 

letter reports these figures as the 

estimated percentage of individuals 

with insurance. However, because 

section 1886(r)(2)(B)(i) of the Act 

requires that we compare the percent of 

individuals who are uninsured in the 

applicable year with the percent of 

individuals who were uninsured in 

2013, in the FY 2014 IPPS/LTCH PPS 

final rule, we used the CBO insurance 

rate figure and subtracted that amount 

from 100 percent (that is the total 

population without regard to insurance 

status) to estimate the 2013 baseline 

percent of individuals without 

insurance. Therefore, for FYs 2014 

through 2017, our estimate of the 

uninsurance percentage for 2013 is 18 

percent. 

Section 1886(r)(2)(B)(i) of the Act 

requires that we compare the baseline 

uninsurance rate to the percent of such 

individuals ‘‘who are uninsured in the 

most recent period for which data is 

available (as so calculated).’’ In the FY 

2014 IPPS/LTCH PPS final rule (78 FR 

50634), we used the same data source, 

CBO estimates, to calculate this percent 

of individuals without insurance. In 

response to public comments, we also 

agreed that we should normalize the 

CBO estimates, which are based on the 

calendar year, for the Federal fiscal 

years for which each calculation of 

Factor 2 is made (78 FR 50633). 

Therefore, in the FY 2014 IPPS/LTCH 

PPS final rule, we employed the most 

recently available estimate, specifically 

CBO’s May 2013 estimates of the effects 

of the Affordable Care Act on health 

insurance coverage (which are available 

at: http://www.cbo.gov/sites/default/

files/cbofiles/attachments/44190_Effects

AffordableCareActHealthInsurance

Coverage_2.pdf) as amended by CBO’s 

July 2013 estimates of changes in 

estimates of the effects of insurance 

coverage provisions in the Affordable 

Care Act issued in conjunction with a 

memo regarding ‘‘Analysis of the 

Administration’s Announced Delay of 

Certain Requirements Under the 

Affordable Care Act,’’ which are 

available at: http://www.cbo.gov/sites/

default/files/cbofiles/attachments/

44465-ACA.pdf. The CBO’s May 2013 

estimate of the rate of insurance for CY 

2013 was 80 percent, and for CY 2014 

was 84 percent. Therefore, the 

calculation of Factor 2 for FY 2014, 

employing a weighted average of the 

CBO projections for CY 2013 and CY 

2014, was as follows: 

• CY 2013 rate of insurance coverage 

(May 2013 CBO estimate): 80 percent. 

• CY 2014 rate of insurance coverage 

(May 2013 CBO estimate, updated with 

July 2013 CBO estimate): 84 percent. 

• FY 2014 rate of insurance coverage: 

(80 percent * .25) + (84 percent * .75) 

= 83 percent. 

• Percent of individuals without 

insurance for 2013 (March 2010 CBO 

estimate): 18 percent. 

• Percent of individuals without 

insurance for FY 2014 (weighted 

average): 17 percent. 

1¥|[(0.17¥0.18)/0.18]| = 1¥0.056 = 

0.944 (94.4 percent). 

0.944 (94.4 percent)¥0.001 (0.1 

percentage points) = 0.943 (94.3 

percent). 

0.943 = Factor 2 

Therefore, in the FY 2014 IPPS/LTCH 

PPS final rule, we adopted 0.943 as the 

final determination of Factor 2 for FY 

2014. In conjunction with this 

determination, we also determined in 

the FY 2014 IPPS/LTCH PPS final rule 

and later revised in the FY 2014 IPPS 

interim final rule with comment period 

(78 FR 61195) that the amount available 

for uncompensated care payments for 

FY 2014 would be approximately $9.046 

billion (0.943 times our Factor 1 

estimate of $9.593 billion). 

For this FY 2015 proposed rule, we 

have used CBO’s February 2014 

estimates of the effects of the Affordable 

Care Act on health insurance coverage 

(which are available at http://

www.cbo.gov/publication/43900?utm_

source=feedblitz&utm_medium=Feed

BlitzEmail&utm_content=812526&utm_

campaign=0). The CBO’s February 2014 

estimate of individuals under the age of 

65 with insurance in CY 2014 is 84 

percent. Therefore, the CBO’s most 

recent estimate of the rate of 

uninsurance in CY 2014 is 16 percent 

(that is, 100 percent minus 84 percent.) 

Similarly, the CBO’s February 2014 

estimate of individuals under the age of 

65 with insurance in CY 2015 is 86 

percent. Therefore, the CBO’s most 

recent estimate of the rate of 

uninsurance in CY 2015 available 

during the development of this 

proposed rule is 14 percent (that is, 100 

percent minus 86 percent.) 

The calculation of the proposed 

Factor 2 for FY 2015, employing a 

weighted average of the CBO projections 

for CY 2014 and CY 2015, is as follows: 

• CY 2014 rate of insurance coverage 

(February 2014 CBO estimate): 84 

percent. 

• CY 2015 rate of insurance coverage 

(February 2014 CBO estimate): 86 

percent. 

• FY 2015 rate of insurance coverage: 

(84 percent * .25) + (86 percent * .75) 

= 85.5 percent. 

• Percent of individuals without 

insurance for 2013 (March 2010 CBO 

estimate): 18 percent 

• Percent of individuals without 

insurance for FY 2015 (weighted 

average): 14.5 percent 

1¥|[(0.145—0.18)/0.18]| = 1¥0.19444 = 

0.80556 (80.556 percent) 

0.80556 (80.556 percent)¥0.002 (0.2 

percentage points for FY 2015 under 

section 1886(r)(2)(B)(i) of the Act) = 

0.8036 (80.36 percent) 

0.8036 = Factor 2 

Therefore, we are proposing that 

Factor 2 for FY 2015 would be 0.8036. 

Our proposal for Factor 2 is subject to 

change if more recent CBO estimates of 

the insurance rate become available at 

the time of the preparation of the final 

rule. We are inviting public comments 

on our proposed calculation of Factor 2 

for FY 2015. 

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28100 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

(3) Proposed Calculation of Factor 3 for 

FY 2015 

Section 1886(r)(2)(C) of the Act 

defines Factor 3 in the calculation of the 

uncompensated care payment. As we 

have discussed earlier, section 

1886(r)(2)(C) of the Act states that Factor 

3 is ‘‘equal to the percent, for each 

subsection (d) hospital, that represents 

the quotient of (i) the amount of 

uncompensated care for such hospital 

for a period selected by the Secretary (as 

estimated by the Secretary, based on 

appropriate data (including, in the case 

where the Secretary determines 

alternative data is available which is a 

better proxy for the costs of subsection 

(d) hospitals for treating the uninsured, 

the use of such alternative data)); and 

(ii) the aggregate amount of 

uncompensated care for all subsection 

(d) hospitals that receive a payment 

under this subsection for such period 

(as so estimated, based on such data).’’ 

Therefore, Factor 3 is a hospitalspecific value that expresses the 

proportion of the estimated 

uncompensated care amount for each 

subsection (d) hospital and each 

subsection (d) Puerto Rico hospital with 

the potential to receive DSH payments 

relative to the estimated uncompensated 

care amount for all hospitals estimated 

to receive DSH payments in the fiscal 

year for which the uncompensated care 

payment is to be made. Factor 3 is 

applied to the product of Factor 1 and 

Factor 2 to determine the amount of the 

uncompensated care payment that each 

eligible hospital will receive for FY 

2014 and subsequent fiscal years. In 

order to implement the statutory 

requirements for this factor of the 

uncompensated care payment formula, 

it was necessary to determine: (1) The 

definition of uncompensated care or, in 

other words, the specific items that are 

to be included in the numerator (that is, 

the estimated uncompensated care 

amount for an individual hospital) and 

denominator (that is, the estimated 

uncompensated care amount for all 

hospitals estimated to receive DSH 

payments in the applicable fiscal year); 

(2) the data source(s) for the estimated 

uncompensated care amount; and (3) 

the timing and manner of computing the 

quotient for each hospital estimated to 

receive DSH payments. The statute 

instructs the Secretary to estimate the 

amounts of uncompensated care for a 

period ‘‘based on appropriate data.’’ In 

addition, we note that the statute 

permits the Secretary to use alternative 

data ‘‘in the case where the Secretary 

determines that alternative data is 

available,’’ which is a better proxy for 

the costs of subsection (d) hospitals for 

treating uninsured individuals. 

In the course of considering how to 

determine Factor 3 during the 

rulemaking process for FY 2014, we 

considered defining the amount 

uncompensated care for a hospital as 

the uncompensated care costs of each 

hospital and considered potential data 

sources for those costs. For purposes of 

selecting an appropriate data source for 

this possible definition of 

uncompensated care costs, we reviewed 

the literature and available data sources 

and determined that Worksheet S–10 of 

the Medicare cost report could 

potentially provide the most complete 

data for Medicare hospitals. (We refer 

readers to the report ‘‘Improvements to 

Medicare Disproportionate Share (DSH) 

Payments’’ for a full discussion and 

evaluation of the available data sources. 

The report is available on the CMS Web 

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

Medicare-Fee-for-Service-Payment/

AcuteInpatientPPS/dsh.html.) However, 

we noted that Worksheet S–10 is a 

relatively new data source that has been 

used for specific payment purposes only 

in relatively restricted ways (for 

example, to provide a source of charity 

care charges in the computation of EHR 

incentive payments (75 FR 44456)). We 

also noted that some stakeholders have 

expressed concern that hospitals have 

not had enough time to learn how to 

submit accurate and consistent data 

through this reporting mechanism. 

Other stakeholders have maintained that 

some instructions for Worksheet S–10 

still require clarification in order to 

ensure standardized and consistent 

reporting by hospitals. At the same time, 

we noted that Worksheet S–10 is the 

only national data source that includes 

data for all Medicare hospitals and is 

designed to elicit data on 

uncompensated care costs. We 

discussed the possible use of data 

reported on Worksheet S–10 to 

determine uncompensated care costs in 

more detail in the FY 2014 IPPS/LTCH 

PPS proposed rule (78 FR 27586). 

Because of concerns regarding 

variations in the data reported on 

Worksheet S–10 of the Medicare cost 

report and the completeness of these 

data, we did not propose to use data 

from the Worksheet S–10 to determine 

the amount of uncompensated care. 

However, we stated our belief that 

Worksheet S–10 of the Medicare cost 

report would otherwise be an 

appropriate data source to determine 

uncompensated care costs. In particular, 

we noted that Worksheet S–10 was 

developed specifically to collect 

information on uncompensated care 

costs in response to interest by MedPAC 

and other stakeholders regarding the 

topic (for example, MedPAC’s March 

2007 Report to Congress) and that it is 

not unreasonable to expect information 

on the cost report to be used for 

payment purposes. Furthermore, 

hospitals attest to the accuracy and 

completeness of the information 

reported in the cost report at the time of 

submission. We indicated that we 

expect reporting on Worksheet S–10 to 

improve over time, particularly in the 

area of charity care which is already 

being used and audited for payment 

determinations related to the EHR 

Incentive Program, and that we will 

continue to monitor these data. 

Accordingly, we stated that we may 

proceed with a proposal to use data on 

the Worksheet S–10 to determine 

uncompensated care costs in the future, 

once hospitals are submitting accurate 

and consistent data through this 

reporting mechanism. 

As a result of our concerns regarding 

the data reported on Worksheet S–10 of 

the Medicare cost report, we believed it 

was appropriate to consider the use of 

alternative data, at least in FY 2014, the 

first year that this provision is in effect, 

and possibly for additional years until 

hospitals have adequate experience 

reporting all of the data elements on 

Worksheet S–10. We noted that this 

approach is consistent with input we 

received from some stakeholders in 

response to the CMS National Provider 

Call in January 2013, who stated their 

belief that existing FY 2010 and FY 

2011 data from the Worksheet S–10 

should not be used for implementation 

of section 1886(r) of the Act and who 

requested the opportunity to resubmit 

the data once more specific instructions 

were issued by CMS. Accordingly, we 

examined alternative data sources that 

could be used to allow time for 

hospitals to gain experience with and to 

improve the accuracy of their reporting 

on Worksheet S–10 of the Medicare cost 

report. We stated in the FY 2014 IPPS/ 

LTCH PPS final rule that we believe that 

data on utilization for insured lowincome patients can be a reasonable 

proxy for the treatment costs of 

uninsured patients. Moreover, due to 

the concerns regarding the accuracy and 

consistency of the data reported on the 

Worksheet S–10, we also determined 

that these alternative data, which are 

currently reported on the Medicare cost 

report, would be a better proxy for the 

amount of uncompensated care 

provided by hospitals. Accordingly, in 

the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50639), we adopted the policy of 

employing the utilization of insured 

low-income patients defined as 

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inpatient days of Medicaid patients plus 

inpatient days of Medicare SSI patients 

as defined in 42 CFR 412.106(b)(4) and 

412.106(b)(2)(i), respectively, to 

determine Factor 3. We also indicated 

that we remained convinced that the 

Worksheet S–10 could ultimately serve 

as an appropriate source of more direct 

data regarding uncompensated care 

costs for purposes of determining Factor 

3 once hospitals are submitting more 

accurate and consistent data through 

this reporting mechanism. In the 

interim, we indicated that we would 

take steps such as revising and 

clarifying cost report instructions, as 

appropriate. We stated that it is our 

intention to propose introducing the use 

of the Worksheet S–10 data for purposes 

of determining Factor 3 within a 

reasonable amount of time. 

Since the publication of the FY 2014 

IPPS/LTCH PPS final rule, we have 

continued to evaluate and assess the 

comments we have received from 

stakeholders about Worksheet S–10 as 

well as evaluate what changes might 

need to be made to the instructions to 

make the data hospitals submit more 

accurate and consistent across hospitals. 

Although we have not yet developed 

revisions to the Worksheet S–10 

instructions at this time, we remain 

committed to making improvements to 

Worksheet S–10. For that reason, we 

believe it would be premature to 

propose the use of Worksheet S–10 data 

for purposes of determining Factor 3 for 

FY 2015. Therefore, we are proposing to 

continue to employ the utilization of 

insured low-income patients defined as 

inpatient days of Medicaid patients plus 

inpatient days of Medicare SSI patients, 

as defined in § 412.106(b)(4) and 

§ 412.106(b)(2)(i), respectively, to 

determine Factor 3 for FY 2015. 

Accordingly, we are proposing to revise 

the regulations at 42 CFR 

412.106(g)(1)(iii)(C) to state that, for FY 

2015, CMS will base its estimates of the 

amount of hospital uncompensated care 

on the most recent available data on 

utilization for Medicaid and Medicare 

SSI patients, as determined by CMS in 

accordance with paragraphs (b)(2)(i) and 

(b)(4) of that section of the regulations. 

We are inviting public comments on 

this proposal, and we will continue to 

work with the hospital community and 

others to develop the appropriate 

clarifications and revisions to 

Worksheet S–10 of the Medicare cost 

report for reporting uncompensated care 

data. In particular, we are inviting 

public comments on what would be a 

reasonable timeline for adopting 

Worksheet S–10 of the Medicare cost 

report as the data source for determining 

Factor 3. 

As we did for the FY 2014 IPPS/LTCH 

PPS proposed rule, we are publishing 

on the CMS Web site a table listing 

Factor 3 for all hospitals that we 

estimate would receive empirically 

justified Medicare DSH payments in a 

fiscal year (that is, hospitals that we 

project would receive interim 

uncompensated care payments during 

the fiscal year), and for the remaining 

subsection (d) and subsection (d) Puerto 

Rico hospitals that have the potential of 

receiving a DSH payment in the event 

that they receive an empirically justified 

Medicare DSH payment for the fiscal 

year as determined at cost report 

settlement. Hospitals have 60 days from 

the date of public display of the IPPS/ 

LTCH PPS proposed rule to review 

these tables and notify CMS in writing 

of a change in a hospital’s subsection (d) 

hospital status, such as if a hospital has 

closed or converted to a CAH. 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50639), we considered 

public comments which recommended 

that we use the wage index to adjust 

insured low-income days in 

determining Factor 3 in order to account 

for the differences in ‘‘purchasing 

power’’ in different regions of the 

country. With respect to these public 

comments, we agreed that there may be 

regional variation in uncompensated 

care costs due to regional variations in 

the costs of care generally. However, we 

stated that we did not believe that there 

was sufficient basis for believing that 

the wage index reflects the variations in 

uncompensated care costs well enough 

to adopt it as the basis for adjusting 

Factor 3. The wage index reflects the 

relative hospital wage level in the 

geographic area of the hospital 

compared to the national average 

hospital wage level. In computing the 

wage index, we derive an average 

hourly wage for each labor market area 

(total wage costs divided by total hours 

for all hospitals in the geographic area) 

and a national average hourly wage 

(total wage costs divided by total hours 

for all hospitals surveyed in the nation). 

A labor market area’s wage index value 

is the ratio of the area’s average hourly 

wage to the national average hourly 

wage. We note that, for FY 2014, 69.6 

percent of the standardized amount is 

considered to be the labor-related share 

and, therefore, adjusted by the wage 

index. However, in addition to the 

labor-related share of the standardized 

amount being adjusted by the wage 

index, the entire standardized amount is 

also adjusted for the relative weight of 

the MS–DRG for each individual 

patient. In other words, the wage index 

only adjusts for a portion of the 

variation in costs, and does not address 

variations in resource use and patient 

severity. Therefore, we stated that we 

did not believe that there was sufficient 

basis for believing that adjusting lowincome patient days by the wage index 

would better reflect variations in 

uncompensated care costs. 

Since the publication of the FY 2014 

IPPS/LTCH PPS final rule, we have 

continued to consider whether to 

propose employing the wage index to 

adjust insured low-income days in 

determining Factor 3. After this 

consideration, we continue to believe 

that a wage index adjustment to insured 

low-income days is not an appropriate 

measure to account for variations in the 

costs of uncompensated care among 

hospitals. The intensity of such care, 

and therefore the costs, may vary by 

hospital, but we still lack convincing 

evidence that the wage index data are an 

accurate measure of that intensity. 

Therefore, we are not proposing to 

adopt such an adjustment to lowincome days for purposes of calculating 

Factor 3 in FY 2015. 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50639), we also considered 

public comments that requested that we 

include insured low-income days from 

exempt units (specifically, inpatient 

rehabilitation units paid under the IRF 

PPS and inpatient psychiatric units paid 

under the IPF PPS) of the hospital in the 

computation of Factor 3, in order to 

better capture the treatment costs of the 

uninsured by the hospital. In response 

to those public comments, we stated our 

belief that there may be some merit to 

including insured low-income days 

from exempt units of the hospital in 

order to better capture the full costs of 

the treatment of the uninsured by the 

hospital insofar as those data may be 

publicly available, subject to audit, and 

used for payment purposes. We also 

indicated that we believed it would be 

prudent to consider the degree to which 

these data meet these conditions before 

adopting this recommendation. 

Therefore, we stated that we would 

consider including this 

recommendation among our proposals 

in future rulemaking. 

Since the publication of the FY 2014 

IPPS/LTCH PPS final rule, we have 

conducted an analysis of the impact of 

adopting this recommendation. That 

analysis has indicated that the inclusion 

of Medicaid and Medicare-SSI days for 

exempt inpatient units does not 

significantly change the distribution of 

uncompensated care payments to 

hospitals, with the exception of a few 

hospitals with high utilization 

associated with those exempt units that 

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would see increases in their 

uncompensated care payments. 

Furthermore, Medicaid and SSI days for 

inpatient rehabilitation units have been 

audited and are used for payment 

purposes under the IRF PPS; 

specifically, these data are used to 

calculate the low-income payment (LIP) 

adjustment under the IRF PPS. 

However, the data for inpatient 

psychiatric units are not generally 

audited and have not been used 

previously for payment purposes. 

Therefore, we are not proposing at this 

time to include those days in the 

calculation of a hospital’s share of 

uncompensated care payments. As we 

indicated earlier, we believe it would be 

appropriate to include such data in the 

calculation of uncompensated care 

payments only insofar as those data may 

be publicly available, subject to audit, 

and used for payment purposes. The use 

of data for inpatient psychiatric units 

would fail the second and third 

conditions. At the same time, we do not 

believe that including only inpatient 

rehabilitation unit days without 

inpatient psychiatric unit days would 

improve the accuracy of the 

uncompensated care payment 

calculation. We also observe, as we have 

previously noted, that the statutory 

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

the Act to ‘‘days’’ apply only to hospital 

acute care inpatient days. Section 

412.106(a)(1)(ii) of the regulations 

therefore provides that, for purposes of 

DSH payments, ‘‘the number of patient 

days in the hospital includes only those 

days attributable to units or wards of the 

hospital providing acute care services 

generally payable under the prospective 

payment system and excludes’’ other 

days. In the absence of compelling 

reasons to do otherwise, we believe it is 

preferable to maintain consistency with 

this longstanding precedent in the 

context of this temporary method for 

determining uncompensated care 

payments. However, we are inviting 

public comments on this issue. 

The statute also allows the Secretary 

the discretion to determine the time 

periods from which we will derive the 

data to estimate the numerator and the 

denominator of the Factor 3 quotient. 

Specifically, section 1886(r)(2)(C)(i) of 

the Act defines the numerator of the 

quotient as ‘‘the amount of 

uncompensated care for such hospital 

for a period selected by the 

Secretary. . . .’’ (emphasis added). 

Section 1886(r)(2)(C)(ii) of the Act 

defines the denominator as ‘‘the 

aggregate amount of uncompensated 

care for all subsection (d) hospitals that 

receive a payment under this subsection 

for such period’’ (emphasis added). In 

the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50638), we adopted a process of 

making interim payments with final cost 

report settlement for both the 

empirically justified Medicare DSH 

payments and the uncompensated care 

payments required by section 3133 of 

the Affordable Care Act. Consistent with 

that process, we also determined the 

time period from which to calculate the 

numerator and denominator of the 

Factor 3 quotient in a way that would 

be consistent with making interim and 

final payments. Specifically, we must 

have Factor 3 values available for 

hospitals that we estimate will qualify 

for Medicare DSH payments using the 

most recently available historical data 

and for those hospitals that we do not 

estimate will qualify for Medicare DSH 

payments but that may ultimately 

qualify for Medicare DSH payments at 

the time of cost report settlement. 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50638), therefore, we 

adopted the policy to calculate the 

numerator and the denominator of 

Factor 3 for hospitals based on the most 

recently available full year of Medicare 

cost report data (including the most 

recently available data that may be used 

to update the SSI ratios) with respect to 

a Federal fiscal year. In other words, we 

use data from the most recently 

available full year cost report for the 

Medicaid days and the most recently 

available SSI ratios (that is, latest 

available SSI ratios before the beginning 

of the Federal fiscal year) for the 

Medicare SSI days. We noted that these 

data are publicly available, subject to 

audit, and used for payment purposes. 

While we recognized that older data 

also meet these criteria, we often use the 

most recently available data for payment 

determinations. Furthermore, in the FY 

2014 IPPS interim final rule with 

comment period (78 FR 61195), we 

revised our policy to also include 

supplemental cost report data submitted 

to CMS only by IHS hospitals in order 

allow their Medicaid days to be used to 

calculate Factor 3. 

Therefore, for FY 2014, we used data 

from the most recently available full 

year cost report for the Medicaid days 

and the most recently available SSI 

ratios, which meant data from the 2010/ 

2011 cost reports for the Medicaid days, 

supplemental 2011 cost report data 

submitted to CMS by IHS hospitals, and 

the FY 2011 SSI ratios for the Medicare 

SSI days to estimate Factor 3 for FY 

2014. For FY 2015, we are again 

proposing to use data from the most 

recently available full year cost report 

for the Medicaid days (that is, we are 

proposing to use the 2012 cost report, 

unless that cost report is unavailable or 

reflects less than a full 12-month year; 

in the event the 2012 cost report is for 

less than 12 months, we are proposing 

to use the cost report from 2012 or 2011 

that is closest to being a full 12-month 

cost report), supplemental cost report 

data submitted to CMS only by IHS 

hospitals and the most recently 

available SSI ratios. For purposes of this 

proposed rule, we are using data from 

the December 2013 update of the 2011/ 

2012 Medicare cost reports for the 

Medicaid days and the FY 2011 SSI 

ratios for the Medicare SSI days. 

Consistent with our FY 2014 IPPS 

interim final rule with comment period 

(78 FR 61195), for FY 2015, we also are 

using supplemental cost report data 

provided by IHS hospitals to CMS as of 

December 2013 in order to calculate the 

proposed Factor 3. For the FY 2015 IPPS 

final rule, we intend to use the March 

2014 update of the 2011/2012 Medicare 

cost reports, supplemental cost report 

data submitted to CMS by IHS hospitals 

as of March 2014, and the most recently 

available SSI ratios (FY 2012 SSI ratios 

and, if not available, the FY 2011 SSI 

ratios) to calculate Factor 3. We believe 

the March update to the Medicare cost 

reports will be the most recently 

available data to calculate Factor 3 at 

the time of publication of the FY 2015 

IPPS final rule. We believe this is 

consistent with CMS’ historical policy 

to use the best available data when 

setting the payment rates and factors in 

both the proposed and final rules. 

Furthermore, this is consistent with our 

approach in other areas of IPPS, where 

we historically use the March update of 

cost report data and MedPAR claims 

data to calculate IPPS relative weights, 

budget neutrality factors, the outlier 

threshold, and the standardized amount 

for the IPPS final rule. If we were to wait 

for a later update of the cost report data 

to become available, this could cause 

delay of the publication of the IPPS final 

rule. 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50642), we discussed several 

specific issues concerning the use of 

cost report data to determine Factor 3. 

One issue concerned the process and 

data to be employed in determining 

Factor 3 in the case of hospital mergers. 

Specifically, two hospitals that merged 

in 2011 with one surviving provider 

number requested that we account for 

the merger by including data from both 

hospitals’ cost reports immediately prior 

to the merger in the calculation of the 

Factor 3 amount. In that final rule, we 

had calculated Factor 3 using only the 

surviving hospital’s cost report data and 

SSI ratio data. In the final rule (78 FR 

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50602), we responded to the public 

comment that Factor 3 would be 

calculated based on the low-income 

insured patient days (that is, Medicaid 

days and SSI days) under the surviving 

CCN, based on the most recent available 

data for that CCN (for FY 2014, from the 

cost report for 2011 or 2010). We noted 

that this was consistent with the 

treatment of other IPPS payment factors, 

where data used to calculate a hospital’s 

Medicare DSH payment adjustment, 

CCRs for outlier payments, and wage 

index values are tied to a hospital’s 

CCN. Data associated with a CCN that is 

no longer in use are not used to 

determine those IPPS hospital payments 

under the surviving CCN. 

Since the publication of the FY 2014 

IPPS/LTCH PPS final rule, we have 

received additional input from hospitals 

that have undergone mergers that 

suggest using only the surviving CCN 

produces an estimate of the surviving 

hospital’s uncompensated care burden 

that is lower than warranted. For FY 

2015, for example, Factor 3 of the 

uncompensated care payment 

calculation would be determined using 

2011/2012 cost reports. As a result, for 

any mergers occurring between FY 2011 

and FY 2015, Factor 3 of the 

uncompensated care payment for FY 

2015 would reflect only the data of the 

hospital with the surviving CCN, not the 

combination of the data from the two 

hospitals that merged. We believe that 

revising our methodology to incorporate 

data from both of the hospitals that 

merged could improve our estimate of 

the uncompensated care burden of the 

merged hospital. Accordingly, we are 

proposing to revise our methodology for 

determining Factor 3 to incorporate data 

from both merged hospitals until data 

for the merged hospitals become 

available under the surviving CCN. 

In addition, because the data systems 

used to calculate Factor 3 do not 

identify hospitals that have merged, we 

also are proposing to establish a process 

to identify hospitals that have merged 

after the period of the historical data 

that are being used to calculate Factor 

3, up to a point in time during 

ratesetting for that Federal fiscal year. 

Under this approach, we would 

combine the data for the merged 

hospitals to calculate Factor 3 of the 

uncompensated care payment. 

Specifically, we are proposing that we 

would identify the hospitals that 

merged after the period from which data 

are being used to calculate Factor 3 (for 

FY 2015, 2012 and 2011) but before the 

publication of each year’s final rule. For 

purposes of this proposal, we are 

defining a merger to be an acquisition 

where the Medicare provider agreement 

of one hospital is subsumed into the 

provider agreement of the surviving 

provider. We would not consider an 

acquisition where the new owner 

voluntarily terminates the Medicare 

provider agreement of the hospital it 

purchased by rejecting assignment of 

the previous owner’s provider 

agreement to be a merger. We believe it 

is appropriate to combine data to 

calculate Factor 3 for a merged hospital 

where the Medicare provider agreement 

of one hospital is subsumed into the 

provider agreement of the surviving 

provider because, in this type of 

acquisition as described in the 

September 6, 2013 Survey & 

Certification Memorandum S&C: 13–60– 

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

Provider-Enrollment-and-Certification/

SurveyCertificationGenInfo/Downloads/

Survey-and-Cert-Letter-13-60.pdf), the 

buyer is subject to all applicable statutes 

and regulations and to the terms and 

conditions under which the assigned 

agreement was originally issued. These 

include, but are not limited to, Medicare 

requirements to adjust payments to 

account for prior overpayments and 

underpayments, even if they relate to a 

pre-acquisition period (successor 

liability), and to adjust payments to 

collect civil monetary penalties. 

Therefore, we believe it is appropriate to 

also retain the data of the subsumed 

hospital to calculate the uncompensated 

care payment for the merged hospital. 

Conversely, by rejecting assignment of 

the Medicare provider agreement of the 

subsumed hospital, the surviving 

provider has voluntarily terminated the 

Medicare provider agreement and is 

precluded from having successor 

liability for Medicare overpayments or 

underpayments that would have 

otherwise been made to the subsumed 

provider. Furthermore, when the 

surviving hospital rejects automatic 

assignment of the existing provider 

agreement, but wishes to participate in 

the Medicare program, the merged 

hospital is considered an initial 

applicant to the Medicare program. In 

an instance in which the surviving 

provider has rejected assignment of the 

Medicare provider agreement of the 

subsumed provider, it would not seem 

appropriate to use data from the 

subsumed provider for purposes of 

Medicare payment, including for the 

calculation of a hospital’s 

uncompensated care payment. 

For FY 2015, we are proposing to 

identify mergers by querying the 

Medicare contractors. We believe it is 

appropriate to obtain merger 

information from the Medicare 

contractors, as a copy of each final sales 

agreement/transaction indicating the 

effective date of the acquisition is 

generally submitted to the Medicare 

contractors once an acquisition is 

finalized. For the purpose of this 

proposed rule, we requested that the 

Medicare contractors provide us with a 

list of mergers that occurred between 

October 1, 2010 (the first day of FY 

2011, which is the earliest date that 

would be included in any 2011 cost 

report data that are used to calculate a 

hospital’s Factor 3) through January 

2014 (when we started preparing for the 

FY 2015 IPPS proposed rule). On the 

basis of this information, we would then 

combine the data elements of any 

hospitals that had merged to calculate 

the uncompensated care payment for 

the merged hospital. Specifically, we 

would combine the Medicaid days from 

the most recently available full year cost 

reports and the SSI days from the most 

recently available SSI ratios tied to the 

two CCNs prior to the merger to 

calculate the merged hospital’s Factor 3. 

For FY 2015, we would combine the 

Medicaid days from either the 2011 or 

2012 cost reports and would use the 

most recently available SSI ratios 

available at the time the final rule is 

developed. 

In order to confirm these mergers and 

the accuracy of the data used to 

determine each merged hospital’s 

uncompensated care payment, we are 

proposing to publish a table on the CMS 

Web site, in conjunction with the 

issuance of the proposed and final rules 

for a fiscal year, containing a list of the 

mergers that we are aware of and the 

computed uncompensated care payment 

for each merged hospital. A copy of this 

table is being published on the CMS 

Web site in conjunction with the 

issuance of this proposed rule. The 

affected hospitals would then have the 

opportunity to comment during the 

public comment period on the accuracy 

of this information. 

We are proposing to treat hospitals 

that merge after the development of the 

final rule similar to new hospitals. For 

these newly merged hospitals, we 

would not have data currently available 

to calculate a Factor 3 amount that 

accounts for the merged hospital’s 

uncompensated care burden. In 

addition, we would not have data to 

determine if the newly merged hospital 

is eligible for Medicare DSH payment 

and, therefore, eligible for 

uncompensated care payments for the 

applicable fiscal year because the only 

data we would have to make this 

determination are those for the 

surviving CCN. Accordingly, we are 

proposing to treat newly merged 

hospitals in a similar manner as new 

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hospitals, such that the newly merged 

hospital’s final uncompensated care 

payment would be determined at cost 

report settlement where the numerator 

of the newly merged hospital’s Factor 3 

would be based on the Medicaid days 

and SSI days reported on the cost report 

used for the applicable fiscal year. We 

are proposing that the interim 

uncompensated care payments for the 

newly merged hospitals would be based 

on only the data of the surviving 

hospital’s CCN at the time of the 

preparation of the final rule for the 

applicable fiscal year. In other words, 

for newly merged hospitals, eligibility to 

receive interim uncompensated care 

payments and the amount of any 

interim uncompensated care payments 

would be based on the Medicaid days 

from either the 2011 or 2012 cost reports 

and the most recently available SSI 

ratios available at the time the final rule 

is developed for only the surviving 

CCN. However, at cost report settlement, 

we would determine the newly merged 

hospital’s final uncompensated care 

payments based on the Medicaid days 

and SSI days reported on the cost report 

used for the applicable fiscal year. That 

is, we would revise the numerator of 

Factor 3 for the newly merged hospital 

to reflect the Medicaid and SSI days 

reported on the cost report for the 

applicable fiscal year. We are inviting 

public comment on our proposed 

change to the treatment of hospital 

mergers in the calculation of a hospital’s 

uncompensated care payment. 

G. Medicare-Dependent, Small Rural 

Hospital (MDH) Program (§ 412.108) 

1. Background 

Section 1885(d)(5)(G) of the Act 

provides special payment protections, 

under the IPPS, to a Medicaredependent, small rural hospital (MDH). 

(For additional information on the MDH 

program and the payment methodology, 

we refer readers to the FY 2012 IPPS/

LTCH PPS final rule (76 FR 51683 

through 51684.)) As we discussed in the 

FY 2011 IPPS/LTCH PPS final rule (75 

FR 50287) and in the FY 2012 IPPS/

LTCH PPS final rule (76 FR 51683 

through 51684), section 3124 of the 

Affordable Care Act extended the 

expiration of the MDH program from the 

end of FY 2011 (that is, for discharges 

occurring before October 1, 2011) to the 

end of FY 2012 (that is, for discharges 

occurring before October 1, 2012). 

Under prior law, as specified in section 

5003(a) of Public Law 109–171 (DRA 

2005), the MDH program was to be in 

effect through the end of FY 2011 only. 

Since the extension of the MDH 

program through FY 2012 provided by 

section 3124 of the Affordable Care Act, 

the MDH program has been further 

extended multiple times. First, section 

606 of the ATRA of 2012 (Pub. L. 112– 

240) extended the MDH program 

through FY 2013 (that is, for discharges 

occurring before October 1, 2013.) 

Second, section 1106 of the Pathway for 

SGR Reform Act of 2013 (Pub. L. 113– 

67) extended the MDH program through 

the first half of FY 2014 (that is, for 

discharges occurring before April 1, 

2014.) In the FY 2014 interim final rule 

with comment period that appeared in 

the Federal Register on March 18, 2013 

(79 FR 15025 through 15027), we 

discussed the expiration of the MDH 

program on March 31, 2014, and 

explained how providers may be 

affected by the 6-month extension of the 

MDH program under Public Law 113–67 

and described the steps to reapply for 

MDH status for FY 2014, as applicable. 

Generally, a provider that was classified 

as an MDH as of September 30, 2013, 

was reinstated as an MDH effective 

October 1, 2013, with no need to 

reapply for MDH classification. 

However, if the MDH had classified as 

an SCH or cancelled its rural 

classification under § 412.103(g) 

effective on or after October 1, 2013, the 

effective date of MDH status may not be 

retroactive to October 1, 2013. In the FY 

2014 IPPS/LTCH PPS final rule (78 FR 

50647 through 50649) and the FY 2014 

interim final rule with comment period 

(79 FR 15025 through 15027), we made 

conforming changes to the regulations at 

§ 412.108(a)(1) and (c)(2)(iii) to reflect 

the extensions of the MDH program 

provided for by the ATRA and Pathway 

for SGR Reform Act, respectively. 

Lastly, under current law, section 106 of 

the Protecting Access to Medicare Act of 

2014 (Pub. L. 113–93) provides for a 1- 

year extension of the MDH program 

effective from April 1, 2014 through 

March 31, 2015. Specifically, section 

106 of Public Law 113–93 amended 

sections 1886(d)(5)(G)(i) and 

1886(d)(5)(G)(ii)(II) of the Act by 

striking ‘‘April 1, 2014’’ and inserting 

‘‘April 1, 2015’’. Section 106 of Public 

Law 113–93 also made conforming 

amendments to sections 1886(b)(3)(D)(i) 

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

We intend to address the extension of 

the MDH program for the second half of 

FY 2014 (that is, from April 1, 2014 

through September 30, 2014) under 

Public Law 113–93 in a separate Federal 

Register notice. For additional 

information on the extensions of the 

MDH program after FY 2012, we refer 

readers to the following rules: The FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53404 through 53405 and 53413 through 

53414); the FY 2013 IPPS notice that 

appeared in the Federal Register on 

March 7, 2013 (78 FR 14689); the FY 

2014 IPPS/LTCH PPS final rule (78 FR 

50647 through 50649); and the FY 2014 

interim final rule with comment period 

(79 FR 15025 through 15027). 

2. Provisions of Public Law 113–93 for 

FY 2015 

Prior to the enactment of Public Law 

113–93, under section 1106 of Public 

Law 113–67, the MDH program 

authorized by section 1886(d)(5)(G) of 

the Act was set to expire midway 

through FY 2014. Section 106 of Public 

Law 113–93 amended sections 

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

of the Act to provide for an additional 

1-year extension of the MDH program, 

effective from April 1, 2014 through 

March 31, 2015. Section 106 of Public 

Law 113–93 also made conforming 

amendments to sections 1886(b)(3)(D)(i) 

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

In this proposed rule, we are 

proposing to make conforming changes 

to the regulations at §§ 412.108(a)(1) and 

(c)(2)(iii) to reflect the statutory 

extension of the MDH program for the 

first 6 months of FY 2015 made by 

section 106 of Public Law 113–93. 

3. Expiration of the MDH Program 

Because section 106 of Public Law 

113–93 extends the MDH program 

through the first half of FY 2015 only, 

effective April 1, 2015, the MDH 

program will no longer be in effect. 

Because the MDH program is not 

authorized by statute beyond March 31, 

2015, beginning April 1, 2015, all 

hospitals that previously qualified for 

MDH status will no longer have MDH 

status and will be paid based on the 

Federal rate. As noted earlier, in the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53404 through 53405), we revised our 

SCH policies to allow MDHs to apply 

for SCH status and be paid as such 

under certain conditions, following 

expiration of the MDH program at the 

end of FY 2012. We codified these 

changes in the regulations at 

§ 412.92(b)(2)(i) and § 412.92(b)(2)(v). 

For additional information, we refer 

readers to the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53404 through 53405 

and 53674). We note that those same 

conditions apply to MDHs that intend to 

apply for SCH status with the expiration 

of the MDH program on March 31, 2015. 

Specifically, the existing regulations at 

§ 412.92(b)(2)(i) and (b)(2)(v) allow for 

an effective date of approval of SCH 

status that is the day following the 

expiration date of the MDH program. In 

accordance with these regulations, in 

order for an MDH to receive SCH status 

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effective April 1, 2015, it must apply for 

SCH status at least 30 days before the 

end of the MDH program; that is, the 

MDH must apply for SCH status by 

March 1, 2015. The MDH also must 

request that, if approved as an SCH, the 

SCH status be effective with the 

expiration of the MDH program 

provision; that is, the MDH must request 

that the SCH status, if approved, be 

effective April 1, 2015, immediately 

after its MDH status expires with the 

expiration of the MDH program on 

March 31, 2015. We note that an MDH 

that applies for SCH status in 

anticipation of the expiration of the 

MDH program would not qualify for the 

April 1, 2015 effective date upon 

approval if it does not apply by the 

March 1, 2015 deadline. The provider 

would instead be subject to the usual 

effective date for SCH classification, that 

is, 30 days after the date of CMS’ written 

notification of approval as specified at 

§ 412.92(b)(2)(i). 

H. Hospital Readmissions Reduction 

Program: Proposed Changes for FY 2015 

Through FY 2017 (§§ 412.150 Through 

412.154) 

1. Statutory Basis for the Hospital 

Readmissions Reduction Program 

Section 3025 of the Affordable Care 

Act, as amended by section 10309 of the 

Affordable Care Act, added a new 

section 1886(q) to the Act. Section 

1886(q) of the Act establishes the 

‘‘Hospital Readmissions Reduction 

Program,’’ effective for discharges from 

an ‘‘applicable hospital’’ beginning on 

or after October 1, 2012, under which 

payments to those applicable hospitals 

may be reduced to account for certain 

excess readmissions. 

Section 1886(q)(1) of the Act sets forth 

the methodology by which payments to 

‘‘applicable hospitals’’ will be adjusted 

to account for excess readmissions. In 

accordance with section 1886(q)(1) of 

the Act, payments for discharges from 

an ‘‘applicable hospital’’ will be an 

amount equal to the product of the 

‘‘base operating DRG payment amount’’ 

and the adjustment factor for the 

hospital for the fiscal year. That is, 

‘‘base operating DRG payments’’ are 

reduced by a hospital-specific 

adjustment factor that accounts for the 

hospital’s excess readmissions. Section 

1886(q)(2) of the Act defines the base 

operating DRG payment amount as ‘‘the 

payment amount that would otherwise 

be made under subsection (d) 

(determined without regard to 

subsection (o) [the Hospital VBP 

Program]) for a discharge if this 

subsection did not apply; reduced by 

. . . any portion of such payment 

amount that is attributable to payments 

under paragraphs (5)(A), (5)(B), (5)(F), 

and (12) of subsection (d).’’ Paragraphs 

(5)(A), (5)(B), (5)(F), and (12) of 

subsection (d) refer to outlier payments, 

IME payments, DSH adjustment 

payments, and add-on payments for 

low-volume hospitals, respectively. 

Furthermore, section 1886(q)(2)(B) of 

the Act specifies special rules for 

defining ‘‘the payment amount that 

would otherwise be made under 

subsection (d)’’ for certain hospitals, 

including policies for SCHs and for 

MDHs for FY 2013. In the FY 2013 

IPPS/LTCH PPS final rule (77 FR 

53374), we finalized policies to 

implement the statutory provisions 

related to the definition of ‘‘base 

operating DRG payment amount’’ with 

respect to those hospitals. 

Section 1886(q)(3)(A) of the Act 

defines the ‘‘adjustment factor’’ for an 

applicable hospital for a fiscal year as 

equal to the greater of ‘‘(i) the ratio 

described in subparagraph (B) for the 

hospital for the applicable period (as 

defined in paragraph (5)(D)) for such 

fiscal year; or (ii) the floor adjustment 

factor specified in subparagraph (C).’’ 

Section 1886(q)(3)(B) of the Act, in turn, 

describes the ratio used to calculate the 

adjustment factor. It states that the ratio 

is ‘‘equal to 1 minus the ratio of—(i) the 

aggregate payments for excess 

readmissions . . . and (ii) the aggregate 

payments for all discharges . . . ’’ 

Section 1886(q)(3)(C) of the Act 

establishes the floor adjustment factor, 

which is set at 0.99 for FY 2013, 0.98 

for FY 2014, and 0.97 for FY 2015 and 

subsequent fiscal years. 

Section 1886(q)(4) of the Act defines 

the terms ‘‘aggregate payments for 

excess readmissions’’ and ‘‘aggregate 

payments for all discharges’’ for an 

applicable hospital for the applicable 

period. The term ‘‘aggregate payments 

for excess readmissions’’ is defined in 

section 1886(q)(4)(A) of the Act as ‘‘the 

sum, for applicable conditions . . . of 

the product, for each applicable 

condition, of (i) the base operating DRG 

payment amount for such hospital for 

such applicable period for such 

condition; (ii) the number of admissions 

for such condition for such hospital for 

such applicable period; and (iii) the 

excess readmissions ratio. . . for such 

hospital for such applicable period 

minus 1.’’ The ‘‘excess readmissions 

ratio’’ is a hospital-specific ratio based 

on each applicable condition. 

Specifically, section 1886(q)(4)(C) of the 

Act defines the excess readmissions 

ratio as the ratio of actual-over-expected 

readmissions; specifically, the ratio of 

‘‘risk-adjusted readmissions based on 

actual readmissions’’ for an applicable 

hospital for each applicable condition, 

to the ‘‘risk-adjusted expected 

readmissions’’ for the applicable 

hospital for the applicable condition. 

Section 1886(q)(5) of the Act provides 

definitions of ‘‘applicable condition,’’ 

‘‘expansion of applicable conditions,’’ 

‘‘applicable hospital,’’ ‘‘applicable 

period,’’ and ‘‘readmission.’’ The term 

‘‘applicable condition’’ (which is 

addressed in detail in section IV.C.3.a. 

of the FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51665 through 51666)) is 

defined as a ‘‘condition or procedure 

selected by the Secretary among 

conditions and procedures for which: (i) 

Readmissions . . . represent conditions 

or procedures that are high volume or 

high expenditures . . . and (ii) 

measures of such readmissions . . . 

have been endorsed by the entity with 

a contract under section 1890(a) [of the 

Act] . . . and such endorsed measures 

have exclusions for readmissions that 

are unrelated to the prior discharge 

(such as a planned readmission or 

transfer to another applicable hospital).’’ 

Section 1886(q)(5)(B) of the Act also 

requires the Secretary, beginning in FY 

2015, ‘‘to the extent practicable, [to] 

expand the applicable conditions 

beyond the 3 conditions for which 

measures have been endorsed . . . to 

the additional 4 conditions that have 

been identified by the Medicare 

Payment Advisory Commission in its 

report to Congress in June 2007 and to 

other conditions and procedures as 

determined appropriate by the 

Secretary.’’ 

Section 1886(q)(5)(C) of the Act 

defines ‘‘applicable hospital,’’ that is, a 

hospital subject to the Hospital 

Readmissions Reduction Program, as a 

‘‘subsection (d) hospital or a hospital 

that is paid under section 1814(b)(3) [of 

the Act], as the case may be.’’ The term 

‘‘applicable period,’’ as defined under 

section 1886(q)(5)(D) of the Act, 

‘‘means, with respect to a fiscal year, 

such period as the Secretary shall 

specify.’’ As explained in the FY 2012 

IPPS/LTCH PPS final rule (76 FR 

51671), the ‘‘applicable period’’ is the 

period during which data are collected 

in order to calculate various ratios and 

payment adjustments under the 

Hospital Readmissions Reduction 

Program. 

Section 1886(q)(6) of the Act sets forth 

the public reporting requirements for 

hospital-specific readmission rates. 

Section 1886(q)(7) of the Act limits 

administrative and judicial review of 

certain determinations made pursuant 

to section 1886(q) of the Act. Finally, 

section 1886(q)(8) of the Act requires 

the Secretary to collect data on 

readmission rates for all hospital 

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inpatients (not just Medicare patients) 

for a broad range of both subsection (d) 

and non-subsection(d) hospitals, in 

order to calculate the hospital-specific 

readmission rates for all such hospital 

inpatients and to publicly report these 

‘‘all-patient’’ readmission rates. 

2. Regulatory Background 

The payment adjustment factor set 

forth in section 1886(q) of the Act did 

not apply to discharges until FY 2013. 

In the FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51660 through 51676), we 

addressed the issues of the selection of 

readmission measures and the 

calculation of the excess readmissions 

ratio, which will be used, in part, to 

calculate the readmissions adjustment 

factor. Specifically, in that final rule, we 

finalized policies that relate to the 

portions of section 1886(q) of the Act 

that address the selection of and 

measures for the applicable conditions, 

the definitions of ‘‘readmission’’ and 

‘‘applicable period,’’ and the 

methodology for calculating the excess 

readmissions ratio. We also established 

policies with respect to measures for 

readmission for the applicable 

conditions and our methodology for 

calculating the excess readmissions 

ratio. 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53374 through 53401), we 

finalized policies that relate to the 

portions of section 1886(q) of the Act 

that address the calculation of the 

hospital readmission payment 

adjustment factor and the process by 

which hospitals can review and correct 

their data. Specifically, in that final 

rule, we addressed the base operating 

DRG payment amount, aggregate 

payments for excess readmissions and 

aggregate payments for all discharges, 

the adjustment factor, applicable 

hospital, limitations on review, and 

reporting of hospital-specific 

information, including the process for 

hospitals to review readmission 

information and submit corrections. We 

also established a new Subpart I under 

42 CFR part 412 (§§ 412.150 through 

412.154) to codify rules for 

implementing the Hospital 

Readmissions Reduction Program. 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50649 through 50676), we 

finalized our policies that relate to 

refinement of the readmissions 

measures and related methodology for 

the current applicable conditions, 

expansion of the ‘‘applicable 

conditions’’ beginning for FY 2015, and 

clarification of the process for reporting 

hospital-specific information, including 

the opportunity to review and submit 

corrections. We also established policies 

related to the calculation of the 

adjustment factor for FY 2014. 

3. Overview of Proposals and Policies 

for the FY 2015 Hospital Readmissions 

Reduction Program 

In this proposed rule, we are— 

• Proposing to make refinements to 

the readmissions measures and related 

methodology for FY 2015 and 

subsequent years (section IV.H.4. of the 

preamble of this proposed rule); 

• Proposing to expand the scope of 

‘‘applicable conditions’’ for FY 2017 to 

include coronary artery bypass graft 

(CABG) (section IV.H.6. of the preamble 

of this proposed rule); 

• Discussing the maintenance of 

technical specifications for quality 

measures (section IV.H.7. of the 

preamble of this proposed rule); 

• Describing a waiver from the 

Hospital Readmissions Reduction 

Program for hospitals formerly paid 

under section 1814(b)(3) of the Act 

(§ 412.154(d)) (section IV.H.8. of the 

preamble of this proposed rule); 

• Proposing to specify the adjustment 

factor floor for FY 2015 (section IV.H.9. 

of the preamble of this proposed rule); 

• Proposing to specify the applicable 

period for FY 2015 (section IV.H.10. of 

the preamble of this proposed rule); 

• Proposing to make changes to the 

calculation of the aggregate payments 

for excess readmissions to include two 

additional readmissions measures 

(chronic obstructive pulmonary disease 

(COPD) and THA/TKA) (section 

IV.H.11. of the preamble of this 

proposed rule); and 

• Discussing whether to establish an 

exceptions process to address hospitals 

with extraordinary circumstances 

(section IV.H.12. of the preamble of this 

proposed rule). 

4. Proposed Refinement of the 

Readmission Measures and Related 

Methodology for FY 2015 and 

Subsequent Years Payment 

Determinations 

a. Proposed Refinement of Planned 

Readmission Algorithm for Acute 

Myocardial Infarction (AMI), Heart 

Failure (HF), Pneumonia (PN), Chronic 

Obstructive Pulmonary Disease (COPD), 

and Total Hip Arthroplasty and Total 

Knee Arthroplasty (THA/TKA) 30-Day 

Readmission Measures 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50651 through 50655), we 

finalized for 2014 and subsequent years’ 

payment determinations the use of the 

CMS Planned Readmission Algorithm 

Version 2.1 in the AMI, HF, PN, COPD 

and THA/TKA readmission measures. 

The algorithm identifies readmissions 

that are planned and occur within 30 

days of discharge from the hospital. A 

complete description of the CMS 

Planned Readmission Algorithm 

Version 2.1, which includes lists of 

planned diagnoses and procedures, can 

be found on our Web site (available at: 

http://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/

Measure-Methodology.html). NQF has 

endorsed the use of the algorithm for 

these measures. 

Last year’s stakeholder comments 

supported the incorporation of the CMS 

Planned Readmission Algorithm 

Version 2.1 and suggested that we 

update it on a regular basis. In the FY 

2014 IPPS/LTCH PPS final rule (78 FR 

50652), we agreed to continually review 

the CMS Planned Readmission 

Algorithm and make updates as needed. 

Subsequently we have identified and 

made improvements to the algorithm. 

We are proposing to use the revised 

version, the CMS Planned Readmission 

Algorithm Version 3.0, for the AMI, HF, 

PN, COPD, and THA/TKA readmission 

measures for FY 2015 and subsequent 

payment determinations. We are also 

proposing to use this algorithm for the 

CABG readmission measure proposed 

for inclusion in the Hospital 

Readmissions Reduction Program 

starting in FY 2017. 

Version 3.0 incorporates 

improvements that were made based on 

a validation study of the algorithm. 

Researchers reviewed 634 patients’ 

charts at 7 hospitals, classified 

readmission as planned or unplanned 

based on the chart review, and 

compared the results to the claimsbased algorithm’s classification of the 

readmissions. The findings suggested 

the algorithm was working well but 

could be improved. 

Specifically, the study suggested the 

need to make small changes to the tables 

of procedures and conditions used in 

the algorithm to classify readmission as 

planned or unplanned. The algorithm 

uses the Agency for Healthcare Research 

and Quality’s (AHRQ’s) Clinical 

Classification Software (CCS) to group 

thousands of procedure and diagnosis 

codes into fewer categories of related 

procedures or diagnoses. The algorithm 

then uses four tables of procedures and 

diagnoses categories and a flow diagram 

to classify tables as planned or 

unplanned. For all measures, the first 

table identifies procedures that, if 

present in a readmission, classify the 

readmission as planned. The second 

table identifies primary discharge 

diagnoses that always classify 

readmissions as planned. Because 

almost all planned admissions are for 

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procedures or surgeries, a third table 

identifies procedures for which patients 

are typically admitted; if any of these 

procedures are coded in the 

readmission, we classify a readmission 

as planned as long as that readmission 

does not have an acute (unplanned) 

primary discharge diagnosis. The fourth 

table lists the acute (unplanned) 

primary discharge diagnoses that 

disqualify readmissions that include 

one or more of the potentially planned 

procedure in the third table as planned. 

These tables are structured the same 

across all measures but the specific 

procedure and conditions they contain 

vary slightly for certain measures based 

on clinical considerations for each 

cohort. The final proposed tables for 

each measure can be found on our Web 

site under the Measure Methodology 

reports (available at: http://

www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/

Measure-Methodology.html). 

Version 3.0 modifies two of these 

tables by removing or adding 

procedures or conditions to improve the 

accuracy of the algorithm. First, 

validation study revealed that the 

algorithm could be improved by 

removing two procedure CCS categories 

from the third table, the potentially 

planned procedure table: CCS 211— 

Therapeutic Radiation and CCS 224— 

Cancer Chemotherapy. Typically, 

patients do not require admission for 

scheduled Therapeutic Radiation 

treatments (CCS 211). The study found 

that readmissions that were classified as 

planned because they included 

Therapeutic Radiation were largely 

unplanned. 

The algorithm was also more accurate 

when CCS 224—Cancer Chemotherapy 

was removed from the potentially 

planned procedure table. The second 

table of the algorithm classifies all 

readmissions with a principal diagnosis 

of Maintenance Chemotherapy as 

planned. Most patients who receive 

cancer chemotherapy have both a code 

for Cancer Chemotherapy (CCS 224) and 

a principal discharge diagnosis of 

Maintenance Chemotherapy (CCS 45). 

In the validation study, the 

readmissions for patients who received 

Cancer Chemotherapy (CCS 224) but 

who did not have a principal diagnosis 

of Maintenance Chemotherapy were 

largely unplanned, so removing CCS 

224 from the potentially planned 

procedure table improved the 

algorithm’s accuracy. Therefore, Version 

3.0 removes CCS 211 and CCS 224 from 

the list of potentially planned 

procedures to improve the accuracy of 

the algorithm. 

As noted above, the algorithm uses a 

table of acute principal discharge 

diagnoses to help identify unplanned 

readmissions. Readmissions that have a 

principal diagnosis listed in the table 

are classified as unplanned, regardless 

of whether they include a procedure in 

the potentially planned procedure table. 

The validation study identified one 

diagnosis CCS that should be added to 

the table of acute diagnoses to more 

accurately identify truly unplanned 

admissions as unplanned: Hypertension 

with Complications (CCS 99). 

Hypertension with complications is a 

diagnosis that is rarely associated with 

planned readmissions. 

In addition, the validation study 

identified a subset of ICD–9–CM 

diagnosis codes within two CCS 

diagnosis categories that should be 

added to the acute diagnosis table to 

improve the algorithm. CCS 149, 

Pancreatic Disorders, includes the code 

for acute pancreatitis; clinically there is 

no situation in which a patient with this 

acute condition would be admitted for 

a planned procedure. Therefore, Version 

3.0 adds the ICD–9 code for acute 

pancreatitis, 577.0, to the acute primary 

diagnosis table to better identify 

unplanned readmissions. Finally, CCS 

149, Biliary Tract Disease, is a mix of 

acute and nonacute diagnoses. Adding 

the subset of ICD–9–CM codes within 

this CCS group that are for acute 

diagnoses to the list of acute conditions 

improves the accuracy of the algorithm 

for these acute conditions while still 

ensuring that readmissions for planned 

procedures, like cholecystectomies, are 

counted accurately as planned. For 

more detailed information on how the 

algorithm is structured and the use of 

tables to identify planned procedures 

and diagnoses, we refer readers to 

discussion of the CMS Planned 

Readmission Algorithm Version 2.1 in 

our reports (available at: http://

www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/

Measure-Methodology.html). As noted 

above, readers can find the specific 

Version 3.0 tables for each measure in 

the measure updates and specifications 

reports at the above link. 

We invite public comment on these 

proposals. 

b. Proposed Refinement of Total Hip 

Arthroplasty and Total Knee 

Arthroplasty (THA/TKA) 30-Day 

Readmission Measure Cohort 

In this proposed rule, for FY 2015 and 

subsequent years, we are proposing to 

refine the measure cohort for the 

Elective Primary Total Hip Arthroplasty 

(THA) and/or Total Knee Arthroplasty 

(TKA) All-Cause Unplanned 30-Day 

Risk-Standardized Readmission 

Measure. 

Currently, the THA/TKA Readmission 

Measure adopted for the Hospital 

Readmissions Reduction Program is 

intended to only include patients who 

have an elective THA or TKA. This 

measure therefore excludes patients 

who have a principal discharge 

diagnosis of femur, hip, or pelvic 

fracture on their index admission since 

hip replacement for hip fracture is not 

an elective procedure. However, after 

hospitals reviewed their hospitalspecific THA/TKA Readmission 

Measure data during the national dry 

run conducted during September and 

October of 2012, we learned that 

hospitals code hip fractures that occur 

during the same admission as a THA as 

either a principal or secondary 

diagnosis. According to feedback 

received from hospitals participating in 

the dry run, the measure methodology 

failed to identify and therefore 

appropriately exclude a small number of 

patients (that is, 0.42 percent of patients 

in 2009–2010 data) with hip fracture 

who had non-elective total hip 

arthroplasty. 

To ensure that all such hip fracture 

patients are excluded from the measure, 

we are proposing to refine the measure 

to exclude patients with hip fracture 

coded as either principal or secondary 

diagnosis during the index admission. 

We believe this refinement is responsive 

to comments from hospitals and will 

allow us to accurately exclude patients 

who were initially admitted for a hip 

fracture and then underwent total hip 

arthroplasty, making their procedure 

nonelective. 

We invite public comments on this 

proposal. 

c. Anticipated Effect of Proposed 

Refinements on Measures 

The proposed refinement of the CMS 

Planned Readmission Algorithm 

Version 2.1 to Version 3.0 would have 

had the following effects on the 

measures based on our analyses of 

discharges between July 2009 and June 

2012, if these changes had been applied 

for FY 2014. We note that these 

statistics are for illustrative purposes 

only, and we are not proposing to revise 

the measure calculations for the FY 

2014 payment determination. Rather, 

we are proposing to apply these changes 

to the readmission measures for the FY 

2015 payment determination and 

subsequent years. 

Among hospitals that were subject to 

the Hospital Readmissions Reduction 

Program in FY 2014 (Table IV.H.1), the 

number of eligible discharges based on 

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the July 2009 through June 2012 data 

were 494,121 discharges for AMI; 

1,165,606 discharges for HF; 954,033 

discharges for PN; 926,433 discharges 

for COPD; and 858,266 discharges for 

hip/knee. 

The proposed 30-day readmission rate 

(excluding the planned readmissions) 

would remain constant for AMI and 

COPD; increase by 0.1 percentage points 

for HF and PN; and increase by 0.4 

percentage points for hip/knee. 

The new national readmission 

(unplanned) rate for each condition 

would have been 17.9 percent for AMI; 

23.0 percent for HF; 17.7 percent for PN; 

21.1 percent for COPD; and 5.27 percent 

for hip/knee. 

The number of readmissions 

considered planned (and, therefore, not 

counted as a readmission) would 

decrease by 319 for AMI; 1,313 for HF; 

866 for PN, 547 for COPD; and 298 for 

hip/knee. 

The proposed modification of the hip/ 

knee measure cohort would have had 

the following effects on the measure: the 

measure cohort would have been 

reduced by 0.37 percent; the crude 

readmission rate would have been 

reduced by 0.02 absolute percentage 

points; and the mean RSRR would have 

been reduced by 0.03 absolute 

percentage points. 

TABLE IV.H.1.—COMPARISON OF PLANNED READMISSION ALGORITHMS V 2.1 AND 3.0 FOR AMI/HF/PN/COPD/HK 

READMISSION MEASURES

[Based on 2009–2012 discharges from 3,025 hospitals] 

AMI HF PN COPD Hip/Knee 

V 3.0 V 2.1 V 3.0 V 2.1 V 3.0 V 2.1 V 3.0 V 2.1 V 3.0 V 2.1 

Number of Discharges .......... 494,121 494,121 1,165,606 1,165,606 954,033 954,033 926,433 926,433 858,266 858,266 

Number of Unplanned Readmissions ..... 88,567 88,248 268,072 266,759 169,213 168,347 195,595 195,048 45,205 44,907 

Readmission 

Rate ............... 17.9% 17.9% 23.0% 22.9% 17.7% 17.6% 21.1% 21.1% 5.27% 5.23% 

Number of 

Planned Readmissions ..... 11,577 11,896 15,293 16,606 5,867 6,733 5,858 6,405 2,283 2,581 

Planned Readmission Rate .. 2.3% 2.4% 1.3% 1.4% 0.6% 0.7% 0.6% 0.7% 0.3% 0.3% 

% of Readmissions that are 

Planned .......... 11.6% 11.9% 5.4% 5.9% 3.4% 3.8% 2.9% 3.2% 4.8% 5.4% 

5. No Proposed Expansion of the 

Applicable Conditions for FY 2016 

In FY 2014 IPPS/LTCH PPS final rule 

we finalized for FY 2015 two new 

condition specific readmission 

measures: (1) Hospital-level 30-day allcause risk-standardized readmission 

rate following elective total hip 

arthroplasty (THA) and total knee 

arthroplasty (TKA) (NQF #1551); (2) 

Hospital-level 30-day all-cause riskstandardized readmission rate following 

chronic obstructive pulmonary disease 

(COPD) (NQF #1891), bringing the total 

number of finalized applicable 

conditions to five over the past two 

years of implementation. We also noted 

in the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50657) that commenters 

requested that we delay adding other 

condition-specific measures. In view of 

these requests and our belief that it is 

reasonable to allow more time for 

hospitals to become familiar with these 

5 applicable conditions, before adding 

other applicable conditions we are not 

proposing any new applicable 

conditions for FY 2016. 

6. Proposed Expansion of the 

Applicable Conditions for FY 2017 to 

Include the Patients Readmitted 

Following Coronary Artery Bypass Graft 

(CABG) Surgery Measure 

a. Background 

Under section 1886(q)(5)(B) of the 

Act, ‘‘[b]eginning with FY 2015, the 

Secretary shall, to the extent practicable, 

expand the applicable conditions 

beyond the 3 conditions for which 

measures have been endorsed as 

described in subparagraph (A)(ii)(I) . . . 

to the additional 4 conditions that have 

been identified by the Medicare 

Payment Advisory Commission 

[MedPAC] in its report to Congress in 

June 2007, and to other conditions and 

procedures as determined appropriate 

by the Secretary.’’ The four conditions 

and procedures recommended by 

MedPAC are: (1) Coronary artery bypass 

graft (CABG) surgery; (2) chronic 

obstructive pulmonary disease (COPD); 

(3) percutaneous coronary intervention 

(PCI); and (4) other vascular conditions. 

Section 1886(q)(5)(A)(i) of the Act 

directs the Secretary, in selecting an 

‘‘applicable condition,’’ to choose from 

among readmissions ‘‘that represent 

conditions or procedures that are high 

volume or high expenditures under this 

title (or other criteria specified by the 

Secretary).’’ 

In accordance with section 

1886(q)(5)(A) of the Act, effective for the 

calculation of the readmissions payment 

adjustment factors in FY 2017, we are 

proposing to expand the scope of 

applicable conditions and procedures to 

include patients readmitted following 

CABG surgery. This proposal is 

consistent with the prior FY 2014 IPPS/ 

LTCH PPS final rule (78 FR 50657) 

where we indicated our intent to 

explore quality measures that address 

CABG readmission rates. We describe 

this measure in detail below. 

We are proposing the inclusion of the 

condition of CABG readmissions to the 

Hospital Readmissions Reduction 

Program based on MedPAC’s 

recommendations. For this condition, 

we developed a Hospital-Level 30-Day 

All-Cause Unplanned Readmission 

Following Coronary Artery Bypass Graft 

(CABG) Surgery measure. The National 

Quality Forum (NQF) Measure 

Applications Partnership (MAP) 

Hospital workgroup conditionally 

supported this measure for use in the 

Hospital Readmissions Reduction 

Program. The condition for support is 

based on attainment of NQF 

endorsement. On February 5, 2014, we 

submitted the Hospital-Level 30-Day 

All-Cause Unplanned Readmission 

Following Coronary Artery Bypass Graft 

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Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 28109 

27Medicare Payment Advisory Committee. Report 

to the Congress: Promoting Greater Efficiency in 

Medicare, 2007. 

28 Ibid. 

29Suter L.G., Wang, C., Vellanky S., Potteiger J., 

Curtis J., Lin Z., Geary L.L., Krumholz H.M., Drye 

E.D. Hospital-level 30-day All-Cause Unplanned 

Readmission Following Coronary Artery Bypass 

Graft Surgery: Report prepared for the Centers for 

Medicare & Medicaid Services. 2012. 

30Rumsfield J, Allen L. Reducing Readmission 

Rates: Does Coronary Artery Bypass Graft Surgery 

Provide Clarity? JACC Cardiovasc Interv. May 

2011;4(5):2. 

31Hannan EL, Zhong Y, Lahey SJ, et al. 30-day 

readmissions after coronary artery bypass graft 

surgery in New York State. JACC Cardiovasc Interv. 

2011;4(5):569–576. 

32 Gulshan Sharma, Kou Yong-Fang, Freeman 

Jean L, Zhang Dong D, Goodwin James S.: 

Outpatient Follow-up Visit and 30-Day Emergency 

Department Visit and Readmission in Patients 

Hospitalized for Chronic Obstructive Pulmonary 

Disease. Arch Intern Med. Oct. 2010;170:1664– 

1670. 

33Nelson EA, Maruish ME, Axler JL.: Effects of 

Discharge Planning and Compliance with 

Continued 

(CABG) Surgery measure to NQF for 

endorsement. 

The rationale for expanding the 

applicable conditions and the measures 

used to estimate the excess 

readmissions ratio is described in detail 

below. 

b. Overview of the Proposed CABG 

Readmissions Measure: Hospital-Level, 

30-Day, All-Cause, Unplanned 

Readmission Following Coronary Artery 

Bypass Graft (CABG) Surgery 

Among the seven conditions MedPAC 

identified in its 2007 Report to Congress 

as having the highest potentially 

preventable readmission rate, CABG had 

the highest rate of readmissions within 

15 days following discharge (13.5 

percent) and second highest average 

Medicare payment per readmission 

($8,136).27 The annual cost to Medicare 

for potentially preventable CABG 

readmissions was estimated at $151 

million.28

Evidence also shows variation in 

readmissions rates for patients with 

CABG surgery, supporting the finding 

that opportunities exist for improving 

care. The median, 30-day, riskstandardized readmission rate among 

Medicare fee-for-service patients aged 

65 or older hospitalized for CABG in 

2009 was 17.2 percent, and ranged from 

13.9 percent to 22.1 percent across 1,160 

hospitals.29 Although data documenting 

readmission reductions in CABG are 

limited, there are data that support 

CABG readmission as an important 

quality metric.30 Studying readmission 

rates after CABG surgery in New York, 

Hannan, et al. found: (1) Wide variation 

in readmission rates; (2) the most 

common cause of readmission after 

CABG is complication related to the 

surgery; and (3) that hospital-level 

variables such as use of cardiac 

rehabilitation and length of stay 

influenced readmission rates.31 The 

authors also noted that readmission 

rates were not closely correlated to 

mortality rates and thus measuring 

readmission rates likely offers a 

complementary metric intended to 

assess a different domain of quality. 

Mortality measures are more likely to 

encourage improvements in clinical 

quality, including rapid triage, effective 

safety practices, and early intervention 

and coordination in the hospital. 

Readmission measures place an 

increased emphasis on aspects of 

quality related to effective transitions to 

the outpatient setting, clear 

communication with patients and 

caregivers, and collaboration across 

communities and providers. Together, 

these data suggest that reducing 

readmission rates following CABG 

surgery is an important target for quality 

improvement. In addition, inclusion of 

this measure in the Hospital 

Readmissions Reduction Program aligns 

with CMS’ Quality Strategy objectives to 

promote successful transitions of care 

for patients from the acute care setting 

to the outpatient setting, and to reduce 

short-term readmission rates. In its final 

recommendations for rulemaking, the 

MAP conditionally supported the 

inclusion of the proposed CABG 

measure pending NQF endorsement and 

implementation. In order to address this 

concern, we submitted the CABG 

readmission measure to NQF for 

endorsement on February 5, 2014. 

We believe the proposed HospitalLevel, 30-Day, All-Cause, Unplanned 

Readmission Measure Following CABG 

Surgery warrants inclusion in the 

Hospital Readmissions Reduction 

Program for FY 2017, because it meets 

the criteria in section 1886(q)(5)(A) of 

the Act, as a high cost, high volume 

condition that was recognized by 

MedPAC Report to Congress in 2007 as 

a specific medical condition to focus on 

for improving readmission rates. As 

with other readmission measures, this 

measure also excludes such unrelated 

readmissions as planned readmissions 

and transfers to other hospitals. For 

these reasons we believe this measure is 

appropriate for the Hospital 

Readmissions Reduction Program. 

We invite public comments on this 

proposal. 

c. Proposed Methodology for the CABG 

Measure: Hospital-Level, 30-Day, AllCause, Unplanned Readmission 

Following Coronary Artery Bypass Graft 

(CABG) Surgery 

The proposed CABG readmission 

measure assesses hospitals’ 30-day, allcause risk-standardized rate of 

unplanned readmission following 

admission for a CABG procedure. In 

general, the measure uses the same 

approach to risk-adjustment and 

hierarchical logistic modeling (HLM) 

methodology that is specified for the 

AMI, HF, PN, COPD and THA/TKA 

readmission measures that we 

previously adopted for this program. 

Information on how the measure 

employs HLM can be found in the 2012 

CABG Readmission Measure 

Methodology Report (available at: 

http://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/

Measure-Methodology.html). This 

approach appropriately accounts for the 

types of patients a hospital treats (that 

is, hospital case-mix), the number of 

patients it treats, and the quality of care 

it provides. The HLM methodology is an 

appropriate statistical approach to 

measuring quality based on patient 

outcomes when the patients are 

clustered within hospitals (and, 

therefore, the patients’ outcomes are not 

statistically independent) and sample 

sizes vary across hospitals. The measure 

methodology defines hospital case-mix 

based on the clinical diagnoses 

provided in the hospitals’ claims for the 

hospitals’ patient inpatient and 

outpatient visits for the 12 months prior 

to the hospitalization for CABG, as well 

as those present in the claims for care 

at admission. However, the 

methodology specifically does not 

account for diagnoses present in the 

index admission that may indicate 

complications rather than patient 

comorbidities. 

We discuss the measure methodology 

below. 

(1) Data Sources 

The proposed CABG readmission 

measure is based on data derived from 

administrative claims. It uses Medicare 

administrative data from 

hospitalizations for fee-for-service 

Medicare beneficiaries hospitalized for a 

CABG procedure. 

(2) Definition of Outcome 

The proposed CABG readmission 

measure defines 30-day, all-cause 

readmission as an unplanned 

subsequent inpatient admission to any 

applicable acute care facility for any 

cause within 30 days of the date of 

discharge from the index 

hospitalization. A number of studies 

demonstrate that improvements in care 

at the time of discharge can reduce 30- 

day readmission rates.32 33 Thirty days is 

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28110 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

Outpatient Appointments on Readmission Rates. 

Psychiatr Serv. July 1 2000;51(7):885–889. 

34Hannan EL, Zhong Y, Lahey SJ, et al. 30-day 

readmissions after coronary artery bypass graft 

surgery in New York State. JACC Cardiovasc Interv. 

2011;4(5):569–576. 

a meaningful timeframe for hospitals 

because readmissions are more likely 

attributable to care received within the 

index hospitalization and during the 

transition to the outpatient setting. 

The proposed CABG readmission 

measure assesses all-cause unplanned 

readmissions (excluding planned 

readmissions) rather than readmissions 

for CABG only. We include all 

unplanned readmissions for several 

reasons. First, from the patient 

perspective, a readmission for any 

reason is likely to be an undesirable 

outcome of care, even though not all 

readmissions are preventable. Second, 

limiting the measure to CABG-related 

readmissions may focus quality 

improvement efforts too narrowly rather 

than encouraging broader initiatives 

aimed at improving the overall care 

within the hospital and care transitions 

from the hospital setting. Moreover, it is 

often hard to exclude quality issues and 

accountability for a readmission based 

on the documented cause of 

readmission. For example, a patient 

who underwent a CABG surgery and 

developed a hospital-acquired infection 

might ultimately be readmitted for 

sepsis. It would be inappropriate to 

consider such a readmission to be 

unrelated to the care the patient 

received for their CABG surgery. 

Finally, while the measure does not 

presume that each readmission is 

preventable, quality improvement 

interventions generally have shown 

reductions in all types of readmissions. 

The proposed measure does not count 

planned readmissions as readmissions. 

Planned readmissions are identified in 

claims data using the CMS Planned 

Readmission Algorithm Version 3.0 that 

detects planned readmissions that may 

occur within 30 days of discharge from 

the hospital. Version 2.1 of the 

algorithm was finalized for use in the 

Hospital Readmissions Reduction 

Program in the FY 2014 IPPS/LTCH PPS 

final rule (78 FR 50651 through 50655). 

We have since updated the algorithm to 

Version 3.0 as part of yearly measure 

maintenance. The proposed CABG 

readmission measure uses the planned 

readmission algorithm, tailored for 

CABG patients. We adapted the 

algorithm for this group of patients with 

input from Cardiothoracic surgeons and 

other experts, narrowing the types of 

readmissions considered planned since 

planned readmissions following CABG 

are less common and less varied than 

among patients discharged from the 

hospital following a medical admission. 

More detailed information on how the 

proposed CABG readmission measure 

incorporates the CMS Planned 

Readmission Algorithm Version 3.0 can 

be found in the 2012 CABG 

Readmission Measure Methodology 

Report on the CMS Web site (available 

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

Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/

Measure-Methodology.html). For the 

proposed CABG readmission measure, 

unplanned readmissions that fall within 

the 30-day post-discharge timeframe 

from the index admission would not be 

counted as readmissions for the index 

admission if they were preceded by a 

planned readmission. 

(3) Cohort of Patients 

In order to include a clinically 

coherent set of patients in the measure, 

we sought input from clinical experts 

regarding the inclusion of other 

concomitant cardiac and non-cardiac 

procedures, such as valve replacement 

and carotid endarterectomy. Adverse 

clinical outcomes following such 

procedures are higher than those 

following ‘‘isolated’’ CABG procedures; 

that is, CABG procedures performed 

without concomitant high-risk cardiac 

and noncardiac procedures.34 Limiting 

the measure cohort to ‘‘isolated’’ CABG 

patients is consistent with published 

reports of CABG outcomes; therefore, 

the proposed measure cohort considers 

only patients undergoing isolated CABG 

as eligible for inclusion in the measure. 

We defined isolated CABG patients as 

those undergoing CABG procedures 

without concomitant valve or other 

major cardiac, vascular or thoracic 

procedures. In addition, our clinical 

experts, consultants, and Technical 

Expert Panel (TEP) members agreed that 

an isolated CABG cohort is a clinically 

coherent cohort suitable for a riskadjusted outcome measure. For detailed 

information on the cohort definition, we 

refer readers to the 2012 CABG 

Readmission Measure Methodology 

Report on the CMS Web site (available 

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

Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/

Measure-Methodology.html). 

(4) Inclusion and Exclusion Criteria 

The proposed CABG readmission 

measure includes hospitalizations for 

patients who are 65 years of age or older 

at the time of index admission and for 

whom there was a complete 12 months 

of Medicare fee-for-service enrollment 

to allow for adequate data for risk 

adjustment. The measure excludes the 

following admissions from the measure 

cohort: (1) Admissions for patients who 

are discharged against medical advice 

(excluded because providers do not 

have the opportunity to deliver full care 

and prepare the patient for discharge); 

(2) admissions for patients who die 

during the initial hospitalization (these 

patients are not eligible for 

readmission); (3) admissions for patients 

with subsequent qualifying CABG 

procedures during the measurement 

period (a repeat CABG procedure during 

the measurement period very likely 

represents a complication of the original 

CABG procedure and is a clinically 

more complex and higher risk surgery; 

therefore, we select the first CABG 

admission for inclusion in the measure 

and exclude subsequent CABG 

admissions from the cohort); and (4) 

admissions for patients without at least 

30 days post-discharge enrollment in 

Medicare fee-for-service (excluded 

because the 30-day readmission 

outcome cannot be assessed in this 

group). 

(5) Transferred Patients and Attribution 

of Readmission Outcome 

Among medical conditions, such as 

AMI, heart failure and pneumonia, 

transfers between acute care facilities 

can occur for a variety of different 

reasons and it is likely that the 

discharging hospital has the most 

influence over a patient’s risk of 

readmission and therefore the 

readmission outcome is appropriately 

assigned to the hospital that discharges 

the patient. For that reason, the 

currently publicly reported AMI, heart 

failure and pneumonia readmission 

measures attribute the readmission 

outcome to the hospital discharging the 

patient, even if that is not the hospital 

that initially admitted the patient. 

In contrast, following CABG surgery, 

transfer to another acute care facility 

after CABG is most likely due to a 

complication of the CABG procedure or 

the peri-operative care the patient 

received. Therefore, the care provided 

by the hospital performing the CABG 

procedure likely dominates readmission 

risk, even among transferred patients. 

This viewpoint is supported by the high 

proportion of CABG readmissions for 

diagnoses such as heart failure, pleural 

effusion and pneumonia and endorsed 

by the clinical experts on both the Yale 

New Haven Hospital Health Services 

Corporation, Center for Outcomes 

Research and Evaluation (YNHHSC/

CORE), and the Society of Thoracic 

Surgeons (STS) CABG readmission 

measure development working groups 

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and our TEP. Therefore, for this 

measure, the readmission outcome is 

attributed to the hospital performing the 

first (‘‘index’’) CABG, even if this is not 

the discharging hospital. For example, a 

patient may be admitted to hospital A 

for a CABG that qualifies them for 

inclusion in the measure and is then 

transferred to hospital B. The initial 

admission to hospital A and the 

admission to hospital B are considered 

one acute episode of care, made up of 

two inpatient admissions. The measure 

identifies transferred patients as those 

who are admitted to an acute care 

hospital on the same day or following 

day of discharge from an eligible 

admission. 

(6) Risk-Adjustment 

The proposed CABG readmission 

measure adjusts for differences across 

hospitals in the level of risk their 

patients have for readmission relative to 

patients cared for by other hospitals. 

The measure uses administrative claims 

data to identify patient clinical 

conditions and comorbidities to adjust 

patient risk for readmission across 

hospitals, but does not adjust for 

potential complications of care. The 

model does not adjust for 

socioeconomic status or race because 

risk adjusting for these characteristics 

would hold hospitals with a large 

proportion of patients of minority race 

or low socioeconomic status to a 

different standard of care than other 

hospitals. Rather, this measure seeks to 

illuminate quality differences, and risk 

adjustment for socioeconomic status or 

race would obscure such quality 

differences. 

(7) Calculating the Excess Readmissions 

Ratio 

The proposed CABG readmission 

measure uses the same methodology 

and statistical modeling approach as the 

other Hospital Readmissions Reduction 

Program measures. We published a 

detailed description of how the 

readmission measures estimate the 

excess readmissions ratio in the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53380 through 53381). 

In summary, we are proposing to 

adopt the Hospital-Level, 30-Day, AllCause, Unplanned Readmission 

Following Coronary Artery Bypass Graft 

(CABG) Surgery measure in the Hospital 

Readmissions Reduction Program 

beginning in FY 2017. 

We note that the set of hospitals for 

which this measure is calculated for the 

Hospital Readmissions Reduction 

Program differs from those used in 

calculations for the Hospital IQR 

Program. The Hospital Readmissions 

Reduction Program includes only 

subsection (d) hospitals as defined in 

1886(d)(1)(B) of the Act (and, if not 

waived from participating, hospitals 

paid under section 1814(b)(3) of the 

Act), while the Hospital IQR Program 

calculations include non-IPPS hospitals 

such as CAHs, cancer hospitals, and 

hospitals located in the Territories of 

the United States. However, we believe 

that the CABG readmissions measure is 

appropriate for use in both programs. 

We invite public comment on this 

proposal. 

7. Maintenance of Technical 

Specifications for Quality Measures 

Technical specification of the re 

admission measures are provided at our 

Web site in the Measure Methodology 

Reports (available at: http://

www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/

Measure-Methodology.html). Additional 

resources about the Hospital 

Readmissions Reduction Program and 

measure technical specifications and 

methodology are on the QualityNet Web 

site on the Resources Web page 

(available at: https://www.qualitynet.

org/dcs/ContentServer?c=Page&page

name=QnetPublic%2FPage%2FQnet

Tier3&cid=1228772412995). 

Many of the quality measures used in 

different Medicare and Medicaid 

reporting programs are NQF endorsed. 

As part of its regular maintenance 

process for NQF-endorsed performance 

measures, the NQF requires measure 

stewards to submit annual measure 

maintenance updates and undergo 

maintenance of endorsement review 

every 3 years. In the measure 

maintenance process, the measure 

steward (owner/developer) is 

responsible for updating and 

maintaining the currency and relevance 

of the measure and will confirm existing 

or minor specification changes with 

NQF on an annual basis. NQF solicits 

information from measure stewards for 

annual reviews, and it reviews measures 

for continued endorsement in a specific 

3-year cycle. 

We note that NQF’s annual or 

triennial maintenance processes for 

endorsed measures may result in the 

NQF requiring updates to the measures. 

We believe that it is important to have 

in place a subregulatory process to 

incorporate nonsubstantive updates 

required by the NQF into the measure 

specifications we have adopted for the 

Hospital Readmissions Program so that 

these measures remain up-to-date. The 

NQF regularly maintains its endorsed 

measures through annual and triennial 

reviews, which may result in the NQF 

requiring updates to the measures. We 

note for this calendar year the AMI 

readmission measure is undergoing the 

NQF maintenance endorsement process. 

For the Hospital Readmissions 

Reduction Program, we are proposing to 

follow the finalized processes outlined 

for addressing changes to adopted 

measures in the Hospital IQR Program 

‘‘Maintenance of Technical 

Specifications for Quality Measures’’ 

section found in section IX.A.1.b. of the 

preamble of this proposed rule. 

We believe this proposal adequately 

balances our need to incorporate NQF 

updates to NQF-endorsed Hospital 

Readmissions Reduction Program 

measures in the most expeditious 

manner possible while preserving the 

public’s ability to comment on updates 

that so fundamentally change an 

endorsed measure that it is no longer 

the same measure that we originally 

adopted. We invite public comment on 

this proposal. 

8. Waiver From the Hospital 

Readmissions Reduction Program for 

Hospitals Formerly Paid Under Section 

1814(b)(3) of the Act (§ 412.152 and 

§ 412.154(d)) 

The definition of ‘‘applicable 

hospital’’ under section 1886(q)(5)(C) of 

the Act also includes hospitals paid 

under section 1814(b)(3) of the Act. 

Section 1886(q)(2)(B)(ii) of the Act, 

however, allows the Secretary to exempt 

such hospitals from the Hospital 

Readmissions Reduction Program, 

provided that the State submit an 

annual report to the Secretary 

describing how a similar program to 

reduce hospital readmissions in that 

State achieves or surpasses the 

measured results in terms of health 

outcomes and cost savings established 

by Congress for the program as applied 

to ‘‘subsection (d) hospitals.’’ 

The State of Maryland entered into an 

agreement with CMS, effective January 

1, 2014, to participate in CMS’ new 

Maryland All-Payer Model, a 5-year 

hospital payment model. This model is 

being implemented under section 

1115A of the Act, as added by section 

3021 of the Affordable Care Act, which 

authorizes the testing of innovative 

payment and service delivery models, 

including models that allow States to 

‘‘test and evaluate systems of all-payer 

payment reform for the medical care of 

residents of the State, including dualeligible individuals.’’ Section 1115A of 

the Act authorizes the Secretary to 

waive such requirements of titles XI and 

XVIII of the Act as may be necessary 

solely for purposes of carrying out 

section 1115A of the Act with respect to 

testing models. 

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28112 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

As part of this agreement, the State of 

Maryland also elected to no longer have 

Medicare pay Maryland hospitals in 

accordance with section 1814(b)(3) of 

the Act. Therefore, section 

1886(q)(2)(B)(ii) of the Act is no longer 

applicable to Maryland hospitals. The 

effect of Maryland hospitals no longer 

being paid under 1814(b)(3) of the Act 

is that they are not entitled to be 

exempted from the Hospital 

Readmissions Reduction Program under 

section 1886(q)(2)(B)(ii) of the Act and, 

but for the model, would be included in 

the Hospital Readmissions Reduction 

Program. In other words, the exemption 

from the Hospital Readmissions 

Reduction Program under section 

1814(b)(3) of the Act no longer applies. 

However Maryland hospitals will not be 

participating in the Hospital 

Readmissions Reduction Program 

because section 1886(q) and its 

implementing regulations have been 

waived for purposes of the model, 

subject to the terms of the agreement. 

We are proposing to make conforming 

changes to the implementing regulations 

to reflect this change. Under § 412.152, 

we are proposing to delete from the 

definition of an ‘‘applicable hospital’’ 

the following language: ‘‘or a hospital in 

Maryland that is paid under section 

1814(b)(3) of the Act and that, absent 

the waiver specified by section 

1814(b)(3) of the Act, would have been 

paid under the hospital inpatient 

prospective payment system.’’ Under 

§ 412.154, we are proposing to delete 

§ 412.154(d) in its entirety. We invite 

public comment on these proposals. 

9. Floor Adjustment Factor for FY 2015 

(§ 412.154(c)(2)) 

Section 1886(q)(3)(A) of the Act 

defines the ‘‘adjustment factor’’ for an 

applicable hospital for a fiscal year as 

equal to the greater of ‘‘(i) the ratio 

described in subparagraph (B) for the 

hospital for the applicable period (as 

defined in paragraph (5)(D)) for such 

fiscal year; or (ii) the floor adjustment 

factor specified in subparagraph (C).’’ 

Section 1886(q)(3)(B) of the Act, in turn, 

describes the ratio used to calculate the 

adjustment factor. Specifically, it states 

that the ratio is ‘‘equal to 1 minus the 

ratio of—(i) the aggregate payments for 

excess readmissions . . . and (ii) the 

aggregate payments for all discharges 

. . . .’’ The calculation of this ratio is 

codified at § 412.154(c)(1) of the 

regulations. Section 1886(q)(3)(C) of the 

Act specifies the floor adjustment factor, 

which is set at 0.99 for FY 2013, 0.98 

for FY 2014, and 0.97 for FY 2015 and 

subsequent fiscal years. We codified the 

floor adjustment factor at § 412.154(c)(2) 

of the regulations (77 FR 53386). 

Consistent with 1886(q)(3) of the Act, 

codified at § 412.154(c)(2), the 

adjustment factor is either the greater of 

the ratio or, for FY 2015 and subsequent 

fiscal years, a floor adjustment factor of 

0.97. Under our established policy, the 

ratio is rounded to the fourth decimal 

place. In other words, for FY 2015 and 

subsequent fiscal years, a hospital 

subject to the Hospital Readmissions 

Reduction Program will have an 

adjustment factor that is between 1.0 

and 0.9700. 

10. Applicable Period for FY 2015 

Under section 1886(q)(5)(D) of the 

Act, the Secretary has the authority to 

specify the applicable period with 

respect to a fiscal year under the 

Hospital Readmissions Reduction 

Program. We finalized our policy to use 

3 years of claims data to calculate the 

readmission measures in the FY 2012 

IPPS/LTCH PPS final rule (76 FR 

51671). In the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53675), we codified the 

definition of ‘‘applicable period’’ in the 

regulations at 42 CFR 412.152 as the 3- 

year period from which data are 

collected in order to calculate excess 

readmissions ratios and adjustments for 

the fiscal year, which includes aggregate 

payments for excess readmissions and 

aggregate payments for all discharges 

used in the calculation of the payment 

adjustment. 

Consistent with the definition at 

§ 412.152, we established that the 

applicable period for FY 2014 under the 

Hospital Readmissions Reduction 

Program is the 3-year period from July 

1, 2009, to June 30, 2012. That is, we 

determined the excess readmissions 

ratios and calculate the payment 

adjustment (including aggregate 

payments for excess readmissions and 

aggregate payments for all discharges) 

for FY 2014 using data from the 3-year 

time period of July 1, 2009 to June 30, 

2012, as this was the most recent 

available 3-year period of data upon 

which to base these calculations (78 FR 

50669). 

In this proposed rule, for FY 2015, 

consistent with the definition at 

§ 412.152, we are proposing an 

‘‘applicable period’’ for the Hospital 

Readmissions Reduction Program to be 

the 3-year period from July 1, 2010 to 

June 30, 2013. In other words, we are 

proposing that the excess readmissions 

ratios and the payment adjustment 

(including aggregate payments for 

excess readmissions and aggregate 

payments for all discharges) for FY 2015 

would be calculated based on data from 

the 3-year time period of July 1, 2010 to 

June 30, 2013. We note that for the 

purpose of modeling the readmissions 

payment adjustments for FY 2015 in 

this proposed rule, the excess 

readmissions ratios will be based on the 

applicable period from FY 2014 (that is 

July 1, 2009 to June 30, 2012) and the 

MedPAR claims data to calculate the 

readmissions payment adjustments will 

be based on the proposed applicable 

period for FY 2015 (that is July 1, 2010 

to June 30, 2013). 

We invite public comment on these 

proposals. 

11. Proposed Inclusion of THA/TKA 

and COPD Readmissions Measures To 

Calculate Aggregate Payments for Excess 

Readmissions Beginning in FY 2015 

Under the Hospital Readmissions 

Reduction Program the ‘‘base operating 

DRG payment amount’’ defined at 

§ 412.152 is used both to determine the 

readmission adjustment factor that 

accounts for excess readmissions under 

section 1886(q)(3) of the Act and to 

determine which payment amounts will 

be adjusted to account for excess 

readmissions under section 1886(q) of 

the Act. Consistent with section 

1886(q)(2) of the Act, in the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53374 

through 53383), under the regulations at 

§ 412.152, we define the ‘‘base operating 

DRG payment amount’’ and specify that 

it does not include adjustments or addon payments for IME, DSH, outliers and 

low-volume hospitals as required by 

section 1886(q)(2) of the Act. 

Furthermore, consistent with section 

1886(q)(2)(B)(i) of the Act, for SCHs and 

for MDHs for FY 2013, the definition of 

‘‘base operating DRG payment amount’’ 

at § 412.152 excludes the difference 

between the hospital’s applicable 

hospital-specific payment rate and the 

Federal payment rate. 

For FY 2015 and subsequent years, for 

purposes of calculating the payment 

adjustment factors and applying the 

payment methodology, we are 

proposing that the base operating DRG 

payment amount for MDHs includes the 

difference between the hospital-specific 

payment rate and the Federal payment 

rate (as applicable). 

Section 1886(q)(3)(B) of the Act 

specifies the ratio used to calculate the 

adjustment factor under the Hospital 

Readmissions Reduction Program. It 

states that the ratio is ‘‘equal to 1 minus 

the ratio of—(i) the aggregate payments 

for excess readmissions . . . and (ii) the 

aggregate payments for all discharges. 

. . .’’ The definition of ‘‘aggregate 

payments for excess readmissions’’ and 

‘‘aggregate payments for all discharges,’’ 

as well as a methodology for calculating 

the numerator of the ratio (aggregate 

payments for excess readmissions) and 

the denominator of the ratio (aggregate 

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Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 28113 

payments for all discharges) are codified 

at § 412.154(c)(2) of the regulations (77 

FR 53387). 

Section 1886(q)(4) of the Act sets forth 

the definitions of ‘‘aggregate payments 

for excess readmissions’’ and ‘‘aggregate 

payments for all discharges’’ for an 

applicable hospital for the applicable 

period. The term ‘‘aggregate payments 

for excess readmissions’’ is defined in 

section 1886(q)(4)(A) of the Act as ‘‘for 

a hospital for an applicable period, the 

sum, for applicable conditions . . . of 

the product, for each applicable 

condition, of (i) the base operating DRG 

payment amount for such hospital for 

such applicable period for such 

condition; (ii) the number of admissions 

for such condition for such hospital for 

such applicable period; and (iii) the 

excess readmissions ratio . . . for such 

hospital for such applicable period 

minus 1.’’ We codified this definition of 

‘‘aggregate payments for excess 

readmissions’’ under the regulations at 

§ 412.152 as the product, for each 

applicable condition, of: (1) The base 

operating DRG payment amount for the 

hospital for the applicable period for 

such condition; (2) the number of 

admissions for such condition for the 

hospital for the applicable period; and 

(3) the excess readmissions ratio for the 

hospital for the applicable period minus 

1 (77 FR 53675). 

The excess readmissions ratio is a 

hospital-specific ratio calculated for 

each applicable condition. Specifically, 

section 1886(q)(4)(C) of the Act defines 

the excess readmissions ratio as the 

ratio of ‘‘risk-adjusted readmissions 

based on actual readmissions’’ for an 

applicable hospital for each applicable 

condition, to the ‘‘risk-adjusted 

expected readmissions’’ for the 

applicable hospital for the applicable 

condition. The methodology for the 

calculation of the excess readmissions 

ratio was finalized in the FY 2012 IPPS/ 

LTCH PPS final rule (76 FR 51673). 

‘‘Aggregate payments for excess 

readmissions’’ is the numerator of the 

ratio used to calculate the adjustment 

factor under the Hospital Readmissions 

Reduction Program (as described in 

further detail later in this section). 

The term ‘‘aggregate payments for all 

discharges’’ is defined at section 

1886(q)(4)(B) of the Act as ‘‘for a 

hospital for an applicable period, the 

sum of the base operating DRG payment 

amounts for all discharges for all 

conditions from such hospital for such 

applicable period.’’ ‘‘Aggregate 

payments for all discharges’’ is the 

denominator of the ratio used to 

calculate the adjustment factor under 

the Hospital Readmissions Reduction 

Program. We codified this definition of 

‘‘aggregate payments for all discharges’’ 

under the regulations at § 412.152 (77 

FR 53387). 

We finalized the inclusion of two 

additional applicable conditions, COPD 

and THA/TKA, to the Hospital 

Readmissions Reduction Program 

beginning for FY 2015 in the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50657 

through 50664). In this section, we 

discuss the proposed methodology to 

include these two additional measures 

in the calculation of the readmissions 

payment adjustment for FY 2015. 

Specifically, we are proposing how the 

addition of COPD and THA/TKA 

applicable conditions would be 

included in the calculation of the 

aggregate payments for excess 

readmissions, which is the numerator of 

the readmissions payment adjustment. 

We note that this proposal does not alter 

our established methodology for 

calculating aggregate payments for all 

discharges, that is, the denominator of 

the ratio (77 FR 53387). 

As discussed above, when calculating 

the numerator (aggregate payments for 

excess readmissions), we determine the 

base operating DRG payments for the 

applicable period. ‘‘Aggregate payments 

for excess readmissions’’ (the 

numerator) is defined as ‘‘the sum, for 

applicable conditions . . . of the 

product, for each applicable condition, 

of (i) the base operating DRG payment 

amount for such hospital for such 

applicable period for such condition; (ii) 

the number of admissions for such 

condition for such hospital for such 

applicable period; and (iii) the excess 

readmissions ratio . . . for such hospital 

for such applicable period minus 1.’’ 

When determining the base operating 

DRG payment amount for an individual 

hospital for such applicable period for 

such condition, we use Medicare 

inpatient claims from the MedPAR file 

with discharge dates that are within the 

same applicable period to calculate the 

excess readmissions ratio. We use 

MedPAR claims data as our data source 

for determining aggregate payments for 

excess readmissions and aggregate 

payments for all discharges, as this data 

source is consistent with the claims data 

source used in IPPS rulemaking to 

determine IPPS rates. 

For FY 2015, we are proposing to use 

MedPAR claims with discharge dates 

that are on or after July 1, 2010, and no 

later than June 30, 2013. Under our 

established methodology that we use the 

update of the MedPAR file for each 

Federal fiscal year, which is updated 6 

months after the end of each Federal 

fiscal year within the applicable period, 

as our data source (that is, the March 

updates of the respective Federal fiscal 

year MedPAR files) for the final rules. 

The FY 2010 through FY 2013 

MedPAR data files can be purchased 

from CMS. Use of these files allows the 

public to verify the readmissions 

adjustment factors. 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 files and provides 

directions and further detailed 

instructions for how to order the data 

sets. Persons placing an order must send 

the following: A Letter of Request, the 

LDS Data Use Agreement and Research 

Protocol (refer to the Web site for further 

instructions), the LDS Form, and a 

check for $3,655 to: 

• If using the U.S. Postal Service: 

Centers for Medicare and Medicaid 

Services, RDDC Account, Accounting 

Division, P.O. Box 7520, Baltimore, MD 

21207–0520. 

• If using express mail: Centers for 

Medicare and Medicaid Services, OFM/ 

Division of Accounting–RDDC, Mailstop 

C#–07–11, 7500 Security Boulevard, 

Baltimore, MD 21244–1850. 

For this proposed rule, we are 

proposing to determine aggregate 

payments for excess readmissions and 

aggregate payments for all discharges 

using data from MedPAR claims with 

discharge dates that are on or after July 

1, 2010, and no later than June 30, 2013. 

However, we note that for the purpose 

of modeling the proposed FY 2015 

readmissions payment adjustment 

factors for this proposed rule, we are 

using excess readmissions ratios for 

applicable hospitals from the FY 2014 

Hospital Readmissions Reduction 

Program applicable period. For the final 

rule, applicable hospitals will have had 

the opportunity to review and correct 

data from the proposed FY 2015 

applicable period of July 1, 2010 to June 

30, 2013 before they are made public 

under our policy regarding the reporting 

of hospital-specific information, which 

is discussed later in this section. 

In this proposed rule, for FY 2015, we 

are proposing to use MedPAR data from 

July 1, 2010 through June 30, 2013. 

Specifically, in this proposed rule, we 

are using the March 2011 update of the 

FY 2010 MedPAR file to identify claims 

within FY 2010 with discharges dates 

that are on or after July 1, 2010, the 

March 2012 update of the FY 2011 

MedPAR file to identify claims within 

FY 2011, the March 2013 update of the 

FY 2012 MedPAR file to identify claims 

within FY 2012, and the December 2013 

update of the FY 2013 MedPAR file to 

identify claims within FY 2013 with 

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discharge dates no later than June 30, 

2013. For the final rule, we are 

proposing to use the same MedPAR files 

as listed above for claims within FY 

2010, FY 2011 and FY 2012. For claims 

within FY 2013, we are proposing to use 

in the final rule the March 2014 update 

of the FY 2013 MedPAR file. 

In order to identify the admissions for 

each condition, including the two 

additional conditions THA/TKA and 

COPD, to calculate the aggregate 

payments for excess readmissions for an 

individual hospital, for FY 2015, we are 

proposing to identify each applicable 

condition using the ICD–9–CM codes 

used to identify applicable conditions to 

calculate the excess readmissions ratios. 

Under our existing policy, we identify 

eligible hospitalizations and 

readmissions of Medicare patients 

discharged from an applicable hospital 

having a principal diagnosis for the 

measured condition in an applicable 

period (76 FR 51669). The discharge 

diagnoses for each applicable condition 

are based on a list of specific ICD–9–CM 

codes for that condition. These codes 

are posted on the QualityNet Web site 

at: http://www.QualityNet.org > 

Hospital-Inpatient > Claims-Based 

Measures > Readmission Measures > 

Measure Methodology. 

In order to identify the applicable 

conditions to calculate the aggregate 

payments for excess readmissions, for 

FY 2015, we are proposing to identify 

the claim as an applicable condition 

consistent with the methodology to 

identify conditions to calculate the 

excess readmissions ratio. In other 

words, the applicable conditions of 

AMI, HF and PN are identified for the 

calculation of aggregate payments for 

excess readmissions if the ICD–9–CM 

code for that condition is listed as the 

principal diagnosis on the claim. 

In order to identify claims with the 

applicable condition of THA/TKA, we 

are proposing that any claim that has 

the procedure codes for THA/TKA 

listed in any diagnosis/procedure field 

of the claim would be included in the 

calculation of aggregate payments for 

readmissions, consistent with the 

methodology to calculate the excess 

readmissions ratio for THA/TKA. In 

order to identify claims with the 

applicable condition of COPD, we are 

proposing to identify claims that either 

have the ICD–9–CM code for that 

condition is listed as the principal 

diagnosis on the claim or has a principal 

diagnosis of some respiratory failure 

along with secondary diagnosis of 

COPD. 

Under our established methodology 

for calculating aggregate payments for 

readmissions, admissions that are not 

considered index admissions for the 

purpose of the readmissions measures 

are excluded from the calculation of the 

excess readmissions ratio, and therefore 

also are not considered admissions for 

the purposes of determining a hospital’s 

aggregate payments for excess 

readmissions (78 FR 50670 through 

50876). With the addition of THA/TKA 

and COPD as applicable conditions 

beginning in FY 2015, we are proposing 

to modify our current methodology to 

identify the admissions included in the 

calculation of ‘‘aggregate payments for 

excess readmissions’’ for THA/TKA and 

COPD in the same manner as the 

original applicable conditions (AMI, HF 

and PN). That is, THA/TKA and COPD 

admissions that would not considered 

index admissions in the readmissions 

measures also would not considered 

admissions for the purposes of 

calculation a hospital’s aggregate 

payments for excess readmissions. 

In this proposed rule, for FY 2015, we 

are proposing to continue to apply the 

same exclusions to the claims in the 

MedPAR file as we applied for FY 2014 

(78 FR 50670 through 50673), and we 

are proposing to apply those exclusions 

for the two additional applicable 

conditions, THA/TKA and COPD. For 

FY 2015, in order to have the same 

types of admissions to calculate 

aggregate payments for excess 

readmissions as is used to calculate the 

excess readmissions ratio, we are 

proposing to identify admissions for all 

five applicable conditions, AMI, HF, 

PN, THA/TKA and COPD, for the 

purposes of calculating aggregate 

payments for excess readmissions as 

follows: 

• We would exclude admissions that 

are identified as an applicable condition 

if the patient died in the hospital, as 

identified by the discharge status code 

on the MedPAR claim. 

• We would exclude admissions 

identified as an applicable condition for 

which the patient was transferred to 

another provider that provides acute 

care hospital services (that is, a CAH or 

an IPPS hospital), as identified through 

examination of contiguous stays in 

MedPAR at other hospitals. 

• We would exclude admissions 

identified as an applicable condition for 

patients who are under the age of 65, as 

identified by linking the claim 

information to the information provided 

in the Medicare Enrollment Database. 

• For conditions identified as AMI, 

we would exclude claims that are same 

day discharges, as identified by the 

admission date and discharge date on 

the MedPAR claim. 

• We would exclude admissions for 

patients who did not have Medicare 

Parts A and B FFS enrollment in the 12 

months prior to the index admission, 

based on the information provided in 

the Medicare Enrollment Database. 

• We would exclude admissions for 

patients without at least 30 days postdischarge enrollment in Medicare Parts 

A and B fee-for-service, based on the 

information provided in the Medicare 

Enrollment Database. 

• We would exclude all multiple 

admissions within 30 days of a prior 

index admission’s discharge date, as 

identified in the MedPAR file, 

consistent with how multiple 

admissions within 30 days of an index 

admission are excluded from the 

calculation of the excess readmissions 

ratio. 

These exclusions are consistent with 

our current methodology, which was 

established in the FY 2014 IPPS/LTCH 

PPS final rule (78 FR 50671). 

In addition to the exclusions 

described above for all five applicable 

conditions, for FY 2015, we are 

proposing the following steps to identify 

admissions specifically for THA/TKA 

for the purposes of calculating aggregate 

payments for excess readmissions: 

• We are proposing to exclude 

admissions for THA/TKA for all transfer 

cases regardless of whether the 

discharge was a transfer to another 

hospital or from another hospital, 

consistent with the calculation of the 

excess readmissions ratio for THA/TKA. 

• We are proposing to exclude 

admissions for THA/TKA for cases 

where the discharge includes a femur, 

hip, or pelvic fracture coded in the 

principal or secondary diagnosis fields, 

consistent with the calculation of the 

excess readmissions ratio for THA/TKA. 

• We are proposing to exclude 

admissions for THA/TKA for cases 

where the discharge includes a 

mechanical complication coded in the 

principal diagnosis field, consistent 

with the calculation of the excess 

readmissions ratio for THA/TKA. 

• We are proposing to exclude 

admissions for THA/TKA for cases 

where the discharge includes a 

malignant neoplasm of the pelvis, 

sacrum, coccyx, lower limbs, or bone/

bone marrow or a disseminated 

malignant neoplasm coded in the 

principal diagnosis field, consistent 

with the calculation of the excess 

readmissions ratio for THA/TKA. 

• We are proposing to exclude 

admissions for THA/TKA for cases 

where the discharge includes more than 

two hip/knee procedures. 

• We are proposing to exclude 

admissions for THA/TKA for cases that 

meet either any of the following 

conditions or following procedures 

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concurrent with THA/TKA: revision 

procedures; partial hip arthroplasty 

(PHA) procedures; resurfacing 

procedures; and removal of implanted 

devices/prostheses. 

Furthermore, we are proposing to 

only identify Medicare FFS claims that 

meet the criteria (that is, claims paid for 

under Medicare Part C (Medicare 

Advantage) would not be included in 

this calculation), consistent with the 

methodology to calculate excess 

readmissions ratios based solely on 

admissions and readmissions for 

Medicare FFS patients. Therefore, 

consistent with our established 

methodology, for FY 2015, we would 

exclude admissions for patients enrolled 

in Medicare Advantage as identified in 

the Medicare Enrollment Database. This 

proposal is consistent with how 

admissions for Medicare Advantage 

patients are identified in the calculation 

of the excess readmissions ratios under 

our established methodology. The tables 

below list the ICD–9–CM codes we are 

proposing to use to identify each 

applicable condition to calculate the 

aggregate payments for excess 

readmissions under this proposal for FY 

2015. The tables include the ICD–9–CM 

codes we are proposing to use to 

identify the two conditions, THA/TKA 

and COPD, added to the Hospital 

Readmissions Reduction Program 

beginning for FY 2015. These ICD–9– 

CM codes also would be used to identify 

the applicable conditions to calculate 

the excess readmissions ratios, 

consistent with our established policy 

(76 FR 51673 through 51676). 

ICD–9–CM CODES TO IDENTIFY PNEUMONIA (PN) CASES

ICD–9–CM Code Description of code 

480.0 ............................. Pneumonia due to adenovirus. 

480.1 ............................. Pneumonia due to respiratory syncytial virus. 

480.2 ............................. Pneumonia due to parainfluenza virus. 

480.3 ............................. Pneumonia due to SARS-associated coronavirus. 

480.8 ............................. Viral pneumonia: pneumonia due to other virus not elsewhere classified. 

480.9 ............................. Viral pneumonia unspecified. 

481 ................................ Pneumococcal pneumonia [streptococcus pneumoniae pneumonia]. 

482.0 ............................. Pneumonia due to klebsiella pneumoniae. 

482.1 ............................. Pneumonia due to pseudomonas. 

482.2 ............................. Pneumonia due to hemophilus influenzae [h. influenzae]. 

482.30 ........................... Pneumonia due to streptococcus unspecified. 

482.31 ........................... Pneumonia due to streptococcus group a. 

482.32 ........................... Pneumonia due to streptococcus group b. 

482.39 ........................... Pneumonia due to other streptococcus. 

482.40 ........................... Pneumonia due to staphylococcus unspecified. 

482.41 ........................... Pneumonia due to staphylococcus aureus. 

482.42 ........................... Methicillin Resistant Pneumonia due to Staphylococcus Aureus. 

482.49 ........................... Other staphylococcus pneumonia. 

482.81 ........................... Pneumonia due to anaerobes. 

482.82 ........................... Pneumonia due to escherichia coli [e.coli]. 

482.83 ........................... Pneumonia due to other gram-negative bacteria. 

482.84 ........................... Pneumonia due to legionnaires’ disease. 

482.89 ........................... Pneumonia due to other specified bacteria. 

482.9 ............................. Bacterial pneumonia unspecified. 

483.0 ............................. Pneumonia due to mycoplasma pneumoniae. 

483.1 ............................. Pneumonia due to chlamydia. 

483.8 ............................. Pneumonia due to other specified organism. 

485 ................................ Bronchopneumonia organism unspecified. 

486 ................................ Pneumonia organism unspecified. 

487.0 ............................. Influenza with pneumonia. 

488.11 ........................... Influenza due to identified novel H1N1 influenza virus with pneumonia. 

ICD–9–CM CODES TO IDENTIFY HEART FAILURE (HF) CASES

ICD–9–CM 

Code Code description 

402.01 ........................... Hypertensive heart disease, malignant, with heart failure. 

402.11 ........................... Hypertensive heart disease, benign, with heart failure. 

402.91 ........................... Hypertensive heart disease, unspecified, with heart failure. 

404.01 ........................... Hypertensive heart and chronic kidney disease, malignant, with heart failure and with chronic kidney disease stage I 

through stage IV, or unspecified. 

404.03 ........................... Hypertensive heart and chronic kidney disease, malignant, with heart failure and with chronic kidney disease stage V 

or end stage renal disease. 

404.11 ........................... Hypertensive heart and chronic kidney disease, benign, with heart failure and with chronic kidney disease stage I 

through stage IV, or unspecified. 

404.13 ........................... Hypertensive heart and chronic kidney disease, benign, with heart failure and with chronic kidney disease stage I 

through stage IV, or unspecified failure and chronic kidney disease stage V or end stage renal disease. 

404.91 ........................... Hypertensive heart and chronic kidney disease, unspecified, with heart failure and chronic kidney disease stage V or 

end stage renal disease heart failure and with chronic kidney disease stage I through stage IV, or unspecified. 

404.93 ........................... Hypertensive heart and chronic kidney disease, unspecified, with heart failure and chronic kidney disease stage V or 

end stage renal disease. 

428.xx ........................... Heart Failure. 

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ICD–9–CM CODES TO IDENTIFY ACUTE MYOCARDIAL INFARCTION (AMI) CASES

ICD–9–CM 

Code Description of code 

410.00 ........................... AMI (anterolateral wall)—episode of care unspecified. 

410.01 ........................... AMI (anterolateral wall)—initial episode of care. 

410.10 ........................... AMI (other anterior wall)—episode of care unspecified. 

410.11 ........................... AMI (other anterior wall)—initial episode of care. 

410.20 ........................... AMI (inferolateral wall)—episode of care unspecified. 

410.21 ........................... AMI (inferolateral wall)—initial episode of care. 

410.30 ........................... AMI (inferoposterior wall)—episode of care unspecified. 

410.31 ........................... AMI (inferoposterior wall)—initial episode of care. 

410.40 ........................... AMI (other inferior wall)—episode of care unspecified. 

410.41 ........................... AMI (other inferior wall)—initial episode of care. 

410.50 ........................... AMI (other lateral wall)—episode of care unspecified. 

410.51 ........................... AMI (other lateral wall)—initial episode of care. 

410.60 ........................... AMI (true posterior wall)—episode of care unspecified. 

410.61 ........................... AMI (true posterior wall)—initial episode of care. 

410.70 ........................... AMI (subendocardial)—episode of care unspecified. 

410.71 ........................... AMI (subendocardial)—initial episode of care. 

410.80 ........................... AMI (other specified site)—episode of care unspecified. 

410.81 ........................... AMI (other specified site)—initial episode of care. 

410.90 ........................... AMI (unspecified site)—episode of care unspecified. 

410.91 ........................... AMI (unspecified site)—initial episode of care. 

ICD–9–CM CODES TO IDENTIFY CHRONIC OBSTRUCTIVE PULMONARY DISEASE (COPD) CASES

ICD–9–CM 

Code Description of code 

491.21 ........................... Obstructive chronic bronchitis; With (acute) exacerbation; acute exacerbation of COPD, decompensated COPD, decompensated COPD with exacerbation. 

491.22 ........................... Obstructive chronic bronchitis; with acute bronchitis. 

491.8 ............................. Other chronic bronchitis. Chronic: tracheitis, tracheobronchitis. 

491.9 ............................. Unspecified chronic bronchitis. 

492.8 ............................. Other emphysema; emphysema (lung or pulmonary): NOS, centriacinar, centrilobular, obstructive, panacinar, 

panlobular, unilateral, vesicular. MacLeod’s syndrome; Swyer-James syndrome; unilateral hyperlucent lung. 

493.20 ........................... Chronic obstructive asthma; asthma with COPD, chronic asthmatic bronchitis, unspecified. 

493.21 ........................... Chronic obstructive asthma; asthma with COPD, chronic asthmatic bronchitis, with status asthmaticus. 

493.22 ........................... Chronic obstructive asthma; asthma with COPD, chronic asthmatic bronchitis, with (acute) exacerbation. 

496 ................................ Chronic: nonspecific lung disease, obstructive lung disease, obstructive pulmonary disease (COPD) NOS. NOTE: This 

code is not to be used with any code from categories 491–493. 

518.81 * ......................... Other diseases of lung; acute respiratory failure; respiratory failure NOS. 

518.82 * ......................... Other diseases of lung; acute respiratory failure; other pulmonary insufficiency, acute respiratory distress. 

518.84 * ......................... Other diseases of lung; acute respiratory failure; acute and chronic respiratory failure. 

799.1 * ........................... Other ill-defined and unknown causes of morbidity and mortality; respiratory arrest, cardiorespiratory failure. 

*Principal diagnosis when combined with a secondary diagnosis of AECOPD (491.21, 491.22, 493.21, or 493.22). 

ICD–9–CM CODES TO IDENTIFY

TOTAL HIP ARTHROPLASTY/TOTAL

KNEE ARTHROPLATY (THA/TKA) 

CASES

ICD–9–CM 

Code Description of code 

81.51 ................ Total hip arthroplasty. 

81.54 ................ Total knee arthroplasty. 

For FY 2015, we are proposing to 

calculate aggregate payments for excess 

readmissions, using MedPAR claims 

from July 1, 2010 to June 30, 2013, to 

identify applicable conditions based on 

the same ICD–9–CM codes used to 

identify the conditions for the 

readmissions measures, and to apply the 

proposed exclusions for the types of 

admissions discussed above. To 

calculate aggregate payments for excess 

readmissions, we are proposing to 

calculate the base operating DRG 

payment amounts for all claims in the 

3-year applicable period for each 

applicable condition (AMI, HF, PN, 

COPD and THA/TKA) based on the 

claims we have identified as described 

above. Once we have calculated the base 

operating DRG amounts for all the 

claims for the five applicable 

conditions, we are proposing to sum the 

base operating DRG payments amounts 

by each condition, resulting in five 

summed amounts, one amount for each 

of the five applicable conditions. We are 

proposing to then multiply the amount 

for each condition by the respective 

excess readmissions ratio minus 1 when 

that excess readmissions ratio is greater 

than 1, which indicates that a hospital 

has performed, with respect to 

readmissions for that applicable 

condition, worse than the average 

hospital with similar patients. Each 

product in this computation represents 

the payments for excess readmissions 

for that condition. We are proposing to 

then sum the resulting products which 

represent a hospital’s proposed 

‘‘aggregate payments for excess 

readmissions’’ (the numerator of the 

ratio). Because this calculation is 

performed separately for each of the five 

conditions, a hospital’s excess 

readmissions ratio must be less than or 

equal to 1 on each measure to aggregate 

payments for excess readmissions (and 

thus a payment reduction under the 

Hospital Readmissions Reduction 

Program). We note that we are not 

proposing any changes to our existing 

methodology to calculate ‘‘aggregate 

payments for all discharges’’ (the 

denominator of the ratio). 

We are proposing the following 

methodology for FY 2015 as displayed 

in the chart below. 

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FORMULAS TO CALCULATE THE

READMISSIONS ADJUSTMENT FACTOR

Aggregate payments for excess readmissions = [sum of base operating DRG 

payments for AMI × (Excess Readmissions Ratio for AMI–1)] + [sum of base 

operating DRG payments for HF × (Excess Readmissions Ratio for HF–1)] + 

[sum of base operating DRG payments 

for PN × (Excess Readmissions Ratio for 

PN–1)] + [sum of base operating DRG 

payments for COPD) × (Excess Readmissions Ratio for COPD–1)] + [sum of base 

operating DRG payments for THA/TKA × 

(Excess Readmissions Ratio for THA/

TKA–1)]. 

* Note, if a hospital’s excess readmissions 

ratio for a condition is less than/equal to 

1, then there are no aggregate payments 

for excess readmissions for that condition 

included in this calculation. 

Aggregate payments for all discharges = 

sum of base operating DRG payments for 

all discharges. 

Ratio = 1-(Aggregate payments for excess 

readmissions/Aggregate payments for all 

discharges). 

Proposed Readmissions Adjustment Factor 

for FY 2015 is the higher of the ratio or 

0.9700. 

* Based on claims data from July 1, 2010 to 

June 30, 2013 for FY 2015. 

We invite public comment on these 

proposals. 

12. Hospital Readmissions Reduction 

Program Extraordinary Circumstances 

Exceptions 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50676), we indicated that 

commenters had requested a potential 

waiver or exemption process for 

hospitals located in areas that 

experience disasters or other 

extraordinary circumstances, even 

though we had not proposed an 

extraordinary circumstance exceptions/

exemptions (ECE) policy for the 

Hospital Readmissions Reduction 

Program. We noted that there are several 

policy and operational considerations in 

developing a disaster exemption process 

for the Hospital Readmissions 

Reduction Program. 

We welcome public comment on 

whether an exemption process should 

be implemented, and the policy and 

operational considerations for a 

potential Hospital Readmissions 

Reduction Program ECE policy. 

I. Hospital Value-Based Purchasing 

(VBP) Program 

1. Statutory Background 

Section 1886(o) of the Act, as added 

by section 3001(a)(1) of the Affordable 

Care Act, requires the Secretary to 

establish a hospital value-based 

purchasing program (the Hospital 

Value-Based Purchasing (VBP) Program) 

under which value-based incentive 

payments are made in a fiscal year to 

hospitals that meet performance 

standards established for a performance 

period for such fiscal year. Both the 

performance standards and the 

performance period for a fiscal year are 

to be established by the Secretary. 

Section 1886(o)(1)(B) of the Act states 

that the Hospital VBP Program applies 

to payments for hospital discharges 

occurring on or after October 1, 2012. In 

accordance with section 1886(o)(6)(A) of 

the Act, we are required to make valuebased incentive payments under the 

Hospital VBP Program to hospitals that 

meet or exceed performance standards 

for a performance period for a fiscal 

year. As further required by section 

1886(o)(6)(C)(ii)(I) of the Act, we base 

each hospital’s value-based payment 

percentage on the hospital’s Total 

Performance Score (TPS) for a specified 

performance period. In accordance with 

section 1886(o)(7) of the Act, the total 

amount available for value-based 

incentive payments for a fiscal year will 

be equal to the total amount of the 

payment reductions for all participating 

hospitals for such fiscal year, as 

estimated by the Secretary. For FY 2014, 

the available funding pool was equal to 

1.25 percent of the base-operating DRG 

payments to all participating hospitals, 

as estimated by the Secretary. The size 

of the applicable percentage has 

increased to 1.50 percent for FY 2015 

and will increase to 1.75 percent for FY 

2016, and to 2.0 percent for FY 2017 

and successive fiscal years. 

Section 1886(o)(1)(C) of the Act 

generally defines the term ‘‘hospital’’ for 

purposes of the Hospital VBP Program 

as a subsection (d) hospital (as that term 

is defined in section 1886(d)(1)(B) of the 

Act), but excludes from the definition of 

the term ‘‘hospital,’’ with respect to a 

fiscal year: (1) A hospital that is subject 

to the payment reduction under section 

1886(b)(3)(B)(viii)(I) of the Act (the 

Hospital IQR Program) for such fiscal 

year; (2) a hospital for which, during the 

performance period for the fiscal year, 

the Secretary has cited deficiencies that 

pose immediate jeopardy to the health 

or safety of patients; and (3) a hospital 

for which there are not a minimum 

number (as determined by the Secretary) 

of measures that apply to the hospital 

for the performance period for the fiscal 

year involved, or for which there are not 

a minimum number (as determined by 

the Secretary) of cases for the measures 

that apply to the hospital for the 

performance period for such fiscal year. 

2. Overview of Previous Hospital VBP 

Program Rulemaking 

We refer readers to the Hospital 

Inpatient VBP Program final rule (76 FR 

26490 through 26547), FY 2012 IPPS/

LTCH PPS final rule (76 FR 51653 

through 51660), CY 2012 OPPS/ASC 

final rule with comment period (76 FR 

74527 through 74547), FY 2013 IPPS/

LTCH PPS final rule (77 FR 53567 

through 53614), FY 2014 IPPS/LTCH 

PPS final rule (78 FR 50676 through 

50707), and CY 2014 OPPS/ASC final 

rule with comment period (78 FR 75120 

through 75121) for further descriptions 

of our policies for the Hospital VBP 

Program. 

We have also codified certain 

requirements for the Hospital VBP 

Program at §§ 412.160 through 412.167 

of our regulations. 

3. FY 2015 Payment Details 

a. Payment Adjustments 

Section 1886(o)(7)(B) of the Act 

instructs the Secretary to reduce the 

base operating DRG payment amount for 

a hospital for each discharge in a fiscal 

year by an applicable percent. Under 

section 1886(o)(7)(A) of the Act, the sum 

total of these reductions in a fiscal year 

must equal the total amount available 

for value-based incentive payments for 

all eligible hospitals for the fiscal year, 

as estimated by the Secretary. We 

finalized details on how we would 

implement these provisions in the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53571 through 53573) and refer readers 

to that rule for further details. 

Under section 1886(o)(7)(C)(iii) of the 

Act, the applicable percent for the FY 

2015 Hospital VBP Program is 1.50 

percent. Using the methodology we 

adopted in the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53571 through 53573), 

we estimate that the total amount 

available for value-based incentive 

payments for FY 2015 is $1.4 billion, 

based on the December 2013 update of 

the FY 2013 MedPAR file. We intend to 

update this estimate for the FY 2015 

IPPS/LTCH PPS final rule, using the 

March 2014 update of the FY 2013 

MedPAR file. 

As finalized in the FY 2013 IPPS/

LTCH PPS final rule, as referenced 

above, we will utilize a linear exchange 

function to translate this estimated 

amount available into a value-based 

incentive payment percentage for each 

hospital, based on its TPS. We will then 

calculate a value-based incentive 

payment adjustment factor that will be 

applied to the base operating DRG 

payment amount for each discharge 

occurring in FY 2015, on a per-claim 

basis. We are publishing proxy valuemstockstill on DSK4VPTVN1PROD with PROPOSALS2

28118 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

based incentive payment adjustment 

factors in Table 16 of this proposed rule 

(which is available via the Internet on 

the CMS Web site). The proxy factors 

are based on the TPSs from the FY 2014 

Hospital VBP Program. These FY 2014 

performance scores are the most 

recently available performance scores 

that hospitals have been given the 

opportunity to review and correct. The 

slope of the linear exchange function 

used to calculate those proxy valuebased incentive payment adjustment 

factors was 2.0952951561. This slope, 

along with the estimated amount 

available for value-based incentive 

payments, is also published in Table 16. 

We intend to update this table as 

Table 16A in the final rule (which will 

be available via the Internet on the CMS 

Web site) to reflect changes based on the 

March 2014 update to the FY 2013 

MedPAR file. We also intend to update 

the slope of the linear exchange 

function used to calculate those updated 

proxy value-based incentive payment 

adjustment factors. The updated proxy 

value-based incentive payment 

adjustment factors for FY 2015 will 

continue to be based on historic FY 

2014 Program TPSs because hospitals 

will not have been given the 

opportunity to review and correct their 

actual TPSs for the FY 2015 Hospital 

VBP Program until after the FY 2015 

IPPS/LTCH PPS final rule is published. 

After hospitals have been given an 

opportunity to review and correct their 

actual TPSs for FY 2015, we will add 

Table 16B (which will be available via 

the Internet on the CMS Web site) to 

display the actual value-based incentive 

payment adjustment factors, exchange 

function slope, and estimated amount 

available for the FY 2015 Hospital VBP 

Program. We expect that Table 16B will 

be posted on the CMS Web site in 

October 2014. 

b. Base Operating DRG Payment 

Amount Definition for MedicareDependent Small Rural Hospitals 

(MDHs) 

Section 106 of Public Law 113–93, the 

Protecting Access to Medicare Act of 

2014 (PAMA), extended the MDH 

program through March 31, 2015. We 

note that that the special treatment for 

MDHs under section 1886(o)(7)(D)(ii)(I) 

of the Act, with regard to definition of 

base operating DRG payment amount, 

does not apply to discharges occurring 

after FY 2013. 

For FY 2015 and subsequent years, for 

purposes of calculating the payment 

adjustment factors and applying the 

payment methodology, we are 

proposing that the base operating DRG 

payment amount for MDHs will include 

the difference between the hospitalspecific payment rate and the Federal 

payment rate (as applicable). We are 

also proposing to revise the definition of 

base operating DRG payment amount in 

§ 412.160 paragraph (2) of our 

regulations to reflect this change. We 

welcome comments on this proposal. 

4. Measures for the FY 2017 Hospital 

VBP Program 

a. Measures Previously Adopted 

In the FY 2013 IPPS/LTCH PPS final 

rule, we finalized our proposal to 

readopt measures from the prior 

program year for each successive 

program year, unless proposed and 

finalized otherwise (for example, 

because one or more of the measures is 

‘‘topped-out’’ or for other policy 

reasons). We stated our belief that this 

policy would facilitate measure 

adoption for the Hospital VBP Program 

for future years, as well as align the 

Hospital VBP Program with the Hospital 

IQR Program (77 FR 53592). The FY 

2016 Hospital VBP Program includes 

the following measures: 

FINALIZED MEASURES FOR THE FY 2016 HOSPITAL VBP PROGRAM

Clinical Process of Care Domain 

AMI–7a .................. Fibrinolytic Therapy Received Within 30 Minutes of Hospital Arrival. 

IMM–2 ................... Influenza Immunization. 

PN–6 ..................... Initial Antibiotic Selection for CAP in Immunocompetent Patient. 

SCIP–Inf–2 ............ Prophylactic Antibiotic Selection for Surgical Patients. 

SCIP–Inf–3 ............ Prophylactic Antibiotics Discontinued Within 24 Hours After Surgery End Time. 

SCIP–Inf–9 ............ Urinary Catheter Removed on Postoperative Day 1 or Postoperative Day 2. 

SCIP–Card–2 ........ Surgery Patients on Beta-Blocker Therapy Prior to Arrival Who Received a Beta-Blocker During the Perioperative Period. 

SCIP–VTE–2 ......... Surgery Patients Who Received Appropriate Venous Thromboembolism Prophylaxis Within 24 Hours Prior to Surgery to 24 

Hours After Surgery. 

Patient Experience of Care Domain 

HCAHPS ............... Hospital Consumer Assessment of Healthcare Providers and Systems Survey. 

Outcome Domain 

CAUTI ................... Catheter-Associated Urinary Tract Infection. 

CLABSI ................. Central Line-Associated Blood Stream Infection. 

MORT–30–AMI ..... Acute Myocardial Infarction (AMI) 30-day mortality rate. 

MORT–30–HF ....... Heart Failure (HF) 30-day mortality rate. 

MORT–30–PN ....... Pneumonia (PN) 30-day mortality rate. 

PSI–90 .................. Complication/patient safety for selected indicators (composite). 

SSI ........................ Surgical Site Infection: 

• Colon. 

• Abdominal Hysterectomy. 

Efficiency Domain 

MSPB–1 ................ Medicare Spending per Beneficiary. 

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35Tatokoro et al. BMC Urology 2013, 13:35. 

Available at http://www.ncbi.nlm.nih.gov/pmc/

articles/PMC3720197/pdf/1471-2490-13-35.pdf. 

36Catherine Liu, Arnold Bayer, et al., Clinical 

practice Guidelines for the treatment of MethicillinResistant Staphylococcus aureus Infections in Adult 

and Children. Infectious Disease Society of America 

2011; 52:e18. 

b. Proposed Changes Affecting Topped 

Out Measures 

(1) Proposed Removal of Six ToppedOut Measures 

For the FY 2017 Hospital VBP 

Program measure set, we evaluated 

whether any measures that we 

previously adopted are now ‘‘topped 

out’’ by focusing on two criteria: (1) 

National measure data showing 

statistically indistinguishable 

performance levels at the 75th and 90th 

percentiles; and (2) national measure 

data showing a truncated coefficient of 

variation (TCV) less than 0.10. We refer 

readers to the Hospital Inpatient VBP 

Program final rule (76 FR 26496 through 

26497) for further discussion of these 

current ‘‘topped-out’’ criteria and to our 

proposal below to modify the second 

criterion. 

Based on our evaluation of the most 

recently available data, we believe that 

PN–6, SCIP–Card–2, SCIP–Inf–2, SCIP– 

Inf–3, SCIP–Inf–9, and SCIP–VTE–2 are 

all now ‘‘topped-out.’’ Therefore, we are 

proposing to remove these six measures 

from the FY 2017 Hospital VBP measure 

set because measuring hospital 

performance on these measures will 

have no meaningful effect on a 

hospital’s TPS. We believe that 

removing these ‘‘topped-out’’ measures 

will continue to ensure that we make 

valid statistical comparisons through 

our finalized scoring methodology, and 

will reduce the reporting burden on 

participating hospitals. 

We welcome public comment on this 

proposal. 

(2) Proposed Change to Truncated 

Coefficient of Variation Criterion to 

Determine Whether a Measure is 

Topped Out 

As stated above, we have adopted two 

criteria for determining the ‘‘toppedout’’ status of Hospital VBP Program 

measures: 

• Statistically indistinguishable 

performance at the 75th and 90th 

percentiles; and 

• Truncated coefficient of variation 

< 0.10. 

We are proposing to modify the 

second criterion to the following: 

• Truncated coefficient of variation 

≤ 0.10. 

The coefficient of variation (CV) is a 

common statistic that expresses the 

standard deviation as a percentage of 

the sample mean in a way that is 

independent of the units of observation. 

Applied to this analysis, a large CV 

would indicate a broad distribution of 

individual hospital scores, with large 

and presumably meaningful differences 

between hospitals in relative 

performance. A small CV would 

indicate that the distribution of 

individual hospital scores is clustered 

tightly around the mean value, 

suggesting that it is not useful to draw 

distinctions among individual hospitals’ 

measure performance. By proposing to 

change the truncated CV from ‘‘less 

than’’ to ‘‘less than or equal to’’ 0.10 

under our ‘‘topped out’’ test, we will 

better be able to distinguish measures 

with significant variation in 

performance among hospitals and more 

accurately apply determine what 

measures are ‘‘topped out’’ for purposes 

of the Program. 

We welcome public comments on this 

proposal. 

c. Proposed New Measures for the FY 

2017 Hospital VBP Program 

We considered if we should adopt 

additional measures for the FY 2017 

Hospital VBP Program. We considered 

which measures are eligible for 

adoption based on the statutory 

requirements, including specification 

under the Hospital IQR Program and 

posting dates on the Hospital Compare 

Web site, and our priorities for quality 

improvement as outlined in the NQS 

(available for download at http://

www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/QualityInitiativesGenInfo/

Downloads/CMS-Quality-Strategy.pdf). 

We believe that the following three 

proposed measures meet the statutory 

requirements for inclusion in the FY 

2017 Hospital VBP Program. We also 

believe that these measures represent 

important components of quality 

improvement in the acute inpatient 

hospital setting. 

(1) Methicillin-Resistant Staphylococcus 

aureus (MRSA) Bacteremia (NQF #1716) 

Methicillin-Resistant Staphylococcus 

aureus (MRSA) Bacteremia (NQF #1716) 

is a risk-adjusted outcome measure 

monitoring hospital onset of MRSA 

bloodstream infection events using the 

standardized infection ratio (MRSA 

bacteremia SIR) among all inpatients in 

the facility, and is reported via CDC’s 

National Healthcare Safety Network 

(NHSN). We adopted this measure 

beginning with the FY 2015 payment 

determination under the Hospital IQR 

Program in the FY 2012 IPPS/LTCH PPS 

final rule (76 FR 51630), and initial 

measure data were posted on Hospital 

Compare in December 2013. 

We remain concerned about the 

persistent public health threat presented 

by MRSA infections. According to a 

2013 study available at the NIH Web 

site, MRSA ‘‘results in longer 

hospitalization, increased expenses, and 

poorer patient prognosis,’’ and MRSA 

‘‘has been swiftly increasing worldwide 

over the past several decades.’’ 35 As we 

noted in the FY 2012 IPPS/LTCH PPS 

final rule, invasive MRSA infections 

may cause about 18,000 deaths during a 

hospital stay a year.36

The MAP supported the direction of 

the MRSA bacteremia measure for 

inclusion in the Hospital VBP Program 

in the MAP Pre-Rulemaking Report: 

2013 Recommendations on Measures 

Under Consideration by HHS found at 

https://www.qualityforum.org/

WorkArea/linkit.aspx?Link

Identifier=id&ItemID=72746. The MAP 

noted that the measure addresses an 

NQS priority not adequately addressed 

in the program measure set, the measure 

should be applied following public 

reporting on Hospital Compare, and that 

the most recent version of the NQFendorsed measure should be applied. 

We believe that this measure is 

eligible for the Hospital VBP Program 

based on the MAP recommendation, our 

adoption of the most recent NQFendorsed version under the Hospital 

IQR Program, and our posting of 

measure data on Hospital Compare. 

Based on the continued danger that 

MRSA infections present to patients and 

to the public health, we further believe 

that this measure is appropriate for the 

Hospital VBP Program. Therefore, we 

are proposing to adopt the MRSA 

bacteremia measure for the FY 2017 

Hospital VBP Program, and we are 

proposing to place the measure into the 

Safety domain. 

We invite public comment on this 

proposal. 

(2) Clostridium difficile Infection (NQF 

#1717) 

Clostridium difficile Infection (NQF 

#1717) is a risk-adjusted outcome 

measure monitoring hospital onset of C. 

difficile infection events using the 

standardized infection ratio (C. difficile 

SIR) among all inpatients in the facility, 

and is reported via CDC’s NHSN. We 

adopted this measure for the FY 2015 

payment determination under the 

Hospital IQR Program in the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51630 

through 51631), and initial measure data 

were posted on Hospital Compare in 

December 2013. 

As with MRSA infections, we are 

concerned about the seriousness of C. 

difficile infections. According to a 2012 

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28120 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

37Forster et al. ‘‘The effect of hospital-acquired 

infection with Clostridium difficile on length of stay 

in hospital.’’ Canadian Medical Association 

Journal, January 10, 2012. Available at http://

www.ncbi.nlm.nih.gov/pmc/articles/PMC3255231/

pdf/1840037.pdf. 

38Martin, JA, Hamilton, BE, Osterman, MJK, 

Curtin, SC, Mathews, TJ. (2013). Births: Final data 

for 2012. Natl Vital Stat Rpt. 62(9). Retrieved from 

http://www.cdc.gov/nchs/data/nvsr/nvsr62/nvsr62_

09.pdf. 

39 Glantz, J. (Apr. 2005). Elective induction vs. 

spontaneous labor associations and outcomes. J 

Reprod Med. 50(4):235–40. 

40 Vardo, J., Thornburg, L., Glantz J., (2011). 

Maternal and neonatal morbidity among 

nulliparous women undergoing elective induction 

of labor. J. report med. 56(1–2): 25–30. 

41Tita, A., Landon, M., Spong, C., Lai, Y., Leveno, 

K., Varner, M., et al. (2009). Timing of elective 

repeat cesarean delivery at term and neonatal 

outcomes. [Electronic Version]. NEJM. 360:2, 111– 

120. 

42Clark, S., Miller, D., Belfort, M., Dildy, G., Frye, 

D., & Meyers, J. (2009). Neonatal and maternal 

outcomes associated with elective delivery. 

[Electronic Version]. Am J Obstet Gynecol. 

200:156.e1–156.e4. 

study, ‘‘infection with Clostridium 

difficile is associated with poor 

outcomes for patients. Previous work 

has determined that, regardless of 

baseline risk of death, for every 10 

patients that acquire C. difficile in 

hospital, 1 patient will die. Clostridium 

difficile is also associated with 

increased health care costs. One of the 

primary mechanisms by which C. 

difficile increases costs is by increasing 

the length of time patients spend in 

hospital.’’ 37 As we stated in the FY 

2012 IPPS/LTCH PPS final rule (76 FR 

51630 through 51631), C. difficile 

infections have become more frequent, 

more severe, and more difficult to treat 

in recent years. Each year, tens of 

thousands of people in the United States 

get sick from C. difficile, including some 

otherwise healthy people who are not 

hospitalized or taking antibiotics. 

The MAP supported the direction of 

the C. difficile infection measure for 

inclusion in the Hospital VBP Program 

in the MAP Pre-Rulemaking Report: 

2013 Recommendations on Measures 

Under Consideration by HHS found at 

https://www.qualityforum.org/

WorkArea/linkit.aspx?LinkIdentifier=id

&ItemID=72746. The MAP noted that 

the measure addresses an NQS priority 

not adequately addressed in the 

program measure set, the measure 

should be applied following public 

reporting on Hospital Compare, and that 

the most recent version of the NQFendorsed measure should be applied. 

We believe that this measure is 

eligible for the Hospital VBP Program 

based on the MAP recommendation, our 

adoption of the most recent NQFendorsed version under the Hospital 

IQR Program, and our posting of 

measure data on Hospital Compare, as 

well as the continued danger that C. 

difficile infections present to patients 

and the public health. Therefore, we are 

proposing to adopt the C. difficile SIR 

measure for the FY 2017 Hospital VBP 

Program, and we are proposing to place 

the measure into the Safety domain. 

We invite public comment on this 

proposal. 

(3) PC–01: Elective Delivery Prior to 39 

Completed Weeks Gestation (NQF 

#0469) 

PC–01: Elective Delivery Prior to 39 

Completed Weeks Gestation (NQF 

#0469) is a chart-abstracted measure 

that we adopted beginning with the FY 

2015 payment determination for the 

Hospital IQR Program in the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53528 

through 53530). Initial measure data 

were posted on Hospital Compare in 

December 2013. Although this is a 

chart-abstracted measure, we finalized 

our policy in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53528 through 

53529) that this measure would be 

collected in aggregated numerator, 

denominator, and exclusion counts per 

hospital via a Web-based tool, instead of 

collecting patient-level data from 

hospitals. 

As we described in the FY 2013 IPPS/ 

LTCH PPS final rule referenced above, 

the Strong Start Initiative (http://

www.innovation.cms.gov/initiatives/

strong-start/) was launched to help 

reduce early elective births. At launch, 

the HHS Secretary stated that more than 

half a million infants are born 

prematurely in America each year. 

Fortunately, the early elective birth rate 

has steadily decreased. In 2012, the 

number of early elective births had 

decreased to approximately 456,000 or 

11.55 percent of the total number of 

births.38 Early elective births may 

require additional medical attention and 

early intervention services. Research 

indicates that elective deliveries before 

39 weeks increase the risk of significant 

complications for mother and baby, as 

well as long-term health problems. 

39 40 41 42 Early elective births are a 

public health problem that has 

significant consequences for families 

well into a child’s life. 

As a public campaign to reduce early 

elective births, the Strong Start 

Initiative’s objective is to test ways to 

reverse this trend by helping provide 

expectant mothers with the care they 

need for a healthy delivery and a 

healthy baby, and by focusing on 

reducing early elective deliveries, which 

can lead to a variety of health problems 

for mothers and infants. 

The Strong Start Initiative cuts across 

many agencies within HHS and involves 

external organizations including the 

March of Dimes, and the American 

College of Obstetricians and 

Gynecologists (ACOG). We believe that 

a reduction in the number of 

nonmedically indicated elective 

deliveries at ≥37 to <39 weeks gestation 

will result in a substantial decrease in 

neonatal morbidity and mortality, as 

well as a significant savings in 

healthcare costs. In addition, the rate of 

cesarean sections should decrease with 

fewer elective inductions, resulting in 

decreased length of stay and healthcare 

costs. 

The MAP supported adoption of the 

PC–01 Elective Delivery measure for 

inclusion in the Hospital VBP Program 

in the MAP Pre-Rulemaking Report: 

2013 Recommendations on Measures 

Under Consideration by HHS found at 

https://www.qualityforum.org/Work

Area/linkit.aspx?LinkIdentifier=id&Item

ID=72746. The MAP noted that the 

measure addresses an NQS priority not 

adequately addressed in the program 

measure set. 

We are proposing to adopt this 

measure for the Hospital VBP Program 

and we are proposing to place the 

measure into the Clinical Care—Process 

domain because we believe this measure 

furthers the NQS’s three-part aim of 

better health care for individuals, better 

health for populations, and lower costs 

for health care. In addition, although the 

PC–01 measure captures data from all 

applicable patients, we also believe that 

the measure is specifically relevant to 

the nearly 2 million Medicare 

beneficiaries who are aged 44 and 

under, most of who are dual eligible 

beneficiaries, who have the potential to 

be impacted by early elective births. In 

2011, Medicare paid for roughly 14,000 

births. 

We welcome public comment on this 

proposal. 

d. Proposed Adoption of the Current 

CLABSI Measure (NQF #0139) for the 

FY 2017 Hospital VBP Program 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50682 and 50686), we 

adopted the CLABSI measure for the FY 

2016 Hospital VBP Program. We stated 

our belief that adopting the current 

CLABSI measure is consistent with the 

MAP’s recommendations in the MAP 

Pre-Rulemaking Report: 2013 

Recommendations on Measures Under 

Consideration by HHS found at 

https://www.qualityforum.org/Work

Area/linkit.aspx?LinkIdentifier=id&Item

ID=72746, to use the standardized 

infection ratio version of the measure 

until the reliability-adjusted CLABSI 

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measure is NQF-endorsed. We have 

stated our intent to consider adopting 

the reliability-adjusted CLABSI measure 

in future rulemaking. 

The reliability-adjusted standardized 

infection ratio (SIR) is an outcome 

measure that summarizes the 

healthcare-associated infection 

experience by type of infection (for 

example, central-line associated 

bloodstream infection, surgical site 

infection) for individual hospitals. The 

reliability-adjusted measure enables 

more meaningful statistical 

differentiation between hospitals by 

accounting for differences in patient 

case-mix, exposures to medical devices 

or procedures (for example, central line 

days, surgical procedure volume), and 

unmeasured factors that are not 

reflected in the unadjusted SIR and that 

cause variation in outcomes between 

hospitals. Accounting for these sources 

of variability enables better measure 

discrimination between hospitals and 

leads to more reliable quality 

measurements. 

However, in the absence of NQF 

endorsement of the reliability-adjusted 

measure and any additional MAP 

recommendations, and unless and until 

the Hospital IQR Program adopts the 

reliability adjustments, we believe we 

may only consider the current version of 

the CLABSI measure for adoption under 

the Hospital VBP Program. We continue 

to believe that the CLABSI measure 

encourages hospitals to minimize 

infection events that present significant 

health risks to patients. Therefore, we 

are proposing to adopt the current 

version of the CLABSI measure for the 

FY 2017 Hospital VBP Program and 

subsequent years. If a reliabilityadjusted version of the measure 

becomes available to us in the future, 

we will consider adopting it. 

We welcome public comment on this 

proposal. 

e. Summary of Previously Adopted and 

Proposed New Measures for the FY 2017 

Hospital VBP Program 

The following table outlines the 

measures for the FY 2017 Hospital VBP 

Program that we are readopting, as well 

as those measures we are proposing to 

adopt. As discussed further below, this 

table includes the FY 2017 domains in 

which we would place the previously 

adopted measures, as well as the 

proposed domains in which we would 

place the newly proposed measures. 

PREVIOUSLY ADOPTED AND PROPOSED NEW MEASURES FOR THE FY 2017 HOSPITAL VBP PROGRAM

Measure Description Domain 

CAUTI * ............................ Catheter-Associated Urinary Tract Infection (NQF #0138) ...................................................... Safety. 

CLABSI ** ......................... Central Line-Associated Blood Stream Infection (NQF #0139) ................................................ Safety. 

C. difficile *** .................... Clostridium difficile Infection (NQF #1717) ............................................................................... Safety. 

MRSA *** .......................... Methicillin-Resistant Staphylococcus aureus Bacteremia (NQF #1726) .................................. Safety. 

PSI–90 * ........................... Complication/patient safety for selected indicators (composite) (NQF #0531) ........................ Safety. 

SSI * ................................. Surgical Site Infection: (NQF #0753) ........................................................................................

• Colon 

• Abdominal Hysterectomy 

Safety. 

MORT–30–AMI * .............. Acute Myocardial Infarction (AMI) 30-day mortality rate (NQF #0230) .................................... Clinical Care—Outcomes. 

MORT–30–HF * ................ Heart Failure (HF) 30-day mortality rate (NQF #0229) ............................................................ Clinical Care—Outcomes. 

MORT–30–PN * ............... Pneumonia (PN) 30-day mortality rate (NQF #0468) ............................................................... Clinical Care—Outcomes. 

AMI–7a * ........................... Fibrinolytic Therapy Received Within 30 Minutes of Hospital Arrival (NQF #0164) ................ Clinical Care—Process. 

IMM–2 * ............................ Influenza Immunization (NQF #1659) ....................................................................................... Clinical Care—Process. 

PC–01 *** ......................... Elective Delivery Prior to 39 Completed Weeks Gestation (NQF #0469) ................................ Clinical Care—Process. 

MSPB–1 * ......................... Medicare Spending per Beneficiary (NQF #2158) ................................................................... Efficiency and Cost 

Reduction. 

HCAHPS * ........................ Hospital Consumer Assessment of Healthcare Providers and Systems Survey (NQF #0166) Patient and Caregiver 

Centered Experience of Care/Care 

Coordination. 

* Measures readopted for the FY 2017 Hospital VBP Program. 

** Measure adopted for the FY 2016 Hospital VBP Program but not previously subject to automatic readoption. 

*** Measures proposed for the FY 2017 Hospital VBP Program. 

5. Proposed Additional Measures for the 

FY 2019 Hospital VBP Program 

a. Hospital-Level Risk-Standardized 

Complication Rate (RSCR) Following 

Elective Primary Total Hip Arthroplasty 

(THA) and Total Knee Arthroplasty 

(TKA) 

Hospital-level Risk-Standardized 

Complication Rate (RSCR) Following 

Elective Primary Total Hip Arthroplasty 

(THA) and Total Knee Arthroplasty 

(TKA) (NQF #1550) is an outcome 

measure that we adopted beginning 

with the FY 2015 payment 

determination under the Hospital IQR 

Program in the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53516 through 53518). 

The measure assesses complications 

occurring after THA and TKA surgery 

from the date of the index admission to 

90 days post date of the index 

admission. The outcome is one or more 

of the following complications: Acute 

myocardial infarction, pneumonia, or 

sepsis/septicemia within 7 days of 

admission; surgical site bleeding, 

pulmonary embolism or death within 30 

days of admission; or mechanical 

complications, periprosthetic joint 

infection or wound infection within 90 

days of admission. We posted THA/

TKA measure data on the Hospital 

Compare Web site in December 2013. 

We refer readers to the FY 2013 IPPS/ 

LTCH PPS final rule and to the THA/

TKA complication methodology report 

(http://qualitynet.org/dcs/Blob

Server?blobkey=id&blobnocache=true&

blobwhere=1228890067881&

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Disposition&blobheadervalue1=

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Blobs) for additional details on the 

THA/TKA measure. 

We continue to believe that measuring 

and reporting risk-standardized 

complication rates will inform health 

care providers about opportunities to 

improve care, strengthen incentives for 

quality improvement, and promote 

improvements in the quality of care 

received by patients and in the 

outcomes they experience. We believe 

that THA/TKA is an important measure 

of clinical outcomes, and we therefore 

are proposing to adopt it for the FY 2019 

Hospital VBP Program and subsequent 

years. The MAP supported the adoption 

of the measure for inclusion in the 

Hospital VBP Program in its MAP PreRulemaking Report: 2013 

Recommendations on Measures Under 

Consideration by HHS found at https:// 

www.qualityforum.org/WorkArea/

linkit.aspx?LinkIdentifier=id&ItemID=

72746, noting it addresses a highvolume elective procedure with 

variation in performance. We are 

proposing to adopt this measure for FY 

2019 based on the length of the 

measure’s reporting period and the time 

necessary to complete scoring 

calculations. Because it is an outcome 

measure, we are proposing to place it in 

the Clinical Care—Outcomes domain. 

We welcome public comments on this 

proposal. 

b. PSI–90 Measure 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50698), we declined to 

finalize the PSI–90 measure for the FY 

2019 Hospital VBP Program in order to 

adopt a more recent baseline period 

than would have been possible at that 

time. However, we did not intend to 

signal that we would not adopt the PSI– 

90 measure for FY 2019 and subsequent 

years. We continue to believe that 

adopting this AHRQ PSI composite 

measure provides strong incentives for 

hospitals to ensure that patients are not 

harmed by the medical care they 

receive, which is a critical consideration 

in quality improvement. In order to 

clarify the measure’s status under the 

Hospital VBP Program and ensure that 

there is no confusion about our intent, 

we are proposing to readopt the PSI–90 

measure for FY 2019 Hospital VBP 

Program and subsequent years. 

We welcome public comments on this 

proposal. 

6. Possible Measure Topics for Future 

Program Years 

a. Care Transition Measure (CTM–3) 

Items for HCAHPS Survey 

We are considering proposing to add 

the Care Transition Measure from the 

Hospital Consumer Assessment of 

Healthcare Providers and Systems 

(HCAHPS) Survey to the Patient and 

Caregiver Centered Experience of Care/ 

Care Coordination (PEC/CC) domain of 

the FY 2018 Hospital VBP Program. We 

seek public comments on this topic. 

The Care Transition Measure (CTM) 

was added to the HCAHPS Survey of 

hospital inpatients in January 2013 (77 

FR 53513 through 53516). Three items 

were added to the HCAHPS Survey to 

create the new Care Transition Measure 

composite. After collecting four quarters 

of data on these items (January 2013 

through December 2013), we intend to 

publicly report CTM scores for the first 

time on our Hospital Compare Web site 

in October 2014. 

Once the Care Transition Measure has 

been publicly reported on Hospital 

Compare for one year, in accordance 

with the statutory requirements of the 

Hospital VBP Program, we are 

considering proposing to adopt CTM as 

the ninth dimension of the HCAHPS 

survey in the PEC/CC domain for the FY 

2018 Hospital VBP Program. We intend 

to propose that the PEC/CC domain in 

the FY 2018 Hospital VBP Program 

would have a baseline period of January 

1, 2014 through December 31, 2014, and 

a performance period of January 1, 2016 

through December 31, 2016. 

Currently, the PEC/CC domain 

(formerly known as the Patient 

Experience of Care domain) is 

comprised of eight dimensions of the 

HCAHPS Survey. Scoring in this 

domain is based on two elements: the 

HCAHPS Base Score and HCAHPS 

Consistency Points Score. For additional 

information on the calculation of the 

PEC/CC domain score, we refer readers 

to ‘‘A Step-by-Step Guide to Calculating 

the Patient Experience of Care Domain 

Score in the Hospital Value-Based 

Purchasing FY 2013 Actual Percentage 

Payment Summary Report,’’ at: http://

www.hcahpsonline.org/Hospital

VBP.aspx. 

We specifically seek public comments 

on how the new CTM dimension should 

be included in the scoring methodology 

that we have adopted for the PEC/CC 

domain. In accordance with the 

finalized Hospital VBP Program scoring 

methodology for other domains, we are 

considering the ‘‘normalization’’ 

approach, which would introduce only 

minor changes to the original scoring 

formula, as follows. 

For purposes of the HCAHPS Base 

Score, the new CTM dimension would 

be calculated in the same manner as the 

eight existing HCAHPS dimensions; for 

further details, we refer readers to ‘‘A 

Step-by-Step Guide to Calculating the 

Patient Experience of Care Domain 

Score in the Hospital Value-Based 

Purchasing FY 2013 Actual Percentage 

Payment Summary Report,’’ at: http://

www.hcahpsonline.org/Hospital

VBP.aspx. For each of the nine 

dimensions, Achievement Points (0–10 

points) and Improvement Points (0–9 

points) would be calculated, the larger 

of which will be summed across the 

nine dimensions to create a prenormalized HCAHPS Base Score (0–90 

points, as compared to 0–80 points 

when only eight dimensions were 

included). The pre-normalized HCAHPS 

Base Score would then be multiplied by 

8/9 (0.88888) and rounded according to 

standard rules (values of 0.5 and higher 

are rounded up, values below 0.5 are 

rounded down) to create the normalized 

HCAHPS Base Score. Each of the nine 

dimensions would be of equal weight, 

so that, as before, the normalized 

HCAHPS Base Score would range from 

0 to 80 points. 

HCAHPS Consistency Points would 

then be calculated in the same manner 

as before and would continue to range 

from 0 to 20 points. The Consistency 

Points Score would now consider scores 

across all nine of the PEC/CC domain 

dimensions, whereas before it 

considered only the eight dimensions 

that preceded the CTM measure. 

The final element of the scoring 

formula would be the sum of the 

HCAHPS Base Score and the HCAHPS 

Consistency Points Score and would 

range from 0 to 100 points, as before. 

We welcome public comments on this 

approach to including the CTM–3 

dimension in the PEC/CC domain score. 

b. Possible Future Efficiency and Cost 

Reduction Domain Measure Topics 

In the interest of expanding the 

Efficiency domain to include a more 

robust measure set, including measures 

that supplement the Medicare Spending 

per Beneficiary (MSPB) measure with 

more condition and/or treatment 

specific episodes, as well as facilitating 

alignment with the Physician ValueBased Payment Modifier (VM) Program, 

we are considering proposing to add 

new episode-based payment measures 

to the Hospital VBP Program through 

future rulemaking. Expanding the 

Efficiency domain to include such 

measures would create incentives for 

coordination between hospitals and 

physicians to optimize the care they 

provide to Medicare beneficiaries and 

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would increase alignment between the 

Hospital VBP and Physician VM 

Programs. Any future Hospital VBP 

Program measures would first be 

finalized for inclusion in the Hospital 

IQR Program and included on the 

Hospital Compare Web site for one year, 

as required by section 1886(o)(2)(C) of 

the Act. 

The six episode-based standardized 

payment measures we are considering 

are discussed below and are similar in 

many ways to the NQF-endorsed MSPB 

measure already included in the 

Efficiency domain. Like the MSPB 

measure, these episode-based 

standardized payment measures would 

include services initiated during an 

episode that spans from 3 days prior to 

a hospital admission through 30 days 

post-discharge from the hospital. We 

would sum the standardized Medicare 

payment amounts for Part A and Part B 

services provided during this timeframe 

and attribute them to the hospital at 

which the index admission occurred. 

Medicare payments included in these 

episode-based measures would be 

standardized according to the CMS 

standardization methodology finalized 

for the MSPB measure in the FY 2012 

IPPS/LTCH PPS final rule (76 FR 

51626). 

Episodes in the six new measures 

would be risk-adjusted in a manner 

similar to the MSPB measure risk 

adjustment methodology finalized in the 

FY 2013 IPPS/LTCH PPS final rule (76 

FR 51625 through 51626). The 

difference between the risk adjustment 

approaches stems from the fact that 

MSPB episodes are standardized at the 

Major Diagnostic Category (MDC) level, 

whereas two of the new episode-based 

measures, the hip episode measure and 

the knee episode measure, represent 

conditions that are in the same MDC. 

Accordingly, the new episode-based 

measures would be individually riskadjusted at the specific episode type 

level, in order to recognize the 

distinctions. 

The payment standardization 

methodology is available in the 

document entitled ‘‘CMS Price 

Standardization’’ and the MSPB risk 

adjustment methodology is included in 

the document entitled ‘‘MSPB Measure 

Information Form,’’ both available at: 

http://www.qualitynet.org/dcs/Content

Server?c=Page&pagename=Qnet

Public%2FPage%2FQnetTier4&cid=

1228772057350. The risk adjustment 

methodology specific to these six 

episode-based standardized payment 

measures can be found on the CMS Web 

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

Quality-Initiatives-Patient-AssessmentInstruments/hospital-value-basedpurchasing/index.html?redirect=/

hospital-value-based-purchasing. Risk 

adjustment and payment 

standardization would allow us to 

compare performance on these measures 

across hospitals. 

In contrast to the MSPB measure, we 

would only include Medicare payments 

for services that are clinically related to 

the health conditions treated during the 

hospital stay that triggered the episode. 

The aim of including these episodebased payment measures in the Hospital 

VBP Program would be to differentiate 

between hospitals that provide care 

efficiently (that is, high quality care at 

a lower cost to Medicare). We believe 

that risk-adjusted standardized 

Medicare payments are an appropriate 

indicator of efficiency as they allow us 

to compare hospitals without regard to 

such factors as geography and teaching 

status. This comparison is particularly 

important with clinically coherent 

episodes because it distinguishes the 

degree to which practice pattern 

variation influences the cost of care. We 

believe that creating incentives for 

appropriately reducing practice pattern 

variation is an important part of our 

aims to lower the cost of care 

appropriately and create better 

coordinated care for Medicare 

beneficiaries. 

Another notable difference between 

the episode-based measures we are 

considering and the MSPB measure 

occurs when, during the 30 days 

following discharge from an index 

admission, a beneficiary is readmitted 

for a condition that is clinically related 

to the index admission and that also 

triggers an episode-based cost measure 

episode. For example, if a beneficiary 

were discharged after a hip replacement, 

then readmitted for a revision 15 days 

later, the standardized Medicare 

payments associated with the revision 

would count toward the initial hip 

replacement/revision episode and 

would also trigger a new hip 

replacement/revision episode where the 

index admission would be that for the 

revision. Details of which admissions 

would begin a new episode and 

contribute to a preceding episode may 

be found at: http://www.cms.gov/

Medicare/Quality-Initiatives-PatientAssessment-Instruments/hospital-valuebased-purchasing/index.html?redirect=/

hospital-value-based-purchasing. 

We are considering three medical and 

three surgical episodes for the initial 

expansion of the Efficiency domain. The 

medical episodes would address the 

following conditions: (1) Kidney/

urinary tract infection; (2) cellulitis; and 

(3) gastrointestinal hemorrhage. A 

medical episode would be ‘triggered’ by 

an inpatient claim with a specified MS– 

DRG. The surgical episodes currently 

under consideration are (1) hip 

replacement/revision; (2) knee 

replacement/revision; and (3) lumbar 

spine fusion/refusion. A surgical 

episode would be triggered when an 

inpatient claim has one of the specified 

MS–DRGs and at least one of the 

procedure codes specified for that 

episode. We welcome public comment 

on the three medical and three surgical 

conditions that we are considering as 

new episode-based measures for initial 

expansion of the Efficiency domain. 

There are a number of other types of 

episodes that could also meet the 

episode selection criteria we describe 

below, including those related to heart 

and lung (for example, heart failure and 

pneumonia). We note that we are 

exploring data related to episodes for 

these types of conditions under the 

Physician VM Program. We welcome 

comment regarding the applicability of 

episode-based measures for these or 

other conditions for future expansion of 

the Efficiency domain. 

In selecting the six conditions around 

which we would develop episode 

measures for future expansion of the 

Efficiency domain, we considered the 

following five criteria: (1) The condition 

constitutes a significant share of 

Medicare payments for hospitalized 

patients during and surrounding the 

hospital stay; (2) the degree to which 

clinical experts consulted for this 

project agree that standardized Medicare 

payments for services provided during 

the episode can be linked to the care 

provided during the hospitalization; (3) 

episodes of care for the condition are 

comprised of a substantial proportion of 

payments for post-acute care, indicating 

episode payment differences are driven 

by utilization outside of the MS–DRG 

payment; (4) episodes of care for the 

condition reflect high variation in postdischarge payments, enabling 

differentiation between hospitals; and, 

(5) the medical condition is managed by 

general medicine physicians or 

hospitalists and the surgical conditions 

are managed by surgical subspecialists, 

enabling comparison between similar 

practitioner types within each episode 

measure. 

For analysis purposes, the five 

selection criteria were applied to 2012 

Medicare acute inpatient hospital data 

in a hierarchical manner, to prioritize 

the inpatient conditions. After the 

selection criteria were applied, we 

narrowed the medical and surgical 

episodes to those episodes that are less 

complex, in order to allow CMS and 

hospitals to gain experience with this 

new measure type. Full details of the 

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episode selection criteria are available 

on the CMS Web site at: http://

www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/hospital-value-basedpurchasing/index.html?redirect=/

hospital-value-based-purchasing. We 

welcome public comments on the 

episode selection criteria we utilized. 

Complete episode specifications, 

including the MS–DRG and ICD–9–CM 

procedure codes used to identify each of 

the episodes, details of episode 

construction methodology, and 

information on the clinical expert 

reviewers for this project are available 

on the CMS Web site at: http://

www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/hospital-value-basedpurchasing/index.html?redirect=/

hospital-value-based-purchasing. We 

welcome public comments on these 

specifications and the construction of 

the six episode-based payment measures 

that we are considering. 

7. Previously Adopted and Proposed 

Performance Periods and Baseline 

Periods for the FY 2017 Hospital VBP 

Program 

a. Background 

Section 1886(o)(4) of the Act requires 

the Secretary to establish a performance 

period for the Hospital VBP Program for 

a fiscal year that begins and ends prior 

to the beginning of such fiscal year. We 

refer readers to the FY 2014 IPPS/LTCH 

PPS final rule (78 FR 50689 through 

50692) and the CY 2014 OPPS/ASC 

final rule with comment period (78 FR 

75020 through 75021) for the 

performance periods and baseline 

periods for the Clinical Process of Care, 

Patient Experience of Care, Outcome, 

and Efficiency domains for the FY 2016 

Hospital VBP Program. 

As discussed further below, in the FY 

2014 IPPS/LTCH PPS final rule (78 FR 

50702 through 50704), we adopted new 

NQS-based quality domains for FY 

2017, and we are proposing to adopt 

performance and baseline periods using 

those new domains for the FY 2017 

Hospital VBP Program. 

b. Previously Adopted Baseline and 

Performance Periods for the FY 2017 

Hospital VBP Program 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50692 through 50694 and 

50698 through 50699), because of the 

time needed to process measure data for 

the three 30-day mortality measures 

(Clinical Care—Outcomes domain) and 

the PSI–90 measure (also referred to in 

previous rulemaking as the AHRQ 

patient safety PSI–90 composite 

measure) (Safety domain), and in 

consideration of our policy goal to 

collect enough data to generate the most 

reliable scores possible, we adopted 

performance periods and performance 

standards for the 30-day mortality 

measures for FY 2017, FY 2018, and FY 

2019, and for the PSI–90 measure for FY 

2017 and FY 2018. 

c. Proposed Clinical Care—Process 

Domain Performance Period and 

Baseline Period for the FY 2017 

Hospital VBP Program 

In the FY 2014 IPPS/LTCH PPS final 

rule, we adopted a 12-month 

performance period for the FY 2016 

Clinical Process of Care domain 

measures of CY 2014 (January 1, 2014 

through December 31, 2014). We also 

adopted a corresponding 12-month 

baseline period of CY 2012 (January 1, 

2012, through December 31, 2012), for 

purposes of calculating improvement 

points and performance standards. 

Based on our review of FY 2013 and 

FY 2014 Hospital VBP performance 

period denominator data, we continue 

to believe that a 12-month performance 

period provides us with reliable and 

sufficient data for scoring Clinical 

Care—Process domain measures under 

the Hospital VBP Program. These data 

are available for public review on our 

Hospital Compare Web site. We are 

therefore proposing to adopt a 12-month 

performance period for FY 2017 Clinical 

Care—Process domain measures 

(including the proposed PC–01 

measure) of CY 2015 (January 1, 2015, 

through December 31, 2015). We also 

are proposing to adopt a corresponding 

12-month baseline period of CY 2013 

(January 1, 2013, through December 31, 

2013) for purposes of calculating 

improvement points and calculating 

performance standards. 

We invite public comment on these 

proposals. 

d. Proposed Patient and CaregiverCentered Experience of Care/Care 

Coordination (PEC/CC) Domain 

Performance Period and Baseline Period 

for the FY 2017 Hospital VBP Program 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50689), we adopted a 12- 

month performance period for FY 2016 

Patient Experience of Care domain 

measures of CY 2014, or January 1, 2014 

through December 31, 2014, for the FY 

2016 Hospital VBP Program. We also 

adopted a corresponding 12-month 

baseline period of CY 2012 (January 1, 

2012 through December 31, 2012), for 

purposes of calculating improvement 

points and calculating performance 

standards. We continue to believe that 

a 12-month performance period 

provides us sufficient HCAHPS data on 

which to score hospital performance, 

which is an important goal both for 

CMS and for stakeholders. 

We are proposing to adopt a 12-month 

performance period for the FY 2017 

PEC/CC domain of CY 2015 (January 1, 

2015 through December 31, 2015). We 

also are proposing to adopt a 

corresponding 12-month baseline period 

of CY 2013 (January 1, 2013 through 

December 31, 2013) for purposes of 

calculating improvement points and 

calculating performance standards. 

We invite public comment on these 

proposals. 

e. Proposed Safety Domain Performance 

Period and Baseline Period for NHSN 

Measures for the FY 2017 Hospital VBP 

Program 

In the CY 2014 OPPS/ASC final rule 

with comment period (78 FR 75121), for 

the three NHSN HAI measures that we 

have adopted for the FY 2016 Hospital 

VBP Program (CAUTI, CLABSI, and 

SSI), we adopted an FY 2016 

performance period of CY 2014 (January 

1, 2014 through December 31, 2014), 

with a corresponding baseline period of 

CY 2012 (January 1, 2012 through 

December 31, 2012) for purposes of 

calculating improvement points and 

calculating performance standards. 

We continue to believe that a 12- 

month performance period provides us 

with sufficient data on which to score 

hospital performance on NHSN 

measures in the Safety domain. We also 

note that 12-month performance and 

baseline periods are consistent with the 

reporting periods used for these 

measures under the Hospital IQR 

Program (78 FR 50689). Therefore, for 

the FY 2017 NHSN measures in the 

Safety domain (including the proposed 

CLABSI, C. difficile infection and MRSA 

bacteremia measures), we are proposing 

to adopt a performance period of CY 

2015 (January 1, 2015 through December 

31, 2015), and a corresponding baseline 

period of CY 2013 (January 1, 2013 

through December 31, 2013) for 

purposes of calculating improvement 

points and calculating performance 

standards. 

We invite public comment on these 

proposals. 

f. Proposed Efficiency and Cost 

Reduction Domain Performance Period 

and Baseline Period for the FY 2017 

Hospital VBP Program 

In the FY 2014 IPPS/LTCH PPS final 

rule, we adopted a 12-month 

performance period for the MSPB 

measure for the FY 2016 Hospital VBP 

Program of CY 2014 (January 1, 2014, 

through December 31, 2014), with a 

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corresponding baseline period of CY 

2012 (January 1, 2012, through 

December 31, 2012). This performance 

and baseline period enable us to collect 

sufficient measure data, while allowing 

time to calculate and incorporate MSPB 

measure data into the Hospital VBP 

Program scores in a timely manner. 

We are proposing to adopt a 12-month 

performance period for the FY 2017 

Efficiency and Cost Reduction domain 

of CY 2015 (January 1, 2015 through 

December 31, 2015), with a 

corresponding baseline period of CY 

2013 (January 1, 2013 through December 

31, 2013). We note that this proposed 

performance and baseline period aligns 

with the performance and baseline 

periods for Clinical Care—Process, PEC/ 

CC, and certain Safety measures under 

the new domain structure. 

We invite public comments on these 

proposals. 

g. Summary of Previously Adopted and 

Proposed Performance Periods and 

Baseline Periods for the FY 2017 

Hospital VBP Program 

The table below summarizes the 

proposed baseline and performance 

periods for the FY 2017 Hospital VBP 

Program (with previously adopted 

baseline and performance periods for 

the mortality and AHRQ PSI composite 

(PSI–90) measures noted). 

PREVIOUSLY ADOPTED AND PROPOSED PERFORMANCE AND BASELINE PERIODS FOR THE FY 2017 HOSPITAL VBP 

PROGRAM

Domain Baseline period Performance period 

Safety: 

• PSI–90* .................................................... • October 1, 2010–June 30, 2012 * ................

• January 1, 2013–December 31, 2013 

• October 1, 2013–June 30, 2015.* 

• NHSN (CAUTI, CLABSI, SSI, C. difficile 

Infection, MRSA Bacteremia).

.......................................................................... • January 1, 2015–December 31, 2015. 

Clinical Care—Outcomes:.

• Mortality * .................................................

(MORT–30–AMI, .........................................

• October 1, 2010–June 30, 2012 * ................ • October 1, 2013–June 30, 2015.* 

MORT–30–HF, 

MORT–30–PN) 

Clinical Care—Process: 

• (AMI–7a, IMM–2, PC–01) ........................ January 1, 2013–December 31, 2013 ............. January 1, 2015–December 31, 2015. 

Efficiency and Cost Reduction (MSPB–1) ......... January 1, 2013–December 31, 2013 ............. January 1, 2015–December 31, 2015.

Patient and Caregiver-Centered Experience of 

Care/Care Coordination (HCAHPS).

January 1, 2013–December 31, 2013 ............. January 1, 2015–December 31, 2015. 

* Previously adopted performance and baseline periods. 

We note that we intend to propose 

additional baseline and performance 

periods for the FY 2018 Hospital VBP 

Program in future rulemaking. 

8. Previously Adopted and Proposed 

Performance Periods and Baseline 

Periods for Certain Measures for the FY 

2019 Hospital VBP Program 

a. Previously Adopted and Proposed 

Performance Period and Baseline Period 

for the FY 2019 Hospital VBP Program 

for Clinical Care—Outcomes Domain 

Measures 

As described above, we have 

previously adopted the FY 2019 

performance and baseline periods for 

the three 30-day mortality measures that 

we have adopted for the former 

Outcome domain and that we have 

since placed into the Clinical Care— 

Outcomes domain under the new 

domain structure. 

In this proposed rule, we are 

proposing to adopt the THA/TKA 

measure for the FY 2019 Hospital VBP 

Program and to place that measure in 

the Clinical Care—Outcomes domain. 

THA/TKA is reported to the Hospital 

IQR Program for 36-month time periods. 

However, we do not believe that we can 

feasibly adopt a 36-month performance 

period for this measure and adopt it for 

the FY 2019 Hospital VBP Program. 

Based on the time needed to complete 

measure calculations and performance 

scoring, we believe that we must 

conclude the performance period for 

this measure by June 30, 2017. We 

believe that a 30-month performance 

period will result in sufficiently reliable 

quality measure data for purposes of 

Hospital VBP Program scoring, and our 

analysis of historic data supports our 

belief that comparisons between a 36- 

month baseline period and a 30-month 

performance period will not result in 

significant differences in measure 

scores. Further, adopting this proposed 

performance period would enable us to 

include the measure in the FY 2019 

Hospital VBP Program, which would 

ensure that hospitals continue focusing 

on measures of outcomes under the 

Hospital VBP Program and that we 

continue transitioning the Hospital VBP 

Program from its initial focus on process 

measures to outcome measures. 

We note that we have proposed below 

to adopt a 36-month performance period 

for the THA/TKA measure for the FY 

2020 Hospital VBP Program. We have 

examined the correlation between 

hospitals’ performance on the THA/

TKA measure for 30-month and 36- 

month periods, and we believe that the 

30-month period meets our standard for 

moderate reliability of quality measure 

data during the specified time period. 

However, as with the 30-day mortality 

and PSI–90 measures, we are attempting 

to align performance periods under the 

Hospital VBP Program with reporting 

periods under the Hospital IQR 

Program, while introducing measures 

covering important clinical topics into 

the Hospital VBP Program as quickly as 

possible. We believe that our proposal 

for a 30-month performance period for 

this measure for the FY 2019 Hospital 

VBP Program allows us to bring the 

measure into the Program in FY 2019 

and to accomplish that alignment 

beginning with the FY 2020 Hospital 

VBP Program. 

Therefore, we are proposing to adopt 

an FY 2019 performance period of 

January 1, 2015, through June 30, 2017, 

for the THA/TKA measure. Further, we 

are proposing to adopt an FY 2019 

baseline period for this measure of July 

1, 2010 to June 30, 2013, for purposes 

of calculating performance standards 

and awarding improvement points. 

We welcome public comments on 

these proposals. 

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b. Proposed Performance Period and 

Baseline Period for the PSI–90 Safety 

Domain Measure for the FY 2019 

Hospital VBP Program 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50692 through 5094), we 

adopted performance periods and 

baseline periods for the PSI–90 measure 

for the FY 2017 and FY 2018 Hospital 

VBP Programs. We adopted this policy 

in light of the time needed to process 

measure data and our policy goal to 

collect enough data to generate the most 

reliable measure scores possible. We 

stated our belief that aligning the 

Hospital VBP Program performance 

periods with the Hospital IQR Program 

reporting period duration would allow 

hospitals to review Hospital Compare 

measure rates when they are updated 

and incorporate this information into 

their quality improvement efforts, rather 

than having to wait until the Hospital 

VBP Program provides its scoring 

reports to hospitals. We stated our 

further belief that aligning the Hospital 

IQR Program and the Hospital VBP 

Program in this manner will minimize 

the burden on participating hospitals by 

aligning the time periods during which 

they must monitor their performance on 

this measure. 

We did not finalize a baseline period 

and performance period for the AHRQ 

PSI–90 measure for FY 2019 in that final 

rule (78 FR 50692 through 50694). We 

stated that, by declining to finalize the 

measure’s FY 2019 performance and 

baseline periods in that final rule, we 

would be able to adopt a more recent 

baseline period than we initially 

proposed. We stated that we intended to 

propose baseline and performance 

periods for the AHRQ PSI measure for 

the FY 2019 Hospital VBP Program in 

future rulemaking. 

We continue to believe that we should 

adopt performance and baseline periods 

of 24 months for the PSI–90 measure. 

Therefore, we are proposing to adopt an 

FY 2019 performance period for the 

PSI–90 measure of July 1, 2015 through 

June 30, 2017, with a corresponding 24- 

month baseline period of July 1, 2011 

through June 30, 2013, for purposes of 

calculating performance standards and 

awarding improvement points. 

We welcome public comments on 

these proposals. 

c. Summary of Previously Adopted and 

Proposed Performance Periods and 

Baseline Periods for Certain Measures 

for the FY 2019 Hospital VBP Program 

The following table summarizes 

previously adopted and proposed 

performance and baseline periods for 

the FY 2019 Hospital VBP Program: 

PREVIOUSLY ADOPTED AND PROPOSED PERFORMANCE AND BASELINE PERIODS FOR CERTAIN MEASURES FOR THE FY 

2019 HOSPITAL VBP PROGRAM

Domain Baseline period Performance period 

Safety: 

• PSI–90 ..................................................................................... • July 1, 2011–June 30, 2013 ............................... • July 1, 2015–June 

30, 2017. 

Clinical Care–Outcomes: 

• Mortality * ................................................................................. • July 1, 2009–June 30, 2012 * ............................. • July 1, 2010–June 

30, 2013. 

(MORT–30–AMI, 

MORT–30–HF, 

MORT-30–PN) 

• THA/TKA ................................................................................. • July 1, 2010–June 30, 2013 * ............................. • January 1, 2015– 

June 30, 2017. 

* Previously adopted performance and baseline periods. 

We welcome public comment on 

these proposals. 

9. Proposed Performance Period and 

Baseline Period for the Clinical Care— 

Outcomes Domain for the FY 2020 

Hospital VBP Program 

As described above with respect to 

the mortality measures, in the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50692 

through 50694), we adopted 

performance periods and baseline 

periods for the three 30-day mortality 

measures for the FY 2017, FY 2018, and 

FY 2019 Hospital VBP Programs. We 

adopted this policy in light of the time 

needed to process measure data and to 

ensure that we collect enough measure 

data for reliable performance scoring, as 

described further above. We continue to 

believe that we should adopt 36-month 

performance and baseline periods for 

the mortality measures when possible to 

accommodate those durations. 

We believe that a similar rationale 

applies to the new THA/TKA measure 

that we are proposing to adopt for the 

Clinical Care—Outcomes domain for the 

FY 2019 Hospital VBP Program, and 

which, under our policy of measure 

readoption, we generally would readopt 

for the FY 2020 Hospital VBP Program 

if finalized. As stated above, we have 

examined the correlation between 

hospitals’ performance on the THA/

TKA measure for 30-month and 36- 

month periods, and we believe that the 

30-month period meets our standard for 

moderate reliability of quality measure 

data during the specified time period. 

However, as with the 30-day mortality 

and PSI–90 measures, we are attempting 

to align performance periods under the 

Hospital VBP Program with reporting 

periods under the Hospital IQR 

Program, while introducing measures 

covering important clinical topics into 

the Program as quickly as possible. We 

believe that our proposal for a 30-month 

performance period for this measure for 

FY 2019 allows us to accomplish that 

alignment beginning with the FY 2020 

Program. 

Therefore, we are proposing to adopt 

a 36-month performance period for the 

measures in the Clinical Care— 

Outcomes domain in the FY 2020 

Hospital VBP Program (including the 

proposed THA/TKA measure for FY 

2020, if that measure is adopted for the 

FY 2020 Hospital VBP Program) of July 

1, 2015 through June 30, 2018, with a 

corresponding 36-month baseline period 

of July 1, 2010 through June 30, 2013, 

for purposes of calculating performance 

standards and awarding improvement 

points. 

The following table summarizes the 

proposed performance and baseline 

period for the Clinical Care—Outcomes 

domain for the FY 2020 Hospital VBP 

Program: 

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PROPOSED PERFORMANCE AND BASELINE PERIOD FOR THE CLINICAL CARE—OUTCOMES DOMAIN FOR THE FY 2020 

HOSPITAL VBP PROGRAM

Domain Baseline period Performance period 

Clinical Care—Outcomes: 

• Mortality (MORT–30 AMI, MORT–30–HF, MORT– 

30–PN).

• July 1, 2010–June 30, 2013 ............... • July 1, 2015–June 30, 2018. 

• THA/TKA ..................................................................... • July 1, 2010–June 30, 2013 ............... • July 1, 2015–June 30, 2018. 

We welcome public comment on 

these proposals. 

10. Proposed Performance Standards for 

the Hospital VBP Program 

a. Background 

Section 1886(o)(3)(A) of the Act 

requires the Secretary to establish 

performance standards for the measures 

selected under the Hospital VBP 

Program for a performance period for 

the applicable fiscal year. The 

performance standards must include 

levels of achievement and improvement, 

as required by section 1886(o)(3)(B) of 

the Act, and must be established and 

announced not later than 60 days before 

the beginning of the performance period 

for the fiscal year involved, as required 

by section 1886(o)(3)(C) of the Act. We 

refer readers to the Hospital Inpatient 

VBP Program final rule (76 FR 26511 

through 26513) for further discussion of 

achievement and improvement 

standards under the Hospital VBP 

Program. 

In addition, when establishing the 

performance standards, section 

1886(o)(3)(D) of the Act requires the 

Secretary to consider appropriate 

factors, such as: (1) Practical experience 

with the measures, including whether a 

significant proportion of hospitals failed 

to meet the performance standard 

during previous performance periods; 

(2) historical performance standards; (3) 

improvement rates; and (4) the 

opportunity for continued 

improvement. 

b. Performance Standards for the FY 

2016 Hospital VBP Program 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53599 through 53604), we 

adopted performance standards for FY 

2015 and certain FY 2016 Hospital VBP 

Program measures. We also finalized 

our policy to update performance 

periods and performance standards for 

future Hospital VBP Program years via 

notice on the CMS Web site or another 

publicly available Web site. 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50694 through 50698), we 

revised our regulatory definitions of 

‘‘achievement threshold’’ and 

‘‘benchmark’’ at § 412.160 and adopted 

performance standards for additional FY 

2016 Hospital VBP Program measures. 

We also adopted an interpretation of 

‘‘achievement threshold’’ and 

‘‘benchmark’’ under § 412.160 to not 

include the numerical values that result 

when the performance standards are 

calculated. We further adopted a policy 

under which we may update a 

measure’s performance standards for a 

fiscal year once if we identify data 

issues, calculation errors, or other 

problems that would significantly affect 

the displayed performance standards. 

We refer readers to the FY 2014 IPPS/ 

LTCH PPS final rule (78 FR 50695 

through 50698) for the complete set of 

FY 2016 performance standards. 

c. Previously Adopted Performance 

Standards for the FY 2017, FY 2018, and 

FY 2019 Hospital VBP Programs 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50698 through 50699), we 

adopted performance standards for the 

three 30-day mortality measures for the 

FY 2017, FY 2018, and FY 2019 

Hospital VBP Programs and for the PSI– 

90 measure for the FY 2017 and FY 

2018 Hospital VBP Programs. We refer 

readers to that final rule for those 

performance standards. 

d. Proposed Additional Performance 

Standards for the FY 2017 Hospital VBP 

Program 

In accordance with our finalized 

methodology for calculating 

performance standards (discussed more 

fully in the Hospital Inpatient VBP 

Program final rule (76 FR 26511 through 

26513)), we are proposing to adopt the 

following additional performance 

standards for the FY 2017 Hospital VBP 

Program. We note that the numerical 

values for the performance standards 

displayed below represent estimates 

based on the most recently available 

data, and we intend to update the 

numerical values in the FY 2015 IPPS/ 

LTCH PPS final rule. We note further 

that the MSPB measure’s performance 

standards are based on performance 

period data; therefore, we are unable to 

provide numerical equivalents for the 

standards at this time. 

We note further that the performance 

standards for the NHSN measures 

(CAUTI, SSI, and proposed CLABSI, 

MRSA Bacteremia, and C. difficile 

Infection), the PSI–90 measure, and the 

MSPB measure are calculated with 

lower values representing better 

performance, in contrast to other 

measures, on which higher values 

indicate better performance. As 

discussed further in the FY 2014 IPPS/ 

LTCH PPS final rule (78 FR 50684), the 

performance standards for SSI are 

computed separately for each measure 

stratum, and we will award 

achievement and improvement points to 

each stratum separately, then compute a 

weighted average of the points awarded 

to each stratum by predicted infections. 

PREVIOUSLY ADOPTED AND PROPOSED PERFORMANCE STANDARDS FOR THE FY 2017 HOSPITAL VBP PROGRAM: 

SAFETY, CLINICAL CARE—OUTCOMES, CLINICAL CARE—PROCESS, AND EFFICIENCY AND COST REDUCTION MEASURES

Measure ID Description Achievement 

threshold Benchmark 

Safety Measures 

CAUTI ............................... Catheter-Associated Urinary Tract Infection ...... 0.8371 ....................................... 0.0000 

CLABSI ............................. Central Line-Associated Blood Stream Infection 0. 4483 ...................................... 0.0000 

C. difficile .......................... Clostridium difficile Infection .............................. 0.7927 ....................................... 0.0000 

MRSA bacteremia ............ Methicillin-Resistant Staphylococcus aureus 

Bacteremia.

0.8613 ....................................... 0.0000 

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PREVIOUSLY ADOPTED AND PROPOSED PERFORMANCE STANDARDS FOR THE FY 2017 HOSPITAL VBP PROGRAM: SAFETY, CLINICAL CARE—OUTCOMES, CLINICAL CARE—PROCESS, AND EFFICIENCY AND COST REDUCTION MEASURES— 

Continued 

Measure ID Description Achievement 

threshold Benchmark 

PSI–90 * ............................ Complication/patient safety for selected indicators (composite) *.0.577321 * ................................. 0.397051 * 

SSI .................................... Surgical Site Infection.

• Colon ........................................................... • 0.7117 ................................... • 0.0000 

• Abdominal Hysterectomy ............................ • 0.7509 ................................... • 0.0000 

Clinical Care—Outcomes Measures 

MORT–30–AMI * ............... Acute Myocardial Infarction (AMI) 30-day mortality rate *.0.851458 * ................................. 0.871669 * 

MORT–30–HF * ................ Heart Failure (HF) 30-day mortality rate * .......... 0.881794 * ................................. 0.903985 * 

MORT–30–PN * ................ Pneumonia (PN) 30-day mortality rate * ............ 0.882986 * ................................. 0.908124 *

Clinical Care—Process Measures 

AMI–7a ............................. Fibrinolytic Therapy Received Within 30 Minutes of Hospital Arrival.0.954545 ................................... 1.000000 

IMM–2 ............................... Influenza Immunization ...................................... 0.995882 ................................... 1.000000 

PC–01 ............................... Elective Delivery Prior to 39 Completed Weeks 

Gestation.

0.031250 ................................... 1.000000 

Efficiency and Cost Reduction Measure 

MSPB–1 ........................... Medicare Spending per Beneficiary ................... Median Medicare Spending per 

Beneficiary ratio across all 

hospitals during the performance period.

Mean of the lowest decile 

Medicare Spending per Beneficiary ratios across all hospitals during the performance 

period. 

* Previously adopted performance standards. 

PROPOSED PERFORMANCE STANDARDS FOR THE FY 2017 HOSPITAL VBP PROGRAM PATIENT AND CAREGIVER-CENTERED

EXPERIENCE OF CARE/CARE COORDINATION DOMAIN

HCAHPS survey dimension Floor 

(percent) 

Achievement 

threshold 

Benchmark 

(percent) 

Communication with Nurses .................................................................................................. 56.90 78.08 86.41 

Communication with Doctors ................................................................................................. 62.03 80.43 88.71 

Responsiveness of Hospital Staff .......................................................................................... 36.46 64.83 79.62 

Pain Management .................................................................................................................. 49.47 70.20 78.18 

Communication about Medicines .......................................................................................... 42.89 62.82 73.15 

Hospital Cleanliness & Quietness ......................................................................................... 43.46 65.26 79.06 

Discharge Information ............................................................................................................ 61.86 85.59 91.04 

Overall Rating of Hospital ...................................................................................................... 35.00 69.81 84.27 

We note that we intend to propose 

additional performance standards for 

the FY 2018 Hospital VBP Program in 

future rulemaking. 

We welcome public comments on 

these proposed performance standards. 

e. Proposed Performance Standards for 

the FY 2019 and FY 2020 Hospital VBP 

Programs 

As discussed further above, we have 

adopted certain Safety and Clinical 

Care—Outcomes domain measures for 

future program years in order to ensure 

that we can adopt performance periods 

and baseline periods of sufficient length 

for performance scoring purposes. We 

are also proposing to adopt the PSI–90 

measure in the Safety domain and the 

THA/TKA measure in the Clinical 

Care—Outcomes domain for the FY 

2019 Hospital VBP Program. We note 

that, as described above with respect to 

the NHSN measures, the PSI–90 

measure, and the MSPB measure, for the 

THA/TKA measure, better performance 

is represented by lower values. 

Therefore, we are proposing to adopt the 

following performance standards for the 

FY 2019 Hospital VBP Program: 

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PREVIOUSLY ADOPTED AND PROPOSED PERFORMANCE STANDARDS FOR CERTAIN SAFETY AND CLINICAL CARE— 

OUTCOMES DOMAIN MEASURES FOR THE FY 2019 HOSPITAL VBP PROGRAM

Measure ID Description Achievement 

threshold Benchmark 

Safety Measures 

PSI–90 ............................... Complication/patient safety for selected indicators (composite) ........................ 0.840421 0.589716 

Outcomes Measures 

MORT–30–AMI * ................ Acute Myocardial Infarction (AMI) 30-day mortality rate * .................................. * 0.850671 * 0.873263 

MORT–30–HF * .................. Heart Failure (HF) 30-day mortality rate * ........................................................... * 0.883472 * 0.908094 

MORT–30–PN * .................. Pneumonia (PN) 30-day mortality rate * ............................................................. * 0.882334 * 0.907906 

THA/TKA ............................ Hospital-level Risk-Standardized Complication Rate Following Elective Primary Total Hip Arthroplasty (THA) And/Or Total Knee Arthroplasty (TKA).0.032521 0.022895 

* Previously adopted performance standards. 

We welcome public comments on 

these proposed performance standards. 

We also are proposing to adopt the 

following performance standards for the 

FY 2020 Hospital VBP Program: 

PROPOSED PERFORMANCE STANDARDS FOR CLINICAL CARE—OUTCOMES DOMAIN MEASURES FOR THE FY 2020 

HOSPITAL VBP PROGRAM

Measure ID Description Achievement 

threshold Benchmark 

Clinical Care—Outcomes Measures 

MORT–30–AMI .................. Acute Myocardial Infarction (AMI) 30-day mortality rate .................................... 0.853511 0.875840 

MORT–30–HF .................... Heart Failure (HF) 30-day mortality rate ............................................................. 0.881394 0.905962 

MORT–30–PN .................... Pneumonia (PN) 30-day mortality rate ............................................................... 0.882281 0.909460 

THA/TKA ............................ Hospital-level Risk-Standardized Complication Rate Following Elective Primary Total Hip Arthroplasty (THA) And/Or Total Knee Arthroplasty (TKA).0.032521 0.022895 

We welcome public comments on 

these proposed performance standards. 

f. Proposed Technical Updates Policy 

for Performance Standards 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50694 through 50698), we 

revised our regulatory definitions of 

‘‘achievement threshold’’ and 

‘‘benchmark’’ at § 412.160 and adopted 

performance standards for additional FY 

2016 Hospital VBP Program measures. 

We also adopted an interpretation of 

‘‘achievement threshold’’ and 

‘‘benchmark’’ under § 412.160 to not 

include the numerical values that result 

when the performance standards are 

calculated. We further adopted a policy 

under which we may update a 

measure’s performance standards for a 

fiscal year once if we identify data 

issues, calculation errors, or other 

problems that would significantly 

change the displayed performance 

standards. 

Our historic practice has been to 

display Hospital VBP Program 

performance standards’ numerical 

values in rulemaking. We adopted this 

practice for the convenience of the 

public. Although we have typically 

expressed the performance standards for 

each Hospital VBP measure as a 

numerical value prior to the start of the 

performance period for that measure, we 

do not display numerical values for the 

MSPB measure because the measure is 

constructed as a measure of costs 

attributable to patient care during a 

specified episode of care during the 

performance period itself (77 FR 53601). 

We have stated that with respect to the 

MSPB measure, we do not believe it is 

helpful for hospitals to be compared 

against performance standards 

constructed from baseline period data 

given the potential changes in market 

forces and utilization practices that 

occur over time. 

Further, during the long interval 

between the time we first display the 

performance standards for all measures 

but the MSPB measure and the time that 

we calculate the achievement and 

improvement scores for those measures 

based on actual hospital performance, 

one or more of those measures might 

have been technically updated in a way 

that inhibits our ability to ensure that 

we are making appropriate comparisons 

between the baseline and performance 

period. For example, the software used 

to calculate the PSI–90 measure is 

regularly updated to incorporate coding 

changes, refinements based on the 

consensus development process, and 

refinements to improve specificity and 

sensitivity. The statistical modeling we 

use to adjust measure calculations for 

PSI–90 and HCAHPS also needs to be 

periodically updated to incorporate 

coefficient factors that more properly 

account for patient mix (both measures) 

and the HCAHPS survey data collection 

mode (HCAHPS survey). These types of 

technical updates do not substantively 

affect the measure rate calculation 

methodology, but they do sometimes 

affect our ability to make appropriate 

comparisons between the baseline and 

performance period if, for example, the 

baseline performance standards are 

tabulated using one version of the 

software and hospital performance 

during subsequent performance periods 

is tabulated with another version. We 

believe that in order to make the most 

accurate comparison of hospital 

performance across time, we should use 

the most updated version of the measure 

that is available at the time we calculate 

that performance because the updated 

version will produce the most valid 

measure rates. 

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Further, as part of its regular 

maintenance process for NQF-endorsed 

performance measures, NQF requires 

measure stewards to submit annual 

measure maintenance updates and 

undergo maintenance of endorsement 

review every 3 years. In the measure 

maintenance process, the measure 

steward (owner/developer) is 

responsible for updating and 

maintaining the currency and relevance 

of the measure and will confirm existing 

or minor specification changes with 

NQF on an annual basis. NQF solicits 

information from measure stewards for 

annual reviews, and it reviews measures 

for continued endorsement in a specific 

3-year cycle. 

The NQF’s annual or triennial 

maintenance processes for endorsed 

measures may result in the NQF 

requiring updates to the measures in 

order to maintain endorsement status. 

We believe that it is important to 

incorporate nonsubstantive updates 

required by the NQF, as well as 

nonsubstantive updates made to other 

measures, into the measure 

specifications we have adopted for the 

Hospital VBP Program so that these 

measures remain up-to-date and ensure 

that we make fair comparisons between 

the performance and baseline periods 

that we adopt under the Program. We 

also recognize that some updates to 

measures are substantive in nature and 

might not be appropriate for adoption 

without further rulemaking. 

With respect to what constitutes 

substantive versus nonsubstantive 

changes to measures, we would make 

this determination on a case-by-case 

basis. Examples of nonsubstantive 

changes to measures might include 

updated diagnosis or procedure codes, 

medication updates for categories of 

medications, broadening of age ranges, 

and exclusions for a measure (such as 

the addition of a hospice exclusion to 

the 30-day mortality measures). We 

believe that nonsubstantive changes 

may include updates to measures based 

upon changes to guidelines upon which 

the measures are based. 

Therefore, we are proposing to amend 

the definition of ‘‘performance 

standards’’ under § 412.160 to enable us 

to update performance standards’ 

numerical values to incorporate 

nonsubstantive technical updates that 

are made to Hospital VBP Program 

measures between the time that they are 

adopted for a particular program year 

and the time that we actually calculate 

hospital performance on those measures 

after the performance period for the 

program year has concluded. Further, 

we are proposing to inform hospitals of 

these technical updates through 

postings on our Hospital VBP Program 

Web site, the QualityNet Web site, other 

educational outreach efforts, and/or the 

scoring reports that we provide for each 

program year. We note that these 

proposals, if finalized, may have the 

effect of superseding the performance 

standards that we establish prior to the 

start of the performance period for the 

affected measures, but we believe them 

to be necessary to ensure that the 

performance standards in the Hospital 

VBP Program’s scoring calculations 

enable the fairest comparisons between 

performance measured during the 

baseline period and performance period. 

We would continue to use rulemaking 

to adopt substantive updates to the 

measures we have adopted for the 

Hospital VBP Program. Examples of 

changes that we might consider to be 

substantive would be those in which the 

changes are so significant that the 

measure is no longer the same measure, 

or when a standard of performance 

assessed by a measure becomes more 

stringent (for example: changes in 

acceptable timing of medication, 

procedure/process, or test 

administration). We also note that the 

NQF process incorporates an 

opportunity for public comment and 

engagement in the measure maintenance 

process. 

We are also proposing to include in 

our revised definition of ‘‘performance 

standards’’ under § 412.160 of our 

regulations the policy we adopted in the 

FY 2013 IPPS/LTCH final rule to update 

the performance standards once if we 

identify data issues, calculation errors, 

or other problems that would 

significantly change the standards (78 

FR 50695). We are proposing to make 

this change so that our policies 

governing updates to the performance 

standards appear together. 

We welcome public comments on 

these proposals. We also specifically 

seek public comments on what we 

should consider to be substantive 

changes in measures’ performance 

standards, including whether or not we 

should consider certain changes in 

performance standards as a result of 

technical or non-substantive updates to 

be substantive. 

g. Request for Public Comments on ICD– 

10–CM/PCS Transition 

The ICD–10–CM/PCS transition is 

scheduled to take place on October 1, 

2015. After that date, we will collect 

nonelectronic health record-based 

quality measure data coded only in 

ICD–10–CM/PCS. Even though we 

expect that the endorsement status of 

the measures we have adopted for the 

Hospital VBP Program will remain the 

same, we are concerned that the 

transition to a new coding system might 

have unintended consequences on 

quality measure data denominators, 

statistical adjustment coefficients, and 

measure rates. We are concerned about 

the possible impacts on the Hospital 

VBP Program, and request public 

comments on how we should 

accommodate the transition. 

Specifically, we request comments on 

how, if at all, we should adjust 

performance scoring under the Hospital 

VBP Program to accommodate quality 

data coded under ICD–10–CM/PCS, or 

otherwise ensure fair and accurate 

comparisons under the Hospital VBP 

Program once the transition date has 

passed. For example, we could consider 

analyzing the effects of the ICD–10–CM/ 

PCS transition on hospitals’ measured 

performance and, if substantive 

differences result, retrospectively 

adjusting performance standards in 

order to ensure that they accurately 

reflect the underlying methodology. We 

could also consider performing similar 

adjustments to hospitals’ measure rates, 

measure scores, or TPSs once our 

analysis is completed. We also might 

consider scoring hospitals only on 

achievement if analysis indicates that 

we are unable to reliably and validly 

calculate improvement scores when 

comparing ICD–9–CM based baseline 

period data to ICD–10–CM/PCS based 

performance period data. However, 

while we intend to analyze the effects 

of the ICD–10–CM/PCS transition on 

hospitals’ performance, we do not have 

the necessary data for all hospitals at 

this time. 

We intend to take two steps to analyze 

ICD–10–CM/PCS potential impact 

before receiving ICD–10–CM/PCS-based 

fall 2015 discharge data in May 2016. 

First, we will assess measure 

specifications to qualitatively assess 

impact to measure denominators after 

CMS releases ICD–10–CM/PCS-based 

measure specifications in the future. 

Second, we intend to voluntarily solicit 

information from no more than 9 

hospitals before October 1, 2015 to 

estimate the impact of ICD–10–CM/PCS 

on their Hospital VBP measure rates and 

denominator counts. We intend to use 

this information to inform both 

proposed and future Hospital VBP 

Program policy and measures. 

We welcome public comments on this 

topic. 

11. Proposed FY 2017 Hospital VBP 

Program Scoring Methodology 

a. Proposed General Hospital VBP 

Program Scoring Methodology 

In the Hospital Inpatient VBP Program 

final rule (76 FR 26514), we adopted a 

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methodology for scoring clinical process 

of care, patient experience of care, and 

outcome measures. As noted in that 

rule, this methodology outlines an 

approach that we believe is well 

understood by patient advocates, 

hospitals, and other stakeholders 

because it was developed during a 

lengthy process that involved extensive 

stakeholder input, and was based on a 

scoring methodology we presented in a 

report to Congress. We also noted in that 

final rule that we had conducted 

extensive additional research on a 

number of other important methodology 

issues to ensure a high level of 

confidence in the scoring methodology. 

In addition, we believe that, for reasons 

of simplicity, transparency, and 

consistency, it is important to score 

hospitals using the same general 

methodology each year, with 

appropriate modifications to 

accommodate new domains and 

measures. We finalized a similar scoring 

methodology for the MSPB measure in 

the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51654 through 51656). 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53604 through 53605), for 

the FY 2015 Hospital VBP Program, we 

finalized our proposal to use these same 

general scoring methodologies to score 

hospital performance for the FY 2015 

Hospital VBP Program. In that rule, we 

stated that we believe these scoring 

methodologies continue to 

appropriately capture hospital quality as 

reflected by the finalized quality 

measure sets. We also noted that 

readopting the finalized scoring 

methodology from prior program years 

represents the simplest and most 

consistent policy for providers and the 

public. In the FY 2014 IPPS/LTCH PPS 

final rule (78 FR 50699), we readopted 

the finalized general scoring 

methodology adopted for the FY 2015 

Hospital VBP Program for the FY 2016 

Hospital VBP Program. 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50702 through 50704), we 

adopted new quality domains based on 

the NQS for FY 2017 and subsequent 

years. 

We continue to agree with the 

reasoning for the scoring methodology 

outlined in the FY 2013 IPPS/LTCH PPS 

final rule and summarized above. 

Therefore, we are proposing to adopt the 

general scoring methodology adopted 

for the FY 2016 Hospital VBP Program 

for the FY 2017 Hospital VBP Program, 

with appropriate modifications to 

accommodate the new quality domains 

that we have previously adopted. These 

proposed modifications to our scoring 

methodology are limited to reclassified 

quality domains, new placements for 

measures within those domains, and 

domain weighting. We discuss below a 

proposal to revise the finalized domain 

weighting for FY 2017. 

We welcome public comment on this 

proposal. 

b. Proposed Domain Weighting for the 

FY 2017 Hospital VBP Program for 

Hospitals That Receive a Score on All 

Domains 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50702 through 50704), we 

adopted our proposal to align the 

Hospital VBP Program’s quality 

measurement domains with the NQS’ 

quality priorities, with certain 

modifications. We adopted this 

realignment beginning with the FY 2017 

Hospital VBP Program. We also adopted 

the following domains and domain 

weights for the FY 2017 Hospital VBP 

Program for hospitals that receive a 

score in all newly aligned domains. 

PREVIOUSLY ADOPTED DOMAINS AND DOMAIN WEIGHTS FOR THE FY 2017 HOSPITAL VBP PROGRAM FOR HOSPITALS

RECEIVING A SCORE ON ALL NEWLY ALIGNED DOMAINS

Domain Weight 

Safety ................................................................................................................................................................................................ 15 percent. 

Clinical Care: 35 percent. 

• Clinical Care—Outcomes ....................................................................................................................................................... • 25 percent. 

• Clinical Care—Process .......................................................................................................................................................... • 10 percent. 

Efficiency and Cost Reduction ......................................................................................................................................................... 25 percent. 

Patient and Caregiver Centered Experience of Care/Care Coordination ........................................................................................ 25 percent. 

However, as discussed in more detail 

above, we are proposing to remove six 

‘‘topped out’’ measures from the FY 

2017 Clinical Care—Process subdomain. 

We believe that the proposed substantial 

reduction in the number of measures 

adopted for the Clinical Care—Process 

subdomain, if finalized, warrants 

reconsideration of the finalized domain 

weighting for FY 2017 that we adopted 

in the FY 2014 IPPS/LTCH PPS final 

rule. 

As described in more detail above, we 

are proposing to re-adopt the CLABSI 

measure and to adopt two new measures 

(MRSA Bacteremia and C. difficile 

Infection) for the Safety domain for FY 

2017 Hospital VBP Program and 

subsequent years, and, if finalized, they 

would raise the total number of 

measures in this domain for FY 2017 to 

six. Because we are proposing to make 

changes in the number of measures in 

only two domains (Safety and Clinical 

Care), we focused our proposed domain 

weighting changes in this proposed rule 

on these domains only. Because we 

continue to believe that hospitals 

should be provided strong incentives to 

perform well on measures of patient 

safety, in view of the new measures we 

are proposing to add to that domain, we 

are proposing to revise the previously 

finalized domain weighting for the FY 

2017 Hospital VBP Program for 

hospitals receiving a score on all newly 

aligned domains as follows: 

PROPOSED REVISED DOMAIN WEIGHTS FOR THE FY 2017 HOSPITAL VBP PROGRAM FOR HOSPITALS RECEIVING A SCORE

ON ALL NEWLY ALIGNED DOMAINS

Domain Weight 

Safety ................................................................................................................................................................................................ 20 percent. 

Clinical Care: 30 percent. 

• Clinical Care—Outcomes ....................................................................................................................................................... • 25 percent. 

• Clinical Care—Process .......................................................................................................................................................... • 5 percent. 

Efficiency and Cost Reduction ......................................................................................................................................................... 25 percent. 

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PROPOSED REVISED DOMAIN WEIGHTS FOR THE FY 2017 HOSPITAL VBP PROGRAM FOR HOSPITALS RECEIVING A SCORE

ON ALL NEWLY ALIGNED DOMAINS—Continued 

Domain Weight 

Patient and Caregiver Centered Experience of Care/Care Coordination ........................................................................................ 25 percent. 

We welcome public comments on this 

proposal. 

c. Proposed Domain Weighting for the 

FY 2017 Hospital VBP Program for 

Hospitals Receiving Scores on Fewer 

Than Four Domains 

In prior program years, we finalized a 

policy that hospitals must have received 

domain scores on all finalized domains 

in order to receive a TPS. However, 

because the Hospital VBP Program has 

evolved from its initial two domains to 

an expanded measure set with 

additional domains, we considered 

whether it was appropriate to continue 

this policy. 

Therefore, in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53606 through 

53607), we finalized our proposal that, 

for the FY 2015 Hospital VBP Program 

and subsequent years, hospitals with 

sufficient data to receive at least two out 

of the four domain scores that existed 

for the FY 2015 Hospital VBP Program 

(that is, sufficient cases and measures to 

receive a domain score on at least two 

domains) will receive a TPS. We also 

finalized our proposal that, for hospitals 

with at least two domain scores, TPSs 

would be reweighted proportionately to 

the scored domains to ensure that the 

TPS is still scored out of a possible 100 

points and that the relative weights for 

the scored domains remain equivalent 

to the weighting which occurs when 

there are scores in all four domains. We 

believe that this approach allows us to 

include relatively more hospitals in the 

Hospital VBP Program while continuing 

to focus on reliably scoring hospitals on 

their quality measure performance. 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50701 through 50702), we 

continued this approach for the FY 2016 

Hospital VBP Program and subsequent 

fiscal years for purposes of eligibility for 

the program even though, based on the 

NQS, we adopted four NQS-based 

domains for the FY 2017 Hospital VBP 

Program (78 FR 50702 through 50704), 

which include the subdivided Clinical 

Care domain. 

In light of the four NQS-based 

domains we have adopted, we have 

reconsidered the appropriate minimum 

number of domains (that is, the number 

of domains on which hospitals must 

receive scores) in order to receive a TPS. 

We are concerned that requiring just 

two out of the four NQS-based domains 

in order to receive a TPS may be 

insufficient to ensure robust quality 

measurement under the Hospital VBP 

Program. Further, given the transition to 

NQS-based domains that we have 

adopted, we believe an additional 

independent analysis of appropriate 

minimum numbers of domains under 

the new domain structure is 

appropriate. We commissioned that 

analysis from our Reports & Analytics 

contractor for the Hospital VBP 

Program. The results of that analysis 

informed our proposal below, and we 

intend to post a summary of the 

reliability and minimum numbers 

analysis on the CMS Web site during the 

public comment period. We believe that 

requiring three out of the four NQSbased domains appropriately balances 

our desire to be as inclusive as possible 

with Hospital VBP Program 

requirements while ensuring that TPSs 

under the Program are sufficiently 

reliable. 

Therefore, we are proposing to require 

that, for the FY 2017 Hospital VBP 

Program and subsequent years, hospitals 

must receive domain scores on at least 

three quality domains in order to 

receive a TPS. For purposes of the 

Clinical Care domain score, we are 

proposing to consider either the Clinical 

Care—Process or Clinical Care— 

Outcome subdomains as one domain in 

order to meet this proposed 

requirement. By adopting this policy, 

we believe we will continue to allow as 

many hospitals as possible may 

participate in the program while 

ensuring that reliable TPSs result. 

However, we would only reweight 

hospitals’ TPSs once, and will therefore 

not reallocate the Clinical Care—Process 

and Clinical Care—Outcome 

subdomains’ weighting within the 

Clinical Care domain if a hospital does 

not have sufficient data for one of the 

subdomains. For example, a hospital 

receiving domain scores on all domains 

except the Clinical Care—Process 

subdomain would not have the 5 

percent weighting from the Clinical 

Care—Process subdomain reallocated 

entirely to the Clinical Care—Outcome 

subdomain. Instead, the 5 percent 

weighting from the Clinical Care— 

Process subdomain would be 

proportionately reallocated across all 

domains. 

We welcome public comments on this 

proposal. 

12. Proposed Minimum Numbers of 

Cases and Measures for the FY 2016 and 

FY 2017 Hospital VBP Program’s 

Quality Domains 

a. Previously Adopted Minimum 

Numbers of Cases and FY 2016 

Proposed Minimum Numbers of Cases 

In the Hospital Inpatient VBP Program 

final rule (76 FR 26527 through 26531), 

we adopted minimum numbers of at 

least 10 cases on at least 4 measures for 

hospitals to receive a Clinical Process of 

Care domain score. In the same final 

rule, we adopted a minimum number of 

100 HCAHPS surveys for a hospital to 

receive a Patient Experience of Care 

domain score. In the CY 2012 OPPS/

ASC final rule with comment period (76 

FR 74532 through 74534), we adopted a 

minimum number of 10 cases for the 

mortality measures that we adopted for 

FY 2014. In the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53608 through 

53609), we adopted a new minimum 

number of 25 cases for the mortality 

measures for FY 2015. In the same final 

rule, we adopted a minimum number of 

25 cases for the MSPB measure (77 FR 

53609 through 53610), a minimum of 

three cases for any underlying indicator 

for the PSI–90 measure based on 

AHRQ’s measure methodology (77 FR 

53608 through 53609), and a minimum 

of one predicted infection for NHSNbased surveillance measures based on 

CDC’s minimum case criteria (77 FR 

53608 through 53609). However, we 

note that we adopted these case 

minimums for FY 2015 only, although 

we intended to adopt them for FY 2015 

and subsequent years. We continue to 

believe that the finalized minimum 

numbers of cases described above are 

appropriate and provide sufficiently 

reliable data for scoring purposes under 

the Hospital VBP Program. Therefore, 

we are proposing to adopt the specified 

case minimums for the FY 2016 

Hospital VBP Program and subsequent 

years. 

We welcome public comment on this 

proposal. We note that we are proposing 

below to specify minimum numbers of 

measures for the FY 2017 Hospital VBP 

Program and subsequent years based on 

the new domain structure. 

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b. Proposed Minimum Number of 

Measures—Safety Domain 

As described in more detail above, we 

have proposed to adopt six quality 

measures in the Safety domain for the 

FY 2017 Hospital VBP Program. Of 

these measures, five are NHSN-based 

surveillance measures, and one is the 

PSI–90 measure. After consideration of 

these measures and of previous 

independent analyses of the necessary 

minimum number of measures adopted 

for the Outcome domain, whose 

measures formed the basis for part of the 

new Safety domain, we are proposing to 

adopt a minimum number of three 

measures for the Safety domain for FY 

2017 and subsequent years. We believe 

this proposal balances our desire to be 

as inclusive as possible with the 

Hospital VBP Program and the need for 

reliable quality measurement data on 

which to base TPSs. We would also like 

to clarify that we will continue to score 

hospitals on NHSN measures if, as we 

discussed with respect to the CLABSI 

measure (77 FR 53608) and the SSI 

measure (78 FR 50684), the hospital has 

met CDC’s minimum case criteria, or 

one predicted infection during the 

applicable period. 

We welcome public comments on this 

proposal. 

c. Proposed Minimum Number of 

Measures—Clinical Care Domain 

(1) Background 

In the FY 2014 IPPS/LTCH PPS final 

rule, we adopted a new domain 

structure for the FY 2017 Hospital VBP 

Program and subsequent years based on 

the National Quality Strategy. In that 

final rule, we adopted a Clinical Care 

domain that was subdivided into the 

Clinical Care—Process and Clinical 

Care—Outcomes subdomains. We 

adopted these subdomains in order to 

ensure that we place the appropriate 

domain weighting on measures of 

clinical processes and measures of 

clinical outcomes. We believe the same 

consideration is appropriate for 

determining minimum numbers of 

measures for each subdomain, and 

based on prior independent analyses 

conducted of the appropriate minimum 

numbers for the Clinical Process of Care 

and Outcome domains whose measures 

formed the basis for the new Clinical 

Care domain, are proposing separate 

minimum numbers for each of these 

subdomains below. As described further 

above, we also attempted to balance our 

desire to be as inclusive as possible with 

the Hospital VBP Program and the need 

for reliable quality measurement data on 

which to base Total Performance Scores. 

(2) Clinical Care—Outcomes Subdomain 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50707), we adopted a 

minimum number of two measures in 

the former Outcome domain. We stated 

our belief that this minimum number is 

appropriate for the expanded Outcome 

domain that formed the basis for the 

Clinical Care—Outcomes subdomain 

because adding measure scores beyond 

the minimum number of measures has 

the effect of enhancing the domain 

score’s reliability. 

As noted above, the Clinical Care— 

Outcomes subdomain now contains the 

three 30-day mortality measures, and 

based on previous independent analysis 

of the appropriate minimum number of 

measures for the Outcome domain that 

formed the basis for the Clinical Care— 

Outcomes domain (available on our 

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

Medicare/Quality-Initiatives-PatientAssessment-Instruments/hospital-valuebased-purchasing/Downloads/HVBP_

Measure_Reliability-.pdf), we continue 

to believe that a minimum number of 

two measures within the subdomain 

appropriately balances scoring 

reliability with inclusiveness under the 

Program. As noted above, we intend to 

post a summary of the reliability and 

minimum numbers analysis on the CMS 

Web site during the public comment 

period. Therefore, we are proposing to 

adopt a minimum number of two 

measures in the Clinical Care— 

Outcomes subdomain for FY 2017 and 

subsequent years. 

We welcome public comment on this 

proposal. 

(3) Clinical Care—Process Subdomain 

We have reconsidered the finalized 

minimum number of measures given the 

significant reduction in Clinical Care— 

Process measures due to ‘‘topped-out’’ 

removals that we are proposing in this 

proposed rule. We are concerned that 

requiring hospitals to report on all three 

proposed Clinical Care—Process 

measures for the FY 2017 Hospital VBP 

Program, or even requiring two out of 

three measures, could prevent a 

significant proportion of participating 

hospitals from receiving a Clinical 

Care—Process subdomain score. We are 

aware that relatively few hospitals 

report data for the AMI–7a measure, and 

the proposed PC–01 measure will only 

include hospitals that provide maternity 

services. In accordance with our 

preference for including as many 

hospitals as possible in the Hospital 

VBP Program while ensuring the 

reliability of the domain score and 

based on a prior independent analysis 

conducted with respect the Clinical 

Process of Care domain that formed the 

basis for the Clinical Care—Process 

domain, we are proposing to require 

hospitals to report a minimum of one 

measure in the Clinical Care—Process 

subdomain for the FY 2017 Hospital 

VBP Program and subsequent years to 

receive a domain score. 

We welcome public comment on this 

proposal. 

d. Proposed Minimum Number of 

Measures—Efficiency and Cost 

Reduction Domain 

Because the MSPB measure remains 

the only measure within the Efficiency 

and Cost Reduction domain for FY 

2017, we are proposing to require that 

hospitals receive a MSPB measure score 

in order to receive an Efficiency and 

Cost Reduction domain score. If we 

adopt additional measures for this 

domain in the future, we will consider 

if we should revisit this policy. 

We welcome public comments on this 

proposal. 

e. Proposed Minimum Number of 

Measures—Patient and Caregiver 

Centered Experience of Care/Care 

Coordination (PEC/CC) Domain 

As with the MSPB measure adopted 

for the Efficiency and Cost Reduction 

domain described further above, we 

have not adopted additional measures 

for the PEC/CC domain. Because the 

HCAHPS survey measure remains the 

only measure within the PEC/CC 

domain for FY 2017, we are proposing 

to require that hospitals receive a 

HCAHPS survey measure score in order 

to receive a PEC/CC domain score. If we 

adopt additional measures for this 

domain in the future, we will consider 

if we should revisit this policy. 

We welcome public comments on this 

proposal. 

13. Applicability of the Hospital VBP 

Program to Maryland Hospitals 

Section 1886(o)(1)(C) of the Act 

specifies the hospitals for which the 

Hospital VBP Program applies. 

Specifically, the term ‘‘hospital’’ is 

defined under section 1886(o)(1)(C)(i) of 

the Act as a ‘‘subsection (d) hospital (as 

defined in section 1886(d)(1)(B) [of the 

Act]).’’. Section 1886(o)(1)(C)(ii) of the 

Act sets forth a list of exclusions to the 

definition of the term ‘‘hospital’’ with 

respect to a fiscal year. Section 

1886(o)(1)(C)(iv) of the Act states that in 

the case of a hospital that is paid under 

section 1814(b)(3) of the Act, the 

Secretary may exempt the hospital from 

the Hospital VBP Program if the State 

submits an annual report to the 

Secretary describing how a similar 

program in the State for a participating 

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hospital or hospitals achieves or 

surpasses the measured results in terms 

of patient health outcomes and cost 

savings established under the Hospital 

VBP Program. We have interpreted the 

reference to section 1814(b)(3) of the Act 

to mean those Maryland hospitals that 

were paid under section 1814(b)(3) of 

the Act and that, absent the ‘‘waiver’’ 

provided by section 1814(b)(3) of the 

Act, would have been paid under the 

IPPS. 

The State of Maryland entered into an 

agreement with CMS, effective January 

1, 2014, to participate in CMS’ new 

Maryland All-Payer Model, a 5-year 

hospital payment model. This model is 

being implemented under section 

1115A of the Act, as added by section 

3021 of the Affordable Care Act, which 

authorizes the testing of innovative 

payment and service delivery models, 

including models that allow States to 

‘‘test and evaluate systems of all-payer 

payment reform for the medical care of 

residents of the State, including dualeligible individuals.’’ Section 1115A of 

the Act authorizes the Secretary to 

waive such requirements of titles XI and 

XVIII of the Act as may be necessary 

solely for purposes of carrying out 

section 1115A of the Act with respect to 

testing models. 

Under the agreement with CMS, 

Maryland will limit per capita total 

hospital cost growth for all payers, 

including Medicare. In order to 

implement the new model, effective 

January 1, 2014, Maryland elected to no 

longer have Medicare pay Maryland 

hospitals in accordance with section 

1814(b)(3) of the Act. Maryland also 

represented that it is no longer in 

continuous operation of a 

demonstration project reimbursement 

system since July 1, 1977, as specified 

under section 1814(b)(3) of the Act. 

Because Maryland hospitals are no 

longer paid under section 1814(b)(3) of 

the Act, they are no longer subject to 

those provisions of the Act and related 

implementing regulations that are 

specific to hospitals paid under section 

1814(b)(3)of the Act, including but not 

limited to section 1886(o)(1)(C)(iv) of 

the Act, which provides an exemption 

for hospitals paid under section 

1814(b)(3) of the Act from the 

application of the Hospital VBP Program 

if the State which is paid under that 

section meets certain requirements. 

In order to implement the Maryland 

All-Payer Model, we have waived 

certain provisions of the Act, and the 

corresponding implementing 

regulations, as set forth in the agreement 

between CMS and Maryland and subject 

to Maryland’s compliance with the 

terms of the agreement. The effect of 

Maryland hospitals no longer being paid 

under 1814(b)(3) is that they are not 

entitled to be exempted from the 

Hospital VBP Program under section 

1886(o)(1)(C)(iv) of the Act and, but for 

the model, would be included in the 

Hospital VBP Program. In other words, 

although the exemption from the 

Hospital VBP Program no longer 

applies, Maryland hospitals will not be 

participating in the Hospital VBP 

Program because section 1886(o) of the 

Act and its implementing regulations 

have been waived for purposes of the 

model, subject to the terms of the 

agreement. 

Accordingly, we are proposing to 

make conforming revisions to § 412.160, 

in the definition of ‘‘base-operating DRG 

payment amount’’ and to § 412.161, 

which describes the applicability of the 

Hospital VBP Program. We are 

proposing to delete references in these 

regulations to hospitals paid under 

section 1814(b)(3) of the Act because, at 

this time, there are no hospitals paid 

under that section. 

We welcome public comment on 

these proposals. 

14. Disaster/Extraordinary Circumstance 

Exception Under the Hospital VBP 

Program 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50704 through 50706), we 

adopted a disaster/extraordinary 

circumstance exception. We refer 

readers to that final rule for the policy’s 

details. 

We note that we are currently in the 

process of revising the Extraordinary 

Circumstances/Disaster Extension or 

Waiver Request form, previously 

approved under OMB control number 

0938–1171. 

J. Proposed Changes to the HospitalAcquired Condition (HAC) Reduction 

Program 

1. Background 

We refer readers to section V.I.1.a. of 

the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50707 through 50708) for a 

general overview of the HAC Reduction 

Program. 

2. Statutory Basis for the HAC 

Reduction Program 

Section 3008 of the Affordable Care 

Act added section 1886(p) to the Act to 

provide an incentive for applicable 

hospitals to reduce the incidence of 

HACs. Section 1886(p) of the Act 

requires the Secretary to make an 

adjustment to payments to ‘‘applicable 

hospitals’’ effective beginning on 

October 1, 2014 and for subsequent 

programs years. Section 1886(p)(1) of 

the Act sets forth the requirements by 

which payments to ‘‘applicable 

hospitals’’ will be adjusted to account 

for HACs with respect to discharges 

occurring during FY 2015 or later. The 

amount of payment shall be equal to 99 

percent of the amount of payment that 

would otherwise apply to such 

discharges under section 1886(d) or 

1814(b)(3) of the Act, as applicable. 

Section 1886(p)(2)(A) of the Act defines 

‘‘applicable hospitals’’ as subsection (d) 

hospitals that meet certain criteria. 

Section 1886(p)(2)(B)(i) of the Act 

defines these criteria and specifies that 

the payment adjustment would apply to 

an applicable hospital that ranks in the 

top quartile (25 percent) of all 

subsection (d) hospitals, relative to the 

national average, of conditions acquired 

during the applicable period, as 

determined by the Secretary. Section 

1886(p)(2)(B)(ii) of the Act requires the 

Secretary to establish and apply a riskadjustment methodology. 

Sections 1886(p)(3) and (p)(4) of the 

Act define ‘‘hospital-acquired 

conditions’’ and ‘‘applicable period’’, 

respectively. The term ‘‘hospitalacquired condition’’ means ‘‘a condition 

identified in subsection 

1886(d)(4)(D)(iv) of the Act and any 

other condition determined appropriate 

by the Secretary that an individual 

acquires during a stay in an applicable 

hospital, as determined by the 

Secretary.’’ The term ‘‘applicable 

period’’ means, with respect to a fiscal 

year, a period specified by the Secretary. 

Section 1886(p)(5) of the Act requires 

that, prior to FY 2015 and each 

subsequent fiscal year, the Secretary 

provides the delivery of confidential 

reports to applicable hospitals with 

respect to HACs of the applicable 

hospital during the applicable period. 

Section 1886(p)(6)(A) of the Act sets 

forth the reporting requirements by 

which the Secretary would make 

information available to the public 

regarding HACs for each applicable 

hospital. Section 1886(p)(6)(B) of the 

Act requires the Secretary to ensure that 

an applicable hospital has the 

opportunity to review, and submit 

corrections for, the information to be 

made public with respect to the HACs 

of the applicable hospital prior to such 

information being made public. Section 

1886(p)(6)(C) of the Act requires that, 

once corrected, the HAC information be 

posted on the Hospital Compare Web 

site on the Internet in an easily 

understandable format. 

Section 1886(p)(7) of the Act limits 

administrative and judicial review of 

certain determinations made pursuant 

to section 1886(p) of the Act. These 

determinations include what qualifies 

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as an applicable hospital, the 

specifications of a HAC, the Secretary’s 

determination of an applicable period, 

the provision of confidential reports 

submitted to the applicable hospital, 

and the information publically reported 

on the Hospital Compare Web site. 

3. Implementation of the HAC 

Reduction Program for FY 2015 

a. Overview 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50707 through 50729), we 

presented the general framework for 

implementation of the HAC Reduction 

Program for the FY 2015 

implementation. We included the 

following provisions for the program: (a) 

The relevant definitions applicable to 

the program; (b) the payment 

adjustment under the program; (c) the 

measure selection and conditions for the 

program, including a risk-adjustment 

and scoring methodology; (d) 

performance scoring; (e) the process for 

making hospital-specific performance 

information available to the public, 

including the opportunity for a hospital 

to review the information and submit 

corrections; and (f) limitation of 

administrative and judicial review. 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50967), we established the 

rules governing the payment adjustment 

under the HAC Reduction Program at 

Subpart I of 42 CFR Part 412 (§§ 412.170 

and 412.172). We also amended existing 

§ 412.150 (the section that describes the 

basis and scope of Subpart I of Part 412, 

which contains the regulations 

governing adjustments to the base 

operating DRG payment amounts under 

the IPPS for inpatient operating costs) to 

incorporate the basis and scope of 

§§ 412.170 and 412.172 for the HAC 

Reduction Program. 

In accordance with the provisions of 

section 1886(p) of the Act, in the FY 

2014 IPPS/LTCH PPS final rule, we 

included, under § 412.170, definitions 

for the terms ‘‘hospital-acquired 

condition,’’ ‘‘applicable hospital,’’ and 

‘‘applicable time period’’ (78 FR 50967). 

In § 412.170, we defined ‘‘hospitalacquired condition’’ as a condition as 

described in section 1886(d)(4)(D)(iv) of 

the Act and any other condition 

determined appropriate by the Secretary 

that an individual acquires during a stay 

in an applicable hospital, as determined 

by the Secretary. We defined an 

‘‘applicable hospital’’ as ‘‘a hospital 

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

Act (including a hospital in Maryland 

that is paid under section 1814(b)(3) of 

the Act and that, absent the waiver 

specified by section 1814(b)(3) of the 

Act, would have been paid under the 

hospital inpatient prospective payment 

system) as long as the hospital meets the 

criteria specified under § 412.172(e)’’ 

(78 FR 50967). We specified that this 

definition does not include hospitals 

and hospital units excluded from the 

IPPS, such as LTCHs, cancer hospitals, 

children’s hospitals, IRFs, IPFs, CAHs, 

and Puerto Rico hospitals. We defined 

the ‘‘applicable period’’ as, with respect 

to a fiscal year, the 2-year period (as 

specified by the Secretary) from which 

data are collected in order to calculate 

the Total HAC Score for the HAC 

Reduction Program. 

Below we summarize the specific 

provisions for the HAC Reduction 

Program that were established in the FY 

2014 IPPS/LTCH PPS final rule for 

implementation in FY 2015. 

b. Payment Adjustment Under the HAC 

Reduction Program, Including 

Exemptions 

(1) Basic Payment Adjustment 

Section 1886(p)(1) of the Act sets 

forth the requirements by which 

payments to ‘‘applicable hospitals’’ will 

be adjusted to account for HACs with 

discharges beginning on October 1, 

2014. Section 1886(p)(1) of the Act 

specifies that the amount of payment 

shall be equal to 99 percent of the 

amount of payment that would 

otherwise apply to such discharges 

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

the Act, as applicable. As specified in 

the statute, this payment adjustment is 

calculated and made after payment 

adjustments under sections 1886(o) and 

1886(q) of the Act, the Hospital VBP 

Program and the Hospital Readmissions 

Reduction Program respectively, are 

calculated and made. (We note that the 

Hospital VBP Program is discussed in 

section IV.I. of the preamble of this 

proposed rule and the Hospital 

Readmissions Reduction Program is 

discussed in section IV.H. of the 

preamble of this proposed rule.) Section 

1886(p)(2)(A) of the Act defines 

‘‘applicable hospitals’’ as subsection (d) 

hospitals that meet certain criteria. 

Section 1886(p)(2)(B)(i) of the Act 

defines these criteria and specifies that 

the payment adjustment would apply to 

an applicable hospital that ranks in the 

top quartile (25 percent) of all 

subsection (d) hospitals, relative to the 

national average of hospitals that report 

conditions acquired during the 

applicable period, as determined by the 

Secretary. 

Therefore, in the FY 2014 IPPS/LTCH 

PPS final rule (78 FR50967), we 

specified in § 412.172(b) of the 

regulations that, for applicable 

hospitals, beginning with discharges 

occurring during FY 2015, the amount 

of payment under § 412.172, or section 

1814(b)(3) of the Act, as applicable, for 

such discharges shall be equal to 99 

percent of the amount of payment that 

would otherwise apply to such 

discharges under § 412.172, or section 

1814(b)(3) of the Act. This amount of 

payment will be determined after the 

application of the payment adjustment 

under the Hospital Readmissions 

Reduction Program under § 412.154, 

and the adjustment made under the 

Hospital VBP Program under § 412.162, 

and section 1814(l)(4) but without 

regard to this section 1886(p) of the Act. 

(2) Applicability to Maryland Hospitals 

Section 1886(p)(2)(c) of the Act 

specifies that the Secretary may exempt 

hospitals paid under 1814(b)(3) ‘‘from 

the application of this subsection if the 

State which is paid under such section 

submits an annual report to the 

Secretary describing how a similar 

program in the state for a participating 

hospital or hospitals achieves or 

surpasses the measured results in terms 

of patient health outcomes and cost 

savings established under this 

subsection.’’ Accordingly, a program 

established by the State of Maryland 

that could serve to exempt hospitals in 

the State from the HAC Reduction 

Program would focus on hospitals 

operating under the waiver provided by 

section 1814(b)(3) of the Act, that is, 

those hospitals that would otherwise 

have been paid by Medicare under the 

IPPS, absent this provision. As we 

stated in section IV.J.3. of the preamble 

of this proposed rule, because hospitals 

paid under section 1814(b)(3) of the Act 

are subsection (d) hospitals, they are 

included in determining ‘‘applicable 

hospitals’’ (subject to the payment 

adjustment under the HAC Reduction 

Program), and unless the Secretary 

exempts these hospitals from the 

application of payment adjustments 

under the HAC Reduction Program 

under the authority of section 

1886(p)(2)(C) of the Act, they are 

considered to be ‘‘applicable hospitals’’ 

(subject to the payment adjustments in 

the HAC Reduction Program) under the 

HAC Reduction Program. 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50967 through 50968), we 

established criteria for evaluation to 

determine whether Maryland will be 

exempted from the application of the 

payment adjustments under the HAC 

Reduction Program for a given fiscal 

year. Under § 412.172(c), we specified 

that ‘‘CMS will determine whether to 

exempt Maryland hospitals that are paid 

under section 1814(b)(3) of the Act and 

not under the hospital inpatient 

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prospective payment system. . . .’’ and 

that, absent the provisions of section 

1814(b)(3) of the Act, to make payment 

under section 1886(d) of the Act exempt 

from the application of payment 

adjustments under the HAC Reduction 

Program, provided that the State 

submits an annual report to the 

Secretary describing how a similar 

program to reduce hospital acquired 

conditions in that State achieves or 

surpasses the measured results in terms 

of health outcomes and cost savings for 

the HAC Reduction Program as applied 

to hospitals described in section 

1886(d)(1)(B) of the Act. We specified in 

the regulations that ‘‘CMS will establish 

criteria for evaluation of Maryland’s 

annual report to the Secretary to 

determine whether Maryland will be 

exempted from the application of 

payment adjustments under this 

program for a given fiscal year.’’ We also 

specified that Maryland’s annual report 

to the Secretary and request for 

exemption from the HAC Reduction 

Program must be resubmitted and 

reconsidered annually. We provided 

that, for FY 2015, Maryland must 

submit a preliminary report to us by 

January 15, 2014 and a final report to us 

by June 1, 2014. 

We noted that our criteria to evaluate 

Maryland’s program is for FY 2015, the 

first year of the payment adjustment 

under the HAC Reduction Program, and 

that our evaluation criteria may change 

through notice and comment 

rulemaking as this program evolves. 

The State of Maryland entered into an 

agreement with CMS, effective January 

1, 2014, to participate in CMS’ new 

Maryland All-Payer Model, a 5-year 

hospital payment model. This model is 

being implemented under section 

1115A of the Social Security Act 

(‘‘Act’’), as added by section 3021 of the 

Affordable Care Act, which authorizes 

the testing of innovative payment and 

service delivery models, including 

models that allow states to ‘‘test and 

evaluate systems of all-payer payment 

reform for the medical care of residents 

of the State, including dual eligible 

individuals.’’ Section 1115A of the Act 

authorizes the Secretary to waive such 

requirements of titles XI and XVIII of 

the Act as may be necessary solely for 

purposes of carrying out Section 1115A 

with respect to testing models. 

Under the agreement with CMS, 

Maryland will limit per capita total 

hospital cost growth for all payers, 

including Medicare. In order to 

implement the new model, effective 

January 1, 2014, Maryland elected to no 

longer have Medicare reimburse 

Maryland hospitals in accordance with 

section 1814(b)(3) of the Act. Maryland 

also represented that it is no longer in 

continuous operation of a 

demonstration project reimbursement 

system since July 1, 1977, as specified 

under Section 1814(b)(3) of the Act. 

Because Maryland hospitals are no 

longer reimbursed under section 

1814(b)(3) of the Act, they are no longer 

subject to those provisions of the Act 

and related implementing regulations 

that are specific to section 1814(b)(3) 

hospitals, including but not limited to 

section 1886(p)(2)(C) of the Act, which 

provides exemptions for hospitals paid 

under section 1814(b)(3) from the 

application of the HAC Reduction 

Program. 

However, in order to implement the 

Maryland All-Payer Model, CMS has 

waived certain provisions of the Act for 

Maryland hospitals, including section 

1886(p), and the corresponding 

implementing regulations, as set forth in 

the agreement between CMS and 

Maryland and subject to Maryland’s 

compliance with the terms of the 

agreement. In other words, although 

section 1886(p)(2)(C) of the Act no 

longer applies to Maryland hospitals, 

Maryland hospitals will not be 

participating in the HAC Reduction 

Program because section 1886(p) of the 

Act and its implementing regulations 

have been waived for purposes of the 

model, subject to the terms of the 

agreement. Consequently, we are 

proposing that the Total HAC scores for 

Maryland hospitals will not be included 

when identifying the top quartile of all 

hospitals with respect to their Total 

HAC Score during the applicable 

period. 

As a result of changes to the status of 

Maryland hospitals under 1814(b)(3) of 

the Act described above, we are 

proposing conforming changes to these 

regulations and seek public comment on 

this proposal. Specifically, we are 

proposing to remove the entire contents 

of paragraph (c) under § 412.172 and 

reserve the paragraph (c) designation. 

c. Measure Selection and Conditions, 

Including a Risk-Adjustment Scoring 

Methodology 

(1) General Selection of Measures 

We are not proposing any new 

measures for the HAC Reduction 

Program in this FY 2015 proposed rule. 

Although we are not required under 

section 1886(p) of the Act to address 

specific measure scoring methodologies 

and domain weights regarding the HAC 

Reduction Program in notice-andcomment rulemaking, as required under 

the Hospital VBP program, we believe 

that it is important to set forth such 

scoring methodologies for each 

individual HAC measure, in order for 

the public to understand how the 

measures adopted in previous 

rulemaking relate to the performance 

methodology used to determine the 

applicable hospitals subject to the 

payment adjustment under the HAC 

Reduction Program. However, below we 

set forth the specific measure scoring 

methodology and domain weights 

regarding the HAC Reduction Program 

for FY 2015 as finalized in the FY 2014 

IPPS/LTCH PPS final rule. 

(2) Updates on AHRQ PSI–90, and CDC 

NHSN CLABSI and CAUTI Measures 

For FY 2015, we will keep the AHRQ 

PSI–90 composite measure (in Domain 

1) that we adopted in the FY 2014 IPPS/ 

LTCH PPS final rule (78 FR 50717) as 

it is currently endorsed by NQF. 

However, we note that the AHRQ PSI– 

90 composite measure is currently 

undergoing NQF maintenance review. 

The PSI–90 composite consists of eight 

component indicators: PSI–3 Pressure 

ulcer rate; PSI–6 Iatrogenic 

pneumothorax rate; PSI–7 Central 

venous catheter-related blood stream 

infections rate; PSI–8 Postoperative hip 

fracture rate; PSI–12 Postoperative PE/

DVT rate; PSI–13 Postoperative sepsis 

rate; PSI–14 Wound dehiscence rate; 

and PSI–15 Accidental puncture & 

laceration rate. AHRQ is considering the 

addition of PSI–9 (Perioperative 

hemorrhage rate), PSI–10 (Perioperative 

physiologic metabolic derangement rate) 

and PSI–11 (Post-operative respiratory 

failure rate) or a combination of these 

three measures into the PSI–90 

composite. We consider the inclusion of 

measures in the PSI–90 composite to be 

a significant change to the PSI–90 

composite that we finalized in the FY 

2014 IPPS/LTCH PPS final rule. Should 

the changes be significant, we will issue 

notice-and-comment rulemaking prior 

to requiring reporting of this composite. 

Similarly, the CDC NHSN CatheterAssociated Urinary Tract Infection 

(CAUTI) and Central Line-Associated 

Blood Stream Infection (CLABSI) 

measures in Domain 2 that we adopted 

in the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50717) for FY 2015 also are 

currently undergoing NQF maintenance 

review. Should the changes be 

significant, we will issue notice-andcomment rulemaking prior to requiring 

reporting of the changes made to CDCs 

NHSN CLABSI and CAUTI measures. 

For FY 2015, we will keep CDC’s NHSN 

CAUTI and CLABSI measures in 

Domain 2 as they are currently 

endorsed. 

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(3) Measure Selection 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50717), we finalized the 

following measures for selection: (i) The 

AHRQ PSI–90 composite measure for 

Domain 1 and the CDC NHSN measures 

CAUTI and CLABSI for Domain 2 for FY 

2015; (ii) addition of CDC NHSN 

Surgical Site Infection (SSI) measure for 

FY 2016; and (iii) addition of CDC 

NHSN Methicillin-Resistant 

Staphylococcus aureus (MRSA) 

Bactremia and C. difficile measures for 

FY 2017. Several of these measures are 

already part of the Hospital IQR 

Program and are reported on the 

Hospital Compare Web site. 

(4) Measure Risk-Adjustment 

Methodology 

In the FY 2014 IPPS/LTCH PPS final 

rule, we established that we will use the 

existing measure-level risk-adjustment 

that is already part of the methodology 

for the individual measures for Domains 

1 and 2 in order to fulfill this 

requirement (78 FR 50719). We codified 

the use of this methodology under 

§ 412.172(d) of the regulations. The 

AHRQ PSI–90 composite measure and 

the CDC NHSN measures selected for 

the program are risk-adjusted and 

reliability-adjusted. Specifically, risk 

factors such as the patient’s age, gender, 

comorbidities, and complications will 

be considered in the calculation of the 

measure rates so that hospitals serving 

a large proportion of sicker patients are 

not unfairly penalized. We noted that 

the risk-adjustment methodology for 

these measures meets NQF endorsement 

criteria. We believe that such riskadjustment is appropriate, pursuant to 

section 1886(p) of the Act. 

We will continue to examine the 

impact of the additional measures in the 

program, and propose refinements to the 

program if necessary. Should changes to 

the risk-adjustment models for the 

measures be adopted during NQF 

endorsement maintenance processes, we 

will propose adopting these changes as 

soon as possible through rulemakings. 

(5) Measure Calculations 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50717 through 50719), we 

established that we will perform 

measure calculations for the AHRQ PSI– 

90 composite measure under Domain 1 

and the CDC NHSN measures under 

Domain 2. We stated that measure 

calculations for the AHRQ PSI–90 

composite measures included using 

ICD–9–CM diagnosis and/or procedure 

codes and, for the principal and 

secondary diagnoses, a present on 

admission (POA) indicator value 

associated with all diagnoses on the 

claim. We also stated that subsection (d) 

Maryland hospitals paid under the 

waiver at section 1814(b)(3) of the Act 

also must report on whether a diagnosis 

is present on admission (78 FR 50718). 

(As noted in section IV.J.3.b.(2) of the 

preamble of this proposed rule, in order 

to implement the new Maryland AllPayer Model, Maryland elected to no 

longer have Medicare payment made to 

Maryland hospitals in accordance with 

section 1814(b)(3) of the Act, effective 

January 1, 2014. Although CMS has 

waived certain provisions of the Act for 

Maryland hospitals as set forth in the 

agreement between CMS and Maryland 

and subject to Maryland’s compliance 

with the terms of the agreement, CMS 

has not waived the POA indicator 

reporting requirement. In other words, 

the changes to the status of Maryland 

hospitals under section 1814(b)(3) of the 

Act as described above do not in any 

way change the POA indicator reporting 

requirement for Maryland hospitals.) 

We also finalized that the same rules 

under the Hospital IQR Program be 

applied to determine how the AHRQ 

PSI–90 composite measure and CDC 

NHSN measures are applied and 

calculated. 

(6) Applicable Time Period 

In the FY 2014 IPPS/LTCH final rule 

(78 FR 50717), we adopted a 2-year 

applicable period to collect data that 

would be used to calculate the Total 

HAC Score for FY 2015. For Domain 1 

(AHRQ PSI–90 composite measure), we 

established a 2-year data period to 

calculate the measures based on 

recommendations from AHRQ, the 

measure developer, as we believed that 

the 24-month data period will provide 

hospitals and the general public the 

most current data available. The 24- 

month data period also will allow time 

to complete the complex calculation 

process for these measures, to perform 

comprehensive quality assurance to 

enhance the accuracy of measure 

results, and to disseminate confidential 

reports on hospital-level results to 

individual hospitals. 

As such, for FY 2015, we will use the 

24-month period from July 1, 2011 

through June 30, 2013 as the applicable 

time period for the AHRQ PSI–90 

composite measure. The claims for all 

Medicare FFS beneficiaries discharged 

during this period will be included in 

the calculation of measure results for FY 

2015. This includes claims data from 

the 2011, 2012, and 2013 Inpatient 

Standard Analytic Files (SAFs). 

The CDC NHSN measures, CAUTI and 

CLABSI, are currently collected and 

calculated on a quarterly basis. 

However, for the purpose of the HAC 

Reduction Program, we will use 2 years 

of data to calculate the Domain 2 score. 

For FY 2015, we will use calendar years 

2012 and 2013 for the HAC Reduction 

Program. As noted above, we codified 

the definition of ‘‘applicable time 

period’’ in the FY 2014 IPPS/LTCH PPS 

final rule at § 412.170. 

d. Criteria for Applicable Hospitals and 

Performance Scoring Policy 

The HAC Reduction Program does not 

contain specific statutory directives on 

scoring methods, as found with other 

programs. Therefore, our main concern 

when establishing scoring methods for 

the HAC Reduction Program was to 

align with existing scoring 

methodologies in similar hospital 

programs. Accordingly, in the FY 2014 

IPPS/LTCH PPS final rule (78 FR 

50721), we finalized a scoring 

methodology that aligns with the 

achievement scoring methodology 

currently used under the Hospital VBP 

Program (78 FR 27629). We believe 

aligning the scoring methodologies 

reduces confusion associated with 

multiple scoring methodologies. 

Additionally, we note that alignment 

benefits the hospital stakeholders who 

have prior experience with the Hospital 

VBP Program. 

In the FY 2014 IPPS/LTCH PPS 

proposed rule (78 FR 27629), we 

proposed to implement a methodology 

for assessing the top quartile of 

applicable hospitals for HACs based on 

performance standards, where we 

would score each hospital based on 

whether they fall in the top quartile for 

each applicable measure and where in 

the top quartile they fall. In addition, we 

proposed to calculate a Total HAC Score 

for each hospital by summing the 

hospital’s performance score on each 

measure within a domain to determine 

a score for each domain, then 

multiplying each domain score by a 

proposed weight (Domain 1—AHRQ 

Patient Safety Indicators 50 percent, 

Domain 2—CDC NHSN Measures 50 

percent), and adding together the 

weighted domain scores to determine 

the Total HAC Score. 

We reviewed the public input on the 

proposed 75th percentile benchmark. 

Several commenters requested that a 

change to the proposed minimum 

benchmark for scoring each measure 

was necessary. We agreed with these 

commenters, and in the FY 2014 IPPS/ 

LTCH PPS final rule (78 FR 50722), we 

modified our proposal and established 

that the scoring will begin at the 

minimum value for each measure rather 

than the 75th percentile. The 

methodology finalized in the FY 2014 

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IPPS/LTCH PPS final rule will assess 

the top quartile of applicable hospitals 

for HACs based on the Total HAC Score. 

The support for Domain 2 measures in 

general, coupled with multiple 

recommendations, and specifically 

those from MedPAC, to provide more 

weight to Domain 2 measures led us to 

conclude that such scoring changes are 

necessary. Therefore, we finalized a 

different weight for each Domain than 

originally proposed (78 FR 50721). 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50722), we further specified 

that we will calculate a Total HAC Score 

for each hospital by using the hospital’s 

performance score on each measure 

within a domain to determine a score 

for each domain, then multiply each 

domain score by the following weights: 

Domain 1—(AHRQ PSI–90 composite 

measure), 35 percent; and Domain 2— 

(CDC NHSN measures), 65 percent; and 

combine the weighted domain scores to 

determine the Total HAC Score 

(§ 412.172(e)(3)). We use each hospital’s 

Total HAC Score to determine the top 

quartile of subsection (d) hospitals 

(applicable hospitals) that are subject to 

the payment adjustment beginning with 

discharges on or after October 1, 2014. 

With respect to a subsection (d) 

hospital, we identify the top quartile of 

all hospitals that are subsection (d) 

hospitals with respect to their rate of 

HACs during the applicable period 

(§ 412.172(e)(1)). We use a Total HAC 

Score to identify applicable hospitals 

and identify the 25 percent of hospitals 

with the highest Total HAC Scores as 

applicable hospitals (§ 412.172(e)(2)). 

We finalized the PSI–90 composite 

measure for Domain 1. Because 

hospitals may not have complete data 

for every AHRQ indicator in the 

composite measure for this Domain 1 

measure, we finalized the same 

methodology used for the Hospital VBP 

Program to determine the minimum 

number of indicators with complete 

data to be included in the calculation of 

the Domain measure. 

Additionally, we finalized the 

following rules to determine the number 

of AHRQ indicators to be included in 

the calculation for a hospital’s Domain 

1 score. In this discussion, ‘‘complete 

data’’ refers to whether a hospital has 

enough eligible discharges to calculate a 

rate for a measure. Complete data for the 

AHRQ PSI–90 composite measure 

means the hospital has three or more 

eligible discharges for at least one 

component indicator. Specifically— 

If a hospital does not have ‘‘complete 

data’’ for the PSI–90 composite, we will 

not calculate a Domain 1 score for that 

hospital. 

If a hospital has ‘‘complete data’’ for 

at least one indicator for the AHRQ PSI– 

90 composite, we will calculate a 

Domain 1 score. 

The calculation of the SIR for the CDC 

measures requires that the facility have 

a ≥ 1 predicted HAI event. The predicted 

number of events is calculated using the 

national HAI rate and the denominator 

counts (that is, number of device days, 

procedure days, or patient days 

depending on the HAI). In the event an 

SIR cannot be calculated because the 

facility has <1 predicted infection, 

Domain 1 scores exclusively will be 

used to calculate a HAC score. In other 

words, we will exclude from the overall 

HAC score calculation any measure for 

which an SIR cannot be calculated for 

the reason set out above. 

Because of the differences among the 

measures for the HAC Reduction 

Program and the distribution of measure 

results, simply adding up the measure 

results to calculate the domain or Total 

HAC Score will make the scores less 

meaningful to hospitals and the general 

public. As a result, as we indicated in 

the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50720 through 50725), points 

will be assigned to hospitals’ 

performance for each measure. This 

approach aligns with the Hospital VBP 

Program for measuring hospital 

achievement. In particular, the Hospital 

VBP Program assigns up to 10 points for 

each measure based on a hospital’s 

performance result for that measure for 

a given time period. We note that, for 

the HAC Reduction Program, unlike the 

Hospital VBP Program where a higher 

score means better performance, the 

more points a hospital receives on a 

measure corresponds with a poorer 

score performance. For the HAC 

Reduction Program, we finalized use of 

a slightly different methodology for 

scoring points, depending on the 

specific measure (Table C in the FY 

2014 IPPS/LTCH PPS final rule (78 FR 

50723), which is also included below). 

Specifically— 

• For the AHRQ Patient Safety for 

Selected Condition (PSI–90) composite 

in Domain 1, point assignment will be 

based on a hospital’s score for the 

composite measure. 

• For the PSI–90 composite measure, 

1 to 10 points will be assigned to the 

hospital. 

• For the CDC NHSN measures in 

Domain 2, point assignment for each 

measure will be based on the SIR for 

that measure. 

• For each SIR, 1 to 10 points will be 

assigned to the hospital for each 

measure (CAUTI and CLABSI for FY 

2015). 

• The Domain 2 score will consist of 

the average of points assigned to the SIR 

(CAUTI and CLABSI for FY 2015). 

TABLE C—CALCULATION OF DOMAIN 1 AND 2 MEASURES FOR FY 2015 

Measure name Measure result Scenario Individual measure score 

(points) 

Domain 1 AHRQ PSI–90 *** ............... Weighted average of rates of component indicators.Composite value ................................ 1—10. 

Domain 2 CDC NHSN CAUTI 

CLABSI.

Standard Infection Ratio (SIR) .......... SIR ..................................................... 1—10 (refer to Figure 

A). 

*** These measure rates are risk-adjusted and reliability-adjusted. 

For all measures finalized for the HAC 

Reduction Program, we will use the 

following rules to determine the number 

of points assigned to a measure (78 FR 

50723 through 50725). Based on the 

distribution for PSI–90 rates for all the 

hospitals, we will divide the results into 

percentiles in increments of 10 with the 

lowest percentile ranges meaning better 

performance. Hospitals with PSI–90 

rates within the lowest tenth percentile 

will be given one point; those with PSI– 

90 rates within the second lowest 

percentile range (between the 11th and 

20th percentile) will be given 2 points, 

and so forth. 

FIGURE A—POINT ASSIGNMENT FOR

HOSPITAL A’S PSI–90 SCORE

If Hospital A’s PSI–90 rate 

falls into this percentile 

Then assign 

this number of 

points 

1st–10th ................................ 1 

11th–20th .............................. 2 

21st–30th .............................. 3 

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FIGURE A—POINT ASSIGNMENT FOR

HOSPITAL A’S PSI–90 SCORE— 

Continued 

If Hospital A’s PSI–90 rate 

falls into this percentile 

Then assign 

this number of 

points 

31st–40th .............................. 4 

41st–50th .............................. 5 

51st–60th .............................. 6 

61st–70th .............................. 7 

71st–80th .............................. 8 

81st–90th .............................. 9 

91st–100th ............................ 10 

For Domain 2, we will obtain measure 

results that hospitals submitted to the 

CDC NHSN for the Hospital IQR 

Program. The CDC NHSN HAI measures 

capture adverse events that occurred 

within intensive care units (ICUs), 

including pediatric and neonatal units. 

For the Hospital IQR Program, hospitals 

that elected to participate in the 

reporting program (that is, had an active 

IQR pledge), but did not have ICUs, can 

apply for an ICU waiver so that they 

will not be subject to the 2-percent 

payment reduction for nonsubmission 

of quality reporting data. 

In the FY 2014 IPPS/LTCH PPS final 

rule, we noted in the second quarter of 

2012, among the 3,321 IPPS hospitals 

with an active IQR pledge for data 

submission, 377 (or 10.1 percent) 

applied and received an ICU waiver. At 

the same time, 2,939 hospitals (88.5 

percent) of the IPPS hospitals did not 

have an ICU waiver and submitted data 

for the CDC HAI CLABSI measure, 

while 4 hospitals (0.1 percent) that had 

no ICU waiver failed to submit data to 

the NHSN. For the same quarter, of the 

3,321 IPPS hospitals with an active IQR 

pledge, 2,935 (88.4 percent) that did not 

have an ICU waiver submitted data for 

the CDC HAI CAUTI measure, whereas 

8 hospitals (0.2 percent) did not submit 

data. Because data availability for the 

two CDC HAI measures impact the score 

for Domain 2 and eventually the Total 

HAC Score, we aim to encourage 

hospitals with an ICU that did not 

submit data to begin data submission, 

and to reward hospitals that have 

already submitted data to continue data 

submission for all the CDC HAI 

measures. To this end, we finalized the 

following rules (Figure B in the FY 2014 

IPPS/LTCH PPS final rule (78 FR 

50724), which is included below): 

• If a hospital has an ICU waiver for 

the CDC HAI measures, we will use only 

the Domain 1 score to calculate its Total 

HAC Score. 

• If a hospital does not have an ICU 

waiver for a CDC HAI measure: 

Æ If the hospital does not submit data 

for the CDC HAI measures, we will 

assign 10 points to that measure for that 

hospital. 

Æ If the hospital does submit data for 

at least one CDC NHSN measure: 

D If there are ‘‘complete data’’ (that is, 

enough adverse events to calculate the 

SIR) for at least one measure, we will 

use those data to calculate a Domain 2 

score and use the hospital’s Domain 1 

and Domain 2 scores to calculate the 

Total HAC Score. 

D If there are not enough adverse 

events to calculate the SIR for any of the 

measures, we will use only the 

hospital’s Domain 1 score to calculate 

its Total HAC Score. 

BILLING CODE 4120–01–P 

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BILLING CODE 4120–01–C 

(1) Clarification of Finalized Measure 

Result Scoring for FY 2015 and 

Subsequent Years 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50723), we finalized for the 

HAC Reduction Program a scoring 

methodology that divides the measure 

results into percentiles in increments of 

10 and assigns points (1 to 10) in 

accordance with the percentile into 

which the hospital’s measure result 

falls. Our preliminary analysis of the 

measures showed that multiple 

hospitals had the same measure results, 

and that in certain instances, the 

number of hospitals with the same 

measure results exceeded the number of 

hospitals for their appropriate 

percentile. Consequently a few hospitals 

with the same measure results fall into 


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the next higher percentile. In these 

instances, we will assign the same point 

for all hospitals with the same measure 

results, and that point will be based on 

the prior or the lowest appropriate 

percentile. 

For example, if, for the CAUTI 

measure, 13 percent of hospitals have an 

SIR of 0, we will assign a point of 1 to 

all 13 percent of hospitals, even though, 

arguably, 10 percent of them fall into 

the first percentile, and 3 percent of the 

13 percent fall into the second 

percentile. Because each percentile 

range ideally represents 10 percent of 

hospitals, we will assign a point of 2 to 

the remaining 7 percent of hospitals in 

the second percentile because their SIR 

is larger than 0. We believe this is the 

most favorable method for scoring 

measure results for hospitals. We note 

that randomly assigning some hospitals 

with the same SIR a higher (for example, 

less favorable) score would be both 

arbitrary and capricious, which are 

prohibited by the Administrative 

Procedure Act. 

(2) Proposed Clarification of FY 2015 

Finalized Narrative of Rules To 

Calculate the Total HAC Score 

In the FY 2014 IPPS/LTCH PPS final 

rule, we finalized a series of rules to 

determine how to calculate the Domain 

2 score and ultimately the Total HAC 

Score when there were waivers for the 

collection of CDC NHSN HAI measures 

(78 FR 50723). We also illustrated and 

finalized these rules in Figure B of the 

final rule (78 FR 50724). We are 

proposing to clarify that the narrative 

for Figure B should also include ‘‘other 

waivers’’ that waive hospitals from 

collecting CDC HAI measure data. The 

clarified rules that we are proposing are 

as follows for the collection of CDC HAI 

measures: 

• If a hospital has an ICU waiver or 

other waiver for the CDC NHSN HAI 

measures, we will use only the Domain 

1 score to calculate its Total HAC Score. 

• If a hospital does not have an ICU 

waiver or other waiver for the CDC HAI 

measures: 

Æ If the hospital does not submit data 

for the CDC HAI measures, we will 

assign 10 points to that measure for that 

hospital. 

Æ If the hospital does submit data for 

at least one CDC NHSN measure: 

D If there are ‘‘complete data’’ (that is, 

enough adverse events to calculate the 

SIR) for at least one measure, we will 

use those data to calculate a Domain 2 

score and use the hospital’s Domain 1 

and Domain 2 scores to calculate the 

Total HAC Score. 

D If there are not enough adverse 

events to calculate the SIR for any of the 

measures, we will use only the 

hospital’s Domain 1 score to calculate 

its Total HAC Score. 

As discussed earlier, if a hospital has 

enough data to calculate the PSI–90 

composite score for Domain 1 and 

‘‘complete data’’ for at least one measure 

in Domain 2, the scores of the two 

domains will contribute to the Total 

HAC Score at 35 percent for Domain 1 

and 65 percent for Domain 2. However, 

if a hospital does not have enough data 

to calculate the PSI–90 composite score 

for Domain 1 but it has ‘‘complete data’’ 

for at least one measure in Domain 2, its 

Total HAC Score will depend entirely 

on its Domain 2 score. Similarly, if a 

hospital has ‘‘complete data’’ to 

calculate the PSI–90 composite score in 

Domain 1 but none of the measures in 

Domain 2, its Total HAC Score will be 

based entirely on its Domain 1 score. If 

the hospital does not have ‘‘complete 

data’’ to calculate the PSI–90 composite 

score for Domain 1 or any of the 

measures in Domain 2, we will not 

calculate a Total HAC Score for this 

hospital. 

e. Reporting Hospital-Specific 

Information, Including the Review and 

Correction of Information 

(1) Confidential Reports to Applicable 

Hospitals 

Section 1886(p)(5) of the Act requires 

the Secretary to provide confidential 

reports to the applicable hospitals with 

respect to HACs. To meet the 

requirements under section 1886(p)(5) 

of the Act, in the FY 2014 IPPS/LTCH 

PPS final rule, we finalized the 

provision of confidential reports for the 

HAC Reduction Program to include 

information related to claims-based 

measure data for the PSI measures, the 

domain score for each domain, and the 

Total HAC Score (78 FR 50725). We 

noted that we use chart-abstracted 

measures in the HAC Reduction 

Program, and such information will be 

contained in the reports hospitals 

currently receive as part of the Hospital 

IQR Program and can be reviewed and 

corrected through the process specified 

for that program. We stated that we 

believe that this method would reduce 

the burden on hospitals, by alleviating 

the need to correct data present in two 

different programs. 

(2) Availability of Information to the 

Public 

Section 1886(p)(6)(A) of the Act 

requires the Secretary to ‘‘make 

information available to the public 

regarding HAC rates of each subsection 

(d) hospital’’ under the HAC Reduction 

Program. Section 1886(p)(6)(C) of the 

Act requires the Secretary to post the 

HAC information for each applicable 

hospital on the Hospital Compare Web 

site in an easily understood format. 

Section 1886(p)(6)(B) of the Act also 

requires the Secretary to ‘‘ensure that an 

applicable hospital has the opportunity 

to review, and submit corrections for, 

the HAC information to be made public 

for each hospital.’’ 

To meet the requirements under 

section 1886(p)(6)(C) of the Act, in the 

FY 2014 IPPS/LTCH PPS final rule, we 

finalized policies that the following 

information will be made public on the 

Hospital Compare Web site relating to 

the HAC Reduction Program: (1) 

Hospital scores with respect to each 

measure; (2) each hospital’s domain 

specific score; and (3) the hospital’s 

Total HAC Score (78 FR 50725). 

(3) Review and Correction of 

Information 

Section 1886(p)(6)(B) of the Act 

requires the Secretary to ensure that 

each hospital has the opportunity to 

review and submit corrections for the 

information to be made available to the 

public with respect to each hospital 

under section 1886(p)(6)(A) of the Act 

prior to such information being made 

available to the public. 

In the FY 2014 IPPS/LTCH PPS final 

rule, we codified the reporting of 

hospital-specific information at 

§ 412.172(f) (78 FR 50968), in which 

CMS will make information available to 

the public regarding HAC rates of all 

hospitals described in section 

1886(d)(1)(B) of the Act, including 

hospitals in Maryland paid under 

section 1814(b)(3) of the Act, under the 

HAC Reduction Program (paragraph (f)). 

As noted in section IV.J.3.b.(2) of the 

preamble of this proposed rule, in order 

to implement the new Maryland AllPayer Model, Maryland elected to no 

longer have Medicare pay Maryland 

hospitals in accordance with section 

1814(b)(3) of the Act, effective January 

1, 2014. 

In summary, we established that CMS 

will provide each hospital with 

confidential hospital-specific reports 

and discharge level information used in 

the calculation of its Total HAC Score 

(paragraph (f)(1) of § 412.172). Hospitals 

will have a period of 30 days after 

receipt of the information provided 

under paragraph (f)(1) to review and 

submit corrections for the hospitalacquired conditions domain score for 

each condition that is used to calculate 

the Total HAC Score for the fiscal year. 

The administrative claims data used to 

calculate a hospital’s Total HAC Score 

for those conditions for a fiscal year will 

not be subject to review and correction 

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(paragraph (f)(2)). CMS will post the 

Total HAC Score for the applicable 

conditions for a fiscal year for each 

applicable hospital on the Hospital 

Compare Web site. We refer readers to 

the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50725 through 50728) for 

detailed discussions of the above 

provisions. 

(4) Preliminary Analysis of the HAC 

Reduction Program 

In order to model estimated payment 

changes for this FY 2015 IPPS/LTCH 

PPS proposed rule, we conducted a 

preliminary analysis of the HAC 

Reduction Program using currently 

available historical data as a proxy for 

the actual data that will be used to 

determine hospital performance under 

the program. The results of this 

preliminary analysis can be found on 

the CMS Web site at: http://

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

AcuteInpatientPPS/index.html under 

the FY 2015 IPPS Proposed Rule Home 

Page link as Table 17.—FY 2015 

Preliminary Analysis of the HospitalAcquired Condition Reduction Program. 

When the actual data for the 

performance periods finalized in the FY 

2014 IPPS/LTCH PPS rule for each 

measure are available, hospitals will 

have an opportunity to review and 

submit corrections as discussed in 

section IV.J.3.e.(3) of the preamble of 

this proposed rule. 

f. Limitation on Administrative and 

Judicial Review 

Section 1886(p)(7) of the Act provides 

that there will be no administrative or 

judicial review under Section 1869 of 

the Act, under Section 1878 of the Act, 

or otherwise for any of the following: 

• The criteria describing an 

applicable hospital under section 

1886(p)(2)(A) of the Act. 

• The specification of hospital 

acquired conditions under section 

1886(p)(3) of the Act. 

• The specification of the applicable 

period under section 1886(p)(4) of the 

Act. 

• The provision of reports to 

applicable hospitals under section 

1886(p)(5) of the Act. 

• The information made available to 

the public under section 1886(p)(6) of 

the Act. 

In the FY 2014 IPPS/LTCH PPS final 

rule, we included these statutory 

provisions under § 412.172(g) of the 

regulations (78 FR 50729 and 50968). 

We note that section 1886(p)(6) of the 

Act requires the Secretary to make 

information available to the public 

regarding HAC scores of each applicable 

hospital under the HAC Reduction 

Program. Section 1886(p)(6)(B) of the 

Act also requires the Secretary to ensure 

that an applicable hospital has the 

opportunity to review, and submit 

corrections for, the information to be 

made available to the public, prior to 

that information being made public. We 

believe that the review and correction 

process explained above in section 

IV.I.3.e. of the preamble of this 

proposed rule will provide hospitals 

with the opportunity to correct data 

prior to its release on the Hospital 

Compare Web site. 

4. Proposed Maintenance of Technical 

Specifications for Quality Measures 

Technical specifications of the HAC 

measures for the Agency for Health 

Research and Quality (AHRQ) Patient 

Safety Indicator 90 (PSI–90) in Domain 

1 can be found at AHRQ’s Web site at: 

http://qualityindicators.ahrq.gov/

Modules/PSI_TechSpec.aspx. Technical 

specifications for the CDC NHSN’s HAI 

measures in Domain 2 can be found at 

CDC’s NHSN Web site at: http://

www.cdc.gov/nhsn/acute-care-hospital/

index.html. Both Web sites provide 

measure updates and other information 

necessary to guide hospitals 

participating in the collection of HAC 

Reduction Program data. 

Many of the quality measures used in 

different Medicare and Medicaid 

reporting programs are NQF-endorsed. 

As part of its regular maintenance 

process for NQF-endorsed performance 

measures, the NQF requires measure 

stewards to submit annual measure 

maintenance updates and undergo 

maintenance of endorsement review 

every 3 years. In the measure 

maintenance process, the measure 

steward (owner/developer) is 

responsible for updating and 

maintaining the currency and relevance 

of the measure and will confirm existing 

or minor specification changes with 

NQF on an annual basis. NQF solicits 

information from measure stewards for 

annual reviews, and it reviews measures 

for continued endorsement in a specific 

3-year cycle. 

We note that NQF’s annual or 

triennial maintenance processes for 

endorsed measures may result in the 

NQF requiring updates to the measures. 

We believe that it is important to have 

in place a subregulatory process to 

incorporate nonsubstantive updates 

required by the NQF into the measure 

specifications we have adopted for the 

HAC Reduction Program, so that these 

measures remain up-to-date. 

For the HAC Reduction Program, we 

are proposing to follow the finalized 

processes outlined for addressing 

changes to adopted measures in the 

Hospital IQR Program ‘‘Maintenance of 

Technical Specifications for Quality 

Measures’’ section found in section 

IX.A.1.b. of the preamble of this 

proposed rule. 

We believe this proposal adequately 

balances our need to incorporate 

updates to HAC Reduction Program 

measures in the most expeditious 

manner possible while preserving the 

public’s ability to comment on updates 

that so fundamentally change an 

endorsed measure that it is no longer 

the same measure that we originally 

adopted. We invite public comments on 

this proposal. 

5. Extraordinary Circumstances 

Exceptions/Exemptions 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50711), we indicated that we 

had received public comments 

requesting a potential waiver or 

exemption process for hospitals located 

in areas that experience disasters or 

other extraordinary circumstances (EC), 

even though we did not propose an 

extraordinary circumstance exceptions/

exemptions (ECE) policy for the HAC 

Reduction Program. We stated in the FY 

2014 IPPS/LTCH PPS final rule that we 

were reviewing this issue and might 

consider such a proposal in future 

rulemaking. We also noted that should 

we consider a policy we intend to focus 

on several policy and operational 

considerations in developing a disaster 

exemption process for the HAC 

Reduction Program. We welcome public 

comments on whether an exemption 

process should be implemented and the 

policy and operational considerations 

for a potential HAC Reduction Program 

ECE policy. 

6. Implementation of the HAC 

Reduction Program for FY 2016 

a. Measure Selection and Conditions, 

Including a Risk-Adjustment Scoring 

Methodology 

(1) General Selection of Measures 

In the FY 2014 IPPS/LTCH PPS final 

rule, we finalized measures for FY 2015 

and onwards, but only finalized a 

scoring methodology for FY 2015 for the 

HAC Reduction Program (78 FR 50712 

through 50713). We are not proposing 

any new additional measures for the 

HAC Reduction Program for FY 2016 in 

this proposed rule. We note that 

AHRQ’s PSI–90 Composite measure and 

CDC’s NHSN CLABSI (NQF #0138) and 

CAUTI (NQF #0139) measures were 

submitted in January 2014 and 

December 2013, respectively, as part of 

the NQF maintenance endorsement 

process. As noted in the FY 2014 IPPS/ 

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LTCH PPS final rule (78 FR 50719), 

should changes to the risk-adjustment 

models for the measures be adopted 

during NQF endorsement maintenance 

processes, CMS will adopt these 

changes as soon as possible. Finally, 

although we are not required under 

section 1886(p) of the Act to address 

specific measure scoring methodologies 

regarding the HAC Reduction Program 

in notice-and-comment rulemaking, as 

required under the Hospital VBP 

Program, we believe that it is important 

to set forth such scoring methodologies 

for each individual HAC measure, in 

order for the public to understand how 

the measures discussed and finalized in 

this year’s rulemaking relate to the 

performance methodology used to 

determine the applicable hospitals 

subject to the payment adjustment 

under the HAC Reduction Program. 

(2) Measure Selection and Scoring 

Methodology for FY 2016 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50713), we finalized for FY 

2016 and onwards CDC’s NHSN 

Surgical Site Infection measure (NQF 

#0753) and its measure methodology. 

The SSI and other measure 

specifications are available at: http://

www.qualityforum.org/QPS/

QPSTool.aspx. To locate a specific 

measure, search by the NQF number: (1) 

for the SSI measure use NQF #0753; (2) 

for the CLABSI measure use NQF #0139; 

and (3) for the CAUTI measure use NQF 

#0138. For SSI updates related to CMS 

programs and the use of CDC’s NHSN 

measures, we refer readers to the Web 

site at: http://www.cdc.gov/nhsn/acutecare-hospital/ssi. The SSI measure 

explanation of SIR in the NHSN enewsletter is available at: http://

www.cdc.gov/nhsn/PDFs/Newsletters/

NHSN_NL_OCT_2010SE_final.pdf. 

CDC’s SSI measure was finalized as a 

Domain 2 measure in the calculation of 

the Total HAC Score. We are not 

proposing to change CDC’s measure 

methodology for the SSI measure. 

b. Measure Risk-Adjustment 

In the FY 2014 IPPS/LTCH PPS final 

rule, we finalized the measure riskadjustment for AHRQ’s PSI–90 

Composite for Domain 1 and the riskadjustment for CDC’s NHSN measures 

for Domain 2. In this proposed rule, we 

are not proposing any risk-adjustment 

changes for any of the measures 

finalized in the FY 2014 IPPS/LTCH 

PPS final rule (78 FR 50718 through 

50719). 

c. Measure Calculations 

In the FY 2014 IPPS/LTCH PPS final 

rule, we finalized the measure 

calculations for AHRQ’s PSI–90 

Composite measure for Domain 1 and 

the measure calculations for CDC’s 

NHSN measures for Domain 2. In this 

proposed rule, we are not proposing any 

measure calculation changes for any of 

the measures finalized in the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50718 

through 50719). 

d. Applicable Time Period 

In the FY 2014 IPPS/LTCH PPS final 

rule, we finalized and codified policy at 

§ 412.170 that there will be a 2-year 

applicable time period to collect data 

used to calculate the Total HAC Score 

(78 FR 50717). 

For the Domain 1 AHRQ PSI–90 

Composite measure, we are proposing 

for FY 2016 a 24-month period from 

July 1, 2012 through June 30, 2014 as 

the applicable time period. The claims 

for all Medicare FFS beneficiaries 

discharged during this period would be 

included in the calculation of measure 

results for FY 2016. This includes 

claims data from the 2012, 2013, and 

2014 Inpatient Standard Analytic Files 

(SAFs). 

The Domain 2 CDC NHSN measures 

(CAUTI, CLABSI, and SSI) are currently 

collected and calculated on a quarterly 

basis. However, for the purpose of the 

HAC Reduction Program, we will use 2 

years of data to calculate the Domain 2 

score. For FY 2016, we are proposing to 

use calendar years 2013 and 2014 for all 

three Domain 2 measures in the HAC 

Reduction Program. 

e. Criteria for Applicable Hospitals and 

Performance Scoring 

For FY 2016, we are proposing a 

change to the scoring methodology of 

the Total HAC Score. This proposal is 

intended to address the implementation 

of CDC’s NHSN SSI measure in Domain 

2 finalized for implementation in FY 

2016. 

(1) Finalized Scoring Methodology for 

Domains 1 and 2 for FY 2015 

We finalized a scoring methodology 

for the Total HAC Score in the FY 2014 

IPPS/LTCH PPS final rule (78 FR 

50722). This finalized scoring 

methodology is similar to the 

achievement scoring methodology 

currently used under the Hospital VBP 

Program. With respect to an applicable 

hospital, we finalized that CMS will 

identify the top quartile of all hospitals 

with respect to their Total HAC Score 

during the applicable period (§ 412.170). 

In addition, we finalized that the Total 

HAC Score will be determined by the 

following three steps: (1) Each measure 

result will be scored as outlined in the 

FY 2014 IPPS/LTCH PPS final rule (78 

FR 50723); (2) Domain scores will be 

determined by the scores assigned to the 

measures within the domain; and (3) the 

Total HAC Score will be determined by 

the sum of the weighted domains. For 

FY 2015, the Total HAC Score is the 

sum of the Domain 1 score multiplied 

by 35 percent plus the Domain 2 score 

multiplied by 65 percent. For further 

details of the general scoring 

methodology finalized for the HAC 

Reduction Program, we refer readers to 

the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50719 through 50725). 

(2) Proposed Scoring Methodology of 

Domain 2 and New Weighting of 

Domains 1 and 2 for FY 2016 

We are proposing to adjust the scoring 

methodology of Domain 2 and the 

weighting of Domains 1 and 2 beginning 

in FY 2016 due to the addition of CDC’s 

NHSN SSI measure. For the scoring of 

CDC’s NHSN SSI measure, we are 

proposing an identical process of 

assigning points to the SSI measure 

results. We note that the SSI measure, 

reported via CDC’s NHSN, is currently 

specified under the Hospital IQR 

program and is restricted to colon 

procedures (including incision, 

resection or anastomosis of the large 

intestine and large-to-small and smallto-large bowel anastomosis), and 

abdominal hysterectomy procedures 

including those performed by 

laparoscope. The SSI measure assesses 

SSIs based on the type of surgery 

procedures (that is, the SSI measure is 

stratified into infections that occur with 

colonic procedures and those that occur 

in abdominal hysterectomy procedures). 

We also note that patient age and a 

preoperative health score are risk factors 

taken into account using the 

Standardized Infection Ratio (SIR) (78 

FR 20625). Use of an SIR is consistent 

with CDC’s NHSN CLABSI and CAUTI 

measures that also report SIRs. In order 

to calculate an SSI measure score for 

Domain 2, we are proposing to calculate 

an abdominal hysterectomy procedure 

SSI SIR and a colonic procedure SSI SIR 

and pool both SIRs for each hospital. 

We are proposing pooling the 

abdominal hysterectomy SSI SIR and 

colonic procedure SSI SIR as this would 

provide a single SSI SIR, which is 

consistent with reporting a single SSI 

SIR as meant by design of the NQF 

endorsed measure (NQF #0753), and 

would allow a risk-adjusted weighting 

of the surgical volume among the two 

procedures. We are proposing that a 

pooled SSI SIR for an applicable 

hospital is the sum of all observed 

infections among abdominal 

hysterectomy and colonic procedures 

divided by the sum of all predicted 

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infections among abdominal 

hysterectomy and colonic procedures 

performed at the applicable hospital. 

The pooled SSI SIR would be scored in 

the same manner as all measures 

finalized for the HAC Reduction 

Program (refer to Figure A in the FY 

2014 IPPS/LTCH PPS final rule (78 FR 

50723), which is also included above in 

this proposed rule). To determine a 

Domain 2 score, we are proposing taking 

the average of the three CDC HAI SIR 

scores. We noted in the FY 2014 IPPS/ 

LTCH PPS final rule that there will be 

instances in which applicable hospitals 

may not have data on all four measures 

and therefore a set of rules was finalized 

to determine how to score each Domain. 

We are proposing to follow the same 

finalized rules used to determine 

scoring of Domains 1 and 2 (FY 2014 

IPPS/LTCH PPS final rule (78 FR 50723 

through 50725)0 and the proposed 

changes in section IV.I.6.b. of this 

proposed rule. We invite public 

comments on this proposal. 

In addition, for FY 2016 we are 

proposing to weight Domain 1 at 25 

percent, and Domain 2 at 75 percent. 

We are proposing to decrease Domain 

1’s weight from 35 percent to 25 percent 

for two reasons. First, with the 

implementation of CDC’s SSI measure, 

we believe the weighting of both 

domains needs to be adjusted to reflect 

the addition of a fourth measure; and 

second, in keeping with public 

comments from the FY 2014 IPPS/LTCH 

PPS final rule, MedPAC and others 

stated that Domain 2 should be 

weighted more than Domain 1. Finally, 

the Total HAC Score for applicable 

hospitals would be the sum of the 

weighted scores from Domain 1 

(weighted at 25 percent) and Domain 2 

(weighted at 75 percent). We invite 

public comments on this proposal. 

f. Proposed Rules To Calculate the Total 

HAC Score for FY 2016 

We are proposing to adopt the 

‘‘Proposed Clarification of FY 2015 

Finalized Narrative of Rules to Calculate 

the Total HAC Score’’ as discussed in 

section IV.I.3.e. of the preamble of this 

proposed rule. We invite public 

comments on this proposal. 

7. Future Considerations for the Use of 

Electronically Specified Measures 

We believe that collection and 

reporting of data through health 

information technology will greatly 

simplify and streamline reporting for 

many CMS quality reporting programs. 

Through electronic reporting, hospitals 

will be able to leverage EHRs to capture, 

calculate, and electronically submit 

quality data submitted to CMS for the 

Hospital IQR Program. CMS has become 

aware of some hospitals and health 

systems that have developed or adopted 

a methodology to identify and measure 

all-cause harm through their electronic 

health record (EHR) systems. Some 

hospitals and health systems are able to 

use the results of these electronic 

measures to address adverse events at 

the point of care and to track 

improvement over time. Many of these 

measures capture a broad range of 

common hospital-acquired conditions 

that may not be captured by existing 

national measures (examples include 

measures of adverse drug events and 

hypoglycemia). Given that these 

measures are captured using clinical 

data from EHR systems, collection of 

HAC data will allow CMS to align 

measures across multiple settings. 

We are seeking comment as to 

whether the use of a standardized 

electronic composite measure of allcause harm should be used in the HAC 

reduction program in future years in 

addition to, or in place of, claims-based 

measures assessing HACs. We welcome 

any suggestions of specific all-cause 

harm electronic measures, including 

detailed measure specifications. 

Specifically, we invite public comments 

on the feasibility and the perceived 

value of such a measure, and what 

would be the most appropriate 

weighting of this measure in the Total 

HAC Performance Score. In addition, we 

are requesting suggestions on the 

timeframe for which such standardized 

electronic composite measure of allcause harm should be proposed. 

We intend for the future direction of 

electronic quality measure reporting to 

significantly enhance the tracking of 

HACs under the HAC Reduction 

Program. We will continue to work with 

measure stewards and developers to 

develop new measure concepts, and 

conduct pilot, reliability and validity 

testing as part of efforts to promote the 

adoption of Certified Electronic Health 

Record Technology in hospitals. 

K. Payments for Indirect and Direct 

Graduate Medical Education (GME) 

Costs (§§ 412.105 and 413.75 Through 

413.83) 

1. Background 

Section 1886(h) of the Act, as added 

by section 9202 of the Consolidated 

Omnibus Budget Reconciliation Act 

(COBRA) of 1985 (Pub. L. 99–272) and 

as currently implemented in the 

regulations at 42 CFR 413.75 through 

413.83, establishes a methodology for 

determining payments to hospitals for 

the direct costs of approved graduate 

medical education (GME) programs. 

Section 1886(h)(2) of the Act sets forth 

a methodology for the determination of 

a hospital-specific base-period per 

resident amount (PRA) that is calculated 

by dividing a hospital’s allowable direct 

costs of GME in a base period by its 

number of full-time equivalent (FTE) 

residents in the base period. The base 

period is, for most hospitals, the 

hospital’s cost reporting period 

beginning in FY 1984 (that is, October 

1, 1983 through September 30, 1984). 

The base year PRA is updated annually 

for inflation. In general, Medicare direct 

GME payments are calculated by 

multiplying the hospital’s updated PRA 

by the weighted number of FTE 

residents working in all areas of the 

hospital complex (and at nonprovider 

sites, when applicable), and the 

hospital’s Medicare share of total 

inpatient days. 

Section 1886(d)(5)(B) of the Act 

provides for a payment adjustment 

known as the indirect medical 

education (IME) adjustment under the 

hospital inpatient prospective payment 

system (IPPS) for hospitals that have 

residents in an approved GME program, 

in order to account for the higher 

indirect patient care costs of teaching 

hospitals relative to nonteaching 

hospitals. The regulations regarding the 

calculation of this additional payment 

are located at 42 CFR 412.105. The 

hospital’s IME adjustment applied to the 

DRG payments is calculated based on 

the ratio of the hospital’s number of FTE 

residents training in either the inpatient 

or outpatient departments of the IPPS 

hospital to the number of inpatient 

hospital beds. 

The calculation of both direct GME 

and IME payments is affected by the 

number of FTE residents that a hospital 

is allowed to count. Generally, the 

greater the number of FTE residents a 

hospital counts, the greater the amount 

of Medicare direct GME and IME 

payments the hospital will receive. 

Therefore, Congress, through the 

Balanced Budget Act of 1997 (Pub. L. 

105–33), established a limit on the 

number of allopathic and osteopathic 

residents that a hospital may include in 

its FTE resident count for direct GME 

and IME payment purposes. Under 

section 1886(h)(4)(F) of the Act, for cost 

reporting periods beginning on or after 

October 1, 1997, a hospital’s 

unweighted FTE count of residents for 

purposes of direct GME may not exceed 

the hospital’s unweighted FTE count for 

direct GME in its most recent cost 

reporting period ending on or before 

December 31, 1996. Under section 

1886(d)(5)(B)(v) of the Act, a similar 

limit based on the FTE count for IME 

during that cost reporting period is 

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applied effective for discharges 

occurring on or after October 1, 1997. 

Dental and podiatric residents are not 

included in this statutorily mandated 

cap. 

The Affordable Care Act made a 

number of statutory changes relating to 

the determination of a hospital’s FTE 

resident count for direct GME and IME 

payment purposes and the manner in 

which FTE resident limits are calculated 

and applied to hospitals under certain 

circumstances. Regulations 

implementing these changes are 

discussed in the November 24, 2010 

final rule (75 FR 72133) and the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53416). 

2. Proposed Changes in the Effective 

Date of the FTE Resident Cap, 3-Year 

Rolling Average, and Intern- and 

Resident-to-Bed (IRB) Ratio Cap for New 

Programs in Teaching Hospitals 

Section 1886(h)(4)(H)(i) of the Act 

requires the Secretary to establish rules 

for calculating the direct GME caps for 

new teaching hospitals that are training 

residents in new medical residency 

training programs established on or after 

January 1, 1995. Under section 

1886(d)(5)(B)(viii) of the Act, such rules 

also apply to the establishment of a 

hospital’s IME cap on the number of 

FTE residents training in new programs. 

We implemented these statutory 

requirements in rules published in the 

August 29, 1997 Federal Register (62 FR 

46002 through 46008) and in the May 

12, 1998 Federal Register (63 FR 26323 

through 26325 and 26327 through 

26336). Generally, under existing 

regulations at 42 CFR 413.79(e)(1) (for 

direct GME) and 42 CFR 

412.105(f)(1)(vii) (for IME), if a hospital 

did not train any allopathic or 

osteopathic residents in its most recent 

cost reporting period ending on or 

before December 31, 1996, and it begins 

to participate in training residents in a 

new medical residency training program 

(allopathic or osteopathic) on or after 

January 1, 1995, the hospital’s 

unweighted FTE resident cap (which 

would otherwise be zero) may be 

adjusted based on the sum of the 

product of the highest number of FTE 

residents in any program year during 

the third year of the first new program’s 

existence, for each new residency 

training programs established during 

that 3-year period, and the minimum 

accredited length for each type of 

program. The number of FTE resident 

cap slots that a teaching hospital 

receives for each new program may not 

exceed the number of accredited slots 

that are available for each new program. 

Once a hospital’s FTE resident cap is 

established, no subsequent cap 

adjustments may be made for new 

programs, unless the teaching hospital 

is a rural hospital. A rural hospital’s 

FTE resident caps may be adjusted for 

participation in subsequent new 

residency training programs. A hospital 

that did not train any allopathic or 

osteopathic residents in its most recent 

cost reporting period ending on or 

before December 31, 1996, may only 

receive a permanent FTE resident cap 

adjustment for training residents in a 

truly ‘‘new’’ residency training program; 

no permanent cap adjustment would be 

given for training residents associated 

with an existing program. That is, if a 

hospital that did not train any allopathic 

or osteopathic residents in its most 

recent cost reporting period ending on 

or before December 31, 1996, serves as 

a training site for residents in a program 

that exists or existed previously at 

another teaching hospital that remains 

open, that ‘‘new’’ teaching hospital does 

not receive a ‘‘new program’’ cap 

adjustment because it is not 

participating in training residents in a 

truly ‘‘new’’ program. However, it may 

be possible for that ‘‘new’’ teaching 

hospital to receive a temporary cap 

adjustment if it enters into a Medicare 

GME affiliation agreement with the 

existing teaching hospital as specified at 

§ 413.79(f) (for direct GME) and 

§ 412.105(f)(1)(vi) (for IME). (For a 

detailed discussion of the distinctions 

between a new medical residency 

training program and an existing 

medical residency training program, we 

refer readers to the August 27, 2009 

final rule (74 FR 43908 through 43920). 

For a detailed discussion regarding 

participation in Medicare GME 

affiliation agreements, we refer readers 

to 74 FR 43574.) 

For new programs started prior to 

October 1, 2012, hospitals that did not 

yet have an FTE resident cap 

established had a ‘‘3-year window’’ in 

which to participate in and ‘‘grow’’ new 

programs, before the FTE resident caps 

for IME and direct GME were 

permanently set for the hospital 

beginning with the fourth program year 

of the first new program start. In the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53415 through 53425), we revised the 

regulations at § 413.79(e) to increase the 

cap-building period for new programs 

from 3 years to 5 years. That is, for a 

hospital that did not yet have an FTE 

resident cap established, the hospital’s 

FTE resident cap is effective beginning 

with the sixth program year of the first 

new program’s existence. This revised 

policy is effective for urban hospitals 

that first begin to participate in training 

residents in their first new program on 

or after October 1, 2012, and for rural 

hospitals that start a new program on or 

after October 1, 2012. In that final rule, 

we also finalized a methodology used to 

calculate a cap adjustment for an 

individual hospital if residents in a new 

program rotate to more than one 

hospital (or hospitals). The methodology 

is based on the sum of the products of 

the following three factors: (1) The 

highest total number of FTE residents 

trained in any program year, during the 

fifth year of the first new program’s 

existence at all of the hospitals to which 

the residents in that program rotate; (2) 

the number of years in which residents 

are expected to complete the program, 

based on the minimum accredited 

length for each type of program; and (3) 

the ratio of the number of FTE residents 

in the new program that trained at the 

hospital over the entire 5-year period to 

the total number of FTE residents that 

trained at all hospitals over the entire 5- 

year period. Finally, we made minor 

revisions to the regulation text at 

§§ 413.79(e)(2) through (e)(4) for 

purposes of maintaining consistency 

throughout § 413.79(e). We refer readers 

to the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53415 through 53425) for 

further details regarding the 

methodology for calculating the FTE 

resident caps. 

While the FY 2013 IPPS/LTCH PPS 

final rule discussed the methodology for 

calculating the FTE resident caps to be 

effective beginning with the sixth 

program year of the first new program’s 

existence, for hospitals that do not yet 

have FTE resident caps established, that 

final rule did not discuss when the 3- 

year rolling average for IME and direct 

GME or the intern- and resident-to-bed 

(IRB) ratio cap for IME is effective for 

FTE residents training in new programs. 

The regulations regarding the 3-year 

rolling average and the IRB ratio cap 

with respect to new medical residency 

training programs were established in 

the following Federal Register rules: the 

FY 1998 IPPS final rule with comment 

period (62 FR 46002 through 46008); the 

May 12, 1998 final rule (63 FR 26323 

through 26325 and 26327 through 

26336); FY 2000 IPPS final rule (64 FR 

41518 through 41523); and the FY 2002 

IPPS final rule (66 FR 39878 through 

39883). Specifically, the regulations at 

§ 412.105(f)(1)(v) regarding the 3-year 

rolling average and new medical 

residency training programs for IME 

state: ‘‘If a hospital qualified for an 

adjustment to the limit established 

under paragraph (f)(1)(iv) of this section 

for new medical residency programs 

created under paragraph (f)(1)(vii) of 

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this section, the count of residents 

participating in new medical residency 

training programs above the number 

included in the hospital’s FTE count for 

the cost reporting period ending during 

calendar year 1996 is added after 

applying the averaging rules in this 

paragraph (f)(l)(v) for a period of years. 

Residents participating in new medical 

residency training programs are 

included in the hospital’s FTE count 

before applying the averaging rules after 

the period of years has expired. For 

purposes of this paragraph, for each new 

program started, the period of years 

equals the minimum accredited length 

for each new program. The period of 

years for each new program begins 

when the first resident begins training 

in each new program.’’ In addition, the 

regulations for the interaction of the IRB 

ratio cap and new medical residency 

training programs for IME at 

§ 412.105(a)(1)(ii) state: ‘‘The exception 

for new programs described in 

paragraph (f)(1)(vii) of this section 

applies to each new program 

individually for which the full-time 

equivalent cap may be adjusted based 

on the period of years equal to the 

minimum accredited length of each new 

program.’’ 

The regulations at § 413.79(d)(5) 

regarding the interplay of the 3-year 

rolling average with new medical 

residency training programs for direct 

GME similarly state: ‘‘If a hospital 

qualifies for an adjustment to the limit 

established under paragraph (c)(2) of 

this section for new medical residency 

programs created under paragraph (e) of 

this section, the count of the residents 

participating in new medical residency 

training programs above the number 

included in the hospital’s FTE count for 

the cost reporting period ending during 

calendar year 1996 is added after 

applying the averaging rules in this 

paragraph (d), for a period of years. 

Residents participating in new medical 

residency training programs are 

included in the hospital’s FTE count 

before applying the averaging rules after 

the period of years has expired. For 

purposes of this paragraph (d), for each 

new program started, the period of years 

equals the minimum accredited length 

for each new program. The period of 

years begins when the first resident 

begins training in each new program.’’ 

Therefore, the FTE resident caps for 

IME and direct GME are always effective 

beginning with the start of the sixth 

program year of the first new program 

started for urban hospitals that do not 

yet have FTE resident caps established 

(§ 413.79(e)(1)(iii)), and for rural 

hospitals, beginning with the start of the 

sixth program year of each new 

individual program started 

(§ 413.79(e)(3)), regardless of the fact 

that other new programs may have 

started after the start of the first new 

program. However, the timing of when 

the 3-year rolling average for IME and 

direct GME and the IRB ratio cap for 

IME are first applied is dependent upon 

the minimum accredited length of each 

new program started within the 5-year 

window. For example, new teaching 

Hospital A participates in training 

residents in new medical residency 

training programs for the first time 

beginning on July 1, 2013. On July 1, 

2013, Hospital A participates in training 

residents in a new family medicine 

program (minimum accredited length is 

3 years), on July 1, 2014, it also 

participates in training residents in a 

new sports medicine fellowship 

(minimum accredited length is 1 year), 

and on July 1, 2015, it also participates 

in training residents in a new general 

surgery program (minimum accredited 

length is 5 years). For the purpose of 

establishing Hospital A’s FTE resident 

caps, the 5-year growth window for 

Hospital A closes on June 30, 2018, and 

the IME and direct GME FTE resident 

caps for Hospital A are effective on July 

1, 2018, the beginning of the sixth 

program year of the first new program’s 

existence; that is, family medicine. 

However, the 3-year rolling average and 

the IRB ratio cap are effective at 

different points in time. Because the 

family medicine residency is 3 years in 

length, FTE residents in the new family 

medicine program are subject to the 3- 

year rolling average and the IRB ratio 

cap beginning on July 1, 2016. Because 

the sports medicine fellowship is a 1- 

year program, and it started on July 1, 

2014, the number of sports medicine 

FTE residents must be included in the 

3-year rolling average and is subject to 

the IRB ratio cap effective on July 1, 

2015. Lastly, the FTE residents in the 

new general surgery program would 

only be subject to the rolling average 

and the IRB ratio cap effective July 1, 

2020. The Medicare cost report 

worksheets on CMS Form 2552–10 for 

IME (Worksheet E, Part A) and for direct 

GME (Worksheet E–4) currently can 

accommodate reporting of FTE residents 

separately based on whether those FTE 

residents are in new medical residency 

training programs and are not subject to 

the FTE resident cap (line 16 of 

Worksheet E, Part A, and line 15 of 

Worksheet E–4). However, these cost 

report worksheets are not designed to 

accommodate reporting of FTE residents 

that are exempt from the FTE resident 

cap, but are subject to the rolling 

average and IRB ratio cap, because the 

‘‘period of years’’ equal to the minimum 

accredited length of each new program 

started has already expired. The reverse 

also may occur, as in the example above 

with the new general surgery program 

started by Hospital A, where the FTE 

resident caps are effective July 1, 2018, 

but the number of FTE residents in the 

general surgery program would not be 

subject to the rolling average or the IRB 

ratio cap until July 1, 2020. 

Complicating matters further is the fact 

that, while the effective dates of these 

policies associated with new medical 

residency training program FTE 

residents are effective on a program year 

basis (that is, July 1), many teaching 

hospitals do not have a fiscal year that 

begins on July 1. Therefore, under the 

existing policy, the number of FTE 

residents needs to be prorated, and 

special accommodations need to be 

made to calculate the portion of FTE 

residents that are subject to the FTE 

resident cap, the 3-year rolling average, 

and the IRB ratio cap for the respective 

portions of the hospital’s cost reporting 

period occurring on and after July 1. 

Integrating the rolling average, the IRB 

ratio cap, and the FTE resident caps for 

residents in new medical residency 

training programs in an accurate manner 

on the Medicare cost report has proved 

challenging to the point where we have 

had to deal with each instance brought 

to our attention by the new teaching 

hospital or by a Medicare contractor on 

an individual and manual basis (in 

order to ensure application of a 

consistent methodology). In fact, the 

Medicare cost report instructions direct 

the hospital to do the following: for 

CMS Form 2552–10, Worksheet E, Part 

A, line 10—‘‘. . . Contact your 

contractor for instructions on how to 

complete this line if you have a new 

program for which the period of years 

is less than or more than three years. 

. . .’’; for CMS Form 2552–10, 

Worksheet E–4, line 6—‘‘. . . Contact 

your contractor for instructions on how 

to complete this line if you have a new 

program for which the period of years 

is less than or greater than 3 years. . . .’’ 

The Medicare contractors, in turn, 

have been instructed to contact CMS for 

instructions on how to report the 

number of FTE residents that are still 

within the ‘‘period of years’’ of the new 

program. The ‘‘three years’’ referenced 

in the Form 2552–10 cost report 

instructions are based on the 3-year 

growth window for new medical 

residency training programs that is in 

effect for new programs started prior to 

October 1, 2012, when, within the 3- 

year growth window, new teaching 

hospitals also may have started new 

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medical residency training programs 

with different minimum accredited 

lengths. (We note that while the 

previous Form 2552–96 cost report did 

not include the same instructions, CMS 

did deal with the reporting of the 

number of FTE residents in new 

medical residency training programs on 

an individual basis when requests for 

assistance were brought to its attention.) 

However, these instructions also apply 

for new medical residency training 

programs started with different 

minimum accredited lengths on and 

after October 1, 2012. 

In this proposed rule, we are 

proposing to simplify and streamline 

the timing of when FTE residents in 

new medical residency training 

programs are subject to the FTE resident 

cap, the 3-year rolling average, and the 

IRB ratio cap, both for urban teaching 

hospitals that have not yet had FTE 

resident caps established under 

§ 413.79(e)(1) and for rural teaching 

hospitals that may or may not have FTE 

resident caps established under 

§ 413.79(e)(3). That is, we are proposing 

that the methodology for calculating the 

FTE resident caps for hospitals that 

participate in training residents in new 

medical residency training programs 

would continue to be the same 

methodology instituted in the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53415 

through 53425) for new medical 

residency training programs started on 

or after October 1, 2012, specified at 

§ 413.79(e)(1). However, once the FTE 

resident caps are calculated, we are 

proposing to change the timing of when 

the FTE resident caps would be 

effective, to synchronize the effective 

dates and the application of the 3-year 

rolling average and the IRB ratio cap 

with each applicable hospital’s fiscal 

year begin date. Specifically, we are 

proposing that the FTE resident caps 

would continue to be calculated as 

finalized in the FY 2013 IPPS/LTCH 

PPS final rule—the methodology is 

based on the sum of the products of the 

following three factors: (1) The highest 

total number of FTE residents trained in 

any program year, during the fifth year 

of the first new program’s existence at 

all of the hospitals to which the 

residents in that program rotate; (2) the 

number of years in which residents are 

expected to complete the program, 

based on the minimum accredited 

length for each type of program; and (3) 

the ratio of the number of FTE residents 

in the new program that trained at the 

hospital over the entire 5-year period to 

the total number of FTE residents that 

trained at all hospitals over the entire 5- 

year period. However, once calculated 

in this manner, we are proposing that, 

instead of the FTE resident caps being 

effective beginning with the sixth 

program year of the first new program 

start, those FTE resident caps, rolling 

average, and IRB ratio cap would be 

effective beginning with the applicable 

hospital’s cost reporting period that 

precedes the start of the sixth program 

year of the first new program started. 

Using the example of Hospital A that we 

presented earlier, assume Hospital A 

has a January 1 to December 31 cost 

reporting year. The first new program 

started, family medicine, was started on 

July 1, 2013. A sports medicine 

fellowship and a general surgery 

program also were started timely within 

the 5-year growth window. Hospital A 

has 5 program years to grow its FTE 

resident caps, from July 1, 2013 through 

June 30, 2018. The FTE resident caps 

would be calculated based on the 5 

program years in accordance with the 

methodology established at 

§ 413.79(e)(1) in the FY 2013 IPPS/

LTCH PPS final rule; therefore, the 

hospital would wait until after June 30, 

2018 to obtain the FTE counts to 

calculate the FTE resident caps. 

However, we are proposing that those 

IME and direct GME FTE resident caps, 

once calculated after June 30, 2018, 

instead of being effective on July 1, 

2018, would be effective at the 

beginning of Hospital A’s cost reporting 

period that precedes July 1, 2018; that 

is, the FTE resident caps for Hospital A 

would be effective permanently on 

January 1, 2018, the start of Hospital A’s 

cost reporting period that precedes the 

start of the sixth program year of the 

first new program started. The hospital 

could file its fiscal year end December 

31, 2018 cost report including the FTE 

resident caps applicable to the entire 

cost reporting period accordingly. 

As noted earlier, we are proposing 

that, for all new medical residency 

training programs in which the hospital 

participates during the 5-year growth 

window, the FTEs in those new 

programs also would be subject to the 3- 

year rolling average and the IRB ratio 

cap simultaneously with the effective 

date of the FTE resident caps, at the 

beginning of the applicable hospital’s 

cost reporting period that precedes the 

beginning of the sixth program year of 

the first new program started. Again, 

using the example of Hospital A that we 

presented earlier, the FTE residents in 

the family medicine program, the sports 

medicine fellowship, and the general 

surgery program would all be subject to 

the 3-year rolling average and IRB ratio 

cap beginning on January 1, 2018. With 

regard to reporting on the Medicare cost 

report, for Hospital A’s fiscal year end 

dates of December 31, 2013 through and 

including December 31, 2017, we are 

proposing that the number of FTE 

residents in the family medicine 

program, the sports medicine 

fellowship, and the general surgery 

program would be reported so as not to 

be included in the IME rolling average 

or the IRB ratio cap, and so as not to be 

included in the direct GME rolling 

average. (On the CMS Form 2552–10, for 

Hospital A’s fiscal year end dates of 

December 31, 2013 through and 

including December 31, 2017, this 

means that the number of FTE residents 

in the family medicine program, the 

sports medicine fellowship, and the 

general surgery program would be 

reported on Worksheet E, Part A, line 

16, and on Worksheet E–4, line 15). 

However, on Hospital A’s cost report for 

fiscal year ending December 31, 2018, 

the number of FTE residents in these 

three programs would be subject to the 

FTE resident cap, the 3-year rolling 

average, and the IRB ratio cap, and 

would be reported accordingly. (On the 

CMS Form 2552–10, for Hospital A’s 

cost report for fiscal year ending 

December 31, 2018, this means that 

none of the FTE residents in these three 

programs would be reported on 

Worksheet E, Part A, line 16 for IME, 

and Worksheet E–4, line 15 for direct 

GME. Instead, all of the FTE residents 

would be reported on Worksheet E, Part 

A, line 10 for IME, and Worksheet E–4, 

line 6 for direct GME, in order to be 

subject to the FTE resident cap, the 3- 

year rolling average, and the IRB ratio 

cap.) We note that once the 3-year 

rolling average is effective in that cost 

reporting period that includes the sixth 

program year of the first new program 

started, the number of FTE residents in 

the new programs also must be reported 

both as part of the prior year FTE 

resident counts and the penultimate 

FTE resident counts, in order to 

effectuate the 3-year rolling average 

calculation on the IME Worksheet E, 

Part A, and the direct GME Worksheet 

E–4, respectively. 

In the example that we presented 

earlier, Hospital A has a fiscal year that 

begins on January 1. If Hospital A’s 

fiscal year begin date would have been 

October 1, then, as proposed, while the 

sixth program year of the first new 

program started would still be July 1, 

2018, the FTE residents caps, the 3-year 

rolling average, and the IRB ratio cap 

would be effective on October 1, 2017, 

the fiscal year begin date that precedes 

July 1, 2018, the sixth program year. If 

Hospital A’s fiscal year begin date 

would have been July 1, the FTE 

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residents caps, the 3-year rolling 

average, and the IRB ratio cap would 

instead be effective on July 1, 2017, the 

fiscal year begin date that precedes July 

1, 2018, the sixth program year. 

We understand that this proposal, if 

finalized, would reduce the amount of 

time that the new medical residency 

training programs would be exempt 

from the FTE resident caps. However, 

even though we are proposing to make 

the effective date of the FTE resident 

caps earlier than under current policy, 

because we also are proposing that the 

calculation of the FTE resident caps 

would still be based on the highest total 

number of FTE residents trained in any 

program year, during the fifth year of 

the first new program’s existence at all 

of the hospitals to which the residents 

in that program rotate, a new teaching 

hospital would still have the full 5 

program years to grow its program(s), 

and its FTE resident caps would reflect 

a full 5 years of growth. Therefore, 

because, by the fifth program year, a 

program should, in most typical 

circumstances, have grown to its full 

capacity, barring unusual 

circumstances, the FTE resident caps 

that would take effect under the 

proposed policy at the beginning of the 

fiscal year that precedes the sixth 

program year should accommodate the 

FTE resident count training in the fifth 

and subsequent program years. 

Therefore, we believe that this proposal 

to streamline and synchronize the 

effective dates of the FTE resident caps, 

the 3-year rolling average, and the IRB 

ratio cap not only is easier to 

comprehend and to implement, but also 

is reasonable and equitable in its effect 

on the IME and direct GME payments of 

hospitals establishing FTE resident 

caps. Specifically, if this proposal is 

finalized, there would no longer be a 

need for CMS Form 2552–10, Worksheet 

E, Part A, line 10 and Worksheet E–4, 

line 6 to instruct hospitals to contact 

their contractor for instructions on how 

to complete those lines, as both 

hospitals and Medicare contractors 

would understand how to report the 

number of FTE residents in new 

programs, even when those programs 

have different accredited lengths. 

Instead, hospitals and Medicare 

contractors would follow the 

methodology instituted in the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53415 

through 53425) to calculate the FTE 

resident caps for new medical residency 

training programs started on or after 

October 1, 2012, and once the FTE 

resident caps are calculated, hospitals 

and Medicare contractors would 

implement the FTE resident caps, the 3- 

year rolling average, and the IRB ratio 

cap effective beginning with the 

applicable hospital’s cost reporting 

period that precedes the start of the 

sixth program year of the first new 

program started. Under this proposed 

methodology, FTE residents and FTE 

resident caps would no longer need to 

be prorated, and we would no longer 

need to make special accommodations 

to calculate the portion of FTE residents 

that are subject to the FTE resident cap, 

the 3-year rolling average, and the IRB 

ratio cap for the respective portions of 

the hospital’s cost reporting period 

occurring on and after July 1. The 

existing CMS Form 2552–10 already 

accommodates this proposed 

methodology, unlike the complicated 

process currently in place. Thus, clarity, 

efficiency, and payment accuracy would 

be improved for hospitals, contractors, 

and CMS. 

With regard to rural hospitals that, 

under § 413.79(e)(3) of the regulations, 

may receive FTE resident cap 

adjustments at any time for participating 

in training residents in new programs, 

we are proposing a similar policy, with 

modifications reflecting the fact that 

each new program in which the rural 

hospital participates receives its own 5- 

year growth window before the rural 

hospital’s FTE resident cap is adjusted 

based on that new program. That is, we 

are proposing that, for rural hospitals, 

the FTE resident caps, the 3-year rolling 

average, and the IRB ratio cap for each 

new program started would be effective 

beginning with the applicable hospital’s 

cost reporting period that precedes the 

start of the sixth program year of each 

new program started. For example, rural 

Hospital B has a fiscal year that begins 

on January 1. It starts a family medicine 

program on July 1, 2013, and a general 

surgery program on July 1, 2016. The 

sixth program year for the family 

medicine program begins on July 1, 

2018. The sixth program year for the 

general surgery program begins on July 

1, 2021. With regard to Medicare cost 

reporting, during Hospital B’s fiscal 

years end dates of December 31, 2013 

through and including December 31, 

2017, the number of family medicine 

FTE residents would be reported so as 

not to be included in the IME 3-year 

rolling average or the IRB ratio cap, and 

so as not to be included in the direct 

GME 3-year rolling average. (This means 

that on CMS Form 2552–10, during 

Hospital B’s fiscal year end dates of 

December 31, 2013 through and 

including December 31, 2017, the 

number of family medicine FTE 

residents would be reported on 

Worksheet E, Part A, line 16 for IME, 

and on Worksheet E–4, line 15, for 

direct GME. Instead, the number of 

family medicine FTE residents would be 

reported on Worksheet E, Part A, line 

16, and Worksheet E–4, line 15.) Then, 

beginning with Hospital B’s cost report 

for fiscal year ending December 31, 

2018, the number of FTE residents in 

only the family medicine program 

would be subject to the FTE residents 

caps, the 3-year rolling average, and the 

IRB ratio cap, and would be reported 

accordingly in order to be subject to the 

FTE resident cap, the 3-year rolling 

average, and the IRB ratio cap. (This 

means that on CMS Form 2552–10, 

beginning with Hospital B’s cost report 

ending December 31, 2018, the number 

of family medicine FTE residents would 

be reported on Worksheet E, Part A, line 

10 for IME, and Worksheet E–4, line 6 

for direct GME.) Because the general 

surgery program started on July 1, 2016, 

for Hospital B’s fiscal year end dates of 

December 31, 2016 through and 

including fiscal year end date of 

December 31, 2020, the number of 

general surgery FTE residents would be 

reported (on Worksheet E, Part A, line 

16) so as not to be included in the IME 

3-year rolling average or the IRB ratio 

cap, and (on Worksheet E–4, line 15), so 

as not to be included in the direct GME 

3-year rolling average. Then, beginning 

with Hospital B’s cost report for fiscal 

year ending December 31, 2021, the 

number of FTE residents in the general 

surgery program would be subject to the 

FTE resident caps, the 3-year rolling 

average, and the IRB ratio cap, and 

would be reported accordingly (on 

Worksheet E, Part A, line 10 for IME, 

and Worksheet E–4, line 6 for direct 

GME), in order to be subject to the FTE 

resident cap, the 3-year rolling average, 

and the IRB ratio cap. We note that once 

the 3-year rolling average is effective in 

that cost reporting period that includes 

the sixth program year of each new 

program started, the number of FTE 

residents in the new programs also must 

be reported as part of the prior year FTE 

resident counts, and the penultimate 

FTE resident counts, in order to 

effectuate the 3-year rolling average 

calculation on the IME Worksheet E, 

Part A, and the direct GME Worksheet 

E–4, respectively. 

We are proposing that this policy 

regarding the effective dates of the FTE 

residency caps, the 3-year rolling 

average, and the IRB ratio cap for FTE 

residents in new medical residency 

training programs would be consistent 

with the methodology for calculation of 

the FTE resident caps as described in 

the FY 2013 IPPS/LTCH PPS final rule, 

and implemented in the regulations at 

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§§ 413.79(e)(1) and (e)(3). That is, 

because the policy providing a 5-year 

growth period for establishing the FTE 

resident caps (§§ 413.79(e)(1) and (e)(3)) 

is effective for new programs started on 

or after October 1, 2012, this proposal is 

effective for urban hospitals that first 

begin to participate in training residents 

in their first new medical residency 

training program, and for rural 

hospitals, on or after October 1, 2012. 

We also are proposing to revise the 

regulations for IME and direct GME, 

respectively, at § 412.105(a)(1)(ii) for the 

IME IRB ratio cap, at § 412.105(f)(1)(v) 

for the IME 3-year rolling average, and 

at § 413.79(d)(5) for the direct GME 3- 

year rolling average to reflect that the 

exception from the IRB ratio cap and the 

3-year rolling average for new programs 

applies to each new program 

individually during the cost reporting 

periods prior to the beginning of the 

applicable hospital’s cost reporting 

period that precedes the start of the 

sixth program year of the first new 

program started, for hospitals for which 

the FTE cap may be adjusted in 

accordance with § 413.79(e)(1), and 

prior to the beginning of the applicable 

hospital’s cost reporting period that 

precedes the start of the sixth program 

year of each individual new program 

started, for hospitals for which the FTE 

cap may be adjusted in accordance with 

§ 413.79(e)(3). After the applicable 

hospital’s cost reporting period that 

precedes the start of the sixth program 

year of the first new program started for 

hospitals for which the FTE cap may be 

adjusted in accordance with 

§ 413.79(e)(1), and after the applicable 

hospital’s cost reporting period that 

precedes the start of the sixth program 

year of each individual new program 

started for hospitals for which the FTE 

cap may be adjusted in accordance with 

§ 413.79(e)(3), FTE residents 

participating in new medical residency 

training programs are included in the 

hospital’s IRB ratio cap and the 3-year 

rolling average. 

3. Proposed Changes to IME and Direct 

GME Policies as a Result of New OMB 

Labor Market Area Delineations 

a. New Program FTE Resident Cap 

Adjustment for Rural Hospitals 

Redesignated as Urban 

As stated earlier in this proposed rule, 

under existing regulations, a new 

teaching hospital that starts training 

residents for the first time on or after 

October 1, 2012, has 5 years from when 

it first begins training residents in its 

first new program to build its FTE 

resident cap. If the teaching hospital is 

a rural teaching hospital, it can continue 

to receive permanent cap adjustments 

for training residents in new programs 

after the initial 5-year cap-building 

period that applies to new teaching 

hospitals ends. (We refer readers to 

section IV.K.2. of the preamble of this 

proposed rule for a discussion of our 

proposal to change the effective dates 

for when the FTE resident cap, the 3- 

year rolling average, and the IRB ratio 

cap are applied to new teaching 

hospitals and to new programs at rural 

teaching hospitals.) 

In section III.B. of the preamble of this 

proposed rule, we discuss the policies 

we are proposing to implement as a 

result of the new OMB labor market area 

delineations announced in the February 

28, 2013 OMB Bulletin No. 13–01. As a 

result of the new OMB delineations, 

some teaching hospitals may be 

redesignated from being located in a 

rural area to an urban area, thereby 

losing their ability to increase their FTE 

resident caps for new programs started 

after their initial 5-year cap-building 

period ends. We have been asked 

whether a rural teaching hospital that 

already has a cap and is redesignated as 

urban while it is in the process of 

establishing another new program(s) can 

still receive a permanent cap adjustment 

for that new program(s). We believe that 

because the hospital had already started 

training residents in the new program(s) 

while it was rural, the former rural 

hospital should be permitted to 

continue building its new program(s) 

and receive a permanent FTE resident 

cap adjustment for that new program(s). 

Therefore, we are proposing to revise 

the regulations to allow a hospital that 

was rural as of the time it started 

training residents in a new program(s) 

and is redesignated as urban for 

Medicare payment purposes during its 

cap-building period for that program(s) 

to be able to continue building that 

program(s) for the remainder of the capbuilding period and receive a 

permanent FTE resident cap adjustment 

for that new program(s). Once the capbuilding period for the new program(s) 

that was started while the hospital was 

still rural expires, the teaching hospital 

that has been redesignated as urban 

would no longer be able to receive any 

additional permanent cap adjustments. 

We are proposing that the teaching 

hospital must be actively training 

residents in the new program while it is 

still rural, that is, prior to the 

redesignation taking effect, in order for 

the hospital to continue receiving a cap 

adjustment for the new program. For 

example, if a rural hospital begins 

training residents in a new internal 

medicine program on July 1, 2013, and 

begins training residents in a new 

general surgery program on July 1, 2014, 

and the rural hospital is redesignated as 

urban effective on October 1, 2014, the 

teaching hospital would be able to 

continue receiving a cap adjustment for 

both the new internal medicine program 

and the new general surgery program 

after it has been redesignated as urban. 

However, if the rural hospital is 

redesignated as urban effective on 

October 1, 2014, and started training 

residents in a new internal medicine 

program on July 1, 2013, but did not 

start training residents in a new general 

surgery program while it was still rural, 

that is, prior to October 1, 2014, the 

teaching hospital would receive a 

permanent cap adjustment for the new 

internal medicine program, but would 

not receive a cap adjustment for the new 

general surgery program. We are 

proposing to revise the regulations at 

§ 412.105(f)(1)(iv)(D) for IME and 

§ 413.79(c)(6) for direct GME to 

implement this proposed change. We 

are proposing that these regulatory 

revisions be effective for cost reporting 

periods beginning on or after October 1, 

2014. The proposed regulations at 

§ 412.105(f)(1)(iv)(D) read as follows: ‘‘A 

rural hospital redesignated as urban 

after September 30, 2004, as a result of 

the most recent census data and 

implementation of the new labor market 

area definitions announced by OMB on 

June 6, 2003, may retain the increases to 

its FTE resident cap that it received 

under paragraphs (f)(1)(iv)(A) and 

(f)(1)(vii) of this section while it was 

located in a rural area. Effective for cost 

reporting periods beginning on or after 

October 1, 2014, if a rural hospital is 

redesignated as urban due to the most 

recent OMB standards for delineating 

statistical areas adopted by CMS and 

was training residents in a new program 

prior to the redesignation becoming 

effective, the redesignated urban 

hospital may retain any existing 

increases to its FTE resident cap and 

receive an increase to its FTE resident 

cap for the new program in which it was 

training residents when the 

redesignation became effective, in 

accordance with paragraph (f)(1)(vii) of 

this section.’’ The proposed regulations 

at § 413.79(c)(6) read as follows: ‘‘A 

rural hospital redesignated as urban 

after September 30, 2004, as a result of 

the most recent census data and 

implementation of the new MSA 

definitions announced by OMB on June 

6, 2003, may retain the increases to its 

FTE resident cap that it received under 

paragraphs (c)(2)(i), (e)(1)(iii), and (e)(3) 

of this section while it was located in a 

rural area. Effective for cost reporting 

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periods beginning on or after October 1, 

2014, if a rural hospital is redesignated 

as urban due to the most recent OMB 

standards for delineating statistical 

areas adopted by CMS, and was training 

residents in a new program prior to the 

redesignation becoming effective, the 

redesignated urban hospital may retain 

any existing increases to its FTE 

resident cap, and receive an increase to 

its FTE resident cap for the new 

program in which it was training 

residents when the redesignation 

became effective, in accordance with 

paragraph (e) of this section.’’ 

b. Participation of Redesignated 

Hospital in Rural Training Track 

To encourage the training of residents 

in rural areas, section 407(c) of Public 

Law 106–113 amended 

section1886(h)(4)(H) of the Act to add a 

provision that, in the case of a hospital 

that is not located in a rural area (an 

urban hospital) that establishes 

separately accredited approved medical 

residency training programs (or rural 

tracks) in a rural area or has an 

accredited training program with an 

integrated rural track, the Secretary 

shall adjust the urban hospital’s cap on 

the number of FTE residents under 

subparagraph (F), in an appropriate 

manner in order to encourage training of 

physicians in rural areas. Section 407(c) 

of Public Law 106–113 was made 

effective for direct GME payments to 

hospitals for cost reporting periods 

beginning on or after April 1, 2000, and 

for IME payments applicable to 

discharges occurring on or after April 1, 

2000. We refer readers to the August 1, 

2000 interim final rule with comment 

period (65 FR 47033 through 47037) and 

the FY 2002 IPPS final rule (66 FR 

39902 through 39909) where we 

implemented section 407(c) of Public 

Law 106–113. 

The regulations at § 413.79(k) specify 

that, subject to certain criteria, an urban 

hospital may count the FTE residents in 

the rural track in addition to those FTE 

residents subject to its cap up to a ‘‘rural 

track FTE limitation’’ for that hospital. 

In the FY 2006 IPPS final rule, we 

revised the regulations at § 413.79(k) to 

add a new paragraph (7) to state that if 

an urban hospital had established a 

rural track program with a rural hospital 

and that hospital subsequently becomes 

urban due to the implementation of the 

new labor market area definitions 

announced by OMB on June 6, 2003, the 

urban hospital may continue to adjust 

its FTE resident limit for rural track 

programs established before the 

implementation of the new labor market 

area definitions. We also stated that, in 

order for the urban hospital to receive 

a cap adjustment for a new rural track 

program, the urban hospital must 

establish a rural track program with 

hospitals that are designated rural based 

on the most recent geographical location 

designations adopted by CMS (70 FR 

47456; 47489). 

As discussed earlier in this section, 

we are proposing to implement, 

effective October 1, 2014, the new OMB 

labor market area delineations 

announced in the February 28, 2013 

OMB Bulletin No. 13–01. As a result of 

the new delineations, certain areas can 

be redesignated from urban to rural or 

from rural to urban, which may, in turn, 

affect GME policies that require the 

participation of rural teaching hospitals. 

For example, as noted above, in order 

for an urban teaching hospital to receive 

a FTE resident cap adjustment for 

training residents in a rural track, the 

residents must rotate for more than onehalf of the duration of the program to a 

rural hospital(s) or rural nonprovider(s) 

site. We have received a question as to 

what happens to a rural track when a 

rural hospital that is participating as the 

rural site is redesignated as urban, while 

the rural track for the urban hospital is 

in the process of being established. That 

is, what happens to the rural track when 

the rural hospital is redesignated as 

urban during the period that is used to 

establish the urban hospital’s rural track 

FTE limitation, prior to the effective 

date of the urban hospital’s rural track 

FTE limitation being established? 

Existing regulations at § 413.79(k)(7) 

address the scenario where a rural 

hospital that is participating as the rural 

site is redesignated as urban, after the 

rural track FTE limitation for the urban 

hospital has already become effective. 

Specifically, the regulations at 

§ 413.79(k)(7) state that if an urban 

hospital had established a rural track 

with a hospital located in a rural area 

and that rural area subsequently 

becomes an urban area due to the most 

recent census data and implementation 

of new labor market area definitions 

announced by OMB June 6, 2003, the 

urban hospital may continue to adjust 

its FTE resident limit for the rural track 

programs established prior to the 

adoption of the new labor market area 

definitions. Therefore, consistent with 

the existing regulations at § 413.79(k)(7) 

and with our proposal to allow rural 

hospitals redesignated as urban to 

continue receiving a FTE resident cap 

adjustment for new programs that 

started while the redesignated hospital 

was still rural, we are proposing to 

revise the existing regulations 

applicable to urban hospitals generally. 

Specifically, we are proposing to 

address the status of the ‘‘original’’ 

urban hospital’s rural track FTE 

limitation, in the situation where a rural 

hospital that is participating in the 

original urban hospital’s rural track is 

located in an area redesignated by OMB 

as urban during the 3-year period that is 

used to calculate the urban hospital’s 

rural track FTE limitation. We are 

proposing that, in these situations, the 

original urban hospital’s opportunity to 

receive a rural track FTE limitation 

would not be negatively impacted by 

the fact that the rural hospital with 

which it has partnered to be the rural 

site for its rural training track is located 

in an area redesignated by OMB as 

urban during the 3-year period that is 

used to calculate the urban hospital’s 

rural track FTE limitation. That is, we 

are proposing that the original urban 

hospital may receive a rural track FTE 

limitation for that new rural track 

program. 

With regard to the status of the rural 

hospital that is partnered with the urban 

hospital to serve as a rural training site 

for the rural training track program, as 

mentioned earlier, existing regulations 

at § 413.79(k)(7) address the scenario 

where a rural hospital that is 

participating as the rural site is 

redesignated as urban, after the rural 

track FTE limitation for the urban 

hospital has already become effective. 

(We note that we are proposing to apply 

the existing policy at § 413.79(k)(7), 

which applies to redesignations that 

occurred on June 6, 2003, in a similar 

manner, to redesignations announced by 

OMB after June 6, 2003, as well.) In 

addition, we are proposing that once the 

rural hospital is redesignated as located 

in an urban area due to the 

implementation of the new OMB labor 

market area delineations, regardless of 

whether that redesignation occurs 

during the 3-year period that is used to 

establish the rural track FTE limitation 

for the urban hospital, or after the 3-year 

period that is used to establish the rural 

track FTE limitation for the urban 

hospital, the redesignated urban 

hospital can no longer qualify as the 

rural site and the ‘‘original’’ urban 

hospital would not be able to count 

those residents under its rural track FTE 

limitation if it continues to use the 

redesignated urban hospital as the rural 

site for purposes of the rural track. 

However, because the redesignated 

urban hospital was rural when residents 

started training in the rural track, we are 

proposing to provide for a 2-year 

transition period during which either of 

the following two conditions must be 

met in order for the ‘‘original’’ urban 

hospital to be able to count the residents 

under its rural track FTE limitation 

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when the 2-year transition period ends: 

(1) the redesignated newly urban 

hospital must reclassify back to rural 

under § 412.103 of the regulations; or (2) 

the ‘‘original’’ urban hospital must find 

a new geographically rural site to 

participate as the rural site for purposes 

of the rural track. We note that we are 

proposing to apply these two criteria 

both in the case where the rural hospital 

is redesignated as urban after the urban 

hospital already has its rural track FTE 

limit established, and also in the case 

where the rural hospital is redesignated 

as urban during the 3-year period when 

the rural track program is still growing, 

prior to the rural track FTE limit being 

established. This 2-year transition 

period would begin when new OMB 

labor market area delineations take 

effect for Medicare payment purposes 

and would end exactly 2 years from that 

date. During this 2-year transition 

period, we would hold the ‘‘original’’ 

urban hospital harmless and would pay 

the ‘‘original’’ urban hospital for the 

FTE residents in the rural track. At the 

end of the 2-year transition period, in 

order for the urban hospital to receive 

payment for a rural track program under 

§ 413.79(k)(1) or (k)(2), either the 

redesignated urban hospital must be 

granted reclassification as rural under 

§ 412.103 or the ‘‘original’’ urban 

hospital must already be training FTE 

residents at a geographically rural site. 

We note that, because the rural 

reclassification provision of § 412.103 

only applies to IPPS hospitals and for 

purposes of section 1886(d) of the Act, 

it only applies to IPPS hospitals for IME 

payment purposes and not for direct 

GME payment purposes because direct 

GME is authorized under section 

1886(h) of the Act. Therefore, if the 

redesignated hospital reclassifies as 

rural under § 412.103, the ‘‘original’’ 

urban hospital would only be able to 

count FTE residents towards its rural 

track FTE limitation for IME payment 

purposes, but not for direct GME 

payment purposes. In addition, we note 

that this discussion has centered on the 

scenario where a rural hospital that is 

the rural site for purposes of the rural 

track has been redesignated as urban. 

Under such a scenario, the redesignated 

urban hospital does have an option to 

reclassify as rural. However, as noted 

above, the reclassification only applies 

to IPPS hospitals for IME payment 

purposes. If a nonprovider site is 

functioning as the rural site under 

§ 413.79(k)(2) for purposes of the rural 

track and the area where that 

nonprovider site is located is 

redesignated as urban, the nonprovider 

site would not have the option of 

reclassifying as rural and, therefore, the 

‘‘original’’ urban hospital would be 

required to find a new geographically 

rural site within the 2-year transition 

period in order for the ‘‘original’’ urban 

hospital to receive payment for a rural 

track program under § 413.79(k)(1) or 

(k)(2). 

The following examples illustrate 

how the proposed policy would be 

applied to a rural track in which the 

rural site is a hospital and the rural 

hospital has been redesignated as urban: 

• An urban teaching hospital and a 

rural teaching hospital are participating 

in training residents in a new rural track 

program that begins July 1, 2014. 

Effective October 1, 2014, the rural 

hospital is redesignated as urban. We 

are proposing that the timeframe for the 

urban hospital to build the rural track 

program for purposes of calculating its 

rural track FTE limitation would 

continue to be through June 30, 2017. 

During the time period of October 1, 

2014 to September 30, 2016, the 

redesignated urban hospital would 

continue participating as a rural 

hospital and the urban hospital would 

count FTE residents it is training that 

are in the rural track for IME and direct 

GME. However, in order for the 

‘‘original’’ urban hospital to continue to 

get paid for its rural track program after 

September 30, 2016, then, by September 

30, 2016, the redesignated urban 

hospital must either reclassify as rural 

under § 412.103 of the regulations for 

purposes of IME payment only, or the 

urban hospital must find a new 

geographically rural hospital or 

nonprovider site to train the residents in 

the rural track for more than one-half of 

their training. If neither of these 

conditions is met, by September 30, 

2016, the ‘‘original’’ urban hospital 

would not able to receive payment for 

that specific program as a rural training 

track under § 413.79(k)(1) or (k)(2) 

because it would no longer meet the 

requirement that more than one-half of 

the training must be provided in a rural 

setting. 

• Another scenario could be one in 

which the rural hospital is redesignated 

as urban after the 3-year cap-building 

period for the rural track has passed. For 

example, the rural track program began 

July 1, 2007, but effective October 1, 

2014, the rural hospital is redesignated 

as urban. We are proposing in this 

scenario that, by September 30, 2016, 

either the redesignated urban hospital 

must reclassify to rural under § 412.103 

for purposes of IME payment only, or 

the ‘‘original’’ urban hospital must find 

a new geographically rural site that can 

participate as the rural site for purposes 

of the rural track. If neither of these 

conditions is met by September 30, 

2016, the ‘‘original’’ urban hospital 

would not be able to receive payment 

for that specific program as a rural track 

under § 413.79(k)(1) or (k)(2) because it 

would no longer meet the requirement 

that more than one-half of the training 

must be provided in a rural setting. 

We note that if the ‘‘original’’ urban 

hospital was not able to meet one of the 

two proposed conditions noted earlier 

in this section by the end of the 2-year 

transition period, but at some point later 

is able to meet one of the two proposed 

conditions, we are proposing that the 

‘‘original’’ urban hospital would be able 

to ‘‘revive’’ and use its already 

established rural track FTE limitation 

from that point forward. In the instance 

where the ‘‘original’’ urban hospital’s 

rural track FTE limitation was not set 

because the hospital was not able to 

meet one of the two proposed 

conditions by the end of the 2-year 

transition period, which fell within the 

3-year cap-building timeframe, but at 

some point later is able to meet one of 

the two proposed conditions, we are 

proposing that the ‘‘original’’ urban 

hospital would be able to have a rural 

track FTE limitation calculated and 

established based on the highest number 

of FTE residents in any program year 

training in the rural track in the third 

year of the program, even if during the 

third year of the program, the ‘‘original’’ 

urban hospital was not in compliance 

with the two proposed conditions. 

Consistent with similar policy discussed 

in the FY 2002 IPPS final rule (66 FR 

39905), it would be the responsibility of 

the hospitals involved to provide the 

necessary information regarding the 

rotations of the residents in the third 

program year to the Medicare contractor 

in order for the calculation to be 

completed and the rural track FTE limit 

to be set. 

In summary, we are proposing that 

any time a rural hospital participating in 

a rural track is in an area redesignated 

by OMB as urban after residents started 

training in the rural track and during the 

3-year period that is used to calculate 

the urban hospital’s rural track FTE 

limitation, the urban hospital may 

receive a cap adjustment for that rural 

track after it has been redesignated as 

urban. Furthermore, we are proposing 

that, regardless of whether the 

redesignation of the rural hospital 

occurs during the 3-year period that is 

used to calculate the urban hospital’s 

rural track FTE limitation, or after the 3- 

year period used to calculate the urban 

hospital’s rural track FTE limitation, the 

redesignated urban hospital can 

continue to be considered a rural 

hospital for purposes of the rural track 

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for up to 2 years. However, by the end 

of those 2 years, either the redesignated 

urban hospital must reclassify as rural 

under § 412.103 for purposes of IME 

payment only (in addition, this 

reclassification option only applies to 

IPPS hospitals, not nonprovider sites) or 

the ‘‘original’’ urban hospital must have 

found a new site in a geographically 

rural area that will serve as the rural site 

for purposes of the rural track in order 

for the ‘‘original’’ urban hospital to 

receive payment under § 413.79(k)(1) or 

(k)(2). 

We are proposing to revise the 

regulations at § 413.79(k)(7) to 

implement these provisions and to 

establish that these changes would be 

effective for cost reporting periods 

beginning on or after October 1, 2014. 

The proposed regulations at 

§ 413.79(k)(7) read as follows: ‘‘(i) 

Effective for cost reporting periods 

beginning prior to October 1, 2014, if an 

urban hospital had established a rural 

track training program under the 

provisions of this paragraph (k) with a 

hospital located in a rural area and that 

rural area subsequently becomes an 

urban area due to the most recent 

census data and implementation of the 

new labor market area definitions 

announced by OMB on June 6, 2003, the 

urban hospital may continue to adjust 

its FTE resident limit in accordance 

with this paragraph (k) for the rural 

track programs established prior to the 

adoption of such new labor market area 

definitions. In order to receive an 

adjustment to its FTE resident cap for a 

new rural track residency program, the 

urban hospital must establish a rural 

track program with hospitals that are 

designated rural based on the most 

recent geographical location 

designations adopted by CMS. (ii) 

Effective for cost reporting periods 

beginning on or after October 1, 2014, if 

an urban hospital had started a rural 

track training program under the 

provisions of this paragraph (k) with a 

hospital located in a rural area and, 

during the 3-year period that is used to 

calculate the urban hospital’s rural track 

FTE limit, that rural area subsequently 

becomes an urban area due to the most 

recent OMB standards for delineating 

statistical areas adopted by CMS and the 

most recent Census Bureau data, the 

urban hospital may continue to adjust 

its FTE resident limit in accordance 

with this paragraph (k) and subject to 

paragraph (k)(7)(iii) for the rural track 

programs established prior to the 

adoption of such new OMB standards 

for delineating statistical areas. (iii) 

Effective for cost reporting periods 

beginning on or after October 1, 2014, if 

an urban hospital had established a 

rural track training program under the 

provisions of this paragraph (k) with a 

hospital located in a rural area and that 

rural area subsequently becomes an 

urban area due to the most recent OMB 

standards for delineating statistical 

areas adopted by CMS and the most 

recent Census Bureau data, regardless of 

whether the redesignation of the rural 

hospital occurs during the 3-year period 

that is used to calculate the urban 

hospital’s rural track FTE limit, or after 

the 3-year period used to calculate the 

urban hospital’s rural track FTE limit, 

the urban hospital may continue to 

adjust its FTE resident limit in 

accordance with this paragraph (k) 

based on the rural track programs 

established prior to the change in the 

hospital’s geographic designation. In 

order for the urban hospital to receive 

or use the adjustment to its FTE resident 

cap for training FTE residents in the 

rural track residency program that was 

established prior to the most recent 

OMB standards for delineating 

statistical areas adopted by CMS, one of 

the following two conditions must be 

met by the end of a 2-year period that 

begins when the most recent OMB 

standards for delineating statistical 

areas are adopted by CMS: The hospital 

that has been redesignated from rural to 

urban must reclassify as rural under 

§ 412.103 of this chapter, for purposes of 

IME only; or the urban hospital must 

find a new site that is geographically 

rural consistent with the most recent 

geographical location delineations 

adopted by CMS. In order to receive an 

adjustment to its FTE resident cap for an 

additional new rural track residency 

program, the urban hospital must 

establish a rural track program with 

sites that are geographically rural based 

on the most recent geographical location 

delineations adopted by CMS.’’ 

We also have determined that there is 

an outdated, incorrect reference 

included in the definition of ‘‘Rural 

track FTE limitation’’ under § 413.75(b). 

The reference included in the definition 

is ‘‘§ 413.79(l)’’. The correct reference is 

‘‘§ 413.79(k)’’. Therefore, we are 

proposing to make a technical 

correction to the definition of ‘‘Rural 

track FTE limitation’’ so that it reads 

‘‘means the maximum number of 

residents (as specified in § 413.79(k)) 

training in a rural track residency 

program that an urban hospital may 

include in its FTE count and that is in 

addition to the number of FTE residents 

already included in the hospital’s FTE 

cap.’’ 

4. Proposed Clarification of Policies on 

Counting Resident Time in Nonprovider 

Settings Under Section 5504 of the 

Affordable Care Act 

In the November 24, 2010 final rule 

with comment period (75 FR 71808, 

72134 through 72141, and 72153), we 

implemented section 5504 of the 

Affordable Care Act regarding counting 

resident time in nonprovider settings. 

We also mentioned the scope of section 

5504 of the Affordable Care Act in the 

FY 2014 IPPS/LTCH PPS proposed rule 

(78 FR 27638) and final rule (78 FR 

50735). Section 5504(a) of the 

Affordable Care Act made changes to 

section 1886(h)(4)(E) of the Act to 

reduce the costs that hospitals must 

incur for residents training in 

nonprovider sites in order to count the 

FTE residents for purposes of Medicare 

direct GME payments on a prospective 

basis. Notably, section 5504(a)(3) of the 

Affordable Care Act amended the Act 

effective for ‘‘cost reporting periods 

beginning on or after July 1, 2010,’’ for 

direct GME, to permit hospitals to count 

the time that a resident trains in 

activities related to patient care in a 

nonprovider site in its FTE count if the 

hospital incurs the costs of the 

residents’ salaries and fringe benefits for 

the time that the resident spends 

training in the nonprovider site. Section 

5504(b)(2) of the Affordable Care Act 

made similar changes to section 

1886(d)(5)(B)(iv) of the Act for IME 

payment purposes, with the provision 

being effective for discharges occurring 

on or after July 1, 2010, for IME. In 

connection with those periods and 

discharges, if more than one hospital 

incurs the residency training costs in a 

nonprovider setting, under certain 

circumstances, sections 5504(a)(3) and 

(b)(2) of the Affordable Care Act allow 

each hospital to count a proportional 

share of the training time that a resident 

spends training in that setting, as 

determined by a written agreement 

between the hospitals. When Congress 

enacted section 5504 of the Affordable 

Care Act, it retained the statutory 

language which provides that a hospital 

can only count the time so spent by a 

resident under an approved medical 

residency training program in its FTE 

count if that one single hospital by itself 

‘‘incurs all, or substantially all, of the 

costs for the training program in that 

setting.’’ In doing so, Congress also 

revised the statutory language in 

sections 5504(a)(1) and (b)(1) to 

explicitly make this longstanding 

substantive standard and requirement 

applicable to ‘‘cost reporting periods 

beginning before July 1, 2010’’ for direct 

GME, and to ‘‘discharges occurring on 

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or after October 1, 1997, and before July 

1, 2010,’’ for IME (sections 

1886(d)(5)(B)(iv)(I) and 1886(h)(4)(E)(i) 

of the Act). Beginning at least as early 

as 1988, the Secretary consistently 

noted in the preamble of various rules 

that the statute only allowed a hospital 

to count the time that its residents spent 

training in a nonprovider site in the FTE 

resident count for direct GME and IME 

purposes if that single hospital incurred 

‘‘all of substantially all’’ of the costs of 

the training program in that setting. For 

a full discussion of the longstanding 

substantive standard and requirement 

that a hospital can only count residents 

training if that one single hospital 

incurs all or substantially all of the costs 

for the training, we refer readers to the 

discussion in the November 24, 2010 

final rule with comment period (75 FR 

72134 through 72141), in the May 11, 

2007 final rule (72 FR 26953 and 

26969), and in the August 1, 2003 final 

rule (68 FR 45439). 

Section 5504(c) of the Affordable Care 

Act specifies that the amendments made 

by the provisions of sections 5504(a) 

and (b) ‘‘shall not be applied in a 

manner that requires reopening of any 

settled hospital cost reports as to which 

there is not a jurisdictionally proper 

appeal pending as of the date of the 

enactment of this Act on the issue of 

payment for indirect costs of medical 

education . . . or for direct graduate 

medical education costs. . . .’’ The date 

of enactment of the Affordable Care Act 

was March 23, 2010. 

In the November 24, 2010 final rule 

with comment period, we revised the 

regulations at § 412.105(f)(1)(ii)(E) for 

IME and §§ 413.78(f) and (g) for direct 

GME to reflect the changes made by 

section 5504 of the Affordable Care Act. 

Section 413.78(g) is the implementing 

regulation that corresponds to the 

statutory amendments set forth in 

sections 5504(a)(3) and (b)(2) of the 

Affordable Care Act. The introductory 

regulatory language of § 413.78(g) 

explicitly states that paragraph (g) 

governs only ‘‘cost reporting periods 

beginning on or after July 1, 2010.’’ 

Paragraph (g)(5) of § 413.78 also 

expressly states that the paragraph is 

limited to ‘‘cost reporting periods 

beginning on or after July 1, 2010.’’ 

Accordingly, we have repeatedly stated, 

and we believe that the existing 

regulation makes plain, that paragraph 

(g) of § 413.78 ‘‘is explicitly made 

applicable only to ‘cost reporting 

periods beginning on or after July l, 

2010,’ whereas earlier cost reporting 

periods are governed by other preceding 

paragraphs of § 413.78’’ (78 FR 50735). 

In addition, we also revised the 

definition of ‘‘all or substantially all of 

the costs for the training program in the 

nonhospital setting’’ in the regulations 

at § 413.75(b) to reflect that both the 

statute and regulations require that, for 

cost reporting periods beginning on and 

after July 1, 2007 and before July 1, 

2010, one hospital must by itself incur 

‘‘all or substantially all of the costs’’ of 

the residents training in the 

nonprovider site in order for the 

hospital to receive Medicare IME and 

direct GME payment for that training. 

Finally, we also revised the IME 

regulations at § 412.105 to reflect these 

statutory amendments, by incorporating 

by reference § 413.78(g). 

Despite the fact that sections 5504(a) 

and (b) of the Affordable Care Act 

provide clear effective dates with 

respect to the amendments provided 

therein to sections 1886(h)(4)(E) and 

1886(d)(5)(B)(iv) of the Act, and that the 

preamble discussion of the 

implementation of these provisions and 

further discussion of the statutory 

amendments in the November 24, 2010 

final rule with comment period and in 

the August 19, 2013 final rule provide 

further explanation that, specifically, 

nothing in section 5504(c) overrides 

those effective date (75 FR 72136), we 

have received questions about the 

applicability of section 5504(c) and the 

associated regulation text at 

§ 413.78(g)(6). Specifically, questions 

have been raised with respect to the 

applicability of sections 5504(c) of the 

Affordable Care Act and § 413.78(g)(6) 

of the regulations to periods prior to 

July 1, 2010, particularly if a hospital 

had, as of March 23, 2010, appealed an 

IME or direct GME issue for a settled 

cost reporting period occurring prior to 

July 1, 2010. As noted earlier, section 

5504(c) of the Affordable Care Act 

provides that the amendments made by 

the provisions of sections 5504(a) and 

(b) ‘‘shall not be applied in a manner 

that requires reopening of any settled 

hospital cost reports as to which there 

is not a jurisdictionally proper appeal 

pending as of . . . [March 23, 2010] on 

the issue of payment for indirect costs 

of medical education . . . or for direct 

graduate medical education costs. . . .’’ 

Upon revisiting the existing 

regulation text, we determined that 

§ 413.78(g)(6) was not written in a 

manner that is as consistent with 

section 5504(c) of the Affordable Care 

Act and reflective of our reading of that 

provision and our policy as it could be. 

Specifically, § 413.78(g)(6) states, ‘‘The 

provisions of paragraphs (g)(1)(ii), (g)(2), 

(g)(3), and (g)(5) of this section cannot 

be applied in a manner that would 

require the reopening of settled cost 

reports, except those cost reports on 

which there is a jurisdictionally proper 

appeal pending on direct GME or IME 

payments as of March 23, 2010.’’ In this 

proposed rule, we are reiterating our 

existing interpretation of the statutory 

amendments made by sections 5504(a), 

(b), and (c) of the Affordable Care Act 

and also proposing to clarify the 

regulation text implementing these 

provisions by revising the language at 

§ 413.78(g)(6) to read more consistently 

with the language in section 5504(c) of 

the Affordable Care Act and to ensure 

no further confusion with respect to the 

applicability of section 5504(c) of the 

Affordable Care Act and § 413.78(g)(6) 

of the regulations. 

We believe that sections 5504(a) and 

(b) of the Affordable Care Act contained 

three primary directives (a fourth 

regarding recordkeeping requirement is 

tangential to this discussion): (1) Under 

sections 5504(a)(1) and (b)(1) of the 

Affordable Care Act (sections 

1886(h)(4)(E)(i) and 1886(d)(5)(B)(iv)(I) 

of the Act), for ‘‘cost reporting periods 

beginning before July 1, 2010’’ for direct 

GME, and for ‘‘discharges occurring on 

or after October 1, 1997, and before July 

1, 2010’’ for IME, these sections 

explicitly retained the statutory 

language that provides that a hospital 

can only count the time so spent by a 

resident under an approved medical 

residency training program in its FTE 

count if a hospital by itself ‘‘incurs all, 

or substantially all, of the costs for the 

training program in that setting’’; (2) 

under sections 5504(a)(3) and (b)(2) of 

the Affordable Care Act (sections 

1886(h)(4)(E)(ii) and 1886(d)(5)(B)(iv)(II) 

of the Act), for ‘‘cost reporting periods 

beginning on or after July 1, 2010’’ for 

direct GME, and for ‘‘discharges 

occurring on or after July 1, 2010’’ for 

IME, these sections eliminated the ‘‘all 

or substantially all’’ requirement, 

instead requiring a hospital to incur the 

residents’ salaries and fringe benefits for 

the time spent at the nonprovider site; 

and (3) under sections 5504(a)(3) and 

(b)(2) of the Affordable Care Act 

(sections 1886(h)(4)(E)(ii) and 

1886(d)(5)(B)(iv)(II) of the Act), for ‘‘cost 

reporting periods beginning on or after 

July 1, 2010’’ for direct GME, and for 

‘‘discharges occurring on or after July 1, 

2010’’ for IME, these sections created a 

new provision with regard to allowing 

more than one hospital to share the 

costs of residents training in a 

nonprovider setting under certain 

circumstances, in order for each 

hospital to count a proportional share of 

the FTE training time in the 

nonprovider setting. 

Separately from sections 5504(a) and 

(b) of the Affordable Care Act, section 

5504(c) of the Affordable Care Act, as 

mentioned earlier, specifies that the 

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amendments made by the provisions of 

sections 5504(a) and (b) ‘‘shall not be 

applied in a manner that requires 

reopening of any settled hospital cost 

reports as to which there is not a 

jurisdictionally proper appeal pending 

as of’’ March 23, 2010, the date of the 

enactment of the Affordable Care Act, 

on the issue of payment for IME and 

direct GME. When we proposed to 

implement section 5504(c) in the 

August 3, 2010 proposed rule (75 FR 

46385) and when we implemented 

section 5504(c) in the November 24, 

2010 final rule with comment period (75 

FR 72136), we had to consider what 

new meaning it was adding to sections 

5504(a) and (b) of the Affordable Care 

Act because unlike, for example, section 

5505 of the Affordable Care Act which 

has an effective date prior to enactment 

of the Affordable Care Act and, 

therefore, would apply to prior cost 

reporting periods, section 5504’s 

applicable effective date for the new 

standards it creates was July 1, 2010, a 

date that came after enactment of the 

Affordable Care Act and was fully 

prospective. As we stated in the 

November 24, 2010 final rule with 

comment period (75 FR 72136), 

‘‘Section 5504(c) is fully prospective 

with an explicit effective date of July 1, 

2010, for the new standards it creates. 

Nothing in section 5504(c) overrides 

that effective date. Section 5504(c) 

merely notes that the usual 

discretionary authority of Medicare 

contractors to reopen cost reports is not 

changed by the provisions of section 

5504; it simply makes clear that 

Medicare contractors are not required by 

reason of section 5504 to reopen any 

settled cost report as to which a 

provider does not have a jurisdictionally 

proper appeal pending. It does not 

require reopening in any circumstance; 

and the new substantive standard is, in 

any event, explicitly prospective. We 

believe if Congress had wanted to 

require such action or to apply the new 

standards to cost years or discharges 

prior to July 1, 2010, it would have done 

so in far more explicit terms.’’ We also 

noted in that rule (75 FR 72139) that 

‘‘[the] statute does not provide CMS 

discretion to allow the counting of 

resident time spent in shared 

nonprovider site rotations for cost 

reporting periods beginning prior to July 

l, 2010.’’ We continue to believe that 

Congress was clear in amending 

sections 1886(h)(4)(E) and 

1886(d)(5)(B)(iv) of the Act to provide 

for new standards to be applied only 

prospectively, effective for cost 

reporting periods beginning on or after, 

and discharges occurring on or after, 

July 1, 2010. We also continue to believe 

that the plain meaning of section 

5504(c) of the Affordable Care Act is 

that the Secretary is not required to 

reopen a cost report when there is no 

jurisdictionally proper appeal pending 

as of March 23, 2010, the date of the 

enactment of the Affordable Care Act, 

on the issue of payment for IME and 

direct GME. Therefore, we believe that 

section 5504(c) of the Affordable Care 

Act is merely a confirmation of the 

Secretary’s existing discretionary 

authority in one particular context, and 

that sections 5504(a) and (b) of the 

Affordable Care Act and their effective 

dates become all the more prominent, 

and are not affected by section 5504(c). 

As noted earlier, we revised the 

regulations at § 412.105(f)(1)(ii)(E) for 

IME, and § 413.78(g) for direct GME, to 

reflect the changes made by section 

5504 of the Affordable Care Act in the 

November 24, 2010 final rule with 

comment period. We reiterate here that 

the introductory language of § 413.78(g) 

explicitly states that paragraph (g) 

governs only ‘‘cost reporting periods 

beginning on or after July 1, 2010’’ and 

paragraph (g)(5) also expressly states 

that the paragraph is limited to ‘‘cost 

reporting periods beginning on or after 

July 1, 2010’’ (78 FR 50735 and 78 FR 

27639). As we noted before, we believe 

that the paragraphs of the regulations 

which precede paragraph (g), 

particularly paragraphs (c) through (f), 

consistent with the statute, make clear 

that a hospital may only count the time 

so spent by a resident under an 

approved medical residency training 

program in its FTE count, in connection 

with its pre-July l, 2010 cost reporting 

periods and pre-July l, 2010 patient 

discharges, if that one single hospital by 

itself ‘‘incurs all, or substantially all, of 

the costs for the training program in that 

setting.’’ Separately, we believe that the 

new standards set forth in sections 

5504(a)(3) and (b)(2) of the Affordable 

Care Act and implemented by regulation 

at §§ 413.78(g) and 412.105(f)(1)(ii)(E), 

allowing cost sharing under certain 

circumstances do not ever apply to preJuly 1, 2010 cost reporting periods and 

pre-July l, 2010 patient discharges. 

Moreover, we continue to believe the 

language in paragraph (g)(6) (along with 

the remainder of paragraph (g)) only 

applies to cost reporting periods 

beginning on or after July 1, 2010 and 

does not apply retroactively to cost 

reporting periods beginning before July 

1, 2010. We had intended that the 

language under § 413.78(g) do no more 

than simply paraphrase the language in 

section 5504(c) of the Affordable Care 

Act. 

Accordingly, we believe that it is 

apparent that the provisions of sections 

5504(a)(3) and (b)(2) of the Affordable 

Care Act are not to be applied prior to 

July l, 2010, irrespectively of whether a 

hospital may have had a jurisdictionally 

proper appeal pending as of March 23, 

2010, on an IME or direct GME issue 

from a cost reporting period occurring 

prior to July 1, 2010. 

In this proposed rule, we are 

reiterating our existing interpretation of 

the statutory amendments made by 

sections 5504(a) and (b) of the 

Affordable Care Act and also are 

proposing to clarify the regulatory text 

that implements these provisions by 

revising the § 413.78(g)(6) to be more 

consistent with the language at section 

5504(c) of the Affordable Care Act. We 

are proposing to revise the regulatory 

language to read as follows: ‘‘The 

provisions of paragraphs (g)(1)(ii), (g)(2), 

(g)(3), and (g)(5) of this section shall not 

be applied in a manner that requires 

reopening of any settled cost reports as 

to which there is not a jurisdictionally 

proper appeal pending as of March 23, 

2010, on direct GME or IME payments. 

Cost reporting periods beginning before 

July 1, 2010 are not governed by 

paragraph (g) of this section.’’ The IME 

regulations at § 412.105(f)(1)(ii)(E) 

include a reference to § 413.78(g)(6); 

therefore, no proposed change is needed 

to this section. 

5. Proposed Changes to the Review and 

Award Process for Resident Slots Under 

Section 5506 of the Affordable Care Act 

In the past, if a teaching hospital 

closed, its direct GME and IME FTE 

resident cap slots would be ‘‘lost’’ 

because those cap slots are associated 

with a specific hospital’s Medicare 

provider agreement, which would be 

retired upon the hospital’s closure. 

Under existing regulations at § 413.79(h) 

for direct GME and § 412.105(f)(1)(ix) 

for IME, a hospital that is training FTE 

residents at or in excess of its FTE 

resident caps and takes in residents 

displaced by the closure of another 

teaching hospital may receive a 

temporary increase to its FTE resident 

caps so that it may receive direct GME 

and IME payment associated with those 

displaced FTE residents. However, 

those temporary FTE resident caps are 

tied to those specific displaced FTE 

residents, and the temporary caps expire 

when those displaced residents 

complete their training program. 

Section 5506 of the Affordable Care 

Act amended section 1886(h)(4)(H) of 

the Act to add a new clause (vi) that 

instructs the Secretary to establish a 

process by regulation under which, in 

the event a teaching hospital closes, the 

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Secretary will permanently increase the 

FTE resident caps for hospitals that 

meet certain criteria up to the number 

of the closed hospital’s FTE resident 

caps. The Secretary is directed to ensure 

that the aggregate number of FTE 

resident cap slots distributed shall be 

equal to the aggregate number of slots in 

the closed hospital’s direct GME and 

IME FTE resident caps, respectively. For 

a detailed discussion of the regulations 

implementing section 5506 of the 

Affordable Care Act, we refer readers to 

the November 24, 2010 final rule with 

comment period (75 FR 72212 through 

72238) and the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53434 through 53448). 

a. Effective Date of Slots Awarded 

Under Section 5506 of the Affordable 

Care Act 

In distributing slots permanently 

under the provisions of section 5506 of 

the Affordable Care Act, section 5506(d) 

provides that ‘‘the Secretary shall give 

consideration to the effect of the 

amendments made by this section on 

any temporary adjustment to a 

hospital’s FTE cap under § 413.79(h) 

. . . (as in effect on the date of 

enactment of this Act) in order to ensure 

that there is no duplication of FTE slots 

. . .’’ In consideration of this statutory 

language, in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53437), we stated 

that in distributing slots permanently 

under section 5506, we would be 

cognizant of the number of FTE 

residents for whom a temporary FTE 

cap adjustment was provided under 

existing regulations at § 413.79(h), and 

when those residents will complete 

their training, at which point the 

temporary slots associated with those 

displaced residents would then be 

available for permanent redistribution. 

Therefore, in initially developing 

ranking criteria and application 

materials that we would use to award 

available slots, we considered how to 

interpret this statutory language at 

section 5506(d) of the Affordable Care 

Act within the context of our existing 

GME regulations and section 5506’s 

amendment to section 1886(h) of the 

Act generally. 

In the November 24, 2010 final rule 

with comment period and the FY 2013 

IPPS/LTCH PPS final rule (75 FR 72216 

and 77 FR 53436, respectively), we 

discussed the various ranking criteria 

that we would use for hospitals 

applying for slots from closed hospitals. 

Currently, if after distributing the slots 

from a closed hospital to increase the 

FTE caps for applying hospitals that fall 

within Ranking Criteria One, Two, and 

Three, there are still excess slots 

available and any of those excess slots 

are associated with displaced residents 

for whom temporary cap adjustments 

under § 413.79(h) are in place, any slots 

awarded to hospitals that fall within 

Ranking Criteria Four through Eight are 

permanently assigned only once the 

displaced residents have completed 

their training and the temporary cap 

adjustments associated with those 

residents have expired. That is, in 

applying the requirement for ‘‘no 

duplication of FTE slots’’ set forth in 

section 5506(d), we currently consider 

all temporary cap adjustments received 

by hospitals on a national basis and not 

specifically the hospital that is applying 

for cap slots under section 5506, when 

deciding the effective date for slots 

permanently awarded to hospitals 

applying under Ranking Criteria Four 

through Eight. Specifically, in the 

November 24, 2010 final rule with 

comment period, we stated that we 

believe the ‘‘no duplication of FTE 

slots’’ requirement applies across all 

hospitals. Therefore, although a hospital 

may not have received a temporary cap 

adjustment under § 413.79(h), other 

hospitals may have taken in residents 

and received temporary cap adjustments 

for the same program, and we believed 

that the appropriate policy was to delay 

the slots associated with that program 

from being permanently distributed 

until it is known that any and all 

temporary cap adjustments for those 

slots have expired (75 FR 72227) 

Applying this policy to an example, if 

Hospital A is training displaced 

residents and is receiving a temporary 

cap adjustment under § 413.79(h) for 

training those residents and Hospital B, 

which is not receiving a temporary cap 

adjustment for training any displaced 

residents, has applied under Ranking 

Criterion Five to expand its internal 

medicine program, as explained in the 

November 24, 2010 final rule with 

comment period, we would only award 

permanent slots under section 5506 to 

Hospital B on a flow basis; that is, 

effective after each displaced resident 

completes his/her training, and, 

therefore, the temporary cap 

adjustments associated with that 

resident expire at Hospital A. 

However, the policy of applying the 

‘‘no duplication of FTE slot’’ 

requirement at section 5506(d) of the 

Affordable Care Act to all hospitals 

rather than simply to each specific 

hospital that is applying for slots has 

thus far proven to be a very complex 

process due to the number of displaced 

residents and the timing of multiple 

graduation dates which must be tracked 

and considered when awarding slots on 

a permanent basis. We believe this 

practice has delayed the awarding of 

slots and is also unnecessarily 

burdensome for hospitals applying 

under Ranking Criteria Four through 

Eight that are not receiving any cap 

adjustments for training displaced 

residents under § 413.79(h). We believe 

the current policy that we apply for ‘‘no 

duplication of FTE slots’’ is 

unnecessarily burdensome for these 

hospitals because, instead of receiving 

their permanent slots under section 

5506 as soon as possible, the hospitals 

may receive their section 5506 awards 

with staggered effective dates due to the 

graduation dates of displaced FTE 

residents training at other hospitals that 

did receive temporary adjustments 

under § 413.79(h). While we believe that 

awarding permanent slots to a hospital 

that is simultaneously receiving a 

temporary cap adjustment for training 

displaced FTE residents under 

§ 413.79(h) would clearly be a 

duplication of FTE slots and contrary to 

the statutory directive, we believe there 

is flexibility in interpreting this 

statutory language and that the statute 

does not require such a policy to be 

applied to hospitals that are not 

receiving temporary cap adjustments 

under § 413.79(h). Furthermore, in 

considering the specific statutory 

language regarding ‘‘no duplication of 

FTE slots,’’ section 5506(d) in part 

provides that ‘‘The Secretary of Health 

and Human Services shall give 

consideration to the effect of the 

amendments made by this section on 

any temporary adjustment to a 

hospital’s FTE cap under section 

413.79(h) of title 42, Code of Federal 

Regulations (as in effect on the date of 

enactment of this Act) in order to ensure 

that there is no duplication of FTE 

slots.’’ Because this language refers to ‘‘a 

hospital,’’ we believe the statute 

provides us with the flexibility to apply 

the ‘‘no duplication of FTE slots’’ 

requirement on a hospital-specific basis, 

considering separately whether each 

hospital did or did not receive a 

temporary cap adjustment under 

§ 413.79(h), rather than on a national 

all-hospital basis. Bearing in mind the 

statutory language and our experience to 

date in awarding slots as well as the 

unnecessary burden placed on hospitals 

that are receiving section 5506 slots, but 

are not receiving temporary cap 

adjustments under § 413.79(h), we 

believe it is appropriate to propose a 

policy that would provide for a more 

efficient and faster method for awarding 

of slots to hospitals applying under 

Ranking Criteria Four through Eight. 

Therefore, we are proposing that, 

effective for section 5506 application 

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rounds announced on or after October 1, 

2014, for purposes of applying the 

requirement for ‘‘no duplication of FTE 

slots,’’ we would only require that there 

be no duplication of FTE slots on a 

hospital-specific basis. That is, in 

determining the effective date for slots 

awarded permanently under section 

5506, we would only be concerned with 

whether the hospital that is applying for 

slots is also receiving a temporary cap 

adjustment under § 413.79(h) for 

training displaced residents. When 

awarding slots to the applying hospital, 

we would not be concerned whether 

any other hospital is receiving a 

temporary cap adjustment for training 

displaced residents under § 413.79(h). 

For example, if Hospital A is receiving 

a temporary cap adjustment under 

§ 413.79(h) for training displaced 

residents in its general surgery program 

but is applying under Ranking Criterion 

Five to start a pediatrics program and 

Hospital B is not receiving a temporary 

cap adjustment for training displaced 

residents and is applying under Ranking 

Criterion Eight to expand a cardiology 

program, in awarding section 5506 slots, 

we would only allow Hospital A to 

receive a permanent adjustment to its 

FTE cap for training residents in its 

pediatrics program once its temporary 

adjustments for the displaced residents 

training in the general surgery program 

have expired. We would not consider 

displaced residents when awarding 

section 5506 slots to Hospital B. 

In conjunction with our proposal to 

interpret the ‘‘no duplication of FTE 

slots’’ requirement to apply on a 

hospital-specific basis to hospitals that 

are receiving temporary cap adjustments 

under § 413.79(h), we are proposing to 

amend the effective dates of section 

5506 slots received under Ranking 

Criteria Four through Eight for those 

hospitals that are not receiving 

temporary cap adjustments under 

§ 413.79(h). (We refer readers to section 

IV.K.5.c. of the preamble of this 

proposed rule where we discuss our 

proposal to amend Ranking Criteria 

Seven and Eight.) Existing policy 

requires that slots awarded under 

Ranking Criteria Four through Eight for 

expanding an existing residency 

training program or starting a new 

residency training program are effective 

the later of when a hospital can 

demonstrate to the MAC that the slots 

associated with a new program or 

program expansion are actually filled 

and, therefore, are needed as of a 

particular date (usually July 1, possibly 

retroactive), or the July 1 after displaced 

residents complete their training. If a 

hospital is awarded slots under Ranking 

Criterion Eight for cap relief, slots are 

effective the date of CMS’ award 

announcement, or the July 1 after 

displaced residents complete their 

training, whichever is later. However, 

because we are proposing an alternative 

approach to interpreting section 5506(d) 

that would permit us to apply the ‘‘no 

duplication of FTE slots’’ requirement 

on a hospital-specific basis, we are 

proposing to change the effective date 

for slots received under Ranking Criteria 

Four through Eight so that if a hospital 

is not receiving a temporary cap 

adjustment under § 413.79(h), the slots 

awarded under section 5506 would be 

effective when the hospital can 

demonstrate to its MAC that the slots 

needed for a new program or program 

expansion are actually filled and, 

therefore, are needed as of a particular 

date (usually July 1, possibly 

retroactive). If a hospital is awarded 

slots under Ranking Criteria Four 

through Eight and is receiving a 

temporary cap adjustment to train 

displaced residents under § 413.79(h), 

the current policy would apply such 

that the slots are awarded on a 

permanent basis, the later of when a 

hospital can demonstrate to the MAC 

that the slots associated with a new 

program or program expansion are 

actually filled and, therefore, are needed 

as of a particular date (usually July 1, 

possibly retroactive), or the July 1 after 

an equivalent amount of a displaced 

FTE resident(s) complete their training. 

For example, assume in a hypothetical 

situation that there is a closed teaching 

hospital, and that another hospital takes 

in two displaced FTE residents, for 

which the hospital is receiving a 

temporary cap adjustment under 

§ 413.79(h). One resident is graduating 

on June 30, 2016, and the second 

resident is graduating on June 30, 2018. 

Assume that when the section 5506 

Round is announced, the hospital also 

applies for two slots to expand an 

internal medicine program under 

Ranking Criterion Five. In January of 

2017, CMS awards two permanent slots 

to the hospital under Ranking Criterion 

Five. For the program year starting July 

1, 2017, the hospital successfully 

demonstrates to the MAC that it filled 

the two additional internal medicine 

positions. Because one displaced FTE 

resident already graduated on June 30, 

2016, the MAC may approve one slot on 

a permanent basis effective July 1, 2017. 

However, the hospital would have to 

wait until July 1, 2018, to receive from 

the MAC the permanent slot for the 

second displaced internal medicine 

resident because the second displaced 

FTE resident is not graduating until 

June 30, 2018. 

We are not proposing any changes to 

the effective date for slots awarded 

under Ranking Criterion One, Ranking 

Criterion Two, or Ranking Criterion 

Three. Consistent with existing policy, 

if a hospital is applying under Ranking 

Criterion One or Ranking Criterion 

Three and is not receiving a temporary 

cap adjustment for training displaced 

residents under § 413.79(h), the effective 

date of the section 5506 slots is the date 

of the hospital closure. If a hospital is 

applying under Ranking Criterion One 

or Ranking Criterion Three and is 

receiving a temporary cap for training 

displaced residents under § 413.79(h), 

the effective date of the section 5506 

slots is after the displaced resident(s) 

graduate. If a hospital is receiving a 

temporary cap for training displaced 

residents under § 413.79(h), and is 

applying under Ranking Criterion One 

or Ranking Criterion Three and is also 

separately applying under Ranking 

Criterion Four or subsequent Ranking 

Criteria, for slots awarded under 

Ranking Criteria One or Three, the 

effective date of the section 5506 slots 

is after the displaced resident(s) 

graduate. For slots awarded under 

Ranking Criteria Four or subsequent 

Ranking Criteria, the slots are awarded 

the later of when a hospital can 

demonstrate to the MAC that the slots 

associated with a new program or 

program expansion are actually filled 

and, therefore, are needed as of a 

particular date (usually July 1, possibly 

retroactive), or the July 1 after an 

equivalent amount of a displaced FTE 

resident(s) at the hospital complete their 

training. Therefore, for such a hospital, 

the effective dates of slots awarded 

under Ranking Criteria One/Three, and 

Ranking Criteria Four through Eight 

might coincide. Also, consistent with 

existing policy, if a hospital is applying 

under Ranking Criterion Two, the 

effective date of the permanent award of 

section 5506 slots is the date of the 

hospital closure. We discuss these 

existing policies in the FY 2013 IPPS/ 

LTCH PPS final rule (77 FR 53437 

through 53445). 

The following list includes the 

current and proposed ranking criteria 

along with the current and proposed 

effective dates. 

• Current Ranking Criterion One: The 

applying hospital is requesting the 

increase in its FTE resident cap(s) 

because it is assuming (or assumed) an 

entire program (or programs) from the 

hospital that closed, and the applying 

hospital is continuing to operate the 

program(s) exactly as it had been 

operated by the hospital that closed 

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(that is, same residents, possibly the 

same program director, and possibly the 

same (or many of the same) teaching 

staff). 

• Proposed Ranking Criterion One: 

The applying hospital is requesting the 

increase in its FTE resident cap(s) 

because it is assuming (or assumed) an 

entire program (or programs) from the 

hospital that closed, and the applying 

hospital is continuing to operate the 

program(s) exactly as it had been 

operated by the hospital that closed 

(that is, same residents, possibly the 

same program director, and possibly the 

same (or many of the same) teaching 

staff). The applying hospital’s FTE 

resident caps were erroneously reduced 

by CMS under section 1886(h)(8)(A)(i) 

of the Act, contrary to the statutory 

exception at section 1886(h)(8)(A)(ii)(I) 

of the Act, and CMS Central Office was 

made aware of the error prior to posting 

of the FY 2015 IPPS proposed rule on 

the CMS Web site. (This language 

reflects the proposed modification of 

Ranking Criterion One. We refer readers 

to section IV.K.5.c. of the preamble of 

this proposed rule where we discuss 

this proposed modification.) 

Æ Current Policy: If the hospital is 

receiving a temporary cap adjustment, 

slots are effective the day after the 

graduation date(s) of actual displaced 

resident(s). If the hospital is not 

receiving a temporary cap adjustment, 

slots are effective with the date of the 

hospital closure. 

Æ Proposed Policy: No change. 

• Current Ranking Criterion Two: The 

applying hospital was listed as a 

participant of a Medicare GME affiliated 

group on the most recent Medicare GME 

affiliation agreement of which the 

closed hospital was a member before the 

hospital closed, and under the terms of 

that Medicare GME affiliation 

agreement, the applying hospital 

received slots from the hospital that 

closed, and the applying hospital will 

use the additional slots to continue to 

train at least the number of FTE 

residents it had trained under the terms 

of the Medicare GME affiliation 

agreement. If the most recent Medicare 

GME affiliation agreement of which the 

closed hospital was a member before the 

hospital closed was with a hospital that 

itself has closed or is closing, preference 

would be given to an applying hospital 

that was listed as a participant in the 

next most recent Medicare GME 

affiliation agreement (but not one which 

was entered into more than 5 years prior 

to the hospital’s closure) of which the 

first closed hospital was a member 

before the hospital closed, and that 

applying hospital received slots from 

the closed hospital under the terms of 

that affiliation agreement. 

• Clarified Ranking Criterion Two: 

The applying hospital was listed as a 

participant of a Medicare GME affiliated 

group on the most recent Medicare GME 

affiliation agreement or emergency 

Medicare GME affiliation agreement of 

which the closed hospital was a member 

before the hospital closed, and under 

the terms of that Medicare GME 

affiliation agreement or emergency 

Medicare GME affiliation agreement, the 

applying hospital received slots from 

the hospital that closed, and the 

applying hospital will use the 

additional slots to continue to train at 

least the number of FTE residents it had 

trained under the terms of the Medicare 

GME affiliation agreement, or 

emergency Medicare GME affiliation 

agreement. If the most recent Medicare 

GME affiliation agreement or emergency 

Medicare GME affiliation agreement of 

which the closed hospital was a member 

before the hospital closed was with a 

hospital that itself has closed or is 

closing, preference would be given to an 

applying hospital that was listed as a 

participant in the next most recent 

Medicare GME affiliation agreement or 

emergency Medicare GME affiliation 

agreement (but not one which was 

entered into more than 5 years prior to 

the hospital’s closure) of which the first 

closed hospital was a member before the 

hospital closed, and that applying 

hospital received slots from the closed 

hospital under the terms of that 

affiliation agreement. (This language 

reflects our clarification in this 

proposed rule regarding inclusion of 

emergency Medicare GME affiliation 

agreements in Ranking Criterion Two. 

We refer readers to section IV.K.5.d. of 

the preamble of this proposed rule 

where we discuss this clarification.) 

Æ Current Policy: Slots are effective 

with the date of the hospital closure. 

Æ Proposed Policy: No change. 

• Ranking Criterion Three: The 

applying hospital took in residents 

displaced by the closure of the hospital, 

but is not assuming an entire program 

or programs, and will use the additional 

slots to continue training residents in 

the same programs as the displaced 

residents, even after those displaced 

residents complete their training (that 

is, the applying hospital is permanently 

expanding its own existing programs). 

Æ Current Policy: If the hospital is 

receiving temporary cap adjustment, 

slots are effective the day after the 

graduation date(s) of actual displaced 

resident(s). If the hospital is not 

receiving a temporary cap adjustment, 

slots are effective with the date of the 

hospital closure. 

Æ Proposed Policy: No change. 

• Ranking Criterion Four: The 

program does not meet Ranking Criteria 

1, 2, or 3, and the applying hospital will 

use additional slots to establish a new 

or expand an existing geriatrics 

residency program. 

• Ranking Criterion Five: The 

program does not meet Ranking Criteria 

1 through 4, the applying hospital is 

located in a HPSA, and will use all the 

additional slots to establish or expand a 

primary care or general surgery 

residency program. 

• Ranking Criterion Six: The program 

does not meet Ranking Criteria 1 

through 5, and the applying hospital is 

not located in a HPSA, and will use all 

the additional slots to establish or 

expand a primary care or general 

surgery residency program. 

• Current Ranking Criterion Seven: 

The applying hospital will use 

additional slots to establish or expand a 

primary care or general surgery 

program, but the program does not meet 

Ranking Criterion 5 or 6 because the 

hospital is also separately applying 

under Ranking Criterion 8 for slots to 

establish or expand a nonprimary care 

or nongeneral surgery program and/or 

for cap relief. 

• Proposed Ranking Criterion Seven: 

The applying hospital will use 

additional slots to establish or expand a 

primary care or general surgery 

program, but the program does not meet 

Ranking Criterion 5 or 6 because the 

hospital is also separately applying 

under Ranking Criterion 8 for slots to 

establish or expand a nonprimary care 

or nongeneral surgery program. (This 

language reflects our proposal in this 

proposed rule to revise Ranking Criteria 

Seven and Eight. We refer readers to 

section IV.K.5.c. of the preamble of this 

proposed rule where we discuss our 

proposals to amend Ranking Criteria 

Seven and Eight.) 

Æ Current Policy for Ranking Criteria 

Four through Seven: The later of when 

the hospital can demonstrate to the 

MAC that the slots associated with a 

new program or program expansion are 

actually filled, and therefore, are needed 

as of a particular date (usually July 1, 

possibly retroactive), or the July 1 after 

displaced residents complete their 

training. 

Æ Proposed Policy for Ranking 

Criterion Four through Proposed 

Ranking Criterion Seven: If the hospital 

is receiving a temporary cap adjustment 

for training displaced residents, the later 

of when the hospital can demonstrate to 

the MAC that the slots associated with 

a new program or program expansion 

are actually filled, and therefore, are 

needed as of a particular date (usually 

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July 1, possibly retroactive), or the July 

1 after displaced residents complete 

their training. If the hospital is not 

receiving a temporary cap adjustment, 

when the hospital can demonstrate to 

the MAC that the slots needed for a new 

program or program expansion are 

actually filled, and therefore, are needed 

as of a particular date (usually July 1, 

possibly retroactive). 

• Current Ranking Criterion Eight: 

The program does not meet Ranking 

Criteria 1 through 7, and the applying 

hospital will use additional slots to 

establish or expand a nonprimary care 

or a nongeneral surgery program or for 

cap relief. 

• Proposed Ranking Criterion Eight: 

The program does not meet Ranking 

Criteria 1 through 7, and the applying 

hospital will use additional slots to 

establish or expand a nonprimary care 

or a nongeneral surgery program. (This 

language reflects our proposal in this 

proposed rule to revise Ranking 

Criterion Eight. We refer readers to 

section IV.K.5.c. of the preamble of this 

proposed rule where we discuss our 

proposals to amend Ranking Criterion 

Eight.) 

Æ Current Policy: If slots are for 

starting or expanding a nonprimary care 

or nongeneral surgery program, the 

effective date is same as that for Ranking 

Criteria Four through Seven. If slots are 

for cap relief (under current policy), the 

effective date is the effective date of 

CMS’ award announcement, or after 

displaced residents complete their 

training, whichever is later. 

Æ Proposed Policy for Proposed 

Ranking Criterion Eight: If the hospital 

is receiving a temporary cap adjustment 

for training displaced residents, the later 

of when the hospital can demonstrate to 

the MAC that the slots associated with 

a new program or program expansion 

are actually filled and, therefore, are 

needed as of a particular date (usually 

July 1, possibly retroactive), or the July 

1 after displaced residents complete 

their training. If the hospital is not 

receiving a temporary cap adjustment, 

when the hospital can demonstrate to 

the MAC that the slots needed for a new 

program or program expansion are 

actually filled, and therefore, are needed 

as of a particular date (usually July 1, 

possibly retroactive). 

In summary, we are proposing that, 

effective for section 5506 application 

rounds announced on or after October 1, 

2014, the statutory provision at section 

5506(d) requiring the Secretary to 

consider temporary cap adjustments 

under § 413.79(h) and to ensure no 

duplication of FTE slots, be interpreted 

in a manner such that the requirement 

for ‘‘no duplication of FTE slots’’ is 

applied on a hospital-specific basis 

rather than across all hospitals receiving 

temporary cap adjustments under 

§ 413.79(h). Consistent with this 

proposed change, we are proposing to 

amend the effective date for slots 

received under Ranking Criteria Four 

through Eight so that if a hospital is not 

receiving a temporary cap adjustment 

under § 413.79(h), the slots awarded 

under section 5506 would be effective 

when the hospital can demonstrate to its 

MAC that the slots needed for a new 

program or program expansion are 

actually filled and, therefore, are needed 

as of a particular date (usually July 1, 

possibly retroactive). 

b. Proposal To Remove Seamless 

Requirement 

Under current policy, if a hospital is 

applying under Ranking Criterion One 

or Three, the hospital must show that it 

is seamlessly replacing displaced FTE 

residents with new FTE residents once 

the displaced residents graduate (75 FR 

72219 and 72221 through 72222). We 

have stated that in instances where a 

hospital seamlessly operates an entire 

program or part of a program from the 

closed hospital (or takes over an entire 

program prior to the hospital’s closure), 

such a hospital is demonstrating a 

strong commitment to maintain GME 

programs in the community for the long 

term and should we awarded slots 

under higher ranking criteria (75 FR 

72216). Therefore, we required that, in 

order to receive slots under Ranking 

Criterion One and Three, the applying 

hospital must demonstrate that upon 

graduation of the displaced FTE 

residents that it is training, the slots 

held by those displaced FTEs are 

seamlessly replaced with new FTE 

residents (75 FR 72219 and 72221 

through 72222). In the FY 2013 IPPS/

LTCH PPS final rule (77 FR 53441), in 

response to concerns associated with 

the seamless requirement and timeline 

used by the National Resident Match 

Program or other resident match 

services, we revised the seamless 

requirement. We stated that in the 

instance where a teaching hospital 

closed after December 31 of an academic 

year, in order for a hospital to qualify 

under Ranking Criterion One or Three 

for cap slots associated with displaced 

FTE residents who will graduate June 30 

of the academic year in which the 

applying hospital took in the displaced 

FTE residents, the applying hospital 

must be able to demonstrate that it will 

fill slots vacated by displaced FTE 

residents by July 1 of the second 

academic year following the hospital 

closure. However, in the instance where 

a teaching hospital closed before 

December 31 of an academic year, in 

order for a hospital to qualify under 

Ranking Criterion One or Three for cap 

slots associated with displaced FTE 

residents who will graduate June 30 of 

the academic year in which the 

applying hospital took in the displaced 

FTE residents, the applying hospital 

must be able to demonstrate that it will 

seamlessly fill slots vacated by 

displaced FTE residents by that July 1; 

that is, the day immediately after the 

June 30 that the displaced FTE residents 

graduate (77 FR 53441 through 53442). 

We also revised the CMS Application 

Form to instruct a hospital applying 

under Ranking Criterion One or Three to 

list the names and graduation dates of 

specific displaced residents who, upon 

their graduation, have been or will be 

seamlessly replaced by new residents 

(77 FR 53446). Because Ranking Criteria 

One and Three fall under Demonstrated 

Likelihood Criterion 2, the hospital is 

taking over all of part of an existing 

residency program from the closed 

hospital, or expanding an existing 

residency training program, the 

requirement to include a list with the 

names and graduation dates of specific 

displaced residents who have been or 

will be seamlessly replaced was added 

under Demonstrated Likelihood 

Criterion 2 on the CMS Application 

Form. 

In addition to the match deadlines 

associated with the National Resident 

Matching Program and match deadlines 

associated with matching into 

osteopathic programs, we have recently 

been made aware of other match 

deadlines associated with certain 

fellowship programs. From the 

experience we have had so far in 

reviewing section 5506 applications, 

where we have observed the complexity 

of tracking various match deadlines as 

well as the intersection between these 

deadlines and when the section 5506 

awards are announced by CMS, we are 

proposing to remove the seamless 

requirement for slots awarded under 

Ranking Criterion One and Three 

effective for section 5506 application 

rounds announced on or after October 1, 

2014. We are not proposing to make any 

other additional changes to Ranking 

Criterion One or Three; that is, the 

hospital must still be training displaced 

residents and must either take over or 

have taken over an entire program from 

the closed hospital and continue 

operating that program in the same 

manner in which it was operated by the 

closed hospital or the hospital must take 

over part of a closed hospital’s program 

and permanently expand its own 

program as a result of training displaced 

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residents. Hospitals would continue to 

be required to submit supporting 

documentation when applying under 

Ranking Criterion One or Three that 

indicates that they have made a 

commitment to take over the closed 

hospital’s program or that they have 

made the commitment to permanently 

expand their own residency training 

program resulting from taking over part 

of a closed hospital’s program. 

In determining the effective date of 

slots awarded under Ranking Criterion 

One or Three where the hospital has 

been training residents that were 

displaced by the closed hospital and 

receiving a temporary cap adjustment 

under § 413.79(h), the hospital would 

work with its MAC to determine when 

it could be permanently awarded the 

slots based on the graduation dates of 

the displaced residents it is training. 

Consistent with our proposal, we are 

proposing to remove the following 

requirement under Demonstrated 

Likelihood Criterion 2 on the CMS 

Application Form: ‘‘Hospitals applying 

for slots under option (a) which 

correlates to Ranking Criterion 1 or (b) 

which correlates to Ranking Criterion 3 

must list the names and graduation 

dates of specific displaced residents 

who, upon their graduation, have been 

or will be seamlessly replaced by new 

residents. The list may be added as an 

attachment to this application.’’ We are 

proposing to replace this requirement 

with the following requirement under 

Demonstrated Likelihood Criteria 1 and 

2’’ ‘‘Please indicate Y or N: As of the 

time of submitting this application, are 

you receiving a temporary cap 

adjustment for IME and/or direct GME 

under 42 CFR 413.79(h) for residents 

displaced by the closure of the hospital 

subject to this Round of section 5506? 

(Y/N)’’ so that we are aware which 

hospitals are receiving temporary cap 

adjustments for training displaced 

residents under § 413.79(h), and when 

we award slots, we would know which 

hospitals to instruct to work with their 

MACs to determine when the slots 

could be permanently awarded to them 

based on the graduation dates of the 

displaced residents they are training. 

In summary, we are proposing to 

remove the seamless requirement 

currently included as part of Ranking 

Criterion One or Three. We also are 

proposing to remove from the CMS 

Application Form, the following 

requirement: ‘‘Hospitals applying for 

slots under option a) which correlates to 

Ranking Criterion 1 or b) which 

correlates to Ranking Criterion 3 must 

list the names and graduation dates of 

specific displaced residents who, upon 

their graduation, have been or will be 

seamlessly replaced by new residents. 

This list may be added as an attachment 

to this application.’’ 

c. Proposed Revisions to Ranking 

Criteria One, Seven, and Eight for 

Applications Under Section 5506 

In the November 24, 2010 final rule 

with comment period (75 FR 72223), we 

finalized the Ranking Criteria within 

each of the three first statutory priority 

categories (that is, same or contiguous 

CBSAs, same State, and same region) to 

be used to rank applications for 

assignment of slots under section 5506 

of the Affordable Care Act. For each 

application, we assigned slots based on 

Ranking Criteria, with Ranking Criterion 

One being the highest ranking and 

Ranking Criterion Seven being the 

lowest. For a detailed discussion of the 

ranking categories, we refer readers to 

the November 24, 2010 final rule with 

comment period (75 FR 72212 through 

72240). 

After reviewing applications 

submitted during the first section 5506 

application process (those applications 

that were due to CMS on April 1, 2011), 

we observed that the overwhelming 

majority of applications fell under 

Ranking Criterion Seven; that is, the 

applying hospital seeks the slots for 

purposes that do not fit into any of 

Ranking Criterion One through Ranking 

Criterion Six. These applications 

included applications from hospitals 

that applied for FTE cap slots for both 

primary care and/or general surgery and 

for nonprimary care specialties as well 

as applications for general cap relief. 

The sheer number of applications we 

received under Ranking Criterion Seven 

indicate a need to further prioritize 

among the applicants that would have 

qualified under Ranking Criterion 

Seven. Therefore, in the FY 2013 IPPS/ 

LTCH PPS final rule (77 FR 53434 

through 53437), we finalized changes to 

the Ranking Criteria, replacing Ranking 

Criterion Seven with two separate 

Ranking Criteria (Ranking Criterion 

Seven and Ranking Criterion Eight) 

resulting in a total of eight Ranking 

Criteria. Under the Ranking Criteria, as 

modified by the FY 2013 IPPS/LTCH 

PPS final rule, a hospital that is 

applying both for the purpose of 

establishing or expanding primary care 

or general surgery programs, and in 

addition is requesting slots for the 

purpose of establishing or expanding 

nonprimary care or nongeneral surgery 

programs and/or for cap relief must 

submit an application requesting 

additional FTE slots for its primary care 

or general surgery programs under 

Ranking Criterion Seven. The hospital’s 

request for additional FTE slots to 

establish or expand a nonprimary care 

or nongeneral surgery program and/or 

for additional FTE slots for cap relief 

would then be made under Ranking 

Criterion Eight. Prior to this change, if 

a hospital applied for additional FTE 

slots to establish or expand both a 

primary care or general surgery program 

in addition to a nonprimary care or 

nongeneral surgery program and/or for 

additional FTE slots for cap relief, all of 

its applications (with the exception of 

Ranking Criteria One through Three) 

would fall under Ranking Criteria 

Seven. For a complete list of the 

Ranking Criteria, we refer readers to 

section IV.K.5.a. of the preamble of this 

proposed rule, which discusses the 

background for preservation of resident 

cap positions from closed hospitals 

under section 5506 of the Affordable 

Care Act. 

After reviewing applications and 

making awards under several more 

rounds of section 5506 applications, we 

have observed that, as hospital closings 

continue to occur, there has been a 

significant increase in the time between 

a hospital’s closure and the 

announcement of section 5506 awards 

by CMS. We believe that this delay is 

partly due to the administratively 

burdensome task of processing, 

reviewing, and responding to such a 

large number of applications for each 

hospital closure, or each round of 

section 5506 awards. When 

implementing section 5506 in the 

November 24, 2010 final rule with 

comment period (75 FR 72212 through 

72249), we initially envisioned the 

reviewing of applications and awarding 

of section 5506 FTE slots as being a 

more streamlined and expedient 

process. However, as a practical matter, 

we have found that process has been 

much more resource and time intensive 

than we had originally anticipated. This 

is partly due to the time and resources 

needed to properly apply the process 

established by CMS in reviewing section 

5506 applications and awarding FTE 

cap slots. Since the initial 

implementation of section 5506, we 

have attempted to be responsive to these 

unexpected delays by refining the 

ranking criteria to make the review 

process less administratively 

burdensome. However, these changes 

did not alleviate the process to the 

desired extent. Furthermore, we have 

observed that, while many of the 

applications submitted to CMS are 

applications requesting FTE slots for 

purposes of general cap relief, we have 

more often than not awarded no slots at 

all for cap relief. This is due in large 

part to the limited number of slots 

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available (many of the closed teaching 

hospitals did not have large FTE 

resident caps) and an overwhelming 

demand for those slots from applicants 

who apply for FTE slots for reasons 

other than cap relief. Since we finalized 

the modified Ranking Criterion Seven 

and added Ranking Criterion Eight in 

the FY 2013 IPPS/LTCH PPS final rule, 

we have announced three new rounds of 

section 5506 applications due to the 

closures of six hospitals. We have 

received a total of 424 applications from 

hospitals seeking cap relief. Of those 

424 applications, only 6 applications 

were ultimately awarded FTE slots, 

which is only 1.42 percent of the total 

cap relief applications. We believe that 

the ratio of cap relief awardees to cap 

relief applications does not warrant the 

administrative burden and the delay in 

announcements of section 5506 awards 

that result from the large number of cap 

relief applications submitted to CMS 

that are invariably denied. Therefore, in 

an effort to streamline the review 

process and to facilitate publishing 

section 5506 awards in a more timely 

manner, we are proposing to modify 

Ranking Criterion Eight so that Ranking 

Criterion Eight would only apply to 

hospitals seeking FTE slots to establish 

or expand a nonprimary care or 

nongeneral surgery program. Ranking 

Criterion Eight would no longer be 

applicable to hospitals seeking FTE cap 

slots for cap relief. Our proposal to 

eliminate section 5506 awards of FTE 

slots for cap relief is consistent with 

current policy goals to increase training 

in primary care and general surgery. By 

proposing to eliminate awarding of FTE 

slots for residents that are already being 

trained by a hospital, there will be more 

FTE resident slots available to award to 

other hospitals seeking to establish or 

expand a primary care or general 

surgery program under Ranking Criteria 

Four through Seven. 

Accordingly, we are proposing to 

revise Ranking Criterion Eight so that it 

reads as follows: 

Proposed Ranking Criterion Eight: 

The program does not meet Ranking 

Criteria 1 through 7, and the applying 

hospital will use additional slots to 

establish or expand a nonprimary care 

or a nongeneral surgery program. 

In light of the modifications we are 

proposing to Ranking Criterion Eight, 

we believe it is also necessary to modify 

the language of proposed Ranking 

Criterion Seven to specify the types of 

applications that would properly be 

made under this Ranking Criterion; that 

is, we are proposing to remove the 

reference to cap relief from Ranking 

Criterion Seven so that it read as 

follows: 

Proposed Ranking Criterion Seven: 

The applying hospital will use 

additional slots to establish or expand a 

primary care or general surgery 

program, but the program does not meet 

Ranking Criterion 5 or 6 because the 

hospital is also separately applying 

under Ranking Criterion 8 for slots to 

establish or expand a nonprimary care 

or nongeneral surgery program. 

Separately, we also are proposing a 

change related to Ranking Criterion 

One. Current ranking Criterion One is 

for an applying hospital that assumed 

an entire program or programs from the 

hospital that closed. We are proposing 

to revise Ranking Criterion One to 

provide priority to hospitals in one 

scenario. Section 5503 of the Affordable 

Care Act amended section 1886(h) of the 

Act by adding new paragraph (8), which 

provided for the permanent reduction 

and distribution of residency slots. 

Section 1886(h)(8)(A)(ii) of the Act 

provides specific exceptions to the 

application of the reduction at section 

1886(h)(8)(A)(i) of the Act, and 

expressly states: ‘‘Exceptions—This 

subparagraph shall not apply to (I) a 

hospital located in a rural area (as 

defined in subsection (d)(2)(D)(ii)) with 

fewer than 250 acute care inpatient 

beds.’’ The November 24, 2010 final rule 

with comment period (75 FR 72147) 

describes the agency’s interpretation of 

this statutory provision. As of the time 

that this proposed rule is posted on the 

CMS Web site, we are aware of one 

instance in which CMS erroneously 

reduced a hospital’s FTE resident cap 

contrary to this statutory exception. We 

are proposing to amend Ranking 

Criterion One under section 5506 to 

provide priority to a hospital which had 

FTE resident cap slots erroneously 

removed under section 5503 contrary to 

the statutory exception at section 

1886(h)(8)(A)(ii)(I) of the Act. We are 

proposing to revise Ranking Criterion 

One as follows: 

b Ranking Criterion One. The 

applying hospital is requesting the 

increase in its FTE resident cap(s) 

because it is assuming (or assumed) an 

entire program (or programs) from the 

hospital that closed, and the applying 

hospital is continuing to operate the 

program(s) exactly as it had been 

operated by the hospital that closed 

(that is, same residents, possibly the 

same program director, and possibly the 

same (or many of the same) teaching 

staff). The applying hospital’s FTE 

resident caps were erroneously reduced 

by CMS under section 1886(h)(8)(A)(i) of 

the Act, contrary to the statutory 

exception at section 1886(h)(8)(A)(ii)(I) 

of the Act, and CMS Central Office was 

made aware of the error prior to posting 

of the FY 2015 IPPS proposed rule on 

the CMS Web site. 

d. Clarification to Ranking Criterion 

Two Regarding Emergency Medicare 

GME Affiliation Agreements 

Ranking Criterion Two gives 

preference to applying hospitals that 

received slots under the terms of a 

Medicare GME affiliation agreement 

from the closed hospital. Under section 

1886(h)(4)(H)(ii) of the Act, hospitals 

may form a Medicare GME affiliated 

group and elect to aggregate their 

respective FTE resident caps and apply 

them on an aggregate basis. The 

regulations at 42 CFR 413.75(b) and 

413.79(f) implemented this statutory 

provision, providing specific rules for 

sharing FTE resident cap slots among 

members of the Medicare GME affiliated 

group, one such rule being that member 

hospitals must have a ‘‘shared rotational 

arrangement.’’ A ‘‘shared rotational 

arrangement’’ is defined at 42 CFR 

413.75(b) as a residency training 

program under which a resident(s) 

participates in training at two or more 

hospitals in that program. Specifically, 

Ranking Criterion Two states the 

following: 

Ranking Criterion Two. The applying 

hospital was listed as a participant of a 

Medicare GME affiliated group on the 

most recent Medicare GME affiliation 

agreement of which the closed hospital 

was a member before the hospital 

closed, and under the terms of that 

Medicare GME affiliation agreement, the 

applying hospital received slots from 

the hospital that closed, and the 

applying hospital will use the additional 

slots to continue to train at least the 

number of FTE residents it had trained 

under the terms of the Medicare GME 

affiliation agreement. If the most recent 

Medicare GME affiliation agreement of 

which the closed hospital was a member 

before the hospital closed was with a 

hospital that itself has closed or is 

closing, preference would be given to an 

applying hospital that was listed as a 

participant in the next most recent 

Medicare GME affiliation agreement 

(but not one which was entered into 

more than 5 years prior to the hospital’s 

closure) of which the first closed 

hospital was a member before the 

hospital closed, and that applying 

hospital received slots from the closed 

hospital under the terms of that 

affiliation agreement. 

A question has been raised as to 

whether hospitals that were members of 

an emergency Medicare GME affiliation 

agreement with the closed hospital prior 

to its closure may be considered under 

Ranking Criterion Two as well. The 

regulations at 42 CFR 413.79(f)(7) 

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govern emergency Medicare GME 

affiliation agreements, which are 

applicable in the instance where a 

statutory section 1135 waiver is 

invoked. In this situation, due to 

emergency conditions, the ‘‘home’’ 

hospital is unable to continue to train its 

residents. Therefore, under the terms of 

the emergency Medicare GME affiliation 

agreement, the ‘‘home’’ hospital may 

agree to temporarily transfer FTE 

resident cap slots to ‘‘host’’ hospitals 

that would train the displaced residents 

during the emergency period. 

In the November 24, 2010 final rule 

with comment period (75 FR 72216), we 

stated that ‘‘section 1886(h)(4)(H)(vi) of 

the Act, as added by section 5506(a) of 

the Affordable Care Act, directs the 

Secretary to give preference to hospitals 

that are members of the same affiliated 

group as the hospital that closed. We 

believe that, generally, if the applying 

hospital was affiliated to receive slots 

from the hospital that closed, then the 

applying hospital was relying on that 

number of FTE resident slots that it 

received in order to maintain its fair 

share of the cross-training of the 

residents in the jointly operated 

programs. In the absence of those slots 

received from the closed hospital, the 

applying hospital may not be able to 

continue training that number of FTE 

residents, and those same residents 

would not only be displaced from the 

closed hospital, but might essentially 

become ‘displaced’ from the affiliated 

hospitals in which they were used to 

doing a portion of their training. 

Accordingly, we proposed this ranking 

criterion to allow hospitals that were 

affiliated with the closed hospitals to at 

least maintain their fair share of the 

training of the residents in the programs 

that they had jointly operated with the 

closed hospital.’’ 

In determining whether Ranking 

Criterion Two may encompass 

emergency Medicare GME affiliation 

agreements, we considered the key 

differences and similarities between 

regular Medicare GME affiliation 

agreements and emergency Medicare 

GME affiliation agreements. Regarding 

the differences, in the case of emergency 

affiliations, there may not have been 

historical cross-training or jointly 

operated programs between the 

applicant hospital and the hospital that 

closed. Furthermore, after the natural 

disaster that precipitates the section 

1135 waiver, the ‘‘home’’ hospital 

would be in no condition to train its 

share of residents, which is why the 

‘‘shared rotational arrangement’’ 

requirements at 42 CFR 413.79(f)(2) for 

regular Medicare GME affiliation 

agreements are waived for emergency 

Medicare GME affiliation agreements. 

However, it is often true with 

emergency affiliations that a hospital 

agrees to take over the training of the 

hospital in need, ‘‘receiving’’ FTE cap 

slots and residents from the ‘‘home’’ 

hospital, thereby creating the training 

relationship. In the event where, 

following the disaster that triggers the 

section 1135 waiver, a hospital should 

actually close, the ‘‘host’’ hospital that 

accepted the residents perhaps might 

even continue to train its share of the 

residents in the program after the 

hospital closes. Therefore, emergency 

affiliation agreements are similar to 

regular affiliation agreements in that the 

‘‘host’’ hospital received FTE cap slots 

from the ‘‘home’’ hospital to train the 

‘‘home’’ hospital’s residents. Further, in 

the event that the ‘‘home’’ hospital 

closes, triggering a Round of section 

5506, the ‘‘host’’ hospital also would 

need those FTE cap slots in order to 

continue training the share of its 

program for which it had taken 

responsibility under the emergency 

Medicare GME affiliation agreement 

before the ‘‘home’’ hospital closed. 

As we stated in the November 24, 

2010 final rule with comment period (75 

FR 72219 through 72220), ‘‘we believe 

the intent of section 5506 is to promote 

continuity and limit disruption in 

residency training. In that light, we 

believe it is logical to give preference to 

a hospital that received slots under the 

terms of the Medicare GME affiliation 

agreement so that the hospital could 

continue to train at least the number of 

FTE residents it had trained under the 

terms of the Medicare GME affiliation 

agreement, avoiding the displacement of 

even more residents. . . .’’ We further 

stated that we ‘‘. . . are only giving 

preference to hospitals that received 

slots from the closed hospital under the 

terms of the Medicare GME affiliation 

agreement, so that the hospital could 

continue to train at least the number of 

FTE residents it had trained under the 

terms of the Medicare GME affiliation 

agreement. . . .’’ Finally, we stated 

‘‘that the hospital or hospitals that were 

most recently affiliated with and 

received slots from the closed hospital 

would have the most immediate need 

for those slots.’’ 

While the circumstances may vary, 

we believe that ‘‘host’’ hospitals under 

emergency Medicare GME affiliation 

agreements could fulfill much of the 

same role as hospitals that received slots 

from the hospital that closed under 

regular Medicare GME affiliation 

agreements. That is, continuity of 

training would be encouraged and 

disruption would be mitigated, to the 

extent that the ‘‘host’’ hospital could 

document to CMS that it would 

continue to ‘‘train at least the number of 

FTE residents it had trained under the 

terms of the’’ emergency Medicare GME 

affiliation agreement, and in doing so, 

would demonstrate it has the ‘‘most 

immediate need for those slots’’ as 

compared to another hospital. Given 

these similarities between regular 

Medicare GME affiliation agreements 

and emergency Medicare GME 

affiliation agreements, we believe that 

the existing Ranking Criterion Two may 

be read to already encompass 

emergency Medicare GME affiliation 

agreements. Accordingly, we are 

clarifying the existing Ranking Criterion 

Two to include emergency Medicare 

GME affiliation agreements, to read as 

follows: 

b Ranking Criterion Two. The 

applying hospital was listed as a 

participant of a Medicare GME affiliated 

group on the most recent Medicare GME 

affiliation agreement or emergency 

Medicare GME affiliation agreement of 

which the closed hospital was a member 

before the hospital closed, and under 

the terms of that Medicare GME 

affiliation agreement or emergency 

Medicare GME affiliation agreement, the 

applying hospital received slots from 

the hospital that closed, and the 

applying hospital will use the additional 

slots to continue to train at least the 

number of FTE residents it had trained 

under the terms of the Medicare GME 

affiliation agreement, or emergency 

Medicare GME affiliation agreement. If 

the most recent Medicare GME 

affiliation agreement or emergency 

Medicare GME affiliation agreement of 

which the closed hospital was a member 

before the hospital closed was with a 

hospital that itself has closed or is 

closing, preference would be given to an 

applying hospital that was listed as a 

participant in the next most recent 

Medicare GME affiliation agreement or 

emergency Medicare GME affiliation 

agreement (but not one which was 

entered into more than 5 years prior to 

the hospital’s closure) of which the first 

closed hospital was a member before the 

hospital closed, and that applying 

hospital received slots from the closed 

hospital under the terms of that 

affiliation agreement. 

We are making these changes to 

Ranking Criterion Two in the Section 

5506 Application Form. 

We are including below a revised 

Section 5506 Application Form that 

reflects all of the proposed changes 

discussed above. 

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28162 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

CMS Application Form 

As Part of the Application for the 

Increase in a Hospital’s FTE Cap(s) 

under Section 5506 of the Affordable 

Care Act: Preservation of FTE Cap Slots 

from Teaching Hospitals that Close 

Directions: Please fill out the 

information below for each residency 

program for which the applicant 

hospital intends to use the increase in 

its FTE cap(s). If the hospital is 

applying for slots for a particular 

program, but the requested slots in that 

program qualify under two different 

ranking criteria, submit two separate 

application forms accordingly. If the 

hospital is applying for slots associated 

with a Medicare GME affiliation 

agreement with a hospital that closed, 

that application must be submitted 

separately from an individual program 

request. 

NAME OF HOSPITAL: lllllll

MEDICARE PROVIDER NUMBER 

(CCN): lllllllllllllll

NAME OF MEDICARE CONTRACTOR: 

lllllllllllllllllll

CORE-BASED STATISTICAL AREA 

(CBSA in which the hospital is physically located—write the 5 digit code 

here): lllllllllllllll

COUNTY NAME (in which the hospital 

is physically located): llllllll

Complete the following, as applicable: 

1. Name of Specialty Training 

Program: llllllllllllll

2. Medicare GME Affiliated Group: ll

(Check one): b Allopathic Program 

b Osteopathic Program 

NUMBER OF FTE SLOTS REQUESTED 

FOR SPECIFIC PROGRAM (OR 

OVERALL IF SEEKING SLOTS 

ASSOCIATED WITH A MEDICARE 

GME AFFILIATED GROUP) AT YOUR 

HOSPITAL: 

Direct GME:llll 

IME:llll 

Section A: Demonstrated Likelihood 

Criteria (DLC) of Filling the FTE 

Slots 

The applicant hospital must provide 

documentation to demonstrate the 

likelihood of filling requested slots 

under section 5506 within the 3 

academic years immediately following 

the application deadline to receive slots 

after a particular hospital closes. Please 

indicate the specific use for which you 

are requesting an increase in your 

hospital’s FTE cap(s). If you are 

requesting an increase in the hospital’s 

FTE cap(s) for a combination of DLC1, 

DLC2, or DLC3, you must complete a 

separate CMS Application Form for 

each DLC and specify the distinct 

criterion from the list below within each 

Form. 

Demonstrated Likelihood Criterion 1: 

Establishing a New Residency Program 

The hospital does not have sufficient 

room under its direct GME FTE cap or 

IME FTE cap, or both, and will establish 

a new residency program in the 

specialty. 

Please indicate Y or N: As of the time 

of submitting this application, are you 

receiving a temporary cap adjustment 

for IME and/or direct GME under 42 

CFR 413.79(h) for residents displaced 

by the closure of the hospital subject to 

this Round of section 5506? 

(Y/N)llll 

The hospital must check at least one 

of the following: 

Application for approval of the new 

residency program has been submitted 

to the ACGME, AOA or the ABMS (The 

hospital must attach a copy.) 

The hospital has submitted an 

institutional review document or 

program information form concerning 

the new program in an application for 

approval of the new program. (The 

hospital must attach a copy.) 

The hospital has received written 

correspondence from the ACGME, AOA 

or ABMS acknowledging receipt of the 

application for the new program, or 

other types of communication from the 

accrediting bodies concerning the new 

program approval process (such as 

notification of site visit). (The hospital 

must attach a copy.) 

The hospital has other documentation 

demonstrating that it has made a 

commitment to start a new program 

(The hospital must attach a copy.) 

Demonstrated Likelihood Criterion 2: 

Taking Over All or Part of an Existing 

Residency Program from the Closed 

Hospital, or Expanding an Existing 

Residency Program 

The hospital does not have sufficient 

room under its direct GME FTE cap or 

IME FTE cap, or both, and (a) has 

permanently taken over the closed 

hospital’s entire residency program, or 

(b) is permanently expanding its own 

previously established and approved 

residency program resulting from taking 

over part of a residency program from 

the closed hospital, or (c) is 

permanently expanding its own existing 

residency program. 

Please indicate Y or N: As of the time 

of submitting this application, are you 

receiving a temporary cap adjustment 

for IME and/or direct GME under 42 

CFR 413.79(h) for residents displaced 

by the closure of the hospital subject to 

this Round of section 5506? 

(Y/N) llll 

The hospital must check at least one 

of the following: 

Application for approval to take over 

the closed hospital’s residency program 

has been submitted to the ACGME, 

AOA, or the ABMS, or approval has 

been received from the ACGME, AOA, 

or the ABMS. (The hospital must attach 

a copy.) 

Application for approval of an 

expansion of the number of approved 

positions in its residency program 

resulting from taking over part of a 

residency program from the closed 

hospital has been submitted to the 

ACGME, AOA or the ABMS, or approval 

has been received from the ACGME, 

AOA, or the ABMS. (The hospital must 

attach a copy.) 

Application for approval of an 

expansion of the number of approved 

positions in its residency program has 

been submitted to the ACGME, AOA or 

the ABMS, or approval has been 

received from the ACGME, AOA, or the 

ABMS. (The hospital must attach a 

copy.) 

The hospital currently has unfilled 

positions in its residency program that 

have previously been approved by the 

ACGME, AOA, or the ABMS, and is 

now seeking to fill those positions. (The 

hospital must attach documentation 

clearly showing its current number of 

approved positions, and its current 

number of filled positions). 

The hospital has submitted an 

institutional review document or 

program information form concerning 

the program in an application for 

approval of an expansion to the program 

(The hospital must attach a copy). 

Demonstrated Likelihood Criterion 3: 

Receiving Slots by Virtue of Medicare 

GME Affiliated Group Agreement or 

Emergency Medicare GME Affiliated 

Group Agreement With Closed Hospital 

The hospital was listed as a 

participant of a Medicare GME affiliated 

group on the most recent Medicare GME 

affiliation agreement or emergency 

Medicare GME affiliation 

agreement of which the closed hospital 

was a member before the hospital 

closed, and under the terms of that 

Medicare GME affiliation agreement or 

emergency Medicare GME 

affiliation agreement, the applying 

hospital received slots from the hospital 

that closed, and the applying hospital 

will use the additional slots to continue 

to train at least the number of FTE 

residents it had trained under the terms 

of the Medicare GME affiliation 

agreement or emergency Medicare 

GME affiliation agreement. If the 

most recent Medicare GME affiliation 

agreement or emergency Medicare 

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GME affiliation agreement of which 

the closed hospital was a member before 

the hospital closed was with a hospital 

that itself has closed or is closing, the 

applying hospital was listed as a 

participant in the next most recent 

Medicare GME affiliation agreement or 

emergency Medicare GME 

affiliation agreement (but not one 

which was entered into more than 5 

years prior to the hospital’s closure) of 

which the first closed hospital was a 

member before the hospital closed, and 

that applying hospital received slots 

from the closed hospital under the terms 

of that affiliation agreement. (Copies of 

EACH of the following must be 

attached.) 

Copies of the recent Medicare GME 

affiliation agreement (or emergency 

Medicare GME affiliation agreement) of 

which the applying hospital and the 

closed hospital were a member of before 

the hospital closed. 

Copies of the most recent 

accreditation letters for all of the 

hospital’s training programs in which 

the hospital had a shared rotational 

arrangement (as defined at § 413.75(b)) 

with the closed hospital. 

Section B. Level Priority Category 

(Place an ‘‘X’’ in the appropriate box 

that is applicable to the level priority 

category that describes the applicant 

hospital.) 

First, to hospitals located in the same 

core-based statistical area (CBSA) as, or 

in a CBSA contiguous to, the hospital 

that closed. 

Second, to hospitals located in the 

same State as the closed hospital. 

Third, to hospitals located in the same 

region as the hospital that closed. 

Fourth, if the slots have not yet been 

fully distributed, to qualifying hospitals 

in accordance with the criteria 

established under section 5503, 

‘‘Distribution of Additional Residency 

Positions’’ 

Section C. Ranking Criteria 

(Place an ‘‘X’’ in the box for each 

criterion that is appropriate for the 

applicant hospital and for the program 

for which the increase in the FTE cap 

is requested.) 

b Ranking Criterion One. The 

applying hospital is requesting the 

increase in its FTE resident cap(s) 

because it is assuming (or assumed) an 

entire program (or programs) from the 

hospital that closed, and the applying 

hospital is continuing to operate the 

program(s) exactly as it had been 

operated by the hospital that closed 

(that is, same residents, possibly the 

same program director, and possibly the 

same (or many of the same) teaching 

staff). The applying hospital’s FTE 

resident caps were erroneously reduced 

by CMS under section 1886(h)(8)(A)(i) of 

the Act, contrary to the statutory 

exception at section 1886(h)(8)(A)(ii)(I) 

of the Act, and CMS Central Office was 

made aware of the error prior to posting 

of the FY 2015 IPPS proposed rule on 

the CMS Web site. 

Ranking Criterion Two. The applying 

hospital was listed as a participant of a 

Medicare GME affiliated group on the 

most recent Medicare GME affiliation 

agreement or emergency Medicare 

GME affiliation agreement of which 

the closed hospital was a member before 

the hospital closed, and under the terms 

of that Medicare GME affiliation 

agreement or emergency Medicare 

GME affiliation agreement, the 

applying hospital received slots from 

the hospital that closed, and the 

applying hospital will use the additional 

slots to continue to train at least the 

number of FTE residents it had trained 

under the terms of the Medicare GME 

affiliation agreement, or emergency 

Medicare GME affiliation 

agreement. If the most recent Medicare 

GME affiliation agreement or 

emergency Medicare GME 

affiliation agreement of which the 

closed hospital was a member before the 

hospital closed was with a hospital that 

itself has closed or is closing, preference 

would be given to an applying hospital 

that was listed as a participant in the 

next most recent Medicare GME 

affiliation agreement or emergency 

Medicare GME affiliation 

agreement (but not one which was 

entered into more than 5 years prior to 

the hospital’s closure) of which the first 

closed hospital was a member before the 

hospital closed, and that applying 

hospital received slots from the closed 

hospital under the terms of that 

affiliation agreement. 

Ranking Criterion Three. The 

applying hospital took in residents 

displaced by the closure of the hospital, 

but is not assuming an entire program 

or programs, and will use the additional 

slots to continue training residents in 

the same programs as the displaced 

residents, even after those displaced 

residents complete their training (that 

is, the applying hospital is permanently 

expanding its own existing programs). 

Ranking Criterion Four. The program 

does not meet Ranking Criteria 1, 2, or 

3, and the applying hospital will use 

additional slots to establish a new or 

expand an existing geriatrics residency 

program. 

b Ranking Criterion Five: The 

program does not meet Ranking Criteria 

1 through 4, the applying hospital is 

located in a HPSA, and will use all the 

additional slots to establish or expand 

a primary care or general surgery 

residency program. 

Ranking Criterion Six: The program 

does not meet Ranking Criteria 1 

through 5, and the applying hospital is 

not located in a HPSA, and will use all 

the additional slots to establish or 

expand a primary care or general 

surgery residency program. 

Ranking Criterion Seven: The 

applying hospital will use additional 

slots to establish or expand a primary 

care or general surgery program, but the 

program does not meet Ranking 

Criterion 5 or 6 because the hospital is 

also separately applying under Ranking 

Criterion 8 for slots to establish or 

expand a nonprimary care or nongeneral surgery program. 

Ranking Criterion Eight: The program 

does not meet Ranking Criteria 1 

through 7, and the applying hospital 

will use additional slots to establish or 

expand a nonprimary care or a 

nongeneral surgery program. 

Application Process and CMS 

Central Office Mailing Address for 

Receiving Increases in FTE Resident 

Caps 

In order for hospitals to be considered 

for increases in their FTE resident caps, 

each qualifying hospital must submit a 

timely application. The following 

information must be submitted on 

applications to receive an increase in 

FTE resident caps: 

D The name and Medicare provider 

number, and Medicare contractor (to 

which the hospital submits its cost 

report) of the hospital. 

The total number of requested FTE 

resident slots for direct GME or IME, or 

both. 

A completed copy of the CMS 

Application Form for each residency 

program for which the hospital intends 

to use the requested increase in FTE 

residents. 

Source documentation to support the 

assertions made by the hospital on the 

CMS Application Form. 

FTE resident counts for direct GME 

and IME and FTE resident caps for 

direct GME and IME reported by the 

hospital in the most recent as-filed cost 

report. Include copies of Worksheets E, 

Part A, and E–4. 

An attestation, signed and dated by an 

officer or administrator of the hospital 

who signs the hospital’s Medicare cost 

report, with the following information: 

‘‘I hereby certify that I understand that 

misrepresentation or falsification of any 

information contained in this 

application may be punishable by 

criminal, civil, and administrative 

action, fine and/or imprisonment under 

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28164 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

federal law. Furthermore, I understand 

that if services identified in this 

application were provided or procured 

through payment directly or indirectly 

of a kickback or were otherwise illegal, 

criminal, civil, and administrative 

action, fines and/or imprisonment may 

result. I also certify that, to the best of 

my knowledge and belief, it is a true, 

correct, and complete application 

prepared from the books and records of 

the hospital in accordance with 

applicable instructions, except as noted. 

I further certify that I am familiar with 

the laws and regulations regarding 

Medicare payment to hospitals for the 

training of interns and residents.’’ 

CMS Central Office Mailing Address 

Centers for Medicare & Medicaid 

Services (CMS) 

Director, Division of Acute Care 

7500 Security Boulevard 

Mailstop C4–08–06 

Baltimore, MD 21244–1850 

6. Proposed Clarification and Policy 

Change Applicable To Direct GME 

Payments to Federally Qualified Health 

Centers (FQHCs) and Rural Health 

Clinics (RHCs) for Training Residents in 

Approved Programs 

Under section 1886(k) of the Act, and 

as implemented in the regulations at 42 

CFR 405.2468(f), federally qualified 

health centers (FQHCs) and rural health 

clinics (RHCs) may receive payment for 

the costs of direct GME for training 

residents in an approved program under 

certain circumstances. Specifically, the 

regulations at § 405.2468(f)(1) state: 

‘‘Effective for that portion of cost 

reporting periods occurring on or after 

January 1, 1999, if an RHC or an FQHC 

incurs ‘all or substantially all’ of the 

costs for the training program in the 

nonhospital setting as defined in 

§ 413.75(b) of this chapter, the RHC or 

FQHC may receive direct graduate 

medical education payment for those 

residents.’’ We refer readers to the July 

31, 1998 final rule (63 FR 40986) for a 

detailed discussion of this longstanding 

policy. As noted earlier, the regulatory 

text of § 405.2468(f)(1) incorporates the 

definition of ‘‘all or substantially all of 

the costs for the training program in a 

nonhospital setting’’ that is defined at 

§ 413.75(b), as part of a number of 

definitions applicable generally to 

hospital direct GME payments and those 

regulations at § 413.76 through § 413.83. 

Section 413.75(b) is based on the 

statutory provision at section 

1886(h)(4)(E) of the Act, which 

establishes the requirements that 

hospitals must meet in order to receive 

direct GME payment for residents 

training in nonprovider settings. 

The statutory use of the phrase ‘‘all or 

substantially all of the costs for the 

training program in that setting’’ is 

located in section 1886(h)(4)(E) of the 

Act, as added by section 9314 of the 

Omnibus Budget Reconciliation Act of 

1986 (Pub. L. 99–509) (OBRA ‘86). For 

a detailed discussion of the 

implementation of section 9314 of 

OBRA ‘86, we refer readers to the 

September 29, 1989 final rule (54 FR 

40292). Section 1886(h)(4)(E) of the Act, 

as added by OBRA ’86, established the 

requirements that hospitals must meet 

in order to receive direct GME payment 

for residents training in nonprovider 

settings. However, section 5504(a) of the 

Affordable Care Act made changes to 

section 1886(h)(4)(E) of the Act to 

reduce the costs that hospitals must 

incur for residents training in 

nonprovider sites in order to count the 

FTE residents for purposes of direct 

GME payments. In making these 

changes to section 1886(h)(4)(E) of the 

Act, section 5504(a) of the Affordable 

Care Act amended the Act 

prospectively, effective with ‘‘cost 

reporting periods beginning on or after 

July 1, 2010’’ for direct GME, by 

removing the phrase ‘‘all or 

substantially all of the costs for the 

training program in that setting’’ and 

instead permitting hospitals to count the 

time that residents train in activities 

related to patient care in a nonprovider 

site if the hospital incurs the costs of the 

residents’ salaries and fringe benefits for 

the time that the resident spends 

training in the nonprovider site. In 

effect, this amendment reduced the 

costs that hospitals must incur for 

residents training in nonprovider 

settings. 

Based on this statutory amendment, 

in the November 24, 2010 final rule 

with comment period (75 FR 72134), we 

revised the regulations at 

§ 412.105(f)(1)(ii)(E) for IME and 

§§ 413.78(f) and (g) for direct GME to 

reflect the changes made by section 

5504(a) of the Affordable Care Act. In 

addition, we revised the regulatory 

definition of ‘‘all or substantially all of 

the costs for the training program in the 

nonhospital setting’’ in order to 

implement the statutory amendment 

and apply the effective date as set forth 

in the statute to cost reporting periods 

beginning on or after July 1, 2010. 

Specifically, the regulations at 

§ 413.75(b), which define ‘‘all or 

substantially all of the costs for the 

training program in the nonhospital 

setting’’ were revised as follows: 

‘‘(1) Effective on or after January 1, 

1999 and for cost reporting periods 

beginning before July 1, 2007, the 

residents’ salaries and fringe benefits 

(including travel and lodging where 

applicable) and the portion of the cost 

of teaching physicians’ salaries and 

fringe benefits attributable to direct 

graduate medical education (GME); and 

‘‘(2) Effective for cost reporting 

periods beginning on or after July 1, 

2007 and before July 1, 2010, at least 90 

percent of the total of the costs of the 

residents’ salaries and fringe benefits 

(including travel and lodging where 

applicable) and the portion of the cost 

of teaching physicians’ salaries 

attributable to nonpatient care direct 

GME activities.’’ 

Ultimately, with regard to the costs 

that hospitals must incur for residents 

training in nonprovider sites in order to 

count the FTE residents for purposes of 

direct GME payments, the phrase ‘‘all or 

substantially all of the costs for the 

training program in the nonhospital 

setting’’ no longer applies, effective for 

cost reporting periods beginning on and 

after July 1, 2010. 

In the November 24, 2010 final rule 

with comment period (75 FR 72134), we 

amended the regulations applicable to 

direct GME payments to hospitals at 

§§ 413.75(b) and 413.78(g) to reflect the 

changes made by section 5504(a) of the 

Affordable Care Act. However, at that 

time, we inadvertently did not make 

conforming changes to the regulations at 

§ 405.2468(f)(1) to clarify the 

requirements that FQHCs and RHCs 

must meet in order to receive direct 

GME payment for training residents in 

their facilities. Therefore, in compliance 

with our longstanding policy that 

FQHCs and RHCs must meet the same 

requirements applicable to teaching 

hospitals for direct GME payments with 

respect to training residents in 

nonprovider settings, in this proposed 

rule, we are providing clarification that, 

based on statutory amendments 

discussed earlier, the applicable policy 

cross-referenced in § 405.2468(f)(1) has 

changed for cost reporting periods 

beginning on or after July 1, 2010. In 

addition, to ensure statutory and 

regulatory consistency, we are 

proposing to revise the regulations at 

§ 405.2468(f)(1) to add a sentence at the 

end of the paragraph as follows: 

‘‘However, in connection with cost 

reporting periods for which ‘all or 

substantially all of the costs for the 

training program in the nonhospital 

setting’ is not defined in § 413.75(b) of 

this chapter, if an RHC or an FQHC 

incurs the salaries and fringe benefits 

(including travel and lodging where 

applicable) of residents training at the 

RHC or FQHC, the RHC or FQHC may 

receive direct graduate medical 

education payment for those residents.’’ 

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L. Rural Community Hospital 

Demonstration Program 

1. Background 

Section 410A(a) of Public Law 108– 

173 required the Secretary to establish 

a demonstration program to test the 

feasibility and advisability of 

establishing ‘‘rural community’’ 

hospitals to furnish covered inpatient 

hospital services to Medicare 

beneficiaries. The demonstration pays 

rural community hospitals under a 

reasonable cost-based methodology for 

Medicare payment purposes for covered 

inpatient hospital services furnished to 

Medicare beneficiaries. A rural 

community hospital, as defined in 

section 410A(f)(1), is a hospital that— 

• Is located in a rural area (as defined 

in section 1886(d)(2)(D) of the Act) or is 

treated as being located in a rural area 

under section 1886(d)(8)(E) of the Act; 

• Has fewer than 51 beds (excluding 

beds in a distinct part psychiatric or 

rehabilitation unit) as reported in its 

most recent cost report; 

• Provides 24-hour emergency care 

services; and 

• Is not designated or eligible for 

designation as a CAH under section 

1820 of the Act. 

Section 410A(a)(4) of Public Law 108– 

173 specified that the Secretary was to 

select for participation no more than 15 

rural community hospitals in rural areas 

of States that the Secretary identified as 

having low population densities. Using 

2002 data from the U.S Census Bureau, 

we identified the 10 States with the 

lowest population density in which 

rural community hospitals were to be 

located in order to participate in the 

demonstration: Alaska, Idaho, Montana, 

Nebraska, Nevada, New Mexico, North 

Dakota, South Dakota, Utah, and 

Wyoming. (Source: U.S. Census Bureau, 

Statistical Abstract of the United States: 

2003). 

CMS originally solicited applicants 

for the demonstration in May 2004; 13 

hospitals began participation with cost 

reporting periods beginning on or after 

October 1, 2004. In 2005, 4 of these 13 

hospitals withdrew from the program 

and converted to CAH status. This left 

nine hospitals participating at that time. 

In 2008, we announced a solicitation for 

up to six additional hospitals to 

participate in the demonstration 

program. Four additional hospitals were 

selected to participate under this 

solicitation. These four additional 

hospitals began under the 

demonstration payment methodology 

with the hospital’s first cost reporting 

period starting on or after July 1, 2008. 

At that time, 13 hospitals were 

participating in the demonstration. 

Five hospitals (3 of the hospitals were 

among the 13 hospitals that were 

original participants in the 

demonstration program and 2 of the 

hospitals were among the 4 hospitals 

that began the demonstration program 

in 2008) withdrew from the 

demonstration program during CYs 

2009 and 2010. (Three of these hospitals 

indicated that they would be paid more 

for Medicare inpatient hospital services 

under the rebasing option allowed 

under the SCH methodology provided 

for under section 122 of the Medicare 

Improvements for Patients and 

Providers Act of 2008 (Pub. L. 110–275). 

One hospital restructured to become a 

CAH, and one hospital closed.) In CY 

2011, one hospital that was among the 

original set of hospitals that participated 

in the demonstration withdrew from the 

demonstration. These actions left seven 

of the originally participating hospitals 

(that is, hospitals that were selected to 

participate in either 2004 or 2008) 

participating in the demonstration 

program as of June 1, 2011. 

Sections 3123 and 10313 of the 

Affordable Care Act (Pub. L. 111–148) 

amended section 410A of Public Law 

108–173, which established the rural 

community hospital demonstration 

program. Sections 3123 and 10313 of 

the Affordable Care Act changed the 

rural community hospital 

demonstration program in several ways. 

First, the Secretary is required to 

conduct the demonstration program for 

an additional 5-year period that begins 

on the date immediately following the 

last day of the initial 5-year period. 

Further, the Affordable Care Act 

requires, in the case of a rural 

community hospital that is participating 

in the demonstration program as of the 

last day of the initial 5-year period, the 

Secretary to provide for the continued 

participation of such rural hospital in 

the demonstration program during the 

5-year extension, unless the hospital 

makes an election, in such form and 

manner as the Secretary may specify, to 

discontinue participation (section 

410A(g)(4)(A) of Pub. L. 108–173, as 

added by section 3123(a) of the 

Affordable Care Act and further 

amended by section 10313 of such Act). 

In addition, the Affordable Care Act 

provides that, during the 5-year 

extension period, the Secretary shall 

expand the number of States with low 

population densities determined by the 

Secretary to 20 (section 410A(g)(2) of 

Pub. L. 108–173, as added by section 

3123(a) and amended by section 10313 

of the Affordable Care Act). Further, the 

Secretary is required to use the same 

criteria and data that the Secretary used 

to determine the States under section 

410A(a)(2) of Public Law 108–173 for 

purposes of the initial 5-year period. 

The Affordable Care Act also allows not 

more than 30 rural community hospitals 

in such States to participate in the 

demonstration program during the 5- 

year extension period (section 

410A(g)(3) of Pub. L. 108–173, as added 

by section 3123(a) of the Affordable 

Care Act and as further amended by 

section 10313 of such Act). 

We published a solicitation for 

applications for additional participants 

in the rural community hospital 

demonstration program in the Federal 

Register on August 30, 2010 (75 FR 

52960). Applications were due on 

October 14, 2010. The 20 States with the 

lowest population density that were 

eligible for the demonstration program 

are: Alaska, Arizona, Arkansas, 

Colorado, Idaho, Iowa, Kansas, Maine, 

Minnesota, Mississippi, Montana, 

Nebraska, Nevada, New Mexico, North 

Dakota, Oklahoma, Oregon, South 

Dakota, Utah, and Wyoming (Source: 

U.S. Census Bureau, Statistical Abstract 

of the United States: 2003). We 

approved 19 new hospitals for 

participation in the demonstration 

program. We determined that each of 

these new hospitals would begin 

participating in the demonstration with 

its first cost reporting period beginning 

on or after April 1, 2011. 

Three of these 19 hospitals declined 

participation prior to the start of the cost 

reporting periods for which they would 

have begun the demonstration. In 

addition to the 7 hospitals that were 

selected in either 2004 or 2008, the new 

selection led to a total of 23 hospitals in 

the demonstration. During CY 2013, one 

additional hospital among the set 

selected in 2011 withdrew from the 

demonstration, similarly citing a 

relative financial advantage to returning 

to the customary SCH payment 

methodology, which left 22 hospitals 

participating in the demonstration. 

In addition, section 410A(c)(2) of 

Public Law 108–173 required that, ‘‘[i]n 

conducting the demonstration program 

under this section, the Secretary shall 

ensure that the aggregate payments 

made by the Secretary do not exceed the 

amount which the Secretary would have 

paid if the demonstration program 

under this section was not 

implemented.’’ This requirement is 

commonly referred to as ‘‘budget 

neutrality.’’ Generally, when we 

implement a demonstration program on 

a budget neutral basis, the 

demonstration program is budget 

neutral in its own terms; in other words, 

the aggregate payments to the 

participating hospitals do not exceed 

the amount that would be paid to those 

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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 10 IPPS final regulations, 

spanning the period for which the 

demonstration program has been 

implemented, we have adjusted the 

national inpatient PPS rates by an 

amount sufficient to account for the 

added costs of this demonstration 

program, thus applying budget 

neutrality across the payment system as 

a whole rather than merely across the 

participants in the demonstration 

program. As we discussed in the FYs 

2005 through 2014 IPPS final rules (69 

FR 49183; 70 FR 47462; 71 FR 48100; 

72 FR 47392; 73 FR 48670; 74 FR 43922, 

75 FR 50343, 76 FR 51698, 77 FR 53449, 

and 78 FR 50740, respectively), we 

believe that the language of the statutory 

budget neutrality requirements permits 

the agency to implement the budget 

neutrality provision in this manner. In 

light of the statute’s budget neutrality 

requirement, in this FY 2015 IPPS/

LTCH PPS proposed rule, we are 

proposing to continue to use the 

methodology we finalized in FY 2013 to 

calculate a budget neutrality adjustment 

factor to the FY 2015 national IPPS 

rates. 

In general terms, in each of these 

previous years, we used available cost 

reports for the participating hospitals to 

derive an estimate of the additional 

costs attributable for the demonstration. 

Prior to FY 2013, we used finalized, or 

settled, cost reports, as available, and 

‘‘as submitted’’ cost reports for hospitals 

for which finalized cost reports were not 

available. Annual market basket 

percentage increase amounts provided 

by the CMS Office of the Actuary 

reflecting the growth in the prices of 

inputs for inpatient hospitals were 

applied to these cost amounts. In the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53452), we used ‘‘as submitted’’ cost 

reports (for cost reporting periods 

ending in CY 2010) for each hospital 

participating in the demonstration in 

estimating the costs of the 

demonstration. In addition, in FY 2013, 

we incorporated different update factors 

(the market basket percentage increase 

and the applicable percentage increase, 

as applicable, to several years of data as 

opposed to solely using the market 

basket percentage increase) for the 

calculation of the budget neutrality 

offset amount. Finally, in each of the 

previous years, an annual update factor 

provided by the CMS Office of the 

Actuary reflecting growth in the volume 

of inpatient operating services was also 

applied. For the budget neutrality 

calculations in the IPPS final rules for 

FYs 2005 through 2011, the annual 

volume adjustment applied was 2 

percent; for the IPPS final rules for FYs 

2012, 2013, and 2014, it was 3 percent. 

For a detailed discussion of our budget 

neutrality offset calculations, we refer 

readers to the IPPS final rule applicable 

to the fiscal year involved. 

In general, for FYs 2005 through 2009, 

we based the budget neutrality offset 

estimate on the estimated cost of the 

demonstration in an earlier given year. 

For these periods, we derived that 

estimated cost by subtracting the 

estimated amount that would otherwise 

be paid without the demonstration in an 

earlier given year from the estimated 

amount for the same year that would be 

paid under the demonstration under the 

reasonable cost-based methodology 

authorized by section 410A of Public 

Law 108–173. (We note that section 

410A of Pub. L. 108–173 was later 

amended by the Affordable Care Act.) 

The reasonable cost-based methodology 

authorized by section 410A of Public 

Law 108–173, as amended, is hereafter 

referred to as the ‘‘reasonable cost 

methodology.’’ (We ascertained the 

estimated amount that would be paid in 

an earlier given year under the 

reasonable cost methodology and the 

estimated amount that would otherwise 

be paid without the demonstration in an 

earlier given year from ‘‘as submitted’’ 

cost reports that were submitted by the 

hospitals prior to the inception of the 

demonstration.) We then updated the 

estimated cost described above to the 

current year by multiplying it by the 

market basket percentage increases 

applicable to the years involved and the 

applicable annual volume adjustment. 

For the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule, data from finalized cost 

reports reflecting the participating 

hospitals’ experience under the 

demonstration were available. 

Specifically, the finalized cost reports 

for the first 2 years of the 

demonstration, that is, cost reports for 

cost reporting years beginning in FYs 

2005 and 2006 (CYs 2004, 2005, and 

2006) were available. These data 

showed that the actual costs of the 

demonstration for these years exceeded 

the amounts originally estimated in the 

respective final rules for the budget 

neutrality adjustment. In the FY 2010 

IPPS/RY 2010 LTCH PPS final rule, we 

included in the budget neutrality offset 

amount an amount in addition to the 

estimate of the demonstration costs in 

that fiscal year. This additional amount 

was based on the amount that the costs 

of the demonstration for FYs 2005 and 

2006 exceeded the budget neutrality 

offset amounts finalized in the IPPS 

rules applicable for those years. 

Following upon the FY 2010 IPPS/RY 

2010 LTCH PPS final rule, we have 

continued to propose a methodology for 

calculating the budget neutrality offset 

amount to account for both the 

estimated demonstration costs in the 

upcoming fiscal year and an amount by 

which the actual demonstration costs 

corresponding to an earlier, given year 

(which would be known once we have 

finalized cost reports for that year) 

exceeded the budget neutrality offset 

amount finalized in the corresponding 

year’s IPPS final rule. However, we 

noted in the FYs 2011, 2012, and 2013 

IPPS final rules that, because of a delay 

affecting the settlement process for cost 

reports for IPPS hospitals occurring on 

a larger scale than merely for the 

demonstration, we were unable to 

finalize this component of the budget 

neutrality offset amount accounting for 

the amount by which the actual 

demonstration costs in a given year 

exceeded the budget neutrality offset 

amount finalized in the corresponding 

year’s IPPS final rule for cost reports of 

demonstration hospitals dating to those 

beginning in FY 2007. 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53449 through 53453), we 

adopted changes to the methodology for 

calculating the budget neutrality offset 

amount in an effort to further improve 

and refine it. We noted that the revised 

methodology varied, in part, from that 

finalized in the FY 2012 IPPS/LTCH 

PPS final rule (76 FR 51698 through 

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51705). Specifically, in adopting 

refinements to the methodology, our 

objective was to simplify the calculation 

so that it included as few steps as 

possible. In addition, we incorporated 

different update factors (the market 

basket percentage increase and the 

applicable percentage increase, as 

applicable, to several years of data as 

opposed to solely using the market 

basket percentage increase) for the 

calculation of the budget neutrality 

offset amount. We stated that we 

believed this approach would maximize 

the precision of our calculation because 

it would more closely replicate 

payments made with and without the 

demonstration. We refer readers to the 

FY 2013 IPPS/LTCH PPS final rule (77 

FR 53449 through 53453) for a detailed 

discussion of the methodology we used 

for FY 2013. We noted that, although we 

were making changes to certain aspects 

of the budget neutrality offset amount 

calculation for FY 2013, several core 

components of the methodology would 

remain unchanged. For example, we 

continued to include in the budget 

neutrality offset amount methodology 

the estimate of the demonstration costs 

for the upcoming fiscal year and the 

amount by which the actual 

demonstration costs corresponding to an 

earlier year (which would be 

determined once we have finalized cost 

reports for that year) exceeded the 

budget neutrality offset amount 

finalized in the corresponding year’s 

IPPS final rule. However, finalized cost 

reports for the hospitals participating in 

the demonstration were not available for 

FYs 2007, 2008, 2009, and 2010 at the 

time of development of the FY 2013 

IPPS/LTCH PPS final rule. Therefore, 

we were unable to finalize this 

component of the budget neutrality 

offset calculation. We stated in the final 

rule that we expected settled cost 

reports for all of the demonstration 

hospitals that participated in the 

applicable fiscal year (FYs 2007, 2008, 

2009, and 2010) to be available prior to 

the FY 2014 IPPS/LTCH PPS proposed 

rule. 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50739 through 50744), we 

determined the final budget neutrality 

offset amount to be applied to the FY 

2014 IPPS rates to be $52,589,741. This 

amount was comprised of two distinct 

components: (1) the final resulting 

difference between the estimated 

reasonable cost amount to be paid under 

the demonstration to the 22 

participating hospitals in FY 2014 for 

covered inpatient hospital services and 

the estimated amount that would 

otherwise be paid to such hospitals in 

FY 2014 without the demonstration 

(this amount was $46,549,861); and (2) 

the amount by which the actual costs of 

the demonstration for FY 2007, as 

shown in the finalized cost reports for 

the hospitals that participated in the 

demonstration during FY 2007, 

exceeded the budget neutrality offset 

amount that was finalized in the FY 

2007 IPPS final rule (this amount, 

$6,039,880, was derived from finalized 

cost reports for cost reporting periods 

beginning in FY 2007 for the 9 hospitals 

that participated in the demonstration 

during that year). 

2. Proposed FY 2015 Budget Neutrality 

Offset Amount 

For the reasons discussed in the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53449 through 53453), we are proposing 

in this FY 2015 IPPS/LTCH PPS 

proposed rule to continue to use the 

methodology finalized in the FY 2013 

IPPS/LTCH PPS final rule to calculate a 

budget neutrality adjustment factor to be 

applied to the FY 2015 national IPPS 

payment rates. As we stated in the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53451), we revised our methodology in 

that final rule to further improve and 

refine the calculation of the budget 

neutrality offset amount and to simplify 

the methodology so that it includes only 

a few steps. Consistent with the 

methodology finalized in the FY 2013 

IPPS/LTCH PPS final rule, the proposed 

methodology for calculating the 

estimated FY 2015 demonstration cost 

for the participating hospitals is as 

follows: 

Step 1: For each of the participating 

hospitals, we are proposing to identify 

the general reasonable cost amount 

calculated under the reasonable cost 

methodology for covered inpatient 

hospital services (as indicated on the 

‘‘as submitted’’ cost report for the 

hospital’s cost reporting period ending 

in CY 2012). The general reasonable cost 

amount calculated under the reasonable 

cost methodology is hereafter referred to 

as the ‘‘reasonable cost amount.’’ As we 

explained in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53451), we believe 

that a way to streamline our 

methodology for calculating the budget 

neutrality offset amount would be to use 

cost reports with the same status and 

from the same time period for all 

hospitals participating in the 

demonstration. Because ‘‘as submitted’’ 

cost reports ending in CY 2012 are the 

most recent available cost reports, we 

believe they would be an accurate 

predictor of the costs of the 

demonstration in FY 2015 because they 

give us a recent picture of the 

participating hospitals’ costs. 

Because section 410A of Public Law 

108–173 stipulates swing-bed services 

are to be included among the covered 

inpatient hospital services for which the 

demonstration payment methodology 

applies, we are proposing to include the 

cost of these services, as reported on the 

cost reports for the hospitals that 

provide swing-bed services, within the 

general total estimated FY 2012 

reasonable cost amount for covered 

inpatient hospital services under the 

demonstration. As indicated above, we 

are proposing to use ‘‘as submitted’’ cost 

reports for the hospital’s cost reporting 

period ending in CY 2012 for this 

calculation. 

We are proposing to sum the two 

above-referenced amounts to calculate 

the general total estimated FY 2012 

reasonable cost amount for covered 

inpatient hospital services for all 

participating hospitals. 

We are proposing to multiply this 

sum (that is, the general total estimated 

FY 2012 reasonable cost amount for 

covered inpatient hospital services for 

all participating hospitals) by the FY 

2013, FY 2014, and FY 2015 IPPS 

market basket percentage increases, 

which are formulated by the CMS Office 

of the Actuary. In this proposed rule, 

the current estimate of the FY 2015 IPPS 

market basket percentage increase 

provided by the CMS Office of the 

Actuary is specified in section IV.B.1. of 

the preamble of this proposed rule. We 

are proposing to use the final FY 2015 

IPPS market basket percentage increase 

in the final rule. We also are proposing 

to then multiply the product of the 

general total estimated FY 2012 

reasonable cost amount for all 

participating hospitals and the market 

basket percentage increases applicable 

to the years involved by a 3-percent 

annual volume adjustment for FYs 2013 

through 2015—the result would be the 

general total estimated FY 2015 

reasonable cost amount for covered 

inpatient hospital services for all 

participating hospitals. 

We are proposing to apply the IPPS 

market basket percentage increases 

applicable for FYs 2013 through 2015 to 

the FY 2012 reasonable cost amount 

described above to model the estimated 

FY 2015 reasonable cost amount under 

the demonstration. We are proposing to 

use the IPPS market basket percentage 

increases because we believe that these 

update factors appropriately indicate 

the trend of increase in inpatient 

hospital operating costs under the 

reasonable cost methodology for the 

years involved. The 3-percent annual 

volume adjustment was stipulated by 

the CMS Office of the Actuary and is 

being proposed because it is intended to 

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accurately reflect the tendency of 

hospitals’ inpatient caseloads to 

increase. We acknowledge the 

possibility that inpatient caseloads for 

small hospitals may fluctuate, and are 

proposing to incorporate into the 

estimate of demonstration costs a factor 

to allow for a potential increase in 

inpatient hospital services. 

Step 2: For each of the participating 

hospitals, we are proposing to identify 

the general estimated amount that 

would otherwise be paid in FY 2012 

under applicable Medicare payment 

methodologies for covered inpatient 

hospital services (as indicated on the 

‘‘as submitted’’ cost report for cost 

reporting periods ending in CY 2012) if 

the demonstration was not 

implemented. Similarly, as in Step 1, for 

the hospitals that provide swing-bed 

services, we are proposing to identify 

the estimated amount that generally 

would otherwise be paid for these 

services (as indicated on the ‘‘as 

submitted’’ cost report for cost reporting 

periods ending in CY 2012) and include 

it in the total FY 2012 general estimated 

amount that would otherwise be paid 

for covered inpatient hospital services 

without the demonstration. We are 

proposing to sum these two amounts in 

order to calculate the estimated FY 2012 

total payments that generally would 

otherwise be paid for covered inpatient 

hospital services for all participating 

hospitals without the demonstration. 

We are proposing to multiply the 

above amount (that is, the estimated FY 

2012 total payments that generally 

would otherwise be paid for covered 

inpatient hospital services for all 

participating hospitals without the 

demonstration) by the FYs 2013 through 

2015 IPPS applicable percentage 

increases. In this proposed rule, the 

current estimate of the FY 2015 

applicable percentage increase is 

specified in section IV.B. of this 

preamble. This methodology differs 

from Step 1, in which we are proposing 

to apply the market basket percentage 

increases to the sum of the hospitals’ 

general total FY 2012 estimated 

reasonable cost amount for covered 

inpatient hospital services. We believe 

that the IPPS applicable percentage 

increases are appropriate factors to 

update the estimated amounts that 

generally would otherwise be paid 

without the demonstration. This is 

because IPPS payments would 

constitute the majority of payments that 

would otherwise be made without the 

demonstration and the applicable 

percentage increase is the factor used 

under the IPPS to update the inpatient 

hospital payment rates. Hospitals 

participating in the demonstration 

would be participating under the IPPS 

payment methodology if they were not 

in the demonstration. (We are proposing 

to use the final FY 2015 applicable 

percentage increase in the final rule.) 

Then we are proposing to multiply the 

product of the estimated FY 2012 total 

payments that generally would 

otherwise be made without the 

demonstration and the applicable IPPS 

percentage increases for the years 

involved by a 3-percent annual volume 

adjustment for FYs 2013 through 2015. 

The result would be the general total 

estimated FY 2015 costs that would 

otherwise be paid without the 

demonstration for covered inpatient 

hospital services to the participating 

hospitals. 

Step 3: We are proposing to subtract 

the amount derived in Step 2 

(representing the sum of estimated 

amounts that generally would otherwise 

be paid to the participating hospitals for 

covered inpatient hospital services for 

FY 2015 if the demonstration were not 

implemented) from the amount derived 

in Step 1 (representing the sum of the 

estimated reasonable cost amount that 

generally would be paid under the 

demonstration to all participating 

hospitals for covered inpatient hospital 

services for FY 2015). We are proposing 

that the resulting difference would be 

one component of the estimated amount 

for which an adjustment to the national 

IPPS rates would be calculated (as 

further discussed below). 

For this proposed rule, the resulting 

difference is $53,673,008. This 

estimated amount is based on the 

specific assumptions identified 

regarding the data sources used, that is, 

‘‘as submitted’’ recently available cost 

reports. Also, we note that if updated 

data become available prior to the FY 

2015 IPPS/LTCH PPS final rule, we 

would use them to the extent 

appropriate to estimate the costs of the 

demonstration program in FY 2015. 

Therefore, this estimated budget 

neutrality offset amount might change 

in the final rule, depending on the 

availability of updated data. 

In addition, similar to previous years, 

we are proposing to include in the 

budget neutrality offset amount the 

amount by which the actual 

demonstration costs corresponding to an 

earlier given year (which would be 

determined once we had finalized cost 

reports for that year) exceeded the 

budget neutrality offset amount 

finalized in the corresponding year’s 

IPPS final rule. For this FY 2015 IPPS/ 

LTCH PPS proposed rule, we have 

calculated the amount by which the 

actual costs of the demonstration in FY 

2008 (that is, the costs of the 

demonstration for the 10 hospitals that 

participated in FY 2008, as shown in 

these hospitals’ finalized cost reports for 

the cost report period beginning in that 

fiscal year), exceeded the budget 

neutrality offset amount that was 

finalized in the FY 2008 IPPS final rule. 

We have calculated this amount to be 

$10,389,771 for this proposed rule. 

However, we are noting that if updated 

data become available prior to the FY 

2015 IPPS/LTCH PPS final rule, we 

would use them to the extent 

appropriate to determine this amount. 

Therefore, this amount might change in 

the final rule, depending on the 

availability of updated data. We also are 

currently working with the MACs that 

service the hospitals participating in the 

demonstration to obtain finalized cost 

reports for FYs 2009, 2010, and 2011. 

Similar to previous years, we are 

proposing that if settled cost reports for 

all of the demonstration hospitals that 

participated in an applicable year (FYs 

2009, 2010, or 2011) are available prior 

to the FY 2015 IPPS/LTCH PPS final 

rule, we would include in the budget 

neutrality offset amount any additional 

amounts by which the final settled costs 

of the demonstration for the year (FYs 

2009, 2010, or 2011) exceed the budget 

neutrality offset amount applicable to 

such year as finalized in the respective 

year’s IPPS final rule. 

Therefore, the total budget neutrality 

offset amount that we are proposing to 

be applied to the FY 2015 IPPS rates is 

$64,062,779. This is the sum of two 

separate components: (1) The difference 

between the total estimated FY 2015 

reasonable cost amount to be paid under 

the demonstration to the 22 

participating hospitals for covered 

inpatient hospital services and the total 

estimated amount that would otherwise 

be paid to the participating hospitals in 

FY 2015 without the demonstration 

($53,673,008); and (2) the amount by 

which the actual costs of the 

demonstration for FY 2008 (as shown in 

the finalized cost reports for cost 

reporting periods beginning in FY 2008 

for the hospitals that participated in the 

demonstration during FY 2008) exceed 

the budget neutrality offset amount that 

was finalized in the FY 2008 IPPS final 

rule ($10,389,771). We are proposing 

that the resulting total ($64,062,779) 

would be the amount for which an 

adjustment to the national IPPS rates 

would be calculated. 

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M. Requirement for Transparency of 

Hospital Charges Under the Affordable 

Care Act 

1. Overview 

Hospitals determine their charges for 

items and services provided to patients. 

While Medicare does not pay billed 

charges, hospital reported charges are 

used in determining Medicare’s national 

payment rates (for example, billed 

charges are adjusted to cost to determine 

how much to pay for one type of case 

relative to another). Although the 

Medicare payment amount for a 

discharge under the IPPS or a service 

furnished under the OPPS is not based 

directly on the hospital’s charges for the 

individual services provided, we believe 

that hospital charges nevertheless 

remain an important component of our 

healthcare system. For example, 

hospital charges are often billed, in full, 

to uninsured patients who cannot 

benefit from discounts negotiated by 

insurance companies. Hospital charges 

also vary significantly by hospital, 

making it challenging for patients to 

compare the cost of similar services 

across hospitals. 

In 2013, we released data that 

demonstrated significant variation 

across the country and within 

communities in what hospitals charge 

for a number of common inpatient and 

outpatient services. These data also 

showed that hospital charges for 

services furnished in both the inpatient 

setting and the outpatient setting were, 

in general, significantly higher than the 

amount paid by Medicare under the 

IPPS or the OPPS. The data that we 

released are posted on the Web site at: 

https://www/cms.gov/ResearchStatistics-Data-and-Systems/StatisticsTrends-and-Reports/Medicare-ProviderCharge-Data/index.html. Our intent in 

releasing these data was to enable the 

public to examine the relationship 

between the amounts charged by 

individual hospitals for comparable 

services and Medicare’s payment for 

that inpatient or outpatient care. We 

believe that providing charge data 

comparisons is introducing both 

transparency and accountability to 

hospital pricing, and we are continuing 

to pursue opportunities to report on 

hospital charging practices. 

2. Transparency Requirement Under the 

Affordable Care Act 

The Affordable Care Act contains a 

provision that is consistent with our 

effort to improve the transparency of 

hospital charges. As a result of the 

Affordable Care Act, section 2718(e) of 

the Public Health Service Act requires 

that ‘‘[e]ach hospital operating within 

the United States shall for each year 

establish (and update) and make public 

(in accordance with guidelines 

developed by the Secretary) a list of the 

hospital’s standard charges for items 

and services provided by the hospital, 

including for diagnosis-related groups 

established under section 1886(d)(4) of 

the Social Security Act.’’ 

In this proposed rule, we are 

reminding hospitals of their obligation 

to comply with the provisions of section 

2718(e) of the Public Health Service Act. 

Hospitals are responsible for 

establishing their charges and are in the 

best position to determine the exact 

manner and method by which to make 

those charges available to the public. 

Therefore, we are providing hospitals 

with the flexibility to determine how 

they make a list of their standard 

charges public. Our guidelines for 

implementing section 2718(e) of the 

Public Health Service Act are that 

hospitals either make public a list of 

their standard charges (whether that be 

the chargemaster itself or in another 

form of their choice), or their policies 

for allowing the public to view a list of 

those charges in response to an inquiry. 

We encourage hospitals to undertake 

efforts to engage in consumer friendly 

communication of their charges to help 

patients understand what their potential 

financial liability might be for services 

they obtain at the hospital, and to 

enable patients to compare charges for 

similar services across hospitals. We 

expect that hospitals will update the 

information at least annually, or more 

often as appropriate, to reflect current 

charges. 

We are confident that hospital 

compliance with this statutory 

transparency requirement will greatly 

improve the public accessibility of 

charge information. As hospitals make 

data publicly available in compliance 

with section 2718(e) of the Public 

Health Service Act, we also will 

continue to review and post relevant 

charge data in a consumer friendly way, 

as we previously have done by posting 

on the CMS Web site the following 

hospital and physician charge 

information: May and June 2013 

hospital charge data releases; 2013 

physician data requests for information; 

and the April 2014 physician data 

releases and data provided on 

geographic variation in payments and 

payments per beneficiary. 

N. Medicare Payment for Short 

Inpatient Hospital Stays 

Some members of the hospital 

community have expressed support for 

the general concept of an alternative 

payment methodology under the 

Medicare program for short inpatient 

hospital stays. We are interested in 

public comments on such a payment 

methodology, specifically how it might 

be designed. There are several issues of 

consideration that would inform how 

such a payment methodology would be 

devised. Below we outline some specific 

questions and considerations that we 

have identified as critical for developing 

such a methodology. This list of 

questions and considerations is not 

exhaustive, and we welcome additional 

questions, suggestions, and input from 

stakeholders. 

• Defining short or low cost inpatient 

hospital stays: 

One issue would be how to define a 

short inpatient hospital stay for the 

purpose of determining the appropriate 

Medicare payment. For instance, would 

a short inpatient hospital stay be one 

where the average length of stay for the 

MS–DRG is short or would it be 

atypically short or low cost cases 

relative to other cases within same MS– 

DRG? There are significant differences 

in mean lengths of stay among MS– 

DRGs. (We refer readers to Table 5.— 

List of Proposed Medicare Severity 

Diagnosis-Related Groups (MS–DRGs), 

Relative Weighting Factors, and 

Geometric and Arithmetic Mean Length 

of Stay for this proposed rule, which is 

available via the Internet on the CMS 

Web site.) For example, many frequently 

billed MS–DRGs have historically had 

mean lengths of stay of approximately 2 

days, such as MS–DRG 313 (Chest Pain). 

Other MS–DRGs such as MS–DRG 871 

(Septicemia or Severe Sepsis without 

Mechanical Ventilation 96+ hours with 

MCC) have had longer lengths of stay. 

If we adopted a policy that paid less 

for atypically low-cost or short-stay 

cases relative to the average case in the 

same MS–DRG, we believe such a policy 

is more likely to affect an MS–DRG like 

MS–DRG 871 that has a longer average 

length of stay or higher average cost 

associated with the typical patient. Such 

a policy is less likely to apply to MS– 

DRG 313 because the typical case is 

already low cost or short stay. 

• Determining appropriate payment 

for short inpatient hospital stays: 

Another issue would be how to 

determine the appropriate payment 

once a short stay has been identified. 

Some have suggested a per diem based 

payment amount, perhaps modelled on 

the existing transfer payment policy. 

Again, such a policy is far more likely 

to affect payment for an atypically shortstay or low-cost case in an MS–DRG 

with a longer average length of stay. For 

short-stay cases in an MS–DRG where 

the average length of stay for the MS– 

DRG is short, this methodology would 

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be unlikely to affect payment as the full 

IPPS payment would be made in 1 or 2 

days. 

For these types of short-stay cases, 

one relevant issue to address may be 

that payment for the same case will be 

very different under the OPPS and the 

IPPS depending upon whether the 

patient has been formally admitted to 

the hospital as an inpatient, pursuant to 

a physician order. Under what 

circumstances should the IPPS payment 

amount be limited to the OPPS payment 

amount and under what circumstances 

might it be appropriate for the payment 

amount to be higher? If it were 

appropriate for the payment amount to 

be higher, how would the amount of the 

additional payment be determined? 

We welcome input on these and other 

issues related to an alternative payment 

methodology under the Medicare 

program for short inpatient hospital 

stays. 

O. Suggested Exceptions to the 2- 

Midnight Benchmark 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50943 through 50954), we 

discussed modifications and 

clarifications to CMS’ longstanding 

policy on how Medicare contractors 

review inpatient hospital and CAH 

admissions for payment purposes. 

Under that final rule, we established a 

2-midnight benchmark for determining 

the appropriateness of an inpatient 

hospital admission versus treatment on 

an outpatient basis. We provided in 

regulations at § 412.3(e)(1) that, in 

addition to services designated as 

inpatient only, surgical procedures, 

diagnostic tests, and other treatments 

are generally appropriate for inpatient 

hospital admission and payment under 

Medicare Part A when the physician (1) 

expects the beneficiary to require a 

medically necessary hospital stay that 

crosses at least 2 midnights and (2) 

admits the beneficiary to the hospital 

based upon that expectation. The FY 

2014 policy responded to both hospital 

calls for more guidance about when an 

inpatient admission and Part A payment 

are appropriate, and beneficiaries’ 

concerns about increasingly long stays 

as outpatients due to hospital 

uncertainties about payment. 

In the FY 2014 IPPS/LTCH PPS final 

rule, at § 412.3(e)(2), we recognized that 

if an unforeseen circumstance, such as 

a beneficiary’s death or transfer, results 

in a shorter beneficiary stay than the 

physician’s expectation of at least 2 

midnights, the patient may be 

considered to be appropriately treated 

on an inpatient basis and hospital 

inpatient payment may be made under 

Medicare Part A. We also clarified, in 

both the final rule and subsequent 

subregulatory guidance, that the 

unforeseen circumstances specified at 

§ 412.3(e)(2) are not all-inclusive and 

could also include additional 

circumstances such as unexpected 

clinical improvement, election of 

hospice care, or departure against 

medical advice. 

The FY 2014 IPPS/LTCH PPS final 

rule also indicated that there are 

exceptions to the 2-midnight 

benchmark. In other words, we expect 

there to be cases in which an admitting 

practitioner expects the beneficiary’s 

length of stay to last less than 2 

midnights and yet inpatient admission 

would still be appropriate. For example, 

we specified that procedures on the 

OPPS inpatient only list are always 

appropriately inpatient, regardless of 

the actual time expected at the hospital, 

so long as the procedure is medically 

necessary and performed pursuant to a 

physician order and formal admission. 

In addition to procedures contained 

on the OPPS inpatient only list, we 

noted in the FY 2014 IPPS/LTCH PPS 

final rule that there may be other rare 

and unusual circumstances in which a 

hospital stay expected to last less than 

2 midnights would nonetheless be 

appropriate for inpatient hospital 

admission and Part A payment. We 

indicated that we would explore other 

potential exceptions to the generally 

applicable benchmark and would detail 

any such rare and unusual 

circumstances in subregulatory 

guidance. As part of this process, 

throughout the year, we have accepted 

and considered suggestions from 

stakeholders on this topic. 

In January 2014, we identified 

medically necessary, newly initiated 

mechanical ventilation (excluding 

anticipated intubations related to minor 

surgical procedures or other treatment) 

as the first rare and unusual exception 

to the 2-midnight rule and announced it 

on the CMS Web site. 

We recognize that there could be 

additional rare and unusual 

circumstances that we have not 

identified that justify inpatient 

admission and Part A payment absent 

an expectation of care spanning at least 

2 midnights and are inviting further 

feedback on this issue. Suggestions can 

be sent to CMS via written 

correspondence or emailed to 

SuggestedExceptions@cms.hhs.gov with 

‘‘Suggested Exceptions to the 2- 

Midnight Benchmark’’ in the subject 

line. We will continue to respond to 

these suggestions through subregulatory 

guidance, such as postings on the CMS 

Web site or manual instruction. 

V. Proposed Changes to the IPPS for 

Capital-Related Costs 

A. Overview 

Section 1886(g) of the Act requires the 

Secretary to pay for the capital-related 

costs of inpatient acute hospital services 

‘‘in accordance with a prospective 

payment system established by the 

Secretary.’’ Under the statute, the 

Secretary has broad authority in 

establishing and implementing the IPPS 

for acute care hospital inpatient capitalrelated costs. The IPPS for capitalrelated costs was initially implemented 

in the Federal fiscal year (FY) 1992 IPPS 

final rule (56 FR 43358), in which we 

established a 10-year transition period 

to change the payment methodology for 

Medicare hospital inpatient capitalrelated costs from a reasonable costbased methodology to a prospective 

methodology (based fully on the Federal 

rate). 

FY 2001 was the last year of the 10- 

year transition period established to 

phase in the IPPS for hospital inpatient 

capital-related costs. For cost reporting 

periods beginning in FY 2002, capital 

IPPS payments are based solely on the 

Federal rate for almost all acute care 

hospitals (other than hospitals receiving 

certain exception payments and certain 

new hospitals). (We refer readers to the 

FY 2002 IPPS final rule (66 FR 39910 

through 39914) for additional 

information on the methodology used to 

determine capital IPPS payments to 

hospitals both during and after the 

transition period.) 

The basic methodology for 

determining capital prospective 

payments using the Federal rate is set 

forth in § 412.312 of the regulations. For 

the purpose of calculating capital 

payments for each discharge, the 

standard Federal rate is adjusted as 

follows: 

(Standard Federal Rate) × (DRG 

Weight) × (Geographic Adjustment 

Factor (GAF)) × (COLA for hospitals 

located in Alaska and Hawaii) × (1 + 

Capital DSH Adjustment Factor + 

Capital IME Adjustment Factor, if 

applicable). 

In addition, under § 412.312(c), 

hospitals also may receive outlier 

payments under the capital IPPS for 

extraordinarily high-cost cases that 

qualify under the thresholds established 

for each fiscal year. 

B. Additional Provisions 

1. Exception Payments 

The regulations at § 412.348 provide 

for certain exception payments under 

the capital IPPS. The regular exception 

payments provided under §§ 412.348(b) 

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through (e) were available only during 

the 10-year transition period. For a 

certain period after the transition 

period, eligible hospitals may have 

received additional payments under the 

special exceptions provisions at 

§ 412.348(g). However, FY 2012 was the 

final year hospitals could receive 

special exceptions payments. For 

additional details regarding these 

exceptions policies, we refer readers to 

the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51725). 

Under § 412.348(f), a hospital may 

request an additional payment if the 

hospital incurs unanticipated capital 

expenditures in excess of $5 million due 

to extraordinary circumstances beyond 

the hospital’s control. Additional 

information on the exception payment 

for extraordinary circumstances in 

§ 412.348(f) can be found in the FY 2005 

IPPS final rule (69 FR 49185 and 49186). 

2. New Hospitals 

Under the capital IPPS, § 412.300(b) 

of the regulations defines a new hospital 

as a hospital that has operated (under 

previous or current ownership) for less 

than 2 years and lists examples of 

hospitals that are not considered new 

hospitals. In accordance with 

§ 412.304(c)(2), under the capital IPPS a 

new hospital is paid 85 percent of its 

allowable Medicare inpatient hospital 

capital-related costs through its first 2 

years of operation, unless the new 

hospital elects to receive full 

prospective payment based on 100 

percent of the Federal rate. We refer 

readers to the FY 2012 IPPS/LTCH PPS 

final rule (76 FR 51725) for additional 

information on payments to new 

hospitals under the capital IPPS. 

3. Hospitals Located in Puerto Rico 

Section 412.374 of the regulations 

provides for the use of a blended 

payment amount for prospective 

payments for capital-related costs to 

hospitals located in Puerto Rico. 

Accordingly, under the capital IPPS, we 

compute a separate payment rate 

specific to Puerto Rico hospitals using 

the same methodology used to compute 

the national Federal rate for capitalrelated costs. In general, hospitals 

located in Puerto Rico are paid a blend 

of the applicable capital IPPS Puerto 

Rico rate and the applicable capital IPPS 

Federal rate. Capital IPPS payments to 

hospitals located in Puerto Rico are 

computed based on a blend of 25 

percent of the capital IPPS Puerto Rico 

rate and 75 percent of the capital IPPS 

Federal rate. For additional details on 

capital IPPS payments to hospitals 

located in Puerto Rico, we refer readers 

to the FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51725). 

C. Proposed Annual Update for FY 2015 

The proposed annual update to the 

capital PPS Federal and Puerto Ricospecific rates, as provided for at 

§ 412.308(c), for FY 2015 is discussed in 

section III. of the Addendum to this 

proposed rule. 

We note that, in section II.D. of the 

preamble of this proposed rule, we 

present a discussion of the MS–DRG 

documentation and coding adjustment, 

including previously finalized policies 

and historical adjustments, as well as 

the recoupment adjustment to the 

standardized amounts under section 

1886(d) of the Act that we are proposing 

for FY 2015 in accordance with the 

amendments made to section 7(b)(1)(B) 

of Public Law 110–90 by section 631 of 

the ATRA. Because section 631 of the 

ATRA requires CMS to make a 

recoupment adjustment only to the 

operating IPPS standardized amount, we 

are not proposing a similar adjustment 

to the national or Puerto Rico capital 

IPPS rates (or to the operating IPPS 

hospital-specific rates or Puerto Ricospecific standardized amount). This 

approach is consistent with our 

historical approach regarding the 

application of the recoupment 

adjustment authorized by section 

7(b)(1)(B) of Public Law 110–90. 

In section II.D.7. of the preamble of 

this proposed rule, we also note our 

discussion in the FY 2014 IPPS/LTCH 

PPS final rule of the possibility of 

applying an additional prospective 

adjustment to account for the 

cumulative MS–DRG documentation 

and coding effect through FY 2010. In 

that same final rule (78 FR 50515 

through 50517 and 50747), we stated 

that if we were to apply an additional 

prospective adjustment for the 

cumulative MS–DRG documentation 

and coding effect through FY 2010, we 

believe the most appropriate additional 

adjustment is ¥0.55 percent. We did 

not apply an additional prospective 

adjustment in FY 2014 for the 

cumulative MS–DRG documentation 

and coding effect through FY 2010, 

consistent with the approach taken for 

the operating IPPS standardized amount 

(and hospital-specific rates). We 

continue to believe that if we were to 

apply an additional prospective 

adjustment for the cumulative MS–DRG 

documentation and coding effect 

through FY 2010, the most appropriate 

additional adjustment is ¥0.55 percent. 

However, we are not proposing such an 

adjustment to the capital Federal rate in 

FY 2015, consistent with the approach 

taken for the operating IPPS 

standardized amount (and hospitalspecific rates) as discussed in section 

II.D.7. of the preamble of this proposed 

rule. We will consider whether such an 

adjustment to the capital IPPS Federal 

rate is appropriate in future years’ 

rulemaking. 

VI. Proposed Changes for Hospitals 

Excluded from the IPPS 

A. Proposed Rate-of-Increase in 

Payments to Excluded Hospitals for FY 

2015 

Certain hospitals excluded from a 

prospective payment system, including 

children’s hospitals, 11 cancer 

hospitals, and hospitals located outside 

the 50 States, the District of Columbia, 

and Puerto Rico (that is, hospitals 

located in the U.S. Virgin Islands, 

Guam, the Northern Mariana Islands, 

and American Samoa) receive payment 

for inpatient hospital services they 

furnish on the basis of reasonable costs, 

subject to a rate-of-increase ceiling. A 

per discharge limit (the target amount as 

defined in § 413.40(a) of the regulations) 

is set for each hospital based on the 

hospital’s own cost experience in its 

base year, and updated annually by a 

rate-of-increase percentage. For each 

cost reporting period, the updated target 

amount is multiplied by total Medicare 

discharges during that period and 

applies as an aggregate upper limit (the 

ceiling as defined in § 413.40(a) of total 

inpatient operating costs for a hospital’s 

cost reporting period. In accordance 

with § 403.752(a) of the regulations, 

RNHCIs also are subject to the rate-ofincrease limits established under 

§ 413.40 of the regulations discussed 

above. 

As explained in the FY 2014 IPPS/

LTCH PPS final rule (78 FR 50747), 

beginning with FY 2006, we have used 

the percentage increase in the IPPS 

operating market basket to update the 

target amounts for children’s hospitals, 

cancer hospitals, and RNHCIs. 

Consistent with §§ 412.23(g), 

413.40(a)(2)(ii)(A), and 

413.40(c)(3)(viii), we also have used the 

percentage increase in the IPPS 

operating market basket to update the 

target amounts for short-term acute care 

hospitals located in the U.S. Virgin 

Islands, Guam, the Northern Mariana 

Islands, and American Samoa. For the 

reasons explained in the FY 2014 IPPS/ 

LTCH PPS final rule (78 FR 50747), we 

are proposing to continue to use the 

percentage increase in the IPPS 

operating market basket to update the 

target amounts for children’s hospitals, 

cancer hospitals, RNHCIs, and shortterm acute care hospitals located in the 

U.S. Virgin Islands, Guam, the Northern 

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Mariana Islands, and American Samoa 

for FY 2015 and subsequent fiscal years. 

In addition, because we have revised 

and rebased the IPPS operating market 

basket to a FY 2010 base year, we are 

proposing to continue to use the 

percentage increase in the FY 2010- 

based IPPS operating market basket to 

update these target amounts for FY 2015 

and subsequent fiscal years. (We refer 

readers to the FY 2014 IPPS/LTCH PPS 

final rule (78 FR 50596 through 50603) 

for a further discussion of the revision 

and rebasing of the IPPS operating 

market to a FY–2010 base year.) 

Accordingly, for FY 2015, the rate-ofincrease percentage to be applied to the 

target amount for these children’s 

hospitals, cancer hospitals, RNHCIs, and 

short-term acute care hospitals located 

in the U.S. Virgin Islands, Guam, the 

Northern Mariana Islands, and 

American Samoa would be the FY 2015 

percentage increase in the FY 2010- 

based IPPS operating market basket. 

For this proposed rule, based on IHS 

Global Insight, Inc.’s 2014 first quarter 

forecast, we estimated that the FY 2010- 

based IPPS operating market basket 

update for FY 2015 is 2.7 percent (that 

is, the estimate of the market basket 

rate-of-increase). We are proposing that 

if more recent data become available for 

the final rule, we would use them to 

calculate the IPPS operating market 

basket update for FY 2015. 

B. Proposed Updates to the Reasonable 

Compensation Equivalent (RCE) Limits 

on Compensation for Physician Services 

Provided in Providers (§ 415.70) 

1. Background 

Under section 1848 of the Act and 42 

CFR Parts 414 and 415, medical or 

surgical services furnished by 

physicians to individual Medicare 

beneficiaries generally are billed and 

paid under Medicare Part B on a fee-forservice basis under the Medicare 

Physician Fee Schedule (MPFS). As 

required by section 1887(a)(2)(B) of the 

Act, the amount of allowable 

compensation for services furnished by 

physicians to providers that are paid by 

Medicare on a reasonable cost basis is 

subject to reasonable compensation 

equivalent (RCE) limits. Under these 

limits, Medicare recognizes as 

reasonable, for purposes of payment to 

the provider, the lower of the actual cost 

of the services furnished by the 

physician to the provider (that is, any 

form of compensation to the physician) 

or an RCE. The allowable compensation 

costs for physicians’ services to a 

provider are described in § 415.55 of the 

regulations. Under § 415.60(a) of the 

regulations, for purposes of applying the 

RCE limits, ‘‘physician compensation 

costs means monetary payments, fringe 

benefits, deferred compensation, and 

any other items of value (excluding 

office space and billing and collection 

services) that a provider or other 

organization furnishes a physician in 

return for the physician’s services’’ to 

the provider. 

On March 2, 1983, we published a 

final rule in the Federal Register that 

codified regulations to implement 

section 1887(a)(2)(B) of the Act 

(currently at 42 CFR 415.70) and 

established the first set of RCE limits (48 

FR 8902). In accordance with 

§ 415.70(a)(2), RCE limits do not apply 

to the costs of physician compensation 

attributable to furnishing inpatient 

hospital services for which payment is 

made under the IPPS or to the costs of 

physician compensation attributable to 

approved GME programs that are 

payable under §§ 413.75 through 413.83 

of the regulations. In addition, under 

§ 415.70(a)(3), compensation that a 

physician receives for activities that 

may not be paid for under either 

Medicare Part A or Part B is not 

considered in applying these RCE 

limits. Furthermore, in accordance with 

§ 413.70, RCE limits are not used in 

determining the reasonable costs that 

CAHs incur in compensating physicians 

for services furnished to the CAH. 

The RCE limits apply equally to all 

physicians’ services to providers that 

are payable on a reasonable cost basis 

under Medicare. If a physician receives 

any compensation from one or more 

providers for his or her services to the 

provider (that is, those services that 

benefit patients generally), payment to 

those providers for the costs of such 

compensation is subject to the RCE 

limits. The RCE limits are not applied 

to payment for services that are 

identifiable medical or surgical services 

to individual patients and paid under 

the MPFS, even if the physician agrees 

to accept compensation (for example, 

from a hospital) for those services. 

Payments to teaching hospitals that 

have elected to be paid for physicians’ 

services to the provider on a reasonable 

cost basis in accordance with section 

1861(b)(7) of the Act are subject to the 

limits (68 FR 45458). 

2. Overview of the Current RCE Limits 

a. Application of the RCE Limits 

Currently, we use the RCE limits to 

compute Medicare payments when a 

physician is compensated by a provider 

that is subject to the RCE limits. We also 

use these limits when the physician is 

compensated by any other providerrelated organization for physician 

administrative, supervisory, and other 

services to the provider under Medicare. 

In applying the RCE limits, we compute 

the Medicare payments using 

information submitted on the cost 

report, and ensure that each 

compensated physician is assigned to 

the most appropriate specialty category. 

The current physician specialty 

categories for RCE limits are General/

Family Practice, Internal Medicine, 

Surgery, Pediatrics, OB/GYN, 

Radiology, Psychiatry, Anesthesiology, 

Pathology, and Total. If there is no 

specific specialty category (for example, 

for an emergency room physician), we 

use the ‘‘Total’’ category, for which the 

RCE limits are calculated based on mean 

annual income data for all physicians. 

If the physician’s contractual 

compensation covers all duties, 

activities, and services furnished to the 

provider and, under a reassignment, all 

physicians’ services furnished to 

individual patients of the provider, and 

the physician is employed by the 

provider full time, we use the RCE limit 

for the appropriate specialty, adjusted 

by the physician’s allocation agreement 

(which reflects the percentage of total 

time spent performing services 

furnished to the provider) to arrive at 

the Medicare program’s share of the 

provider’s allowable physician 

compensation costs (§ 415.60). In the 

absence of an allocation agreement, we 

would assume that 100 percent of the 

compensation paid to the physician by 

the provider is related to physicians’ 

services for which payment is made 

under the MPFS and that there are no 

allowable physician compensation costs 

to the provider (§ 415.60(f)(2)). 

If a physician’s compensation from 

the provider represents payment only 

for services that benefit patients 

generally (that is, the physician bills for 

all services furnished to individual 

patients), we use the appropriate 

specialty RCE limit. If a physician is 

employed by a provider to furnish 

services of general benefit to patients on 

other than a full-time basis, the RCE 

limit will be adjusted to reflect the 

hours the physician actually worked, as 

reported on the provider’s cost report, 

related to a full work year of 2,080 

hours. 

b. Exceptions to the RCE Limits 

Some providers such as small or rural 

hospitals may be unable to recruit or 

maintain an adequate number of 

physicians at a compensation level 

within the prescribed RCE limits. In 

accordance with section 1887(a)(2)(C) of 

the Act and § 415.70(e) of the 

regulations, if a provider can 

demonstrate to the MAC its inability to 

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43Cantwell, James R. and Sobaski, William J., A 

Methodology for Determination of Reasonable FTE 

Compensation for Hospital-Based Physicians, 

Working Paper No. OR–32, revised December 1982. 

recruit or maintain physicians at a 

compensation level allowable under the 

RCE limits (as documented, for 

example, by unsuccessful advertising 

through national medical or health care 

publications), the MAC may grant the 

provider an exception to the RCE limits 

established under these rules. Such 

exceptions would allow the provider to 

be paid based on costs for compensation 

higher than the RCE limit. 

c. Methodology for Establishing the RCE 

Limits 

In the March 2, 1983 final rule with 

comment period (48 FR 8902), we 

published the initial RCE limits, along 

with the methodology used to calculate 

those limits, that were applicable to cost 

reporting periods beginning during CYs 

1982 and 1983. As part of that same 

rule, we established regulations that 

outline our general authority to develop, 

publish, and apply RCE limits (currently 

at § 415.70). Section 415.70(b) of the 

regulations specifies that we establish 

the methodology for determining annual 

RCE limits, considering, to the extent 

possible, average physician incomes by 

specialty and type of location, using the 

best available data. 

The methodology for establishing the 

initial RCE limits was based on the 

analysis contained in an internal 

working paper, ‘‘A Methodology for 

Determination of Reasonable FTE 

Compensation for Hospital-Based 

Physicians.’’ 43 (Copies of this working 

paper are available on the CMS Web site 

at: http://www.cms.gov/Medicare-Feefor-Service-Payment/

AcuteInpatientPPS/index.html.) As 

outlined in this working paper, our 

methodology for establishing the initial 

reasonable levels of compensation 

includes the following five steps (for 

additional discussion of this 

methodology, we refer readers to the 

March 2, 1983 final rule with comment 

period (48 FR 8902)): 

Step 1: We estimated the national 

average (mean) income for all 

physicians using 1979 physician net 

incomes from the American Medical 

Association (AMA) Periodic Survey of 

Physicians (PSP), published by the 

AMA in its Profile of Medical Practices, 

1981. 

Step 2: We projected physicians’ 1979 

base net income levels to the 

appropriate future year to account for 

changes in net income levels occurring 

after the period for which we have data 

using the Consumer Price Index for All 

Urban Consumers (CPI–U), and 

projected the results using forecasts of 

the CPI–U for future years. 

Step 3: We determined the 

relationship between average net 

income for all physicians (estimated in 

the first step above) and net income of 

certain categories of specialist 

physicians that are commonly 

compensated by providers for services 

that generally benefit Medicare 

beneficiaries resulting in separate 

specialty adjusters for nine physician 

specialties as well as the adjuster for the 

‘‘Total’’ category. 

Step 4: We also adjusted each of these 

specialty (including the ‘‘Total’’) 

adjusters for differences in costs 

between types of geographic locations 

using Standard Metropolitan Statistical 

Areas (SMSAs) as defined by the Office 

of Management and Budget (OMB). 

Step 5: Using the AMA PSP data, we 

calculated the average hours practiced 

per year for each specialty and location 

adjuster combination, which we then 

related to a standard full-time 

equivalent (FTE) work year of 2,080 

hours. We used these ratios to weight 

the specialty-location adjusters from the 

previous step. 

This same methodology was used to 

update the RCE limits published in a 

notice in the Federal Register on May 

5, 1997 (62 FR 24483). These updated 

RCE limits were effective for cost 

reporting periods beginning on or after 

May 5, 1997. 

For RCE limits established prior to 

January 1, 1998, we used the CPI–U to 

update the RCE limits. In a final rule 

with comment period published in the 

Federal Register on October 31, 1997 

(62 FR 59075), we finalized a policy to 

use the Medicare Economic Index (MEI) 

to update the RCE limits (rather than the 

CPI–U), effective for cost reporting 

periods beginning on or after January 1, 

1998. We adopted the MEI as the 

applicable update factor in order to 

achieve a measure of consistency in the 

methodologies used to determine 

payments to physicians for medical and 

surgical services furnished to individual 

patients and reasonable compensation 

levels for services that are of general 

benefit to a provider’s patients. 

However, we did not update the RCE 

limits at that time. 

In the FY 2004 IPPS final rule 

published in the Federal Register on 

August 1, 2003 (68 FR 45458), we 

published updated RCE limits that were 

effective for cost reporting periods 

beginning on or after January 1, 2004. 

We updated the RCE limits using the 

CPI–U to adjust the data to 1997, and 

the MEI to adjust the data from 1998 to 

2004. In addition, we continued to 

adjust the RCE limits to account for 

differences in salary levels by location, 

as well as by specialty. For the location 

adjustment, we continued to base the 

geographical classifications of the 

providers on Metropolitan Statistical 

Areas (MSAs) (the OMB changed the 

area name to describe metropolitan 

areas in the 1980’s from SMSAs to 

MSAs, but the definition of MSAs 

differed only slightly from the 

previously used SMSAs). 

3. Proposed Changes to the RCE Limits 

In accordance with § 415.70(b), when 

establishing the methodology to 

determine the RCE limits, we consider, 

to the extent possible, the average 

physician incomes by specialty and type 

of location using the best available data. 

Since the initial RCE limits were 

developed, we have adjusted the RCE 

data to account for specialty and 

location (as discussed earlier in this 

section). In this proposed rule, we are 

proposing to use the most recent MEI 

data to update the RCE limits and to 

replace the RCE limits that have been in 

effect since January 1, 2004. We believe 

that doing so will enhance the accuracy 

of the RCE limits. In addition, for the 

reasons discussed below, we are 

proposing to eliminate the location 

adjustment to the RCE data, while 

continuing to adjust the RCE limits by 

specialty. We are not proposing changes 

to any of the other existing policies with 

respect to the application of and 

exceptions to the RCE limits. 

In establishing the initial and 

subsequently updated RCE limits, we 

included an adjustment to account for 

differences in salary levels based on the 

location of the provider using 

geographic classifications based on the 

MSAs as defined by the OMB. We 

assigned an appropriate MSA 

designation based on the State/county 

in which the provider is located. We 

included a table in each of the previous 

RCE limit notices and rules, whereby 

each MSA designation was grouped into 

one of three categories: Metropolitan 

areas with a population greater than 1 

million, metropolitan areas with a 

population less than 1 million, and nonmetropolitan areas. The MSA 

designation of the provider is then used 

to identify the appropriate RCE limit. 

To update the current RCE limits by 

location under the current methodology, 

we would need to use, as in past 

updates, the MSA designations that 

correspond with the update period. 

However, since 2003, the OMB no 

longer updates or uses MSAs. We 

considered continuing to use the MSA 

designations, as we have in the past, but 

we would have no way to account for 

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shifts in populations among MSAs 

because the OMB no longer updates 

geographic classifications based on 

MSA designations. The OMB regularly 

updates the geographic definitions, and 

the counties included in each area, to 

account for population shifts due to 

migrations, birth, and death rates but 

currently the OMB uses Core-Based 

Statistical Area (CBSA) designations 

rather than MSAs. If we were to 

continue to use the MSA designation, 

providers could potentially be 

underpaid or overpaid if the population 

of their MSA changed significantly from 

2004. Therefore, we determined that, 

because the MSA designations are no 

longer updated, it would not be 

appropriate to continue using the 

previous location adjustment 

methodology. The most recent 

geographic delineations used by the 

OMB are CBSAs, a term used to refer to 

both Metropolitan and Micropolitan 

Statistical Areas. However, CBSA 

delineations do not match the MSA 

definitions that were used to develop 

the initial and subsequently updated 

RCE limits. As noted above, we have 

used the AMA PSP data to develop 

previous and current RCE limits. The 

AMA PSP data were collected from 

1970 to 1980 and included physicians’ 

income, hours worked, and MSA-based 

population information. The data that 

have been used to develop and update 

the RCE limits were developed using 

MSAs as the geographic unit. It is not 

possible to exactly crosswalk the MSA 

designations to the CBSA designations 

in order to update the RCE limits using 

the current location adjustment 

methodology. Even if it was possible to 

crosswalk the MSAs to the CBSAs, it 

would not be appropriate to use the 

MSA-based AMA PSP data to develop 

CBSA-based RCE limits. There have 

been significant changes in the 

populations of the MSA-based locations 

contained in the AMA PSP data that 

could not be translated into CBSAs. As 

such, that data would no longer be valid 

as the basis to develop RCE limits based 

on CBSAs 

The OMB has cautioned users about 

using the new CBSA designations. For 

instance, in OMB’s 2010 ‘‘Standards for 

Delineating Metropolitan and 

Micropolitan Statistical Areas (CBSAs)’’ 

published on June 28, 2010 in the 

Federal Register (75 FR 37246), OMB 

states: 

‘‘OMB establishes and maintains 

these areas solely for statistical 

purposes. In reviewing and revising 

these areas, OMB does not take into 

account or attempt to anticipate any 

public or private sector nonstatistical 

uses that may be made of the 

delineations. These areas are not 

designed to serve as a general-purpose 

geographic framework applicable for 

nonstatistical activities or for use in 

program funding formulas. 

‘‘Furthermore, the Metropolitan and 

Micropolitan Statistical Area Standards 

do not produce an urban-rural 

classification, and confusion of these 

concepts can lead to difficulties in 

program implementation. Counties 

included in Metropolitan and 

Micropolitan Statistical Areas and many 

other counties may contain both urban 

and rural territory and populations. . . . 

OMB urges agencies, organizations, and 

policy makers to review carefully the 

goals of nonstatistical programs and 

policies to ensure that appropriate 

geographic entities are used to 

determine eligibility for the allocation of 

Federal funds.’’ (Emphasis in original.) 

For CMS to accurately update the 

location-adjusted RCE limits using the 

CBSAs, we believe it would be 

necessary to use a new data source for 

information on physician salaries, 

specialties, location, and hours worked; 

and the data would need to be allocated 

to different geographic areas based on 

CBSAs. The AMA PSP collected data 

from a large sample of office-based 

physicians. We considered using data 

that are currently collected and publicly 

available. We could not find a reliable 

dataset that contained all of the 

necessary data elements needed to 

update the location-adjusted RCE limits 

based on CBSAs. The most reliable data 

we could find came from the Bureau of 

Labor Statistics (BLS) Occupational 

Employment Statistics (OES). The BLS 

OES data are collected annually, and 

capture a large and diverse population 

of physicians and corresponding CBSA. 

We believe the BLS OES data are the 

most current, reliable source of income 

data for physicians. Although, the BLS 

OES is very reliable and collects data 

points for physician specialties, salary, 

and location, it does not collect detailed 

information for all 10 specialties; the 

‘‘Radiology’’ and ‘‘Pathology’’ 

specialties are not separately captured. 

As such, we did not believe it was 

appropriate to use the BLS OES data to 

create an updated RCE limit if we would 

not have data available for two 

specialties. 

We also weighed the benefit of 

collecting updated information from 

physicians (through use of a new 

nationwide survey) in order to obtain 

the data necessary for application of an 

appropriate locality adjustment based 

on CBSAs against the burden placed on 

such physicians in providing such data. 

In order to have a dataset that could 

accurately capture all the necessary 

information, we would need to collect 

data from a large population of 

physicians, including a sufficient 

sample size for each physician specialty 

in each CBSA. We weighed the burden 

that such a nationwide survey would 

entail for all physicians, including 

office-based physicians, to be asked to 

respond to an in-depth survey regarding 

their salary, specialty, location, hours 

worked, and other practice information 

against the benefit of using updated, 

CBSA-based information to include a 

location adjustment for the providers 

that are subject to the RCE limits. 

When the RCE limits were developed 

in 1983, other than inpatient acute care 

hospitals paid under the IPPS, most 

provider types were reimbursed on a 

reasonable cost basis. Since then, 

providers such as skilled nursing 

facilities (SNFs), long-term care 

hospitals (LTCHs), inpatient 

rehabilitation facilities (IRFs), inpatient 

psychiatric facilities (IPFs), and home 

health agencies (HHAs) that previously 

were paid on a reasonable cost basis 

have transitioned to prospective 

payment systems and are no longer 

subject to the RCE limits. As of FY 2011 

(the most recent cost report year for 

which we have complete data), our data 

show that there were only 59 children’s 

hospitals and cancer hospitals and 46 

teaching hospitals (that have elected to 

be paid for physicians’ services to the 

provider on a reasonable cost basis) that 

are subject to the RCE limits. As such, 

we believe the benefit that could be 

gained by gathering the new data that 

would be necessary to maintain a 

location adjustment for the RCE limits is 

outweighed by the burden of conducting 

such a comprehensive survey of 

physicians. 

Furthermore, we analyzed how the 

elimination of the location adjustment 

would affect the accuracy and 

appropriateness of the proposed RCE 

limits. To perform this analysis, we 

needed a reliable source of physician 

income data (without a location 

adjustment) which could be compared 

to the RCE limits without a location 

adjustment. We determined that the best 

available source of physician income 

data is the mean annual income data for 

similar RCE physician specialties 

collected by the BLS OES. As 

mentioned above, the BLS OES data are 

collected annually and capture a large 

and diverse population of physicians. 

These data are the most current, reliable 

source of income data by physician 

specialties. In addition, when 

comparing salaries, it is important to 

compare salary amounts that reflect the 

same number of hours worked per year. 

Because many physicians do not work 

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a 2,080 hour work year, their salary may 

seem higher or lower due to the number 

of hours actually worked. The RCE 

limits are based on physicians who 

worked a 2,080 hour work year. The 

BLS OES data also are based on a 2,080 

hour work year; therefore, we believe 

that comparing the RCE limits to these 

BLS OES data is appropriate for 

purposes of our analysis. 

We performed an analysis comparing 

RCE limits for 2012, calculated without 

a location adjustment and solely for 

purposes of the analysis, to the most 

recently published (at the time of the 

analysis) BLS OES physician mean 

annual income data for the same year, 

to determine whether RCE limits based 

on the AMA PSP data, but without a 

location adjustment, would continue to 

reasonably reflect mean annual 

physician income data. For 2012, the 

BLS OES had income information for 8 

of the 10 RCE specialties, which include 

the ‘‘Total’’ category; the BLS OES data 

did not capture the ‘‘Radiology’’ and 

‘‘Pathology’’ specialties. We searched 

for another reliable data source for 

‘‘Radiology’’ and ‘‘Pathology’’ but we 

could not find one with sufficient data 

elements to compare with the RCE 

limits. We used the MEI to update the 

RCE limits for these eight specialties to 

2012 without including the location 

factor. We then compared these 2012 

RCE limits to the 2012 BLS OES data for 

these same eight specialties. As shown 

in the table below, we found that the 

RCE limits ranged from 10.41 percent 

above the BLS OES mean annual 

income data to 3.58 percent below the 

BLS OES data. Only three of the eight 

specialties had RCE limits slightly less 

than the current BLS OES mean annual 

wages for their specialty. The remaining 

five specialties had RCE limits above the 

current BLS OES mean annual wages for 

the specialties. 

ANALYSIS CHART

Specialty RCE limits updated to 2012* 

BLS OES 

mean 2012 

annual wage 

Percent 

difference 

Total ............................................................................................................................................. $206,300 $184,820 10.41 

General/Family Practice .............................................................................................................. 174,600 180,850 ¥3.58 

Internal Medicine ......................................................................................................................... 192,700 191,520 0.61 

Surgery ........................................................................................................................................ 240,300 230,540 4.06 

Pediatrics ..................................................................................................................................... 165,500 167,640 ¥1.29 

OB/GYN ....................................................................................................................................... 231,200 216,760 6.25 

Radiology ..................................................................................................................................... 265,200 N/A N/A 

Psychiatry .................................................................................................................................... 176,800 177,520 ¥0.41 

Anesthesiology ............................................................................................................................. 233,500 232,820 0.29 

Pathology ..................................................................................................................................... 253,900 N/A N/A 

* These limits were calculated using the proposed methodology only for purposes of this impact analysis. 

The RCE amounts updated to 2012 

and the BLS OES numbers for 2012 

varied only slightly, and in most cases, 

the RCE limit was higher than the BLS 

OES mean annual wage. Based on this 

analysis, we believe that RCE limits 

calculated using the AMA PSP data, and 

our proposed elimination of the location 

adjustment for the updated RCE limits, 

would result in RCE limits that are a 

reasonable reflection of mean annual 

physician income and would continue 

to ensure that providers subject to the 

RCE limits are paid in a fair and 

accurate manner. 

Because there are a relatively small 

number of providers currently affected 

by the RCE limits and because, as 

discussed above, we believe the revised 

RCE limits without a location 

adjustment would continue to ensure 

appropriate payment to such providers, 

we believe that eliminating the location 

adjustment would have a minimal 

overall effect on providers subject to the 

RCE limits and on the industry as a 

whole. 

For the reasons discussed above, we 

are proposing to eliminate the location 

adjustment under the RCE limit 

methodology, and to revise § 415.70(b) 

of the regulations to remove 

consideration of the ‘‘type of location’’ 

as part of the methodology used to 

establish RCE limits. 

Set forth below are the proposed 

updated RCE limits on the amount of 

allowable compensation for services 

furnished by physicians to providers for 

cost reporting periods beginning on or 

after January 1, 2015. To calculate these 

proposed RCE limits, we used the same 

methodology that was used to calculate 

the original and previous updates to the 

RCE limits, but did not apply an 

adjustment based on geographical 

classification. As noted earlier, this 

methodology was derived from the 1982 

working paper. We used the mean 

physician income by specialty from that 

working paper to calculate the RCE 

limits without adjusting for 

geographical classification. We then 

updated these data by the CPI–U (from 

1982 to 1997) and then by the MEI (from 

1998 to 2015) to compute the proposed 

updated RCE limits. The proposed RCE 

limits effective for cost reporting 

periods beginning on or after January 1, 

2015 are shown in the chart below. 

PROPOSED CY 2015 RCE LIMITS

Total .......................................... $212,100 

General/Family Practice ........... 179,500 

Internal Medicine ...................... 198,100 

Surgery ..................................... 247,100 

PROPOSED CY 2015 RCE LIMITS— 

Continued 

Pediatrics .................................. 170,200 

OB/GYN .................................... 237,800 

Radiology .................................. 272,700 

Psychiatry ................................. 181,800 

Anesthesiology ......................... 240,100 

Pathology .................................. 261,100 

We are inviting public comments on 

our proposals to update the RCE limits 

and to eliminate the location adjustment 

for the RCE limits for cost reporting 

periods beginning on or after January 1, 

2015. In addition, we are inviting public 

comments on our proposal to revise 

§ 415.70(b) of the regulations to 

eliminate consideration of the type of 

location as part of the methodology to 

establish RCE limits for cost reporting 

periods beginning on or after January 1, 

2015. 

C. Critical Access Hospitals (CAHs) 

1. Background 

Sections 1820 and 1861(mm) of the 

Act, as amended by section 4201 of the 

Balanced Budget Act (BBA) of 1997, 

replaced the Essential Access 

Community Hospitals and Rural 

Primary Care Hospitals (EACH/RPCH) 

program with the Medicare Rural 

Hospital Flexibility Program (MRHFP), 

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under which a qualifying facility can be 

designated as a CAH. CAHs 

participating in the MRHFP must meet 

the conditions for designation by the 

State and be certified by the Secretary 

in accordance with section 1820 of the 

Act. Further, in accordance with section 

1820(e)(3) of the Act, a CAH must meet 

other criteria that the Secretary 

specifies. 

The regulations that govern the 

conditions of participation (CoPs) for 

CAHs under the statutory requirements 

of section 1820 are codified at 42 CFR 

Part 485, Subpart F. 

2. Proposed Changes Related to 

Reclassification as Rural for CAHs 

Under section 1820(c)(2)(B)(i) of the 

Act, a facility is eligible for designation 

as a CAH only if it is located in a county 

or equivalent unit of local government 

in a rural area (as defined in section 

1886(d)(2)(D) of the Act), or is being 

treated as being located in a rural area 

in accordance with section 1886(d)(8)(E) 

of the Act. The regulations 

implementing this location requirement 

are located at § 485.610(b). The 

regulations governing the process for a 

facility located in an urban area to apply 

for reclassification as a rural facility 

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

are located at § 412.103. 

In this proposed rule, we are 

proposing to implement the most 

recently published OMB delineations 

(we refer readers to section III.B. of the 

preamble of this proposed rule for a 

discussion of the changes that were 

announced in OMB Bulletin No. 13–01). 

As previously stated, a facility must be 

located in a rural area in order to be 

eligible for designation as a CAH. 

Therefore, a new OMB delineation that 

redesignates an area from rural to urban, 

affects the status of a facility that is 

currently a CAH and had met the CAH 

location requirements prior to the new 

OMB delineation. A facility that is 

located in an urban area cannot remain 

a CAH unless it is reclassified as rural 

under § 412.103 of the regulations. In 

both the FY 2005 IPPS final rule (69 FR 

49221 and 69 FR 60252) and the FY 

2010 IPPS/LTCH PPS final rule (74 FR 

43940), we amended the regulations at 

§ 412.103(a) and § 485.610(b) to provide 

for a transition period during which 

CAHs that had previously been located 

in rural areas but, as a result of new 

OMB delineations, were now located in 

urban areas, could reclassify as rural 

under § 412.103. Specifically, in both 

the FY 2005 IPPS final rule and the FY 

2010 IPPS/LTCH PPS final rule, we 

provided for a 2-year period during 

which a CAH located in an urban area 

as a result of the new OMB delineations 

could continue participating without 

interruption as a CAH, thereby allowing 

the CAH sufficient time to reclassify as 

rural under § 412.103. If the facility did 

not reclassify as a rural facility by the 

end of that 2-year period, the CAH 

would not be able to retain its CAH 

status beyond that 2-year period. 

However, under the FY 2005 IPPS final 

rule and the FY 2010 IPPS/LTCH PPS 

final rule, the application of the 

regulation was limited to October 1, 

2004 through September 30, 2006, and 

October 1, 2009 through September 30, 

2011, respectively. As a result, in the 

absence of a new amendment to the 

regulations each time there are new 

OMB delineations, a CAH that becomes 

located in an urban area as a result of 

those OMB delineations would not be 

given 2 years to reclassify as rural under 

§ 412.103 of the regulations. 

In the FY 2010 IPPS/LTCH PPS final 

rule (74 FR 43940), we stated that we 

would consider whether it would be 

appropriate to propose, in future IPPS 

rulemaking, to revise § 485.610 and 

§ 412.103 to provide for a transition 

period any time a CAH that was 

formerly located in a rural area is 

designated as being located in an urban 

area as a result of the redesignation of 

its county from rural to urban. After 

further consideration, we believe that it 

is appropriate to propose to change the 

regulations to provide for a transition 

period that is not restricted to a 

timeframe, but rather can be applied any 

time a facility that is currently 

designated as a CAH becomes located in 

an urban area as a result of a new OMB 

delineation. 

Therefore, we are proposing that, 

effective October 1, 2014, a CAH that 

was previously located in a rural area 

but is now located in an urban area as 

a result of a new OMB labor market area 

delineation will continue to be treated 

as rural for 2 years from the date the 

OMB delineation is implemented. 

Accordingly, if the OMB delineations 

announced in OMB Bulletin No. 13–01 

on February 28, 2013 discussed in 

section III.B. of the preamble of this 

proposed rule are implemented in the 

FY 2015 IPPS/LTCH PPS final rule, 

effective October 1, 2014, any CAH 

affected by the new OMB delineations 

in OMB Bulletin No. 13–01 would 

retain its rural status through September 

30, 2016. An affected CAH would be 

required to reclassify as a rural facility 

under § 412.103 within that 2-year 

period in order to continue participating 

in the Medicare program as a CAH after 

the 2-year transition period ends. 

Therefore, taking into consideration the 

example above, any CAH affected by a 

new OMB delineation that is 

implemented in the FY 2015 IPPS/

LTCH PPS final rule would be required 

to reclassify as rural by September 30, 

2016, in order to retain its CAH status 

after September 30, 2016. 

To implement this proposed change, 

we are proposing to revise § 412.103 by 

adding a new paragraph (a)(6), and to 

revise § 485.610 by making a 

conforming change to the introductory 

text of paragraph (b) and adding a new 

paragraph (b)(5) to provide for a 2-year 

transition period that will apply any 

time a new OMB delineation causes a 

facility that was previously located in a 

rural area and is designated as a CAH to 

be located in an urban area. We believe 

that this proposal to revise the 

regulations to automatically provide for 

a 2-year transition period following the 

implementation of new OMB 

delineations is more efficient than 

providing for a regulatory change 

limited to a timeframe, and, as a result, 

will be more effective in reducing any 

disruption caused by new OMB 

delineations. 

3. Proposed Revision of the 

Requirements for Physician Certification 

of CAH Inpatient Services 

For inpatient CAH services to be 

payable under Medicare Part A, section 

1814(a)(8) of the Act requires that a 

physician certify ‘‘that the individual 

may reasonably be expected to be 

discharged or transferred to a hospital 

within 96 hours after admission to the 

critical access hospital.’’ The regulations 

implementing this statutory requirement 

are located at 42 CFR 424.15. 

Prior to FY 2014, this physician 

certification was required no later than 

1 day before the date on which the 

claim for payment for the inpatient CAH 

service is submitted. In the FY 2014 

IPPS/LTCH PPS final rule, we revised 

the CAH regulations concerning the 

timing requirements for certification of 

inpatient CAH services. Specifically, we 

revised § 424.15(b) to state: 

‘‘Certification begins with the order for 

inpatient admission. The certification 

must be completed, signed, and 

documented in the medical record prior 

to discharge’’ (78 FR 50970). This 

change was effective October 1, 2013. 

However, in order to provide CAHs 

with greater flexibility in meeting this 

certification requirement, we are now 

proposing to amend the regulations 

governing the timing of the 96-hour 

certification requirement at § 424.15(b) 

such that physician certification is 

required no later than 1 day before the 

date on which the claim for payment for 

the inpatient CAH service is submitted. 

That is, we are proposing to remove the 

requirement that certification of the 96- 

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hour requirement must be completed 

prior to discharge and are proposing to 

reinstate the timing requirement that 

was in place prior to October 1, 2013. 

We are proposing to revise § 424.15(b) 

to remove the phrase ‘‘prior to 

discharge’’ and replace it with ‘‘no later 

than 1 day before the date on which the 

claim for payment for the inpatient CAH 

service is submitted’’. In addition, we 

are proposing to make a conforming 

amendment to § 424.11(d)(5). Section 

424.11(d)(5) states ‘‘[f]or all inpatient 

hospital or critical access hospital 

inpatient services, including inpatient 

psychiatric facility services, a delayed 

certification may not extend past 

discharge.’’ Because we are proposing to 

change the timing requirement for 

physician certification of CAH inpatient 

services at § 424.15(b), such that the 

certification could be completed past 

discharge, we are proposing to revise 

§ 424.11(d)(5) to remove the phrase ‘‘or 

critical access hospital inpatient’’. We 

are seeking public comment on these 

proposed changes to the regulations 

governing the requirement for physician 

certification of CAH inpatient services. 

VII. Proposed Changes to the LongTerm Care Hospital Prospective 

Payment System (LTCH PPS) for FY 

2015 

A. Background of the LTCH PPS 

1. Legislative and Regulatory Authority 

Section 123 of the Medicare, 

Medicaid, and SCHIP (State Children’s 

Health Insurance Program) Balanced 

Budget Refinement Act of 1999 (BBRA) 

(Pub. L. 106–113) as amended by 

section 307(b) of the Medicare, 

Medicaid, and SCHIP Benefits 

Improvement and Protection Act of 

2000 (BIPA) (Pub. L. 106–554) provides 

for payment for both the operating and 

capital-related costs of hospital 

inpatient stays in long-term care 

hospitals (LTCHs) under Medicare Part 

A based on prospectively set rates. The 

Medicare prospective payment system 

(PPS) for LTCHs applies to hospitals 

that are described in section 

1886(d)(1)(B)(iv) of the Act, effective for 

cost reporting periods beginning on or 

after October 1, 2002. 

Section 1886(d)(1)(B)(iv)(I) of the Act 

defines a LTCH as ‘‘a hospital which has 

an average inpatient length of stay (as 

determined by the Secretary) of greater 

than 25 days.’’ Section 

1886(d)(1)(B)(iv)(II) of the Act also 

provides an alternative definition of 

LTCHs: specifically, a hospital that first 

received payment under section 1886(d) 

of the Act in 1986 and has an average 

inpatient length of stay (LOS) (as 

determined by the Secretary of Health 

and Human Services (the Secretary)) of 

greater than 20 days and has 80 percent 

or more of its annual Medicare inpatient 

discharges with a principal diagnosis 

that reflects a finding of neoplastic 

disease in the 12-month cost reporting 

period ending in FY 1997. 

Section 123 of the BBRA requires the 

PPS for LTCHs to be a ‘‘per discharge’’ 

system with a diagnosis-related group 

(DRG) based patient classification 

system that reflects the differences in 

patient resources and costs in LTCHs. 

Section 307(b)(1) of the BIPA, among 

other things, mandates that the 

Secretary shall examine, and may 

provide for, adjustments to payments 

under the LTCH PPS, including 

adjustments to DRG weights, area wage 

adjustments, geographic reclassification, 

outliers, updates, and a disproportionate 

share adjustment. 

In the August 30, 2002 Federal 

Register, we issued a final rule that 

implemented the LTCH PPS authorized 

under the BBRA and BIPA (67 FR 

55954). For the initial implementation 

of the LTCH PPS (FYs 2003 through FY 

2007), the system used information from 

LTCH patient records to classify 

patients into distinct long-term care 

diagnosis-related groups (LTC–DRGs) 

based on clinical characteristics and 

expected resource needs. Beginning in 

FY 2008, we adopted the Medicare 

severity long-term care diagnosis-related 

groups (MS–LTC–DRGs) as the patient 

classification system used under the 

LTCH PPS. Payments are calculated for 

each MS–LTC–DRG and provisions are 

made for appropriate payment 

adjustments. Payment rates under the 

LTCH PPS are updated annually and 

published in the Federal Register. 

The LTCH PPS replaced the 

reasonable cost-based payment system 

under the Tax Equity and Fiscal 

Responsibility Act of 1982 (TEFRA) 

(Pub. L. 97–248) for payments for 

inpatient services provided by a LTCH 

with a cost reporting period beginning 

on or after October 1, 2002. (The 

regulations implementing the TEFRA 

reasonable cost-based payment 

provisions are located at 42 CFR Part 

413.) With the implementation of the 

PPS for acute care hospitals authorized 

by the Social Security Amendments of 

1983 (Pub. L. 98–21), which added 

section 1886(d) to the Act, certain 

hospitals, including LTCHs, were 

excluded from the PPS for acute care 

hospitals and were paid their reasonable 

costs for inpatient services subject to a 

per discharge limitation or target 

amount under the TEFRA system. For 

each cost reporting period, a hospitalspecific ceiling on payments was 

determined by multiplying the 

hospital’s updated target amount by the 

number of total current year Medicare 

discharges. (Generally, in section VII. of 

the preamble of this proposed rule, 

when we refer to discharges, we 

describe Medicare discharges.) The 

August 30, 2002 final rule further 

details the payment policy under the 

TEFRA system (67 FR 55954). 

In the August 30, 2002 final rule, we 

provided for a 5-year transition period 

from payments under the TEFRA system 

to payments under the LTCH PPS. 

During this 5-year transition period, a 

LTCH’s total payment under the PPS 

was based on an increasing percentage 

of the Federal rate with a corresponding 

decrease in the percentage of the LTCH 

PPS payment that is based on 

reasonable cost concepts, unless a LTCH 

made a one-time election to be paid 

based on 100 percent of the Federal rate. 

Beginning with LTCHs’ cost reporting 

periods beginning on or after October 1, 

2006, total LTCH PPS payments are 

based on 100 percent of the Federal rate. 

In addition, in the August 30, 2002 

final rule, we presented an in-depth 

discussion of the LTCH PPS, including 

the patient classification system, 

relative weights, payment rates, 

additional payments, and the budget 

neutrality requirements mandated by 

section 123 of the BBRA. The same final 

rule that established regulations for the 

LTCH PPS under 42 CFR Part 412, 

Subpart O, also contained LTCH 

provisions related to covered inpatient 

services, limitation on charges to 

beneficiaries, medical review 

requirements, furnishing of inpatient 

hospital services directly or under 

arrangement, and reporting and 

recordkeeping requirements. We refer 

readers to the August 30, 2002 final rule 

for a comprehensive discussion of the 

research and data that supported the 

establishment of the LTCH PPS (67 FR 

55954). 

We refer readers to the FY 2012 IPPS/ 

LTCH PPS final rule (76 FR 51733 

through 51743) for a chronological 

summary of the main legislative and 

regulatory developments affecting the 

LTCH PPS through the annual update 

cycles prior to the FY 2014 rulemaking 

cycle. In addition, in this proposed rule, 

we discuss the provisions of the 

Pathway for SGR Reform Act of 2013 

(Pub. L. 113–67), enacted on December 

26, 2013, that affect the LTCH PPS. In 

section VII.I.2. of the preamble of this 

proposed rule, we discuss the 

provisions of section 1206(a) of Public 

Law 113–67, which amended section 

1886(m) of the Act by adding paragraph 

(6) and established, among other things, 

patient-level criteria for payments under 

the LTCH PPS for implementation 

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beginning with FY 2016. In section 

VII.E. of the preamble of this proposed 

rule, we discuss the provisions of 

section 1206(b)(1) of Public Law 113– 

67, which provide for the retroactive 

reinstatement and extension, for an 

additional 4 years, of the moratorium on 

the full implementation of the 25- 

percent threshold payment adjustment 

policy (except for ‘‘grandfathered’’ 

hospitals-within-hospitals (HwHs), 

which are permanently exempt from 

this policy). In section VII.G. of the 

preamble of this proposed rule, we 

discuss the provisions of section 

1206(b)(2) of Public Law 113–67 (as 

amended by section 112(b) of the 

Protecting Access to Medicare Act (Pub. 

L. 113–93), which, subject to certain 

defined exceptions, provide for 

statutory moratoria on the establishment 

of new LTCHs and LTCH satellite 

facilities and a new statutory 

moratorium on the increase in the 

number of hospital beds in LTCHs or 

LTCH satellite facilities for the period 

beginning April 1, 2014 and ending 

September 30, 2017. In section IX.C. of 

the preamble of this proposed rule, we 

discuss the provisions of section 1206(c) 

of Public Law 113–67, which amended 

the LTCH Quality Reporting Program 

established under section 1886(m)(5) of 

the Act by requiring the Secretary to 

establish a functional status quality 

measure to evaluate the in mobility 

among inpatients requiring ventilator 

support no later than October 1, 2015. 

In section VII.H. of the preamble of this 

proposed rule, we discuss the findings 

of a review of payments to certain 

LTCHs (that is, LTCHs classified under 

subclause (II) of section 

1886(d)(1)(B)(iv) of the Act) that was 

conducted in accordance with section 

1206(d) of Public Law 113–67, and 

propose to apply a payment adjustment 

under the LTCH PPS to ‘‘subclause (II)’’ 

LTCHs beginning in FY 2015 that would 

result in payments to this type of LTCH 

resembling payments under the 

reasonable cost TEFRA payment system 

model. 

2. Criteria for Classification as an LTCH 

a. Classification as an LTCH 

Under the regulations at 

§ 412.23(e)(1), to qualify to be paid 

under the LTCH PPS, a hospital must 

have a provider agreement with 

Medicare. Furthermore, § 412.23(e)(2)(i), 

which implements section 

1886(d)(1)(B)(iv)(I) of the Act, requires 

that a hospital have an average Medicare 

inpatient length of stay of greater than 

25 days to be paid under the LTCH PPS. 

Alternatively, § 412.23(e)(2)(ii) states 

that, for cost reporting periods 

beginning on or after August 5, 1997, a 

hospital that was first excluded from the 

PPS in 1986 and can demonstrate that 

at least 80 percent of its annual 

Medicare inpatient discharges in the 12- 

month cost reporting period ending in 

FY 1997 have a principal diagnosis that 

reflects a finding of neoplastic disease 

must have an average inpatient length of 

stay for all patients, including both 

Medicare and non-Medicare inpatients, 

of greater than 20 days. 

b. Hospitals Excluded From the LTCH 

PPS 

The following hospitals are paid 

under special payment provisions, as 

described in § 412.22(c) and, therefore, 

are not subject to the LTCH PPS rules: 

• Veterans Administration hospitals. 

• Hospitals that are reimbursed under 

State cost control systems approved 

under 42 CFR Part 403. 

• Hospitals that are reimbursed in 

accordance with demonstration projects 

authorized under section 402(a) of the 

Social Security Amendments of 1967 

(Pub. L. 90–248) (42 U.S.C. 1395b–1) or 

section 222(a) of the Social Security 

Amendments of 1972 (Pub. L. 92–603) 

(42 U.S.C. 1395b–1 (note)) (Statewide 

all-payer systems, subject to the rate-ofincrease test at section 1814(b) of the 

Act). 

• Nonparticipating hospitals 

furnishing emergency services to 

Medicare beneficiaries. 

3. Limitation on Charges to Beneficiaries 

In the August 30, 2002 final rule, we 

presented an in-depth discussion of 

beneficiary liability under the LTCH 

PPS (67 FR 55974 through 55975). In the 

RY 2005 LTCH PPS final rule (69 FR 

25676), we clarified that the discussion 

of beneficiary liability in the August 30, 

2002 final rule was not meant to 

establish rates or payments for, or define 

Medicare-eligible expenses. Under 

§ 412.507, if the Medicare payment to 

the LTCH is the full LTC–DRG payment 

amount, consistent with other 

established hospital prospective 

payment systems, a LTCH may not bill 

a Medicare beneficiary for more than the 

deductible and coinsurance amounts as 

specified under §§ 409.82, 409.83, and 

409.87 and for items and services 

specified under § 489.30(a). However, 

under the LTCH PPS, Medicare will 

only pay for days for which the 

beneficiary has coverage until the shortstay outlier (SSO) threshold is exceeded. 

Therefore, if the Medicare payment was 

for a SSO case (§ 412.529) that was less 

than the full LTC–DRG payment amount 

because the beneficiary had insufficient 

remaining Medicare days, the LTCH 

could also charge the beneficiary for 

services delivered on those uncovered 

days (§ 412.507). 

4. Administrative Simplification 

Compliance Act (ASCA) and Health 

Insurance Portability and 

Accountability Act (HIPAA) 

Compliance 

Claims submitted to Medicare must 

comply with both the Administrative 

Simplification Compliance Act (ASCA) 

(Pub. L. 107–105), and the Health 

Insurance Portability and 

Accountability Act of 1996 (HIPAA) 

(Pub. L. 104–191). Section 3 of the 

ASCA requires that the Medicare 

Program deny payment under Part A or 

Part B for any expenses incurred for 

items or services ‘‘for which a claim is 

submitted other than in an electronic 

form specified by the Secretary.’’ 

Section 1862(h) of the Act (as added by 

section 3(a) of the ASCA) provides that 

the Secretary shall waive such denial in 

two specific types of cases and may also 

waive such denial ‘‘in such unusual 

cases as the Secretary finds appropriate’’ 

(68 FR 48805). Section 3 of the ASCA 

operates in the context of the HIPAA 

regulations, which include, among other 

provisions, the transactions and code 

sets standards requirements codified 

under 45 CFR Parts 160 and 162 

(generally known as the Transactions 

Rule). The Transactions Rule requires 

covered entities, including covered 

health care providers, to conduct certain 

electronic health care transactions 

according to the applicable transactions 

and code sets standards. 

The Department of Health and Human 

Services has a number of initiatives 

designed to encourage and support the 

adoption of health information 

technology and promote nationwide 

health information exchange to improve 

health care. The Office of the National 

Coordinator for Health Information 

Technology (ONC) leads these efforts in 

collaboration with other agencies, 

including CMS and the Office of the 

Assistant Secretary for Planning and 

Evaluation (ASPE). Through a number 

of activities, including several open 

government initiatives, HHS is 

promoting the adoption of electronic 

health record (EHR) technology certified 

under the ONC Health Information 

Technology (HIT) Certification Program 

developed to support secure, 

interoperable, health information 

exchange. While certified EHR 

technology is not yet available for 

LTCHs and other types of providers that 

are not eligible for the Medicare and 

Medicaid EHR Incentive Programs, ONC 

has requested the HIT Policy Committee 

(a Federal Advisory Committee) to 

explore the expansion of EHR 

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certification under the ONC HIT 

Certification Program, focusing on EHR 

certification criteria needed for longterm and postacute care (including 

LTCHs) and behavioral health care 

providers. ONC has issued a proposed 

rule concerning a voluntary 2015 

Edition of EHR certification criteria that 

would more easily accommodate HIT 

certification for health care settings 

where individual or institutional health 

care providers are not typically eligible 

to qualify for meaningful use incentive 

payments under Medicare or Medicaid, 

such as behavioral health or long-term 

postacute care settings. We believe that 

the use of certified EHRs by LTCHs (and 

other types of providers that are 

ineligible for the Medicare and 

Medicaid EHR Incentive Programs) can 

effectively and efficiently help 

providers improve internal care delivery 

practices, support the exchange of 

important information across care 

partners and during transitions of care, 

and could enable the reporting of 

electronically specified clinical quality 

measures (eCQMs) (as described 

elsewhere in this rule). More 

information on the proposed rule 

concerning a voluntary 2015 Edition of 

EHR certification criteria, identification 

of EHR certification criteria and 

development of standards applicable to 

LTCHs can be found at: 

• http://www.healthit.gov/policyresearchers-implementers/standardsand-certification-regulations; 

• http://www.healthit.gov/facas/

FACAS/health-it-policy-committee/

hitpc-workgroups/certificationadoption; 

• http://wiki.siframework.org/

LCC+LTPAC+Care+Transition+SWG; 

and 

• http://wiki.siframework.org/

Longitudinal+Coordination+of+Care. 

B. Proposed Medicare Severity LongTerm Care Diagnosis-Related Group 

(MS–LTC–DRG) Classifications and 

Relative Weights for FY 2015 

1. Background 

Section 123 of the BBRA requires that 

the Secretary implement a PPS for 

LTCHs (that is, a per discharge system 

with a diagnosis-related group (DRG)- 

based patient classification system 

reflecting the differences in patient 

resources and costs). Section 307(b)(1) 

of the BIPA modified the requirements 

of section 123 of the BBRA by requiring 

that the Secretary examine ‘‘the 

feasibility and the impact of basing 

payment under such a system [the longterm care hospital (LTCH) PPS] on the 

use of existing (or refined) hospital 

DRGs that have been modified to 

account for different resource use of 

LTCH patients, as well as the use of the 

most recently available hospital 

discharge data.’’ 

When the LTCH PPS was 

implemented for cost reporting periods 

beginning on or after October 1, 2002, 

we adopted the same DRG patient 

classification system (that is, the CMS 

DRGs) that was utilized at that time 

under the IPPS. As a component of the 

LTCH PPS, we refer to this patient 

classification system as the ‘‘long-term 

care diagnosis-related groups (LTC– 

DRGs).’’ Although the patient 

classification system used under both 

the LTCH PPS and the IPPS are the 

same, the relative weights are different. 

The established relative weight 

methodology and data used under the 

LTCH PPS result in relative weights 

under the LTCH PPS that reflect ‘‘the 

differences in patient resource use . . .’’ 

of LTCH patients (section 123(a)(1) of 

the BBRA (Pub. L. 106–113)). 

As part of our efforts to better 

recognize severity of illness among 

patients, in the FY 2008 IPPS final rule 

with comment period (72 FR 47130), the 

MS–DRGs and the Medicare severity 

long-term care diagnosis-related groups 

(MS–LTC–DRGs) were adopted under 

the IPPS and the LTCH PPS, 

respectively, effective beginning 

October 1, 2007 (FY 2008). For a full 

description of the development, 

implementation, and rationale for the 

use of the MS–DRGs and MS–LTC– 

DRGs, we refer readers to the FY 2008 

IPPS final rule with comment period (72 

FR 47141 through 47175 and 47277 

through 47299). (We note that, in that 

same final rule, we revised the 

regulations at § 412.503 to specify that 

for LTCH discharges occurring on or 

after October 1, 2007, when applying 

the provisions of 42 CFR Part 412, 

Subpart O applicable to LTCHs for 

policy descriptions and payment 

calculations, all references to LTC– 

DRGs would be considered a reference 

to MS–LTC–DRGs. For the remainder of 

this section, we present the discussion 

in terms of the current MS–LTC–DRG 

patient classification system unless 

specifically referring to the previous 

LTC–DRG patient classification system 

that was in effect before October 1, 

2007.) 

The MS–DRGs adopted in FY 2008 

represent an increase in the number of 

DRGs by 207 (that is, from 538 to 745) 

(72 FR 47171). The MS–DRG 

classifications are updated annually. 

There are currently 751 MS–DRG 

groupings. If we finalize the proposed 

changes to the MS–DRG groupings 

described in section II.G. of this 

preamble, there would be a total of 753 

MS–DRG groupings for FY 2015. 

Consistent with section 123 of the 

BBRA, as amended by section 307(b)(1) 

of the BIPA, and § 412.515 of the 

regulations, we use information derived 

from LTCH PPS patient records to 

classify LTCH discharges into distinct 

MS–LTC–DRGs based on clinical 

characteristics and estimated resource 

needs. We then assign an appropriate 

weight to the MS–LTC–DRGs to account 

for the difference in resource use by 

patients exhibiting the case complexity 

and multiple medical problems 

characteristic of LTCHs. Below we 

provide a general summary of our 

existing methodology for determining 

the proposed MS–LTC–DRG relative 

weights. 

In a departure from the IPPS, and as 

discussed in greater detail below in 

section VII.B.3.f. of this preamble, we 

are proposing to continue to use 

proposed low-volume MS–LTC–DRGs 

(that is, proposed MS–LTC–DRGs with 

less than 25 LTCH cases) in determining 

the proposed 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 proposed relative 

weights for the large number of 

proposed low-volume MS–LTC–DRGs, 

we are proposing to group all of the lowvolume MS–LTC–DRGs into five 

quintiles based on average charge per 

discharge. (A detailed discussion of the 

initial development and application of 

the quintile methodology appears in the 

August 30, 2002 LTCH PPS final rule 

(67 FR 55978).) Under our existing 

methodology, we are proposing to 

account for adjustments to payments for 

short-stay outlier (SSO) cases (that is, 

cases where the covered length of stay 

at the LTCH is less than or equal to fivesixths of the geometric average length of 

stay for the MS–LTC–DRG). 

Furthermore, we are proposing to make 

adjustments to account for 

nonmonotonically increasing weights, 

when necessary. That is, theoretically, 

cases under the MS–LTC–DRG system 

that are more severe require greater 

expenditure of medical care resources 

and will result in higher average charges 

such that, in the severity levels within 

a base MS–LTC–DRG, the proposed 

relative weights should increase 

monotonically with severity from the 

lowest to highest severity level. (We 

discuss nonmonotonicity in greater 

detail and our proposed methodology to 

adjust the proposed MS–LTC–DRG 

relative weights to account for 

nonmonotonically increasing proposed 

relative weights in section VII.B.3.g. 

(Step 6) of this preamble.) 

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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, EKGs), or 

minor surgical procedures (for example, 

a biopsy of skin and subcutaneous 

tissue (procedure code 86.11)) do not 

affect the MS–LTC–DRG assignment 

based on their presence on the claim. 

Generally, under the LTCH PPS, a 

Medicare payment is made at a 

predetermined specific rate for each 

discharge and that payment varies by 

the MS–LTC–DRG to which a 

beneficiary’s stay is assigned. Cases are 

classified into MS–LTC–DRGs for 

payment based on the following six data 

elements: 

• Principal diagnosis; 

• Additional or secondary diagnoses; 

• Surgical procedures; 

• Age; 

• Sex; and 

• Discharge status of the patient. 

Through FY 2010, the number of 

diagnosis and procedure codes 

considered for MS–DRG assignment was 

limited to nine and six, respectively. 

However, for claims submitted on the 

5010 format beginning January 1, 2011, 

we increased the capacity to process 

diagnosis and procedure codes up to 25 

diagnoses and 25 procedures. This 

includes one principal diagnosis and up 

to 24 secondary diagnoses for severity of 

illness determinations. We refer readers 

to section II.G.11.c. of the preamble of 

the FY 2011 IPPS/LTCH PPS final rule 

for a complete discussion of this change 

(75 FR 50127). 

Under HIPAA transactions and code 

sets regulations at 45 CFR Parts 160 and 

162, covered entities must comply with 

the adopted transaction standards and 

operating rules specified in Subparts I 

through S of Part 162. Among other 

requirements, by January 1, 2012, 

covered entities were required to use the 

ASC X12 Standards for Electronic Data 

Interchange Technical Report Type 3— 

Health Care Claim: Institutional (837), 

May 2006, ASC X12N/005010X223, and 

Type 1 Errata to Health Care Claim: 

Institutional (837) ASC X12 Standards 

for Electronic Data Interchange 

Technical Report Type 3, October 2007, 

ASC X12N/005010X233A1 for the 

health care claims or equivalent 

encounter information transaction (45 

CFR 162.1102). 

HIPAA requires covered entities to 

use the applicable medical data code set 

requirements when conducting HIPAA 

transactions (45 CFR 162.1000). 

Currently, upon the discharge of the 

patient, the LTCH must assign 

appropriate diagnosis and procedure 

codes from the most current version of 

the Internal Classification of Diseases, 

Ninth Revision, Clinical Modification 

(ICD–9–CM). For additional information 

on the ICD–9–CM coding system, we 

refer readers to the FY 2008 IPPS final 

rule with comment period (72 FR 47241 

through 47243 and 47277 through 

47281). We also refer readers to the 

detailed discussion on correct coding 

practices in the August 30, 2002 LTCH 

PPS final rule (67 FR 55981 through 

55983). Additional coding instructions 

and examples are published in the 

Coding Clinic for ICD–9–CM, a product 

of the American Hospital Association. 

(We refer readers to section II.G.13. of 

the preamble of this proposed rule for 

additional information on the annual 

revisions to the ICD–9–CM codes.) 

Providers use the code sets under the 

ICD–9–CM coding system to report 

diagnoses and procedures for Medicare 

hospital inpatient services under the 

MS–DRG system. We have been 

discussing the conversion to the ICD–10 

coding system for many years. We refer 

readers to section II.G.1. of the preamble 

of this proposed rule for additional 

information on the implementation of 

the ICD–10 coding system. 

To create the MS–DRGs (and by 

extension, the MS–LTC–DRGs), base 

DRGs were subdivided according to the 

presence of specific secondary 

diagnoses designated as complications 

or comorbidities (CCs) into one, two, or 

three levels of severity, depending on 

the impact of the CCs on resources used 

for those cases. Specifically, there are 

sets of MS–DRGs that are split into 2 or 

3 subgroups based on the presence or 

absence of a CC or a major complication 

or comorbidity (MCC). We refer readers 

to section II.D. of the FY 2008 IPPS final 

rule with comment period for a detailed 

discussion about the creation of MS– 

DRGs based on severity of illness levels 

(72 FR 47141 through 47175). 

Medicare administrative contractors 

(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 hospitalspecific adjustments. Under the LTCH 

PPS, we provide an opportunity for 

LTCHs to review the MS–LTC–DRG 

assignments made by the Medicare 

contractor and to submit additional 

information within a specified 

timeframe as provided in § 412.513(c). 

The GROUPER software is used both 

to classify past cases to measure relative 

hospital resource consumption to 

establish the MS–LTC–DRG relative 

weights and to classify current cases for 

purposes of determining payment. The 

records for all Medicare hospital 

inpatient discharges are maintained in 

the MedPAR file. The data in this file 

are used to evaluate possible MS–DRG 

and MS–LTC–DRG classification 

changes and to recalibrate the MS–DRG 

and MS–LTC–DRG relative weights 

during our annual update under both 

the IPPS (§ 412.60(e)) and the LTCH PPS 

(§ 412.517), respectively. 

b. Proposed Changes to the MS–LTC– 

DRGs for FY 2015 

As specified by our regulations at 

§ 412.517(a), which require that the MS– 

LTC–DRG classifications and relative 

weights be updated annually, and 

consistent with our historical practice of 

using the same patient classification 

system under the LTCH PPS as is used 

under the IPPS, we are proposing to 

update the MS–LTC–DRG classifications 

effective October 1, 2014, through 

September 30, 2015 (FY 2015) 

consistent with the proposed changes to 

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specific MS–DRG classifications 

presented in section II.G. of this 

preamble (that is, proposed GROUPER 

Version 32.0). Therefore, the proposed 

MS–LTC–DRGs for FY 2015 presented 

in this proposed rule are the same as the 

proposed MS–DRGs that are being 

proposed for use under the IPPS for FY 

2015. In addition, because the proposed 

MS–LTC–DRGs for FY 2015 are the 

same as the proposed MS–DRGs for FY 

2015, the other proposed changes that 

affect MS–DRG (and by extension MS– 

LTC–DRG) assignments under proposed 

GROUPER Version 32.0 as discussed in 

section II.G. of the preamble of this 

proposed rule, including the proposed 

changes to the MCE software and the 

ICD–9–CM coding system, also are 

applicable under the LTCH PPS for FY 

2015. 

3. Development of the Proposed FY 

2015 MS–LTC–DRG Relative Weights 

a. General Overview of the Development 

of the MS–LTC–DRG Relative Weights 

One of the primary goals for the 

implementation of the LTCH PPS is to 

pay each LTCH an appropriate amount 

for the efficient delivery of medical care 

to Medicare patients. The system must 

be able to account adequately for each 

LTCH’s case-mix in order to ensure both 

fair distribution of Medicare payments 

and access to adequate care for those 

Medicare patients whose care is more 

costly (67 FR 55984). To accomplish 

these goals, we have annually adjusted 

the LTCH PPS standard Federal 

prospective payment system rate by the 

applicable relative weight in 

determining payment to LTCHs for each 

case. 

The basic methodology used to 

develop the MS–LTC–DRG relative 

weights generally continues to be 

consistent with the general methodology 

established when the LTCH PPS was 

implemented in the August 30, 2002 

LTCH PPS final rule (67 FR 55989 

through 55991), with the exception of 

some modifications of our historical 

procedures for assigning relative 

weights in cases of zero volume and/or 

nonmonotonicity resulting from the 

adoption of the MS–LTC–DRGs. (For 

details on the modifications to our 

historical procedures for assigning 

relative weights in cases of zero volume 

and/or nonmonotonicity, we refer 

readers to the FY 2008 IPPS final rule 

with comment period (72 FR 47289 

through 47295) and the FY 2009 IPPS 

final rule (73 FR 48542 through 48550).) 

Under the LTCH PPS, relative weights 

for each MS–LTC–DRG are a primary 

element used to account for the 

variations in cost per discharge and 

resource utilization among the payment 

groups (§ 412.515). To ensure that 

Medicare patients classified to each 

MS–LTC–DRG have access to an 

appropriate level of services and to 

encourage efficiency, we calculate a 

relative weight for each MS–LTC–DRG 

that represents the resources needed by 

an average inpatient LTCH case in that 

MS–LTC–DRG. For example, cases in a 

MS–LTC–DRG with a relative weight of 

2 will, on average, cost twice as much 

to treat as cases in a MS–LTC–DRG with 

a relative weight of 1. 

b. Proposed Development of the MS– 

LTC–DRG Relative Weights for FY 2015 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50755 through 50760), we 

presented our policies for the 

development of the MS–LTC–DRG 

relative weights for FY 2014. The basic 

methodology we used to develop the FY 

2014 MS–LTC–DRG relative weights 

was the same as the methodology we 

used to develop the FY 2013 MS–LTC– 

DRG relative weights in the FY 2013 

IPPS/LTCH PPS final rule and was 

consistent with the general methodology 

established when the LTCH PPS was 

implemented in the August 30, 2002 

LTCH PPS final rule (67 FR 55989 

through 55991). In this FY 2015 IPPS/ 

LTCH PPS proposed rule, we are 

proposing to continue to apply our 

established methodology to develop the 

FY 2015 MS–LTC–DRG relative weights 

for FY 2015, which includes application 

of established policies related to the 

data, the hospital-specific relative value 

(HSRV) methodology, the treatment of 

severity levels in the MS–LTC–DRGs, 

low-volume and no-volume MS–LTC– 

DRGs, adjustment for nonmonotonicity, 

and the steps for calculating the MS– 

LTC–DRG relative weights with a 

budget neutrality factor. Below we 

present the methodology that we are 

proposing to continue to use to 

determine the MS–LTC–DRG relative 

weights for FY 2015, which is consistent 

with the methodology presented in the 

FY 2014 IPPS/LTCH PPS final rule. 

Beginning with the FY 2008 update, 

we established a budget neutrality 

requirement for the annual update to the 

MS–LTC–DRG classifications and 

relative weights at § 412.517(b) (in 

conjunction with § 412.503), such that 

estimated aggregate LTCH PPS 

payments would be unaffected, that is, 

would be neither greater than nor less 

than the estimated aggregate LTCH PPS 

payments that would have been made 

without the classification and relative 

weight changes (72 FR 26882 through 

26884). Consistent with § 412.517(b), we 

are proposing to continue to apply our 

established two-step budget neutrality 

methodology, which is based on the 

current year MS–LTC–DRG 

classifications and relative weights. We 

are proposing to continue to apply our 

established two-step budget neutrality 

methodology such that the annual 

update to the MS–LTC–DRG 

classifications and relative weights for 

FY 2015 are based on the FY 2014 MS– 

LTC–DRG classifications and relative 

weights established in Table 11 listed in 

section VI. of the Addendum to the FY 

2014 IPPS/LTCH PPS final rule (78 FR 

51002). (For additional information on 

the established two-step budget 

neutrality methodology, we refer readers 

to the FY 2008 IPPS final rule (72 FR 

47295 through 47296).) 

c. Data 

For the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50755), to calculate the MS– 

LTC–DRG relative weights for FY 2014, 

we obtained total charges from FY 2012 

Medicare LTCH bill data from the 

December 2012 update of the FY 2012 

MedPAR file, which were the best 

available data at that time, and used the 

finalized Version 31.0 of the GROUPER 

to classify LTCH cases. Consistent with 

our historical practice, to calculate the 

proposed MS–LTC–DRG relative 

weights for FY 2015 in this proposed 

rule, we are proposing to obtain total 

charges from the FY 2013 Medicare 

LTCH bill data from the December 2013 

update of the FY 2013 MedPAR file, 

which are the best available data at this 

time, and to use Version 32.0 of the 

GROUPER to classify LTCH cases. 

In this FY 2015 IPPS/LTCH PPS 

proposed rule and consistent with our 

historical methodology, we are 

proposing to exclude the data from 

LTCHs that are all-inclusive rate 

providers and LTCHs that are 

reimbursed in accordance with 

demonstration projects authorized 

under section 402(a) of Public Law 90– 

248 or section 222(a) of Public Law 92– 

603. Furthermore, consistent with our 

historical practice, we are proposing to 

exclude Medicare Advantage (Part C) 

claims, which are now included in the 

MedPAR files, in the calculations for the 

proposed relative weights under the 

LTCH PPS that are used to determine 

payments for Medicare fee-for-service 

claims. Specifically, we are proposing 

not to use any claims from the MedPAR 

files that have a GHO Paid indicator 

value of ‘‘1,’’ which effectively removes 

Medicare Advantage claims from the 

proposed relative weight calculations. 

Accordingly, in the development of the 

proposed FY 2015 MS–LTC–DRG 

relative weights in this proposed rule, 

we excluded the data of 12 all-inclusive 

rate providers and one LTCH that is 

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paid in accordance with demonstration 

projects that had claims in the 

December 2013 update of the FY 2013 

MedPAR file, as well as any Medicare 

Advantage claims. 

d. Hospital-Specific Relative Value 

(HSRV) Methodology 

By nature, LTCHs often specialize in 

certain areas, such as ventilatordependent patients and treatment of 

infections and wound care. Some case 

types (MS–DRGs) may be treated, to a 

large extent, in hospitals that have, from 

a perspective of charges, relatively high 

(or low) charges. This nonrandom 

distribution of cases with relatively high 

(or low) charges in specific MS–LTC– 

DRGs has the potential to 

inappropriately distort the measure of 

average charges. In this proposed rule, 

to account for the fact that cases may 

not be randomly distributed across 

LTCHs, consistent with the 

methodology we have used since the 

implementation of the LTCH PPS, we 

are proposing to continue to use a 

hospital-specific relative value (HSRV) 

methodology to calculate the proposed 

MS–LTC–DRG relative weights for FY 

2015. We believe this method removes 

this hospital-specific source of bias in 

measuring LTCH average charges (67 FR 

55985). Specifically, under this 

methodology, we reduce the impact of 

the variation in charges across providers 

on any particular proposed MS–LTC– 

DRG relative weight by converting each 

LTCH’s charge for a case to a relative 

value based on that LTCH’s average 

charge. 

Under the HSRV methodology, we 

standardize charges for each LTCH by 

converting its charges for each case to 

hospital-specific relative charge values 

and then adjusting those values for the 

LTCH’s case-mix. The adjustment for 

case-mix is needed to rescale the 

hospital-specific relative charge values 

(which, by definition, average 1.0 for 

each LTCH). The average relative weight 

for a LTCH is its case-mix, so it is 

reasonable to scale each LTCH’s average 

relative charge value by its case-mix. In 

this way, each LTCH’s relative charge 

value is adjusted by its case-mix to an 

average that reflects the complexity of 

the cases it treats relative to the 

complexity of the cases treated by all 

other LTCHs (the average case-mix of all 

LTCHs). 

In accordance with our established 

methodology, we are proposing to 

continue to standardize charges for each 

case by first dividing the adjusted 

charge for the case (adjusted for SSOs 

under § 412.529 as described in section 

VII.B.3.g. (Step 3) of this preamble) by 

the average adjusted charge for all cases 

at the LTCH in which the case was 

treated. SSO cases are cases with a 

length of stay that is less than or equal 

to five-sixths the average length of stay 

of the MS–LTC–DRG (§ 412.529 and 

§ 412.503). The average adjusted charge 

reflects the average intensity of the 

health care services delivered by a 

particular LTCH and the average cost 

level of that LTCH. The resulting ratio 

is multiplied by that LTCH’s case-mix 

index to determine the standardized 

charge for the case (67 FR 55989). 

Multiplying the resulting ratio by the 

LTCH’s case-mix index accounts for the 

fact that the same relative charges are 

given greater weight at a LTCH with 

higher average costs than they would at 

a LTCH with low average costs, which 

is needed to adjust each LTCH’s relative 

charge value to reflect its case-mix 

relative to the average case-mix for all 

LTCHs. Because we standardize charges 

in this manner, we count charges for a 

Medicare patient at a LTCH with high 

average charges as less resource 

intensive than they would be at a LTCH 

with low average charges. For example, 

a $10,000 charge for a case at a LTCH 

with an average adjusted charge of 

$17,500 reflects a higher level of relative 

resource use than a $10,000 charge for 

a case at a LTCH with the same casemix, but an average adjusted charge of 

$35,000. We believe that the adjusted 

charge of an individual case more 

accurately reflects actual resource use 

for an individual LTCH because the 

variation in charges due to systematic 

differences in the markup of charges 

among LTCHs is taken into account. 

e. Treatment of Severity Levels in 

Developing the Proposed MS–LTC–DRG 

Relative Weights 

For purposes of determining the 

proposed MS–LTC–DRG relative 

weights, under our historical 

methodology, there are three different 

categories of MS–DRGs based on 

volume of cases within specific MS– 

LTC–DRGs. Proposed MS–LTC–DRGs 

with at least 25 cases are each assigned 

a unique proposed relative weight; 

proposed low-volume MS–LTC–DRGs 

(that is, proposed MS–LTC–DRGs that 

contain between 1 and 24 cases based 

on a given year’s claims data) are 

grouped into quintiles (as described 

below) and assigned the proposed 

relative weight of the quintile. Proposed 

no-volume MS–LTC–DRGs (that is, no 

cases in the given year’s claims data are 

assigned to those proposed MS–LTC– 

DRGs) are cross-walked to other 

proposed MS–LTC–DRGs based on the 

clinical similarities and assigned the 

proposed relative weight of the crosswalked MS–LTC–DRG (as described in 

greater detail below). In this proposed 

rule, we are proposing to continue to 

utilize these same three categories of 

MS–LTC–DRGs for purposes of the 

treatment of severity levels in 

determining the proposed MS–LTC– 

DRG relative weights for FY 2015. (We 

provide in-depth discussions of our 

policy regarding weight-setting for 

proposed low-volume MS–LTC–DRGs 

in section VII.B.3.f. of the preamble of 

this proposed rule and for proposed novolume MS–LTC–DRGs, under Step 5 in 

section VII.B.3.g. of the preamble of this 

proposed rule.) 

Furthermore, in determining the 

proposed FY 2015 MS–LTC–DRG 

relative weights, when necessary, we are 

proposing to make adjustments to 

account for nonmonotonicity, as 

discussed in greater detail below in Step 

6 of section VII.B.3.g. of this preamble. 

We refer readers to the discussion in the 

FY 2010 IPPS/RY 2010 LTCH PPS final 

rule for our rationale for including an 

adjustment for nonmonotonicity (74 FR 

43953 through 43954). 

f. Proposed Low-Volume MS–LTC– 

DRGs 

In order to account for proposed MS– 

LTC–DRGs with low volume (that is, 

with fewer than 25 LTCH cases), 

consistent with our existing 

methodology for purposes of 

determining the proposed FY 2015 MS– 

LTC–DRG relative weights, we are 

proposing to continue to employ the 

quintile methodology for proposed lowvolume MS–LTC–DRGs, such that we 

group the proposed ‘‘low-volume MS– 

LTC–DRGs’’ (that is, proposed MS– 

LTC–DRGs that contained between 1 

and 24 cases annually) into one of five 

categories (quintiles) based on average 

charges (67 FR 55984 through 55995 

and 72 FR 47283 through 47288). In 

determining the proposed FY 2015 MS– 

LTC–DRG relative weights in this 

proposed rule, in cases where the initial 

assignment of a proposed low-volume 

MS–LTC–DRG to a quintile results in 

nonmonotonicity within a base-DRG, in 

order to ensure appropriate Medicare 

payments, consistent with our historical 

methodology, we are proposing to make 

adjustments to the treatment of 

proposed low-volume MS–LTC–DRGs to 

preserve monotonicity, as discussed in 

detail below in section VII.B.3.g. (Step 

6) of the preamble of this proposed rule. 

In this proposed rule, using LTCH 

cases from the December 2013 update of 

the FY 2013 MedPAR file (which is 

currently the best available data), we 

identified 297 proposed MS–LTC–DRGs 

that contained between 1 and 24 cases. 

This list of proposed MS–LTC–DRGs 

was then divided into one of the 5 lowmstockstill on DSK4VPTVN1PROD with PROPOSALS2

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volume quintiles, each containing 59 

proposed MS–LTC–DRGs (297/5 = 59 

with two proposed MS–LTC–DRGs as 

the remainder). We are proposing to 

assign a proposed low-volume MS– 

LTC–DRG to a specific low-volume 

quintile by sorting the proposed lowvolume MS–LTC–DRGs in ascending 

order by average charge in accordance 

with our established methodology. 

Based on the data available for this 

proposed rule, the number of proposed 

MS–LTC–DRGs with less than 25 cases 

is not evenly divisible by 5. Therefore, 

consistent with our historical approach, 

we are proposing to use the average 

charge of the low-volume quintile to 

determine which of the low-volume 

quintiles contain the additional 

proposed low-volume MS–LTC–DRG. 

Specifically for this proposed rule, after 

organizing the proposed MS–LTC–DRGs 

by ascending order by average charge, 

we are proposing to assign the first fifth 

(1st through 59th) of proposed lowvolume MS–LTC–DRGs (with the lowest 

average charge) into proposed Quintile 

1. The proposed MS–LTC–DRGs with 

the highest average charge cases were 

assigned into proposed Quintile 5. 

Because the average charge of the 119th 

proposed low-volume MS–LTC–DRG in 

the sorted list was closer to the average 

charge of the 118th proposed lowvolume MS–LTC–DRG (assigned to 

proposed Quintile 2) than to the average 

charge of the 120th proposed lowvolume MS–LTC–DRG (assigned to 

proposed Quintile 2), we are proposing 

to assign it to proposed Quintile 2 (such 

that proposed Quintile 2 contains 60 

proposed low-volume MS– LTC–DRGs 

before any adjustments for 

nonmonotonicity, as discussed below). 

This resulted in 3 of the 5 proposed 

low-volume quintiles containing 59 

proposed MS–LTC–DRGs (proposed 

Quintiles 1, 3, and 4) and two proposed 

low-volume quintiles containing 60 

proposed MS–LTC–DRGs (Quintiles 2 

and 5). Table 13A, which is listed in 

section VI. of the Addendum to this 

proposed rule and is available via the 

Internet, lists the proposed composition 

of the low-volume quintiles for 

proposed MS–LTC–DRGs for FY 2015. 

Accordingly, in order to determine 

the proposed FY 2015 relative weights 

for the proposed MS–LTC–DRGs with 

low volume, we are proposing to use the 

five proposed low-volume quintiles 

described above. We determined a 

proposed relative weight and 

(geometric) average length of stay for 

each of the five proposed low-volume 

quintiles using the methodology that we 

are proposing to apply to the proposed 

MS–LTC–DRGs (25 or more cases), as 

described below in section VII.B.3.g. of 

the preamble of this proposed rule. We 

are proposing to assign the same 

proposed relative weight and average 

length of stay to each of the proposed 

low-volume MS–LTC–DRGs that make 

up an individual proposed low-volume 

quintile. We note that, as this system is 

dynamic, it is possible that the number 

and specific type of proposed MS–LTC– 

DRGs with a low volume of LTCH cases 

will vary in the future. 

Furthermore, we note that we will 

continue to monitor the volume (that is, 

the number of LTCH cases) in the 

proposed low-volume quintiles to 

ensure that our proposed quintile 

assignments used in determining the 

proposed MS–LTC–DRG relative 

weights result in appropriate payment 

for such cases and do not result in an 

unintended financial incentive for 

LTCHs to inappropriately admit these 

types of cases. 

g. Steps for Determining the Proposed 

FY 2015 MS–LTC–DRG Relative 

Weights 

In this proposed rule, we are 

proposing to determine the proposed FY 

2015 MS–LTC–DRG relative weights 

based on our existing methodology. (For 

additional information on the original 

development of this methodology, and 

modifications to it since the adoption of 

the MS–LTC–DRGs, we refer readers to 

the August 30, 2002 LTCH PPS final 

rule (67 FR 55989 through 55995) and 

the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule (74 FR 43951 through 43966).) 

In summary, to determine the proposed 

FY 2015 MS–LTC–DRG relative weights, 

we are proposing to group LTCH cases 

to the appropriate proposed MS–LTC– 

DRG, while taking into account the 

proposed low-volume quintile (as 

described above). After grouping the 

cases to the appropriate proposed MS– 

LTC–DRG (or proposed low-volume 

quintile), we are proposing to calculate 

the FY 2015 relative weights by first 

removing statistical outliers and cases 

with a length of stay of 7 days or less 

(Steps 1 and 2 below). Next, we are 

proposing to adjust the number of cases 

in each proposed MS–LTC–DRG (or 

proposed low-volume quintile) for the 

effect of SSO cases (Step 3 below). After 

removing statistical outliers (Step 1 

below) and cases with a length of stay 

of 7 days or less (Step 2 below), the SSO 

adjusted discharges and corresponding 

charges were then used to calculate 

‘‘relative adjusted weights’’ for each 

proposed MS–LTC–DRG (or proposed 

low-volume quintile) using the HSRV 

method. 

Below we discuss in detail the steps 

for calculating the proposed FY 2015 

MS–LTC–DRG relative weights. We note 

that, as we discussed in section 

VII.B.3.c. of the preamble of this 

proposed rule, we excluded the data of 

all-inclusive rate LTCHs, LTCHs that are 

paid in accordance with demonstration 

projects, and any Medicare Advantage 

claims in the December 2013 update of 

the FY 2013 MedPAR file. 

Step 1—Remove statistical outliers. 

The first step in the calculation of the 

proposed FY 2015 MS–LTC–DRG 

relative weights is to remove statistical 

outlier cases. Consistent with our 

historical relative weight methodology, 

we are proposing to continue to define 

statistical outliers as cases that are 

outside of 3.0 standard deviations from 

the mean of the log distribution of both 

charges per case and the charges per day 

for each proposed MS–LTC–DRG. These 

statistical outliers are removed prior to 

calculating the proposed relative 

weights because we believe that they 

may represent aberrations in the data 

that distort the measure of average 

resource use. Including those LTCH 

cases in the calculation of the proposed 

relative weights could result in an 

inaccurate proposed relative weight that 

does not truly reflect relative resource 

use among the proposed MS–LTC– 

DRGs. (For additional information on 

this step of the relative weight 

methodology, we refer readers to 67 FR 

55989 and 74 FR 43959.) 

Step 2—Remove cases with a length 

of stay of 7 days or less. 

The proposed MS–LTC–DRG relative 

weights reflect the average of resources 

used on representative cases of a 

specific type. Generally, cases with a 

length of stay of 7 days or less do not 

belong in a LTCH because these stays do 

not fully receive or benefit from 

treatment that is typical in a LTCH stay, 

and full resources are often not used in 

the earlier stages of admission to a 

LTCH. If we were to include stays of 7 

days or less in the computation of the 

proposed FY 2015 MS–LTC–DRG 

relative weights, the value of many 

proposed relative weights would 

decrease and, therefore, payments 

would decrease to a level that may no 

longer be appropriate. We do not believe 

that it would be appropriate to 

compromise the integrity of the 

payment determination for those LTCH 

cases that actually benefit from and 

receive a full course of treatment at a 

LTCH by including data from these very 

short stays. Therefore, consistent with 

our historical relative weight 

methodology, in determining the 

proposed FY 2015 MS–LTC–DRG 

relative weights, we are proposing to 

remove LTCH cases with a length of stay 

of 7 days or less. (For additional 

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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 were left with 

cases that have a length of stay of greater 

than or equal to 8 days. As the next step 

in the calculation of the proposed FY 

2015 MS–LTC–DRG relative weights, 

consistent with our historical relative 

weight methodology, we are proposing 

to adjust each LTCH’s charges per 

discharge for those remaining cases for 

the effects of SSOs (as defined in 

§ 412.529(a) in conjunction with 

§ 412.503). 

In this proposed rule, we are 

proposing to make this adjustment by 

counting an SSO case as a fraction of a 

discharge based on the ratio of the 

length of stay of the case to the average 

length of stay for the proposed MS– 

LTC–DRG for non-SSO cases. This has 

the effect of proportionately reducing 

the impact of the lower charges for the 

SSO cases in calculating the average 

charge for the proposed MS–LTC–DRG. 

This process produces the same result 

as if the actual charges per discharge of 

an SSO case were adjusted to what they 

would have been had the patient’s 

length of stay been equal to the average 

length of stay of the MS–LTC–DRG. 

Counting SSO cases as full discharges 

with no adjustment in determining the 

proposed FY 2015 MS–LTC–DRG 

relative weights would lower the 

proposed FY 2015 MS–LTC–DRG 

relative weight for affected proposed 

MS–LTC–DRGs because the relatively 

lower charges of the SSO cases would 

bring down the average charge for all 

cases within a proposed MS–LTC–DRG. 

This would result in an 

‘‘underpayment’’ for non-SSO cases and 

an ‘‘overpayment’’ for SSO cases. 

Therefore, we are proposing to adjust for 

SSO cases under § 412.529 in this 

manner because it results in more 

appropriate payments for all LTCH 

cases. (For additional information on 

this step of the relative weight 

methodology, we refer readers to 67 FR 

55989 and 74 FR 43959.) 

Step 4—Calculate the proposed FY 

2015 MS–LTC–DRG relative weights on 

an iterative basis. 

Consistent with our historical relative 

weight methodology, we are proposing 

to calculate the proposed FY 2015 MS– 

LTC–DRG relative weights using the 

HSRV methodology, which is an 

iterative process. First, for each LTCH 

case, we are proposing to calculate a 

hospital-specific relative charge value 

by dividing the SSO adjusted charge per 

discharge (see Step 3) of the LTCH case 

(after removing the statistical outliers 

(see Step 1) and LTCH cases with a 

length of stay of 7 days or less (see Step 

2)) by the average charge per discharge 

for the LTCH in which the case 

occurred. The resulting ratio was then 

multiplied by the LTCH’s case-mix 

index to produce an adjusted hospitalspecific relative charge value for the 

case. An initial case-mix index value of 

1.0 was used for each LTCH. 

For each proposed MS–LTC–DRG, we 

calculated the proposed FY 2015 

relative weight by dividing the average 

of the adjusted hospital-specific relative 

charge values (from above) for the 

proposed MS–LTC–DRG by the overall 

average hospital-specific relative charge 

value across all cases for all LTCHs. 

Using these recalculated proposed MS– 

LTC–DRG relative weights, each LTCH’s 

average relative weight for all of its 

cases (that is, its case-mix) was 

calculated by dividing the sum of all the 

LTCH’s proposed MS–LTC–DRG 

relative weights by its total number of 

cases. The LTCHs’ hospital-specific 

relative charge values (from above) were 

then multiplied by the hospital-specific 

case-mix indexes. The hospital-specific 

case-mix adjusted relative charge values 

were then used to calculate a new set of 

proposed MS–LTC–DRG relative 

weights across all LTCHs. This iterative 

process was continued until there was 

convergence between the relative 

weights produced at adjacent steps, for 

example, when the maximum difference 

was less than 0.0001. 

Step 5—Determine a proposed FY 

2015 relative weight for proposed MS– 

LTC–DRGs with no LTCH cases. 

As we stated above, we determined 

the proposed FY 2015 relative weight 

for each proposed MS–LTC–DRG using 

total Medicare allowable total charges 

reported in the best available LTCH 

claims data (that is, the December 2013 

update of the FY 2013 MedPAR file for 

this proposed rule). Using these data, 

we identified the proposed MS–LTC– 

DRGs for which there were no LTCH 

cases in the database, such that no 

patients who would have been classified 

to those MS–LTC–DRGs were treated in 

LTCHs during FY 2013 and, therefore, 

no charge data were available for these 

proposed MS–LTC–DRGs. Therefore, in 

the process of determining the proposed 

MS–LTC–DRG relative weights, we were 

unable to calculate proposed relative 

weights for the proposed MS–LTC– 

DRGs with no LTCH cases using the 

methodology described in Steps 1 

through 4 above. However, because 

patients with a number of the diagnoses 

under these proposed MS–LTC–DRGs 

may be treated at LTCHs, consistent 

with our historical methodology, we are 

proposing to assign a proposed relative 

weight to each of the proposed novolume MS–LTC–DRGs based on 

clinical similarity and relative costliness 

(with the exception of proposed 

‘‘transplant’’ MS–LTC–DRGs and 

proposed ‘‘error’’ MS–LTC–DRGs, as 

discussed below). (For additional 

information on this step of the relative 

weight methodology, we refer readers to 

67 FR 55991 and 74 FR 43959 through 

43960.) 

In general, we determined proposed 

FY 2015 relative weights for the 

proposed MS–LTC–DRGs with no LTCH 

cases in the December 2013 update of 

the FY 2013 MedPAR file used in this 

proposed rule (that is, proposed ‘‘novolume’’ MS–LTC–DRGs) by crosswalking each proposed no-volume MS– 

LTC–DRG to another proposed MS– 

LTC–DRG with a calculated proposed 

relative weight (determined in 

accordance with the methodology 

described above). Then, the proposed 

‘‘no-volume’’ MS–LTC–DRG was 

assigned the same proposed relative 

weight (and average length of stay) of 

the proposed MS–LTC–DRG to which it 

was cross-walked (as described in 

greater detail below). 

Of the 753 proposed MS–LTC–DRGs 

for FY 2015, we identified 237 proposed 

MS–LTC–DRGs for which there are no 

LTCH cases in the database (including 

the 8 proposed ‘‘transplant’’ MS–LTC– 

DRGs and 2 proposed ‘‘error’’ MS–LTC– 

DRGs). As stated above, we are 

proposing to assign proposed relative 

weights for each of the 237 proposed novolume MS–LTC–DRGs (with the 

exception of the 8 proposed 

‘‘transplant’’ MS–LTC–DRGs and the 2 

proposed ‘‘error’’ MS–LTC–DRGs, 

which are discussed below) based on 

clinical similarity and relative costliness 

to one of the remaining 516 (753 ¥ 237 

= 516) proposed MS–LTC–DRGs for 

which we were able to determine 

proposed relative weights based on FY 

2013 LTCH claims data using the steps 

described above. (For the remainder of 

this discussion, we refer to the proposed 

‘‘cross-walked’’ MS–LTC–DRGs as the 

proposed MS–LTC–DRGs to which we 

cross-walked one of the 237 proposed 

‘‘no volume’’ MS–LTC–DRGs, with the 

exception of the 8 proposed 

‘‘transplant’’ MS–LTC–DRGs and the 2 

proposed ‘‘error’’ MS–LTC–DRGs, for 

purposes of determining a proposed 

relative weight.) Then, we are proposing 

to assign the proposed no-volume MS– 

LTC–DRG the proposed relative weight 

of the proposed cross-walked MS–LTC– 

DRG. (As explained below in Step 6, 

when necessary, we are proposing to 

make adjustments to account for 

nonmonotonicity.) 

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For this proposed rule, we crosswalked the proposed no-volume MS– 

LTC–DRG to a proposed MS–LTC–DRG 

for which there were LTCH cases in the 

December 2013 update of the FY 2013 

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 

proposed MS–LTC–DRG to which a 

proposed no-volume MS–LTC–DRG was 

cross-walked in order to assign an 

appropriate proposed relative weight for 

the proposed no-volume MS–LTC–DRGs 

in FY 2015. (For more details on our 

process for evaluating relative 

costliness, we refer readers to the FY 

2010 IPPS/RY 2010 LTCH PPS final rule 

(73 FR 48543).) We believe in the rare 

event that there would be a few LTCH 

cases grouped to one of the proposed 

no-volume MS–LTC–DRGs in FY 2015, 

the proposed relative weights assigned 

based on the proposed cross-walked 

MS–LTC–DRGs would result in an 

appropriate LTCH PPS payment because 

the crosswalks, which are based on 

similar clinical similarity and relative 

costliness, generally require equivalent 

relative resource use. 

We then assigned the proposed 

relative weight of the proposed crosswalked MS–LTC–DRG as the proposed 

relative weight for the proposed novolume MS–LTC–DRG such that both of 

these proposed MS–LTC–DRGs (that is, 

the proposed no-volume MS–LTC–DRG 

and the proposed cross-walked MS– 

LTC–DRG) have the same proposed 

relative weight for FY 2015. We note 

that if the proposed cross-walked MS– 

LTC–DRG had 25 cases or more, its 

proposed relative weight, which was 

calculated using the methodology 

described in Steps 1 through 4 above, 

was assigned to the proposed no-volume 

MS–LTC–DRG as well. Similarly, if the 

proposed MS–LTC–DRG to which the 

proposed no-volume MS–LTC–DRG was 

cross-walked had 24 or less cases and, 

therefore, was designated to one of the 

proposed low-volume quintiles for 

purposes of determining the proposed 

relative weights, we assigned the 

proposed relative weight of the 

applicable proposed low-volume 

quintile to the proposed no-volume MS– 

LTC–DRG such that both of these 

proposed MS–LTC–DRGs (that is, the 

proposed no-volume MS–LTC–DRG and 

the proposed cross-walked MS–LTC– 

DRG) have the same proposed relative 

weight for FY 2015. (As we noted above, 

in the infrequent case where 

nonmonotonicity involving a proposed 

no-volume MS–LTC–DRG resulted, 

additional adjustments as described in 

Step 6 were required in order to 

maintain monotonically increasing 

proposed relative weights.) 

For this proposed rule, a list of the 

proposed no-volume MS–LTC–DRGs 

and the proposed MS–LTC–DRGs to 

which each was cross-walked (that is, 

the proposed cross-walked MS–LTC– 

DRGs) for FY 2015 is shown in Table 

13B, which is listed in section VI. of the 

Addendum to this proposed rule and is 

available via the Internet. 

To illustrate this methodology for 

determining the proposed relative 

weights for the proposed FY 2015 MS– 

LTC–DRGs with no LTCH cases, we are 

providing the following example, which 

refers to the proposed no-volume MS– 

LTC–DRGs crosswalk information for 

FY 2015 provided in Table 13B. 

Example: There were no cases in the 

FY 2013 MedPAR file used for this 

proposed rule for proposed MS–LTC– 

DRG 61 (Acute Ischemic Stroke with 

Use of Thrombolytic Agent with MCC). 

We determined that proposed MS–LTC– 

DRG 70 (Nonspecific Cerebrovascular 

Disorders with MCC) was similar 

clinically and based on resource use to 

proposed MS–LTC–DRG 61. Therefore, 

we assigned the same proposed relative 

weight of proposed MS–LTC–DRG 70 of 

0.8657 for FY 2015 to proposed MS– 

LTC–DRG 61 (obtained from Table 11, 

which is listed in section VI. of the 

Addendum to this proposed rule and is 

available via the Internet). 

Again, we note that, as this system is 

dynamic, it is entirely possible that the 

number of proposed MS–LTC–DRGs 

with no volume of LTCH cases based on 

the system will vary in the future. We 

used the most recent available claims 

data in the MedPAR file to identify 

proposed no-volume MS–LTC–DRGs 

and to determine the proposed relative 

weights in this proposed rule. 

Furthermore, for FY 2015, consistent 

with our historical relative weight 

methodology, we are proposing to 

establish a relative weight of 0.0000 for 

the following proposed transplant MS– 

LTC–DRGs: Heart Transplant or Implant 

of Heart Assist System with MCC 

(proposed MS–LTC–DRG 1); Heart 

Transplant or Implant of Heart Assist 

System without MCC (proposed MS– 

LTC–DRG 2); Liver Transplant with 

MCC or Intestinal Transplant (proposed 

MS–LTC–DRG 5); Liver Transplant 

without MCC (proposed MS–LTC–DRG 

6); Lung Transplant (proposed MS– 

LTC–DRG 7); Simultaneous Pancreas/

Kidney Transplant (proposed MS–LTC– 

DRG 8); Pancreas Transplant (proposed 

MS–LTC–DRG 10); and Kidney 

Transplant (proposed MS–LTC–DRG 

652). This is because Medicare will only 

cover these procedures if they are 

performed at a hospital that has been 

certified for the specific procedures by 

Medicare and presently no LTCH has 

been so certified. At the present time, 

we include these eight proposed 

transplant MS–LTC–DRGs in the 

proposed GROUPER program for 

administrative purposes only. Because 

we use the same proposed GROUPER 

program for LTCHs as is used under the 

IPPS, removing these proposed MS– 

LTC–DRGs would be administratively 

burdensome. (For additional 

information regarding our treatment of 

transplant MS–LTC–DRGs, we refer 

readers to the RY 2010 LTCH PPS final 

rule (74 FR 43964).) 

Step 6—Adjust the proposed FY 2015 

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 secondary 

diagnosis 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 

secondary diagnosis code that is a CC 

(that is, complication or comorbidity). 

Those cases without an MCC or a CC are 

referred to as ‘‘without CC/MCC.’’ When 

data do not support the creation of three 

severity levels, the base MS–DRG is 

subdivided into either two levels or the 

base MS–DRG is not subdivided. The 

two-level subdivisions could consist of 

the MS–DRG with CC/MCC and the 

MS–DRG without CC/MCC. 

Alternatively, the other type of twolevel subdivision may consist of the 

MS–DRG with MCC and the MS–DRG 

without MCC. 

In those base MS–LTC–DRGs that are 

split into either two or three severity 

levels, cases classified into the ‘‘without 

CC/MCC’’ MS–LTC–DRG are expected 

to have a lower resource use (and lower 

costs) than the ‘‘with CC/MCC’’ MS– 

LTC–DRG (in the case of a two-level 

split) or both the ‘‘with CC’’ and the 

‘‘with MCC’’ MS–LTC–DRGs (in the 

case of a three-level split). That is, 

theoretically, cases that are more severe 

typically require greater expenditure of 

medical care resources and will result in 

higher average charges. Therefore, in the 

three severity levels, proposed relative 

weights should increase by severity, 

from lowest to highest. If the proposed 

relative weights decrease as severity 

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increases (that is, if within a base 

proposed MS–LTC–DRG, a proposed 

MS–LTC–DRG with CC has a higher 

proposed relative weight than one with 

MCC, or the proposed MS–LTC–DRG 

‘‘without CC/MCC’’ has a higher 

proposed relative weight than either of 

the others), they are nonmonotonic. We 

continue to believe that utilizing 

nonmonotonic proposed 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 proposed 

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 proposed 

MS–LTC–DRG (which are generally 

expected to have lower resource use and 

costs). Consequently, in determining the 

proposed FY 2015 MS–LTC–DRG 

relative weights in this proposed rule, 

consistent with our historical 

methodology, we are proposing to 

combine MS–LTC–DRG severity levels 

within a base proposed MS–LTC–DRG 

for the purpose of computing a 

proposed relative weight when 

necessary to ensure that monotonicity 

was maintained. For a comprehensive 

description of our existing methodology 

to adjust for nonmonotonicity, we refer 

readers to the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 43964 

through 43966). Any adjustments for 

nonmonotonicity that were made in 

determining the proposed FY 2015 MS– 

LTC–DRG relative weights in this 

proposed rule by applying this 

methodology are denoted in Table 11, 

which is listed in section VI. of the 

Addendum to this proposed rule and is 

available via the Internet. 

Step 7— Calculate the proposed FY 

2015 budget neutrality factor. 

In accordance with the regulations at 

§ 412.517(b) (in conjunction with 

§ 412.503), the annual update to the 

MS–LTC–DRG classifications and 

relative weights is done in a budget 

neutral manner such that estimated 

aggregate LTCH PPS payments would be 

unaffected, that is, would be neither 

greater than nor less than the estimated 

aggregate LTCH PPS payments that 

would have been made without the MS– 

LTC–DRG classification and relative 

weight changes. (For a detailed 

discussion on the establishment of the 

budget neutrality requirement for the 

annual update of the MS–LTC–DRG 

classifications and relative weights, we 

refer readers to the RY 2008 LTCH PPS 

final rule (72 FR 26881 and 26882).) 

The MS–LTC–DRG classifications and 

relative weights are updated annually 

based on the most recent available 

LTCH claims data to reflect changes in 

relative LTCH resource use (§ 412.517(a) 

in conjunction with § 412.503). Under 

the budget neutrality requirement at 

§ 412.517(b), for each annual update, the 

MS–LTC–DRG relative weights are 

uniformly adjusted to ensure that 

estimated aggregate payments under the 

LTCH PPS would not be affected (that 

is, decreased or increased). Consistent 

with that provision, we are proposing to 

update the MS–LTC–DRG classifications 

and relative weights for FY 2015 based 

on the most recent available LTCH data, 

and apply a budget neutrality 

adjustment in determining the proposed 

FY 2015 MS–LTC–DRG relative weights. 

To ensure budget neutrality in the 

update to the MS–LTC–DRG 

classifications and relative weights 

under § 412.517(b), we are proposing to 

continue to use our established two-step 

budget neutrality methodology. In this 

proposed rule, in the first step of our 

proposed MS–LTC–DRG budget 

neutrality methodology, for FY 2015, we 

are proposing to calculate and apply a 

normalization factor to the recalibrated 

proposed relative weights (the result of 

Steps 1 through 6 above) to ensure that 

estimated payments were not affected 

by changes in the composition of case 

types or the changes to the classification 

system. That is, the proposed 

normalization adjustment is intended to 

ensure that the recalibration of the 

proposed MS–LTC–DRG relative 

weights (that is, the process itself) 

neither increases nor decreases the 

average CMI. 

To calculate the proposed 

normalization factor for FY 2015 (the 

first step of our proposed budget 

neutrality methodology), we are 

proposing to use the following three 

steps: (1.a.) we use the most recent 

available LTCH claims data (FY 2013) 

and group them using the proposed FY 

2015 GROUPER (Version 32.0) and the 

recalibrated proposed FY 2015 MS– 

LTC–DRG relative weights (determined 

in Steps 1 through 6 of the Steps for 

Determining the Proposed FY 2015 MS– 

LTC–DRG Relative Weights above) to 

calculate the average CMI; (1.b.) we 

group the same LTCH claims data (FY 

2013) using the FY 2014 GROUPER 

(Version 31.0) and FY 2014 MS–LTC– 

DRG relative weights and calculated the 

average CMI; and (1.c.) we compute the 

ratio of these average CMIs by dividing 

the average CMI for FY 2014 

(determined in Step 1.b.) by the average 

CMI for FY 2015 (determined in Step 

1.a.). In determining the proposed MS– 

LTC–DRG relative weights for FY 2015, 

each recalibrated proposed MS–LTC– 

DRG relative weight was multiplied by 

1.12619 (determined in Step 1.c.) in the 

first step of the proposed budget 

neutrality methodology, which 

produced proposed ‘‘normalized 

relative weights.’’ 

In the second step of our proposed 

MS–LTC–DRG budget neutrality 

methodology, we are proposing to 

determine a budget neutrality factor to 

ensure that estimated aggregate LTCH 

PPS payments (based on the most recent 

available LTCH claims data) after 

reclassification and recalibration (that 

is, the proposed FY 2015 MS–LTC–DRG 

classifications and relative weights) are 

equal to estimated aggregate LTCH PPS 

payments before reclassification and 

recalibration (that is, the FY 2014 MS– 

LTC–DRG classifications and relative 

weights). Accordingly, consistent with 

our existing methodology, we are 

proposing to use FY 2013 discharge data 

to simulate payments and compared 

estimated aggregate LTCH PPS 

payments using the FY 2014 MS–LTC– 

DRGs and relative weights to estimate 

aggregate LTCH PPS payments using the 

proposed FY 2015 MS–LTC–DRGs and 

relative weights. Specifically, for this 

proposed rule, as discussed previously 

in section VII.B.3.c. of this preamble, we 

are proposing to use LTCH claims data 

from the December 2013 update of the 

FY 2013 MedPAR file, as these are the 

best available data at this time. 

For this proposed rule, we are 

proposing to determine the proposed FY 

2015 budget neutrality adjustment factor 

using the following three steps: (2.a.) we 

simulate estimated total LTCH PPS 

payments using the proposed 

normalized relative weights for FY 2015 

and proposed GROUPER Version 32.0 

(as described above); (2.b.) we simulate 

estimated total LTCH PPS payments 

using the FY 2014 GROUPER (Version 

31.0) and the FY 2014 MS–LTC–DRG 

relative weights in Table 11 of the 

Addendum to the FY 2014 IPPS/LTCH 

PPS final rule available on the Internet 

(78 FR 51002); and (2.c.) we calculate 

the ratio of these estimated total LTCH 

PPS payments by dividing the estimated 

total LTCH PPS payments using the FY 

2014 GROUPER (Version 31.0) and the 

FY 2014 MS–LTC–DRG relative weights 

(determined in Step 2.b.) by the 

estimated total LTCH PPS payments 

using the proposed FY 2015 GROUPER 

(Version 32.0) and the proposed 

normalized MS–LTC–DRG relative 

weights for FY 2015 (determined in Step 

2.a.). In determining the proposed FY 

2015 MS–LTC–DRG relative weights, 

each proposed normalized relative 

weight was multiplied by a proposed 

budget neutrality factor of 0.995275 

(determined in Step 2.c.) in the second 

step of the proposed budget neutrality 

methodology to determine the proposed 

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budget neutral FY 2015 relative weight 

for each proposed MS–LTC–DRG. 

Accordingly, in determining the 

proposed FY 2015 MS–LTC–DRG 

relative weights in this proposed rule, 

consistent with our existing 

methodology, we are proposing to apply 

a proposed normalization factor of 

1.12619 and a proposed budget 

neutrality factor of 0.995275 (computed 

as described above). Table 11, which is 

listed in section VI. of the Addendum to 

this proposed rule and is available via 

the Internet, lists the proposed MS– 

LTC–DRGs and their respective 

proposed relative weights, geometric 

mean length of stay, five-sixths of the 

geometric mean length of stay (used to 

identify SSO cases under § 412.529(a)), 

and the ‘‘IPPS Comparable Thresholds’’ 

(used in determining SSO payments 

under § 412.529(c)(3)), for FY 2015 (and 

reflect both the proposed normalization 

factor of 1.12619 and the proposed 

budget neutrality factor of 0.995275). 

C. Proposed LTCH PPS Payment Rates 

for FY 2015 

1. Overview of Development of the 

LTCH Payment Rates 

The basic methodology for 

determining LTCH PPS Federal 

prospective payment rates is set forth at 

§ 412.515 through § 412.536. In this 

section, we discuss the factors that we 

are proposing to use to update the LTCH 

PPS standard Federal rate for FY 2015, 

that is, effective for LTCH discharges 

occurring on or after October 1, 2014 

through September 30, 2015. 

For further details on the 

development of the FY 2003 standard 

Federal rate when the LTCH PPS was 

initially implemented, we refer readers 

to the August 30, 2002 LTCH PPS final 

rule (67 FR 56027 through 56037). For 

subsequent updates to the LTCH PPS 

standard Federal rate as implemented 

under § 412.523(c)(3), we refer readers 

to the following final rules: RY 2004 

LTCH PPS final rule (68 FR 34134 

through 34140); RY 2005 LTCH PPS 

final rule (68 FR 25682 through 25684); 

RY 2006 LTCH PPS final rule (70 FR 

24179 through 24180); RY 2007 LTCH 

PPS final rule (71 FR 27819 through 

27827); RY 2008 LTCH PPS final rule 

(72 FR 26870 through 27029); RY 2009 

LTCH PPS final rule (73 FR 26800 

through 26804); FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 44021 

through 44030); FY 2011 IPPS/LTCH 

PPS final rule (75 FR 50443 through 

50444); FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51769 through 51773); FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53479 through 53481); and FY 2014 

IPPS/LTCH PPS final rule (78 FR 50760 

through 50765). 

The proposed update to the LTCH 

PPS standard Federal rate for FY 2015 

is presented in section V.A. of the 

Addendum to this proposed rule. The 

components of the proposed annual 

market basket update to the LTCH PPS 

standard Federal rate for FY 2015 are 

discussed below, including the 

reduction to the annual update for 

LTCHs that fail to submit quality 

reporting data for fiscal year FY 2015 as 

required by the statute (as discussed 

below in section VII.C.2.c. of the 

preamble of this proposed rule). 

Furthermore, as discussed below in 

section VII.C.3. of the preamble of this 

proposed rule, for FY 2015, in addition 

to the proposed update factor, under the 

final year of the 3-year phase-in under 

the current regulations at 

§ 412.523(d)(3), we are proposing to 

make a one-time prospective adjustment 

to the standard Federal rate for FY 2015 

so that the effect of any significant 

difference between the data used in the 

original computations of budget 

neutrality for FY 2003 and more recent 

data to determine budget neutrality for 

FY 2003 is not perpetuated in the 

prospective payment rates for future 

years. In addition, as discussed in 

section V.A. of the Addendum of this 

proposed rule, we are proposing to 

make an adjustment to the standard 

Federal rate to account for the estimated 

effect of the changes to the area wage 

level adjustment for FY 2015 on 

estimated aggregate LTCH PPS 

payments, in accordance with 

§ 412.523(d)(4). (We refer readers to the 

discussion of the reduction to the 

annual update for LTCHs that fail to 

submit quality reporting data under 

section VII.C.2.c. of the preamble of this 

proposed rule, the proposed application 

of the one-time prospective adjustment 

under the final year of the 3-year phasein under section VII.C.3. of this 

preamble, and the proposed budget 

neutrality adjustment for changes in the 

area wage levels under section V.A. of 

the Addendum of this proposed rule.) 

2. Proposed FY 2015 LTCH PPS Annual 

Market Basket Update 

a. Overview 

Historically, the Medicare program 

has used a market basket to account for 

price increases in the services furnished 

by providers. The market basket used 

for the LTCH PPS includes both 

operating and capital-related costs of 

LTCHs because the LTCH PPS uses a 

single payment rate for both operating 

and capital-related costs. As discussed 

in the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53468 through 53476), we 

adopted the newly created FY 2009- 

based LTCH-specific market basket for 

use under the LTCH PPS beginning in 

FY 2013. For additional details on the 

historical development of the market 

basket used under the LTCH PPS, we 

refer readers to the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53467 through 

53468) and this preamble. 

Section 3401(c) of the Affordable Care 

Act provides for certain adjustments to 

any annual update to the standard 

Federal rate and refers to the timeframes 

associated with such adjustments as a 

‘‘rate year’’ (which are discussed in 

more detail in section VII.C.2.b. of the 

preamble of this proposed rule.) We 

note that because the annual update to 

the LTCH PPS policies, rates, and 

factors now occurs on October 1, we 

adopted the term ‘‘fiscal year’’ (FY) 

rather than ‘‘rate year’’ (RY) under the 

LTCH PPS beginning October 1, 2010, to 

conform with the standard definition of 

the Federal fiscal year (October 1 

through September 30) used by other 

PPSs, such as the IPPS (75 FR 50396 

through 50397). Although the language 

of sections 3004(a) 3401(c), 10319, and 

1105(b) of the Affordable Care Act refers 

to years 2010 and thereafter under the 

LTCH PPS as ‘‘rate year,’’ consistent 

with our change in the terminology used 

under the LTCH PPS from ‘‘rate year’’ to 

‘‘fiscal year,’’ for purposes of clarity, 

when discussing the annual update for 

the LTCH PPS, including the provisions 

of the Affordable Care Act, we use 

‘‘fiscal year’’ rather than ‘‘rate year’’ for 

2011 and subsequent years. 

b. Proposed Revision of Certain Market 

Basket Updates as Required by the 

Affordable Care Act 

Section 1886(m)(3)(A) of the Act, as 

added by section 3401(c) of the 

Affordable Care Act, specifies that, for 

rate year 2010 and each subsequent rate 

year through 2019, any annual update to 

the standard Federal rate shall be 

reduced: 

• For rate year 2010 through 2019, by 

the ‘‘other adjustment’’ specified in 

sections 1886(m)(3)(A)(ii) and (m)(4) of 

the Act; and 

• For rate year 2012 and each 

subsequent year, by the productivity 

adjustment (which we refer to as ‘‘the 

multifactor productivity (MFP) 

adjustment’’) described in section 

1886(b)(3)(B)(xi)(II) of the Act. 

Section 1886(m)(3)(B) of the Act 

provides that the application of 

paragraph (3) of section 1886(m) of the 

Act may result in the annual update 

being less than zero for a rate year, and 

may result in payment rates for a rate 

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year being less than such payment rates 

for the preceding rate year. 

Section 1886(b)(3)(B)(xi)(II) of the Act 

defines the MFP adjustment as equal to 

the 10-year moving average of changes 

in annual economy-wide, private 

nonfarm business multifactor 

productivity (as projected by the 

Secretary for the 10-year period ending 

with the applicable fiscal year, calendar 

year, cost reporting period, or other 

annual period). Under our methodology, 

the end of the 10-year moving average 

of changes in the MFP coincides with 

the end of the appropriate FY update 

period. In addition, the MFP adjustment 

that is applied in determining any 

annual update to the LTCH PPS 

standard Federal rate is the same 

adjustment that is required to be applied 

in determining the applicable 

percentage increase under the IPPS 

under section 1886(b)(3)(B)(i) of the Act 

as they are both based on a fiscal year. 

The MFP adjustment is derived using a 

projection of MFP that is currently 

produced by IHS Global Insight, Inc. 

(For additional details on the 

development of the MFP adjustment 

and its application under the LTCH 

PPS, we refer readers to the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51691 

through 51692 and 51770 through 

51771).) 

For FY 2015, we are proposing to 

continue to use our methodology for 

calculating and applying the proposed 

MFP adjustment to determine the 

annual update to the LTCH PPS 

standard Federal rate for FY 2015. (For 

details on the development of the 

proposed MFP adjustment, including 

our finalized methodology for 

calculating and applying the MFP 

adjustment, we refer readers to the FY 

2012 IPPS/LTCH PPS final rule (76 FR 

51689 through 51692).) 

c. Proposed Adjustment to the Annual 

Update to the LTCH PPS Standard 

Federal Rate Under the Long-Term Care 

Hospital Quality Reporting (LTCHQR) 

Program 

1. Background 

In accordance with section 1886(m)(5) 

of the Act, as added by section 3004(a) 

of the Affordable Care Act, the Secretary 

established the Long-Term Care 

Hospital Quality Reporting (LTCHQR) 

Program. (As noted above, although the 

language of section 3004(a) of the 

Affordable Care Act refers to years 2011 

and thereafter under the LTCH PPS as 

‘‘rate year,’’ consistent with our change 

in the terminology used under the LTCH 

PPS from ‘‘rate year’’ to ‘‘fiscal year,’’ for 

purposes of clarity, when discussing the 

annual update for the LTCH PPS, 

including the provisions of the 

Affordable Care Act, we use ‘‘fiscal 

year’’ rather than ‘‘rate year’’ for 2011 

and subsequent years.) Under the 

LTCHQR Program, as required by 

section 1886(m)(5)(A)(i) of the Act, for 

FY 2014 and each subsequent year, in 

the case of an LTCH that does not 

submit quality reporting data to the 

Secretary in accordance with section 

1886(m)(5)(C) of the Act with respect to 

such a year, any annual update to a 

standard Federal rate for discharges for 

the hospital during the year, and after 

application of section 1886(m)(3) of the 

Act, shall be reduced by 2.0 percentage 

points. Section 1886(m)(5)(A)(ii) of the 

Act provides that the application of the 

2.0 percentage points reduction may 

result in an annual update that is less 

than 0.0 for a year, and may result in 

LTCH PPS payment rates for a year 

being less than such LTCH PPS payment 

rates for the preceding year. 

Furthermore, section 1886(m)(5)(B) of 

the Act specifies that the 2.0 percentage 

points reduction is applied in a 

noncumulative manner, such that any 

reduction made under section 

1886(m)(5)(A) of the Act shall apply 

only with respect to the year involved, 

and shall not be taken into account in 

computing the LTCH PPS payment 

amount for a subsequent year. For 

additional information on the history of 

the LTCHQR Program, including the 

statutory authority and the selected 

measures, we refer readers to section 

IX.C. of the preamble of this proposed 

rule. 

2. Proposed Reduction to the Annual 

Update to the LTCH PPS Standard 

Federal Rate Under the LTCHQR 

Program 

Consistent with section 

1886(m)(5)(A)(i) of the Act, for FY 2014 

and subsequent fiscal years, for LTCHs 

that do not submit quality reporting data 

under the LTCHQR Program with 

respect to such a fiscal year, any annual 

update to a standard Federal rate for 

discharges for the LTCH during the 

fiscal year and after application of the 

market basket update adjustments 

required by section 1886(m)(3) of the 

Act, is further reduced by 2.0 percentage 

points. That is, in establishing an 

update to the LTCH PPS standard 

Federal rate for FY 2014 and subsequent 

fiscal years, the full LTCH PPS market 

basket increase estimate, subject to an 

adjustment based on changes in 

economy-wide productivity (‘‘the MFP 

adjustment’’) required under section 

1886(m)(3)(A)(i) of the Act and an 

additional reduction required by 

sections 1886(m)(3)(A)(ii) and 

1886(m)(4) of the Act, is further reduced 

by 2.0 percentage points for LTCHs that 

fail to submit quality reporting data 

under the LTCHQR Program. The 

reduction in the annual update to the 

LTCH PPS standard Federal rate for 

failure to report quality data under the 

LTCHQR Program for FY 2014 and 

subsequent fiscal years is codified under 

§ 412.523(c)(4) of the regulations. 

Specifically, consistent with section 

1886(m)(5)(A)(i) of the Act, under 

§ 412.523(c)(4)(i), for an LTCH that does 

not submit quality reporting data in the 

form and manner and at the time 

specified by the Secretary under the 

LTCHQR Program, the annual update to 

the standard Federal rate under 

§ 412.523(c)(3) is further reduced by 2.0 

percentage points. In addition, 

consistent with section 1886(m)(5)(A)(ii) 

of the Act, § 412.523(c)(4)(ii) specifies 

that any reduction of the annual update 

to the standard Federal rate under 

§ 412.523(c)(4)(i) will apply only to the 

fiscal year involved and will not be 

taken into account in computing the 

annual update to the standard Federal 

rate for a subsequent fiscal year. Lastly, 

consistent with section 1886(m)(5)(B) of 

the Act, under § 412.523(c)(4)(iii), the 

application of any reduction of the 

annual update to the standard Federal 

rate under § 412.523(c)(4)(i) may result 

in an annual update that is less than 0.0 

percent for a fiscal year, and may result 

in payment rates for a fiscal year that 

would be less than such payment rates 

for the preceding rate year. 

We discuss the application of the 2.0 

percentage point reduction under 

§ 412.523(c)(4)(i) in our discussion of 

the proposed annual market basket 

update to the LTCH PPS standard 

Federal rate for FY 2015 below in 

section VII.C.2.e. of the preamble of this 

proposed rule. 

d. Proposed Market Basket Under the 

LTCH PPS for FY 2015 

Under the authority of section 123 of 

the BBRA as amended by section 307(b) 

of the BIPA, in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53468), we 

adopted a newly created FY 2009-based 

LTCH-specific market basket for use 

under the LTCH PPS beginning in FY 

2013. The FY 2009-based LTCH-specific 

market basket is based solely on the 

Medicare cost report data submitted by 

LTCHs and, therefore, specifically 

reflects the cost structures of only 

LTCHs. For additional details on the 

development of the FY 2009-based 

LTCH-specific market basket, we refer 

readers to the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53467 through 53476). 

For FY 2015, we are proposing to 

continue to use the FY 2009-based 

LTCH-specific market basket to update 

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the LTCH PPS for FY 2015. We continue 

to believe that the FY 2009-based LTCHspecific market basket appropriately 

reflects the cost structure of LTCHs for 

the reasons discussed when we adopted 

the FY 2009-based LTCH-specific 

market basket for use under the LTCH 

PPS in the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53467 through 53476). 

e. Proposed Annual Market Basket 

Update for LTCHs for FY 2015 

Consistent with our historical 

practice, we are proposing to estimate 

the market basket update and the 

proposed MFP adjustment based on 

IGI’s forecast using the most recent 

available data. Based on IGI’s first 

quarter 2014 forecast, the proposed FY 

2015 full market basket estimate for the 

LTCH PPS using the FY 2009-based 

LTCH-specific market basket is 2.7 

percent. Using our established 

methodology for determining the MFP 

adjustment, the current estimate of the 

proposed MFP adjustment for FY 2015 

based on IGI’s first quarter 2014 forecast 

is 0.4 percent, as discussed in section 

IV.B. of the preamble of this proposed 

rule. In addition, consistent with our 

historical practice of using the best 

available data, we are proposing that if 

more recent data is available, we would 

use such data to estimate the market 

basket update and the MFP adjustment 

for FY 2015 in the final rule. 

For FY 2015, section 1886(m)(3)(A)(i) 

of the Act requires that any annual 

update to the standard Federal rate be 

reduced by the productivity adjustment 

(‘‘the MFP adjustment’’) described in 

section 1886(b)(3)(B)(xi)(II) of the Act. 

Consistent with the statute, we are 

proposing to reduce the full FY 2015 

market basket update by the proposed 

FY 2015 MFP adjustment. To determine 

the market basket update for LTCHs for 

FY 2015, as reduced by the MFP 

adjustment, consistent with our 

established methodology, we are 

proposing to subtract the proposed FY 

2015 MFP adjustment from the 

proposed FY 2015 market basket 

update. Furthermore, sections 

1886(m)(3)(A)(ii) and 1886(m)(4)(E) of 

the Act requires that any annual update 

to the standard Federal rate for FY 2015 

be reduced by the ‘‘other adjustment’’ 

described in paragraph (4), which is 0.2 

percentage point for FY 2015. Therefore, 

following application of the proposed 

productivity adjustment, we are 

proposing to reduce the adjusted market 

basket update (that is, the proposed full 

market basket increase less the proposed 

MFP adjustment) by the ‘‘other 

adjustment’’ specified by sections 

1886(m)(3)(A)(ii) and 1886(m)(4) of the 

Act. (For additional details on our 

established methodology for adjusting 

the market basket increase by the MFP 

and the ‘‘other adjustment’’ required by 

the statute, we refer readers to the FY 

2012 IPPS/LTCH PPS final rule (76 FR 

51771).) 

As discussed previously in section 

VII.C.2.c. of the preamble of this 

proposed rule, for FY 2015, section 

1886(m)(5) of the Act requires that for 

LTCHs that do not submit quality 

reporting data under the LTCHQR 

Program, any annual update to a 

standard Federal rate, after application 

of the adjustments required by section 

1886(m)(3) of the Act, is further reduced 

by 2.0 percentage points. Therefore, the 

proposed update to the LTCH PPS 

standard Federal rate for FY 2015 for 

LTCHs that fail to submit quality 

reporting data under the LTCHQR 

Program, the full LTCH PPS market 

basket increase estimate, subject to an 

adjustment based on changes in 

economy-wide productivity (‘‘the MFP 

adjustment’’) as required under section 

1886(m)(3)(A)(i) of the Act and an 

additional reduction required by 

sections 1886(m)(3)(A)(ii) and 

1886(m)(4) of the Act, would also be 

further reduced by 2.0 percentage 

points. 

In this proposed rule, in accordance 

with the statute, we are proposing to 

reduce the proposed FY 2015 full 

market basket estimate of 2.7 percent 

(based on IGI’s first quarter 2014 

forecast of the FY 2009-based LTCHspecific market basket) by the proposed 

FY 2015 MFP adjustment (that is, the 

10-year moving average of MFP for the 

period ending FY 2015, as described in 

section IV.B. of the preamble of this 

proposed rule) of 0.4 percentage point 

(based on IGI’s first quarter 2014 

forecast). Following application of the 

proposed productivity adjustment, the 

adjusted market basket update of 2.3 

percent (2.7 percent minus 0.4 

percentage point) would then be 

reduced by 0.2 percentage point, as 

required by sections 1886(m)(3)(A)(ii) 

and 1886(m)(4)(E) of the Act. Therefore, 

in this proposed rule, under the 

authority of section 123 of the BBRA as 

amended by section 307(b) of the BIPA, 

we are proposing to establish an annual 

market basket update under the LTCH 

PPS for FY 2015 of 2.1 percent (that is, 

the most recent estimate of the LTCH 

PPS proposed market basket update at 

this time of 2.7 percent, less the 

proposed MFP adjustment of 0.4 

percentage point, and less the 0.2 

percentage point required under section 

1886(m)(4)(E) of the Act), provided the 

LTCH submits quality reporting data in 

accordance with section 1886(m)(5) of 

the Act. Accordingly, we are proposing 

to revise § 412.523(c)(3) by adding a 

new paragraph (xi), which specifies that 

the standard Federal rate for FY 2015 

would be the standard Federal rate for 

the previous LTCH PPS year updated by 

2.7 percent, and as further adjusted, as 

appropriate, as described in 

§ 412.523(d). For LTCHs that fail to 

submit quality reporting data under the 

LTCHQR Program, under proposed 

§ 412.523(c)(3)(xi) in conjunction with 

§ 412.523(c)(4), we are proposing to 

further reduce the annual update to the 

LTCH PPS standard Federal rate by 2.0 

percentage points in accordance with 

section 1886(m)(5) of the Act. 

Accordingly, we are proposing to 

establish an annual update to the LTCH 

PPS standard Federal rate of 0.1 percent 

(that is, 2.1 percent minus 2.0 

percentage points) for FY 2015 for 

LTCHs that fail to submit quality 

reporting data under the LTCHQR 

Program. As stated above, consistent 

with our historical practice of using the 

best available data, we are proposing 

that if more recent data is available, we 

would use such data to establish an 

annual update to the LTCH PPS 

standard Federal rate for FY 2015 under 

§ 412.523(c)(3)(xi) in the final rule. (We 

note that, we also are proposing to 

adjust the proposed FY 2015 standard 

Federal rate by applying a one-time 

prospective adjustment under the final 

year of the 3-year phase-in under 

§ 412.523(d)(3) (discussed in section 

VII.C.3. of the preamble of this proposed 

rule) and by a proposed area wage level 

budget neutrality factor in accordance 

with § 412.523(d)(4) (as discussed in 

section V.B.5. of the Addendum of this 

proposed rule).) 

3. Proposed Adjustment for the Final 

Year of the Phase-In of the One-Time 

Prospective Adjustment to the Standard 

Federal Rate Under § 412.523(d)(3) 

We set forth regulations implementing 

the LTCH PPS, based upon the broad 

authority granted to the Secretary, under 

section 123 of the BBRA (as amended by 

section 307(b) of the BIPA). Section 

123(a)(1) of the BBRA required that the 

system ‘‘maintain budget neutrality’’ in 

the August 30, 2002 LTCH PPS final 

rule (67 FR 55954). The statutory budget 

neutrality requirement means that 

estimated aggregate payments under the 

LTCH PPS for FY 2003 would be equal 

to the estimated aggregate payments that 

would have been made if the LTCH PPS 

were not implemented for FY 2003. The 

methodology for determining the LTCH 

PPS standard Federal rate for FY 2003 

that would ‘‘maintain budget neutrality’’ 

is described in considerable detail in the 

August 30, 2002 final rule (67 FR 56027 

through 56037). Our methodology for 

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estimating payments for the purposes of 

budget neutrality calculations used the 

best available data, and necessarily 

reflected several assumptions (for 

example, costs, inflation factors, and 

intensity of services provided) in 

estimating aggregate payments that 

would have been made if the LTCH PPS 

had not been implemented (without 

accounting for certain statutory 

provisions that affect the level of 

payments to LTCHs in years prior to the 

implementation of the LTCH PPS, as 

required by the statute). 

In the August 30, 2002 final rule, we 

also stated our intentions to monitor 

LTCH PPS payment data to evaluate 

whether later data varied significantly 

from the data available at the time of the 

original budget neutrality calculations 

(for example, data related to inflation 

factors, intensity of services provided, 

or behavioral response to the 

implementation of the LTCH PPS). To 

the extent the later data significantly 

differed from the data employed in the 

original calculations, the aggregate 

amount of payments during FY 2003 

based on later data may be higher or 

lower than the estimates upon which 

the budget neutrality calculations were 

based. Therefore, in that same final rule, 

under the broad authority conferred 

upon the Secretary in developing the 

LTCH PPS, including the authority for 

establishing appropriate adjustments, 

under section 123(a)(1) of the BBRA, as 

amended by section 307(b) of the BIPA, 

we provided in § 412.523(d)(3) of the 

regulations for the possibility of making 

a one-time prospective adjustment to 

the LTCH PPS rates, so that the effect of 

any significant difference between 

actual payments and estimated 

payments for the first year of the LTCH 

PPS would not be perpetuated in the 

LTCH PPS rates for future years. We 

refer readers to the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53487 through 

53488) for a complete discussion of the 

history of the development of the onetime prospective adjustment to the 

LTCH PPS standard Federal rate at 

§ 412.523(d)(3). 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53495), we finalized our 

policy to make a one-time prospective 

adjustment to the standard Federal rate 

so that it will be permanently reduced 

by approximately 3.75 percent to 

account for the estimated difference 

between projected aggregate FY 2003 

LTCH PPS payments and the projected 

aggregate payments that would have 

been made in FY 2003 under the TEFRA 

payment system if the LTCH PPS had 

not been implemented. Specifically, 

using the methodology we adopted in 

that same final rule, we determined that 

permanently applying a factor of 0.9625 

(that is, a permanent reduction of 

approximately 3.75 percent) to the 

standard Federal rate is necessary to 

ensure estimated total FY 2003 LTCH 

PPS payments equal estimated total FY 

2003 TEFRA payments consistent with 

our stated policy goal of the one-time 

prospective adjustment under 

§ 412.523(d)(3) (that is, to ensure that 

the difference between estimated total 

FY 2003 LTCH PPS payments and 

estimated total FY 2003 TEFRA 

payments is not perpetuated in the 

LTCH PPS payment rates in future 

years). (We refer readers to the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53487 

through 53502) for a complete 

discussion of the evaluation approach, 

methodology, and determination of the 

one-time prospective adjustment to the 

LTCH PPS standard Federal rate at 

§ 412.523(d)(3).) 

Given the magnitude of this 

adjustment, in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53501 through 

53502), under § 412.523(d)(3), we 

established a policy to phase-in the 

permanent adjustment of 0.9625 to the 

standard Federal rate over a 3-year 

period. To achieve a permanent 

adjustment of 0.9625, under the phasein of this adjustment, in that same final 

rule, we explained that we will apply a 

factor of 0.98734 to the standard Federal 

rate in each year of the 3-year phase-in, 

that is, in FY 2013 (which does not 

apply to payments for discharges 

occurring on or after October 1, 2012, 

and on or before December 28, 2012, 

consistent with current law), FY 2014, 

and FY 2015. By applying a permanent 

factor of 0.98734 to the standard Federal 

rate in each year for FYs 2013, 2014, 

and 2015, we will completely account 

for the entire adjustment by having 

applied a cumulative factor of 0.9625 

(calculated as 0.98734 × 0.98734 × 

0.98734 = 0.9625) to the standard 

Federal rate. Accordingly, under 

§ 412.523(d)(3), we applied a permanent 

factor of 0.98734 to the standard Federal 

rate in both FY 2013 and FY 2014 under 

the established 3-year phase-in of the 

one-time prospective adjustment. 

In this proposed rule, for FY 2015, we 

are proposing to apply a permanent onetime prospective adjustment factor of 

0.98734 to the standard Federal rate for 

FY 2015 under the last year of the 3-year 

phase-in of the one-time prospective 

adjustment, in accordance with the 

existing regulations under 

§ 412.523(d)(3). 

D. Proposed Revision of LTCH PPS 

Geographic Classifications 

1. 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 an LTCH’s 

standard Federal payment rate is 

adjusted by using an appropriate wage 

index based on the labor market area in 

which the LTCH is located. Specifically, 

the application of the LTCH PPS area 

wage-level adjustment, which is 

codified under existing § 412.525(c) of 

the regulations, is based on the location 

of the LTCH—either in an ‘‘urban’’ area 

or a ‘‘rural’’ area. Currently, under the 

LTCH PPS, as codified under § 412.503 

of the regulations, an ‘‘urban area’’ is 

defined as a Metropolitan Statistical 

Area (which includes 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), we 

revised § 412.525(c) to update 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 Core-Based 

Statistical Area (CBSA) designations 

(‘‘CBSA designations’’), which are based 

on 2000 Census data. We made this 

revision because we believed that the 

CBSA designations (geographic 

classifications) would 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 noted that these 

were the same CBSA designations 

implemented for acute care hospitals 

under the IPPS, which were codified 

under § 412.64(b) of the regulations, 

beginning in FY 2005. (For a further 

discussion of the CBSA-based labor 

market area designations currently used 

under the LTCH PPS, we refer readers 

to the RY 2006 LTCH PPS final rule (70 

FR 24182 through 24191).) We have 

generally updated the LTCH PPS CBSA 

designations annually since they were 

adopted for RY 2006 when updates from 

OMB were available (73 FR 26812 

through 26814, 74 FR 44023 through 

44204, and 75 FR 50444 through 50445). 

In OMB Bulletin No. 10–2, issued on 

December 1, 2009, OMB announced that 

the CBSA changes in that bulletin 

would be the final update prior to the 

2010 Census of Population and Housing. 

We adopted those changes under the 

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LTCH PPS in the FY 2011 IPPS/LTCH 

PPS final rule (75 FR 50444 through 

50445), effective October 1, 2010. We 

continued to use these CBSA 

designations for FYs 2012 and 2013 (76 

FR 51808 and 77 FR 53710, 

respectively). New OMB labor market 

area delineations (which we refer to in 

this section as ‘‘new OMB 

delineations’’) based on 2010 standards 

and the 2010 Decennial Census data 

were announced by OMB on February 

28, 2013. OMB issued Bulletin No. 13– 

01, which announced revisions to the 

delineation of Metropolitan Statistical 

Areas, Micropolitan Statistical Areas, 

and Combined Statistical Areas, and 

provided guidance on the uses of the 

delineation of these labor market areas. 

(For a copy of this bulletin, we refer 

readers to the following Web site: http:// 

www.whitehouse.gov/sites/default/files/

omb/bulletins/2013/b-13-01.pdf. This 

bulletin specifically provides the 

delineations of all Metropolitan 

Statistical Areas (MSAs), Metropolitan 

Divisions, Micropolitan Statistical 

Areas, Combined Statistical Areas, and 

New England City and Town Areas in 

the United States and Puerto Rico based 

on the standards published in the 

Federal Register on June 28, 2010 (75 

FR 37246 through 37252) and 2010 

Census data. (We note that, as discussed 

in section III.B. of the preamble of this 

proposed rule, consistent with the 

terminology used in the OMB Bulletin 

No. 13–01 and the standards published 

in the Federal Register on June 28, 

2010, when referencing the new OMB 

geographic boundaries of Metropolitan 

Statistical Areas (MSAs) based on 2010 

standards, we are using the term ‘‘new 

OMB delineations’’ rather than the term 

‘‘CBSA-based labor market area 

definitions’’ that we have used in the 

past to refer to OMB geographic 

boundaries of statistical areas (75 FR 

37249).) 

As discussed in the FY 2014 IPPS/

LTCH PPS final rule (78 FR 50994 

through 50995), in order to implement 

these changes for the LTCH PPS (as in 

the case of the IPPS), it is necessary to 

identify the new OMB delineations for 

each county and hospital in the country. 

While the revisions OMB published on 

February 28, 2013, are not as sweeping 

as the changes OMB announced in 2003, 

the February 28, 2013 bulletin does 

contain a number of significant changes. 

For example, under the new OMB 

delineations, there are new CBSAs, 

urban counties that have become rural, 

rural counties that have become urban, 

and existing CBSAs that have been split 

apart and moved to other CBSAs. 

Because the update was not issued until 

February 28, 2013, and it was necessary 

for the changes made by the update and 

their ramifications to be extensively 

reviewed and verified, we were unable 

to undertake such a lengthy process 

before publication of the FY 2014 

rulemaking cycle. That is, by the time 

the update was issued, the FY 2014 

IPPS/LTCH PPS proposed rule was in 

the advanced stages of development, 

and the proposed FY 2014 LTCH PPS 

wage indexes based on the CBSA 

designations that are currently used 

under the LTCH PPS had been 

developed. Therefore, we did not 

propose to use the changes to the LTCH 

PPS CBSA designations for FY 2014 

based on the new OMB delineations. 

Rather, to allow for sufficient time to 

assess the new changes and their 

ramifications, we stated that we 

intended to propose the adoption of the 

new OMB delineations and the 

corresponding changes to the wage 

index based on those delineations under 

the LTCH PPS for FY 2015 through 

notice and comment rulemaking, 

consistent with the approach used 

under the IPPS (78 FR 50994 through 

50995). As discussed below, in this 

proposed rule, under the authority of 

section 123 of the BBRA, as amended by 

section 307(b) of the BIPA, we are 

proposing to adopt the new OMB 

delineations announced in the February 

28, 2013 OMB Bulletin No. 13–01, 

effective for FY 2015 under the LTCH 

PPS, consistent with the approach 

proposed for the IPPS as discussed in 

section III.B. of the preamble of this 

proposed rule. 

2. Proposed Use of the New OMB Labor 

Market Area Delineations (‘‘New OMB 

Delineations’’) 

Historically, Medicare prospective 

payment systems have utilized labor 

market area definitions developed by 

the OMB. As discussed above, the CBSA 

designations currently used under the 

LTCH PPS are based on the most recent 

market area definitions issued by the 

OMB. The OMB reviews its market area 

definitions/delineations based on data 

from the preceding decennial census to 

reflect more recent population changes. 

As discussed above and in section III.B. 

of the preamble of this proposed rule, 

the new OMB delineations are based on 

the OMB’s latest market area 

delineations based on the 2010 

Decennial Census data. Because we 

believe that the OMB’s latest labor 

market area delineations are the best 

available data that reflect the local 

economies and wage levels of the areas 

in which hospitals are currently located, 

we are proposing to adopt the new OMB 

delineations based on the 2010 

Decennial Census data under the LTCH 

PPS, beginning in FY 2015, for the 

reasons discussed below (which are 

consistent with the IPPS proposal 

discussed in section III.B. of the 

preamble of this proposed rule). 

When we implemented the wage 

index adjustment under § 412.525(c) for 

the LTCH PPS, and updated the LTCH 

PPS labor market area definitions based 

on the CBSA designations beginning in 

RY 2006, we explained that the LTCH 

PPS wage index adjustment was 

intended to reflect the relative hospital 

wage levels in the geographic area of the 

hospital as compared to the national 

average hospital wage level. (We refer 

readers to the RY 2003 LTCH PPS final 

rule (67 FR 56016) and the RY 2006 

LTCH PPS final rule (70 FR 24184).) 

Because we believe that the new OMB 

delineations based on 2010 Decennial 

Census data reflect the most recent 

available geographic classifications 

(market area delineations), we are 

proposing to revise the geographic 

classifications used under the LTCH 

PPS based on these new OMB 

delineations to ensure that the LTCH 

PPS wage index adjustment continues to 

most appropriately account for and 

reflect the relative hospital wage and 

wage-related costs in the geographic 

area of the hospital as compared to the 

national average hospital wage and 

wage-related costs. Specifically, we are 

proposing to adopt the new OMB 

delineations (as discussed in greater 

detail below), effective for LTCH PPS 

discharges occurring on or after October 

1, 2014 (that is, effective for FY 2015). 

We note that, because the application of 

the LTCH PPS area wage-level 

adjustment under existing § 412.525(c) 

is made on the basis of the location of 

the LTCH—either in an ‘‘urban’’ area or 

a ‘‘rural’’ area as those terms are defined 

under existing § 412.503. Under 

§ 412.503, an ‘‘urban area’’ is defined as 

a Metropolitan Statistical Area as 

defined by the Executive OMB. A ‘‘rural 

area’’ is defined as any area outside of 

an urban area. Therefore, we are not 

proposing any changes to the existing 

regulations under this proposal. 

As discussed in section III.B. of this 

preamble, while CMS and other 

stakeholders have explored potential 

alternatives to the current CBSA-based 

labor market system, no consensus has 

been achieved regarding how best to 

implement a replacement system. While 

we recognize that MSAs are not 

designed specifically to define labor 

market areas, we believe that they do 

represent a useful proxy for this 

purpose. Consistent with the approach 

taken for the IPPS, we have used MSAs 

to define labor market areas for 

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purposes of Medicare wage indices 

under the LTCH PPS since its 

implementation in FY 2003. MSAs also 

are used to define labor market areas for 

purposes of the wage index for many of 

the other Medicare payment systems 

(for example, the IRF PPS, the SNF PPS, 

the HHA PPS, the OPPS, and the IPF 

PPS). (We refer readers to the RY 2006 

LTCH PPS final rule (70 FR 24184).) 

Therefore, under the authority of section 

123 of the BBRA, as amended by section 

307(b) of the BIPA, we are proposing to 

adopt the new OMB delineations as 

described in the February 28, 2013 OMB 

Bulletin No. 13–01, effective under the 

LTCH PPS for FY 2015. In addition, we 

are proposing to use these new OMB 

delineations to calculate area wage 

indexes in a manner that is consistent 

with the CBSA-based methodologies 

finalized in the RY 2006 LTCH PPS final 

rule, as refined in subsequent 

rulemaking. We also are proposing a 

wage index transition policy (as 

discussed in more detail below) for 

LTCHs that would experience a negative 

payment impact due to the proposed 

use of the new OMB delineations. This 

proposal, including the proposed wage 

index transition policy, is consistent 

with the proposal under the IPPS 

presented in section III.B. of the 

preamble of this proposed rule. The 

discussion below is focused on issues 

related to the proposed use of the new 

OMB delineations to define labor 

market areas for purposes of the wage 

index adjustment under the LTCH PPS, 

and is consistent with what is being 

proposed for the IPPS. 

a. Micropolitan Statistical Areas 

When we adopted the CBSA 

designations under the LTCH PPS in RY 

2006, we discussed CMS’ consideration 

of whether to use Micropolitan 

Statistical Areas to define the labor 

market areas for the purpose of the 

LTCH PPS wage index. OMB defines a 

‘‘Micropolitan Statistical Area’’ as a 

Consolidated Metropolitan Statistical 

Area (CMSA) ‘‘associated with at least 

one urban cluster that has a population 

of at least 10,000, but less than 50,000’’ 

(70 FR 24183). We refer to these areas 

as ‘‘Micropolitan Areas.’’ After 

conducting an extensive impact 

analysis, we determined that the best 

course of action would be to treat all 

hospitals located in ‘‘Micropolitan 

Areas’’ as ‘‘rural,’’ and to include these 

hospitals in the calculation of each 

State’s rural wage index. Because 

Micropolitian Areas tend to encompass 

smaller population centers and contain 

fewer hospitals than MSAs, we 

determined that if Micropolitan Areas 

were to be treated as separate labor 

market areas, the IPPS wage index 

would include drastically more singleprovider labor market areas. This larger 

number of labor market areas with fewer 

providers could create instability in 

year-to-year wage index values for a 

large number of hospitals; could reduce 

the averaging effect of the wage index, 

lessening some of the efficiency 

incentive inherent in a system based on 

the average hourly wages for a large 

number of hospitals; and could arguably 

create an inequitable system when so 

many hospitals would have wage 

indexes based solely on their own wage 

data while other hospitals’ wage indexes 

would be based on an average hourly 

wage across many hospitals. For these 

reasons, we adopted a policy to include 

Micropolitan Areas in the State’s rural 

wage area, and have continued this 

policy through the present. (We refer 

reader to the RY 2006 LTCH PPS final 

rule (70 FR 24187).) 

Based upon the 2010 Decennial 

Census data, a number of rural and 

urban counties have joined or have 

become Micropolitan Areas, while other 

counties that once were part of a 

Micropolitan Area under previous OMB 

CBSA designations, have become either 

urban or rural under the new OMB 

delineations. Overall, there are fewer 

Micropolitan Areas (541) under the new 

OMB delineations based on 2010 

Decennial Census data than existed 

under the data from the 2000 Census 

(581). We believe that it is appropriate 

to continue the policy established in the 

RY 2006 LTCH PPS final rule, and we 

are proposing to treat Micropolitan 

Areas as rural labor market areas under 

the LTCH PPS. These areas continue to 

be defined as having relatively small 

urban cores (populations of 10,000– 

49,999). We do not believe that it would 

be appropriate to calculate a separate 

wage index for areas that typically may 

include only a few hospitals for the 

reasons set forth in the RY 2006 LTCH 

PPS final rule, as discussed above. 

Therefore, in conjunction with our 

proposal to use the new OMB labor 

market area delineations, under the 

authority of section 123 of the BBRA, as 

amended by section 307(b) of the BIPA, 

for FY 2015, we are proposing to 

continue to treat Micropolitan Areas as 

‘‘rural,’’ and to assign the Micropolitan 

Area the statewide rural wage index for 

the State in which the LTCH is located. 

We also are proposing that, beginning in 

FY 2015, the wage data for any IPPS 

hospitals located in the Micropolitan 

Areas would be included in the 

calculation of each State’s LTCH PPS 

rural area wage index. (As discussed in 

section V.B.2. of the Addendum to this 

proposed rule, the LTCH PPS area wage 

index values are calculated using the 

wage data of IPPS hospitals.) We note 

that this proposal is consistent with the 

proposal for the IPPS discussed in 

section III.B.2.a. of the preamble of this 

proposed rule. We refer readers to 

section VII.D.2.e. of this preamble for a 

discussion of our proposals to moderate 

the impact of our proposed use of the 

new OMB delineations under the LTCH 

PPS. 

b. Urban Counties That Became Rural 

Under the New OMB Labor Market Area 

Delineations 

In proposing to use the new OMB 

delineations, which are based upon 

2010 Decennial Census data, for FY 

2015, we found that there are a number 

of counties (or county equivalents) that 

are defined as ‘‘urban’’ under the 

previous CBSA designations that are 

now defined as ‘‘rural’’ under the new 

OMB delineations. As discussed in 

section III.B. of this preamble, an 

analysis of the new OMB delineations 

shows that a total of 37 counties (and 

county equivalents) that were 

considered to be part of an ‘‘urban’’ 

CBSA are now considered to be located 

in a ‘‘rural’’ area, beginning in FY 2015, 

based on the new OMB delineations. We 

refer readers to a table presented in 

section III.B.2.b. of the preamble of this 

proposed rule that lists the 37 urban 

counties that would be defined as rural 

if we finalize our proposal to use the 

new OMB delineations. Under our 

proposal to use the new OMB 

delineations for the LTCH PPS, we are 

proposing that LTCHs located in any of 

the 37 counties listed in the table under 

section III.B.2.b. of the preamble of this 

proposed rule would be considered 

‘‘rural,’’ and would receive their 

respective State’s rural area wage index 

for FY 2015 under the LTCH PPS. We 

note that, currently, there are no LTCHs 

located in any of the 37 counties listed 

in the table that are currently 

considered to be part of an ‘‘urban’’ 

CBSA and that would be considered to 

be located in a ‘‘rural’’ area, beginning 

in FY 2015, if the proposed adoption of 

the new OMB delineations is finalized. 

We also proposing that, if finalized, the 

wage data for any IPPS hospitals located 

in those 37 counties listed in the table 

now would be considered ‘‘rural’’ when 

calculating the respective State’s LTCH 

PPS rural area wage index beginning in 

FY 2015. (As discussed in section V.B.2. 

of the Addendum to this proposed rule, 

the LTCH PPS area wage index values 

are calculated using the area wage data 

of IPPS hospitals.) We note that this 

proposal is consistent with the proposal 

under the IPPS discussed in section 

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III.B.2.b. of the preamble of this 

proposed rule. We refer readers to 

section VII.D.2.e. of the preamble of this 

proposed rule for a discussion of our 

proposals to moderate the impact of our 

proposal to implement the new OMB 

delineations under the LTCH PPS. 

c. Rural Counties That Became Urban 

Under the New OMB Labor Market Area 

Delineations 

In proposing to use the new OMB 

labor market area delineations (which 

are based upon 2010 Decennial Census 

data) for FY 2015, we found that there 

are a number of counties (or county 

equivalents) that are defined as ‘‘rural’’ 

under the previous OMB definitions 

(that is, CBSA designations) that would 

be considered ‘‘urban’’ if the proposed 

adoption of the new OMB delineations 

is finalized. As discussed in section 

III.B.2.c. of the preamble of this 

proposed rule, an analysis of the new 

OMB labor market area delineations 

shows that a total of 105 counties (and 

county equivalents) that were 

previously located in ‘‘rural’’ areas now 

are located in an ‘‘urban’’ area under the 

new OMB delineations. We refer readers 

to a table in section III.B.2.c. of the 

preamble of this proposed rule that lists 

the 105 ‘‘rural’’ counties that would be 

located in an ‘‘urban’’ area, if we 

finalize our proposal to adopt the new 

OMB delineations presented in section 

III.B.2.c. of the preamble of this 

proposed rule. There are currently no 

LTCHs located in the 105 ‘‘rural’’ 

counties listed in that table. 

Under our proposal to adopt the new 

OMB labor market area delineations, we 

are proposing that LTCHs located in any 

of those 105 counties now would be 

included in their new respective 

‘‘urban’’ CBSAs and would receive the 

respective ‘‘urban’’ CBSA’s area wage 

index. We also are proposing that, 

beginning in FY 2015, the wage data for 

any IPPS hospitals located within those 

105 counties now would be included in 

the calculation of the LTCH PPS area 

wage index for those hospitals’ 

respective ‘‘urban’’ CBSAs. (As 

discussed in section V.B.2. of the 

Addendum to this proposed rule, the 

LTCH PPS area wage index values are 

calculated using the area wage data of 

IPPS hospitals.) We note that this 

proposal is consistent with the proposal 

for the IPPS discussed in section 

III.B.2.c. of the preamble of this 

proposed rule. We refer readers to 

section VII.D.2.e. of the preamble of this 

proposed rule for a discussion of our 

proposals to moderate the impact of our 

proposal to implement the new OMB 

delineations under the LTCH PPS. 

d. Urban Counties Moved to a Different 

Urban CBSA Under the New OMB Labor 

Market Area Delineations 

In addition to ‘‘rural’’ counties that 

would become ‘‘urban’’ and ‘‘urban’’ 

counties that would become ‘‘rural’’ 

under the new OMB delineations, we 

found that several urban counties 

shifted from one urban CBSA to another 

urban CBSA. In certain cases, the new 

OMB delineations involved a change 

only in the CBSA name or code, while 

the CBSA continued to encompass the 

same constituent counties. However, in 

other cases, under the new OMB 

delineations, some counties are shifted 

between existing urban CBSAs and new 

urban CBSAs, changing the constituent 

makeup of those CBSAs. For example, 

in some cases, entire CBSA are 

subsumed by another CBSA. In other 

cases, some CBSAs have counties that 

are split off as part of a different urban 

CBSA, or to form entirely new labor 

market areas. We refer readers to section 

III.B.2.d. of the preamble of this 

proposed rule for additional 

information, including examples, on 

urban counties that are moved from one 

urban CBSA to a different urban CBSA 

under the new OMB delineations. 

LTCHs located in these affected 

counties that would move from one 

urban CBSA to a different urban CBSA 

under our proposal to adopt the new 

OMB delineations would experience 

both negative and positive impacts in 

regard to the LTCH’s specific area wage 

index values. We refer readers to section 

VII.D.2.e. of the preamble of this 

proposed rule for a discussion of our 

proposals to moderate the impact 

imposed upon hospitals because of our 

proposal to adopt the new OMB labor 

market area delineations under the 

LTCH PPS. 

e. Proposed Transition Period 

As indicated above, overall, we 

believe that our proposal to adopt the 

new OMB delineations would result in 

LTCH PPS wage index values being 

more representative of the actual costs 

of labor in a given area. However, we 

also recognize that some LTCHs would 

experience decreases in their area wage 

index values as a result of our proposal. 

We also realize that many LTCHs would 

have higher area wage index values 

under our proposal. To mitigate the 

impact imposed upon hospitals, we 

have in the past provided for transition 

periods when adopting changes that 

have significant payment implications, 

particularly large negative impacts. 

While we believe that using the new 

OMB delineations would create a more 

accurate payment adjustment for 

differences in area wage levels, we also 

recognize that adopting such changes 

may cause some short-term instability in 

LTCH PPS payments. Therefore, under 

the authority of section 123 of the 

BBRA, as amended by section 307(b) of 

the BIPA, we are proposing a transition 

policy for LTCHs that would experience 

a decrease in their area wage index 

values due to our proposal to adopt the 

new OMB delineations under the LTCH 

PPS. Specifically, for FY 2015, we are 

proposing to compute a blended area 

wage index value for any LTCH that 

would experience a decrease in its area 

wage index value solely due to the 

proposed adoption of the new OMB 

delineations beginning in FY 2015. That 

is, for purposes of determining an 

LTCH’s area wage index for FY 2015, we 

are proposing to compute LTCH PPS 

wage index values using the proposed 

area wage data discussed above and in 

section V.B.4. of the Addendum to this 

proposed rule under both the current 

(FY 2014) CBSA designations and the 

proposed (FY 2015) new OMB 

delineations based on the 2010 OMB 

Decennial Census data. For each LTCH, 

we are proposing to compare these two 

proposed wage indexes. If an LTCH’s 

proposed wage index under the 

proposed adoption for FY 2015 of the 

new OMB delineations is lower than the 

LTCH’s proposed wage index under the 

FY 2014 CBSA designations, we are 

proposing that, for FY 2015, the LTCH 

would be paid based on a blended wage 

index that would be computed as the 

sum of 50 percent of each of the two 

proposed wage index values described 

above (referred to as the proposed 50/50 

blended wage index). If an LTCH’s 

proposed wage index under the 

proposed adoption for FY 2015 of the 

new OMB delineations is higher than 

the LTCH’s proposed wage index under 

the FY 2014 CBSA designations, we are 

proposing that, for FY 2015, the LTCH 

would be paid based on 100 percent of 

the proposed wage index under the 

proposed FY 2015 new OMB 

delineations (and would not receive the 

proposed 50/50 blended wage index). 

Furthermore, we are proposing that 

the proposed transitional area wage 

index policy be used in a budget neutral 

manner. Under § 412.525(c)(2), any 

changes to the adjustment for 

differences in area wage levels are made 

in a budget neutral manner such that 

estimated aggregate FY 2015 LTCH PPS 

payments are unaffected; that is, will be 

neither greater than nor less than 

estimated aggregate LTCH PPS 

payments without such changes to the 

area wage-level adjustment. Under this 

policy, we determine an area wage-level 

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adjustment budget neutrality factor that 

is applied to the standard Federal rate 

(under § 412.523(d)(4)) to ensure that 

any changes to the area wage-level 

adjustments are budget neutral such that 

any changes to the wage index values or 

labor-related share would not result in 

any change (increase or decrease) in 

estimated aggregate LTCH PPS 

payments. Because our proposed 

transition policy for LTCHs that would 

experience a decrease in their area wage 

index values solely as a result of our 

finalized policy to adopt the new OMB 

delineations under the LTCH PPS 

would result in an increase in estimated 

aggregate LTCH PPS payments without 

such changes, we are proposing to 

include the proposed 50/50 blended 

wage index in our calculations for the 

proposed area wage-level adjustment 

budget neutrality factor that would be 

applied to the proposed standard 

Federal rate to ensure that any changes 

to the area wage-level adjustment are 

budget neutral. Specifically, consistent 

with our established methodology, we 

are proposing to use the following 

methodology to determine a proposed 

area wage-level adjustment budget 

neutrality factor for FY 2015: 

• Proposed Step 1—We are proposing 

to simulate estimated aggregate LTCH 

PPS payments using the FY 2014 wage 

index values as established in Tables 

12A and 12B for the FY 2014 IPPS/

LTCH PPS final rule (which is available 

via the Internet on the CMS Web site) 

and the FY 2014 labor-related share of 

62.537 percent as established in the FY 

2014 IPPS/LTCH PPS final rule (78 FR 

50996). 

• Proposed Step 2—We are proposing 

to simulate estimated aggregate LTCH 

PPS payments using the proposed FY 

2015 wage index values as shown in 

Tables 12A through 12D for this 

proposed rule (which are available via 

the Internet on the CMS Web site), 

including the proposed transitional 50/ 

50 blended wage index values, if 

applicable (as discussed in section 

V.B.4. of the Addendum of this 

proposed rule), and the proposed FY 

2015 labor-related share of 62.571 

percent (as discussed in section V.B.3. 

of the Addendum to this proposed rule). 

• Proposed Step 3—We are proposing 

to determine the ratio of these estimated 

total LTCH PPS payments by dividing 

the estimated total LTCH PPS payments 

using the FY 2014 area wage-level 

adjustments (calculated in proposed 

Step 1) by the estimated total LTCH PPS 

payments using the proposed FY 2015 

area wage-level adjustments (calculated 

in proposed Step 2) to determine the 

proposed FY 2015 area wage-level 

adjustment budget neutrality factor. 

• Proposed Step 4—We are proposing 

to then apply the proposed FY 2015 area 

wage-level adjustment budget neutrality 

factor from proposed Step 3 to the 

proposed FY 2015 LTCH PPS standard 

Federal rate after the application of the 

proposed FY 2015 annual update as 

discussed in section V.A.2. of the 

Addendum to this proposed rule. 

As explained above, we are proposing 

to apply this factor in determining the 

proposed FY 2015 standard Federal rate 

to ensure that the proposed updates to 

the area wage-level adjustment for FY 

2015 would be implemented in a budget 

neutral manner. For this proposed rule, 

using the steps in the methodology 

described above, we determined a FY 

2015 area wage-level adjustment budget 

neutrality factor of 1.0002034. 

We note that this proposed 

transitional area wage index policy 

under our proposal to adopt the new 

OMB delineations for FY 2015 under 

the LTCH PPS is consistent with the 

proposals under the IPPS presented in 

sections III.B.2.e.(5) and (6) of the 

preamble of this proposed rule. As 

noted previously in section VII.D.2.b. of 

the preamble of this proposed rule, 

there are currently no LTCHs located in 

an ‘‘urban’’ county that would become 

‘‘rural’’ under the proposal to adopt the 

new OMB delineations. Therefore, we 

are not proposing a transitional area 

wage index policy that is consistent 

with the IPPS proposal presented in 

section III.B.2.e.(2). of the preamble of 

this proposed rule for hospitals that are 

currently located in an ‘‘urban’’ county 

that would become ‘‘rural’’ under the 

proposed adoption of the new OMB 

delineations. We also note that we are 

not proposing any transitional policies 

under the LTCH PPS that would be 

consistent with those presented under 

the IPPS for hospitals with a 

reclassification or redesignation as 

discussed in section III.B.2.e.(3). of the 

preamble of this proposed rule, or for 

hospitals deemed urban under section 

1886(d)(8)(B) of the Act as discussed in 

section III.B.2.e.(4) of the preamble of 

this proposed rule, as those 

reclassifications, redesignations, and 

statutory deems are not applicable to 

LTCHs. 

E. Reinstatement and Extension of 

Certain Payment Rules for LTCH 

Services—The 25-Percent Threshold 

Payment Adjustment 

1. Background 

Section 1206(b)(1)(A) of the Pathway 

for SGR Reform Act of 2013 (Pub. L. 

113–67), enacted on December 26, 2013, 

provides for the retroactive 

reinstatement and extension, for an 

additional 4 years, of the moratorium on 

the full implementation of the 25- 

percent threshold payment adjustment 

(hereinafter referred to as ‘‘the 25- 

percent policy’’) under the LTCH PPS 

established under section 114(c) of the 

MMSEA, as amended by section 4302(a) 

of the ARRA and sections 3106(c) and 

10312(a) of the Affordable Care Act. In 

addition, section 1206(b)(1)(B) of Public 

Law 113–67 provides for a permanent 

exemption from the application of the 

25-percent policy for certain 

grandfathered co-located LTCHs and 

LTCH satellite facilities. 

Section 1206(b)(1)(C) of Public Law 

113–67 also requires that ‘‘. . . [n]ot 

later than 1 year before the end of the 

9-year period referred to in section 

114(c)(1) of the Medicare, Medicaid, and 

SCHIP Extension Act of 2007 (42 U.S.C. 

1395ww note), as amended by 

subparagraph (B) [of section 1206 of 

Pub. L. 113–67], the Secretary of Health 

and Human Services shall submit to 

Congress a report on the need for any 

further extensions (or modifications of 

the extensions) of the 25 percent rule 

described in sections 412.534 and 

412.536 of title 42, Code of Federal 

Regulations, particularly taking into 

account the application of section 

1886(m)(6) of the Social Security Act, as 

added by subsection (a)(1) [of section 

1206 of Pub. L. 113–67].’’ We refer 

readers to section VII.I.2. of the 

preamble of this proposed rule for 

further discussion of this report. 

The 25-percent policy is a payment 

adjustment under the LTCH PPS, 

originally established in our regulations 

at 42 CFR 412.534 for LTCHs and LTCH 

satellite facilities and their co-located 

referring hospitals in the FY 2005 IPPS 

final rule (69 FR 49191), and at 42 CFR 

412.536 for all other LTCHs and 

referring hospitals in the RY 2007 LTCH 

PPS final rule (72 FR 26870), based on 

analyses of Medicare discharge data that 

indicated that patterns of patient 

shifting appeared to be occurring more 

for provider financial advantage than for 

patient benefit. In order to discourage 

such activity, a payment adjustment was 

applied for LTCH discharges of patients 

who were admitted to the LTCH from 

the same referring hospital in excess of 

an applicable percentage threshold, 

which was to transition to a 25-percent 

threshold after specified phase-in 

periods. (For rural and single-urban 

LTCHs and those with MSA-dominant 

referring hospitals, a 50-percent 

threshold was applied.). Under this 

policy, discharges in excess of the 

threshold are paid at an ‘‘IPPS 

equivalent’’ rate, instead of the much 

higher LTCH PPS rate. (We refer readers 

to detailed discussions of the 25-percent 

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policy for LTCH HwHs and LTCH 

satellite facilities in the FY 2005 IPPS 

final rule (69 FR 49191 through 49214) 

and its application to all other LTCHs in 

the RY 2008 LTCH PPS final rule (72 FR 

26919 through 26944).) 

The results of the different 

rulemaking schedules in effect when 

§§ 412.534 and 412.536 were 

implemented (FY 2005 (October 1, 

2004) and RY 2007 (July 1, 2006), 

respectively) are as follows: for colocated LTCHs and LTCH satellite 

facilities governed under § 412.534, the 

25-percent policy was effective for cost 

reporting periods beginning on or after 

October 1, 2005 (‘‘October’’ LTCHs); for 

LTCHs and LTCH satellite facilities 

governed under § 412.536, the 25- 

percent policy was effective for cost 

reporting periods beginning on or after 

July 1, 2007 (‘‘July’’ LTCHs). In 

addition, even though grandfathered 

LTCH HwHs and LTCH satellite 

facilities are governed under 

§ 412.534(h), they are ‘‘July’’ LTCHs 

because the 25-percent policy was 

applied to these facilities in the RY 2008 

LTCH PPS final rule. 

Section 114(c) of the MMSEA, as 

amended by section 4302(a) of the 

ARRA and sections 3106(c) and 

10312(a) of the Affordable Care Act, 

provided for a 5-year moratorium on the 

full application of the 25-percent policy 

that expired for some LTCHs and LTCH 

satellite facilities for cost reporting 

periods beginning on or after October 1, 

2012 (‘‘October’’ LTCHs) and for other 

LTCHs and LTCH satellite facilities for 

cost reporting periods beginning on or 

after July 1, 2012 (‘‘July’’ LTCHs). (For 

a detailed description of the moratorium 

on the application of the 25-percent 

policy, we refer readers to the May 22, 

2008 Interim Final Rule with Comment 

Period (73 FR 29699 through 29704) and 

the August 27, 2009 Interim Final Rule 

with Comment Period for the ARRA, 

which was published in the FY 2010 

IPPS final rule and Changes to the LTCH 

PPS and Rate Years 2010 and 2009 Rates 

final rule (74 FR 43990 through 43992). 

The expiration of the statutory 

moratorium for both ‘‘July’’ and 

‘‘October’’ LTCHs was delayed because 

CMS established regulatory extensions 

in the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53483 through 53484), as 

amended by the FY 2013 IPPS/LTCH 

PPS correcting amendment (77 FR 

63751 through 63753). Specifically, we 

established a 1-year extension (that is, 

for cost reporting periods beginning on 

or after October 1, 2012, and before 

October 1, 2013) on the full application 

of the 25-percent policy for ‘‘October’’ 

LTCHs. For those ‘‘July’’ LTCHs that 

would have been affected by the ‘‘gap’’ 

between the expiration of the statutory 

moratorium (for cost reporting periods 

beginning on or after July 1, 2012) and 

our prospective regulatory relief (for 

cost reporting periods beginning on or 

after October 1, 2012), we also provided 

for an additional moratorium based on 

LTCH discharges occurring on or after 

October 1, 2012 and ending at the start 

of the LTCHs’ next cost reporting 

period. For those ‘‘July’’ LTCHs with 

cost reporting periods beginning on or 

after October 1, 2012, the regulatory 

extension of the statutory moratorium, 

described above, effective for the 

hospital’s first cost reporting period 

beginning on or after October 1, 2012, 

resulted in seamless coverage for that 

group. However, for those ‘‘July’’ LTCHs 

with cost reporting periods beginning 

on or after July 1, 2012, and before 

October 1, 2012, that would have 

otherwise been subject to the ‘‘gap’’ 

between the expiration of the statutory 

moratorium and the effective date of the 

regulatory moratoria, we established a 

second regulatory moratorium effective 

with discharges occurring beginning 

October 1, 2012, through the end of the 

LTCH’s cost reporting period (that is, 

the end of the cost reporting period that 

began on or after July 1, 2012, and 

before October 1, 2012). Therefore, by 

providing for the above described 

regulatory extension for ‘‘July’’ LTCHs, 

we eliminated the distinction between 

‘‘July’’ and ‘‘October’’ LTCHs, which 

resulted in the 25-percent policy being 

applied for all cost reporting periods 

beginning on or after October 1, 2012, 

following the expiration of the 

moratorium. For more details about 

these moratoria, we refer readers to the 

FY 2013 IPPS/LTCH PPS final rule (77 

FR 53483 through 53484). 

Because we did not extend the 

regulatory moratorium on the 25- 

percent policy in the FY 2014 IPPS/

LTCH PPS final rule, the full 

application of the payment adjustment 

policy was effective for all LTCHs (both 

‘‘October’’ and ‘‘July’’ LTCHs) for cost 

reporting periods beginning on or after 

October 1, 2013 (78 FR 50772). 

2. Proposed Implementation of Section 

1206(b)(1) of Public Law 113–67 

As stated earlier, section 1206(b)(1)(A) 

of Public Law 113–67 provides an 

additional amendment to section 114(c) 

of the MMSEA, as amended by section 

4302(a) of the ARRA and sections 

3106(c) and 10312(a) of the Affordable 

Care Act, that extends the ‘‘original’’ 

statutory moratorium on the full 

implementation of the 25-percent policy 

to a total of 9 years from the original 

effective dates established by the 

MMSEA (July 1 or October 1, 2007, as 

applicable). As a result, the lapse of the 

regulatory moratorium on the full 

implementation of the 25-percent policy 

is moot. This ‘‘seamless’’ statutory 

moratorium provides relief until cost 

reporting periods beginning on or after 

July 1, or October 1, 2016, as applicable. 

Section 1206(b)(1)(B) provides a 

permanent exemption from the 25- 

percent policy for certain grandfathered 

co-located LTCHs and LTCH satellite 

facilities. 

In this proposed rule, based on the 

statutory changes made by sections 

1206(b)(1)(A) and (b)(1)(B) of Public 

Law 113–67, we are proposing to make 

conforming amendments to the 

regulations governing application of the 

25-percent policy. Specifically, we are 

proposing to revise §§ 412.534(c)(1)(i) 

and (c)(1)(ii), (c)(2), (c)(3), (d)(1) and 

(d)(1)(i), (d)(2), (d)(3), (e)(1) and (e)(1)(i), 

(e)(2), (e)(3), the introductory text of 

paragraph (h), (h)(4), and (h)(5) and to 

remove paragraph (h)(6); and removing 

paragraphs (a)(1)(iii) and (a)(2)(ii), 

revising (a)(2), and removing paragraph 

(a)(3) of § 412.536 to reflect the statutory 

changes. 

F. Proposed Changes to the Fixed-Day 

Thresholds Under the ‘‘Greater Than 

3-Day Interruption of Stay’’ Policy 

Under the LTCH PPS 

1. Background 

The interrupted stay policy is a 

payment adjustment that was included 

under the LTCH PPS from the inception; 

that is, for cost reporting periods 

beginning on or after October 1, 2002 

(FY 2003). In this discussion, we use the 

terms ‘‘interrupted stay’’ and 

‘‘interruption of stay’’ interchangeably. 

An ‘‘interruption of stay’’ occurs when 

during the course of an LTCH 

hospitalization, a patient is discharged 

to an inpatient acute care hospital, an 

IRF, or a SNF for treatment or services 

not available at the LTCH for a specified 

period followed by a readmittance to the 

same LTCH. We refer readers to the RY 

2003 LTCH PPS final rule (67 FR 

56002). When we established this 

policy, we believed that the readmission 

to the LTCH represented a continuation 

of the initial treatment, a stay in which 

an ‘‘interruption’’ occurred, rather than 

a new admission if the length of stay at 

the intervening facility was within a 

specified number of days. If an 

‘‘interruption of stay’’ occurred, 

payment for both ‘‘halves’’ of the LTCH 

discharge were then ‘‘bundled,’’ and 

Medicare would make one payment 

based on the second date of discharge. 

Specifically, under this policy, we 

established a fixed-day threshold, which 

applied to the specified number of days 

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a Medicare beneficiary spends as an 

inpatient at an acute care hospital, an 

IRF, or a SNF. In the RY 2003 LTCH PPS 

final rule, we explained that we were 

implementing this policy because we 

wanted ‘‘. . .to reduce the incentives 

inherent in a discharged-based 

prospective payment system of 

‘‘shifting’’ patients between Medicarecovered sites of care in order to 

maximize Medicare payments. This 

policy is particularly appropriate for 

LTCHs because, as a group, these 

hospitals differ considerably in the 

range of services offered such that 

where some LTCHs may be able to 

handle certain acute conditions, others 

will need to transfer their patients to 

acute care hospitals. 

‘‘For instance, some LTCHs are 

equipped with operating rooms and 

intensive care units and are capable of 

performing minor surgeries. However, 

other LTCHs are unable to provide those 

services and will need to transfer the 

beneficiary to an acute care hospital. We 

believed that our policy also provided 

for a patient . . . ‘‘who no longer 

requires hospital-level care, but is not 

ready to return to the community,’’ and 

who ‘‘. . . could be transferred to a 

SNF.’’ (We refer readers to the RY 2003 

LTCH PPS final rule (67 FR 56002).) 

Therefore, in the regulations under 42 

CFR 412.531, we defined two types of 

interruptions of stays. Under 

§ 412.531(a)(1), ‘‘[a] 3-day or less 

interruption of stay’’ means a stay at a 

LTCH during which a Medicare 

inpatient is discharged from the LTCH 

to an acute care hospital, IRF, SNF, or 

the patient’s home and readmitted to the 

same LTCH within 3 days of the 

discharge from the LTCH. Whereas 

under the ‘‘3 day or less interruption of 

stay policy,’’ the fixed-day threshold 

period begins with the calendar date of 

discharge from the LTCH and ends not 

later than midnight of the third day, if 

an LTCH patient’s ‘‘interruption’’ 

exceeds this threshold, payment is 

governed by the ‘‘greater than 3-day 

interruption of stay’’ policy. (We refer 

readers to the RY 2005 LTCH PPS final 

rule (69 FR 25690 through 25700), the 

RY 2006 LTCH PPS final rule (70 FR 

24206), and the RY 2007 LTCH PPS 

final rule (71 FR 27872 through 27875) 

for detailed discussions of the 3-day or 

less interruption of stay policy.) We are 

not proposing to revise the 3-day or less 

category of interrupted stays, but we 

make mention of the policy for clarity 

in making a distinction between the 3- 

day or less interruption of stay policy 

and the greater than 3-day interruption 

of stay policy that we are proposing to 

revise. 

The ‘‘greater than 3-day interruption 

of stay policy,’’ is defined under 

§ 412.531(a)(2) as a stay ‘‘. . . during 

which a Medicare inpatient is 

transferred upon discharge to an acute 

care hospital, an IRF, or a SNF for 

treatment or services that are not 

available in the long-term care hospital 

and returns to the same long-term care 

hospital within the applicable fixed-day 

period specified in regulations under 

§ 412.531(a)(2)(i) through (a)(2)(iii).’’ For 

a discharge to an acute care hospital, the 

applicable fixed-day period is between 

4 and 9 consecutive days; the counting 

of the days begins on the calendar day 

of discharge from the LTCH and ends on 

the 9th day when the patient is 

readmitted to the LTCH. For a discharge 

to an IRF, the applicable fixed-day 

period is between 4 and 27 consecutive 

days; the counting of the days begins on 

the calendar day of discharge from the 

LTCH and ends on the 27th day. For a 

discharge to a SNF, the applicable fixedday period is between 4 and 45 

consecutive days; the counting of the 

days begins on the calendar day of 

discharge from the LTCH and ends on 

the 45th day. 

These timeframes reflect our policy of 

only paying for more than one discharge 

if the patient’s length of stay exceeds 

one standard deviation from the average 

length of stay. As we stated in the RY 

2003 LTCH PPS final rule, this policy 

was established with the intent of 

‘‘balanc[ing] the payment incentives of 

both the LTCH and the acute care 

hospital, IRF, or SNF to which the 

LTCH patient is discharged before being 

readmitted to the LTCH,’’ and is 

intended to ensure ‘‘that discharges 

from LTCHs are based on clinical 

considerations and not financial 

incentives’’ (67 FR 56002). As we stated 

at that time, we believed that a 

threshold of one standard deviation 

from the average length of stay would 

address the cost-based disincentives 

inherent in cases that significantly 

exceed the average length of stay. 

Furthermore, the threshold would 

‘‘capture the majority of the discharges 

that are similar to the average length of 

stay for the respective DRG, 

combination CMG and comorbidity tier, 

or for all Medicare SNF cases.’’ 

Specifically, in establishing this policy, 

we calculated the average length of stay 

plus one standard deviation for each 

inpatient setting in which an 

‘‘interruption’’ could occur in order to 

determine a fixed-day threshold. This 

use of a standard deviation as the 

justification for additional payment is 

consistent with our use of a standard 

deviation measure as the measure for 

paying additional amounts for new 

technologies under the acute care 

hospital inpatient prospective payment 

system. Under that system, ‘‘the cost of 

a new technology must exceed one 

standard deviation beyond the mean 

standardized charge for all cases in the 

DRG to which the new technology is 

assigned in order to receive additional 

payments’’ (67 FR 56002). 

Therefore, if an LTCH readmission 

occurs within the fixed-day period both 

halves of the LTCH discharge are treated 

as a single discharge for the purposes of 

payment under the LTCH PPS. In such 

instances, the beneficiary’s readmittance 

to the LTCH is paid for with a single 

LTC–DRG payment that covers the 

initial admission to the LTCH, and the 

subsequent readmission. That is, a 

single Medicare payment is made for the 

entire two-part discharge. Payment to 

the acute care hospital, the IRF, or the 

SNF is then made in accordance with 

the applicable payment policies for 

those providers when the interruption 

of stay exceeds 3 days. Therefore, we 

balanced the payment incentives of both 

the LTCH and the acute care hospital, 

IRF, or SNF to which the LTCH patient 

might be discharged before being 

readmitted to the LTCH. 

As we discussed in the RY 2003 

LTCH PPS final rule (67 FR 56007), our 

concerns about patient shifting were 

significantly increased in the context of 

transfers between co-located LTCHS and 

LTCH satellite facilities, or for LTCH 

hospital-within-hospital transfers. 

Collectively, we refer to these 

arrangements as transfers to ‘‘onsite’’ 

providers. In the regulations under 

§ 412.532(b), we define a facility that is 

‘‘co-located or ‘‘on-site’’ as ‘‘a hospital, 

satellite facility, unit, or SNF that 

occupies space in a building also used 

by another hospital or unit or in one or 

more buildings on the same campus, as 

defined in § 413.65(a)(2) of this 

subchapter, as buildings used by 

another hospital or unit.’’ Under this 

LTCH PPS policy, if more than 5 

percent of the Medicare patients 

discharged from an LTCH during a cost 

reporting period were discharged to an 

‘‘onsite’’ SNF, IRF, or psychiatric 

facility, or to an ‘‘onsite’’ acute care 

hospital, and directly readmitted to the 

same LTCH, the LTCH would be paid 

one MS–LTC–DRG payment to cover 

both LTCH discharges, regardless of the 

length of the interrupted stay. As is the 

case in regard to the greater than 3-day 

interruption of stay policy, payment to 

an acute care hospital, an IRF, or a SNF 

would not be affected under the 5- 

percent policy. We refer readers to the 

RY 2003 LTCH PPS final rule for a 

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detailed description of the 5-percent 

policy (67 FR 56007 through 56014). 

Our concern about patient shifting 

among ‘‘onsite’’ providers did not 

originate with the implementation of the 

LTCH PPS. The LTCH 5-percent policy 

under § 412.532 was recodified from an 

earlier regulation under § 413.40(a)(3), 

which applied a payment adjustment to 

hospitals paid under the TEFRA 

payment system, including LTCHs, to 

address inappropriate discharges of 

patients to a host hospital paid under 

the inpatient prospective payment 

system from an excluded hospitalwithin-a-hospital (such as a LTCH), that 

culminated in a readmission to the 

hospital-within-a-hospital. (We refer 

readers to the RY 1999 LTCH PPS final 

rule (64 FR 41353) and the RY 2003 

LTCH PPS final rule (67 FR 56007).) In 

the RY 2003 LTCH PPS final rule, we 

adopted this payment adjustment under 

the LTCH PPS to ‘‘address inappropriate 

shifting of patients among these 

providers without clinical justification 

to maximize Medicare payment’’ due to 

inappropriate incentives to prematurely 

discharge patients to one of these other 

onsite providers once their lengths of 

stay at the LTCH exceeded the 

thresholds established by the short-stay 

outlier policies.’’ Therefore, we sought 

to ensure that discharges would not be 

based on ‘‘payment considerations 

rather than on a clinical basis as an 

extension of the normal progression of 

appropriate patient care.’’ 

2. Thresholds Used in Recent Statutory 

Programs 

Two previously implemented 

Medicare initiatives, the Hospital IQR 

Program, established by section 501(b) 

of the Medicare Prescription Drug, 

Improvement, and Modernization Act 

(MMA) of 2003, and the Readmission 

Reduction Program, established by 

section 3025 of the Affordable Care Act, 

include measures that focus, among 

other things, on the implied 

relationships between quality patient 

care and payment consequences for the 

Medicare program resulting from patient 

readmissions. The Hospital IQR 

Program, which we discuss in detail in 

section IX.A. of the preamble of this 

proposed rule, publicly reports, among 

other things, inpatient outcome 

measures, including 30-day 

readmissions for specific medical 

conditions (acute myocardial infarction, 

heart failure, pneumonia, total hip/knee 

arthroplasty, hospital-wide all-cause 

unplanned, stroke, and COPD). The 

Hospital Readmissions Reduction 

Program, which we discuss in section 

IV.H. of the preamble of this proposed 

rule, requires CMS to reduce payments 

to IPPS hospitals with excess 

readmissions, effective for discharges 

beginning on October 1, 2012. Under 

that program, we define a 

‘‘readmission’’ as an admission to a 

subsection (d) hospital within 30 days 

of a discharge from the same or another 

subsection (d) hospital. As noted in our 

response to a public comment in the FY 

2012 IPPS/LTCH PPS final rule, the 

‘‘timeframe of 30 days from the date of 

the initial discharge from the index 

hospitalization is the timeframe that has 

been NQF[National Quality Forum]- 

endorsed as part of the three 

readmission measures. The timeframe of 

30 days is considered an acceptable 

standard [for quality measurement] in 

both the research and measurement 

communities, as this time period is long 

enough to capture a substantial 

proportion of readmissions attributable 

to an index hospitalization . . . and yet 

it is short enough that outcomes can be 

attributed to and influenced by hospital 

care and the early transition to the 

outpatient setting. The use of the 30-day 

timeframe is also a clinically 

meaningful period for hospitals to 

collaborate with their communities in 

an effort to reduce readmissions.’’ (We 

refer readers to the FY 2012 IPPS/LTCH 

PPS final rule (76 FR 51669 through 

51670).) 

In light of the 30-day threshold 

established for the Hospital IQR 

Program and the Hospital Readmissions 

Reduction Program, we conducted an 

evaluation of our greater than 3-day 

interruption of stay policy. A review of 

claims data indicates that interrupted 

stays at acute care hospitals constitute 

the vast majority of the intervening stays 

under the interruption of stay policy. 

When implementing policies under the 

Hospital IQR Program and the Hospital 

Readmissions Reduction Program, we 

have, in effect, asserted that a second 

inpatient episode of care that occurs 

within 30 days of an initial (index) 

hospitalization is likely linked to the 

first stay. Under the LTCH PPS, the 

application of the payment adjustment 

specified in the ‘‘greater than 3-day 

interruption of stay’’ policy is based on 

the number of days that elapsed 

between the initial LTCH discharge and 

the beneficiary’s readmission to the 

same LTCH. An interruption of stay that 

does not exceed the fixed-day threshold 

would result in one ‘‘bundled’’ 

discharge-based payment to cover both 

LTCH discharges. An interruption of 

stay that exceeds the fixed-day 

threshold would currently result in two 

separate Medicare payments under the 

LTCH PPS. However, we believe that it 

would be more appropriate to use a 30- 

day interval as the fixed-day threshold 

under the greater than 3-day 

interruption of stay policy under the 

LTCH PPS because that is consistent 

with the intervals used in the Hospital 

Readmissions Reductions Program and 

the Hospital Inpatient Quality Reporting 

Program. As such, we are proposing to 

revise the fixed-day thresholds under 

the greater than 3-day interruption of 

stay policy to provide for a 30-day fixed 

threshold as an ‘‘acceptable standard’’ 

for determining a linkage between an 

index discharge and a readmission from 

an inpatient facility as specified under 

this policy, that is, an IPPS hospital, an 

IRF, or a SNF. 

3. Proposed Changes to the Greater Than 

3-Day Interruption of Stay Policy 

We are proposing to adopt a 30-day 

standard as the fixed-day threshold 

under the LTCH PPS ‘‘greater than 3-day 

interruption of stay’’ policy. To do so, 

we are proposing to amend our 

regulations by revising §§ 412.531(a)(2) 

and (b)(4) and adding new paragraphs 

(a)(3) and (b)(5) to reflect this proposed 

policy change. 

Under our proposed policy revision, 

Medicare payments to LTCHs for 

patients discharged on or after October 

1, 2014, who are treated in an acute care 

hospital, IRF, or SNF and readmitted to 

the same LTCH within 30 days of the 

index LTCH discharge, both discharges 

from the LTCH would be treated as one 

episode of care and a single discharge 

payment would be made to the LTCH. 

In addition, because we believe that this 

30-day fixed-day threshold policy 

would address ‘‘onsite’’ concerns, we 

are proposing to remove § 412.532, that 

currently governs discharges from 

LTCHs to ‘‘onsite’’ providers that 

subsequently readmit the patient to the 

same LTCH. If we finalize our proposal 

to adopt the 30-day fixed-day threshold 

under the LTCH PPS greater than 3-day 

interruption of stay policy, we no longer 

believe that the regulatory requirements 

under § 412.532 are necessary and, 

therefore, we are proposing to remove 

that section in its entirety. Furthermore, 

a determination as to whether an LTCH 

has exceeded its 5-percent threshold 

under the LTCH PPS 5-percent policy 

occurs only upon cost report settlement, 

and as such, reflects an ‘‘after the fact’’ 

payment adjustment rather than an ‘‘up 

front’’ payment adjustment, such as the 

payment adjustments that would be 

applied under our proposed greater than 

3-day interruption of stay policy. As 

such, we believe that the 5-percent 

policy has a limited impact on provider 

behavior, and we do not believe that 

retaining it has significant value to the 

Medicare program. 

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In summary, we are proposing to 

revise the regulations under 

§§ 412.531(a)(2) and (b)(4) and to add 

new §§ 412.531(a)(3) and (b)(5) to reflect 

this proposed payment policy revision. 

In addition, we are proposing to remove 

§ 412.532 in its entirety and make a 

conforming change to § 412.525 by 

removing and reserving paragraph 

(d)(3), which references payments under 

§ 412.532. 

G. Moratoria on the Establishment of 

LTCHs and LTCH Satellite Facilities and 

on the Increase in the Number of Beds 

in Existing LTCHs or LTCH Satellite 

Facilities 

As previously noted, Public Law 113– 

67 was enacted on December 26, 2013. 

Section 1206(b)(2) of Public Law 113–67 

amended section 114(d) of the MMSEA 

of 2007, as previously amended by 

section 4302 of the American Recovery 

and Reinvestment Act (ARRA) of 2009 

(Pub. L. 111–5) and sections 3106(b) and 

10312(b) of the Affordable Care Act 

(Pub. L. 111–148). As further amended 

by section 112(b) of the Protecting 

Access to Medicare Act of 2014 (Pub. L. 

113–93), section 114(d) of the MMSEA 

includes a ‘‘new’’ statutory moratoria on 

the establishment of new LTCHs and 

LTCH satellite facilities, and on the 

increase in the number of hospital beds 

in existing LTCHs and LTCH satellite 

facilities, ‘‘for the period beginning 

April 1, 2014 and ending September 30, 

2017,’’ which mirrors nearly identical 

provisions of the ‘‘expired’’ moratoria 

under section 114(d)(1) of the MMSEA, 

as amended by sections 4302 of the 

ARRA and sections 3106(b) and 

10312(b) of the Affordable Care Act. 

These prior, yet nearly identical, 

provisions of section 114(d)(1) of the 

MMSEA, as amended by the ARRA and 

the Affordable Care Act, expired on 

December 28, 2012. For clarity and 

brevity, we will refer to the ‘‘expired’’ 

moratoria or moratorium to reference 

those that expired on December 28, 

2012, and the ‘‘new’’ moratoria or 

moratorium to reference those that 

began on April 1, 2014, as applicable, 

throughout this discussion. 

The primary difference between the 

‘‘expired’’ moratoria and the ‘‘new’’ 

moratoria is that, while the ‘‘expired 

moratoria’’ provided for specific 

exceptions to both the moratorium on 

the establishment of new LTCHs and 

LTCH satellite facilities and on 

increases in the number of beds in 

existing LTCHs and LTCH satellite 

facilities, the ‘‘new’’ moratoria only 

provides exceptions to the moratorium 

on the establishment of new LTCHs and 

LTCH satellite facilities. No exceptions 

are provided under the ‘‘new’’ 

moratorium on increases in the number 

of hospital beds in existing LTCHs and 

LTCH satellite facilities. (For a detailed 

description of the ‘‘expired’’ moratoria 

provisions (including the applicable 

exceptions) that were in effect from 

December 29, 2007 through December 

28, 2012, we refer readers to the May 22, 

2008 Interim Final Rule with Comment 

Period (73 FR 29705 through 29708). 

In light of the expiration date of the 

‘‘expired’’ moratoria on December 28, 

2012, and the effective date of the 

‘‘new’’ moratoria on April 1, 2014, there 

has been a period of time in which new 

LTCHs and LTCH satellite facilities 

have been allowed to be established, 

and during which time there may have 

been increases in the number of hospital 

beds in LTCHs and LTCH satellite 

facilities. In accordance with section 

114(d)(1) of the MMSEA, as amended by 

section 112(b) of Public Law 113–93, for 

the period beginning April 1, 2014 

through September 30, 2017, CMS will 

be unable to designate any hospital as 

an LTCH, unless one of the exceptions 

(described below) is met. 

Additionally, as of April 1, 2014, in 

accordance with sections 114(d)(6) and 

(d)(7) of the MMSEA, as amended by 

section 112(b) of Public Law 113–93, an 

existing LTCH may not increase the 

number of its hospital beds. This 

moratorium will extend through 

September 30, 2017, and is not subject 

to any exceptions. 

To qualify for an exception under the 

‘‘new’’ moratorium to establish a new 

LTCH or LTCH satellite facility during 

the timeframe between April 1, 2014, 

and September 30, 2017, a hospital or 

entity must meet the following criteria: 

• The hospital or entity must have 

begun its qualifying period for payment 

as an LTCH under 42 CFR 412.23(e). 

• The hospital or entity must have a 

binding written agreement with an 

outside, unrelated party for the actual 

construction, renovation, lease, or 

demolition for an LTCH, and must have 

expended before April 1, 2014, at least 

10 percent of the estimated cost of the 

project or, if less, $2,500,000. 

• The hospital or entity must have 

obtained an approved certificate of need 

in a State where one is required. 

While this exception only applies to 

the ‘‘new’’ moratorium on the 

establishment of new LTCHs and LTCH 

satellite facilities under section 

114(d)(7) of the MMSEA, as amended by 

section 112(b) of Public Law 113–93, the 

mechanics of the exception are 

analogous to those established under the 

‘‘expired’’ moratorium, which ended in 

2012. The ‘‘expired’’ moratoria were 

implemented in a May 22, 2008 Interim 

Final Rule with Comment Period (73 FR 

29704 through 29707). As discussed in 

that rule, some of the terminology in the 

statutory provision was internally 

inconsistent. A strictly literal reading of 

the statutory language under section 

114(d)(2) of the MMSEA, as amended by 

section 4302 of the ARRA and sections 

3106(b) and 10312(b) of the Affordable 

Care Act, presented practical challenges 

for implementation in light of the 

established LTCH classification criteria 

under § 412.23(e) of the regulations. 

Therefore, we adopted interpretations 

that we believed would reasonably 

reconcile seemingly inconsistent 

provisions and that would result in a 

logical and workable mandate. 

Specifically, as drafted, the exception 

only applies to a hospital or entity when 

it is already classified as an ‘‘LTCH.’’ 

Such entities would not need an 

exception to the moratorium on 

becoming an ‘‘LTCH’’ because they 

would already be an LTCH. As such, we 

are proposing to interpret this provision 

under the new exception as we 

interpreted the exceptions to the 

‘‘expired’’ moratorium. We discuss our 

interpretations below. 

At the outset of this discussion, we 

want to clarify which provisions of 

section 114(d) of the MMSEA, as 

amended, were subject to the ‘‘expired’’ 

moratoria, and which are subject to the 

‘‘new’’ moratoria. Sections 114(d)(2) and 

(3) of the MMSEA, as amended, only 

address exceptions under the ‘‘expired’’ 

moratoria. Section (d)(6) of the MMSEA, 

as amended, defines when the 

exceptions addressed in sections 

114(d)(2) and (3) expired. Section (d)(7) 

of the MMSEA addresses the exception 

under the ‘‘new’’ moratorium on the 

establishment of new LTCHs and LTCH 

satellite facilities. There are no 

exceptions to the ‘‘new’’ moratorium on 

the increases in the number of beds in 

existing LTCHs and LTCH satellite 

facilities, as noted above. 

Section 114(d)(7)(A) of the MMSEA, 

as amended, mirrors the expired 

provisions of section 114(d)(2)(A). Both 

provisions refer to an LTCH that began 

its qualifying period for payment as a 

‘‘long-term care hospital’’ on or before a 

given date. However, a hospital would 

not be classified as an LTCH during that 

qualifying period; the facility or entity 

would typically be classified as an IPPS 

hospital. For a full discussion of our 

rationale for interpreting section 

114(d)(2)(A) of the MMSEA to refer to 

an IPPS hospital meeting the stated 

requirements, we refer readers to our 

May 22, 2008 Interim Final Rule with 

Comment Period (73 FR 20704 through 

29707) regarding the implementation of 

the ‘‘expired’’ moratorium. We are 

proposing to apply the same rationale in 

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regard to the interpretation of section 

114(d)(7)(A), that is, we are proposing to 

interpret the provision to refer to an 

acute care hospital meeting the stated 

requirements as the hospital or entity 

seeks classification as an LTCH. As we 

did when interpreting the same 

language under the ‘‘expired’’ 

moratorium exception under section 

114(d)(2)(A) of the MMSEA, as amended 

by section 4302 of the ARRA and 

sections 3106(b) and 10312(b) of the 

Affordable Care Act, we note that the 

exception under section 114(d)(7)(A) of 

the MMSEA cannot provide any relief to 

LTCH satellite facilities because there is 

no ‘‘qualifying period’’ for the 

establishment of a LTCH satellite 

facility for payment as a LTCH under 

§ 412.23(e). Therefore, an LTCH satellite 

facility cannot meet the stated 

requirements for an exception under 

section 114(d)(7)(A) of the MMSEA. 

Section 114(d)(7)(B) of the MMSEA 

specifies the conditions for an exception 

to the moratorium on the establishment 

of new LTCHs and LTCH satellite 

facilities having: (1) A binding written 

agreement with an outside, unrelated 

party for the actual construction, 

renovation, lease, or demolition for an 

LTCH; and (2) expended, before the date 

of enactment of Public Law 113–93, 

April 1, 2014, ‘‘at least 10 percent of the 

estimated cost of the project (or, if less, 

$2,500,000).’’ As drafted, this provision 

is also problematic. In cases in which a 

hospital has not yet been built, but there 

is a binding written agreement for the 

actual construction of a hospital that 

intends to be classified as an LTCH, the 

entity hiring those who would complete 

the construction would not be classified 

as an LTCH. Prior to the designation or 

classification of a hospital or an entity 

as an LTCH, a hospital must first be 

established and certified and must then 

complete the procedures specified 

under § 412.23(e) in order to qualify as 

an LTCH, at which point the hospital 

would be reclassified as an LTCH. 

In accordance with our interpretation 

of section 114(d)(2)(B) of the MMSEA, 

as amended by section 4302 of the 

ARRA and sections 3106(b) and 

10312(b) of the Affordable Care Act, we 

are proposing to interpret the 

contracting and expenditure provisions 

under section 114(d)(7)(B) of the 

MMSEA, as added by section 112(b) of 

Public Law 113–93, to apply to the 

hospital/entity requesting an exception 

to the moratorium on the establishment 

of new LTCHs and LTCH satellite 

facilities between April 1, 2014, and 

September 30, 2017—the entity that 

would be classified as an LTCH if it 

meets the stated requirements. That 

entity must have a binding written 

agreement with an outside unrelated 

party for the actual construction, 

renovation, lease, or demolition for 

converting the hospital to an LTCH, and 

it must have expended at least 10 

percent of the estimated cost of the 

project (or, if less, $2,500,000) by the 

date of enactment of Public Law 113– 

93—April 1, 2014. 

Furthermore, with regard to the first 

prong, as when we implemented the 

‘‘expired’’ moratoria, we continue to 

believe that the use of the term ‘‘actual’’ 

in the context of the ‘‘actual 

construction, renovation, lease, or 

demolition’’ indicates that the provision 

focuses only on the specific actions 

cited in the statute, and does not 

include those actions that are being 

contemplated or are not yet 

substantially underway. Although we 

are aware that a hospital or some other 

type of entity may enter into binding 

written agreements regarding services 

and items (for example, feasibility 

studies or land purchase) and incur 

costs for those services and items prior 

to actual construction, renovation, lease 

or demolition, we believe that those 

services or items are not included in 

what we are permitted to consider 

under the statutory language of the 

exception requirements. 

With respect to the second prong, the 

statute specifies that the hospital or 

entity must have ‘‘expended’’ at least 10 

percent of the estimated cost of the 

project (or, if less, $2,500,000) by April 

1, 2014. As we did in regard to the 

interpretation of section 114(d)(2)(B) of 

the MMSEA, as amended by section 

4302 of the ARRA and section 3106(b) 

and 10312(b) of the Affordable Care Act, 

we are proposing to interpret the phrase 

‘‘cost of the project’’ to mean the 

activities enumerated in the first prong: 

‘‘The actual construction, renovation, 

lease, or demolition for a long-term care 

hospital.’’ That is, the statute requires 

the hospital or entity to have spent the 

amount specified in the statute on the 

actual construction, renovation, lease, or 

demolition for the contemplated LTCH. 

Furthermore, as we did previously in 

regard to the interpretation of section 

114(d)(2)(B) of the MMSEA, as amended 

by section 4302 of the ARRA and 

sections 3106(b) and 10312(b) of the 

Affordable Care Act, because the statute 

uses the phrase ‘‘has expended’’ (that is, 

a past tense phrase), we are proposing 

to limit funds counting toward the 10 

percent or $2,500,000 minimum to those 

funds that have actually been 

transferred as payment for the stated 

aspects of the project prior to April 1, 

2014, as opposed to merely obligating 

capital and posting the cost of the 

project on its books. We believe that the 

provision addressed the concept of 

‘‘obligate’’ in the first prong of the test 

where the statute specifies ‘‘a binding 

written agreement . . . for the actual 

construction, renovation, lease, or 

demolition of the long-term care 

hospital . . .’’ and there is no reason to 

believe that the second prong of the test, 

which requires the ‘‘expenditure’’ of 10 

percent of the project or, if less, 

$2,500,000, was intended as a 

redundancy. The ability to post the 

expense on the hospital’s or entity’s 

books could be satisfied by merely 

having a binding written agreement 

under the first prong of section 

114(d)(7)(B) of the MMSEA. The fact 

that a second requirement is included 

that involves an expenditure indicates 

that an additional threshold must be 

met. 

Finally, section 114(d)(7)(C) of the 

MMSEA includes an exception to the 

moratorium if an LTCH, as of April 1, 

2014, has ‘‘obtained an approved 

certificate of need in a State where one 

is required.’’ As discussed above, we are 

proposing to apply this exception 

requirement to the entity that is 

requesting approval for an exception to 

the moratorium on the establishment of 

new LTCHs and LTCH satellite facilities 

between April 1, 2014, and September 

30, 2017—the entity that would be 

classified as an ‘‘LTCH’’ if the stated 

requirements are met. 

However, with that said, we are 

clarifying what kind of certificate of 

need we are proposing to accept under 

the provisions of section 114(d)(7) of the 

MMSEA. We believe that the certificate 

of need exception applies to a 

‘‘hospital’’ or entity that was actively 

engaged in developing an LTCH, as 

evidenced by the fact that either an 

entity that wanted to create a LTCH but 

did not exist as a hospital as of April 1, 

2014, had obtained a certificate of need 

for a hospital by the date of enactment, 

or an existing hospital had obtained a 

certificate of need to convert the 

hospital into a new LTCH by that date. 

We are proposing not to apply this 

exception requirement to a hospital that 

was already in existence prior to the 

date of enactment of Public Law 113–93, 

and that had previously obtained an 

approved certificate of need for a 

hospital (other than a LTCH) on or 

before April 1, 2014. We believe that 

Congress intended the exception to the 

moratorium to save those entities that 

were already actively engaged in 

becoming an LTCH. The fact that a 

hospital may have had a certificate of 

need issued to it years before April 1, 

2014, to operate a hospital (other than 

a LTCH) is not indicative of such active 

engagement, and, we believe, is outside 

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of what is contemplated in these LTCHspecific statutory provisions. We are 

proposing to only apply this exception 

requirement where the certificate of 

need was specifically for an LTCH. 

Because the certificate of need process 

is controlled at the State level, in 

determining whether the hospital or 

entity has obtained an approved 

certificate of need on or before April 1, 

2014, we would consult the applicable 

State on a case-by-case basis for that 

determination. 

Decisions regarding the application of 

these moratoria and exceptions 

provided within the provisions of 

section 114(d) of the MMSEA will be 

handled on a case-by-case basis by the 

applicant’s MAC and the CMS Regional 

Office. 

In accordance with these proposals, 

we also are proposing to revise our 

regulations under § 412.23(e)(6) and 

(e)(7) to include a description of the 

‘‘new’’ moratoria, which is in effect 

from April 1, 2014, through September 

30, 2017, on the establishment of new 

LTCHs and LTCH satellite facilities 

(with specific exceptions), and on 

increasing the number of beds in 

existing LTCHs and existing LTCH 

satellite facilities. 

H. Evaluation and Proposed Treatment 

of LTCHs Classified Under Section 

1886(d)(1)(B)(iv)(II) of the Act 

Section 1206(d) of the Pathway for 

SGR Reform Act (Pub. L. 113–67) 

instructs the Secretary to evaluate 

payments and regulations governing 

‘‘hospitals which are classified under 

subclause (II) of subsection (d)(1)(B)(iv) 

. . .’’ as part of the annual rulemaking 

for payment rates under subsection (d) 

of section 1886 of the Act for FY 2015 

or FY 2016. (We refer to hospitals 

‘‘classified under subclause (II) of 

subsection (d)(1)(B)(iv) . . .’’ as 

‘‘subclause (II) LTCHs.’’) Based on the 

results of this evaluation, the Secretary 

is authorized to adjust the payment rates 

under section 1886(b)(3) of the Act for 

this type of hospital (such as by 

applying a payment adjustment such 

that the payments resemble those under 

a ‘‘TEFRA-payment model’’). To 

implement such a payment adjustment, 

the Secretary would have to propose 

changes to the existing regulations 

governing subclause (II) LTCHs. 

For this proposed rule, under the 

requirements of section 1206(d)(1) of 

Public Law 113–67 to evaluate the 

payment rates and regulations governing 

subclause (II) LTCHs, we have reviewed 

Medicare data from the only hospital 

meeting the statutory definition of a 

subclause (II) LTCH. As a result of these 

analyses, we are proposing to apply a 

payment adjustment to subclause (II) 

LTCHs beginning in FY 2015, which 

would result in payments for this 

category of LTCHs that resemble a 

payment based upon a TEFRA payment 

model (that is, a reasonable cost 

payment, subject to a ceiling). 

Section 4417(b) of the BBA 

established the meaning of ‘‘subsection 

(d) hospitals,’’ which are paid under the 

IPPS, and in doing so, excluded two 

categories of hospitals that experience 

extended average inpatient length of 

stays. It also authorized the Secretary to 

define how an average inpatient length 

of stay would be calculated for these 

excluded hospitals. These provisions 

are included under sections 

1886(d)(1)(B)(iv)(I) and (d)(1)(B)(iv)(II) 

of the Act, and the two categories of 

hospitals are generally referred to as 

subclause (I) and subclause (II) LTCHs. 

Subclause (I) LTCHs are required to 

have an average inpatient length of stay 

that is greater than 25 days. Subclause 

(II) LTCHs are only required to have an 

average inpatient length of stay of 

greater than 20 days. The subclause (II) 

LTCH definition further limited the 

classification of a subclause (II) LTCH 

by including the requirement that the 

LTCH must have been first excluded 

from the IPPS in CY 1986, and treated 

a Medicare inpatient population in 

which 80 percent of the discharges in 

the 12-month reporting period ending in 

Federal FY 1997 had a principal 

diagnosis that reflected a finding of 

neoplastic disease. This statutory 

requirement is implemented under 42 

CFR 412.23(e)(2)(ii). 

In establishing the category of 

subclause (II) LTCHs, Congress 

essentially authorized special treatment 

of a hospital that, since 1986, had 

focused on the provision of palliative 

care to Medicare beneficiaries diagnosed 

with end-stage cancer. In consideration 

of the distinction between hospitals 

qualifying as LTCHs, either as a 

subclause (I) LTCH or a subclause (II) 

LTCH, we established different 

standards for counting the average 

inpatient length of stay values for these 

two categories of LTCHs. We calculate 

the greater than 25-day average length of 

stay criteria using only Medicare claims 

data for subclause (I) LTCHs. However, 

for subclause (II) LTCHs, we calculate 

the average length of stay based on its 

entire patient population. We refer 

readers to the RY 2003 LTCH PPS final 

rule (67 FR 55974) for a full discussion 

of our rationale for implementing these 

average length of stay calculation 

methodologies. 

The theoretical foundations of any 

PPS are based on a system of averages, 

where the costs of some cases may 

exceed the payment, while other cases’ 

costs will be less than the payment, 

creating an adequate balance in 

payments. Therefore, it is assumed that 

a hospital paid under a PPS would be 

able to maintain a balance of patients 

that will allow the hospital to achieve 

fiscal stability. With that said, in 

developing the LTCH PPS we were 

aware that a per discharge PPS system 

that pays the same amount for every 

case in a specific MS–LTC–DRG could 

encourage hospitals to make decisions 

based on financial considerations (such 

as prematurely discharging patients to 

reduce the cost of such cases). As per 

discharge payments under the LTCH 

PPS are based on the extended lengths 

of stay that characterize LTCHs, at the 

outset of the LTCH PPS, we established 

a short-stay outlier (SSO) policy under 

which we apply a payment adjustment 

for LTCH discharges with lengths of stay 

that do not exceed 5⁄6 of the geometric 

average length of stay of the MS–LTC– 

DRG. Equally, we were aware that there 

would be exceptionally expensive cases 

that could create financial disincentives 

to treat such patients and, therefore, we 

adopted a high-cost outlier (HCO) policy 

as well. However, given the nature of a 

subclause (II) LTCH’s patient 

population, it may not be reasonable to 

expect a balancing of more and less 

costly cases, as these LTCHs are 

generally only treating a subset of very 

sick patients. As such, we modified our 

original SSO payment policy for 

subclause (II) LTCHs, and we exempted 

this category of LTCHs from additional 

changes to the SSO policy to account for 

the extremely high percentage of cases 

that our data analysis revealed would 

have been subject to our SSO policy if 

that policy were to be applied to 

subclause (II) LTCHs. 

In accordance with the requirements 

of section 1206(d)(1) of Public Law 113– 

67, we conducted an evaluation of the 

payment rates and regulations governing 

subclause (II) LTCHs. We analyzed 

MedPAR claims data for FY 2010 and 

estimated Medicare costs incurred by 

the one LTCH currently classified as a 

subclause (II) LTCH, a 225-bed LTCH 

located in New York. We also evaluated 

the same metrics for two comparison 

groups of LTCHs, that is, approximately 

40 LTCHs located in the same census 

region (that is, the Northeast Census 

Region, which includes Connecticut, 

Maine, New Jersey, and Pennsylvania), 

and approximately 25 LTCHs with the 

same bed size category (that is, between 

150 and 250 beds) in order to assess the 

distinctions between a subclause (I) 

LTCH and a subclause (II) LTCH. For 

purposes of this analysis, LTCH PPS 

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payments were calculated from the 

payment field in the MedPAR claims 

data, and the estimated costs for those 

claims were calculated using the 

covered charges and CCRs in the 

Provider-Specific File (PSF) that 

correlate to the discharge date on each 

claim. We calculated the aggregate 

average margins (ratio of payment to 

costs) for the subclause (II) LTCH and 

for the two sets of comparison groups of 

LTCHs using the calculated FY 2010 

costs and payments. Our analysis found 

that, under current LTCH PPS payment 

policy, the subclause (II) LTCH has 

much lower margins than comparable 

LTCHs located in the Northeast Census 

Region or LTCHs with 150–250 beds. 

Specifically, the subclause (II) LTCH 

had a negative margin for its Medicare 

patients paid under LTCH PPS in FY 

2010, while both the Northeast Census 

Region LTCHs and LTCHs with 150–250 

beds had positive aggregate margins for 

its Medicare patients paid under LTCH 

PPS for the same period. 

In our evaluation of subclause (II) 

LTCHs under the LTCH PPS, in 

accordance with the requirements of 

section 1206(d) of Public Law 113–67, 

we also compared the types of patients 

treated at subclause (I) and subclause 

(II) LTCHs. The top five MS–LTC–DRGs 

for patients treated at the subclause (II) 

LTCH in FY 2010 account for almost 

one-third of all of its Medicare 

discharges. Four of the top five MS– 

LTC–DRGs for the subclause (II) LTCH 

involve a neoplastic disease, and its 

case-mix differs significantly from the 

subclause (I) LTCHs, which had large 

proportions of ventilator and respiratory 

patients. The five most common MS– 

LTC–DRGs for the subclause (I) LTCHs 

were: Respiratory system diagnosis with 

ventilator support 96+ hours (MS–LTC– 

DRG 207); Pulmonary edema and 

respiratory failure (MS–LTC–DRG 189); 

Septicemia or severe sepsis without 

ventilator support 96+ hours with MCC 

(MS–LTC–DRG 870); Skin ulcers with 

MCC (MS–LTC–DRG 592); and 

Respiratory system diagnosis with 

ventilator support < 96 hours (MS–LTC– 

DRG 208). In comparison, for the 

subclause (II) LTCH, the five most 

common MS–LTC–DRGs were: 

Respiratory neoplasms with CC (MS– 

LTC–DRG 181); Digestive malignancy 

with CC (MS–LTC–DRG 375); 

Respiratory neoplasms with MCC (MS– 

LTC–DRG 180); Organic disturbances & 

mental retardation (MS–LTC–DRG 884); 

and Malignancy, female reproductive 

system w CC (MS–LTC–DRG 755). 

These data highlight significant 

differences between a subclause (I) 

LTCH and a subclause (II) LTCH based 

on patient-mix and Medicare margins, 

notwithstanding the considerations that 

have been made in structuring the 

current LTCH regulations to 

acknowledge the uniqueness of an 

LTCH meeting the statutory definition 

of a subclause (II) LTCH. 

In evaluating ‘‘both the payment rates 

and regulations governing hospitals 

which are classified under subclause (II) 

. . .,’’ as required by section 1206(d) of 

Public Law 113–67, we also analyzed 

the impacts of upcoming changes to the 

LTCH PPS under section 1206(a) of 

Public Law 113–67. In discussing these 

analyses, we note that, as discussed in 

section VII.I.2. of the preamble of this 

proposed rule, we are not proposing any 

specific policy and payment changes in 

this proposed rule to implement the 

provisions of section 1206(a) of Public 

Law 113–67. We intend to establish 

policies related to the types of LTCH 

cases expected to meet the legislative 

patient-level criteria for the ‘‘standard 

LTCH PPS payment’’ and cases 

expected to meet the criteria for the 

‘‘site neutral’’ payments under the 

LTCH PPS in the FY 2016 rulemaking 

cycle. Although we are not making any 

proposals in this proposed rule related 

to the provisions of section 1206(a) of 

Public Law 113–67 at this time, we 

discuss these provisions in this section 

because they relate to our analysis of the 

LTCH PPS payment rates and 

regulations governing subclause (II) 

LTCHs. 

Absent policy proposals for the 

implementation of section 1206(d) of 

Public Law 113–67, the payment 

changes required by section 1206(a) of 

Public Law 113–67 would apply to 

subclause (II) LTCHs beginning with 

discharges occurring in cost reporting 

periods beginning on or after October 1, 

2015 (that is, FY 2016 and beyond). Due 

to the changes required by the 

provisions of section 1206(a) of Public 

Law 113–67 (discussed at greater length 

under section VII.I. of the preamble of 

this proposed rule), beginning in FY 

2016, only those LTCH discharges 

meeting specified patient-level clinical 

criteria will be paid a ‘‘standard LTCH 

PPS payment amount.’’ Discharges not 

meeting those criteria will be paid based 

on a ‘‘site neutral’’ payment amount (the 

lesser of the ‘‘IPPS comparable’’ 

amount, as applied under our SSO 

policy at § 412.529, or 100 percent of the 

estimated costs of the case). The 

statutory requirements to be paid the 

‘‘standard LTCH PPS payment amount’’ 

are that the LTCH discharge does not 

have a principal diagnosis relating to a 

psychiatric diagnosis or to 

rehabilitation, and: 

• The stay in the LTCH was 

immediately preceded by a discharge 

from an acute care hospital that 

included at least 3 days in an intensive 

care unit (ICU); or 

• The stay in the LTCH was 

immediately preceded by a discharge 

from an acute care hospital and the 

patient’s LTCH stay is assigned to an 

MS–LTC–DRG based on the receipt of 

ventilator services of at least 96 hours. 

Furthermore, section 

1206(a)(1)(C)(ii)(II) of Public Law 113– 

67 specifies that, effective with cost 

reporting periods beginning on or after 

FY 2020, any LTCH with an ‘‘LTCH 

discharge payment percentage’’ that 

demonstrates that more than 50 percent 

of that LTCH’s discharges were paid for 

based on the ‘‘site neutral’’ payment rate 

will subsequently be paid for all 

discharges at the rate ‘‘. . . that would 

apply under subsection (d) for the 

discharge if the hospital were a 

subsection (d) hospital.’’ We refer 

readers to section VII.I. of the preamble 

of this proposed rule for a further 

discussion of the provisions of section 

1206(a) of Public Law 113–67. 

In light of these forthcoming statutory 

changes, we evaluated MedPAR claims 

data from the only hospital meeting the 

statutory definition of a subclause (II) 

LTCH for FY 2010 to project the impact 

of the revisions to the LTCH PPS made 

by section 1206(a) of Public Law 113– 

67. Our simulations included analyses 

of the potential financial impact of 

applying the patient-level criteria and 

‘‘site neutral’’ payment policies to a 

subclause (II) LTCH, and the financial 

impact on payments if that LTCH were 

to be paid for more than 50 percent of 

its discharges at the ‘‘site neutral’’ 

payment rate. In conducting this 

analysis in the absence of rules 

implementing the changes mandated by 

section 1206(a) of Public Law 113–67, 

we assumed that there would be no 

changes in LTCH admission patterns in 

response to the LTCH PPS payment 

changes required by section 1206(a) of 

Public Law 113–67. Furthermore, we 

used the FY 2010 claims data for the 

subclause (II) LTCH and the two LTCH 

comparison groups described above in 

order to compare the potential effects of 

the payment changes under the LTCH 

PPS required by section 1206(a) of 

Public Law 113–67 between subclause 

(I) LTCHs and subclause (II) LTCHs. We 

simulated payments for those discharges 

that would be expected to meet the 

legislative patient-level criteria for the 

‘‘standard LTCH PPS payment’’ and for 

discharges that would be expected to 

receive ‘‘site neutral’’ payments under 

the LTCH PPS. Our analysis found that 

the subclause (II) LTCH would be 

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expected to have significantly fewer 

(approximately 5 times fewer) 

discharges that would be expected meet 

the legislative patient-level criteria for 

the ‘‘standard LTCH PPS payment’’ than 

the comparison groups of subclause (I) 

LTCHs (that is, Northeast Census Region 

LTCHs and LTCHs with 150–250 beds). 

Additionally, we analyzed the 

potential effects of the ‘‘LTCH discharge 

payment percentage’’ provision under 

the requirements of section 

1206(a)(1)(C)(ii)(II) of Public Law 113– 

67, as noted above. We evaluated FY 

2010 claims data from the subclause (II) 

LTCH to project the potential impact of 

this provision. Based on our simulations 

in which we projected which FY 2010 

LTCH claims would be expected to 

receive ‘‘site neutral’’ payments under 

the LTCH PPS (as described above), and 

having found a significant number, we 

project that a significant negative 

financial impact would be imposed 

upon the subclause (II) LTCH’s 

payments. Without considerable 

behavioral changes, the subclause (II) 

LTCH would be expected to have more 

than 50 percent of its discharges paid 

based on a ‘‘site neutral’’ payment and, 

therefore, would receive a payment 

adjustment under the provisions of 

section 1206(a)(1)(C)(ii)(II) of Public 

Law 113–67 for all of its discharges. 

Furthermore, our analysis revealed that, 

given the particular medical profile of 

their patient population, that the 

‘‘subsection (d)’’ comparable payment 

amount under the payment adjustment 

required by section 1206(a)(1)(C)(ii)(II) 

of Public Law 113–67 would not likely 

cover the costs for a significant number 

of their discharges. Consequently, our 

analysis shows that the subclause (II) 

LTCH is projected to experience a large 

negative aggregate average margin for its 

Medicare discharges under the payment 

changes required by section 1206(a) of 

Public Law 113–67. 

Based on our findings under our 

evaluation of payments to subclause (II) 

LTCHs under the LTCH PPS and 

consistent with the provisions of section 

1206(d) of Public Law 113–67, we 

evaluated adjustments that could be 

applied to ensure appropriate payments 

under the LTCH PPS for a subclause (II) 

LTCH under the LTCH PPS. This 

analysis included consideration of a 

reasonable-cost based model, such as 

the TEFRA payment system under 

which certain PPS-excluded hospitals 

(such as children’s and cancer hospitals) 

are currently paid. The TEFRA payment 

system, which was established under 

the provisions of Public Law 97–248, is 

implemented under the regulations at 

42 CFR 413.40. 

In addition to governing the current 

payment of certain PPS-excluded 

hospitals, the TEFRA payment system 

was also previously used to pay LTCHs 

prior to the implementation of the LTCH 

PPS. As described in the RY 2003 LTCH 

PPS final rule (67 FR 55957), the TEFRA 

payment system was ‘‘. . . established 

[to make] payments based on hospitalspecific limits for inpatient operating 

costs. A ceiling on payments to such 

hospitals is determined by calculating 

the product of a facility’s base year costs 

(the year on which its target 

reimbursement limit is based) per 

discharge, updated to the current year 

by a rate-of-increase percentage, and 

multiplied by the number of total 

current year discharges.’’ (A detailed 

discussion of target amount payment 

limits under Public Law 97–248 can be 

found in the September 1, 1983 final 

rule published in the Federal Register 

(48 FR 39746).)’’ Under the TEFRA 

payment system, in accordance with 

section 1886(g) of the Act, Medicare 

allowable capital costs are paid on a 

reasonable cost basis. 

To evaluate reasonable cost-based 

payments under a TEFRA-payment 

model for subclause (II) LTCHs, we 

estimated operating and capital 

payments under the TEFRA payment 

system principles using FY 2010 cost 

report data for the one LTCH currently 

classified as a subclause (II) LTCH (the 

225-bed LTCH located in New York 

noted previously). As described above, 

payments for operating costs under the 

TEFRA payment system are based on 

hospital-specific limits (that is, a 

ceiling). The ceiling on payments is 

determined as the product of a 

hospital’s base year costs (the year on 

which its target reimbursement limit is 

based) per discharge (‘‘target amount per 

discharge’’), updated to the current year 

by a rate-of-increase percentage, and 

multiplied by the number of its 

Medicare discharges for the year. For 

purposes of this analysis, we 

determined the subclause (II) LTCH’s 

TEFRA-based target amount per 

discharge by updating its FY 2000 target 

amount per discharge (prior to the 

implementation of the LTCH PPS) using 

the annual update factors as established 

under § 413.40(c)(3). We used the FY 

2000 target amount per discharge in 

order to calculate a target amount per 

discharge that does not include the 

increased target amounts and caps on 

the target amounts provided to LTCHs 

under section 307(a) of the BIPA. 

Specifically, section 307(a) of the BIPA 

provided a 2-percent increase to the 

wage-adjusted 75th percentile cap on 

the TEFRA target amounts for existing 

LTCHs for cost reporting periods 

beginning in FY 2001, and a 25-percent 

increase to the hospital-specific TEFRA 

target amounts for LTCHs, subject to the 

increased 75th percentile cap. These 

provisions were promulgated prior to 

the implementation of the LTCH PPS. 

However, as required by section 

307(a)(2) of the BIPA, the 2-percent 

increase to the 75th percentile cap and 

the 25-percent increase to the TEFRA 

target amounts were not to be taken into 

account in the development and 

implementation of the LTCH PPS. To 

ensure that these increases would not be 

included in the LTCH PPS payments to 

subclause (II) LTCHs, consistent with 

the statutory requirement under section 

307(a)(2) of the BIPA, for purposes of 

our analysis, we determined the 

subclause (II) LTCH’s updated target 

amount by starting with its target 

amount from the FY 2000 cost report, 

the year prior to when these increases 

were effective. Then we updated its FY 

2000 target amount per discharge using 

the annual update factors established 

under § 413.40. This approach is 

consistent with the methodology we 

used to estimate each LTCH’s FY 2003 

payment per discharge for inpatient 

operating costs under the TEFRA 

payment system in determining the onetime prospective adjustment under 

§ 412.523(d)(3) in the FY 2013 IPPS/

LTCH PPS final rule (77 FR 53498). For 

payments for capital-related costs, we 

used the hospital’s capital cost data 

from Worksheets D, Parts I and II, as 

reported on their FY 2000 cost report. 

As described previously, Medicare 

allowable capital costs are paid on a 

reasonable cost basis under the TEFRA 

payment system, in accordance with the 

regulations under§ 413.40. This 

approach is also consistent with the 

methodology we used to estimate each 

LTCH’s FY 2003 payment per discharge 

for inpatient capital-related costs under 

the TEFRA payment system in 

determining the one-time prospective 

adjustment at § 412.523(d)(3), in the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53499). Our analysis of the subclause 

(II) LTCH’s projected payments under a 

TEFRA-payment model indicated that 

such payments would reasonably cover 

the costs for most of their discharges, 

and consequently, the subclause (II) 

LTCH is not projected to experience a 

negative aggregate margin for its 

Medicare discharges, unlike our 

projections under both the current 

LTCH PPS and the forthcoming 

payment changes to the LTCH PPS 

required by section 1206(a) of Public 

Law 113–67. 

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In the above analyses, we evaluated 

the current regulations as well as 

anticipated payment rates under various 

statutorily mandated policies for FY 

2016 on a subclause (II) LTCH under the 

LTCH PPS based on FY 2010 discharge 

data, including payments, costs and 

case-mix. As discussed above, our 

evaluation indicates that, given the 

required patient-mix for a subclause (II) 

LTCH, the forthcoming changes to the 

LTCH PPS are likely to result in a 

financial situation that is not 

sustainable for the subclause (II) LTCH 

evaluated above. Furthermore, our 

analysis also shows that current LTCH 

PPS payments for a subclause (II) LTCH, 

even with taking into account the 

considerations that have been made in 

structuring current LTCH PPS policies 

to acknowledge the uniqueness of a 

subclause (II) LTCH, may not be 

sufficient to cover the costs incurred for 

the treatment of patients of the 

particular medical profile of the 

subclause (II) patient population 

prescribed by the statute. Furthermore, 

we believe that in establishing 

subclause (II) LTCHs, Congress 

endorsed the support of the unique 

mission of this particular category of 

hospital. In fact, while mandating a 

significant revision to the LTCH PPS 

under section 1206(a) of Public Law 

113–67, under section 1206(d) of the 

same statute, Congress directed the 

Secretary to evaluate the impact of the 

LTCH PPS on subclause (II) LTCHs, and, 

based on those findings, authorized the 

Secretary to adjust payment rates and 

other regulations, as appropriate, for 

this category of LTCHs. 

Accordingly, in recognition of the 

subclause (II) LTCH’s current estimated 

payment-to-cost ratio under the LTCH 

PPS and further anticipated losses that 

would likely otherwise occur under the 

forthcoming statutory changes to the 

LTCH PPS, which would render this 

type of specially recognized facility 

fiscally untenable, we believe that it is 

appropriate to exercise the authority 

under section 1206(d)(2) of Public Law 

113–67. Therefore, in this proposed 

rule, for cost reporting periods 

beginning on or after October 1, 2014 

(FY 2015 and beyond), we are proposing 

to apply a payment adjustment to 

subclause (II) LTCH payments under the 

LTCH PPS such that these LTCH PPS 

payments would resemble payments 

made under the reasonable cost-based 

TEFRA payment system. We believe 

that it would be appropriate to apply 

this proposed payment adjustment for a 

subclause (II) LTCH’s first cost reporting 

period beginning on or after October 1, 

2014, rather than discharges occurring 

on or after October 1, 2014, because it 

is consistent with the annual update of 

the hospital-specific limits (ceiling) for 

inpatient operating costs under the 

TEFRA payment system (as described 

below). We are proposing to implement 

this proposed payment adjustment for 

subclause (II) LTCHs in the regulations 

by adding new § 412.526 under 42 CFR 

Part 412, Subpart O. 

Specifically, we are proposing to 

establish new regulations under 

§ 412.526 that would provide that, for 

cost reporting periods beginning on or 

after October 1, 2014, payments to a 

‘‘subclause (II)’’ LTCH that are made 

under the LTCH PPS and under Subpart 

O of Part 412, as adjusted. This adjusted 

payment amount would generally be 

equivalent to an amount determined 

under the reasonable cost-based 

reimbursement rules for both operating 

and capital-related costs under 42 CFR 

Part 413. As described above, Medicare 

payments for inpatient operating costs 

under the reasonable-cost based TEFRA 

payment system are subject to a 

hospital-specific ceiling on payments 

that is determined as the product of a 

hospital’s base year costs per discharge 

(‘‘target amount per discharge’’), 

updated to the current year by a rate-ofincrease percentage, and multiplied by 

the number of its Medicare discharges 

for the year. Medicare allowable 

inpatient capital-related costs are paid 

on a reasonable cost basis, in 

accordance with section 1886(g) of the 

Act. 

Under this proposed payment 

adjustment under new § 412.526 for 

inpatient operating costs, the adjusted 

payment amount would generally be 

determined in accordance with the cited 

provisions of § 413.40. Accordingly, we 

are proposing to establish a ‘‘target 

amount’’ for a subclause (II) LTCH for 

purposes of calculating a hospitalspecific ceiling on payments for 

inpatient operating costs under this 

proposed payment adjustment. We are 

proposing to determine such a target 

amount based on the subclause (II) 

LTCH’s target amount that was used to 

determine its payments for inpatient 

operating costs under the TEFRA 

payment system prior to the 

implementation of the LTCH PPS, 

updated by the TEFRA payment system 

rate-of-increase percentages under 

§ 413.40(c)(3). Furthermore, in 

determining a subclause (II) LTCH’s 

target amount for purposes of this 

proposed payment adjustment, 

consistent with the statute (as explained 

below), we are proposing not to include 

the increases to LTCHs’ TEFRA target 

amounts and caps provided for by 

section 307(a) of the BIPA. As discussed 

previously, prior to the implementation 

of the LTCH PPS, section 307(a) of the 

BIPA provided a 2-percent increase to 

the wage-adjusted 75th percentile cap 

on the TEFRA target amounts for 

existing LTCHs for cost reporting 

periods beginning in FY 2001 and a 25- 

percent increase to the hospital-specific 

TEFRA target amounts for LTCHs, 

subject to the increased 75th percentile 

cap. Section 307(a)(2) of the BIPA also 

specifies that the 2-percent increase to 

the 75th percentile cap and the 25- 

percent increase to the TEFRA target 

amounts were not to be taken into 

account in the development and 

implementation of the LTCH PPS. 

Therefore, consistent with the statutory 

requirement under section 307(a)(2) of 

the BIPA, under new § 412.526, we are 

proposing to determine a subclause (II) 

LTCH’s updated target amount based on 

its FY 2000 TEFRA payment system 

target amount, the year prior to when 

the increases under section 307(a) of the 

BIPA were effective. Using its FY 2000 

TEFRA payment system target amount 

would ensure that the increases 

provided for by section 307(a) of the 

BIPA would not be included in the 

LTCH PPS payments to subclause (II) 

LTCHs under this proposed LTCH PPS 

payment adjustment. This approach for 

excluding those increases to the TEFRA 

payment system target amounts is 

consistent with the methodology that 

was used to develop the one-time 

prospective adjustment to the standard 

Federal rate in which we calculated 

what amount would have been paid 

under the TEFRA payment system had 

the LTCH PPS not been implemented 

(77 FR 53497 through 53500). Therefore, 

under the proposed payment adjustment 

for subclause (II) LTCHs under new 

§ 412.526, we are proposing to 

determine a FY 2015 TEFRA-based 

target amount by updating the subclause 

(II) LTCH’s FY 2000 TEFRA target 

amount using the applicable rate-ofincrease percentages for FYs 2001 

through 2015 established under 

§ 413.40(c)(3). 

In addition to payment for inpatient 

operating costs, the proposed adjusted 

payment amount for subclause (II) 

LTCHs that would be equivalent to an 

amount determined under the 

reasonable cost-based reimbursement 

rules under 42 CFR Part 413 would also 

include payment for inpatient capitalrelated costs. Under the TEFRA 

payment system, in accordance with the 

regulations under 42 CFR Part 413, 

Medicare allowable capital costs are 

paid on a reasonable cost basis, 

consistent with section 1886(g) of the 

Act. Therefore, we are proposing that 

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the payment adjustment to subclause (II) 

LTCHs under new § 412.526 would 

include reasonable cost-based payments 

for capital-related costs. Payments 

under the LTCH PPS encompass both 

inpatient operating and capital-related 

costs of furnishing covered inpatient 

LTCH services, including routine and 

ancillary costs (67 FR 55983). 

Accordingly, under new § 412.526, the 

proposed adjusted payment amount that 

would be equivalent to an amount 

determined under the reasonable costbased reimbursement rules is based only 

on inpatient operating and capitalrelated costs incurred by the subclause 

(II) LTCH for furnishing covered 

inpatient LTCH services, and does not 

include any other TEFRA system 

payment amounts, such as bonus and 

relief payments, continuous 

improvement bonus payments, or 

adjustments to the rate-of-increase 

limits. 

In summary, for cost reporting periods 

beginning on or after October 1, 2014, 

we are proposing that payment to a 

‘‘subclause (II)’’ LTCH be made under 

the LTCH PPS, as adjusted. The 

adjusted payment amount would be 

equivalent to an amount determined 

under the reasonable cost-based 

reimbursement rules for both operating 

and capital-related costs in accordance 

with the cited portions of Part 413. 

Under this proposed payment 

adjustment, Medicare inpatient 

operating costs would be reimbursed on 

a reasonable cost basis, subject to a 

ceiling; that is, an aggregate upper limit 

on the amount of a hospital’s net 

Medicare inpatient operating costs that 

would be recognized for payment 

purposes. For each cost reporting 

period, the ceiling on payments for 

Medicare inpatient operating costs 

would be determined by multiplying the 

updated target amount for that period by 

the number of LTCH PPS discharges 

during that period. For cost reporting 

periods beginning during FY 2015, the 

target amount would be equal to the 

hospital’s target amount determined 

under § 413.40(c)(4) for its cost 

reporting period beginning during FY 

2000, updated by the applicable annual 

rate-of-increase percentages specified in 

§ 413.40(c)(3) to the subject period (that 

is, for FYs 2001 through 2015). For 

subsequent cost reporting periods, the 

target amount would equal the 

hospital’s target amount for the previous 

cost reporting period updated by the 

applicable annual rate-of-increase 

percentage specified in § 413.40(c)(3) for 

the subject cost reporting period. 

Payment for Medicare allowable 

inpatient capital-related costs under this 

proposed payment adjustment would be 

paid on a reasonable cost basis, in 

accordance with the cited portions of 42 

CFR Part 413. We are proposing to 

codify the provisions of this proposed 

payment adjustment to subclause (II) 

LTCHs under new § 412.526 of the 

regulations. In addition, we are 

proposing to make conforming changes 

to § 412.521(a)(2) to refer to this 

proposed payment adjustment under 

new § 412.526. 

I. Description of Statutory Framework 

for Patient-Level Criteria-Based Payment 

Adjustment Under the LTCH PPS Under 

Public Law 113–67 

1. Overview 

In the FY 2014 IPPS/LTCH PPS 

proposed rule (78 FR 27668 through 

27676), we presented a description of 

our research on the development of 

patient-level and facility-level criteria 

for LTCHs and a potential framework for 

developing changes to the LTCH PPS. 

The framework was based on the 

preliminary findings of two projects 

conducted by Kennell and Associates 

(Kennell) and its subcontractor, RTI, 

under the guidance of CMS’ Center for 

Medicare and Medicaid Innovation (the 

Innovation Center). We stated that we 

believed that the findings from these 

projects, in large part, could be used to 

identify the subpopulation of Medicare 

beneficiaries that should form the core 

group of patients under the LTCH PPS 

(that is, a chronically critical ill/

medically ill (CCI/MC) framework for 

the LTCH PPS). Although this research 

was not completed at the time of 

issuance of the FY 2014 IPPS/LTCH PPS 

proposed rule, we solicited feedback 

from LTCH stakeholders in the FY 2014 

IPPS/LTCH PPS proposed rule on the 

description of the interim framework, 

and indicated that any public comments 

submitted would be evaluated and 

considered by our contractors with the 

expectation of formulating a proposal 

for FY 2015 based on this research (78 

FR 27668 through 27676). 

Section 1206(a) of Public Law 113–67 

amended section 1886(m) of the Act by 

adding paragraph (6), which establishes 

patient-level criteria for payments under 

the LTCH PPS for implementation 

beginning in FY 2016. Therefore, our 

prior intention to present a proposal for 

a CCI/MC framework for the LTCH PPS 

(as discussed in the FY 2014 IPPS/LTCH 

PPS proposed and final rules) in this FY 

2015 IPPS/LTCH PPS proposed rule has 

been superseded. Accordingly, we are 

not proposing revisions to the LTCH 

PPS based upon the Kennell/RTI 

framework for FY 2015. Rather, we 

intend to propose to implement the 

requirements established by section 

1206(a) of Public Law 113–67 in the FY 

2016 LTCH PPS rulemaking cycle. (We 

note that the final report on the CCI/MC 

framework developed by Kennell/RTI 

under our research contract is expected 

to be available later this year and will 

be made available to the public through 

a Web site.) 

In section VII.I.2. of the preamble of 

this proposed rule, we summarize the 

statutory provisions of section 1206(a) 

of Public Law 113–67, and in section 

VII.I.3. of the preamble of this proposed 

rule, we discuss several significant 

issues arising from these statutory 

changes to the LTCH PPS, on which we 

are interested in receiving stakeholder 

feedback prior to developing our 

proposals for FY 2016 implementation. 

2. Provisions of Section 1206(a) of 

Public Law 113–67 

Section 1206(a) of Public Law 113–67 

added a new section 1886(m)(6), which 

establishes patient-level clinical criteria 

that must be met in order for a standard 

LTCH PPS payment to be made and 

provides that patients stays that do not 

meet those criteria that will be paid 

based on an adjusted or ‘‘site neutral’’ 

payment rate. The provisions of section 

1206(a) are effective for LTCH 

discharges occurring during cost 

reporting periods beginning on or after 

October 1, 2015 (FY 2016). 

Specifically, the patient-level clinical 

criteria that must be met in order for a 

standard LTCH PPS payment to be made 

under section 1886(m)(6) of the Act, as 

added by section 1206(a) of Public Law 

113–67, are that: 

• The stay in the LTCH is 

immediately preceded by a discharge 

from an acute care hospital that 

included at least 3 days in an intensive 

care unit (ICU); or the stay in the LTCH 

is immediately preceded by a discharge 

from an acute care hospital and the 

patient’s LTCH stay was assigned to an 

MS–LTC–DRG based on the receipt of 

ventilator services of at least 96 hours; 

and 

• The LTCH discharge does not have 

a principal diagnosis relating to a 

psychiatric diagnosis or to 

rehabilitation. 

Section 1886(m)(6)(A) of the Act, as 

added by section 1206(a) of Public Law 

113–67, specifies that payments for 

LTCH discharges that do not meet the 

clinical criteria will be made at the 

applicable ‘‘site neutral payment rate.’’ 

The statute defines ‘‘site neutral 

payment rate’’ as the lower of the ‘‘IPPS 

comparable’’ amount or 100 percent of 

the ‘‘estimated cost’’ of the case. The 

‘‘IPPS comparable’’ amount, which the 

statute specifies is calculated based on 

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the methodology applied under the 

short stay outlier (SSO) policy at 42 CFR 

412.529(d)(4), is an amount comparable 

to the hospital inpatient prospective 

payment system per diem capped at an 

amount comparable to the full MS–DRG 

payment rate, including any applicable 

outlier payments under § 412.525. We 

expect to propose calculating the ‘‘cost 

of the case,’’ as specified in the 

regulations at § 412.529(d)(2), by 

multiplying the applicable hospitalspecific CCR by the Medicare allowable 

charges for a case, consistent with how 

we currently estimate the cost of the 

case under both the SSO and high-cost 

outlier policies. 

Section 1886(m)(6)(B) of the Act also 

requires a phase-in of this payment 

policy change under the LTCH PPS over 

2 years. Therefore, for LTCH discharges 

occurring in cost reporting periods 

during FYs 2016 and 2017 that do not 

meet the patient level clinical criteria, 

the total payment amount for LTCH 

services will be based on one-half of the 

calculated ‘‘site neutral’’ payment rate 

and one-half of the standard LTCH PPS 

payment rate. The full payment 

adjustment based on the requirements of 

Public Law 113–67 will begin to effect 

payments to LTCHs and LTCH satellite 

facilities for discharges beginning with 

LTCHs’ and LTCH satellite facilities’ FY 

2018 cost reporting period. Therefore, 

for cost reporting periods beginning 

during FY 2018, LTCHs will be paid the 

standard LTCH PPS payment amount 

only for LTCH discharges that meet the 

statutory clinical criteria under section 

1886(m)(6) of the Act. LTCH discharges 

that do not meet the clinical criteria will 

be paid based on the ‘‘site neutral’’ 

payment rate. 

Section 1886(m)(6)(C) of the Act, as 

added by section 1206(a)(1) of Public 

Law 113–67, also includes a limit on 

payments for all hospital discharges 

occurring in cost reporting periods 

during or after FY 2021 if a hospital fails 

to meet the applicable LTCH discharge 

threshold. In anticipation of this limit 

on payments, section 1886(m)(6)(C)(i) of 

the Act specifies that, for cost reporting 

periods beginning on or after October 1, 

2015 (FY 2016), the Secretary is 

required to notify each LTCH of its 

‘‘discharge payment percentage,’’ which 

is defined under section 

1886(m)(6)(C)(iv) of the Act as the 

percentage resulting from the ratio of 

the LTCH’s discharges paid based on the 

standard LTCH PPS payment amount to 

the LTCH’s total discharges for each cost 

reporting period. 

Section 1886(m)(6)(C)(ii) of the Act 

specifies that, for cost reporting periods 

during or after FY 2020, the Secretary is 

required to provide notice to LTCHs 

with a ‘‘discharge payment percentage’’ 

that indicates that the LTCH does not 

meet the ‘‘at least 50 percent’’ threshold. 

An LTCH that does not meet the 

required threshold for a cost reporting 

period in FY 2020 will be paid for 

services as if the hospital were an acute 

care hospital until such time as that 

facility is reinstated under section 

1886(m)(6)(C)(iii) of the Act. 

Specifically, section 1886(m)(6)(C)(ii) of 

the Act provides that LTCHs that are 

determined to be treating a Medicare 

population with less than 50 percent of 

patients for whom a standard LTCH PPS 

payment is made, that is, LTCHs for 

whom 50 percent or more Medicare 

beneficiary discharges are paid at the 

‘‘site neutral’’ payment rate will receive 

‘‘. . . the payment amount that would 

apply under subsection (d) for all 

discharges as if the hospital were a 

subsection (d) hospital.’’ In other words, 

LTCHs failing to meet the applicable 

discharge threshold will be paid an IPPS 

equivalent payment rate. 

Section 1886(m)(6)(C)(iii) of the Act 

provides that the Secretary is authorized 

to establish a ‘‘reinstatement’’ process 

through which an LTCH that fails to 

meet the required discharge threshold 

percentage can be ‘‘reinstated’’ and 

resume receiving payments under the 

new payment policy for LTCH services 

established by section 1206(a)(1) of 

Public Law 113–67, that is, standard 

LTCH PPS payments or ‘‘site neutral’’ 

payments, as applicable. 

Section 1886(m)(6)(D) of the Act, as 

added by section 1206(a)(1) of Public 

Law 113–67, specifies that subsection 

(d) hospitals in Puerto Rico are deemed 

to be included in any reference in 

section 1886(m) of the Act to a 

subsection (d) hospital. 

Section 1206(a)(3) of Public Law 113– 

67 revised the existing policy for 

calculating whether an LTCH or LTCH 

satellite facility meets the greater than 

25-day average length of stay 

requirement in sections 

1886(d)(1)(B)(iv)(I) and 1861(ccc)(2) of 

the Act, which is implemented in the 

regulations at § 412.23(e)(2) and (e)(3). 

Specifically, section 1206(a)(3) provides 

that cases for which Medicare paid the 

provider under the ‘‘site neutral’’ rate, 

as well as any paid under a Medicare 

Advantage plan (that is, Medicare Part 

C) shall be excluded from the 

calculations of the average length of stay 

of an LTCH or an LTCH satellite facility. 

LTCHs that had not attained their LTCH 

designation by December 10, 2013, are 

exempt from this statutorily mandated 

change. 

As previously stated, section 

1206(a)(1) of Pub. L 113–67 provides for 

‘‘site neutral’’ payments to an LTCH for 

certain specified patient discharges 

effective for discharges occurring in cost 

reporting periods beginning on or after 

October 1, 2015. We intend to propose 

the specific policy and payment changes 

that will be necessary to implement the 

Public Law 113–67 provisions for cost 

reporting periods beginning on or after 

October 1, 2015, during the FY 2016 

rulemaking cycle. Although we are not 

proposing the changes mandated by 

section 1206(a)(1) of Public Law 113–67 

in this proposed rule, in light of the 

degree of forthcoming changes, in 

section VII.I.3. we discuss some of the 

changes in this proposed rule, and 

request public feedback to inform our 

proposals for FY 2016. 

3. Additional LTCH PPS Issues 

The LTCH PPS was originally 

established for cost reporting periods 

beginning on or after October 1, 2002, 

by section 123(a) of the BBRA (Pub. L. 

106–113) and section 307(b) of the BIPA 

(Pub. L. 106–554). (We also refer readers 

to section 1886(m) of the Act, as added 

by section 114(e) of the MMSEA.) 

Section 307(b) of the BIPA granted the 

Secretary considerable authority in 

developing the LTCH PPS, specifying 

that the Secretary shall ‘‘. . . examine 

and may provide for appropriate 

adjustments to the long-term hospital 

payment system, including adjustments 

to DRG weights, area wage adjustments, 

geographic reclassification, outliers, 

updates, and a disproportionate share 

adjustment. . . .’’ 

Accordingly, as we evaluate the 

revisions to the LTCH PPS required by 

section 1206(a)(1) of Public Law 113–67, 

we believe that the broad authority 

permitted by the original statutory 

mandates continues to grant us the 

authority to modify, if appropriate, 

methodologies for our payment 

determinations under the LTCH PPS. 

(We refer readers to the RY 2003 LTCH 

PPS final rule (67 FR 55954), which 

describes the development and 

implementation of the LTCH PPS for FY 

2003.) Specifically, section 1206(a) of 

Public Law 113–67 establishes two 

distinct payment groups for LTCH 

discharges under the revised system: 

discharges meeting specified patientlevel criteria that will be paid under the 

‘‘standard LTCH PPS payment amount’’ 

and all other patient discharges that will 

be paid under the ‘‘site neutral’’ 

payment rate and methodology 

(discussed above). In setting the 

payment rates and factors under the 

LTCH PPS as required by section 

1206(a) of Public Law 113–67 for certain 

LTCH PPS payment adjustments, such 

as the MS–LTC–DRG relative weights 

and high-cost outlier payments, we plan 

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to evaluate whether it would be 

appropriate to modify our historical 

methodology to account for the 

establishment of the two distinct 

payment methodologies for LTCHs. For 

example, we intend to examine 

whether, beginning in FY 2016, it is still 

appropriate to include data for all LTCH 

PPS cases, including ‘‘site neutral’’ 

payment cases, in our methodology for 

setting relative payment weights for 

MS–LTC–DRGs. We also intend to 

explore the need for changes to the 

LTCH PPS high-cost outlier payment 

policies. Given the fact that, for a 

number of LTCH patients, payment will 

be made based on the lower of the ‘‘IPPS 

comparable’’ per diem payment and the 

estimated cost of the case, we will need 

to decide whether to maintain a single 

high-cost outlier ‘‘target’’ for all LTCH 

PPS cases (including ‘‘site neutral’’ 

payment cases) or whether it may be 

more appropriate to establish separate 

high-cost outlier ‘‘targets’’ for each of 

the two payment groups under the 

revised LTCH PPS. Our existing 

methodology for calculating the MS– 

LTC–DRG relative weights is discussed 

during the annual rulemaking cycle and 

was, most recently, included in the FY 

2014 IPPS/LTCH final rule (78 FR 50753 

through 50760). Our detailed 

description of our existing high-cost 

outlier payment policy, which has 

remained the same since being 

implemented, can be found in the RY 

2003 LTCH PPS final rule (67 FR 56022 

through 56027). (We note that our 

proposed methodology for calculating 

the MS–LTC–DRG relative payment 

weights for FY 2015 can be found in 

section VII.B.3. of the preamble of this 

proposed rule, and our proposals under 

the high-cost outlier payment policy for 

FY 2015 can be found in section V.D. of 

the Addendum to this proposed rule.) 

We are interested in receiving 

feedback from LTCH stakeholders on 

our plans to evaluate whether it would 

be appropriate to modify any of our 

historical methodologies as we 

implement the payment changes to the 

LTCH PPS under section 1206(a) of 

Public Law 113–67. In particular, we are 

interested in public feedback on the 

issues mentioned earlier (that is, 

policies relating to establishing the 

relative payment weights and high-cost 

outliers) so that we may evaluate 

various options in preparation for 

developing proposals to implement the 

statutory changes beginning in FY 2016. 

J. Proposed Technical Change 

In this proposed rule, we are 

proposing to update the legislative basis 

for the regulations governing the LTCH 

PPS under Subpart O of Part 412. 

Specifically, we are proposing to add 

references under new paragraphs (a)(4), 

(a)(5), and (a)(6) of § 412.500 of the 

regulations to the revisions to the Act 

made by section 4302(a) of Public Law 

111–5, sections 3106(a) and 10312(a) of 

Public Law 111–148, and section 1206 

of Public Law 113–67, respectively. 

VIII. Appropriate Claims in Provider 

Cost Reports; Administrative Appeals 

by Providers and Judicial Review 

In this proposed rule, we are 

proposing to revise the cost reporting 

regulations in 42 CFR Part 413, Subpart 

B by requiring a provider to include an 

appropriate claim for a specific item in 

its Medicare cost report in order to 

receive or potentially qualify for 

Medicare payment for the specific item. 

If the provider’s cost report does not 

include an appropriate claim for a 

specific item, payment for the item will 

not be included in the notice of program 

reimbursement (NPR) issued by the 

Medicare Administrative Contractor 

(MAC) (formerly known as fiscal 

intermediary and herein referred to as 

‘‘contractor’’) or in any decision or order 

issued by a reviewing entity (as defined 

in 42 CFR 405.1801(a) of the 

regulations) in an administrative appeal 

filed by the provider. In addition, we are 

proposing to revise the appeals 

regulations in 42 CFR Part 405, Subpart 

R, by eliminating the requirement that a 

provider must include an appropriate 

claim for a specific item in its cost 

report in order to meet the 

dissatisfaction requirement for 

jurisdiction before the Provider 

Reimbursement Review Board (Board), 

and by specifying the procedures for 

Board review of whether the provider’s 

cost report meets the proposed 

substantive reimbursement requirement 

of an appropriate cost report claim for 

a specific item. We also are proposing 

technical revisions to other Board 

appeal regulations to conform those 

regulations to the main revisions 

(described above) to the cost reporting 

regulations and the provider appeal 

regulations, in addition to proposing 

similar revisions to the Part 405, 

Subpart R regulations for appeals before 

the contractor hearing officers. In 

addition, we are proposing to conform 

the terminology in Part 405, Subpart R 

and all subparts of Part 413 from 

‘‘intermediary’’ or ‘‘fiscal intermediary’’ 

to ‘‘contractor’’ pursuant to sections 

1816, 1874A and 1878 of the Act. All of 

these proposed revisions to the cost 

reporting regulations and the provider 

appeals regulations would apply to 

provider cost reporting periods 

beginning on or after the effective date 

of the final IPPS annual update rule. 

A. Background 

1. Payments and Cost Reporting 

Requirements 

For cost reporting years beginning 

before October 1, 1983, all providers 

were reimbursed on a reasonable cost 

basis for Part A (hospital insurance) 

covered items and services that were 

furnished to Medicare beneficiaries. 

Reasonable cost is defined at section 

1861(v)(1)(A) of the Act and 

implementing regulations at 42 CFR Part 

413. In the Social Security Amendments 

of 1983 (Pub. L. 98–21), Congress added 

section 1886(d) to the Act, which, 

effective with cost reporting periods 

beginning on or after October 1, 1983, 

changed the payment method for 

inpatient hospital services furnished by 

short-term acute care hospitals to a 

prospective payment system (PPS). In 

accordance with section 1886(d) of the 

Act and implementing regulations at 42 

CFR Part 412, a PPS payment is made 

at a predetermined specific rate for each 

hospital discharge (classified according 

to a list of diagnosis-related groups 

(DRGs)), excluding certain costs that are 

paid on a reasonable cost basis. 

Later statutory amendments expanded 

the types of providers and services that 

are subject to a PPS. The various 

prospective payment systems for 

inpatient hospital services are 

summarized in § 412.1 of the 

regulations. Other prospective payment 

systems for different types of providers 

and services are summarized in 

§§ 413.170, 413.300, 413.330, and 419.1 

of the regulations. As explained in 

§ 413.1(b) of the regulations, if a service 

is not subject to a PPS when it is 

furnished, the provider is paid on the 

basis of reasonable cost. (For ease of 

reference, we will use the terms 

‘‘reimbursement’’ and ‘‘payment’’ 

interchangeably unless a particular 

context calls for the use of one of these 

terms instead of the other.) 

Before October 1, 2005, payments to 

providers were ordinarily made through 

private organizations known as fiscal 

intermediaries, under contracts with the 

Secretary. After a 6-year transition 

period (§ 421.400(a)), the claims 

processing and payment functions of the 

fiscal intermediaries are now performed 

by MACs, under contracts with the 

Secretary. 

For covered items and services paid 

on a reasonable cost basis, the 

contractor pays a provider during its 

cost reporting period interim payments 

that approximate the provider’s actual 

costs. Under a PPS, providers are 

generally paid for each patient discharge 

after a bill is submitted. 

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Sections 1815(a) and 1833(e) of the 

Act provide that no payments will be 

made to a provider unless it has 

furnished the information, requested by 

the Secretary, needed to determine the 

amount of payments due the provider 

under the Medicare program. In general, 

providers submit this information 

through annual cost reports that cover a 

12-month period of time. 

All providers participating in the 

Medicare program are required under 

§ 413.20(a) to ‘‘maintain sufficient 

financial records and statistical data for 

proper determination of costs.’’ 

Moreover, providers must use 

standardized definitions and follow 

accounting, statistical, and reporting 

practices that are widely accepted in the 

hospital and related fields. Under the 

provisions of §§ 413.20(b) and 413.24(f), 

providers are required to submit cost 

reports annually, with the reporting 

period based on the provider’s 

accounting year. For cost years 

beginning on or after October 1, 1989, 

section 1886(f)(1) of the Act and 

§ 413.24(f)(4) of the regulations require 

hospitals to submit cost reports in a 

standardized electronic format, and the 

same requirement was later imposed for 

other types of providers. In addition, 

§ 412.52 of the regulations requires all 

PPS hospitals to meet the recordkeeping 

and cost reporting requirements of 

§§ 413.20 and 413.24, which include 

submitting a cost report for each 12- 

month period. 

2. Administrative Appeals by Providers 

and Judicial Review 

Upon receipt of a provider’s cost 

report, the contractor reviews or audits 

the cost report, makes any necessary 

adjustments to the provider’s Medicare 

reimbursement for the cost reporting 

period, and finally determines the total 

amount of payment due the provider. 

This year-end reconciliation of 

Medicare payment for the provider’s 

cost reporting period constitutes a 

contractor determination, as defined in 

§ 405.1801(a). Under §§ 405.1801(a)(1), 

(2) and 405.1803, the contractor must 

give the provider written notice of the 

final contractor determination for the 

cost period in a notice of the total 

amount of program reimbursement 

(NPR). The NPR is an appealable 

determination, and the contractor 

determination is final and binding 

unless it is revised on appeal or 

reopening (§ 405.1807). 

Under section 1878(a) of the Act, a 

provider that has submitted a timely 

cost report may appeal to the Provider 

Reimbursement Review Board (the 

Board) a final determination of program 

reimbursement made by a contractor, as 

well as certain final determinations by 

the Secretary involving payment under 

the IPPS. The Secretary’s delegate, the 

Administrator of CMS, may review 

certain Board decisions under section 

1878(f)(1) of the Act and § 405.1875 of 

the regulations. The final decision of the 

Board or the Administrator is subject to 

judicial review under section 1878(f)(1) 

of the Act and § 405.1877 of the 

regulations. In addition, by regulation, 

providers are given the right to appeal 

to the Board or to contractor hearing 

officers certain other determinations. A 

CMS reviewing official may review 

some contractor hearing officer 

decisions under § 405.1834 of the 

regulations, but there is no judicial 

review of decisions by contractor 

hearing officers or a CMS reviewing 

official. 

Under sections 1878(a)(1)(A), (a)(2), 

and (a)(3) of the Act, and 

§ 405.1835(a)(1), (a)(2), and (a)(3)(i) of 

the regulations, a provider may obtain a 

Board hearing if: (1) the provider is 

‘‘dissatisfied’’ with a final determination 

of the contractor [formerly intermediary] 

or the Secretary; (2) the amount in 

controversy is at least $10,000; and (3) 

the provider files a request for a hearing 

to the Board within 180 days of notice 

of the final determination of the 

contractor or the Secretary. The same 

jurisdictional requirements govern 

provider appeals to contractor hearing 

officers under § 405.1811(a)(1), (a)(2), 

and (a)(3)(i) of the regulations, except 

that the amount in controversy 

requirement is at least $1,000 but less 

than $10,000. 

However, the statutory requirements 

for Board jurisdiction are somewhat 

different if the provider does not receive 

a final determination of the contractor 

on a timely basis. Under sections 

1878(a)(1)(B), (a)(2), and (a)(3) of the 

Act, a provider may obtain a Board 

hearing if: (1) The provider does not 

receive a final determination of the 

contractor on a timely basis, after the 

provider filed a cost report that 

complied with the cost reporting 

regulations; (2) the amount in 

controversy is at least $10,000; and (3) 

the provider files a request for a hearing 

to the Board within 180 days after 

notice of the contractor’s final 

determination would have been 

received if such contractor 

determination had been issued on a 

timely basis. Moreover, 

§ 405.1835(a)(3)(ii) of the regulations 

provides that a contractor determination 

is not timely if it is not issued, through 

no fault of the provider, within 12 

months of the contractor’s receipt of the 

provider’s perfected cost report or 

amended cost report (as specified in 

§ 413.24(f) of the regulations). The same 

jurisdictional requirements govern 

provider appeals to contractor hearing 

officers, based on an untimely 

contractor determination, under 

§ 405.1811(a), except that the amount in 

controversy requirement is at least 

$1,000 but less than $10,000. 

3. Appropriate Claims in Provider Cost 

Reports 

Under longstanding Medicare policy 

as set forth in § 413.24 of the regulations 

and section 115 of the Provider 

Reimbursement Manual (PRM), Part 2 

(CMS Pub. 15–2), a provider must make 

an appropriate cost report claim for a 

specific item in order to be reimbursed 

for the item, whether through the NPR 

issued by the contractor or as the result 

of an administrative appeal or judicial 

review. For example, as set forth in 

§ 413.24, providers receiving payment 

on the basis of reimbursable cost are 

required to provide adequate cost data 

to the contractor to support payments 

made for services furnished to 

beneficiaries. In addition, as set forth in 

section 115 of the PRM, Part 2, we also 

require that providers make a specific 

claim for an item in its cost report, in 

order to meet the dissatisfaction 

requirement for Board jurisdiction. The 

Medicare cost report has always 

included particular ‘‘lines’’ for specific 

allowable costs such as interest expense 

and depreciation. If a provider makes a 

cost report claim for a cost that is 

allowable, and reimbursement is 

claimed in accordance with Medicare 

payment policy, the NPR will include 

appropriate reimbursement for the cost. 

(For ease of reference, we will use the 

terms ‘‘specific item’’ or ‘‘item’’ to refer 

to a particular aspect of reasonable costbased payment or a specific aspect of 

payment under a prospective payment 

system unless a particular context calls 

for the use of more specific terms (for 

example, the term ‘‘allowable cost’’ as 

used in determining reasonable costbased payment).) 

If the NPR does not include 

reimbursement for a specific item or if 

the provider believes it should have 

received more reimbursement for the 

item, the provider can request a hearing 

before the Board or the contractor 

hearing officers (if the amount in 

controversy is at least $1,000 but less 

than $10,000). However, our 

longstanding policy is that an 

appropriate cost report claim is a 

jurisdictional requirement for an appeal 

to the Board or the contractor hearing 

officers. As explained above, section 

1878(a)(1)(A) of the Act provides for a 

hearing before the Board if the provider 

has filed a timely cost report with the 

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contractor, and the provider is 

‘‘dissatisfied’’ with a final determination 

of the contractor or the Secretary. Our 

view has been that, in order for a 

provider to be dissatisfied with a 

specific aspect of the contractor 

determination, the provider must 

include an appropriate cost report claim 

for the specific item so that the 

contractor can respond to the provider’s 

claim in the NPR and thereby 

potentially produce a specific 

reimbursement result about which the 

provider is dissatisfied. 

Under our policy for Board 

jurisdiction, we required a provider to 

make a specific claim for an item in its 

cost report, in order to meet the 

dissatisfaction requirement for Board 

jurisdiction. We did not permit a 

provider to ‘‘self-disallow’’ a specific 

item, even if the Medicare contractor 

had no discretion to award payment for 

the item. (In self-disallowing an item, 

the provider submits a cost report that 

complies with Medicare policy for the 

item and then appeals the item to the 

Board; the contractor’s NPR then would 

not include any disallowance of the 

item, and therefore the provider would 

effectively self-disallow the item.) 

However, the Supreme Court rejected 

our longstanding policy in Bethesda 

Hospital Association v. Bowen, 485 U.S. 

399 (1988). The Court held that, despite 

the providers’ failure to claim all the 

reimbursement they believed should 

have been made, the plain language of 

the dissatisfaction requirement in 

section 1878(a)(1)(A) of the Act 

supported Board jurisdiction because 

the contractor had no authority to award 

reimbursement in excess of a regulation 

by which it was bound, and thus it 

would have been futile for the providers 

to try to persuade the contractor 

otherwise. The Court also stated in 

dicta, however, that the dissatisfaction 

requirement might not be met if 

providers were to ‘‘bypass a clearly 

prescribed exhaustion requirement or 

. . . fail to request from the 

intermediary reimbursement for all 

costs to which they are entitled under 

applicable rules’’ (Bethesda Hosp., 485 

U.S. at 404–05). 

Following the Bethesda decision, we 

no longer required providers to make a 

cost report claim for reimbursement of 

items for which the contractor did not 

have the discretion to award payment 

due to a regulation or manual provision 

but, consistent with the dicta in 

Bethesda, we continued to require 

providers to include cost report claims 

for allowable costs. However, our 

policy, as revised in response to 

Bethesda, was also challenged in the 

courts, and a ‘‘circuit split’’ resulted. 

Compare Little Co. of Mary Hosp. v. 

Shalala, 165 F.3d 1162 (7th Cir. 1999) 

(sustaining our interpretation of the 

statutory dissatisfaction requirement for 

Board jurisdiction) with Loma Linda 

Univ. Med. Ctr. v. Leavitt, 492 F.3d 1065 

(9th Cir. 2007) (rejecting our 

interpretation of the dissatisfaction 

requirement); Maine General Med. Ctr. 

v. Shalala, 205 F.3d 493 (1st Cir. 2000) 

(same). 

In response to the Supreme Court’s 

Bethesda decision and the ensuing 

circuit split, we then addressed the 

dissatisfaction requirement in notice 

and comment rulemaking. In a 2008 

final rule, we revised § 405.1811(a)(1) 

and § 405.1835(a)(1) for contractor and 

Board hearings, respectively (73 FR 

30190, 30195 through 30200, 30244 

through 30245, 30249 through 30250 

(May 23, 2008)). Under the revised 

regulations, in order to preserve its 

appeal rights, a provider must either 

claim an item in its cost report where it 

is seeking reimbursement that it 

believes to be in accordance with 

Medicare policy, or self-disallow the 

item if it is seeking reimbursement that 

it believes may not comport with 

Medicare policy (for example, where the 

contractor does not have the discretion 

to award the reimbursement sought by 

the provider). In order to self-disallow 

an item, the provider must follow the 

applicable procedures for filing a cost 

report under protest, which are 

contained currently in section 115 of the 

PRM, Part 2. 

As explained in the preamble to the 

2008 final rule, we believe the revised 

dissatisfaction policy set forth in 

§ 405.1835(a)(1) is a reasonable 

interpretation of the dissatisfaction 

requirement for Board jurisdiction in 

section 1878(a)(1)(A) of the Act (73 FR 

30195 through 30200). The 

dissatisfaction requirement in 

§ 405.1835(a)(1) comports with the 

Supreme Court’s statement (discussed 

above) that the statutory dissatisfaction 

requirement might not be met if a 

provider bypassed a clearly prescribed 

exhaustion requirement or failed to ask 

the contractor for reimbursement of all 

costs to which it is entitled under 

applicable rules. (Bethesda Hosp., 485 

U.S. at 404–05; Little Co. of Mary, 165 

F.3d 1162 (sustaining our interpretation 

of the statutory dissatisfaction 

requirement for Board jurisdiction on 

the basis of the forgoing statements by 

the Supreme Court); Little Co. of Mary 

Hosp. v. Shalala, 24 F.3d 984 (7th Cir. 

1994) (same). 

Upon further reflection, however, we 

believe that the requirement that a 

provider either claim reimbursement for 

a specific cost, or expressly selfdisallow the cost, in its cost report is 

more appropriately treated as a cost 

reporting requirement under sections 

1815(a) and 1833(e) of the Act, as the 

agency cannot make payments to a 

provider without sufficient information 

on all claims for which the provider 

believes it should be paid. Indeed, it is 

eminently reasonable for the Secretary 

to require a provider to make an 

appropriate cost report claim for a 

specific item if the provider wants to be 

paid for the item. As we explain in 

detail in the next section, requiring a 

cost report claim for full reimbursement 

or an express self-disallowance of the 

cost enables the contractor to review 

and audit the claim, make any 

adjustments that seem appropriate, and 

include final payment for the cost as 

part of the NPR. Accordingly, we are 

proposing to revise the cost reporting 

regulations in Part 413, Subpart B by 

adding the substantive reimbursement 

requirement that a provider must 

include an appropriate claim for an item 

in its cost report. The failure to account 

appropriately for the item in its cost 

report will foreclose payment for the 

item in the NPR issued by the contractor 

and in any decision, order, or other 

action by a reviewing entity (as defined 

in § 405.1801(a) of the regulations) in an 

administrative appeal filed by the 

provider. 

However, we recognize that the 

proposed addition to the cost reporting 

regulations of the substantive 

reimbursement requirement of an 

appropriate cost report claim for a 

specific item would be potentially 

duplicative of the existing jurisdictional 

requirement in the Board appeals 

regulations of an appropriate cost report 

claim. In order to avoid such 

duplication, we also are proposing to 

revise the appeals regulations in Part 

405, Subpart R by eliminating the 

requirement that a provider must 

include an appropriate claim for an item 

in its cost report in order to meet the 

dissatisfaction requirement for Board 

jurisdiction. Our longstanding 

requirement of an appropriate cost 

report claim would be made a 

substantive reimbursement requirement 

in the cost reporting regulations and the 

existing Board jurisdiction requirement 

of an appropriate cost report claim 

would be eliminated. These proposed 

revisions to the cost reporting 

regulations and the provider appeals 

regulations would apply on a 

prospective-only basis, to provider cost 

reporting periods beginning on or after 

the effective date of the final IPPS 

annual update rule. 

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B. Proposed Changes Regarding the 

Claims Required in Provider Cost 

Reports, and for Provider 

Administrative Appeals 

1. Proposed Addition to the Cost 

Reporting Regulations of the 

Substantive Reimbursement 

Requirement of an Appropriate Cost 

Report Claim 

a. Specific Provisions of Proposed 

Paragraph (j) of § 413.24 

We are proposing to add a new 

paragraph (j) to § 413.24 of the 

regulations. Proposed paragraph (j)(1) of 

§ 413.24 provides that in order to 

receive or potentially qualify for 

payment for a specific item, the 

provider must include in its cost report 

an appropriate claim for the specific 

item. In order to make an appropriate 

claim for an item in its cost report, the 

provider must either claim payment for 

the item in its cost report where it is 

seeking payment that it believes is 

consistent with Medicare policy, or selfdisallow the item if the provider is 

seeking payment that it believes may 

not comport with Medicare policy (for 

example, where the contractor does not 

have the authority or discretion to 

award the payment sought by the 

provider). In order to self-disallow a 

specific item, the provider would have 

to follow the applicable procedures for 

filing a cost report under protest, which 

are now contained in section 115 of the 

PRM, Part 2 and are included in 

proposed paragraph (j)(2) of § 413.24. 

Specifically, the provider would have to 

include an estimated payment amount 

for each self-disallowed item in the 

‘‘protested amount’’ line of the cost 

report, and attach a worksheet 

explaining why a self-disallowance is 

necessary (instead of claiming payment 

for the item in its cost report) and 

describing how it determined the 

estimated payment amount for each selfdisallowed item. 

Proposed paragraph (j)(3) of § 413.24 

specifies the procedures for determining 

whether there is an appropriate cost 

report claim for a specific item. The 

default rule is that the question of 

whether the provider’s cost report 

includes an appropriate claim for the 

specific item must be determined by 

reference to the cost report that the 

provider submits originally to, and is 

accepted by, the contractor, unless one 

of three exceptions applies. The first 

exception is that if the provider submits 

an amended cost report that is accepted 

by the contractor, the question of 

whether there is an appropriate cost 

report claim for the specific item must 

be determined by reference to such 

amended cost report, unless one of the 

two remaining exceptions applies. The 

second exception is that if the 

contractor adjusts the provider’s cost 

report, as submitted originally by the 

provider and accepted by the contractor 

or as amended by the provider and 

accepted by the contractor, whichever is 

applicable, with respect to the specific 

item, the question of whether there is an 

appropriate cost report claim for the 

specific item must be determined by 

reference to the provider’s cost report, 

as such cost report is adjusted for the 

specific item in the contractor’s initial 

determination (as defined in 

§ 405.1801(a)), unless the remaining 

exception applies. The third exception 

is that if the contractor reopens either 

the initial contractor determination for 

the provider’s cost reporting period 

(pursuant to § 405.1885) or a revised 

contractor determination for such 

period (issued pursuant to § 405.1889) 

and adjusts the provider’s cost report 

with respect to the specific item, the 

question of whether there is an 

appropriate cost report claim for the 

specific item must be determined by 

reference to the provider’s cost report, 

as such cost report is adjusted for the 

specific item in the contractor’s most 

recent revised contractor determination 

for such period. 

Providers should make every effort to 

comply with the default rule set forth in 

proposed paragraph (j)(3) of § 413.24, 

even though one of the exceptions to the 

default rule might come into play later. 

In order to ensure compliance with the 

substantive requirement of an 

appropriate cost report claim for a 

specific item, the provider should either 

claim full payment for, or properly selfdisallow, the item in the cost report that 

the provider submits originally to the 

contractor. However, failure to include 

an appropriate claim for the specific 

item in the provider’s original ‘‘as 

submitted’’ cost report does not 

necessarily foreclose any further 

opportunity to meet the requirement of 

an appropriate cost report claim for the 

specific item. Under the first exception 

to the default rule under proposed 

paragraph (j)(3), the provider could 

include an appropriate cost report claim 

for the specific item in an amended cost 

report, but the contractor has discretion 

whether to accept an amended cost 

report by the provider. Under the 

second and third exceptions to the 

default rule under proposed paragraph 

(j)(3), the requirement of an appropriate 

cost report claim could be met through 

the contractor’s adjustment of the 

provider’s cost report, either in the 

contractor’s initial determination for the 

provider’s cost reporting period (as 

defined in § 405.1801(a)) or, if the initial 

contractor determination is reopened, in 

the contractor’s revised determination. 

However, in preparing the initial 

contractor determination for a 

provider’s cost reporting period, the 

contractor has discretion whether to 

adjust the provider’s cost report with 

respect to the specific item and, if so, 

how to adjust the cost report for such 

item. Similarly, after the initial 

contractor determination is issued, the 

contractor has discretion whether to 

reopen the initial contractor 

determination and, if the specific item 

is reopened, whether to adjust the cost 

report for such item and how to make 

any such adjustment. 

In order to exemplify the workings of 

proposed paragraph (j)(3) of § 413.24, 

consider a hospital that seeks a 

Medicare DSH payment adjustment that, 

on the provider’s view, should be 

calculated on the basis of 2,000 

Medicaid eligible patient days in the 

numerator of the DSH Medicaid fraction 

(42 CFR 412.106(b)(4)). If the hospital’s 

as submitted cost report claimed only 

1,000 Medicaid eligible patient days for 

the numerator of the DSH Medicaid 

fraction, and the number of Medicaid 

eligible patient days was not changed in 

an amended cost report by the provider 

or through adjustments to the cost 

report by the contractor, the hospital 

would have made an appropriate cost 

report claim for only 1,000 Medicaid 

eligible patient days (instead of 2,000 

such days). However, if the provider 

submitted, and the contractor accepted, 

an amended cost report that claimed a 

total of 1,500 Medicaid eligible patient 

days, the provider would have made a 

valid cost report claim for 1,500 

Medicaid eligible patient days (instead 

of 2,000 such days). However, if the 

hospital asked the contractor, during the 

contractor’s review and settlement of 

the provider’s cost report, to count 250 

more Medicaid eligible patient days, 

and the contractor agreed to consider 

those days in the contractor’s initial 

intermediary determination, the 

provider would have made a valid cost 

report claim of 1,750 Medicaid eligible 

patient days (instead of 2,000 such 

days). Finally, if the provider next 

requested, or the contractor initiated on 

its own motion, the reopening of the 

initial contractor determination on the 

specific issue of the number of Medicaid 

eligible patient days for the DSH 

Medicaid fraction’s numerator, and the 

contractor did reopen for that specific 

issue, the provider would have a valid 

cost report claim of 2,000 Medicaid 

eligible patient days. At that juncture, 

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the hospital would have met the 

requirement of an appropriate cost 

report claim for all of the 2,000 

Medicaid eligible patient days, which is 

the number of such days that the 

provider believed from the outset 

should be used in determining the 

numerator of the DSH Medicaid 

fraction. 

We believe proposed paragraph (j)(3) 

of § 413.24 appropriately reflects the 

usual process in which a cost report 

claim that is first made in the cost report 

that is submitted originally to, and 

accepted by, the contractor, might be 

altered through an amended cost report 

by the provider (if the amended cost 

report is accepted by the contractor) or 

through adjustments of the provider’s 

cost report claim that are made in the 

contractor’s initial determination or, in 

the event of a reopening, in the 

contractor’s revised determination. This 

process enables a provider to ensure 

compliance with the substantive 

requirement of an appropriate cost 

report claim for a specific item, by 

including in the cost report that the 

provider submits originally to, and is 

accepted by, the contractor, either a full 

claim for payment for a specific item or 

a proper self-disallowance of the item. 

In addition, this process gives a 

provider additional opportunities to 

meet the requirement of an appropriate 

cost report claim through an amended 

cost report by the provider (if the 

amended cost report is accepted by the 

contractor) and adjustments to the 

provider’s cost report claim that are 

included in the contractor’s initial 

contractor determination or, if there is a 

reopening, in the revised contractor 

determination. Unlike with the 

provider’s original as submitted cost 

report, however, the contractor has 

discretion whether to accept an 

amended cost report; whether to include 

particular cost report claim adjustments 

in the initial contractor determination 

and, if so, how to determine such 

adjustments; and whether to reopen a 

contractor determination and, if there is 

a reopening, how to determine any cost 

report claim adjustments that may be 

included in the revised contractor 

determination. This ‘‘back and forth’’ 

process between the provider and the 

contractor, which is reflected in 

proposed paragraph (j)(3) of § 413.24, 

facilitates appropriate determinations of 

program payment and enhances 

administrative efficiency. Each of the 

Medicare contractors has substantial 

experience in reviewing and auditing 

cost reports and in properly determining 

payment amounts. The back and forth 

process between the provider and the 

contractor eliminates, or minimizes and 

sharpens, potential disagreements, 

which obviates the need to file some 

administrative appeals or narrows the 

issues in many cases. 

In addition, proposed paragraph (j)(4) 

of § 413.24 provides that, to the extent 

a provider fails to claim a specific item 

appropriately in its cost report, the final 

contractor determination (as defined in 

§ 405.1801(a)) may not include payment 

for the item. However, if the contractor 

determines that the provider made an 

appropriate cost report claim for a 

specific item but the contractor 

disagrees with material aspects of the 

provider’s claim for the item, the 

contractor must make appropriate 

adjustments to the provider’s cost report 

and include payment for the specific 

item in the final contractor 

determination in accordance with the 

contractor’s adjustments to the cost 

report and to the extent permitted by 

program policy. 

Proposed paragraph (j)(5) of § 413.24 

provides that if a party to an 

administrative appeal questions 

whether the provider’s cost report 

included an appropriate claim for the 

specific item under appeal, the 

reviewing entity (as defined in 

§ 405.1801(a)) must follow the 

procedures (which we discuss in detail 

below) that are set forth in proposed 

§ 405.1873 (if the appeal was filed 

originally with the Board), or the 

procedures in § 405.1832 (if the appeal 

was filed initially with the contractor), 

for review of whether the substantive 

reimbursement requirement of an 

appropriate cost report claim for the 

specific item is satisfied. Those 

regulations require the reviewing entity 

to follow the procedures (discussed 

above) that are set forth in paragraph 

(j)(3) of this section for determining 

whether the provider’s cost report 

included an appropriate claim for the 

specific item under appeal. Also, the 

reviewing entity may permit payment 

for the specific item under appeal solely 

to the extent authorized by § 405.1873(f) 

(if the appeal was filed originally with 

the Board) or by § 405.1832(f) (if the 

appeal was filed initially with the 

contractor). 

b. Statutory and Policy Bases for 

Proposed Paragraph (j) of § 413.24 

We believe the Medicare statute 

provides ample authority for the abovedescribed proposal to add a new 

paragraph (j) to § 413.24 of the 

regulations. This proposal is well within 

the Secretary’s general rulemaking 

authority under sections 1102 and 1871 

of the Act. Moreover, proposed 

§ 413.24(j) is an appropriate exercise of 

the Secretary’s broad authority under 

sections 1815(a), 1833(e), and 1886(f)(1) 

of the Act to require providers to furnish 

the information needed to determine the 

amount of payment due a provider 

under the Medicare program. As 

described above, we have relied on 

these particular statutory provisions in 

adopting regulations that require 

providers to submit annual cost reports; 

specify the requisite contents of cost 

reports; and impose various procedural 

requirements for cost reports (such as 

time periods for timely submission of 

cost reports and certification 

requirements for cost reports). 

Moreover, we have invoked the same 

statutory provisions in requiring 

providers to report other specific 

information as a condition for Medicare 

payment (we refer readers to, for 

example, Community Hosp. of Monterey 

Peninsula v. Thompson, 323 F.3d 782, 

790, 795–800 (9th Cir. 2003) (sustaining 

Medicare’s policy that providers must 

bill ‘‘crossover bad debts’’ to the State 

Medicaid agency because 42 U.S.C. 

1395g(a) (that is, section 1815(a) of the 

Act) ‘‘specifically granted the Secretary 

broad discretion as to what information 

to require as a condition of payment to 

providers under the Medicare 

program’’). Indeed, as explained above, 

the Secretary’s broad discretion with 

respect to cost reporting requirements is 

also reflected in the Board appeals 

provisions of section 1878(a) of the Act, 

which makes provider compliance with 

cost reporting requirements a 

prerequisite of Board jurisdiction. 

In addition to the plainly sufficient 

statutory authority for proposed 

§ 413.24(j), we believe there are sound 

policy reasons for requiring a provider 

to include an appropriate claim for an 

item in its cost report by either claiming 

payment for the item (where the 

provider believes such claim would 

comport with Medicare policy), or by 

self-disallowing the item (if the provider 

is seeking payment that it believes may 

not be consistent with Medicare policy). 

This proposal has three main parts, each 

of which we address separately. 

First, we believe that if a cost is 

allowable and the provider does not 

disagree with how Medicare determines 

payment for the cost, the provider’s cost 

report should include a claim for full 

payment of the cost in accordance with 

the program’s payment policy. In such 

cases, a cost report claim for full 

payment of the cost enables the 

contractor to review the claim, make 

any adjustments that seem appropriate, 

and include final payment for the cost 

as part of the NPR. Requiring a cost 

report claim for full payment of 

allowable costs (where the provider 

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does not disagree with how Medicare 

determines payment for the cost) 

facilitates the contractor’s discharge of 

some of its principal responsibilities, 

which include using the contractor’s 

expertise and experience to review and 

audit payment claims, make any 

necessary adjustments, and include 

final payment for the cost in the NPR. 

Absent some misstep by the contractor 

in reviewing such a cost report claim 

and determining final payment for the 

item, there would be no need for the 

provider to later request reopening or to 

file an administrative appeal regarding 

the item. Even if the provider disagreed 

with some aspect of the contractor’s 

payment determination for the specific 

item, any such disagreement would be 

narrowed and delineated more precisely 

because our proposal, to require a full 

cost report claim for payment of 

allowable costs, will give the contractor 

an opportunity to review and audit the 

claim and determine the extent to which 

(if at all) to include payment for the 

claim in the NPR. Therefore, the 

interests of administrative finality and 

efficiency will be advanced if providers 

are required to include a cost report 

claim for full payment of allowable 

costs. 

Proposed § 413.24(j)’s requirement of 

a cost report claim for full payment of 

allowable cost also comports with the 

division of responsibilities between the 

contractors and the Board and the other 

reviewing entities (as defined in 

§ 405.1801(a)). At present, there are 12 

contractors, each of which has a fairly 

large staff with substantial experience 

and expertise in reviewing and auditing 

cost reports and determining final 

payment in accordance with Medicare 

policy. By contrast, the Board has only 

five members and a relatively small 

staff. We believe it is a waste of scarce 

resources and very inefficient for a 

provider to first raise a clearly allowable 

cost in an appeal to the Board when the 

contractor could have reviewed and 

finally determined payment for such an 

allowable cost in the NPR, if the 

provider had simply made a timely cost 

report claim for full payment of the 

allowable cost. As indicated by the very 

name of the Provider Reimbursement 

Review Board, it is a ‘‘Review Board’’ or 

administrative appeals tribunal, not the 

Medicare program’s front line auditors 

charged with making the initial 

determination of program 

reimbursement for such allowable costs. 

Second, there are also sound policy 

reasons for proposing, under a new 

paragraph (j) in § 413.24, that a provider 

must self-disallow a specific item if it is 

seeking payment that it believes may 

not comport with Medicare policy (for 

example, because the provider believes 

the contractor does not have the 

discretion to make the payment sought 

by the provider), by following the 

applicable procedures for filing a cost 

report under protest (procedures that, as 

explained above, are now contained in 

section 115 of the PRM, Part 2 and 

would be set forth in proposed 

paragraph (j)(2) of § 413.24). When a 

provider self-disallows an item by 

accounting for it appropriately in the 

‘‘protested amount’’ line of the cost 

report (instead of claiming payment for 

the item), the contractor has an 

opportunity to correct any 

misconceptions that the provider may 

have had about the item. For example, 

the contractor could determine, contrary 

to the provider’s apparent 

understanding in self-disallowing a 

specific item, that the item in question 

is actually an allowable cost that is 

reimbursable in accordance with 

program policy. Another example: the 

contractor might determine, despite the 

provider’s understanding of Medicare 

policy and its concomitant selfdisallowance, that program policy has 

changed and the item is now an 

allowable cost or a new payment policy 

now applies that permits the payment 

methodology used by the provider in 

support of its self-disallowance of the 

item (for example, 75 FR 50042; 50275 

through 50286 (August 16, 2010) 

(discussing CMS Ruling 1498–R, which 

revised Medicare disproportionate share 

hospital (DSH) payment policy in 

response to adverse judicial precedent, 

and made such revisions applicable to 

open cost reports and certain pending 

administrative appeals). In such cases, 

the contractor’s deep expertise and 

experience and its resources can be 

brought to bear in reviewing selfdisallowed items, making any necessary 

corrections, and finally allowing 

payment for corrected items in the NPR. 

Indeed, these kinds of contractor actions 

comport with section 1874A(a)(4) of the 

Act and § 413.20(b) of the regulations, 

which require the contractors to furnish 

providers with consultative services, 

education, training, information and 

instructions, and technical assistance 

regarding the interpretation and 

application of payment principles and 

other program policies; be available to 

address provider questions and 

problems on a daily basis; and facilitate 

communication between the agency and 

providers. Accordingly, we believe our 

proposed addition of a self-disallowance 

requirement to the cost reporting 

regulations will facilitate exhaustion of 

administrative remedies through the 

contractor’s review and final settlement 

of the provider’s cost report, and when 

the contractor corrects errors in a 

provider’s self-disallowance, the 

erstwhile need to appeal to the Board or 

request reopening could be obviated (we 

refer readers to Little Co. of Mary Hosp. 

v. Shalala, 165 F.3d 1162, 1165 (7th Cir. 

1999) (the Secretary’s requirement of an 

appropriate cost report claim for an item 

ensures that the contractor will have the 

‘‘first shot’’ at determining any 

reimbursement for the item, before any 

appeal to the Board need be filed). 

By requiring the self-disallowance of 

items that providers believe may not 

comport with Medicare policy, 

proposed § 413.24(j) would also 

contribute importantly to other aspects 

of program administration. For example, 

this proposal would facilitate provider 

compliance with the existing 

requirements in § 413.24(f) that each 

provider submit a complete, accurate, 

and timely cost report, and that the 

provider’s administrator or chief 

financial officer certify that the 

submitted cost report is complete and 

accurate. Our proposed selfdisallowance requirement would also 

enhance CMS’ ability to accurately 

estimate the program’s potential 

liabilities (for example, for purposes of 

the agency’s preparation of required 

financial statements). Similarly, this 

proposal would improve the 

contractors’ ability to establish audit 

and other workload priorities. The 

proposed addition of a self-disallowance 

requirement (for items that providers 

believe may not comport with Medicare 

policy) to the cost reporting regulations 

would also enable us to better monitor 

Medicare policy and potentially adjust 

our policies in response to a pattern of 

provider self-disallowances of a given 

item. Indeed, the importance of 

requiring complete and accurate cost 

report information is highlighted by the 

fact that we use cost report data for a 

wide variety of purposes such as setting 

and refining prospective payment rates; 

establishing hospital market basket 

weights; calculating Medicare and total 

facility margins; determining payment 

for graduate medical education (GME) 

and indirect medical education (IME); 

creating projections for the President’s 

annual budget and for the annual 

Medicare Trustees Report; for various 

research projects; and for responding to 

requests from the public, the Congress, 

the Executive Office of Management and 

Budget (EOMB), and other parts of the 

Administration. 

Third, we believe there also are sound 

reasons for our proposal that, under a 

new § 413.24(j), if a provider fails to 

account appropriately for an item in its 

cost report (by making a full claim for 

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payment for the item or self-disallowing 

the item if the provider believes a 

payment claim would not comport with 

Medicare policy), the NPR issued by the 

contractor may not include payment for 

the item and payment also may not be 

permitted in any decision, order, or 

other action by a reviewing entity (as 

defined in § 405.1801(a)) in an 

administrative appeal filed by the 

provider. Under existing 

§§ 405.1835(a)(1) and 405.1840(b)(3), 

the consequence of not making an 

appropriate cost report claim for an item 

is that the Board would not have 

jurisdiction over the provider’s appeal 

of the item. (Similarly, under 

§§ 405.1811(a)(1) and 405.1814(b)(3), 

the contractor hearing officers would 

lack jurisdiction for an item if the 

provider did not make an appropriate 

cost report claim for the item.) As 

explained below, however, we are 

proposing to eliminate the jurisdictional 

requirement of an appropriate cost 

report claim in existing 

§§ 405.1835(a)(1) and 405.1840(b)(3) for 

Board appeals (and the corresponding 

jurisdictional requirement in 

§§ 405.1811(a)(1) and 405.1814(b)(3) for 

contractor hearing officer appeals), 

because we believe it is a requirement 

more appropriately placed in the cost 

reporting regulations. Given that our 

longstanding policy of requiring an 

appropriate cost report claim for an item 

would be added to the cost reporting 

regulations, in proposed paragraph (j) of 

§ 413.24, this provision is a natural 

place to spell out the consequences of 

not abiding by this cost reporting 

requirement. In this regard, we note that 

the proposed addition of a new 

paragraph (j) to § 413.24 is like the 

existing paragraph (e) in § 413.20, which 

provides for the suspension of Medicare 

payments if a provider fails to maintain 

the records necessary for proper 

determination of Medicare 

reimbursement. Similarly, if a provider 

fails to include an appropriate claim for 

an item in its cost report, the NPR 

issued by the contractor will not include 

payment for the item and payment also 

will not be permitted in any decision, 

order, or other action by a reviewing 

entity (as defined in § 405.1801(a)) in an 

administrative appeal filed by the 

provider. 

2. Proposed Revisions to the Provider 

Reimbursement Appeal Regulations 

a. Elimination of the Jurisdictional 

Requirement of an Appropriate Cost 

Report Claim 

In this proposed rule, we are 

proposing to eliminate the requirement 

in existing §§ 405.1835(a)(1) and 

405.1840(b)(3) of the regulations that a 

provider must include an appropriate 

claim for an item in its cost report in 

order to meet the dissatisfaction 

requirement for Board jurisdiction. We 

believe there is a sound basis in law and 

policy for this proposal. Our proposal to 

eliminate an appropriate cost report 

claim as a requirement for Board 

jurisdiction is well within the 

Secretary’s general rulemaking authority 

under sections 1102 and 1871 of the 

Act. Moreover, this specific proposal is 

a reasonable interpretation of the 

‘‘dissatisfied’’ provision in section 

1878(a)(1)(A) of the Act. In our view, 

this statutory provision is ambiguous 

and the interpretation in the existing 

appeal regulations, which requires 

providers to make appropriate cost 

report claims in order to meet the 

dissatisfaction prerequisite of Board 

jurisdiction with respect to a specific 

item, is a permissible interpretation of 

the statute. As described above, 

however, providers have challenged our 

interpretation of the statutory 

dissatisfaction provision in litigation 

spanning more than 30 years, and in 

public comments on current 

§§ 405.1835(a)(1) and 405.1840(b)(3) of 

the regulations which were adopted in 

the FY 2008 IPPS final rule (73 FR 

30195 through 30200; CMS’ response to 

public comments on the current Board 

appeals regulations that are based on 

our interpretation of the statutory 

dissatisfaction provision). Providers 

have maintained throughout this 

litigation and in the referenced public 

comments that the statutory 

dissatisfaction provision does not 

support our policy of requiring an 

appropriate cost report claim as a 

prerequisite of Board jurisdiction. We 

continue to disagree with this view of 

the statute, and still believe that the 

existing Board appeals regulations are 

based on a permissible interpretation of 

the statutory dissatisfaction provision. 

As explained above, existing 

§ 405.1835(a)(1) comports with the 

Supreme Court’s statement that the 

statutory dissatisfaction requirement 

might not be met if a provider bypassed 

a clearly prescribed exhaustion 

requirement or failed to ask the 

contractor for payment of all costs to 

which it is entitled under applicable 

rules (Bethesda Hosp., 485 U.S. at 404– 

05). Furthermore, the U.S. Court of 

Appeals for the Seventh Circuit has 

twice sustained our interpretation of the 

statutory dissatisfaction provision, on 

the basis of the forgoing statements by 

the Supreme Court (Little Co. of Mary, 

165 F.3d 1162; Little Co. of Mary, 24 

F.3d 984). Nonetheless, we believe our 

proposal, to eliminate § 405.1835(a)(1)’s 

jurisdictional requirement of an 

appropriate cost report claim certainly 

does not conflict with the ‘‘dissatisfied’’ 

provision in section 1878(a)(1)(A) of the 

Act. 

This particular proposal is supported 

by section 1878(a)(1)(B) of the Act, 

which authorizes certain Board appeals 

if the provider does not receive a final 

contractor determination on a timely 

basis. (Section 405.1835(a)(3)(ii) of the 

regulations specifies the time period 

and other conditions for Board appeals 

where the provider does not receive a 

final contractor determination on a 

timely basis.) Section 1878(a)(1)(B) of 

the Act does not include an express 

dissatisfaction provision. Thus, our 

proposal, to eliminate existing 

§ 405.1835(a)(1)’s dissatisfaction 

jurisdictional requirement of an 

appropriate cost report claim, would 

result in Board appeals regulations that 

more closely track the express terms of 

section 1878(a)(1)(B) of the Act. 

In addition to the sufficient statutory 

authority for our proposed elimination 

of an appropriate cost report claim as a 

requirement for Board jurisdiction, there 

are sound policy reasons for this 

proposal. As explained above, we 

believe that, by requiring appropriate 

cost report claims in proposed 

§ 413.24(j), complete and accurate 

determinations of provider 

reimbursement will be facilitated as will 

the many other important aspects of 

program administration. Thus, because 

we would require an appropriate cost 

report claim in proposed § 413.24(j), it 

is reasonable to eliminate the Board 

jurisdiction requirement in existing 

§§ 405.1835(a)(1) and 405.1840(b)(3) of 

an appropriate cost report claim. We 

note that once this amendment to the 

Board appeals regulations becomes 

effective, this proposal will facilitate an 

orderly end to any litigation regarding 

the Board jurisdiction requirement of an 

appropriate cost report claim. 

As explained above, our proposed 

revisions to the cost reporting 

regulations and the provider appeals 

regulations would apply on a 

prospective-only basis, to provider cost 

reporting periods beginning on or after 

the effective date of the final IPPS 

annual update rule. Until these 

proposed regulations take effect, 

however, the requirement of an 

appropriate cost report claim in 

§§ 405.1835(a)(1) and 405.1840(b)(3) of 

the regulations will continue to be a 

requirement for Board jurisdiction. 

Thus, until these proposed regulations 

become effective, the Board and the 

Administrator of CMS will continue to 

determine Board jurisdiction by 

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reference to the appropriate cost report 

claim requirements of §§ 405.1835(a)(1) 

and 405.1840(b)(3), along with other 

applicable jurisdictional provisions of 

section 1878 of the Act and §§ 405.1835 

and 405.1840 of the regulations. We 

believe that, because it is essential to 

require appropriate cost report claims 

for the various reasons that we 

discussed above, it is necessary and 

proper to continue to require an 

appropriate cost report claim as a 

prerequisite of Board jurisdiction under 

§§ 405.1835(a)(1) and 405.1840(b)(3) 

until the proposed addition to the cost 

reporting regulations, of the substantive 

reimbursement requirement of an 

appropriate cost report claim, takes 

effect. 

b. Proposed Addition of § 405.1873 

Regarding Board Review of Compliance 

with Cost Report Claim Requirements in 

Proposed § 413.24(j) 

We are proposing to add a new 

§ 405.1873 to the Board appeal 

regulations, which will address how the 

Board should proceed when any party 

to an appeal questions whether a 

provider made an appropriate cost 

report claim (as required by proposed 

§ 413.24(j)) for a specific item under 

appeal. We believe this new regulation 

is necessary to forestall potential 

confusion about how the substantive 

reimbursement requirement in proposed 

§ 413.24(j) of an appropriate cost report 

claim for a specific item will pertain to 

Board appeals of the same item. 

Under paragraph (b)(1) of proposed 

new § 405.1873, the Board will consider 

timely submitted factual evidence and 

legal argument on, and then prepare 

written specific findings of fact and 

conclusions of law regarding, the 

question of whether the provider’s cost 

report complied with proposed 

§ 413.24(j). The Board will give these 

written specific factual findings and 

legal conclusions to each party to the 

appeal, and they must be included in 

the record of administrative proceedings 

for the appeal. Paragraph (b)(2) of 

proposed § 405.1873 provides that, 

upon giving the parties to the appeal the 

Board’s written factual findings and 

legal conclusions on the question of 

whether the provider’s cost report 

included an appropriate cost claim for 

the specific item under appeal, the 

Board then must proceed to issue one of 

four types of overall decisions with 

respect to such item. As discussed 

below, paragraph (d) of proposed 

§ 405.1873 provides that, if the Board 

issues either of two types of overall 

Board decisions regarding the specific 

item under appeal (that is, a hearing 

decision or an expedited judicial review 

(EJR) decision where EJR is granted), the 

Board’s written specific factual findings 

and legal conclusions (reached under 

proposed § 405.1873(b)) about whether 

there was an appropriate cost report 

claim for the item, must be included in 

such overall Board decision regarding 

the specific item, along with the other 

matters that are already required for a 

Board hearing decision or a Board EJR 

decision where EJR is granted. However, 

under paragraph (e) of proposed 

§ 405.1873, if the Board issues either of 

two other types of overall Board 

decisions regarding the specific item 

under appeal (that is, a jurisdictional 

dismissal decision or an EJR decision 

where EJR is denied), the Board’s 

written specific factual findings and 

legal conclusions (pursuant to proposed 

§ 405.1873(b)) must not be included in 

the overall Board decision regarding the 

specific item. In any event, the Board’s 

factual findings and legal conclusions 

about whether there was an appropriate 

cost report claim for the item must be 

included in the record of administrative 

proceedings for the appeal in 

accordance with § 405.1865 of the 

regulations. 

We believe that, in order to ensure 

full and appropriate implementation of 

both the addition of the substantive 

reimbursement requirement of an 

appropriate cost report claim (in 

proposed § 413.24(j)) and the 

elimination of the Board jurisdiction 

requirement of an appropriate cost 

report claim (in existing 

§§ 405.1835(a)(1) and 405.1840(b)(3)), it 

is necessary to foreclose certain types of 

Board decisions, orders, and other 

actions. Accordingly, in order to give 

full force and effect to our proposed 

elimination of the Board jurisdiction 

requirement of an appropriate cost 

report claim, paragraph (c)(1) of new 

§ 405.1873 would prohibit a denial of 

jurisdiction, a declination to exercise 

jurisdiction, the imposition of a 

sanction, and various other actions by 

the Board, if any such jurisdictional 

decision, order, sanction, or other 

specified action is based on (in whole or 

in part) the Board’s determination that 

the provider’s cost report did not meet 

proposed § 413.24(j)’s substantive 

reimbursement requirement of an 

appropriate cost report claim for the 

specific item. 

In some cases, the Board jurisdiction 

requirement of an appropriate cost 

report claim has been addressed in 

different but related terms. For example, 

Board jurisdiction has been denied 

based on the absence, in the final 

contractor determination or Secretary 

determination under appeal, of an 

adjustment, revision, correction, or 

other change to the specific item under 

appeal. Another example: Board 

jurisdiction has also been denied due to 

the lack of a particular determination by 

the contractor or the Secretary regarding 

the specific item under appeal, in the 

final contractor determination or 

Secretary determination under appeal. 

We believe that, in order to give full 

force and effect to the proposed 

elimination of the Board jurisdiction 

requirement of an appropriate cost 

report claim, it is also necessary to 

address related terms such as the 

absence of specific adjustments and the 

lack of particular determinations 

regarding the specific item under 

appeal. Accordingly, paragraph (c)(2) of 

proposed new § 405.1873 would 

prohibit a denial of jurisdiction, a 

declination to exercise jurisdiction, the 

imposition of a sanction, and various 

other actions by the Board, if any such 

jurisdictional decision, sanction, or 

other specified action is based on (in 

whole or in part) the absence, in the 

final contractor determination or 

Secretary determination under appeal, 

of an adjustment, revision, correction, or 

other change to the specific item under 

appeal, or the lack of a particular 

determination by the contractor or the 

Secretary regarding the specific item in 

the final contractor determination or 

Secretary determination under appeal. 

However, paragraph (c)(2)(i)(A) of 

proposed new § 405.1873 would 

provide for an important exception: if 

the provider’s appeal of the specific 

item is based on the reopening of such 

item (pursuant to § 405.1885 of the 

regulations) where the specific item is 

not revised, adjusted, corrected, or 

otherwise changed in a revised final 

contractor determination or Secretary 

determination, the Board must deny 

jurisdiction over the specific item under 

appeal (as prescribed in §§ 405.1887(d) 

and 405.1889(b) of the regulations). The 

reopening regulations are an exercise of 

the Secretary’s general rulemaking 

authority under sections 1102 and 1872 

of the Act, and this exception (in 

proposed § 405.1873(c)(2)(i)(A)) is 

necessary to ensure consistency with 

the above-referenced reopening 

regulations, our longstanding ‘‘issue 

specific’’ interpretation of the reopening 

regulations, and the interests of 

administrative finality and efficiency 

(we refer readers, for example, to HCA 

Health Servs. of Okla. v. Shalala, 27 

F.3d 614 (D.C. Cir. 1994) (the reopening 

regulations are based on the Secretary’s 

general rulemaking authority, and the 

issue specific interpretation of the 

reopening rules is reasonable and 

supportive of administrative finality). 

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Under paragraph (d) of proposed 

§ 405.1873, there are two types of Board 

decisions that must include any specific 

findings of fact and conclusions of law 

by the Board (reached under paragraph 

(b) of proposed § 405.1873), on the 

question of whether the provider’s cost 

report included an appropriate claim for 

the specific item under appeal. First, 

paragraph (d)(1) of proposed § 405.1873 

provides that, if the Board issues a 

hearing decision on the specific item 

under appeal (pursuant to § 405.1871 of 

the regulations), the Board’s specific 

findings of fact and conclusions of law 

about whether there was an appropriate 

cost report claim for the specific item, 

must be included in such a hearing 

decision along with the other matters 

prescribed in existing § 405.1871(a). A 

Board hearing decision addresses 

whether the provider has established 

that it should receive relief on the 

matter at issue (as specified in 

§ 405.1871(a)(3)). Under proposed 

§ 413.24(j), the requirement of an 

appropriate cost report claim is a 

substantive prerequisite of any payment 

for the specific item, which applies in 

addition to other payment requirements 

for the particular item (for example, the 

specific requirements for payment of 

interest expense under § 413.153 of the 

regulations). We believe that, because a 

Board hearing decision addresses 

whether the provider has established 

that it meets the substantive 

requirements for payment of the item 

under appeal whereas an appropriate 

cost report claim is a substantive 

prerequisite of any payment for the 

specific item (under proposed 

§ 413.24(j)), any factual findings and 

legal conclusions about whether there 

was an appropriate cost report claim 

should be included in any hearing 

decision that might be issued by the 

Board regarding the specific item. In 

addition, we note that if the Board elects 

to issue a hearing decision that also 

includes factual findings and legal 

conclusions about whether the other 

payment requirements for the specific 

item were satisfied (in addition to the 

Board’s findings and conclusions about 

whether there was an appropriate cost 

report claim for the item), such a 

hearing decision (addressing all the 

substantive reimbursement 

requirements for the specific item) will 

safeguard against piecemeal proceedings 

before the Board and potentially before 

the Administrator of CMS and a Federal 

court. However, paragraph (d)(1)(ii) of 

proposed § 405.1873 provides that, if 

the Board determines that the provider’s 

cost report did not include an 

appropriate claim for the specific item 

under appeal, the Board has discretion 

whether or not to address in its hearing 

decision whether the other substantive 

reimbursement requirements for the 

specific item are also satisfied. 

Second, paragraph (d)(2) of proposed 

§ 405.1873 provides that, if the Board 

issues an expedited judicial review 

(EJR) decision where EJR is granted 

regarding the specific item under appeal 

(pursuant to § 405.1842(f)(1) of the 

regulations), any specific findings of fact 

and conclusions of law by the Board 

(reached under paragraph (b) of 

proposed § 405.1873) about whether 

there was an appropriate cost report 

claim for the specific item, must be 

included in such an EJR decision. 

Section 1878(f)(1) of the Act and 

§ 405.1842 of the regulations authorize 

EJR if the requirements for Board 

jurisdiction over a specific item are 

satisfied, and the Board determines that 

it lacks the authority to decide a legal 

question that is relevant to the specific 

item under appeal. The Administrator of 

CMS may review the Board’s 

determination as to whether there is 

Board jurisdiction over the specific 

item, but the Administrator may not 

review the Board’s determination as to 

whether it has the authority to decide a 

relevant legal question. We believe that 

paragraph (d)(2) of proposed § 405.1873 

will also safeguard against piecemeal 

proceedings before the Board, the 

Administrator of CMS, and a Federal 

court. By requiring a Board EJR decision 

that grants EJR to include any factual 

findings and legal conclusions (reached 

under proposed § 405.1873(b)) about 

whether there was an appropriate cost 

report claim for the specific item under 

appeal, along with the Board’s 

determinations that the two 

requirements for EJR were satisfied (that 

is, a finding of Board jurisdiction plus 

the Board’s determination that it lacks 

the authority to decide a legal question 

relevant to the specific item under 

appeal), piecemeal proceedings would 

be minimized or eliminated because the 

Board EJR decision will encompass both 

the question of whether there was an 

appropriate cost report claim for the 

specific item and the relevant legal 

question for which EJR was granted (and 

for which the Board determined that it 

has no authority to decide such legal 

question). Piecemeal proceedings before 

the Administrator of CMS would also be 

minimized or eliminated because, under 

proposed § 405.1875(a)(2)(v) (which we 

discuss separately below), if the 

Administrator reviews and issues an EJR 

decision on the question of whether 

there is Board jurisdiction over the 

specific item under appeal, the 

Administrator will also review, and any 

decision will address, the Board’s 

specific findings of fact and conclusions 

of law about whether there was an 

appropriate cost report claim for the 

specific item. In turn, our proposal to 

require an EJR decision that grants EJR 

to include any specific factual findings 

and legal conclusions under proposed 

§ 405.1873(b) would ensure that when a 

Federal court exercises its EJR authority 

under section 1878(f)(1) of the Act and 

§ 405.1842 of the regulations by 

reviewing a relevant legal question (for 

which the Board determined it has no 

decisional authority), the court’s review 

can also potentially encompass the final 

specific findings of fact and conclusions 

of law by the Board or the 

Administrator, as applicable, about 

whether there was an appropriate cost 

report claim for the specific item. If it 

is determined, in a final EJR decision 

that grants EJR, that there was an 

appropriate cost report claim for the 

specific item under appeal, the court 

may have no occasion to review the 

final specific findings of fact and 

conclusions of law on the question of 

whether there was an appropriate cost 

report claim for the specific item. 

However, if it is instead determined, in 

a final EJR decision that grants EJR, that 

the provider’s cost report did not 

include an appropriate claim for the 

specific item under appeal, the court 

can potentially review in one 

proceeding the final specific findings of 

fact and conclusions of law about 

whether there was an appropriate cost 

report claim for the specific item, along 

with the relevant legal question for 

which EJR was granted (and for which 

the Board determined that it has no 

authority to decide such legal question). 

However, paragraph (e) of proposed 

new § 405.1873 would provide that 

there are two other types of Board 

decisions that must not include any 

specific findings of fact and conclusions 

of law by the Board (reached under 

proposed § 405.1873(b)), on the question 

of whether the provider’s cost report 

included an appropriate claim for the 

specific item under appeal. On the one 

hand, paragraph (e)(1) of proposed new 

§ 405.1873 would provide that if the 

Board issues a jurisdictional dismissal 

decision on the specific item under 

appeal (pursuant to § 405.1840(c)), the 

Board’s specific findings of fact and 

conclusions of law about whether there 

was an appropriate cost report claim for 

the specific item must not be included 

in such a jurisdictional dismissal 

decision. When the Board issues a 

jurisdictional dismissal decision on a 

specific item under appeal, the Board’s 

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denial of jurisdiction obviates any need 

to address the question of whether the 

substantive reimbursement 

requirements that are specific to the 

particular item (for example, the 

specific requirements for payment for 

certain depreciation under § 413.134) 

are satisfied. Because the requirement of 

an appropriate cost report claim for each 

specific item is also a substantive 

prerequisite of any payment for the 

specific item (as prescribed in proposed 

§ 413.24(j)), a denial of jurisdiction over 

the specific item also obviates any need 

to address the substantive 

reimbursement requirement of an 

appropriate cost report claim in the 

Board’s jurisdictional dismissal 

decision. 

Similarly, under paragraph (e)(2) of 

proposed new § 405.1873, if the Board 

issues an EJR decision where EJR is 

denied on the specific item under 

appeal (pursuant to § 405.1842(f)(2)), the 

Board’s specific findings of fact and 

conclusions of law (reached under 

paragraph (b) of proposed new 

§ 405.1873) about whether there was an 

appropriate cost report claim for the 

specific item, must not be included in 

such an EJR decision. If EJR is denied 

solely because the Board determines 

that it does have the authority to decide 

the legal question relevant to the 

specific item under appeal, the Board 

would conduct further proceedings and 

issue another decision (as specified in 

§ 405.1842(h)(2)(i)). If such further 

decision is a hearing decision, under 

proposed § 405.1873(d)(1), the Board’s 

factual findings and legal conclusions 

(under proposed § 405.1873(b)) about 

whether there was an appropriate cost 

report claim must be included in the 

Board’s hearing decision; if the Board 

elects to also include in the hearing 

decision its factual findings and legal 

conclusions about whether the other 

reimbursement requirements for the 

specific item are satisfied, piecemeal 

proceedings before the Board and 

potentially before the Administrator of 

CMS and a Federal court would be 

minimized or eliminated. However, if 

EJR is denied because the Board lacked 

jurisdiction over the specific item under 

appeal, the Board’s factual findings and 

legal conclusions about whether there 

was an appropriate cost report claim 

must not be included in such an EJR 

decision; as explained above regarding 

Board jurisdictional dismissal decisions, 

the denial of Board jurisdiction in such 

an EJR decision obviates the need to 

address the substantive reimbursement 

requirement of an appropriate cost 

report claim, just as there is no need to 

consider other payment requirements 

for the particular item under appeal. 

Paragraph (f) of proposed new 

§ 405.1873 addresses the various effects 

of the Board’s factual findings and legal 

conclusions (reached under paragraph 

(b) of proposed § 405.1873) regarding 

whether there was an appropriate cost 

report claim in the two types of Board 

decisions where such factual findings 

and legal conclusions must be included: 

Board hearing decisions, and Board EJR 

decisions where EJR is granted. An 

appropriate cost report claim for a 

specific item is a necessary, but not 

sufficient, condition for Medicare 

payment for the specific item. This is 

because the requirement of an 

appropriate cost report claim for each 

specific item is a substantive 

prerequisite of any payment for the 

specific item (as prescribed in proposed 

§ 413.24(j)), but all other payment 

requirements (for example, the 

particular requirements for payment for 

certain bad debts under § 413.89) also 

must be satisfied. Accordingly, under 

paragraph (f)(1) of proposed new 

§ 405.1873, if the Board determines, as 

part of a final hearing decision, that the 

provider’s cost report included an 

appropriate claim for the specific item 

under appeal (as prescribed in 

§ 413.24(j)), payment for the specific 

item is made in accordance with 

Medicare policy, but only if the Board 

further determines in such hearing 

decision that all the other substantive 

reimbursement requirements for the 

specific item are also satisfied. 

Conversely, if the Board determines, in 

a final hearing decision, that the cost 

report lacked an appropriate claim for 

the specific item under appeal, payment 

for the specific item is not made, 

regardless of whether the Board further 

determines in such hearing decision 

that the other substantive 

reimbursement requirements for the 

specific item are satisfied. 

Similarly, paragraph (f)(2) of proposed 

new § 405.1873 provides that, if the 

Board or the Administrator of CMS (as 

applicable) determines, as part of a final 

EJR decision where EJR is granted, the 

provider’s cost report included an 

appropriate claim for the specific item 

under appeal (as prescribed in 

§ 413.24(j)), payment for the specific 

item is made in accordance with 

Medicare policy, but only to the extent 

permitted by the final decision of a 

Federal court pursuant to the EJR 

provisions of section 1878(f)(1) of the 

Act (see also §§ 405.1842 and 405.1877) 

regarding the legal question that is 

relevant to the specific item (but for 

which the Board determined it has no 

decisional authority). By contrast, if the 

Board or the Administrator of CMS (as 

applicable) determines, in a final EJR 

decision where EJR is granted, that the 

cost report lacked an appropriate claim 

for the specific item under appeal, 

payment for the specific item is not 

made unless: (i) The specific factual 

findings and legal conclusions by the 

Board or the Administrator of CMS, as 

applicable, about whether there was an 

appropriate cost report claim for the 

specific item are reversed or modified 

by the final decision of a Federal court 

(pursuant to section 1878(f)(1) of the Act 

and § 405.1877 of the regulations)); and 

(ii) only to the extent permitted by the 

final decision of a Federal court 

pursuant to the EJR provisions of 

section 1878(f)(1) of the Act (see also 

§§ 405.1842 and 405.1877 of the 

regulations) regarding the legal question 

that is relevant to the specific item (but 

for which the Board determined it has 

no decisional authority). 

c. Related Proposed Revisions to 

§ 405.1875 Regarding Administrator 

Review 

We are proposing two revisions to 

§ 405.1875 of the regulations, which 

provides for review by the 

Administrator of CMS of certain Board 

decisions, orders, and other actions. We 

believe these revisions will facilitate the 

full and appropriate implementation of 

our proposals (discussed above) to add 

the substantive reimbursement 

requirement of an appropriate cost 

report claim (in proposed § 413.24(j)), 

eliminate the Board jurisdiction 

requirement of an appropriate cost 

report claim (in existing 

§§ 405.1835(a)(1) and 405.1840(b)(3)), 

and to add specific procedures for Board 

review of questions about compliance 

with the substantive reimbursement 

requirement of an appropriate cost 

report claim (in proposed new 

§ 405.1873). 

First, under existing § 405.1875(a)(2) 

of the regulations, the Administrator 

may review a Board hearing decision, a 

Board dismissal decision, the Board’s 

jurisdictional determination in an EJR 

decision (but not the Board’s 

determination, in an EJR decision, of 

whether it has the authority to decide a 

relevant legal question), and any other 

Board decision or action deemed to be 

final by the Administrator. We are 

proposing to add a new paragraph 

(a)(2)(v) to § 405.1875, which would 

provide that if the Administrator 

reviews a Board hearing decision, or the 

jurisdictional component of a Board EJR 

decision where EJR is granted, regarding 

a specific item, the Administrator’s 

review of such a hearing decision or 

such an EJR decision, as applicable, will 

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include, and any decision issued by the 

Administrator under § 405.1875(e) of 

the regulations will address, the Board’s 

specific findings of fact and conclusions 

of law in such hearing decision or EJR 

decision (as prescribed in proposed 

§ 405.1873(b) and (d)) on the question of 

whether the provider’s cost report 

included an appropriate claim for the 

specific item under appeal (as 

prescribed in § 413.24(j)). We believe 

this proposed revision to 

§ 405.1875(a)(2) is an important 

additional safeguard against piecemeal 

administrative appeal proceedings and 

potentially before a Federal court. As 

explained above with respect to 

proposed § 405.1873(d)(1), if the Board 

elects to issue a hearing decision that 

also includes factual findings and legal 

conclusions about whether the other 

payment requirements for the specific 

item were satisfied (in addition to the 

Board’s findings and conclusions about 

whether there was an appropriate cost 

report claim for the item), all of the 

payment requirements for the specific 

item will be presented in one Board 

hearing decision for purposes of any 

review by the Administrator under 

proposed § 405.1875(a)(2)(v) and a 

Federal court. Moreover, for the specific 

reasons set forth above regarding 

proposed § 405.1873(d)(2), our proposal 

to require that the Board’s factual 

findings and legal conclusions about 

whether there was an appropriate cost 

report claim for the item be included in 

an EJR decision where EJR is granted 

will also minimize or eliminate 

piecemeal proceedings before the Board 

and, given the proposed addition of 

§ 405.1875(a)(2)(v), before the 

Administrator of CMS and a Federal 

court. 

Second, existing § 405.1875(a) 

requires the Board to promptly send 

copies of hearing decisions and EJR 

decisions to the Office of the Attorney 

Advisor. Although the Board often 

(perhaps typically) sends copies of 

dismissal decisions to the Office of the 

Attorney Advisor, the Board is not 

required to so. We are proposing to 

amend the last sentence of paragraph (a) 

of § 405.1875 by requiring the Board to 

promptly send copies of dismissal 

decisions to the Office of the Attorney 

Advisor. This revision will facilitate the 

Administrator’s exercise of her 

discretion under § 405.1875(a)(2)(ii) as 

to whether to review specific Board 

dismissal decisions. Also, given our 

proposals to eliminate the Board 

jurisdiction requirement of an 

appropriate cost report claim (in 

existing §§ 405.1835(a)(1) and 

405.1840(b)(3)) and to add procedures 

for Board review of compliance with the 

substantive reimbursement requirement 

of an appropriate cost report claim (in 

proposed § 405.1873)), our further 

proposal to require the Board to 

promptly send copies of dismissal 

decisions to the Office of the Attorney 

Advisor will enhance the 

Administrator’s ability to ensure full 

and appropriate implementation of our 

proposed revisions to the Board appeal 

regulations. 

C. Proposed Conforming Changes to the 

Board Appeal Regulations and 

Corresponding Revisions to the 

Contractor Hearing Regulations 

We are proposing technical revisions 

to several other Board appeal 

regulations. We believe these other 

technical revisions are necessary and 

appropriate to maintain consistency 

with our principal proposals (discussed 

above) to add the substantive 

reimbursement requirement of an 

appropriate cost report claim (in 

proposed § 413.24(j)); eliminate the 

Board jurisdiction requirement of an 

appropriate cost report claim (in 

existing §§ 405.1835(a)(1) and 

405.1840(b)(3)); and add procedures for 

Board review of compliance with the 

substantive reimbursement requirement 

of an appropriate cost report claim (in 

proposed § 405.1873)). Finally, we are 

proposing similar revisions to the 

existing regulations for appeals to the 

contractor hearing officers. Specifically, 

we are proposing to eliminate an 

appropriate cost report claim as a 

jurisdictional requirement for contractor 

hearing officer appeals (in existing 

§§ 405.1811(a)(1) and 405.1814(b)(3)); 

add a new § 405.1832 that (like new 

§ 405.1873 for Board appeals) will detail 

the procedures for contractor hearing 

officer review of compliance with the 

substantive reimbursement requirement 

of an appropriate cost report claim (as 

prescribed in proposed § 413.24(j)). 

These proposed revisions to the existing 

regulations for appeals to the contractor 

hearing officers comport with our usual 

practice of adopting similar regulations 

for both Board appeals and for 

contractor hearing officer appeals unless 

there is a sufficient reason to do 

otherwise. 

1. Technical Corrections and 

Conforming Changes to §§ 405.1801 and 

405.1803 

We are proposing to revise the 

definition of ‘‘intermediary 

determination’’ in § 405.1801(a) to 

clarify that the determination is final as 

set forth in 1878(a) of the Act and to 

reflect the conforming technical 

correction to ‘‘contractor 

determination’’. We are proposing to 

revise § 405.1801(b) to more 

appropriately refer to § 413.24 generally 

(following the proposed addition of 

paragraph (j) to § 413.24). We are 

proposing to revise § 405.1803 to refer to 

the final contractor (instead of 

intermediary) determination as set forth 

in § 405.1801 and to appropriately 

cross-reference the proposed newly 

revised § 405.1835(a). 

2. Technical Corrections and 

Conforming Changes to §§ 405.1811, 

405.1813, and 405.1814 

As we are proposing to eliminate the 

jurisdictional requirement of an 

appropriate cost report claim in existing 

§§ 405.1835(a)(1) and 405.1840(b)(3) for 

Board appeals, we are similarly 

proposing to eliminate the 

corresponding jurisdictional 

requirement in §§ 405.1811(a)(1) and 

405.1814(b)(3) for contractor hearing 

officer appeals. Specifically, we are 

proposing to eliminate an appropriate 

cost report claim as a jurisdictional 

requirement for contractor hearing 

officer appeals. In addition, we are 

proposing to revise § 405.1813 to add an 

appropriate cross-reference to 

§ 405.1811, pursuant to the proposed 

technical correction in § 405.1811. We 

are proposing technical corrections to 

§§ 405.1836 and 405.1837 in 

conformance with the proposed revision 

to § 405.1835(a)(1) to eliminate the 

reference to the jurisdictional 

requirement of an appropriate cost 

report claim. 

3. Proposed New § 405.1832 

We are proposing to add new 

§ 405.1832 which will detail the 

procedures for contractor hearing officer 

review of compliance with the 

substantive reimbursement requirement 

of an appropriate cost report claim (as 

prescribed in proposed § 413.24(j)) in 

appeals first filed with contractor 

hearing officers. 

4. Proposed Revisions to § 405.1834 

We are proposing to amend 

§ 405.1834, which provides for review 

of contractor hearing officer decisions 

by the CMS reviewing official, by 

adding a new paragraph (b)(2)(iii). 

Under proposed § 405.1834(b)(2)(iii), 

the CMS reviewing official will review, 

and address in any decision, the specific 

factual findings and legal conclusions of 

contractor hearing officers regarding 

compliance with the substantive 

requirement of an appropriate cost 

report claim (as prescribed in proposed 

§ 413.24(j)), as part of the CMS 

reviewing official’s review of a 

contractor hearing decision. 

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5. Technical Corrections and 

Conforming Changes to §§ 405.1836, 

405.1837, and 405.1839 

We are proposing technical and 

conforming changes to §§ 405.1836, 

405.1837, and 405.1839 to comport and 

maintain consistency with the principal 

proposed regulation changes discussed 

above. 

6. Technical Corrections to 42 CFR Part 

405, Subpart R and All Subparts of 42 

CFR part 413 

We are proposing to conform the 

terminology in 42 CFR part 405 Subpart 

R and all subparts of 42 CFR part 413 

by replacing the term ‘‘intermediary’’ 

and its various deviations to 

‘‘contractor’’, and its various deviations, 

pursuant to sections 1816, 1874A, and 

1878 of the Act. 

IX. Proposed Quality Data Reporting 

Requirements for Specific Providers 

and Suppliers 

We seek to promote higher quality 

and more efficient health care for 

Medicare beneficiaries. This effort is 

supported by the adoption of widely 

agreed-upon quality measures. We have 

worked with relevant stakeholders to 

define quality measures for most 

settings and to measure various aspects 

of care for most Medicare beneficiaries. 

These measures assess structural aspects 

of care, clinical processes, patient 

experiences with care, and, 

increasingly, outcomes. 

We have implemented quality 

reporting programs for multiple care 

settings, including: 

• Hospital inpatient services under 

the Hospital Inpatient Quality Reporting 

(IQR) Program (formerly referred to as 

the Reporting Hospital Quality Data for 

Annual Payment Update (RHQDAPU) 

Program); 

• Hospital outpatient services under 

the Hospital Outpatient Quality 

Reporting (OQR) Program (formerly 

referred to as the Hospital Outpatient 

Quality Data Reporting Program (HOP 

QDRP)); 

• Care furnished by physicians and 

other eligible professionals under the 

Physician Quality Reporting System 

(PQRS, formerly referred to as the 

Physician Quality Reporting Program 

Initiative (PQRI)); 

• Inpatient rehabilitation facilities 

under the Inpatient Rehabilitation 

Facility Quality Reporting Program (IRF 

QRP); 

• Long-term care hospitals under the 

Long-Term Care Hospital Quality 

Reporting (LTCHQR) Program; 

• PPS-exempt cancer hospitals under 

the PPS-Exempt Cancer Hospital 

Quality Reporting (PCHQR) Program; 

• Ambulatory surgical centers under 

the Ambulatory Surgical Center Quality 

Reporting (ASCQR) Program; 

• Inpatient psychiatric facilities 

under the Inpatient Psychiatric 

Facilities Quality Reporting (IPFQR) 

Program; 

• Home health agencies under the 

home health quality reporting program 

(HH QRP); and, 

• Hospice facilities under the Hospice 

Quality Reporting Program. 

We have also implemented the EndStage Renal Disease Quality Incentive 

Program and Hospital Value-Based 

Purchasing Program (described further 

below) that link payment to 

performance. 

In implementing the Hospital IQR 

Program and other quality reporting 

programs, we have focused on measures 

that have high impact and support CMS 

and HHS priorities for improved quality 

and efficiency of care for Medicare 

beneficiaries. Our goal for the future is 

to align the clinical quality measure 

requirements of the Hospital IQR 

Program with various other Medicare 

and Medicaid programs, including those 

authorized by the Health Information 

Technology for Economic and Clinical 

Health (HITECH) Act, so that the 

reporting burden on providers will be 

reduced. As appropriate, we will 

consider the adoption of clinical quality 

measures with electronic specifications 

so that the electronic collection of 

performance information is part of care 

delivery. Establishing such a system 

will require interoperability between 

EHRs and CMS data collection systems, 

additional infrastructural development 

on the part of hospitals and CMS, and 

adoption of standards for capturing, 

formatting, and transmitting the data 

elements that make up the measures. 

However, once these activities are 

accomplished, adoption of many 

measures that rely on data obtained 

directly from EHRs will enable us to 

expand the Hospital IQR Program 

measure set with less cost and reporting 

burden to hospitals. We believe that in 

the near future, collection and reporting 

of data elements for many measures 

through EHRs will greatly simplify and 

streamline reporting for various CMS 

quality reporting programs, and that 

hospitals will be able to switch 

primarily to EHR-based data reporting 

for many measures that are currently 

manually chart-abstracted and 

submitted to CMS for the Hospital IQR 

Program. 

We also have implemented a Hospital 

Value-Based Purchasing (VBP) Program 

under section 1886(o) of the Act. In 

2011, we issued the Hospital Inpatient 

VBP Program final rule (76 FR 26490 

through 26547). We most recently 

adopted additional policies for the 

Hospital VBP Program in section XIV. of 

the CY 2014 OPPS/ASC final rule with 

comment period (78 FR 75120 through 

75121). We are proposing additional 

policies for this program in section IV.I. 

of the preamble of this proposed rule. 

Under the Hospital VBP Program, 

hospitals will receive value-based 

incentive payments based on their 

quality performance with respect to 

performance standards for a 

performance period for the fiscal year 

involved. The measures under the 

Hospital VBP Program must be selected 

from the measures (other than 

readmission measures) specified under 

the Hospital IQR Program as required by 

section 1886(o)(2)(A) of the Act. 

In selecting measures for the Hospital 

IQR Program, we are mindful of the 

conceptual framework we have 

described for the Hospital VBP Program. 

The Hospital IQR Program is linked 

with the Hospital VBP Program because 

many of the measures and the reporting 

infrastructure for the programs overlap. 

We view the Hospital VBP Program as 

the next step in promoting higher 

quality care for Medicare beneficiaries 

by transforming Medicare from a 

passive payer of claims into an active 

purchaser of quality healthcare for its 

beneficiaries. Value-based purchasing is 

an important step to revamping how 

care and services are paid for, moving 

increasingly toward rewarding better 

value, outcomes, and innovations 

instead of merely volume. 

We also view the Hospital-Acquired 

Condition (HAC) payment adjustment 

program authorized by section 1886(p) 

of the Act, as added by section 3008 of 

the Affordable Care Act, and the 

Hospital VBP Program, as related but 

separate efforts to reduce HACs. The 

Hospital VBP Program is an incentive 

program that awards payments to 

hospitals based on quality performance 

on a wide variety of measures, while the 

HAC Reduction Program creates a 

payment adjustment resulting in 

payment reductions for the lowest 

performing hospitals based on their 

rates of HACs. Proposed policies for the 

Hospital VBP Program are included in 

section IV.I. of the preamble of this 

proposed rule. Proposed policies for the 

HAC Reduction Program are included in 

section IV.J. of the preamble of this 

proposed rule. 

Although we intend to monitor the 

various interactions of programs 

authorized by the Affordable Care Act 

and their overall impact on providers 

and suppliers, we also view programs 

that could potentially affect a hospital’s 

Medicaid payment as separate from 

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programs that could potentially affect a 

hospital’s Medicare payment. 

In the preamble of this proposed rule, 

we are proposing changes to the 

following Medicare quality reporting 

systems: 

• In section IX.A., the Hospital IQR 

Program. 

• In section IX.B., the PCHQR 

Program. 

• In section IX.C., the LTCHQR 

Program. 

In addition, in section IX.D. of the 

preamble of this proposed rule, we are 

proposing changes to the Medicare EHR 

Incentive Program. 

A. Hospital Inpatient Quality Reporting 

(IQR) Program 

1. Background 

a. History of the Hospital IQR Program 

We refer readers to the FY 2010 IPPS/ 

RY 2010 LTCH PPS final rule (74 FR 

43860 through 43861) and the FY 2011 

IPPS/LTCH PPS final rule (75 FR 50180 

through 50181) for detailed discussions 

of the history of the Hospital IQR 

Program, including the statutory history, 

and to the FY 2014 IPPS/LTCH PPS 

final rule (78 FR 50789 through 50807) 

for the measures we have adopted for 

the Hospital IQR measure set through 

the FY 2016 payment determination and 

subsequent years. 

b. Maintenance of Technical 

Specifications for Quality Measures 

The technical specifications for the 

Hospital IQR Program measures, or links 

to Web sites hosting technical 

specifications, are contained in the 

CMS/The Joint Commission (TJC) 

Specifications Manual for National 

Hospital Quality Measures 

(specifications manual). This 

Specifications Manual is posted on the 

QualityNet Web site at http://

www.qualitynet.org/. We generally 

update the Specifications Manual on a 

semiannual basis and include in the 

updates detailed instructions and 

calculation algorithms for hospitals to 

use when collecting and submitting data 

on required measures. These 

semiannual updates are accompanied by 

notifications to users, providing 

sufficient time between the change and 

the effective date in order to allow users 

to incorporate changes and updates to 

the specifications into data collection 

systems. 

The technical specifications for the 

HCAHPS patient experience of care 

survey are contained in the current 

HCAHPS Quality Assurance Guidelines 

manual, which is available at the 

HCAHPS On-Line Web site, http://

www.hcahpsonline.org. We maintain the 

HCAHPS technical specifications by 

updating the HCAHPS Quality 

Assurance Guidelines manual annually, 

and include detailed instructions on 

survey implementation, data collection, 

data submission and other relevant 

topics. As necessary, HCAHPS Bulletins 

are issued to provide notice of changes 

and updates to technical specifications 

in HCAHPS data collection systems. 

Many of the quality measures used in 

different Medicare and Medicaid 

reporting programs are endorsed by the 

National Quality Forum (NQF). As part 

of its regular maintenance process for 

endorsed performance measures, the 

NQF requires measure stewards to 

submit annual measure maintenance 

updates and undergo maintenance of 

endorsement review every 3 years. In 

the measure maintenance process, the 

measure steward (owner/developer) is 

responsible for updating and 

maintaining the currency and relevance 

of the measure and will confirm existing 

or minor specification changes with 

NQF on an annual basis. NQF solicits 

information from measure stewards for 

annual reviews, and it reviews measures 

for continued endorsement in a specific 

3-year cycle. 

The NQF regularly maintains its 

endorsed measures through annual and 

triennial reviews, which may result in 

the NQF making updates to the 

measures. We believe that it is 

important to have in place a 

subregulatory process to incorporate 

nonsubstantive updates made by the 

NQF into the measure specifications we 

have adopted for the Hospital IQR 

Program so that these measures remain 

up-to-date. We also recognize that some 

changes the NQF might make to its 

endorsed measures are substantive in 

nature and might not be appropriate for 

adoption using a subregulatory process. 

Therefore, in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53504 through 

53505), we finalized a policy under 

which we use a subregulatory process to 

make nonsubstantive updates to 

measures used for the Hospital IQR 

Program. With respect to what 

constitutes substantive versus 

nonsubstantive changes, we expect to 

make this determination on a case-bycase basis. Examples of nonsubstantive 

changes to measures might include 

updated diagnosis or procedure codes, 

medication updates for categories of 

medications, broadening of age ranges, 

and exclusions for a measure (such as 

the addition of a hospice exclusion to 

the 30-day mortality measures). We 

believe that nonsubstantive changes 

may include updates to NQF-endorsed 

measures based upon changes to 

guidelines upon which the measures are 

based. 

We will continue to use rulemaking to 

adopt substantive updates made to 

measures we have adopted for the 

Hospital IQR Program. Examples of 

changes that we might consider to be 

substantive would be those in which the 

changes are so significant that the 

measure is no longer the same measure, 

or when a standard of performance 

assessed by a measure becomes more 

stringent (for example: Changes in 

acceptable timing of medication, 

procedure/process, or test 

administration). Another example of a 

substantive change would be where the 

NQF has extended its endorsement of a 

previously endorsed measure to a new 

setting, such as extending a measure 

from the inpatient setting to hospice. 

These policies regarding what is 

considered substantive versus 

nonsubstantive would apply to all 

measures in the Hospital IQR Program. 

We also note that the NQF process 

incorporates an opportunity for public 

comment and engagement in the 

measure maintenance process. 

We believe this policy adequately 

balances our need to incorporate 

updates to Hospital IQR Program 

measures in the most expeditious 

manner possible while preserving the 

public’s ability to comment on updates 

that so fundamentally change an 

endorsed measure that it is no longer 

the same measure that we originally 

adopted. 

c. Public Display of Quality Measures 

Section 1886(b)(3)(B)(viii)(VII) of the 

Act, as amended by section 3001(a)(2) of 

the Affordable Care Act, requires that 

the Secretary establish procedures for 

making information regarding measures 

submitted available to the public after 

ensuring that a hospital has the 

opportunity to review its data before 

they are made public. In this proposed 

rule, we are not proposing to change our 

current policy of reporting data from the 

Hospital IQR Program as soon as it is 

feasible on CMS Web sites such as the 

Hospital Compare Web site (http://

www.medicare.gov/hospitalcompare) 

and/or the interactive https://

data.medicare.gov Web site, after a 

preview period. 

The Hospital Compare Web site is an 

interactive Web tool that assists 

beneficiaries by providing information 

on hospital quality of care to those who 

need to select a hospital. For more 

information on measures reported to 

Hospital Compare, please see http://

www.medicare.gov/hospitalcompare. 

Other information not reported to 

Hospital Compare may be made 

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available on other CMS Web sites such 

as http://www.cms.hhs.gov/Hospital

QualityInits/ or https://

data.medicare.gov. 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50777 through 50778) we 

responded to public comments on what 

additional quality measures and 

information featured on Hospital 

Compare may be highly relevant to 

patients and other consumers of health 

care, and how we may better display 

this information on the Hospital 

Compare Web site. 

2. Removal and Suspension of Hospital 

IQR Program Measures 

a. Considerations in Removing Quality 

Measures From the Hospital IQR 

Program 

As discussed further below, we 

generally retain measures from the 

previous year’s Hospital IQR Program 

measure set for subsequent years’ 

measure sets except when we 

specifically propose to remove or 

replace them. As we stated in the FY 

2011 IPPS/LTCH PPS final rule (75 FR 

50185), the criteria that we consider 

when determining whether to remove 

Hospital IQR Program measures are the 

following: (1) Measure performance 

among hospitals is so high and 

unvarying that meaningful distinctions 

and improvements in performance can 

no longer be made (‘‘topped out’’ 

measures); (2) availability of alternative 

measures with a stronger relationship to 

patient outcomes; (3) a measure does 

not align with current clinical 

guidelines or practice; (4) the 

availability of a more broadly applicable 

(across settings, populations, or the 

availability of a measure that is more 

proximal in time to desired patient 

outcomes for the particular topic; (6) the 

availability of a measure that is more 

strongly associated with desired patient 

outcomes for the particular topic; and 

(7) collection or public reporting of a 

measure leads to negative unintended 

consequences other than patient harm. 

We also take into account the views of 

the Measure Applications Partnership 

(MAP) when determining when a 

measure should be removed, and we 

strive to eliminate redundancy of 

similar measures (77 FR 53505 through 

53506). 

In this proposed rule, we are 

proposing to change the criteria for 

determining when a measure is 

‘‘topped-out.’’ A measure is ‘‘toppedout’’ when measure performance among 

hospitals is so high and unvarying that 

meaningful distinctions and 

improvements in performance can no 

longer be made (‘‘topped out’’ measures) 

(77 FR 53505 through 53506). We do not 

believe that measuring hospital 

performance on ‘‘topped-out’’ measures 

provides meaningful information on the 

quality of care provided by hospitals. 

We further believe that quality 

measures, once ‘‘topped out,’’ represent 

care standards that have been widely 

adopted by hospitals. We believe such 

measures should be considered for 

removal from the Hospital IQR Program 

because their associated reporting 

burden may outweigh the value of the 

quality information they provide. 

In order to determine ‘‘topped out’’ 

status, we are proposing to apply the 

following two criteria, the first of which 

was previously adopted by the HVBP 

Program in the Hospital Inpatient VBP 

Program final rule (76 FR 26496 through 

26497), to Hospital IQR measures. The 

second criterion is a modified version of 

what was previously adopted by the 

Hospital VBP Program in the above 

mentioned final rule, with the change 

from the ‘‘less than’’ operator (<) to the 

‘‘less than or equal to’’ operator (≤): 

• Statistically indistinguishable 

performance at the 75th and 90th 

percentiles; and 

• Truncated coefficient of variation ≤ 

0.10. 

The coefficient of variation (CV) is a 

common statistic that expresses the 

standard deviation as a percentage of 

the sample mean in a way that is 

independent of the units of observation. 

Applied to this analysis, a large CV 

would indicate a broad distribution of 

individual hospital scores, with large 

and presumably meaningful differences 

between hospitals in relative 

performance. A small CV would 

indicate that the distribution of 

individual hospital scores is clustered 

tightly around the mean value, 

suggesting that it is not useful to draw 

distinctions among individual hospitals’ 

measure performance. By adopting ‘‘less 

than or equal to’’ in our ‘‘topped out’’ 

test, we are clarifying the interpretation 

of the CV when a tie at 0.1 occurs due 

to rounding. We believe that the 

proposed criteria distinguish measures 

with significant variation in 

performance among hospitals. 

In the Hospital VBP Program context, 

we used a modified version of the CV, 

namely a truncated CV, for each 

measure, in which the 5 percent of 

hospitals with the lowest scores, and the 

5 percent of hospitals with highest 

scores were first truncated (set aside) 

before calculating the CV. This was 

done to avoid undue effects of the 

highest and lowest outlier hospitals, 

which if included, would tend to greatly 

widen the dispersion of the distribution 

and make the measure appear to be 

more reliable or discerning. 

We welcome public comments on this 

proposal. 

b. Proposed Removal of Hospital IQR 

Program Measures for the FY 2017 

Payment Determination and Subsequent 

Years 

As we continue moving towards 

including more clinical outcomes 

measures as opposed to process-of-care 

measures in the Hospital IQR Program 

measure set, we have considered 

removing additional measures using our 

previously-adopted removal criteria. We 

are proposing to remove five measures 

from the Hospital IQR Program for the 

FY 2017 payment determination and 

subsequent years, which begins in the 

CY 2015 reporting period: (1) AMI–1 

Aspirin at arrival (NQF #0132); (2) 

AMI–3 ACEI/ARB for left ventricular 

systolic dysfunction (NQF #0137); (3) 

AMI–5 Beta-blocker prescribed at 

discharge (NQF #0160); (4) SCIP INF–6 

Appropriate Hair Removal; and (5) 

Participation in a systematic database 

for cardiac surgery (NQF #0113). 

We are proposing to remove the first 

four process measures because they 

were previously determined to be 

‘‘topped out’’ and suspended (77 FR 

53509). We are proposing to remove the 

fifth measure because the MAP 

recommended the measure’s removal in 

its MAP Pre-Rulemaking Report: 2014 

Recommendations on Measures for 

More than 20 Federal Programs, which 

is available at: http://

www.qualityforum.org/Publications/

2014/01/MAP_Pre-Rulemaking_Report_

_2014_Recommendations_on_

Measures_for_More_than_20_Federal_

Programs.aspx. The MAP report states 

that the measure’s NQF endorsement 

has been placed on reserve status 

because the measure is ‘‘topped-out.’’ 

The purpose of reserve status is to retain 

endorsement of reliable and valid 

quality performance measures that have 

overall high levels of performance with 

little variability so that performance 

could be monitored in the future if 

necessary to ensure that performance 

does not decline. This status would 

apply only to highly credible, reliable, 

and valid measures that have high levels 

of performance due to quality 

improvement actions (often facilitated 

or motivated through public reporting 

and other accountability programs). 

More information about NQF reserve 

status is available at: https://

www.qualityforum.org/docs/Reserve_

Endorsement_Status.aspx. 

By removing these measures, we 

would alleviate the maintenance costs 

and administrative burden to hospitals 

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associated with retaining them. Should 

we determine that hospital adherence to 

these practices has unacceptably 

declined, we would propose to resume 

data collection in future rulemaking. In 

addition, we would comply with any 

requirements imposed by the Paperwork 

Reduction Act before re-proposing these 

measures. 

We also analyzed the remainder of the 

Hospital IQR measure set for other 

potential ‘‘topped out’’ measures using 

the previously adopted criteria. The 

analysis was based on the most recent 

two quarters of clinical process of care 

data available in the CMS Clinical Data 

Warehouse for IPPS eligible hospitals, 

which covers a measurement period 

from 01/01/2013 to 06/30/2013 (Q1 

2013–Q2 2013). Based on this analysis 

and using the previously adopted 

criteria, we believe that an additional 15 

chart-abstracted measures are ‘‘topped 

out,’’ and we are proposing to remove 

them from the measure set for the FY 

2017 payment determination and 

subsequent years. However, we are 

proposing to retain the electronic 

clinical quality measure version of 10 of 

these chart-abstracted measures for 

Hospital IQR Program reporting as 

discussed further in section IX.A.7.f. of 

the preamble of this proposed rule. We 

believe that retaining ‘‘topped out’’ 

measures under certain circumstances 

enables us to continue monitoring the 

clinical topic covered by the measure to 

ensure that hospitals continue to 

maintain high levels of performance. 

Further, we believe the additional 

reporting burden associated with 

retaining these measures is mitigated by 

retaining electronic versions of those 

measures, which are more easily 

reported by hospitals. These 10 

measures are denoted in the chart below 

by an asterisk. 

‘‘TOPPED OUT’’ CHART-ABSTRACTED MEASURES PROPOSED FOR REMOVAL FOR THE FY 2017 PAYMENT DETERMINATION

• AMI–1: Aspirin at Arrival (previously suspended). 

• AMI–3: ACEI or ARB for left ventricular systolic dysfunction—Acute Myocardial Infarction (AMI) Patients (previously suspended) (NQF #0137). 

• AMI–5: Beta-Blocker Prescribed at Discharge for AMI (previously suspended) (NQF #0160). 

• AMI–8a: Primary PCI received within 90 minutes of hospital arrival * (NQF #0163). 

• HF–2: Evaluation of left ventricular systolic function (NQF #0135). 

• PN–6: Initial antibiotic selection for community-acquired pneumonia (CAP) in immunocompetent patients* (NQF #0147). 

• SCIP–Inf–1: Prophylactic antibiotic received within one hour prior to surgical incision* (NQF #0527). 

• SCIP–Inf–2: Prophylactic antibiotic selection for surgical patients* (NQF #0528). 

• SCIP–Inf–3: Prophylactic antibiotics discontinued within 24 hours after surgery end time (48 hours for cardiac surgery) (NQF #0529). 

• SCIP–Inf–4: Cardiac surgery patients with controlled postoperative blood glucose (NQF #0300). 

• SCIP–Inf–6: Surgery patients with appropriate hair removal (previously suspended) (NQF #0301). 

• SCIP–Inf–9: Urinary catheter removed on Postoperative Day 1 (POD1) or Postoperative Day 2 (POD2) with day of surgery being day zero.* 

(NQF #0453). 

• SCIP–Card–2: Surgery patients on beta blocker therapy prior to arrival who received a beta blocker during the perioperative period (NQF 

#0284). 

• SCIP–VTE–2: Surgery Patients Who Received Appropriate Venous Thromboembolism (VTE) Prophylaxis Within 24 Hours Prior to Surgery to 

24 Hours After Surgery (NQF #0218). 

• STK–2: Discharged on antithrombotic therapy * (NQF #0435). 

• STK–3: Anticoagulation therapy for atrial fibrillation/flutter* (NQF #0436). 

• STK–5: Antithrombotic therapy by the end of hospital day two* (NQF #0438). 

• STK–10: Assessed for rehabilitation* (NQF #0441). 

• VTE–4: Patients receiving un-fractionated Heparin with doses/labs monitored by protocol*. 

• Participation in a systematic database for cardiac surgery (NQF #0113). 

* Proposed to be retained as an electronic clinical quality measure. 

We welcome public comments on our 

proposal to remove these measures. 

3. Process for Retaining Previously 

Adopted Hospital IQR Program 

Measures for Subsequent Payment 

Determinations 

We refer readers to the FY 2013 IPPS/ 

LTCH PPS final rule (77 FR 53512 

through 53513), for our finalized 

measure retention policy. When we 

adopt measures for the Hospital IQR 

Program beginning with a particular 

payment determination, these measures 

are automatically adopted for all 

subsequent payment determinations 

unless we propose to remove, suspend, 

or replace the measures. 

We are not proposing any changes to 

our policy for retaining previously 

adopted measures for subsequent 

payment determinations. 

4. Additional Considerations in 

Expanding and Updating Quality 

Measures Under the Hospital IQR 

Program 

We refer readers to the FY 2013 IPPS/ 

LTCH PPS final rule (77 FR 53510 

through 53512) for a discussion of the 

considerations we use to expand and 

update quality measures under the 

Hospital IQR Program. We are not 

proposing any changes to the 

considerations in expanding or updating 

quality measures. 

5. Previously Adopted Hospital IQR 

Program Measures for the FY 2016 

Payment Determination and Subsequent 

Years 

For currently adopted and future 

condition-specific, claims-based 

measures, beginning with the FY 2017 

payment determination and subsequent 

years, we would like to propose to use 

3 years of data to calculate measures 

unless otherwise specified. In other 

words, this reporting period would 

apply to all future calculations of 

condition specific measures already 

adopted in the Hospital IQR Program 

and any condition-specific measures 

that may be subsequently adopted in 

future years. The currently adopted, 

applicable measures are: 

• Hospital 30-day, all-cause, riskstandardized mortality rate (RSMR) 

following acute myocardial infarction 

(AMI) hospitalization for patients 18 

and older (NQF #0230) 

• Hospital 30-day, all-cause, riskstandardized mortality rate (RSMR) 

following heart failure (HF) 

hospitalization for patients 18 and 

older (NQF #0229) 

• Hospital 30-day, all-cause, riskstandardized mortality rate (RSMR) 

following pneumonia hospitalization 

(NQF #0468) 

• Stroke 30-day mortality rate 

• Hospital 30-Day, All-Cause, RiskStandardized Mortality Rate (RSMR) 

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following Chronic Obstructive 

Pulmonary Disease (COPD) 

Hospitalization (NQF #1893) 

• 30-day all-cause, Acute Myocardial 

Infarction (AMI) 30-day risk 

standardized readmission rate (RSMR) 

following Acute Myocardial Infarction 

(AMI) hospitalization (NQF #0505) 

• 30-day all-cause, risk standardized 

readmission rate (RSMR) following 

Heart Failure (HF) hospitalization 

(NQF #0330) 

• 30-day all-cause, risk standardized 

readmission rate (RSMR) following 

Pneumonia (PN) hospitalization (NQF 

#0506) 

• 30-day risk standardized readmission 

rate (RSMR) following Total Hip/Total 

Knee Arthroplasty (NQF #1551) 

• 30-day risk standardized readmission 

rate (RSMR) following Stroke 

hospitalization 

• 30-day risk standardized readmission 

rate (RSMR) following COPD 

hospitalization (NQF #1891) 

• Hip/Knee Complication: Hospitallevel Risk-Standardized Complication 

Rate (RSCR) following Elective 

Primary Total Hip Arthroplasty (NQF 

#1550) 

We welcome public comments on our 

proposal to use 3 years of data to 

calculate current and future conditionspecific, claims-based measures. 

The Influenza Vaccination Coverage 

Among Healthcare Personnel (HCP) 

(NQF #0431) was finalized for the 

Hospital IQR program in the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51633) 

and the Hospital Outpatient Quality 

Reporting (HOQR) in the CY 2014 

OPPS/ASC final rule (78 FR 75099). We 

received public comments regarding the 

burden of separately collecting and 

reporting HCP influenza vaccination 

statuses for both the inpatient and 

outpatient settings. In response to these 

concerns, we clarified that beginning 

with the 2014–2015 influenza season 

(CY 2014 reporting period and FY 2016 

payment determination), facilities 

should collect and report a single 

vaccination count for each healthcare 

facility by CMS Certification Number 

(CCN), instead of separately by inpatient 

or outpatient setting, in order to reduce 

burden. We announced this clarification 

regarding how to designate HCP for this 

measure in an Operational Guidance 

document which can be found on our 

on our Web page at: http://

origin.glb.cdc.gov/nhsn/PDFs/HCP/

Operational-Guidance-ACH–HCPFlu.pdf. Using the CCN will allow 

healthcare facilities with multiple care 

settings to simplify data collection and 

submit a single count applicable across 

the inpatient and outpatient settings. 

We will then publicly report the 

percentage of HCP who received an 

influenza vaccination per CCN. This 

single count per CCN will inform the 

public of the percentage of vaccinated 

HCP at a particular healthcare facility, 

which would still provide meaningful 

data and help to improve the quality of 

care. Specific details on data submission 

for this measure can be found at: http:// 

www.cdc.gov/nhsn/acute-care-hospital/

hcp-vaccination/ and at http://

www.cdc.gov/nhsn/acute-care-hospital/

index.html. 

The following table shows measures 

currently adopted for the Hospital IQR 

Program, including suspended 

measures. 

Topic Hospital IQR program measures previously adopted for the FY 2016 payment determination and subsequent years 

Acute Myocardial Infarction (AMI) Measures 

• AMI–1: Aspirin at Arrival (previously suspended). 

• AMI–3: ACEI or ARB for left ventricular systolic dysfunction—Acute Myocardial Infarction (AMI) Patients (previously 

suspended) (NQF #0137). 

• AMI–5: Beta-Blocker Prescribed at Discharge for AMI (previously suspended) (NQF #0160). 

• AMI–7a Fibrinolytic therapy received within 30 minutes of hospital arrival (NQF #0164). 

• AMI–8a: Primary PCI received within 90 minutes of hospital arrival (NQF #0163) *. 

Heart Failure (HF) Measure 

• HF–2 Evaluation of left ventricular systolic function (NQF #0135) *. 

Stroke (STK) Measure Set 

• STK–1 Venous thromboembolism (VTE) prophylaxis (NQF #0434). 

• STK–2 Discharged on antithrombotic therapy (NQF #0435) *. 

• STK–3 Anticoagulation therapy for atrial fibrillation/flutter (NQF #0436) *. 

• STK–4 Thrombolytic therapy (NQF #0437). 

• STK–5 Antithrombotic therapy by the end of hospital day two (NQF #0438). 

• STK–6 Discharged on statin medication (NQF #0439). 

• STK–8 Stroke education. 

• STK–10 Assessed for rehabilitation (NQF #0441). 

Venous Thromboembolism (VTE) Measure Set 

• VTE–1 Venous thromboembolism prophylaxis (NQF #0371). 

• VTE–2 Intensive care unit venous thromboembolism prophylaxis (NQF #0372). 

• VTE–3 Venous thromboembolism patients with anticoagulation overlap therapy (NQF #0373). 

• VTE–4 Patients receiving un-fractionated Heparin with doses/labs monitored by protocol. 

• VTE–5 VTE discharge instructions. 

• VTE–6 Incidence of potentially preventable VTE. 

Pneumonia (PN) Measure 

• PN–6 Initial antibiotic selection for community-acquired pneumonia (CAP) in immunocompetent patients (NQF #0147). 

Surgical Care Improvement Project (SCIP) Measures 

• SCIP INF–1 Prophylactic antibiotic received within one hour prior to surgical incision (NQF #0527) *. 

• SCIP INF–2 Prophylactic antibiotic selection for surgical patients (NQF #0528). 

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Topic Hospital IQR program measures previously adopted for the FY 2016 payment determination and subsequent years 

• SCIP INF–3 Prophylactic antibiotics discontinued within 24 hours after surgery end time (48 hours for cardiac surgery) 

(NQF #0529). 

• SCIP INF–4 Cardiac surgery patients with controlled postoperative blood glucose (NQF #0300). 

• SCIP INF–9 Urinary catheter removed on Postoperative Day 1 (POD1) or Postoperative Day 2 (POD2) with day of surgery being day zero (NQF #0453). 

• SCIP Card-2 Surgery patients on beta blocker therapy prior to arrival who received a beta blocker during the 

perioperative period (NQF #0284). 

• SCIP–VTE-2 Surgery Patients Who Received Appropriate Venous Thromboembolism (VTE) Prophylaxis Within 24 

Hours Prior to Surgery to 24 Hours After Surgery (NQF #0218). 

Mortality Measures 

• Hospital 30-day, all-cause, risk-standardized mortality rate (RSMR) following acute myocardial infarction (AMI) hospitalization for patients 18 and older (NQF #0230). 

• Hospital 30-day, all-cause, risk-standardized mortality rate (RSMR) following heart failure (HF) hospitalization for patients 18 and older (NQF #0229). 

• Hospital 30-day, all-cause, risk-standardized mortality rate (RSMR) following pneumonia hospitalization (NQF #0468). 

• Stroke 30-day mortality rate. 

• Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) following Chronic Obstructive Pulmonary Disease (COPD) Hospitalization (NQF #1893). 

Patient Experience of Care Measure 

• HCAHPS survey (NQF #0166) (expanded to include two new ‘‘About You’’ items and the 3-item Care Transition Measure) (NQF #0228). 

Readmission Measures 

• Hospital 30-day all-cause risk-standardized readmission rate (RSRR) following acute myocardial infarction (AMI) hospitalization (NQF #0505). 

• Hospital 30-day, all-cause, risk-standardized readmission rate (RSRR) following heart failure hospitalization (NQF 

#0330). 

• Hospital 30-day, all-cause, risk-standardized readmission rate (RSRR) following pneumonia hospitalization (NQF 

#0506). 

• Hospital-level 30-day, all-cause risk-standardized readmission rate (RSRR) following elective primary total hip 

arthroplasty (THA) and/or total knee arthroplasty (TKA) (NQF #1551). 

• Hospital-Wide All-Cause Unplanned Readmission (HWR) (NQF #1789). 

• 30-day risk standardized readmission rate (RSMR) following Stroke hospitalization. 

• Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate (RSRR) following Chronic Obstructive Pulmonary 

Disease (COPD) Hospitalization (NQF #1891). 

AHRQ Patient Safety Indicators (PSIs) Composite Measure 

• PSI–90 Patient safety for selected indicators (composite) (NQF #0531). 

AHRQ PSI and Nursing Sensitive Care Measure 

• PSI–4 Death among surgical inpatients with serious treatable complications (NQF #0351). 

Structural Measures 

• Participation in a Systematic Database for Cardiac Surgery (NQF #0113). 

• Participation in a Systematic Clinical Database Registry for Nursing Sensitive Care. 

• Participation in a Systematic Clinical Database Registry for General Surgery. 

• Safe Surgery Checklist Use. 

Healthcare-Associated Infections (HAI) Measures 

• National Healthcare Safety Network (NHSN) Central line-associated Bloodstream Infection (CLABSI) Outcome Measure 

(NQF #0139). 

• American College of Surgeons—Centers for Disease Control and Prevention (ACS–CDC) Harmonized Procedure Specific Surgical Site Infection (SSI) Outcome Measure (NQF #0753). 

—SSI following Colon Surgery. 

—SSI following Abdominal Hysterectomy. 

• National Healthcare Safety Network (NHSN) Catheter-associated Urinary Tract Infection (CAUTI) Outcome Measure 

(NQF #0138). 

• National Healthcare Safety Network (NHSN) Facility-wide Inpatient Hospital-onset Methicillin-resistant Staphylococcus 

aureus (MRSA) Bacteremia Outcome Measure (NQF #1716). 

• National Healthcare Safety Network (NHSN) Facility-wide Inpatient Hospital-onset Clostridium difficile Infection (CDI) 

Outcome Measure (NQF #1717). 

• Influenza vaccination coverage among healthcare personnel (HCP) (NQF #0431). 

Surgical Complications Measures 

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Topic Hospital IQR program measures previously adopted for the FY 2016 payment determination and subsequent years 

• Hospital-level risk-standardized complication rate (RSCR) following elective primary total hip arthroplasty (THA) and/or 

total knee arthroplasty (TKA) (NQF #1550). 

Emergency Department (ED) Throughput Measures 

• ED–1 Median time from ED arrival to ED departure for admitted ED patients (NQF #0495). 

• ED–2 Admit Decision Time to ED Departure Time for Admitted Patients (NQF #0497). 

Prevention: Global Immunization (IMM) Measures 

• IMM–1 Pneumococcal Immunization (previously suspended) (NQF #1653). 

• IMM–2 Influenza Immunization (NQF #1659). 

Cost Efficiency Measures 

• Payment-Standardized Medicare Spending Per Beneficiary (MSPB) (NQF #2158). 

• AMI Payment per Episode of Care. 

Perinatal Care (PC) Measure 

• PC–01 Elective delivery (NQF #0469) 

* Measures proposed for removal for the FY 2016 payment determination and subsequent years. 

6. Proposed Refinements to Existing 

Measures in the Hospital IQR Program 

We are proposing to incorporate 

refinements for several measures that 

were previously adopted in the Hospital 

IQR Program. These refinements have 

either arisen out of the NQF 

endorsement maintenance process, or 

during our internal efforts to harmonize 

measure approaches. The measure 

refinements include the following: (1) 

Refining the planned readmission 

algorithm for all seven readmission 

measures included in the Hospital IQR 

Program; (2) modifying the hip/knee 

readmission and complication measure 

cohorts to exclude index admissions 

with a secondary fracture diagnosis; and 

(3) modifying the hip/knee complication 

measure to not count as complications 

coded as ‘‘present on admission’’ (POA) 

during the index admission. 

a. Proposed Refinement of Planned 

Readmission Algorithm for 30-Day 

Readmission Measures 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50785 through 50787) we 

adopted the CMS Planned Readmission 

Algorithm Version 2.1 (the Algorithm) 

for the Hospital IQR Program. In the 

same final rule (78 FR 50785 through 

50787, 50790 through 50792, and 50794 

through 50798), we also finalized the 

use of the CMS Planned Readmission 

Algorithm Version 2.1 in the AMI, HF, 

PN, THA/TKA, HWR, and COPD 

measures. This algorithm identifies 

readmissions that are planned and occur 

within 30 days of discharge from the 

hospital. A complete description of the 

Algorithm, which includes lists of 

planned diagnoses and procedures, is 

available at: http://www.cms.gov/

Medicare/Quality-Initiatives-PatientAssessment-Instruments/Hospital

QualityInits/Measure-Methodology.html 

in the ‘‘Planned Readmission’’ folder. 

NQF has endorsed the use of the 

Algorithm for these measures. 

In that final rule (78 FR 50652), in 

response to comments, we agreed to 

continually review the Algorithm and 

make updates as needed. Since its 

development, we have identified and 

made improvements. As a result, we are 

now proposing to use an updated, 

revised version, the CMS Planned 

Readmission Algorithm Version 3.0, for 

the AMI, HF, PN, THA/TKA, HWR, 

COPD, and Stroke readmission 

measures for the FY 2015 payment 

determination and subsequent years. As 

discussed further below, we are also 

proposing to use Version 3.0 of this 

algorithm for the CABG readmission 

measure that we are proposing to 

include in the Hospital IQR Program 

starting in FY 2017, proposed in section 

IX.A.7.a. of the preamble of this 

proposed rule. 

Version 3.0 incorporates 

improvements made based on a 

validation study of the algorithm. 

Researchers reviewed 634 patients’ 

charts at 7 hospitals, classified 

readmission as planned or unplanned 

based on the chart review, and 

compared the results to the claimsbased algorithm’s classification of the 

readmissions. The findings suggested 

the algorithm was working well but 

could be improved. 

Specifically, the study suggested the 

need to make small changes to the tables 

of procedures and conditions used in 

the algorithm to classify readmission as 

planned or unplanned. The algorithm 

uses the Agency for Healthcare Research 

and Quality’s (AHRQ’s) Clinical 

Classification Software (CCS) to group 

thousands of procedure and diagnosis 

codes into fewer categories of related 

procedures or diagnoses. The algorithm 

then uses four tables of procedures and 

diagnoses categories and a flow diagram 

to classify tables as planned or 

unplanned. Additional information on 

this software is available at: http://

www.hcup-us.ahrq.gov/toolssoftware/

ccs/ccs.jsp. For all measures, the first 

table identifies procedures that, if 

present in a readmission, classify the 

readmission as planned. The second 

table identifies primary discharge 

diagnoses that always classify 

readmissions as planned. Because 

almost all planned admissions are for 

procedures or surgeries, a third table 

identifies procedures for which patients 

are typically admitted; if any of these 

procedures is coded in the readmission, 

we classify a readmission as planned as 

long as that readmission does not have 

an acute (unplanned) primary discharge 

diagnosis. The fourth table lists the 

acute (unplanned) primary discharge 

diagnoses that disqualify readmissions 

that include one or more of the 

potentially planned procedure in the 

third table as planned. These tables are 

structured the same across all measures 

but the specific procedure and 

conditions they contain vary slightly for 

certain measures based on clinical 

considerations for each cohort. The 

current tables for each measure can be 

found in the measure methodology 

reports at: http://www.cms.gov/

Medicare/Quality-Initiatives-PatientAssessment-Instruments/Hospital

QualityInits/Measure-Methodology.

html. 

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Version 3.0 modifies two of these 

tables by removing or adding 

procedures or conditions to improve the 

accuracy of the algorithm. First, the 

validation study revealed that the 

algorithm could be improved by 

removing two procedure CCS categories 

from the third table, the potentially 

planned procedure table: CCS 211— 

Therapeutic Radiation and CCS 224— 

Cancer Chemotherapy. Typically, 

patients do not require admission for 

scheduled Therapeutic Radiation 

treatments (CCS 211). The study found 

that readmissions that were classified as 

planned because they included 

Therapeutic Radiation were largely 

unplanned. 

The algorithm was also more accurate 

when CCS 224—Cancer Chemotherapy 

was removed from the potentially 

planned procedure table. The second 

table of the algorithm classifies all 

readmissions with a principal diagnosis 

of Maintenance Chemotherapy as 

planned. Most patients who receive 

cancer chemotherapy have both a code 

for Cancer Chemotherapy (CCS 224) and 

a principal discharge diagnosis of 

Maintenance Chemotherapy (CCS 45). 

In the validation study, the 

readmissions for patients who received 

Cancer Chemotherapy (CCS 224) but 

who did not have a principal diagnosis 

of Maintenance Chemotherapy were 

largely unplanned, therefore removing 

CCS 224 from the potentially planned 

procedure table improved the 

algorithm’s accuracy. Therefore, Version 

3.0 removes CCS 211 and CCS 224 from 

the list of potentially planned 

procedures to improve the accuracy of 

algorithm. 

As noted above, the algorithm uses a 

table of acute principal discharge 

diagnoses to help identify unplanned 

readmissions. Readmissions that have a 

principal diagnosis listed in the table 

are classified as unplanned, regardless 

of whether they include a procedure in 

the potentially planned procedure table. 

The validation study identified one 

diagnosis CCS that should be added to 

the table of acute diagnoses to more 

accurately identify truly unplanned 

admissions as unplanned: Hypertension 

with Complications (CCS 99). 

Hypertension with complications is a 

diagnosis that is rarely associated with 

planned readmissions. 

In addition, the validation study 

identified a subset of ICD–9 diagnosis 

codes within two CCS diagnosis 

categories that should be added to the 

acute diagnosis table to improve the 

algorithm. CCS 149, Pancreatic 

Disorders, includes the code for acute 

pancreatitis; clinically there is no 

situation in which a patient with this 

acute condition would be admitted for 

a planned procedure. Therefore, Version 

3.0 adds the ICD–9 code for acute 

pancreatitis, 577.0, to the acute primary 

diagnosis table to better identify 

unplanned readmissions. Finally, CCS 

149, Biliary Tract Disease, is a mix of 

acute and non-acute diagnoses. Adding 

the subset of ICD–9 codes within this 

CCS group that are for acute diagnoses 

to the list of acute conditions improves 

the accuracy of the algorithm for these 

acute conditions while still ensuring 

that readmissions for planned 

procedures, like cholecystectomies, are 

counted accurately as planned. For 

more detailed information on how the 

algorithm is structured and the use of 

tables to identify planned procedures 

and diagnoses, we refer readers to 

CMS’s Planned Readmission Algorithm 

Version 2.1: http://www.cms.gov/

Medicare/Quality-Initiatives-PatientAssessment-Instruments/

HospitalQualityInits/MeasureMethodology.html. As noted above, 

readers can find the specific Version 3.0 

tables for each measure in the measure 

updates and specifications reports at the 

above link. 

We invite public comment on our 

proposal to use the CMS Planned 

Readmission Algorithm Version 3.0, for 

the AMI, HF, PN, THA/TKA, HWR, 

COPD, and Stroke readmission 

measures for the FY 2015 payment 

determination and subsequent years. 

b. Proposed Refinement of Total Hip 

Arthroplasty and Total Knee 

Arthroplasty (THA/TKA) 30-Day 

Complication and Readmission 

Measures 

In this proposed rule, for the FY 2015 

payment determination and subsequent 

years, we are proposing to refine: (1) 

The measure outcome and cohort for the 

Elective Primary THA/TKA All-Cause 

30-Day Risk-Standardized Complication 

Measure (NQF #1550); and (2) the 

measure cohort for the Elective Primary 

THA/TKA All-Cause Unplanned 30-Day 

Risk-Standardized Readmission 

Measure (NQF #1551). 

As part of measure implementation, 

CMS conducted a dry run for both the 

THA/TKA readmission and 

complication measures in September/

October of 2012. More information on 

the dry run is available at: https://

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Blobs. 

During the dry run, several 

commenters suggested CMS evaluate the 

use of Present on Admission (POA) 

codes for both the hip/knee readmission 

and complication measures. We agreed 

with the suggestion and have been 

monitoring POA data collection and 

testing its readiness for use in claimsbased measures. We also noted our 

intent to evaluate the use of POA codes 

in Hospital IQR Program measures, such 

as the stroke mortality rate measure, in 

the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50801). We have since tested the 

use of the POA codes and propose to 

incorporate POA codes into the hip/

knee complication measure for FY 2015 

payment determination and subsequent 

years in order to prevent identifying a 

condition as a complication of care if it 

was present during admission. 

In addition, currently, the THA/TKA 

Readmission Measure (NQF #1551) 

adopted for the Hospital IQR Program is 

intended to only include patients who 

have an elective THA or TKA. 

Currently, this measure excludes 

patients who have a principal discharge 

diagnosis of femur, hip, or pelvic 

fracture on their index admission since 

hip replacement for hip fracture is not 

an elective procedure. However, after 

hospitals reviewed their hospitalspecific THA/TKA Readmission 

Measure data during the national dryrun, CMS learned that hospitals code 

hip fractures that occur during the same 

admission as a THA as not only a 

principal diagnosis, but also 

alternatively, a secondary diagnosis, 

instead of just a principal diagnosis as 

currently specified by the measure. 

According to feedback received from 

hospitals participating in the dry-run, 

the measure methodology failed to 

identify, and, appropriately exclude, a 

small number of patients (that is, 0.42 

percent of patients in 2009–2010 data) 

with a hip fracture that had non-elective 

total hip arthroplasty as captured by 

these secondary diagnoses. 

Therefore, to ensure that all such nonelective hip fracture patients are 

excluded from the measure, we are 

proposing to refine the measure to 

exclude patients with hip fractures 

coded as either a principal or secondary 

diagnosis during the index admission 

beginning with the FY 2015 payment 

determination and subsequent years. We 

believe this refinement is responsive to 

comments from hospitals (78 FR 50709) 

and will allow us to accurately exclude 

patients who were initially admitted for 

a hip fracture and who then 

subsequently underwent total hip 

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arthroplasty, making their procedure 

non-elective. 

We invite public comment on these 

proposed refinements. 

c. Anticipated Effect of Proposed 

Refinements to Existing Measures 

Based on our analyses of discharges 

between July 2009 and June 2012, our 

proposal to use the Planned 

Readmission Algorithm Version 3.0 

would have the following effects on 

measures had these changes been 

applied for the FY 2014 payment 

determination as an example. We are 

sharing this information to provide the 

public with a sense of the extent to 

which these refinements to the 

measures will change the measure 

scores. As the results show, while the 

refinements improve the accuracy of the 

measures, the changes in actual scores 

are very slight. 

The proposed 30-day readmission rate 

(excluding the planned readmissions) 

would increase by 0.1 percentage points 

for AMI; 0.2 percentage points for HF; 

0.1 percentage points for PN; 0.1 

percentage points for COPD; 0.0 

percentage points for hip/knee; 0.1 

percentage points for HWR; and 0.0 

percentage points for stroke. 

The new national measure 

(unplanned) rate for each condition 

would have been 18.4 percent for AMI; 

23.2 percent for HF; 17.7 percent for PN; 

21.1 percent for COPD; 5.4 percent for 

hip/knee; 16.1 percent for HWR; and 

13.8 percent for stroke. 

The number of readmissions 

considered planned (and, therefore, not 

counted as a readmission) would 

decrease by 334 for AMI; 1,375 for HF; 

981 for PN, 574 for COPD; 309 for hip/ 

knee; 7,417 for HWR; and 242 for stroke. 

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COMPARISON OF

PLANNED

READMISSION

ALGORITHMS V 2.1 AND 3.0 FOR AMI/HF/PN/COPD/HK/HWR/STROKE

READMISSION

MEASURES (BASED ON 2009– 

2012 DISCHARGES) 

AMI HF PN COPD Hip/Knee HWR Stroke 

V 3.0 V 2.1 V 3.0 V 2.1 V 3.0 V 2.1 V 3.0 V 2.1 V 3.0 V 2.1 V 3.0 V 2.1 V 3.0 V 2.1 

Number of Discharges .... 513,331 513,331 1,262,826 1,262,826 1,089,758 1,089,758 989,381 989,381 879,641 879,641 6,918,467 6,918,467 502,376 502,376 Number of Unplanned 

Readmissions .............. 94,453 93,940 292,976 290,450 192,887 191,797 208,759 207,770 47,236 47,236 1,112,885 1,105,378 69,323 69,081 

Readmission Rate .......... 18.4% 18.3% 23.2% 23.0% 17.7% 17.6% 21.1% 21.0% 5.4% 5.4% 16.1% 16.0% 13.8% 13.8% Number of Planned Readmissions .................. 11,947 12,281 16,230 17,605 6,545 7,526 6,447 7,021 2,326 2,635 85,673 93,180 5,750 5,992 Planned Readmission 

Rate ............................. 2.3% 2.4% 1.3% 1.4% 0.6% 0.7% 0.7% 0.7% 0.3% 0.3% 1.2% 1.3% 1.1% 1.2% 

% of Readmissions that 

are Planned ................. 11.2% 11.6% 5.3% 5.7% 3.3% 3.8% 3.0% 3.3% 4.7% 5.3% 7.1% 7.8% 7.7% 8.0% 

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44 Drye E, Krumholz H, Vellanky S, Wang Y. 

Probing New Conditions and Procedures for New 

Measure Development: Yale New Haven Health 

Systems Corporation; Center for Outcomes Research 

and Evaluation.; 2009:1–7. 

45Suter L.G., Wang, C., Vellanky S., Potteiger J., 

Curtis J., Lin Z., Geary L.L., Krumholz H.M., Drye 

E.D. Hospital-level 30-day All-Cause Unplanned 

Readmission Following Coronary Artery Bypass 

Graft Surgery: Report prepared for the Centers for 

Medicare & Medicaid Services. 2012. 

46Hannan EL, Zhong Y, Lahey SJ, et al. 30-day 

readmissions after coronary artery bypass graft 

surgery in New York State. JACC Cardiovasc Interv. 

2011;4(5):569–576. 

47 Ibid. 

7. Proposed Additional Hospital IQR 

Program Measures for the FY 2017 

Payment Determination and Subsequent 

Years 

For purposes of the Hospital IQR 

Program, section 1886(b)(3)(B)(IX)(aa) of 

the Act requires that any measure 

specified by the Secretary must have 

been endorsed by the entity with a 

contract under section 1890(a) of the 

Act. However, the statutory 

requirements under section 

1886(b)(3)(B)(IX)(bb) of the Act provide 

an exception that, in the case of a 

specified area or medical topic 

determined appropriate by the Secretary 

for which a feasible and practical 

measure has not been endorsed by the 

entity with a contract under section 

1890(a) of the Act, the Secretary may 

specify a measure that is not so 

endorsed as long as due consideration is 

given to measures that have been 

endorsed or adopted by a consensus 

organization identified by the Secretary. 

We are proposing to add a total of 

eleven measures to measure set for the 

FY 2017 payment determination and 

subsequent years. The first nine new 

measures are: (1) Hospital 30-day, allcause, unplanned, risk-standardized 

readmission rate (RSRR) following 

coronary artery bypass graft (CABG) 

surgery (claims-based); (2) Hospital 30- 

day, all-cause, risk-standardized 

mortality rate (RSMR) following 

coronary artery bypass graft (CABG) 

surgery (claims-based); (3) Hospitallevel, risk-standardized 30-day episodeof-care payment measure for pneumonia 

(claims-based); (4) Hospital-level, riskstandardized 30-day episode-of-care 

payment measure for heart failure 

(claims-based); (5) Severe Sepsis and 

Septic Shock: Management Bundle 

(NQF #0500) (chart-abstracted); (6) 

EHDI–1a Hearing Screening Prior to 

Hospital Discharge (NQF #1354) 

(electronic health record-based); (7) PC– 

05 Exclusive Breast Milk Feeding and 

the subset measure PC–05a Exclusive 

Breast Milk Feeding Considering 

Mother’s Choice (NQF #0480) 

(electronic health record-based); (8) 

CAC–3 Home Management Plan of Care 

(HMPC) Document Given to Patient/

Caregiver (electronic health recordbased); and, (9) Healthy Term Newborn 

(NQF #0716) (electronic health recordbased). 

In addition, to align the Hospital IQR 

Program with the Medicare EHR 

Incentive Program for Eligible Hospitals 

and Critical Access Hospitals and allow 

hospitals as many measure options as 

possible that overlap both programs, we 

are proposing to readopt two measures 

previously removed from the Hospital 

IQR Program as voluntary electronic 

clinical quality measures: (10) AMI–2 

Aspirin Prescribed at Discharge for AMI 

(NQF #0142) (electronic clinical quality 

measure); and (11) AMI–10 Statin 

Prescribed at Discharge (NQF #0639) 

(electronic clinical quality measure). 

These two measures are part of the Stage 

2 Medicare EHR Incentive Program 

measure set for eligible hospitals and 

CAHs. 

The four proposed claims-based 

measures (1–4, above) were included on 

a publicly available document entitled 

‘‘List of Measures Under Consideration 

for December 1, 2013’’ in compliance 

with section 1890A(a)(2) of the Act, and 

they were reviewed by the MAP in its 

MAP 2014 Recommendations on 

Measures for More Than 20 Federal 

Programs final report, available at: 

http://www.qualityforum.org/

Publications/2014/01/MAP_PreRulemaking_Report__2014_

Recommendations_on_Measures_for_

More_than_20_Federal_Programs.aspx. 

The proposed chart-abstracted 

measure (5 above) Severe Sepsis and 

Septic Shock: Management Bundle 

(NQF #0500) was included in the MAP 

Pre-Rulemaking Report: 2013 

Recommendations on Measures Under 

Consideration by HHS final report, 

available at: https://www.qualityforum.

org/WorkArea/linkit.aspx?LinkIdentifier

=id&ItemID=72738. 

The proposed measures 6–9 above 

were included on a publicly available 

document entitled ‘‘List of Measures 

Under Consideration for December 1, 

2012’’ in compliance with section 

1890A(a)(2) of the Act, and they were 

reviewed by the MAP in its MAP PreRulemaking Report: 2013 

Recommendations on Measures Under 

Consideration by HHS final report, 

available at: https://www.quality

forum.org/WorkArea/linkit.aspx?Link

Identifier=id&ItemID=72738. 

Measures 10 and 11 were included on 

a publicly available document entitled 

‘‘Measures Under Consideration for 

Calendar Year 2012’’ in compliance 

with section 1890A(a)(2) of the Act, and 

they were reviewed by the MAP in its 

Pre-Rulemaking Report: Input on 

Measures Under Consideration by HHS 

for 2012 Rulemaking available at 

https://www.qualityforum.org/

Publications/2012/02/MAP_PreRulemaking_Report__Input_on_

Measures_Under_Consideration_by_

HHS_for_2012_Rulemaking.aspx. 

a. Proposed Hospital 30-day, All-cause, 

Unplanned, Risk-Standardized 

Readmission Rate (RSRR) Following 

Coronary Artery Bypass Graft (CABG) 

Surgery 

(1) Background 

CABG is a priority area for outcomes 

measure development, because it is a 

common procedure associated with 

considerable morbidity, mortality, and 

health care spending. In 2007, there 

were 114,028 hospitalizations for CABG 

surgery and 137,721 hospitalizations for 

combined surgeries for CABG and valve 

procedures (‘‘CABG plus valve’’ 

surgeries) in the U.S.44

Readmission rates following CABG 

surgery are high and vary across 

hospitals. For example, in 2009 

Medicare fee-for-service (FFS) data, the 

median hospital-level risk-standardized 

readmission rate after CABG was 17.2 

percent and ranged from 13.9 percent to 

22.1 percent.45 This is consistent with 

published data as the average 30-day allcause, hospital-level readmission rate in 

New York state was 16.5 percent and 

ranged from 8.3 percent to 21.1 percent 

among all patients who underwent 

CABG surgery between January 1, 2005 

and November 30, 2007.46 Among 

patients readmitted within 30 days, 87.3 

percent of readmissions were for 

reasons related to CABG surgery, with a 

30-day rate of readmissions due to 

complications of CABG surgery of 14.4 

percent. Patients readmitted within 30 

days also experienced a 2.8 percent inhospital mortality rate during their 

readmission(s), three-fold higher than 

the 30-day mortality rate for patients 

without readmissions.47 Hence, 

addressing the causes of readmission 

will improve outcomes for patients. 

Readmissions after CABG also impose 

significant health care costs. In 2007, 

the Medicare Payment Advisory 

Committee (MedPAC) published a 

report to Congress in which it identified 

the seven conditions associated with the 

most costly potentially preventable 

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28228 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

48Medicare Payment Advisory Committee. Report 

to the Congress: Promoting Greater Efficiency in 

Medicare, 2007. 

49 Ibid. 

50 Gulshan Sharma, Kou Yong-Fang, Freeman 

Jean L, Zhang Dong D, Goodwin James S.: 

Outpatient Follow-up Visit and 30-Day Emergency 

Department Visit and Readmission in Patients 

Hospitalized for Chronic Obstructive Pulmonary 

Disease. Arch Intern Med. Oct. 2010;170:1664– 

1670. 

51Nelson EA, Maruish ME, Axler JL.: Effects of 

Discharge Planning and Compliance with 

Outpatient Appointments on Readmission Rates. 

Psychiatr Serv. July 1 2000;51(7):885–889. 

readmissions in the U.S.48 Among these 

seven, CABG ranked as having the 

highest potentially preventable 

readmission rate within 15 days 

following discharge (13.5 percent) and 

the second highest average Medicare 

payment per readmission ($8,136).49

The annual cost to Medicare for 

potentially preventable CABG 

readmissions was estimated at $151 

million. 

High readmission rates and wide 

variation in these rates suggest that 

there is room for improvement. 

Reducing readmissions after CABG 

surgery has been identified as a target 

for quality measurement. An all-cause 

readmission measure for patients who 

undergo CABG surgery will provide 

hospitals with an incentive to reduce 

readmissions through prevention and/or 

early recognition and treatment of 

postoperative complications, and 

improved coordination of peri-operative 

care and discharge planning. 

The specifics of the measure 

methodology are included in the 

measure methodology report we have 

posted on our Web site at: http://

cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/

HospitalQualityInits/MeasureMethodology.html. We refer readers to 

the report for further details on the riskadjustment statistical model. 

We are proposing to include this nonNQF-endorsed measure in the Hospital 

IQR Program under the exception 

authority in section 

1886(b)(3)(B)(IX)(bb) of the Act as 

previously discussed in section IX.A.7. 

of the preamble of this proposed rule. 

Although the proposed measure is not 

currently NQF-endorsed, we considered 

available measures that have been 

endorsed or adopted by the NQF. We 

also are not aware of any other 30-day, 

all-cause, unplanned, risk-standardized 

readmission rate (RSRR) following 

coronary artery bypass graft (CABG) 

surgery measures that have been 

endorsed or adopted by a consensus 

organization, and found no other 

feasible and practical measures on this 

topic. The measure has been reviewed 

by the MAP and was conditionally 

supported pending NQF endorsement as 

detailed in its Pre-Rulemaking 2014 

Map Recommendations Report available 

at: https://www.qualityforum.org/

Setting_Priorities/Partnership/MAP_

Final_Reports.aspx. This measure was 

submitted to NQF on February 5, 2014 

and is currently under review. 

(2) Overview of Measure 

The CABG readmission measure 

assesses hospitals’ 30-day, all-cause 

risk-standardized rate of unplanned 

readmission following admission for a 

CABG procedure. In general, the 

measure uses the same approach to risk 

adjustment and hierarchical logistic 

modeling (HLM) methodology that is 

specified for CMS’s other readmission 

measures previously adopted for this 

program. Information on how the 

measure employs HLM can be found in 

the 2012 CABG Readmission Measure 

Methodology Report (available at: 

http://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/

Measure-Methodology.html. 

(3) Data Sources 

The proposed measure is claimsbased. It uses Medicare administrative 

data from hospitalizations for Medicare 

FFS beneficiaries hospitalized for a 

CABG procedure. 

(4) Outcome 

The outcome for this measure is 30- 

day, all-cause readmission, defined as 

an unplanned subsequent inpatient 

admission to any applicable acute care 

facility for any cause within 30 days of 

the date of discharge from the index 

hospitalization. This outcome period is 

consistent with other NQF-endorsed 

publicly reported readmission measures 

(AMI, HF, PN, COPD, HWR and, THA/ 

TKA). 

The measure assesses all-cause 

unplanned readmissions (excluding 

planned readmissions) rather than 

readmissions for CABG only for several 

reasons. First, from the patient 

perspective, a readmission for any 

reason is likely to be an undesirable 

outcome of care, even though not all 

readmissions are preventable. Second, 

limiting the measure to CABG-related 

readmissions may limit the effort focus 

too narrowly rather than encouraging 

broader initiatives aimed at improving 

the overall care within the hospital and 

transitions from the hospital setting. 

Moreover, it is often hard to exclude 

quality issues and accountability based 

on the documented cause of 

readmission. For example, a patient 

who underwent a CABG surgery and 

develops a hospital-acquired infection 

may ultimately be readmitted for sepsis. 

It would be inappropriate to consider 

such a readmission to be unrelated to 

the care the patient received for their 

CABG surgery. Finally, while the 

measure does not presume that each 

readmission is preventable, 

interventions generally have shown 

reductions in all types of 

readmissions.50 51

The measure does not count planned 

readmissions as readmissions. Planned 

readmissions would be identified in 

claims data using the CMS Planned 

Readmission Algorithm Version 3.0 that 

detects planned readmissions that may 

occur within 30 days of discharge from 

the hospital. Version 2.1 of the 

algorithm was finalized for use in the 

current Hospital IQR Program 

readmission measures in the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50785 

through 50787, 50790 through 50792 

and 50794 through 50798). However, we 

are proposing to update the algorithm to 

version 3.0, and details on the updates 

to this algorithm can be found in section 

IX.A.6.a. of the preamble of this 

proposed rule. The proposed CABG 

readmission measure uses the planned 

readmission algorithm tailored for 

CABG patients. We adapted the 

algorithm for this group of patients with 

input from CABG surgeons and other 

experts, narrowing the types of 

readmissions considered planned since 

planned readmissions following CABG 

are less common and less varied than 

among patients discharged from the 

hospital following a medical admission. 

More detailed information on how the 

CABG measure incorporates the 

Planned Readmission Algorithm 

Version 3.0 can be found on the CMS 

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

Medicare/Quality-Initiatives-PatientAssessment-Instruments/

HospitalQualityInits/MeasureMethodology.html. Once at the Web site 

go to the Coronary Artery Bypass Graft 

(CABG) Readmission zip file. Open the 

file labeled, ‘‘Version10_Readmission_

CABG_Measure_Methodology_Report_3 

19 2014’’ and refer to Section 2.3.3. For 

the CABG measure, unplanned 

readmissions that fall within the 30-day 

post-discharge timeframe from the index 

admission would not be counted as 

readmissions for the index admission if 

they were preceded by a planned 

readmission. 

(5) Cohort 

The cohort includes patients aged 65 

years and older who received a 

qualifying CABG procedure at an acute 

care facility. Patients are eligible for 

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52Hannan EL, Zhong Y, Lahey SJ, et al. 30-day 

readmissions after coronary artery bypass graft 

surgery in New York State. JACC Cardiovasc Interv. 

2011;4(5):569–576. 

53 Krumholz H. CABG Mortality Measure 

Methodology Report Section 1, Subtask 3.1, 

Deliverable #49a: Yale New Haven Systems 

Corporation; Center for Outcomes Research and 

Evaluation; 2012. 

54 Drye E, Krumholz H, Vellanky S, Wang Y. 

Probing New Conditions and Procedures for New 

Measure Development: Yale New Haven Systems 

Corporation; Center for Outcomes Research and 

Evaluation; 2009:7. 

inclusion if they had a qualifying CABG 

procedure and continuous enrollment in 

Medicare FFS one year prior to the first 

day of the index hospital stay and 

through 30 days post-discharge. The 

index stay is the stay that triggers the 

30-day measurement period. 

In order to include a clinicallycoherent set of patients in the measure, 

we sought input from clinical experts 

regarding the inclusion of other 

concomitant cardiac and non-cardiac 

procedures, such as valve replacement 

and carotid endarterectomy. Adverse 

clinical outcomes following such 

procedures are higher than those 

following ‘‘isolated’’ CABG procedures, 

that is, CABG procedures performed 

without concomitant high-risk cardiac 

and non-cardiac procedures.52 Limiting 

the measure cohort to ‘‘isolated’’ CABG 

patients is consistent with published 

reports of CABG outcomes; 9 therefore, 

the measure cohort considers only 

patients undergoing isolated CABG as 

eligible for inclusion in the measure. We 

defined isolated CABG patients as those 

undergoing CABG procedures without 

concomitant valve or other major 

cardiac, vascular or thoracic procedures. 

In addition, our clinical experts, 

consultants, and Technical Expert Panel 

(TEP) members agreed that an isolated 

CABG cohort is a clinically coherent 

cohort for quality measurement. For 

detailed information on the cohort 

definition, we refer readers to the 2012 

CABG Readmission Measure 

Methodology Report on the CMS Web 

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

Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/

Measure-Methodology.html. 

(6) Inclusion and Exclusion Criteria 

The measure includes 

hospitalizations for patients who are 65 

years of age or older at the time of index 

admission and for whom there was a 

complete 12 months of Medicare FFS 

enrollment to allow for adequate risk 

adjustment. The measure excludes the 

following admissions from the measure 

cohort: (1) Admissions for patients who 

are discharged against medical advice 

(excluded because providers do not 

have the opportunity to deliver full care 

and prepare the patient for discharge); 

(2) admissions for patients who die 

during the initial hospitalization (these 

patients are not eligible for 

readmission); (3) admissions for patients 

with subsequent qualifying CABG 

procedures during the measurement 

period (a repeat CABG procedure during 

the measurement period very likely 

represents a complication of the original 

CABG procedure and is a clinically 

more complex and higher risk surgery, 

therefore we select the first CABG 

admission for inclusion in the measure 

and exclude subsequent CABG 

admissions from the cohort); and (4) 

admissions for patients without at least 

30 days post-discharge enrollment in 

Medicare FFS (excluded because the 30- 

day readmission outcome cannot be 

assessed in this group). 

(7) Risk-Adjustment 

The measure adjusts for differences 

across hospitals in how at risk their 

patients are for readmission relative to 

patients cared for by other hospitals. 

The measure uses claims data to 

identify patient clinical conditions and 

comorbidities to adjust patient risk for 

readmission across hospitals, but does 

not adjust for potential complications of 

care. The model does not adjust for 

socioeconomic status or race because 

risk adjusting for these characteristics 

would hold hospitals with a large 

proportion of minority or low 

socioeconomic status patients to a 

different standard of care than other 

hospitals. One goal of this measure is to 

illuminate quality differences that such 

risk adjustment would obscure. 

(8) Calculating the Risk-Standardized 

Readmission Ratio (RSRR) 

The measure is calculated using 

hierarchical logistic modeling (HLM). 

This approach appropriately accounts 

for the types of patients a hospital treats 

(that is, hospital case mix), the number 

of patients it treats, and the quality of 

care it provides. The HLM is an 

appropriate statistical approach to 

measuring quality based on patient 

outcomes when the patients are 

clustered within hospitals (and 

therefore the patients’ outcomes are not 

statistically independent) and the 

number of eligible patients for the 

measure varies from hospital to 

hospital. As noted above, the measure 

methodology defines hospital case mix 

based on the clinical diagnoses 

provided in the hospital claims for their 

patients’ inpatient and outpatient visits 

for the 12 months prior to the CABG 

hospitalization, as well as those present 

in the claims for care at admission. The 

methodology, however, specifically 

does not account for diagnoses present 

in the index admission that may 

indicate complications rather than 

patient comorbidities. 

The RSRR is calculated as the ratio of 

the number of predicted readmissions to 

the number of expected readmissions 

and then the ratio is multiplied by the 

national unadjusted readmission rate. 

The ratio is greater than one for 

hospitals that have more readmissions 

that would be expected for an average 

hospital with similar cases and less than 

one if the hospital has fewer 

readmissions than would be expected 

for an average hospital with similar 

cases. This approach is analogous to a 

ratio of ‘‘observed’’ or ‘‘crude’’ rate to an 

‘‘expected’’ or risk-adjusted rate used in 

other similar types of statistical 

analyses. 

The RSRR is a point estimate—the 

best estimate of a hospital’s readmission 

rate based on the hospital’s case mix. 

For displaying the measure for the 

Hospital IQR Program, we computed an 

interval estimate, which is similar to the 

concept of a confidence interval, to 

characterize the level of uncertainty 

around the point estimate. We use the 

point estimate and interval estimate to 

determine hospital performance (for 

example, higher than expected, as 

expected, or lower than expected). For 

more detailed information on the 

calculation methodology, we refer 

readers to our Web site at: http://

cms.gov/Medicare/QualityInitiatives

PatientAssessmentInstruments/Hospital

QualityInits/Measure-Methodology.

html. 

We invite public comment on this 

proposal. 

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

Risk-Standardized Mortality Rate 

(RSMR) Following Coronary Artery 

Bypass Graft (CABG) Surgery 53

(1) Background 

CABG is a priority area for outcomes 

measure development because it is a 

common procedure associated with 

considerable morbidity, mortality, and 

health care spending. In 2007, there 

were 114,028 hospitalizations for CABG 

surgery and 137,721 hospitalizations for 

combined surgeries for CABG and valve 

procedures (‘‘CABG plus valve’’ 

surgeries) among Medicare FFS patients 

in the U.S.54

CABG surgeries are costly procedures 

that account for the majority of major 

cardiac surgeries performed nationally. 

In FY 2009, isolated CABG surgeries 

accounted for almost half (47.6 percent) 

of all cardiac surgery hospital 

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28230 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

55Massachusetts Data Analysis Center. Adult 

Coronary Artery Bypass Graft Surgery in the 

Commonwealth of Massachusetts: Hospital and 

Surgeons Risk-Standardized 30-Day Mortality Rates. 

In: Health MDoP, ed. Boston; 2009:77. 56Pennsylvania Health Care Cost Containment 

Council. Cardiac Surgery in Pennsylvania 2008– 

2009. Harrisburg; 2011:60. 57 Ibid. 58New York State Department of Health. Adult 

Cardiac Surgery in New York State 2006–2008; 

2010:54. 59California CABG Outcomes Reporting Program. 

The California Report on Coronary Artery Bypass 

Graft Surgery: 2007–2008 Hospital and Surgeon 

Data. 2011:119. 

60Hannan EL, Zhong Y, Lahey SJ, et al. 30-day 

readmissions after coronary artery bypass graft 

surgery in New York State. JACC Cardiovasc Interv. 

2011;4(5):569–576. 

admissions in Massachusetts.55 This 

provides an example of the frequency in 

which a CABG Is performed for a 

patient admitted for cardiac surgery. In 

2008, the average Medicare payment 

was $30,546 for CABG without valve 

and $47,669 for CABG plus valve 

surgeries.56

Mortality rates following CABG 

surgery are not insignificant and vary 

across hospitals. For example, in 2009 

Medicare FFS data indicated that the 

median hospital-level, risk-standardized 

mortality rate after CABG was 3.0 

percent and ranged from 1.5 percent to 

7.9 percent.57 Even within a single state, 

the observed in-hospital, 30-day allcause, hospital-level mortality rate was 

1.81 percent and ranged from 0.0 

percent to 5.6 percent among patients 

who were discharged after CABG 

surgery (without any other major heart 

surgery earlier in the hospital stay) in 

New York in 2008. The risk-adjusted 

mortality rate ranged from 0.0 percent to 

8.2 percent.58

Variation in these rates suggests that 

there is room for improvement. An allcause mortality measure for patients 

who undergo CABG surgery will 

provide hospitals with an incentive to 

reduce mortality through improved 

coordination of perioperative care and 

discharge planning. This is further 

supported by the success of registrybased mortality measures in reducing 

CABG mortality rates. For example, 

California reports that CABG mortality 

in that state has steadily declined from 

2.9 percent in 2003, the first year of 

mandatory reporting of their state 

registry measure, to 2.2 percent in 

2008.59

The specifics of the measure 

methodology are included in the 

measure methodology report we have 

posted on our Web site at: http://

cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/

HospitalQualityInits/MeasureMethodology.html. We refer readers to 

the report for further details on the riskadjustment statistical model. 

We are proposing to include this nonNQF-endorsed measure in the Hospital 

IQR Program under the exception 

authority in section 

1886(b)(3)(B)(IX)(bb) of the Act as 

previously discussed in section IX.A.7. 

of the preamble of this proposed rule. 

Although the proposed measure is not 

currently NQF-endorsed, we considered 

available measures that have been 

endorsed or adopted by the NQF, and 

we were unable to identify any 

measures that assess hospital 30-day, 

all-cause, risk-standardized mortality 

rate (RSMR) following coronary artery 

bypass graft (CABG) surgery. We also 

are not aware of any other 30-day, allcause, RSMR measures that have been 

endorsed or adopted by a consensus 

organization, and found no other 

feasible and practical measures on this 

topic. The measure has been reviewed 

by the MAP and was conditionally 

supported pending NQF endorsement as 

detailed in its Pre-Rulemaking 2014 

Map Recommendations Report available 

at: https://www.qualityforum.org/

Publications/2014/01/MAP_PreRulemaking_Report__2014_

Recommendations_on_Measures_for_

More_than_20_Federal_Programs.aspx. 

This measure was submitted to NQF on 

March 17, 2014 and is currently under 

review. 

(2) Overview of Measure 

The CABG mortality measure assesses 

hospitals’ 30-day, all-cause riskstandardized rate of mortality following 

admission for a CABG procedure. In 

general, the measure uses the same 

approach to risk adjustment and 

hierarchical logistic modeling (HLM) 

methodology that is specified for CMS’s 

other mortality measures previously 

adopted for this program. Information 

on how the measure employs HLM can 

be found in the 2012 CABG Mortality 

Measure Methodology Report (available 

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

Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/

Measure-Methodology.html. 

(3) Data Sources 

The proposed measure is claimsbased. It uses Medicare administrative 

data from hospitalizations for Medicare 

FFS beneficiaries hospitalized for a 

CABG procedure. 

(4) Outcome 

The outcome for this measure is 30- 

day, all-cause mortality, defined as 

death for any cause within 30 days of 

the date of the index procedure date. We 

use a standard period of assessment so 

that the outcome for each patient is 

measured consistently. Without a 

standard period, variation in length of 

stay would have an undue influence on 

mortality rates, and institutions would 

have an incentive to adopt strategies to 

shift deaths out of the hospital without 

improving quality. The measure differs 

from the timeframe used in the other 30- 

day mortality measures in the Hospital 

IQR Program by starting the outcome 

window from the procedure date rather 

than the admission date. Data from 2009 

Medicare FFS patients demonstrates 

that 25 percent of CABG procedures 

occurred more than 3 days after the 

admission date. Therefore, dating the 

measurement period from admission 

would potentially underestimate the 

period of risk for a substantial number 

of hospitals. 

We chose 30-day mortality because it 

is an outcome that can be strongly 

influenced by hospital care and the 

early transition to the outpatient setting. 

Clinical experts concur that a 30-day 

timeframe is clinically sensible for 

measuring outcomes following CABG 

surgery. 

The measure assesses all-cause 

mortality rather than CABG-specific 

mortality for several reasons. First, 

limiting the measure to CABG-related 

mortalities may limit the focus of efforts 

to improve care to a narrow set of 

approaches as opposed to encouraging 

broader initiatives aimed at improving 

the overall in-hospital care. Second, 

cause of death may be unreliably 

recorded and it is often not possible to 

exclude quality issues and 

accountability based on the documented 

cause of mortality. Finally, from a 

patient perspective, death due to any 

cause is the outcome that matters. 

(5) Cohort 

The cohort includes patients aged 65 

years and older who received a 

qualifying CABG procedure at an acute 

care facility. Patients are eligible for 

inclusion if they had a qualifying CABG 

procedure and continuous enrollment in 

Medicare FFS one year prior to the first 

day of the index hospital stay and 

through 30 days post-procedure. 

In order to include a clinicallycoherent set of patients in the measure, 

we sought input from clinical experts 

regarding the inclusion of other 

concomitant cardiac and non-cardiac 

procedures, such as valve replacement 

and carotid endarterectomy. Adverse 

clinical outcomes following such 

procedures are higher than those 

following ‘‘isolated’’ CABG procedures, 

that is, CABG procedures performed 

without concomitant high-risk cardiac 

and non-cardiac procedures.60 Limiting 

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61 Ibid. 

the measure cohort to ‘‘isolated’’ CABG 

patients is consistent with published 

reports of CABG outcomes; 61 therefore, 

the measure cohort considers only 

patients undergoing isolated CABG as 

eligible for inclusion in the measure. We 

defined isolated CABG patients as those 

undergoing CABG procedures without 

concomitant valve or other major 

cardiac, vascular or thoracic procedures. 

In addition, our clinical experts, 

consultants, and Technical Expert Panel 

(TEP) members agreed that an isolated 

CABG cohort is a clinically coherent 

cohort for quality measurement. For 

detailed information on the cohort 

definition, we refer readers to the 2012 

CABG Mortality Measure Methodology 

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

www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/

Measure-Methodology.html. 

(6) Inclusion and Exclusion Criteria 

The measure includes 

hospitalizations for patients who are 65 

years of age or older at the time of index 

admission and for whom there was a 

complete 12 months of Medicare FFS 

enrollment to allow for adequate risk 

adjustment. The measure excludes the 

following admissions from the measure 

cohort: (1) Admissions for patients who 

leave hospital against medical advice 

excluded because providers do not have 

the opportunity to deliver full care and 

prepare the patient for discharge); and 

(2) admissions for patients with 

subsequent qualifying CABG procedures 

during the measurement period (a 

repeat CABG procedure during the 

measurement period very likely 

represents a complication of the original 

CABG procedure and is a clinically 

more complex and higher risk surgery, 

therefore we select the first CABG 

admission for inclusion in the measure 

and exclude subsequent CABG 

admissions from the cohort). 

(7) Risk-Adjustment 

The measure adjusts for differences 

across hospitals in how at risk their 

patients are for death relative to patients 

cared for by other hospitals. The 

measure uses claims data to identify 

patient clinical conditions and 

comorbidities to adjust patient risk for 

readmission across hospitals, but does 

not adjust for potential complications of 

care. Consistent with NQF guidelines, 

the model does not adjust for 

socioeconomic status or race because 

risk adjusting for these characteristics 

would hold hospitals with a large 

proportion of minority or low 

socioeconomic status patients to a 

different standard of care than other 

hospitals. One goal of this measure is to 

illuminate quality differences that such 

risk adjustment would obscure. 

(8) Calculating the Risk-Standardized 

Mortality Ratio (RSMR) 

The measure is calculated using 

hierarchical logistic modeling (HLM). 

This approach appropriately accounts 

for the types of patients a hospital treats 

(that is, hospital case mix), the number 

of patients it treats, and the quality of 

care it provides. The HLM is an 

appropriate statistical approach to 

measuring quality based on patient 

outcomes when the patients are 

clustered within hospitals (and 

therefore the patients’ outcomes are not 

statistically independent) and the 

number of eligible patients for the 

measure varies from hospital to 

hospital. As noted above, the measure 

methodology defines hospital case mix 

based on the clinical diagnoses 

provided in the hospital claims for their 

patients’ inpatient and outpatient visits 

for the 12 months prior to the CABG 

hospitalization, as well as those present 

in the claims for care at admission. The 

methodology, however, specifically 

does not account for diagnoses present 

in the index admission that may 

indicate complications rather than 

patient comorbidities. 

The RSMR is calculated as the ratio of 

the number of predicted deaths to the 

number of expected deaths and then the 

ratio is multiplied by the national 

unadjusted mortality rate. The ratio is 

greater than one for hospitals that have 

more deaths than would be expected for 

an average hospital with similar cases 

and less than one if the hospital has 

fewer deaths than would be expected for 

an average hospital with similar cases. 

This approach is analogous to a ratio of 

‘‘observed’’ or ‘‘crude’’ rate to an 

‘‘expected’’ or risk-adjusted rate used in 

other similar types of statistical 

analyses. 

The RSMR is a point estimate—the 

best estimate of a hospital’s mortality 

rate based on the hospital’s case mix. 

For displaying the measure for the 

Hospital IQR Program, we computed an 

interval estimate, which is similar to the 

concept of a confidence interval, to 

characterize the level of uncertainty 

around the point estimate. We use the 

point estimate and interval estimate to 

determine hospital performance (for 

example, higher than expected, as 

expected, or lower than expected). For 

more detailed information on the 

calculation methodology, we refer 

readers to our Web site at: http://

www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/

Measure-Methodology.html. 

We invite public comment on this 

proposal. 

c. Proposed Hospital-Level, RiskStandardized 30-Day Episode-of-Care 

Payment Measure for Pneumonia 

(1) Background 

Providing high-value care is an 

essential part of our mission to provide 

better health care for individuals, better 

health for populations, and lower costs 

for health care. In order to incentivize 

innovation that promotes high-quality 

care at high value it is critical to 

examine measures of payment and 

patient outcomes concurrently. There is 

evidence of variation in payments at 

hospitals for pneumonia patients; mean 

30-day risk-standardized payment 

among Medicare FFS patients aged 65 or 

older hospitalized for pneumonia in 

2008–2009 was $13,237, and ranged 

from $8,281 to $27,975 across 4,155 

hospitals. However, high or low 

payments to hospitals are difficult to 

interpret in isolation. Some high 

payment hospitals may have better 

clinical outcomes when compared with 

low payment hospitals while other high 

payment hospitals may not have better 

outcomes. For this reason, the value of 

hospital care is more clearly assessed 

when pairing hospital payments with 

hospital quality. Therefore, we are 

proposing to include this non-NQFendorsed measure in the Hospital IQR 

Program under the exception authority 

in section 1886(b)(3)(B)(IX)(bb) of the 

Act as previously discussed in section 

IX.A.7. of the preamble of this proposed 

rule. Although the proposed measure is 

not currently NQF-endorsed, we 

considered available measures that have 

been endorsed or adopted by the NQF, 

and we were unable to identify any 

measures that assess hospital riskstandardized payment associated with a 

30-day episode-of-care for pneumonia. 

We also are not aware of any other 30- 

day episode-of-care pneumonia 

measures that have been endorsed or 

adopted by a consensus organization, 

and found no other feasible and 

practical measures on this topic. The 

MAP supports this measure but 

reiterated the need for this measure to 

be submitted for NQF-endorsement: 

https://www.qualityforum.org/Setting_

Priorities/Partnership/MAP_Final_

Reports.aspx. This measure was 

submitted to the NQF for endorsement 

on April 18, 2014. 

We believe it is important to adopt 

this measure as pneumonia is one of the 

leading causes of hospitalization for 

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62Lindenauer PK, Lagu T, Shieh M, Pekow PS, 

Rothberg MB. Association of diagnostic coding with 

trends in hospitalizations and mortality of patients 

with pneumonia, 2003–2009. JAMA: The Journal of 

the American Medical Association. 

2012;307(13):1405–1413. 

Americans 65 and over, and pneumonia 

patients incur roughly $10 billion in 

aggregate health care costs.62

Furthermore, because 30-day all-cause 

mortality and readmission measures for 

pneumonia are already publicly 

reported, pneumonia serves as a model 

condition for assessing relative value for 

an episode of care that begins with an 

acute hospitalization because including 

this measure in the Hospital IQR 

Program and publicly reporting it on 

Hospital Compare will allow 

stakeholders to assess information about 

a hospital’s quality and cost of care for 

pneumonia. The measure reflects 

differences in the management of care 

for patients with pneumonia both 

during hospitalization and immediately 

post-discharge. By focusing on one 

specific condition, value assessments 

may provide actionable feedback to 

hospitals and incentivize targeted 

improvements in care. 

(2) Overview of Measure and Rationale 

for Examining Payments for a 30-Day 

Episode-of-Care 

The pneumonia payment measure 

assesses hospital risk-standardized 

payment associated with a 30-day 

episode-of-care for pneumonia for any 

hospital participating in the Hospital 

IQR Program. The measure includes 

Medicare FFS patients aged 65 or older 

admitted for pneumonia and calculates 

payments for these patients over a 30- 

day episode-of-care beginning with the 

index admission. In general, the 

measure uses the same approach to riskadjustment as our 30-day outcome 

measures previously adopted for the 

Hospital IQR Program. We refer readers 

to our Web site at: http://cms.gov/

Medicare/Quality-Initiatives-PatientAssessment-Instruments/

HospitalQualityInits/MeasureMethodology.html. 

When examining variation in 

payments, consideration of the episodeof-care triggered by admission is 

meaningful for several reasons. First, 

hospitalizations represent a brief period 

of illness that requires ongoing 

management post-discharge and 

decisions made at the admitting hospital 

affect payments for care in the 

immediate post-discharge period. 

Second, attributing payments for a 

continuous episode-of-care to admitting 

hospitals may reveal practice variations 

in the full care of the illness that can 

result in increased payments. Third, a 

30-day preset window provides a 

standard observation period by which to 

compare all hospitals. Lastly, the 

pneumonia payment measure is 

intended to be paired with our 30-day 

pneumonia mortality and readmission 

measures and capture payments for 

Medicare patients across care settings, 

services, and supplies, except for 

Medicare Part D (that is, inpatient, 

outpatient, skilled nursing facility, 

home health, hospice, physician/

clinical laboratory/ambulance services, 

supplier Part B items, and durable 

medical equipment, prosthetics/

orthotics, and supplies). 

We have posted the measure 

methodology report on our Web site at: 

http://cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/

Measure-Methodology.html. We refer 

readers to the report for further details 

on the risk adjustment statistical model 

as well as the model results. 

(3) Data Sources 

The proposed measure is claimsbased and uses Medicare administrative 

data that contain hospitalizations and 

payments for Medicare FFS 

beneficiaries hospitalized with 

pneumonia. 

(4) Outcome 

The primary outcome of the 

pneumonia payment measure is the 

hospital-level risk-standardized 

payment for a pneumonia episode-ofcare. The measure captures payments 

for Medicare patients across all care 

settings, services, and supplies, except 

Part D. By risk-standardizing the 

payment measure, we are able to adjust 

for case-mix at any given hospital and 

compare a specific hospital’s 

pneumonia payment to other hospitals 

with the same case-mix. The analytic 

time frame for the pneumonia payment 

measure begins with the index 

admission for pneumonia and ends 30 

days post-admission. 

In order to isolate payment variation 

that reflects practice patterns rather than 

CMS payment adjustments, the 

pneumonia payment measure excludes 

policy and geography payment 

adjustments unrelated to clinical care 

decisions. We achieve this by 

‘‘stripping’’ or ‘‘standardizing’’ 

payments for each care setting. 

Stripping refers to removing geographic 

differences and policy adjustments in 

payment rates for individual services 

from the total payment for that service. 

Standardizing refers to averaging 

payments across geographic areas for 

those services where geographic 

differences in payment cannot be 

stripped. Stripping and standardizing 

the payment amounts allows for a fair 

comparison across hospitals based 

solely on payments for decisions related 

to clinical care of pneumonia. 

(5) Cohort 

We created the pneumonia payment 

measure cohort to be aligned with the 

publicly reported pneumonia mortality 

measure cohort. Consistent with these 

measures, the pneumonia payment 

measure includes hospitalizations with 

a principal hospital discharge diagnosis 

of pneumonia using the International 

Classification of Diseases, Ninth 

revision, Clinical Modification (ICD–9– 

CM). These measures will use data from 

July 2010–Jun 2013 which does not yet 

include the period for which ICD–10 

codes are mandatory. ICD–10 will 

officially be implemented on October 1, 

2015. A full list of ICD–9–CM codes 

included in the final cohort can be 

found in Appendix B of the technical 

report on our Web site at: http://

www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/

Measure-Methodology.html. The 

measure includes only those 

hospitalizations from short-stay acute 

care hospitals in the index cohort and 

restricts the cohort to patients enrolled 

in FFS Medicare Parts A and B (with no 

Medicare Advantage coverage). 

(6) Inclusion and Exclusion Criteria 

The pneumonia payment measure 

includes hospitalizations for patients 65 

years or older at the time of index 

admission and for whom there was a 

complete 12 months of FFS enrollment 

to allow for adequate risk adjustment. 

An index admission/hospitalization is 

the initial pneumonia admission that 

triggers the 30-day episode-of-care for 

this payment calculation. The measure 

excludes the following admissions from 

the measure cohort: (1) Admissions for 

patients with fewer than 30 days of 

post-admission enrollment in Medicare 

because this is necessary in order to 

identify the outcome (payments) in the 

sample over the analytic period; (2) 

admissions for patients having a 

principal diagnosis of pneumonia 

during the index hospitalization who 

were transferred from another acute care 

facility are excluded, because the 

hospital where the patient was initially 

admitted made the critical acute care 

decisions (including the decision to 

transfer and where to transfer); (3) 

admissions for pneumonia patients who 

were discharged on the same or next 

day as the index admission and did not 

die or get transferred are excluded, 

because it is unlikely these patients 

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suffered a clinically significant 

pneumonia; (4) admissions for patients 

enrolled in the Medicare Hospice 

program any time in the 12 months 

prior to the index hospitalization, 

including the first date of the index 

admission are excluded, because it is 

likely that these patients are continuing 

to seek comfort care and their goal may 

not be survival; (5) admissions for 

patients who are discharged alive and 

against medical advice are excluded 

because providers did not have the 

opportunity to deliver full care and 

prepare the patient for discharge; (6) 

admissions for patients transferred to or 

from federal or Veterans Administration 

hospitals are excluded, because we do 

not have claims data for these hospitals; 

thus, including these patients would 

systematically underestimate payments; 

and (7) admissions without a DRG or 

DRG weight for the index 

hospitalization are excluded, because 

we cannot calculate a payment for these 

patients’ index admission using the 

IPPS; this would underestimate 

payments for the entire episode-of-care. 

There are two portions of the DRG 

system that determine how much a 

provider is reimbursed. The first is the 

DRG itself which indicates the reason a 

patient was admitted. The second is the 

DRG weight which determines the 

severity of the admission. Without 

either of these, we were unable to 

calculate the payment for the index 

admission. 

(7) Risk Adjustment 

The measure adjusts for differences 

across hospitals in how payments are 

affected by patient comorbidities 

relative to patients cared for by other 

hospitals. Consistent with NQF 

guidelines, the model does not adjust 

for socioeconomic status or race, 

because risk-adjusting for these 

characteristics would hold hospitals 

with a large proportion of minority or 

low socioeconomic status patients to a 

different standard of care than other 

hospitals. One goal of this measure is to 

illuminate quality differences that such 

risk-adjustment would obscure. 

(8) Calculating the Risk-Standardized 

Payment (RSP) 

The measure is calculated using a 

hierarchical generalized linear model 

with a log link and a Poisson error 

distribution. This is a widely accepted 

statistical method that enables fair 

evaluation of relative hospital 

performance by taking into account 

patient risk factors as well as the 

number of patients that a hospital treats. 

This statistical model accounts for the 

structure of the data (patients clustered 

within hospitals) and calculates: (1) 

How much variation in hospital 

payment overall is accounted for by 

patients’ individual risk factors (such as 

age and other medical conditions); and 

(2) how much variation is accounted for 

by hospital-specific performance. This 

approach appropriately models a 

positive, continuous, right-skewed 

outcome like payment and also accounts 

for the types of patients a hospital treats 

(that is, hospital case mix), the number 

of patients it treats, and the quality of 

care it provides. The hierarchical 

generalized linear model is an 

appropriate statistical approach to 

measuring quality based on patient 

outcomes when the patients are 

clustered within hospitals and sample 

sizes vary across hospitals. Clustered 

patients are within the same hospital, 

and the quality of care of the hospital 

affects all patients, so the outcomes for 

each hospital’s patients are not fully 

independent (that is, completely 

unrelated) as is assumed by many 

statistical models. As noted above, the 

measure methodology defines hospital 

case mix based on the clinical diagnoses 

provided in the hospital claims for their 

patients’ inpatient and outpatient visits 

for the 12 months prior to the 

pneumonia hospitalization, as well as 

those present in the claims for care at 

admission. This methodology 

specifically does not, however, account 

for diagnoses present in the index 

admission that may indicate 

complications rather than patient 

comorbidities. 

The RSP is calculated as the ratio of 

predicted payments to expected 

payments and then the ratio is 

multiplied by the national unadjusted 

average payment for an episode of care. 

The ratio is greater than one for 

hospitals that have higher payments 

than would be expected for an average 

hospital with similar cases and less than 

one if the hospital has lower payments 

than would be expected for an average 

hospital with similar cases. This 

approach is analogous to a ratio of 

‘‘observed’’ or ‘‘crude’’ rate to an 

‘‘expected’’ or ‘‘risk-adjusted’’ rate used 

in other similar types of statistical 

analyses. 

The RSP is a point estimate—the best 

estimate of a hospital’s payment based 

on the hospital’s case mix. To calculate 

the measure for the Hospital IQR 

Program, we computed an interval 

estimate, which is similar to the concept 

of a confidence interval, to characterize 

the level of uncertainty around the point 

estimate, we use the point estimate and 

interval estimate to determine hospital 

performance (for example, higher than 

expected, as expected, or lower than 

expected). The interval estimate 

indicates that the true value of the 

payment ratio lies between the lower 

limit and the upper limit of the interval. 

For more detailed information on the 

calculation methodology, we refer 

readers to our Web site at: http://

www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/

Measure-Methodology.html. 

This measure is meant to be paired 

with our 30-day pneumonia mortality 

and/or readmission measure in order for 

us to gain a better understanding of the 

value of care for a hospital’s patients 

and the nation as a whole. 

We invite public comment on this 

proposal. 

d. Proposed Hospital-Level, RiskStandardized 30-day Episode-of-Care 

Payment Measure for Heart Failure 

(1) Background 

There is evidence of variation in 

payments at hospitals for heart failure 

patients; mean 30-day risk-standardized 

payment among Medicare FFS patients 

aged 65 or older hospitalized for heart 

failure in 2008–2009 was $13,922, and 

ranged from $9,630 to $20,646 across 

3,714 hospitals. However, high or low 

payments to hospitals are difficult to 

interpret in isolation. Some high 

payment hospitals may have better 

clinical outcomes when compared with 

low payment hospitals while other high 

payment hospitals may not have better 

outcomes. For this reason, the value of 

hospital care is more clearly assessed 

when pairing hospital payments with 

hospital quality. Therefore, we are 

proposing to include this non-NQFendorsed measure: hospital riskstandardized payment associated with a 

30-day episode-of-care for heart failure 

in the Hospital IQR Program under the 

exception authority in section 

1886(b)(3)(B)(IX)(bb) of the Act as 

previously discussed in section IX.A.7. 

of the preamble of this proposed rule. 

Although the proposed measure is not 

currently NQF-endorsed, we considered 

available measures that have been 

endorsed or adopted by the NQF, and 

we were unable to identify any 

measures that assess hospital riskstandardized payment associated with a 

30-day episode-of-care for heart failure. 

We also are not aware of any other 30- 

day episode-of-care heart failure 

measures that have been endorsed or 

adopted by a consensus organization, 

and found no other feasible and 

practical measures on this topic. The 

MAP supports this measure but 

reiterated the need for this measure to 

be submitted for NQF-endorsement: 

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28234 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

63Russo CA, Elixhauser, A. Hospitalizations in 

the Elderly Population, 2003. Agency for Healthcare 

Research and Quality. 2006. 

64Heidenriech PA, Trogdon JG, Khavjou OA, 

Butler J, Dracup K, Ezekowitz MD, et al. Forecasting 

the future of cardiovascular disease in the United 

States: a policy statement from the American Heart 

Association. Circulation. 2011;123(8):933–44. 

https://www.qualityforum.org/Setting_

Priorities/Partnership/MAP_Final_

Reports.aspx. The HF measure was 

submitted to NQF and is currently 

under review as part of the cost and 

resource use project. 

We believe it is important to adopt 

this measure as heart failure is one of 

the leading causes of hospitalization for 

Americans 65 and over and costs 

roughly $34 billion annually.63 64

Furthermore, because 30-day all-cause 

mortality and readmission measures for 

heart failure are already publicly 

reported, heart failure serves as a model 

condition for assessing relative value for 

an episode of care that begins with an 

acute hospitalization. Including this 

measure in the Hospital IQR Program 

and publicly reporting it on Hospital 

Compare will allow stakeholders to 

assess information about a hospital’s 

quality and cost of care for heart failure. 

The measure reflects differences in the 

management of care for patients with 

heart failure both during hospitalization 

and immediately post-discharge. By 

focusing on one specific condition, 

value assessments may provide 

actionable feedback to hospitals and 

incentivize targeted improvements in 

care. 

(2) Overview of Measure and Rationale 

for Examining Payments for a 30-Day 

Episode-of-Care 

The heart failure payment measure 

assesses hospital risk-standardized 

payment associated with a 30-day 

episode-of-care for heart failure for any 

hospital participating in the Hospital 

IQR Program. The measure includes 

Medicare FFS patients aged 65 or older 

admitted for heart failure and calculates 

payments for these patients over a 30- 

day episode-of-care beginning with the 

index admission. In general, the 

measure uses the same approach to riskadjustment as our 30-day outcome 

measures previously adopted for the 

Hospital IQR Program. We refer readers 

to the measure methodology report on 

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

Medicare/Quality-Initiatives-PatientAssessment-Instruments/

HospitalQualityInits/MeasureMethodology.html. 

When examining variation in 

payments, consideration of the episodeof-care triggered by admission is 

meaningful for several reasons. First, 

hospitalizations represent brief periods 

of illness that require ongoing 

management post-discharge; and 

decisions made at the admitting hospital 

affect payments for care in the 

immediate post-discharge period. 

Second, attributing payments for a 

continuous episode-of-care to admitting 

hospitals may reveal practice variations 

in the full care of the illness that can 

result in increased payments. Third, a 

30-day preset window provides a 

standard observation period by which to 

compare all hospitals. The term preset 

window means that every admission 

will be tracked 30 days post admission 

in order to apply a standardized 

measurement window. In order to 

compare payments across providers it is 

important that the comparison window 

is identical for each admission at each 

hospital. Lastly, the heart failure 

payment measure is intended to be 

paired with our 30-day heart failure 

mortality and readmission measures and 

capture payments for Medicare patients 

across all care settings, services, and 

supplies, except for Medicare Part D 

(that is, inpatient, outpatient, skilled 

nursing facility, home health, hospice, 

physician/clinical laboratory/ambulance 

services, supplier Part B items, and 

durable medical equipment, prosthetics/ 

orthotics, and supplies). 

We have posted the measure 

methodology report on our Web site at: 

http://cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/

Measure-Methodology.html. We refer 

readers to the report for further details 

on the risk adjustment statistical model 

as well as the model results. 

(3) Data Sources 

The proposed measure is claimsbased and uses Medicare administrative 

data that contain hospitalizations and 

payments for Medicare FFS 

beneficiaries hospitalized with heart 

failure. 

(4) Outcome 

The primary outcome of the heart 

failure payment measure is the hospitallevel risk-standardized payment for a 

heart failure episode-of-care. The 

measure captures payments for 

Medicare patients across all care 

settings, services, and supplies, except 

Part D. By risk-standardizing the 

payment measure, we are able to adjust 

for case-mix at any given hospital and 

compare a specific hospital’s heart 

failure payment to other hospitals with 

the same case-mix. The analytic time 

frame for the heart failure payment 

measure begins with the index 

admission for heart failure and ends 30 

days post-admission. The index 

admission is any admission included in 

the measure calculation that begins the 

30-day AMI episode of care. 

In order to isolate payment variation 

that reflects practice patterns rather than 

CMS payment adjustments, the heart 

failure payment measure excludes 

policy and geography payment 

adjustments unrelated to clinical care 

decisions. We achieve this by 

‘‘stripping’’ or ‘‘standardizing’’ 

payments for each care setting. These 

concepts were also discussed previously 

in the proposed hospital-level, riskstandardized 30-day episode-of-care 

payment measure for pneumonia 

measure in section IX.A.7.c.(4) of the 

preamble of this proposed rule. 

(5) Cohort 

We created the heart failure payment 

measure cohort to be aligned with the 

publicly reported heart failure mortality 

measure cohort. Consistent with these 

measures, the heart failure payment 

measure includes hospitalizations with 

a principal hospital discharge diagnosis 

of heart failure using ICD–9–CM codes 

included in the final cohort can be 

found in Appendix B of the technical 

report on our Web site at: http://

cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/

HospitalQualityInits/MeasureMethodology.html. The measure will be 

using data from July 2010–Jun 2013 

which does not yet include the period 

where ICD–10 codes are mandatory. 

ICD–10–CM/PCS will officially be 

implemented on October 1, 2015; 

therefore, the measure will not include 

ICD–10 data for another three reporting 

periods. An index admission/

hospitalization is the initial heart failure 

admission that triggers the 30-day 

episode-of-care for this payment 

calculation. The measure includes only 

those hospitalizations from short-stay 

acute care hospitals in the index cohort 

and restricts the cohort to patients 

enrolled in FFS Medicare Parts A and B 

(with no Medicare Advantage coverage). 

These hospitalizations are the 

admissions which were included in the 

measure after applying all inclusion/

exclusion criteria. 

(6) Inclusion and Exclusion Criteria 

The heart failure payment measure 

includes hospitalizations for patients 65 

years or older at the time of index 

admission and for whom there was a 

complete 12 months of FFS enrollment 

to allow for adequate risk adjustment. 

The measure excludes the following 

admissions from the measure cohort: (1) 

Admissions for patients with fewer than 

30 days of post-admission enrollment in 

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65National Quality Forum (NQF). Measure 

Information-Composite. #500 Severe Sepsis and 

Septic Shock: Management Bundle. Updated 2014 

Jan 2. NQF: Washington, DC http://www.quality

forum.org/Home.aspx. 

66 Dellinger RP, Levy MM, Rhodes A, Annane D, 

et al. Surviving Sepsis Campaign: international 

guidelines for management of severe sepsis and 

septic shock: 2012. Crit Care Med. 2013 Feb; 

41(2):580–637. 

Medicare because this is necessary in 

order to identify the outcome 

(payments) in the sample over the 

analytic period; (2) admissions for 

patients having a principal diagnosis of 

heart failure during the index 

hospitalization who were transferred 

from another acute care facility are 

excluded, because the hospital where 

the patient was initially admitted made 

the critical acute care decisions 

(including the decision to transfer and 

where to transfer); (3) admissions for 

heart failure patients who were 

discharged on the same or next day as 

the index admission and did not die or 

get transferred are excluded, because it 

is unlikely these patients suffered a 

clinically significant heart failure; (4) 

admissions for patients enrolled in the 

Medicare Hospice program any time in 

the 12 months prior to the index 

hospitalization, including the first date 

of the index admission are excluded, 

because it is likely that these patients 

are continuing to seek comfort care and 

their goal may not be survival; (5) 

admissions for patients who are 

discharged alive and against medical 

advice are excluded because providers 

did not have the opportunity to deliver 

full care and prepare the patient for 

discharge; (6) admissions for patients 

transferred to or from federal or 

Veterans Administration hospitals are 

excluded, because we do not have 

claims data for these hospitals; thus, 

including these patients would 

systematically underestimate payments; 

(7) admissions without a DRG or DRG 

weight for the index hospitalization are 

excluded, because we cannot calculate a 

payment for these patients’ index 

admission using the IPPS; this would 

underestimate payments for the entire 

episode-of-care; and (8) admissions for 

patients who receive a heart transplant 

or LVAD during the index admissions or 

episode of care because these patients 

are clinically distinct, generally very 

high payment cases, and not 

representative of the typical heart 

failure patient that this measure aims to 

capture. 

(7) Risk Adjustment 

The measure adjusts for differences 

across hospitals in how payments are 

affected by patient comorbidities 

relative to patients cared for by other 

hospitals. The model does not adjust for 

socioeconomic status or race, because 

risk-adjusting for these characteristics 

would hold hospitals with a large 

proportion of minority or low 

socioeconomic status patients to a 

different standard of care than other 

hospitals. One goal of this measure is to 

illuminate quality differences that such 

risk-adjustment would obscure. 

(8) Calculating the Risk-Standardized 

Payment (RSP) 

The measure is calculated using 

hierarchical generalized linear statistical 

models with a log link and a Gamma 

error distribution. This approach 

appropriately models a positive, 

continuous, right-skewed outcome like 

payment and also accounts for the types 

of patients a hospital treats (that is, 

hospital case-mix), the number of 

patients it treats, and the quality of care 

it provides. The hierarchical generalized 

linear model is an appropriate statistical 

approach to measuring quality based on 

patient outcomes when the patients are 

clustered within hospitals (and 

therefore the patients’ outcomes are not 

statistically independent) and sample 

sizes vary across hospitals. As noted 

above, the measure methodology defines 

hospital case mix based on the clinical 

diagnoses provided in the hospital 

claims for their patients’ inpatient and 

outpatient visits for the 12 months prior 

to the heart failure hospitalization, as 

well as those present in the claims for 

care at admission. This methodology 

specifically does not, however, account 

for diagnoses present in the index 

admission that may indicate 

complications rather than patient 

comorbidities. 

The RSP is calculated as the ratio of 

predicted payments to expected 

payments and then the ratio is 

multiplied by the national unadjusted 

average payment for an episode of care. 

The ratio is greater than one for 

hospitals that have higher payments 

than would be expected for an average 

hospital with similar cases and less than 

one if the hospital has lower payments 

than would be expected for an average 

hospital with similar cases. This 

approach is analogous to a ratio of 

‘‘observed’’ or ‘‘crude’’ rate to an 

‘‘expected’’ or ‘‘risk-adjusted’’ rate used 

in other similar types of statistical 

analyses. 

The RSP is a point estimate—the best 

estimate of a hospital’s payment based 

on the hospital’s case mix. For 

displaying the measure for the Hospital 

IQR Program, we computed an interval 

estimate, which is similar to the concept 

of a confidence interval, to characterize 

the level of uncertainty around the point 

estimate, we use the point estimate and 

interval estimate to determine hospital 

performance (for example, higher than 

expected, as expected, or lower than 

expected). For more detailed 

information on the calculation 

methodology, we refer readers to our 

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

Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/

Measure-Methodology.html. 

This measure is meant to be paired 

with our 30-day heart failure mortality 

and/or readmission measure in order for 

us to gain a better understanding of the 

value of care for a hospital’s patients 

and the nation as a whole. 

We invite public comment on this 

proposal. 

e. Proposed Severe Sepsis and Septic 

Shock: Management Bundle Measure 

(NQF #0500) 

(1) Background 

Sepsis, severe sepsis, and septic shock 

can arise from a simple infection, such 

as pneumonia or urinary tract infection. 

Although it can affect anyone at any age, 

it is more common in infants, the 

elderly, and patients with chronic 

health conditions such as diabetes and 

immunosuppressive disorders seen in 

transplant patients. Information for this 

measure comes from the NQF Measure 

Information-Composite for the severe 

sepsis and septic shock: management 

bundle (NQF #0500).65 More 

information on this issue is available 

from the Surviving Sepsis Campaign: 

International Guidelines for 

Management of Severe Sepsis and 

Septic Shock: 2012.66 Sepsis is 

associated with mortality rates of over 

16 to 49 percent, which is more than 8 

times higher than the rate for inpatient 

stays for other hospital admissions. 

Findings from the National Hospital 

Discharge Survey indicate that the 

number of hospital stays for septicemia 

more than doubled between the years of 

2000 and 2008, and patients with this 

condition were more severely ill than 

patients hospitalized for other 

conditions. Severe sepsis and septic 

shock are frequent causes of rehospitalizations, especially during the 

first year after the initial hospitalization. 

Based on national discharge data 

reported by the Agency for Healthcare 

Research and Quality (AHRQ), sepsis 

was the sixth most common principal 

reason for hospitalization in the United 

States in 2009, accounting for 836,000 

hospital stays. There were an additional 

829,500 stays with a secondary 

diagnosis of sepsis for a total of 

1,665,400 inpatient stays and 258,000 

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67Rivers E, Nguyen B, Havstad S et al. Early goaldirected therapy in the treatment of severe sepsis 

and septic shock. N Engl J Med. 2001; 345: 1368– 

77. 

68HCUP Nationwide Inpatient Sample (NIS). 

Healthcare Cost and Utilization Project (HCUP). 

2007–2009. Agency for Healthcare Research and 

Quality, Rockville, MD. http://www.hcup-us.

ahrq.gov/nisoverview.jsp. 

69 Kumar A, Roberts D, Wood K, Light B, et al. 

Duration of Hypotension before Initiation of 

Effective Antimicrobial Therapy is the Critical 

Determinant of Survival in Human Septic Shock. 

Crit Care Med. 2006;34 (6):1589–96. 

70Levy MM, Dellinger RP, et al.; Surviving Sepsis 

Campaign. The Surviving Sepsis Campaign: results 

of an international guideline based performance 

improvement program targeting severe sepsis. Crit 

Care Med. 2010 Feb;38(2):367–74. 

deaths. From 1993 to 2009, sepsisrelated hospital stays increased by 153 

percent, with an average annual 

increase of 6 percent. Medicare was the 

predominant payer for sepsis-related 

hospital stays, covering 58.1 percent of 

patients. Sepsis cases and sepsis-related 

deaths are expected to continue to 

increase with the aging of the 

population. 

In a landmark study by Rivers et al.,67

it has been shown that an absolute and 

relative reduction in mortality from 

sepsis can be reduced 16 percent and 30 

percent, respectively, when aggressive 

care is provided within 6 hours of 

hospital arrival. Furthermore, a recent 

study of the 2008 Healthcare Cost and 

Utilization Project (HCUP) Nationwide 

Inpatient Sample 68 determined that 

patients admitted through the 

Emergency Department had a 17 percent 

lower likelihood of dying from sepsis 

than when directly admitted. 

The severe sepsis and septic shock: 

management bundle measure (NQF 

#0500) is NQF endorsed and is 

conditionally supported by the MAP in 

its Pre-Rulemaking Report: 2013 

Recommendations on Measures Under 

Consideration by HHS, available at: 

https://www.qualityforum.org/Work

Area/linkit.aspx?LinkIdentifier=

id&ItemID=72738. The MAP noted the 

measure addresses an NQS priority not 

adequately addressed in the program 

measure set, but conditionally 

supported this measure stating, ‘‘Not 

ready for implementation; measure 

concept is promising but requires 

modification or further development.’’ 

In addition, ‘‘MAP noted the need for 

continued development of electronic 

specifications for NQF #0500 Severe 

Sepsis and Septic Shock: Management 

Bundle. We are recommending this 

measure because we believe severe 

sepsis and septic shock are important 

conditions to monitor. While some 

workgroup members challenged the 

feasibility and evidence behind this 

measure, MAP deferred to the recent 

endorsement review of this measure and 

conditionally supported it for the 

Meaningful Use Program. Public 

comment from Edwards Lifesciences 

supports MAP’s conclusion.’’ 

(2) Overview of Measure 

The purpose of the proposed severe 

sepsis and septic shock: management 

bundle measure is to support the 

efficient, effective, and timely delivery 

of high quality sepsis care in support of 

the Institute of Medicine’s (IOM) aims 

for quality improvement. This is 

consistent with the Department of 

Health and Human Service National 

Quality Strategy’s priorities directed at 

one of the leading causes of mortality. 

By providing timely, patient-centered 

care, and making sepsis care more 

affordable through early intervention, 

reduced resource use and complication 

rates can result. The severe sepsis and 

septic shock early management bundle 

provides a standard operating procedure 

for the early risk stratification and 

management of a patient with severe 

infection. Through applying this 

standard operating procedure, a 

clinically and statistically significant 

decrease in organ failure, mortality, and 

the utilization of health care resources 

has been demonstrated for over 10 

years. Additional information about this 

measure is available on the NQF’s Web 

site at http://www.qualityforum.org/

QPS/0500. 

(3) Data Sources 

The proposed measure is chartabstracted data of patients presenting 

with septic shock who received 

treatment detailed in the Calculations 

section below. 

(4) Outcome 

The outcome criteria for this measure 

consists of: measure lactate; blood 

cultures; timely antibiotics; fluid 

resuscitation; lactate clearance; 

vasopressors, central venous pressure 

(CVP), central venous oxygen saturation 

(ScvO2); and overall bundle 

compliance. These are discussed in 

more detail below: 

• Measure Lactate 

Measurement of lactate levels is 

specifically associated with improved 

outcomes in sepsis, and an elevated 

lactate value identifies patients at higher 

risk for poor outcomes. Up to 10 percent 

of in-hospital cardiac arrest in the 

United States per year is secondary to 

sepsis (pneumonia). These patients are 

often misdiagnosed and sent to the 

medical floors only to suffer acute 

hemodynamic deterioration. These 

outcomes could be potentially avoided 

with lactate measurement upon 

admission providing risk stratification 

triggering alternative dispositions. 

Levy et al. (2010) conducted an 

international, multisite ‘‘Surviving 

Sepsis Campaign’’ (SSC) initiative (Levy 

et al. SSC initiative) to determine the 

rate of change at which the sites reached 

the SSC guideline targets. In the first 

quarter of this initiative, only 61.0 

percent of patients had lactate values 

measured consistent with guidelines. In 

addition, prior studies have shown that 

care prompted by measurement of 

lactate levels in sepsis patients reduced 

resource utilization and cost. This leads 

to lower likelihood of hospital-acquired 

conditions. This performance measure 

has been previously used as a core 

component of multicenter and national 

quality improvement initiatives. 

Formalizing it as a national performance 

measure will provide direct targets for 

intervention that are closely linked with 

improvements in mortality and cost. 

• Blood Cultures 

In the first quarter of the Levy et al. 

SSC initiative, only 64.5 percent of 

patients had blood cultures collected 

prior to antibiotic administration. 

Collecting blood cultures prior to 

antibiotic administration is specifically 

associated with improved outcomes in 

sepsis, and pathogens identified by 

blood cultures allow for customized 

therapy. As a result, blood cultures 

continue as a recommendation of the 

current Surviving Sepsis Guidelines. 

By obtaining blood cultures, antibiotic 

regimens can be customized to treat the 

specific infecting organism. This will 

result in less unnecessary exposure to 

antibiotics, reducing complications 

associated with antibiotic use, including 

drug reactions, allergies and adverse 

events, the development of drugresistant organisms, and the occurrence 

of Clostridium difficile colitis. The 

performance measure for collecting 

blood cultures for suspected sepsis has 

been previously used and continues as 

a core component of the SSC guidelines. 

• Timely Antibiotics 

Kumar et al.69 found the median time 

to appropriate antibiotics was 6 hours 

after shock. In the first quarter of the 

Levy et al.70 SSC initiative, only 60.4 

percent of patients received timely 

antibiotics. Multiple studies, for 

example, have demonstrated that delays 

in administration of appropriate 

antibiotics in patients with sepsis and 

other severe infections are associated 

with longer lengths of stay, higher costs, 

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71 Ibid. 

72 Varpula M, Tallgren M, Saukkonen K, VoipioPulkki LM, Pettila V. Hemodynamic variables 

related to outcome in septic shock. Intensive Care 

Med. Jun 23 2005;31:1066–1071. 

73Coba V, Whitmill M, Mooney R, et al. 

Resuscitation Bundle Compliance in Severe Sepsis 

and Septic Shock: Improves Survival, Is Better Late 

than Never. J Intensive Care Med. Jan 10 2011. 

74Edwards PJ, et al. Maximizing your investment 

in EHR: Utilizing EHRs to inform continuous 

quality improvement. JHIM 2008;22(1):32–7. 

and higher mortality. In septic shock, 

the Kumar et al. study demonstrated 

that every hour in delay of appropriate 

antibiotics was associated with a 7.6 

percent higher mortality. The timely 

administration of broad-spectrum 

antibiotics was associated with 

significantly higher risk adjusted 

survival. Based on a preponderance of 

data, the current recommendations in 

the international guidelines for the 

management of severe sepsis and septic 

shock includes the administration of 

broad-spectrum antibiotic therapy 

within 1 hour of diagnosis of septic 

shock and severe sepsis. 

• Fluid Resuscitation 

A common finding in patients with 

septic shock, manifested by low blood 

pressure and/or other signs of organ 

hypoperfusion, such as elevated serum 

lactate levels, is intravascular volume 

depletion. The degree of the 

intravascular volume deficit in sepsis 

varies, yet nearly all patients require 

initial volume resuscitation and many 

patients require continuing fluid 

resuscitation over the first 24 hours. 

Early fluid resuscitation is associated 

with improved outcomes for patients 

with acute lung injury due to septic 

shock. International guidelines 

recommend that patients with suspected 

hypovolemia be initially treated with at 

least 30 mL/kg of crystalloid (for 

example, Ringer’s solution) to determine 

clinical response. In the first quarter of 

the Levy et al.71 SSC initiative, only 

59.8 percent of patients received fluid 

resuscitation consistent with guidelines. 

Timely fluid resuscitation avoids an 

error of omission in which indicated 

therapy is delayed or omitted. By 

improving outcomes, length of stay is 

reduced. This leads to lower likelihood 

of hospital-acquired conditions. This 

performance measure has been 

previously used as a core component 

and continues as a core component of 

the SSC guidelines. Formalizing it as a 

national performance measure will 

provide direct targets for intervention 

that are closely linked with 

improvements in mortality and cost. 

• Lactate Clearance 

Elevated lactate levels prompt the 

consideration of specific care practices 

toward hemodynamic optimization 

guided by either central venous oxygen 

saturation or lactate clearance. 

International guidelines recommend 

that patients with sepsis and continued 

elevated lactate values have additional 

therapies until lactate levels are 

normalized. However, normal lactate 

levels can be seen in septic shock, 

especially in children. 

• Vasopressors, Central Venous 

Pressure (CVP), and Central Venous 

Oxygen Saturation (ScvO2) 

Performance gaps in individual 

bundle elements can range from 79 

percent (Confidence Interval (CI) (69–89 

percent) for vasopressors, to 27 percent 

(CI 18–36 percent) for Central Venous 

Pressure (CVP) measurement, and as 

low as 15 percent (CI 7–23 percent) for 

Central Venous Oxygen Saturation 

(ScvO2) in some community emergency 

departments. These numbers increase 

(50–75 percent) in larger hospital 

settings. CVP has been shown to have a 

significant association with mortality 72

and multiple studies and meta-analysis 

have shown a significant association 

with reaching an ScvO2 of 70 percent 

and improved mortality. 

• Overall Bundle Compliance 

Multiple initiatives promoting 

bundles of care for severe sepsis and 

septic shock were associated with 

improved guideline compliance and 

lower hospital mortality. Even with 

compliance rates of less than 30 percent, 

absolute reductions in mortality of 4–6 

percent have been noted. Coba et al.73

found that when all bundle elements 

were completed within 18 hours and 

compared with patients who did not 

have bundle completion, the mortality 

difference was 10.2 percent. Thus, there 

is a direct association between bundle 

compliance and improved mortality. 

Additionally, a continuous quality 

improvement (CQI) initiative, can 

improve compliance rates. CQI is a 

quality management process that 

encourages continually assessing 

performance and whether 

improvements can be made.74 Multiple 

studies have shown that standardized 

order sets, enhanced bedside monitor 

display, telemedicine and 

comprehensive CQI feedback is feasible, 

modifies clinician behavior and is 

associated with decreased hospital 

mortality. 

(5) Cohort 

This measure will focus on patients 

aged 18 years and older who present 

with symptoms of severe sepsis or 

septic shock. These patients will be 

eligible for the 3 hour (severe sepsis) 

and/or 6 hour (septic shock) early 

management measures. 

(6) Inclusion and Exclusion Criteria 

Numerator Statement: the numerator 

is: Patients from the denominator who 

received all the following: Step 1, Step 

2, and Step 3 within 3 hours of time of 

presentation, and if septic shock is 

present (as either defined as 

hypotension or lactate >=4 mmol/L), 

who also received Step 4, Step 5, Step 

6, and Step 7 within 6 hours of time of 

presentation. The steps are described in 

detail below. 

Step 1: Measure lactate level 

Step 2: Obtain blood cultures prior to 

antibiotics 

Step 3: Administer broad spectrum 

antibiotics 

Step 4: Administer 30 ml/kg crystalloid 

for hypotension or lactate >= 4 mmol/ 

L 

Step 5: Apply vasopressors (for 

hypotension that does not respond to 

initial fluid resuscitation to maintain 

a mean arterial pressure >= 65) 

Step 6: In the event of persistent arterial 

hypotension despite volume 

resuscitation (septic shock) or initial 

lactate >= 4 mmol/L (36 mg/dl), 

measure central venous pressure and 

central venous oxygen saturation 

Step 7: Re-measure lactate if initial 

lactate is elevated 

Denominator: The denominator is the 

number of patients presenting with 

severe sepsis or septic shock. The 

following patients presenting with 

severe sepsis or septic shock will be 

excluded from the denominator: 

• Patients with advanced directives 

for comfort care; 

• Patients with clinical conditions 

that preclude total measure completion; 

• Patients for whom a central line is 

clinically contraindicated; 

• Patients for whom a central line 

was attempted but could not be 

successfully inserted; 

• A patient or a surrogate decision 

maker declines or is unwilling to 

consent to such therapies or central line 

placement; and 

• Patients who are transferred to an 

acute care facility from another acute 

care facility. 

(7) Calculations 

In calculating this measure, the 

denominator is the number of patients 

presenting with severe sepsis or septic 

shock. The numerator in this measure is 

patients from the denominator who had 

their lactate levels measured, had blood 

cultures obtained prior to receiving 

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antibiotics, and who received broad 

spectrum antibiotics within 3 hours of 

presentation. If septic shock is present, 

the patients also must receive 30 ml/kg 

crystalloid for hypotension or lactate 

>=4 mmol/L, apply vasopressors (for 

hypotension that does not respond to 

initial fluid resuscitation to maintain a 

mean arterial pressure >= 65), in the 

event of persistent arterial hypotension 

despite volume resuscitation (septic 

shock) or initial lactate >=4 mmol/L 

(36mg/dl) measure central venous 

pressure and central venous oxygen 

saturation, and the patient’s lactate level 

must be re-measured if the initial lactate 

level is elevated. 

We invite public comment on this 

proposal. 

f. Electronic Health Record-Based 

Voluntary Measures 

(1) Overview of New Electronic Health 

Record-Based Voluntary Measures 

We are proposing four new voluntary 

electronic health record-based measures 

to be submitted as electronically 

specified measures: (1) Hearing 

Screening Prior to Hospital Discharge 

(NQF #1354); (2) PC–05 Exclusive 

Breast Milk Feeding and the Subset 

Measure PC–05a Exclusive Breast Milk 

Feeding Considering Mother’s Choice 

(Collectively Referred to as NQF #0480); 

(3) Home Management Plan of Care 

(HMPC) Document Given to Patient/

Caregiver (measure de-endorsed 

therefore not appropriate to associate 

with an NQF #); (4) and Healthy Term 

Newborn (NQF #0716). The four 

proposed electronic health record-based 

measures were included on a publicly 

available document entitled ‘‘List of 

Measures Under Consideration for 

December 1, 2012’’ in compliance with 

section 1890A(a)(2) of the Act, and they 

were reviewed by the MAP in its MAP 

Pre Rulemaking Report: 2013 

Recommendations on Measures Under 

Consideration by HHS. The final MAP 

report is available at: https://www.

qualityforum.org/WorkArea/linkit.aspx?

LinkIdentifier=id&ItemID=72746. We 

considered the input and 

recommendations provided by the MAP 

in selecting measures to propose for the 

Hospital IQR Program. 

The specifications for the electronic 

clinical quality measures for eligible 

hospitals are found at: http://cms.gov/

Regulations-and-Guidance/Legislation/

EHRIncentivePrograms/eCQM_

Library.html. 

(2) Proposed Voluntary Electronically 

Specified Measure: Hearing Screening 

Prior to Hospital Discharge (NQF #1354) 

The Hearing Screening Prior to 

Hospital Discharge (NQF #1354) 

measure assesses the proportion of all 

live births born at a hospital that have 

been screened for hearing loss before 

hospital discharge. The Joint Committee 

on Infant Hearing encourages early 

screening and intervention in infants 

with hearing loss to maximize linguistic 

competence and literacy development 

in children with hearing loss or who are 

hard of hearing. Early intervention 

improves developmental and social 

outcomes for children. The States and 

CDC have collected this measure as a 

population-based measure for more than 

10 years. 

This measure is NQF-endorsed and 

was supported by the MAP in their Pre 

Rulemaking Report: 2013 

Recommendations on Measures Under 

Consideration by HHS, available at: 

https://www.qualityforum.org/Work

Area/linkit.aspx?LinkIdentifier=id&

ItemID=72738. The MAP noted that the 

measure addresses a high-impact 

condition not adequately addressed in 

the program measure set. 

The numerator is all live births during 

the measurement period born at a 

facility and screened for hearing loss 

prior to discharge, or screened but still 

not discharged, or not screened due to 

medical reasons or a medical exclusion. 

The denominator includes all live 

births during the measurement period 

born at a facility and discharged without 

being screened, or screened prior to 

discharge, or screened but still not 

discharged. 

The measure excludes any patient 

deceased prior to discharge and has not 

received hearing screening. 

(3) Proposed Voluntary Measure: PC–05 

Exclusive Breast Milk Feeding and the 

Subset Measure PC–05a Exclusive 

Breast Milk Feeding Considering 

Mother’s Choice (Collectively Referred 

to as NQF #0480) 

Exclusive breast milk feeding for the 

first 6 months of neonatal life has long 

been the expressed goal of World Health 

Organization (WHO), HHS, American 

Academy of Pediatrics (AAP) and 

American College of Obstetricians and 

Gynecologists (ACOG). 

The PC–05 Exclusive Breast Milk 

Feeding measure and the subset 

measure PC–05a Exclusive Breast Milk 

Feeding Considering Mother’s Choice 

(NQF #0480) is endorsed by the NQF 

and supported by the MAP in its Pre 

Rulemaking Report: 2013 

Recommendations on Measures Under 

Consideration by HHS, available at: 

https://www.qualityforum.org/Work

Area/linkit.aspx?LinkIdentifier=

id&ItemID=72738. The MAP noted that 

the measure addresses a high-impact 

condition not adequately addressed in 

the program measure set. 

This measure assesses the number of 

newborns exclusively fed breast milk 

during the newborn’s entire 

hospitalization; and the subset measure 

only includes those newborns whose 

mothers chose to exclusively feed breast 

milk. 

The numerator is the same for both 

the measure and subset measure— 

newborns that were fed breast milk only 

since birth. However, the denominators 

differ. For PC–05, the denominator is 

defined as single term liveborn 

newborns discharged alive from the 

hospital with ICD–9–CM Principal 

Diagnosis Code for single liveborn 

newborn. The denominator for the 

subset measure, PC–05a, is defined as 

single term newborns discharged alive 

from the hospital excluding those whose 

mothers chose not to breast feed with 

ICD–9–CM Principal Diagnosis Code for 

single liveborn newborn. The ICD–9– 

CM Principal Diagnosis Codes for single 

liveborn newborns are found in 

Appendix A, Table 11.20.1: Single Live 

Newborn in the Specifications Manual 

for Joint Commission National Quality 

Measures available at: http://manual.

jointcommission.org/releases/

TJC2013A/AppendixATJC.html. 

Excluded populations: 

• Admitted to the Neonatal Intensive 

Care Unit (NICU) at this hospital during 

the hospitalization. 

• ICD–9–CM Other Diagnosis Codes 

for galactosemia as defined in Appendix 

A, Table 11.21 in the Specifications 

Manual for Joint Commission National 

Quality Measures found at: http://

manual.jointcommission.org/releases/

TJC2013A/AppendixATJC.html. 

• ICD–9–CM Principal Procedure 

Code or ICD–9–CM Other Procedure 

Codes for parenteral infusion as defined 

in Appendix A, Table 11.22 in the 

Specifications Manual for Joint 

Commission National Quality Measures 

found at: http://manual.joint

commission.org/releases/TJC2013A/

AppendixATJC.html. 

• Experienced death. 

• Length of Stay >120 days. 

• Enrolled in clinical trials. 

• Patients transferred to another 

hospital. 

• ICD–9–CM Other Diagnosis Codes 

for premature newborns as defined in 

Appendix A, Table 11.23 in the 

Specifications Manual for Joint 

Commission National Quality Measures 

found at: http://manual.joint

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Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 28239 

75National Quality Forum. National Voluntary 

Consensus Standards for Patient Outcomes 2009. 

Available at: http://www.qualityforum.org/

WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=

67546. 

commission.org/releases/TJC2013A/

AppendixATJC.html. 

• Documented Reason for Not 

Exclusively Feeding Breast Milk. 

The maternal reasons for not 

exclusively breastfeeding are limited to 

the following situations: 

• HIV infection; 

• Human t-lymphotrophic virus type 

I or II; 

• Substance abuse and/or alcohol 

abuse; 

• Active, untreated tuberculosis; 

• Taking certain medications, that is, 

prescribed cancer chemotherapy, 

radioactive isotopes, antimetabolites, 

antiretroviral medications and other 

medications where the risk of morbidity 

outweighs the benefits of breast milk 

feeding; 

• Undergoing radiation therapy; 

• Active, untreated varicella; 

• Active herpes simplex virus with 

breast lesions; and 

• Admission to Intensive Care Unit 

(ICU) post-partum. 

We invite public comments on this 

proposal. 

(4) Proposed Voluntary Measure CAC–3: 

Home Management Plan of Care (HMPC) 

Document Given to Patient/Caregiver 

Asthma is the most common chronic 

disease in children and a major cause of 

morbidity and health care costs 

nationally. For children, asthma is one 

of the most frequent reasons for 

admission to hospitals. There were 

approximately 157,000 admissions for 

childhood asthma in the United States 

in 2009. Under-treatment and/or 

inappropriate treatment of asthma are 

recognized as major contributors to 

asthma morbidity and mortality. 

Guidelines developed by the National 

Asthma Education and Prevention 

Program (NAEPP) of the National Heart, 

Lung and Blood Institute (NHLBI), as 

well as by the American Academy of 

Pediatrics (AAP) for the diagnosis and 

management of asthma in children, 

recommend establishing a plan for 

maintaining control of asthma and for 

establishing plans for managing 

exacerbations. 

The CAC–3: Home Management Plan 

of Care (HMPC) Document Given to 

Patient/Caregiver measure is no longer 

endorsed by the NQF and was not 

supported by the MAP in its PreRulemaking Report: 2013 

Recommendations on Measures Under 

Consideration by HHS available at: 

https://www.qualityforum.org/Work

Area/linkit.aspx?LinkIdentifier=

id&ItemID=72738, because the measure 

no longer meets the NQF endorsement 

criteria. However, based on the 

prevalence of asthma among children, 

as well as the risks associated with 

under-treatment or over-treatment 

described above, we believe the measure 

is appropriate for voluntary collection. 

Because asthma is a serious, and 

potentially life-threatening disease, we 

believe that it is important to allow 

hospitals to voluntarily report this data, 

which may help inform our policy. 

This measure assesses the proportion 

of pediatric asthma patients (aged 2–17 

years) discharged from an inpatient 

hospital stay with a HMPC document in 

place. The numerator is the number of 

pediatric asthma inpatients with 

documentation that they or their 

caregivers were given a written HMPC 

document that addresses: (1) 

arrangements for follow-up care, (2) 

environmental control and control of 

other triggers, (3) method and timing of 

rescue actions, (4) use of controllers, 

and (5) use of relievers. 

The denominator is the number of 

pediatric asthma inpatients (age 2 years 

through 17 years) discharged with a 

principal diagnosis of asthma. 

The measure excludes: (1) Patients 

with an age less than 2 years or 18 years 

or greater; (2) patients who have a 

length of stay greater than 120 days; and 

(3) patients enrolled in clinical trials. 

We invite public comments on this 

proposal. 

(5) Proposed Voluntary Measure: 

Healthy Term Newborn (NQF #0716) 

This measure assesses the optimal 

outcome of pregnancy and childbirth, 

specifically a healthy term newborn. It 

evaluates the impact of any changes in 

the management or intervention on the 

positive outcome for the newborn. 

The measure is NQF endorsed. The 

MAP recommended removal of this 

measure in its Pre Rulemaking Report: 

2013 Recommendations on Measures 

under Consideration by HHS available 

at: https://www.qualityforum.org/Work

Area/linkit.aspx?LinkIdentifier=id&

ItemID=72738, because the measure 

required modification or further 

development. However, the MAP 

strongly supported the measure concept 

for inclusion once technical issues were 

resolved. Given its endorsement by 

NQF, as well as the MAP’s strong 

support for the measure concept, we 

believe the measure is appropriate for 

voluntary reporting. 

The result of the measure calculation 

is the percentage of term singleton live 

births (excluding those with diagnoses 

originating in the fetal period) that do 

not have significant complications 

during birth or the nursery care.75

The numerator of this measure is the 

absence of conditions or procedures 

reflecting morbidity that happened 

during birth and nursery care to an 

otherwise normal infant. 

The denominator is composed of 

singleton, term (>=37 weeks), inborn, 

live births in their birth admission. The 

denominator further has eliminated fetal 

conditions likely to be present before 

labor. Maternal and obstetrical 

conditions (for example, hypertension, 

prior cesarean, malpresentation) are not 

excluded unless there is evidence of 

fetal effect prior to labor (for example, 

Intrauterine Growth Restriction (IUGR)/ 

Small for Gestational Age (SGA)). 

This measure excludes: (1) Multiple 

gestations; (2) preterm, congenital 

anomalies; and, (3) fetuses affected by 

selected maternal conditions. 

We invite public comments on this 

proposal. 

g. Proposed Readoption of Measures as 

Voluntarily Reported Electronic Clinical 

Quality Measures 

In order to align with the EHR 

Incentive Program for eligible hospitals 

(EHs) and critical access hospitals 

(CAHs), we are proposing to re-adopt 

two measures previously removed from 

the Hospital IQR Program; (a) AMI–2 

Aspirin Prescribed at Discharge for AMI 

(acute myocardial infarction) (NQF 

#0142) (electronic clinical quality 

measure); and (b) AMI–10 Statin 

Prescribed at Discharge (NQF #0639) 

(electronic clinical quality measure). We 

are proposing to add these measures to 

the list of voluntarily reported 

electronic clinical quality measures as 

described in section IX.A.7.f. of the 

preamble of this proposed rule. We 

believe we should continue aligning the 

Hospital IQR Program and the EHR 

Incentive Program in order to minimize 

reporting burden and continue the 

transition to reporting of electronic 

clinical quality measures, and we 

believe voluntary adoption of these 

measures will further that aim. Further, 

allowing hospitals the option to 

electronically report topped-out 

measures will provide hospitals with an 

opportunity to test the accuracy of their 

electronic health record reporting 

systems. 

We welcome public comments on this 

proposal. 

(1) Proposed Readoption of AMI–2 

Aspirin Prescribed at Discharge (NQF 

#0142) 

The AMI–2 Aspirin Prescribed at 

Discharge (NQF #0142) assesses the 

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28240 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

percentage of acute myocardial 

infarction (AMI) patients who are 

prescribed aspirin at hospital discharge. 

The measure is NQF endorsed, but 

has been placed in reserve status, as the 

performance on this measure is topped 

out. The MAP recommended the 

measure should be suspended and 

phased out in its Pre-Rulemaking 

Report: 2013 Recommendations on 

Measures under Consideration by HHS 

available at: https://www.qualityforum.

org/WorkArea/linkit.aspx?Link

Identifier=id&ItemID=72738. However, 

as stated above, we intend to continue 

aligning the Hospital IQR Program and 

EHR Incentive Program, and we believe 

collecting this measure on a voluntary 

basis enables us to continue collecting 

quality data on this topic while working 

to minimize reporting burden on 

participating hospitals. Further, 

allowing hospitals the option to 

electronically report topped-out 

measures will provide hospitals with an 

opportunity to test the accuracy of their 

electronic health record reporting 

systems. 

The numerator includes AMI patients 

in the denominator who are prescribed 

aspirin at hospital discharge. The 

denominator includes patients with the 

following ICD–9–CM principal 

diagnosis codes of AMI: 410.00, 410.01, 

410.10, 410.11, 410.20, 410.21, 410.30, 

410.31, 410.40, 410.41, 410.50, 410.51, 

410.60, 410.61, 410.70, 410.71, 410.80, 

410.81, 410.90, and 410.91. 

The following patients are excluded 

from this measure: 

• Patients less than 18 years of age; 

• Patients who have a length of stay 

greater than 120 days; 

• Patients enrolled in clinical trials; 

• Patients who were discharged to 

another hospital; 

• Patients who expired; 

• Patients who left the hospital 

against medical advice; 

• Patients who were discharged to 

home for hospice care; 

• Patients who were discharged to a 

health care facility for hospice care; 

• Patients with comfort measures 

only documented; and 

• Patients with a documented reason 

for no aspirin at discharge. 

We invite public comments on this 

proposal. 

(2) Proposed Readoption of AMI–10 

AMI-Statin Prescribed at Discharge 

(NQF #0639) 

AMI–10 AMI-Statin Prescribed at 

Discharge (NQF #0639) assesses the 

percent of acute myocardial infarction 

(AMI) patients who are prescribed a 

statin at hospital discharge. 

The measure is NQF endorsed. The 

MAP recommended phased removal in 

its Pre-Rulemaking Report: 2013 

Recommendations on Measures under 

Consideration by HHS available at: 

https://www.qualityforum.org/

WorkArea/linkit.aspx?LinkIdentifier=

id&ItemID=72738 because the 

performance on this measure is likely 

topped out. However, as stated above, 

we intend to continue aligning the 

Hospital IQR Program and EHR 

Incentive Program, and we believe 

collecting this measure on a voluntary 

basis enables us to continue collecting 

quality data on this topic while working 

to minimize reporting burden on 

participating hospitals. Further, 

allowing hospitals the option to 

electronically report topped-out 

measures will provide hospitals with an 

opportunity to test the accuracy of their 

electronic health record reporting 

systems. 

The numerator includes AMI patients 

in the denominator who are prescribed 

a statin medication at hospital 

discharge. The denominator includes 

patients with the following ICD–9–CM 

principal diagnosis codes of AMI: 

410.00, 410.01, 410.10, 410.11, 410.20, 

410.21, 410.30, 410.31, 410.40, 410.41, 

410.50, 410.51, 410.60, 410.61, 410.70, 

410.71, 410.80, 410.81, 410.90, and 

410.91. 

The following patients are excluded 

from this measure: 

• Patients less than 18 years of age; 

• Patients who have a length of stay 

greater than 120 days; 

• Patients with comfort measures 

only documented; 

• Patients enrolled in clinical trials; 

• Patients who were discharged to 

another hospital; 

• Patients who left the hospital 

against medical advice; 

• Patients who expired; 

• Patients who were discharged to 

their home for hospice care; 

• Patients who were discharged to a 

health care facility for hospice care; 

• Patients with low-density 

lipoprotein less than 100 mg/dL within 

the first 24 hours after hospital arrival 

or 30 days prior to hospital arrival and 

not discharged on a statin; and 

• Patients with a reason for not 

prescribing statin medication at 

discharge. 

We invite public comments on this 

proposal. 

In summary, for FY 2017 payment 

determination and subsequent years, we 

are proposing to: (1) Adopt 11 total 

measures—9 new measures (4 of which 

are voluntary electronic clinical quality 

measures) and 2 previously removed 

measures re-adopted as voluntary 

electronic clinical quality measures, and 

(2) remove 10 measures (4 of which 

were previously suspended). If 

finalized, this would give a total of 62 

measures (46 required and 16 voluntary 

electronic clinical quality measures) in 

the Hospital IQR Program measure set. 

Set out below is a table showing both 

the previously adopted and the 

proposed quality measures for the FY 

2017 payment determination and 

subsequent years. Please note that this 

table does not include suspended 

measures or measures proposed for 

removal. 

Topic Previously adopted hospital IQR program measures and measures proposed in this proposed rule for the 

FY 2017 payment determination and subsequent years 

Acute Myocardial Infarction (AMI) 

Measures.

• AMI–2 Aspirin Prescribed at Discharge for AMI */b/† (NQF #0142). 

• AMI–7a Fibrinolytic therapy received within 30 minutes of hospital arrival b (NQF #0164). 

• AMI–8a Primary PCI received within 90 minutes of hospital arrival b/† (NQF #0163). 

• AMI–10 Statin Prescribed at Discharge */b/† (NQF #0639). 

Stroke Measure (STK) Set ............. • STK–1 Venous thromboembolism (VTE) prophylaxis (NQF #0434). 

• STK–2 Discharged on antithrombotic therapy b/† (NQF #0435). 

• STK–3 Anticoagulation therapy for atrial fibrillation/flutter b/† (NQF #0436). 

• STK–4 Thrombolytic therapy b (NQF #0437). 

• STK–5 Antithrombotic therapy by the end of hospital day two b/† (NQF #0438). 

• STK–6 Discharged on statin medication b (NQF #0439). 

• STK–8 Stroke education b. 

• STK–10 Assessed for rehabilitation b/† (NQF #0441). 

Venous Thromboembolism (VTE) 

Measure Set.

• VTE–1 Venous thromboembolism prophylaxis b (NQF #0371). 

• VTE–2 Intensive care unit venous thromboembolism prophylaxis b (NQF #0372). 

• VTE–3 Venous thromboembolism patients with anticoagulation overlap therapy b (NQF #0373). 

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Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 28241 

Topic Previously adopted hospital IQR program measures and measures proposed in this proposed rule for the 

FY 2017 payment determination and subsequent years 

• VTE–4 Patients receiving un-fractionated Heparin with doses/labs monitored by protocol b/†. 

• VTE–5 VTE discharge instructions b. 

• VTE–6 Incidence of potentially preventable VTE b (NQF #0376). 

Sepsis Measure .............................. • Severe sepsis and septic shock: management bundle * (NQF #0500). 

Pneumonia (PN) Measure .............. • PN–6 Initial Antibiotic Selection for community-acquired pneumonia (CAP) in Immunocompetent Patients b/† (NQF #0147). 

Surgical Care Improvement Project 

(SCIP) Measures.

• SCIP INF–1 Prophylactic antibiotic received within one hour prior to surgical incision b/† (NQF #0527). 

• SCIP INF–2 Prophylactic antibiotic selection for surgical patients b/† (NQF #0528). 

• SCIP INF–9 Urinary catheter removed on Postoperative Day 1 (POD1) or Postoperative Day 2 (POD2) 

with day of surgery being day zero b/† (NQF #0453). 

Mortality Measures .......................... • Hospital 30-day, all-cause, risk-standardized mortality rate (RSMR) following acute myocardial infarction 

(AMI) hospitalization for patients 18 and older (NQF #0230). 

• Hospital 30-day, all-cause, risk-standardized mortality rate (RSMR) following heart failure (HF) hospitalization for patients 18 and older (NQF #0229). 

• Hospital 30-day, all-cause, risk-standardized mortality rate (RSMR) following pneumonia hospitalization 

(NQF #0468). 

• Stroke 30-day mortality rate. 

• Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) following Chronic Obstructive Pulmonary Disease (COPD) Hospitalization (NQF #1893). 

• Hospital 30-day, all-cause, risk-standardized mortality rate (RSMR) following coronary artery bypass 

graft (CABG) surgery (NQF #1893).* 

Patient Experience of Care Measure.• HCAHPS survey (NQF #0166) (expanded to include two new ‘‘About You’’ items and the 3-item Care 

Transition Measure) (NQF #0228). 

Readmission Measures .................. • Hospital 30-day all-cause risk-standardized readmission rate (RSRR) following acute myocardial infarction (AMI) hospitalization (NQF #0505). 

• Hospital 30-day, all-cause, risk-standardized readmission rate (RSRR) following heart failure hospitalization (NQF #0330). 

• Hospital 30-day, all-cause, risk-standardized readmission rate (RSRR) following pneumonia hospitalization (NQF #0506). 

• Hospital-level 30-day, all-cause risk-standardized readmission rate (RSRR) following elective primary 

total hip arthroplasty (THA) and/or total knee arthroplasty (TKA) (NQF #1551). 

• Hospital-Wide All-Cause Unplanned Readmission (HWR) (NQF #1789). 

• Stroke 30-day Risk Standardized Readmission. 

• Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate (RSRR) following Chronic Obstructive 

Pulmonary Disease (COPD) Hospitalization (NQF #1891). 

• Hospital 30-day, all-cause, unplanned, risk-standardized readmission rate (RSRR) following coronary artery bypass graft (CABG) surgery.* 

AHRQ Patient Safety Indicators 

(PSIs) Composite Measure.

• PSI–90 Patient safety for selected indicators (composite) (NQF #0531). 

AHRQ PSI and Nursing Sensitive 

Care.

• PSI–4 Death among surgical inpatients with serious treatable complications (NQF #0351). 

Structural Measures ........................ • Participation in a Systematic Clinical Database Registry for Nursing Sensitive Care (NQF #0113). 

• Participation in a Systematic Clinical Database Registry for General Surgery (NQF #0493). 

• Safe Surgery Checklist Use. 

Healthcare-Associated Infections 

(HAI) Measures.

• National Healthcare Safety Network (NHSN) Central line-associated Bloodstream Infection (CLABSI) 

Outcome Measure (NQF #0139). 

• American College of Surgeons—Centers for Disease Control and Prevention (ACS–CDC) Harmonized 

Procedure Specific Surgical Site Infection (SSI) Outcome Measure (NQF #0753). 

—SSI following Colon Surgery. 

—SSI following Abdominal Hysterectomy. 

• National Healthcare Safety Network (NHSN) Catheter-associated Urinary Tract Infection (CAUTI) Outcome Measure (NQF #0138). 

• National Healthcare Safety Network (NHSN) Facility-wide Inpatient Hospital-onset Methicillin-resistant 

Staphylococcus aureus (MRSA) Bacteremia Outcome Measure (NQF #1716). 

• National Healthcare Safety Network (NHSN) Facility-wide Inpatient Hospital-onset Clostridium difficile Infection (CDI) Outcome Measure (NQF #1717). 

• Influenza vaccination coverage among healthcare personnel (HCP) (NQF #0431). 

Surgical Complications ................... • Hospital-level risk-standardized complication rate (RSCR) following elective primary total hip arthroplasty 

(THA) and/or total knee arthroplasty (TKA) (NQF #1550). 

Emergency Department (ED) 

Throughput Measures.

• ED–1 Median time from ED arrival to ED departure for admitted ED patients (NQF #0495). b 

• ED–2 Admit Decision Time to ED Departure Time for Admitted Patients (NQF #0497). b 

Prevention: Global Immunization 

(IMM) Measure.

• Influenza Immunization (NQF #1659). 

Cost Efficiency ................................ • Payment-Standardized Medicare Spending Per Beneficiary (MSPB) (NQF #2158). 

• AMI Payment per Episode of Care. 

• Hospital-level, risk-standardized 30-day episode-of-care payment measure for heart failure.* 

• Hospital-level, risk-standardized 30-day episode-of-care payment measure for pneumonia.* 

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28242 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

76Medicare EHR Incentive Program Stage 2 final 

rule (77 FR 54083 through 54087). 

Topic Previously adopted hospital IQR program measures and measures proposed in this proposed rule for the 

FY 2017 payment determination and subsequent years 

Perinatal Care (PC) ........................ • PC–01 Elective delivery b (NQF #0469). 

• PC–05 Exclusive Breast Milk Feeding and the subset measure PC–05a Exclusive Breast Milk Feeding 

Considering Mother’s Choice (NQF #0480). */b/† 

• Children’s Asthma Care-3 Home Management Plan of Care (HMPC) document given to patient/caregiver. */b/† 

• Healthy Term Newborn (NQF #0716). */b/† 

• Hearing Screening Prior to Hospital Discharge (NQF #1354). */b/† 

* New or expanded measures for FY 2017 payment determination and subsequent years. 

b Electronic clinical quality measure. 

† Voluntary measure. 

PREVIOUSLY ADOPTED VOLUNTARY ELECTRONIC CLINICAL QUALITY MEASURES AND PROPOSED VOLUNTARY ELECTRONIC

CLINICAL QUALITY MEASURES FOR THE FY 2017 PAYMENT DETERMINATION AND ASSOCIATED NQF DOMAINS

Short name Measure name NQF # Domain as assigned in Stage 2 

final rule 76

ED–1 ................. Emergency Department Throughput—Median time from ED arrival to 

ED departure for admitted ED patients.

0495 Patient and Family Engagement. 

ED–2 ................. Emergency Department Throughput—admitted patients—Admit decision time to ED departure time for admitted patients.0497 Patient and Family Engagement. 

STK–2 ............... Discharged on antithrombotic therapy ..................................................... 0435 Clinical Process/Effectiveness. 

STK–3 ............... Anticoagulation therapy for atrial fibrillation/flutter ................................... 0436 Clinical Process/Effectiveness. 

STK–4 ............... Thrombolytic Therapy ............................................................................... 0437 Clinical Process/Effectiveness. 

STK–5 ............... Antithrombotic therapy by end of hospital day two .................................. 0438 Clinical Process/Effectiveness. 

STK–6 ............... Discharged on Statin Medication ............................................................. 0439 Clinical Process/Effectiveness. 

STK–8 ............... Stroke education ...................................................................................... N/A Patient and Family Engagement. 

STK–10 ............. Assessed for rehabilitation ....................................................................... 0441 Care Coordination. 

VTE–1 ............... Venous thromboembolism prophylaxis .................................................... 0371 Patient Safety. 

VTE–2 ............... Intensive care unit venous thromboembolism prophylaxis ...................... 0372 Patient Safety. 

VTE–3 ............... Venous thromboembolism patients with anticoagulation overlap therapy 0373 Clinical Process/Effectiveness. 

VTE–4 ............... Patients receiving un-fractionated Heparin with doses/labs monitored 

by protocol.

N/A Clinical Process/Effectiveness. 

VTE–5 ............... VTE discharge instructions ...................................................................... N/A Patient and Family Engagement. 

VTE–6 ............... Incidence of potentially preventable VTE ................................................ 0376 Patient Safety. 

PC–01 ............... Elective Delivery ....................................................................................... 0469 Clinical Process/Effectiveness. 

PC–05 ............... Exclusive Breast Milk Feeding and the subset measure PC–05a Exclusive Breast Milk Feeding Considering Mother ́s Choice.* 0480 Clinical Process/Effectiveness. 

EHDI–1a ........... Hearing screening prior to hospital discharge * ....................................... 1354 Clinical Process/Effectiveness. 

Healthy Term Newborn * .......................................................................... 0716 Patient Safety. 

CAC–3 .............. Home Management Plan of Care (HMPC) Document Given to Patient/

Caregiver.

N/A Patient and Family Engagement. 

AMI–2 ............... Aspirin Prescribed at Discharge for AMI * ................................................ 0142 Clinical Process/Effectiveness. 

AMI–7a ............. Fibrinolytic Therapy Received Within 30 minutes of Hospital Arrival ...... 0164 Clinical Process/Effectiveness. 

AMI–8a ............. Primary PCI Received Within 90 Minutes of Hospital Arrival .................. 0163 Clinical Process/Effectiveness. 

AMI–10 ............. Statin Prescribed at Discharge * .............................................................. 0639 Clinical Process/Effectiveness. 

PN–6 ................. Initial Antibiotic Selection for Community-Acquired Pneumonia (CAP) in 

Immunocompetent Patients.

0147 Efficient Use of Healthcare Resources. 

SCIP–Inf–1a ..... Prophylactic Antibiotic Received within one Hour Prior to Surgical Incision.0527 Patient Safety. 

SCIP–Inf–2a ..... Prophylactic Antibiotic Selection for Surgical Patients ............................ 0528 Efficient Use of Healthcare Resources. 

SCIP–Inf–9 ....... Urinary catheter removed on Postoperative Day 1 (POD1) or Postoperative Day 2 (POD2) with day of surgery being day zero.0453 Patient Safety. 

* Measure proposed for adoption or readoption in Hospital IQR Program. 

h. Electronic Clinical Quality Measures 

(1) Data Submission Requirements for 

Quality Measures That May Be 

Voluntarily Electronically Reported for 

the FY 2017 Payment Determination 

We believe that collection and 

reporting of data through health 

information technology will greatly 

simplify and streamline reporting for 

many CMS quality reporting programs. 

Through electronic reporting, hospitals 

will be able to leverage EHRs to capture, 

calculate, and electronically submit 

quality data that is currently manually 

chart-abstracted and submitted to CMS 

for the Hospital IQR Program. As we 

noted in the FY 2012 IPPS/LTCH PPS 

final rule (76 FR 51614), we recognize 

the need to align and harmonize 

measures across CMS quality reporting 

programs to minimize the reporting 

burden imposed on hospitals. In the 

Medicare EHR Incentive Program Stage 

2 final rule (77 FR 54083 through 

54087), we finalized a total of 29 

clinical quality measures from which 

hospitals must select at least 16 

measures covering three National 

Quality Strategy (NQS) domains to 

report beginning in FY 2014. We 

anticipate that, as health information 

technology evolves and infrastructure is 

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Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 28243 

expanded, we will have the capacity to 

accept electronic reporting of many of 

the chart-abstracted measures that are 

currently part of the Hospital IQR 

Program. 

In the FY 2014 IPPS/LTCH PPS final 

rule, for the STK (with the exception of 

STK–1), VTE, ED, and PC measure sets, 

we allowed hospitals to either: (1) 

electronically report at least one quarter 

of CY 2014 (Q1, Q2, or Q3) quality 

measure data for each measure in one or 

more of those four measure sets; or (2) 

continue reporting all measures in those 

four measure sets using chart-abstracted 

data for all four quarters of CY 2014 (78 

FR 50818). 

For the FY 2017 payment 

determination, we are proposing to 

expand this policy, such that providers 

may select to voluntarily report any 16 

of the 28 Hospital IQR Program 

electronic clinical quality measures that 

align with the Medicare EHR Incentive 

Program as long as those 16 measures 

span three different NQS domains. The 

28 measures are listed in the table 

below. Only 28 of the 29 measures 

adopted in the Medicare EHR Incentive 

Program are applicable for the Hospital 

IQR Program, because the measure ED– 

3 Median time from ED arrival to ED 

departure for discharged ED patients 

(NQF #0496) is an outpatient setting 

measure. We expect eligible hospitals to 

select measures that best apply to their 

patient mix. 

For the FY 2017 payment 

determination, we also are proposing to 

expand the reporting requirement of 

electronic clinical quality measures to 

require a full year’s data collection and 

submission instead of a minimum of 

one quarter. In addition, for the FY 2017 

payment determination, we are 

proposing to require data submission 

within approximately 60 days after the 

end of a calendar year quarter. We have 

listed the proposed submission 

deadlines in the table below. We also 

refer readers to section IX.D.2. of the 

preamble of this proposed rule for a 

description of the electronic clinical 

quality measures data reporting periods 

and proposed submission deadlines. 

CY 2015/FY 2017 ELECTRONIC CLINICAL QUALITY MEASURES DATA REPORTING PERIODS AND PROPOSED SUBMISSION

DEADLINES

CY 2015 quarter Reporting period (2015) 

Proposed 

submission 

deadline 

(2015) 

1 ............................................... January 1–March 31 ...................................................................... May 30. 

2 ............................................... April 1–June 30 ............................................................................. Aug 30. 

3 ............................................... July 1–September 30 .................................................................... Nov 30. 

4 ............................................... October 1–December 31 ............................................................... Feb 28. 

As an incentive for hospitals to 

voluntarily submit electronicallyspecified clinical quality measures, we 

are proposing that for the FY 2017 

payment determination, hospitals 

successfully submitting electronic 

clinical quality measures according to 

our procedures will not have to validate 

those electronic clinical quality 

measures by submitting chart-abstracted 

data to validate the accuracy of the 

measure data submitted electronically. 

By proposing these changes, we 

would further align the Hospital IQR 

Program and the Medicare EHR 

Incentive Program and promote greater 

electronic clinical quality measure data 

reporting for hospitals. In addition, we 

believe that these changes would ease 

hospitals’ administrative burden, as 

they will be able to report the same 

clinical quality measures once to 

partially satisfy both the Hospital IQR 

and Medicare EHR Incentive Programs’ 

requirements. 

(2) Public Reporting of Electronic 

Clinical Quality Measures 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50813 through 50818), we 

adopted a policy under which we would 

only publicly report electronic clinical 

quality measure data under the Hospital 

IQR Program if we determined that the 

data are accurate enough to be reported. 

However, we noted that the majority of 

public commenters had opposed our 

proposal to withhold the electronically 

reported data from publication on 

Hospital Compare, and instead urged us 

to publicly display it (78 FR 50815). 

Therefore, for electronic clinical quality 

measure data submitted for the FY 2016 

payment determination, we will 

publically report the data as previously 

finalized. However, for the FY 2017 

payment determination, we now 

propose to provide hospitals that 

voluntarily report one year of electronic 

clinical quality measure data (as 

proposed above) an option to have their 

data reported on Hospital Compare with 

a preview period prior to public 

reporting. We also propose to add a 

footnote next to that publically reported 

data indicating that it is a result of 

electronically-specified measures. 

We welcome public comments on 

these proposals. 

8. Possible New Quality Measures and 

Measure Topics for Future Years 

a. Mandatory Electronic Clinical Quality 

Measure Reporting for FY 2018 Payment 

Determination 

We anticipate that, as EHR technology 

changes and improves, hospitals will 

electronically report all clinical processof-care and HAI measures, which are 

currently part of the Hospital IQR 

Program or which have been proposed 

for adoption into the Program. As stated 

above, we intend for the future direction 

of electronic quality measure reporting 

to significantly reduce administrative 

burden on hospitals under the Hospital 

IQR Program. We will continue to work 

with measure stewards and developers 

to develop new measure concepts, and 

conduct pilot, reliability, and validity 

testing. We believe that this voluntary 

reporting option will provide hospitals 

and CMS with the ability to test systems 

in CY 2015 for future quality program 

proposals that, if finalized, will make 

electronic reporting a requirement 

instead of voluntary. We believe this 

will simplify measure collection and 

submission for the Hospital IQR 

Program, and will reduce the burden on 

hospitals to report chart-abstracted 

measures. 

We intend to propose to require 

reporting of electronic clinical quality 

measures for the Hospital IQR Program 

beginning for the CY 2016 reporting 

period or FY 2018 payment 

determination. We considered 

proposing to require hospitals to 

electronically report some Hospital IQR 

Program quality measures in the FY 

2014 IPPS/LTCH PPS proposed rule (78 

FR 27695). After considering public 

comments, we made electronic 

reporting voluntary in CY 2014 in the 

FY 2014 IPPS/LTCH PPS final rule (78 

FR 50813 through 50814). However, 

after two years, we believe that hospitals 

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are more prepared and should be 

required to report Hospital IQR Program 

measures as electronic clinical quality 

measures beginning in CY 2016. We 

intend to propose this policy in future 

rulemaking, but request comments on 

this intention here. 

b. Possible Future Electronic Clinical 

Quality Measures 

We intend to continue to support the 

following measure domains in the 

Hospital IQR Program measure set: 

effective clinical care (for example, the 

AMI, PN, STK, and VTE measures), 

communication and care coordination 

(for example, the readmission 

measures), patient safety (for example, 

the HAI measures), person and 

caregiver-centered experience (for 

example, the HCAHPS measure), 

community/population health (for 

example, the global immunization 

measure), and efficiency and cost 

reduction (for example, the Medicare 

Spending per Beneficiary measure). 

This approach will enhance better 

patient care while aligning the Hospital 

IQR Program with our other established 

quality reporting and pay-forperformance programs, such as the 

Hospital VBP Program. 

Based on the above approach, we 

intend to propose to adopt the following 

electronic clinical quality measures 

with data collection beginning with 

October 1, 2016 discharges (or, as 

described further above, January 1, 

2017, if the proposal to align reporting 

under the Hospital IQR Program and 

Medicare EHR Incentive Program is 

finalized) to coincide with EHR 

Incentive Program Stage 3 collection: 

• Hepatitis B Vaccine Coverage Among 

All Live Newborn Infants Prior to 

Hospital or Birthing Facility Discharge 

NQF #0475 

The Hepatitis B Vaccine Coverage 

Among All Live Newborn Infants Prior 

to Hospital or Birthing Facility 

Discharge NQF #0475 measure is NQFendorsed, supported by the MAP and 

conditionally supported by the MAP as 

an electronic clinical quality measure 

for the EHR Incentive Program by the 

MAP in its 2014 Recommendations on 

Measures for More Than 20 Federal 

Programs final report available at: 

http://www.qualityforum.org/

Publications/2014/01/MAP_PreRulemaking_Report__2014_

Recommendations_on_Measures_for_

More_than_20_Federal_Programs.aspx. 

However, the MAP recommends a 

review of the electronic specifications of 

this measure through the NQF 

endorsement process. 

This measure requires each hospital/ 

birthing facility to measure its 

administration of a dose of hepatitis B 

vaccine to all infants born in their 

hospital/birthing facility prior to 

discharge for a specific time period (for 

example, one calendar year). Hospitals 

are required to assess infants whose 

parents refused vaccination for 

exclusion from the coverage estimate. 

• PC–02 Cesarean Section NQF #0471 

The PC–02 Cesarean Section NQF 

#0471 is NQF-endorsed and supported 

by the MAP in its 2014 

Recommendations on Measures for 

More Than 20 Federal Programs final 

report available at: 

http://www.qualityforum.org/

Publications/2014/01/MAP_Pre-Rule

making_Report__2014_

Recommendations_on_Measures_for_

More_than_20_Federal_Programs.aspx. 

The MAP noted that there is an 

important public education piece to the 

reporting of PC–02 and recommended 

that CMS work with others to ensure 

consumers understand what the results 

mean and why the measure is 

important. 

This measure assesses the number of 

nulliparous women with a term, 

singleton baby in a vertex position 

delivered by cesarean section. 

• Adverse Drug Events—Hyperglycemia 

Adverse Drug Events—Hyperglycemia 

is conditionally supported by the MAP 

in its 2014 Recommendations on 

Measures for More Than 20 Federal 

Programs final report available at: 

http://www.qualityforum.org/

Publications/2014/01/MAP_PreRulemaking_Report__2014_

Recommendations_on_Measures_for_

More_than_20_Federal_Programs.aspx. 

Use of this measure would address a 

very common condition. The MAP 

expressed concerns over the feasibility 

of using this measure in the Hospital 

IQR Program as it has been tested using 

electronic data and stated that the NQF 

endorsement process should resolve this 

issue. 

This measure assesses the average 

percentage of hyperglycemic hospital 

days for individuals with a diagnosis of 

diabetes mellitus, anti-diabetic drugs 

(except metformin) administered, or at 

least one elevated glucose level during 

the hospital stay. The measure’s 

numerator is the sum of the percentage 

of hospital days in hyperglycemia for all 

admissions in the denominator. The 

measure’s denominator is the total 

number of admissions with a diagnosis 

of diabetes mellitus, at least one 

administration of insulin or any oral 

anti-diabetic medication except 

metformin, or at least one elevated 

blood glucose value (>200 mg/dL [11.1 

mmol/L]) at any time during the entire 

hospital stay. 

Exclusions include: (1) Admissions 

with a diagnosis of diabetic ketoacidosis 

(DKA) or hyperglycemic hyperosmolar 

syndrome (HHS); (2) admissions 

without any hospital days included in 

the analysis; (3) admissions with lengths 

of stay greater than 120 days. 

• Adverse Drug Events—Hypoglycemia 

Adverse Drug Events—Hypoglycemia 

is conditionally supported by the MAP 

in its 2014 Recommendations on 

Measures for More Than 20 Federal 

Programs final report, which is available 

at: http://www.qualityforum.org/

Publications/2014/01/MAP_PreRulemaking_Report__2014_

Recommendations_on_Measures_for_

More_than_20_Federal_Programs.aspx. 

Use of this measure would address a 

common condition that is very 

dangerous to patients. The MAP 

expressed concerns over the feasibility 

of using this measure in the Hospital 

IQR Program as it has been tested using 

electronic data and that the NQF 

endorsement process should resolve this 

issue. 

This measure assesses the rate of 

hypoglycemic events following the 

administration of an anti-diabetic agent. 

The measure’s numerator is the total 

number of hypoglycemic events (<40 

mg/dL) that were preceded by 

administration of a short/rapid-acting 

insulin within 12 hours or an antidiabetic agent other than a short/rapidacting insulin within 24 hours, were not 

followed by another glucose value 

greater than 80 mg/dL within 5 minutes, 

and were at least 20 hours apart. The 

measure’s denominator is total number 

of hospital days with at least one antidiabetic agent administered. Exclusions 

include admissions with length of stay 

greater than 120 days. 

We request comments on these 

possible future measures. 

9. Form, Manner, and Timing of Quality 

Data Submission 

a. Background 

Sections 1886(b)(3)(B)(viii)(I) and (II) 

of the Act state that the applicable 

percentage increase for FY 2007 and 

each subsequent fiscal year shall be 

reduced by 2.0 percentage points (or 

beginning with FY 2015, by one-quarter 

of such applicable percentage increase 

(determined without regard to sections 

1886(b)(3)(B)(ix), (xi), or (xii) of the 

Act)) for any subsection (d) hospital that 

does not submit, to the Secretary in 

accordance with this clause and in a 

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form and manner, and at a time, 

specified by the Secretary, data required 

to be submitted on measures selected 

under this clause with respect to such 

a fiscal year. We note that, in 

accordance with this section, the FY 

2015 payment determination begins the 

first year that the Hospital IQR Program 

will reduce the applicable percentage 

increase by one-quarter of such 

applicable percentage increase. In order 

to participate in the Hospital IQR 

Program, hospitals must meet specific 

procedural requirements. 

Hospitals choosing to participate in 

the Hospital IQR Program must also 

meet specific data collection, 

submission, and validation 

requirements. For each Hospital IQR 

Program year, we require that hospitals 

submit data on each measure in 

accordance with the measure’s 

specifications for a particular period of 

time. The data submission 

requirements, Specifications Manual, 

and submission deadlines are posted on 

the QualityNet Web site at: http://

www.QualityNet.org/. 

Hospitals submit quality data through 

the secure portion of the QualityNet 

Web site. This Web site meets or 

exceeds all current Health Insurance 

Portability and Accountability Act 

requirements for security of protected 

health information. 

In order to participate in the Hospital 

IQR Program, hospitals must meet 

specific procedural requirements. 

Hospitals choosing to participate in the 

Hospital IQR Program must also meet 

specific data collection, submission, and 

validation requirements. 

b. Procedural Requirements for the FY 

2017 Payment Determination and 

Subsequent Years 

The Hospital IQR Program procedural 

requirements are codified in regulation 

at 42 CFR 412.140. We refer readers to 

the codified regulations for participation 

requirements, as further explained by 

the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50810 through 50811). 

c. Data Submission Requirements for 

Chart-Abstracted Measures 

We refer readers to the FY 2012 IPPS/ 

LTCH PPS final rule (76 FR 51640 

through 51641), the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53536 through 

53537), and the FY 2014 IPPS/LTCH 

PPS final rule (78 FR 50811) for details 

on the Hospital IQR Program data 

submission requirements for chartabstracted measures. 

We are not proposing any changes to 

data submission requirements for chartabstracted measures at this time. 

d. Alignment of the EHR Incentive 

Program Reporting and Submission 

Timelines for Clinical Quality Measures 

With Hospital IQR Program Reporting 

and Submission Timelines 

The Hospital IQR Program and the 

EHR Incentive Program have different 

reporting and submission periods for 

clinical quality measures, with hospitals 

reporting data to the Hospital IQR 

Program based on calendar year 

deadlines while the EHR Incentive 

Program is based on fiscal year 

deadlines. In addition, the Hospital IQR 

Program generally requires quarterly 

reporting and submission of data for 

chart-abstracted measures while the 

EHR Incentive Program requires annual 

submission of clinical process of care 

measure data. 

As a result of the different and 

incongruent Hospital IQR and Medicare 

EHR Incentive Programs’ schedules, 

hospitals reporting and submitting 

measure data to both programs would 

have to do so multiple times in a 

calendar year. This discrepancy may 

create confusion and additional burden 

for hospitals attempting to report data to 

both programs. To alleviate this possible 

confusion and reduce provider burden, 

beginning with the CY 2015 reporting 

period/FY 2017 payment determination, 

we are proposing to incrementally align 

the data reporting and submission 

periods for clinical quality measures for 

the Medicare EHR Incentive Program 

and the Hospital IQR Program on a 

calendar year basis. 

This proposed change also would also 

move us closer to meeting our 

commitment to align quality 

measurement and reporting among our 

programs, as we described in the 

Electronic Health Record Incentive 

Program –Stage 2 final rule (77 FR 

54049 through 54051), the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53502 

and 53534), and the FY 2014 IPPS/

LTCH PPS final rule (78 FR 50811 

through 50819 and 78 FR 50903 through 

50904). 

In order to ease the transition and 

prevent the delay of Medicare EHR 

Incentive Program payments, we are 

proposing to incrementally shift the 

Medicare EHR Incentive Program 

reporting and submission periods for 

clinical quality measures to align with 

that of the Hospital IQR Program. We 

refer readers to section IX.E.2. of the 

preamble of this proposed rule for a 

detailed discussion of this proposal in 

the EHR Incentive Program. 

Specifically, for the CYs 2015 and 2016, 

we are proposing in the EHR Incentive 

Program to require CY reporting, but 

only for the first three calendar quarters 

(that is, January through September). 

This proposal will allow us to align data 

reporting and submission periods 

without shifting the EHR incentive 

payments. 

We note that for the Hospital IQR 

Program, for the FY 2017 payment 

determination, we are proposing to 

change the November 30th submission 

deadline to require data submission 

within approximately 60 days of the 

close of a quarter. We refer readers to 

section IX.A.7.h.(1) of the preamble of 

this proposed rule where this proposal 

is made. We are also proposing this 

change in the Medicare EHR Incentive 

Program in order to align the two 

programs. We refer readers to section 

IX.D.2. of the preamble of this proposed 

rule where this proposal is made. In 

summary, we are proposing to align the 

reporting and submission periods of the 

Medicare EHR Incentive Program 

clinical quality measures with that of 

the Hospital IQR Program for CYs 2015 

and 2016. 

PROPOSED REPORTING TIMELINE TO ALIGN THE EHR INCENTIVE PROGRAM WITH PROPOSED HOSPITAL IQR PROGRAM

SUBMISSION PERIODS

CY EHR incentive program 

reporting requirements* 

Hospital IQR program 

reporting requirements Submission period ** 

2015 Reporting Period ......................................... Q1 ... January 1—March 31, 

2015.

January 1—March 31, 

2015.

Data must be submitted by 

May 31, 2015. 

Q2 ... April 1—June 30, 2015 ..... April 1—June 30, 2015 ..... Data must be submitted by 

August 31, 2015. 

Q3 ... July 1—September 30, 

2015.

July 1—September 30, 

2015.

Data must be submitted by 

November 30, 2015. 

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PROPOSED REPORTING TIMELINE TO ALIGN THE EHR INCENTIVE PROGRAM WITH PROPOSED HOSPITAL IQR PROGRAM

SUBMISSION PERIODS—Continued 

CY EHR incentive program 

reporting requirements* 

Hospital IQR program 

reporting requirements Submission period ** 

Q4 ... N/A for EHR Incentive Program.October 1—December 31, 

2015.

For Hospital IQR Program, 

Data must be submitted 

by February 28, 2016. 

2016 Reporting Period ......................................... Q1 ... January 1—March 31, 

2016.

January 1—March 31, 

2016.

Data must be submitted by 

May 31, 2016. 

Q2 ... April 1—June 30, 2016 ..... April 1—June 30, 2016 ..... Data must be submitted by 

August 31, 2016. 

Q3 ... July 1—September 30, 

2016.

July 1—September 30, 

2016.

Data must be submitted by 

November 30, 2016. 

Q4 ... N/A for EHR Incentive Program.October 1—December 31, 

2016.

For Hospital IQR Program, 

Data must be submitted 

by February 28, 2017. 

* Calendar year alignment and quarterly reporting for 2015 and 2016 would apply for electronically reported CQM data only. 

** Proposed EHR Incentive Program and Hospital IQR submission period would allow data submission on an ongoing basis starting January 2 

of the reporting year, and ending approximately 60 days after the end of the quarter. 

The Medicare EHR Incentive Program 

also clarifies case threshold 

denominator and reporting zero 

denominators are included in the 

Medicare EHR Incentive Program at 

sections IX.D.5. and IX.D.6. of the 

preamble of this proposed rule. 

We invite public comments on these 

proposals. 

e. Sampling and Case Thresholds for the 

FY 2017 Payment Determination and 

Subsequent Years 

We refer readers to the FY 2012 IPPS/ 

LTCH PPS final rule (75 FR 50230), the 

FY 2012 IPPS/LTCH PPS final rule (76 

FR 51641), the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53537), and the FY 

2014 IPPS/LTCH PPS final rule (78 FR 

50819) for details on our sampling and 

case thresholds for the FY 2016 

payment determination and subsequent 

years. 

We are not proposing any changes to 

sampling or case thresholds. 

f. HCAHPS Requirements for the FY 

2017 Payment Determination and 

Subsequent Years 

We refer readers to the FY 2011 IPPS/ 

LTCH PPS final rule (75 FR 50220), the 

FY 2012 IPPS/LTCH PPS final rule (76 

FR 51641 through 51643), the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53537 

through 53538), the FY 2014 IPPS/LTCH 

PPS final rule and (78 FR 50819 through 

50820) for details on HCAHPS 

requirements. 

We are not proposing any changes to 

HCAHPS requirements at this time. 

Hospitals and HCAHPS survey 

vendors should, however, regularly 

check the official HCAHPS Web site at 

http://www.hcahpsonline.org for new 

information and program updates 

regarding the HCAHPS Survey, its 

administration, oversight and data 

adjustments. 

g. Data Submission Requirements for 

Structural Measures for the FY 2017 

Payment Determination and Subsequent 

Years 

We refer readers to the FY 2012 IPPS/ 

LTCH PPS final rule (76 FR 51643 

through 51644), and the FY 2013 IPPS/ 

LTCH PPS final rule (77 FR 53538 

through 53539) for details on the data 

submission requirements for structural 

measures. 

We are not proposing any changes to 

data submission requirements for 

structural measures at this time. 

h. Data Submission and Reporting 

Requirements for Healthcare-Associated 

Infection (HAI) Measures Reported via 

NHSN 

We refer readers to the FY 2012 IPPS/ 

LTCH PPS final rule (76 FR 51631 

through 51633; 51644 through 51645), 

the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53539), and the FY 2014 IPPS/ 

LTCH PPS final rule (78 FR 50820 

through 50822) for details on the data 

submission and reporting requirements 

for healthcare-associated infection (HAI) 

measures reported via the CDC’s 

National Healthcare Support Network 

(NHSN) Web site. The data submission 

deadlines are posted on the QualityNet 

Web site at: http://www.QualityNet. 

org/. 

We are not proposing any changes to 

data submission and reporting 

requirements for healthcare-associated 

infection measures reported via the 

NHSN. 

10. Submission and Access of HAI 

Measures Data Through the CDC’s 

NHSN Web site 

As finalized in the FY 2014 Hospital 

IPPS/LTCH PPS final rule (78 FR 50805 

through 50807), the Hospital IQR 

Program requires hospitals to report 

data via the CDC’s NHSN Web site for 

the following HAI measures: (1) CLABSI 

(NQF #0139); (2) CAUTI (NQF #0138); 

(3) SSI following colon surgery; (4) SSI 

following abdominal hysterectomy; (5) 

laboratory-identified MRSA bacteremia 

infection (NQF #1716); (6) laboratoryidentified Clostridium difficile infection 

(NQF #1717); and, (7) healthcare 

personnel vaccination (NQF #0413). In 

the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51644 through 51645), we 

adopted the data submission and 

reporting standard procedures that have 

been set forth by CDC for NHSN 

participation in general and for 

submission of specific HAI measures to 

NHSN. 

For the FY 2016 payment 

determination and subsequent years, for 

the Hospital IQR program, we are 

clarifying our data reporting and 

submission requirements for the above 

stated HAI measures. By adopting the 

data reporting and submission 

procedures set forth by the CDC, we 

intended that hospitals report, through 

the existing NHSN process, any and all 

data elements at the patient-level that 

are designated as ‘‘required’’ on NHSN 

forms (such as, the ‘‘primary 

bloodstream infection’’ or ‘‘annual 

facility survey’’ forms). Some examples 

of these ‘‘required’’ patient-level data 

elements include: patient identifier, 

date of birth, and gender; detailed event 

data, such as specific symptoms 

identified to meet case definitions and 

laboratory results; and risk factor data 

used to calculate the hospital-level 

measures. Hospitals may find a 

comprehensive list of required forms 

and data elements on the NHSN Web 

site (http://www.cdc.gov/nhsn/acutecare-hospital/index.html). 

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We further wish to clarify that the 

NHSN required data collected by the 

CDC will be shared with CMS for 

Hospital IQR Program and Hospital VBP 

Program administration, monitoring and 

evaluation activities, including 

validation, appeals review, program 

impact evaluation, and development of 

quality measure specifications. CMS 

routinely uses submitted quality 

measure data for these types of program 

administration, monitoring and 

evaluation activities. 

In addition, we are proposing that we 

will also receive access from the CDC to 

voluntarily submitted name and race 

identifying information with respect to 

Hospital IQR Program required 

measures. These data will also be used 

for Hospital IQR Program and Hospital 

VBP Program administration, 

monitoring and evaluation activities, 

including validation, appeals review, 

program impact evaluation, and 

development of quality measure 

specifications. More specifically, for 

Hospital IQR Program validation, we 

propose to use these data to ensure 

accurate matching between patient 

charts submitted for HAI validation that 

cannot be matched to NHSN using 

Medicare beneficiary identification 

numbers. We also propose to use these 

data as appropriate for program 

evaluation. 

We invite public comment on this 

proposal. 

11. Proposed Modifications to the 

Existing Processes for Validation of 

Chart-Abstracted Hospital IQR Program 

Data 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53539 through 53553), we 

finalized the processes and procedures 

for validation of chart-abstracted 

measures in the Hospital IQR Program 

for the FY 2015 payment determination 

and subsequent years; this rule also 

contained a comprehensive summary of 

all procedures finalized in previous 

years and still in effect. Several 

modifications to these processes were 

finalized for the FY 2016 and FY 2017 

payment determinations in the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50822 

through 50835). For the FY 2017 

payment determination and subsequent 

years, we are proposing additional 

modifications to these processes. 

Proposed changes fall into the following 

categories: (a) Eligibility criteria for 

hospitals selected for validation; (b) 

number of charts to be submitted per 

hospital for validation; (c) combining 

scores for HAI and clinical process-ofcare measures; (d) processes to submit 

medical records for chart-abstracted 

measures; and (e) plans to validate 

electronic clinical quality measure data. 

a. Eligibility Criteria for Hospitals 

Selected for Validation 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50833 through 50834), for 

the FY 2016 payment determination and 

subsequent years, we finalized our 

process to draw a random sample of 400 

hospitals and an additional sample of 

up to 200 hospitals meeting specific 

targeting criteria for purposes of 

validation. For the FY 2017 payment 

determination and subsequent years, we 

are proposing one minor change to this 

process. In the FY 2011 IPPS/LTCH PPS 

final rule (75 FR 50227), we defined 

hospitals eligible for validation as the 

subset of subsection (d) hospitals that 

successfully submitted ‘‘at least one 

case for the third calendar quarter of the 

year two years prior to the year to which 

validation applies.’’ 

For the FY 2017 payment 

determination and subsequent years, we 

are proposing to change the definition of 

validation-eligible hospitals to be the 

subset of subsection (d) hospitals that 

successfully submitted at least one case 

to the Hospital IQR Clinical Data 

Warehouse during the quarter 

containing the most recently available 

data. The quarter containing the most 

recently available data will be defined 

based on when the random sample is 

drawn. For example, for the FY 2017 

payment determination, we intend to 

draw this sample in November or 

December of 2014. The second quarter 

(Q2) of 2014 ends in June 2014, but 

hospitals participating in the Hospital 

IQR Program may submit quality data 

from this quarter until November 15, 

2014 (see www.qualitynet.org for 

submission deadlines). If CMS draws its 

sample early in November 2014, before 

all the second quarter hospital data are 

submitted and processed by the Clinical 

Data Warehouse, the ‘‘quarter 

containing the most recently available 

data’’ will be first quarter (Q1) of 2014. 

On the other hand, if CMS draws its 

sample late November or early 

December 2014 after the second quarter 

2014 hospital data are processed, the 

second quarter of 2014 will contain the 

most recently available data. 

We are proposing this change 

because, in the FY 2014 IPPS/LTCH PPS 

final rule (78 FR 50822 through 50825), 

for the FY 2017 annual payment 

determination and subsequent years, we 

changed the timing of quarters for 

validation of HAI measures, as 

illustrated in the three graphs (78 FR 

50824). To align with this change for 

HAI measures and to give hospitals 

more time to complete HAI validation 

template requirements once selected, we 

intend to draw the validation sample 

several months sooner than we have 

historically drawn it. Historically, we 

drew the sample early in each calendar 

year. This proposal provides us with 

greater flexibility for when we can 

sample hospital data and allows CMS to 

use the most recent data available to 

select hospitals. 

We invite public comment on this 

proposal. 

b. Number of Charts To Be Submitted 

per Hospital for Validation 

(1) Background 

In the sections that follow, we are 

proposing to: (1) Change the number of 

charts hospitals must submit for 

validation; (2) change the measurespecific sample sizes for HAI validation; 

and (3) change the topic areas and 

sample design for clinical process-ofcare measures. We are proposing these 

changes because Section 1886(o) of the 

Act requires the Hospital VBP Program 

to use a subset of Hospital IQR Program 

measures and there is a declining 

number of measures and chartabstracted measure topic areas available 

to the Hospital VBP Program. Our 

proposals also will direct more 

resources to measures and topic areas 

that also overlap with the Hospital VBP 

Program. Finally, our proposals will 

ensure that all chart-abstracted measure 

topic areas containing required 

measures within the Hospital IQR 

Program are included in validation. A 

more detailed rationale accompanies 

each proposal. 

As described in the FY 2013 IPPS/

LTCH PPS final rule (77 FR 53539 

through 53553), the Hospital IQR 

Program validates chart-abstracted data 

submitted to two different systems: 

clinical process-of-care data submitted 

to the Hospital IQR Program Clinical 

Data Warehouse and HAI data 

submitted to the NHSN. Different 

validation approaches are used for the 

data submitted to each of the systems. 

The process for selecting and validating 

HAI data was first introduced in the FY 

2012 IPPS/LTCH PPS final rule (76 FR 

51646 through 51648) and has evolved 

annually in each successive IPPS/LTCH 

PPS rule. In contrast, validation of the 

clinical process of care measures, which 

involves separate samples for each topic 

area, has not substantively changed 

since it was first finalized for the FY 

2012 payment determination in the FY 

2010 IPPS/LTCH PPS final rule (74 FR 

43884 through 43889). 

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(2) Proposed Number of Charts to be 

Submitted for Validation 

(A) Total Number of Charts Required for 

Validation 

Our current policy requires hospitals 

to submit 96 charts for validation (60 

charts for clinical process-of-care 

measures and 36 charts for HAIs) (78 FR 

50825 through 50834). For the FY 2017 

payment determination and subsequent 

years, we are proposing to require 

hospitals selected for Hospital IQR 

Program validation to submit 18 patient 

charts per quarter for a total of 72 charts 

per year. A sample size of 72 charts is 

statistically estimated to be the number 

of charts needed to determine whether 

an individual hospital clearly passed 

validation and to assess hospital 

performance across both types of 

measures (HAIs and clinical process-ofcare) combined. As finalized in the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53551), hospitals may fall into three 

validation categories: (1) Hospitals pass 

validation with a lower bound of the 

confidence interval greater than or equal 

to 75 percent; (2) hospitals fail 

validation with an upper bound for a 

hospital’s confidence interval lower 

than 75 percent; and (3) hospitals 

neither pass nor fail validation with a 90 

percent confidence interval that 

includes values above and below 75 

percent. Hospitals in the third category 

that neither pass nor fail validation 

receive their annual payment update, 

but may be randomly sampled for 

inclusion in the targeted validation in 

the following year. 

We estimate that a sample of 72 charts 

will be sufficient to estimate a reliability 

of 75 percent +/- 10 percent with 90 

percent confidence, assuming a design 

effect no greater than 1.4. Historical data 

suggests that most hospitals in the 

Hospital IQR Program pass validation 

and validated data have a high level of 

accuracy. For example, for the FY 2013 

payment determination, approximately 

95 percent of hospitals validated had 

data reliability of 85 percent or higher. 

With a sample of 72 charts and an 

expected mean data reliability well 

above 85 percent, we should be able to 

identify most hospitals that pass 

validation. Of the remaining hospitals, 

we will use the same conservative 

approach to identify hospitals failing 

validation that we have used since the 

inception of the Hospital IQR Program. 

(B) Number of Charts Required for HAI 

and Clinical Process-of-Care Measures 

As finalized in the FY 2014 IPPS/

LTCH PPS final rule for the FY 2017 

payment determination and future 

years, we require hospitals to submit 9 

charts for HAI measures per quarter (78 

FR 50831) and for the FY 2016 payment 

determination and future years, we 

require hospitals to submit 15 charts for 

clinical process-of-care measures per 

quarter for validation (78 FR 50830). For 

the FY 2017 payment determination and 

subsequent years, we are proposing that 

of the 18 charts proposed to be 

submitted per quarter (above), 10 charts 

would be submitted to validate HAI 

measures and 8 charts would be 

submitted to validate clinical processof-care measures. This would equal 72 

charts per year with a mix of 40 HAI 

and 32 clinical process-of-care measure 

charts. We are proposing to require 

more HAI charts than clinical processof-care measure charts because HAI 

measures now, as proposed, have a 

greater impact on the Hospital VBP and 

the Hospital-Acquired Condition (HAC) 

Reduction Programs. Considering only 

the relative importance of HAIs and 

clinical process-of-care charts to the 

Hospital VBP Program, which is about 

4 times as great, CMS might choose a 

ratio larger than 10 HAI charts for every 

8 clinical process-of-care charts. 

However, we estimate that CMS spends 

about 4 times as much money per chart 

to validate HAIs than clinical processof-care measures. Moreover, the clinical 

process of care measures are still a 

critical part of the Hospital IQR 

Program. Therefore, CMS proposed this 

mix of 40 HAI and 32 clinical process 

of care charts per year because we 

believe it to be optimal after considering 

both the relative importance of the two 

types of charts to the Hospital IQR 

Program and related payment incentive 

programs and the relative cost of 

validation for the two types of charts. 

We invite public comment on these 

proposals. 

(3) HAI Validation: Measures and 

Measure-Specific Sample Sizes 

In the FY 2014 IPPS/LTCH final rule 

(78 FR 50828 through 50832) for the FY 

2016 payment determination and 

subsequent years, we finalized the HAI 

measures to be included in validation, 

the processes for completing validation, 

and the specific sample sizes for each. 

To validate HAI data, hospitals must use 

Validation Templates to provide 

supplemental data to CMS. These 

supplemental data provide CMS with a 

set of candidate infections for each HAI. 

As finalized previously, hospitals 

sampled for validation will be randomly 

assigned to provide two Validation 

Templates, either: (1) CLABSI and 

CAUTI, or 2) MRSA and CDI. 

Consequently, up to 300 hospitals will 

provide data on each of these 4 

measures. We also previously finalized 

a decision to validate a smaller number 

of patient charts for SSI from twice as 

many hospitals because of the smaller 

number of candidate SSIs expected per 

hospital per quarter. We are not 

proposing to change the process for 

validating individual measures. 

However, above in this section, we are 

proposing to increase the total HAI 

sample size by 1 chart per quarter for a 

total of 4 more charts per year. As 

explained below in this section, HAI 

measures have greater relative scoring 

weights in the Hospital VBP and HAC 

Reduction Programs than clinical 

process-of-care measures. Therefore, in 

order to align the Hospital IQR Program 

with the Hospital VBP and HAC 

Reduction Programs, we are proposing 

to increase measure-specific sample size 

targets to support this 1 chart per 

quarter increase in the Hospital IQR 

Program for the FY 2017 payment 

determination and subsequent years. 

Specifically, the total number of charts 

for CLABSI, CAUTI, MRSA, and CDI 

would increase by 1 from 15 to 16; and 

the total number of charts for SSI would 

increase by 2 from 6 to 8. The 

previously finalized and proposed 

specific sample-size charts are detailed 

in the tables below. 

PREVIOUSLY FINALIZED NUMBER OF CHARTS REQUIRED FOR HAI VALIDATION FOR THE FY 2017 PAYMENT

DETERMINATION AND SUBSEQUENT YEARS

HAI Number of hospitals Number of 

quarters 

Charts/quarter/

hospital 

Number of 

charts per 

hospital 

Previously Finalized: 

Central line associated bloodstream infections (CLABSI) ........... Up to 300 ................... 4 * 3.75 15 

Catheter-associated urinary tract infections (CAUTI) .................. Up to 300 ................... 4 * 3.75 15 

MRSA ........................................................................................... Up to 300 ................... 4 * 3.75 15 

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PREVIOUSLY FINALIZED NUMBER OF CHARTS REQUIRED FOR HAI VALIDATION FOR THE FY 2017 PAYMENT

DETERMINATION AND SUBSEQUENT YEARS—Continued 

HAI Number of hospitals Number of 

quarters 

Charts/quarter/

hospital 

Number of 

charts per 

hospital 

CDI ............................................................................................... Up to 300 ................... 4 * 3.75 15 

SSI ................................................................................................ Up to 600 ................... 4 * 1.5 6 

* As previously finalized, within each hospital, quarterly targets are 3, 3, and 1 respectively for CLABSI, CAUTI, and SSI, and 3, 3, and 1 respectively for MRSA, CDI, and SSI. As finalized, 2 additional charts per quarter per hospital were to be randomized to meet the fractional case 

targets on average. 

PROPOSED NUMBER OF CHARTS TO BE SUBMITTED FOR HAI VALIDATION FOR THE FY 2017 PAYMENT DETERMINATION

AND SUBSEQUENT YEARS

HAI Number of hospitals Number of 

quarters 

Charts/quarter/

hospital 

Number of 

charts per 

hospital 

Proposed: 

Central line associated bloodstream infections (CLABSI) ........... Up to 300 ................... 4 4 16 

Catheter-associated urinary tract infections (CAUTI) .................. Up to 300 ................... 4 4 16 

MRSA ........................................................................................... Up to 300 ................... 4 4 16 

CDI ............................................................................................... Up to 300 ................... 4 4 16 

SSI ................................................................................................ Up to 600 ................... 4 2 8 

We invite public comment on this 

proposal. 

(4) Clinical Process of Care Measures: 

Topic Areas and Sample Design 

As discussed above in this section, we 

are proposing to sample 8 total patient 

charts for clinical process-of-care 

measures per quarter per hospital 

included in validation for the Hospital 

IQR Program for the FY 2017 payment 

determination and subsequent years. 

Those 8 charts are discussed in greater 

detail below. 

As shown in the table below, two 

other Hospital IQR Program clinical 

process-of-care topic areas overlap with 

measures proposed for inclusion in the 

FY 2017 Hospital VBP Program. 

Regardless, we are not proposing to 

target those topic areas for the following 

reasons. One of these measures, PC–01, 

Elective delivery prior to 39 completed 

weeks of gestation, is reported in 

aggregate. We cannot use the same 

mechanism to validate PC–01 as we use 

for measures reported at the patient 

level, but we hope to include it in our 

validation program in the future should 

reporting PC–01 as an electronic clinical 

quality measure becomes a requirement. 

The second measure is AMI–7a. AMI–7a 

describes a process of care only 

performed in small rural hospitals. Of 

the approximately 3,300 hospitals 

participating in the Hospital IQR 

Program for the FY 2015 payment 

determination, only 113 submitted cases 

for this measure in the first two quarters 

of CY 2013. Therefore, targeting 

hospitals that report the AMI–7a 

measure would unduly single out small 

rural hospitals that disproportionately 

report relatively high AMI–7a measure 

denominator counts for validation, and 

would be inequitable. 

NUMBER OF CHART-ABSTRACTED CLINICAL PROCESS-OF-CARE MEASURES PER TOPIC AREA PROPOSED TO BE

REPORTED IN THE HOSPITAL IQR PROGRAM IN THE CY 2014 AND CY 2015 DATA COLLECTION PERIODS * 

Topic area 

Number of 

required measures reported in 

CY 2014 for FY 

2016 hospital 

IQR program 

Number of 

required measures proposed 

for CY 2015 for 

FY 2017 hospital 

IQR program 

Proposed to 

include in the 

Hospital VBP 

program for 

FY 2017 

Acute Myocardial Infarction (AMI) ......................................................................................... 2 1 Yes. 

Heart Failure (HF) ................................................................................................................. 1 0 No. 

Pneumonia (PN) .................................................................................................................... 1 0 No. 

Surgical Care Improvement Project (SCIP) .......................................................................... 7 0 No. 

Venous thromboembolism (VTE) .......................................................................................... 6 5 No. 

Stroke (STK) .......................................................................................................................... 8 4 No. 

Emergency department throughput (ED) .............................................................................. 2 2 No. 

Prevention—global immunization (IMM) ............................................................................... 1 1 Yes. 

Sepsis .................................................................................................................................... 0 1 No. 

Perinatal Care (PC) ** ........................................................................................................... 1 1 Yes. 

* Data validated for the FY 2017 payment determination are Quarter 3, CY 2014, Quarter 4, CY 2014 Quarter 1, CY 2015 and Quarter 2, CY 

2015 (78 FR 50824). 

** Not reported at the patient level and not proposed for inclusion in validation. 

For the FY 2017 payment 

determination and subsequent years, we 

are proposing that the remaining 5 of 

the 8 clinical process-of-care charts be 

drawn from a systematic random sample 

of charts across all topic areas 

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77We used data submitted to the Clinical Data 

Warehouse for the Hospital IQR Program from 

quarters 1 and 2 of 2013 to estimate that at least 400 cases per topic area would be validated per year 

(across all hospitals). 

containing required measures other 

aside from those in the immunization 

and perinatal care topic areas. Across all 

hospitals included in validation, we 

believe this approach will ensure 

adequate numbers of patient charts are 

sampled for each topic area. Under this 

proposal, the pool of clinical process-ofcare topic areas sampled for validation 

will include: STK, VTE, ED, and sepsis, 

as well as all other IQR required topic 

areas such as AMI. We received many 

comments in the FY 2014 IPPS/LTCH 

PPS final rule (78 FR 50807 through 

50810; 78 FR 50825) regarding the 

importance of validating VTE, STK, and 

ED measures not included in validation 

for the FY 2016 payment determination. 

With this proposal, STK, VTE, ED, and 

sepsis measures would be included in 

the pool of clinical process-of-care 

measures for validation. The systematic 

random sample of topic areas from this 

pool would ensure that charts are 

sampled proportionate to the number of 

charts submitted for each topic. Thus, a 

sample of 20 charts per year would not 

be limited to only one topic area by 

random occurrence. In addition, across 

all hospitals included in validation, we 

believe this approach will ensure 

adequate numbers of patient charts are 

sampled for each topic area.77

This proposal simultaneously 

simplifies the sampling plan for clinical 

process-of-care measures and gives us 

the flexibility of introducing or 

removing new topic areas into 

validation each year without having to 

redesign and propose a new sampling 

strategy. Using a random sample 

ensures that new topic areas are not 

excluded from the validation sample 

and we can more easily adjust as the 

topic areas change over the years. If this 

proposal is finalized, every time a new 

required topic area is added to the 

Hospital IQR Program, it will 

automatically be added to validation, 

and every time a topic is removed from 

the Hospital IQR Program, it will 

automatically be excluded from 

validation. 

We invite public comment on these 

proposals. 

(5) Immunization Measure Validation 

We are proposing for the Hospital IQR 

Program for the FY 2017 payment 

determination and subsequent years, 

that 3 of the 8 total patient charts each 

quarter be targeted from the 

Immunization topic area. Currently, this 

topic area only includes the 

Immunization for Influenza (NQF 

#1659) measure, which overlaps with 

the Hospital VBP Program. We want to 

ensure that every hospital included in 

validation is validated for this topic area 

because of the overlap. 

c. Combining Scores for HAI and 

Clinical Process of Care Topic Areas 

We refer readers to the FY 2010 IPPS/ 

LTCH PPS final rule (74 FR 43885) for 

the process of scoring clinical processof-care measures, the FY 2014 IPPS/

LTCH PPS final rule (78 FR 50832 

through 50833) for the process of 

scoring HAI measures, and FY 2014 

IPPS/LTCH PPS final rule (78 FR 50833) 

for the process to be used to compute 

the confidence interval. We are not 

proposing any changes to those 

established policies. 

However, for the FY 2017 payment 

determination and subsequent years, we 

are proposing to modify our approach to 

weighting the scores for each of the HAI, 

IMM and ‘‘other topic areas’’ with two 

proposals. 

In the FY 2011 IPPS/LTCH PPS final 

rule (75 FR 50226) and the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53548 

through 53553), we established a 

process to combine the HAI and clinical 

process-of-care measure scores by 

weighting them proportionate to the 

number of measures included in 

validation. For example, in section 

IX.A.11.b.4. of the preamble of this 

proposed rule, our proposal to validate 

all clinical process of care measures 

required by the Hospital IQR Program 

for the FY 2017 payment determination 

would yield 14 clinical process-of-care 

measures in validation in CY 2015 and 

only 5 HAI measures in validation. 

Using the previously finalized weights, 

the clinical process of care measures 

score would contribute 14/19 and the 

HAI score would contribute only 5/19 to 

the combined score. This weighting 

does not reflect either the relative 

importance of HAIs to clinical process 

of care measures in the Hospital VBP 

Program nor the resources proposed to 

devote to their validation. 

In sections IV.I. and IV.J. of the 

preamble of this proposed rule (the 

Hospital VBP Program and the HAC 

Reduction Program, respectively), we 

are proposing to weight the patient 

safety domain (of which the HAI 

measures are part) more heavily in the 

Hospital VBP Program (20 percent for 

the patient safety domain versus 5 

percent for the clinical process of care 

measures) and to use the HAI measures 

for the HAC Reduction Program. In this 

section, we are proposing to weight the 

HAI measures more heavily than the 

clinical process of care scores to align 

with these proposals in sections IV.I and 

IV.J. For the FY 2017 payment 

determination and subsequent years, we 

are proposing to weight the HAI score 

66.7 percent (or 2/3) of the total score 

and the clinical process-of-care 

measures to weight 33.3 percent 

(or 1/3) of the total score. Further 

justification is provided after the second 

proposal. 

In addition, we are proposing to 

weight the IMM measures more heavily 

than other chart-abstracted clinical 

process-of-care measures validated in 

the Hospital IQR Program to align with 

the Hospital VBP Program. We are 

changing the process currently 

established to calculate the clinical 

process-of-care score, which is based on 

application of the formulas for the 

variance of a stratified single-stage 

cluster sample with unequal cluster 

sizes and the variance of a proportion in 

a stratified random sample (see 

reference to Cochran’s ‘‘Sampling 

Techniques’’ at 75 FR 50226 and 78 FR 

53550). We have previously applied this 

formula without consideration for the 

relative importance of different 

measures. When so applied, each topic 

area is weighted proportionate to the 

amount of data submitted to the 

warehouse for that topic area. 

However, we are proposing to modify 

the formulas as previously applied to 

weight the IMM topic area more heavily 

because of the overlap with the Hospital 

VBP Program. For the FY 2017 payment 

determination and subsequent years, we 

are proposing to weight the ‘‘IMM’’ 

clinical topic area as 66.7 percent (2/3) 

and all other topic areas combined 33.3 

percent (1/3) of the clinical process-ofcare score. The weights reflect our 

policy preference to place greater 

relative weight on Hospital VBP 

Program included measures to better 

ensure accurate scores and payment. 

Emphasizing chart-abstracted clinical 

process of care measures validated in 

the Hospital IQR Program to align with 

the Hospital VBP Program will address 

the need to validate Hospital IQR 

Program data not currently included in 

Hospital VBP Program for public 

reporting and validation feedback to 

hospitals. 

The table below shows the effect of 

the two proposals combined (the first to 

weight the HAI score more heavily than 

the clinical process-of-care score and 

the second to weight IMM data more 

heavily than other clinical process-ofcare topic areas). The HAI topic area 

will count 3 times as much as the IMM 

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topic area and 6 times as much as all 

other topic areas combined. 

PROPOSED WEIGHTING TO COMBINE SCORES ACROSS CHART-ABSTRACTED TOPIC AREAS INCLUDED IN VALIDATION FOR

THE FY 2017 PAYMENT DETERMINATION AND SUBSEQUENT YEARS

Topic area Weight 

(percent) 

Health care associated infection (HAI) ........................................................................................................................................ 66.7 

Immunization (IMM) ..................................................................................................................................................................... 22.2 

Other (AMI, ED, sepsis, STK, VTE) ............................................................................................................................................ 11.1 

Total ...................................................................................................................................................................................... 100 

Previously, the clinical process of care 

measures accounted for 20 percent of 

the Hospital VBP Program score, 

whereas the HAI measures were a subset 

of the outcome measures weighted 30 

percent (FR 53605 through 53606). The 

proposed relative weights for the HAI 

(66 percent) and IMM (22 percent) topic 

areas better reflect the strong emphasis 

we are proposing for the HAI measures. 

These proposals will require 

adjustments to the formulas applied to 

compute the confidence intervals. As 

we have done in the past, we intend to 

post the specific formulas used to 

compute the confidence interval on the 

QualityNet Web site at least one year 

prior to final computation (https://

www.qualitynet.org/dcs/Content

Server?c=Page&pagename=Qnet

Public%2FPage%2FQnet

Tier2&cid=1138115987129). These 

formulas will continue to account 

appropriately for the manner in which 

patient charts were sampled and data 

were abstracted. 

We invite public comment on these 

proposals. 

d. Processes To Submit Patient Medical 

Records for Chart-abstracted Measures 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50834 through 50835), we 

finalized a process for the FY 2016 

payment determination and subsequent 

years that allows hospitals to submit 

patient charts for validation via: (1) 

Paper patient medical records; or (2) 

secure transmission of electronic 

versions of patient information. The 

process previously finalized restricts 

electronic submission of patient 

information to digital images of patient 

medical records submitted using 

encrypted CD–ROMs, DVDs, or flash 

drives. 

We are proposing for the FY 2017 

payment determination and subsequent 

years to expand the options for secure 

transmission of electronic versions of 

patient medical records. Specifically, 

we are proposing to allow hospitals to 

submit digital images (PDFs) of patient 

charts using a Secure File Transfer 

Portal on the QualityNet Web site. This 

portal would allow hospitals to transfer 

files through either a Web-based portal 

or directly from a client application 

using a secure file transfer protocol. The 

system provides a mechanism for 

securely exchanging documents 

containing sensitive information such as 

Protected Health Information (PHI) or 

Personally Identifiable Information (PII). 

Detailed instructions on how to use this 

system are available in the Secure File 

Transfer 1.0 User Manual available on 

QualityNet at: http://www.quality

net.org/dcs/ContentServer?c=Page&page

name=QnetPublic%2FPage%2FQnet

Basic&cid=1228773343598. After July 

2014, hospitals can submit all Hospital 

IQR Program validation data using this 

portal. This proposal responds to many 

commenters from the FY 2014 IPPS/

LTCH PPS rulemaking that were 

concerned that encrypted CD–ROMs 

were cumbersome and requested viable 

alternatives. We believe that the burden 

associated with using this portal will be 

similar to or less than that involved 

with submitting patient medical records 

via portable electronic media (that is, 

encrypted CD–ROMS, DVDs, or flash 

drives). Therefore, we intend to 

reimburse hospitals according to the 

rate established for submitting patient 

medical records via portable electronic 

media (78 FR 50956). 

We invite public comment on this 

proposal. 

e. Plans To Validate Electronic Clinical 

Quality Measure Data 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50807 through 50810), we 

finalized a voluntary process allowing 

hospitals to partially meet Hospital IQR 

Program requirements for the FY 2014 

payment determination by submitting 

electronic clinical quality measure data 

via certified electronic health record 

technology. Many commenters 

expressed concern that we did not have 

an adequate methodology to validate 

these data. 

To respond to these concerns as well 

as to ensure that Hospital IQR Program 

data are accurate and reliable, we 

conducted an environmental scan, 

including review of prior public 

comments to CMS proposed rules and 

requests for information, review of the 

technical and academic literatures, 

numerous listening sessions, and 

interviews with nine hospitals. From 

these activities, we identified three key 

categories of threats to data accuracy: (1) 

The design of the EHR product, 

including both the manufacturerprovided EHR product and the 

hospital’s customizations of that EHR 

product to support the hospital’s 

specific workflows and processes, (2) 

hospital and provider documentation 

practice, and (3) EHR and electronic 

clinical quality measure standards and 

specifications. We understand the 

potential threats to validity in each of 

these categories. To respond to these 

concerns, we are currently conducting a 

small scale test of a remote real-time 

validation strategy for electronic clinical 

quality measures in approximately 9 

hospitals. 

We are not proposing any 

requirements for validation of electronic 

clinical quality measures for the FY 

2017 payment determination. However, 

we intend to conduct a larger scale pilot 

test of validation activities in FY 2015. 

The pilot test will engage up to 100 

volunteer hospitals in a highly 

interactive test abstraction of their EHR 

systems using a secure remote access, 

real-time abstraction technology that 

meets the HIPAA Privacy and Security 

Rules’ requirements. Hospitals that 

volunteer to participate must meet the 

EHR Incentive Program Stage 2 criteria 

(77 FR 53968 through54162) and be able 

to produce QRDA Category 1 Revision 2 

extracted data (individual patient data) 

for at least 6 of the 16 measures in the 

STK, VTE, ED, and PC topic areas. The 

Office of the National Coordinator for 

Health Information Technology (ONC) 

adopted QRDA as the standard to 

support both QRDA Category I 

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(individual patient) and QRDA Category 

III (aggregate) data submission 

approaches for meaningful use Stage 2 

in the Health Information Technology: 

Standards, Implementation 

Specifications, and Certification Criteria 

for Electronic Health Record 

Technology, 2014 Edition; Revisions to 

the Permanent Certification Program for 

Health Information Technology rule (77 

FR 54163 through 54292). Interested 

hospitals will be invited to attend a 30- 

minute pre-briefing session where they 

will be provided with detailed 

instructions about the process and a 

demonstration explaining how to install 

needed software and have any concerns 

about security or systems requirements 

addressed. The software to be installed, 

Bomgar, is approved by CMS and meets 

our security requirements allowing 

CDAC to remotely view isolated records 

in real-time under hospital supervision, 

comparing all abstracted data with 

QRDA Category 1 file data and 

summarizing the results after the realtime session. 

We implemented Bomgar software, a 

commercial product, in a CMS data 

center to allow for the review of medical 

records securely over the Internet. The 

product will allow the CDAC staff and 

Hospital medical record staff to easily 

set up remote support sessions for 

reviewing Hospital IQR Program-related 

EHR records under hospital supervision. 

The software was tested and passed our 

strict security standards. The electronic 

sessions do not require changes to a 

hospital’s firewall or network because 

both the CDAC computer and the 

hospital computer connect to the 

product through secure outbound 

connections. The product will log and 

record every session and all session data 

will be safe-guarded by federal 

government approved encryption. 

While CDAC has limited, remote 

viewing access, hospitals will be asked 

to: 

• Generate separate lists of patients 

eligible for measures in each of the four 

topic areas (STK, VTE, ED, and PC); 

• Generate QRDA Category 1 files 

extracted automatically from an EHR for 

all applicable measures for up to 3 

records within each of the 4 topic areas 

(for a total of 12 records) as selected by 

CDAC; and 

• Show selected records, such as 

laboratory records, and patient medical 

history, navigating through the EHR 

system as directed by CDAC. 

During this remote real-time session, 

CDAC will: 

• Follow the specifications for the 

electronic measure to abstract relevant 

information related to each data element 

from up to 10 different sources, for 

example, medication administration 

records, laboratory reports, and patient 

history, (including structured and 

unstructured fields) within each patient 

medical record. 

After concluding the real-time session 

with a hospital, CDAC will: 

• Compare all abstracted data with 

QRDA Category 1 file data; and 

• Summarize results identifying 

patterns of concern. 

Based on these results, CMS and our 

contractors will: 

• Work with measure stewards to 

refine measure specifications based on 

conflicting findings; 

• Share conflicting findings with 

individual hospitals to support 

improvement; 

• Publicize de-identified patterns of 

conflicting findings that allow vendors 

to develop automated checks; 

• Determine reliability (agreement) 

between QRDA Category 1 extracted and 

abstracted data; and 

• Produce descriptive statistics to 

estimate sample size requirements for 

future validation. 

To address the burden associated with 

this test, we intend to reimburse 

hospitals for the burden associated with 

their participation. Details about 

reimbursement are included in section 

XIII.B.6. of the preamble of this 

proposed rule. We will post on 

QualityNet a detailed draft of the 

operational procedures that volunteer 

hospitals will be expected to follow 

during the public comment period. We 

developed this process to attempt to 

meet all of our goals for validity, as 

further explained in the table below. 

ELECTRONIC CLINICAL QUALITY MEASURE VALIDATION STRATEGY SUMMARY FOR THE HOSPITAL IQR PROGRAM

Desired Attributes of Validation Strategy 

• Assesses accuracy including reliability and population representativeness. 

• Employs a standardized process conducted by an objective third party. 

• Minimizes burden to hospitals. 

• Minimizes costs to CMS by being performed at a central location. 

• Leverages the dynamic qualities of an EHR, including query functions. 

• May ultimately integrate with validation of other IQR measures. 

Goals of Test 

• Assess the accuracy and completeness of electronic clinical quality measure data. 

• Assess Hospital IQR Program readiness for electronic clinical quality measure reporting requirements. 

• Identify the needs for and implement updates to measure specifications and standards. 

• Plan future validation requirements, including detailed operational instructions and sample size. 

Planned Process Overview 

Hospitals will: 

• Allow CMS’ Clinical Data Abstraction Contractor (CDAC) to remotely view records in real-time. 

• Generate separate lists of patients eligible for measures to be validated. 

• Generate QRDA Category 1 extract files for all applicable measures for up to 12 records selected by CDAC. 

• Show selected records, navigating through the EHR system as directed by CDAC. 

CDAC will: 

• Abstract data following the specifications for the electronic measure and relevant information related to each data element from up to 10 

different sources (including structured and unstructured fields) within each medical record. 

• Compare all abstracted data with QRDA Category 1 file data. 

• Assess and refine operational processes. 

CMS and its contractors will: 

• Determine reliability (agreement) between extracted and abstracted measures. 

• Work with measure stewards to refine measure specifications based on conflicting findings. 

• Share conflicting findings with individual hospitals to support improvement. 

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ELECTRONIC CLINICAL QUALITY MEASURE VALIDATION STRATEGY SUMMARY FOR THE HOSPITAL IQR PROGRAM— 

Continued 

• Publicize de-identified common patterns of conflicting findings that allow vendors to develop automated checks. 

• Produce descriptive statistics to estimate sample size requirements for future validation. 

• Reimburse hospitals for burden associated with participation in test. 

We invite public comment on this 

voluntary pilot test for validation. 

We also considered other validation 

approaches including one that 

supplements the current procedures and 

compares quality data manually 

abstracted by the hospitals with QRDA 

Category 1 extracts from their EHRs. 

Although we are making no specific 

proposals related to these alternatives at 

this time, we invite comments on 

whether we should develop or identify 

existing computerized applications to 

assist hospitals in self-validation and on 

the specific functionalities that may be 

useful for self-validation. For example, 

as part of the validation process, should 

CMS develop or identify an existing 

application that would use natural 

language processing, to identify 

potential threats to validity that human 

abstractors might then review more 

closely. An example of such an 

application might be one that searches 

the unstructured fields for 

contraindications to VTE prophylaxis, 

even if such contraindications were not 

noted in a structured field within an 

EHR. We also invite comments any 

other types of applications that would 

be useful for self-validation. 

12. Data Accuracy and Completeness 

Acknowledgement Requirements for the 

FY 2017 Payment Determination and 

Subsequent Years 

We refer readers to the FY 2013 IPPS/ 

LTCH PPS final rule (77 FR 53554) for 

information for details on DACA 

requirements for the FY 2017 payment 

determination and subsequent years. 

We are not proposing any changes to 

DACA form requirements at this time. 

13. Public Display Requirements for the 

FY 2017 Payment Determination and 

Subsequent Years 

We refer readers to the FY 2008 IPPS 

final rule (72 FR 47360), the FY 2011 

IPPS/LTCH PPS final rule (75 FR 

50230), the FY 2012 IPPS/LTCH PPS 

final rule (76 FR 51650), the FY 2013 

IPPS/LTCH PPS final rule (77 FR 

53554), and the FY 2014 IPPS/LTCH 

PPS final rule (78 FR 50836) for details 

on public display requirements for the 

FY 2017 payment determination and 

subsequent years. 

The Hospital IQR Program quality 

measures are typically reported on the 

Hospital Compare Web site at: http://

www.medicare.gov/hospitalcompare, 

but on occasion are reported on other 

CMS Web sites such as http://www.cms.

gov and/or https://data.medicare.gov. 

We are not proposing any changes to 

public display requirements at this time. 

14. Reconsideration and Appeal 

Procedures for the FY 2017 Payment 

Determination and Subsequent Years 

We refer readers to the FY 2012 IPPS/ 

LTCH final rule (76 FR 51650 through 

51651), the FY 2014 IPPS/LTCH final 

rule (78 FR 50836), and at 42 CFR 

§ 412.140(e) for details on 

reconsideration and appeal procedures 

for the FY 2017 payment determination 

and subsequent years. 

We are not proposing any changes to 

the reconsideration and appeals 

procedures at this time. 

15. Hospital IQR Program Extraordinary 

Circumstances Extensions or 

Exemptions 

We refer readers to the FY 2012 IPPS/ 

LTCH PPS final rule (76 FR 51651 

through 51652), the FY 2014 IPPS/LTCH 

PPS final rule (78 FR 50836 through 

50837), and 42 CFR 412.140(c)(2) for 

details on the Hospital IQR Program 

extraordinary circumstances extensions 

or waivers. We are not proposing any 

substantive changes to these policies or 

the processes. However, in the future, 

we will refer to the process as the 

Extraordinary Circumstances Extensions 

or Exemptions process. We are currently 

in the process of revising the 

Extraordinary Circumstances/Disaster 

Extension or Waiver Request form, 

previously approved under OMB 

control number 0938–1171. 

In addition, we are proposing to make 

a conforming change from the phrase 

‘‘extension or waiver’’ to the phrase 

‘‘extension or exemption’’ in 42 CFR 

412.140(c)(2). Section 412.140(c)(2) 

currently states, ‘‘Exception. Upon 

request by a hospital, CMS may grant an 

extension or waiver of one or more data 

submission deadlines in the event of 

extraordinary circumstances beyond the 

control of the hospital. Specific 

requirements for submission of a request 

for an extension or waiver are available 

on QualityNet.org.’’ We are proposing to 

revise this language to state, ‘‘Exception. 

Upon request by a hospital, CMS may 

grant an extension or exemption of one 

or more data submission deadlines in 

the event of extraordinary 

circumstances beyond the control of the 

hospital. Specific requirements for 

submission of a request for an extension 

or exemption are available on 

QualityNet.org.’’ 

B. PPS-Exempt Cancer Hospital Quality 

Reporting (PCHQR) Program 

1. Statutory Authority 

Section 3005 of the Affordable Care 

Act added new sections 1866(a)(1)(W) 

and (k) to the Act. Section 1866(k) 

establishes a quality reporting program 

for hospitals described in section 

1886(d)(1)(B)(v) of the Act (referred to as 

a ‘‘PPS-Exempt Cancer Hospital’’ or 

‘‘PCH’’). Section 1866(k)(1) of the Act 

states that, for FY 2014 and each 

subsequent fiscal year, a PCH must 

submit data to the Secretary in 

accordance with section 1866(k)(2) of 

the Act with respect to such a fiscal 

year. Section 1866(k)(2) of the Act 

provides that, for FY 2014 and each 

subsequent fiscal year, each hospital 

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

the Act must submit data to the 

Secretary on quality measures specified 

under section 1866(k)(3) of the Act in a 

form and manner, and at a time, 

specified by the Secretary. 

Section 1866(k)(3)(A) of the Act 

requires that any measure specified by 

the Secretary must have been endorsed 

by the entity with a contract under 

section 1890(a) of the Act, unless an 

exception under section 1866(k)(3)(B) of 

the Act applies. The National Quality 

Forum (NQF) currently holds this 

contract. The NQF is a voluntary, 

consensus-based, standard-setting 

organization with a diverse 

representation of consumer, purchaser, 

provider, academic, clinical, and other 

health care stakeholder organizations. 

The NQF was established to standardize 

healthcare quality measurement and 

reporting through its consensus 

development processes. We have 

generally adopted NQF-endorsed 

measures in our reporting programs. 

However, section 1866(k)(3)(B) of the 

Act provides an exception. Specifically, 

it provides that, in the case of a 

specified area or medical topic 

determined appropriate by the Secretary 

for which a feasible and practical 

measure has not been endorsed by the 

entity with a contract under section 

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28254 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

78All-Payer Claims Database (APCD) Fact Sheet; 

available at: http://www.apcdcouncil.org/issuebriefs-and-fact-sheets. 

1890(a) of the Act, the Secretary may 

specify a measure that is not so 

endorsed as long as due consideration is 

given to measures that have been 

endorsed or adopted by a consensus 

organization identified by the Secretary. 

Under section 1866(k)(3)(C) of the 

Act, the Secretary was required to 

publish the measure selection for PCHs 

no later than October 1, 2012, with 

respect to FY 2014. 

Section 1866(k)(4) of the Act requires 

the Secretary to establish procedures for 

making public the data submitted by 

PCHs under the PPS-Exempt Cancer 

Hospital Quality Reporting (PCHQR) 

Program. Such procedures must ensure 

that a PCH has the opportunity to 

review the data that are to be made 

public with respect to the PCH prior to 

such data being made public. The 

Secretary must report quality measures 

of process, structure, outcome, patients’ 

perspective on care, efficiency, and 

costs of care that relate to services 

furnished by PCHs on the CMS Web 

site. 

2. Covered Entities 

Section 1886(d)(1)(B)(v) of the Act 

excludes particular cancer hospitals 

from payment under the IPPS. This 

proposed rule covers only those PPSexcluded cancer hospitals meeting 

eligibility criteria specified in 42 CFR 

412.23(f). 

3. Previously Finalized PCHQR Program 

Quality Measures 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53556 through 53561), we 

finalized five quality measures for the 

FY 2014 program and subsequent years. 

Specifically, we finalized two of the 

CDC NHSN-based HAI quality measures 

(outcome measures): (1) CLABSI; and (2) 

CAUTI. We also finalized three cancerspecific process of care measures: (1) 

Adjuvant chemotherapy is considered 

or administered within 4 months (120 

days) of surgery to patients under the 

age of 80 with the American Joint 

Committee on Cancer (AJCC) III (lymph 

node positive) colon cancer; (2) 

Combination chemotherapy is 

considered or administered within 4 

months (120 days) of diagnosis for 

women under 70 with AJCC T1c, or 

Stage II or III hormone receptor negative 

breast cancer; and (3) Adjuvant 

hormonal therapy. We also discussed 

the collection requirements and 

submission timeframes for these 

measures in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53563 through 

53566). 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50838 through 50840), we 

finalized one new quality measure for 

the FY 2015 program and subsequent 

years. Specifically, we finalized the 

CDC’s NHSN HAI measure of Surgical 

Site Infection (SSI). We did not remove 

or replace any of the previously 

finalized measures from the PCHQR 

Program for the FY 2015 program and 

subsequent years. 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50840 through 50846), we 

finalized 12 new quality measures for 

the FY 2016 program and subsequent 

years. Specifically, we finalized six new 

SCIP measures, five new clinical 

process/oncology care measures and the 

HCAHPS Survey for reporting beginning 

with the FY 2016 program and 

subsequent years. We did not remove or 

replace any of the previously finalized 

measures from the PCHQR Program for 

the FY 2016 program and subsequent 

years. We also discussed the collection 

requirements and submission 

timeframes for these measures in the FY 

2014 IPPS/LTCH PPS final rule (78 FR 

50850 through 50853). 

We are not proposing to remove or 

replace any of the previously finalized 

measures from the PCHQR Program for 

the FY 2017 program and subsequent 

years. 

4. Proposed Update to the Clinical 

Process/Oncology Care Measures 

Beginning With the FY 2016 Program 

Beginning with the FY 2016 program, 

we are proposing to update the 

specifications for each of the five 

clinical process/oncology care measures 

so that for each measure, PCHs must 

report all-patient data. We believe that 

the delivery of high quality care in the 

PCH setting is critically important and 

that collecting data on all patients will 

enable us to ensure that high quality 

care is delivered to Medicare 

beneficiaries in this setting. In addition, 

all-patient data increases transparency 

in the health care system, aligns with 

State and federal initiatives,78 and 

improves research efforts. Our proposal 

to require PCHs to collect all-patient 

data provides us with the data to inform 

the public with the most robust and 

accurate reflection of the quality of care 

and patient outcomes in the PCH 

setting. In addition, this proposal will 

align the specifications of the clinical 

process/oncology care measures with 

those of the SCIP PCHQR measures, for 

which all-patient data are required for 

submission. 

We welcome public comments on this 

proposal for the clinical process/

oncology care measures for the FY 2016 

program and subsequent years. 

5. Proposed New Quality Measure 

Beginning With the FY 2017 Program 

a. Considerations in the Selection of 

Quality Measures 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53556) and in the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50837 

through 50838), we indicated that we 

have taken a number of principles into 

consideration when developing and 

selecting measures for the PCHQR 

Program, and that many of these 

principles are modeled on those we use 

for measure development and selection 

under the Hospital IQR Program: 

• Public reporting should rely on a 

mix of standards, outcomes, process of 

care measures, and patient experience of 

care measures, including measures of 

care transitions and changes in patient 

functional status. 

• The measure set should evolve so 

that it includes a focused core set of 

measures appropriate to cancer 

hospitals that reflects the level of care 

and the most important areas of service 

furnished by those hospitals. The 

measures should address gaps in the 

quality of cancer care. 

• We also consider input solicited 

from the public through rulemaking and 

public listening sessions. 

• We consider suggestions and input 

from a PCH Technical Expert Panel 

(TEP), convened by a CMS measure 

development contractor, which rated 

potential PCH quality measures for 

importance, scientific soundness, 

usability, and feasibility. The TEP 

membership includes health care 

providers specializing in the treatment 

of cancer, cancer researchers, consumer 

and patient advocates, disparities 

experts, and representatives from payer 

organizations. 

Like the Hospital IQR Program, the 

PCHQR Program supports the National 

Quality Strategy (NQS), national 

priorities, HHS Strategic Plans and 

Initiatives, the CMS Quality Strategy, 

and strives for burden reduction 

whenever possible. The PCHQR 

Program also takes into consideration 

the recommendations of the Measure 

Applications Partnership (MAP). The 

MAP is a multi-stakeholder body 

convened by the NQF for the purpose of 

providing input to HHS on the selection 

of measures. 

b. Proposed New Quality Measure 

Beginning With the FY 2017 Program 

We are proposing to adopt one new 

clinical effectiveness measure for the FY 

2017 program and subsequent years: 

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79Coleman RE. Metastatic bone disease: Clinical 

features, pathophysiology and treatment strategies. 

Cancer Treat Rev. 2001;27:165–176. 

80Lutz S, Berk L, Chang E, et al. Palliative 

radiotherapy for bone metastases: An ASTRO 

evidence-based guideline. Int J Radiat Oncol Biol 

Phys. 2011;79(4):965–976. 

81Available at: http://www.qualityforum.org/

WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=

70374. 

82Lutz S, Berk L, Chang E, et al. Palliative 

radiotherapy for bone metastases: An ASTRO 

evidence-based guideline. Int J Radiat Oncol Biol 

Phys. 2011;79(4):965–976. 

83FY 2013 IPPS/LTCH PPS final rule 77 FR 53561 

(NQF# 0223, 0559, and 0220). 

External Beam Radiotherapy for Bone 

Metastases (NQF #1822). The proposed 

clinical effectiveness measure was 

included on a publicly available 

document entitled ‘‘List of Measures 

under Consideration for December 1, 

2013,’’ a list of quality and efficiency 

measures being considered for use in 

various Medicare programs. The 

proposed measure was submitted to the 

MAP Hospital Workgroup for review. 

The MAP supported the inclusion of 

this measure in the PCHQR Program. 

The MAP’s conclusions can be found in 

the ‘‘MAP Pre-Rulemaking Report: 2014 

Recommendations on Measures Under 

Consideration by HHS,’’ which is 

available at: https://

www.qualityforum.org/Publications/

2014/01/MAP_Pre-Rulemaking_Report_

_2014_Recommendations_on_

Measures_for_More_than_20_Federal_

Programs.aspx. We considered the 

MAP’s input and recommendations for 

this proposed measure for the PCHQR 

Program, and specifically, we note that 

the proposed measure addresses the 

MAP priority of palliative care for 

cancer patients. In addition, the 

proposed measure addresses the NQS 

domain of effective clinical care. 

We believe that this NQF-endorsed 

measure developed by the American 

Society for Radiation Oncology 

(ASTRO) meets the requirement under 

section 1866(k)(3)(A) of the Act that 

measures specified for the PCHQR 

generally be endorsed by the entity with 

a contract under section 1890(a) of the 

Act (currently the NQF). This measure 

assesses the percentage of patients (both 

Medicare and non-Medicare) with 

painful bone metastases and no history 

of previous radiation who receive EBRT 

with an acceptable dosing schedule. The 

measure numerator includes all patients 

with painful bone metastases, and no 

previous radiation to the same site, who 

receive EBRT with any of the following 

recommended fractionation schemes: 

30Gy/10fxns, 24Gy/6fxns, 20Gy/5fxns, 

or 8Gy/1fxn. The measure denominator 

includes all patients with painful bones 

metastases and no previous radiation to 

the same site, who receive EBRT. The 

following patients are excluded from the 

denominator: Patients who have had 

previous radiation to the same site; 

patients with femoral axis cortical 

involvement greater than 3 cm in length; 

patients who have undergone a surgical 

stabilization procedure; and patients 

with spinal cord compression, cauda 

equina compression, or radicular pain. 

For the reasons explained more fully 

below, we believe that this measure will 

reduce the rate of EBRT services 

overuse, support our commitment to 

promoting patient safety, and support 

the NQS domains. 

Bone metastases are a common 

manifestation of malignancy. Some 

cancer types have a bone metastasis 

prevalence as high as 70 to 95 percent.79

EBRT can provide significant pain relief 

in 50 to 80 percent of patients with 

painful bone metastases. 

In October 2009, ASTRO organized a 

Task Force to perform an assessment of 

existing recommendations in order to 

address a lack of palliative radiotherapy 

guidelines. Based on a review of the 

literature, the Task Force recommended 

the following EBRT dosing schedules 

for patients with previously unirradiated painful bone metastases: 30 

Gy over the course of 10 fractions, 24 Gy 

over the course of 6 fractions, 20 Gy 

over the course of 5 fractions, and a 

single 8 Gy fraction.80 Despite the 

recommendations, the actual doses 

applied for EBRT continue to include 

dosing schedules as high as 25 

fractions.81 Other studies support the 

conclusion that shorter EBRT schedules 

produce similar pain relief outcomes 

when compared to longer EBRT 

schedules, and that patients prefer 

shorter EBRT schedules because of their 

convenience, increased tolerability, and 

reduced side effects.82

In addition, the ASTRO Task Force 

found that the frequency and severity of 

side effects associated with a single 

fraction were the same or less than those 

associated with multiple fraction 

regimens, indicating that shorter 

treatment schedules may be 

preferable.83 The proposed External 

Beam Radiotherapy for Bone Metastases 

measure seeks to address the 

performance gap in treatment variation, 

ensure appropriate use of EBRT, and 

prevent the overuse of radiation 

therapy. We believe that this measure is 

necessary to support patient preferences 

for shorter EBRT schedules as well as to 

ensure patient safety, given that shorter 

treatment courses show similar or fewer 

side effects while producing similar 

clinical outcomes. 

We believe the proposed measure is 

applicable to the PCH setting because it 

addresses cancer care associated with 

radiation therapy. The adoption of 

measures that apply to multiple health 

care settings is one of our objectives in 

promoting quality care consistently 

across all health care settings. Detailed 

specifications for this proposed measure 

can be found at: http://www.quality

forum.org/WorkArea/linkit.aspx?Link

Identifier=id&ItemID=70374. 

In summary, in addition to the 18 

measures that we previously finalized 

for the PCHQR Program, we are 

proposing one new measure for 

reporting beginning with the FY 2017 

program. The proposed policies 

regarding the form, manner, and timing 

of data collection for this measure are 

discussed in later sections. The table 

below lists all previously adopted 

measures as well as the proposed new 

measure for the PCHQR Program for the 

FY 2017 program and subsequent years. 

We welcome public comment on this 

proposal. 

Topic PCHQR program measures for the FY 2017 program and subsequent years (including proposed new measure) 

Safety and Healthcare-Associated Infection—HAI 

• (NQF #0139) NHSN Central Line-Associated Bloodstream Infection (CLABSI) Outcome Measure *. 

• (NQF #0138) NHSN Catheter-Associated Urinary Tract Infections (CAUTI) Outcome Measure *. 

• (NQF #0753) Harmonized Procedure Specific Surgical Site Infection (SSI) Outcome Measure* (currently includes SSIs following Colon Surgery and Abdominal Hysterectomy Surgery). 

Clinical Process/Cancer-Specific Treatments 

• (NQF #0223) Adjuvant Chemotherapy is Considered or Administered Within 4 Months (120 days) of Surgery to Patients 

Under the Age of 80 with AJCC III (lymph node positive) Colon Cancer *. 

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Topic PCHQR program measures for the FY 2017 program and subsequent years (including proposed new measure) 

• (NQF #0559) Combination Chemotherapy is Considered or Administered Within 4 Months (120 days) of Diagnosis for 

Women Under 70 with AJCC T1c, or Stage II or III Hormone Receptor Negative Breast Cancer *. 

• (NQF #0220) Adjuvant Hormonal Therapy *. 

SCIP 

• (NQF #0218) Surgery Patients who Received Appropriate VTE Prophylaxis within 24 Hrs Prior to Surgery to 24 Hrs After 

Surgery End Time *. 

• (NQF #0453) Urinary Catheter Removed on Post-Operative Day 1 or Post-Operative Day 2 with Day of Surgery Being Day 

Zero *. 

• (NQF #0527) Prophylactic Antibiotic Received Within 1 Hr Prior to Surgical Incision *. 

• (NQF #0528) Prophylactic Antibiotic Selection for Surgical Patients *. 

• (NQF #0529) Prophylactic Antibiotic Discontinued Within 24 Hrs After Surgery End Time *. 

• (NQF #0284) Surgery Patients on Beta Blocker Therapy Prior to Admission who Received a Beta Blocker During the 

Perioperative Period *. 

Clinical Process/Oncology Care Measures 

• (NQF #0382) Oncology-Radiation Dose Limits to Normal Tissues *. 

• (NQF #0383) Oncology: Plan of Care for Pain *. 

• (NQF #0384) Oncology: Pain Intensity Quantified *. 

• (NQF #0390) Prostate Cancer-Adjuvant Hormonal Therapy for High-Risk Patients *. 

• (NQF #0389) Prostate Cancer-Avoidance of Overuse Measure-Bone Scan for Staging Low-Risk Patients *. 

Patient Engagement/Experience of Care 

• (NQF #0166) HCAHPS *. 

Clinical Effectiveness Measure 

• (NQF #1822) External Beam Radiotherapy for Bone Metastases **. 

* Previously finalized measures. 

** Proposed for the FY 2017 program and subsequent years in this proposed rule. 

6. Possible New Quality Measure Topics 

for Future Years 

We seek to develop a comprehensive 

set of quality measures for widespread 

use for informed decision-making and 

quality improvement in the PCH setting. 

Therefore, in future rulemaking, we 

intend to propose to adopt new or 

updated measures, such as measures 

that assess the safety and efficiency of 

the diagnosis and treatment of cancer, 

measures that take into account novel 

diagnostic and treatment modalities, 

measures that assess symptoms and 

functional status, and measures of 

appropriate disease management. 

Additional measure topics to be 

considered include patient centered 

care planning and care coordination, 

shared decision making, measures of 

quality of life outcomes, and measures 

of admissions for complications of 

cancer and treatment for cancer. We 

believe that such measures will help us 

further our goal of achieving better 

health care and improved health for 

Medicare beneficiaries who obtain 

cancer services through the widespread 

dissemination and use of quality of care 

information. 

We welcome public comment and 

specific suggestions for measure topics 

for the following measure domains: 

outcomes, quality of life, clinical quality 

of care, care coordination, patient safety, 

patient and caregiver experience of care, 

population/community health, and 

efficiency. These domains align with 

those of the NQS, and we believe that 

selecting measures to address these 

domains will promote better cancer care 

while aligning the PCHQR Program with 

other established quality reporting and 

pay for performance programs such as 

the Hospital IQR Program, the Hospital 

OQR Program and the Hospital VBP 

Program. 

Generally, we retain measures from 

the previous years’ PCHQR Program 

measure sets for subsequent years. 

However, in future years we will 

consider developing criteria to 

determine whether or not to remove or 

replace measures from the PCHQR 

Program measure set. In developing 

removal criteria, we will consider those 

criteria used by other CMS quality 

reporting programs in order to align the 

PCHQR Program with those programs. 

We welcome public comments on the 

criteria for removal or replacement of 

measures from the PCHQR Program. 

In an effort to reduce the reporting 

burden for PCHs, in future years, we 

will consider proposing to require PCHs 

to report electronically specified clinical 

quality measures for the PCHQR 

Program. We believe that the collection 

and reporting of data through health 

information technology would greatly 

simplify and streamline reporting for 

many CMS quality reporting programs, 

including the PCHQR Program. Through 

electronic reporting, PCHs would be 

able to leverage EHRs to capture, 

calculate, and electronically submit 

quality data that is currently manually 

chart-abstracted and submitted to CMS 

for the PCHQR Program. In developing 

future proposals for electronic clinical 

quality measures adoption, we will 

consider the need to align and 

harmonize measures across various 

quality reporting programs to minimize 

the reporting burden imposed on PCHs. 

We welcome public comments on the 

development of electronic clinical 

quality measure reporting criteria for 

future years. 

7. Maintenance of Technical 

Specifications for Quality Measures 

We maintain technical specifications 

for the PCHQR Program measures, and 

we periodically update those 

specifications. The specifications can be 

found on the QualityNet Web site at: 

https://qualitynet.org/dcs/Content

Server?cid=1228772356060&pagename=

QnetPublic%2FPage%2FQnetTier2&c=

Page. 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53504 through 53505), we 

finalized a policy under which we use 

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a subregulatory process to make 

nonsubstantive updates to measures 

used for the Hospital IQR Program. We 

also adopted this process for all 

measures adopted for the PCHQR 

Program. With respect to what 

constitutes substantive versus nonsubstantive changes, we expect to make 

this determination on a case-by-case 

basis. Examples of nonsubstantive 

changes to measures might include 

updated diagnosis or procedure codes, 

medication updates for categories of 

medications, broadening of age ranges, 

and exclusions for a measure. We 

believe that nonsubstantive changes 

may include updates to measures based 

upon changes to guidelines upon which 

the measures are based. 

We will continue to use rulemaking to 

adopt substantive updates to the 

measures we have adopted for the 

PCHQR Program. Examples of changes 

that we might consider to be substantive 

would be those in which the changes 

are so significant that the measure is no 

longer the same measure, or when a 

standard of performance assessed by a 

measure becomes more stringent (for 

example: Changes in acceptable timing 

of medication, procedure/process, or 

test administration). Another example of 

a substantive change would be where 

the NQF has extended its endorsement 

of a previously endorsed measure to a 

new setting, such as extending a 

measure from the inpatient setting to 

hospice. We also note that to the extent 

a PCHQR measure is endorsed by the 

NQF, the NQF measure maintenance 

process incorporates an opportunity for 

public comment and engagement. 

We believe the endorsement 

processes, as well as our treatment of 

substantive versus nonsubstantive 

measure changes, adequately balances 

our need to incorporate updates to 

PCHQR Program measures in the most 

expeditious manner possible while 

preserving the public’s ability to 

comment on updates that so 

fundamentally change an endorsed 

measure that it is no longer the same 

measure that we originally adopted. 

8. Public Display Requirements 

Beginning With the FY 2014 Program 

Section 1866(k)(4) of the Act requires 

the Secretary to establish procedures for 

making the data submitted under the 

PCHQR Program available to the public. 

Such procedures must ensure that a 

PCH has the opportunity to review the 

data that is to be made public with 

respect to the PCH prior to such data 

being made public. Section 1866(k)(4) of 

the Act also provides that the Secretary 

must report quality measures of process, 

structure, outcome, patients’ perspective 

on care, efficiency, and costs of care that 

relate to services furnished in such 

hospital on the CMS Web site. 

In order to meet these requirements, 

in the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53562 through 53563), we 

finalized our policy to publicly display 

the submitted data on the Hospital 

Compare Web site (http://

www.hospitalcompare.hhs.gov/) and 

established a preview period of 30 days 

prior to making such data public. 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50847 through 50848), we 

finalized our proposal to display 

publicly in 2014 and subsequent years 

the data for the measures listed below: 

• Adjuvant Chemotherapy is 

considered or administered within 4 

months (120 days) of surgery to patients 

under the age of 80 with AJCC III 

(lymph node positive) colon cancer 

(NQF #0223); and 

• Combination Chemotherapy is 

considered or administered within 4 

months (120 days) of diagnosis for 

women under 70 with AJCC T1c, or 

Stage II or III hormone receptor negative 

breast cancer (NQF #0559). 

This year we are proposing to 

publicly display in 2015 and subsequent 

years the data for the Adjuvant 

Hormonal Therapy measure (NQF 

#0220). 

We are also proposing to publicly 

display no later than 2017 and for 

subsequent years the data for the 

measures listed below: 

• NHSN Catheter-Associated Urinary 

Tract Infections (CAUTI) Outcome 

Measure (NQF #0138); and 

• NHSN Central Line-Associated 

Bloodstream Infection (CLABSI) 

Outcome Measure (NQF #0139). 

At present, all PCHs are reporting 

CLABSI and CAUTI data to the NHSN 

under the PCHQR Program. However, 

due to the low volume of data produced 

and reported by the small number of 

facilities (in fewer than 2 years), the 

CDC is unable to calculate reasonable 

and reliable baseline estimates, or 

expected rates, which are needed for the 

purpose of calculating these measure 

rates. Therefore, we estimate that the 

first public posting of the CLABSI and 

CAUTI PCHQR Program data reported to 

the NHSN from the PCHs will be no 

later than 2017. 

We invite public comment on these 

proposals. 

9. Form, Manner, and Timing of Data 

Submission Beginning With the FY 

2017 Program 

a. Background 

Section 1866(k)(2) of the Act requires 

that, beginning with the FY 2014 

PCHQR Program, each PCH must submit 

to the Secretary data on quality 

measures specified under section 

1866(k)(3) of the Act in a form and 

manner, and at a time as specified by 

the Secretary. 

Data submission requirements and 

deadlines for the PCHQR Program are 

generally posted on the QualityNet Web 

site at: http://www.qualitynet.org/dcs/

ContentServer?c=Page&pagename=

QnetPublic%2FPage%2FQnetTier3&

cid=1228772864228. 

b. Proposed Reporting Requirements for 

the Proposed New Measure: External 

Beam Radiotherapy for Bone Metastases 

(NQF #1822) Beginning With the FY 

2017 Program 

We are proposing that PCHs report the 

proposed External Beam Radiotherapy 

for Bone Metastases (NQF #1822) 

measure beginning with January 1, 2015 

discharges and for subsequent years. We 

are proposing that PCHs would report 

this measure to CMS via a CMS Webbased Measures Tool on an annual basis 

(July 1—August 15 of each respective 

year). This approach is consistent with 

the data submission deadlines finalized 

for the clinical process/oncology care 

measures (78 FR 50850 through 50851) 

and PCHs are already preparing to begin 

submitting PCHQR data using this 

timeline. We also believe that annual 

data submission of once per year (as 

opposed to quarterly data submission of 

four times per year) will reduce PCH 

cost and burden. We believe that these 

proposed dates will provide enough 

advance notice for PCHs to prepare to 

report the measure. 

We are proposing to collect the EBRT 

for Bone Metastases measure rates for 

the FY 2017 program and subsequent 

years using all-patient (both Medicare 

and non-Medicare) data from the four 

quarters (Q1, Q2, Q3, and Q4) of CY 

2015, and that PCHs must submit 

aggregated data for the measure for each 

of these quarters during a data 

submission window that would be open 

from July 1 through August 15, 2016. 

For the FY 2017 program and 

subsequent years, we refer readers to the 

reporting periods and data submission 

window outlined in the table below in 

this section. 

For data collection, we are proposing 

that PCHs submit aggregate-level data 

through the CMS Web-based Measures 

Tool or submit an aggregate data file 

through a vendor (via QualityNet 

infrastructure). We refer readers to the 

FY 2014 IPPS/LTCH PPS final rule (78 

FR 50850 through 50851) for more 

information on the CMS Web-based 

aggregated data collection tool. 

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84FY 2013 IPPS/LTCH PPS final rule; 77 FR 

53561 (NQF# 0223, 0559, and 0220). 

We welcome public comment on the 

proposed reporting periods, data 

submission timeframes, and data 

collection methods/modes for the 

proposed measure for the FY 2017 

program and subsequent years. 

PROPOSED EXTERNAL BEAM RADIOTHERAPY FOR BONE METASTASES (NQF #1822) MEASURE-REPORTING PERIODS AND

SUBMISSION TIMEFRAMES FOR THE FY 2017 PROGRAM AND SUBSEQUENT YEARS

Program year 

(FY) 

Reporting periods 

(CY) Data submission deadlines 

2017 ................................... Q1 2015 discharges (January 1, 2015–March 31, 2015) ................................ July 1, 2016–August 15, 2016. 

Q2 2015 discharges (April 1, 2015–June 30, 2015) 

Q3 2015 discharges (July 1, 2015–September 30, 2015) 

Q4 2015 discharges (October 1, 2015–December 31, 2015) 

2018 ................................... Q1 2016 discharges (January 1, 2016–March 31, 2016) ................................ July 1, 2017–August 15, 2017. 

Q2 2016 discharges (April 1, 2016–June 30, 2016) 

Q3 2016 discharges (July 1, 2016–September 30, 2016) 

Q4 2016 discharges (October 1, 2016–December 31, 2016) 

Subsequent Years ............. Q1 discharges (January 1–March 31 of each year 2 years before the program year).July 1–August 15 of each year before the program year. 

Q2 discharges (April 1–June 30 of each year 2 years before the program 

year) 

Q3 discharges (July 1–September 30 of each year 2 years before the program year) 

Q4 discharges (October 1–December 31 of each year 2 years before the 

program year) 

c. Proposed Reporting Options for the 

Clinical Process/Cancer Specific 

Treatment Measures Beginning with the 

FY 2015 Program and the SCIP and 

Clinical Process/Oncology Care 

Measures Beginning With the FY 2016 

Program 

We are proposing to modify the data 

submission requirements for the three 

clinical process/cancer specific 

treatment measures 84 that we adopted 

in the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53564), and the six SCIP 

measures and five clinical process/

oncology care measures that we adopted 

in the FY 2014 IPPS/LTCH final rule (78 

FR 50846). Under those requirements, 

PCHs submit aggregate-level clinical 

process/cancer specific treatment 

measure data to a CMS contractor, 

aggregate-level clinical process/

oncology care measure data through the 

CMS Web-based Measures Tool, and 

patient-level SCIP measure data through 

the QualityNet infrastructure. We are 

now proposing to allow PCHs to report 

the clinical process/cancer specific 

treatment, SCIP, and clinical process/

oncology care data to CMS using one of 

two mechanisms. Under the first option, 

which is newly proposed for the SCIP 

and clinical process/oncology care 

measure sets, PCHs or their authorized 

vendors can enter aggregate numerator 

and denominator data into a CMS Web 

page located on the secure part of the 

CMS QualityNet infrastructure. Under 

the second option, which is newly 

proposed for the clinical process/cancer 

specific treatment, SCIP, and clinical 

process/oncology care measures, PCHs 

or their authorized vendors can submit 

an aggregate data file through a CMS 

secure QualityNet file exchange process. 

We are proposing these options in order 

to decrease the reporting burden for 

PCHs. 

We believe that the newly proposed 

submission option, which is further 

described below for the SCIP measures, 

will result in a considerable burden 

reduction for PCHs, as it includes once 

annually, rather than once quarterly, 

submission deadlines and submission of 

aggregate data as opposed to patient 

level data for the SCIP measures. We are 

proposing this update to the SCIP 

measures submission requirements in 

anticipation of a possible change to the 

Hospital IQR Program IT infrastructure 

to discontinue patient level SCIP data 

collection. This IT infrastructure change 

is due to the proposed removal of SCIP 

measures from the Hospital IQR 

Program, which we are proposing in 

section IX.A.2.b. of the preamble of this 

proposed rule. We believe that 

providing PCHs with a choice regarding 

how they submit data on these measures 

will result in a considerable burden 

reduction for PCHs because under both 

options, PCHs will be able to submit the 

data once annually and in an aggregate 

form. 

We are proposing that PCHs submit 

an annual data file stratified by four 

quarters for each of the SCIP measures. 

We believe that this proposal provides 

the public with sufficiently reliable 

quality measure information while 

reducing PCH burden through providing 

two data collection options. We will 

provide detailed technical file format 

specifications on the public QualityNet 

Web site (www.qualitynet.org) following 

publication of this year’s final rule. The 

newly proposed submission deadlines 

for the SCIP measures are outlined in 

the table below. 

These proposed requirements would 

replace, for the purposes of the PCHQR 

Program, the update to the SCIP 

timeline and IT infrastructure that we 

finalized for the PCHQR Program in the 

FY 2014 IPPS/LTCH PPS final rule (78 

FR 50851 through 50852). 

PROPOSED UPDATE TO THE SIX SCIP MEASURES-REPORTING PERIODS AND SUBMISSION TIMEFRAMES FOR THE FY 2016 

PROGRAM AND SUBSEQUENT YEARS

Program year 

(FY) 

Reporting periods 

(CY) 

Data submission 

deadlines 

2016 ................................... Q1 2015 discharges (January 1, 2015–March 31, 2015) ................................... July 1, 2015–August 15, 2015. 

2017 ................................... Q2 2015 discharges (April 1, 2015–June 30, 2015) ........................................ July 1, 2016–August 15, 2016. 

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85American Hospital Directory: http://

www.ahd.com/freesearch.php. 

PROPOSED UPDATE TO THE SIX SCIP MEASURES-REPORTING PERIODS AND SUBMISSION TIMEFRAMES FOR THE FY 2016 

PROGRAM AND SUBSEQUENT YEARS—Continued 

Program year 

(FY) 

Reporting periods 

(CY) 

Data submission 

deadlines 

Q3 2015 discharges (July 1, 2015–September 30, 2015) 

Q4 2015 discharges (October 1, 2015–December 31, 2015) 

Subsequent Years ............. Q1 discharges (January 1–March 31 of each year two years before the program year).July 1–August 15 of each year before the program year. 

Q2 discharges (April 1–June 30 of each year two years before the program 

year) 

Q3 discharges (July 1–September 30 of each year two years before the program year) 

Q4 discharges (October 1–December 31 of each year two years before the 

program year) 

We invite public comment on the 

proposed new reporting mechanism that 

would apply to the three clinical 

process/cancer specific treatment 

measures, five clinical process/oncology 

care treatment measures, and six SCIP 

measures. 

We are not proposing any changes to 

the previously finalized procedural 

requirements, Notice of Participation 

(NOP) requirements, or Data Accuracy 

and Completeness Acknowledgement 

(DACA) requirements. We refer readers 

to the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53563 through 53567) for 

more information on these 

requirements. 

d. Proposed New Sampling 

Methodology for the Clinical Process/

Oncology Care Measures Beginning 

With the FY 2016 Program 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50842), we adopted a policy 

under which PCHs could report the five 

clinical process/oncology care measures 

finalized for the FY 2016 program and 

subsequent years using the same 

sampling methodology that we allow for 

the reporting of those measures under 

the PQRS. We are proposing to replace 

the previously adopted sampling 

methodology with a sampling 

methodology similar to the one we have 

allowed hospitals to use to report the 

SCIP measures under the Hospital IQR 

Program. The sampling methodology 

specified in the PQRS Specifications 

Manual is specific to the physician 

office setting. We believe that the 

methodology we are proposing in this 

proposed rule is more applicable to 

PCHs because it was developed for 

hospital level reporting. 

The proposed methodology will allow 

for different numbers of cases to be 

reported based on each PCH’s cancer 

patient population size. This is 

necessary for the PCHQR Program 

because bed size varies among PCHs 

from 20 to >250 beds.85 The proposed 

sampling methodology for the clinical 

process/oncology care measures is 

shown below, and we believe it will 

decrease the reporting burden on PCHs 

while producing reliable measure rates. 

Average 

quarterly 

initial 

population 

size ‘‘N’’ 

Minimum required sample size 

‘‘N’’ 

>125 ......... 25. 

51–125 ..... 20 percent of the initial patient 

population. 

10–50 ....... 10. 

<10 ........... No sampling; 100 percent of the 

initial patient population. 

We are also proposing that PCHs 

report population and sample size 

counts (by measure) for Medicare and 

non-Medicare discharges by quarter for 

the five clinical process/oncology care 

measures for the FY 2016 program and 

subsequent years. 

We are proposing these requirements 

in order to support our effort to align 

with existing reporting requirements 

used in other CMS quality reporting 

programs, such as the Hospital IQR 

Program, which requires participating 

hospitals to submit population and 

sample size counts for certain measures 

in addition to the all payer data needed 

to calculate measure rates. We view it as 

vital for PCHs to accurately determine 

their aggregate population and 

appropriate sample size data in order for 

CMS to assess PCHs’ data reporting 

accuracy and completeness for their 

total population of cases, including both 

Medicare and non-Medicare patients. 

We welcome public comments on 

these proposals for the clinical process/ 

oncology care measures for the FY 2016 

program and subsequent years. 

10. Exceptions From Program 

Requirements 

In our experience with other quality 

reporting and performance programs, 

we have noted occasions when 

providers have been unable to submit 

required quality data due to 

extraordinary circumstances that are not 

within their control (for example, 

natural disasters). We do not wish to 

unduly increase their burden during 

these times. Therefore, in the FY 2014 

IPPS/LTCH PPS final rule (78 FR 

50848), we finalized our policy that, for 

the FY 2014 program and subsequent 

years, PCHs may request and we may 

grant exceptions (formerly referred to as 

waivers) with respect to the reporting of 

required quality data when 

extraordinary circumstances beyond the 

control of the PCH warrant. When 

exceptions are granted, we will notify 

the respective PCH. We are in the 

process of revising the Extraordinary 

Circumstances/Disaster Extension or 

Waiver Request form (CMS–10432), 

approved under OMB control number 

0938–1171. 

We are not proposing any substantive 

changes to this PCHQR exception 

process. 

C. Long-Term Care Hospital Quality 

Reporting (LTCHQR) Program 

1. Background 

In accordance with section 1886(m)(5) 

of the Act, as added by section 3004(a) 

of the Affordable Care Act, the Secretary 

established the Long-Term Care 

Hospital Quality Reporting (LTCHQR) 

Program. Under section 1886(m)(5)(A)(i) 

of the Act, for the rate year 2014 and 

each subsequent rate year, in the case of 

an LTCH that does not submit data to 

the Secretary in accordance with section 

1886(m)(5)(C) of the Act with respect to 

such a rate year, any annual update 

(which we also refer to as a ‘‘payment 

determination’’) to a standard Federal 

rate for discharges for the hospital 

during the rate year, and after 

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86Available at: http://www.qualityforum.org/

WorkArea/linkit.aspx?LinkIdentifier=id&Item

ID=74245. 

application of section 1886(m)(3) of the 

Act, shall be reduced by two percentage 

points. As we discussed in the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51743 

through 51744), for the purposes of the 

LTCH PPS, the term ‘‘rate year’’ and the 

term ‘‘fiscal year’’ both refer to the time 

period beginning October 1 and ending 

September 30. In order to eliminate any 

possible confusion, we will use the term 

‘‘fiscal year’’ rather than ‘‘rate year’’ in 

our discussion of the LTCHQR Program. 

Under section 1886(m)(5)(D)(i) of the 

Act, the quality measures for the 

LTCHQR Program are measures selected 

by the Secretary that have been 

endorsed by an entity that holds a 

contract with the Secretary under 

section 1890(a) of the Act, unless 

section 1886(m)(5)(D)(ii) of the Act 

applies. This contract is currently held 

by NQF. Additional information 

regarding NQF and its measure review 

processes is available at: http://

www.qualityforum.org/Measuring_

Performance/Measuring_

Performance.aspx. 

While as a general matter the 

Secretary must select endorsed 

measures for the LTCHQR Program, 

section 1886(m)(5)(D)(ii) of the Act 

provides that an exception may be made 

in the case of a specified area or medical 

topic determined appropriate by the 

Secretary for which a feasible and 

practical measure has not been endorsed 

by the entity that holds a contract with 

the Secretary under section 1890(a) of 

the Act. In such a case, section 

1886(m)(5)(D)(ii) of the Act authorizes 

the Secretary to specify a measure that 

is not so endorsed, as long as due 

consideration is given to measures that 

have been endorsed or adopted by a 

consensus organization identified by the 

Secretary. 

The LTCHQR Program was 

implemented in the FY 2012 IPPS/

LTCH PPS final rule (76 FR 51743 

through 51756). 

2. General Considerations Used for 

Selection of Quality Measures for the 

LTCHQR Program 

We seek to promote higher quality 

and more efficient health care for the 

beneficiaries we serve. Quality reporting 

programs, including public reporting of 

quality information, advance such 

quality improvement efforts. Quality 

measurement remains the key tool to the 

success of these programs. Therefore, 

the selection of only the highest caliber 

of measures is a priority for CMS. 

We seek to adopt measures for the 

LTCHQR Program that promote better, 

safer, and more efficient care. Our 

measure development and selection 

activities for the LTCHQR Program take 

into account national priorities, such as 

those established by the National 

Priorities Partnership (http://

www.qualityforum.org/Setting_

Priorities/NPP/National_Priorities_

Partnership.aspx), the HHS Strategic 

Plan (http://www.hhs.gov/secretary/

about/priorities/priorities.html), the 

National Quality Strategy (NQS) 

(http://www.ahrq.gov/

workingforquality/nqs/

nqs2011annlrpt.htm), and the CMS 

Quality Strategy (http://www.cms.gov/

Medicare/Quality-Initiatives-PatientAssessment-Instruments/Quality

InitiativesGenInfo/CMS-QualityStrategy.html). 

We also must consider input from the 

NQF MAP when selecting measures 

under the LTCHQR Program. The MAP 

is composed of multi-stakeholder 

groups convened by the NQF, our 

current contractor under section 1890 of 

the Act. The NQF must convene these 

stakeholders and provide us with the 

stakeholders’ input on the selection of 

certain categories of quality and 

efficiency measures as part of a prerulemaking process described in section 

1890A of the Act. We, in turn, must take 

this input into consideration in 

selecting those categories of measures. 

The NQF MAP met in December 2013 

and January 2014 and provided input to 

CMS as required under section 

1890A(a)(3) of the Act. This input 

appears in the MAP’s January 2014 PreRulemaking Report available for 

download at: http://www.qualityforum.

org/Publications/2014/01/MAP_PreRulemaking_Report__2014_

Recommendations_on_Measures_for_

More_than_20_Federal_Programs.aspx. 

Measures proposed for the LTCHQR 

Program in this proposed rule are 

measures CMS included under the List 

of Measures under Consideration (MUC 

List) for December 1, 2013,86 a list that 

the Secretary must make available to the 

public by December 1 of each year, as 

part of the pre-rulemaking process, as 

described in section 1890A(a)(2) of the 

Act. The measures we are proposing in 

this rule for the LTCHQR Program are 

discussed in the MAP Pre-Rulemaking 

Report (pp. 192–193). The MAP 

reviewed each measure proposed in this 

rule. We refer readers to the following 

sections of the preamble of this 

proposed rule for more information on 

the MAP’s recommendations: 

IX.C.7.a.(1), Functional Status Quality 

Measure: Percent of Long-Term Care 

Hospital Patients with an Admission 

and Discharge Functional Assessment 

and a Care Plan That Addresses 

Function; IX.C.7.a.(2), Functional Status 

Quality Measure: Functional Outcome 

Measure: Change in Mobility among 

Long-Term Care Hospital Patients 

Requiring Ventilator Support; and 

IX.C.7.b., Proposed Quality Measure: 

National Healthcare Safety Network 

(NHSN) Ventilator-Associated Event 

(VAE) Outcome Measure. 

After due consideration to any 

measures that may have been endorsed 

or adopted by a consensus organization, 

including the NQF, for the LTCH 

setting, we are proposing measures that 

are either fully supported by the MAP 

for the LTCHQR Program, or that we 

believe most closely align with the 

national priorities discussed in this 

section of the proposed rule. In the 

absence of the MAP’s full support, in 

some cases we are proposing measures 

for which there is MAP conditional 

support and that meet the exception 

criteria in section 1886(m)(5)(D)(ii) of 

the Act. Further discussion of why each 

proposed measure is a high priority in 

the LTCH setting is included below. 

3. Policy for Retention of LTCHQR 

Program Measures Adopted for Previous 

Payment Determinations 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53614 through 53615), for 

the LTCHQR Program, we adopted a 

policy that once a quality measure is 

adopted, it will be retained for use in 

subsequent years, unless otherwise 

stated. For the purpose of streamlining 

the rulemaking process, when we 

initially adopt a measure for the 

LTCHQR Program for a payment 

determination, this measure will be 

automatically adopted for all 

subsequent years or until we propose to 

remove, suspend, or replace the 

measure. For further information on 

how measures are considered for 

removal, suspension, or replacement, 

we refer readers to the FY 2013 IPPS/

LTCH PPS final rule. 

We are not proposing any changes to 

this policy for retaining LTCHQR 

Program measures adopted for previous 

payment determinations. 

4. Policy for Adopting Changes to 

LTCHQR Program Measures 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53615 through 53616), we 

adopted our policy that if the NQF 

updates an endorsed measure that we 

have adopted for the LTCHQR Program 

in a manner that we consider to not 

substantively change the nature of the 

measure, we will use a subregulatory 

process to incorporate those updates to 

the measure specifications that apply to 

the LTCHQR Program. With respect to 

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what constitutes a substantive versus a 

nonsubstantive change, we expect to 

make this determination on a measureby-measure basis. Examples of such 

nonsubstantive changes might include 

updated diagnosis or procedure codes, 

medication updates for categories of 

medications, broadening of age ranges, 

and changes to exclusions for a 

measure. The subregulatory process for 

nonsubstantive changes will include 

revision of the LTCHQR Program 

Manual and posting of updates on our 

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

Medicare/Quality-Initiatives-PatientAssessment-Instruments/LTCH-QualityReporting/index.html. Examples of 

changes that we might consider to be 

substantive would be those in which the 

changes are so significant that the 

measure is no longer the same measure, 

or when a standard of performance 

assessed by a measure becomes more 

stringent, such as changes in acceptable 

timing of medication, procedure/

process, test administration, or 

expansion of the measure to a new 

setting. 

We are not proposing any changes to 

this policy for adopting changes to 

LTCHQR Program measures. 

5. Previously Adopted Quality Measures 

a. Previously Adopted Quality Measures 

for the FY 2015 and FY 2016 Payment 

Determinations and Subsequent Years 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53624 through 53636), we 

retained the application of Percent of 

Residents with Pressure Ulcers That are 

New or Worsened (Short-Stay) (NQF 

#0678) to the LTCH setting (initially 

adopted in the FY 2012 IPPS/LTCH PPS 

final rule (76 FR 51745 through 51750)) 

for the FY 2015 payment determination 

and subsequent years, and adopted 

updated versions of National Health 

Safety Network (NHSN) CatheterAssociated Urinary Tract Infection 

(CAUTI) Outcome Measure (NQF #0138) 

and NHSN Central Line-Associated 

Blood Stream Infection (CLABSI) 

Outcome Measure (NQF #0139), for the 

FY 2014 payment determination and 

subsequent years. We also adopted two 

new quality measures for the LTCHQR 

Program for the FY 2016 payment 

determination and subsequent years, in 

addition to the three previously adopted 

measures (the CAUTI measure, CLABSI 

measure, and Pressure Ulcer measure): 

(1) Percent of Residents or Patients Who 

Were Assessed and Appropriately Given 

the Seasonal Influenza Vaccine (ShortStay) (NQF #0680); and (2) Influenza 

Vaccination Coverage among Healthcare 

Personnel (NQF #0431) (77 FR 53624 

through 53636). 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50861 through 50863), we 

adopted the NQF-endorsed version of 

the Pressure Ulcer measure, Percent of 

Residents or Patients with Pressure 

Ulcers That Are New or Worsened 

(Short-Stay) (NQF #0678), for the 

LTCHQR Program for the FY 2015 

payment determination and subsequent 

years. 

Set out below are the quality 

measures, both previously adopted 

measures retained in the LTCHQR 

Program and measures adopted in FY 

2013 and FY 2014 IPPS/LTCH PPS final 

rules, for the FY 2015 and FY 2016 

payment determinations and subsequent 

years. 

LTCHQR PROGRAM QUALITY MEASURES ADOPTED FOR THE FY 2015 AND FY 2016 PAYMENT DETERMINATIONS AND

SUBSEQUENT YEARS

NQF Measure ID Measure title Payment 

determination 

NQF #0138 ................ National Health Safety Network (NHSN) Catheter-Associated Urinary Tract Infection 

(CAUTI) Outcome Measure*.

FY 2015 and Subsequent FYs. 

NQF #0139 ................ National Health Safety Network (NHSN) Central Line-Associated Blood Stream Infection (CLABSI) Outcome Measure*.FY 2015 and Subsequent FYs. 

NQF #0678 ................ Percent of Residents or Patients with Pressure Ulcers That Are New or Worsened 

(Short-Stay)*.

FY 2015 and Subsequent FYs. 

NQF #0680 ................ Percent of Residents or Patients Who Were Assessed and Appropriately Given the 

Seasonal Influenza Vaccine (Short-Stay)**.

FY 2016 and Subsequent FYs. 

NQF #0431 ................ Influenza Vaccination Coverage among Healthcare Personnel** ................................... FY 2016 and Subsequent FYs. 

b. Previously Adopted Quality Measures 

for the FY 2017 and FY 2018 Payment 

Determinations and Subsequent Years 

In the FY 2014 IPPS/LTCH PPS final 

rule, we adopted three additional 

measures for the FY 2017 payment 

determination and subsequent years (78 

FR 50863 through 50874) and one 

additional measure for the FY 2018 

payment determination and subsequent 

years (78 FR 50874 through 50877). 

These measures are set out in the table 

below. 

LTCHQR PROGRAM QUALITY MEASURES PREVIOUSLY ADOPTED FOR THE FY 2017 AND FY 2018 PAYMENT

DETERMINATIONS AND SUBSEQUENT YEARS

NQF Measure ID Measure title Payment 

determination 

NQF #1716 ................ National Healthcare Safety Network (NHSN) Facility-Wide Inpatient Hospital-Onset 

Methicillin-Resistant Staphylococcus aureus (MRSA) Bacteremia Outcome Measure.

FY 2017 and Subsequent 

Years. 

NQF #1717 ................ National Healthcare Safety Network (NHSN) Facility-Wide Inpatient Hospital-Onset 

Clostridium difficile Infection (CDI) Outcome Measure.

FY 2017 and Subsequent 

Years. 

NQF Review Pending 

(NQF #2512).

All-cause Unplanned Readmission Measure for 30 Days Post-Discharge from LongTerm Care Hospitals.FY 2017 and Subsequent 

Years. 

Application of NQF 

#0674.

Percent of Residents Experiencing One or More Falls with Major Injury (Long-Stay) ... FY 2017 and Subsequent 

Years. 

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28262 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

6. Proposed Revisions to Data Collection 

Timelines and Submission Deadlines for 

Previously Adopted Quality Measures 

We are proposing, for the FY 2016 

payment determination and subsequent 

years, to revise data collection timelines 

and submission deadlines for a measure 

that we previously adopted for the 

LTCHQR Program: Percent of Residents 

or Patients Who Were Assessed and 

Appropriately Given the Seasonal 

Influenza Vaccine (Short-Stay) (NQF 

#0680). We are also reproposing, for the 

FY 2018 payment determination only, 

revised data collection timelines and 

submission deadlines for the 

Application of Percent of Residents 

Experiencing One or More Falls with 

Major Injury (Long-Stay) (Application of 

NQF #0674) measure. For all subsequent 

years (FY 2019 and beyond), data 

collection for this measure would begin 

on January 1 and continue through 

December 31. 

a. Proposed Revisions to Data Collection 

Timelines and Submission Deadlines for 

Percent of Residents or Patients Who 

Were Assessed and Appropriately Given 

the Seasonal Influenza Vaccine (Short 

Stay) (NQF #0680) 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50858 through 50861), we 

revised the Percent of Residents or 

Patients Who Were Assessed and 

Appropriately Given the Seasonal 

Influenza Vaccine (Short Stay) (NQF 

#0680) measure for the FY 2016 

payment determination and subsequent 

years. Specifically, we finalized that for 

the FY 2016 payment determination, 

LTCHs must collect data for any patient 

admitted or discharged during the 

influenza vaccination season, from 

October 1, 2014, through April 30, 2015, 

and submit data for these patients by 

May 15, 2015. 

We are seeking to better align the data 

collection timelines and submission 

deadlines of the Percent of Residents or 

Patients Who Were Assessed and 

Appropriately Given the Seasonal 

Influenza Vaccine (Short Stay) (NQF 

#0680) measure with the data collection 

timelines and submission deadlines of 

the Percent of Residents or Patients with 

Pressure Ulcers That Are New or 

Worsened (Short Stay) (NQF #0678) 

measure because both measures are 

reported using the same data collection 

instrument, the LTCH Continuity 

Assessment Record and Evaluation 

(CARE) Data Set. Therefore, for the FY 

2016 payment determination and 

subsequent years, we are proposing to 

revise the data collection timelines and 

submission deadlines for the Percent of 

Residents or Patients Who Were 

Assessed and Appropriately Given the 

Seasonal Influenza Vaccine (Short Stay) 

(NQF #0680) measure. Specifically, we 

are proposing that the first data 

collection timeline would take place 

during the fourth quarter of the CY 

preceding the applicable FY (for 

example, October 2014 through 

December 2014 for the FY 2016 

payment determination), with data 

submission by February 15, 2015 and 

the second data collection timeline 

would take place during the first quarter 

of the CY preceding the applicable FY 

(for example, January 2015 through 

March 2015 for the FY 2016 payment 

determination), with data submission by 

May 15, 2015. The proposed changes are 

illustrated below for the FY 2016 and 

FY 2017 payment determinations only, 

but similar collection timelines and 

submission deadlines would also apply 

to subsequent years. By taking into 

account the influenza vaccination 

season, these proposed changes would 

align data collection and submission for 

this measure (NQF #0680) with the rest 

of the LTCH CARE Data Set. 

PROPOSED DATA COLLECTION TIMELINES AND SUBMISSION DEADLINES FOR LTCHQR PROGRAM QUALITY DATA FOR THE

FY 2016 AND FY 2017 PAYMENT DETERMINATIONS: PERCENT OF RESIDENTS OR PATIENTS WHO WERE ASSESSED

AND APPROPRIATELY GIVEN THE SEASONAL INFLUENZA VACCINE (SHORT-STAY) (NQF #0680) 

Data collection timelines Submission deadlines Payment 

determination 

October 1, 2014–December 31, 2014 ................................................................. February 15, 2015 ................................ FY 2016. 

January 1, 2015–March 31, 2015 ........................................................................ May 15, 2015. 

October 1, 2015–December 31, 2015 ................................................................. February 15, 2016 ................................ FY 2017. 

January 1, 2016–March 31, 2016 ........................................................................ May 15, 2016. 

We note that these proposed changes 

would only apply to the Percent of 

Residents or Patients Who Were 

Assessed and Appropriately Given the 

Seasonal Influenza Vaccine (Short Stay) 

(NQF #0680) for the LTCHQR Program, 

and would not be applicable to any 

other LTCHQR Program measures, 

proposed or adopted, unless explicitly 

stated. 

We invite public comments on our 

proposal to revise the data collection 

timelines and submission deadlines for 

this patient influenza vaccination 

measure (NQF #0680) for the FY 2016 

payment determination and subsequent 

years. 

b. Proposed Revisions to Data Collection 

Timelines and Submission Deadlines for 

the Application of Percent of Residents 

Experiencing One or More Falls With 

Major Injury (Long-Stay) (NQF #0674) 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50874 through 50877), we 

adopted this measure for the FY 2018 

payment determination. We further 

finalized that LTCHs should begin to 

collect and submit data on this measure 

using the LTCH CARE Data Set starting 

January 1, 2016. 

To ensure the successful 

implementation of new and updated 

versions of LTCH CARE Data Set, we 

will be following an implementation 

cycle beginning April 1, 2016, which 

will allow for a predictable future 

release schedule. We believe that 

adherence to a predictable future release 

schedule that takes into account both 

the changes that must be made to the 

LTCH CARE Data Set, as well as 

requirements that are managed by 

LTCHs for such changes, will help 

ensure successful implementation. 

Therefore, we will be adhering to a date 

of April 1 of any given year, when 

releasing future iterations of the LTCH 

CARE Data Set. This change will 

effectively delay the implementation of 

the January 1, 2016, release by three 

months, allowing LTCHs additional 

time to become familiar with and to 

participate in trainings related to the 

revised LTCH CARE Data Set, as well as 

time to incorporate given changes into 

their existing IT infrastructure. 

Therefore, we are proposing that for 

the FY 2018 payment determination, 

data collection for this measure would 

begin on April 1, 2016. For all 

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Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 28263 

87Subcommittee on Health National Committee 

on Vital and Health Statistics, ‘‘Classifying and 

Reporting Functional Status’’ (2001). 

88Barbara Gage et al., ‘‘The Development and 

Testing of the Continuity Assessment Record and 

Evaluation (CARE) Item Set: Final Report on the 

Development of the CARE Item Set’’ (RTI 

International, 2012). 

89 Ibid. 90 Ibid. 

subsequent years, data collection for 

this measure would begin on January 1 

and continue through December 31. The 

proposed changes are illustrated below 

for the FY 2018 and FY 2019 payment 

determinations. 

PROPOSED DATA COLLECTION TIMELINES AND SUBMISSION DEADLINES FOR LTCHQR PROGRAM QUALITY DATA FOR THE

FY 2018 AND FY 2019 PAYMENT DETERMINATIONS: APPLICATION OF PERCENT OF RESIDENTS EXPERIENCING ONE

OR MORE FALLS WITH MAJOR INJURY (LONG-STAY) (NQF #0674) 

Data collection timelines Submission deadlines Payment 

determination 

April 1, 2016–June 30, 2016 ................................................................................ August 15, 2016 ................................... FY 2018. 

July 1, 2016–September 30, 2016 ....................................................................... November 15, 2016..

October 1, 2016–December 31, 2016 ................................................................. February 15, 2017..

January 1, 2017–March 31, 2017 ........................................................................ May 15, 2017 ........................................ FY 2019 

April 1, 2017–June 30, 2017 ................................................................................ August 15, 2017.

July 1, 2017–September 30, 2017 ....................................................................... November 15, 2017.

October 1, 2017–December 31, 2017 ................................................................. February 15, 2018.

We note that these proposed changes 

would be applicable only to the 

Application of Percent of Residents 

Experiencing One or More Falls with 

Major Injury (Long-Stay) (NQF #0674) 

measure, and not applicable to any 

other LTCHQR Program measures, 

proposed or adopted, unless specifically 

proposed for such measures. 

We invite public comments on these 

proposals. 

7. Proposed New LTCHQR Program 

Quality Measures for the FY 2018 

Payment Determination and Subsequent 

Years 

We are proposing three new quality 

measures for the FY 2018 payment 

determination and subsequent years. 

Two of these are related to functional 

status, and one measure is related to 

ventilator-associated events (VAE). One 

of the proposed functional status quality 

measures is Percent of Long-Term Care 

Hospital Patients with an Admission 

and Discharge Functional Assessment 

and a Care Plan That Addresses 

Function. The second proposed 

functional status quality measure is 

Functional Outcome Measure: Change 

in Mobility among Long-Term Care 

Hospital Patients Requiring Ventilator 

Support. The quality measures are 

described in more detail below. 

a. Proposed New LTCHQR Program 

Functional Status Quality Measures for 

the FY 2018 Payment Determination 

and Subsequent Years 

Patients in LTCHs present with 

clinically complex conditions. In 

addition to having complex medical 

care needs for an extended period of 

time, LTCH patients often have 

functional limitations due to the nature 

of their conditions, as well as 

deconditioning due to prolonged bed 

rest and treatment requirements (for 

example, ventilator use). These patients 

are therefore at high risk for functional 

decline during the LTCH stay that is 

both condition-related and iatrogenic. 

The National Committee on Vital and 

Health Statistics, Subcommittee on 

Health,87 noted: ‘‘[i]nformation on 

functional status is becoming 

increasingly essential for fostering 

healthy people and a healthy 

population. Achieving optimal health 

and well-being for Americans requires 

an understanding across the life span of 

the effects of people’s health conditions 

on their ability to do basic activities and 

participate in life situations in other 

words, their functional status.’’ 

The functional assessment items 

included in the two functional status 

quality measures were originally 

developed and tested as part of the PostAcute Care Payment Reform 

Demonstration version of the CARE Item 

Set, which was designed to standardize 

assessment of patients’ status across 

acute and post-acute settings, including 

LTCHs, IRFs, SNFs, and HHAs. The 

functional status items on the CARE 

Item Set are daily activities that 

clinicians typically assess at the time of 

admission and/or discharge in order to 

determine patients’ needs, evaluate 

patient progress and prepare patients 

and families for a transition to home or 

to another setting. 

The development of the CARE Item 

Set and a description and rationale for 

each item is described in a report 

entitled ‘‘The Development and Testing 

of the Continuity Assessment Record 

and Evaluation (CARE) Item Set: Final 

Report on the Development of the CARE 

Item Set: Volume 1 of 3.’’ 88 Reliability 

and validity testing were conducted as 

part of CMS’ Post-Acute Care Payment 

Reform Demonstration, and we 

concluded that the functional status 

items have acceptable reliability and 

validity. A description of the testing 

methodology and results are available in 

several reports, including the report 

entitled ‘‘The Development and Testing 

of the Continuity Assessment Record 

And Evaluation (CARE) Item Set: Final 

Report On Reliability Testing: Volume 2 

of 3’’ 89 and the report entitled ‘‘The 

Development and Testing of The 

Continuity Assessment Record And 

Evaluation (CARE) Item Set: Final 

Report on Care Item Set and Current 

Assessment Comparisons: Volume 3 of 

3.’’ 90 The reports are available at: 

http://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/Post-Acute-Care-QualityInitiatives/CARE-Item-Set-and-BCARE.html. 

(1) Proposed Functional Status Quality 

Measure: Percent of Long-Term Care 

Hospital Patients With an Admission 

and Discharge Functional Assessment 

and a Care Plan That Addresses 

Function 

The first functional status quality 

measure we are proposing for the FY 

2018 payment determination and 

subsequent years is a process quality 

measure entitled Percent of Long-Term 

Care Hospital Patients with an 

Admission and Discharge Functional 

Assessment and a Care Plan That 

Addresses Function. This quality 

measure reports the percent of LTCH 

patients with both an admission and a 

discharge functional assessment and a 

care plan that addresses function. 

This process measure requires the 

collection of admission and discharge 

functional status data by trained 

clinicians using standardized clinical 

assessment items, or data elements, that 

assess specific functional activities (that 

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28264 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

91 J. Adler and D. Malone, ‘‘Early mobilization in 

the intensive care unit: a systematic review,’’ 

Cardiopulm Phys Ther J 23, no. 1 (2012). 

92 J.P. Kress, ‘‘Clinical trials of early mobilization 

of critically ill patients,’’ Crit Care Med 37, no. 10 

Suppl (2009). 

93W.D. Schweickert and J.P. Kress, 

‘‘Implementing early mobilization interventions in 

mechanically ventilated patients in the ICU,’’ Chest 

140, no. 6 (2011). 

94W.D. Schweickert et al., ‘‘Early physical and 

occupational therapy in mechanically ventilated, 

critically ill patients: a randomised controlled 

trial,’’ Lancet 373, no. 9678 (2009). 

95 J.M. Zanni et al., ‘‘Rehabilitation therapy and 

outcomes in acute respiratory failure: an 

observational pilot project,’’ J Crit Care 25, no. 2 

(2010). 

96A. Drolet et al., ‘‘Move to improve: the 

feasibility of using an early mobility protocol to 

increase ambulation in the intensive and 

intermediate care settings,’’ Phys Ther 93, no. 2 

(2013). 

97Adler and Malone, ‘‘Early mobilization in the 

intensive care unit: a systematic review.’’ 

98 Ibid. 99S.L. Dang, ‘‘ABCDEs of ICU: Early mobility,’’ 

Crit Care Nurs Q 36, no. 2 (2013). 100E.H. Skinner et al., ‘‘Development of a 

physical function outcome measure (PFIT) and a 

pilot exercise training protocol for use in intensive 

care,’’ Crit Care Resusc 11, no. 2 (2009). 101Centre for Clinical Practice at NICE (UK), 

‘‘Rehabilitation after critical illness [Internet].’’ 

National Institute for Health and Clinical 

Excellence (NICE), http://www.nice.org.uk/

nicemedia/live/12137/43564/43564.pdf. 

102Zanni et al., ‘‘Rehabilitation therapy and 

outcomes in acute respiratory failure: an 

observational pilot project.’’ 

103 Ibid. 

104 Dang, ‘‘ABCDEs of ICU: Early mobility.’’ 

105 Ibid. 

106 Ibid. 

107Schweickert and Kress, ‘‘Implementing early 

mobilization interventions in mechanically 

ventilated patients in the ICU.’’ 

108Zanni et al., ‘‘Rehabilitation therapy and 

outcomes in acute respiratory failure: an 

observational pilot project.’’ 

109Adler and Malone, ‘‘Early mobilization in the 

intensive care unit: a systematic review.’’ 

110Skinner et al., ‘‘Development of a physical 

function outcome measure (PFIT) and a pilot 

exercise training protocol for use in intensive care.’’ 

111Centre for Clinical Practice at NICE (UK), 

‘‘Rehabilitation after critical illness [Internet].’’ 

112 Ibid. 

113M.E. Wilcox et al., ‘‘Cognitive dysfunction in 

ICU patients: risk factors, predictors, and 

rehabilitation interventions,’’ Crit Care Med 41, no. 

9 Suppl 1 (2013). 

114N.E. Brummel et al., ‘‘A combined early 

cognitive and physical rehabilitation program for 

people who are critically ill: the activity and 

cognitive therapy in the intensive care unit (ACT– 

ICU) trial,’’ Phys Ther 92, no. 12 (2012). 

115 Dang, ‘‘ABCDEs of ICU: Early mobility.’’ 

116H.J. Engel et al., ‘‘ICU early mobilization: from 

recommendation to implementation at three 

medical centers,’’ Crit Care Med 41, no. 9 Suppl 1 

(2013). 

117Wilcox et al., ‘‘Cognitive dysfunction in ICU 

patients: risk factors, predictors, and rehabilitation 

interventions.’’ 

118 Drolet et al., ‘‘Move to improve: the feasibility 

of using an early mobility protocol to increase 

ambulation in the intensive and intermediate care 

settings.’’ 119 Dang, ‘‘ABCDEs of ICU: Early mobility.’’ 120Z. Li et al., ‘‘Active mobilization for 

mechanically ventilated patients: a systematic 

review,’’ Arch Phys Med Rehabil 94, no. 3 (2013). 121C.L. Rochester, ‘‘Rehabilitation in the 

intensive care unit,’’ Semin Respir Crit Care Med 

30, no. 6 (2009). 122 Dang, ‘‘ABCDEs of ICU: Early mobility.’’ 123Centre for Clinical Practice at NICE (UK), 

‘‘Rehabilitation after critical illness [Internet].’’ 

124 D.J. Scheinhorn et al., ‘‘Post-ICU mechanical 

ventilation at 23 long-term care hospitals: a 

multicenter outcomes study,’’ Chest 131, no. 1 

(2007). 

is, self-care, mobility, cognition, 

communication, and bladder 

continence). The self-care and mobility 

function items are coded using a 6-level 

rating scale that indicates the patient’s 

level of independence with the activity; 

higher scores indicate more 

independence. The codes for rating the 

cognition, communication and bladder 

items range from 2 to 7 levels. For this 

quality measure, inclusion of function 

in the patient’s care plan is determined 

based on whether a functional goal is 

recorded at admission for at least one of 

the standardized self-care or mobility 

function items using the 6-level rating 

scale. 

An increasing body of reported 

evidence has supported the safety and 

feasibility of early mobilization and 

rehabilitation of critically ill but stable 

patients, with minimal adverse events 

and risk to the patient.91 92 93 94 95 96 Early 

mobility and rehabilitation in these 

settings have been associated with 

improved patient outcomes. Therefore, 

this quality measure addresses the 

importance of: (1) Conducting a 

functional assessment at the time of 

admission addressing self-care, 

mobility, cognition, communication, 

and bladder continence; (2) 

incorporating the functional assessment 

findings made at the time of admission 

into the patients’ care plan and setting 

at least one discharge self-care or 

mobility functional status goal; and (3) 

conducting a functional assessment at 

the time of discharge addressing selfcare, mobility, cognition, 

communication, and bladder 

continence. 

Functional limitations following 

critical illness are becoming 

increasingly prevalent as a result of 

improving critical care medicine and 

survival rates.97 Short-term and longterm adverse consequences among 

critically ill and chronically, critically 

ill patients in LTCH and Intensive Care 

Unit (ICU) settings include severe 

weakness,98 99 100 101 muscle atrophy,102

connective-tissue shortening,103 loss of 

bone mass,104 increased risk for blood 

clots,105 increased risk for pressure 

ulcers,106 deconditioning,107 108 deficits 

in self-care and ambulation,109 and 

functional impairment,110 fatigue,111 as 

well as cognitive impairment, including 

profound and persistent deficits in 

memory, attention/concentration, and 

executive function,112 113 114 and the 

inability to return to work one year after 

hospital discharge.115 116 Cognitive 

impairment in survivors of critical 

illness has been associated with anxiety 

and depression, inability to return to 

work, and inability of older persons to 

return home.117 To mitigate these 

adverse consequences, traditional 

practices of bed rest and immobility 

have been challenged in recent years, 

and early mobility and rehabilitation 

have been increasingly recognized as 

important to improve patients’ longterm functional outcomes,118 119 120 with 

recovery of function being described as 

both desirable and possible.121 The lack 

of early mobility initiation in ICU 

settings has also been described as a 

strong predictor of patient outcomes.122

The clinical practice guideline 

Rehabilitation after Critical Illness 123

from the National Institute for Health 

and Clinical Excellence (NICE) 

recommends performing clinical 

assessment to determine the patient’s 

risk of developing physical and 

nonphysical morbidity during the 

critical care stay as early as clinically 

possible, identifying current 

rehabilitation needs for patients at risk 

of morbidity, establishing short-term 

and medium-term rehabilitation goals 

based on the clinical assessment, 

starting an individualized structured 

rehabilitation program as early as 

possible, and performing clinical 

reassessment before discharge. 

The importance of standardized 

functional assessment in LTCH settings 

is also supported by the high prevalence 

of therapy services provided in this 

setting, as well as the need for care 

coordination for patients returning 

home and receiving follow-up care in 

the community and patients receiving 

additional institutional healthcare 

services after discharge from an LTCH. 

A study 124 of 1,419 ventilatordependent patients from 23 LTCHs 

reported that physical, occupational, 

and speech therapy were the most 

commonly provided services among a 

comprehensive list of 34 procedures, 

services, and treatments provided 

during the LTCH stay. The high 

frequency of physical (84.8 percent), 

occupational (81.5 percent), and speech 

(79.7 percent) therapy reflects use of the 

rehabilitative model of care adopted by 

many post-ICU ventilator weaning 

programs, which is important in 

restoration of function. This high 

utilization of therapy services supports 

the need for standardized functional 

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Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 28265 

125 Ibid. 

126Schweickert and Kress, ‘‘Implementing early 

mobilization interventions in mechanically 

ventilated patients in the ICU.’’ 

127 Dang, ‘‘ABCDEs of ICU: Early mobility.’’ 

128Li et al., ‘‘Active mobilization for 

mechanically ventilated patients: a systematic 

review.’’ 

129Adler and Malone, ‘‘Early mobilization in the 

intensive care unit: a systematic review.’’ 

130Schweickert et al., ‘‘Early physical and 

occupational therapy in mechanically ventilated, 

critically ill patients: a randomised controlled 

trial.’’ 

131Li et al., ‘‘Active mobilization for 

mechanically ventilated patients: a systematic 

review.’’ 

132Adler and Malone, ‘‘Early mobilization in the 

intensive care unit: a systematic review.’’ 

133P.E. Morris, ‘‘Moving our critically ill patients: 

Mobility barriers and benefits,’’ Crit Care Clin 23, 

no. 1 (2007). 

134Li et al., ‘‘Active mobilization for 

mechanically ventilated patients: a systematic 

review.’’ 

135Scheinhorn et al., ‘‘Post-ICU mechanical 

ventilation at 23 long-term care hospitals: a 

multicenter outcomes study.’’ 

136Adler and Malone, ‘‘Early mobilization in the 

intensive care unit: a systematic review.’’ 

137 Dang, ‘‘ABCDEs of ICU: Early mobility.’’ 

138 Ibid. 

139 Ibid. 

140Li et al., ‘‘Active mobilization for 

mechanically ventilated patients: a systematic 

review.’’ 

141Adler and Malone, ‘‘Early mobilization in the 

intensive care unit: a systematic review.’’ 

142 Kress, ‘‘Clinical trials of early mobilization of 

critically ill patients.’’ 

143Schweickert et al., ‘‘Early physical and 

occupational therapy in mechanically ventilated, 

critically ill patients: a randomised controlled 

trial.’’ 

144 Dang, ‘‘ABCDEs of ICU: Early mobility.’’ 

145Engel et al., ‘‘ICU early mobilization: From 

recommendation to implementation at three 

medical centers.’’ 

146Li et al., ‘‘Active mobilization for 

mechanically ventilated patients: a systematic 

review.’’ 

147Adler and Malone, ‘‘Early mobilization in the 

intensive care unit: a systematic review.’’ 

148Schweickert et al., ‘‘Early physical and 

occupational therapy in mechanically ventilated, 

critically ill patients: a randomised controlled 

trial.’’ 

149Adler and Malone, ‘‘Early mobilization in the 

intensive care unit: a systematic review.’’ 

150 Dang, ‘‘ABCDEs of ICU: Early mobility.’’ 

151Li et al., ‘‘Active mobilization for 

mechanically ventilated patients: a systematic 

review.’’ 

152Schweickert et al., ‘‘Early physical and 

occupational therapy in mechanically ventilated, 

critically ill patients: a randomised controlled 

trial.’’ 

153Engel et al., ‘‘ICU early mobilization: From 

recommendation to implementation at three 

medical centers.’’ 

154Adler and Malone, ‘‘Early mobilization in the 

intensive care unit: a systematic review.’’ 

155Li et al., ‘‘Active mobilization for 

mechanically ventilated patients: a systematic 

review.’’ 

156Wilcox et al., ‘‘Cognitive dysfunction in ICU 

patients: Risk factors, predictors, and rehabilitation 

interventions.’’ 

157Brummel et al., ‘‘A combined early cognitive 

and physical rehabilitation program for people who 

are critically ill: The activity and cognitive therapy 

in the intensive care unit (ACT–ICU) trial.’’ 

158P.P. Pandharipande, T.D. Girard, and E.W. Ely, 

‘‘Long-term cognitive impairment after critical 

illness,’’ N Engl J Med 370, no. 2 (2014). 

159Wilcox et al., ‘‘Cognitive dysfunction in ICU 

patients: Risk factors, predictors, and rehabilitation 

interventions.’’ 

160 Ibid. 

161Pandharipande, Girard, and Ely, ‘‘Long-term 

cognitive impairment after critical illness.’’ 

162Brummel et al., ‘‘A combined early cognitive 

and physical rehabilitation program for people who 

are critically ill: The activity and cognitive therapy 

in the intensive care unit (ACT–ICU) trial.’’ 

163R.S. Miller et al., ‘‘Outcomes of trauma 

patients who survive prolonged lengths of stay in 

the intensive care unit,’’ J Trauma 48, no. 2 (2000). 

assessment at admission to document 

functional status, identify the need for 

therapy, set functional status goals and 

assist with discharge planning and care 

coordination. 

Whether an LTCH patient is 

discharged home or to another care 

setting for continuing health care, 

functional status is an important aspect 

of a person’s health status to document 

at the time of transition. The study 125

also reported that 28.8 percent of 

patients were discharged directly home 

or to assisted living, further supporting 

the importance of functional assessment 

and early rehabilitation to facilitate 

discharge planning and home discharge, 

when possible. 

Reported benefits of early mobility 

and rehabilitation include: (1) Improved 

strength 126 127 128 and functional 

status; 129 130 131 (2) earlier achievement 

of mobilization milestones, such as outof-bed mobilization; 132 133 (3) 

improvement in mobility and self-care 

function scores from admission to 

discharge; 134 135 (4) greater incidence of 

return to functional baseline in mobility 

and self-care, greater unassisted walking 

and walking distances, and improved 

self-reported physical function scores at 

hospital discharge compared with 

persons not participating in early 

mobility and rehabilitation; 136 (5) 

enhanced recovery of functional 

exercise capacity; 137 (6) improved selfperceived functional status; 138 and (7) 

reduced physiological and cognitive 

complications 139 and improved 

cognitive function.140 Early mobility 

and rehabilitation have also been 

associated with reduced ICU and 

hospital length of stay; 141 142 143 144 145 146

reduced incidence of delirium and 

improved patient awareness; 147 148

increased ventilator-free days and 

improved weaning outcomes; 149 150 151

greater incidence of discharge home 

directly after hospitalization compared 

with patients not receiving early 

mobilization; 152 153 and reduced 

hospital readmission or death in the 

year following hospitalization.154 155

Short-term and long-term cognitive 

impairment are very frequent 

complications of critical illness, and 

negatively influence survivors’ abilities 

to function independently.156 157 158

Delirium during hospitalization is 

highly prevalent in critically ill patients 

and has been associated with longer 

lengths of stay, increased duration of 

mechanical ventilation, and higher risk 

of death.159 A longer duration of 

delirium has been associated with worse 

short- and long-term cognition and 

executive function.160 161 Given these 

adverse consequences, the importance 

of early assessment of cognitive 

function, including possible delirium, 

and early initiation of cognitive 

rehabilitation in critical care settings, is 

being increasingly recognized.162 163

Also, given the positive effects of 

physical exercise on cognitive function 

in other populations, the potential 

positive influence of exercise on 

cognitive function in the critically ill 

population is being examined by 

researchers. 

A technical expert panel convened by 

our measure development contractor 

provided input on the technical 

specifications of this quality measure, 

including the items included in the 

quality measure, inclusion and 

exclusion criteria and risk adjustors. We 

also solicited public comment on the 

draft specifications of this quality 

measure on the CMS Quality Measures 

Public Comment Page (http://

www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/MMS/

CallforPublicComment.html) between 

February 21 and March 14 2014, and 

received 22 responses from stakeholders 

with comments and suggestions. 

Additional information regarding these 

comments may be found on our Web 

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

Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/. 

Based on the evidence discussed 

above, we are proposing to adopt for the 

LTCHQR Program for the FY 2018 

payment determination and subsequent 

years the quality measure entitled 

Percent of Long-Term Care Hospital 

Patients with an Admission and 

Discharge Functional Assessment and a 

Care Plan That Addresses Function. 

This quality measure was developed by 

CMS, and we plan to submit the quality 

measure to the NQF for review. The 

MAP met in December 2013 and January 

2014, and provided input to CMS as 

required under section 1890A(a)(3) of 

the Act. In its January 2014 PreRulemaking Report, the MAP 

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28266 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

164Zanni et al., ‘‘Rehabilitation therapy and 

outcomes in acute respiratory failure: An 

observational pilot project.’’ 

165A. Thrush, M. Rozek, and J.L. Dekerlegand, 

‘‘The clinical utility of the functional status score 

for the intensive care unit (FSS–ICU) at a long-term 

acute care hospital: A prospective cohort study,’’ 

Phys Ther 92, no. 12 (2012). 

166P. Bailey et al., ‘‘Early activity is feasible and 

safe in respiratory failure patients,’’ Crit Care Med 

35, no. 1 (2007). 

167Scheinhorn et al., ‘‘Post-ICU mechanical 

ventilation at 23 long-term care hospitals: A 

multicenter outcomes study.’’ 

conditionally supported this proposed 

measure and stated that the measure 

concept is promising, but requires 

modification or further development, 

and that functional status is a critical 

area of measurement. Since the time of 

the MAP meeting, we have continued 

further development of the measure 

with input from technical experts, 

including empirical data analysis. 

Subsequently, we released draft 

specifications for the function quality 

measures, and requested public 

comment between February 21 and 

March 14, 2014. We received 22 

responses from stakeholders with 

comments and suggestions during the 

public comment period, and have 

updated the quality measures 

specifications based on these comments 

and suggestions. The updated 

specifications are available for review at 

the LTCHQR Program Web site at: 

http://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/

index.html?redirect=/LTCH-QualityReporting/. We refer readers to section 

IX.C.2. of the preamble of this proposed 

rule for more information on the MAP. 

In section 1886(m)(5)(D)(ii) of the Act, 

the exception authority provides that 

‘‘[i]n the case of a specified area or 

medical topic determined appropriate 

by the Secretary for which a feasible and 

practical measure has not been endorsed 

by the entity with a contract under 

section 1890(a) of the Act, the Secretary 

may specify a measure that is not so 

endorsed as long as due consideration is 

given to measures that have been 

endorsed or adopted by a consensus 

organization identified by the 

Secretary.’’ We reviewed the NQF’s 

consensus endorsed measures and were 

unable to identify any NQF-endorsed 

quality measures focused on assessment 

of function for patients in the LTCH 

setting. We are unaware of any other 

quality measures for functional 

assessment that have been endorsed or 

adopted by another consensus 

organization for the LTCH setting. 

Therefore, we are proposing to adopt 

this functional assessment measure for 

use in the LTCHQR Program for the FY 

2018 payment determination and 

subsequent years under the Secretary’s 

authority to select non-NQF-endorsed 

measures. 

Additional information regarding the 

quality measure may be found on our 

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

Medicare/Quality-Initiatives-PatientAssessment-Instruments/LTCH-QualityReporting/. 

We are proposing that data for the 

proposed quality measure be collected 

through the LTCH CARE Data Set, with 

the submission through the Quality 

Improvement and Evaluation System 

(QIES) Assessment Submission and 

Processing (ASAP) system. For more 

information on LTCHQR Program 

reporting using the QIES ASAP system, 

we refer readers to our Web site at: 

http://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/

LTCHTechnicalInformation.html. We 

intend to revise the LTCH CARE Data 

Set to include new items that assess 

functional status, should this proposed 

measure be adopted. These items, which 

assess specific functional activities (that 

is, self-care, mobility, cognition, 

communication, and bladder 

continence), would be based on 

functional items included in the PostAcute Care Payment Reform 

Demonstration version of the CARE Item 

Set. The items have been carefully 

developed and tested for reliability and 

validity. 

We invite public comments on our 

proposal to adopt the quality measure 

entitled Percent of Long-Term Care 

Hospital Patients with an Admission 

and Discharge Functional Assessment 

and a Care Plan That Addresses 

Function for the LTCHQR Program, with 

data collection starting on April 1, 2016, 

for the FY 2018 payment determination 

and subsequent years. We refer readers 

to section IX.C.9.c. of the preamble of 

this proposed rule for more information 

on the proposed data collection and 

submission timeline for this proposed 

quality measure. 

(2) Proposed Functional Status Quality 

Measure: Functional Outcome Measure: 

Change in Mobility Among Long-Term 

Care Hospital Patients Requiring 

Ventilator Support 

Section 1206(c) of Division B of 

Public Law 113–67, the Pathway to SGR 

Reform Act of 2013, amended section 

1886(m)(5)(D) of the Act to add a new 

clause (iv) requiring the Secretary to 

establish by no later than October 1, 

2015, ‘‘a functional status quality 

measure for change in mobility among 

inpatients requiring ventilator support.’’ 

Accordingly, the second functional 

status quality measure that we are 

proposing is an outcome quality 

measure entitled the Functional 

Outcome Measure: Change in Mobility 

among Long-Term Care Hospital 

Patients Requiring Ventilator Support. 

This measure estimates the risk-adjusted 

change in mobility score between the 

time of admission and the time of 

discharge among LTCH patients 

requiring ventilator support at the time 

of admission. As noted above, LTCH 

patients often have functional 

limitations and receive rehabilitation 

therapy services so that they can 

become more independent when 

performing functional activities. 

Functional improvement is particularly 

relevant for patients who require 

ventilator support because these 

patients have traditionally had limited 

mobility due to cardiovascular and 

pulmonary instability, delirium, 

sedation, lack of rehabilitation therapy 

staff, and lack of physician referral.164

Several studies have examined 

functional improvement among patients 

in the long-term care hospitals and 

setting. In a sample of 101 patients in 

LTCHs (three-quarters were ventilatordependent), median functional status 

scores using the Functional Status Score 

(FSS)–ICU (rolling, supine-to-sit 

transfers, unsupported sitting, sit-tostand transfers, and ambulation) 

improved significantly from admission 

to discharge, with significant change in 

all five functional items.165 A separate 

study of 103 patients with respiratory 

failure examined functional 

improvement and found that by the end 

of the respiratory ICU stay, 69.4 percent 

of survivors ambulated more than 100 

feet, 8.2 percent ambulated less than 

100 feet, 15.3 percent could sit in a 

chair, 4.7 percent could sit on the edge 

of the bed, and 2.4 percent did not 

accomplish any of these activities.166

The importance of monitoring 

improvement in mobility skills among 

LTCH patients who require ventilator 

support at the time of admission is also 

supported by the high prevalence of 

therapy service provision as part of the 

treatment plan and the percent of 

patients discharged home after an LTCH 

stay. In a study of 1,419 ventilatordependent patients from 23 LTCHs with 

weaning programs,167 physical therapy, 

occupational therapy, and speech 

therapy were the three most commonly 

provided services among 34 procedures, 

services, and treatments provided 

during the LTCH admission. The very 

high frequency of physical (84.8 

percent), occupational (81.5 percent), 

and speech (79.7 percent) therapy 

reflects use of the rehabilitative model 

of care adopted by many post-ICU 

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168 Ibid. 

169 Klompas, M., Y. Khan, et al. (2011). 

‘‘Multicenter Evaluation of a Novel Surveillance 

Paradigm for Complications of Mechanical 

Ventilation.’’ PLoS ONE 6(3): e18062. 

170Magill, S. S., M. Klompas, et al. (2013). 

‘‘Developing a new, national approach to 

surveillance for ventilator-associated events*.’’ Crit 

Care Med 41(11): 2467–2475. 

171 Data from CMS–CDC correspondence on 

February 10, 2014. 

172Centers for Disease Control and Prevention 

(CDC). Ventilator-Associated Event (VAE). January 

2014. http://www.cdc.gov/nhsn/PDFs/pscManual/

10-VAE_FINAL.pdf. 

173Esteban, A., A. Anzueto, et al. (2002). 

‘‘Characteristics and outcomes in adult patients 

Continued 

weaning programs, which is important 

in the restoration of function. 

Improvement in functional status, 

including mobility and self-care was 

noted from admission to discharge. 

Nearly 30 percent of all patients 

discharged alive returned directly home 

or to assisted living.168

A technical expert panel convened by 

our measure development contractor 

provided input on the technical 

specifications of this quality measure. 

We also solicited public comment on 

the draft specifications of this quality 

measure, on the CMS Quality Measures 

Public Comment Page (http://

www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/MMS/

CallforPublicComment.html) between 

February 21 and March 14, 2014 and 

received 22 responses from stakeholder 

with comments and suggestions. 

Additional information regard the 

quality measure may be found on our 

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

Medicare/Quality-Initiatives-PatientAssessment-Instruments/LTCH-QualityReporting/. 

We are proposing that data for the 

proposed quality measure be collected 

through the LTCH CARE Data Set, with 

the submission through the QIES ASAP 

system. For more information on 

LTCHQR Program reporting using the 

QIES ASAP system, we refer readers to 

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

Medicare/Quality-Initiatives-PatientAssessment-Instruments/LTCH-QualityReporting/

LTCHTechnicalInformation.html. We 

intend to revise the LTCH CARE Data 

Set to include new items that assess the 

functional status and the risk adjustors, 

should this proposed application of the 

measure be adopted. These items, which 

assess specific functional activities (that 

is, self-care, mobility, cognition, 

communication, and bladder 

continence), would be based on 

functional status items included in the 

Post-Acute Care Payment Reform 

demonstration version of the CARE Item 

Set. The items have been carefully 

developed and tested for reliability and 

validity. 

Based on the evidence discussed 

above, we are proposing to adopt for the 

LTCHQR Program for the FY 2018 

payment determination and subsequent 

years the quality measure entitled 

Functional Outcome Measure: Change 

in Mobility among Long-Term Care 

Hospital Patients Requiring Ventilator 

Support. This quality measure is 

developed by CMS, and we plan to 

submit the quality measure to the NQF 

for review. The MAP met in December 

2013 and January 2014, and the NQF 

provided the MAP’s input to CMS as 

required under section 1890A(a)(3) of 

the Act. In its January 2014 PreRulemaking Report, the MAP 

conditionally supported this proposed 

measure and stated that the measure 

concept is promising, but requires 

modification or further development, 

and that functional status is a critical 

area of measurement. Since the time of 

the MAP meeting, we have continued 

further development of the measure 

with input from technical experts, 

including empirical data analysis. 

Subsequently, we have released draft 

specifications for the function quality 

measures, and requested public 

comment between February 21 and 

March 14, 2014. We received 22 

responses from stakeholders with 

comments and suggestions during the 

public comment period, and have 

updated the quality measures 

specifications based on these comments 

and suggestions. The updated 

specifications are available for review at 

the LTCHQR Program Web site at: 

http://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/

index.html?redirect=/LTCH-QualityReporting/. We refer readers to section 

IX.C.2. of the preamble of this proposed 

rule for more information on the MAP. 

In section 1886(m)(5)(D)(ii) of the Act, 

the exception authority provides that 

‘‘[i]n the case of a specified area or 

medical topic determined appropriate 

by the Secretary for which a feasible and 

practical measure has not been endorsed 

by the entity with a contract under 

section 1890(a) of the Act, the Secretary 

may specify a measure that is not so 

endorsed as long as due consideration is 

given to measures that have been 

endorsed or adopted by a consensus 

organization identified by the 

Secretary.’’ We reviewed the NQF’s 

consensus endorsed measures and were 

unable to identify any NQF-endorsed 

quality measures focused on 

improvement of function among 

patients in the LTCH setting. We are 

unaware of any other quality measures 

for functional improvement that have 

been endorsed or adopted by another 

consensus organization for the LTCH 

setting. Moreover, as discussed above, 

the Secretary is now required to 

establish such a measure by October 1, 

2015. Therefore, we are proposing to 

adopt this functional improvement 

measure for use in the LTCHQR 

Program for the FY 2018 payment 

determination and subsequent years 

under the Secretary’s authority to select 

non-NQF-endorsed measures. 

We invite public comments on our 

proposal to adopt the quality measure 

entitled Functional Outcome Measure: 

Change in Mobility among Patients 

Requiring Ventilator Support for the 

LTCHQR Program, with data collection 

starting on April 1, 2016, for the FY 

2018 payment determination and 

subsequent years. We refer readers to 

section IX.C.9.c. of the preamble of this 

proposed rule for more information on 

the proposed data collection and 

submission timeline for this proposed 

quality measure. 

b. Proposed Quality Measure: National 

Healthcare Safety Network (NHSN) 

Ventilator-Associated Event (VAE) 

Outcome Measure 

The third quality measure that we are 

proposing is the CDC-developed 

National Healthcare Safety Network 

(NHSN) Ventilator-Associated Event 

(VAE) outcome measure. The term 

‘‘Ventilator-Associated Events’’ 

incorporates a range of ventilatorassociated events, including ventilatorassociated pneumonia (VAP), 

pulmonary edema, acute respiratory 

distress syndrome, sepsis, and 

atelectasis.169 The NHSN VAE Outcome 

Measure provides increased measure 

sensitivity, more objective definitions 

for ventilator-associated conditions, and 

the potential for automated outcome 

detection.170 The NHSN VAE Outcome 

Measure is designed for use across 

multiple inpatient care settings, 

including LTCHs. The measure 

specifications were created and tested in 

the acute care setting. During CY 2013, 

105 LTCHs submitted VAE data to 

CDC’s NHSN.171

According to the CDC, ‘‘more than 

300,000 patients receive mechanical 

ventilation in the United States each 

year.’’ 172 These patients are at increased 

risk for infections, such as pneumonia 

and sepsis, as well as other serious 

complications including pulmonary 

edema, pulmonary embolism, and 

death.173 174 175 These complications can 

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receiving mechanical ventilation: A 28-day 

international study.’’ JAMA 287(3): 345–355. 

174 Klompas, M., Y. Khan, et al. (2011). 

‘‘Multicenter Evaluation of a Novel Surveillance 

Paradigm for Complications of Mechanical 

Ventilation.’’ PLoS ONE 6(3): e18062. 

175Rubenfeld, G.D., E. Caldwell, et al. (2005). 

‘‘Incidence and outcomes of acute lung injury.’’ N 

Engl J Med 353(16): 1685–1693. 

176Centers for Disease Control and Prevention 

(CDC). Ventilator-Associated Event (VAE). January 

2014. http://www.cdc.gov/nhsn/PDFs/pscManual/

10-VAE_FINAL.pdf. 177Rubenfeld G.D, Caldwell E, Peabody E, et al. 

Incidence and outcomes of acute lung injury. N 

Engl J Med 2005: 353:1685–93. 178MedPAC ‘‘Report to Congress: Medicare 

Payment Policy’’ Chapter 11 ‘‘Long-term care 

hospital services.’’ March 2014. http://

www.medpac.gov/chapters/Mar14_Ch11.pdf. 

179 Ibid. 

180 Ibid. 

181Muscedere, J., T. Sinuff, et al. (2013). ‘‘The 

clinical impact and preventability of ventilatorassociated conditions in critically ill patients who 

are mechanically ventilated.’’ Chest 144(5): 1453– 

1460. 

182 Ibid. 

183National Quality Forum. Measure 

Applications Partnership Pre-Rulemaking Report: 

Public Comment Draft: January 2014. Available: 

http://www.qualityforum.org/map/. 

lead to longer stays in the ICU and 

hospital, increased health care costs and 

increased risk of disability (or death).176

The estimated mortality rate in patients 

aged 85 years and older with acute lung 

injury on mechanical ventilation is 60 

percent.177

Ventilator-Associated Events 

represent a high-priority complication 

in the LTCH setting, given the older, 

medically complex population in 

LTCHs and the high prevalence of 

mechanical ventilation in this setting. A 

MedPAC analysis of MedPAR data 

found that 16 percent of LTCH patients 

used at least one ventilator-related 

service in 2012.178 In FY 2012, MS– 

LTC–DRG 207, a diagnosis-related group 

that refers to respiratory diagnosis with 

ventilator support for 96 or more hours, 

represented the most frequently 

occurring diagnosis among LTCH 

patients, at 11.3 percent of all LTCH 

discharges,179 and MS–LTC–DRG–4, a 

diagnosis-related group that refers to 

tracheostomy with ventilator support for 

96 or more hours or primary diagnosis 

except face, mouth, and neck without 

major OR procedure, represented an 

additional 1.3 percent of all LTCH 

discharges. Together, the two diagnosisrelated groups account for a total of 

nearly 18,000 discharges. Furthermore, 

the number of ventilated patients in 

LTCHs is increasing—the number of 

discharged patients with respiratory 

diagnosis with ventilator support for 96 

or more hours increased 7.4 percent 

between 2008 and 2011.180

Although there are no nationwide or 

LTCH-specific estimates of the 

prevalence of ventilator-associated 

conditions (VACs) and infection-related 

ventilator-associated complications 

(IVACs), a recent study of mechanically 

ventilated patients in ICUs found that 

approximately 10 percent developed a 

VAC and 5 percent developed an 

IVAC.181 Adherence to clinical practice 

guidelines for the prevention of VAP 

has been associated with decreased VAC 

rates in ICUs.182 Because VAP, one type 

of VAC, is considered preventable, 

surveillance and measurement of 

infection rates is important to improving 

quality of care and patient safety. 

The importance of the NHSN VAE 

Outcome Measure in LTCHs was 

underscored by the MAP, which stated 

in its January 2014 Pre-Rulemaking 

Report that the measure addresses a 

National Quality Strategy aim or priority 

that is currently not adequately 

addressed. The MAP supported the 

addition of this measure addressing 

VAEs in the LTCH setting and stated 

that ‘‘although this measure is not NQFendorsed, it provides useful information 

for healthcare facilities to help them 

monitor ventilator use and identify 

improvements for preventing 

complications.’’ 183

The exception authority found in 

section 1886(m)(5)(D)(ii) of the Act 

provides that ‘‘[i]n the case of a 

specified area or medical topic 

determined appropriate by the Secretary 

for which a feasible and practical 

measure has not been endorsed by the 

entity with a contract under section 

1890(a) of the Act, the Secretary may 

specify a measure that is not so 

endorsed as long as due consideration is 

given to measures that have been 

endorsed or adopted by a consensus 

organization identified by the 

Secretary.’’ We reviewed the NQF’s 

consensus endorsed measures and were 

unable to identify any NQF-endorsed 

measures for VAEs in the LTCH setting 

(or a related setting). We are unaware of 

any other measures for VAEs that have 

been endorsed or adopted by another 

consensus organization for the LTCH 

setting (or a related inpatient setting). 

Therefore, we are proposing to adopt the 

NHSN VAE Outcome Measure for use in 

the LTCHQR Program for the FY 2018 

payment determination and subsequent 

years under the Secretary’s authority to 

select non-NQF-endorsed measures. 

We are proposing to use the CDC’s 

NHSN reporting and submission 

infrastructure for reporting of the 

proposed NHSN VAE Outcome 

Measure. Details related to the 

procedures for using CDC’s NHSN for 

data submission and information on 

definitions, numerator data, 

denominator data, data analyses, and 

measure specifications for the proposed 

NHSN VAE Outcome Measure can be 

found at: http://www.cdc.gov/nhsn/

PDFs/pscManual/10-VAE_FINAL.pdf. 

CDC’s NHSN is the data collection 

and submission framework currently 

used for reporting the CAUTI (NQF 

#0138) and CLABSI (NQF #0139) 

measures for the LTCHQR Program. 

Further, CDC’s NHSN is the data 

collection and submission framework 

adopted for data collection and 

reporting for the Influenza Vaccination 

Coverage among Healthcare Personnel 

measure (NQF #0431) starting on 

October 1, 2014, and for the NHSN 

Facility-Wide Inpatient Hospital-Onset 

Methicillin-Resistant Staphylococcus 

aureus (MRSA) Bacteremia Outcome 

Measure (NQF #1716) and NHSN 

Facility-Wide Inpatient Hospital-Onset 

Clostridium difficile Infection (CDI) 

Outcome Measure (NQF #1717) starting 

on January 1, 2015. By building on the 

CDC’s NHSN reporting and submission 

infrastructure, we intend to reduce the 

administrative burden related to data 

collection and submission for this 

measure under the LTCHQR Program. 

We refer readers to section IX.C.9.d. of 

the preamble of this proposed rule for 

more information on the proposed data 

collection and submission timeline for 

this proposed quality measure. 

We invite public comments on our 

proposal to adopt the NHSN VAE 

Outcome Measure for the LTCHQR 

Program, with data collection beginning 

on January 1, 2016, for the FY 2018 

payment determination and subsequent 

years. We also invite public comments 

on our proposal to use the CDC’s NHSN 

for data collection and submission for 

this measure. 

8. LTCHQR Program Quality Measures 

and Concepts Under Consideration for 

Future Years 

We are considering whether to 

propose one or more of the quality 

measures and quality measure topics 

listed in the table below for future years 

in the LTCHQR Program. We invite 

public comments on these measures and 

measure topics. We specifically invite 

public comments regarding the clinical 

importance of these measures and 

measure topics in LTCH setting, 

feasibility of data collection and 

implementation, current use of these 

measures and measure topics in the 

LTCH setting, and the usability of data 

for these measures and measure topics 

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Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 28269 

to inform future quality improvements 

in the LTCH setting. 

FUTURE MEASURES AND MEASURE TOPICS UNDER CONSIDERATION FOR PROPOSAL FOR THE LTCH QUALITY REPORTING

PROGRAM

National Quality Strategy Priority: Patient Safety: 

• Measures addressing Ventilator Bundle. 

• Measures addressing avoidable injuries secondary to polypharmacy. 

• Application of Hospital-Based Inpatient Psychiatric Services (HBIPS)-2 Hours of Physical Restraint Use (NQF #0640). 

• Application of Percent of Residents Who Were Physically Restrained (Long Stay) (NQF #0687). 

National Quality Strategy Priority: Effective Clinical Processes: 

• Severe Sepsis and Septic Shock: Management Bundle. 

• Venous Thromboembolism Prophylaxis (NQF #0371). 

• Ventilator Weaning Rate. 

• Pain Management. 

National Quality Strategy Priority: Patient- and Caregiver-Centered Care: 

• Depression Assessment and Management. 

• Application of Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) (NQF #0166). 

• Measures addressing patients’ experience of care. 

• Measures addressing pain control—patients’ preference. 

National Quality Strategy Priority: Communication and Coordination of Care: 

• Application of Medication Reconciliation (NQF #0097). 

• Application of Medication Reconciliation Post-Discharge (NQF #0554). 

• Reconciled Medication List Received by Discharged Patients (Discharges from an Inpatient Facility to Home/Self Care or Any Other Site 

of Care) (NQF #0646). 

• Transition Record with Specified Elements Received by Discharged Patients (Discharges from an Inpatient Facility to Home/Self Care or 

Any Other Site of Care) (NQF #0647). 

• Timely Transmission of Transition Record (Discharges from an Inpatient Facility to Home/Self Care or Any Other Site of Care) (NQF 

#0648). 

• Measures addressing care transitions. 

9. Form, Manner, and Timing of Quality 

Data Submission for the FY 2016 

Payment Determination and Subsequent 

Years 

a. Background 

Section 1886(m)(5)(C) of the Act 

requires that, for the FY 2014 payment 

determination and subsequent years, 

each LTCH submit to the Secretary data 

on quality measures specified by the 

Secretary and that such data shall be 

submitted in a form and manner, and at 

a time, specified by the Secretary. As 

required by section 1886(m)(5)(A)(i) of 

the Act, for any LTCH that does not 

submit data in accordance with section 

1886(m)(5)(C) of the Act with respect to 

a given rate year, any annual update to 

the standard Federal rate for discharges 

for the hospital during the rate year 

must be reduced by two percentage 

points. 

b. Finalized Timeline for Data 

Submission Under the LTCHQR 

Program for the FY 2016 and FY 2017 

Payment Determinations (Except NQF 

#0680 and NQF #0431) 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50857 through 50861 and 

50878 through 50881), we finalized the 

data submission timelines and 

submission deadlines for measures for 

the FY 2016 and FY 2017 payment 

determinations. We refer readers to the 

FY 2014 IPPS/LTCH PPS final rule for 

a more detailed discussion of these 

timelines and deadlines. Specifically, 

we refer readers to the table at 78 FR 

50878 of the FY 2014 IPPS/LTCH PPS 

final rule for the data collection 

timelines and submission deadlines for 

the FY 2016 payment determination and 

the tables at 78 FR 50881 of that final 

rule for the data collection timelines 

and submission deadlines for the FY 

2017 payment determination. 

c. Proposed Revision to the Previously 

Adopted Data Collection Timelines and 

Submission Deadlines for Percent of 

Residents or Patients Who Were 

Assessed and Appropriately Given the 

Seasonal Influenza Vaccine (Short-Stay) 

(NQF #0680) for the FY 2016 Payment 

Determination and Subsequent Years 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50858 through 50861), we 

revised the Percent of Residents or 

Patients Who Were Assessed and 

Appropriately Given the Seasonal 

Influenza Vaccine (Short Stay) (NQF 

#0680) measure for the FY 2016 

payment determination and subsequent 

years. In that rule (78 FR 50861, 50880 

through 50882), we also revised the data 

collection timelines and submission 

deadlines for the FY 2016 through FY 

2018 payment determinations for this 

measure. 

For the reasons discussed in section 

IX.C.6.a. of the preamble of this 

proposed rule, we are proposing to 

change to the data collection timeframes 

and submission deadlines for the FY 

2016 payment determination and 

subsequent years. Specifically, as 

discussed in section IX.C.6.a. of the 

preamble of this proposed rule, for the 

FY 2016 payment determination, we are 

proposing submission deadlines of 

February 15, 2015, and May 15, 2015, 

respectively, for this measure for data 

collection periods October 1–December 

31, 2014, and January 1–March 31, 

2015, respectively, instead of the 

previously finalized submission 

deadline of May 15, 2015, for the data 

collection period of October 1, 2014– 

April 30, 2015. The proposed changes 

applicable to this measure (NQF #680) 

are illustrated below for the FY 2016 

payment determination. Please refer to 

section IX.C.6 of the preamble of this 

proposed rule for further information 

regarding this proposed revision. 

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28270 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

184The LTCH CARE Data Set (Version 2.01) was 

approved on June 10, 2013, by OMB in accordance 

with the PRA. The OMB Control Number is 0938– 

1163. Expiration Date June 30, 2016. Available on 

the Web site at: http://www.cms.gov/Regulationsand-Guidance/Legislation/PaperworkReductionAct

of1995/PRA-Listing-Items/CMS1252160.html. CMS 

will revise the LTCH CARE Data Set (Version 3.00) 

and submit for OMB review for PRA approval to 

support data collection for the two functional status 

measures and the application of the Percent of 

Residents Experiencing One or More Falls with 

Major Injury (Long Stay) (NQF #0674). LTCH CARE 

Data Set (Version 3.00) is proposed for April 1, 

2016, implementation date. 

PROPOSED DATA COLLECTION TIMELINES AND SUBMISSION DEADLINES OF LTCHQR PROGRAM QUALITY DATA FOR THE

FY 2016 PAYMENT DETERMINATION FOR PERCENT OF RESIDENTS OR PATIENTS WHO WERE ASSESSED AND APPROPRIATELY GIVEN THE SEASONAL INFLUENZA VACCINE (SHORT-STAY) (NQF #0680) 

Data collection timelines (CY) Final submission deadlines for the LTCHQR Program 

FY 2016 payment determination 

Q4 (October–December 2014) ................................................................. February 15, 2015. 

Q1 (January–March 2015) ........................................................................ May 15, 2015. 

Further, as discussed in section 

IX.C.6.a. of the preamble of this 

proposed rule, we are proposing similar 

deadlines for the FY 2017 payment 

determination and subsequent years for 

the LTCHQR Program. The proposed 

changes applicable to this measure 

(NQF #680) are illustrated below. 

PROPOSED DATA COLLECTION TIMELINES AND SUBMISSION DEADLINES OF LTCHQR PROGRAM QUALITY DATA FOR THE

FY 2017 PAYMENT DETERMINATION AND SUBSEQUENT YEARS FOR PERCENT OF RESIDENTS OR PATIENTS WHO

WERE ASSESSED AND APPROPRIATELY GIVEN THE SEASONAL INFLUENZA VACCINE (SHORT-STAY) (NQF #0680) 

Data collection timelines (CY) Final submission deadlines for the LTCHQR Program 

payment determination (FY) 

Q4 of the CY two years before the payment determination year (for example, October–December 2015 for the FY 2017 payment determination).February 15, of the FY preceding the payment determination year (for 

example, February 15, 2016 for the FY 2017 payment determination). 

Q1 of the CY one year before the payment determination year (for example, January–March 2016 for the FY 2017 payment determination).May 15 of the FY preceding the payment determination year (for example, May 15, 2016 for the FY 2017 payment determination). 

We invite public comment on the 

proposed submission deadlines for this 

measure (NQF #0680) for the FY 2016 

payment determination and subsequent 

years. 

d. Proposed Data Submission 

Mechanisms for the FY 2018 Payment 

Determination and Subsequent Years for 

Proposed New LTCHQR Program 

Quality Measures and for Proposed 

Revisions to Previously Adopted 

Quality Measures 

For the two proposed functional 

status measures and the application of 

the Percent of Residents Experiencing 

One or More Falls with Major Injury 

(Long Stay) (NQF #0674) measure, we 

are proposing that all LTCHs would be 

required to collect data using the LTCH 

CARE Data Set (Version 3.00).184 We 

will release the technical data 

submission specifications and update 

LTCHQR Program Manual for the LTCH 

CARE Data Set (Version 3.00) to include 

items related to the functional status 

measures and the application of the 

Percent of Residents Experiencing One 

or More Falls with Major Injury (LongStay) (NQF #0674) measure in CY 2015. 

The QIES ASAP system would remain 

the data submission mechanism for the 

LTCH CARE Data Set. Further 

information on data submission of the 

LTCH CARE Data Set for the LTCHQR 

Program Reporting using the QIES 

ASAP system is available at: https://

www.qtso.com/ and http://

www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/

LTCHTechnicalInformation.html. 

For the proposed VAE measure, we 

are proposing that LTCHs would be 

required to use the CDC’s NHSN 

reporting and submission infrastructure. 

Details related to the procedures for 

using CDC’s NHSN for data submission 

and information on definitions, 

numerator data, denominator data, data 

analyses, and measure specifications for 

the proposed NHSN VAE Outcome 

Measure can be found at: http://

www.cdc.gov/nhsn/PDFs/pscManual/

10-VAE_FINAL.pdf. 

We invite public comments on these 

proposals. 

e. Proposed Data Collection Timelines 

and Submission Deadlines Under the 

LTCHQR Program for the FY 2018 

Payment Determination 

In sections IX.C.9.c. and f. of the 

preamble of this proposed rule, we are 

proposing, for the FY 2016 payment 

determination and subsequent years, to 

revise the data collection timelines and 

submission deadlines for the Percent of 

Residents or Patients Who Were 

Assessed and Appropriately Given the 

Seasonal Influenza Vaccine (Short-Stay) 

(NQF #0680) measure and, for the FY 

2018 payment determination and 

subsequent years, to revise the data 

collection timelines and submission 

deadlines for the application of the 

Percent of Residents Experiencing One 

or More Falls with Major Injury (LongStay) (NQF #0674) measure. In the FY 

2014 IPPS/LTCH PPS final rule (78 FR 

50882), we adopted the data collection 

timelines and submission deadlines for 

the remaining quality measures 

applicable to the FY 2018 payment 

determination as listed in the following 

tables. 

TIMEFRAMES FOR DATA COLLECTION OF LTCHQR PROGRAM QUALITY DATA FOR THE FY 2018 PAYMENT DETERMINATION

NQF measure ID Data collection timelines 

NQF #0138 ............................................................................................... January 1, 2016–December 31, 2016. 

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TIMEFRAMES FOR DATA COLLECTION OF LTCHQR PROGRAM QUALITY DATA FOR THE FY 2018 PAYMENT

DETERMINATION—Continued 

NQF measure ID Data collection timelines 

NQF #0139 ............................................................................................... January 1, 2016–December 31, 2016. 

NQF #0678 ............................................................................................... January 1, 2016–December 31, 2016. 

NQF #0431 ............................................................................................... October 1, 2016 (or when vaccine becomes available)–March 31, 

2017. 

NQF #1716 ............................................................................................... January 1, 2016–December 31, 2016. 

NQF #1717 ............................................................................................... January 1, 2016–December 31, 2016. 

TIMELINE FOR SUBMISSION OF LTCHQR PROGRAM QUALITY DATA FOR THE FY 2018 PAYMENT DETERMINATION FOR ALL

MEASURES EXCEPT INFLUENZA VACCINATION COVERAGE AMONG HEALTHCARE PERSONNEL (NQF #0431) AND PERCENT OF RESIDENTS OR PATIENTS WHO WERE ASSESSED AND APPROPRIATELY GIVEN THE SEASONAL INFLUENZA

VACCINE (SHORT-STAY) (NQF #0680) 

Data collection timeline: CY 2016 

Final submission deadlines for the LTCHQR Program 

FY 2018 payment 

determination 

Q1 (January–March 2016) ........................................................................ May 15, 2016. 

Q2 (April–June 2016) ................................................................................ August 15, 2016. 

Q3 (July–September 2016) ....................................................................... November 15, 2016. 

Q4 (October–December 2016) ................................................................. February 15, 2017. 

TIMELINE FOR SUBMISSION OF LTCHQR PROGRAM QUALITY DATA FOR THE FY 2018 PAYMENT DETERMINATION: 

INFLUENZA VACCINATION COVERAGE AMONG HEALTHCARE PERSONNEL (NQF #0431) 

Data collection timeline Final submission deadlines for the LTCHQR Program 

FY 2018 payment determination 

October 1 2016 (or when vaccine becomes available)–March 31, 2017 May 15, 2017. 

For the new measures that we are 

proposing to adopt for the FY 2018 

payment determination and subsequent 

years, we are proposing the following 

data collection timelines and 

submission deadlines. 

PROPOSED DATA COLLECTION TIMELINES FOR NEW LTCHQR PROGRAM MEASURES FOR THE FY 2018 PAYMENT

DETERMINATION

NQF Measure ID or Measure Name 

(when NQF Measure ID not available) Data collection timeline 

National Healthcare Safety Network (NHSN) Ventilator-Associated 

Event (VAE) Outcome Measure.

January 1, 2016–December 31, 2016. 

Functional Outcome Measure: Change in Mobility among Long-Term 

Care Hospital Patients Requiring Ventilator Support.

April 1, 2016–December 31, 2016. 

Percent of Long-Term Care Hospital Patients with an Admission and 

Discharge Functional Assessment and a Care Plan That Addresses 

Function.

April 1, 2016–December 31, 2016. 

PROPOSED SUBMISSION DEADLINES OF LTCHQR PROGRAM QUALITY DATA FOR THE FY 2018 PAYMENT DETERMINATION: 

NATIONAL HEALTHCARE SAFETY NETWORK (NHSN) VENTILATOR-ASSOCIATED EVENT (VAE) OUTCOME MEASURE

Data collection timeline Final submission deadlines for the LTCHQR Program 

FY 2018 payment determination 

Q1 (January–March 2016) ........................................................................ May 15, 2016. 

Q2 (April–June 2016) ................................................................................ August 15, 2016. 

Q3 (July–September 2016) ....................................................................... November 15, 2016. 

Q4 (October–December 2016). ................................................................ February 15, 2017. 

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PROPOSED SUBMISSION DEADLINES OF LTCHQR PROGRAM QUALITY DATA FOR THE FY 2018 PAYMENT DETERMINATION: 

FUNCTIONAL OUTCOME MEASURE: CHANGE IN MOBILITY AMONG LONG-TERM CARE HOSPITAL PATIENTS REQUIRING

VENTILATOR SUPPORT AND PERCENT OF LONG-TERM CARE HOSPITAL PATIENTS WITH AN ADMISSION AND DISCHARGE FUNCTIONAL ASSESSMENT AND A CARE PLAN THAT ADDRESSES FUNCTION

Data collection timeline Final submission deadlines for the LTCHQR Program 

FY 2018 payment determination 

Q2 (April–June 2016) ................................................................................ August 15, 2016. 

Q3 (July–September 2016) ....................................................................... November 15, 2016. 

Q4 (October–December 2016) ................................................................. February 15, 2017. 

We invite public comments on these 

data collection timelines and 

submission deadlines for the three 

proposed new quality measures for FY 

2018 payment determination. 

f. Proposed Data Collection Timelines 

and Submission Deadlines for the 

Application of Percent of Residents 

Experiencing One or More Falls with 

Major Injury (Long Stay) (NQF #0674) 

for the FY 2018 Payment Determination 

and Subsequent Years 

In the FY 2014 IPPS/LTCH PPS final 

rule, we revised the Application of the 

Percent of Residents Experiencing One 

or More Falls with Major Injury (Long 

Stay) (NQF #0674) measure for the FY 

2018 payment determination and 

subsequent years (78 FR 50874 through 

50877). We are proposing, for the FY 

2018 payment determination only, to 

move the start date for data collection of 

this measure to April 1, 2016, instead of 

the previously finalized start date of 

January 1, 2016. Data collection and 

submission of this measure would 

continue through December 31, 2016, as 

previously finalized for the FY 2018 

payment determination. This proposed 

change in the data collection start date 

would only affect CY 2016 data 

collection and submission for the 

LTCHQR Program for the FY 2018 

payment determination. For all 

subsequent years, data collection for 

this measure would begin on January 1 

and continue through December 31. We 

note that these proposed changes would 

be applicable only to the Application of 

Percent of Residents Experiencing One 

or More Falls with Major Injury (Long 

Stay) (NQF #0674) measure, and not 

applicable to any other LTCHQR 

Program measures, proposed or 

adopted, unless explicitly stated. We 

refer readers to section IX.C.6. of the 

preamble of this proposed rule for 

further information and rationale. 

PROPOSED DATA COLLECTION TIMELINES AND SUBMISSION DEADLINES OF LTCHQR PROGRAM QUALITY DATA FOR THE

FY 2018 PAYMENT DETERMINATION FOR THE APPLICATION OF PERCENT OF RESIDENTS EXPERIENCING ONE OR

MORE FALLS WITH MAJOR INJURY (LONG STAY) (NQF #0674) 

Data collection timeline: CY 2016 Final submission deadlines for the LTCHQR Program 

FY 2018 payment determination 

Q2 (April–June 2016) ................................................................................ August 15, 2016. 

Q3 (July–September 2016) ....................................................................... November 15, 2016. 

Q4 (October–December 2016) ................................................................. February 15, 2017. 

We invite public comment on the 

proposed data collection timeline and 

quarterly submission deadlines for the 

Application of Percent of Residents 

Experiencing One or More Falls with 

Major Injury (Long Stay) (NQF #0674) 

for the FY 2018 payment determination. 

g. Proposed Data Collection Timelines 

and Submission Deadlines Under the 

LTCHQR Program for the FY 2019 

Payment Determination and Subsequent 

Years 

For the quality measures applicable to 

the FY 2019 payment determination and 

subsequent years, including those that 

we are proposing in section IX.C.7. of 

the preamble of this proposed rule, if 

finalized, we are proposing the 

following data collection timelines and 

submission deadlines. 

PROPOSED DATA COLLECTION TIMELINES AND SUBMISSION DEADLINES OF LTCHQR PROGRAM QUALITY DATA FOR THE

FY 2019 PAYMENT DETERMINATION

NQF Measure ID or Measure Name 

(when NQF Measure ID not available) Data collection timeline 

National Healthcare Safety Network (NHSN) Catheter-Associated Urinary Tract Infection (CAUTI) Outcome Measure (NQF #0138).January 1, 2017–December 31, 2017. 

National Healthcare Safety Network (NHSN) Central Line-Associated 

Bloodstream Infection (CLABSI) Outcome Measure (NQF #0139).

January 1, 2017–December 31, 2017. 

Percent of Residents or Patients with Pressure Ulcers That Are New or 

Worsened (Short-Stay) (NQF #0678).

January 1, 2017–December 31, 2017. 

Percent of Residents or Patients Who Were Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short-Stay) (NQF 

#0680).

October 1, 2017–March 31, 2018. 

Influenza Vaccination Coverage among Healthcare Personnel (NQF 

#0431).

October 1, 2017–March 31, 2018. 

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PROPOSED DATA COLLECTION TIMELINES AND SUBMISSION DEADLINES OF LTCHQR PROGRAM QUALITY DATA FOR THE

FY 2019 PAYMENT DETERMINATION—Continued 

NQF Measure ID or Measure Name 

(when NQF Measure ID not available) Data collection timeline 

National Healthcare Safety Network (NHSN) Facility-Wide Inpatient 

Hospital-Onset Methicillin-resistant Staphylococcus areus (MRSA) 

Bacteremia Outcome Measure (NQF #1716).

January 1, 2017–December 31, 2017. 

National Healthcare Safety Network (NHSN) Facility-Wide Inpatient 

Hospital-Onset Clostridium difficile Infection (CDI) Outcome Measure 

(NQF #1717).

January 1, 2017–December 31, 2017. 

Application of Percent of Residents Experiencing One or More Falls 

with Major Injury (Long-Stay) (NQF #0674).

January 1, 2017–December 31, 2017. 

National Healthcare Safety Network (NHSN) Ventilator-Associated 

Event (VAE) Outcome Measure.

January 1, 2017–December 31, 2017. 

Functional Outcome Measure: Change in Mobility among Patients Requiring Ventilator Support.January 1, 2017–December 31, 2017. 

Percent of LTCH Patients with an Admission and Discharge Functional 

Assessment and a Care Plan That Addresses Function.

January 1, 2017–December 31, 2017. 

PROPOSED DATA COLLECTION TIMELINES AND SUBMISSION DEADLINES OF LTCHQR PROGRAM QUALITY DATA FOR THE

FY 2019 PAYMENT DETERMINATION FOR ALL MEASURES EXCEPT INFLUENZA VACCINATION COVERAGE AMONG

HEALTHCARE PERSONNEL (NQF #0431) AND PERCENT OF RESIDENTS OR PATIENTS WHO WERE ASSESSED AND APPROPRIATELY GIVEN THE SEASONAL INFLUENZA VACCINE (SHORT-STAY) (NQF #0680) 

Data collection timeline: CY 2017 Final submission deadlines for the LTCHQR Program 

FY 2019 payment determination 

Q1 (January–March 2017) ........................................................................ May 15, 2017. 

Q2 (April–June 2017) ................................................................................ August 15, 2017. 

Q3 (July–September 2017) ....................................................................... November 15, 2017. 

Q4 (October–December 2017) ................................................................. February 15, 2018. 

PROPOSED DATA COLLECTION TIMELINES AND SUBMISSION DEADLINES OF LTCHQR PROGRAM QUALITY DATA FOR THE

FY 2019 PAYMENT DETERMINATION: PERCENT OF RESIDENTS OR PATIENTS WHO WERE ASSESSED AND APPROPRIATELY GIVEN THE SEASONAL INFLUENZA VACCINE (SHORT-STAY) (NQF #0680) 

Data collection timeline Final submission deadlines for the LTCHQR Program 

FY 2019 payment determination 

October 1, 2017–December 31, 2017 ...................................................... February 15, 2018. 

January 1, 2018–March 31, 2018 ............................................................. May 15, 2018. 

PROPOSED DATA COLLECTION TIMELINES AND SUBMISSION DEADLINES OF LTCHQR PROGRAM QUALITY DATA FOR THE

FY 2019 PAYMENT DETERMINATION: INFLUENZA VACCINATION COVERAGE AMONG HEALTHCARE PERSONNEL (NQF 

#0431) 

Data collection timeline Final submission deadlines for the LTCHQR Program 

FY 2019 payment determination 

October 1 2017–March 31, 2018 .............................................................. May 15, 2018. 

We invite public comment on these 

proposals. 

10. Proposed LTCHQR Program Data 

Completion Thresholds for the FY 2016 

Payment Determination and Subsequent 

Years 

a. Overview 

Section 1886(m)(5)(C) of the Act 

requires that, for the FY 2014 payment 

determination and subsequent years, 

each LTCH submit to the Secretary data 

on quality measures specified by the 

Secretary in a form and manner, and at 

a time, specified by the Secretary. As 

required by section 1886(m)(5)(A)(i) of 

the Act, for any LTCH that does not 

submit data in accordance with section 

1886(m)(5)(C) of the Act with respect to 

a given fiscal year, any annual update to 

the standard Federal rate for discharges 

for the hospital during the rate fiscal 

year must be reduced by two percentage 

points. To date, we have not established 

a standard for compliance other than 

that LTCHs submit all applicable 

required data for all finalized measures, 

by the previously finalized quarterly 

deadlines. In response to input from our 

stakeholders seeking additional 

specificity related to the LTCHQR 

Program compliance affecting FY 

payment update determinations and, 

due to the importance of ensuring the 

integrity of quality data submitted to 

CMS, we are proposing to set specific 

LTCHQR Program thresholds for 

completeness of LTCH quality data 

beginning with data affecting the FY 

2016 payment determination and 

subsequent years. 

The LTCHQR Program, through the 

FY 2012, FY 2013, and FY 2014 IPPS/ 

LTCH PPS final rules, requires LTCHs to 

submit quality data using two separate 

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data collection/submission mechanisms: 

measures collected using the LTCH 

CARE Data Set (LCDS) are submitted 

through the CMS Quality Improvement 

Evaluation System (QIES); and measures 

stewarded by the CDC (such as 

Healthcare Acquired Infection (HAI) 

and vaccination measures), are 

submitted using the CDC’s National 

Healthcare Safety Network (NHSN). We 

have also previously finalized a claimsbased measure (All-Cause Unplanned 

Readmission Measure for 30 Days Post 

Discharge from Long Term Care 

Hospitals); however, claims-based 

measures do not require LTCHs to 

actually submit quality data to CMS, as 

they are calculated using claims data 

submitted to CMS for payment 

purposes. Thus, with claims-based 

measures, there is no submitted quality 

data to which we could apply data 

completion thresholds. 

To ensure that LTCHs are meeting an 

acceptable standard for completeness of 

submitted data, we are proposing that 

for the FY 2016 payment determination 

and subsequent years, LTCHs meet or 

exceed two separate program 

thresholds: one threshold for 

completion of quality measures data 

collected using the LCDS and submitted 

through QIES; and a second threshold 

for quality measures data collected and 

submitted using the CDC’s NHSN. We 

are proposing that LTCHs must meet or 

exceed both thresholds discussed 

below, in order to avoid receiving a 2 

percentage point reduction to their 

annual payment update for a given FY, 

beginning with FY 2016. 

We are proposing to hold LTCHs 

accountable for different data 

completion thresholds for each of the 

two data submission mechanisms; an 80 

percent data completion threshold for 

data collected using the LCDS and 

submitted through the QIES mechanism; 

and a 100 percent data completion 

threshold for data submitted through the 

CDC’s NHSN. We are proposing to hold 

LTCHs to the higher data completion 

threshold for the CDC’s NHSN initially, 

because many LTCHs have been 

mandated by States to report infection 

data using the CDC’s NHSN system for 

surveillance purposes, prior to the start 

of the LTCHQR Program on October 1, 

2012, and, therefore, we believe LTCHs 

are more familiar with the NHSN 

collection and submission process. 

In contrast, LTCHs had never 

submitted quality data using a 

standardized data collection instrument 

before October 1, 2012, such as the 

LCDS submitted through the QIES 

mechanism. In addition, we require the 

submission of LCDS admission and 

discharge data through QIES, in order 

for LTCHs to meet the proposed data 

accuracy compliance standard, which 

with regard to discharge data, may be 

more difficult to collect on patients that 

are discharged emergently or against 

medical advice, in effect making it more 

difficult to meet a higher level of 

compliance initially. Lastly, through the 

FY 2014 IPPS/LTCH PPS final rule, we 

finalized accelerated quarterly deadlines 

for submission of quality data, 

beginning January 2014, of 45 days 

beyond the end of each CY quarter, as 

opposed to the previous 135 day postquarterly deadline LTCHs were 

previously required to meet. We feel 

that this is an additional challenge that 

LTCHs may face. We invite comment on 

other obstacles LTCHs may face in 

meeting a higher level of compliance 

with regard to submission of quality 

data using the LCDS. 

b. Proposed LTCHQR Program Data 

Completion Threshold for the Required 

LTCH CARE Data Set (LCDS) Data Items 

The LCDS is composed of data 

collection items designed to inform 

quality measure calculations, including 

risk-adjustment calculations, as well as 

internal consistency checks for logical 

inaccuracies. We are proposing that 

beginning with quality data affecting the 

FY 2016 payment determination and 

subsequent years, LTCHs must meet or 

exceed a proposed LCDS data 

completion threshold of 80 percent. We 

are proposing to assess the 

completeness of submitted data by 

verifying that for all LCDS assessments 

submitted by any given LTCH, at least 

80 percent of those LCDS Assessments 

must have 100 percent of the required 

quality data items completed, where, for 

the purposes of this proposed rule, 

‘‘completed’’ is defined as having 

provided actual patient data, as opposed 

to a non-informative response, such as 

a dash (-), that indicates the LTCH was 

unable to provide patient data. The 

proposed threshold of 80 percent is 

based on the need for substantially 

complete records, which allows 

appropriate analysis of quality measure 

data for the purposes of updating 

quality measure specifications as they 

undergo yearly and triennial measure 

maintenance reviews with the NQF. In 

addition, complete data is needed to 

understand the validity and reliability 

of quality data items, including riskadjustment models. Finally, we want to 

ensure complete quality data from 

LTCHs, which will ultimately be 

reported to the public, allowing our 

beneficiaries to gain an understanding 

of LTCH performance related to these 

quality metrics, and helping them to 

make informed health care choices. 

Our data suggest that the majority of 

current LTCHs are in compliance with, 

or exceeding, this proposed threshold 

already. Our decision to set this 

proposed data completion threshold at a 

lower level initially, with the intent to 

raise the proposed 80 percent threshold 

in subsequent program years, is based 

on our understanding that LTCHs are 

still new to quality reporting, and that 

their experience and understanding, 

with respect to reporting quality data 

using a standardized data collection 

instrument, and thus their compliance, 

will increase over time. However, we 

invite public comment on 

circumstances that might prevent 

LTCHs from meeting this level of 

compliance. All items that we are 

proposing to require under the LTCHQR 

Program are identified in Appendix D of 

the LTCHQR Program Manual version 

2.01, which is available for download 

on the CMS Web site at: http://

www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/

LTCHTechnicalInformation.html. 

We are also proposing that any LTCH 

that does not meet the proposed 

requirement that 80 percent of all LCDS 

assessments submitted contain 100 

percent of all required quality data 

items, will be subject to a reduction of 

2 percentage points to the applicable FY 

annual payment update beginning with 

FY 2016. In order to establish this 

program threshold, we analyzed all 

LCDS submissions from January 2013 

through September 2013, and we 

believe that the majority of LTCHs will 

be able to meet the proposed 80 percent 

data completion threshold. It is our 

intent to raise this threshold over the 

next 2 years, through the formal noticeand-comment rulemaking process. As 

stated above, we feel that as LTCHs 

continue to submit data using a 

standardized data collection instrument, 

such as the LCDS, and as they continue 

to take advantage of the resources we 

provide to guide LTCHs in their 

submission of this data (national 

trainings, CMS Special Open Door 

Forums, LTCHQR Program Manual, and 

technical trainings available on our Web 

site), we feel LTCH performance with 

respect to data completion will improve 

over time. We are proposing that this 

threshold will have to be met by LTCHs, 

in addition to the CDC NHSN threshold 

discussed below, in order to avoid 

receiving a 2 percentage point reduction 

to the applicable FY annual payment 

update. 

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c. LTCHQR Program Data Completion 

Threshold For Measures Submitted 

Using the Centers for Disease Control 

and Prevention (CDC) National 

Healthcare Safety Network (NHSN) 

The LTCHQR Program through the FY 

2012, FY 2013, and FY 2014 IPPS/LTCH 

PPS final rules, requires that LTCHs 

submit CDC-stewarded quality measure 

data using the CDC’s NHSN, including 

data for the previously finalized CAUTI, 

CLABSI, and Influenza Vaccination 

Coverage among Healthcare Personnel 

(HCP) quality measures. More 

specifically, we require LTCHs follow 

CDC quality measure protocols, which 

require them LTCHs to complete all data 

fields required for both numerator and 

denominator data within NHSN, 

including the ‘‘no events’’ field for any 

month during which no infection events 

were identified. LTCHs are required to 

submit this data on a monthly basis 

(except for the HCP measure, which is 

only required to be reported once per 

year). However, LTCHs have until the 

associated quarterly deadline (45 

calendar days beyond the end of each 

CY quarter) by which to report infection 

data to the CDC for each of the three 

months within any given quarter. For 

more information on the LTCHQR 

Program quarterly deadlines, we refer 

readers to section IX.C.9.b. of the 

preamble of this proposed rule. 

We are proposing that beginning with 

FY 2016 payment determination and 

subsequent years, this previously 

finalized requirement for monthly 

reporting must be met in addition to the 

proposed LCDS data completion 

threshold discussed above in order to 

avoid a 2 percentage point reduction to 

the applicable FY annual payment 

update. That is, we are proposing that 

LTCHs must meet a threshold of 100 

percent for measures submitted via the 

NHSN, achieved by submitting relevant 

infection, vaccination, or other required 

quality measure data for each month of 

any given CY, in addition to meeting the 

above-proposed data item completion 

threshold for required quality data items 

on the LCDS. As the LTCHQR Program 

expands, and LTCHs begin reporting 

measures that were previously finalized, 

but not yet implemented, or newly 

proposed and finalized measures, we 

are proposing to apply this same 

threshold. 

d. Application of the 2 Percentage Point 

Reduction for LTCHs That Fail To Meet 

the Proposed Data Completion 

Thresholds 

Above we have proposed that LTCHs 

must meet two separate data completion 

thresholds in order to avoid a 2 

percentage point reduction to their 

applicable FY annual payment update; 

a data completion threshold of 80 

percent for those required data elements 

collected using the LCDS and submitted 

through QIES; and a second data 

completion threshold of 100 percent for 

quality measure data submitted through 

the CDC’s NHSN. We are proposing that 

these data completion thresholds must 

be met in addition to the data validation 

threshold of 75 percent we are 

proposing below, in order to avoid a 2 

percentage point reduction to their 

applicable FY annual payment update. 

While we are proposing that LTCHs 

must meet both the proposed data 

completion and data validation 

thresholds, LTCHs cannot have their 

applicable annual payment update 

reduced twice. That is, should an LTCH 

fail to meet either one or both of the 

proposed thresholds, it will only receive 

one reduction of 2 percentage points to 

its applicable fiscal year annual 

payment update. 

We invite public comment on these 

proposals. 

11. Proposed Data Validation Process for 

the FY 2016 Payment Determination 

and Subsequent Years 

a. Proposed Data Validation Process 

Historically, we have built 

consistency and internal validation 

checks into our data submission 

specifications to ensure that the basic 

elements of the LCDS assessments 

conform to requirements such as proper 

format and facility information. These 

internal consistency checks are 

automated and occur during the LTCH 

submission process, and help ensure the 

integrity of the data submitted by 

LTCHs by rejecting submissions or 

issuing warnings when LTCH data 

contain logical inconsistencies. These 

internal consistency checks are referred 

to as ‘‘system edits’’ and are further 

outlined in the LTCH Data Submission 

Specifications version 1.01, which are 

available for download on the LTCH 

Quality Reporting Technical 

Information Web page at: http://

www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/

LTCHTechnicalInformation.html. 

Validation is intended to provide 

added assurance of the accuracy of the 

data that will be reported to the public 

as required by section 1886(m)(5)(E) of 

the Act. We are proposing, for the FY 

2016 payment determination and 

subsequent years, to validate the data 

elements submitted to CMS for quality 

purposes. Initially, for the FY 2016 

payment determination, this data 

accuracy validation will apply only to 

the LCDS items that inform the 

measures Percent of Patients or 

Residents with Pressure Ulcers That are 

New or Worsened (Short-Stay) (NQF 

#0678). We intend to expand this 

validation process for quality measures 

affecting the FY 2017 payment 

determination and subsequent years 

through future notice-and-comment 

rulemaking. 

We are proposing to validate the data 

elements submitted to CMS for Percent 

of Residents or Patients with Pressure 

Ulcers That are New or Have Worsened 

(Short-Stay) (NQF #0678) under the 

LTCHQR Program by requesting the 

minimum chart data necessary to 

confirm a statistically valid random 

sample of 260 LTCHs. From the random 

sample of 260 LTCHs, 5 LCDS 

assessments submitted through the 

National Assessment Collection 

Database would be randomly selected 

by the CMS validation contractor. In 

accordance with § 164.512 (d)(1)(iii) of 

the HIPAA Privacy Rule, we would 

request from these LTCHs the specified 

portions of the 5 Medicare patient charts 

that correspond to the randomly 

selected assessments, which would 

need to be copied and submitted via 

traceable mail to a CMS contractor for 

validation. We are proposing that the 

specific portions of the 5 beneficiary 

charts would be identified in the written 

request, but may include: admission and 

discharge assessments, relevant nursing 

notes following the admission, relevant 

nursing notes preceding the discharge, 

physician admission summary and 

discharge summary, and any 

Assessment of Pressure Ulcer Form the 

facility may utilize. We are proposing 

that the CMS contractor would utilize 

the portions of the patient charts to 

compare that information with the 

quality data submitted to CMS. 

Differences that would affect measure 

outcomes or measure rates would be 

identified and reported to CMS. These 

differences could include but are not 

limited to unreported worsened 

pressure ulcers. 

We are proposing that all data that has 

been submitted to the National 

Assessment Collection Database under 

the LTCHQR Program would be subject 

to the data validation process. 

Specifically, we are proposing that the 

contractor would request copies of the 

randomly selected medical charts from 

each LTCH via certified mail (or other 

traceable methods that require an LTCH 

representative to sign for CMS 

correspondence), and the LTCH would 

have 45 days from the date of the 

request (as documented on the request 

letter) to submit the requested records to 

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the contractor. If the LTCH does not 

comply within 30 days, the contractor 

would send a second certified letter to 

them, reminding the LTCH that it must 

return copies of the requested medical 

records within 45 calendar days 

following the date of the initial 

contractor medical record request. If the 

LTCH still does not comply, then the 

contractor would assign a ‘‘zero’’ score 

to each measure in each missing record. 

If, however, the LTCH does comply, the 

contractor would review the data 

submitted by the LTCH on the LCDS 

assessments for the required data 

elements associated with the Pressure 

Ulcer measure, until such time that 

LTCHs begin to submit additional 

quality measures that are collected 

using the LCDS. Initially, this review 

would consist solely of those required 

data elements that inform the Pressure 

Ulcer measure calculation and checks 

for logical inconsistencies. As LTCHs 

begin to report additional finalized 

measures, we intend to expand this 

validation process to quality measures 

affecting the FY 2017 payment 

determination and subsequent years, 

through future notice-and-comment 

rulemaking. The contractor would then 

calculate the percentage of matching 

data elements which would constitute a 

validation score. Because we would not 

be validating all records, we would need 

to calculate a confidence interval that 

incorporates a potential sampling error. 

To receive the full FY 2016 annual 

payment update, we are proposing that 

LTCHs in the random sample must 

attain at least a 75 percent validation 

score, based upon our validation 

process, which would use charts 

requested from patient assessments 

submitted for CY 2013. We would 

calculate a 95 percent confidence 

interval associated with the observed 

validation score. If the upper bound of 

this confidence interval is below the 75 

percent cutoff point, we would not 

consider a hospital’s data to be 

‘‘validated’’ for payment purposes. We 

are proposing that LTCHs failing the 

validation requirements would be 

subject to the 2 percent annual payment 

update reduction, beginning with their 

fiscal year annual payment update. In 

addition, all LTCHs validated would 

receive educational feedback, including 

specific case details. 

b. Application of the 2 Percentage Point 

Reduction for LTCHs That Fail To Meet 

the Proposed Data Accuracy Threshold 

We are proposing that LTCHs must 

meet a data accuracy threshold of 75 

percent in order to avoid receiving a 2 

percentage point reduction to their 

applicable fiscal year annual payment 

update. We are proposing that this 

proposed data accuracy threshold of 75 

percent must be met in addition to the 

proposed data completion thresholds 

(80 percent for data collected using the 

LTCH CARE Data Set and submitted 

using QIES, and 100 percent for data 

submitted using the CDC’s NHSN), in 

order to avoid receiving a 2 percentage 

point reduction to their applicable FY 

annual payment update. While we are 

proposing that LTCHs must meet both 

the proposed data accuracy and data 

completion thresholds, LTCHs cannot 

have their applicable annual payment 

update reduced twice. That is, should 

an LTCH fail to meet either one or both 

of the proposed thresholds (data 

completion and/or data accuracy), it 

will only receive one reduction of 2 

percentage points to its applicable FY 

annual payment update. 

We invite public comment on these 

proposals and suggestions to improve 

the utility of the approach or to reduce 

the burden on LTCHs. 

12. Public Display of Quality Measure 

Data for the LTCHQR Program 

Under section 1886(m)(5)(E) of the 

Act, the Secretary is required to 

establish procedures for making data 

submitted under section 1886(m)(5)(C) 

of the Act available to the public. 

Section 1886(m)(5)(E) of the Act 

requires that such procedures shall 

ensure that an LTCH has the 

opportunity to review the data that is to 

be made public with respect to the 

LTCH prior to such data being made 

public. The statute also requires that the 

Secretary report quality measures that 

relate to services furnished in inpatient 

settings in LTCHs on our Web site. In 

the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53637), we received and 

responded to public comments 

regarding the public reporting of quality 

data under the LTCHQR Program. 

Currently, we are developing plans 

regarding the implementation of these 

provisions. We appreciate the need for 

transparency into the processes and 

procedures that will be implemented to 

allow for public reporting of the 

LTCHQR Program data and to afford 

LTCHs the opportunity to review that 

data before it is made public. At this 

time, we have not established 

procedures or timelines for public 

reporting of data, but we intend to 

include related proposals in future 

rulemaking. 

We welcome public comment on what 

we should consider when developing 

future proposals related to public 

reporting of quality measures for the 

LTCHQR Program. 

13. Proposed LTCHQR Program 

Submission Exception and Extension 

Requirements for the FY 2017 Payment 

Determination and Subsequent Years 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50883 through 50885), we 

referred to these requirements as 

submission ‘‘waiver’’ requirements. We 

are proposing to instead use the phrase 

‘‘exception and extension’’ requirements 

for purposes of clarity. For the FY 2017 

payment determination and subsequent 

years, we are proposing to continue 

using the LTCHQR Program’s 

requirements that we adopted in the FY 

2014 IPPS/LTCH PPS final rule for the 

FY 2015 payment determination and 

subsequent years, although the term 

‘‘waiver’’ is replaced by ‘‘exception and 

extension.’’ 

In the FY 2014 IPPS/LTCH PPS final 

rule, we finalized a process for LTCHs 

to request and for us to grant waivers 

with respect to the quality data 

reporting requirements of the LTCHQR 

Program for one or more quarters, 

beginning with the FY 2015 payment 

determination, when there are certain 

extraordinary circumstances beyond the 

control of the LTCH. We are proposing 

to continue to use this previously 

finalized process. 

In the event that an LTCH seeks to 

request a submission exception or 

extension for quality reporting 

purposes, the LTCH must request an 

exception or extension within 30 days 

of the date that the extraordinary 

circumstances occurred by submitting a 

written request to CMS via email to the 

LTCH mailbox at LTCHQRP

Reconsiderations@cms.hhs.gov. 

Exception or extension requests sent to 

CMS through any other channel will not 

be considered as a valid request for an 

exception or extension from the 

LTCHQR Program’s reporting 

requirements for any payment 

determination. The written request must 

contain all of the finalized requirements 

in the FY 2014 IPPS/LTCH PPS final 

rule, and on our Web site at: http://

www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/

LTCH-Quality-ReportingReconsideration-and-Disaster-WaiverRequests.html. 

When an exception or extension is 

granted, an LTCH will not incur 

payment reduction penalties for failure 

to comply with the requirements of the 

LTCHQR Program, for the timeframe 

specified by CMS. If an LTCH is granted 

an exception, we will not require that 

the LTCH submit any quality data for a 

given period of time. If we grant an 

extension to an LTCH, the LTCH will 

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still remain responsible for submitting 

quality data collected during the 

timeframe in question, although we will 

specify a revised deadline by which the 

LTCH must submit this quality data. 

In addition, in the FY 2014 IPPS/

LTCH PPS final rule, we finalized a 

policy that allowed CMS to grant 

exceptions or extensions to LTCHs that 

have not requested them if it is 

determined that extraordinary 

circumstances affects an entire region or 

locale. We stated that if this 

determination was made, we will 

communicate this decision through 

routine communication channels to 

LTCHs and vendors, including, but not 

limited to, issuing memos, emails, and 

notices at: http://www.cms.gov/

Medicare/Quality-Initiatives-PatientAssessment-Instruments/LTCH-QualityReporting/index.html. More information 

on the LTCHQR Program exception and 

extension requirements and processes, 

and all related announcements may be 

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

Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/

index.html. 

For the FY 2017 payment 

determination and subsequent years, we 

are proposing that we may grant an 

exception or extension to LTCHs if we 

determine that a systemic problem with 

one of our data collection systems 

directly affected the ability of the LTCH 

to submit data. Because we do not 

anticipate that these types of systemic 

errors will happen often, we do not 

anticipate granting a waiver or 

extension on this proposed basis 

frequently. We are proposing that if we 

make the determination to grant an 

exception or extension, we would 

communicate this decision through 

routine communication channels to 

LTCHs and vendors, including, but not 

limited to, issuing memos, emails, and 

notices on our Web site at: http://

www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/

index.html. 

We invite public comment on these 

proposals. 

14. Proposed LTCHQR Program 

Reconsideration and Appeals 

Procedures for the FY 2016 Payment 

Determination and Subsequent Years 

a. Previously Finalized LTCHQR 

Program Reconsideration and Appeals 

Procedures for the FY 2014 and FY 2015 

Payment Determinations 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50885 through 50887), we 

finalized a voluntary process that 

allowed LTCHs the opportunity to seek 

reconsideration of our initial 

noncompliance decision for the FY 2014 

and FY 2015 payment determinations. 

We refer readers to that rule for a 

discussion of this process. 

b. Proposed LTCHQR Program 

Reconsideration and Appeals 

Procedures for the FY 2016 Payment 

Determination and Subsequent Years 

For the FY 2016 payment 

determination and subsequent years, we 

are proposing to adopt an updated 

process, as described below, that will 

enable an LTCH to request a 

reconsideration of our initial 

noncompliance decision in the event 

that an LTCH believes that it was 

incorrectly identified as being subject to 

the 2-percentage point reduction to its 

annual payment due to noncompliance 

with the LTCHQR Program reporting 

requirements for a given reporting 

period. 

For the FY 2016 payment 

determination, and subsequent years, 

we are proposing that an LTCH would 

receive a notification of noncompliance 

if we determine that the LTCH did not 

submit data in accordance with section 

1886(m)(5)(C) of the Act with respect to 

the applicable fiscal year and that the 

LTCH is therefore subject to a 2- 

percentage point reduction in the 

applicable payment determination as 

required by section 1886(m)(5)(A)(i) of 

the Act. We would only consider 

requests for reconsideration after an 

LTCH has been found to be 

noncompliant and not before. 

An LTCH would have 30 days from 

the date of the initial notification of 

noncompliance to review its payment 

determination and submit to us a 

request for reconsideration. This 

proposed time frame would allow us to 

balance our desire to ensure that LTCHs 

have the opportunity to request 

reconsideration with our need to 

complete the process and provide 

LTCHs with our reconsideration 

decision in a timely manner. 

Notifications of noncompliance and any 

subsequent notifications from CMS 

would be sent via a traceable delivery 

method, such as certified U.S. mail or 

registered U.S. mail. We are proposing 

that an LTCH may withdraw its request 

at any time and may file an updated 

request within the proposed 30-day 

deadline. We also are proposing that, in 

very limited circumstances, we may 

grant a request by an LTCH to extend 

the proposed deadline for 

reconsideration requests. It would be 

the responsibility of an LTCH to request 

an extension and demonstrate that 

extenuating circumstances existed that 

prevented the filing of the 

reconsideration request by the proposed 

deadline. 

We also are proposing that as part of 

the LTCH’s request for reconsideration, 

the LTCH would be required to submit 

all supporting documentation and 

evidence demonstrating: (1) Full 

compliance with all LTCHQR Program 

reporting requirements during the 

reporting period; or (2) extenuating 

circumstances that affected 

noncompliance if the LTCH was not 

able to comply with the requirements 

during the reporting period. We would 

not review any reconsideration request 

that fails to provide the necessary 

documentation and evidence along with 

the request. The documentation and 

evidence may include copies of any 

communications that demonstrate its 

compliance with the program’s 

requirements, as well as any other 

records that support the LTCH’s 

rationale for seeking reconsideration. A 

sample list of acceptable supporting 

documentation and evidence, as well as 

instructions for LTCHs to retrieve copies 

of the data submitted to CMS for the 

appropriate program year can be found 

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

Medicare/Quality-Initiatives-PatientAssessment-Instruments/LTCH-QualityReporting/LTCH-Quality-ReportingReconsideration-and-Disaster-WaiverRequests.html. 

We are proposing that an LTCH 

wishing to request a reconsideration of 

our initial noncompliance 

determination would be required to do 

so by submitting an email to the 

following email address: LTCHQRP

Reconsiderations@cms.hhs.gov. Any 

request for reconsideration submitted to 

us by an LTCH would be required to 

follow the guidelines outlined on our 

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

Medicare/Quality-Initiatives-PatientAssessment-Instruments/LTCH-QualityReporting/LTCH-Quality-ReportingReconsideration-and-Disaster-WaiverRequests.html. 

Following receipt of a request for 

reconsideration, we will provide— 

• An email acknowledgment, using 

the contact information provided in the 

reconsideration request, to the CEO or 

CEO-designated representative that the 

request has been received; and 

• Once we have reached a decision 

regarding the reconsideration request, 

an email to the LTCH CEO or CEOdesignated representative, using the 

contact information provided in the 

reconsideration request, regarding our 

decision. 

We are proposing to require an LTCH 

that believes it was incorrectly 

identified as being subject to the 2- 

percentage point reduction to its annual 

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payment update to submit a timely 

request for reconsideration and receive 

a decision on that request before the 

LTCH can file an appeal with the PRRB. 

If the LTCH is dissatisfied with the 

decision rendered at the reconsideration 

level, the LTCH could appeal the 

decision with the PRRB under 42 CFR 

405.1835. We believe this proposed 

process is more efficient and less costly 

for CMS and for LTCHs because it 

decreases the number of PRRB appeals 

by resolving issues earlier in the 

process. Additional information about 

the reconsideration process including 

requirements for submitting a 

reconsideration request is posted on our 

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

Medicare/Quality-Initiatives-PatientAssessment-Instruments/LTCH-QualityReporting/LTCH-Quality-ReportingReconsideration-and-Disaster-WaiverRequests.html. 

We invite public comment on the 

proposed procedures for reconsideration 

and appeals. 

15. Electronic Health Records (EHR) and 

Health Information Exchange (HIE) 

We are also interested in 

understanding the current state of 

electronic health record (EHR) adoption 

and use of Health Information Exchange 

(HIE) in the LTCH community. 

Therefore, we are soliciting feedback 

and input from LTCHs and the public 

on EHR adoption and HIE usage. We are 

especially interested in LTCH feedback 

and input on the following questions: 

• Have you adopted an EHR in your 

LTCH setting? 

• If your LTCH setting uses EHRs, 

what functional aspects of EHRs do you 

find most important (for example, the 

ability to send or receive transfer of care 

information; the ability to support 

medication orders/medication 

reconciliation)? 

• Does the EHR system used in your 

LTCH setting support interoperable 

document exchange with other 

healthcare providers (for example, acute 

care hospitals, physician practices, 

skilled nursing facilities, etc.)? 

In addition to seeking public feedback 

and input on the feasibility and 

desirability of EHR adoption and use of 

HIE in LTCHs, we are also interested in 

public comment on the need to develop 

electronic clinical quality measures, and 

the benefits and limitations of 

implementing these measures for 

LTCHs. 

D. Electronic Health Record (EHR) 

Incentive Program and Meaningful Use 

(MU) 

1. Background 

The HITECH Act (Title IV of Division 

B of the ARRA, together with Title XIII 

of Division A of the ARRA) authorizes 

incentive payments under Medicare and 

Medicaid for the adoption and 

meaningful use of certified electronic 

health record (EHR) technology 

(CEHRT). We refer to this program as 

the EHR Incentive Program. Eligible 

hospitals (EHs) and critical access 

hospitals (CAHs) may qualify for these 

incentive payments under Medicare (as 

authorized under sections 1886(n) and 

1814(l) of the Act, respectively) if they 

successfully demonstrate meaningful 

use of CEHRT, which includes reporting 

on clinical quality measures (CQMs) 

using CEHRT. Sections 1886(b)(3)(B) 

and 1814(l) of the Act also establish 

downward payment adjustments under 

Medicare, beginning with fiscal year 

2015, for eligible hospitals and CAHs 

that are not meaningful users of CEHRT 

for certain associated reporting periods. 

We refer to this part of the EHR 

Incentive Program as the Medicare EHR 

Incentive Program. Sections 

1903(a)(3)(F) and 1903(t) of the Act 

provide the statutory basis for Medicaid 

incentive payments. 

The set of CQMs from which eligible 

hospitals and CAHs will report under 

the EHR Incentive Program beginning in 

FY 2014 is listed in Table 10 of the EHR 

Incentive Program Stage 2 final rule (77 

FR 54083 through 54087). We continue 

to believe there are important synergies 

with respect to the Medicare EHR 

Incentive Program and the Hospital IQR 

Program. We believe the financial 

incentives under the Medicare EHR 

Incentive Program for the adoption and 

meaningful use of CEHRT by EHs and 

CAHs will encourage the adoption and 

use of CEHRT for the electronic 

reporting of CQMs under the Hospital 

IQR Program. We expect that the 

electronic submission of quality data 

from EHRs under the EHR Incentive 

Program will provide a foundation for 

establishing the capacity of hospitals to 

send, and for CMS to receive, CQMs via 

CEHRT for certain Hospital IQR 

Program measures. 

2. Alignment of the Medicare EHR 

Incentive Program Reporting and 

Submission Timelines for Clinical 

Quality Measures With Hospital IQR 

Program Reporting and Submission 

Timelines 

We believe it is important to continue 

our goal of aligning the EHR Incentive 

Program with the Hospital IQR Program 

because alignment of these programs 

will serve to reduce hospital reporting 

burden and encourage the adoption and 

meaningful use of CEHRT by eligible 

hospitals and CAHs. Section 

1886(n)(3)(B)(iii) of the Act requires 

that, in selecting measures and 

establishing the form and manner for 

reporting measures under the EHR 

Incentive Program, the Secretary shall 

seek to avoid redundant or duplicative 

reporting with reporting otherwise 

required, including reporting under 

section 1886(b)(3)(B)(viii) of the Act (the 

Hospital IQR Program). The reporting 

and submission timelines for the EHR 

Incentive Program for eligible hospitals 

and CAHs currently operate on a 

Federal fiscal year basis, while the 

reporting and submission timelines for 

the Hospital IQR Program currently 

operate on a calendar year basis. This 

difference may create confusion and 

additional burden for hospitals 

attempting to report data to both 

programs. To alleviate this possible 

confusion, reduce provider burden, and 

strengthen our commitment to aligning 

programs, we are proposing to align the 

reporting and submission periods for 

clinical quality measures for the 

Medicare EHR Incentive Program with 

that of the Hospital IQR Program on a 

calendar year basis in 2015 and 2016. 

We realize that aligning the Medicare 

EHR Incentive Program to the calendar 

year would mean shifting the timeline 

for reporting and submission of CQMs 

such that the submission period would 

continue through February of the 

subsequent calendar year rather than 

ending in November as it is currently 

done, and therefore would delay the 

incentive eligibility assessment, and 

subsequently delay the EHR incentive 

payments under Medicare made to 

eligible hospitals and CAHs. In order to 

ease the transition of the reporting 

period to the calendar year, and to 

prevent the delay of Medicare EHR 

incentive payments, we are proposing to 

incrementally shift the Medicare EHR 

Incentive Program reporting periods for 

CQMs. Specifically, for 2015 and 2016, 

we are proposing for the Medicare EHR 

Incentive Program to require calendar 

year reporting for CQM data that are 

submitted electronically, but require 

that the data be reported only for the 

first three calendar quarters (that is, 

January through March, April through 

June and July through September) 

allowing the reporting period, incentive 

eligibility assessment, and incentive 

payments to remain on their current 

schedule. 

We note that this proposal would only 

apply for eligible hospitals and CAHs 

submitting CQMs electronically for 2015 

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and 2016, and that hospitals 

demonstrating meaningful use for the 

first time in 2015 or 2016 would still be 

required to report CQMs by attestation 

for a continuous 90-day period in FY 

2015 or 2016, or report CQMs 

electronically for a 3-month calendar 

year quarter, by July 1 of the given year 

to avoid the Medicare penalty in the 

subsequent year as finalized in the FY 

2014 IPPS/LTCH PPS final rule (78 FR 

50903 through 50905). Medicaid-only 

providers would continue to report 

according to State requirements. The 

proposal would not change the 

reporting periods or requirements for 

the meaningful use objectives and 

associated measures under 42 CFR 495.6 

or for CQMs that are reported by 

attestation via the Registration and 

Attestation System. This proposal 

would allow us to align the CQM 

reporting periods for the Medicare EHR 

Incentive Program with that of the 

Hospital IQR Program without delaying 

payment of the Medicare EHR incentive 

payments for 2015 and 2016. 

To further align CQM reporting for the 

two programs, we are proposing to 

require quarterly reporting of 

electronically reported CQMs for the 

Medicare EHR Incentive Program to 

align with the currently established 

quarterly electronic CQM reporting 

periods for the Hospital IQR Program. 

Additionally, the Hospital IQR Program 

is proposing to change its submission 

period for electronic CQMs from annual 

to quarterly submission in this rule. We 

refer readers to the Hospital IQR 

Program discussion in section IX.A.7.h. 

of the preamble of this proposed rule for 

more information about this proposal. 

Therefore, for the CY 2015 and 2016 

reporting periods, we are also proposing 

to align the Medicare EHR Incentive 

Program submission period with that 

being proposed for the Hospital IQR 

Program. The table below illustrates the 

current reporting periods, and the 

following table further illustrates our 

proposals. 

CURRENT (2014) TIMELINES FOR EHR INCENTIVE PROGRAM AND HOSPITAL IQR PROGRAM REPORTING AND SUBMISSION

EHR incentive program CQM reporting requirements Hospital IQR program reporting requirements for FY 

2016 payment determination 

2014 Reporting Period ...... FY 2014 October 1, 2013– 

September 30, 2014.

Report one full year OR .... Q4 CY 2013 ...................... October 1, 2013–December 31, 2013. N/A for 

2014 Hospital IQR Program reporting. 

Report one three-month 

quarter OR.

Q1 CY 2014 ...................... January 1–March 31, 

2014. 

Report any continuous 90- 

day period.

Q2 CY 2014 ...................... April 1–June 30, 2014. 

Q3 CY 2014 ...................... July 1–September 30, 

2014. 

Submission Period ............ Jan 2, 2014–Nov 30, 2014 October 1, 2013–November 30, 2014. 

PROPOSED TIMELINES TO ALIGN THE EHR INCENTIVE PROGRAM WITH PROPOSED HOSPITAL IQR PROGRAM REPORTING

AND SUBMISSION

CY EHR incentive program 

reporting requirements * 

Hospital IQR program reporting 

requirements Submission period ** 

2015 Reporting Period .. Q1 ... January 1–March 31, 2015 ....... January 1–March 31, 2015 ....... Data must be submitted by May 30, 

2015. 

Q2 ... April 1–June 30, 2015 ............... April 1–June 30, 2015 ............... Data must be submitted by August 30, 

2015. 

Q3 ... July 1–September 30, 2015 ...... July 1–September 30, 2015 ...... Data must be submitted by November 

30, 2015. 

Q4 ... N/A for EHR Incentive Program October 1–December 31, 2015 For Hospital IQR Program, data must 

be submitted by February 28, 2016. 

2016 Reporting Period .. Q1 ... January 1–March 31, 2016 ....... January 1–March 31, 2016 ....... Data must be submitted by May 30, 

2016. 

Q2 ... April 1–June 30, 2016 ............... April 1–June 30, 2016 ............... Data must be submitted by August 30, 

2016. 

Q3 ... July 1–September 30, 2016 ...... July 1–September 30, 2016 ...... Data must be submitted by November 

30, 2016. 

Q4 ... N/A for EHR Incentive Program October 1–December 31, 2016 For Hospital IQR Program, data must 

be submitted by February 28, 2017. 

* Calendar year alignment and quarterly reporting for 2015 and 2016 would apply for electronically reported CQM data only. 

** Proposed EHR Incentive Program and Hospital IQR Program submission period would allow data submission on an ongoing basis starting 

January 2 of the reporting year, and ending approximately 60 days after the end of the quarter. 

We invite public comment on these 

proposals. 

3. Quality Reporting Data Architecture 

Category III (QRDA–III) Option in 2015 

In the EHR Incentive Program Stage 2 

final rule (77 FR 54088), we finalized 

two options for eligible hospitals and 

CAHs to electronically submit CQMs 

beginning in FY 2014 under the 

Medicare EHR Incentive Program. 

Option 1 was to electronically submit 

aggregate-level CQM data using QRDA– 

III. Option 2 was to electronically 

submit data using a method similar to 

the 2012 and 2013 EHR Incentive 

Program electronic reporting pilot for 

EHs and CAHs, which used QRDA–I 

(patient-level data). We also stated in 

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that final rule that, consistent with 

section 1886(n)(3)(B)(ii) of the Act, in 

the event the Secretary does not have 

the capacity to receive CQM data 

electronically, eligible hospitals and 

CAHs that are beyond their first year of 

meaningful use may continue to report 

aggregate CQM results through 

attestation. 

We noted in the FY 2014 IPPS/LTCH 

PPS final rule (78 FR 50904 through 

50905) that we had determined that the 

electronic submission of aggregate-level 

data using QRDA–III would not be 

feasible in 2014 for eligible hospitals 

and CAHs under the Medicare EHR 

Incentive Program. Therefore, for the 

2014 reporting period under the 

Medicare EHR Incentive Program, 

eligible hospitals and CAHs would have 

the option to continue to report 

aggregate CQM results through 

attestation. We stated that we would 

reassess this policy for the 2015 and 

future reporting periods. 

We have determined that the 

electronic submission of aggregate-level 

data using QRDA–III will not be feasible 

in 2015 for eligible hospitals and CAHs 

under the Medicare EHR Incentive 

Program. Therefore, for the 2015 

reporting period under the Medicare 

EHR Incentive Program, eligible 

hospitals and CAHs would have the 

option to continue to report aggregate 

CQM results through attestation. We 

note that submissions of aggregate CQM 

data via attestation would not satisfy the 

reporting requirements for the Hospital 

IQR Program, and consistent with our 

proposal above regarding alignment of 

these programs, attested CQM data 

would need to be submitted for one full 

fiscal year in 2015 via the Registration 

and Attestation System, and would not 

require quarterly submissions. Hospitals 

in their first year of demonstrating 

meaningful use in 2015 would still be 

required to report CQMs by attestation 

for a continuous 90-day period in FY 

2015, or report CQMs electronically for 

a 3-month calendar year quarter, by July 

1, 2015 to avoid the Medicare penalty in 

FY 2016 as finalized in the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50903 

through 50905). We also note that this 

policy does not apply to the Medicaid 

EHR Incentive Program. Therefore, 

States may still require the submission 

of QRDA–III files to fulfill the CQM 

reporting requirements for hospitals that 

participate in the Medicaid EHR 

Incentive Program. 

In order to remain aligned with the 

Hospital IQR Program, and because over 

66 percent of hospitals that participate 

in the Hospital IQR Program are already 

meaningful users, we strongly 

recommend that hospitals that are 

eligible to participate in both programs 

electronically submit up to 16 electronic 

clinical quality measures of the 28 

inpatient measures identified by the 

Hospital IQR Program. We believe that 

keeping the two programs aligned will 

ultimately reduce reporting burden for 

hospitals. We note again that reporting 

via attestation would not count towards 

the reporting requirements for the 

Hospital IQR Program. 

4. Electronically Specified Clinical 

Quality Measures (CQMs) Reporting for 

2015 

In the EHR Incentive Program Stage 2 

final rule, we finalized the CQMs that 

eligible hospitals and CAHs would be 

required to report for purposes of 

meeting the CQM component of 

meaningful use under the EHR Incentive 

Program starting in 2014 (77 FR 54083 

through 54077 Table 10). These CQMs 

are updated routinely to account for 

changes, including but not limited to 

changes in billing and diagnosis codes 

and changes in medical practices. The 

requirements specified in the EHR 

Incentive Program Stage 2 final rule 

allow for the reporting of different 

versions of the CQMs. For 2015, it is not 

technically feasible for CMS to accept 

data that is electronically reported 

according to the specifications of the 

older versions of the CQMs, including 

versions that may be allowed for 

reporting under the EHR Incentive 

Program. We stated in the EHR 

Incentive Program Stage 2 final rule 

that, consistent with section 

1886(n)(3)(B)(ii) of the Act, in the event 

that the Secretary does not have the 

capacity to receive CQM data 

electronically, eligible hospitals and 

CAHs may continue to report aggregate 

CQM results through attestation (77 FR 

54088). We are proposing that eligible 

hospitals and CAHs that seek to report 

CQMs electronically under the Medicare 

EHR Incentive Program must use the 

most recent version of the electronic 

specifications for the CQMs and have 

CEHRT that is tested and certified to the 

most recent version of the electronic 

specifications for the CQMs. 

Eligible hospitals and CAHs that do 

not wish to report CQMs electronically 

using the most recent version of the 

electronic specifications (for example, if 

their CEHRT has not been certified for 

that particular version) would be 

allowed to report CQM data by 

attestation for the Medicare EHR 

Incentive Program. 

We invite public comment on these 

proposals. 

5. Clarification Regarding Reporting 

Zero Denominators 

As we stated in the EHR Incentive 

Program Stage 2 final rule (77 FR 54079) 

we expect eligible hospitals and CAHs 

to adopt EHR technology that includes 

CQMs relevant to each eligible 

hospital’s or CAH’s patient mix. We 

understand, however, that there are 

situations in which an eligible hospital 

or CAH does not have data to report on 

a particular CQM, and its EHR is not 

certified to additional CQMs that can be 

used to replace that CQM with another 

for which it has data. For example, a 

health system with multiple eligible 

hospitals or CAHs may have an EHR 

certified for 16 CQMs, which is the 

minimum number of required CQMs for 

reporting, but not all of the eligible 

hospitals or CAHs in the health system 

may have cases to report on those 

particular 16 CQMs. We have received 

questions on how eligible hospitals and 

CAHs should meet their reporting 

requirements in this situation; therefore, 

we are clarifying our policy as set forth 

below regarding the reporting of a zero 

denominator for the purposes of the 

EHR Incentive Program and the Hospital 

IQR Program. 

If the eligible hospital’s or CAH’s EHR 

is certified to a CQM, but the eligible 

hospital or CAH does not have patients 

that meet the denominator criteria of 

that CQM, the eligible hospital or CAH 

can submit a zero in the denominator 

for that CQM. Submission of a zero in 

the denominator for a CQM counts as a 

successful submission for that CQM for 

both the EHR Incentive Program and the 

Hospital IQR Program. For example, if 

the eligible hospital or CAH within the 

previously mentioned health system 

does not provide maternity services, but 

one of the 16 CQMs the health system’s 

EHR is certified to is a maternity 

measure, that eligible hospital’s or 

CAH’s EHR may render a zero in the 

denominator for that CQM. The eligible 

hospital or CAH would therefore report 

a zero denominator for that maternity 

care CQM, and this would count toward 

the 16 required CQMs for the EHR 

Incentive Program and the Hospital IQR 

Program. Eligible hospitals or CAHs 

within that health system for which that 

maternity CQM does apply would 

provide data on that measure. 

6. Case Threshold Exemption Policy; 

Clarification for 2014 and Proposed 

Change for 2015 

In the EHR Incentive Program—Stage 

2 final rule (77 FR 54080), we finalized 

the policy that eligible hospitals and 

CAHs that have 5 or fewer discharges 

per quarter in the same quarter as their 

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reporting period in FY 2014, or 20 or 

fewer discharges per full FY reporting 

period beginning in FY 2015, for which 

data are being electronically submitted 

(Medicare and non-Medicare combined) 

as defined by the clinical quality 

measure’s denominator population are 

exempted from reporting the CQM. To 

be eligible for the exemption, eligible 

hospitals and CAHs must submit their 

aggregate population and sample size 

counts for Medicare and non-Medicare 

discharges for the CQM for the reporting 

period. 

In the Health Information Technology: 

Revisions to the 2014 Edition Electronic 

Health Record Certification Criteria; and 

Medicare and Medicaid Programs; 

Revisions to the Electronic Health 

Record Incentive Program interim final 

rule, we revised the case threshold 

exemption policy to make it applicable 

for eligible hospitals and CAHs in all 

stages of meaningful use beginning with 

FY 2013, including those that are 

demonstrating meaningful use for the 

first time and submitting CQMs by 

attestation (77 FR 72988 through 72989). 

Eligible hospitals and CAHs with 5 or 

fewer discharges during the relevant 

EHR reporting period (if attesting to a 

90-day EHR reporting period), or 20 or 

fewer discharges during the year (if 

attesting to a full year EHR reporting 

period) as defined by the CQM’s 

denominator population would be 

exempted from reporting on that CQM. 

We stated in the interim final rule (77 

FR 72989) that beginning in FY 2014, 

the reporting requirement is to report 16 

CQMs covering at least 3 domains from 

a list of 29 CQMs. We stated further that 

in order to be exempted from reporting 

fewer than 16 CQMs, the eligible 

hospital or CAH would need to qualify 

for the case threshold exemption for 

more than 13 of the 29 CQMs. If the 

eligible hospital or CAH does not meet 

the criteria for a case threshold 

exemption for 13 or more CQMs, the 

eligible hospital or CAH would be able 

to report at least 16 CQMs. Likewise, we 

stated that if the CQMs for which the 

eligible hospital or CAH can meet the 

case threshold of discharges do not 

cover at least 3 domains, the eligible 

hospital or CAH would be exempt from 

the requirement to cover the remaining 

domains. For example, if the eligible 

hospital or CAH does not meet the case 

threshold of discharges for 13 clinical 

quality measures, and thus could report 

16 clinical quality measures, but the 16 

clinical quality measures cover only 2 of 

the 3 domains, the eligible hospital or 

CAH would be exempt from covering 

the third domain. 

For the reporting periods in 2014, our 

policy requires that an eligible hospital 

or CAH that claims a case threshold 

exemption for one CQM must choose 

another CQM on which to submit data, 

or continue to invoke the case threshold 

exemption until it exceeds 13 case 

threshold exemptions and may therefore 

report fewer than the 16 required CQMs. 

This policy assumes that the eligible 

hospital or CAH has an EHR that is 

certified to more than the minimum of 

16 CQMs, and the eligible hospital or 

CAH has other CQMs in its EHR to 

choose from for reporting. We realize, 

however, that there could be many 

EHRs that are certified to only the 

minimum of 16 CQMs required by 

ONC’s regulations at 45 CFR 170.102 

(the definition of ‘‘Base EHR’’), and for 

eligible hospitals and CAHs using those 

EHRs, this policy may result in the 

eligible hospital or CAH needing to 

submit data on a CQM for which the 

EHR is not certified. It was not our 

intent to have eligible hospitals or CAHs 

report on measures for which their 

EHRs are not certified. 

Beginning with the reporting periods 

in 2015, we are proposing to change the 

case threshold exemption policy so that 

if an eligible hospital or CAH qualifies 

for an exemption from reporting on a 

particular CQM, the exemption would 

count toward the 16 required CQMs. For 

example, if the eligible hospital’s or 

CAH’s EHR is certified to report 16 

CQMs, and for one of those CQMs the 

eligible hospital or CAH has 5 or fewer 

discharges during the relevant EHR 

reporting period (if attesting to a 90-day 

EHR reporting period), or 20 or fewer 

discharges during the year (if attesting 

to a full year EHR reporting period) as 

defined by the CQM’s denominator 

population, the eligible hospital or CAH 

would report data for the 15 CQMs for 

which the case threshold exemption 

does not apply, and invoke a case 

threshold exemption for the one CQM 

for which the exemption does apply for 

a total of 16 CQMs. 

We expect eligible hospitals and 

CAHs to adopt EHR technology that 

includes CQMs relevant to the eligible 

hospital’s or CAH’s case mix, though we 

understand that in some cases, the 

eligible hospital or CAH may not meet 

the case threshold of discharges for a 

particular CQM. We believe this 

proposed policy better reflects our 

intent for eligible hospitals and CAHs to 

report on only those measures for which 

their EHRs are certified while meeting 

the reporting requirements for the EHR 

Incentive Program and Hospital IQR 

Program. 

We invite public comment on this 

proposal. 

X. Proposed Revision of Regulations 

Governing Use and Release of Medicare 

Advantage Risk Adjustment Data 

A. Background 

Section 1853 of the Act requires the 

Secretary to make payments to Medicare 

Advantage (MA) organizations offering 

local and regional MA plans with 

respect to coverage of individuals 

enrolled under Medicare Part C. Section 

1853(a)(1)(C) of the Act requires the 

Secretary to adjust such payments for 

such risk factors as age, disability status, 

gender, institutional status, and such 

other factors as the Secretary determines 

appropriate, including health status. To 

support these risk adjustments, section 

1853(a)(3)(B) of the Act requires 

submission of data by MA organizations 

regarding the services provided to 

enrollees and other information the 

Secretary deems necessary but does not 

limit the Secretary’s use of such data or 

information. In addition, section 1106 of 

the Act authorizes the Secretary to 

adopt regulations governing release of 

information gathered in the course of 

administering programs under the Act. 

Implementing regulations at 42 CFR 

422.310 set forth the requirements for 

the submission of risk adjustment data 

that CMS uses to risk-adjust payments. 

MA organizations must submit data, in 

accordance with CMS instructions, to 

characterize the context and purposes of 

items and services provided to their 

enrollees by a provider, supplier, 

physician, or other practitioner. Section 

422.310(d)(1) provides that MA 

organizations submit risk adjustment 

data to CMS as specified by CMS. This 

includes comprehensive data equivalent 

to Medicare fee-for-service claims data 

(often referred to as encounter data) or 

data in abbreviated formats. Section 

422.310(f) currently specifies CMS’ uses 

of the risk adjustment data. 

In this proposed rule, we are 

proposing to revise the existing 

regulation at § 422.310(f) to broaden the 

specified uses of risk adjustment data in 

order to strengthen program 

management and increase transparency 

in the MA program and to specify the 

conditions for release of risk adjustment 

data to entities outside of CMS. 

B. Proposed Regulatory Changes 

1. Proposed Expansion of Uses and 

Reasons for Disclosure of Risk 

Adjustment Data 

We are first proposing to revise a 

reference in existing § 422.310(f) (now 

proposed paragraph (f)(1)) from ‘‘data 

obtained under this section’’ to ‘‘data 

described in paragraphs (a) through (d) 

of this section’’ in order to indicate that 

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the data used or released under 

proposed paragraph (f)(1) would not 

include the medical records and other 

data collected separately under 

paragraph (e) for the purpose of risk 

adjustment data validation (RADV) 

audits. We do not intend for the 

proposed § 422.310(f) to authorize any 

additional use or release of the data 

described in paragraph (e). The data 

described in paragraphs (a) through (d) 

would include those elements that 

constitute an encounter data record, 

including contract, plan, and provider 

identifiers, with the exception of 

disaggregated payment data as 

discussed below. In addition, we note 

that paragraph (d)(1) also authorizes the 

collection of abbreviated data. 

The existing regulation at § 422.310(f) 

specifies five purposes for which CMS 

may use risk adjustment data obtained 

from MA organizations. We are 

clarifying in this proposed rule that 

CMS’ uses of these data may include 

disclosure to CMS contractors or other 

agents that perform activities or 

analyses on CMS’ behalf in connection 

with authorized use of the data. The 

existing specified purposes are: (1) To 

determine the risk adjustment factors 

used to adjust payments, as required 

under §§ 422.304(a) and (c); (2) to 

update risk adjustment models; (3) to 

calculate Medicare DSH percentages; (4) 

to conduct quality review and 

improvement activities; and (5) for 

Medicare coverage purposes. Under our 

proposal, paragraph (f) would be 

restructured to identify the purposes for 

which CMS may use and release risk 

adjustment data and to impose certain 

conditions on any release of that data. 

We are proposing to revise paragraph 

(f) to add four purposes for which CMS 

may use risk adjustment data submitted 

by MA organizations: (1) To conduct 

evaluations and other analysis to 

support the Medicare program 

(including demonstrations) and to 

support public health initiatives and 

other health care-related research; (2) for 

activities to support the administration 

of the Medicare program; (3) for 

activities conducted to support program 

integrity; and (4) for purposes permitted 

by other laws. These new authorized 

purposes are proposed at 

§ 422.310(f)(1)(vi) through (f)(1)(ix). In 

general, we anticipate that 

comprehensive risk adjustment data 

submitted by MA organizations, which 

MA organizations began submitting to 

CMS effective CY 2012, will enable 

CMS to generate improved data analyses 

that could support Medicare program 

evaluations, demonstration designs, and 

CMS’ effective and efficient operational 

management of the Medicare program. 

Risk adjustment data also could be 

useful to support public health 

initiatives by governmental entities and 

to advance health care-related research 

by universities and other research 

organizations. We also believe that risk 

adjustment data can support CMS’ 

program integrity activities in the 

Medicare program and other Federal 

health care and related programs; we 

intend this general term to encompass 

audits, investigations, efforts to combat 

waste, fraud, and abuse, and any other 

actions designed to ensure that the 

program operates within its authority. 

This includes audits, evaluations, and 

investigations by the Office of the 

Inspector General (OIG) as well as CMS’ 

own efforts. In addition, risk adjustment 

data may be useful in supporting 

Medicare administrative activities, such 

as the review of the validity of bid and 

medical loss ratio data submitted by MA 

organizations. Finally, we are proposing 

to acknowledge that other laws may 

permit other uses of risk adjustment 

data and that this regulation is not 

intended to supersede such other laws. 

Regarding the use of risk adjustment 

data outside of CMS, we are proposing 

at § 422.310(f)(2) that other HHS 

agencies, other Federal executive branch 

agencies, States, and external entities 

would only be able to obtain from CMS 

and use risk adjustment data for one or 

more of the purposes listed in proposed 

paragraph (f)(1). An external entity may 

be an individual, group, or organization. 

We anticipate that other HHS agencies 

and other Federal executive branch 

agencies may request this data for the 

same purposes CMS proposes to use the 

data and believe such use is 

appropriate. Under our proposal, other 

agencies that evaluate and analyze the 

Medicare program, perform health carerelated research, support public health 

initiatives, perform activities in the 

administration of the Medicare program, 

or conduct activities to support program 

integrity in the Medicare program and 

other Federal health care and related 

programs would be able to access and 

use risk adjustment data for these 

purposes. States, such as while 

conducting program integrity activities 

for Medicaid programs or in the 

administration of Medicare-Medicaid 

demonstrations (for example, refer to 

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

Medicare-Medicaid-Coordination/

Medicare-and-Medicaid-Coordination/

Medicare-Medicaid-CoordinationOffice/FinancialAlignmentInitiative/

FinancialModelstoSupportStatesEfforts

inCareCoordination.html), may access 

and use risk adjustment data under this 

proposal. We anticipate that 

nongovernmental external entities 

would generally only gain access to risk 

adjustment data under this proposal in 

connection with public health 

initiatives and health care-related 

research, as such external entities 

appear to have limited, if any, roles in 

the other purposes identified in our 

proposal. 

CMS is seeking to balance protection 

of confidential beneficiary information 

and the proprietary interests of MA 

organizations with the need to 

effectively administer Federal health 

care programs and to encourage research 

into better ways to provide health care. 

CMS is seeking public comments on the 

proposed uses and release of data and 

how else to achieve the necessary 

balance. In particular, we are soliciting 

public comment on the extent to which 

a commercial purpose underlying a 

request for risk adjustment data should 

be a factor in evaluating whether the 

request is for one of the purposes that 

permit a disclosure under this 

regulation or if one of the purposes in 

paragraph (f)(1) of § 422.310, for which 

CMS would disclose data under this 

section, should address commercial 

uses of the data. 

2. Proposed Conditions for CMS Release 

of Data 

The existing regulations at § 422.310 

do not specify conditions for release by 

CMS of risk adjustment data that are 

submitted by MA organizations to CMS. 

We are proposing to add a paragraph (2) 

to § 422.310(f) to address CMS’ release 

of such data to non-CMS entities. First, 

as discussed above in connection with 

proposed paragraph (f)(1), our proposal 

is limited to the risk adjustment data 

described in § 422.310(a) through (d) 

and does not include the medical 

records and other data collected 

separately under paragraph (e) for the 

purpose of risk adjustment data 

validation (RADV) audits. We do not 

intend for the proposed revision to 

§ 422.310(f) to authorize any additional 

use or release of the data described in 

paragraph (e). 

Second, we are proposing that CMS 

would release only the minimum data 

that CMS determines is necessary to 

fulfill the analytical or operational goal 

for a particular project. In other words, 

CMS may determine that the 

appropriate data release for an approved 

research project is a subset of encounter 

data records requested to conduct the 

proposed inquiry (instead of all 

encounter data in CMS’ systems for all 

years and provider types) or is a subset 

of the abbreviated data requested. 

Third, we are proposing that CMS 

may release data under this authority to 

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Federal executive branch agencies, 

States, and external entities, only for 

purposes identified in paragraph (f)(1) 

(discussed above) and subject to a 

number of additional limitations: (i) 

Applicable Federal laws; (ii) CMS data 

sharing procedures; (iii) protection of 

beneficiary identifier elements and 

beneficiary confidentiality, including: 

(A) a prohibition against public 

disclosure of beneficiary identifying 

information; (B) release of beneficiary 

identifying information to other HHS 

agencies, other Federal executive branch 

agencies, Congressional support 

agencies, and States only when such 

information is needed to accomplish the 

purpose(s) of the disclosure; and (C) 

release of beneficiary identifying 

information to external entities only to 

the extent needed to link datasets; and 

(iv) the aggregation of payment data to 

protect commercially sensitive data. 

These limitations are included at 

proposed paragraphs (f)(2)(i) through 

(f)(2)(iv), respectively, of § 422.310. We 

are soliciting public comment on other 

conditions or limitations on the release 

of this data that will help maintain a 

balance between protecting confidential 

and proprietary information with the 

need to effectively administer Federal 

health care programs and to encourage 

research into better ways to provide 

health care. 

Under the provisions at proposed 

§ 422.310(f)(2)(iv), we would not release 

payment data at the encounter level. We 

believe that release of payment data at 

the level of the encounter record might 

reveal proprietary negotiated payment 

rates between MA plans and providers. 

Given the commercially sensitive nature 

of this information, we are not 

proposing to release payment data at the 

level of the encounter record. In the 

interest of providing as much 

transparency as possible, while at the 

same time protecting proprietary 

information, we are proposing to 

authorize release of aggregate payment 

information. For example, we could 

aggregate the payment data by service 

category, by plan, by contract, or across 

contracts. We are seeking public 

comments on these or other approaches 

to aggregating payment data for release 

and whether the specified options are 

sufficiently aggregated to protect 

commercially sensitive information. In 

addition, we are seeking public 

comment on our conclusion that 

releasing payment rates at the level of 

the encounter data record would reveal 

proprietary negotiated payment rates. 

Specifically, we are requesting public 

comment on what strategies might be 

used under which payment data could 

be released while protecting 

commercially sensitive information. 

To the extent that a requestor has 

separate statutory authority for requiring 

CMS disclosure of data, these proposed 

provisions do not limit or supersede 

such authority. For example, some 

Congressional support agencies may 

compel release of data under separate 

statutory authority, such as 31 U.S.C. 

716; 2 U.S.C. 166(d)(1) and 601(d); and 

section 1805 of the Act (42 U.S.C. 

1395b–6), for the purposes of 

conducting Congressional oversight, 

monitoring, making recommendations 

and analysis of the Medicare program. 

In addition, the OIG has separate 

statutory authority under section 1128J 

of the Act (42 U.S.C. 1320a–7k), coupled 

with section 6(a) of the Inspector 

General Act of 1978 (5 U.S.C. App. 3) 

authorizing the OIG to access data as 

necessary to perform its responsibilities. 

This regulation would not limit that 

authority. 

3. Proposed Technical Change 

We are proposing to amend § 422.300, 

which identifies the basis and scope of 

the regulations for payments to MA 

organizations, to add a reference to 

section 1106 of the Social Security Act, 

which governs the release of 

information gathered in the course of 

administering our programs under the 

Act. 

XI. Proposed Changes to Enforcement 

Provisions for Organ Transplant 

Centers 

A. Background 

In February 2004, the Office of the 

Inspector General (OIG) published a 

report entitled ‘‘Medicare-Approved 

Heart Transplant Centers’’ (OEI–01–02– 

00520), in which the OIG outlined three 

recommendations for CMS’ oversight of 

heart transplant centers: (1) That CMS 

expedite the development of continuing 

criteria for volume and survival-rate 

performance and for periodic 

recertification; (2) that CMS develop 

guidelines and procedures for taking 

actions against centers that do not meet 

Medicare criteria for volume and 

survival-rate performance requirements; 

and (3) that CMS take immediate steps 

to improve its ability to maintain 

accurate and timely data regarding the 

performance of transplant centers. 

As part of CMS’ efforts to strengthen 

oversight of organ transplant centers, we 

published the final rule ‘‘Medicare 

Program: Hospital Conditions of 

Participation, Requirements for 

Approval and Reapproval of Transplant 

Centers To Perform Organ Transplants’’ 

on March 30, 2007 in the Federal 

Register (72 FR 15198) that established 

conditions of participation (CoPs) for 

organ transplant centers and applied the 

survey and certification enforcement 

process (that is used for all other 

providers and suppliers of Medicare 

services) to Medicare-approved 

transplant centers. In the preamble of 

that final rule, we discussed our efforts 

to improve organ donation and 

transplantation services and our goals 

to: (1) Protect patients who are awaiting 

organs for transplantation; (2) establish 

key quality and procedural standards; 

and (3) improve outcomes for patients 

(such as patient survival) and reduce 

Medicare expenses by decreasing the 

likelihood that a transplant would fail. 

In the March 30, 2007 final rule, we 

codified the CoPs for transplant centers 

at 42 CFR Part 482, Subpart E (§§ 482.68 

through 482.104) and the special 

procedures for approval and re-approval 

of organ transplant centers at 42 CFR 

488.61. The CoPs set forth explicit 

expectations for outcomes, patient 

safety, informed choice, and quality of 

transplantation services. In particular, 

§§ 482.80 and 482.82 specify that a 

transplant center’s outcomes are not 

acceptable if, among other factors, the 

number of observed patient deaths or 

graft failures 1 year after receipt of a 

transplant exceeds the risk-adjusted 

expected number by 1.5 times, based on 

the most recent program-specific report 

from the Scientific Registry of 

Transplant Recipients (SRTR). 

Failure to meet the transplant center 

requirements will lead CMS to deny 

approval or re-approval of a center’s 

Medicare participation under § 488.61. 

However, §§ 488.61(a)(4) and (c)(4) 

authorize CMS to consider mitigating 

factors when determining approval and 

re-approval, respectively, for a 

transplant center that has not met the 

data submission, clinical experience, or 

outcome requirements, or other CoPs, if 

the center submits a formal, written 

request for such a review. The existing 

regulations do not limit the factors that 

CMS may consider, but enumerates, at 

a minimum, the following factors to be 

considered: (1) The extent to which 

outcome measures are met or exceeded; 

(2) the availability of Medicareapproved transplant centers in the area; 

and (3) extenuating circumstances that 

may have a temporary effect on a 

transplant center meeting the 

requirements under the CoPs, such as a 

natural disaster. CMS approval or reapproval based on mitigating factors 

permits a transplant center to operate as 

a Medicare-approved transplant center 

under certain circumstances despite a 

finding of noncompliance. Under 

existing regulations at 

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§§ 488.61(b)(4)(iv) and (c)(4)(iv), CMS 

will not approve a center with 

condition-level deficiencies but may reapprove a center with standard-level 

deficiencies. 

B. Basis for Proposals in This Proposed 

Rule 

In this proposed rule, we are 

proposing to strengthen, clarify, and 

provide additional transparency for the 

survey, certification, and enforcement 

procedures under § 488.61 for transplant 

centers that are requesting initial 

approval or re-approval for participation 

in the Medicare program when the 

centers have not met one or more of the 

CoPs but wish to have certain mitigating 

factors taken into consideration. 

1. Proposed Expansion of Mitigating 

Factors Based on CMS’ Experience 

The existing organ transplant 

enforcement regulation at § 488.61 does 

not provide detailed information on the 

factors generally needed for approval or 

re-approval of a request based on 

mitigating factors that a transplant 

center may make in order to participate, 

or continue to participate, in Medicare. 

However, since the adoption of the 

organ transplant CoPs and 

corresponding enforcement regulations, 

we have expanded our knowledge 

regarding: (a) The factors and processes 

that promote improvement in transplant 

center outcomes; and (b) other 

mitigating factors that merit explicit 

recognition under CMS regulations. 

The preponderance of requests for 

initial approval or re-approval based on 

mitigating factors that we have 

approved are for the transplant centers 

that have been able to effect substantial 

program improvements and, based on 

meaningful post-transplant survival 

data, demonstrated much-improved 

patient and graft survival subsequent to 

those program reforms. These 

performance improvements occurred 

after the program was cited for 

substandard performance by CMS and 

was at risk of losing Medicare 

participation, usually while the program 

was operating during the mitigating 

factors review process or under a 

binding Systems Improvement 

Agreement (SIA) with CMS. Under an 

SIA, CMS agrees to extend the effective 

date of a prospectively scheduled 

termination from Medicare participation 

(that is, denial of re-approval) and holds 

in temporary abeyance a final review of 

the transplant center’s mitigating factors 

request if the transplant center agrees to 

engage in a structured regimen of 

quality improvement to improve 

performance during a specified period 

of time. At the end of the SIA period 

(typically 12 months), we review the 

transplant center’s performance and 

make a final decision as to whether: (a) 

The transplant center’s patient and graft 

survival is within the acceptable limits 

set forth in the regulations; or (b) the 

transplant center qualifies for approval 

or re-approval based on mitigating 

factors. 

As of August 2013, CMS had rendered 

a final determination for 129 requests 

for approval to operate as a Medicareapproved transplant center based on 

mitigating factors. Of those 

determinations, 48 of the requests (37.8 

percent) were approved based on 

information provided by the transplant 

center on its mitigating factors alone 

(that is, without entering into an SIA) 

because the transplant center had 

implemented substantial program 

improvements during the extended CMS 

review period, and CMS concluded that 

the most recent patient and graft 

survival data (taking into consideration 

the lag time in data inherent in the 

SRTR reports) demonstrated compliance 

with outcome requirements; 33 of the 

requests (25.6 percent) were eventually 

approved on the basis of the transplant 

center’s successful SIA completion and 

much-improved outcomes data for the 

affected program; 24 of the requests 

(18.6 percent) involved transplant 

centers that were approved and the 

transplant centers were permitted to 

continue operation because CMS 

determined that the transplant centers 

met the outcome requirements during 

the time period it took for CMS to 

review the mitigating factors request; 2 

of the requests (1.6 percent) were 

approved where the transplant center 

did not enter into a SIA but had made 

extensive use of innovative practices 

that were not included in the SRTR riskadjustment methodology; 2 of the 

requests (1.6 percent) were approved 

because natural disasters temporarily 

impacted the transplant centers; and 20 

of the requests (15.5 percent) were 

denied because the center failed to meet 

the outcome or clinical experience 

requirements and therefore voluntarily 

withdrew its participation from the 

Medicare program. 

2. Coordination With Efforts of the 

Organ Procurement and Transplantation 

Network (OPTN) and Health Resources 

and Services Administration 

When we adopted the outcome 

standards for transplant programs in 

2007, we sought to harmonize CMS’ 

outcome standards with standards of the 

Organ Procurement and Transplantation 

Network (OPTN) so that transplant 

centers would have a single, consistent 

set of outcome expectations on which to 

focus. We also sought to organize CMS 

activities in a manner that would 

reinforce and continue the OPTN as the 

first line of external review and quality 

improvement for transplant centers. 

The OPTN is the unified transplant 

network established under the National 

Organ Transplant Act (NOTA) of 1984. 

The NOTA called for the network to be 

operated by a private, nonprofit 

organization under Federal contract. 

The OPTN is a public-private 

partnership that links all of the 

professionals involved in the donation 

and transplantation system. The 

primary goals of the OPTN are to: (a) 

Increase the effectiveness and efficiency 

of organ-sharing and equity in the 

national system of organ allocation; and 

(b) increase the supply of donated 

organs available for transplantation. For 

more details about the OPTN, we refer 

readers to the Web site at: http://

optn.transplant.hrsa.gov/optn/

profile.asp. 

The OPTN and the Health Resources 

and Services Administration (HRSA) are 

considering adoption of an alternative 

methodology for calculating expected 

transplant outcomes, known as the 

‘‘Bayesian’’ methodology, and for setting 

a threshold that would ‘‘flag’’ a 

transplant center for OPTN review of 

performance. However, CMS has 

insufficient experience with the new 

‘‘Bayesian’’ methodology, and 

insufficient data to determine an 

appropriate threshold for a Medicare 

outcomes deficiency under a 

‘‘Bayesian’’ methodology. Therefore, we 

are not proposing any changes in our 

regulations regarding this new 

methodology. However, we wish to 

continue to coordinate with, and 

reinforce, the OPTN’s efforts if the 

OPTN chooses to adopt a new 

methodology. Therefore, we are 

proposing that if a program has been 

cited for an outcomes deficiency by 

CMS, but has not been flagged for 

review by the OPTN, CMS would take 

these facts into consideration if the 

transplant program has requested 

approval based on mitigating factors. 

For a perspective on the ‘‘Bayesian’’ 

methodology, we refer readers to the 

Web site at: http://www.srtr.org/faqs/

16.aspx. 

C. Provisions of the Proposed 

Regulations 

We are proposing to revise the 

regulations at § 488.61 to include 

specific additional provisions 

describing and expanding the mitigating 

factors that CMS may consider when 

determining requests and explain the 

conditions under which each factor 

would apply. 

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1. Proposed Expansion of Mitigating 

Factors List 

Existing §§ 488.61(a)(4) and (c)(4) 

provide three specific mitigating factors 

for review by CMS when determining 

whether a transplant center can be 

approved or re-approved, respectively, 

based on mitigating factors. These 

mitigating factors are: (1) The extent to 

which outcome measures are met or 

exceeded; (2) the availability of 

Medicare-approved transplant centers in 

the area; and (3) extenuating 

circumstances that may have a 

temporary effect on meeting the CoPs. 

We are proposing to move the listing of 

mitigating factors from paragraphs 

(a)(4)(i) through (a)(4)(iii) and (c)(4)(i) 

through (c)(4)(iii) to new proposed 

paragraphs (f), (g), and (h) under 

§ 488.61, and to include additional 

factors under these three new proposed 

paragraphs that may be reviewed in 

addition to the existing three factors. We 

are proposing to move existing 

paragraphs (a)(4)(iv) and (c)(4)(iv) to the 

proposed new paragraph (g)(2). We also 

are proposing to provide clarification of 

the existing three mitigating factors and 

the conditions under which they would 

apply. Finally, we are proposing to 

revise existing paragraphs (a)(4) and 

(c)(4) of § 488.61 to include crossreferences to the new proposed 

paragraphs (f), (g), and (h). 

Under proposed new paragraph (f) of 

§ 488.61, we are proposing to relist the 

existing three mitigating factors under 

paragraphs (a)(4)(i) through (a)(4)(iii) 

and paragraphs (c)(4)(i) through 

(c)(4)(iii) and expand the mitigating 

factors that CMS may consider by 

adding more description to those 

factors, as well as by adding new factors 

for review. We also are proposing to 

specify the procedures and timeframes 

for transplant centers to request 

consideration for approval based on 

mitigating factors. 

Specifically, in proposed new 

paragraph (f)(1), we are proposing to 

specify the mitigating factors, except for 

situations of immediate jeopardy, as 

follows: 

• The extent to which outcome 

measures are not met or exceeded 

(existing paragraphs (a)(4)(i) and 

(c)(4)(i); now proposed paragraph 

(f)(1)(i)). 

• Availability of Medicare-approved 

transplant centers in the area (existing 

paragraphs (a)(4)(ii) and (c)(4)(ii); now 

proposed paragraph (f)(1)(ii)). 

• Extenuating circumstances (for 

example, natural disaster) that may have 

a temporary effect on meeting the CoPs 

(existing paragraphs (a)(4)(iii) and 

(c)(4)(iii); now proposed paragraph 

(f)(1)(iii)). 

• Program improvements that 

substantially address root causes of graft 

failures or patient deaths and that have 

been implemented and institutionalized 

on a sustainable basis (proposed new 

paragraph (f)(1)(iv)). 

• Recent patient and graft survival 

data to determine if there is sufficient 

clinical experience and survival for 

CMS to conclude that the program is in 

compliance with CMS requirements, 

except for the data lag inherent in the 

reports from the SRTR (proposed new 

paragraph (f)(1)(v)). 

• Extensive use of innovative 

transplantation practices relative to 

other transplant programs, such as a 

high rate of transplantation of 

individuals who are highly sensitized or 

children who have undergone the 

Fontan procedure, where CMS finds 

that the innovative practices are 

supported by evidence-based, published 

research or nationally recognized 

standards or Institutional Review Board 

(IRB) approvals, and the SRTR riskadjustment methodology does not take 

the relevant key factors into 

consideration (proposed new paragraph 

(f)(1)(vi)). 

• The program’s performance, based 

on the OPTN method of calculating 

patient and graft survival, is within the 

OPTN’s thresholds for acceptable 

performance and does not flag OPTN 

performance review under the 

applicable OPTN policy (proposed new 

paragraph (f)(1)(vii)). 

Under proposed new paragraph (f)(2), 

we are proposing to include details on 

the content of the request for 

consideration of mitigating factors, 

based on examples that have proven to 

be most useful in considering successful 

mitigating requests. Specifically, we are 

proposing that a request for 

consideration of mitigating factors 

include sufficient information to permit 

an adequate review and understanding 

of the transplant program, the factors 

that have contributed to outcomes, 

program improvements or innovations 

that have been implemented or planned, 

and, in the case of natural disasters, the 

recovery actions planned. Examples of 

information to be submitted with each 

request could include, but are not 

limited to, the following: 

(i) The name and contact information 

for the transplant hospital and the 

names and roles of key personnel of the 

transplant program; 

(ii) The type of organ transplant 

program(s) for which approval is 

requested; 

(iii) The CoPs that the program failed 

to meet, and with respect to which the 

transplant center is requesting CMS’ 

review of mitigating factors; 

(iv) The rationale and relevant 

supporting evidence for CMS’ review 

must include, but not be limited to— 

Æ Root Cause Analysis of patient 

deaths and graft failures, including 

factors the program has identified as 

likely causal or contributing factors for 

patient deaths and graft failures; 

Æ Program improvements or 

innovations (where applicable) that 

have been implemented and 

improvements that are planned; 

Æ Patient and donor/organ selection 

criteria and evaluation protocols, 

including methods for pre-transplant 

patient evaluation by cardiologists, 

hematologists, nephrologists, and 

psychiatrists or psychologists, to the 

extent applicable; 

Æ Organizational chart with full-time 

equivalent levels, roles, and structure 

for reporting to hospital leadership; 

Æ Waitlist management protocols and 

practices relevant to outcomes; 

Æ Pre-operative management 

protocols and practices; 

Æ Immunosuppression/infection 

prophylaxis protocols; 

Æ Post-transplant monitoring and 

management protocols and practices; 

Æ Quality Assessment and 

Performance Improvement (QAPI) 

Program meeting minutes from the most 

recent four meetings and attendance 

rosters from the most recent 12 months; 

Æ Quality dashboard and other 

performance indicators; 

Æ Recent outcomes data for both 

patient survival and graft survival; and 

Æ Documentation of whether the 

program has engaged with the OPTN to 

review program outcomes, the status of 

any such review, and any steps taken to 

address program outcomes in 

accordance with the OPTN review. 

Under proposed new paragraph (f)(3), 

we are proposing to specify a timeline 

for the transplant program to submit a 

request for mitigating factors and to 

make clear that, for requests related to 

clinical experience or outcomes, the 

program has additional time within 

which to submit supporting 

information. Specifically, we are 

proposing that within 10 days after CMS 

has issued formal written notice of a 

condition-level deficiency to the 

program, CMS must receive notice of 

the program’s request to seek 

consideration of mitigating factors. CMS 

would require that all information 

necessary for consideration be received 

within 30 days of CMS’ initial 

notification for any deficiency, except a 

deficiency based on insufficient clinical 

experience or outcomes; and within 120 

days of CMS’ written notification for a 

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28286 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

deficiency based on insufficient clinical 

experience or outcomes. Failure of a 

transplant program to meet these 

timeframes may be the basis for denial 

of requests for consideration based on 

mitigating factors. 

2. Content and Timeframe for Mitigating 

Factors Requests 

Under proposed new § 488.61(g), we 

propose to clarify and expand on the 

description of the mitigating factors 

application and review process. Under 

existing regulations, a transplant center 

seeking initial approval or re-approval 

of Medicare participation based on the 

presence of mitigating factors is 

required to submit a formal written 

request to the CMS Central Office, as 

described earlier. If there are no 

deficiencies that constitute immediate 

jeopardy to a patient’s health and safety, 

in limited circumstances, CMS may 

approve continued Medicare 

participation based on mitigating 

factors. However, where a transplant 

program demonstrates that it is making 

significant progress toward correction 

and program improvement, but does not 

yet qualify for approval based on 

mitigating factors, we believe there may 

be merit in many cases to temporarily 

extend the effective date of the 

program’s Medicare participation 

termination in exchange for a hospital’s 

agreement to engage in a significant and 

directed regimen of further quality 

improvement under a Systems 

Improvement Agreement (SIA). As we 

noted above, programs that have entered 

into SIAs have demonstrated significant 

improvements. Therefore, we are 

proposing to provide an explicit 

procedure in the regulations at proposed 

new § 488.61(g)(1)(iii) for CMS to offer 

an SIA and hold in abeyance a final 

decision on the mitigating factors 

request until the SIA period has ended. 

Proposed new paragraphs (g)(1)(i), 

(g)(1)(ii), and (g)(1)(iii) outline the three 

outcomes of CMS mitigating factors 

decisions: (i) Initial approval or reapproval of a program’s Medicare 

participation based upon consideration 

of mitigating factors; (ii) denial of the 

program’s request; or (iii) offer of a timelimited SIA when a transplant program 

has waived its appeal rights, has 

committed to substantial program 

improvements that address root causes 

and are institutionally supported by the 

hospital’s governing body on a 

sustainable basis, and has requested 

more time to design or implement 

additional improvements or 

demonstrate compliance with CMS 

outcome requirements. The proposed 

new paragraph (g)(1)(iii) would clarify 

that, during the SIA, CMS holds the 

mitigating factors request in abeyance 

and makes a final decision to approve 

or deny Medicare participation when 

the SIA is ended, based on the results 

of the program’s performance of the SIA. 

Existing regulations at 

§§ 488.61(a)(4)(iv) and (c)(4)(iv)) state 

that CMS will not approve any program 

with a condition-level deficiency. 

However, CMS could approve a program 

with a standard-level deficiency upon 

receipt of an acceptable plan of 

correction. A condition-level deficiency 

represents a serious classification and, 

unless the deficiency is remedied, 

precludes a provider from participating 

in Medicare. A standard-level 

deficiency represents a less serious 

deficiency, such as one in which just a 

small part of a CoP is found to be out 

of compliance. We are proposing to 

move this to the proposed new 

paragraph § 488.61(g)(2). 

3. System Improvement Agreements 

(SIAs) 

We are proposing to add proposed 

new paragraph (h) to § 488.61 to set 

forth the purpose, intent, and contents 

of an SIA and the timeframes for an 

approved SIA with CMS. 

a. Purpose and Intent of an SIA 

Based on information and 

documentation provided by the 

transplant program at the time of its 

request, CMS may determine that, 

despite a deficiency or deficiencies, the 

transplant center has made substantial 

progress, has full support of the hospital 

governing body, and is on a quality 

improvement path that promises to 

improve prospects for patient survival. 

In such cases, we exercise our limited 

discretion to offer the transplant 

program the opportunity to enter into an 

SIA. In the absence of a written request 

for consideration on the basis of 

mitigating factors, CMS would 

otherwise proceed with the proposed 

date of termination based on 

noncompliance with one or more of the 

CoPs. In this proposed regulation, we 

are clarifying and specifying the terms 

for such SIAs. 

CMS may offer an SIA to a transplant 

program if the transplant center can 

show that it has identified, or is actively 

improving its identification of, the root 

causes of its noncompliance and if the 

transplant center has initiated actions to 

correct those root causes. However, if 

we conclude that a transplant center 

does not qualify for initial approval or 

re-approval based on mitigating factors, 

the proposed rule would explicitly 

provide CMS with the option of offering 

a time-limited SIA to those transplant 

centers that have demonstrated progress 

in making substantive program 

improvements to address root causes of 

deficient outcomes, agree to undertake a 

structured regimen of further quality 

improvement, and agree to waive their 

appeal rights. In some instances, a 

voluntary period of inactivity of the 

transplant center is warranted, or a 

period of inactivity may be required by 

CMS as a condition of an SIA approval, 

as a requirement of initiating an SIA for 

a specified period, or until certain 

milestones are achieved. 

During the SIA period, CMS’ 

oversight and enforcement authority 

continue and CMS may conduct routine 

unannounced surveys, complaint 

investigations, and/or terminate the 

transplant center’s participation in the 

Medicare program if there is not 

substantial compliance with Federal 

requirements under 42 CFR Part 482 or 

if the program fails to follow the terms 

of the SIA. In consideration for the 

opportunity to continue to participate in 

the Medicare program under an SIA 

during the time that structured 

improvements and corrections are 

made, despite having been found to be 

in noncompliance with the 

requirements, a transplant center would 

be required to waive any appeal rights 

that they may have, either 

administratively or judicially, if CMS 

ultimately terminates Medicare 

participation or denies initial approval 

of the transplant center. We are 

proposing that such a waiver applies, 

regardless of whether revocation or 

termination of approval/re-approval 

occurs due to a finding that the hospital 

failed to fulfill the terms of the SIA or 

due to the deficiency findings that the 

SIA was designed to address, pursuant 

to CMS’ enforcement authority under 

the regulations. 

A transplant center’s approval to 

operate as a Medicare-approved 

transplant center does not guarantee any 

subsequent re-approvals and may be 

time-limited. The transplant center must 

submit a separate request for 

consideration of mitigating factors, 

including updated supporting 

documentation each time a CMS review 

(generally a 3–5 year cycle) or complaint 

investigation determines that the 

transplant center does not meet one or 

more of the data submission, clinical 

experience, and outcomes requirements, 

or other CoPs. At such time, we would 

review any prior mitigating factors 

approval to determine if the 

circumstances that originally warranted 

approval would still apply. However, in 

the case of past mitigating factors 

approval based on innovative practice, 

CMS may seek information in advance 

of a recertification survey to determine 

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185Hamilton, Thomas E., Regulatory Oversight in 

Transplantation: Are Patients Really Better Off, 

Curr Opin Organ Transplant 2013, 18:203–209. 

Available at: at http://www.co-transplantation.com. 

if the reasons for past approval still 

prevail and, in such a case, CMS may 

consider mitigating factors 

concomitantly with the recertification 

survey. 

b. Description and Contents of an SIA 

The SIA is a binding agreement 

between CMS and the hospital within 

which a transplant center operates. A 

transplant center, in turn, may have one 

or more organ-specific programs, such 

as a heart, kidney, pancreas, liver, or 

lung transplant program. Each SIA is 

focused on a particular organ transplant 

program. The SIA is a plan for a series 

of actions, activities, and goals that 

provide opportunities for the hospital 

and transplant center to conduct 

internal improvement analysis and 

action, and engage external experts to 

ensure that the transplant center is in 

compliance with evidence-based 

standards and advances in the field that 

would optimize the care provided to 

patients. 

Through an SIA, CMS is able to offer 

transplant centers additional time to 

achieve compliance with the CoPs 

through a structured and monitored 

process. In particular, the use of the 

formal SIA process reflects CMS’ 

recognition that it may sometimes 

require more than the usual time to 

correct the 1-year post-transplant 

patient or graft survival and have the 

results of such improvement become 

manifest in the tracking data, or to 

develop and implement a plan to correct 

low-volume performance rates. We 

generally do not expect to use an SIA in 

cases of noncompliance with other 

CoPs, although we do not preclude such 

a possibility if highly unusual 

circumstances are present. 

The SIA process (discussed in more 

detail below) has demonstrated 

effectiveness in improving patient and 

graft survival. An important measure of 

outcome is the extent to which observed 

patient deaths 1 year after transplant 

compare with the risk-adjusted expected 

number of deaths or graft failure for a 

particular transplant program. The 

SRTR risk adjustment methodology 

(used to calculate the expected 

numbers) takes into consideration the 

organs transplanted and the 

characteristics of the donors and 

recipients (for example, factors that 

have a bearing on the risk to patient or 

graft survival, such as diabetes, 

hypertension, advanced age, cold 

ischemic time of the organ to be 

transplanted, among others). For 

example, the national number of 

expected deaths 1 year after transplant 

for all transplant centers in the United 

States is 1.0. A transplant center that 

had twice the expected number of 

deaths would have a standardized 

mortality ratio (SMR) of 2.0. As of 

August 2013, adult kidney transplant 

programs cited by CMS for substandard 

outcomes and placed on a Medicare 

enforcement track, for which there was 

a 2-year post-CMS survey tracking 

period (N=15), improved their average 

SMR for 1-year post-transplant patient 

survival performance rate from 2.05 to 

1.17 (close to the 1.0 national average). 

The transplant centers under an 

approved SIA improved their outcomes 

from an average SMR ranging from 2.41 

before the SIA to 0.76 after the SIA 

(much better than the national average). 

Transplant centers not cited for 

substandard kidney transplant outcomes 

improved outcomes slightly from 0.89 to 

0.84.185

The proposed new § 488.61(h) 

explicitly incorporates and specifies 

elements that have been important to 

the successful use of the SIA structure. 

We propose to define an SIA as a 

binding agreement, entered into 

voluntarily by the hospital and CMS, 

through which CMS extends the 

effective date of a prospectively 

scheduled termination of the center’s 

Medicare participation (thereby 

permitting the program additional time 

to achieve compliance with the CoPs), 

contingent on the hospital’s agreement 

to participate in a structured regimen of 

quality improvement activities and 

subsequent demonstration of improved 

outcomes. In some cases, transplant 

programs have entered a period of 

inactivity—voluntarily, or imposed as a 

condition of the SIA. 

Under proposed new § 488.61(h)(1)(i) 

through (h)(1)(x), we are proposing that 

in the SIA, in exchange for additional 

time to initiate or continue activities to 

achieve compliance with the CoPs, the 

transplant center must agree to a 

regimen of specified activities, 

including (but not limited to) all of the 

following: 

• Patient notification about the degree 

and type of noncompliance by the 

program, an explanation of what the 

program improvement efforts mean for 

patients, and financial assistance to 

defray the out-of-pocket costs of 

copayments and testing expenses for 

any wait-listed individual who wishes 

to be listed with another program 

(proposed paragraph (h)(1)(i)). 

• An external independent peer 

review team that conducts an onsite 

assessment of program policies, staffing, 

operations, relationship to hospital 

services, and factors that contribute to 

program outcomes; that suggests quality 

improvements the hospital should 

consider; that provides both verbal and 

written feedback to the hospital; and 

that provides a verbal debriefing to 

CMS. Neither the hospital nor the peer 

review team may be required to provide 

a written report to CMS. The peer 

review team would include a transplant 

surgeon with expertise in the relevant 

organ type(s), a transplant 

administrator, an individual with 

expertise in transplant QAPI systems, a 

social worker or psychologist or 

psychiatrist, and a specialty physician 

with expertise in conditions particularly 

relevant to the applicable organ types(s) 

such as a cardiologist, nephrologist, or 

hepatologist. Except for the transplant 

surgeon, CMS may permit substitution 

of an individual with one type of 

expertise for another individual who 

has expertise particularly needed for the 

type of challenges experienced by the 

program, such as substitution of an 

infection control specialist in lieu of, or 

in addition to, a social worker (proposed 

paragraph (h)(1)(ii)). 

• An action plan that addresses 

systemic quality improvements and is 

updated after the onsite peer review 

(proposed paragraph (h)(1)(iii)). 

• An onsite consultant whose 

qualifications are approved by CMS, 

and who provides services for 8 days 

per month on average for the duration 

of the agreement, except that CMS may 

permit a portion of the time to be spent 

offsite and may agree to fewer 

consultant days each month after the 

first 3 months of the SIA (proposed 

paragraph (h)(1)(iv)). 

• A comparative effectiveness 

analysis that compares policies, 

procedures, and protocols of the 

transplant program with those of other 

programs in areas of endeavor that are 

relevant to the transplant center’s 

current quality improvement needs 

(proposed paragraph (h)(1)(v)). 

• Development of increased 

proficiency, or demonstration of current 

proficiency, with patient-level data from 

the SRTR and the use of registry data to 

analyze outcomes and inform quality 

improvement efforts (proposed 

paragraph (h)(1)(vi)). 

• A staffing analysis that examines 

the level, type, training, and skill of staff 

in order to inform transplant center 

efforts to ensure the engagement and 

appropriate training and credentialing 

of staff (proposed paragraph (h)(1)(vii)). 

• Activities to strengthen 

performance of the Quality Assessment 

and Performance Improvement (QAPI) 

Program to ensure full compliance with 

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the requirements at § 482.96 (proposed 

paragraph (h)(1)(viii)). 

• Monthly (unless otherwise 

specified) reporting and conference calls 

with CMS regarding the status of 

programmatic improvements, the results 

of the actions, data, reports, or other 

deliverables specified in the SIA, and 

regarding the number of transplants, the 

death and graft failures that occur 

within 1 year post-transplant (proposed 

paragraph (h)(1)(ix)). 

• Additional or alternative 

requirements specified by CMS, tailored 

to the transplant program type and 

circumstances (proposed paragraph 

(h)(1)(x)). 

c. Effective Period for an SIA 

Under proposed new § 488.61(h)(2), 

we are proposing to specify that an SIA 

will be established for a 12-month 

period, subject to CMS’ discretion to 

determine if a shorter time period 

would suffice. At the hospital’s request 

and at CMS’s discretion, CMS may 

extend an SIA for up to one additional 

6-month period. 

XII. 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 2014 

‘‘Report to the Congress: Medicare 

Payment Policy’’ and have given the 

recommendations in the report 

consideration in conjunction with the 

proposed policies set forth in this 

proposed rule. MedPAC 

recommendations for the IPPS for FY 

2015 are addressed in Appendix B to 

this proposed rule. 

For further information relating 

specifically to the MedPAC reports or to 

obtain a copy of the reports, contact 

MedPAC at (202) 653–7226, or visit 

MedPAC’s Web site at: http://

www.medpac.gov. 

XIII. Other Required Information 

A. Requests for Data From the Public 

In order to respond promptly to 

public requests for data related to the 

prospective payment system, we have 

established a process under which 

commenters can gain access to raw data 

on an expedited basis. Generally, the 

data are now available on compact disc 

(CD) format. However, many of the files 

are available on the Internet at: http:// 

www.cms.hhs.gov/Medicare/MedicareFee-for-Service-Payment/AcuteInpatient

PPS/index.html. Data files and the cost 

for each file, if applicable, are listed 

below. Anyone wishing to purchase 

data tapes, cartridges, or diskettes 

should submit a written request along 

with a company check or money order 

(payable to CMS–PUF) to cover the cost 

to the following address: Centers for 

Medicare & Medicaid Services, Public 

Use Files, Accounting Division, P.O. 

Box 7520, Baltimore, MD 21207–0520, 

(410) 786–3691. Files on the Internet 

may be downloaded without charge. 

1. CMS Wage Data Public Use File 

This file contains the hospital hours 

and salaries from Worksheet S–3, Parts 

II and III from FY 2011 Medicare cost 

reports used to create the proposed FY 

2015 prospective payment system wage 

index. Multiple versions of this file are 

created each year. For a complete 

schedule on the release of different 

versions of this file, we refer readers to 

the wage index schedule in section III.J. 

of the preamble of this proposed rule. 

Processing 

year 

Wage data 

year 

PPS fiscal 

year 

2014 2011 2015 

2013 2010 2014 

2012 2009 2013 

2011 2008 2012 

2010 2007 2011 

2009 2006 2010 

2008 2005 2009 

2007 2004 2008 

Media: Internet at: http://

www.cms.hhs.gov/AcuteInpatientPPS/

WIFN/list.asp#TopOfPage. 

Periods Available: FY 2007 through 

FY 2015 IPPS Update. 

2. CMS Occupational Mix Data Public 

Use File 

This file contains the 2010 

occupational mix survey data to be used 

to compute the occupational mix 

adjustment wage indexes. Multiple 

versions of this file are created each 

year. For a complete schedule on the 

release of different versions of this file, 

we refer readers to the wage index 

schedule in section III.J. of the preamble 

of this proposed rule. 

Media: Internet at: http://

www.cms.hhs.gov/AcuteInpatientPPS/

WIFN/list.asp#TopOfPage. 

Period Available: FY 2015 IPPS 

Update. 

3. Provider Occupational Mix 

Adjustment Factors for Each 

Occupational Category Public Use File 

This file contains each hospital’s 

occupational mix adjustment factors by 

occupational category. Two versions of 

these files are created each year to 

support the rulemaking. 

Media: Internet at: http://

www.cms.hhs.gov/AcuteInpatientPPS/

WIFN/list.asp#TopOfPage. 

Period Available: FY 2015 IPPS 

Update. 

4. Other Wage Index Files 

CMS releases other wage index 

analysis files after each proposed and 

final rule. 

Media: Internet at: http://

www.cms.hhs.gov/AcuteInpatientPPS/

WIFN/list.asp#TopOfPage. 

Periods Available: FY 2005 through 

FY 2015 IPPS Update. 

5. FY 2015 IPPS SSA/FIPS CBSA State 

and County Crosswalk 

This file contains a crosswalk of State 

and county codes used by the Social 

Security Administration (SSA) and the 

Federal Information Processing 

Standards (FIPS), county name, and a 

historical list of Metropolitan Statistical 

Areas (MSAs). 

Media: Internet at: http://

www.cms.hhs.gov/AcuteInpatientPPS/

FFD/list.asp#TopOfPage. 

Period Available: FY 2015 IPPS 

Update. 

6. HCRIS Cost Report Data 

The data included in this file contain 

cost reports with fiscal years ending on 

or after September 30, 1996. These data 

files contain the highest level of cost 

report status. 

Media: Internet at: http://

www.cms.hhs.gov/CostReports/02_

HospitalCostReport.asp and Compact 

Disc (CD). 

File Cost: $100.00 per year. 

7. Provider-Specific File 

This file is a component of the 

PRICER program used in the MAC’s 

system to compute DRG/MS–DRG 

payments for individual bills. The file 

contains records for all prospective 

payment system eligible hospitals, 

including hospitals in waiver States, 

and data elements used in the 

prospective payment system 

recalibration processes and related 

activities. Beginning with December 

1988, the individual records were 

enlarged to include pass-through per 

diems and other elements. 

Media: Internet at: http://

www.cms.hhs.gov/ProspMedicareFee

SvcPmtGen/03_psf_text.asp. 

Period Available: Quarterly Update. 

8. CMS Medicare Case-Mix Index File 

This file contains the Medicare casemix index by provider number as 

published in each year’s update of the 

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Medicare hospital inpatient prospective 

payment system. The case-mix index is 

a measure of the costliness of cases 

treated by a hospital relative to the cost 

of the national average of all Medicare 

hospital cases, using DRG/MS–DRG 

weights as a measure of relative 

costliness of cases. Two versions of this 

file are created each year to support the 

rulemaking. 

Media: Internet at: http://

www.cms.hhs.gov/AcuteInpatientPPS/

FFD/list.asp#TopOfPage. 

Periods Available: FY 1985 through 

FY 2015. 

9. MS–DRG Relative Weights (Also 

Table 5—MS–DRGs) 

This file contains a listing of MS– 

DRGs, MS–DRG narrative descriptions, 

relative weights, and geometric and 

arithmetic mean lengths of stay for the 

annual rulemaking. There are two 

versions of this file to support the 

rulemaking. (We note that Table 5 is 

issued concurrently with the proposed 

rule and the final rule and is available 

only via the Internet on the CMS Web 

site.) 

Media: Internet at: http://

www.cms.hhs.gov/AcuteInpatientPPS/

FFD/list.asp#TopOfPage. 

Periods Available: FY 2005 through 

FY 2015 IPPS Update. 

10. IPPS Payment Impact File 

This file contains data used to 

estimate payments under Medicare’s 

hospital inpatient prospective payment 

systems for operating and capital-related 

costs. The data are taken from various 

sources, including the Provider-Specific 

File, HCRIS Cost Report Data, Minimum 

Data Sets, and prior impact files. The 

data set is abstracted from an internal 

file used for the impact analysis of the 

changes to the prospective payment 

systems published in the Federal 

Register. Two versions of this file are 

created each year to support the 

rulemaking. 

Media: Internet at: http://

www.cms.hhs.gov/AcuteInpatientPPS/

HIF/list.asp#TopOfPage. 

Periods Available: FY 1994 through 

FY 2015 IPPS Update. 

11. AOR/BOR Tables 

This file contains data used to 

develop the MS–DRG relative weights. It 

contains mean, maximum, minimum, 

standard deviation, and coefficient of 

variation statistics by MS–DRG for 

length of stay and standardized charges. 

The BOR tables are ‘‘Before Outliers 

Removed’’ and the AOR is ‘‘After 

Outliers Removed.’’ (Outliers refer to 

statistical outliers, not payment 

outliers.) 

Two versions of this file are created 

each year to support the rulemaking. 

Media: Internet at: http://

www.cms.hhs.gov/AcuteInpatientPPS/

FFD/list.asp#TopOfPage. 

Periods Available: FY 2005 through 

FY 2015 IPPS Update. 

12. Prospective Payment System (PPS) 

Standardizing File 

This file contains information that 

standardizes the charges used to 

calculate relative weights to determine 

payments under the hospital inpatient 

operating and capital prospective 

payment systems. Variables include 

wage index, cost-of-living adjustment 

(COLA), case-mix index, indirect 

medical education (IME) adjustment, 

disproportionate share, and the Corebased Statistical Area (CBSA). The file 

supports the rulemaking. 

Media: Internet at: http://

www.cms.hhs.gov/AcuteInpatientPPS/

FFD/list.asp#TopOfPage. 

Period Available: FY 2015 IPPS 

Update. 

13. Hospital Readmissions Reduction 

Program File 

This file contains information on the 

calculation of the Hospital 

Readmissions Reduction Program 

payment adjustment. Variables include 

the proxy excess readmission ratios for 

acute myocardial infarction, pneumonia 

and heart failure and the proxy 

readmissions payment adjustment for 

each provider included in the program. 

The file supports the rulemaking. 

Media: Internet at: http://

www.cms.hhs.gov/AcuteInpatientPPS/

FFD/list.asp#TopOfPage. 

Period Available: FY 2015 IPPS 

Update. 

14. Medicare Disproportionate Share 

Hospital (DSH) Supplemental File 

This file contains information on the 

calculation of the uncompensated care 

payments for FY 2015. Variables 

include a hospital’s SSI days and 

Medicaid days used to determine a 

hospital’s share of uncompensated care 

payments, total uncompensated care 

payments and estimated per claim 

uncompensated care payment amounts. 

The file supports the rulemaking. 

Media: Internet at: http://www.cms.

hhs.gov/AcuteInpatientPPS/FFD/list.

asp#TopOfPage. 

Period Available: FY 2015 IPPS 

Update. 

15. Hospital-Acquired Condition (HAC) 

Reduction Program File 

This file contains information on the 

calculation of the payment adjustment 

under the HAC Reduction Program. 

Variables include the current estimate of 

a hospital’s total HAC Score for use in 

the FY 2015 HAC reduction program, 

the associated percentile, and a flag if 

the hospital would be subject to the FY 

2015 reduction under section 1886(p)(1) 

of the Act based on this percentile. The 

file supports the rulemaking. 

Media: Internet at: http://

www.cms.hhs.gov/AcuteInpatientPPS/

FFD/list.asp#TopOfPage. 

Period Available: FY 2015 IPPS 

Update. 

For further information concerning 

these data tapes, contact the CMS Public 

Use Files Hotline at (410) 786–3691. 

Commenters interested in discussing 

any data used in constructing this 

proposed rule should contact Nisha 

Bhat at (410) 786–5320. 

B. Collection of Information 

Requirements 

1. Statutory Requirement for Solicitation 

of Comments 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 60- 

day notice in the Federal Register and 

solicit public comment before a 

collection of information requirement is 

submitted to the Office of Management 

and Budget (OMB) for review and 

approval. In order to fairly evaluate 

whether an information collection 

should be approved by OMB, section 

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

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

In this proposed rule, we are 

soliciting public comment on each of 

these issues for the following sections of 

this document that contain information 

collection requirements (ICRs). 

2. ICRs for Add-On Payments for New 

Services and Technologies 

Section II.I.1. of the preamble of this 

proposed rule discusses add-on 

payments for new services and 

technologies. Specifically, this section 

states that applicants for add-on 

payments for new medical services or 

technologies for FY 2016 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 

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186We note that some of these measures are being 

proposed to be removed as chart-abstracted 

measures, but are being proposed to be retained as 

electronic clinical quality measures. We refer 

readers to section IX.A.2.b. of the preamble of this 

proposed rule for further discussion. 

any clinical evaluations demonstrating 

that the new medical service or 

technology represents a substantial 

clinical improvement. In addition, the 

request must contain a significant 

sample of the data to demonstrate that 

the medical service or technology meets 

the high-cost threshold. 

We believe the burden associated 

with this requirement is exempt from 

the PRA under 5 CFR 1320.3(c), which 

defines the agency collection of 

information subject to the requirements 

of the PRA as information collection 

imposed on 10 or more persons within 

any 12-month period. This information 

collection does not impact 10 or more 

entities in a 12-month period. In FYs 

2008, 2009, 2010, 2011, 2012, 2013, FY 

2014, and FY 2015, we received 1, 4, 5, 

3, 3, 5, 5, and 7 applications, 

respectively. 

3. ICRs for the Proposed Occupational 

Mix Adjustment to the Proposed FY 

2015 Index (Hospital Wage Index 

Occupational Mix Survey) 

Section III.F. of the preamble of this 

proposed rule discusses the 

occupational mix adjustment to the 

proposed FY 2015 wage index, 

respectively. While the preamble of this 

proposed rule does not contain any new 

ICRs, we note that there is an OMB 

approved information collection request 

associated with the hospital wage index. 

Section 304(c) of Public Law 106–554 

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

Act to require CMS to collect data at 

least once every 3 years on the 

occupational mix of employees for each 

short-term, acute care hospital 

participating in the Medicare program 

in order to construct an occupational 

mix adjustment to the wage index. We 

collect the data via the occupational mix 

survey. 

The burden associated with this 

information collection requirement is 

the time and effort required to collect 

and submit the data in the Hospital 

Wage Index Occupational Mix Survey to 

CMS. The aforementioned burden is 

subject to the PRA; it is currently 

approved under OCN 0938–0907. 

4. Hospital Applications for Geographic 

Reclassifications by the MGCRB 

Section III.H.2. of the preamble of this 

proposed rule discusses proposed 

changes to the wage index based on 

hospital reclassifications. As stated in 

that section, under section 1886(d)(10) 

of the Act, the MGCRB has the authority 

to accept short-term IPPS hospital 

applications requesting geographic 

reclassification for wage index 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. The 

burden associated with this requirement 

is subject to the PRA. It is currently 

approved under OCN 0938–0573. 

5. ICRs for Application for GME 

Resident Slots 

The information collection 

requirements associated with the 

preservation of resident cap positions 

from closed hospitals, addressed under 

section IV.J.3. of this preamble, are not 

subject to the Paperwork Reduction Act, 

as stated in section 5506 of the 

Affordable Care Act. 

6. ICRs for the Hospital Inpatient 

Quality Reporting (IQR) Program 

The Hospital IQR Program (formerly 

referred to as the Reporting Hospital 

Quality Data for Annual Payment 

(RHQDAPU) Program) was originally 

established to implement section 501(b) 

of the MMA, Public Law 108–173. This 

program expanded our voluntary 

Hospital Quality Initiative. The Hospital 

IQR Program originally consisted of a 

‘‘starter set’’ of 10 quality measures. The 

collection of information associated 

with the original starter set of quality 

measures was previously approved 

under OMB control number 0938–0918. 

All of the information collection 

requirements previously approved 

under OMB control number 0938–0918 

have been combined with the 

information collection request 

previously approved under OMB 

control number 0938–1022. We no 

longer use OMB control number 0938– 

0918. 

We added additional quality measures 

to the Hospital IQR Program and 

submitted the information collection 

request to OMB for approval. This 

expansion of the Hospital IQR measures 

was part of our implementation of 

section 5001(a) of the DRA. Section 

1886(b)(3)(B)(viii)(III) of the Act, added 

by section 5001(a) of the DRA, requires 

that the Secretary expand the ‘‘starter 

set’’ of 10 quality measures that were 

established by the Secretary as of 

November 1, 2003, to include measures 

‘‘that the Secretary determines to be 

appropriate for the measurement of the 

quality of care furnished by hospitals in 

inpatient settings.’’ The burden 

associated with these reporting 

requirements was previously approved 

under OMB control number 0938–1022. 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53666), we stated that, for 

the FY 2016 payment determinations 

and subsequent years updates, we 

sought OMB approval for a revised 

information collection request using the 

same OMB control number (0938–1022). 

The FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50955) does not change the 

method for information collection 

requests. In a revised request for the FY 

2017 payment determination, we will 

add the 4 claims-based measures that 

we are proposing in this proposed rule: 

(1) Hospital 30-day, all-cause, 

unplanned, risk-standardized 

readmission rate (RSRR) following 

coronary artery bypass graft (CABG) 

surgery; (2) Hospital 30-day, all-cause, 

risk-standardized mortality rate (RSMR) 

following coronary artery bypass graft 

(CABG) surgery; (3) Hospital-level, riskstandardized 30-day episode-of-care 

payment measure for pneumonia; and 

(4) Hospital-level, risk-standardized 30- 

day episode-of-care payment measure 

for heart failure. We will also add the 

chart-abstracted measure we are 

proposing in this proposed rule: Severe 

sepsis and septic shock: management 

bundle (NQF#0500). 

In addition, we believe there will be 

a reduction in the burden associated 

with the removal of 20 total measures 

proposed for removal in this rule: 186 (1) 

AMI–1 Aspirin at Arrival; (2) AMI–3 

ACEI/ARB for left ventricular systolic 

dysfunction; (3) AMI–5 Beta-blocker 

prescribed at discharge; (4) AMI–8a 

Timing of Receipt of Primary 

Percutaneous Coronary Intervention 

(PCI); (5) HF–2 Evaluation of left 

ventricular systolic function; (6) SCIP– 

INF–1 Prophylactic antibiotic received 

within 1 hour prior to surgical incision; 

(7) SCIP–INF–2 Prophylactic antibiotic 

selection for surgical patients; (8) SCIP 

INF–3 Prophylactic antibiotics 

discontinued within 24 hours after 

surgery end time (48 hours for cardiac 

surgery); (9) SCIP INF–4: Cardiac 

surgery patients with controlled 6AM 

postoperative serum glucose; (10) SCIP 

INF–6 Appropriate hair removal; (11) 

SCIP–INF–9 Postoperative urinary 

catheter removal on post-operative day 

1 or 2 with day of surgery being day 

zero; (12) SCIP–VTE–2: Surgery patients 

who received appropriate VTE 

prophylaxis within 24 hours pre/postsurgery; (13) SCIP Cardiovascular-2: 

Surgery Patients on a Beta Blocker prior 

to arrival who received a Beta Blocker 

during the perioperative period; (14) 

PN–6 Appropriate initial antibiotic 

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187 In May 2012, the hourly wage was $18.68. 

Occupational employment and wages, May 2012, 

29–2071 Medical records and health information 

technicians. Bureau of Labor Statistics, http://

www.bls.gov/oes/2012/may/oes292071.htm, last 

accessed 3/31/2014. We increased this wage by 3.0 

percent to account for inflation in the past 24 

months. U.S. Inflation Calculator. http://

www.usinflationcalculator.com/inflation/currentinflation-rates/, last accessed 3/31/2014. 

selection; (15) STK–2 Antithrombotic 

therapy for ischemic stroke; (16) STK– 

3 Anticoagulation therapy for Afib/

flutter; (17) STK–5 Antithrombotic 

therapy by the end of hospital day 2; 

(18) STK–10 Assessed for rehab; and 

(19) VTE–4 Patients receiving unfractionated Heparin with doses/labs 

monitored by protocol, and (20) one 

structural measure: Participation in a 

systematic database for cardiac surgery. 

Because claims-based measures can 

be calculated based on data that are 

already reported to the Medicare 

program for payment purposes, we 

believe no additional information 

collection will be required from the 

hospitals for the four proposed claimsbased measures. However, we believe 

that the proposed chart-abstracted 

measure will cause some additional 

burden. For the FY 2017 payment 

determination, we estimate the burden 

to be 1,775 hours annually per hospital. 

We estimate the total burden for chart 

abstraction and structural measures for 

the approximately 3,300 Hospital IQR 

Program-participating hospitals to be 

5.86 million hours. The table below 

describes the hospital burden associated 

with the all Hospital IQR Program 

requirements. 

BURDEN IMPACT OF HOSPITAL IQR PROGRAM REQUIREMENTS

Hospital IQR program requirement Number of hospitals 

impacted 

Burden per hospital 

for previously finalized 

requirements 

Burden per hospital 

for all requirements as 

proposed 

(continuing, removed, 

added) 

Net change in 

burden per 

hospital 

Chart-abstracted and structural measures, forms .... 3,300 ......................... 1,291 hours ............... 963 hours .................. ¥328 hours. 

Review reports for claims-based measures ............. 3,300 ......................... 4 hours ...................... 4 hours ...................... 0. 

Reporting of voluntary electronic clinical quality 

measures (E–CQM) in place of chart-abstracted 

measures.

Unknown ................... ¥570 hours ............... ¥554 hours ............... 16 hours. 

Validation templates .................................................. Up to 600 .................. 144 hours .................. 144 hours .................. 0. 

E–CQM validation test .............................................. Up to 100 .................. 0 ................................ 16 hours .................... 16 hours. 

Validation charts photocopying ................................. Up to 600 .................. $8,640 ....................... $8,496 ....................... ¥$144. 

In addition, we believe that there will 

be a reduction in burden for 15 of the 

20 chart-abstracted measures that we are 

proposing for removal: (1) AMI–8a 

Timing of Receipt of Primary 

Percutaneous Coronary Intervention 

(PCI); (2) HF–2 Evaluation of left 

ventricular systolic function; (3) SCIP– 

INF–1 Prophylactic antibiotic received 

within 1 hour prior to surgical incision; 

(4) SCIP–INF–2 Prophylactic antibiotic 

selection for surgical patients; (5) SCIP 

INF–3 Prophylactic antibiotics 

discontinued within 24 hours after 

surgery end time (48 hours for cardiac 

surgery); (6) SCIP INF–4: Cardiac 

surgery patients with controlled 6AM 

postoperative serum glucose; (7) SCIP– 

INF–9 Postoperative urinary catheter 

removal on postoperative day 1 or 2 

with day of surgery being day zero; (8) 

SCIP–VTE–2: Surgery patients who 

received appropriate VTE prophylaxis 

within 24 hours pre/postsurgery; (9) 

SCIP Cardiovascular-2: Surgery Patients 

on a Beta Blocker prior to arrival who 

received a Beta Blocker during the 

perioperative period; (10) PN–6 

Appropriate initial antibiotic selection; 

(11) STK–2 Antithrombotic therapy for 

ischemic stroke; (12) STK–3 

Anticoagulation therapy for Afib/flutter; 

(13) STK–5 Antithrombotic therapy by 

the end of hospital day 2; (14) STK–10 

Assessed for rehab; and (15) VTE–4 

Patients receiving un-fractionated 

Heparin with doses/labs monitored by 

protocol. 

The four chart-abstracted measures 

that we are proposing to remove have 

been suspended from the program; 

therefore, their removal will not impact 

the reporting burden. The structural 

measure we have proposed to remove, 

participation in a systematic database 

for cardiac surgery (NQF #0113), has an 

estimated a burden of nearly zero hours; 

therefore, its removal will not result a 

reduction in a significant burden 

reduction. Therefore, for the FY 2017 

payment determination, we estimate a 

reduction in burden from our proposed 

removal of 20 measures (both chartabstracted and structural) to be 1,775 

hours annually per hospital. We 

estimate the total reduction in burden 

for chart abstraction and structural 

measures for the approximately 3,300 

Hospital IQR Program-participating 

hospitals to be 5.86 million hours. 

Utilizing the estimates above, we 

estimate an overall reduction in burden 

from the from the FY 2016 estimate of 

5.9 million hours annually to 3.7 

million hours annually for the FY 2017 

payment determination year. This 

burden estimate includes both the new 

proposed measures and the measures 

which we are reproposing. It excludes 

the burden associated with the NHSN 

and HCAHPS measures, both of which 

are submitted under separate 

information collection requests and are 

approved under separate OMB control 

numbers. 

We intend to enroll up to 100 

hospitals in a voluntary large scale test 

of validation for electronic clinical 

quality measures for the Hospital IQR 

Program. We estimate a total of 16 hours 

each. We intend to reimburse hospitals 

$26 per hour for up to 16 hours for their 

participation in this test. Details 

regarding this reimbursement rate are as 

follows: 

• The labor performed can be 

accomplished by medical records and 

health information technology staff, 

with a mean hourly wage in general 

medical and surgical hospitals of 

$19.24.187

• Applying OMB Circular A–76, we 

assumed full fringe benefits of 36.25 

percent, for a fully burdened labor rate 

of $26.25 per hour, rounding to $26 per 

hour, that accounts for the full cost of 

labor. The circular is available at http:// 

www.whitehouse.gov/sites/default/files/

omb/assets/omb/circulars/a076/a76_

incl_tech_correction.pdf. 

For the FY 2017 payment 

determination, we also are encouraging 

hospitals to voluntarily submit up to 16 

measures electronically for the Hospital 

IQR Program in a manner that would 

permit eligible hospitals to partially 

align Hospital IQR Program 

requirements with some requirements 

under the Medicare EHR Incentive 

Program. We estimate that the total 

burden associated with the electronic 

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188FY 2011 CMS MedPAR file based on Medicare 

data alone. 189Represents the difference between previous 

burden estimate (51,930 hours) in the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50958) and 

current burden estimate (21,643 hours). 190We are now estimating an hourly salary of $33 

(http://swz.salary.com/salarywizard/Staff-Nurse-RN

-Hourly-Salary-Details.aspxper). After accounting 

for employee benefits and overhead, this results in 

a total cost of $66 per labor hour. 

clinical quality measure reporting 

option will be similar to the burden 

outlined for hospitals in the EHR 

Incentive Program Stage 2 final rule (77 

FR 53968 through 54162). As described 

above for participation in the test of 

validation for electronic clinical quality 

metrics in the Hospital IQR Program, we 

believe an individual with 

commensurate skills will submit 

electronic clinical quality measures on 

behalf of the hospital at a rate of 

approximately $26.00 per hour. 

Therefore, we believe it will cost a 

hospital approximately $277.33 ($26.00 

x 10 hours and 40 minutes) to report 16 

electronic clinical quality measures. 

Additional information about the chart 

abstraction burden is detailed in section 

II.K. of Appendix A to this proposed 

rule. 

Previously, we required hospitals to 

provide 96 patient charts for validation 

per hospital per year, including 36 

charts for HAI validation (with an 

average page length of 1,500) and 60 

charts for clinical process of care 

measure validation (with an average 

page length of 300) for a total of 72,000 

pages per hospital per year. For the FY 

2017 payment determination and 

subsequent years, we are proposing to 

reduce this requirement to 72 charts per 

hospital per year, including 40 charts 

for HAI validation and 36 charts for 

clinical process of care validation, for a 

total of 70,800 pages per hospital per 

year—a decrease of 1,200 pages per 

hospital per year. We reimburse 

hospitals at 12 cents per photocopied 

page (68 FR 67956 and 70 FR 23667). 

Therefore, the reduced burden is $144 

per hospital for up to 600 hospitals. 

To support validation of four HAI 

measures for the FY 2017 payment 

determination and subsequent years, we 

estimate an annual burden of 43,200 

hours. This estimate is based on up to 

600 hospitals completing HAI 

Templates averaging 18 hours per 

quarter over 4 quarters. This burden is 

10,800 hours more than that for the FY 

2016 payment determination as 

finalized in the FY 2014 IPPPS/LTCH 

PPS final rule (78 FR 50822 through 

50825) of 32,400 hours because the HAI 

measures are to be validated for 4 

quarters instead of 3 quarters. 

7. ICRs for PPS-Exempt Cancer Hospital 

Quality Reporting (PCHQR) Program 

As discussed in section IX.B. of the 

preamble of this proposed rule, section 

1866(k)(1) of the Act requires, for 

purposes of FY 2014 and each 

subsequent fiscal year, that a hospital 

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

the Act (a PPS-exempt cancer hospital, 

or a PCH) submit data in accordance 

with section 1866(k)(2) of the Act with 

respect to such fiscal year. 

In this proposed rule, we are 

proposing to adopt one new clinical 

effectiveness measure (External Beam 

Radiotherapy for Bone Metastases) for 

the FY 2017 program and subsequent 

years, which, if finalized, would 

increase the total number of measures 

for the FY 2017 PCHQR measure set to 

19 measures. 

We also are proposing to update the 

specifications for the 5 previously 

finalized clinical process/oncology care 

measures to require PCHs to report allpatient data for each of these measures, 

and to adopt a new sampling 

methodology that PCHs can use to 

report these measures. Furthermore, we 

are proposing to require PCHs to submit 

population and sample size counts for 

these measures. 

We believe that requiring PCHs to 

submit the proposed new clinical 

effectiveness measure data as well as the 

proposed sample and population size 

data will not prove burdensome. At 

least seven PCHs are currently reporting 

quality measure data (including 

population and sampling data for 

HCAHPS measures) on a voluntary basis 

to CMS. PCHs may also have experience 

submitting quality and population/ 

sample size data to other entities, such 

as State survey agencies and The Joint 

Commission. As a result, we believe that 

the new reporting requirements we are 

proposing to adopt will not significantly 

impact PCHs. 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50957 through 50959), we 

included burden estimates for the FY 

2015 and FY 2016 programs. We noted 

in that final rule that those estimates 

represented a worst case scenario of 

estimated burden. In this proposed rule, 

we are providing a revised burden 

estimate for FY 2016 and a burden 

estimate for FY 2017. The revised 

estimate for FY 2016 takes into account 

our proposal to adopt a new sampling 

methodology that PCHs can use to 

report the five clinical process/oncology 

care measures. The revised FY 2016 and 

new FY 2017 burden estimates also 

incorporate the sampling methodology 

allowed for the SCIP measures and 

HCAHPS Survey because last year’s 

burden reflected the ‘‘worst-case 

scenario’’ of our burden estimates (78 

FR 50958). The anticipated revised 

burden on PCHs for the FY 2016 

program and the anticipated new 

burden on PCHs for the FY 2017 

program consist of the following: new 

measure training and measure 

maintenance, as well as the time 

required for collection, aggregation, and 

submission of data for all measures. 

We estimate that 11 PCHs will submit 

quality measure data on approximately 

37,496 cancer cases annually beginning 

with FY 2016 and 43,266 cancer cases 

annually beginning with FY 2017.188 In 

addition, we estimate that PCHs will 

spend 0.5 hours on chart abstraction 

and data submission per case/event, 0.5 

hours on training per each new 

measure, 0.25 hours on measure 

maintenance per each existing measure, 

and a maximum of 5 hours summarizing 

and reporting population and sample 

size counts for the six SCIP measures 

and five oncology care measures. 

We are reducing the burden estimates 

for the HCAHPS Survey, the six SCIP 

measures, and the five clinical process/ 

oncology care measures in this proposed 

rule to take into consideration the 

sampling that PCHs may use for these 

measures. As a result, we estimate that 

the reporting burden on each PCH for 

the FY 2016 program will be 18,758 

hours. We estimate that the reporting 

burden on each PCH for FY 2017 would 

increase by 2,885 hours because PCHs 

would be required to report an 

additional quality measure (External 

Beam Radiotherapy for Bone 

Metastases). Therefore, we estimate the 

overall burden for all of the FY 2017 

PCHQR Program requirements to be 

21,643 hours per PCH. This FY 2017 

estimate, which includes an additional 

proposed measure, represents a decrease 

of 30,287 hours 189 per PCH from the FY 

2016 burden estimate that we published 

in the FY 2014 IPPS/LTCH final rule (78 

FR 50957 through 50959), or an overall 

decrease of 58 percent in the number of 

hours for each PCH. Coupled with our 

estimated salary costs,190 this revised 

estimate results in a net reduction in 

estimated cost of $285,252 per PCH. We 

believe that this burden estimate more 

accurately captures the hour and cost 

impact on PCHs participating in the 

PCHQR Program and reflects efforts to 

minimize the burden impact through 

the proposed adoption of a new 

sampling methodology that PCHs can 

use to report the clinical process/

oncology care measures. 

However, we note that these estimates 

are based on PCH reporting of Medicare 

data only. We intend to update the 

burden estimate to more accurately 

reflect the burden to PCHs for reporting 

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all-patient data in future years, should 

we adopt our proposal to use all-patient 

data. 

We will be submitting a revision of 

the information collection request 

currently approved under ONC 0938– 

1175 to account for the aforementioned 

proposed changes to the program when 

they are finalized. 

8. ICRs for the Hospital Value-Based 

Purchasing (VBP) Program 

In section IV.I. of the preamble of this 

proposed rule, we discuss requirements 

for the Hospital VBP Program. 

Specifically, in this proposed rule, we 

are proposing to adopt three new 

measures for the FY 2017 Hospital VBP 

Program: (1) Methicillin-Resistant 

Staphylococcus aureus (MRSA) 

Bacteremia; (2) Clostridium difficile are 

measures of healthcare-associated 

infections reported via the CDC’s 

National Healthcare Safety Network; 

and (3) PC–01: Elective Delivery Prior to 

39 Completed Weeks Gestation is a 

chart-abstracted measure. We also are 

proposing to adopt Hospital-level RiskStandardized Complication Rate (RSCR) 

Following Elective Primary Total Hip 

Arthroplasty (THA) and Total Knee 

Arthroplasty (TKA) for the FY 2019 

Hospital VBP Program. 

As provided for in section 

1886(o)(2)(A) of the Act, all of these 

additional measures are required for the 

Hospital IQR Program. Therefore, their 

inclusion in the Hospital VBP Program 

does not result in any additional burden 

because the Hospital VBP Program uses 

data that are required for the Hospital 

IQR Program. 

9. ICRs for the Long-Term Care Hospital 

Quality Reporting (LTCHQR) Program 

As discussed in sections IX.C.3. 

through IX.C.5. of the preamble of this 

proposed rule, for the LTCHQR 

Program, for the FY 2015 payment 

determination and subsequent years, we 

are retaining the following three quality 

measures: (1) National Healthcare Safety 

Network (NHSN) Catheter-Associated 

Urinary Tract Infections (CAUTI) 

Outcome Measure (NQF #0138); (2) 

National Healthcare Safety Network 

(NHSN) Central Line CatheterAssociated Blood Stream Infection 

Event (CLABSI) Outcome Measure (NQF 

#0139); and (3) and Percent of Residents 

or Patients with Pressure Ulcers That 

Are New or Worsened (Short-Stay) 

(NQF #0678). For the FY 2016 payment 

determination and subsequent years, we 

are retaining the following two 

measures in addition to the measures 

finalized for previous years: (1) Percent 

of Residents or Patients Who Were 

Assessed and Appropriately Given the 

Seasonal Influenza Vaccine (Short-Stay) 

(NQF #0680); and (2) Influenza 

Vaccination Coverage among Healthcare 

Personnel (NQF #0431). For the FY 2017 

payment determination and subsequent 

years, we are retaining the following 

three measures in addition to the 

measures finalized for previous years: 

(1) National Health Safety Network 

(NHSN) Facility-Wide Inpatient 

Hospital-Onset Methicillin-resistant 

Staphylococcus aureus (MRSA) 

Bacteremia Outcome Measure (NQF 

#1716); (2) National Health Safety 

Network (NHSN) Facility-Wide 

Inpatient Hospital-Onset Clostridium 

Difficile Infection (CDI) Outcome 

Measure (NQF #1717); and (3) All-Cause 

Unplanned Readmission Measure for 30 

Days Post-Discharge from Long-Term 

Care Hospitals. For the FY 2018 

payment determination and subsequent 

years, we are retaining the following 

measure in addition to the measures 

finalized for previous years: Application 

of Percent of Residents Experiencing 

One or More Falls with Major Injury 

(Long Stay) (NQF #0674). 

As discussed in section IX.C.7.of the 

preamble of this proposed rule, we are 

proposing three new quality measures 

for inclusion in the LTCHQR Program 

for the FY 2018 payment determination 

and subsequent years: (1) Percent of 

Long-Term Care Hospital Patients with 

an Admission and Discharge Functional 

Assessment and a Care Plan That 

Addresses Function; (2) Functional 

Outcome Measure: Change in Mobility 

among Long-Term Care Hospital 

Patients Requiring Ventilator Support; 

and (3) National Healthcare Safety 

Network (NHSN) Ventilator-Associated 

Event (VAE) Outcome Measure. 

Six of the previously adopted and 

newly proposed measures either will or 

would be collected via the NHSN. The 

NHSN is a secure, Internet-based 

healthcare-associated infection (HAI) 

tracking system maintained and 

managed by the CDC. The NHSN 

enables health care facilities to collect 

and use data about HAIs, adherence to 

clinical practices known to prevent 

HAIs, and other adverse events within 

their organizations. NHSN data 

collection occurs via a Web-based tool 

hosted by the CDC and provided free of 

charge to facilities. We believe that any 

burden increase related to complying 

with the submission of the proposed 

NHSN VAE Outcome Measure would be 

minimal because LTCHs have already 

completed the initial setup of the NHSN 

submission process and have become 

familiar with reporting data in the 

NHSN system due to the requirement to 

report CAUTI and CLABSI measures. 

While this requirement is subject to the 

PRA, we believe that the associated 

burden is approved under OMB control 

number 0920–0666, for those measures 

previously finalized, with an expiration 

date of November, 31, 2016. 

The All-Cause Unplanned 

Readmission Measure for 30 Days PostDischarge from Long-Term Care 

Hospitals is a Medicare claims-based 

measure. Because claims-based 

measures can be calculated based on 

data that are already reported to the 

Medicare program for payment 

purposes, we believe that this measure 

will not add any additional reporting 

burden for LTCHs. 

The remaining five previously 

adopted and newly proposed measures 

either will or would be collected 

utilizing the LTCH CARE Data Set. The 

LTCH CARE Data Set, in its current 

form, has been approved under OMB 

control number 0938–1163. Additions 

will need to be made to the LTCH CARE 

Data Set in order to allow for collection 

of the two functional status measures 

we are proposing in section IX.C.7.a. of 

the preamble of this proposed rule: (1) 

Percent of Long-Term Care Hospital 

Patients with an Admission and 

Discharge Functional Assessment and a 

Care Plan That Addresses Function; and 

(2) Functional Outcome Measure: 

Change in Mobility among Long-Term 

Care Hospital Patients Requiring 

Ventilator Support. The revised data 

collection will be resubmitted to OMB 

for approval. While this requirement is 

subject to the PRA, we believe the 

associated burden is either approved 

under OMB control number 0938–1163, 

for those measures previously finalized, 

with an expiration date of June 30, 2016, 

or will be contained in the updated 

information collection request. 

Assuring data accuracy is vital to 

public reporting programs. In section 

IX.C.11. of the preamble of this 

proposed rule, we are proposing, for the 

FY 2016 payment determination and 

subsequent years, to validate data 

submitted to CMS on the LTCH CARE 

Data Set by requesting that a statistically 

valid random sample of 260 LTCHs 

copy and send portions of five patient 

charts each from a given CY (for a total 

of portions of 1,300 LTCH patient 

charts) to a CMS validation contractor. 

We are proposing that the specific 

portions of the patient charts would be 

identified in the written request, but 

may include the following sections, 

which are listed with our estimated 

number of pages for each: first 3 days of 

nurses’ notes would be approximately 

15 pages; the last 3 days of nurses’ notes 

would be approximately 10 pages; the 

physician, physician’s assistant, or 

nurse practitioner’s admission history 

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and physical would be approximately 

30 pages; the physician, physician’s 

assistant, or nurse practitioner’s 

discharge summary would be 

approximately 15 pages; the nurses’ 

admission database would be 

approximately 40 pages; pressure ulcer 

assessments will would approximately 

30 pages; physician’s progress notes 

would be approximately 30 pages; 

physician’s orders would be 

approximately 30 pages; and laboratory 

reports would be approximately 70 

pages. We estimate the total submission 

to be no more than 270 pages in length. 

We estimate that 1,300 charts will allow 

us to validate data submitted to CMS 

with an estimated reliability of 70 

percent, with a 5-percent margin of 

error, at a 95-percent confidence level. 

Although charts will be randomly 

selected, we are proposing to limit the 

request to specific portions of five charts 

per LTCH. 

10. Electronic Health Record (EHR) 

Incentive Program and Meaningful Use 

(MU) 

In section IX.D. of the preamble of 

this proposed rule, we are proposing to 

align the Medicare EHR Incentive 

Program reporting and submission 

timelines for clinical quality measures 

for eligible hospitals and CAHs with the 

Hospital IQR Program’s reporting and 

submission timelines. In addition, we 

provide guidance and clarification of 

certain policies for reporting zero 

denominators on clinical quality 

measures and our policy on case 

threshold exemptions. Because these 

proposals for data collection would 

align with the reporting requirements in 

place for the Hospital IQR Program, we 

do not believe there is any additional 

burden for this collection of 

information. 

11. ICR Regarding Proposed Revision of 

Regulations Governing Use and Release 

of Medicare Advantage (MA) Risk 

Adjustment Data (§ 422.310(f)) 

Medicare Advantage (MA) 

organizations are required to submit risk 

adjustment data to CMS organizations 

under current authority at § 422.310(b) 

through (d). The proposed changes we 

are proposing to make to the use and 

release of MA risk adjustment data 

under section X. of the preamble of this 

proposed rule provision do not change 

the requirements on MA organizations 

for submission of information to CMS, 

which have been in place for several 

years. Therefore, this proposal does not 

impose new information collection 

requirements on MA organizations. 

Consequently, because there are no new 

information collection requirements in 

our proposal, the proposal does not 

require a review by OMB under the 

authority of the Paperwork Reduction 

Act of 1995. 

If you comment on these information 

collection and recordkeeping 

requirements, please submit your 

comments electronically as specified in 

the ADDRESSES section of this proposed 

rule. 

C. 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 public comments in the 

preamble of that document. 

List of Subjects 

42 CFR Part 405 

Administrative practice and 

procedure, Health facilities, Health 

professions, Kidney diseases, Medicare, 

Reporting and recordkeeping, rural 

areas, X-rays. 

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, Reporting and recordkeeping 

requirements. 

42 CFR Part 422 

Administrative practice and 

procedure, Health facilities, Health 

maintenance, organizations (HMO), 

Medicare, Penalties, Privacy, Reporting 

and recordkeeping requirements. 

42 CFR Part 424 

Emergency medical services, Health 

facilities, Health professions, Medicare. 

42 CFR Part 485 

Grant programs—health, Health 

facilities, Medicaid, Medicare, 

Reporting and recordkeeping 

requirements. 

42 CFR Part 488 

Administrative practice and 

procedure, Health facilities, Medicare, 

Reporting and recordkeeping 

requirements. 

For the reasons stated in the preamble 

of this proposed rule, the Centers for 

Medicare & Medicaid Services is 

proposing to amend 42 CFR Chapter IV 

as set forth below: 

Title 42—Public Health 

PART 405—FEDERAL HEALTH 

INSURANCE FOR THE AGED AND 

DISABLED 

Subpart R—Provider Reimbursement 

Determinations and Appeals 

■ 1. The authority citation for Subpart R 

is revised to read as follows: 

Authority: Secs. 205, 1102, 1814(b), 

1815(a), 1816, 1833, 1861(v), 1871, 1872, 

1874A, 1878, and 1886 of the Social Security 

Act (42 U.S.C. 405, 1302, 1395f(b), 1395g(a), 

1395l, 1395x(v), 1395hh, 1395ii, 1395oo, and 

1395ww). 

■ 2. Section 405.1801 is amended by— 

■ a. Removing the definition of 

‘‘Intermediary determination’’ under 

paragraph (a). 

■ b. Adding in alphabetical order a new 

definition of ‘‘Medicare Administrative 

Contractor determination (contractor 

determination)’’ under paragraph (a). 

■ c. Revising paragraph (b)(1). 

The additions and revisions read as 

follows: 

§ 405.1801 Introduction. 

(a) * * * 

Medicare Administrative Contractor 

determination (contractor 

determination) means the following: 

(1) With respect to a provider of 

services that has filed a cost report 

under §§ 413.20 and 413.24 of this 

chapter, the term means a final 

determination of the amount of total 

reimbursement due the provider, 

pursuant to § 405.1803 following the 

close of the provider’s cost reporting 

period, for items and services furnished 

to beneficiaries for which 

reimbursement may be made on a 

reasonable cost basis under Medicare for 

the period covered by the cost report. 

(2) With respect to a hospital that 

receives payments for inpatient hospital 

services under the prospective payment 

system (part 412 of this chapter), the 

term means a final determination of the 

total amount of payment due the 

hospital, pursuant to § 405.1803 

following the close of the hospital’s cost 

reporting period, under that system for 

the period covered by the final 

determination. 

(3) For purposes of appeal to the 

Provider Reimbursement Review Board, 

the term is synonymous with the 

phrases ‘‘intermediary’s final 

determination,’’ ‘‘final determination of 

the organization serving as its fiscal 

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intermediary,’’ ‘‘Secretary’s final 

determination’’ and ‘‘final 

determination of the Secretary’’, as 

those phrases are used in section 

1878(a) of the Act, and with the phrases 

‘‘final Medicare administrative 

contractor determination, ’’ ‘‘final 

contractor determination’’, and ‘‘final 

Secretary determination’’ as those 

phrases are used in this subpart. 

(4) For purposes of § 405.376 

concerning claims collection activities, 

the term does not include an action by 

CMS with respect to a compromise of a 

Medicare overpayment claim, or 

termination or suspension of collection 

action on an overpayment claim, against 

a provider or physician or other 

supplier. 

* * * * * 

(b) * * *(1) Providers. In order to be 

paid for covered services furnished to 

Medicare beneficiaries, a provider must 

file a cost report with its contractor as 

specified in § 413.24 of this chapter. For 

purposes of this subpart, the term 

‘‘provider’’ includes a hospital (as 

described in part 482 of this chapter), 

hospice program (as described in § 418.3 

of this chapter), critical access hospital 

(CAH), comprehensive outpatient 

rehabilitation facility (CORF), renal 

dialysis facility, Federally qualified 

health center (FQHC), home health 

agency (HHA), rural health clinic (RHC), 

skilled nursing facility (SNF), and any 

other entity included under the Act. 

(FQHCs and RHCs are providers, for 

purposes of this subpart, effective with 

cost reporting periods beginning on or 

after October 1, 1991). 

* * * * * 

■ 3. Section 405.1803 is amended by 

revising the section heading and 

paragraph (a) introductory text to read 

as follows: 

§ 405.1803 Contractor determination and 

notice of amount of program 

reimbursement. 

(a) General requirement. Upon receipt 

of a provider’s cost report, or amended 

cost report where permitted or required, 

the contractor must within a reasonable 

period of time (as described in 

§ 405.1835(a)(2)(ii)), furnish the 

provider and other parties as 

appropriate (see § 405.1805) a written 

notice reflecting the contractor’s final 

determination of the total amount of 

reimbursement due the provider. The 

contractor must include the following 

information in the notice, as 

appropriate: 

* * * * * 

■ 4. Section 405.1811 is amended by— 

■ a. Revising the section heading. 

■ b. Revising paragraph (a). 

■ c. Revising paragraph (b) introductory 

text and paragraphs (b)(1) and (b)(2). 

■ d. Revising paragraphs (c)(1), (c)(2), 

and (c)(3). 

The revisions read as follows: 

§ 405.1811 Right to contractor hearing; 

contents of, and adding issues to, hearing 

request. 

(a) Right to a contractor hearing on 

final contractor determination. A 

provider (but no other individual, 

entity, or party) has a right to a 

contractor hearing, as a single provider 

appeal, for specific items claimed for a 

cost reporting period that is subject to 

a final contractor or Secretary 

determination if— 

(1) The amount in controversy (as 

determined in accordance with 

§ 405.1839) is at least $1,000 but less 

than $10,000; and 

(2) Unless the provider qualifies for a 

good cause extension under § 405.1813, 

the date of receipt by the contractor of 

the provider’s hearing request is— 

(i) No later than 180 days after the 

date of receipt by the provider of the 

final contractor or Secretary 

determination; or 

(ii) If the final contractor 

determination is not issued (through no 

fault of the provider) within 12 months 

of the date of receipt by the contractor 

of the provider’s perfected cost report or 

amended cost report (as specified in 

§ 413.24(f) of this chapter), no later than 

180 days after the expiration of the 12- 

month period for issuance of the final 

contractor determination. The date of 

receipt by the contractor of the 

provider’s perfected cost report or 

amended cost report is presumed to be 

the date the contractor stamped 

‘‘Received’’ unless it is shown by a 

preponderance of the evidence that the 

contractor received the cost report on an 

earlier date. 

(b) Contents of request for a 

contractor hearing. The provider’s 

request for a contractor hearing must be 

submitted in writing to the contractor, 

and the request must include the 

elements described in paragraphs (b)(1) 

through (b)(3) of this section. If the 

provider submits a hearing request that 

does not meet the requirements of 

paragraph (b)(1), (b)(2), or (b)(3) of this 

section, the contractor hearing officer 

may dismiss with prejudice the appeal, 

or take any other remedial action he or 

she considers appropriate. 

(1) A demonstration that the provider 

satisfies the requirements for a 

contractor hearing as specified in 

paragraph (a) of this section, including 

a specific identification of the final 

contractor or Secretary determination 

under appeal. 

(2) For each specific item under 

appeal, a separate explanation of why, 

and a description of how, the provider 

disagrees with the specific aspects of the 

final contractor or Secretary 

determination under appeal, including 

an account of all of the following: 

(i) Why the provider believes 

Medicare payment is incorrect for each 

disputed item (or, where applicable, 

why the provider is unable to determine 

whether Medicare payment is correct 

because it allegedly does not have 

access to underlying information 

concerning the calculation of its 

payment); 

(ii) How and why the provider 

believes Medicare payment should be 

determined differently for each disputed 

item; and 

(iii) If the provider self-disallows a 

specific item (as specified in § 413.24(j) 

of this chapter), an explanation of the 

nature and amount of each selfdisallowed item, the reimbursement 

sought for the item, and why the 

provider self-disallowed the item 

instead of claiming reimbursement for 

the item. 

* * * * * 

(c) * * * 

(1) The request to add issues complies 

with the requirements of paragraphs (a) 

and (b) of this section as to each new 

specific item at issue. 

(2) The specific items raised in the 

initial hearing request and the specific 

matters identified in subsequent 

requests to add issues, when combined, 

satisfy the requirements of paragraph 

(a)(1) of this section. 

(3) The contractor hearing officer 

receives the requests to add issues no 

later than 60 days after the expiration of 

the applicable 180-day period 

prescribed in paragraph (a)(2) of this 

section. 

§ 405.1813 [Amended] 

■ 5. In § 405.1813, paragraphs (a) and 

(b) are amended by removing the crossreference ‘‘§ 405.1811(a)(3)’’ and adding 

in its place the cross-reference 

‘‘§ 405.1811(a)(2)’’. 

§ 405.1814 [Amended] 

■ 6. Section 405.1814 is amended by 

removing paragraph (b)(3). 

■ 7. A new § 405.1832 is added to read 

as follows: 

§ 405.1832 Contractor hearing officer 

review of compliance with the substantive 

reimbursement requirement of an 

appropriate cost report claim. 

(a) General. In order to receive or 

potentially qualify for reimbursement 

for a specific item, the provider must 

include in its cost report an appropriate 

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claim for the specific item (as prescribed 

in § 413.24(j) of this chapter). If the 

provider files an appeal to the 

contractor seeking reimbursement for a 

specific item and any party to such 

appeal questions whether the provider’s 

cost report included an appropriate 

claim for the specific item, the 

contractor hearing officer(s) must 

address such questions in accordance 

with the procedures set forth in this 

section. 

(b) Summary of procedures. (1) 

Preliminary steps. The contractor 

hearing officer(s) must give each party 

to the appeal an adequate opportunity to 

submit factual evidence and legal 

argument regarding the question of 

whether the provider’s cost report 

included an appropriate claim for the 

specific item under appeal. Upon 

receipt of timely submitted factual 

evidence and legal argument (if any), 

the contractor hearing officer(s) must 

review such evidence and argument, 

and prepare written specific findings of 

fact and conclusions of law on the 

question of whether the provider’s cost 

report complied with, for the specific 

item under appeal, the cost report claim 

requirements prescribed in § 413.24(j) of 

this chapter. In reaching such specific 

factual findings and legal conclusions, 

the contractor hearing officer(s) must 

follow the procedures set forth in 

§ 413.24(j)(3) of this chapter for 

determining whether the provider’s cost 

report included an appropriate claim for 

the specific item under appeal. The 

contractor hearing officer(s) must 

promptly give a copy of such written 

specific factual findings and legal 

conclusions to each party to the appeal, 

and such factual findings and legal 

conclusions must be included in the 

record of administrative proceedings for 

the appeal (as prescribed in § 405.1827). 

(2) Limits on contractor hearing 

officer(s) actions. The contractor hearing 

officer(s)’s specific findings of fact and 

conclusions of law (pursuant to 

paragraph (b)(1) of this section) must 

not be invoked or relied on by the 

contractor hearing officer(s) as a basis to 

deny, or decline to exercise, jurisdiction 

over a specific item or take any other of 

the actions specified in paragraph (c) of 

this section. Upon giving the parties to 

the appeal the contractor hearing 

officer(s)’s written specific factual 

findings and legal conclusions 

(pursuant to paragraph (b)(1) of this 

section) on the question of whether the 

provider’s cost report included an 

appropriate cost report claim for the 

specific item under appeal, the 

contractor hearing officer(s) must 

proceed to issue one of the two types of 

overall decisions specified in 

paragraphs (d) and (e) of this section 

with respect to the specific item. If the 

contractor hearing officer(s) issues an 

overall contractor hearing decision (as 

specified in paragraph (d) of this 

section) regarding the specific item 

under appeal, the contractor hearing 

officer(s)’s written specific factual 

findings and legal conclusions 

(pursuant to paragraph (b)(1) of this 

section) must be included in such 

overall contractor hearing decision 

regarding the specific item, along with 

the other matters that are required by 

the regulations for an overall contractor 

hearing decision. However, if the 

contractor hearing officer(s) issues an 

overall jurisdictional dismissal decision 

(as specified in paragraph (e) of this 

section) regarding the specific item 

under appeal, the contractor hearing 

officer(s)’s written specific factual 

findings and legal conclusions 

(pursuant to paragraph (b)(1) of this 

section) must not be included in the 

overall jurisdictional dismissal decision 

regarding the specific item. The 

contractor hearing officer(s) may permit 

reimbursement for the specific item 

under appeal, as part of an overall 

contractor hearing decision, but such 

reimbursement may be permitted only 

to the extent authorized by paragraph (f) 

of this section. 

(c) Prohibition of certain types of 

decisions, orders, and other actions. (1) 

If the contractor hearing officer(s) 

determines, in its findings of fact and 

conclusions of law (as prescribed by 

paragraph (b)(1) of this section), that the 

provider’s cost report did not include an 

appropriate claim for the specific item 

under appeal, the contractor hearing 

officer(s) may not— 

(i) Deny jurisdiction over the specific 

item under appeal, based on (in whole 

or in part) the contractor hearing 

officer(s)’s factual findings and legal 

conclusions (reached under paragraph 

(b)(1) of this section); 

(ii) Decline to exercise jurisdiction 

over the specific item under appeal, 

based on (in whole or in part) the 

contractor hearing officer(s)’s factual 

findings and legal conclusions (reached 

under paragraph (b)(1) of this section); 

or 

(iii) Impose any sanction or take any 

other action against the interests of any 

party to the appeal except as provided 

in paragraph (f) of this section, based on 

(in whole or in part) the contractor 

hearing officer(s)’s factual findings and 

legal conclusions (reached under 

paragraph (b)(1) of this section). 

(2) Regardless of whether the 

contractor hearing officer(s) determines, 

in its findings of fact and conclusions of 

law (as prescribed by paragraph (b)(1) of 

this section), that the provider’s cost 

report did or did not include an 

appropriate claim for the specific item 

under appeal, the contractor hearing 

officer(s) may not— 

(i) Deny jurisdiction over the specific 

item under appeal, based on (in whole 

or in part) the absence, in the final 

contractor or Secretary determination 

under appeal, of an adjustment, 

revision, correction, or other change to 

the specific item under appeal, or the 

lack of a particular determination by the 

contractor or the Secretary regarding the 

specific item. Exception: If the 

provider’s appeal of the specific item is 

based on a reopening of such item 

(pursuant to § 405.1885) where the 

specific item is not revised, adjusted, 

corrected, or otherwise changed in a 

revised final contractor or Secretary 

determination, the contractor must deny 

jurisdiction over the specific item under 

appeal (as prescribed in §§ 405.1887(d) 

and 405.1889(b)); 

(ii) Decline to exercise jurisdiction 

over the specific item under appeal, 

based on (in whole or in part) the 

absence, in the final contractor or 

Secretary determination under appeal, 

of an adjustment, revision, correction, or 

other change to the specific item under 

appeal, or the lack of a particular 

determination by the contractor or the 

Secretary regarding the specific item; or 

(iii) Impose any sanction or take any 

other action against the interests of any 

party to the appeal except as provided 

in paragraph (f) of this section, based on 

(in whole or in part) the absence, in the 

final contractor or Secretary 

determination under appeal, of an 

adjustment, revision, correction, or 

other change to the specific item under 

appeal, or the lack of a particular 

determination by the contractor or the 

Secretary regarding the specific item. 

(d) Contractor hearing decision must 

include any factual findings and legal 

conclusions under paragraph (b)(1) of 

this section. If the contractor hearing 

officer(s) issues a hearing decision 

regarding the specific item under appeal 

(pursuant to § 405.1831), any specific 

findings of fact and conclusions of law 

by the contractor hearing officer(s) 

(reached under paragraph (b)(1) of this 

section), on the question of whether the 

provider’s cost report included an 

appropriate claim for the specific item, 

must be included in such hearing 

decision along with the other matters 

prescribed by § 405.1831. The contractor 

hearing officer(s)’s factual findings and 

legal conclusions (reached under 

paragraph (b)(1) of this section) about 

whether there was an appropriate cost 

report claim for the specific item under 

appeal are subject to the provisions of 

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§ 405.1833 just as those provisions 

apply to the other parts of the contractor 

hearing decision. If the contractor 

hearing officer(s) determines that the 

provider’s cost report— 

(1) Included an appropriate claim for 

the specific item under appeal (as 

prescribed in § 413.24(j) of this chapter), 

the contractor hearing decision must 

also address whether the other 

substantive reimbursement 

requirements for the specific item are 

also satisfied; or 

(2) Did not include an appropriate 

claim for the specific item under appeal, 

the contractor hearing officer(s) has 

discretion whether or not to address in 

the contractor hearing decision whether 

the other substantive reimbursement 

requirements for the specific item are 

also satisfied. 

(e) Contractor jurisdictional dismissal 

decision must not include factual 

findings and legal conclusions under 

paragraph (b)(1) of this section. If the 

contractor hearing officer(s) issues a 

jurisdictional dismissal decision 

regarding the specific item under appeal 

(pursuant to § 405.1814(c)), the 

contractor hearing officer(s)’s specific 

findings of fact and conclusions of law 

(reached under paragraph (b)(1) of this 

section) on the question of whether the 

provider’s cost report included an 

appropriate claim for the specific item 

must not be included in such 

jurisdictional dismissal decision. 

(f) Effects of the contractor hearing 

officer(s)’s factual findings and legal 

conclusions under paragraph (b)(1) of 

this section when part of a final 

contractor hearing decision. If the 

contractor hearing officer(s) determines, 

as part of a final and binding contractor 

hearing decision (pursuant to § 405.1833 

and paragraphs (b)(1) and (d) of this 

section), that the provider’s cost 

report— 

(1) Included an appropriate claim for 

the specific item under appeal (as 

prescribed in § 413.24(j) of this chapter), 

the specific item is reimbursable in 

accordance with Medicare policy, but 

only if the contractor hearing officer(s) 

further determines in such final 

contractor hearing decision that all the 

other substantive reimbursement 

requirements for the specific item are 

also satisfied; or 

(2) Did not include an appropriate 

cost report claim for the specific item 

under appeal, then the specific item is 

not reimbursable, regardless of whether 

the contractor hearing officer(s) further 

determines in such final contractor 

hearing decision that the other 

substantive reimbursement 

requirements for the specific item are or 

are not satisfied. 

■ 8. Section 405.1834 is amended by 

adding a new paragraph (b)(2)(iii) to 

read as follows: 

§ 405.1834 CMS reviewing official 

procedure. 

* * * * * 

(b) * * * 

(2) * * * 

(iii) If the CMS reviewing official 

reviews an contractor hearing decision 

regarding a specific item, the CMS 

reviewing official’s review of such a 

contractor hearing decision will 

include, and any decision issued by the 

CMS reviewing official (under 

paragraph (e) of this section) will 

address, the contractor hearing 

officer(s)’s specific findings of fact and 

conclusions of law in such contractor 

hearing decision (as prescribed in 

§ 405.1832(b)(1) and (d)) on the question 

of whether the provider’s cost report 

included an appropriate claim for the 

specific item under appeal (as 

prescribed in § 413.24(j) of this chapter). 

* * * * * 

■ 9. Section 405.1835 is amended by— 

■ a. Revising paragraph (a). 

■ b. Revising paragraphs (b)(1), (b)(2) 

introductory text, and (b)(2)(iii). 

■ c. Revising paragraphs (c)(1), (c)(2), 

and (c)(3). 

The revisions read as follows: 

§ 405.1835 Right to Board hearing; 

contents of, and adding issues to, hearing 

request. 

(a) Right to hearing on final contractor 

determination. A provider (but no other 

individual, entity, or party) has a right 

to a Board hearing, as a single provider 

appeal, for specific items claimed in its 

cost report for a cost reporting period 

that is subject to a final contractor or 

Secretary determination, if— 

(1) The amount in controversy (as 

determined in accordance with 

§ 405.1839) is $10,000 or more; and 

(2) Unless the provider qualifies for a 

good cause extension under § 405.1836, 

the date of receipt by the Board of the 

provider’s hearing request is— 

(i) No later than 180 days after the 

date of receipt by the provider of the 

final contractor or Secretary 

determination; or 

(ii) If the final contractor 

determination is not issued (through no 

fault of the provider) within 12 months 

of the date of receipt by the contractor 

of the provider’s perfected cost report or 

amended cost report (as specified in 

§ 413.24(f) of this chapter), no later than 

180 days after the expiration of the 12- 

month period for issuance of the final 

contractor determination. The date of 

receipt by the contractor of the 

provider’s perfected cost report or 

amended cost report is presumed to be 

the date the contractor stamped 

‘‘Received’’ unless it is shown by a 

preponderance of the evidence that the 

contractor received the cost report on an 

earlier date. 

(b) * * * 

(1) A demonstration that the provider 

satisfies the requirements for a Board 

hearing as specified in paragraph (a) of 

this section, including a specific 

identification of the final contractor or 

Secretary determination under appeal. 

(2) For each specific item under 

appeal, a separate explanation of why, 

and a description of how, the provider 

disagrees with the specific aspects of the 

final contractor or Secretary 

determination under appeal, including 

an account of all of the following: 

* * * * * 

(iii) If the provider self-disallows a 

specific item (as specified in § 413.24(j) 

of this chapter), an explanation of the 

nature and amount of each selfdisallowed item, the reimbursement 

sought for the item, and why the 

provider self-disallowed the item 

instead of claiming reimbursement for 

the item. 

* * * * * 

(c) * * * 

(1) The request to add issues complies 

with the requirements of paragraphs (a) 

and (b) of this section as to each new 

specific item at issue. 

(2) The specific items raised in the 

initial hearing request and the specific 

items identified in subsequent requests 

to add issues, when combined, satisfy 

the requirements of paragraph (a)(2) of 

this section. 

(3) The Board receives the request to 

add issues no later than 60 days after 

the expiration of the applicable 180-day 

period prescribed in paragraph (a)(2) of 

this section. 

§ 405.1836 [Amended] 

■ 10. In § 405.1836, paragraphs (a) and 

(b) are amended by removing the crossreference ‘‘§ 405.1835(a)(3)’’ and adding 

in its place the cross-reference 

‘‘§ 405.1835(a)(2)’’. 

■ 11. Section 405.1837 is amended by 

revising paragraphs (a)(1), (c)(2) 

introductory text, (c)(2)(iii) and (e)(4) to 

read as follows: 

§ 405.1837 Group appeals. 

(a) * * * 

(1) The provider satisfies individually 

the requirements for a Board hearing 

under § 405.1835(a)(1); 

* * * * * 

(c) * * * 

(2) An explanation (for each specific 

item at issue) of each provider’s 

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disagreement with its final contractor or 

Secretary determination under appeal, 

including an account of— 

* * * * * 

(iii) If the provider self-disallows a 

specific item (as specified in § 413.24(j) 

of this chapter), an explanation of the 

nature and amount of each selfdisallowed item, the reimbursement 

sought for the item, and why the 

provider self-disallowed the item 

instead of claiming reimbursement for 

the item. 

* * * * * 

(e) * * * 

(4) A provider may submit a request 

to the Board to join a group appeal any 

time before the Board issues one of the 

decisions specified in § 405.1875(a)(1). 

By submitting a request, the provider 

agrees that, if the request is granted, the 

provider is bound by the Board’s actions 

and decision in the appeal. If the Board 

denies a request, the Board’s action is 

without prejudice to any separate 

appeal the provider may bring in 

accordance with § 405.1811, § 405.1835, 

or this section. For purposes of 

determining timeliness for the filing of 

any separate appeal and for the adding 

of issues to such appeal, the date of 

receipt of the provider’s request to form 

or join the group appeal is considered 

the date of receipt for purposes of 

meeting the applicable 180-day period 

prescribed in § 405.1835(a)(2). 

* * * * * 

§ 405.1839 [Amended] 

■ 12. In 405.1839, paragraph (a)(1) is 

amended by removing the crossreference ‘‘§ 405.1811(a)(2) of this 

subpart’’ and adding in its place the 

cross-reference ‘‘§ 405.1811(a)(1)’’; and 

by removing the cross-reference 

‘‘§ 405.1835(a)(2) of this subpart’’ and 

adding in its place the cross-reference 

‘‘§ 405.1835(a)(1)’’. 

§ 405.1840 [Amended] 

■ 13. Section 405.1840 is amended by 

removing paragraph (b)(3). 

■ 14. A new § 405.1873 is added to read 

as follows: 

§ 405.1873 Board review of compliance 

with the reimbursement requirement of an 

appropriate cost report claim. 

(a) General. In order to receive or 

potentially receive reimbursement for a 

specific item, the provider must include 

in its cost report an appropriate claim 

for the specific item (as prescribed in 

§ 413.24(j) of this chapter). If the 

provider files an appeal to the Board 

seeking reimbursement for the specific 

item and any party to such appeal 

questions whether the provider’s cost 

report included an appropriate claim for 

the specific item, the Board must 

address such question in accordance 

with the procedures set forth in this 

section. 

(b) Summary of procedures. (1) 

Preliminary steps. The Board must give 

the parties an adequate opportunity to 

submit factual evidence and legal 

argument regarding the question of 

whether the provider’s cost report 

included an appropriate claim for the 

specific item under appeal. Upon 

receipt of timely submitted factual 

evidence or legal argument (if any), the 

Board must review such evidence and 

argument and prepare written specific 

findings of fact and conclusions of law 

on the question of whether the 

provider’s cost report complied with, for 

the specific item under appeal, the cost 

report claim requirements prescribed in 

§ 413.24(j) of this chapter. In reaching 

such specific factual findings and legal 

conclusions, the Board must follow the 

procedures set forth in § 413.24(j)(3) of 

this chapter for determining whether the 

provider’s cost report included an 

appropriate claim for the specific item 

under appeal. The Board must promptly 

give a copy of such written specific 

factual findings and legal conclusions to 

each party to the appeal, and such 

factual findings and legal conclusions 

must be included in the record of 

administrative proceedings for the 

appeal (as prescribed in § 405.1865). 

(2) Limits on Board actions. The 

Board’s specific findings of fact and 

conclusions of law (pursuant to 

paragraph (b)(1) of this section) must 

not be invoked or relied on by the Board 

as a basis to deny, or decline to exercise, 

jurisdiction over a specific item or take 

any other of the actions specified in 

paragraph (c) of this section. Upon 

giving the parties to the appeal the 

Board’s written specific factual findings 

and legal conclusions (pursuant to 

paragraph (b)(1) of this section) on the 

question of whether the provider’s cost 

report included an appropriate cost 

report claim for the specific item under 

appeal, the Board must proceed to issue 

one of the four types of overall decisions 

specified in paragraphs (d) and (e) of 

this section with respect to the specific 

item. If the Board issues either of two 

types of overall Board decisions (as 

specified in paragraph (d) of this 

section) regarding the specific item 

under appeal, the Board’s written 

specific factual findings and legal 

conclusions (pursuant to paragraph 

(b)(1) of this section) must be included 

in such overall Board decision regarding 

the specific item, along with the other 

matters that are required by the 

regulations for the pertinent type of 

overall Board decision. However, if the 

Board issues either of two other types of 

overall Board decisions (as specified in 

paragraph (e) of this section) regarding 

the specific item under appeal, the 

Board’s written specific factual findings 

and legal conclusions (pursuant to 

paragraph (b)(1) of this section) must 

not be included in the overall Board 

decision regarding the specific item. 

The Board may permit reimbursement 

for the specific item under appeal, as 

part of one of the two types of overall 

Board decisions that are specified in 

paragraph (d) of this section, but such 

reimbursement may be permitted only 

to the extent authorized by paragraph (f) 

of this section. 

(c) Prohibition of certain types of 

decisions, orders, and other actions. (1) 

If the Board determines, in its findings 

of fact and conclusions of law (as 

prescribed by paragraph (b)(1) of this 

section), that the provider’s cost report 

did not include an appropriate claim for 

the specific item under appeal, the 

Board may not— 

(i) Deny jurisdiction over the specific 

item under appeal, based on (in whole 

or in part) the Board’s factual findings 

and legal conclusions (reached under 

paragraph (b)(1) of this section); 

(ii) Decline to exercise jurisdiction 

over the specific item under appeal, 

based on (in whole or in part) the 

Board’s factual findings and legal 

conclusions (reached under paragraph 

(b)(1) of this section); or 

(iii) Take any of the actions set forth 

in § 405.1868(b), (c), or (d), impose any 

sanction, or take any other action 

against the interests of any party to the 

appeal, except as provided in paragraph 

(f) of this section, based on (in whole or 

in part) the Board’s factual findings and 

legal conclusions (reached under 

paragraph (b)(1) of this section). 

(2) Regardless of whether the Board 

determines, in its findings of fact and 

conclusions of law (as prescribed by 

paragraph (b)(1) of this section), that the 

provider’s cost report did or did not 

include an appropriate claim for the 

specific item under appeal, the Board 

may not— 

(i) Deny jurisdiction over the specific 

item under appeal, based on (in whole 

or in part) the absence, in the final 

contractor determination or Secretary 

determination under appeal, of an 

adjustment, revision, correction, or 

other change to the specific item under 

appeal, or the lack of a particular 

determination by the contractor or the 

Secretary regarding the specific item. 

Exception: If the provider’s appeal of the 

specific item is based on a reopening of 

such item (pursuant to § 405.1885) 

where the specific item is not revised, 

adjusted, corrected, otherwise changed 

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in a revised final contractor or Secretary 

determination, the Board must deny 

jurisdiction over the specific item under 

appeal (as prescribed in §§ 405.1887(d) 

and 405.1889(b)); 

(ii) Decline to exercise jurisdiction 

over the specific item under appeal, 

based on (in whole or in part) the 

absence, in the final contractor 

determination or Secretary 

determination under appeal, of an 

adjustment, revision, correction, or 

other change to the specific item under 

appeal, or the lack of a particular 

determination by the contractor or the 

Secretary regarding the specific item; or 

(iii) Take any of the actions set forth 

in § 405.1868(b), (c), or (d), impose any 

sanction, or take any other action 

against the interests of any party to the 

appeal, except as provided in paragraph 

(f) of this section, based on (in whole or 

in part) the absence, in the final 

contractor determination or Secretary 

determination under appeal, of an 

adjustment, revision, correction, or 

other change to the specific item under 

appeal, or the lack of a particular 

determination by the contractor or the 

Secretary regarding the specific item. 

(d) Two types of Board decisions that 

must include any factual findings and 

legal conclusions under paragraph 

(b)(1) of this section. (1) Board hearing 

decision. If the Board issues a hearing 

decision regarding the specific item 

under appeal (pursuant to § 405.1871), 

any specific findings of fact and 

conclusions of law by the Board 

(reached under paragraph (b)(1) of this 

section), on the question of whether the 

provider’s cost report included an 

appropriate claim for the specific item, 

must be included in such hearing 

decision along with the other matters 

prescribed by § 405.1871(a). The Board’s 

factual findings and legal conclusions 

(reached under paragraph (b)(1) of this 

section), about whether there was an 

appropriate cost report claim for the 

specific item under appeal, are subject 

to the provisions of § 405.1871(b) just as 

those provisions apply to the other parts 

of the Board’s hearing decision. If the 

Board determines that the provider’s 

cost report— 

(i) Included an appropriate claim for 

the specific item under appeal (as 

prescribed in § 413.24(j) of this chapter), 

the Board’s hearing decision must also 

address whether the other substantive 

reimbursement requirements for the 

specific item are also satisfied; or 

(ii) Did not include an appropriate 

claim for the specific item under appeal, 

the Board has discretion whether or not 

to address in the Board’s hearing 

decision whether the other substantive 

reimbursement requirements for the 

specific item are also satisfied. 

(2) Board expedited judicial review 

(EJR) decision, where EJR is granted. If 

the Board issues an EJR decision where 

EJR is granted regarding a legal question 

that is relevant to the specific item 

under appeal (pursuant to 

§ 405.1842(f)(1)), the Board’s specific 

findings of fact and conclusions of law 

(reached under paragraph (b)(1) of this 

section), on the question of whether the 

provider’s cost report included an 

appropriate claim for the specific item, 

must be included in such EJR decision 

along with the other matters prescribed 

by § 405.1842(f)(1). The Board’s factual 

findings and legal conclusions (reached 

under paragraph (b)(1) of this section) 

about whether there was an appropriate 

cost report claim for the specific item 

under appeal are subject to the 

provisions of § 405.1842(g)(1), (g)(2), 

(h)(1), and (h)(3) just as those provisions 

apply to the other parts of the Board’s 

EJR decision. 

(e) Two other types of Board decisions 

that must not include the Board’s 

factual findings and legal conclusions 

under paragraph (b)(1) of this section. 

(1) Board jurisdictional dismissal 

decision. If the Board issues a 

jurisdictional dismissal decision 

regarding the specific item under appeal 

(pursuant to § 405.1840(c)), the Board’s 

specific findings of fact and conclusions 

of law (reached under paragraph (b)(1) 

of this section), on the question of 

whether the provider’s cost report 

included an appropriate claim for the 

specific item, must not be included in 

such jurisdictional dismissal decision. 

(2) Board expedited judicial review 

(EJR) decision, where EJR is denied. If 

the Board issues an EJR decision where 

EJR is denied regarding a legal question 

that is relevant to the specific item 

under appeal (pursuant to 

§ 405.1842(f)(2)), the Board’s specific 

findings of fact and conclusions of law 

(reached under paragraph (b)(1) of this 

section), on the question of whether the 

provider’s cost report included an 

appropriate claim for the same item, 

must not be included in such EJR 

decision. If the Board conducts further 

proceedings and issues another decision 

(as specified in § 405.1842(h)(2)(i)), the 

Board’s specific findings of fact and 

conclusions of law (reached under 

paragraph (b)(1) of this section)— 

(i) Must be included in any further 

hearing decision or EJR decision where 

EJR is granted regarding the specific 

item under appeal (as prescribed in 

paragraph (d) of this section); but 

(ii) Must not be included in any 

further jurisdictional dismissal decision 

or EJR decision where EJR is denied 

regarding the specific item under appeal 

(as prescribed in paragraph (e) of this 

section). 

(f) Effects of the Board’s factual 

findings and legal conclusions under 

paragraph (b)(1) of this section in two 

types of final decisions. (1) When part 

of a final hearing decision. If the Board 

determines, as part of a final and 

binding hearing decision (pursuant to 

§ 405.1871(b) and paragraphs (b)(1) and 

(d)(1) of this section), that the provider’s 

cost report— 

(i) Included an appropriate claim for 

the specific item under appeal (as 

prescribed in § 413.24(j) of this chapter), 

the specific item is reimbursable in 

accordance with Medicare policy, but 

only if the Board further determines in 

such final hearing decision that all the 

other substantive reimbursement 

requirements for the specific item are 

also satisfied; or 

(ii) Did not include an appropriate 

cost report claim for the specific item 

under appeal, then the specific item is 

not reimbursable, regardless of whether 

the Board further determines in such 

final hearing decision that the other 

substantive reimbursement 

requirements for the specific item are or 

are not satisfied. 

(2) When part of a final EJR decision 

that grants EJR. If the Board determines 

or the Administrator of CMS determines 

(pursuant to § 405.1875), as applicable, 

in a final and binding EJR decision that 

grants EJR regarding a legal question 

that is relevant to the specific item 

under appeal (pursuant to 

§ 405.1842(g)(1) and paragraphs (b)(1) 

and (d)(2) of this section), that the 

provider’s cost report— 

(i) Included an appropriate claim for 

the specific item under appeal (as 

prescribed in § 413.24(j) of this chapter), 

the specific item is reimbursable in 

accordance with Medicare policy, but 

only to the extent permitted by the final 

decision of a Federal court pursuant to 

the EJR provisions of section 1878(f)(1) 

of the Act (see also §§ 405.1842 and 

405.1877)); or 

(ii) Did not include an appropriate 

claim for the specific item under appeal, 

then the specific item is not 

reimbursable, unless— 

(A) The specific factual findings and 

legal conclusions (reached under 

paragraph (b)(1) of this section) of the 

Board or the Administrator, as 

applicable, on the question of whether 

the provider’s cost report included an 

appropriate claim for the specific item 

under appeal, are reversed or modified 

by the final decision of a Federal court 

(pursuant to section 1878(f)(1) of the Act 

and § 405.1877); and 

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(B) Only to the extent otherwise 

permitted by the final decision of a 

Federal court pursuant to the EJR 

provisions of section 1878(f)(1) of the 

Act (see also §§ 405.1842 and 405.1877) 

and by Medicare policy. 

■ 15. Section 405.1875 is amended by— 

■ a. Revising the last sentence of 

paragraph (a) introductory text. 

■ b. Adding a new paragraph (a)(2)(v). 

■ c. Revising paragraph (f)(5). 

The revisions and additions read as 

follows: 

§ 405.1875 Administrator review. 

(a) * * * The Board is required to 

send to the Office of the Attorney 

Advisor a copy of each decision 

specified in paragraphs (a)(2)(i), 

(a)(2)(ii), and (a)(2)(iii) of this section 

upon issuance of the decision. 

* * * * * 

(2) * * * 

(v) If the Administrator reviews a 

Board hearing decision regarding a 

specific item, or for a Board EJR 

decision, on the question of whether 

there is Board jurisdiction over a 

specific item, the Administrator’s 

review of such a hearing decision or EJR 

decision, as applicable, will include, 

and any decision issued by the 

Administrator (under paragraph (e) of 

this section) will address, the Board’s 

specific findings of fact and conclusions 

of law in such hearing decision or EJR 

decision (as prescribed in 

§ 405.1873(b)(1) and (d)) on the question 

of whether the provider’s cost report 

included an appropriate claim for the 

specific item under appeal (as 

prescribed in § 413.24(j) of this chapter). 

* * * * * 

(f) * * * 

(5) In addition to ordering a remand 

to the Board, the Administrator may 

order a remand to any component of 

HHS or CMS or to a contractor under 

appropriate circumstances, including, 

but not limited to, for the purpose of 

effectuating a court order (as described 

in § 405.1877(g)(2)). When the 

contractor’s denial of the relief, that the 

provider sought before the Board and 

that is under review by the 

Administrator, was based on procedural 

grounds (such as the alleged failure of 

the provider to satisfy a time limit) or 

was based on the alleged failure to 

supply adequate documentation to 

support the provider’s claim, and the 

Administrator rules that the basis of the 

contractor’s denial is invalid, the 

Administrator remands to the contractor 

for the contractor to make a 

determination on the merits of the 

provider’s claim. 

Nomenclature Changes 

Subpart R—[Amended] 

■ 16. Amend Subpart R of part 405 by 

removing the term or phrase in the first 

column and replacing it with the term 

or phrase in the second column: 

Remove Add 

an intermediary ......... ‘‘a contractor’’ 

intermediary .............. ‘‘contractor’’ 

intermediaries ............ ‘‘contractors’’ 

intermediaries ............ ‘‘contractors’’’ 

‘‘intermediary’s’’ ......... ‘‘contractor’s’’ 

Subpart X—Rural Health Clinic and 

Federally Qualified Health Center 

Services 

■ 17. The authority citation for Subpart 

X, continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395hh). 

■ 18. Section 405.2468 is amended by 

revising paragraph (f)(1) to read as 

follows: 

§ 405.2468 Allowable costs. 

* * * * * 

(f) * * * 

(1) Effective for portions of cost 

reporting periods occurring on or after 

January 1, 1999, if an RHC or an FQHC 

incurs ‘‘all or substantially all’’ of the 

costs for the training program in the 

nonhospital setting as defined in 

§ 413.75(b) of this chapter, the RHC or 

FQHC may receive direct graduate 

medical education payment for those 

residents. However, in connection with 

cost reporting periods for which ‘‘all or 

substantially all of the costs for the 

training program in the nonhospital 

setting’’ is not defined in § 413.75(b) of 

this chapter, if an RHC or an FQHC 

incurs the salaries and fringe benefits 

(including travel and lodging where 

applicable) of residents training at the 

RHC or FQHC, the RHC or FQHC may 

receive direct graduate medical 

education payments for those residents. 

* * * * * 

PART 412—PROSPECTIVE PAYMENT 

SYSTEMS FOR INPATIENT HOSPITAL 

SERVICES 

■ 19. The authority citation for Part 412 

is revised to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395hh), sec. 124 of Public Law 106–113 

(113 Stat. 1501A–332), sec. 1206 of Public 

Law 113–67, and sec. 112 of Public Law 113– 

93. 

■ 20. Section 412.23 is amended by— 

■ a. Revising paragraphs (e)(6)(i), 

(e)(6)(ii) introductory text, and 

(e)(6)(ii)(B)(2). 

■ b. Revising paragraphs (e)(7)(i) and 

(e)(7)(ii) introductory text. 

■ c. Adding new paragraph (e)(7)(iii). 

The revisions and additions read as 

follows: 

§ 412.23 Excluded hospitals: 

Classifications. 

* * * * * 

(e) * * * 

(6) * * * (i) General rule. Except as 

specified in paragraphs (e)(6)(ii) and 

(e)(6)(iii) of this section for the period 

beginning December 29, 2007 and 

ending December 28, 2012, and the 

period beginning April 1, 2014 and 

ending September 30, 2017, a 

moratorium applies to the establishment 

and classification of a long-term care 

hospital as described in paragraphs (e) 

and (e)(1) through (e)(5) of this section 

or a long-term care hospital satellite 

facility as described in § 412.22(h). 

(ii) Exception. The moratorium 

specified in paragraph (e)(6)(i) of this 

section is not applicable to the 

establishment and classification of a 

long-term care hospital that meets the 

requirements of paragraphs (e) and (e)(1) 

through (e)(5) of this section, or a longterm care hospital satellite facility that 

meets the requirements of § 412.22(h), if 

the long-term care hospital or long-term 

care satellite facility meets the following 

criteria on or before December 29, 2007, 

or on or before April 1, 2014, as 

applicable: 

* * * * * 

(B) * * * 

(2)(i) Has expended before December 

29, 2007, at least 10 percent (or, if less, 

$2.5 million) of the estimated cost of the 

project specified in paragraph 

(e)(6)(ii)(B)(1) of his section; 

(ii) Has expended, before April 1, 

2014, at least 10 percent (or, if less, $2.5 

million) of the estimated cost of the 

project specified in paragraph 

(e)(6)(ii)(B)(1) of this section. 

* * * * * 

(7) * * * (i) For purposes of this 

paragraph, an existing long-term care 

hospital or long-term care hospital 

satellite facility means a long-term care 

hospital that meets the requirements of 

paragraph (e) of this section or longterm care hospital satellite facility that 

meets the requirements of § 412.22(h) 

and received payment under the 

provisions of subpart O of this part prior 

to the dates noted in the following 

moratorium clauses. 

(ii) December 29, 2007, through 

December 28, 2007— 

* * * * * 

(iii) April 1, 2014 through September 

30, 2017—The number of Medicarecertified beds in an existing long-term 

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care hospital or an existing long-term 

care hospital satellite facility must not 

be increased beyond the number of 

Medicare-certified beds on April 1, 

2014. 

* * * * * 

■ 21. Section 412.64 is amended by— 

■ a. Removing paragraph (b)(1)(ii)(D). 

■ b. Revising paragraph (b)(3)(i). 

■ c. Revising paragraphs (d)(1), (d)(2)(i) 

introductory text, (d)(2)(ii), and (d)(3) 

introductory text. 

■ d. In paragraphs (h)(4) and (h)(4)(vi), 

removing the date ‘‘October 1, 2014’’ 

and adding in its place the date 

‘‘October 1, 2015’’. 

The revisions read as follows: 

§ 412.64 Federal rates for inpatient 

operating costs for Federal fiscal year 2005 

and subsequent fiscal years. 

* * * * * 

(b) * * * 

(3)(i) For discharges occurring on or 

after October 1, 2004, a hospital that is 

located in a rural county adjacent to one 

or more urban areas is deemed to be 

located in an urban area and receives 

the Federal payment amount for the 

urban area to which the greater 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 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 central counties of all adjacent MSAs. 

Qualifying counties are determined 

based upon OMB standards, using the 

most recent OMB standards for 

delineating statistical areas adopted by 

CMS. 

* * * * * 

(d) * * * 

(1) The applicable percentage change 

for updating the standardized amount 

for all hospitals in all areas is— 

(i) For fiscal year 2005 through fiscal 

year 2009, the percentage increase in the 

market basket index (as defined in 

§ 413.40(a)(3) of this chapter) for 

prospective payment hospitals, subject 

to the provisions of paragraph (d)(2) of 

this section. 

(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 (as 

defined in § 413.40(a)(3) of this chapter) 

for prospective payment hospitals, 

subject to the provisions of paragraph 

(d)(2) of this section; and 

(B) On or after April 1, 2010 and 

before October 1, 2010, the percentage 

increase in the market basket index (as 

defined in § 413.40(a)(3) of this chapter) 

for prospective payment hospitals, 

subject to the provisions of paragraph 

(d)(2) of this section, less 0.25 

percentage point. 

(iii) For fiscal year 2011, the 

percentage increase in the market basket 

index (as defined in § 413.40(a)(3) of 

this subchapter) for prospective 

payment hospitals, subject to the 

provisions of paragraph (d)(2) of this 

section, less 0.25 percentage point. 

(iv) For fiscal years 2012 and 2013, 

the percentage increase in the market 

basket index (as defined in 

§ 413.40(a)(3) of this chapter) for 

prospective payment hospitals, subject 

to the provisions of paragraph (d)(2) of 

this section, less a multifactor 

productivity adjustment (as determined 

by CMS) and less 0.1 percentage point. 

(v) For fiscal year 2014, the 

percentage increase in the market basket 

index (as defined in § 413.40(a)(3) of 

this chapter) for prospective payment 

hospitals, subject to the provisions of 

paragraph (d)(2) of this section, less a 

multifactor productivity adjustment (as 

determined by CMS) and less 0.3 

percentage point. 

(vi) For fiscal year 2015, the 

percentage increase in the market basket 

index (as defined in § 413.40(a)(3) of 

this chapter) for prospective payment 

hospitals, subject to the provisions of 

paragraphs (d)(2) and (d)(3) of this 

section, less a multifactor productivity 

adjustment (as determined by CMS) and 

less 0.2 percentage point. 

(2)(i) In the case of a ‘‘subsection (d) 

hospital,’’ as defined under section 

1886(d)(1)(B) of the Act, that does not 

submit quality data on a quarterly basis 

to CMS, in the form and manner 

specified by CMS, the percentage 

increase in the market basket index (as 

defined in § 413.40(a)(3) of this chapter) 

for prospective payment hospitals is 

reduced— 

* * * * * 

(ii) Any reduction pursuant to this 

paragraph (d)(2) will apply only to the 

fiscal year involved and will not be 

taken into account in computing the 

applicable percentage change for a 

subsequent fiscal year. 

(3) Beginning fiscal year 2015, in the 

case of a ‘‘subsection (d) hospital,’’ as 

defined under section 1886(d)(1)(B) of 

the Act, that is not a meaningful 

electronic health record (EHR) user as 

defined in Part 495 of this chapter for 

the applicable EHR reporting period and 

does not receive an exception, threefourths of the percentage increase in the 

market basket index (as defined in 

§ 413.40(a)(3) of this chapter) for 

prospective payment hospitals is 

reduced— 

* * * * * 

■ 22. Section 412.101 is amended by 

revising paragraphs (b)(2)(i), (b)(2)(ii), 

(c)(1), (c)(2) introductory text, and (d) to 

read as follows: 

§ 412.101 Special treatment: Inpatient 

hospital payment adjustment for lowvolume hospitals. 

* * * * * 

(b) * * * 

(2) * * * 

(i) For FY 2005 through FY 2010 and 

the portion of FY 2015 beginning on 

April 1, 2015, 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 through FY 2014, and 

the portion of FY 2015 before April 1, 

2015, 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. 

* * * * * 

(c) * * * 

(1) For FY 2005 through FY 2010 and 

the portion of FY 2015 beginning on 

April 1, 2015 and subsequent fiscal 

years, the adjustment is an additional 25 

percent for each Medicare discharge. 

(2) For FY 2011 through FY 2014 and 

the portion of FY 2015 before April 1, 

2015, the adjustment is as follows: 

* * * * * 

(d) Eligibility of new hospitals for the 

adjustment. For FYs 2005 through 2010 

and the portion of FY 2015 beginning on 

April 1, 2015, 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. 

■ 23. Section 412.102 is revised to read 

as follows: 

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§ 412.102 Special treatment: Hospitals 

located in areas that are changing from 

urban to rural as a result of a geographic 

redesignation. 

An urban hospital that was part of an 

MSA, but was redesignated as rural as 

a result of the most recent OMB 

standards for delineating statistical 

areas adopted by CMS, may receive an 

adjustment to its rural Federal payment 

amount for operating costs for 2 

successive fiscal years as provided in 

paragraphs (a) and (b) of this section. 

(a) First year adjustment. (1) Effective 

on or after October 1, 1983 and before 

October 1, 2014, the hospital’s rural 

average standardized amount and 

disproportionate share payments as 

described in § 412.106 are adjusted on 

the basis of an additional amount that 

equals two-thirds of the difference 

between the urban standardized amount 

and disproportionate share payments 

applicable to the hospital before its 

geographic redesignation and the rural 

standardized amount and 

disproportionate share payments 

otherwise applicable to the Federal 

fiscal year for which the adjustment is 

made. 

(2) Effective on or after October 1, 

2014, the hospital’s rural 

disproportionate share payments as 

described in § 412.106 are adjusted on 

the basis of an additional amount that 

equals two-thirds of the difference 

between the disproportionate share 

payments as an urban hospital 

applicable to the hospital before its 

geographic redesignation to a rural area 

as a result of implementation of the 

most recent OMB standards for 

delineating statistical areas adopted by 

CMS and the rural disproportionate 

share payment otherwise applicable to 

the Federal fiscal year for which the 

adjustment is made. 

(b) Second year adjustment. (1) 

Effective on or after October 1, 1983 and 

before October 1, 2014, if a hospital’s 

status continues to be rural as a result 

of geographic redesignation, its rural 

average standardized amount and 

disproportionate share payments are 

adjusted on the basis of an additional 

amount that equals one-third of the 

difference between the urban 

standardized amount and 

disproportionate share payments 

applicable to the hospital before its 

redesignation and the rural standardized 

amounts and disproportionate share 

payments otherwise applicable to the 

Federal fiscal year for which the 

adjustment is made. 

(2) Effective on or after October 1, 

2014, if a hospital’s status continues to 

be rural as a result of geographic 

redesignation, its disproportionate share 

payments are adjusted on the basis of an 

additional amount that equals one-third 

of the difference between the 

disproportionate share payments 

applicable to the hospital before its 

geographic redesignation to a rural area 

as a result of implementation of the 

most recent OMB standards for 

delineating statistical areas adopted by 

CMS and the rural disproportionate 

share payments otherwise applicable to 

the Federal fiscal year for which the 

adjustment is made. 

■ 24. Section 412.103 is amended by 

adding a new paragraph (a)(6) to read as 

follows: 

§ 412.103 Special treatment: Hospitals 

located in urban areas and that apply for 

reclassification as rural. 

(a) * * * 

(6) For any period on or after October 

1, 2014, a CAH in a county that was not 

in an urban area as defined by the Office 

of Management and Budget (OMB), but 

was included in an urban area as a 

result of the most recent OMB standards 

for delineating statistical areas adopted 

by CMS and the most recent Census 

Bureau data, may be reclassified as 

being located in a rural area for 

purposes of meeting the rural location 

requirement at § 485.610(b) of this 

chapter for a period of 2 years, 

beginning with the date of the 

implementation of the new labor market 

area delineations, if it meets any of the 

requirements under paragraph (a)(1), 

(a)(2), or (a)(3) of this section. 

* * * * * 

■ 25. Section 412.105 is amended by 

revising paragraphs (a)(1)(ii), 

(f)(1)(iv)(D), and (f)(1)(v), to read as 

follows: 

§ 412.105 Special treatment: Hospitals that 

incur indirect costs for graduate medical 

education programs. 

* * * * * 

(a) * * * 

(1) * * * 

(ii) (A) For new programs started prior 

to October 1, 2012, the exception for 

new programs described in paragraph 

(f)(1)(vii) of this section applies to each 

new program individually for which the 

full-time equivalent cap may be 

adjusted based on the period of years 

equal to the minimum accredited length 

of each new program. 

(B) For new programs started on or 

after October 1, 2012, the exception for 

new programs described in paragraph 

(f)(1)(vii) of this section applies to each 

new program individually during the 

cost reporting periods prior to the 

beginning of the applicable hospital’s 

cost reporting period that precedes the 

start of the sixth program year of the 

first new program started, for hospitals 

for which the full-time equivalent cap 

may be adjusted in accordance with 

§ 413.79(e)(1) of this chapter, and prior 

to the beginning of the applicable 

hospital’s cost reporting period that 

precedes the start of the sixth program 

year of the each individual new program 

started, for hospitals for which the fulltime equivalent cap may be adjusted in 

accordance with § 413.79(e)(3) of this 

chapter. 

* * * * * 

(f) * * * 

(1) * * * 

(iv) * * * 

(D) A rural hospital redesignated as 

urban after September 30, 2004, as a 

result of the most recent census data 

and implementation of the new labor 

market area definitions announced by 

OMB on June 6, 2003, may retain the 

increases to its full-time equivalent 

resident cap that it received under 

paragraphs (f)(1)(iv)(A) and (f)(1)(vii) of 

this section while it was located in a 

rural area. Effective for cost reporting 

periods beginning on or after October 1, 

2014, if a rural hospital is redesignated 

as urban due to the most recent OMB 

standards for delineating statistical 

areas adopted by CMS and was training 

residents in a new program prior to the 

redesignation becoming effective, the 

redesignated urban hospital may retain 

any existing increases to its full-time 

equivalent resident cap and receive an 

increase to its full-time equivalent 

resident cap for the new program in 

which it was training residents when 

the redesignation became effective, in 

accordance with paragraph (f)(1)(vii) of 

this section. 

(v)(A) For a hospital’s cost reporting 

periods beginning on or after October 1, 

1997, and before October 1, 1998, the 

total number of full-time equivalent 

residents for payment purposes is equal 

to the average of the actual full-time 

equivalent resident counts (subject to 

the requirements listed in paragraphs 

(f)(1)(ii)(C) and (f)(1)(iv) of this section) 

for that cost reporting period and the 

preceding cost reporting period. 

(B) For a hospital’s cost reporting 

periods beginning on or after October 1, 

1998, the total number of full-time 

equivalent residents for payment 

purposes is equal to the average of the 

actual full-time equivalent resident 

count (subject to the requirements set 

forth in paragraphs (f)(1)(ii)(C) and 

(f)(1)(iv) of this section) for that cost 

reporting period and the preceding two 

cost reporting periods. 

(C) For new programs started prior to 

October 1, 2012, if a hospital qualified 

for an adjustment to the limit 

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established under paragraph (f)(1)(iv) of 

this section for new medical residency 

programs created under paragraph 

(f)(1)(vii) of this section, the count of 

residents participating in new medical 

residency training programs above the 

number included in the hospital’s fulltime equivalent count for the cost 

reporting period ending during calendar 

year 1996 is added after applying the 

averaging rules in paragraphs 

(f)(l)(v)(A), (f)(1)(v)(B), and this 

paragraph (f)(1)(v)(C) for a period of 

years. Residents participating in new 

medical residency training programs are 

included in the hospital’s full-time 

equivalent count before applying the 

averaging rules after the period of years 

has expired. For purposes of this 

paragraph, for each new program 

started, the period of years equals the 

minimum accredited length for each 

new program. The period of years for 

each new program begins when the first 

resident begins training in each new 

program. 

(D) For new programs started on or 

after October 1, 2012, for hospitals for 

which the full-time equivalent cap may 

be adjusted in accordance with 

§ 413.79(e) of this chapter, full-time 

equivalent residents participating in 

new medical residency training 

programs are excluded from the 

hospital’s full-time equivalent count 

before applying the averaging rules 

during the cost reporting periods prior 

to the beginning of the applicable 

hospital’s cost reporting period that 

precedes the start of the sixth program 

year of the first new program started, for 

hospitals for which the full-time 

equivalent cap may be adjusted in 

accordance with § 413.79(e)(1) of this 

chapter, and prior to the beginning of 

the applicable hospital’s cost reporting 

period that precedes the start of the 

sixth program year of the each 

individual new program started, for 

hospitals for which the full-time 

equivalent cap may be adjusted in 

accordance with § 413.79(e)(3) of this 

chapter. After the applicable hospital’s 

cost reporting period that precedes the 

start of the sixth program year of the 

first new program started for hospitals 

for which the full-time equivalent cap 

may be adjusted in accordance with 

§ 413.79(e)(1) of this chapter, and after 

the applicable hospital’s cost reporting 

period that precedes the start of the 

sixth program year of each individual 

new program started for hospitals for 

which the full-time equivalent cap may 

be adjusted in accordance with 

§ 413.79(e)(3) of this chapter, full-time 

equivalent residents participating in 

new medical residency training 

programs are included in the hospital’s 

full-time equivalent count before 

applying the averaging cap. 

(E) Subject to the provisions of 

paragraph (f)(1)(ix) of this section, fulltime equivalent residents that are 

displaced by the closure of either 

another hospital or another hospital’s 

program are added to the full-time 

equivalent count after applying the 

averaging rules in this paragraph 

(f)(1)(v)(B) for the receiving hospital for 

the duration of time that the displaced 

residents are training at the receiving 

hospital. 

(F) Subject to the provisions of 

paragraph (f)(1)(x) of this section, 

effective for cost reporting periods 

beginning on or after April 1, 2000, fulltime equivalent residents at an urban 

hospital in a rural track program are 

included in the urban hospital’s rolling 

average calculation described in this 

paragraph (f)(1)(v)(B). 

* * * * * 

■ 26. Section 412.106 is amended by 

revising paragraph (g)(1)(iii)(C) to read 

as follows: 

§ 412.106 Special treatment: Hospitals that 

serve a disproportionate share of lowincome patients. 

* * * * * 

(g) * * * 

(1) 

(iii) * * * 

(C) For fiscal year 2014 and for fiscal 

year 2015, CMS will base its estimates 

of the amount of hospital 

uncompensated care on the most recent 

available data on utilization for 

Medicaid and Medicare SSI patients, as 

determined by CMS in accordance with 

paragraphs (b)(2)(i) and (b)(4) of this 

section. 

* * * * * 

§ 412.108 [Amended] 

■ 27. In § 412.108, paragraph (a)(1) 

introductory text and paragraph 

(c)(2)(iii) introductory text, remove the 

date ‘‘April 1, 2014’’ and add in its 

place the date ‘‘April 1, 2015’’. 

■ 28. Section 412.140 is amended by 

revising paragraph (c)(2) to read as 

follows: 

§ 412.140 Participation, data submission, 

and validation requirements under the 

Hospital Inpatient Quality Reporting (IQR) 

Program. 

* * * * * 

(c) * * * 

(2) Exception. Upon request by a 

hospital, CMS may grant an extension or 

exemption of one or more data 

submission deadlines in the event of 

extraordinary circumstances beyond the 

control of the hospital. Specific 

requirements for submission of a request 

for an extension or exemption are 

available on QualityNet.org. 

* * * * * 

■ 29. Section 412.152 is amended by 

revising the definition of ‘‘Applicable 

hospital’’ to read as follows: 

§ 412.152 Definitions for the Hospital 

Readmissions Reduction Program. 

* * * * * 

Applicable hospital is a hospital 

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

Act or a hospital paid under section 

1814(b)(3) of the Act. 

* * * * * 

§ 412.154 [Amended] 

■ 30. Section 412.154 is amended by 

removing and reserving paragraph (d). 

■ 31. Section 412.160 is amended by 

revising the definitions of ‘‘Base 

operating DRG payment amount’’ and 

‘‘Performance standards’’ to read as 

follows: 

§ 412.160 Definitions for the Hospital 

Value-Based Purchasing (VBP) Program. 

* * * * * 

Base operating DRG payment amount 

means the following: 

(1) With respect to a subsection (d) 

hospital (as defined in section 

1886(d)(1)(B) of the Act), the wageadjusted DRG operating payment plus 

any applicable new technology add-on 

payments under subpart F of this part. 

This amount is determined without 

regard to any payment adjustments 

under the Hospital Readmissions 

Reduction Program, as specified under 

§ 412.154. This amount does not include 

any additional payments for indirect 

medical education under § 412.105, the 

treatment of a disproportionate share of 

low-income patients under § 412.106, 

outliers under subpart F of this part, or 

a low volume of discharges under 

§ 412.101. 

(2) With respect to a Medicaredependent, small rural hospital that 

receives payments under § 412.108(c) or 

a sole community hospital that receives 

payments under § 412.92(d), the wageadjusted DRG operating payment plus 

any applicable new technology add-on 

payments under subpart F of this part. 

This amount does not include any 

additional payments for indirect 

medical education under § 412.105, the 

treatment of a disproportionate share of 

low-income patients under § 412.106, 

outliers under subpart F of this part, or 

a low volume of discharges under 

§ 412.101. With respect to a Medicaredependent, small rural hospital that 

receives payments under § 412.108(c) 

(for discharges occurring in FY 2013) or 

a sole community hospital that receives 

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payments under § 412.92(d), this 

amount also does not include the 

difference between the hospital-specific 

payment rate and the Federal payment 

rate determined under subpart D of this 

part. 

* * * * * 

Performance standards are the levels 

of performance that hospitals must meet 

or exceed in order to earn points under 

the Hospital VBP Program, and are 

calculated with respect to a measure for 

a fiscal year no later than 60 days prior 

to the start of the performance period for 

that measure for that fiscal year. The 

performance standards for a measure 

may be updated as follows: 

(1) To make a single correction to 

correct a calculation error, data issue, or 

other problem that would significantly 

change the performance standards; or 

(2) To incorporate nonsubstantive 

technical updates made to the measure 

between the time that CMS first displays 

the performance standards for that 

measure for a fiscal year and the time 

that CMS calculates hospital 

performance on that measure at the 

conclusion of the performance period 

for that measure for a fiscal year. 

* * * * * 

■ 32. Section 412.161 is revised to read 

as follows: 

§ 412.161 Applicability of the Hospital 

Value-Based Purchasing (VBP) Program 

The Hospital VBP Program applies to 

hospitals, as that term is defined in 

§ 412.160. 

§ 412.172 [Amended] 

■ 33. Section 412.172 is amended by 

removing and reserving paragraph (c). 

■ 34. Section 412.232 is amended by 

revising paragraph (b)(2) to read as 

follows: 

§ 412.232 Criteria for all hospitals in a rural 

county seeking urban redesignation. 

* * * * * 

(b) * * * 

(2) For fiscal years beginning with FY 

2005, the group of hospitals must 

demonstrate that the county in which 

the hospitals are located meets the 

standards for redesignation to an MSA 

as an outlying county using the most 

recent OMB standards for delineating 

statistical areas adopted by CMS and the 

most recent Census Bureau data. 

* * * * * 

■ 35. Section 412.234 is amended by 

revising paragraph (a)(3)(iv) to read as 

follows: 

§ 412.234 Criteria for all hospitals in an 

urban county seeking redesignation to 

another urban area. 

(a) * * * 

(3) * * * 

(iv) For Federal fiscal year 2008 and 

thereafter, hospitals located in counties 

that are in the same Combined 

Statistical Area (CSA) or Core-Based 

Statistical Area (CBSA) (under the most 

recent OMB standards for delineating 

statistical areas adopted by CMS and the 

most recent Census Bureau data) as the 

urban area to which they seek 

redesignation qualify as meeting the 

proximity requirement for 

reclassification to the urban area to 

which they seek redesignation. 

* * * * * 

■ 36. Section 412.500 is amended by 

adding paragraphs (a)(4), (a)(5), and 

(a)(6) to read as follows: 

§ 412.500 Basis and scope of subpart. 

(a) * * * 

(4) Section 4302(a) of Public Law 

111–5, which amended sections 114(c) 

and (d) of Public Law 110–173 relating 

to several moratoria on the 

establishment of new long-term care 

hospitals and satellite facilities and on 

the increase in the number of beds in 

existing long-term care hospitals and 

satellite facilities under the long-term 

care hospital prospective payment 

system. 

(5) Sections 3106(a) and 10312(a) of 

Public Law 111–148, which extended 

certain payment rules and moratoria 

under the long-term care hospital 

prospective payment system by further 

amending sections 114(c) and (d) of 

Public Law 110–173. 

(6) Section 1206 of Public Law 113– 

67, which further extended certain 

payment rules and moratoria under the 

long-term care hospital prospective 

payment system by amending sections 

114(c) and (d) of Public Law 110–173, 

and which: 

(i) Added a new section 1886(m)(6) to 

the Act to establish a site neutral 

payment amount for long-term care 

hospital discharges that fail to meet the 

applicable criteria in cost reporting 

periods beginning on or after October 1, 

2015; and 

(ii) Requires the Secretary’s review of 

the payment rates and regulations 

governing long-term care hospitals 

established under section 

1886(d)(1)(B)(iv)(II) of the Act and 

application of payment adjustments 

based on that review. 

* * * * * 

■ 37. Section 412.521 is amended by 

revising paragraph (a)(2) to read as 

follows: 

§ 412.521 Basis for payment. 

(a) * * * 

(2) Except as provided for in 

§ 412.526, the amount of payment under 

the prospective payment system is 

based on the Federal payment rate 

established in accordance with 

§ 412.523, including adjustments 

described in § 412.525, and, if 

applicable during a transition period, on 

a blend of the Federal payment rate and 

the cost-based reimbursement rate 

described in § 412.533. 

* * * * * 

■ 38. Section 412.523 is amended by 

adding a new paragraph (c)(3)(xi) to 

read as follows: 

§ 412.523 Methodology for calculating the 

Federal prospective payment rates. 

* * * * * 

(c) * * * 

(3) * * * 

(xi) For long-term care hospital 

prospective payment system fiscal year 

beginning October 1, 2014, and ending 

September 30, 2015. The standard 

Federal rate for the long-term care 

hospital prospective payment system 

beginning October 1, 2014, and ending 

September 30, 2015, is the standard 

Federal rate for the previous long-term 

care hospital prospective payment 

system fiscal year updated by 2.1 

percent, and further adjusted, as 

appropriate, as described in paragraph 

(d) of this section. 

* * * * * 

§ 412.525 [Amended] 

■ 39. Section 412.525 is amended by 

removing and reserving paragraph 

(d)(3). 

■ 40. A new § 412.526 is added to read 

as follows: 

§ 412.526 Payment provisions for a 

‘‘subclause (II)’’ long-term care hospital. 

(a) Definition. A ‘‘subclause (II)’’ longterm care hospital is a hospital that 

qualifies as an LTCH under section 

1886(d)(1)(B)(iv)(II) of the Act. 

(b) Method of payment.—(1) For cost 

reporting periods beginning on or after 

October 1, 2003 and before September 

30, 2014, payment to a ‘‘subclause (II)’’ 

long-term care hospital is made under 

the prospective payment system 

specified in § 412.1(a)(4) and Subpart O 

of this part. 

(2) For cost reporting periods 

beginning on or after October 1, 2014, 

payment to a ‘‘subclause (II)’’ long-term 

care hospital is made under the 

prospective payment system specified 

in § 412.1(a)(4) and under Subpart O of 

this part, as adjusted. The adjusted 

payment amount is determined based 

on reasonable cost, as described at 

§ 412.526(c). 

(c) Determining the adjusted payment 

for Medicare inpatient operating and 

capital-related costs under the 

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reasonable cost-based reimbursement 

rules. Medicare inpatient operating 

costs are paid based on reasonable cost, 

subject to a ceiling. The ceiling is the 

aggregate upper limit on the amount of 

a hospital’s net Medicare inpatient 

operating costs that the program will 

recognize for payment purposes, as 

determined under paragraph (c)(1) of 

this section. 

(1) Ceiling. For each cost reporting 

period, the ceiling is determined by 

multiplying the updated target amount, 

as defined in paragraph (c)(2) of this 

section, for that period by the number 

of Medicare discharges paid under this 

subpart during that period. 

(2) Target amounts.—(i) For cost 

reporting periods beginning during 

Federal fiscal year 2015, the target 

amount equals the hospital’s target 

amount determined under § 413.40(c)(4) 

for its cost reporting period beginning 

during Federal fiscal year 2000, updated 

by the applicable annual rate-of-increase 

percentages specified in § 413.40(c)(3) to 

the subject period. 

(ii) For subsequent cost reporting 

periods, the target amount equals the 

hospital’s target amount for the previous 

cost reporting period updated by the 

applicable annual rate-of-increase 

percentage specified in § 413.40(c)(3) for 

the subject cost reporting period. 

(3) Payment for inpatient operating 

costs. For cost reporting periods subject 

to this section, the hospital’s Medicare 

allowable net inpatient operating costs 

for that period (as defined at 

§ 413.40(a)(3)) are paid on a reasonable 

cost basis, subject to that hospital’s 

ceiling (as determined under paragraph 

(c)(1) of this section) for that period. 

(4) Payment for inpatient capitalrelated costs. Medicare allowable net 

inpatient capital costs are paid on a 

reasonable cost basis, in accordance 

with the regulations under Part 413 of 

this chapter. 

■ 41. Section 412.531 is amended by— 

■ a. Revising paragraph (a)(2) 

introductory text. 

■ b. Adding a new paragraph (a)(3). 

■ c. Revising paragraph (b)(4) 

introductory text. 

■ d. Adding a new paragraph (b)(5). 

The revisions and additions read as 

follows: 

§ 412.531 Special payment provisions 

when an interruption of a stay occurs in a 

long-term care hospital. 

(a) * * * 

(2) A greater than 3-day interruption 

of stay defined. For long-term care 

hospital discharges occurring on or 

before September 30, 2014, ‘‘a greater 

than 3-day or less interruption of stay’’ 

means a stay in a long-term care 

hospital during which a Medicare 

inpatient is discharged from the longterm care hospital to an acute care 

hospital, an IRF, or a SNF for a period 

of greater than 3 days but within the 

applicable fixed-day period specified in 

paragraphs (a)(2)(i) through (a)(2)(iii) of 

this section before being readmitted to 

the same long-term care hospital. 

* * * * * 

(3) For long-term care hospital 

discharges occurring on or after October 

1, 2014, ‘‘a greater than 3-day or less 

interruption of stay’’ means a stay in a 

long-term care hospital during which a 

Medicare inpatient is discharged from 

the long-term care hospital to an acute 

care hospital, an IRF, or a SNF for a 

fixed day period of between 4 days and 

30 consecutive days before being 

readmitted to the same long-term care 

hospital. 

(b) * * * 

(4) Except as provided in paragraph 

(b)(5) of this section, if a patient who 

has been discharged from a long-term 

care hospital to another facility and is 

readmitted to the long-term care 

hospital for additional treatment or 

services in the long-term care hospital 

directly following the stay at the other 

facility, the subsequent admission to the 

long-term care hospital is considered a 

new stay, even if the case is determined 

to fall into the same MS–LTC–DRG, and 

the long-term care hospital will receive 

two separate Federal prospective 

payments if one of the following 

conditions are met: 

* * * * * 

(5) For long-term care hospital 

discharges occurring on or after October 

1, 2014, if a patient who has been 

discharged from a long-term care 

hospital to another facility is readmitted 

to the long-term care hospital for 

additional treatment or services directly 

following the stay at the other facility, 

the subsequent admission to the longterm care hospital is considered a new 

stay, even if the case is determined to 

fall into the same MS–LTC–DRG, and 

the long-term care hospital will receive 

two separate Federal prospective 

payments only if the patient has a 

length of stay at the other facility that 

exceeded 30 days from the initial date 

of discharge from the long-term care 

hospital. 

* * * * * 

§ 412.532 [Removed] 

■ 42. Section 412.532 is removed. 

■ 43. Section 412.534 is amended by— 

■ a. Revising and paragraph (c)(1). 

■ b. Removing the year ‘‘2013’’ and 

adding in its place the year ‘‘2016’’ in 

paragraph (c)(1)(i) and (ii) and (c)(2) 

paragraph heading. 

■ c. Revising paragraph (c)(3). 

■ d. Removing the year ‘‘2013’’ and 

adding in its place the year ‘‘2016’’ in 

paragraphs (d)(1) heading, (d)(1)(i), and 

(d)(2) heading. 

■ e. Revising paragraph (d)(3). 

■ f. Removing the year ‘‘2013’’ and 

adding in its place the year ‘‘2016’’ in 

paragraphs (e)(1) heading, (e)(1)(i), and 

(e)(2) heading. 

■ g. Revising paragraph (e)(3). 

■ h. Revising paragraphs (h) 

introductory text, (h)(4), and (h)(5). 

■ i. Removing paragraph (h)(6). 

The revisions read as follows: 

§ 412.534 Special payment provisions for 

long-term care hospitals within hospitals 

and satellites of long-term care hospitals. 

* * * * * 

(c) * * * 

(1) For cost reporting periods 

beginning on or after October 1, 2004 

and before October 1, 2007 and for cost 

reporting periods beginning on or after 

October 1, 2016. (i) Except as provided 

in paragraphs (c)(3), (g), and (h) of this 

section, for any cost reporting period 

beginning on or after October 1, 2004 

and before October 1, 2007, and for cost 

reporting periods beginning on or after 

October 1, 2016 in which the long-term 

care hospital or its satellite facility has 

a discharged Medicare inpatient 

population of whom no more than 25 

percent were admitted to the hospital or 

its satellite facility from the co-located 

hospital, payments are made under the 

rules at §§ 412.500 through 412.541 in 

this subpart with no adjustment under 

this section. 

* * * * * 

(3) For a long-term care hospital 

satellite facility described in 

§ 412.22(h)(3)(i), for cost reporting 

periods beginning on or after July 1, 

2007 and before July 1, 2016, payments 

will be determined using the 

methodology specified in paragraph 

(c)(1) of this section, except that the 

applicable percentage threshold for 

Medicare discharges is 50 percent. 

(d) * * * 

(3) For cost reporting periods 

beginning on or after July 1, 2007 and 

before July 1, 2016, payment for a longterm care hospital satellite facility 

described in § 412.22(h)(3)(i) will be 

determined using the methodology 

specified in paragraph (c)(1) of this 

section, except that the applicable 

percentage threshold for Medicare 

discharges is 75 percent. 

(e) * * * 

(3) For cost reporting periods 

beginning on or after July 1, 2007 and 

before July 1, 2016, payments for a longterm care hospital satellite facility 

described in § 412.22(h)(3)(i) will be 

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determined using the methodology 

specified in paragraph (c)(1) of this 

section, except that the applicable 

percentage threshold for Medicare 

discharges is 75 percent. 

* * * * * 

(h) Effective date of policies in this 

section for certain co-located long-term 

care hospitals and satellite facilities of 

long-term care hospitals. Except as 

specified in paragraph (h)(4) of this 

section, the policies set forth in this 

paragraph (h) apply to Medicare patient 

discharges that were admitted from a 

hospital located in the same building or 

on the same campus as a long-term care 

hospital described in § 412.23(e)(2)(i) 

that meets the criteria in § 412.22(f) and 

a satellite facility of a long-term care 

hospital as described under 

§ 412.22(h)(3)(i) for discharges occurring 

in cost reporting periods beginning on 

or after July 1, 2007. 

* * * * * 

(4) For a long-term care hospital 

described in § 412.23(e)(2)(i) that meets 

the criteria in § 412.22(f), the policies 

set forth in this paragraph (h) and in 

§ 412.536 do not apply for discharges 

occurring in cost reporting periods 

beginning on or after July 1, 2007. 

(5) For a long-term care hospital or a 

satellite facility that, as of December 29, 

2007, was co-located with an entity that 

is a provider-based, off-campus location 

of a subsection (d) hospital which did 

not provide services payable under 

section 1886(d) of the Act at the offcampus location, the policies set forth 

in this paragraph (h) and in § 412.536 do 

not apply for discharges occurring in 

cost reporting periods beginning on or 

after July 1, 2007 and before July 1, 

2016. 

■ 44. Section 412.536 is amended by— 

■ a. Removing and reserving paragraph 

(a)(1)(iii). 

■ b. Revising paragraph (a)(2) 

introductory text. 

■ c. Removing and reserving paragraph 

(a)(2)(ii). 

■ d. Removing paragraph (a)(3). 

The revisions read as follows: 

§ 412.536 Special payment provisions for 

long-term care hospitals and satellites of 

long-term care hospitals that discharged 

Medicare patients admitted from a hospital 

not located in the same building or on the 

same campus as the long-term care 

hospital or satellite of the long-term care 

hospital. 

(a) * * * 

(1) * * * 

(iii) [Reserved]. 

* * * * * 

(2) For cost reporting periods 

beginning on or after July 1, 2007 and 

before July 1, 2016, the policies set forth 

in this section are not applicable to 

discharges from: 

* * * * * 

(ii) [Reserved]. 

* * * * * 

PART 413—PRINCIPLES OF 

REASONABLE COST 

REIMBURSEMENT; PAYMENT FOR 

END–STAGE RENAL DISEASE 

SERVICES; OPTIONAL 

PROSPECTIVELY DETERMINED 

PAYMENT RATES FOR SKILLED 

NURSING FACILITIES 

■ 45. The authority for Part 413 

continues to read as follows: 

Authority: Secs. 1102, 1861(v)(1)(A), and 

1871 of the Social Security Act (42 U.S.C. 

1302, 1395x(v)(1)(A), and 1395hh). 

Nomenclature Changes 

PART 413 [Amended] 

■ 46. Throughout Part 413, according to 

the list below, remove the term or 

phrase in the first column and replace 

it with the term or phrase in the second 

column: 

Remove Add 

an intermediary’s .... ‘‘a contractor’s’’ 

fiscal intermediary .. ‘‘contractor’’ 

fiscal intermediary’s ‘‘contractor’s’’ 

intermediary ............ ‘‘contractor’’ 

intermediaries ......... ‘‘contractors’’ 

intermediary’s ......... ‘‘contractor’s’’ 

■ 47. Section 413.24 is amended by 

reserving paragraph (i) and adding a 

new paragraph (j) to read as follows: 

§ 413.24 Adequate cost data and cost 

finding. 

* * * * * 

(i) [Reserved] 

(j) Substantive reimbursement 

requirement of an appropriate cost 

report claim. (1) General requirement. In 

order for a provider to receive or 

potentially qualify for reimbursement 

for a specific item for its cost reporting 

period, the provider’s cost report, 

whether determined on an as submitted, 

as amended, or as adjusted basis (as 

prescribed in paragraph (j)(3) of this 

section), must include an appropriate 

claim for the specific item, by either— 

(i) Claiming full reimbursement in the 

provider’s cost report for the specific 

item in accordance with Medicare 

policy, if the provider seeks payment for 

the item that it believes comports with 

program policy; or 

(ii) Self-disallowing the specific item 

in the provider’s cost report, if the 

provider seeks payment that it believes 

may not be allowable or may not 

comport with Medicare policy (for 

example, if the provider believes the 

contractor lacks the authority or 

discretion to award the reimbursement 

the provider seeks for the item), by 

following the procedures (set forth in 

paragraph (j)(2) of this section) for 

properly self-disallowing the specific 

item in the provider’s cost report as a 

protested amount. 

(2) Self-disallowance procedures. In 

order to properly self-disallow a specific 

item, the provider must— 

(i) Include an estimated 

reimbursement amount for each specific 

self-disallowed item in the protested 

amount line (or lines) of the provider’s 

cost report; and 

(ii) Attach a separate work sheet to the 

provider’s cost report for each specific 

self-disallowed item, explaining why 

the provider self-disallowed each 

specific item (instead of claiming full 

reimbursement in its cost report for the 

specific item) and describing how the 

provider calculated the estimated 

reimbursement amount for each specific 

self-disallowed item. 

(3) Procedures for determining 

whether there is an appropriate cost 

report claim. Whether the provider’s 

cost report for its cost reporting period 

includes an appropriate claim for a 

specific item (as prescribed in paragraph 

(j)(1) of this section) must be determined 

by reference to the cost report that the 

provider submits originally to, and was 

accepted by, the contractor for such 

period, provided that none of the 

following exceptions applies: 

(i) If the provider submits an amended 

cost report for its cost reporting period 

and such amended cost report is 

accepted by the contractor, whether 

there is an appropriate cost report claim 

for the specific item must be determined 

by reference to such amended cost 

report, provided that neither of the 

exceptions set forth in paragraphs 

(j)(3)(ii) and (j)(3)(iii) of this section 

applies; 

(ii) If the contractor adjusts the 

provider’s cost report, as submitted 

originally by the provider and accepted 

by the contractor or as amended by the 

provider and accepted by the contractor, 

whichever is applicable, with respect to 

the specific item, whether there is an 

appropriate cost report claim for the 

specific item must be determined by 

reference to the provider’s cost report, 

as such cost report claim is adjusted for 

the specific item in the initial contractor 

determination (as defined in 

§ 405.1801(a) of this chapter) for the 

provider’s cost reporting period, 

provided that the exception set forth in 

paragraph (j)(3)(iii) of this section does 

not apply; 

(iii) If the contractor reopens either 

the initial contractor determination for 

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the provider’s cost reporting period 

(pursuant to § 405.1885 of this chapter) 

or a revised contractor determination for 

such period (issued pursuant to 

§ 405.1889 of this chapter) and the 

contractor adjusts the provider’s cost 

report with respect to the specific item, 

whether there is an appropriate cost 

report claim for the specific item must 

be determined by reference to the 

provider’s cost report, as such cost 

report claim is adjusted for the specific 

item in the most recent revised 

contractor determination for such 

period. 

(4) Reimbursement effects of 

contractor’s determination of whether 

there is an appropriate cost report 

claim. If the contractor determines that 

the provider’s cost report included an 

appropriate claim for a specific item (as 

specified in paragraphs (j)(1), (j)(2), and 

(j)(3) of this section) and that all the 

other substantive reimbursement 

requirements for the specific item are 

also satisfied, the final contractor 

determination (as defined in 

§ 405.1801(a) of this chapter) must 

include reimbursement for the specific 

item to the extent permitted by 

Medicare policy. If the contractor 

determines that the provider made an 

appropriate cost report claim for a 

specific item but the contractor 

disagrees with material aspects of the 

provider’s claim for the specific item, 

the contractor must make appropriate 

adjustments to the provider’s cost report 

and include reimbursement for the 

specific item in the final contractor 

determination in accordance with such 

cost report adjustments and to the 

extent permitted by program policy. If 

the contractor determines that the 

provider did not make an appropriate 

cost report claim for a specific item, the 

final contractor determination must not 

include any reimbursement for the 

specific item, regardless of whether the 

other substantive reimbursement 

requirements for the specific item are or 

are not satisfied. 

(5) Administrative review of whether 

there is an appropriate cost report 

claim. If the provider files an 

administrative appeal (pursuant to Part 

405, Subpart R of this chapter) seeking 

reimbursement for a specific item and 

any party to such appeal questions 

whether the provider’s cost report 

included an appropriate claim for the 

specific item under appeal (as specified 

in paragraphs (j)(1), (j)(2), (j)(3), and 

(j)(4) of this section), the reviewing 

entity (as defined in § 405.1801(a) of 

this chapter) must follow the procedures 

prescribed in § 405.1873 of this chapter 

(if the appeal was filed originally with 

the Board), or the procedures set forth 

in § 405.1832 of this chapter (if the 

appeal was filed initially with the 

contractor), for review of whether the 

substantive reimbursement requirement 

of an appropriate cost report claim for 

the specific item under appeal is 

satisfied. The reviewing entity must 

follow the procedures set forth in 

paragraph (j)(3) of this section in 

determining whether the provider’s cost 

report included an appropriate claim for 

the specific item under appeal. The 

reviewing entity may permit 

reimbursement for the specific item 

under appeal solely to the extent 

authorized by § 405.1873(f) of this 

chapter (if the appeal was filed 

originally with the Board) or by 

§ 405.1832(f) of this chapter (if the 

appeal was filed initially with the 

contractor). 

■ 48. Section 413.75 is amended by 

revising the definition of ‘‘Rural track 

FTE limitation’’ under paragraph (b) to 

read as follows: 

§ 413.75 Direct GME payments: General 

requirements. 

* * * * * 

(b) * * * 

Rural track FTE limitation means the 

maximum number of residents (as 

specified in § 413.79(k)) training in a 

rural track residency program that an 

urban hospital may include in its FTE 

count and that is in addition to the 

number of FTE residents already 

included in the hospital’s FTE cap. 

* * * * * 

■ 49. Section 413.78 is amended by 

revising paragraph (g)(6) to read as 

follows: 

§ 413.78 Direct GME payment: 

Determination of the total number of FTE 

residents. 

* * * * * 

(g) * * * 

(6) The provisions of paragraphs 

(g)(1)(ii), (g)(2), (g)(3), and (g)(5) of this 

section shall not be applied in a manner 

that requires reopening of any settled 

cost reports as to which there is not a 

jurisdictionally proper appeal pending 

as of March 23, 2010, on direct GME or 

IME payments. Cost reporting periods 

beginning before July 1, 2010 are not 

governed by paragraph (g) of this 

section. 

* * * * * 

■ 50. Section 413.79 is amended by 

revising paragraphs (c)(6), (d)(5), and 

(k)(7), to read as follows: 

§ 413.79 Direct GME payments: 

Determination of the weighted number of 

FTE residents. 

* * * * * 

(c) * * * 

(6) FTE resident caps for rural 

hospitals that are redesignated as 

urban. A rural hospital redesignated as 

urban after September 30, 2004, as a 

result of the most recent census data 

and implementation of the new MSA 

definitions announced by OMB on June 

6, 2003, may retain the increases to its 

FTE resident cap that it received under 

paragraphs (c)(2)(i), (e)(1)(iii), and (e)(3) 

of this section while it was located in a 

rural area. Effective for cost reporting 

periods beginning on or after October 1, 

2014, if a rural hospital is redesignated 

as urban due to the most recent OMB 

standards for delineating statistical 

areas adopted by CMS, and was training 

residents in a new program prior to the 

redesignation becoming effective, the 

redesignated urban hospital may retain 

any existing increases to its FTE 

resident cap, and receive an increase to 

its FTE resident cap for the new 

program in which it was training 

residents when the redesignation 

became effective, in accordance with 

paragraph (e) of this section. 

(d) * * * 

(5)(i) For new programs started prior 

to October 1, 2012, if a hospital qualifies 

for an adjustment to the limit 

established under paragraph (c)(2) of 

this section for new medical residency 

programs created under paragraph (e) of 

this section, the count of the residents 

participating in new medical residency 

training programs above the number 

included in the hospital’s FTE count for 

the cost reporting period ending during 

calendar year 1996 is added after 

applying the averaging rules in this 

paragraph (d), for a period of years. 

Residents participating in new medical 

residency training programs are 

included in the hospital’s FTE count 

before applying the averaging rules after 

the period of years has expired. For 

purposes of this paragraph (d), for each 

new program started, the period of years 

equals the minimum accredited length 

for each new program. The period of 

years begins when the first resident 

begins training in each new program. 

(ii) For new programs started on or 

after October 1, 2012, for hospitals for 

which the FTE cap may be adjusted in 

accordance with § 413.79(e) of this 

chapter, FTE residents participating in 

new medical residency training 

programs are excluded from the 

hospital’s FTE count before applying the 

averaging rules during the cost reporting 

periods prior to the beginning of the 

applicable hospital’s cost reporting 

period that precedes the start of the 

sixth program year of the first new 

program started, for hospitals for which 

the FTE may be adjusted in accordance 

with § 413.79(e)(1) of this chapter, and 

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prior to the beginning of the applicable 

hospital’s cost reporting period that 

precedes the start of the sixth program 

year of the each individual new program 

started, for hospitals for which the FTE 

cap may be adjusted in accordance with 

§ 413.79(e)(3) of this chapter. After the 

applicable hospital’s cost reporting 

period that precedes the start of the 

sixth program year of the first new 

program started for hospitals for which 

the FTE cap may be adjusted in 

accordance with § 413.79(e)(1) of this 

chapter, and after the applicable 

hospital’s cost reporting period that 

precedes the start of the sixth program 

year of the each individual new program 

started for hospitals for which the FTE 

cap may be adjusted in accordance with 

§ 413.79(e)(3) of this chapter, FTE 

residents participating in new medical 

residency training programs are 

included in the hospital’s FTE count 

before applying the averaging rules. 

* * * * * 

(k) * * * 

(7) (i) Effective for cost reporting 

periods beginning prior to October 1, 

2014, if an urban hospital had 

established a rural track training 

program under the provisions of this 

paragraph (k) with a hospital located in 

a rural area and that rural area 

subsequently becomes an urban area 

due to the most recent census data and 

implementation of the new labor market 

area definitions announced by OMB on 

June 6, 2003, the urban hospital may 

continue to adjust its FTE resident limit 

in accordance with this paragraph (k) 

for the rural track programs established 

prior to the adoption of such new labor 

market area definitions. In order to 

receive an adjustment to its FTE 

resident cap for a new rural track 

residency program, the urban hospital 

must establish a rural track program 

with hospitals that are designated rural 

based on the most recent geographical 

location delineations adopted by CMS. 

(ii) Effective for cost reporting periods 

beginning on or after October 1, 2014, if 

an urban hospital had started a rural 

track training program under the 

provisions of this paragraph (k) with a 

hospital located in a rural area and, 

during the 3-year period that is used to 

calculate the urban hospital’s rural track 

FTE limit, that rural area subsequently 

becomes an urban area due to the most 

recent OMB standards for delineating 

statistical areas adopted by CMS and the 

most recent Census Bureau data, the 

urban hospital may continue to adjust 

its FTE resident limit in accordance 

with this paragraph (k) and subject to 

paragraph (k)(7)(iii) for the rural track 

programs established prior to the 

adoption of such new OMB standards 

for delineating statistical areas. 

(iii) Effective for cost reporting 

periods beginning on or after October 1, 

2014, if an urban hospital had 

established a rural track training 

program under the provisions of this 

paragraph (k) with a hospital located in 

a rural area and that rural area 

subsequently becomes an urban area 

due to the most recent OMB standards 

for delineating statistical areas adopted 

by CMS and the most recent Census 

Bureau data, regardless of whether the 

redesignation of the rural hospital 

occurs during the 3-year period that is 

used to calculate the urban hospital’s 

rural track FTE limit, or after the 3-year 

period used to calculate the urban 

hospital’s rural track FTE limit, the 

urban hospital may continue to adjust 

its FTE resident limit in accordance 

with this paragraph (k) based on the 

rural track programs established prior to 

the change in the hospital’s geographic 

designation. In order for the urban 

hospital to receive or use the adjustment 

to its FTE resident cap for training FTE 

residents in the rural track residency 

program that was established prior to 

the most recent OMB standards for 

delineating statistical areas adopted by 

CMS, one of the following two 

conditions must be met by the end of a 

2-year period that begins when the most 

recent OMB standards for delineating 

statistical areas are adopted by CMS: the 

hospital that has been redesignated from 

rural to urban must reclassify as rural 

under § 412.103 of this chapter, for 

purposes of IME only; or the urban 

hospital must find a new site that is 

geographically rural consistent with the 

most recent geographical location 

delineations adopted by CMS. In order 

to receive an adjustment to its FTE 

resident cap for an additional new rural 

track residency program, the urban 

hospital must establish a rural track 

program with sites that are 

geographically rural based on the most 

recent geographical location 

delineations adopted by CMS. 

* * * * * 

PART 415—SERVICES FURNISHED BY 

PHYSICIANS IN PROVIDERS, 

SUPERVISING PHYSICIANS IN 

TEACHING SETTINGS, AND 

RESIDENTS IN CERTAIN SETTINGS 

■ 51. 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), and sec. 124 of Public Law 106–113 

(113 Stat. 1501A–332). 

■ 52. Section 415.70 is amended by 

revising paragraph (b) to read as follows: 

§ 415.70 Limits on compensation for 

physician services in providers. 

* * * * * 

(b) Methodology for establishing 

limits. (1) For cost reporting periods 

beginning before January 1, 2015. CMS 

establishes a methodology for 

determining annual reasonable 

compensation equivalency limits and, to 

the extent possible, considers average 

physician incomes by specialty and type 

of location using the best available data. 

(2) For cost reporting periods 

beginning on or after January 1, 2015. 

CMS establishes a methodology for 

determining annual reasonable 

compensation equivalency limits and, to 

the extent possible, considers average 

physician incomes by specialty using 

the best available data. 

* * * * * 

PART 422—MEDICARE ADVANTAGE 

PROGRAM 

■ 53. The authority citation for Part 422 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395hh). 

■ 54. Section 422.300 is revised to read 

as follows: 

§ 422.300 Basis and scope. 

This subpart is based on sections 

1106, 1853, 1854, and 1858 of the Act. 

It sets forth the rules for making 

payments to Medicare Advantage (MA) 

organizations offering local and regional 

MA plans, including calculation of MA 

capitation rates and benchmarks, 

conditions under which payment is 

based on plan bids, adjustments to 

capitation rates (including risk 

adjustment), collection of risk 

adjustment data, conditions for use and 

disclosure of risk adjustment data, and 

other payment rules. See § 422.458 in 

subpart J for rules on risk sharing 

payments to MA regional organizations. 

■ 55. Section 422.310 is amended by 

revising paragraph (f) to read as follows: 

§ 422.310 Risk adjustment data. 

* * * * * 

(f) Use and release of data. 

(1) CMS use of data. CMS may use the 

data described in paragraphs (a) through 

(d) of this section for the following 

purposes: 

(i) To determine the risk adjustment 

factors used to adjust payments, as 

required under §§ 422.304(a) and (c); 

(ii) To update risk adjustment models; 

(iii) To calculate Medicare DSH 

percentages; 

(iv) To conduct quality review and 

improvement activities; 

(v) For Medicare coverage purposes; 

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(vi) To conduct evaluations and other 

analysis to support the Medicare 

program (including demonstrations) and 

to support public health initiatives and 

other health care-related research; 

(vii) For activities to support the 

administration of the Medicare program; 

(viii) For activities conducted to 

support program integrity; and 

(ix) For purposes permitted by other 

laws. 

(2) CMS release of data. Regarding 

data described in paragraphs (a) through 

(d) of this section, CMS may release the 

minimum data it determines is 

necessary for one or more of the 

purposes listed in paragraph (f)(1) of 

this section to other HHS agencies, other 

Federal executive branch agencies, 

States, and external entities in 

accordance with the following: 

(i) Applicable Federal laws; 

(ii) CMS data sharing procedures; 

(iii) Subject to the protection of 

beneficiary identifier elements and 

beneficiary confidentiality, including— 

(A) A prohibition against public 

disclosure of beneficiary identifying 

information; 

(B) Release of beneficiary identifying 

information to other HHS agencies, 

other Federal executive branch agencies, 

Congressional support agencies, and 

States only when such information is 

needed; and 

(C) Release of beneficiary identifying 

information to external entities only to 

the extent needed to link datasets. 

(iv) Subject to the aggregation of 

payment data to protect commercially 

sensitive data. 

* * * * * 

PART 424—CONDITIONS FOR 

MEDICARE PAYMENT 

■ 56. The authority citation for Part 424 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395(hh)). 

■ 57. Section 424.11 is amended by 

revising paragraph (d)(5) to read as 

follows: 

§ 424.11 General procedures. 

* * * * * 

(d) * * * 

(5) For all inpatient hospital services, 

including inpatient psychiatric facility 

services, a delayed certification may not 

extend past discharge. 

* * * * * 

■ 58. Section 424.15 is amended by 

revising paragraph (b) to read as follows: 

§ 424.15 Requirements for inpatient CAH 

services. 

* * * * * 

(b) Certification begins with the order 

for inpatient admission. The 

certification must be completed, signed, 

and documented in the medical record 

no later than 1 day before the date on 

which the claim for payment for the 

inpatient CAH service is submitted. 

* * * * * 

PART 485—CONDITIONS OF 

PARTICIPATION: SPECIALIZED 

PROVIDERS 

■ 59. 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)). 

■ 60. Section 485.610 is amended by 

revising paragraph (b) introductory text 

and adding a new paragraph (b)(5) to 

read as follows: 

§ 485.610 Conditions 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 paragraph (b)(3), (b)(4), 

or (b)(5) of this section. 

* * * * * 

(5) Effective on or after October 1, 

2014, for a period of 2 years beginning 

with the effective date of the most 

recent Office of Management and 

Budget (OMB) standards for delineating 

statistical areas adopted by CMS, the 

CAH no longer meets the location 

requirements in either paragraph (b)(1) 

or (b)(2) of this section and is located in 

a county that, prior to the most recent 

OMB standards for delineating 

statistical areas adopted by CMS and the 

most recent Census Bureau data, was 

located in a rural area as defined by 

OMB, but under the most recent OMB 

standards for delineating statistical 

areas adopted by CMS and the most 

recent Census Bureau data, is located in 

an urban area. 

* * * * * 

PART 488—SURVEY, CERTIFICATION, 

AND ENFORCEMENT PROCEDURES 

■ 61. The authority citation for Part 488 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395(hh)). 

■ 62. Section 488.61 is amended by— 

■ a. Revising paragraphs (a)(4) and 

(c)(4). 

■ b. Adding new paragraphs (f), (g), and 

(h). 

The revisions and additions read as 

follows: 

§ 488.61 Special procedures for approval 

and re-approval of organ transplant centers. 

* * * * * 

(a) * * * 

(4) CMS will consider mitigating 

factors in accordance with paragraphs 

(f), (g), and (h) of this section. 

* * * * * 

(c) * * * 

(4) CMS will consider mitigating 

factors in accordance with paragraphs 

(f), (g), and (h) of this section. 

* * * * * 

(f) Consideration of mitigating factors 

in initial approval and re-approval 

survey, certification, and enforcement 

actions for transplant centers. 

(1) Factors. Except for situations of 

immediate jeopardy, CMS will consider 

mitigating factors, including (but not 

limited to) the following, in making a 

decision of initial and re-approval of a 

transplant center that does not meet the 

data submission, clinical experience, or 

outcome requirements, or other 

conditions of participation: 

(i) The extent to which outcome 

measures are not met or exceeded; 

(ii) Availability of Medicare-approved 

transplant centers in the area; 

(iii) Extenuating circumstances (for 

example, natural disaster) that have a 

temporary effect on meeting the 

conditions of participation; 

(iv) Program improvements that 

substantially address root causes of graft 

failures or patient deaths and that have 

been implemented and institutionalized 

on a sustainable basis; 

(v) Recent patient and graft survival 

data to determine if there is sufficient 

clinical experience and survival for 

CMS to conclude that the program is in 

compliance with CMS requirements, 

except for the data lag inherent in the 

reports from the Scientific Registry of 

Transplant Recipients (SRTR); 

(vi) Whether the program has made 

extensive use of innovative 

transplantation practices relative to 

other transplant programs, such as a 

high rate of transplantation of 

individuals who are highly sensitized or 

children who have undergone a Fontan 

procedure compared to most other 

transplant programs, where CMS finds 

that the innovative practices are 

supported by evidence-based published 

research literature or nationally 

recognized standards or Institution 

Review Board (IRB) approvals, and the 

SRTR risk-adjustment methodology 

does not take the relevant key factors 

into consideration; and 

(vii) Whether the program’s 

performance, based on the OPTN 

method of calculating patient and graft 

survival, is within the OPTN’s 

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thresholds for acceptable performance 

and does not flag OPTN performance 

review under the applicable OPTN 

policy. 

(2) Content. A request for 

consideration of mitigating factors must 

include sufficient information to permit 

an adequate review and understanding 

of the transplant program, the factors 

that have contributed to outcomes, 

program improvements or innovations 

that have been implemented or planned, 

and in the case of natural disasters, the 

recovery actions planned. Examples of 

information to be submitted with each 

request include (but are not limited to) 

the following: 

(i) The name and contact information 

for the transplant hospital and the 

names and roles of key personnel of the 

transplant program; 

(ii) The type of organ transplant 

program(s) for which approval is 

requested; 

(iii) The conditions of participation 

that the program does not meet for 

which the transplant center is 

requesting CMS’ review for mitigating 

factors; 

(iv) The rationale and supporting 

evidence for CMS’ review may include 

(but is not limited to)— 

(A) Root Cause Analysis for patient 

deaths and graft failures, including 

factors the program has identified as 

likely causal or contributing factors for 

patient deaths and graft failures; 

(B) Program improvements or 

innovations (where applicable) that 

have been implemented and 

improvements that are planned; 

(C) Patient and donor/organ selection 

criteria and evaluation protocols, 

including methods for pre-transplant 

patient evaluation by cardiologists, 

hematologists, nephrologists, and 

psychiatrists or psychologists to the 

extent applicable; 

(D) Organizational chart with fulltime equivalent levels, roles, and 

structure for reporting to hospital 

leadership; 

(E) Waitlist management protocols 

and practices relevant to outcomes; 

(F) Pre-operative management 

protocols and practices; 

(G) Immunosuppression/infection 

prophylaxis protocols; 

(H) Post-transplant monitoring and 

management protocols and practices; 

(I) Quality Assessment and 

Performance Improvement (QAPI) 

Program meeting minutes from the most 

recent four meetings and attendance 

rosters from the most recent 12 months; 

(J) Quality dashboard and other 

performance indicators; 

(K) Recent outcomes data for both 

patient survival and graft survival; and 

(L) Whether the program has engaged 

with the OPTN to review program 

outcomes, the status of any such review, 

and any steps taken to address program 

outcomes pursuant to the OPTN review. 

(3) Timing. Within 10 days after CMS 

has issued formal written notice of a 

condition-level deficiency to the 

program, CMS must receive notification 

of the program’s intent to seek 

mitigating factors approval or reapproval, and receive all information for 

consideration of mitigating factors 

within 30 days of the CMS written 

notification for any deficiency that is 

not for insufficient clinical experience 

or outcomes, and 120 days of the CMS 

written notification for a deficiency due 

to clinical experience or outcomes. 

Failure to meet these timeframes may be 

the basis for denial of mitigating factors. 

(g) Results of mitigating factors 

review. 

(1) Actions. Upon review of the 

request to consider mitigating factors, 

CMS may take the following actions: 

(i) Approve initial approval or reapproval of a program’s Medicare 

participation based upon approval of 

mitigating factors; 

(ii) Deny the program’s request for 

Medicare approval or re-approval based 

on mitigating factors. 

(iii) Offer a time-limited Systems 

Improvement Agreement, in accordance 

with paragraph (h) of this section, when 

a transplant program has waived its 

appeal rights, has implemented 

substantial program improvements that 

address root causes and are 

institutionally supported by the 

hospital’s governing body on a 

sustainable basis, and has requested 

more time to design or implement 

additional improvements or 

demonstrate compliance with CMS 

outcome requirements. Upon 

completion of the Systems Improvement 

Agreement or a CMS finding that the 

hospital has failed to meet the terms of 

the Agreement, CMS makes a final 

determination of whether to approve or 

deny a program’s request for Medicare 

approval or re-approval based on 

mitigating factors. A Systems 

Improvement Agreement follows the 

process specified in paragraph (h) of 

this section. 

(2) Limitation. CMS will not approve 

any program with a condition-level 

deficiency. However, CMS may approve 

a program with a standard-level 

deficiency upon receipt of an acceptable 

plan of correction. 

(h) Transplant Systems Improvement 

Agreement. A Systems Improvement 

Agreement is a binding agreement, 

entered into voluntarily by the hospital 

and CMS, through which CMS extends 

a prospective Medicare termination date 

and offers the program additional time 

to achieve compliance with the 

conditions of participation, contingent 

on the hospital’s agreement to 

participate in a structured regimen of 

quality improvement activities, 

demonstrate improved outcomes, and 

waive the right to appeal termination 

based on the identified deficiency or 

deficiencies that led to the Agreement in 

consideration for more time to 

demonstrate compliance. In some cases, 

transplant programs may enter a period 

of inactivity—voluntarily, or imposed as 

a condition of the Systems Improvement 

Agreement. 

(1) Content. In exchange for the 

additional time to initiate or continue 

activities to achieve compliance with 

the conditions of participation, the 

hospital must agree to a regimen of 

specified activities, including (but not 

limited to) all of the following: 

(i) Patient notification about the 

degree and type of noncompliance by 

the program, an explanation of what the 

program improvement efforts mean for 

patients, and financial assistance to 

defray the out-of-pocket costs of 

copayments and testing expenses for 

any wait-listed individual who wishes 

to be listed with another program; 

(ii) An external independent peer 

review team that conducts: An onsite 

assessment of program policies, staffing, 

operations, relationship to hospital 

services, and factors that contribute to 

program outcomes; that suggests quality 

improvements the hospital should 

consider; that provides both verbal and 

written feedback to the hospital; and 

that provides a verbal debriefing to 

CMS. Neither the hospital nor the peer 

review team is required to provide a 

written report to CMS. The peer review 

team must include a transplant surgeon 

with expertise in the relevant organ 

type(s), a transplant administrator, an 

individual with expertise in transplant 

QAPI systems, a social worker or 

psychologist or psychiatrist, and a 

specialty physician with expertise in 

conditions particularly relevant to the 

applicable organ types(s) such as a 

cardiologist, nephrologist, or 

hepatologist. Except for the transplant 

surgeon, CMS may permit substitution 

of one type of expertise for another 

individual who has expertise 

particularly needed for the type of 

challenges experienced by the program, 

such as substitution of an infection 

control specialist in lieu of, or in 

addition to, a social worker; 

(iii) An action plan that addresses 

systemic quality improvements and is 

updated after the onsite peer review; 

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(iv) An onsite consultant whose 

qualifications are approved by CMS, 

and who provides services for 8 days 

per month on average for the duration 

of the agreement, except that CMS may 

permit a portion of the time to be spent 

offsite and may agree to fewer 

consultant days each month after the 

first 3 months of the Systems 

Improvement Agreement; 

(v) A comparative effectiveness 

analysis that compares policies, 

procedures, and protocols of the 

transplant program with those of other 

programs in areas of endeavor that are 

relevant to the center’s current quality 

improvement needs; 

(vi) Development of increased 

proficiency, or demonstration of current 

proficiency, with patient-level data from 

the Scientific Registry of Transplant 

Recipients and the use of registry data 

to analyze outcomes and inform quality 

improvement efforts; 

(vii) A staffing analysis that examines 

the level, type, training, and skill of staff 

in order to inform transplant center 

efforts to ensure the engagement and 

appropriate training and credentialing 

of staff. 

(viii) Activities to strengthen 

performance of the Quality Assessment 

and Performance Improvement Program 

to ensure full compliance with the 

requirements of § 482.96 of this chapter; 

(ix) Monthly (unless otherwise 

specified) reporting and conference calls 

with CMS regarding the status of 

programmatic improvements, results of 

the deliverables in the Systems 

Improvement Agreement, and the 

number of transplants, deaths, and graft 

failures that occur within 1 year posttransplant; and 

(x) Additional or alternative 

requirements specified by CMS, tailored 

to the transplant program type and 

circumstances. 

(2) Timeframe. A Systems 

Improvement Agreement will be 

established for up to a 12-month period, 

subject to CMS’ discretion to determine 

if a shorter timeframe may suffice. At 

the hospital’s request, CMS may extend 

the agreement for up to an additional 6- 

month period. 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; Program No. 93.774, Medicare— 

Supplementary Medical Insurance Program; 

and Program No. 93.778, Medical Assistance) 

Dated: April 18, 2014. 

Marilyn Tavenner, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Dated: April 22, 2014. 

Kathleen Sebelius, 

Secretary, Department of Health and Human 

Services. 

Note: The following Addendum and 

Appendixes will not appear in the Code of 

Federal Regulations. 

Addendum—Proposed Schedule of 

Standardized Amounts, Update 

Factors, and Rate-of-Increase 

Percentages Effective With Cost 

Reporting Periods Beginning On or 

After October 1, 2014 and Payment 

Rates for LTCHs Effective for 

Discharges Occurring On or After 

October 1, 2014. 

I. Summary and Background 

In this Addendum, we are setting 

forth a description of the methods and 

data we used to determine the proposed 

prospective payment rates for Medicare 

hospital inpatient operating costs and 

Medicare hospital inpatient capitalrelated costs for FY 2015 for acute care 

hospitals. We also are setting forth the 

proposed rate-of-increase percentages 

for updating the target amounts for 

certain hospitals excluded from the 

IPPS for FY 2015. We note that, because 

certain hospitals excluded from the 

IPPS are paid on a reasonable cost basis 

subject to a rate-of-increase ceiling (and 

not by the IPPS), these hospitals are not 

affected by the figures for the 

standardized amounts, offsets, and 

budget neutrality factors. Therefore, in 

this proposed rule, we are proposing the 

rate-of-increase percentages for updating 

the target amounts for certain hospitals 

excluded from the IPPS that are 

effective for cost reporting periods 

beginning on or after October 1, 2014. 

In addition, we are setting forth a 

description of the methods and data we 

used to determine the proposed 

standard Federal rate that will be 

applicable to Medicare LTCHs for FY 

2015. 

In general, except for SCHs, MDHs 

and hospitals located in Puerto Rico, for 

FY 2015, 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. 

SCHs are paid based on whichever of 

the following rates yields the greatest 

aggregate payment: the Federal national 

rate (including, as discussed in section 

IV.F. of the preamble to this proposed 

rule, uncompensated care payments 

under section 1886(r)(2) of the Act); 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. 

We note that, as discussed in section 

IV.G. of the preamble of this proposed 

rule, section 1106 of the Pathway to 

SGR Reform Act of 2013 (Pub. L. 113– 

67), enacted on December 26, 2013, 

extended the MDH program from the 

end of FY 2013 (that is, for discharges 

occurring after September 30, 2013) 

through the first half of FY 2014 (that is, 

for discharges occurring before April 1, 

2014). Subsequently, section 106 of the 

Protecting Access to Medicare Act of 

2014 (Pub. L. 113–93), enacted on April 

1, 2014, further extended the MDH 

program through the first half of FY 

2015 (that is, for discharges occurring 

before April 1, 2015). Prior to the 

enactment of Public Law 113–67, the 

MDH program was only to be in effect 

through the end of FY 2013. Under 

current law, the MDH program will 

expire for discharges on or after April 1, 

2015. 

Under section 1886(d)(5)(G) of the 

Act, MDHs historically have been paid 

based on the Federal national rate or, if 

higher, the Federal national rate plus 50 

percent of the difference between the 

Federal national rate and the updated 

hospital-specific rate based on FY 1982, 

FY 1987, or FY 2002 costs per 

discharge, whichever was higher. 

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.2. of this 

Addendum for a complete description.) 

As discussed below in section II. of 

this Addendum, we are proposing to 

make changes in the determination of 

the prospective payment rates for 

Medicare inpatient operating costs for 

acute care hospitals for FY 2015. In 

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28312 Federal Register / Vol. 79, No. 94 / Thursday, May 15, 2014 / Proposed Rules 

section III. of this Addendum, we 

discuss our proposed policy changes for 

determining the prospective payment 

rates for Medicare inpatient capitalrelated costs for FY 2015. In section IV. 

of this Addendum, we are setting forth 

our proposed changes for determining 

the rate-of-increase limits for certain 

hospitals excluded from the IPPS for FY 

2015. In section V. of this Addendum, 

we discuss proposed policy changes for 

determining the standard Federal rate 

for LTCHs paid under the LTCH PPS for 

FY 2015. The tables to which we refer 

in the preamble of this proposed rule 

are listed in section VI. of this 

Addendum and are available via the 

Internet. 

II. Proposed Changes to Prospective 

Payment Rates for Hospital Inpatient 

Operating Costs for Acute Care 

Hospitals for FY 2015 

The basic methodology for 

determining prospective payment rates 

for hospital inpatient operating costs for 

acute care hospitals for FY 2005 and 

subsequent fiscal years is set forth under 

§ 412.64. The basic methodology for 

determining the prospective payment 

rates for hospital inpatient operating 

costs for hospitals located in Puerto 

Rico for FY 2005 and subsequent fiscal 

years is set forth under §§ 412.211 and 

412.212. Below we discuss the factors 

we are using for determining the 

proposed prospective payment rates for 

FY 2015. 

In summary, the standardized 

amounts set forth in Tables 1A, 1B, and 

1C that are listed and published in 

section VI. of this Addendum (and 

available via the Internet) reflect— 

• Equalization of the standardized 

amounts for urban and other areas at the 

level computed for large urban hospitals 

during FY 2004 and onward, as 

provided for under section 

1886(d)(3)(A)(iv)(II) of the Act. 

• The labor-related share that is 

applied to the standardized amounts 

and Puerto 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. 

For FY 2015, depending on whether a 

hospital submits quality data under the 

rules established in accordance with 

section 1886(b)(3)(B)(viii) of the Act 

(hereafter referred to as a hospital that 

submits quality data) and is a 

meaningful EHR user under section 

1886(b)(3)(B)(ix) of the Act (hereafter 

referred to as a hospital that is a 

meaningful EHR user), there are four 

possible applicable percentage increases 

that can be applied to the national 

standardized amount. We refer the 

reader to section IV.B. of the preamble 

of this proposed rule for a complete 

discussion on the FY 2015 proposed 

inpatient hospital update. Below is a 

table with these four options: 

FY 2015 

Hospital submitted quality 

data and is a 

meaningful 

EHR user 

Hospital submitted quality 

data and is 

NOT a meaningful EHR 

user 

Hospital did 

NOT submit 

quality data 

and is a 

meaningful 

EHR user 

Hospital did 

NOT submit 

quality data 

and is NOT a 

meaningful 

EHR user 

Market Basket Rate-of-Increase ...................................................................... 2.7 2.7 2.7 2.7 

Adjustment for Failure to Submit Quality Data under Section 

1886(b)(3)(B)(viii) of the Act ......................................................................... 0.0 0.0 ¥0.675 ¥0.675 

Adjustment for Failure to be a Meaningful EHR User under Section 

1886(b)(3)(B)(ix) of the Act .......................................................................... 0.0 ¥0.675 0.0 ¥0.675 

MFP Adjustment under Section 1886(b)(3)(B)(xi) of the Act .......................... ¥0.4 ¥0.4 ¥0.4 ¥0.4 

Statutory Adjustment under Section 1886(b)(3)(B)(xii) of the Act ................... ¥0.2 ¥0.2 ¥0.2 ¥0.2 

Proposed Applicable Percentage Increase Applied to Standardized Amount 2.1 1.425 1.425 0.75 

• A proposed update of 2.1 percent to 

the Puerto Rico-specific standardized 

amount (that is, the FY 2015 estimate of 

the market basket rate-of-increase of 2.7 

percent less a proposed adjustment of 

0.4 percentage point for MFP and less 

0.2 percentage point), in accordance 

with section 1886(d)(9)(C)(i) of the Act, 

as amended by section 401(c) of Public 

Law 108–173, which sets the update to 

the Puerto Rico-specific standardized 

amount equal to the applicable 

percentage increase set forth under 

section 1886(b)(3)(B)(i) of the Act. 

• An adjustment to the standardized 

amount to ensure budget neutrality for 

DRG recalibration and reclassification, 

as provided for under section 

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

• An adjustment to ensure the wage 

index changes are budget neutral, as 

provided for under section 

1886(d)(3)(E)(i) of the Act. We note that 

section 1886(d)(3)(E)(i) of the Act 

requires that when we compute such 

budget neutrality, we assume that the 

provisions of section 1886(d)(3)(E)(ii) of 

the Act (requiring a 62 percent laborrelated share in certain circumstances) 

had not been enacted. 

• An adjustment to ensure the effects 

of geographic reclassification are budget 

neutral, as provided for under section 

1886(d)(8)(D) of the Act, by removing 

the FY 2014 budget neutrality factor and 

applying a revised factor. 

• As discussed below and in section 

III. of the preamble of this proposed 

rule, an adjustment to offset the cost of 

the transitional wage index provisions 

provided by CMS as a result of the 

proposed adoption of the new OMB 

labor market area delineations. 

• An adjustment to ensure the effects 

of the rural community hospital 

demonstration program required under 

section 410A of Public Law 108–173, as 

amended by sections 3123 and 10313 of 

Public Law 111–148, which extended 

the demonstration program for an 

additional 5 years, are budget neutral as 

required under section 410A(c)(2) of 

Public Law 108–173. 

• An adjustment to remove the FY 

2014 outlier offset and apply an offset 

for FY 2015, as provided for under 

section 1886(d)(3)(B) of the Act. 

• As discussed below and in section 

II.D. of the preamble of this proposed 

rule, a proposed recoupment to meet the 

requirements of section 631 of ATRA to 

adjust the standardized amount to offset 

the estimated amount of the increase in 

aggregate payments as a result of not 

completing the prospective adjustment 

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

Public Law 110–90 until FY 2013. 

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 2014, for FY 2015, 

consistent with current law, we are 

proposing to continue to apply the rural 

floor budget neutrality adjustment to 

hospital wage indexes rather than the 

standardized amount. Also, consistent 

with section 3141 of the Affordable Care 

Act, instead of applying a State level 

rural floor budget neutrality adjustment 

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to the wage index, we are proposing to 

apply a uniform, national budget 

neutrality adjustment to the proposed 

FY 2015 wage index for the rural floor. 

We note that, in section III.G.2.b. of the 

preamble to this proposed rule, we are 

proposing to extend the imputed floor 

policy (both the original methodology 

and alternative methodology) for 

another year, through September 30, 

2015. 

Therefore, for this proposed rule, we 

are proposing to continue to include the 

imputed floor (calculated under the 

original and alternative methodologies) 

in calculating the uniform, national 

rural floor budget neutrality adjustment, 

which will be reflected in the proposed 

FY 2015 wage index. 

A. Calculation of the Proposed Adjusted 

Standardized Amount 

1. Standardization of Base-Year Costs or 

Target Amounts 

In general, the national standardized 

amount is based on per discharge 

averages of adjusted hospital costs from 

a base period (section 1886(d)(2)(A) of 

the Act), updated and otherwise 

adjusted in accordance with the 

provisions of section 1886(d) of the Act. 

For Puerto Rico hospitals, the Puerto 

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 casemix, differences in area wage levels, 

cost-of-living adjustments for Alaska 

and Hawaii, IME costs, and costs to 

hospitals serving a disproportionate 

share of low-income patients. 

In accordance with section 

1886(d)(3)(E) of the Act, the Secretary 

estimates, from time-to-time, the 

proportion of hospitals’ costs that are 

attributable to wages and wage-related 

costs. In general, the standardized 

amount is divided into labor-related and 

nonlabor-related amounts; only the 

proportion considered to be the laborrelated 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 2015, we are proposing to use 

the national and Puerto Rico-specific 

labor-related and nonlabor-related 

shares established for FY 2014, using 

the FY 2010-based hospital market 

basket. Specifically, under section 

1886(d)(3)(E) of the Act, the Secretary 

estimates from time to time the 

proportion of payments that are laborrelated: ‘‘[T]he Secretary shall adjust the 

proportion, (as estimated by the 

Secretary from time to time) of 

hospitals’ costs which are attributable to 

wages and wage-related costs, of the 

DRG prospective payment rates . . . .’’ 

We refer to the proportion of hospitals’ 

costs that are attributable to wages and 

wage-related costs as the ‘‘labor-related 

share.’’ For FY 2015, as discussed in 

section III. of the preamble of this 

proposed rule, we are proposing to 

establish a labor-related share of 69.6 

percent for the national standardized 

amounts, and 63.2 percent for the 

Puerto Rico-specific standardized 

amount, if the hospital has a wage index 

value that is greater than 1.0000. 

Consistent with section 1886(d)(3)(E) of 

the Act, we are proposing to apply the 

wage index to a labor-related share of 62 

percent of the national standardized 

amount for all IPPS hospitals whose 

wage index values are less than or equal 

to 1.0000. For all IPPS hospitals whose 

wage indices are greater than 1.0000, we 

are proposing to apply the wage index 

to a labor-related share of 69.6 percent 

of the national standardized amount. 

For FY 2015, all Puerto Rico hospitals 

have a proposed wage index value that 

is less than 1.0000 because the proposed 

average hourly rate of every hospital in 

Puerto Rico divided by the proposed 

national average hourly rate (the sum of 

all salaries and hours for all hospitals in 

the 50 United States and Puerto Rico) 

results in a proposed wage index that is 

below 1.0000. However, when we 

divide the proposed average hourly rate 

of every hospital located in Puerto Rico 

by the proposed Puerto Rico-specific 

national average hourly rate (the sum of 

all salaries and hours for all hospitals 

located only in Puerto Rico), we 

determine a proposed Puerto Ricospecific wage index value for some 

hospitals that is either above, or below 

1.0000, depending on the hospital’s 

location within Puerto Rico. 

Therefore, for hospitals located in 

Puerto Rico, we are proposing to apply 

a labor-related share of 63.2 percent if 

its Puerto Rico-specific wage index is 

greater than 1.0000. For hospitals 

located in Puerto Rico whose Puerto 

Rico-specific wage index values are less 

than or equal to 1.0000, we are 

proposing to apply a labor share of 62 

percent. 

The proposed standardized amounts 

for operating costs appear in Tables 1A, 

1B, and 1C that are listed and published 

in section VI. of the Addendum to this 

proposed rule and are available via the 

Internet. 

2. Computing the National Average 

Standardized Amount and Puerto RicoSpecific Standardized Amount 

Section 1886(d)(3)(A)(iv)(II) of the Act 

requires that, beginning with FY 2004 

and thereafter, an equal standardized 

amount be computed for all hospitals at 

the level computed for large urban 

hospitals during FY 2003, updated by 

the applicable percentage update. 

Section 1886(d)(9)(A)(ii)(II) of the Act 

equalizes the Puerto Rico-specific urban 

and rural area rates. Accordingly, we are 

proposing to calculate the FY 2015 

national average standardized amount 

and Puerto Rico-specific standardized 

amount irrespective of whether a 

hospital is located in an urban or rural 

location. 

3. Updating the National Average 

Standardized Amount and Puerto RicoSpecific Standardized Amount 

Section 1886(b)(3)(B) of the Act 

specifies the applicable percentage 

increase used to update the 

standardized amount for payment for 

inpatient hospital operating costs. We 

note that, in compliance with section 

404 of the MMA, in this proposed rule, 

we are using the revised and rebased FY 

2010-based IPPS operating and capital 

market baskets for FY 2015 (which 

replaced the FY 2006-based IPPS 

operating and capital market baskets in 

FY 2014). As discussed in section IV.B. 

of the preamble of this proposed rule, in 

accordance with section 1886(b)(3)(B) of 

the Act, as amended by section 3401(a) 

of the Affordable Care Act, we are 

proposing to reduce the proposed FY 

2015 applicable percentage increase 

(which is based on IHS Global Insight, 

Inc.’s (IGI’s) first quarter 2014 forecast of 

the FY 2010-based IPPS market basket) 

by the proposed MFP adjustment (the 

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10-year moving average of MFP for the 

period ending FY 2015) of 0.4 

percentage point, which is calculated 

based on IGI’s first quarter 2014 

forecast. 

In addition, in accordance with 

section 1886(b)(3)(B)(i) of the Act, as 

amended by sections 3401(a) and 

10319(a) of the Affordable Care Act, we 

are proposing to further update the 

standardized amount for FY 2015 by the 

estimated market basket percentage 

increase less 0.2 percentage point for 

hospitals in all areas. Sections 

1886(b)(3)(B)(xi) and (xii) of Act, as 

added and amended by sections 3401(a) 

and 10319(a) of the Affordable Care Act, 

further state that these adjustments may 

result in the applicable percentage 

increase being less than zero. The 

percentage increase in the market basket 

reflects the average change in the price 

of goods and services comprising 

routine, ancillary, and special care unit 

hospital inpatient services. 

Based on IGI’s 2014 first quarter 

forecast of the hospital market basket 

increase (as discussed in Appendix B of 

this proposed rule), the most recent 

forecast of the hospital market basket 

increase for FY 2015 is 2.7 percent. As 

discussed above, for FY 2015, 

depending on whether a hospital 

submits quality data under the rules 

established in accordance with section 

1886(b)(3)(B)(viii) of the Act and is a 

meaningful EHR user under section 

1886(b)(3)(B)(ix) of the Act, there are 

four possible applicable percentage 

increases that could be applied to the 

standardized amount. We refer readers 

to section IV. of the preamble of this 

proposed rule for a complete discussion 

on the FY 2015 proposed inpatient 

hospital update to the standardized 

amount. We also refer readers to the 

table above for the four possible 

proposed applicable percentage 

increases that would be applied to 

update the national standardized 

amount. The proposed standardized 

amounts shown in Tables 1A through 

1C that are published in section VI. of 

this Addendum and that are available 

via the Internet reflect these differential 

amounts. 

Section 401(c) of Public Law 108–173 

amended section 1886(d)(9)(C)(i) of the 

Act and states that, for discharges 

occurring in a fiscal year (beginning 

with FY 2004), the Secretary shall 

compute an average standardized 

amount for hospitals located in any area 

of Puerto Rico that is equal to the 

average standardized amount computed 

under subclause (I) for FY 2003 for 

hospitals in a large urban area (or, 

beginning with FY 2005, for all 

hospitals in the previous fiscal year) 

increased by the applicable percentage 

increase under subsection (b)(3)(B) for 

the fiscal year involved. Therefore, the 

update to the Puerto Rico-specific 

operating standardized amount is 

subject to the applicable percentage 

increase set forth under section 

1886(b)(3)(B)(i) of the Act, as amended 

by sections 3401(a) and 10319(a) of the 

Affordable Care Act (that is, the same 

update factor as for all other hospitals 

subject to the IPPS). Accordingly, we are 

proposing to establish an applicable 

percentage increase to the Puerto Ricospecific standardized amount of 2.1 

percent for FY 2015. 

Although the update factors for FY 

2015 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 2015 

for both IPPS hospitals and hospitals 

and hospital units excluded from the 

IPPS. Section 1886(e)(5)(A) of the Act 

requires that we publish our proposed 

recommendations in the Federal 

Register for public comment. Our 

recommendation on the update factors 

is set forth in Appendix B of this 

proposed rule. 

4. Other Adjustments to the Average 

Standardized Amount 

As in the past, we are proposing to 

adjust the FY 2015 standardized amount 

to remove the effects of the FY 2014 

geographic reclassifications and outlier 

payments before applying the proposed 

FY 2015 updates. We then apply budget 

neutrality offsets for outliers and 

geographic reclassifications to the 

proposed standardized amount based on 

proposed FY 2015 payment policies. 

We do not remove the prior year’s 

budget neutrality adjustments for 

reclassification and recalibration of the 

DRG relative weights and for updated 

wage data because, in accordance with 

sections 1886(d)(4)(C)(iii) and 

1886(d)(3)(E) of the Act, estimated 

aggregate payments after updates in the 

DRG relative weights and wage index 

should equal estimated aggregate 

payments prior to the changes. If we 

removed the prior year’s adjustment, we 

would not satisfy these conditions. 

Budget neutrality is determined by 

comparing aggregate IPPS payments 

before and after making changes that are 

required to be budget neutral (for 

example, changes to MS–DRG 

classifications, recalibration of the MS– 

DRG relative weights, updates to the 

wage index, and different geographic 

reclassifications). We include outlier 

payments in the simulations because 

they may be affected by changes in these 

parameters. 

In order to appropriately estimate 

aggregate payments in our modeling, we 

make several inclusions and exclusions 

so that the appropriate universe of 

claims and charges are included. We 

discuss IME Medicare Advantage 

payment amounts, fee-for-service only 

claims, and charges for anti-hemophilic 

blood factor and organ acquisition 

below. 

First, consistent with our 

methodology established in the FY 2011 

IPPS/LTCH PPS final rule (75 FR 50422 

through 50433), because IME Medicare 

Advantage payments are made to IPPS 

hospitals under section 1886(d) of the 

Act, we believe these payments must be 

part of these budget neutrality 

calculations. However, we note that it is 

not necessary to include Medicare 

Advantage IME payments in the outlier 

threshold calculation or the outlier 

offset to the standardized amount 

because the statute requires that outlier 

payments be not less than 5 percent nor 

more than 6 percent of total ‘‘operating 

DRG payments,’’ which does not 

include IME and DSH payments. We 

refer readers to the FY 2011 IPPS/LTCH 

PPS final rule for a complete discussion 

on our methodology of identifying and 

adding the total Medicare Advantage 

IME payment amount to the budget 

neutrality adjustments. 

Second, consistent with the 

methodology in the FY 2012 IPPS/LTCH 

PPS final rule, in order to ensure that 

we capture only fee-for-service claims, 

we are only including claims with a 

‘‘Claim Type’’ of 60 (which is a field on 

the MedPAR file that indicates a claim 

is a fee-for-service claim). 

Third, consistent with our 

methodology established in the FY 2011 

IPPS/LTCH PPS final rule (75 FR 50422 

through 50423), we examined the 

MedPAR file and removed pharmacy 

charges for anti-hemophilic blood factor 

(which are paid separately under the 

IPPS) with an indicator of ‘‘3’’ for blood 

clotting with a revenue code of ‘‘0636’’ 

from the covered charge field for the 

budget neutrality adjustments. We also 

removed organ acquisition charges from 

the covered charge field for the budget 

neutrality adjustments because organ 

acquisition is a pass-through payment 

not paid under the IPPS. 

The Bundled Payments for Care 

Improvement (BPCI) initiative, 

developed under the authority of 

section 3021 of the Affordable Care Act 

(codified at section 1115A of the Act), 

is comprised of four broadly defined 

models of care, which link payments for 

multiple services beneficiaries receive 

during an episode of care. Under the 

BPCI initiative, organizations enter into 

payment arrangements that include 

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financial and performance 

accountability for episodes of care. On 

January 31, 2013, CMS announced the 

health care organizations selected to 

participate in the BPCI initiative. For 

additional information on the BPCI 

initiative, we refer readers to the CMS 

Center for Medicare and Medicaid 

Innovation’s Web site at: http://

innovation.cms.gov/initiatives/BundledPayments/index.html. 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53341 through 53343), for 

FY 2013 and subsequent fiscal years, we 

finalized a methodology to treat 

hospitals that participate in the BPCI 

initiative the same as prior fiscal years 

for the IPPS payment modeling and 

ratesetting process (which includes 

recalibration of the MS–DRG relative 

weights, ratesetting, calculation of the 

budget neutrality factors, and the impact 

analysis) without regard to a hospital’s 

participation within these bundled 

payment models (that is, as if they are 

not participating in those models under 

the BPCI initiative). Therefore, for FY 

2015, as discussed in section II.H.4.of 

the preamble to this proposed rule, we 

are proposing to continue to include all 

applicable data from subsection (d) 

hospitals participating in BPCI Models 

1, 2, and 4 in our IPPS payment 

modeling and ratesetting calculations. 

We refer the reader to the FY 2013 IPPS/ 

LTCH PPS final rule for a complete 

discussion on our final policy for the 

treatment of hospitals in the BPCI 

initiative in our rate setting process. 

The Affordable Care Act established 

the Hospital Readmissions Reduction 

Program and the Hospital VBP Program 

which adjust payments to certain IPPS 

hospitals beginning with discharges on 

or after October 1, 2012. Because the 

adjustments made under these programs 

affect the estimation of aggregate IPPS 

payments, in this proposed rule, 

consistent with our methodology 

established in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53687 through 

53688), we believe that it is appropriate 

to include adjustments for these 

programs within our budget neutrality 

calculations. We discuss the treatment 

of these two programs in the context of 

budget neutrality adjustments below. 

Section 1886(q) of the Act establishes 

the ‘‘Hospital Readmissions Reduction 

Program’’ effective for discharges from 

an ‘‘applicable hospital’’ beginning on 

or after October 1, 2012, under which 

payments to those hospitals under 

section 1886(d) of the Act are reduced 

to account for certain excess 

readmissions. Under the Hospital 

Readmissions Reduction Program, for 

discharges beginning on October 1, 2012 

discharges from an ‘‘applicable 

hospital’’ are paid at an amount equal to 

the product of the ‘‘base operating DRG 

payment amount’’ and an ‘‘adjustment 

factor’’ that accounts for excess 

readmissions for the hospital for the 

fiscal year plus any applicable add-on 

payments. We refer readers to section 

IV.H. of the preamble of this proposed 

rule for full details of our 

implementation of and proposed FY 

2015 policy changes to the Hospital 

Readmissions Reduction Program. We 

also note that the Hospital Readmissions 

Reduction Program provided for under 

section 1886(q) of the Act is not budget 

neutral. 

Section 1886(o) of the Act requires the 

Secretary to establish a Hospital VBP 

Program under which, for discharges 

beginning on October 1, 2012, valuebased incentive payments are made in a 

fiscal year to eligible subsection (d) 

hospitals that meet performance 

standards established for a performance 

period for that fiscal year. As specified 

under section 1886(o)(7)(B)(i) of the Act, 

these value-based incentive payments 

are funded by a reduction applied to 

each eligible hospital’s base-operating 

DRG payment amount, for each 

discharge occurring in the fiscal year. 

As required by section 1886(o)(7)(A) of 

the Act, the total amount of allocated 

funds available for value-based 

incentive payments with respect to a 

fiscal year is equal to the total amount 

of base-operating DRG payment 

reductions, as estimated by the 

Secretary. In a given fiscal year, 

hospitals may earn a value-based 

incentive payment amount for a fiscal 

year that is greater than, equal to, or less 

than the reduction amount, based on 

their performance on quality measures 

under the Hospital VBP Program. Thus, 

the Hospital VBP Program is estimated 

to have no net effect on overall 

payments. We refer readers to section 

IV.I. of the preamble of this proposed 

rule for full details regarding the 

Hospital VBP Program. 

Both the hospital readmissions 

payment adjustment (reduction) and the 

hospital VBP payment adjustment 

(redistribution) are applied on a claimby-claim basis by adjusting, as 

applicable, the base-operating DRG 

payment amount for individual 

subsection (d) hospitals, which affects 

the overall sum of aggregate payments 

on each side of the comparison within 

the budget neutrality calculations. For 

example, when we calculate the budget 

neutrality factor for MS–DRG 

reclassification and recalibration of the 

relative weights, we compare aggregate 

payments estimated using the prior 

year’s GROUPER and relative weights to 

estimated payments using the new 

GROUPER and relative weights. (We 

refer readers to section II.A.4.a. of this 

Addendum for full details.) Other 

factors, such as the DSH and IME 

payment adjustments, are the same on 

both sides of the comparison because 

we are only seeking to ensure that 

aggregate payments do not increase or 

decrease as a result of the changes of 

MS–DRG reclassification and 

recalibration. 

In order to properly determine 

aggregate payments on each side of the 

comparison, as we did for FY 2014, for 

FY 2015 and subsequent years, we are 

proposing to continue to apply the 

hospital readmissions payment 

adjustment and the hospital VBP 

payment adjustment on each side of the 

comparison, consistent with the 

methodology that we adopted in the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53687 through 53688). That is, we are 

proposing to apply the readmissions 

payment adjustment factor and the 

hospital VBP payment adjustment factor 

on both sides of our comparison of 

aggregate payments when determining 

all budget neutrality factors described in 

section II.A.4. of this Addendum. 

For the purpose of calculating the 

proposed FY 2015 readmissions 

payment adjustment factors, we are 

proposing to use excess readmission 

ratios and aggregate payments for excess 

readmissions based on admissions from 

the prior fiscal year’s applicable period 

because hospitals have had the 

opportunity to review and correct these 

data before the data were made public 

under the policy we adopted regarding 

the reporting of hospital-specific 

readmission rates, consistent with 

section 1886(q)(6) of the Act. For this 

proposed rule, we are proposing to 

calculate the readmissions payment 

adjustment factors using excess 

readmission ratios and aggregate 

payments for excess readmissions based 

on admissions from the finalized 

applicable period for FY 2015 as 

hospitals have had the opportunity to 

review and correct these data under our 

policy regarding the reporting of 

hospital-specific readmission rates 

consistent with section 1886(q)(6) of the 

Act. We discuss our policy regarding the 

reporting of hospital-specific 

readmission rates for FY 2015 in section 

IV.H.3.f. of the preamble of this 

proposed rule. (For additional 

information on our general policy for 

the reporting of hospital-specific 

readmission rates, consistent with 

section 1886(q)(6) of the Act, we refer 

readers to the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53399 through 53400).) 

In addition, for this proposed rule, for 

the purpose of modeling aggregate 

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payments when determining all budget 

neutrality factors, we are proposing to 

use proxy hospital VBP payment 

adjustment factors for FY 2015 that are 

based on data from a historical period 

because hospitals have not yet had an 

opportunity to review and submit 

corrections for their data from the FY 

2015 performance period. (For 

additional information on our policy 

regarding the review and correction of 

hospital-specific measure rates under 

the Hospital VBP Program, consistent 

with section 1886(o)(10)(A)(ii) of the 

Act, we refer readers to the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53578 

through 53581), the CY 2012 OPPS/ASC 

final rule with comment period (76 FR 

74544 through 74547), and the Hospital 

Inpatient VBP final rule (76 FR 26534 

through 26536).) 

The Affordable Care Act also 

established section 1886(r) of the Act, 

which modifies the methodology for 

computing the Medicare DSH payment 

adjustment beginning in FY 2014. 

Beginning in FY 2014, IPPS hospitals 

receiving Medicare DSH payment 

adjustments will receive an empirically 

justified Medicare DSH payment equal 

to 25 percent of the amount that would 

previously have been received under the 

current statutory formula set forth under 

section 1886(d)(5)(F) of the Act 

governing the Medicare DSH payment 

adjustment. In accordance with section 

1886(r)(2) of the Act, the remaining 

amount, equal to an estimate of 75 

percent of what otherwise would have 

been paid as Medicare DSH payments, 

reduced to reflect changes in the 

percentage of individuals under age 65 

who are uninsured, will be available to 

make additional payments to Medicare 

DSH hospitals based on their share of 

the total amount of uncompensated care 

reported by Medicare DSH hospitals for 

a given time period. In order to properly 

determine aggregate payments on each 

side of the comparison for budget 

neutrality, prior to FY2014, we included 

estimated Medicare DSH payments on 

both sides of our comparison of 

aggregate payments when determining 

all budget neutrality factors described in 

section II.A.4. of this Addendum. 

To do this for FY 2015 and 

subsequent years (as we did for FY 

2014), we are proposing to include 

estimated empirically justified Medicare 

DSH payments that will be paid in 

accordance with section 1886(r)(1) of 

the Act and also to include estimates of 

the additional uncompensated care 

payments made to hospitals receiving 

Medicare DSH payment adjustments as 

described by section 1886(r)(2) of the 

Act. That is, we are proposing to 

consider estimated empirically justified 

Medicare DSH payments at 25 percent 

of what would otherwise have been 

paid, and also the estimated additional 

uncompensated care payments for 

hospitals receiving Medicare DSH 

payment adjustments on both sides of 

our comparison of aggregate payments 

when determining all budget neutrality 

factors described in section II.A.4. of 

this Addendum. 

We note that, when calculating total 

payments for budget neutrality, to 

determine total payments for SCHs we 

model total hospital-specific rate 

payments and total federal rate 

payments and then include whichever 

one of the total payments are greater. As 

discussed in section IV.F. of the 

preamble to this proposed rule and 

below, we are continuing the FY 2014 

finalized methodology under which we 

will take into consideration 

uncompensated care payments in the 

comparison of payments under the 

Federal rate and the hospital-specific 

rate for SCHs. Therefore, we are 

including estimated uncompensated 

care payments in this comparison. 

Similarly, for MDHs, as discussed in 

section IV. of the preamble to this 

proposed rule, when computing the 

Federal national rate plus 75 percent of 

the difference between the Federal 

national rate and the updated hospitalspecific rate, we are continuing to take 

into consideration uncompensated care 

payments in the computation of 

payments under the Federal rate and the 

hospital-specific rate for MDHs. 

Also, for FY 2015, CMS has yet to 

finalize a list of hospitals that are not 

meaningful EHR users under section 

1886(b)(3)(B)(ix) of the Act. Therefore, 

we are proposing not to include this 

adjustment to the standardized amount 

(for those hospitals that are not 

meaningful EHR users) in our modeling 

of aggregate payments for budget 

neutrality for FY 2015. CMS intends to 

release a final list of hospitals that are 

not meaningful EHR user in September 

2014. Hospitals identified on this list 

will be paid based on the applicable 

proposed standardized amount in Table 

1A for discharges occurring in FY 2015. 

We finally note that the wage index 

value is calculated and assigned to a 

hospital based on the hospital’s labor 

market area. Under section 1886(d)(3)(E) 

of the Act, beginning with FY 2005, we 

delineate hospital labor market areas 

based on the Core-Based Statistical 

Areas (CBSAs) established by the Office 

of Management and Budget (OMB). The 

current statistical areas used in FY 2014 

are based on OMB standards published 

on December 27, 2000 (65 FR 82228) 

and Census 2000 data and Census 

Bureau population estimates for 2007 

and 2008 (OMB Bulletin No. 10–02). For 

purposes of determining all of the FY 

2014 budget neutrality factors, we 

determined aggregate payments on each 

side of the comparison for our budget 

neutrality calculations using wage 

indexes based on the current CBSAs. 

As stated in the FY 2014 IPPS/LTCH 

PPS proposed rule (78 FR 27552) and 

final rule (78 FR 50586), on February 28, 

2013, OMB issued OMB Bulletin No. 

13–01, which established revised 

delineations for Metropolitan Statistical 

Areas, Micropolitan Statistical Areas, 

and Combined Statistical Areas, and 

provided guidance on the use of the 

delineations of these statistical areas. In 

order to implement these changes for 

the IPPS, it is necessary to identify the 

new OMB labor market area delineation 

for each county and hospital in the 

country. In the FY 2014 IPPS/LTCH PPS 

final rule (78 FR 50586), we stated that 

we intended to propose changes to the 

wage index policy based on the new 

OMB delineations in this FY 2015 

proposed rule. As discussed in section 

III. of the preamble of this proposed 

rule, we are proposing to adopt the new 

OMB labor market area delineations as 

described in the February 28, 2013 OMB 

Bulletin No. 13–01, effective for the FY 

2015 IPPS wage index. 

Consistent with our proposal to adopt 

the new OMB delineations, in order to 

properly determine aggregate payments 

on each side of the comparison for our 

budget neutrality calculations, we are 

proposing to use wage indexes based on 

the new OMB delineations in the 

determination of all of the proposed 

budget neutrality factors discussed 

below (with the exception of the 

proposed transitional budget neutrality 

factor and proposed outlier threshold as 

explained below). We also note that, 

consistent with past practice as 

finalized in the FY 2005 IPPS final rule 

(69 FR 49034), we are not adopting the 

new OMB delineations themselves in a 

budget neutral manner. We continue to 

believe that the revision to the labor 

market areas in and of itself do not 

constitute an ‘‘adjustment or update’’ to 

the adjustment for area wage 

differences, as provided under section 

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

a. Proposed Recalibration of MS–DRG 

Relative Weights and Updated Wage 

Index—Budget Neutrality Adjustment 

Section 1886(d)(4)(C)(iii) of the Act 

specifies that, beginning in FY 1991, the 

annual DRG reclassification and 

recalibration of the relative weights 

must be made in a manner that ensures 

that aggregate payments to hospitals are 

not affected. As discussed in section 

II.H. of the preamble of this proposed 

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rule, we normalized the recalibrated 

MS–DRG relative weights by an 

adjustment factor so that the average 

case relative weight after recalibration is 

equal to the average case relative weight 

prior to recalibration. However, 

equating the average case relative 

weight after recalibration to the average 

case relative weight before recalibration 

does not necessarily achieve budget 

neutrality with respect to aggregate 

payments to hospitals because payments 

to hospitals are affected by factors other 

than average case relative weight. 

Therefore, as we have done in past 

years, we are proposing to make a 

budget neutrality adjustment to ensure 

that the requirement of section 

1886(d)(4)(C)(iii) of the Act is met. 

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

requires us to update the hospital wage 

index on an annual basis beginning 

October 1, 1993. This provision also 

requires us to make any updates or 

adjustments to the wage index in a 

manner that ensures that aggregate 

payments to hospitals are not affected 

by the change in the wage index. 

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

requires that we implement the wage 

index adjustment in a budget neutral 

manner. However, section 

1886(d)(3)(E)(ii) of the Act sets the 

labor-related share at 62 percent for 

hospitals with a wage index less than or 

equal to 1.0000, 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 laborrelated share for hospitals with wage 

indices less than or equal to 1.0 at the 

more advantageous level of 62 percent. 

Therefore, for purposes of this budget 

neutrality adjustment, section 

1886(d)(3)(E)(i) of the Act prohibits us 

from taking into account the fact that 

hospitals with a wage index less than or 

equal to 1.0000 are paid using a laborrelated share of 62 percent. Consistent 

with current policy, for FY 2015, we are 

proposing to adjust 100 percent of the 

wage index factor for occupational mix. 

We describe the proposed occupational 

mix adjustment in section III.F. of the 

preamble of this proposed rule. 

For FY 2015, to comply with the 

requirement that MS–DRG 

reclassification and recalibration of the 

relative weights be budget neutral for 

the Puerto Rico standardized amount 

and the hospital-specific rates, we used 

FY 2013 discharge data to simulate 

payments and compared the following: 

• Aggregate payments using the new 

OMB labor market area delineations 

proposed for FY 2015, the FY 2014 

relative weights, and the FY 2014 prereclassified wage data, and applied the 

proposed FY 2015 hospital 

readmissions payment adjustments and 

estimated FY 2015 hospital VBP 

payment adjustments; and 

• Aggregate payments using the new 

OMB labor market area delineations 

proposed for FY 2015, the proposed FY 

2015 relative weights, and the FY 2014 

pre-reclassified wage data, and applied 

the same hospital readmissions payment 

adjustments and estimated hospital VBP 

payment adjustments applied above. 

Based on this comparison, we 

computed a proposed budget neutrality 

adjustment factor equal to 0.992938. As 

discussed in section IV. of this 

Addendum, we also are proposing to 

apply the proposed MS–DRG 

reclassification and recalibration budget 

neutrality factor of 0.992938 to the 

hospital-specific rates that are effective 

for cost reporting periods beginning on 

or after October 1, 2014. 

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 MS–DRG 

reclassification and recalibration of the 

relative weights and the updated wage 

index and labor-related share have no 

effect on aggregate payments for IPPS 

hospitals. Under the first step, we 

determined a proposed MS–DRG 

reclassification and recalibration budget 

neutrality factor of 0.992938 (by using 

the same methodology described above 

to determine the MS–DRG 

reclassification and recalibration budget 

neutrality factor for the Puerto Rico 

standardized amount and hospitalspecific rates). Under the second step, to 

compute a proposed budget neutrality 

factor for wage index and labor-related 

share changes we used FY 2013 

discharge data to simulate payments 

and compared the following: 

• Aggregate payments using the new 

OMB labor market area delineations 

proposed for FY 2015, proposed FY 

2015 relative weights and the FY 2014 

pre-reclassified wage indices, applied 

the FY 2014 labor-related share of 69.6 

percent to all hospitals (regardless of 

whether the hospital’s wage index was 

above or below 1.0), and applied the 

proposed FY 2015 hospital 

readmissions payment adjustment and 

the proposed FY 2015 estimated 

hospital VBP payment adjustment; and 

• Aggregate payments using the new 

OMB labor market area delineations 

proposed for FY 2015, proposed FY 

2015 relative weights and the proposed 

FY 2015 pre-reclassified wage indices, 

applied the proposed labor-related share 

for FY 2015 of 69.6 percent to all 

hospitals (regardless of whether the 

hospital’s wage index was above or 

below 1.0), and applied the same 

proposed FY 2015 hospital 

readmissions payment adjustments and 

estimated proposed FY 2015 hospital 

VBP payment adjustments applied 

above. 

In addition, we applied the proposed 

MS–DRG reclassification and 

recalibration budget neutrality factor 

(derived in the first step) to the payment 

rates that were used to simulate 

payments for this comparison of 

aggregate payments from FY 2014 to FY 

2015. By applying this methodology, we 

determined a proposed budget 

neutrality adjustment factor of 1.000578 

for changes to the wage index. Finally, 

we multiplied the proposed MS–DRG 

reclassification and recalibration budget 

neutrality adjustment factor of 0.992938 

(derived in the first step) by the 

proposed budget neutrality adjustment 

factor of 1.000578 for changes to the 

wage index (derived in the second step) 

to determine the proposed MS–DRG 

reclassification and recalibration and 

updated wage index budget neutrality 

adjustment factor of 0.993512. 

b. Reclassified Hospitals—Budget 

Neutrality Adjustment 

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

provides that certain rural hospitals are 

deemed urban. In addition, section 

1886(d)(10) of the Act provides for the 

reclassification of hospitals based on 

determinations by the MGCRB. Under 

section 1886(d)(10) of the Act, a hospital 

may be reclassified for purposes of the 

wage index. 

Under section 1886(d)(8)(D) of the 

Act, the Secretary is required to adjust 

the standardized amount to ensure that 

aggregate payments under the IPPS after 

implementation of the provisions of 

sections 1886(d)(8)(B) and (C) and 

1886(d)(10) of the Act are equal to the 

aggregate prospective payments that 

would have been made absent these 

provisions. We note that the wage index 

adjustments provided for under section 

1886(d)(13) of the Act are not budget 

neutral. Section 1886(d)(13)(H) of the 

Act provides that any increase in a wage 

index under section 1886(d)(13) shall 

not be taken into account in ‘‘applying 

any budget neutrality adjustment with 

respect to such index’’ under section 

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1886(d)(8)(D) of the Act. To calculate 

the proposed budget neutrality factor for 

FY 2015, we used FY 2013 discharge 

data to simulate payments and 

compared the following: 

• Aggregate payments using the new 

OMB labor market area delineations 

proposed for FY 2015, proposed FY 

2015 relative weights, and proposed FY 

2015 wage data prior to any 

reclassifications under sections 

1886(d)(8)(B) and (C) and 1886(d)(10) of 

the Act, and applied the proposed FY 

2015 hospital readmissions payment 

adjustments and the proposed estimated 

FY 2015 hospital VBP payment 

adjustments; and 

• Aggregate payments using the new 

OMB labor market area delineations 

proposed for FY 2015, proposed FY 

2015 relative weights, and proposed FY 

2015 wage data after such 

reclassifications, and applied the same 

proposed hospital readmissions 

payment adjustments and the estimated 

hospital VBP payment adjustments 

applied above. 

We note that the reclassifications 

applied under the second simulation 

and comparison are those listed in 

Tables 9A2 and 9C2, which are posted 

on the CMS Web site. These tables 

reflect reclassification crosswalks based 

on the new OMB labor market area 

delineations proposed for FY 2015, and 

apply the policies explained in section 

III. of the preamble to this proposed 

rule. Based on these simulations, we 

calculated a proposed budget neutrality 

adjustment factor of 0.991412 to ensure 

that the effects of these provisions are 

budget neutral, consistent with the 

statute. 

The proposed FY 2015 budget 

neutrality adjustment factor was applied 

to the proposed standardized amount 

after removing the effects of the FY 2014 

budget neutrality adjustment factor. We 

note that the proposed FY 2015 budget 

neutrality adjustment reflects proposed 

FY 2015 wage index reclassifications 

approved by the MGCRB or the 

Administrator. 

c. Proposed Rural Floor Budget 

Neutrality Adjustment 

Under § 412.64(e)(4), 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 

§ 412.64(h)(4) are equal to the aggregate 

prospective payments that would have 

been made in the absence of such 

provisions. Consistent with section 3141 

of the Affordable Care Act and as 

discussed in section III.G. of the 

preamble of this proposed rule and 

codified at § 412.64(e)(4)(ii), the budget 

neutrality adjustment for the rural and 

imputed floor is a national adjustment 

to the wage index. 

As noted above and as discussed in 

section III.G.2.b. of the preamble of this 

proposed rule, in the FY 2012 IPPS/

LTCH PPS final rule, we extended the 

imputed floor calculated under the 

original methodology through FY 2013 

(76 FR 51594). In the FY 2013 IPPS/

LTCH PPS final rule, we established an 

alternative methodology for calculating 

the imputed floor and established a 

policy that the minimum wage index 

value for an all-urban state would be the 

higher of the value determined under 

the original methodology or the value 

computed using the alternative 

methodology (77 FR 53368 through 

53369). Consistent with the 

methodology for treating the imputed 

floor, similar to the methodology we 

used in the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53368 through 53369), 

we included this alternative 

methodology for computing the imputed 

floor index in the calculation of the 

uniform, national rural floor budget 

neutrality adjustment for FY 2014. For 

FY 2015, as discussed in section 

III.G.2.b. of the preamble of this 

proposed rule, we are proposing to 

extend the imputed floor using the 

higher of the value determined under 

the original methodology or the 

alternative methodology for FY 2015. 

Therefore, in order to ensure that 

aggregate payments to hospitals are not 

affected, similar to prior years, we 

would follow our policy of including 

the imputed floor in the rural floor 

budget neutrality adjustment to the 

wage index. 

As discussed above, for FY 2015, we 

are proposing to implement the new 

OMB delineations as described in the 

February 28, 2013 OMB Bulletin No. 

13–01, effective for the FY 2015 IPPS 

wage index. Therefore, the budget 

neutrality adjustment for the rural floor 

and imputed floor would be calculated 

using the new OMB delineations. 

Under the OMB delineations used for 

FY 2014, the imputed floor (both the 

original methodology and alternative 

methodology) was applied to New 

Jersey and Rhode Island because these 

were the only two all-urban States. 

Under OMB’s 2010 revised delineations 

based on Census 2010 data, in addition 

to New Jersey and Rhode Island, 

Delaware would become an all-urban 

state. Therefore, for FY 2015, the 

proposed imputed floor would be 

applied to New Jersey, Rhode Island, 

and Delaware. 

Similar to our calculation in the FY 

2012 IPPS/LTCH PPS final rule (76 FR 

51593 and 51788), the FY 2013 IPPS/

LTCH PPS final rule (77 FR 53689), and 

the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50975 through 50976), for FY 

2015, we are calculating a proposed 

national rural Puerto Rico wage index 

(used to adjust the labor-related share of 

the national standardized amount for 

hospitals located in Puerto Rico which 

receive 75 percent of the national 

standardized amount) and a proposed 

rural Puerto Rico-specific wage index 

(which is used to adjust the laborrelated share of the Puerto Rico-specific 

standardized amount for hospitals 

located in Puerto Rico that receive 25 

percent of the Puerto Rico-specific 

standardized amount). Because there are 

no rural Puerto Rico hospitals with 

established wage data, our calculation of 

the FY 2015 rural Puerto Rico wage 

index is based on the policy adopted in 

the FY 2008 IPPS final rule with 

comment period (72 FR 47323). That is, 

we will use the unweighted average of 

the wage indexes from all CBSAs (urban 

areas) that are contiguous (share a 

border with) to the rural counties to 

compute the rural floor (72 FR 47323; 76 

FR 51594). Under the new OMB labor 

market area delineations, except for 

Arecibo, Puerto Rico (CBSA 11640), all 

other Puerto Rico urban areas are 

contiguous to a rural area. Therefore, 

based on our existing policy, the FY 

2015 rural Puerto Rico wage index is 

calculated based on the average of the 

FY 2015 wage indices for the following 

urban areas: Aguadilla-Isabela, PR 

(CBSA 10380); Guayama, PR (CBSA 

25020); Mayaguez, PR (CBSA 32420); 

Ponce, PR (CBSA 38660), San German, 

PR (CBSA 41900) and San JuanCarolina-Caguas, PR, PR (CBSA 41980). 

To calculate the proposed national 

rural floor and imputed floor budget 

neutrality adjustment factor and the 

proposed Puerto Rico-specific rural 

floor budget neutrality adjustment 

factor, we used FY 2013 discharge data 

to simulate payments, the proposed FY 

2015 new OMB labor market area 

delineations, and post-reclassified 

national and Puerto Rico-specific wage 

indices and compared the following: 

• The national and Puerto Ricospecific simulated payments without 

the national rural floor and imputed 

floor and Puerto Rico-specific rural floor 

applied; and 

• The national and Puerto Ricospecific simulated payments with the 

national rural floor and imputed floor 

and Puerto Rico-specific rural floor 

applied. 

Based on this comparison, we 

determined a proposed national rural 

budget neutrality adjustment factor of 

0.989455 and the proposed Puerto Ricomstockstill on DSK4VPTVN1PROD with PROPOSALS2

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specific budget neutrality adjustment 

factor of 0.991359. The proposed 

national adjustment was applied to the 

proposed national wage indexes to 

produce a proposed national rural floor 

budget neutral wage index and the 

proposed Puerto Rico-specific 

adjustment was applied to the proposed 

Puerto Rico-specific wage indexes to 

produce a proposed Puerto Rico-specific 

rural floor budget neutral wage index. 

d. Proposed Wage Index Transition 

Budget Neutrality 

As discussed in section III. of the 

preamble to this proposed rule, in the 

past, we have provided for transition 

periods when adopting changes that 

have significant payment implications, 

particularly large negative impacts. 

Similar to FY 2005, for FY 2015, we 

have determined that the proposed 

transition to using the new OMB 

delineations would have the largest 

impact on hospitals that are currently 

located in an urban county that would 

become rural under the new OMB 

delineations. To alleviate the decreased 

payments associated with having a rural 

wage index, in calculating the area wage 

index, similar to the transition provided 

in the FY 2005 IPPS final rule, we 

generally are proposing a policy to 

assign them the urban wage index value 

of the CBSA to which they are 

physically located for FY 2014 for FYs 

2015, 2016, and 2017. 

In addition to the 3-year transition 

adjustment for hospitals being 

transitioned from urban to rural status 

as discussed above, we are proposing a 

1-year blended wage index for all 

hospitals that would experience any 

decrease in their actual payment wage 

index (that is, a hospital’s actual wage 

index used for payment, which accounts 

for all applicable effects of 

reclassification and redesignation) 

exclusively due to the proposed 

implementation of the new OMB 

delineations. Similar to the policy 

adopted in the FY 2005 IPPS final rule 

(69 FR 49033), we are proposing that a 

post-reclassified wage index with the 

rural and imputed floor applied would 

be computed based on the hospital’s FY 

2014 CBSA (that is, using all of its FY 

2014 constituent county/ies), and 

another post-reclassified wage index 

with the rural and imputed floor 

applied would be computed based on 

the hospital’s new FY 2015 CBSA (that 

is, the FY 2015 constituent county/ies). 

We are proposing to compare these two 

wage indexes. If the proposed FY 2015 

wage index with FY 2015 CBSAs would 

be lower than the proposed FY 2015 

wage index with FY 2014 CBSAs, we 

are proposing that a blended wage index 

would be computed, consisting of 50 

percent of each of the two wage indexes 

added together. We are proposing that 

this blended wage index would be the 

hospital’s wage index for FY 2015. 

Hospitals that benefit from the proposed 

adoption of the new OMB delineations 

would receive their new wage index 

based on the new OMB delineations. We 

refer readers to section III. of the 

preamble to this proposed rule for a 

completer discussion on the transitional 

wage index policy. 

In the past, CMS has budget 

neutralized transitional wage indexes. 

Because we are proposing a policy that 

allows for the application of a 

transitional wage index only when it 

would benefit the hospital, we believe 

that it would be appropriate to ensure 

that such a transitional policy does not 

increase aggregate Medicare payments 

beyond the payments that would be 

made had we simply adopted the new 

OMB delineations without any 

transitional provisions. Therefore, for 

FY 2015, we are proposing to use our 

exceptions and adjustments authority 

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

to make an adjustment to the national 

and Puerto Rico-specific standardized 

amounts to ensure that total payments, 

including the effect of the transitional 

wage index provisions, would equal 

what payments would have been if we 

had proposed to fully adopt the new 

OMB delineations without any 

transitional provisions. 

As stated above, the proposed 50/50 

blended wage indexes would use postreclassified wage index data with the 

rural and imputed floor applied 

computed based on FY 2014 CBSAs. 

Because the proposed 50/50 blend 

methodology would use data based on 

FY 2014 CBSAs, in order to properly 

calculate the proposed transitional 

budget neutrality factor, it was first 

necessary to calculate the following 

proposed budget neutrality factors based 

on the FY 2014 CBSAs: An MS–DRG 

and a wage index budget neutrality, a 

reclassification budget neutrality, and a 

rural floor budget neutrality. It was 

necessary to compute the first three 

budget neutrality factors of MS–DRG, 

wage index, and reclassification budget 

neutrality (which are applied to the 

standardized amount) to ensure that the 

calculation of the rural and imputed 

floor budget neutrality factor applied to 

the wage index based on FY 2014 

CBSAs is accurate. We calculated these 

four budget neutrality factors using the 

same methodology stated above, but 

used the FY 2014 CBSAs instead of the 

proposed FY 2015 CBSAs on both the 

sides of the comparison. 

After calculating all of the proposed 

budget neutrality factors using FY 2014 

and FY 2015 CBSAs, to calculate the 

proposed transitional wage index 

budget neutrality factor for FY 2015, we 

used FY 2013 discharge data to simulate 

payments and compared the following: 

• Aggregate payments using new 

OMB delineations proposed for FY 

2015, the proposed FY 2015 relative 

weights, proposed FY 2015 wage data 

after such reclassifications under 

sections 1886(d)(8)(B) and (C) and 

1886(d)(10) of the Act (using the new 

OMB delineations), applied the 

proposed rural floor budget neutrality 

factor to the wage index (using the new 

OMB delineations), and applied the 

proposed FY 2015 hospital 

readmissions payment adjustments and 

the proposed estimated FY 2015 

hospital VBP payment adjustments; and 

• Aggregate payments using proposed 

FY 2015 relative weights, proposed FY 

2015 wage data after applying the 

transitional wage indexes, and applied 

the same proposed hospital 

readmissions payment adjustments and 

the estimated hospital VBP payment 

adjustments applied above. We note that 

hospitals that did not receive the 

proposed transitional 50/50 blended 

wage index were assigned the postreclassified wage index values with the 

proposed rural floor budget neutrality 

based on the proposed FY 2015 new 

OMB delineations. 

Based on these simulations, we 

calculated a proposed budget neutrality 

adjustment factor of 0.998856. 

Therefore, for FY 2015, we are 

proposing to apply a transitional wage 

index budget neutrality adjustment 

factor of 0.998856 to the national 

average and Puerto Rico-specific 

standardized amounts to ensure that the 

effects of these proposed transitional 

wage indices are budget neutral. 

We note that the proposed budget 

neutrality adjustment factor calculated 

above is based on the increase in 

payments in FY 2015 that would result 

from the transitional wage indexes. 

Therefore, we are proposing to apply 

this budget neutrality adjustment factor 

as a one-time adjustment to the FY 2015 

national and Puerto Rico-specific 

standardized amounts in order to offset 

the increase in payments in FY 2015 as 

a result of these transitional wage 

indexes. For subsequent fiscal years, we 

are proposing to not take into 

consideration the adjustment factor 

applied to the national and Puerto Ricospecific standardized amounts in the 

previous fiscal year’s update when 

calculating the current fiscal year 

transitional wage index budget 

neutrality adjustment factor (that is, we 

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are proposing that this adjustment 

would not be applied cumulatively). 

Because we are proposing a 3-year 

transitional wage index policy for urban 

hospitals that became rural as a result of 

the proposed adoption of the new OMB 

delineations, we intend to propose 

transitional wage index budget 

neutrality adjustment factors to apply to 

the FY 2016 and FY 2017 national and 

Puerto Rico-specific standardized 

amounts during those respective 

rulemaking cycles. Similar to the 

proposal for FY 2015, we plan on 

proposing that the FYs 2016 and 2017 

adjustments would be applied as ‘‘onetime’’ adjustments and not cumulative 

adjustments applied each fiscal year. 

d. Proposed Case-Mix Budget Neutrality 

Adjustment 

Below we summarize the proposed 

recoupment adjustment to the proposed 

FY 2015 payment rates, as required by 

section 631 of ATRA, to account for the 

increase in aggregate payments as a 

result of not completing the prospective 

adjustment authorized under section 

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

FY 2013. We refer readers to section 

II.D. of the preamble of this proposed 

rule for a complete discussion regarding 

our proposed policies for FY 2015 in 

this proposed rule and previously 

finalized policies (including our 

historical adjustments to the payment 

rates) relating to the effect of changes in 

documentation and coding that do not 

reflect real changes in case-mix. 

(1) Recoupment or Repayment 

Adjustment Authorized by Section 631 

of the American Taxpayer Relief Act of 

2012 (ATRA) to the National 

Standardized Amount 

Section 631 of the ATRA amended 

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

to require the Secretary to make a 

recoupment adjustment totaling $11 

billion by FY 2017. Our actuaries 

estimated that if CMS were to fully 

account for the $11 billion recoupment 

required by section 631 of ATRA in FY 

2014, a one-time ¥9.3 percent 

adjustment to the standardized amount 

would be necessary. It is often our 

practice to delay or phase-in payment 

rate adjustments over more than 1 year, 

in order to moderate the effect on 

payment rates in any 1 year. Therefore, 

consistent with the policies that we 

have adopted in many similar cases, for 

FY 2014, we applied a ¥0.8 percent 

adjustment to the standardized amount. 

In this proposed rule, we are proposing 

to apply an additional ¥0.8 percent 

adjustment to the standardized amount 

for FY 2015. We note that, as section 

631 of the ATRA instructs the Secretary 

to make a recoupment adjustment only 

to the standardized amount, this 

adjustment would not apply to the 

Puerto Rico-specific standardized 

amount and hospital-specific payment 

rates. 

e. Rural Community Hospital 

Demonstration Program Adjustment 

As discussed in section IV.L. of the 

preamble of this proposed rule, section 

410A of Public Law 108–173 originally 

required the Secretary to establish a 

demonstration program that modifies 

reimbursement for inpatient services for 

up to 15 small rural hospitals. Section 

410A(c)(2) of Public Law 108–173 

requires that ‘‘[i]n conducting the 

demonstration program under this 

section, the Secretary shall ensure that 

the aggregate payments made by the 

Secretary do not exceed the amount 

which the Secretary would have paid if 

the demonstration program under this 

section was not implemented.’’ 

Sections 3123 and 10313 of the 

Affordable Care Act extended the 

demonstration program for an 

additional 5-year period, and allowed 

up to 30 hospitals to participate in 20 

States with low population densities 

determined by the Secretary. (In 

determining which States to include in 

the expansion, the Secretary is required 

to use the same criteria and data that the 

Secretary used to determine the States 

for purposes of the initial 5-year period.) 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53449 through 53453), in 

order to achieve budget neutrality, we 

adjusted the national IPPS payment 

rates by an amount sufficient to account 

for the added costs of this 

demonstration program as described in 

section IV.K. of that final rule. In other 

words, we applied budget neutrality 

across the payment system as a whole 

rather than merely across the 

participants of this demonstration 

program, consistent with past practice. 

We stated that we believe 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 we did for FY 2014, for FY 2015, 

we are proposing to adjust the national 

IPPS payment rates according to the 

same methodology that we used for FY 

2013, as set forth in section IV.L. of the 

preamble of this proposed rule, to 

account for the estimated additional 

costs of the demonstration program for 

FY 2015. For this proposed rule, the 

estimated amount of this proposed 

budget neutrality adjustment factor 

applied to the national IPPS payment 

rates for FY 2015 is $53,673,008. In 

addition, similar to previous years, we 

are proposing to include in the budget 

neutrality offset amount the amount by 

which the actual demonstration costs 

corresponding to an earlier given year 

(which would be determined once we 

have finalized cost reports for that year) 

exceeded the budget neutrality offset 

amount finalized in the corresponding 

year’s IPPS final rule. For this FY 2015 

IPPS/LTCH PPS proposed rule, we have 

calculated the amount by which the 

actual costs of the demonstration in FY 

2008, (that is, the costs of the 

demonstration for the 10 hospitals that 

participated in FY 2008, as shown in 

these hospitals’ finalized cost reports for 

the cost report period beginning in that 

calendar year), exceeded the amount 

that was finalized in the FY 2008 IPPS 

final rule. We are proposing a budget 

neutrality offset amount of $10,389,771 

for this proposed rule, but we note that 

this amount may change based on data 

used for the FY 2015 IPPS/LTCH PPS 

final rule subject to methodological 

refinements. We also are currently 

working with the MACs that service the 

hospitals participating in the 

demonstration to obtain finalized cost 

reports for FYs 2009, 2010, and 2011). 

Depending on our progress in obtaining 

these cost reports, we may also include 

in the FY IPPS final rule the difference 

between the demonstration costs for one 

or more of these years and the amounts 

that were finalized in the respective 

fiscal years’ final rules. 

Therefore, the final total budget 

neutrality offset amount that we are 

proposing to be applied to the FY 2015 

IPPS rates is $ 64,062,779. This amount 

is the sum of two separate components: 

(1) The difference between the total 

estimated FY 2014 reasonable cost 

amount to be paid under the 

demonstration to the 22 participating 

hospitals participating in the 

demonstration program for covered 

inpatient services, and the total 

estimated amount that would be 

otherwise be paid to the participating 

hospitals in FY 2014 without the 

demonstration ($53,673,008); and (2) the 

amount by which the actual costs of 

demonstration for FY 2008, which are 

calculated in accordance with the 

finalized cost reports for the hospitals 

that participated in the demonstration 

during FY 2008, exceed the budget 

neutrality offset amount that was 

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finalized in the FY 2008 IPPS final rule 

($10,389,771). 

Accordingly, using the most recent 

data available to account for the 

estimated costs of the demonstration 

program, for FY 2015, we computed a 

proposed factor of 0.999283 for the rural 

community hospital demonstration 

program budget neutrality adjustment 

that will be applied to the IPPS standard 

Federal payment rate. 

g. Proposed Outlier Payments 

Section 1886(d)(5)(A) of the Act 

provides for payments in addition to the 

basic prospective payments for ‘‘outlier’’ 

cases involving extraordinarily high 

costs. To qualify for outlier payments, a 

case must have costs greater than the 

sum of the prospective payment rate for 

the DRG, any IME and DSH payments, 

any new technology add-on payments, 

and the ‘‘outlier threshold’’ or ‘‘fixedloss’’ amount (a dollar amount by which 

the costs of a case must exceed 

payments in order to qualify for an 

outlier payment). We refer to the sum of 

the prospective payment rate for the 

DRG, any IME and DSH payments, any 

new technology add-on payments, and 

the outlier threshold as the outlier 

‘‘fixed-loss cost threshold.’’ To 

determine whether the costs of a case 

exceed the fixed-loss cost threshold, a 

hospital’s CCR is applied to the total 

covered charges for the case to convert 

the charges to estimated costs. Payments 

for eligible cases are then made based 

on a marginal cost factor, which is a 

percentage of the estimated costs above 

the fixed-loss cost threshold. The 

marginal cost factor for FY 2015 is 80 

percent, the same marginal cost factor 

we have used since FY 1995 (59 FR 

45367). 

In accordance with section 

1886(d)(5)(A)(iv) of the Act, outlier 

payments for any year are projected to 

be not less than 5 percent nor more than 

6 percent of total operating DRG 

payments (which does not include IME 

and DSH payments) plus outlier 

payments. When setting the outlier 

threshold, we compute the 5.1 percent 

target by dividing the total operating 

outlier payments by the total operating 

DRG payments plus outlier payments. 

We do not include any other payments 

such as IME and DSH within the outlier 

target amount. Therefore, it is not 

necessary to include Medicare 

Advantage IME payments in the outlier 

threshold calculation. Section 

1886(d)(3)(B) of the Act requires the 

Secretary to reduce the average 

standardized amount by a factor to 

account for the estimated proportion of 

total DRG payments made to outlier 

cases. Similarly, section 

1886(d)(9)(B)(iv) of the Act requires the 

Secretary to reduce the average 

standardized amount applicable to 

hospitals located in Puerto Rico to 

account for the estimated proportion of 

total DRG payments made to outlier 

cases. More information on outlier 

payments may be found on the CMS 

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

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

outlier.html. 

(1) Proposed FY 2015 Outlier FixedLoss Cost Threshold 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50977–50983), in response 

to public comments on the FY 2013 

IPPS/LTCH proposed rule, we made 

changes to our methodology for 

projecting the outlier fixed-loss cost 

threshold for FY 2014. We refer readers 

to the FY 2014 IPPS/LTCH PPS final 

rule for detailed discussion of the 

changes. In this proposed rule, for FY 

2015, we are proposing to continue to 

use the outlier threshold methodology 

used in FY 2014. 

As we have done in the past, to 

calculate the proposed FY 2015 outlier 

threshold, we simulated payments by 

applying proposed FY 2015 payment 

rates and policies using cases from the 

FY 2013 MedPAR file. Therefore, in 

order to determine the proposed FY 

2015 outlier threshold, we inflated the 

charges on the MedPAR claims by 2 

years, from FY 2013 to FY 2015. As 

discussed in the FY 2014 IPPS/LTCH 

PPS final rule, we believe a 

methodology that is based on 1-year of 

charge data will provide a more stable 

measure to project the average charge 

per case because our prior methodology 

used a 6-month measure, which 

inherently uses fewer claims than a 1- 

year measure and makes it more 

susceptible to fluctuations in the 

average charge per case as a result of 

any significant charge increases or 

decreases by hospitals. Under this new 

methodology, to compute the 1-year 

average annualized rate-of-change in 

charges per case for FY 2015, we are 

proposing to compare the second 

quarter of FY 2012 through the first 

quarter of FY 2013 (January 1, 2012, 

through December 31, 2012) to the 

second quarter of FY 2013 through the 

first quarter of FY 2014 (January 1, 2013, 

through December 31, 2013). This rateof-change is 5.6 percent (1.055736) or 

11.5 percent (1.114579) over 2 years. 

As we have done in the past, we are 

proposing to establish the proposed FY 

2015 outlier threshold using hospital 

CCRs from the December 2013 update to 

the Provider-Specific File (PSF)—the 

most recent available data at the time of 

this proposed rule. For FY 2015, we also 

are proposing to continue to apply an 

adjustment factor to the CCRs to account 

for cost and charge inflation (as 

explained below). In the FY 2014 IPPS/ 

LTCH PPS final rule (78 FR 50979), we 

adopted a new methodology to adjust 

the CCRs. Specifically, we finalized a 

policy to compare the national average 

case-weighted operating and capital 

CCR from the most recent update of the 

PSF to the national average caseweighted operating and capital CCR 

from the same period of the prior year. 

Therefore, as we did for FY 2014, for 

FY 2015, we are proposing to adjust the 

CCRs from the December 2013 update of 

the PSF by comparing the percentage 

change in the national average caseweighted operating CCR and capital 

CCR from the December 2012 update of 

the PSF to the national average caseweighted operating CCR and capital 

CCR from the December 2013 update of 

the PSF. We note that we used total 

transfer adjusted cases from FY 2013 to 

determine the national average caseweighted CCRs for both sides of the 

comparison. As stated in the FY 2014 

IPPS/LTCH PPS final rule (78 FR 

50979), we believe that it is appropriate 

to use the same case count on both sides 

of the comparison as this will produce 

the true percentage change in the 

average case-weighted operating and 

capital CCR from one year to the next 

without any effect from a change in case 

count on different sides of the 

comparison. 

Using the proposed methodology 

above, we calculated a December 2012 

operating national average caseweighted CCR of 0.295101 and a 

December 2013 operating national 

average case-weighted CCR of 0.289587. 

We then calculated the percentage 

change between the two national 

operating case-weighted CCRs by 

subtracting the December 2012 

operating national average caseweighted CCR from the December 2013 

operating national average caseweighted CCR and then dividing the 

result by the December 2012 national 

operating average case-weighted CCR. 

This resulted in a proposed national 

operating CCR adjustment factor of 

0.981315. 

We also used the same methodology 

proposed above to adjust the capital 

CCRs. Specifically, we calculated a 

December 2012 proposed capital 

national average case-weighted CCR of 

0.025079 and a December 2013 

proposed capital national average caseweighted CCR of 0.024868. We then 

calculated the percentage change 

between the two national capital caseweighted CCRs by subtracting the 

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December 2012 capital national average 

case-weighted CCR from the December 

2013 capital national average caseweighted CCR and then dividing the 

result by the December 2012 capital 

national average case-weighted CCR. 

This resulted in a proposed national 

capital CCR adjustment factor of 

0.991587. 

Consistent with our methodology in 

the past and as stated in the FY 2009 

IPPS final rule (73 FR 48763), we 

continue to believe that 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 2015 is 

approximately 1 year. Therefore, as 

stated above, we believe a 1-year 

adjustment factor to the CCRs is 

appropriate. 

As stated above, for FY 2015, we 

applied the proposed FY 2015 payment 

rates and policies using cases from the 

FY 2013 MedPAR files in calculating 

the proposed outlier threshold. 

As discussed above, for FY 2015, we 

are proposing to apply transitional wage 

indexes because of the proposed 

adoption of the new OMB labor market 

area delineations. Also, as discussed in 

section III.B.3. of the preamble to the FY 

2011 IPPS/LTCH PPS final rule (75 FR 

50160 and 50161) and in section III.G.3. 

of the preamble of this proposed rule, in 

accordance with section 10324(a) of the 

Affordable Care Act, beginning in FY 

2011, we created a wage index floor of 

1.00 for all hospitals located in States 

determined to be frontier States. We 

note that the frontier State floor 

adjustments will be calculated and 

applied after rural and imputed floor 

budget neutrality adjustments are 

calculated for all labor market areas, in 

order to ensure that no hospital in a 

frontier State will receive a wage index 

lesser than 1.00 due to the rural and 

imputed floor adjustment. In accordance 

with section 10324(a) of the Affordable 

Care Act, the frontier State adjustment 

will not be subject to budget neutrality, 

and will only be extended to hospitals 

geographically located within a frontier 

State. However, for purposes of 

estimating the proposed outlier 

threshold for FY 2015, it was necessary 

to apply the proposed transitional wage 

indexes and adjust 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 2015. If we did not 

take the above into account, our 

estimate of total FY 2015 payments 

would be too low, and, as a result, our 

proposed outlier threshold would be too 

high, such that estimated outlier 

payments would be less than our 

projected 5.1 percent of total payments. 

As we did in establishing the FY 2009 

outlier threshold (73 FR 57891), in our 

projection of FY 2015 outlier payments, 

we are proposing not to make any 

adjustments for the possibility that 

hospitals’ CCRs and outlier payments 

may be reconciled upon cost report 

settlement. We continue to believe that, 

due to the policy implemented in the 

June 9, 2003 Outlier final rule (68 FR 

34494), CCRs will no longer fluctuate 

significantly and, therefore, few 

hospitals will actually have these ratios 

reconciled upon cost report settlement. 

In addition, it is difficult to predict the 

specific hospitals that will have CCRs 

and outlier payments reconciled in any 

given year. We also note that 

reconciliation occurs because hospitals’ 

actual CCRs for the cost reporting period 

are different than the interim CCRs used 

to calculate outlier payments when a 

bill is processed. Our simulations 

assume that CCRs accurately measure 

hospital costs based on information 

available to us at the time we set the 

outlier threshold. For these reasons, we 

are proposing not to make any 

assumptions about the effects of 

reconciliation on the outlier threshold 

calculation. 

As described in sections IV.H. and 

IV.I., respectively, of the preamble of 

this proposed rule, sections 1886(q) and 

1886(o) of the Act establish the Hospital 

Readmissions Reduction Program and 

the Hospital VBP Program, respectively. 

We do not believe that it is appropriate 

to include the hospital VBP payment 

adjustments and the hospital 

readmissions payment adjustments in 

the outlier threshold calculation or the 

outlier offset to the standardized 

amount. Specifically, consistent with 

our definition of the base operating DRG 

payment amount for the Hospital 

Readmissions Reduction Program under 

§ 412.152 and the Hospital VBP Program 

under § 412.160, outlier payments under 

section 1886(d)(5)(A) of the Act are not 

affected by these payment adjustments. 

Therefore, outlier payments would 

continue to be calculated based on the 

unadjusted base DRG payment amount 

(as opposed to using the base-operating 

DRG payment amount adjusted by the 

hospital readmissions payment 

adjustment and the hospital VBP 

payment adjustment). Consequently, we 

are proposing to exclude the hospital 

VBP payment adjustments and the 

hospital readmissions payment 

adjustments from the calculation of the 

outlier fixed-loss cost threshold. 

We note, to the extent section 1886(r) 

of the Act modifies the existing DSH 

payment methodology under section 

1886(d)(5)(F), the new uncompensated 

care payment under section 1886(r)(2), 

like the empirically justified Medicare 

DSH payment under section 1886(r)(1), 

may be considered an amount payable 

under section 1886(d)(5)(F) of the Act 

such that it would be reasonable to 

include the payment in the outlier 

determination under section 

1886(d)(5)(A). As we did for FY 2014, 

for FY 2015 we also are proposing to 

allocate an estimated per-discharge 

uncompensated care payment amount to 

all cases for the hospitals eligible to 

receive the uncompensated care 

payment amount in the calculation of 

the outlier fixed-loss cost threshold 

methodology. We continue to believe 

that allocating an eligible hospital’s 

estimated uncompensated care payment 

to all cases equally in the calculation of 

the outlier fixed-loss cost threshold 

would best approximate the amount we 

would pay in uncompensated care 

payments during the year because, 

when we make claim payments to a 

hospital eligible for such payments, we 

would be making estimated perdischarge uncompensated care 

payments to all cases equally. 

Furthermore, we continue to believe 

that using the estimated per-claim 

uncompensated care payment amount to 

determine outlier estimates provides 

predictability as to the amount of 

uncompensated care payments included 

in the calculation of outlier payments. 

Therefore, consistent with the 

methodology used in FY 2014 to 

calculate the outlier fixed-loss cost 

threshold, for FY 2015, we are 

proposing to include estimated FY 2015 

uncompensated care payments in the 

computation of the proposed outlier 

fixed-loss cost threshold. Specifically, 

we are proposing to use the estimated 

per-discharge uncompensated care 

payments to hospitals eligible for the 

uncompensated care payment for all 

cases in the calculation of the outlier 

fixed-loss cost threshold methodology. 

Using this methodology, we 

calculated a proposed outlier fixed-loss 

cost threshold for FY 2015 equal to the 

proposed prospective payment rate for 

the MS–DRG, plus any IME, empirically 

justified Medicare DSH payments, 

estimated uncompensated care 

payment, and any add-on payments for 

new technology, plus $25,799. 

We note that, the proposed FY 2015 

fixed-loss cost threshold is higher than 

the FY 2014 final outlier fixed-loss cost 

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threshold of $21,748. We believe that 

the increase in the charge inflation 

factor (compared to the FY 2014 charge 

inflation factor) contributed to a higher 

proposed outlier fixed-loss threshold for 

FY 2015. As charges increase, so do 

outlier payments. As a result, it would 

be necessary for us to raise the outlier 

fixed-loss cost threshold to decrease the 

amount of outlier payments expended 

in order to reach the 5.1 percent target. 

(2) Other Proposed Changes Concerning 

Outliers 

As stated in the FY 1994 IPPS final 

rule (58 FR 46348), we establish an 

outlier threshold that is applicable to 

both hospital inpatient operating costs 

and hospital inpatient capital-related 

costs. When we modeled the combined 

operating and capital outlier payments, 

we found that using a common 

threshold resulted in a lower percentage 

of outlier payments for capital-related 

costs than for operating costs. We 

project that the thresholds for FY 2015 

will result in outlier payments that will 

equal 5.1 percent of operating DRG 

payments and 6.26 percent of capital 

payments based on the Federal rate. 

In accordance with section 

1886(d)(3)(B) of the Act, we are 

proposing to reduce the proposed FY 

2015 standardized amount by the same 

percentage to account for the projected 

proportion of payments paid as outliers. 

The proposed outlier adjustment 

factors that would be applied to the 

standardized amount based on the FY 

2015 outlier threshold are as follows: 

Operating 

standardized 

amounts 

Capital Federal 

rate 

National ............................................................................................................................................................ 0.949000 0.937425 

Puerto Rico ...................................................................................................................................................... 0.928942 0908313 

We are proposing to apply the outlier 

adjustment factors to the proposed FY 

2015 payment rates after removing the 

effects of the FY 2014 outlier adjustment 

factors on the standardized amount. 

To determine whether a case qualifies 

for outlier payments, we apply hospitalspecific CCRs to the total covered 

charges for the case. Estimated operating 

and capital costs for the case are 

calculated separately by applying 

separate operating and capital CCRs. 

These costs are then combined and 

compared with the outlier fixed-loss 

cost threshold. 

Under our current policy at § 412.84, 

we calculate operating and capital CCR 

ceilings and assign a statewide average 

CCR for hospitals whose CCRs exceed 

3.0 standard deviations from the mean 

of the log distribution of CCRs for all 

hospitals. Based on this calculation, for 

hospitals for which the fiscal 

intermediary or MAC computes 

operating CCRs greater than 1.22 or 

capital CCRs greater than 0.173, or 

hospitals for which the fiscal 

intermediary or MAC is unable to 

calculate a CCR (as described under 

§ 412.84(i)(3) of our regulations), 

statewide average CCRs are used to 

determine whether a hospital qualifies 

for outlier payments. Table 8A listed in 

section VI. of this Addendum (and 

available only via the Internet) contains 

the proposed statewide average 

operating CCRs for urban hospitals and 

for rural hospitals for which the fiscal 

intermediary or MAC is unable to 

compute a hospital-specific CCR within 

the above range. Effective for discharges 

occurring on or after October 1, 2014, 

these statewide average ratios would 

replace the ratios posted on our Web 

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

Medicare-Fee-for-Service-Payment/

AcuteInpatientPPS/FY-2014-IPPS-FinalRule-Home-Page-Items/FY-2014-IPPSFinal-Rule-CMS-1599-F-Tables.html. 

Table 8B listed in section VI. of this 

Addendum (and available via the 

Internet) contains the proposed 

comparable statewide average capital 

CCRs. Again, the CCRs in Tables 8A and 

8B would be used during FY 2015 when 

hospital-specific CCRs based on the 

latest settled cost report are either not 

available, or are outside the range noted 

above. Table 8C listed in section VI. of 

this Addendum (and available via the 

Internet) contains the proposed 

statewide average total CCRs used under 

the LTCH PPS as discussed in section V. 

of this Addendum. 

We finally note that we published a 

manual update (Change Request 3966) 

to our outlier policy on October 12, 

2005, which updated Chapter 3, Section 

20.1.2 of the Medicare Claims 

Processing Manual. The manual update 

covered an array of topics, including 

CCRs, reconciliation, and the time value 

of money. We encourage hospitals that 

are assigned the statewide average 

operating and/or capital CCRs to work 

with their fiscal intermediary or MAC 

on a possible alternative operating and/ 

or capital CCR as explained in Change 

Request 3966. Use of an alternative CCR 

developed by the hospital in 

conjunction with the fiscal intermediary 

or MAC can avoid possible 

overpayments or underpayments at cost 

report settlement, thereby ensuring 

better accuracy when making outlier 

payments and negating the need for 

outlier reconciliation. We also note that 

a hospital may request an alternative 

operating or capital CCR ratio at any 

time as long as the guidelines of Change 

Request 3966 are followed. In addition, 

as mentioned above, we published an 

additional manual update (Change 

Request 7192) to our outlier policy on 

December 3, 2010, which also updated 

Chapter 3, Section 20.1.2 of the 

Medicare Claims Processing Manual. 

The manual update outlines the outlier 

reconciliation process for hospitals and 

Medicare contractors. To download and 

view the manual instructions on outlier 

reconciliation, we refer readers to the 

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

manuals/downloads/clm104c03.pdf. 

(3) FY 2013 and FY 2014 Outlier 

Payments 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50983 through 50984), we 

stated that, based on available data, we 

estimated that actual FY 2013 outlier 

payments would be approximately 4.77 

percent of actual total MS–DRG 

payments. This estimate was computed 

based on simulations using the FY 2012 

MedPAR file (discharge data for FY 

2012 claims). That is, the estimate of 

actual outlier payments did not reflect 

actual FY 2013 claims, but instead 

reflected the application of FY 2013 

payment rates and policies to available 

FY 2012 claims. 

Our current estimate, using available 

FY 2013 claims data, is that actual 

outlier payments for FY 2013 were 

approximately 4.81 percent of actual 

total MS–DRG payments. Therefore, the 

data indicate that, for FY 2013, the 

percentage of actual outlier payments 

relative to actual total payments is lower 

than we projected for FY 2013. 

Consistent with the policy and statutory 

interpretation we have maintained since 

the inception of the IPPS, we do not 

make retroactive adjustments to outlier 

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payments to ensure that total outlier 

payments for FY 2013 are equal to 5.1 

percent of total MS–DRG payments. 

We currently estimate that, using the 

latest CCRs from the December 2013 

update of the PSF, actual outlier 

payments for FY 2014 will be 

approximately 5.79 percent of actual 

total MS–DRG payments, approximately 

0.69 percentage point higher than the 

5.1 percent we projected when setting 

the outlier policies for FY 2014. This 

estimate of 5.79 percent is based on 

simulations using the FY 2013 MedPAR 

file (discharge data for FY 2013 claims). 

5. Proposed FY 2015 Standardized 

Amount 

The adjusted standardized amount is 

divided into labor-related and nonlaborrelated portions. Tables 1A and 1B 

listed and published in section VI. of 

this Addendum (and available via the 

Internet) contain the proposed national 

standardized amounts that we are 

proposing to apply to all hospitals, 

except hospitals located in Puerto Rico, 

for FY 2015. The proposed Puerto Ricospecific amounts are shown in Table 1C 

listed and published in section VI. of 

this Addendum (and available via the 

Internet). The proposed amounts shown 

in Tables 1A and 1B differ only in that 

the labor-related share applied to the 

standardized amounts in Table 1A is 

69.6 percent, and the labor-related share 

applied to the standardized amounts in 

Table 1B is 62 percent. In accordance 

with sections 1886(d)(3)(E) and 

1886(d)(9)(C)(iv) of the Act, we are 

proposing to apply a labor-related share 

of 62 percent, unless application of that 

percentage would result in lower 

payments to a hospital than would 

otherwise be made. In effect, the 

statutory provision means that we will 

apply a labor-related share of 62 percent 

for all hospitals whose wage indices are 

less than or equal to 1.0000. 

In addition, Tables 1A and 1B include 

the proposed standardized amounts 

reflecting the proposed applicable 

percentage increases for FY 2015. 

Under section 1886(d)(9)(A)(ii) of the 

Act, the Federal portion of the Puerto 

Rico payment rate is based on the 

discharge-weighted average of the 

national large urban standardized 

amount (this amount is set forth in 

Table 1A). The proposed labor-related 

and nonlabor-related portions of the 

national average standardized amounts 

for Puerto Rico hospitals for FY 2015 are 

set forth in Table 1C listed and 

published in section VI. of this 

Addendum (and available via the 

Internet). This table also includes the 

proposed Puerto Rico-specific 

standardized amounts. The labor-related 

share applied to the Puerto Rico-specific 

standardized amount is the proposed 

labor-related share of 63.2 percent, or 62 

percent, depending on which provides 

higher payments to the hospital. 

(Section 1886(d)(9)(C)(iv) of the Act, as 

amended by section 403(b) of Public 

Law 108–173, provides that the laborrelated share for hospitals located in 

Puerto Rico be 62 percent, unless the 

application of that percentage would 

result in lower payments to the 

hospital.) 

The following table illustrates the 

proposed changes from the FY 2014 

national standardized amount. The 

second through fifth columns display 

the proposed changes from the FY 2014 

standardized amounts for each 

applicable FY 2015 proposed 

standardized amount. The first row of 

the table shows the updated (through 

FY 2014) average standardized amount 

after restoring the FY 2014 offsets for 

outlier payments, demonstration budget 

neutrality, the geographic 

reclassification budget neutrality, and 

the retrospective documentation and 

coding adjustment under section 

7(b)(1)(B) of Public Law 110–90. The 

MS–DRG reclassification and 

recalibration wage index budget 

neutrality adjustment factors are 

cumulative. Therefore, those FY 2014 

adjustment factors are not removed from 

this table. 

COMPARISON OF FY 2014 STANDARDIZED AMOUNTS TO THE FY 2015 PROPOSED STANDARDIZED AMOUNTS

Hospital submitted 

quality data and is a 

meaningful EHR user 

Hospital submitted 

quality data and is 

NOT a meaningful 

EHR user 

Hospital did NOT submit quality data and is 

a meaningful EHR 

user 

Hospital did NOT submit quality data and is 

NOT a meaningful 

EHR user 

FY 2014 Base Rate after removing: 

1. FY 2014 Geographic Reclassification 

Budget Neutrality (0.990718) 

2. FY 2014 Rural Community Hospital 

Demonstration Program Budget Neutrality (0.999415) 

3. Cumulative Factor: FY 2008, FY 

2009, FY 2012, FY 2013, and FY 

2014 Documentation and Coding Adjustment as Required under Sections 

7(b)(1)(A) and 7(b)(1)(B) of Public 

Law 110–90 and Documentation and 

Coding Recoupment Adjustment as 

required under Section 631 of the 

American Taxpayer Relief Act of 2012 

(0.9403) 

4. FY 2014 Operating Outlier Offset 

(0.948995) 

If Proposed Wage 

Index is Greater 

Than 1.0000: Labor 

(69.6%): $4,230.38 

Nonlabor (30.4%): 

$1,847.75.

If Proposed Wage 

Index is less Than 

or Equal to 1.0000: 

Labor (62%): 

$3,768.45 Nonlabor 

(38%): $2,309.70.

If Proposed Wage 

Index is Greater 

Than 1.0000: Labor 

(69.6%): $4,230.38 

Nonlabor (30.4%): 

$1,847.75.

If Proposed Wage 

Index is less Than 

or Equal to 1.0000: 

Labor (62%): 

$3,768.45 Nonlabor 

(38%): $2,309.70.

If Proposed Wage 

Index is Greater 

Than 1.0000: Labor 

(69.6%): $4,230.38 

Nonlabor (30.4%): 

$1,847.75.

If Proposed Wage 

Index is less Than 

or Equal to 1.0000: 

Labor (62%): 

$3,768.45 Nonlabor 

(38%): $2,309.70 

If Proposed Wage 

Index is Greater 

Than 1.0000: Labor 

(69.6%): $4,230.38 

Nonlabor (30.4%): 

$1,847.75. 

If Proposed Wage 

Index is less Than 

or Equal to 1.0000: 

Labor (62%): 

$3,768.45 Nonlabor 

(38%): $2,309.70. 

Proposed FY 2015 Update Factor ................. 1.021 .......................... 1.01425 ...................... 1.01425 ...................... 1.0075. 

Proposed FY 2015 MS-DRG Recalibration 

and Wage Index Budget Neutrality Factor.

0.993512 .................... 0.993512 .................... 0.993512 .................... 0.993512. 

Proposed FY 2015 Reclassification Budget 

Neutrality Factor.

0.991412 .................... 0.991412 .................... 0.991412 .................... 0.991412. 

Proposed FY 2015 Rural Community Demonstration Program Budget Neutrality Factor.0.999283 .................... 0.999283 .................... 0.999283 .................... 0.999283. 

Proposed FY 2015 Operating Outlier Factor 0.949000 .................... 0.949000 .................... 0.949000 .................... 0.949000. 

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COMPARISON OF FY 2014 STANDARDIZED AMOUNTS TO THE FY 2015 PROPOSED STANDARDIZED AMOUNTS—Continued 

Hospital submitted 

quality data and is a 

meaningful EHR user 

Hospital submitted 

quality data and is 

NOT a meaningful 

EHR user 

Hospital did NOT submit quality data and is 

a meaningful EHR 

user 

Hospital did NOT submit quality data and is 

NOT a meaningful 

EHR user 

Cumulative Factor: FY 2008, FY 2009, FY 

2012, FY 2013, FY 2014 and FY 2015 

Documentation and Coding Adjustment as 

Required under Sections 7(b)(1)(A) and 

7(b)(1)(B) of Public Law 110–90 and Documentation and Coding Recoupment Adjustment as required under Section 631 of 

the American Taxpayer Relief Act of 2012.

0.9329 ........................ 0.9329 ........................ 0.9329 ........................ 0.9329. 

Proposed FY 2015 New Labor Market Delineation Wage Index Transition Budget Neutrality Factor.0.998856 .................... 0.998856 .................... 0.998856 .................... 0.998856. 

Proposed National Standardized Amount for 

FY 2015 if Wage Index is Greater Than 

1.0000; Labor/Non-Labor Share Percentage (69.6/30.4).

Labor: $3,759.46 ........

Nonlabor: $1,642.06 ..

Labor: $3,734.61 ........

Nonlabor: $1,631.20 ..

Labor: $3,734.61 ........

Nonlabor: $1,631.20 ..

Labor: $3,709.75. 

Nonlabor: $1,620.35. 

Proposed National Standardized Amount for 

FY 2015 if Wage Index is less Than or 

Equal to 1.0000; Labor/Non-Labor Share 

Percentage (62/38).

Labor: $3,384.94 ........

Nonlabor: $2,052.58 ..

Labor: $3,326.80 ........

Nonlabor: $2,039.01 ..

Labor: $3,326.80 ........

Nonlabor: $2,039.01 ..

Labor: $3,304.66. 

Nonlabor: $2,025.44. 

The following table illustrates the 

proposed changes from the FY 2014 

Puerto Rico-specific payment rate for 

hospitals located in Puerto Rico. The 

second column shows the proposed 

changes from the FY 2014 Puerto Rico 

specific payment rate for hospitals with 

a Puerto Rico-specific wage index 

greater than 1.0000. The third column 

shows the proposed changes from the 

FY 2014 Puerto Rico specific payment 

rate for hospitals with a Puerto Ricospecific wage index less than or equal 

to 1.0000. The first row of the table 

shows the updated (through FY 2014) 

Puerto Rico-specific payment rate after 

restoring the FY 2014 offsets for Puerto 

Rico-specific outlier payments, rural 

community hospital demonstration 

program budget neutrality, and the 

geographic reclassification budget 

neutrality. The MS–DRG recalibration 

budget neutrality adjustment factor is 

cumulative and is not removed from 

this table. 

COMPARISON OF FY 2014 PUERTO RICO-SPECIFIC PAYMENT RATE TO THE FY 2015 PROPOSED PUERTO RICO-SPECIFIC

PAYMENT RATE

Update 

(2.1 percent); proposed wage 

index is greater than 1.0000; 

labor/non-labor share percentage 

(63.2/36.8) 

Update 

(2.1 percent); proposed wage 

index is less than or equal to 

1.0000; labor/non-labor share percentage (62/38) 

FY 2014 Puerto Rico Base Rate, after removing: 

1. FY 2014 Geographic Reclassification Budget Neutrality 

(0.990718) 

2. FY 2014 Rural Community Hospital Demonstration Program 

Budget Neutrality (0.999415) 

3. FY 2014 Puerto Rico Operating Outlier Offset (0.943455) 

Labor: $1,722.31 ...........................

Nonlabor: $1,002.86 ......................

Labor: $1,689.61 

Nonlabor: $1,035.56. 

Proposed FY 2015 Update Factor .......................................................... 1.021 .............................................. 1.021. 

Proposed FY 2015 MS–DRG Recalibration Budget Neutrality Factor ... 0.992938 ........................................ 0.992938. 

Proposed FY 2015 Reclassification Budget Neutrality Factor ................ 0.991412 ........................................ 0.991412. 

Proposed FY 2015 Rural Community Hospital Demonstration Program 

Budget Neutrality Factor.

0.999283 ........................................ 0.999283. 

Proposed FY 2015 New Labor Market Delineation Wage Index Transition Budget Neutrality Factor.0.998856 ........................................ 0.998856. 

Proposed FY 2015 Puerto Rico Operating Outlier Factor ...................... 0.928942 ........................................ 0.928942. 

Proposed Puerto Rico-Specific Payment Rate for FY 2015 ................... Labor: $1,605.07 ...........................

Nonlabor: $934.59. ........................

Labor: $1,574.59. 

Nonlabor: $965.07. 

B. Proposed Adjustments for Area Wage 

Levels and Cost-of-Living 

Tables 1A through 1C, as published in 

section VI. of this Addendum (and 

available via the Internet), contain the 

proposed labor-related and nonlaborrelated shares that we used to calculate 

the proposed prospective payment rates 

for hospitals located in the 50 States, the 

District of Columbia, and Puerto Rico 

for FY 2015. This section addresses two 

types of adjustments to the standardized 

amounts that are made in determining 

the prospective payment rates as 

described in this Addendum. 

1. Proposed Adjustment for Area Wage 

Levels 

Sections 1886(d)(3)(E) and 

1886(d)(9)(C)(iv) of the Act require that 

we make an adjustment to the laborrelated portion of the national and 

Puerto Rico prospective payment rates, 

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respectively, to account for area 

differences in hospital wage levels. This 

adjustment is made by multiplying the 

labor-related portion of the adjusted 

standardized amounts by the 

appropriate wage index for the area in 

which the hospital is located. In section 

III. of the preamble of this proposed 

rule, we discuss the data and 

methodology for the proposed FY 2015 

wage index. 

2. Proposed Adjustment for Cost-ofLiving in Alaska and Hawaii 

Section 1886(d)(5)(H) of the Act 

provides discretionary authority to the 

Secretary to make ‘‘such adjustments 

. . . as the Secretary deems appropriate 

to take into account the unique 

circumstances of hospitals located in 

Alaska and Hawaii.’’ Higher laborrelated costs for these two States are 

taken into account in the adjustment for 

area wages described above. To account 

for higher nonlabor-related costs for 

these two States, we multiply the 

nonlabor-related portion of the 

standardized amount for hospitals 

located in Alaska and Hawaii by an 

adjustment factor. 

In the FY 2013 IPPS/LTCH PPS final 

rule, we established a methodology to 

update the COLA factors for Alaska and 

Hawaii that were published by the U.S. 

Office of Personnel Management (OPM) 

every 4 years (at the same time as the 

update to the labor-related share of the 

IPPS market basket), beginning in FY 

2014. We refer readers to the FY 2013 

IPPS/LTCH PPS proposed and final 

rules for additional background and a 

detailed description of this methodology 

(77 FR 28145 through 28146 and 77 FR 

53700 through 53701, respectively). 

For FY 2014, in the FY 2014 IPPS/

LTCH PPS final rule (78 FR 50985 

through 50987), we updated the COLA 

factors published by OPM for 2009 (as 

these are the last COLA factors OPM 

published prior to transitioning from 

COLAs to locality pay) using the 

methodology that we finalized in the FY 

2013 IPPS/LTCH PPS final rule. 

Based on the policy finalized in the 

FY 2013 IPPS/LTCH PPS final rule, we 

are proposing to use the same COLAs 

factors established in FY 2014 for FY 

2015 to adjust the nonlabor-related 

portion of the standardized amount for 

hospitals located in Alaska and Hawaii. 

Below is a table listing the proposed 

COLA factors for FY 2015. 

PROPOSED FY 2015 COST-OF-LIVING ADJUSTMENT FACTORS: ALASKA AND HAWAII HOSPITALS

Area Cost of living 

adjustment factor 

Alaska: 

City of Anchorage and 80-kilometer (50-mile) radius by road ............................................................................................. 1.23 

City of Fairbanks and 80-kilometer (50-mile) radius by road .............................................................................................. 1.23 

City of Juneau and 80-kilometer (50-mile) radius by road .................................................................................................. 1.23 

Rest of Alaska ...................................................................................................................................................................... 1.25 

Hawaii: 

City and County of Honolulu ................................................................................................................................................ 1.25 

County of Hawaii .................................................................................................................................................................. 1.19 

County of Kauai .................................................................................................................................................................... 1.25 

County of Maui and County of Kalawao .............................................................................................................................. 1.25 

Based on the policy finalized in the 

FY 2013 IPPS/LTCH PPS final rule, the 

next update to the COLA factors for 

Alaska and Hawaii would occur in FY 

2018. 

C. Calculation of the Proposed 

Prospective Payment Rates 

General Formula for Calculation of the 

Prospective Payment Rates for FY 2015 

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 

2015 equals the Federal rate (which 

includes uncompensated care 

payments). 

We note that, as discussed in section 

IV.G. of the preamble of this proposed 

rule, section 1106 of the Pathway to 

SGR Reform Act of 2013 (Pub. L. 113– 

67), enacted on December 26, 2013, 

extended the MDH program from the 

end of FY 2013 through the first half of 

FY 2014 (that is, for discharges 

occurring before April 1, 2014). 

Subsequently, section 106 of the 

Protecting Access to Medicare Act of 

2014 (Pub. L. 113–93), enacted on April 

1, 2014, further extended the MDH 

program through the first half of FY 

2015 (that is, for discharges occurring 

before April 1, 2015). Prior to the 

enactment of Public Law 113–67, the 

MDH program was only to be in effect 

through the end of FY 2013. Under 

current law, the MDH program will 

expire for discharges beginning on April 

1, 2015. 

SCHs are paid based on whichever of 

the following rates yields the greatest 

aggregate payment: The Federal national 

rate (which, as discussed in section 

IV.F. of the preamble of this proposed 

rule, includes uncompensated care 

payments); the updated hospitalspecific rate based on FY 1982 costs per 

discharge; the updated hospital-specific 

rate based on FY 1987 costs per 

discharge; the updated hospital-specific 

rate based on FY 1996 costs per 

discharge; or the updated hospitalspecific rate based on FY 2006 costs per 

discharge to determine the rate that 

yields the greatest aggregate payment. 

The prospective payment rate for 

SCHs for FY 2015 equals the higher of 

the applicable Federal rate, or the 

hospital-specific rate as described 

below. 

The prospective payment rate for 

MDHs for FY 2015 discharges occurring 

before April 1, 2015 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 

2015 equals 25 percent of the Puerto 

Rico-specific payment rate plus 75 

percent of the applicable national rate. 

1. Federal Rate 

The Federal rate is determined as 

follows: 

Step 1—Select the applicable average 

standardized amount depending on 

whether the hospital submitted 

qualifying quality data and is a 

meaningful EHR user, as described 

above. 

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 

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located or the area to which the hospital 

is reclassified. 

Step 3—For hospitals located in 

Alaska and Hawaii, multiply the 

nonlabor-related portion of the 

standardized amount by the applicable 

cost-of-living adjustment factor. 

Step 4—Add the amount from Step 2 

and the nonlabor-related portion of the 

standardized amount (adjusted, if 

applicable, under Step 3). 

Step 5—Multiply the final amount 

from Step 4 by the relative weight 

corresponding to the applicable MS– 

DRG (Table 5 listed in section VI. of this 

Addendum and available via the 

Internet). 

The Federal payment rate as 

determined in Step 5 may then be 

further adjusted if the hospital qualifies 

for either the IME or DSH adjustment. 

In addition, for hospitals that qualify for 

a low-volume payment adjustment 

under section 1886(d)(12) of the Act and 

42 CFR 412.101(b), the payment in Step 

5 would be increased by the formula 

described in section IV.D. of the 

preamble of this proposed rule. The 

base-operating DRG payment amount 

may be further adjusted by the hospital 

readmissions payment adjustment and 

the hospital VBP payment adjustment as 

described under sections 1886(q) and 

1886(o) of the Act, respectively. Finally, 

we add the uncompensated care 

payment to the total claim payment 

amount. We note that, as discussed 

above, we take uncompensated care 

payments into consideration when 

calculating outlier payments. 

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 SCHs are paid based on 

whichever of the following rates yields 

the greatest aggregate payment: The 

Federal rate (which, as discussed in 

section IV.F. of the preamble of this 

proposed rule, includes uncompensated 

care payments); the updated hospitalspecific rate based on FY 1982 costs per 

discharge; the updated hospital-specific 

rate based on FY 1987 costs per 

discharge; the updated hospital-specific 

rate based on FY 1996 costs per 

discharge; or the updated hospitalspecific rate based on FY 2006 costs per 

discharge to determine the rate that 

yields the greatest aggregate payment. 

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. 

For a more detailed discussion of the 

calculation of the hospital-specific rates, 

we refer readers to the FY 1984 IPPS 

interim final rule (48 FR 39772); the 

April 20, 1990 final rule with comment 

period (55 FR 15150); the FY 1991 IPPS 

final rule (55 FR 35994); and the FY 

2001 IPPS final rule (65 FR 47082). We 

also refer readers to section IV.F. of the 

preamble of this proposed rule for a 

complete discussion on empirically 

justified Medicare DSH and 

uncompensated care payments. 

b. Updating the FY 1982, FY 1987, FY 

1996 and FY 2006 Hospital-Specific 

Rate for FY 2015 

Section 1886(b)(3)(B)(iv) of the Act 

provides that the applicable percentage 

increase applicable to the hospitalspecific 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 subject to the amendments to 

section 1886(b)(3)(B) of the Act made by 

sections 3401(a) and 10319(a) of the 

Affordable Care Act. Accordingly, the 

proposed applicable percentage 

increases to the hospital-specific rates 

applicable to SCHs and MDHs are the 

following: 

FY 2015 

Hospital submitted quality 

data and is a 

meaningful EHR 

user 

Hospital submitted 

quality data and is 

NOT a meaningful 

EHR user 

Hospital did NOT 

submit quality 

data and is a 

meaningful EHR 

user 

Hospital did NOT 

submit quality 

data and is NOT a 

meaningful EHR 

user 

Market Basket Rate-of-Increase ................................................ 2.7 2 .7 2 .7 2 .7 

Adjustment for Failure to Submit Quality Data under Section 

1886(b)(3)(B)(viii) of the Act .................................................. 0.0 0 .0 ¥0 .675 ¥0 .675 

Adjustment for Failure to be a Meaningful EHR User under 

Section 1886(b)(3)(B)(ix) of the Act ....................................... 0.0 ¥0 .675 0 .0 ¥0 .675 

MFP Adjustment under Section 1886(b)(3)(B)(xi) of the Act .... ¥0.4 ¥0 .4 ¥0 .4 ¥0 .4 

Statutory Adjustment under Section 1886(b)(3)(B)(xii) of the 

Act .......................................................................................... ¥0.2 ¥0 .2 ¥0 .2 ¥0 .2 

Proposed Applicable Percentage Increase Applied to HospitalSpecific Rate .......................................................................... 2.1 1 .425 1 .425 0 .75 

For a complete discussion of the 

applicable percentage increase applied 

to the hospital-specific rates for SCHs 

and MDHs, we refer readers to section 

IV.B. of the preamble of this proposed 

rule. 

In addition, because SCHs and MDHs 

use the same MS–DRGs as other 

hospitals when they are paid based in 

whole or in part on the hospital-specific 

rate, the hospital-specific rate is 

adjusted by a budget neutrality factor to 

ensure that changes to the MS–DRG 

classifications and the recalibration of 

the MS–DRG relative weights are made 

in a manner so that aggregate IPPS 

payments are unaffected. Therefore, a 

SCH’s and MDH’s hospital-specific rate 

is adjusted by the proposed MS–DRG 

reclassification and recalibration budget 

neutrality factor of 0.992938, as 

discussed in section III. of this 

Addendum. The resulting rate is used in 

determining the payment rate that an 

SCH would receive for its discharges 

beginning on or after October 1, 2014, 

and the payment rate that an MDH 

would receive for its discharges 

beginning on or after October 1, 2014, 

and before April 1, 2015. We note that, 

in this proposed rule, for FY 2015, we 

are not proposing to make a 

documentation and coding adjustment 

to the hospital-specific rate. We refer 

readers to section II.D. of the preamble 

of this proposed rule for a complete 

discussion regarding our proposed 

policies and previously finalized 

policies (including our historical 

adjustments to the payment rates) 

relating to the effect of changes in 

documentation and coding that do not 

reflect real changes in case-mix. 

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3. General Formula for Calculation of 

Prospective Payment Rates for Hospitals 

Located in Puerto Rico Beginning On or 

After October 1, 2014, and Before 

October 1, 2015 

Section 1886(d)(9)(E)(iv) of the Act 

provides that, effective for discharges 

occurring on or after October 1, 2004, 

hospitals located in Puerto Rico are paid 

based on a blend of 75 percent of the 

national prospective payment rate and 

25 percent of the Puerto Rico-specific 

rate. 

a. Puerto Rico-Specific Rate 

The Puerto Rico-specific prospective 

payment rate is determined as follows: 

Step 1—Select the applicable average 

standardized amount considering the 

applicable wage index (obtained from 

Table 1C published in section VI. of this 

Addendum and available via the 

Internet). 

Step 2—Multiply the labor-related 

portion of the standardized amount by 

the applicable Puerto Rico-specific wage 

index. 

Step 3—Add the amount from Step 2 

and the nonlabor-related portion of the 

standardized amount. 

Step 4—Multiply the amount from 

Step 3 by the applicable MS–DRG 

relative weight (obtained from Table 5 

listed in section VI. of this Addendum 

and available via the Internet). 

Step 5—Multiply the result in Step 4 

by 25 percent. 

b. National Prospective Payment Rate 

The national prospective payment 

rate is determined as follows: 

Step 1—Select the applicable national 

average standardized amount. 

Step 2—Multiply the labor-related 

portion of the national average 

standardized amount by the applicable 

wage index for the geographic area in 

which the hospital is located or the area 

to which the hospital is reclassified. 

Step 3—Add the amount from Step 2 

and the nonlabor-related portion of the 

national average standardized amount. 

Step 4—Multiply the amount from 

Step 3 by the applicable MS–DRG 

relative weight (obtained from Table 5 

listed in section VI. of this Addendum 

and available via the Internet). 

Step 5—Multiply the result in Step 4 

by 75 percent. 

The sum of the Puerto Rico-specific 

rate and the national prospective 

payment rate computed above equals 

the prospective payment rate for a given 

discharge for a hospital located in 

Puerto Rico. This payment rate is then 

further adjusted if the hospital qualifies 

for either the IME or DSH adjustment. 

Finally, we add the uncompensated 

care payment to the total claim payment 

amount. We note that, as discussed 

above, we take uncompensated care 

payments into consideration when 

calculating outlier payments. 

III. Proposed Changes to Payment Rates 

for Acute Care Hospital Inpatient 

Capital-Related Costs for FY 2015 

The PPS for acute care hospital 

inpatient capital-related costs was 

implemented for cost reporting periods 

beginning on or after October 1, 1991. 

Effective with that cost reporting period, 

over a 10-year transition period (which 

extended through FY 2001) the payment 

methodology for Medicare acute care 

hospital inpatient capital-related costs 

changed from a reasonable cost-based 

methodology to a prospective 

methodology (based fully on the Federal 

rate). 

The basic methodology for 

determining Federal capital prospective 

rates is set forth in the regulations at 42 

CFR 412.308 through 412.352. Below we 

discuss the factors that we used to 

determine the proposed capital Federal 

rate for FY 2015, which would be 

effective for discharges occurring on or 

after October 1, 2014. 

The 10-year transition period ended 

with hospital cost reporting periods 

beginning on or after October 1, 2001 

(FY 2002). Therefore, for cost reporting 

periods beginning in FY 2002, all 

hospitals (except ‘‘new’’ hospitals under 

§ 412.304(c)(2)) are paid based on the 

capital Federal rate. For FY 1992, we 

computed the standard Federal payment 

rate for capital-related costs under the 

IPPS by updating the FY 1989 Medicare 

inpatient capital cost per case by an 

actuarial estimate of the increase in 

Medicare inpatient capital costs per 

case. Each year after FY 1992, we 

update the capital standard Federal rate, 

as provided at § 412.308(c)(1), to 

account for capital input price increases 

and other factors. The regulations at 

§ 412.308(c)(2) also provide that the 

capital Federal rate be adjusted annually 

by a factor equal to the estimated 

proportion of outlier payments under 

the capital Federal rate to total capital 

payments under the capital Federal rate. 

In addition, § 412.308(c)(3) requires that 

the capital Federal rate be reduced by an 

adjustment factor equal to the estimated 

proportion of payments for exceptions 

under § 412.348. (We note that, as 

discussed in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53705), there is 

generally no longer a need for an 

exceptions payment adjustment factor.) 

However, in limited circumstances, an 

additional payment exception for 

extraordinary circumstances is provided 

for under § 412.348(f) for qualifying 

hospitals. Therefore, in accordance with 

§ 412.308(c)(3), an exceptions payment 

adjustment factor may need to be 

applied if such payments are made. 

Section 412.308(c)(4)(ii) requires that 

the capital standard Federal rate be 

adjusted so that the effects of the annual 

DRG reclassification and the 

recalibration of DRG weights and 

changes in the geographic adjustment 

factor (GAF) are budget neutral. 

Section 412.374 provides for blended 

payments to hospitals located in Puerto 

Rico under the IPPS for acute care 

hospital inpatient capital-related costs. 

Accordingly, under the capital PPS, we 

compute a separate payment rate 

specific to hospitals located in Puerto 

Rico using the same methodology used 

to compute the national Federal rate for 

capital-related costs. In accordance with 

section 1886(d)(9)(A) of the Act, under 

the IPPS for acute care hospital 

operating costs, hospitals located in 

Puerto Rico are paid for operating costs 

under a special payment formula. 

Effective October 1, 2004, in accordance 

with section 504 of Public Law 108–173, 

the methodology for operating payments 

made to hospitals located in Puerto Rico 

under the IPPS was revised to make 

payments based on a blend of 25 

percent of the applicable standardized 

amount specific to Puerto Rico hospitals 

and 75 percent of the applicable 

national average standardized amount. 

In conjunction with this change to the 

operating blend percentage, effective 

with discharges occurring on or after 

October 1, 2004, we also revised the 

methodology for computing capital 

payments made to hospitals located in 

Puerto Rico to be based on a blend of 

25 percent of the Puerto Rico capital 

rate and 75 percent of the national 

capital Federal rate (69 FR 49185). 

A. Determination of the Proposed 

Federal Hospital Inpatient CapitalRelated Prospective Payment Rate 

Update 

In the discussion that follows, we 

explain the factors that we used to 

determine the proposed capital Federal 

rate for FY 2015. In particular, we 

explain why the proposed FY 2015 

capital Federal rate increases 

approximately 0.9 percent, compared to 

the FY 2014 capital Federal rate. As 

discussed in the impact analysis in 

Appendix A to this proposed rule, we 

estimate that capital payments per 

discharge would increase 1.2 percent 

during that same period. Because capital 

payments constitute about 10 percent of 

hospital payments, a percent change in 

the capital Federal rate yields only 

about a 0.1 percent change in actual 

payments to hospitals. 

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1. Projected Capital Standard Federal 

Rate Update 

a. Description of the Update Framework 

Under § 412.308(c)(1), the capital 

standard Federal rate is updated on the 

basis of an analytical framework that 

takes into account changes in a capital 

input price index (CIPI) and several 

other policy adjustment factors. 

Specifically, we adjust the projected 

CIPI rate-of-increase as appropriate each 

year for case-mix index-related changes, 

for intensity, and for errors in previous 

CIPI forecasts. The proposed update 

factor for FY 2015 under that framework 

is 1.5 percent based on the best data 

available at this time. The proposed 

update factor under that framework is 

based on a projected 1.5 percent 

increase in the FY 2010-based CIPI, a 

0.0 percentage point adjustment for 

intensity, a 0.0 percentage point 

adjustment for case-mix, a 0.0 

percentage point adjustment for the FY 

2013 DRG reclassification and 

recalibration, and a forecast error 

correction of 0.0 percentage point. As 

discussed below in section III.C. of this 

Addendum, we continue to believe that 

the CIPI is the most appropriate input 

price index for capital costs to measure 

capital price changes in a given year. 

We also explain the basis for the FY 

2015 CIPI projection in that same 

section of this Addendum. Below we 

describe the policy adjustments that we 

are proposing to apply in the update 

framework for FY 2015. 

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’’ casemix change); 

• Changes in hospital documentation 

and coding of patient records result in 

higher-weighted 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 to the FY 2006 

IPPS final rule (70 FR 47707).) 

For FY 2015, we are projecting a 0.5 

percent total increase in the case-mix 

index. We estimated that the real casemix increase will also equal 0.5 percent 

for FY 2015. The proposed net 

adjustment for change in case-mix is the 

difference between the projected real 

increase in case-mix and the projected 

total increase in case-mix. Therefore, the 

proposed net adjustment for case-mix 

change in FY 2015 is 0.0 percentage 

point. 

The capital update framework also 

contains an adjustment for the effects of 

DRG reclassification and recalibration. 

This adjustment is intended to remove 

the effect on total payments of prior 

year’s changes to the DRG classifications 

and relative weights, in order to retain 

budget neutrality for all case-mix indexrelated changes other than those due to 

patient severity of illness. Due to the lag 

time in the availability of data, there is 

a 2-year lag in data used to determine 

the adjustment for the effects of DRG 

reclassification and recalibration. For 

example, we have data available to 

evaluate the effects of the FY 2013 DRG 

reclassification and recalibration as part 

of our update for FY 2015. We estimate 

that FY 2013 DRG reclassification and 

recalibration resulted in no change in 

the case-mix when compared with the 

case-mix index that would have resulted 

if we had not made the reclassification 

and recalibration changes to the DRGs. 

Therefore, we are proposing to make a 

0.0 percentage point adjustment for 

reclassification and recalibration in the 

update framework for FY 2015. 

The capital update framework also 

contains an adjustment for forecast 

error. The input price index forecast is 

based on historical trends and 

relationships ascertainable at the time 

the update factor is established for the 

upcoming year. In any given year, there 

may be unanticipated price fluctuations 

that may result in differences between 

the actual increase in prices and the 

forecast used in calculating the update 

factors. In setting a prospective payment 

rate under the framework, we make an 

adjustment for forecast error only if our 

estimate of the change in the capital 

input price index for any year is off by 

0.25 percentage point or more. There is 

a 2-year lag between the forecast and the 

availability of data to develop a 

measurement of the forecast error. A 

forecast error of 0.0 percentage point 

was calculated for the proposed FY 

2015 update. Historically, when forecast 

error of the CIPI is greater than 0.25 

percentage point in absolute terms, it is 

reflected in the update recommended 

under this framework. Current historical 

data indicate that the forecasted FY 

2013 rate-of-increase of the FY 2006- 

based CIPI (1.2 percent) used in 

calculating the FY 2013 update factor 

slightly understated the actual realized 

FY 2013 price increases of the FY 2006- 

based CIPI (1.3 percent) by 0.1 

percentage point because the prices 

associated with both the depreciation 

and other capital-related cost categories 

grew more quickly than anticipated. 

Because this forecast error does not 

exceed the 0.25 percentage point 

threshold, we are proposing to make a 

0.0 percentage point adjustment for 

forecast error in the update for FY 2015. 

Under the capital IPPS update 

framework, we also make an adjustment 

for changes in intensity. Historically, we 

calculated this adjustment using the 

same methodology and data that were 

used in the past under the framework 

for operating IPPS. The intensity factor 

for the operating update framework 

reflected how hospital services are 

utilized to produce the final product, 

that is, the discharge. This component 

accounts for changes in the use of 

quality-enhancing services, for changes 

within DRG severity, and for expected 

modification of practice patterns to 

remove noncost-effective services. Our 

intensity measure is based on a 5-year 

average. 

We calculate case-mix constant 

intensity as the change in total cost per 

discharge, adjusted for price level 

changes (the CIPI for hospital and 

related services) and changes in real 

case-mix. Without reliable estimates of 

the proportions of the overall annual 

intensity increases that are due, 

respectively, to ineffective practice 

patterns and the combination of qualityenhancing 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 qualityenhancing technology. 

In this proposed rule, we are 

proposing to continue to use a 

Medicare-specific intensity measure that 

is based on a 5-year adjusted average of 

cost per discharge for FY 2015 (we refer 

readers to the FY 2011 IPPS/LTCH PPS 

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final rule (75 FR 50436) for a full 

description of our Medicare-specific 

intensity measure). Specifically, for FY 

2015, we are proposing to use an 

intensity measure that is based on an 

average of cost per discharge data from 

the 5-year period beginning with FY 

2007 and extending through FY 2012. 

Based on these data, we estimated that 

case-mix constant intensity declined 

during FYs 2007 through 2012. In the 

past, when we found intensity to be 

declining, we believed a zero (rather 

than a negative) intensity adjustment 

was appropriate. Consistent with this 

approach, because we estimate that 

intensity declined during that 5-year 

period, we believe it is appropriate to 

propose to continue to apply a zero 

intensity adjustment for FY 2015. 

Therefore, we are proposing to make a 

0.0 percentage point adjustment for 

intensity in the update for FY 2015. 

Above, we described the basis of the 

components used to develop the 

proposed 1.5 percent capital update 

factor under the capital update 

framework for FY 2015 as shown in the 

table below. 

PROPOSED CMS FY 2015 UPDATE FACTOR TO THE CAPITAL FEDERAL RATE

Capital Input Price Index * ........................................................................................................................................................... 1.5 

Intensity: ....................................................................................................................................................................................... 0.0 

Case-Mix Adjustment Factors: 

Real Across DRG Change ................................................................................................................................................... ¥0.5 

Projected Case-Mix Change ................................................................................................................................................ 0.5 

Subtotal ......................................................................................................................................................................... 1.5 

Effect of FY 2013 Reclassification and Recalibration ................................................................................................................. 0.0 

Forecast Error Correction ............................................................................................................................................................ 0.0 

Total Update ......................................................................................................................................................................... 1.5 

* The capital input price index is based on the FY 2010-based CIPI. 

b. Comparison of CMS and MedPAC 

Update Recommendation 

In its March 2014 Report to Congress, 

MedPAC did not make a specific update 

recommendation for capital IPPS 

payments for FY 2015. (We refer readers 

to MedPAC’s Report to the Congress: 

Medicare Payment Policy, March 2014, 

Chapter 3.) 

2. Outlier Payment Adjustment Factor 

Section 412.312(c) establishes a 

unified outlier payment methodology 

for inpatient operating and inpatient 

capital-related costs. A single set of 

thresholds is used to identify outlier 

cases for both inpatient operating and 

inpatient capital-related payments. 

Section 412.308(c)(2) provides that the 

standard Federal rate for inpatient 

capital-related costs be reduced by an 

adjustment factor equal to the estimated 

proportion of capital-related outlier 

payments to total inpatient capitalrelated PPS payments. The outlier 

thresholds are set so that operating 

outlier payments are projected to be 5.1 

percent of total operating IPPS DRG 

payments. 

For FY 2014, we estimated that outlier 

payments for capital will equal 6.07 

percent of inpatient capital-related 

payments based on the capital Federal 

rate in FY 2014. Based on the proposed 

thresholds as set forth in section II.A. of 

this Addendum, we estimate that outlier 

payments for capital-related costs would 

equal 6.26 percent for inpatient capitalrelated payments based on the proposed 

capital Federal rate in FY 2015. 

Therefore, we are proposing to apply an 

outlier adjustment factor of 0.9374 in 

determining the proposed capital 

Federal rate for FY 2015. Thus, we 

estimate that the percentage of capital 

outlier payments to total capital Federal 

rate payments for FY 2015 will be 

slightly higher than the percentage for 

FY 2014. 

The outlier reduction factors are not 

built permanently into the capital rates; 

that is, they are not applied 

cumulatively in determining the capital 

Federal rate. The proposed FY 2015 

outlier adjustment of 0.9374 is a ¥0.82 

percent change from the FY 2014 outlier 

adjustment of 0.9393. Therefore, the 

proposed net change in the outlier 

adjustment to the capital Federal rate for 

FY 2015 is 0.9980 (0.9374/0.9393). 

Thus, the outlier adjustment would 

decrease the proposed FY 2015 capital 

Federal rate by 0.82 percent compared 

to the FY 2014 outlier adjustment. 

3. Proposed Budget Neutrality 

Adjustment Factor for Changes in DRG 

Classifications and Weights and the 

GAF 

Section 412.308(c)(4)(ii) requires that 

the capital Federal rate be adjusted so 

that aggregate payments for the fiscal 

year based on the capital Federal rate 

after any changes resulting from the 

annual DRG reclassification and 

recalibration and changes in the GAF 

are projected to equal aggregate 

payments that would have been made 

on the basis of the capital Federal rate 

without such changes. Because we 

implemented a separate GAF for Puerto 

Rico, we apply separate budget 

neutrality adjustments for the national 

GAF and the Puerto Rico GAF. We 

apply the same budget neutrality factor 

for DRG reclassifications and 

recalibration nationally and for Puerto 

Rico. Separate adjustments were 

unnecessary for FY 1998 and earlier 

because the GAF for Puerto Rico was 

implemented in FY 1998. 

To determine the proposed factors for 

FY 2015, we compared (separately for 

the national capital rate and the Puerto 

Rico capital rate) estimated aggregate 

capital Federal rate payments based on 

the FY 2014 MS–DRG classifications 

and relative weights and the FY 2014 

GAF to estimated aggregate capital 

Federal rate payments based on the FY 

2014 MS–DRG classifications and 

relative weights and the proposed FY 

2015 GAFs. To achieve budget 

neutrality for the changes in the 

national GAFs, based on calculations 

using updated data, we are proposing to 

apply an incremental budget neutrality 

adjustment factor of 1.0000 for FY 2015 

to the previous cumulative FY 2014 

adjustment factor of 0.9891, yielding a 

proposed adjustment factor of 0.9891 

through FY 2015. For the Puerto Rico 

GAFs, we are proposing to apply an 

incremental budget neutrality 

adjustment factor of 1.0011 for FY 2015 

to the previous cumulative FY 2014 

adjustment factor of 1.0076, yielding a 

proposed cumulative adjustment factor 

of 1.0087 through FY 2015. 

We then compared estimated 

aggregate capital Federal rate payments 

based on the FY 2014 MS–DRG relative 

weights and the proposed FY 2015 

GAFs to estimated aggregate capital 

Federal rate payments based on the 

cumulative effects of the proposed FY 

2015 MS–DRG classifications and 

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relative weights and the proposed FY 

2015 GAFs. The proposed incremental 

adjustment factor for DRG 

classifications and changes in relative 

weights is 0.9957 both nationally and 

for Puerto Rico. The proposed 

cumulative adjustment factors for MS– 

DRG classifications and changes in 

relative weights and for changes in the 

GAFs through FY 2015 are 0.9848 

nationally and 1.0043 for Puerto Rico. 

(We note that all the values are 

calculated with unrounded numbers.) 

The GAF/DRG budget neutrality 

adjustment factors are built permanently 

into the capital rates; that is, they are 

applied cumulatively in determining the 

capital Federal rate. This follows the 

requirement under § 412.308(c)(4)(ii) 

that estimated aggregate payments each 

year be no more or less than they would 

have been in the absence of the annual 

DRG reclassification and recalibration 

and changes in the GAFs. 

The methodology used to determine 

the recalibration and geographic 

adjustment factor (GAF/DRG) budget 

neutrality adjustment is similar to the 

methodology used in establishing 

budget neutrality adjustments under the 

IPPS for operating costs. One difference 

is that, under the operating IPPS, the 

budget neutrality adjustments for the 

effect of geographic reclassifications are 

determined separately from the effects 

of other changes in the hospital wage 

index and the MS–DRG relative weights. 

Under the capital IPPS, there is a single 

GAF/DRG budget neutrality adjustment 

factor (the national capital rate and the 

Puerto Rico capital rate are determined 

separately) for changes in the GAF 

(including geographic reclassification) 

and the MS–DRG relative weights. In 

addition, there is no adjustment for the 

effects that geographic reclassification 

has on the other payment parameters, 

such as the payments for DSH or IME. 

The proposed cumulative adjustment 

factor accounts for the proposed MS– 

DRG reclassifications and recalibration 

and for proposed changes in the GAFs. 

It also incorporates the effects on the 

proposed GAFs of FY 2015 geographic 

reclassification decisions made by the 

MGCRB compared to FY 2014 decisions. 

However, it does not account for 

proposed changes in payments due to 

changes in the DSH and IME adjustment 

factors. 

4. Proposed Capital Federal Rate for FY 

2015 

For FY 2014, we established a capital 

Federal rate of $429.31 (78 FR 50990). 

We are proposing to establish an update 

of 1.5 percent in determining the FY 

2015 capital Federal rate for all 

hospitals. As a result of this proposed 

update and the proposed budget 

neutrality factors discussed above, we 

are proposing to establish a national 

capital Federal rate of $433.01 for FY 

2015. The proposed national capital 

Federal rate for FY 2015 was calculated 

as follows: 

• The proposed FY 2015 update 

factor is 1.015, that is, the proposed 

update is 1.5 percent. 

• The proposed FY 2015 budget 

neutrality adjustment factor that is 

applied to the proposed capital Federal 

rate for proposed changes in the MS– 

DRG classifications and relative weights 

and changes in the GAFs is 0.9957. 

• The proposed FY 2015 outlier 

adjustment factor is 0.9374. 

(We note that, as discussed in section 

VI.C. of the preamble of this proposed 

rule, we are not proposing to make an 

additional MS–DRG documentation and 

coding adjustment to the capital IPPS 

Federal rates for FY 2015.) 

Because the proposed FY 2015 capital 

Federal rate has already been adjusted 

for differences in case-mix, wages, costof-living, indirect medical education 

costs, and payments to hospitals serving 

a disproportionate share of low-income 

patients, we are not proposing to make 

additional adjustments in the capital 

Federal rate for these factors, other than 

the proposed budget neutrality factor for 

proposed changes in the MS–DRG 

classifications and relative weights and 

for proposed changes in the GAFs. 

We are providing the following chart 

that shows how each of the proposed 

factors and adjustments for FY 2015 

affects the computation of the proposed 

FY 2015 national capital Federal rate in 

comparison to the FY 2014 national 

capital Federal rate. The proposed FY 

2015 update factor has the effect of 

increasing the capital Federal rate by 1.5 

percent compared to the FY 2014 capital 

Federal rate. The proposed GAF/DRG 

budget neutrality adjustment factor has 

the effect of decreasing the capital 

Federal rate by 0.43 percent. The 

proposed FY 2015 outlier adjustment 

factor has the effect of decreasing the 

capital Federal rate by 0.20 percent 

compared to the FY 2014 capital Federal 

rate. The combined effect of all the 

proposed changes would increase the 

proposed national capital Federal rate 

by 0.86 percent compared to the FY 

2014 national capital Federal rate. 

COMPARISON OF FACTORS AND ADJUSTMENTS: FY 2014 CAPITAL FEDERAL RATE AND PROPOSED FY 2015 CAPITAL

FEDERAL RATE

FY 2014 Proposed 

FY 2015 Change Percent change 

Update Factor 1 ................................................................................................ 1.0090 1.0150 1.0150 1.50 

GAF/DRG Adjustment Factor 1 ........................................................................ 0.9987 0.9957 0.9957 ¥0.43 

Outlier Adjustment Factor 2 .............................................................................. 0.9393 0.9374 0.9980 ¥0.20 

Capital Federal Rate ........................................................................................ 429.31 433.01 1.0086 0.86 

1The proposed update factor and the proposed GAF/DRG budget neutrality adjustment factors are built permanently into the capital Federal 

rates. Thus, for example, the proposed incremental change from FY 2014 to FY 2015 resulting from the application of the proposed 0.9957 GAF/

DRG budget neutrality adjustment factor for FY 2015 is a proposed net change of 0.9957 (or ¥0.43 percent). 2The proposed outlier reduction factor is not built permanently into the capital Federal rate; that is, the factor is not applied cumulatively in determining the proposed capital Federal rate. Thus, for example, the proposed net change resulting from the application of the proposed FY 2015 

outlier adjustment factor is 0.9374/0.9393, or 0.9918 (or ¥0.82 percent). 

5. Proposed Special Capital Rate for 

Puerto Rico Hospitals 

Section 412.374 provides for the use 

of a blended payment system for 

payments made to hospitals located in 

Puerto Rico under the PPS for acute care 

hospital inpatient capital-related costs. 

Accordingly, under the capital PPS, we 

compute a separate payment rate 

specific to hospitals located in Puerto 

Rico using the same methodology used 

to compute the national Federal rate for 

capital-related costs. Under the broad 

authority of section 1886(g) of the Act, 

beginning with discharges occurring on 

or after October 1, 2004, capital 

payments made to hospitals located in 

Puerto Rico are based on a blend of 25 

percent of the Puerto Rico capital rate 

and 75 percent of the capital Federal 

rate. The Puerto Rico capital rate is 

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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 

adjustment factors for the national GAF 

and for the Puerto Rico GAF. However, 

we apply the same budget neutrality 

adjustment factor for MS–DRG 

reclassifications and recalibration 

nationally and for Puerto Rico. The 

proposed budget neutrality adjustment 

factors for the national GAF and for the 

Puerto Rico GAF and the proposed 

budget neutrality factor for MS–DRG 

reclassifications and recalibration 

(which is the same nationally and for 

Puerto Rico) are discussed in section 

III.A.3. of this Addendum. 

In computing the payment for a 

particular Puerto Rico hospital, the 

Puerto Rico portion of the capital rate 

(25 percent) is multiplied by the Puerto 

Rico-specific GAF for the labor market 

area in which the hospital is located, 

and the national portion of the capital 

rate (75 percent) is multiplied by the 

national GAF for the labor market area 

in which the hospital is located (which 

is computed from national data for all 

hospitals in the United States and 

Puerto Rico). 

For FY 2014, the special capital rate 

for hospitals located in Puerto Rico was 

$209.82 (78 FR 50991). With the 

changes we are proposing to make to the 

other factors used to determine the 

proposed capital Federal rate, the 

proposed FY 2015 special capital rate 

for hospitals in Puerto Rico is $206.82. 

B. Calculation of the Proposed Inpatient 

Capital-Related Prospective Payments 

for FY 2015 

For purposes of calculating payments 

for each discharge during FY 2015, the 

capital Federal rate is adjusted as 

follows: (Standard Federal Rate) × (DRG 

weight) × (GAF) × (COLA for hospitals 

located in Alaska and Hawaii) × (1 + 

DSH Adjustment Factor + IME 

Adjustment Factor, if applicable). The 

result is the adjusted capital Federal 

rate. 

Hospitals also may receive outlier 

payments for those cases that qualify 

under the thresholds established for 

each fiscal year. Section 412.312(c) 

provides for a single set of thresholds to 

identify outlier cases for both inpatient 

operating and inpatient capital-related 

payments. The proposed outlier 

thresholds for FY 2015 are in section 

II.A. of this Addendum. For FY 2015, a 

case would qualify as a cost outlier if 

the cost for the case plus the (operating) 

IME and DSH payments (including both 

the empirically justified Medicare DSH 

payment and the estimated 

uncompensated care payment, as 

discussed in section II.A.4.g.(1) of this 

Addendum) is greater than the 

prospective payment rate for the MS– 

DRG plus the proposed fixed-loss 

amount of $25,799. 

Currently, as provided under 

§ 412.304(c)(2), we pay a new hospital 

85 percent of its reasonable costs during 

the first 2 years of operation unless it 

elects to receive payment based on 100 

percent of the capital Federal rate. 

Effective with the third year of 

operation, we pay the hospital based on 

100 percent of the capital Federal rate 

(that is, the same methodology used to 

pay all other hospitals subject to the 

capital PPS). 

C. Capital Input Price Index 

1. Background 

Like the operating input price index, 

the capital input price index (CIPI) is a 

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 weightedaverage 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 2014 IPPS/ 

LTCH PPS final rule (78 FR 50603 

through 50607), we rebased and revised 

the CIPI to a FY 2010 base year to reflect 

the more current structure of capital 

costs in hospitals. For a complete 

discussion of this rebasing, we refer 

readers to the FY 2014 IPPS/LTCH PPS 

final rule. 

2. Forecast of the CIPI for FY 2015 

Based on the latest forecast by IHS 

Global Insight, Inc. (first quarter of 

2014), we are forecasting the FY 2010- 

based CIPI to increase 1.5 percent in FY 

2015. This reflects a projected 1.9 

percent increase in vintage-weighted 

depreciation prices (building and fixed 

equipment, and movable equipment), 

and a projected 2.6 percent increase in 

other capital expense prices in FY 2015, 

partially offset by a projected 1.0 

percent decline in vintage-weighted 

interest expenses in FY 2015. The 

weighted average of these three factors 

produces the forecasted 1.5 percent 

increase for the FY 2010-based CIPI as 

a whole in FY 2015. 

IV. Proposed Changes to Payment Rates 

for Excluded Hospitals: Rate-ofIncrease Percentages for FY 2015 

Payments for services furnished in 

children’s hospitals, 11 cancer 

hospitals, and hospitals located outside 

the 50 States, the District of Columbia 

and Puerto Rico (that is, short-term 

acute care hospitals located in the U.S. 

Virgin Islands, Guam, the Northern 

Mariana Islands, and American Samoa) 

that are excluded from the IPPS are 

made on the basis of reasonable costs 

based on the hospital’s own historical 

cost experience, subject to a rate-ofincrease ceiling. A per discharge limit 

(the target amount as defined in 

§ 413.40(a) of the regulations) is set for 

each hospital based on the hospital’s 

own cost experience in its base year, 

and updated annually by a rate-ofincrease percentage. (We note that, in 

accordance with § 403.752(a), RNHCIs 

are also subject to the rate-of-increase 

limits established under § 413.40 of the 

regulations.) 

In this FY 2015 IPPS/LTCH PPS 

proposed rule, we are proposing that the 

FY 2015 rate-of-increase percentage for 

updating the target amounts for the 11 

cancer hospitals, children’s hospitals, 

and the short-term acute care hospitals 

located in the U.S. Virgin Islands, 

Guam, the Northern Mariana Islands, 

and American Samoa, as well as 

RNHCIs would be the estimated 

percentage increase in the FY 2015 IPPS 

operating market basket, in accordance 

with applicable regulations at § 413.40. 

As we did in FY 2014, we would use the 

percentage increase in the FY 2010- 

based IPPS operating market basket to 

update these target amounts. Based on 

IHS Global Insight, Inc.’s 2014 first 

quarter forecast, we estimate that the FY 

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2010-based IPPS operating market 

basket update for FY 2015 is 2.7 percent 

(that is, the estimate of the market 

basket rate-of-increase). However, we 

are proposing that if more recent data 

become available for the final rule, we 

would use them to calculate the IPPS 

operating market basket update for FY 

2015. 

The IRF PPS, the IPF PPS, and the 

LTCH PPS are updated annually. We 

refer readers to section VII. of the 

preamble of this proposed rule and 

section V. of the Addendum to this 

proposed rule for the proposed update 

changes to the Federal payment rates for 

LTCHs under the LTCH PPS for FY 

2015. The annual updates for the IRF 

PPS and the IPF PPS are issued by the 

agency in separate Federal Register 

documents. 

V. Proposed Updates to the Payment 

Rates for the LTCH PPS for FY 2015 

A. Proposed LTCH PPS Standard 

Federal Rate for FY 2015 

1. Background 

In section VII. of the preamble of this 

proposed rule, we discuss our proposed 

updates to the payment rates, factors, 

and specific policies under the LTCH 

PPS for FY 2015. 

Under § 412.523(c)(3)(ii) of the 

regulations, for LTCH PPS rate years 

beginning RY 2004 through RY 2006, we 

updated the standard Federal rate 

annually by a factor to adjust for the 

most recent estimate of the increases in 

prices of an appropriate market basket 

of goods and services for LTCHs. We 

established this policy of annually 

updating the standard Federal rate 

because, at that time, we believed that 

was the most appropriate method for 

updating the LTCH PPS standard 

Federal rate for years after the initial 

implementation of the LTCH PPS in FY 

2003. Therefore, under 

§ 412.523(c)(3)(ii), for RYs 2004 through 

2006, the annual update to the LTCH 

PPS standard Federal rate was equal to 

the previous rate year’s Federal rate 

updated by the most recent estimate of 

increases in the appropriate market 

basket of goods and services included in 

covered inpatient LTCH services. 

In determining the annual update to 

the standard Federal rate for RY 2007, 

based on our ongoing monitoring 

activity, we believed that, rather than 

solely using the most recent estimate of 

the LTCH PPS market basket update as 

the basis of the annual update factor, it 

was appropriate to adjust the standard 

Federal rate to account for the effect of 

documentation and coding in a prior 

period that was unrelated to patients’ 

severity of illness (71 FR 27818). 

Accordingly, we established under 

§ 412.523(c)(3)(iii) that the annual 

update to the standard Federal rate for 

RY 2007 was zero percent based on the 

most recent estimate of the LTCH PPS 

market basket at that time, offset by an 

adjustment to account for changes in 

case-mix in prior periods due to the 

effect of documentation and coding that 

were unrelated to patients’ severity of 

illness. For RY 2008 through FY 2011, 

we also made an adjustment for the 

effect of documentation and coding that 

was unrelated to patients’ severity of 

illness in establishing the annual update 

to the standard Federal rate as set forth 

in the regulations at §§ 412.523(c)(3)(iv) 

through (c)(3)(vii). For FYs 2012, 2013, 

and 2014, we updated the standard 

Federal rate by the most recent estimate 

of the LTCH PPS market basket at that 

time, including additional statutory 

adjustments required by section 

1886(m)(3)(A) of the Act as set forth in 

the regulations at §§ 412.523(c)(3)(viii) 

through (c)(3)(ix). 

Section 1886(m)(3)(A) of the Act, as 

added by section 3401(c) of the 

Affordable Care Act, specifies that, for 

rate year 2010 and each subsequent rate 

year, any annual update to the standard 

Federal rate shall be reduced: 

• For rate year 2010 through 2019, by 

the other adjustment specified in 

section 1886(m)(3)(A)(ii) and (m)(4) of 

the Act; and 

• For rate year 2012 and each 

subsequent year, by the productivity 

adjustment described in section 

1886(b)(3)(B)(xi)(II) of the Act (which 

we refer to as ‘‘the multifactor 

productivity (MFP) adjustment’’) as 

discussed in section VII.C.2. of the 

preamble of this proposed rule. 

Section 1886(m)(3)(B) of the Act 

provides that the application of 

paragraph (3) of section 1886(m) of the 

Act may result in the annual update 

being less than zero for a rate year, and 

may result in payment rates for a rate 

year being less than such payment rates 

for the preceding rate year. (As noted in 

section VII.C.2.a. of the preamble of this 

proposed rule, the annual update to the 

LTCH PPS occurs on October 1 and we 

have adopted the term ‘‘fiscal year’’ (FY) 

rather than ‘‘rate year’’ (RY) under the 

LTCH PPS beginning October 1, 2010. 

Therefore, for purposes of clarity, when 

discussing the annual update for the 

LTCH PPS, including the provisions of 

the Affordable Care Act, we use the term 

‘‘fiscal year’’ rather than ‘‘rate year’’ for 

2011 and subsequent years.) 

For FY 2014, consistent with our 

historical practice, we established an 

update to the LTCH PPS standard 

Federal rate based on the full estimated 

LTCH PPS market basket increase of 2.5 

percent and the 0.8 percentage point 

reductions required by sections 

1886(m)(3)(A)(i) and 1886(m)(3)(A)(ii) 

with 1886(m)(4)(C) of the Act. 

Accordingly, at § 412.523(c)(3)(x) of the 

regulations, we established an annual 

update of 1.7 percent to the standard 

Federal rate for FY 2014 (78 FR 50761 

through 50763). 

For FY 2015, as discussed in greater 

detail in section VII.C.2. of the preamble 

of this proposed rule, we are proposing 

to establish an annual update to the 

LTCH PPS standard Federal rate based 

on the full estimated increase in the 

LTCH PPS market basket, less the 

proposed MFP adjustment consistent 

with section 1886(m)(3)(A)(i) of the Act, 

and less the 0.2 percentage point 

required by sections 1886(m)(3)(A)(ii) 

and (m)(4)(E) of the Act. In addition, as 

discussed in greater detail in section 

VII.C.2. of the preamble of this proposed 

rule, beginning in FY 2014, the annual 

update would be further reduced by 2.0 

percentage points for LTCHs that fail to 

submit quality reporting data in 

accordance with the requirements of the 

LTCHQR Program under section 

1886(m)(5) of the Act. 

Specifically, in this proposed rule, 

based on the best available data, we are 

proposing to establish an annual update 

to the standard Federal rate of 2.1 

percent, which is based on the full 

estimated increase in the LTCH PPS 

market basket of 2.7 percent, less the 

proposed MFP adjustment of 0.4 

percentage point consistent with section 

1886(m)(3)(A)(i) of the Act, and less the 

0.2 percentage point required by 

sections 1886(m)(3)(A)(ii) and (m)(4)(E) 

of the Act. As discussed in greater detail 

in section VII.C.2.c. of the preamble of 

this proposed rule, for LTCHs that fail 

to submit the required quality reporting 

data for FY 2015 in accordance with the 

LTCHQR Program, the proposed annual 

update would be further reduced by 2.0 

percentage points as required by section 

1886(m)(5) of the Act. Accordingly, we 

are proposing to establish an annual 

update to the LTCH PPS standard 

Federal rate of 0.1 percent for LTCHs 

that fail to submit the required quality 

reporting data for FY 2015. This 

proposed 0.1 percent update is 

calculated based on the full estimated 

increase in the LTCH PPS market basket 

of 2.7 percent, less a proposed MFP 

adjustment of 0.4 percentage point, less 

an additional adjustment of 0.2 

percentage point required by the statute, 

and less 2.0 percentage points for failure 

to submit quality reporting data as 

required by section 1886(m)(5) of the 

Act. 

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2. Development of the Proposed FY 

2015 LTCH PPS Standard Federal Rate 

We continue to believe that the 

annual update to the LTCH PPS 

standard Federal rate should be based 

on the most recent estimate of the 

increase in the LTCH PPS market 

basket, including any statutory 

adjustments. Consistent with our 

historical practice, for FY 2015, we are 

proposing to apply the proposed annual 

update to the LTCH PPS standard 

Federal rate from the previous year. 

Furthermore, in determining the 

proposed standard Federal rate for FY 

2015, we also are proposing to make 

certain regulatory adjustments. 

Specifically, we are proposing to apply 

an adjustment factor for the final year of 

the 3-year phase-in of the one-time 

prospective adjustment to the standard 

Federal rate under § 412.523(d)(3), as 

discussed in greater detail in section 

VII.C.3. of the preamble of this proposed 

rule. In addition, in determining the 

proposed FY 2015 standard Federal rate, 

we are proposing to apply a budget 

neutrality adjustment factor for the 

proposed changes related to the area 

wage adjustment (that is, proposed 

changes to the wage data, including the 

proposal to adopt the new OMB 

delineations, and labor-related share) in 

accordance with § 412.523(d)(4). 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50993 and 50993), we 

established an annual update to the 

LTCH PPS standard Federal rate of 1.7 

percent for FY 2014 based on the full 

estimated LTCH PPS market basket 

increase of 2.5 percent, less the MFP 

adjustment of 0.5 percentage point 

consistent with section 1886(m)(3)(A)(i) 

of the Act and less the 0.3 percentage 

point required by sections 

1886(m)(3)(A)(ii) and (m)(4)(C) of the 

Act. Accordingly, at § 412.523(c)(3)(x), 

we established an annual update to the 

standard Federal rate for FY 2014 of 1.7 

percent. That is, we applied an update 

factor of 1.017 to the FY 2013 Federal 

rate of $40,607.31 to determine the FY 

2014 standard Federal rate. We also 

adjusted the standard Federal rate for 

FY 2014 by the one-time prospective 

adjustment factor for FY 2014 of 

0.98734 under § 412.523(d)(3)(ii). 

Furthermore, for FY 2014, we applied 

an area wage level budget neutrality 

factor of 1.0010531 to the standard 

Federal rate to ensure that any changes 

to the area wage level adjustment (that 

is, the annual update of the wage index 

values and labor-related share) would 

not result in any change (increase or 

decrease) in estimated aggregate LTCH 

PPS payments. Consequently, we 

established a standard Federal rate for 

FY 2014 of $40,607.31 (calculated as 

$40,397.96 × 1.017 × 0.98734 × 

1.0010531). 

In this proposed rule, we are 

proposing to establish an annual update 

to the LTCH PPS standard Federal rate 

of 2.1 percent (that is, an update factor 

of 1.021) for FY 2015, based on the full 

estimated increase in the LTCH PPS 

market basket of 2.7 percent, less the 

proposed MFP adjustment of 0.4 

percentage point, consistent with 

section 1886(m)(3)(A)(i) of the Act, and 

less the 0.2 percentage point required by 

sections 1886(m)(3)(A)(ii) and(m)(4)(E) 

of the Act. Therefore, under proposed 

§ 412.523(c)(3)(xi), we are proposing to 

apply a factor of 1.021 to the FY 2014 

standard Federal rate of $40,607.31 to 

determine the proposed FY 2015 

standard Federal rate. These proposed 

factors are based on IGI’s first quarter 

2014 forecast, which are the best 

available data at this time. Consistent 

with our historical practice of using the 

best available data, we also are 

proposing that if more recent data 

become available to determine the 

market basket estimate or the MFP 

adjustment, we would use such data for 

the final rule, if appropriate. For LTCHs 

that fail to submit quality reporting data 

for FY 2015 under the LTCHQR 

Program, under proposed 

§ 412.523(c)(3)(xi) in conjunction with 

§ 412.523(c)(4), we are proposing to 

reduce the proposed annual update to 

the LTCH PPS standard Federal rate by 

an additional 2 percentage points 

consistent with section 1886(m)(5) of 

the Act. Therefore, we are proposing to 

establish an annual update to the LTCH 

PPS standard Federal rate of 0.1 percent 

(that is, 2.1 percent minus 2.0 

percentage points = 0.1 percent or an 

update factor of 1.001) for FY 2015 for 

LTCHs that fail to submit the required 

quality reporting data for FY 2015 under 

the LTCHQR Program. We also are 

proposing that the standard Federal rate 

for FY 2015 would be further adjusted 

by a proposed adjustment factor of 

0.98734 for FY 2015 under the final year 

of the 3-year phase-in of the one-time 

prospective adjustment at 

§ 412.523(d)(3)(ii). In addition, for FY 

2015, we are proposing to apply an area 

wage level budget neutrality factor of 

1.0002034 to the standard Federal rate 

to ensure that any proposed changes to 

the area wage level adjustment (that is, 

the proposed annual update of the wage 

index values and labor-related share) 

would not result in any change (increase 

or decrease) in estimated aggregate 

LTCH PPS payments. Accordingly, we 

are proposing to establish a standard 

Federal rate of $40,943.51 (calculated as 

$40,607.31 × 1.021 × 0.98734 × 

1.002034) for FY 2015. The proposed 

standard Federal rate of $40,943.51 

would apply in determining the 

payments for FY 2015 discharges from 

LTCHs that submit quality reporting 

data for FY 2015 in accordance with the 

requirements of the LTCHQR Program 

under section 1886(m)(5) of the Act. For 

LTCHs that fail to submit quality 

reporting data for FY 2015 in 

accordance with the requirements of the 

LTCHQR Program under section 

1886(m)(5) of the Act, we are proposing 

to establish a standard Federal of 

$40,141.47 (calculated as $40,607.31 × 

1.001 × 0.98734 × 1.002034) for FY 

2015. 

B. Proposed Adjustment for Area Wage 

Levels Under the LTCH PPS for FY 2015 

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 under 

§ 412.525(c). The labor-related share of 

the LTCH PPS standard Federal rate is 

adjusted to account for geographic 

differences in area wage levels by 

applying the applicable LTCH PPS wage 

index. The applicable LTCH PPS wage 

index is computed using wage data from 

inpatient acute care hospitals without 

regard to reclassification under section 

1886(d)(8) or section 1886(d)(10) of the 

Act. 

When we implemented the LTCH 

PPS, we established a 5-year transition 

to the full area wage level adjustment. 

The area wage level 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 area wage index 

values are the full LTCH PPS area wage 

index values calculated based on acute 

care hospital inpatient wage index data 

without taking into account geographic 

reclassification under section 1886(d)(8) 

and section 1886(d)(10) of the Act. For 

additional information on the phase-in 

of the area wage level adjustment under 

the LTCH PPS, we refer readers to the 

August 30, 2002 LTCH PPS final rule 

(67 FR 56015 through 56019) and the 

RY 2008 LTCH PPS final rule (72 FR 

26891). 

2. Proposed Geographic Classifications 

(Labor Market Areas) Based on the New 

OMB Delineations 

In adjusting for the differences in area 

wage levels under the LTCH PPS, the 

labor-related portion of an LTCH’s 

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Federal prospective payment is adjusted 

by using an appropriate area wage index 

based on the geographic classification 

(labor market area) in which the LTCH 

is located. Specifically, the application 

of the LTCH PPS area wage level 

adjustment under existing § 412.525(c) 

is made based on the location of the 

LTCH—either in an ‘‘urban area,’’ or a 

‘‘rural area,’’ as defined in § 412.503. 

Under § 412.503, an ‘‘urban area’’ is 

defined as a Metropolitan Statistical 

Area (MSAs) (which includes 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. 

The CBSA-based geographic 

classification (labor market area) 

definitions currently used under the 

LTCH PPS, effective for discharges 

occurring on or after July 1, 2005, are 

based on the OMB’s CBSA definitions 

that were developed based on 2000 U.S. 

Census data. As discussed in greater 

detail in section VII.D. of the preamble 

of this proposed rule, OMB announced 

revisions to the statistical boundaries of 

its labor market areas for MSAs, 

Micropolitan Statistical Areas, and 

Combined Statistical Areas, and 

provided guidance on the uses of the 

delineations of these areas in OMB 

Bulletin No. 13–01, issued on February 

28, 2013 (referred hereinafter as the 

‘‘new OMB delineations’’). As 

previously stated, at that time, the FY 

2014 IPPS/LTCH PPS proposed rule was 

in the advanced stages of development, 

and the proposed FY 2014 LTCH PPS 

area wage indexes had already been 

developed based on the previous OMB 

CBSA-based labor market area 

definitions that are currently used to 

define CBSA-based labor market areas 

(referred hereinafter as ‘‘CBSA 

designations’’) under the LTCH PPS. 

Therefore, we did not implement 

changes to the CBSA designations under 

the LTCH PPS for FY 2014 based on the 

new OMB labor market areas 

delineations that were developed based 

on 2010 Decennial Census data. Rather, 

to allow for sufficient time to assess the 

new changes and their ramifications, we 

stated that we intended to propose to 

adopt the new OMB delineations, and 

the corresponding changes to the area 

wage index values based on those 

delineations, under the LTCH PPS for 

FY 2015 through notice and comment 

rulemaking. This approach was 

consistent with the approach used 

under the IPPS. (We refer readers to the 

FY 2014 IPPS/LTCH PPS final rule (78 

FR 50994 through 50995).) 

As discussed in sections III.B. and 

VII.D. of the preamble of this proposed 

rule, under the authority of section 123 

of the BBRA, as amended by section 

307(b) of the BIPA, we are proposing to 

adopt the new OMB delineations 

beginning in FY 2015. We believe that 

these new OMB delineations are based 

on the best available data that reflect the 

local economies and area wage levels of 

the hospitals that are currently located 

in these geographic areas. We also 

believe that the new OMB delineations 

would ensure that the LTCH PPS area 

wage level 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 this 

proposal is consistent with the IPPS 

proposal discussed in section III.B. of 

the preamble of this proposed rule. For 

additional details on our proposal to 

adopt the new OMB delineations, we 

refer readers to section VII.D. of the 

preamble of this proposed rule. 

3. Proposed LTCH PPS Labor-Related 

Share 

Under the payment adjustment for the 

differences in area wage levels under 

§ 412.525(c), the labor-related share of 

an LTCH’s PPS Federal prospective 

payment is adjusted by the applicable 

wage index for the labor market area in 

which the LTCH is located. The LTCH 

PPS labor-related share currently 

represents the sum of the labor-related 

portion of operating costs (Wages and 

Salaries; Employee Benefits; 

Professional Fees Labor-Related, 

Administrative and Business Support 

Services; and All-Other: Labor-Related 

Services) and a labor-related portion of 

capital costs using the applicable LTCH 

PPS market basket. Additional 

background information on the 

historical development of the laborrelated share under the LTCH PPS and 

the development of the RPL market 

basket can be found in the RY 2007 

LTCH PPS final rule (71 FR 27810 

through 27817 and 27829 through 

27830) and the FY 2012 IPPS/LTCH PPS 

final rule (76 FR 51766 through 51769 

and 51808). 

For FY 2013, we revised and rebased 

the market basket used under the LTCH 

PPS by adopting the newly created FY 

2009-based LTCH-specific market 

basket. In addition, we determined the 

labor-related share for FY 2013 as the 

sum of the FY 2013 relative importance 

of each labor-related cost category of the 

FY 2009-based LTCH-specific market 

basket. For more details, we refer 

readers to the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53477 through 53479). 

Consistent with our historical 

practice, in the FY 2014 IPPS/LTCH PPS 

final rule (78 FR 50995 through 50996), 

we determined the LTCH PPS laborrelated share for FY 2014 based on the 

FY 2014 relative importance of each 

labor-related cost category, which 

reflected the different rates of price 

change for these cost categories between 

the base year (FY 2009) and FY 2014. 

Specifically, based on IGI’s second 

quarter 2013 forecast of the FY 2009- 

based LTCH-specific market basket, we 

established a labor-related share under 

the LTCH PPS for FY 2014 of 62.537 

percent. 

For FY 2015, we are proposing to 

establish a labor-related share under the 

LTCH PPS based on IGI’s first quarter 

2014 forecast of the FY 2009-based 

LTCH-specific market basket. Consistent 

with our historical practice, if more 

recent data becomes available, we are 

proposing to use that data to determine 

the final FY 2015 labor-related share 

under the LTCH PPS. 

The table below shows the proposed 

FY 2015 labor-related share relative 

importance using IGI’s first quarter 2014 

forecast of the FY 2009-based LTCHspecific market basket. The sum of the 

proposed relative importance for FY 

2015 for operating costs (Wages and 

Salaries; Employee Benefits; 

Professional Fees Labor-Related, 

Administrative and Business Support 

Services; and All Other: Labor-Related 

Services) is 58.366 percent. We are 

proposing that the portion of capitalrelated costs that is influenced by the 

local labor market continue to be 

estimated to be 46 percent. Because the 

relative importance for capital-related 

costs would be 9.142 percent of the FY 

2009-based LTCH-specific market basket 

in FY 2015, we are proposing to take 46 

percent of 9.142 percent to determine 

the proposed labor-related share of 

capital-related costs for FY 2015, which 

would result in 4.205 percent (0.46 x 

9.142). We are proposing to then add 

that 4.205 percent for the capital-related 

cost amount to the 58.366 percent for 

the operating cost amount to determine 

the total proposed labor-related share 

for FY 2015. 

Therefore, under the broad authority 

of section 123 of the BBRA, as amended 

by section 307(b) of BIPA, to determine 

appropriate payment adjustments under 

the LTCH PPS, we are proposing to 

establish a labor-related share under the 

LTCH PPS in FY 2015 of 62.571 percent. 

This proposed labor-related share is 

determined using the same methodology 

as used in calculating all previous fiscal 

years LTCH labor-related shares. 

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PROPOSED FY 2015 LABOR-RELATED SHARE RELATIVE IMPORTANCE BASED ON THE FY 2009-BASED LTCH-SPECIFIC

MARKET BASKET

Proposed FY 2015 

labor-related share 

relative importance 

Wages and Salaries .................................................................................................................................................................... 45.034 

Employee Benefits ....................................................................................................................................................................... 8.128 

Professional Fees: Labor-Related ............................................................................................................................................... 2.208 

Administrative and Business Support Services ........................................................................................................................... 0.502 

All Other: Labor-Related Services ............................................................................................................................................... 2.494 

Subtotal ................................................................................................................................................................................. 58.366 

Proposed Labor-Related Portion of Capital Costs (46%) ........................................................................................................... 4.205 

Proposed Total Labor-Related Share ........................................................................................................................... 62.571 

4. Proposed LTCH PPS Wage Index for 

FY 2015 

Historically, we have established 

LTCH PPS area wage index values 

calculated from acute care IPPS hospital 

wage data without taking into account 

geographic reclassification under 

sections 1886(d)(8) and 1886(d)(10) of 

the Act (67 FR 56019). The area wage 

level adjustment established under the 

LTCH PPS is based on an LTCH’s actual 

location without regard to the ‘‘urban’’ 

or ‘‘rural’’ designation of any related or 

affiliated provider. 

In the FY 2014 LTCH PPS final rule 

(78 FR 50996 through 50997), we 

calculated the FY 2014 LTCH PPS area 

wage index values using the same data 

used for the FY 2014 acute care hospital 

IPPS (that is, data from cost reporting 

periods beginning during FY 2010), 

without taking into account geographic 

reclassification under sections 

1886(d)(8) and 1886(d)(10) of the Act, as 

these were the most recent complete 

data available at that time. In that same 

final rule, we indicated that we 

computed the FY 2014 LTCH PPS area 

wage index values consistent with the 

urban and rural geographic 

classifications (labor market areas) that 

were in place at that time, 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). As with the IPPS wage index, 

wage data for multicampus hospitals 

with campuses located in different labor 

market areas (CBSAs) are apportioned to 

each CBSA where the campus (or 

campuses) are located. We also 

continued to use our existing policy for 

determining area wage index values for 

areas where there are no IPPS wage 

data. 

Consistent with our historical 

methodology, to determine the 

applicable area wage index values under 

the LTCH PPS for FY 2015, under the 

broad authority of section 123 of the 

BBRA, as amended by section 307(b) of 

the BIPA, to determine appropriate 

payment adjustments under the LTCH 

PPS, we are proposing to use wage data 

collected from cost reports submitted by 

IPPS hospitals for cost reporting periods 

beginning during FY 2011, without 

taking into account geographic 

reclassification under sections 

1886(d)(8) and 1886(d)(10) of the Act. 

We are proposing to use FY 2011 wage 

data because these data are the most 

recent complete data available. These 

are the same data used to compute the 

proposed FY 2015 acute care hospital 

inpatient wage index, as discussed in 

section III. of the preamble of this 

proposed rule. (For our rationale for 

using IPPS hospital wage data as a 

proxy for determining the area 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).) 

For this proposed rule, the proposed 

FY 2015 LTCH PPS area wage index 

values were computed consistent with 

the proposed ‘‘urban’’ and ‘‘rural’’ 

geographic classifications (that is, using 

the new OMB labor market area 

delineations), as discussed in section 

VII.D. of the preamble of this proposed 

rule, and consistent with the prereclassified IPPS wage index policy 

(that is, our historical policy of not 

taking into account IPPS geographic 

reclassifications under sections 

1886(d)(8) and 1886(d)(10) of the Act in 

determining payments under the LTCH 

PPS). As with the IPPS wage index, we 

are proposing to continue to apportion 

wage data for multicampus hospitals 

with campuses located in different labor 

market areas to each CBSA where the 

campus or campuses are located, as 

discussed in section III.G. of the 

preamble of this proposed rule. 

Furthermore, in determining the 

proposed FY 2015 LTCH PPS area wage 

index values, we are proposing to 

continue to use our existing policy for 

determining area wage index values for 

areas where there are no IPPS wage 

data. We established this methodology 

for determining LTCH PPS wage index 

values for areas that have no IPPS wage 

data in the RY 2009 LTCH PPS final 

rule. For more information about this 

methodology, we refer readers to the RY 

2009 LTCH PPS final rule (73 FR 26817 

through 26818) for an explanation of 

and rationale for our policy for 

determining LTCH PPS wage index 

values for areas that have no IPPS wage 

data. 

There are currently no LTCHs located 

in labor market areas without IPPS 

hospital wage data (or IPPS hospitals). 

However, should an LTCH open in one 

of these labor market areas, LTCH PPS 

wage index values for such an area 

would be calculated using our 

established methodology. Under our 

existing methodology, the LTCH PPS 

wage index value for urban CBSAs with 

no IPPS wage data is determined by 

using an average of all of the urban areas 

within the State, and the LTCH PPS 

wage index value for rural areas with no 

IPPS wage data is determined by using 

the unweighted average of the wage 

indices from all of the CBSAs that are 

contiguous to the rural counties of the 

State. 

Based on the FY 2011 IPPS wage data 

that we are proposing to use to 

determine the proposed FY 2015 LTCH 

PPS area wage index values in this 

proposed rule, there are no IPPS wage 

data for the urban area Hinesville, GA 

(CBSA 25980). Consistent with the 

methodology discussed above, we 

calculated the proposed FY 2015 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), as shown in Table 

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12A, which is listed in section VI. of the 

Addendum to this proposed rule and 

available via the Internet on the CMS 

Web site). We note that, as IPPS wage 

data are dynamic, it is possible that 

urban areas without IPPS wage data will 

vary in the future. 

Based on FY 2011 IPPS wage data that 

we are proposing to use to determine 

the proposed FY 2015 LTCH PPS area 

wage index values in this proposed rule, 

there are no proposed rural areas 

without IPPS hospital wage data. 

Therefore, it is not necessary to use our 

established methodology to calculate an 

LTCH PPS wage index value for 

proposed rural areas with no IPPS wage 

data for FY 2015. We note that, as IPPS 

wage data are dynamic, it is possible 

that rural areas without IPPS wage data 

will vary in the future. 

For FY 2015, we are proposing to use 

the new OMB delineations under the 

LTCH PPS, as discussed in greater detail 

in section VII.D. of the preamble of this 

proposed rule. Under this proposal, 

there would be some changes to the 

current CBSA compositions as a result 

of the new OMB delineations, which 

would result in the creation of new 

CBSAs, ‘‘urban’’ counties that are now 

‘‘rural,’’ ‘‘rural’’ counties that are now 

‘‘urban,’’ and existing CBSAs that are 

divided into separate boundaries. Under 

existing § 412.503, an ‘‘urban area’’ is 

defined as a Metropolitan Statistical 

Area as defined by the Executive OMB, 

and a ‘‘rural area’’ is defined as any area 

outside of an urban area. We are not 

proposing any changes to the current 

definitions of ‘‘urban area’’ and ‘‘rural 

area’’ because our proposal to use the 

new OMB delineations under the LTCH 

PPS is consistent with the definitions in 

existing § 412.503. 

As discussed in sections III.B. and 

VII.D.2.e. of the preamble of this 

proposed rule, overall we believe that 

using the new OMB delineations would 

result in LTCH PPS area wage index 

values being more representative of the 

actual costs of labor in a given area. 

However, we also recognize that, as a 

result of our proposal to adopt the new 

OMB delineations, some LTCHs would 

experience decreases in area wage index 

values, while other LTCHs would 

experience increases in area wage index 

values. Therefore, to mitigate any shortterm instability in LTCH PPS payments 

that could result from our proposal to 

use the new OMB delineations, we are 

proposing a transitional wage index 

policy. Under our proposed transitional 

wage index policy, any LTCH that 

would experience a decrease in its area 

wage index solely as a result of the 

proposal to adopt the new OMB 

delineations under the LTCH PPS 

would receive a blended area wage 

index for FY 2015. That is, for purposes 

of determining an LTCH’s area wage 

index for FY 2015, we are proposing to 

compute LTCH PPS area wage index 

values using the proposed area wage 

data discussed above and in section 

V.B.4. of the Addendum to this 

proposed rule under both the current 

(FY 2014) CBSA designations and the 

proposed new OMB delineations. If the 

area wage index value under the 

proposed new OMB delineations would 

be lower than the proposed are wage 

index value under the FY 2014 CBSA 

designations, the LTCH would be paid 

based on a blended area wage index for 

FY 2015, which would be computed as 

the sum of 50 percent of each wage 

index value (referred to as the proposed 

50/50 blended wage index), as described 

below. 

Therefore, to determine the applicable 

area wage index value for each LTCH 

under this proposed transitional wage 

index policy that would be effective for 

discharges occurring on or after October 

1, 2014, through September 30, 2015, for 

this proposed rule, we computed the 

following two area wage index values: 

(1) The wage index values calculated 

using the proposed new OMB 

delineations; and (2) the wage index 

values calculated using the current (FY 

2014) CBSA designations. The proposed 

FY 2015 LTCH area wage index values 

calculated using the new OMB 

delineations are presented in section VI. 

of the Addendum to this proposed rule 

in Table 12A (for urban areas) and Table 

12B (for rural areas), which are available 

via the Internet on the CMS Web site. 

The proposed FY 2015 LTCH area wage 

index values calculated using the 

current (FY 2014) CBSA designations 

are presented in section VI. of the 

Addendum to this proposed rule in 

Table 12C (for urban areas) and Table 

12D (for rural areas), which are available 

via the Internet on the CMS Web site. 

Where applicable, the wage index 

values in Tables 12C and 12D would be 

used to calculate a LTCH’s proposed 50/ 

50 blended wage index value under the 

proposed transitional wage index 

policy. As explained previously, under 

our proposed transitional wage index 

policy, an LTCH would only receive the 

proposed 50/50 blended area wage 

index value for FY 2015 if the LTCH’s 

proposed area wage index value under 

the new OMB delineations (shown in 

Table 12A or 12B) would be lower than 

the proposed area wage index value 

under the FY 2014 CBSA designations 

(shown in Tables 12C or 12D). If an 

LTCH’s proposed area wage index under 

the new OMB delineations (shown in 

Tables 12A or 12B) would be higher 

than the proposed wage index under the 

FY 2014 CBSA designations (shown in 

Tables 12C or 12D), we are proposing to 

pay the LTCH based on 100 percent of 

the proposed area wage index under the 

new OMB delineations shown in Tables 

12A or 12B (as such the LTCH would 

not receive the proposed 50/50 blended 

area wage index). Furthermore, as 

discussed below and in section 

VII.D.2.e. of the preamble of this 

proposed rule, we are proposing to 

apply this transitional wage index 

policy in a budget neutral manner. Each 

LTCH’s proposed labor market area 

under the new OMB delineations and 

the current (FY 2014) CBSA-based labor 

market area designation can be found in 

the LTCH PPS impact file for this 

proposed rule, which is available via the 

Internet on the CMS Web site. 

5. Proposed Budget Neutrality 

Adjustment for Proposed Changes to the 

Area Wage Level Adjustment 

Historically, the LTCH PPS wage 

index and labor-related share are 

updated annually based on the latest 

available data. Under § 412.525(c)(2), 

any changes to the area wage index 

values or labor-related share are to be 

made in a budget neutral manner such 

that estimated aggregate LTCH PPS 

payments are unaffected; that is, will be 

neither greater than nor less than 

estimated aggregate LTCH PPS 

payments without such changes to the 

area wage level adjustment. Under this 

policy, we determine an area wage-level 

adjustment budget neutrality factor that 

will be applied to the standard Federal 

rate to ensure that any changes to the 

area wage-level adjustments are budget 

neutral such that any changes to the 

area wage index values or labor-related 

share would not result in any change 

(increase or decrease) in estimated 

aggregate LTCH PPS payments. 

Accordingly, under § 412.523(d)(4), we 

apply an area wage-level adjustment 

budget neutrality factor in determining 

the standard Federal rate, and we also 

established a methodology for 

calculating an area wage-level 

adjustment budget neutrality factor. (For 

additional information on the 

establishment of our budget neutrality 

policy for changes to the area wage-level 

adjustment, we refer readers to the FY 

2012 IPPS/LTCH PPS final rule (76 FR 

51771 through 51773 and 51809).) 

For FY 2015, in accordance with 

§ 412.523(d)(4), we are proposing to 

apply an area wage-level adjustment 

budget neutrality factor to adjust the 

standard Federal rate to account for the 

estimated effect of the proposed 

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level adjustment under § 412.525(c)(1) 

on estimated aggregate LTCH PPS 

payments using a methodology that is 

consistent with the methodology we 

established in the FY 2012 IPPS/LTCH 

PPS final rule (76 FR 51773). For this 

proposed rule, in addition to the 

proposed updates for FY 2015 to the 

area wage index data and labor-related 

share discussed above, we are proposing 

a transitional wage index policy to 

mitigate the impacts of implementing 

changes to the LTCH PPS labor market 

areas (CBSAs) based on new OMB 

delineations, as discussed above and in 

section VII.D.2.e. of the preamble of this 

proposed rule. Because our proposed 

transitional wage index policy for 

LTCHs that would experience a 

decrease in the their area wage index 

solely as a result of the proposed 

adoption of the new OMB delineations 

under the LTCH PPS would result in an 

increase in estimated aggregate LTCH 

PPS payments without such changes, 

we are proposing to include the 

proposed 

50/50 blended area wage index when 

determining the proposed area wagelevel adjustment budget neutrality factor 

that we would be applied to the 

standard Federal rate under 

§ 412.523(d)(4) to ensure that any 

changes to the area wage-level 

adjustments are budget neutral. 

For this proposed rule, using the 

proposed steps in the proposed 

methodology described in section 

VII.D.2.e. of this preamble, we 

determined a proposed FY 2015 area 

wage-level adjustment budget neutrality 

factor of 1.0002034. Accordingly, in 

section V.A.2. of the Addendum to this 

proposed rule, to determine the FY 2015 

LTCH PPS standard Federal rate, we are 

proposing to apply a proposed area 

wage level adjustment budget neutrality 

factor of 1.0002034, in accordance with 

§ 412.523(d)(4). The proposed FY 2015 

LTCH PPS standard Federal rate shown 

in Table 1E of the Addendum to this 

proposed rule reflects this adjustment 

factor. 

C. Proposed LTCH PPS Cost-of-Living 

Adjustment (COLA) for LTCHs Located 

in Alaska and Hawaii 

Under § 412.525(b), a cost-of-living 

adjustment (COLA) is provided for 

LTCHs located in Alaska and Hawaii to 

account for the higher costs incurred in 

those States. Specifically, we apply a 

COLA to payments to LTCHs located in 

Alaska and Hawaii by multiplying the 

nonlabor-related portion of the standard 

Federal payment rate by the applicable 

COLA factors established annually by 

CMS. Higher labor-related costs for 

LTCHs located in Alaska and Hawaii are 

taken into account in the adjustment for 

area wage levels described above. 

Prior to FY 2014, we used the most 

recent updated COLA factors obtained 

from the U.S. Office of Personnel 

Management (OPM) Web site at http:// 

www.opm.gov/oca/cola/rates.asp to 

adjust the LTCH PPS payments for 

LTCHs located in Alaska and Hawaii. 

Statutory changes have transitioned the 

Alaska and Hawaii COLAs to locality 

pay (phased in over a 3-year period 

beginning in January 2010, with COLA 

rates being frozen as of October 28, 

2009, and then proportionately reduced 

to reflect the phase-in of locality pay). 

For FY 2013, we believed that it was 

appropriate to use ‘‘frozen’’ COLA 

factors to adjust payments, while we 

explored alternatives for updating the 

COLA factors in the future, and we 

continued to use the same ‘‘frozen’’ 

COLA factors used in FY 2012 to adjust 

the nonlabor-related portion of the 

standard Federal rate for LTCHs located 

in Alaska and Hawaii in FY 2013 under 

§ 412.525(b). We also established a 

methodology to update the COLA 

factors for Alaska and Hawaii, every 4 

years (at the same time as the update to 

the labor-related share of the IPPS 

market basket), beginning in FY 2014 

(77 FR 53712 through 53713). The 

methodology we established to update 

the COLA factors is based on a 

comparison of the growth in the CPIs for 

Anchorage, Alaska, and Honolulu, 

Hawaii, relative to the growth in the CPI 

for the average U.S. city as published by 

the Bureau of Labor Statistics (BLS). It 

also incorporates a 25-percent cap on 

the CPI-updated COLA factors, which is 

consistent with a statutorily mandated 

25-percent cap that was applied to 

OPM’s published COLA factors. We 

believe that determining updated COLA 

factors using this methodology would 

appropriately adjust the nonlaborrelated portion of the standard Federal 

rate for LTCHs located in Alaska and 

Hawaii. (For additional details on the 

methodology we established in the FY 

2013 IPPS/LTCH PPS final rule to 

update the COLA factors for Alaska and 

Hawaii beginning in FY 2014, we refer 

readers to section VII.D.3. of the 

preamble of that final rule (77 FR 53481 

through 53482).) 

For FY 2014, we updated the COLA 

factors published for Alaska and Hawaii 

by OPM for 2009 (as these are the last 

COLA factors OPM published prior to 

transitioning from COLAs to locality 

pay) using the methodology that we 

finalized in the FY 2013 IPPS/LTCH 

PPS final rule. Under our finalized 

methodology, we used COLA factors for 

FY 2014 for the three specified urban 

areas of Alaska (Anchorage, Fairbanks 

and Juneau) of 1.23; for the City and 

County of Honolulu, the County of 

Kauai, the County of Maui, the County 

of Kalawao, and ‘‘All other’’ areas of 

Alaska of 1.25; and for the County of 

Hawaii of 1.19. For additional details on 

our policy, we refer readers to the FY 

2014 IPPS/LTCH PPS final rule (78 FR 

50997through 50998). 

Under our finalized policy, we update 

the COLA factors using the methodology 

described above every 4 years; the first 

year began in FY 2014 (77 FR 53482). 

Accordingly, in this proposed rule, for 

FY 2015, under the broad authority 

conferred upon the Secretary by section 

123 of the BBRA, as amended by section 

307(b) of the BIPA, to determine 

appropriate payment adjustments under 

the LTCH PPS, we are proposing to 

continue to use the COLA factors 

established in the FY 2014 IPPS/LTCH 

PPS final rule, which were based on the 

2009 OPM COLA factors updated 

through 2012 by the comparison of the 

growth in the CPIs for Anchorage, 

Alaska, and Honolulu, Hawaii, relative 

to the growth in the CPI for the average 

U.S. city. (We refer readers to the FY 

2014 IPPS/LTCH PPS final rule (78 FR 

50998) for a discussion of the FY 2014 

COLA factors.) Consistent with our 

historical practice, we are proposing 

that the proposed COLA factors shown 

in the table below would adjust the 

nonlabor-related portion of the 

proposed standard Federal rate for 

LTCHs located in Alaska and Hawaii 

under § 412.525(b). 

PROPOSED COST-OF-LIVING ADJUSTMENT FACTORS FOR ALASKA AND

HAWAII HOSPITALS UNDER THE

LTCH PPS FOR FY 2015 

Alaska: 

City of Anchorage and 80-kilometer (50-mile) radius by 

road ....................................... 1.23 

City of Fairbanks and 80-kilometer (50-mile) radius by 

road ....................................... 1.23 

City of Juneau and 80-kilometer 

(50-mile) radius by road ........ 1.23 

All other areas of Alaska ....... 1.25 

Hawaii: 

City and County of Honolulu ..... 1.25 

County of Hawaii ....................... 1.19 

County of Kauai ........................ 1.25 

County of Maui and County of 

Kalawao ................................. 1.25 

D. Proposed Adjustment for LTCH PPS 

High-Cost Outlier (HCO) Cases 

1. Background 

Under the broad authority conferred 

upon the Secretary by section 123 of the 

BBRA as amended by section 307(b) of 

the BIPA, in the regulations at 

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§ 412.525(a), we established an 

adjustment for additional payments for 

outlier cases that have extraordinarily 

high costs relative to the costs of most 

discharges. We refer to these cases as 

high cost outliers (HCOs). Providing 

additional payments for outliers 

strongly improves the accuracy of the 

LTCH PPS in determining resource costs 

at the patient and hospital level. These 

additional payments reduce the 

financial losses that would otherwise be 

incurred when treating patients who 

require more costly care and, therefore, 

reduce the incentives to underserve 

these patients. We set the outlier 

threshold before the beginning of the 

applicable rate year so that total 

estimated outlier payments are 

projected to equal 8 percent of total 

estimated payments under the LTCH 

PPS. 

Under § 412.525(a) in the regulations 

(in conjunction with § 412.503), we 

make outlier payments for any 

discharges if the estimated cost of a case 

exceeds the adjusted LTCH PPS 

payment for the MS–LTC–DRG plus a 

fixed-loss amount. Specifically, in 

accordance with § 412.525(a)(3) (in 

conjunction with § 412.503), we make 

an additional payment for an HCO case 

that is equal to 80 percent of the 

difference between the estimated cost of 

the patient case and the outlier 

threshold, which is the sum of the 

adjusted Federal prospective payment 

for the MS–LTC–DRG and the fixed-loss 

amount. The fixed-loss amount is the 

amount used to limit the loss that a 

hospital will incur under the outlier 

policy for a case with unusually high 

costs. This results in Medicare and the 

LTCH sharing financial risk in the 

treatment of extraordinarily costly cases. 

Under the LTCH PPS HCO policy, the 

LTCH’s loss is limited to the fixed-loss 

amount and a fixed percentage of costs 

above the outlier threshold (adjusted 

MS–LTC–DRG payment plus the fixedloss amount). The fixed percentage of 

costs is called the marginal cost factor. 

We calculate the estimated cost of a case 

by multiplying the Medicare allowable 

covered charge by the hospital’s overall 

hospital cost-to-charge ratio (CCR). 

Under the LTCH PPS HCO policy at 

§ 412.525(a), we determine a fixed-loss 

amount, that is, the maximum loss that 

an 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 an LTCH’s CCR data are 

faulty or unavailable) are used to 

establish a fixed-loss threshold amount 

under the LTCH PPS. 

2. Determining LTCH CCRs Under the 

LTCH PPS 

a. Background 

The following is a discussion of CCRs 

that are used in determining payments 

for HCO and SSO cases under the LTCH 

PPS, at § 412.525(a) and § 412.529, 

respectively. Although this section is 

specific to HCO cases, because CCRs 

and the policies and methodologies 

pertaining to them are used in 

determining payments for both HCO 

and SSO cases (to determine the 

estimated cost of the case at 

§ 412.529(d)(2)), we are discussing the 

determination of CCRs under the LTCH 

PPS for both of these types of cases 

simultaneously. 

In determining both HCO payments 

(at § 412.525(a)) and SSO payments (at 

§ 412.529), we calculate the estimated 

cost of the case by multiplying the 

LTCH’s overall CCR by the Medicare 

allowable charges for the case. In 

general, we use the LTCH’s overall CCR, 

which is computed based on either the 

most recently settled cost report or the 

most recent tentatively settled cost 

report, whichever is from the latest cost 

reporting period, in accordance with 

§ 412.525(a)(4)(iv)(B) and 

§ 412.529(f)(4)(ii) for HCOs and SSOs, 

respectively. (We note that, in some 

instances, we use an alternative CCR, 

such as the statewide average CCR in 

accordance with the regulations at 

§ 412.525(a)(4)(iv)(C) and 

§ 412.529(f)(4)(iii), or a CCR that is 

specified by CMS or that is requested by 

the hospital under the provisions of the 

regulations at § 412.525(a)(4)(iv)(A) and 

§ 412.529(f)(4)(i).) Under the LTCH PPS, 

a single prospective payment per 

discharge is made for both inpatient 

operating and capital-related costs. 

Therefore, we compute a single 

‘‘overall’’ or ‘‘total’’ LTCH-specific CCR 

based on the sum of LTCH operating 

and capital costs (as described in 

Section 150.24, Chapter 3, of the 

Medicare Claims Processing Manual 

(Pub. 100–4)) as compared to total 

charges. Specifically, an LTCH’s CCR is 

calculated by dividing an 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, an LTCH is assigned the 

applicable statewide average CCR if, 

among other things, an 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 CCRs based on erroneous 

data should not be used to identify and 

make payments for outlier cases. 

Therefore, under our established policy, 

generally, if an 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 this proposed rule, using our 

established methodology for 

determining the LTCH total CCR ceiling 

(described above), based on IPPS total 

CCR data from the December 2013 

update of the PSF, we are proposing to 

establish a total CCR ceiling of 

1.341under the LTCH PPS for FY 2015 

in accordance with 

§ 412.525(a)(4)(iv)(C)(2) for HCOs and 

§ 412.529(f)(4)(iii)(B) for SSOs. 

Consistent with our historical policy of 

using the best available data, we also are 

proposing that if more recent data 

become available, we would use such 

data to establish a total CCR ceiling for 

FY 2015 in the final rule. 

c. LTCH Statewide Average CCRs 

Our general methodology established 

for determining the statewide average 

CCRs used under the LTCH PPS is 

similar to our established methodology 

for determining the LTCH total CCR 

ceiling (described above) because it is 

based on ‘‘total’’ IPPS CCR data. Under 

the LTCH PPS HCO policy at 

§ 412.525(a)(4)(iv)(C) and the SSO 

policy at § 412.529(f)(4)(iii), the MAC 

may use a statewide average CCR, which 

is established annually by CMS, if it is 

unable to determine an accurate CCR for 

an LTCH in one of the following 

circumstances: (1) New LTCHs that have 

not yet submitted their first Medicare 

cost report (for this purpose, consistent 

with current policy, a new LTCH is 

defined as an entity that has not 

accepted assignment of an existing 

hospital’s provider agreement in 

accordance with § 489.18); (2) LTCHs 

whose CCR is in excess of the LTCH 

CCR ceiling; and (3) other LTCHs for 

whom data with which to calculate a 

CCR are not available (for example, 

missing or faulty data). (Other sources of 

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data that the MAC may consider in 

determining an 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 

an LTCH (that is, the period of at least 

6 months that it was paid as a shortterm, acute care hospital), or data from 

other comparable LTCHs, such as 

LTCHs in the same chain or in the same 

region.) 

Consistent with our historical practice 

of using the best available data, in this 

proposed rule, using our established 

methodology for determining the LTCH 

statewide average CCRs, based on the 

most recent complete IPPS ‘‘total CCR’’ 

data from the December 2013 update of 

the PSF, we are proposing to establish 

LTCH PPS statewide average total CCRs 

for urban and rural hospitals that would 

be effective for discharges occurring on 

or after October 1, 2014 through 

September 20, 2015, in Table 8C listed 

in section VI. of the Addendum to this 

proposed rule (and available via the 

Internet). Consistent with our historical 

policy of using the best available data, 

we also are proposing that if more 

recent data become available, we would 

use such data to establish statewide 

average total CCRs for urban and rural 

LTCHs for FY 2015 in the final rule. 

Under the proposed changes to the 

LTCH PPS labor market areas based on 

the new OMB delineations, all areas in 

Delaware, the District of Columbia, New 

Jersey, and Rhode Island would be 

classified as urban. Therefore, there are 

no proposed rural statewide average 

total CCRs listed for those jurisdictions 

in Table 8C. This policy is consistent 

with the policy that we established 

when we revised our methodology for 

determining the applicable LTCH 

statewide average CCRs in the FY 2007 

IPPS final rule (71 FR 48119 through 

48121) and is the same as the policy 

applied under the IPPS. In addition, 

although Connecticut and 

Massachusetts have areas that are 

designated as rural, there are no shortterm, acute care IPPS hospitals or 

LTCHs located in those areas as of 

December 2013. Therefore, consistent 

with our existing methodology, we are 

proposing to use the national average 

total CCR for rural IPPS hospitals for 

rural Connecticut and Massachusetts in 

Table 8C listed in section VI. of the 

Addendum to this proposed rule (and 

available via the Internet). 

In addition, consistent with our 

existing methodology, in determining 

the urban and rural statewide average 

total CCRs for Maryland LTCHs paid 

under the LTCH PPS, we are proposing 

to continue to use, as a proxy, the 

national average total CCR for urban 

IPPS hospitals and the national average 

total CCR for rural IPPS hospitals, 

respectively. We are proposing to use 

this proxy because we believe that the 

CCR data in the PSF for Maryland 

hospitals may not be entirely accurate 

(as discussed in greater detail in the FY 

2007 IPPS final rule (71 FR 48120)). 

d. Reconciliation of LTCH HCO and 

SSO Payments 

We note that under the LTCH PPS 

HCO policy at § 412.525(a)(4)(iv)(D) and 

the LTCH PPS SSO policy at 

§ 412.529(f)(4)(iv), the payments for 

HCO and SSO cases, respectively, are 

subject to reconciliation. Specifically, 

any reconciliation of outlier payments is 

based on the CCR that is calculated 

based on a ratio of cost-to-charge data 

computed from the relevant cost report 

determined at the time the cost report 

coinciding with the discharge is settled. 

For additional information, we refer 

readers to sections 150.26 through 

150.28 of the Medicare Claims 

Processing Manual (Pub. 100–4) as 

added by Change Request 7192 

(Transmittal 2111; December 3, 2010) 

and the RY 2009 LTCH PPS final rule 

(73 FR 26820 through 26821). 

3. Establishment of the Proposed LTCH 

PPS Fixed-Loss Amount for FY 2015 

When we implemented the LTCH 

PPS, as discussed in the August 30, 

2002 LTCH PPS final rule (67 FR 56022 

through 56026), under the broad 

authority of section 123 of the BBRA as 

amended by section 307(b) of BIPA, we 

established a fixed-loss amount so that 

total estimated outlier payments are 

projected to equal 8 percent of total 

estimated payments under the LTCH 

PPS. To determine the fixed-loss 

amount, we estimate outlier payments 

and total LTCH PPS payments for each 

case using claims data from the 

MedPAR files. Specifically, to 

determine the outlier payment for each 

case, we estimate the cost of the case by 

multiplying the Medicare covered 

charges from the claim by the LTCH’s 

CCR. Under § 412.525(a)(3) (in 

conjunction with § 412.503), if the 

estimated cost of the case exceeds the 

outlier threshold, we make an outlier 

payment equal to 80 percent of the 

difference between the estimated cost of 

the case and the outlier threshold (that 

is, the sum of the adjusted Federal 

prospective payment for the MS–LTC– 

DRG and the fixed-loss amount). 

In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 53715), we presented our 

policies regarding the methodology and 

data we used to establish the fixed-loss 

amount of $13,314 for FY 2014, which 

was calculated using our existing 

methodology to calculate the fixed-loss 

amount for FY 2014 (based on the data 

and the rates and policies presented in 

that final rule) in order to maintain 

estimated HCO payments at the 

projected 8 percent of total estimated 

LTCH PPS payments. Consistent with 

our historical practice of using the best 

data available, in determining the fixedloss amount for FY 2014, we used the 

most recent available LTCH claims data 

and CCR data, that is, LTCH claims data 

from the March 2013 update of the FY 

2012 MedPAR file and CCRs from the 

March 2013 update of the PSF, as these 

data were the most recent complete 

LTCH data available at that time. 

In this proposed rule, for FY 2015, in 

general, we are proposing to continue to 

use our existing methodology to 

calculate a fixed-loss amount for FY 

2015 using the best available data that 

would maintain estimated HCO 

payments at the projected 8 percent of 

total estimated LTCH PPS payments 

(based on the rates and policies 

presented in this proposed rule). 

Specifically, for this proposed rule, we 

are proposing to use LTCH claims data 

from the December 2013 update of the 

FY 2013 MedPAR file and CCRs from 

the December 2013 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 2015 because these data are the most 

recent complete LTCH data available at 

this time. We also are proposing that if 

more recent data become available, we 

would use such data to determine a 

fixed-loss amount for FY 2015 in the 

final rule. (For additional detail on the 

rationale for setting the HCO payment 

‘‘target’’ at 8 percent of total estimated 

LTCH PPS payments, we refer readers to 

the FY 2003 LTCH PPS final rule (67 FR 

56022 through 56024).) 

Under the broad authority of section 

123(a)(1) of the BBRA and section 

307(b)(1) of BIPA, we are proposing to 

establish a fixed-loss amount of $15,730 

for FY 2015. Therefore, we are 

proposing to make an additional 

payment for an HCO case that is equal 

to 80 percent of the difference between 

the estimated cost of the case and the 

outlier threshold (the sum of the 

adjusted Federal LTCH payment for the 

MS–LTC–DRG and the proposed fixedloss amount of $15,730). We also note 

that the proposed fixed-loss amount of 

$15,730 for FY 2015 is slightly higher 

than the FY 2014 fixed-loss amount of 

$13,314. Based on our payment 

simulations using the most recent 

available data at this time, the proposed 

increase in the fixed-loss amount for FY 

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2015 is necessary to maintain the 

existing requirement that estimated 

outlier payments equal 8 percent of 

estimated total LTCH PPS payments. 

(As noted above, for further information 

on the existing 8 percent HCO ‘‘target’’ 

requirement, we refer readers to the 

August 30, 2002 LTCH PPS final rule 

(67 FR 56022 through 56024).) 

Maintaining the fixed-loss amount at the 

current level would result in HCO 

payments that are more than the current 

regulatory 8-percent requirement 

because a lower fixed-loss amount 

would result in more cases qualifying as 

outlier cases, as well as higher outlier 

payments for qualifying HCO cases 

because the maximum loss that an 

LTCH must incur before receiving an 

HCO payment (that is, the fixed-loss 

amount) would be smaller. For these 

reasons, we believe that proposing to 

raise the fixed-loss amount is 

appropriate and necessary to maintain 

that estimated outlier payments would 

equal 8 percent of estimated total LTCH 

PPS payments as required under 

§ 412.525(a). 

4. Application of the Outlier Policy to 

SSO Cases 

As we discussed in the August 30, 

2002 final rule (67 FR 56026), under 

some rare circumstances, an LTCH 

discharge could qualify as an SSO case 

(as defined in the regulations at 

§ 412.529 in conjunction with § 412.503) 

and also as an HCO case. In this 

scenario, a patient could be hospitalized 

for less than five-sixths of the geometric 

average length of stay for the specific 

MS–LTC–DRG, and yet incur 

extraordinarily high treatment costs. If 

the estimated costs exceeded the HCO 

threshold (that is, the SSO payment plus 

the fixed-loss amount), the discharge is 

eligible for payment as an HCO. 

Therefore, for an SSO case in FY 2015, 

the HCO payment would be 80 percent 

of the difference between the estimated 

cost of the case and the outlier threshold 

(the sum of the proposed fixed-loss 

amount of $15,730 and the amount paid 

under the SSO policy as specified in 

§ 412.529). 

E. Proposed Update to the IPPS 

Comparable/Equivalent Amounts To 

Reflect the Statutory Changes to the 

IPPS DSH Payment Adjustment 

Methodology 

In the FY 2014 IPPS/LTCH PPS final 

rule, we established a policy for 

reflecting the changes to the Medicare 

IPPS DSH payment adjustment 

methodology provided for by section 

3133 of the Affordable Care Act in the 

calculation of the ‘‘IPPS comparable 

amount’’ under the SSO policy at 

§ 412.529 and the ‘‘IPPS equivalent 

amount’’ under the 25-percent threshold 

payment adjustment policy at § 412.534 

and § 412.536. Historically, the 

determination of both the ‘‘IPPS 

comparable amount’’ and the ‘‘IPPS 

equivalent amount’’ include an amount 

for inpatient operating costs ‘‘for the 

costs of serving a disproportionate share 

of low-income patients.’’ Under the 

statutory changes to the Medicare DSH 

payment adjustment methodology that 

began in FY 2014, in general, eligible 

IPPS hospitals receive an empirically 

justified Medicare DSH payment equal 

to 25 percent of the amount they 

otherwise would have received under 

the statutory formula for Medicare DSH 

payments prior to the amendments 

made by the Affordable Care Act. The 

remaining amount, equal to an estimate 

of 75 percent of the amount that 

otherwise would have been paid as 

Medicare DSH payments, reduced to 

reflect changes in the percentage of 

individuals under the age of 65 who are 

uninsured, is made available to make 

additional payments to each hospital 

that qualifies for Medicare DSH 

payments and that has uncompensated 

care. The additional uncompensated 

care payments are based on the 

hospital’s amount of uncompensated 

care for a given time period relative to 

the total amount of uncompensated care 

for that same time period reported by all 

IPPS hospitals that receive Medicare 

DSH payments. 

To reflect the statutory changes to the 

Medicare DSH payment adjustment 

methodology in the calculation of the 

‘‘IPPS comparable amount’’ and the 

‘‘IPPS equivalent amount’’ under the 

LTCH PPS, we stated that we will 

include a reduced Medicare DSH 

payment amount that reflects the 

projected percentage of the payment 

amount calculated based on the 

statutory Medicare DSH payment 

formula prior to the amendments made 

by the Affordable Care Act that will be 

paid to eligible IPPS hospitals as 

empirically justified Medicare DSH 

payments and uncompensated care 

payments in that year (that is, a 

percentage of the operating DSH 

payment amount that has historically 

been reflected in the LTCH PPS 

payments that is based on IPPS rates). 

We also stated that the projected 

percentage will be updated annually, 

consistent with the annual 

determination of the amount of 

uncompensated care payments that will 

be made to eligible IPPS hospitals. As 

explained in the FY 2014 IPPS/LTCH 

PPS final rule (79 FR 50766 through 

50767), we believe that this approach 

results in appropriate payments under 

the LTCH PPS and is consistent with 

our intention that the ‘‘IPPS comparable 

amount’’ and the ‘‘IPPS equivalent 

amount’’ under the LTCH PPS closely 

resemble what an IPPS payment would 

have been for the same episode of care, 

while recognizing that some features of 

the IPPS cannot be translated directly 

into the LTCH PPS. 

For FY 2014, aggregate Medicare IPPS 

operating DSH payments are projected 

to be reduced to 95.7 percent of the 

amount that would otherwise have been 

paid under the statutory Medicare DSH 

payment formula prior to the 

amendments made by the Affordable 

Care Act. Accordingly, for FY 2014, the 

calculation of the ‘‘IPPS comparable 

amount’’ under § 412.529 and the ‘‘IPPS 

equivalent amount’’ under § 412.534 

and § 412.536 includes an applicable 

operating Medicare DSH payment 

amount that is equal to 95.7 percent of 

the operating Medicare DSH payment 

amount based the current statutory 

Medicare DSH payment formula (that is, 

the operating Medicare DSH payment 

amount historically included in those 

calculations) (76 FR 50766). As 

discussed in greater detail in section 

IV.F.3.d.(2) of the preamble of this 

proposed rule, our estimate of 75 

percent of the amount that would 

otherwise have been paid as Medicare 

DSH payments (under the methodology 

outlined in section 1886(r)(2) of the Act) 

would be adjusted to 80.35 percent of 

that amount to reflect the change in the 

percentage of individuals that are 

uninsured. The resulting amount is then 

used to determine the amount of 

proposed uncompensated care 

payments that would be made to eligible 

IPPS hospitals in FY 2015. In other 

words, Medicare DSH payments prior to 

the amendments made by the Affordable 

Care Act are adjusted to 60.26 percent 

(the product of 75 percent and 80.35 

percent) and the resulting amount is 

used to calculate the proposed 

uncompensated care payments to 

eligible hospitals. As a result, for FY 

2015, we project that the reduction in 

the amount of Medicare DSH payments 

pursuant to section 1886(r)(1) of the Act, 

along with the proposed payments for 

uncompensated care under section 

1886(r)(2) of the Act, would result in 

overall Medicare DSH payments of 

85.26 percent of the amount of Medicare 

DSH payments that would otherwise 

have been made in the absence of 

amendments made by the Affordable 

Care Act (that is, 25 percent + 60.26 

percent = 85.26 percent). Therefore, in 

this proposed rule, for FY 2015, we are 

proposing that the calculation of the 

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‘‘IPPS comparable amount’’ under 

§ 412.529 and the ‘‘IPPS equivalent 

amount’’ under § 412.534 and § 412.536 

would include an applicable operating 

Medicare DSH payment amount that 

would be equal to 85.26 percent of the 

operating Medicare DSH payment 

amount based on the statutory Medicare 

DSH payment formula prior to the 

amendments made by the Affordable 

Care Act. Consistent with our historical 

practice of using the best available data, 

if more recent data become available, for 

the final rule, we would use such data 

to determine the percentage of the 

operating Medicare DSH payment 

amount based on the statutory Medicare 

DSH payment formula prior to the 

amendments made by the Affordable 

Care Act used in the calculation of the 

‘‘IPPS comparable amount’’ under 

§ 412.529 and the ‘‘IPPS equivalent 

amount’’ under § 412.534 and § 412.536 

for FY 2015. 

F. Computing the Proposed Adjusted 

LTCH PPS Federal Prospective 

Payments for FY 2015 

Section 412.525 sets forth the 

adjustments to the LTCH PPS standard 

Federal rate. Under § 412.525(c), the 

standard Federal rate is adjusted to 

account for differences in area wages by 

multiplying the labor-related share of 

the standard Federal rate by the 

applicable LTCH PPS wage index 

(proposed FY 2015 values are shown in 

Tables 12A through 12D listed in 

section VI. of the Addendum of this 

proposed rule and are available via the 

Internet). The proposed standard 

Federal rate is also adjusted to account 

for the higher costs of LTCHs located in 

Alaska and Hawaii by the applicable 

COLA factors (the proposed FY 2015 

factors are shown in the chart in section 

V.C. of this Addendum) in accordance 

with § 412.525(b). In this proposed rule, 

we are proposing to establish a standard 

Federal rate for FY 2015 of $40,943.51 

(applicable to discharges from LTCHs 

that submit the required quality 

reporting data for FY 2015 in 

accordance with the LTCHQR Program 

under section 1886(m)(5) of the Act), as 

discussed above in section V.A.2. of the 

Addendum to this proposed rule. We 

illustrate the methodology to adjust the 

proposed LTCH PPS Federal standard 

rate for FY 2015 in the following 

example: 

Example: During FY 2015, a Medicare 

patient is in an LTCH located in Chicago, 

Illinois (CBSA 16974). The proposed FY 2015 

LTCH PPS wage index value for CBSA 16974 

is 1.0369 (obtained from Table 12A listed in 

section VI. of the Addendum of this proposed 

rule and available via the Internet on the 

CMS Web site). The Medicare patient is 

classified into MS–LTC–DRG 198 

(Pulmonary Edema & Respiratory Failure), 

which has a proposed relative weight for FY 

2015 of 0.9122 (obtained from Table 11 listed 

in section VI. of the Addendum of this 

proposed rule and available via the Internet 

on the CMS Web site). The LTCH submitted 

quality reporting data for FY 2015 in 

accordance with the LTCHQR Program under 

section 1886(m)(5) of the Act. 

To calculate the LTCH’s total adjusted 

proposed Federal prospective payment for 

this Medicare patient in FY 2015, we 

compute the wage-adjusted proposed Federal 

prospective payment amount by multiplying 

the unadjusted proposed FY 2015 standard 

Federal rate ($40,943.51, for LTCHs that 

submit quality reporting data for FY 2015 in 

accordance with the LTCHQR Program under 

section 1886(m)(5) of the Act) by the 

proposed labor-related share (62.571 percent) 

and the proposed wage index value (1.0369). 

This wage-adjusted amount is then added to 

the proposed nonlabor-related portion of the 

unadjusted proposed standard Federal rate 

(37.429 percent; adjusted for cost of living, if 

applicable) to determine the adjusted 

proposed Federal rate, which is then 

multiplied by the proposed MS–LTC–DRG 

relative weight (0.9122) to calculate the total 

adjusted proposed Federal LTCH PPS 

prospective payment for FY 2015 

($38,211.00). The table below illustrates the 

components of the calculations in this 

example. 

Unadjusted Proposed Standard Federal Prospective Payment Rate (applicable to discharges from LTCHs that submit the 

required quality data in accordance with the LTCHQR Program under section 1886(m)(5) of the Act) ................................ $40,943.51 

Proposed Labor-Related Share ................................................................................................................................................... × 0.62571 

Proposed Labor-Related Portion of the Federal Rate ................................................................................................................ = $25,618.76 

Proposed Wage Index (CBSA 16974) ........................................................................................................................................ × 1.0369 

Proposed Wage-Adjusted Labor Share of Federal Rate ............................................................................................................ = $26,564.09 

Proposed Nonlabor-Related Portion of the Federal Rate ($40,943.51 × 0.37429) .................................................................... + $15,324.75 

Adjusted Proposed Federal Rate Amount ................................................................................................................................... = $41,888.84 

Proposed MS–LTC–DRG 198 Relative Weight .......................................................................................................................... × 0.9122 

Total Adjusted Proposed Federal Prospective Payment ..................................................................................................... = $38,211.00 

VI. Tables Referenced in This Proposed 

Rule and Available Only Through the 

Internet on the CMS Web Site 

This section lists the tables referred to 

throughout the preamble of this 

proposed rule and in this Addendum. In 

the past, a majority of these tables were 

published in the Federal Register as 

part of the annual proposed and final 

rules. However, similar to FYs 2012 

through 2014, for the FY 2015 

rulemaking cycle, the IPPS and LTCH 

tables will not be published as part of 

the annual IPPS/LTCH PPS proposed 

and final rulemakings and will be 

available only through the Internet. 

Specifically, all IPPS Tables listed 

below with the exception of IPPS Tables 

1A, 1B, 1C, and 1D, and LTCH PPS 

Table 1E will be available only through 

the Internet. IPPS Tables 1A, 1B, 1C, 

and 1D, and LTCH PPS Table 1E are 

displayed at the end of this section and 

will continue to be published in the 

Federal Register as part of the annual 

proposed and final rules. 

As discussed in section II.G.11. and 

13. of the preamble of this proposed 

rule, Tables 6A through 6F will not be 

issued with this FY 2015 proposed rule 

because there are no proposed new, 

revised, or deleted diagnosis or 

procedure codes for FY 2015. As 

discussed in section IV.D. of this 

proposed rule, section 106 of the 

Protecting Access to Medicare Act of 

2014 (Pub. L. 113–93), enacted on April 

1, 2014, extended, through the first half 

of FY 2015 (that is, for discharges 

occurring before April 1, 2015), the 

temporary changes in the low-volume 

hospital definition and methodology for 

determining the payment adjustment 

originally made by the Affordable Care 

Act (and extended by subsequent 

legislation through March 31, 2014). We 

refer the reader to section IV.D. for 

complete details on the low-volume 

hospital payment adjustment. Therefore, 

Table 14 associated with this proposed 

rule lists the proposed low-volume 

payment adjustments. In addition, 

under section 3008 of the Affordable 

Care Act, a hospital’s total payment may 

be reduced by 1 percent if it is in the 

lowest HAC performance quartile. We 

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refer the reader to section IV.J. for 

complete details on this adjustment. 

Therefore, Table 17 contains the FY 

2015 proposed proxy list of providers 

subject to the HAC Reduction Program. 

Finally, a hospital’s proposed Factor 3 

is the proposed proportion of the 

uncompensated care amount that a DSH 

will receive under section 3133 of the 

Affordable Care Act. Factor 3 is the 

hospital’s estimated number of 

Medicaid days and Medicare SSI days 

relative to the estimate of all DSHs’ 

Medicaid days and Medicare SSI days. 

Therefore, Table 18 contains the 

proposed FY 2015 Medicare DSH 

uncompensated care payment Factor 3 

for all hospitals and identifies whether 

or not a hospital is projected to receive 

DSH and, therefore, eligible to receive 

the additional payment for 

uncompensated care for FY 2015. 

Readers who experience any problems 

accessing any of the tables that are 

posted on the CMS Web sites identified 

below should contact Michael Treitel at 

(410) 786–4552. 

The following IPPS tables for this FY 

2015 proposed rule are available only 

through the Internet on the CMS Web 

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

Medicare-Fee-for-Service-Payment/

AcuteInpatientPPS/index.html. Click on 

the link on the left side of the screen 

titled, ‘‘FY 2015 IPPS Proposed Rule 

Home Page’’ or ‘‘Acute Inpatient—Files 

for Download’’. 

Table 2–1.—Hospital Average Hourly Wages 

for Federal Fiscal Years 2013 (2009 Wage 

Data), 2014 (2010 Wage Data), and 2015 

(2011 Wage Data); and Proposed 3-Year 

Average of Hospital Average Hourly 

Wages; Based on CBSA Delineations 

Used in FY 2014 

Table 2–2.—Acute Care Hospitals Case-Mix 

Indexes for Discharges Occurring in 

Federal Fiscal Year 2012; Proposed 

Hospital Wage Indexes for Federal Fiscal 

Year 2015; Hospital Average Hourly 

Wages for Federal Fiscal Years 2013 

(2009 Wage Data), 2014 (2010 Wage 

Data), and 2015 (2011 Wage Data; Based 

on Proposed FY 2015 CBSA 

Delineations); and 3-Year Average of 

Hospital Average Hourly Wages 

Table 3A–1.—Proposed FY 2015 and 3-Year * 

Average Hourly Wage for Acute Care 

Hospitals in Urban Areas by CBSA; 

Based on CBSA Delineations Used in FY 

2014 

Table 3A–2.—Proposed FY 2015 and 3-Year * 

Average Hourly Wage for Acute Care 

Hospitals in Urban Areas by CBSA; 

Based on CBSA Delineations Used in FY 

2015 

Table 3B–1.—Proposed FY 2015 and 3-Year * 

Average Hourly Wage for Acute Care 

Hospitals in Rural Areas by CBSA; Based 

on CBSA Delineations Used in FY 2014 

Table 3B–2.—Proposed FY 2015 and 3-Year * 

Average Hourly Wage for Acute Care 

Hospitals in Rural Areas by CBSA; Based 

on CBSA Delineations Used in FY 2015 

Table 4A–1.—Proposed Wage Index and 

Capital Geographic Adjustment Factor 

(GAF) for Acute Care Hospitals in Urban 

Areas by CBSA and by State—FY 2015; 

Based on CBSA Delineations Used in FY 

2014 

Table 4A–2.—Proposed Wage Index and 

Capital Geographic Adjustment Factor 

(GAF) for Acute Care Hospitals in Urban 

Areas by CBSA and by State—FY 2015; 

Based on CBSA Delineations Used in FY 

2015 

Table 4B–1.—Proposed Wage Index and 

Capital Geographic Adjustment Factor 

(GAF) for Acute Care Hospitals in Rural 

Areas by CBSA and by State—FY 2015; 

Based on CBSA Delineations Used in FY 

2014 

Table 4B–2.—Proposed Wage Index and 

Capital Geographic Adjustment Factor 

(GAF) for Acute Care Hospitals in Rural 

Areas by CBSA and by State—FY 2015; 

Based on CBSA Delineations Used in FY 

2015 

Table 4C–1.—Proposed Wage Index and 

Capital Geographic Adjustment Factor 

(GAF) for Acute Care Hospitals That Are 

Reclassified by CBSA and by State—FY 

2015; Based on CBSA Delineations Used 

in FY 2014 

Table 4C–2.—Proposed Wage Index and 

Capital Geographic Adjustment Factor 

(GAF) for Acute Care Hospitals That Are 

Reclassified by CBSA and by State—FY 

2015; Based on CBSA Delineations Used 

in FY 2015 

Table 4D–1.—States Designated as Frontier, 

with Acute Care Hospitals Receiving at 

a Minimum the Frontier State Floor 

Wage Index; Urban Areas with Acute 

Care Hospitals Receiving the Proposed 

Statewide Rural Floor or Imputed Floor 

Wage Index—FY 2015; Based on CBSA 

Delineations Used in FY 2014 

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 Proposed 

Statewide Rural Floor or Imputed Floor 

Wage Index—FY 2015; Based on CBSA 

Delineations Used in FY 2015 

Table 4E–1.—Urban CBSAs and Constituent 

Counties for Acute Care Hospitals—FY 

2015; Based on CBSA Delineations Used 

in FY 2014 

Table 4E–2.—Urban CBSAs and Constituent 

Counties for Acute Care Hospitals—FY 

2015; Based on CBSA Delineations Used 

in FY 2015 

Table 4F–1.—Proposed Puerto Rico Wage 

Index and Capital Geographic 

Adjustment Factor (GAF) for Acute Care 

Hospitals by CBSA—FY 2015; Based on 

CBSA Delineations Used in FY 2014 

Table 4F–2.—Proposed Puerto Rico Wage 

Index and Capital Geographic 

Adjustment Factor (GAF) for Acute Care 

Hospitals by CBSA—FY 2015; Based on 

CBSA Delineations Used in FY 2015 

Table 4J.—Proposed Out-Migration 

Adjustment for Acute Care Hospitals— 

FY 2015 

Table 5.—List of Proposed Medicare Severity 

Diagnosis-Related Groups (MS–DRGs), 

Relative Weighting Factors, and 

Geometric and Arithmetic Mean Length 

of Stay—FY 2015 

Table 6I.—Proposed Major CC List—FY 2015 

Table 6J.—Proposed Complete CC List—FY 

2015 

Table 6K.—Proposed Complete List of CC 

Exclusions—FY 2015 

Table 7A.—Medicare Prospective Payment 

System Selected Percentile Lengths of 

Stay: FY 2013 MedPAR Update— 

December 2013 GROUPER V31.0 MS– 

DRGs 

Table 7B.—Medicare Prospective Payment 

System Selected Percentile Lengths of 

Stay: FY 2013 MedPAR Update— 

December 2013 GROUPER V32.0 MS– 

DRGs 

Table 8A.—Proposed FY 2015 Statewide 

Average Operating Cost-to-Charge Ratios 

(CCRs) for Acute Care Hospitals (Urban 

and Rural) 

Table 8B.—Proposed FY 2015 Statewide 

Average Capital Cost-to-Charge Ratios 

(CCRs) for Acute Care Hospitals 

Table 9A–1.—Hospital Reclassifications and 

Redesignations—FY 2015; Based on 

CBSA Delineations Used in FY 2014 

Table 9A–2.—Hospital Reclassifications and 

Redesignations—FY 2015; Based on 

CBSA Delineations Used in FY 2015 

Table 9C–1.—Hospitals Redesignated as 

Rural Under Section 1886(d)(8)(E) of the 

Act—FY 2015; Based on CBSA 

Delineations Used in FY 2014 

Table 9C–2.—Hospitals Redesignated as 

Rural under Section 1886(d)(8)(E) of the 

Act—FY 2015; Based on CBSA 

Delineations Used in FY 2015 

Table 10.—Proposed New Technology AddOn Payment Thresholds 1 2 for 

Applications for FY 2016 

Table 12C.—Proposed LTCH PPS Wage Index 

for Urban Areas under the Current CBSA 

Designations for Discharges Occurring 

From October 1, 2014 through September 

30, 2105 

Table 12D.—Proposed LTCH PPS Wage Index 

for Rural Areas Under the Current CBSA 

Designations for Discharges Occurring 

From October 1, 2014 Through 

September 30, 2015 

Table 14.—List of Hospitals With Fewer 

Than 1,600 Medicare Discharges Based 

on the December 2013 Update of the FY 

2013 MedPAR file and Potentially 

Eligible Hospitals’ FY 2015 Low-Volume 

Payment Adjustment for Discharges 

Occurring Before April 1, 2015 

(Eligibility for the low-volume payment 

adjustment is also dependent upon 

meeting the mileage criteria specified at 

§ 412.101(b)(2)(ii) of the regulations.) 

Table 15.—Proposed FY 2015 Readmissions 

Adjustment Factors 

Table 16.—Proposed Updated Proxy Hospital 

Inpatient Value-Based Purchasing (VBP) 

Program Adjustment Factors for FY 2015 

Table 17.—FY 2015 Preliminary Analysis of 

the Hospital-Acquired Conditions 

Reduction Program 

Table 18.—Proposed FY 2015 Medicare DSH 

Uncompensated Care Payment Factor 3 

The following LTCH PPS tables for 

this FY 2015 proposed rule are available 

only through the Internet on the CMS 

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

Medicare/Medicare-Fee-for-ServicePayment/LongTermCareHospitalPPS/ 

index.html under the list item for 

Regulation Number CMS–1607–P. 

Table 8C.—Proposed FY 2015 Statewide 

Average Total Cost-to-Charge Ratios 

(CCRs) for LTCHs (Urban and Rural) 

Table 11.—Proposed MS–LTC–DRGs, 

Relative Weights, Geometric Average 

Length of Stay, Short-Stay Outlier (SSO) 

Threshold, and ‘‘IPPS Comparable 

Threshold’’ for Discharges Occurring 

From October 1, 2014 Through 

September 30, 2015 Under the LTCH 

PPS 

Table 12A.—Proposed LTCH PPS Wage 

Index for Urban Areas Under the New 

OMB CBSA Delineations for Discharges 

Occurring From October 1, 2014 

Through September 30, 2015 

Table 12B.—Proposed LTCH PPS Wage Index 

for Rural Areas Under the New OMB 

CBSA Delineations for Discharges 

Occurring From October 1, 2014 

Through September 30, 2015 

Table 13A.—Proposed Composition of LowVolume Quintiles for MS–LTC–DRGs— 

FY 2015 

Table 13B.—Proposed No-Volume MS–LTC– 

DRG Crosswalk for FY 2015 

TABLE 1A—PROPOSED NATIONAL ADJUSTED OPERATING STANDARDIZED AMOUNTS, LABOR/NONLABOR (69.6 PERCENT

LABOR SHARE/30.4 PERCENT NONLABOR SHARE IF WAGE INDEX IS GREATER THAN 1)—FY 2015 

Hospital submitted quality data 

and is a meaningful EHR 

user 

(Update = 2.1 percent) 

Hospital did not submit quality 

data and is a meaningful EHR 

user 

(Update = 1.425 percent) 

Hospital submitted quality data 

and is NOT a meaningful EHR 

user 

(Update = 1.425 percent) 

Hospital did not submit quality 

data and is NOT a meaningful 

EHR user 

(Update = 0.75 percent) 

Labor Nonlabor Labor Nonlabor Labor Nonlabor Labor Nonlabor 

$3,759.46 $1,642.06 $3,734.61 $1,631.20 $3,734.61 $1,631.20 $3,709.75 $1,620.35 

TABLE 1B—PROPOSED NATIONAL ADJUSTED OPERATING STANDARDIZED AMOUNTS, LABOR/NONLABOR (62 PERCENT

LABOR SHARE/38 PERCENT NONLABOR SHARE IF WAGE INDEX IS LESS THAN OR EQUAL TO 1)—FY 2015 

Hospital submitted quality data 

and is a meaningful EHR 

user 

(Update = 2.1 percent) 

Hospital did NOT submit quality 

data and is a meaningful EHR 

user 

(Update = 1.425 percent) 

Hospital submitted quality data 

and is NOT a meaningful EHR 

user 

(Update = 1.425 percent) 

Hospital did NOT submit quality 

data and is NOT a meaningful 

EHR user 

(Update = 0.75 percent) 

Labor Nonlabor Labor Nonlabor Labor Nonlabor Labor Nonlabor 

$3,348.94 $2,052.58 $3,326.80 $2,039.01 $3,326.80 $2,039.01 $3,304.66 $2,025.44 

TABLE 1C—PROPOSED ADJUSTED OPERATING STANDARDIZED AMOUNTS FOR PUERTO RICO, LABOR/NONLABOR (NATIONAL: 62 PERCENT LABOR SHARE/38 PERCENT NONLABOR SHARE BECAUSE WAGE INDEX IS LESS THAN OR

EQUAL TO 1; PUERTO RICO: 63.2 PERCENT LABOR SHARE/36.8 PERCENT NONLABOR SHARE IF WAGE INDEX IS

GREATER THAN 1 OR 62 PERCENT LABOR SHARE/38 PERCENT NONLABOR SHARE IF WAGE INDEX IS LESS THAN OR

EQUAL TO 1—FY 2015 

Rates if wage index is 

greater than 1 

Rates if wage index is 

less than or equal to 1 

Standardized amount Labor Nonlabor Labor Nonlabor 

National 1 .................................................................................................................................. (2) (2) $3,348.94 $2,052.58 

Puerto Rico .............................................................................................................................. $1,605.07 $934.59 1,574.59 965.07 

1For FY 2015, there are no CBSAs in Puerto Rico with a national wage index greater than 1. 

2 Not applicable. 

TABLE 1D—PROPOSED CAPITAL

STANDARD FEDERAL PAYMENT

RATE—FY 2015 

Rate 

National ......................................... $433.01 

Puerto Rico ................................... 206.82 

TABLE 1E—PROPOSED LTCH STANDARD FEDERAL PROSPECTIVE PAYMENT RATE—FY 2015 

Full update 

(2.1 percent) 

Reduced 

update * 

(0.1 percent) 

Standard 

Federal 

Rate ....... $40,943.51 $40,141.47 

* For LTCHs that fail to submit quality reporting data for FY 2015 in accordance with 

the LTCH Quality Reporting (LTCHQR) Program, the annual update is reduced by 2.0 

percentage points as required by section 

1886(m)(5) of the Act. 

Appendix A: Economic Analyses 

I. Regulatory Impact Analysis 

A. Introduction 

We have examined the impacts of this 

proposed rule as required by Executive Order 

12866 on Regulatory Planning and Review 

(September 30, 1993), Executive Order 13563 

on Improving Regulation and Regulatory 

Review (February 2, 2011) the Regulatory 

Flexibility Act (RFA) (September 19, 1980, 

Pub. L. 96–354), section 1102(b) of the Social 

Security Act, section 202 of the Unfunded 

Mandates Reform Act of 1995 (March 22, 

1995, Pub. L. 104–4), Executive Order 13132 

on Federalism (August 4, 1999), and the 

Congressional Review Act (5 U.S.C. 804(2)). 

Executive Orders 12866 and 13563 direct 

agencies to assess all costs and benefits of 

available regulatory alternatives and, if 

regulation is necessary, to select regulatory 

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approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and equity). 

Executive Order 13563 emphasizes the 

importance of quantifying both costs and 

benefits, of reducing costs, of harmonizing 

rules, and of promoting flexibility. A 

regulatory impact analysis (RIA) must be 

prepared for major rules with economically 

significant effects ($100 million or more in 

any 1 year). 

We have determined that this proposed 

rule is a major rule as defined in 5 U.S.C. 

804(2). We estimate that the proposed 

changes for FY 2015 acute care hospital 

operating and capital payments will 

redistribute amounts in excess of $100 

million to acute care hospitals. The 

applicable percentage increase to the IPPS 

rates required by the statute, in conjunction 

with other proposed payment changes in this 

proposed rule, would result in an estimated 

$864 million decrease in FY 2015 operating 

payments (or ¥0.8 percent change) and an 

estimated $126 million increase in FY 2015 

capital payments (or 1.2 percent change). 

These changes are relative to payments made 

in FY 2014. The impact analysis of the 

capital payments can be found in section I.J. 

of this Appendix. In addition, as described in 

section I.K. of this Appendix, LTCHs are 

expected to experience an increase in 

payments by $44 million in FY 2015 relative 

to FY 2014. 

Our operating impact estimate includes the 

proposed ¥0.8 percent documentation and 

coding adjustment applied to the IPPS 

standardized amount, which represents part 

of the recoupment required under section 

631 of the ATRA. In addition, our operating 

payment impact estimate includes the 

proposed 2.1 percent hospital update to the 

standardized amount (which includes the 

estimated 2.7 percent market basket update 

less 0.4 percentage point for the proposed 

multifactor productivity adjustment and less 

0.2 percentage point required under the 

Affordable Care Act). The estimates of 

proposed IPPS operating payments to acute 

care hospitals do not reflect any changes in 

hospital admissions or real case-mix 

intensity, which will also affect overall 

payment changes. 

The analysis in this Appendix, in 

conjunction with the remainder of this 

document, demonstrates that this proposed 

rule is consistent with the regulatory 

philosophy and principles identified in 

Executive Orders 12866 and 13563, the RFA, 

and section 1102(b) of the Act. This proposed 

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. Finally, in 

accordance with the provisions of Executive 

Order 12866, the Executive Office of 

Management and Budget has reviewed this 

proposed rule. 

B. Statement of Need 

This proposed rule is necessary in order to 

make payment and policy changes under the 

Medicare IPPS for Medicare acute care 

hospital inpatient services for operating and 

capital-related costs as well as for certain 

hospitals and hospital units excluded from 

the IPPS. This proposed rule also is 

necessary to make payment and policy 

changes for Medicare hospitals under the 

LTCH PPS payment system. 

C. Objectives of the IPPS 

The primary objective of the IPPS is to 

create incentives for hospitals to operate 

efficiently and minimize unnecessary costs 

while at the same time ensuring that 

payments are sufficient to adequately 

compensate hospitals for their legitimate 

costs in delivering necessary care to 

Medicare beneficiaries. In addition, we share 

national goals of preserving the Medicare 

Hospital Insurance Trust Fund. 

We believe that the proposed changes in 

this proposed rule would further each of 

these goals while maintaining the financial 

viability of the hospital industry and 

ensuring access to high quality health care 

for Medicare beneficiaries. We expect that 

these proposed changes will ensure that the 

outcomes of the prospective payment 

systems are reasonable and equitable while 

avoiding or minimizing unintended adverse 

consequences. 

D. Limitations of Our Analysis 

The following quantitative analysis 

presents the projected effects of our proposed 

policy changes, as well as statutory changes 

effective for FY 2014, on various hospital 

groups. We estimate the effects of individual 

proposed policy changes by estimating 

payments per case while holding all other 

payment policies constant. We use the best 

data available, but, generally, we do not 

attempt to make adjustments for future 

changes in such variables as admissions, 

lengths of stay, or case-mix. 

E. Hospitals Included in and Excluded From 

the IPPS 

The prospective payment systems for 

hospital inpatient operating and capitalrelated costs of acute care hospitals 

encompass most general short-term, acute 

care hospitals that participate in the 

Medicare program. There were 32 Indian 

Health Service hospitals in our database, 

which we excluded from the analysis due to 

the special characteristics of the prospective 

payment methodology for these hospitals. 

Among other short-term, acute care hospitals, 

hospitals in Maryland are paid in accordance 

with the Maryland All-Payer Model, and 

hospitals located outside the 50 States, the 

District of Columbia, and Puerto Rico (that is, 

5 short-term acute care hospitals located in 

the U.S. Virgin Islands, Guam, the Northern 

Mariana Islands, and American Samoa) that 

receive payment for inpatient hospital 

services they furnish on the basis of 

reasonable costs, subject to a rate-of-increase 

ceiling. 

As of December 2013, there were 3,468 

IPPS acute care hospitals included in our 

analysis. This represents approximately 57 

percent of all Medicare-participating 

hospitals. The majority of this impact 

analysis focuses on this set of hospitals. 

There also are approximately 1,332 CAHs. 

These small, limited service hospitals are 

paid on the basis of reasonable costs rather 

than under the IPPS. IPPS-excluded hospitals 

and units include IPFs, IRFs, LTCHs, 

RNHCIs, children’s hospitals, 11 cancer 

hospitals, and 5 short-term acute care 

hospitals located in the Virgin Islands, Guam, 

the Northern Mariana Islands, and American 

Samoa, which are paid under separate 

payment systems. Changes in the prospective 

payment systems for IPFs and IRFs are made 

through separate rulemaking. Payment 

impacts for these IPPS-excluded hospitals 

and units are not included in this proposed 

rule. The impact of the proposed update and 

proposed policy changes to the LTCH PPS for 

FY 2015 is discussed in section I.L. of this 

Appendix. 

F. Effects on Hospitals and Hospital Units 

Excluded From the IPPS 

As of March 2014, there were 97 children’s 

hospitals, 11 cancer hospitals, 5 short-term 

acute care hospitals located in the Virgin 

Islands, Guam, the Northern Mariana Islands 

and American Samoa, and 18 RNHCIs being 

paid on a reasonable cost basis subject to the 

rate-of-increase ceiling under § 413.40. (In 

accordance with § 403.752(a) of the 

regulation, RNHCIs are paid under § 413.40.) 

Among the remaining providers, 244 

rehabilitation hospitals and 896 

rehabilitation units, and 432 LTCHs, are paid 

the Federal prospective per discharge rate 

under the IRF PPS and the LTCH PPS, 

respectively, and 487 psychiatric hospitals 

and 1,139 psychiatric units are paid the 

Federal per diem amount under the IPF PPS. 

As stated above, IRFs and IPFs are not 

affected by the rate updates discussed in this 

proposed rule. The impacts of the proposed 

changes on LTCHs are discussed in section 

I.K. of this Appendix. 

For children’s hospitals, the 11 cancer 

hospitals, the 5 short-term acute care 

hospitals located in the Virgin Islands, Guam, 

the Northern Mariana Islands, and American 

Samoa, and RNHCIs, the proposed update of 

the rate-of-increase limit (or target amount) is 

the estimated FY 2015 percentage increase in 

the IPPS operating market basket, consistent 

with section 1886(b)(3)(B)(ii) of the Act, and 

§§ 403.752(a) and 413.40 of the regulations. 

As discussed in section IV. of the preamble 

of the FY 2014 IPPS/LTCH PPS final rule, we 

rebased the IPPS operating market basket to 

a FY 2010 base year. Therefore, we are 

proposing to use the percentage increase in 

the FY 2010-based IPPS operating market 

basket to update the target amounts for FY 

2015 and subsequent fiscal years for 

children’s hospitals, the 11 cancer hospitals, 

the 5 short-term acute care hospitals located 

in the Virgin Islands, Guam, the Northern 

Mariana Islands, and American Samoa, and 

RNHCIs that are paid based on reasonable 

costs subject to the rate-of-increase limits. 

Consistent with current law, based on IHS 

Global Insight, Inc.’s 2014 first quarter 

forecast of the FY 2010-based market basket 

increase, we are estimating that the proposed 

FY 2015 update based on the IPPS operating 

market basket is 2.7 percent (that is, the 

current estimate of the market basket rate-ofincrease). However, the Affordable Care Act 

requires an adjustment for multifactor 

productivity (currently estimated to be 0.4 

percentage point for FY 2015) and a 0.2 

percentage point reduction to the market 

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basket update resulting in a proposed 2.1 

percent applicable percentage increase for 

IPPS hospitals that submit quality data and 

are meaningful EHR users, as discussed in 

section IV.B. of the preamble of this proposed 

rule. Children’s hospitals, the 11 cancer 

hospitals, the 5 short-term acute care 

hospitals located in the Virgin Islands, Guam, 

the Northern Mariana Islands, and American 

Samoa, and RNCHIs that continue to be paid 

based on reasonable costs subject to rate-ofincrease limits under § 413.40 of the 

regulations are not subject to the reductions 

in the applicable percentage increase 

required under the Affordable Care Act. 

Therefore, for those hospitals paid under 

§ 413.40 of the regulations, the proposed 

update would be the percentage increase in 

the FY 2015 IPPS operating market basket, 

estimated at 2.7 percent, without the 

reductions required under the Affordable 

Care Act. 

The impact of the proposed update in the 

rate-of-increase limit on those excluded 

hospitals depends on the cumulative cost 

increases experienced by each excluded 

hospital since its applicable base period. For 

excluded hospitals that have maintained 

their cost increases at a level below the rateof-increase limits since their base period, the 

major effect is on the level of incentive 

payments these excluded hospitals receive. 

Conversely, for excluded hospitals with cost 

increases above the cumulative update in 

their rate-of-increase limits, the major effect 

is the amount of excess costs that will not be 

paid. 

We note that, under § 413.40(d)(3), an 

excluded hospital that continues to be paid 

under the TEFRA system and whose costs 

exceed 110 percent of its rate-of-increase 

limit receives its rate-of-increase limit plus 

the lesser of: (1) 50 percent of its reasonable 

costs in excess of 110 percent of the limit, or 

(2) 10 percent of its limit. In addition, under 

the various provisions set forth in § 413.40, 

hospitals can obtain payment adjustments for 

justifiable increases in operating costs that 

exceed the limit. 

G. Quantitative Effects of the Proposed Policy 

Changes Under the IPPS for Operating Costs 

1. Basis and Methodology of Estimates 

In this proposed rule, we are announcing 

proposed policy changes and payment rate 

updates for the IPPS for FY 2015 for 

operating costs of acute care hospitals. The 

proposed FY 2015 updates to the capital 

payments to acute care hospitals are 

discussed in section I.J. of this Appendix. 

Based on the overall percentage change in 

payments per case estimated using our 

payment simulation model, we estimate that 

total FY 2015 operating payments will 

decrease by 0.8 percent compared to FY 

2014. In addition to the applicable 

percentage increase, this amount reflects the 

proposed FY 2015 recoupment adjustment 

for documentation and coding described in 

section II.D. of the preamble of this proposed 

rule of ¥0.8 percent to the IPPS national 

standardized amounts. The impacts do not 

reflect changes in the number of hospital 

admissions or real case-mix intensity, which 

will also affect overall payment changes. 

We have prepared separate impact analyses 

of the proposed changes to each system. This 

section deals with the proposed changes to 

the operating inpatient prospective payment 

system for acute care hospitals. Our payment 

simulation model relies on the most recent 

available data to enable us to estimate the 

impacts on payments per case of certain 

changes in this proposed rule. However, 

there are other proposed changes for which 

we do not have data available that will allow 

us to estimate the payment impacts using this 

model. For those proposed changes, we have 

attempted to predict the payment impacts 

based upon our experience and other more 

limited data. 

The data used in developing the 

quantitative analyses of changes in payments 

per case presented below are taken from the 

FY 2013 MedPAR file and the most current 

Provider-Specific File (PSF) that is used for 

payment purposes. Although the analyses of 

the proposed changes to the operating PPS do 

not incorporate cost data, data from the most 

recently available hospital cost reports were 

used to categorize hospitals. Our analysis has 

several qualifications. First, in this analysis, 

we do not make adjustments for future 

changes in such variables as admissions, 

lengths of stay, or underlying growth in real 

case-mix. Second, due to the interdependent 

nature of the IPPS payment components, it is 

very difficult to precisely quantify the impact 

associated with each change. Third, we use 

various data sources to categorize hospitals 

in the tables. In some cases, particularly the 

number of beds, there is a fair degree of 

variation in the data from the different 

sources. We have attempted to construct 

these variables with the best available source 

overall. However, for individual hospitals, 

some miscategorizations are possible. 

Using cases from the FY 2013 MedPAR 

file, we simulated proposed payments under 

the operating IPPS given various 

combinations of payment parameters. As 

described above, Indian Health Service 

hospitals and hospitals in Maryland were 

excluded from the simulations. The proposed 

impact of payments under the capital IPPS, 

or the impact of payments for costs other 

than inpatient operating costs, are not 

analyzed in this section. Proposed estimated 

payment impacts of the capital IPPS for FY 

2015 are discussed in section I.J. of this 

Appendix. 

We discuss the following proposed 

changes below: 

• The effects of the proposed application 

of the documentation and coding adjustment 

and the proposed applicable percentage 

increase (including the market basket update, 

the multifactor productivity adjustment and 

the applicable percentage reduction in 

accordance with the Affordable Care Act) to 

the standardized amount and hospitalspecific rates. 

• The effects of the proposed changes to 

the relative weights and MS–DRG grouper. 

• The effects of the proposed changes in 

hospitals’ wage index values reflecting 

updated wage data from hospitals’ cost 

reporting periods beginning during FY 2011, 

compared to the FY 2010 wage data, and the 

proposed adoption of new OMB labor market 

area delineations to calculate the FY 2015 

wage index. 

• The combined effects of the proposed 

recalibration of the MS–DRG relative weights 

as required by section 1886(d)(4)(C) of the 

Act and the proposed wage index (including 

the updated wage data and the proposed 

adoption of new OMB labor market area 

delineations), including the proposed wage 

and recalibration budget neutrality factors. 

• The effects of the geographic 

reclassifications by the MGCRB (as of 

publication of this proposed rule) and the 

effects of the proposed adoption of new OMB 

labor market area delineations on these 

reclassifications, that would be effective for 

FY 2015. 

• The effects of the proposed rural floor 

and imputed floor with the application of the 

national budget neutrality factor applied to 

the wage index where the rural floor and 

imputed floor wage index are calculated 

based on the proposed adoption of the new 

OMB labor market area delineations. 

• The effects of the proposed adoption of 

the new labor market area delineations 

announced by OMB in February 2013 on 

hospital redesignations. 

• The effects of the proposed 3-year 

transition for urban hospitals redesignated as 

rural and the transitional blended wage index 

for hospitals whose FY 2015 wage indexes 

will decrease solely as a result of adopting 

the new OMB delineations. 

• The effects of the proposed frontier State 

wage index adjustment under the statutory 

provision that requires that hospitals located 

in States that qualify as frontier States to not 

have a wage index less than 1.0. This 

provision is not budget neutral. 

• The effects of the proposed 

implementation of section 1886(d)(13) of the 

Act, as added by section 505 of Public Law 

108–173, which provides for an increase in 

a hospital’s wage index if a threshold 

percentage of residents of the county where 

the hospital is located commute to work at 

hospitals in counties with higher wage 

indexes. 

• The effects of the proposed policies for 

implementation of the Hospital Readmissions 

Reduction Program under section 1886(q) of 

the Act, as added by section 3025 of the 

Affordable Care Act, that adjusts a hospital’s 

base operating DRG amount by an adjustment 

factor to account for a hospital’s excess 

readmissions. 

• The effects of the proposed policies for 

continued implementation of section 3133 of 

the Affordable Care Act that reduces 

Medicare DSH payments to 25 percent of 

what hospitals had been previously paid 

under section 1886(d)(5)(F) of the Act and 

establishes an additional payment to be made 

to hospitals that receive DSH payments for 

their relative share of the total amount of 

uncompensated care. 

• The effects of the proposed FY 2015 

implementation of section 1886(o) of the Act, 

as added by section 3008 of the Affordable 

Care Act, which establishes payment 

reductions under the HAC Reduction 

Program. Hospitals ranked in the lowest 25 

percent of performance on HACs are subject 

to a 1-percent reduction in total IPPS 

payments. 

• The total estimated change in payments 

based on the proposed FY 2015 policies 

relative to payments based on FY 2014 

policies that include the applicable 

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percentage increase of 2.1 percent (or 2.7 

percent market basket update with a 

proposed reduction of 0.4 percentage point 

for the multifactor productivity adjustment, 

and a 0.2 percentage point reduction, as 

required under the Affordable Care Act). The 

total estimated change in payments for FY 

2015 reflects the extension of MDH payment 

status for the first 6 months of FY 2015, in 

accordance with the Protecting Access to 

Medicare Act of 2014 (Pub. L. 113–93) 

enacted on April l, 2014. 

To illustrate the impact of the proposed FY 

2015 changes, our analysis begins with a FY 

2014 baseline simulation model using: The 

proposed FY 2015 applicable percentage 

increase of 2.1 percent and the proposed 

documentation and coding recoupment 

adjustment of 0.8 percent to the Federal 

standardized amount; the FY 2014 MS–DRG 

GROUPER (Version 31.0); the current FY 

2014 CBSA designations for hospitals based 

on the OMB delineations; the FY 2014 wage 

index; and no MGCRB reclassifications. 

Outlier payments are set at 5.1 percent of 

total operating MS–DRG and outlier 

payments for modeling purposes. 

Section 1886(b)(3)(B)(viii) of the Act, as 

added by section 5001(a) of Public Law 109– 

171, as amended by section 4102(b)(1)(A) of 

the ARRA (Pub. L. 111–5) and by section 

3401(a)(2) of the Affordable Care Act (Pub. L. 

111–148), provides that, for FY 2007 and 

each subsequent year through FY 2014, the 

update factor will include a reduction of 2.0 

percentage points for any subsection (d) 

hospital that does not submit data on 

measures in a form and manner and at a time 

specified by the Secretary. Beginning in FY 

2015, the reduction is one-quarter of such 

applicable percentage increase determined 

without regard to section 1886(b)(3)(B)(ix), 

(xi), or (xii) of the Act, or one-quarter of the 

market basket update. Therefore, for FY 2015, 

we are proposing that hospitals that do not 

submit quality information under rules 

established by the Secretary and that are 

meaningful EHR users under section 

1886(b)(3)(B)(ix) of the Act will receive an 

applicable percentage increase of 1.425 

percent. At the time that this impact was 

prepared, 64 hospitals did not receive the full 

market basket rate-of-increase for FY 2014 

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 2015 using a reduced update 

for these 64 hospitals. However, we do not 

have enough information at this time to 

determine which hospitals will not receive 

the full update factor for FY 2015. 

Beginning in FY 2015, in accordance with 

section 1886(b)(3)(B)(ix) of the Act, a hospital 

that has been identifies as not an EHR 

meaningful user will be subject to a 

reduction of one-quarter of such applicable 

percentage increase determined without 

regard to section 1886(b)(3)(B)(ix), (xi), or 

(xii) of the Act, or one-quarter of the market 

basket update. Therefore, for FY 2015, we are 

proposing that hospitals that are identified as 

not EHR meaningful users and do submit 

quality information under section 

1886(b)(3)(B)(viii) of the Act will receive an 

applicable percentage increase of 1.425 

percent. Hospitals that are identified as not 

EHR meaningful users under section 

1886(b)(3)(B)(ix) of the Act and also do not 

submit quality data under section 

1886(b)(3)(B)(viii) of the Act will receive an 

applicable percentage increase of 0.75 

percent, which reflects a one-quarter 

reduction of the market basket update for 

failure to submit quality data and a onequarter reduction of the market basket update 

for being identified as not an EHR 

meaningful user. For FY 2015, we have yet 

to finalize a list of hospitals that are not 

meaningful EHR users under section 

1886(b)(3)(B)(ix) of the Act. Therefore, we are 

proposing not to include this adjustment to 

the standardized amount (for those hospitals 

that are not meaningful EHR users) in our 

modeling of aggregate payments for FY 2015. 

We intend to release a final list of hospitals 

that are not meaningful EHR user in 

September 2014. Hospitals identified on this 

list will be paid based on the applicable 

proposed standardized amount in Table 1A 

for discharges occurring in FY 2015. 

Each proposed policy change, statutory or 

otherwise, is then added incrementally to 

this baseline, finally arriving at an FY 2015 

model incorporating all of the proposed 

changes. This simulation allows us to isolate 

the effects of each proposed change. 

Our final comparison illustrates the 

proposed percent change in payments per 

case from FY 2014 to FY 2015. 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 

2015 using a proposed applicable percentage 

increase of 2.1 percent. This includes our 

forecasted IPPS operating hospital market 

basket increase of 2.7 percent with a 

proposed reduction of 0.4 percentage point 

for the multifactor productivity adjustment 

and a 0.2 percentage point reduction as 

required under the Affordable Care Act. 

(Hospitals that fail to comply with the quality 

data submission requirements and are 

meaningful EHR users would receive a 

proposed update of 1.425 percent. This 

update includes a reduction of one-quarter of 

the market basket update for failure to submit 

these data). We note that hospitals that do 

comply with the quality data submission 

requirements but are not meaningful EHR 

users would receive a proposed update of 

1.425 percent, which includes a reduction of 

one-quarter of the market basket update. 

Furthermore, hospitals that do not comply 

with the quality data submission 

requirements and also are not meaningful 

EHR users would receive a proposed update 

of 0.75 percent. However, as discussed 

earlier, we do not have a list of hospitals that 

are not meaningful EHR users and have not 

included this adjustment to the standardized 

amount (for those hospitals that are not 

meaningful EHR users) in our modeling of 

aggregate payments for FY 2015. Under 

section 1886(b)(3)(B)(iv) of the Act, the 

updates to the hospital-specific amounts for 

SCHs also are equal to the applicable 

percentage increase, or 2.1 percent. In 

addition, we are proposing to update the 

Puerto Rico-specific amount by an applicable 

percentage increase of 2.1 percent, if the 

hospital submits quality data and is a 

meaningful EHR user. 

A second significant factor that affects the 

changes in hospitals’ payments per case from 

FY 2014 to FY 2015 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 2014 that are no longer reclassified in FY 

2015. Conversely, payments may increase for 

hospitals not reclassified in FY 2014 that are 

reclassified in FY 2015. 

A third significant factor is that we 

currently estimate that actual outlier 

payments during FY 2014 will be 5.79 

percent of total MS–DRG payments. When 

the FY 2014 IPS/LTCH PPS final rule was 

published, we projected FY 2014 outlier 

payments would be 5.1 percent of total MS– 

DRG plus outlier payments; the average 

standardized amounts were offset 

correspondingly. The effects of the higher 

than expected outlier payments during FY 

2014 (as discussed in the Addendum to this 

proposed rule) are reflected in the analyses 

below comparing our current estimates of FY 

2014 payments per case to estimated FY 2015 

payments per case (with outlier payments 

projected to equal 5.1 percent of total MS– 

DRG payments). 

2. Analysis of Table I 

Table I displays the results of our analysis 

of the proposed changes for FY 2015. 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 3,388 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 2,542 hospitals 

located in urban areas included in our 

analysis. Among these, there are 1,395 

hospitals located in large urban areas 

(populations over 1 million), and 1,147 

hospitals in other urban areas (populations of 

1 million or fewer). In addition, there are 846 

hospitals in rural areas. The next two 

groupings are by bed-size categories, shown 

separately for urban and rural hospitals. The 

final groupings by geographic location are by 

census divisions, also shown separately for 

urban and rural hospitals. 

The second part of Table I shows hospital 

groups based on hospitals’ proposed FY 2015 

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 2,558; 

1,408; 1,150; and 830, respectively. 

The next three groupings examine the 

impacts of the proposed changes on hospitals 

grouped by whether or not they have GME 

residency programs (teaching hospitals that 

receive an IME adjustment) or receive 

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Medicare DSH payments, or some 

combination of these two adjustments. There 

are 2,352 nonteaching hospitals in our 

analysis, 792 teaching hospitals with fewer 

than 100 residents, and 244 teaching 

hospitals with 100 or more residents. 

In the DSH categories, hospitals are 

grouped according to their DSH payment 

status, and whether they are considered 

urban or rural for DSH purposes. The next 

category groups together hospitals considered 

urban or rural, in terms of whether they 

receive the IME adjustment, the DSH 

adjustment, both, or neither. 

The next five rows examine the impacts of 

the proposed changes on rural hospitals by 

special payment groups (SCHs, RRCs, and 

MDHs). There were 208 RRCs, 324 SCHs, and 

154 MDHs (MDH status is extended through 

March 31, 2015 only under Pub. L. 113–93), 

124 hospitals that are both SCHs and RRCs, 

and 11 hospitals that are MDHs and RRCs 

(MDH status is through March 31, 2015 only 

under Pub. L. 113–93). 

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 2012 or FY 2011 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 2015. The second grouping 

shows the MGCRB rural reclassifications. 

The final category shows the impact of the 

proposed policy changes on the 15 cardiac 

hospitals. 

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a. Effects of the Proposed Hospital Update 

and Proposed Documentation and Coding 

Adjustment (Column 2) 

As discussed in section II.D. of the 

preamble of this proposed rule, this column 

includes the proposed hospital update, 

including the proposed 2.7 percent market 

basket update, the proposed reduction of 0.4 

percentage point for the multifactor 

productivity adjustment, and the 0.2 

percentage point reduction in accordance 

with the Affordable Care Act. In addition, 

this column includes the proposed FY 2015 

documentation and coding recoupment 

adjustment of -0.8 percent on the national 

standardized amount as part of the 

recoupment required by section 631 of the 

ATRA. As a result, we are proposing to make 

a 1.3 percent update to the national 

standardized amount. This column also 

includes the proposed 2.1 percent update to 

the hospital-specific rates which also 

includes the proposed 2.7 percent market 

basket update, the proposed reduction of 0.4 

percentage point for the multifactor 

productivity adjustment, and the 0.2 

percentage point reduction in accordance 

with the Affordable Care Act. 

Overall, hospitals would experience a 1.3 

percent increase in payments primarily due 

to the effects of the hospital update and 

documentation and coding adjustment on the 

national standardized amount. Hospitals that 

are paid under the hospital-specific rate, 

namely SCHs, would experience a 2.1 

percent increase in payments; therefore, 

hospital categories with SCHs paid under the 

hospital-specific rate would experience 

increases in payments of more than 1.3 

percent. 

b. Effects of the Proposed Changes to the MS– 

DRG Reclassifications and Relative CostBased Weights With Recalibration Budget 

Neutrality (Column 3) 

Column 3 shows the effects of the 

proposed changes to the MS–DRGs and 

relative weights with the application of the 

proposed recalibration budget neutrality 

factor to the standardized amounts. Section 

1886(d)(4)(C)(i) of the Act requires us 

annually to make appropriate classification 

changes in order to reflect changes in 

treatment patterns, technology, and any other 

factors that may change the relative use of 

hospital resources. Consistent with section 

1886(d)(4)(C)(iii) of the Act, we are proposing 

to calculate a recalibration budget neutrality 

factor to account for the proposed changes in 

MS–DRGs and relative weights to ensure that 

the overall payment impact is budget neutral. 

As discussed in section II.E. of the 

preamble of this proposed rule, the FY 2015 

MS–DRG relative weights will be 100 percent 

cost-based and 100 percent MS–DRGs. For 

FY 2015, the MS–DRGs are calculated using 

the FY 2013 MedPAR data grouped to the 

Version 32.0 (FY 2015) MS–DRGs. The 

proposed methodology to calculate the 

relative weights and the proposed 

reclassification changes to the GROUPER are 

described in more detail in section II.H. of 

the preamble of this proposed rule. 

The ‘‘All Hospitals’’ line in Column 3 

indicates that changes due to the MS–DRGs 

and relative weights would result in a 0.0 

percent change in payments with the 

application of the proposed recalibration 

budget neutrality factor of 0.992938 on to the 

standardized amount. Hospital categories 

that generally treat more surgical cases than 

medical cases would experience increases in 

their payments due to the changes to the 

relative weight methodology. Rural hospitals 

would experience a 0.6 percent decrease in 

payments because rural hospitals tend to 

treat fewer surgical cases than medical cases, 

while teaching hospitals with more than 100 

residents would experience an increase in 

payments by 0.3 percent as those hospitals 

treat more surgical cases than medical cases. 

c. Effects of the Proposed Wage Index 

Changes (Column 4) 

Column 4 shows the impact of updated 

wage data using FY 2011 cost report data and 

the proposed new OMB labor market area 

delineations, with the application of the 

proposed wage budget neutrality factor. The 

wage index is calculated and assigned to 

hospitals on the basis of the labor market area 

in which the hospital is located. Under 

section 1886(d)(3)(E) of the Act, beginning 

with FY 2005, we delineate hospital labor 

market areas based on the Core Based 

Statistical Areas (CBSAs) established by 

OMB. The current statistical areas used in FY 

2014 were based on OMB standards 

published on December 27, 2000 (65 FR 

82228) and Census 2000 data and Census 

Bureau population estimates for 2007 and 

2008 (OMB Bulletin No. 10–02). 

As stated in the FY 2014 IPPS/LTCH PPS 

proposed rule (78 FR 27552) and final rule 

(78 FR 50586), on February 28, 2013, OMB 

issued OMB Bulletin No. 13–01, which 

established revised delineations for 

Metropolitan Statistical Areas, Micropolitan 

Statistical Areas, and Combined Statistical 

Areas, and provided guidance on the use of 

the delineations of these statistical areas. In 

order to implement these changes for the 

IPPS, it is necessary to identify the new labor 

market area delineation for each county and 

hospital in the country. However, because 

the bulletin was not issued until February 28, 

2013, with supporting data not available 

until later, and because the changes made by 

the bulletin and their ramifications needed to 

be extensively reviewed and verified, we 

were unable to undertake such a lengthy 

process before publication of the FY 2014 

IPPS/LTCH PPS proposed rule and, thus, did 

not implement changes to the wage index for 

FY 2014 based on these new OMB 

delineations. In the FY 2014 IPPS/LTCH PPS 

final rule (78 FR 50586), we stated that we 

intended to propose changes to the wage 

index based on the new OMB delineations in 

this FY 2015 proposed rule. As discussed 

below, in this proposed rule, we are 

proposing to implement the new OMB 

delineations as described in the February 28, 

2013 OMB Bulletin No. 13–01, effective 

beginning with the FY 2015 IPPS wage index. 

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

that, beginning October 1, 1993, we annually 

update the wage data used to calculate the 

wage index. In accordance with this 

requirement, the proposed wage index for 

acute care hospitals for FY 2015 is based on 

data submitted for hospital cost reporting 

periods beginning on or after October 1, 2010 

and before October 1, 2011. The estimated 

impact of the updated wage data using the 

FY 2011 cost report data and the proposed 

new OMB labor market area delineations on 

hospital payments is isolated in Column 4 by 

holding the other payment parameters 

constant in this simulation. That is, Column 

4 shows the proposed percentage change in 

payments when going from a model using the 

FY 2014 wage index, based on FY 2010 wage 

data, the labor-related share of 69.6 percent, 

under the new OMB delineations and having 

a 100-percent occupational mix adjustment 

applied, to a model using the proposed FY 

2015 pre-reclassification wage index based 

on FY 2011 wage data with the proposed 

labor-related share of 69.6 percent, under the 

new OMB delineations, also having a 100- 

percent occupational mix adjustment 

applied, while holding other payment 

parameters such as use of the Version 32.0 

MS–DRG GROUPER constant). The FY 2015 

occupational mix adjustment is based on the 

CY 2010 occupational mix survey. 

In addition, the column shows the impact 

of the application of the proposed wage 

budget neutrality to the proposed national 

standardized amount. In FY 2010, we began 

calculating separate wage budget neutrality 

and recalibration budget neutrality factors, in 

accordance with section 1886(d)(3)(E) of the 

Act, which specifies that budget neutrality to 

account for wage index 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 

2015, we are proposing to calculate the wage 

budget neutrality factor to ensure that 

payments under updated wage data and the 

proposed labor-related share of 69.6 percent 

are budget neutral without regard to the 

lower labor-related share of 62 percent 

applied to hospitals with a wage index less 

than or equal to 1.0. In other words, the wage 

budget neutrality is calculated under the 

assumption that all hospitals receive the 

higher labor-related share of the standardized 

amount. The proposed wage budget 

neutrality factor is 1.000578, and the overall 

payment change is zero percent. 

Column 4 shows the impacts of updating 

the wage data using FY 2011 cost reports. 

Overall, the new wage data and the proposed 

labor-related share, combined with the 

proposed wage budget neutrality adjustment, 

would lead to a 0.0 percent change for all 

hospitals as shown in Column 4. 

In looking at the wage data itself, the 

national average hourly wage increased 1.9 

percent compared to FY 2014. Therefore, the 

only manner in which to maintain or exceed 

the previous year’s wage index was to match 

or exceed the national 1.9 percent increase in 

average hourly wage. Of the 3,373 hospitals 

with wage data for both FYs 2014 and 2015, 

1,644 or 48.7 percent would experience an 

average hourly wage increase of 1.9 percent 

or more. 

The following chart compares the shifts in 

proposed wage index values for hospitals due 

to changes in the average hourly wage data 

for FY 2015 relative to FY 2014. Among 

urban hospitals, 11 would experience a 

decrease of more than 10 percent, with no 

urban hospital experiencing an increase of 

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more than 10 percent. One hundred twentyone urban hospitals would experience an 

increase or decrease of at least 5 percent or 

more but less than or equal to 10 percent. 

Among rural hospitals, none would 

experience a decrease of more than 5 percent, 

but 5 rural hospitals would experience an 

increase of greater than 5 percent but less 

than or equal to10 percent. However, 803 

rural hospitals would experience increases or 

decreases of less than or equal to 5 percent, 

while 2,325 urban hospitals would 

experience increases or decreases of less than 

or equal to 5 percent. One hundred eight 

urban and rural hospitals would not 

experience a change in their wage index. 

These figures reflect proposed changes in the 

‘‘pre-reclassified, occupational mix-adjusted 

wage index,’’ that is, the proposed wage 

index before the proposed application of 

geographic reclassification, the proposed 

rural and imputed floors, the proposed outmigration adjustment, and other proposed 

wage index exceptions and adjustments. We 

note that this analysis was performed by 

applying the new OMB labor market area 

delineations to the FY 2015 proposed wage 

data and also by recomputing the FY 2014 

final wage data to reflect the new OMB 

delineations. (We refer readers to sections 

III.G.2. through III.I. of the preamble of this 

proposed rule for a complete discussion of 

the exceptions and adjustments to the wage 

index.) We note that the proposed ‘‘postreclassified wage index’’ or ‘‘payment wage 

index,’’ the proposed wage index that 

includes all such exceptions and adjustments 

(as reflected in Tables 2, 4A, 4B, 4C, and 4F 

of the Addendum to this proposed rule, 

which are available via the Internet on the 

CMS Web site) is used to adjust the proposed 

labor-related share of a hospital’s 

standardized amount, either 69.6 percent or 

62 percent, depending upon whether a 

hospital’s wage index is greater than 1.0 or 

less than or equal to 1.0. Therefore, the 

proposed pre-reclassified wage index figures 

in the chart below may illustrate a somewhat 

larger or smaller change than would occur in 

a hospital’s payment wage index and total 

payment. 

The following chart shows the projected 

impact of changes in the average hourly wage 

data for urban and rural hospitals. 

Percentage change in 

proposed area wage 

index values 

Number of 

hospitals 

Urban Rural 

Increase more than 10 

percent .......................... 0 0 

Increase more than 5 percent and less than or 

equal to 10 percent ....... 29 5 

Increase or decrease less 

than or equal to 5 percent ............................... 2,325 803 

Decrease more than 5 

percent and less than or 

equal to 10 percent ....... 92 0 

Decrease more than 10 

percent .......................... 11 0 

Unchanged ....................... 76 32 

d. Combined Effects of the Proposed MS– 

DRG and Wage Index Changes (Column 5) 

Section 1886(d)(4)(C)(iii) of the Act 

requires that changes to MS–DRG 

reclassifications and the relative weights 

cannot increase or decrease aggregate 

payments. In addition, section 1886(d)(3)(E) 

of the Act specifies that any updates or 

adjustments to the wage index are to be 

budget neutral. We computed a proposed 

wage budget neutrality factor of 1.000578 and 

a proposed recalibration budget neutrality 

factor of 0.992938 (which is applied to the 

Puerto Rico-specific standardized amount 

and the hospital-specific rates). The product 

of the two proposed budget neutrality factors 

is the proposed cumulative wage and 

recalibration budget neutrality factor. The 

proposed cumulative wage and recalibration 

budget neutrality adjustment is 0.993512, or 

approximately 0.65 percent, which is applied 

to the national standardized amounts. 

Because the wage budget neutrality and the 

recalibration budget neutrality are calculated 

under different methodologies according to 

the statute, when the two budget neutralities 

are combined and applied to the 

standardized amount, the overall payment 

impact is not necessarily budget neutral. 

However, in this proposed rule, we are 

estimating that the proposed changes in the 

MS–DRG relative weights and updated wage 

data with wage and budget neutrality applied 

would result in a 0.0 percent change in 

payments. 

e. Effects of Proposed MGCRB 

Reclassifications (Column 6) 

Our impact analysis to this point has 

assumed acute care hospitals are paid on the 

basis of their actual geographic location (with 

the exception of ongoing policies that 

provide that certain hospitals receive 

payments on other bases than where they are 

geographically located). The changes in 

Column 6 reflect the per case payment 

impact of moving from this baseline to a 

simulation incorporating the proposed 

MGCRB decisions for FY 2015 and the effects 

of the proposed adoption of the new OMB 

labor market area delineations on these 

reclassifications which affect hospitals’ wage 

index area assignments. 

By spring of each year, the MGCRB makes 

reclassification determinations that will be 

effective for the next fiscal year, which 

begins on October 1. The MGCRB may 

approve a hospital’s reclassification request 

for the purpose of using another area’s wage 

index value. Hospitals may appeal denials of 

MGCRB decisions to the CMS Administrator. 

Further, hospitals have 45 days from 

publication of the IPPS proposed rule in the 

Federal Register to decide whether to 

withdraw or terminate an approved 

geographic reclassification for the following 

year. 

The overall effect of geographic 

reclassification is required by section 

1886(d)(8)(D) of the Act to be budget neutral. 

Therefore, for purposes of this impact 

analysis, we are proposing to apply an 

adjustment of 0.991412 to ensure that the 

effects of the reclassifications under section 

1886(d)(10) of the Act are budget neutral 

(section II.A. of the Addendum to this 

proposed rule). Geographic reclassification 

generally benefits hospitals in rural areas. We 

estimate that the geographic reclassification 

would increase payments to rural hospitals 

by an average of 1.8 percent. By region, all 

the rural hospital categories would 

experience increases in payments due to 

MGCRB reclassifications. 

Table 9A listed in section VI. of the 

Addendum to this proposed rule and 

available via the Internet on the CMS Web 

site reflects the reclassifications for FY 2015. 

f. Effects of the Proposed Rural and Imputed 

Floor, Including Application of Proposed 

National Budget Neutrality (Column 7) 

As discussed in section III.B. of the 

preamble of the FY 2009 IPPS final rule, the 

FY 2010 IPPS/RY 2010 LTCH PPS final rule, 

the FYs 2011, 2012, 2013 and 2014 IPPS/

LTCH PPS final rules, and this proposed rule, 

section 4410 of Public Law 105–33 

established the rural floor by requiring that 

the wage index for a hospital in any urban 

area cannot be less than the wage index 

received by rural hospitals in the same State. 

We apply a uniform budget neutrality 

adjustment to the wage index. The imputed 

floor, which is also included in the 

calculation of the budget neutrality 

adjustment to the wage index, was extended 

in FY 2012 for 2 additional years. In the past, 

only urban hospitals in New Jersey received 

the imputed floor. As discussed in the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53369), we established an alternative 

temporary methodology for the imputed 

floor, which resulted in an imputed floor for 

Rhode Island for FY 2013. For FY 2014, we 

extended the imputed rural floor, as 

calculated under the original methodology 

and the alternative methodology. For FY 

2015, we are proposing to extend the 

imputed rural floor, as calculated under the 

original methodology and the alternative 

methodology. As a result, under this 

proposal, New Jersey, Rhode Island, and 

Delaware would receive an imputed floor, 

with 12 out of 64 hospitals in New Jersey 

receiving the imputed floor, 1 out of 6 

hospitals in Delaware receiving the imputed 

floor and 4 out of 11 hospitals in Rhode 

Island receiving the imputed floor. 

The Affordable Care Act requires that we 

apply one rural floor budget neutrality factor 

to the wage index nationally, and the 

imputed floor is part of the rural floor budget 

neutrality factor applied to the wage index 

nationally. We have calculated a proposed 

FY 2015 rural floor budget neutrality factor 

to be applied to the wage index of 0.989455, 

which would reduce wage indexes by 1.1 

percent. 

Column 7 shows the projected impact of 

the proposed rural floor and imputed floor 

with the proposed national rural floor budget 

neutrality factor applied to the wage index 

based on the proposed new OMB labor 

market area delineations. The column 

compares the proposed post-reclassification 

FY 2015 wage index of providers before the 

rural floor and imputed floor adjustment and 

the proposed post-reclassification FY 2015 

wage index of providers with the proposed 

rural floor and imputed floor adjustment 

based on the proposed new OMB labor 

market area delineations. Only urban 

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hospitals can benefit from the rural and 

imputed floors. Because the provision is 

budget neutral, all other hospitals (that is, all 

rural hospitals and those urban hospitals to 

which the adjustment is not made) would 

experience a decrease in payments due to the 

proposed budget neutrality adjustment that is 

applied nationally to their wage index. 

We estimate that 441 hospitals benefit from 

the proposed rural and imputed floors while 

the remaining 2,947 IPPS hospitals in our 

model have their wage index reduced by the 

proposed rural floor budget neutrality 

adjustment of 0.989455 (or 1.1 percent). We 

project that, in aggregate, rural hospitals 

would experience a 0.3 percent decrease in 

payments as a result of the application of the 

proposed rural floor budget neutrality 

because the rural hospitals do not benefit 

from the rural floor, but have their wage 

indexes downwardly adjusted to ensure that 

the application of the rural floor is budget 

neutral overall. We project hospitals located 

in urban areas would experience no change 

in payments because increases in payments 

by hospitals benefitting from the rural floor 

offset decreases in payments by nonrural 

floor urban hospitals whose wage index is 

downwardly adjusted by the proposed rural 

floor budget neutrality factor. Urban 

hospitals in the New England region can 

expect a 2.7 percent increase in payments 

primarily due to the application of the 

proposed rural floor in Massachusetts and 

Connecticut. Fifty-one urban providers in 

Massachusetts are expected to receive the 

proposed rural floor wage index value, 

including proposed rural floor budget 

neutrality, of 1.3383, increasing payments 

overall to Massachusetts by an estimated 

$158 million. During most past years, there 

have been no IPPS hospitals located in rural 

areas in Massachusetts. There was one urban 

IPPS hospital that was reclassified to rural 

Massachusetts (under section 1886(d)(8)(E) of 

the Act) which established the Massachusetts 

rural floor, but the wage index resulting from 

that hospital’s data was not high enough for 

any urban hospital to benefit from the rural 

floor policy. However, for the FY 2012 wage 

index, the rural floor for Massachusetts was 

established by the conversion of a CAH to an 

IPPS hospital that is geographically located 

in rural Massachusetts. The rural floor in 

Massachusetts continues to be set by the 

wage index of the hospital in rural 

Massachusetts that converted from CAH to 

IPPS status. We estimate that Massachusetts 

hospitals would receive approximately a 4.9 

percent increase in IPPS payments due to the 

application of the rural floor in FY 2015. 

Urban Puerto Rico hospitals are expected 

to experience a 0.0 percent change in 

payments as a result of the application of a 

proposed Puerto Rico rural floor with the 

application of the proposed Puerto Rico rural 

floor budget neutrality adjustment. We are 

proposing to apply a rural floor budget 

neutrality factor to the Puerto Rico-specific 

wage index of 0.991359 or ¥0.86 percent. 

The Puerto Rico-specific wage index adjusts 

the Puerto Rico-specific standardized 

amount, which represents 25 percent of 

payments to Puerto Rico hospitals. The 

increases in payments experienced by the 

urban Puerto Rico hospitals that benefit from 

a rural floor are offset by the decreases in 

payments by the nonrural floor urban Puerto 

Rico hospitals that have their wage indexes 

downwardly adjusted by the proposed rural 

floor budget neutrality adjustment. As a 

result, overall, urban Puerto Rico hospitals 

would experience a 0.0 percent change in 

payments due to the application of the 

proposed rural floor with rural floor budget 

neutrality. 

There are 12 hospitals out of the 64 

hospitals in New Jersey that benefit from the 

extension of the proposed imputed floor and 

would receive the proposed imputed floor 

wage index value under the new OMB labor 

market area delineations, including the 

proposed rural floor budget neutrality, of 

1.0986 which we estimate would increase 

payments to those imputed floor hospitals by 

$17 million (the State, overall, would see a 

decrease in payments of approximately $5 

million due the other hospitals in the State 

experiencing decreases in payments due to 

the rural floor budget neutrality adjustment). 

Four Rhode Island hospitals would benefit 

from the proposed imputed rural floor 

calculated under the alternative methodology 

and receive an additional $3.5 million (the 

State, overall, would receive an additional 

$1.6 million). One hospital in Delaware 

would benefit from the extension of the 

proposed imputed floor and would receive 

the proposed imputed floor wage index value 

under the new OMB labor market area 

delineations, and would receive an 

additional $25,000 (the State, overall, would 

experience a decrease in payments of $2.3 

million). 

In response to a public comment addressed 

in the FY 2012 IPPS/LTCH PPS final rule (76 

FR 51593), we are providing the payment 

impact of the proposed rural floor and 

imputed floor with budget neutrality at the 

State level. Column 1 of the table below 

displays the number of IPPS hospitals 

located in each State. Column 2 displays the 

number of hospitals in each State that would 

receive the proposed rural floor or imputed 

floor wage index for FY 2015 based on the 

proposed new OMB labor market area 

delineations. Column 3 displays the 

percentage of total payments each State 

would receive or contribute to fund the 

proposed rural floor and imputed floor with 

national budget neutrality based on the 

proposed new OMB labor market area 

delineations. The column compares the 

proposed post-reclassification FY 2015 wage 

index of providers before the proposed rural 

floor and imputed floor adjustment and the 

proposed post-reclassification FY 2015 wage 

index of providers with the proposed rural 

floor and imputed floor adjustment with the 

wage indexes calculated based on the 

proposed new OMB labor market area 

delineations. Column 4 displays the 

estimated payment amount that each State 

would gain or lose due to the application of 

the proposed rural floor and imputed floor 

with national budget neutrality. We will 

update our State-by-State rural floor budget 

neutrality impact analysis for the FY 2015 

IPPS/LTCH PPS final rule. 

FY 2015 IPPS PROPOSED ESTIMATED PAYMENTS DUE TO PROPOSED RURAL FLOOR AND IMPUTED FLOOR WITH

NATIONAL BUDGET NEUTRALITY

State Number of 

hospitals 

Number of 

hospitals that 

would receive 

the proposed 

rural floor or 

imputed floor 

Percent change 

in payments due 

to application of 

proposed rural 

floor and imputed 

floor with budget 

neutrality 

Difference 

(in millions) 

(1) (2) (3) (4) 

Alabama ....................................................................................................... 91 2 ¥0.5 ¥$8.5 

Alaska .......................................................................................................... 6 4 1.8 2.6 

Arizona ......................................................................................................... 56 8 ¥0.1 ¥2.3 

Arkansas ...................................................................................................... 45 0 ¥0.5 ¥5.4 

California ...................................................................................................... 308 184 2 196.3

Colorado ...................................................................................................... 46 5 ¥0.1 ¥1.0 

Connecticut .................................................................................................. 31 8 ¥0.3 ¥4.6 

Delaware ...................................................................................................... 6 1 ¥0.5 ¥2.3 

Washington, DC ........................................................................................... 7 0 ¥0.6 ¥2.7 

Florida .......................................................................................................... 168 25 ¥0.3 ¥19.9 

Georgia ........................................................................................................ 106 0 ¥0.5 ¥13.1 

Hawaii .......................................................................................................... 12 1 ¥0.4 ¥1.2 

Idaho ............................................................................................................ 14 0 ¥0.4 ¥1.3 

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FY 2015 IPPS PROPOSED ESTIMATED PAYMENTS DUE TO PROPOSED RURAL FLOOR AND IMPUTED FLOOR WITH

NATIONAL BUDGET NEUTRALITY—Continued 

State Number of 

hospitals 

Number of 

hospitals that 

would receive 

the proposed 

rural floor or 

imputed floor 

Percent change 

in payments due 

to application of 

proposed rural 

floor and imputed 

floor with budget 

neutrality 

Difference 

(in millions) 

(1) (2) (3) (4) 

Illinois ........................................................................................................... 127 0 ¥0.6 ¥28.5 

Indiana ......................................................................................................... 91 5 ¥0.6 ¥13.1 

Iowa ............................................................................................................. 34 0 ¥0.3 ¥3.2 

Kansas ......................................................................................................... 53 0 ¥0.4 ¥4.1 

Kentucky ...................................................................................................... 65 1 ¥0.5 ¥7.9 

Louisiana ...................................................................................................... 100 3 ¥0.5 ¥7.0 

Maine ........................................................................................................... 20 0 ¥0.5 ¥2.5 

Massachusetts ............................................................................................. 61 51 4.9 157.8 

Michigan ....................................................................................................... 95 0 ¥0.6 ¥24.1 

Minnesota .................................................................................................... 51 0 ¥0.6 ¥10.4 

Mississippi .................................................................................................... 64 0 ¥0.5 ¥5.5 

Missouri ........................................................................................................ 78 0 ¥0.5 ¥11.7 

Montana ....................................................................................................... 12 4 ¥0.3 ¥0.9 

Nebraska ...................................................................................................... 23 0 ¥0.5 ¥2.8 

Nevada ......................................................................................................... 24 19 1.6 10.9 

New Hampshire ........................................................................................... 13 9 0.4 1.8 

New Jersey .................................................................................................. 64 12 ¥0.1 ¥5.0 

New Mexico ................................................................................................. 25 0 ¥0.4 ¥1.7 

New York ..................................................................................................... 163 0 ¥0.6 ¥48.9 

North Carolina .............................................................................................. 87 0 ¥0.5 ¥16.7 

North Dakota ................................................................................................ 6 1 ¥0.3 ¥0.8 

Ohio ............................................................................................................. 134 11 ¥0.5 ¥17.6 

Oklahoma ..................................................................................................... 86 2 ¥0.5 ¥5.8 

Oregon ......................................................................................................... 33 0 ¥0.6 ¥5.0 

Pennsylvania ................................................................................................ 154 10 ¥0.5 ¥22.2 

Puerto Rico .................................................................................................. 52 11 0 ¥0.1 

Rhode Island ................................................................................................ 11 4 0.4 1.6 

South Carolina ............................................................................................. 55 12 ¥0.1 ¥0.9 

South Dakota ............................................................................................... 19 0 ¥0.4 ¥1.2 

Tennessee ................................................................................................... 98 21 ¥0.3 ¥6.0 

Texas ........................................................................................................... 322 13 ¥0.5 ¥31.9 

Utah ............................................................................................................. 32 2 ¥0.5 ¥2.3 

Vermont ....................................................................................................... 6 0 ¥0.4 ¥0.8 

Virginia ......................................................................................................... 79 1 ¥0.5 ¥12.4 

Washington .................................................................................................. 49 8 ¥0.2 ¥3.0 

West Virginia ................................................................................................ 30 2 ¥0.4 ¥3.3 

Wisconsin ..................................................................................................... 65 1 ¥0.5 ¥8.8 

Wyoming ...................................................................................................... 11 0 ¥0.3 ¥0.4 

g. Proposed Impact of the New OMB 

Delineations (Column 8) 

Column 8 shows the effects of the 

proposed new OMB labor market area 

delineations. This column compares the 

payments under the proposed rural and 

imputed floor wage index with rural floor 

budget neutrality calculated under the new 

OMB delineations and the payments under 

the proposed rural and imputed floor wage 

index with budget neutrality calculated 

under the current OMB delineations. It does 

not reflect the proposed 3-year transition for 

hospitals that are currently located in urban 

counties that would become rural under the 

new OMB delineations and the 1-year 

transition to the new OMB delineations 

where the wage indexes are blended such 

that hospitals receive 50 percent of their 

wage index based on the new OMB 

delineations, and 50 percent of their wage 

index based on their current labor market 

area. Rather, it shows the proposed impact if 

the new OMB delineations were to be fully 

implemented for FY 2015. Approximately 

666 hospitals have their wage index 

impacted due to the new OMB delineations. 

Urban and rural Middle Atlantic hospitals 

would experience the largest decreases in 

payments if the new OMB delineations were 

fully implemented for FY 2015, with 

payment decreases of 0.4 and 0.3 percent, 

respectively. Rural New England hospitals 

and Lugar hospitals would experience the 

largest increases in payments if the new OMB 

delineations were fully implemented for FY 

2015 with payment increases of 0.4 percent 

and 0.6 percent, respectively. 

h. Proposed Application of the CBSA 

Transition Wage Index With Budget 

Neutrality (Column 9) 

As discussed earlier in this proposed rule, 

for FY 2015, we are proposing to use the 

most recent labor market area delineations 

issued by OMB but are proposing a transition 

period in certain circumstances. Specifically, 

we are proposing a 3-year transition for 

hospitals that are currently located in an 

urban county that would become rural under 

the new OMB labor market area delineations 

under which such hospitals would be 

assigned the urban wage index value of the 

CBSA in which they are physically located 

for FY 2014 for a period of 3 fiscal years (that 

is, for FYs 2015, 2016, and 2017). We also are 

proposing a 1-year blended wage index for all 

hospitals that would experience any decrease 

in their actual payment wage index (that is, 

a hospital’s actual wage index used for 

payment, which accounts for all applicable 

effects of reclassification and redesignation) 

exclusively due to the proposed 

implementation of the new OMB labor 

market area delineations. We are proposing 

that a post-reclassified wage index with the 

rural and imputed floor applied would be 

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computed based on the hospital’s FY 2014 

CBSA (that is, using all of its FY 2014 

constituent county/ies), and another postreclassified wage index with the rural and 

imputed floor applied would be computed 

based on the hospital’s new FY 2015 CBSA 

(that is, the FY 2015 constituent county/ies). 

We are proposing to compare these two wage 

indexes. If the proposed FY 2015 wage index 

with FY 2015 CBSAs would be lower than 

the proposed FY 2015 wage index with FY 

2014 CBSAs, we are proposing that a blended 

wage index would be computed, consisting 

of 50 percent of each of the two wage indexes 

added together. We are proposing that this 

blended wage index would be the hospital’s 

wage index for FY 2015. This proposed 

adjustment would only apply to hospitals 

that would experience a drop in their actual 

payment wage index exclusively due to the 

proposed implementation of the new OMB 

labor market area delineations. Hospitals that 

benefit from the new OMB labor market area 

delineations would receive their new wage 

index based on the new OMB labor market 

area delineations. We refer readers to section 

III.B. of the preamble to this proposed rule 

for a complete discussion on the transition 

wage indexes. Lastly, we are proposing to 

apply both the 3-year transition and 50/50 

blended wage index adjustments in a budget 

neutral manner. We are proposing to make an 

adjustment to the standardized amount to 

ensure that the total payments, including the 

effect of the transition provisions, would 

equal what payments would have been if we 

would not be providing for these transitional 

wage indexes. 

Column 9 shows the effects of the 

proposed adoption of the new OMB labor 

market area delineations, including the 3- 

year hold harmless provision for hospitals 

that are currently located in an urban county 

that would become rural under the new OMB 

delineations and the proposed 1-year 

transition to the new OMB delineations 

where the wage indexes are blended such 

that hospitals receive 50 percent of their 

wage index based on the new OMB 

delineations and 50 percent of their wage 

index based on their current labor market 

area. For FY 2015, we are proposing to apply 

both the 3-year transition and 50/50 blended 

wage index adjustments in a budget neutral 

manner, with a proposed budget neutrality 

factor of 0.998856 (or ¥0.1 percent) applied 

to the standardized amount to ensure that the 

total payments, including the effect of the 

transition provisions, would equal what 

payments would have been if we would not 

be providing for these transitional wage 

indexes. This column shows the payment 

impact of the proposed transitional wage 

index. For columns 1 through 8, the payment 

impacts and budget neutrality factors have 

been calculated under the new OMB labor 

market area delineations. Under the proposed 

1-year transition to the new OMB 

delineations, hospitals that would have 

experienced a decrease in payments if the 

new OMB delineations had been fully 

implemented this year now would have those 

decreases alleviated due to the transition. 

Urban Middle Atlantic hospitals would 

experience a 0.4 percent increase in 

payments due to the proposed application of 

the transitional wage index with budget 

neutrality, while urban New England, South 

Atlantic, East North Central, West North 

Central, West South Central, Mountain and 

Pacific hospitals would experience a ¥0.1 

percent change in payments due to the 

proposed transitional budget neutrality 

adjustment of ¥0.1 percent applied to the 

standard Federal rate. 

i. Effects of the Application of the Proposed 

Frontier State Wage Index and Out-Migration 

Adjustment (Column 8) 

This column shows the combined effects of 

the application of section 10324(a) of 

Affordable Care Act which requires that we 

establish a minimum post-reclassified wageindex of 1.00 for all hospitals located in 

‘‘frontier States,’’ and the effects of section 

1886(d)(13) of the Act, as added by section 

505 of Public Law 108–173, which 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. These two wage index provisions are 

not budget neutral and increase payments 

overall by 0.1 percent compared to the 

provisions not being in effect. 

The term ‘‘frontier States’’ is defined in the 

statute as States in which at least 50 percent 

of counties have a population density less 

than 6 persons per square mile. Based on 

these criteria, four States (Montana, North 

Dakota, South Dakota, and Wyoming) are 

considered frontier States and 46 hospitals 

located in those States will receive a frontier 

wage index of 1.0000. Nevada is also, by 

definition, a frontier State and was assigned 

a frontier floor value of 1.0000 for FY 2012, 

but since then and including in this proposed 

rule, its rural floor value has been greater 

than 1.0000 so it has not been subject to the 

frontier wage index. Overall, this provision is 

not budget neutral and is estimated to 

increase IPPS operating payments by 

approximately $65 million or approximately 

0.1 percent. Rural hospitals located in the 

Mountain region and urban hospitals located 

in the West North Central region would 

experience an increase in payments by 0.9 

and 0.8 percent, respectively, because many 

of the hospitals located in this region are 

frontier State hospitals. 

In addition, 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, postreclassification 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. There are 

an estimated 244 providers that would 

receive the proposed out-migration wage 

adjustment in FY 2015. Rural hospitals 

generally qualify for the adjustment, resulting 

in a 0.2 percent increase in payments. This 

provision appears to benefit rural Middle 

Atlantic hospitals most in that they would 

experience a 0.2 percent increase in 

payments. This out-migration wage 

adjustment is also not budget neutral, and we 

estimate the impact of these providers 

receiving the out-migration increase to be 

approximately $47 million. 

j. Effects of the Proposed Reductions Under 

the Hospital Readmissions Reduction 

Program (Column 11) 

Column 11 shows our estimates of the 

effects of the proposed policies for reductions 

in payments under the Hospital 

Readmissions Reduction Program, which was 

established under section 3025 of the 

Affordable Care Act. The Hospital 

Readmissions Reduction Program requires a 

reduction to a hospital’s base operating DRG 

payments to account for excess readmissions, 

which for FY 2015, is based on a hospital’s 

risk-adjusted readmission rate during a 3- 

year period for five applicable conditions: 

acute myocardial infarction, heart failure, 

pneumonia, total hip and total knee 

arthroplasty and chronic obstructive 

pulmonary disease. This provision is not 

budget neutral. A hospital’s readmission 

adjustment is the higher of a ratio of the 

hospital’s aggregate payments for excess 

readmissions to their aggregate payments for 

all discharges, or a floor, which has been 

defined in the statute as 0.97 (or a 3.0 percent 

reduction) for FY 2015. A hospital’s base 

operating DRG payment (that is, wageadjusted DRG payment amount, as discussed 

in section IV.G. of the preamble of this 

proposed rule) is the portion of the IPPS 

payment subject to the readmissions payment 

adjustment (DSH, IME, outliers and lowvolume add-on payments are not subject to 

the readmissions adjustment). In this 

proposed rule, we estimate that 2,623 

hospitals would have their base operating 

DRG payments reduced by their hospitalspecific readmissions adjustment, an increase 

from FY 2014, due to the proposed addition 

of new readmissions measures in the 

program. As a result, we estimate that the 

Hospital Readmissions Reduction Program 

would result in a 0.4 percent decrease, or 

approximately $422 million, in payments to 

hospitals overall for FY 2015 relative to no 

provision. We estimate that the Hospital 

Readmissions Reduction Program would 

result in a 0.2 percent decrease in payments 

relative to FY 2014. 

Rural West South Central hospitals and 

hospitals with high Medicare utilization 

would experience the highest decreases of 

0.8 and 0.7 percent, respectively. Puerto Rico 

hospitals would show a 0 percent change in 

payments because they are exempt from the 

provision. 

k. Effects of the Proposed Changes to 

Medicare DSH Payments (Column 12) 

Column 12 shows the effects of the 

proposed adjustments to Medicare DSH 

payments made under section 3133 of the 

Affordable Care Act. Under section 3133, 

hospitals that are eligible to receive Medicare 

DSH payments will receive 25 percent of the 

amount they previously would have received 

under the former statutory formula for 

Medicare DSH payments. The remainder, 

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equal to an estimate of 75 percent of what 

otherwise formerly would have been paid as 

Medicare DSH payments, reduced to reflect 

changes in the percentage of individuals 

under age 65 who are uninsured and 

additional statutory adjustments, is available 

to make additional payments to each hospital 

that qualifies for Medicare DSH payments. 

Each Medicare DSH hospital will receive an 

additional payment based on its estimated 

share of the total amount of uncompensated 

care for all Medicare DSH hospitals. The 

reduction to Medicare DSH payments is not 

budget neutral. 

For FY 2015, we are proposing that the 

amount to be distributed on the basis of 

uncompensated care, which is 75 percent of 

our estimate of what otherwise would have 

been paid in Medicare DSH payments (that 

is, Factor 1), be adjusted to 80.36 percent of 

that amount to reflect changes in the 

percentage of individuals under age 65 who 

are uninsured and additional statutory 

adjustments (that is, Factor 1 multiplied by 

Factor 2). For FY 2014, the uncompensated 

care payment was 75 percent of what 

otherwise would have been paid for 

Medicare DSH payment adjustments adjusted 

by a Factor 2 of 94.3 percent. Assuming DSH 

payments are constant, the proposed FY 2015 

uncompensated care amount is 

approximately 10 percentage points less than 

the uncompensated care amount that we 

distributed for FY 2014. As a result, we 

project that compared to the empirically 

justified DSH payments and the 

uncompensated care payments made last 

year payments for FY 2015 would be reduced 

overall by 1.0 percent as compared to 

Medicare DSH payments made last year 

under the first year of the implementation of 

section 3133 of the Affordable Care Act. The 

proposed uncompensated care payment 

methodology has redistributive effects based 

on a Medicare DSH hospital’s low income 

insured patient days (sum of Medicaid 

patient days and Medicare SSI patient days) 

relative to the Medicaid patient days and 

Medicare SSI patient days for Medicare DSH 

hospitals, and the payment amount is not 

tied to a hospital’s discharges. 

Urban Pacific hospitals would experience 

no change in DSH and uncompensated care 

payments relative to last year. Hospitals with 

low Medicare utilization (Medicare days are 

less than 25 percent of total inpatient day) 

would experience the largest decreases in 

payments compared to last year of ¥2.3 

percent. 

l. Effects of the Proposed Reductions Under 

the HAC Reduction Program (Column 13) 

Column 13 shows the estimated effects of 

the proposed policies for reductions in 

payments under the HAC Reduction 

Program, established under section 3008 of 

the Affordable Care Act. Section 1886(p) of 

the Act, as added under section 3008(a) of 

the Affordable Care Act, establishes an 

adjustment to hospital payments for HACs 

effective for discharges beginning on October 

1, 2014, and for subsequent program years. 

Beginning in FY 2015, hospitals scoring in 

the top quartile for the rate of HAC rate as 

compared to the national average will have 

their IPPS payments reduced by 1 percent for 

all discharges in that Federal fiscal year. We 

estimate that, under this proposal, 753 

hospitals would be subject to the 1-percent 

reduction, and that overall payments would 

decrease approximately 0.3 percent or $330 

million. 

Government hospitals and teaching 

hospitals with more than 100 residents 

would experience the biggest decrease in 

payments under the HAC Reduction Program 

of ¥0.5 percent. Twenty-six percent of the 

government hospitals are estimated to be 

subject to the HAC reduction, while 53 

percent of teaching hospitals with more than 

100 residents are estimated to be subject to 

the HAC reduction for FY 2015. Puerto Rico 

hospitals are not included in the HAC 

Reduction Program; therefore, those hospitals 

would not experience a change in payments. 

m. Effects of All Proposed FY 2015 Changes 

(Column 14) 

Column 14 shows our estimate of the 

changes in payments per discharge from FY 

2014 and FY 2015, resulting from all 

proposed changes reflected in this proposed 

rule for FY 2015. It includes combined effects 

of the previous columns in the table. 

The proposed average decrease in 

payments under the IPPS for all hospitals is 

approximately 0.8 percent for FY 2015 

relative to FY 2014. As discussed in section 

II.D. of the preamble of this proposed rule, 

this column includes the proposed FY 2015 

documentation and coding recoupment 

adjustment of -0.8 percent on the national 

standardized amount as part of the 

recoupment required under section 631 of 

the ATRA. In addition, this column includes 

the proposed annual hospital update of 2.1 

percent to the national standardized amount. 

This proposed annual hospital update 

includes the proposed 2.7 percent market 

basket update, the proposed reduction of 0.4 

percentage point for the multifactor 

productivity adjustment, and the 0.2 

percentage point reduction under section 

3401 of the Affordable Care Act. As described 

in Column 2, the proposed annual hospital 

update combined with the proposed 

documentation and coding recoupment 

adjustment would result in a 1.3 percent 

increase in payments in FY 2015 relative to 

FY 2014. Column 11 shows the estimated 0.4 

percent decrease in payments due to the 

proposed reductions in payments under the 

Hospital Readmissions Reduction Program, 

which reduces a hospital’s base operating 

DRG payments by a readmission adjustment 

factor based on a hospital’s performance on 

readmissions for specified conditions, which 

is an additional 0.2 percent decrease in 

payments under the Hospital Readmissions 

Reduction Program relative to FY 2014. 

Column 12 shows the estimated 1.0 percent 

decrease in Medicare DSH payments due to 

the changes made under section 3133 of the 

Affordable Care Act, which reduces Medicare 

DSH payments by 75 percent and 

redistributes the remainder, equal to an 

estimate of 75 percent of what otherwise 

would have been paid as Medicare DSH 

payments, reduced to reflect changes in the 

percentage of individuals under age 65 who 

are uninsured, to each hospital that qualifies 

for Medicare DSH payments as an 

uncompensated care payment based on the 

hospital’s relative share of the total amount 

of uncompensated care. Column 13 shows 

the impact of the implementation of the HAC 

Reduction Program which would reduce 

payments by 0.3 percent overall. The impact 

of moving from our estimate of FY 2014 

outlier payments, 5.79 percent, to the 

estimate of FY 2015 outlier payments, 5.1 

percent, would result in a decrease of 0.7 

percent in FY 2015 payments relative to FY 

2014. Lastly, this column reflects the 

extension of MDH payment status for the first 

half of FY 2015, under Public Law 113–93, 

enacted on April 1, 2014. There also might 

be interactive effects among the various 

factors comprising the payment system that 

we are not able to isolate. For these reasons, 

the values in Column 14 may not equal the 

sum of the estimated percentage changes 

described above. 

Overall payments to hospitals paid under 

the IPPS are estimated to decrease by 0.8 

percent for FY 2015. Much of the payment 

changes among the hospital categories is 

attributed to the proposed reduction in 

Medicare DSH payments and the 

redistribution of a portion of the Medicare 

DSH payments as an additional payment for 

hospitals’ relative uncompensated care 

amounts. Hospitals in urban areas would 

experience a 0.9 percent decrease in 

payments per discharge in FY 2015 

compared to FY 2014. Hospital payments per 

discharge in rural areas are estimated to 

decrease by 0.2 percent in FY 2015 due to 

lesser reductions in Medicare DSH and 

estimated outlier payments. 

3. Impact Analysis of Table II 

Table II presents the projected impact of 

the proposed changes for FY 2015 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 2014 with the average 

payments per discharge for FY 2015, as 

calculated under our models. Therefore, this 

table presents, in terms of the average dollar 

amounts paid per discharge, the combined 

effects of the proposed changes presented in 

Table I. The estimated percentage changes 

shown in the last column of Table II equal 

the estimated percentage changes in average 

payments per discharge from Column 14 of 

Table I. 

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TABLE II—IMPACT ANALYSIS OF PROPOSED CHANGES FOR FY 2015 ACUTE CARE HOSPITAL OPERATING PROSPECTIVE

PAYMENT SYSTEM

[Payments per discharge] 

Number of 

hospitals 

Estimated 

average 

FY 2014 

payment per 

discharge 

Proposed 

estimated average 

FY 2015 

payment per 

discharge 

All 

proposed 

FY 2015 

changes 

(1) (2) (3) (4) 

All Hospitals ..................................................................................................... 3,388 11,237 11,146 ¥0.8 

By Geographic Location: 

Urban hospitals ......................................................................................... 2,542 11,629 11,529 ¥0.9 

Large urban areas .................................................................................... 1,395 12,398 12,285 ¥0.9 

Other urban areas .................................................................................... 1,147 10,696 10,611 ¥0.8 

Rural hospitals .......................................................................................... 846 8,089 8,073 ¥0.2 

Bed Size (Urban): 

0–99 beds ................................................................................................. 655 9,026 8,980 ¥0.5 

100–199 beds ........................................................................................... 788 9,728 9,654 ¥0.8 

200–299 beds ........................................................................................... 469 10,517 10,466 ¥0.5 

300–499 beds ........................................................................................... 417 11,998 11,896 ¥0.9 

500 or more beds ..................................................................................... 213 14,330 14,157 ¥1.2 

Bed Size (Rural): 

0–49 beds ................................................................................................. 325 6,614 6,562 ¥0.8 

50–99 beds ............................................................................................... 298 7,599 7,523 ¥1 

100–149 beds ........................................................................................... 136 7,951 7,976 0.3 

150–199 beds ........................................................................................... 50 8,898 8,891 ¥0.1 

200 or more beds ..................................................................................... 37 9,850 9,913 0.6 

Urban by Region: 

New England ............................................................................................ 120 12,805 12,699 ¥0.8 

Middle Atlantic .......................................................................................... 324 12,927 12,855 ¥0.6 

South Atlantic ........................................................................................... 406 10,454 10,339 ¥1.1 

East North Central .................................................................................... 397 10,856 10,748 ¥1 

East South Central ................................................................................... 153 10,086 9,935 ¥1.5 

West North Central ................................................................................... 162 11,373 11,321 ¥0.5 

West South Central .................................................................................. 385 10,670 10,522 ¥1.4 

Mountain ................................................................................................... 159 11,891 11,797 ¥0.8 

Pacific ....................................................................................................... 384 14,704 14,673 ¥0.2 

Puerto Rico ............................................................................................... 52 8,194 7,606 ¥7.2 

Rural by Region: 

New England ............................................................................................ 22 11,024 11,000 ¥0.2 

Middle Atlantic .......................................................................................... 57 8,118 8,070 ¥0.6 

South Atlantic ........................................................................................... 132 7,714 7,666 ¥0.6 

East North Central .................................................................................... 115 8,263 8,315 0.6 

East South Central ................................................................................... 165 7,483 7,397 ¥1.1 

West North Central ................................................................................... 102 8,626 8,729 1.2 

West South Central .................................................................................. 168 7,064 6,931 ¥1.9 

Mountain ................................................................................................... 61 9,111 9,245 1.5 

Pacific ....................................................................................................... 24 10,697 10,952 2.4 

By Payment Classification: 

Urban hospitals ......................................................................................... 2,558 11,615 11,513 ¥0.9 

Large urban areas .................................................................................... 1,408 12,387 12,273 ¥0.9 

Other urban areas .................................................................................... 1,150 10,669 10,582 ¥0.8 

Rural areas ............................................................................................... 830 8,270 8,270 0 

Teaching Status: 

Nonteaching .............................................................................................. 2,352 9,312 9,262 ¥0.5 

Fewer than 100 residents ......................................................................... 792 10,966 10,891 ¥0.7 

100 or more residents .............................................................................. 244 16,538 16,317 ¥1.3 

Urban DSH: 

Non-DSH .................................................................................................. 682 9,870 9,899 0.3 

100 or more beds ..................................................................................... 1,591 12,067 11,939 ¥1.1 

Less than 100 beds .................................................................................. 366 8,354 8,247 ¥1.3 

Rural DSH: 

SCH .......................................................................................................... 388 7,587 7,597 0.1 

RRC .......................................................................................................... 212 9,035 9,057 0.2 

100 or more beds ..................................................................................... 24 7,422 7,323 ¥1.3 

Less than 100 beds .................................................................................. 125 6,339 6,261 ¥1.2 

Urban teaching and DSH: 

Both teaching and DSH ............................................................................ 842 13,293 13,137 ¥1.2 

Teaching and no DSH .............................................................................. 133 11,107 11,166 0.5 

No teaching and DSH .............................................................................. 1,115 9,774 9,692 ¥0.8 

No teaching and no DSH ......................................................................... 468 9,287 9,308 0.2 

Special Hospital Types: 

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TABLE II—IMPACT ANALYSIS OF PROPOSED CHANGES FOR FY 2015 ACUTE CARE HOSPITAL OPERATING PROSPECTIVE

PAYMENT SYSTEM—Continued 

[Payments per discharge] 

Number of 

hospitals 

Estimated 

average 

FY 2014 

payment per 

discharge 

Proposed 

estimated average 

FY 2015 

payment per 

discharge 

All 

proposed 

FY 2015 

changes 

(1) (2) (3) (4) 

RRC .......................................................................................................... 208 9,507 9,413 ¥1 

SCH .......................................................................................................... 324 8,856 9,035 2 

MDH .......................................................................................................... 154 6,800 6,485 ¥4.6 

SCH and RRC .......................................................................................... 124 9,933 10,149 2.2 

MDH and RRC .......................................................................................... 11 8,122 7,641 ¥5.9 

Type of Ownership: 

Voluntary ................................................................................................... 1,925 11,370 11,296 ¥0.7 

Proprietary ................................................................................................ 883 10,009 9,930 ¥0.8 

Government .............................................................................................. 540 12,259 12,058 ¥1.6 

Medicare Utilization as a Percent of Inpatient Days: 

0–25 .......................................................................................................... 445 15,819 15,431 ¥2.5 

25–50 ........................................................................................................ 2,004 11,358 11,281 ¥0.7 

50–65 ........................................................................................................ 718 9,019 9,005 ¥0.1 

Over 65 ..................................................................................................... 131 7,424 7,317 ¥1.4 

FY 2015 Reclassifications by the Medicare Geographic Classification Review Board: 

All Reclassified Hospitals ......................................................................... 804 10,955 10,894 ¥0.6 

Non-Reclassified Hospitals ....................................................................... 2,584 11,344 11,242 ¥0.9 

Urban Hospitals Reclassified .................................................................... 533 11,600 11,518 ¥0.7 

Urban Nonreclassified Hospitals, FY 2015 ...................................................... 1,965 11,664 11,557 ¥0.9 

All Rural Hospitals Reclassified FY 2015 ........................................................ 271 8,572 8,589 0.2 

Rural Nonreclassified Hospitals FY 2015 ........................................................ 511 7,511 7,483 ¥0.4 

All Section 401 Reclassified Hospitals ............................................................ 48 9,810 9,825 0.2 

Other Reclassified Hospitals (Section 1886(d)(8)(B)) .............................. 66 7,724 7,543 ¥2.3 

Specialty Hospitals: 

Cardiac Specialty Hospitals ...................................................................... 15 12,351 12,561 1.7 

H. Effects of Other Proposed Policy Changes 

In addition to those proposed policy 

changes discussed above that we are able to 

model using our IPPS payment simulation 

model, we are proposing to make various 

other changes in this proposed rule. 

Generally, we have limited or no specific 

data available with which to estimate the 

impacts of these proposed changes. Our 

estimates of the likely impacts associated 

with these other proposed changes are 

discussed below. 

1. Effects of Proposed Policy on MS–DRGs for 

Preventable HACs, Including Infections 

In section II.F. of the preamble of this 

proposed rule, we discuss our 

implementation of section 1886(d)(4)(D) of 

the Act, which requires the Secretary to 

identify conditions that are: (1) High cost, 

high volume, or both; (2) result in the 

assignment of a case to an MS–DRG that has 

a higher payment when present as a 

secondary diagnosis; and (3) could 

reasonably have been prevented through 

application of evidence-based guidelines. For 

discharges occurring on or after October 1, 

2008, hospitals will not receive additional 

payment for cases in which one of the 

selected conditions was not present on 

admission, unless, based on data and clinical 

judgment, it cannot be determined at the time 

of admission whether a condition is present. 

That is, the case will be paid as though the 

secondary diagnosis were not present. 

However, the statute also requires the 

Secretary to continue counting the condition 

as a secondary diagnosis that results in a 

higher IPPS payment when doing the budget 

neutrality calculations for MS–DRG 

reclassifications and recalibration. Therefore, 

we will perform our budget neutrality 

calculations as though the payment provision 

did not apply, but Medicare will make a 

lower payment to the hospital for the specific 

case that includes the secondary diagnosis. 

Thus, the provision results in cost savings to 

the Medicare program. 

We note that the provision will only apply 

when one or more of the selected conditions 

are the only secondary diagnosis or diagnoses 

present on the claim that will lead to higher 

payment. Medicare beneficiaries will 

generally have multiple secondary diagnoses 

during a hospital stay, such that beneficiaries 

having one MCC or CC will frequently have 

additional conditions that also will generate 

higher payment. Only a small percentage of 

the cases will have only one secondary 

diagnosis that would lead to a higher 

payment. Therefore, if at least one 

nonselected secondary diagnosis that leads to 

higher payment is on the claim, the case will 

continue to be assigned to the higher paying 

MS–DRG and there will be no Medicare 

savings from that case. In addition, as 

discussed in section II.F.3. of the preamble of 

this proposed rule, it is possible to have two 

severity levels where the HAC does not affect 

the MS–DRG assignment or for an MS–DRG 

not to have severity levels. In either of these 

circumstances, the case will continue to be 

assigned to the higher paying MS–DRG and 

there will be no Medicare savings from that 

case. 

The HAC payment provision went into 

effect on October 1, 2008. Our savings 

estimates for the next 5 fiscal years are 

shown below: 

Year Savings 

(in millions) 

FY 2015 ............................ $28 

FY 2016 ............................ 30 

FY 2017 ............................ 33 

FY 2018 ............................ 36 

FY 2019 ............................ 38 

In section IV.J. of the preamble of this 

proposed rule, we are proposing changes to 

the HAC Reduction Program for FY 2015. We 

refer readers to section I.H.6. of this 

Appendix A for a discussion of the impact 

of these proposed changes. 

2. Effects of Proposed Policy Relating to New 

Medical Service and Technology Add-On 

Payments 

In section II.I. of the preamble to this 

proposed rule, we discuss the six 

applications for add-on payments for new 

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medical services and technologies for FY 

2015, as well as the status of the new 

technologies that were approved to receive 

new technology add-on payments in FY 

2014. As explained in the preamble to this 

proposed rule, add-on payments for new 

medical services and technologies under 

section 1886(d)(5)(K) of the Act are not 

required to be budget neutral. As discussed 

in section II.I.4. of the preamble of this 

proposed rule, we have not yet determined 

whether any of the six applications we 

received for consideration for new 

technology add-on payments for FY 2015 

will meet the specified criteria. 

Consequently, it is premature to estimate the 

potential payment impact of these six 

applications for any potential new 

technology add-on payments for FY 2015. We 

note that if any of the six applications are 

found to be eligible for new technology addon payments for FY 2015, in the FY 2015 

IPPS/LTCH PPS final rule, we would discuss 

the estimated payment impact for FY 2015. 

In the preamble of this proposed rule, we 

are proposing to discontinue new technology 

add-on payments for DIFICIDTM for FY 2015 

because the technology will have been on the 

U.S. market for 3 years. We also are 

proposing to continue making new 

technology add-on payments for Voraxaze®, 

the Zenith® F.Graft, KcentraTM, the Argus® II 

Retinal Prosthesis System, and Zilver® PTX®

Drug Eluting Peripheral Stent in FY 2015 

because these technologies are still 

considered new. We note that new 

technology add-on payments per case are 

limited to the lesser of (1) 50 percent of the 

costs of the new technology or (2) 50 percent 

of the amount by which the costs of the case 

exceed the standard MS–DRG payment for 

the case. Because it is difficult to predict the 

actual new technology add-on payment for 

each case, our estimates below are based on 

the increase in add-on payments for FY 2015 

as if every claim that would qualify for a new 

technology add-on payment would receive 

the maximum add-on payment. For 

Voraxaze®, based on the applicant’s estimate 

from FY 2013, we currently estimate that 

new technology add-on payments for 

Voraxaze® will increase overall FY 2015 

payments by $6,300,000. For the Zenith® F. 

Graft, based on the applicant’s estimate from 

FY 2013, we currently estimate that new 

technology add-on payments for the Zenith®

F. Graft will increase overall FY 2014 

payments by $4,085,750. For KcentraTM, 

based on the applicant’s estimate from FY 

2014, we currently estimate that new 

technology add-on payments for KcentraTM

will increase overall FY 2015 payments by 

$5,449,888. For the Argus® II Retinal 

Prosthesis System, based on the applicant’s 

estimate from FY 2014, we currently estimate 

that new technology add-on payments for the 

Argus® II Retinal Prosthesis System will 

increase overall FY 2015 payments by 

$3,601,437. For the Zilver® PTX® Drug 

Eluting Peripheral Stent, based on the 

applicant’s estimate from FY 2014, we 

currently estimate that new technology addon payments for the Zilver® PTX® Drug 

Eluting Peripheral Stent will increase overall 

FY 2015 payments by $20,463,000. 

3. Effects of Proposed Changes to List of MS– 

DRGs Subject to Postacute Care Transfer and 

DRG Special Pay Policy 

In section IV.A. of the preamble of this 

proposed rule, we discuss proposed changes 

to the list of MS–DRGs subject to the 

postacute care transfer and DRG special 

payment policies. As reflected in Table 5 

listed in section VI. of the Addendum to this 

proposed rule and available via the Internet 

on the CMS Web site, using criteria set forth 

in regulation at § 412.4, we evaluated MS– 

DRG charge, discharge, and transfer data to 

determine which MS–DRGs qualify for the 

postacute care transfer and DRG special pay 

policies. We note that we are making no 

proposal to change these payment policies in 

this FY 2015 proposed rule. We are 

proposing to change the status of certain MS– 

DRGs as a result of proposals to revise the 

MS–DRGs for FY 2015. We are proposing to 

change the status of five MS–DRGs to qualify 

for the postacute care transfer policy in FY 

2015. One additional MS–DRG that qualified 

under the policy in FY 2014 does not qualify 

in FY 2015, and we are proposing to change 

the status accordingly. Finally, five MS– 

DRGs now qualify for the MS–DRG special 

pay policy in FY 2015 after not qualifying in 

FY 2014, and we are proposing to add them 

to the list of qualifying MS–DRGs. Column 4 

of Table I in this Appendix A shows the 

effects of the proposed changes to the MS– 

DRGs and relative payment weights with the 

application of the recalibration budget 

neutrality factor to the standardized amounts. 

Section 1886(d)(4)(C)(i) of the Act requires us 

annually to make appropriate classification 

changes in order to reflect changes in 

treatment patterns, technology, and any other 

factors that may change the relative use of 

hospital resources. The analysis and methods 

determining the proposed changes due to the 

MS–DRGs and relative payment weights 

accounts for and includes changes in MS– 

DRG postacute care transfer and special pay 

policy statuses. We refer readers to section 

I.G. of this Appendix for a more detailed 

discussion of payment impacts due to MS– 

DRG reclassification policies. 

4. Effects of the Proposed Payment 

Adjustment for Low-Volume Hospitals for FY 

2015 

In section V.D. of the preamble to this 

proposed rule, we discuss the provisions of 

the Protecting Access to Medicare Act of 

2014 (Pub. L. 113–93) that extends for an 

additional year, through March 31, 2015, the 

temporary changes to the low-volume 

hospital definition and the methodology for 

determining the payment adjustment made 

by the Affordable Care Act for FYs 2011 and 

2012, and extended through FY 2013 by the 

ATRA, and the first half of FY 2014 by the 

Pathway for SGR Reform Act (Pub. L. 113– 

67). Therefore, to qualify for the low-volume 

hospital payment adjustment for FY 2015 

discharges occurring before April 1, 2015 

under section 1886(d)(12) of the Act, a 

hospital must have less than 1,600 Medicare 

discharges and be located more than 15 miles 

from other IPPS hospitals. The payment 

adjustment for eligible low-volume hospital 

FY 2015 discharges occurring before April 1, 

2015 is 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. 

Beginning with FY 2015 discharges 

occurring on or after April 1, 2015, in 

accordance with section 1886(d)(12) of the 

Act, the low-volume hospital definition and 

payment adjustment methodology revert back 

to the statutory requirements that were in 

effect prior to the amendments made by the 

Affordable Care Act as amended by 

subsequent legislation. Therefore, effective 

for FY 2015 discharges occurring on or after 

April 1, 2015 and subsequent years, in order 

to qualify as a low-volume hospital, a 

subsection (d) hospital must be more than 25 

road miles from another subsection (d) 

hospital and have less than 200 discharges 

(that is, less than 200 discharges total, 

including both Medicare and non-Medicare 

discharges) during the fiscal year. 

Based on FY 2013 claims data (December 

2013 update of the MedPAR file), we 

estimate that approximately 600 hospitals 

will qualify as a low-volume hospital in FY 

2014 and in FY 2015 for discharges occurring 

before April 1, 2015. With the statutory 

changes to the low-volume hospital payment 

adjustment, for FY 2015 discharges occurring 

on or after April 1, 2015, we estimate only 

approximately six hospitals will continue to 

qualify as a low-volume hospital. We project 

that the expiration of the temporary changes 

to the low-volume hospital definition and the 

payment adjustment methodology originally 

made by the Affordable Care Act and 

extended by subsequent legislation will 

result in a decrease in payments of 

approximately $343 million in FY 2015 as 

compared to the low-volume hospital 

payments in FY 2014. This estimate accounts 

for our projection of the six IPPS low-volume 

hospitals in FY 2014 that are expected to 

continue to receive a low-volume hospital 

payment adjustment of an additional 25 

percent for FY 2015 discharges occurring on 

or after April 1, 2015. 

5. Effects of Proposal Related to IME 

Medicare Part C Add-On Payments to SCHs 

Paid According to Their Hospital-Specific 

Rates 

In section IV.E.2. of the preamble of this 

proposed rule, we discuss our proposal 

related to IME Medicare Part C add-on 

payments to SCHs that are paid according to 

their hospital-specific rates. Payments based 

on the Federal rate are based on the IPPS 

standardized amount and include all 

applicable IPPS add-on payments, such as 

outliers, DSH, and IME, while payments 

based on the hospital-specific rate include no 

add-on payments. The hospital-specific rate 

generally reflects the additional costs 

incurred by a teaching hospital for its 

Medicare Part A patients. However, the 

hospital-specific rate does not reflect the 

costs associated with Medicare Part C 

patients and there is no payment mechanism 

for SCHs paid based on their hospitalspecific rate to receive the IME add-on 

payment for Medicare Part C patients. 

Accordingly, we are proposing to provide all 

SCHs that are subsection (d) teaching 

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hospitals, IME add-on payments for 

applicable discharges of Medicare Part C 

patients in accordance with section 

1886(d)(11) of the Act, regardless of whether 

the SCH is paid based on the Federal rate or 

its hospital-specific rate; and that, for 

purposes of the comparison of payments 

based on the Federal rate and payments 

based on the hospital-specific rate under 

section 1886(d)(5)(D) of the Act, IME 

payments under section 1886(d)(11) of the 

Act for Medicare Part C patients will no 

longer be included as part of the Federal rate 

payment. 

We estimate that the proposals at section 

IV.E.2. of the preamble of this proposed rule 

will result in an increase in payments to 

approximately 50 hospitals that are both 

SCHs or SCH/RRCs and teaching hospitals of 

approximately $5 million in FY 2015. 

6. Effects of the Extension of the MDH 

Program for the First Half of FY 2015 

In section V.G. of the preamble of this 

proposed rule, we briefly discuss the 

statutory extension of the MDH program 

through March 31, 2015, that is, through the 

first half of FY 2015, by section 106 of the 

Protecting Access to Medicare Act of 2014 

(Pub. L. 113–93). Hospitals that qualify as 

MDHs receive the higher of operating IPPS 

payments made under the Federal 

standardized amount or the payments made 

under the Federal standardized amount plus 

75 percent of the amount by which the 

hospital-specific rate (a hospital-specific 

cost-based rate) exceeds the Federal 

standardized amount. Based on the latest 

available data we have for 165 MDHs, we 

project that 98 MDHs will receive the 

blended payment (that is, the Federal 

standardized amount plus 75 percent of the 

amount by which the hospital-specific rate 

exceeds the Federal standardized amount) for 

the first half of FY 2015 (that is, for 

discharges occurring through March 31, 

2015). We estimate that those hospitals will 

experience an overall increase in payments of 

approximately $56 million as compared to 

our previous estimates of payments to these 

hospitals for FY 2015 prior to the extension 

of the MDH program through March 31, 2015, 

by section 106 of Public Law 113–93. 

7. Effects of Proposed Changes Under the FY 

2015 Hospital Value-Based Purchasing (VBP) 

Program 

Section 1886(o)(1)(B) of the Act directs the 

Secretary to make value-based incentive 

payments under the Hospital VBP Program to 

hospitals that meet performance standards 

during the performance period for discharges 

occurring on or after October 1, 2012. These 

incentive payments will be funded for FY 

2015 through a reduction to the FY 2015 base 

operating DRG payment for each discharge of 

1.50 percent, as required by section 

1886(o)(7)(B) of the Act. The applicable 

percentage for FY 2016 is 1.75 percent and 

for FY 2017 and subsequent years, it is 2 

percent. We are required to ensure that the 

total amount available for value-based 

incentive payments is equal to the total 

amount of reduced payments for all hospitals 

for the fiscal year, as estimated by the 

Secretary. 

We refer readers to the Hospital Inpatient 

VBP Program final rule (76 FR 26490 through 

26547), the CY 2012 OPPS/ASC final rule 

with comment period (76 FR 74527 through 

74547), the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53567 through 53614), the FY 

2014 IPPS/LTCH PPS final rule (78 FR 50677 

through 50707), and the CY 2014 OPPS/ASC 

final rule with comment period (78 FR 75120 

through 75121) for further explanation of the 

details of the Hospital VBP Program. 

We specifically refer readers to the FY 

2013 IPPS/LTCH PPS final rule (77 FR 53582 

through 53592) and the FY 2014 IPPS/LTCH 

PPS final rule (78 FR 50678 through 50679), 

for discussions of the measures and other 

policies that we adopted for the FY 2015 and 

FY 2016 Hospital VBP Programs. 

In section IV.I. of the preamble of this 

proposed rule, we estimate the available pool 

of funds for value-based incentive payments 

in the FY 2015 Hospital VBP Program, 

which, in accordance with section 

1886(o)(7)(C)(iii) of the Act, will be 1.50 

percent of base operating DRG payments, or 

a total of approximately $1.4 billion. This 

estimated available pool for FY 2015 is based 

on the historical pool of hospitals that were 

eligible to participate in the FY 2014 Hospital 

VBP Program and the payment information 

from the December 2013 update to the FY 

2013 MedPAR file. We intend to provide an 

update to this estimate, which will be based 

on the March 2014 update to the FY 2013 

MedPAR file, in the FY 2015 IPPS/LTCH PPS 

final rule. 

The estimated impacts of the FY 2015 

Hospital VBP Program by hospital 

characteristic, found in the table below, are 

based on historical TPSs. We used the FY 

2014 Hospital VBP Program TPSs to calculate 

the proxy adjustment factors used for this 

impact analysis. These are the most recently 

available scores that hospitals were given an 

opportunity to review and correct. The proxy 

adjustment factors use estimated annual base 

operating DRG payment amounts derived 

from the December 2013 update to the FY 

2013 MedPAR file. The proxy adjustment 

factors can be found in Table 16 associated 

with this proposed rule (available via the 

Internet on the CMS Web site). 

The impact analysis shows that, for the FY 

2015 Hospital VBP Program, the number of 

hospitals that would receive an increase in 

base operating DRG payment amount is 

slightly lower than the number of hospitals 

that would receive a decrease. 

Approximately 42 percent of hospitals would 

have a change in base operating DRG 

payment amount that is between ¥0.2 

percent and + 0.2 percent. Among urban 

hospitals, those in the New England, South 

Atlantic, East North Central, West North 

Central, and West South Central regions 

would have an increase, on average, in base 

operating DRG payment amount, and among 

rural hospitals, those in the New England 

and East North Central regions will have an 

increase, on average in base operating DRG 

payment amounts. 

Both urban and rural hospitals in the 

Middle Atlantic, East South Central, 

Mountain, and Pacific regions and rural 

hospitals in the South Atlantic region would 

receive an average decrease in base operating 

DRG payment amount. As the percent of DSH 

payments increases, we see a decrease in 

base operating DRG payment amount, while 

as the Medicare utilization (MCR) percent 

increases, we see an increase in base 

operating DRG payment amount. 

Nonteaching and teaching hospitals would 

have an average decrease in base operating 

DRG payment amount. 

IMPACT ANALYSIS OF BASE OPERATING DRG PAYMENT AMOUNT CHANGES RESULTING FROM THE FY 2015 HOSPITAL

VBP PROGRAM

Number of 

hospitals 

Average 

(%) 

By Geographic Location: 

All Hospitals ...................................................................................................................................................... 2,728 ¥0.038 

Large Urban .............................................................................................................................................. 1,113 ¥0.021 

Other Urban ............................................................................................................................................... 910 ¥0.030 

Rural Area ................................................................................................................................................. 705 ¥0.074 

Urban hospitals ................................................................................................................................................. 2,023 ¥0.025 

0–99 beds .................................................................................................................................................. 307 0.025 

100–199 beds ............................................................................................................................................ 677 ¥0.043 

200–299 beds ............................................................................................................................................ 431 ¥0.032 

300–499 beds ............................................................................................................................................ 401 ¥0.033 

500 or more beds ...................................................................................................................................... 207 ¥0.010 

Rural hospitals .................................................................................................................................................. 705 ¥0.074 

0–49 beds .................................................................................................................................................. 161 ¥0.041 

50–99 beds ................................................................................................................................................ 296 ¥0.088 

100–149 beds ............................................................................................................................................ 148 ¥0.074 

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IMPACT ANALYSIS OF BASE OPERATING DRG PAYMENT AMOUNT CHANGES RESULTING FROM THE FY 2015 HOSPITAL

VBP PROGRAM—Continued 

Number of 

hospitals 

Average 

(%) 

150–199 beds ............................................................................................................................................ 55 ¥0.106 

200 or more beds ...................................................................................................................................... 45 ¥0.067 

By Region: 

Urban By Region .............................................................................................................................................. 2,023 ¥0.025 

New England ............................................................................................................................................. 112 0.059 

Middle Atlantic ........................................................................................................................................... 279 ¥0.076 

South Atlantic ............................................................................................................................................ 346 0.002 

East North Central ..................................................................................................................................... 350 0.052 

East South Central .................................................................................................................................... 121 ¥0.043 

West North Central .................................................................................................................................... 134 0.055 

West South Central ................................................................................................................................... 248 0.003 

Mountain .................................................................................................................................................... 130 ¥0.085 

Pacific ........................................................................................................................................................ 303 ¥0.154 

Rural By Region ............................................................................................................................................... 705 ¥0.074 

New England ............................................................................................................................................. 21 0.044 

Middle Atlantic ........................................................................................................................................... 64 ¥0.150 

South Atlantic ............................................................................................................................................ 136 ¥0.024 

East North Central ..................................................................................................................................... 114 0.036 

East South Central .................................................................................................................................... 114 ¥0.018 

West North Central .................................................................................................................................... 82 ¥0.052 

West South Central ................................................................................................................................... 101 ¥0.177 

Mountain .................................................................................................................................................... 45 ¥0.299 

Pacific ........................................................................................................................................................ 28 ¥0.247 

By MCR Percent: 

0–25 .................................................................................................................................................................. 260 ¥0.118 

25–50 ................................................................................................................................................................ 1,788 ¥0.033 

50–65 ................................................................................................................................................................ 605 ¥0.016 

Over 65 ............................................................................................................................................................. 46 0.003 

BY DSH Percent: 

0–25 .................................................................................................................................................................. 1,253 0.013 

25–50 ................................................................................................................................................................ 1,220 ¥0.063 

50–65 ................................................................................................................................................................ 141 ¥0.121 

Over 65 ............................................................................................................................................................. 114 ¥0.222 

BY TEACHING STATUS: 

Teaching ........................................................................................................................................................... 933 ¥0.041 

Non-Teaching ................................................................................................................................................... 1,795 ¥0.036 

As stated above, we intend to provide an 

updated impact analysis in the FY 2015 

IPPS/LTCH PPS final rule. However, actual 

FY 2015 Hospital VBP Program TPSs would 

not be reviewed and corrected by hospitals 

until after the FY 2015 IPPS/LTCH PPS final 

rule has been published. Therefore, the same 

historical universe of eligible hospitals and 

corresponding TPSs from the FY 2014 

Hospital VBP Program will be used for the 

updated impact analysis. As noted above, the 

updated impact analysis for the final rule 

will reflect estimated annual base operating 

DRG payment amount changes based on the 

March 2014 update to the FY 2013 MedPAR 

file. 

8. Effects of Proposed Changes to the HAC 

Reduction Program for FY 2015 

In section IV.J. of the preamble of this 

proposed rule, we are establishing measures, 

scoring, and a risk adjustment methodology 

to implement the FY 2015 payment reduction 

under the HAC Reduction Program. Section 

1886(p) of the Act, as added under section 

3008(a) of the Affordable Care Act, 

establishes an adjustment to hospital 

payments for HACs, or a HAC Reduction 

program, under which payments to 

applicable hospitals are adjusted to provide 

an incentive to reduce HACs, effective for 

discharges occurring on October 1, 2014 and 

for subsequent program years. 

We note that hospitals will have a payment 

impact for the first time in FY 2015. For FY 

2015, we are presenting the overall impact of 

the HAC Reduction Program provision along 

with other IPPS payment provision impacts 

in section I.G. of this Appendix A. The table 

and analyses that we are presenting below 

show the distributional effect of the measures 

and scoring system for the HAC Reduction 

Program included in the FY 2014 IPPS/LTCH 

PPS final rule (78 FR 50707 through 50729). 

For FY 2015, we note that we finalized a 

Total HAC Score methodology in the FY 

2014 IPPS/LTCH PPS final rule (78 FR 50707 

through 50729) that assigns weights for 

Domain 1 and Domain 2 at 35 percent and 

65 percent, respectively. Based on this 

methodology, the table below presents data 

on the proportion of hospitals, by structural 

characteristic, in the worst performing 

quartile based on the 35/65 weighting 

scheme. 

The data for this simulation are derived 

from the AHRQ PSI results based on 

Medicare FFS discharges from July 2011 

through June 2013, using version 4.5 of the 

AHRQ software, and CDC measure results 

were used based on Standard Infection Ratios 

(SIRs) calculated with data reported to the 

National Healthcare Safety Network for 

infections occurring between July 2012 and 

June 2013. To analyze the results by hospital 

characteristic, the FY 2014 impact file were 

used. Of the 3,337 hospitals included in this 

analysis, 3,298 hospitals were included for 

geographic location, region, DSH percent, 

and teaching status; 3,278 for ownership; and 

3,205 for MCR percent. These differences in 

denominator are due to the source of the 

hospital characteristic data. This analysis 

does not include Maryland hospitals as 

Maryland hospitals are exempt by waiver 

from the HAC Reduction Program in FY 

2015. 

The percentage of hospitals for each 

characteristic (column 3) indicates the 

percent of hospitals in each level of 

characteristic. For example, with regard to 

geographic region, 39.4 percent of hospitals 

(or 1,301 hospitals) are characterized as large 

urban; 32.7 percent of hospitals (or 1,080 

hospitals) are characterized as other urban; 

and 27.8 percent of hospitals (or 917 

hospitals) are characterized as rural. The 

percentage of hospitals in the worst 

performing quartile (column 5) indicates the 

proportion of hospitals for each characteristic 

that would be penalized. For example, in 

regards to geographic location, 26.6 percent 

of hospitals (or 346 hospitals) characterized 

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as large urban would be subject to a payment 

adjustment; 22.8 percent of hospitals (or 246 

hospitals) characterized as other urban would 

be subject to a payment adjustment; and 17.6 

percent of hospitals (or 161 hospitals) 

characterized as rural would be subject to a 

payment adjustment. 

With regard to geographic location of urban 

hospitals by bed size, 17.3 percent of 

hospitals (or 101 hospitals) characterized as 

urban hospitals with bed size of 0–99 beds 

would be subject to a payment adjustment; 

21.1 percent of hospitals (or 152 hospitals) 

characterized as urban hospitals with bed 

size of 100–199 beds would be subject to a 

payment adjustment; 27.1 percent of 

hospitals (or 122 hospitals) characterized as 

urban hospitals with bed size of 200–299 

beds would be subject to a payment 

adjustment; 27.1 percent of hospitals (or 71 

hospitals) characterized as urban hospitals 

with bed size of 300–399 beds would be 

subject to a payment adjustment; 37.7 

percent of hospitals (or 58 hospitals) 

characterized as urban hospitals with bed 

size of 400–499 beds would be subject to a 

payment adjustment; and 41.7 percent of 

hospitals (or 88 hospitals) characterized as 

urban hospitals with bed size of 500 or more 

beds would be subject to a payment 

adjustment. 

With regard to geographical location of 

rural hospitals by bed size, 15.5 percent of 

hospitals (or 53 hospitals) characterized as 

rural hospitals with bed size of 0–49 beds 

would be subject to a payment adjustment; 

20.6 percent of hospitals (or 66 hospitals) 

characterized as rural hospitals with bed size 

of 50–99 beds would be subject to a payment 

adjustment; 13.9 percent of hospitals (or 21 

hospitals) characterized as rural hospitals 

with bed size of 100–149 beds would be 

subject to a payment adjustment; 15.3 

percent of hospitals (or 9 hospitals) 

characterized as rural hospitals with bed size 

of 150–199 beds would be subject to a 

payment adjustment; and 26.7 percent of 

hospitals (or 12 hospitals) characterized as 

rural hospitals with bed size of 200 or more 

beds would be subject to a payment 

adjustment. 

With regard to region of urban hospitals, 

26.1 percent of hospitals (or 31 hospitals) 

characterized as urban in the New England 

region would be subject to a payment 

adjustment; 28.2 percent of hospitals (or 87 

hospitals) characterized as urban in the MidAtlantic region would be subject to a 

payment adjustment; 24.0 percent of 

hospitals (or 89 hospitals) characterized as 

urban in the South Atlantic region would be 

subject to a payment adjustment; 23.4 

percent of hospitals (or 90 hospitals) 

characterized as urban in the East North 

Central region would be subject to a payment 

adjustment; 22.4 percent of hospitals (or 32 

hospitals) characterized as urban in the West 

South Central region would be subject to a 

payment adjustment; 20.5 percent of 

hospitals (or 33 hospitals) characterized as 

urban in the East North Central region would 

be subject to a payment adjustment; 19.6 

percent of hospitals (or 71 hospitals) 

characterized as urban in the West South 

Central region would be subject to a payment 

adjustment; 35.8 percent of hospitals (or 57 

hospitals) characterized as urban in the 

Mountain region would be subject to a 

payment adjustment; and 27.4 percent of 

hospitals (or 102 hospitals) characterized as 

urban in the Pacific region would be subject 

to a payment adjustment. 

With regard to region of rural hospitals, 

13.0 percent of hospitals (or 3 hospitals) 

characterized as rural in the New England 

region would be subject to a payment 

adjustment; 25.8 percent of hospitals (or 17 

hospitals) characterized as rural in the MidAtlantic region would be subject to a 

payment adjustment; 15.1 percent of 

hospitals (or 24 hospitals) characterized as 

rural in the South Atlantic region would be 

subject to a payment adjustment; 21.2 

percent of hospitals (or 25 hospitals) 

characterized as rural in the East North 

Central region would be subject to a payment 

adjustment; 13.9 percent of hospitals (or 23 

hospitals) characterized as rural in the West 

South Central region would be subject to a 

payment adjustment; 19.2 percent of 

hospitals (or 20 hospitals) in the East North 

Central region would be subject to a payment 

adjustment; 14.7 percent of hospitals (or 26 

hospitals) in the West South Central region 

would be subject to a payment adjustment; 

24.7 percent of hospitals (or 18 hospitals) in 

the Mountain region would be subject to a 

payment adjustment; and 16.1 percent of 

hospitals (or 5 hospitals) in the Pacific region 

would be subject to a payment adjustment. 

With regard to the DSH percent 

characteristic, 19.6 percent of hospitals (or 

311 hospitals) characterized in the 0–24 DSH 

percent would be subject to a payment 

adjustment; 24.1 percent of hospitals (or 331 

hospitals) characterized in the 25–49 DSH 

percent would be subject to a payment 

adjustment; 37.6 percent of hospitals (or 68 

hospitals) characterized in the 50–64 DSH 

percent would be subject to a payment 

adjustment; and 27.2 percent of hospitals (or 

43 hospitals) characterized in the 65 and over 

DSH percent would be subject to a payment 

adjustment. 

With regard to the teaching status 

characteristic, 19.0 percent of hospitals (or 

437 hospitals) characterized as nonteaching 

would be subject to a payment adjustment; 

25.0 percent of hospitals (or 191 hospitals) 

characterized as fewer than 100 residents 

would be subject to a payment adjustment; 

and 52.7 percent of hospitals (or 125 

hospitals) characterized as 100 or more 

residents would be subject to a payment 

adjustment. 

With regard to the urban teaching and DSH 

characteristic, 34.2 percent of hospitals (or 

277 hospitals) characterized as teaching and 

DSH would be subject to a payment 

adjustment; 22.1 percent of hospitals (or 29 

hospitals) characterized as teaching and no 

DSH would be subject to a payment 

adjustment; 20.4 percent of hospitals (or 206 

hospitals) characterized as no teaching and 

DSH would be subject to a payment 

adjustment; 18.6 percent of hospitals (or 80 

hospitals) characterized as no teaching and 

no DSH would be subject to a payment 

adjustment; and 17.6 percent of hospitals (or 

161 hospitals) characterized as nonurban 

would be subject to a payment adjustment. 

With regard to the type of ownership 

characteristic, 23.3 percent of hospitals (or 

441 hospitals) characterized as voluntary 

would be subject to a payment adjustment; 

19.5 percent of hospitals (or 167 hospitals) 

characterized as proprietary would be subject 

to a payment adjustment; and 26.8 percent of 

hospitals (or 141 hospitals) characterized as 

government would be subject to a payment 

adjustment. 

With regard to the MCR percent 

characteristic, 37.7 percent of hospitals (or 

147 hospitals) characterized in the 0–24 MCR 

percent would be subject to a payment 

adjustment; 23.2 percent of hospitals (or 458 

hospitals) characterized in the 25–49 MCR 

percent would be subject to a payment 

adjustment; 15.9 percent of hospitals (or 113 

hospitals) characterized in the 50–64 MCR 

percent would be subject to a payment 

adjustment; and 10.8 percent of hospitals (or 

14 hospitals) characterized in the 65 and over 

MCR percent would be subject to a payment 

adjustment. 

PROPORTION OF HOSPITALS IN THE WORST PERFORMING QUARTILE (>75 PERCENTILE) OF THE TOTAL HAC SCORE BY

HOSPITAL CHARACTERISTIC

Hospital characteristic Hospitals in the worst 

performing quartile 

Characteristic Number of 

hospitals Percent * Number of 

hospitals Percent 

By Geographic Location: 

All Hospitals: 

Large Urban ** ................................................................................... 1,301 39.4 346 26.6 

Other Urban ....................................................................................... 1,080 32.7 246 22.8 

Rural .................................................................................................. 917 27.8 161 17.6 

Urban Hospitals: ........................ ........................ ........................ ........................

0–99 beds .......................................................................................... 584 24.5 101 17.3 

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PROPORTION OF HOSPITALS IN THE WORST PERFORMING QUARTILE (>75 PERCENTILE) OF THE TOTAL HAC SCORE BY

HOSPITAL CHARACTERISTIC—Continued 

Hospital characteristic Hospitals in the worst 

performing quartile 

Characteristic Number of 

hospitals Percent * Number of 

hospitals Percent 

100–199 beds .................................................................................... 720 30.2 152 21.1 

200–299 beds .................................................................................... 450 18.9 122 27.1 

300–399 beds .................................................................................... 262 11.0 71 27.1 

400–499 ............................................................................................. 154 6.5 58 37.7 

500 or more beds .............................................................................. 211 8.9 88 41.7 

Rural Hospitals: 

0–49 beds .......................................................................................... 341 37.2 53 15.5 

50–99 beds ........................................................................................ 321 35.0 66 20.6 

100–149 beds .................................................................................... 151 16.5 21 13.9 

150–199 beds .................................................................................... 59 6.4 9 15.3 

200 or more beds .............................................................................. 45 4.9 12 26.7 

By Region: 

Urban by Region: 

New England ..................................................................................... 119 3.6 31 26.1 

Mid-Atlantic ........................................................................................ 308 9.3 87 28.2 

South Atlantic .................................................................................... 371 11.2 89 24.0 

East North Central ............................................................................. 385 11.7 90 23.4 

West South Central ........................................................................... 143 4.3 32 22.4 

East North Central ............................................................................. 161 4.9 33 20.5 

West South Central ........................................................................... 363 11.0 71 19.6 

Mountain ............................................................................................ 159 4.8 57 35.8 

Pacific ................................................................................................ 372 11.3 102 27.4 

Rural by Region: 

New England ..................................................................................... 23 0.7 3 13.0 

Mid-Atlantic ........................................................................................ 66 2.0 17 25.8 

South Atlantic .................................................................................... 159 4.8 24 15.1 

East North Central ............................................................................. 118 3.6 25 21.2 

West South Central ........................................................................... 166 5.0 23 13.9 

East North Central ............................................................................. 104 3.2 20 19.2 

West South Central ........................................................................... 177 5.4 26 14.7 

Mountain ............................................................................................ 73 2.2 18 24.7 

Pacific ................................................................................................ 31 0.9 5 16.1 

By DSH Percent: 

0–24 .......................................................................................................... 1,588 48.2 311 19.6 

25–49 ........................................................................................................ 1,371 41.6 331 24.1 

50–64 ........................................................................................................ 181 5.5 68 37.6 

65 and over .............................................................................................. 158 4.8 43 27.2 

By Teaching Status: 

Non-teaching ............................................................................................ 2,297 69.6 437 19.0 

Fewer than 100 residents ......................................................................... 764 23.2 191 25.0 

100 or more residents .............................................................................. 237 7.2 125 52.7 

By Urban Teaching and DSH: 

Teaching and DSH ................................................................................... 811 24.6 277 34.2 

Teaching and no DSH .............................................................................. 131 4.0 29 22.1 

No teaching and DSH .............................................................................. 1,010 30.6 206 20.4 

No teaching and no DSH ......................................................................... 429 13.0 80 18.6 

Non-urban ................................................................................................. 917 27.8 161 17.6 

By Type of Ownership: 

Voluntary ................................................................................................... 1,893 57.7 441 23.3

Proprietary ................................................................................................ 858 26.2 167 19.5 

Government .............................................................................................. 527 16.1 141 26.8 

By MCR Percent: 

0–24 .......................................................................................................... 390 12.2 147 37.7

25–49 ........................................................................................................ 1,976 61.7 458 23.2 

50–64 ........................................................................................................ 709 22.1 113 15.9 

65 and over .............................................................................................. 130 4.1 14 10.8 

* Percents may not sum to 100 due to rounding. 

** Large urban hospitals are hospitals located in large urban areas (populations over 1 million). 

9. Effects of Proposed Policy Changes 

Relating to Payments for Direct GME and IME 

Under section IV.K.2. of the preamble of 

this proposed rule, we discuss our proposal 

to simplify and streamline the timing of 

CMS’s policies related to when the FTE 

resident caps, the 3-year rolling average, and 

the IRB ratio cap would become effective for 

new teaching hospitals, by stating that the 

FTE resident caps, rolling average, and IRB 

ratio cap would be effective simultaneously, 

beginning with the applicable hospital’s cost 

reporting period that precedes the start of the 

6th program year of the first new program 

started. We are proposing that this policy 

regarding the effective dates of the FTE 

residency caps, rolling average, and IRB ratio 

cap for FTE residents in new programs would 

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be consistent with the methodology for 

calculation of the FTE resident caps as 

described in the FY 2013 IPPS/LTCH PPS 

final rule, and implemented at 42 CFR 

413.79(e)(1) and (3). That is, this proposal is 

effective for urban hospitals that have not yet 

had FTE resident caps established under 

§ 413.79(e)(1), and for rural hospitals, on or 

after October 1, 2012. This proposal would 

reduce the amount of time that the new 

programs would be exempt from the FTE 

resident caps by several months, depending 

on the cost reporting period of the new 

teaching hospital. However, depending on 

the length of new programs started and the 

point during the 5-year growth period in 

which new programs are started, there may 

also be some gain and loss for hospitals in 

terms of the amount of time that the FTEs in 

the new programs would be exempt from the 

rolling average and the IRB ratio cap. In 

either case, the estimate of possible savings 

or cost of this proposal is less than $5 million 

a year and therefore, is negligible. 

In section IV.K.3.a. of the preamble of this 

proposed rule, we discuss our proposals 

related to the effect of new OMB labor market 

area delineations on certain teaching 

hospitals training residents in rural areas. 

Under existing regulations a new teaching 

hospital has 5 years from when it first begins 

training residents in its first new program to 

grow its cap. If the teaching hospital is a rural 

teaching hospital, it can continue to receive 

permanent cap adjustments even after the 

initial 5-year cap-building period ends if it 

trains residents in a new program. As a result 

of OMB redesignations, some teaching 

hospitals may be redesignated from being 

located in a rural area to an urban area, 

thereby losing their ability to increase their 

caps again after their initial 5-year capbuilding period. If a rural hospital had 

started training residents in the new program 

while it was rural and was redesignated as 

urban before the end of the 5-year capbuilding period, we are proposing that 

effective for cost reporting periods beginning 

on or after October 1, 2014, it can continue 

growing that program(s) for the remainder of 

the cap-building period and receive a 

permanent cap adjustment for that new 

program(s). Once the cap-building period for 

the new program(s) that was started while the 

hospital was still rural expires, the teaching 

hospital that has been redesignated as urban 

will no longer be able to receive any 

additional permanent cap adjustments. 

In section IV.K.3.b. of the preamble of this 

proposed rule, we discuss our proposal 

related to a redesignated hospital’s 

participation in a rural track program. Under 

existing regulations, if an urban hospital 

rotates residents to a separately accredited 

rural track program at a rural site(s) for more 

than one-half of the duration of the program, 

the urban hospital may receive an adjustment 

to its cap for training those FTE residents, 

referred to as the rural track FTE limitation. 

We are proposing that any time a rural 

hospital participating in a rural track is in an 

area redesignated by OMB as urban after 

residents started training in the rural track 

and during the period that is used to 

calculate the urban hospital’s rural track FTE 

limitation, the urban hospital may still 

receive a cap adjustment for that rural track. 

We also are proposing that if the rural 

hospital participating in the rural track is in 

an area redesignated as urban, the 

redesignated urban hospital can continue to 

be considered a rural hospital for purposes of 

the rural track for up to 2 years. However, 

within those 2 years, either the rural hospital 

that has been redesignated as urban must 

reclassify as rural under § 412.103 for 

purposes of IME payment only, or the urban 

hospital must find a new geographically rural 

site to participate as the rural site for 

purposes of the rural track and must be 

training FTE residents at that new site, in 

order for the urban hospital to receive 

payment under § 413.79(k)(1) or (k)(2) for the 

rural track program after the 2-year period 

ends. 

We estimate that the proposals discussed 

under IV.K.3.a. and b. of the preamble of this 

proposed rule would have a very minimal, if 

any, impact on Medicare expenditures. These 

proposals would only be applied to, at the 

most, very few hospitals (if any at all) and 

would only apply once every 10 years as a 

result of OMB changes in labor market area 

delineations due to a recent Census. 

In sections IV.K.5.a. and b. of the preamble 

of this proposed rule, we are proposing some 

changes to the current application process for 

and awarding of cap slots from closed 

hospitals under section 5506 of the 

Affordable Care Act that would be effective 

for hospital closures announced on or after 

October 1, 2014. We are proposing an 

alternative interpretation of the statutory 

provision at section 5506(d) of the Affordable 

Care Act, which provides that the Secretary 

give consideration to the effect of the 

permanent awarding of slots under section 

5506 of the Affordable Care Act to any 

temporary cap adjustments to a hospital 

received under § 413.79(h) of the regulations 

to ensure that there be no duplication of FTE 

cap slots. Currently, when applying this 

statutory provision for no duplication of FTE 

slots, we look at all of the hospitals that are 

receiving temporary cap adjustments to train 

displaced residents and all of the hospitals 

that are applying for a permanent increase in 

caps under section 5506 when determining 

the effective date for slots permanently 

awarded to hospitals under Ranking Criterion 

One and Ranking Criteria Three through 

Eight. In this proposed rule, we are proposing 

to interpret the statutory language at section 

5506(d) in a manner that would permit us to 

apply the concept of ensuring no duplication 

of FTE resident slots on a hospital-byhospital basis, such that if a hospital is both 

receiving a temporary cap adjustment under 

§ 413.79(h) and is applying under section 

5506 for permanent cap slots, it will not be 

able to receive a permanent cap adjustment 

until the displaced residents graduate. 

However, if a hospital is applying under 

section 5506 for permanent cap slots and did 

not receive a temporary cap adjustment 

under § 413.79(h), that hospital will not have 

to wait until displaced residents that are 

training at another hospital graduate to be 

awarded any permanent cap slots under 

section 5506. We estimate that this proposal 

could result in a slight increase in Medicare 

expenditures in a rare event a section 5506 

cap adjustment may be provided to one 

hospital before a temporary cap adjustment 

expires at another hospital. However, we are 

unable to estimate whether this will occur 

with any future hospital closures where 

section 5506 is applied because we do not 

know how many, if any, residents will be 

displaced. Furthermore, we believe that any 

temporary duplicate payment would be a rare 

occurrence as most hospitals that are 

receiving a temporary cap adjustment under 

§ 413.79(h) will also receive a permanent cap 

adjustment under section 5506. In this 

instance the hospital would only be able to 

receive the permanent cap adjustment once 

the temporary cap adjustment expires in 

which case there would be no duplication of 

FTE resident slots. 

In addition, under section IV.K.5.c. of the 

preamble of this proposed rule, we are 

proposing to revise the ranking criteria used 

to award slots under section 5506. First, we 

are proposing to no longer allow hospitals to 

apply for cap relief, which is included under 

current Ranking Criterion Eight. This 

proposed change would mean that hospitals 

would be awarded slots under section 5506 

for taking over a closed hospital’s residency 

training program, having participated with a 

closed hospital in a Medicare GME affiliated 

group, taking over part of a closed hospital’s 

program, expanding or starting a new 

geriatrics program, expanding or starting a 

new primary care or general surgery program, 

and expanding or starting a new nonprimary 

care or nongeneral surgery program. Second, 

Ranking Criterion One currently applies to 

hospitals that are assuming (or have 

assumed) an entire program from the hospital 

that closed. We are proposing to revise this 

Ranking Criterion to provide priority to a 

hospital whose FTE resident caps were 

erroneously reduced by CMS under section 

5503 of the Affordable Care Act, contrary to 

the specific statutory exception at section 

1886(h)(8)(A)(i)(I) of the Act, and the CMS 

Central Office is made aware of the error 

prior to the posting of this proposed rule. We 

do not believe there is any cost associated 

with these proposals because we would be 

assigning all of the closed hospital’s slots, 

only the specific hospital awarded the slots 

may change. 

10. Effects of Implementation of Rural 

Community Hospital Demonstration Program 

In section IV.L. of the preamble of this 

proposed rule, we discuss our 

implementation of section 410A of Public 

Law 108–173, as amended, which requires 

the Secretary to conduct a demonstration that 

would modify reimbursement for inpatient 

services for up to 30 rural community 

hospitals. Section 410A(c)(2) requires that 

‘‘[i]n conducting the demonstration program 

under this section, the Secretary shall ensure 

that the aggregate payments made by the 

Secretary do not exceed the amount which 

the Secretary would have paid if the 

demonstration program under this section 

was not implemented.’’ As discussed in 

section IV.L. of the preamble of this proposed 

rule, in the IPPS final rules for each of the 

previous 10 fiscal years, we have estimated 

the additional payments made by the 

program for each of the participating 

hospitals as a result of the demonstration. In 

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order to achieve budget neutrality, we are 

proposing to adjust the national IPPS rates by 

an amount sufficient to account for the added 

costs of this demonstration. In other words, 

we are proposing to apply budget neutrality 

across the payment system as a whole rather 

than across the participants of this 

demonstration. The language of the statutory 

budget neutrality requirement permits the 

agency to implement the budget neutrality 

provision in this manner. The statutory 

language requires that ‘‘aggregate payments 

made by the Secretary do not exceed the 

amount which the Secretary would have paid 

if the demonstration . . . was not 

implemented’’ but does not identify the range 

across which aggregate payments must be 

held equal. 

We are proposing to adjust the national 

IPPS rates according to the methodology set 

forth elsewhere in this proposed rule. The 

proposed adjustment to the national IPPS 

rates to account for estimated demonstration 

cost for FY 2014 for the 7 ‘‘pre-expansion’’ 

participating hospitals that are currently 

participating in the demonstration and the 15 

additional hospitals participating as a result 

of the expansion of the demonstration under 

the Affordable Care Act is $53,673,008. In 

addition, in this proposed rule, we are 

proposing to add to the adjustment of the 

national IPPS rates the amount by which the 

actual costs of the demonstration for FY 2008 

(as shown in the finalized cost reports for 

cost reporting periods beginning in FY 2008 

for the hospitals that participated in the 

demonstration during FY 2008) exceed the 

budget neutrality offset amount that was 

finalized in the FY 2008 IPPS final rule 

($10,389,771). Thus, we are proposing that 

the resulting total ($64,062,779) would be the 

amount for which an adjustment to inpatient 

rates for FY 2015 would be calculated. We 

also are proposing that if settled cost reports 

for all of the demonstration hospitals that 

participated in the applicable fiscal year (FY 

2009, 2010, or 2011), are made available prior 

to the FY 2015 IPPS/LTCH PPS final rule, we 

would incorporate into the FY 2015 budget 

neutrality offset amount any additional 

amounts by which the final settled costs of 

the demonstration for the year (FY 2009, 

2010, or 2011) exceeded the budget neutrality 

offset amount applicable to such year as 

finalized in the respective year’s IPPS final 

rule. 

11. Effects of Proposed Changes Related to 

Reclassification as Rural for CAHs 

In section VI.C.2. of the preamble of this 

proposed rule, we discuss our proposals 

relating to reclassifications of CAHs as a 

result of the proposed adoption of the new 

OMB labor market area delineations. A 

facility is eligible for designation as a CAH 

only if it is either physically located in a 

rural area or has been reclassified as rural 

under 42 CFR 412.103. CAHs can be affected 

by the recent OMB labor market area 

delineations because facilities that are 

currently participating as CAHs that were 

previously located in rural areas may now be 

located in urban areas as a result of the new 

delineations. Previously, in both in the FY 

2005 IPPS final rule and the FY 2010 IPPS/ 

LTCH PPS final rule, we revised the 

regulations to give currently participating 

CAHs 2 years, from the effective date of the 

earlier OMB designations, to reclassify as 

rural facilities. However, these regulation 

changes were specific to a particular 

timeframe. As we are proposing 

implementation of the latest OMB labor 

market area delineations in this proposed 

rule, we are proposing that, effective October 

1, 2014, currently participating CAHs that are 

located in an area that has been redesignated 

from rural to urban under the new 

delineations will again be treated as rural for 

2 years from the date the new OMB 

delineations are implemented. An affected 

CAH would have 2 years from the date the 

redesignation becomes effective to reclassify 

as rural and thereby retain its CAH status. If 

a CAH fails to reclassify within those 2 years, 

it can no longer participate in Medicare as a 

CAH. However, unlike in previous years 

when the regulation changes were specific to 

a particular timeframe, the change that we 

are proposing to the regulations is not 

specific to a particular timeframe but would 

also apply to future OMB labor market area 

delineations. We estimate that this proposal 

will have little or no impact on Medicare 

expenditures because we expect that 

virtually all of the affected CAHs will be 

granted rural status by the State in which 

they are located and, therefore, will be able 

to apply for reclassification as rural under 

§ 412.103 in order to retain their CAH status. 

12. Effects of Proposed Revision of the 

Requirements for Physician Certification of 

CAH Inpatient Services 

In section VI.C.3. of the preamble of this 

proposed rule, we discuss the statutory 

requirement for physician certification of 

CAH inpatient services. For inpatient CAH 

services to be payable under Medicare Part A, 

section 1814(a)(8) of the Act requires that a 

physician certify that the individual may 

reasonably be expected to be discharged or 

transferred to a hospital within 96 hours after 

admission to the CAH. These statutory 

requirements are addressed in the regulations 

at 42 CFR 424.15. In order to provide CAHs 

with greater flexibility in meeting this 

certification requirement, we are proposing 

to amend the regulations governing the 

timing of the 96-hour certification 

requirement at § 424.15(b) such that 

physician certification is required no later 

than 1 day before the date on which the 

claim for payment for the inpatient CAH 

service is submitted. We also are proposing 

to revise § 424.11(d)(5) to remove the phrase 

‘‘or critical access hospital inpatient’’. We do 

not believe there is any significant impact on 

Medicare expenditures associated with these 

proposed changes because we are simply 

proposing to provide CAHs with additional 

flexibility in meeting the statutory 

requirement. The underlying statutory 

requirement itself is unchanged. 

13. Effects of Proposed Changes Relating to 

Administrative Appeals by Providers and 

Judicial Review for Appropriate Claims in 

Provider Cost Reports 

In section VIII. of the preamble to this 

proposed rule, we discuss our proposal to 

require a provider to include an appropriate 

claim for an item in its Medicare cost report 

with the penalty for the failure to do so being 

the preclusion of payment for the item in the 

notice of program reimbursement (NPR) 

issued by the fiscal intermediary and in any 

decision or order issued by a reviewing entity 

in an administrative appeal filed by the 

provider. The proposal also would revise the 

Medicare provider appeals regulations by 

eliminating the requirement that a provider 

must include an appropriate claim for an 

item in its Medicare cost report in order to 

meet the dissatisfaction requirement for 

Provider Reimbursement Review Board 

jurisdiction and would make technical 

corrections to the provider reimbursement 

appeals regulations to conform the 

regulations to the statute. There is no impact 

to the provider resulting from these proposed 

provisions. 

I. Effects of Proposed Update to the 

Reasonable Compensation Equivalent (RCE) 

Limits for Compensation for Physician 

Services Provided in Providers 

In section VI.B. of the preamble of this 

proposed rule, we discuss our proposal to 

update and revise the methodology used to 

calculate the reasonable compensation 

equivalent (RCE) limits for compensation for 

physician services provided in providers, in 

accordance with our regulations at 42 CFR 

415.70(f)(2). For CY 2015, we estimate that 59 

cancer and children’s hospitals and 46 IPPS 

teaching hospitals would be subject to the 

RCE limits. We estimate the costs associated 

with the updated RCE limits for CY 2015 to 

be approximately $40 million. We do not 

expect this proposed RCE limit update to 

impact a significant number of small, rural 

entities; therefore, a full impact analysis is 

not required. 

J. Effects of Proposed Changes in the Capital 

IPPS 

1. General Considerations 

For the impact analysis presented below, 

we used data from the December 2013 update 

of the FY 2013 MedPAR file and the 

December 2013 update of the ProviderSpecific File (PSF) that is used for payment 

purposes. Although the analyses of the 

proposed changes to the capital prospective 

payment system do not incorporate cost data, 

we used the December 2013 update of the 

most recently available hospital cost report 

data (FYs 2011 and 2012) to categorize 

hospitals. Our analysis has several 

qualifications. We use the best data available 

and make assumptions about case-mix and 

beneficiary enrollment as described below. 

Due to the interdependent nature of the 

IPPS, it is very difficult to precisely quantify 

the impact associated with each proposed 

change. In addition, we draw upon various 

sources for the data used to categorize 

hospitals in the tables. In some cases (for 

instance, the number of beds), there is a fair 

degree of variation in the data from different 

sources. We have attempted to construct 

these variables with the best available 

sources overall. However, it is possible that 

some individual hospitals are placed in the 

wrong category. 

Using cases from the December 2013 

update of the FY 2013 MedPAR file, we 

simulated payments under the capital IPPS 

for FY 2014 and FY 2015 for a comparison 

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of total payments per case. Any short-term, 

acute care hospitals not paid under the 

general IPPS (for example, Indian Health 

Service hospitals and hospitals in Maryland) 

are excluded from the simulations. 

The methodology for determining a capital 

IPPS payment is set forth at § 412.312. The 

basic methodology for calculating capital 

IPPS payments in FY 2015 is as follows: 

(Standard Federal Rate) × (DRG weight) × 

(GAF) × (COLA for hospitals located in 

Alaska and Hawaii) × (1 + DSH 

Adjustment Factor + IME adjustment 

factor, if applicable). 

In addition to the other adjustments, 

hospitals may also receive outlier payments 

for those cases that qualify under the 

threshold established for each fiscal year. We 

modeled payments for each hospital by 

multiplying the capital Federal rate by the 

GAF and the hospital’s case-mix. We then 

added estimated payments for indirect 

medical education, disproportionate share, 

and outliers, if applicable. For purposes of 

this impact analysis, the model includes the 

following assumptions: 

• We estimate that the Medicare case-mix 

index will increase by 0.5 percent in both 

FYs 2014 and 2015. 

• We estimate that Medicare discharges 

will be approximately 12.2 million in FY 

2014 and 12.6 million in FY 2015. 

• The capital Federal rate was updated 

beginning in FY 1996 by an analytical 

framework that considers changes in the 

prices associated with capital-related costs 

and adjustments to account for forecast error, 

changes in the case-mix index, allowable 

changes in intensity, and other factors. As 

discussed in section III.A.1.a. of the 

Addendum to this proposed rule, the 

proposed update is 1.5 percent for FY 2015. 

• In addition to the proposed FY 2015 

update factor, the proposed FY 2015 capital 

Federal rate was calculated based on a 

proposed GAF/DRG budget neutrality 

adjustment factor of 0.9957 and a proposed 

outlier adjustment factor of 0.9374. As 

discussed in section VI.C. of the preamble of 

this proposed rule, we are not proposing to 

make an additional MS–DRG documentation 

and coding adjustment to the capital IPPS 

Federal rates for FY 2015. 

2. Results 

We used the actuarial model described 

above to estimate the potential impact of our 

proposed changes for FY 2015 on total 

capital payments per case, using a universe 

of 3,388 hospitals. As described above, the 

individual hospital payment parameters are 

taken from the best available data, including 

the December 2013 update of the FY 2013 

MedPAR file, the December 2013 update to 

the PSF, and the most recent cost report data 

from the December 2013 update of HCRIS. In 

Table III, we present a comparison of 

estimated total payments per case for FY 

2014 and estimated total payments per case 

for FY 2015 based on the proposed FY 2015 

payment policies. Column 2 shows estimates 

of payments per case under our model for FY 

2014. Column 3 shows estimates of payments 

per case under our model for FY 2015. 

Column 4 shows the total percentage change 

in payments from FY 2014 to FY 2015. The 

change represented in Column 4 includes the 

proposed 1.5 percent update to the capital 

Federal rate and other proposed changes in 

the adjustments to the capital Federal rate. 

The comparisons are provided by: (1) 

Geographic location; (2) region; and (3) 

payment classification. 

The simulation results show that, on 

average, capital payments per case in FY 

2015 are expected to increase as compared to 

capital payments per case in FY 2014. This 

expected increase is due primarily to the 

approximately 0.9 percent increase in the 

proposed capital Federal rate for FY 2015 as 

compared to the FY 2014 capital Federal rate. 

Overall, across all hospitals, the proposed 

changes to the GAFs are expected to have no 

net effect on capital payments. However, 

regionally, the effects of the proposed 

changes to the GAFs on capital payments are 

consistent with the projected changes in 

payments due to proposed changes in the 

wage index (and proposed policies affecting 

the wage index) as shown in Table I in 

section I.G. of this Appendix. 

Overall, there is an increase in capital 

payments per case due to the effects of 

proposed changes to the MS–DRG 

reclassifications and recalibrations, with 

more of this increase expected for urban 

hospitals. However, this increase is offset by 

projected changes in outlier payments, with 

rural areas expected to experience more of 

this offset. 

The net impact of these proposed changes 

is an estimated 1.2 percent change in capital 

payments per case from FY 2014 to FY 2015 

for all hospitals (as shown below in Table 

III). 

The geographic comparison shows that, on 

average, with the exception of hospitals in 

the Rural Mountain area, most hospitals are 

expected to experience an increase in capital 

IPPS payments per case in FY 2015 as 

compared to FY 2014. As we stated above, 

these expected increases are primarily due to 

the proposed increase in the capital Federal 

rate. Capital IPPS payments per case for 

hospitals in ‘‘large urban areas’’ are expected 

to have an estimated increase of 1.4 percent, 

while hospitals in rural areas, on average, are 

expected to experience a 0.7 percent increase 

in capital payments per case from FY 2014 

to FY 2015. Capital IPPS payments per case 

for ‘‘other urban hospitals’’ are estimated to 

increase 1.2 percent. The primary factor 

contributing to the difference in the proposed 

projected increase in capital IPPS payments 

per case for urban hospitals as compared to 

rural hospitals is the proposed increase in 

capital payments to urban hospitals due to 

proposed changes to the MS–DRG relative 

weights. This projected increase is slightly 

lower for rural hospitals. 

The comparisons by region show that the 

estimated increases in capital payments per 

case from FY 2014 to FY 2015 in urban areas 

range from a 2.0 percent increase for the 

Pacific urban region to a 0.8 percent increase 

for the East South Central urban region, and 

a 0.6 percent increase for the Puerto Rico 

urban region. For rural regions, the Pacific 

rural region is expected to experience the 

largest increase in capital IPPS payments per 

case of 1.9 percent, while the Mountain rural 

region is the only region projected to have a 

decrease in capital payments per case, 0.1 

percent, compared to FY 2014 payments per 

case. Unlike most other urban and rural 

regions where proposed changes in the GAFs 

contribute to a projected decrease in capital 

payments, the proposed changes in the GAFs 

contribute to an expected increase in capital 

IPPS payments per case for the Pacific urban 

and rural regions. A larger than average 

decrease in capital payments per case for the 

Mountain rural area due to the proposed 

change in outliers offset the projected 

increases to that area’s capital payments per 

case in FY 2015 compared to FY 2014. 

Hospitals of all types of ownership (that is, 

voluntary hospitals, government hospitals, 

and proprietary hospitals) are estimated to 

experience an increase in capital payments 

per case from FY 2014 to FY 2015. The 

proposed increase in capital payments for 

proprietary hospitals is estimated at 1.2 

percent; for voluntary hospitals, at 1.3 

percent. Government hospitals are estimated 

to experience a 1.1 percent increase in capital 

payments per case from FY 2014 to FY 2015. 

Section 1886(d)(10) of the Act established 

the MGCRB. Hospitals may apply for 

reclassification for purposes of the wage 

index for FY 2015. Reclassification for wage 

index purposes also affects the GAFs because 

that factor is constructed from the hospital 

wage index. To present the effects of the 

hospitals being reclassified as of the 

publication of this proposed rule for FY 

2015, we show the average capital payments 

per case for reclassified hospitals for FY 

2015. Urban reclassified hospitals are 

expected to experience an increase in capital 

payments of 1.5 percent, whereas for urban 

nonreclassified hospitals, the expected 

increase is 1.2 percent. The estimated 

percentage increase for rural reclassified 

hospitals is 0.7 percent, and for rural 

nonreclassified hospitals, the estimated 

percentage increase is 0.3 percent. Other 

reclassified hospitals (that is, hospitals 

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

Act) are expected to experience the largest 

increase (2.2 percent) in capital payments 

from FY 2014 to FY 2015. 

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TABLE III—COMPARISON OF TOTAL PAYMENTS PER CASE

[FY 2014 payments compared to FY 2015 payments] 

Number of 

hospitals 

Average FY 2014 

payments/case 

Average FY 2015 

payments/case Change 

By Geographic Location: 

All hospitals ...................................................................... 3,388 848 859 1.2 

Large urban areas (populations over 1 million) ........ 1,395 936 948 1.4 

Other urban areas (populations of 1 million or 

fewer) ..................................................................... 1,147 817 827 1.2 

Rural areas ................................................................ 846 577 581 0.7 

Urban hospitals ................................................................. 2,542 882 893 1.3 

0–99 beds .................................................................. 655 728 732 0.5 

100–199 beds ............................................................ 788 761 770 1.2 

200–299 beds ............................................................ 469 810 821 1.4 

300–499 beds ............................................................ 417 902 915 1.4 

500 or more beds ...................................................... 213 1,056 1,070 1.3 

Rural hospitals .................................................................. 846 577 581 0.7 

0–49 beds .................................................................. 325 470 473 0.6 

50–99 beds ................................................................ 298 534 537 0.5 

100–149 beds ............................................................ 136 575 579 0.7 

150–199 beds ............................................................ 50 640 645 0.8 

200 or more beds ...................................................... 37 704 711 0.9 

By Region: 

Urban by Region .............................................................. 2,542 882 893 1.3 

New England ............................................................. 120 974 985 1.2 

Middle Atlantic ........................................................... 324 946 963 1.7 

South Atlantic ............................................................ 406 796 805 1.1 

East North Central ..................................................... 397 848 856 0.9 

East South Central .................................................... 153 758 764 0.8 

West North Central .................................................... 162 876 887 1.3 

West South Central ................................................... 385 816 824 0.9 

Mountain .................................................................... 159 906 916 1.1 

Pacific ........................................................................ 384 1,111 1,133 2.0 

Puerto Rico ................................................................ 52 406 408 0.6 

Rural by Region ................................................................ 846 577 581 0.7 

New England ............................................................. 22 802 812 1.2 

Middle Atlantic ........................................................... 57 562 569 1.3 

South Atlantic ............................................................ 132 550 551 0.2 

East North Central ..................................................... 115 601 606 0.8 

East South Central .................................................... 165 530 534 0.7 

West North Central .................................................... 102 613 617 0.6 

West South Central ................................................... 168 511 513 0.5 

Mountain .................................................................... 61 651 650 ¥0.1 

Pacific ........................................................................ 24 742 756 1.9 

Puerto Rico ................................................................ 0 0 0 0.0 

By Payment Classification: 

All hospitals ...................................................................... 3,388 848 859 1.2 

Large urban areas (populations over 1 million) ............... 794 879 889 1.1 

Other urban areas (populations of 1 million or fewer) ..... 1,764 882 894 1.4 

Rural areas ....................................................................... 830 588 591 0.5 

Teaching Status: 

Non-teaching .................................................................... 2,352 722 730 1.1 

Fewer than 100 Residents ............................................... 792 831 841 1.3 

100 or more Residents ..................................................... 244 1,196 1,213 1.4 

Urban DSH: 

100 or more beds ............................................................. 1,591 902 914 1.3 

Less than 100 beds .......................................................... 366 635 639 0.8 

Rural DSH: 

Sole Community (SCH/EACH) ......................................... 388 521 524 0.6 

Referral Center (RRC/EACH) ........................................... 212 649 653 0.6 

Other Rural: 

100 or more beds ............................................................. 24 548 546 ¥0.3 

Less than 100 beds .......................................................... 125 459 461 0.4 

Urban teaching and DSH: 

Both teaching and DSH .................................................... 842 980 993 1.3 

Teaching and no DSH ...................................................... 133 884 897 1.6 

No teaching and DSH ...................................................... 1,115 754 763 1.3 

No teaching and no DSH ................................................. 468 791 798 0.9 

Rural Hospital Types: 

Non special status hospitals ............................................. 2,576 882 893 1.2 

RRC/EACH ....................................................................... 197 717 730 1.8 

SCH/EACH ....................................................................... 325 619 624 0.8 

SCH, RRC and EACH ...................................................... 125 704 710 0.9 

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TABLE III—COMPARISON OF TOTAL PAYMENTS PER CASE—Continued 

[FY 2014 payments compared to FY 2015 payments] 

Number of 

hospitals 

Average FY 2014 

payments/case 

Average FY 2015 

payments/case Change 

Hospitals Reclassified by the Medicare Geographic Classification Review Board: 

FY2015 Reclassifications: 

All Urban Reclassified ...................................................... 533 883 896 1.5 

All Urban Non-Reclassified .............................................. 1,858 890 901 1.2 

All Rural Reclassified ....................................................... 271 615 620 0.7 

All Rural Non-Reclassified ................................................ 379 541 543 0.3 

Other Reclassified Hospitals (Section 1886(d)(8)(B)) ...... 60 574 587 2.2 

Type of Ownership: 

Voluntary ........................................................................... 1,925 861 872 1.3 

Proprietary ........................................................................ 883 770 779 1.2 

Government ...................................................................... 540 886 895 1.1 

Medicare Utilization as a Percent of Inpatient Days: 

0–25 .................................................................................. 445 1,069 1,082 1.3 

25–50 ................................................................................ 2,004 865 876 1.3 

50–65 ................................................................................ 718 704 713 1.2 

Over 65 ............................................................................. 131 560 565 0.9 

K. Effects of Proposed Payment Rate Changes 

and Policy Changes Under the LTCH PPS 

1. Introduction and General Considerations 

In section VII. of the preamble of this 

proposed rule and section V. of the 

Addendum to this proposed rule, we set forth 

the proposed annual update to the payment 

rates for the LTCH PPS for FY 2015. In the 

preamble of this proposed rule, we specify 

the statutory authority for the proposed 

provisions that are presented, identify those 

proposed policies, and present rationales for 

our proposed decisions as well as 

alternatives that were considered. In this 

section of Appendix A to this proposed rule, 

we discuss the impact of the proposed 

changes to the payment rate, factors, and 

other payment rate policies related to the 

LTCH PPS that are presented in the preamble 

of this proposed rule in terms of their 

estimated fiscal impact on the Medicare 

budget and on LTCHs. 

Currently, there are 422 LTCHs included in 

this impacts analysis, which includes data 

for 91 nonprofit (voluntary ownership 

control) LTCHs, 288 proprietary LTCHs, and 

43 LTCHs that are government-owned and 

operated. (We note that although there are 

currently approximately 435 LTCHs, for 

purposes of this impact analysis, we 

excluded the data of all inclusive rate 

providers and the LTCHs that are paid in 

accordance with demonstration projects, 

consistent with the development of the 

proposed FY 2015 MS–LTC–DRG relative 

weights (discussed in section VII.B.3.c. of the 

preamble of this proposed rule)). In the 

impact analysis, we used the proposed 

payment rate, factors, and policies presented 

in this proposed rule, including the proposed 

2.1 percent annual update for LTCHs that 

submit quality data in accordance with 

section 1886(m)(5)(C) of the Act, which is 

based on the full estimated increase of the 

LTCH PPS market basket and the reductions 

required by sections 1886(m)(3) and (m)(4) of 

the Act, the proposed final year of the phasein of a one-time prospective adjustment 

factor of 0.98734 (approximately ¥1.3 

percent), the proposed update to the MS– 

LTC–DRG classifications and relative 

weights, the proposed update to the wage 

index values, including the proposed 

implementation of the new OMB 

delineations, and labor-related share, and the 

best available claims and CCR data to 

estimate the change in payments for FY 2015. 

(As discussed in section VII.C. of the 

preamble of this proposed rule, in 

accordance with section 1886(m)(5)(C) of the 

Act, for LTCHs that fail to submit quality 

data, the proposed annual update to the 

LTCH PPS standard Federal rate is reduced 

by 2.0 percentage points in FY 2015.) 

The standard Federal rate for FY 2014 is 

$40,607.31 for LTCHs that submit quality 

data in accordance with the requirements of 

section 1886(m)(5)(C) of the Act. For FY 

2015, we are proposing to establish a 

standard Federal rate of $40,943.51 for 

LTCHs that submit quality data in 

accordance with the requirements of section 

1886(m)(5)(C) of the Act, which reflects the 

proposed 2.1 percent annual update to the 

standard Federal rate, and the proposed area 

wage budget neutrality factor of 1.0002034 to 

ensure that the proposed changes in the wage 

index, including the proposed 

implementation of the new OMB 

delineations, and labor-related share do not 

influence aggregate payments, and the 

proposed final year of the phase-in of a onetime prospective adjustment factor of 

0.98734. For LTCHs that fail to submit data 

for the LTCHQR Program, in accordance with 

section 1886(m)(5)(C) of the Act, we are 

proposing to establish a standard Federal rate 

of $40,141.47. This reduced standard Federal 

rate reflects the proposed updates described 

above in addition to a 2.0 percentage point 

to the annual update for failure to submit 

data to the LTCHQR Program. We note that 

the proposed factors described above to 

determine the proposed FY 2015 standard 

Federal rate are applied to the FY 2014 

Federal standard rate set forth under 

§ 412.523(c)(3)(ix)(A) (that is, $40,607.31). 

Based on the best available data for the 422 

LTCHs in our database, we estimate that the 

proposed annual update to the standard 

Federal rate for FY 2015, including the 

reduced updated for LTCHs that fail to 

submit quality data in accordance with the 

requirements of the LTCHQR Program 

(discussed in section V.A.2. of the 

Addendum to this proposed rule) and the 

proposed changes to the area wage 

adjustment for FY 2015 (discussed in section 

V.B. of the Addendum to this proposed rule), 

in addition to an estimated decrease in HCO 

payments would result in an increase in 

estimated payments from FY 2014 of 

approximately $44 million. Based on the 422 

LTCHs in our database, we estimate that the 

FY 2015 LTCH PPS payments would be 

approximately $5.594 billion, as compared to 

estimated FY 2014 LTCH PPS payments of 

approximately $5.550 billion. Because the 

combined distributional effects and 

estimated changes to the Medicare program 

payments are over approximately $100 

million, this proposed rule is considered a 

major economic rule, as defined in this 

section. We note that the approximate $44 

million for the projected increase in 

estimated aggregate proposed LTCH PPS 

payments from FY 2014 to FY 2015 does not 

reflect changes in LTCH admissions or casemix intensity in estimated LTCH PPS 

payments, which also will affect overall 

payment changes. 

The projected 0.8 percent increase in 

estimated proposed payments per discharge 

from FY 2014 to FY 2015 is attributable to 

several factors, including the proposed 2.1 

percent annual update to the standard 

Federal rate (or 0.1 percent annual update for 

LTCHs that failed to submit data under the 

requirements of the LTCHQR Program), a 

proposed one-time prospective adjustment 

factor for FY 2015 of 0.98734 (approximately 

¥1.3 percent), and projected decreases in 

estimated HCO payments. Although the net 

effect of the proposed 2.1 percent annual 

update and the approximate ¥1.3 percent 

proposed one-time prospective adjustment 

factor is approximately 0.8 percent (that is, 

2.1 percent ¥1.3 percent = 0.8 percent), 

Table IV (column 6) shows the estimated 

change attributable solely to the proposed 

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annual update to the standard Federal rate 

(2.1 percent for LTCHs that submit quality 

data under the requirements of the LTCHQR 

Program and 0.1 percent for LTCHs that 

failed submit quality data under the 

requirements of the LTCHQR Program), 

including a proposed one-time prospective 

adjustment factor for FY 2015 under the final 

year of the phase-in (approximately 1.3 

percent), is projected to result in an increase 

of 0.7 percent in payments per discharge 

from FY 2014 to FY 2015, on average, for all 

LTCHs. In addition to the proposed 2.1 

percent annual update for FY 2015 (or 0.1 

percent annual update for LTCHs that failed 

to submit data under the LTCHQR Program), 

and a proposed ¥1.3 percent one-time 

prospective adjustment factor for FY 2015, 

this estimated increase in aggregate LTCH 

PPS payments of 0.7 percent shown in 

column 6 of Table IV also includes estimated 

payments for SSO cases that are paid using 

special methodologies that are not affected by 

the annual update to the standard Federal 

rate. Therefore, for some hospital categories, 

the projected increase in payments based on 

the proposed standard Federal rate is slightly 

less than the net effect of the proposed 2.1 

percent annual update and the approximate 

¥1.3 percent proposed one-time prospective 

adjustment factor (or 0.8 percent) for FY 

2015. Because we are proposing to apply an 

area wage level budget neutrality factor to the 

standard Federal rate, the proposed annual 

update to the wage data, including the 

proposed implementation of the new OMB 

delineations, and labor-related share does not 

impact the increase in aggregate payments. 

As discussed in section V.B. of the 

Addendum to this proposed rule, we are 

proposing to update the wage index values 

for FY 2015 based on the most recent 

available data and the proposed adoption of 

the new OMB labor market area delineations. 

Under our proposal to adopt the new OMB 

delineations, we are proposing a transitional 

blended wage index for FY 2015 for LTCH’s 

that would have a lower wage index value 

under those delineations, as discussed in 

section VII.D.2. of the preamble of this 

proposed rule. Therefore, this column 

reflects the proposed blended wage index 

that is calculated as a 50/50 blend of the 

wage index under the current CBSA 

designations and the wage index under the 

new OMB delineations under our proposed 

transitional wage index policy. In addition, 

we are proposing a slight increase to the 

labor-related share from 62.537 percent to 

62.571 percent under the LTCH PPS for FY 

2015, based on the most recent available data 

on the relative importance of the laborrelated share of operating and capital costs 

based on the FY 2009-based LTCH-specific 

market basket. We also are proposing to 

apply an area wage level budget neutrality 

factor of 1.0002034, which increases the 

proposed standard Federal rate by 

approximately 0.02 percent. Therefore, the 

proposed changes to the wage data, including 

the proposed adoption of the new OMB 

delineations, and labor-related share do not 

result in a change in estimated aggregate 

LTCH PPS payments. 

Table IV below shows the impact of the 

proposed payment rate and the proposed 

policy changes on LTCH PPS payments for 

FY 2015 presented in this proposed rule by 

comparing estimated FY 2014 payments to 

estimated FY 2015 payments. The projected 

increase in payments from FY 2014 to FY 

2015 of 0.8 percent is attributable to the 

impacts of the proposed change to the 

standard Federal rate (0.7 percent in Column 

6) and the effect of the estimated slight 

decrease in proposed payments for HCO 

cases (0.1 percent) and an estimated increase 

in payments for SSO cases (0.2 percent). We 

currently estimate total HCO payments are 

projected to decrease slightly from FY 2014 

to FY 2015 in order to ensure that the 

estimated HCO payments would be 8 percent 

of the total estimated LTCH PPS payments in 

FY 2015. An analysis of the most recent 

available LTCH PPS claims data (that is, FY 

2013 claims data from the December 2013 

update of the MedPAR file) indicates that the 

FY 2014 HCO threshold of $13,314 (as 

established in the FY 2014 IPPS/LTCH PPS 

final rule) may result in HCO payments in FY 

2015 that are slightly above the estimated 8 

percent. Specifically, we currently estimate 

that HCO payments would be approximately 

8.1 percent of the estimated total LTCH PPS 

payments in FY 2014. We estimate that the 

impact of the slight decrease in HCO 

payments would result in approximately a 

0.1 percent decrease in estimated payments 

from FY 2014 to FY 2015, on average, for all 

LTCHs. Furthermore, in calculating the 

estimated HCO payments for FYs 2014 and 

2015, we increased estimated costs by the 

applicable market basket percentage increase 

as projected by our actuaries. This increase 

in estimated costs also results in a projected 

increase in SSO payments of approximately 

0.2 percent relative to last year. The net 

result of these projected changes in HCO and 

SSO payments in FY 2015 is an estimated 

change in aggregate payments of 0.1 percent. 

We note that estimated payments for all SSO 

cases comprise approximately 12 percent of 

the estimated total LTCH PPS payments, and 

estimated payments for HCO cases comprise 

approximately 8 percent of the estimated 

total FY 2015 LTCH PPS payments. Payments 

for HCO cases are based on 80 percent of the 

estimated cost of the case above the HCO 

threshold, while the majority of the payments 

for SSO cases (approximately 60 percent) are 

based on the estimated cost of the case. 

In addition to the projected increase in 

LTCH PPS payments per discharge of 

approximately $44 million (0.8 percent) from 

FY 2014 to FY 2015, as shown in Table IV 

below, we also estimate that the net effect of 

the projected impact of certain other 

proposed LTCH PPS policy changes (that is, 

the reinstatement of the moratorium on the 

full implementation of the ‘‘25-percent 

policy’’ payment adjustment; the 

reinstatement of the moratorium on the 

development of new LTCHs and LTCH 

satellite facilities and additional LTCH beds; 

the proposed revision of the ‘‘greater than 3- 

day interruption of stay’’ policy; the 

proposed revocation of on-site discharges 

and readmissions policy; and the proposed 

payment adjustment for ‘‘subclause (II)’’ 

LTCHs) would result in a $14 million 

decrease in aggregate LTCH PPS payments in 

FY 2015. The individual impact of these 

proposed policy changes are discussed in 

greater detail below in section I.K.3.b. of this 

Appendix. 

As we discuss in detail throughout this 

proposed rule, based on the most recent 

available data, we believe that the provisions 

of this proposed rule relating to the LTCH 

PPS would result in an increase in estimated 

aggregate LTCH PPS payments and that the 

resulting LTCH PPS payment amounts would 

result in appropriate Medicare payments. 

2. Impact on Rural Hospitals 

For purposes of section 1102(b) of the Act, 

we define a small rural hospital as a hospital 

that is located outside of an urban area and 

has fewer than 100 beds. As shown in Table 

IV, we are projecting a 0.7 percent increase 

in estimated payments per discharge for FY 

2015 as compared to FY 2014 for rural 

LTCHs that would result from the proposed 

changes presented in this proposed rule, as 

well as the effect of estimated changes to 

HCO and SSO payments. This estimated 

impact is based on the data for the 22 rural 

LTCHs in our database (out of 422 LTCHs) for 

which complete data were available. 

The estimated increase in LTCH PPS 

payments from FY 2014 to FY 2015 for rural 

LTCHs (0.7 percent) is slightly less than the 

national average increase (0.8 percent). The 

estimated increase in LTCH PPS payments 

from FY 2014 to FY 2015 for rural LTCHs is 

primarily due to the proposed increase to the 

standard Federal rate. However, rural LTCHs 

are experiencing slightly lower increases 

than the national average due to decreases in 

their wage index for FY 2015 compared to FY 

2014. 

3. Anticipated Effects of Proposed LTCH PPS 

Payment Rate Changes and Policy Changes 

a. Budgetary Impact 

Section 123(a)(1) of the BBRA requires that 

the PPS developed for LTCHs ‘‘maintain 

budget neutrality.’’ We believe that the 

statute’s mandate for budget neutrality 

applies only to the first year of the 

implementation of the LTCH PPS (that is, FY 

2003). Therefore, in calculating the FY 2003 

standard Federal rate under § 412.523(d)(2), 

we set total estimated payments for FY 2003 

under the LTCH PPS so that estimated 

aggregate payments under the LTCH PPS 

were estimated to equal the amount that 

would have been paid if the LTCH PPS had 

not been implemented. 

As discussed above in section I.K.1. of this 

Appendix, we project an increase in 

aggregate LTCH PPS payments per discharge 

in FY 2015 relative to FY 2014 of 

approximately $44 million based on the 422 

LTCHs in our database. In addition, as 

discussed below in section I.K.3.b. of this 

Appendix, we also estimate that the net effect 

of the projected impact of certain other 

proposed LTCH PPS policy changes would 

result in a $14 million decrease in aggregate 

LTCH PPS payments in FY 2015. 

b. Impact of Certain Proposed LTCH PPS 

Policy Changes 

(1) Proposed Reinstatement of the 

Moratorium on the Full Implementation of 

the ‘‘25-Percent Policy’’ Payment Adjustment 

(§ 412.534 and § 412.536) and Proposed 

Reinstatement of the Moratorium on the 

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Development of New LTCHs and LTCH 

Satellites and Additional LTCH beds 

(§ 412.23(e) and §§ 412.23(e)(6) and (7)) 

Section 1206(b) of Public Law 113–67 

provides for the retroactive reinstatement and 

extension, for an additional 4 years, of the 

moratorium on the full implementation of the 

25-percent threshold payment adjustment 

(referred to as the ‘‘25-percent policy’’ 

payment adjustment) established under 

section 114(c) of the MMSEA, as amended by 

section 4302(a) of the ARRA and sections 

3106(c) and 10312(a) of the Affordable Care 

Act. As discussed in section VII.E. of the 

preamble of this proposed rule, we are 

proposing to reinstate this payment 

adjustment retroactively for LTCH cost 

reporting periods beginning on or after July 

1, 2013 or October 1, 2013, as applicable 

under the regulations at § 412.534 and 

§ 412.536. 

Section 1206(b)(2) of Public Law 113–67, 

as amended by section 112(b) of the 

Protecting Access to Medicare Act of 2–14 

(Pub. L. 113–93), provides for moratoria on 

the establishment of new LTCHs and LTCH 

satellite facilities and on bed increases in 

LTCHs effective for the period beginning 

April 1, 2014, and ending September 30, 

2017. This statutory provision also provides 

specific exceptions to the moratorium on the 

establishment of new LTCHs and LTCH 

satellites. We are proposing to implement 

this policy under the regulations at 

§ 412.23(e) and §§ 412.23(e)(6) and (7), 

respectively. For additional details, refer to 

section VII.G. of the preamble of this 

proposed rule. 

Our Office of the Actuary projects that the 

reinstatement of ‘‘25-percent policy’’ 

adjustment policy would result in 

approximately a $120 million increase in 

aggregate LTCH PPS payments in FY 2015. In 

addition, our Office of the Actuary projects 

that the portion of the moratoria on the 

establishment of new LTCHs and LTCH 

satellite facilities and additional LTCH beds 

that would occur during FY 2015 is 

estimated to result in approximately a $30 

million reduction in aggregate LTCH PPS 

payments in FY 2015. Therefore, we project 

our proposed implementation of both of 

these statutory provisions would result in 

approximately a $90 million increase in 

aggregate LTCH PPS payments in FY 2015. 

(2) Proposed Revision of the ‘‘Greater than 3- 

Day Interruption of Stay’’ Policy (§ 412.531) 

and Proposed Revocation of On-Site 

Discharges and Readmissions Policy 

(§ 412.532) 

The LTCH greater than 3-day interruption 

of stay policy under § 412.531 is a payment 

adjustment that is applied when during the 

course of an LTCH hospitalization, a patient 

is discharged to an inpatient acute care 

hospital, an IRF, or a SNF for treatment or 

services not available at the LTCH for a 

specified period followed by readmittance to 

the same LTCH. Specifically, under this 

policy, we established specific fixed-day 

thresholds, which apply to the days away 

from the LTCH, depending upon the 

intervening provider. If the stay is an 

‘‘interrupted stay,’’ that is, the patient 

returned to the LTCH within the threshold 

number of days, payment for both ‘‘halves’’ 

of the LTCH discharge is ‘‘bundled,’’ and 

Medicare makes one payment based on the 

second date of discharge. As discussed in 

section VII.F. of the preamble of this 

proposed rule, we are proposing to revise the 

fixed-day thresholds under the ‘‘greater than 

3-day interruption of stay policy’’ to apply a 

uniform 30-day threshold as an ‘‘acceptable 

standard’’ for determining a linkage between 

an index discharge and a readmission. 

As also discussed in section VII.F. of the 

preamble of this proposed rule, we also are 

proposing to remove the discharge and 

readmission requirement specified in the 

regulations under § 412.532 (referred to as 

the ‘‘5-percent payment threshold’’). Under 

the ‘‘5-percent payment threshold’’ policy, if 

an LTCH (or a LTCH satellite facility) directly 

readmits more than 5 percent of its total 

Medicare inpatients discharged from an ‘‘onsite facility’’ (for example, a co-located acute 

care hospital, an IRF, or a SNF, or a in the 

case of a LTCH satellite facility, that is colocated with an LTCH), all such discharges 

to the co-located ‘‘on-site facility’’ and the 

readmissions to the LTCH are treated as one 

discharge for that cost reporting period, and, 

as such, one LTCH PPS payment is made on 

the basis of each patient’s initial principal 

diagnosis. 

We estimate that the proposed revision to 

the greater than 3-day interruption of stay 

policy under § 412.531 would result in a 

reduction in aggregate LTCH PPS payments 

of approximately $130 million for FY 2015, 

if the proposal to apply a uniform 30-day 

threshold is finalized. We also estimate that 

the proposed discontinuation of the ‘‘5- 

percent payment threshold’’ policy would 

result in an increase of approximately $20 

million in aggregate LTCH PPS payments in 

FY 2015. Accordingly, our Office of the 

Actuary projects that, together, these 

proposed policy revisions are estimated to 

decrease aggregate LTCH PPS payments in 

FY 2015 by approximately $110 million. 

(3) Proposed Payment Adjustment for 

‘‘Subclause (II)’’ LTCHs (proposed § 412.526) 

Section 1206(d) of Public Law 113–67 

requires the Secretary to evaluate payments 

and regulations governing ‘‘hospitals which 

are classified under subclause (II) of 

subsection (d)(1)(B)(iv)’’. In addition, based 

on the result of such evaluations, the statute 

authorizes the Secretary to adjust the 

payment rates for this type of hospital and to 

adjust regulations governing a subclause (II) 

LTCH that otherwise apply to subclause (I) 

LTCHs. As discussed in section VII.H. of the 

preamble of this proposed rule, under new 

§ 412.526, we are proposing to apply a 

payment adjustment under the LTCH PPS to 

a subclause (II) LTCH beginning in FY 2015 

that would result in payments to this type of 

LTCH resembling those under the reasonable 

cost TEFRA payment system model. Our 

Office of the Actuary projects that, if the 

proposed payment adjustment for ‘‘subclause 

(II)’’ LTCHs is finalized, it would increase 

aggregate LTCH PPS payments in FY 2015 by 

approximately $6 million. 

c. Impact on Providers 

The basic methodology for determining a 

per discharge LTCH PPS payment is set forth 

under § 412.515 through § 412.536. In 

addition to the basic MS–LTC–DRG payment 

(the standard Federal rate multiplied by the 

MS–LTC–DRG relative weight), we make 

adjustments for differences in area wage 

levels, a COLA for LTCHs located in Alaska 

and Hawaii, and SSOs. Furthermore, LTCHs 

may also receive HCO payments for those 

cases that qualify based on the threshold 

established each year. 

To understand the impact of the proposed 

changes to the LTCH PPS payments 

presented in this proposed rule on different 

categories of LTCHs for FY 2015, it is 

necessary to estimate payments per discharge 

for FY 2014 using the rates, factors (including 

the FY 2014 GROUPER (Version 31.0), and 

relative weights and the policies established 

in the FY 2014 IPPS/LTCH PPS final rule (78 

FR 50753 through 50760 and 51002). It is 

also necessary to estimate the payments per 

discharge that would be made under the 

proposed LTCH PPS rates and factors, and 

GROUPER (proposed Version 32.0) for FY 

2015 (as discussed in section VII. of the 

preamble of this proposed rule and section V. 

of the Addendum to this proposed rule). 

These estimates of FY 2014 and FY 2015 

LTCH PPS payments are based on the best 

available LTCH claims data and other factors, 

such as the application of inflation factors to 

estimate costs for SSO and HCO cases in each 

year. We also evaluated the proposed change 

in estimated FY 2014 payments to estimated 

FY 2015 payments (on a per discharge basis) 

for each category of LTCHs. We are proposing 

to establish a standard Federal rate for FY 

2015 of $40,943.51 (for LTCHs that submit 

quality data under the requirements of the 

LTCHQR Program), which includes the 

proposed 2.1 percent annual update, the 

proposed area wage budget neutrality factor 

of 1.0002304, and a proposed one-time 

prospective adjustment to the standard 

Federal rate for FY 2015 of 0.98734 

(approximately -1.3 percent). For LTCHs that 

fail to submit data to the LTCH Quality 

Reporting Program, we are proposing to 

establish a standard Federal rate for FY 2015 

of $40,141.47 that includes a 2.0 percentage 

point reduction applied to the proposed 

annual update under the requirements of 

section 1886(m)(5)(C) of the Act in addition 

to the other proposed adjustments noted 

above. 

Hospital groups were based on 

characteristics provided in the OSCAR data, 

FY 2010 through FY 2012 cost report data in 

HCRIS, and PSF data. Hospital groups 

included the following: 

• Location: large urban/other urban/rural. 

• Participation date. 

• Ownership control. 

• Census region. 

• Bed size. 

To estimate the impacts of the proposed 

payment rates and policy changes among the 

various categories of existing providers, we 

used LTCH cases from the FY 2013 MedPAR 

file to estimate payments for FY 2014 and to 

estimate payments for FY 2015 for 422 

LTCHs. We believe that the discharges based 

on the FY 2013 MedPAR data for the 422 

LTCHs in our database, which includes 288 

proprietary LTCHs, provide sufficient 

representation in the MS–LTC–DRGs 

containing discharges for patients who 

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received LTCH care for the most commonly 

treated LTCH patients’ diagnoses. 

d. Calculation of Prospective Payments 

For purposes of this impact analysis, to 

estimate per discharge payments under the 

LTCH PPS, we simulated payments on a 

case-by-case basis using LTCH claims from 

the FY 2013 MedPAR files. For modeling 

estimated LTCH PPS payments for FY 2014, 

we used the FY 2014 standard Federal rate 

(that is, $40,607.31 for LTCHs that submit 

quality data under the requirements of the 

LTCHQR Program and $39,808.74 for LTCHs 

that failed to submit quality data under the 

requirements of the LTCHQR Program) used 

to make payments for LTCH discharges 

occurring on or after October 1, 2013 through 

September 30, 2014). 

For modeling estimated proposed LTCH 

PPS payments for FY 2015, we used the 

proposed FY 2015 standard Federal rate of 

$40,943.51 (for LTCHs that submit quality 

data under the requirements of the LTCHQR 

Program), which includes a proposed onetime prospective adjustment of 0.98734 for 

FY 2015 for the final year of the 3-year phasein. For LTCHs that we project to have failed 

to submit the requisite quality data for FY 

2015 under the LTCH Quality Reporting 

Program, we used the proposed FY 2015 

standard Federal rate of $40,141.47, which 

reflects the 2.0 percentage points reduction 

required by section 1886(m)(5)(C)of the Act. 

The proposed FY 2015 standard Federal rates 

also include the proposed application of an 

area wage level budget neutrality factor of 

1.0002034 (as discussed in section V.B.5. of 

the Addendum to this proposed rule). 

Furthermore, in modeling estimated LTCH 

PPS payments for both FY 2014 and FY 2015 

in this impact analysis, we applied the FY 

2014 and the proposed FY 2015 adjustments 

for area wage levels and the proposed COLA 

for LTCHs located in Alaska and Hawaii. 

Specifically, we adjusted for differences in 

area wage levels in determining estimated FY 

2014 payments using the current LTCH PPS 

labor-related share of 62.537 percent (78 FR 

50995 through 50996) and the wage index 

values established in the Tables 12A and 12B 

listed in the Addendum to the FY 2014 IPPS/ 

LTCH PPS final rule (which are available via 

the Internet on the CMS Web site. We also 

applied the FY 2014 COLA factors shown in 

the table in section V.C. of the Addendum to 

that final rule (78 FR 50997 through 50998) 

to adjust the FY 2014 nonlabor-related share 

(37.463 percent) for LTCHs located in Alaska 

and Hawaii. Similarly, we adjusted for 

differences in area wage levels in 

determining the estimated FY 2015 payments 

using the proposed FY 2015 LTCH PPS laborrelated share of 62.571 percent and the 

proposed FY 2015 wage index values, 

including the proposed 50/50 blended wage 

index, determined from the proposed wage 

index values presented in Tables 12A 

through 12D listed in section VI. of the 

Addendum to this proposed rule (and 

available via the Internet). We also applied 

the proposed FY 2015 COLA factors shown 

in the table in section V.C. of the Addendum 

to this proposed rule to the proposed FY 

2015 nonlabor-related share (37.429 percent) 

for LTCHs located in Alaska and Hawaii. 

As discussed above, our impact analysis 

reflects an estimated change in payments for 

SSO cases, as well as an estimated increase 

in payments for HCO cases (as described in 

section V.D. of the Addendum to this 

proposed rule). In modeling proposed 

payments for SSO and HCO cases in FY 

2015, we applied an inflation factor of 4.7 

percent (determined by OACT) to estimate 

the costs of each case using the charges 

reported on the claims in the FY 2013 

MedPAR files and the best available CCRs 

from the December 2013 update of the PSF. 

Furthermore, in modeling estimated LTCH 

PPS payments for FY 2015 in this impact 

analysis, we used the proposed FY 2015 

fixed-loss amount of $15,730 (as discussed in 

section V.D. of the Addendum to this 

proposed rule). 

These impacts reflect the estimated 

‘‘losses’’ or ‘‘gains’’ among the various 

classifications of LTCHs from FY 2014 to FY 

2015 based on the proposed payment rates 

and policy changes presented in this 

proposed rule. Table IV illustrates the 

estimated aggregate impact of the LTCH PPS 

among various classifications of LTCHs. 

• The first column, LTCH Classification, 

identifies the type of LTCH. 

• The second column lists the number of 

LTCHs of each classification type. 

• The third column identifies the number 

of LTCH cases. 

• The fourth column shows the estimated 

payment per discharge for FY 2014 (as 

described above). 

• The fifth column shows the estimated 

payment per discharge for FY 2015 (as 

described above). 

• The sixth column shows the percentage 

change in estimated payments per discharge 

from FY 2014 to FY 2015 due to the proposed 

annual update to the standard Federal rate 

(as discussed in section V.A.2. of the 

Addendum to this proposed rule), including 

the proposed 2.0 percentage point reduction 

to the update to the standard Federal rate for 

LTCHs that fail to submit data to the 

LTCHQR Program and the final year of the 

phase-in of a one-time prospective 

adjustment factor for FY 2015. 

• The seventh column shows the 

percentage change in estimated payments per 

discharge from FY 2014 to FY 2015 for 

proposed changes to the area wage level 

adjustment (that is, the proposed wage 

indexes, including the proposed 

implementation of the new OMB 

delineations, and proposed labor-related 

share), including the proposed application of 

an area wage level budget neutrality factor, 

(as discussed in section V.B. of the 

Addendum to this proposed rule. This 

column includes the proposed wage index 

calculated as a 50/50 blend of the wage index 

under the current CBSA designations and the 

wage index under the new OMB delineations 

under our proposed transitional wage index 

policy for the proposed implementation of 

the new OMB delineations. 

• The eighth column shows the percentage 

change in estimated payments per discharge 

from FY 2014 (Column 4) to FY 2015 

(Column 5) for all proposed changes (and 

includes the effect of estimated proposed 

changes to HCO and SSO payments). 

TABLE IV—IMPACT OF PROPOSED PAYMENT RATE AND POLICY CHANGES TO LTCH PPS PAYMENTS FOR FY 2015 

[Estimated FY 2014 Payments Compared to Estimated FY 2015 Payments] 

LTCH classification Number of 

LTCHs 

Number of 

LTCH PPS 

cases 

Average FY 

2014 LTCH 

PPS payment 

per case 

Average FY 

2015 LTCH 

PPS payment 

per case 1

Percent 

change in estimated payments per discharge from 

FY 2014 to FY 

2015 for the 

proposed annual update to 

the federal 

rate 2

Percent 

change in estimated payments per 

discharge from 

FY 2014 to FY 

2015 for proposed 

changes to the 

area wage 

level adjustment with proposed budget 

neutrality 3

Percent 

change in payments per 

discharge from 

FY 2014 to FY 

2015 for all 

proposed 

changes 4

(1) (2) (3) (4) (5) (6) (7) (8) 

ALL PROVIDERS ........ 422 137,897 $40,247.74 $40,567.74 0.7 0 0.8 

BY LOCATION: 

RURAL .................. 22 5,691 35,633.63 35,893.55 0.8 ¥0.2 0.7 

URBAN ................. 400 132,206 40,446.36 40,768.95 0.7 0 0.8 

LARGE .................. 200 76,347 42,694 43,082 0.7 0.1 0.9 

OTHER ................. 200 55,859 37,375 37,608 0.7 ¥0.2 0.6 

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TABLE IV—IMPACT OF PROPOSED PAYMENT RATE AND POLICY CHANGES TO LTCH PPS PAYMENTS FOR FY 2015— 

Continued 

[Estimated FY 2014 Payments Compared to Estimated FY 2015 Payments] 

LTCH classification Number of 

LTCHs 

Number of 

LTCH PPS 

cases 

Average FY 

2014 LTCH 

PPS payment 

per case 

Average FY 

2015 LTCH 

PPS payment 

per case 1

Percent 

change in estimated payments per discharge from 

FY 2014 to FY 

2015 for the 

proposed annual update to 

the federal 

rate 2

Percent 

change in estimated payments per 

discharge from 

FY 2014 to FY 

2015 for proposed 

changes to the 

area wage 

level adjustment with proposed budget 

neutrality 3

Percent 

change in payments per 

discharge from 

FY 2014 to FY 

2015 for all 

proposed 

changes 4

(1) (2) (3) (4) (5) (6) (7) (8) 

BY PARTICIPATION 

DATE: 

BEFORE OCT. 

1983 .................. 16 5,200 37,560.33 38,297.27 0.7 0.8 2 

OCT. 1983–SEPT. 

1993 .................. 44 16,796 43,706.56 44,005.21 0.7 ¥0.2 0.7 

OCT. 1993–SEPT. 

2002 .................. 181 62,686 39,413.76 39,694.92 0.7 ¥0.1 0.7 

OCTOBER 2002 

and AFTER ....... 181 53,215 40,401.05 40,732.81 0.7 0.1 0.8 

BY OWNERSHIP 

TYPE: 

VOLUNTARY ........ 91 21,887 41,091.65 41,428.06 0.7 0.1 0.8 

PROPRIETARY .... 288 104,450 39,975.38 40,291.47 0.7 0 0.8 

GOVERNMENT .... 43 11,560 41,110.80 41,435.10 0.7 0.1 0.8 

BY REGION: 

NEW ENGLAND ... 14 6,948 36,681.66 37,478.17 0.7 1.1 2.2 

MIDDLE ATLANTIC ..................... 29 8,522 42,608.78 43,311.85 0.7 1.1 1.7 

SOUTH ATLANTIC 61 18,561 42,577.65 42,756.02 0.7 ¥0.3 0.4 

EAST NORTH 

CENTRAL .......... 70 20,072 42,055.63 42,256.47 0.7 ¥0.1 0.5 

EAST SOUTH 

CENTRAL .......... 31 8,940 39,632.87 39,809.48 0.7 ¥0.5 0.4 

WEST NORTH 

CENTRAL .......... 26 6,446 39,279.06 39,620.34 0.7 0.1 0.9 

WEST SOUTH 

CENTRAL .......... 134 48,191 35,731.94 36,001.75 0.7 ¥0.2 0.8 

MOUNTAIN ........... 32 6,775 43,403.32 43,675.91 0.7 ¥0.1 0.6 

PACIFIC ................ 25 13,442 50,149.94 50,643.35 0.7 0.1 1 

BY BED SIZE: 

BEDS: 0–24 .......... 24 2,593 35,165.11 35,370.96 0.8 ¥0.2 0.6 

BEDS: 25–49 ........ 200 47,183 39,176.76 39,479.06 0.7 0 0.8 

BEDS: 50–74 ........ 117 37,486 40,905.58 41,253.12 0.7 0.1 0.8 

BEDS: 75–124 ...... 45 22,044 42,299.43 42,677.61 0.7 0.2 0.9 

BEDS: 125–199 .... 22 15,353 39,223.11 39,498.04 0.7 ¥0.1 0.7 

BEDS: 200 + ......... 14 13,238 40,969.52 41,252.44 0.7 ¥0.2 0.7 

1Estimated FY 2015 LTCH PPS payments based on the proposed payment rate and factor changes presented in the preamble of and the Addendum to this proposed rule. 2Percent change in estimated payments per discharge from FY 2014 to FY 2015 for the proposed annual update to the standard Federal rate 

and the proposed one-time prospective adjustment factor for FY 2015 as discussed in section V.A.2. of the Addendum to this proposed rule. 3Percent change in estimated payments per discharge from FY 2014 to FY 2015 for proposed changes to the area wage level adjustment 

under § 412.525(c) (as discussed in section V.B. of the Addendum to this proposed rule). 4Percent change in estimated payments per discharge from FY 2014 LTCH PPS (shown in Column 4) to FY 2015 LTCH PPS (shown in Column 5), including all of the proposed changes to the rates and factors presented in the preamble of and the Addendum to this proposed rule. 

Note, this column, which shows the percent change in estimated payments per discharge for all proposed changes, does not equal the sum of 

the percent changes in estimated payments per discharge for the proposed annual update to the standard Federal rate (column 6) and the proposed changes to the area wage level adjustment with budget neutrality (Column 7) due to the effect of estimated proposed changes in both estimated payments to SSO cases that are paid based on estimated costs and aggregate HCO payments (as discussed in this impact analysis), as 

well as other interactive effects that cannot be isolated. 

e. Results 

Based on the most recent available data for 

422 LTCHs, we have prepared the following 

summary of the impact (as shown above in 

Table IV) of the proposed LTCH PPS 

payment rate and policy changes presented 

in this proposed rule. The impact analysis in 

Table IV shows that estimated payments per 

discharge are expected to increase 0.8 

percent, on average, for all LTCHs from FY 

2014 to FY 2015 as a result of the proposed 

payment rate and policy changes presented 

in this proposed rule, including an estimated 

slight decrease in HCO payments. This 

estimated 0.8 percent increase in LTCH PPS 

payments per discharge from the FY 2014 to 

FY 2015 for all LTCHs (as shown in Table IV) 

was determined by comparing estimated FY 

2015 LTCH PPS payments (using the 

proposed payment rates and factors 

discussed in this proposed rule) to estimated 

FY 2014 LTCH PPS payments (as described 

above in section I.L.1. of this Appendix). 

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We are proposing to establish a standard 

Federal rate of $40,943.51 (or a standard 

Federal rate of $40,141.47 for LTCHs that 

failed to submit data under the requirements 

of the LTCHQR Program) for FY 2015. 

Specifically, we are proposing to update the 

standard Federal rate for FY 2015 by 2.1 

percent, which is based on the latest estimate 

of the proposed LTCH PPS market basket 

increase (2.7 percent), the proposed 

reduction of 0.4 percentage point for the MFP 

adjustment, and the 0.2 percentage point 

reduction consistent with sections 

1886(m)(3) and (m)(4) of the Act. For LTCHs 

that fail to submit quality data under the 

requirements of the LTCHQR Program, as 

required by section 1886(m)(5)(C) of the Act, 

a 2.0 percentage point reduction is applied to 

the proposed annual update to the standard 

Federal rate. In addition, we are proposing to 

apply a one-time prospective adjustment 

factor for FY 2015 of 0.98734 (approximately 

¥1.3 percent) to the standard Federal rate for 

the final year of the 3-year phase-in. 

We noted earlier in this section that, for 

most categories of LTCHs, as shown in Table 

IV (Column 6), the payment increase due to 

the proposed 2.1 percent annual update to 

the standard Federal rate and the proposed 

application of a one-time prospective 

adjustment for FY 2015 of approximately 

¥1.3 percent for the final year of the 3-year 

phase-in is projected to result in 

approximately a 0.7 percent decrease in 

estimated payments per discharge for all 

LTCHs from FY 2014 to FY 2015. 

In addition, our estimate of the proposed 

changes in payments due to the proposed 

update to the standard Federal rate also 

reflects estimated payments for SSO cases 

that are paid using special methodologies 

that are not affected by the update to the 

standard Federal rate. For these reasons, we 

estimate that payments may increase by less 

than 0.8 percent for certain hospital 

categories due to the proposed annual update 

to the standard Federal rate and the proposed 

application of the final phase of the one-time 

prospective adjustment for FY 2015. 

(1) Location 

Based on the most recent available data, 

the vast majority of LTCHs are located in 

urban areas. Only approximately 5 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 FY 2014 to FY 2015 for all hospitals is 

0.8 percent for all proposed changes. For 

rural LTCHs, the percent change for all 

proposed changes is estimated to be a 0.7 

percent increase, while for urban LTCHs, we 

estimate the increase would be 0.8 percent. 

Large urban LTCHs are projected to 

experience an increase of 0.9 percent in 

estimated payments per discharge from FY 

2014 to FY 2015, while other urban LTCHs 

are projected to experience an increase of 0.6 

percent in estimated payments per discharge 

from FY 2014 to FY 2015, as shown in Table 

IV. 

(2) Participation Date 

LTCHs are grouped by participation date 

into four categories: (1) Before October 1983; 

(2) between October 1983 and September 

1993; (3) between October 1993 and 

September 2002; and (4) October 2002 and 

after. Based on the most recent available data, 

the categories of LTCHs with the largest 

percentage of LTCH cases (approximately 45 

percent) are in hospitals that began 

participating in the Medicare program 

between October 1993 and September 2002, 

and they are projected to experience a 0.7 

percent increase in estimated payments per 

discharge from FY 2014 to FY 2015, as 

shown in Table IV. 

Approximately 4 percent of LTCHs began 

participating in the Medicare program before 

October 1983, and these LTCHs are projected 

to experience a higher than average percent 

increase (2.0 percent) in estimated payments 

per discharge from FY 2014 to FY 2015, as 

shown in Table IV. Approximately 10 

percent of LTCHs began participating in the 

Medicare program between October 1983 and 

September 1993. These LTCHs are projected 

to experience a 0.7 percent increase in 

estimated payments from FY 2014 to FY 

2015. LTCHs that began participating in the 

Medicare program after October 1, 2002, 

which treat approximately 39 percent of all 

LTCH cases, are projected to experience a 0.8 

percent increase in estimated payments from 

FY 2014 to FY 2015. 

(3) Ownership Control 

LTCHs are grouped into three categories 

based on ownership control type: Voluntary, 

proprietary, and government. Based on the 

most recent available data, approximately 22 

percent of LTCHs are identified as voluntary 

(Table IV). The majority (nearly 68 percent) 

of LTCHs are identified as proprietary while 

government-owned and operated LTCHs 

represent about 10 percent of LTCHs. Based 

on ownership type, each category of LTCHs 

is expected to experience the average 

increase in payments of 0.8 percent in 

estimated payments per discharge from FY 

2014 to FY 2015. 

(4) Census Region 

Estimated payments per discharge for FY 

2015 are projected to increase for LTCHs 

located in all regions in comparison to FY 

2014. Of the 9 census regions, we project that 

the increase in estimated payments per 

discharge would have the largest positive 

impact on LTCHs in the New England and 

Middle Atlantic regions (2.2 percent and 1.7 

percent, respectively as shown in Table IV). 

The estimated percent increase in payments 

per discharge from FY 2014 to FY 2015 for 

those regions is largely attributable to the 

proposed changes in the area wage level 

adjustment. 

In contrast, LTCHs located in the South 

Atlantic and East South Central regions are 

projected to experience the smallest increase 

in estimated payments per discharge from FY 

2014 to FY 2015. The lower than national 

average estimated increase in payments of 0.4 

percent is primarily due to estimated 

decreases in payments associated with the 

proposed changes to the area wage level 

adjustment. 

(5) Bed Size 

LTCHs are grouped into six categories 

based on bed size: 0–24 beds; 25–49 beds; 

50–74 beds; 75–124 beds; 125–199 beds; and 

greater than 200 beds. Most bed size 

categories are projected to receive either a 

slightly higher or slightly lower than average 

increase in estimated payments per discharge 

from FY 2014 to FY 2015. We project that 

small LTCHs (0–24 beds) would experience 

a 0.6 percent increase in payments, mostly 

due to decreases in the area wage level 

adjustment, while large LTCHs (200+ beds) 

would experience a 0.7 percent increase in 

payments. LTCHs with between 75 and 124 

beds are expected to experience an above 

average increase in payments per discharge 

from FY 2014 to FY 2015 (0.9 percent). 

4. Effect on the Medicare Program 

As noted previously, we project that the 

provisions of this proposed rule would result 

in an increase in estimated aggregate LTCH 

PPS payments in FY 2015 relative to FY 2014 

of approximately $44 million (or 

approximately 0.8 percent) for the 422 

LTCHs in our database. 

5. Effect on Medicare Beneficiaries 

Under the LTCH PPS, hospitals receive 

payment based on the average resources 

consumed by patients for each diagnosis. We 

do not expect any changes in the quality of 

care or access to services for Medicare 

beneficiaries under the LTCH PPS, but we 

continue to expect that paying prospectively 

for LTCH services will enhance the efficiency 

of the Medicare program. 

L. Effects of Proposed Requirements for 

Hospital Inpatient Quality Reporting (IQR) 

Program 

In section IX.A. of the preamble of this 

proposed rule, we discuss our proposed 

requirements for hospitals to report quality 

data under the Hospital IQR Program in order 

to receive the full annual percentage increase 

for the FY 2017 payment determination. We 

are proposing to remove a total of 20 

measures from the Hospital IQR Program for 

the FY 2016 payment determination and 

subsequent years, which begins in the CY 

2015 reporting period. The first five measures 

are: (1) AMI–1 Aspirin at arrival (NQF 

#0132); (2) AMI–3 ACEI/ARB for left 

ventricular systolic dysfunction (NQF 

#0137); (3) AMI–5 Beta-blocker prescribed at 

discharge (NQF #0160); (4) SCIP INF–6 

Appropriate Hair Removal; and (5) 

Participation in a systematic database for 

cardiac surgery (NQF #0113). Of those, the 

first four measures are currently suspended. 

The fifth measure was recommended by the 

MAP for removal because it is ‘‘topped-out.’’ 

We believe that an additional 15 chartabstracted measures are ‘‘topped out,’’ based 

on the previously adopted criteria, and we 

are proposing to remove them from the FY 

2017 payment determination and subsequent 

years measure set. However, we are 

proposing to retain the electronic clinical 

quality measure version of 10 of these chartabstracted measures for Hospital IQR 

Program reporting as discussed in section 

IX.A.7.f. of the preamble of this proposed 

rule. 

We also are proposing to add one chartabstracted measure in this proposed rule: 

Severe sepsis and septic shock: management 

bundle (NQF #0500). 

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We are proposing to incorporate 

refinements for several measures for the FY 

2017 payment determination and subsequent 

years that were previously adopted in the 

Hospital IQR Program. These refinements 

have either arisen out of the NQF 

endorsement maintenance process, or during 

our internal efforts to harmonize measure 

approaches. The measure refinements 

include the following: (1) Refining the 

planned readmission algorithm for all seven 

readmission measures included in the 

Hospital IQR Program; (2) modifying the hip/ 

knee readmission and complication measure 

cohorts to exclude index admissions with a 

secondary fracture diagnosis; and (3) 

modifying the hip/knee complication 

measure to not count as complications coded 

as ‘‘present on admission’’ (POA) during the 

index admission. We do not anticipate any 

hospital burden associated with these 

revisions, as each is based on claims 

submitted by hospitals for payment purposes. 

Information is not available to determine 

the precise number of hospitals that would 

not meet the requirements to receive the full 

annual percentage increase for the FY 2017 

payment determination. Historically, an 

average of 100 hospitals that participate in 

the Hospital IQR Program do not receive the 

full annual percentage increase in any fiscal 

year. We anticipate that because of the new 

requirements we are proposing for reporting 

for the FY 2017 payment determination, the 

number of hospitals not receiving the full 

annual percentage increase may be higher 

than average. The highest number of 

hospitals failing to meet program 

requirements was approximately 200 after 

the introduction of new NHSN reporting 

requirements. If the number of hospitals 

failing does increase because of proposed 

new requirements, we anticipate that over 

the long run, this number will decline as 

hospitals gain more experience with these 

requirements. 

As discussed in section XIII.B.6. of the 

preamble of this proposed rule, we estimate 

that our proposals for the adoption and 

removal of measures will result in an overall 

decrease of 5.86 million hours or 1,775 hours 

per hospital. The table below describes the 

hospital burden associated with the Hospital 

IQR Program requirements. 

BURDEN IMPACT OF PROPOSED HOSPITAL IQR PROGRAM REQUIREMENTS FOR FY 2017 

Hospital IQR program requirement Number of hospitals 

impacted 

Burden per hospital 

for previously 

finalized 

requirements 

Burden per hospital 

for all requirements 

as proposed 

(continuing, 

removed, added) 

Net change in 

burden per 

hospital 

Chart-abstracted and structural measures, forms ............. 3,300 ....................... 1,291 hours ............. 963 hours ................ ¥328 hours. 

Review reports for claims-based measures ...................... 3,300 ....................... 4 hours .................... 4 hours .................... 0. 

Reporting of voluntary electronic clinical quality measures 

(E–CQM) in place of chart-abstracted measures.

Unknown ................. ¥570 hours ............ ¥554 hours ............ 16 hours. 

Validation templates ........................................................... Up to 600 ................ 144 hours ................ 144 hours ................ 0. 

E–CQM validation test ....................................................... Up to 100 ................ 0 .............................. 16 hours .................. 16 hours. 

Validation charts photocopying .......................................... Up to 600 ................ $8,640 ..................... $8,496 ..................... $¥144. 

We estimate that the total burden 

associated with the proposed voluntary 

electronic clinical quality measure reporting 

option will be similar to the burden outlined 

for hospitals in the Medicare EHR Incentive 

Program Stage 2 final rule (77 FR 53968 

through 54162). However, by allowing 

hospitals to submit data for a maximum of 16 

measures that could be used to satisfy partial 

requirements for both programs, each 

hospital that participates in the voluntary 

electronic quality measure reporting option 

could realize a reduction in burden of up to 

approximately 554 hours. To achieve a 

savings of 554 hours, we made the following 

assumptions. We assumed an average annual 

collection burden for 164 chart-abstracted 

measures (in Stroke, VTE, ED, and PC–01 

topic areas) to be a combined 582 hours 

annually per hospital over 4 quarters. We 

estimate that each quarter, each hospital will 

need approximately 2 hours and 40 minutes 

(10 minutes per measure) to process and 

submit measures results electronically per 

quarter. This equates to 10 hours and 40 

minutes annually. Because the remaining 12 

electronic clinical quality measures 

submitted to the Hospital IQR Program 

would not replace any chart-abstracted 

reporting requirements, there would be an 

extra 2 hours per quarter per hospital in 

burden (8 hours total), with no 

commensurate savings. 

In the FY 2014 IPPS/LTCH PPS final rule, 

hospitals were permitted to meet Hospital 

IQR program requirements for these 16 

measures by submitting data electronically 

for a single quarter (78 FR 50811 through 

50819) for the FY 2016 payment 

determination. Moreover, there were no 

options for submitting 12 additional 

measures. Therefore, we estimate that savings 

for hospitals choosing to submit all optional 

measures electronically for the FY 2016 

payment determination would have been 

about 579 hours (582 hours minus 2 hours 

and 40 minutes). The net burden of the 

proposal for the FY 2017 payment 

determination compared with the policy 

finalized for the FY 2016 payment 

determination is an additional 16 hours for 

a hospital choosing to submit all possible 

required and optional measures 

electronically. 

M. Effects of Proposed Requirements for the 

PPS-Exempt Cancer Hospital Quality 

Reporting (PCHQR) Program for FY 2017 

In section IX.B. of the preamble of this 

proposed rule, we discuss our proposed 

policies for the quality data reporting 

program for PPS-exempt cancer hospitals 

(PCHs), which we refer to as the PCHQR 

Program. The PCHQR Program is authorized 

under section 1866(k) of the Act, which was 

added by section 3005 of the Affordable Care 

Act. 

In this proposed rule, we are proposing 

that PCHs submit data on one additional 

measure beginning with the FY 2017 program 

which, if finalized, would increase the total 

number of measures in the FY 2017 PCHQR 

measure set to 19 measures. We also are 

proposing to update the specifications for the 

five previously finalized clinical process/

oncology care measures to require PCHs to 

report all-patient data for each of these 

measures, and to adopt a new sampling 

methodology that PCHs can use to report 

these measures. Furthermore, we are 

proposing to require PCHs to submit 

population and sample size counts for these 

measures. We also are proposing to give 

PCHs a choice of one of two reporting 

options to report the clinical process/

oncology care, SCIP, and clinical process/

cancer specific treatment measures. 

The impact of the proposed requirements 

for the PCHQR program is expected to be 

minimal overall because some PCHs are 

already submitting previously adopted 

quality measure data to CMS. As a result, 

these PCHs are familiar with our IT 

infrastructure and programmatic operations. 

In addition to fostering transparency and 

facilitating public reporting, we believe our 

proposed requirements introduce minimal 

burden while increasing quality of care. We 

further believe that these requirements 

outweigh any burden. 

One expected effect of the PCHQR Program 

is to keep the public informed of the quality 

of care provided by PCHs. We will publicly 

display quality measure data collected under 

the PCHQR Program as required under the 

Act. These data will be displayed on the 

Hospital Compare Web site. The goals of 

making these data available to the public in 

a user-friendly and relevant format, include, 

but are not limited to: (1) Allowing the public 

to compare PCHs in order to make informed 

health care decisions regarding care setting; 

and (2) providing information about current 

trends in health care. Furthermore, PCHs can 

use their own health care quality data for 

many purposes such as in risk management 

programs, health care acquired infection 

prevention programs, and research and 

development activities, among others. 

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191According to the U.S. Bureau of Labor 

Statistics, the mean hourly wage for a Registered 

Nurse is $31.48. See: http://www.bls.gov/ooh/

healthcare/registered-nurses.htm. Fringe benefits 

are calculated at a rate of 36.25 percent in 

accordance with OMB Circular A–76, Attachment 

C, Table C.1. After adding the fringe benefits, the 

total hourly cost for an RN is $42.89. 

192According to the U.S. Bureau of Labor 

Statistics, the mean hourly wage for a Registered 

Nurse is $31.48. See: http://www.bls.gov/ooh/

healthcare/registered-nurses.htm. Fringe benefits 

are calculated at a rate of 36.25 percent in 

accordance with OMB Circular A–76, Attachment 

C, Table C.1. After adding the fringe benefits, the 

total hourly cost for an RN is $42.89. 

N. Effects of Proposed Requirements for the 

Long-Term Care Hospital Quality Reporting 

(LTCHQR) Program for FY 2015 Through FY 

2018 

In section IX.C. of the preamble of this 

proposed rule, we discuss the 

implementation of section 1886(m)(5) of the 

Act, which was added by section 3004(a) of 

the Affordable Care Act. Section 1886(m)(5) 

of the Act provides that, for rate year 2014 

and each subsequent year, any LTCH that 

does not submit data to the Secretary in 

accordance with section 1886(m)(5)(C) of the 

Act shall receive a 2-percentage point 

reduction to the annual update to the 

standard Federal rate for discharges for the 

hospital during the applicable fiscal year. In 

the FY 2012 IPPS/LTCH PPS final rule (76 FR 

51839 through 51840), we estimated that 

only a few LTCHs would not receive the full 

annual percentage increase in any fiscal year 

as a result of failure to submit data under the 

LTCHQR Program. Information is not 

available to determine the precise number of 

LTCHs that would not meet the requirements 

to receive the full annual percentage increase 

for the FY 2016 payment determination. At 

the time that this analysis was prepared, 8 of 

the 442 active Medicare-certified LTCHs did 

not receive the full annual percentage 

increase for the FY 2014 payment 

determination. We believe that a majority of 

LTCHs will continue to collect and submit 

data for the FY 2015 payment determination 

and subsequent years because they will 

continue to view the LTCHQR Program as an 

important step in improving the quality of 

care patients receive in the LTCHs. We 

believe that the burden associated with the 

LTCHQR Program is the time and effort 

associated with data collection. There are 

approximately 442 LTCHs currently 

reporting quality data to CMS. 

In this proposed rule, we are retaining 

seven previously finalized measures, 

proposing revisions to two previously 

finalized measures, and are proposing three 

additional quality measures for inclusion in 

the LTCHQR Program. In section IX.C.7. of 

the preamble of this proposed rule, we are 

proposing three new quality measures for 

inclusion in the LTCHQR Program affecting 

the FY 2018 payment determination and 

subsequent years: (1) Percent of Long-Term 

Care Hospital Patients with an Admission 

and Discharge Functional Assessment and a 

Care Plan That Addresses Function; (2) 

Functional Outcome Measure: Change in 

Mobility among Long-Term Care Hospital 

Patients Requiring Ventilator Support; and 

(3) National Healthcare Safety Network 

(NHSN) Ventilator-Associate Event (VAE) 

Outcome Measure. 

Six of the previously adopted and newly 

proposed measures either will or would be 

collected via the NHSN. In section IX.C.7.b. 

of the preamble of this proposed rule, we are 

proposing to collect the NHSN VAE Outcome 

Measure. Normally, we would only discuss 

the burden associated with those measures 

that are being proposed in any given rule. 

Because we have access to information that 

now indicates our previous calculations for 

the CAUTI, CLABSI, MRSA, and CDI were 

incorrect (we estimated in the FY 2014 IPPS/ 

LTCH PPS final rule (78 FR 50959 through 

50964) that LTCHs would submit six 

infection events per month for each of these 

measures), we offer below the recalculation 

of the associated burden. Based on 

submissions to the NHSN, we now estimate 

that each LTCH will execute approximately 

7 NHSN submissions per month; 1 MRSA 

event; 1 CDI event; 2 CLABSI events; 3 

CAUTI events (84 events per LTCH 

annually). This equates to a total of 

approximately 37,128 submissions of events 

to the NHSN from all LTCHs per year 

(includes CAUTI, CLABSI, MRSA, and CDI). 

The CDC estimated the public reporting 

burden of the collection of information for 

each measure to include the time for 

reviewing instructions, searching existing 

data sources, gathering and maintaining the 

data needed, and completing and reviewing 

the collection of information. MRSA and CDI 

events are estimated to require an average of 

15 minutes per response (10 minutes of 

clinical (RN) time, and 5 minutes of clerical 

(Medical Record or Healthcare Information 

Technician). CAUTI is estimated to require 

an average of 29 minutes per response, and 

CLABSI events are estimated to require an 

average of 32 minutes per response. In 

addition, each LTCH must also complete a 

Patient Safety Monthly Reporting Plan 

estimated at 35 minutes per Plan and a 

Denominator for Specialty Care Area, which 

is estimated at 5 hours per month. Based on 

this estimate, we expect each LTCH would 

expend 8.6 hours per month for each LTCH, 

103.2 hours annually for each LTCH, or 

45,614.4 annually for all LTCHs reporting to 

the NHSN. 

In addition, each LTCH must submit the 

Influenza Vaccination Coverage among 

Healthcare Personnel (NQF #0431), which 

the CDC estimates will take 10 minutes 

annually per LTCH, or an additional 73.66 

hours for all LTCH annually. In total, the 

burden we have recalculated for all 

previously finalized measures (including 

CAUTI, CLABSI, MRSA, CDI, HCP, Patient 

Safety Monthly Reporting plan, and 

Denominator for Specialty Care Area) will 

equal 103.4 hours annually per LTCH or 

45,072.8 hours for all LTCHs annually. 

For the newly proposed VAE measure, 

which will also be reported by LTCHs 

through the CDC’s NHSN, the CDC estimates 

that each LTCH will submit 1 VAE per 

month, which will require approximately 22 

minutes of clinical time per response. This 

equates to 22 minutes per LTCH monthly, 4.4 

hours per LTCH annually, and 1,944.8 hours 

for all LTCHs annually. According to the US 

Bureau of Labor and Statistics, the mean 

hourly wage for a registered nurse (RN) is 

$33.1 191; the mean hourly wage for a medical 

records and health information technician is 

$16.81. However, in order to account for 

overhead and fringe benefits, we have double 

the mean hourly wage, making it $66.26 for 

an RN, and $33.62 for a Medical Record or 

Health Information Technician. We estimate 

that the annual cost per each LTCH for the 

previously finalized measures, for which we 

have recalculated burden (including CAUTI, 

CLABSI, MRSA, CDI, HCP, Patient Safety 

Monthly Reporting plan, and Denominator 

for Specialty Care Area) to be $6,770.10 and 

that the total yearly cost to all LTCHs for the 

submission of data to NHSN would be 

$2,992,384.20. We estimate that the total cost 

for the newly proposed VAE measure would 

be $291.54 per LTCH annually, or 

$128,860.68 for all LTCHs annually. 

The All-Cause Unplanned Readmission 

Measure for 30 Days Post-Discharge from 

Long-Term Care Hospitals is a Medicare 

claims-based measure; because claims-based 

measures can be calculated based on data 

that are already reported to the Medicare 

program for payment purposes, we believe 

there will be no additional impact. 

The remaining five measures will be 

collected utilizing the LTCH CARE Data Set. 

The burden estimates associated with OMB 

control number 0938–1163 estimate that each 

LTCH has an impact data collection burden 

of 243.24 hours or $6,755.84 associated with 

collection of the LTCH CARE Data Set, which 

includes the following three measures: 

Percent of Residents or Patients with 

Pressure Ulcers That Are New or Worsened 

(NQF #0678); Percent of Residents or Patients 

Who Were Assessed and Appropriately 

Given the Seasonal Influenza Vaccine (NQF 

#0680), and the Application of Percent of 

Residents Experiencing One or More Falls 

with Major Injury (Long Stay) (NQF #0674). 

We also are proposing to use the LTCH 

CARE Data Set to report the two additional 

proposed measures, Functional Outcome 

Measure: Change in Mobility among LongTerm Care Hospital Patients Requiring 

Ventilator Support; and Percent of LongTerm Care Hospital Patients with an 

Admission and Discharge Functional 

Assessment and a Care Plan That Addresses 

Function for the FY 2018 payment 

determination and subsequent years. In 

addition, the LTCH CARE Data Set will be 

used to report the previously finalized 

measure. We estimate the additional 

elements for two newly proposed measures 

will take 13.5 minutes of nursing/clinical 

staff time to report data for Admission 

assessment and 13 minutes of nursing/

clinical staff time to report data for Discharge 

assessment, for a total of 26.5 minutes. In 

accordance with OMB control number 0920– 

0666, we estimate 202,050 discharges from 

all LTCHs annually, with an additional 

burden of 26.5 minutes. This would equate 

to 89,238.75 total hours or 201.9 hours per 

LTCH. We believe this work will be 

completed by RN staff. As previously noted, 

per the US Bureau of Labor and Statistics, the 

mean hourly wage for a registered nurse (RN) 

is $33.13.192 However, in order to account for 

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overhead and fringe benefits, we have double 

the mean hourly wage, making it $66.26 for 

an RN. The total cost related to the two 

newly proposed functional status measures 

referenced above is estimated at $13,377.89 

per LTCH annually, or $5,913,027.38 for all 

LTCHs annually. 

Lastly, we are proposing to validate data 

submitted on the LTCH CARE Data Set by 

requesting portions of 1,300 patient charts 

from 260 LTCHs submitted during CY 2015 

be copied and mailed to a CMS validation 

contractor. We estimate the total submission 

for each chart to be no more than 270 pages 

in length. In the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53269), we estimated the 

appropriate cost for sending charts under the 

Hospital IQR Program to be 12 cents per page 

in accordance with our photocopying 

payment methodology (68 FR 67955). We 

believe that the costs would be the same 

under the LTCHQR Program because we 

would use the same photocopying payment 

methodology. Each chart also will require 

approximately $4.00 shipping. Two hundred 

seventy pages at a rate of $0.12 per page with 

a $4.00 shipping cost would be $36.40 per 

chart. We estimate the total cost of sending 

charts selected for validation to be $36.40 

multiplied by 1,300 charts for a total of 

$47,320. 

In summary, the total cost for all 

previously finalized HAI and vaccination 

measures (CAUTI, CLABSI, MRSA, CDI, 

HCP, Patient Safety Monthly Reporting plan, 

and Denominator for Specialty Care Area) 

reported through the CDC’s NHSN, that we 

have recalculated based on new information 

regarding the number of infection events 

reported by LTCHs per month, is $6,770.10 

per LTCH annually, or $2,992,384.20 for all 

LTCHs annually. The total cost per LTCH for 

the three newly proposed measures in this 

proposed rule (Functional Outcome Measure: 

Change in Mobility among Inpatients 

requiring Ventilator Support, Percent of 

LTCH Inpatients with an Admission and 

Discharge Functional Assessment and a Care 

Plan That Addresses Function, and 

Ventilator-Associated Events) is $13,669.43 

per LTCH annually, or $6,041,886.06 for all 

LTCHs annually. The total cost for the 260 

LTCHs selected under our newly proposed 

data accuracy validation policy is $47,320, 

which would be paid by CMS. 

O. Effects of Proposals Regarding Electronic 

Health Record (EHR) Incentive Program and 

Hospital IQR Program 

In sections IX.D. of the preamble of this 

proposed rule, we discuss proposed 

requirements for the EHR Incentive Program. 

We are proposing to align the Medicare EHR 

Incentive Program reporting and submission 

timelines for clinical quality measures for 

eligible hospitals and CAHs with the 

Hospital IQR Program’s reporting and 

submission timelines. 

We have determined that the electronic 

submission of aggregate-level data using 

QRDA–III will not be feasible in 2015 for 

eligible hospitals and CAHs under the 

Medicare EHR Incentive Program. We are 

proposing to continue, for FY 2015, the 

policy we adopted for FY 2014 for eligible 

hospitals and CAHs submitting CQMs under 

the Medicare EHR Incentive Program. For FY 

2015, eligible hospitals and CAHs would be 

able to electronically submit using a method 

similar to the 2012 and 2013 EHR Incentive 

Program electronic reporting pilot for eligible 

hospitals and CAHs, which used QRDA–I 

(patient-level data). Eligible hospitals and 

CAHs that are beyond their first year of 

meaningful use may continue to report 

aggregate CQM results through attestation. 

We also are clarifying our policy on zero 

denominators and the case threshold 

exemption for clinical quality measures. 

We do not believe that our proposals to 

align the Medicare EHR Incentive program 

reporting and submission timelines for 

clinical quality measures with the Hospital 

IQR Program’s reporting and submission 

timelines and to allow the electronic 

submission of QRDA–I (patient-level data) for 

eligible hospitals and CAHs to electronic 

submit CQMs under the Medicare EHR 

Incentive Program will have a significant 

impact. 

P. Effects of Proposed Revision of Regulations 

Governing Use and Release of Medicare 

Advantage Risk Adjustment Data 

Under section X. of the preamble of this 

proposed rule, we are proposing to revise the 

existing regulations at § 422.310(f) to broaden 

the specified uses of risk adjustment data in 

order to strengthen program management and 

increase transparency in the MA program 

and to specify the conditions for release of 

risk adjustment data to entities outside of 

CMS. We are proposing to revise the 

regulations to specify four additional 

purposes for which CMS may use or release 

risk adjustment data submitted by MA 

organizations: (1) To conduct evaluations and 

other analysis to support the Medicare 

program (including demonstrations) and to 

support public health initiatives and other 

health care-related research; (2) for activities 

to support the administration of the Medicare 

program; (3) for activities conducted to 

support program integrity; and (4) for 

purposes explicitly permitted by other laws. 

In addition, the existing regulations do not 

specify conditions for release by CMS of risk 

adjustment data submitted by MA 

organizations. Therefore, we are proposing to 

add regulatory language to address CMS’ 

release of such data to non-CMS entities. 

We have determined that the proposed 

regulatory amendments do not impose any 

mandatory costs on entities that may choose, 

under this proposal, to request data files from 

CMS for their research analyses or other 

purposes listed in the proposal. Requesting 

data from CMS is at the discretion of the 

requester. Therefore, we have determined 

that there are not any economically 

significant effects of the proposed provisions. 

We also have determined that the proposed 

regulatory amendments would not impose a 

burden on the entity requesting data files. 

Q. Effects of Proposed Changes to 

Enforcement Provisions for Organ Transplant 

Centers 

Under section XI. of the preamble of this 

proposed rule, we discuss our proposals to 

expand and clarify the current organ 

transplant regulation as it relates to a 

transplant program’s ability to request 

approval for participation in Medicare based 

on mitigating factors, the timelines for such 

review, and potential System Improvement 

Agreements that may allow a transplant 

program to improve outcomes and avert 

Medicare termination when outcomes have 

not met CMS requirements. Our proposals 

also would allow for consideration of factors 

such as innovative practice in the field of 

organ transplantation, and for potential 

mitigating factors consideration of a 

transplant program’s outcomes using 

Bayesian methodology for calculating 

outcomes for patient death and graft failure. 

These proposals will not have a significant 

effect on Medicare and Medicaid programs as 

it will allow organ transplant programs to 

continue to participate in Medicare if 

approved based on mitigating factors or 

during the time established in the Systems 

Improvement Agreement. There is an added 

benefit to patients who receive transplants, 

and to the Medicare program, when a 

transplant program improves patient and 

graft survival through completion of a system 

Improvement Agreement. However, sufficient 

data are not currently available to quantify 

the added benefit of System Improvement 

Agreements or innovative practices. 

Therefore, we project only that the cost 

impact of the proposals to the Medicare and 

Medicaid programs would be negligible. 

Historical data reflect that between the date 

the transplant regulation was codified in 

2007 and August 2013, CMS rendered a final 

determination for 129 organ transplant 

programs that applied for Medicare approval 

based on mitigating factors. Of the 129 

transplant programs, 20 terminated Medicare 

participation. An additional 33 transplant 

programs averted Medicare termination by 

successful completion of a Systems 

Improvement Agreement and resulting 

substantial improvement in patient and graft 

survival. The remaining programs were 

approved for mitigating factors based on 

improved outcomes (without needing a 

System Improvement Agreement), special 

circumstances, or came into compliance with 

CMS requirements during the mitigating 

factors review period. We estimate the cost 

associated with the application for mitigating 

factors at $10,000. This is based on the salary 

for the transplant administrator to prepare 

the documents for the application during the 

30-day timeframe allotted. The cost does not 

represent any increase from what is 

anticipated in the existing transplant 

regulation related to mitigating factors. For 

transplant programs that enter into a Systems 

Improvement Agreement, the estimated cost 

to the transplant program is $200,000 to 

$250,000 based on reports from programs 

that have completed such Agreements in the 

past. Both a mitigating factors review and 

completion of a System Improvement 

Agreement are voluntary acts on the part of 

a hospital that maintains a transplant 

program. Since the 2007 effective date of the 

CMS regulation, only one hospital has 

elected not to file a mitigating factors review 

after being cited by CMS for a condition-level 

deficiency for patient outcomes or clinical 

experience, and few hospitals have declined 

a CMS offer to complete a System 

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Improvement Agreement. Therefore, we 

conclude that the costs involved in these 

activities are much lower for the hospital 

compared with other alternatives, such as 

filing an appeal and incurring the legal costs 

of that appeal. 

Our proposals would not have a significant 

impact on a substantial number of small 

businesses or other small entities. Nor would 

they have a significant impact on small rural 

hospitals. 

II. Alternatives Considered 

This proposed rule contains a range of 

proposed policies. It also provides 

descriptions of the statutory provisions that 

are addressed, identifies the proposed 

policies, and presents rationales for our 

decisions and, where relevant, alternatives 

that were considered. 

III. Overall Conclusion 

1. Acute Care Hospitals 

Table I of section I.G. of this Appendix 

demonstrates the estimated distributional 

impact of the IPPS budget neutrality 

requirements for the proposed MS–DRG and 

wage index changes, and for the wage index 

reclassifications under the MGCRB. Table I 

also shows an overall decrease of 0.8 percent 

in operating payments. As discussed in 

section I.G. of this Appendix, we estimate 

that proposed operating payments will 

decrease by approximately $864 million in 

FY 2015 relative to FY 2014. However, when 

we account for the impact of the changes in 

Medicare DSH payments and the impact of 

the new additional payments based on 

uncompensated care in accordance with 

section 3133 of the Affordable Care Act, 

based on estimates provided by the CMS 

Office of the Actuary, consistent with our 

policy discussed in section IV.F. of the 

preamble of this proposed rule, we estimate 

that operating payments would decrease by 

approximately $30 million relative to FY 

2014. In addition, we estimate a savings of 

$28 million associated with the proposed 

HACs policies in FY 2015, which is an 

additional $2 million in savings as compared 

to FY 2014. We estimate that the expiration 

of the expansion of low-volume hospital 

payments for discharges beginning on April 

1, 2015, under the Protecting Access to 

Medicare Act of 2014 (Pub. L. 113–93) will 

result in a decrease in payments of 

approximately $343 million relative to FY 

2014. We estimate that the continuation of 

certain new technology add-on payments for 

FY 2015 will increase spending by 

approximately $7 million. Finally, we 

estimate that the proposed policies related to 

validation, including submission of and 

payment for secure electronic versions of 

medical information for validation for the FY 

2017 payment determination and subsequent 

years, as described in the ICRs for the 

Hospital IQR Program in section XII.B.6. of 

the preamble of this proposed rule, will 

result in a cost savings to CMS of 

approximately $0.5 million. These estimates, 

combined with our estimated decrease in FY 

2015 operating payment of ¥$30 million, 

result in an estimated decrease of 

approximately $367 million for FY 2015. We 

estimate that hospitals will experience a 1.2 

percent increase in capital payments per 

case, as shown in Table III of section I.I. of 

this Appendix. We project that there will be 

a $126 million increase in capital payments 

in FY 2015 compared to FY 2014. The 

proposed cumulative operating and capital 

payments would result in a net decrease of 

approximately $241 million to IPPS 

providers. The discussions presented in the 

previous pages, in combination with the rest 

of this proposed rule, constitute a regulatory 

impact analysis. 

2. LTCHs 

Overall, LTCHs are projected to experience 

an increase in estimated payments per 

discharge in FY 2015. In the impact analysis, 

we are using the proposed rates, factors, and 

policies presented in this proposed rule, 

including proposed updated wage index 

values and relative weights, and the best 

available claims and CCR data to estimate the 

change in payments under the LTCH PPS for 

FY 2015. Accordingly, based on the best 

available data for the 423 LTCHs in our 

database, we estimate that FY 2015 LTCH 

PPS payments will increase approximately 

$44 million relative to FY 2014 as a result of 

the proposed payment rates and factors 

presented in this proposed rule. In addition, 

we estimate that net effect of the projected 

impact of certain other proposed LTCH PPS 

policy changes (that is, the reinstatement of 

the moratorium on the full implementation of 

the ‘‘25 percent threshold’’ payment 

adjustment as discussed in section VII.E. of 

the preamble of this proposed rule; the 

reinstatement of the moratorium on the 

development of new LTCHs and LTCH 

satellite facilities and additional LTCH beds 

as discussed in section VII.G. of the preamble 

of this proposed rule; the proposed revision 

of the ‘‘greater than 3-day interruption of 

stay’’ policy as discussed in section VII.F. of 

the preamble of this proposed rule; the 

proposed revocation of onsite discharges and 

readmissions policy as discussed in section 

VII.H. of the preamble of this proposed rule; 

and the proposed payment adjustment for 

‘‘subclause (II)’’ LTCHs as discussed in 

section VII.I. of the preamble of this proposed 

rule) is estimated to result in a reduction in 

LTCH PPS payments of approximately $14 

million. The impact analysis of the proposed 

payment rates and factors presented in this 

proposed rule under the LTCH PPS, in 

conjunction with the estimated payment 

impacts of certain other proposed LTCH PPS 

policy changes would result in a net increase 

of $30 million to LTCH providers. 

Additionally, we present the costs to LTCHs 

associated with the completion of the 

proposed data for the LTCHQR Program at 

$6.08 million or approximately $3.11 million 

more than FY 2014. 

IV. Accounting Statements and Tables 

A. Acute Care Hospitals 

As required by OMB Circular A–4 

(available at http://www.whitehouse.gov/

omb/circulars/a004/a-4.pdf), in Table V 

below, we have prepared an accounting 

statement showing the classification of the 

expenditures associated with the provisions 

of this proposed rule as they relate to acute 

care hospitals. This table provides our best 

estimate of the change in Medicare payments 

to providers as a result of the proposed 

changes to the IPPS presented in this 

proposed rule. All expenditures are classified 

as transfers to Medicare providers. 

The savings to the Federal Government 

associated with the policies in this proposed 

rule are estimated at $241 million. 

TABLE V—ACCOUNTING STATEMENT: CLASSIFICATION OF PROPOSED ESTIMATED EXPENDITURES UNDER THE IPPS FROM

FY 2014 TO FY 2015 

Category Transfers 

Annualized Monetized Transfers ....................................................................................... ¥$241 million. 

From Whom to Whom ....................................................................................................... Federal Government to IPPS Medicare Providers. 

B. LTCHs 

As discussed in section I.L. of this 

Appendix, the impact analysis of the 

proposed payment rates and factors 

presented in this proposed rule under the 

LTCH PPS, As discussed in section I.L. of 

this Appendix, the impact analysis of the 

proposed payment rates and factors 

presented in this proposed rule under the 

LTCH PPS, in conjunction with the estimated 

payment impacts of certain other proposed 

LTCH PPS policy changes (that is, the 

reinstatement of the moratorium on the full 

implementation of the ‘‘25-percent 

threshold’’ payment adjustment; the 

reinstatement of the moratorium on the 

development of new LTCHs and LTCH 

satellite facilities and increase in the number 

of LTCH beds; the proposed revision of the 

‘‘greater than 3-day interruption of stay’’ 

policy; the proposed revocation of onsite 

discharges and readmissions policy; and the 

proposed payment adjustment for ‘‘subclause 

(II)’’ LTCHs), is projected to result in an 

increase in estimated aggregate LTCH PPS 

payments in FY 2015 relative to FY 2014 of 

approximately $30 million based on the data 

for 423 LTCHs in our database that are 

subject to payment under the LTCH PPS. 

Therefore, as required by OMB Circular A– 

4 (available at http://www.whitehouse.gov/ 

omb/circulars/a004/a-4.pdf), in Table VI 

below, we have prepared an accounting 

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statement showing the classification of the 

expenditures associated with the provisions 

of this proposed rule as they relate to the 

proposed changes to the LTCH PPS. Table VI 

provides our best estimate of the estimated 

increase in Medicare payments under the 

LTCH PPS as a result of the proposed 

payment rates and factors and other 

provisions presented in this proposed rule 

based on the data for the 423 LTCHs in our 

database. All expenditures are classified as 

transfers to Medicare providers (that is, 

LTCHs). Lastly, we present the costs to 

LTCHs associated with the completion of the 

proposed data for the LTCHQR Program at 

$6.08 million or approximately $3.11 million 

more than FY 2014. 

The cost to the Federal Government 

associated with the proposed policies for 

LTCHs in this proposed rule is estimated at 

$30 million. 

TABLE VI—ACCOUNTING STATEMENT: CLASSIFICATION OF PROPOSED ESTIMATED EXPENDITURES FROM THE FY 2014 

LTCH PPS TO THE FY 2015 LTCH PPS 

Category Transfers 

Annualized Monetized Transfers .............................................................. $30 million. 

From Whom to Whom .............................................................................. Federal Government to LTCH Medicare Providers. 

Category Costs 

Annualized Monetized Costs for LTCHs to Submit Quality Data ............ $3.11 million. 

V. Regulatory Flexibility Act (RFA) Analysis 

The RFA requires agencies to analyze 

options for regulatory relief of small entities. 

For purposes of the RFA, small entities 

include small businesses, nonprofit 

organizations, and small government 

jurisdictions. We estimate that most hospitals 

and most other providers and suppliers are 

small entities as that term is used in the RFA. 

The great majority of hospitals and most 

other health care providers and suppliers are 

small entities, either by being nonprofit 

organizations or by meeting the SBA 

definition of a small business (having 

revenues of less than $7.0 million to $35.5 

million in any 1 year). (For details on the 

latest standards for health care providers, we 

refer readers to page 36 of the Table of Small 

Business Size Standards for NAIC 622 found 

on the SBA Web site at: http://www.sba.gov/ 

sites/default/files/files/ 

Size_Standards_Table.pdf.) 

For purposes of the RFA, all hospitals and 

other providers and suppliers are considered 

to be small entities. Individuals and States 

are not included in the definition of a small 

entity. We believe that the provisions of this 

proposed rule relating to acute care hospitals 

would have a significant impact on small 

entities as explained in this Appendix. 

Because we lack data on individual hospital 

receipts, we cannot determine the number of 

small proprietary LTCHs. Therefore, we are 

assuming that all LTCHs are considered 

small entities for the purpose of the analysis 

in section I.L. of this Appendix. MACs are 

not considered to be small entities. Because 

we acknowledge that many of the affected 

entities are small entities, the analysis 

discussed throughout the preamble of this 

proposed rule constitutes our regulatory 

flexibility analysis. In this proposed rule, we 

are soliciting public comments on our 

estimates and analysis of the impact of our 

proposals on those small entities. Any public 

comments that we receive and our responses 

will be presented in the final rule. 

VI. Impact on Small Rural Hospitals 

Section 1102(b) of the Social Security Act 

requires us to prepare a regulatory impact 

analysis for any proposed or final rule that 

may have a significant impact on the 

operations of a substantial number of small 

rural hospitals. This analysis must conform 

to the provisions of section 603 of the RFA. 

With the exception of hospitals located in 

certain New England counties, for purposes 

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

small rural hospital as a hospital that is 

located outside of an urban area and has 

fewer than 100 beds. Section 601(g) of the 

Social Security Amendments of 1983 (Pub. L. 

98–21) designated hospitals in certain New 

England counties as belonging to the adjacent 

urban area. Thus, for purposes of the IPPS 

and the LTCH PPS, we continue to classify 

these hospitals as urban hospitals. (We refer 

readers to Table I in section I.G. of this 

Appendix for the quantitative effects of the 

proposed policy changes under the IPPS for 

operating costs.) 

VII. Unfunded Mandates Reform Act 

Analysis 

Section 202 of the Unfunded Mandates 

Reform Act of 1995 (Pub. L. 104–4) also 

requires that agencies assess anticipated costs 

and benefits before issuing any rule whose 

mandates require spending in any 1 year of 

$100 million in 1995 dollars, updated 

annually for inflation. In 2014, that threshold 

level is approximately $141 million. This 

proposed rule will not mandate any 

requirements for State, local, or tribal 

governments, nor will it affect private sector 

costs. 

VIII. Executive Order 12866 

In accordance with the provisions of 

Executive Order 12866, the Executive Office 

of Management and Budget reviewed this 

proposed rule. 

Appendix B: Recommendation of Update 

Factors for Operating Cost Rates of Payment 

for Inpatient Hospital Services 

I. Background 

Section 1886(e)(4)(A) of the Act requires 

that the Secretary, taking into consideration 

the recommendations of MedPAC, 

recommend update factors for inpatient 

hospital services for each fiscal year that take 

into account the amounts necessary for the 

efficient and effective delivery of medically 

appropriate and necessary care of high 

quality. Under section 1886(e)(5) of the Act, 

we are required to publish update factors 

recommended by the Secretary in the 

proposed and final IPPS rules, respectively. 

Accordingly, this Appendix provides the 

recommendations for the update factors for 

the IPPS national standardized amount, the 

Puerto Rico-specific standardized amount, 

the hospital-specific rate for SCHs and 

MDHs, and the rate-of-increase limits for 

certain hospitals excluded from the IPPS, as 

well as LTCHs. In prior years, we have made 

a recommendation in the IPPS proposed rule 

and final rule for the update factors for the 

payment rates for IRFs and IPFs. However, 

for FY 2015, we plan to include the 

Secretary’s recommendation for the update 

factors for IRFs and IPFs in separate Federal 

Register documents at the time that we 

announce the annual updates for IRFs and 

IPFs. We also discuss our response to 

MedPAC’s recommended update factors for 

inpatient hospital services. 

II. Inpatient Hospital Update for FY 2015 

A. Proposed FY 2015 Inpatient Hospital 

Update 

As discussed in section IV.B of the 

preamble to this proposed rule, for FY 2015, 

consistent with section 1886(b)(3)(B) of the 

Act, as amended by sections 3401(a) and 

10319(a) of the Affordable Care Act, we are 

setting the applicable percentage increase by 

applying the following adjustments in the 

following sequence. Specifically, the 

applicable percentage increase under the 

IPPS is equal to the rate-of-increase in the 

hospital market basket for IPPS hospitals in 

all areas, subject to a reduction of one-quarter 

of the applicable percentage increase (prior to 

the application of other statutory 

adjustments; also referred to as the market 

basket update or rate-of-increase (with no 

adjustments)) for hospitals that fail to submit 

quality information under rules established 

by the Secretary in accordance with section 

1886(b)(3)(B)(viii) of the Act and a 331⁄3

percent reduction to three-fourths of the 

applicable percentage increase (prior to the 

application of other statutory adjustments; 

also referred to as the market basket update 

or rate-of-increase (with no adjustments)) for 

hospitals not considered to be meaningful 

electronic health record (EHR) users in 

accordance with section 1886(b)(3)(B)(ix) of 

the Act, and then subject to an adjustment 

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based on changes in economy-wide 

productivity (the multifactor productivity 

(MFP) adjustment), and an additional 

reduction of 0.2 percentage point as required 

by section 1886(b)(3)(B)(xii) of the Act. 

Sections 1886(b)(3)(B)(xi) and (b)(3)(B)(xii) of 

the Act, as added by section 3401(a) of the 

Affordable Care Act, state that application of 

the MFP adjustment and the additional FY 

2015 adjustment of 0.2 percentage point may 

result in the applicable percentage increase 

being less than zero. 

Based on the most recent data available for 

this FY 2015 proposed rule, in accordance 

with section 1886(b)(3)(B) of the Act, we are 

proposing to base the proposed FY 2015 

market basket update used to determine the 

applicable percentage increase for the IPPS 

on IHS Global Insight, Inc.’s (IGI’s) first 

quarter 2014 forecast of the FY 2010-based 

IPPS market basket rate-of-increase with 

historical data through fourth quarter 2013, 

which is estimated to be 2.7 percent. In 

accordance with section 1886(b)(3)(B) of the 

Act, as amended by section 3401(a) of the 

Affordable Care Act, in section IV.B.1. of the 

preamble of this FY 2015 IPPS/LTCH PPS 

proposed rule, we are proposing a multifactor 

productivity (MFP) adjustment (the 10-year 

moving average of MFP for the period ending 

FY 2015) of 0.4 percent. Therefore, based on 

IGI’s first quarter 2014 forecast of the FY 

2010-based IPPS market basket, depending 

on whether a hospital submits quality data 

under the rules established in accordance 

with section 1886(b)(3)(B)(viii) of the Act 

(hereafter referred to as a hospital that 

submits quality data) and is a meaningful 

EHR user under section 1886(b)(3)(B)(ix) of 

the Act (hereafter referred to as a hospital 

that is a meaningful EHR user), there are four 

possible applicable percentage increases that 

can be applied to the standardized amount. 

Below we provide a table summarizing the 

four proposed applicable percentage 

increases. 

FY 2015 

Hospital 

submitted 

quality data 

and is a 

meaningful 

EHR user 

Hospital 

submitted 

quality data 

and is NOT a 

meaningful 

EHR user 

Hospital did 

NOT submit 

quality data 

and is a 

meaningful 

EHR user 

Hospital did 

NOT submit 

quality data 

and is NOT a 

meaningful EHR 

user 

Market Basket Rate-of-Increase ...................................................... 2.7 2.7 2.7 2.7 

Adjustment for Failure to Submit Quality Data under Section 

1886(b)(3)(B)(viii) of the Act ........................................................ 0.0 0.0 ¥0.675 ¥0.675 

Adjustment for Failure to be a Meaningful EHR User under Section 1886(b)(3)(B)(ix) of the Act ................................................... 0.0 ¥0.675 0.0 ¥0.675 

MFP Adjustment under Section 1886(b)(3)(B)(xi) of the Act .......... ¥0.4 ¥0.4 ¥0.4 ¥0.4 

Statutory Adjustment under Section 1886(b)(3)(B)(xii) of the Act ... ¥0.2 ¥0.2 ¥0.2 ¥0.2 

Proposed Applicable Percentage Increase Applied to 

Standardized Amount .................................................... 2.1 1.425 1.425 0.75 

B. Proposed Update for SCHs and MDHs for 

FY 2015 

Section 1886(b)(3)(B)(iv) of the Act 

provides that the FY 2015 applicable 

percentage increase in the hospital-specific 

rate 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). 

As discussed in section IV.G. of the 

preamble of this proposed rule, section 1106 

of the Pathway for SGR Reform Act of 2013 

(Pub. L. 113–67), enacted on December 26, 

2013, extended the MDH program from the 

end of FY 2013 through the first half of FY 

2014 (that is, for discharges occurring before 

April 1, 2014). Subsequently, section 106 of 

the Protecting Access to Medicare Act of 

2014 (Pub. L. 113–93), enacted on April 1, 

2014, further extended the MDH program 

through the first half of FY 2015 (that is, for 

discharges occurring before April 1, 2015). 

Prior to the enactment of Public Law 113–67, 

the MDH program was to be in effect through 

the end of FY 2013 only. The MDH program 

expires for discharges beginning on April 1, 

2015, under current law. Accordingly, the 

proposed update of the hospital-specific rates 

for FY 2015 for MDHs will apply in 

determining payments for FY 2015 

discharges occurring before April 1, 2015. 

As mentioned above, the update to the 

hospital specific rate for SCHs and MDHs is 

subject to section 1886(b)(3)(B)(i) of the Act, 

as amended by sections 3401(a) and 10319(a) 

of the Affordable Care Act. Accordingly, 

depending on whether a hospital submits 

quality data and is a meaningful EHR user, 

we are proposing the same four possible 

applicable percentage increases in the table 

above to the hospital-specific rate applicable 

to SCHs and MDHs. 

C. Proposed FY 2015 Puerto Rico Hospital 

Update 

Section 401(c) of Public Law 108–173 

amended section 1886(d)(9)(C)(i) of the Act 

and states that, for discharges occurring in a 

fiscal year (beginning with FY 2004), the 

Secretary shall compute an average 

standardized amount for hospitals located in 

any area of Puerto Rico that is equal to the 

average standardized amount computed 

under subclause (I) for FY 2003 for hospitals 

in a large urban area (or, beginning with FY 

2005, for all hospitals in the previous fiscal 

year) increased by the applicable percentage 

increase under subsection (b)(3)(B) for the 

fiscal year involved. Therefore, the update to 

the Puerto Rico-specific operating 

standardized amount is subject to the 

applicable percentage increase set forth in 

section 1886(b)(3)(B)(i) of the Act as 

amended by sections 3401(a) and 10319(a) of 

the Affordable Care Act (that is, the same 

update factor as for all other hospitals subject 

to the IPPS). Accordingly, we are proposing 

an applicable percentage increase to the 

Puerto Rico-specific standardized amount of 

2.1 percent. 

D. Proposed Update for Hospitals Excluded 

From the IPPS for FY 2015 

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 hospitals, cancer hospitals, and 

hospitals located outside the 50 States, the 

District of Columbia, and Puerto Rico (that is, 

short-term acute care hospitals located in the 

U.S. Virgin Islands, Guam, the Northern 

Mariana Islands, and America Samoa). 

Section 1886(b)(3)(B)(ii) of the Act sets the 

percentage increase in the rate-of-increase 

limits equal to the market basket percentage 

increase. In accordance with § 403.752(a) of 

the regulations, RNHCIs are paid under the 

provisions of § 413.40, which also use section 

1886(b)(3)(B)(ii) of the Act to update the 

percentage increase in the rate-of-increase 

limits. 

Currently, children’s hospitals, PPSexcluded cancer hospitals, RNHCIs, and 

short-term acute care hospitals located in the 

U.S. Virgin Islands, Guam, the Northern 

Mariana Islands, and American Samoa are 

among the remaining types of hospitals still 

paid under the reasonable cost methodology, 

subject to the rate-of-increase limits. We are 

proposing that the FY 2015 rate-of-increase 

percentage to be applied to the target amount 

for children’s hospitals, PPS-excluded cancer 

hospitals, RNHCIs, and short-term acute care 

hospitals located in the U.S. Virgin Islands, 

Guam, the Northern Mariana Islands, and 

American Samoa would be the percentage 

increase in the IPPS operating market basket. 

For this proposed rule, the current estimate 

of the FY 2015 IPPS operating market basket 

percentage increase is 2.7 percent. 

E. Proposed Update for LTCHs for FY 2015 

Section 123 of Public Law 106–113, as 

amended by section 307(b) of Public Law 

106–554 (and codified at section 1886(m)(1) 

of the Act), provides the statutory authority 

for updating payment rates under the LTCH 

PPS. 

As discussed in section V.A. of the 

Addendum to this proposed rule, we are 

proposing to establish an update to the LTCH 

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PPS standard Federal rate for FY 2015 based 

on the full LTCH PPS market basket increase 

estimate (for this proposed rule, estimated to 

be 2.7 percent), subject to an adjustment 

based on changes in economy-wide 

productivity and an additional reduction 

required by sections 1886(m)(3)(A)(ii) and 

(m)(4)(E) of the Act. In accordance with the 

LTCHQR Program under section 1886(m)(5) 

of the Act, we are proposing to reduce the 

annual update to the LTCH PPS standard 

Federal rate by 2.0 percentage points for 

failure of a LTCH to submit the required 

quality data. The MFP adjustment described 

in section 1886(b)(3)(B)(xi)(ii) of the Act is 

currently estimated to be 0.4 percent for FY 

2015. In addition, section 1886(m)(3)(A)(ii) of 

the Act requires that any annual update for 

FY 2015 be reduced by the ‘‘other 

adjustment’’ at section 1886(m)(4)(E) of the 

Act, which is 0.2 percentage point. Therefore, 

based on IGI’s first quarter 2014 forecast of 

the FY 2015 LTCH PPS market basket 

increase, we are proposing an annual update 

to the LTCH PPS standard Federal rate of 2.1 

percent (that is, the current proposed FY 

2015 estimate of the market basket rate-ofincrease of 2.7 percent less an adjustment of 

0.4 percentage point for MFP and less 0.2 

percentage point). Accordingly, we are 

proposing to apply an update factor of 1.021 

in determining the LTCH PPS standard 

Federal rate for FY 2015. For LTCHs that fail 

to submit quality data for FY 2015, we are 

proposing an annual update to the LTCH PPS 

standard Federal rate of 0.1 percent (that is, 

the proposed annual update for FY 2015 of 

2.1 percent less 2.0 percentage points for 

failure to submit the required quality data in 

accordance with section 1886(m)(5)(C) of the 

Act and our rules) by applying an update 

factor of 1.001 in determining the LTCH PPS 

standard Federal rate for FY 2015. 

Furthermore, we are proposing an adjustment 

for the final year of the 3-year phase-in of the 

one-time prospective adjustment to the 

standard Federal rate under § 412.523(d)(3) 

by applying a factor of 0.98734 (or 

approximately –1.3 percent) in FY 2015, 

consistent with current law. 

III. Secretary’s Recommendations 

MedPAC is recommending an inpatient 

hospital update equal to 3.25 percent for FY 

2015. MedPAC’s rationale for this update 

recommendation is described in more detail 

below. As mentioned above, section 

1886(e)(4)(A) of the Act requires that the 

Secretary, taking into consideration the 

recommendations of MedPAC, recommend 

update factors for inpatient hospital services 

for each fiscal year that take into account the 

amounts necessary for the efficient and 

effective delivery of medically appropriate 

and necessary care of high quality. Consistent 

with current law, depending on whether a 

hospital submits quality data and is a 

meaningful EHR user, we are recommending 

the four possible applicable percentage 

increases to the standardized amount listed 

in the table under section II. of this Appendix 

B. We are recommending that the same 

applicable percentage increases apply to 

SCHs and MDHs. For the Puerto Rico-specific 

standardized amount, we are recommending 

an update of 2.1 percent. 

In addition to making a recommendation 

for IPPS hospitals, in accordance with 

section 1886(e)(4)(A) of the Act, we are 

recommending update factors for certain 

other types of hospitals excluded from the 

IPPS. Consistent with our policies for these 

facilities, we are recommending an update to 

the target amounts for children’s hospitals, 

cancer hospitals, RNHCIs, and short-term 

acute care hospitals located in the U.S. Virgin 

Islands, Guam, the Northern Mariana Islands, 

and American Samoa of 2.7 percent. 

For FY 2015, consistent with policy set 

forth in section VII. of the preamble of this 

proposed rule, we are recommending an 

update of 2.1 percent (that is, the current FY 

2015 estimate of the LTCH PPS market basket 

rate-of-increase of 2.7 percent less a proposed 

adjustment of 0.4 percentage point for MFP 

and less 0.2 percentage point) to the LTCH 

PPS standard Federal rate. 

IV. MedPAC Recommendation for Assessing 

Payment Adequacy and Updating Payments 

in Traditional Medicare 

In its March 2014 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 3.25 

percent concurrent with changes to the 

outpatient prospective payment system and 

with initiating change to the LTCH PPS. We 

refer the reader to the March 2014 MedPAC 

report, which is available for download at 

www.medpac.gov for a complete discussion 

on this recommendation. MedPAC expects 

Medicare margins to remain low in 2014. At 

the same time, MedPAC’s analysis finds that 

efficient hospitals have been able to maintain 

positive Medicare margins while maintaining 

a relatively high quality of care. 

Response: With regard to MedPAC’s 

recommendation of an update to the hospital 

inpatient rates equal to 3.25 percent, for FY 

2015, as discussed above, sections 3401(a) 

and 10319(a) of the Affordable Care Act 

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

Section 1886(b)(3)(B) of the Act, as amended 

by these sections, sets the requirements for 

the FY 2015 applicable percentage increase. 

Therefore, we are proposing an applicable 

percentage increase for FY 2015 of 2.1 

percent, provided the hospital submits 

quality data and is a meaningful EHR user, 

consistent with these statutory requirements. 

We note that, because the operating and 

capital prospective payment systems remain 

separate, we are continuing to use separate 

updates for operating and capital payments. 

The proposed update to the capital rate is 

discussed in section III. of the Addendum to 

this proposed rule. 

[FR Doc. 2014–10067 Filed 4–30–14; 4:15 pm] 

BILLING CODE 4120–01–P 

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