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[Federal Register Volume 76, Number 33 (Thursday, February 17, 2011)]
[Proposed Rules]
[Pages 9283-9295]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-3548]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 434, 438, and 447

[CMS-2400-P]
RIN 0938-AQ34

Medicaid Program; Payment Adjustment for Provider-Preventable 
Conditions Including Health Care-Acquired Conditions

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would implement section 2702 of the Patient 
Protection and Affordable Care Act of 2010 which directs the Secretary 
of

[[Page 9284]]

Health and Human Services to issue Medicaid regulations effective as of 
July 1, 2011 prohibiting Federal payments to States under section 1903 
of the Social Security Act for any amounts expended for providing 
medical assistance for health care-acquired conditions. It would also 
authorize States to identify other provider-preventable conditions for 
which Medicaid payment would be prohibited.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on March 18, 2011.

ADDRESSES: In commenting, please refer to file code CMS-2400-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the instructions under 
the ``More Search Options'' 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-2400-P, P.O. Box 8016, 
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 to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-2400-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 telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Venesa Day, (410) 786-8281, or Gary 
Jackson, (410) 786-1218.

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

Acronyms

    To assist the reader, the following is list of the acronyms used in 
this proposed rule:

AHRQ Agency for Healthcare Research and Quality
BPM Benefit Policy Manual
CABG Coronary artery bypass graft
CBO Congressional Budget Office
CDC Centers for Disease Control and Prevention
DVT Deep vein thrombosis
ESRD End-stage renal disease
DRA Deficit Reduction Act of 2005 (Pub. L. 109-171, enacted on 
February 8, 2006)
FFP Federal financial participation
FY Fiscal year
HAC Hospital-acquired condition
HCAC Health care-acquired condition
ICR Information collection requirement
IPPS Inpatient prospective payment system
MS-DRG Diagnosis-related group
NCA National coverage analysis
NDC National coverage determination
NQF National Quality Forum
OACT [CMS] Office of the Actuary
OIG Office of Inspector General
OMB Office of Management and Budget
OPPC Other provider-preventable condition
PE Pulmonary embolism
POA Present on admission
PPC Provider-preventable condition
PRA Paperwork Reduction Act
RFA Regulatory Flexibility Act (September 19, 1980, Pub. L. 96-354)
RIA Regulatory impact analysis
SMDL State Medicaid Director Letter
SPA State plan amendment
UMRA Unfunded Mandates Reform Act of 1995 (Pub. L. 104-04, enacted 
on March 22, 1995)
UTI Urinary tract infection

I. Background

    Title XIX of the Social Security Act (the Act) authorizes Federal 
grants to the States for Medicaid programs to provide medical 
assistance to persons with limited income and resources. While Medicaid 
programs are administered by the States, they are jointly financed by 
the Federal and State governments. Each State establishes its own 
eligibility standards, benefits packages, payment rates, and program 
administration for Medicaid in accordance with Federal statutory and 
regulatory requirements. Operating within broad Federal parameters, 
States select eligibility groups, types, and range of services, payment 
levels for services, and administrative and operating procedures. Each 
State Medicaid program must be described and administered in accordance 
with a Federally-approved ``State plan.'' This comprehensive document 
describes the nature and scope of the State's Medicaid program, and 
provides assurances that it will be administered in conformity with all 
Federal requirements.
    The Federal government pays its share of medical assistance 
expenditures to the State on a quarterly basis according to a formula 
described in sections 1903 and 1905(b) of the Act. Specifically, 
section 1903 of the Act requires that the Secretary (except as 
otherwise provided) pay to each State which has a plan approved under 
this title, for each quarter, an amount equal to the Federal medical 
assistance percentage of the total amount expended during such quarter 
as medical assistance under the State plan.
    Among the statutory requirements for Medicaid State plans, section 
1902(a)(4) of the Act requires that State plans provide for methods of 
administration as are found to be necessary by the Secretary for the 
proper and efficient operation of the plan. Section 1902(a)(6) of the 
Act requires that a State plan for

[[Page 9285]]

medical assistance provide that the State agency will make such 
reports, in such form and containing such information, as the Secretary 
may from time-to-time require, and comply with such provisions as the 
Secretary may from time-to-time find necessary to assure the 
correctness and verification of such reports. In addition, section 
1902(a)(19) of the Act requires that a State plan for medical 
assistance provide such safeguards as may be necessary to assure that 
eligibility for care and services under the plan will be determined, 
and such care and services will be provided, in a manner consistent 
with simplicity of administration and the best interests of the 
recipients.

A. The Medicare Program and Quality Improvements Made in the Deficit 
Reduction Act of 2005 (DRA) (Pub. L. 109-171)

    Title XVIII of the Act provides authority for the Secretary to 
operate the Medicare program, which provides payment for certain 
medical expenses for persons 65 years of age or older, certain disabled 
individuals, and persons with end-stage renal disease (ESRD). Medicare 
benefits include inpatient care, a wide range of medical services, and 
outpatient prescription drugs.
    The Medicare statute authorizes the Secretary, in the course of 
operating the Medicare program, to develop, implement, and monitor 
quality measures, as well as take other actions, to ensure the quality 
of the care and services received by Medicare beneficiaries.
    Payment under the Medicare program for inpatient hospital benefits 
is generally based on the ``inpatient prospective payment system'' 
(IPPS) described in section 1886(d) of the Act. Hospitals receive a 
payment for each inpatient discharge based on diagnosis codes that 
identify a ``diagnosis-related group'' (MS-DRG). Assignment of an MS-
DRG can take into account the presence of secondary diagnoses, and 
payment levels are also adjusted to account for a number of hospital-
specific factors.
    Section 5001(a) of the Deficit Reduction Act of 2005 (Pub. L. 109-
171, enacted on February 8, 2006) (DRA) amended section 1886(b)(3)(B) 
of the Act to expand the set of hospital quality measures collected by 
Medicare. In particular, this provision directed the Secretary to start 
collecting baseline measures set forth by the Institute of Medicine in 
its November 2005 report in fiscal year (FY) 2007. These measures 
include 22 Hospital Quality Alliance measures and 3 process measures. 
In FY 2008 and subsequent years, the Secretary was required to add 
other measures that reflect consensus among affected parties. The 
provision also allowed the Secretary to replace and update existing 
quality measures. The statute mandates that the Secretary establish a 
process for hospitals to review data that will be made public and, 
after that process is complete, requires the Secretary to post measures 
on the Hospital Compare Internet Web site. The quality measures 
required under section 5001(a) of the DRA were integral to the 
direction under section 5001(b) of the DRA for the Secretary to develop 
a plan to implement value-based purchasing commencing FY 2009 for most 
Medicare hospital services. We are currently developing a hospital 
value-based purchasing system as required by the Patient Protection and 
Affordable Care Act (Pub. L. 111-148, enacted on March 23, 2010) 
(Affordable Care Act).
    Section 5001(c) of the DRA amended section 1886(d)(4) of the Act to 
prohibit payment to hospitals for certain preventable hospital-acquired 
conditions (HACs) identified by the Secretary. Specifically, under 
section 1886(d)(4)(D)(iv) of the Act, the Secretary is required to 
identify HACs for which no payment for hospital services would be made. 
These conditions are required to have the following characteristics: 
(a) High cost or high volume or both; (b) result in the assignment of a 
case to a MS-DRG that has a higher payment when present as a secondary 
diagnosis; and (c) could reasonably have been prevented through the 
application of evidence-based guidelines. Section 5001(c) of the DRA 
provides for revision of the list of conditions from time to time, as 
long as it contains at least two conditions.

B. Previously Specified Medicare HACs

    As amended by section 5001(c) of the DRA, section 1886(d)(4) of the 
Act provides that the Secretary must ensure that additional payment 
under the IPPS is not made to hospitals for identified HACs including 
infections. By October 1, 2007, the Secretary was required under 
section 1886(d)(4)(D) of the Act to select, in consultation with the 
Centers for Disease Control and Prevention (CDC), diagnosis codes 
associated with at least two HACs 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 complications or co-morbidities or major complications or co-
morbidities); and (c) could reasonably have been prevented through the 
application of evidence based guidelines. The list of conditions can be 
revised from time-to-time as long as the list contains at least two 
conditions.
    Under the provisions of section 1886(d)(4)(D)(ii) of the Act, when 
an HAC is not present on admission (POA), but is reported as a 
secondary diagnosis associated with the hospitalization, the Medicare 
payment under IPPS to the hospital may be reduced to reflect that the 
condition was hospital-acquired. More specifically, the hospital 
discharge cannot be assigned to a higher paying MS-DRG if the secondary 
diagnosis associated with the HAC would otherwise have caused this 
assignment. If an HAC were POA, then the Medicare payment under IPPS to 
the hospital would not be reduced. Since October 1, 2007, hospitals 
subject to the IPPS have been required to submit information on 
Medicare claims specifying whether diagnoses were POA. The POA 
indicator reporting requirement and the HAC payment provision apply to 
IPPS hospitals only. This requirement does not apply to hospitals 
exempt from the IPPS.
    The following is a list of the current Medicare HACs (75 FR 50084 
through 50085):
     Foreign Object Retained After Surgery.
     Air Embolism.
     Blood Incompatibility.
     Stage III and IV Pressure Ulcers.
     Falls and Trauma.
    + Fractures.
    + Dislocations.
    + Intracranial Injuries.
    + Crushing Injuries.
    + Burns.
    + Electric Shock.
     Manifestations of Poor Glycemic Control.
    + Diabetic Ketoacidosis.
    + Nonketotic Hyperosmolar Coma.
    + Hypoglycemic Coma.
    + Secondary Diabetes with Ketoacidosis.
    + Secondary Diabetes with Hyperosmolarity.
     Catheter-Associated Urinary Tract Infection (UTI).
     Vascular Catheter-Associated Infection.
     Surgical Site Infection Following:
    + Coronary Artery Bypass Graft (CABG)--Mediastinitis.
    + Bariatric Surgery.
    - Laparoscopic Gastric Bypass.
    - Gastroenterostomy.
    - Laparoscopic Gastric Restrictive Surgery.
    + Orthopedic Procedures.
    - Spine.
    - Neck.
    - Shoulder.

[[Page 9286]]

    - Elbow.
     Deep Vein Thrombosis (DVT)/Pulmonary Embolism (PE).
    + Total Knee Replacement.
    + Hip Replacement.
    The Secretary may revise this list upon review.

C. Previously Specified Medicare National Coverage Determinations (NCD)

    In 2002, the National Quality Forum (NQF) published ``Serious 
Reportable Events in Healthcare: A Consensus Report'', which listed 27 
adverse events that were ``serious, largely preventable and of concern 
to both the public and health care providers.'' These events and 
subsequent revisions to the list became known as ``never events.'' This 
concept and need for the proposed reporting led to NQF's ``Consensus 
Standards Maintenance Committee on Serious Reportable Events,'' which 
maintains and updates the list which currently contains 28 items.
    The Medicare program has addressed certain ``never events'' through 
national coverage determinations (NCDs). Similar to any other patient 
population, Medicare beneficiaries may experience serious injury and/or 
death if they undergo erroneous surgical or other invasive procedures 
and may require additional healthcare in order to correct adverse 
outcomes that may result from such errors. In order to address and 
reduce the occurrence of these surgeries, Medicare issued three NCDs. 
Under these NCDs, Medicare does not cover a particular surgical or 
other invasive procedure to treat a particular medical condition when 
the practitioner erroneously performs: (1) A different procedure 
altogether; (2) the correct procedure but on the wrong body part; or 
(3) the correct procedure but on the wrong patient. Medicare will also 
not cover hospitalizations and other services related to these non-
covered procedures.

D. Prior Guidance on Medicaid HACs and NCDs in Response to Medicare's 
Policy

    Section 5001(c) of the DRA addressed only the Medicare program and 
did not require that Medicaid implement nonpayment policies for HACs. 
However, in light of the Medicare requirements, we encouraged States to 
adopt payment prohibitions on provider claims for HACs to coordinate 
with the Medicare prohibitions under section 1886(d)(4)(D) of the Act. 
To accomplish this task, we issued State Medicaid Director Letter 
(SMDL) 08-004 on July 31, 2008. In the July 31, 2008 SMDL, we 
noted that there was variation in how State Medicaid programs had 
addressed such claims in the past. The letter noted that nearly 20 
States already had, or were considering, eliminating payment for some 
or all of the 28 conditions on the NQF's list of Serious Reported 
Events. Other States had more limited efforts to deny payment for 
services related to such conditions because the services were 
``medically unnecessary'' in light of the primary diagnosis.
    Recognizing this variation and addressing the immediate concern of 
the States over Federal cost-shifting that could result from the 
Medicare HAC policy as applied to those who are dually-eligible for 
Medicare and Medicaid, we took a flexible position in the July 31, 2008 
SMDL guidance on State Medicaid handling of the issue. The SMDL 
indicated that States seeking to implement HAC nonpayment policies 
could do so by amending their Medicaid State plans to specify the 
extent to which they would deny payment for an HAC. Those interested 
only in avoiding secondary liability for Federal Medicare denials of 
HACs and NCDs in the case of dual-eligibles could do so by amending 
their State Plan to indicate that payment would not be available for 
HACs and the procedures described in the 3 NCDs that are not paid by 
Medicare. States that wanted broader payment prohibitions could 
indicate that payment would not be available for conditions specified 
in the State plan amendment (SPA), or that meet criteria identified in 
the SPA.

E. Section 2702 of the Affordable Care Act

    Section 2702 of the Affordable Care Act requires that the Secretary 
implement Medicaid payment adjustments for health care-acquired 
conditions (HCACs). Section 2702 of the Affordable Care Act did not 
grant the Secretary new authorities, indicating that existing statutory 
authorities are sufficient to fulfill the obligation. Section 2702(a) 
of the Affordable Care Act sets out a general framework for application 
of Medicare prohibitions on payment for HCACs to the Medicaid program. 
Section 2702(a) of the Affordable Care Act first directs the Secretary 
to identify current State practices that prohibit payment for HCACs and 
to incorporate the practices identified, or elements of such practices, 
which the Secretary determines appropriate for application to the 
Medicaid program in regulations. Section 2702(a) of the Affordable Care 
Act then requires that, effective as of July 1, 2011, the Secretary 
prohibit payments to States under section 1903 of the Act for any 
amounts expended for providing medical assistance for HCACs specified 
in regulations. Such regulations must ensure that the prohibition on 
payment for HCACs shall not result in a loss of access to care or 
services for Medicaid beneficiaries.
    Section 2702(b) of the Affordable Care Act defines the term 
''health care-acquired condition'' as ``a medical condition for which 
an individual was diagnosed that could be identified by a secondary 
diagnostic code described in section 1886(d)(4)(D)(iv) of the Act.''
    Section 2702(c) of the Affordable Care Act specifically requires 
that the Secretary, in carrying out section 2702 of the Affordable Care 
Act, apply the regulations issued under section 1886(d)(4)(D) of the 
Act relating to the prohibition of payments based on the presence of a 
secondary diagnosis code specified by the Secretary in such 
regulations, as appropriate for the Medicaid program. The Secretary may 
exclude certain conditions identified under title XVIII of the Act for 
nonpayment under title XIX of the Act when the Secretary finds the 
inclusion of such conditions to be inapplicable to beneficiaries under 
title XIX.

F. Requirement To Review Existing State Practices Prohibiting 
Nonpayment Policies for HCACs

    Section 2702 of the Affordable Care Act requires that the Secretary 
identify current State practices that prohibit payment for HCACs and 
incorporate those practices, as appropriate, into Medicaid regulations.
    To fulfill the statutory direction, we reviewed existing SPAs 
originally submitted in response to the July 31, 2008 SMDL 
(08-004). We also researched State HCAC-related nonpayment 
policies that had been implemented outside of Medicaid State plans. We 
reviewed State quality assurance programs, pay-for-performance 
programs, reporting requirements and procedures, and payment systems.
    We reviewed various articles, reports, summaries, and data bases 
pertaining to States' existing practices concerning hospital and HCACs 
and infections including, but not limited to:
     Nonpayment for Preventable Events and Conditions: Aligning 
State and Federal Policies to Drive Health System Improvement, Jill 
Rosenthal and Carrie Hanlon, December 2009.
     ``Estimating the Costs of Potentially Preventable Hospital 
Acquired Complications,'' Richard L. Fuller M.S., et al, Health Care 
Financing Review, Summer 2009, Volume 30, Number 4.
     ``Identifying Potential Preventable Complications Using a 
Present on

[[Page 9287]]

Admission Indicator,'' John S. Hughes, M.D., et al, Health Care 
Financing Review, Spring 2006, Volume 27, Number 3.
     State Government Tracking of Hospital-Acquired Conditions, 
Nathan West, MPA et al, April 2010.
     ``The Triple Aim: Care, Health, and Cost,'' Donald 
Berwick, et al., Health Affairs, Volume 27, Number 3 (2008).
     ``Lessons from the Pioneers: Reporting Healthcare-
Associated Infections,'' Anna Spencer, et al. National Conference of 
State Legislatures, July 2010.
     ``OIG Report: Adverse Events in Hospitals: National 
Incidence Among Medicare Beneficiaries,'' OEI-06-09-00090, November 
2010.
     ``OIG Report: Adverse Events in Hospitals: Public 
Disclosure of Information About Events,'' OEI-06-09-00360, January 
2010.
     ``OIG Report: Adverse Events in Hospitals: State Reporting 
Systems,'' OEI-06-07-00471, December 2008.
     To Err is Human: Building a Safer Health System, A report 
of the Committee on Quality of Health Care in America, Institute of 
Medicine, National Academy Press, 2000, L.T. Kohn, J.M. Corrigan, and 
M.S. Donaldson, eds.
    We discussed internally within CMS, as well as with interagency 
partners at the Agency for Healthcare Research and Quality (AHRQ) and 
the CDC to ensure that the proposed regulations are consistent with 
other regulations, policies, and procedures currently in existence 
surrounding this issue. We also met with them to gain information on 
areas where we could mirror existing processes to eliminate undue 
burdens on States or providers.
    We issued a State survey to capture data from all related payment 
policies regardless of whether they were implemented as a result of the 
July 31, 2008 SMDL or whether such practices are currently detailed in 
the State plan. The survey is still undergoing the Paperwork Reduction 
Act (PRA) process and has not been made mandatory. However, we have 
received information from a few States through the survey and have 
reviewed other information that has been helpful in explaining current 
State processes for making payment adjustments for HCACs. Subsequent to 
the publication of the survey, we held all-State calls where we 
answered questions in response to the survey, had States with existing 
policies talk about their experiences, and listened to discussion 
regarding the implementation of the HCAC policy.
    We met with nongovernmental partners including the NQF, the 
National Academy for State Health Policy, the National Association of 
Children's Hospitals, the Joint Commission, and State Medicaid Medical 
Directors. Most of these organizations are primarily focused on State 
program development and/or quality issues. We reached out to them to 
ensure that the proposed policies would be consistent with current 
industry understanding of both State payment and quality improvement 
goals. In our discussions with these organizations, we were able to 
discuss State experiences on a broad, national level that had been 
gained from working with States. During these meetings, we discussed a 
number of issues related to the proposed rule and State concerns in 
implementing this provision. For instance, it was clear from many of 
our discussions that States hoped to be able to look to this provision 
to provide additional definition regarding the types of conditions to 
identify for nonpayment, as well as to provide some support in working 
with provider communities to which these policies would be applied.

G. Current State Practices Prohibiting Payment for HACs, HCACs, and 
Other Similar Events

    We found that 29 States do not have existing HCAC-related 
nonpayment policies. Most of the 21 States that currently have HCAC-
related nonpayment policies identify at least Medicare's HACs for 
nonpayment in hospitals. However, it is important to note that at least 
half of the existing policies we reviewed exceeded Medicare's current 
HAC requirements and policies, either in the conditions identified, the 
systems used to indicate the conditions, or the settings to which the 
nonpayment policies applied. These policies vary tremendously from 
State to State in the authority used to enact the policies, the 
terminology used, the conditions identified, State's utilization of the 
current Medicare HAC list, the service settings to which nonpayment 
policies are applied, reporting requirements, and the claims processing 
of the nonpayment policies.
    All of the States with HCAC-related nonpayment policies have 
implemented provisions that would protect the State from dual-eligible 
liability either by directly prohibiting payment for Medicare crossover 
claims or by relying on existing State plan authority to deny payment 
for claims previously denied by Medicare.
    We found that 17 of the States implemented Medicaid specific 
policies that reduce payment for services provided to Medicaid 
beneficiaries. Most of the States implementing Medicaid specific 
policies identify at least Medicare's current list of HAC, and nearly 
half of those States defined a list that was different from Medicare's 
current list of HACs for nonpayment.
    Similar variation exists in States' plan language identifying 
Medicare's NCD for nonpayment ranging from mirroring Medicare to 
completely breaking from Medicare. We do note, however, that the nature 
of the NQF serious reportable events, like surgery on the wrong body 
part, proper surgery wrong patient, and wrong surgery, is so severe 
that States were likely to have relied on State coverage provisions and 
appropriate care requirements to deny payment for these events.
    We also found that States use different general terminology for 
HCAC-related nonpayment policies even though many of the conditions 
identified overlap, are from the same sources, and do not generally 
vary in medical definition from one list to the other. For example, 3 
States identify ``air embolism'' as a condition for nonpayment under 
its plans with the condition understood to be consistently defined for 
medical purposes. However, one State includes air embolisms on its list 
of ``HACs''; another includes the same condition as a ``Serious Adverse 
Event''; and the third includes it on a list of ``Medical Errors.''
    We also found that at least 7 of the States with HCAC-related 
nonpayment policies apply those policies to settings other than the 
inpatient hospital setting required by Medicare, including both 
physicians and ambulatory surgical centers.
    Variation across States is not surprising given the States have 
been permitted broad flexibility in defining their HCAC policies and 
programs. However, we attribute some of the variety on this issue to 
the wealth of information and evidence-based guidelines available to 
States, either through their own experiences and resources or through 
industry researched and developed resources related to health system 
quality. Data gathered on the conditions identified, reporting 
strategies, and implementation guidelines indicate that States have 
relied heavily on existing health system quality improvement research 
to define requirements while tailoring policies appropriate to their 
own systems. In addition, our research indicates that States' HCAC-
related nonpayment policies are mainly intended to drive broader health 
system agendas to promote quality outcomes. We believe the use of 
evidence-based measures and the push for health system quality are an 
appropriate foundation for the

[[Page 9288]]

proposed regulation. We propose to implement Medicaid HCAC regulations 
that would provide some consistency across health care payers (Medicare 
and Medicaid). At the same time, we also propose to accommodate State 
flexibility to design individual HCAC policies for nonpayment, quality-
related programs suitable for their own Medicaid program and health 
marketplace to the extent such policies go beyond Federally-established 
minimum standards. We request comment on this issue.
    The July 31, 2008 SMDL (08-004) instructed States to 
submit SPAs to enact nonpayment provisions. Thirteen States complied 
with this requirement. Other States that implemented these policies 
through some other authority like State law or administrative 
procedures will be required to submit new SPAs for review and work with 
CMS to ensure their policies, effective July 1, 2011, are in line with 
the final provisions of this rule.

H. Provider Preventable Conditions

    We are proposing to exercise our authority under sections 
1902(a)(4), 1902(a)(19), and 1902(a)(30)(A) of the Act to provide for 
identification of Provider Preventable Conditions (PPCs) as an umbrella 
term for hospital and nonhospital conditions identified by the State 
for nonpayment to ensure the high quality of Medicaid services. These 
statutory provisions authorize requirements that States use methods and 
procedures determined by the Secretary to be necessary for the proper 
and efficient administration of the State plan, to provide care and 
services in the best interests of beneficiaries, and to provide for 
payment that is consistent with efficiency, economy, and quality of 
care.
    With the introduction of this term, we propose to include two 
categories of PPCs--HCACs and OPPCs. HCACs would apply as required 
under the statute. OPPCs would be applicable to other conditions that 
States identify and have approved through their Medicaid State plans.
    The inclusion of the new terms, PPCs and OPPCs, is consistent with 
the implementation of a broader application of this policy which allows 
us to appropriately incorporate existing State practices. The adoption 
of a new term is necessary because the term, ``health care-acquired 
condition'' is very narrowly defined in the Statute and does not 
provide for the inclusion of conditions other than those identified as 
HACs for Medicare, even excluding the 3 Medicare NCDs. Additionally, 
the statutory definition of HCACs only applies to the inpatient 
hospital service setting.
    We considered a broader definition of the term, ``health care-
acquired conditions,'' attempting to isolate the idea of the actual 
condition from the setting in which it occurred, however after 
conferring with Medicare to clearly understand the statute at section 
1886(d)(4)(D)(iv) of the Act, we came to understand that it applies 
specifically to conditions applicable to inpatient hospitals as defined 
in that section and reimbursed by diagnosis related groups. For 
example, section 1886 of the Act is titled, ``Payment to Hospitals for 
Inpatient Hospital Services.'' Section 1886(d) of the Act applies 
specifically to ``the amount of the payment with respect to the 
operating costs of inpatient hospital services.'' Section 1886(d)(4) of 
the Act requires that, ``The Secretary shall establish a classification 
of inpatient hospital discharges* * *'' Section 1886(d)(4)(D) of the 
Act is specific to the assignment of diagnosis-related groups which 
apply solely to Medicare payment for inpatient hospital services.
    We did look to the Affordable Care Act in creating these terms. 
Section 3008(b) of the Affordable Care Act, ``Study And Report On 
Expansion Of Healthcare Acquired Conditions Policy To Other 
Providers,'' requires that Medicare study the effects of expanding its 
existing policy to other providers. We adopted the ``Other Providers'' 
term to remain consistent with Medicare in the expansion of its policy.
    In looking to expand the overall policy, we considered a number of 
other terms but determined that many of them like ``adverse events'' or 
``serious reportable events'' would generate confusion because they had 
existing industry definitions that did not necessarily overlap with our 
policy aims. We adopted the term ``Provider Preventable Condition'' 
after discussion with Medicare because it appropriately identified the 
scope of the conditions and could act as a ``catch-all.'' Also, the 
term had not been narrowly defined by use in Medicare, Medicaid, or in 
the industry at-large.

I. Reporting of Results

    After researching State, industry, and Federal information related 
to the importance of reporting of quality data in driving improved 
health outcomes, we propose that a simplified level of reporting is 
essential to creating a successful nonpayment policy both from the 
payment and quality perspectives. We believe that any requirements for 
provider reporting should provide a consistent format for States to 
report State-specific measures; require that providers report 
conditions identified for nonpayment when they occur regardless of a 
provider's intention to bill; and not cause undue burden on States or 
providers.
    Quality reporting across States is inconsistent. There are 27 
States that require reporting of either hospital-acquired infections, 
conditions, or some combination of both. Some of those States require 
quality reporting but have not implemented associated HCAC-related 
nonpayment policies. Others have HCAC-related nonpayment policies, but 
have not implemented quality reporting requirements.
    Existing national quality reporting formats do not support the 
collection of data on HCACs and OPPCs for Medicaid beneficiaries. 
Providers, mainly hospitals, are subject to reporting requirements in 
addition to those imposed by States. For instance, most hospitals 
report some quality measures to CMS, the Joint Commission, or the CDC. 
We considered requiring reporting to Hospital Compare and the National 
Health Safety Network, but decided against these formats because: We do 
not believe they currently have the capacity to allow State specific 
reporting of varied measures; their existing collections may not be 
consistent with what most States are currently requiring providers 
report; and the reporting formats may impose undue significant burden 
for providers--particularly those that do not have full-time quality 
staffs or resources.
    Without direct reporting requirements, providers have no incentive 
to report conditions or adverse events for nonpayment or otherwise. 
HACs, HCACs, and related policies represent liabilities for providers 
beyond nonpayment provisions. In fact, Medicare and the industry-at-
large, have experienced nonclaiming or nonbilling on the part of 
providers seeking to escape the liability that could come with any type 
of notification of a particular event or avoid negative health outcome 
indicators.
    In consideration of our research, we propose a requirement that 
existing claims systems be used as a platform for provider self-
reporting. We also propose to include reporting provisions that would 
require provider reporting in instances when there is no associated 
bill. For instance, States could employ the widely used POA system in 
combination with including edits in their Medicaid claims systems that 
would indicate an associated claim and flag it for medical review.

[[Page 9289]]

J. States' Use of Payment Systems other than MS-DRG

    We also found that States' payment systems will dictate the manner 
in which States are able to operationalize PPCs related nonpayment 
policies. For instance, some States reimburse using MS-DRG or some 
other type of grouper software to price claims. As with Medicare, these 
States may use the POA indicator system to identify claims and reduce 
payments by programming the grouper to reduce payment through the 
grouper. We note that a considerable number of States do not use 
grouper systems to reimburse providers. These States may identify and 
reduce payment for HCACs using methods appropriate to the specific 
reimbursement system used within that State. For instance, at least one 
State has elected to carve out a portion of the total system 
reimbursements for redistribution based on its own historical quality 
measures. We believe that the proposed provision allows States this 
type of flexibility in designing methodologies that would isolate 
amounts for nonpayment and allow provider payment to be reduced based 
on a CMS-approved State plan methodology that is prospective in nature. 
We would welcome comment on this issue.

II. Provisions of the Proposed Regulations

A. General Discussion

    We propose to codify provisions that would allow States flexibility 
in identifying PPCs that include, at a minimum, the HAC identified by 
Medicare, but may also include other State-identified conditions. This 
flexibility would extend to applying nonpayment provisions to service 
settings beyond the inpatient hospital setting. We believe that 
establishing Medicare as the minimum for the application of this policy 
is appropriate at this point. Many States that have implemented HCAC-
related policies have adhered to Medicare because the conditions have 
been researched and are generally accepted by the provider community. 
In addition, provider familiarity with Medicare's HACs and 
identification processes limits the States' implementation burden.
    We also recognize that Medicare's own policy is evolving. The 
Affordable Care Act requires that Medicare attach new payment 
incentives to its HAC provisions, as well as to study the implications 
of applying HCACs policy to providers other than inpatient hospital 
providers. We encourage States to consider the benefits and quality 
implications of expanding HCAC quality and nonpayment policies as more 
information becomes available from Medicare and State Medicaid 
programs. We invite comment on the topic of expanding HCAC-related 
policies in State Medicaid programs.
    We propose that PPCs are defined under two categories: HCACs; and 
OPPCs. We are proposing to define the category of PPCs that would be 
referred to using the term ``health care-acquired conditions'' (HCACs) 
based on the definition of that term in section 2702(b) of the 
Affordable Care Act. That definition provides that an HCAC must be a 
condition that ``could'' be identified in the Medicare program by a 
secondary ICD-9-CM OR ICD-10-CM code as an HAC under section 
1886(d)(4)(D)(iv) of the Act for Medicare purposes. Section 2702(c) of 
the Affordable Care Act specifically requires that the Secretary shall 
apply to State plans (or waivers) under title XIX of the Act the 
regulations issued under section 1886(d)(4)(D) of the Act relating to 
the prohibition of payments based on the presence of a secondary 
diagnosis code specified by the Secretary in such regulations, as 
appropriate for the Medicaid program. This means States must, at a 
minimum, identify conditions as HACs in accordance with section 
1886(d)(4)(D) of the Act. Consistent with this identification, we 
propose that every State must, at a minimum, identify as an HCAC, those 
secondary diagnosis codes that have been identified as Medicare HACs 
when not present on hospital admission. We note that the Secretary has 
authority to update the Medicare HAC list as appropriate. As such, 
States are required to comply with subsequent updates or revisions in 
accordance with section 1886(d)(4)(D) of the Act.
    States will be responsible for ensuring that the conditions 
identified under their Medicaid State plans are, at a minimum, 
consistent with those identified in Medicare's final annual hospital 
IPPS rule. Medicare is required to display its final IPPS rule 60 days 
prior to the beginning of the Federal fiscal year to which the update 
applies. If Medicare revises its HAC list, we believe States will have 
sufficient time to update their corresponding policies. Therefore, we 
propose that States' policies will be effective consistent with 
Medicare's revisions to its list of HACs. We are soliciting comments on 
this issue.
    Because the definition does not require that HCACs must be limited 
to Medicare HAC, we propose a definition for an HCAC that would not be 
limited to those specifically identified for the Medicare program, but 
can include conditions identified by States for nonpayment under their 
State plans, as approved by CMS through the State plan review process, 
that the State has determined meet the statutory criteria outlined at 
section 1886(d)(4)(D)(iv) of the Act. We believe this is appropriate at 
this point in time, considering where many States are in development of 
their programs but we are seeking comment on this proposed policy. This 
proposed definition would establish Medicare as the floor, but allow 
further State innovation as determined by each State. However, even if 
a State chooses to go beyond Medicare, it will still have to be 
implemented through SPAs, and we will publish such policies on the CMS 
Web site on an annual basis to encourage States to learn from each 
other. With respect to those statutory criteria for identification of 
an HCAC, section 1886(d)(4)(D)(iv) of the Act sets forth the following 
criteria:
     Cases described by such code have a high cost or high 
volume, or both, under this title.
     The code results in the assignment of a case to a MS-DRG 
that has a higher payment when the code is present as a secondary 
diagnosis.
     The code describes such conditions that could reasonably 
have been prevented through the application of evidence-based 
guidelines.
    In applying these criteria to identify HCACs, we propose that the 
term ``code'' would refer to ICD-9-CM OR ICD-10-CM codes assigned in 
the International Classification of Diseases coding system, 9th (or 
10th) Revision, Clinical Modification or a State-specified alternative 
method of identifying conditions for purposes of payment.
    In addition, we propose that when analyzing the payment impact of 
an inpatient hospital HCAC, the State may consider the nature of its 
particular payment methodology. For instance, when a State reimburses 
hospitals on a per diem basis and determines that there was an HCAC 
that was not POA, the State may need to isolate the increased cost of 
the services (possibly through a utilization review) and reduce the per 
diem reimbursement accordingly.
    While we believe that the broad use of ICD-9-CM OR ICD-10-CM codes 
in inpatient hospital payment, as well as the POA indicator system 
currently used by Medicare to indicate conditions for nonpayment is the 
most consistent methodology for States in identifying HCACs, we are 
interested in hearing about other methods of identifying HCACs. We 
recognize that there is considerable variation among State hospital 
payment methodologies. In

[[Page 9290]]

addition, we recognize that there is considerable variation among 
States in the availability of data necessary to identify HCACs and 
related quality issues. We are proposing to require that States 
implement requirements for provider self-reporting of HCACs in the 
Medicaid claims payment process.
    The rule proposes that States would identify an HCAC similar to the 
way Medicare identifies an HAC. However, as the OIG points out in its 
report evaluating the usefulness of selected methods for identifying 
events that harm hospitalized Medicare beneficiaries, Adverse Events in 
Hospitals: Methods for Identifying Events (OEI-06-08-00221), tools like 
the Institute for Healthcare Improvement's Global Trigger Tool that 
require standardized medical record reviews are considered much more 
effective in detection than the POA system. This is significant because 
one cannot prevent what one cannot detect. Accurate measurement is the 
necessary antecedent of quality improvement. We are soliciting comments 
on the efficiency of POA indicators for purposes of this provision.
    We are also proposing to provide that States may identify similar 
OPPCs related to services furnished in settings other than inpatient 
hospitals, which would also be subject to a payment prohibition.
    Preventable conditions that are caused or related to the provision 
of health care are not limited to inpatient hospital settings. These 
conditions can occur in outpatient hospital, nursing facility, and 
ambulatory care settings, and other healthcare settings.
    We are proposing that the treatment of these OPPCs will be similar 
to the treatment of HCACs. State plans must provide for nonpayment for 
care and services related to these OPPCs, and Federal financial 
participation (FFP) will not be available in State expenditures for 
such care and services related to OPPCs.
    To establish a base of an OPPC, we propose to define OPPC to 
include, at a minimum, wrong surgical or other invasive procedure 
performed on a patient; a surgical or other invasive procedure 
performed on the wrong body part; and a surgical or other invasive 
procedure performed on the wrong patient.
    These three conditions were addressed by Medicare in three national 
coverage analyses (NCAs) to establish NCDs.
    Effective January 15, 2009, Medicare does not cover a particular 
surgical or other invasive procedure to treat a particular medical 
condition when the practitioner erroneously performs: (1) A different 
procedure altogether; (2) the correct procedure but on the wrong body 
part; or (3) the correct procedure but on the wrong patient. Medicare 
will also not cover hospitalizations and other services related to 
these non-covered procedures as defined in the Medicare Pub. 100-02, 
Benefit Policy Manual (BPM), chapter 1, sections 10 and 120 and chapter 
16, section 180. We propose to adopt these 3 for purposes of this 
regulation.
    In addition to these Federally-identified OPPCs, we propose to 
authorize States to identify other OPPCs and apply payment prohibitions 
the same as those applied to HCACs. The criteria that we are proposing 
for such other OPPCs would be similar to the criteria for HCACs. We 
propose the following criteria for States to use in identifying 
additional OPPCs:
     A condition or event identified by a State for inclusion 
under this provision must be a discrete, auditable, quantifiable, and 
clearly defined occurrence.
     A condition or event must be clearly adverse, resulting in 
a negative consequence of care that results in unintended injury or 
illness.
     A condition or event identified must be reasonably 
preventable, meaning an event that could have been anticipated and 
prepared for, but that occurs because of an error or other system 
failure.
    In designating additional OPPCs, we recommend that States consider 
the 2002 NQF report entitled ``Serious Reportable Events in Healthcare: 
A Consensus Report.'' In that report, NQF listed 27 events that were 
``serious, largely preventable and of concern to both the public and 
health care providers.'' NQF's ``Consensus Standards Maintenance 
Committee on Serious Reportable Events'' maintains and updates the list 
which currently contains 28 items.
    In order to implement the requirements of this new payment 
prohibition, we recognize that States may need additional information 
to properly process claims and determine the availability of FFP. We 
propose requiring States to establish provider self-reporting 
procedures for PPCs related to claims for Medicaid payment or courses 
of treatment that otherwise would be payable under Medicaid. We solicit 
comments on this issue.
    We will continue to gather information from States to further 
inform our policies and facilitate information sharing across States. 
We note that the Secretary may update this regulation over time to 
require additional nonpayment by States as we learn more from State 
practices.

B. Access to Care

    Section 2702(a) of the Affordable Care Act requires that the 
Secretary ensure that adjustments to payment rates under this section 
do not result in a loss of access to care for beneficiaries. To this 
end, we propose that any reduction in payment would be limited to the 
amounts directly identifiable as related to the PPC and the resulting 
treatment. We are proposing this method of protecting access because it 
limits States' ability to unduly reduce provider rates. For instance, 
if a patient develops mediastinitis after a CABG, the State would be 
allowed to deny payment for the treatment of the mediastinitis, but not 
the CABG.
    Additionally, we do not believe that beneficiaries would be best 
served by this policy if the focus was shifted from quality to system 
cost containment. We note further that nothing in this rule prevents a 
State from reinvesting any savings it may achieve from nonpayment of 
PPCs into rate improvements aimed at achieving improved access to care, 
as appropriate. We solicit comments on this issue.

C. Effective Date of the Proposed Provisions

    Consistent with the provisions of section 2702(a) of the Affordable 
Care Act, we would make these requirements effective July 1, 2011. We 
will be requesting that States submit conforming SPAs to implement 
these provisions prior to that date. To be in compliance with the July 
1, 2011 proposed effective date, under 42 CFR 430.20, the last date an 
SPA may be submitted would be September 30, 2011, which is the last day 
of the quarter in which the amendment would be effective.

D. Specific Revisions to Regulations Text

    The provisions of this rule would deny FFP for Medicaid 
expenditures made for PPCs, including HCACs and OPPCs identified in the 
State plan; and ensure that related payment adjustments do not limit 
beneficiary access to care. These provisions would apply to payments as 
specified under States' approved Medicaid State plans, effective no 
later than July 1, 2011. We are proposing to modify the regulations at 
42 CFR parts 434, 438, and 447 following general provider payment rules 
and preceding other provisions concerning reductions in provider 
payments. In addition, to ensure that these provisions apply to 
contracts that

[[Page 9291]]

States use to provide Medicaid benefits using a managed care delivery 
system, we are also proposing to modify the regulations at 42 CFR part 
438. Because the basic rule is set forth in part 447, we discuss that 
proposed modification first.
    Currently the general rules regarding Medicaid State plan payments 
for Medicaid are provided at part 447 subpart A. We propose to add a 
new Sec.  447.26 to indicate that FFP will not be available for 
expenditures made for PPCs. We have included in Sec.  447.26(a) a 
statement of the basis and purpose for the regulation, and in Sec.  
447.26(b), the definitions for the umbrella term PPCs, and the included 
terms HCACs, and other PPCs. These proposed provisions will establish 
Medicare as the floor that all States must adopt, but allow flexibility 
for States to move beyond the Medicare definitions and settings. As 
States' programs evolve and they make additional requirements, we would 
require that necessary SPAs be submitted for implementation purposes.
    In Sec.  447.26(c), we are proposing to set forth the general rule 
that State plans must preclude payment to providers for PPCs, and that 
FFP is not available for State expenditures for PPCs. To ensure 
beneficiary access to care, we specify that any reductions may be 
limited to the added cost resulting from the PPC.
    In Sec.  447.26(d), we have included a provision that would require 
States to require provider reporting of PPCs associated with Medicaid 
claims, or with courses of treatment for Medicaid beneficiaries that 
would otherwise be payable under Medicaid.
    In addition to these changes in part 447, we are proposing to 
include a requirement in Sec.  434.6(a)(12) for contracts for medical 
or administrative services that contractors do not make payment for 
PPCs, and require that providers comply with the reporting requirements 
in Sec.  447.26(d) as a condition of receiving payment. Likewise, to 
ensure that these provisions are included as required elements in 
Medicaid managed care contracts, we are proposing to include a 
requirement in Sec.  438.6(f)(2) that contracts must comply with both 
Sec.  434.6(a)(12) and Sec.  447.26.
    We have proposed these particular provisions because the 
information gathered in preparation for issuing these proposed rules 
indicate the need for a consistent authority under which States can 
implement PPC nonpayment policies; a consistent approach to identifying 
conditions for nonpayment; a streamlined terminology to indicate 
Medicaid HCAC payment policies; State flexibility to implement 
provisions suitable to their own systems; and a consistent provider 
reporting platform.

III. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We are soliciting public comment on each of these issues for the 
following sections of this document that contain information collection 
requirements (ICRs):
    Effective July 1, 2011, proposed Sec.  447.26 would require States 
to submit SPAs for CMS approval that would reduce payments to providers 
by amounts related to PPCs. The burden associated with this proposed 
requirement would be the time and effort necessary for a State to 
submit its SPA and the associated pre-print. We estimate that 50 States 
would be required to comply with this requirement. We further estimate 
that it will take each State 7 hours to submit the aforementioned 
documentation to CMS. The total estimated burden associated with this 
requirement would be 350 hours at a cost of $20.67 per hour per State.
    We estimate that it will take each State 7 hours because we intend 
to issue a template to States to simplify the process of making the 
related amendment to the Medicaid State plan.
    Proposed Sec.  447.26 would also require States to implement 
provider reporting requirements to ensure that PPCs are identified in 
claims for Medicaid payment. The burden associated with this 
requirement is the time and effort necessary to develop and implement 
provider reporting requirements that are effective with the provisions 
of this regulation. We estimate that 50 States would be required to 
comply with this requirement. Similarly, we estimate that it will take 
24 hours for each State to develop and implement the provider reporting 
requirements as specified above. The total estimated burden associated 
with this requirement would be 1,200 hours at a cost of $20.67 per hour 
per State. We believe that this estimate is reasonable because we are 
requiring that States have providers use their existing claims 
processes to report identified events.
    Proposed Sec.  438.6(f)(2) would also require States which provide 
medical assistance using a managed care delivery system to modify their 
managed care contracts to reflect the PPCs payment adjustment policies 
as applied through these regulations. The burden associated with this 
requirement is the time and effort necessary for a State to amend its 
managed care contracts to reflect these policies. We estimate that 48 
States would be required to comply with this requirement. We also 
estimate that it would take 8 hours for each State to revise its 
contracts to comply with this requirement and submit the amended 
contract to CMS for review and approval. The total estimated annual 
burden associated with this requirement is 384 hours at a cost of 
$20.67 per hour per State.
    The total estimated burden associated with this requirement is 
1,934 hours at a cost of $806.13 per State.
    If you comment on these information collection and recordkeeping 
requirements, please do either of the following:
    1. Submit your comments electronically as specified in the 
ADDRESSES section of this proposed rule; or
    2. Submit your comments to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Attention: CMS Desk Officer, 
[CMS-2400-P]; Fax: (202) 395-6974; or E-mail: OIRA_submission@omb.eop.gov.

IV. Response to Comments

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

V. Regulatory Impact Statement

A. Statement of Need

    This proposed rule implements section 2702 of the Affordable Care 
Act

[[Page 9292]]

of 2010 which directs the Secretary to issue Medicaid regulations 
effective as of July 2011, prohibiting Federal payments to States 
(under section 1903 of the Act) for any amounts expended for providing 
medical assistance for HCACs. It would also authorize States to 
identify other PPCs for which Medicaid payment would be prohibited. We 
view this regulation as one step of a larger approach to address the 
problem of HCACs.

B. Overall Impact

    We have examined the impacts of this 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 (Pub. L. 104-
4), Executive Order 13132 on Federalism (August 4, 1999), and the 
Congressional Review Act (5 U.S.C. 804(2)).
    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more in any 1 year). This rule 
does not reach the economic threshold and thus is not considered a 
major rule under the Congressional Review Act. We request comments on 
our economic analysis.
    It is difficult to estimate the amount which will be withheld from 
providers under this regulation, as not all of these events will be 
billed. However, it is instructive to note that the total dollar amount 
of Medicare claims denied under its HAC policy is approximately $20 
million per year (see 75 FR 23895, May 4, 2010). The original 
regulation creating the Medicare HACs was published in the August 19, 
2008 Federal Register (73 FR 48433). In addition, estimates were 
conducted by the Congressional Budget Office (CBO) and the CMS Office 
of the Actuary (OACT) on the impact of section 2702 of the Affordable 
Care Act. The CBO estimate concluded there would be no impact 
associated with section 2702 of the Act (CBO and JCT, 2010 Estimate). 
The CMS OACT estimate (Estimated Financial Effects of the ``Patient 
Protection and Affordable Care Act,'' as Amended, 2010) projected an 
impact from section 2702 on the Medicaid program of cost savings of $2 
million for FY 2011 ($1 million for the Federal share and $1 million 
for the State share), with an aggregate cost savings of $35 million 
($20 million for the Federal share and $15 million for the State share) 
for FYs 2011 through 2015. The Federal and State share cost savings, as 
result of denied payments, are represented by the reduction in 
transfers from Medicaid to hospitals.

                               Table 1--Medicaid Impacts for FYs 2011 Through 2015
----------------------------------------------------------------------------------------------------------------
                                                               FY impact ($ millions)
         Medicaid impacts          -----------------------------------------------------------------------------
                                        2011         2012         2013         2014         2015        Total
----------------------------------------------------------------------------------------------------------------
Federal Share.....................           -1           -4           -5           -5           -5          -20
State Share.......................           -1           -3           -3           -4           -4          -15
                                   -----------------------------------------------------------------------------
    Total.........................           -2           -7           -8           -9           -9          -35
----------------------------------------------------------------------------------------------------------------

    There are administrative cost impacts on States to modify their 
systems to meet reporting requirements, but we believe these are not 
significant. As noted above, the reporting system in this proposed 
regulation relies on an existing billing system currently in place. 
Both States and providers already have billing, claiming, and payment 
systems in place to act upon the information obtained. The costs 
reported in section III. of this proposed rule, Collection of 
Information Requirements, amount to an additional $39,976 dollars 
aggregate across all States.
    Hospitals may incur additional costs to reduce HCACs. Such costs 
include hiring additional nurses to ensure enforcement of the infection 
prevention policies. In turn, preventing or reducing HCACs will lead to 
a reduction in direct health spending, which is a benefit realized by 
Medicaid, hospitals and other payers.
    The Joint Commission requires hospitals to have established 
programs for Quality Improvement, Risk Management, Safety, and 
Infection Control. As a result, a majority of hospitals already have in 
place programs to avert Medicare HACs and thus would not incur new 
costs to implement parallel programs to avert Medicaid HACs. 
Furthermore, we anticipate a public benefit to all providers and payers 
since programs that hospitals develop to avoid Medicaid HCACs will 
likely benefit all patients and reduce health care costs. Patient 
benefits resulting from a reduction in HCAC may include an increase in 
healthy years of life. However, this public benefit will derive from 
possible responses by hospitals and not from this regulation itself.
    We realize that the overall problem of HCACs cannot be completely 
addressed in this regulation, as this proposed regulation is one step 
of an overall approach. Consequently, the estimated economic impacts 
from all HHS initiatives to address HCACs may result in much higher 
savings impact than presented in this analysis. However, such economic 
savings, for example, will not derive from this regulation alone, but 
will in part come from the knowledge that State and Federal governments 
gain from the reporting requirements created by this regulation. That 
knowledge will in turn inform future HHS initiatives to reduce excess 
morbidity and mortality attributable to HCACs.
    The RFA requires agencies to analyze options for regulatory relief 
for small entities, if a rule has a significant impact on a substantial 
number of small entities. Most hospitals, other providers, and 
suppliers are small entities, either by nonprofit status or by having 
revenues of $7.0 million to $34.5 million in any 1 year. Individuals 
and States are not included in the definition of a small entity. 
Guidance issued by the Department of Health and Human Services 
interpreting the RFA considers effects to be economically significant 
if they reach a threshold of 3 to 5 percent or more of total revenue or 
total costs. As illustrated in Table 1, any decrease in payments, as a 
result of this regulation, to small entities should be significantly 
less than this threshold.

[[Page 9293]]

Therefore, we are not preparing an analysis for the RFA because the 
Secretary has determined that this proposed rule will not have a 
significant economic impact on a substantial number of small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
RIA if a rule 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. For purposes of section 
1102(b) of the Act, we define a small rural hospital as a hospital that 
is located outside of a Metropolitan Statistical Area for Medicare 
payment regulations and has fewer than 100 beds. We are not preparing 
an analysis for section 1102(b) of the Act because the Secretary has 
determined that this proposed rule will not have a significant impact 
on the operations of a substantial number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 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 2011, that 
threshold is approximately $136 million. This rule will have no 
consequential effect on State, local, or tribal governments in the 
aggregate or on the private sector.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. While this regulation does not impose substantial costs 
on State or local governments, it does preempt some State laws. The 
requirements of Executive Order 13132 are applicable.
    Executive Order 13132 sets forth a process to be followed by the 
Federal government whenever Federal regulatory processes may affect or 
preempt State regulations or laws. We are aware that many States do 
have regulations for Medicaid nonpayment in the event that specified 
adverse events occur during provider care. This proposed rule is 
intended to create a Federal legal minimum for such State regulations. 
States could continue to enact more stringent laws or regulations upon 
approval of a Medicaid SPA by CMS to assure that there is no adverse 
impact on Medicaid beneficiary access to care.
    This proposed rule derives from section 2702 of the Affordable Care 
Act and other CMS regulatory authority. Like the Affordable Care Act, 
it is derived from Federal authority under the Commerce Clause of the 
U.S. Constitution. Under the requirements of Executive Order 13132 and 
the requirements of section 2702 of the Affordable Care Act, we have 
consulted with the States before issuing this proposed rule. Major 
portions of the regulation are, in fact, derived from comparable State 
regulations. Significant regulatory authority in this area would remain 
with the States should the proposed regulation become final. As stated, 
the proposed rule does not completely preempt State law, but merely 
sets a Federal minimum standard.
    Moreover, we solicit comments from States as part of this proposed 
rule and will consider such State comments in drafting the final rule. 
While there will be some additional administrative costs to States to 
administer this regulation, it is expected that State Medicaid savings 
will largely offset such costs.
    The requirements of Executive Order 13132 will be met in the final 
rule to be issued 30 days prior to the effective date of July 1, 2011, 
set forth in the Affordable Care Act.

C. Anticipated Effects

1. Effects on State Medicaid Programs
    The effects on State Medicaid programs as a result of this 
provision will depend on various factors. For instance, as we state in 
the preamble, there are 21 States that have already implemented similar 
policies. While we have reviewed existing State policies and 
incorporated those policies that we believe would best apply on a 
national level, these States will have to make changes to comply with 
the minimums set in this proposed rule. In addition, States will have 
to work through the SPA review process to ensure that their existing 
policies do not serve to limit beneficiaries' access to health care.
    The States that have used State plan authority to implement their 
nonpayment policies will need to review their policies and ensure that 
they comply with any finally implemented provisions of these rules. 
These States will likely have to submit revisions to their State plans. 
In addition, the States that implemented these policies through some 
other authority like State law or administrative procedures will have 
to submit new SPAs for review and work with CMS to ensure that their 
policies effective July 1, 2011, are in line with the final provisions 
of these rules. States that have elected not to implement Medicaid 
specific policies or that do not have related policies at all will need 
to submit new SPAs. Further, States which use a managed care delivery 
system to provide Medicaid benefits to beneficiaries will have to amend 
and submit for CMS review and approval managed care contracts that 
reflect these new requirements. While this regulation is effective on 
July 1, 2011, most States will already have their managed care 
contracts for the fiscal year in place by that time and there may be 
some delay in incorporating new language in their managed care 
contracts. We will issue subregulatory guidance to States requiring 
that appropriate changes be made to managed care contracts to comply 
with the regulation.
    All States will need to incorporate the reporting requirements into 
their claims systems. In addition, States will need to evaluate the 
best ways in which to identify and reduce payment for PPCs under their 
respective Medicaid plans.
    We anticipate that this provision will prompt programmatic changes 
for States regarding quality improvement considerations within health 
care systems. This provision, while it is a payment provision, is 
primarily targeted at preventing medical errors.
2. Effects on Other Providers
    We anticipate that these provisions will prompt health care 
providers to adopt quality programs that would limit the risk of 
providing services or using resources, in error, that will not be 
reimbursed.
    We anticipate that the reporting requirements will ultimately be a 
catalyst for providers in developing quality practices to reduce the 
risks associated with receiving care at their facilities and promote 
overall quality improvements.
3. Effects on the Medicaid Program
    Medicare's and States' experience has demonstrated that related 
policies often do not produce substantial short-term financial savings 
within health care systems. Medicare estimated that the policy will 
reduce its spending by an aggregate amount of about $80,000,000 from FY 
2009 through FY 2013, or by less than 0.01 percent of total annual 
spending on inpatient hospital services (75 FR 50661). States report 
similar short-term savings. However, there are more significant gains 
to be realized when considering the broader impact of increased quality 
on the health system overall, or more exactly the savings created when 
preventable conditions and related treatment are measured.
    The anticipated public benefit to all providers and payers from 
programs

[[Page 9294]]

that hospitals develop to avoid Medicaid HCACs will likely benefit all 
patients and reduce health care costs. This includes, for example, 
Medicaid beneficiaries realizing an increase in healthy years of life 
as a result of the reduction in HCACs. However, this public benefit 
will derive from possible responses by hospitals and not from this 
regulation itself.

D. Alternatives Considered: Conditions Identified as Provider-
Preventable Conditions

    The Statute requires that Medicaid, at a minimum, recognize 
Medicare's current list of HACs. We considered proposing regulatory 
action that included only the conditions listed as Medicare HACs. 
However, when considering current State practices our research 
concluded that many States' policies included conditions not identified 
by Medicare as HACs. We concluded that such limited action would not 
serve the program purposes of ensuring high quality care and would 
potentially limit State flexibility to protect beneficiaries and 
program integrity. Similarly, we considered proposing regulatory action 
that included only the inpatient hospital setting. Again, after 
assessing current State practices, as well as industry-based research, 
there is clear indication that data is available to States that will 
allow them to employ evidence based policy practices beyond the 
inpatient hospital setting. In order to provide States full flexibility 
to protect beneficiaries and the program, we elected the more 
comprehensive approach proposed. We are seeking comment on both issues.
    We considered defining OPPC as, ``a condition occurring in any 
health care setting that could have reasonably been prevented through 
the ordinary provision of high quality care during the course of 
treatment * * *'' We believed that this terminology would limit 
additional requirements on States to produce evidence of 
preventability. However, after discussing the terminology and 
scientific parameters that exist in relation to this issue, we propose 
that the term be defined as, ``a condition that could have reasonably 
been prevented through the application of evidence based guidelines.'' 
We are seeking comment on the use of both definitions.

E. Conclusion

    For the reasons outlined in the RIA, we are not preparing an 
analysis for either the RFA or section 1102(b) of the Act because we 
have determined that this proposed rule would not have a direct 
significant economic impact on a substantial number of small entities 
or a direct significant impact on the operations of a substantial 
number of small rural hospitals.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects

42 CFR Part 434

    Grant programs--health, Health maintenance organizations (HMO), 
Medicaid, Reporting and recordkeeping requirements.

42 CFR Part 438

    Grant programs--health, Medicaid, Reporting and recordkeeping 
requirements.

42 CFR Part 447

    Grant programs--health, Medicaid.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services proposes to amend 42 CFR parts 434, 438, and 447, 
as set forth below:

PART 434--CONTRACTS

    1. The authority citation for part 434 continues to read as 
follows:

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

Subpart A--General Provisions

    2. Section 434.6 is amended by--
    A. Revising the introductory text of paragraph (a).
    B. Removing the semicolons from the end of paragraphs (a)(1) 
through (a)(9), and the semicolon and the word ``and'' from the end of 
paragraph (a)(10), and adding in their place a period.
    C. Adding a new paragraph (a)(12).
    The revision and addition read as follows:

Sec.  434.6  General requirements for all contracts and subcontracts.

    (a) Contracts. All contracts under this part must include all of 
the following:
* * * * *
    (12) Specify the following:
    (i) No payment will be made by the contractor to a provider for 
provider-preventable conditions, as identified in the State plan.
    (ii) The contractor will require that all providers agree to comply 
with the reporting requirements in Sec.  447.26(d) of this subchapter 
as a condition of payment from the contractor.
    (iii) The contractor will comply with such reporting requirements 
to the extent the contractor directly furnishes services.
* * * * *

PART 438--MANAGED CARE

    3. The authority citation for part 438 continues to read as 
follows:

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

Subpart A--General Provisions

    4. Section 438.6 is amended by revising paragraph (f) to read as 
follows:

Sec.  438.6  Contract requirements.

* * * * *
    (f) Compliance with contracting rules. All contracts must meet the 
following provisions:
    (1) Comply with all applicable Federal and State laws and 
regulations including title VI of the Civil Rights Act of 1964; title 
IX of the Education Amendments of 1972 (regarding education programs 
and activities); the Age Discrimination Act of 1975; the Rehabilitation 
Act of 1973; and the Americans with Disabilities Act of 1990 as 
amended.
    (2) Provide for compliance with the requirements prohibiting 
payment for provider-preventable conditions as set forth in Sec.  
434.6(a)(12) and Sec.  447.26 of this subchapter.
    (3) Meet all the requirements of this section.
* * * * *

PART 447--PAYMENTS FOR SERVICES

    5. The authority citation for part 447 continues to read as 
follows:

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

Subpart A--Payments: General Provisions

    6. Section 447.26 is added to read as follows:

Sec.  447.26  Prohibition on payment for provider-preventable 
conditions.

    (a) Basis and purpose. The purpose of this section is to protect 
Medicaid beneficiaries and the Medicaid program by prohibiting payments 
by States for services related to provider-preventable conditions.
    (1) Section 2702 of the Patient Protection Act and Affordable Care 
Act of 2010, Public Law 111-148 requires that the Secretary exercise 
authority to prohibit Federal payment for certain provider preventable 
conditions (PPCs) and health care-acquired conditions (HCACs).

[[Page 9295]]

    (2) Section 1902(a)(19) of the Act requires that States provide 
care and services consistent with the best interests of the recipients.
    (3) Section 1902(a)(30) of the Social Security Act requires that 
State payment methods must be consistent with efficiency, economy, and 
quality of care.
    (b) Definitions. As used in this section--
    Health care-acquired condition means a condition identified as a 
HAC by the Secretary under section 1886(d)(4)(D)(iv) of the Act for 
purposes of the Medicare program and other HACs identified in the State 
plan that the State determines meet the requirements described in 
section 1886(d)(4)(D)(ii) and (iv) of the Act.
    Other provider-preventable condition means a condition occurring in 
any health care setting that meets the following criteria:
    (i) Could have reasonably been prevented through the application of 
evidence based guidelines.
    (ii) Has a negative consequence for the beneficiary.
    (iii) Is identified in the State plan.
    (iv) Is auditable.
    (v) Includes, at a minimum, wrong surgical or other invasive 
procedure performed on a patient; surgical or other invasive procedure 
performed on the wrong body part; surgical or other invasive procedure 
performed on the wrong patient.
    Provider-preventable condition means a condition that meets the 
definition of a ``health care-acquired condition'' or an ``other 
provider-preventable condition'' as defined in this section.
    (c) General rules.
    (1) A State plan must provide that no medical assistance will be 
paid for ``provider-preventable conditions'' as defined in this 
section.
    (2) Reductions in provider payment may be limited to the extent 
that the following apply:
    (i) The identified provider-preventable conditions would otherwise 
result in an increase in payment.
    (ii) The State can reasonably isolate for nonpayment the portion of 
the payment directly related to treatment for, and related to, the 
provider-preventable conditions.
    (3) FFP will not be available for any State expenditure for 
provider-preventable conditions.
    (4) A State plan must ensure that payment for services is 
sufficient to assure access to services for Medicaid beneficiaries in 
accordance with section 1902(a)(30)(A) of the Act.
    (d) Reporting. State plans must require that providers identify 
provider-preventable conditions that are associated with claims for 
Medicaid payment or with courses of treatment furnished to Medicaid 
patients for which Medicaid payment would otherwise be available.

    Authority:  Catalog of Federal Domestic Assistance Program No. 
93.778, Medical Assistance Program.

    Dated: November 17, 2010.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.

    Approved: December 13, 2011.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2011-3548 Filed 2-16-11; 8:45 am]
BILLING CODE 4120-01-P
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