This document is scheduled to be published in the

Federal Register on 04/30/2015 and available online at

http://federalregister.gov/a/2015-09245, and on FDsys.gov

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412

Office of the Secretary

45 CFR Part 170[CMS-1632-P]

RIN-0938-AS41

Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute 

Care Hospitals and the Long-Term Care Hospital Prospective Payment System 

Policy Changes and Fiscal Year 2016 Rates; Revisions of Quality Reporting 

Requirements for Specific Providers, including Changes Related to the Electronic 

Health Record 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 for 

FY 2016. Some of these 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 Pathway 

for Sustainable Growth Reform (SGR) Act of 2013, the Protecting Access to Medicare 

Act of 2014, and other legislation. We also are addressing the update of the 
CMS-1632-P 2

rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a 

reasonable cost basis subject to these limits for FY 2016.

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) for FY 2016 and 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 establish new requirements or to revise existing 

requirements for quality reporting by specific providers (acute care hospitals, 

PPS-exempt cancer hospitals, and LTCHs) that are participating in Medicare, including 

related proposals for eligible hospitals and critical access hospitals participating in the 

Medicare Electronic Health Record (EHR) Incentive Program. We also 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.

DATES: Comment Period: To be assured consideration, comments on all 

sections of this proposed rule must be received at one of the addresses provided in the 

ADDRESSES section no later than 5 p.m. EST on [Insert date 60 days after date of 

display for public inspection by the Office of the Federal Register].
CMS-1632-P 3

ADDRESSES: In commenting, please refer to file code CMS-1632-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-1632-P,

P.O. Box 8013,

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-1632-P,

Mail Stop C4-26-05,
CMS-1632-P 4

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, S.W.,

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.
CMS-1632-P 5

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 beginning of 

the “SUPPLEMENTARY INFORMATION” section.

FOR FURTHER INFORMATION CONTACT:

Ing-Jye Cheng, (410) 786-4548 and Donald Thompson, (410) 786-4487, 

Operating Prospective Payment, MS-DRGs, Deficit Reduction Act Hospital-Acquired 

Acquired Conditions—Present on Admission (DRA HAC-POA) Program, 

Hospital-Acquired Conditions Reduction Program, Hospital Readmission Reductions

Program, 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, Long-Term Care Hospital Prospective Payment 

System and MS-LTC-DRG Relative Weights Issues.

Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital 

Demonstration Program Issues.
CMS-1632-P 6

Cindy Tourison, (410) 786-1093, Hospital Inpatient Quality Reporting and 

Hospital Value-Based Purchasing--Program Administration, Validation, and 

Reconsideration Issues.

Pierre Yong, (410) 786-8896, Hospital Inpatient Quality Reporting--Measures 

Issues Except Hospital Consumer Assessment of Healthcare Providers and Systems 

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, PPS-Exempt Cancer Hospital Quality Reporting 

Issues.

Deborah Krauss, (410) 786-5264, and Alexandra Mugge, (410-786-4457), EHR 

Incentive Program Clinical Quality Measure Related Issues.

Elizabeth Myers, (410) 786-4751, EHR Incentive Program Nonclinical Quality 

Measure Related Issues. 

Lauren Wu, (202) 690-7151, Certified EHR Technology Related Issues.

Kellie Shannon, (410) 786-0416, Simplified Cost Allocation Methodology 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 
CMS-1632-P 7

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 generally only available through the Internet. The IPPS tables 

for this proposed rule are available through the Internet on the CMS Web site at: 

http://www.cms.hhs.gov/Medicare/medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html. Click on the link on the left side of the screen 

titled, “FY 2016 IPPS Proposed Rule Home Page” or “Acute Inpatient – Files for 

Download”. The LTCH PPS tables for this FY 2016 proposed rule are available through 

the Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-forService-Payment/LongTermCareHospitalPPS/index.html under the list item for 
CMS-1632-P 8

Regulation Number CMS-1632-P. For further details on the contents 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
CMS-1632-P 9

APRN Advanced practice registered nurse

ARRA American Recovery and Reinvestment Act of 2009, Pub. L. 111-5

ASCA Administrative Simplification Compliance Act of 2002, Pub. L. 107-105

ASITN American Society of Interventional and Therapeutic Neuroradiology

ASPE Assistant Secretary for Planning and Evaluation [DHHS]

ATRA American Taxpayer Relief Act of 2012, Pub. L. 112-240

BBA Balanced Budget Act of 1997, Pub. L. 105-33

BBRA Medicare, Medicaid, and SCHIP [State Children's Health Insurance

Program] Balanced Budget Refinement Act of 1999, Pub. L. 106-113

BIPA Medicare, Medicaid, and SCHIP [State Children’s Health Insurance

Program] Benefits Improvement and Protection Act of 2000,

Pub. L. 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
CMS-1632-P 10

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, Pub. L. 99-272

COLA Cost-of-living adjustment

COPD Chronis obstructive pulmonary disease

CPI Consumer price index

CQM Clinical quality measure

CY Calendar year

DACA Data Accuracy and Completeness Acknowledgement

DPP Disproportionate patient percentage

DRA Deficit Reduction Act of 2005, Pub. L. 109-171

DRG Diagnosis-related group

DSH Disproportionate share hospital
CMS-1632-P 11

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, Pub. L. 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
CMS-1632-P 12

HCO High-cost outlier

HCP Healthcare personnel

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, 

Pub. L. 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

HwH Hospital-within-hospital

IBR Intern- and Resident-to-Bed Ratio

ICD-9-CM International Classification of Diseases, Ninth Revision,
CMS-1632-P 13

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

ICU Intensive care unit

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

LTCH QRP Long-Term Care Hospital Quality Reporting Program
CMS-1632-P 14

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, Pub. L. 109-432

MIPPA Medicare Improvements for Patients and Providers Act of 2008,

Pub. L. 110-275

MMA Medicare Prescription Drug, Improvement, and Modernization Act

of 2003, Pub. L. 108-173

MMEA Medicare and Medicaid Extenders Act of 2010, Pub. L. 111-309

MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Pub. L. 110-173

MRHFP Medicare Rural Hospital Flexibility Program

MRSA Methicillin-resistant Staphylococcus aureus

MSA Metropolitan Statistical Area
CMS-1632-P 15

MS-DRG Medicare severity diagnosis-related 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

NQF National Quality Forum

NQS National Quality Strategy

NTIS National Technical Information Service

NTTAA National Technology Transfer and Advancement Act of 1991,

Pub. L. 104-113

NUBC National Uniform Billing Code

NVHRI National Voluntary Hospital Reporting Initiative

OACT [CMS] Office of the Actuary

OBRA 86 Omnibus Budget Reconciliation Act of 1986, Pub. L. 99-509

OES Occupational employment statistics

OIG Office of the Inspector General
CMS-1632-P 16

OMB [Executive] Office of Management and Budget

ONC Office of the National Coordinator for Health Information Technology

OPM [U.S.] Office of Personnel Management

OQR [Hospital] Outpatient Quality Reporting

O.R. Operating room

OSCAR Online Survey Certification and Reporting [System]

PAC Postacute care

PAMA Protecting Access to Medicare Act of 2014, Pub. L. 113-93

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
CMS-1632-P 17

QIG Quality Improvement Group [CMS]

QRDA Quality Reporting Data Architecture

RFA Regulatory Flexibility Act, Pub. L. 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

SCHIP State Child Health Insurance Program

SCIP Surgical Care Improvement Project

SFY State fiscal year

SGR Sustainable Growth Rate

SIC Standard Industrial Classification

SNF Skilled nursing facility

SOCs Standard occupational classifications
CMS-1632-P 18

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, Pub. L. 97-248

TEP Technical expert panel

THA/TKA Total hip arthroplasty/Total knee arthroplasty

TMA TMA [Transitional Medical Assistance], Abstinence Education, and QI 

[Qualifying Individuals] Programs Extension Act of 2007, Pub. L. 110-90

TPS Total Performance Score

UHDDS Uniform hospital discharge data set

UMRA Unfunded Mandate Reform Act, Pub. L. 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
CMS-1632-P 19

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 Major 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 2016 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 Pub. L. 110-90

2. Adjustment to the Average Standardized Amounts Required by Pub. L. 110-90
CMS-1632-P 20

a. Prospective Adjustment Required by Section 7(b)(1)(A) of Pub. L. 110-90

b. Recoupment or Repayment Adjustments in FYs 2010 through 2012 Required 

by Section 7(b)(1)(B) Pub. L. 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 Pub. L. 110-90

5. Recoupment or Repayment Adjustment Authorized by Section 7(b)(1)(B) of 

Pub. L. 110-90

6. Proposed Recoupment or Repayment Adjustment Authorized by Section 631 

of the American Taxpayer Relief Act of 2012 (ATRA)

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background

2. Discussion for FY 2016 and Request for Comments on Nonstandard Cost 

Center Codes

F. Proposed Adjustment to MS-DRGs for Preventable Hospital-Acquired 

Conditions (HACs), Including Infections, for FY 2016

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. Proposed Changes to the HAC Program for FY 2016
CMS-1632-P 21

6. RTI Program Evaluation

7. RTI Report on Evidence-Based Guidelines

G. Proposed Changes to Specific MS-DRG Classifications

1. Discussion of Changes to Coding System and Basis for MS-DRG Updates

a. Conversion of MS-DRGs to the International Classification of Diseases, 10th

Edition (ICD-10)

b. Basis for Proposed FY 2016 MS-DRG Updates

2. MDC 1 (Diseases and Disorders of the Nervous System): Endovascular

Embolization (Coiling) Procedures

3. MDC 5 (Diseases and Disorders of the Circulatory System)

a. Adding Severity Levels to MS-DRGs 245 through 251

b. Percutaneous Intracardiac Procedures

c. Zilver®PTX Drug-Eluting Peripheral Stent (ZPTX®)

d. Percutaneous Mitral Valve Repair System--Proposed Revision of ICD-10-PCS 

Version 32 Logic

e. Major Cardiovascular Procedures: Zenith®Fenestrated Abdominal Aortic 

Aneurysm (AAA) Endovascular Graft

4. MDC 8 (Diseases and Disorders of the Musculoskeletal System and 

Connective Tissue)

a. Revision of Hip or Knee Replacement: Proposed Revision of ICD-10 Version 

32 Logic

b. Spinal Fusion
CMS-1632-P 22

5. MDC 14 (Pregnancy, Childbirth and the Puerperium): MS-DRG 775 (Vaginal 

Delivery with Complicating Diagnosis)

6. MDC 21 (Injuries, Poisoning and Toxic Effects of Drugs): CroFab Antivenin 

Drug

7. MDC 22 (Burns): Additional Severity of Illness Level for MS-DRG 927 

(Extensive Burns or Full Thickness Burns with Mechanical Ventilation 96 + Hours with 

Skin Graft)

8. Proposed Medicare Code Editor (MCE) Changes

9. Proposed Changes to Surgical Hierarchies

10. Proposed Changes to the MS-DRG Diagnosis Codes for FY 2016

a. Major Complications or Comorbidities (MCCs) and Complications or 

Comorbidities (CCs) Severity Levelsfor FY 2016

b. Coronary Atherosclerosis Due to Calcified Coronary Lesion

c. Hydronephrosis

11. Proposed Complications or Comorbidity (CC) Exclusions List for FY 2016

a. Background

b. Proposed CC Exclusions List for FY 2016

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
CMS-1632-P 23

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 in FY 2016

a. ICD-10 Coordination and Maintenance Committee

b. Code Freeze

14. Other Proposed Policy Change: Recalled/Replaced Devices

H. Recalibration of the Proposed FY 2016 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 Proposed National Average CCRs

4. Solicitation of Public Comments on Expanding the Bundled Payments for Care 

Improvement (BPCI) Initiative

a. Background

b. Considerations for Potential Model Expansion

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

1. Background

2. Public Input Before Publication of a Notice of Proposed Rulemaking on 

Add-On Payments

3. Implementation of ICD-10-PCS Section “X” Codes for Certain New Medical 

Services and Technologies for FY 2016
CMS-1632-P 24

4. Proposed FY 2016 Status of Technologies Approved for FY 2015 Add-On 

Payments

a. Glucarpidase (Voraxaze®)

b. Zenith®Fenestrated Abdominal Aortic Aneurysm (AAA) Endovascular Graft

c. KcentraTM

d. Argus®II Retinal Prosthesis System

e. Zilver®PTX® Drug-Eluting Peripheral Stent

f. CardioMEMSTM HF (Heart Failure) Monitoring System

g. MitraClip®System

h. Responsive Neurostimulator (RNS®System)

5. FY 2016 Applications for New Technology Add-On Payments

a. Angel Medical Guardian®Ischemia Monitoring Device

b. Blinatumomab (BLINCYTOTM)

c. Ceftazidime Avibactam (AVYCAZ)

d. DIAMONDBACK®360 Coronary Orbital Atherectomy System

e. CRESEMBA®(Isavuconazonium)

f. Idarucizumab

g. LUTONIX® Drug Coated Balloon (DCB) Percutaneous Transluminal 

Angioplasty (PTA) and IN.PACTTMAdmiralTM Pacliaxel Coated Percutaneous 

Transluminal Angioplasty (PTA) Balloon Catheter

h. VERASENSETM Knee Balancer System (VKS)

i. WATCHMAN®Left Atrial Appendage Closure Technology
CMS-1632-P 25

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

A. Background

1. Legislative Authority

2. Core-Based Statistical Areas (CBSAs) for the Hospital Wage Index

B. Worksheet S-3 Wage Data for the Proposed FY 2016 Wage Index

1. Included Categories of Costs

2. Excluded Categories of Costs

3. Use of Wage Index Data by Suppliers and Providers Other Than Acute Care 

Hospitals under the IPPS

C. Verification of Worksheet S-3 Wage Data

D. Method for Computing the Proposed FY 2016 Unadjusted Wage Index

E. Proposed Occupational Mix Adjustment to the Proposed FY 2016 Wage Index

1. Development of Data for the Proposed FY 2016 Occupational Mix Adjustment 

Based on the 2013 Medicare Wage Index Occupational Mix Survey

2. New 2013 Occupational Mix Survey Data for the Proposed FY 2016 Wage 

Index

3. Calculation of the Proposed Occupational Mix Adjustment for FY 2016

F. Analysis and Implementation of the Proposed Occupational Mix Adjustment 

and the Proposed FY 2016 Occupational Mix Adjusted Wage Index

G. Transitional Wage Indexes

1. Background

2. Transition for Hospitals in Urban Areas That Became Rural
CMS-1632-P 26

3. Transition for Hospitals Deemed Urban under Section 1886(d)(8)(B) of the 

Act Where the Urban Area Became Rural under the New OMB Delineations

4. Expiring Transition for Hospitals That Experience a Decrease in Wage Index 

under the New OMB Delineations

5. Budget Neutrality

H. Proposed Application of the Rural, Imputed, and Frontier Floors

1. Proposed Rural Floor

2. Proposed Imputed Floor for FY 2016

3. Proposed State Frontier Floor

I. Proposed FY 2016 Wage Index Tables

J. Revisions to the Wage Index Based on Hospital Redesignations and 

Reclassifications

1. General Policies and Effects of Reclassification and Redesignation

2. FY 2016 MGCRB Reclassifications and Redesignation Issues

a. FY 2016 Reclassification Requests and Approvals

b. Applications for Reclassifications for FY 2017

3. Redesignations of Hospitals under Section 1886(d)(8)(B) of the Act (Lugar)

4. Waiving Lugar Redesignation for the Out-Migration Adjustment

K. Proposed Out-Migration Adjustment Based on Commuting Patterns of 

Hospital Employees

1. Background

2. New Data Source for the Proposed FY 2016 Out-Migration Adjustment
CMS-1632-P 27

3. Proposed FY 2016 Out-Migration Adjustment

4. Use of Out-Migration Data Applied for FY 2014 or FY 2015 for 3 Years

L. Process for Requests for Wage Index Data Corrections

M. Labor-Related Share for the Proposed FY 2016 Wage Index

N. Proposed Changes to 3-Year Average for the FY 2017 Wage Index Pension 

Costs and Proposed Change to Wage Index Timeline Regarding Pension Costs for 

FY 2017 and Subsequent Years

O. Clarification of Allocation of Pension Costs for the Wage Index

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

Medical Education (IME) Costs

A. Proposed Changes in the Inpatient Hospital Updates for FY 2016

(§§ 412.64(d) and 412.211(c))

1. Proposed FY 2016 Inpatient Hospital Update

2. Proposed FY 2016 Puerto Rico Hospital Update

B. Rural Referral Centers (RRCs): Proposed Annual Updates to Case-Mix Index 

(CMI) and Discharge Criteria (§ 412.96)

1. Case-Mix Index (CMI)

2. Discharges

C. Indirect Medical Education (IME) Payment Adjustment for FY 2016 

(§ 412.105)

D. Proposed FY 2016 Payment Adjustment for Medicare Disproportionate Share 

Hospitals (DSHs) (§ 412.106)
CMS-1632-P 28

1. Background

2. Impact on Medicare DSH Payment Adjustment of the Continued 

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

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. Hospital Readmissions Reduction Program: Proposed Changes for FY 2016

Through FY 2017 (§§ 412.150 through 412.154)

1. Statutory Basis for the Hospital Readmissions Reduction Program

2. Regulatory Background

3. Overview of Proposed Policies Changes for the FY 2016 and FY 2017

Hospital Readmissions Reduction Program

4. Proposed Refinement of Hospital 30-Day, All Cause, Risk-Standardized 

Readmission Rate (RSSR) Following Pneumonia Hospitalization Measure Cohort (NQF 

#0506) for FY 2017 Payment Determination and Subsequent Years

a. Background

b. Overview of Measure Cohort Change

c. Risk Adjustment
CMS-1632-P 29

d. Anticipated Effect of Refinement of Hospital 30-Day, All-Cause, 

Risk-Standardized Readmission Rate (RSSR) Following Pneumonia Hospitalization 

Measure (NQF #0506) Cohort

e. Calculating the Excess Readmissions Ratio

5. Maintenance of Technical Specifications for Quality Measures

6. Floor Adjustment Factor for FY 2016 (§ 412.154(c)(2))

7. Proposed Applicable Period for FY 2016

8. Proposed Calculation of Aggregate Payments for Excess Readmissions for 

FY 2016

a. Background

b. Proposed Calculation of Aggregate Payments for Excess Readmissions for 

FY 2016

9. Proposed Extraordinary Circumstances Exception Policy for the Hospital 

Readmissions Reduction Program Beginning FY 2016 and for Subsequent Years

a. Background

b. Requests for an Extraordinary Circumstances Exception

F. Hospital Value-Based Purchasing (VBP) Program: Proposed Policy Changes 

for the FY 2018 Program Year and Subsequent Years

1. Background

a. Statutory Background and Overview of Past Program Years

b. FY 2016 Program Year Payment Details
CMS-1632-P 30

2. Proposed Retention, Removal, Expansion, and Updating of Quality Measures

for FY 2018 Program Year

a. Retention of Previously Adopted Hospital VBP Program Measures for the 

FY 2018 Program Year

b. Proposed Removal of Two Measures

c. Proposed New Measure for the FY 2018 Program Year: 3-Item Care 

Transition Measure (CTM-3) (NQF #0228)

d. Proposed Removal of Clinical Care—Process Subdomain for the FY 2018 

Program Year and Subsequent Years

e. NHSN Measures Standard Population Data

f. Summary of Previously Adopted and Newly Proposed Measures for the 

FY 2018 Program Year

3. Previously Adopted and Newly Proposed Measures for the FY 2019, FY 2021, 

and Subsequent Program Years

a. Intent to Propose in Future Rulemaking to Include Selected Ward (NonIntensive Care Unit (ICU)) Locations in Certain NHSN Measures Beginning with the FY 

2019 Program Year

b. Proposed New Measure for the FY 2021 Program Year: Hospital 30-Day, 

All-Cause, Risk-Standardized Mortality Rate Following Chronic Obstructive Pulmonary 

Disease (COPD) Hospitalization (NQF #1893)

c. Summary of Previously Adopted and Newly Proposed Measures for the 

FY 2019 and FY 2021 and Subsequent Program Years
CMS-1632-P 31

4. Possible Measure Topics for Future Program Years

5. Previously Adopted and Newly Proposed Baseline and Performance Periods 

for the FY 2018 Program Year

a. Background

b. Proposed Baseline and Performance Periods for the Patient and 

Caregiver-Centered Experience of Care/Care Coordination Domain for the FY 2018 

Program Year

c. Proposed Baseline and Performance Periods for NHSN Measures and PC-01 in 

the Safety Domain for the FY 2018 Program Year

d. Proposed Baseline and Performance Periods for the Efficiency and Cost 

Reduction Domain for the FY 2018 Program Year

e. Summary of Previously Finalized and Newly Proposed Baseline and 

Performance Periods for the FY 2018 Program Year

6. Previously Adopted and Newly Proposed Baseline and Performance Periods 

for Future Program Years

a. Previously Adopted Baseline and Performance Periods for the FY 2019 

Program

b. Proposed Baseline and Performance Periods for the PSI-90 Measure in the 

Safety Domain in the FY 2020 Program Years 

c. Proposed Baseline and Performance Periods for the Clinical Care Domain for 

the FY 2021 Program Year

7. Proposed Performance Standards for the Hospital VBP Program
CMS-1632-P 32

a. Background

b. Technical Updates

c. Proposed Performance Standards for the FY 2018 Program Year

d. Previously Adopted Performance Standards for Certain Measures for the 

FY 2019 Program Year

e. Previously Adopted and Newly Proposed Performance Standards for Certain 

Measures for the FY 2020 Program Year

f. Proposed Performance Standards for Certain Measures for the FY 2021 

Program Year

8. Proposed FY 2018 Program Year Scoring Methodology

a. Proposed Domain Weighting for the FY 2018 Program Year for Hospitals That 

Receive a Score on All Domains

b. Proposed Domain Weighting for the FY 2018 Program Year for Hospitals 

Receiving Scores on Fewer than Four Domains

G. Proposed Changes to the Hospital-Acquired Condition (HAC) Reduction 

Program

1. Background

2. Statutory Basis for the HAC Reduction Program

3. Overview of Previous HAC Reduction Program Rulemaking

4. Implementation of the HAC Reduction Program for FY 2016

5. Proposed Changes for Implementation of the HAC Reduction Program for 

FY 2017
CMS-1632-P 33

a. Proposed Applicable Time Period for the FY 2017 HAC Reduction Program

b. Proposed Narrative Rule Used in Calculation of the Domain 2 Score for the 

FY 2017 HAC Reduction Program

c. Proposed Domain 1 and Domain 2 Weights for the FY 2017 HAC Reduction 

Program

6. Proposed Measure Refinements for the FY 2018 HAC Reduction Program

a. Proposal to Include Select Ward (Non-Intensive Care Unit (ICU)) Locations in 

Certain CDC NHSN Measures Beginning in the FY 2018 Program Year

b. Update to CDC NHSN Measures Standard Population Data

7. Maintenance of Technical Specifications for Quality Measures

8. Proposed Extraordinary Circumstances Exception Policy for the HAC 

Reduction Program Beginning in FY 2016 and for Subsequent Years

a. Background

b. Requests for an Extraordinary Circumstances Exception

H. Proposed Elimination of Simplified Cost Allocation Methodology

1. Background

2. Proposed Changes

I. Rural Community Hospital Demonstration Program

1. Background

2. Proposed FY 2016 Budget Neutrality Offset Amount

J. Proposed Changes to MS-DRGs Subject to the Postacute Care Transfer Policy 

(§ 412.4)
CMS-1632-P 34

1. Background

2. Proposed Changes to the Postacute Care Transfer MS-DRGs

K. Short Inpatient Hospital Stays

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

A. Overview

B. Additional Provisions

1. Exception Payments

2. New Hospitals

3. Hospitals Located in Puerto Rico

C. Proposed Annual Update for FY 2016

VI. Proposed Changes for Hospitals Excluded from the IPPS

VII. Proposed Changes to the Long-Term Care Hospital Prospective Payment System 

(LTCH PPS) for FY 2016

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
CMS-1632-P 35

B. Proposed Application of Site Neutral Payment Rate (Proposed New 

§ 412.522)

1. Overview

2. Proposed Application of the Site Neutral Payment Rate under the LTCH PPS

3. Criteria for Exclusion from the Site Neutral Payment Rate

a. Statutory Provisions

b. Proposed Implementation of Criterion for a Principal Diagnosis Relating to a 

Psychiatric Diagnosis or to Rehabilitation

c. Proposed Addition of Definition of “Subsection (d) Hospital” to LTCH 

Regulations

d. Proposed Interpretation of “Immediately Preceded” by a Subsection (d) 

Hospital Discharge

e. Proposed Implementation of Intensive Care Unit (ICU) Criterion

f. Proposed Implementation of the Ventilator Criterion

4. Proposed Determination of the Site Neutral Payment Rate (Proposed New 

§ 412.522(c))

a. General

b. Proposed Blended Payment Rate for FY 2016 and FY 2017

c. Proposed LTCH PPS Standard Federal Payment Rate

5. Proposed Application of Certain Exiting LTCH PPS Payment Adjustments to 

Payments Made under the Site Neutral Payment Rate

6. Proposals Relating to the LTCH Discharge Payment Percentage
CMS-1632-P 36

7. Additional LTCH PPS Policy Considerations Related to the Implementation of 

the Site Neutral Payment Rate Required by Section 1206(a) of Pub. L. 113-67

a. MS-LTC-DRG Relative Payment Weights

b. High-Cost Outliers

c. Limitation on Charges to Beneficiaries

C. Proposed Medicare Severity Long-Term Care Diagnosis-Related Group 

(MS-LTC-DRG) Classifications and Relative Weights for FY 2016

1. Background

2. Patient Classifications into MS-LTC-DRGs

a. Background

b. Proposed Changes to the MS-LTC-DRGs for FY 2016

3. Development of the Proposed FY 2016 MS-LTC-DRG Relative Weights

a. General Overview of the Development of the MS-LTC-DRG Relative Weights

b. Development of the Proposed MS-LTC-DRG Relative Weights for FY 2016

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 2016 MS-LTC-DRG Relative Weights

D. Proposed Changes to the LTCH PPS Standard Payment Rates for FY 2016

1. Overview of Development of the LTCH PPS Standard Federal Payment Rates
CMS-1632-P 37

2. Proposed FY 2016 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 Program(LTCH QRP)

d. Proposed Market Basket under the LTCH PPS for FY 2016

e. Proposed Annual Market Basket Update for LTCHs for FY 2016

E. Moratoria on the Establishment of LTCHs and LTCH Satellite Facilities and 

on the Increase in Number of Beds in Existing LTCHs and LTCH Satellite Facilities

F. Proposed Changes to Average Length of Stay Criterion under Pub. L. 113-67

(§ 412.23)

VIII. Proposed Quality Data Reporting Requirements for Specific Providers and 

Suppliers for FY 2016

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. Process for Retaining Previously Adopted Hospital IQR Program Measures for 

Subsequent Payment Determinations

3. Removal and Suspension of Hospital IQR Program Measures
CMS-1632-P 38

a. Considerations in Removing Quality Measures from the Hospital IQR Program

b. Proposed Removal of Hospital IQR Program Measures for the FY 2018

Payment Determination and Subsequent Years

4. Previously Adopted Hospital IQR Program Measures for the FY 2017

Payment Determination and Subsequent Years

a. Background

b. NHSN Measures Standard Population Data

5. Expansion and Updating of Quality Measures

6. Proposed Refinements of Existing Measures in the Hospital IQR Program

a. Proposed Refinement of Hospital 30-Day, All-Cause, Risk-Standardized 

Mortality Rate (RSMR) Following Pneumonia Hospitalization (NQF #0468) Measure 

Cohort

b. Proposed Refinement of Hospital 30-Day, All-Cause, Risk-Standardized 

Readmission Rate (RSRR) Following Pneumonia Hospitalization (NQF #0468) Measure 

Cohort

7. Proposed Additional Hospital IQR Program Measures for the FY 2018

Payment Determination and Subsequent Years

a. Hospital Survey on Patient Safety Culture

b. Clinical Episode-Based Payment Measures

c. Hospital-Level, Risk-Standardized Payment Associated with a 90-Day 

Episode-of-Care for Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee 

Arthroplasty (TKA)
CMS-1632-P 39

d. Excess Days in Acute Care after Hospitalization for Acute Myocardial 

Infarction

e. Excess Days in Acute Care after Hospitalization for Heart Failure

f. Summary of Previously Adopted and Proposed Hospital IQR Program Measure 

Set for the FY 2018 Payment Determination and subsequent Years

8. Electronic Clinical Quality Measures

a. Previously Adopted Voluntarily Reported Electronic Clinical Quality 

Measures for the FY 2017 Payment Determination

b. Clarification of the Venous Thromboembolism (VTE) Prophylaxis (STK – 01)

Measure (NQF #0434)

c. Proposed Requirements for Hospitals to Report Electronic Clinical Quality 

Measures for the FY 2018 Payment Determination and Subsequent Years

9. Future Considerations for Electronically Specified Measures: Consideration to 

Implement a New Type of Measure that Utilizes Core Clinical Data Elements

a. Background

b. Overview of Core Clinical Data Elements

c. Core Clinical Data Elements Development

d. Core Clinical Data Elements Feasibility Testing Using Readmission and 

Mortality Models

e. Use of Core Clinical Data Elements in Hospital Quality Measures for the 

Hospital IQR Program

f. Content Exchange Standard Considerations for Core Clinical Data Elements
CMS-1632-P 40

10. Form, Manner, and Timing of Quality Data Submission

a. Background

b. Procedural Requirements for the FY 2018 Payment Determination and 

Subsequent Years

c. Data Submission Requirements for Chart-Abstracted Measures

d. Alignment of the Medicare EHR Incentive Program Reporting for Eligible 

Hospitals and CAHs with the Hospital IQR Program

e. Sampling and Case Thresholds for the FY 2018 Payment Determination and 

Subsequent Years

f. HCAHPS Requirements for the FY 2018 Payment Determination and 

Subsequent Years

g. Data Submission Requirements for Structural Measures for the FY 2018

Payment Determination and Subsequent Years

h. Data Submission and Reporting Requirements for Healthcare-Associated 

Infection (HAI) Measures Reported via NHSN

11. Proposed Modifications to the Existing Processes for Validation of Hospital 

IQR Program Data

a. Background

b. Proposed Modifications to the Existing Processes for Validation of 

Chart-Abstracted Hospital IQR Program Data

12. Data Accuracy and Completeness Acknowledgement Requirements for the 

FY 2018 Payment Determination and Subsequent Years
CMS-1632-P 41

13. Public Display Requirements for the FY 2018 Payment Determination and 

Subsequent Years

14. Reconsideration and Appeal Procedures for the FY 2018 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. Proposed Removal of Six Surgical Care Improvement Project (SCIP) 

Measures from the PCHQR Program Beginning with Fourth Quarter (Q4) 2015 

Discharges and for Subsequent Years

3. Proposed New Quality Measures Beginning with the FY 2018 Program

a. Considerations in the Selection of Quality Measures

b. Summary of Proposed New Measures

c. CDC NHSN Facility-Wide Inpatient Hospital-Onset Clostridium difficile 

(C. difficile) Infection (CDI) Outcome Measure (NQF #1717)

d. CDC NHSN Facility-Wide Inpatient Hospital-Onset Methicillin-Resistant 

Staphylococcus Aureus (MSRA) Bacteremia Outcome Measure (NQF #1716)

e. CDC NHSN Influenza Vaccination Coverage Among Healthcare Personnel 

(HCP) Measure (NQF #0431) (CDC NHSN HCP Measure)

4. Possible New Quality Measure Topics for Future Years

5. Maintenance of Technical Specifications for Quality Measures
CMS-1632-P 42

6. Public Display Requirements

a. Background

b. Proposed Additional Public Display Requirements

7. Form, Manner, and Timing of Data Submission

a. Background

b. Reporting Requirements for the Proposed New Measures: CDC NHSN CDI 

(NQF #1717), CDC NHSN MRSA (NQF #1716), and CDC NHSN HCP (NQF #0431)

Measures

C. Long-Term Care Hospital Quality Reporting Program (LTCH QRP)

1. Background and Statutory Authority

2. General Considerations Used for Selection, Resource Use, and Other Quality 

Measures for the LTCH QRP

3. Policy for Retention of LTCH QRP Measures Adopted for Previous Payment 

Determinations

4. Policy for Adopting Changes to LTCH QRP 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. Previously Adopted LTCH QRP Quality Measures for the FY 2018 Payment 

Determinations and Subsequent Years
CMS-1632-P 43

a. Proposal to Reflect NQF Endorsement: All-Cause Unplanned Readmission 

Measure for 30 Days Post-Discharge from LTCHs (NQF #2512)

b. Proposal to Address the IMPACT Act of 2014: Quality Measure Addressing 

the Domain of Skin Integrity and Changes in Skin Integrity: Percent of Residents or 

Patients with Pressure Ulcers That Are New or Worsened (Short Stay) (NQF #0678)

c. Proposal to Address the IMPACT Act of 2014: Quality Measure Addressing 

the Domain of Incidence of Major Falls: Application of Percent of Residents Experiencing 

One or More Falls with Major Injury (Long Stay) (NQF #0674)

d. Proposal to Address the IMPACT Act of 2014: Quality Measure Addressing 

the Domain of Functional Status, Cognitive Function, and Changes in Function and 

Cognitive Function: Application of Percent of LTCH Patients With an Admission and 

Discharge Functional Assessment and a Care Plan That Addresses Function (NQF #2631; 

under NQF review)

7. LTCH QRP Quality Measures for the FY 2019 Payment Determination and 

Subsequent Years

8. LTCH QRP 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. Proposed Timing for New LTCHs to Begin Reporting Data to CMS for the 

FY 2017 Payment Determinations and Subsequent Years
CMS-1632-P 44

c. Proposed Revisions to Previously Adopted Data Submission Timelines under 

the LTCH QRP for the FY 2017 and FY 2018 Payment Determinations and Subsequent 

Years and Proposed Data Collection and Data Submission Timelines for Quality 

Measures Proposed in this Proposed Rule

10. Previously Adopted LTCH QRP Data Completion Thresholds for the 

FY 2016 Payment Determination and Subsequent Years

11. Future LTCH QRP Data Validation Process

12. Proposed Public Display of Quality Measure Data for the LTCH QRP

13. Previously Adopted and Proposed LTCH QRP Reconsideration and Appeals 

Procedures for the FY 2017 Payment Determination and Subsequent Years

14. Previously Adopted and Proposed LTCH QRP Submission Exception and 

Extension Requirements for the FY 2017 Payment Determination and Subsequent Years

D. Clinical Quality Measurement for Eligible Hospitals and Critical Access 

Hospitals Participating in the EHR Incentive Programs in 2016

1. Background

2. CQM Reporting for the Medicare and Medicaid EHR Incentive Programs in 

2016

a. Background

b. Proposed CQM Reporting Period for the Medicare and Medicaid EHR 

Incentive Programs for CY 2016

c. CQM Form and Method for the Medicare EHR Incentive Programs for 2016

3. Certified EHR Technology for CQMs for the EHR Incentive Programs in 2016
CMS-1632-P 45

a. Edition of Certified EHR Technology Requirements for 2016

b. “CQM – Report” Certification Criterion in ONC’s 2015 Edition Proposed Rule

4. CQM Development and Certification Cycle

IX. MedPAC Recommendations

X. Other Required Information

A. Requests for Data from the Public

B. Collection of Information Requirements

1. Statutory Requirement for Solicitation of Comments

2. ICRs for Add-On Payments for New Services and Technologies

3. ICRs for the Proposed Occupational Mix Adjustment to the Proposed FY 2016

Wage Index (Hospital Wage Index Occupational Mix Survey)

4. Hospital Applications for Geographic Reclassifications by the MGCRB

5. ICRs for the Hospital Inpatient Quality Reporting (IQR) Program

6. ICRs for PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program

7. ICRs for Hospital Value-Based Purchasing (VBP) Program

8. ICRs for the Long-Term Care Hospital Quality Reporting Program (LTCHQR)

C. Response to Comments

Regulation Text
CMS-1632-P 46

Addendum—Proposed Schedule of Standardized Amounts, Update Factors, and 

Rate-of-Increase Percentages Effective with Cost Reporting Periods Beginning on or 

after October 1, 2015 and Proposed Payment Rates for LTCHs Effective with 

Discharges Occurring on or after October 1, 2015

I. Summary and Background

II. Proposed Changes to the Prospective Payment Rates for Hospital Inpatient Operating 

Costs for Acute Care Hospitals for FY 2016

A. Calculation of the Adjusted Standardized Amount

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

C. Proposed MS-DRG Relative Weights

D. Calculation of the Prospective Payment Rates

III. Proposed Changes to Payment Rates for Acute Care Hospital Inpatient 

Capital-Related Costs for FY 2016

A. Determination of Federal Hospital Inpatient Capital-Related Prospective 

Payment Rate Update

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

for FY 2016

C. Capital Input Price Index

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

Percentages for FY 2016

V. Proposed Updates to the Payment Rates for the LTCH PPS for FY 2016

A. Proposed LTCH PPS Standard Federal Rate for FY 2016
CMS-1632-P 47

1. Background

2. Development of the Proposed FY 2016 LTCH PPS Standard Federal Rate

B. Proposed Adjustment for Area Wage Levels under the LTCH PPS Standard 

Federal Payment Rate for FY 2016

1. Background

2. Proposed Geographic Classifications (Labor Market Areas) for the LTCH PPS 

Standard Federal Payment Rate

3. Proposed Labor-Related Share for the LTCH PPS Standard Federal Payment 

Rate

4. Proposed Wage Index for FY 2016 for the LTCH PPS Standard Federal 

Payment Rate

5. Proposed Budget Neutrality Adjustment for Proposed Changes to the LTCH 

PPS Standard Federal Payment Rate 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. Overview

2. Determining Proposed LTCH CCRs under the LTCH PPS

3. Proposed High-Cost Outlier Payments for LTCH PPS Standard Federal 

Payment Rate Cases

4. Proposed High-Cost Outlier Payments for Site Neutral Payment Rate Cases
CMS-1632-P 48

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 2016

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
CMS-1632-P 49

2. Effects of Proposed Policy Relating to New Medical Service and Technology 

Add-On Payments

3. Effects of Proposed Changes in Medicare DSH Payments for FY 2016

4. Effects of Proposed Reductions under the Hospital Readmissions Reduction 

Program

5. Effects of Proposed Changes under the FY 2016 Hospital Value-Based 

Purchasing (VBP) Program

6. Effects of Proposed Changes to the HAC Reduction Program for FY 2016

7. Effects of Proposed Elimination of the Simplified Cost Allocation 

Methodology

8. Effects of Implementation of Rural Community Hospital Demonstration 

Program

9. Effects of Proposed Changes to List of MS-DRGs Subject to Postacute Care 

Transfer and DRG Special Pay Policy

I. Effects of Proposed Changes in the Capital IPPS

1. General Considerations

2. Results

J. Effects of Proposed Payment Rate Changes and Proposed Policy Changes 

under the LTCH PPS

1. Introduction and General Considerations

2. Impact on Rural Hospitals
CMS-1632-P 50

3. Anticipated Effects of Proposed LTCH PPS Payment Rate Changes and 

Proposed Policy Changes

4. Effect on the Medicare Program

5. Effect on Medicare Beneficiaries

K. Effects of Proposed Requirements for Hospital Inpatient Quality Reporting 

(IQR) Program

L. Effects of Proposed Requirements for the PPS-Exempt Cancer Hospital 

Quality Reporting (PCHQR) Program for FY 2016

M. Effects of Proposed Requirements for the LTCH Quality Reporting Program

(LTCH QRP) for FY 2016 through FY 2020

N. Effects of Proposed Changes to Clinical Quality Measurement for Eligible 

Hospitals and Critical Access Hospitals Participating in the EHR Incentive Programs in 

2016

II. Alternatives Considered

III. Overall Conclusion

A. Acute Care Hospitals

B. LTCHs

IV. Accounting Statements and Tables

A. Acute Care Hospitals

B. LTCHs

V. Regulatory Flexibility Act (RFA) Analysis

VI. Impact on Small Rural Hospitals
CMS-1632-P 51

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. Proposed Inpatient Hospital Updates for FY 2016

A. Proposed FY 2016 Inpatient Hospital Update

B. Proposed Update for SCHs for FY 2016

C. Proposed FY 2016 Puerto Rico Hospital Update

D. Proposed Update for Hospitals Excluded from the IPPS for FY 2016

E. Proposed Update for LTCHs for FY 2016

III. Secretary’s Recommendation

IV. MedPAC Recommendation for Assessing Payment Adequacy and Updating 

Payments in Traditional Medicare

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority

This proposed rule would make payment and policy changes under the 

Medicare inpatient prospective payment systems (IPPS) for operating and 

capital-related costs of acute care hospitals as well as for certain hospitals and 

hospital units excluded from the IPPS. In addition, it would make payment and 

policy changes for inpatient hospital services provided by long-term care 
CMS-1632-P 52

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, IPPS-excluded 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 2016 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 Pub. L. 106-113 and section 307(b)(1) of 

Pub. L. 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 
CMS-1632-P 53

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 hospital-acquired 

conditions (HACs), including infections. Section 1886(d)(4)(D) of the Act specifies that, 

by October 1, 2007, the Secretary was required to select, in consultation with the Centers 

for Disease Control and Prevention (CDC), at least two conditions that: (a) are high cost, 

high volume, or both; (b) are assigned to a higher paying MS-DRG when present as a 

secondary diagnosis (that is, conditions under the MS-DRG system that are complications 

or comorbidities (CCs) or major complications or comorbidities (MCCs); and (c) could 

reasonably have been prevented through the application of evidence-based guidelines. 

Section 1886(d)(4)(D) of the Act also specifies that the list of conditions may be revised, 

again in consultation with CDC, from time to time as long as the list contains at least two 

conditions. Section 1886(d)(4)(D)(iii) of the Act requires that hospitals, effective with 

discharges occurring on or after October 1, 2007, submit information on Medicare claims 

specifying whether diagnoses were present on admission (POA). Section 
CMS-1632-P 54

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 Hospital-Acquired Condition (HAC) Reduction Program, under 

which payments to applicable hospitals are adjusted to provide an incentive to reduce 

hospital-acquired conditions.
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 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 hospital 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 hospital payment made under section 1886(d)(5)(F) of the Act will 

receive two separate payments: (1) 25 percent of the amount they previously would have 

received under section 1886(d)(5)(F) of the Act for DSH (“the empirically justified 

amount”), and (2) an additional payment for the DSH hospital’s proportion of 

uncompensated care, determined as the product of three factors. These three factors are: 

(1) 75 percent of the payments that would otherwise be made under section 1886(d)(5)(F)

of the Act; (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.
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● Section 1886(m)(6) of the Act, as added by section 1206(a)(1) of the Pathway 

for SGR Reform Act of 2013 (Pub. L. 113-67), 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” hospital-within-hospitals 

(HwHs), which are permanently exempt from this policy); and section 1206(b)(2) (as 

amended by section 112(b) of 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.
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● 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 LTCH QRP for 

change in mobility among inpatients requiring ventilator support.

● Section 1899B of the Act, as added by the Improving Medicare Post-Acute 

Care Transformation Act of 2014 (the IMPACT Act of 2014), which imposes new data 

reporting requirements for certain postacute care providers, including LTCHs.

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 Pub. L. 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 Pub. L. 110-90 until FY 2013. Prior to the ATRA, this 

amount could not have been recovered under Pub. L. 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 one year, 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 
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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 and FY 2015. We are proposing to make an additional –0.8 percent 

recoupment adjustment to the standardized amount in FY 2016.

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 expanded the readmissions measures for FY 2017 

and future years by adding a measure of patients readmitted following coronary artery 

bypass graft (CABG) surgery.

In this proposed rule, we are proposing a refinement to the pneumonia 

readmissions measure, which would expand the measure cohort for the FY 2017 

payment determination and subsequent years. In addition, we are proposing to adopt 
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an extraordinary circumstance exception policy that would align with existing 

extraordinary circumstance exception policies for other IPPS quality reporting and 

payment programs and would allow hospitals that experience an extraordinary 

circumstance (such as a hurricane or flood) to request a waiver for use of data from the 

affected time period.
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c. Hospital Value-Based Purchasing (VBP) Program

Section 1886(o) of the Act requires the Secretary to establish a Hospital VBP 

Program under which value-based incentive payments are made in a fiscal year to 

hospitals based on their performance on measures established for a performance period 

for such fiscal year.

For FY 2016, we are proposing to adopt one additional measure beginning with

the FY 2018 program year and one measure beginning with the FY 2021 program year. 

We also are proposing to remove two measures beginning with the FY 2018 program 

year. In addition, we are proposing to move one measure to the Safety domain and to 

remove the Clinical Care—Process subdomain and rename the Clinical Care—Outcomes 

subdomain as the Clinical Care domain. Finally, we are signaling our intent to propose in 

future rulemaking to expand one measure and to update the standard population data we 

use to calculate several measures beginning with the FY 2019 program year.

d. Hospital-Acquired Condition (HAC) Reduction Program

Section 1886(p) of the Act, as added under section 3008(a) of the Affordable 

Care Act, establishes an incentive to hospitals to reduce the incidence of 

hospital-acquired conditions by requiring the Secretary to make an adjustment to 

payments to applicable hospitals 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 
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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.

In this proposed rule, we are proposing three changes to existing 

Hospital-Acquired Condition Reduction Program policies: (1) an expansion to the 

population covered by the central line-associated bloodstream infection (CLABSI) and 

catheter-associated urinary tract infection (CAUTI) measures to include patients in 

select nonintensive care unit sites within a hospital; (2) an adjustment to the relative 

contribution of each domain to the Total HAC Score which is used to determine if a 

hospital will receive the payment adjustment; and (3) a policy that would align with 

existing extraordinary circumstance exception policies for other IPPS quality reporting 

and payment programs and would allow hospitals to request a waiver for use of data 

from the affected time period.

e. DSH Payment Adjustment and 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 in section 

1886(d)(5)(F) of the Act. 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 an additional payment based on its 
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share of the total amount of uncompensated care for all Medicare DSH hospitals for a 

given time period.

In this proposed rule, we are proposing to update our estimates of the three factors 

used to determine uncompensated care payments for FY 2016. We are proposing to 

continue to use the methodology we established in FY 2015 to calculate the 

uncompensated care payment amounts for merged hospitals such that we combine 

uncompensated care data for the hospitals that have undergone a merger in order to 

calculate their relative share of uncompensated care. We also are proposing a change 

to the time period of the data used to calculate the uncompensated care payment 

amounts to be distributed.

f. Proposed Changes to the LTCH PPS

Under the current LTCH PPS, all discharges are paid under the LTCH PPS 

standard Federal payment rate. In this proposed rule, we are proposing to implement 

section 1206 of the Pathways for SGR Reform Act, which requires the establishment of 

an alternative site neutral payment rate for Medicare inpatient discharges from an LTCH 

that fail to meet certain statutory defined criteria, beginning with LTCH discharges 

occurring in cost reporting periods beginning on or after October 1, 2015. We include 

proposals regarding the application of the site neutral payment rate and the criteria for 

exclusion from the site neutral payment rate, as well as proposals on a number of 

methodological and implementation issues, such as the criterion for a principal diagnosis 

relating to a psychiatric diagnosis or to rehabilitation, the intensive care unit (ICU) 

criterion, the ventilator criterion, the definition of “immediately preceded” by a 
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subsection (d) hospital discharge, limitation on beneficiary charges in the context of the 

new site neutral payment rate, and the transitional blended payment rate methodology for 

FY 2016 and FY 2017.

In addition, we are proposing changes to address certain statutory requirements 

related to an LTCH’s average length of stay criterion and discharge payment percentage. 

We also are providing technical clarifications relating to our FY 2015 implementation of 

the new statutory moratoria on the establishment of new LTCHs and LTCH satellite 

facilities (subject to certain defined exceptions) and on bed increases in existing LTCHs 

and LTCH satellite facilities as well as proposing a technical revision to the regulations to 

more clearly reflect our established policies.

g. 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 payments. In past years, we have established 

measures for reporting data and the process for submittal and validation of the data.

In this proposed rule, we are proposing to update considerations for measure 

removal and retention. In addition, we are proposing to remove nine measures for the 

FY 2018 payment determination and subsequent years: six of these measures are 

“topped-out” and two of the measures are suspended. However, we are retaining the 

electronic version of six of these measures. We also are proposing to refine two 

previously adopted measures as well as for the FY 2018 payment determination and 
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subsequent years and add eight new measures: seven new claims-based measures and 

one structural measure.

Further, for the FY 2018 payment determination, we are proposing to require 

hospitals to report 16 of the 28 electronic clinical quality measures under the Hospital 

IQR Program that align with the Medicare EHR Incentive Program and span 3 different 

NQS domains. We also are proposing to require that hospitals submit two quarters (Q3 

and Q4) of data within 2 months following the last discharge date of the quarter. We are 

proposing to delay and footnote public reporting of electronic clinical quality measure 

data submitted by hospitals for the CY 2016/FY 2018 payment determination.

We are proposing to align the reporting and submission timelines for the 

electronic submission of 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. Lastly, ONC is proposing a 2015 

Edition certification criterion for “CQMs – report” as part of the proposed 2015 Edition 

of certification criteria that would require a certified Health IT Module to enable a user to 

electronically create a data file for transmission of clinical quality measurement data. 

This proposed certification criterion would apply to eligible professionals, eligible 

hospitals, and CAHs.

h. Long-Term Care Quality Reporting Program (LTCH QRP)

Section 3004(a) of the Affordable Care Act amended section 1886(m)(5) of the 

Act to require the Secretary to establish the Long-Term Care Hospital Quality Reporting 

Program (LTCH QRP). This program applies to all hospitals certified by Medicare as 
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LTCHs. Beginning with the FY 2014 payment determination and subsequent years, the 

Secretary is required to reduce any annual update to the standard Federal rate for 

discharges occurring during such fiscal year by 2 percentage points for any LTCH that 

does not comply with the requirements established by the Secretary.

The IMPACT Act of 2014 amended the Act in ways that affect the LTCH QRP. 

Specifically, section 2(a) of the IMPACT Act of 2014 added section 1899B of the Act, 

and section 2(c)(3) of the IMPACT Act of 2014 amended section 1886(m)(5) of the Act. 

Under section 1899B(a)(1) of the Act, the Secretary must require post-acute care (PAC) 

providers (defined in section 1899B(a)(2)(A) of the Act to include HHAs, SNFs, IRFs, 

and LTCHs) to submit standardized patient assessment data in accordance with section 

1899B(b) of the Act, data on quality measures required under section 1899B(c)(1) of the 

Act, and data on resource use and other measures required under section 1899B(d)(1) of 

the Act. The Act also sets out specified application dates for each of the measures. The 

Secretary must specify the quality, resource use, and other measures not later than the 

applicable specified application date defined in section 1899B(a)(2)(E) of the Act.

In this proposed rule, we are proposing three previously finalized quality 

measures: one measure proposal establishes the newly NQF-endorsed status of that 

quality measure; two other measure proposals are for the purpose of establishing the 

cross-setting use of the previously finalized quality measures, in order to satisfy the 

IMPACT Act of 2014 requirement of adopting quality measures under the domains of 

skin integrity and falls with major injury. We are proposing to adopt an “application of” 

a fourth previously finalized LTCH functional status measure in order to meet the 
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requirement of the IMPACT Act of 2014 to adopt a cross-setting measure under the 

domain of functional status, such as self-care or mobility. All four measure proposals 

effect the FY 2018 annual payment update determination and beyond.

In addition, we are proposing to publicly report LTCH quality data beginning in 

fall 2016, on a CMS Web site, such as Hospital Compare. We are proposing to initially 

publicly report quality data on four quality measures.

Finally, we are proposing to lengthen our quarterly data submission deadlines 

from 45 days to 135 days beyond the end of each calendar year quarter beginning with 

quarter four (4) 2015 quality data. We are proposing this change in order to align with 

other quality reporting programs, and to allow an appropriate amount of time for LTCHs 

to review and correct quality data prior to the public posting of that data.

3. Summary of Costs and Benefits

● Adjustment for MS-DRG Documentation and Coding Changes. We are 

proposing to make a –0.8 percent recoupment adjustment to the standardized amount 

for FY 2016 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 proposed recoupment adjustment represents the amount of 

the increase in aggregate payments as a result of not completing the prospective 

adjustment authorized under section 7(b)(1)(A) of Pub. L. 110-90 until FY 2013. Prior to 

the ATRA, this amount could not have been recovered under Pub. L. 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 
CMS-1632-P 67

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 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 2016. Considering the -0.8 percent adjustments made in FY 2014 and FY 2015, we 

estimate that the combined impact of the proposed adjustment for FY 2016 and leaving 

the FY 2014 and FY 2015 adjustments in place would be to recover up to $3 billion in 

FY 2016. Combined with the effects of the -0.8 percent adjustments implemented in 

FY 2014 and FY 2015, we estimate that the proposed FY 2016 -0.8 percent adjustment 

would result in the recovery of a total of approximately $6 billion of the $11 billion in 

overpayments required to be recovered by section 631 of the ATRA.

● Proposed Changes to the Hospital Readmissions Reduction Program. 

We are proposing a refinement to the pneumonia readmissions measure, which would 

expand the measure cohort for the FY 2017 payment determination and subsequent 

years. In addition, we are proposing to adopt an extraordinary circumstance exception 

policy that would align with existing extraordinary circumstance exception policies for 

other IPPS quality reporting and payment programs and would allow hospitals that 

experience an extraordinary circumstance (such as a hurricane or flood) to request a 

waiver for use of data from the affected time period. These proposed changes would 

not significantly impact the program in FY 2016, but could impact future years, 

depending on actual experience.
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● Value-Based Incentive Payments under the Hospital VBP Program. We 

estimate that there would be no net financial impact to the Hospital VBP Program for 

the FY 2016 program year in the aggregate because, by law, the amount available for 

value-based incentive payments under the program in a given year must be equal to the 

total amount of base operating MS-DRG payment amount reductions for that year, as 

estimated by the Secretary. The estimated amount of base operating MS-DRG 

payment amount reductions for the FY 2016 program year and, therefore, the 

estimated amount available for value-based incentive payments for FY 2016 

discharges is approximately $1.5 billion. We believe that the program 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 Changes to the HAC Reduction Program for FY 2016. We are 

proposing three changes to existing HAC Reduction Program policies: (1) an 

expansion to the population covered by the central line-associated bloodstream 

infection (CLABSI) and catheter-associated urinary tract infection (CAUTI) measures 

to include patients in select nonintensive care unit sites within a hospital; (2) an 

adjustment to the relative contribution of each domain to the Total HAC Score that is 

used to determine if a hospital will receive the payment adjustment; and (3) a policy 

that would align with existing extraordinary circumstance exception policies for other 

IPPS quality reporting and payment programs and would allow hospitals to request a 

waiver for use of data from the affected period. While hospitals in the top quartile of 

HAC scores will continue to have their HAC Reduction Program payment adjustment 
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applied, as required by law, because a hospital’s Total HAC score and its ranking in 

comparison to other hospitals in any given year depend on several different factors, 

any significant impact due to the proposed changes, including which hospitals receive 

the adjustment, would depend on actual experience.

● Medicare DSH Payment Adjustment and Additional Payment for 

Uncompensated Care. Under section 1886(r) of the Act (as added by section 3313 of 

the Affordable Care Act), disproportionate share hospital payments to hospitals under 

section 1886(d)(5)(F) of the Act are reduced and an additional payment for 

uncompensated care is made to eligible hospitals 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 in 

section 1886(d)(5)(F) of the Act. The remainder, equal to an estimate of 75 percent of 

what otherwise would have been paid as Medicare DSH payments, will be the basis for 

determining the additional payments for uncompensated care 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 for uncompensated care 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 2016, we are proposing to provide that the 75 percent of what otherwise 

would have been paid for Medicare DSH is adjusted to approximately 63.69 percent of 

the amount to reflect changes in the percentage of individuals that are uninsured and 
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additional statutory adjustments. In other words, approximately 47.76 percent (the 

product of 75 percent and 63.69 percent) of our estimate of Medicare DSH payments 

prior to the application of section 3133 of the Affordable Care Act is available to make 

additional payment to hospitals for their relative share of the total amount of 

uncompensated care. We project that Medicare DSH payments and additional payments 

for uncompensated care made for FY 2016 would reduce payments overall by 

approximately 1 percent as compared to the Medicare DSH payments and 

uncompensated care payments distributed in FY 2015. The additional payments have 

redistributive effects based on a hospital’s uncompensated care amount relative to the 

uncompensated care amount for all hospitals that are estimated to receive Medicare DSH 

payments, and the proposed payment amount is not directly tied to a hospital’s number of 

discharges.

● Proposed Update to the LTCH PPS Payment Rates and Other Payment 

Factors. Based on the best available data for the 418 LTCHs in our data base, we 

estimate that the proposed changes to the payment rates and factors that we are presenting 

in the preamble and Addendum of this proposed rule, including the proposed application 

of the new site neutral payment rate required by section 1886(m)(6)(A) of the Act, the 

proposed update to the LTCH PPS standard Federal rate for FY 2016, and the proposed 

changes to short-stay outlier and high-cost outlier payments would result in an estimated 

decrease in payments from FY 2015 of approximately $251 million (or 4.6 percent).

● Hospital Inpatient Quality Reporting (IQR) Program. In this proposed 

rule, we are proposing to remove nine measures for the FY 2018 payment 
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determination and subsequent years. We are proposing to add eight measures to the 

hospital IQR Program for the FY 2018 payment determination and subsequent years. 

We also are proposing to require hospitals to report 16 of the 28 Hospital IQR Program 

electronic clinical quality measures that align with the Medicare EHR Incentive Program 

and span three different NQS domains. We estimate that our proposals for the adoption 

and removal of measures will result in total hospital costs of $169 million across 3,300 

IPPS hospitals.

● Changes in LTCH Payments Related to the LTCH QRP Proposals. We 

believe that the increase in costs to LTCHs related to our LTCH QRP proposals in this 

proposed rule is zero. We refer readers to sections VIII.C. of the preamble of this 

proposed rule for detailed discussion of the proposals.

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).
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The base payment rate is comprised of a standardized amount that is divided into 

a labor-related share and a nonlabor-related share. The labor-related share is adjusted by 

the wage index applicable to the area where the hospital is located. If the hospital is 

located in Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of-living 

adjustment factor. This base payment rate is multiplied by the DRG relative weight.

If the hospital treats a high percentage of certain low-income patients, it receives a 

percentage add-on payment applied to the DRG-adjusted base payment rate. This add-on 

payment, known as the disproportionate share hospital (DSH) adjustment, provides for a 

percentage increase in Medicare payments to hospitals that qualify under either of two 

statutory formulas designed to identify hospitals that serve a disproportionate share of 

low-income patients. For qualifying hospitals, the amount of this adjustment varies based 

on the outcome of the statutory calculations. 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.
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The costs incurred by the hospital for a case are evaluated to determine whether 

the hospital is eligible for an additional payment as an outlier case. This additional 

payment is designed to protect the hospital from large financial losses due to unusually 

expensive cases. Any eligible outlier payment is added to the DRG-adjusted base 

payment rate, plus any DSH, IME, and new technology or medical service add-on 

adjustments.

Although payments to most hospitals under the IPPS are made on the basis of the 

standardized amounts, some categories of hospitals are paid in whole or in part based on 

their hospital-specific rate, which is determined from their costs in a base year. For 

example, sole community hospitals (SCHs) receive the higher of a hospital-specific rate 

based on their costs in a base year (the highest of FY 1982, FY 1987, FY 1996, or 

FY 2006) or the IPPS Federal rate based on the standardized amount. (We note that the 

statutory provision for Medicare payments to MDHs expired on March 31, 2015, under 

current law.) SCHs are the sole source of care 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(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 
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established by the Secretary.” The basic methodology for determining capital 

prospective payments is set forth in our regulations at 42 CFR 412.308 and 412.312. 

Under the capital IPPS, payments are adjusted by the same DRG for the case as they are 

under the operating IPPS. Capital IPPS payments are also adjusted for IME and DSH, 

similar to the adjustments made under the operating IPPS. In addition, hospitals may 

receive outlier payments for those cases that have unusually high costs.

The existing regulations governing payments to hospitals under the IPPS are 

located in 42 CFR Part 412, Subparts A through M.

2. Hospitals and Hospital Units Excluded from the IPPS

Under section 1886(d)(1)(B) of the Act, as amended, certain hospitals and 

hospital units are excluded from the IPPS. These hospitals and units are: rehabilitation 

hospitals and units; long-term care hospitals (LTCHs); psychiatric hospitals and units; 

children’s hospitals; certain cancer hospitals; and short-term 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 
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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-term acute care hospitals 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. Section 1206(a) of Pub. L. 113-67 established the 

site neutral payment rate under the LTCH PPS. Under this statute, based on a rolling 

effective date that is linked to the date on which a given LTCH’s Federal FY 2016 cost 

reporting period begins, LTCHs will be paid for LTCH discharges at the new site neutral 
CMS-1632-P 76

payment rate unless the discharge meets the patient criteria for payment at the LTCH PPS 

standard 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 Part 413.

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 American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240), enacted 

on January 2, 2013, made a number of changes that affect the IPPS. We announced 
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changes related to certain IPPS provisions for FY 2013 in accordance with sections 605 

and 606 of Pub. L. 112-240 in a notice that appeared in the Federal Register on 

March 7, 2013 (78 FR 14689).

The Pathway for Sustainable Growth Rate (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 Pub. L. 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.

The Improving Medicare Post-Acute Care Transformation Act of 2014 (IMPACT 

Act of 2014) (Pub. L. 113-185), enacted on October 6, 2014, made a number of changes 

that affect the Long-Term Care Quality Reporting Program (LTCH QRP).

1. American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240)

In this proposed rule, we are proposing to make policy changes to implement 

section 631 of the American Taxpayer Relief Act of 2012, which amended section 

7(b)(1)(B) of Pub. L. 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).
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2. Pathway for Sustainable Growth Rate (SGR) Reform Act of 2013 (Pub. L. 113-67)

In this proposed rule, we are proposing to make policy changes to implement and

discuss 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 for the establishment of patient criteria for

exclusion from the new “site neutral” payment rate under the LTCH PPS, beginning in 

FY 2016.

● Section 1206(a)(3), which requires changes to the LTCH average length of stay 

criterion.

● 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 hospitals-within-hospitals (HwHs), which it permanently exempted 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.

3. Protecting Access to Medicare Act of 2014 (Pub. L. 113-93)
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In this proposed rule, we are proposing to make policy changes to implement, or 

making 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 2016:

● 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.

● Section 212, which prohibits the Secretary from requiring implementation of 

ICD-10 code sets before October 1, 2015.

4. Improving Medicare Post-Acute Care Transformation Act of 2014 (IMPACT Act of 

2014) (Pub. L. 113-185)

In this proposed rule, we are proposing to implement portions of section 2 of the 

IMPACT Act of 2014, which, in part, requires LTCHs, among other postacute care 

providers, to report standardized patient assessment data, data on quality measures, and 

data on resource use and other measures.

D. Summary of the Major Provisions of this Proposed Rule

In this proposed rule, we set forth proposed changes to the Medicare IPPS for 

operating costs and for capital-related costs of acute care hospitals for FY 2016. We also 

set forth proposed changes relating to 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 set forth proposed changes to the payment rates, factors, and other payment rate 

policies under the LTCH PPS for FY 2016.
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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 implementation 

of the ICD-10-CM and ICD-10-PCS systems.

● Proposed application of the documentation and coding adjustment for FY 2016

resulting from implementation of the MS-DRG system.

● Proposed recalibrations of the MS-DRG relative weights.

● Proposed changes to hospital-acquired conditions (HACs) and a discussion of 

HACs, including infections, that would be subject to the statutorily required adjustment 

in MS-DRG payments for FY 2016.

● A discussion of the FY 2016 status of new technologies approved for add-on 

payments for FY 2015 and a presentation of our evaluation and analysis of the FY 2016

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 included the following:

● The proposed FY 2016 wage index update using wage data from cost reporting 

periods beginning in FY 2012.
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● Calculation of the proposed occupational mix adjustment for FY 2016 based on 

the 2013 Occupational Mix Survey.

● Analysis and implementation of the proposed FY 2016 occupational mix 

adjustment to the wage index for acute care hospitals.

● Proposed application of the rural floor, the proposed imputed rural floor, and 

the proposed frontier State floor.

● Transitional wage indexes relating to the continued use of the revised OMB 

labor market area delineations based on 2010 Decennial Census data.

● Proposed revisions to the wage index for acute care hospitals based on hospital 

redesignations and reclassifications.

● The proposed out-migration adjustment to the wage index for acute care 

hospitals for FY 2016 based on commuting patterns of hospital employees who reside in 

a county and work in a different area with a higher wage index. Beginning in FY 2016, 

we are proposing new out-migration adjustments based on commuting patterns obtained 

from 2010 Decennial Census data.

● The timetable for reviewing and verifying the wage data used to compute the 

proposed FY 2016 hospital wage index.

● Determination of the labor-related share for the proposed FY 2016 wage index.

● Proposed changes to the 3-year average pension policy and proposed changes 

to the wage index timetable regarding pension cost for FY 2017 and subsequent years.

● Clarification of the allocation of pension costs for the wage index.
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3. Other Decisions and Proposed Changes to the IPPS for Operating Costs and Indirect 

Medical Education (IME) 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 to the inpatient hospital updates for FY 2016, including 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.

● The statutorily required IME adjustment factor for FY 2016.

● Proposal for determining Medicare DSH payments and the additional payments 

for uncompensated care for FY 2016.

● Proposed changes to the measures and payment adjustments under the Hospital 

Readmissions Reduction Program.

● Proposed changes to the requirements and provision of value-based incentive 

payments under the Hospital Value-Based Purchasing Program.

● Proposed requirements for payment adjustments to hospitals under the HAC 

Reduction Program for FY 2016.

● Proposed elimination of the election by hospitals to use the simplified cost 

allocation methodology for Medicare cost reports.
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● Discussion of the Rural Community Hospital Demonstration Program and a 

proposal for making a budget neutrality adjustment for the demonstration program.

● Proposed changes in postacute care transfer policies as a result of proposed 

new MS-DRGs.

● A statement of our intent to discuss issues related to short inpatient hospital 

stays, long outpatient stays with observation services, and the related -0.2 percent IPPS 

payment adjustment in the CY 2016 hospital outpatient prospective payment system 

proposed rule that will be published this summer.
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4. Proposed FY 2016 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 2016.

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 2016.

6. Proposed Changes to the LTCH PPS

In section VII. of the preamble of this proposed rule, we set forth—

● Proposed changes to the LTCH PPS Federal payment rates, factors, and other 

payment rate policies under the LTCH PPS for FY 2016.

● Proposals to implement section 1206(a)(1) of the Pathway for SGR Reform 

Act, which established the site neutral payment rate as the default means of paying for 

discharges in LTCH cost reporting periods beginning on or after October 1, 2015.

● Provisions to make technical clarifications regarding the moratoria on the 

establishment of new LTCHs and LTCH satellite facilities and on bed increases in 

existing LTCHs and LTCH satellite facilities that were established by section 1206(b)(2) 

of the Pathway for SGR Reform, as amended, as well as a proposal to make a technical 

revision to the regulations to more clearly reflect our established policies.

● Proposal to revise the average length of stay criterion for LTCHs to implement 

section 1206(a)(3) of the Pathway for SGR Reform Act.
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7. Proposed Changes Relating to Quality Data Reporting for Specific Providers and 

Suppliers

In section VIII. of the preamble of this proposed rule, we address—

● 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 

Program (LTCH QRP).

● Proposed changes to align the reporting and submission timelines for the 

electronic submission of clinical quality measures for the Medicare Electronic Health 

Record (EHR) Incentive Program for eligible hospitals and CAHs with the reporting and 

submission of timelines for the Hospital IQR Program, including a proposal to establish 

in regulations an EHR technology certification criterion for reporting clinical quality 

measures.

8. Determining Prospective Payment Operating and Capital Rates and Rate-of-Increase 

Limits for Acute Care Hospitals

In the Addendum to this proposed rule, we set forth proposed changes to the 

amounts and factors for determining the proposed FY 2016 prospective payment rates for 

operating costs and capital-related costs for acute care hospitals. We also are proposing

to establish the threshold amounts for outlier cases. In addition, we address the update 
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factors for determining the rate-of-increase limits for cost reporting periods beginning in 

FY 2016 for certain hospitals excluded from the IPPS.

9. Determining Standard Federal 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 2016 LTCH PPS standard Federal 

payment rate. We are proposing to establish the adjustments for wage levels, the 

labor-related share, the cost-of-living adjustment, and high-cost outliers, including the 

fixed-loss amount, and the LTCH cost-to-charge ratios (CCRs) under the LTCH PPS.
CMS-1632-P 87

10. Impact Analysis

In Appendix A of this proposed rule, we set forth an analysis of the impact that 

the proposed changes would have on affected acute care hospitals, LTCHs, and PCHs.

11. Recommendation of Update Factors for Operating Cost Rates of Payment for 

Hospital Inpatient Services

In Appendix B of this proposed rule, as required by sections 1886(e)(4) and (e)(5) 

of the Act, we provide our recommendations of the appropriate percentage changes for 

FY 2016 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 payment rate for hospital inpatient services furnished by 

LTCHs.

12. Discussion of Medicare Payment Advisory Commission Recommendations

Under section 1805(b) of the Act, MedPAC is required to submit a report to 

Congress, no later than March 15 of each year, in which MedPAC reviews and makes 

recommendations on Medicare payment policies. MedPAC’s March 2015

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 the proposed rule. For 
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further information relating specifically to the MedPAC March 2015 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.
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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 
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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), the FY 2014 IPPS/LTCH PPS final rule (78 FR 50512), and the FY 2015 

IPPS/LTCH PPS final rule (79 FR 49871).

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 2016 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 Pub. L. 110-90

In the FY 2008 IPPS final rule with comment period (72 FR 47140 through 

47189), we adopted the MS-DRG patient classification system for the IPPS, effective 

October 1, 2007, to better recognize severity of illness in Medicare payment rates for 

acute care hospitals. The adoption of the MS-DRG system resulted in the expansion of 

the number of DRGs from 538 in FY 2007 to 745 in FY 2008. (Currently, for FY 2015, 

there are 775 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 
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increases in aggregate payments without a corresponding increase in actual patient 

severity of illness due to the incentives for additional documentation and coding. In that 

final rule with comment period, we exercised our authority under 

section 1886(d)(3)(A)(vi) of the Act, which authorizes us to maintain budget neutrality 

by adjusting the national standardized amount, to eliminate the estimated effect of 

changes in coding or classification that do not reflect real changes in case-mix. Our 

actuaries estimated that maintaining budget neutrality required an adjustment 

of -4.8 percent to the national standardized amount. We provided for phasing in 

this -4.8 percent adjustment over 3 years. Specifically, we established prospective 

documentation and coding adjustments of -1.2 percent for FY 2008, -1.8 percent for 

FY 2009, and -1.8 percent for FY 2010.

On September 29, 2007, Congress enacted the TMA [Transitional Medical 

Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension 

Act of 2007 (Pub. L. 110-90). Section 7(a) of Pub. L. 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 Pub. L. 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 
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made by section 7(a) of Pub. L. 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 Pub. L. 110-90

a. Prospective Adjustment Required by Section 7(b)(1)(A) of Pub. L. 110-90

Section 7(b)(1)(A) of Pub. L. 110-90 requires that, if the Secretary determines 

that implementation of the MS–DRG system resulted in changes in documentation and 

coding that did not reflect real changes in case-mix for discharges occurring during 

FY 2008 or FY 2009 that are different than the prospective documentation and coding 

adjustments applied under section 7(a) of Pub. L. 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) Pub. L. 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 
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FY 2009 that are different from the prospective documentation and coding adjustments 

applied under section 7(a) of Pub. L. 110-90, section 7(b)(1)(B) of Pub. L. 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 Pub. L. 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 

Pub. L. 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. Pub. L. 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 Pub. L. 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 
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(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/Research-Statistics-Data-andSystems/Files-for-Order/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 Website for the required payment 

amount) to:

Mailing address if using the U.S. Postal Service:

Centers for Medicare & Medicaid Services,

RDDC Account,
CMS-1632-P 95

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 Pub. L. 110-90

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43767 through 

43777), we opted to delay the implementation of any documentation and coding 

adjustment until a full analysis of case-mix changes based on FY 2009 claims data could 

be completed. We refer readers to the FY 2010 IPPS/RY LTCH PPS final rule for a 

detailed description of our proposal, responses to comments, and finalized policy. After 

analysis of the FY 2009 claims data for the FY 2011 IPPS/LTCH PPS final rule 

(75 FR 50057 through 50073), we found a total prospective documentation and coding 

effect of 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 Pub. L. 110-90 to make an adjustment to the average standardized 
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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 Pub. L. 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 Pub. L. 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 

Pub. L. 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 
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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 

Pub. L. 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 Pub. L. 110-90 until FY 2013 resulted in 

payments in FY 2010 through FY 2012 being overstated. These overpayments could not 

be recovered by CMS because section 7(b)(1)(B) of Pub. L. 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 

Pub. L. 110-90

Section 7(b)(1)(B) of Pub. L. 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 
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effect and the documentation and coding adjustments applied under section 7(a) of 

Pub. L. 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 Pub. L. 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 one-half of the aggregate adjustment required 

under section 7(b)(1)(B) of Pub. L. 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 Pub. L. 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 Pub. L. 110-90, and consistent with the discussion in the FY 2011 

IPPS/LTCH PPS final rule, we completed the recoupment adjustment by implementing 
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the remaining -2.9 percent adjustment, in addition to removing the effect of 

the -2.9 percent adjustment to the standardized amount finalized for FY 2011 

(76 FR 51489 and 51498). Because these adjustments, in effect, balanced out, there was 

no year-to-year change in the standardized amount due to this recoupment adjustment for 

FY 2012. 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 Pub. L. 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. Proposed 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 Pub. L. 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 Pub. L. 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 Pub. L. 110-90.

Similar to the adjustments authorized under section 7(b)(1)(B) of Pub. L. 110-90, 

the adjustment required under section 631 of the ATRA is a one-time recoupment of a 

prior overpayment, not a permanent reduction to payment rates. Therefore, any 
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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.

Consistent with the approach discussed in the FY 2014 IPPS/LTCH PPS final rule 

for recouping the $11 billion required by section 631 of the ATRA, in the FY 2015 

IPPS/LTCH PPS final rule (79 FR 49873 through 49874), we implemented an additional 
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-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. When combined 

with the approximately $1 billion adjustment made in FY 2014, we estimated that 

approximately $8 billion would be left to recover under section 631 of the ATRA.

Consistent with the approach discussed in the FY 2014 IPPS/LTCH PPS final rule 

for recouping the $11 billion required by section 631 of the ATRA, in this FY 2016 

IPPS/LTCH PPS proposed rule, we are proposing to implement a -0.8 percent 

recoupment adjustment to the standardized amount for FY 2016. Considering the -0.8 

percent adjustments made in FY 2014 and FY 2015, we estimate that the combined 

impact of the proposed adjustment for FY 2016 and leaving the FY 2014 and FY 2015 

adjustments in place would be to recover up to $3 billion in FY 2016. Combined with the 

effects of the -0.8 percent adjustments implemented in FY 2014 and FY 2015, we 

estimate that the proposed FY 2016 -0.8 percent adjustment would result in the recovery 

of a total of approximately $6 billion of the $11 billion in overpayments required to be 

recovered by section 631 of the ATRA.

As we explained in the FY 2014 IPPS/LTCH PPS final rule, estimates of any 

future adjustments are subject to slight variations in total savings. Therefore, we have not 

yet addressed the specific amount of the final adjustment required under section 631 of 

the ATRA for FY 2017. We continue to believe that the proposed -0.8 percent 

adjustment for FY 2016 is a reasonable and fair approach that will help satisfy the 

requirements of the statute while mitigating extreme annual fluctuations in payment rates. 
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In addition, we again note that this proposed -0.8 percent recoupment adjustment for 

FY 2016, the respective -0.8 percent adjustments made in FY 2014 and FY 2015, and any 

future adjustment made under this authority, will be eventually offset by an equivalent 

positive adjustment once the full $11 billion recoupment requirement has been realized.

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 

cost-based DRG relative weights and to the FY 2008 IPPS final rule with comment 

period (72 FR 47199) for information on how we blended relative weights based on the 

CMS DRGs and MS-DRGs.

As we implemented cost-based relative weights, some public commenters raised 

concerns about potential bias in the weights due to “charge compression,” which is the 

practice of applying a higher percentage charge markup over costs to lower cost items 

and services, and a lower percentage charge markup over costs to higher cost items and 

services. As a result, the cost-based weights would undervalue high-cost items and 

overvalue low-cost items if a single cost-to-charge ratio (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 CCRs across services within cost centers. For a detailed 
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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 Patients” cost centers. Accordingly, a new subscripted 

line for “Implantable Devices Charged to Patients” was created in July 2009. This new 
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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.
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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.
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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, 
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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 a 

policy to calculate the MS–DRG relative weights using 19 CCRs, creating distinct CCRs 

from cost report data for implantable devices, MRIs, CT scans, and cardiac 

catheterization.

We 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 calculate the IPPS 
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MS-DRG relative weights using 19 CCRs, creating distinct CCRs for implantable 

devices, MRIs, CT scans, and cardiac catheterization.

2. Discussion for FY 2016 and Request for Comments on Nonstandard Cost Center 

Codes

Consistent with the policy established beginning for FY 2014, we calculated the 

proposed MS–DRG relative weights for FY 2016 using two data sources: the MedPAR 

file as the claims data source and the HCRIS as the cost report data source. We adjusted 

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 2016 is included in section II.H.3. of the 

preamble of this proposed rule.

In preparing to calculate the 19 national average CCRs developed from the cost 

reports, we reviewed the HCRIS data and noticed inconsistencies in hospitals’ cost 

reporting and use of nonstandard cost center codes. In addition, we discovered that 

hospitals typically report the nonstandard codes with standard cost centers that are 

different from the standard cost centers to which CMS maps and “rolls up” each 

nonstandard code in compiling the HCRIS. We are concerned that inconsistencies in 

hospitals’ use of nonstandard codes, coupled with differences in the way hospitals and 

CMS map these nonstandard codes to standard lines, may have implications for the 

calculation of the 19 CCRs and the aspects of the IPPS that rely on the CCRs (for 

example, the calculation of the MS-DRG relative weights).
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The Medicare cost report Form CMS-2552-10, Worksheet A, includes preprinted

cost center codes that reflect the standard cost center descriptions by category (General 

Service, Routine, and Ancillary) used in most hospitals. Each preprinted standard cost 

center is assigned a unique 5-digit code. The preprinted 5-digit codes provide 

standardized meaning for data analysis, and are automatically coded by CMS-approved

cost report software. To accommodate hospitals that have additional cost centers that are 

sufficiently different from the preprinted standard cost centers, CMS identified additional 

cost centers known as “nonstandard” cost centers. Each nonstandard cost center must be 

labeled appropriately and reported under a specific standard cost center. For example, 

under the standard cost center “Electrocardiology” with its 5-digit code of 06900, there 

are six nonstandard cost centers (for EKG and EEG, Electromyography, 

Cardiopulmonary, Stress Test, Cardiology, and Holter Monitor), each with a unique 

5-digit code.

The instructions for the Medicare cost report Form CMS-2552-10 explain the 

purpose and requirements related to the standard and nonstandard cost centers. 

Specifically, in CMS Pub. 15-2, Chapter 40, Section 4013, the instructions for Worksheet 

A of Form CMS-2552-10 state:

“Cost center coding is a methodology for standardizing the meaning of cost

center labels as used by health care providers on the Medicare cost report. Form

CMS-2552-10 provides for preprinted cost center descriptions on Worksheet A. In

addition, a space is provided for a cost center code. The preprinted cost center labels

are automatically coded by CMS approved cost reporting software. These cost center
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descriptions are hereafter referred to as the standard cost centers. Additionally,

nonstandard cost center descriptions have been identified through analysis of frequently

used labels.

The use of this coding methodology allows providers to continue to use labels

for cost centers that have meaning within the individual institution. The five digit cost

center codes that are associated with each provider label in their electronic file provide 

standardized meaning for data analysis. You are required to compare any added or

changed label to the descriptions offered on the standard or nonstandard cost center

tables. A description of cost center coding and the table of cost center codes are in 

§4095, Table 5.”

Section 4095 of CMS Pub. 15-2 (pages 40-805 and 40-806) further provides that:

“Both the standard and nonstandard cost center descriptions along with their cost

center codes are shown on Table 5 . . . . Cost center codes may only be used in designated

lines in accordance with the classification of the cost center(s), i.e., lines 1 through 23 may

only contain cost center codes within the general service cost center category of both

standard and nonstandard coding. For example, in the general service cost center 

category for Operation of Plant cost, line 7 and subscripts thereof should only contain cost

center codes of 00700-00719 and nonstandard cost center codes. This logic must hold

true for all other cost center categories, i.e., ancillary, inpatient routine, outpatient, other

reimbursable, special purpose, and non- reimbursable cost centers.”

Table 5 of Section 4095, Chapter 40, of CMS Pub. 15-2 (pages 40-807 through 

40-810) lists the electronic reporting specifications for each standard cost center, its 
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5-digit code, and, separately, the nonstandard cost center descriptions and their 5-digit 

codes. While the nonstandard codes are categorized by General Service Cost Centers, 

Inpatient Routine Service Cost Centers, and Ancillary Service Cost Centers, among 

others, Table 5 does not map the nonstandard cost centers and codes to specific standard 

cost centers. In addition, the CMS-approved cost reporting software does not restrict the 

use of nonstandard codes to specific standard cost centers. Furthermore, the softwares do 

not prevent hospitals from manually entering in a name for a nonstandard cost center 

code that may be different from the name that CMS assigned to that nonstandard cost 

center code. For example, Table 5 specifies that the 5-digit code for the Ancillary 

Service nonstandard cost center “Acupuncture” is 03020. When CMS creates the HCRIS 

SAS files, CMS maps all codes 03020 to standard line 53, “Anesthesiology”.1 However, 

a review of the December 31, 2014 update of the FY 2013 HCRIS SAS files, from which 

the proposed 19 CCRs for FY 2016 are calculated, reveals that, of the 3,172 times that 

nonstandard code 03020 is reported by hospitals, it is called “Acupuncture” only 122 

times. Instead, hospitals use various names for nonstandard code 03020, such as 

“Cardiopulmonary,” “Sleep Lab,” “Diabetes Center,” or “Wound Care”.

As noted above, the Ancillary Service standard cost center for “Anesthesiology”, 

line 53 of Worksheet A and subsequent worksheets of the Medicare cost report Form 

CMS-2552-10 (and its associated nonstandard cost center code 03020 “Acupuncture”) is 

 

1 To view how CMS rolls up the codes to create the HCRIS SAS files, we refer readers to 

http://www.cms.gov/Research-Statistics-Data-and-Systems/Downloadable-Public-Use-Files/CostReports/Hospital-2010-form.html. On this page, click on “Hospital-2010-SAS.ZIP (SAS datasets and 

documentation)”, and from the zip file, choose the Excel spreadsheet “2552-10 SAS FILE RECORD 

LAYOUT AND CROSSWALK TO 96.xlsx”. The second tab of this spreadsheet is “NEW ROLLUPS”, 

and shows the standard and nonstandard 5-digit codes (columns B and C) that CMS rolls up to each 

standard line (column G).
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an example of a cost center that is subject to inconsistent reporting. Our review of the 

FY 2013 HCRIS as-submitted cost reports from which the proposed 19 CCRs for 

FY 2016 are calculated revealed that, regardless of the actual name hospitals assigned to 

nonstandard code 03020 (for example, “Acupuncture” or otherwise), hospitals reported 

this code almost 100 percent of the time on standard line 76, “Other Ancillary,” and 

never on standard line 53, “Anesthesiology.” Yet, as noted above, CMS (and previously 

HCFA, under earlier versions of the Medicare cost report), in creating the HCRIS 

database, has had the longstanding practice of mapping and rolling up all instances of 

nonstandard code 03020 to standard line 53, “Anesthesiology,” not to standard line 76, 

“Other Ancillary. Therefore, the version of the HCRIS SAS files created by CMS, which 

CMS uses for ratesetting purposes, may differ somewhat from the as-submitted cost 

reports of hospitals because CMS moves various nonstandard cost centers based on cost 

center codes, not cost center descriptions, from the standard cost centers in which 

hospitals report them and places them in different standard cost centers based on CMS’ 

roll-up specifications.

We are highlighting the discrepancy in the reporting of nonstandard code 03020 

“Acupuncture” because the placement of nonstandard code 03020 and its related costs 

and charges seem to have the most significant implications for the calculation of one of 

the 19 CCRs, the Anesthesia CCR. As stated in section II.H.3. of the preamble of this 

proposed rule, the proposed FY 2016 CCR for Anesthesia is 0.108. We calculated this 

proposed CCR based on the December 31, 2014 update of the FY 2013 HCRIS, with the 

nonstandard cost center codes of 03020 through 03029 rolled up to standard line 53, 
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“Anesthesiology.” That is, under the CMS’ HCRIS specifications, we roll up the 

following 5-digit codes to standard line 53, “Anesthesiology”2: standard codes for 

“Anesthesiology” 05300 through 05329; and nonstandard codes for “Acupuncture “ 

03020 through 03029. For simulation purposes, we also created a version of the 

December 31, 2014 update of the FY 2013 HCRIS which retains nonstandard codes 

03020 through 03029 on standard line 76, “Other Ancillary,” where hospitals actually 

reported these codes on their as-submitted FY 2013 cost reports. When all reported uses 

of nonstandard codes 03020 through 03029 remain on standard line 76, “Other 

Ancillary,” we calculated that the Anesthesia CCR would be 0.084 (instead of 0.108 as 

proposed in section II.H.3. of the preamble of this proposed rule). We also looked at the 

effect on the other 18 CCRs. In the version of HCRIS we created for simulation 

purposes, by keeping the nonstandard cost center codes in standard line 76, “Other 

Ancillary,” where hospitals typically report them, rather than remapping them according 

to CMS specifications, two other CCRs also are affected, although not quite as 

significantly as the Anesthesia CCR. Currently, as proposed in section II.H.3. of the 

preamble of this proposed rule, the proposed FY 2016 Cardiology CCR is 0.119, but 

when all cardiology-related nonstandard codes are rolled up to standard line 76, “Other 

Ancillary”, and not to standard line 69, “Electrocardiology” as under CMS’ usual 

practice, the Cardiology CCR would be 0.113. In addition, as proposed in section II.H.3. 

of the preamble of this proposed rule, the proposed FY 2016 Radiology CCR is 0.159, 

but when all radiology-related nonstandard codes are rolled up to standard line 76, “Other 

Ancillary”, and not to standard lines 54 (Radiology-Diagnostic), 55 (Radiology-

 

2

Ibid.
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Therapeutic), and 56 (Radioisotope) as under CMS’ usual practice, the Radiology CCR 

would be 0.161. Most notably, the CCR that is most impacted is the “Other Services” 

CCR. Currently, as proposed in section II.H.3. of the preamble of this proposed rule, the 

“Other Services” CCR is 0.367. However, if all nonstandard cost center codes would 

remain in line 76, “Other Ancillary” as hospitals have reported them in their FY 2013 assubmitted cost reports, instead of CMS applying its usual practice of rolling up these 

lines to the applicable “Electrocardiology” and “Radiology” standard cost centers, among 

others, the “Other Services” CCR would be 0.291. We note that we observed minimal or 

no differences in the remaining 15 CCRs, when their associated nonstandard cost centers 

were rolled up to their specific standard cost centers, versus being rolled up to the 

standard line 76, “Other Ancillary.”

The differences in these CCRs computed from the HCRIS that was compiled by 

applying CMS’ current rollup procedures of assigning nonstandard codes to specific 

standard cost centers, as compared to following hospitals’ general practice of reporting 

nonstandard codes “en masse” on line 76, “Other Ancillary,” have implications for the 

aspects of the IPPS that rely on the CCRs (for example, the calculation of the MS-DRG 

relative weights). Some questions that arise are whether CMS’ procedures for mapping 

and rolling up nonstandard cost centers to specific standard cost centers should be 

updated or whether hospital reporting practices are imprecise, or whether there is a 

combination of both. CMS’ rollup procedures were developed many years ago based on 

historical analysis of hospitals’ cost reporting practices and health care services 

furnished. It may be that it would be appropriate for CMS to reevaluate its rollup 
CMS-1632-P 115

procedures based on hospitals’ more current cost reporting practices and contemporary 

health care services provided. However, one factor complicating the determination of the 

most accurate standard cost centers to which each respective nonstandard cost center 

should be mapped is hospitals’ own inconsistent reporting practices. For example, it may 

be determined that CMS should no longer be mapping and rolling up nonstandard cost 

center “Acupuncture” and its associated 5-digit codes 03020 through 03029 to standard 

cost center line 53, “Anesthesiology.” However, determining which other standard line 

“Acupuncture” and its associated 5-digit codes 03020 through 03029 should be mapped 

is unclear, given that, as mentioned above, out of the 3,172 times that codes 03020 

through 03029 were reported in the FY 2013 HCRIS file, hospitals called these codes 

“Acupuncture” only 122 times, and instead called these codes a variety of other names 

(such as Cardiopulmonary, Sleep Lab, Wound Care, Diabetes Center, among others). 

Therefore, without being able to determine the true nature of the services that were 

actually provided, it is difficult to know which standard cost center to map these services. 

That is, the question arises as to whether the service provided was acupuncture because a 

hospital reported code 03020, or whether the service provided was cardiopulmonary, 

which was the name a hospital assigned to code 03020. Furthermore, if the service 

provided was in fact cardiopulmonary, then, as Table 5 of Section 4095 of CMS Pub. 

15-2 indicates, the correct nonstandard code for cardiopulmonary is 03160, not 03020. A 

related question would then be, if the hospital provided cardiopulmonary services, which 

are clearly related to cardiology, why did the hospital report those costs and charges on 
CMS-1632-P 116

line 76, “Other Ancillary,” instead of subscripting standard line 69, “Electrocardiology,” 

and reporting the cardiopulmonary costs and charges there.

In summary, we believe that the differences between the standard cost centers to 

which CMS assigns nonstandard codes when CMS rolls up cost report data to create the 

HCRIS SAS database, and the standard cost centers to which hospitals tend to assign and 

use nonstandard codes, coupled with the inconsistencies found in hospitals’ use and 

naming of the nonstandard codes, have implications for the aspects of the IPPS that rely 

on the CCRs. For example, we have explained above and provided examples of how the 

CCRs used to calculate the MS-DRG relative weights could change, based on where 

certain nonstandard codes are reported and rolled up in the cost reports. However, before 

considering changes to our longstanding practices, we are interested in receiving public 

comments from stakeholders as to how to improve the use of nonstandard cost center 

codes. One option might be for CMS to allow only certain nonstandard codes to be used 

with certain standard cost centers, meaning that CMS might require that the CMSapproved cost reporting softwares “lock in” those nonstandard codes with their assigned 

standard cost centers. For example, if a hospital wishes to subscript a standard cost 

center, the cost reporting software might allow the hospital to choose only from a 

predetermined set of nonstandard codes. Therefore, for example, if a hospital wished to 

report Cardiopulmonary costs and charges on its cost report, the only place that the 

hospital could do that under this approach would be from a drop down list of 

cardiology-related services on standard line 69, “Electrocardiology,” and not on another 
CMS-1632-P 117

line (not even line 76, “Other Ancillary”). Some flexibility could be maintained, but 

within certain limits, in consideration of unique services that hospitals might provide.

In the interim, while we seek public comments on this issue, we have proposed 19 

CCRs for FY 2016 (listed in section II.H.3. of the preamble of this proposed rule) that 

were calculated from the December 31, 2014 update of the FY 2013 HCRIS, created in 

accordance with CMS’ current longstanding procedures for mapping and rolling up 

nonstandard cost center codes. As we did with the FY 2015 IPPS/LTCH PPS final rule, 

we are providing the version of the HCRIS from which we calculated these proposed 19 

CCRs on the FY 2016 IPPS Proposed Rule Home Page at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/FY2016-IPPS-Proposed-Rule-Home-Page.html.

3

 

3

Ibid.
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F. Proposed Adjustment to MS-DRGs for Preventable Hospital-Acquired Conditions 

(HACs), Including Infections for FY 2016

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 these 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. However, 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 
CMS-1632-P 119

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 evidence-based guidelines. 

Section 1886(d)(4)(D) of the Act also specifies that the list of conditions may be revised, 

again in consultation with 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.
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2. HAC Selection

Beginning in FY 2007, we have set forth proposals, and solicited and responded 

to public comments, to implement section 1886(d)(4)(D) of the Act through the IPPS 

annual rulemaking process. For specific policies addressed in each rulemaking cycle, 

including a detailed discussion of the collaborative interdepartmental process and public 

input regarding selected and potential candidate HACs, we refer readers to the following 

rules: the FY 2007 IPPS proposed rule (71 FR 24100) and final rule (71 FR 48051 

through 48053); the FY 2008 IPPS proposed rule (72 FR 24716 through 24726) and final 

rule with comment period (72 FR 47200 through 47218); the FY 2009 IPPS proposed 

rule (73 FR 23547) and final rule (73 FR 48471); the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule (74 FR 24106) and final rule (74 FR 43782); the FY 2011 IPPS/LTCH PPS 

proposed rule (75 FR 23880) and final rule (75 FR 50080); the FY 2012 IPPS/LTCH PPS 
CMS-1632-P 121

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); the FY 2014 IPPS/LTCH PPS proposed rule 

(78 FR 27509 through 27512) and final rule (78 FR 50523 through 50527), and the 

FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28000 through 28003) and final rule 

(79 FR 49876 through 49880). 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-forService-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 and Maryland 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.
CMS-1632-P 122

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 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.

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 
CMS-1632-P 123

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); the FY 2014 IPPS/LTCH PPS proposed rule 

(78 FR 27510 through 27511) and final rule (78 FR 50524 through 50525), and the 

FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28001 through 28002) and final rule 

(79 FR 49877 through 49878).

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 
CMS-1632-P 124

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 had 

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. 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.” We also encouraged readers to review the educational materials 

and draft code sets available for ICD-10-CM/PCS on the CMS Web site at: 

http://www.cms.gov/ICD10/. Lastly, we provided information regarding the ICD-10 

MS-DRG Conversion Project on the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalAcqCond/icd10_hacs.html.

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 again encouraged readers to review the educational materials and 
CMS-1632-P 125

updated 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 Coding 

Guidelines could be viewed on the CDC Web site at: 

http://www.cdc.gov/nchs/icd/icd10cm.htm.

However, prior to engaging in rulemaking for the FY 2015 HAC program, on 

April 1, 2014, the Protecting Access to Medicare Act of 2014 (PAMA) (Pub. L. 113-93) 

was enacted, which specified that the Secretary may not adopt ICD-10 prior to 

October 1, 2015. Accordingly, the U.S. Department of Health and Human Services 

released a final rule in the Federal Register on August 4, 2014 (79 FR 45128 through 

45134) that included a new compliance date that requires the use of ICD-10 beginning 

October 1, 2015. The August 4, 2014 final rule is available for viewing on the Internet 

at: http://www.gpo.gov/fdsys/pkg/FR-2014-08-04/pdf/2014-18347.pdf. That final rule 

also requires HIPAA covered entities to continue to use ICD-9-CM through 

September 30, 2015. Further information of the ICD-10 rules can be found on the Web 

site at: http://www.cms.gov/Medicare/Coding/ICD10/Statute_Regulations.html.

As described in section II.F.5. of the preamble of this proposed rule, we are 

proposing the HAC list translation from ICD-9-CM to ICD-10-CM/ ICD-10-PCS in this 

FY 2016 IPPS/LTCH PPS proposed rule.

5. Proposed Changes to the HAC Program for FY 2016

As discussed in section II.G. 1. a. of the preamble of this proposed rule, for 

FY 2016, we are proposing the ICD-10 MS-DRGs Version 33 as the replacement logic 

for the ICD-9-CM MS-DRGs Version 32. As part of our DRA HAC update for FY 2016, 
CMS-1632-P 126

we are proposing that the ICD-10-CM/PCS Version 33 HAC list replace the ICD-9-CM 

Version 32 HAC list. We are soliciting public comments on how well the 

ICD-10-CM/PCS Version 32 HAC list replicates the ICD-9-CM Version 32 HAC list.

CMS prepared the ICD-10 MS-DRGs Version 32 based on the FY 2015 

MS-DRGs (Version 32) that we finalized in the FY 2015 IPPS/LTCH PPS final rule. In 

November 2014, we posted a Definitions Manual of the ICD-10 MS-DRGs Version 32 

on the ICD-10 MS-DRG Conversion Project Web site at: 

http://www.cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-ConversionProject.html. The HAC code list translations from ICD-9-CM to ICD-10-CM/PCS are 

located in Appendix I of the ICD-10-CM/PCS MS-DRG Version 32 Definitions Manual. 

The link to this Manual (available in both text and HTML formats) is located in the 

Downloads section of the ICD-10 MS-DRG Conversion Project Web site.

With respect to the current categories of the HACs, we are not proposing to add or 

remove any categories in this FY 2016 IPPS/LTCH PPS proposed rule. However, as 

described more fully in section III.F.7, of the preamble of this proposed rule, we will 

continue to monitor contemporary evidence-based guidelines for selected, candidate, and 

previously considered HACs that provide specific recommendations for the prevention of 

the corresponding conditions in the acute hospital setting and may use this information to 

inform future rulemaking. We also continue to encourage public dialogue about 

refinements to the HAC list through written stakeholder comments. 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 
CMS-1632-P 127

48491) for detailed discussion supporting our determination regarding each of the current 

conditions. We also refer readers to the FY 2013 IPPS/LTCH PPS proposed rule 

(77 FR 27892 through 27898) and final rule (77 FR 53285 through 53292) for the HAC 

policy for FY 2013, the FY 2014 IPPS/LTCH PPS proposed rule (78 FR 27509 through 

27512) and final rule (78 FR 50523 through 50527) for the HAC policy for FY 2014, and 

the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28000 through 28003) and final rule 

(79 FR 49876 through 49880) for the HAC policy for FY 2015.

In summary, we are proposing that the ICD-10-CM/PCS Version 33 HAC list 

replace the ICD-9-CM Version 32 HAC list and are seeking public comments on how 

well the ICD-10-CM/PCS Version 32 HAC list replicates the ICD-9-CM Version 32 

HAC list.

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 
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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-ServicePayment/HospitalAcqCond/index.html.

7. RTI Reports on Evidence-Based Guidelines

The RTI program evaluation included a report that provided references for all 

evidence-based guidelines available for each of the selected, candidate, and previously 

considered HACs that provided specific 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.
CMS-1632-P 129

RTI prepared a final report to summarize its findings regarding these guidelines. 

This report is titled “Evidence-Based Guidelines for Selected, Candidate, and Previously 

Considered Hospital-Acquired Conditions” and can be found on the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalAcqCond/Downloads/Evidence-Based-Guidelines.pdf.

Subsequent to this final report, RTI was awarded a new Evidence-Based 

Guidelines Monitoring contract. Under this monitoring contract, RTI annually provides a 

summary report of the contemporary evidence-based guidelines for selected, candidate, 

and previously considered HACs that provide specific recommendations for the 

prevention of the corresponding conditions in the acute care hospital setting. We 

received RTI’s 2014 report and made it available to the public on the CMS 

Hospital-Acquired Conditions Web page in the “Downloads” section at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/HospitalAcqCond/index.html?redirect=/HospitalAcqCond/.

Once we receive RTI’s 2015 report in the late spring or early summer, we will 

make it available to the public at this same link as the 2014 report.
CMS-1632-P 130

G. Proposed Changes to Specific MS-DRG Classifications

1. Discussion of Changes to Coding System and Basis for 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. A later coding edition, 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 delayed 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 
CMS-1632-P 131

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 (PAMA) (Pub. L. 113-93) 

was enacted, which specified that the Secretary may not adopt ICD-10 prior to 

October 1, 2015. Accordingly, the U.S. Department of Health and Human Services 

released a final rule in the Federal Register on August 4, 2014 (79 FR 45128 through 

45134) that included a new compliance date that requires the use of ICD-10 beginning 

October 1, 2015. The August 4, 2014 final rule is available for viewing on the Internet 

at: http://www.gpo.gov/fdsys/pkg/FR-2014-08-04/pdf/2014-18347.pdf. That final rule 

also requires HIPAA covered entities to continue to use ICD-9-CM through 

September 30, 2015.

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 
CMS-1632-P 132

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://www.cms.hhs.gov/Medicare/Coding/ICD10/ICD-10-MSDRG-Conversion-Project.html. We have continued to keep the public updated on our 

maintenance efforts for ICD-10-CM and ICD-10-PCS coding systems, as well as the 

General Equivalence Mappings that assist in conversion through the ICD-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.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html.

During FY 2011, we developed and posted Version 28 of the ICD-10 MS-DRGs 

based on the FY 2011 MS-DRGs (Version 28) that we finalized in the FY 2011 

IPPS/LTCH PPS final rule on the CMS Web site. This ICD-10 MS-DRGs Version 28 

also included the CC Exclusion List and the ICD-10 version of the hospital-acquired 

conditions (HACs), which was not posted with Version 26. We also discussed this 

update at the September 15-16, 2010 and the March 9-10, 2011 meetings of the 

ICD-9-CM Coordination and Maintenance Committee. The minutes of these two 

meetings are posted on the CMS Web site at: 

http://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html.

We reviewed public comments on the ICD-10 MS-DRGs Version 28 and made 

updates as a result of these comments. We called the updated version the ICD-10 
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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 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, based on the 

FY 2012 MS-DRGs (Version 29) that we finalized in the FY 2012 IPPS/LTCH PPS final 

rule. We posted a Definitions Manual of ICD-10 MS-DRGs Version 29 on our ICD-10 

MS-DRG Conversion Project Web site. We also prepared a document that describes 

changes made from Version 28 to Version 29 to facilitate a review. The ICD-10 

MS-DRGs Version 29 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-1632-P 134

CMS prepared the ICD-10 MS-DRGs Version 30 based on the FY 2013 

MS-DRGs (Version 30) 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 on our ICD-10 

MS-DRG Conversion Project Web site. We also prepared a document that describes 

changes made from Version 29 to Version 30 to facilitate a review. We produced 

mainframe and computer software for Version 30, 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 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 (FY 2010), which was converted to the 

ICD-10 MS-DRGs Version 27. 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 
CMS-1632-P 135

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.

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. A 

summary report of this meeting can be found on the CMS Web site at: 

http://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html. At 

the 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://www.cms.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://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-
CMS-1632-P 136

9-CM-C-and-M-Meeting-Materials.html. This update of the impact paper and the 

ICD-10 MS-DRG Version 30 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) 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 

on the ICD-10 MS-DRG Conversion Project Web site at: 

http://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. We 

also prepared a document that described changes made from Version 30 to Version 31 to 

facilitate a review. We produced mainframe and computer software for Version 31, 

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.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html under 

the “Related Links” section. This ICD-10 MS-DRGs Version 31 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.

We reviewed public comments received and developed an update of ICD-10 

MS-DRGs Version 31, which we called ICD-10 MS-DRGs Version 31.0-R. We made 

available a Definitions Manual of the ICD-10 MS-DRGs Version 31.0-R on the ICD-10 

MS-DRG Conversion Project Web site at: 
CMS-1632-P 137

http://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html. We 

also prepared a document that describes changes made from Version 31 to Version 31-R 

to facilitate a review. We will continue to share ICD-10-MS-DRG conversion activities 

with the public through this Web site.

CMS prepared the ICD-10 MS-DRGs Version 32 based on the FY 2015 

MS-DRGs (Version 32) that we finalized in the FY 2015 IPPS/LTCH PPS final rule. In 

November 2014, we made available a Definitions Manual of the ICD-10 MS DRGs 

Version 32 on the ICD-10 MS-DRG Conversion Project Web site at: 

http://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-ConversionProject.html. We also prepared a document that described changes made from Version 

31-R to Version 32 to facilitate a review. We produced mainframe and computer 

software for Version 32, which was made available to the public in January 2015. 

Information on ordering the mainframe and computer software through NTIS was made 

available on the CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD10/ICD10-MS-DRG-Conversion-Project.html under the “Related Links” section. This ICD-10 

MS-DRGs Version 32 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 32. We discuss five requests from the public 

to update the ICD-10 MS-DRGs Version 32 to better replicate the ICD-9-CM MS-DRGs 

in section II.G.3., 4., and 5. of the preamble of this proposed rule. Therefore, we are 

proposing to implement the MS-DRG code logic in the ICD-10 MS-DRGs Version 32 
CMS-1632-P 138

along with any finalized updates to the ICD-10 MS-DRGs Version 32 for the final 

ICD-10 MS-DRGs Version 33. In this FY 2016 IPPS/LTCH PPS proposed rule, we are 

proposing the ICD-10 MS-DRGs Version 33 as the replacement logic for the ICD-9-CM 

based MS-DRGs Version 32 as part of the proposed MS-DRG updates for FY 2016. We 

are inviting public comments on how well the ICD-10 MS-DRGs Version 32 replicates 

the logic of the MS-DRGs Version 32 based on ICD-9-CM codes.

b. Basis for Proposed FY 2016 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 have been submitted by 

December 7, 2014. The comments that were submitted in a timely manner for FY 2016 

are discussed below in this section.

Following are the changes we are proposing to the MS-DRGs for FY 2016. 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 2016 proposed rule, our MS-DRG analysis is based on claims 

data from the December 2014 update of the FY 2014 MedPAR file, which contains 

hospital bills received through September 30, 2014, for discharges occurring through 
CMS-1632-P 139

September 30, 2014. In our discussion of the proposed MS-DRG reclassification changes 

that follows, we refer to our analysis of claims data from the “December 2014 update of 

the FY 2014 MedPAR file.”

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 consider whether the resource consumption and clinical 

characteristics of the patients with a given set of conditions are significantly different 

than the remaining patients in the MS-DRG. We evaluate patient care costs using 

average costs and lengths of stay and rely 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 consider both the absolute and percentage differences in 

average costs between the cases we select for review and the remainder of cases in the 

MS-DRG. We also consider variation in costs within these groups; that is, whether 

observed average differences are consistent across patients or attributable to cases that are 

extreme in terms of costs or length of stay, or both. Further, we consider the number of 

patients who will have a given set of characteristics and generally prefer not to create a 

new MS-DRG unless it would include a substantial number of cases.

In our examination of the claims data, we apply the following criteria established 

in FY 2008 (72 FR 47169) to determine if the creation of a new complication or 

comorbidity (CC) or major complication or comorbidity (MCC) subgroup within a base 

MS-DRG is warranted:

● A reduction in variance of costs of at least 3 percent.
CMS-1632-P 140

● 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.

In order to warrant creation of a CC or MCC subgroup within a base MS-DRG, 

the subgroup must meet all five of the criteria.

2. MDC 1 (Diseases and Disorders of the Nervous System): Endovascular Embolization 

(Coiling) Procedures

We received a request again this year to change the MS-DRG assignment for 

endovascular embolization (coiling) procedures. This topic was discussed previously in 

the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28005 through 28006) and in the 

FY 2015 IPPS/LTCH PPS final rule (79 FR 49883 through 49886). For FY 2015, we did 

not change the MS-DRG assignment for endovascular embolization (coiling) procedures. 

After issuance of the FY 2015 IPPS/LTCH PPS final rule, we received a modified 

request from the commenter asking that CMS consider establishing four new MS-DRGs:

● Recommended MS-DRG XXX (Endovascular Intracranial Embolization 

Procedures with Principal Diagnosis of Hemorrhage);

● Recommended MS-DRG XXX (Endovascular Intracranial Embolization 

Procedures without Principal Diagnosis of Hemorrhage with MCC);

● Recommended MS-DRG XXX (Endovascular Intracranial Embolization 

Procedures without Principal Diagnosis of Hemorrhage with CC); and
CMS-1632-P 141

● Recommended MS-DRG XXX (Endovascular Intracranial Embolization 

Procedures without Principal Diagnosis of Hemorrhage without CC/MCC).

The requestor stated that these new suggested MS-DRGs will promote clinical 

cohesiveness and resource comparability. The requestor stated that endovascular 

intracranial and endovascular embolization procedures are not similar to the open 

craniotomy procedures with which they are currently grouped. The requestor asserted 

that the differences in costs between endovascular intracranial procedures and open 

craniotomy procedures are great, reflecting, for instance, the use of an operating suite 

versus interventional vascular catheterization lab suite, intensive care and other costs.

In conjunction with the recommended new MS-DRGs, the requestor 

recommended that the following ICD-9-CM codes, which include endovascular 

embolization procedures and additional intracranial procedures, be removed from 

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); and MS-DRG 027 (Craniotomy & Endovascular Intracranial 

Procedures without CC/MCC):
CMS-1632-P 142

● 00.62 (Percutaneous angioplasty of intracranial vessel);

● 39.72 (Endovascular (total) embolization or occlusion of head and neck 

vessels);

● 39.74 (Endovascular removal of obstruction from head and neck vessel(s));

● 39.75 (Endovascular embolization or occlusion of vessel(s) of head or neck 

using bare coils);

● 39.76 (Endovascular embolization or occlusion of vessel(s) of head or neck 

using bioactive coils); and

● 39.79 (Other endovascular procedures on other vessels).

The requestor asked that the four new requested MS-DRGs be created using these 

procedure codes. The requestor suggested that the first requested new MS-DRG would 

be MS-DRG XXX (Endovascular Intracranial Embolization Procedures with Principal 

Diagnosis of Hemorrhage). The principal diagnoses for hemorrhage would include the 

same hemorrhage codes in the current MS-DRGs 020, 021, and 022, which are as 

follows:

● 094.87 (Syphilitic ruptured cerebral aneurysm);

● 430 (Subarachnoid hemorrhage);

● 431 (Intracerebral hemorrhage);

● 432.0 (Nontraumatic extradural hemorrhage);

● 432.1 (Subdural hemorrhage); and

● 432.9 (Unspecified intracranial hemorrhage).
CMS-1632-P 143

For this first new requested MS-DRG, the requestor suggested that only the 

following endovascular embolization procedure codes would be assigned:

● 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).

The requestor recommended that the three additional new MS-DRGs would 

consist of a new base MS-DRG subdivided into three severity levels as follows:

● Recommended MS-DRG XXX (Endovascular Intracranial Embolization 

Procedures without Principal Diagnosis of Hemorrhage with MCC);

● Recommended MS-DRG XXX (Endovascular Intracranial Embolization 

Procedures without Principal Diagnosis of Hemorrhage with CC); and

● Recommended MS-DRG XXX (Endovascular Intracranial Embolization 

Procedures without Principal Diagnosis of Hemorrhage without CC/MCC).

The requestor suggested that these three new recommended MS-DRGs would 

have endovascular embolization procedures as well as additional percutaneous and 

endovascular procedures as listed below:

● 00.62 (Percutaneous angioplasty of intracranial vessel);

● 39.72 (Endovascular (total) embolization or occlusion of head and neck 

vessels);
CMS-1632-P 144

● 39.74 (Endovascular removal of obstruction from head and neck vessel(s));

● 39.75 (Endovascular embolization or occlusion of vessel(s) of head or neck 

using bare coils);

● 39.76 (Endovascular embolization or occlusion of vessel(s) of head or neck 

using bioactive coils); and

● 39.79 (Other endovascular procedures on other vessels).

ICD-10-PCS provides the following more detailed codes for endovascular 

embolization, which are assigned to MS-DRGs 020, 021, 022, 023, 024, 025, 026, and 

027 in the ICD-10 MS-DRGs Version 32:

ICD-10-PCS Codes for Endovascular Embolization Assigned to MS-DRGs 020 

through 027 in ICD-10 MS-DRGs Version 32

ICD-10-PCS 

Code

Code Description

03LG3BZ Occlusion of intracranial artery with bioactive intraluminal device, 

percutaneous approach

03LG3DZ Occlusion of intracranial artery with intraluminal device, percutaneous 

approach

03LG4BZ Occlusion of intracranial artery with bioactive intraluminal device, 

percutaneous endoscopic approach

03LG4DZ Occlusion of intracranial artery with intraluminal device, percutaneous 

endoscopic approach

03LH3BZ Occlusion of right common carotid artery with bioactive intraluminal 

device, percutaneous approach

03LH3DZ Occlusion of right common carotid artery with intraluminal device, 

percutaneous approach

03LH4BZ Occlusion of right common carotid artery with bioactive intraluminal 

device, percutaneous endoscopic approach

03LH4DZ Occlusion of right common carotid artery with intraluminal device, 

percutaneous endoscopic approach

03LJ3BZ Occlusion of left common carotid artery with bioactive intraluminal 

device, percutaneous approach

03LJ3DZ Occlusion of left common carotid artery with intraluminal device, 

percutaneous approach

03LJ4BZ Occlusion of left common carotid artery with bioactive intraluminal 

device, percutaneous endoscopic approach
CMS-1632-P 145

ICD-10-PCS Codes for Endovascular Embolization Assigned to MS-DRGs 020 

through 027 in ICD-10 MS-DRGs Version 32

ICD-10-PCS 

Code

Code Description

03LJ4DZ Occlusion of left common carotid artery with intraluminal device, 

percutaneous endoscopic approach

03LK3BZ Occlusion of right internal carotid artery with bioactive intraluminal

device, percutaneous approach

03LK3DZ Occlusion of right internal carotid artery with intraluminal device, 

percutaneous approach

03LK4BZ Occlusion of right internal carotid artery with bioactive intraluminal 

device, percutaneous endoscopic approach

03LK4DZ Occlusion of right internal carotid artery with intraluminal device, 

percutaneous endoscopic approach

03LL3BZ Occlusion of left internal carotid artery with bioactive intraluminal 

device, percutaneous approach

03LL3DZ Occlusion of left internal carotid artery with intraluminal device, 

percutaneous approach

03LL4BZ Occlusion of left internal carotid artery with bioactive intraluminal 

device, percutaneous endoscopic approach

03LL4DZ Occlusion of left internal carotid artery with intraluminal device, 

percutaneous endoscopic approach

03LM3BZ Occlusion of right external carotid artery with bioactive intraluminal 

device, percutaneous approach

03LM3DZ Occlusion of right external carotid artery with intraluminal device, 

percutaneous approach

03LM4BZ Occlusion of right external carotid artery with bioactive intraluminal 

device, percutaneous endoscopic approach

03LM4DZ Occlusion of right external carotid artery with intraluminal device, 

percutaneous endoscopic approach

03LN3BZ Occlusion of left external carotid artery with bioactive intraluminal 

device, percutaneous approach

03LN3DZ Occlusion of left external carotid artery with intraluminal device, 

percutaneous approach

03LN4BZ Occlusion of left external carotid artery with bioactive intraluminal 

device, percutaneous endoscopic approach

03LN4DZ Occlusion of left external carotid artery with intraluminal device, 

percutaneous endoscopic approach

03LP3BZ Occlusion of right vertebral artery with bioactive intraluminal device, 

percutaneous approach

03LP3DZ Occlusion of right vertebral artery with intraluminal device, 

percutaneous approach

03LP4BZ Occlusion of right vertebral artery with bioactive intraluminal device, 

percutaneous endoscopic approach
CMS-1632-P 146

ICD-10-PCS Codes for Endovascular Embolization Assigned to MS-DRGs 020 

through 027 in ICD-10 MS-DRGs Version 32

ICD-10-PCS 

Code

Code Description

03LP4DZ Occlusion of right vertebral artery with intraluminal device, 

percutaneous endoscopic approach

03LQ3BZ Occlusion of left vertebral artery with bioactive intraluminal device, 

percutaneous approach

03LQ3DZ Occlusion of left vertebral artery with intraluminal device, 

percutaneous approach

03LQ4BZ Occlusion of left vertebral artery with bioactive intraluminal device, 

percutaneous endoscopic approach

03LQ4DZ Occlusion of left vertebral artery with intraluminal device, 

percutaneous endoscopic approach

03LR3DZ Occlusion of face artery with intraluminal device, percutaneous 

approach

03LR4DZ Occlusion of face artery with intraluminal device, percutaneous 

endoscopic approach

03LS3DZ Occlusion of right temporal artery with intraluminal device, 

percutaneous approach

03LS4DZ Occlusion of right temporal artery with intraluminal device, 

percutaneous endoscopic approach

03LT3DZ Occlusion of left temporal artery with intraluminal device, 

percutaneous approach

03LT4DZ Occlusion of left temporal artery with intraluminal device, 

percutaneous endoscopic approach

03VG3BZ Restriction of intracranial artery with bioactive intraluminal device, 

percutaneous approach

03VG3DZ Restriction of intracranial artery with intraluminal device, percutaneous 

approach

03VG4BZ Restriction of intracranial artery with bioactive intraluminal device, 

percutaneous endoscopic approach

03VG4DZ Restriction of intracranial artery with intraluminal device, percutaneous 

endoscopic approach

03VH3BZ Restriction of right common carotid artery with bioactive intraluminal 

device, percutaneous approach

03VH3DZ Restriction of right common carotid artery with intraluminal device, 

percutaneous approach

03VH4BZ Restriction of right common carotid artery with bioactive intraluminal 

device, percutaneous endoscopic approach

03VH4DZ Restriction of right common carotid artery with intraluminal device, 

percutaneous endoscopic approach

03VJ3BZ Restriction of left common carotid artery with bioactive intraluminal 

device, percutaneous approach
CMS-1632-P 147

ICD-10-PCS Codes for Endovascular Embolization Assigned to MS-DRGs 020 

through 027 in ICD-10 MS-DRGs Version 32

ICD-10-PCS 

Code

Code Description

03VJ3DZ Restriction of left common carotid artery with intraluminal device, 

percutaneous approach

03VJ4BZ Restriction of left common carotid artery with bioactive intraluminal 

device, percutaneous endoscopic approach

03VJ4DZ Restriction of left common carotid artery with intraluminal device, 

percutaneous endoscopic approach

03VK3BZ Restriction of right internal carotid artery with bioactive intraluminal 

device, percutaneous approach

03VK3DZ Restriction of right internal carotid artery with intraluminal device, 

percutaneous approach

03VK4BZ Restriction of right internal carotid artery with bioactive intraluminal 

device, percutaneous endoscopic approach

03VK4DZ Restriction of right internal carotid artery with intraluminal device, 

percutaneous endoscopic approach

03VL3BZ Restriction of left internal carotid artery with bioactive intraluminal 

device, percutaneous approach

03VL3DZ Restriction of left internal carotid artery with intraluminal device, 

percutaneous approach

03VL4BZ Restriction of left internal carotid artery with bioactive intraluminal 

device, percutaneous endoscopic approach

03VL4DZ Restriction of left internal carotid artery with intraluminal device, 

percutaneous endoscopic approach

03VM3BZ Restriction of right external carotid artery with bioactive intraluminal 

device, percutaneous approach

03VM3DZ Restriction of right external carotid artery with intraluminal device, 

percutaneous approach

03VM4BZ Restriction of right external carotid artery with bioactive intraluminal 

device, percutaneous endoscopic approach

03VM4DZ Restriction of right external carotid artery with intraluminal device, 

percutaneous endoscopic approach

03VN3BZ Restriction of left external carotid artery with bioactive intraluminal 

device, percutaneous approach

03VN3DZ Restriction of left external carotid artery with intraluminal device, 

percutaneous approach

03VN4BZ Restriction of left external carotid artery with bioactive intraluminal 

device, percutaneous endoscopic approach

03VN4DZ Restriction of left external carotid artery with intraluminal device, 

percutaneous endoscopic approach

03VP3BZ Restriction of right vertebral artery with bioactive intraluminal device, 

percutaneous approach
CMS-1632-P 148

ICD-10-PCS Codes for Endovascular Embolization Assigned to MS-DRGs 020 

through 027 in ICD-10 MS-DRGs Version 32

ICD-10-PCS 

Code

Code Description

03VP3DZ Restriction of right vertebral artery with intraluminal device, 

percutaneous approach

03VP4BZ Restriction of right vertebral artery with bioactive intraluminal device, 

percutaneous endoscopic approach

03VP4DZ Restriction of right vertebral artery with intraluminal device, 

percutaneous endoscopic approach

03VQ3BZ Restriction of left vertebral artery with bioactive intraluminal device, 

percutaneous approach

03VQ3DZ Restriction of left vertebral artery with intraluminal device, 

percutaneous approach

03VQ4BZ Restriction of left vertebral artery with bioactive intraluminal device, 

percutaneous endoscopic approach

03VQ4DZ Restriction of left vertebral artery with intraluminal device, 

percutaneous endoscopic approach

03VR3DZ Restriction of face artery with intraluminal device, percutaneous 

approach

03VR4DZ Restriction of face artery with intraluminal device, percutaneous 

endoscopic approach

03VS3DZ Restriction of right temporal artery with intraluminal device, 

percutaneous approach

03VS4DZ Restriction of right temporal artery with intraluminal device, 

percutaneous endoscopic approach

03VT3DZ Restriction of left temporal artery with intraluminal device, 

percutaneous approach

03VT4DZ Restriction of left temporal artery with intraluminal device, 

percutaneous endoscopic approach

03VU3DZ Restriction of right thyroid artery with intraluminal device, 

percutaneous approach

03VU4DZ Restriction of right thyroid artery with intraluminal device, 

percutaneous endoscopic approach

03VV3DZ Restriction of left thyroid artery with intraluminal device, percutaneous 

approach

03VV4DZ Restriction of left thyroid artery with intraluminal device, percutaneous 

endoscopic approach

For this FY 2016 IPPS/LTCH PPS proposed rule request, we first examined 

claims data on all intracranial vascular procedure cases with a principal diagnosis of 
CMS-1632-P 149

hemorrhage reported in MS-DRGs 020, 021, and 022 from the December 2014 update of 

the FY 2014 MedPAR file. The table below shows our findings. We found a total of 

1,755 cases with an average length of stay ranging from 8.28 days to 16.84 days and 

average costs ranging from $36,998 to $71,665 in MS-DRGs 020, 021, and 022.

Intracranial Vascular Procedures with Principal Diagnosis of Hemorrhage

MS-DRG Number 

of cases

Average 

Length of 

Stay

Average 

Costs

MS-DRG 020 (with MCC) – All cases 1,285 16.84 $71,655

MS-DRG 021 (with CC)– All cases 372 13.82 $52,143

MS-DRG 022 (without CC/MCC) – All cases 98 8.28 $36,998

Next, we examined claims data on the first part of the request, which was to 

create a new MS-DRG for endovascular intracranial embolization procedure cases with a 

principal diagnosis of hemorrhage that are currently reported in MS-DRGs 020, 021, and 

022. Our findings for the first part of this multi-part request are shown in the table 

below.

Endovascular Intracranial Embolization Procedures with Principal Diagnosis of 

Hemorrhage

MS-DRG Number 

of cases

Average 

Length of 

Stay

Average 

Costs

Requested New Combined MS-DRG 1,275 15.6 $67,831

The requestor suggested that this new requested base MS-DRG would not be 

subdivided by severity levels. Using the requested code logic, cases with a principal 

diagnosis of hemorrhage and procedure codes 39.72 (Endovascular (total) embolization 

or occlusion of head and neck vessels), 39.75 (Endovascular embolization or occlusion of 
CMS-1632-P 150

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) would be moved out of 

MS-DRGs 020, 021, and 022 and into a single new MS-DRG with no severity levels.

As can be seen in the table above, the average costs for the new requested 

combined MS-DRG would be $67,831. The average costs for current MS-DRGs 020, 

021, and 022 were $71,655, $52,143, and $36,998, respectively. Based on these findings, 

if we established this requested new MS-DRG, payments for those cases at the highest 

severity level (MS-DRG 020, which had average costs of $71,655) would be reduced. 

We believe that maintaining the current MS-DRG assignment for these types of 

procedures is appropriate. Our clinical advisors state that the current grouping of 

procedures within MS-DRGs 020, 021, and 022 reflects patients who are unique in terms 

of utilization and complexity based on the three severity levels, which are specifically 

designed to capture clinical differences in these patients, and these factors support 

maintaining the current structure. Therefore, we are not proposing to move cases with a 

principal diagnosis of hemorrhage and procedure codes 39.72, 39.75, and 39.76 out of 

MS-DRGs 020, 021, and 022 and create a new base MS-DRG. We are inviting public 

comments on this proposal.

As discussed previously, the requestor also recommended the creation of a new 

set of MS-DRGs for endovascular intracranial embolization procedures without a 

principal diagnosis of hemorrhage with MCC, with CC, and without CC/MCC. For these 

new requested MS-DRGs, the requestor suggested assignment of endovascular 

embolization procedures as well as certain other percutaneous and endovascular 
CMS-1632-P 151

procedures. The complete list of endovascular intracranial embolization procedures 

developed by the requestor is as follows:

● 00.62 (Percutaneous angioplasty of intracranial vessel);

● 39.72 (Endovascular (total) embolization or occlusion of head and neck 

vessels);

● 39.74 (Endovascular removal of obstruction from head and neck vessel(s));

● 39.75 (Endovascular embolization or occlusion of vessel(s) of head or neck 

using bare coils);

● 39.76 (Endovascular embolization or occlusion of vessel(s) of head or neck 

using bioactive coils); and

● 39.79 (Other endovascular procedures on other vessels)

The following table shows our findings from examination of claims data on 

endovascular intracranial procedures without a principal diagnosis of hemorrhage 

reported in MS-DRGs 023 through 027 from the December 2014 update of the FY 2014 

MedPAR file.

Endovascular Intracranial Procedures without Principal Diagnosis of Hemorrhage

MS-DRG

Number 

of Cases

Average 

Length 

of Stay

Average 

Costs

MS-DRG 023 – All cases 5,615 10.96 $37,784

MS-DRG 023 – Cases with endovascular intracranial 

procedure without diagnosis of hemorrhage 1,510 8.88 $39,666

MS-DRG 024 – All cases 1,848 5.93 $26,195

MS-DRG 024 – Cases with endovascular intracranial 

procedure without diagnosis of hemorrhage 867 5.80 $27,975

MS-DRG 025 – All cases 16,949 9.35 $29,970

MS-DRG 025 – Cases with endovascular intracranial 

procedure without diagnosis of hemorrhage 650 8.52 $44,082
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Endovascular Intracranial Procedures without Principal Diagnosis of Hemorrhage

MS-DRG

Number 

of Cases

Average 

Length 

of Stay

Average 

Costs

MS-DRG 026 – All cases 8,075 6.09 $21,414

MS-DRG 026 – Cases with endovascular intracranial 

procedure without diagnosis of hemorrhage 778 3.07 $26,594

MS-DRG 027 – All cases 9,883 3.15 $16,613

MS-DRG 027 - Cases with endovascular intracranial 

procedure without diagnosis of hemorrhage 1,793 1.66 $22,244

As can be seen from this table, if we created a new set of MS-DRGs 

recommended by the requester, most of the cases would have to be moved out of 

MS-DRGs 023 and 027. The 1,510 cases that would have to be moved out of MS-DRG 

023 have average costs of $39,666 compared to average costs of $37,784 for all cases in 

MS-DRG 023. The average costs for these cases are not significantly different from the 

average costs for all cases in MS-DRG 023. The average length of stay for the cases with 

endovascular intracranial procedure without a diagnosis of hemorrhage in MS-DRG 023 

is 8.88 compared to 10.96 days for all cases in MS-DRG 023. We believe that these data 

support the current MS-DRG assignment for MS-DRG 023. The 1,793 cases that would 

have to be moved out of MS-DRG 027 have average costs of $22,244 compared to the 

average costs of $16,613 for all cases in MS-DRG 027. While the average costs for these 

cases are higher than for all cases in MS-DRG 027, one would expect some procedures 

within an MS-DRG to have higher average costs and other procedures to have lower 

average costs than the overall average costs. Cases within the MS-DRGs describing 

endovascular intracranial procedures are grouped together based on similar clinical and 

resource criteria. Some cases will have average costs that are higher than the overall 
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average costs for cases in the MS-DRG, while other cases will have lower average costs. 

These differences in average costs are found within all MS-DRGs. The average length of 

stay of MS-DRG 027 cases with endovascular intracranial procedure without a diagnosis 

of hemorrhage is 1.66 days as compared to 3.15 days for all cases in MS-DRG 027. 

Therefore, while the average costs are higher for the cases with endovascular intracranial 

procedure without a diagnosis of hemorrhage than for all cases in MS-DRG 027, the 

length of stay is shorter.

The 867 cases that would have to be moved out of MS-DRG 024 have average 

costs of $27,975 compared to average costs for all cases in MS-DRG 024 of $26,195. 

The average costs for these cases are not significantly different than the average costs for 

all cases in MS-DRG 024. The average length of stay for the 867 cases that would have 

to be moved out of MS-DRG 024 is 5.80 compared to 5.93 for all cases in MS-DRG 024. 

Therefore, the lengths of stay for the cases also are quite similar in MS-DRG 024. We 

have determined that these data findings support maintaining the current MS-DRG 

assignment of these procedures in MS-DRG 024.

MS-DRGs 025 and 026 show the smallest number of cases that would have to be 

moved to the requested new MS-DRGs, but these cases have larger differences in average 

costs. The average costs of cases that would have to be moved out of MS-DRG 025 are 

$44,082 compared to $29,970 for all cases in MS-DRG 025. The average length of stay 

for the MS-DRG 025 cases with endovascular intracranial procedure without a diagnosis 

of hemorrhage is 8.52 days as compared to 9.35 days for all cases in MS-DRG 025. 

Therefore, the lengths of stay are similar for cases in MS-DRG 025. The average costs of 
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cases that would have to be moved out of MS-DRG 026 are $26,594 compared to 

$21,414 for all cases. The average length of stay for cases that would have to be moved 

out of MS-DRG 026 is 3.07 days compared to 6.09 days for all cases in MS-DRG 026, or 

almost half as long as for all cases in MS-DRG 026. As stated earlier, the average costs 

for cases that would be moved out of MS-DRGs 023, 024, 025, 026, and 027 under this 

request are higher than the average costs for all cases in these MS-DRGs, with most of 

the cases coming out of MS-DRGs 023 and 027. The average costs for these particular 

cases in MS-DRG 023 are not significantly different from the average costs for all cases 

in MS-DRG 023. In addition, while the average costs are higher for the cases with a 

endovascular intracranial procedure without a diagnosis of hemorrhage than for all cases 

in MS-DRG 027, the length of stay is shorter. We have determined that the overall data 

do not support making the requested MS-DRG updates to MS-DRGs 023, 024, 025, 026, 

and 027 and creating three new MS-DRGs. Therefore, we are not proposing to make 

changes to the current structure for MS-DRGs 023 through 027.

In summary, our clinical advisors reviewed each aspect of this multi-part request 

and advised us that the endovascular embolization procedures are appropriately assigned 

to MS-DRGs 020 through 027. They do not support removing the procedures (procedure 

codes 39.72, 39.75, and 39.76) from MS-DRGs 020, 021, and 022 and creating a single 

MS-DRG for endovascular intracranial embolization procedures with a principal 

diagnosis of hemorrhage with no severity levels. Our clinical advisors stated that the 

current MS-DRG grouping of three severity levels captures differences in clinical 

severity, average costs, and length of stay for these patients appropriately. Our clinical 
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advisors also recommended maintaining the current MS-DRG assignments for 

endovascular embolization and other percutaneous and endovascular procedures within 

MS-DRGs 023 through 027. They stated that these procedures are all clinically similar to 

others in these MS-DRGs. In addition, they stated that the surgical techniques are all 

designed to correct the same clinical problem, and they advised against moving a select 

number of those procedures out of MS-DRGs 023 through 027.

Based on the findings from our data analysis and the recommendations from our 

clinical advisors, we are not proposing to create the four new MS-DRGs for endovascular 

intracranial embolization and other endovascular procedures recommended by the 

requestor. We are proposing to maintain the current MS-DRG structure for MS-DRGs 

020 through 027.

We are inviting public comments on these two proposals.

3. MDC 5 (Diseases and Disorders of the Circulatory System)

a. Adding Severity Levels to MS-DRGs 245 through 251

During the comment period for the FY 2015 IPPS/LTCH PPS proposed rule, we 

received a comment that recommended establishing severity levels for MS-DRG 245 

(AICD Generator Procedures) and including additional severity levels for MS-DRG 246 

(Percutaneous Cardiovascular Procedure with Drug-Eluting Stent with MCC or 4+ 

Vessels/Stents); MS-DRG 247 (Percutaneous Cardiovascular Procedure with DrugEluting Stent without MCC); MS-DRG 248 (Percutaneous Cardiovascular Procedure 

with Non-Drug-Eluting Stent with MCC or 4+ Vessels/Stents); MS-DRG 249 

(Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent without MCC); 
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MS-DRG 250 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent 

with MCC); and MS-DRG 251 (Percutaneous Cardiovascular Procedure without 

Coronary Artery Stent without MCC).

We considered this public comment to be outside of the scope of the FY 2015 

IPPS/LTCH PPS proposed rule. Therefore, we did not address this comment in the 

FY 2015 IPPS/LTCH PPS final rule. However, we indicated that we would consider the 

public comment for possible proposals in future rulemaking as part of our annual review 

process.

For this FY 2016 IPPS/LTCH PPS proposed rule, we received a separate, but 

related, request involving most of these same MS-DRGs. Therefore, for this proposed 

rule, we conducted a simultaneous analysis of claims data to address both the FY 2015 

public comment request and the related FY 2016 request. We discuss both of these 

requests below.
CMS-1632-P 157

b. Percutaneous Intracardiac Procedures

We received a request to remove the cardiac ablation and other specified 

cardiovascular procedures from the following MS-DRGs, and to create new MS-DRGs to 

classify these procedures:

● MS-DRG 246 (Percutaneous Cardiovascular Procedure with Drug-Eluting 

Stent with MCC or 4+ Vessels/Stents);

● MS-DRG 247 (Percutaneous Cardiovascular Procedure with Drug-Eluting 

Stent without MCC);

● MS-DRG 248 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting 

Stent with MCC or 4+ Vessels/Stents);

● MS-DRG 249 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting 

Stent without MCC);

● MS-DRG 250 (Percutaneous Cardiovascular Procedure without Coronary 

Artery Stent with MCC); and

● MS-DRG 251 (Percutaneous Cardiovascular Procedure without Coronary 

Artery Stent without MCC).

The commenter stated that, historically, the MS-DRGs listed above appropriately 

reflected the differential cost of percutaneous transluminal coronary angioplasty (PTCA) 

procedures with and without stents. The commenter noted that PTCA procedures with 

drug eluting stents were previously paid the highest, followed by PTCA procedures with 

bare metal stents and PTCA procedures with no stents, respectively. However, the 

commenter believed that, in recent years, the opposite has begun to occur and cases 
CMS-1632-P 158

reporting a PTCA procedure without a stent are being paid more than cases reporting a 

PTCA procedure with a stent. The commenter further noted that cardiac ablation 

procedures and PTCA procedures without stents are currently assigned to the same 

MS-DRGs, notwithstanding that the procedures have different clinical objectives and 

patient diagnoses. The commenter indicated that cardiac ablation procedures are 

performed on patients with multiple distinct cardiac arrhythmias to alter electrical 

conduction systems of the heart, and PTCA procedures are performed on patients with 

coronary atherosclerosis to open blocked coronary arteries. The commenter also noted 

that cardiac ablation procedures are performed in the heart chambers by cardiac 

electrophysiologists, require significantly more resources, and require longer periods of 

time to complete. Conversely, PTCA procedures are performed in the coronary vessels 

by interventional cardiologists, require the use of less equipment, and require a shorter 

period of time to complete. Therefore, the commenter suggested that CMS create new 

MS-DRGs for percutaneous intracardiac procedures to help improve clinical 

homogeneity by differentiating percutaneous intracardiac procedures (performed within 

the heart chambers) from percutaneous intracoronary procedures (performed within the 

coronary vessels). The commenter further believed that creating new MS-DRGs for 

these procedures would also better reflect the resource cost of specialized equipment used 

for more complex structures of electrical conduction systems when performing cardiac 

ablation procedures.

The following ICD-9-CM procedure codes identify and describe the cardiac 

ablation procedures and the other percutaneous intracardiac procedures that are currently 
CMS-1632-P 159

classified under MS-DRGs 246 through 251 and that the commenter recommended that 

CMS assign to the newly created MS-DRGs:

• 35.52 (Repair of atrial septal defect with prosthesis, closed technique);

• 35.96 (Percutaneous balloon valvuloplasty);

• 35.97 (Percutaneous mitral valve repair with implant);

• 37.26 (Catheter based invasive electrophysiologic testing);

• 37.27 (Cardiac mapping);

• 37.34 (Excision or destruction of other lesion or tissue of heart, endovascular 

approach);

• 37.36 (Excision, destruction, or exclusion of left atrial appendage (LAA)); and

• 37.90 (Insertion of left atrial appendage device).

There are a number of ICD-10-PCS code translations that provide more detailed 

and specific information for each of the ICD-9-CM procedure codes listed above that also 

are currently classified under MS-DRGs 246 through 251 based on the GROUPER 

Version 32 ICD-10 MS-DRGs. The comparable ICD-10-PCS code translations for 

ICD-9-CM procedure code 35.52 are shown in the following table.
CMS-1632-P 160

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 35.52

ICD-10-PCS 

Code

Code Description

02U53JZ Supplement atrial septum with synthetic substitute, percutaneous 

approach

02U54JZ Supplement atrial septum with synthetic substitute, percutaneous

endoscopic approach

The comparable ICD-10-PCS code translations for ICD-9-CM procedure code 

35.96 are shown in the following table.

ICD-10-PCS Translations for ICD-9-CM Procedure Code 35.96

ICD-10-PCS 

Code

Code Description

027F34Z Dilation of aortic valve with drug-eluting intraluminal device, 

percutaneous approach

027F3DZ Dilation of aortic valve with intraluminal device, percutaneous 

approach

027F3ZZ Dilation of aortic valve, percutaneous approach

027F44Z Dilation of aortic valve with drug-eluting intraluminal device, 

percutaneous endoscopic approach

027F4DZ Dilation of aortic valve with intraluminal device, percutaneous 

endoscopic approach

027F4ZZ Dilation of aortic valve, percutaneous endoscopic approach

027G34Z Dilation of mitral valve with drug-eluting intraluminal device, 

percutaneous approach

027G3DZ Dilation of mitral valve with intraluminal device, percutaneous 

approach

027G3ZZ Dilation of mitral valve, percutaneous approach

027G44Z Dilation of mitral valve with drug-eluting intraluminal device, 

percutaneous endoscopic approach

027G4DZ Dilation of mitral valve with intraluminal device, percutaneous 

endoscopic approach

027G4ZZ Dilation of mitral valve, percutaneous endoscopic approach

027H34Z Dilation of pulmonary valve with drug-eluting intraluminal device, 

percutaneous approach

027H3DZ Dilation of pulmonary valve with intraluminal device, percutaneous 

approach

027H3ZZ Dilation of pulmonary valve, percutaneous approach
CMS-1632-P 161

ICD-10-PCS Translations for ICD-9-CM Procedure Code 35.96

ICD-10-PCS 

Code

Code Description

027H44Z Dilation of pulmonary valve with drug-eluting intraluminal device, 

percutaneous endoscopic approach

027H4DZ Dilation of pulmonary valve with intraluminal device, percutaneous 

endoscopic approach

027H4ZZ Dilation of pulmonary valve, percutaneous endoscopic approach

027J34Z Dilation of tricuspid valve with drug-eluting intraluminal device, 

percutaneous approach

027J3DZ Dilation of tricuspid valve with intraluminal device, percutaneous 

approach

027J3ZZ Dilation of tricuspid valve, percutaneous approach

027J44Z Dilation of tricuspid valve with drug-eluting intraluminal device, 

percutaneous endoscopic approach

027J4DZ Dilation of tricuspid valve with intraluminal device, percutaneous 

endoscopic approach

027J4ZZ Dilation of tricuspid valve, percutaneous endoscopic approach

The ICD-10-PCS code translation for ICD-9-CM procedure code 35.97 is 

02UG3JZ (Supplement mitral valve with synthetic substitute, percutaneous approach).

The ICD-10-PCS code translation for ICD-9-CM procedure code 37.26 is 

4A023FZ (Measurement of cardiac rhythm, percutaneous approach).

The comparable ICD-10-PCS code translations for ICD-9-CM procedure code 

37.27 are shown in the following table.

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 37.27

ICD-10-PCS 

Code

Code Description

02K83ZZ Map conduction mechanism, percutaneous approach

02K84ZZ Map conduction mechanism, percutaneous endoscopic approach

The comparable ICD-10-PCS code translations for ICD-9-CM procedure code 

37.34 are shown in the following table:
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ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 37.34

ICD-10-

PCS Code

Code Description

02553ZZ Destruction of atrial septum, percutaneous approach

02563ZZ Destruction of right atrium, percutaneous approach

02573ZZ Destruction of left atrium, percutaneous approach

02583ZZ Destruction of conduction mechanism, percutaneous approach

02593ZZ Destruction of chordae tendineae, percutaneous approach

025F3ZZ Destruction of aortic valve, percutaneous approach

025G3ZZ Destruction of mitral valve, percutaneous approach

025H3ZZ Destruction of pulmonary valve, percutaneous approach

025J3ZZ Destruction of tricuspid valve, percutaneous approach

025K3ZZ Destruction of right ventricle, percutaneous approach

025L3ZZ Destruction of left ventricle, percutaneous approach

025M3ZZ Destruction of ventricular septum, percutaneous approach

02B53ZZ Excision of atrial septum, percutaneous approach

02B63ZZ Excision of right atrium, percutaneous approach

02B73ZZ Excision of left atrium, percutaneous approach

02B83ZZ Excision of conduction mechanism, percutaneous approach

02B93ZZ Excision of chordae tendineae, percutaneous approach

02BF3ZZ Excision of aortic valve, percutaneous approach

02BG3ZZ Excision of mitral valve, percutaneous approach

02BH3ZZ Excision of pulmonary valve, percutaneous approach

02BJ3ZZ Excision of tricuspid valve, percutaneous approach

02BM3ZZ Excision of ventricular septum, percutaneous approach

02T83ZZ Resection of conduction mechanism, percutaneous approach

The comparable ICD-10-PCS code translations for ICD-9-CM procedure code 

37.36 are shown in the following table:
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ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 37.36

ICD-10-PCS 

Code

Code Description

02573ZK Destruction of left atrial appendage, percutaneous approach

02574ZK Destruction of left atrial appendage, percutaneous endoscopic approach

02B73ZK Excision of left atrial appendage, percutaneous approach

02B74ZK Excision of left atrial appendage, percutaneous endoscopic approach

02L73ZK Occlusion of left atrial appendage, percutaneous approach

02L74ZK Occlusion of left atrial appendage, percutaneous endoscopic approach

The comparable ICD-10-PCS code translations for ICD-9-CM procedure code 

37.90 are shown in the following table:

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 37.90

ICD-10-PCS 

Code

Code Description

02L73CK Occlusion of left atrial appendage with extraluminal device, percutaneous 

approach

02L73DK Occlusion of left atrial appendage with intraluminal device, percutaneous 

approach

02L74CK Occlusion of left atrial appendage with extraluminal device, percutaneous 

endoscopic approach

02L74DK Occlusion of left atrial appendage with intraluminal device, percutaneous 

endoscopic approach

The ICD-10-PCS code translations listed above, along with their respective 

MS-DRG assignments, can be found in the ICD-10 MS-DRGs Version 32 Definitions 

Manual posted on the CMS Web site at: 

http://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-ConversionProject.html.

As mentioned earlier, we received a separate, but related, request to add severity 

levels to MS-DRGs 246 through 251. We address this request at the end of this section.
CMS-1632-P 164

To address the first of these separate, but related, requests, we reviewed claims 

data for MS-DRGs 246 through 251 from the December 2014 update of the FY 2014 

MedPAR file. Our findings are shown in the following table:

Percutaneous Cardiovascular MS-DRGs with and without Stents

MS-DRG Number 

of Cases

Average 

Length of 

Stay

Average 

Costs

MS-DRG 246 – All cases 30,617 5.52 $23,855

MS-DRG 246 – Cases with procedure codes 

35.52, 35.96, 35.97, 37.26, 37.27, 37.34, 37.36, 

and 37.90 244 9.69 $34.099

MS-DRG 247 – All cases 79,639 2.69 $15,671

MS-DRG 247 – Cases with procedure codes 

35.52, 35.96, 35.97, 37.26, 37.27, 37.34, 37.36, 

and 37.90 260 5.20 $25,797

MS-DRG 248 – All cases 9,310 6.37 $22,504

MS-DRG 248 –Cases with procedure codes 

35.52, 35.96, 35.97, 37.26, 37.27, 37.34, 37.36, 

and 37.90 125 10.76 $33,521

MS-DRG 249 – All cases 16,273 3.08 $14,066

MS-DRG 249 – Cases with procedure codes 

35.52, 35.96, 35.97, 37.26, 37.27, 37.34, 37.36, 

and 37.90 81 5.12 $23,710

MS-DRG 250 – All cases 9,275 7.07 $22,902

MS-DRG 250– Cases with procedure codes 

35.52, 35.96, 35.97, 37.26, 37.27, 37.34, 37.36, 

and 37.90 5,826 7.90 $24,841

MS-DRG 251 – All cases 20,945 3.25 $15,757

MS-DRG 251 – Cases with procedure codes 

35.52, 35.96, 35.97, 37.26, 37.27, 37.34, 37.36, 

and 37.90 14,436 3.39 $17,290

As shown in the table above, there were a total of 30,617 cases in MS-DRG 246, 

with an average length of stay of 5.52 days and average costs of $23,855. For cases 

reporting a percutaneous intracardiac procedure in MS-DRG 246 (ICD-9-CM procedure 
CMS-1632-P 165

codes 35.52, 35.96, 35.97, 37.26, 37.27, 37.34, 37.36, and 37.90), there were a total of 

244 cases, with an average length of stay of 9.69 days and average costs of $34,099. For 

MS-DRGs 247 through 251, a similar pattern was identified; the data reflected that the 

average costs are higher and the average length of stay is greater for cases reporting a 

percutaneous intracardiac procedure in comparison to the average costs and average 

length of stay for all of the cases in their respective MS-DRGs.

As reflected in the following table, a further analysis of the data showed that 

percutaneous intracardiac procedures represent a total of 20,972 cases in MS–DRGs 246 

through 251, with a greater average length of stay (4.79 days versus 3.62 days) and 

higher average costs ($19,810 versus $17,532) in comparison to all of the remaining 

cases in MS–DRGs 246 through 251.

Summary of Percutaneous Cardiovascular DRGs with and without Stents

MS-DRG Number 

of Cases

Average 

Length of 

Stay

Average 

Costs

MS-DRGs 246 through 251 – Cases with procedure 

codes 35.52, 35.96, 35.97, 37.26, 37.27, 37.34, 

37.36, and 37.90 20,972 4.79 $19,810

MS-DRGs 246 through 251 – Cases without 

procedure codes 35.52, 35.96, 35.97, 37.26, 37.27, 

37.34, 37.36, and 37.90 145,087 3.62 $17,532

The results of these data analyses support removing procedures performed within 

the heart chambers using intracardiac techniques from MS-DRGs 246 through 251, and 

assigning these procedures to separate MS-DRGs. The results of these data analyses also 

support subdividing these MS-DRGs using the “with MCC” and “without MCC” severity 
CMS-1632-P 166

levels based on the application of the criteria established in the FY 2008 IPPS final rule 

(72 FR 47169), and described in section II.G.1.b. of the preamble of this proposed rule, 

that must be met to warrant the creation of a CC or an MCC subgroup within a base 

MS-DRG. Our clinical advisors also agree that this differentiation would improve the 

clinical homogeneity of these MS-DRGs by separating percutaneous intracardiac 

procedures (performed within the heart chambers) from percutaneous intracoronary 

procedures (performed within the coronary vessels). In addition, we believe that creating 

these new MS-DRGs would better reflect the resource cost of specialized equipment used 

to perform more complex structures of electrical conduction systems during cardiac 

ablation procedures. Therefore, for FY 2016, we are proposing to create two new 

MS-DRGs to classify percutaneous intracardiac procedures. Specifically, we are 

proposing to create MS-DRG 273, entitled “Percutaneous Intracardiac Procedures with 

MCC,” and MS-DRG 274, entitled “Percutaneous Intracardiac Procedures without 

MCC,” and to assign the procedures performed within the heart chambers using 

intracardiac techniques to the two proposed new MS-DRGs. We are proposing that 

existing percutaneous intracoronary procedures with and without stents continue to be 

assigned to the other MS-DRGs to reflect that those procedures are performed within the 

coronary vessels and require fewer resources.

The table below represents the distribution of cases, average length of stay, and 

average costs for these proposed two new MS-DRGs.
CMS-1632-P 167

Proposed New MS-DRGs for Percutaneous Intracardiac Procedures

MS-DRG Number 

of Cases

Average 

Length of 

Stay

Average 

Costs

Proposed MS-DRG 273 with MCC 6,195 8.03 $25,380

Proposed MS-DRG 274 without MCC 14,777 3.44 $17,475

We are inviting public comments on our proposal to create the two new 

MS-DRGs for percutaneous intracardiac procedures for FY 2016. In addition, we are 

inviting public comments on the ICD-10-PCS code translations that were presented 

earlier in this section and our proposal to assign these procedure codes to the proposed 

new MS-DRGs 273 and 274.

As mentioned earlier in this section, we received a similar request in response to 

the FY 2015 IPPS/LTCH PPS proposed rule to add severity levels to MS-DRGs 246 

through 251. We considered this public comment to be outside of the scope of the 

FY 2015 IPPS/LTCH PPS proposed rule. Therefore, we did not address this comment in 

the FY 2015 IPPS/LTCH PPS final rule. However, we indicated that we would consider 

the public comment for possible proposals in future rulemaking as part of our annual 

review process. Specifically, the commenter recommended including additional severity 

levels for MS-DRGs 246 through 251 and establishing severity levels for MS-DRG 245 

(AICD Generator Procedures).

For our data analysis for this recommendation, we examined claims data from the 

December 2014 update of the FY 2014 MedPAR file to determine if including additional 

severity levels in MS-DRGs 246 through 251 was warranted. During our analysis, we 
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applied the criteria established in the FY 2008 IPPS final rule (72 FR 47169), as 

described in section II.G.1.b. of the preamble of this proposed rule. As shown in the 

table below, we collapsed MS-DRGs 246 through 251 into base MS-DRGs (MS-DRGs 

246, 248, and 250) by suggested severity level and applied the criteria.

Percutaneous Cardiovascular MS-DRG with 

and without Stent Procedures by Suggested 

Severity Level

Number 

of Cases

Average 

Length 

of Stay

Average 

Costs

Suggested MS-DRG 246 with MCC 30,617 5.52 $23,855

Suggested MS-DRG 246 with CC 45,313 2.96 $16,233

Suggested MS-DRG 246 without CC/MCC 34,326 2.33 $14,928

Suggested MS-DRG 248 with MCC 9,310 6.37 $22,504

Suggested MS-DRG 248 with CC 9,510 3.49 $14,798

Suggested MS-DRG 248 without CC/MCC 6,763 2.51 $13,037

Suggested MS-DRG 250 with MCC 9,275 7.07 $22,903

Suggested MS-DRG 250 with CC 11,653 3.80 $16,113

Suggested MS-DRG 250 without CC/MCC 9,292 2.56 $15,310

We found that the criterion that there be a $2,000 difference in average costs 

between subgroups was not met. Specifically, between the “with CC” and “without 

CC/MCC” subgroups for base MS-DRG 246, the difference in average costs was only 

$1,305; for base MS-DRG 248, the difference in average costs was only $1,761; and for 

base MS-DRG 250, the difference in average costs was only $803. The results of the 

data analysis of MS-DRGs 246 through 251 confirmed, and our clinical advisors agreed, 

that the existing 2-way severity level splits for these MS-DRGs (with MCC and without 

MCC) are appropriate, as displayed in the table below.
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Percutaneous Cardiovascular MS-DRGs with and without Stents

MS-DRG Number of 

Cases

Average 

Length of 

Stay

Average 

Costs

MS-DRG 246 – All cases 30,617 5.52 $23,855

MS-DRG 247 – All cases 79,639 2.69 $15,671

MS-DRG 248 – All cases 9,310 6.37 $22,504

MS-DRG 249 – All cases 16,273 3.08 $14,066

MS-DRG 250 – All cases 9,275 7.07 $22,903

MS-DRG 251 – All cases 20,945 3.25 $15,757

Therefore, we are not proposing to further subdivide the severity levels for 

MS-DRGs 246 through 251. We are inviting public comments on our proposal not to 

create additional severity levels for MS-DRGs 246 through 251.

Using the same MedPAR claims data for FY 2014, we separately examined cases 

in MS-DRG 245 to determine whether to subdivide this MS-DRG into severity levels. 

As displayed in the table below, the results of the FY 2014 data analysis showed there 

were a total of 1,699 cases, with an average length of stay of 5.49 days and average costs 

of $34,287, in MS-DRG 245.

AICD Generator Procedures

MS-DRG 

Number 

of Cases

Average 

Length 

of Stay

Average 

Costs

MS-DRG 245 – All cases 1,699 5.49 $34,287

We applied the five criteria established in the FY 2008 IPPS final rule 

(72 FR 47169), as described in section II.G.1.b. of the preamble of this proposed rule, to 
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determine if it was appropriate to subdivide MS-DRG 245 into severity levels. The table 

below illustrates our findings.

AICD Generator Procedures by Suggested 

Severity Level

Number 

of Cases

Average 

Length of 

Stay

Average 

Costs

Suggested MS-DRG 245 with MCC 542 8.15 $40,004

Suggested MS-DRG 245 with CC 939 4.51 $32,237

Suggested MS-DRG 245 without CC/MCC 218 3.12 $28,907

Based on the analysis of the FY 2014 claims data for MS-DRG 245, the results 

support creating a “with MCC” and a “without MCC” severity level split. Our clinical 

advisors indicated that it would not be clinically appropriate to add severity levels based 

on an isolated year’s data fluctuation because this could lead to a lack of stability in 

MS-DRG payments. We agree with our clinical advisors and note that we annually 

conduct an analysis of base MS-DRGs to evaluate if additional severity levels are 

warranted. This analysis includes 2 years of MedPAR claims data to specifically 

compare data results from 1 year to the next to avoid making determinations about 

whether additional severity levels are warranted based on an isolated year’s data 

fluctuation. Generally, in past years, for our review of requests to add or establish 

severity levels, in our analysis of the most recent claims data, there was at least one 

criterion that was not met. Therefore, it was not necessary to further analyze data beyond 

1 year. However, the results of our analysis of claims data in the December 2014 update 

of the FY 2014 MedPAR file for this particular request involving MS-DRG 245 
CMS-1632-P 171

demonstrate that all five criteria to establish subgroups were met, and, therefore, it was 

necessary to also examine the FY 2013 MedPAR claims data file.

The results of our analysis from the December 2013 update of the FY 2013 claims 

data for MS-DRG 245 are shown in the table below.

AICD Generator Procedures

MS-DRG 

Number 

of Cases

Average 

Length 

of Stay

Average 

Costs

MS-DRG 245 – All cases 1,850 4.81 $33,272

The FY 2013 claims data for MS-DRG 245 do not support creating any severity 

levels because the data did not meet one or more of the five required criteria for creating 

new severity levels. The data did not meet the requirement for a 3-way severity level 

split (with MCC, with CC, and without CC/MCC) or a 2-way severity level split (with 

MCC and without MCC) because there were not at least 500 cases in the MCC subgroup. 

While the data did meet this particular criterion for the 2-way severity level split of “with 

CC/MCC” and “without CC/MCC” because there were at least 500 cases in the CC 

subgroup, the data did not meet the criterion that there be at least a 20-percent difference 

in average costs between subgroups, as shown in the table below.

AICD Generator Procedures

MS-DRG by Suggested Severity Level

Number 

of Cases

Average 

Length 

of Stay

Average 

Costs

MS-DRG 245 with MCC 44 7.32 $39,536

MS-DRG 245 with CC 1,118 4.26 $31,786

MS-DRG 245 without CC/MCC 288 3.10 $29,383
CMS-1632-P 172

As stated previously, we believe that 2 years of data showing that the requested 

CC or MCC subgroup meets all five of the established criteria for creating severity levels 

are needed in order to support a proposal to add severity levels for MS-DRG 245. Our 

clinical advisors also agree that it would not be clinically appropriate to add severity 

levels based on an isolated year’s data fluctuation because this could lead to a lack of 

stability in payments. Therefore, we are not proposing to add severity levels for 

MS-DRG 245 for FY 2016. We are inviting public comments on the results of our 

analysis and our proposal not to create severity levels for MS-DRG 245.

c. Zilver®PTX Drug-Eluting Peripheral Stent (Zilver®PTX®)

Zilver®PTX Drug-Eluting Peripheral Stent (Zilver®PTX®) was approved for new 

technology add-on payments in FY 2014 (78 FR 50583 through 50585). Cases involving 

the Zilver®PTX®that are eligible for new technology add-on payments are identified by 

ICD-9-CM procedure code 00.60 (Insertion of drug-eluting stent(s) of superficial femoral 

artery).

We received a request from the manufacturer for an extension of new technology 

add-on payments for Zilver®PTX®in FY 2016. In the request, the manufacturer asked 

CMS to consider three options for procedure code 00.60 for FY 2016. The first option 

was to extend the new technology add-on payment through FY 2016. The request to 

extend the new technology add-on payment is addressed in section II.I.3.e. of the 

preamble of this proposed rule. The second option was to establish a new family of 

MS-DRGs for drug-eluting stents used in the peripheral (noncoronary) vasculature. The 

third option was to assign all Zilver®PTX®cases to MS-DRG 252 even if there is no 
CMS-1632-P 173

MCC (which would necessitate revising the MS-DRG title to “Other Vascular 

Procedures).

ICD-10-PCS provides the following more detailed procedure codes for the 

insertion of drug-eluting stents of superficial femoral artery:

● 047K04Z (Dilation of right femoral artery with drug-eluting intraluminal 

device, open approach);

● 047K34Z (Dilation of right femoral artery with drug-eluting intraluminal 

device, percutaneous approach);

● 047K44Z (Dilation of right femoral artery with drug-eluting intraluminal 

device, percutaneous endoscopic approach);

● 047L04Z (Dilation of left femoral artery with drug-eluting intraluminal device, 

open approach);

● 047L34Z (Dilation of left femoral artery with drug-eluting intraluminal device, 

percutaneous approach); and

● 047L44Z (Dilation of left femoral artery with drug-eluting intraluminal device, 

percutaneous endoscopic approach).

We examined claims data for the drug-eluting peripheral stent procedures cases 

reported in the December 2014 update of the FY 2014 MedPAR file for MS-DRGs 252, 

253, and 254 (Other Vascular Procedures with MCC, with CC and without CC/MCC, 

respectively). The following table illustrates our findings.
CMS-1632-P 174

Drug-Eluting Peripheral Stent Procedures 

MS-DRGs

Number 

of Cases

Average 

Length of 

Stay

Average 

Costs

MS-DRG 252 – All cases 30,696 7.89 $23,935

MS-DRG 252 – Cases with procedure code 

00.60 133 9.08 $32,623

MS-DRG 253 – All cases 34,746 5.68 $19,030

MS-DRG 253 – Cases with procedure code 

00.60 353 4.99 $25,396

MS-DRG 254 – All cases 15,394 2.99 $12,629

MS-DRG 254 – Cases with procedure code 

00.60 115 2.62 $21,461

Our findings show that there were only 601 peripheral angioplasty cases with a 

drug-eluting stent reported. Of the 601 peripheral angioplasty cases with a drug-eluting 

stent, 133 cases were in MS-DRG 252, 353 cases were in MS-DRG 253, and 115 cases 

were in MS-DRG 254. The average costs for the drug-eluting stent cases in MS-DRGs 

252, 253, and 254 were $32,623, $25,396, and $21,461, respectively. The average costs 

for all cases in MS-DRGs 252, 253, and 254 were $23,935, $19,030, and $12,629, 

respectively. The average costs for the drug-eluting stent cases in MS-DRG 253 

($25,396) were higher than the average costs for all cases in MS-DRG 252 ($23,935). 

However, the average costs for the drug-eluting stent cases in MS-DRG 254 ($21,461) 

were lower than the average costs for all cases in MS-DRG 252 ($23,935).

We have determined that the small number of cases (601) does not provide 

justification to create a new set of MS-DRGs specifically for angioplasty of peripheral 

arteries using drug-eluting stents. In addition, the data do not support assigning all the 

drug-eluting stent cases to the highest severity level (MS-DRG 252), even when there is 
CMS-1632-P 175

not an MCC, because the average costs for the drug-eluting stent cases in MS-DRG 254 

($21,461) were lower than the average costs for all cases in MS-DRG 252 ($23,935). 

The average length of stay for drug-eluting stent cases in MS-DRG 254 was 2.62 days 

compared to 7.89 days for all cases in MS-DRG 252. Cases are grouped together based 

on similar clinical and resource criteria.

Our clinical advisors recommended making no MS-DRG updates for peripheral 

angioplasty cases with a drug-eluting stent and considered the current MS-DRG 

assignment appropriate. Our clinical advisors agreed that the small number of peripheral 

angioplasty cases with a drug-eluting stent does not support creating a new MS-DRG for 

this specific type of treatment. They stated that the cases are clinically similar to other 

cases within MS-DRGs 252, 253, and 254. Considering the data for peripheral 

angioplasty cases with a drug-eluting stent found reported in MS-DRGs 252, 253, and

254 and the input from our clinical advisors, we are not proposing to make any MS-DRG 

updates for peripheral angioplasty cases with a drug-eluting stent. We are proposing to 

maintain the current MS-DRG assignments for these cases in MS-DRGs 252, 253, and

254. We are inviting public comments on our proposal.

d. Percutaneous Mitral Valve Repair System—Proposed Revision of ICD-10-PCS 

Version 32 Logic

We received a comment which brought to our attention that the ICD-10 

MS-DRGs Version 32 assignment for ICD-10-PCS procedure code 02UG3JZ 

(Supplement mitral valve with synthetic substitute, percutaneous approach) does not 
CMS-1632-P 176

accurately replicate the ICD-9-CM MS-DRGs Version 32, which assign this procedure 

code to the following MS-DRGs:

● MS-DRG 231 (Coronary Bypass with PTCA with MCC);

● MS-DRG 232 (Coronary Bypass with PTCA without MCC);

● MS-DRG 246 (Percutaneous Cardiovascular Procedure with Drug-Eluting 

Stent with MCC or 4+ Vessels/Stents);

● MS DRG 247 (Percutaneous Cardiovascular Procedure with Drug-Eluting 

Stent without MCC);

● MS-DRG 248 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting 

Stent with MCC or 4+ Vessels/Stents);

● MS DRG 249 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting 

Stent without MCC);

● MS-DRG 250 (Percutaneous Cardiovascular Procedure without Coronary 

Artery Stent with MCC); and

● MS-DRG 251 (Percutaneous Cardiovascular Procedure without Coronary 

Artery Stent without MCC).

We agree with the commenter that the ICD-10 MS-DRGs logic should be 

consistent with the ICD-9 MS-DRGs logic; that is, the ICD-10 MS-DRGs Version 32 

should replicate the ICD-9-CM MS-DRGs Version 32. Therefore, for the proposed 

FY 2016 ICD-10 MS-DRGs Version 33, we are proposing to assign ICD-10-PCS 

procedure code 02UG3JZ to MS-DRGs 231 and 232 and MS-DRGs 246 through 251. 

We are inviting public comments on this proposal.
CMS-1632-P 177

e. Major Cardiovascular Procedures: Zenith®Fenestrated Abdominal Aortic Aneurysm 

(AAA) Graft

The new technology add-on payment for the Zenith®Fenestrated Abdominal 

Aortic Aneurysm (AAA) Graft (Zenith®F. Graft) will end on September 30, 2015. Cases 

involving the Zenith®F. Graft are identified by ICD-9-CM procedure code 39.78 

(Endovascular implantation of branching or fenestrated graft(s) in aorta) in MS-DRGs 

237 and 238 (Major Cardiovascular Procedures with and without MCC, respectively). 

For additional information on the Zenith®F. Graft, we refer readers to the FY 2015 

IPPS/LTCH PPS final rule (79 FR 49921 through 49922).

We received a request to reassign procedure code 39.78 to the highest severity 

level in MS-DRGs 237 and 238, including in instances when there is not an MCC 

present, or to create a new MS-DRG that would contain all endovascular aneurysm repair 

procedures. We note that, in addition to procedure code 39.78, ICD-9-CM procedure 

code 39.71 (Endovascular implantation of other graft in abdominal aorta) also describes 

endovascular aneurysm repair procedures.

There are a number of ICD-10-PCS code translations that provide more detailed 

and specific information for each of ICD-9-CM codes 39.71 and 39.78 that also currently 

group to MS-DRGs 237 and 238 in the ICD-10 MS-DRGs Version 32. The comparable 

ICD-10-PCS code translations for ICD-9-CM procedure code 39.71 and 39.78 are shown 

in the following tables:
CMS-1632-P 178

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 39.71

ICD-10-PCS Code Code Description

04U03JZ Supplement abdominal aorta with synthetic substitute, 

percutaneous approach

04U04JZ Supplement abdominal aorta with synthetic substitute, 

percutaneous endoscopic approach

04V03DZ Restriction of abdominal aorta with intraluminal device, 

percutaneous approach

04V04DZ Restriction of abdominal aorta with intraluminal device, 

percutaneous endoscopic approach

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 39.78

ICD-10-PCS 

Code

Code Description

04793DZ Dilation of right renal artery with intraluminal device, percutaneous 

approach

04794DZ Dilation of right renal artery with intraluminal device, percutaneous 

endoscopic approach

047A3DZ Dilation of left renal artery with intraluminal device, percutaneous 

approach

047A4DZ Dilation of left renal artery with intraluminal device, percutaneous 

endoscopic approach

04753DZ Dilation of superior mesenteric artery with intraluminal device, 

percutaneous approach

04754DZ Dilation of superior mesenteric artery with intraluminal device, 

percutaneous endoscopic approach

04V03DZ Restriction of abdominal aorta with intraluminal device, 

percutaneous approach

04V04DZ Restriction of abdominal aorta with intraluminal device, 

percutaneous endoscopic approach

We analyzed claims data reporting procedure code 39.78 for cases assigned to 

MS-DRGs 237 and 238 in the December 2014 update of the FY 2014 MedPAR file. We 

found a total of 18,340 cases, with an average length of stay of 9.46 days and average 

costs of $36,355 in MS-DRG 237. We found 332 cases reporting procedure code 39.78, 
CMS-1632-P 179

with an average length of stay of 8.46 days and average costs of $51,397 in MS-DRG 

237. For MS-DRG 238, we found a total of 32,227 cases, with an average length of stay 

of 3.72 days and average costs of $25,087. We found 1,927 cases reporting procedure 

code 39.78, with an average length of stay of 2.52 days and average costs of $31,739 in 

MS-DRG 238.

Zenith Fenestrated Graft Procedures

MS-DRG Number 

of Cases

Average 

Length 

of Stay

Average 

Costs

MS-DRG 237 – All cases 18,340 9.46 $36,355

MS-DRG 237 – Cases with procedure code 

39.78 332 8.46 $51,397

MS-DRG 238 – All cases 32,227 3.72 $25,087

MS-DRG 238 – Cases with procedure code 

39.78 1,927 2.52 $31,739

As illustrated in the table above, the results of the data analysis indicate that the 

average costs for cases reporting procedure code 39.78 assigned to MS-DRG 238 were 

higher than the average costs for all cases in MS-DRG 238 ($3l,739 compared to 

$25,087). In addition, the average costs for the 1,927 cases reporting procedure code 

39.78 assigned to MS-DRG 238 were $4,616 less than the costs of all cases assigned to 

MS-DRG 237. We determined that moving cases reporting procedure code 39.78 from 

MS-DRG 238 to MS-DRG 237 would result in overpayments. We also note that the 

average length of stay for the 1,927 cases reporting procedure code 39.78 in MS-DRG 

238 was 2.52 days in comparison to the average length of stay for all cases in MS-DRG 

237 of 9.46 days. Our clinical advisors do not agree with moving cases reporting 

procedure code 39.78 to a higher severity level (with MCC) MS-DRG.
CMS-1632-P 180

We believe that the higher average costs could be attributed to the cost of the 

device. The Zenith®F. Graft is the only fenestrated graft device currently approved by 

the FDA. Therefore, this manufacturer is able to set its own costs in the market. We 

point out that the IPPS is not designed to pay solely for the cost of devices. More 

importantly, moving cases that greatly differ in their severity of illness and complexity of 

resources into a higher severity level MS-DRG, in the absence of an MCC, would 

conflict with the objective of the MS-DRGs, which is to maintain homogeneous 

subgroups that are different from one another in terms of utilization of resources, that 

have enough volume to be meaningful, and that improve our ability to explain variance in 

resource use (72 FR 47169). Therefore, we are not proposing to reassign all cases 

reporting procedure code 39.78 from MS-DRG 238 to MS-DRG 237, as the commenter 

requested.

However, we recognize that the results of the data analysis also demonstrated that 

the average costs for cases reporting procedure code 39.78 are higher in both MS-DRG 

237 and MS-DRG 238 in comparison to all cases in each respective MS-DRG. As these 

higher average costs could be attributable to the cost of the device, we note the 

commenter’s concern that the end of the new technology add-on payment for Zenith®F. 

Graft, effective September 30, 2015, may result in reduced payment to hospitals and 

potentially lead to issues involving access to care for the subset of beneficiaries who 

would benefit from treatment with the Zenith®F. Graft. We continued to review the data 

to explore other alternatives as we analyzed additional claims data in response to the 
CMS-1632-P 181

second part of the request from the commenter; that is, to create a new MS-DRG that 

would contain all endovascular aneurysm repair procedures.

In our evaluation of the claims data in response to the request to create a new 

MS-DRG, we again reviewed claims data from the December 2014 update of the 

FY 2014 MedPAR file. We began our analysis by examining claims data for cases 

reporting procedure codes 39.71 and 39.78 assigned to MS-DRGs 237 and 238. Our 

findings are shown in the table below.

Endovascular Abdominal Aorta Procedures

MS-DRG

Number 

of Cases

Average 

Length of 

Stay

Average 

Costs

MS-DRG 237 – All cases 18,340 9.46 $36,355

MS-DRG 237 – Cases with procedure codes 

39.71 and 39.78 2,425 8.34 $47,363

MS-DRG 238 – All cases 32,227 3.72 $25,087

MS-DRG 238 – Cases with procedure codes 

39.71 and 39.78 16,502 2.27 $28,998

As shown in the table above, the average costs for endovascular abdominal aorta 

aneurysm repair procedures assigned to MS-DRG 237 were higher than the average costs 

of all cases assigned to MS-DRGs 237. The average costs for cases reporting procedure 

codes 39.71 and 39.78 assigned to MS-DRG 237 were $47,363 compared to the average 

costs of $36,355 for all cases assigned to MS-DRG 237 and $25,087 for all cases 

assigned to MS-DRG 238. Similarly, the average costs for cases reporting procedure 

codes 39.71 and 39.78 assigned to MS-DRG 238 were higher than the average costs of all 

cases assigned to MS-DRG 238 ($28,998 compared to $25,087). The average length of 
CMS-1632-P 182

stay for cases reporting procedure codes 39.71 and 39.78 in MS-DRGs 237 and 238 were 

also shorter than the average length of stay for all cases in the respective MS-DRG.

Our clinical advisors did not support creating a new MS-DRG specifically for 

endovascular abdominal aortic aneurysm repair procedures only. Therefore, we reviewed 

other procedure codes currently assigned to MS-DRGs 237 and 238 and found that there 

were a number of procedures with varying resource requirements and clinical indications 

that could be analyzed further. We agreed with our clinical advisors that further analysis 

was warranted to determine how we could better recognize resource utilization, clinical 

complexity, and average costs by separating the more complex, more invasive, and more 

expensive procedures used to treat more severely ill individuals from the less complex, 

less invasive, and less expensive procedures currently grouped to these MS-DRGs.

Therefore, we evaluated all of the procedures currently assigned to MS-DRGs 237 

and 238. In our evaluation, we found that MS-DRGs 237 and 238 contained two distinct 

groups of procedures. We found a high volume of less invasive procedures, such as 

pericardiotomies and pulsation balloon implants, that had substantially lower costs than 

the more invasive procedures, such as open and endovascular repairs of the aorta with 

replacement grafts. We found that the more invasive procedures were primarily 

associated with procedures on the aorta and heart assist procedures.

For this next phase of our analysis, the following procedure codes were 

designated as the more complex, more invasive procedures:

• 37.41 (Implantation of prosthetic cardiac support device around the heart);

• 37.49 (Other repair of heart and pericardium);
CMS-1632-P 183

• 37.55 (Removal of internal biventricular heart replacement system);

• 37.64 (Removal of external heart assist system(s) or device(s));

• 38.04 (Incision of vessel, aorta);

• 38.14 (Endarterectomy, aorta);

• 38.34 (Resection of vessel with anastomosis, aorta);

• 38.44 (Resection of vessel with replacement, aorta, abdominal);

• 38.64 (Other excision of vessels, aorta, abdominal);

• 38.84 (Other surgical occlusion of vessels, aorta, abdominal);

• 39.24 (Aorta-renal bypass);

• 39.71 (Endovascular implantation of other graft in abdominal aorta); and

• 39.78 (Endovascular implantation of branching or fenestrated graft(s) in aorta).

There are a number of ICD-10-PCS code translations that provide more detailed 

and specific information for each of the ICD-9-CM codes listed above that also currently 

group to MS-DRGs 237 and 238 in the ICD-10 MS-DRGs Version 32. The comparable 

ICD-10-PCS code translations for these ICD-9-CM procedure codes are shown in the 

following table:

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 37.41

ICD-10-PCS 

Code

Code Description

02UA0JZ Supplement heart with synthetic substitute, open approach

02UA3JZ Supplement heart with synthetic substitute, percutaneous approach

02UA4JZ Supplement heart with synthetic substitute, percutaneous endoscopic 

approach
CMS-1632-P 184

For the ICD-9-CM codes that result in greater than 50 ICD-10-PCS comparable 

code translations, we refer readers to Table 6P (ICD-10-PCS Code Translations for 

Proposed MS-DRG Changes) for this proposed rule (which is available via the Internet 

on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html. The table includes the MDC topic, the 

ICD-9-CM code, and the ICD-10-PCS code translations.

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 37.49

The comparable ICD-10-PCS code translations for ICD-9-CM procedure code 37.49 are 

shown in Table 6P.1a that is available via the Internet on the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html.

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 37.55

ICD-10-PCS 

Code

Code Description

02PA0QZ Removal of implantable heart assist system from heart, open approach

02PA3QZ Removal of implantable heart assist system from heart, percutaneous 

approach

02PA4QZ Removal of implantable heart assist system from heart, percutaneous 

endoscopic approach

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 37.64

ICD-10-PCS 

Code

Code Description

02PA0RZ Removal of external heart assist system from heart, open approach

02PA3RZ Removal of external heart assist system from heart, percutaneous 

approach

02PA4RZ Removal of external heart assist system from heart, percutaneous 

endoscopic approach

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 38.04
CMS-1632-P 185

ICD-10-PCS 

Code

Code Description

02CW0ZZ Extirpation of matter from thoracic aorta, open approach

02CW3ZZ Extirpation of matter from thoracic aorta, percutaneous approach

02CW4ZZ Extirpation of matter from thoracic aorta, percutaneous endoscopic 

approach

04C00ZZ Extirpation of matter from abdominal aorta, open approach

04C03ZZ Extirpation of matter from abdominal aorta, percutaneous approach

04C04ZZ Extirpation of matter from abdominal aorta, percutaneous endoscopic 

approach

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 38.14

ICD-10-PCS 

Code

Code Description

02CW0ZZ Extirpation of matter from thoracic aorta, open approach

02CW3ZZ Extirpation of matter from thoracic aorta, percutaneous approach

02CW4ZZ Extirpation of matter from thoracic aorta, percutaneous endoscopic 

approach

04C00ZZ Extirpation of matter from abdominal aorta, open approach

04C03ZZ Extirpation of matter from abdominal aorta, percutaneous approach

04C04ZZ Extirpation of matter from abdominal aorta, percutaneous endoscopic 

approach

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 38.34

ICD-10-PCS 

Code

Code Description

02BW0ZZ Excision of thoracic aorta, open approach

02BW4ZZ Excision of thoracic aorta, percutaneous endoscopic approach

04B00ZZ Excision of abdominal aorta, open approach

04B04ZZ Excision of abdominal aorta, percutaneous endoscopic approach
CMS-1632-P 186

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 38.44

ICD-10-PCS 

Code

Code Description

04R007Z Replacement of abdominal aorta with autologous tissue substitute, open 

approach

04R00JZ Replacement of abdominal aorta with synthetic substitute, open 

approach

04R00KZ Replacement of abdominal aorta with nonautologous tissue substitute, 

open approach

04R047Z Replacement of abdominal aorta with autologous tissue substitute, 

percutaneous endoscopic approach

04R04JZ Replacement of abdominal aorta with synthetic substitute, percutaneous 

endoscopic approach

04R04KZ Replacement of abdominal aorta with nonautologous tissue substitute, 

percutaneous endoscopic approach

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 38.64

ICD-10-PCS 

Code

Code Description

04500ZZ Destruction of abdominal aorta, open approach

04503ZZ Destruction of abdominal aorta, percutaneous approach

04504ZZ Destruction of abdominal aorta, percutaneous endoscopic approach

04B00ZZ Excision of abdominal aorta, open approach

04B03ZZ Excision of abdominal aorta, percutaneous approach

04B04ZZ Excision of abdominal aorta, percutaneous endoscopic approach
CMS-1632-P 187

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 38.84

ICD-10-PCS 

Code

Code Description

04L00CZ Occlusion of abdominal aorta with extraluminal device, open approach

04L00DZ Occlusion of abdominal aorta with intraluminal device, open approach

04L00ZZ Occlusion of abdominal aorta, open approach

04L03CZ Occlusion of abdominal aorta with extraluminal device, percutaneous 

approach

04L03DZ Occlusion of abdominal aorta with intraluminal device, percutaneous 

approach

04L03ZZ Occlusion of abdominal aorta, percutaneous approach

04L04CZ Occlusion of abdominal aorta with extraluminal device, percutaneous 

endoscopic approach

04L04DZ Occlusion of abdominal aorta with intraluminal device, percutaneous 

endoscopic approach

04L04ZZ Occlusion of abdominal aorta, percutaneous endoscopic approach

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 39.24

ICD-10-PCS 

Code

Code Description

0410093 Bypass abdominal aorta to right renal artery with autologous venous 

tissue, open approach

0410094 Bypass abdominal aorta to left renal artery with autologous venous 

tissue, open approach

0410095 Bypass abdominal aorta to bilateral renal artery with autologous venous 

tissue, open approach

04100A3 Bypass abdominal aorta to right renal artery with autologous arterial 

tissue, open approach

04100A4 Bypass abdominal aorta to left renal artery with autologous arterial 

tissue, open approach

04100A5 Bypass abdominal aorta to bilateral renal artery with autologous arterial 

tissue, open approach

04100J3 Bypass abdominal aorta to right renal artery with synthetic substitute, 

open approach

04100J4 Bypass abdominal aorta to left renal artery with synthetic substitute, 

open approach

04100J5 Bypass abdominal aorta to bilateral renal artery with synthetic 

substitute, open approach
CMS-1632-P 188

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 39.24

ICD-10-PCS 

Code

Code Description

04100K3 Bypass abdominal aorta to right renal artery with nonautologous tissue 

substitute, open approach

04100K4 Bypass abdominal aorta to left renal artery with nonautologous tissue 

substitute, open approach

04100K5 Bypass abdominal aorta to bilateral renal artery with nonautologous 

tissue substitute, open approach

04100Z3 Bypass abdominal aorta to right renal artery, open approach

04100Z4 Bypass abdominal aorta to left renal artery, open approach

04100Z5 Bypass abdominal aorta to bilateral renal artery, open approach

0410493 Bypass abdominal aorta to right renal artery with autologous venous 

tissue, percutaneous endoscopic approach

0410494 Bypass abdominal aorta to left renal artery with autologous venous 

tissue, percutaneous endoscopic approach

0410495 Bypass abdominal aorta to bilateral renal artery with autologous venous 

tissue, percutaneous endoscopic approach

04104A3 Bypass abdominal aorta to right renal artery with autologous arterial 

tissue, percutaneous endoscopic approach

04104A4 Bypass abdominal aorta to left renal artery with autologous arterial 

tissue, percutaneous endoscopic approach

04104A5 Bypass abdominal aorta to bilateral renal artery with autologous arterial 

tissue, percutaneous endoscopic approach

04104J3 Bypass abdominal aorta to right renal artery with synthetic substitute, 

percutaneous endoscopic approach

04104J4 Bypass abdominal aorta to left renal artery with synthetic substitute, 

percutaneous endoscopic approach

04104J5 Bypass abdominal aorta to bilateral renal artery with synthetic 

substitute, percutaneous endoscopic approach

04104K3 Bypass abdominal aorta to right renal artery with nonautologous tissue 

substitute, percutaneous endoscopic approach

04104K4 Bypass abdominal aorta to left renal artery with nonautologous tissue 

substitute, percutaneous endoscopic approach

04104K5 Bypass abdominal aorta to bilateral renal artery with nonautologous 

tissue substitute, percutaneous endoscopic approach

04104Z3 Bypass abdominal aorta to right renal artery, percutaneous endoscopic 

approach

04104Z4 Bypass abdominal aorta to left renal artery, percutaneous endoscopic 

approach

04104Z5 Bypass abdominal aorta to bilateral renal artery, percutaneous 

endoscopic approach
CMS-1632-P 189

ICD-10-PCS Code Translations for ICD—9-CM Procedure Code 39.71

ICD-10-PCS 

Code

Code Description

04U03JZ Supplement abdominal aorta with synthetic substitute, percutaneous 

approach

04U04JZ Supplement abdominal aorta with synthetic substitute, percutaneous 

endoscopic approach

04V03DZ Restriction of abdominal aorta with intraluminal device, percutaneous 

approach

04V04DZ Restriction of abdominal aorta with intraluminal device, percutaneous 

endoscopic approach

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 39.78

ICD-10-

PCS Code

Code Description

04793DZ Dilation of right renal artery with intraluminal device, percutaneous 

approach

04794DZ Dilation of right renal artery with intraluminal device, percutaneous 

endoscopic approach

047A3DZ Dilation of left renal artery with intraluminal device, percutaneous approach

047A4DZ Dilation of left renal artery with intraluminal device, percutaneous 

endoscopic approach

04753DZ Dilation of superior mesenteric artery with intraluminal device, 

percutaneous approach

04754DZ Dilation of superior mesenteric artery with intraluminal device, 

percutaneous endoscopic approach

04U03JZ Supplement abdominal aorta with synthetic substitute, percutaneous 

approach

04U04JZ Supplement abdominal aorta with synthetic substitute, percutaneous 

endoscopic approach

04V03DZ Restriction of abdominal aorta with intraluminal device, percutaneous 

approach

04V04DZ Restriction of abdominal aorta with intraluminal device, percutaneous 

endoscopic approach
CMS-1632-P 190

For the next phase of our analysis, the procedure codes shown in the following 

table were designated as the less complex, less invasive procedures.

ICD-9-CM Procedure Codes That Were Designated as the Less Complex, Less 

Invasive Procedures

ICD-9-CM 

Procedure 

Code

Code Description

35.00 Closed heart valvotomy, unspecified valve

35.01 Closed heart valvotomy, aortic valve

35.02 Closed heart valvotomy, mitral valve

35.03 Closed heart valvotomy, pulmonary valve

35.04 Closed heart valvotomy, tricuspid valve

37.12 Pericardiotomy

37.24 Biopsy of pericardium

37.31 Pericardiectomy

37.61 Implant of pulsation balloon

37.67 Implantation of cardiomyostimulation system

37.91 Open chest cardiac massage

37.99 Other operations on heart and pericardium

38.05 Incision of vessel, other thoracic vessels

38.06 Incision of vessel, abdominal arteries

38.07 Incision of vessel, abdominal veins

38.15 Endarterectomy, other thoracic vessels

38.16 Endarterectomy, abdominal arteries

38.35 Resection of vessel with anastomosis, other thoracic vessels

38.36 Resection of vessel with anastomosis, abdominal arteries

38.37 Resection of vessel with anastomosis, abdominal veins

38.46 Resection of vessel with replacement, abdominal arteries

38.47 Resection of vessel with replacement, abdominal veins

38.55 Ligation and stripping of varicose veins, other thoracic vessels

38.65 Other excision of vessels, thoracic vessels

38.66 Other excision of vessels, abdominal arteries

38.67 Other excision of vessels, abdominal veins

38.85 Other surgical occlusion of vessels, thoracic vessels

38.86 Other surgical occlusion of vessels, abdominal arteries

38.87 Other surgical occlusion of vessels, abdominal veins

39.0 Systemic to pulmonary artery shunt

39.1 Intra-abdominal venous shunt

39.21 Caval-pulmonary artery anastomosis

39.22 Aorta-subclavian-carotid bypass
CMS-1632-P 191

ICD-9-CM Procedure Codes That Were Designated as the Less Complex, Less 

Invasive Procedures

ICD-9-CM 

Procedure 

Code

Code Description

39.23 Other intrathoracic vascular shunt or bypass

39.25 Aorta-iliac-femoral bypass

39.26 Other intra-abdominal vascular shunt or bypass

39.52 Other repair of aneurysm

39.54 Re-entry operation (aorta)

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

39.76 Endovascular embolization or occlusion of vessel(s) of head or neck using 

bioactive coils

39.79 Other endovascular procedures on other vessels

There are a number of ICD-10-PCS code translations that provide more detailed 

and specific information for each of the ICD-9-CM codes listed in the table immediately 

above that also currently group to MS-DRGs 237 and 238 in the ICD-10 MS-DRGs 

Version 32. The comparable ICD-10-PCS code translations for these ICD-9-CM 

procedure codes are shown in the following tables:

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 35.00

ICD-10-PCS 

Code

Code Description

02NF3ZZ Release aortic valve, percutaneous approach

02NF4ZZ Release aortic valve, percutaneous endoscopic approach

02NG3ZZ Release mitral valve, percutaneous approach

02NG4ZZ Release mitral valve, percutaneous endoscopic approach

02NH3ZZ Release pulmonary valve, percutaneous approach

02NH4ZZ Release pulmonary valve, percutaneous endoscopic approach

02NJ3ZZ Release tricuspid valve, percutaneous approach

02NJ4ZZ Release tricuspid valve, percutaneous endoscopic approach
CMS-1632-P 192

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 35.01

ICD-10-PCS 

Code

Code Description

02CF3ZZ Extirpation of matter from aortic valve, percutaneous approach

02CF4ZZ Extirpation of matter from aortic valve, percutaneous endoscopic 

approach

02NF3ZZ Release aortic valve, percutaneous approach

02NF4ZZ Release aortic valve, percutaneous endoscopic approach

ICD-10-PCS Code Translation for ICD-9-CM Procedure Code 35.02

ICD-10-PCS 

Code

Code Description

02CG3ZZ Extirpation of matter from mitral valve, percutaneous approach

02CG4ZZ Extirpation of matter from mitral valve, percutaneous endoscopic 

approach

02NG3ZZ Release mitral valve, percutaneous approach

02NG4ZZ Release mitral valve, percutaneous endoscopic approach

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 35.03

ICD-10-PCS 

Code

Code Description

02CH3ZZ Extirpation of matter from pulmonary valve, percutaneous approach

02CH4ZZ Extirpation of matter from pulmonary valve, percutaneous 

endoscopic approach

02NH3ZZ Release Pulmonary Valve, Percutaneous Approach

02NH4ZZ Release Pulmonary Valve, Percutaneous Endoscopic Approach

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 35.04

ICD-10-PCS 

Code

Description

02CJ3ZZ Extirpation of matter from tricuspid valve, percutaneous approach

02CJ4ZZ Extirpation of matter from tricuspid valve, percutaneous endoscopic 

approach

02NJ3ZZ Release tricuspid valve, percutaneous approach

02NJ4ZZ Release tricuspid valve, percutaneous endoscopic approach
CMS-1632-P 193

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 37.12

ICD-10-PCS 

Code

Code Description

02CN0ZZ Extirpation of matter from pericardium, open approach

02CN3ZZ Extirpation of matter from pericardium, percutaneous approach

02CN4ZZ Extirpation of matter from pericardium, percutaneous endoscopic 

approach

02HN00Z Insertion of pressure sensor monitoring device into pericardium, open 

approach

02HN02Z Insertion of monitoring device into pericardium, open approach

02HN30Z Insertion of pressure sensor monitoring device into pericardium, 

percutaneous approach

02HN32Z Insertion of monitoring device into pericardium, percutaneous approach

02HN40Z Insertion of pressure sensor monitoring device into pericardium, 

percutaneous endoscopic approach

02HN42Z Insertion of monitoring device into pericardium, percutaneous 

endoscopic approach

02NN0ZZ Release pericardium, open approach

02NN3ZZ Release pericardium, percutaneous approach

02NN4ZZ Release pericardium, percutaneous endoscopic approach

0W9D00Z Drainage of pericardial cavity with drainage device, open approach

0W9D0ZX Drainage of pericardial cavity, open approach, diagnostic

0W9D0ZZ Drainage of pericardial cavity, open approach

0WCD0ZZ Extirpation of matter from pericardial cavity, open approach

0WCD3ZZ Extirpation of matter from pericardial cavity, percutaneous approach

0WCD4ZZ Extirpation of matter from pericardial cavity, percutaneous endoscopic 

approach

0WHD03Z Insertion of infusion device into pericardial cavity, open approach

0WHD0YZ Insertion of other device into pericardial cavity, open approach

0WHD33Z Insertion of infusion device into pericardial cavity, percutaneous 

approach

0WHD3YZ Insertion of other device into pericardial cavity, percutaneous approach

0WHD43Z Insertion of infusion device into pericardial cavity, percutaneous 

endoscopic approach

0WHD4YZ Insertion of other device into pericardial cavity, percutaneous endoscopic 

approach

0WPD00Z Removal of drainage device from pericardial cavity, open approach

0WPD01Z Removal of radioactive element from pericardial cavity, open approach

0WPD03Z Removal of infusion device from pericardial cavity, open approach

0WPD0YZ Removal of other device from pericardial cavity, open approach
CMS-1632-P 194

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 37.12

ICD-10-PCS 

Code

Code Description

0WPD30Z Removal of drainage device from pericardial cavity, percutaneous 

approach

0WPD31Z Removal of radioactive element from pericardial cavity, percutaneous 

approach

0WPD33Z Removal of infusion device from pericardial cavity, percutaneous 

approach

0WPD3YZ Removal of other device from pericardial cavity, percutaneous approach

0WPD40Z Removal of drainage device from pericardial cavity, percutaneous 

endoscopic approach

0WPD41Z Removal of radioactive element from pericardial cavity, percutaneous 

endoscopic approach

0WPD43Z Removal of infusion device from pericardial cavity, percutaneous 

endoscopic approach

0WPD4YZ Removal of other device from pericardial cavity, percutaneous 

endoscopic approach

0WWD00Z Revision of drainage device in pericardial cavity, open approach

0WWD01Z Revision of radioactive element in pericardial cavity, open approach

0WWD03Z Revision of infusion device in pericardial cavity, open approach

0WWD0YZ Revision of other device in pericardial cavity, open approach

0WWD30Z Revision of drainage device in pericardial cavity, percutaneous approach

0WWD31Z Revision of radioactive element in pericardial cavity, percutaneous 

approach

0WWD33Z Revision of infusion device in pericardial cavity, percutaneous approach

0WWD3YZ Revision of other device in pericardial cavity, percutaneous approach

0WWD40Z Revision of drainage device in pericardial cavity, percutaneous 

endoscopic approach

0WWD41Z Revision of radioactive element in pericardial cavity, percutaneous 

endoscopic approach

0WWD43Z Revision of infusion device in pericardial cavity, percutaneous 

endoscopic approach

0WWD4YZ Revision of other device in pericardial cavity, percutaneous endoscopic 

approach
CMS-1632-P 195

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 37.24

ICD-10-PCS 

Code

Code Description

02BN0ZX Excision of pericardium, open approach, diagnostic

02BN3ZX Excision of pericardium, percutaneous approach, diagnostic

02BN4ZX Excision of pericardium, percutaneous endoscopic approach, 

diagnostic

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 37.31

ICD-10-PCS 

Code

Code Description

025N0ZZ Destruction of pericardium, open approach

025N3ZZ Destruction of pericardium, percutaneous approach

025N4ZZ Destruction of pericardium, percutaneous endoscopic approach

02BN0ZZ Excision of pericardium, open approach

02BN3ZZ Excision of pericardium, percutaneous approach

02BN4ZZ Excision of pericardium, percutaneous endoscopic approach

02TN0ZZ Resection of pericardium, open approach

02TN3ZZ Resection of pericardium, percutaneous approach

02TN4ZZ Resection of pericardium, percutaneous endoscopic approach

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 37.61

ICD-10-PCS 

Code

Code Description

5A02110 Assistance with cardiac output using balloon pump, intermittent

5A02210 Assistance with cardiac output using balloon pump, continuous
CMS-1632-P 196

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 37.67

ICD-10-PCS 

Code

Code Description

02QA0ZZ Repair heart, open approach

02QA3ZZ Repair heart, percutaneous approach

02QA4ZZ Repair heart, percutaneous endoscopic approach

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 37.91

ICD-10-PCS 

Code

Code Description

02QA0ZZ Repair heart, open approach

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 37.99

ICD-10-PCS 

Code

Code Description

02880ZZ Division of conduction mechanism, open approach 

02883ZZ Division of conduction mechanism, percutaneous approach 

02884ZZ Division of conduction mechanism, percutaneous endoscopic 

approach

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 38.05

The comparable ICD-10-PCS code translations for ICD-9-CM procedure code 38.05 are 

shown in Table 6P.1b for this proposed rule, which is available via the Internet on the 

CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html.
CMS-1632-P 197

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 38.06

ICD-10-PCS

Code

Code Description

04C10ZZ Extirpation of matter from celiac artery, open approach

04C13ZZ Extirpation of matter from celiac artery, percutaneous approach

04C14ZZ Extirpation of matter from celiac artery, percutaneous endoscopic 

approach

04C20ZZ Extirpation of matter from gastric artery, open approach

04C23ZZ Extirpation of matter from gastric artery, percutaneous approach

04C24ZZ Extirpation of matter from gastric artery, percutaneous endoscopic 

approach

04C30ZZ Extirpation of matter from hepatic artery, open approach

04C33ZZ Extirpation of matter from hepatic artery, percutaneous approach

04C34ZZ Extirpation of matter from hepatic artery, percutaneous endoscopic 

approach

04C40ZZ Extirpation of matter from splenic artery, open approach

04C43ZZ Extirpation of matter from splenic artery, percutaneous approach

04C44ZZ Extirpation of matter from splenic artery, percutaneous endoscopic 

approach

04C50ZZ Extirpation of matter from superior mesenteric artery, open approach

04C53ZZ Extirpation of matter from superior mesenteric artery, percutaneous 

approach

04C54ZZ Extirpation of matter from superior mesenteric artery, percutaneous 

endoscopic approach

04C60ZZ Extirpation of matter from right colic artery, open approach

04C63ZZ Extirpation of matter from right colic artery, percutaneous approach

04C64ZZ Extirpation of matter from right colic artery, percutaneous endoscopic 

approach

04C70ZZ Extirpation of matter from left colic artery, open approach

04C73ZZ Extirpation of matter from left colic artery, percutaneous approach

04C74ZZ Extirpation of matter from left colic artery, percutaneous endoscopic 

approach

04C80ZZ Extirpation of matter from middle colic artery, open approach

04C83ZZ Extirpation of matter from middle colic artery, percutaneous approach

04C84ZZ Extirpation of matter from middle colic artery, percutaneous endoscopic 

approach

04C90ZZ Extirpation of matter from right renal artery, open approach

04C93ZZ Extirpation of matter from right renal artery, percutaneous approach

04C94ZZ Extirpation of matter from right renal artery, percutaneous endoscopic 

approach

04CA0ZZ Extirpation of matter from left renal artery, open approach
CMS-1632-P 198

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 38.06

ICD-10-PCS

Code

Code Description

04CA3ZZ Extirpation of matter from left renal artery, percutaneous approach

04CA4ZZ Extirpation of matter from left renal artery, percutaneous endoscopic 

approach

04CB0ZZ Extirpation of matter from inferior mesenteric artery, open approach

04CB3ZZ Extirpation of matter from inferior mesenteric artery, percutaneous 

approach

04CB4ZZ Extirpation of matter from inferior mesenteric artery, percutaneous 

endoscopic approach

04CC0ZZ Extirpation of matter from right common iliac artery, open approach

04CC3ZZ Extirpation of matter from right common iliac artery, percutaneous 

approach

04CC4ZZ Extirpation of matter from right common iliac artery, percutaneous 

endoscopic approach

04CD0ZZ Extirpation of matter from left common iliac artery, open approach 

04CD3ZZ Extirpation of matter from left common iliac artery, percutaneous 

approach

04CD4ZZ Extirpation of matter from left common iliac artery, percutaneous 

endoscopic approach

04CE0ZZ Extirpation of matter from right internal iliac artery, open approach

04CE3ZZ Extirpation of matter from right internal iliac artery, percutaneous 

approach

04CE4ZZ Extirpation of matter from right internal iliac artery, percutaneous 

endoscopic approach

04CF0ZZ Extirpation of matter from left internal iliac artery, open approach

04CF3ZZ Extirpation of matter from left internal iliac artery, percutaneous 

approach

04CF4ZZ Extirpation of matter from left internal iliac artery, percutaneous 

endoscopic approach

04CH0ZZ Extirpation of matter from right external iliac artery, open approach

04CH3ZZ Extirpation of matter from right external iliac artery, percutaneous 

approach

04CH4ZZ Extirpation of matter from right external iliac artery, percutaneous 

endoscopic approach

04CJ0ZZ Extirpation of matter from left external iliac artery, open approach

04CJ3ZZ Extirpation of matter from left external iliac artery, percutaneous 

approach

04CJ4ZZ Extirpation of matter from left external iliac artery, percutaneous 

endoscopic approach
CMS-1632-P 199

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 38.07

ICD-10-PCS 

Code

Code Description

06C00ZZ Extirpation of matter from inferior vena cava, open approach

06C03ZZ Extirpation of matter from inferior vena cava, percutaneous approach

06C04ZZ Extirpation of matter from inferior vena vava, percutaneous endoscopic 

approach

06C10ZZ Extirpation of matter from splenic vein, open approach

06C13ZZ Extirpation of matter from splenic vein, percutaneous approach

06C14ZZ Extirpation of matter from splenic vein, percutaneous endoscopic 

approach

06C20ZZ Extirpation of matter from gastric vein, open approach

06C23ZZ Extirpation of matter from gastric vein, percutaneous approach

06C24ZZ Extirpation of matter from gastric vein, percutaneous endoscopic 

approach

06C40ZZ Extirpation of matter from hepatic vein, open approach

06C43ZZ Extirpation of matter from hepatic vein, percutaneous approach

06C44ZZ Extirpation of matter from hepatic vein, percutaneous endoscopic 

approach

06C50ZZ Extirpation of matter from superior mesenteric vein, open approach

06C53ZZ Extirpation of matter from superior mesenteric vein, percutaneous 

approach

06C54ZZ Extirpation of matter from superior mesenteric vein, percutaneous 

endoscopic approach

06C60ZZ Extirpation of matter from inferior mesenteric vein, open approach

06C63ZZ Extirpation of matter from inferior mesenteric vein, percutaneous 

approach

06C64ZZ Extirpation of matter from inferior mesenteric vein, percutaneous 

endoscopic approach

06C70ZZ Extirpation of matter from colic vein, open approach

06C73ZZ Extirpation of matter from colic vein, percutaneous approach

06C74ZZ Extirpation of matter from colic vein, percutaneous endoscopic 

approach

06C80ZZ Extirpation of matter from portal vein, open approach

06C83ZZ Extirpation of matter from portal vein, percutaneous approach

06C84ZZ Extirpation of matter from portal vein, percutaneous endoscopic 

approach

06C90ZZ Extirpation of matter from right renal vein, open approach

06C93ZZ Extirpation of matter from right renal vein, percutaneous approach

06C94ZZ Extirpation of matter from right renal vein, percutaneous endoscopic 

approach
CMS-1632-P 200

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 38.07

ICD-10-PCS 

Code

Code Description

06CB0ZZ Extirpation of matter from left renal vein, open approach

06CB3ZZ Extirpation of matter from left renal vein, percutaneous approach

06CB4ZZ Extirpation of matter from left renal vein, percutaneous endoscopic 

approach

06CC0ZZ Extirpation of matter from right common iliac vein, open approach

06CC3ZZ Extirpation of matter from right common iliac vein, percutaneous 

approach

06CC4ZZ Extirpation of matter from right common iliac vein, percutaneous 

endoscopic approach

06CD0ZZ Extirpation of matter from left common iliac vein, open approach

06CD3ZZ Extirpation of matter from left common iliac vein, percutaneous 

approach

06CD4ZZ Extirpation of matter from left common iliac vein, percutaneous 

endoscopic approach

06CF0ZZ Extirpation of matter from right external iliac vein, open approach

06CF3ZZ Extirpation of matter from right external iliac vein, percutaneous 

approach

06CF4ZZ Extirpation of matter from right external iliac vein, percutaneous 

endoscopic approach

06CG0ZZ Extirpation of matter from left external iliac vein, open approach

06CG3ZZ Extirpation of matter from left external iliac vein, percutaneous 

approach

06CG4ZZ Extirpation of matter from left external iliac vein, percutaneous 

endoscopic approach

06CH0ZZ Extirpation of matter from right hypogastric vein, open approach

06CH3ZZ Extirpation of matter from right hypogastric vein, percutaneous 

approach

06CH4ZZ Extirpation of matter from right hypogastric vein, percutaneous 

endoscopic approach

06CJ0ZZ Extirpation of matter from left hypogastric vein, open approach

06CJ3ZZ Extirpation of matter from left hypogastric vein, percutaneous approach

06CJ4ZZ Extirpation of matter from left hypogastric vein, percutaneous 

endoscopic approach
CMS-1632-P 201

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 38.15

ICD-10-PCS 

Code

Code Description

02CP0ZZ Extirpation of matter from pulmonary trunk, open approach

02CP3ZZ Extirpation of matter from pulmonary trunk, percutaneous approach

02CP4ZZ Extirpation of matter from pulmonary trunk, percutaneous endoscopic 

approach

02CQ0ZZ Extirpation of matter from right pulmonary artery, open approach

02CQ3ZZ Extirpation of matter from right pulmonary artery, percutaneous 

approach

02CQ4ZZ Extirpation of matter from right pulmonary artery, percutaneous 

endoscopic approach

02CR0ZZ Extirpation of matter from left pulmonary artery, open approach 

02CR3ZZ Extirpation of matter from left pulmonary artery, percutaneous approach

02CR4ZZ Extirpation of matter from left pulmonary artery, percutaneous 

endoscopic approach

02CS0ZZ Extirpation of matter from right pulmonary vein, open approach

02CS3ZZ Extirpation of matter from right pulmonary vein, percutaneous approach

02CS4ZZ Extirpation of matter from right pulmonary vein, percutaneous 

endoscopic approach

02CT0ZZ Extirpation of matter from left pulmonary vein, open approach

02CT3ZZ Extirpation of matter from left pulmonary vein, percutaneous approach

02CT4ZZ Extirpation of matter from left pulmonary vein, percutaneous 

endoscopic approach

02CV0ZZ Extirpation of matter from superior vena cava, open approach

02CV3ZZ Extirpation of matter from superior vena cava, percutaneous approach

02CV4ZZ Extirpation of matter from superior vena cava, percutaneous endoscopic 

approach

03C00ZZ Extirpation of matter from right internal mammary artery, open 

approach

03C03ZZ Extirpation of matter from right internal mammary artery, percutaneous 

approach

03C04ZZ Extirpation of matter from right internal mammary artery, percutaneous 

endoscopic approach

03C10ZZ Extirpation of matter from left internal mammary artery, open approach

03C13ZZ Extirpation of matter from left internal mammary artery, percutaneous 

approach

03C14ZZ Extirpation of matter from left internal mammary artery, percutaneous 

endoscopic approach

03C20ZZ Extirpation of matter from innominate artery, open approach

03C23ZZ Extirpation of matter from innominate artery, percutaneous approach
CMS-1632-P 202

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 38.15

ICD-10-PCS 

Code

Code Description

03C24ZZ Extirpation of matter from innominate artery, percutaneous endoscopic 

approach

03C30ZZ Extirpation of matter from right subclavian artery, open approach

03C33ZZ Extirpation of matter from right subclavian artery, percutaneous 

approach

03C34ZZ Extirpation of matter from right subclavian artery, percutaneous 

endoscopic approach

03C40ZZ Extirpation of matter from left subclavian artery, open approach

03C43ZZ Extirpation of matter from left subclavian artery, percutaneous approach

03C44ZZ Extirpation of matter from left subclavian artery, percutaneous 

endoscopic approach

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 38.16

The comparable ICD-10-PCS code translations for ICD-9-CM procedure code 38.16 are 

shown in Table 6P.1c for this proposed rule, which is available via the Internet on the 

CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html.
CMS-1632-P 203

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 38.35

ICD-10-PCS 

Code

Code Description

02BP0ZZ Excision of pulmonary trunk, open approach

02BP4ZZ Excision of pulmonary trunk, percutaneous endoscopic approach

02BQ0ZZ Excision of right pulmonary artery, open approach

02BQ4ZZ Excision of right pulmonary artery, percutaneous endoscopic approach

02BR0ZZ Excision of left pulmonary artery, open approach

02BR4ZZ Excision of left pulmonary artery, percutaneous endoscopic approach

02BS0ZZ Excision of right pulmonary vein, open approach

02BS4ZZ Excision of right pulmonary vein, percutaneous endoscopic approach

02BT0ZZ Excision of left pulmonary vein, open approach

02BT4ZZ Excision of left pulmonary vein, percutaneous endoscopic approach

02BV0ZZ Excision of superior vena cava, open approach

02BV4ZZ Excision of superior vena cava, percutaneous endoscopic approach

03B00ZZ Excision of right internal mammary artery, open approach

03B04ZZ Excision of right internal mammary artery, percutaneous endoscopic 

approach

03B10ZZ Excision of left internal mammary artery, open approach

03B14ZZ Excision of left internal mammary artery, percutaneous endoscopic 

approach

03B20ZZ Excision of innominate artery, open approach

03B24ZZ Excision of innominate artery, percutaneous endoscopic approach

03B30ZZ Excision of right subclavian artery, open approach

03B34ZZ Excision of right subclavian artery, percutaneous endoscopic approach

03B40ZZ Excision of left subclavian artery, open approach

03B44ZZ Excision of left subclavian artery, percutaneous endoscopic approach

05B00ZZ Excision of azygos vein, open approach 

05B04ZZ Excision of azygos vein, percutaneous endoscopic approach

05B10ZZ Excision of hemiazygos vein, open approach

05B14ZZ Excision of hemiazygos vein, percutaneous endoscopic approach

05B30ZZ Excision of right innominate vein, open approach

05B34ZZ Excision of right innominate vein, percutaneous endoscopic approach

05B40ZZ Excision of left innominate vein, open approach

05B44ZZ Excision of left innominate vein, percutaneous endoscopic approach

05B50ZZ Excision of right subclavian vein, open approach

05B54ZZ Excision of right subclavian vein, percutaneous endoscopic approach

05B60ZZ Excision of left subclavian vein, open approach

05B64ZZ Excision of left subclavian vein, percutaneous endoscopic approach
CMS-1632-P 204

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 38.36

ICD-10-PCS 

Code

Code Description

04B10ZZ Excision of celiac artery, open approach

04B14ZZ Excision of celiac artery, percutaneous endoscopic approach

04B20ZZ Excision of gastric artery, open approach

04B24ZZ Excision of gastric artery, percutaneous endoscopic approach

04B30ZZ Excision of hepatic artery, open approach

04B34ZZ Excision of hepatic artery, percutaneous endoscopic approach

04B40ZZ Excision of splenic artery, open approach

04B44ZZ Excision of splenic artery, percutaneous endoscopic approach

04B50ZZ Excision of superior mesenteric artery, open approach

04B54ZZ Excision of superior mesenteric artery, percutaneous endoscopic 

approach

04B60ZZ Excision of right colic artery, open approach

04B64ZZ Excision of right colic artery, percutaneous endoscopic approach

04B70ZZ Excision of left colic artery, open approach

04B74ZZ Excision of left colic artery, percutaneous endoscopic approach

04B80ZZ Excision of middle colic artery, open approach

04B84ZZ Excision of middle colic artery, percutaneous endoscopic approach

04B90ZZ Excision of right renal artery, open approach

04B94ZZ Excision of right renal artery, percutaneous endoscopic approach

04BA0ZZ Excision of left renal artery, open approach

04BA4ZZ Excision of left renal artery, percutaneous endoscopic approach

04BB0ZZ Excision of inferior mesenteric artery, open approach

04BB4ZZ Excision of inferior mesenteric artery, percutaneous endoscopic 

approach

04BC0ZZ Excision of right common iliac artery, open approach

04BC4ZZ Excision of right common iliac artery, percutaneous endoscopic 

approach

04BD0ZZ Excision of left common iliac artery, open approach

04BD4ZZ Excision of left common iliac artery, percutaneous endoscopic 

approach

04BE0ZZ Excision of right internal iliac artery, open approach

04BE4ZZ Excision of right internal iliac artery, percutaneous endoscopic 

approach

04BF0ZZ Excision of left internal iliac artery, open approach

04BF4ZZ Excision of left internal iliac artery, percutaneous endoscopic 

approach

04BH0ZZ Excision of right external iliac artery, open approach

04BH4ZZ Excision of right external iliac artery, percutaneous endoscopic 

approach

04BJ0ZZ Excision of left external iliac artery, open approach
CMS-1632-P 205

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 38.36

ICD-10-PCS 

Code

Code Description

04BJ4ZZ Excision of left external iliac artery, percutaneous endoscopic 

approach

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 38.37

ICD-10-PCS 

Code

Code Description

06B00ZZ Excision of inferior vena cava, open approach

06B04ZZ Excision of inferior vena cava, percutaneous endoscopic approach

06B10ZZ Excision of splenic vein, open approach

06B14ZZ Excision of splenic vein, percutaneous endoscopic approach

06B20ZZ Excision of gastric vein, open approach

06B24ZZ Excision of gastric vein, percutaneous endoscopic approach

06B40ZZ Excision of hepatic vein, open approach

06B44ZZ Excision of hepatic vein, percutaneous endoscopic approach

06B50ZZ Excision of superior mesenteric vein, open approach

06B54ZZ Excision of superior mesenteric vein, percutaneous endoscopic 

approach 

06B60ZZ Excision of inferior mesenteric vein, open approach 

06B64ZZ Excision of inferior mesenteric vein, percutaneous endoscopic 

approach

06B70ZZ Excision of colic vein, open approach

06B74ZZ Excision of colic vein, percutaneous endoscopic approach

06B80ZZ Excision of portal vein, open approach

06B84ZZ Excision of portal vein, percutaneous endoscopic approach

06B90ZZ Excision of right renal vein, open approach

06B94ZZ Excision of right renal vein, percutaneous endoscopic approach

06BB0ZZ Excision of left renal vein, open approach

06BB4ZZ Excision of left renal vein, percutaneous endoscopic approach

06BC0ZZ Excision of right common iliac vein, open approach

06BC4ZZ Excision of right common iliac vein, percutaneous endoscopic 

approach

06BD0ZZ Excision of left common iliac vein, open approach

06BD4ZZ Excision of left common iliac vein, percutaneous endoscopic approach

06BF0ZZ Excision of right external iliac vein, open approach

06BF4ZZ Excision of right external iliac vein, percutaneous endoscopic 

approach

06BG0ZZ Excision of left external iliac vein, open approach 

06BG4ZZ Excision of left external iliac vein, percutaneous endoscopic approach
CMS-1632-P 206

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 38.37

ICD-10-PCS 

Code

Code Description

06BH0ZZ Excision of right hypogastric vein, open approach

06BH4ZZ Excision of right hypogastric vein, percutaneous endoscopic approach

06BJ0ZZ Excision of left hypogastric vein, open approach

06BJ4ZZ Excision of left hypogastric vein, percutaneous endoscopic approach

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 38.46

ICD-10-PCS 

Code

Code Description

The comparable ICD-10-PCS code translations for ICD-9-CM procedure code 38.46 are 

shown in Table 6P.1d for this proposed rule, which is available via the Internet on the 

CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html.

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 38.47

The comparable ICD-10-PCS code translations for ICD-9-CM procedure code 38.47 are 

shown in Table 6P.1e for this proposed rule, which is available via the Internet on the 

CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html.

There is not an equivalent ICD-10-PCS code translation for ICD-9-CM procedure 

code 38.55.
CMS-1632-P 207

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 38.65

ICD-10-PCS 

Code

Code Description

The comparable ICD-10-PCS code translations for ICD-9-CM procedure code 38.65 are 

shown in Table 6P.1f for this proposed rule, which is available via the Internet on the 

CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html.

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 38.66

ICD-10-PCS 

Code

Code Description

The comparable ICD-10-PCS code translations for ICD-9-CM procedure code 38.66 are 

shown in Table 6P.1g for this proposed rule, which is available via the Internet on the 

CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html.

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 38.67

ICD-10-PCS 

Code

Code Description

The comparable ICD-10-PCS code translations for ICD-9-CM procedure code 38.67 are 

shown in Table 6P.1h for this proposed rule, which is available via the Internet on the 

CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html.

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 38.85

ICD-10-PCS 

Code

Code Description

The comparable ICD-10-PCS code translations for ICD-9-CM procedure code 38.85 are 

shown in Table 6P.1i for this proposed rule, which is available via the Internet on the 

CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html.
CMS-1632-P 208

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 38.86

ICD-10-PCS 

Code

Code Description

The comparable ICD-10-PCS code translations for ICD-9-CM procedure code 38.86 are 

shown in Table 6P.1j for this proposed rule, which is available via the Internet on the 

CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html.

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 38.87

ICD-10-PCS 

Code

Code Description

The comparable ICD-10-PCS code translations for ICD-9-CM procedure code 38.87 are 

shown in Table 6P.1k for this proposed rule, which is available via the Internet on the 

CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html.

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 39.0

ICD-10-PCS 

Code

Code Description

The comparable ICD-10-PCS code translations for ICD-9-CM procedure code 39.0 are 

shown in Table 6P.1l for this proposed rule, which is available via the Internet on the 

CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html.

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 39.1

ICD-10-PCS 

Code

Code Description

The comparable ICD-10-PCS code translations for ICD-9-CM procedure code 39.1 are 

shown in Table 6P.1m for this proposed rule, which is available via the Internet on the 

CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html.

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 39.21
CMS-1632-P 209

ICD-10-PCS 

Code

Code Description

021V09P Bypass superior vena cava to pulmonary trunk with autologous venous 

tissue, open approach

021V09Q Bypass superior vena cava to right pulmonary artery with autologous 

venous tissue, open approach

021V09R Bypass superior vena cava to left pulmonary artery with autologous 

venous tissue, open approach

021V0AP Bypass superior vena cava to pulmonary trunk with autologous arterial 

tissue, open approach

021V0AQ Bypass superior vena cava to right pulmonary artery with autologous 

arterial tissue, open approach

021V0AR Bypass superior vena cava to left pulmonary artery with autologous 

arterial tissue, open approach

021V0JP Bypass superior vena cava to pulmonary trunk with synthetic 

substitute, open approach

021V0JQ Bypass superior vena cava to right pulmonary artery with synthetic 

substitute, open approach

021V0JR Bypass superior vena cava to left pulmonary artery with synthetic 

substitute, open approach

021V0KP Bypass superior vena cava to pulmonary trunk with nonautologous 

tissue substitute, open approach

021V0KQ Bypass superior vena cava to right pulmonary artery with 

nonautologous tissue substitute, open approach

021V0KR Bypass superior vena cava to left pulmonary artery with nonautologous 

tissue substitute, open approach

021V0ZP Bypass superior vena cava to pulmonary trunk, open approach

021V0ZQ Bypass superior vena cava to right pulmonary artery, open approach

021V0ZR Bypass superior vena cava to left pulmonary artery, open approach

021V49P Bypass superior vena cava to pulmonary trunk with autologous venous 

tissue, percutaneous endoscopic approach

021V49Q Bypass superior vena cava to right pulmonary artery with autologous 

venous tissue, percutaneous endoscopic approach

021V49R Bypass superior vena cava to left pulmonary artery with autologous 

venous tissue, percutaneous endoscopic approach

021V4AP Bypass superior vena cava to pulmonary trunk with autologous arterial 

tissue, percutaneous endoscopic approach

021V4AQ Bypass superior vena cava to right pulmonary artery with autologous 

arterial tissue, percutaneous endoscopic approach

021V4AR Bypass superior vena cava to left pulmonary artery with autologous 

arterial tissue, percutaneous endoscopic approach

021V4JP Bypass superior vena cava to pulmonary trunk with synthetic 

substitute, percutaneous endoscopic approach
CMS-1632-P 210

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 39.21

ICD-10-PCS 

Code

Code Description

021V4JQ Bypass superior vena cava to right pulmonary artery with synthetic 

substitute, percutaneous endoscopic approach

021V4JR Bypass superior vena cava to left pulmonary artery with synthetic 

substitute, percutaneous endoscopic approach

021V4KP Bypass superior vena cava to pulmonary trunk with nonautologous 

tissue substitute, percutaneous endoscopic approach

021V4KQ Bypass superior vena cava to right pulmonary artery with 

nonautologous tissue substitute, percutaneous endoscopic approach

021V4KR Bypass superior vena cava to left pulmonary artery with nonautologous 

tissue substitute, percutaneous endoscopic approach

021V4ZP Bypass superior vena cava to pulmonary trunk, percutaneous 

endoscopic approach

021V4ZQ Bypass superior vena cava to right pulmonary artery, percutaneous 

endoscopic approach

021V4ZR Bypass superior vena cava to left pulmonary artery, percutaneous 

endoscopic approach
CMS-1632-P 211

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 39.22

ICD-10-PCS 

Code

Code Description

021W09B Bypass thoracic aorta to subclavian with autologous venous tissue, open 

approach)

021W09D Bypass thoracic aorta to carotid with autologous venous tissue, open 

approach)

021W0AB Bypass thoracic aorta to subclavian with autologous arterial tissue, open 

approach

021W0AD Bypass thoracic aorta to carotid with autologous arterial tissue, open 

approach

021W0JB Bypass thoracic aorta to subclavian with synthetic substitute, open 

approach

021W0JD Bypass thoracic aorta to carotid with synthetic substitute, open approach

021W0KB Bypass thoracic aorta to subclavian with nonautologous tissue substitute, 

open approach

021W0KD Bypass thoracic aorta to carotid with nonautologous tissue substitute, 

open approach

021W0ZB Bypass thoracic aorta to subclavian, open approach

021W0ZD Bypass thoracic aorta to carotid, open approach

021W49B Bypass thoracic aorta to subclavian with autologous venous tissue, 

percutaneous endoscopic approach

021W49D Bypass thoracic aorta to carotid with autologous venous tissue, 

percutaneous endoscopic approach

021W4AB Bypass thoracic aorta to subclavian with autologous arterial tissue, 

percutaneous endoscopic approach

021W4AD Bypass thoracic aorta to carotid with autologous arterial tissue, 

percutaneous endoscopic approach

021W4JB Bypass thoracic aorta to subclavian with synthetic substitute, 

percutaneous endoscopic approach

021W4JD Bypass thoracic aorta to carotid with synthetic substitute, percutaneous 

endoscopic approach

021W4KB Bypass thoracic aorta to subclavian with nonautologous tissue substitute, 

percutaneous endoscopic approach

021W4KD Bypass thoracic aorta to carotid with nonautologous tissue substitute, 

percutaneous endoscopic approach

021W4ZB Bypass thoracic aorta to subclavian, percutaneous endoscopic approach

021W4ZD Bypass thoracic aorta to carotid, percutaneous endoscopic approach
CMS-1632-P 212

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 39.23

ICD-10-PCS 

Code

Code Description

The comparable ICD-10-PCS code translations for ICD-9-CM procedure code 39.23 are 

shown in Table 6P.1n for this proposed rule, which is available via the Internet on the 

CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html.

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 39.25

ICD-10-PCS 

Code

Code Description

The comparable ICD-10-PCS code translations for ICD-9-CM procedure code 39.25 are 

shown in Table 6P.1o for this proposed rule, which is available via the Internet on the 

CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html.

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 39.26

ICD-10-PCS 

Code

Code Description

The comparable ICD-10-PCS code translations for ICD-9-CM procedure code 39.26 are 

shown in Table 6P.1p for this proposed rule, which is available via the Internet on the 

CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html.

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 39.52

ICD-10-PCS 

Code

Code Description

The comparable ICD-10-PCS code translations for ICD-9-CM procedure code 39.52 are 

shown in Table 6P.1q for this proposed rule, which is available via the Internet on the 

CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html.
CMS-1632-P 213

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 39.54

ICD-10-PCS 

Code

Code Description

02QW0ZZ Repair thoracic aorta, open approach

02QW3ZZ Repair thoracic aorta, percutaneous approach

02QW4ZZ Repair thoracic aorta, percutaneous endoscopic approach

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 39.72

ICD-10-PCS 

Code

Code Description

03LR0DZ Occlusion of face artery with intraluminal device, open approach

03LR3DZ Occlusion of face artery with intraluminal device, percutaneous 

approach

03LR4DZ Occlusion of face artery with intraluminal device, percutaneous 

endoscopic approach

03LS0DZ Occlusion of right temporal artery with intraluminal device, open 

approach

03LS3DZ Occlusion of right temporal artery with intraluminal device, 

percutaneous approach

03LS4DZ Occlusion of right temporal artery with intraluminal device, 

percutaneous endoscopic approach

03LT0DZ Occlusion of left temporal artery with intraluminal device, open 

approach

03LT3DZ Occlusion of left temporal artery with intraluminal device, 

percutaneous approach

03LT4DZ Occlusion of left temporal artery with intraluminal device, 

percutaneous endoscopic approach

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 39.75

ICD-10-PCS 

Code

Code Description

The comparable ICD-10-PCS code translations for ICD-9-CM procedure code 39.75 are 

shown in Table 6P.1r for this proposed rule, which is available via the Internet on the 

CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html.
CMS-1632-P 214

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 39.76

ICD-10-PCS 

Code

Code Description

The comparable ICD-10-PCS code translations for ICD-9-CM procedure code 39.76 are 

shown in Table 6P.1s for this proposed rule, which is available via the Internet on the 

CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html.

ICD-10-PCS Code Translations for ICD-9-CM Procedure Code 39.79

ICD-10-PCS 

Code

Code Description

The comparable ICD-10-PCS code translations for ICD-9-CM procedure code 39.79 are 

shown in Table 6P.1t for this proposed rule, which is available via the Internet on the 

CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html.

As previously stated, we separated the more complex, more invasive procedures 

from the less complex, less invasive procedures to continue our evaluation of the 

procedures assigned to MS-DRGs 237 and 238. Our data analysis showed that the 

distribution of cases, the average length of stay, and average costs of the more complex, 

more invasive aortic and heart assist procedures and the less complex, less invasive other 

cardiovascular procedures would be more appropriately reflected if we classified these 

distinguishing types of procedures under newly created MS-DRGs, as reflected in the 

table below.
CMS-1632-P 215

Major Cardiovascular Procedures with and without MCC

MS-DRG

Number of 

Cases

Average 

Length of 

Stay

Average 

Costs

MS-DRGs 237 and 238 – Combined 50,567 5.8 $29,174

MS-DRGs 237 and 238 – Cases with more 

complex, more invasive procedure codes 

(37.41; 37.49; 37.55; 37.64; 38.04; 38.14; 

38.34; 38.44; 38.64; 38.84; 39.24; 39.71, and 

39.78) 22,278 4.0 $31,729

MS-DRGs 237 and 238 - Cases with less 

complex, less invasive procedure codes 

(35.00; 35.01; 35.02; 35.03; 35.04; 37.12; 

37.24; 37.31; 37.61; 37.67; 37.91; 37.99; 

38.05; 38.06; 38.07; 38.15; 38.16; 38.35; 

38.36; 38.37; 38.46; 38.47; 38.55; 38.65; 

38.66; 38.67; 38.85; 38.86; 38.87; 39.0; 39.1; 

39.21; 39.22; 39.23; 39.25; 39.26; 39.52; 

39.54; 39.72; 39.75; 39.76; and 39.79) 28,289 7.1 $27,162

Our clinical advisors reviewed the results of the analysis and agreed that 

distinguishing the more complex, more invasive procedures from the less complex, less 

invasive procedures would result in improved clinical coherence for the various 

cardiovascular procedures currently assigned to MS-DRGs 237 and 238, as listed 

previously. Therefore, for FY 2016, we are proposing to delete MS-DRGs 237 and 238. 

When we applied our established criteria to determine if the creation of a new CC or 

MCC subgroup within a base MS-DRG is warranted, we determined that a 2-way 

severity level split (with MCC and without MCC) was justified. Therefore, we are 

proposing to create two new MS-DRGs that would contain the more complex, more 

invasive aortic and heart assist procedures currently assigned to MS-DRGs 237 and 238, 

as listed previously. We are proposing to create MS-DRG 268, entitled “Aortic and 
CMS-1632-P 216

Heart Assist Procedures Except Pulsation Balloon with MCC,” and MS-DRG 269, 

entitled “Aortic and Heart Assist Procedures Except Pulsation Balloon without MCC.” 

The table below shows the distribution of cases and the average length of stay and 

average costs of the more complex, more invasive procedures for aortic and heart 

assistance for the proposed new MS-DRGs 268 and 269.

Proposed New MS-DRGs for Aortic and Heart Assist Procedures

MS-DRG Number of 

Cases

Average 

Length of 

Stay

Average 

Costs

Proposed New MS-DRG 268 with MCC 4,182 10.03 $45,996

Proposed New MS-DRG 269 without MCC 18,096 2.68 $28,431

We are inviting public comments on this proposal and the ICD-10-PCS code 

translations for these procedures shown earlier in this section, which we also are 

proposing to assign to proposed new MS-DRGs 268 and 269.

In addition, when we further applied our established criteria to determine if the 

creation of a new CC or MCC subgroup for the remaining procedures was warranted, we 

determined that a 3-way severity level split (with MCC, with CC, and without CC/MCC) 

was justified. Therefore, we are proposing to create three new MS-DRGs that would 

contain the remaining cardiovascular procedures that were designated as the less 

complex, less invasive procedures, as listed previously. For FY 2016, we are proposing 

to create MS-DRG 270, entitled “Other Major Cardiovascular Procedures with MCC”; 

MS-DRG 271, entitled “Other Major Cardiovascular Procedures with CC”; and MS-DRG 

272, entitled “Other Major Cardiovascular Procedures without CC/MCC,” and to assign 
CMS-1632-P 217

the less complex, less invasive cardiovascular procedures shown earlier in this section to 

these proposed new MS-DRGs. We believe that, as shown in the table below, the 

distribution of cases and average length of stay and average costs of these procedures 

would be more appropriately reflected when these types of procedures are classified 

under these proposed new MS-DRGs.

Proposed New MS-DRGs for Other Major Cardiovascular Procedures

MS-DRG

Number 

of Cases

Average 

Length of 

Stay

Average 

Costs

Proposed New MS-DRG 270 with MCC 14,158 9.3 $33,507

Proposed New MS-DRG 271 with CC 9,648 5.99 $22,800

Proposed New MS-DRG 272 without CC/MCC 4,483 3.08 $16,438

We are inviting public comments on this proposal and the ICD-10-PCS code 

translations for the less complex, less invasive cardiovascular procedures shown earlier in 

this section, which we also are proposing to assign to proposed new MS-DRGs 270, 271, 

and 272.

In summary, for FY 2016, we are proposing to delete MS-DRGs 237 and 238, and 

to create the following five new MS-DRGs:

● Proposed new MS-DRG 268 (Aortic and Heart Assist Procedures Except 

Pulsation Balloon with MCC);

● Proposed new MS-DRG 269 (Aortic and Heart Assist Procedures Except 

Pulsation Balloon without MCC);

● Proposed new MS-DRG 270 (Other Major Cardiovascular Procedures with 

MCC);
CMS-1632-P 218

● Proposed new MS-DRG 271 (Other Major Cardiovascular Procedures with 

CC); and

● Proposed new MS-DRG 272 (Other Major Cardiovascular Procedures without 

CC/MCC).

We also are proposing to assign the more complex, more invasive cardiovascular 

procedures identified in our analysis and the ICD-10-PCS code translations to proposed 

new MS-DRGs 268 and 269. In addition, we are proposing to assign the less complex, 

less invasive cardiovascular procedures identified in our analysis and the ICD-10-PCS 

code translations to proposed new MS-DRGs 270, 271, and 272. We encourage public 

comments on our proposal to create these proposed new MS-DRGs, as well as the 

ICD-10-PCS code translations that we are proposing to assign to the corresponding 

proposed new MS-DRGs.

4. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective 

Tissue)

a. Revision of Hip or Knee Replacements: Proposed Revision of ICD-10-PCS Version 

32 Logic

We received two comments that the logic for ICD-10 MS-DRGs Version 32 does 

not work the same as it does for the ICD-9-CM based MS-DRGs Version 32 for joint 

revisions. One of the commenters requested that CMS change the MS-DRG structure for 

joint revisions within the ICD-10 MS-DRGs 466, 467, and 468 (Revision of Hip or Knee 

Replacement with MCC, with CC, and without CC/MCC, respectively) so that cases that 

have a spacer removed prior to the insertion of a new joint prosthesis are assigned to 
CMS-1632-P 219

MS-DRG 466, 467, and 468, as is the case with the ICD-9-CM MS-DRGs. The other 

commenter asked that joint revision cases that involve knee revisions with cemented and 

uncemented qualifiers be assigned to these MS-DRGs. This commenter provided an 

example of a patient admitted for a knee revision and reported under ICD-10-PCS codes 

0SPD0JZ (Removal of synthetic substitute from left knee joint, open approach) and 

0SRU0JA (Replacement of left knee joint, femoral surface with synthetic substitute, 

uncemented, open approach), which should be assigned to MS-DRGs 466, 467, and 468. 

The requestor stated that revision cases coded with ICD-9-CM codes are assigned to 

MS-DRGs 466, 467, and 468, but similar cases reported with these ICD-10-PCS codes 

are not assigned to MS-DRGs 466, 467, and 468 in ICD-10-PCS MS-DRGs Version 32.

We agree that joint revision cases with the removal of a spacer and subsequent 

insertion of a new joint prosthesis should be assigned to MS-DRGs 466, 467, and 468 as 

is the case currently with the ICD-9-CM based MS-DRGs Version 32. We also agree 

that knee revisions that involve cemented and uncemented qualifiers should be assigned 

to MS-DRGs 466, 467, and 468. Knee revision cases currently reported with ICD-9-CM 

codes are assigned to MS-DRGs 466, 467, and 468 in the ICD-9-CM based MS-DRGs. 

We examined joint revision combination codes that are not currently assigned to 

MS-DRGs 466, 467, and 468 in ICD-10 MS-DRGs Version 32 and identified additional 

combinations that also should be included so that the joint revision MS-DRGs would 

have the same logic as the ICD-9-CM MS-DRGs. We are proposing to add the following 

code combinations which capture the joint revisions to the Version 33 MS-DRG structure 
CMS-1632-P 220

for ICD-10 MS-DRGs 466, 467, and 468 that we are proposing to implement effective 

October 1, 2015.

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SR9019 Replacement of right 

hip joint with metal 

synthetic substitute, 

cemented, open 

approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SR901A Replacement of right 

hip joint with metal 

synthetic substitute, 

uncemented, open 

approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SR901Z Replacement of right 

hip joint with metal 

synthetic substitute, 

open approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SR9029 Replacement of right 

hip joint with metal on 

polyethylene synthetic 

substitute, cemented, 

open approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SR902A Replacement of right 

hip joint with metal on 

polyethylene synthetic 

substitute, 

uncemented, open 

approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SR902Z Replacement of right 

hip joint with metal on 

polyethylene synthetic 

substitute, open 

approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SR9039 Replacement of right 

hip joint with ceramic 

synthetic substitute, 

cemented, open 

approach
CMS-1632-P 221

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SR903A Replacement of right 

hip joint with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SR903Z Replacement of right 

hip joint with ceramic 

synthetic substitute, 

open approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SR9049 Replacement of right 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

cemented, open 

approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SR904A Replacement of right 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

uncemented, open 

approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SR904Z Replacement of right 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

open approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SR90J9 Replacement of right 

hip joint with 

synthetic substitute, 

cemented, open 

approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SR90JA Replacement of right 

hip joint with 

synthetic substitute, 

uncemented, open 

approach
CMS-1632-P 222

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SR90JZ Replacement of right 

hip joint with 

synthetic substitute, 

open approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SRA009 Replacement of right 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, cemented, 

open approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SRA00A Replacement of right 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, 

uncemented, open 

approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SRA00Z Replacement of right 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, open 

approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SRA019 Replacement of right 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

cemented, open 

approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SRA01A Replacement of right 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

uncemented, open 

approach
CMS-1632-P 223

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SRA01Z Replacement of right 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

open approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SRA039 Replacement of right 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

cemented, open 

approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SRA03A Replacement of right 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SRA03Z Replacement of right 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

open approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SRA0J9 Replacement of right 

hip joint, acetabular 

surface with synthetic 

substitute, cemented, 

pen approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SRA0JA Replacement of right 

hip joint, acetabular 

surface with synthetic 

substitute, 

uncemented, open 

approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SRA0JZ Replacement of right 

hip joint, acetabular 

surface with synthetic 

substitute, open 

approach
CMS-1632-P 224

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SRR019 Replacement of right 

hip joint, femoral 

surface with metal 

synthetic substitute, 

cemented, open 

approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SRR01A Replacement of right 

hip joint, femoral 

surface with metal 

synthetic substitute, 

uncemented, open 

approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SRR01Z Replacement of right 

hip joint, femoral 

surface with metal 

synthetic substitute, 

open approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SRR039 Replacement of right 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

cemented, open 

approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SRR03A Replacement of right 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SRR03Z Replacement of right 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

open approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SRR0J9 Replacement of right 

hip joint, femoral 

surface with synthetic 

Substitute, cemented, 

open approach
CMS-1632-P 225

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SRR0JA Replacement of right 

hip joint, femoral 

surface with synthetic 

Substitute, 

uncemented, open 

approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SRR0JZ Replacement of right 

hip joint, femoral 

surface with synthetic 

substitute, open 

approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SU909Z Supplement right hip 

joint with liner, open 

approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SUA09Z Supplement right hip 

joint, acetabular 

surface with liner, 

open approach

0SP908Z Removal of spacer 

from right hip joint, 

open approach

and 0SUR09Z Supplement right hip 

joint, femoral surface 

with liner, open 

approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SR9019 Replacement of right 

hip joint with metal 

synthetic substitute, 

cemented, open 

approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SR901A Replacement of right 

hip joint with metal 

synthetic substitute, 

uncemented, open 

approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SR901Z Replacement of right 

hip joint with metal 

synthetic substitute, 

open approach
CMS-1632-P 226

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SR9029 Replacement of right 

hip joint with metal on 

polyethylene synthetic 

substitute, cemented, 

open approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SR902A Replacement of right 

hip joint with metal on 

polyethylene synthetic 

substitute, 

uncemented, open 

approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SR902Z Replacement of right 

hip joint with metal on 

polyethylene synthetic 

substitute, open 

approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SR9039 Replacement of right 

hip joint with ceramic 

synthetic substitute, 

cemented, open 

approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SR903A Replacement of right 

hip joint with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SR903Z Replacement of right 

hip joint with ceramic 

synthetic substitute, 

open approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SR9049 Replacement of right 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

cemented, open 

approach
CMS-1632-P 227

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SR904A Replacement of right 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

uncemented, open 

approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SR904Z Replacement of right 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

open approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SR90J9 Replacement of right 

hip joint with 

synthetic substitute, 

cemented, open 

approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SR90JA Replacement of right 

hip joint with 

synthetic substitute, 

uncemented, open 

approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SR90JZ Replacement of right 

hip joint with 

synthetic substitute, 

open approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SRA009 Replacement of right 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, cemented, 

open approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SRA00A Replacement of right 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, 

uncemented, open 

approach
CMS-1632-P 228

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SRA00Z Replacement of right 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, open 

approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SRA019 Replacement of right 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

cemented, open 

approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SRA01A Replacement of right 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

uncemented, open 

approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SRA01Z Replacement of right 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

open approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SRA039 Replacement of right 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

cemented, open 

approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SRA03A Replacement of right 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

uncemented, open 

approach
CMS-1632-P 229

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SRA03Z Replacement of right 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

open approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SRA0J9 Replacement of right 

hip joint, acetabular 

surface with synthetic 

substitute, cemented, 

open approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SRA0JA Replacement of right 

hip joint, acetabular 

surface with synthetic 

substitute, 

uncemented, open 

approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SRA0JZ Replacement of right 

hip joint, acetabular 

surface with synthetic 

substitute, open 

approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SRR019 Replacement of right 

hip joint, femoral 

surface with metal 

synthetic substitute, 

cemented, open 

approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SRR01A Replacement of right 

hip joint, femoral 

surface with metal 

synthetic substitute, 

uncemented, open 

approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SRR01Z Replacement of right 

hip joint, femoral 

surface with metal 

synthetic substitute, 

open approach
CMS-1632-P 230

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SRR039 Replacement of right 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

cemented, open 

approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SRR03A Replacement of right 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SRR03Z Replacement of right 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

open approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SRR0J9 Replacement of right 

hip joint, femoral 

surface with synthetic 

substitute, cemented, 

open approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SRR0JA Replacement of right 

hip joint, femoral 

surface with synthetic 

substitute, 

uncemented, open 

approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SRR0JZ Replacement of right 

hip joint, femoral 

surface with synthetic 

substitute, open 

approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SU909Z Supplement right hip 

joint with liner, open 

approach
CMS-1632-P 231

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SUA09Z Supplement right hip 

joint, acetabular 

surface with liner, 

open approach

0SP909Z Removal of liner from 

right hip joint, open 

approach

and 0SUR09Z Supplement right hip 

joint, femoral surface 

with liner, open 

approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SR9019 Replacement of right 

hip joint with metal 

synthetic substitute, 

cemented, open 

approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SR901A Replacement of right 

hip joint with metal 

synthetic substitute, 

uncemented, open 

approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SR901Z Replacement of right 

hip joint with metal 

synthetic substitute, 

open approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SR9029 Replacement of right 

hip joint with metal on 

polyethylene synthetic 

substitute, cemented, 

open approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SR902A Replacement of right 

hip joint with metal on 

polyethylene synthetic 

substitute, 

uncemented, open 

approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SR902Z Replacement of right 

hip joint with metal on 

polyethylene synthetic 

substitute, open 

approach
CMS-1632-P 232

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SR9039 Replacement of right 

hip joint with ceramic 

synthetic substitute, 

cemented, open 

approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SR903A Replacement of right 

hip joint with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SR903Z Replacement of right 

hip joint with ceramic 

synthetic substitute, 

open approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SR9049 Replacement of right 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

cemented, open 

approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SR904A Replacement of right 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

uncemented, open 

approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SR904Z Replacement of right 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

open approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SR90J9 Replacement of right 

hip joint with 

synthetic substitute, 

cemented, open 

approach
CMS-1632-P 233

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SR90JA Replacement of right 

hip joint with 

synthetic substitute, 

uncemented, open 

approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SR90JZ Replacement of right 

hip joint with 

synthetic substitute, 

open approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SRA009 Replacement of right 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, cemented, 

open approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SRA00A Replacement of right 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, 

uncemented, open 

approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SRA00Z Replacement of right 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, open 

approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SRA019 Replacement of right 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

cemented, open 

approach
CMS-1632-P 234

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SRA01A Replacement of right 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

uncemented, open 

approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SRA01Z Replacement of right 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

open approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SRA039 Replacement of right 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

cemented, open 

approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SRA03A Replacement of right 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SRA03Z Replacement of right 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

open approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SRA0J9 Replacement of right 

hip joint, acetabular 

surface with synthetic 

substitute, cemented, 

open approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SRA0JA Replacement of right 

hip joint, acetabular 

surface with synthetic 

substitute, 

uncemented, open 

approach
CMS-1632-P 235

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SRA0JZ Replacement of right 

hip joint, acetabular 

Surface with synthetic 

substitute, open 

approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SRR019 Replacement of right 

hip joint, femoral 

surface with metal 

synthetic substitute, 

cemented, open 

approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SRR01A Replacement of right 

hip joint, femoral 

surface with metal 

synthetic substitute, 

uncemented, open 

approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SRR01Z Replacement of right 

hip joint, femoral 

surface with metal 

synthetic substitute, 

open approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint,

open approach

and 0SRR039 Replacement of right 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

cemented, open 

approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SRR03A Replacement of right 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SRR03Z Replacement of right 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

open approach
CMS-1632-P 236

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SRR0J9 Replacement of right 

hip joint, femoral 

surface with synthetic 

substitute, cemented, 

open approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SRR0JA Replacement of right 

hip joint, femoral 

surface with synthetic 

substitute, 

uncemented, open 

approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SRR0JZ Replacement of right 

hip joint, femoral 

surface with synthetic 

substitute, open 

approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SU909Z Supplement right hip 

joint with liner, open 

approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SUA09Z Supplement right hip 

joint, acetabular 

surface with liner, 

open approach

0SP90BZ Removal of 

resurfacing device 

from right hip joint, 

open approach

and 0SUR09Z Supplement right hip 

joint, femoral surface 

with liner, open 

approach

0SP90JZ Removal of synthetic 

substitute from right 

hip joint, open 

approach

and 0SR9049 Replacement of right 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

cemented, open 

approach
CMS-1632-P 237

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP90JZ Removal of synthetic 

substitute from right 

hip joint, open 

approach

and 0SR904A Replacement of right 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

uncemented, open 

approach

0SP90JZ Removal of synthetic 

substitute from right 

hip joint, open 

approach

and 0SR904Z Replacement of right 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

open approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SR9019 Replacement of right 

hip joint with metal 

synthetic substitute, 

cemented, open 

approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SR901A Replacement of right 

hip joint with metal 

synthetic substitute, 

uncemented, open 

approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SR901Z Replacement of right 

hip joint with metal 

synthetic substitute, 

open approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SR9029 Replacement of right 

hip joint with metal on 

polyethylene synthetic 

substitute, cemented, 

open approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SR902A Replacement of right 

hip joint with metal on 

polyethylene synthetic 

substitute, 

uncemented, open 

approach
CMS-1632-P 238

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SR902Z Replacement of right 

hip joint with metal on 

polyethylene synthetic 

substitute, open 

approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SR9039 Replacement of right 

hip joint with ceramic 

synthetic substitute, 

cemented, open 

approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SR903A Replacement of right 

hip joint with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SR903Z Replacement of right 

hip joint with ceramic 

synthetic substitute, 

open approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SR9049 Replacement of right 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

cemented, open 

approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SR904A Replacement of right 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

uncemented, open 

approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SR904Z Replacement of right 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

open approach
CMS-1632-P 239

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SR90J9 Replacement of right 

hip joint with 

synthetic substitute, 

cemented, open 

approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SR90JA Replacement of right 

hip joint with 

synthetic substitute, 

uncemented, open 

approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SR90JZ Replacement of right 

hip joint with 

synthetic substitute, 

open approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SRA009 Replacement of right 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, cemented, 

open approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SRA00A Replacement of right 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, 

uncemented, open 

approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SRA00Z Replacement of right 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, open 

approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SRA019 Replacement of right 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

cemented, open 

approach
CMS-1632-P 240

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SRA01A Replacement of right 

hip joint, acetabular 

Surface with metal 

synthetic substitute, 

uncemented, open 

approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SRA01Z Replacement of right 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

open approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SRA039 Replacement of right 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

cemented, open 

approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SRA03A Replacement of right 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SRA03Z Replacement of right 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

open approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SRA0J9 Replacement of right 

hip joint, acetabular 

surface with synthetic 

substitute, cemented, 

open approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SRA0JA Replacement of right 

hip joint, acetabular 

surface with synthetic 

substitute, 

uncemented, open 

approach
CMS-1632-P 241

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SRA0JZ Replacement of right 

hip joint, acetabular 

surface with synthetic 

substitute, open 

approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SRR019 Replacement of right 

hip joint, femoral 

surface with metal 

synthetic substitute, 

cemented, open 

approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SRR01A Replacement of right 

hip joint, femoral 

surface with metal 

synthetic substitute, 

uncemented, open 

approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SRR01Z Replacement of right 

hip joint, femoral 

surface with metal 

synthetic substitute, 

open approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SRR039 Replacement of right 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

cemented, open 

approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SRR03A Replacement of right 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SRR03Z Replacement of right 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

open approach
CMS-1632-P 242

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SRR0J9 Replacement of right 

hip joint, femoral 

surface with synthetic 

substitute, cemented, 

open approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SRR0JA Replacement of right 

hip joint, femoral 

surface with synthetic 

substitute, 

uncemented, open 

approach

0SP948Z Removal of spacer 

from right hip joint,

percutaneous 

endoscopic approach

and 0SRR0JZ Replacement of right 

hip joint, femoral 

surface with synthetic 

substitute, open 

approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SU909Z Supplement right hip 

joint with liner, open 

approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SUA09Z Supplement right hip 

joint, acetabular 

surface with liner, 

open approach

0SP948Z Removal of spacer 

from right hip joint, 

percutaneous 

endoscopic approach

and 0SUR09Z Supplement right hip 

joint, femoral surface 

with liner, open 

approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SR9019 Replacement of right 

hip joint with metal 

synthetic substitute, 

cemented, open 

approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SR901A Replacement of right 

hip joint with metal 

synthetic substitute, 

uncemented, open 

approach
CMS-1632-P 243

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SR901Z Replacement of right 

hip joint with metal 

synthetic substitute, 

open approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SR9029 Replacement of right 

hip joint with metal on 

polyethylene synthetic 

substitute, cemented, 

open approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SR902A Replacement of right 

hip joint with metal on 

polyethylene synthetic 

substitute, 

uncemented, open 

approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SR902Z Replacement of right 

hip joint with metal on 

polyethylene synthetic 

substitute, open 

approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SR9039 Replacement of right 

hip joint with ceramic 

synthetic substitute, 

cemented, open 

approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SR903A Replacement of right 

hip joint with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SR903Z Replacement of right 

hip joint with ceramic 

synthetic substitute, 

open approach
CMS-1632-P 244

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SR9049 Replacement of right 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

cemented, open 

approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SR904A Replacement of right 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

uncemented, open 

approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SR904Z Replacement of right 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

open approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SR90J9 Replacement of right 

hip joint with 

synthetic substitute, 

cemented, open 

approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SR90JA Replacement of right 

hip joint with 

synthetic substitute, 

uncemented, open 

approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SR90JZ Replacement of right 

hip joint with 

synthetic substitute, 

open approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SRA009 Replacement of right 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, cemented, 

open approach
CMS-1632-P 245

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SRA00A Replacement of right 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, 

uncemented, open 

approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SRA00Z Replacement of right 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, open 

approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SRA019 Replacement of right 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

cemented, open 

approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SRA01A Replacement of right 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

uncemented, open 

approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SRA01Z Replacement of right 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

open approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SRA039 Replacement of right 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

cemented, open 

approach
CMS-1632-P 246

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SRA03A Replacement of right 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SRA03Z Replacement of right 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

open approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SRA0J9 Replacement of right 

hip joint, acetabular 

surface with synthetic 

substitute, cemented, 

open approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SRA0JA Replacement of right 

hip joint, acetabular 

surface with synthetic 

substitute, 

uncemented, open 

approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SRA0JZ Replacement of right 

hip joint, acetabular 

surface with synthetic 

substitute, open 

approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SRR019 Replacement of right 

hip joint, femoral 

surface with metal 

synthetic substitute, 

cemented, open 

approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SRR01A Replacement of right 

hip joint, femoral 

surface with metal 

synthetic substitute, 

uncemented, open 

approach
CMS-1632-P 247

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SRR01Z Replacement of right 

hip joint, femoral 

surface with metal 

synthetic substitute, 

open approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SRR039 Replacement of right 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

cemented, open 

approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SRR03A Replacement of right 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SRR03Z Replacement of right 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

open approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SRR0J9 Replacement of right 

hip joint, femoral 

surface with synthetic 

substitute, cemented, 

open approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SRR0JA Replacement of right 

hip joint, femoral 

surface with synthetic 

substitute, 

uncemented, open 

approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SRR0JZ Replacement of right 

hip joint, femoral 

surface with synthetic 

substitute, open 

approach
CMS-1632-P 248

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SU909Z Supplement right hip 

joint with liner, open 

approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SUA09Z Supplement right hip 

joint, acetabular 

surface with liner, 

open approach

0SP94JZ Removal of synthetic 

substitute from right 

hip joint, percutaneous 

endoscopic approach

and 0SUR09Z Supplement right hip 

joint, femoral surface 

with liner, open 

approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRB019 Replacement of left 

hip joint with metal 

synthetic substitute, 

cemented, open 

approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRB01A Replacement of left 

hip joint with metal 

synthetic substitute, 

uncemented, open 

approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRB01Z Replacement of left 

hip joint with metal 

synthetic substitute, 

open approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRB029 Replacement of left 

hip joint with metal on 

polyethylene synthetic 

substitute, cemented, 

open approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRB02A Replacement of left 

hip joint with metal on 

polyethylene synthetic 

substitute, 

uncemented, open 

approach
CMS-1632-P 249

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRB02Z Replacement of left 

hip joint with metal on 

polyethylene synthetic 

substitute, open 

approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRB039 Replacement of left 

hip joint with ceramic 

synthetic substitute, 

cemented, open 

approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRB03A Replacement of left 

hip joint with ceramic 

synthetic substitute, 

uncemented, open

approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRB03Z Replacement of left 

hip joint with ceramic 

synthetic substitute, 

open approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRB049 Replacement of left

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

cemented, open 

approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRB04A Replacement of left 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

uncemented, open 

approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRB04Z Replacement of left 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

open approach
CMS-1632-P 250

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRB0J9 Replacement of left 

hip joint with 

synthetic substitute, 

cemented, open 

approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRB0JA Replacement of left 

hip joint with 

synthetic substitute, 

uncemented, open 

approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRB0JZ Replacement of left 

hip joint with 

synthetic substitute, 

open approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRE009 Replacement of left 

hip joint, acetabular 

surface with

polyethylene synthetic 

substitute, cemented, 

open approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRE00A Replacement of left 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, 

uncemented, open 

approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRE00Z Replacement of left 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, open 

approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRE019 Replacement of left 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

cemented, open 

approach
CMS-1632-P 251

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRE01A Replacement of left 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

uncemented, open 

approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRE01Z Replacement of left 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

open approach

0SPB08Z Removal of spacer 

from left hip joint,

open approach

and 0SRE039 Replacement of left 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

cemented, open 

approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRE03A Replacement of left 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRE03Z Replacement of left 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

open approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRE0J9 Replacement of left 

hip joint, acetabular 

surface with synthetic 

substitute, cemented, 

open approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRE0JA Replacement of left 

hip joint, acetabular 

surface with synthetic 

substitute, 

uncemented, open 

approach
CMS-1632-P 252

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRE0JZ Replacement of left 

hip joint, acetabular 

surface with synthetic 

substitute, open 

approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRS019 Replacement of left 

hip joint, femoral 

surface with metal 

synthetic substitute, 

cemented, open 

approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRS01A Replacement of left 

hip joint, femoral 

surface with metal 

synthetic substitute, 

uncemented, open 

approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRS01Z Replacement of left 

hip joint, femoral 

surface with metal 

synthetic substitute, 

open approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRS039 Replacement of left 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

cemented, open 

approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRS03A Replacement of left 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRS03Z Replacement of left 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

open approach
CMS-1632-P 253

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRS0J9 Replacement of left 

hip joint, femoral 

surface with synthetic 

substitute, cemented, 

open approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRS0JA Replacement of left 

hip joint, femoral 

surface with synthetic 

substitute, 

uncemented, open 

approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SRS0JZ Replacement of left 

hip joint, femoral 

surface with synthetic 

substitute, open 

approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SUB09Z Supplement left hip 

joint with liner, open 

approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SUE09Z Supplement left hip 

joint, acetabular 

surface with liner, 

open approach

0SPB08Z Removal of spacer 

from left hip joint, 

open approach

and 0SUS09Z Supplement left hip 

joint, femoral surface 

with liner, open 

approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRB019 Replacement of left 

hip joint with metal 

synthetic substitute, 

cemented, open 

approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRB01A Replacement of left 

hip joint with metal 

synthetic substitute, 

uncemented, open 

approach
CMS-1632-P 254

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRB01Z Replacement of left 

hip joint with metal 

synthetic substitute, 

open approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRB029 Replacement of left

hip joint with metal on 

polyethylene synthetic 

substitute, cemented, 

open approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRB02A Replacement of left 

hip joint with metal on 

polyethylene synthetic 

substitute, 

uncemented, open 

approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRB02Z Replacement of left 

hip joint with metal on 

polyethylene synthetic 

substitute, open 

approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRB039 Replacement of left 

hip joint with ceramic 

synthetic substitute, 

cemented, open 

approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRB03A Replacement of left 

hip joint with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRB03Z Replacement of left 

hip joint with ceramic 

synthetic substitute, 

open approach
CMS-1632-P 255

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRB049 Replacement of left 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

cemented, open 

approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRB04A Replacement of left 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

uncemented, open 

approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRB04Z Replacement of left 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

open approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRB0J9 Replacement of left 

hip joint with 

synthetic substitute, 

cemented, open 

approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRB0JA Replacement of left 

hip joint with 

synthetic substitute, 

uncemented, open 

approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRB0JZ Replacement of left 

hip joint with 

synthetic substitute, 

open approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRE009 Replacement of left 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, cemented, 

open approach
CMS-1632-P 256

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRE00A Replacement of left 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, 

uncemented, open 

approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRE00Z Replacement of left 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, open 

approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRE019 Replacement of left 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

cemented, open 

approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRE01A Replacement of left 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

uncemented, open 

approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRE01Z Replacement of left 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

open approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRE039 Replacement of left 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

cemented, open 

approach
CMS-1632-P 257

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRE03A Replacement of left 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRE03Z Replacement of left 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

open approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRE0J9 Replacement of left 

hip joint, acetabular 

surface with synthetic 

substitute, cemented, 

open approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRE0JA Replacement of left 

hip joint, acetabular 

surface with synthetic 

substitute, 

uncemented, open 

approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRE0JZ Replacement of left 

hip joint, acetabular 

surface with synthetic 

substitute, open 

approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRS019 Replacement of left 

hip joint, femoral 

surface with metal 

synthetic substitute, 

cemented, open 

approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRS01A Replacement of left 

hip joint, femoral 

surface with metal 

synthetic substitute, 

uncemented, open 

approach
CMS-1632-P 258

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRS01Z Replacement of left 

hip joint, femoral 

surface with metal 

synthetic substitute, 

open approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRS039 Replacement of left 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

cemented, open 

approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRS03A Replacement of left 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRS03Z Replacement of left 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

open approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRS0J9 Replacement of left 

hip joint, femoral 

surface with synthetic 

substitute, cemented, 

open approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRS0JA Replacement of left 

hip joint, femoral 

surface with synthetic 

substitute, 

uncemented, open 

approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SRS0JZ Replacement of left 

hip joint, femoral 

surface with synthetic 

substitute, open 

approach
CMS-1632-P 259

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SUB09Z Supplement left hip 

joint with liner, open 

approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SUE09Z Supplement left hip 

joint, acetabular 

surface with liner, 

open approach

0SPB09Z Removal of liner from 

left hip joint, open 

approach

and 0SUS09Z Supplement left hip 

joint, femoral surface 

with liner, open 

approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRB019 Replacement of left

hip joint with metal 

synthetic substitute, 

cemented, open 

approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRB01A Replacement of left 

hip joint with metal 

synthetic substitute, 

uncemented, open 

approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRB01Z Replacement of left 

hip joint with metal 

synthetic substitute, 

open approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRB029 Replacement of left 

hip joint with metal on 

polyethylene synthetic 

substitute, cemented, 

open approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRB02A Replacement of left 

hip joint with metal on 

polyethylene synthetic 

substitute, 

uncemented, open 

approach
CMS-1632-P 260

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRB02Z Replacement of left 

hip joint with metal on 

polyethylene synthetic 

substitute, open 

approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRB039 Replacement of left 

hip joint with ceramic 

synthetic substitute, 

cemented, open 

approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRB03A Replacement of left 

hip joint with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRB03Z Replacement of left 

hip joint with ceramic 

synthetic substitute, 

open approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRB049 Replacement of left 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

cemented, open 

approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRB04A Replacement of left 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

uncemented, open 

approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRB04Z Replacement of left 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

open approach
CMS-1632-P 261

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRB0J9 Replacement of left 

hip joint with 

synthetic substitute, 

cemented, open 

approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRB0JA Replacement of left 

hip joint with 

synthetic substitute, 

uncemented, open 

approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRB0JZ Replacement of left 

hip joint with 

synthetic substitute, 

open approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRE009 Replacement of left 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, cemented, 

open approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRE00A Replacement of left 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, 

uncemented, open 

approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRE00Z Replacement of left 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, open 

approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRE019 Replacement of left 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

cemented, open 

approach
CMS-1632-P 262

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRE01A Replacement of left 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

uncemented, open 

approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRE01Z Replacement of left 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

open approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRE039 Replacement of left 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

cemented, open 

approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRE03A Replacement of left 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRE03Z Replacement of left 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

open approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRE0J9 Replacement of left 

hip joint, acetabular 

surface with synthetic 

substitute, cemented, 

open approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRE0JA Replacement of left 

hip joint, acetabular 

surface with synthetic 

substitute, 

uncemented, open 

approach
CMS-1632-P 263

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRE0JZ Replacement of left 

hip joint, acetabular 

surface with synthetic 

substitute, open 

approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRS019 Replacement of left 

hip joint, femoral 

surface with metal 

synthetic substitute, 

cemented, open 

approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRS01A Replacement of left 

hip joint, femoral 

surface with metal 

synthetic substitute, 

uncemented, open 

approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRS01Z Replacement of left 

hip joint, femoral 

surface with metal 

synthetic substitute, 

open approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRS039 Replacement of left 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

cemented, open 

approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRS03A Replacement of left 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRS03Z Replacement of left 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

open approach
CMS-1632-P 264

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRS0J9 Replacement of left 

hip joint, femoral 

surface with synthetic 

substitute, cemented, 

open approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRS0JA Replacement of left 

hip joint, femoral 

surface with synthetic 

substitute, 

uncemented, open 

approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SRS0JZ Replacement of left 

hip joint, femoral 

surface with synthetic 

substitute, open 

approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SUB09Z Supplement left hip 

joint with liner, open 

approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SUE09Z Supplement left hip 

joint, acetabular 

surface with liner, 

open approach

0SPB0BZ Removal of 

resurfacing device 

from left hip joint, 

open approach

and 0SUS09Z Supplement left hip 

joint, femoral surface 

with liner, open 

approach

0SPB0JZ Removal of synthetic 

substitute from left hip 

joint, open approach

and 0SRB049 Replacement of left 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

cemented, open 

approach
CMS-1632-P 265

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB0JZ Removal of synthetic 

substitute from left hip 

joint, open approach

and 0SRB04A Replacement of left 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

uncemented, open 

approach

0SPB0JZ Removal of synthetic

substitute from left hip 

joint, open approach

and 0SRB04Z Replacement of left 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

open approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRB019 Replacement of left 

hip joint with metal 

synthetic substitute, 

cemented, open 

approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRB01A Replacement of left 

hip joint with metal 

synthetic substitute, 

uncemented, open 

approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRB01Z Replacement of left 

hip joint with metal 

synthetic substitute, 

open approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous

endoscopic approach

and 0SRB029 Replacement of left 

hip joint with metal on 

polyethylene synthetic 

substitute, cemented, 

open approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRB02A Replacement of left 

hip joint with metal on 

polyethylene synthetic 

substitute, 

uncemented, open 

approach
CMS-1632-P 266

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRB02Z Replacement of left 

hip joint with metal on 

polyethylene synthetic 

substitute, open 

approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRB039 Replacement of left 

hip joint with ceramic 

synthetic substitute, 

cemented, open 

approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRB03A Replacement of left 

hip joint with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRB03Z Replacement of left 

hip joint with ceramic 

synthetic substitute, 

open approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRB049 Replacement of left 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

cemented, open 

approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRB04A Replacement of left 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

uncemented, open 

approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRB04Z Replacement of left 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

open approach
CMS-1632-P 267

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRB0J9 Replacement of left 

hip joint with 

synthetic substitute, 

cemented, open 

approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRB0JA Replacement of left 

hip joint with 

synthetic substitute, 

uncemented, open 

approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRB0JZ Replacement of left 

hip joint with 

synthetic substitute, 

open approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRE009 Replacement of left 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, cemented, 

open approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRE00A Replacement of left 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, 

uncemented, open 

approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRE00Z Replacement of left 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, open 

approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRE019 Replacement of left 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

cemented, open 

approach
CMS-1632-P 268

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRE01A Replacement of left 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

uncemented, open 

approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRE01Z Replacement of left 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

open approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRE039 Replacement of left 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

cemented, open

approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRE03A Replacement of left 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRE03Z Replacement of left 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

open approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRE0J9 Replacement of left 

hip joint, acetabular 

surface with synthetic 

substitute, cemented, 

open approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRE0JA Replacement of left 

hip joint, acetabular 

surface with synthetic 

substitute, 

uncemented, open 

approach
CMS-1632-P 269

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRE0JZ Replacement of left 

hip joint, acetabular 

surface with synthetic 

substitute, open 

approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRS019 Replacement of left 

hip joint, femoral 

surface with metal 

synthetic substitute, 

cemented, open 

approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRS01A Replacement of left 

hip joint, femoral 

surface with metal 

synthetic substitute, 

uncemented, open 

approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRS01Z Replacement of left 

hip joint, femoral 

surface with metal

synthetic substitute, 

open approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRS039 Replacement of left 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

cemented, open 

approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRS03A Replacement of left 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRS03Z Replacement of left 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

open approach
CMS-1632-P 270

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRS0J9 Replacement of left 

hip joint, femoral 

surface with synthetic 

substitute, cemented, 

open approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRS0JA Replacement of left 

hip joint, femoral 

surface with synthetic 

substitute, 

uncemented, open 

approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SRS0JZ Replacement of left 

hip joint, femoral 

surface with synthetic 

substitute, open 

approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SUB09Z Supplement left hip 

joint with liner, open 

approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SUE09Z Supplement left hip 

joint, acetabular 

surface with liner, 

open approach

0SPB48Z Removal of spacer 

from left hip joint, 

percutaneous 

endoscopic approach

and 0SUS09Z Supplement left hip 

joint, femoral surface 

with liner, open 

approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRB019 Replacement of left 

hip joint with metal 

synthetic substitute, 

cemented, open 

approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRB01A Replacement of left 

hip joint with metal 

synthetic substitute, 

uncemented, open 

approach
CMS-1632-P 271

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRB01Z Replacement of left 

hip joint with metal 

synthetic substitute, 

open approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRB029 Replacement of left 

hip joint with metal on 

polyethylene synthetic 

substitute, cemented, 

open approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRB02A Replacement of left 

hip joint with metal on 

polyethylene synthetic 

substitute, 

uncemented, open 

approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRB02Z Replacement of left 

hip joint with metal on 

polyethylene synthetic 

substitute, open 

approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRB039 Replacement of left 

hip joint with ceramic 

synthetic substitute, 

cemented, open 

approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRB03A Replacement of left 

hip joint with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRB03Z Replacement of left 

hip joint with ceramic 

synthetic substitute, 

open approach
CMS-1632-P 272

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRB049 Replacement of left 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

cemented, open 

approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRB04A Replacement of left 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

uncemented, open 

approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRB04Z Replacement of left 

hip joint with ceramic 

on polyethylene 

synthetic substitute, 

open approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRB0J9 Replacement of left 

hip joint with 

synthetic substitute, 

cemented, open 

approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRB0JA Replacement of left 

hip joint with 

synthetic substitute, 

uncemented, open 

approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRB0JZ Replacement of left 

hip joint with 

synthetic substitute, 

open approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRE009 Replacement of left 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, cemented,

open approach
CMS-1632-P 273

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRE00A Replacement of left 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, 

uncemented, open 

approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRE00Z Replacement of left 

hip joint, acetabular 

surface with 

polyethylene synthetic 

substitute, open 

approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRE019 Replacement of left 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

cemented, open 

approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRE01A Replacement of left 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

uncemented, open 

approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRE01Z Replacement of left 

hip joint, acetabular 

surface with metal 

synthetic substitute, 

open approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRE039 Replacement of left 

hip joint, acetabular 

surface with ceramic 

synthetic substitute,

cemented, open 

approach
CMS-1632-P 274

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRE03A Replacement of left 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRE03Z Replacement of left 

hip joint, acetabular 

surface with ceramic 

synthetic substitute, 

open approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRE0J9 Replacement of left 

hip joint, acetabular 

surface with synthetic 

substitute, cemented, 

open approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRE0JA Replacement of left 

hip joint, acetabular 

surface with synthetic 

substitute, 

uncemented, open 

approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRE0JZ Replacement of left 

hip joint, acetabular 

surface with synthetic 

substitute, open 

approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRS019 Replacement of left 

hip joint, femoral 

surface with metal 

synthetic substitute, 

cemented, open 

approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRS01A Replacement of left 

hip joint, femoral 

surface with metal 

synthetic substitute, 

uncemented, open 

approach
CMS-1632-P 275

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRS01Z Replacement of left 

hip joint, femoral 

surface with metal 

synthetic substitute, 

open approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRS039 Replacement of left 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

cemented, open 

approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRS03A Replacement of left 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

uncemented, open 

approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRS03Z Replacement of left 

hip joint, femoral 

surface with ceramic 

synthetic substitute, 

open approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRS0J9 Replacement of left 

hip joint, femoral 

surface with synthetic 

substitute, cemented, 

open approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRS0JA Replacement of left 

hip joint, femoral 

surface with synthetic 

substitute, 

uncemented, open 

approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SRS0JZ Replacement of left 

hip joint, femoral 

surface with synthetic 

substitute, open 

approach
CMS-1632-P 276

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Hip Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code

Code Description ICD-10-PCS 

Code

Code Description

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SUB09Z Supplement left hip 

joint with liner, open 

approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SUE09Z Supplement left hip 

joint, acetabular 

surface with liner, 

open approach

0SPB4JZ Removal of synthetic 

substitute from left hip 

joint, percutaneous 

endoscopic approach

and 0SUS09Z Supplement left hip 

joint, femoral surface 

with liner, open 

approach
CMS-1632-P 277

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Knee Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code Code Descriptions

ICD-10-PCS 

Code Code Description

0SPC09Z Removal of liner from 

right knee joint, open 

approach

and 0SRC0J9 Replacement of right 

knee joint with 

synthetic substitute, 

cemented, open 

approach

0SPC09Z Removal of liner from 

right knee joint, open 

approach

and 0SRC0JA Replacement of right 

knee joint with 

synthetic substitute, 

uncemented, open 

approach

0SPC09Z Removal of liner from 

right knee joint, open 

approach

and 0SRC0JZ Replacement of right 

knee joint with 

synthetic substitute, 

open approach

0SPC09Z Removal of liner from 

right knee joint, open 

approach

and 0SRT0J9 Replacement of right 

knee joint, femoral 

surface with synthetic 

substitute, cemented, 

open approach

0SPC09Z Removal of liner from 

right knee joint, open 

approach

and 0SRT0JA Replacement of right 

knee joint, femoral 

surface with synthetic 

substitute, uncemented, 

open approach

0SPC09Z Removal of liner from 

right knee joint, open 

approach

and 0SRT0JZ Replacement of right 

knee joint, femoral 

surface with synthetic 

substitute, open 

approach

0SPC09Z Removal of liner from 

right knee joint, open 

approach

and 0SRV0J9 Replacement of right 

knee joint, tibial 

surface with synthetic 

substitute, cemented, 

open approach

0SPC09Z Removal of liner from 

right knee joint, open 

approach

and 0SRV0JA Replacement of right 

knee joint, tibial 

surface with synthetic 

substitute, uncemented, 

open approach
CMS-1632-P 278

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Knee Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code Code Descriptions

ICD-10-PCS 

Code Code Description

0SPC09Z Removal of liner from 

right knee joint, open 

approach

and 0SRV0JZ Replacement of right 

knee joint, tibial 

surface with synthetic 

substitute, open 

approach

0SPC0JZ Removal of synthetic 

substitute from right 

knee joint, open 

approach

and 0SRT0J9 Replacement of right 

knee joint, femoral 

surface with synthetic 

substitute, cemented, 

open approach

0SPC0JZ Removal of synthetic 

substitute from right 

knee joint, open 

approach

and 0SRT0JA Replacement of right 

knee joint, femoral 

surface with synthetic 

substitute, uncemented, 

open approach

0SPC0JZ Removal of synthetic 

substitute from right 

knee joint, open 

approach

and 0SRV0J9 Replacement of right 

knee joint, tibial 

surface with synthetic 

substitute, cemented, 

open approach

0SPC0JZ Removal of synthetic 

substitute from right 

knee joint, open 

approach

and 0SRV0JA Replacement of right 

knee joint, tibial 

surface with synthetic 

substitute, uncemented, 

open approach

0SPC4JZ Removal of synthetic 

substitute from right 

knee joint, 

percutaneous 

endoscopic approach

and 0SRT0J9 Replacement of right 

knee joint, femoral 

surface with synthetic 

substitute, cemented, 

open approach

0SPC4JZ Removal of synthetic 

substitute from right 

knee joint, 

percutaneous 

endoscopic approach

and 0SRT0JA Replacement of right 

knee joint, femoral 

surface with synthetic 

substitute, uncemented, 

open approach
CMS-1632-P 279

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Knee Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code Code Descriptions

ICD-10-PCS 

Code Code Description

0SPC4JZ Removal of synthetic 

substitute from right 

knee joint, 

percutaneous 

endoscopic approach

and 0SRV0J9 Replacement of right 

knee joint, tibial 

surface with synthetic 

substitute, cemented, 

open approach

0SPC4JZ Removal of synthetic 

substitute from right 

knee joint, 

percutaneous 

endoscopic approach

and 0SRV0JA Replacement of right 

knee joint, tibial 

surface with synthetic 

substitute, uncemented, 

open approach

0SPD09Z Removal of liner from 

left knee joint, open 

approach

and 0SRD0J9 Replacement of left 

knee joint with 

synthetic substitute, 

cemented, open 

approach

0SPD09Z Removal of liner from 

left knee joint, open 

approach

and 0SRD0JA Replacement of left 

knee joint with 

synthetic substitute, 

uncemented, open 

approach

0SPD09Z Removal of liner from 

left knee joint, open 

approach

and 0SRD0JZ Replacement of left 

knee joint with 

synthetic substitute, 

open approach

0SPD09Z Removal of liner from 

left knee joint, open 

approach

and 0SRU0J9 Replacement of left 

knee joint, femoral 

surface with synthetic 

substitute, cemented, 

open approach

0SPD09Z Removal of liner from 

left knee joint, open 

approach

and 0SRU0JA Replacement of left 

knee joint, femoral 

surface with synthetic 

substitute, uncemented, 

open approach

0SPD09Z Removal of liner from 

left knee joint, open 

approach

and 0SRU0JZ Replacement of left 

knee joint, femoral 

surface with synthetic 

substitute, open 

approach
CMS-1632-P 280

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Knee Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code Code Descriptions

ICD-10-PCS 

Code Code Description

0SPD09Z Removal of liner from 

left knee joint, open 

approach

and 0SRW0J9 Replacement of left 

knee joint, tibial 

surface with synthetic 

substitute, cemented, 

open approach

0SPD09Z Removal of liner from 

left knee joint, open 

approach

and 0SRW0JA Replacement of left 

knee joint, tibial 

surface with synthetic 

substitute, uncemented, 

open approach

0SPD09Z Removal of liner from 

left knee joint, open 

approach

and 0SRW0JZ Replacement of left 

knee joint, tibial 

surface with synthetic 

substitute, open 

approach

0SPD0JZ Removal of synthetic 

substitute from left 

knee joint, open 

approach

and 0SRU0J9 Replacement of left 

knee joint, femoral 

surface with synthetic 

substitute, cemented, 

open approach

0SPD0JZ Removal of synthetic 

substitute from left 

knee joint, open 

approach

and 0SRU0JA Replacement of left 

knee joint, femoral 

surface with synthetic 

substitute, uncemented, 

open approach

0SPD0JZ Removal of synthetic 

substitute from left 

knee joint, open 

approach

and 0SRW0J9 Replacement of left 

knee joint, tibial 

surface with synthetic 

substitute, cemented, 

open approach

0SPD0JZ Removal of synthetic 

substitute from left 

knee joint, open 

approach

and 0SRW0JA Replacement of left 

knee joint, tibial 

surface with synthetic 

substitute, uncemented, 

open approach
CMS-1632-P 281

MS-DRG 466-468 ICD-10-PCS Code Pairs To Be Added to the Version 33 ICD-10 

MS-DRGs 466, 467, and 468: Proposed New Knee Revision ICD-10-PCS 

Combinations

ICD-10-PCS 

Code Code Descriptions

ICD-10-PCS 

Code Code Description

0SPD0JZ Removal of synthetic 

substitute from left 

knee joint, open 

approach

and 0SRW0JZ Replacement of left

knee joint, tibial 

surface with synthetic 

substitute, open 

approach

0SPD4JZ Removal of synthetic 

substitute from left 

knee joint, 

percutaneous 

endoscopic approach

and 0SRU0J9 Replacement of left 

knee joint, femoral 

surface with synthetic 

substitute, cemented, 

open approach

0SPD4JZ Removal of synthetic 

substitute from left 

knee joint, 

percutaneous 

endoscopic approach

and 0SRU0JA Replacement of left 

knee joint, femoral 

surface with synthetic 

substitute, uncemented, 

open approach

0SPD4JZ Removal of synthetic 

substitute from left 

knee joint, 

percutaneous 

endoscopic approach

and 0SRW0J9 Replacement of left 

knee joint, tibial 

surface with synthetic 

substitute, cemented, 

open approach

0SPD4JZ Removal of synthetic 

substitute from left 

knee joint, 

percutaneous 

endoscopic approach

and 0SRW0JA Replacement of left 

knee joint, tibial 

surface with synthetic 

substitute, uncemented, 

open approach

0SPD4JZ Removal of synthetic 

substitute from left 

knee joint, 

percutaneous 

endoscopic approach

and 0SRW0JZ Replacement of left 

knee joint, tibial 

surface with synthetic 

substitute, open 

approach

We are inviting public comments on our proposal to add the joint revision code 

combinations listed above to MS-DRGs 466, 467, and 468.

b. Spinal Fusion
CMS-1632-P 282

We received a request to revise the titles of MS-DRGs 456, 457, and 458 (Spinal 

Fusion Except Cervical with Spinal Curvature/Malignancy/Infection or 9+ Fusion with 

MCC, with CC, and without CC/MCC, respectively) for the ICD-10 MS-DRGs so that 

they more closely correspond to the terminology used to describe the ICD-10-PCS 

procedure codes without changing the ICD-10 MS-DRG logic. We agree with the 

requestor that revising the titles of these MS-DRGs would more appropriately identify the 

procedures classified under these groupings. Therefore, we are proposing new titles for 

these three MS-DRGs that would change the reference of “9+ Fusions” to “Extensive 

Fusions.” The proposed title revisions to MS-DRGs 456, 457, and 458 for the FY 2016 

ICD-10 MS-DRGs Version 33 are as follows:

● MS-DRG 456 (Spinal Fusion Except Cervical with Spinal 

Curvature/Malignancy/Infection or Extensive Fusion with MCC)

● MS-DRG 457 (Spinal Fusion Except Cervical with Spinal 

Curvature/Malignancy/Infection or Extensive Fusion with CC)

● MS-DRG 458 (Spinal Fusion Except Cervical with Spinal 

Curvature/Malignancy/Infection or Extensive Fusion without CC/MCC).

We are inviting public comments on our proposal.

5. MDC 14 (Pregnancy, Childbirth and the Puerperium): MS-DRG 775 (Vaginal 

Delivery Without Complicating Diagnosis)

We received a request to modify the logic for ICD-10 MS-DRG 775 (Vaginal 

Delivery without Complicating Diagnosis) so that the procedure code for the induction of 

labor with a cervical ripening gel would not group to the incorrect MS-DRG when a 
CMS-1632-P 283

normal delivery has occurred. ICD-10-PCS code 3E0P7GC (Introduction of other 

therapeutic substance into female reproductive, via natural or artificial opening) describes 

this procedure.

We reviewed how this code is currently classified under the ICD-10 MS-DRGs 

Version 32 and noted that it is currently designated as an operating room (O.R.) code 

affecting MS-DRG assignment. We agree with the requestor that the current logic for 

ICD-10-PCS procedure code 3E0P7GC does not result in the appropriate MS-DRG 

assignment. The result of our analysis suggests that this code should not be designated as 

an O.R. code. Our clinical advisors agree that this procedure does not require the 

intensity or complexity of service and resource utilization to merit an O.R. designation 

under ICD-10. Therefore, we are proposing to make ICD-10-PCS procedure code 

3E0P7GC a non-O.R. code so that cases reporting this procedure code will group to the 

appropriate MS-DRG assignment. We are inviting public comments on our proposal.

Our analysis of ICD-10-PCS code 3E0P7GC also prompted the review of 

additional, similar codes that describe the introduction of a substance. We evaluated the 

following ICD-10-PCS procedure codes:

● 3E0P76Z (Introduction of nutritional substance into female reproductive, via 

natural or artificial opening);

● 3E0P77Z (Introduction of electrolytic and water balance substance into female 

reproductive, via natural or artificial opening);

● 3E0P7SF (Introduction of other gas into female reproductive, via natural or 

artificial opening);
CMS-1632-P 284

● 3E0P83Z (Introduction of anti-inflammatory into female reproductive, via 

natural or artificial opening endoscopic);

● 3E0P86Z (Introduction of nutritional substance into female reproductive, via 

natural or artificial opening endoscopic);

● 3E0P87Z (Introduction of electrolytic and water balance substance into female 

reproductive, via natural or artificial opening endoscopic);

● 3E0P8GC (Introduction of other therapeutic substance into female 

reproductive, via natural or artificial opening endoscopic); and

● 3E0P8SF (Introduction of other gas into female reproductive, via natural or 

artificial opening endoscopic).

From our analysis, we determined that these codes also are currently designated 

as O.R. codes affecting MS-DRG assignment. Our clinical advisors recommended that 

these codes should also be designated as non-O.R. because they do not require the 

intensity or complexity of service and resource utilization to merit an O.R. designation 

under the ICD-10 MS-DRGs. As a result of our analysis and our clinical advisors’ 

recommendation, we are proposing to designate the above listed ICD-10-PCS procedure 

codes as non-O.R. codes to ensure that these codes will group to the appropriate 

MS-DRG assignment.

We are inviting public comments on our proposal.

6. MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs): CroFab Antivenin Drug

We received a request that CMS change the MS-DRG assignment for antivenom 

cases from MS-DRG 917 and 918 (Poisoning & Toxic Effects of Drugs with and without 
CMS-1632-P 285

MCC, respectively). For these MS-DRGs, we examined claims data from the December 

2014 update of the FY 2014 MedPAR file for ICD-9-CM diagnosis codes of a principal 

diagnosis 989.5 (Toxic effect of venom), a secondary diagnosis ICD-9-CM E code of 

E905.0 (Venomous snakes and lizards), and the ICD-9-CM procedure code of 99.16 

(Injection of antidote), which is a non-O.R. code and does not impact the MS-DRG 

assignment.

For the ICD-9-CM diagnosis code 989.5 (Toxic effect of venom), the 

ICD-10-CM provides more detailed diagnosis codes for these toxic effects of venom 

cases as shown in the following table:

ICD-10-CM Code Translations for ICD-9-CM Diagnosis Code 989.5

ICD-10-CM 

Code

Code Description

T63.001A Toxic effect of unspecified snake venom, accidental (unintentional), 

initial encounter

T63.011A Toxic effect of rattlesnake venom, accidental (unintentional) initial 

encounter

T63.021A Toxic effect of coral snake venom, accidental (unintentional), initial 

encounter

T63.031A Toxic effect of taipan venom, accidental (unintentional), initial 

encounter

T63.041A Toxic effect of cobra venom, accidental (unintentional), initial 

encounter

T63.061A Toxic effect of venom of other North and South American snake, 

accidental (unintentional), initial encounter

T63.71A Toxic effect of venom of other Australian snake, accidental 

(unintentional), initial encounter

T63.081A Toxic effect of venom of other African and Asian snake, accidental 

(unintentional), initial encounter

T63.091A Toxic effect of venom of other snake, accidental (unintentional), initial 

encounter
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For the ICD-9-CM Supplementary Classification of External Causes of Injury and 

Poisoning code E905.0 (Venomous snakes and lizards), ICD-10-CM provides more 

detailed diagnosis codes for these cases as shown in the following table:

ICD-10-CM Code Translations for ICD-9-CM Code E905.0

ICD-10-CM 

Code

Code Description

T63.001A Toxic effect of unspecified snake venom, accidental (unintentional), 

initial encounter

T63.011A Toxic effect of rattlesnake venom, accidental (unintentional) initial 

encounter

T63.021A Toxic effect of coral snake venom, accidental (unintentional), initial 

encounter

T63.031A Toxic effect of taipan venom, accidental (unintentional), initial 

encounter

T63.041A Toxic effect of cobra venom, accidental (unintentional), initial 

encounter

T63.061A Toxic effect of venom of other North and South American snake, 

accidental (unintentional), initial encounter

T63.71A Toxic effect of venom of other Australian snake, accidental 

(unintentional), initial encounter

T63.081A Toxic effect of venom of other African and Asian snake, accidental 

(unintentional), initial encounter

T63.091A Toxic effect of venom of other snake, accidental (unintentional), initial 

encounter

We examined claims data for injections for snake bites reported in MS-DRGs 

917 and 918 from the December 2014 update of the FY 2014 MedPAR file. Our findings 

are displayed in the table below.

Snake Bite with Injections

MS-DRG

Number 

of Cases

Average 

Length 

of Stay

Average 

Costs

MS-DRG 917 – All cases 26,393 4.77 $9,983

MS-DRG 917 – Cases with principal diagnosis code 

989.5 and secondary diagnosis code E905.0 with 0 0 0
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procedure code 99.16 (non-OR)

MS-DRG 918 – All cases 24,557 2.90 $4,953

MS-DRG 918 - Cases with principal diagnosis code 

989.5 and secondary diagnosis code E905.0 with 

procedure code 99.16 (non-OR) 19 2.16 $12,014

As shown in the table above, we identified 19 cases of injections for snake bites 

reported in MS-DRG 918 only. This small number of cases (19) does not provide 

justification to create a new MS-DRG. The cases are assigned to the same MS-DRG as 

are other types of poisonings and toxic effects. We were unable to find another MS-DRG 

that would be a more appropriate MS-DRG assignment for these cases based on the 

clinical nature of this condition. The MS-DRGs are a classification system intended to 

group together diagnoses and procedures with similar clinical characteristics and 

utilization of resources. Basing a new MS-DRG on such a small number of cases (19) 

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.

Our clinical advisors reviewed the data, evaluated these conditions, and 

recommended that we not change the MS-DRG assignment for CroFab antivenom drug 

for snake bites because these cases are clinically similar to other poisoning cases 

currently assigned to MS-DRGs 917 and 918. Based on the findings in our data analysis 

and the recommendations of our clinical advisors, we are proposing to maintain the 

current assignment of diagnosis codes in MS-DRGs 917 and 918. We are not proposing 
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any MS-DRG changes for cases of CroFab antivenom drugs for snake bites. We are 

inviting public comments on our proposal.

7. MDC 22 (Burns): Additional Severity of Illness Level for MS-DRG 927 (Extensive 

Burns or Full Thickness Burns with Mechanical Ventilation 96+ Hours with Skin Graft)

We received a request to add an additional severity level to MS-DRG 927 

(Extensive Burns or Full Thickness Burns with Mechanical Ventilation 96+ Hours with 

Skin Graft). The requestor was concerned about payment for severe burn cases that used 

dermal regenerative grafts. These grafts are captured by procedure code 86.67 (Dermal 

regenerative graft). The requestor stated that the total cost of these graft cases is 

significantly greater than the average total costs for all cases in MS-DRG 927. The 

requestor stated that the dermal regenerative grafts are used to cover large burns where 

donor skin is not available. The requestor stated that the grafts provide permanent 

covering of the wound and thus immediate closure of the wound. The requestor asserted 

that the grafts offer benefits such as the avoidance of infections. The requestor pointed 

out that MS-DRG 927 is not subdivided into severity of illness levels and recommended 

an additional severity level be added to address any payment issues for dermal 

regenerative grafts within MS-DRG 927.

ICD-10-PCS provides more detailed and specific codes for skin grafts. The 

ICD-10-PCS codes for skin grafts provide specific information on the part of the body 

receiving the skin graft, the type of graft, and the approach used to apply the graft. These 

codes can be found in the table labeled “OHR (Replacement of Skin)” in the ICD-10 

MS-DRG Version 32 Definitions Manual available on the Internet at: 
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http://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-ConversionProject.html. As stated earlier, for the ICD-9-CM codes that result in greater than 50 

ICD-10-PCS comparable code translations, we refer readers to Table 6P (ICD-10-PCS 

Code Translations for Proposed MS-DRG Changes), which is available via the Internet 

on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html. The table includes the MDC topic, the 

ICD-9-CM code, and the ICD-10-PCS code translations. In Table 6P.2a, we show the 

comparable ICD-10-PCS codes for ICD-9-CM code 86.67 (Dermal regenerative graft).

We examined claims data for cases reported in MS-DRG 927 from the December 

2014 update of the FY 2014 MedPAR file. The following table shows our findings.

Extensive Burns or Full Thickness Burns with Mechanical Ventilation 96+ Hours 

with Skin Graft)

MS-DRG

Number 

of Cases

Average 

Length of 

Stay

Average 

Costs

MS-DRG 927 – All cases 171 29.92 $113,844

MS-DRG 927 – Cases with procedure code 

86.67 22 33.5 $146,903

MS-DRG 927 – Cases with procedure code 

86.67 and 96.72 (Mechanical ventilation for 96+ 

hours) 14 38.6 $174,372

MS-DRG 927 – Cases with procedure code 

86.67 and without 96.72 (Mechanical ventilation 

for 96+ hours) 8 24.6 $98,482

MS-DRG 927 – All cases with MCC 131 31.51 $121,519

MS-DRG 927 – All cases with CC 38 25.21 $91,910

MS-DRG 927 – All cases without CC/MCC 2 15.00 $27,872
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As shown in the table above, we found a total of 171 cases in MS-DRG 927. Of 

these 171 cases, there were 131 cases with an MCC, 38 cases with a CC, and 2 cases 

without a CC or an MCC. The requested new severity level does not meet all of the 

criteria established in the FY 2008 IPPS final rule (72 FR 47169), and described in 

section II.G.1.b. of the preamble of this proposed rule, that must be met to warrant the 

creation of a CC or an MCC subgroup within a base MS-DRG. Specifically, the 

requested new severity level does not meet the criterion that there are at least 500 cases in 

the CC or MCC subgroup.

We also point out that the long-term mechanical ventilation cases are driving the 

costs to a greater extent than the graft cases. We found that the 22 cases that received a 

graft had average costs of $146,903. The 14 cases that had both 96+ hours of mechanical 

ventilation and a graft had average costs of $174,372. The 8 cases that had a graft but did 

not receive 96+ hours of mechanical ventilation had average costs of $98,482.

Our clinical advisors reviewed this issue and recommended making no MS-DRG 

updates for MS-DRG 927. They advised us that the dermal regenerative graft cases are 

appropriately assigned to the MS-DRG 927 because they are clinically similar to other 

cases within MS-DRG 927. Our clinical advisors also agreed that the cases in MS-DRG 

927 do not meet the established criterion for creating a new severity level.

Based on the findings of our data analysis, the fact that MS-DRG 927 does not 

meet the criterion for the creation of an additional severity level, and the 

recommendations of our clinical advisors, we are not proposing to create a new severity 

level for MS-DRG 927. We are proposing to maintain the current MS-DRG 927 
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structure without additional severity levels. We are inviting public comments on our 

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, CMS 

prepared the ICD-10 MS-DRGs Version 32 based on the FY 2015 MS-DRGs (Version 

32) that we finalized in the FY 2015 IPPS/LTCH PPS final rule. In November 2014, we 

made available a Definitions Manual of the ICD-10 MS-DRGs Version 32 and the MCE 

Version 32 on the ICD-10 MS-DRG Conversion Project Web site at: 

http://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-ConversionProject.html. We also prepared a document that described the changes made between 

Version 31-R to Version 32 to help facilitate a review of the ICD-10 MS-DRGs logic. 

We produced mainframe and computer software for ICD-10 MS-DRGs Version 32 and 

MCE Version 32, which was made available to the public in January 2015. Information 

on ordering the mainframe and computer software through NTIS was made available on 

the CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRGConversion-Project.html under the “Related Links” section. We encouraged the public to 

submit to CMS any comments on areas where they believed the ICD-10 MS-DRG 
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GROUPER and MCE did not accurately reflect the logic and edits found in the 

ICD-9-CM MS-DRG GROUPER and the MCE.

For FY 2016, in order to be consistent with the ICD-9-CM MS-DRG GROUPER 

and MCE Version 32, we are proposing to add the ICD-10-PCS codes listed in the table 

below to the ICD-10 MCE Version 33 of the “Manifestation codes not allowed as 

principal diagnosis” edit. Under the MCE, manifestation codes describe the 

“manifestation” of an underlying disease, not the disease itself. Because these codes do 

not describe the disease itself, they should not be used as principal diagnoses.

ICD-10-CM Codes Proposed To Be Added to the Version 33 MCE “Manifestation 

Codes Not Allowed as Principal Diagnosis” Edit

ICD-10-CM 

Code

Code Description

D75.81 Myelofibrosis

E08.00 Diabetes mellitus due to underlying condition with hyperosmolarity 

without nonketotic hyperglycemic-hyperosmolar coma (NKHHC)

E08.01 Diabetes mellitus due to underlying condition with hyperosmolarity 

with coma

E08.10 Diabetes mellitus due to underlying condition with ketoacidosis 

without coma

E08.11 Diabetes mellitus due to underlying condition with ketoacidosis with 

coma

E08.21 Diabetes mellitus due to underlying condition with diabetic 

nephropathy

E08.22 Diabetes mellitus due to underlying condition with diabetic chronic 

kidney disease

E08.29 Diabetes mellitus due to underlying condition with other diabetic 

kidney complication

E08.311 Diabetes mellitus due to underlying condition with unspecified 

diabetic retinopathy with macular edema

E08.319 Diabetes mellitus due to underlying condition with unspecified 

diabetic retinopathy without macular edema

E08.321 Diabetes mellitus due to underlying condition with mild 

nonproliferative diabetic retinopathy with macular edema
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ICD-10-CM Codes Proposed To Be Added to the Version 33 MCE “Manifestation 

Codes Not Allowed as Principal Diagnosis” Edit

ICD-10-CM 

Code

Code Description

E08.329 Diabetes mellitus due to underlying condition with mild 

nonproliferative diabetic retinopathy without macular edema

E08.331 Diabetes mellitus due to underlying condition with moderate 

nonproliferative diabetic retinopathy with macular edema

E08.339 Diabetes mellitus due to underlying condition with moderate 

nonproliferative diabetic retinopathy without macular edema

E08.341 Diabetes mellitus due to underlying condition with severe 

nonproliferative diabetic retinopathy with macular edema

E08.349 Diabetes mellitus due to underlying condition with severe 

nonproliferative diabetic retinopathy without macular edema

E08.351 Diabetes mellitus due to underlying condition with proliferative 

diabetic retinopathy with macular edema

E08.359 Diabetes mellitus due to underlying condition with proliferative 

diabetic retinopathy without macular edema

E08.36 Diabetes mellitus due to underlying condition with diabetic cataract

E08.39 Diabetes mellitus due to underlying condition with other diabetic 

ophthalmic complication

E08.40 Diabetes mellitus due to underlying condition with diabetic 

neuropathy, unspecified

E08.41 Diabetes mellitus due to underlying condition with diabetic 

mononeuropathy

E08.42 Diabetes mellitus due to underlying condition with diabetic 

polyneuropathy

E08.43 Diabetes mellitus due to underlying condition with diabetic 

autonomic (poly)neuropathy

E08.44 Diabetes mellitus due to underlying condition with diabetic 

amyotrophy

E08.49 Diabetes mellitus due to underlying condition with other diabetic 

neurological complication

E08.51 Diabetes mellitus due to underlying condition with diabetic peripheral 

angiopathy without gangrene

E08.52 Diabetes mellitus due to underlying condition with diabetic peripheral 

angiopathy with gangrene

E08.59 Diabetes mellitus due to underlying condition with other circulatory 

complications

E08.610 Diabetes mellitus due to underlying condition with diabetic 

neuropathic arthropathy

E08.618 Diabetes mellitus due to underlying condition with other diabetic 

arthropathy

E08.620 Diabetes mellitus due to underlying condition with diabetic dermatitis
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ICD-10-CM Codes Proposed To Be Added to the Version 33 MCE “Manifestation 

Codes Not Allowed as Principal Diagnosis” Edit

ICD-10-CM 

Code

Code Description

E08.621 Diabetes mellitus due to underlying condition with foot ulcer

E08.622 Diabetes mellitus due to underlying condition with other skin ulcer

E08.628 Diabetes mellitus due to underlying condition with other skin 

complications

E08.630 Diabetes mellitus due to underlying condition with periodontal 

disease

E08.638 Diabetes mellitus due to underlying condition with other oral 

complications

E08.641 Diabetes mellitus due to underlying condition with hypoglycemia 

with coma

E08.649 Diabetes mellitus due to underlying condition with hypoglycemia 

without coma

E08.65 Diabetes mellitus due to underlying condition with hyperglycemia

E08.69 Diabetes mellitus due to underlying condition with other specified 

complication

E08.8 Diabetes mellitus due to underlying condition with unspecified 

complications

E08.9 Diabetes mellitus due to underlying condition without complications

We are inviting public comment on our proposal to add the above list of 

ICD-10-CM diagnosis codes to the “Manifestation codes not allowed as principal 

diagnosis” edit in the FY 2016 ICD-10 MCE Version 33.

We also are proposing to revise the language describing the “Procedure 

inconsistent with LOS (Length of stay)” edit which lists ICD-10-PCS code 5A1955Z 

(Respiratory ventilation, greater than 96 consecutive hours), effective for the FY 2016 

ICD-10 MCE Version 33. Currently, in Version 32 of the ICD-10 MCE, the language 

describing this “Procedure inconsistent with LOS (Length of stay)” edit states: “The 

following procedure should only be coded on claims with a length of stay of four days or 

greater.” Because the code description of the ICD-10-PCS code is for ventilation that 
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occurs greater than 96 hours, we are proposing to revise the language for the edit to read: 

“The following procedure code should only be coded on claims with a length of stay 

greater than 4 days.” This proposed revision would clarify the intent of this MCE edit. 

We are inviting public comments on our 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 2016, 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 
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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 lower-weighted MS-DRG (in the highest, most 

resource-intensive surgical class) of the available alternatives. However, given that the 

logic underlying the surgical hierarchy provides that the GROUPER search for the 

procedure in the most resource-intensive surgical class, in cases involving multiple 

procedures, this result is sometimes unavoidable.

We note that, notwithstanding the foregoing discussion, there are a few instances 

when a surgical class with a lower average cost is ordered above a surgical class with a 

higher average cost. For example, the “other O.R. procedures” surgical class is 

uniformly ordered last in the surgical hierarchy of each MDC in which it occurs, 
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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 higher-ordered 

surgical class has lower average costs than the class ordered below it.

Based on the changes that we are proposing to make for FY 2016, as discussed in 

section II.G.3.e. of the preamble of this FY 2016 IPPS/LTCH PPS proposed rule, we are 

proposing to revise the surgical hierarchy for MDC 5 (Diseases and Disorders of the 

Circulatory System). Specifically, we are proposing to delete MS-DRG 237 (Major 

Cardiovascular Procedures with MCC) and MS-DRG 238 (Major Cardiovascular 

Procedures without MCC) from the surgical hierarchy. We are proposing to sequence 

proposed new MS-DRG 268 (Aortic and Heart Assist Procedures Except Pulsation 

Balloon with MCC) and proposed new MS–DRG 269 (Aortic and Heart Assist 

Procedures Except Pulsation Balloon without MCC) above proposed new MS-DRG 270 

(Other Major Cardiovascular Procedures with MCC), proposed new MS-DRG 271 (Other 
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Major Cardiovascular Procedures with CC), and proposed new MS-DRG 272 (Other 

Major Cardiovascular Procedures without CC/MCC). We are proposing to sequence 

proposed new MS-DRGs 270, 271, and 272 above MS-DRG 239 (Amputation for 

Circulatory System Disorders Except Upper Limb & Toe with MCC). In addition, we are 

proposing to sequence proposed new MS-DRG 273 (Percutaneous Intracardiac 

Procedures with MCC) and proposed new MS-DRG 274 (Percutaneous Intracardiac 

Procedures without MCC) above MS-DRG 246 (Percutaneous Cardiovascular Procedure 

with Drug-eluting Stent with MCC or 4+ Vessels/Stents).

We are inviting public comments on our proposals.

10. Proposed Changes to the MS-DRG Diagnosis Codes for FY 2016

a. Major Complications or Comorbidities (MCCs) and Complications or Comorbidities 

(CC) Severity Levels for FY 2016

A complete updated MCC, CC, and Non-CC Exclusion List is available via the 

Internet on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/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 levels for ICD–9–CM 

diagnosis codes 414.2 (Chronic total occlusion of coronary artery) and 414.4 (Coronary 

atherosclerosis due to calcified coronary lesion) from non-CCs to MCCs. The 
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ICD-10-CM codes for these diagnoses are I25.82 (Chronic total occlusion of coronary 

artery) and I25.84 (Coronary atherosclerosis due to calcified coronary lesion), 

respectively, and both of these codes are currently classified as non-CCs.

This issue was previously discussed in the FY 2014 IPPS/LTCH PPS proposed 

rule and final rule (78 FR 27522 and 78 FR 50541 through 50542, respectively), and the 

FY 2015 IPPS/LTCH PPS proposed rule and final rule (79 FR 28018 and 28019 and 

79 FR 49903 and 49904, respectively).

We examined claims data from the December 2014 update of the FY 2014 

MedPAR file for ICD-9-CM diagnosis codes 414.2 and 414.4. The following table 

shows our findings.

SDX

SDX 

Description

CC 

Level Cnt 1

Cnt 1 

Impact Cnt 2

Cnt 2 

Impact Cnt 3

Cnt 3 

Impact

414.2

Chronic total 

occlusion of 

coronary 

artery Non-CC 14,655 1.393 21,222 2.098 20,615 3.046

414.4

Coronary 

atherosclerosis 

due to 

calcified 

coronary 

lesion Non-CC 1,752 1.412 3,238 2.148 3,244 3.053

We ran the data using the criteria described in the FY 2008 IPPS final rule with 

comment period (72 FR 47169) to determine severity levels for procedures in MS-DRGs. 

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 
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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 table above shows that the C1 finding is 1.393 for ICD-9-CM diagnosis code 

414.2 and the C1 finding is 1.412 for ICD-9-CM diagnosis code 414.4. 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 that the condition is expected to consume resources more similar to an 

MCC than a CC or a non-CC. The C2 finding was 2.098 for ICD-9-CM diagnosis code 

414.2, and the C2 finding was 2.148 for ICD-9-CM diagnosis code 414.4. 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 

1.393 for ICD-9-CM diagnosis code 414.2 and the C1 value of 1.412 for ICD-9-CM 

diagnosis code 414.4 are above the 1.0 value for a non-CC, these values do not support 

the reclassification of diagnosis codes 414.2 and 414.4 to MCCs. 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 2.098 for ICD-9-CM 

diagnosis code 414.2 and the C2 finding of 2.148 for ICD-9-CM diagnosis code 414.4 

also do not support reclassifying these diagnosis codes to MCCs.

Our clinical advisors reviewed the data and evaluated these conditions. 

They recommended that we not change the severity level of diagnosis codes 414.2 
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and 414.4 from a non-CC to an MCC. Our clinical advisors do not believe that these 

diagnoses would increase the severity of illness level of patients. Considering 

the C1 and C2 ratings of both diagnosis codes 414.2 and 414.4 and the input from 

our clinical advisors, we are not proposing to reclassify conditions represented 

by diagnosis codes 414.2 and 414.4 to MCCs. We are proposing to maintain both of 

these conditions as non-CCs. As stated earlier, the equivalent ICD-10-CM codes for 

these conditions are codes I25.82 and I25.84, respectively. Therefore, based on the data 

and clinical analysis, we are proposing to maintain ICD-10-CM diagnosis codes 

I25.82 and I25.84 as non-CCs. We are inviting public comments on our 

proposals.

c. Hydronephrosis

Some ICD-10-CM diagnosis codes express conditions that are normally coded in 

ICD-9-CM using two or more ICD-9-CM diagnosis codes. CMS’ goal in developing the 

ICD-10 MS-DRGs was to ensure that a patient case is assigned to the same MS-DRG, 

regardless of whether the patient record were to be coded in ICD-9-CM or 

ICD-10-CM/PCS. When one of the ICD-10-CM combination codes is used as a principal 

diagnosis, the cluster of ICD-9-CM codes that would be coded on an ICD-9-CM record 

was evaluated. If one of the ICD-9-CM codes in the cluster is a CC or an MCC, the 

single ICD-10-CM combination code used as a principal diagnosis also must imply that 

the CC or MCC is present. Appendix J of the ICD-10 MS-DRG Definitions Manual 

Version 32 includes two lists. Part 1 is the list of principal diagnosis codes where the 

ICD-10-CM code is its own MCC. Part 2 is the list of principal diagnosis codes where 
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the ICD-10-CM code is its own CC. Appendix J of the ICD-10 MS-DRG Definitions 

Manual Version 32 is available via the CMS Web site at: 

http://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-ConversionProject.html.

We received a request that the ICD-10-CM combination codes for hydronephrosis 

due to ureteral stricture and urinary stone (N13.1 and N13.2) be flagged as principal 

diagnoses that can act as their own CC for MS-DRG grouping purposes.

In ICD-9-CM, code 591 (Hydronephrosis) is classified as a CC. In ICD-10-CM, 

hydronephrosis is reported with a combination code if the hydronephrosis is due to a 

ureteral stricture or urinary stone obstruction of N13.1 (Hydronephrosis with ureteral 

stricture, not elsewhere classified) and N13.2 (Hydronephrosis with renal and ureteral 

calculous obstruction). In ICD-10-CM, these two codes (N13.1 and N 13.2) are 

classified as CCs, but these codes are not recognized as principal diagnoses that act as 

their own CC (they are not included in the Appendix J of the ICD-10 MS-DRG 

Definitions Manual Version 32).

We agree with the requestor that ICD-10-CM diagnosis codes N13.1 and N13.2 

should be flagged as principal diagnosis codes that can act as their own CC for MS-DRG 

grouping purposes. Therefore, we are proposing that diagnosis codes N13.1 and N13.2 

be added to the list of principal diagnoses that act as their own CC in Appendix J of the 

ICD-10 MS-DRG Definitions Manual Version 32. We are inviting public comments on 

our proposal.

11. Proposed Complications or Comorbidity (CC) Exclusions List for FY 2016
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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 2016

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 
CMS-1632-P 304

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 
CMS-1632-P 305

and to remove diagnoses from the master list that have been shown not to meet the 

definition of a CC.4

The ICD-10 MS-DRGs Version 32 CC Exclusion List is included as Appendix C 

in the Definitions Manual available via the Internet on the CMS Web site at: 

http://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-ConversionProject.html.

For FY 2016, we are not proposing any changes to the CC Exclusion List. 

Because we are not proposing any changes to the ICD-10 MS-DRGs CC Exclusion List 

for FY 2016, we are not publishing Table 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 the secondary diagnosis 

codes for which there is an exclusion is listed in Part 1 of Table 6K. Each of these 

secondary diagnosis codes is indicated as a CC or an MCC. If the CC or MCC is allowed 

 

4 We 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); the FY 2014 final rule 

(78 FR 50541), and the FY 2015 final rule (79 FR 49905). 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.
CMS-1632-P 306

with all principal diagnoses, the phrase “NoExcl” (for no exclusions) follows the 

CC/MCC indicator. Otherwise, a link is given to a collection of diagnosis codes which, 

when used as the principal diagnosis, will cause the CC or MCC to be considered as only 

a non-CC. Part 2 of Table 6K lists codes that are assigned as an MCC only for patients 

discharged alive. Otherwise, the codes are assigned as a non-CC.

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-ServicePayment/AcuteInpatientPPS/index.html.

Because there are no proposed new, revised, or deleted ICD-10-CM diagnosis 

codes for FY 2016, we have not developed Table 6A (New Diagnosis Codes), Table 6C 

(Invalid Diagnosis Codes), or Table 6E (Revised Diagnosis Code Titles), for this 

proposed rule and they are not published as part of this proposed rule. We have 

developed Table 6B (New Procedure Codes) for new ICD-10-PCS codes which will be 

implemented on October 1, 2015. Because there are no proposed revised or deleted 

procedure codes for FY 2016, we have not developed Table 6D (Invalid Procedure 

Codes) or Table 6F (Revised Procedure Codes).

We are not proposing any additions or deletions to the MS-DRG MCC List for 

FY 2016 nor any additions or deletions to the MS-DRG CC List for FY 2016. Therefore, 

for this proposed rule, we have not developed 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. We have 

developed Table 6M.1 (Additions to Principal Diagnosis Is Its Own CC) to show the two 
CMS-1632-P 307

proposed additions to this list for the two principal diagnosis codes acting as their own 

CC.

The complete documentation of the ICD-10 MS-DRG Version 32 GROUPER 

logic, including the current CC Exclusions List, is available via the Internet on the CMS 

Web site at: http://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRGConversion-Project.html. The complete documentation of the ICD-10 MS-DRG 

GROUPER logic will be available on the CMS Acute Inpatient PPS Web page after the 

issuance of the final rule at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/index.html.

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 
CMS-1632-P 308

(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);
CMS-1632-P 309

● 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.5

Our review of MedPAR claims data showed that there are no cases that merited 

movement or should logically be assigned to any of the other MDCs. Therefore, for 

 

5The 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, 2014, and 2015, 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), in the FY 2014 final rule 

(78 FR 50545); and in the FY 2015 final rule (79 FR 49906).
CMS-1632-P 310

FY 2016, we are not proposing to change the procedures assigned among these 

MS-DRGs.

We are inviting public comments on our proposal.

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 are no cases 

that merited movement or that should logically be assigned to any of the other MDCs. 

Therefore, for FY 2016, 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.
CMS-1632-P 311

We are inviting public comments on our proposal.

b. Reassignment of Procedures among MS DRGs 981 through 983, 984 through 986, and 

987 through 989

(1) Annual Review of Procedures

We also annually review the list of ICD-9-CM procedures that, when in 

combination with their principal diagnosis code, result in assignment to MS-DRGs 981 

through 983, 984 through 986 (Prostatic O.R. procedure unrelated to principal diagnosis 

with MCC, with CC, or without CC/MCC, respectively), and 987 through 989, to 

ascertain whether any of those procedures should be reassigned from one of these three 

MS DRGs to another of the three MS-DRGs based on average costs and the length of 

stay. We look at the data for trends such as shifts in treatment practice or reporting 

practice that would make the resulting MS-DRG assignment illogical. If we find these 

shifts, we would propose to move cases to keep the MS-DRGs clinically similar or to 

provide payment for the cases in a similar manner. Generally, we move only those 

procedures for which we have an adequate number of discharges to analyze the data.

There are 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 2016, we are not proposing to move any procedure codes among these MS-DRGs.
CMS-1632-P 312

(2) Review of Cases with Endovascular Embolization Procedures for Epistaxis

During the comment period for the FY 2015 IPPS/LTCH PPS proposed rule, we 

received a public comment expressing concern regarding specific procedure codes that 

are assigned to MS-DRGs 981 through 983; 984 through 986; and 987 through 989 in 

relation to our discussion of the annual review of these MS-DRGs in section II.G.12. of 

that proposed rule (79 FR 28020). The commenter noted that the endovascular 

embolization of the arteries of the branches of the internal maxillary artery is frequently 

performed for intractable posterior epistaxis (nosebleed). The commenter stated that, 

currently, diagnosis code 784.7 (Epistaxis) reported with procedure codes 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) groups to MS-DRGs 981, 982, and 983. The commenter indicated that it 

also found this grouping with the ICD-10 MS-DRGs Version 31 using ICD-10-CM 

diagnosis code R04.0 (Epistaxis) reported with artery occlusion procedure codes. The 

commenter requested that CMS review these groupings and consider the possibility of 

reassigning these epistaxis cases with endovascular embolization procedure codes into a 

more specific MS-DRG.

We considered this public comment to be outside of the scope of the FY 2015 

IPPS/LTCH PPS proposed rule and, therefore, did not address it in the FY 2015 

IPPS/LTCH PPS final rule. However, we indicated that we would consider this public 

comment for possible proposals in future rulemaking as part of our annual review 

process.
CMS-1632-P 313

ICD-10-PCS provides more detailed codes for endovascular embolization or 

occlusion of vessel(s) of head or neck using bare coils and bioactive coils which are listed 

in the following table:

ICD-10-PCS Codes for Endovascular Embolization or Occlusion of Vessel(s) of 

Head or Neck Using Bare Coils and Bioactive Coils

ICD-10-PCS 

Code

Code Description

03LG0BZ Occlusion of intracranial artery with bioactive intraluminal device, 

open approach

03LG0DZ Occlusion of intracranial artery with intraluminal device, open 

approach

03LG3BZ Occlusion of intracranial artery with bioactive intraluminal device, 

percutaneous approach

03LG3DZ Occlusion of intracranial artery with intraluminal device, percutaneous 

approach

03LG4BZ Occlusion of intracranial artery with bioactive intraluminal device, 

percutaneous endoscopic approach

03LG4DZ Occlusion of intracranial artery with intraluminal device, percutaneous 

endoscopic approach

03LH0BZ Occlusion of right common carotid artery with bioactive intraluminal 

device, open approach

03LH0DZ Occlusion of right common carotid artery with intraluminal device, 

open approach

03LH3BZ Occlusion of right common carotid artery with bioactive intraluminal 

device, percutaneous approach

03LH3DZ Occlusion of right common carotid artery with intraluminal device, 

percutaneous approach

03LH4BZ Occlusion of right common carotid artery with bioactive intraluminal 

device, percutaneous endoscopic approach

03LH4DZ Occlusion of right common carotid artery with intraluminal device, 

percutaneous endoscopic approach

03LJ0BZ Occlusion of left common carotid artery with bioactive intraluminal 

device, open approach

03LJ0DZ Occlusion of left common carotid artery with intraluminal device, 

open approach

03LJ3BZ Occlusion of left common carotid artery with bioactive intraluminal 

device, percutaneous approach

03LJ3DZ Occlusion of left common carotid artery with intraluminal device, 

percutaneous approach
CMS-1632-P 314

ICD-10-PCS Codes for Endovascular Embolization or Occlusion of Vessel(s) of 

Head or Neck Using Bare Coils and Bioactive Coils

ICD-10-PCS 

Code

Code Description

03LJ4BZ Occlusion of left common carotid artery with bioactive intraluminal 

device, percutaneous endoscopic approach

03LJ4DZ Occlusion of left common carotid artery with intraluminal device, 

percutaneous endoscopic approach

03LK0BZ Occlusion of right internal carotid artery with bioactive intraluminal 

device, open approach

03LK0DZ Occlusion of right internal carotid artery with intraluminal device, 

open approach

03LK3BZ Occlusion of right internal carotid artery with bioactive intraluminal 

device, percutaneous approach

03LK3DZ Occlusion of right internal carotid artery with intraluminal device, 

percutaneous approach

03LK4BZ Occlusion of right internal carotid artery with bioactive intraluminal 

device, percutaneous endoscopic approach

03LK4DZ Occlusion of right internal carotid artery with intraluminal device, 

percutaneous endoscopic approach

03LL0BZ Occlusion of left internal carotid artery with bioactive intraluminal 

device, open approach

03LL0DZ Occlusion of left internal carotid artery with intraluminal device, open 

approach

03LL3BZ Occlusion of left internal carotid artery with bioactive intraluminal 

device, percutaneous approach

03LL3DZ Occlusion of left internal carotid artery with intraluminal device, 

percutaneous approach

03LL4BZ Occlusion of left internal carotid artery with bioactive intraluminal 

device, percutaneous endoscopic approach

03LL4DZ Occlusion of left internal carotid artery with intraluminal device, 

percutaneous endoscopic approach

03LM0BZ Occlusion of right external carotid artery with bioactive intraluminal 

device, open approach

03LM0DZ Occlusion of right external carotid artery with intraluminal device, 

open approach

03LM3BZ Occlusion of right external carotid artery with bioactive intraluminal

device, percutaneous approach

03LM3DZ Occlusion of right external carotid artery with intraluminal device, 

percutaneous approach

03LM4BZ Occlusion of right external carotid artery with bioactive intraluminal 

device, percutaneous endoscopic approach

03LM4DZ Occlusion of right external carotid artery with intraluminal device, 

percutaneous endoscopic approach
CMS-1632-P 315

ICD-10-PCS Codes for Endovascular Embolization or Occlusion of Vessel(s) of 

Head or Neck Using Bare Coils and Bioactive Coils

ICD-10-PCS 

Code

Code Description

03LN0BZ Occlusion of left external carotid artery with bioactive intraluminal 

device, open approach

03LN0DZ Occlusion of left external carotid artery with intraluminal device, open 

approach

03LN3BZ Occlusion of left external carotid artery with bioactive intraluminal 

device, percutaneous approach

03LN3DZ Occlusion of left external carotid artery with intraluminal device, 

percutaneous approach

03LN4BZ Occlusion of left external carotid artery with bioactive intraluminal 

device, percutaneous endoscopic approach

03LN4DZ Occlusion of left external carotid artery with intraluminal device, 

percutaneous endoscopic approach

03LP0BZ Occlusion of right vertebral artery with bioactive intraluminal device, 

open approach

03LP0DZ Occlusion of right vertebral artery with intraluminal device, open 

approach

03LP3BZ Occlusion of right vertebral artery with bioactive intraluminal device, 

percutaneous approach

03LP3DZ Occlusion of right vertebral artery with intraluminal device, 

percutaneous approach

03LP4BZ Occlusion of right vertebral artery with bioactive intraluminal device, 

percutaneous endoscopic approach

03LP4DZ Occlusion of right vertebral artery with intraluminal device, 

percutaneous endoscopic approach

03LQ0BZ Occlusion of left vertebral artery with bioactive intraluminal device, 

open approach

03LQ0DZ Occlusion of left vertebral artery with intraluminal device, open 

approach

03LQ3BZ Occlusion of left vertebral artery with bioactive intraluminal device, 

percutaneous approach

03LQ3DZ Occlusion of left vertebral artery with intraluminal device, 

percutaneous approach

03LQ4BZ Occlusion of left vertebral artery with bioactive intraluminal device, 

percutaneous endoscopic approach

03LQ4DZ Occlusion of left vertebral artery with intraluminal device, 

percutaneous endoscopic approach

03VG0BZ Restriction of intracranial artery with bioactive intraluminal device, 

open approach

03VG0DZ Restriction of intracranial artery with intraluminal device, open 

approach
CMS-1632-P 316

ICD-10-PCS Codes for Endovascular Embolization or Occlusion of Vessel(s) of 

Head or Neck Using Bare Coils and Bioactive Coils

ICD-10-PCS 

Code

Code Description

03VG3BZ Restriction of intracranial artery with bioactive intraluminal device, 

percutaneous approach

03VG3DZ Restriction of intracranial artery with intraluminal device, 

percutaneous approach

03VG4BZ Restriction of intracranial artery with bioactive intraluminal device, 

percutaneous endoscopic approach

03VG4DZ Restriction of intracranial artery with intraluminal device, 

percutaneous endoscopic approach

03VH0BZ Restriction of right common carotid artery with bioactive intraluminal 

device, open approach

03VH0DZ Restriction of right common carotid artery with intraluminal device, 

open approach

03VH3BZ Restriction of right common carotid artery with bioactive intraluminal 

device, percutaneous approach

03VH3DZ Restriction of right common carotid artery with intraluminal device, 

percutaneous approach

03VH4BZ Restriction of right common carotid artery with bioactive intraluminal 

device, percutaneous endoscopic approach

03VH4DZ Restriction of right common carotid artery with intraluminal device, 

percutaneous endoscopic approach

03VJ0BZ Restriction of left common carotid artery with bioactive intraluminal 

device, open approach

03VJ0DZ Restriction of left common carotid artery with intraluminal device, 

open approach

03VJ3BZ Restriction of left common carotid artery with bioactive intraluminal 

device, percutaneous approach

03VJ3DZ Restriction of left common carotid artery with intraluminal device, 

percutaneous approach

03VJ4BZ Restriction of left common carotid artery with bioactive intraluminal 

device, percutaneous endoscopic approach

03VJ4DZ Restriction of left common carotid artery with intraluminal device, 

percutaneous endoscopic approach

03VK0BZ Restriction of right internal carotid artery with bioactive intraluminal 

device, open approach

03VK0DZ Restriction of right internal carotid artery with intraluminal device, 

open approach

03VK3BZ Restriction of right internal carotid artery with bioactive intraluminal 

device, percutaneous approach

03VK3DZ Restriction of right internal carotid artery with intraluminal device, 

percutaneous approach
CMS-1632-P 317

ICD-10-PCS Codes for Endovascular Embolization or Occlusion of Vessel(s) of 

Head or Neck Using Bare Coils and Bioactive Coils

ICD-10-PCS 

Code

Code Description

03VK4BZ Restriction of right internal carotid artery with bioactive intraluminal 

device, percutaneous endoscopic approach

03VK4DZ Restriction of right internal carotid artery with intraluminal device, 

percutaneous endoscopic approach

03VL0BZ Restriction of left internal carotid artery with bioactive intraluminal 

device, open approach

03VL0DZ Restriction of left internal carotid artery with intraluminal device, 

open approach

03VL3BZ Restriction of left internal carotid artery with bioactive intraluminal 

device, percutaneous approach

03VL3DZ Restriction of left internal carotid artery with intraluminal device, 

percutaneous approach

03VL4BZ Restriction of left internal carotid artery with bioactive intraluminal 

device, percutaneous endoscopic approach

03VL4DZ Restriction of left internal carotid artery with intraluminal device, 

percutaneous endoscopic approach

03VM0BZ Restriction of right external carotid artery with bioactive intraluminal 

device, open approach

03VM0DZ Restriction of right external carotid artery with intraluminal device, 

open approach

03VM3BZ Restriction of right external carotid artery with bioactive intraluminal 

device, percutaneous approach

03VM3DZ Restriction of right external carotid artery with intraluminal device, 

percutaneous approach

03VM4BZ Restriction of right external carotid artery with bioactive intraluminal 

device, percutaneous endoscopic approach

03VM4DZ Restriction of right external carotid artery with intraluminal device, 

percutaneous endoscopic approach

03VN0BZ Restriction of left external carotid artery with bioactive intraluminal 

device, open approach

03VN0DZ Restriction of left external carotid artery with intraluminal device, 

open approach

03VN3BZ Restriction of left external carotid artery with bioactive intraluminal 

device, percutaneous approach

03VN3DZ Restriction of left external carotid artery with intraluminal device, 

percutaneous approach

03VN4BZ Restriction of left external carotid artery with bioactive intraluminal 

device, percutaneous endoscopic approach

03VN4DZ Restriction of left external carotid artery with intraluminal device, 

percutaneous endoscopic approach
CMS-1632-P 318

ICD-10-PCS Codes for Endovascular Embolization or Occlusion of Vessel(s) of 

Head or Neck Using Bare Coils and Bioactive Coils

ICD-10-PCS 

Code

Code Description

03VP0BZ Restriction of right vertebral artery with bioactive intraluminal device, 

open approach

03VP0DZ Restriction of right vertebral artery with intraluminal device, open 

approach

03VP3BZ Restriction of right vertebral artery with bioactive intraluminal device, 

percutaneous approach

03VP3DZ Restriction of right vertebral artery with intraluminal device, 

percutaneous approach

03VP4BZ Restriction of right vertebral artery with bioactive intraluminal device, 

percutaneous endoscopic approach

03VP4DZ Restriction of right vertebral artery with intraluminal device, 

percutaneous endoscopic approach

03VQ0BZ Restriction of left vertebral artery with bioactive intraluminal device, 

open approach

03VQ0DZ Restriction of left vertebral artery with intraluminal device, open 

approach

03VQ3BZ Restriction of left vertebral artery with bioactive intraluminal device, 

percutaneous approach

03VQ3DZ Restriction of left vertebral artery with intraluminal device, 

percutaneous approach

03VQ4BZ Restriction of left vertebral artery with bioactive intraluminal device, 

percutaneous endoscopic approach

03VQ4DZ Restriction of left vertebral artery with intraluminal device, 

percutaneous endoscopic approach

03VR0DZ Restriction of face artery with intraluminal device, open approach

03VR3DZ Restriction of face artery with intraluminal device, percutaneous 

approach

03VR4DZ Restriction of face artery with intraluminal device, percutaneous 

endoscopic approach

03VS0DZ Restriction of right temporal artery with intraluminal device, open 

approach

03VS3DZ Restriction of right temporal artery with intraluminal device, 

percutaneous approach

03VS4DZ Restriction of right temporal artery with intraluminal device, 

percutaneous endoscopic approach

03VT0DZ Restriction of left temporal artery with intraluminal device, open 

approach

03VT3DZ Restriction of left temporal artery with intraluminal device, 

percutaneous approach
CMS-1632-P 319

ICD-10-PCS Codes for Endovascular Embolization or Occlusion of Vessel(s) of 

Head or Neck Using Bare Coils and Bioactive Coils

ICD-10-PCS 

Code

Code Description

03VT4DZ Restriction of left temporal artery with intraluminal device, 

percutaneous endoscopic approach

03VU0DZ Restriction of right thyroid artery with intraluminal device, open 

approach

03VU3DZ Restriction of right thyroid artery with intraluminal device, 

percutaneous approach

03VU4DZ Restriction of right thyroid artery with intraluminal device, 

percutaneous endoscopic approach

03VV0DZ Restriction of left thyroid artery with intraluminal device, open 

approach

03VV3DZ Restriction of left thyroid artery with intraluminal device, 

percutaneous approach

03VV4DZ Restriction of left thyroid artery with intraluminal device, 

percutaneous endoscopic approach

We examined claims data from the December 2014 update of the FY 2014 

MedPAR file for cases with diagnosis code 784.7 reported with procedure codes 39.75 

and 39.76 in MS-DRGs 981, 982, and 983. The following table shows our findings.
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Endovascular Embolization Procedures for Epistaxis

MS-DRG

Number of 

Cases

Average 

Length of 

Stay

Average 

Costs

MS-DRG 981– All cases 21,118 12.38 $33,080

MS-DRG 981 – Epistaxis cases with principal 

diagnosis code 784.7 and procedure code 39.75 8 6.50 $34,655

MS-DRG 981 – Epistaxis cases with principal 

diagnosis code 784.7 and procedure code 39.76 2 12.50 $50,081

MS-DRG 982 – All cases 13,657 7.14 $19,392

MS-DRG 982 – Epistaxis cases with principal 

diagnosis code 784.7 and procedure code 39.75 22 3.14 $17,725

MS-DRG 982 – Epistaxis cases with principal 

diagnosis code 784.7 and procedure code 39.76 2 2.0 $11,010

MS-DRG 983 – All cases 2,989 3.60 $12,760

MS-DRG 983 – Epistaxis cases with principal 

diagnosis code 784.7 and procedure code 39.75 5 2.60 $10,532

MS-DRG 983 – Epistaxis cases with principal 

diagnosis code 784.7 and procedure code 39.76 4 1.50 $16,658

We found only 35 epistaxis cases with procedure code 39.75 reported and 8 cases 

with procedure code 39.76 reported among MS-DRGs 981, 982, and 983. The use of 

endovascular embolizations for epistaxis appears to be rare. The average costs for the 

cases with procedure code 39.75 in MS-DRGs 981, 982, and 983 are similar to the 

average costs for all cases in MS-DRGs 981, 982, and 983, respectively. The average 

costs for the cases with procedure code 39.75 in MS-DRGs 981, 982, and 983 were 

$34,655, $17,725, and $10,532, respectively, compared to $33,080, $19,392, and $12,760 

for all cases in MS-DRGs 981, 982, and 983. The average costs for cases with procedure 

code 39.76 in MS-DRGs 981, 982, and 983 were $50,081, $11,010, and $16,658, 

respectively, and were significantly greater than all cases in MS-DRGs 981 and 983. 
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However, as stated earlier, there were only 8 cases reported with procedure code 39.76. 

As explained previously, MS-DRGs 981, 982, and 983 were created for operating room 

procedures that are unrelated to the principal diagnosis. Because there were so few cases 

reported, this does not appear to be a common procedure for epistaxis. There were not 

enough cases to base a change of MS-DRG assignment for these cases.

Our clinical advisors reviewed this issue and did not identify any new MS-DRG 

assignment that would be more appropriate for these rare cases. They advised us to 

maintain the current MS-DRG structure within MS-DRGs 981, 982, and 983.

Based on the results of the examination of the claims data and the 

recommendations from our clinical advisors, we are not proposing to create new 

MS-DRG assignments for epistaxis cases receiving endovascular embolization 

procedures. We are proposing to maintain the current MS-DRG structure for epistaxis 

cases receiving endovascular embolization procedures and are not proposing any updates 

to MS-DRGs 981, 982, and 983. We are inviting public comments on our proposal.

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 2016. We are inviting public comments 

on our proposal.
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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 addresses 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 non-Federal 

educational programs and other communication techniques with a view toward 

standardizing coding applications and upgrading the quality of the classification system.

The official list of ICD-9-CM diagnosis and procedure codes by fiscal year can be 

found on the CMS Web site at: 

http://www.cms.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.
CMS-1632-P 323

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 2016 at a public meeting held on September 23-24, 2014, and finalized the coding 

changes after consideration of comments received at the meetings and in writing by 

November 15, 2014.

The Committee held its 2015 meeting on March 18-19, 2015. It was announced 

at this meeting that any new ICD-10-CM/PCS codes for which there was consensus of 

public support and for which complete tabular and indexing changes would be made by 

May 2015 would be included in the October 1, 2015 update to ICD-10-CM/ICD-10-PCS. 
CMS-1632-P 324

For FY 2016, there are no new, revised, or deleted ICD-10-CM diagnosis codes. For 

FY 2016, there are new ICD-10-PCS procedure codes that are included in Table 6B (New 

Procedure Codes). However, there are no revised or deleted ICD-10-PCS procedure 

codes. There also are no new ICD-9-CM diagnosis or procedure codes because 

ICD-9-CM will be replaced by ICD-10-CM/ICD-10-PCS for services provided on or 

after October 1, 2015.

Copies of the agenda, handouts, and access to the live stream videos for the 

procedure codes discussions at the Committee’s September 23-24, 2014 meeting and 

March 18-19, 2015 meeting can be obtained from the CMS Web site at: 

http://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html?redire

ct=/icd9ProviderDiagnosticCodes/03_meetings.asp. The agenda, handouts and minutes 

of the diagnosis codes discussions at the September 23-24, 2014 meeting and 

March 18-19, 2015 meeting are found at: http://www.cdc.gov/nchs/icd/icd9cmmaintenance.html. These Web sites also provide detailed information about the 

Committee, including information on requesting a new code, attending a Committee 

meeting, timeline requirements and meeting dates.

We encourage commenters to address suggestions on coding issues involving 

diagnosis codes to: Donna Pickett, Co-Chairperson, ICD-10 Coordination and 

Maintenance Committee, NCHS, Room 2402, 3311 Toledo Road, Hyattsville, MD 

20782. Comments may be sent by E-mail to: dfp4@cdc.gov.

Questions and comments concerning the procedure codes should be addressed to: 

Patricia Brooks, Co-Chairperson, ICD-10 Coordination and Maintenance Committee, 
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CMS, Center for Medicare, Hospital and Ambulatory Policy Group, Division of Acute 

Care, C4-08-06, 7500 Security Boulevard, Baltimore, MD 21244-1850. Comments may 

be sent by E-mail to: patricia.brooks2@cms.hhs.gov.

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 Pub. L. 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 
CMS-1632-P 326

systems in order to recognize and accept the new codes. We also publicize the code 

changes and the need for a mid-year systems update by providers to identify the new 

codes. Hospitals also have to obtain the new code books and encoder updates, and make 

other system changes in order to identify and report the new codes.

The ICD-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 
CMS-1632-P 327

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 Pub. L. 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 requestor 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, 2015 implementation 

of a code at the September 23-24, 2014 Committee meeting. Therefore, there were no 

new codes implemented on April 1, 2015.

ICD-9-CM addendum and code title information is published on the CMS Web 

site at: 
CMS-1632-P 328

http://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/index.html?redire

ct=/icd9ProviderDiagnosticCodes/01overview.asp#TopofPage. ICD-10-CM and ICD10-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/index.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-10-CM and ICD-10-PCS 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 
CMS-1632-P 329

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 were to be only limited code 

updates to both ICD-9-CM and ICD-10 code sets to capture new technology and new 

diseases.
CMS-1632-P 330

● 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 

Pub. L. 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.

On May 15, 2014, CMS posted an updated Partial Code Freeze schedule on the 

CMS Web site at: http://www.cms.gov/Medicare/Coding/ICD10/ICD-9-CMCoordination-and-Maintenance-Committee-Meetings.html. This updated schedule 

provided information on the extension of the partial code freeze until 1 year after the 

implementation of ICD-10. As stated earlier, on April 1, 2014, the Protecting Access to 

Medicare Act of 2014 (PAMA) (Pub. L. 113-93) was enacted, which specified that the 

Secretary may not adopt ICD-10 prior to October 1, 2015. Accordingly, the U.S. 

Department of Health and Human Services released a final rule in the Federal Register

on August 4, 2014 (79 FR 45128 through 45134) that included a new compliance date 

that requires the use of ICD-10 beginning October 1, 2015. The August 4, 2014 final rule 

is available for viewing on the Internet at: http://www.gpo.gov/fdsys/pkg/FR-2014-08-

04/pdf/2014-18347.pdf. That final rule also requires HIPAA covered entities to continue 

to use ICD-9-CM through September 30, 2015. Accordingly, the updated schedule for 

the partial code freeze is as follows:

• The last regular annual updates to both ICD-9-CM and ICD-10 code sets were 

made on October 1, 2011.
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• On October 1, 2012, October 1, 2013, and October 1, 2014, there were only 

limited code updates to both the ICD-9-CM and ICD-10 code sets to capture new 

technologies and diseases as required by section 1886(d)(5)(K) of the Act.

• On October 1, 2015, there will be only limited code updates to ICD-10 code 

sets to capture new technologies and diagnoses as required by section 1886(d)(5)(K) of 

the Act. There will be no updates to ICD-9-CM, as it will no longer be used for 

reporting.

• On October 1, 2016 (1 year after implementation of ICD-10), regular updates to 

ICD-10 will 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.

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.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: 
CMS-1632-P 332

http://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-Cand-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.
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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 No. Change Fiscal Year No. 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

FY 2015

(October 1, 2014)

FY 2015

Diagnoses 14,567 0 ICD-10-CM 69,823 0

Procedures 3,882 0 ICD-10-PCS 71,924 0

FY 2016

(October 1, 2015)

FY 2016

Diagnoses 14,567 0 ICD-10-CM 69,823 0

Procedures 3,882 0 ICD-10-PCS 71,962 +38
CMS-1632-P 334

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 23-24, 2014 and March 18-19, 2015 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, 2015. 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 1 year after the 

implementation of ICD-10-CM/PCS. We invited public comments on any code requests 

discussed at the September 23-24, 2014 and March 18-19, 2015 Committee meetings for 

implementation as part of the October 1, 2015 update. The deadline for commenting on 

code proposals discussed at the September 23-24, 2014 Committee meeting was 

November 21, 2014. The deadline for commenting on code proposals discussed at the 

March 18-19, 2015 Committee meeting was April 17, 2015.
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14. Other Proposed Policy Changes: Replaced Devices Offered without Cost or With a 

Credit

a. Background

In the FY 2008 IPPS final rule with comment period (72 FR 47246 through 

47251), we discussed the topic of Medicare payment for devices that are replaced without 

cost or where credit for a replaced device is furnished to the hospital. We implemented a 

policy to reduce a hospital’s IPPS payment for certain MS-DRGs where the implantation 

of a device that has been recalled determined the base MS-DRG assignment. We 

specified that if a hospital received a credit for a recalled device equal to 50 percent or 

more of the cost of the device, we would reduce a hospital’s IPPS payment for those 

MS-DRGs.

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51556 and 51557), we clarified 

this policy to state that the policy applies if the hospital received a credit equal to 50 

percent or more of the cost of the replacement device and issued instructions to hospitals 

accordingly.

b. Request for Clarification on Policy Relating to “Device-Dependent” MS-DRGs

After publication of the FY 2015 IPPS/LTCH PPS final rule, we received a 

request to clarify the list of “device-dependent” MS-DRGs subject to the policy for 

payment under the IPPS for replaced devices offered without cost or with a credit. 

Specifically, a requestor noted that ICD-9-CM procedure codes that previously grouped 

to MS-DRGs 216 through 221 (Cardiac Valve & Other Major Cardiothoracic Procedure 

with and without Cardiac Catheterization, with MCC, with CC, without CC/MCC, 
CMS-1632-P 336

respectively) and were subject to the policy for payment under the IPPS as 

“device-dependent” MS-DRGs had been reassigned to new MS-DRGs 266 and 267 

(Endovascular Cardiac Valve Replacement with MCC and without MCC, respectively). 

The requestor suggested that MS-DRGs 266 and 267 also should be considered 

“device-dependent” MS-DRGs and added to the list of MS-DRGs subject to the IPPS 

payment policy for replaced devices offered without cost or with a credit.

As noted by the requestor, as final policy for FY 2015, certain ICD-9-CM 

procedure codes that previously grouped to MS-DRGs 216 through 221, which are on the 

list of MS-DRGs subject to the policy for payment under the IPPS for replaced devices 

offered without cost or with a credit, were reassigned to MS-DRGs 266 and 267. We 

agree that MS-DRGs 266 and 267 should be included in the list of “device-dependent” 

MS-DRGs subject to the IPPS policy. We generally map new MS-DRGs onto the list 

when they are formed from procedures previously assigned to MS-DRGs that are already 

on the list. Therefore, we are proposing to add MS-DRGs 266 and 267 to the list of 

“device dependent” MS-DRGs subject to the policy for payment under the IPPS for 

replaced devices offered without cost or with a credit.

In addition, as discussed in section II.G.4.e. of the preamble of this proposed rule, 

for FY 2016, we are proposing to delete MS-DRGs 237 and 238 (Major Cardiovascular 

Procedures with MCC and without MCC, respectively) and create new MS-DRGs 268 

and 269 (Aortic and Heart Assist Procedures Except Pulsation Balloon with MCC and 

without MCC, respectively), as well as new MS-DRGs 270, 271, and 272 (Other Major 

Cardiovascular Procedures with MCC, with CC, and without CC/MCC, respectively). 
CMS-1632-P 337

Currently, MS-DRGs 237 and 238 are on the list of MS-DRGs subject to the policy for 

payment under the IPPS for replaced devices offered without cost or with a credit. As 

stated previously, we generally map new MS-DRGs onto the list when they are formed 

from procedures previously assigned to MS-DRGs that are already on the list. Therefore, 

if finalized, we also would add proposed new MS-DRGs 268 through 272 to the list of 

MS-DRGs subject to the policy for payment under the IPPS for replaced devices offered 

without cost or with a credit.

In summary, we are proposing to add MS-DRGs 266 and 267 to the list of 

MS-DRGs subject to the policy for payment under the IPPS for replaced devices offered 

without cost or with a credit, and if the applicable proposed MS-DRG changes are 

finalized, to also remove existing MS-DRGs 237 and 238 and add proposed new 

MS-DRGs 268 through 272. The proposed list of MS-DRGs to be subject to the IPPS 

policy for replaced devices offered without cost or with a credit for FY 2016 is displayed 

below.

Proposed List of MS-DRGs Subject to the IPPS Policy for Replaced Devices Offered 

without Cost or with a Credit

MDC MSDRGMS-DRG Title

PreMDC 001 Heart Transplant or Implant of Heart Assist System with MCC

PreMDC 002 Heart Transplant or Implant of Heart Assist System without MCC

MDC 01 023 Craniotomy with Major Device Implant/Acute Complex CNS 

PDX with MCC or Chemo Implant

MDC 01 024 Craniotomy with Major Device Implant/Acute Complex CNS 

PDX without MCC

MDC 01 025 Craniotomy & Endovascular Intracranial Procedures with MCC

MDC 01 026 Craniotomy & Endovascular Intracranial Procedures with CC

MDC 01 027 Craniotomy & Endovascular Intracranial Procedures without 

CC/MCC
CMS-1632-P 338

Proposed List of MS-DRGs Subject to the IPPS Policy for Replaced Devices Offered 

without Cost or with a Credit

MDC MSDRGMS-DRG Title

MDC 01 040 Peripheral/Cranial Nerve & Other Nervous System Procedures 

with MCC

MDC 01 041 Peripheral/Cranial Nerve & Other Nervous System Procedures 

with CC or Peripheral Neurostimulation

MDC 01 042 Peripheral/Cranial Nerve & Other Nervous System Procedures 

without CC/MCC

MDC 03 129 Major Head & Neck Procedures with CC/MCC or Major Device

MDC 03 130 Major Head & Neck Procedures without CC/MCC

MDC 05 215 Other Heart Assist System Implant

MDC 05 216 Cardiac Valve & Other Major Cardiothoracic Procedures with 

Cardiac Catheterization with MCC

MDC 05 217 Cardiac Valve & Other Major Cardiothoracic Procedures with 

Cardiac Catheterization with CC

MDC 05 218 Cardiac Valve & Other Major Cardiothoracic Procedures with 

Cardiac Catheterization without CC/MCC

MDC 05 219 Cardiac Valve & Other Major Cardiothoracic Procedures without 

Cardiac Catheterization with MCC

MDC 05 220 Cardiac Valve & Other Major Cardiothoracic Procedures without 

Cardiac Catheterization with CC

MDC 05 221 Cardiac Valve & Other Major Cardiothoracic Procedures without 

Cardiac Catheterization without CC/MCC

MDC 05 222 Cardiac Defibrillator Implant with Cardiac Catheterization with 

AMI/HF/Shock with MCC

MDC 05 223 Cardiac Defibrillator Implant with Cardiac Catheterization with 

AMI/HF/Shock without MCC

MDC 05 224 Cardiac Defibrillator Implant with Cardiac Catheterization 

without AMI/HF/Shock with MCC

MDC 05 225 Cardiac Defibrillator Implant with Cardiac Catheterization 

without AMI/HF/Shock without MCC

MDC 05 226 Cardiac Defibrillator Implant without Cardiac Catheterization 

with MCC

MDC 05 227 Cardiac Defibrillator Implant without Cardiac Catheterization 

without MCC

MDC 05 242 Permanent Cardiac Pacemaker Implant with MCC

MDC 05 243 Permanent Cardiac Pacemaker Implant with CC

MDC 05 244 Permanent Cardiac Pacemaker Implant without CC/MCC

MDC 05 245 AICD Generator Procedures

MDC 05 258 Cardiac Pacemaker Device Replacement with MCC

MDC 05 259 Cardiac Pacemaker Device Replacement without MCC
CMS-1632-P 339

Proposed List of MS-DRGs Subject to the IPPS Policy for Replaced Devices Offered 

without Cost or with a Credit

MDC MSDRGMS-DRG Title

MDC 05 260 Cardiac Pacemaker Revision Except Device Replacement with 

MCC

MDC 05 261 Cardiac Pacemaker Revision Except Device Replacement with 

CC

MDC 05 262 Cardiac Pacemaker Revision Except Device Replacement without 

CC/MCC

MDC 05 265 AICD Lead Procedures

MDC 05 266 Endovascular Cardiac Valve Replacement with MCC

MDC 05 267 Endovascular Cardiac Valve Replacement without MCC

MDC 05 268 Aortic and Heart Assist Procedures Except Pulsation Balloon with 

MCC

MDC 05 269 Aortic and Heart Assist Procedures Except Pulsation Balloon 

without MCC

MDC 05 270 Other Major Cardiovascular Procedures with MCC

MDC 05 271 Other Major Cardiovascular Procedures with CC

MDC 05 272 Other Major Cardiovascular Procedures without CC/MCC

MDC 08 461 Bilateral or Multiple Major Joint Procedures of Lower Extremity 

with MCC

MDC 08 462 Bilateral or Multiple Major Joint Procedures of Lower Extremity 

without MCC

MDC 08 466 Revision of Hip or Knee Replacement with MCC

MDC 08 467 Revision of Hip or Knee Replacement with CC

MDC 08 468 Revision of Hip or Knee Replacement without CC/MCC

MDC 08 469 Major Joint Replacement or Reattachment of Lower Extremity 

with MCC

MDC 08 470 Major Joint Replacement or Reattachment of Lower Extremity 

without MCC

We are inviting public comments on our proposed list of MS-DRGs to be subject 

to the IPPS policy for replaced devices offered without cost or with a credit for FY 2016. 

The final list will be included in the FY 2016 IPPS/LTCH PPS final rule and also will be 

issued to providers in the form of a Change Request (CR).

H. Recalibration of the Proposed FY 2016 MS-DRG Relative Weights

1. Data Sources for Developing the Relative Weights
CMS-1632-P 340

In developing the proposed FY 2016 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 2014 MedPAR data used in this proposed rule 

include discharges occurring on October 1, 2013, through September 30, 2014, based on 

bills received by CMS through December 31, 2014, 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). The FY 2014 MedPAR file used in calculating the proposed relative 

weights includes data for approximately 9,638,230 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, 2014 update of the FY 2014 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 feefor-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 2016 also excludes claims with claim type values not 
CMS-1632-P 341

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 proposed 

FY 2016 relative weights are based on the ICD-9-CM diagnoses and procedures codes 

from the MedPAR claims data, grouped through the ICD-9-CM version of the FY 2016 

GROUPER (Version 33). The second data source used in the cost-based relative 

weighting methodology is the Medicare cost report data files from the HCRIS. 

Normally, we use the HCRIS dataset that is 3 years prior to the IPPS fiscal year. 

Specifically, we used cost report data from the December 31, 2014 update of the FY 2013 

HCRIS for calculating the proposed FY 2016 cost-based relative weights.

2. Methodology for Calculation of the Proposed Relative Weights

As we explain in section II.E.3. of the preamble of this proposed rule, we 

calculated the FY 2016 relative weights based on 19 CCRs, as we did for FY 2015. The 

methodology we used to calculate the proposed FY 2016 MS-DRG cost-based relative 

weights based on claims data in the FY 2014 MedPAR file and data from the FY 2013 

Medicare cost reports is as follows:

● To the extent possible, all the claims were regrouped using the proposed 

FY 2016 MS-DRG classifications discussed in sections II.B. and II.G. of the preamble of 

this proposed rule.

● The transplant cases that were used to establish the relative weights for heart 

and heart-lung, liver and/or intestinal, and lung transplants (MS-DRGs 001, 002, 005, 

006, and 007, respectively) were limited to those Medicare-approved transplant centers 

that have cases in the FY 2014 MedPAR file. (Medicare coverage for heart, heart-lung, 
CMS-1632-P 342

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 92.1 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 2015 IPPS/LTCH PPS final rule (79 FR 49911) for the edit threshold related to 

FY 2015.)
CMS-1632-P 343

● 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 
CMS-1632-P 344

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.

In addition, 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 

Bundled Payments for Care Improvement (BPCI) initiative the same as prior fiscal years 

for the IPPS payment modeling and ratesetting process without regard to hospitals’ 

participation within these bundled payment models (that is, as if hospitals were not 

participating in those models under the BPCI initiative). The 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 
CMS-1632-P 345

performance accountability for episodes of care. For FY 2016, we are proposing to 

continue to include all applicable data from subsection (d) hospitals participating in BPCI 

Models 1, 2, and 4 in our IPPS payment modeling and ratesetting calculations. We refer 

readers to the FY 2013 IPPS/LTCH PPS final rule for a complete discussion on our final 

policy for the treatment of hospitals participating in the BPCI initiative in our ratesetting 

process. For additional information on the BPCI initiative, we refer readers to the CMS’ 

Center for Medicare and Medicaid Innovation’s Web site at: 

http://innovation.cms.gov/initiatives/Bundled-Payments/index.html and to section 

IV.H.4. of the preamble of the FY 2013 IPPS/LTCH PPS final rule (77 FR 53341 through 

53343).

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-of-living 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 2013 cost report data.
CMS-1632-P 346

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. 
CMS-1632-P 347

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 CMS2552-10

Charges 

from 

HCRIS 

(Worksheet 

C, Part 1, 

Column 6 & 

7 and line 

number)

Form CMS2552-10

Medicare 

Charges from 

HCRIS 

(Worksheet D-3, 

Column & line 

number)

Form CMS2552-10

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
CMS-1632-P 348

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 CMS2552-10

Charges 

from 

HCRIS 

(Worksheet 

C, Part 1, 

Column 6 & 

7 and line 

number)

Form CMS2552-10

Medicare 

Charges from 

HCRIS 

(Worksheet D-3, 

Column & line 

number)

Form CMS2552-10

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
CMS-1632-P 349

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 CMS2552-10

Charges 

from 

HCRIS 

(Worksheet 

C, Part 1, 

Column 6 & 

7 and line 

number)

Form CMS2552-10

Medicare 

Charges from 

HCRIS 

(Worksheet D-3, 

Column & line 

number)

Form CMS2552-10

Drugs

Pharmacy 

Charges

025X, 026X 

and 063X

Intravenous 

Therapy C_1_C5_64 C_1_C6_64 D3_HOS_C2_64

C_1_C7_64

Drugs Charged 

To Patient C_1_C5_73 C_1_C6_73 D3_HOS_C2_73

C_1_C7_73
CMS-1632-P 350

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 CMS2552-10

Charges 

from 

HCRIS 

(Worksheet 

C, Part 1, 

Column 6 & 

7 and line 

number)

Form CMS2552-10

Medicare 

Charges from 

HCRIS 

(Worksheet D-3, 

Column & line 

number)

Form CMS2552-10

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 D3_HOS_C2_71

C_1_C7_71

Durable 

Medical 

Equipment 

Charges

0290, 0291, 

0292 and 

0294-0299 DME-Rented C_1_C5_96 C_1_C6_96 D3_HOS_C2_96

C_1_C7_96

Used Durable 

Medical 

Charges 0293 DME-Sold C_1_C5_97 C_1_C6_97 D3_HOS_C2_97
CMS-1632-P 351

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 CMS2552-10

Charges 

from 

HCRIS 

(Worksheet 

C, Part 1, 

Column 6 & 

7 and line 

number)

Form CMS2552-10

Medicare 

Charges from 

HCRIS 

(Worksheet D-3, 

Column & line 

number)

Form CMS2552-10

C_1_C7_97

Implantable 

Devices 

0275, 0276, 

0278, 0624 

Implantable 

Devices 

Charged to 

Patients C_1_C5_72 C_1_C6_72 D3_HOS_C2_72

C_1_C7_72

Therapy 

Services

Physical 

Therapy 

Charges 042X

Physical 

Therapy C_1_C5_66 C_1_C6_66 D3_HOS_C2_66

C_1_C7_66
CMS-1632-P 352

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 CMS2552-10

Charges 

from 

HCRIS 

(Worksheet 

C, Part 1, 

Column 6 & 

7 and line 

number)

Form CMS2552-10

Medicare 

Charges from 

HCRIS 

(Worksheet D-3, 

Column & line 

number)

Form CMS2552-10

Occupational 

Therapy 

Charges 043X

Occupational 

Therapy C_1_C5_67 C_1_C6_67 D3_HOS_C2_67

C_1_C7_67

Speech 

Pathology 

Charges

044X and 

047X

Speech 

Pathology C_1_C5_68 C_1_C6_68 D3_HOS_C2_68

C_1_C7_68

Inhalation 

Therapy

Inhalation 

Therapy 

Charges

041X and 

046X

Respiratory 

Therapy C_1_C5_65 C_1_C6_65 D3_HOS_C2_65

C_1_C7_65
CMS-1632-P 353

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 CMS2552-10

Charges 

from 

HCRIS 

(Worksheet 

C, Part 1, 

Column 6 & 

7 and line 

number)

Form CMS2552-10

Medicare 

Charges from 

HCRIS 

(Worksheet D-3, 

Column & line 

number)

Form CMS2552-10

Operating 

Room

Operating 

Room 

Charges 036X 

Operating 

Room C_1_C5_50 C_1_C6_50 D3_HOS_C2_50

C_1_C7_50

071X

Recovery

Room C_1_C5_51 C_1_C6_51 D3_HOS_C2_51

C_1_C7_51

Labor & 

Delivery

Operating 

Room 

Charges 072X

Delivery Room 

and Labor 

Room C_1_C5_52 C_1_C6_52 D3_HOS_C2_52
CMS-1632-P 354

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 CMS2552-10

Charges 

from 

HCRIS 

(Worksheet 

C, Part 1, 

Column 6 & 

7 and line 

number)

Form CMS2552-10

Medicare 

Charges from 

HCRIS 

(Worksheet D-3, 

Column & line 

number)

Form CMS2552-10

C_1_C7_52

Anesthesia

Anesthesia 

Charges 037X

Anesthesiology C_1_C5_53 C_1_C6_53 D3_HOS_C2_53

C_1_C7_53

Cardiology

Cardiology 

Charges

048X and 

073X

Electrocardiology C_1_C5_69 C_1_C6_69 D3_HOS_C2_69

C_1_C7_69

Cardiac 

Catheteri- 0481

Cardiac 

Catheterization C_1_C5_59 C_1_C6_59 D3_HOS_C2_59
CMS-1632-P 355

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 CMS2552-10

Charges 

from 

HCRIS 

(Worksheet 

C, Part 1, 

Column 6 & 

7 and line 

number)

Form CMS2552-10

Medicare 

Charges from 

HCRIS 

(Worksheet D-3, 

Column & line 

number)

Form CMS2552-10

zation

C_1_C7_59

Laboratory 

Laboratory 

Charges

030X, 031X, 

and 075X Laboratory C_1_C5_60 C_1_C6_60 D3_HOS_C2_60

C_1_C7_60

PBP Clinic 

Laboratory 

Services C_1_C5_61 C_1_C6_61 D3_HOS_C2_61

C_1_C7_61
CMS-1632-P 356

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 CMS2552-10

Charges 

from 

HCRIS 

(Worksheet 

C, Part 1, 

Column 6 & 

7 and line 

number)

Form CMS2552-10

Medicare 

Charges from 

HCRIS 

(Worksheet D-3, 

Column & line 

number)

Form CMS2552-10

074X, 086X

ElectroEncephalograp

hy C_1_C5_70 C_1_C6_70 D3_HOS_C2_70

C_1_C7_70

Radiology

Radiology 

Charges 032X, 040X

Radiology –

Diagnostic C_1_C5_54 C_1_C6_54 D3_HOS_C2_54

C_1_C7_54

028x, 0331, 

0332, 0333, 

0335, 0339, 

0342

Radiology –

Therapeutic C_1_C5_55 C_1_C6_55 D3_HOS_C2_55

0343 and 

344 Radioisotope C_1_C5_56 C_1_C6_56 D3_HOS_C2_56
CMS-1632-P 357

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 CMS2552-10

Charges 

from 

HCRIS 

(Worksheet 

C, Part 1, 

Column 6 & 

7 and line 

number)

Form CMS2552-10

Medicare 

Charges from 

HCRIS 

(Worksheet D-3, 

Column & line 

number)

Form CMS2552-10

C_1_C7_56

Computed 

Tomography 

(CT) Scan

CT Scan 

Charges 035X

Computed 

Tomography 

(CT) Scan C_1_C5_57 C_1_C6_57 D3_HOS_C2_57

C_1_C7_57

Magnetic 

Resonance 

Imaging 

(MRI) MRI Charges 061X

Magnetic 

Resonance 

Imaging (MRI) C_1_C5_58 C_1_C6_58 D3_HOS_C2_58

C_1_C7_58

Emergency 

Room

Emergency 

Room 045x Emergency C_1_C5_91 C_1_C6_91 D3_HOS_C2_91
CMS-1632-P 358

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 CMS2552-10

Charges 

from 

HCRIS 

(Worksheet 

C, Part 1, 

Column 6 & 

7 and line 

number)

Form CMS2552-10

Medicare 

Charges from 

HCRIS 

(Worksheet D-3, 

Column & line 

number)

Form CMS2552-10

Charges

C_1_C7_91

Blood and 

Blood 

Products

Blood 

Charges 038x

Whole Blood 

& Packed Red 

Blood Cells C_1_C5_62 C_1_C6_62 D3_HOS_C2_62

C_1_C7_62

Blood 

Storage / 

Processing 039x

Blood Storing, 

Processing, & 

Transfusing C_1_C5_63 C_1_C6_63 D3_HOS_C2_63

C_1_C7_63
CMS-1632-P 359

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 CMS2552-10

Charges 

from 

HCRIS 

(Worksheet 

C, Part 1, 

Column 6 & 

7 and line 

number)

Form CMS2552-10

Medicare 

Charges from 

HCRIS 

(Worksheet D-3, 

Column & line 

number)

Form CMS2552-10

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
CMS-1632-P 360

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 CMS2552-10

Charges 

from 

HCRIS 

(Worksheet 

C, Part 1, 

Column 6 & 

7 and line 

number)

Form CMS2552-10

Medicare 

Charges from 

HCRIS 

(Worksheet D-3, 

Column & line 

number)

Form CMS2552-10

Home Program 

Dialysis C_1_C5_94 C_1_C6_94 D3_HOS_C2_94

C_1_C7_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 D3_HOS_C2_76

C_1_C7_76

Clinic Visit 

Charges 051X Clinic C_1_C5_90 C_1_C6_90 D3_HOS_C2_90
CMS-1632-P 361

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 CMS2552-10

Charges 

from 

HCRIS 

(Worksheet 

C, Part 1, 

Column 6 & 

7 and line 

number)

Form CMS2552-10

Medicare 

Charges from 

HCRIS 

(Worksheet D-3, 

Column & line 

number)

Form CMS2552-10

C_1_C7_90

Observation 

beds

C_1_C5_92.

01

C_1_C6_92.

01

D3_HOS_C2_92

.01

C_1_C7_92.

01

Professional 

Fees Charges

096X, 097X, 

and 098X

Other 

Outpatient 

Services C_1_C5_93 C_1_C6_93 D3_HOS_C2_93

C_1_C7_93

Ambulance 

Charges 054X Ambulance C_1_C5_95 C_1_C6_95 D3_HOS_C2_95

C_1_C7_95
CMS-1632-P 362

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 CMS2552-10

Charges 

from 

HCRIS 

(Worksheet 

C, Part 1, 

Column 6 & 

7 and line 

number)

Form CMS2552-10

Medicare 

Charges from 

HCRIS 

(Worksheet D-3, 

Column & line 

number)

Form CMS2552-10

Rural Health 

Clinic C_1_C5_88 C_1_C6_88 D3_HOS_C2_88

C_1_C7_88

FQHC C_1_C5_89 C_1_C6_89 D3_HOS_C2_89

C_1_C7_89
CMS-1632-P 363

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 2013 cost report data, we removed CAHs, Indian Health Service 

hospitals, all-inclusive rate hospitals, and cost reports that represented time periods of 

less than 1 year (365 days). We included hospitals located in Maryland because we 

include their charges in our claims database. We then created CCRs for each provider for 

each cost center (see prior table for line items used in the calculations) and removed any 

CCRs that were greater than 10 or less than 0.01. We normalized the departmental CCRs 

by dividing the CCR for each department by the total CCR for the hospital for the 

purpose of trimming the data. We then took the logs of the normalized cost center CCRs 

and removed any cost center CCRs where the log of the cost center CCR was greater or 

less than the mean log plus/minus 3 times the standard deviation for the log of that cost 

center CCR. Once the cost report data were trimmed, we calculated a Medicare-specific 

CCR. The Medicare-specific CCR was determined by taking the Medicare charges for 

each line item from Worksheet D-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.
CMS-1632-P 364

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 2016 cost-based relative weights were then normalized by an 

adjustment factor of 1.678672 so that the average case weight after recalibration was 

equal to the average case weight before recalibration. The normalization adjustment is 

intended to ensure that recalibration by itself neither increases nor decreases total 

payments under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act.

The proposed 19 national average CCRs for FY 2016 are as follows:

 
CMS-1632-P 365

Group CCR

Routine Days 0.485

Intensive Days 0.399

Drugs 0.192

Supplies & Equipment 0.299

Implantable Devices 0.344

Therapy Services 0.335

Laboratory 0.125

Operating Room 0.201

Cardiology 0.119

Cardiac Catheterization 0.125

Radiology 0.159

MRIs 0.085

CT Scans 0.041

Emergency Room 0.184

Blood and Blood Products 0.340

Other Services 0.367

Labor & Delivery 0.404

Inhalation Therapy 0.178

Anesthesia 0.108

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. For 

FY 2016, we are proposing to use that same case threshold in recalibrating the MS-DRG 

relative weights for FY 2016. Using data from the FY 2014 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 
CMS-1632-P 366

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. For 

FY 2016, 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 2015 relative weights 

by the percentage change in the average weight of the cases in other MS-DRGs. The 

crosswalk table is shown below:
CMS-1632-P 367

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 2015 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 2015 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 2015 relative 

weight (adjusted by percent 

change in average weight 

of the cases in other 

MS-DRGs)

791 Prematurity with Major Problems Final FY 2015 relative 

weight (adjusted by percent 

change in average weight 

of the cases in other 

MS-DRGs)

792 Prematurity without Major 

Problems

Final FY 2015 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 2015 relative 

weight (adjusted by percent 

change in average weight 

of the cases in other 

MS-DRGs)

794 Neonate with Other Significant 

Problems

Final FY 2015 relative 

weight (adjusted by percent 

change in average weight 

of the cases in other 

MS DRGs)

795 Normal Newborn Final FY 2015 relative 

weight (adjusted by percent 

change in average weight 

of the cases in other 

MS-DRGs)
CMS-1632-P 368

We are inviting public comments on this proposal.

4. Solicitation of Public Comments on Expanding the Bundled Payments for Care 

Improvement (BPCI) Initiative

a. Background

Since 2011, CMS has been working to develop and test models of bundling 

Medicare payments under the authority of section 1115A of the Act. Through these 

models, CMS plans to evaluate whether bundled payments result in higher quality and 

more coordinated care at a lower cost to Medicare. CMS is currently testing the Bundled 

Payments for Care Improvement (BPCI) initiative. Under this initiative, organizations 

enter into payment arrangements that include financial and performance accountability 

for episodes of care.

The BPCI initiative is comprised of four related payment models, which link 

payments for multiple services that Medicare beneficiaries receive during an episode of 

care into a bundled payment. Episodes of care under the BPCI initiative begin with either 

(1) an inpatient hospital stay or (2) postacute care services following a qualifying 

inpatient hospital stay. More information on the four models under the BPCI initiative 

can be found on the CMS Center for Medicare and Medicaid Innovation’s Web site at: 

http://innovation.cms.gov/initiatives/bundled-payments/. We also have included 

discussions of the BPCI initiative in the annual IPPS/LTCH PPS rulemakings since 

FY 2013 (77 FR 53341 through 53343).

All four models in the BPCI initiative pay a discounted bundled payment for a 

single episode of care as an alternative approach to payment for service delivery under 
CMS-1632-P 369

traditional Medicare fee-for-service (FFS). Model 1 participants are paid a discounted 

bundled payment in lieu of the standard IPPS payment upon submission of claims. In 

Models 2 and 3, the bundled payment is paid retrospectively through a reconciliation 

process; participants continue to submit claims and receive payment via the usual 

Medicare FFS payment systems. In Model 4, the bundled payment is made prospectively 

to a hospital, and participating physician and nonphysician practitioners submit “no-pay” 

claims to CMS. In all models, participants in the BPCI initiative are permitted to share 

gains arising from the providers’ care redesign efforts under certain circumstances in 

which such arrangements would not otherwise be permitted under Medicare.

Each of the four models in the BPCI initiative tests bundled payments for a 

different episode of care:

● Model 1 tests retrospective bundled payments for the acute care hospital stay 

only. All participants in this model are acute care hospitals, and the episode of care is 

defined as the inpatient stay in the acute care hospital. The hospital is paid a discounted 

amount based on the payment rates established under the IPPS used in the original 

Medicare program. Physicians are paid separately for their services under the Medicare 

Physician Fee Schedule (MPFS).

While Model 1 makes payments as described above for all MS-DRGs, Models 2, 

3, and 4 of the BPCI initiative test 48 episodes (comprised of groupings of related 

MS-DRGs). These episodes and the groupings of related MS-DRGs that are included in 

these episodes are listed in the table below.
CMS-1632-P 370

● In Model 2, the episode of care includes the inpatient stay in an acute care 

hospital and all related services during the episode, including postacute care services. 

The episode ends either 30, 60, or 90 days after a hospital discharge.

● Model 3 focuses on postacute care services. In this model, the episode of care 

is triggered by an acute care hospital stay for an MS-DRG included in the episode and 

begins at the initiation of postacute care services in a skilled nursing facility (SNF), 

inpatient rehabilitation facility (IRF), long-term care hospital (LTCH), or home health 

agency (HHA). The episode includes postacute care services, physicians’ services, and 

related services provided during an inpatient hospital readmission, but does not include 

services provided during the episode-initiating acute care hospital stay. The postacute 

care services included in the episode must begin within 30 days of discharge from the 

inpatient hospital stay and may end either 30, 60, or 90 days after the initiation of the 

episode.

● Model 4 tests prospective single bundled payments for physicians’ services and 

hospital services furnished during an acute care hospitalization and related readmissions. 

Under this model, a single, prospectively determined bundled payment is made to the 

participating hospital that encompasses all services furnished during the inpatient stay by 

the hospital, physicians, and other practitioners. Payments for services furnished in 

related readmissions for 30 days after the hospital discharge are included in the bundled 

payment amount.

Model 1 of the BPCI initiative began in April 2013. CMS has allowed for 

participation in two phases in Models 2, 3, and 4. The first phase is the preparatory 
CMS-1632-P 371

phase. In the preparatory phase, participants in the BPCI initiative are provided claims 

data so that they may analyze patterns of care for episodes in preparation for improving 

care coordination and quality under bundled payments prior to participation in the second 

phase, the risk-bearing phase.

In the BPCI initiative, the term “risk-bearing” refers to the requirement that 

certain participants in the BPCI initiative bear financial risk for spending above the target 

price set by Medicare across the episodes of care in which they participate. By using this 

term, we do not connote any relationship to insurance; we narrowly define this term and 

use it only to highlight the following financial responsibilities: In the risk-bearing phase, 

awardees and awardee conveners in Models 2 and 3 are financially responsible to 

Medicare if FFS expenditures are higher than a target price established by Medicare for 

the episode(s) in which they are participating. Awardees assume risk on behalf of 

themselves; awardee conveners assume risk on behalf of others and, in some cases, 

themselves (as described below). Medicare will recoup the difference between the target 

price and the actual FFS expenditures from awardees and awardee conveners for all 

services included in the episode of care if the target price is exceeded. Medicare will pay 

awardees and awardee conveners the difference if actual FFS expenditures are below the 

target price. Awardees and awardee conveners in Model 4 who have assumed risk on 

behalf of themselves and/or others bear risk in that they assume financial responsibility if 

the bundled prospective payment from Medicare does not cover the services included in 

the episode of care. Awardees and all participants under awardee conveners in Models 2, 

3, and 4 must move to the risk-bearing phase by July 1, 2015.
CMS-1632-P 372

There are several entity types currently participating in the two phases included in 

the BPCI initiative’s Models 2, 3, and 4. Episode initiators, defined as the entities that 

initiate episodes of care in Models 2, 3, and 4, are provided claims data in the preparatory 

phase so that they may establish a structure for bundled payments prior to participation in 

the risk-bearing phase of the initiative. The entities that initiate episodes of care vary by 

model: in Model 4, episode initiators are acute care hospitals only; in Model 2, episode 

initiators are acute care hospitals and physician group practices; and in Model 3, episode 

initiators are SNFs, HHAs, LTCHs, IRFs, and physician group practices.

To move into the risk-bearing phase, participants must be selected by CMS 

following a comprehensive review and enter into an agreement with CMS. In the 

risk-bearing phase, episode initiators participate through one of two options. The first 

option is that the episode initiator may be an awardee and sign an agreement directly with 

CMS containing a risk-bearing financial arrangement. While not required, risk-bearing 

episode initiators may be associated with a “facilitator convener,” an entity that convenes 

multiple health care providers and supports the episode initiators in implementing the 

BPCI initiative but does not itself bear any risk. Alternatively, through the second 

option, the episode initiator may participate in the BPCI initiative under an awardee 

convener, which is an organization that may or may not be a Medicare provider that 

assumes financial risk on behalf of the episode initiator. In the second option, the 

awardee convener signs an agreement with CMS containing the terms of participation in 

the model, including a risk-bearing financial arrangement. Participation through an 

awardee convener allows episode initiators to mitigate their financial risk, and 
CMS-1632-P 373

participation through an awardee or facilitator convener allows episode initiators to 

benefit in many cases from the convener’s resources, such as enhanced technology and 

administrative assistance.

As of April 2015, the participation in the risk-bearing phase of the BPCI initiative 

is as follows: Model 2 is testing 2,053 episodes among 345 episode initiators located in 

45 States; Model 3 is testing 3,407 episodes among 318 episode initiators located in 29

States. Model 4 is testing 16 episodes among 9 episode initiators located in 7 States. 

There are 49 facilitator conveners and awardee conveners across the four models. In 

addition to the entities in the risk-bearing phase, several thousand entities in the 

preparatory phase are still considering whether to enter the performance phase, upon 

successful completion of screening and review by CMS.

The episodes of care and the associated MS-DRGs that define the episodes that 

are being tested in Models 2, 3, and 4 of the BPCI initiative are listed in the table below. 

This table is based on FY 2015 IPPS MS-DRGs and does not account yet for proposed 

FY 2016 changes to the MS-DRGs.
CMS-1632-P 374

EPISODES OF CARE AND MS-DRG GROUPINGS UNDER THE BUNDLED 

PAYMENTS FOR CARE IMPROVEMENT INITIATIVE

FOR MODELS 2,3, AND 4

Episode of Care MS-DRGs

Acute myocardial infarction 280, 281, 282

AICD generator or lead 245, 265

Amputation 239, 240, 241, 255, 256, 257, 

474, 475, 476, 616, 617, 618

Atherosclerosis 302, 303

Back and neck except spinal fusion 518, 519, 520

Coronary artery bypass graft 231, 232, 233, 234, 235, 236

Cardiac arrhythmia 308, 309, 310

Cardiac defibrillator 222, 223, 224, 225, 226, 227

Cardiac valve 216, 217, 218, 219, 220, 221, 266, 

267

Cellulitis 602, 603

Cervical spinal fusion 471, 472, 473

Chest pain 313

Combined anterior posterior spinal fusion 453, 454, 455

Complex noncervical spinal fusion 456, 457, 458

Congestive heart failure 291, 292, 293

Chronic obstructive pulmonary disease, bronchitis, 

asthma

190, 191, 192, 202, 203

Diabetes 637, 638, 639

Double joint replacement of the lower extremity 461, 462

Esophagitis, gastroenteritis, and other digestive 

disorders

391, 392

Fractures of the femur and hip or pelvis 533, 534, 535, 536

Gastrointestinal hemorrhage 377, 378, 379

Gastrointestinal obstruction 388, 389, 390

Hip and femur procedures except major joint 480, 481, 482

Lower extremity and humerus procedure except 

hip, foot, femur

492, 493, 494

Major bowel procedures 329, 330, 331

Major cardiovascular procedure 237, 238

Major joint replacement of the lower extremity 469, 470

Major joint replacement of the upper extremity 483

Medical noninfectious orthopedic 537, 538, 551, 552, 553, 554,

555, 556, 557, 558, 559, 560,

561, 562, 563

Medical peripheral vascular disorders 299, 300, 301
CMS-1632-P 375

EPISODES OF CARE AND MS-DRG GROUPINGS UNDER THE BUNDLED 

PAYMENTS FOR CARE IMPROVEMENT INITIATIVE

FOR MODELS 2,3, AND 4

Episode of Care MS-DRGs

Nutritional and metabolic disorders 640, 641

Other knee procedures 485, 486, 487, 488, 489

Other respiratory 189, 204, 205, 206, 207, 208,

186, 187, 188 

Other vascular surgery 252, 253, 254

Pacemaker 242, 243, 244

Pacemaker device replacement or revision 258, 259, 260, 261, 262

Percutaneous coronary intervention 246, 247, 248, 249, 250, 251

Red blood cell disorders 811, 812

Removal of orthopedic devices 495, 496, 497, 498, 499

Renal failure 682, 683, 684

Revision of the hip or knee 466, 467, 468

Sepsis 870, 871, 872

Simple pneumonia and respiratory infections 177, 178, 179, 193, 194, 195

Spinal fusion (noncervical) 459, 460

Stroke 61, 62, 63, 64, 65, 66

Syncope and collapse 312

Transient ischemia 69

Urinary tract infection 689, 690

b. Considerations for Potential Model Expansion

In this FY 2016 IPPS/LTCH PPS proposed rule, we are soliciting public 

comments regarding policy and operational issues related to a potential expansion of the 

BPCI initiative in the future. Section 1115A(c) of the Act, as added by section 3021 of 

the Affordable Care Act, provides the Secretary with the authority to expand through 

rulemaking the duration and scope of a model that is being tested under section 1115A(b) 

of the Act, such as the BPCI initiative (including implementation on a nationwide basis), 

if the following findings are made, taking into account the evaluation of the model under 

section 1115A(b)(4) of the Act: (1) the Secretary determines that the expansion is 
CMS-1632-P 376

expected to either reduce Medicare spending without reducing the quality of care or 

improve the quality of patient care without increasing spending; (2) the CMS Chief 

Actuary certifies that the expansion would reduce (or would not result in any increase in) 

net Medicare program spending; and (3) the Secretary determines that the expansion 

would not deny or limit the coverage or provision of Medicare benefits. The decision of 

whether or not to expand will be made by the Secretary in coordination with CMS and 

the Office of the Chief Actuary based on whether findings about the initiative meet the 

statutory criteria for expansion under section 1115A(c) of the Act.

Evaluation of the BPCI initiative for expansion is expected to include analyses 

based on a combination of qualitative and quantitative sources, including Medicare 

claims, patient surveys, awardee reports, interviews, and site visits. Given that further 

evaluation of the BPCI initiative is needed to determine its impact on both Medicare cost 

and quality of care, at this time, we are not proposing an expansion of any models within 

the initiative or any policy changes associated with it. Instead, we are requesting public 

comments on issues surrounding a potential expansion of the BPCI initiative so that we 

can be prepared in the event that the Secretary determines that findings from the 

evaluation of the initiative demonstrate that it meets all criteria for expansion, consistent 

with the requirements of section 1115A(c) of the Act, and that, based on these findings 

and other pertinent factors, expansion is warranted.

CMS is committed to testing new payment and service delivery models, 

evaluating results and advancing best practices, and engaging stakeholders. These three 

priorities are crucial to the BPCI initiative. As we initiate discussions about potential 
CMS-1632-P 377

expansion, we continue to value stakeholder engagement within the framework of CMS’ 

priorities for the BPCI initiative. Consistent with its ongoing commitment to develop 

new models and refine existing models based on additional information and experience, 

CMS may modify existing models or test additional models under its testing authority 

under section 1115A of the Act. It may possibly do so, taking into consideration 

stakeholder input, including feedback received through the public comments submitted in 

response to the discussion in this section. However, the primary goal for this solicitation 

of public comments is to receive information about a potential expansion of the BPCI 

initiative. Therefore, we are requesting that public comments on the discussion in this 

section consider how expanded episode payment could continue to encourage 

high-quality, high-value care during Medicare beneficiaries’ episodes of care, while 

allowing for accurate payments to providers, encouraging coordination of care among 

providers, and ensuring access to care and freedom of choice for all Medicare 

beneficiaries, regardless of their severity of illness. The following list is not an 

exhaustive list of issues on which we are requesting public comments, and the inclusion 

of the list of issues is not, in any way, meant to imply that any or all of these issues would 

be addressed in any expanded model. The solicitation of public comments is for planning 

purposes, and as mentioned above, we would use additional rulemaking if we decide to 

expand any of the models.

We are seeking public comments on the following issues:

● Breadth and scope of an expansion. For example, whether model expansion 

should focus on one or more of the four models or one or more specific episodes, or 
CMS-1632-P 378

should target specific geographic regions of the country. Further, would the model best 

be expanded with voluntary participation or be most effective if participation were 

required within the chosen models, episodes, and regions.

● Episode definitions. We are seeking public comments on the current BPCI 

initiative episode definitions as part of an expansion, including the MS-DRGs, other 

bundled services (such as hospital readmissions), exclusions, and the duration of the 

episodes. The BPCI initiative uses broadly defined episodes, and these episodes include 

MS-DRGs that account for approximately 80 percent of Medicare hospital discharges. 

Depending on the model, lengths of episodes may be 30, 60, or 90 days. Under all 

models within the BPCI initiative, these episode definitions have been standardized 

across models for episodes that relate to an acute care hospital stay. An expansion might 

target episodes beginning with inpatient hospital care or postacute care. We are seeking 

public comments regarding whether episode definition refinements should be made; for 

example, refinements potentially could be made for episodes that begin with postacute 

care to incorporate the findings from standardized patient assessments at postacute care 

initiation, rather than tying the episode to the hospital discharge diagnosis.

● Models for expansion. We are seeking public comments on whether we should 

consider one or more of the current BPCI initiative models as the first candidates for 

expansion. For example, under a model expansion, we potentially could expand several 

or all of the models that include postacute care on a similar timeframe or one model at a 

time.
CMS-1632-P 379

● Roles of organizations and relationships necessary or beneficial to care 

transformation. We are seeking public comments on the roles that organizations, 

including health care providers and suppliers and other entities, should serve under an 

expanded model. Within this category, we are seeking public comments specifically on 

the types of relationships and arrangements, financial or otherwise, that would assist 

participants with care transformation in an expanded model. We would appreciate any 

public comments on whether relationships encouraged under an expansion could have 

unintended consequences and what those consequences might be.

● Setting bundled payment amounts. We are seeking public comments on 

approaches to setting bundled payments under model expansion. For participants in the 

BPCI initiative, bundled payments are related to the historical episode experience of 

episode initiators based on data from 2009 through 2012. In the BPCI initiative, only 

Model 4 rates are set prospectively, while Models 2 and 3 involve trending of target 

amounts following the conclusion of episodes. We potentially could base payments on 

regional episode experience or set all payments prospectively under model expansion. 

We potentially could apply the same episode discount percentages to all episodes or vary 

these discount percentages based on care redesign opportunity in the specific episode. 

We potentially could rebase payments annually or on another timeframe. In the case of 

setting payment amounts via a specified discount percentage, we are seeking public 

comments on methodologies that could be used to determine the discount percentages. 

We also are seeking public comments on any other methodologies that could be 

considered for the purposes of setting bundled payment amounts.
CMS-1632-P 380

● Mitigating risk of high-cost cases. Depending on the breadth and scope of an 

expansion, the potential financial impact of high-cost episode cases could be an issue for 

some providers. Currently, under the BPCI initiative, we apply a variety of approaches to 

risk mitigation, including allowing participants to select risk corridors that limit the 

inclusion of high-cost cases in episodes. We are seeking public comments on strategies 

to mitigate the risk of high-cost cases to ensure appropriate payment for these episodes 

under model expansion, such as through outlier or other policies, while encouraging 

high-value, coordinated care for these cases as well. For example, under model 

expansion, we potentially could establish an outlier pool with specific payment policies, 

similar to approaches under the IPPS and the OPPS.

● Administering bundled payments. We are seeking public comments on the 

issues related to prospective or retrospective payment under model expansion. Currently, 

Model 4 under the BPCI initiative makes a single bundled payment, while Models 2 and 

3 utilize routine Medicare FFS payments to all providers and supplies with retrospective 

reconciliation for the awardee. We are interested in public comments on the feasibility of 

different payment approaches under the various models, including the administrative 

capacity and feasibility for some organizations to pay others for care during episodes or 

to share payments at reconciliation. For example, under model expansion, we potentially 

could make a single bundled payment in all models, but we would need to identify the 

entity to receive the payments and engage in widespread changes to the shared systems to 

accommodate all payment systems. Under the BPCI initiative, we have agreements with 

multiple types of entities, including awardee conveners, that may not be Medicare 
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providers or suppliers. We are requesting comments on the possibility of paying an 

awardee convener the bundled payment when that entity did not actually deliver health 

care services to the beneficiaries in episodes in an expanded model. Specifically, we 

would like to know what operational and policy considerations would need to be 

addressed. A retrospective reconciliation would have different concerns than a 

prospective payment.

● Data needs. We are seeking public comments on the types of data and 

functionality needed in the marketplace in order to expand this type of model (for 

example, EHRs and quality measurement, among others). We currently provide monthly 

episode claims data to BPCI initiative participants for purposes of health care operations 

and periodic monitoring reports. Under model expansion, providers that are not fully 

integrated may need to develop approaches to sharing information regarding patients 

initiating and participating in episodes. Real-time information may improve the 

coordination of care.

● Use of health information technology. We are seeking public comments on 

how the use of health information technology can be used and encouraged in 

coordinating care across care settings, including postacute care. Health information 

technology and health information exchange may be used to support these models by 

sharing summaries of care, problem lists, physician orders, prescription lists, and care 

plans across the care continuum. We welcome public comments on how to include 

SNFs, LTCHs, IRFs, and HHAs that do not currently utilize health information 
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technology and health information exchange at an advanced level without compromising 

the coordination of care among acute care hospitals and postacute care providers.

● Quality measurement and payment for value. We are seeking public comments 

on the quality measures that could be applied to episodes and approaches to incorporating 

value-based payment in the BPCI initiative. For example, under model expansion, we 

potentially could apply the same quality measures to all episodes or develop 

episode-specific quality measures. We potentially could incorporate value-based 

payment under model expansion by reducing the discount percentage for high quality 

care or increasing the discount percentage for low quality care.

● Transition from Medicare FFS payments to bundled payments. We are seeking 

public comments on the need for and parameters of a transition period from Medicare 

FFS payment to bundled payment under an expanded model. We are seeking public 

comments regarding the length of any transition and how such a transition would be 

made.

● Other issues. We are seeking public comments on any other issues the public 

believes are important for us to consider.

Consistent with our continuing commitment to engaging stakeholders in CMS’ 

work, we are seeking public comments on these issues to broaden and deepen our 

understanding of the important issues and challenges regarding bundled payments in the 

current health care marketplace. These public comments also will assist us in planning 

for expansion if a decision is made to expand the BPCI initiative in the future.
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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 
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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 2015 IPPS/LTCH PPS final rule contains the final thresholds that we use to evaluate 

applications for new technology add-on payments for FY 2016. We refer readers to the 
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CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/FY2015-IPPS-Final-Rule-Home-Page-Items/FY2015-FinalRule-Tables.html to download and view Table 10. We note that later in this section 

under the discussion of the WATCHMAN® Left Atrial Appendage (LAA) Closure 

technology, we are soliciting public comments on the use of supplemental threshold 

values when the coding to identify a new technology is reassigned to a new MS-DRG 

that does not have a threshold value displayed in the most recent version of Table 10.

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).)
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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 add-on payment equal to the lesser 

of: (1) 50 percent of the estimated costs of the new technology (if the estimated costs for 

the case including the new technology exceed Medicare’s payment); or (2) 50 percent of 

the difference between the full DRG payment and the hospital’s estimated cost for the 

case. Unless the discharge qualifies for an outlier payment, 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 Pub. L. 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 

Pub. L. 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. 
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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 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 Pub. L. 108-173. The Council is co-chaired 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 claims-payment contractors (in the case of local coverage and 

payment decisions). The CTI supplements, rather than replaces, these processes by 

working to assure that all of these activities reflect the agency-wide priority to promote 

high-quality, innovative care. At the same time, the CTI also works to streamline, 

accelerate, and improve coordination of these processes to ensure that they remain up to 

date as new issues arise. To achieve its goals, the CTI works to streamline and create a 
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more transparent coding and payment process, improve the quality of medical decisions, 

and speed patient access to effective new treatments. It is also dedicated to supporting 

better decisions by patients and doctors in using Medicare-covered services through the 

promotion of better evidence development, which is critical for improving the quality of 

care for Medicare beneficiaries.

To improve the understanding of CMS’ processes for coverage, coding, and 

payment and how to access them, the CTI has developed an “Innovator’s Guide” to these 

processes. The intent is to consolidate this information, much of which is already 

available in a variety of CMS documents and in various places on the CMS Web site, in a 

user-friendly format. This guide was published in 2010 and is available on the CMS Web 

site at: 

http://www.cms.gov/CouncilonTechInnov/Downloads/InnovatorsGuide5_10_10.pdf.

As we indicated in the FY 2009 IPPS final rule (73 FR 48554), we invite any 

product developers or manufacturers of new medical technologies to contact the agency 

early in the process of product development if they have questions or concerns about the 

evidence that would be needed later in the development process for the agency's coverage 

decisions for Medicare.

The CTI aims to provide useful information on its activities and initiatives to 

stakeholders, including Medicare beneficiaries, advocates, medical product 

manufacturers, providers, and health policy experts. Stakeholders with further questions 

about Medicare’s coverage, coding, and payment processes, or who want further 
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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 2017 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 2017, 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 Add-On 

Payments

Section 1886(d)(5)(K)(viii) of the Act, as amended by section 503(b)(2) of 

Pub. L. 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--
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● 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 2016 prior to publication of the FY 2016 

IPPS/LTCH PPS proposed rule, we published a notice in the Federal Register on 

November 21, 2014 (79 FR 69490), and held a town hall meeting at the CMS 

Headquarters Office in Baltimore, MD, on February 3, 2015. 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 2016 new medical service

and technology add-on payment applications before the publication of the FY 2016 

IPPS/LTCH PPS proposed rule.
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Approximately 95 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: https://www.youtube.com/watch?v=dn-R5KGQu-M. 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 19, 2015, in 

our evaluation of the new technology add-on payment applications for FY 2016 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 2016 new technology 

add-on payments. We summarize these comments in the preamble of this proposed rule 

or, if applicable, indicate that there were no comments received, at the end of each 

discussion of the individual applications in this proposed rule.

One commenter provided comments that were unrelated to the “substantial 

clinical improvement” criterion. As explained above and in the Federal Register notice 

announcing the New Technology Town Hall meeting (79 FR 69490 through 69492), 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 2016. 

Therefore, we are not summarizing the commenter’s comments in this proposed rule. 

The commenter is welcome to resubmit its comments in response to proposals presented 

in this proposed rule.
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Comment: One commenter stated that antibiotics are unique because their 

development and use present many challenges that are not applicable to other drugs or 

devices seeking approval for new technology add-on payments. The commenter urged

CMS to utilize the expertise of the infectious diseases community when determining how 

to evaluate applications for new antibiotics for new technology add-on payments.

The commenter further stated that because superiority studies cannot be 

conducted for most serious infections, the most appropriate evaluation of superiority for 

many new antibiotics is a “noninferiority” clinical trial, which is designed to determine if 

the experimental drug is similar in efficacy to a standard drug currently available on the 

market. The commenter noted that, recently, the FDA has demonstrated increased 

willingness to consider approving new antibiotics if efficacy can be proven based on 

achieved, well-defined, and statistically validated noninferiority margins. The 

commenter encouraged CMS to consider the proven efficacy of these antibiotics based on 

these criteria when determining whether to approve a new antibiotic for new technology 

add-on payment. The commenter also urged CMS to consider carefully analyzed and 

peer-reviewed safety, utilization, and economics data when such data are available to 

support the approval of a new antibiotic for new technology add-on payment. The 

commenter believed that these considerations could increase the types of information that 

would be used to support the approval of new drugs for which superiority trials are 

inappropriate or not feasible or both.

The commenter also believed it is critical that CMS maintain an ongoing dialogue 

with the FDA as well as nongovernment experts in antibiotic resistance and antibiotic 
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drug development in order to more fully understand the highly complex and unique 

issues regarding the type of data available for the study and approval of new antibiotics.

Response: In our evaluation of new technology applications, we rely on the 

recommendations of our clinical advisors. We also consider all clinical data provided by 

the applicant in our determination of whether a technology is eligible for new technology 

add-on payments. In addition, we summarize each application and invite the public to 

provide their comments and expertise on any new technology application under 

consideration during the comment period for the proposed rule. We also work with the 

FDA in instances where guidance is necessary to understand the complexities of a new 

technology. We appreciate the commenter’s input, and we will further consider these 

comments in future rulemakings.

We note that the commenter provided comments that were unrelated to the 

substantial clinical improvement criterion. As noted above, the purpose of the new 

technology town hall meeting was specifically to discuss the substantial clinical 

improvement criterion in regard to pending new technology add-on payment applications 

for FY 2016. Therefore, we are not summarizing these comments in this proposed rule. 

The commenter is welcome to resubmit its comments in response to proposals presented 

in this proposed rule.

3. Implementation of ICD-10-PCS Section “X” Codes for Certain New Medical Services 

and Technologies for FY 2016

As discussed in section II.G.1.a. of the preamble of this proposed rule, health 

plans and providers are required, as of October 1, 2015, to use the ICD-10 coding system 
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(ICD-10-PCS codes for procedures and ICD-10-CM codes for diagnosis), instead of the 

ICD-9-CM coding system, to report diagnoses and procedures for Medicare hospital 

inpatient services provided to Medicare beneficiaries as classified under the MS-DRG 

system and paid for under the IPPS. HIPAA covered entities will continue to use 

ICD-9-CM coding practices and principles through September 30, 2015. We refer 

readers to section II.G.1.a. of the preamble of this proposed rule for a complete 

discussion of the adoption of the ICD-10 coding system.

As part of the transition to the ICD-10-CM/PCS coding system, at the 

September 23-24, 2014 ICD-10 Coordination and Maintenance Committee meeting, 

CMS received a request to create a new section within the ICD-10-PCS to capture new 

medical services and technologies that might not appropriately align with the current 

structure of the ICD-10-PCS codes. Examples of these types of new medical services 

and technologies included drugs, biologicals, and newer medical devices being tested in 

clinical trials that are not currently captured within the ICD-9-CM or the ICD-10-PCS. 

The requestor indicated that there may be a need to identify and report these technologies 

and inpatient services for purposes of approving new technology add-on payment 

applications and initiating subsequent new technology add-on payments based on 

approval or tracking and analyzing the use of these new technologies and services. 

Although several commenters have opposed including these types of technologies and 

services within the current structure of the ICD-10-PCS codes during past ICD-10 

Coordination and Maintenance Committee meetings, as well as in public comments, 

CMS has evaluated these suggestions and considered them to be valid. As a result, CMS 
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has created a new component within the ICD-10-PCS codes, labeled Section “X” codes, 

to identify and describe these new technologies and services. The new Section “X” codes 

identify new medical services and technologies that are not usually captured by coders, or 

that do not usually have the desired specificity within the current ICD-10-PCS structure 

required to capture the use of these new services and technologies. As mentioned earlier, 

examples of these types of services and technologies include specific drugs, biologicals, 

and newer medical devices being tested in clinical trials. The new Section “X” codes 

within the ICD-10-PCS structure will be implemented on October 1, 2015, and will be 

used to identify new technologies and medical services approved under the new 

technology add-on payment policy for payment purposes beginning October 1, 2015. An 

overview of Section “X” codes was provided at the March 18-19, 2015 ICD-10 

Coordination and Maintenance Committee meeting. Further information regarding the 

new Section “X” codes and their use within the ICD-10-PCS can be found on the CMS 

Web site at: http://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD9-CM-C-and-M-Meeting-Materials.html through the “CMS Coordination and 

Maintenance Committee Meeting” link.

The ICD-10-PCS includes a new section containing the new Section “X” codes, 

which will be used beginning FY 2016. Decisions regarding changes to ICD-10-PCS 

Section “X” codes will be handled in the same manner as the decisions for all of the other 

ICD-10-PCS code changes. That is, proposals to create, delete, or revise Section “X” 

codes under the ICD-10-PCS structure will be referred to the ICD-10 Coordination and 

Maintenance Committee. In addition, several of the new medical services and 
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technologies that have been, or may be, approved for new technology add-on payments 

may now, and in the future, be assigned a Section “X” code within the structure of the 

ICD-10-PCS. The FY 2016 ICD-10-PCS Section “X” codes will be posted in June 2015 

on the Internet via the CMS Web site at: 

http://www.cms.gov/Medicare/Coding/ICD10/index.html under the links on the left side 

of the Web page.

4. Proposed FY 2016 Status of Technologies Approved for FY 2015 Add-On Payments

a. Glucarpidase (Voraxaze®)

BTG International, Inc. submitted an application for new technology add-on 

payments for Glucarpidase (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 
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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). As stated in the FY 2015 IPPS/LTCH PPS final rule correction notice 

(79 FR 59679), the cost of Voraxaze®is $23,625 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 $94,500 ($23,625 x 4). Under § 412.88(a)(2), new technology addon 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 $47,250 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 
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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®, we considered the 

beginning of the newness period to commence when Voraxaze® was first made available 

on the U.S. market on April 30, 2012. Because the 3-year anniversary date for 

Voraxaze®occurred in the latter half of FY 2015 (April 30, 2015), in the FY 2015 

IPPS/LTCH PPS final rule, we continued new technology add-on payments for this 

technology for FY 2015 (79 FR 49918). However, for FY 2016, the 3-year anniversary 

date of the product’s entry on the U.S. market (April 30, 2015) occurs prior to the 

beginning of FY 2016. Therefore, we are proposing to discontinue new technology 

add-on payments for Voraxaze®for FY 2016. We are inviting public comments on this 

proposal.

b. 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 
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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 currently 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 is 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 
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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.

With regard to the newness criterion for the Zenith®F. Graft, we considered 

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 occurred in the second half of FY 2015 

(April 4, 2015), in the FY 2015 IPPS/LTCH PPS final rule, we continued new technology 

add-on payments for this technology for FY 2015 (79 FR 49922). However, for 

FY 2016, the 3-year anniversary date of the product’s entry on the U.S. market 

(April 4, 2015) occurs prior to the beginning of FY 2016. Therefore, we are proposing to 

discontinue new technology add-on payments for the Zenith®F. Graft for FY 2016. We

are inviting public comments on this proposal.

c. 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 
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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 finalized 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 
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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 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 currently 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 x 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 
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excess of the MS-DRG payment for the case. As a result, the maximum add-on payment 

for a case of KcentraTM was $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 addon payment is made, we refer readers to Section 20.7.3, Chapter 3, of the Medicare 

Claims Processing Manual, which can be downloaded from the CMS Web site at: 

http://cms.gov/Regulations-andGuidance/Guidance/Manuals/Downloads/clm104c03.pdf.) 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 
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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 
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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 Section 20.7.3, Chapter 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.

With regard to the newness criterion for KcentraTM, we considered the beginning 

of the newness period to commence when KcentraTM was approved by the FDA on 

April 29, 2013. Because the 3-year anniversary date of the entry of KcentraTM on the 

U.S. market will occur in the second half of FY 2016 (April 29, 2016), we are proposing 

to continue new technology add-on payments for this technology for FY 2016. We are 

inviting public comments on this proposal.
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Because we are adopting the ICD-10 coding system, effective October 1, 2015, as 

discussed in section II.G.1.a. of the preamble of this proposed rule, for FY 2016, we are 

proposing to identify and make new technology add-on payments for cases involving the 

KcentraTM technology with ICD-10-PCS procedure code 30283B1 (Transfusion of 

nonautologous 4-factor prothrombin complex concentrate into vein, percutaneous 

approach). As stated above, 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. For information on how the blood clotting factor add-on payment is 

made (including a list of ICD-10 diagnosis codes that would negate the eligibility of a 

case for new technology add-on payments, if reported in combination with the proposed 

ICD-10 procedure code used to identify cases involving the KcentraTM technology), we 

refer readers to Section 20.7.3, Chapter 3, of the Medicare Claims Processing Manual, 

which can be downloaded from the CMS Web site at: http://cms.gov/Regulations-andGuidance/Guidance/Manuals/Downloads/clm104c03.pdf. The maximum new 

technology add-on payment for a case involving the KcentraTM technology would remain 

at $1,587.50 for FY 2016. We are inviting public comments on this proposal.

d. 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 
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are profoundly blind due to retinitis pigmentosa (RP). These patients have bare or no 

light perception in both eyes. The system employs electrical signals to bypass dead 

photo-receptor cells and stimulate the overlying neurons according to a real-time video 

signal that is wirelessly transmitted from an externally worn video camera. The 

Argus®II implant is intended to be implanted in a single eye, typically the worse-seeing 

eye. Currently, bilateral implants are not intended for this technology. According to the 

applicant, the surgical implant procedure takes approximately 4 hours and is performed 

under general anesthesia.

The Argus®II System consists of three primary components: (1) an implant 

which is an epiretinal prosthesis that is fully implanted on and in the eye (that is, there are 

no percutaneous leads); (2) external components worn by the user; and (3) a “fitting” 

system for the clinician that is periodically used to perform diagnostic tests with the 

system and to custom-program the external unit for use by the patient. We describe these 

components more fully below.

● Implant: The retinal prosthesis implant is responsible for receiving information 

from the external components of the system and electrically stimulating the retina to 

induce visual perception. The retinal implant consists of: (a) a receiving coil for 

receiving information and power from the external components of the Argus®II System; 

(b) electronics to drive stimulation of the electrodes; and (c) an electrode array. The 

receiving coil and electronics are secured to the outside of the eye using a standard scleral 

band and sutures, while the electrode array is secured to the surface of the retina inside 

the eye by a retinal tack. A cable, which passes through the eye wall, connects the 
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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 
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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 

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 
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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. However, in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49924 

through 49925), we discussed comments we had received informing CMS that the 

Argus® II System was not available on the U.S. market until December 20, 2013. The 

applicant explained that, as part of the lengthy approval process, it was required to submit 

a request to the Federal Communications Commission (FCC) for a waiver of section 

15.209(a) of the FCC rules that would allow the applicant to apply for FCC authorization 

to utilize this specific RF band. The FCC approved the applicant’s waiver request on 

November 30, 2011. After receiving the FCC waiver of the section 15.209(a) rules, the 

applicant requested and obtained a required Grant of Equipment Authorization to utilize 

the specific RF band, which the FCC issued on December 20, 2013. Therefore, the 

applicant stated that the date the Argus®II System first became available for commercial 

sale in the United States was December 20, 2013. We agreed with the applicant that, due 

to the delay, the date of newness for the Argus®II System was December 20, 2013, 

instead of February 14, 2013.

Currently there are no other approved treatments for patients diagnosed 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 finalized new ICD-9-CM procedure code 14.81 (Implantation of epiretinal 

visual prosthesis), which uniquely identifies the Argus® II System. The other two codes 

finalized by CMS are for removal, revision, or replacement of the device.
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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 currently 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 was $72,028.75.

With regard to the newness criterion for the Argus® II System, we considered the 

beginning of the newness period to commence when the Argus® II System became

available on the U.S. market on December 20, 2013. Because the 3-year anniversary date 
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of the entry of the Argus® II System on the U.S. market will occur in the first half of FY 

2017 (December 23, 2016), we are proposing to continue new technology add-on 

payments for this technology for FY 2016. We are inviting public comments on this 

proposal.

Because we are adopting the ICD-10 coding system, effective October 1, 2015, 

as discussed in section II.G.1.a. of the preamble of this proposed rule, for FY 2016, we 

are proposing to identify and make new technology add-on payments for cases involving 

the Argus® II System when one of the following ICD-10-PCS procedure codes is 

reported: 08H005Z (Insertion of epiretinal visual prosthesis into right eye, open 

approach) or 08H105Z (Insertion of epiretinal visual prosthesis into left eye, open 

approach). The maximum new technology add-on payment for a case involving the 

Argus® II System would remain at $72,028.75 for FY 2016. We are inviting public 

comments on this proposal.

e. 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 
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indicated that the stent is self-expanding, made of nitinol (nickel titanium), and is coated 

with the drug Paclitaxel. Paclitaxel is a drug approved for use as an anticancer agent and 

for use with coronary stents to reduce the risk of renarrowing of the coronary arteries 

after stenting procedures.

The 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 add-on 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 x 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 
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payment for the case. As a result, the maximum add-on payment for a case of the 

Zilver®PTX® was $1,705.25 for FY 2014.

With regard to the newness criterion for the Zilver®PTX®, we considered the 

beginning of the newness period to commence when the Zilver®PTX® was approved by 

the FDA on November 15, 2012. Because the 3-year anniversary date of the entry of the 

Zilver®PTX®on the U.S. market occurred after FY 2015 (November 15, 2015), in the 

FY 2015 IPPS/LTCH PPS final rule, we continued new technology add-on payments for 

this technology for FY 2015 (79 FR 49925). However, for FY 2016, the 3-year 

anniversary date of the product’s entry on the U.S. market (November 15, 2015) occurs 

in the first half of FY 2016. Therefore, we are proposing to discontinue new technology 

add-on payments for the Zilver®PTX® for FY 2016. We are inviting public comments on 

this proposal.

f. CardioMEMSTM HF (Heart Failure) Monitoring System

CardioMEMS, Inc. submitted an application for new technology add-on payment 

for FY 2015 for the CardioMEMSTM HF (Heart Failure) Monitoring 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 

Monitoring 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.
CMS-1632-P 415

The CardioMEMSTM HF Monitoring 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 on chronic 

combined 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 
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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 which 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 received FDA approval on May 28, 2014. The CardioMEMSTM HF 

Monitoring 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).

After evaluation of the newness, costs, and substantial clinical improvement 

criteria for new technology payments for the CardioMEMSTM HF Monitoring System and 

consideration of the public comments we received in response to the FY 2015 

IPPS/LTCH PPS proposed rule, we approved the CardioMEMSTM HF Monitoring 

System for new technology add-on payments for FY 2015 (79 FR 49940). Cases 

involving the CardioMEMSTM HF Monitoring System that are eligible for new 

technology add-on payments are identified by ICD-9-CM procedure code 38.26 

(Insertion of implantable wireless pressure sensor for intracardiac or great vessel 

hemodynamic monitoring), which was effective October 1, 2011. With the new 

technology add-on payment application, the applicant stated that the total operating cost 

of the CardioMEMSTM HF Monitoring System is $17,750. Under § 412.88(a)(2), new 
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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 new technology add-on payment for a case involving the 

CardioMEMSTM HF Monitoring System is $8,875.

With regard to the newness criterion for the CardioMEMSTM HF Monitoring 

System, we considered the beginning of the newness period to commence when the 

CardioMEMSTM HF Monitoring System was approved by the FDA on May 28, 2014. 

Because the 3-year anniversary date of the entry of the CardioMEMSTM HF Monitoring 

System on the U.S. market will occur in FY 2017 (May 28, 2017), we are proposing to 

continue new technology add-on payments for this technology for FY 2016. We are 

inviting public comments on this proposal.

Because we are adopting the ICD-10 coding system, effective October 1, 2015, as 

discussed in section II.G.1.a. of the preamble of this proposed rule, for FY 2016, we are 

proposing to identify and make new technology add-on payments for cases involving the 

CardioMEMSTM HF Monitoring System using either ICD-10-PCS procedure code 

02HQ30Z (Insertion of pressure sensor monitoring device into right pulmonary artery, 

percutaneous approach) or ICD-10-PCS procedure code 02HR30Z (Insertion of pressure 

sensor monitoring device into left pulmonary artery, percutaneous approach). The 

maximum payment for a case involving the CardioMEMSTM HF Monitoring System 

would remain at $8,875 for FY 2016. We are inviting public comments on this proposal.

g. MitraClip®System
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Abbott Vascular submitted an application for new technology add-on payments 

for the MitraClip®System for FY 2015. 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 high-risk 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.”
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The MitraClip®System mitral valve repair procedure is based on the 

double-orifice surgical repair technique that has been used as a surgical technique in open 

chest, arrested-heart surgery for the treatment 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 cooptation (“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 
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35.97 (Percutaneous mitral valve repair with implant) was created to identify and 

describe the MitraClip®System technology.

On August 7, 2014, CMS issued a National Coverage Decision (NCD) 

concerning Transcatheter Mitral Valve Repair procedures. We refer readers to the CMS 

Web site at: http://www.cms.gov/medicare-coverage-database/details/nca-trackingsheet.aspx?NCAId=273 for information related to this NCD.

After evaluation of the newness, costs, and substantial clinical improvement 

criteria for new technology payments for the MitraClip®System and consideration of the 

public comments we received in response to the FY 2015 IPPS/LTCH PPS proposed rule, 

we approved the MitraClip®System for new technology add-on payments for FY 2015 

(79 FR 49946). As discussed in the FY 2015 IPPS/LTCH PPS final rule, this approval is 

on the basis of using the MitraClip®consistent with the NCD. Cases involving the 

MitraClip®System that are eligible for the new technology add-on payments are 

currently identified by ICD-9-CM procedure code 35.97. The average cost of the 

MitraClip®System is reported as $30,000. Under section 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 new technology add-on payment for a case involving the MitraClip®System is 

$15,000 for FY 2015.

With regard to the newness criterion for the MitraClip®System, we considered 

the beginning of the newness period to commence when the MitraClip®System was 

approved by the FDA on October 24, 2013. Because the 3-year anniversary date of the 
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entry of the MitraClip®System on the U.S. market will occur in FY 2017 

(October 24, 2016), we are proposing to continue new technology add-on payments for 

this technology for FY 2016. We are inviting public comments on this proposal.

Because we are adopting the ICD-10 coding system, beginning October 1, 2015, 

as discussed in section II.G.1.a, of the preamble of this proposed rule, for FY 2016, we

are proposing to identify and make new technology add-on payments for cases involving 

the MitraClip®System using ICD-10-PCS procedure code 02UG3JZ (Supplement mitral 

valve with synthetic substitute, percutaneous approach). The maximum payment for a 

case involving the MitraClip®System would remain at $15,000 for FY 2016. We are 

inviting public comments on this proposal.

h. 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 
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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 on November 14, 2013.

After evaluation of the newness, costs, and substantial clinical improvement 

criteria for new technology payments for the RNS®System and consideration of the 

public comments we received in response to the FY 2015 IPPS/LTCH PPS proposed rule, 

we approved the RNS®System for new technology add-on payments for FY 2015 
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(79 FR 49950). Cases involving the RNS®System that are eligible for new technology 

add-on payments are currently identified using the following ICD-9-CM procedure 

codes: 01.20 (Cranial implantation or replacement of neurostimulator pulse generator) in 

combination with 02.93 (Implantation or replacement of intracranial neurostimulator 

lead(s)). According to the applicant, cases using the RNS®System would incur an 

anticipated cost per case of $36,950. Under § 412.88(a)(2) of the regulations, new 

technology add-on payments are limited to the lesser of 50 percent of the average costs of 

the device or 50 percent of the costs in excess of the MS-DRG payment rate for the case. 

As a result, the maximum new technology add-on payment for cases involving the RNS®

System is $18,475.

With regard to the newness criterion for the RNS®System, we considered the 

beginning of the newness period to commence when the RNS®System was approved by 

the FDA on November 14, 2013. Because the 3-year anniversary date of the entry of the 

RNS®System on the U.S. market will occur in FY 2017 (November 14, 2016), we are 

proposing to continue new technology add-on payments for this technology for FY 2016. 

We are inviting public comments on this proposal.

Because we are adopting the ICD-10 coding system effective October 1, 2015, as 

discussed in section II.G.1.a. of the preamble of this proposed rule, we are proposing to 

identify and make new technology add-on payments for cases involving the RNS®

System using the following ICD-10-PCS procedure code combination: 0NH00NZ 

(Insertion of neurostimulator generator into skull, open approach) in combination with 

00H00MZ (Insertion of neurostimulator lead into brain, open approach). The maximum 
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payment for a case involving the RNS®System would remain at $18,475 for FY 2016. 

We are inviting public comments on this proposal.

5. FY 2016 Applications for New Technology Add-On Payments

We received applications for nine new technology add-on payments for FY 2016. 

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 

applications is presented below.

a. Angel Medical Guardian®Ischemic Monitoring Device

Angel Medical Systems, Inc. submitted an application for new technology add-on 

payments for the Angel Medical Guardian®Ischemic Monitoring Device (hereinafter 

referred to as the Guardian®). The Guardian®implantable ischemia detection system is 

designed to provide early detection and patient alerts for ischemic and other cardiac 

events experienced by ambulatory patients. The device consists of an implantable 

monitoring device (IMD) that communicates with an external device (EXD) via 

telemetry. The IMD monitors the patient’s current cardiac data and compares these data 

to the patient’s historical baseline using thresholds that reflect the normal ischemic range 

for each individual. Upon detection of a cardiac anomaly, the implanted IMD vibrates 

and provides one of two distinguishable alerts, “emergency alarms” and “see doctor 

alerts,” which prompt the patient to initiate emergency and/or preventative actions. The 

system also includes a program that allows physicians to adjust the settings for event 

detection and subsequent alerts.
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With respect to the newness criterion, the applicant anticipates FDA premarket 

approval during June 2015. The Guardian®technology is a Class III device that has 

obtained an investigational device exemption (IDE) from the FDA under IDE number 

G060259. Effective October 1, 2006 (FY 2007), ICD-9-CM procedure codes 00.56 

(Insertion or replacement of implantable pressure sensor (lead) for intracardiac

hemodynamic monitoring) and 00.57 (Implantation or replacement of subcutaneous 

device for intracardiac hemodynamic monitoring) were created to describe specific types 

of cardiac procedures. There have been minor revisions to each of the procedure codes’ 

title and description over the years to better differentiate procedures being performed 

with various technologies. As of October 1, 2011 (FY 2012), these codes distinguish 

procedures using the Guardian®technology from other similar procedures that use 

various technologies. The current ICD-9-CM procedure code titles are as follows: 00.56 

(Insertion or replacement of implantable pressure sensor with lead for intracardiac or 

great vessel hemodynamic monitoring), and 00.57 (Implantation or replacement of 

subcutaneous device for intracardiac or great vessel hemodynamic monitoring). As 

stated earlier in section II.G.1.a. of the preamble of this proposed rule, effective October 

1, 2015 (FY 2016), the ICD-10 coding system will be implemented. Under ICD-10, 

procedure code 02HK32Z (Insertion of monitoring device into right ventricle, 

percutaneous approach) is the comparable translation for ICD-9-CM procedure code 

00.56, and procedure code 0JH602Z (Insertion of monitoring device into chest 

subcutaneous tissue and fascia, open approach) is the comparable translation for ICD-9-

CM procedure code 00.57, which specifically describe procedures involving the 
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Guardian®technology. We note that, in accordance with § 412.87(c), in order for a 

technology to be considered for new technology add-on payments for a particular fiscal 

year, the technology must be approved by the FDA by July 1 prior to the particular fiscal 

year for which add-on payments are requested. According to the applicant, there are no 

other treatment modalities that perform the same function as the Guardian®technology. 

Therefore, the applicant believed that the Guardian®technology is not substantially 

similar to any other currently approved technology. We are inviting public comments on 

whether the Guardian®technology meets the newness criterion.

With respect to the cost criterion, the applicant determined that cases involving 

the Guardian®technology map to MS-DRG 264 (Other Circulatory System O.R. 

Procedures). The applicant initially provided a sensitivity analysis performed using all of 

the cases assigned to MS-DRG 264, without isolating a subset of cases that would be 

eligible for treatment using the Guardian®technology. In follow up to our request for a 

more focused analysis that calculates an average case-weighted standardized charge per 

case for cases involving the Guardian® technology assigned to MS-DRG 264, the 

applicant submitted a revised analysis that used data from a subset of cases representing 

patients who received treatment involving the implantation of pacemakers that mapped to 

MS-DRG 243 (Pacemaker Implant with CC). The applicant searched the Healthcare 

Cost and Utilization Project (HCUP) database for patient profiles that indicated prior 

myocardial infarction with comorbidities such as malignant hypertension (reported using 

ICD-9-CM diagnosis code 401.0), other acute and subacute forms of ischemic disease 

(reported using ICD-9-CM diagnosis code 411.89), and intermediate coronary syndrome 
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(that is, unstable angina reported using ICD-9-CM diagnosis code 411.1). According to 

the applicant, all of the patients enrolled in the ALERTS pivotal clinical study exhibited 

at least one or more of these comorbidities, similar to many of the patients represented by 

cases assigned to MS-DRG 243. The applicant asserted that the results from the revised 

search of the HCUP database revealed patient profiles that were similar to the patients 

who would have likely been recommended for treatment using the Guardian®technology, 

which are represented by the cases assigned to MS-DRG 264. The applicant identified 

843 cases assigned to MS-DRG 243, which represents patients treated with pacemaker 

implantations by the hospitals that participated in the Guardian® ALERTS clinical study.

The applicant used data from multiple sources to compute an average caseweighted standardized charge per case for procedures involving the Guardian®

technology. The applicant began by determining the specific FY 2015 Medicare IPPS 

Federal rate for cases assigned to MS-DRG 243 that were treated by each hospital that 

participated in the Guardian® ALERTS clinical study. The applicant then adjusted this 

amount by a factor of 1.057, which was derived from the March 2014 MedPAC Report to 

Congress on Medicare payment policies, to convert the Medicare payment to actual costs 

incurred by each hospital for each case. Specifically, the applicant determined this 

adjustment factor by subtracting the average industry wide margin of -5.4 percent, or -

0.054 percent, for hospitals during 2012, which was reflected in the March 2014 Report 

to Congress, from a factor of 1, which results in the percentage of inpatient costs that 

Medicare paid (1 – 0.054 = 94.6), and then divided this amount by 100 (100/94.6 = 

1.057). To convert the adjusted Medicare payment amount to charges, the applicant 
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applied hospital-specific CCRs found in the FY 2015 IPPS final rule impact file. The 

applicant computed an average case-weighted standardized charge per case by weighting 

the number of implants performed using the Guardian®technology performed by each 

hospital participating in the Guardian® ALERTS clinical study to the overall number of 

implants performed and represented by cases assigned to MS-DRG 243. This resulted in 

an average case-weighted standardized charge per case of $75,010. The applicant then 

deducted device-related charges for a pacemaker based on data obtained from the 

FY 2015 After Outliers Removed (AOR) File to determine the nonimplant resources used 

during these types of procedures, and added the device-related charges for the Guardian®

technology, which resulted in an adjusted average case-weighted charge per case of 

$89,050. Because this adjusted average case-weighted standardized charge per case 

exceeds the average case-weighted threshold amount of $65,544 for MS-DRG 264 as 

displayed in Table 10 of the FY 2015 IPPS/LTCH PPS final rule, the applicant 

maintained that the Guardian®technology meets the cost criterion.

We have several concerns regarding the applicant’s cost analysis. We do not 

believe that it is appropriate to convert Medicare payments for discharges to actual costs 

incurred by hospitals by applying a margin adjustment factor and hospital-specific CCRs 

to determine an average case-weighted standardized charge for specific cases. According 

to the regulations under 42 CFR 412.2(b)(1), the prospective payment amount paid for 

inpatient hospital services is the total Medicare payment for the inpatient operating costs 

and the inpatient capital-related costs incurred in furnishing services covered by the 

Medicare program. The prospective payment amount represents a payment amount for 
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the total cost of inpatient hospital services incurred by hospitals participating in the 

Medicare program, but does not represent a measure of the actual costs per case. For 

example, two hospitals in the same CBSA will be paid the same prospective payment 

amount for a case assigned to the same MS-DRG. The fact that these hospitals are paid 

the same prospective payment amount does not imply that the hospitals incurred the same 

amount of costs per case. On the contrary, the hospitals probably incurred very different 

costs for each case and the prospective payment amount is simply a payment for the 

inpatient costs covered by Medicare. Therefore, we are concerned about the 

methodology used by the applicant to determine an average case-weighted standardized 

charge per case, and do not believe that the calculation of this amount determined by the 

applicant is accurate. Moreover, we are concerned that the applicant assumed that the 

patient profiles for patient treated with pacemaker implantations and patients treated 

using the Guardian®technology are similar enough to warrant the inclusion of cases 

assigned to MS-DRG 243 in the analysis and then to depend upon the results of that 

analysis as a basis to demonstrate that the technology meets the cost criterion. In 

addition, we do not believe that it is appropriate to assume that the resources used during 

procedures involving pacemaker implantations and procedures involving the Guardian®

technology would be the same, and the applicant does not provide a rationale for 

assuming such similarities. Because of these concerns, we are unable to determine if the 

technology meets the cost criterion. We are inviting public comments on whether the 

Guardian®technology meets the cost criterion, particularly with respect to the concerns 

we have raised.
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With respect to the substantial clinical improvement criterion, the applicant 

asserted that this technology provides a more rapid beneficial resolution to ischemic and 

other cardiac events in ambulatory patients that reduces mortality and morbidity, and 

facilitates a faster patient presentation time to initiate treatment for these types of 

disorders. The applicant also believed that this technology fulfills an unmet clinical need 

for early diagnoses and preventative treatment options for a patient population that 

experiences silent, asymptomatic ischemia. The applicant included data from its pivotal 

ALERTS clinical trial, a randomized study expanding over a 6-month period of patients 

who were treated using the Guardian®technology and with the alarm function turned on 

(which represented the treatment group) or the alarm function turned off (which 

represented the control group). The primary efficacy endpoint was a composite variable 

that considered cardiac or unexplained death, new death Q-wave MI, or delayed 

presentation (time to door >2 hours) for a documented coronary occlusion event. The 

primary safety outcome measure was device-related complications. According to the 

applicant, the following findings demonstrate that the Guardian®technology represents a 

substantial clinical improvement in regard to currently available treatment options for 

Medicare beneficiaries:

● The treatment group showed statistically significant clinical improvement over 

the control group using a composite outcome variable;

● 97 percent of patients treated with implantations using the Guardian®

technology were free from system-related complications at 6 months post programming;
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● A reduced proportion of patients having pre-hospital delays over 2 hours for a 

confirmed thrombotic coronary occlusive event;

● A reduction in the median time-to-door for patients treated using the Guardian®

technology alert system turned on (51 minutes) versus patients treated using the 

Guardian®technology alert system turned off (1,808 minutes); and

● An improvement in the overall quality of life, and greater control over the 

condition, including feeling safer, for patients who were enrolled in the ALERTS trial 

and participated in a 2012 quality of life study that were treated with the Guardian®

technology when the alarm system was activated.

We are concerned that the outcome measures, including the quality of life 

measures, are based on and reflective of factors other than the efficacy of the device. For 

instance, any benefit from using the Guardian®technology depends entirely upon the 

patient heeding the alarms and alerts and seeking emergency medical care without delay. 

Moreover, we are concerned that the ALERTS pivotal trial uses inherently different 

methods of ascertainment of “delayed presentation” for the treatment group and the 

control group after an ischemic event, which implies a serious bias in regard to the 

clinical trial results. We believe that this bias questions the validity of the primary 

efficacy endpoint. An additional concern is that the ALERTS pivotal trial uses a very 

broad definition of a “confirmed thrombotic event.” Although the pivotal trial used four 

different criteria to determine whether such an event occurred, only two of them are 

actually evidence of an acute coronary event for which timely patient presentation for 
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medical care might improve outcomes. The applicant did indicate how many confirmed 

events met each of the four criteria.

We are inviting public comments on if, and how, the Guardian®technology meets 

the substantial clinical improvement criterion, particularly with respect to the concerns 

we have raised.

Below we summarize and respond to the comments submitted on the Guardian® 

technology at the Town Hall meeting.

Comment: Several participants in the ALERTS clinical trial submitted comments 

supporting the approval of new technology add-on payments for the Guardian® 

technology. According to the commenters, use of the Guardian®technology is associated 

with substantial clinical improvement of patients at high risk for a repeat myocardial 

infarction. The commenters stated that experiences as part of the ALERTS study have 

been positive. In addition, the commenters agreed with the applicant that patients 

implanted with an active Guardian®device who were alerted to a confirmed myocardial 

infarction event arrived at a medical facility significantly faster than those generally 

treated using the regular standard of care. Moreover, the commenters agreed with the 

applicant that patients are reassured by the effectiveness of the Guardian®device as a 

means of monitoring and protection. The commenters believed that the Guardian®device 

provides patients and providers with an important tool for helping to recognize when a 

significant ischemic event occurs and when to seek prompt medical treatment, which 

result in reduced morbidity and mortality, fewer visits to the emergency room and 

unnecessary hospitalizations, and reduced health care expenditures. The commenters 
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believed that the Guardian®device meets the substantial clinical improvement criterion 

because the device offers a more rapid and beneficial resolution for treating patients by 

its capability to diagnose a medical condition in a patient population where the condition 

is currently undetectable as well as offers a treatment option to a patient population 

unresponsive to currently available treatments.

One commenter, a principal investigator in the ALERTS study, further reported 

that treatment using the Guardian®device tended to reduce the incidence of Q waves, a 

primary clinical endpoint that has important ramifications in both morbidity and mortality 

rates. The commenter also noted that, based on the results of the ALERTS study, 

asymptomatic thrombotic events were recognized in 21 of 451 (4.6 percent) of patients in 

the Guardian®treatment arm, and that the vast majority of these patients arrived to a 

medical facility within an hour of the onset of the event. In contrast, patients in the 

control arm who experienced asymptomatic ischemic events recorded by the Guardian®

device arrived to a medical facility between 10 and 77 days after the event. According to 

the commenter, many of these patients experienced a silent myocardial infarction, which 

occurs over time in a significant number of patients and can lead to higher mortality rates. 

The commenter believed that the Guardian®device provides a significant benefit to a 

patient population that experiences asymptomatic ischemic events and does not receive 

any physical warnings of their condition, and who would otherwise not seek treatment for 

a longer period of time than what is recommended in the medical community, if 

treatment is sought at all.
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Another commenter provided additional information on the opportunity for 

improvement upon time to treatment for patients at high risk for a recurrent myocardial 

infarction, which would in turn lead to improved clinical outcomes, particularly for the 

patient population experiencing asymptomatic ischemia. According to the commenter, 

approximately 50 percent of patients experiencing myocardial infarction have no 

symptoms at all or symptoms that may not be recognized, and often do not receive any 

acute therapy to avert or mitigate the impact of the infarction. The commenter stated that 

the current standard of care requires patients to recognize symptoms of heart attack and 

seek medication immediately, and, for every 30 minute delay in treatment, there is an 

associated 8.5 percent increased risk of developing an ejection fraction of less than 30 

percent, which is highly correlated with subsequent heart failure, and an associated 7.5 

percent relative risk increase in 1 year mortality. Therefore, the commenter believed that 

the Guardian®device presents a significant opportunity to address improvement in the 

timing of treatment for patients at high risk for a recurrent myocardial infarction.

Response: We appreciate the commenters’ input. We will take these comments 

into consideration when deciding whether to approve new technology add-on payments 

for the Guardian® device.

b. Blinatumomab (BLINCYTOTM)

Amgen, Inc. submitted an application for new technology add-on payments for 

Blinatumomab (BLINCYTOTM), a bi-specific T-cell engager (BiTE) used for the 

treatment of Philadelphia chromosome-negative (Ph-) relapsed or refractory (R/R) B-cell 

precursor acute-lymphoblastic leukemia (ALL), which is a rare aggressive cancer of the 
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blood and bone marrow. Approximately 6,050 individuals are diagnosed with ALL in 

the United States each year, and approximately 2,400 individuals, which represents 30 

percent of all new cases, are adults. ALL occurs when there are malignant 

transformations of B-cell or T-cell progenitor cells, causing an accumulation of 

lymphoblasts in the blood, bone marrow, and occasionally throughout the body. As a bispecific T-cell engager, the BLINCYTOTM technology attaches to a molecule on the 

surface of the tumorous cell, as well as to a molecule on the surface of normal T-cells, 

bringing the two into closer proximity and allowing the normal T-cell to destroy the 

tumorous cell. Specifically, the BLINCYTOTM technology attaches to a cell identified as 

CD19, which is present on all of the cells of the malignant transformations that cause 

ALL and helps attract the cell into close proximity of the T-cell CD3 with the intent of 

getting close enough to allow the T-cell to inject toxins that destroy the cancerous cell.

BLINCYTOTM is administered as a continuous IV infusion delivered at a constant 

flow rate using an infusion pump. A single cycle of treatment consists of 28 days of 

continuous infusion, and each treatment cycle followed by 2 weeks without treatment 

prior to administering any further treatments. A course of treatment consists of two 

phases. Phase 1 consists of initial inductions or treatments intended to achieve remission 

followed by additional inductions and treatments to maintain consolidation; or treatments 

given after remission has been achieved to prolong the duration. During phase 1 of a 

single treatment course, up to two cycles of BLINCYTOTM are administered, and up to 

three additional cycles are administered during consolidation. The recommended dosage 

of BLINCYTOTM administered during the first cycle of treatment is 9 mcg per day for the 
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first 7 days of treatment. The dosage is then increased to 28 mcg per day for 3 weeks 

until completion. During phase 2 of the treatment course, all subsequent doses are 

administered as 28 mcg per day throughout the entire duration of the 28-day treatment 

period.

With respect to the newness criterion, the BLINCYTOTM technology received 

FDA approval on December 3, 2014, for the treatment of patients diagnosed with 

Ph- R/R B-cell precursor ALL, and the product gained entry onto the U.S. market on 

December 17, 2014. As stated in section II.G.1.a. of the preamble of this proposed rule, 

effective October 1, 2015 (FY 2016), the ICD-10 coding system will be implemented. 

We note that the applicant submitted a request for unique ICD-10-PCS codes that was 

presented at the March 18, 2015 ICD-10 Coordination and Maintenance Committee 

meeting. If approved, the codes will be effective on October 1, 2015 (FY 2016). More 

information on this request can be found on the CMS Web site located at: 

http://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-Cand-M-Meeting-Materials.html.

According to the applicant, the BLINCYTOTM technology is the first, and the 

only, bi-specific CD19-directed CD3 T-cell engager single-agent immunotherapy 

approved by the FDA. However, we are concerned that BLINCYTOTM may be 

substantially similar to other bi-specific T-cell engagers. 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 
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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 these criteria, it would be considered substantially similar to 

an existing technology and would not be considered “new” for purposes of new 

technology add-on payments. For a detailed discussion of the criteria for substantial 

similarity, we refer readers to the FY 2006 IPPS final rule (70 FR 47351 through 47352), 

and the FY 2010 IPPS/LTCH PPS final rule (74 FR 43813 through 43814).

With regard to the first criterion, we are concerned that the mechanism of action 

of the BLINCYTOTM technology does not appear to differ from those of other bi-specific 

T-cell engagers, which also attract the cancerous cell within close proximity of a normal 

T-cell with the intent of allowing the cell to get close enough to inject toxins to destroy 

the cancerous cell. There are several other BiTEs currently under investigation, including 

MT110 that are used for the treatment of patients diagnosed with gastrointestinal and 

lung cancers and are directed towards the EpCAM antigen, as well as MCSP-specific and 

CD33-specific BiTEs used for treating patients diagnosed with melanoma and acute 

myeloid leukemia, respectively. We believe that the feature that distinguishes the 

BLINCYTOTM technology from these other bi-specific T-cell engagers is that it 

specifically targets the CD19 cell. However, we are concerned that the specificity of the 

mechanism of action may not be sufficient to distinguish the BLINCYTOTM technology 

from other bi-specific T-cell engagers and, therefore, the technology bears substantial 

similarity to these other BiTEs used as current treatment options for Medicare 
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beneficiaries. Further, we are concerned that determining that the BLINCYTOTM 

technology meets the newness criterion based on the specificity of the mechanism of 

action would set a precedent that a drug employing the same mechanism of action could 

be considered “new” based on such specificity when evaluated under the substantial 

similarity criterion.

With respect to the second criterion, the applicant maintained that ICD-9-CM 

diagnosis codes 204.00 (Acute lymphoid leukemia, without mention of having achieved 

remission) and 204.02 (Acute lymphoid leukemia in relapse) are used to identify patients 

who may potentially be eligible for treatment using the BLINCYTOTM technology. 

Using these diagnosis codes, the applicant researched claims data from the FY 2013 

MedPAR file and found cases across a wide spectrum of MS-DRGs, not all of which are 

related to acute lymphoblastic leukemia. According to the applicant, 42.1 percent of all 

cases representing patients diagnosed with ALL were assigned to 238 MS-DRGs. 

Therefore, we believe that potential cases involving the BLINCYTOTM technology may 

be assigned to the same MS-DRG(s) as other cases involving bi-specific T-cell engagers 

used to treat patients with leukemia.

With respect to the third criterion, according to the applicant, the standard 

treatment for patients diagnosed with ALL currently requires the use of multiple, 

intensive chemotherapy treatment drugs in combination to induce remission in order to 

allow the patient the opportunity to proceed to allogenic hematopoietic stem cell 

transplant (alloHSCT), which is the next stage in the course of treatment and the only 

known curative option. The applicant asserted that the BLINCYTOTM technology is not 
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substantially similar to other treatment options because it does not involve the treatment 

of the same, or similar, type of diseases or the same, or similar, patient population. The 

commenter stated that, although chemotherapy is a successful treatment option to induce 

remission in patients diagnosed with R/R ALL, many of these patients relapse or stop 

responding to this standard treatment and, therefore, are be unable to proceed to 

alloHSCT, the next stage of treatment. Moreover, chemotherapy toxicities can be 

cumulative. Therefore, the commenter stated, patients who have received intensive 

treatments may not be eligible for further intensive chemotherapy treatments and, 

therefore, are unable to proceed to alloHSCT. The applicant asserted that the 

BLINCYTOTM technology is an anti-cancer immunotherapy that has shown to be 

effective in the treatment of a patient population in which chemotherapy has not been 

successful. Moreover, the applicant asserted that, as an anti-cancer immunotherapy, the 

BLINCYTOTM technology does not demonstrate the cumulative side-effects typically 

associated with chemotherapy treatments and, therefore, is a treatment option available to 

patients who are not eligible for further chemotherapy treatments based on the risks 

associated with cumulative toxicities. However, we are concerned that this specific 

patient population is not necessarily distinguishable from the overall patient population of 

individuals diagnosed with ALL, and we are unsure how to identify these patients using 

administrative claims data.

We believe that the BLINCYTOTM technology may be similar to other approved 

technologies currently available to treat the same patient population and medical 

disorders and, therefore, may not meet the newness criterion. In addition, we do not 
CMS-1632-P 440

believe that the specific patient population targeted by the applicant is sufficiently 

distinguishable from the overall patient population that may be eligible for treatment 

using options that are currently available for these types of medical disorders. We are 

seeking public comments on if, and how, the BLINCYTOTM technology meets the 

newness criterion.

With respect to the cost criterion, the applicant researched claims data in the 

FY 2013 MedPAR file, which contained inpatient hospital discharges from 

October 1, 2012, to September 30, 2013, and identified cases reporting ICD-9-CM 

diagnosis codes 204.00 (Acute lymphoid leukemia, without mention of having achieved 

remission) and 204.02 (Acute lymphoid leukemia in relapse), which represent patients 

who may potentially be eligible for treatment using the BLINCYTOTM technology. The 

applicant found 2,649 cases across 246 MS-DRGs, including MS-DRGs 834 through 836 

(Acute Leukemia without Major Operating Room Procedure, with MCC, with CC, and 

without CC/MCC, respectively) and MS-DRGs 837 through 839 (Chemotherapy with 

Acute Leukemia as Secondary Diagnosis, with MCC, with CC, and without CC/MCC, 

respectively), which represent approximately 48.1 percent of all cases with patients 

diagnosed with ALL. The applicant also found that MS-DRG 809 (Major Hematological 

and Immunologic Diagnoses Except Sickle Cell Crisis and Coagulations Disorders with 

CC) and MS-DRG 871 (Septicema or Severe Sepsis without Mechanical Ventilation 96+ 

Hours with CC) contained cases that further represent 9.8 percent of all cases 

representing patients diagnosed with ALL. The cases assigned to the remaining 238 

MS-DRGs represent a combined 42.1 percent of all cases representing patients diagnosed 
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with ALL, with no single MS-DRG containing cases representing more than 2.0 percent 

of all cases representing patients diagnosed with ALL. The applicant also noted that 

when identifying cases that may be eligible for the BLINCYTOTM technology, it 

excluded any claims for discharges paid by Medicare Advantage plans, as well as any 

claims submitted by Medicare PPS-exempt cancer hospitals.

Because the applicant was unable to provide a single estimate of the charges that 

would be avoided by using the BLINCYTOTM technology (that is, additional charges 

incurred during treatment using other technologies), the applicant conducted its own cost 

analysis using two scenarios for each group of MS-DRGs. The first scenario assumed 

that 50 percent of the charges for drugs would be eliminated by using the BLINCYTOTM 

technology, and the second scenario assumed that 75 percent of the charges for drugs 

would be eliminated. The applicant further conducted sensitivity analyses for each of the 

top eight MS-DRGs containing cases eligible for the BLINCYTOTM technology, as well 

as a sensitivity analysis for all of the other MS-DRGs outside of the top eight to which 

eligible cases mapped. The applicant then examined the average case-weighted 

standardized charge per case and the average case-weighted threshold amount for all 

2,649 cases identified during FY 2013 across all 246 MS-DRGs, and for 1,533 cases 

during FY 2013 across the top 8 MS-DRGs to demonstrate that the technology meets the 

cost criterion.

Under the analysis’ first scenario, 50 percent of the charges for drugs incurred by 

using other technologies were removed in order to exclude the charges associated with 

the use of these technologies. The applicant determined an average case-weighted 
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threshold amount of $60,278 for the 2,649 ALL cases in the 246 MS-DRGs identified 

using the thresholds in Table 10 in the FY 2015 IPPS/LTCH PPS final rule. The 

applicant also determined an average case-weighted standardized charge per case of 

$245,006, or $184,728 above the average case-weighted threshold amount. For the 

subset of 1,533 cases that mapped to the top 8 MS-DRGs, the applicant determined an 

average case-weighted threshold amount of $65,478 using the threshold in Table 10 in 

the FY 2015 IPPS/LTCH PPS final rule. The applicant also determined an average 

case-weighted standardized charge per case of $249,354, or $183,876 above the average 

case-weighted threshold amount. Based on the applicant’s analyses, we believe that the 

BLINCYTOTM technology meets the cost criterion under the first scenario.

Under the second scenario, the applicant removed 75 percent of charges for drugs 

incurred by using other technologies in order to exclude the charges associated with the 

use of these technologies. The applicant determined an average case-weighted threshold 

amount of $60,278 for the 246 MS-DRGs identified using the thresholds from Table 10 

in the FY 2015 IPPS/LTCH PPS final rule. The applicant determined an average 

case-weighted standardized charge per case of $239,321, or $179,043 above the average 

case-weighted threshold amount. For the subset of 1,533 cases that mapped to the top 8 

MS-DRGs, the applicant determined an average case-weighted threshold amount of 

$65,478 using the thresholds from Table 10 in the FY 2015 IPPS/LTCH PPS final rule. 

The applicant determined an average case-weighted standardized charge per case of 

$242,423, or $176,945 above the average case-weighted threshold amount. Based on the 
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applicant’s analyses, we believe that the BLINCYTOTM meets the cost criterion under the 

second scenario.

In conducting the above analyses, the applicant summarized the charges from the 

claims it identified and standardized the charges using an unspecified data source. The 

applicant then inflated all charges from FY 2013 to FY 2015 using the 10.4427 percent 

inflation factor used by CMS to update the FY 2015 outlier threshold. In determining the 

costs for the technology per case, the applicant also assumed that the BLINCYTOTM 

technology would be administered for 28 days during each inpatient stay. The applicant 

also assumed a hospital markup of 2.0 percent, and applied this amount to its estimated 

charges per case.

We have three concerns regarding the applicant’s methodology and assumptions 

used in its cost analyses. We are concerned that the applicant did not specify whether it 

used the FY 2015 IPPS final rule impact file or another data source to standardize the 

charges per case for this technology. We also are concerned that the applicant did not 

provide a basis for the hospital markup assumed when conducting its cost analyses. 

Unless the applicant provides this information, we are unable to determine whether the 

cost of the technology per case has been calculated appropriately. Moreover, we are 

concerned that including charges representative of a full 28-day treatment cycle is not 

appropriate for the purpose of calculating the charges associated with the BLINCYTOTM 

technology in order to determine whether the technology meets the cost criterion. 

According to the applicant, clinical trial data demonstrate that there are large subsets of 

patients who require inpatient care for the full 28-day treatment cycle because of the 
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extreme clinical conditions relating to patients diagnosed with ALL. However, the 

applicant also conceded that only 25 percent of patients enrolled in the U.S. clinical trial 

were hospitalized for the full 28-day treatment cycle, and only 38 percent of these 

patients were over the age of 65. This causes us concern regarding whether the 

methodology used by the applicant in its cost analysis is appropriate. We are inviting 

public comments on if, and how, the BLINCYTOTM technology meets the cost criterion, 

specifically in regard to our concerns related to the applicant’s methodology.

With respect to the substantial clinical improvement criterion, the applicant 

asserted that the BLINCYTOTM technology represents a substantial clinical improvement 

for the treatment of patients diagnosed with R/R ALL because it offers a treatment option 

for patients who may be unresponsive to currently available options for treatment, 

decreases the rate of subsequent therapeutic interventions for patients who might not have 

otherwise achieved remission, and reduces mortality. The applicant provided data 

analysis results from four sources to demonstrate that the technology represents a 

substantial clinical improvement. These sources include a historical literature search, a 

model-based meta-analysis (Study 118427), a historical comparator data (Study 

20120310), and a pivotal clinical trial (Study MT 103-211). We summarize the results 

from each of these sources below.

● The historical literature search revealed that superior regimens among currently 

used chemotherapeutic options result in a complete remission rate ranging from 18.0 

percent to 38.6 percent, a median overall survival rate for patients experiencing early first 

relapse (<12 months) at 4.7 months, and a median overall survival rate for patients 
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experiencing second or later relapse at 3 months. However, there are several limitations 

to using recent literature as a historical comparison for studies relating to patients 

diagnosed with R/R ALL, including differences in patient populations or study design 

characteristics across published studies, which make it difficult to formulate absolute 

comparisons with regard to data obtained from the BLINCYTOTM pivotal clinical trial. 

Therefore, the applicant conducted a model-based meta analysis (Studies 118427 and 

119384), and a historical comparator study (Study 20120310) to account for these 

differences.

● In the model-based meta analysis (MBMA), the endpoints of complete 

remission (CR), duration of complete remission (DCR), and overall survival (OS) rate 

models were used to predict the efficacy of the BLINCYTOTM technology in cases 

representing patients diagnosed with relapsed/refractory ALL relative to patients treated 

using existing therapies. Simulations based on the MBMA for adult patients diagnosed 

with relapsed/refractory B-precursor ALL projected a poor outcome with existing salvage 

therapies, and a significant increase in the proportion of CR, DCR, and OS rates in a 

population with the same summary prognostic factors as those enrolled in the 

BLINCYTOTM study MT103-211. For adult patients diagnosed with relapsed/refractory 

ALL who were treated with existing salvage therapies and having the same summary 

prognostic factors as those enrolled in the BLINCYTOTM study MT 103-211, the 

projected proportion of CR was 0.121 (95 percent CI: 0.041 to 0.341), the median DCR 

rate was 4.9 months (95 percent CI: 2.5 to 9.2 months), and the median OS rate was 3.9 

months (95 percent CI: 3.0 to 4.7 months). For adult patients diagnosed with R/R ALL 
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having the same summary prognostic factors as those enrolled in the BLINCYTOTM

study MT 103-211, treatment using the BLINCYTOTM technology when compared with 

existing salvage therapies is expected to have an odds ratio for proportion of CR of 3.50 

(95 percent CI: 1.63 to 8.40), a hazard ratio for DCR of 0.53 (95 percent CI: 0.30 to 

0.89), and a hazard ratio for OS of 0.60 (95 percent CI: 0.47 to 0.76). The applicant 

maintained that these results suggest that the BLINCYTOTM technology is associated 

with a reduced mortality rate and improved clinical outcomes when compared to standard 

chemotherapy treatment options.

● A historical comparator study was also conducted to obtain patient-level data 

for standard of care treatment options for patients experiencing early first relapse, 

refractory relapse after HSCT, and second or greater relapse in the same patient 

population as targeted in the BLINCYTOTM pivotal clinical trial. Study 20120310 was a 

retrospective pooled analysis of historical data available from 1990 to 2014 on 

hematological remission and survival rates among patients diagnosed with Ph- R/R B-cell 

precursor ALL who were treated with standard of care therapies. The primary study 

endpoint was CR following relapse or salvage treatment; and secondary endpoints 

included estimates of OS rates, RFS rates, and the proportion of patients receiving 

alloHSCT. The weighted median OS rate for 1,112 patients based on available data was 

3.3 months (95 percent CI: 2.8 to 3.6 months) and was calculated from the start of the last 

salvage treatment or the first relapse (if start of the last salvage date was unavailable) 

until the time of death. The weighted OS rate at 6 and 12 months was 30 percent (95 

percent CI: 27 percent to 34 percent) and 15 percent (95 percent CI: 13 percent to 18 
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percent), respectively. Among the patients who achieved CR based on available data 

(108 patients), the weighted median RFS rate was 5.0 months (95 percent CI: 1.2 to 6.6 

months). Among the 808 patients who received alloHSCT after salvage therapy based on 

available data, 18 percent (95 percent CI: 15 percent to 21 percent) received alloHSCT 

following the last line of salvage therapy, and among patients who achieved CR, 7 

percent (95 percent CI: 5 percent to 9 percent) received alloHSCT. The applicant 

maintained that these results highlight the poor health care outcomes for patients treated 

with standard chemotherapy and that BLINCYTOTM represents a significant 

improvement.

● BLINCYTOTM study MT 103-211 is a pivotal clinical study providing efficacy 

data for the BLINCYTOTM technology used for the treatment of adult patients diagnosed 

with Ph- R/R B-cell precursor ALL. It is a phase 2, single-arm study that included a 

particularly difficult patient population to treat consisting of patients diagnosed with PhB-cell precursor ALL who experienced either: (1) R/R after remission during 12 months 

or less of the first salvage treatment; (2) R/R after the first salvage treatment; or ( 3) R/R 

within 12 months after receiving alloHSCT. The primary endpoint was the rate of CR 

plus CRh within the first 2 cycles of treatment using the BLINCYTOTM technology. The 

key secondary endpoints include best overall response within 2 cycles of treatment using 

the BLINCYTOTM technology, RFS, time of hematological relapse, OS rates, and the 

proportion of patients eligible for alloHSCT who underwent the procedure after receiving 

treatment using the BLINCYTOTM technology. An analysis of data from the pivotal trial 

showed that 40 percent of patients treated with the BLINCYTOTM technology who 
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achieved CR or CRh were able to proceed to alloHSCT. A secondary analysis from the 

pivotal study found that in patients who achieved CR or CRh and had a minimal residual 

disease assessment during the first 2 cycles, the MRD response rate (little or no evidence 

of disease even at the molecular level) was 82.2 percent. The applicant asserted that this 

finding is significant because MRD is often a harbinger of relapse and a poor prognostic 

factor for patients diagnosed with ALL.

We are concerned that the data provided from the clinical studies are not 

sufficient to demonstrate that the BLINCYTOTM technology meets the substantial clinical 

improvement criterion. For example, the BLINCYTOTM study MT 103-211 was not

randomized or blinded, and was comprised of a small sample group of 189 patients with a 

median age of 39 years. We are concerned that the sample group studied during the 

clinical trial is not appropriate to determine if the technology represents a substantial 

clinical improvement in treatment options available for the Medicare patient population. 

Moreover, we are concerned that meaningful conclusions cannot be drawn from the 

results of this study because of the lack of a control group.

With regard to the applicant’s assertion that the BLINCYTOTM technology offers 

a treatment option for patients who may be unresponsive to currently available treatment 

modalities, the applicant specifically focused on how the BLINCYTOTM technology 

represents a treatment option for a patient population in which chemotherapy has proven 

to be unsuccessful, or for whom intensive chemotherapy treatment is not possible 

because of the risks associated with exposure to cumulative toxicities. The applicant 

believed that the MBMA, the historical comparator study, and the BLINCYTOTM study 
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MT 103-211, which is a pivotal clinical trial sufficiently isolate this patient population in 

order to measure specific health care outcomes. We agree with this assertion. However, 

our concerns with the isolated patient population are that it is comprised of and represents 

a small sample group of patients whose age demographic is much younger than the age 

demographic of eligible Medicare beneficiaries.

The applicant also asserted that the BLINCYTOTM technology decreases the rate 

of subsequent therapeutic interventions for patients who might not have otherwise 

achieved remission. In other words, because treatment with the BLINCYTOTM 

technology appears to increase the possibility of some patients achieving remission, the 

applicant maintained that these patients would receive fewer therapeutic interventions 

and become eligible to receive alloHSCT. We believe that it is difficult to determine 

what services and therapeutic interventions these patients would have required if they had 

not achieved remission, and we are not convinced that treatment using the BLINCYTOTM 

technology leads to a decrease in additional therapeutic interventions. We also note that 

patients who successfully achieve remission proceed to alloHSCT and, therefore, receive 

a different set of subsequent therapeutic interventions.

With regard to the applicant’s assertion that the BLINCYTOTM technology 

reduces mortality rates, we note that the applicant did not directly capture mortality rates 

as an endpoint in the BLINCYTOTM pivotal study (MT 103-211), although mortality was 

analyzed during the other three studies that support the new technology add-on payment 

application. We note that the data and the MBMA’s results included with the 

technology’s application used an OS odds ratio as a measure of mortality, and were 
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developed from 18 studies published between January 1995 and December 2012. We are 

concerned that relying on the results of data using a measure of mortality that is 

contingent upon studies completed in the 1990s presents a limitation in regard to the 

methodology used in the applicant’s analysis. Advances in overall oncology care over 

the past 2 decades may invalidate the patient population represented in these studies as a 

comparison group. Therefore, we find it difficult to attribute the reduced mortality rate 

and improved clinical outcomes revealed by these studies to the efficacy of the 

BLINCYTOTM technology.

We are inviting public comments on if, and how, the BLINCYTOTM technology 

meets the substantial clinical improvement criterion, specifically in regard our specified 

concerns.

c. Ceftazidime Avibactam (AVYCAZ)

Cerexa, Inc., an affiliate of Actavis, Inc., submitted an application for new 

technology add-on payments for FY 2016 for Ceftazidime Avibactam (AVYCAZ). 

AVYCAZ is used for the treatment of adult patients who have been diagnosed with 

complicated urinary tract Infections (cUTIs), including pyelonephritis and complicated 

Intra-abdominal Infections (cIAIs), for which there are limited or no available treatment 

options. Although AVYCAZ is indicated for the treatment of patients who have been 

diagnosed with cUTIs and cIAIs, the applicant asserted that the product may also be used 

in the treatment of patients diagnosed with cUTIs and cIAIs caused by extendedspectrum β-lactamase (ESBL)-producing Gram-negative pathogens, carbapenem-resistant 

Enterobacteriaceae (CRE), and multidrug-resistant (MDR) Pseudomonas aeruginosa.
CMS-1632-P 451

AVYCAZ is an intravenous β-lactam/β-lactamase inhibitor combination 

antibacterial drug, consisting of an anti-pseudomonal, Cephalosporin (also referred to as 

Ceftazidime), and a β-lactamase inhibitor, Avibactam. Ceftazidime is currently available 

and widely used as an extended spectrum of Cephalosporin. However, in recent years 

Cephalosporin has had diminishing effects because of increasing levels of antibiotic 

resistance in specific bacteria. Some species of bacteria produce ß-lactamase enzymes, 

which cleave the ß-lactam in antibiotics such as penicillin that have a ß-lactam ring in 

their structure. The ß-lactamase enzymes inactivate the antibiotic and cause the bacteria 

to become resistant to that antibiotic. To avoid development of resistance, in current 

practices ß-lactamase inhibitors are administered in combination with ß-lactam 

antibiotics to inhibit the action of ß-lactamase enzymes and prevent the development of 

antibiotic resistance because ß-lactamase inhibitors block the activity of ß-lactamase 

enzymes. This tends to widen the spectrum of antibacterial activity. For example, a 

commonly used β-lactamase inhibitor, Clavulanic acid or Clavulanate, is usually 

combined with Amoxicillin to create Augmentin or Ticarcillin (Timentin); Sulbactam 

(also a commonly used ß-lactamase inhibitor) is usually combined with Ampicillin to 

create Cefoperazone; and Tazobactam is usually combined with Piperacillin.

Ceftazidime is not combined with any β-lactamase inhibitors. Combining 

Ceftazidime with Avibactam prohibits bacteria from developing resistance to the 

antibiotic and protects Ceftazidime from being inactivated by β-lactamase enzymes. 

According to the applicant, unlike other inhibitors, Avibactam does not induce Class C 

enzymes that diminish the activity of Cephalosporin. Administering Ceftazidime in 
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combination with Avibactam decreases the minimum inhibitory concentration (MIC) of 

Class A and Class C isolates, and some Class D isolates, thereby restoring the in vitro

activity of Ceftazidime against these resistant isolates.

AVYCAZ is administered as a treatment to patients 18 years of age, or older, who 

have been diagnosed with a cUTI and/or a cIAI in doses of 2.5g (2g of Ceftazidime and 

0.5g of Avibactam), every 8 hours by intravenous infusion spanning over a 2-hour time 

period. The recommended duration of treatment with AVYCAZ for patients diagnosed 

with a cIAI (used in combination with Metronidazole) is 5 to 14 days as an inpatient. 

The recommended duration of treatment with AVYCAZ for patients diagnosed with a 

cUTI is 7 to 14 days as an inpatient. The FDA has authorized a randomized multi-center, 

active-controlled trial to evaluate the safety and tolerability of AVYCAZ in children who 

are at least 3 months of age, and in adults 18 years of age or older who have been 

diagnosed with a cUTI and/or cIAI as part of the post-marketing surveillance studies. 

The FDA also authorized and recommended a clinical trial to study the use of AVYCAZ 

in the treatment of patients who have been diagnosed with a cIAI and to generate phase 3 

data as an effort to evaluate the pharmacokinetics, safety, and clinical outcomes of adult 

patients diagnosed with baseline renal impairment (creatinine clearance of 50 mL/min or 

less) who also are eligible for, or being treated with, AVYCAZ--adjusting dosage 

regimens to protect renal function.

With regard to the newness criterion, AVYCAZ was approved by the FDA on 

February 25, 2015. As stated earlier in section II.G.1.a. of the preamble of this proposed 

rule, for FY 2016, effective October 1, 2015 (FY 2016), the ICD-10 coding system will 
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be implemented. We note that the applicant submitted a request and presented at the 

September 2014 Coordination and Maintenance Committee Meeting to apply for 

ICD-10-PCS codes that uniquely identify the administration of Ceftazidime-Avibactam 

Anti-infective. More information on this request can be found on the CMS Web site at: 

http://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-Cand-M-Meeting-Materials.html.

Currently, ICD-10-PCS procedure codes 3E03329 (Introduction of other 

anti-infective into peripheral vein, percutaneous approach) and 3E04329 (Introduction of 

other anti-infective into central vein, percutaneous approach) describe the injection of an 

antibiotic. However, these ICD-10-PCS codes are not specific to the type of antibiotic 

used. We received public comments during and after the March 2015 ICD-10 

Coordination and Maintenance Committee meeting that supported the creation of a 

unique code to identify the AVYCAZ antibiotic when it is used in the treatment of 

patients who have been diagnosed with cUTIs and cIAIs. As a result, the following 

ICD-10-PCS codes were created under the new Section X to describe the specific use of 

AVYCAZ and are effective October 1, 2015 (FY 2016): XW03321 (Introduction of 

ceftazidime-avibactam anti-infective into peripheral vein, percutaneous approach, new 

technology group 1); and XW04321 (Introduction of ceftazidime-avibactam antiinfective into central vein, percutaneous approach, new technology group 1). If the 

AVYCAZ technology is approved for new technology add-on payments, we believe that 

the newness period would begin on February 25, 2015, the date of FDA approval. At this 

time, the applicant has not submitted any information that suggests the technology was 
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not available on the U.S. market as of the FDA approval date. The applicant maintained 

that AVYCAZ meets the newness criterion. We are inviting public comments on 

whether AVYCAZ meets the newness criterion.

According to the applicant, the most current guidelines recommend treatment for 

patients hospitalized because of a cUTI diagnosis using antibiotic drugs such as 

Cefepime, Ceftriaxone, and Piperacillin/Tazobactam.6 For patients who have been 

diagnosed with a cIAI and who are advanced in age, the most current guidelines 

recommend treatment using antibiotic drugs such as Imipenemcilastin, Meropenem, and 

Piperacillin/Tazobactam.7 We are concerned that AVYCAZ may be substantially similar 

to other currently available treatment options, which also are used in the treatment of 

these types of infections. 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 these 

criteria, it would be considered substantially similar to an existing technology and would 

not be considered “new” for purposes of new technology add-on payments.

 

6 Drugs for urinary tract infections. JAMA. 2014;311(8):855-6. Available at: 

http://jama.jamanetwork.com/article.aspx?articleid=1832532.

7

Solomkin JS et al. Guidelines by the Surgical Infection Society and the Infectious Diseases Society of 

America. Clin Infect Dis. 2010;50(2):133-64. Available at: 

http://cid.oxfordjournals.org/content/50/2/133.full.
CMS-1632-P 455

As stated by the applicant, Ceftazidime is currently available and widely used in 

the treatment of these types of infections. In addition, the current treatment options 

available to Medicare beneficiaries and used to treat this patient population include 

antibiotics such as Polymyxins (for example, Colistin), Aminoglycosides (for example, 

Amikacin and Gentamicin), Carbapenems (for example, Meropenem and 

Imipenem/Cilastatin), or Tigecycline. The applicant maintained that the administration 

of Ceftazidime in combination with Avibactam broadens the spectrum of ß-lactamase 

inhibition when compared to administering Ceftazidime without Avibactam and other 

currently available therapies because Avibactam has inhibiting agents that restore the in 

vitro activity of Ceftazidime that is sometimes decreased when encountered by common 

Class A and Class C isolates and some Class D isolates. The applicant also asserted that 

the technology may be used to treat patients who have been diagnosed with cUTIs and/or 

cIAIs caused by extended-spectrum β-lactamase (ESBL)-producing Gram-negative 

pathogens, Klebsiella pneumoniae carbapenemase (KPC), carbapenem-resistant 

Enterobacteriaceae (CRE), and multidrug-resistant (MDR) Pseudomonas aeruginosa. 

However, we believe that the mechanism of action of AVYCAZ is the same as the 

mechanism of action of Ceftazidime because both drugs rely upon Cephalosporin to 

achieve a successful therapeutic outcome. Further, we are concerned that AVYCAZ 

involves the treatment of the same or similar type of disease and the same or similar 

patient population as other currently approved treatment options. Therefore, we believe 

that AVYCAZ bears a substantial similarity to Ceftazidime and other currently available 

treatment options. We are inviting public comments regarding whether AVYCAZ meets 
CMS-1632-P 456

the newness criterion, specifically with regard to the substantial similarity criteria. For a 

detailed discussion of the criteria for substantial similarity, we refer readers to the 

FY 2006 IPPS final rule (70 FR 47351 through 47352) and the FY 2010 IPPS/LTCH PPS 

final rule (74 FR 43813 through 43814). 

With regard to the cost criterion, the applicant maintained that AVYCAZ meets 

the cost criterion. According to the applicant, there are 63 ICD-9-CM diagnosis codes 

that describe cUTIs and/or cIAIs. Cases representing patients who have been diagnosed 

with cUTIs and/or cIAIs may be reported on hospital claims using any 1 of 12 different 

ICD-9-CM diagnosis codes describing cUTIs, and any 1 of 51 ICD-9-CM diagnosis 

codes describing cIAIs. Therefore, cases representing patients diagnosed with either a 

cUTI or a cIAI may be assigned to multiple MS-DRGs. Of the 63 applicable ICD-9-CM 

diagnosis codes, the applicant used 35 ICD-9-CM codes to identify 2,482,157 cases from 

the FY 2013 MedPAR file, which mapped to 567 MS-DRGs. The top five MS-DRGs 

containing cases that may be eligible for AVYCAZ are: MS-DRG 689 (Kidney and 

Urinary Tract Infections with MCC); MS-DRG 690 (Kidney and Urinary Tract Infections 

without MCC); MS-DRG 871 (Septicemia or Severe Sepsis Without Mechanical 

Ventilation 96+ Hours With MCC); MS-DRG 872 (Septicemia or Severe Sepsis Without 

Mechanical Ventilation 96+ Hours Without MCC); and MS-DRG 945 (Rehabilitation 

with CC/MCC). The top five MS-DRGs represent approximately 30 percent of the cases 

identified (731,560 cases out of 2,482,157 total cases), reported using 1 of the 35 

respective ICD-9-CM diagnosis codes. To demonstrate that AVYCAZ met the cost 

criterion, the applicant provided multiple analyses for both cUTI and cIAI cases using 
CMS-1632-P 457

100 percent or 80 percent of all of the cases, as well as analyses of subset cases treated 

with low-cost generic drugs and high-cost brand named drugs administered for a length 

of 5 and 8 days.

The applicant began its analysis by searching the FY 2013 MedPAR file and 

identifying 2,183,467 cases representing patients diagnosed with a cUTI across 544 

MS-DRGs, and 298,690 cases representing patients diagnosed with a cIAI across 385 

MS-DRGs. This resulted in the identification of 1,146,971 cases representing patients 

diagnosed with a cUTI across 205 MS-DRGs, and 39,080 cases representing patients 

diagnosed with a cIAI across 32 MS-DRGs. After searching the FY 2013 IPPS Impact 

File, the applicant focused its analysis on 1,067,111 cases representing patients diagnosed 

with a cUTI across 193 MS-DRGs and 36,181 cases representing patients diagnosed with 

a cIAI across 31 MS-DRGs. The applicant further modified a portion of its analysis to 

focus on 1,067,072 cases representing patients diagnosed with a cUTI across 192 

MS-DRGs in accordance with the thresholds obtained from Table 10 of the FY 2015 

IPPS/LTCH PPS final rule.

Based on these data, for this analysis, the applicant used 100 percent of all of the 

cases representing patients diagnosed with a cUTI (1,067,072 cases) across 192 

MS-DRGs. The applicant determined an average case-weighted standardized charge per 

case of $42,736. The applicant then excluded the charges for the specific technology 

used from the average case-weighted standardized charge per case. To continue its 

analysis, the applicant used two different variables to exclude the charges for specific 

technologies used, that is, the charges for low-cost generic drugs and the charges for 
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high-cost brand named drugs administered for a length of 5 and 8 treatment days. The 

applicant explained that, at a minimum, it is recommended that antibiotics be 

administered for at least 5 days to prevent the development of antibiotic-resistant 

bacteria.8 The applicant noted that, according to the Arlington Medical Resources 

(AMR),9the average length of therapy for patients diagnosed with an UTI and/or an IAI 

who were successfully treated for less than 5 days only represents 0.28 percent of all 

cases representing these types of conditions. Therefore, a 5-day treatment regimen was 

selected as a basis to represent the most conservative approach. In addition, the AMR’s 

database indicated that the average length of therapy for patients diagnosed with an UTI 

who were successfully treated was 8.3 days and, therefore, the applicant selected a 8-day 

treatment regimen as a basis to represent a more liberal approach. The applicant also 

used data from the AMR to determine which drugs are the most commonly purchased 

injectable antibiotics. The applicant estimated a total charge of $441.75 for low-cost 

generic drugs and charges related to the infusion of these drugs for a 5-day treatment 

regimen, and $706.80 for a 8-day treatment regimen. The applicant estimated a total 

charge of $1,535.95 for high-cost brand named drugs and charges related to the infusion 

of these drugs for a 5-day treatment regimen, and $2,397.58 for an 8-day treatment 

regimen. The applicant then standardized and inflated the charges using a factor of 7.13 

 

8 Antibiotics. Merck Manual. Available at:

http://www.merckmanuals.com/home/infections/antibiotics.html.

9 The AMR database is a U.S. hospital inpatient database that provides updated information every 6 

months. AMR gathers data from approximately 300 hospitals per year, providing information from 

approximately 22,000 patient records. Pharmacists from these hospitals fill out an inpatient profile form by 

verbatim transcription of information from patient charts, such as patient demographics, surgery codes, 

antibiotics used, dosage, start and end dates for each antibiotic used, and specialty information. These 

inpatient profile forms are then submitted to AMR in paper format. Data from this sampling of hospitals is 

projected to the universe of US hospitals. Available at: http://www.amr-data.com/.
CMS-1632-P 459

percent using the Medicare Economic Index from the latest CMS Market Basket Data 

file.10 The applicant then added the charges for AVYCAZ and the infusion of AVYCAZ 

based on a 5-day treatment regimen and an 8-day treatment regimen. Depending on the 

amount of charges excluded for the use of specific drugs and the charges related to the 

infusion of these drugs, the applicant determined a final inflated average case-weighted 

standardized charge per case that ranged from $42,469 to $46,842. Using the FY 2015 

IPPS Table 10, the average case-weighted threshold amount for all of the MS-DRGs used 

is $40,303 (all calculations above were performed using unrounded numbers). Because 

the final inflated average case-weighted standardized charge per case under all of these 

scenarios exceeds the average case-weighted threshold amount, the applicant maintained 

that AVYCAZ meets the cost criterion under this analysis.

The applicant conducted another analysis using the 80-percent variable for 

846,897 cases representing patients diagnosed with a cUTI and/or a cIAI based on 3 of 

the ICD-9-CM diagnosis codes identified across 15 MS-DRGs. Depending on the 

amount of the charges excluded for the cost of the specific drugs and the charges related 

to the infusion of these drugs, the applicant determined a final inflated average 

case-weighted standardized charge per case that ranged from $37,086 to $41,459. Using 

the FY 2015 IPPS Table 10, the average case-weighted threshold amount across the 15 

MS-DRGs used is $36,411 (all calculations above were performed using unrounded 

numbers). Because the final inflated average case-weighted standardized charge per case 

under all of these scenarios exceeds the average case-weighted threshold amount, the 

 

10 Centers for Medicare and Medicaid Services. Market Basket Data. Available at:

http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-andReports/MedicareProgramRatesStats/MarketBasketData.html.
CMS-1632-P 460

applicant maintained that AVYCAZ also meets the cost criterion under this analysis.

The applicant conducted another analysis using 100 percent of all of the cases 

representing patients who have been diagnosed with a cIAI (36,181 cases) across 31 

MS-DRGs, and determined an average case-weighted standardized charge per case of 

$51,436.98. The applicant then excluded the charges for the specific technology used 

from the average case-weighted standardized charge per case. To continue its analysis, 

the applicant used two different variables to exclude the charges for the specific 

technologies used; that is, the charges for low-cost generic drugs and the charges for 

high-cost brand named drugs administered for a length of 5 and 8 treatment days. The 

applicant explained that, at a minimum, it is recommended that antibiotics be 

administered for at least 5 days to prevent the development of antibiotic-resistant 

bacteria. The applicant also noted that, according to the AMR, the average length of 

therapy for patients diagnosed with an UTI and/or an IAI that was successfully treated in 

less than 5 days only represents 0.28 percent of all cases representing these types of 

conditions. Therefore, a 5-day treatment regimen was selected as a basis to represent the 

most conservative approach. In addition, the AMR’s database indicated that the length of 

therapy for patients diagnosed with an IAI was 11.2 days and, therefore, the applicant 

selected a 8-day regimen as a basis to represent a more liberal approach. The applicant 

then added charges for AVYCAZ and the infusion of AVYCAZ based on a 5-day or 

8-day treatment regimen. Depending on the amount of the charges excluded for the 

specific drugs used and the charges related to the infusion of these drugs, the applicant 

determined a final inflated average case-weighted standardized charge per case that 
CMS-1632-P 461

ranged from $58,565 to $62,937. Using the FY 2015 IPPS Table 10 thresholds, the 

average case-weighted threshold amount across all of the MS-DRGs used is $51,436 (all 

calculations above were performed using unrounded numbers). Because the final inflated 

average case-weighted standardized charge per case under all of these scenarios exceeds 

the average case-weighted threshold amount, the applicant maintained that AVYCAZ 

also meets the cost criterion under this analysis.

The applicant conducted another analysis using the 80-percent variable for 28,483 

cases representing patients diagnosed with a cIAI based on 5 of the ICD-9-CM diagnosis 

codes identified across 4 MS-DRGs. Depending on the amount of the charges excluded 

for the specific drugs used and the charges related to the infusion of these drugs, the 

applicant determined a final inflated average case-weighted standardized charge per case 

that ranged from $50,435.54 to $54,809.30. Using the FY 2015 IPPS Table 10 

thresholds, the average case-weighted threshold amount across all of the MS-DRGs used 

is $47,186 (all calculations above were performed using unrounded numbers). Because 

the final inflated average case-weighted standardized charge per case under all of these 

scenarios exceeds the average case-weighted threshold amount, the applicant maintained 

that AVYCAZ also meets the cost criterion under this analysis.

We are concerned that the applicant did not use the inflation factor of 10.4427 

when calculating the average case-weighted standardized charge per case, which is the 

same inflation factor used by CMS to update the FY 2015 outlier threshold, and did not 

offer a rationale for its alternative inflation factor. We are inviting public comments on 

whether AVYCAZ meets the cost criterion, specifically with regard to our concerns.
CMS-1632-P 462

The applicant maintained that AVYCAZ represents a substantial clinical 

improvement in the available treatment options for patients diagnosed with a cIAI and/or 

a cUTI, including cUTIs and cIAIs that are known or suspected to be caused by 

extended-spectrum β-lactamase (ESBL)-producing Gram-negative pathogens, 

carbapenem-resistant Enterobacteriaceae (CRE), and multidrug-resistant (MDR) 

Pseudomonas aeruginosa. According to the applicant, existing treatment options for 

these types of conditions are very limited and pose toxicity risks. The applicant stated 

that antibiotic-resistant infections are a serious problem for health care providers and 

patients. Among the bacteria resistant to all or nearly all of the antibiotics available 

today, CRE has developed rapidly and continues to proliferate. The applicant noted that, 

as of 2014, 49 States have reported confirmed CRE infections, an increase from 42 States 

that reported and confirmed CRE infections in 2013.11,12 Almost half of hospital patients 

who get bloodstream infections from CRE bacteria die from the infection.13 The 

applicant further noted that, over the last 20 years, Gram-negative bacteria have evolved 

in defense against recently approved broad-spectrum β-lactam agents (for example, ßlactam ß-lactamase inhibitors [BL-BLIs] and carbapenems) by producing a multitude of 

“new” β-lactamases―including extended-spectrum β-lactamases (ESBLs) and 

carbapenemases that can confer resistance to these front-line agents. Because of the 

technology’s inhibiting activity against these pathogens, the applicant maintained that 

 

11 Tracking CRE– Carbapenempase producing CRE in the US. CDC HAI Website. Available at: 

http://www.cdc.gov/hai/organisms/cre/TrackingCRE.html.

12 Making health care safer – Stop infections from lethal CRE germs now. CDC Vital Signs 2013. 

Available at: http://www.cdc.gov/vitalsigns/pdf/2013-03-vitalsigns.pdf.

13 Antobiotics. Merck Manual. Available at: 

http://www.merckmanuals.com/home/infections/antibiotics.html.
CMS-1632-P 463

AVYCAZ may provide a safer and more effective treatment option for patients diagnosed 

with cIAIs and cUTIs caused by these antibiotic-resistant organisms. The applicant 

further noted that there are serious side effects associated with the current treatment

options and regimens, such as Polymyxins, Colistin, Aminoglycosides, Carbapenems, 

and Tigecycline,14 including resistance to nephrotoxicity.

The applicant provided data from the REPRISE study, which compared 

AVYCAZ and Carbapenem, also used as a treatment option for patients diagnosed with 

cIAIs and cUTIs. This study was specifically designed to demonstrate the inhibiting 

activity of Avibactam to restore the clinical and microbiological efficacy of Ceftazidime 

verses Ceftazidime-resistant, β-lactamase-producing Gram-negative bacteria. According 

to the applicant, in the pooled cIAI and cUTI studies,15 the by-pathogen microbiological 

response rate was assessed using the test of cure (TOC) as a measuring tool. TOC refers 

to the reculturing of a site of initial infection to determine whether the patient is cured.16 

TOC was the same or numerically higher for AVYCAZ versus the comparator for almost 

all pathogens isolated for the treatment of ceftazidime-nonsusceptible (CAZ-NS). We are 

concerned that the results of this study do not show that AVYCAZ has more favorable 

clinical or microbiological responses when compared to existing technologies. 

According to § 412.87(b)(1) of our regulations, in order to satisfy the substantial clinical 

improvement criterion, the applicant must demonstrate that the technology represents an 

 

14 Bader M, Hawboldt J, Brooks A. Management of complicated urinary tract infections in the era of 

antimicrobial resistance. Postgraduate Medicine.2010; 122(6):7-15.

Rishi H, Dhillon P, Clark C. ESBLs: a clear and present danger? Critical Care Research and Practice, 

2012; Article ID 625170.

Jacoby GA, Munoz-Price LS. The New β-Lactamases.N Engl J Med 2005; 352:380-391.

15 Pooled data includes subset of patients from Phase II trials and interim data from the Phase III REPRISE 

trial.

16 http://medical-dictionary.thefreedictionary.com/test+of+cure.
CMS-1632-P 464

advance that substantially improves, relative to technologies previously available, the 

diagnosis or treatment of Medicare beneficiaries.

The applicant reported that the INFORM study17 is one of the ongoing in vitro

studies of AVYCAZ. According to the results of this study, Avibactam extends the 

activity of Ceftazidime and provides a broad spectrum of activity compared to currently 

available therapies. In addition, AVYCAZ demonstrated activity against two of the four 

areas of need as stated by the CDC, and potentially demonstrated activity against a third. 

The two areas of need that demonstrated favorable microbiological response were 

carbapenem-resistant Enterobacteriaceae (CRE) and extended-spectrum β-lactamase 

(ESBL). We are concerned that in vitro studies may not necessarily correlate with 

clinical results.

The applicant also provided conclusions and data from one of the Phase II clinical 

trials conducted for patients diagnosed with cIAIs and cUTIs, respectively. The applicant 

reported that the patients diagnosed with cIAIs were randomized to either AVYCAZ with 

Metronidazole versus the control drug Meropenem. The clinical cure rates at TOC were 

82.4 percent for the AVYCAZ + Metronidazole group, and 88.8 percent for the 

Meropenem group for patients diagnosed with cIAIs. For patients diagnosed with cUTIs, 

the applicant reported that they were randomized to either AVYCAZ versus Imipenem. 

The clinical cure rates at TOC were 80.4 percent versus 73.5 percent for the AVYCAZ

group versus the Imipenem group for patients diagnosed with cUTIs.

The applicant also provided data from the RECLAIM-1 and RECLAIM-2 trials. 

The applicant reported that these trials evaluated the safety and efficacy of AVYCAZ

 

17 Data on File. Actavis 2014.
CMS-1632-P 465

versus the control drug used to treat patients hospitalized for cIAIs. According to the 

applicant, AVYCAZ technology met the objective of statistical noninferiority when 

compared to the control drug. However, the applicant asserted, in a subgroup of patients 

diagnosed with moderate renal impairment at baseline (MRIB [defined as an estimated 

creatinine clearance (ClCr) of > 30 mL/min and ≤ 50 mL/min]), AVYCAZ combined 

with Metronidazole had lower clinical cure rates when compared to the control group. In 

addition to the clinical response rate findings, although the number of deaths was 

minimal, they were numerically higher for patients diagnosed with MRIB who were 

treated with AVYCAZ in combination with Metronidazole when compared to patients 

treated with Meropenem. The applicant acknowledged that this result was not more 

favorable and reviewed the individual cases of failure or indeterminate (including all 

deaths) for the patients diagnosed with MRIB, and identified no predominant reason for 

the treatment difference observed in the subgroup analysis. However, the applicant 

maintained that AVYCAZ represents a substantial clinical improvement because of the 

adverse effects of other currently available treatment options such as nephrotoxicity. We 

are concerned that the findings cited by the applicant lack data regarding the adverse 

effects of nephrotoxicity because of treatment using other currently available treatment 

options.

The applicant stated that, in the Phase II trials, the Medicare-eligible population 

represented 9.2 percent of the total population of patients diagnosed with cIAIs, and 14.8 

percent of the total population of patients diagnosed with cUTIs. We are concerned that a 

cohort that would reflect a Medicare population was not analyzed or predefined as a 
CMS-1632-P 466

subgroup in the trials to better understand and quantify the substantial clinical 

improvement of AVYCAZ. Furthermore, we are unsure whether a possibility of a 

favorable safety and tolerability profile for AVYCAZ relative to other currently available 

treatment options for patients diagnosed with cUTIs and cIAIs implies a substantial 

clinical improvement.

The applicant maintained that AVYCAZ represents a substantial clinical 

improvement over treatment options currently available to Medicare beneficiaries. We 

do not believe that the applicant has substantiated this assertion. With regard to the data 

indicating the safety of the technology, we are concerned that the results for the trials 

could be interpreted to suggest that use of the technology may lead to increased mortality. 

We note that the composition of the treatment and control groups may make it difficult to 

isolate the degree to which AVYCAZ affects safety and health care outcomes because the 

patients in the treatment group were also treated with another drug administered in 

combination with AVYCAZ. Moreover, we are concerned that the median age of the 

participants enrolled in the studies of AVYCAZ was between 40 and 50 years. We 

believe that it would be indicative to use a subgroup that actually represents the eligible 

Medicare population (that is, patients who are 65 years of age or older, blind, disabled, or 

diagnosed with end-stage renal disease). The applicant stated that AVYCAZ had greater 

efficacy and safety measures for patients who have limited or no other available 

treatment options. However, we are concerned that the patient population enrolled in the 

applicant’s trials were not eligible Medicare beneficiaries, nor was it definitive that these 

participants had limited or no other available treatment options. We are inviting public 
CMS-1632-P 467

comments on whether AVYCAZ meets the substantial clinical improvement criterion, 

specifically with regard to our stated concerns.

We did not receive any written public comments in response to the New 

Technology Town Hall meeting regarding the application of AVYCAZ for new 

technology add-on payments.

d. DIAMONDBACK 360® Coronary Orbital Atherectomy System

Cardiovascular Systems, Inc. submitted an application for new technology add-on 

payments for the DIAMONDBACK 360® Coronary Orbital Atherectomy System (OAS) 

(DIAMONDBACK® Coronary OAS) for FY 2016. The DIAMONDBACK® Coronary 

OAS is a percutaneous orbital atherectomy system used to facilitate stent delivery in 

patients who have been diagnosed with coronary artery disease and severely calcified 

coronary artery lesions. The system uses an electrically driven, diamond-coated crown to 

reduce calcified lesions in coronary blood vessels. The components of the 

DIAMONDBACK® Coronary OAS are: (1) the DIAMONBACK 360® Coronary Orbital 

Atherectomy Device (OAD); (2) the VIPERWIRE Advance Coronary Guide Wire; (3) 

the VIPERSLIDE Lubricant; and (4) the Orbital Atherectomy System Pump. The 

DIAMONBACK 360® OAD is designed to track exclusively over the VIPERWIRE, 

which, in turn, uses the VIPERSLIDE Lubricant to reduce the friction between the drive 

shaft of the DIAMONBACK 360® OAD and the VIPERWIRE. The Orbital 

Atherectomy System Pump provides the saline pumping mechanism and power to the 

DIAMONBACK 360® OAD. All DIAMONDBACK® Coronary OAS devices are single 

use and provide sterile application, except for the pump.
CMS-1632-P 468

With respect to the newness criterion, the DIAMONDBACK® Coronary OAS 

received FDA pre-market approval as a Class III device on October 21, 2013. As stated 

in section II.G.1.a. of the preamble of this proposed rule, effective October 1, 2015 

(FY 2016), the ICD-10 coding system will be implemented. We note that the applicant 

submitted a request for a unique ICD-10-PCS code that was presented at the 

March 18, 2015 ICD-10 Coordination and Maintenance Committee meeting. If 

approved, the code(s) will be effective on October 1, 2015 (FY 2016). More information 

on this request can be found on the CMS Web site at: 

http://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-Cand-M-Meeting-Materials.html.

According to the applicant, the DIAMONDBACK® Coronary OAS is the only 

atherectomy device that uses centrifugal force and orbital motion and, therefore, is not 

represented by the rotational, directional, or laser atherectomy device categories (as 

exemplified by Boston Scientific’s Rotablator system, the SilverHawk/Covidient devices, 

and the Spectranetics ELCA Coronary Laser, respectively). In addition, the applicant 

asserted that the DIAMONDBACK® Coronary OAS is the first and only device approved 

for use in the United States as a treatment for patients who have been diagnosed with 

severely calcified coronary artery lesions to facilitate stent delivery and optimal 

deployment. Therefore, the applicant believed that the DIAMONDBACK® Coronary 

OAS meets the newness criterion.

We are concerned that, in addition to patients who have been diagnosed with 

severely calcified coronary artery lesions, the applicant also indicated that the 
CMS-1632-P 469

DIAMONDBACK® Coronary OAS may be used in the treatment of patients who do not

have severely calcified coronary artery lesions (for example, patients for whom the 

degree of calcification may not be severe) and that this technology may be substantially 

similar to the rotational, directional, and laser atherectomy devices that are already on the 

U.S. market for the treatment of such patients. 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 these criteria, it would be considered substantially similar to 

an existing technology and would not be considered “new” for purposes of new 

technology add-on payments. 

With respect to the first criterion, the applicant maintained that the technology 

uses a differential sanding mechanism of action to remove plaque while potentially 

minimizing damage to the medial layer of the vessel. According to the applicant, this 

mechanism of action is the only one among atherectomy devices to use centrifugal force 

and orbital motion and, therefore, is not represented by the rotational, directional, or laser 

atherectomy device categories. We are concerned that the applicant did not include with 

their application data to show the effectiveness of the orbital mechanism of the 

DIAMONDBACK® Coronary OAS compared to the effectiveness of the rotational, 
CMS-1632-P 470

directional, and laser mechanisms of similar devices used in treating patients with 

calcified coronary artery lesions. Therefore, we cannot determine if the device’s 

mechanism of action is unique among atherectomy devices as the applicant claimed.

With respect to the second criterion, the applicant determined that coronary 

atherectomy cases for which the DIAMONDBACK® Coronary OAS technology would 

be appropriate are assigned to MS-DRG 246 (Percutaneous Cardiovascular Procedure 

with Drug-Eluting Stent with MCC or 4+ Vessels/Stents); MS-DRG 247 (Percutaneous 

Cardiovascular Procedure with Drug-Eluting Stent without MCC); MS-DRG 248 

(Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent with MCC or 4+ 

Vessels/Stents); MS-DRG 249 (Percutaneous Cardiovascular Procedure with 

Non-Drug-Eluting Stent without MCC); MS-DRG 250 (Percutaneous Cardiovascular 

Procedure without Coronary Artery Stent with MCC), and MS-DRG 251 (Percutaneous 

Cardiovascular Procedure without Coronary Artery Stent without MCC). We are 

concerned that potential cases involving the DIAMONDBACK® Coronary OAS would 

be assigned to the same MS-DRGs as other cases that use atherectomy devices currently 

available on the U.S. market.

With respect to the third criterion, the applicant maintained that the 

DIAMONDBACK® Coronary OAS is the first and only device approved for use in the 

United States as a treatment for severely calcified coronary lesions. According to the 

applicant, advances in current stent technology have allowed most patients with coronary 

lesions to be treated effectively with relatively favorable long-term outcomes. However, 

there remain subsets of the patient population that are still challenging to treat, including 
CMS-1632-P 471

patients with severe coronary calcification. According to the applicant, the 

DIAMONDBACK® Coronary OAS is the only atherectomy device currently available to 

treat this patient population because it is the first and only device approved for use in the 

United States for severely calcified coronary lesions. However, we are concerned that 

other devices currently available on the U.S. market may not necessarily be 

contraindicated for use in treating patients with severe coronary calcification. 

Specifically, we are not sure if patients with less than severe coronary calcification could 

be appropriately treated using the DIAMONDBACK® Coronary OAS or other 

atherectomy devices currently available on the U.S. market in order to determine if the 

DIAMONDBACK® Coronary OAS treats a different patient population as the applicant 

claimed.

We are inviting public comments on if, and how, the DIAMONDBACK®

Coronary OAS meets the newness criterion. In our subsequent discussion of the cost and 

substantial clinical improvement criteria, we limit our analysis of the new technology 

device to a patient population who has severely calcified coronary lesions for which the 

other devices are contraindicated for use.

With respect to the cost criterion, the applicant determined that cases representing 

patients who have been treated with transluminal coronary atherectomy for which the 

DIAMONDBACK® Coronary OAS technology is appropriate map to MS-DRGs 246 

through 251 as noted earlier in this section. The applicant searched the claims data in the 

FY 2013 MedPAR file for cases assigned to these six MS-DRGs (which contained claims 

for inpatient hospital discharges from October 1, 2012 to September 30, 2013) and 
CMS-1632-P 472

identified 5,443 claims for cases reporting ICD-9-CM procedure code 17.55. The 

applicant indicated that it further examined the claims data for the cases that also reported 

ICD-9-CM diagnosis code 414.4, and identified 250 claims for cases with a diagnosis of 

calcified coronary lesion. The applicant stated that it applied the standard trims used by 

CMS when selecting cases for IPPS rate calibration. Therefore, it included cases from 

IPPS hospitals, including hospitals located in Maryland, and excluded cases paid by 

Medicare Advantage plans, statistical outlier cases, and cases from hospitals that did not 

submit charges in a sufficiently broad range of revenue centers.

The applicant reported that it conducted 16 sensitivity analyses based on four 

areas of uncertainty: whether to include all coronary atherectomy cases in the analysis or 

only those cases that reported calcified coronary artery lesions; whether to consider a 

lower value or higher value as the acquisition cost of a typical atherectomy catheter; 

whether to use the full cost of the DIAMONDBACK® Coronary OAS catheter and 

materials or only the cost of the catheter alone; and whether to include or exclude a factor 

to inflate costs to FY 2015 costs. Based on the result of the sensitivity analyses with all 

16 combinations of the values that the applicant performed, the applicant reported that it 

determined that the average case-weighted standardized charge per case for the 

DIAMONDBACK® Coronary OAS would exceed the average case-weighted threshold 

amounts for MS-DRGs 246 through 251 in Table 10 of the FY 2015 IPPS/LTCH PPS 

final rule. According to the applicant, the average case-weighted standardized charge per 

case using the DIAMONDBACK® Coronary OAS device exceeds the average 

case-weighted threshold amounts for MS-DRGs 246 through 251 in Table 10 by between 
CMS-1632-P 473

approximately $6,000 to $15,000, depending on the results determined by using the 

combination of values of the four areas of uncertainty. As described below, the applicant 

believed that using the scenario that produced the lowest difference between the average 

case-weighted standardized charge per case determined by the applicant’s analyses and 

the average case-weighted threshold amounts for MS-DRGs 246 through 251 from Table 

10 in the FY 2015 IPPS/LTCH PPS final rule still exceeded the Table 10 threshold 

amounts by $5,803.

Using the scenario that produced the lowest difference between the average 

case-weighted standardized charge per case determined by the applicant and the average 

case-weighted threshold amount in the FY 2015 IPPS/LTCH PPS final rule Table 10, the 

applicant included all cases reporting coronary atherectomy (specifically, the 5,443 cases 

reported with ICD-9-CM procedure code 17.55) in this analysis. The applicant removed 

the costs of the other specific technologies used during these procedures; that is, the 

applicant removed the higher of the two standard catheter costs, and added the full cost of 

the DIAMONDBACK® Coronary OAS catheter alone. To estimate the cost for the new 

technology, the applicant divided the projected cost per patient by the national average 

CCR for supplies (0.292) included in the FY 2015 IPPS/LTCH PPS final rule. This 

resulted in an average case-weighted average standardized charge per case of $86,080. 

The applicant stated that it did not apply an inflation factor to convert the FY 2013 costs 

to FY 2015 costs for this analysis. However, in other analyses, the applicant used the 

2-year inflation factor of 10.44 percent taken from the FY 2015 IPPS/LTCH PPS final 

rule (79 FR 50379), which was the final inflation factor used in the CMS outlier threshold 
CMS-1632-P 474

calculation for the applicable fiscal year. The applicant then determined that its average 

case-weighted standardized charge per case exceeded the average case-weighted 

threshold amounts for MS-DRGs 246 through 251 in Table 10 of the FY 2015 

IPPS/LTCH PPS final rule by $5,803. The applicant maintained that all of the results of 

the analyses using this methodology that were included in its application likewise 

exceeded the Table 10 threshold amounts for these MS-DRGs and, therefore, 

demonstrated that the DIAMONDBACK® Coronary OAS meets the cost criterion.

Using the scenario that produced the lowest difference between its average 

case-weighted standardized charge per case and the average case-weighted threshold 

amounts for MS-DRGs 246 through 251 from the FY 2015 Table 10 for the analysis of 

the subgroup of cases representing patients who have severely calcified coronary artery 

lesions, the applicant reported that it included all of the cases that report coronary 

atherectomy that also reported diagnosis of calcified coronary lesions (250 cases 

reporting ICD-9-CM procedure code 414.4). As in the previous scenario, the applicant 

removed costs of the other specific technologies used during these other procedures; that 

is, the applicant removed the higher of the two standard catheter costs, and added the full 

cost of the DIAMONDBACK® Coronary OAS catheter alone. To estimate the costs for 

the new technology, the applicant divided the projected cost per patient by the national 

average CCR for supplies (0.292) in the FY 2015 IPPS/LTCH PPS final rule. This 

resulted in an average case-weighted standardized charge per case of $86,779. The 

applicant did not apply an inflation factor to convert the FY 2013 costs to FY 2015 costs 

for this analysis. The applicant then determined that the average case-weighted 
CMS-1632-P 475

standardized charge per case exceeded the FY 2015 Table 10 threshold amount of 

$80,807 by $5,972. The applicant maintained that all of the results of the analyses using 

this methodology that were included in its application likewise exceeded the Table 10 

threshold amounts for these MS-DRGs and, therefore, demonstrated that the 

DIAMONDBACK® Coronary OAS meets the cost criterion.

We question some of the assumptions underlying the four areas of uncertainty that 

were the basis for the applicant’s sensitivity analyses. We would like to know the basis 

of the higher value that the applicant considered to be a possible acquisition cost of a 

typical atherectomy catheter. We also are concerned that the applicant did not provide a 

basis for determining the two values it used to remove the costs associated with the other 

specific technologies that may have been used during the cases included in the analysis. 

We are inviting public comments on if, and how, the DIAMONDBACK® Coronary OAS 

meets the cost criterion.

The applicant maintained that the DIAMONDBACK® Coronary OAS offers a 

treatment option for a patient population that has been diagnosed with severely calcified 

coronary arteries that are ineligible for currently available treatments and results in 

improved clinical outcomes for patients who have been diagnosed with complex coronary 

artery disease related to severely calcified coronary arteries. The applicant also stated 

that the DIAMONDBACK® Coronary OAS device significantly improves clinical 

outcomes for this patient population when compared to currently available treatment 

options, including reduced mortality, a reduced rate of device-related complications, a 

decreased rate of subsequent diagnostic or therapeutic interventions (for example, due to 
CMS-1632-P 476

reduced rate of recurrence of the disease process), a decreased number of future 

hospitalizations or physician visits, more rapid beneficial resolution of the disease 

process treatment because of the use of the device, decreased pain, bleeding, or other 

quantifiable symptoms, and reduced recovery time.

The applicant included data from its ORBIT II study to demonstrate that the 

technology represents substantial clinical improvement over currently available treatment 

options, including improvement in mortality rates, major adverse cardiac event (MACE) 

rates, revascularization rates, and cost savings. According to the applicant, its ORBIT II 

study was a pivotal clinical study to evaluate the safety and effectiveness of the 

DIAMONDBACK® Coronary OAS in treating a subset of patients who have severely 

calcified coronary artery lesions. The applicant explained that the ORBIT II study was a 

prospective, multicenter, non-blinded clinical trial that enrolled 443 consecutive patients 

who have been diagnosed with severely calcified coronary lesions at 49 U.S. sites from 

May 25, 2010 to November 26, 2012, in which the DIAMONDBACK® Coronary OAS 

was used to prepare patients who had severely calcified coronary lesions for stent 

placement. According to the applicant, the DIAMONDBACK® Coronary OAS produced 

clinical outcomes that exceeded its ORBIT II study’s two primary safety and efficacy 

endpoints within a patient population. The primary safety endpoint was 89.6 percent 

freedom from 30-day MACE, compared with the performance goal of 83 percent. The 

primary efficacy endpoint (residual stenosis <50 percent post-stent without in-hospital 

MACE) was 88.9 percent, compared with the performance goal of 82 percent. The 

applicant stated that, during the trial, stent delivery after use of the DIAMONDBACK®
CMS-1632-P 477

Coronary OAS occurred successfully in 97.7 percent of cases with <50 percent residual 

stenosis in 98.6 percent of the patients in the study. The applicant further stated that low 

rates of in-hospital Q-wave MI, cardiac death, and target vessel revascularization also 

were reported. The applicant believed that the results of its ORBIT II study met both the 

primary safety and efficacy endpoints by significant margins and not only helped to 

facilitate stent delivery, but also improved both acute care and 30-day clinical outcomes 

compared to historical controls.

The applicant also compared the results of its ORBIT II study with historical 

study data that measured the performance of other coronary atherectomy devices used in 

the treatment of patients who have moderate to severely calcified coronary lesions. 

According to the applicant, the death and revascularization rates reported in the ORBIT II 

study were much lower than those rates reported in the literature for patients who had 

severely calcified coronary lesions. For example, inpatient cardiac death rates were 

reported on one reported study in the literature (Mosseri, et al.) as 1.6 percent and in 

another reported study (Abdel-Wahab, et al.) as 1.7 percent, while another study report 

(Clavijo, et al.) reported death at 30 days as 2.6 percent and 1.5 percent for RA + DES 

and DES, respectively. 18,19,20 The applicant maintained that, compared to these historical 

study data, the data results of the ORBIT II study demonstrated much lower cardiac death 

 

18 Mosseri M, Satler LF, Pichard AD, Waksman R. Impact of vessel calcification on outcomes after 

coronary stenting. Cardiovasc Revascularization Med Mol Interv. 2005;6(4):147-153.

19 Abdel-Wahab M, Richardt G, Joachim Buttner H, et al. High-speed rotational atherectomy before 

paclitaxel-eluting stent implantation in complex calcified coronary lesions: the randomized ROTAXUS 

(Rotational Atherectomy Prior to Taxus Stent Treatment for Complex Native Coronary Artery Disease) 

trial. JACC Cardiovasc Interv. 2013;6(1):10-19.

20 Clavijo LC, Steinberg DH, Torguson R, et al. Sirolimus-eluting stents and calcified coronary lesions: 

clinical outcomes of patients treated with and without rotational atherectomy. Catheter Cardiovasc Interv 

Off J Soc Card Angiogr Interv. 2006;68(6):873-878.
CMS-1632-P 478

rates of 0.2 percent in-hospital and 0.2 percent at 30 days. The applicant further reported 

that the results of its ORBIT II study showed lower mortality rates at 9 months and 1 year 

(3 percent and 4.4 percent, respectively) compared to previously reported rates (5.0 

percent and 5.85 percent at 9 months and 6.3 percent at 1 year). The study report by 

Mosseri, et al. also reported a 1.6 percent in-hospital target lesion revascularization rate 

(TLR) in a patient population with more superficial calcification,21 whereas the study 

report by Clavijo, et al. reported a 1.3 percent 30-day TLR rate for the RA + DES 

group.

22

 In contrast, the applicant reported that the results of the ORBIT II study showed 

a lower TLR rate of 0.7 percent (both in-hospital and 30-day), even though more patients 

who had severely calcified coronary lesions were included in the study, and the patients 

were older and had more comorbidities. The applicant stated that, at 1-year, the results of 

the ORBIT II study showed a higher freedom from TVR/TLR rate (94.1 percent) 

compared to previously reported rates (81.7 percent to 91.3 percent), even though 

patients who had more severely calcified coronary lesions were included in the ORBIT II 

study. According to the applicant, the MACE rate of 16.4 percent indicated in the results 

of the ORBIT II study was lower than the rate of the ROTAXUS (24.4 percent) and 

ACUITY/HORIZONS (19.9 percent) trials despite the use of a less stringent standard of 

severe calcification in the latter studies.23,24 Further, the applicant reported that patients 

 

21 Mosseri M, Satler LF, Pichard AD, Waksman R. Impact of vessel calcification on outcomes after 

coronary stenting. Cardiovasc Revascularization Med Mol Interv. 2005;6(4):147-153.

22 Clavijo LC, Steinberg DH, Torguson R, et al. Sirolimus-eluting stents and calcified coronary lesions: 

clinical outcomes of patients treated with and without rotational atherectomy. Catheter Cardiovasc Interv 

Off J Soc Card Angiogr Interv. 2006;68(6):873-878.

23 Genereux P, Madhavan MV, Mintz GS, et al. Ischemic outcomes after coronary intervention of calcified 

vessels in acute coronary syndromes. Pooled analysis from the HORIZONS-AMI (Harmonizing Outcomes 

With Revascularization and Stents in Acute Myocardial Infarction) and ACUITY (Acute Catheterization 

and Urgent Intervention Triage Strategy) TRIALS. J Am Coll Cardiol. 2014;63(18):1845-1854.
CMS-1632-P 479

in the ORBIT II study experienced a lower rate of device-related complications (such as 

dissection, abrupt closure, and perforation) compared to rates in the historical studies. 

Overall, the applicant asserted that a comparison of data from the ORBIT II study and the 

data from historical studies demonstrates that patients in the ORBIT II study had more 

severe calcium coronary lesions and potentially were more difficult to treat, although 

they experienced better outcomes.

We are concerned that the ORBIT II study conducted by the applicant lacked a 

control arm. The applicant asserted that although other FDA-approved coronary 

atherectomy products are available, none of them are indicated for the treatment of 

patients who have severely calcified coronary arteries and, therefore, could not be used as 

a control. The applicant believed that it accounted for this study limitation by comparing 

the results of the ORBIT II study to historical control subjects documented in published 

reports. However, we continue to be concerned that meaningful conclusions cannot be 

drawn from a study that did not include a comparator group. Moreover, we question the 

reliability of comparing data from the ORBIT II study to historical study data because 

different definitions of severe calcification used in each study can make absolute 

comparisons difficult and/or invalid. We are inviting public comments on if, and how, 

DIAMONDBACK® Coronary OAS meets the substantial clinical improvement criterion.

e. CRESEMBA® (Isavuconazonium)

 

24 Abdel-Wahab M, Richardt G, Joachim Buttner H, et al. High-speed rotational atherectomy before 

paclitaxel-eluting stent implantation in complex calcified coronary lesions: the randomized ROTAXUS 

(Rotational Atherectomy Prior to Taxus Stent Treatment for Complex Native Coronary Artery Disease) 

trial. JACC Cardiovasc Interv. 2013;6(1):10-19.
CMS-1632-P 480

Astellas Pharma US, Inc. (Astellas) submitted an application for new technology 

add-on payments for CRESEMBA®(isavuconazonium) for FY 2016. CRESEMBA®is 

an intravenous and oral broad-spectrum antifungal used for the treatment of adults who 

have severe invasive and life-threatening fungal infections, including invasive 

aspergillosis and mucormycosis (zygomycosis).

CRESEMBA®received FDA approval on March 6, 2015 and anticipates that the 

market availability on the U.S. market will start by the second week of April 2015. The 

FDA indication for the use of this product is for the treatment of adults who have been 

diagnosed with invasive aspergillosis and mucormycosis. Isavuconazonium has two 

formulations: an intravenous (IV) solution and an oral capsule. The IV formulation of 

isavuconazonium is administered at 200 mg of isavuconazole. The oral formulation of 

isavuconazonium is administered at 100 mg of isavuconazole. Dosing is not 

weight-based. According to the applicant, treatment of patients who have been diagnosed 

with these types of infection starts with up to 3 days of IV therapy in the inpatient 

hospital setting followed by daily oral therapy administered for the remainder of the 

inpatient stay and also the duration of treatment period, which is 13.4 days.

As stated in section II.G.1.a. of the preamble of this proposed rule, effective 

October 1, 2015 (FY 2016), the ICD-10 coding system will be implemented. We note 

that the applicant submitted a request for unique ICD-10-PCS codes that was presented at 

the March 18, 2015 ICD-10 Coordination and Maintenance Committee meeting. If 

approved, the codes will be effective on October 1, 2015 (FY 2016). More information 

on this request can be found on the CMS Web site at: 
CMS-1632-P 481

http://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-Cand-M-Meeting-Materials.html.

If the technology were to be approved for a new technology add-on payment, we 

believe its newness period would begin on March 6, 2015, the date of FDA approval. At 

this time, the applicant has not submitted any specific information to establish that the 

technology was not available on the U.S. market as of the FDA approval date or to 

describe the reasons for a delay of availability until the second week of April 2015. The 

applicant maintained that CRESEMBA® meets the newness criterion.

CRESEMBA®is part of the category of drugs known as azole antifungal drugs 

that inhibit the enzyme lanosterol 14 α-demethylase. Inhibiting this enzyme disrupts the 

process of converting lanosterol to ergosterol and, therefore, depletes the level of 

ergosterol in the fungal membrane and inhibits fungal growth. Azole antifungal drugs are 

used to treat patients with fungal infections such as aspergillosis, and other azole 

antifungal drugs also used for the treatment of these patients include voriconazole, 

posaconazole, and itroconazole. The CDC Web site at 

http://www.cdc.gov/fungal/diseases/aspergillosis/treatment.html states that voriconazole 

is used for the treatment of patients with invasive aspergillosis, but Amphotericin B 

(Amp B) as well as other antifungal drugs can be used if patients cannot take 

voriconazole or the infection is not responsive to voriconazole. Amphotericin B is the 

first‐line of therapy and the only FDA‐approved treatment of patients diagnosed with 

mucormycosis. Amphotericin B binds with ergosterol, a component of fungal cell 

membranes, and forms a transmembrane channel that leads to membrane leakage, which 
CMS-1632-P 482

is the primary effect leading to fungal cell death. The third class of antifungal drugs is 

echinocandins; examples in this group are caspofungin, micafungin, and anidulafungin. 

Echinocandins noncompetitively inhibit beta-1, 3-D-glucan synthase enzyme complex in 

susceptible fungi to disturb fungal cell glucan synthesis. Beta-glucan destruction 

prevents resistance against osmotic forces, which leads to cell lysis (http://www.cdc.gov).

According to the applicant, echinocandins are effective against aspergillosis. 

Voriconazole is the recommended treatment for patients diagnosed with invasive 

aspergillosis. However, amphotericin B and other antifungal drugs may also be used if 

voriconazole cannot be administered because a patient is suffering from porphyria (a rare 

inherited blood disorder) or has had an allergic reaction to the drug or the infection is not 

responding to treatment using voriconazole. In addition, according to the applicant, the 

efficacy of azole antifungal drugs such as posaconazole, in treating mucurmycosis is 

uncertain but has been described in certain situations.

The applicant stated that it is sometimes challenging to clinically distinguish the 

type of antifungal infection a patient may be experiencing. Therefore, the typical 

treatment of patients exhibiting symptoms of infection includes both amphotericin B and 

voriconazole. According to the applicant, for the Medicare population, both drugs are 

usually administered in combination because it is difficult and time-consuming to 

delineate the specific type of fungal infections. The applicant noted that these patients are 

often severely ill and immediate treatment of these symptoms is essential to the effective 

management of their condition.
CMS-1632-P 483

We are concerned that CRESEMBA® may be substantially similar to other 

currently approved antifungal drugs. We refer readers to the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 43813 through 43814) for a discussion of our established 

criteria for evaluating whether a new technology is substantial similar to an existing 

technology. If a technology meets all three of these criteria, 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 this technology for substantial similarity, we believe that 

CRESEMBA®has a similar mechanism of action as the other groups of antifungal drugs 

available for the treatment of patients with serious fungal infections, such as invasive 

aspergillosis and mucormycosis. As previously noted, voraconazole and itroconazole 

also are commonly used azole antifungals used to treat patients diagnosed with 

aspergillosis, and amphotericin B is a polyene antifungal commonly used to treat patients 

diagnosed with mucormycosis. The applicant maintained that the availability of the drug 

in an oral formulation constitutes a different mechanism of action. We disagree with the 

applicant’s assertion because we believe a different method of administration does not 

necessarily equate to a different mechanism of action. Although the applicant maintained 

that this technology is not substantially similar because it is administered orally, the 

applicant did not describe why it believed a different method of administration constitutes 

a different mechanism of action. Because CRESEMBA®is part of the category of drugs 

currently available known as azole antifungal drugs that inhibit the enzyme lanosterol 14 
CMS-1632-P 484

a-demethylase, it appears that the mechanism of action is not different, but that merely 

the method of administration differs.

With respect to the second criterion for determining substantial similarity, we 

believe that the use of CRESEMBA®is inclusive of the current treatment options 

available to Medicare beneficiaries and is also currently described (although not 

specifically) by established procedure codes that identify similar technologies, 

specifically other antifungal drugs that also are used in the treatment of patients 

diagnosed with similar fungal infections. The use of antifungal drugs is considered a 

nonoperating room procedure which does not impact the MS-DRG assignment of a 

patient case. Therefore, the use of CRESEMBA® would not impact the MS-DRG 

assignment of a particular case. Furthermore, the technology is indicated for use in the 

treatment of the same or similar type of disease and the same or similar patient 

population. According to the applicant, CRESEMBA®is used in conjugation with other 

treatments, and this is reflected in its analysis for the new technology cost criterion. We 

are concerned that this technology is administered with the other currently available 

treatments, and therefore cannot be considered an alternative treatment option. 

Therefore, we believe that CRESEMBA® may be considered substantially similar to 

other available treatments and cannot be considered “new” for purposes of new 

technology add-on payments. We are inviting public comments on if, and how, 

CRESEMBA® meets the newness criterion and our concerns regarding how it is 

substantially similar to other treatments for serious fungal infections.
CMS-1632-P 485

To demonstrate that the technology meets the cost criterion, the applicant 

performed two analyses. The applicant searched claims in the FY 2013 MedPAR file 

(across all MS–DRGs) for any case reporting a principal or secondary diagnosis of 

aspergillosis (ICD-9-CM diagnosis code 117.3), zygomycosis [phycomycosis or 

mucormycosis] (ICD-9-CM diagnosis code 117.7), or pneumonia in aspergillosis 

(ICD-9-CM diagnosis code 484.6). The applicant excluded any case that was treated at a 

hospital that is not paid under the IPPS, as well as any case where Medicare fee-forservice was not the primary payer. The applicant calculated the standardized charge for 

each eligible case and then inflated the standardized charge by 10.4427 percent using the 

same inflation factor used by CMS to update the FY 2015 outlier threshold 

(79 FR 50379). The applicant assumed that the average length of stay for all eligible 

cases was 13.4 days based on its analysis. To determine the charges for the drug, the 

applicant assumed 13.4 days of therapy. According to the applicant, dosages of 

isavuconazole for a patient vary based on the day of therapy, but do not vary based on the 

patient’s weight. For the first and second day of therapy, the patient would be 

administered a loading dose of 200 milligrams (mg) every 8 hours. For each subsequent 

day of therapy, the patient would be administered a maintenance dose of 200 mg per day.

For the first analysis, which was based on 100 percent of all MS-DRGs, the 

applicant identified a total of 5,984 cases with at least one of the three ICD-9-CM codes 

(aspergillosis (ICD-9-CM diagnosis code 117.3), zygomycosis [phycomycosis or 

mucormycosis] (ICD-9-CM diagnosis code 117.7), or pneumonia in aspergillosis 

(ICD-9-CM diagnosis code 484.6)) across a total of 333 MS-DRGs. The applicant’s 
CMS-1632-P 486

rationale for using all the MS-DRGs was that it believed any patient diagnosed with 

either invasive aspergillosis or invasive mucormycosis (zygomycosis) could be eligible 

for treatment using isavuconazonium, regardless of the MS‐DRG assignment. The 

applicant identified the average case-weighted threshold amounts for these 333 MSDRGs as $72,186 using Table 10 from the FY 2015 IPPS/LTCH PPS final rule. The 

applicant did not remove charges for the other specific technologies from the average 

case-weighted standardized charge per case. The applicant’s rationale for not removing 

these charges was that the patients would be administrated isavuconazonium in 

combination with the other currently approved antifungal drugs as an effective treatment 

plan. The applicant computed a final inflated average case-weighted standardized charge 

per case of $151,450. Because this average case-weighted standardized charge per case 

exceeded the average case-weighted threshold amount from the FY 2015 Table 10, the 

applicant maintained that CRESEMBA® meets the cost criterion using this first analysis.

For its second analysis, the applicant analyzed 39 MS-DRGs that accounted for 

the top 75 cases of patients eligible for treatment using isavuconazonium; this was a 

subset of 4,510 cases. Using a methodology similar to the one used in its first analysis, 

the applicant computed the final inflated average case-weighted standardized charge per 

case of $159,622. The applicant identified an average case-weighted threshold amount 

for the 39 MS-DRGs of $74,366 using Table 10 from the FY2015 IPPS/LTCH PPS final 

rule. Because the final inflated average case-weighted standardized charge per case 

exceeded the average case-weighted threshold amount in the FY 2015 Table 10, the 
CMS-1632-P 487

applicant maintained that CRESEMBA® meets the cost criterion using this second 

analysis.

We are concerned that the applicant did not remove any charges for the other 

antifungal drugs used during treatments (that is, the other component of the combination) 

because the applicant maintained that it would most likely be necessary for patients who 

are treated using CRESEMBA®to also continue treatment using the other antifungal 

drugs or medications in order to achieve successful treatment due to the severity of their 

symptoms. We believe that the applicant should have removed the charges for the other 

antifungal drugs used for treatments. We also note that the applicant did not provide 

information to substantiate its assertion that the charges for these cases would not be 

reduced because of the severity of illness among the patients. The applicant inferred that 

patients treated using CRESEMBA® would be dependent upon the simultaneous and 

combined use of the other existing therapies to achieve successful treatment. Therefore, 

we are concerned about the possibility of drug toxicity, poly pharmacy, and drug-to-drug 

interactions, especially among the Medicare population.

We are seeking public comment on whether CRESEMBA® meets the cost 

criterion, specifically with regard to our concerns regarding the applicant’s analyses and 

methodology.

With regard to substantial clinical improvement, the applicant believed that 

CRESEMBA® represents a substantial clinical improvement over existing therapies for 

patients diagnosed with invasive aspergillus and mucormycosis based on its potentially 

improved efficacy profile, potentially improved safety profile, more favorable 
CMS-1632-P 488

pharmacokinetic profile, and improved method of administration. The applicant 

discussed the unmet medical need for alternative treatment options for patients diagnosed 

with invasive aspergillosis and mucormycosis. Current treatments have limitations 

related to safety, side effects, and efficacy.25,26 The applicant provided information 

regarding its SECURE study, where the primary endpoint of all-cause mortality through 

day 42 showed that CRESEMBA®demonstrated noninferiority to voriconazole. The 

primary endpoint of all‐cause mortality through day 42 in the intent‐to‐treat population 

(ITT, N=516) was 18.6 percent in the isavuconazonium treatment group and 20.2 percent 

in the voriconazole group. However, according to the applicant, the overall safety profile 

for CRESEMBA®demonstrated similar rates of mortality and nonfatal adverse events as 

the comparator, voriconazole. The applicant also shared information from other clinical 

trials. One of these clinical trials that studied the treatment of patients diagnosed with 

invasive aspergillosis showed treatment-emergent adverse reactions occurred in 96 

percent and 99 percent of patients receiving the CRESEMBA®and voriconazole, 

respectively. We are concerned that the adverse reactions associated with the use of 

CRESEMBA®and voriconazole appear to be similar. We also are concerned that the 

applicant did not conduct the clinical trials evaluating head-to-head comparisons to 

alternative therapies such as amphotericin B. Currently, amphotericin B is the only FDA‐

approved drug for the treatment of mucormycosis, which also can be used to treat 

 

25 Lin SJ, Schranz J, Teutsch SM.: Aspergillosis case‐fatality rate: systematic review of the literature. 

ClinInfect Dis. 2001;32:358‐66.

26 Greenberg RN, Scott LJ, Vaughn HH, Ribes JA.: Zygomycosis (mucormycosis): emerging clinical 

importance and new treatments. Curr Opin Infect Dis. 2004;17:517‐25.
CMS-1632-P 489

aspergillosis. The applicant’s description of the technology was based on peer reviewed 

literature, which may be considered historical data.

With regard to improved efficacy, the applicant made several assertions. The 

applicant maintained that the use of CRESEMBA®can potentially decrease the rate of 

subsequent diagnostic or therapeutic interventions. According to the applicant, the 

technology lacks the adverse side effects of nephrotoxicity associated with 

amphotericin B.27 However, we are concerned that the results of the study reported by 

the applicant did not reflect this.

Specifically, the applicant believed that CRESEMBA® has positive activity 

against a broad range of fungi, including those resistant to other agents, thereby 

potentially decreasing subsequent therapeutic interventions.28 However, the applicant 

stated that the referenced literature indicates that further in-vivo studies are required in 

order to confirm the efficacy for treatment of severe infections caused by these fungi in 

immunocompromised patients. According to the applicant, CRESEMBA®is used to treat 

immunocomprised patients who are severely ill. The applicant also stated that 

CRESEMBA®can be used to treat patients diagnosed with invasive fungal infections 

before the pathogen has been identified, thereby potentially decreasing subsequent 

diagnostic and therapeutic interventions.29 The applicant maintained that the use of 

CRESEMBA®decreases the number of future hospitalizations or physician visits. We 

 

27 Walsh TJ, Anaissie EJ, Denning DW, Herbrecht R, Kontoyiannis DP, Marr KA, et al.: Treatment of

aspergillosis: clinical practice guidelines of the Infectious Diseases Society of America. Clin Infect Dis. 

2008;46:327‐60.

28 González GM.: Med Mycol. 2009 Feb;47(1):71-6. doi:10.1080/13693780802562969. Epub 2008 Dec 

18. PMID: 19101837 [PubMed - indexed for MEDLINE]

29 Kontoyiannis DP, Lewis RE.: How I treat mucormycosis. Blood. 2011;118:1216‐24.
CMS-1632-P 490

are concerned that the applicant did not provide data to support this determination. One 

of the applicant’s studies, SECURE, which was a global, Phase 3, multicenter, 

randomized, double-blind, parallel group, noninferiority trial that evaluated 

isavuconazole versus voriconazole for the primary treatment of patients with invasive 

fungal disease(IFDs) caused by aspergillus spp. and other filamentous fungi was 

discussed by the applicant in its application. The results of the study were presented in a 

paper stating that the length of stay for patients hospitalized with renal impairment was 

statistically significantly shorter in the treatment of patients in the isavuconazole arm 

(9 days) compared with patients treated with voriconazole in the control arm. According 

to the applicant, patients treated with isavuconazonale showed shorter hospital length of 

stay compared to those treated with voriconazole in the overall study population. 

Subgroup analyses of patients who were aged 65 years and older and patients with a BMI 

equal to or greater than 30 kg/m2 also had shorter, but not statistically significant, 

differences in length of stay when treated with isavuconazonale compared to 

voriconazole. The paper on the study revealed concerns about the small sample size in 

the subgroup (n=516) and that the differences were not statistically significant.30

With regard to improved safety and a more favorable pharmacokinetic profile, the 

applicant made several assertions. The applicant asserted that CRESEMBA®has the 

potential for simpler and more predictable dosing based on improved pharmacokinetics 

compared with other azole antifungal drugs, but the applicant did not provide data to 

substantiate this assertion. In addition, the applicant asserted that CRESEMBA®has a 

 

30 Khandelwal N, Franks B, Shi F, Spalding J, Azie N. Health Economic Outcome Analysis of Patients 

Randomized in the SECURE Phase 3 Trial Comparing Isavuconazole to Voriconazole for Primary 

Treatment of Invasive fungal Disease Caused by Aspsergillus Species or Other Filamentous Fungi.
CMS-1632-P 491

lower drug‐drug interaction potential than voriconazole or itraconazole, but did not 

provide data to substantiate this assertion. Furthermore, the applicant maintained that 

CRESEMBA®can be safely used in treating patients with renal impairment, whereas 

currently available treatments can harm the kidneys.31 In the paper accompanying the 

application, the applicant discussed aspergillosis and the various treatment options 

available and the advantages of voriconazole over deoxycholate amphotericin B (DAMB) as primary treatment for patients with invasive aspergillosis. We are concerned 

that these results were not communicated in the resulting data provided by the applicant 

that were obtained from the trials. We also are concerned that the applicant did not 

provide a rationale for its assertion that the use of CRESEMBA® represents a substantial 

clinical improvement for Medicare beneficiaries because of “simpler and more 

predictable dosing” nor did the applicant provide additional information and data 

regarding drug-to-drug interactions and nephrotoxicity.

In addition, the applicant maintained that the technology has an improved method 

of administration compared to current treatment alternatives. Specifically, the applicant 

asserted that the availability of this technology as an oral formulation is an improvement 

compared to other existing treatments, which are solely administered intravenously. We

are concerned about the applicant’s assertion because other currently approved and 

available antifungal drugs, such as voriconazole (tablets, oral suspension, or intravenous 

administration), itraconazole (capsules, oral solution, or parenteral solution), and 

posaconazole (oral suspension or parenteral solution), also can be administered orally as 

 

31 Walsh TJ, Anaissie EJ, Denning DW, Herbrecht R, Kontoyiannis DP, Marr KA, et al. Treatment of

aspergillosis: clinical practice guidelines of the Infectious Diseases Society of America. Clin Infect Dis. 

2008;46:327‐60.
CMS-1632-P 492

well as parenteral for patients diagnosed with these types of fungal infections. In 

addition, we are aware that intravenous administration of antifungal drugs may be 

necessary because patients diagnosed with invasive aspergillosis and mucuromycosis and 

treated as inpatients are often severely ill and may not be able to tolerate any food or 

medications orally. We are seeking public comments on whether or not CRESEMBA®

meets the substantial clinical improvement criterion, specifically taking into 

consideration our concerns described above.

We did not receive any written public comments in response to the New 

Technology Town Hall Meeting regarding the application for CRESEMBA® for new 

technology add-on payments.

f. Idarucizumab

Boehringer Ingelheim Pharmaceuticals, Inc. submitted an application for new 

technology add-on payments for Idarucizumab, a product developed as an antidote to 

reverse the effects of PRADAXA

® (Dabigatran), which is also manufactured by 

Boehringer Ingelheim Pharmaceuticals, Inc. Dabigatran is an oral direct thrombin

inhibitor currently indicated to: (1) reduce the risk of stroke and systemic embolism in

patients who have been diagnosed with nonvalvular atrial fibrillation (NVAF); (2) treat

deep venous thrombosis (DVT) and pulmonary embolism (PE) in patients who have been

administered a parenteral anticoagulant for 5 to 10 days; and (3) reduce the risk of

recurrence of DVT and PE in patients who have been previously diagnosed with NVAF. 

Currently, unlike the anticoagulant Warfarin, there is no specific way to reverse the 

anticoagulant effect of Dabigatran in the event of a major bleeding episode.
CMS-1632-P 493

Idarucizumab is a humanized fragment antigen binding (Fab) molecule, which 

specifically binds to Dabigatran to deactivate the anticoagulant effect, thereby allowing 

thrombin to act in blood clot formation. The applicant stated that Idarucizumab 

represents a new pharmacologic approach to neutralizing the specific anticoagulant effect 

of Dabigatran in emergency situations. If FDA approval is granted, Idarucizumab would 

be the only FDA-approved therapy available to neutralize the anticoagulant effect of 

Dabigatran. The current approach for the management of the anticoagulant effect of 

Dabigatran prior to an invasive procedure is to withhold administration of Dabigatran, 

when possible, for a certain duration of time prior to the procedure to allow sufficient 

time for the patient’s kidneys to flush out the medication. The duration of time needed to 

flush out the medication prior to the surgical procedure is based on the patient’s kidney 

function. According to the applicant, if surgery cannot be delayed to allow the kidneys 

the necessary time to flush out the traces of Dabigatran, there is an increased risk of 

bleeding.

Based on the proposed FDA indication for Idarucuzimab, the product can be used 

in the treatment of patients who have been diagnosed with NVAF and administered Dabigatran

to reverse life-threatening bleeding events, or who require emergency surgery or medical 

procedures and rapid reversal of the anticoagulant effects of Dabigatran is necessary and 

desired. As of this date, Idarucuzimab has not received approval from the FDA. However, in

June 2014, the FDA granted Idarucizumab Breakthrough Therapy Designation. In 

addition, the applicant plans to seek Fast Track Designation from the FDA. Currently, 

there are no specific ICD-9-CM or ICD-10-PCS procedure codes that describe the use of 
CMS-1632-P 494

Idarucizumab. As stated above, effective October 1, 2015 (FY 2016), the ICD-10 coding 

system will be implemented. The applicant submitted a request for unique ICD-10-PCS 

codes that was presented at the March 18, 2015 ICD-10 Coordination and Maintenance 

Committee meeting. If approved, the codes will be effective on October 1, 2015 

(FY 2016). More information on this request can be found on the CMS Web site at: 

http://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-Cand-M-Meeting-Materials.html. We are inviting public comments on whether 

Idarucizumab meets the newness criterion.

With regard to the cost criterion, the applicant conducted four analyses. The 

applicant began by researching the FY 2013 MedPAR file for cases that may be eligible 

for Idarucizumab using a combination of ICD-9-CM diagnosis and procedure codes. 

Specifically, the applicant searched the database for cases reporting anticoagulant therapy

diagnosis codes E934.2 (Agents primarily affecting blood constituents, anticoagulants) or 

V58.61 (Long-term (current) use of anticoagulants) in combination with either current

standard of care procedure codes 99.03 (Other transfusion of whole blood), 99.04 

(Transfusion of packed cells), 99.05 (Transfusion of platelets), 99.06 (Transfusion of 

coagulation factors), 99.07 (Transfusion of other serum), or 39.95 (Hemodialysis), and 

Dabigatran indication diagnosis codes 427.31 (Atrial fibrillation), 453.40 (Acute venous 

embolism and thrombosis of unspecified deep vessels of lower extremity), 453.41 (Acute 

venous embolism and thrombosis of deep vessels of proximal lower extremity), 453.42 

(Acute venous embolism and thrombosis of deep vessels of distal lower extremity), 

453.50 (Chronic venous embolism and thrombosis of unspecified deep vessels of lower 
CMS-1632-P 495

extremity), 453.51 (Chronic venous embolism and thrombosis of deep vessels of 

proximal lower extremity), 453.52 (Chronic venous embolism and thrombosis of deep 

vessels of distal lower extremity), 415.11 (Iatrogenic pulmonary embolism and 

infarction), 415.12 (Septic pulmonary embolism), 415.13 (Saddle embolus of pulmonary 

artery), 415.19 (Other pulmonary embolism and infarction), 416.2 (Chronic pulmonary 

embolism), V12.51 (Personal history of venous thrombosis and embolism), or V12.55 

(Personal history of pulmonary embolism).

To further target potential cases that may be eligible for Idarucizumab, the 

applicant also excluded specific cases based on Dabigatran contraindications, including 

all cases representing patients who have been diagnosed with chronic kidney disease 

(CKD) stage V (diagnosis code 585.5), end-stage renal disease (diagnosis code 585.6), 

prosthetic heart valves (diagnosis code V43.3), and cases representing patients who have 

been diagnosed with both CKD stage IV (diagnosis code 585.4) and either DVT or PE 

(using the same ICD-9-CM diagnosis codes listed above). As a result, the applicant 

identified 103,752 cases that mapped to 694 MS-DRGs. The applicant standardized the 

charges and computed an average case-weighted standardized charge per case of 

$57,611.

The applicant then identified hospital charges potentially associated with the 

current treatments to reverse anticoagulation,specifically charges associated with 

pharmacy services, dialysis services, and laboratory services for blood work. Due to

limitations associated with the claims data, the applicant was unable to determine the

specific drugs used to reverse anticoagulation and if these cases represented patients who 
CMS-1632-P 496

required laboratory services for blood work or dialysis services unrelated to the reversal of

anticoagulation. Therefore, the applicant subtracted 40 percent of the charges related to

these three categories from the standardized charge per case, based on the estimation that

the full amount of charges associated with these services would not be incurred by hospitals

if Idarucizumab is approved and available for use in the treatment of patients who have 

been diagnosed with NVAF and administered Dabigatran during treatment. The applicant 

then inflated the standardized charge per case by 10.4227 percent, the same inflation

factor used by CMS to update the FY 2015 outlier threshold (79 FR 50379). This 

resulted in an inflated average case-weighted standardized charge per case of $59,582. 

Using the FY 2015 IPPS Table 10 thresholds, the average case-weighted threshold 

amount across all 694 MS-DRGs is $54,850 (all calculations above were performed using 

unrounded numbers). Because the inflated average case-weighted standardized charge 

per case exceeds the average case-weighted threshold amount, the applicant maintained 

that the technology meets the cost criterion under this analysis.

The applicant also performed a similar analysis by using the same data from the 

FY 2013 MedPAR file and subtracting 60 percent of the charges associated with pharmacy 

services, dialysis services, and laboratory services for blood work. This resulted in an 

inflated average case-weighted standardized charge per case of $57,560. Using the 

FY 2015 IPPS Table 10 thresholds, the average case-weighted threshold amount across 

all 694 MS-DRGs is $54,850 (all calculations above were performed using unrounded 

numbers). Because the inflated average case-weighted standardized charge per case for 
CMS-1632-P 497

the applicable MS-DRGs exceeds the average case-weighted threshold amount, the 

applicant maintained that the technology also meets the cost criterion under this analysis.

Further, the applicant conducted two additional analyses using the same data from 

the FY 2013 MedPAR file and variables used in the previous analyses. However, instead 

of using potentially eligible cases that mapped to 100 percent of the 694 MS-DRGs 

identified, the applicant used potentially eligible cases that mapped to the top 75 percent 

of the 694 MS-DRGs identified. By applying this limitation, the applicant identified 

77,667 cases that mapped to 92 MS-DRGs. Under the analysis’ variable that subtracted 

40 percent of the charges associated with the current treatments to reverse anticoagulation, 

the applicant computed an inflated average case-weighted standardized charge per case of 

$56,627. Under the analysis’ variable that subtracted 60 percent of the charges associated

with the current treatments to reverse anticoagulation, the applicant computed an inflated 

average case-weighted standardized charge per case of $54,677. Using the FY 2015 

IPPS Table 10 thresholds, the average case-weighted threshold amount across all 92 

MS-DRGs using both scenarios is $53,008 (all calculations above were performed using 

unrounded numbers). Because the inflated average case-weighted standardized charge 

per case exceeds the average case-weighted threshold amount, the applicant maintained 

that the technology also meets the cost criterion under these variant analyses.

The applicant noted that the inflated average case-weighted standardized charge 

per case computed using all four scenarios did not include any charges for Idarucizumab. 

Therefore, the applicant maintained that the technology would also meet the cost criterion 

if charges for Idarucizumab were included because the inflated average case-weighted 
CMS-1632-P 498

standardized charge per case would increase and further exceed the average 

case-weighted threshold amount using the variables of all four analyses. We are inviting

public comments regarding the applicant’s analyses with respect to the cost criterion.

With regard to substantial clinical improvement, according to the applicant, there

are currently no specific FDA-approved antidotes to reverse the anticoagulant effects of 

Dabigatran. Management of the treatment of patients who have been diagnosed with 

NVAF and administered Dabigatran and experience bleeding may often include 

supportive care such as Hemodialysis and the use of fresh frozen plasma, blood factor

products such as prothrombin complex concentrates (PCC), activated prothrombin

complex concentrates, and recombinant factor VIIa or delayed intervention. Protamine

sulfate and Vitamin K are typically used to reverse the effects of Heparin and Warfarin,

respectively. However, due to the mechanism of action in Dabigatran, the applicant 

maintained that the use of protamine sulfate and Vitamin K may not be effective to reverse 

the anticoagulant effect of Dabigatran.

The applicant provided information regarding the management of major bleeding

events experienced by patients who were administered Dabigatran and Warfarin during the

RE-LY trial.32 During this study, most major bleeding events were only managed by

supportive care. Patients who were administered 150 mg of Dabigatran were transfused

with pack red blood cells more often when compared to patients who were administered 

Warfarin (61.4 percent versus 49.9 percent, respectively). However, patients who were 

 

32 Healy, et al.: Periprocedural bleeding and thromboembolic events with dabigatran compared with 

warfarin: results from the randomized evaluation of long-term anticoagulation therapy (RE-LY) 

randomized trial, Circulation, 2012;126:343-348.
CMS-1632-P 499

administered Warfarin were transfused with plasma more often when compared to patients 

who were administered 150 mg of Dabigatran (30.2 percent versus 21.6 percent, 

respectively). In addition, the use of Vitamin K in the treatment of patients who were 

administered Warfarin was more frequent when compared to the frequency of use in the 

treatment of patients who were administered 150 mg of Dabigatran (27.3 percent versus 10.3 

percent, respectively). The use of PCCs, recombinant factor VIIa and other coagulation

factor replacements in the treatment of patients who were administered both Warfarin and 150 mg 

of Dabigatran was minimal, and did not significantly differ in frequency when compared 

among patients assigned to either group. Hemodialysis was used in a single case.

The applicant reported that, currently, it is recommended that the administration 

of Dabigatran be discontinued 1 to 2 days (CrCl ≥ 50 ml/min) or 3 to 5 days (CrCl < 50 

ml/min), if possible, before invasive or surgical procedures because of the increased risk 

of bleeding.33 A longer period of discontinuation time should be considered for patients 

undergoing major surgery, spinal puncture, or placement of a spinal or epidural catheter 

or port, if complete hemostasis is required. The applicant stated that delaying emergency 

medical or surgical procedures can cause urgent conditions to become more severe if 

intervention is not initiated. The applicant further maintained that delaying emergency 

medical or surgical procedures for an extended period of time can ultimately lead to 

negative healthcare outcomes and increased healthcare costs. The applicant asserted that 

rapidly reversing the anticoagulant effect of Dabigatran administered to patients that 

require an urgent medical procedure or surgery allows the medical procedure or surgery 

 

33 Pradaxa® (Dabigatran Etexilate Mesylate) prescribing information. Ridgefield, CT: Boehringer 

Ingelheim; 2014.
CMS-1632-P 500

to be performed in a timely manner, which in turn may decrease complications and 

minimize the need for more costly therapies.

The applicant noted that Idarucizumab was shown to neutralize the anticoagulant

effect of Dabigatran in both animal models and healthy human volunteers.

34

 In a swine

blunt liver trauma injury model, the applicant stated that Idarucizumab effectively

reversed life-threatening bleeding episodes resulting from trauma in pigs. The applicant 

also provided data from a randomized, double-blind, placebo-controlled phase I study of 

healthy male volunteers to investigate the safety, tolerability, and pharmacokinetics of

administering single rising doses of Idarucizumab (Part 1) and explore the variant of 

dosages of Idarucizumab administered to patients that effectively reversed the anticoagulant 

effect of Dabigatran (Part 2). Safety data is limited in humans to 110 healthy male patients 

enrolled in the study that were administered dosages of Idarucizumab that ranged from 20

mg to 8 grams. In this study, 135 patients received placebo. The applicant reported that 

adverse events were generally mild in intensity and non-specific. Healthy human 

volunteers enrolled in the phase I study (1321.1) were administered Idarucizumab in 

dosages of 2 and 4 grams, which resulted in immediate and complete reversal of the 

anticoagulant effect of Dabigatran that was sustained for several hours. The applicant noted 

that in preclinical studies, the reversal of the anticoagulant effects of Dabigatran was

associated with the reversal of bleeding. These effects were consistent in animal models

of renal dysfunction, hypovolemia and shock, and trauma related bleeding. The applicant 

 

34 Honickel, et al.: Reversal of dabigatran anticoagulation ex vivo: Porcine study comparing prothrombin 

complex concentrates and idarucizumab, Thrombosis and Hemostasis, International Journal for Vascular 

Biology and Medicine, Vol. 113, April 2015.
CMS-1632-P 501

concluded that the data from these studies demonstrates that Idarucizumab effectively,

safely, and potently reverses the anticoagulant effect of Dabigatran in both animal models

and healthy human volunteers.

With regard to the substantial clinical improvement criterion, we believe that 

Idarucizumab, if approved by the FDA, may represent a treatment option that is not 

currently available to Medicare beneficiaries and, therefore, represents a substantial 

clinical improvement. However, we are concerned that the clinical data are not 

sufficient. Specifically, the applicant provided data from an animal model. In addition, 

the primary clinical data in relation to human volunteers are based primarily on a trial to 

measure safety. While the applicant did provide clinical data on the effectiveness of 

Idarucizumab, we are concerned that the evidence presented does not support the 

substantial clinical improvement criterion. Specifically, the applicant provided data from 

a small sample used to demonstrate effectiveness. Usually during clinical studies, phase 

III of a clinical trial is typically used to gather data from a larger patient population to 

demonstrate effectiveness. We are inviting public comments on whether or not 

Idarucizumab meets the substantial clinical improvement criterion, specifically in regard 

to these concerns.
CMS-1632-P 502

g. LUTONIX® Drug-Coated Balloon (DCB) Percutaneous Transluminal Angioplasty 

(PTA) Catheter and IN.PACTTM AdmiralTM Paclitaxel Coated Percutaneous Transluminal 

Angioplasty (PTA) Balloon Catheter

Two manufacturers, CR Bard Inc. and Medtronic, submitted applications for new 

technology add-on payments for FY 2016 for LUTONIX® Drug-Coated Balloon (DCB) 

Percutaneous Transluminal Angioplasty (PTA) Catheter (LUTONIX®) and IN.PACTTM 

AdmiralTM Paclitaxel Coated Percutaneous Transluminal Angioplasty (PTA) Balloon 

Catheter (IN.PACTTM AdmiralTM), respectively. Both of these technologies are 

drug-coated balloon angioplasty treatments for patients diagnosed with peripheral artery 

disease (PAD). Typical treatments for patients with PAD include angioplasty, stenting, 

atherectomy and vascular bypass surgery. PAD most commonly occurs in the 

femoropopliteal segment of the peripheral arteries, is associated with significant levels of 

morbidity and impairment in quality of life, and requires treatment to reduce symptoms 

and prevent or treat ischemic events.35 Treatment options for symptomatic PAD include 

noninvasive treatment such as medication and life-style modification (for example, 

exercise programs, diet, and smoking cessation) and invasive options which include 

endovascular treatment and surgical bypass. The 2013 American College of Cardiology 

and American Heart Association (ACC/AHA) guidelines for the management of PAD 

 

35 Tepe G, Zeller T, Albrecht T, Heller S, Schwarzwälder U, Beregi JP, Claussen CD, Oldenburg A, 

Scheller B, Speck U.: Local delivery of paclitaxel to inhibit restenosis during angioplasty of the leg. N Engl 

J Med 2008; 358: 689-99.
CMS-1632-P 503

recommend endovascular therapy as the first-line treatment for femoropopliteal artery 

lesions in patients suffering from claudication (Class I, Level A recommendation).36

The applicants for LUTONIX® and IN.PACTTM AdmiralTM stated that, in patients 

diagnosed with PAD, the femoropopliteal artery is characterized by difficult to treat 

lesions that can be long and diffuse, in a vessel that is considered the most mechanically 

stressed artery with a number of dynamic forces that impact the artery including 

shortening/elongation, torsion, compression and flexion. According to the applicants, the 

unique challenges of treating the femoropopliteal artery in patients diagnosed with PAD 

relate to insufficient outcomes from current endovascular therapies, in particular PTA and 

stent implantations. Coating of femoral and coronary stents with an antiproliferative 

drug, such as paclitaxel, sirolimus, everolimus, or zotarolimus, that is slowly released 

when it comes in contact with the arterial wall, is intended to reduce development of 

restenosis in the stented segment of the artery.37,38

The applicants noted that drug-coated balloon catheters are designed to deliver an 

antiproliferative drug directly to the arterial segment being dilated. Rather than using a 

stent to deliver the drug slowly to the dilated area, the drug coating of a balloon is 

designed to transfer the drug to the arterial wall by direct contact over a few minutes. 

The applicant maintained that if the drug is absorbed into the arterial wall, rather than 

 

36 Anderson JL, Halperin JL, Albert NM, Bozkurt B, Brindis RG, Curtis LH, DeMets D, Guyton RA, 

Hochman JS, Kovacs RJ, Ohman EM, Pressler SJ, Sellke FW, Shen WK.: Management of patients with 

peripheral artery disease (compilation of 2005 and 2011 ACCF/AHA guideline recommendations): a report 

of the American College of Cardiology Foundation/American Heart Association Task Force on Practice 

Guidelines. J Am Coll Cardiol 2013; 61:1555–70. Available at: 

http://dx.doi.org/10.1016/j.jacc.2013.01.004.

37 Owens, CD.: Drug eluting balloon overview: technology and therapy. Presented at LINC 2011, Leipzig, 

Germany.

38 Scheller B.: Opportunities and limitations of drug-coated balloon in interventional therapies. Herz 

2011;36:232-40.
CMS-1632-P 504

being washed away by blood flow once the balloon is deflated, the drug can exert its 

antiproliferative effects on the vessel with the goal of preventing restenosis.

The applicants stated that the drug-coated balloon catheter is a device-drug 

combination product comprised of a device component (an over-the-wire balloon 

catheter) and a drug component (a paclitaxel-urea coating in the case of IN.PACTTM and 

a paclitaxel- sorbitol for LUTONIXTM AdmiralTM) on the balloon, intended for the 

treatment of patients with PAD, specifically superficial femoral artery (SFA) and 

popliteal artery disease. The device is engineered for two modes of action: the primary 

mode of action is attributable to the balloon’s mechanical dilatation of de novo or 

restenotic lesions in the vessel; and the secondary mode of action consists of drug 

delivery and application of paclitaxel to the vessel wall to inhibit the restenosis that is 

normally associated with the proliferative response to the PTA procedure. Following 

predilatation with a nondrug-coated PTA balloon, the interventionalist selects a drugcoated balloon with diameter of 100 percent of reference vessel diameter (RVD) and 

length sufficient to treat 5mm proximal and distal to the target lesion and predilated 

segment (including overlap of multiple balloons). The interventionalist inflates the drugcoated balloon for a minimum inflation time of 30 seconds for delivery of paclitaxel, and 

keeps the balloon inflated for as long as necessary to achieve a satisfactory procedural 

result, which is the standard of care for all balloon angioplasties.

According to both applicants, LUTONIX®and IN.PACTTM AdmiralTM are the 

first drug coated balloons that can be used for treatment of patients who are diagnosed 

with PAD. Because cases eligible for the two devices would group to the same 
CMS-1632-P 505

MS-DRGs and we believe that these devices are substantially similar to each other (that 

is, they are intended to treat the same or similar disease in the same or similar patient 

population and are purposed to achieve the same therapeutic outcome using the same or 

similar mechanism of action), we believe that it is appropriate to evaluate both 

technologies as one application for new technology add-on payment under the IPPS. The 

applicants submitted separate cost and clinical data, and we reviewed and discuss each set 

of data separately. However, we intend to make one determination regarding new 

technology add-on payments that will apply to both devices. We believe that this is 

consistent with our policy statements in the past regarding substantial similarity. 

Specifically, we have noted that approval of new technology add-on payments would 

extend to all technologies that are substantially similar (66 FR 46915), and that we 

believe that continuing our current practice of extending a new technology add-on 

payment without a further application from the manufacturer of the competing product or 

a specific finding on cost and clinical improvement if we make a finding of substantial 

similarity among two products is the better policy because we avoid—

● Creating manufacturer-specific codes for substantially similar products;

● Requiring different manufacturers of substantially similar products from 

having to submit separate new technology applications.

● Having to compare the merits of competing technologies on the basis of 

substantial clinical improvement; and

● Bestowing an advantage to the first applicant representing a particular new 

technology to receive approval. (70 FR 47351)
CMS-1632-P 506

If these substantially similar technologies had been submitted for review in 

different (and subsequent) years, rather than the same year, we would evaluate and make 

a determination on the first application and apply that same determination to the second 

application. However, because the technologies have been submitted for review in the 

same year, we believe it is appropriate to consider both sets of cost data and clinical data 

in making a determination because we do not believe that it is possible to choose one set 

of data over another set of data in an objective manner.

CR Bard, Inc. received FDA approval for LUTONIX®on October 9, 2014. 

Commercial sales in the U.S. market began on October 10, 2014. Medtronic received 

FDA approval for IN.PACTTM AdmiralTM on December 30, 2014. Commercial sales in 

the U.S. market began on January 29, 2015. As stated in section II.G.1.a.of the preamble 

of this proposed rule, effective October 1, 2015 (FY 2016), the ICD-10 coding system 

will be implemented. We note that the applicant submitted a request and presented at the 

September 2014 ICD-10 Coordination and Maintenance Committee Meeting to create 

ICD-10-PCS codes to uniquely identify drug-coated PTA balloons used for treating PAD. 

More information on this request can be found on the CMS Web site at: 

http://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-Cand-M-Meeting-Materials.html.

We received public comments during and after the ICD-10 Coordination and 

Maintenance Committee meeting that supported the creation of unique codes to identify 

the use of a drug-coated balloon in procedures performed for treating PAD. As a result, 
CMS-1632-P 507

the following ICD-10-PCS codes listed in the table below were created and are effective 

October 1, 2015 (FY 2016):

ICD-10-

PCS Code

Code Description

047K041 Dilation of right femoral artery with drug-eluting intraluminal device using 

drug-coated balloon, open approach

047K0D1 Dilation of right femoral artery with intraluminal device using drug-coated 

balloon, open approach

047K0Z1 Dilation of right femoral artery using drug-coated balloon, open approach

047K341 Dilation of right femoral artery with drug-eluting intraluminal device using 

drug-coated balloon, percutaneous approach

047K3D1 Dilation of right femoral artery with intraluminal device using drug-coated 

balloon, percutaneous approach

047K3Z1 Dilation of right femoral artery using drug-coated balloon, percutaneous 

approach

047K441 Dilation of right femoral artery with drug-eluting intraluminal device using 

drug-coated balloon, percutaneous endoscopic approach

047K4D1 Dilation of right femoral artery with intraluminal device using drug-coated 

balloon, percutaneous endoscopic approach

047K4Z1 Dilation of right femoral artery using drug-coated balloon, percutaneous 

endoscopic approach

047L041 Dilation of left femoral artery with drug-eluting intraluminal device using 

drug-coated balloon, open approach

047L0D1 Dilation of left femoral artery with intraluminal device using drug-coated 

balloon, open approach

047L0Z1 Dilation of left femoral artery using drug-coated balloon, open approach

047L341 Dilation of left femoral artery with drug-eluting intraluminal device using 

drug-coated balloon, percutaneous approach

047L3D1 Dilation of left femoral artery with intraluminal device using drug-coated 

balloon, percutaneous approach

047L3Z1 Dilation of left femoral artery using drug-coated balloon, percutaneous 

approach

047L441 Dilation of left femoral artery with drug-eluting intraluminal device using 

drug-coated balloon, percutaneous endoscopic approach

047L4D1 Dilation of left femoral artery with intraluminal device using drug-coated 

balloon, percutaneous endoscopic approach

047L4Z1 Dilation of left femoral artery using drug-coated balloon, percutaneous 

endoscopic approach

047M041 Dilation of right popliteal artery with drug-eluting intraluminal device 

using drug-coated balloon, open approach

047M0D1 Dilation of right popliteal artery with intraluminal device using drug-coated 

balloon, open approach
CMS-1632-P 508

ICD-10-

PCS Code

Code Description

047M0Z1 Dilation of right popliteal artery using drug-coated balloon, open approach

047M341 Dilation of right popliteal artery with drug-eluting intraluminal device 

using drug-coated balloon, percutaneous approach

047M3D1 Dilation of right popliteal artery with intraluminal device using drug-coated 

balloon, percutaneous approach

047M3Z1 Dilation of right popliteal artery using drug-coated balloon, percutaneous 

approach

047M441 Dilation of right popliteal artery with drug-eluting intraluminal device 

using drug-coated balloon, percutaneous endoscopic approach

047M4D1 Dilation of right popliteal artery with intraluminal device using drug-coated 

balloon, percutaneous endoscopic approach

047M4Z1 Dilation of right popliteal artery using drug-coated balloon, percutaneous 

endoscopic approach

047N041 Dilation of left popliteal artery with drug-eluting intraluminal device using 

drug-coated balloon, open approach

047N0D1 Dilation of left popliteal artery with intraluminal device using drug-coated 

balloon, open approach

047N0Z1 Dilation of left popliteal artery using drug-coated balloon, open approach

047N341 Dilation of left popliteal artery with drug-eluting intraluminal device using 

drug-coated balloon, percutaneous approach

047N3D1 Dilation of left popliteal artery with intraluminal device using drug-coated 

balloon, percutaneous approach

047N3Z1 Dilation of left popliteal artery using drug-coated balloon, percutaneous 

approach

047N441 Dilation of left popliteal artery with drug-eluting intraluminal device using 

drug-coated balloon, percutaneous endoscopic approach

047N4D1 Dilation of left popliteal artery with intraluminal device using drug-coated 

balloon, percutaneous endoscopic approach

047N4Z1 Dilation of left popliteal artery using drug-coated balloon, percutaneous 

endoscopic approach

As we discuss above, the approval of new technology add-on payments would 

extend to all technologies that are substantially similar. Otherwise, our payment policy 

would bestow an advantage to the first applicant to receive approval for a particular new 

technology (66 FR 46915). Moreover, as we discuss above, we believe that applications 

for substantially similar technologies should be evaluated in a manner that avoids, among 
CMS-1632-P 509

other things, having to compare the merits of competing technologies on the basis of 

substantial clinical improvement. If we receive applications for substantially similar 

technologies in different years, we would apply the first determination to any subsequent 

applications for substantially similar technologies. However, because, in this case, two 

substantially similar technologies have applied for a new technology add-on payment for 

the same Federal fiscal year, we believe it is consistent with our policy to make one 

determination using all of the information submitted for the technologies rather than 

choosing one set of information to consider and not considering the other set of 

information. We believe that, in accordance with our policy, it is appropriate to use the 

earliest market availability date submitted as the beginning of the newness period. 

Accordingly, for both devices, based on our policy, if approved for new technology 

add-on payments, we believe that the beginning of the newness period would be 

October 10, 2014. We are inviting public comments on whether these two technologies 

meet the newness criterion.

As we stated above, each applicant submitted separate analyses regarding the cost 

criterion for each of their devices and both applicants maintained that their device meets 

the cost criterion. We summarize each analysis below.

With regard to LUTONIX®, to demonstrate that the technology meets the cost 

criterion, the applicant performed three different analyses. The applicant first searched 

the FY 2013 MedPAR data file that was used for the recalibration of the FY 2015 

MS-DRG relative payment weights in the FY 2015 IPPS/LTCH PPS final rule. The 

applicant applied the standard trims that CMS used when selecting cases for IPPS rate 
CMS-1632-P 510

recalibration as described in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49911). In 

other words, the applicant included cases from IPPS hospitals and Maryland hospitals 

and excluded cases paid by Medicare Advantage plans, cases from hospitals that did not 

submit charges in a sufficiently broad range of revenue centers, and statistical outlier 

cases as described in the FY 2015 IPPS/LTCH PPS final rule. The applicant then 

searched for all claims reporting ICD-9-CM procedure code 39.50 (Angioplasty of other 

non-coronary vessel(s)) and also reporting at least one of the following seven ICD-9-CM 

diagnosis codes (440.20 (Atherosclerosis of native arteries of the extremities, 

unspecified), 440.21 (Atherosclerosis of native arteries of the extremities with 

intermittent claudication), 440.22 (Atherosclerosis of native arteries of the extremities 

with rest pain), 440.23 (Atherosclerosis of native arteries of the extremities with 

ulceration), 440.24 (Atherosclerosis of native arteries of the extremities with gangrene),

440.29 (Other atherosclerosis of native arteries of the extremities), and 443.9 (Peripheral 

vascular disease, unspecified indicating peripheral artery disease). The applicant 

excluded all claims that reported any ICD-9-CM procedure codes involving a stent. A 

total of 23,157 cases reporting peripheral angioplasty were identified. Of these 23,157 

cases, MS-DRGs 252, 253, and 254 (Other Vascular Procedures with MCC, with CC and 

without CC/MCC, respectively) accounted for 65 percent of cases; MS-DRGs 237 and 

238 (Major Cardiovascular Procedures with MCC and without MCC, respectively), 

MS-DRGs 239 and 240 (Amputation for Circulatory System Disorders Except Upper 

Limb and Toe with MCC and with CC, respectively), and MS-DRG 853 (Infectious and 

Parasitic Diseases with Operating Room Procedure with MCC) accounted for 17 percent 
CMS-1632-P 511

of cases (among these, peripheral angioplasty was secondary to some other 

circulation-related procedure: a major cardiovascular procedure (MS-DRGs 237 and 

238), amputation due to poor circulation (MS-DRGs 239 and 240), or (typically) 

amputation with sepsis (MS-DRG 853)). The remaining 18 percent of cases were spread 

across a large number of other MS-DRGs. Next, the applicant obtained the average 

case-weighted charge per case based on the distribution of cases by MS-DRG and then 

identified the average case-weighted threshold for the three MS-DRG groupings from the 

threshold amounts in Table 10 of the FY 2015 IPPS/LTCH PPS final rule. The applicant 

then calculated the unadjusted (unstandardized) average case-weighted charge per case 

for all MS-DRGs. According to the applicant, charges were not removed for any prior 

technology. To estimate the charge for the new technology, the applicant divided the 

projected cost per patient by the national average CCR for supplies (0.292) in the 

FY 2015 IPPS/LTCH PPS final rule, to arrive at the average case-weighted standardized 

charges per case. The average case-weighted standardized charges per case for the three 

primary MS-DRGs 252-254 group (65 percent), the five additional MS-DRGs 237-240 

and MS-DRG 853 group (17 percent), and the other MS-DRGs (18 percent) were 

$69,243, $81,156, and $95,138, respectively. The applicant then inflated the average 

standardized case-weighted charges per case from FY 2013 to FY 2015 using the 2-year 

inflation factor of 10.44 percent specified in the FY 2015 IPPS/LTCH PPS final rule and 

added charges related to the new technology to the average case-weighted standardized 

charges per case, although the applicant indicated that it was not clear on the need to 

include an inflation factor. The final inflated average case-weighted standardized charges
CMS-1632-P 512

per case for the three primary MS-DRG groups (65 percent), the five additional MS-DRG 

groups (17 percent), and across other MS-DRGs (18 percent) were $85,386, $98,543, and 

$104,052, respectively. Because the final inflated average case-weighted standardized 

charge amounts exceed the corresponding average case-weighted threshold amounts of 

$69,594, $74,449, and $75,215, respectively, using the FY 2015 IPPS Table 10, the 

applicant maintained that the LUTONIX® meets the cost criterion for new technology 

add-on payments.

With regard to IN.PACTTM AdmiralTM, to demonstrate that the technology meets 

the cost criterion, the applicant performed two different analyses. The applicant believed 

that a case involving an angioplasty procedure that used the IN.PACTTM AdmiralTM 

drug-coated balloon catheter would map to the same MS-DRGs as a case involving a 

plain balloon angioplasty procedure, MS-DRGs 252, 253, and 254 (Other Vascular 

Procedures with MCC, with CC, and without CC/MCC, respectively). The applicant first 

searched the FY 2013 MedPAR claims data that were used for the recalibration of the 

FY 2015 MS-DRG relative payment weights in the FY 2015 IPPS/LTCH PPS final rule. 

The data in this file included discharges occurring on October 1, 2012 through 

September 30, 2013. The applicant excluded claims for all discharges for Medicare 

beneficiaries enrolled in a Medicare Advantage plan. The applicant also limited claims to 

those hospitals that were included in the FY 2013 IPPS Final Rule Impact File. In 

addition, the applicant removed claims in accordance with the trims specified in the 

FY 2013 IPPS/LTCH PPS final rule (77 FR 53326) that were used to recalibrate the 

MS-DRG relative payment weights. The applicant then searched for all claims reporting 
CMS-1632-P 513

ICD-9-CM procedure code 39.50 (Angioplasty of other non-coronary vessel(s)) in 

combination with claims reporting at least one of the following seven ICD-9-CM 

diagnosis codes (440.20 through 440.24, 440.29, and 443.9) indicating peripheral artery 

disease. The applicant excluded all claims that reported any ICD-9-CM procedure codes 

for stent implantation. The applicant believed that excluding all cases reporting stenting 

procedures would potentially underestimate the average charges for cases reporting 

peripheral angioplasty. A total of 23,157 cases involving peripheral angioplasty 

procedures were identified. Of these 23,157 cases, a majority (65 percent; 15,040 cases) 

mapped to one of the 3 primary MS-DRGs, MS-DRGs 252, 253, or 254. The remaining 

35 percent of the cases (8,117) were assigned to a number of MS-DRGs other than the 3 

primary MS-DRGs. Next, the applicant determined the distribution of cases by MS-DRG 

and the case-weighted threshold amounts from Table 10 in the FY 2015 IPPS/LTCH PPS 

final rule, for both the primary MS-DRG group and the total MS-DRG group. The 

applicant began by calculating the unadjusted (unstandardized) case-weighted average 

charge per case for all MS-DRGs. Following this computation, the applicant 

standardized the charges on each of the identified claims using the FY 2013 factors from 

the FY 2015 IPPS/LTCH PPS Final Rule Impact File, to match the year of the claims 

data used in this analysis (FY 2013 MedPAR file). According to the applicant, charges 

were not removed for any other specific technologies that may have been used because 

the applicant expected that a plain balloon will be utilized to predilate the vessel in a 

majority of drug-coated balloon angioplasty cases prior to the use of the drug-coated 

balloon (that is, the applicant did not believe it was necessary to remove charges 
CMS-1632-P 514

associated with the other specific prior technology (a plain PTA balloon catheter in this 

case). The applicant then inflated the average case-weighted standardized charges per 

case from FY 2013 to FY 2015 using the 2-year inflation factor of 10.44 percent 

specified in the FY 2015 IPPS/LTCH PPS final rule and added charges related to the new 

technology to the average charges per case. The final inflated average case-weighted 

standardized charge per case both for the primary MS-DRGs group and the total 

MS-DRG group were $82,944 and $101,611, respectively. Because the final inflated 

average case-weighted standardized charge per case for the applicable MS-DRG exceeds 

the average case-weighted threshold amounts of $69,594 and $75,215, respectively, using 

the FY 2015 IPPS Table 10, the applicant maintained that the IN.PACTTM AdmiralTM

technology meets the cost criterion for new technology add-on payments.

We are concerned that both applicants excluded cases of patients that received 

stent implantations from their analysis because the applicants believed that their 

technology can be used instead of stenting. We are seeking public comments on whether 

LUTONIX®and IN.PACTTM AdmiralTM meet the cost criterion.

With regard to substantial clinical improvement, the applicant believed that 

LUTONIX®represents a substantial clinical improvement because it meets an unmet 

clinical need by providing access to “no stent zones” and because it can achieve greater 

patency; preserve the flexibility of future interventions; and address stent fractures and 

re-stenosis.39,40

 

39 Scheinert, D., et al.: Prevalence and clinical impact of stent fractures after femoropopliteal stenting. J 

Am Coll Cardiol, 2005. 45(2): p. 312-5.

40Klein, A.J., et al.: Quantitative assessment of the conformational change in the femoropopliteal artery 

with leg movement. Catheter Cardiovasc Interv, 2009. 74(5): p. 787-98.
CMS-1632-P 515

The applicant shared the findings from its LEVANT 1 and LEVANT 2 trials.

LEVANT 1: In the LEVANT 1 trial, 101 patients were randomized to a 

LUTONIX®drug-coated balloon treatment group or a control group that received 

percutaneous transluminal angioplasty (PTA) only. The primary endpoint of mean 

angiographic Late Lumen Loss at 6 months favored the LUTONIX®drug-coated balloon 

treatment group (0.46±1.13) compared to the control PTA group (1.09±1.07), with a 

p-value of 0.016.

We are concerned that the results were not statistically significant with regard to 

the p-value documented. Adverse events were similar for both groups and through 24 

months; the percentage of patients with any death, amputation, or target vessel 

thrombosis was 8 percent in the treatment group compared to 12 percent in the control 

group.

LEVANT 2: The LEVANT 2 study is the applicant’s pivotal study that was 

conducted as a prospective, multicenter, single blind, 2:1 (test: control) randomized trial 

comparing the LUTONIX®drug-coated balloon angioplasty to standard balloon 

angioplasty used during the treatment of patients with femoropopliteal arteries. The 

applicant documented that the patient characteristics and lesions in both groups were 

well-matched; 43 percent of patients were diabetic; 35 percent were current smokers; 37 

percent were female; and 8 percent had critical limb ischemia.

The study was conducted to show that drug-coated balloon angioplasty improves 

clinical outcomes for a patient population as compared to currently available treatments. 
CMS-1632-P 516

All endpoints were adjudicated by a blinded Clinical Events Committee (CEC) and 

duplex ultrasound and angiographic core laboratories.

The applicant specified two primary endpoints that must both be met in order for 

the study to be successful. The first endpoint was primary patency at 12 months, defined 

as freedom from target lesion restenosis and target lesion revascularization (TLR). The 

results were the following: primary patency for LUTONIX® was 65.2 percent compared 

to primary patency of 52.6 percent for PTA. Kaplan-Meier analysis was 73.5 percent for 

LUTONIX®compared to 56.8 percent for PTA (p<0.001). The second primary efficacy 

endpoints were composite safety endpoints at 12 months, which included freedom from 

index-limb amputation; reintervention and related death. The results were 83.9 percent 

for LUTONIX®compared to 79.0 percent for PTA.

The secondary efficacy endpoints at 12 months for this trial were freedom from 

Target lesion revascularization (TLR), and the results were 89.7 percent for the 

LUTONIX®treatment group compared to 84.8 percent for the PTA control group, with 

p=0.17. Another end point was freedom from Target vessel revascularization (TVR), 

where the result for the LUTONIX®treatment group was 76.2 percent compared to 66.6 

percent in the control group with a p-value of 0.041. Clinical indicators, such as Ankle 

brachial index (ABI), Rutherford scores (categorization of symptomology), quality of life 

(QOL), walking distance, and walking impairment WIQ, were significantly improved 

with a p-value of <0.001. The applicant assessed the primary safety endpoint using 

Kaplan-Meier survival analysis and stated that there was no evidence of statistical 

difference.
CMS-1632-P 517

We are concerned that the patient population studied may not reflect the Medicare 

population. In particular, we note that only 37 percent of the studied patients were 

female. For instance, it could be beneficial to see additional subgroup analyses to test for 

statistical interaction between treatment and subgroups to ascertain that there is no 

imbalance in response to different subpopulations, such as males versus females.

With regard to substantial clinical improvement for the IN.PACTTM AdmiralTM, 

the applicant stated that evidence demonstrates that the technology significantly improves 

key clinical outcomes compared to previous technologies for patients with intermittent 

claudication. Examples of such key clinical outcomes included a decrease in recurrence 

of restenosis (disease process); a decrease in rates of repeat interventions (subsequent 

therapeutic interventions); a decrease in future hospitalizations; improved patient 

symptoms (decreased pain), and improvement in quality of life and function. To further 

demonstrate substantial clinical improvement, the applicant asserted that historical 

proof-of-concept research has demonstrated the utility of various drug-coated balloon 

technologies in reducing restenosis and reintervention compared with PTA.41,42 With this 

assertion, the applicant stated that there was no evidence of the promising primary 

patency and target lesion revascularization rates from large randomized controlled trials. 

This led the applicant to design the IN.PACTTM SFA Trial. The IN.PACTTM SFA Trial is 

a prospective, randomized-controlled, global, multicenter, single-blinded study conducted 

 

41 Werk M, Albrecht T, Meyer DR, Ahmed MN, Behne A, Dietz U, Eschenbach G, Hartmann H, Lange C, 

Schnorr B, Stiepani H, Zoccai GB, Hänninen EL.: Paclitaxel-coated balloons reduce restenosis after 

femoropopliteal angioplasty: evidence from the randomized PACIFIER trial. Circ Cardiovasc Interv 2012 

5: 831-40.

42 Tepe G, Zeller T, Albrecht T, Heller S, Schwarzwälder U, Beregi JP, Claussen CD, Oldenburg A, 

Scheller B, Speck U.: Local delivery of paclitaxel to inhibit restenosis during angioplasty of the leg. N Engl 

J Med 2008; 358: 689-99.
CMS-1632-P 518

with independent, blinded adjudication of all key endpoints. The primary safety end 

point was freedom from device-related and procedure-related death through 30 days, and 

freedom from target limb major amputation and clinically-driven TVR through 12 

months. The primary effectiveness endpoint was primary patency, a composite endpoint 

comprising an anatomic measure (binary restenosis as measured by duplex ultrasound or 

angiography) and a clinical measure (Clinically Driven Target Lesion Revascularization 

(CD-TLR)). The IN.PACTTM SFA Trial was designed as a two-phase, global, 

multicenter trial in which 331 patients with symptoms of claudication or rest pain and 

with a positive diagnostic finding of de novo stenosis and/or non-stented restenotic 

lesions in the SFA and/or popliteal artery (PPA) were randomized in a 2:1 fashion to 

treatment with IN.PACTTM Admiral TM drug-coated balloon or uncoated balloon 

angioplasty. The trial was prospectively designed to be conducted in two phases: 

IN.PACTTM SFA Phase I (conducted in Europe) and IN.PACTTM SFA Phase II 

(conducted in the United States), jointly referred to as IN.PACTTM SFA Trial. According 

to the applicant, the patient demographics were well-matched and of which 34 percent 

were women. We are concerned that the applicant did not match the gender variable. 

The applicant noted that, during the SFA Trial, both the study subjects and trial sponsor 

were blinded to the treatment assignments through completion of the 12-month primary 

endpoint evaluations. The applicant also stated that the independent Clinical Events 

Committee and the Core Laboratories were blinded to the treatment assignment and the 

duration of the follow-up of study participants. In addition, operators (implanting 

physicians and catheterization laboratory staff, including research coordinators) were not 
CMS-1632-P 519

blinded to the treatment delivered due to macroscopic visual differences between 

IN.PACTTM AdmiralTM drug-coated balloon and control technology.

The applicant reported the following: The primary endpoints were: improved 

primary patency rates in the IN.PACTTM AdmiralTM drug-coated balloon arm compared 

to the control arm; and primary patency within 12 months is defined as freedom from 

clinically driven target lesion revascularization and freedom from restenosis as 

determined by duplex ultrasonography peak systolic velocity ratio ≤ 2.4 or ≤50 percent 

stenosis as assessed by angiography. Results showed that the 12-month primary patency 

rate was 82.2 percent in the IN.PACTTM AdmiralTM drug-coated balloon arm versus 52.4 

percent in the PTA arm (P <0.001). In addition, the 12-month freedom from binary 

restenosis (assessed by DUS/angiography) was 83.5 percent in the IN.PACTTM 

AdmiralTM drug-coated balloon group compared to 66.3 percent in the PTA group 

(P=0.001). The second endpoint measured was Ankle-Brachial Index (ABI) showing 

0.951 in the IN.PACTTM AdmiralTM drug-coated balloon arm compared to 0.866 in the 

control arm, P=0.002. The ABI is an objective hemodynamic measure used to predict the 

severity of PAD in the lower extremity. The test is done by comparing the systolic blood 

pressure at the ankle and the systolic blood pressure in the arm while a person is at rest. 

In general, higher values are better than lower values; a normal resting ankle-brachial 

index is from 1.0 to 1.4, an abnormal resting ankle-brachial index is 0.9 or lower and an 

ABI of 0.91 to 0.99 is considered borderline abnormal.43 Secondary endpoints were 

primary sustained clinical improvement, defined as freedom from target limb amputation, 

 

43 Hirsch AT, Haskal ZJ, Hertzner NR, et al.: ACC/AHA guidelines for the management of subjects with 

peripheral arterial disease (lower extremity, renal, mesenteric, and abdominal aorta): executive summary. J 

Am Coll Cardiol 2006;47:1239-312.
CMS-1632-P 520

target vessel revascularization, and increase in Rutherford class; comparing IN.PACTTM 

AdmiralTM with the control arm was 85.2 percent versus 68.9 percent; P <0.001. The rate 

of repeat target lesion revascularization (TLR), defined by the applicant as repeat 

revascularization of the target lesion by percutaneous endovascular treatment or bypass 

surgery, was 2.4 percent in the IN.PACTTM AdmiralTM drug-coated balloon arm 

compared to 20.6 percent in the control arm. In addition, the target vessel 

revascularization (TVR) procedures (that is, any revascularization done to any segment of 

the entire target vessel that may reflect restenosis of a target lesion or disease progression 

causing a new lesion in the target artery)44 was 4.3 percent in the IN.PACTTM AdmiralTM 

drug-coated balloon arm compared to 23.4 percent in the control arm with a p-value of 

<0.001).

Other secondary endpoints were conducted and the patients were followed at 1, 6, 

and 12 months to assess the following claudication symptoms: EQ-5D; Walking 

Impairment Questionnaire (WIQ); 6-minute walk test in a subset. Claudication 

symptoms were 7.3 percent in the IN.PACTTM AdmiralTM drug-coated balloon arm 

compared to 20.7 percent in the control arm. For WIQ (defined as the ability of PAD 

patients to walk defined distances and speeds, plus climb stairs, thus evaluating 

claudication severity levels45), the gains in improvement were similar in both groups. 

 

44 Werk M, Langner S, Reinkensmeier B, Boettcher HF, Tepe G, Dietz U, Hosten N, Hamm B, Speck U, 

Ricke J.: Inhibition of restenosis in femoropopliteal arteries: paclitaxel-coated versus uncoated balloon:

femoral paclitaxel randomized pilot trial. Circulation 2008;118: 1358-65.

45 Jones WS, Schmit KM, Vemulapalli S, Subherwal S, Patel MR, Hasselblad V, Heidenfelder BL, 

Chobot MM, Posey R, Wing L, Sanders GD, Dolor RJ.: Treatment Strategies for Patients With Peripheral 

Artery Disease. Comparative Effectiveness Review No. 118. (Prepared by the Duke Evidence-based 

Practice Center under Contract No. 290-2007-10066-I.) AHRQ Publication No. 13-EHC090-EF. Rockville, 

MD: Agency for Healthcare Research and Quality; May 2013. Available at: 

http://www.effectivehealthcare.ahrq.gov/reports/final.
CMS-1632-P 521

The 6-minute walk test, which is a measure of functional exercise capacity, was 

equivocal in both arms. Quality of life (QOL) was measured using five domains of the 

EQ-5D (mobility, self-care, usual activities, pain/discomfort, and anxiety/depression) and 

was found to be equivocal.

The applicant also conducted extensive subgroup analyses of the primary safety 

end point, efficacy endpoint, and TLR rates to assess the response to IN.PACTTM 

AdmiralTM in various subpopulations, including: Rutherford category (2, 3, and 4); 

diabetes; age (≥75); lesion length (< 5 cm, ≥ 5 cm to <10 cm, ≥ 10 cm to < 18 cm); total 

occlusion, and gender. According to the applicant, although the trial was not designed to 

power the subgroup analyses, in 9 of these 11 subgroups, patients in the IN.PACTTM 

AdmiralTM treatment group were shown to have statistically significant better outcomes 

than patients in the PTA control group in the primary effectiveness and safety endpoints 

as well as clinically-driven TLR. This includes subgroups: Rutherford categories 2 &3; 

diabetes; age (≥75); lesion length ≥ 5 cm to < 10 cm; lesion length ≥ 10 cm to < 18 cm; 

total occlusion; and gender (both male and female). In the two subgroups that did not 

meet statistical significance (Rutherford category 4 and lesion length < 5 cm), data for the 

primary effectiveness and safety endpoints as well as the clinically driven TLR trended in 

favor of IN.PACTTM AdmiralTM.

We are concerned about the clinical meaningfulness of some of the endpoints 

measured by the trials conducted by the applicant. For example, there were no changes 

in functional measures such as walking distances. The applicant indicated that this may 

be because patients in the control group had additional procedures to the point their 
CMS-1632-P 522

symptoms were controlled to the same extent as those of the drug-coated balloon group. 

We believe that this assertion could be better supported with data. Another related 

example is the higher ankle-brachial index in the drug-coated balloon catheter group. 

While this is also consistent with an enduring physiologic effect of the drug-coated 

balloon device, we are concerned that these ABI measurements appear to have been made 

by unblinded study personnel.

We are concerned that the IN.PACTTM AdmiralTM technology may not be the 

optimal treatment for all patients diagnosed with peripheral arterial disease. The 

drug-coated balloon catheter has been compared only with a standard balloon, and no 

other alternatives, such as stents, surgery, or intensive exercise therapy. Therefore, it is 

unknown whether a drug-coated balloon strategy would yield the same, better, or worse 

outcomes than these alternatives. We also note that while there appears to be broader 

anatomical applicability, not all of the studies provided definitively indicate that it is a 

clinical improvement over PTA.

We are seeking public comment on whether LUTONIX®and IN.PACTTM 

AdmiralTM meet the substantial clinical improvement criterion, specifically with regard to 

our concerns discussed.

Below we summarize the written public comments on the LUTONIX®and 

IN.PACTTM AdmiralTM technologies that we received in response to the town hall 

meeting.

Comment: One commenter, a major society on vascular medicine, stated that 

without new technology add-on payments for drug-coated balloon catheters, facilities 
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will not be adequately compensated for procedures involving these devices and patient 

access to these new beneficial technologies will be hampered. The commenter believed 

that the technology being developed by both manufacturers meets the newness criterion. 

The commenter stated that the drug-coated balloon catheters represent advancement in 

medical technology that substantially improves, relative to technologies previously 

available, the treatment of Medicare beneficiaries. Specifically, the commenter stated 

that the results of the clinical trials for these devices have established that these devices 

achieve more durable patency by reducing restenosis, which in turn reduces the rate of 

repeat interventions. The commenter further stated that these devices do not require a 

permanent implant, which preserves future treatment options. The commenter also noted

documented improvements treatment results for patients diagnosed with PAD according 

to an article in the JAMA.

46

 The commenter expressed support for approval of new 

technology add-on payments for both the LUTONIX®and the IN.PACTTM AdmiralTM 

technologies, with hopes of minimizing any financial barriers that might prevent patients 

from having access to this technology.

Another commenter supported the approval of new technology add-on payments 

for the LUTONIX®and IN.PACTTM AdmiralTM technologies and for other drug-coated 

balloon catheters in the treatment of patients diagnosed with SFA in the United States. 

Specifically, the commenter stated that the clinical study results have shown that using 

drug-coated balloon catheters both keep a vessel open for a longer period of time and 

reduce the total number of repeat procedures that may need to be performed. The 

 

46(Goodney, Tarulli, Faerber, et al. Fifteen-Year Trends in Lower Limb Amputation, Revascularization, and 

Preventive Measures Among Medicare Patients. JAMA Surg. 2015;150(1):84-86.
CMS-1632-P 524

commenter further stated that treatment using existing therapies in his own practice have 

resulted in patients returning for repeat procedures 1 to 2 times per year. The commenter 

noted that the additional benefit of reducing revascularization, which allows patients to 

remain mobile for longer periods of time, further reduces potential complications and 

hospitalizations.

The commenter also noted that colleagues outside the United States have had 

access to this technology for over 5 years and the technology’s use has shown positive 

results in different patient and lesion subgroups, which provides strong evidence that 

supports the wide use of drug-coated balloon catheters. The commenter stated that there 

are a number of publications that advocate that the reduced need for revascularization 

also results in significant cost savings for health care systems, and recommended that 

these additional savings and value to be shared with hospitals in the United States. The 

commenter stated that, although there is clear clinical evidence that supports the use of 

drug-coated balloon catheters, there are concerns that hospital administrators may limit 

the use of these catheters because of the added cost burden that would be completely 

imposed on hospitals in the current health care system.

Response: We appreciate the commenters’ input. We will consider these 

comments in our analysis and final determination of the applications for new technology 

add-on payments for FY 2016.

h. VERASENSETM Knee Balancer System (VKS)

OrthoSensor submitted an application for new technology add-on payments for 

the VERASENSETM Knee Balancer System (VKS) for FY 2016. The VKS is a sterile, 
CMS-1632-P 525

single patient use device to intraoperatively provide a means to dynamically balance the 

patient’s knee during total knee arthroplasty (TKA) surgery. The applicant maintained 

that quantitative metrics, viewed on a monitor through real time wireless information, 

enable the surgeon to improve soft tissue stability and kinetics during TKA surgery. The 

VKS device includes a tibial trial insert composed of an array of responsive sensors that 

delivers quantified kinetic balance data during TKA surgery. The quantitative data 

provides a basis for the surgeon to make data-based decisions regarding tissue dissection 

during TKA surgeries, resulting in a more stable outcome.

According to the applicant, the VKS device combines dual sensor elements, 

coupled with micro-processing technology, to accurately depict intra-articular kinetics 

and contact point locations within the knee. The tibial trial insert is placed in the knee 

capsule. Proper placement of the insert does not require any force or infiltration of the 

bone or soft tissue in the knee. The applicant stated that the VKS device uses wireless 

communication protocols that overcome line-of-sight or other interference issues, 

therefore eliminating the need for line-of-sight or direct antenna-based tracking during

the TKA surgery.

The first version of the VKS received FDA approval in 2009 for the OrthoRex 

Intra-Operative Load Sensor. The device was indicated for use as a tool to adjust the 

femoral knee implant to reduce instability from flexion gap asymmetry using a single 

patient use sterile force sensor. The applicant noted that the first version of the VKS was 

not available on the U.S. market at the time of FDA approval in 2009. The applicant 

stated that the 510K approval from the FDA allowed permission to continue to test the 
CMS-1632-P 526

device and improve upon the specificity of the sensors. The applicant stated that the first 

version of the VKS did not enter on the U.S. market until late 2011. Further 

advancements were made to the VKS to more accurately refine the sensor specificity, 

which provides more accurate balance data unique to the contours of specific knee 

implant components. The applicant further explained that the tibial trial sensor was 

redesigned to respond quantitatively and specifically to the variations of the contours of 

specifically manufactured knee implants. The advanced sensor specificity, developed in 

conjunction with data gained from clinical trials, provides information regarding force 

and balance metrics that aid the surgeon’s understanding and measurement of knee 

balance. The applicant noted that without the advancements to the sensor specificity, 

which were perfected based on knowledge gained from the clinical trials, the sensor 

would not be as clinically useful as it is currently. These advancements resulted in 

additional FDA clearances on June 13, 2013, and October 14, 2013. The product’s 

description was updated on January 28, 2014. 

The applicant maintained that the VKS meets the newness criterion. The 

applicant analyzed the relative weights from 2010 to 2014 for the MS-DRGs that may 

contain cases that would be eligible for the advanced VKS technology (MS-DRGs 461 

through 470). The applicant noted that there was no increase in the calculation of the 

FY 2014 or FY 2015 relative weights for these MS-DRGs to represent the additional cost 

of the advanced VKS technology.

We are concerned that the advancements made to the VKS that resulted in the 

additional FDA approval clearances in 2013 may not be significant enough to distinguish 
CMS-1632-P 527

the advanced technology from the first version of the VKS, which received FDA 

approval in 2009. We believe that the advanced VKS may be substantially similar to the 

first version of the VKS (that was first available on the U.S. market in late 2011) and, 

therefore, would not meet the newness criterion. In addition, the costs associated with 

the VKS should be reflected in the FY 2013 and subsequent relative payment weights for 

these MS-DRGs because the product has been available and used for the Medicare 

population since 2011.

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, 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 application under the substantial similarity criteria, we believe 

that the first version of the VKS and the advance version of the VKS use the same 

mechanism of action to achieve the desired outcome by using a sterile device that is 

equipped with sensors used to adjust the femoral knee implant to reduce instability from 

flexion gap asymmetry. In addition, we believe that cases involving the first version of 

the VKS would be assigned to the same MS-DRG as the cases involving the advanced 
CMS-1632-P 528

VKS. Moreover, we believe that both the first version of the VKS and the advanced 

version of the VKS treat the same or similar disease and the same or similar patient 

population. Specifically, both of the VKS technologies are used in the treatment of 

patients undergoing TKA surgery. Because we believe that the technology meets all 

three of the substantial similarity criteria, we believe that the beginning of the newness 

period for this technology would commence when it became available on the U.S. market 

in late 2011. Therefore, the VKS may not be considered “new” for purposes of new 

technology add-on payments.

As discussed in the FY 2005 IPPS final rule (69 FR 49003), once data become 

available to reflect the cost of the technology in the relative weights, the technology can 

no longer be considered “new” and eligible to receive new technology add-on payments. 

Section 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 

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). Further, 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. 

Therefore, we believe that the costs of this technology are included in the charge data and 

the MS- DRGs have been recalibrated using that data. Therefore, the technology can no 

longer be considered “new” for the purposes of this provision, regardless of whether or 
CMS-1632-P 529

not there was an increase in the MS-DRG relative weights during FYs 2014 and 2015, 

specifically because of the inclusion of the cost of the technology.

As previously stated, we believe that the beginning of the newness period for the 

VKS commenced when the product was first made available on the U.S. market in late 

2011. The 3-year anniversary date of the product’s availability on the U.S. market 

occurred in late 2014, which is prior to the beginning of FY 2016. Therefore, we do not 

believe that the VKS technology can be considered “new” for purposes of new

technology add-on payments. We are inviting public comments regarding whether or not 

the VKS technology is substantially similar to existing technologies, and whether or not 

the VKS technology meets the newness criterion.

Currently, there are no ICD-9-CM or ICD-10-PCS procedure codes that uniquely 

identify the use of this technology. As stated above, effective October 1, 2015 

(FY 2016), the ICD-10 coding system will be implemented. The applicant submitted a 

request for a unique ICD-10-PCS code that was presented at the March 18, 2015 ICD-10 

Coordination and Maintenance Committee meeting. If approved, the code(s) will be 

effective on October 1, 2015 (FY 2016). More information on this request can be found 

on the CMS Web site located at the following link: 

http://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-Cand-M-Meeting-Materials.html.

With regard to the cost criterion, the applicant supplied three analyses to 

demonstrate that it meets the cost criterion. The applicant believed that cases that are 

eligible for the VKS technology map to MS-DRGs 461 and 462 (Bilateral or Multiple 
CMS-1632-P 530

Major Joint Procedures of Lower Extremity with MCC and without MCC, respectively), 

MS-DRGs 466 through 468 (Revision of Hip or Knee replacement with MCC, with CC, 

and without CC/MCC, respectively), and MS-DRGs 469 and 470 (Major Joint 

Replacement or Reattachment of Lower Extremity with MCC and without MCC, 

respectively). The first analysis used data from the 2012 National Inpatient Sample (NIS) 

from the Agency for Research and Quality (AHRQ). We note that the NIS includes 

Medicare, Medicaid, and commercial and uninsured claims data. However, the applicant 

limited its search to Medicare cases only.

The applicant searched for all Medicare cases assigned to MS-DRGs 461 and 462 

and found 812 and 14,200 cases respectively (for a total of 15,012 cases). The applicant 

noted that the 15,012 cases assigned to MS-DRGs 461 and 462 also include cases 

representing hip revision procedures. Therefore, to determine the number of eligible 

cases reporting bilateral knee revisions assigned to MS-DRGs 461 and 462, based on 

clinical information, 47 the applicant approximated that 4 percent of the cases assigned to 

MS-DRGs 461 and 462 represent Medicare beneficiaries who may be eligible for the 

VKS for a bilateral knee revision procedure. As a result, the applicant focused its 

analysis on 32 cases assigned to MS-DRG 461 (812 cases * .04), and 568 cases assigned 

to MS-DRG 462 (14,200 cases * .04). We are concerned that the statistical data obtained 

from clinical information that the applicant used to determine the percentage of cases 

representing bilateral knee revisions still includes cases representing hip revision 

procedures. Specifically, the applicant did not uniquely identify cases representing 

 

47 Memtsoudis SG, Valle AGD, Besculides MC, Gaber, Sculco TP.: In-hospital complications and 

mortality of unilateral, bilateral, and revision TKA. 2008, Clin Orthop Relat Res, 466:2617-2627.
CMS-1632-P 531

bilateral knee revisions and only produced a percentage of all cases that still includes 

cases for hip revision procedures.

According to the applicant, eligible cases for the VKS technology include cases 

representing knee revision procedures that also map to MS-DRGs 466 through 468 

(which represent degrees of severity calculated for each MS-DRG). To determine the 

number of eligible cases reporting knee revision procedures assigned to MS-DRGs 466 

through 468, the applicant first searched the NIS database for the total number of 

Medicare cases assigned to these MS-DRGs. This resulted in a total of 54,105 cases. 

The applicant noted that MS-DRGs 466 through 468 also include cases for hip and knee 

revision procedures. Therefore, to determine the number of cases representing knee 

revision procedures in each of these three MS-DRGs, the applicant first divided the 

number of Medicare cases for each MS-DRG (5,195 for MS-DRG 466, 28,650 for 

MS-DRG 467, and 20,260 for MS-DRG 468) by the total number of Medicare cases 

assigned to MS-DRGs 466, 467, and 468 (54,105). The applicant then multiplied the 

percentage for each MS-DRG (9.6 percent for MS-DRG 466, 52.9 percent for MS-DRG 

467, and 37.4 percent for MS-DRG 468) by the total amount of cases assigned to each 

MS-DRG. Based on this calculation, the applicant approximated the following number 

of cases representing knee revision procedures assigned to each of these three MS-DRGs: 

3,054 cases in MS-DRG 466; 16,842 in MS-DRG 467; and 11,910 in MS-DRG 468. We 

are concerned that the methodology the applicant used to determine the percentage of 

cases representing knee revision procedures still includes cases representing hip revision 

procedures. Specifically, in its methodology, the applicant did not use any source of 
CMS-1632-P 532

statistical relevance to isolate cases representing knee revision procedures. Rather, the 

applicant used the percentage of Medicare cases assigned to each MS-DRG of the overall 

total cases for the three MS-DRGs, which includes knee and hip revisions, and multiplied 

by this percentage to further reduce the total number of cases. We do not believe that this 

further reduction to the total number of Medicare cases has sufficiently isolated cases 

representing knee revision procedures.

According to the applicant, eligible cases for the VKS technology also include 

TKA procedures that map to MS-DRGs 469 and 470. To determine the number of 

eligible cases reporting TKA procedures assigned to MS-DRGs 469 and 470, the 

applicant first searched the NIS database for the total number of Medicare cases assigned 

to these MS-DRGs. This resulted in 35,740 cases in MS-DRG 469 and 547,955 cases in 

MS-DRG 470. The applicant noted that MS-DRGs 469 and 470 also include cases 

representing hip replacement and other joint replacement procedures. Therefore, in order 

to determine the number of TKA procedures within these MS-DRGs, the applicant 

searched the NIS database for cases reporting ICD-9-CM procedure codes that typically 

map to these MS-DRGs. The applicant first searched for cases representing TKA across 

all MS-DRGs that reported ICD-9-CM procedure code 81.54 (Total knee replacement) 

and found 336,050 cases. The applicant then searched the NIS database for cases 

representing hip and other joint replacement procedures across all MS-DRGs that 

reported ICD-9-CM procedure codes 81.51 (Total hip replacement), 81.52 (Partial hip 

replacement), 81.56 (Total ankle replacement), 81.57 (Replacement of joint of foot and 

toe), and 81.59 (Revision of joint replacement of lower extremity, not elsewhere 
CMS-1632-P 533

classified) and found 238,050 cases. This resulted in a total of 574,100 cases 

representing knee, hip, and other joint replacement procedures.

The applicant then divided the number of cases representing TKA procedures by 

the total number of cases (336,050/574,100) and determined that 58.5 percent of all cases 

assigned to MS-DRGs 469 and 470 are related to TKA procedures. The applicant then 

multiplied the percent of cases representing TKA procedures (58.5 percent) by the 

number of cases assigned to MS-DRGs 469 and 470, which resulted in 20,920 cases in 

MS-DRG 469 (35,740 * .585) and 320,746 cases in MS-DRG 470 (547,955 * .585). We 

are concerned that the methodology the applicant used to determine the percentage of 

cases representing TKA procedures still includes cases representing hip and other joint 

replacement procedures. Specifically, the applicant did not uniquely identify cases 

representing TKA procedures and only produced a percentage of all cases, which still 

includes cases representing hip and other joint replacement procedures.

Based on the analysis above, the applicant maintained that the total number of 

cases across MS-DRGs 461 and 462 and MS-DRGs 466 through 470 was 374,071. The 

applicant determined an average case-weighted charge per case of $57,341. The 

applicant then determined that it was necessary to remove charges related to the other 

computer-assisted devices/technologies used during these procedures and charges for 

operating room time because procedures involving the VKS do not require operating 

room time, and the charges for the VKS technology would inevitably be different. 

Therefore, the applicant removed approximately $146 from the average case-weighted 

charge per care for cases assigned to MS-DRGs 461 and 462, and $73 from the average 
CMS-1632-P 534

case-weighted charge per case for cases assigned to MS-DRGs 466 through 470. The 

applicant noted that the $146 in charges removed from the average case-weighted charges 

per case for cases assigned to MS-DRGs 461 and 462 was slightly higher than the 

charges removed from cases assigned to MS-DRGs 466 through 470 because these 

charges were for bilateral procedures which require additional operating room time.

Data from the NIS database is only available on a national level and not on a 

hospital-specific level. Therefore, in order to standardize the charges per case, the 

applicant used the FY 2012 IPPS Impact File and the mean value of all relevant 

standardization factors to standardize the charges per case. We are concerned that the 

analysis provided by the applicant did not use hospital-specific data and, therefore, the 

standardization process may be inaccurate because of the use of mean factors rather than 

hospital-specific factors. By using mean factors rather than hospital-specific factors, we 

believe that the standardization performed by the applicant does not sufficiently take into 

account hospital variations.

The applicant then inflated the charges using an inflation factor of 10.4227

percent based on the inflation factor in the FY 2015 IPPS/LTCH PPS final rule 

(79 FR 50379), and added the charges related to the VKS technology to the adjusted 

average case-weighted standardized charge per case. This resulted in a final inflated 

average case-weighted standardized charge per case of $68,121. Using the FY 2015 

IPPS Table 10 thresholds, the applicant determined that average case-weighted threshold 

amount for MS-DRGs 461 and 462 and MS-DRGs 466 through 470 is $57,341. Because 

the final inflated average case-weighted standardized charge per case for the applicable 
CMS-1632-P 535

MS-DRGs exceeds the average case-weighted threshold amount, the applicant 

maintained that the technology meets the cost criterion.

The applicant’s second analysis used data from the 2013 American Hospital 

Discharge Data (AHD) based on 57 randomly selected hospitals. The applicant searched 

the data and did not find any cases assigned to MS-DRG 461. The applicant noted that it 

used a value of 10 cases for its analysis of cases assigned to MS-DRG 461because data 

reflecting a zero value indicates that the hospital performed less than 10 procedures. The 

applicant found 533 cases assigned to MS-DRG 462. To determine the number of cases 

representing bilateral knee revision procedures in MS-DRG 462, similar to the first 

analysis, the applicant multiplied the total number of cases assigned to MS-DRG 462 by 

4 percent, which resulted in 21 cases. Similar to our statement about the first analysis, 

we are concerned that the applicant did not uniquely identify cases representing bilateral 

knee revision procedures and only produced a percentage of all cases, which still includes 

cases representing hip revision procedures.

To determine the number of eligible cases reporting knee revision procedures 

assigned to MS-DRGs 466 through 468, the applicant first searched the AHD database 

for the total number of cases assigned to these MS-DRGs. This resulted in a total of 

2,969 cases. Because these MS-DRGs include cases representing hip and knee revision 

procedures, to determine the number of cases representing knee revision procedures in 

each of these three MS-DRGs, the applicant first divided the number of cases for each 

MS-DRG (122 for MS-DRG 466; 1,746 for MS-DRG 467; and 1,101 for MS-DRG 468) 

by the total number of cases in MS-DRGs 466 through 468 (2,969). The applicant then 
CMS-1632-P 536

multiplied the percentage for each MS-DRG (4.1 percent for MS-DRG 466; 58.8 percent 

for MS-DRG 467; and 37.1 percent for MS-DRG 468) by the total number of cases in 

each MS-DRG. Based on this calculation, the applicant approximated the following 

number of cases representing knee revision procedures in each of these three MS-DRGs: 

1,307 cases in MS-DRG 466; 18,704 in MS-DRG 467; and 11,794 in MS-DRG 468. 

Similar to our concerns about the first analysis, we are concerned that the methodology 

the applicant used to determine the percentage of cases of knee revision procedures still 

includes cases representing hip revision procedures. Specifically, in its methodology, the 

applicant did not use any source of statistical relevance to isolate cases representing knee 

revision procedures. The applicant simply used the percentage of Medicare cases for 

each MS-DRG of the overall total cases for the three MS-DRGs, which include knee and 

hip revision procedures, and multiplied by this percentage to further reduce the number of 

cases. We do not believe that this further reduction to the total number of Medicare cases 

has isolated cases representing knee revision procedures.

The applicant used the same methodology from the first analysis to determine the 

number of eligible cases representing TKA procedures assigned to MS-DRGs 469 and 

470. The applicant searched the AHD database and found 1,217 cases assigned to 

MS-DRG 469 and 24,620 cases assigned to MS-DRG 470. To determine the number of 

cases representing TKA procedures within these MS-DRGs, the applicant multiplied the 

total number of cases within these MS-DRGs by the percentage of 58.5 percent from the 

NIS database, which represents the percentage of knee replacement procedure cases 

among the total number of cases representing knee, hip and joint replacement procedures. 
CMS-1632-P 537

This resulted in 712 cases in MS-DRG 469 (1,217 * .585) and 14,411 cases in MS-DRG 

470 (24,620 * .585). Similar to our concerns expressed earlier, we are concerned that the 

methodology the applicant used to determine the percentage of cases representing TKA 

procedures still includes cases representing hip replacement and other joint replacement 

procedures. Specifically, the applicant did not uniquely identify cases representing TKA 

procedures and only produced a percentage of all cases, which still includes cases 

representing hip and other joint replacement procedures.

Based on this analysis, the applicant maintained that the total number of cases 

across MS-DRGs 461 and 462 and MS-DRGs 466 and 470 was 46,960. The applicant 

determined an average case-weighted charge per case of $80,702. For the rest of the 

analysis, the applicant followed the same methodology as the first analysis. The 

applicant removed $146 from the average case-weighed charge per case for cases 

assigned to MS-DRGs 461 and 462 and $73 from the average case-weighted charge per 

case for cases assigned to MS-DRGs 466 through 470 for charges related to other 

computer-assisted devices/technologies used during these procedures and additional 

charges for the use of the operating room.

Similar to the first analysis, the applicant used the FY 2012 IPPS impact file and

the mean value of all relevant standardization factors from all hospitals to standardize the 

charges per case. Similar to above, we are concerned that the analysis provided by the 

applicant did not use hospital-specific data and, therefore, the standardization process 

may be inaccurate because of the use of mean factors rather than hospital-specific factors. 
CMS-1632-P 538

By using mean factors rather than hospital-specific factors, the standardization performed 

by the applicant does not sufficiently take into account hospital variations.

The applicant then inflated the charges using an inflation factor of 10.4227

percent based on the inflation factor in the FY 2015 IPPS/LTCH PPS final rule 

(79 FR 50379), and added the charges related to the VKS technology to the adjusted 

average case-weighted standardized charge per case. This resulted in a final inflated 

average case-weighted standardized charge per case of $90,515. Using the FY 2015 

IPPS Table 10 thresholds, the applicant determined that the average case-weighted 

threshold amount for MS-DRGs 461 and 462 and MS-DRGs 466 through 470 is $80,699. 

Because the final inflated average case-weighted standardized charge per case exceeded 

the average case-weighted threshold amount for the applicable MS-DRGs, the applicant 

maintained that the VKS technology meets the cost criterion.

The applicant’s third analysis used data from the FY 2015 CMS Before Outliers 

Removed (BOR) file. The BOR file contained 469 cases in MS-DRG 461 and 9,396 

cases in MS-DRG 462. To determine the number of cases representing bilateral knee 

revision procedures assigned to MS-DRGs 461 and 462, similar to the first analysis, the 

applicant used an assumption of 4 percent, which resulted in 19 cases in MS-DRG 461 

and 376 cases in MS-DRG 462. Similar to our concerns stated earlier, we are concerned 

that the applicant did not uniquely identify cases representing bilateral knee revision 

procedures and only produced a percentage of all cases, which still includes cases 

representing hip revision procedures.
CMS-1632-P 539

To determine the number of eligible cases reporting knee revision procedures 

assigned to MS-DRGs 466 through 468, the applicant again analyzed the BOR file which 

contained a total of 44,420 cases. Similar to first two analyses, because these MS-DRGs 

include cases representing hip and knee revision procedures, to determine the number of 

cases representing knee revision procedures in each of these three MS-DRGs, the 

applicant first divided the number of cases for each MS-DRG (4,202 for MS-DRG 466; 

23,390 for MS-DRG 467; and 16,828 for MS-DRG 468) by the total number of cases in 

MS-DRGs 466 through 468 (44,420). The applicant then multiplied the percentage for 

each MS-DRG (9.5 percent for MS-DRG 466; 52.7 percent for MS-DRG 467; and 37.9 

percent for MS-DRG 468) by the total number of cases in each MS-DRG. Based on this 

calculation, the applicant approximated the following number of cases representing knee 

revision procedures in each of these three MS-DRGs: 3,009 cases in MS-DRG 466; 

16,747 in MS-DRG 467; and 12,049 in MS-DRG 468. Similar to our concerns stated 

earlier, we are concerned that the methodology the applicant used to determine the 

percentage of cases representing knee revision procedures still includes cases 

representing hip revision procedures. Specifically, in its methodology, the applicant did 

not use any source of statistical relevance to isolate cases representing knee revision 

procedures. Rather, the applicant used the percentage of Medicare cases for each 

MS-DRG of the overall total number of cases for the three MS-DRGs, which includes 

cases representing knee and hip revision procedures, and multiplied by this percentage to 

further reduce the number of cases. We do not believe that this further reduction to the 

total number of Medicare cases has isolated cases representing knee revision procedures.
CMS-1632-P 540

The applicant used the same methodology from the first analysis to determine the 

number of eligible cases reporting TKA procedures assigned to MS-DRGs 469 and 470. 

The BOR file contained 27,737 cases in MS-DRG 469 and 437,649 cases in MS-DRG 

470. To determine the number of cases representing TKA procedures within these 

MS-DRGs, the applicant multiplied the total number of cases within these MS-DRGs by 

the percentage of 58.5 percent obtained from the NIS database, which represents the 

percentage of knee replacement cases among the total number of cases representing knee, 

hip, and joint replacement procedures. This resulted in 16,236 cases in MS-DRG 469 

(27,737 * .585) and 256,178 cases in MS-DRG 470 (437,649 * .585). Similar to our 

concerns stated earlier, we are concerned that the methodology the applicant used to 

determine the percentage of cases representing TKA procedures still includes cases 

representing hip and other joint replacement procedures. Specifically, the applicant did 

not uniquely identify cases representing TKA procedures and only produced a percentage 

of all cases, which still includes cases representing hip and other joint revision 

procedures.

Based on this analysis, the applicant maintained that the total number of cases 

across MS-DRGs 461 and 462 and MS-DRGs 466 through 470 was 304,614. The 

applicant determined an average case-weighted charge per case of $56,282. For the rest 

of the analysis, the applicant followed the same methodology as the first analysis. The 

applicant then removed $146 from the average case-weighted charge per case for cases 

assigned to MS-DRGs 461 and 462 and $73 from the average case-weighted charge per 

case for cases assigned to MS-DRGs 466-470 for charges related to other 
CMS-1632-P 541

computer-assisted devices/technologies used during these procedures and additional 

charges for the use of the operating room.

Similar to the first analysis, the applicant used the FY 2012 IPPS Impact File and 

the mean value of all relevant standardization factors from all hospitals to standardize the 

charges per case. Similar to our concerns stated earlier, we are concerned that the 

analysis provided by the applicant did not use hospital-specific data and, therefore, the 

standardization process may be inaccurate because of the use of mean factors rather than 

hospital-specific factors. By using mean factors rather than hospital-specific factors, we 

believe that the standardization performed by the applicant does not sufficiently take into 

account hospital variations.

The applicant then inflated the charges using an inflation factor of 10.4227

percent based on the inflation factor in the FY 2015 IPPS/LTCH PPS final rule 

(79 FR 50379), and added the charges related to the VKS technology to the adjusted 

average case-weighted standardized charge per case. This resulted in a final inflated 

average case-weighted standardized charge per case of $66,382. Using the FY 2015 

IPPS Table 10 thresholds, the applicant determined that the average case-weighted 

threshold amount for MS-DRGs 461 and 462 and MS-DRGs 466 through 470 is $64,280. 

Because the final inflated average case-weighted standardized charge per case exceeds 

the average case-weighted threshold amount for the applicable MS-DRGs, the applicant 

maintained that the VKS technology meets the cost criterion.

Based on the information provided by the applicant, combined with the weight of 

our concerns, we are unable to determine if and how the VKS technology meets the cost 
CMS-1632-P 542

criterion. We are inviting public comments on whether or not the VKS technology meets 

the cost criterion, specifically with regard to the concerns raised.

With regard to substantial clinical improvement, the applicant maintained that the 

VKS technology represents a substantial clinical improvement. The applicant stated that 

the device offers a treatment option for a patient population unresponsive to, or ineligible 

for, currently available treatments. The applicant explained that the use of the VKS 

technology has improved patient outcomes, including rapid recovery of patients 

diagnosed with comorbidities, the early return to normal activities, and increased levels 

of activity and functionality. The applicant noted that patients treated using the VKS 

technology during TKA procedures did not experience readmission within 30 days, nor 

was it necessary for the treating physician (the surgeon) to complete a problem focused 

medical evaluation during the patient’s recovery. The applicant further noted that 

patients having a more favorable immediate outcome with a stable TKA were shown to 

return to normal function more rapidly than patients with unbalanced knees. Therefore, 

the applicant stated that patients with complex medical conditions would be able to 

respond to the early return of normal daily living.

The applicant also believed that the device offers the ability to diagnose a medical 

condition for a patient population experiencing medical conditions that are currently 

undetectable, or offers the ability to diagnose a medical condition earlier than that which 

is capable using currently available technologies. The applicant explained that the VKS 

technology provides an improved evaluation/diagnosis compared to an unbalanced TKA 

implant. Specifically, the applicant stated that the device enables the surgeon to obtain 
CMS-1632-P 543

intraoperative measures enabling the surgeon to improve upon the placement of the TKA 

tibial and femoral components. Additionally, intraoperatively the device leads to an 

immediate diagnosis of an implant that can now be accurately positioned due to informed 

fine tissue dissection. The applicant stated that the intraoperative technique has been 

demonstrated to result in increased implant stability and functional congruence. The 

applicant cited the following examples of outcomes that have been frequently 

documented and evaluated within clinical studies of medical devices:

● Intended to address the leading causes of early implant failure in TKA: 

instability, malrotation and malalignment48;

● Dynamic intercompartmental load data and Kinetic Tracking enables evidence 

based soft tissue releases to improve stability through full ROM 49;

● Provides intraoperative feedback on tibial–femoral component rotation, 

position of femoral Contact Points and femoral roll-back to facilitate optimal component 

position

● Enables reproducible, teachable surgical technique through quantifying surgeon 

“feel”; and

● Captures intraoperative data for inclusion in patient EMR, registries or 

comparative effectiveness studies.

The applicant stated that use of the device significantly improves clinical 

outcomes for a patient population experiencing these types of medical procedures when 

compared to currently available treatments. The applicant explained that extensive 

 

48 Rodriguez-Merchan EC.: Instability Following Total Knee Arthroplasty. HSSJ 2011; 7:273-278.

49 Roche MW, Elson LC, Anderson CR.: A Novel Technique Using Sensor-Based Technology to Evaluate 

Tibial Tray Rotation. Orthopedics. 2014 (In Press).
CMS-1632-P 544

research and development has resulted in the VKS technology demonstrating improved 

patient outcomes in multi-center studies. The applicant further explained that the VKS 

technology has intraoperatively provided a unique opportunity to observe the short-term 

clinical outcomes of patients with a quantifiably balanced knee versus those who have 

quantifiably unbalanced knees. According to the applicant, in a multi-center study, the 

use of the VKS technology has been shown to reduce post-operative pain and improve 

activity and patient satisfaction scores with statistical significance. Additionally, the 

applicant stated that 97 percent of patients whose knees were balanced using the VKS 

technology reported that they were “satisfied” to “very satisfied” at 1-year post-operative 

compared to 81 percent patient satisfaction after a TKA procedure without the use of the 

VKS technology. The applicant stated that the VKS technology provided a 16-percent 

improvement in patient satisfaction for balanced knees; the first significantly notable 

increase of patient-reported satisfaction in over 30 years.50

According to the applicant, the use of the VKS technology avoided early implant 

failure. The applicant explained that considering the objective to ameliorate the present 

risks of revision in TKA procedures, the VKS technology has been advanced to address 

the need for improved knee balance through fine tissue dissection using information from 

the VKS technology intelligent tibial trial. While not disturbing the surgical flow of 

TKA procedures, the applicant stated that the VKS technology provides the surgeon with 

data on the dynamic intercompartmental load, and kinetic tracking enables 

 

50 Gustke KA, et al.: Increased satisfaction after total knee replacement using sensor-guided technology. 

Bone Joint J 2014;96-B:1333–8.
CMS-1632-P 545

evidence-based soft tissue releases to improve stability through full ROM.51 The 

applicant noted that the results of multi-center studies, using the VKS technology 

intraoperatively, have provided an opportunity to observe the short-term clinical 

outcomes of patients with a quantifiably balanced knee versus those who have 

quantifiably unbalanced knees.

The applicant further stated that the VKS technology provides intraoperative 

information on tibial–femoral component rotation, position of femoral contact points and 

femoral roll-back to facilitate optimal component position. One clinical study 52 reported 

170 primary TKA procedures where the VKS technology corrected what would have 

resulted in unbalanced and malrotated implants in 53 percent of the patients. The 

applicant noted that when referencing the tibial tubercle to maximize tibiofemoral 

congruency, 53 percent of patients exhibited asymmetrical tibiofemoral congruency in 

extension. The applicant further stated that of those patients, 68 percent were shown to 

have excessive internal rotation of the tibial tray relative to the femur, while 32 percent 

exhibited excessive external rotation. Additionally, the average tibiofemoral 

incongruency deviated from a neutral position by 6o, ranging from 0.5° to 19.2. The 

applicant stated that when comparing the VKS with the convention of using the tibial 

tubercle to maximize tibiofemoral congruency to confirm the final rotation of the tibial 

tray, the VKS technology provided superior information. The applicant added that data 

from using the tibial tubercle to maximize tibiofemoral congruency to confirm the final 

 

51 Gustke, Golladay, et al.: A New Method for Defining Balance: Promising Short-Term Clinical Outcomes 

of Sensor-Guided TKA. The Journal of Arthroplasty 25 November 2013 (Article in Press DOI: 

10.1016/j.arth.2013.10.020)

52 Roche MW, Elson LC, Anderson CR: A Novel Technique Using Sensor-Based Technology to Evaluate 

Tibial Tray Rotation. Orthopedics. 2015 (In Press)
CMS-1632-P 546

rotation of the tibial tray are highly variable and inconsistent for confirming the final 

rotation of the tibial tray.

The applicant stated that the VKS technology has demonstrated and resulted in a 

“balanced knee” after TKA procedures with 6 month and 1 year outcome scores showing 

a significant improvement over conventional or computer-assisted TKA procedures. 

According to the applicant, by not disrupting the surgical flow the VKS technology has 

been viewed by surgeons to provide information enabling them to improve upon the 

balance of the knee, reduce the degree of rotation and only dissect the fine tissue as 

needed sparing the release of the ligaments. The applicant further stated that the VKS 

technology has been shown to enable reproducible, teachable surgical technique through 

quantifying surgeon “feel.”

The applicant provided patient outcomes at 6 months and believed that this 

demonstrated a significant improvement for the “balanced knee” TKA procedures using 

the VKS technology. According to the applicant, multivariate binary logistic regression 

analyses were performed for both Knee Society Scores (KSS) and Western Ontario and 

McMaster Universities Arthritis Index (WOMAC) scores at 6 months. Variables run in 

these analyses included: age at surgery, BMI, gender, preoperative ROM, preoperative 

alignment, change in activity level (preoperative to 6 months), and joint state (balanced 

versus unbalanced). For KSS and WOMAC, both step-wise and backward multivariate 

logistic regression analyses were calculated to be best fit models with similar significance 

(P= 0.001). Ultimately, the step-wise model was used. The applicant stated that the 

binary model revealed that the variable exhibiting the most significant effect of 
CMS-1632-P 547

improvement on KSS and WOMAC scores was balanced joint state (P = 0.001; 

P = 0.004). The applicant noted that joint state was the most highly significant variable; 

this demonstrated similar levels of significance throughout all possible combinations of 

variables included in the model (P = 0.001). The applicant added that joint state was also 

observed to be the sole significant factor in patient-reported outcome score improvement 

(P b 0.001).

The applicant added that analysis of the data revealed there was also a concurrent 

significance observed with activity level (P = 0.005). However, the applicant noted that 

activity level was not significant on its own. The applicant concluded that a balanced 

joint state results in a higher activity level,53 which would make activity level more of a 

dependent variable, rather than a predictor. Therefore, to demonstrate activity level, the 

applicant used a regression analysis and evaluated KSS and WOMAC scores at 6 months, 

with odds ratios. According to the applicant, odds ratios were calculated based on 

meaningful clinical improvement in KSS scores, WOMAC scores, and activity levels at 6 

months. Additionally, based on literature review, “meaningful improvement” for KSS 

scores were anything greater than 50 points; WOMAC scores greater than 30 points; and 

gains in activity level greater than or equal two 2 lifestyle levels (from lowest score to 

highest: sedentary, semisedentary, light labor, moderate labor, heavy labor). Also, scores 

from the unbalanced group were used as the reference point. The applicant stated that 

odds ratio for balanced joint state and improved KSS score was 2.5, with a positive 

coefficient (95 percent CI). The applicant believed that this suggested a high probability 

 

53 Gustke, Golladay, et al.: A New Method for Defining Balance: Promising Short-Term Clinical Outcomes 

of Sensor-Guided TKA. The Journal of Arthroplasty 25 November 2013 (Article in Press DOI: 

10.1016/j.arth.2013.10.020).
CMS-1632-P 548

of obtaining a meaningful improvement in KSS with a balanced knee joint, over those 

who do not have a balanced knee. According to the applicant, the odds ratio for balanced 

joint state and improved WOMAC score was 1.3, with a positive coefficient (95 percent 

CI). The applicant believed that this suggested a favorable probability that patients with 

a balanced joint state will achieve a meaningful improvement in WOMAC score, over 

those that do not have a balanced knee. According to the applicant, the odds ratio for 

balanced joint state and improved activity level was 1.8, with a positive coefficient (95 

percent CI). The applicant believed that this also suggested a favorable probability of 

meaningful gains in activity level in those with a balanced knee, versus those with an 

unbalanced knee.

The applicant further stated that 1 year clinical trial evidence supports the VKS 

technology protocol for TKA procedures. According to the applicant, of the 135 patients 

undergoing sensor-guided surgery, 13 percent remained unbalanced (by surgeon 

discretion). The applicant stated that “surgeon discretion,” in this analysis, indicates that 

the surgeon recognized and accepted the “unbalanced” intercompartmental load 

difference as presented by the VKS technology, but felt that the knee was in a clinically 

acceptable state. Pre-operatively, there was no statistical difference in any outcomes 

measures between the two cohorts, the averages of which were: total KSS = 105 ±24.6; 

total WOMAC = 47 ±14.8.

Additionally, according to the applicant, at 1 year, the average total KSS score of 

balanced patients exceeded that of unbalanced patients by 23.3 points (P<0.001); 

179±17.2 and 156±23.4 for the balanced and unbalanced cohort, respectively. The 
CMS-1632-P 549

balanced cohort average score for KSS pain and function, separately, were 96.4 and 82.4 

respectively; the unbalanced cohort scored 87.8 and 68.3 points for pain and function. 

The applicant stated that the disparities between the balanced and unbalanced patients’ 

pain and function scores were also highly statistically significant (P<0.001, P=0.022).

For WOMAC, the applicant noted that that the balanced cohort improved their 

score by 8 points; 10±11.8 and 18±17 for balanced and unbalanced patients, respectively 

(WOMAC is scored with an inverse scale; lower scores indicate more improvement). 

The applicant further stated that while this difference did not prove to be statistically 

significant by the standards set forth for this analysis (P=0.085), the authors believed that 

this is due, in part, to the large standard deviations associated with both cohorts.

According to the applicant, the balanced cohort’s average activity level score was 

48.6, which corresponds with the light to moderate labor categories (tennis, light jogging, 

heavy yard work) and the unbalanced patient’s average activity level score was 26.7, 

which corresponds to the upper limits of the semi-sedentary range (light housework, 

walking for limited distances). The applicant believed that the difference between the 

average scores was statistically significant (P=0.015). The applicant noted that the most 

notable aspect of every outcome measure collected is that the unbalanced patient scores 

at 1 year still failed to achieve the level of improvement of the balanced patient scores at 

6 months.

We have a number of concerns regarding the applicant’s assertions regarding 

substantial clinical improvement. First, we are concerned that during the trials, after 

using the device surgeons continued to make manual adjustments to the spacers to set the 
CMS-1632-P 550

knee replacement. The applicant maintained that the VKS technology presents better 

accuracy for the surgeon when making adjustments to the spacers when implanting a 

knee replacement. However, we are concerned that the evidence does not delineate the 

degree of any improved outcomes or patient satisfaction associated with use of the VKS 

technology versus additional manual adjustments made by the surgeon. We also are 

concerned that most of the clinical evidence is based on patient satisfaction surveys. 

While the survey data appeared to demonstrate that patient satisfaction improved, we do 

not believe that the data presented is sufficient to determine if the VKS technology 

represents a substantial clinical improvement over manual adjustment. Furthermore, the 

use of historical literature controls might be useful during early clinical development, but 

there are possible biases and limitations of this research design. Specifically, there could 

be multiple differences in the pre-procedure clinical characteristics of patients with 

“unbalanced” knees and those with “balanced” knees that could affect outcomes, such as 

more severe initial disease, more pre-operative misalignment, more obesity, or more 

comorbidity. These and other potential confounders were not documented or adjusted for 

in the analyses of outcomes in the literature provided by the applicant. Additionally, as 

discussed above, the applicant released a first version of the VKS technology in 2011 and 

advancements were made to the VKS technology that resulted in additional FDA 

clearances in 2013. The applicant stated in its application that the first version is 

considered the first technology of its kind and, therefore, we believe that the VKS 

technology may no longer be considered new. The applicant submitted an application for 

the advanced version of the VKS technology from 2013. However, the applicant did not 
CMS-1632-P 551

present clinical data to distinguish the improvements made to the advanced version from 

the first version. Therefore, we are unable to determine if the advanced version 

represents a substantial clinical improvement over existing technologies (that is, the first 

version of the VKS technology). We are inviting public comments on whether the VKS 

technology meets the substantial clinical improvement criterion, specifically with regard 

to our concerns.

i. WATCHMAN®Left Atrial Appendage (LAA) Closure Technology

Boston Scientific Corporation submitted an application for new technology addon payments for FY 2016 for the WATCHMAN®

Left Atrial Appendage (LAA) Closure 

Technology (WATCHMAN® System). (We note that, as discussed in detail later in this 

section, the applicant submitted an application for new technology add-on payments for 

FY 2015 for the WATCHMAN® System, but withdrew its application after we issued the 

FY 2015 IPPS/LTCH PPS proposed rule.) According to the applicant, when a patient has 

been diagnosed with 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. If a 

thrombus breaks off, it is called an embolism (or thromboembolism). An embolism can 

cause a stroke or other peripheral arterial blockage.

The applicant asserted that the WATCHMAN® System 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 
CMS-1632-P 552

eliminating the need for Warfarin therapy for patients diagnosed with nonvalvular AF 

who are eligible for Warfarin therapy but for whom the risks of long-term oral 

anticoagulation outweigh the benefits.

With regard to newness criterion, the applicant anticipated FDA premarket 

approval of the WATCHMAN® System in the first half of 2015. According to the 

applicant, the WATCHMAN® System is the first LAA closure device that would be 

approved by the FDA. Therefore, the applicant believed that the technology meets the 

newness criterion. Effective October 1, 2004 (FY 2005), ICD-9-CM procedure code 

37.90 (Insertion of left atrial appendage device) was created to identify and describe 

procedures using the WATCHMAN® Left Atrial Appendage (LAA) Closure 

Technology. As stated in section II.G.1.a. of the preamble of this proposed rule, effective 

October 1, 2015 (FY 2016), the ICD-10 coding system will be implemented. Under the 

ICD-10-PCS, procedure code 02L73DK (Occlusion of left atrial appendage with 

intraluminal device, percutaneous approach) is the comparable translation for ICD-9-CM 

procedure code 37.90.

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 2013 MedPAR file 

(which contained inpatient hospital claims data for discharges from October 1, 2012 to 

September 30, 2013) to search for cases reporting ICD-9-CM procedure code 37.90. The 

applicant provided two analyses. The first analysis includes all claims that reported 

ICD-9-CM procedure code 37.90, regardless of whether the code indicated a principal 
CMS-1632-P 553

procedure that determined the MS-DRG assignment of the case. This analysis identified 

507 cases across 29 MS-DRGs. The applicant noted that the MedPAR file contained 

claims that were returned to the provider that reported 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 1.10443 based 

on the 2-year charge inflation factor listed in the FY 2015 IPPS/LTCH PPS final rule 

(79 FR 50379) and then added post-FDA approval charges for the WATCHMAN®

System. Using the anticipated cost of the device after FDA approval and the National 

Average Implantable Device cost center CCR, the applicant estimated device charges 

post-FDA approval, combined those with the inflated average case-weighted standardized 

charges per case, and determined a final inflated average case-weighted standardized 

charge per case of $150,213. The average case-weighted threshold amount in the 

FY 2015 IPPS Table 10 for these MS-DRGs was $97,505. Because the final inflated 

average case-weighted standardized charge per case exceeds the average case-weighted 

threshold amount of $97,505, the applicant maintained that the WATCHMAN® System 

meets the cost criterion using this analysis. We are inviting public comments on the 

whether the WATCHMAN® System meets the cost criterion based on this analysis.

In the applicant’s second analysis, cases eligible for the WATCHMAN® System 

were identified by claims reporting ICD-9-CM procedure code 37.90 assigned to 

MS-DRGs 250 and 251 (Percutaneous Cardiovascular Procedures without Coronary 

Artery Stent with MCC and without MCC, respectively). The applicant believed that 
CMS-1632-P 554

these are the MS-DRGs to which cases are typically assigned if the WATCHMAN® 

System is used in the principal procedure performed during the inpatient stay. The 

applicant applied the trims in the FY 2015 IPPS/LTCH PPS final rule (79 FR49910 

through 49911), which resulted in 369 cases.

As with its first analysis, the applicant determined standardized nondevice 

charges for the applicable cases using claims data from the FY 2013 MedPAR file and 

applied an inflation factor. The applicant calculated average nondevice charges by 

subtracting what the applicant believed was the average total implantable device charges 

(calculated as the sum of the five individual device charge fields in the MedPAR file that 

constitute the Implantable Device cost center). Similar to its first analysis, the applicant 

then standardized the charges, applied an inflation factor of 1.10443, subtracted the 

device charges reported on the MedPAR claims (reflecting costs during the IDE study) 

and replaced them with the anticipated charges following FDA approval (converting the 

costs of the device to charges with a CCR of 0.349 based on the national average 

implantable device CCR from the FY 2015 IPPS/LTCH PPS final rule (79 FR 49914)), 

combined those with the inflated average case-weighted standardized charges per case, 

and determined a final inflated average case-weighted standardized charge per case of 

$117,663. The average case-weighted threshold amount for these MS-DRGs in the 

FY 2015 IPPS Table 10 was $72,804. Because the final inflated average case-weighted 

standardized charge per case exceeds the average case-weighted MS-DRG threshold 

amount of $72,804, the applicant maintained that the WATCHMAN® System meets the 

cost criterion using this analysis. We note that the applicant searched for cases reporting 
CMS-1632-P 555

ICD-9-CM procedure code 37.90. In section II.G.3.b. of the preamble of this proposed 

rule, we present a proposal regarding cardiac ablation and other specified cardiovascular 

procedures. Specifically, we are proposing to assign the procedures performed within the 

heart chambers using intracardiac techniques, including those identified by ICD-9-CM 

procedure code 37.90, to two new proposed MS-DRGs: proposed MS-DRG 273 

(Percutaneous Intracardiac Procedures with MCC) and proposed MS-DRG 274 

(Percutaneous Intracardiac Procedures without MCC). We believe that this could have 

implications for determining whether the applicant meets the cost criterion. There have 

been instances in the past where the coding associated with a new technology application 

is included in a proposal to change one or more MS-DRGs. For example, in the FY 2013 

IPPS/LTCH PPS final rule, we describe the cost analysis for the Zenith®Fenestrated 

Abdominal Aortic Aneurysm Endovascular Graft which was identified by ICD-9-CM 

procedure code 39.78. In that same rule, we finalized a change to the assignment of that 

procedure code, reassigning it from MS-DRGs 252, 253, and 254 to MS-DRGs 237 and 

238. Because of that change, we determined that, for FY 2013, in order for the Zenith®

Fenestrated Abdominal Aortic Aneurysm Endovascular Graft to meet the cost criteria, it 

must demonstrate that the average case-weighted standardized charge per case exceeds 

the thresholds for MS-DRGs 237 and 238 (77 FR 55360). We note that in that example, 

MS-DRGs 237 and 238 existed previously; therefore, thresholds that were 75 percent of 

one standard deviation beyond the geometric mean standardized charge for these DRGs 

were available to the public in Table 10 at the time the application was submitted. In this 

case, if MS-DRGs 273 and 274 were to be finalized for FY 2016, we recognize that 
CMS-1632-P 556

thresholds that are 75 percent of one standard deviation beyond the geometric mean 

standardized charge would not have been available at the time the application was 

submitted. However, we believe that it could be appropriate for the applicant to 

demonstrate that the average case-weighted standardized charge per case exceeds these 

thresholds for MS-DRGs 273 and 274. Accordingly, we intend to calculate supplemental 

threshold values using the data used to generate the FY 2015 IPPS/LTCH PPS Table 10 

and reassign the procedure codes in accordance with the proposals outlined in section 

II.G.3.b. of the preamble of this proposed rule. We intend to make these supplemental 

threshold values available for public consideration on our Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/newtech.html. We are inviting public comments on whether 

considering these supplemental threshold values as part of the cost criterion evaluation 

for this application is appropriate and also on how to address similar future situations in a 

broader policy context should they occur. We also are inviting public comments on the 

whether the WATCHMAN® System meets the cost criterion based on the applicant’s 

analysis.

Regarding the substantial clinical improvement criterion, we note that the 

applicant applied for new technology add-on payments for FY 2015 (as discussed in the 

FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28043 through 28045)). However, prior 

to the publication of the FY 2015 IPPS/LTCH PPS final rule, the applicant withdrew its 

application. Before the withdrawal of the application, CMS stated its concerns with the 

application in the FY 2015 IPPS/LTCH PPS proposed rule. The applicant included 
CMS-1632-P 557

responses to CMS’ previous concerns with the FY 2015 application in its FY 2016 

application. Therefore, we are addressing the applicant’s responses to the previous 

concerns specified in the FY 2015 IPPS/LTCH PPS proposed rule as well as our 

observations on the current FY 2016 application in this FY 2016 IPPS/LTCH PPS 

proposed rule.

The applicant asserted that the WATCHMAN® System , a system that reduces the 

risk of thromboembolic stroke in patients diagnosed with high-risk nonvalvular AF who 

are eligible for Warfarin therapy, but in whom the potential risks of Warfarin therapy 

outweigh the potential benefits, meets the substantial clinical improvement criterion 

because the WATCHMAN® System is superior to currently available treatments. The 

applicant claimed that the WATCHMAN® System is ideal for patients diagnosed with a 

prior hemorrhagic stroke while on Warfarin therapy, patients not adherent to Warfarin 

therapy, patients with difficulty achieving a therapeutic international normalized ratio 

(INR), and patients with an increased risk or history of falls. The applicant 

acknowledged that anticoagulation using Warfarin therapy or one of the novel oral 

anticoagulation agents (NOACs), such as dabigatran, rivaroxaban, or apixaban, is 

effective for preventing thromboembolism in patients who can tolerate such medication 

over the long term. However, these medications are associated with certain risks. The 

applicant stated that the most used and studied agent, Warfarin, requires dietary 

restrictions, has a high-risk of drug interactions, genetic variability in dose-response, and 

the need for frequent monitoring. According to the applicant, the average patient 

diagnosed with AF and treated with Warfarin therapy achieves a therapeutic INR for 
CMS-1632-P 558

approximately one-half of the treatment time. The applicant further stated that these 

NOACs also have nonadherence risks, high discontinuation rates (up to 20 percent within 

2 years), are difficult to monitor effectiveness, and in some cases have no readily 

available reversal strategy.

In support of its assertion that the WATCHMAN® System is a substantial 

improvement, the applicant submitted data from two pivotal studies (PROTECT AF and 

the WATCHMAN®Left Atrial Appendage Closure Device in Patients With Atrial 

Fibrillation Versus Long-Term Warfarin Therapy (PREVAIL)). The data included 

results of a meta-analysis of the PROTECT AF and PREVAIL studies, an imputed 

placebo analysis, and a post hoc analysis of the bleeding risks associated with the 

WATCHMAN® System. According to the applicant, the clinical evidence from these 

trials and analyses establish the following: implantation of the WATCHMAN® System is 

safe; the WATCHMAN® System is superior to Warfarin when evaluated against a 

composite endpoint of all stroke, systemic embolism, and cardiovascular unexplained 

death in long-term follow-up; the WATCHMAN® System provides a greater reduction in 

major bleeding events after the conclusion of post procedure anti-thrombotic medication; 

and the WATCHMAN® System reduces the incidence of ischemic stroke when compared 

to patients diagnosed with AF who are not treated with Warfarin or other anticoagulation 

medication.

We note that, unlike in the FY 2015 application, the applicant did not include data 

from the ASAP study. In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28043 

through 28045), we expressed concerns that data from the ASAP study suggested that the 
CMS-1632-P 559

device did not prevent strokes and was insufficient to demonstrate efficacy in the 

secondary patient population (patients diagnosed with AF who were ineligible for oral 

anticoagulation). We specifically stated that 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, and 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 (4 of these patients were treated with 

low molecular weight heparin), resulting in an overall 4.0 percent incidence (6 out of 

150) of device-associated thrombus. In the PROTECT AF trial 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 (4.0 percent 

versus 4.2 percent), but the number of patients 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 stated that we were concerned that there was not strong evidence that the 

device prevents stroke.

In the FY 2016 application, the applicant responded that, because the current 

intended use and indications for the WATCHMAN® System in the United States do not 
CMS-1632-P 560

include patients who are ineligible for treatment using Warfarin therapy, the data from 

the ASAP study are irrelevant to the FY 2016 application. The applicant provided data 

from an imputed placebo analysis, a post-hoc analysis that compared the observed rate of 

ischemic strokes in patients treated with the WATCHMAN® System compared to no 

therapy, in order to address our concern that there was not strong evidence that the device 

prevented stroke.

According to the applicant, in the PROTECT AF trial, 463 patients were 

randomized to the WATCHMAN® System device and 244 patients to Warfarin therapy. 

Most patients randomized to the WATCHMAN® System device had it implanted 

(408=88 percent). Over the average 3.8 years of follow-up, more patients in the Warfarin 

therapy group withdrew (45 versus 15) or were lost to follow-up (11 versus 13) than in 

the WATCHMAN® System device group, leading to shorter mean follow-up (3.7 versus 

3.9 years) in the Warfarin therapy group.

The applicant presented data shown in the following table and maintained that the 

results of the PROTECT study demonstrate primary efficacy and support that the 

WATCHMAN® System is noninferior and superior at 4 years.
CMS-1632-P 561

Table 3. PROTECT primary efficacy supports WATCHMAN®non-inferiority and 

superiority at 4 years

Patient 

Years

Years 

of 

mean 

followup

WATCHMAN®

System 

observed rate 

per 100 patient 

years

Warfarin 

observed 

rate per 

100 

patient 

years

Percentage 

Reduction 

vs. 

Warfarin

*Posterior Probability

Noninferiority 

(NI)

Superiority 

(S)

1065 1.5 3 4.9 38% >99.9% 90.00% NI

1588 2.3 3 4.3 29% >99.9% 84.60% NI

2621 3.8 2.3 3.8 40% >99% 96%

NI 

and 

S

2717 4 2.2 3.7 39% >99.9% 95.40%

NI 

and 

S

*For Bayesian analysis, a posterior probability of 97.5 percent represents non-inferiority; > 95 percent 

represents superiority.

In the FY 2015 IPPS/LTCH PPS proposed rule, we expressed concern that the 

evidence presented by the applicant demonstrating superiority compared to Warfarin 

therapy was insufficient. We expressed concern that the PROTECT AF trial was not 

designed to demonstrate superiority, and instead was designed to demonstrate 

noninferiority. We also expressed concern that the PREVAIL trial endpoint was not 

significantly improved in the conventional hypothesis testing statistical analysis at any 

time point. We stated that the longer term data showed improved efficacy and safety, but 

still remain sparse. In the FY 2016 application, the applicant stated that, under a 

Bayesian analysis, the distributions of the posterior probabilities are not symmetrical. 
CMS-1632-P 562

According to the applicant, posterior probabilities represent the appropriate way to 

determine statistical significance in Bayesian methodology. As predefined in the 

PROTECT AF trial, a posterior probability for noninferiority of equal to or more than 

97.5 percent, and a prespecified level of at least 95 percent to support superiority were 

the criteria for statistical testing. According to the applicant, in both cases (noninferiority 

and superiority), the criteria were met for long-term follow-up as demonstrated in the 

results of the PROTECT AF trial. We agree that the Bayesian methodology is a valid 

method of analysis. However, we were referencing the overall efficacy noninferiority in 

the PREVAIL trial.

We continue to be concerned that the data results from the PROTECT AF study 

are insufficient to show superiority of the WATCHMAN® System over Warfarin therapy. 

We note that the study was unblinded with a noninferiority design. We believe that the 

reduction in cardiovascular mortality shown in the results from the PROTECT AF study 

was unexpected and not well explained. Among the 57 patients in the WATCHMAN® 

System group who died, only 53 patient cases were assigned a cause of death and only 5 

of the 9 “unexplained/other deaths” were included in the primary endpoint, although the 

protocol established that unexplained deaths were to be considered as cardiovascular 

mortalities. The total number of “cardiovascular or unexplained deaths” would have 

been 21, not 17. In the Warfarin therapy group, there was 1 “unexplained/other” death 

that should have been included in the primary endpoint, resulting in a total of 23, not 22. 

We acknowledge that it may be difficult to calculate the impact of these additional events 

as the intention-to-treat analysis of the primary endpoint. However, we are concerned 
CMS-1632-P 563

that the inclusion of the additional deaths could have made the posterior probabilities for 

the device less favorable. Based on the data at face value, it appears that the 

WATCHMAN® System does not demonstrate statistically significant superiority over 

treatment with Warfarin therapy until 3.8 years has elapsed and the patient has been 

administered 6 months of oral anticoagulation and been exposed to the risk of the 

device-related complications. We are concerned that the applicant has not demonstrated 

substantially improved clinical outcomes.

In the prospective randomized evaluation of the PREVAIL study, the goal was to 

assess the safety and efficacy of LAA occlusion for stroke prevention in patients 

diagnosed with NVAF compared to long-term Warfarin therapy. The PREVAIL study 

was a confirmatory randomized trial designed to further assess the efficacy and safety of 

the WATCHMAN® System device. Patient selection and study design were similar to the 

PROTECT AF study. Two efficacy and 1 safety coprimary endpoints were assessed at 

18 months. The rate of the first coprimary efficacy endpoint overall efficacy (composite 

of stroke, systemic embolism [SE], and cardiovascular/unexplained death) was 0.064 in 

the WATCHMAN® System device group versus 0.063 in the control group (rate ratio 

1.07 [95 percent credible interval (CrI) 0.57 to 1.89]) and did not achieve the prespecified 

criteria of noninferiority (upper boundary of 95 percent CrI 1.75). The rate for the 

second coprimary efficacy endpoint (stroke or SE >7 days’ postrandomization) was 

0.0253 versus 0.0200 (risk difference 0.0053 [95 percent CrI –0.0190 to 0.0273]), which 

achieved noninferiority. Early safety events were significantly lower than the results of 

the PROTECT AF study, which satisfies the prespecified safety performance goal. The 
CMS-1632-P 564

PREVAIL study was designed to demonstrate noninferiority with wide efficacy margins. 

However, as previously stated, we are concerned that the results of the study did not 

show the overall efficacy of the technology to be noninferior.

The applicant submitted data from a patient-level meta-analysis that combined the 

data from the PROTECT AF study with the data from the PREVAIL study. According to 

the applicant, this analysis supports the efficacy of the WATCHMAN® System and shows 

that the device was performing as expected compared to the Warfarin therapy control 

arm. The datasets were combined and weighted. According to the applicant, multiple 

outcomes of interest were examined, starting with the primary efficacy endpoint and then 

looking at individual outcomes: all stroke (ischemic and hemorrhagic) and associated 

disability; systemic embolism; cardiovascular/unexplained death; and major bleeding. 

The overall incidence of all strokes (ischemic and hemorrhagic) was not statistically 

different in the WATCHMAN® System arm and the Warfarin therapy arm. However, the 

applicant stated that there were statistical differences identified when it analyzed the 

stroke subtypes. The applicant indicated that, initially, there were more ischemic strokes 

in the WATCHMAN® System arm. However, after accounting for early procedural 

complications, including strokes (within 7 days post procedure) in the PROTECT AF 

study, the difference for ischemic stroke between the two arms fell below statistical 

significance (p=0.21). According to the applicant, there were significantly more 

hemorrhagic strokes and cardiovascular deaths in the Warfarin therapy arm compared to 

the WATCHMAN® System arm, showing a 78 percent and 52 percent reduction in those 

events respectively (p=0.004 and p=0.006). To better assess the clinical impact of the 
CMS-1632-P 565

different subtypes of strokes on patients, the applicant also performed statistical tests on 

disabilities resulting from stroke. The applicant indicated that, using a validated stroke 

severity assessment tool (Modified Rankin score), analyses show that there were 

significantly less disabling strokes with the WATCHMAN® System than Warfarin 

therapy. The applicant believed that this represents a substantial clinical improvement 

for the WATCHMAN® System device.

The applicant conducted an imputed placebo analysis to assess the benefit that 

untreated patients may expect with the WATCHMAN®System device. The applicant 

contended that many patients who are eligible for Warfarin therapy are not receiving any 

treatment and, therefore, are left unprotected from stroke. With annual ischemic stroke 

rates ranging from 5.6 percent to 7.1 percent, the applicant maintained that the 

WATCHMAN®System device provides a substantive clinical benefit. In order to assess 

the benefit that untreated patients may be able to expect with the WATCHMAN® System, 

the sponsor performed the following exploratory analysis. The observed device ischemic 

strokes rates were compared against the estimated stroke risk of untreated nonvalvular 

AF patients. A placebo arm was then constructed using “well-established, validated 

literature” models based on both the CHADS2 and CHA2DS2-VASc scores. The 

applicant reported that this analysis showed the WATCHMAN® System device reduced 

stroke in the untreated patient population by 61 to 81 percent.

We previously expressed concern that there was a lack of strong evidence 

demonstrating that the WATCHMAN® System prevents stroke at all. The applicant 

responded that the imputed placebo analysis cited above addresses this concern. The 
CMS-1632-P 566

applicant provided the table below as part of its FY 2016 application to show the relative 

risk reduction in Ischemic stroke rates using the WATCHMAN® System versus no 

therapy.
CMS-1632-P 567

Table 5: WATCHMAN® shows significant reduction in ischemic strokes 

compared to no therapy

Study

Average 

CHADS(2 

footnote on 

acronym) Score 

WATCHMAN®

Patients

Observed 

WATCHMAN®

Annual 

Ischemic 

Stroke Rate

(95 Percent CI)

Imputed 

Untreated 

Annual 

Event Rate

Relative 

Risk 

Reduction

PROTECT 

AF 2.2 1.3(0.9, 2.0) 5.6 to 5.7

77%

(64%, 

84%)

PREVAILonly 2.6 2.3

(1.3, 4.0) 6.6 to 6.7

65%

(39%, 

80%)

CAP 2.5 1.2

(0.8, 1.8) 6.4

81%

(72%, 

88%)

While the results of this analysis appear to suggest a large reduction in ischemic 

stroke rates in patients who did not receive any treatment, we continue to have some 

concerns regarding whether the WATCHMAN® System device prevents strokes. The 

indication for the treatment of the WATCHMAN® System device is for patients who are 

eligible for Warfarin therapy as opposed to patients who are ineligible for Warfarin 

therapy. We are concerned that the results of the imputed placebo analysis are not

sufficient to determine whether the WATCHMAN® System reduces the risk of stroke in 

patients who are eligible for Warfarin therapy. The applicant suggested that patients who 

are subtherapeutic or noncompliant with Warfarin therapy would have the same risk of 
CMS-1632-P 568

stroke as patients who do not receive any therapy. However, the applicant but did not 

offer any evidence that these two groups have the same risk of stroke. The 

WATCHMAN® System device is intended only for use in patients who are eligible for 

the anticoagulation, not for patients who have contraindications to oral anticoagulation. 

Because the device will not be labeled for use in those patients, we believe that an 

analysis comparing stroke risk of untreated patients to those patients treated with the

WATCHMAN®System is of limited value in assessing the technology’s benefit over 

existing therapy.

The applicant asserted that one of the primary goals of mechanical LAA closure is 

to provide an alternative treatment for patients other than long-term Warfarin therapy and 

exposure to the associated risk for bleeding. Although the primary efficacy endpoint of 

the PROTECT AF and PREVAIL studies considered hemorrhagic stroke, it did not 

encompass other types of major bleeding that may be associated with the use of Warfarin. 

The applicant indicated that it performed a supplemental analysis to determine the 

relative risks of all types of bleeding. The applicant divided the follow-up interval into 

four subsections (7 days, 45 days, 6 months, and 54 months). The applicant compared 

bleeding events in the WATCHMAN® System group with the Warfarin therapy group 

and concluded that, after 6 months (and discontinued use of Clopidogrel in the 

WATCHMAN® System group), the continued use of Warfarin was associated with a 3.4 

fold increase in the risk of major bleeding. According to the applicant, the significant 

reduction in bleeding after the procedural and concomitant medication therapy (6 

months) with the cessation of long-term anticoagulants illustrates the substantial clinical 
CMS-1632-P 569

benefit of the WATCHMAN® System. However, given the high burden endured (most 

notably, the higher risk of bleeding occurring in the first 7 days of an inpatient hospital 

stay) to achieve a reduction in bleeding in the long term, we do not believe that the 

WATCHMAN® System meets the criteria for substantially improved clinical outcomes. 

We are inviting public comments on whether this technology meets the substantial 

clinical improvement criterion, particularly in light of the applicant’s response to our 

previous concerns and our current concern that there remains insufficient evidence that 

the WATCHMAN® System substantially improves clinical outcomes in patients 

diagnosed with nonvalvular AF and who are eligible for Warfarin therapy.

We did not receive any public comments in response to the New Technology 

Town Hall meeting held on February 13, 2015 in regard to the WATCHMAN® System 

technology.
CMS-1632-P 570

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

A. Background

1. Legislative Authority

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 2016 hospital wage 

index based on the statistical areas appears under sections III.A.2. and G. 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 wage-related 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 2016 is discussed in section II.B. of the Addendum to this proposed rule.

As discussed in section III.J. 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 
CMS-1632-P 571

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 2016 is discussed in section II.A.4.b. of the Addendum to this proposed rule.

Section 1886(d)(3)(E) of the Act also provides for the collection of data every 

3 years on the occupational mix of employees for short-term, acute care hospitals 

participating in the Medicare program, in order to construct an occupational mix 

adjustment to the wage index. A discussion of the occupational mix adjustment that we 

are proposing to apply, beginning October 1, 2015 (to the FY 2016 wage index), appears 

under sections III.E.3. and F. of the preamble of this proposed rule.

2. Core-Based Statistical Areas (CBSAs) for the Proposed Rule

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 

OMB-established Core-Based Statistical Areas (CBSAs). The current statistical areas 

(which were implemented beginning with FY 2015) are based on revised OMB 

delineations issued on February 28, 2013, in OMB Bulletin No. 13-01. OMB Bulletin 

No. 13-01 established revised delineations for Metropolitan Statistical Areas, 

Micropolitan Statistical Areas, and Combined Statistical Areas in the United States and 

Puerto Rico, and provided guidance on the use of the delineations of these statistical 

areas based on new standards published on June 28, 2010 in the Federal Register
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(75 FR 37246 through 37252) and the 2010 Census of Population and Housing data (we 

refer to these revised OMB delineations as the “new OMB delineations” in this proposed 

rule). A copy of this bulletin may be obtained at 

http://www.whitehouse.gov/sites/default/files/omb/bulletins/2013/b-13-01.pdf. We refer 

readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 49951 through 49963) for a 

full discussion of our implementation of the new OMB labor market area delineations for 

the FY 2015 wage index. For FY 2016, we are continuing to use the new OMB 

delineations that we adopted beginning with FY 2015 to calculate the area wage indexes 

and the transition periods, which we discuss below.

B. Worksheet S-3 Wage Data for the Proposed FY 2016 Wage Index

The proposed FY 2016 wage index values are based on the data collected from 

the Medicare cost reports submitted by hospitals for cost reporting periods beginning in 

FY 2012 (the FY 2015 wage indexes were based on data from cost reporting periods 

beginning during FY 2011).

1. Included Categories of Costs

The proposed FY 2016 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 
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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 2015, the proposed wage 

index for FY 2016 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 2016 wage index also excludes the salaries, hours, and 

wage-related costs of hospital-based rural health clinics (RHCs), and Federally qualified 

health centers (FQHCs) because Medicare pays for these costs outside of the IPPS 

(68 FR 45395). In addition, salaries, hours, and wage-related costs of CAHs are excluded 

from the proposed 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 Suppliers and Providers Other Than Acute Care Hospitals 

under the IPPS

Data collected for the IPPS wage index also are currently used to calculate wage 

indexes applicable to suppliers and other providers, such as SNFs, home health agencies 

(HHAs), ambulatory surgical centers (ASCs), and hospices. In addition, they are used for 
CMS-1632-P 574

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 of any supplier or provider except IPPS providers and LTCHs. Such comments 

should be made in response to separate proposed rules for those suppliers and providers.

C. Verification of Worksheet S-3 Wage Data

The wage data for the proposed FY 2016 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, 2011, and before October 1, 2012. For wage index 

purposes, we refer to cost reports during this period as the “FY 2012 cost report,” the 

“FY 2012 wage data,” or the “FY 2012 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 2016 wage index 

includes FY 2012 data submitted to us as of February 25, 2015. 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 2016 wage index, we identified and excluded 93 providers 

with aberrant data that should not be included in the proposed wage index. If data 

elements for some of these providers with aberrant data are corrected, we intend to 

include data from those providers in the final FY 2016 wage index. We also adjusted 

certain aberrant data elements within a provider’s data and included these data in the 
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proposed wage index. For example, in situations where a hospital did not have 

documentable salaries, wages, and hours for contract housekeeping and dietary services, 

we imputed estimates, in accordance with established policies as discussed in the 

FY 2015 IPPS/LTCH PPS final rule (79 FR 49965 through 49967). We instructed MACs 

to complete their data verification of questionable data elements and to transmit any 

changes to the wage data no later than February 25, 2015. We intend to resolve all 

unresolved data elements by the date the FY 2016 IPPS/LTCH PPS final rule is issued. 

The revised data will be reflected in the FY 2016 IPPS/LTCH PPS final rule.

In constructing the proposed FY 2016 wage index, we included the wage data for 

facilities that were IPPS hospitals in FY 2012, 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 FY 2016 IPPS/LTCH 

PPS proposed rule, we removed 12 hospitals that converted to CAH status on or after 

February 13, 2014, the cut-off date for CAH exclusion from the FY 2015 wage index, 

and through and including February 5, 2015, the cut-off date for CAH exclusion from the 

FY 2016 wage index. After removing hospitals with aberrant data and hospitals that 
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converted to CAH status, we calculated the proposed FY 2016 wage index based on 

3,335 hospitals.

For the proposed FY 2016 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 2015 wage 

index (79 FR 49964). Table 2, which contains the proposed FY 2016 wage index 

associated with this proposed rule (available via the Internet on the CMS Web site), 

includes separate wage data for the campuses of 7 multicampus hospitals.

D. Method for Computing the Proposed FY 2016 Unadjusted Wage Index

The method used to compute the proposed FY 2016 wage index without an 

occupational mix adjustment follows the same methodology that we used to compute the 

FY 2012, FY 2013, FY 2014, and FY 2015 final wage indexes without an occupational 

mix adjustment (76 FR 51591 through 51593, 77 FR 53366 through 53367, 78 FR 50587 

through 50588, and 79 FR 49967, respectively).

As discussed in the FY 2012 IPPS/LTCH PPS final rule, in “Step 5,” for each 

hospital, we adjust the total salaries plus wage-related costs to a common period to 

determine total adjusted salaries plus wage-related costs. To make the wage adjustment, 

we estimate the percentage change in the employment cost index (ECI) for compensation 

for each 30-day increment from October 14, 2011, through April 15, 2013, 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 
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usage for FY 2016. 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

10/14/2011 11/15/2011 1.02167

11/14/2011 12/15/2011 1.02029

12/14/2011 01/15/2012 1.01893

01/14/2012 02/15/2012 1.01756

02/14/2012 03/15/2012 1.01620

03/14/2012 04/15/2012 1.01484

04/14/2012 05/15/2012 1.01348

05/14/2012 06/15/2012 1.01213

06/14/2012 07/15/2012 1.01080

07/14/2012 08/15/2012 1.00951

08/14/2012 09/15/2012 1.00825

09/14/2012 10/15/2012 1.00699

10/14/2012 11/15/2012 1.00568

11/14/2012 12/15/2012 1.00433

12/14/2012 01/15/2013 1.00292

01/14/2013 02/15/2013 1.00148

02/14/2013 03/15/2013 1.00000

03/14/2013 04/15/2013 0.98259

For example, the midpoint of a cost reporting period beginning January 1, 2012, 

and ending December 31, 2012, is June 30, 2012. An adjustment factor of 1.01080

would be applied to the wages of a hospital with such a cost reporting period.

Using the data as described above, the proposed FY 2016 national average hourly 

wage (unadjusted for occupational mix) is $40.1203. The proposed FY 2016 Puerto Rico 

overall average hourly wage (unadjusted for occupational mix) is $16.718.
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E. Proposed Occupational Mix Adjustment to the FY 2016 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 2016 Occupational Mix Adjustment Based 

on the 2013 Medicare Wage Index 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 2015 IPPS/LTCH PPS final rule (79 FR 49967 through 

49968), the occupational mix adjustment to the FY 2015 wage index was based on data 

collected on the 2010 Occupational Mix Survey Hospital Reporting Form (CMS-10079 

(2010)). For the proposed FY 2016 wage index, we are proposing to use the occupational 

mix data collected on the new 2013 survey to compute the occupational mix adjustment 

for FY 2016, as discussed in section II.B.2. of the preamble of this proposed rule.
CMS-1632-P 579

2. New 2013 Occupational Mix Survey for the Proposed FY 2016 Wage Index

Section 304(c) of Pub. L. 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 collected data 

in 2010 to compute the occupational mix adjustment for the FY 2013, FY 2014, and 

FY 2015 wage index. Therefore, we were required to collect data in 2013 and are using 

these data to compute the occupational mix adjustment for the FY 2016 wage index.

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 is being applied to the 

proposed 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 through 13680). 

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-ServicePayment/AcuteInpatientPPS/Downloads/WAGE-INDEX-OCCUPATIONAL-MIXSURVEY2013.pdf.
CMS-1632-P 580

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/Wage-Index-Files-Items/Medicare-Wage-IndexOccupational-Mix-Survey2013.html?DLPage=1&DLSort=1&DLSortDir=descending. 

Hospitals were required to submit their completed 2013 surveys to their MACs by 

July 1, 2014. The preliminary, unaudited 2013 survey data were posted on the CMS Web 

site afterward, on July 11, 2014.

As with the Worksheet S-3 cost report wage data, we asked our MACs to revise 

or verify data elements in hospitals’ occupational mix surveys that resulted in certain edit 

failures. Certain surveys with aberrant data elements are excluded from the proposed 

FY 2016 wage index, but any data elements resolved and revised in time to be included 

in the final wage index will be reflected in the FY 2016 IPPS/LTCH PPS final rule.

3. Calculation of the Proposed Occupational Mix Adjustment for FY 2016

For FY 2016, we are proposing to calculate the occupational mix adjustment 

factor using the same methodology that we used for the FY 2012, FY 2013, FY 2014, and 

FY 2015 wage indexes (76 FR 51582 through 51586, 77 FR 53367 through 53368, 

78 FR 50588 through 50589, and 79 FR 49968, respectively). As a result of applying this 

methodology, the proposed FY 2016 occupational mix adjusted national average hourly 

wage is $40.0853. The proposed FY 2016 occupational mix adjusted Puerto 

Rico-specific average hourly wage is $16.6329.
CMS-1632-P 581

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 FY 2016 wage index. For 

the proposed FY 2016 wage index, because we are using the Worksheet S-3, Parts II and 

III wage data of 3,335 hospitals, and we are using the occupational mix surveys of 3,039 

hospitals for which we also have Worksheet S-3 wage data, that represents a “response” 

rate of 91.1 percent (3,039/3,335). In the proposed FY 2016 wage index 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 for the 2013 occupational mix survey as well as the 2010 

occupational mix survey. We instructed MACs to continue gathering this information as 

part of the FY 2016 wage index desk review process. We stated that we would review 

these data for future analysis and consideration of potential penalties for noncompliant 

hospitals.
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F. Analysis and Implementation of the Proposed Occupational Mix Adjustment and the 

Proposed FY 2016 Occupational Mix Adjusted Wage Index

As discussed in section III.E. of the preamble of this proposed rule, for FY 2016, 

we apply the occupational mix adjustment to 100 percent of the proposed FY 2016 wage 

index. We calculated the proposed occupational mix adjustment using data from the 

2013 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 2016 wage index results in a proposed 

national average hourly wage of $40.0853 and a proposed Puerto-Rico specific average 

hourly wage of $16.6329. After excluding data of hospitals that either submitted aberrant 

data that failed critical edits or that did not have FY 2012 Worksheet S-3, Parts II and III, 

cost report data for use in calculating the proposed FY 2016 wage index, we calculated 

the proposed FY 2016 wage index using the occupational mix survey data from 3,039 

hospitals. For the proposed FY 2016 wage index, because we are using the Worksheet 

S-3, Parts II and III wage data of 3,335 hospitals, and we are using the occupational mix 

survey data of 3,039 hospitals for which we also have Worksheet S-3 wage data, those 

data represent a “response” rate of 91.1 percent (3,039/3,335). The proposed FY 2016 

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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Occupational Mix Nursing Subcategory Proposed Average 

Hourly Wage

National RN 38.70789914

National LPN and Surgical Technician 22.793680926

National Nurse Aide, Orderly, and Attendant 15.944111418

National Medical Assistant 18.009577806

National Nurse Category 32.783151666

The proposed national average hourly wage for the entire nurse category as 

computed in Step 5 of the occupational mix calculation is $32.783151666. Hospitals 

with a nurse category average hourly wage (as calculated in Step 4 of the occupational 

mix calculation) of greater than the national nurse category average hourly wage receive 

an occupational mix adjustment factor (as calculated in Step 6 of the occupational mix 

calculation) of less than 1.0. Hospitals with a nurse category average hourly wage (as 

calculated in Step 4 of the occupational mix calculation) of less than the national nurse 

category average hourly wage receive an occupational mix adjustment factor (as 

calculated in Step 6 of the occupational mix calculation) of greater than 1.0.

Based on the 2013 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 42.54 percent, and the national percentage of hospital employees in the 

all other occupations category is 57.46 percent. At the CBSA level, the percentage of 

hospital employees in the nurse category ranged from a low of 26.72 percent in one 

CBSA to a high of 80.55 percent in another CBSA.
CMS-1632-P 584

The proposed FY 2016 Puerto Rico-specific average hourly wages for each 

occupational mix nursing subcategory as calculated in Step 2 of the occupational mix 

calculation are as follows:

Occupational Mix Nursing Subcategory Proposed Puerto Rico 

Average Hourly Wage

Puerto Rico RN 16.762672135

Puerto Rico LPN and Surgical Technician 10.053073049

Puerto Rico Nurse Aide, Orderly, and Attendant 9.695410146

Puerto Rico Medical Assistant 21.962356196

Puerto Rico Nurse Category 14.563182257

Based on the 2013 occupational mix survey data, we determined (in Step 7 of the 

occupational mix calculation) that the Puerto Rico percentage of hospital employees in 

the nurse category is 49.93 percent, and the Puerto Rico percentage of hospital 

employees in the all other occupations category is 50.07 percent.

We also compared the proposed FY 2016 wage data adjusted for occupational 

mix from the 2013 survey to the proposed FY 2016 wage data adjusted for occupational 

mix from the 2010 survey. This analysis illustrates the effect on area wage indexes of 

using the 2013 survey data compared to the 2010 survey data; that is, it shows whether 

hospitals’ wage indexes would increase or decrease under the 2013 survey data as 

compared to the prior 2010 survey data. Of the 407 urban CBSAs and 47 rural CBSAs, 

our analysis shows that the proposed FY 2016 wage index values for 183 (45.0 percent) 

urban areas and 20 (42.6 percent) rural areas would increase. Fifty-three (13.0 percent) 

urban areas would increase by greater than or equal to 1 percent but less than 5 percent, 

and 5 (1.2 percent) urban areas would increase by 5 percent or more. Four (8.5 percent) 

rural areas would increase by greater than or equal to 1 percent but less than 5 percent, 
CMS-1632-P 585

and no rural areas would increase by 5 percent or more. However, the proposed wage 

index values for 220 (54.1 percent) urban areas and 27 (57.4 percent) rural areas would 

decrease using the 2013 survey data. Seventy-two (17.7 percent) urban areas would 

decrease by greater than or equal to 1 percent but less than 5 percent, and one (0.2 

percent) urban area would decrease by 5 percent or more. Seven (14.9 percent) rural 

areas would decrease by greater than or equal to 1 percent but less than 5 percent, and no 

rural areas would decrease by 5 percent or more. The largest positive impacts using the 

2013 survey data compared to the 2010 survey data are 15.0 percent for an urban area 

and 3.8 percent for a rural area. The largest negative impacts are 5.0 percent for an urban 

area and 1.9 percent for two rural areas. Four urban areas and no rural areas would be 

unaffected. These results indicate that the proposed wage indexes of more CBSAs 

overall (54.4 percent) would decrease due to application of the 2013 occupational mix 

survey data as compared to the 2010 occupational mix survey data to the wage index. 

Further, a larger percentage of urban areas (45.0 percent) would benefit from the use of 

the 2013 occupational mix survey data as compared to the 2010 occupational mix survey 

data than would rural areas (42.6 percent).

We compared the proposed FY 2016 occupational mix adjusted wage indexes for 

each CBSA to the proposed unadjusted wage indexes for each CBSA. As a result of 

applying the occupational mix adjustment to the wage data, the proposed wage index 

values for 222 (54.5 percent) urban areas and 24 (51.1 percent) rural areas would 

increase. One hundred one (24.8 percent) urban areas would increase by greater than or 

equal to 1 percent but less than 5 percent, and 6 (1.5 percent) urban areas would increase 
CMS-1632-P 586

by 5 percent or more. Nine (19.1 percent) rural areas would increase by greater than or 

equal to 1 percent but less than 5 percent, and no rural areas would increase by 5 percent 

or more. However, the proposed wage index values for 185 (45.5 percent) urban areas 

and 23 (48.9 percent) rural areas would decrease. Ninety-three (22.9 percent) urban areas 

would decrease by greater than or equal to 1percent but less than 5 percent, and no urban 

areas would decrease by 5 percent or more. Eight (17.0 percent) rural areas would 

decrease by greater than or equal to 1 percent but less than 5 percent, and no rural areas 

would decrease by 5 percent or more. The largest positive impacts would be 17.4 percent 

for an urban area and 2.7 percent for two rural areas. The largest negative impacts would 

be 4.7 percent for an urban area and 2.1 percent for a rural area. No urban or rural areas 

would remain unchanged by application of the proposed occupational mix adjustment. 

These results indicate that a larger percentage of urban areas (54.5 percent) would benefit 

from application of the proposed occupational mix adjustment than would rural areas 

(51.1 percent).

G. Transitional Wage Indexes

1. Background

In the FY 2015 IPPS/LTCH PPS proposed rule and final rule (79 FR 28060 and 

49957, respectively), we stated that, overall, we believed 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 recognized that 

some hospitals would experience decreases in wage index values as a result of the 

implementation of these new OMB labor market area delineations. We also realized that 
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some hospitals would have higher wage index values due to the implementation of the 

new OMB labor market area delineations.

The FY 2015 IPPS/LTCH PPS final rule (79 FR 49957) explained the 

methodology utilized in implementing prior transition periods when adopting changes 

that have significant payment implications, particularly large negative impacts. 

Specifically, for FY 2005, in the FY 2005 IPPS final rule (69 FR 49032 through 49034), 

we provided transitional wage indexes when the OMB definitions were implemented 

after the 2000 Census. The FY 2015 IPPS/LTCH PPS final rule (79 FR 49957 through 

49962) established similar transition methodologies to mitigate any negative payment 

impacts experienced by hospitals due to our adoption of the new OMB labor market area 

delineations for FY 2015.

As finalized in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49957 through 

49960) and as discussed below, for FY 2016, we are in the second year of two 3-year 

transition periods for wage index: one for hospitals that, for FY 2014, were located in an 

urban county that became rural under the new OMB delineations, and had 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); and one for hospitals deemed urban under section 1886(d)(8)(B) of the Act where 

the urban area became rural under the new OMB delineations. In addition, the 1-year 

transition that we applied in FY 2015 for hospitals that experienced a decrease in wage 
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index under the new OMB delineations expires at the end of FY 2015 and does not apply 

in FY 2016.

2. Transition for Hospitals in Urban Areas That Became Rural

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 49957 through 49959), for 

hospitals that, for FY 2014, were located in an urban county that became rural under the 

new OMB delineations, and had 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 adopted 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). FY 2016 will represent the 

second year of this transition policy, and we are not proposing any changes to this policy 

in this proposed rule. In the FY 2015 IPPS/LTCH PPS final rule (79 FR 49957), we 

stated our belief that 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. We continue to 

believe that assigning the wage index of the hospitals’ FY 2014 area for a 3-year 

transition is the simplest and most effective method for mitigating negative payment 

impacts due to the adoption of the new OMB delineations.

In the FY 2015 IPPS/LTCH PPS final rule (79 FR49959), we noted that there 

were situations where a hospital could not be assigned the wage index value of the CBSA 
CMS-1632-P 589

in which it geographically was located in FY 2014 because that CBSA split and no longer 

exists and some or all of the constituent counties were added to another urban labor 

market area under the new OMB delineations. If the hospital could not be assigned the 

wage index value of the CBSA in which it was geographically located in FY 2014 

because that CBSA split apart and no longer exists, and some or all of its constituent 

counties were added to another urban labor market area under the new OMB delineations, 

we established that hospitals located in such counties that became rural under the new 

OMB delineations were assigned the wage index of the 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). Any such assignment made in FY 2015 will continue for FYs 2016 and 2017, 

except as discussed below. We continue to believe this approach minimizes the negative 

effects of the change in the OMB delineations.

Under the policy adopted in the FY 2015 IPPS/LTCH PPS final rule, if a hospital 

for FY 2014 was located in an urban county that became 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, the hospital will permanently lose its 3-year 

transitional assigned wage index status, and will not be eligible to reinstate it. We 

established the transition policy to assist hospitals if they experience a negative payment 

impact specifically due to the adoption of the new OMB delineations in FY 2015. If a 

hospital chooses to forego this transition adjustment by obtaining some form of 
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reclassification or redesignation, we do not believe reinstatement of this transition 

adjustment would be appropriate. The purpose of the transition adjustment policy 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.

As we did for FY 2015 (79 FR 49959), with respect to the wage index 

computation for FY 2016, we will 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, as we began with FY 2015, for 

FY 2016, the wage data of all hospitals receiving this type of 3-year transition adjustment 

will be included in the statewide rural area in which they are geographically located 

under the new OMB labor market area delineations. After the 3-year transition period, 

beginning in FY 2018, these formerly urban hospitals discussed above will receive their 

statewide rural wage index, absent any reclassification or redesignation.

In addition, we established in the FY 2015 IPPS/LTCH PPS final rule 

(79 FR 49959) that the hospitals receiving this 3-year transition because they are in 

counties that were urban under the FY 2014 CBSA definitions, but are rural under the 

new OMB delineations, will not be considered urban hospitals. Rather, they will 

maintain their status as rural hospitals for other payment considerations. This is because 
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our application of a 3-year transitional wage index for these newly rural hospitals only 

applies for the purpose of calculating the wage index under our adoption of the new 

OMB delineations. We did not establish transitions for other IPPS payment policies that 

may be impacted by our adoption of the new OMB delineations.

3. Transition for Hospitals Deemed Urban under Section 1886(d)(8)(B) of the Act Where 

the Urban Area Became Rural under the New OMB Delineations

As discussed in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49959 through 

49960), there were some hospitals that, for FY 2014, were geographically located in rural 

areas but were deemed to be urban under section 1886(d)(8)(B) of the Act. For FY 2015, 

some of these hospitals redesignated under section 1886(d)(8)(B) of the Act were no 

longer eligible for deemed urban status under the new OMB delineations, as discussed in 

detail in section III.H.3. of the preamble of the FY 2015 IPPS/LTCH PPS final rule. 

Similar to the policy implemented in the FY 2005 IPPS final rule (69 FR 49059), and 

consistent with the FY 2015 policy we established for other hospitals in counties that 

were urban and became rural under the new OMB delineations, we finalized a policy to 

apply a 3-year transition to these hospitals redesignated to urban areas under section 

1886(d)(8)(B) of the Act for FY 2014 that are no longer deemed urban under the new 

OMB delineations and revert to being rural.

For FY 2016, we are not proposing any changes to this policy and will continue to 

the second year of the implementation of our policy to provide a 3-year transition 

adjustment to hospitals that are deemed urban under section 1886(d)(8)(B) of the Act 

under the FY 2014 labor market area delineations, but are considered rural under the new 
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OMB delineations, assuming no other form of wage index reclassification or 

redesignation is granted. We assign these hospitals the 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 was split apart and no longer exists, and some or all of its constituent 

counties were added to another urban labor market area under the new OMB delineations, 

such hospitals are assigned the wage index of the hospitals reclassified to the urban labor 

market area that contains the urban county in their FY 2014 redesignated CBSA to which 

they are closest. We 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. This wage 

index assignment will be forfeited if the hospital obtains any form of wage index 

reclassification or redesignation.

4. Expiring Transition for Hospitals That Experience a Decrease in Wage Index under 

the New OMB Delineations

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 49960 through 49962), we 

stated that, while we believe that instituting the latest OMB labor market area 

delineations would create a more accurate wage index system, we also recognized that 

implementing the latest OMB delineations may cause some short-term instability in 
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hospital payments. Therefore, in addition to the 3-year transition adjustments for 

hospitals being transitioned from urban to rural status as discussed earlier, in the FY 2015 

IPPS/LTCH PPS final rule, we established a 1-year blended wage index for all hospitals 

that would experience any decrease in their actual payment wage index. This 1-year 

blended wage index expires at the end of FY 2015. We are not proposing any additional 

transition adjustment for hospitals that experienced a decrease in wage index values due 

to the adoption of the new OMB delineations for FY 2015 but, as discussed previously, 

will continue the 3-year transition adjustments for hospitals that changed from urban to 

rural status that we finalized in the FY 2015 IPPS/LTCH PPS final rule. We established 

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 are typically greater than other types of 

transitions. We stated our belief that a transition period longer than 1 year to address 

other impacts of the adoption of the new OMB delineations would reduce the accuracy of 

the overall labor market area wage index system because far more hospitals would be 

affected. The 1-year transition for all negatively affected hospitals in FY 2015 provided 

an opportunity for hospitals to evaluate potential reclassification options, and mitigated 

initial negative impacts due to labor market assignment changes. We continue to believe 

that the adoption of the latest labor market delineations improves the accuracy and 

integrity of the hospital wage index system. Therefore, we believe it is necessary to 

allow this transition adjustment to expire.
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5. Budget Neutrality

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50372 through 50373), for 

FY 2015, we applied the 3-year transition and 50/50 blended wage index adjustments in a 

budget neutral manner. For FY 2016, we are proposing to apply the 3-year transition 

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 the proposed budget neutrality adjustment for FY 2016, we refer 

readers to section II.A.4.b. of the Addendum to this proposed rule.

H. Proposed Application of the Proposed Rural, Imputed, and Frontier Floors

1. Proposed Rural Floor

Section 4410(a) of Pub. L. 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 

Pub. L. 111-148 also requires that a national budget neutrality adjustment be applied in 

implementing the rural floor. Based on the proposed FY 2016 wage index associated 

with this proposed rule, we estimated that 459 hospitals would receive an increase in their 

FY 2016 proposed wage index due to the application of the rural floor.
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2. Proposed Imputed Floor for FY 2016

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 five times, the last of which 

was adopted in the FY 2015 IPPS/LTCH PPS final rule and is set to expire on 

September 30, 2015. (We refer readers to further discussions of the imputed floor in the 

FY 2014 and FY 2015 IPPS/LTCH PPS final rules (78 FR 50589 through 50590 and 

79 FR 49969 through 49970, respectively) and to the regulations at 

42 CFR 412.64(h)(4).) Currently, there are three all-urban States, Delaware, New Jersey, 

and Rhode Island, with a range of wage indexes assigned to hospitals in these States, 

including through reclassification or redesignation (we refer readers to discussions of 

geographic reclassifications and redesignations in section III.J. of the preamble of this 

proposed rule).

In computing the imputed floor for an all-urban State under the original 

methodology, which was established beginning in FY 2005, 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 all-urban 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. As of FY 2012, there were only two 
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all-urban States, New Jersey and Rhode Island, and only New Jersey benefitted under this 

methodology. Under the previous OMB labor market area delineations, Rhode Island 

had only one CBSA (Providence-New Bedford-Fall River, RI-MA) and New Jersey had 

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 

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 2 (formerly Table 4D) associated with the 

FY 2013 IPPS/LTCH PPS final rule, which is available via the Internet 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 
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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 under the original methodology.

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.

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 49969 through 49970), for 

FY 2015, we adopted a policy to extend the imputed floor policy (both the original 

methodology and alternative methodology) for another year, through 

September 30, 2015, as we continued to explore potential wage index reforms. In that 

final rule, we revised the regulations at § 412.64(h)(4) and (h)(4)(vi) to reflect the 1-year 

extension of the imputed floor.

As discussed in section III.B. of the preamble of that FY 2015 final rule, we 

adopted the new OMB labor market area delineations beginning in FY 2015. Under the 

new OMB delineations, Delaware became an all-urban State, along with New Jersey and 
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Rhode Island. Under the new OMB delineations, Delaware has three CBSAs, New 

Jersey has seven CBSAs, and Rhode Island continues to have only one CBSA 

(Providence-Warwick, RI-MA). We refer readers to a detailed discussion of our adoption 

of the new OMB labor market area delineations in section III.B. of the preamble of the 

FY 2015 IPPS/LTCH PPS final rule. Therefore, under the adopted new OMB 

delineations discussed in section III.B. of the preamble of the FY 2015 IPPS/LTCH PPS 

final rule, Delaware became an all-urban State and was subject to an imputed floor as 

well for FY 2015.

For FY 2016, we are proposing to extend the imputed floor policy (both the 

original methodology and the alternative methodology) for 1 additional year, through 

September 30, 2016, while we continue to explore potential wage index reforms. We are 

proposing to revise the regulations at § 412.64(h)(4) and (h)(4)(vi) to reflect this 

proposed additional 1-year extension. We are inviting public comments on the proposed 

additional 1-year extension of the imputed floor through September 30, 2016.

The wage index and impact tables associated with this FY 2016 IPPS/LTCH PPS 

proposed rule (which are available via the Internet on the CMS Web site) reflect the 

proposed continued application of the imputed floor policy at § 412.64(h)(4) and a

proposed national budget neutrality adjustment for the imputed floor for FY 2016. There 

are 16 providers in New Jersey, and no providers in Delaware that would receive an 

increase in their proposed FY 2016 wage index due to the proposed continued application 

of the imputed floor policy under the original methodology and 4 hospitals in Rhode 

Island that would benefit under the alternative methodology.
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3. Proposed State Frontier Floor

Section 10324 of Pub. L. 111-148 requires that hospitals in frontier States cannot 

be assigned a wage index of less than 1.0000 (we refer readers to regulations at 

42 CFR 412.64(m) and to a discussion of the implementation of this provision in the 

FY 2011 IPPS/LTCH PPS final rule (75 FR 50160 through 50161)). Forty-seven

hospitals would receive the frontier floor value of 1.0000 for their FY 2016 wage index in 

this proposed rule. These hospitals are located in Montana, North Dakota, South Dakota, 

and Wyoming. Although Nevada also is defined as a frontier State, its proposed FY 2016 

rural floor value of 1.0300 is greater than 1.0000, and therefore, no Nevada hospitals 

would receive a frontier floor value for their FY 2016 wage index. We are not proposing 

any changes to the frontier floor policy for FY 2016. 

The areas affected by the proposed rural, imputed, and frontier floor policies for 

the proposed FY 2016 wage index are identified in Table 2 (formerly Table 4D)

associated with this proposed rule, which is available via the Internet on the CMS Web 

site.

I. Proposed FY 2016 Wage Index Tables

We are proposing to streamline and consolidate the wage index tables associated 

with the IPPS proposed and final rules for FY 2016 and subsequent fiscal years. The 

wage index tables have consisted of 12 tables (Tables 2, 3A, 3B, 4A, 4B, 4C, 4D, 4E, 4F, 

4J, 9A, and 9C) that are made available via the Internet on the CMS Web site. However, 

with the exception of Table 4E, we are proposing to streamline and consolidate these 11 
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tables into 2 tables. We refer readers to section VI. of the Addendum to this proposed 

rule for a discussion of the proposed revisions to the wage index tables.

J. 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/LTCH PPS 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 2016, 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). In addition, 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 
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areas are ineligible to apply for rural reclassification in accordance with the provisions of 

42 CFR 412.103.

2. FY 2016 MGCRB Reclassifications

a. FY 2016 Reclassification Requirements and Approvals

Under section 1886(d)(10) of the Act, the MGCRB considers applications by 

hospitals for geographic reclassification for purposes of payment under the IPPS. The 

specific procedures and rules that apply to the geographic reclassification process are 

outlined in regulations under 42 CFR 412.230 through 412.280.

At the time this proposed rule was constructed, the MGCRB had completed its 

review of FY 2016 reclassification requests. Based on such reviews, there are 285 

hospitals approved for wage index reclassifications by the MGCRB starting in FY 2016. 

Because MGCRB wage index reclassifications are effective for 3 years, for FY 2016, 

hospitals reclassified beginning in FY 2014 or FY 2015 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 275 hospitals approved for wage index 

reclassifications in FY 2014 that continue for FY 2016, and 312 hospitals approved for 

wage index reclassifications in FY 2015 that continue for FY 2016. Of all the hospitals 

approved for reclassification for FY 2014, FY 2015, and FY 2016, based upon the review 

at the time of this proposed rule, 872 hospitals are in a reclassification status for FY 2016.

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 
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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 2016 will be incorporated into the wage index values published in 

the FY 2016 IPPS/LTCH PPS final rule. These changes affect not only the wage index 

value for specific geographic areas, but also the wage index value that 

redesignated/reclassified hospitals receive; that is, whether they receive the wage index 

that includes the data for both the hospitals already in the area and the 

redesignated/reclassified hospitals. Further, the wage index value for the area from 

which the hospitals are redesignated/reclassified may be affected.

b. Applications for Reclassifications for FY 2017

Applications for FY 2017 reclassifications are due to the MGCRB by 

September 1, 2015 (the first working day of September 2015). We note that this is also 

the deadline for canceling a previous wage index reclassification withdrawal or 

termination under 42 CFR 412.273(d). Applications and other information about 

MGCRB reclassifications may be obtained, beginning in mid-July 2015, via the Internet 

on the CMS Web site at: http://cms.gov/Regulations-and Guidance/Review-
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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. 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 2015, we used 

the new OMB delineations based on the 2010 Decennial 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 are referred to as “Lugar” 

hospitals and the counties themselves are often referred to as “Lugar” counties. The chart 

for this FY 2016 proposed rule with the listing of the rural counties containing the 

hospitals designated as urban under section 1886(d)(8)(B) of the Act is available via the 

Internet on the CMS Web site.

4. 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 
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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.D. of the preamble of this proposed rule.)

In addition, we adopted a minor procedural change in that rule that allows 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.
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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.

K. Proposed Out-Migration Adjustment Based on Commuting Patterns of Hospital 

Employees

1. Background

In accordance with section 1886(d)(13) of the Act, as added by section 505 of 

Pub. L. 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.

2. New Data Source for the Proposed FY 2016 Out-Migration Adjustment

When the provision of section 1886(d)(13) of the Act 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 journey-to-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 

which contained questions on where residents in each county worked (69 FR 49062). 

However, the 2010 Census was “short form” only; information on where residents in 

each county worked was not collected as part of the 2010 Census. The Census Bureau 
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worked with CMS to provide an alternative dataset based on the latest available data on 

where residents in each county worked in 2010, for use in developing a new 

out-migration adjustment based on new commuting patterns developed from the 2010 

Census data beginning with FY 2016. We have reviewed and analyzed the alternative 

dataset from the Census Bureau and are proposing new out-migration adjustments in this 

FY 2016 proposed rule, as discussed below (as we indicated we would in the FY 2015 

IPPS/LTCH PPS final rule (79 FR 49984 through 49985).

To determine the new out-migration adjustments and applicable counties that we 

are proposing for FY 2016, we analyzed commuting data compiled by the Census Bureau 

that were derived from a custom tabulation of the American Community Survey (ACS), 

an official Census Bureau survey, utilizing 2008 through 2012 (5-Year) Microdata. The 

data were compiled from responses to the ACS questions regarding the county where 

workers reside and the county to which workers commute. The tabulation was specific to 

hospital military and civilian employees (hospital sector Census code 8190/NAICS code 

622) who worked in the 50 States, Washington, DC, and Puerto Rico and, therefore, 

provided information about commuting patterns of workers at the county level for 

residents of the 50 States, Washington, DC, and Puerto Rico. For the ACS, the Census 

Bureau selects a random sample of addresses where workers reside to be included in the 

survey, and the sample is designed to ensure good geographic coverage. The ACS 

samples approximately 3.54 million resident addresses per year. The results of the ACS 

are used to formulate descriptive population estimates, and, as such, the sample on which 
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the dataset is based represents the actual figures that would be obtained from a complete 

count.

3. Proposed FY 2016 Out-Migration Adjustment

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. For FY 2016 and 

subsequent years, until such time that CMS finalizes out-migration adjustments based on 

the next Census, we are proposing that the out-migration adjustment be based on the data 

derived from the custom tabulation of the ACS described in section III.K.2. of the 

preamble of this proposed rule. As discussed above, we believe that these data are the 

most appropriate to establish qualifying counties because they are the most accurate and 

up-to-date data that are available to us. We are proposing that the FY 2016 out-migration 

adjustments continue to be based on the same policies, procedures, and computation that 

were used for the FY 2012 out-migration adjustment. We have applied these same 

policies, procedures, and computations since FY 2012 and we believe they continue to be 

appropriate for FY 2016. (We refer readers to a full discussion of the out-migration 

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 2 (formerly 

Table 4J) associated with this proposed rule (which is available via the Internet on the 

CMS Web site) lists the proposed out-migration adjustments for the FY 2016 wage index.
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4. Use of Out-Migration Adjustment Data Applied for FY 2014 or FY 2015 for 3 Years

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. In the FY 2015 IPPS/LTCH PPS final rule 

(79 FR 49984 through 49985), we stated that even if we proposed to adopt new 

out-migration adjustment data for FY 2016, hospitals that are already receiving an 

out-migration adjustment beginning with a fiscal year prior to FY 2016 would still 

receive their out-migration adjustment based on the data used prior to FY 2016 for the 

years that remain of their 3-year qualification period in FY 2016 and after. Therefore, for 

FY 2016, hospitals that qualified in FY 2014 or FY 2015 to receive the out-migration 

adjustment based on the commuting data and the CBSA delineations used for FY 2014 

will continue to receive the same out-migration adjustment for the remainder of their 

3-year qualification period. For example, if a hospital qualified for the out-migration 

adjustment in FY 2014, but also would qualify in FY 2016 under the proposed new 

commuting patterns and the new OMB labor market area delineations for FY 2016, this 

hospital will still receive the out-migration adjustment based on the commuting data and 

the CBSA delineations used for FY 2014, regardless of whether the FY 2016 adjustment 

would be higher or lower than the adjustment based on FY 2014 data. If the hospital 

qualifies in FY 2017 (after the expiration of the 3-year qualifying period for the 

out-migration adjustment, which began in FY 2014) to receive the out-migration 

adjustment based on the new commuting data and OMB delineations in effect in 
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FY 2017, it could receive the out-migration adjustment based on the new data for 

FYs 2017, 2018, and 2019. Conversely, for example, if a hospital qualified for the 

out-migration adjustment in FY 2014, but would not qualify in FY 2016 under the 

proposed new commuting patterns and the new OMB delineations for FY 2016, this 

hospital will still receive the out-migration adjustment based on the commuting data and 

the CBSA delineations used for FY 2014.

Based on the new out-migration adjustment data used for this proposed rule, 

325 hospitals would receive the out-migration adjustment for FY 2016. Of hospitals that 

were eligible for the out-migration adjustment for FY 2015 but whose 3-year qualifying 

period for the out-migration adjustment expired, 5 hospitals are no longer eligible for the 

out-migration adjustment under the new data (3 hospitals in Alabama, 1 hospital in 

Missouri, and 1 hospital in Ohio). Of the 325 hospitals, the out-migration adjustment of 

243 hospitals would be unaffected, as these hospitals would receive the same 

out-migration adjustment because they are still within an existing 3-year eligibility period 

under the previous out-migration adjustment data. Of the 243 hospitals, 8 hospitals 

would have received a higher out-migration adjustment using the new data (1 hospital in 

Alabama, 2 hospitals in Massachusetts, 1 hospital in Michigan, and 4 hospitals in 

Pennsylvania) and 4 hospitals would have received a lower out-migration using the new 

data (1 hospital in Idaho, 2 hospitals in Oregon, and 1 hospital in South Carolina). 

Eighty-two hospitals would be newly eligible for the out-migration adjustment in 

FY 2016 using the new data. The following table shows the States and Territory in 

which the 82 affected hospitals are located:
CMS-1632-P 610

State

Number of 

Hospitals That 

Would Be Newly 

Eligible under 

the New OutMigration Data 

for FY 2016

Alabama 2

Arizona 2

California 6

Florida 3

Georgia 8

Idaho 1

Illinois 1

Indiana 3

Kansas 1

Louisiana 5

Maine 1

Massachusetts 0

Michigan 2

Minnesota 1

Mississippi 3

Missouri 1

North Carolina 4

Ohio 4

Oklahoma 2

Oregon 0

Pennsylvania 3

Puerto Rico 5

South Carolina 1

Tennessee 4

Texas 6

Vermont 1

Washington 5

West Virginia 4

Wisconsin 3

Totals 82
CMS-1632-P 611

L. Process for Requests for Wage Index Data Corrections

The preliminary, unaudited Worksheet S-3 wage data files for the proposed 

FY 2016 wage index were made available on May 23, 2014, and the preliminary 

CY 2013 occupational mix data files on July 11, 2014, through the Internet on the CMS 

Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/Wage-Index-Files-Items/FY-2016-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 about the dates of 

the Hospital Open Door Forums at the CMS Web site at: http://www.cms.gov/Outreachand-Education/Outreach/OpenDoorForums/index.html.

In a memorandum dated April 7, 2014, 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.
CMS-1632-P 612

If a hospital wished to request a change to its data as shown in the May 23, 2014 

wage data files and July 11, 2014 occupational mix data files, the hospital was to submit 

corrections along with complete, detailed supporting documentation to its MAC by 

October 6, 2014. 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 April 7, 2014 memorandum 

referenced above.

The MACs notified the hospitals by mid-February 2015 of any changes to the 

wage index data as a result of the desk reviews and the resolution of the hospitals’ 

early-October revision requests. The MACs also submitted the revised data to CMS by 

December 16, 2014. CMS published the proposed wage index public use files that 

included hospitals’ revised wage index data on February 13, 2015. Hospitals had until 

March 2, 2015, 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 8, 2015. The deadline for a hospital to request CMS intervention in 

cases where the hospital disagreed with the MAC’s policy interpretations was 

April 15, 2015. We note that, as we did for the FY 2015 wage index, for the FY 2016 

wage index, in accordance with the FY 2016 wage index timeline posted on the CMS 
CMS-1632-P 613

Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/Downloads/FY2016-WI-Time-Table-Final.pdf, the April 

appeals had to be sent via mail and email. We refer readers to the wage index timeline 

for complete details.

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/Wage-Index-Files-Items/FY-2016-Wage-Index-HomePage.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 2012 data used 

to construct the proposed FY 2016 wage index. We noted that the proposed hospital 

average hourly wages shown in Table 2 only reflect changes made to a hospital’s data 

that were transmitted to CMS by February 27, 2015.

We will release the final wage index data public use files on May 1, 2015 on the 

Internet at: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/Wage-Index-Files-Items/FY-2016-Wage-Index-HomePage.html. The May 2015 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 8, 2015).

After the release of the May 2015 wage index data files, changes to the wage and 

occupational mix data will only be made in those very limited situations involving an 
CMS-1632-P 614

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 8, 2015.

● Requests for correction of errors that were not, but could have been, identified 

during the hospital’s review of the February 13, 2015 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 2015 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 1, 2015. Similar to the April appeals, beginning with the FY 2015 wage index, in 

accordance with the FY 2016 wage index timeline posted on the CMS Web site at 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/Downloads/FY2016-WI-Time-Table-Final.pdf, the June 

appeals are required to be sent via mail and email to CMS and the MACs. We refer 

readers to the wage index timeline for complete details.
CMS-1632-P 615

Verified corrections to the wage index data received timely by CMS and the 

MACs (that is, by June 1, 2015) will be incorporated into the final wage index in the 

FY 2016 IPPS/LTCH PPS final rule, which will be effective October 1, 2015.

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 2016 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 May 1, 2015, 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 2016 wage index by August 2015, and the implementation of 

the FY 2016 wage index on October 1, 2015. Given these processes, the wage index 

implemented on October 1 should be accurate. Nevertheless, in the event that errors are 
CMS-1632-P 616

identified by hospitals and brought to our attention after June 1, 2015, 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 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 1, 2015, for the FY 2016 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 
CMS-1632-P 617

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 1, 2015 deadline for the FY 2016 

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 1, 2015 deadline for 

the FY 2016 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 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 
CMS-1632-P 618

will still apply in those instances where a final judicial decision reverses a CMS denial of 

a hospital’s wage index data revision request.

M. Labor-Related Share for the Proposed FY 2016 Wage Index

Section 1886(d)(3)(E) of the Act directs the Secretary to adjust the proportion of 

the national prospective payment system base payment rates that are attributable to wages 

and wage-related costs by a factor that reflects the relative differences in labor costs 

among geographic areas. It also directs the Secretary to estimate from time to time the 

proportion of hospital costs that are labor-related: “The Secretary shall adjust the 

proportion (as estimated by the Secretary from time to time) of hospitals’ costs which are 

attributable to wages and wage-related costs of the DRG prospective payment rates....” 

We refer to the portion of hospital costs attributable to wages and wage-related costs as 

the labor-related share. The labor-related share of the prospective payment rate is 

adjusted by an index of relative labor costs, which is referred to as the wage index.

Section 403 of Pub. L. 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 Pub. L. 108-173 did not change the legal requirement that the Secretary 

estimate “from time to time” the proportion of hospitals’ costs that are “attributable to 

wages and wage-related costs.” Thus, hospitals receive payment based on either a 

62-percent labor-related share, or the labor-related share estimated from time to time by 

the Secretary, depending on which labor-related share resulted in a higher payment.
CMS-1632-P 619

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 labor-related share for 

FY 2014. Using the FY 2010-based IPPS market basket, we finalized a labor-related 

share for FY 2014 and for FY 2015 of 69.6 percent. In addition, we implemented this 

revised and rebased labor-related share in a budget neutral manner. However, 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 1.0000 being paid using a labor-related share lower than the labor-related share of 

hospitals with a wage index greater than 1.0000.

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 proposed rule, for 

FY 2016, 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 2016, 

we are proposing to continue to use a labor-related share of 69.6 percent for discharges 

occurring on or after October 1, 2015.

Tables 1A and 1B, which are published in section VI. of the Addendum to this 

proposed rule and available via the Internet on the CMS Web site, reflect this proposed 
CMS-1632-P 620

labor-related share. For FY 2016, 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 2016, we are proposing to apply the wage index 

to a proposed labor-related share of 69.6 percent of the national standardized amount. 

We note that, for Puerto Rico hospitals, the national labor-related share is 62 percent 

because the national wage index for all Puerto Rico hospitals is less than 1.0000.

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50601 through 50603), we also 

rebased and revised the labor-related 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 the FY 2015 

IPPS/LTCH PPS final rule (79 FR 49990), for FY 2015, we did not 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. For FY 2015, we continued 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.

For FY 2016, 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, 2015. Puerto Rico hospitals are paid based on 75 percent of the national 

standardized amounts and 25 percent of the Puerto Rico-specific standardized amounts. 
CMS-1632-P 621

For FY 2016, we are proposing 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 proposed Puerto Rico-specific wage index greater than 

1.000 for FY 2016, 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 proposed Puerto Rico-specific wage index of less than or 

equal to 1.000 for FY 2016 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 2016 is reflected in Table 1C, which is published in section VI. of the 

Addendum to this proposed rule and available via the Internet on the CMS Web site.

N. Proposed Changes to 3-Year Average Pension Policy and Proposed Changes to the 

Wage Index Timetable Regarding Pension Costs for FY 2017 and Subsequent Years

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51586 through 51590), we 

revised our policy for reporting costs of qualified defined benefit pension plans for the 

Medicare wage index. Under that revised policy, the pension costs that are to be included 

in the wage index equal a hospital’s average cash contributions deposited to its defined 

benefit pension plan over a 3-year period or, if less than a 3-year period, the number of 

years that the hospital has sponsored a defined benefit plan. The 3-year average is

centered on the base cost reporting period for the wage index. For example, the FY 2016 
CMS-1632-P 622

wage index will be based on Medicare cost reporting periods beginning during Federal 

FY 2012, and will reflect the average pension contributions made in a hospital’s cost 

reporting period that began during Federal FYs 2011, 2012, and 2013. As stated in the 

FY 2012 IPPS/LTCH PPS final rule (76 FR 51587), we centered the 3-year average on 

the base cost reporting period for the wage index in order to ensure that the average 

annual pension cost reflected in the wage index is consistent with the cost reporting 

period applicable to all other costs included in the index. We also stated that we did not 

anticipate that the use of contributions made in the period immediately following the base 

cost reporting period (for example, using Federal FY 2013 as one of the 3-year periods 

for FY 2016) would create an administrative burden because by the time the MAC would 

be reviewing a hospital’s base cost reporting period wage data for inclusion in the 

subsequent year’s wage index, trust account statements and general ledger reports to 

support the contributions should be readily available. We refer readers to the FY 2012 

IPPS/LTCH PPS final rule for a complete discussion of this policy.

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 49987 through 49990), we 

finalized changes to the FY 2017 wage index timeline. We stated that we believed the 

timeline changes would not only improve the accuracy of the February public use file 

(PUF), but also would reduce the number of hospital appeals based on the February PUF. 

Among these changes to the wage index timeline for FY 2017 is a requirement that 

hospitals must request revisions to the preliminary PUF by the first week of 

September 2015. In response to our FY 2015 proposal to change the wage index timeline 

for FY 2017, a public commenter stated that the proposed FY 2017 deadline of early 
CMS-1632-P 623

August 2015 did not provide enough time for hospitals to incorporate their pension data 

into the desk review process because the Internal Revenue Service (IRS) Form 5500 

(used as the basis for reporting pension contributions for defined benefit plans) is due 

7 months after the end of the plan year (July 31), with possible extensions through 

mid-September. In response to that comment, in the FY 2015 IPPS/LTCH PPS final rule 

(79 FR 49989), we provided for a general deadline of early September to submit 

revisions to the wage index data posted in the May 2015 preliminary PUF, but provided a 

limited exception for submission of pension data for certain hospitals. Specifically, 

starting with the FY 2017 wage index, we will allow an extension for a hospital with a 

fiscal year begin date on or after August 15 of a year to submit its initial pension data by 

mid-October 2015, which would revise the preliminary PUF. We stated that we believed 

the majority of hospitals, which do have fiscal year begin dates prior to August 15 of a 

year, would be able to submit their pension data, along with the remainder of their wage 

index documentation, to their MACs by the beginning of September of each year, in time 

for the beginning of the annual wage index desk review process. We also stated that, in 

future rulemaking, we may consider revisions to the 3-year average pension policy that 

would allow all hospitals to submit their pension data at the same time. We refer readers 

to the FY 2015 IPPS/LTCH PPS final rule for a complete discussion of the changes to the 

FY 2017 wage index timeline (79 FR 49987 through 49990).

We have now reconsidered the changes made to the FY 2017 wage index timeline 

in light of our experience to date with the administrative aspects of the 3-year average 

pension policy as explained above and in the FY 2012 IPPS/LTCH PPS final rule 
CMS-1632-P 624

(76 FR 51586 through 51590). Based on our findings, we believe that a revision of the 

3-year average pension policy is warranted, beginning with the FY 2017 wage index.

Specifically, in this FY 2016 proposed rule, instead of the 3-year average being 

centered on the base cost reporting period for the wage index, we are proposing that, for 

the FY 2017 wage index and all subsequent fiscal year wage indexes, the 3-year average 

would be based on pension contributions made during the base cost reporting period plus 

the prior 2 cost reporting years. For example, the FY 2017 wage index will be based on 

Medicare cost reporting periods beginning during Federal FY 2013. Therefore, the 

FY 2017 wage index would reflect the average pension contributions made in hospitals’ 

cost reporting periods beginning during Federal FYs 2011, 2012, and 2013 (rather than 

Federal FYs 2012, 2013, and 2014 under the current FY 2015 policy). Our proposed 

change in the 3-year averaging period would produce a 1-year lag in reporting pension 

costs relative to reporting all other costs included in the wage index and, for most 

hospitals, would result in the same 3-year average pension costs for both the FY 2016 and 

FY 2017 wage index. That is, for FY 2016, the 3-year average consists of Federal FYs 

2011, 2012, and 2013, and under our proposal, the 3-year average for FY 2017 also 

would consist of Federal FYs 2011, 2012, and 2013. Under our proposal, the 3-year 

average for FY 2018 would consist of Federal FYs 2012, 2013, and 2014.

For FY 2017 only, we are proposing that all hospitals submit requests to revise 

their previously submitted pension data by early October to mid-October (instead of the 

first week of September, as stated in the FY 2015 IPPS/LTCH PPS final rule 

(79 FR 49989). We had anticipated proposing an early September deadline for all 
CMS-1632-P 625

hospitals to submit revisions on all data in the preliminary PUF, including pension data. 

However, we realized that such a deadline would involve requiring hospitals to submit all 

of the revisions to pension data prior to the effective date of this rule. Therefore, we are 

proposing this deadline change of early October to mid-October so that all hospitals 

would submit revisions to their pension data by the same deadline, which should simplify 

the deadline for submitting those data as well as provide more time to most hospitals to 

submit these data. Because the pension data for FY 2017 would be the same pension data 

already used in FY 2016 (as mentioned above), we would expect minimal revisions to the 

pension data for FY 2017. Because we are proposing an extension until early to midOctober for all hospitals to revise their pension data for FY 2017, we are proposing to 

eliminate the limited exception and extension for hospitals with a fiscal year begin date of 

on or after August 15, as set forth in the FY 2015 IPPS/LTCH PPS final rule 

(79 FR 49989). The exception is no longer necessary, given the proposed use of data 

from older cost reports for the 3-year averaging of pension costs and the proposed 

extension of time for submission of revisions of pension data for all hospitals for 

FY 2017. For FY 2018 and subsequent fiscal years, we are proposing to require that all 

hospitals request revisions to the preliminary PUF for all wage index issues, including 

submission and/or revisions of pension data, by the first week of September. The 

September deadline for FY 2018 and subsequent fiscal years is consistent with the 

deadline established in the FY 2015 IPPS/LTCH PPS final rule (7 FR 49989) for the 

FY 2017 wage index data. Specifically, in that final rule, in response to commenters, we 

established the early September deadline as a feasible deadline for hospitals to request 
CMS-1632-P 626

revisions to their preliminary wage and occupational mix data. In addition, we also stated 

that a deadline in early September would be manageable for hospitals, while also 

providing the MACs with the most amount of time possible to complete their desk 

reviews.

This proposal also allows for a single deadline for all hospitals to submit revisions 

to their wage data, including their pension costs (as stated above). A single deadline is 

preferable because it would result in less confusion and would be easier to administer for 

all hospitals. In addition, the limited exception for hospitals with a fiscal year begin date 

of on or after August 15 would have provided administrative relief only to a minority of 

hospitals. Furthermore, in many cases, hospitals that participate in a systemwide pension 

plan or State-run retirement system have been unable to obtain timely documentation to 

support their allocated share of total plan contributions. We believe that a shift in the 

3-year average to the base cost reporting period plus the prior 2 cost reporting years 

would provide all hospitals sufficient time to collect and submit their pension data by the 

proposed September deadline, and allow MACs to complete their desk reviews on 

schedule, thereby improving the accuracy of the February PUF.

For the reasons outlined above, we are proposing to revise the current policy used 

to compute the 3-year average for pension costs for the wage index, such that, beginning 

with the FY 2017 wage index, the 3-year average would be based on pension 

contributions made during the base cost reporting period plus the prior 2 cost reporting 

years.
CMS-1632-P 627

The chart below includes the FY 2017 wage index timetable published in the 

FY 2015 IPPS/LTCH PPS final rule (79 FR 49989), except for the mid-October deadline 

for submitting pension data to the MACs for hospitals with fiscal year begin dates on or 

after August 15, which we are proposing to eliminate in this proposed rule. It also 

includes our proposal for FY 2017 for all hospitals to request revisions to their pension 

data by mid-October 2015 (rather than early October as published in the FY 2015 

IPPS/LTCH PPS final rule (79 FR 49989)).

FY 2017 WAGE INDEX TIMETABLE WITH PROPOSED DEADLINE FOR 

PENSION REVISIONS

Actions Deadlines

Posting of Preliminary PUF on CMS Web site Mid-May 2015

Deadline for Hospitals to Request Revisions to 

Preliminary PUF

First week of September 2015

Deadline for Hospitals to Request Revisions to Pension 

Data

Early October 2015 to 

Mid-October 2015

Deadline for MACs to Complete Desk Reviews Mid-November 2015

Posting of January PUF on CMS Web site (formerly 

“February” PUF)

Late January 2016

Deadline Following Posting of January PUF for 

Hospitals to Request Revisions 

Mid-February 2016

Completion of Appeals by MACs and Transmission of 

Final Wage Data to CMS

Mid to Late March 2016

Deadline for Hospitals to Appeal in April Early April 2016

Posting of Final Rule PUF Late April 2016

Deadline for Hospitals to Appeal in May Late May 2016

Expected Issuance of IPPS Final Rule August 1, 2016

For FY 2018 and subsequent fiscal years, we are proposing the same timetable as 

in FY 2017, except there would no longer be a separate deadline in October for 
CMS-1632-P 628

submitting and/or revising pension data. Rather, all requests to submit and/or revise 

pension data (as well as any other requests for revisions to the preliminary PUF) for 

FY 2018 and subsequent fiscal years would be required to be submitted by hospitals to 

MACs in the first week of September each year.

O. Clarification of Allocation of Pension Costs for the Wage Index

As discussed in section III.N. of the preamble of this proposed rule, the pension 

cost to be included in the Medicare wage index equals a hospital’s average cash 

contributions deposited to its defined benefit pension plan over a 3-year period. Since 

implementing this policy, we have become aware of some confusion with respect to how 

hospitals are to compute the 3-year average when allocating their pension costs on the 

Medicare cost report if a hospital participates in a pension plan or retirement system that 

also covers other entities. In this FY 2016 IPPS/LTCH PPS proposed rule, we are 

clarifying that if a hospital participates in a pension plan or retirement system that also 

covers other entities the hospital must report its respective 3-year average pension cost 

(or prefunding balance) reflecting only the hospital’s allocated share of total plan 

contributions, and not including any share of pension costs of other entities. For each 

hospital, this is accomplished by first determining the hospital’s allocated portion of 

pension contributions for each year of the 3-year average, and then computing the 3-year 

average for that hospital based only on that hospital’s respective allocated pension 

contributions. This is consistent with the regulations at 42 CFR 413.24(a), which state, in 

pertinent part, that providers must provide adequate cost data based on their financial and 

statistical records. Therefore, a provider may not claim as an allowable cost the costs of 
CMS-1632-P 629

services associated with another entity. It is not appropriate to compute the 3-year 

average (or prefunding balance) based on the total contributions made to the plan by all 

participating entities and then determine a hospital’s allocated portion of the 3-year 

average cost (or prefunding balance) because there are instances in which the 3-year 

average could be skewed because a hospital may be including pension costs from another 

entity in its 3-year average. Specifically, if the allocated percentage of total plan 

contributions for one or more of the participating entities changes during the 3-year 

average, the average will be skewed. The allocated percentage to each entity can change 

due to mergers, changes in plan coverage, or other factors. We also note that the 

allocation of contributions between the various entities participating in a pension plan or 

pension system should agree with the methodology used for plan reporting purposes

and/or financial statement purposes, and the methodology used should be applied 

consistently over time. Furthermore, if wage index reporting is required for two or more 

hospitals covered under the same pension plan or retirement system, those hospitals 

should ensure that the allocation of plan contributions for each reporting period is 

determined on a consistent basis to avoid duplicate reporting of costs.
CMS-1632-P 630

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

Indirect Medical Education (IME) Costs

A. Proposed Changes in the Inpatient Hospital Update for FY 2016 (§ 412.64(d))

1. Proposed FY 2016 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.” For FY 2016, we are setting the applicable percentage 

increase by applying the adjustments listed below in the same sequence as we did for 

FY 2015. Specifically, 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: 

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 (1) a reduction of onequarter 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; (2) a 66 2/3 

percent reduction to three-quarters 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; (3) an adjustment 

based on changes in economy-wide productivity (the multifactor productivity (MFP) 
CMS-1632-P 631

adjustment); and (4) 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 2016 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. In the FY 2015 IPPS/LTCH PPS final rule (79 FR 49993 

through 49996), we continued to use the FY 2010-based IPPS operating and capital 

market baskets for FY 2015 and the labor-related share of 69.6 percent, which is based on 

the FY 2010-based IPPS market basket. For FY 2016, we are proposing to continue 

using the FY 2010-based IPPS operating and capital market baskets and 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 2016 proposed rule, in 

accordance with section 1886(b)(3)(B) of the Act, we are proposing to base the proposed 

FY 2016 market basket update used to determine the applicable percentage increase for 

the IPPS on IHS Global Insight, Inc.’s (IGI’s) first quarter 2015 forecast of the 

FY 2010-based IPPS market basket rate-of-increase with historical data through fourth 

quarter 2014, which is estimated to be 2.7 percent. We are proposing that if more recent 

data become subsequently available (for example, a more recent estimate of the market 
CMS-1632-P 632

basket and the MFP adjustment), we would use such data, if appropriate, to determine the 

FY 2016 market basket update and the MFP adjustment in the final rule.

For FY 2016, 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 (as displayed in the table below).

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. As we 

explained in that rule, section 1886(b)(3)(B)(xi)(II) of the Act, as added by section 

3401(a) of the Affordable Care Act, defines this productivity adjustment as equal to the 

10-year moving average of changes in annual economy-wide, private nonfarm business 

MFP (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). The Bureau of 

Labor Statistics (BLS) publishes the official measure of private nonfarm business MFP. 

We refer readers to the BLS Web site at http://www.bls.gov/mfp for the BLS historical 

published MFP data.

MFP is derived by subtracting the contribution of labor and capital input growth 

from output growth. The projections of the components of MFP are currently produced 

by IGI, a nationally recognized economic forecasting firm with which CMS contracts to 

forecast the components of the market baskets and MFP. As described in the FY 2012 
CMS-1632-P 633

IPPS/LTCH PPS final rule, in order to generate a forecast of MFP, IGI replicated the 

MFP measure calculated by the BLS using a series of proxy variables derived from IGI’s 

U.S. macroeconomic models. In the FY 2012 IPPS/LTCH PPS final rule, we identified 

each of the major MFP component series employed by the BLS to measure MFP as well 

as provided the corresponding concepts determined to be the best available proxies for 

the BLS series.

Beginning with the FY 2016 rulemaking cycle, the MFP adjustment is calculated 

using a revised series developed by IGI to proxy the aggregate capital inputs. 

Specifically, IGI has replaced the Real Effective Capital Stock used for Full Employment 

GDP with a forecast of BLS aggregate capital inputs recently developed by IGI using a 

regression model. This series provides a better fit to the BLS capital inputs, as measured 

by the differences between the actual BLS capital input growth rates and the estimated 

model growth rates over the historical time period. Therefore, we are using IGI’s most 

recent forecast of the BLS capital inputs series in the MFP calculations beginning with 

the FY 2016 rulemaking cycle. A complete description of the MFP projection 

methodology is available on our Web site at: http://www.cms.gov/Research-StatisticsData-and-Systems/Statistics-Trends-andReports/MedicareProgramRatesStats/MarketBasketResearch.html. Although we discuss 

the IGI changes to the MFP proxy series in this proposed rule, in the future, when IGI 

makes changes to the MFP methodology, we will announce them on our Web site rather 

than in the annual rulemaking.
CMS-1632-P 634

For FY 2016, we are proposing an MFP adjustment of 0.6 percentage point. 

Similar to the market basket update, for this proposed rule, we are using the most recent 

data available to compute the MFP adjustment. As noted above, we are proposing that if

more recent data become subsequently available, we would use such data, if appropriate, 

to determine the FY 2016 market basket update and MFP adjustment in the FY 2016 

IPPS/LTCH PPS final rule.

Based on the most recent data available for this proposed rule as described above, 

we have determined four proposed applicable percentage increases to the standardized 

amount for FY 2016, as specified in the table below:

PROPOSED FY 2016 APPLICABLE PERCENTAGE INCREASES FOR THE IPPS

FY 2016

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

Proposed Market Basket 

Rate-of-Increase 2.7 2.7 2.7 2.7

Proposed 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

Proposed Adjustment for 

Failure to be a Meaningful 

EHR User under Section 

1886(b)(3)(B)(ix) of the 

Act 0.0 -1.35 0.0 -1.35

Proposed MFP Adjustment 

under Section 

1886(b)(3)(B)(xi) of the 

Act -0.6 -0.6 -0.6 -0.6
CMS-1632-P 635

PROPOSED FY 2016 APPLICABLE PERCENTAGE INCREASES FOR THE IPPS

FY 2016

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

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 1.9 0.55 1.225 -0.125

We are proposing to revise the existing regulations at 42 CFR 412.64(d) to reflect 

the current law for the FY 2016 update. Specifically, in accordance with section 

1886(b)(3)(B) of the Act, we are proposing to modify paragraph (vi) of § 412.64(d)(1) to 

include the applicable percentage increase to the FY 2016 operating standardized amount.

Section 1886(b)(3)(B)(iv) of the Act provides that the applicable percentage 

increase to the hospital-specific rates for SCHs equals the applicable percentage increase 

set forth in section 1886(b)(3)(B)(i) of the Act (that is, the same update factor as for all 

other hospitals subject to the IPPS). Therefore, the update to the hospital-specific rates 

for SCHs also 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, in this FY 2016 

IPPS/LTCH PPS proposed rule, for FY 2016, we are proposing the following updates to 

the hospital-specific rates applicable to SCHs: a proposed update of 1.9 percent for a 

hospital that submits quality data and is a meaningful EHR user; a proposed update of 
CMS-1632-P 636

1.225 percent for a hospital that fails to submit quality data and is a meaningful EHR 

user; a proposed update of 0.55 percent for a hospital that submits quality data and is not 

a meaningful EHR user; a proposed update of -0.125 percent for a hospital that fails to 

submit quality data and is not a meaningful EHR user. As mentioned above, for this 

FY 2016 proposed rule, we used IGI’s first quarter 2015 forecast of the FY 2010-based 

IPPS market basket update with historical data through fourth quarter 2014. Similarly, 

we used IGI’s first quarter 2015 forecast of the MFP adjustment. We are proposing that 

if more recent data become subsequently available (for example, a more recent estimate 

of the market basket and the MFP adjustment), we would use such data, if appropriate, to 

determine the update for SCHs in the final rule.

We note that the MDH program expired for discharges beginning on 

April 1, 2015 under current law.

2. Proposed FY 2016 Puerto Rico Hospital Update

Puerto Rico hospitals are paid a blended rate for their inpatient operating costs 

based on 75 percent of the national standardized amount and 25 percent of the Puerto 

Rico-specific standardized amount. Section 1886(d)(9)(C)(i) of the Act is the basis for 

determining the applicable percentage increase applied to the Puerto Rico-specific 

standardized amount. Section 401(c) of Pub. L. 108-173 amended section 

1886(d)(9)(C)(i) of the Act, which states that, for discharges occurring in a fiscal year 

(beginning with FY 2004), the Secretary shall compute an average standardized amount 

for hospitals located in any area of Puerto Rico that is equal to the average standardized 

amount computed under subclause (I) for fiscal year 2003 for hospitals in a large urban 
CMS-1632-P 637

area (or, beginning with FY 2005, for all hospitals in the previous fiscal year) increased 

by the applicable percentage increase under subsection (b)(3)(B) for the fiscal year 

involved. Therefore, the update to the Puerto Rico-specific operating standardized 

amount equals the applicable percentage increase set forth in section 1886(b)(3)(B)(i) of 

the Act, as amended by sections 3401(a) and 10319(a) of the Affordable Care Act (that 

is, the same update factor as for all other hospitals subject to the IPPS). Accordingly, we 

are proposing an applicable percentage increase to the Puerto Rico-specific operating 

standardized amount of 1.9 percent for FY 2016. For this proposed rule, we used the first 

quarter 2015 forecast of the FY 2010-based IPPS market basket update with historical 

data through fourth quarter 2014. We are proposing that if more recent data become 

subsequently available, we would use such data, if appropriate, to determine the final 

FY 2016 applicable percentage increase for the final rule. 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.

Similarly, for this FY 2016 proposed rule, we used IGI’s first quarter 2015 

forecast of the MFP adjustment. We are proposing that if more recent data become 

subsequently available, we would use such data, if appropriate, to determine the MFP 

adjustment for the final rule.
CMS-1632-P 638

B. 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 Pub. L. 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 also are 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 in which the hospital is located.

Section 4202(b) of Pub. L. 105-33 states, in part, that any hospital classified as an 

RRC by the Secretary for FY 1991 shall be classified as such an RRC for FY 1998 and 

each subsequent fiscal year. In the August 29, 1997 IPPS final rule with comment period 

(62 FR 45999), CMS reinstated RRC status for all hospitals that lost that 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 
CMS-1632-P 639

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 

case-mix index (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) for additional discussion.) 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 
CMS-1632-P 640

regional CMI values is set forth in the regulations at § 412.96(c)(1)(ii). The proposed 

national median CMI value for FY 2016 is based on the CMI values of all urban hospitals 

nationwide, and the proposed regional median CMI values for FY 2016 are based on the 

CMI values of all 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 2014 (October 1, 2013 through September 30, 2014), and 

include bills posted to CMS’ records through December 2014.

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, 2015, they must have a CMI value for FY 2014 that is at 

least--

● 1.6075; 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 median CMI values 

by region are set forth in the following table.
CMS-1632-P 641

Region

Proposed 

Case-Mix 

Index Value

1. New England (CT, ME, MA, NH, RI, VT) 1.3737

2. Middle Atlantic (PA, NJ, NY) 1.4532

3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV) 1.5042

4. East North Central (IL, IN, MI, OH, WI) 1.5109

5. East South Central (AL, KY, MS, TN) 1.4172

6. West North Central (IA, KS, MN, MO, NE, ND, SD) 1.5890

7. West South Central (AR, LA, OK, TX) 1.6294

8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY) 1.7048

9. Pacific (AK, CA, HI, OR, WA) 1.6157

We intend to update the preceding CMI values in the FY 2016 final rule to reflect 

the updated FY 2014 MedPAR file, which would contain data from additional bills 

received through March 2015.

A hospital seeking to qualify as an RRC should obtain its hospital-specific CMI 

value (not transfer-adjusted) from its 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 criteria 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 
CMS-1632-P 642

Act, the national standard is set at 5,000 discharges. For FY 2016, we are proposing to 

update the regional standards based on discharges for urban hospitals’ cost reporting 

periods that began during FY 2013 (that is October 1, 2012 through September 30, 2013), 

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, 2015, must have, as the number of discharges for its cost reporting period that 

began during FY 2013, 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.
CMS-1632-P 643

Region

Number of 

Discharges

1. New England (CT, ME, MA, NH, RI, VT) 7,370

2. Middle Atlantic (PA, NJ, NY) 10,398

3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV) 10,220

4. East North Central (IL, IN, MI, OH, WI) 7,951

5. East South Central (AL, KY, MS, TN) 7,439

6. West North Central (IA, KS, MN, MO, NE, ND, SD) 7,858

7. West South Central (AR, LA, OK, TX) 5,355

8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY) 8,480

9. Pacific (AK, CA, HI, OR, WA) 8,588

We intend to update these numbers in the FY 2016 final rule based on the latest 

available cost report data.

We note that the median number of discharges for hospitals in each census region 

is greater than the national standard of 5,000 discharges. Therefore, under this proposed 

rule, 5,000 discharges is the minimum criterion for all hospitals, except for osteopathic 

hospitals for which the minimum criterion is 3,000 discharges.

C. Indirect Medical Education (IME) Payment Adjustment Factor for FY 2016 

(§ 412.105)

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 
CMS-1632-P 644

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 2016, the formula multiplier is 1.35. We estimate that 

application of this formula multiplier for the FY 2016 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.

D. Proposed FY 2016 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 
CMS-1632-P 645

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).
CMS-1632-P 646

2. Impact on Medicare DSH Payment Adjustment of the Continued Implementation of 

New OMB Labor Market Area Delineations

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 49951), we implemented the 

revised OMB labor market area delineations (which are based on 2010 Decennial Census 

data) for the FY 2015 wage index. (In this proposed rule, we refer to these revised OMB 

labor market area delineations as the “new OMB delineations.”) We stated that this 

implementation 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 became rural when we adopted the new OMB delineations, and that did not 

become RRCs, are 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 the regulation 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 2 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 two-thirds of the difference 

between the DSH payments as applicable to the hospital before its redesignation from 

urban to rural and the DSH payments applicable to the hospital subsequent to its 

redesignation from urban to rural. In the second year after a hospital loses urban status, 
CMS-1632-P 647

the hospital will receive an additional payment that equals one-third of the difference 

between the DSH payments applicable to the hospital before its redesignation from urban 

to rural and the DSH 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, in the 

FY 2015 IPPS/LTCH PPS final rule, we revised the regulation at § 412.102 to remove 

references to the urban and rural standardized amounts.

The provisions of § 412.102 continue to apply with respect to the calculation of 

the DSH payments to hospitals that are currently located in urban counties that became 

rural under our adoption of the new OMB delineations. Specifically, the regulations 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 the DSH payments as 

applicable to the hospital before its redesignation from urban to rural and the DSH 

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 DSH payments 

applicable to the hospital before its redesignation from urban to rural and the DSH 

payments otherwise applicable to the hospital subsequent to its redesignation from urban 

to rural.
CMS-1632-P 648

For the purposes of ratesetting, calculating budget neutrality, and modeling 

payment impacts for this FY 2016 proposed rule, any hospital that was previously urban 

but changed to rural status in FY 2015 as a result of the adoption of the new OMB labor 

market area delineations will have its DSH payments modeled such that the payment 

equals the amount of the rural DSH payments plus one-third of the difference between 

the urban DSH payments and the rural DSH payments.

3. Payment Adjustment Methodology for Medicare Disproportionate Share Hospitals 

(DSHs) under Section 3133 of the Affordable Care Act

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 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 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 
CMS-1632-P 649

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 

section 1886(d)(5)(F) of the Act 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 DSH 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 empirically justified Medicare DSH payment, section 

1886(r)(2) of the Act provides that, for FY 2014 and each subsequent fiscal year, the 
CMS-1632-P 650

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 section 1886(d)(5)(F) 

of the Act if subsection (r) did not apply and the aggregate amount of payments that are 

made to subsection (d) hospitals under section 1886(r)(1) of the Act for each fiscal year. 

Therefore, this factor amounts to 75 percent of the payments that would otherwise be 

made under section 1886(d)(5)(F) of the Act.

The second factor is, for FYs 2014 through 2017, 1 minus the percent change in 

the percent of individuals under the age of 65 who are uninsured, determined by 

comparing the percent of such individuals who are uninsured in 2013, the last year before 

coverage expansion under the Affordable Care Act (as calculated by the Secretary based 

on the most recent estimates available from the Director of the Congressional Budget 

Office before a vote in either House on the Health Care and Education Reconciliation Act 

of 2010 that, if determined in the affirmative, would clear such Act for enrollment), 

minus 0.1 percentage point for FY 2014, and minus 0.2 percentage point for FYs 2015 

through 2017. For FYs 2014 through 2017, the baseline for the estimate of the change in 

uninsurance is fixed by the most recent estimate of the Congressional Budget Office 

before the final vote on the Health Care and Education Reconciliation Act of 2010, which 

is contained in a March 20, 2010 letter from the Director of the Congressional Budget 

Office to the Speaker of the House. (The March 20, 2010 letter is available for viewing 

on the following Web site: 
CMS-1632-P 651

http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/113xx/doc11379/amendreconprop

.pdf.).

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 are available (as so estimated and certified), 

minus 0.2 percentage point 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 section 1886(r) of the Act. 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.
CMS-1632-P 652

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 section 

1886(r)(2) of the Act 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.
CMS-1632-P 653

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 

DSH payment made under section 1886(d)(5)(F) of the Act. Therefore, hospitals must 

receive empirically justified Medicare DSH payments in a fiscal year in order to receive 

an additional Medicare uncompensated care payment for that year. Specifically, section 

1886(r)(2) of the Act states that in addition to the payment made to a subsection (d) 

hospital under section 1886(r)(1) of the Act, the Secretary shall pay to such subsection 

(d) hospitals an additional amount. Because section 1886(r)(1) of the Act refers to 

empirically justified Medicare DSH payments, the additional payment under section 

1886(r)(2) of the Act 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 
CMS-1632-P 654

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 (78 FR 50622) and the FY 2015 

IPPS/LTCH PPS final rule (79 FR 50006), we specified our policies for several specific 

classes of hospitals within the scope of section 1886(r) of the Act. We refer readers to 

those two final rules for a detailed discussion of our policies. In summary, we specified 

the following:

• 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 (78 FR 50623 and 79 FR 50006).

• Maryland hospitals are not eligible to receive empirically justified Medicare 

DSH payments and uncompensated care payments under the payment methodology of 

section 1886(r) of the Act because they are not paid under the IPPS. As discussed in the 

FY 2015 IPPS/LTCH PPS final rule (79 FR 50007), 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 will be paid under the Maryland All-Payer Model. However, under 

the Maryland All-Payer Model, Maryland hospitals still are not paid under the IPPS. 

Therefore, they remain ineligible to receive empirically justified Medicare DSH 

payments or uncompensated care payments under section 1886(r) of the Act.

• SCHs that are paid under their hospital-specified rate are not eligible for 

Medicare DSH payments. SCHs that are paid under the IPPS Federal rate receive interim 
CMS-1632-P 655

payments 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, and if they receive interim empirically justified 

Medicare DSH payments in a fiscal year, they also will 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 (78 FR 50624 

and 79 FR 50007).

• MDHs, up until the expiration of the MDH program on March 31, 2015, were 

paid under 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 hospital-specific 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. Therefore, MDHs were eligible to receive Medicare DSH payments and 

uncompensated care payments if their disproportionate patient percentage was at least 15 

percent. We applied the same process to determine MDH eligibility for Medicare DSH 

and uncompensated care payments, as we did for all other IPPS hospitals, through 

March 31, 2015 (79 FR 50007). Consistent with our policy of including a pro rata share 

of the uncompensated care payment amount for a period as part of the Federal rate 

payment in the comparison of payments under the hospital-specific rate and the Federal 

rate, for MDH payments for the first 6 months of FY 2015, we will include a pro rata 
CMS-1632-P 656

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 (79 FR 50008). Beginning April 1, 2015, all 

hospitals that previously qualified for MDH status no longer have MDH status under 

current law. Therefore, starting April 1, 2015, we determine eligibility for these hospitals 

as we do for all other IPPS hospitals.

If the MDH program were to be extended beyond its current expiration date of 

March 31, 2015, similar to how it was extended from October 1, 2013, to 

March 31, 2014, under the Pathway for SGR Reform Act (Pub. L. 113-67) and from 

April 1, 2014, to March 31, 2015, by the Protecting Access to Medicare Act of 2014

(Pub. L. 113-93), MDHs would continue to be 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 hospital-specific rate from certain specified base years 

(76 FR 51684). Because MDHs are paid based on the IPPS Federal rate and, therefore, 

are eligible to receive Medicare DSH payments if their disproportionate patient 

percentage is at least 15 percent, if the MDH program is extended beyond its current 

expiration date of March 31, 2015, we would continue to 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). 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 
CMS-1632-P 657

numerator for Factor 3 for all MDHs, regardless of whether they are projected to be 

eligible for Medicare DSH payments 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 Medicare DSH payments during the fiscal year.

These policies for MDHs would only apply in FY 2016 if the MDH program is 

extended, by statute, beyond its current expiration date of March 31, 2015.

• IPPS hospitals that have elected to participate in the Bundled Payments for 

Care Improvement initiative continue to be paid under the IPPS (77 FR 53342) and, 

therefore, are eligible to receive empirically justified Medicare DSH payments and 

uncompensated care payments (78 FR 50625 and 79 FR 50008).

• Hospitals participating in the Rural Community Hospital Demonstration 

Program under section 410A of the Medicare Modernization Act do not receive DSH 

payments and, therefore, are excluded from receiving empirically justified Medicare DSH 

payments and uncompensated care payments under the new DSH payment methodology 

(78 FR 50625 and 79 FR 50008). There are 20 hospitals currently participating in the 

demonstration.

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 

section 1886(d)(5)(F) of the Act 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 
CMS-1632-P 658

payment methodology, we stated in the FY 2014 IPPS/LTCH PPS final rule that we did 

not believe that it was 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 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 discuss the data sources and methodologies for computing 

each of these factors, our final policies for FY 2014 and FY 2015, and our proposed 

policies for FY 2016.
CMS-1632-P 659

(1) Calculation of Proposed Factor 1 for FY 2016

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 section 1886(d)(5)(F) if this section 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 section 1886(r)(1) of the Act for 

such 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) of the Act 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 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 
CMS-1632-P 660

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.

As we did for FY 2015, in order to determine Factor 1 in the uncompensated care 

payment formula for FY 2016, we are proposing to continue the policy established 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) of determining Factor 1 by 

developing 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 1886(r)(1) of the Act 

through rulemaking. These estimates will not be revised or updated after we know the 

final Medicare DSH payments for FY 2016.

Therefore, 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), in 

FYs 2014 and 2015, we used the most recently available projections of Medicare DSH 

payments for the applicable fiscal year, as calculated by CMS’ Office of the Actuary 

using the most recently filed Medicare hospital cost report with Medicare DSH payment 
CMS-1632-P 661

information and the most recent Medicare DSH patient percentages and Medicare DSH 

payment adjustments provided in the IPPS Impact File.

For purposes of calculating Factor 1 and modeling the impact of this provision for 

this FY 2016 IPPS/LTCH PPS proposed rule, we used the Office of the Actuary’s 

February 2015 Medicare DSH estimates, which are based on data from the December 

2014 update of the Medicare Hospital Cost Report Information System (HCRIS), 2012 

cost report data provided to CMS by IHS hospitals, and the FY 2015 IPPS/LTCH PPS 

final rule IPPS Impact File, published in conjunction with the publication of the FY 2015 

IPPS/LTCH PPS final rule. Because SCHs that are projected to be paid under their 

hospital-specific rate are not subject to the provisions of section 1886(r) of the Act, these 

hospitals were excluded from the February 2015 Medicare DSH estimates. Furthermore, 

because section 1886(r) of the Act specifies that the uncompensated care payment is in 

addition to the empirically justified DSH payment (or 25 percent of DSH payments that 

would be made without regard to section 1886(r)), Maryland hospitals participating in the 

Maryland All-Payer Model and hospitals participating in the Rural Community Hospital 

Demonstration that do not receive DSH payments also are excluded from the Office of 

the Actuary’s 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 

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 2015 
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Office of the Actuary estimate for Medicare DSH payments for FY 2016, without regard 

to the application of section 1886(r)(1) of the Act, is approximately $13.338 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 indicated earlier. Therefore, based on the 

February 2015 estimate, the estimate for empirically justified Medicare DSH payments 

for FY 2016, with the application of section 1886(r)(1) of the Act, is $3.335 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, in this proposed rule, we are proposing that Factor 1 for FY 2016 is 

$10,003,425,327.39 ($13,337,900,436.52 minus $3,334,475,109.13). We are inviting 

public comments on our proposed calculation of Factor 1 for FY 2016.

The Office of the Actuary’s estimates for FY 2016 begin with a baseline of 

$11.632 billion in Medicare DSH expenditures for FY 2012. The following table shows 

the factors applied to update this baseline through the current estimate for FY 2016:

Factors Applied for FY 2013 through FY 2016 to Estimate Medicare DSH 

Expenditures Using FY 2012 Baseline

FY Update Discharge Case-Mix Other Total Estimated

DSH 

Payments 

(in billion)

2013 1.028 0.9844 1.014 1.0139 1.040394 $12.102

2014 1.009 0.9595 1.015 0.9993 0.98197 $11.884

2015 1.014 0.9885 1.005 1.0485 1.056207 $12.552

2016 1.011 1.0012 1.005 1.0446 1.062645 $13.338
CMS-1632-P 663

In this table, the discharge column shows the increase in the number of Medicare 

fee-for-service (FFS) inpatient hospital discharges. The figures for FYs 2013 and 2014 

are based on Medicare claims data that have been adjusted by a completion factor. The 

discharge figure for FY 2015 is based on preliminary data for 2015. The discharge figure 

for FY 2016 is an assumption based on recent trends recovering back to the long-term 

trend and assumptions related to how many beneficiaries will be enrolled in Medicare 

FFS and also Medicare Advantage (MA) plans. The case-mix column shows the increase 

in case-mix for IPPS hospitals. The case-mix figures for FYs 2013 and 2014 are based 

on actual data adjusted by a completion factor. The FY 2015 and FY 2016 increases are 

based on the recommendation of the 2010-2011 Medicare Technical Review Panel. The 

“other” column shows the increase in other factors that contribute to the Medicare DSH 

estimates. These factors include the difference between the total inpatient hospital 

discharges and the IPPS discharges, various adjustments to the payment rates that have 

been included over the years but are not reflected in the other columns (such as the 

increase in rates for the Cape Cod litigation and the reduction in rates for the 2-midnight 

stay policy). In addition, the “other” column includes a factor for the Medicaid 

expansion due to the Affordable Care Act.

The next table below shows the factors that are included in the “Update” column 

of the above table:
CMS-1632-P 664

FY

Market 

Basket

Percentage

Affordable 

Care Act 

Payment 

Reductions

Multifactor 

Productivity 

Adjustment

Documentation 

and Coding 

Percentage 

Adjustment

Total 

Update 

Percentage

2013 2.6 -0.1 -0.7 -1.0 2.8

2014 2.5 -0.3 -0.5 -0.8 0.9

2015 2.9 -0.2 -0.5 -0.8 1.4

2016 2.7 -0.2 -0.6 -0.8 1.1

Note: All numbers are based on the FY 2016 President’s Budget projections.

(2) Calculation of Proposed Factor 2 for FY 2016

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 

that for each of FYs 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 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 are 

available (as so calculated), minus 0.1 percentage point for FY 2014 and minus 0.2 

percentage point for each of FYs 2015, 2016, and 2017.

Section 1886(r)(2)(B)(i)(I) of the Act further indicates that the percent of 

individuals under 65 without insurance in 2013 must be the percent of such individuals 
CMS-1632-P 665

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). The Health Care and Education 

Reconciliation Act (Pub. L. 111-152) was enacted on March 30, 2010. It was passed in 

the House of Representatives on March 21, 2010, and by the Senate on March 25, 2010. 

Because the House of Representatives was the first House to vote on the Health Care and 

Education Reconciliation Act of 2010 on March 21, 2010, we have determined that the 

most recent estimate available from the Director of the Congressional Budget Office 

“before a vote in either House on the Health Care and Education Reconciliation Act of 

2010...” (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/cbofiles/ftpdocs/113xx/doc11379/amendreconprop.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 
CMS-1632-P 666

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 and FY 2015 

IPPS/LTCH PPS final rules (78 FR 50634 and 79 FR 50014), we used the same data 

source, the most recent available 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, for this 
CMS-1632-P 667

FY 2016 IPPS/LTCH PPS proposed rule, we used the CBO’s January 2015 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/43900-2014-04-

ACAtables2.pdf) to calculate the percent of individuals without insurance. The CBO’s 

January 2015 estimate of individuals under the age of 65 with insurance in CY 2015 is 87 

percent. Therefore, the CBO’s most recent estimate of the rate of uninsurance in 

CY 2015 is 13 percent (that is, 100 percent minus 87 percent.) Similarly, the CBO’s 

January 2015 estimate of individuals under the age of 65 with insurance in CY 2016 is 89 

percent. Therefore, the CBO’s most recent estimate of the rate of uninsurance in CY 

2016 available for this proposed rule is 11 percent (that is, 100 percent minus 89 percent.)

The calculation of the proposed Factor 2 for FY 2016, employing a weighted 

average of the CBO projections for CY 2015 and CY 2016, is as follows:

● CY 2015 rate of insurance coverage (January 2015 CBO estimate): 87 percent.

● CY 2016 rate of insurance coverage (January 2015 CBO estimate): 89 percent.

● FY 2016 rate of insurance coverage: (87 percent * .25) + (89 percent * .75) = 

88.5 percent.

● Percent of individuals without insurance for 2013 (March 2010 CBO estimate): 

18 percent

● Percent of individuals without insurance for FY 2016 (weighted average): 11.5 

percent

1-|((0.115-0.18)/0.18)|= 1- 0.3611=0.6389 (63.89 percent)
CMS-1632-P 668

0.6389 (63.89 percent) - .002 (0.2 percentage points for FY 2016 under section 

1886(r)(2)(B)(i) of the Act) = 0.6369 or 63.69 percent

0.6369 = Factor 2

Therefore, the proposed Factor 2 for FY 2016 is 63.69 percent. 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 2016.

The FY 2016 Proposed Uncompensated Care Amount is: $10,003,425,327.39 x 

0.6369 = $6,371,181,591.01.

FY 2016 Proposed Uncompensated Care Total Available $6,371,181,591.01

(3) Calculation of Proposed Factor 3 for FY 2016

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 are available that 

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 section 1886(r) of the Act for such 

period (as so estimated, based on such data).
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Therefore, Factor 3 is a hospital-specific 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 Medicare DSH payments 

relative to the estimated uncompensated care amount for all hospitals estimated to receive 

Medicare 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 the denominator (that is, the estimated 

uncompensated care amount for all hospitals estimated to receive Medicare 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 Medicare 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 such alternative data are 

available that are a better proxy for the costs of subsection (d) hospitals for treating 

individuals who are uninsured.
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In the course of considering how to determine Factor 3 during the rulemaking 

process for FY 2014, we considered defining the amount of uncompensated care for a 

hospital as the uncompensated care costs of each hospital and determined that 

Worksheet S-10 of the Medicare cost report potentially provides the most complete data 

regarding uncompensated care costs for Medicare hospitals. However, because of 

concerns regarding variations in the data reported on the Worksheet S-10 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 for FY 2014, the first year this provision 

was in effect, or for FY 2015. We instead employed the utilization of insured lowincome patients, defined as inpatient days of Medicaid patients plus inpatient days of 

Medicare SSI patients as defined in 42 CFR 412.106(b)(4) and 412.106(b)(2)(i), 

respectively, to determine Factor 3. We believed that this 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. We also indicated that we were expecting 

reporting on the Worksheet S-10 to improve over time and 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 

gain greater experience and are submitting more accurate and consistent data through this 

reporting mechanism.

For FY 2016, we believe it remains premature to propose the use of 

Worksheet S-10 for purposes of determining Factor 3 and, therefore, are proposing to 

continue to employ the utilization of insured low-income patients (defined as inpatient 
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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. We believe 

this methodology would give hospitals more time to learn how to submit accurate and 

consistent data through Worksheet S-10, as well as give CMS more time to continue to 

work with the hospital community and others to develop the appropriate clarifications 

and revisions to Worksheet S-10 to ensure standardized and consistent reporting of all 

data elements. Accordingly, we are proposing that, for FY 2016, CMS will base its 

estimates of the amount of hospital uncompensated care on utilization data for Medicaid 

and Medicare SSI patients, as determined by CMS in accordance with § 412.106(b)(2)(i) 

and (b)(4). We still intend to propose through future rulemaking the use of the 

Worksheet S-10 data for purposes of determining Factor 3. We are inviting public 

comments on this proposal to continue to use insured low-income days (that is, to use 

data for Medicaid and Medicare SSI patient days determined in accordance with 

§ 412.106( b)(2)(i) and (b)(4) as a proxy as permitted by statute) to determine Factor 3 for 

FY 2016.

As we did for the FY 2014 IPPS/LTCH PPS proposed rule and FY 2015 

IPPS/LTCH proposed rule, we will publish on the CMS Web site a table listing Factor 3 

for all hospitals that we estimate would receive empirically justified Medicare DSH 

payments in FY 2016 (that is, hospitals that we project would receive interim 

uncompensated care payments during the fiscal year), and for the remaining 

subsection (d) hospitals and subsection (d) Puerto Rico hospitals that have the potential 

of receiving a DSH payment in the event that they receive an empirically justified 
CMS-1632-P 672

Medicare DSH payment for the fiscal year as determined at cost report settlement. 

Hospitals will have 60 days from the date of public display of this FY 2016 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. Comments can be submitted to the CMS inbox at 

Section3131DSH@cms.hhs.gov. After the publication of the FY 2016 IPPS/LTCH final 

rule, hospitals will have until August 31, 2015, to review and submit comments on the 

accuracy of these tables. Comments can be submitted to the CMS inbox at 

Section3133DSH@cms.hhs.gov through August 31, 2015, and any changes to Factor 3 

will be posted on the CMS Web site prior to October 1, 2015.

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. 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 section 1886(r) for such period. 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 
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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 2015 IPPS/LTCH PPS final rule (79 FR 50018), we finalized a policy 

to use the most recently available full year of Medicare cost report data for determining 

Medicaid days and the most recently available SSI ratios. This is consistent with the 

policy we adopted in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50638) of 

calculating 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, the most recent cost report data submitted to CMS by IHS 

hospitals, 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. Therefore, to 

estimate Factor 3 for FY 2015, we used data from the most recently available full year 

cost report and the most recent cost report data submitted to CMS by IHS hospitals for 

the Medicaid days and the most recently available SSI ratios, which for FY 2015 were 

data obtained from the 2011/2012 cost reports and the 2010 cost report data submitted by 

IHS hospitals for the Medicaid days, and the FY 2012 SSI ratios for the Medicare SSI 

days.
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Since the publication of the FY 2015 IPPS/LTCH PPS final rule, we have been 

informed by the hospital community that they are experiencing difficulties with 

submitting accurate data for Medicaid days within the timeframes noted in the Provider 

Reimbursement Manual, Part 2 for a variety of reasons, such as their ability to receive 

eligibility data from State Medicaid agencies. (As outlined in Section 104, Chapter 1, of 

the Provider Reimbursement Manual, Part 2, a hospital generally has 5 months after the 

close of its cost reporting period to file its cost report.) In addition, we have been 

informed that there is variation in the ability of hospitals and MACs, respectively, to 

submit and accept amended cost report data in time for the computation of Factor 3. 

While we continue to believe that it is important to use data that are as recent as possible, 

we recognize that from time to time the balance between recency and accuracy may 

require refinement. In the case of Factor 3, because we make prospective determinations 

of the uncompensated care payment without reconciliation, we believe that it would 

increase the accuracy of the data used to determine Factor 3, and accordingly each 

eligible hospital’s allocation of the overall uncompensated care amount, if we provided 

hospitals with more time to submit these data and MACs with more time to consider 

these submitted data before they are used in the computation of Factor 3. As we 

described in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50018), it is not possible for 

us to wait for a later database update of the cost report data to calculate the final Factor 3 

amount for the final rule because this could cause delay in the publication of the final 

rule. Therefore, we are unable to provide hospitals additional time to submit 

supplemental data, or for their MAC to consider and accept those data as applicable and 
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appropriate. One alternative would be to use slightly older data within the most recent 

extract of the hospital cost report data in the HCRIS database. We believe that this would 

allow hospitals more time to submit data and MACs more time to consider and accept 

such data as applicable and appropriate.

Therefore, for the computation of Factor 3 for FY 2016, we are proposing to hold 

constant the cost report years used to calculate Factor 3 and to use data from the 

12-month 2012 or 2011 cost reports and, in the case of IHS hospitals, the 2012 cost report 

data submitted to CMS by IHS hospitals. However, because a more recent HCRIS 

database is available at the time of this rulemaking, we are proposing that we continue to 

use the most recent HCRIS database extract available to us at the time of this annual 

rulemaking cycle. We note that, as in prior years, if the more recent of the two cost 

reporting periods does not reflect data for a 12-month period, we would use data from the 

earlier of the two periods so long as that earlier period reflects data for a period of 12 

months. If neither of the two periods reflects 12 months, we would use the period that 

reflected a longer amount of time. We are proposing to codify this change for FY 2016 

by amending the regulations at § 412.106(g)(1)(iii)(C). We are inviting public comments 

on this proposal, which we describe more fully below.

For the FY 2015 IPPS/LTCH PPS final rule, we used the more recent of the full 

year 2012 or full year 2011 data from the March 2014 update of the hospital cost report 

data in the HCRIS database and cost report data submitted to CMS by IHS hospitals as of 

March 2014 to obtain the Medicaid days to calculate Factor 3. In addition, we used the 

FY 2012 SSI ratios published on the following CMS Web site to calculate Factor 3: 
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http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/dsh.html.

In contrast, under our proposal, for FY 2016, we would use the more recent of the 

full year 2012 or full year 2011 data from the March 2015 update of the hospital cost 

report data in the HCRIS database and the 2012 cost report data submitted to CMS by 

IHS hospitals to obtain the Medicaid days to calculate Factor 3. In addition, to calculate 

Factor 3 for FY 2016, we anticipate that, under our proposal discussed above, we would 

use the FY 2013 SSI ratios to be published on the following CMS Web site when they 

become available: http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/dsh.html. For illustration purposes, in Table 18 associated 

with this proposed rule (which is available via the Internet on the CMS Web site), we 

compute Factor 3 using the more recent of the full year 2012 or 2011 data from the 

December 2014 update of the hospital cost report data in the HCRIS database to obtain 

the Medicaid days and the FY 2012 SSI ratios published on the CMS Web site at: 

http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/dsh.html. We anticipate using the more recent of the full 

year 2012 or 2011 data from the March 2015 update of the hospital cost report data in the 

HCRIS database to obtain the Medicaid days and the FY 2013 SSI ratios to determine the 

final Factor 3 for FY 2016.

For subsequent years, if we propose and finalize a policy of using insured 

low-income days in computing Factor 3, we intend to continue to use the most recent 

HCRIS database extract at the time of the annual rulemaking cycle, and to use the 
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subsequent year of cost reports as applicable using the methodology described above 

(that is, to advance the 12-month cost reports by 1 year). We note that, starting with the 

2013 cost reports, data for IHS hospitals will be included in the HCRIS. Therefore, if an 

IHS hospital has a 12-month 2013 cost reporting period in the HCRIS database, we will 

not need to use the 2012 data separately submitted to CMS by the IHS hospital. For 

example, if we finalize for FY 2017, a policy under which Factor 3 is determined on the 

basis of insured low-income days, this approach would result in the use of the more 

recent of the 12-month 2013 or 2012 cost reports in the most recent HCRIS database 

extract available at the time of rulemaking. In addition, for any subsequent years in 

which we finalize a policy to use insured low-income days to compute Factor 3, our 

intention would be to continue to use the most recently available SSI ratio data to 

calculate Factor 3 at the time of annual rulemaking. We believe that it is appropriate to 

state our intentions regarding the specific data we would use in the event Factor 3 is 

determined on the basis of low-income insured days for subsequent years to provide 

hospitals with as much guidance as possible so they may best consider how and when to 

submit cost report information in the future. We note that we will make proposals with 

regard to our methodology for calculating Factor 3 for subsequent years through 

notice-and-comment rulemaking.

We are proposing to continue the policies that were finalized in the FY 2015 

IPPS/LTCH PPS final rule (79 FR 50020) to address several specific issues concerning 

the process and data to be employed in determining Factor 3 in the case of hospital 

mergers for FY 2016 and subsequent fiscal years. In order to confirm mergers and ensure 
CMS-1632-P 678

the accuracy of the data used to determine each merged hospital’s uncompensated care 

payment, we will publish a table on the CMS Web site, in conjunction with the issuance 

of each Federal fiscal year’s IPPS/LTCH PPS proposed and final rules, that contains a list 

of the mergers that we are aware of and the computed uncompensated care payment for 

each merged hospital. Hospitals have 60 days from the date of public display of each 

year’s IPPS/LTCH PPS proposed rule to review these tables and notify CMS in writing 

of any inaccuracies. After the publication of the IPPS/LTCH PPS final rule, hospitals 

will have until August 31 of that year (for FY 2016, the deadline is August 31, 2015) to 

review and submit comments on the accuracy of these tables for the applicable fiscal 

year. Comments can be submitted to our inbox at Section3133DSH@cms.hhs.gov

through August 31, and any changes to Factor 3 will be posted on the CMS Web site 

prior to the start of the applicable fiscal year on October 1. We are inviting public 

comments on our proposal to continue these policies concerning the process and data to 

be employed in determining Factor 3 in the case of hospital mergers as described above.
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E. Hospital Readmissions Reduction Program: Proposed Changes for FY 2016 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 

section 1886(d) of the Act (determined without regard to section 1886(o) of the Act [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 section 1886(d) of the Act. Paragraphs (5)(A), (5)(B), (5)(F), 
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and (12) of section 1886(d) of the Act 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 section 1886(d) of the Act 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 0.97 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 
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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 three conditions for 

which measures have been endorsed to the additional four conditions that have been 
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identified by the MedPAC 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 inpatients (not just Medicare patients) for a broad range 

of both subsection (d) and nonsubsection (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 
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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” for FY 2015 and subsequent fiscal years, and clarification of the process for 

reporting hospital-specific information, including the opportunity to review and submit 
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corrections. We also established policies related to the calculation of the adjustment 

factor for FY 2014.

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50024 through 50048), we 

made refinements to the readmissions measures and related methodology for applicable 

conditions for FY 2015 and subsequent fiscal years, expanded the “applicable conditions” 

for FY 2017 and subsequent fiscal years, discussed the maintenance of technical 

specifications for quality measures, and described a waiver from the Hospital 

Readmissions Reduction Program for hospitals formerly paid under section 1814(b)(3) of 

the Act (§ 412.154(d)). We also specified the applicable period for FY 2015 and made 

changes to the calculation of the aggregate payments for excess readmissions to include 

two additional applicable conditions for the FY 2015 payment determination.

3. Overview of Proposed Policies Changes for the FY 2016 and FY 2017 Hospital 

Readmissions Reduction Program

In this proposed rule, we are proposing to--

● Make a refinement to the pneumonia readmissions measure, which would 

expand the measure cohort, for the FY 2017 payment determination and subsequent years 

(section IV.E.4. of the preamble of this proposed rule); and

● Adopt an extraordinary circumstance exception policy to address hospitals that 

experience a disaster or other extraordinary circumstance beginning in FY 2016 and for 

subsequent years (section IV.E.9. of the preamble of this proposed rule).
CMS-1632-P 685

4. Proposed Refinement of the Hospital 30-Day, All-Cause, Risk-Standardized 

Readmission Rate (RSRR) Following Pneumonia Hospitalization Measure Cohort for the 

FY 2017 Payment Determination and Subsequent Years

a. Background

In this proposed rule, for the FY 2017 payment determination and subsequent 

years, we are proposing a refinement of the currently National Quality Forum (NQF) 

endorsed CMS Hospital 30-Day, All-Cause, Risk-Standardized Readmission Rate 

(RSRR) following Pneumonia Hospitalization measure (NQF #0506) (hereafter referred 

to as the CMS 30-Day Pneumonia Readmission Measure (NQF #0506)), which expands 

the measure cohort. For the purposes of describing the refinement of this measure, we 

note that “cohort” is defined as the hospitalizations, or “index admissions,” that are 

included in the measure. This cohort is the set of hospitalizations that meet all of the 

inclusion and exclusion criteria, and we are proposing an expansion to this set of 

hospitalizations. The previously adopted CMS 30-day Pneumonia Readmission Measure 

(NQF #0506) included hospitalizations for patients with a principal discharge diagnosis 

of pneumonia indicating viral or bacterial pneumonia. For measure cohort details of the 

currently implemented measure, we refer readers to the measure methodology report and 

measure risk adjustment statistical model on our Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html.

This proposed measure refinement would expand the measure cohort to include 

hospitalizations for patients with a principal discharge diagnosis of aspiration pneumonia 
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and for patients with a principal discharge diagnosis of either sepsis or respiratory failure 

who also have a secondary diagnosis of pneumonia present on admission. Including such 

patients would better represent the complete population of a hospital’s patients who are 

receiving clinical management and treatment for pneumonia, as well as to ensure the 

measure includes more complete and comparable populations across hospitals. In 

addition, use of comparable populations would reduce measurement bias resulting from 

different coding practices seen across hospitals. We believe that measure results derived 

from refinement of the measure cohort in the manner we are proposing would improve 

the measure’s assessment of avoidable readmissions and more accurately reflect quality 

and outcome for pneumonia patients. The determination to refine the measure cohort was 

based on our evaluation of both the frequency and variation in utilization of these 

diagnosis codes, and as such coding practices have been described in recently published 

studies. The rationale for expanding the measure cohort for the CMS 30-Day Pneumonia 

Readmission Measure (NQF #0506) is further described in section VIII.A.6.b. of the 

preamble of this proposed rule under our discussion of proposed refinements for the 

Hospital IQR Program.

b. Overview of Measure Cohort Change

The proposed measure refinement would expand the cohort to include 

hospitalizations for patients with a principal discharge diagnosis of aspiration pneumonia 

and for patients with a principal discharge diagnosis of either sepsis or respiratory failure 

who also have a secondary diagnosis of pneumonia that is coded as present on admission. 
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The data sources, exclusion criteria, and assessment of the outcome of readmission 

remain unchanged.

The proposed refinement of the CMS 30-Day Pneumonia Readmission Measure 

(NQF #0506) with this expanded measure cohort was reviewed by the Measure 

Applications Partnership (MAP), which conditionally supported use of the measure 

update for the Hospital Readmissions Reduction Program pending NQF review of the 

measure update and appropriate consideration under the NQF sociodemographic status 

pilot, if required, as detailed in its Pre-Rulemaking 2015 MAP Recommendations Report 

available at: 

https://www.qualityforum.org/Setting_Priorities/Partnership/MAP_Final_Reports.aspx. 

This measure will be submitted to NQF for reendorsement when the appropriate project 

has its call for measures in 2015.

We note that during the MAP Hospital Workgroup and MAP Coordinating 

Committee in-person meetings, some members discussed the benefit of a phased 

approach that would first allow for public reporting of the refined measure before 

implementing it in a pay-for-performance program in order to allow providers to gain 

experience with the measure refinement, while other members expressed concern that this 

would delay implementation of an improved measure and also cause alignment issues and 

potential confusion among providers. The MAP supported the use of the measure 

refinement without stipulating prior public reporting as a condition of support. However, 

we acknowledge the importance of this consideration and took it into account when 
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determining to propose implementation of the measure refinement in the Hospital 

Readmissions Reduction Program beginning with the FY 2017 payment determination.

We considered other options in proposing when to implement the refinement of 

the CMS 30-Day Pneumonia Readmission Measure (NQF #0506) in the Hospital 

Readmissions Reduction Program, including the option to implement the measure 

refinement beginning with the FY 2018 payment determination. Delaying 

implementation of the measure refinement until FY 2018 would allow hospitals to gain 

more experience with the impact of the measure refinement on their measure results and 

excess readmissions ratios. However, it also would mean delaying use of an improved 

measure that we believe will better represent the complete population of a hospital’s 

pneumonia patients and better reflect comparable pneumonia patients across hospitals. 

Delaying implementation of the measure refinement for the Hospital Readmissions 

Reduction Program could also potentially increase confusion among hospitals as well as 

raise alignment issues with other CMS hospital inpatient quality reporting and payment 

programs that use the same measure.

After considering these options, we are proposing to begin with the FY 2017 

payment determination to implement the refinement of the CMS 30-Day Pneumonia 

Readmission Measure (NQF #0506) in the Hospital Readmissions Reduction Program. 

We believe that after weighing the considerations, the proposed measure refinement 

should be incorporated into the Hospital Readmissions Reduction Program as soon as 

statutorily and operationally feasible, primarily because improving the measure in the 

manner we are proposing will greatly improve the measure’s assessment of quality and 
CMS-1632-P 689

outcome for pneumonia patients and, therefore, its implementation should not be 

unnecessarily delayed.

c. Risk Adjustment

The risk adjustment and statistical modeling approach as well as the measure 

calculation remain unchanged from the previously adopted measure. However, we did 

confirm the use of current risk-adjustment variables in the expanded measure cohort by 

confirming their association with the outcome. We also examined additional risk 

variables leading to the addition of a few additional risk variables in the measure. For the 

full measure specifications of the proposed refinement of the measure cohort, we refer 

readers to the CMS Web site at: http://www.cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.

d. Anticipated Effects of Refinement of Hospital 30-Day, All-Cause, Risk-Standardized 

Readmission Rate (RSRR) Following Pneumonia Hospitalization Measure (NQF #0506) 

Cohort

Using administrative claims data for FY 2015 (that is, discharges between 

July 2010 and June 2013), we analyzed and simulated the effect of the proposed measure 

cohort refinements on the CMS 30-Day Pneumonia Readmission Measure (NQF #0506) 

as if these changes had been applied for the Hospital Readmissions Reduction Program 

FY 2015 payment determination. We note that these statistics are for illustrative 

purposes only, and we are not proposing to revise the measure calculations for FY 2015, 

nor for FY 2016. Rather, we are proposing to apply these changes to the CMS 30-Day 

Pneumonia Readmission Measure (NQF #0506) for the FY 2017 payment determination 
CMS-1632-P 690

and subsequent years. Based on our analysis, we anticipate that expanding the measure 

cohort to include a broader population of patients would add a large number of patients, 

as well as additional hospitals (which would now meet the minimum threshold of 

25 eligible cases), to the CMS 30-Day Pneumonia Readmission Measure (NQF #0506). 

In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51672), we established that if a 

hospital has fewer than 25 eligible cases for a measure, we will assign the hospital to a 

separate category indicating that the number of cases is too small to reliably indicate how 

well the hospital is performing. These cases are still used to calculate the measure. 

However, for hospitals with fewer than 25 eligible cases, the hospital’s readmission rates 

and interval estimates will not be publicly reported for the measure. The increase in the 

size of the measure cohort proposed in this proposed rule would change results for many 

hospitals and would change the number of hospitals that have greater than 25 cases.

The previously adopted pneumonia readmission measure cohort for the Hospital 

Readmissions Reduction Program included 976,471 patients and 3,137 hospitals for 

FY 2015. We noted the following effects for the CMS 30-Day Pneumonia Readmission 

Measure (NQF #0506) if the expanded cohort had been applied for FY 2015: (1) the 

expansion of the readmission cohort would include an additional 634,519 patients 

(representing a 65 percent increase, for a total measure cohort of 1,610,990 patients); 

(2) an additional 42 hospitals (representing a 1.3 percent increase) would meet the 

minimum 25 patient cases volume threshold over the 3-year applicable period and would 

be publicly reported for the measure; (3) patients with a principal discharge diagnosis of 

aspiration pneumonia and patients with a principal discharge diagnosis of sepsis or 
CMS-1632-P 691

respiratory failure who also have a secondary diagnosis of pneumonia present on 

admission would represent 40 percent of the total expanded measure cohort; (4) the 

national observed readmission rate would increase by 0.9 absolute percentage points; 

and, (5) the proposed cohort refinement would affect the excess readmissions ratios for 

some hospitals. A detailed description of the refinement to the CMS 30-Day Pneumonia 

Readmission Measure (NQF #0506) and the effects of the measure update are available 

on our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-PatientAssessment-Instruments/HospitalQualityInits/Measure-Methodology.html.

e. Calculating the Excess Readmissions Ratio

The proposed refinement of the measure cohort for the CMS 30-Day Pneumonia 

Readmission Measure (NQF #0506) would use the same methodology and statistical 

modeling approach as the previously adopted CMS 30-Day Pneumonia Readmission 

Measure (NQF #0506) for the Hospital Readmissions Reduction Program, as well as the 

other Hospital Readmissions Reduction Program measures. We published a detailed 

description of how the readmission measures estimate the excess readmissions ratios in 

the FY 2013 IPPS/LTCH PPS final rule (77 FR 53380 through 53381).

We note that the set of hospitals for which this refined measure would be 

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

Act (and, if not waived from participating, those hospitals paid under section 1814(b)(3) 

of the Act), while the Hospital IQR Program calculations include non-IPPS hospitals, 
CMS-1632-P 692

such as CAHs, cancer hospitals, and hospitals located in the Territories of the United 

States. However, we believe that adoption of the refinement to the measure cohort for 

the CMS 30-Day Pneumonia Readmission Measure (NQF #0506) would be appropriate 

for both programs.

In summary, we are proposing a refinement of the NQF endorsed CMS 30-Day 

Pneumonia Readmission Measure (NQF #0506), which expands the measure cohort, in 

the Hospital Readmissions Reduction Program for the FY 2017 payment determination 

and subsequent years.

We are inviting public comment on this proposal.

5. Maintenance of Technical Specifications for Quality Measures

We refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 50039) for a 

discussion of the maintenance of technical specifications for quality measures for the 

Hospital Readmissions Reduction Program. Technical specifications of the readmission 

measures are provided on our Web site in the Measure Methodology Reports at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. Additional resources 

about the Hospital Readmissions Reduction Program and measure technical 

specifications are on the QualityNet Web site on the Resources page at: 

http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage

%2FQnetTier3&cid=1228772412995.
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6. Floor Adjustment Factor for FY 2016 (§ 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 0.97 

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 section 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 (no reduction) and 0.9700 (greatest possible 

reduction).

7. Proposed Applicable Period for FY 2016

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 
CMS-1632-P 694

Reduction Program. In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51671), we 

finalized our policy to use 3 years of claims data to calculate the readmission measures. 

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 specified 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 through 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 the FY 2015 IPPS/LTCH PPS final rule (79 FR 40 through 50041), for 

FY 2015, consistent with the definition specified at § 412.152, we finalized an 

“applicable period” for the Hospital Readmissions Reduction Program to be the 3-year 

period from July 1, 2010 through June 30, 2013. That is, we determined the excess 

readmissions ratios and the payment adjustment (including aggregate payments for 

excess readmissions and aggregate payments for all discharges) for FY 2015 using data 

from the 3-year time period of July 1, 2010 through June 30, 2013.
CMS-1632-P 695

In this proposed rule, for FY 2016, consistent with the definition specified at 

§ 412.152, we are proposing an “applicable period” for the Hospital Readmissions 

Reduction Program to be the 3-year period from July 1, 2011 through June 30, 2014. 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 2016 using data from the 3-year time period of 

July 1, 2011 through June 30, 2014.

8. Proposed Calculation of Aggregate Payments for Excess Readmissions for FY 2016

a. Background

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 add-on 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.
CMS-1632-P 696

For FY 2015 and subsequent years, for purposes of calculating the payment 

adjustment factors and applying the payment methodology, in the FY 2015 IPPS/LTCH 

PPS final rule (79 FR 50041 through 50048), we finalized our policy that the base 

operating DRG payment amount for MDHs includes the difference between the hospitalspecific 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 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 
CMS-1632-P 697

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).
CMS-1632-P 698

We finalized the inclusion of one additional applicable condition, Patients 

Readmitted Following Coronary Artery Bypass Graft (CABG) Surgery, in the FY 2015 

IPPS/LTCH PPS final rule (79 FR 50033 through 50039) effective for FY 2017. We will 

address the inclusion of this additional measure in the calculation of the readmissions 

payment adjustment for FY 2017 in the FY 2017 rulemaking.

b. Proposed Calculation of Aggregate Payments for Excess Readmissions for FY 2016

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.
CMS-1632-P 699

For FY 2016, we are proposing to use MedPAR claims with discharge dates that 

are on or after July 1, 2011, and no later than June 30, 2014. Under our established 

methodology, 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 2011 through FY 2014 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 detailed instructions for how to order the data sets. Persons placing an order must 

send the following: a Letter of Request, the LDS Data Use Agreement and Research 

Protocol (refer to the Web site for further instructions), the LDS Form, and a check for 

$3,655 to:

● If using the U.S. Postal Service: Centers for Medicare and Medicaid Services, 

RDDC Account, Accounting Division, P.O. Box 7520, Baltimore, MD 21207-0520.

● If using express mail: Centers for Medicare and Medicaid Services, 

OFM/Division of Accounting- RDDC, Mailstop C#-07-11, 7500 Security Boulevard, 

Baltimore, MD 21244-1850.

For this FY 2016 proposed rule, we are proposing to determine aggregate 

payments for excess readmissions and aggregate payments for all discharges using data 
CMS-1632-P 700

from MedPAR claims with discharge dates that are on or after July 1, 2011, and no later 

than June 30, 2014. However, we note that, for the purpose of modeling the proposed 

FY 2016 readmissions payment adjustment factors for this proposed rule, we use excess 

readmissions ratios for applicable hospitals from the FY 2015 Hospital Readmissions 

Reduction Program applicable period. For the FY 2016 final rule, applicable hospitals 

will have had the opportunity to review and correct data from the proposed FY 2016 

applicable period of July 1, 2011 to June 30, 2014, before they are made public under our 

policy regarding the reporting of hospital-specific information, which we discussed in the 

FY 2013 IPPS/LTCH PPS final rule (77 FR 53374 through 53401).

In this proposed rule, for FY 2016, we are proposing to use MedPAR data from 

July 1, 2011 through June 30, 2014. Specifically, in this proposed rule, we are using the 

March 2012 update of the FY 2011 MedPAR file to identify claims within FY 2011 with 

discharges dates that are on or after July 1, 2011, the March 2013 update of the FY 2012 

MedPAR file to identify claims within FY 2012, the March 2014 update of the FY 2013 

MedPAR file to identify claims within FY 2013, and the December 2014 update of the 

FY 2014 MedPAR file to identify claims within FY 2014 with discharge dates no later 

than June 30, 2014. For the final rule, we are proposing to use the same MedPAR files as 

listed above for claims within FY 2011, FY 2012 and FY 2013. For claims within 

FY 2014, we are proposing to use in the final rule the March 2015 update of the FY 2014 

MedPAR file.

In order to identify the admissions for each condition, to calculate the aggregate 

payments for excess readmissions for an individual hospital, for FY 2016, we are 
CMS-1632-P 701

proposing to identify each applicable condition using the ICD-9-CM codes used to 

identify applicable conditions to calculate the excess readmissions ratios. (Although the 

compliance date for the ICD-10-CM and ICD10-PCS code sets is October 1, 2015 

(79 FR 45128 through 45134), these proposed policies apply to data periods prior to this 

compliance date.) 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.

We refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 50041 

through 50048) for a discussion of how we identify the applicable conditions to calculate 

the aggregate payments for excess readmissions for FY 2015. For FY 2016, we are 

proposing to follow this same approach.

In this proposed rule, for FY 2016, we are proposing to continue to apply the 

same exclusions to the claims in the MedPAR file as we applied for FY 2015 for the 

current applicable conditions. For FY 2016, 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 the 

AMI, HF, PN, THA/TKA, COPD applicable conditions, for the purposes of calculating 

aggregate payments for excess readmissions as follows:
CMS-1632-P 702

● 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

post-discharge enrollment in Medicare Parts A and B FFS, 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.
CMS-1632-P 703

These exclusions are consistent with our current methodology, which was 

established in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50048).

Furthermore, we would 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 2016, we would 

exclude admissions for patients enrolled in Medicare Advantage as identified in the 

Medicare Enrollment Database. This policy 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 the excess readmissions proposal for FY 2016. 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).
CMS-1632-P 704

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
CMS-1632-P 705

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
CMS-1632-P 706

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
CMS-1632-P 707

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)
CMS-1632-P 708

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 2016, we are proposing to calculate aggregate payments for excess 

readmissions, using MedPAR claims from July 1, 2011 to June 30, 2014, 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 
CMS-1632-P 709

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 therefore 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 2016 as displayed in the 

chart below.

FORMULAS TO CALCULATE THE READMISSIONS ADJUSTMENT FACTOR 

FOR FY 2016

Aggregate payments for excess readmissions = [sum of base operating DRG payments 

for AMI x (Excess Readmissions Ratio for AMI-1)] + [sum of base operating DRG 

payments for HF x (Excess Readmissions Ratio for HF-1)] + [sum of base operating 

DRG payments for PN x (Excess Readmissions Ratio for PN-1)] + [sum of base 

operating DRG payments for COPD) x (Excess Readmissions Ratio for COPD-1)] + 

[sum of base operating DRG payments for THA/TKA x (Excess Readmissions Ratio for 

THA/TKA-1)].

*We note that if a hospital’s excess readmissions ratio for a condition is less than/equal to 

1, 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 2016 is the higher of the ratio or 

0.9700.

*Based on claims data from July 1, 2011 to June 30, 2014 for FY 2016.

We are inviting public comment on these proposals.
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9. Proposed Extraordinary Circumstance Exception Policy for the Hospital Readmissions 

Reduction Program Beginning in FY 2016 and for Subsequent Years

a. Background

In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28117), we welcomed 

public comment on whether a potential waiver or exception policy for hospitals located in 

areas that experience disasters or other extraordinary circumstances should be 

implemented, and the policy and operational considerations of such an extraordinary 

circumstance exception policy for the Hospital Readmissions Reduction Program. In the 

FY 2015 IPPS/LTCH PPS final rule (79 FR 50048), we indicated that we received many 

comments in support of CMS establishing a formal extraordinary circumstance exception 

policy under the Hospital Readmissions Reduction Program. We also previously 

indicated that any specific proposals related to the implementation of an extraordinary 

circumstance exception policy would be proposed through notice-and-comment 

rulemaking. After further consideration of commenters’ support of CMS establishing an 

extraordinary circumstance exception policy for the Hospital Readmissions Reduction 

Program, we agree with commenters that it may be possible for a hospital to experience a 

certain period of time during which it is not able to submit all of its claims (from which 

readmission measures data are derived) in an accurate or timely fashion due to an 

extraordinary circumstance beyond its control, and that a policy for taking into account 

such a circumstance should be proposed. Section 1886(q)(5)(D) of the Act permits the 

Secretary to determine the “applicable period” for readmissions data collection, and we 
CMS-1632-P 711

believe that the statute allows us to determine that the period not include times when 

hospitals may encounter extraordinary circumstances.

In developing this proposed extraordinary circumstance exception policy for the 

Hospital Readmissions Reduction Program beginning in FY 2016 and for subsequent 

years, we considered a policy and process similar to that for the Hospital IQR Program, 

as finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51651), modified in the 

FY 2014 IPPS/LTCH PPS final rule (78 FR 50836) (designation of a non-CEO hospital 

contact), and further modified in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50277) 

(amended § 412.140(c)(2) to refer to “extension or exemption” instead of the former 

“extension or waiver”). We also considered how best to align an extraordinary 

circumstance exception policy for the Hospital Readmissions Reduction Program with 

existing extraordinary circumstance exception policies for other IPPS quality reporting 

and payment programs, such as the Hospital VBP Program, to the extent feasible.

We considered the feasibility and implications of excluding data for certain 

readmission measures for a limited period of time from the calculations for a hospital’s 

excess readmissions ratios for the applicable performance period. By minimizing the 

data excluded from the program, the proposed policy would enable affected hospitals to 

continue to participate in the Hospital Readmissions Reduction Program for a given fiscal 

year if they otherwise continue to meet applicable measure minimum threshold 

requirements. We believe that this approach could help alleviate the reporting burden for 

a hospital that is adversely impacted by a natural disaster or other extraordinary 
CMS-1632-P 712

circumstance beyond its control, while enabling the hospital to continue to participate in 

the Hospital Readmissions Reduction Program.

b. Requests for an Extraordinary Circumstance Exception

Based upon our prior experience with the Hospital IQR Program and the Hospital 

VBP Program, we anticipate the need to provide exceptions to only a small number of 

hospitals affected by a natural disaster or other extraordinary circumstance. During the 

review of a hospital’s request for an extraordinary circumstance exception, we would 

maintain the general principle that providing high quality of care and ensuring patient 

safety is of paramount importance. We do not intend to allow a hospital to use this 

proposed policy and the request process to seek exclusion from the Hospital 

Readmissions Reduction Program in its entirety for a given fiscal year(s) solely because 

of experiencing an extraordinary circumstance. Rather, we intend to provide relief for a 

hospital whose ability to accurately or timely submit all of its claims (from which 

readmission measures data are derived) has been negatively impacted as a direct result of 

experiencing a significant disaster or other extraordinary circumstance beyond the control 

of the hospital.

We are proposing that the request process for an extraordinary circumstance 

exception begin with the submission of an extraordinary circumstance exception request 

form by a hospital within 90 calendar days of the natural disaster or other extraordinary 

circumstance. We believe that the 90-calendar day timeframe is an appropriate period of 

time for a hospital to determine whether to submit an extraordinary circumstance 

exception request. It is also the same length of time as the current time period allowed 
CMS-1632-P 713

under the Hospital VBP Program. Under this proposed policy, a hospital would be able 

to request a Hospital Readmissions Reduction Program extraordinary circumstance 

exception at the same time it may request a similar exception under the Hospital IQR 

Program, the Hospital VBP Program, and the HAC Reduction Program (if the proposed 

extraordinary circumstance exception policy for the HAC Reduction Program as 

described in section IV.G.8. of the preamble of this proposed rule is adopted). The 

extraordinary circumstance exception request form would be made available on the 

QualityNet Web site.

The following minimum set of information would be required to submit the 

request:

● Hospital CCN;

● Hospital name;

● Hospital Chief Executive Officer (CEO) and any other designated personnel 

contact information, including name, email address, telephone number, and mailing 

address (must include a physical address; a post office box address is not acceptable);

● Hospital’s reason for requesting an exception, including:

++ CMS program name (for example, the Hospital Readmissions Reduction 

Program, the Hospital VBP Program, or the Hospital IQR Program);

++ The measure(s) and submission quarters affected by the extraordinary 

circumstance that the hospital is seeking an exception for should be accompanied with 

the specific reasons why the exception is being sought; and
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++ How the extraordinary circumstance negatively impacted performance on the 

measure(s) for which an exception is being sought;

● Evidence of the impact of the extraordinary circumstances, including but not 

limited to, photographs, newspaper, and other media articles; and

● The request form must be signed by the hospital’s CEO or designated nonCEO contact and submitted to CMS.

The same set of information is currently required under the Hospital IQR Program 

and the Hospital VBP Program on the request form from a hospital seeking an 

extraordinary circumstance exception with respect to these programs. The specific list of 

required information would be subject to change from time to time at the discretion of 

CMS.

Following receipt of the request form, CMS would: (1) provide a written 

acknowledgement of receipt of the request using the contact information provided in the 

request form to the CEO and any additional designated hospital personnel; and 

(2) provide a formal response to the CEO and any additional designated hospital 

personnel using the contact information provided in the request notifying them of our 

decision. Under the proposed policy, we would review each request for an extraordinary 

circumstance exception on a case-by-case basis at our discretion. To the extent feasible, 

we also would review such a request in conjunction with any similar requests made under 

other IPPS quality reporting and payment programs, such as the Hospital IQR Program

and the Hospital VBP Program.
CMS-1632-P 715

The proposed policy would not preclude CMS from granting extraordinary 

circumstance exceptions to hospitals that do not request them if we determine at our 

discretion that a disaster or other extraordinary circumstance has affected an entire region 

or locale. If CMS makes such a determination to grant an extraordinary circumstance 

exception to hospitals in an affected region or locale, we would convey this decision 

through routine communication channels to hospitals, vendors, and QIOs, including, but 

not limited to, issuing memos, emails, and notices on the QualityNet Web site. This 

provision also would align with the Hospital IQR Program’s extraordinary circumstances 

extensions or exemptions policy.

We are inviting public comment on this proposal.
CMS-1632-P 716

F. Hospital Value-Based Purchasing (VBP) Program: Proposed Policy Changes for the 

FY 2018 Program Year and Subsequent Years

1. Background

a. Statutory Background and Overview of Past Program Years

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 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.

For more of the statutory background and descriptions of our current policies for 

the Hospital VBP Program, we refer readers to the Hospital Inpatient VBP Program final 

rule (76 FR 26490 through 26547); the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51653 through 51660); 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 50676 through 50707); 

the CY 2014 OPPS/ASC final rule with comment period (78 FR 75120 through 75121); 

and the FY 2015 IPPS/LTCH PPS final rule with comment period (79 FR 50048 through 

50087).

We have also codified certain requirements for the Hospital VBP Program at 

42 CFR 412.160 through 412.167.
CMS-1632-P 717

b. FY 2016 Program Year Payment Details

Section 1886(o)(7)(B) of the Act instructs the Secretary to reduce the base 

operating DRG payment amount for a hospital for each discharge in a fiscal year by an 

applicable percent. Under section 1886(o)(7)(A) of the Act, the sum total of these 

reductions in a fiscal year must equal the total amount available for value-based incentive 

payments for all eligible hospitals for the fiscal year, as estimated by the Secretary. We 

finalized details on how we would implement these provisions in the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53571 through 53573) and refer readers to that rule for 

further details.

Under section 1886(o)(7)(C)(iv) of the Act, the applicable percent for the 

FY 2016 program year is 1.75 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 2016 is 

$1,489,397,095, based on the December 2014 update of the FY 2014 MedPAR file. We 

intend to update this estimate for the FY 2016 IPPS/LTCH PPS final rule, using the 

March 2015 update of the FY 2014 MedPAR file.

As finalized in the FY 2013 IPPS/LTCH PPS final rule, we will utilize a linear 

exchange function to translate this estimated amount available into a value-based 

incentive payment percentage for each hospital, based on its Total Performance Score 

(TPS) (77 FR 53573 through 53576). 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 2016, on a per-claim basis. We are 
CMS-1632-P 718

publishing proxy value-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 2015 program year. These FY 2015 

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 value-based incentive payment adjustment factors 

is 2.5797595162. 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 2015 update to the FY 2014 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 2016 will continue to be based on historic FY 2015 Hospital 

VBP Program TPSs because hospitals will not have been given the opportunity to review 

and correct their actual TPSs for the FY 2016 program year until after the FY 2016 

IPPS/LTCH PPS final rule is published. After hospitals have been given an opportunity 

to review and correct their actual TPSs for FY 2016, 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 2016 program year. We expect that Table 16B will be posted on the 

CMS Web site in October 2015.
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2. Proposed Retention, Removal, Expansion, and Updating of Quality Measures for the 

FY 2018 Program Year

a. Retention of Previously Adopted Hospital VBP Program Measures for the FY 2018 

Program Year

In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53592), we finalized our 

proposal to readopt measures from the prior program year for each successive program 

year, unless proposed and finalized otherwise (for example, if we propose and finalize the 

removal of a measure). We stated our belief that this policy would facilitate measure 

adoption for the Hospital VBP Program for future program years, as well as align the 

Hospital VBP Program with the Hospital IQR Program (77 FR 53592). We are not 

proposing to change our current policy of readopting measures from the prior program 

year for each successive program year.

b. Proposed Removal of Two Measures

One consideration in determining whether a measure should be retained or 

removed from the program is based on an analysis of whether the measure is 

“topped-out.” We have adopted two criteria for determining the “topped-out” status of 

Hospital VBP measures:

● Statistically indistinguishable performance at the 75th and 90th percentiles; and

● Truncated coefficient of variation ≤ 0.10.

In this proposed rule, we are proposing to remove the IMM-2 Influenza 

Immunization and AMI-7a Fibrinolytic Therapy Received within 30 Minutes of Hospital 

Arrival measures, effective for the FY 2018 program year. We believe that removing 
CMS-1632-P 720

these measures will continue to ensure that we make valid statistical comparisons through 

our finalized scoring methodology, while reducing the reporting burden on participating 

hospitals.

(1) Proposed Removal of IMM-2 Influenza Immunization Measure

Based on our evaluation of the most recently available data, we believe that 

IMM-2 is “topped-out.” As we have discussed in prior rulemaking, measuring hospital 

performance on “topped-out” measures will have no meaningful effect on a hospital’s

TPS, given that performance on “topped-out” measures is generally so high and 

unvarying that meaningful distinctions and improvements in performance can no longer 

be made.

As discussed further in section VIII.A.3.b. of the preamble of this proposed rule,

we believe that this measure should continue to be part of the Hospital IQR Program 

measure set because it is the only measure that addresses the Best Practices to Enable 

Healthy Living goal in the CMS Quality Strategy and priority of the same name in the

National Quality Strategy.

We are inviting public comment on this proposal.

(2) Proposed Removal of AMI-7a Fibrinolytic Therapy Received within 30 Minutes of 

Hospital Arrival Measure

Our evaluation of the most recently available data shows that AMI-7a is not 

widely reported by hospitals, and that many hospitals have less than the minimum 

number of cases required for reporting because most acute myocardial infarction patients 

receive percutaneous coronary intervention instead of fibrinolytic therapy. We are 
CMS-1632-P 721

proposing to remove AMI-7a because collection of the measure data is burdensome to 

hospitals and measure data are infrequently reported. Therefore, we do not believe that 

its continued adoption under the Hospital VBP Program will advance our quality 

improvement goals. As discussed in section VIII.A.3.b. of the preamble of this proposed 

rule, we also are proposing to remove this measure under the Hospital IQR Program.

We are inviting public comment on this proposal.

c. Proposed New Measure for the FY 2018 Program Year: 3-Item Care Transition 

Measure (CTM-3) (NQF #0228)

We consider measures for adoption based on the statutory requirements, including 

specification under the Hospital IQR Program, posting dates on the Hospital Compare

Web site, and our priorities for quality improvement as outlined in the CMS Quality 

Strategy, available at: http://www.cms.gov/Medicare/Quality-Initiatives-PatientAssessment-Instruments/QualityInitiativesGenInfo/Downloads/CMS-QualityStrategy.pdf.

The 3-Item Care Transition Measure (CTM-3) is an NQF-endorsed measure. We 

adopted this measure in the Hospital IQR Program in the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53513 through 53516). Initial measure data were posted on Hospital 

Compare in December 2014 and the full measure specifications are available at: 

http://www.caretransitions.org/documents/CTM3Specs0807.pdf. Specifications for the 

Care Transition Measure as used in the HCAHPS Survey can be found in the current 

HCAHPS Quality Assurance Guidelines, 

http://www.hcahpsonline.org/qaguidelines.aspx.
CMS-1632-P 722

The CTM-3 measure adds three questions to the HCAHPS Survey, as follows:

● During this hospital stay, staff took my preferences and those of my family or 

caregiver into account in deciding what my health care needs would be when I left.

□ Strongly disagree

□ Disagree

□ Agree

□ Strongly agree

● When I left the hospital, I had a good understanding of the things I was 

responsible for in managing my health.

□ Strongly disagree

□ Disagree

□ Agree

□ Strongly agree

● When I left the hospital, I clearly understood the purpose for taking each of my 

medications.

□ Strongly disagree

□ Disagree

□ Agree

□ Strongly agree

□ I was not given any medication when I left the hospital

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50065 through 50066), we 

stated that we were considering proposing to add the CTM-3 measure from the HCAHPS 
CMS-1632-P 723

Survey to the Patient and Caregiver Centered Experience of Care/Care Coordination 

(PCCEC/CC) domain of the FY 2018 Hospital VBP Program, and we sought public 

comments on this topic. We specifically sought public comments on how the new 

CTM-3 dimension should be included in the scoring methodology that we have adopted 

for the PCCEC/CC domain.

Based on other public comments last year, we agreed to release additional 

information about the validity, reliability, and statistical properties of the CTM-3 measure 

when we proposed the measure (79 FR 50066). We made this information publicly 

available in 2014 through the NQF reendorsement process of the HCAHPS Survey 

(NQF #0166), available at:

http://www.qualityforum.org/ProjectMeasures.aspx?projectID=73867.

We note that the MAP supported the inclusion of the CTM-3 measure in the 

Hospital VBP Program in its MAP Pre-Rulemaking Report: 2013 Recommendations on 

Measures Under Consideration by HHS, available at:

http://www.qualityforum.org/Publications/2013/02/MAP_Pre-Rulemaking_Report_-

_February_2013.aspx. The MAP noted that the addition of the CTM-3 measure will fill a 

gap in measuring care transitions. 

We are proposing this measure for the Hospital VBP Program based on the MAP 

recommendation, our adoption of the measure in the Hospital IQR Program and our 

posting of measure data on Hospital Compare for at least one year before the beginning 

of the performance period for that measure. We believe that the proposed addition of the 

CTM-3 measure to the Hospital VBP Program meets the statutory requirements for 
CMS-1632-P 724

inclusion in the FY 2018 program year. Finally, we also believe that this measure, in 

conjunction with the HCAHPS survey, assesses an important component of quality in the 

acute care inpatient hospital setting. However, we emphasize that HCAHPS scores are 

designed and intended for use at the hospital level. We do not endorse the use of 

HCAHPS scores for comparisons within hospitals, such as comparison of HCAHPS 

scores associated with a particular ward, floor, provider, or nursing staff. Further, the 

pain domain questions are intended to evaluate patients’ experience of their pain 

management. HCAHPS pain domain results are not designed to judge, or compare, 

appropriate versus inappropriate provider prescribing behavior.

We are inviting public comment on this proposal.

d. Proposed Removal of Clinical Care—Process Subdomain for the FY 2018 Program 

Year and Subsequent Years

We have previously adopted three measures for the Clinical Care—Process 

subdomain for the FY 2017 Hospital VBP Program (for example, 79 FR 50062 (Table on 

Previously Adopted and New Measures for the FY 2017 Hospital VBP Program)). 

However, as discussed above, we are proposing to remove the AMI-7a and IMM-2 

measures from the Hospital VBP Program, and we are not proposing to adopt any 

additional measures for the Clinical Care—Process subdomain. If the proposals above 

are finalized, only one measure, PC-01 Elective Delivery, which measures the incidence 

of elective births prior to 39 weeks gestation, would remain in the Clinical Care—Process 

subdomain for the FY 2018 program year. For the reasons outlined below, and if we 

finalize the removal of the IMM-2 and AMI-7a measures, we are proposing to move 
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PC-01 to the Safety domain and to remove the Clinical Care—Process subdomain 

beginning with the FY 2018 program year.

As we have stated over the past several years (for example, 79 FR 50084), we 

desire the Hospital VBP Program to be as inclusive as possible while maintaining and 

ensuring the reliability of the domains. We believe that the PC-01 Elective Delivery 

measure continues to be appropriate for the Hospital VBP Program because, in 2012, 

nearly one million Medicare beneficiaries were women age 45 and under.54 Further, in 

2011, Medicare paid for roughly 14,000 births (79 FR 50060). However, not all hospitals 

provide maternity services, which would leave these hospitals with no Clinical 

Care-Process subdomain measures to report in FY 2018 if PC-01 remains the only 

measure in that subdomain.

We believe that the PC-01 Elective Delivery measure, currently in the Clinical 

Care—Process subdomain, can appropriately be recategorized as a Safety domain 

measure. PC-01 addresses a process designed to reduce risk to both the neonate and the 

mother, thereby making care safer. Guidelines from the American College of 

Obstetricians and Gynecologists and the American Academy of Pediatrics state elective 

deliveries should not be performed at <39 weeks gestation unless medically indicated.55 

Evidence has shown that early-term deliveries result in significant short-term neonatal 

mortality and result in more cesarean deliveries, and longer maternal length of stay.56 

 

54 Centers for Medicare & Medicaid Services. (2013). Table I.3 - Medicare Enrollment/Demographics. 

Available at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-andReports/CMS-Statistics-Reference-Booklet/Downloads/CMS_Stats_2013_final.pdf.

55 Clark, S., Miller, D., Belfort, M., Dildy, G., Frye, D., & Meyers, J. (2009). Neonatal and maternal 

outcomes associated with elective delivery. [Electronic Version]. Am J Obstet Gynecol. 200:156.e1-156.e4.

56 Glantz, J. (Apr.2005). Elective induction vs. spontaneous labor associations and outcomes. [Electronic 

Version]. J Reprod Med. 50(4):235-40. Available at: 
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Furthermore, the MAP Hospital Workgroup has included PC-01 as an “obstetrical 

adverse event” measure in its Safety family of measures.57 As we continue to align our 

measure categorizations more closely with the CMS Quality Strategy, we are proposing 

to recategorize PC-01 as a Safety measure in the Safety domain, and for the reasons 

discussed above, to remove the Clinical Care—Process subdomain beginning with the 

FY 2018 program year.

Finally, if we finalize our proposal to remove the Clinical Care—Process 

subdomain, we are proposing to rename the Clinical Care—Outcomes subdomain as 

simply the Clinical Care domain. We are also proposing to reweight the domains to 

reflect our proposals, which we detail in section IV.G.7.a. of the preamble of this 

proposed rule.

We are inviting public comments on these proposals.

e. NHSN Measures Standard Population Data

The NHSN measures are calculated by CDC, and currently include the CAUTI, 

CLABSI, MRSA bacteremia, CDI, and Colon and Abdominal Hysterectomy SSI 

measures in the FY 2017 program year and subsequent program years. They measure the 

occurrence of these HAIs in hospitals participating in the Hospital VBP Program. In 

order to calculate the NHSN measures for use in both the Hospital IQR Program and the 

Hospital VBP Program, CDC must go through several steps. First, CDC determines each 

 

http://www.researchgate.net/publication/7826004_Elective_induction_vs._spontaneous_labor_associations

_and_outcomes.

57 MAP Families of Measures: Safety, Care Coordination, Cardiovascular Conditions, Diabetes Final 

Report, October 2012, p. 46.
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NHSN measure’s number of predicted infections.58 CDC determines the number of 

predicted infections using both specific patient care location characteristics (for example, 

number of days in which a patient in an ICU has a central line) and infection rates that 

occurred among a standard population (sometimes referred to by CDC as “national 

baseline” but referred to here as “standard population data”).59 Finally, for each NHSN 

measure, CDC calculates the Standardized Infection Ratio (SIR) by comparing a 

hospital’s observed number of HAIs with the number of HAIs predicted for the hospital, 

adjusting for several risk factors.

60

 For more information about the way NHSN measures 

are calculated, we refer readers to QualityNet’s Web page on HAI measures, which may 

be found at: 

https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage

%2FQnetTier2&cid=1228760487021.

As part of routine measure maintenance, CDC is updating the “standard 

population data” to ensure the NHSN measures’ number of predicted infections reflect 

the current state of HAIs in the United States.61 Currently, CDC calculates the “standard 

population data” for the CAUTI measure based on data it collected in CY 2009.62 CDC 

calculates the “standard population data” for the CLABSI and Colon and Abdominal 

Hysterectomy SSI measures based on data it collected in 2006 to 2008.63 CDC calculates 

the “standard population data” for the MRSA bacteremia and CDI measures based on 

 

58Available at: http://www.cdc.gov/HAI/surveillance/QA_stateSummary.html.

59Available at: http://www.cdc.gov/HAI/surveillance/QA_stateSummary.html.

60 Available at: http://www.cdc.gov/nhsn/PDFs/Newsletters/NHSN_NL_OCT_2010SE_final.pdf.

61 Available at: http://www.cdc.gov/nhsn/PDFs/Newsletters/NHSN_NL_OCT_2010SE_final.pdf.

62 Available at: http://www.cdc.gov/HAI/surveillance/QA_stateSummary.html#b6.

63 Available at: http://www.cdc.gov/HAI/surveillance/QA_stateSummary.html#b6.
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data it collected in 2010 to 2011.64 Beginning in 2015, CDC will collect data in order to 

update the standard population data for all of these NHSN measures (the CY 2015 

standard population data for HAI measures will hereinafter be referred to as “new 

standard population data”).

Because the Hospital VBP Program calculates improvement points using 

comparisons between data collected from hospitals in a baseline period and data collected 

in a performance period, the Hospital VBP Program must treat CDC’s standard 

population data update differently than other quality programs. We have determined that 

we cannot equally compare CDC’s “new standard population data” to the “current 

standard population data” in order to calculate improvement points. If we do not address 

the CDC’s measure update, we will be unable to compare the baseline and performance 

periods for NHSN measures in the FY 2017 and FY 2018 program years. To address the 

problem, we intend to use the “current standard population data” to calculate 

performance standards and calculate and publicly report measure scores until the 

FY 2019 program year, as depicted in the table below. For the FY 2019 program year 

and subsequent years, the Hospital VBP Program will use the “new standard population 

data” to calculate performance standards and calculate and publicly report measure 

scores.

 

64 Available at: http://www.cdc.gov/HAI/surveillance/QA_stateSummary.html#b6.
CMS-1632-P 729

CDC’s Standard Population Data in the Hospital VBP Program

FY 2017 

Program 

Year*

FY 2018 

Program 

Year*

FY 2019 

Program 

Year**

FY 2020 

Program 

Year**

NHSN Measures 

Baseline Periods

Current 

standard 

population data

Current 

standard 

population data

New standard 

population 

data

New standard 

population data

NHSN Measures 

Performance 

Periods

Current 

standard 

population data

Current 

standard 

population data

New standard 

population 

data

New standard 

population data

* CDC will use “current standard population data” to calculate measure data that we will translate into 

scores on the measures.

** CDC will use “new standard population data” (CY 2015) to calculate measure data that we will translate 

into scores on the measures.

For a discussion addressing the “new standard population data” in the Hospital 

IQR Program, we refer readers to section VIII.A.4.b. of the preamble of this proposed 

rule.

f. Summary of Previously Adopted and Newly Proposed Measures for the FY 2018 

Program Year

In summary, for the FY 2018 program, we are proposing the following measure 

set:
CMS-1632-P 730

FY 2018 Previously Adopted and Newly Proposed Measures

Patient and Caregiver-Centered Experience of Care/Care Coordination Domain

HCAHPS Hospital Consumer Assessment of Healthcare Providers and 

Systems Survey

CTM-3* 3-Item Care Transitions Measure 

Clinical Care Domain

MORT-30-AMI Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate 

Following Acute Myocardial Infarction Hospitalization 

MORT-30-HF Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate 

Following Heart Failure Hospitalization 

MORT-30-PN Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate 

Following Pneumonia Hospitalization

Safety Domain

CAUTI National Healthcare Safety Network Catheter-Associated 

Urinary Tract Infection Outcome Measure

CLABSI National Healthcare Safety Network Central Line-Associated 

Bloodstream Infection Outcome Measure

Colon and Abdominal 

Hysterectomy SSI

Centers for Disease Control and Prevention Harmonized 

Procedure Specific Surgical Site Infection Outcome Measure

● Colon

● Abdominal Hysterectomy

MRSA bacteremia National Healthcare Safety Network Facility-Wide Inpatient 

Hospital-Onset Methicillin-Resistant Staphylococcus aureus

Bacteremia Outcome Measure

CDI National Healthcare Safety Network Facility-Wide Inpatient 

Hospital-Onset Clostridium difficile Infection Outcome 

Measure

PSI-90 Patient Safety for Selected Indicators (Composite)

PC-01** Elective Delivery 

Efficiency and Cost Reduction Domain

MSPB-1 Payment-Standardized Medicare Spending Per Beneficiary

*Proposed new measure.

**Proposed to be moved from the Clinical Care—Process subdomain to the Safety domain.

3. Previously Adopted and Newly Proposed Measures for the FY 2019, FY 2021, and 

Subsequent Program Years

Due to the time necessary to adopt measures, we often adopt policies for the 

Hospital VBP Program well in advance of the program year for which they will be 
CMS-1632-P 731

applicable (for example, 76 FR 26490 through 26547; 76 FR 51653 through 51660; 

76 FR 74527 through 74547; 77 FR 53567 through 53614; 78 FR 50676 through 50707; 

78 FR 75120 through 75121; 79 FR 50048 through 50087). Below, we are signaling our 

intent to include additional data in certain NHSN measures beginning with the FY 2019 

program year, proposing to adopt a new measure beginning with the FY 2021 program 

year, and summarizing all previously adopted and newly proposed measures.

a. Intent to Propose in Future Rulemaking to Include Selected Ward (Non-Intensive Care 

Unit (ICU)) Locations in Certain NHSN Measures Beginning with the FY 2019 Program 

Year

The Hospital VBP Program uses adult, pediatric, and neonatal intensive care unit 

(ICU) data to calculate performance standards and measure scores for the CAUTI and 

CLABSI measures for the FY 2017 and FY 2018 program years (79 FY 50061). In the 

FY 2014 IPPS/LTCH PPS proposed rule, we proposed under the Hospital IQR Program 

to expand the collection of CAUTI and CLABSI measures to include several selected 

ward (non-ICU) locations beginning with events occurring on or after January 1, 2014 

(78 FR 27684). In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50787), after 

consideration of the public comments received, we deferred the implementation date of 

the CAUTI and CLABSI measure expansion to selected ward (non-ICU) settings for the 

Hospital IQR Program from January 1, 2014 to January 1, 2015 (78 FR 50787). Selected 

ward (non-ICU) locations are defined as adult or pediatric medical, surgical, and 

medical/surgical wards (79 FY 50061; 78 FR 50787).
CMS-1632-P 732

In the FY 2015 IPPS/LTCH PPS final rule, we signaled our intent to consider 

using data from selected ward (non-ICU) locations for the Hospital VBP Program, 

beginning in the FY 2019 program year for purposes of calculating performance 

standards for the CAUTI and CLABSI measures (79 FR 50061). We intend to propose to 

include the selected ward (non-ICU) locations in the CAUTI and CLABSI measures 

beginning with the FY 2019 program year in future rulemaking. We intend to propose to 

adopt a baseline period of January 1, 2015 through December 31, 2015, and a 

performance period of January 1, 2017 through December 31, 2017, for the CAUTI and 

CLABSI measures. This expansion of the CAUTI and CLABSI measures would be 

consistent with the NQF reendorsement update to these measures, which allows 

application of the measures beyond ICUs (78 FR 50787). We believe this expansion of 

the measures will allow hospitals that do not have ICU locations to use the tools and 

resources of the NHSN for quality improvement and public reporting efforts 

(78 FR 50787).

We are inviting public comment on this plan to accommodate these measures’ 

expansions in the Hospital VBP Program future rulemaking.

b. Proposed New Measure for the FY 2021 Program Year: Hospital 30-Day, All-Cause, 

Risk-Standardized Mortality Rate Following Chronic Obstructive Pulmonary Disease 

(COPD) Hospitalization (NQF #1893)

Hospital 30-Day, All-Cause, RSMR following COPD Hospitalization 

(NQF #1893) (MORT-30-COPD) is a risk-adjusted, NQF-endorsed mortality measure 

monitoring mortality rates following COPD hospitalizations. We adopted this measure in 
CMS-1632-P 733

the Hospital IQR Program in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50792). 

Initial measure data were posted on Hospital Compare in December 2014 and the full 

measure specifications are available at: http://www.cms.gov/Medicare/QualityInitiatives-Patient-Assessment-Instruments/HospitalQualityInits/MeasureMethodology.html.

Chronic lower respiratory disease (including COPD) is the third leading cause of 

death in the United States.65 Between 1998 and 2008, the number of patients hospitalized 

annually for acute exacerbations of COPD increased by approximately 18 percent.66, 67, 68 

Moreover, COPD is one of the top 20 conditions contributing to Medicare costs.69 The 

median 30-day RSMR following admissions for COPD between July 2010 and June 2013 

was 7.8 percent with variation in mortality rates ranging from 5.5 percent to 12.4 percent 

across over 2,700 hospitals.70

The MAP supported the inclusion of the MORT-30-COPD measure in the 

Hospital VBP Program as detailed in the “Spreadsheet of MAP 2015 Final 

Recommendations.”71 The MAP noted that the addition of the MORT-30-COPD 

 

65 Hoyert DL, Xu JQ. Deaths: preliminary data for 2011. Natl Vital Stat Rep. 2012;61(6):1-65. Hyattsville, 

MD: National Center for Health Statistics.2012. Available at: http://www.birthbythenumbers.org/wpcontent/uploads/2012/12/prelim-deaths-2011.pdf.

66 National Heart L, and Blood Institute, The Morbidity & Mortality: Chart Book on Cardiovascular, Lung 

and Blood Diseases. 2009; Available at: http://www.nhlbi.nih.gov/resources/docs/2009_ChartBook.pdf.

67 The Centers for Disease Control and Prevention. National Center for Health Statistics Chronic Lower 

Respiratory Disease. FastStats 2010; Available at: http://www.cdc.gov/nchs/fastats/copd.htm.

68 Agency for Healthcare Research and Quality. Healthcare Cost and Utilization Project Statistics on 

Hospitals Stays. 2009; Available at: http://hcupnet.ahrq.gov/.

69 Andrews RM. The National Hospital Bill: The Most Expensive Conditions by Payer, 2006. Rockville: 

Agency for Healthcare Research and Quality; 2008.

70 September 2014 Medicare Hospital Quality Chartbook Performance Report on Outcome Measures. 

Available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Downloads/Medicare-Hospital-Quality-Chartbook-2014.pdf.

71 National Quality Forum “Spreadsheet of MAP 2015 Final Recommendations” available at: 

http://www.qualityforum.org/map/ and “Process and Approach for MAP Pre-Rulemaking Deliberations 
CMS-1632-P 734

measure would be appropriate as 30-day mortality rate measures for AMI, HF, and PN 

are already part of the Hospital VBP Program measure set.

We are proposing this measure for the Hospital VBP Program based on the MAP 

recommendation, our adoption of the measure in the Hospital IQR Program and our 

posting of measure data on Hospital Compare for at least 1 year prior to the start of the 

performance period. In addition, the MORT-30-COPD measure is appropriate for the 

Hospital VBP Program because it addresses a high volume, high cost condition, and 

chronic lower respiratory disease (including COPD) is the third leading cause of 

mortality in the United States. The measure aligns with the CMS Quality Strategy Goal 

of Effective Prevention and Treatment. Based on the continued high risk of mortality 

after COPD hospitalizations, we are proposing to add it to the Clinical Care domain for 

the FY 2021 Hospital VBP Program.

We are inviting public comment on this proposal.

c. Summary of Previously Adopted and Newly Proposed Measures for the FY 2019 and 

FY 2021 and Subsequent Program Years

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50063), we finalized our 

proposal to adopt the Hospital-Level Risk-Standardized Complication Rate Following 

Elective Primary THA/TKA measures for the FY 2019 program year and subsequent 

years. In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50063 through 50065), we also 

finalized our proposal to adopt the PSI-90 measure for the FY 2019 program year and 

subsequent years.

 

2015” found at http://www.qualityforum.org/Publications/2015/01/Process_and_Approach_for_MAP_PreRulemaking_Deliberations_2015.aspx.
CMS-1632-P 735

FY 2019 Previously Adopted Measures

Clinical Care Domain

THA/TKA Hospital-Level Risk-Standardized Complication Rate Following 

Elective Primary Total Hip Arthroplasty/Total Knee Arthroplasty

Safety Domain

PSI-90 Patient Safety For Selected Indicators (Composite)

In this proposed rule, we are proposing to adopt the MORT-30-COPD measure 

for the FY 2021 program year and subsequent years.

FY 2021 Newly Proposed Measure

Clinical Care Domain

MORT-30-COPD Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate 

Following Chronic Obstructive Pulmonary Disease Hospitalization

4. Possible Measure Topics for Future Program Years

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50066 through 50070), we 

sought comment on measures that could potentially be used to expand the Efficiency and 

Cost Reduction domain in the future. We are again seeking comments on this issue. We 

are interested in expanding the Efficiency and Cost Reduction domain to include a more 

robust measure set, which may include measures that supplement the MSPB measure 

with more condition and/or treatment specific episode measures. We encourage 

comment on efficiency and cost reduction measures already included in the Hospital IQR 

Program as well as measures we are proposing in section VIII.A.7. of the preamble of 

this proposed rule for inclusion in the Hospital IQR Program beginning with the FY 2018 

payment determination.
CMS-1632-P 736

5. Previously Adopted and Newly Proposed Baseline and Performance Periods for the 

FY 2018 Program Year

a. Background

Section 1886(o)(4) of the Act requires the Secretary to establish a performance 

period for the Hospital VBP Program that begins and ends prior to the beginning of such 

fiscal year. We refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 50048 

through 50087) for the baseline and performance periods for the Clinical Care—Process, 

PCCEC/CC, Clinical Care—Outcomes, and Efficiency and Cost Reduction domains that 

we have adopted for the FY 2017 program year.

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50692 through 50694, we 

adopted baseline and performance periods 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 

(78 FR 50692 through 50694, 50698 through 50699).

b. Proposed Baseline and Performance Periods for the Patient and Caregiver-Centered 

Experience of Care/Care Coordination Domain for the FY 2018 Program Year

Since the FY 2015 program year, we have adopted a 12-month baseline period 

and 12-month performance period for measures in the PCCEC/CC domain (77 FR 53598; 

78 FR 50692; 79 FR 50072). We continue to believe that a 12-month performance period 

for the HCAHPS Survey and proposed CTM-3 measure provides us sufficient data on 

which to score hospital performance, which is an important goal for both CMS and 

stakeholders. Therefore, for the FY 2018 program year, we are proposing to adopt a 

12-month performance period of January 1, 2016 through December 31, 2016 for the 
CMS-1632-P 737

PCCEC/CC domain. We also are proposing to adopt a corresponding 12-month baseline 

period of January 1, 2014 through December 31, 2014 for purposes of calculating 

improvement points and calculating performance standards.

We are inviting public comment on these proposals.

c. Proposed Baseline and Performance Periods for NHSN Measures and PC-01 in the 

Safety Domain for the FY 2018 Program Year

Since the FY 2016 program year, we have adopted a 12-month baseline period 

and 12-month performance period for NHSN measures (78 FR 75121; 79 FR 50071). In 

addition, we adopted the PC-01 measure for the FY 2017 program year with a 12-month 

baseline period and 12-month performance period (79 FR 50072). We continue to 

believe that a 12-month performance period provides us with sufficient data on which to 

score hospital performance on the NHSN measures, as well as the PC-01 measure, in the 

Safety domain. We also note that 12-month baseline and performance periods are 

consistent with the reporting periods used for these measures under the Hospital IQR 

Program. Therefore, for the FY 2018 program year, we are proposing to adopt a 

performance period of January 1, 2016 through December 31, 2016 for the NHSN 

measures and the PC-01 measure in the Safety domain. We also are proposing to adopt a 

corresponding baseline period of January 1, 2014 through December 31, 2014 for 

purposes of calculating improvement points and calculating performance standards.

We are inviting public comment on these proposals.
CMS-1632-P 738

d. Proposed Baseline and Performance Periods for the Efficiency and Cost Reduction 

Domain for the FY 2018 Program Year

Since the FY 2016 program year, we have adopted a 12-month baseline period 

and 12-month performance period for the MSPB-1 measure in the Efficiency and Cost 

Reduction domain (79 FR 50072; 78 FR 50692). These baseline and performance 

periods enable us to collect sufficient measure data, while allowing time to calculate and 

incorporate MSPB-1 measure data into the Hospital VBP Program scores in a timely 

manner. Therefore, for the FY 2018 program year, we are proposing to adopt a 12-month 

performance period of January 1, 2016 through December 31, 2016 for the MSPB-1 

measure in the Efficiency and Cost Reduction domain. We also are proposing to adopt a 

corresponding baseline period of January 1, 2014 through December 31, 2014. We note 

that these proposed baseline and performance periods align with the baseline and 

performance periods for the PCCEC/CC domain and all measures in the Safety domain 

with the exception of PSI-90.

We are inviting public comments on these proposals.

e. Summary of Previously Adopted and Newly Proposed Baseline and Performance 

Periods for the FY 2018 Program Year

The table below summarizes the proposed baseline and performance periods for 

the FY 2018 program year (with previously adopted baseline and performance periods for 

the mortality and PSI composite (PSI-90) measures noted). We note that we have 

proposed above to remove the Clinical Care—Process subdomain from the Hospital VBP 

Program beginning with the FY 2018 program year. We note further that these baseline 
CMS-1632-P 739

and performance periods would continue to align with the PCCEC/CC domain and the 

Efficiency and Cost Reduction domain, as well as the periods proposed for certain 

measures in the Safety domain.

Previously Adopted and Proposed Baseline and Performance Periods for the 

FY 2018 Program Year

Domain Baseline Period Performance Period

PCCEC/CC

● HCAHPS Survey

● CTM-3

January 1, 2014 –

December 31, 2014

January 1, 2016 –

December 31, 2016

Clinical Care

 Mortality (MORT-30-AMI, 

 MORT-30-HF, MORT-30-PN)*

October 1, 2009 –

June 30, 2012

October 1, 2013 –

June 30, 2016

Safety

● PSI-90*

● PC-01 and NHSN measures 

(CAUTI, CLABSI, SSI, CDI, 

MRSA)

● July 1, 2010 – June 

30, 2012

● January 1, 2014 –

December 31, 2014

● July 1, 2014 –

June 30, 2016

● January 1, 2016 –

December 31, 2016

Efficiency and Cost Reduction 

MSPB-1

January 1, 2014 –

December 31, 2014

January 1, 2016 –

December 31, 2016

* Previously adopted baseline and performance periods.

6. Previously Adopted and Newly Proposed Baseline and Performance Periods for 

Future Program Years

a. Previously Adopted Baseline and Performance Periods for the FY 2019 Program Year

The table below summarizes the previously adopted baseline and performance 

periods for the Clinical Care domain and PSI-90 measures for the FY 2019 program year.
CMS-1632-P 740

Previously Adopted Baseline and Performance Periods for the FY 2019 Program 

Year

Domain Baseline Period Performance Period

Clinical Care 

● Mortality (MORT-30-AMI, 

MORT-30-HF, MORT-30-PN)

● THA/TKA

● July 1, 2009 –

June 30, 2012

● July 1, 2010 –

June 30, 2013

● July 1, 2014 –

June 30, 2017

● July 1, 2015 –

June 30, 2017

Safety

● PSI-90 ● July 1, 2011 –

June 30, 2013

● July 1, 2015 –

June 30, 2017

b. Proposed Baseline and Performance Periods for the PSI-90 Measure in the Safety 

Domain in the FY 2020 Program Year

The table below summarizes the previously adopted and proposed baseline and 

performance periods for the FY 2020 program year. In the FY 2020 program year, we 

are proposing to adopt a performance period of July 1, 2016 to June 30, 2018 for the 

PSI-90 measure. We are proposing a corresponding baseline period of July 1, 2012 to 

June 30, 2014. This will allow us to collect 24-months of data from hospitals on the 

PSI-90 measure.

We are inviting comment on these proposals.
CMS-1632-P 741

Previously Adopted and Newly Proposed Baseline and Performance Periods 

for the FY 2020 Program Year

Domain Baseline Period Performance 

Period

Clinical Care

● Mortality (MORT-30-AMI, 

MORT-30-HF, MORT-30-PN)*

● THA/TKA*

July 1, 2010 –

June 30, 2013

July 1, 2015 –

June 30, 2018

Safety

PSI (PSI-90) Measure

July 1, 2012 –

June 30, 2014

July 1, 2016 –

June 30, 2018

* Previously adopted baseline and performance periods

c. Proposed Baseline and Performance Periods for the Clinical Care Domain for the 

FY 2021 Program Year

The table below summarizes the proposed baseline and performance periods for 

the FY 2021 program year. In the FY 2014 IPPS/LTCH PPS and FY 2015 IPPS/LTCH 

PPS final rules (78 FR 50692 through 50694; 79 FR 50072 through 50073), we adopted 

baseline and performance periods for the three 30-day mortality measures for the 

FY 2017, FY 2018, FY 2019, and FY 2020 program years. We adopted baseline and 

performance periods for the THA/TKA measure for the FY 2019 and FY 2020 program 

years (79 FR 50073). We adopted this policy in light of the length of the performance 

period that is needed to collect enough measure data for reliable performance scoring. 

We continue to believe that we should adopt 36-month baseline and performance periods 

for the mortality measures when possible to accommodate those durations.

We believe that a similar rationale applies to the new MORT-30-COPD measure 

that we are proposing to adopt for the Clinical Care domain for the FY 2021 program 
CMS-1632-P 742

year. Furthermore, we are attempting to align measurement periods under the Hospital 

VBP Program with measurement periods under the Hospital IQR Program for the 30-day 

mortality measures. Therefore, for the FY 2021 program year, we are proposing to adopt 

a 36-month performance period of July 1, 2016 through June 30, 2019 for all mortality 

measures (the three previously adopted mortality measures, as well as the proposed 

MORT-30-COPD measure) in the Clinical Care domain. We also are proposing to adopt 

a corresponding baseline period of July 1, 2011 through June 30, 2014. We note that the 

proposed performance periods will align with the reporting periods for the mortality 

measures in the Hospital IQR Program for the first time.

For the THA/TKA measure in the FY 2021 program year, we are proposing to 

adopt a 36-month performance period of April 1, 2016 through March 31, 2019. We also 

are proposing to adopt a corresponding baseline period of April 1, 2011 through 

March 31, 2014. This baseline and performance period will align with the THA/TKA 

measure reporting period for the Hospital IQR Program and will make reporting more 

seamless for hospitals.

We are inviting public comment on these proposals.

Proposed Baseline and Performance Periods for the FY 2021 Program Year

Domain Baseline Period Performance Period

Clinical Care 

 Mortality (MORT-30-AMI, MORT30-HF, MORT-30-PN, MORT-30-

COPD)

 THA/TKA

 July 1, 2011 –

June 30, 2014

 April 1, 2011 –

March 31, 2014

 July 1, 2016 –

June 30, 2019

 April 1, 2016 –

March 31, 2019
CMS-1632-P 743

7. 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 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.

In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53599 through 53604), we 

adopted performance standards for the FY 2015 program year and certain FY 2016 

program year measures. We also finalized our policy to update performance standards 

for future 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 
CMS-1632-P 744

revised our regulatory definitions of “achievement threshold” and “benchmark” at 

42 CFR 412.160 and adopted performance standards for additional FY 2016 program 

year measures. We also adopted an interpretation of “achievement threshold” and 

“benchmark” under 42 CFR 412.160 to exclude the numerical values that result when the 

performance standards are calculated. We have 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 (79 FR 50079). We refer readers to the FY 2014 IPPS/LTCH PPS 

final rule for the complete set of FY 2016 performance standards (78 FR 50697 through 

50698).

b. Technical Updates

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50077 through 50079), we 

adopted a policy under which we may adopt technical updates to performance standards 

under the Hospital VBP Program. We adopted this policy by amending the definition of 

“performance standards” under 42 CFR 412.160 of our regulations to enable us to update 

performance standards’ numerical values to incorporate nonsubstantive technical updates 

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. We 

stated our intent to continue to use rulemaking to adopt substantive updates to measures 

adopted for the Hospital VBP Program. We stated that examples of changes that we 

might consider to be substantive include those in which the changes are so significant that 
CMS-1632-P 745

the measure is no longer the same measure or when a standard of performance assessed 

by a measure becomes more stringent. However, we stated our intent to determine what 

constitutes substantive versus nonsubstantive changes on a case-by-case basis, although 

we affirmed our intent to be as transparent as possible with stakeholders about any such 

updates we might adopt.

On January 29, 2015, we announced a technical update to the performance 

standards that we have adopted for the PSI-90 measure for the FY 2017 program year. 

The announcement was published on QualityNet and can be viewed at: 

https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage

%2FQnetBasic&cid=1228774624610. The update resulted from a more recent AHRQ 

Quality Indicator software version becoming available. The FY 2017 performance 

standards were initially calculated using Version 4.4 of the AHRQ software, and the 

update allowed us to use Version 4.5a for both the performance standards and hospital 

results.

For more detailed information on the updates implemented in Version 4.5a, we 

refer readers to the Log of Coding Updates and revisions, posted on QualityNet, available 

at: 

https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage

%2FQnetTier4&cid=1228695355425. For more information on differences between 

Version 4.5a and previous versions of the software, we refer readers to the AHRQ Web 

site, available at: http://qualityindicators.ahrq.gov or to the AHRQ help desk directly, 

available at: QIsupport@ahrq.hhs.gov or (307) 427-1949.
CMS-1632-P 746

c. Proposed Performance Standards for the FY 2018 Program Year

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 2018 program year. 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 2016 

IPPS/LTCH PPS final rule. We note further that the MSPB-1 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, the 

PSI-90 measure, and the MSPB-1 measure are calculated with lower values representing 

better performance. This distinction is made in contrast to other measures for which 

higher values indicate better performance. As discussed further in the FY 2014 

IPPS/LTCH PPS final rule, the performance standards for the Colon and Abdominal 

Hysterectomy SSI are computed separately for each procedure stratum, and we will first 

award achievement and improvement points to each stratum separately, then compute a 

weighted average of the points awarded to each stratum by predicted infections 

(78 FR 50684).
CMS-1632-P 747

Previously Adopted and Proposed Performance Standards for the FY 2018 Program 

Year: Safety, Clinical Care, and Efficiency and Cost Reduction Measures

Measure ID Description Achievement 

Threshold

Benchmark

Safety Measures

CAUTI* National Healthcare Safety Network 

Catheter-associated Urinary Tract 

Infection Outcome Measure

0.916 0.000

CLABSI* National Healthcare Safety Network 

Central line-associated Bloodstream 

Infection Outcome Measure

0.401 0.000

CDI* National Healthcare Safety Network 

Facility-wide Inpatient Hospitalonset Clostridium difficile Infection 

Outcome Measure 

0.776 0.000

MRSA 

bacteremia* 

National Healthcare Safety Network 

Facility-wide Inpatient Hospitalonset Methicillin-resistant 

Staphylococcus aureus Bacteremia 

Outcome Measure

0.766 0.000

PSI-90±* Patient safety for selected indicators 

(composite)

0.577321 0.397051

Colon and 

Abdominal 

Hysterectomy 

SSI*

American College of Surgeons –

Centers for Disease Control and 

Prevention Harmonized Procedure 

Specific Surgical Site Infection 

Outcome Measure 

● Colon

● Abdominal Hysterectomy

● 0.801

● 0.745

● 0.000

● 0.000

PC-01 Elective Delivery 0.022989 0.000

Clinical Care Measures

MORT-30-

AMI±

Hospital 30-Day, All-Cause, RiskStandardized Mortality Rate 

Following Acute Myocardial 

Infarction Hospitalization *

0.851458* 0.871669*

MORT-30-

HF± 

Hospital 30-Day, All-Cause, RiskStandardized Mortality Rate

Following Heart Failure *

0.881794* 0.903985*

MORT-30-

PN± 

Hospital 30-Day, All-Cause, RiskStandardized Mortality Rate 

Following Pneumonia 

Hospitalization *

0.882986* 0.908124*
CMS-1632-P 748

Previously Adopted and Proposed Performance Standards for the FY 2018 Program 

Year: Safety, Clinical Care, and Efficiency and Cost Reduction Measures

Measure ID Description Achievement 

Threshold

Benchmark

Efficiency and Cost Reduction Measure

MSPB-1* Payment-Standardized 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

* Lower values represent better performance.

±

Previously adopted performance standards.

Based on public comments in the FY 2015 IPPS/LTCH PPS final rule, we are 

proposing to adopt the “normalization” approach to scoring the PCCEC/CC domain, 

which will introduce only minor changes to the original scoring formula, as follows. For 

purposes of the HCAHPS Base Score, the new CTM-3 dimensions would be calculated in 

the same manner as the eight existing HCAHPS dimensions. For each of the nine 

dimensions, Achievement Points (0–10 points) and Improvement Points (0–9 points) 

would be calculated, the larger of which would 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 prenormalized 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 
CMS-1632-P 749

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 would 

now consider scores across all nine of the PCCEC/CC dimensions. The final element of 

the scoring formula would be the sum of the HCAHPS Base Score and the HCAHPS 

Consistency Points and will range from 0 to 100 points, as before.

Proposed Performance Standards for the FY 2018 Program Year

Patient and Caregiver-Centered Experience of Care/Care Coordination Domain

HCAHPS Survey 

Dimension

Floor 

(percent)

Achievement Threshold 

(percent)

Benchmark 

(percent)

Communication with 

Nurses

52.85 78.45 86.70

Communication with 

Doctors

59.48 80.56 88.59

Responsiveness of 

Hospital Staff

37.91 65.22 80.35

Pain Management 50.17 70.26 78.44

Communication about 

Medicines

45.50 63.38 73.61

Hospital Cleanliness & 

Quietness

43.43 65.58 79.25

Discharge Information 62.00 86.50 91.58

3-Item Care Transition* 27.28 51.33 62.18

Overall Rating of 

Hospital

36.94 70.15 84.72

* Newly proposed measure

We are inviting public comments on these proposed performance standards.

d. Previously Adopted Performance Standards for Certain Measures for the FY 2019 

Program Year

As discussed above, we have adopted certain Safety and Clinical Care domain 

measures for future program years in order to ensure that we can adopt baseline and 
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performance periods of sufficient length for performance scoring purposes. In the 

FY 2015 IPPS/LTCH PPS final rule (79 FR 50062 through 50065), we adopted the 

PSI-90 measure in the Safety domain and the THA/TKA measure in the Clinical Care 

domain for the FY 2019 program year. As with the PSI-90, MSPB-1, and NHSN 

measures described above, the THA/TKA measure is calculated with lower values 

representing better performance. Therefore, in the FY 2015 IPPS/LTCH PPS final rule 

we adopted the following performance standards for the FY 2019 program year 

(79 FR 50077):

Previously Adopted Performance Standards for Certain Safety and Clinical Care

Domain Measures for the FY 2019 Program Year 

Measure ID Description Achievement 

Threshold

Benchmark

Safety Measures

PSI-90* Patient Safety for Selected Indicators 

(Composite)

0.853715 0.589462

Clinical Care Measures

MORT-30-AMI Hospital 30-Day, All-Cause, RiskStandardized Mortality Rate 

Following Acute Myocardial 

Infarction Hospitalization 

0.850671 0.873263

MORT-30-HF Hospital 30-Day, All-Cause, RiskStandardized Mortality Rate 

Following Heart Failure 

Hospitalization 

0.883472 0.908094

MORT-30-PN Hospital 30-Day, All-Cause, RiskStandardized Mortality Rate 

Following Pneumonia Hospitalization

0.882334 0.909460

THA/TKA* Hospital-Level Risk-Standardized 

Complication Rate Following Elective 

Primary Total Hip Arthroplasty and/or 

Total Knee Arthroplasty 

0.032229 0.023178

* Lower values represent better performance.
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e. Previously Adopted and Newly Proposed Performance Standards for Certain Measures 

for the FY 2020 Program Year

As discussed above, we have adopted certain Safety and Clinical Care domain 

measures for future program years in order to ensure that we can adopt baseline and 

performance periods of sufficient length for performance scoring purposes. In the 

FY 2015 IPPS/LTCH PPS final rule (79 FR 50063 through 50065), we adopted the 

PSI-90 measure in the Safety domain and the THA/TKA measure in the Clinical Care 

domain for the FY 2019 program year and subsequent years. In the FY 2015 IPPS/LTCH 

PPS final rule (79 FR 50077), we also adopted the following performance standards for 

the MORT-30-AMI, MORT-30-HF, MORT-30-PN, and THA/TKA measures for the 

FY 2020 program year. In this proposed rule, we are proposing performance standards 

for the PSI-90 measure for the FY 2020 program year as set forth below:
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Previously Adopted and Proposed Performance Standards for Certain Clinical Care 

Domain and Safety Domain Measures for the FY 2020 Program Year 

Measure ID Description Achievement 

Threshold

Benchmark

Safety Domain

PSI-90* Patient Safety for Selected Indicators 

(Composite)

0.778761 0.545903

Clinical Care Domain

MORT-30-

AMI±

Hospital 30-Day, All-Cause, RiskStandardized Mortality Rate 

Following Acute Myocardial 

Infarction Hospitalization 

0.853715 0.875869

MORT-30-HF± Hospital 30-Day, All-Cause, RiskStandardized Mortality Rate 

Following Heart Failure 

Hospitalization 

0.881090 0.906068

MORT-30-PN± Hospital 30-Day, All-Cause, RiskStandardized Mortality Rate 

Following Pneumonia Hospitalization

0.882266 0.909532

THA/TKA*± Hospital-Level Risk-Standardized 

Complication Rate Following Elective 

Primary Total Hip Arthroplasty and/or 

Total Knee Arthroplasty 

0.032229 0.023178

* Lower values represent better performance

±

Previously adopted performance standards.

f. Proposed Performance Standards for Certain Measures for the FY 2021 Program Year

We are proposing the following performance standards for the FY 2021 program 

year for the Clinical Care domain measures (THA/TKA, MORT-30-HF, MORT-30-AMI, 

MORT-30-PN, and the proposed MORT-30-COPD):
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Proposed Performance Standards for Clinical Care Domain Measures for the 

FY 2021 Program Year 

Measure ID Description Achievement 

Threshold

Benchmark

Clinical Care Measures

MORT-30-AMI Hospital 30-Day, All-Cause, RiskStandardized Mortality Rate 

Following Acute Myocardial 

Hospitalization 

0.860355 0.879714

MORT-30-HF Hospital 30-Day, All-Cause, RiskStandardized Mortality Rate 

Following Heart Failure 

Hospitalization 

0.883803 0.906144

MORT-30-PN Hospital 30-Day, All-Cause, RiskStandardized Mortality Rate 

Following Pneumonia Hospitalization

0.886443 0.91067

MORT-30-COPD Hospital 30-Day, All-Cause, RiskStandardized Mortality Rate 

Following Chronic Obstructive 

Pulmonary Disease Hospitalization

0.860355 0.879714

THA/TKA* Hospital-Level Risk-Standardized 

Complication Rate Following 

Elective Primary Total Hip 

Arthroplasty/ Total Knee 

Arthroplasty

0.03089 0.022304

* Lower values represent better performance.

8. Proposed FY 2018 Program Year Scoring Methodology

a. Proposed Domain Weighting for the FY 2018 Program Year for Hospitals That 

Receive a Score on All Domains

In the FY 2015 IPPS/LTCH PPS final rule, we adopted the following domains 

and domain weights for the FY 2017 program year for hospitals that receive a score in all 

newly aligned domains:
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Domain Weights for the FY 2017 Program Year for Hospitals Receiving a Score on 

All Domains 

Domain Weight

Safety 20 percent

Clinical Care

● Clinical Care—Outcomes

● Clinical Care—Process

30 percent

● 25 percent

● 5 percent

Efficiency and Cost Reduction 25 percent

Patient and Caregiver-Centered Experience of Care/Care 

Coordination

25 percent

For the FY 2018 program year, we are proposing to remove two “topped-out” 

measures from the Clinical Care—Process subdomain. In addition, we are proposing to 

move one measure (PC-01) from the Clinical Care—Process subdomain to the Safety 

domain and to remove the Clinical Care—Process subdomain.

If these proposals are adopted, the Safety domain will include seven measures for 

the FY 2018 program year, including PC-01, which would be new to that domain. 

Because we are proposing to move one measure to the Safety domain, and because we 

continue to believe that hospitals should be provided strong incentives to perform well on 

measures of patient safety, we are proposing to increase the Safety domain’s weight by 

5 percentage points. We are proposing to adopt the following FY 2018 program year 

domain weighting for hospitals receiving a score on all proposed newly-aligned domains:
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Proposed Domain Weights for the FY 2018 Program Year for Hospitals Receiving a 

Score on All Domains 

Domain Weight

Safety 25 percent

Clinical Care 25 percent

Efficiency and Cost Reduction 25 percent

Patient and Caregiver-Centered Experience of Care/Care Coordination 25 percent

We are inviting public comments on the proposed domain weights.

b. Proposed Domain Weighting for the FY 2018 Program Year 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 program year and subsequent 

years, hospitals with sufficient data to receive at least two out of the four domain scores 

that existed for the FY 2015 program year (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 
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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 program year and subsequent program years for 

purposes of eligibility for the program.

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50084 through 50085), we 

adopted a policy that, for the FY 2017 program year and subsequent years, hospitals must 

receive domain scores on at least three quality domains in order to receive a TPS. We 

stated our belief that, by adopting this policy, we will continue to allow as many hospitals 

as possible to participate in the program while ensuring that reliable TPSs result. We also 

finalized a policy that hospitals with sufficient data on at least three of four domains for 

FY 2017 will have their TPSs proportionately reweighted. Finally, in the FY 2015 

IPPS/LTCH PPS final rule, we adopted case minimums for the FY 2016 program year 

and subsequent years (79 FR 50085 through 50086).

Under these policies, in order to receive a TPS for the FY 2018 program year:

● Hospitals must meet the requirements to receive an HCAHPS Survey measure 

score in order to receive a PCCEC/CC domain score. Hospitals must report a minimum 

number of 100 HCAHPS surveys for a hospital to receive a PCCEC/CC domain score 

(76 FR 26530).
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● Hospitals must meet the requirements to receive a MSPB-1 measure score in 

order to receive an Efficiency and Cost Reduction domain score. Hospitals must report a 

minimum number of 25 cases for the MSPB-1 measure (77 FR 53609 through 53610).

● Hospitals must receive a minimum of two measure scores within the Clinical 

Care domain. Hospitals must report a minimum number of 25 cases for each of the 

mortality measures (77 FR 53609 through 53610).

● Hospitals must receive a minimum of three measure scores within the Safety 

domain.

++ Hospitals must report 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).

++ Hospitals must report a minimum of one predicted infection for NHSN-based 

surveillance measures based on CDC’s minimum case criteria (77 FR 53608 through 

53609).

++ Hospitals must report a minimum of 10 cases for the PC-01 measure 

(76 FR 26530).

We are not proposing any changes to the minimum numbers of cases and 

measures that we have adopted above. However, because we are proposing to remove 

the Clinical Care—Process subdomain from the Hospital VBP Program effective with the 

FY 2018 program year, we considered whether we should revisit our finalized 

requirement that hospitals must receive scores on at least three domains in order to 

receive a TPS. However, we continue to believe that this requirement appropriately 
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balances our desire to enable as many hospitals as possible to participate in the Hospital 

VBP Program and the need for TPSs to be sufficiently reliable to provide meaningful 

distinctions between hospitals’ performance on quality measures. We are not proposing 

to change this requirement at this time. We welcome public comments on whether we 

should consider adopting a different policy on this topic. We will continue to 

proportionately reweight hospitals’ TPSs when they have sufficient data on only three 

domains.
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G. Proposed Changes to the Hospital-Acquired 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 certain 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 

program 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. For hospitals with HAC scores in the top 

quartile relative to other applicable hospitals for a given fiscal year, the amount of 

Medicare payment is reduced to 99 percent of the amount of payment that would 

otherwise apply to 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 risk-adjustment methodology in calculating HAC scores for each hospital.
CMS-1632-P 760

Sections 1886(p)(3) and (p)(4) of the Act define “hospital-acquired conditions” 

and “applicable period,” respectively. The term “hospital-acquired 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 provide confidential reports to each applicable hospital with 

respect to the HAC Reduction Program scores for the applicable period, to give the 

hospitals an opportunity to review and correct the data. 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 HAC scores 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 

scores be posted on the Hospital Compare Web site 

(http://www.medicare.gov/hospitalcompare/search.html) in an easily understandable 

format.

Section 1886(p)(7) of the Act limits administrative and judicial review of certain 

determinations made pursuant to section 1886(p) of the Act. These determinations 

include: what qualifies as an applicable hospital; the specifications of a HAC; the 
CMS-1632-P 761

Secretary’s determination of the “applicable period”; the provision of confidential reports 

submitted to the applicable hospital; and the information publicly reported on the 

Hospital Compare Web site.

3. Overview of Previous HAC Reduction Program Rulemaking

For a further description of our policies for the HAC Reduction Program, we refer 

readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50707 through 50729) and the 

FY 2015 IPPS/LTCH PPS final rule (79 FR 50087 through 50104). These policies 

describe the general framework for implementation of the HAC Reduction Program 

including: (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.

We also have codified certain requirements of the HAC Reduction Program at 

42 CFR 412.170 through 412.172.

4. Implementation of the HAC Reduction Program for FY 2016

We are not proposing any changes to the above described policies for the 

implementation of the HAC Reduction Program for FY 2016. However, we are 

reminding readers that, in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50101 through 

50102), we finalized the following measures for use in the FY 2016 program: AHRQ 

PSI-90 Composite and CDC Central Line-Associated Bloodstream Infection (CLABSI), 
CMS-1632-P 762

Catheter-Associated Urinary Tract Infection (CAUTI) and Colon and Abdominal 

Hysterectomy Surgical Site Infection (SSI). We are not proposing to add or remove any 

measures for FY 2016.

We are providing an update on NQF proceedings for three of the measures 

previously finalized for the FY 2016 program: PSI–90 Composite; CLABSI; and CAUTI. 

For FY 2016, we are retaining 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 we noted in 

the FY 2015 IPPS/LTCH PPS final rule (79 FR 50090), the AHRQ PSI-90 Composite 

measure is undergoing NQF maintenance review. The PSI-90 Composite measure 

currently 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 pulmonary 

embolism/Deep vein thrombosis rate; PSI-13 Postoperative sepsis rate; PSI-14 Wound 

dehiscence rate; and PSI-15 Accidental puncture and laceration rate.

As part of the NQF maintenance review process, 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 measures, 

or a combination of these three measures, to the PSI-90 Composite measure. We 

consider the potential inclusion of additional component measures in the PSI-90 

Composite measure to be a significant change to the measure and, if that occurs, we 

would engage in notice-and-comment rulemaking prior to requiring the reporting of the 

revised composite for the HAC Reduction Program. At this time, the AHRQ PSI-90 
CMS-1632-P 763

Composite measure is continuing to undergo NQF maintenance review. No changes 

have been finalized. Therefore, we are not proposing any changes to this measure at this 

time.

Similarly, in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50090), we noted 

that the CDC NHSN CAUTI and CLABSI measures in Domain 2 that we adopted in the 

FY 2014 IPPS/LTCH PPS final rule (78 FR 50717) for inclusion in FYs 2015, 2016 and 

2017 were undergoing NQF maintenance review. We stated in the FY 2015 IPPS/LTCH 

PPS final rule that if there are significant changes to these measures, we would engage in 

notice-and-comment rulemaking prior to requiring the reporting of the revised measures. 

These measures have now completed the NQF maintenance review process, and modified 

versions of the measures were reendorsed by NQF on November 10, 2014.72 We note 

that reendorsed versions of the CDC NHSN CLABSI and CAUTI measures included a 

new statistical option for calculating the measure result, the Adjusted Ranking Metric 

(ARM), in addition to the standardized infection ratio (SIR) statistical option. For FY 

2016, we will continue use of the CDC NHSN CLABSI and CAUTI measures as 

previously finalized for the program with use of the SIR. We will be working with CDC 

in the future to determine if the newly available ARM would be appropriate for use in the 

HAC Reduction Program. If we determine at a later time that the ARM is appropriate for 

use in the HAC Reduction Program and provides an advantage to the existing measure 

result (the SIR), we will propose this change in notice-and-comment rulemaking.

 

72 National Quality Forum. Measures search. Available at: 

http://www.qualityforum.org/QPS/MeasureDetails.aspx?standardID=1122&print=0&entityTypeID=1 and 

http://www.qualityforum.org/QPS/MeasureDetails.aspx?standardID=1121&print=0&entityTypeID=1.
CMS-1632-P 764

We also note that we anticipate providing hospitals with their confidential 

hospital-specific reports and discharge level information used in the calculation of their 

FY 2016 Total HAC Score in late summer 2015 via the QualityNet Secure Portal.73 In 

order to have access to their hospital-specific reports, hospitals must register for a 

QualityNet Secure Portal account. We did not make any changes to the review and 

correction policies for FY 2016. Hospitals have a period of 30 days after the information 

is posted to the QualityNet Secure Portal to review and submit corrections for the 

calculation of their HAC Reduction Program measure scores, domain scores, and Total 

HAC Score for the fiscal year.

5. Proposed Changes for Implementation of the HAC Reduction Program for FY 2017

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50102), we finalized the 

following measures for use in the FY 2017 program: AHRQ PSI-90 Composite and CDC 

NHSN CLABSI, CAUTI, Colon and Abdominal Hysterectomy SSI, Methicillin-Resistant 

Staphylococcus aureus (MRSA) Bacteremia, and Clostridium difficile (CDI). We are not 

proposing any changes to this measure set for FY 2017. We also are not proposing to 

make any changes to the measures from how they were finalized for use in the FY 2016 

program (CAUTI, CLABSI, and Colon and Abdominal Hysterectomy SSI) or FY 2017 

program (MRSA Bacteremia and CDI).

For FY 2017, we are proposing three changes to existing program policies: 

(1) the dates of the time period used to calculate hospital performance; (2) the addition of 

a narrative rule used in the methodology to calculate the Domain 2 score; and (3) the 

 

73Available at: 

https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetBasic&ci

d=1228773343598.
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relative contribution of Domain 1 (patient safety) and Domain 2 (infection) to the Total 

HAC Score. Each proposal is described in more detail below.

a. Proposed Applicable Time Period for the FY 2017 HAC Reduction Program

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50717), we finalized and 

codified policy at 42 CFR 412.170 that provided that there will be a 2-year applicable 

time period to collect data used to calculate the Total HAC Score.

For FY 2017, we are proposing to continue similar 2-year time periods for the 

calculation of HAC Reduction Program measure results. For the Domain 1 measure 

(AHRQ PSI-90 Composite measure), we would use the 24-month period from July 1, 

2013 through June 30, 2015. The claims for all Medicare FFS beneficiaries discharged 

during this period would be included in the calculations of measure results for FY 2017. 

For the CDC NHSN measures previously finalized for use in the FY 2017 HAC 

Reduction Program (CLABSI, CAUTI, Colon and Abdominal Hysterectomy SSI, MRSA 

Bacteremia, and CDI), we would use data from CYs 2014 and 2015.

We are seeking public comment on the proposal to use these updated time periods 

for calculation of measure results for the FY 2017 program.

b. Proposed Narrative Rule Used in Calculation of the Domain 2 Score for the FY 2017 

HAC Reduction Program

We noted in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50723) that there 

will be instances in which applicable hospitals may not have data on all Domain 1 and 2 

measures, and, therefore, a set of narrative rules was finalized to determine how to score 

each Domain. The scoring rules were finalized in the FY 2014 IPPS/LTCH PPS final 
CMS-1632-P 766

rule (78 FR 50723 through 50725) and clarified in the FY 2015 IPPS/LTCH PPS final 

rule (79 FR 50096 through 50098). For FY 2017, we will follow the rules as previously 

finalized. As described below, we also are proposing an additional narrative rule for use 

beginning in the FY 2017 program year. This additional narrative rule would be 

applicable to calculation of the Domain 2 score and would treat each Domain 2 measure 

independently when determining if a score of 10 (maximal score) should be assigned to 

the measure for nonsubmission of data without a waiver (if applicable).

We note that the current narrative rules for Domain 2 assign a score for each 

Domain 2 measure and the measure scores are averaged to provide a Domain 2 Score. 

For the FY 2015 and FY 2016 HAC Reduction Program, if a hospital reports data for at 

least one of the Domain 2 measures, its Domain 2 Score is based solely on the measure(s) 

the hospital reported and the hospital is not assigned the maximum number of points for 

any nonreported measure(s). This approach was employed for the FY 2015 and 2016 

HAC Reduction Program because the applicable periods for the Domain 2 measures for 

those program years (the FY 2015 period was January 1, 2012 through 

December 31, 2013, and the FY 2016 period was January 1, 2013 through 

December 31, 2014) occurred, at least in part, prior to the announcement of the HAC 

Reduction Program with the publication of the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50707 through 50729) in August 2013. The proposed applicable period for 

Domain 2 measures in the FY 2017 program (CYs 2014 and 2015) occurs in its entirety 

after the HAC Reduction Program was announced. This means hospitals were notified of 

the impact that not reporting these data would have on their Total HAC Score before the 
CMS-1632-P 767

FY 2017 reporting period began (that is, before January 1, 2014). Therefore, we are 

proposing for FY 2017 and subsequent program years that each Domain 2 measure be 

treated independently when determining if a score of 10 (maximal score) should be 

assigned to the measure for nonsubmission of data without a waiver (if applicable). For 

instance, if a hospital does not submit data for the Colon and Abdominal Hysterectomy 

SSI measure and does not have a valid waiver for nonreporting, the measure would 

receive a score of 10. This score of 10 would then be combined with the measure scores 

the hospital received for data reported on the other FY 2017 Domain 2 measures 

(CLABSI and CAUTI) to calculate the hospital’s total Domain 2 score. The rationale for 

this proposed change in methodology is to encourage hospitals to submit all available 

data on all measures in the program and to further encourage hospitals to reduce all 

HACs included in the program.

We are inviting public comments on our proposal to implement the score 

calculations discussed above in FY 2017 and subsequent years, as well as our proposal 

for an additional narrative rule that would treat each Domain 2 measure independently 

when determining if a score of 10 (maximal score) should be assigned to the measure for 

nonsubmission of data without a waiver (if applicable).

c. Proposed Domain 1 and Domain 2 Weights for the FY 2017 HAC Reduction Program

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50102), we finalized for 

FY 2016 a methodology for calculating a Total HAC Score for each hospital by 

determining a score for each domain, then multiplying each domain score by a weight 

(Domain 1 – AHRQ Patient Safety Indicators, 25 percent; Domain 2 – CDC NHSN 
CMS-1632-P 768

measures, 75 percent), and adding together the weighted domain scores to determine the 

Total HAC Score (§ 412.172(e)(3)).

For FY 2017, we are proposing to adjust the weighting of Domains 1 and 2 so that 

the weight of Domain 1 would be 15 percent and the weight of Domain 2 would be 85 

percent. We are proposing to decrease the Domain 1 weight for two reasons. First, with 

the implementation of the CDC MRSA Bacteremia and CDI measures in the FY 2017 

program, we believe the weighting of both domains needs to be adjusted to reflect the 

addition of the fifth and sixth measure in Domain 2. Second, among the public 

comments on the FY 2014 and FY 2015 IPPS/LTCH PPS final rules that were 

considered, MedPAC and other stakeholders recommended that Domain 2 should be 

weighted more than Domain 1 because they believed the CDC NHSN chart-abstracted 

measures were more reliable and actionable than claims-based measures. We are inviting 

public comments on this proposal to decrease the Domain 1 weight from 25 percent to 15 

percent and increase the Domain 2 weight from 75 percent to 85 percent for FY 2017.

6. Proposed Measure Refinements for the FY 2018 HAC Reduction Program

a. Proposal to Include Select Ward (Non-Intensive Care Unit (ICU)) Locations in Certain 

CDC NHSN Measures Beginning in the FY 2018 Program Year

We are proposing measure refinements to the CDC NHSN CLABSI and CAUTI 

measures that were previously adopted for the HAC Reduction Program to include select 

ward (non-ICU) locations beginning in FY 2018. In the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50712 through 50719), we adopted the CLABSI and CAUTI measures 

inclusive of pediatric and adult patients in ICUs for the HAC Reduction Program 
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beginning with FY 2015. We noted at that time that the Hospital IQR Program finalized 

data collection for these measures for adult and pediatric patients in medical, surgical and 

medical/surgical wards (also referred to as select ward locations), in addition to ICU 

locations, effective beginning January 1, 2015, and that we would propose the additional 

locations for the HAC Reduction Program in the future.

The refined CAUTI and CLABSI measures that include select ward locations in 

addition to ICU locations were endorsed by the NQF in 2012. The MAP 2015 final 

recommendations indicated that the CLABSI and CAUTI measures with ICU and select 

ward locations be included in the HAC Reduction Program.74 We note that during the 

MAP Hospital Workgroup meeting (December 9-10, 2014) and the MAP Coordinating 

Committee meeting (January 26-27, 2015), some members discussed the benefit of 

reporting the modified measures publicly before including them in a payment program in 

order to allow providers and CMS to gain experience with the modified measures. Other 

members expressed concern that this could delay implementation of an improved 

measure75. The MAP supported the use of the refined measures without stipulating prior 

public reporting as a condition of support. However, we acknowledge the importance of 

this consideration and took it into account when considering the timing of implementing 

the expanded measure in the HAC Reduction Program.

We considered a number of options for when to begin using the refined measures 

in the HAC Reduction Program. The CDC NHSN measure data used in the HAC 

Reduction Program are obtained from data that hospitals report as part of their 

 

74Available at: http://www.qualityforum.org/map/.

75Ibid.
CMS-1632-P 770

participation in the Hospital IQR program. Therefore, due to the timing of the Hospital 

IQR Program including select ward locations (beginning January 1, 2015), the FY 2017 

HAC Reduction Program, using the applicable period of CYs 2014 and 2015 for the CDC 

NHSN measures, is the first time data from select ward locations could be included in the 

program. However, using select ward location data in the FY 2017 program would result 

in hospitals with ICU locations having the opportunity to contribute 2 years of data, while 

hospitals without ICU locations would have the opportunity to contribute 1 year of data 

for measure result calculation. We believe this systematically unequal distribution of 

data could introduce bias in the program and should be avoided. If the introduction of 

select ward location data for the CLABSI and CAUTI measures is delayed until the 

FY 2018 HAC Reduction Program (applicable period would likely be CYs 2015 and 

2016), all hospitals, regardless of whether or not they have ICUs, would have the 

opportunity to contribute 2 years of data for measure result calculations.

In addition, delaying implementation until FY 2018 would allow CMS and 

providers to gain some experience with the impact that the inclusion of these data would 

have on a hospital’s HAC Reduction Program scores. We also considered the possibility 

of further delaying implementation of the refined measures until the FY 2019 program 

(applicable period would likely be CYs 2016 and 2017) in order to not include the first 

year of reporting (CY 2015) in a payment program measure calculation.

After considering these three options, we are proposing to include data from 

pediatric and adult medical ward, surgical ward, and medical/surgical ward locations in 

addition to data from adult and pediatric ICU locations for the CDC NHSN CLABSI and 
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CAUTI measures beginning with the FY 2018 HAC Reduction Program. This option 

balances our belief that the refinement of the CLABSI and CAUTI measures to include 

select ward locations results in an improved measure that more accurately captures 

hospital-wide performance regarding these HACs with the need to provide hospitals with 

the opportunity to submit data for the full period of performance and the desire to gain 

experience with the refined measures before incorporating them into the HAC Reduction 

Program. We also believe this measure refinement will allow hospitals that do not have 

ICU locations to use the tools and resources of the NHSN for quality improvement and 

public reporting efforts (78 FR 50787).

We are inviting public comment on our proposal.

b. Update to CDC NHSN Measures Standard Population Data 

In this section, we provide information regarding upcoming changes to the 

standard population data that are used to calculate the SIR for the CDC NHSN measures. 

These changes are occurring as part of routine measure maintenance.

The CDC NHSN measures are used to monitor hospital performance on 

prevention of healthcare-associated infections (HAIs). For each NHSN measure, CDC 

calculates the SIR, which compares a hospital’s observed number of HAIs to the number 

of infections predicted for the hospital, adjusting for several risk factors.76 The predicted 

number of infections is determined using patient care location characteristics (for 

example, the number of central line days) and infection rates that occurred among a 

standard population during a specified time period (sometimes referred to by CDC as 

“national baseline” but referred to here as “standard population data”). For example, 

 

76Available at: http://www.cdc.gov/nhsn/PDFs/Newsletters/NHSN_NL_OCT_2010SE_final.pdf.
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CDC currently uses data collected in CY 2009 for the CAUTI measure to determine the 

standard population data.77 For more information about the method by which NHSN 

measures are calculated, we refer readers to QualityNet’s Web page on HAI measures, 

which may be found at: 

https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage

%2FQnetTier2&cid=1228760487021.

As part of routine measure maintenance, CDC will be updating the standard 

population data to ensure the NHSN measures’ number of predicted infections reflects 

the current state of HAIs in the United States. 78 Beginning January 1, 2015, CDC started 

collecting data to use in updating the standard population data for HAI measures. (The 

CY 2015 standard population data for HAI measures will hereinafter be referred to as 

“new standard population data.”) Measure results using infections reported in CY 2016 

will reflect the use of the new standard population data. It is anticipated that the new 

standard population data will affect the HAC Reduction Program beginning in FY 2018 

when the applicable period for the CDC NHSN measures included in the program is 

likely to include CY 2015 and CY 2016.

7. Maintenance of Technical Specifications for Quality Measures

Technical specifications for AHRQ’s PSI-90 Composite measure 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 HAI measures in Domain 2 can be found at CDC’s NHSN Web site 

 

77 Available at: http://www.cdc.gov/nhsn/pdfs/pscManual/7pscCAUTIcurrent.pdf; and

http://www.cdc.gov/HAI/surveillance/QA_stateSummary.html.

78Available at: http://www.cdc.gov/nhsn/PDFs/Newsletters/NHSN_NL_OCT_2010SE_final.pdf.
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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.

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50100), we described a policy 

under which we use a subregulatory process to make nonsubstantive updates to measures 

used for the HAC Reduction Program. We are not proposing any changes to this policy 

at this time.

8. Proposed Extraordinary Circumstance Exception Policy for the HAC Reduction 

Program Beginning in FY 2016 and for Subsequent Years

a. Background

In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28142), we welcomed 

public comment on whether a potential waiver or exception policy for hospitals located in 

areas that experience disasters or other extraordinary circumstances should be 

implemented, and the policy and operational considerations of such an extraordinary 

circumstance exception policy for the HAC Reduction Program. In the FY 2015 

IPPS/LTCH PPS final rule (79 FR 50101), we indicated that we received many 

comments in support of CMS establishing a formal extraordinary circumstance exception 

policy under the HAC Reduction Program. We also previously indicated that any 

specific proposals related to the implementation of an extraordinary circumstance 

exception policy would be proposed through notice-and-comment rulemaking. After 

further consideration of commenters’ support of CMS establishing an extraordinary 

circumstance exception policy for the HAC Reduction Program, we agree with 
CMS-1632-P 774

commenters that it may be possible for a hospital to experience a certain period of time 

during which it is not able to accurately collect quality measure data and/or to report 

those data in a timely manner due to an extraordinary circumstance beyond its control, 

and that a policy for taking into account such a circumstance should be proposed.

In developing this proposed extraordinary circumstance exception policy for the 

HAC Reduction Program beginning in FY 2016 and for subsequent years, we considered 

a policy and process similar to that for the Hospital IQR Program, as finalized in the 

FY 2012 IPPS/LTCH PPS final rule (76 FR 51651), modified by the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50836) (designation of a non-CEO hospital contact), 

and further modified in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50277) (amended 

§ 412.40(c)(2) to refer to “extension or exemption” instead of the former “extension or 

waiver”). We also considered how best to align an extraordinary circumstance exception 

policy for the HAC Reduction Program with existing extraordinary circumstance 

exception policies for other IPPS quality reporting and payment programs, such as the 

Hospital VBP Program, to the extent feasible.

We considered the feasibility and implications of excluding data for certain 

measures for a limited period of time from the calculations for a hospital’s measure 

results or Total HAC score for the applicable performance period. By minimizing the 

data excluded from the program, the proposed policy would enable affected hospitals to 

continue to participate in the HAC Reduction Program for a given fiscal year if they 

otherwise continue to meet applicable measure minimum threshold requirements. We 

believe that this approach could help alleviate the reporting burden for a hospital that is 
CMS-1632-P 775

adversely impacted by a natural disaster or other extraordinary circumstance beyond its 

control, while enabling the hospital to continue to participate in the HAC Reduction 

Program.

b. Requests for an Extraordinary Circumstance Exception

Based upon our prior experience with the Hospital IQR Program and the Hospital 

VBP Program, we anticipate the need to provide exceptions to only a small number of 

hospitals affected by a natural disaster or other extraordinary circumstance. During the 

review of a hospital’s request for an extraordinary circumstance exception, we will 

maintain the general principle that providing high quality of care and ensuring patient 

safety is of paramount importance. We do not intend to allow a hospital to use this 

proposed policy and the request process to seek exclusion from the HAC Reduction 

Program in its entirety for a given fiscal year(s) solely because of experiencing an 

extraordinary circumstance. Rather, we intend to provide relief for a hospital whose 

ability to accurately collect quality measure data and/or to report those data in a timely 

manner has been negatively impacted as a direct result of experiencing a significant 

disaster or other extraordinary circumstance beyond the control of the hospital. Section 

1886(p)(4) of the Act permits the Secretary to determine the “applicable period” for HAC 

data collection, and we believe that the statute allows us to determine that the period not 

include times when hospitals may encounter extraordinary circumstances.

We are proposing that the request process for an extraordinary circumstance 

exception begin with the submission of an extraordinary circumstance exception request 

form by a hospital within 90 calendar days of the natural disaster or other extraordinary 
CMS-1632-P 776

circumstance. We believe that the 90-calendar day timeframe is an appropriate period of 

time for a hospital to determine whether to submit an extraordinary circumstance 

exception request. It is also the same length of time as the current time period allowed 

under the Hospital VBP Program. Under this proposed policy, a hospital would be able 

to request a HAC Reduction Program extraordinary circumstance exception at the same 

time it may request a similar exception under the Hospital IQR Program, the Hospital 

VBP Program, and the Hospital Readmissions Reduction Program (if an extraordinary 

circumstance exception policy is adopted for the Hospital Readmissions Reduction 

Program as described in section IV.E.9. of the preamble of this proposed rule). The 

extraordinary circumstance exception request form would be made available on the 

QualityNet Web site (https://www.qualitynet.org/).

The following minimum set of information would be required to submit the 

request:

● Hospital CCN;

● Hospital name;

● Hospital Chief Executive Officer (CEO) and any other designated personnel 

contact information, including name, email address, telephone number, and mailing 

address (must include a physical address; a post office box address is not acceptable);

● Hospital’s reason for requesting an exception, including:

++ CMS program name (for example, the HAC Reduction Program, the Hospital 

VBP Program, or the Hospital IQR Program);
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++ The measure(s) and submission quarters affected by the extraordinary 

circumstance that the hospital is seeking an exception for should be accompanied with 

the specific reasons why the exception is being sought; and

++ How the extraordinary circumstance negatively impacted performance on the 

measure(s) for which an exception is being sought;

● Evidence of the impact of the extraordinary circumstances, including but not 

limited to, photographs, newspaper, and other media articles; and

● The request form must be signed by the hospital’s CEO or designated 

non-CEO contact and submitted to CMS.

The same set of information is currently required under the Hospital IQR Program 

and the Hospital VBP Program on the request form from a hospital seeking an 

extraordinary circumstance exception with respect to these programs. The specific list of 

required information would be subject to change from time to time at the discretion of 

CMS.

Following receipt of the request form, CMS would: (1) provide a written 

acknowledgement of receipt of the request using the contact information provided in the 

request form to the CEO and any additional designated hospital personnel; and 

(2) provide a formal response to the CEO and any additional designated hospital 

personnel using the contact information provided in the request notifying them of the 

CMS decision. Under the proposed policy, we would review each request for an 

extraordinary circumstance exception on a case-by-case basis at CMS’ discretion. To the 

extent feasible, we also would review such a request in conjunction with any similar 
CMS-1632-P 778

requests made under other IPPS quality reporting and payment programs, such as the 

Hospital IQR Program and the Hospital VBP Program.

The proposed policy would not preclude CMS from granting extraordinary 

circumstance exceptions to hospitals that do not request them if we determine at our 

discretion that a disaster or other extraordinary circumstance has affected an entire region 

or locale. If CMS makes such a determination to grant an extraordinary circumstance 

exception to hospitals in an affected region or locale, we would convey this decision 

through routine communication channels to hospitals, vendors, and QIOs, including, but 

not limited, to issuing memos, emails, and notices on the QualityNet Web site at: 

https://www.qualitynet.org/. This provision also would align with the Hospital IQR 

Program’s extraordinary circumstances extension or exemption policy, as set forth in the 

FY 2012 IPPS/LTCH PPS final rule (76 FR 51651).

We are inviting public comment on this proposal.
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H. Proposed Elimination of the Simplified Cost Allocation Methodology for Hospitals 

(§412.302)

1. Background

The Medicare hospital cost report employs a cost-finding methodology to allocate 

direct and indirect costs using statistics appropriate to each department within a hospital. 

The costs of nonrevenue-producing cost centers (general service or overhead cost 

centers) are allocated to each other and to the revenue-producing cost centers using 

statistical bases and related statistics that measure the amount of service furnished by 

each cost center to the other cost centers (42 CFR 413.24(b) and (d)). In this regard, 

cost-finding is the process of recasting the data derived from the accounts ordinarily kept 

by a provider to ascertain costs of the various types of services furnished 

(42 CFR 413.24(b)(1)).

In the FY 1997 IPPS final rule (61 FR 46214 through 46215), CMS implemented 

the simplified cost allocation methodology at 42 CFR 412.302(d)(4) for hospitals as an 

alternative to the standard cost-finding methodology. The simplified cost allocation 

methodology reduces the number of statistical bases that a hospital must maintain. Under 

the simplified cost allocation methodology, a hospital must use a prescribed list of 

statistical bases, without deviation, as set forth in the Provider Reimbursement Manual 

(PRM) (CMS Pub. 15-2), Section 4020, Form CMS-2552. The simplified cost allocation 

methodology was devised in response to concerns expressed by the hospital industry over 

20 years ago regarding the high costs of the recordkeeping required under the cost 

reporting rules. Since implementation of the simplified cost allocation methodology, 
CMS-1632-P 780

there have been advances in technology of recordkeeping for hospitals, resulting in less 

arduous and costly recordkeeping and a diminished need for hospitals to use the 

simplified cost allocation methodology. It was expected that, although use of the 

simplified cost allocation methodology by hospitals would result in reduced 

recordkeeping costs, it also would likely result in reduced Medicare payments to 

hospitals.

In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 50080), we 

created standard cost centers for Magnetic Resonance Imaging (MRI) and computed 

tomography (CT) scans, and required that hospitals report the costs and charges for these 

services under new cost centers on the Medicare cost report Form CMS-2552-10. The 

new standard cost centers for MRIs and CT scans were effective for cost reporting 

periods beginning on or after May 1, 2010.

Beginning in FY 2014, we started to calculate the MS-DRG relative weights 

using 19 CCRs, including distinct CCRs for MRIs and CT scans. In addition, beginning 

in the CY 2014 OPPS, we started to calculate the OPPS relative payment weights using 

distinct CCRs for MRIs and CT scans. Some stakeholders expressed concern that CMS 

was not appropriately determining the cost of advanced imaging for inpatient and 

outpatient hospital services because, when the costs of hospitals that use the simplified 

cost allocation methodology are included in cost determinations, less precise CCRs are 

generated. In response to public comments on the FY 2014 IPPS/LTCH PPS proposed 

rule (78 FR 27486) and the CY 2014 OPPS/ASC proposed rule (78 FR 43547), in the 

FY 2014 IPPS/LTCH PPS final rule (78 FR 50521 through 50523) and in the CY 2014 
CMS-1632-P 781

OPPS/ASC final rule with comment period (78 FR 74843 through 74847), we 

encouraged hospitals to use the statistical basis of “dollar value” for the costs of 

capital-related movable equipment, especially for costly MRI and CT imaging 

equipment, to support a more precise cost allocation and, therefore, more precise CCRs. 

However, a hospital that may have obtained an approval from a MAC under section 2313 

of CMS Pub. 15-1 to use the simplified cost allocation methodology was restricted by the 

prescribed statistical basis of “square footage” for costs of capital-related movable 

equipment. In those instances, we recommended that hospitals use the statistical basis of 

the dollar value or use the “Direct Assignment of General Service Cost” method by

requesting MAC approval in accordance with section 2307 of CMS Pub. 15-1.

In this proposed rule, we are proposing to eliminate the simplified cost allocation 

methodology because, as discussed above, the allocation of the costs of capital-related 

movable equipment using this methodology yields less precise calculated CCRs. 

Currently, less than 1 percent of hospitals have elected to use the simplified cost 

allocation methodology. Based on FY 2013 data, only 9 of 1,269 CAHs and 23 of 4,389 

hospitals other than CAHs used the simplified cost allocation methodology. 

Furthermore, we believe that advances in technology have reduced the cost of 

recordkeeping, which has allowed hospitals to maintain accurate statistical data and 

afforded them the flexibility to change to a more precise allocation methodology.

2. Proposed Changes

The regulations applicable to the election of the simplified cost allocation 

methodology are located in 42 CFR 412.302. For the reasons set forth in section IV.H.1. 
CMS-1632-P 782

of the preamble of this proposed rule, we are proposing to amend § 412.302 by revising 

paragraph (d)(4) to eliminate a hospital’s ability to elect the simplified cost allocation 

methodology under the terms and conditions provided in the instructions for CMS 

Form 2552 for cost reporting periods beginning on or after October 1, 2015.

I. Rural Community Hospital Demonstration Program

1. Background

Section 410A(a) of Pub. L. 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 Pub. L. 108-173 specified that the Secretary was to select 

for participation no more than 15 rural community hospitals in rural areas of States that 
CMS-1632-P 783

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 
CMS-1632-P 784

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 Pub. L. 108-173, changing 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, to begin 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 period, unless the hospital makes an election to discontinue participation.

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. Further, the Secretary is required to use the same 

criteria and data that the Secretary used to determine the States for 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.
CMS-1632-P 785

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 Pub. L. 108-173 required that, in conducting 

the demonstration program under this section, the Secretary must 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. 
CMS-1632-P 786

This requirement is commonly referred to as “budget neutrality.” Generally, when we 

implement a demonstration program on a budget neutral basis, the demonstration 

program is budget neutral in its own terms; in other words, the aggregate payments to the 

participating hospitals do not exceed the amount that would be paid to those same 

hospitals in the absence of the demonstration program. Typically, this form of budget 

neutrality is viable when, by changing payments or aligning incentives to improve overall 

efficiency, or both, a demonstration program may reduce the use of some services or 

eliminate the need for others, resulting in reduced expenditures for the demonstration 

program’s participants. These reduced expenditures offset increased payments elsewhere 

under the demonstration program, thus ensuring that the demonstration program as a 

whole is budget neutral or yields savings. However, the small scale of this demonstration 

program, in conjunction with the payment methodology, makes it extremely unlikely that 

this demonstration program could be viable under the usual form of budget neutrality.

Specifically, cost-based payments to participating small rural hospitals are likely 

to increase Medicare outlays without producing any offsetting reduction in Medicare 

expenditures elsewhere. Therefore, a rural community hospital’s participation in this 

demonstration program is unlikely to yield benefits to the participant if budget neutrality 

were to be implemented by reducing other payments for these same hospitals.

In the past 11 IPPS final rules, 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 
CMS-1632-P 787

across the participants in the demonstration program. As we discussed in the FYs 2005 

through 2015 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, 78 FR 50740, and 

79 FR 50141, 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 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 also was applied. For the budget 

neutrality calculations in the IPPS final rules for FYs 2005 through 2011, the annual 
CMS-1632-P 788

volume adjustment applied was 2 percent; for the IPPS final rules for FYs 2012, 2013, 

2014, and 2015, 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 Pub. L. 108-173. The 

reasonable cost-based methodology authorized by section 410A of Pub. L. 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 
CMS-1632-P 789

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 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 finalized cost reports became available 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 
CMS-1632-P 790

in an effort to further improve and refine the methodology. We noted that the revised 

methodology varied, in part, from the methodology finalized in the FY 2012 IPPS/LTCH 

PPS final rule (76 FR 51698 through 51705). 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 made changes to certain 

aspects of the budget neutrality offset amount calculation for FY 2013, several core 

components of the methodology remained unchanged. For example, we continued to 

include in the budget neutrality offset amount the estimate of the demonstration costs for 

the upcoming fiscal year and the amount by which the actual demonstration costs 

corresponding to an earlier 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.

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 
CMS-1632-P 791

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).

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50141 through 50145), we 

stated the methodology for determining the budget neutrality adjustment factor to be 

applied to the FY 2015 national IPPS payment rates as follows.

Step 1: For each of the participating hospitals, we identified 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). Because “as submitted” cost reports 

ending in CY 2012 were the most recent available cost reports, we believe they were an 

accurate predictor of the costs of the demonstration in FY 2015.

Because section 410A of Pub. L. 108-173 stipulates swing-bed services are to be 

included among the covered inpatient hospital services for which the demonstration 

payment methodology applies, we included 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 used “as submitted” cost reports for the 

hospital’s cost reporting period ending in CY 2012 for this calculation.

We summed 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.
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We multiplied 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. We then multiplied 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 was the general total 

estimated FY 2015 reasonable cost amount for covered inpatient hospital services for all 

participating hospitals.

We used 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 was used because it is intended to reflect the tendency of hospitals’ inpatient 

caseloads to increase. Because inpatient caseloads for small hospitals may fluctuate, we 

incorporated 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 identified 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 had not 

been implemented. Similarly, as in Step 1, for the hospitals that provide swing-bed 
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services, we identified the estimated amount that generally would otherwise be paid for 

these services and included it in the total FY 2012 general estimated amount that would 

otherwise be paid for covered inpatient hospital services without the demonstration. We 

summed these two amounts 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 multiplied 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. This methodology differs from Step 1, in which we 

applied 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. Then we multiplied the product of 

the estimated FY 2012 total payments that generally would otherwise be made without 

the demonstration and the IPPS applicable percentage increases for the years involved by 

a 3-percent annual volume adjustment for FYs 2013 through 2015. The result 
CMS-1632-P 794

represented 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 subtracted 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). For the 

FY 2015 IPPS/LTCH PPS final rule, the resulting difference was $54,177,144 

(79 FR 50145). This estimated amount was based on the specific assumptions identified 

regarding the data sources used, that is, “as submitted” recently available cost reports.

Also, in the FY 2015 IPPS/LTCH PPS final rule, we 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. This amount, calculated for the FY 2015 final rule, was $10,389,771 

(79 FR 50145).

Therefore, the total budget neutrality offset amount applied to the FY 2015 IPPS 

rates was $64,566,915. This was the sum of two separate components: (1) the difference 

between the total estimated FY 2015 reasonable cost amount to be paid under the 
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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 ($54,177,144); 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).

2. Proposed FY 2016 Budget Neutrality Offset Amount

In this FY 2016 IPPS/LTCH PPS proposed rule, in general, we are proposing to 

use the established methodology used in FY 2015 (as discussed earlier), with some 

modifications as discussed below, for determining the budget neutrality offset amount to 

be applied to the FY 2016 national IPPS rates to reflect the costs of the demonstration. 

We are proposing to use “as submitted” cost reports ending in CY 2013 as the basis for 

estimating the reasonable cost amounts for covered services under the demonstration, as 

well as the amounts that would be paid absent the demonstration. As in previous years’ 

rules, we believe that because these are the most recent available cost reports, they will 

be an accurate predictor of these amounts.

Although the proposed methodology for FY 2016 is similar to that for the past 

several rules, we note that the demonstration will have begun to phase out by the 

beginning of FY 2016, and because of this, we believe additional calculations would be 

appropriate. The 7 “originally participating hospitals,” that is, those hospitals that began 

the demonstration between 2005 and 2009, will have ended their participation in the 
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5-year extension period authorized by the Affordable Care Act prior to the start of 

FY 2016. Therefore, we are proposing that the financial experience of these hospitals 

would not factor into the estimated reasonable cost amount and the estimated amounts 

that would otherwise be paid without the demonstration for FY 2016.

The participation period for the 15 hospitals that entered the demonstration 

following upon the Affordable Care Act amendments and that are still participating in the 

demonstration will end on a rolling basis according to the end dates of the hospitals’ cost 

report periods, respectively, from April 30, 2016, through December 31, 2016. As 

further discussed below, our proposed methodology for estimating the reasonable cost 

amounts for covered inpatient hospital services under the demonstration, as well as the 

amounts that would otherwise be paid without the demonstration, would reflect the fact 

that some of the hospitals within this cohort will participate in the demonstration for only 

a fraction of the 12 months in FY 2016. Eleven of these 15 hospitals are scheduled to 

end the demonstration on or before September 30, 2016; eight of these 11 hospitals are 

scheduled to end the demonstration prior to September 30, 2016.

For each of these 8 hospitals, we are proposing that the FY 2016 estimated 

reasonable cost amount and the estimated amount that would otherwise be paid without 

the demonstration derived from the “as submitted” cost reports for cost reporting periods 

ending in CY 2013 be prorated according to the ratio of the number of months between 

October 1, 2015 and the end of the hospital’s cost reporting period in relation to the entire 

12-month period. (For example, if a hospital’s cost reporting period end date is 

June 30, 2016, the factor to be multiplied by the estimated reasonable cost amount and 
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the estimated amount that would otherwise be paid without the demonstration from the 

calendar year end 2013 cost report is 0.75.) For the 7 hospitals that would end the 

demonstration on either September 30, 2016 or December 31, 2016, estimates of these 

amounts would correspond to the amounts indicated in the calendar year end 2013 cost 

reports.

We note that the 7 hospitals that started the demonstration between FYs 2005 and 

2009 also will have ended their participation on a rolling basis during FY 2015. In the 

FY 2015 IPPS/LTCH PPS final rule, in accordance with the policy we finalized in the 

FY 2015 IPPS/LTCH PPS final rule, we based the estimate of the cost of the 

demonstration for FY 2015 on the financial experience as indicated on these hospitals’ 

CY 2012 “as submitted” cost reports (as discussed earlier) without making any 

adjustment to reflect the fact that hospitals would be ending at different points during 

FY 2015. We believe this methodology was reasonable because only 5 hospitals are 

ending their participation in the demonstration before September 30, 2015, out of the 22 

hospitals on which the estimate of the cost of the demonstration for that year was based. 

Furthermore, as discussed previously, the methodology stated in this and previous rules 

for determining the costs of the demonstration in a given fiscal year entails the 

comparison of the actual costs of the demonstration as determined from finalized cost 

reports for that fiscal year (when they are available) to the estimated amount identified 

for that fiscal year in the corresponding fiscal year’s final rule. Consistent with this 

policy, this second step will be used to reconcile any differences between the estimated

and actual demonstration costs for FY 2015 once finalized cost reports for cost reporting 
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periods beginning in FY 2015 are available. Although we believe that our methodology 

for estimating costs for FY 2015 was reasonable, for FY 2016, we are proposing a more 

refined methodology to estimate the costs of the demonstration; that is, one that entails 

prorating, as discussed above, the estimated reasonable cost amount and the estimated 

amounts that would otherwise be paid without the demonstration as indicated on the “as 

submitted” cost reports for cost reporting periods ending in CY 2013 based on the 

number of months that each hospital will have participated in the demonstration during 

FY 2016.

Similar to previous years, we are proposing the methodology for calculating the 

budget neutrality offset amount to proceed in several steps, as follows.

Step 1: For each of the 15 hospitals that will be participating in the demonstration 

during FY 2016, we are proposing to identify the general reasonable cost amount

calculated under the reasonable cost methodology for covered inpatient hospital services 

for the period of participation during FY 2016 based on “as submitted” cost reports 

ending in CY 2013. As discussed above, we are proposing that the basis of this estimate 

for each hospital scheduled to participate for part of FY 2016 would be the fraction of the 

number of months that the hospital will be participating out of the 12 months within 

FY 2016 multiplied by the reasonable cost amount for covered inpatient hospital services 

indicated on the “as submitted” cost report ending in CY 2013.

Given that 8 hospitals will be participating in the demonstration for part of 

FY 2016, we believe that such a methodology of prorating represents an appropriate 

refinement to the methodology established in previous rules for estimating the reasonable 
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cost amount paid under the demonstration because each hospital’s relevant cost 

experience, respectively, which this estimated amount reflects, would apply for the 

specific number of months for which it is participating in the demonstration in FY 2016. 

We believe that applying the relevant fraction, representing the number of months that 

the hospital will have participated during FY 2016 out of the 12 months in the fiscal year, 

will lead to more precise estimates.

Because section 410A of Pub. L. 108-173 stipulates that 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 “as submitted” cost reports ending in CY 2013 for the hospitals that 

provided swing-bed services in CY 2013, similarly prorated by the fraction of the number 

of months that the hospital will be participating out of the total number of months within 

FY 2016.

Similar to the methodology applied in FY 2015, we are proposing to sum the two 

above-referenced amounts to calculate the general total estimated FY 2013 reasonable 

cost amount for covered inpatient hospital services for all participating hospitals. Next, 

we are proposing to multiply the derived sum by the FY 2014, FY 2015, and FY 2016 

IPPS market basket percentage increases, which are formulated by the CMS Office of the 

Actuary. For this proposed rule, the current estimate of the FY 2016 IPPS market basket 

percentage increase provided by the CMS Office of the Actuary is specified in section 

IV.A. of the preamble of this proposed rule. We are proposing to use the final FY 2016 

IPPS market basket percentage increase in the final rule. We are proposing to multiply 
CMS-1632-P 800

this product of the prorated reasonable cost amount for all 15 hospitals (based on 

CY 2013 “as submitted” cost reports) and the market basket percentage increases 

applicable to the years involved by a 3-percent annual volume adjustment for FYs 2014, 

2015, and 2016. The result is the proposed total estimated FY 2016 reasonable cost 

amount for covered inpatient hospital services for all hospitals participating in FY 2016.

We are proposing to apply the IPPS market basket percentage increases 

applicable for FYs 2014 through 2016 to the reasonable cost amount derived from 

CY 2013 cost reports described earlier to model the estimated FY 2016 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 involved. The 3-percent annual volume adjustment was stipulated by the 

CMS Office of the Actuary and is being used because it is intended to reflect the 

tendency of hospitals’ inpatient caseloads to increase. Because inpatient caseloads for 

small hospitals may fluctuate, we 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 15 hospitals that will be participating in FY 2016, we are 

proposing to identify the general estimated amount that would otherwise be paid in 

FY 2016 under applicable payment methodologies for covered inpatient hospital services 

(as indicated on the “as submitted” cost report for cost reporting periods ending in 

CY 2013) if the demonstration was not implemented. Similar to Step 1, we are proposing 
CMS-1632-P 801

that the basis of this estimate for each hospital participating for part of FY 2016 would be 

the fraction of the number of months that the hospital will be participating out of the 12 

months within FY 2016 multiplied by the estimated amount that would otherwise be paid 

for these services as indicated on the “as submitted” cost report ending in CY 2013. We 

believe that such a methodology of prorating represents an appropriate refinement to the 

methodology established in previous rules for estimating the amount that otherwise 

would be paid without the demonstration because each hospital’s relevant costs and 

claims experiences, respectively, which this estimated amount reflects, would apply for 

the specific number of months for which it is participating in the demonstration in 

FY 2016. As we stated in Step 1, we believe that applying the relevant fraction, 

representing the number of months that the hospital will have participated during 

FY 2016 out of the 12 months in the fiscal year, will lead to more precise estimates.

Similarly, as in Step 1, for the hospitals that provide swing-bed services, we are 

proposing to include the amount that would otherwise be paid for these services without 

the demonstration, as reported on the “as submitted” cost reports ending in CY 2013 for 

the hospitals that provided swing-bed services in CY 2013. We are proposing to prorate, 

as appropriate, the estimated amount that would otherwise be paid for these services (as 

indicated on the “as submitted” cost report for cost reporting periods ending in CY 2013) 

by the fraction of the number of months that the hospital will be participating in FY 2016 

out of the total number of months within FY 2016, and include this amount in the total 

FY 2013 general estimated amount that would otherwise be paid for covered inpatient 

hospital services without the demonstration.
CMS-1632-P 802

Similar to the methodology applied in FY 2015, we are proposing to sum these 

two amounts and multiply the derived sum by the FYs 2014, 2015, and 2016 IPPS 

applicable percentage increases. For this proposed rule, the current estimate of the 

FY 2016 IPPS applicable percentage increase is specified in section IV.A. of the 

preamble of this proposed rule. (We are proposing to use the final FY 2016 applicable 

percentage increase in the final rule.) This methodology differs from Step 1, in which we 

are proposing to apply the IPPS market basket percentage increases to the sum of the 

hospitals’ general total FY 2013 estimated reasonable cost amount for covered inpatient 

hospital services. We believe that the IPPS applicable percentage increases are 

appropriate update factors to estimate the amounts that would generally 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. We are proposing then to multiply this product by a 3-percent annual 

volume adjustment for FYs 2014, 2015, and 2016. The result represents the proposed 

general total estimated FY 2016 amount that would otherwise be paid for covered 

inpatient hospital services without the demonstration to the hospitals that would be 

participating in FY 2016.

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 2016 if the demonstration had not 

been implemented) from the amount derived in Step 1 (representing the sum of the 
CMS-1632-P 803

estimated reasonable cost amount that generally would be paid under the demonstration 

to all participating hospitals for covered inpatient hospital services for FY 2016). We are 

proposing that the resulting difference would represent 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 $26,195,949. This estimated 

amount is based on the specific assumptions identified regarding the data sources used, 

that is, “as submitted” recently available cost reports. If updated data become available 

prior to the FY 2016 IPPS/LTCH PPS final rule, we would use them to the extent 

appropriate to estimate the costs for the demonstration program in FY 2016. Therefore, 

the estimated budget neutrality offset amount may change in the final rule, depending on 

the availability of updated data.

Step 4: 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) differs 

from the budget neutrality offset amount finalized in the corresponding year’s IPPS final 

rule. (In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50145), we calculated the 

amount by which the actual costs of the demonstration in FY 2008 exceeded the budget 

neutrality offset amount that was finalized in the FY 2008 IPPS final rule. The 

corresponding differences for FYs 2005, 2006, and 2007 were identified and included in 

the budget neutrality offset amounts in previous years’ IPPS final rules.) Currently, 

finalized cost reports for cost reporting periods beginning in FY 2009 are available for 
CMS-1632-P 804

the 10 hospitals that completed a cost report period starting in FY 2009. These cost 

reports have been issued by the MACs as finalized, and they have been subject to review 

processes specific to the calculations for cost-based payment as determined by the 

payment methodology for the demonstration. We note that CMS has issued a notice of 

reopening for several of these cost reports pertaining to an issue that affects hospitals 

nationwide. However, it is not yet known if, or to what extent, the calculations for 

budget neutrality under the demonstration would be affected in the event of a reopening 

of these cost reports. Until such a determination is made, we believe that it would be 

appropriate to use these cost reports this year for our calculations under Step 4 for 

FY 2016 in order to take into account the actual costs of the demonstration for FY 2009 

as soon as possible and to enhance the accuracy of the budget neutrality offset 

calculation.

Therefore, in this proposed rule, we are identifying the difference between the 

total cost of the demonstration as indicated on these finalized FY 2009 cost reports and 

the budget neutrality offset amount that was identified in the FY 2009 IPPS final rule, 

and we are proposing to adjust the current year’s budget neutrality offset amount by that 

difference. If there is a reopening that necessitates a recalculation for any of these 

reports, we would conduct another calculation once the affected cost reports are revised 

and finalized to determine the difference between the cost of the demonstration as 

reflected on the revised and finalized cost reports and the amount that was included in the 

budget neutrality offset amount for FY 2009 as identified in the FY 2009 IPPS final rule 

(taking into account any amount already included in the finalized budget neutrality offset 
CMS-1632-P 805

amount in the FY 2016 IPPS/LTCH PPS final rule that reflects an adjustment based on 

FY 2009 cost reports). If finalized cost reports for demonstration hospitals that 

participated in FY 2010 or FY 2011 are available prior to the FY 2016 IPPS/LTCH PPS 

final rule, we intend to adjust the budget neutrality offset amount for FY 2016 for any 

amounts by which the finalized costs of the demonstration for the year (FY 2010 or 

FY 2011) differ from the amounts included in the budget neutrality offset amount as 

finalized in the respective year’s IPPS final rule that indicate the estimated cost of the 

demonstration for that fiscal year.

As further discussed below, we note that, for this proposed rule, Step 4 would 

result in the amount indicating the actual cost of the demonstration for FY 2009 

(determined from the current finalized FY 2009 cost reports described in Step 4) being 

less than the amount that was originally identified in the FY 2009 IPPS final rule as the 

estimated cost of the demonstration. Therefore, we are proposing to include that 

component as a negative adjustment to the budget neutrality offset amount for the current 

fiscal year (as explained below).

Step 5: The total budget neutrality offset amount that we are proposing to apply 

in determining the budget neutrality adjustment to the FY 2016 IPPS rates would use the 

sum of the amounts derived in Steps 3 and 4. Each of these amounts represents a discrete 

calculation, reflecting the two-stage process of ensuring budget neutrality for the 

demonstration: (1) estimating the costs of the demonstration prospectively for the 

upcoming fiscal year from historical “as submitted” cost reports (Step 3), and (2) then 
CMS-1632-P 806

retrospectively reconciling the difference between this estimate for a prior fiscal year and 

the actual costs as recorded on finalized cost reports for the specific fiscal year (Step 4).

Therefore, for this FY 2016 LTCH/LTCH PPS proposed rule, we are proposing to 

incorporate the following components into the calculation of the total budget neutrality 

offset:

(a) The amount, derived from Step 3, representing the difference between the 

sum of the estimated reasonable cost amounts that would be paid under the demonstration 

to participating hospitals for covered inpatient hospital services for FY 2016 and the sum 

of the estimated amounts that would generally be paid if the demonstration had not been 

implemented. This amount would be based on “as submitted” cost reports for cost 

reporting periods ending in CY 2013, and would be prorated according to the number of 

months that each hospital will have participated in the demonstration in FY 2016 out of 

the 12-month fiscal year period. This amount is $26,195,949.

(b) The amount, as derived from Step 4, by which the actual costs of the 

demonstration for FY 2009 (as shown in the finalized cost reports for the 10 hospitals 

that completed a cost reporting period beginning in FY 2009) differ from the budget 

neutrality offset amount that was finalized in the FY 2009 IPPS final rule. Analysis of 

this set of cost reports shows that the budget neutrality offset amount that was finalized in 

the FY 2009 IPPS final rule exceeds the actual cost of the demonstration by $8,457,452.

For FY 2016, the total budget neutrality offset amount that we are proposing to 

apply is: the amount determined under item (a) of Step 5 ($26,195,949) minus the 

amount determined under item (b) of Step 5 ($8,457,452) or $17,738,497. We are 
CMS-1632-P 807

proposing to subtract the amount under item (b) from that under item (a) because the 

amount under item (b) represents the amount by which the budget neutrality offset 

finalized in the FY 2009 IPPS final rule exceeded the actual costs of the demonstration 

for FY 2009. Accordingly, we are proposing to reduce the budget neutrality offset 

amount for FY 2016 by that amount.

If updated data become available prior to the FY 2016 IPPS/LTCH PPS final rule, 

we would use them to the extent appropriate to determine the budget neutrality offset 

amount for FY 2016. Therefore, the amount of the budget neutrality offset may change 

in the FY 2016 IPPS/LTCH PPS final rule based on the availability of updated data. In 

addition, similar to previous years, we are proposing that if finalized cost reports for all 

of the demonstration hospitals that participated in an applicable year (FY 2010 or 

FY 2011) are available prior to the FY 2016 IPPS/LTCH PPS final rule, we would adjust 

the budget neutrality offset amount to reflect the difference between the actual cost of the 

demonstration for the year (FY 2010 or FY 2011) and the budget neutrality offset amount 

applicable to such year as finalized in the respective year’s final rule, as explained in 

Step 4. The resulting total would be the amount for which an adjustment to the national 

IPPS rates would be made.

We are inviting public comments on our proposals discussed above.

Finally, we are considering whether to propose in future rulemaking that the 

calculation of the final costs of the demonstration for a fiscal year reflect that some of the 

participating hospitals would otherwise have been eligible for the payment adjustment for 

low-volume hospitals in that fiscal year if they had not participated in the demonstration. 
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Our policy under the demonstration is that hospitals participating in the demonstration are 

not able to receive the low-volume payment adjustment in addition to the reasonable 

cost-based payment authorized by section 410A of Pub. L. 108-173. We refer readers to 

CMS Change Request 7505, dated July 22, 2011, available on the CMS Web site at: 

http://www.cms.gov. Section 1886(d)(12) of the Act provides for a payment adjustment 

to account for the higher costs per discharge for low-volume hospitals under the IPPS, 

effective FY 2005 (69 FR 49099 through 49102). We note that sections 3125 and 10314 

of the Affordable Care Act provided for temporary changes in the qualifying criteria and 

payment adjustment for low-volume hospitals for FYs 2011 and 2012, which were

further extended by subsequent legislation through March 31, 2015 (79 FR 49998 

through 50001). These temporary changes increased the number of hospitals that are 

eligible to receive the low-volume hospital payment adjustment.

To the extent a hospital would have received a low-volume hospital payment 

adjustment if it had not participated in the demonstration, we believe it would be 

reasonable to take this into account in future rulemaking in determining what the hospital 

would have otherwise been paid in an applicable year without the demonstration. 

Because this payment adjustment has not been factored into the estimation of payments 

that otherwise would have been paid under the demonstration, such a proposal would 

require detailed consideration of the data sources and methodology that would be used to 

determine which among the demonstration hospitals would have otherwise been eligible 

for the low-volume payment adjustment and to estimate the amount of the adjustment. 

We are inviting public comments on this issue.
CMS-1632-P 809

J. 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 § 412.4(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 

MS-DRG payment by the geometric mean length of stay for the MS-DRG. Based on an 

analysis that showed that the first day of hospitalization is the most expensive 

(60 FR 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 also are 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 1 day.
CMS-1632-P 810

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 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 
CMS-1632-P 811

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 severity level group will qualify under the MS-DRG special payment 

methodology 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 two proposed new 

MS-DRGs that we are proposing to include on the list of MS-DRGs subject to the 

postacute care transfer policy. As we discuss in section II.G. of the preamble of this 

proposed rule, in response to public comments and based on our analysis of FY 2014 

MedPAR claims data, we are proposing to make changes to MS-DRGs, effective for 

FY 2016.

As discussed in section II.G.3.b. of the preamble of this proposed rule, we are 

proposing to modify the MS-DRG assignment of certain cardiovascular procedures 

currently assigned to MS-DRGs 246 (Percutaneous Cardiovascular Procedures with 

Drug-Eluting Stent with MCC or 4+ Vessels/Stents), 247 (Percutaneous Cardiovascular 

Procedures with Drug-Eluting Stent without MCC), 248 (Percutaneous Cardiovascular 

Procedures with Non-Drug Eluting Stent with MCC or 4+ Vessels/Stents), 249 

(Percutaneous Cardiovascular Procedures with Non-Drug Eluting Stent without MCC), 

250 (Percutaneous Cardiovascular Procedures without Coronary Artery Stent with MCC), 

and 251 (Percutaneous Cardiovascular Procedures without Coronary Artery Stent without 

MCC) to improve the clinical homogeneity of these MS-DRGs and reflect the resource 
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cost of specialized equipment. We are proposing to create new MS-DRGs 273 and 274 

(Percutaneous Intracardiac Procedures with and without MCC, respectively) and to 

reassign the procedures performed within the heart chambers using intracardiac 

techniques from their current assignment in MS-DRGs 246 through 251 to the two 

proposed new MS-DRGs.

To improve clinical coherence for the various cardiovascular procedures currently 

assigned to MS-DRGs 237 and 238 (Major Cardiovascular Procedures with and without 

MCC, respectively), as discussed in section II.G.3.e. of the preamble of this proposed 

rule, we also are proposing to delete MS-DRGs 237 and 238 and to create five new 

proposed MS-DRGs: Proposed new MS DRGs 268 and 269 (Aortic and Heart Assist 

Procedures Except Pulsation Balloon with MCC and without MCC, respectively) would 

contain the more complex, more invasive aortic and heart assist procedures currently 

assigned to MS-DRGs 237 and 238. Proposed new MS-DRGs 270 (Other Major 

Cardiovascular Procedures with MCC), 271 (Other Major Cardiovascular Procedures 

with CC), and 272 (Other Major Cardiovascular Procedures without CC/MCC) would 

include the less complex, less invasive cardiovascular procedures currently assigned to 

MS-DRGs 237 and 238.

In light of these proposed changes to the MS-DRGs for FY 2016 ̧ according to the 

regulations under § 412.4(c), we evaluated these proposed MS-DRGs against the general 

postacute care transfer policy criteria using the FY 2014 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 
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continue to believe it is appropriate to reassess MS-DRGs when proposing reassignment 

of procedures and/or diagnostic codes that would result in material changes to an 

MS-DRG. As a result of our review, 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 273 and 274. Existing MS-DRGs 246 through 251 do not currently qualify 

for the postacute care transfer policy and would not meet the review criteria for FY 2016. 

Proposed new MS-DRGs 268 through 272 also would not qualify for postacute care 

transfer policy status.
CMS-1632-P 814

PROPOSED LIST OF MS-DRGs SUBJECT TO REVIEW OF POSTACUTE CARE 

TRANSFER POLICY STATUS FOR FY 2016

Proposed 

New 

MS-DRG Proposed MS-DRG Title

Total 

Cases

Postacute 

Care 

Transfers 

(55th

percentile: 

1,395)

ShortStay 

Postacute 

Care 

Transfers

Percent of 

Short-Stay 

Postacute 

Care 

Transfers 

to all 

Cases (55th

percentile: 

7.8005%)

Postacute 

Care 

Transfer 

Policy 

Status

268

Aortic and Heart Assist 

Procedures Except Pulsation 

Balloon with MCC

4,464 2,178 268 6.0036%* NO

269

Aortic and Heart Assist 

Procedures Except Pulsation 

Balloon without MCC

19,382 3,617 0 0%* NO

270 Other Major Cardiovascular 

Procedures with MCC

15,141 5,964 719 4.7487%* NO

271 Other Major Cardiovascular 

Procedures with CC

10,368 4,027 532 5.1312%* NO

272 Other Major Cardiovascular 

Procedures without CC/MCC

4,785 880* 54 1.1285%* NO

273 Percutaneous Intracardiac 

Procedures with MCC

6,602 2,654 646 9.7849% YES

274 Percutaneous Intracardiac 

Procedures without MCC

15,812 2,445 140 0.8854%* 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 proposed new MS-DRGs 273 and 274 also 

would meet the criteria for the special payment methodology. Therefore, we are 

proposing that the two proposed new MS-DRGs would be subject to the MS-DRG 

special payment methodology, effective FY 2016.

PROPOSED LIST OF MS-DRGs SUBJECT TO REVIEW OF SPECIAL 

PAYMENT POLICY FOR FY 2016
CMS-1632-P 815

Proposed 

New 

MS-DRG Proposed MS-DRG Title

Geometric 

Mean 

Length of 

Stay

Average 

Charges of 

1-Day 

Discharges

50 

Percent 

of 

Average 

Charges 

for all 

Cases 

within 

MS-DRG

Special 

Payment 

Policy 

Status

273

Percutaneous Intracardiac 

Procedures with MCC 6.0 $67,126 $60,588 YES

274 Percutaneous Intracardiac 

Procedures without MCC 2.7 $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 MS-DRG special payment policy if any one of the MS-DRGs that share that same 

base MS-DRG qualifies.

The proposed postacute care transfer status and special payment policy status of 

these MS-DRGs are reflected in Table 5 associated with this proposed rule, which is 

listed in section VI. of the Addendum to this proposed rule and available via the Internet 

on the CMS Web site.

K. Short Inpatient Hospital Stays

Over the past few years, stakeholders have expressed a variety of concerns related 

to Medicare policies on short inpatient hospital stays, long outpatient stays that include 

observation services, and Medicare policies with respect to when payment for short 

hospital stays is appropriate under Medicare Part A. CMS has taken steps to address such 

concerns. As we announced on April 1, 2015, CMS recovery auditors are not permitted 

to conduct patient status reviews for claims with dates of admission of October 1, 2013 

through April 30, 2015.

In addition, on December 30, 2014, we announced a number of changes to the 

Recovery Audit Program. Such modifications included changing the recovery auditor 

“look-back period” for patient status reviews to 6 months from the date of service in 
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cases where a hospital submits the claim within 3 months of the date that it provides the 

service. Several other program improvements were included in this announcement. We 

have established limits on additional documentation requests (ADRs) that are based on a 

hospital’s compliance with Medicare rules, incrementally applied ADR limits for 

providers that are new to recovery auditor reviews, and diversified ADR limits across all 

types of claims for a certain provider. We also have established a requirement that 

recovery auditors must complete complex reviews within 30 days, and failure to do so 

will result in the loss of the recovery auditor’s contingency fee. In addition, we will 

require recovery auditors to wait 30 days before sending a claim to the MAC for 

adjustment. This 30-day period will allow the provider to submit a discussion period 

request before the MAC makes any payment adjustments. These changes will be 

effective with the next Recovery Audit Program contract awards.

Despite these planned alterations to the Recovery Audit Program, we note that 

hospitals and physicians continue to voice their concern with parts of the 2-midnight rule 

finalized in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50943 through 50954). 

Therefore, we are considering this feedback carefully, as well as recent MedPAC 

recommendations, and expect to include a further discussion of the broader set of issues 

related to short inpatient hospital stays, long outpatient stays with observation services, 

and the related -0.2 percent IPPS payment adjustment in the CY 2016 hospital outpatient 

prospective payment system proposed rule that will be published this summer.
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V. Proposed Changes to the IPPS for Capital-Related Costs

A. Overview

Section 1886(g) of the Act requires the Secretary to pay for the capital-related 

costs of inpatient acute hospital services “in accordance with a prospective payment

system established by the Secretary.” Under the statute, the Secretary has broad authority 

in establishing and implementing the IPPS for acute care hospital inpatient capital-related 

costs. The IPPS for capital-related costs was initially implemented in the Federal fiscal 

year (FY) 1992 IPPS final rule (56 FR 43358), in which we established a 10-year 

transition period to change the payment methodology for Medicare hospital inpatient 

capital-related costs from a reasonable cost-based methodology to a prospective 

methodology (based fully on the Federal rate).

FY 2001 was the last year of the 10-year transition period established to phase in 

the IPPS for hospital inpatient capital-related costs. For cost reporting periods beginning 

in FY 2002, capital IPPS payments are based solely on the Federal rate for almost all 

acute care hospitals (other than hospitals receiving certain exception payments and 

certain new hospitals). (We refer readers to the FY 2002 IPPS final rule (66 FR 39910 

through 39914) for additional information on the methodology used to 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:
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(Standard Federal Rate) x (DRG Weight) x (Geographic Adjustment Factor 

(GAF)) x (COLA for hospitals located in Alaska and Hawaii) x (1 + Capital DSH 

Adjustment Factor + Capital IME Adjustment Factor, if applicable).

In addition, under § 412.312(c), hospitals also may receive outlier payments under 

the capital IPPS for extraordinarily high-cost cases that qualify under the thresholds 

established for each fiscal year.

B. Additional Provisions

1. Exception Payments

The regulations at § 412.348 provide for certain exception payments under the 

capital IPPS. The regular exception payments provided under § 412.348(b) through (e) 

were available only during the 10-year transition period. For a certain period after the 

transition period, eligible hospitals may have received additional payments under the 

special exceptions provisions at § 412.348(g). However, FY 2012 was the final year 

hospitals could receive special exceptions payments. For additional details regarding 

these exceptions policies, we refer readers to the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51725).

Under § 412.348(f), a hospital may request an additional payment if the hospital 

incurs unanticipated capital expenditures in excess of $5 million due to extraordinary 

circumstances beyond the hospital’s control. Additional information on the exception 

payment for extraordinary circumstances in § 412.348(f) can be found in the FY 2005 

IPPS final rule (69 FR 49185 and 49186).
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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 capital-related costs. In general, hospitals located in Puerto Rico are paid 

a blend of the applicable capital IPPS Puerto Rico rate and the applicable capital IPPS 

Federal rate. Capital IPPS payments to hospitals located in Puerto Rico are computed 

based on a blend of 25 percent of the capital IPPS Puerto Rico rate and 75 percent of the 

capital IPPS Federal rate. For additional details on capital IPPS payments to hospitals 

located in Puerto Rico, we refer readers to the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51725).
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C. Proposed Annual Update for FY 2016

The proposed annual update to the capital PPS Federal and Puerto 

Rico-specific rates, as provided for at § 412.308(c), for FY 2016 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 2016 in accordance with the amendments made to section 7(b)(1)(B) of 

Pub. L. 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 the Puerto Rico-specific 

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 

Pub. L. 110-90.
CMS-1632-P 821

VI. Proposed Changes for Hospitals Excluded from the IPPS

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 Medicare reimbursement for 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-of-increase limits established under § 413.40 of the 

regulations discussed above.

As explained in the FY 2006 IPPS final rule (70 FR 47396 through 47398), 

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. As we finalized in the 
CMS-1632-P 822

FY 2015 IPPS/LTCH PPS final rule (79 FR 50156 through 50157), we will continue to 

use the percentage increase in the FY 2010-based IPPS operating market basket to update 

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 for FY 2016 and subsequent fiscal years. Accordingly, for 

FY 2016, the rate-of-increase 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 is the FY 2016 percentage increase in the FY 2010-based IPPS operating market 

basket.

For this FY 2016 proposed rule, based on IHS Global Insight, Inc.’s 2015 first 

quarter forecast, we estimate that the FY 2010-based IPPS operating market basket 

update for FY 2016 is 2.7 percent (that is, the estimate of the market basket rate-ofincrease). Therefore, the FY 2016 rate-of-increase percentage that would be applied to 

the FY 2015 target amounts in order to calculate the FY 2016 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 is 2.7 percent, in accordance with the applicable regulations at 42 CFR 413.40. 

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 2016.
CMS-1632-P 823

VII. Proposed Changes to the Long-Term Care Hospital Prospective Payment 

System (LTCH PPS) for FY 2016

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.
CMS-1632-P 824

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 
CMS-1632-P 825

for acute care hospitals authorized by the Social Security Amendments of 1983 

(Pub. L. 98-21), which added section 1886(d) to the Act, certain hospitals, including 

LTCHs, were excluded from the PPS for acute care hospitals and were paid their 

reasonable costs for inpatient services subject to a per discharge limitation or target 

amount under the TEFRA system. For each cost reporting period, a hospital-specific 

ceiling on payments was determined by multiplying the hospital's updated target amount 

by the number of total current year Medicare discharges. (Generally, in this 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 
CMS-1632-P 826

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, and the Protecting Access to Medicare Act of 2014 (PAMA) 

(Pub. L. 113-97), enacted on March 27, 2014, both of which affect the LTCH PPS. In 

section VII.B. of the preamble of this proposed rule, we discuss our proposals to 

implement the provisions of section 1206(a) of Pub. L. 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 beginning 

with FY 2016, and our proposed changes to the calculation of the greater than 25-day 

average length of stay criteria, consistent with the statute, in section VII.F. of the 

preamble of this proposed rule. In section VII.E. of the preamble of this proposed rule, 

we are proposing technical clarifications relating to our implementation of the new 

statutory moratoria on the establishment of new LTCHs and LTCH satellite facilities 
CMS-1632-P 827

(subject to certain defined exceptions) and the new statutory moratorium on bed increases 

in existing LTCHs under section 1206(b)(2) of Pub. L. 113-67, as amended.

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.
CMS-1632-P 828

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-of-increase test at section 1814(b) of the Act).

● Nonparticipating hospitals furnishing emergency services to Medicare 

beneficiaries.

3. Limitation on Charges to Beneficiaries

In the August 30, 2002 final rule, we presented an in-depth discussion of 

beneficiary liability under the LTCH PPS (67 FR 55974 through 55975). This discussion 

was further clarified in the RY 2005 LTCH PPS final rule (69 FR 25676). In keeping 

with those discussions, if the Medicare payment to the LTCH is the full LTC-DRG 

payment amount, consistent with other established hospital prospective payment systems, 

§ 412.507 currently provides that an 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 
CMS-1632-P 829

LTCH PPS, Medicare will only pay for days for which the beneficiary has coverage until 

the short-stay outlier (SSO) threshold is exceeded. If the Medicare payment was for a 

SSO case (§ 412.529), and that payment was less than the full LTC-DRG payment 

amount because the beneficiary had insufficient remaining Medicare days, the LTCH is 

currently also permitted to charge the beneficiary for services delivered on those 

uncovered days (§ 412.507). In light of our proposed implementation of section 1206(a) 

of Pub. L. 113-67, we now need to also address beneficiary charges in the context of the 

new site neutral payment rate. Therefore, in section VII.B.7.c. of the preamble of this 

proposed rule, we are proposing to amend the existing regulations relating to the 

limitation on charges to address beneficiary charges under this new LTCH PPS payment 

rate.

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 
CMS-1632-P 830

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 (HHS) 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. The HIT Policy Committee (a Federal Advisory 

Committee) has recommended areas in which HIT certification under the ONC HIT 

Certification Program would help support providers that are eligible for the Medicare and 

Medicaid EHR Incentive Programs, such as long-term care and postacute care hospitals 

and behavioral health care providers. 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 
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partners and during transitions of care, and could enable the reporting of electronically 

specified clinical quality measures (eCQMs) (as described elsewhere in this proposed 

rule). More information on the ONC HIT Certification Program and efforts to develop 

standards applicable to LTCHs can be found by accessing the following Web sites and 

resources:

• http://www.healthit.gov/sites/default/files/generalcertexchangeguidance_final_9-9-

13.pdf;

• http://www.healthit.gov/facas/FACAS/health-it-policy-committee/hitpcworkgroups/certificationadoption;

• http://wiki.siframework.org/LCC+LTPAC+Care+Transition+SWG; and

• http://wiki.siframework.org/Longitudinal+Coordination+of+Care.

B. Proposed Application of the Site Neutral Payment Rate (Proposed New § 412.522)

1. Overview

Section 1206 of Pub. L. 113-67 mandates significant changes to the payment 

system for LTCHs beginning with LTCH discharges occurring in cost reporting periods 

beginning on or after October 1, 2015. Under the current LTCH PPS, all discharges are 

paid under the LTCH PPS standard Federal payment rate (that is, payments calculated 

under the existing regulations, including adjustments, in Subpart O of 42 CFR Part 412). 

Section 1206 requires the establishment of an alternate “site neutral” payment rate for 

Medicare inpatient discharges from an LTCH that fail to meet certain statutorily defined 

criteria. Discharges that meet the criteria will continue to be paid the LTCH PPS 

standard Federal payment rate. Discharges that do not meet the statutory criteria will be 

paid at a new site neutral payment rate, as described below. We note that, for the 
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remainder of this section, the phrase “LTCH PPS standard Federal payment rate case” 

refers to a LTCH PPS case that meets the criteria for exclusion from the site neutral 

payment rate under section 1886(m)(6)(A)(ii) of the Act as discussed in section VII.B.3. 

of the preamble of this proposed rule, and the phrase “site neutral payment rate case” 

refers to a LTCH PPS case that does not meet the statutory patient-level criteria and, 

therefore, will be paid the applicable site neutral payment rate in accordance with section 

1886(m)(6)(A)(i) of the Act, as discussed in section VII.B.4. of the preamble of this 

proposed rule.

Under section 1886(m)(6)(A) of the Act as added by section 1206(a) of 

Pub. L. 113-67, beginning in cost reporting periods starting on or after October 1, 2015, 

all LTCH discharges are paid according to the site neutral payment rate unless certain 

criteria are met. For LTCH cases that meet the criteria for exclusion, the site neutral 

payment rate does not apply and payment will be made without regard to the provisions 

of section 1886(m)(6) of the Act. For cases that meet the criteria for exclusion from the 

site neutral payment rate, payment will continue to be based on the LTCH PPS standard 

Federal payment rate as determined in § 412.523. As discussed in section VII.B.3. of the 

preamble of this proposed rule, under section 1886(m)(6)(A)(ii) of the Act, the criteria 

for exclusion from the site neutral payment rate are: (1) the discharge from the LTCH 

does not have a principal diagnosis relating to a psychiatric diagnosis or to rehabilitation; 

(2) admission to the LTCH was immediately preceded by discharge from a subsection (d) 

hospital; and (3) the immediately preceding stay in a subsection (d) hospital included at 

least 3 days in an intensive care unit (ICU) (referred to in this proposed rule as the ICU 
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criterion) or the discharge from the LTCH is assigned to a MS-LTC-DRG based on the 

patient’s receipt of ventilator services of at least 96 hours (referred to in this proposed 

rule as the ventilator criterion).

In this section of the proposed rule, we discuss our proposals to implement the 

required changes to the LTCH PPS payment rate, as well as other related policy 

proposals in accordance with section 1206(a) of Pub. L. 113-67 under the broad authority 

of section 123(a)(1) of the BBRA, as amended by section 307(b) of the BIPA.

2. Proposed Application of the Site Neutral Payment Rate under the LTCH PPS

For FY 2016, we are proposing to add a new section to the regulations under 

42 CFR Part 412 Subpart O (proposed new § 412.522) to establish the site neutral 

payment rate required by section 1886(m)(6) of the Act as added by section 1206(a)(1) of 

Pub. L. 113-67. Specifically, section 1886(m)(6) of the Act requires that, beginning in 

cost reporting periods occurring on or after October 1, 2015, all LTCH discharges will be 

paid under the site neutral payment rate unless certain criteria are met. All LTCH 

discharges that meet the criteria for exclusion from the site neutral payment rate will 

continue to be paid the LTCH PPS standard Federal payment rate. Accordingly, in this 

proposed rule, under the broad authority of section 123(a)(1) of the BBRA, as amended 

by section 307(b) of the BIPA and in accordance with section 1206(a) of Pub. L. 113-67, 

we are proposing to implement the statutory criteria for excluding cases from the site 

neutral payment rate under proposed new § 412.522(b), as well as establish the 

requirements for determining the site neutral payment rate for a given LTCH discharge 

under proposed new § 412.522(c). In addition, we are proposing to make conforming 
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changes to paragraph (a)(2) of § 412.521 to include the new site neutral payment rate 

established in accordance with proposed new § 412.522 as a method of payment under 

the LTCH PPS. We also are proposing a technical change to the language in 

§ 412.521(a)(2) that currently refers to the Federal payment rate by changing the term 

from “Federal payment rate” to “standard Federal payment rate” in order to provide 

consistent terminology when referring to such a payment.

3. Criteria for Exclusion from the Site Neutral Payment Rate

a. Statutory Provisions

As stated earlier, section 1206(a) of Pub. L. 113-67 amended section 1886(m) of 

the Act by adding paragraph (6), which specifies that beginning in cost reporting periods 

starting on or after October 1, 2015, all LTCH PPS discharges are paid according to the 

site neutral payment rate unless certain criteria are met. In general, under section 

1886(m)(6)(A)(ii) of the Act, the criteria for exclusion from the site neutral payment rate 

are: the discharge from the LTCH does not have a principal diagnosis relating to a 

psychiatric diagnosis or to rehabilitation; admission to the LTCH was immediately 

preceded by discharge from a subsection (d) hospital; and the immediately preceding stay 

in a subsection (d) hospital included at least 3 days in an intensive care unit (ICU) 

(referred to in this proposed rule as the ICU criterion) or the discharge from the LTCH is 

assigned to an MS-LTC-DRG based on the patient’s receipt of ventilator services of at 

least 96 hours (referred to in this proposed rule as the ventilator criterion). Below we 

present our proposals to implement the statutory criteria for exclusion from the site 

neutral payment rate under sections 1886(m)(6)(A)(ii)(I) and (II) of the Act.
CMS-1632-P 835

b. Proposed Implementation of the Criterion for a Principal Diagnosis Relating to a 

Psychiatric Diagnosis or to Rehabilitation

Section 1886(m)(6)(A)(ii)(II) of the Act specifies that in order for an LTCH 

discharge to be excluded from payment under the site neutral payment rate, the LTCH 

discharge cannot have a principal diagnosis relating to a psychiatric diagnosis or to 

rehabilitation. To implement this criterion, under the broad authority of section 123(a)(1) 

of the BBRA, as amended by section 307(b) of the BIPA and in accordance with section 

1206(a) of Pub. L. 113-67, we are proposing to identify cases with a principal diagnosis 

relating to a psychiatric diagnosis or to rehabilitation using specific MS-LTC-DRGs that 

we believe indicate such principal diagnoses. We are inviting public comments on our 

proposal to identify these cases using specific MS-LTC-DRGs that we believe indicate 

such principal diagnoses, including the specific MS-LTC-DRGs presented under this 

proposed approach.

As discussed in section VII.C.2. of the preamble of this proposed rule, the 

MS-LTC-DRG patient classifications are, by extension, the same as the MS-DRG patient 

classifications used under the IPPS. The process of developing the MS-DRGs, and by 

extension the MS-LTC-DRGs, began by dividing all possible principal diagnoses into 

mutually exclusive principal diagnosis areas, referred to as Major Diagnostic Categories 

(MDCs). In general, a case is assigned to an MDC based on the patient’s principal 

diagnosis before the case is assigned to an MS-DRG. Once the MDCs were defined, 

each MDC was evaluated to identify which patient characteristics would be expected to 

result in similar hospital resource consumption. Because the presence of a surgical 
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procedure that required the use of the operating room would have a significant effect on 

the type of hospital resources used to treat a patient, most MDCs were initially divided 

into surgical DRGs and medical DRGs. Some surgical and medical DRGs were further 

differentiated based on the presence or absence of a complication or comorbidity (CC) or 

a major complication or comorbidity (MCC). (For additional information and details on 

the development of the MS-DRG classifications, we refer readers to the FY 2010 

IPPS/LTCH PPS final rule (74 FR 43764 through 43765).)

As such, Medicare LTCH discharges are classified into MS-LTC-DRGs based 

primarily on the patient’s principal diagnosis, as well as up to 24 additional diagnoses, 

and up to 25 procedures performed during the LTCH stay. Within a small number of 

MS-LTC-DRGs, classification is also based on the patient’s age, sex, and discharge 

status. The diagnosis and procedure information is currently reported by the hospital 

using codes from the ICD–9–CM coding system. For FY 2015, the MS-DRGs 

Version 32 are being used under the IPPS and the MS-LTC-DRGs Version 32 are being 

used under the LTCH PPS, which are based on ICD-9-CM codes. However, hospitals are 

required to use the ICD-10-CM/PCS coding system beginning October 1, 2015. As 

discussed in section II.G.1.a. of the preamble of this proposed rule, the anticipated 

transition to ICD-10 necessitated the development of an ICD-10-CM/PCS version of the 

MS-DRGs. To this end, CMS undertook a variety of activities, including a project to 

convert the ICD-9-based MS-DRGs to ICD-10 MS-DRGs using the General Equivalence 

Mappings (GEMs). The GEMs provide a map between ICD–9–CM and ICD–10 codes 

(78 FR 50549). For additional details on the various efforts taken by CMS in preparation 
CMS-1632-P 837

for the transition from ICD-9-CM to ICD-10-CM/PCS, we refer readers to section II.G.1. 

of the preamble of this proposed rule or the CMS Web site at: 

http://www.cms.gov/Medicare/Coding/ICD10/index.html.

For FY 2016, we are proposing to use the ICD-10 MS-DRGs Version 33 under 

the IPPS and the ICD-10 MS-LTC-DRGs Version 33 under the LTCH PPS. Specifically, 

as discussed in section II.G.1.b. of the preamble of this proposed rule, we are proposing 

the ICD-10 MS-DRGs Version 33 as the replacement logic for the ICD-9-based 

MS-DRGs Version 32 as part of the proposed MS-DRG updates (and by extension the 

MS-LTC-DRG updates, as discussed in section VII.C.2. of the preamble of this proposed 

rule) for FY 2016. We are inviting public comments on how well the ICD-10 MS-DRGs 

Version 32 (and by extension MS-LTC-DRGs Version 32) replicates the logic of the 

MS-DRGs Version 32 (and by extension MS-LTC-DRGs Version 32) based on 

ICD-9-CM codes. In addition, we are inviting public comments on the translations from 

ICD-9-CM to ICD-10-CM/PCS with regard to our proposal to identify LTCH discharges 

with a principal diagnosis relating to a psychiatric diagnosis or to rehabilitation using 

specific ICD-10 MS-LTC-DRGs that we believe indicate such principal diagnoses, 

particularly the validity of the specific MS-LTC-DRGs listed under this proposed 

approach discussed below in this section. (We note that, for the remainder of the section, 

when we refer to MS-DRGs Version 33 (or by extension MS-LTC-DRGs), we are 

referring to the ICD-10-based MS-DRGs Version 33 (and by extension MS-LTC-DRGs), 

unless otherwise stated. Similarly, when we refer to MS-DRGs Version 32 (or by 
CMS-1632-P 838

extension MS-LTC-DRGs), we are referring to the ICD-9-based MS-DRGs Version 32 

(and by extension MS-LTC-DRGs), unless otherwise stated.)

In this proposed rule, we are proposing under proposed new § 412.522(b)(1)(i) to 

identify LTCH discharges with principal diagnoses relating to a psychiatric diagnosis or 

to rehabilitation based on the MS-LTC-DRG assignment in accordance with § 412.513 of 

the regulations. In developing this proposal, we began by examining which ICD-9-CM 

diagnosis codes appropriately identify a principal diagnosis related to a psychiatric 

diagnosis or to rehabilitation. Next, we determined which MS-DRGs (and by extension, 

MS-LTC-DRGs) those ICD-9-based diagnosis codes grouped to using Version 32 of the 

ICD-9-CM MS-DRG Definitions Manual, which shows the valid principal diagnoses for 

each MDC and the MS-DRG assignment for each of those principal diagnoses. We 

believe that the resulting list of MS-LTC-DRGs Version 32 are indicative of an LTCH 

discharge with a principal diagnosis relating to a psychiatric diagnosis or to rehabilitation 

because the classification of a Medicare discharge into a MS-LTC-DRG is predominantly 

based on the patient’s principal diagnosis.

As stated above and as discussed in greater detail in section II.G.1. of the 

preamble of this proposed rule, in preparation for the implementation of ICD-10, we have 

developed ICD-10-based MS-LTC-DRGs. Under the ICD-10 MS-DRGs Version 32 

(and by extension the ICD-10 MS-LTC-DRGs Version 32), the same list of ICD-10 

MS-LTC-DRGs are indicative of an LTCH discharge with a principal diagnosis relating 

to a psychiatric diagnosis or to rehabilitation. As stated earlier in this section, for 

FY 2016, we are proposing to use the ICD-10 MS DRGs Version 33 under the IPPS and 
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the ICD-10 MS-LTC-DRGs Version 33 under the LTCH PPS. Therefore, for FY 2016, 

we are proposing that an LTCH discharge assigned to one of the following proposed 

ICD-10 MS-LTC-DRGs Version 33 would identify a case with a principal diagnosis 

relating to a psychiatric diagnosis:

● MS-LTC-DRG 876 (O.R. Procedure with Principal Diagnosis of Mental 

Illness);

● MS-LTC-DRG 880 (Acute Adjustment Reaction & Psychosocial Dysfunction);

● MS-LTC-DRG 881 (Depressive Neuroses);

● MS-LTC-DRG 882 (Neuroses except Depressive);

● MS-LTC-DRG 883 (Disorders of Personality & Impulse Control);

● MS-LTC-DRG 884 (Organic Disturbances & Mental Retardation);

● MS-LTC-DRG 885 (Psychoses);

● MS-LTC-DRG 886 (Behavioral & Developmental Disorders);

● MS-LTC-DRG 887 (Other Mental Disorder Diagnoses);

● MS-LTC-DRG 894 (Alcohol/Drug Abuse or Dependence, Left Ama);

● MS-LTC-DRG 895 (Alcohol/Drug Abuse or Dependence, with Rehabilitation 

Therapy);

● MS-LTC-DRG 896 (Alcohol/Drug Abuse or Dependence, without 

Rehabilitation Therapy with MCC); and

● MS-LTC-DRG 897 (Alcohol/Drug Abuse or Dependence, without 

Rehabilitation Therapy without MCC).
CMS-1632-P 840

We also are proposing that, for FY 2016, an LTCH discharge assigned to one of 

the following proposed ICD-10 MS-LTC-DRGs Version 33 would identify an LTCH 

discharge with a principal diagnosis relating to rehabilitation:

● MS-LTC-DRG 945 (Rehabilitation with CC/MCC); and

● MS-LTC-DRG 946 (Rehabilitation without CC/MCC).

Under these proposals, for FY 2016, an LTCH discharge grouped to any of the 

proposed MS-LTC-DRGs listed above would not meet the criteria under proposed new 

§ 412.522(b)(1)(i) to be excluded from the site neutral payment rate.

c. Proposed Addition of Definition of a “Subsection (d) Hospital” to LTCH Regulations

The site neutral payment rate established in section 1206(a) of Pub. L. 113-67 

includes several references to “subsection (d) hospitals.” The term “subsection (d) 

hospital” is defined in section 1886(d)(1)(B) of the Act and generally means a hospital 

located in 1 of the 50 States or the District of Columbia other than a psychiatric hospital, 

a rehabilitation hospital, a children’s hospital, an LTCH, or a cancer hospital. Section 

1886(m)(6)(D) of the Act, as added by section 1206(a)(1) of Pub. L. 113-67, also 

specifies that any reference in that paragraph to a “subsection (d) hospital” is deemed to 

include a “subsection (d) Puerto Rico hospital.” Section 1886(d)(9)(A) of the Act states 

that, as used in that section, the term “subsection (d) Puerto Rico hospital” means a 

hospital that is located in Puerto Rico and that would be considered a subsection (d) 

hospital (as defined in paragraph (d)(1)(B)) if it were located in 1 of the 50 States.

As part of our proposed implementation of section 1206(a) of Pub. L. 113-67, and 

under the broad authority under section 123(a)(1) of the BBRA, as amended by section 
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307(b) of the BIPA, we are proposing to add a definition of the term “subsection (d) 

hospital” under § 412.503 that would be applicable to the LTCH regulations under 

proposed new § 412.522. Specifically, we are proposing to define a “subsection (d) 

hospital” under § 412.503, for purposes of proposed new § 412.522, as a hospital defined 

in section 1886(d)(1)(B) of the Act, and includes any hospital that is located in Puerto 

Rico that would be defined as a subsection (d) hospital as defined in section 

1886(d)(1)(B) of the Act if it were located in 1 of the 50 States. We believe that this 

proposed definition is consistent with definitions used in the statute, and would provide 

additional clarity in the proposed regulations presented in this proposed rule to implement 

the site neutral payment rate policies required by section 1206(a) of Pub. L. 113-67.

d. Proposed Interpretation of “Immediately Preceded” by a Subsection (d) Hospital 

Discharge

Section 1886(m)(6)(A)(ii)(II) of the Act specifies that, in order to be excluded 

from payment under the site neutral payment rate, the LTCH discharge must meet the 

ICU criterion at section 1866(m)(6)(A)(iii) of the Act or the ventilator criterion at section 

1866(m)(6)(A)(iv) of the Act, which are discussed in greater detail below. Both the ICU 

criterion and the ventilator criterion require that the LTCH admission be immediately 

preceded by a discharge from a subsection (d) hospital.

For purposes of the ICU criterion and the ventilator criterion at sections 

1866(m)(6)(A)(iii) and (iv) of the Act, under the broad authority under section 123(a)(1) 

of the BBRA, as amended by section 307(b) of the BIPA, we are proposing that the 

phrase “immediately preceded” by a discharge from a subsection (d) hospital means a 
CMS-1632-P 842

Medicare patient is discharge from the subsection (d) hospital immediately prior to the 

patient’s admission to an LTCH. A Medicare patient discharge from the subsection (d) 

hospital to any other setting, including home, an IRF, an IPF, or a SNF would not be 

considered to be “immediately preceded” by a discharge from a subsection (d) hospital, 

nor fulfill the ICU criterion or the ventilator criterion in order to qualify for exclusion 

from the site neutral payment rate. We believe that this proposed policy, which would be 

codified at new proposed § 412.522(b)(1)(ii), would appropriately identify an LTCH 

admission that was immediately preceded by a discharge from a subsection (d) hospital. 

Under this proposal, we are proposing to determine an applicable Medicare patient 

discharge from a subsection (d) hospital (as defined at proposed § 412.503) by using the 

subsection (d) hospital’s discharge date on the Medicare claim and the LTCH admission 

date on the Medicare claim for the LTCH’s discharge. We also are proposing, for 

purposes of evaluation of the exclusion from the site neutral payment rate, that the 

discharge from a subsection (d) hospital must use Patient Discharge Status Code 63, 

which signifies a patient was discharged or transferred to an LTCH, or Patient Discharge 

Status Code 91, which signifies a patient was discharged/transferred to a 

Medicare-certified LTCH with a planned acute care hospital inpatient readmission on 

hospital claims submitted for the LTCH’s discharge to be eligible for exclusion from the 

site neutral payment rate. We are proposing that a Medicare patient discharge that 

occurred on the same date as the LTCH admission (or, in certain rare circumstances, that 

occurred the date before the date of the LTCH admission) that has a patient discharge 

status code on the subsection (d) hospital claim that indicates discharge or transfer to an 
CMS-1632-P 843

LTCH would fulfill the immediately preceded portion of the requirements to be excluded 

from the site neutral payment rate. Under this proposal, discharges from subsection 

(d) hospitals reporting a patient discharge status code other than 63 or 91 on the 

hospital’s claim could not serve as a basis for a discharge meeting the immediately 

preceded by a subsection (d) hospital discharge requirement for exclusion from the site 

neutral payment rate. We believe that it is appropriate to include discharges from a 

subsection (d) hospital that occur on the date before the date of the LTCH admission (that 

is, essentially within 1 calendar day of the LTCH admission) under our proposed 

interpretation of the term “immediately preceded” in order to account for those rare 

circumstances where a patient is discharged from a subsection (d) hospital before the 

midnight census, but was not admitted to the LTCH until after the midnight census of that 

date of discharge. As we expect that the vast majority of LTCH admissions would occur 

on the same date as the discharge from the subsection (d) hospital, and only in rare 

instances would the LTCH admission occur on the date after the discharge date from the 

subsection (d) hospital, increased frequency in LTCH admissions on the date after the 

IPPS discharge date would raise concerns that could merit further scrutiny.

We note that this proposed interpretation of “immediately preceded” by a 

subsection (d) hospital would work in tandem with our existing interrupted stay policy at 

§ 412.531. Although we are not proposing to make any changes to our existing 

interrupted stay policy, we are making reference to it only to illustrate the consistency 

between our proposed policy and our existing program policies. The interrupted stay 

policy is a payment adjustment that was included under the LTCH PPS from the 
CMS-1632-P 844

inception. 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, the patient is discharged to an inpatient acute care hospital, an 

IRF, or a SNF for treatment or service that is not available at the LTCH for a specified 

period followed by readmittance to the same LTCH. As we stated when we established 

the interrupted stay policy (67 FR 50187), we believe that the readmission to the LTCH 

represents a continuation of the initial interrupted treatment, rather than a new admission. 

If an interruption of stay occurred, payment for both “halves” of the LTCH discharge 

would be bundled, and Medicare would make a single payment based on the second date 

of discharge. The interruption of stay policy treats the second part of an interrupted stay 

as a “continuation” of the initial stay, not a separate LTCH admission. Based on this 

policy and the requirements of section 1206(a) of Pub. L. 113-67, in order for an LTCH 

discharge to be excluded from the site neutral payment rate and, therefore, receive 

payment based on the LTCH PPS standard Federal payment rate, the initial LTCH 

admission must be immediately preceded by a subsection (d) hospital discharge. Any 

interruption of stay defined under § 412.531 would not invalidate the immediately 

preceded status for the LTCH admission because we historically have treated interrupted 

stays as one stay. We believe that this interpretation of “immediately preceded” in the 

context of the existing interrupted stay policy is consistent with our historical treatment 

of LTCH cases involving interrupted stays.
CMS-1632-P 845

e. Proposed Implementation of the Intensive Care Unit (ICU) Criterion

Section 1886(m)(6)(A)(iii)(I) of the Act specifies that in order to be excluded 

from payment under the site neutral payment rate under the ICU criterion, the LTCH 

admission must be immediately preceded by a discharge from a subsection (d) hospital 

that included at least 3 days in an intensive care unit (ICU), as determined by the 

Secretary. Furthermore, section 1886(m)(6)(A)(iii)(II) of the Act states that, in 

determining ICU days, the Secretary shall use data from revenue center codes 020X or 

021X (or such successor codes as the Secretary may establish). Revenue center codes are 

reported on the hospital claim (Form CMS-1450 that is also known as the UB-04), which 

is a uniform institutional provider bill suitable for use in billing multiple third party 

payers, that is developed and maintained by the National Uniform Billing Committee 

(NUBC). (We refer readers to Chapter 25, subsection 70.1 of the Medicare Claims 

Processing Manual (Pub. 100-4).) The revenue code description for revenue center code 

020X is for intensive care, and the revenue code description for revenue center code 

021X is for coronary care. Both revenue center codes are used to bill Medicare for 

services provided by “intensive care units (ICUs)” as defined under our existing 

definition at § 413.53(d) of the regulations. Both of these revenue code descriptions are 

further divided into subcategories that form a revenue center code series. For billing

purposes, the “X” in the revenue code descriptions for revenue center codes 020X and 

021X refers to one of the subcategories available for that revenue center code series. (For 

additional information on the use of revenue center codes 020X and 021X, we refer 
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readers to Chapter 25, subsection 75.4 of the Medicare Claims Processing Manual (Pub. 

100-4) and the NUBC’s Web site at: http://www.nubc.org.)

To implement the ICU criterion specified at section 1886(m)(6)(A)(iii) of the Act, 

we are proposing under proposed new § 412.522(b)(2) that the discharge from the 

subsection (d) hospital that immediately preceded (as previously discussed in section 

VII.B.3.d. of the preamble of this proposed rule) the admission to the LTCH includes at 

least 3 days in an ICU (as defined in § 413.53(d) of the regulations). Consistent with the 

broad authority under section 123(a)(1) of the BBRA, as amended by section 307(b) of 

the BIPA, we are proposing that at least 3 days must be reported on the hospital claim 

submitted by the subsection (d) hospital using revenue center codes 020X or 021X, the 

use of which must be consistent with our definition of an ICU under § 413.53(d) in order 

to fulfill the ICU criterion to be excluded from the site neutral payment rate. We believe 

that this proposal is consistent with the statute and appropriate because it would ensure 

that payment for discharges made under the LTCH PPS standard Federal payment rate 

are for services provided to critically ill beneficiaries who require long-term acute 

hospitalization.

In developing our proposal for the implementation of the ICU criterion at section 

1886(m)(6)(A)(iii) of the Act, we examined current hospital coding practices and the use 

of revenue center codes 020X and 021X, including the subcategory codes, as reported on 

the Medicare claims for IPPS hospitals. We do not expect a change in general hospital 

coding practices regarding revenue center code categories 020X and 021X as a result of 

this proposal. However, we will continue to monitor such coding practices and may 
CMS-1632-P 847

propose to revise the ICU criterion regulations in the future if data from revenue center 

code series for revenue center codes 020X and 021X indicate that any of the 

subcategories are not consistent with services provided by ICUs as defined under 

§ 413.53(d).

As previously noted with regard to our proposed implementation of the 

“immediately preceded” requirement, our proposed implementation of the ICU criterion 

would also work in tandem with our existing interruption of stay policy. Again, we note 

that we are not proposing to make any changes to the existing interrupted stay policy, and 

we are referencing it only to illustrate the consistency between our proposed policy and 

our existing program policies. (For a description of our existing interrupted stay policy, 

we refer readers to the discussion in section VII.B.3.d. of the preamble of this proposed 

rule.) As previously noted, LTCH cases involving interrupted stays are treated as a single 

continuous LTCH stay. As such, under our proposal, the discharge from a subsection (d) 

hospital that immediately precedes the initial LTCH admission would determine whether 

the ICU criterion is met. Under our proposal, compliance with the ICU criterion would 

be based exclusively on the number of days the beneficiary spent in the immediately 

preceding subsection (d) hospital’s ICU prior to being initially admitted to the LTCH. If, 

during the intervening period of an interrupted LTCH stay, a beneficiary spends any 

number of days in the ICU of a subsection (d) hospital, those days would not be 

considered in the evaluation of the LTCH discharge for purposes of meeting the ICU 

criterion because such care would not have immediately preceded the initial admission to 

the LTCH. Conversely, if the subsection (d) hospital discharge that immediately 
CMS-1632-P 848

preceded the initial LTCH admission meets the ICU criterion (that is, includes at least 

3 ICU days), and the period of time relating to an intervening interrupted stay does not 

include any days in a subsection (d) hospital’s ICU, the ICU criterion would still be met 

because the initial portion of the LTCH admission fulfilled the ICU criterion for 

exclusion from the site neutral payment rate. We believe that this proposed interpretation 

of the ICU criterion in the context of the existing interrupted stay policy is consistent 

with our historical treatment of LTCH cases involving interrupted stays.

f. Proposed Implementation of the Ventilator Criterion

Section 1886(m)(6)(A)(vi) of the Act specifies that in order to be excluded from 

payment under the site neutral payment rate under the ventilator criterion, the LTCH 

admission must be immediately preceded by a discharge from a subsection (d) hospital 

(as discussed in section VII.B.3.d. of the preamble of this proposed rule), and the LTCH 

discharge must be assigned to an MS-LTC-DRG based on the beneficiary’s receipt of at 

least 96 hours of ventilator services in the LTCH. As we discussed in section VII.B.3.b. 

of the preamble of this proposed rule, cases are assigned to MS-LTC-DRGs based, in 

part, on procedures performed during the beneficiary’s LTCH stay, which are reported on 

a Medicare claim using procedure codes. We are proposing that, for the purposes of a 

discharge being excluded from the site neutral payment rate, the discharge must use the 

applicable procedure code to indicate that at least 96 hours of ventilator services were 

received during the LTCH stay. Currently, under the ICD-9-CM coding system, 

procedure code 9672 (Continuous invasive mechanical ventilation for 96 consecutive 

hours or more) is used to describe such long-term mechanical ventilator services provided 
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during a hospital stay, including an LTCH stay. As discussed in sections II.G.1.a. and 

VII.C. of the preamble of this proposed rule, the use of the ICD-10-CM/PCS coding 

system will be required beginning October 1, 2015. Under the ICD-10-PCS coding 

system, procedure code 5A1955Z (Respiratory ventilation, greater than 96 consecutive 

hours) describes such long-term mechanical ventilator services provided during a hospital 

stay, including an LTCH stay. Therefore, we believe that it would be appropriate and 

consistent with the requirements at section 1886(m)(6)(A)(vi)(II) of the Act to require 

LTCHs, effective with discharges in cost reporting periods beginning on or after 

October 1, 2015, to report procedure code 5A1955Z on hospital claims to indicate that 

the beneficiary received at least 96 hours of ventilator services during the LTCH stay as a 

condition of the LTCH discharge being eligible for exclusion from the site neutral 

payment rate based on the ventilator criterion. Under the broad authority under section 

123(a)(1) of the BBRA, as amended by section 307(b) of the BIPA and in accordance 

with section 1206(a) of Pub. L. 111-67, under proposed new § 412.522(b)(3), we are 

proposing to require LTCHs to report ICD-10-PCS procedure code 5A1955Z on their 

claims to indicate that the beneficiary received at least 96 hours of ventilator services 

during the LTCH stay as a condition of that discharge being eligible for exclusion from 

the site neutral payment rate based on the ventilator criterion.

Under this proposal, any LTCH discharges that do not report this procedure code 

on the claim submitted for payment would not meet the ventilator criterion. In 

developing this proposal, we recognized that many of the discharges reporting procedure 

code 5A1955Z (that is, those cases involving at least 96 hours of mechanical ventilation 
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services) are grouped into one of six MS-LTC-DRGs. However, discharges grouped into 

these six MS-LTC-DRGs are not necessarily limited to cases involving beneficiaries who 

have received at least 96 hours of mechanical ventilation services. In addition, there are 

some cases that do involve at least 96 hours of mechanical ventilation that are correctly

assigned to MS-LTC-DRGs other than the six MS-LTC-DRGs mentioned; for example, 

those cases grouped based on surgical hierarchy. Given the variance of possible 

MS-LTC-DRG assignments based on the procedure code indicating the receipt of at least 

96 hours of mechanical ventilator services and the MS-LTC-DRG groupings, we believe 

that our proposal to determine eligibility for meeting the ventilator criterion under section 

1886(m)(6)(A)(vi)(II) of the Act based on the procedure code used is more consistent 

with the language of the Act as added by Pub. L. 113-67.

4. Proposed Determination of the Site Neutral Payment Rate (Proposed New 

§ 412.522(c))

a. General

Section 1206(a) of Pub. L. 113-67 amended section 1886(m) of the Act by adding 

paragraph (6), which specifies that beginning with cost reporting periods starting on or 

after October 1, 2015, all LTCH PPS discharges are paid according to the site neutral 

payment rate unless certain criteria are met. In general, section 1886(m)(6)(B)(ii) of the 

Act specifies that the site neutral payment rate is the lower of the IPPS comparable per 

diem amount under § 412.529(d)(4), including any applicable outlier payments under 

§ 412.525(a), or 100 percent of the estimated cost of the case. Consistent with the 

requirements of section 1886(m)(6)(B)(ii) of the Act, we are proposing under proposed 
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new § 412.522(c)(1) that the site neutral payment rate is the lower of the IPPS 

comparable per diem amount determined under § 412.529(d)(4), including any applicable 

outlier payments under § 412.525(a), or 100 percent of the estimated cost of the case 

determined under § 412.529(d)(2).

Under our proposed calculation of the site neutral payment rate, proposed new 

§ 412.522(c)(1)(i) would provide that the IPPS comparable per diem amount would be 

calculated using the same method used to determine an amount comparable to the 

hospital IPPS per diem amount as set forth in the existing regulations at§ 412.529(d)(4), 

consistent with section 1886(m)(6)(B)(ii)(I) of the Act. Specifically, in the RY 2007 

LTCH PPS final rule (71 FR 27852 through 27853), we established a method to 

determine an amount payable under 42 CFR Part 412, Subpart O, that is comparable to 

what would otherwise be paid under the IPPS for the costs of inpatient operating services, 

which is commonly referred to as the “the IPPS comparable per diem amount.” 

Accordingly, consistent with § 412.529(d)(4), we are proposing to determine the IPPS 

comparable per diem amount based on the standardized amount determined under 

§ 412.64(c), adjusted by the applicable DRG weighting factors determined under 

§ 412.60 as specified at § 412.64(g). We are proposing to further adjust this amount to 

account for differences in area wage levels based on geographic location using the 

applicable IPPS labor-related share and the IPPS wage index for nonreclassified hospitals 

published in the annual IPPS final rule in accordance with § 412.525(c). For LTCHs 

located in Alaska and Hawaii, we are proposing that this amount would be further 

adjusted by the applicable COLA factors established annually during the rulemaking 
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cycle. We also are proposing that the IPPS comparable per diem amount include an 

adjustment for treating a disproportionate share of low-income patients, consistent with 

the DSH payment adjustment under § 412.106, as applicable, which would include a 

proxy adjustment for the uncompensated care payment (78 FR 50765 through 50767). In 

the case of an LTCH that is a teaching hospital, we are proposing that the IPPS 

comparable per diem amount include an IME payment adjustment, consistent with the 

formula set forth under § 412.105, where the LTCH’s IME cap (that is, the limit on the 

number of full-time equivalent (FTE) residents that may be counted for IME) would be 

imputed from the LTCH’s direct GME cap as set forth at § 413.79(c)(2). In addition, we 

are proposing that the IPPS comparable per diem amount also include payment for 

inpatient capital-related costs, based on the capital IPPS Federal rate determined in 

accordance with § 412.308(c), adjusted by the applicable IPPS DRG weighting factors. 

We are proposing to further adjust the capital IPPS Federal rate by the applicable 

geographic adjustment factors based on the geographic location of the LTCH and the 

COLA factors for LTCHs located Alaska and Hawaii, consistent with § 412.316. In 

addition, we are proposing to include in this amount the adjustments to the capital IPPS 

Federal rate for DSH payments in accordance with § 412.320 and IME payments in 

accordance with § 412.322. Consistent with § 412.529(d)(4)(i)(B) and (C), we are 

proposing to determine the IPPS comparable per diem amount by dividing the IPPS 

comparable payment amount described above by the geometric average length of stay of 

the specific MS-DRG under the IPPS and multiplying that amount by the covered days of 
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the LTCH stay. We are proposing that the IPPS comparable per diem amount be limited 

to the full comparable amount to what would otherwise be paid under the IPPS.

The IPPS comparable per diem amount described under § 412.529(d)(4) does not 

include additional payments for extraordinarily high-cost cases under the IPPS outlier 

policy. Therefore, consistent with the requirements of section 1886(m)(6)(B)(ii)(I) of the 

Act, under our proposed calculation of the site neutral payment rate under proposed new 

§ 412.522(c)(1), we are proposing to add any high-cost outlier (HCO) payment that may 

be payable under § 412.525(a) to the IPPS comparable per diem amount. To do so, as 

discussed in greater detail in section VII.B.7.b. of the preamble of this proposed rule, we 

also are proposing to revise the HCO policy under existing § 412.525(a) to provide for 

high-cost outlier payments under the site neutral payment rate calculated under proposed 

new § 412.522(c). We are proposing that site neutral payment rate cases receive an 

additional payment for HCOs that would be equal to 80 percent of the difference between 

the estimated cost of the case and the HCO threshold, which we are proposing would be 

the sum of site neutral payment rate for the case and the IPPS fixed-loss amount. We 

also are proposing that HCO payments for site neutral payment rate cases would be 

budget neutral and are proposing to apply a budget neutrality factor to the LTCH PPS 

payments for those cases to maintain budget neutrality. (For additional information on 

our proposed revised HCO policy in regard to site neutral payment rate cases under 

§ 412.525(a), we refer readers to section VII.B.7.b. of the preamble of this proposed 

rule.)
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Furthermore, under our proposed calculation of the site neutral payment rate, 

under proposed new § 412.522(c)(1)(ii), we are proposing to calculate 100 percent of the 

estimated cost of a case by multiplying the LTCH’s hospital-specific cost-to-charge ratio 

(CCR) by the Medicare allowable charges for the LTCH case, which is the same method 

we use to determine SSO payments under § 412.529(d)(2), as well as HCO payments 

under the HCO policy under § 412.525(a). Consistent with our existing policies for 

computing CCRs under the LTCH PPS, we also are proposing to apply the payment 

policies described under § 412.529(f)(4)(i) through (f)(4)(iii) to the calculation of the 

estimated cost of the case for site neutral payment rate cases under proposed new 

§ 412.522(c)(1)(ii). Under this proposal, the CCR applied at the time a claim is 

processed would generally be based on either the most recent settled cost report or the 

most recent tentatively settled cost report, whichever is from the latest cost reporting 

period. CMS may specify an alternative to the CCR otherwise applicable if we believe 

that the CCR being applied is inaccurate, in accordance with section 150.24 of Chapter 3 

of the Medicare Claims Processing Manual (Pub. 100-4), or an LTCH may request an 

alternate (higher or lower) CCR based on its presentation of substantial evidence in 

support of that alternate. The CMS Regional Office must approve the request, and the 

MAC notifies the LTCH whenever a change is made to its CCR. The applicable MAC 

may also use the statewide average CCR that is established annually by CMS if it is 

unable to determine an accurate CCR for an LTCH under one of the circumstances 

specified at existing § 412.529(f)(4)(iii) (that is, in general, for a new LTCH, when the 

LTCH’s CCR exceeds 3 standard deviations from the corresponding national geometric 
CMS-1632-P 855

mean CCR, and for a LTCH for which data to calculate a CCR are otherwise not 

available). These same CCR policies also are applicable under the LTCH PPS HCO 

policy (§ 412.525(a)(4)(iv)(B) and (a)(4)(iv)(C)).

Currently, under the LTCH PPS, payments for HCO and SSO cases may be 

subject to reconciliation at cost report settlement under § 412.525(a)(4)(iv)(D) and 

§ 412.529(f)(4)(iv), respectively. Under these policies, reconciliation is based on the 

CCR calculated using the CCR computed from the settled cost report that coincides with 

the discharge. Under our existing criteria, reconciliation occurs in instances where a 

LTCH’s actual CCR for the cost reporting period fluctuates plus or minus 10 percentage 

points compared to the interim CCR used to calculate payments when a claim is 

processed. We adopted this reconciliation policy for the LTCH PPS HCO and SSO cases 

because CCRs based on settled cost reports are not available when claims are processed 

unless significant delays are imposed on the payment of claims. (For additional 

information, we refer readers to the June 9, 2003 IPPS/LTCH PPS high-cost outlier final 

rule (68 FR 34507) and sections 150.26 through 150.28 of the Medicare Claims 

Processing Manual (Pub. 100-4).) Given the use of LTCH CCRs to calculate the 

estimated cost of cases under the proposed site neutral payment rate, we believe that it 

would be equally appropriate to apply the current CCR reconciliation policy principles to 

site neutral payment rate payments. Therefore, we are proposing under proposed new 

§ 412.522(c)(4) to reconcile site neutral payment rate payments based on the CCR 

calculated using the settled cost report that coincides with the discharge. We also are 

proposing that, at the time of any such reconciliation of site neutral payment rate 
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payments, such payments be adjusted to account for the time value of any underpayments 

or overpayments. Any adjustment would be based upon a widely available index to be 

established in advance by the Secretary and would be applied from the midpoint of the 

cost reporting period to the date of reconciliation. The index that would be used to 

calculate the time value of money is the monthly rate of return that the Medicare Trust 

Fund earns, which can be found at: 

http://www.ssa.gov/OACT/ProgData/newIssueRates.html, consistent with our current 

reconciliation policy described in section 150.27 of Chapter 3 of the Medicare Claims 

Processing Manual (Pub. 100-4). Furthermore, we are proposing that our existing 

policies governing CCRs for both HCO (under § 412.525(a)(4)(iv)(A) through (C)) and 

SSO payments (under § 412.529(f)(4)(i) through (iii)) would apply to the CCRs used to 

determine the estimated cost of a case under proposed new § 412.522(c)(4).

b. Proposed Blended Payment Rate for FY 2016 and FY 2017

Section 1886(m)(6)(B) of the Act establishes a transitional payment method for 

cases that will be paid the site neutral payment rate for LTCH discharges occurring in 

cost reporting periods beginning during FY 2016 or FY 2017. For those discharges, the 

applicable site neutral payment rate is to be the blended payment rate specified in section 

1886(m)(6)(B)(iii) of the Act. For LTCH discharges occurring in cost reporting periods 

beginning during FY 2018 or later, the applicable site neutral payment rate will be the 

site neutral payment rate as defined in section 1886(m)(6)(B)(ii) of the Act.

Section 1886(m)(6)(B)(iii) of the Act specifies that the blended payment rate is 

comprised of 50 percent of the site neutral payment rate for the discharge under section 
CMS-1632-P 857

1886(m)(6)(B)(ii) of the Act and 50 percent of the LTCH PPS standard Federal payment 

rate that would have applied to the discharge if paragraph (6) of section 1886(m) of the 

Act had not been enacted. As previously discussed, we are proposing to codify the site 

neutral payment rate specified under section 1886(m)(6)(B)(ii) of the Act under proposed 

new § 412.522(c)(1), as adjusted under proposed new § 412.522(c)(2). Under proposed 

new § 412.522(c)(1), the site neutral payment rate is the lower of the IPPS comparable 

per diem amount determined under § 412.529(d)(4), including any applicable outlier 

payments under § 412.525(a), or 100 percent of the estimated cost of the case determined 

under § 412.529(d)(2). For purposes of the blended payment rate, we are proposing that 

the payment rate that would otherwise be applicable if section 1886(m)(6) of the Act had 

not been enacted would be the LTCH PPS standard Federal payment; which, in light of 

other proposals presented in this proposed rule, would be the LTCH PPS Federal standard 

payment rate that is applicable to discharges that meet the criteria for exclusion from the 

site neutral payment rate under proposed new § 412.522(a)(2). That rate is the LTCH 

PPS standard Federal payment rate determined under § 412.523. Therefore, consistent 

with the requirements of section 1886(m)(6)(B)(ii) of the Act, we are proposing under 

proposed new § 412.522(c)(3), for LTCH discharges occurring in cost reporting periods 

beginning on or after October 1, 2015, and on or before September 30, 2017 (that is, 

discharges occurring in cost reporting periods beginning during FYs 2016 and 2017), the 

payment amount for site neutral payment rate cases would be a blended payment rate, 

which would be calculated as 50 percent of the applicable site neutral payment rate 

amount for the discharge as determined under proposed new § 412.522(c)(1) and 50 
CMS-1632-P 858

percent of the applicable LTCH PPS standard Federal payment rate determined under 

§ 412.523. Under this proposal, the payment amounts determined under proposed new 

§ 412.522(c)(1) (the site neutral payment rate) and under § 412.523 (the LTCH PPS 

standard Federal rate) would include any applicable adjustments, such as HCO payments, 

as applicable, consistent with the requirements under § 412.523(d). For example, the 

portion of the blended payment for the discharge that is based on proposed new 

§ 412.522(c)(3) would include 50 percent of any applicable site neutral HCO payment 

under our proposed revised HCO payment policy (discussed in detail in section 

VII.B.7.b. of the preamble of this proposed rule), consistent with proposed new 

§ 412.522(c)(1)(i), which provides for HCO payments under § 412.525(a). Similarly, the 

portion of the blended payment for the discharge that is based on the LTCH PPS standard 

Federal payment rate would include any applicable HCO payment under existing 

§ 412.525(a).

c. Proposed LTCH PPS Standard Federal Payment Rate

Section 1206(a) of Pub. L. 113-67 amended section 1886(m) of the Act by adding 

paragraph (6), which specifies that beginning with cost reporting periods starting on or 

after October 1, 2015, all LTCH PPS discharges are paid according to the site neutral 

payment rate, unless certain criteria are met. For detailed discussion of our proposals 

regarding the criteria for exclusion from the site neutral payment rate, we refer readers to 

section VII.B.3. of the preamble of this proposed rule. For LTCH cases that meet the 

criteria for exclusion from the site neutral payment rate, section 1886(m)(6)(A)(ii) of the 

Act specifies that the site neutral payment rate will not apply and payment will be made 
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without regard to requirements of section 1886(m)(6)(A)(ii) of the Act. Consistent with 

these statutory requirements, we are proposing under proposed new § 412.522(a)(2) that 

for LTCH discharges that meet the criteria for exclusion from site neutral payment rate 

under proposed new § 412.522(b), payment will be based on the LTCH PPS standard 

Federal payment rate as determined in § 412.523. That is, under proposed new 

§ 412.522(a)(2), LTCH PPS standard Federal payment rate cases would continue to be 

paid based on the LTCH PPS standard Federal payment rate. Under this proposal, all of 

the existing payment adjustments under § 412.525(d), that is, the adjustments for SSO 

cases under § 412.529, the adjustments for interrupted stays under § 412.531, and the 

25-percent threshold policy under § 412.534 and § 412.536, would still apply if 

appropriate. In addition, as discussed in greater detail in section VII.B.7.b. of the 

preamble of this proposed rule, we are proposing that our existing HCO policy would 

apply to LTCH PPS standard Federal payment rate cases, except that the 8 percent HCO 

target would be established using only data from LTCH PPS standard Federal payment 

rate cases.

5. Proposed Application of Certain Existing LTCH PPS Payment Adjustments to 

Payments Made under the Site Neutral Payment Rate

Consistent with current LTCH PPS payment policies for adjusting Federal 

prospective payments, under the broad authority under section 123(a)(1) of the BBRA, as 

amended by section 307(b) of the BIPA, we are proposing that certain existing payment 

adjustments under the special payment provisions set forth at existing § 412.525(d), with 

the exception of the SSO adjustment described under § 412.525(d)(1). These adjustments 
CMS-1632-P 860

include the interrupted stay policy and 25-percent threshold policy. The current payment 

adjustment under the interrupted stay policy at § 412.531 was developed and 

implemented prior to the statutory LTCH PPS dual-rate payment structure and contains 

terms specific to payment based on the LTCH PPS standard Federal payment rate (such 

as LTC-DRG payment and Federal LTC-DRG prospective payment). Under our 

proposal, the site neutral payment rate would not be calculated based on the LTCH PPS 

standard Federal payment rate because the payment would generally be the lower of the

IPPS comparable per diem amount (including any applicable outlier payments), or 100 

percent of the estimated cost of the case. Consequently, in order to apply the provisions 

of the existing interrupted stay policy at § 412.531 to site neutral payment rate cases, 

under proposed new § 412.522(c)(2)(ii), we are proposing to specify that, for purposes of 

the application of the provisions of 412.531 to LTCH discharges described under 

§412.522(a)(1), the LTCH PPS standard payment-related terms, such as “LTC-DRG 

payment”, “full Federal LTC-DRG prospective payment”, and “Federal prospective 

payment,” mean the site neutral payment rate calculated under proposed new 

§412.522(c).

We believe that it is appropriate to apply these adjustments to the site neutral 

payment rate cases because the site neutral payment rate merely establishes an alternate 

payment amount under the LTCH PPS, as opposed to creating an exception from the 

LTCH PPS. Additionally, we believe that the policy concerns upon which these policies 

were based apply equally to payments made under the LTCH PPS site neutral payment 

rates and the standard Federal payment rates.
CMS-1632-P 861

We established the interrupted stay policy to address instances in which a patient 

is discharged from an LTCH and later readmitted to that LTCH within a certain amount 

of time. This kind of readmission to the LTCH represents a continuation or resumption 

of the initial, interrupted treatment, rather than a new admission. (For a discussion of our 

implementation of the interrupted stay policy, we refer readers to the RY 2003 LTCH 

PPS final rule (67 FR 56002).) We continue to believe that the interrupted stay policy 

serves as an effective instrument to protect the Medicare Trust Fund from significant and 

inappropriate expenditures (78 FR 50768), and we do not believe that the site neutral 

payment rate will address these concerns unless the interrupted stay policy is applied to 

site neutral payment rate cases in the same manner as it is applied to standard Federal 

payment rate cases.

The 25-percent threshold payment adjustment policy was implemented 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 to LTCH 

discharges of patients who were admitted to the LTCH from the same referring hospital 

in excess of an applicable percentage threshold (79 FR 50185). We refer readers to the 

detailed discussions of the 25-percent threshold payment adjustment policy for LTCH 

hospital-within-hospitals (HwHs) and LTCH satellite facilities in the FY 2005 

IPPS/LTCH 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), as well as 

our discussion in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50185 through 50187), 
CMS-1632-P 862

for additional details on the 25-percent threshold payment adjustment. We do not believe 

that the site neutral payment rate will address these patient shifting concerns unless the 

25-percent threshold payment adjustment is applied to site neutral payment rate cases in 

the same manner as it is applied to LTCH PPS standard Federal payment rate cases.

In considering the potential policy proposals, we recognized that there is a current 

statutory moratorium on the full implementation of the 25-percent threshold payment 

adjustment policy under section 1206(b)(1)(A) of Pub. L. 113-67 that is scheduled to 

expire in FY 2016. (For a discussion of our implementation of the current statutory 

moratorium on the full implementation of the 25-percent threshold payment adjustment 

policy, we refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 50185 through 

50187).) We are proposing to apply all of the payment adjustments to site neutral 

payment rates in the same manner as they are currently applied (and will continue to be 

applied for the foreseeable future) to LTCH PPS standard Federal payment rates—

including, as applicable, the moratorium on implementing the 25-percent threshold 

payment adjustment.

We are not proposing to apply the SSO payment adjustment to the site neutral 

payment rate at this time because, while the policy goal of ensuring patients in an LTCH 

receive a full course of treatment remains, under our current method of paying for SSOs 

as described under § 412.529, we pay for SSOs based on the lowest of several payment 

options, one of which is the LTCH’s estimated cost of the case. As described above, site 

neutral payment rate cases are paid the lower of the IPPS comparable per diem amount, 

or 100 percent of the estimated cost of the case. Because the estimated cost option is 
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used in determining both SSO payments and site neutral payment rates and both methods 

make payment based on the lowest of their respective payment options, in most cases, 

applying our current SSO payment adjustment to site neutral payment rate cases would 

not affect the resulting LTCH PPS payment made for the discharge. We may consider 

proposing the application of an alternative SSO payment adjustment in the future if we 

find evidence that Medicare beneficiaries are not regularly receiving the full course of 

treatment when such treatment is paid for at the site neutral payment rate.

6. Proposals Relating to the LTCH Discharge Payment Percentage

Section 1886(m)(6)(C) of the Act, as added by section 1206 of Pub. L. 113-67, 

imposes several requirements related to an LTCH’s discharge payment percentage. As 

defined by section 1886(m)(6)(C)(iv) of the Act, the term “LTCH discharge payment 

percentage” is a ratio, expressed as a percentage, of Medicare discharges not paid the site 

neutral payment rate to total number of Medicare discharges occurring during the cost 

reporting period. In other words, an LTCH’s discharge payment percentage would be the 

ratio of an LTCH’s Medicare discharges that meet the criteria for exclusion from the site 

neutral payment rate (as described under proposed new § 412.522(a)(2)) to an LTCH’s 

total number of Medicare discharges paid under the LTCH PPS (that is, both Medicare 

discharges paid under the site neutral payment rate and those that meet the criteria for 

exclusion from the site neutral payment rate, as described under proposed new 

§ 412.522(a)(1) and (2), respectively) during the cost reporting period. Therefore, 

consistent with the statutory requirement at section 1886(m)(6)(C)(iv) of the Act and 

under the broad authority under section 123(a)(1) of the BBRA, as amended by section 
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307(b) of the BIPA, under proposed new § 412.522(d)(1), we are proposing to define an 

LTCH’s discharge payment percentage as a ratio, expressed as a percentage, of Medicare 

discharges excluded from the site neutral payment rate as described under proposed new 

§ 412.522(a)(2) to total Medicare discharges paid under the LTCH PPS (in accordance 

with 42 CFR Part 412, Subpart O) during the cost reporting period.

In addition, section 1886(m)(6)(C)(i) of the Act requires that we provide notice to 

each LTCH of the LTCH’s discharge payment percentage (as defined in section 

1886(m)(6)(C)(iv) of the Act) for LTCH cost reporting periods beginning during or after 

FY 2016. Therefore, we are proposing to codify this statutory requirement at proposed 

new § 412.522(d)(2). Under this proposal, for cost reporting periods beginning on or 

after October 1, 2015, as required by the statute, we would inform each LTCH of their 

discharge payment percentage as defined under proposed new § 412.522(d)(1). We plan 

to develop such a notification process through subregulatory guidance. We also note 

that, under section 1886(m)(6)(C)(ii) of the Act, for cost reporting periods beginning on 

or after October 1, 2020, the statute requires that any LTCH whose discharge payment 

percentage for the period is not at least 50 percent will be informed of such a fact and all 

of the LTCH’s discharges in each successive cost reporting period will be paid the 

payment amount that would apply under subsection (d) for the discharge if the hospital 

were a subsection (d) hospital, subject to the process for reinstatement provided for by 

section 1886(m)(6)(C)(iii) of the Act. Because this statutory requirement is not effective 

until cost reporting periods beginning on or after October 1, 2020, we are not making any 

proposals related to the limitation requirement or the process for reinstatement at this 
CMS-1632-P 865

time. However, we are inviting public comments on the development and 

implementation of the process for reinstatement under section 1886(m)(6)(C)(iii) of the 

Act.

7. Additional LTCH PPS Policy Considerations Related to the Implementation of the 

Site Neutral Payment Rate Required by Section 1206(a) of Pub. L. 113-67

As discussed earlier in this section, section 1206(a) of Pub. L. 113–67 amended 

section 1886(m) of the Act by adding paragraph (6), which establishes patient-level 

criteria for payments made under the LTCH PPS for LTCH discharges occurring during 

cost reporting periods beginning on or after October 1, 2015 (FY 2016). In the FY 2015 

IPPS/LTCH PPS proposed and final rules, we stated our intent to implement the 

requirements established by section 1206(a) of Pub. L. 113–67 through notice and 

comment rulemaking during the FY 2016 IPPS/LTCH PPS rulemaking cycle. In the 

FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28205 through 28206), we discussed 

several significant issues arising from the statutory changes to the LTCH PPS required by 

section 1206(a) of Pub. L.113–67, which establishes two distinct payment groups for 

LTCH discharges under the revised system: discharges meeting specified patient-level 

criteria that will be paid under the LTCH PPS standard Federal payment rate and all other 

patient discharges that will be paid under the site neutral payment rate. In that same 

proposed rule, we expressed our interest in receiving feedback from LTCH stakeholders 

on our plans to evaluate whether it would be appropriate to modify any of our historical 

policies or methodologies as we began to develop proposals to implement the statutory 

changes to the LTCH PPS. In particular, we solicited public feedback on the policies 
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relating to the MS-LTC-DRG relative payment weights and high-cost outlier payments in 

preparation of developing proposals to implement the statutory changes to the LTCH PPS 

beginning in FY 2016. We explained that in setting the payment rates and factors under 

the LTCH PPS in accordance with requirements of section 1206(a) of Pub. L.113–67, for 

certain LTCH PPS payment adjustments we planned to evaluate whether it would be 

appropriate to modify our historical methodology to account for the establishment of the 

two distinct payment rates for LTCH discharges. In particular, we stated our intent to 

examine whether, beginning in FY 2016, it would continue to be appropriate to include 

data for all LTCH PPS cases, including site neutral payment rate cases, in the 

methodology used to set the MS-LTC-DRGs relative payment weights. We also stated 

our intent to explore the possibility of changes to the current LTCH PPS high-cost outlier 

payment policy. Given the fact that, for a number of LTCH discharges, payment would 

be made based on the lower site neutral payment rate (that is, the lesser of an “IPPS 

comparable” payment amount or 100 percent of the estimated cost of the case), we 

believed that it would be appropriate to evaluate whether a single high-cost outlier 

threshold could be applied to all LTCH PPS cases (both LTCH PPS standard Federal 

payment rate and site neutral payment rate cases), or whether it may be more appropriate 

to have separate high-cost outlier thresholds for each of the two payment rates under the 

statutory revisions to the LTCH PPS.

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50197 through 50198), we 

summarized the comments we received in response to our request for input from LTCH 

stakeholders. As we stated in that same final rule, we appreciated the commenters’ 
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thoughtful and detailed feedback, particularly those comments regarding the 

MS-LTC-DRG relative payment weights and the high-cost outlier policy under the new 

LTCH PPS dual-rate payment structure established by section 1206(a) of Pub. L. 113–67. 

In developing the proposals presented in this proposed rule, we considered the 

recommendations and information provided by those commenters. Below we discuss our 

policy proposals related to the MS-LTC-DRG payment relative weights and high-cost 

outlier policy in regard to our proposed implementation policies under the LTCH PPS 

dual-rate payment structure required by section 1206(a) of Pub. L. 113-67.

a. MS-LTC-DRG Relative Payment Weights

Under the LTCH PPS, relative payment weights for each MS-LTC-DRG are a 

primary element used to account for the variations in cost per discharge and resource 

utilization between the diagnosis-related groups (§ 412.515). Each year, based on the 

latest available LTCH claims data, we calculate a relative payment weight for each 

MS-LTC-DRG that represents the resources used for an average inpatient LTCH case 

assigned to that MS-LTC-DRG to ensure that Medicare patients with conditions or 

illnesses classified under each MS-LTC-DRG have access to an appropriate level of 

services and to encourage efficiency (79 FR 50170). CMS adjusts the classifications and 

weighting factors annually to reflect changes in factors affecting the relative use of 

hospital resources, such as treatment patterns, technology, and the number of discharges 

(§ 412.517).

Under the new statutory LTCH PPS structure, section 1206(a) of Pub. L.113–67 

establishes two distinct payment rates for LTCH discharges: discharges meeting 
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specified patient-level criteria that will be excluded from the site neutral payment rate 

and all other patient discharges that will be paid under the site neutral payment rate. As 

discussed in greater detail in section VII.B.4.c. of the preamble of this proposed rule, 

under proposed new § 412.522(a)(2), we are proposing to pay for LTCH discharges that 

meet the criteria for exclusion from site neutral payment rate using the LTCH PPS 

standard Federal payment rate described under § 412.523, as adjusted. In other words, 

LTCH discharges that meet the specified patient-level criteria would continue to be paid 

at what we refer to as the “LTCH PPS standard Federal payment rate.” In general, the 

LTCH PPS standard Federal payment rate is calculated by adjusting the LTCH PPS 

standard Federal payment rate by the applicable MS-LTC-DRG relative payment weight 

for that Medicare cases. Under proposed new § 412.522(c) (as discussed in greater detail 

in section VII.B.4.a. of the preamble of this proposed rule), consistent with section 

1886(m)(6)((B)(ii) of the Act, we are proposing that the site neutral payment rate is the 

lower of the IPPS comparable per diem amount (including any applicable outlier 

payments), or 100 percent of the estimated cost of the case. Under this proposal, the 

IPPS comparable per diem amount would be determined using the same method to 

determine SSO payments under the SSO policy at § 412.529(d)(4), and the estimated cost 

of the case would be determined using the same method to determine estimated costs 

under the SSO policy at § 412.529(d)(2). We note that the proposed methodology for 

determining payments for site neutral payment rate cases does not use the LTCH PPS 

standard Federal payment rate or the applicable MS-LTC-DRG relative payment weights.
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As discussed above, in preparation for this proposed rule, we considered LTCH 

stakeholder input and evaluated whether it would be appropriate to modify our historical 

MS-LTC-DRG relative payment weight methodology to account for the establishment of 

the two distinct payment rates for LTCH discharges under the statutory changes to the 

LTCH PPS. Specifically, we examined whether our historical methodology, which uses 

data from all LTCH PPS discharges, should be continued when we calculate the 

MS-LTC-DRG relative payment weights under the new LTCH PPS dual-rate payment 

structure, or whether it would be more appropriate to limit the data used to calculate 

relative payment weights to that obtained from discharges paid based on the LTCH PPS 

standard Federal payment rate. Our existing methodology for developing the 

MS-LTC-DRG relative payment weights includes established policies related to the data 

used to calculate the relative payment weights, the hospital-specific relative value 

methodology, the treatment of severity levels in the MS-LTC-DRGs, the low-volume and 

no-volume MS-LTC-DRGs, adjustments for nonmonotonicity, and the calculation of the 

MS-LTC-DRG relative payment weights with a budget neutrality factor (79 FR 50171). 

Our most recent discussion of the existing methodology for calculating the

MS-LTC-DRG relative payment weights can be found in the FY 2015 IPPS/LTCH final 

rule (79 FR 50168 through 50176). Our proposed methodology for calculating the 

FY 2016 MS-LTC-DRG relative payment weights (including a proposal to use only data 

from the LTCH PPS standard Federal payment rate cases) is discussed in section VII.C.3. 

of the preamble of this proposed rule.
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In response to our solicitation for stakeholder input included in the FY 2015 

IPPS/LTCH PPS proposed rule, we received numerous comments that addressed the 

calculation of the MS-LTC-DRG relative payment weights under the new statutory 

LTCH PPS structure. In its comment, MedPAC urged CMS to establish “. . . new 

relative payment weights for each MS-LTC-DRG based solely on the most recent 

available standardized data associated with discharges meeting the specified patient-level 

criteria” because those discharges under the new law would represent cases treating the 

most severely ill, incurring higher resource costs that warrant higher LTCH payments. 

MedPAC also stated that the change in methodology should not result in increased 

aggregate payments for the cases paid under the LTCH PPS standard Federal payment 

rate under the new statutory LTCH PPS structure. Most of the other commenters agreed 

with MedPAC’s recommendation that the MS-LTC-DRG relative payment weights under 

the new statutory structure should be calculated using only the data from cases that meet 

the statutory patient-level criteria for exclusion from the site neutral payment rate (that is, 

LTCH PPS standard Federal payment rate cases), without including data from cases paid 

the site neutral payment rate. A few commenters conducted their own analyses and 

found that both relative payment weight approaches (that is, using data from all LTCH 

PPS cases as compared to using only data from standard Federal payment rate cases) 

produce MS-LTC-DRG relative payment weights that are similar. In addition, some of 

the commenters urged CMS to focus on keeping payments for LTCH PPS standard 

Federal payment rate cases at the same level that would have been in the absence of the 

statutory changes, or otherwise consider employing a methodology that promotes 
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stability and predictability in the MS-LTC-DRG relative payment weights. Therefore, 

the overwhelming majority of the preliminary stakeholder feedback we received did not 

support using data from all LTCH PPS cases to determine the MS-LTC-DRG relative 

payment weights for the LTCH PPS standard Federal payment rate cases.

We appreciate the commenters’ detailed feedback and have taken into 

consideration their concerns and recommendations in our evaluation the issue of the 

MS-LTC-DRG relative payment weights under the new LTCH PPS structure required by 

section 1206(a) of Pub. L. 113–67. As part of our evaluation, we examined the FY 2013 

LTCH claims data used to determine the FY 2015 MS-LTC-DRG relative weights and 

found that approximately 54 percent of LTCH cases would meet the criteria for exclusion 

from the site neutral payment rate (that is, those cases would be paid the LTCH PPS 

standard Federal payment rate) and approximately 46 percent of LTCH cases would be 

paid the site neutral payment rate. We then compared the MS-LTC-DRG relative 

payment weights computed using data from all LTCH PPS cases to the MS-LTC-DRG 

relative payment weights computed using only data from the LTCH PPS standard Federal 

payment rate cases. Specifically, using the FY 2013 LTCH claims data (the same LTCH 

claims data used in the FY 2015 IPPS/LTCH PPS final rule), we calculated FY 2015 

MS-LTC-DRG relative payment weights using only data from the 54 percent of LTCH 

PPS cases that would be paid the LTCH PPS standard Federal payment rate, and 

compared them to the FY 2015 MS-LTC-DRG relative payment weights established in 

Table 11 of the FY 2015 IPPS/LTCH PPS final rule, which were calculated using data 

from all LTCH cases (that is, both LTCH PPS standard Federal payment rate cases and 
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site neutral payment rate cases). Similar to results found by industry stakeholders, we 

found that both approaches produced comparable MS-LTC-DRG payments for LTCH 

PPS standard Federal payment rate cases. For example, our analysis of the average 

MS-LTC-DRG relative payment weight (that is, the case-mix) of LTCH PPS cases that 

would be paid the LTCH PPS standard Federal payment rate showed that the average 

case-mix using relative payment weights determined from using only data from LTCH 

PPS standard Federal payment rate cases differed by only approximately 0.01 percentage 

point from the average case-mix of those same cases using relative weights determined 

from data from all LTCH PPS cases.

However, as discussed in more detail in section VII.B.7.b. of the preamble of this 

proposed rule, where we present our proposals regarding outlier payments for site neutral 

payment rate cases, we believe that the costs and resource use for cases paid at the site 

neutral payment rate in the future may be lower on average than the costs and resource 

use for LTCH cases in our historical data that would have been paid at the site neutral 

payment rate if the statutory changes were in place when the discharges occurred. We 

believe that this is likely, even if the proportion of site neutral payment rate cases in 

future data remains similar to the historical data (that is, 46 percent). Therefore, even 

though the above analysis shows that including or excluding what would have been site 

neutral payment rate cases if the new statutory requirements were applied to the historical 

discharges would not have much impact on the relative payment weight calculation for 

FY 2016, over time we believe that the relative payment weights could become distorted 

if future site neutral payment rate cases involve less intensive resource use and lower 
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costs, which we believe is a plausible response to the lower site neutral payment rates 

under the statutory LTCH PPS changes. This also could lead to less stability in the 

MS-LTC-DRG relative payment weights because these cases become incorporated into 

data used to calculate the relative payment weights.

Taking all of this information into account and given the comments we received 

on this issue in the FY 2015 rulemaking cycle, we believe that computing the 

MS-LTC-DRG relative payment weights using only data from LTCH PPS cases that 

would have been (or, in the future, are) paid the LTCH PPS standard Federal payment 

rate (that is, cases that meet the criteria for exclusion from the site neutral payment rate) 

would result in the most appropriate payments under the new statutory structure. 

Therefore, in this proposed rule, we are proposing that, beginning with FY 2016, the 

annual recalibration of the MS-LTC-DRG relative payment weighting factors would be 

determined using only data from LTCH discharges that meet the criteria for exclusion 

from the site neutral payment rate (that is, LTCH PPS standard Federal payment rate 

cases). Under our proposal, the MS-LTC-DRG relative payment weights would not be 

used to determine the LTCH PPS payment for cases paid the site neutral payment rate, 

and (in general) site neutral payment rate cases would be paid an IPPS comparable per 

diem amount (or 100 percent of the estimated cost of the case, if lower), which in most 

instances would be lower than the LTCH PPS standard Federal payment rate.

As discussed above, several commenters also stated that payments for LTCH PPS 

standard Federal payment rate cases should be held at the same payment level that they 

would have been in the absence of the statutory changes. That is, any proposed changes 
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in methodology should not result in any change (increase or decrease) in aggregate 

payments for LTCH PPS standard Federal payment rate cases under the new statutory 

LTCH PPS structure. As discussed in section VII.C.3. of the preamble of this proposed 

rule, under the existing LTCH PPS regulations at § 412.517(b), we already have a budget 

neutrality requirement for the annual changes to the MS-LTC-DRG classifications and 

relative payment weights, which specifies that any such changes must be made in a 

budget neutral manner such that estimated aggregate LTCH PPS payments are not 

affected. We are proposing to continue to apply that provision because we believe that a 

budget neutrality requirement is appropriate for the MS-LTC-DRG relative payment 

weights that would be used to determine LTCH PPS payments for LTCH PPS standard 

Federal payment rate cases for the reasons discussed when the policy was originally 

adopted in the FY 2008 LTCH PPS final rule (72 FR 26880 through 26884). Therefore, 

we are not proposing any changes to the budget neutrality requirement at § 412.517(b). 

Furthermore, in light of our proposals regarding the MS-LTC-DRG relative payment 

weighting factors, we are proposing to add paragraph (c) to § 412.517 to specify that, 

beginning in FY 2016, the annual recalibration of the MS-LTC-DRG relative weighting 

factors are determined using data from LTCH discharges described under proposed new 

§ 412.522(a)(2). As discussed above, we believe that computing the MS-LTC-DRG 

relative payment weights using only data from LTCH PPS standard Federal payment rate 

cases would result in the most appropriate payments under the new statutory structure 

required by section 1206(a) of Pub. L. 113-67, and would provide stability and 
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predictability in MS LTC-DRG payments for LTCH PPS standard Federal payment rate 

cases compared to current LTCH PPS payments.

b. High-Cost Outliers

Under the LTCH PPS, the existing regulations at § 412.525(a) provide for an 

additional adjustment to LTCH PPS payments to account for outlier cases that have 

extraordinarily high costs relative to the costs of most discharges (referred to as high-cost 

outliers (HCOs).) Providing such adjustments for HCOs strongly improves the accuracy 

of the LTCH PPS in determining resource costs at the patient and hospital level. In 

addition, HCO payments reduce the financial losses that would otherwise be incurred by 

hospitals when treating patients who require more costly care and, therefore, reduce the 

incentives to underserve these patients. Currently, we set the HCO threshold before the 

beginning of the payment year so that total estimated HCO payments are projected to 

equal 8 percent of estimated total payments under the LTCH PPS. Under our current 

HCO policy, an LTCH would receive an additional payment if the estimated cost of a 

case exceeds the adjusted LTCH PPS payment plus a fixed-loss amount. In such cases, 

the additional HCO payment amount is equal to 80 percent of the difference between the 

estimated cost of the case and the HCO threshold, which is the sum of the adjusted 

Federal MS-LTC-DRG prospective payment amount for the case and the fixed-loss 

amount. The fixed-loss amount is the amount used to limit the loss that an LTCH would 

incur under the HCO 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 HCO policy, the fixed-loss amount is the maximum loss that an LTCH 
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can incur for a case with unusually high costs before receiving an additional payment 

amount. The additional payment amount under the LTCH PPS HCO policy is 

determined using a marginal cost factor, which is a fixed percentage of costs above the 

HCO threshold. The marginal cost factor under the LTCH PPS HCO policy is 80 

percent.

Under the current HCO policy, we annually 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 an adjustment is made to the payment for the case. We do so 

by using the best available data to estimate aggregate LTCH PPS payments with and 

without a HCO policy, and, based on those estimates, set the fixed-loss amount at an 

amount that results in estimated total HCO payments being equal to 8 percent of 

estimated total LTCH PPS payments. Additional information on the LTCH PPS HCO 

methodology can be found in the FY 2003 LTCH PPS final rule (67 FR 56022 through 

56027) and the FY 2015 IPPS/LTCH PPS final rule (79 FR 50398 through 50400).

As discussed in the previous section, under the new statutory LTCH PPS 

structure, section 1206(a) of Pub. L.113–67 establishes two distinct payment rates for 

LTCH discharges beginning in FY 2016. To implement this statutory change, under 

proposed new § 412.522(a)(2), we are proposing to pay for LTCH discharges that meet 

the criteria for exclusion from site neutral payment rate based on the LTCH PPS standard 

Federal payment rate, which includes HCO payments. Under proposed new 

§ 412.522(c), consistent with the statute, we are proposing that the site neutral payment 

rate is the lower of the IPPS comparable per diem amount as determined under existing 
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§ 412.529(d)(4) (including any applicable adjustments, such as outlier payments), or 

100 percent of the estimated cost of the case as determined under existing 

§ 412.529(d)(2). Below we discuss our proposals for determining HCO payments under 

the new statutory LTCH PPS payment structure.

In response to our solicitation for stakeholder input included in the FY 2015 

IPPS/LTCH PPS proposed rule, we received numerous comments that addressed the 

HCO policy under the new statutory LTCH PPS structure. In its comment, MedPAC 

recommended that both LTCH PPS standard Federal rate cases and site neutral payment 

rate cases receive HCO payments, and that estimated total HCO payments under the 

LTCH PPS continue to be projected to be equal to 8 percent of estimated total LTCH PPS 

payments for all cases (that is, both the LTCH PPS standard Federal payment rate cases 

and the site neutral payment rate cases). In contrast, most of the other commenters 

recommended that separate HCO fixed-loss amounts and separate HCO payment 

“targets” (that is, the projected percentage that estimated HCO payments are of estimated 

total payments) be determined for LTCH PPS standard Federal payment rate cases and 

site neutral payment rate cases. Specifically, these commenters recommended that we 

calculate a fixed-loss amount under the current HCO policy for LTCH PPS standard 

Federal payment rate cases using only data (and estimated payments) from what would 

have been or are LTCH PPS standard Federal payment rate cases, without including data 

(and estimated payments) from cases that would have been or are paid the site neutral 

payment rate. In addition, some of the commenters recommended initially applying the 

existing HCO policy separately to both LTCH PPS standard Federal payment rate cases 
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and site neutral payment rate cases; that is, determining separate HCO fixed-loss amounts 

so that estimated HCO payments would be equal to 8 percent of estimated total payments 

for each of the two LTCH PPS payment types (the LTCH PPS standard Federal payment 

rate cases and site neutral payment rate cases), respectively, and then adjusting the HCO 

targets as more data under the statutory revisions to the LTCH PPS become available. In 

other words, commenters suggested that it may be more appropriate to have different 

HCO targets for the two LTCH PPS payment types rather than two HCO targets of 8 

percent. When making recommendations regarding the HCO policy under the statutory 

LTCH PPS changes, several commenters urged CMS to focus on maintaining LTCH PPS 

payments for LTCH PPS standard Federal payment rate cases at the same payment level 

as they are currently under the LTCH PPS, including the level of HCO payments, and to 

mitigate any instability in the HCO fixed-loss amount for LTCH PPS standard Federal 

payment rate cases.

Several commenters conducted independent analyses that looked at separate HCO 

fixed-loss amounts for LTCH PPS standard Federal payment rate cases and site neutral 

payment rate cases. Upon review of their analyses, these commenters specifically 

recommended that separate HCO fixed-loss amounts be used for the two LTCH PPS 

payment types. A few of the commenters’ analyses included assumptions about LTCH 

behavioral response to statutory changes to the LTCH PPS (such as changes in patient 

volume and costs). A few commenters indicated that using historical data would not 

reflect the anticipated behavioral response as a result of the new statutory payment 

structure and, therefore, may lead to an overestimation of costs and HCO payments 
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(particularly with regard to payments for site neutral payment rate cases), resulting in a 

fixed-loss amount that is set too high relative to the HCO target. If this were to occur, 

these commenters expressed concern that LTCHs would be “underpaid” because HCO 

payments are budget neutral and actual HCO payments would fall below the HCO 

payments target.

We appreciate the commenters’ detailed feedback and have taken their concerns 

and recommendations into consideration while framing our proposed HCO policy under 

the new statutory LTCH PPS structure. As we always have for the LTCH PPS, we 

designed our proposed HCO policy under the new statutory structure to achieve a balance 

of the following goals: to reduce financial risk, reduce incentives to underserve costly 

beneficiaries, and improve the overall fairness of the PPS (67 FR 56023). With these 

goals in mind, we evaluated whether it would be appropriate to modify our current HCO 

policy to account for the establishment of the new LTCH PPS dual-rate payment 

structure. This included examining whether our current HCO target, under which we set 

a single fixed-loss amount so that estimated total HCO payments are projected to equal 

8 percent of estimated total LTCH PPS payments, should continue to be used upon 

implementation of the statutory LTCH PPS payment changes, or whether it would be 

more appropriate to have two separate HCO targets (one for LTCH PPS standard Federal 

payment rate cases and one for site neutral payment rate cases).

In examining this issue, we considered how LTCH discharges based on historical 

claims data would have been classified under the new dual-rate LTCH PPS payment 

structure and the CMS’ Office of the Actuary (OACT) projections regarding how LTCHs 
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would likely respond to our proposed implementation of policies resulting from the 

statutory payment changes. For FY 2016, our actuaries currently project that the 

proportion of cases that would qualify as LTCH PPS standard Federal payment rate cases 

versus site neutral payment rate cases under the new statutory provisions would remain 

consistent with what is reflected in the historical LTCH PPS claims data. (As previously 

noted, based on FY 2013 LTCH claims data, we found that approximately 54 percent of 

LTCH cases would have been paid the LTCH PPS standard Federal payment rate and 

approximately 46 percent of LTCH cases would have been paid the site neutral payment 

rate if those rates had been in effect at that time.) While our actuaries do not project an 

immediate change in these proportions, they do project cost and resource changes to take 

into account the lower payment rates. Our actuaries also project that the costs and 

resource use for cases paid at the site neutral payment rate would likely be lower, on 

average, than the costs and resource use for cases paid at the LTCH PPS standard Federal 

payment rate and would likely mirror the costs and resource use for IPPS cases assigned 

to the same MS-DRG, regardless of whether the proportion of site neutral payment rate 

cases in the future remains similar to what is found based on the historical data. This 

actuarial assumption is based on our expectation that site neutral payment rate cases 

would generally be paid based on an IPPS comparable per diem amount under the 

statutory LTCH PPS payment changes, which, in the majority of cases, is much lower 

than the payment that would have been paid if these statutory changes were not enacted. 

These assumptions are consistent with statements from several commenters who noted 

that the type of site neutral payment rate cases may change in cost and severity over time 
CMS-1632-P 881

in response to the new statutory payment structure because the payment for those cases 

would generally be lower than the current payment made under the LTCH PPS for these 

types of cases.

In light of these projections and expectations, we believe that the use of a single 

fixed-loss amount and HCO target for all LTCH PPS cases would be problematic. 

Currently, the FY 2015 LTCH PPS fixed-loss amount is $14,972, which was determined 

using FY 2013 LTCH claims data (79 FR 50400). The FY 2015 IPPS fixed-loss amount 

is $25,799 (79 FR 50374). A single fixed-loss amount and target under the LTCH PPS 

would allow LTCH cases paid at the site neutral payment rate to qualify for HCO 

payments much more easily than comparable IPPS cases assigned to the same MS-DRG. 

This would occur because the HCO threshold (which is generally the sum of the adjusted 

Federal PPS payment for the case and the fixed-loss amount) under the IPPS would be 

higher than the HCO threshold under the LTCH PPS for a case assigned to the same 

MS-DRG (which would be expected to have a comparable adjusted Federal PPS 

payment, costs and resource use to a case paid as a LTCH PPS site neutral payment rate 

case). While we recognize that differing statutory requirements between the two 

payment systems result in comparable LTCH PPS site neutral payment rate cases and 

IPPS cases not being paid exactly the same amount, we do not believe that it would be 

appropriate for comparable LTCH PPS site neutral payment rate cases to receive 

dramatically different HCO payments from those cases that would be paid under the 

IPPS. Based on the FY 2015 figures, an IPPS hospital would have to absorb 

approximately $11,000 more in additional estimated costs than the LTCH treating a 
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comparable case based on the difference between the IPPS fixed-loss amount of $25,799 

and the LTCH PPS fixed-loss amount of $14,792 before it would begin to receive HCO 

payments. We believe that the most appropriate fixed-loss amount for site neutral 

payment rate cases under the LTCH PPS for a given fiscal year beginning with FY 2016 

would be the IPPS fixed-loss amount for that fiscal year. Therefore, for FY 2016, we are 

proposing a fixed-loss amount for site neutral payment rate cases of $24,485, which is the 

same proposed FY 2016 IPPS fixed-loss amount discussed in section II.A.4.g.(1) of the 

Addendum to this proposed rule. We believe that this proposed policy would reduce 

differences between HCO payments for similar cases under the IPPS and site neutral 

payment rate cases under the LTCH PPS and promote fairness between the two systems. 

We also are proposing to make a payment adjustment for HCOs paid under the site

neutral payment rate at a rate equal to 80 percent of the difference between the estimated 

cost of the case and the proposed IPPS HCO threshold, which is consistent with the 

current LTCH PPS HCO policy. The proposed IPPS HCO threshold for site neutral 

payment rate cases would be the sum of the LTCH PPS payment for such cases and the 

proposed IPPS fixed-loss amount of $24,485. In light of these proposals, we note that 

any site neutral payment rate case that is paid 100 percent of the estimated cost of the

case because that amount is lower than the IPPS comparable per diem amount would 

never be eligible to receive a HCO payment because, by definition, the estimated costs of 

such cases would never exceed the IPPS comparable amount by any threshold.

Having established the IPPS fixed-loss amount as an appropriate threshold to 

propose for HCOs paid under the site neutral payment rate, we next examined how to 
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establish an appropriate fixed-loss amount and HCO target for LTCH PPS standard 

Federal payment rate cases. With that said, we agree with the commenters who 

recommended that we establish a fixed-loss amount and target for LTCH PPS standard 

Federal payment rate cases using the current LTCH PPS HCO policy, but limiting the 

data used under that policy to what would have been LTCH PPS standard Federal 

payment rate cases if the statutory changes had been in effect at the time of those 

discharges. We agree with the commenters that believed that this policy would result in 

increased stability over time with respect to HCO payments for the LTCH PPS standard 

Federal payment rate cases. We also believe that this approach would meet the goals 

cited for our current HCO policy; that is, reducing financial risk, reducing incentives to 

underserve costly beneficiaries, and improving the overall fairness of the LTCH PPS 

(67 FR 56023). Therefore, we are not proposing any modifications to the HCO 

methodology as it applies to LTCH PPS standard Federal payment rate cases other than 

determining a fixed-loss amount using only data from LTCH PPS standard Federal 

payment rate cases. Specifically, under our proposal, LTCH PPS standard Federal 

payment rate cases as described under proposed new § 412.522(a)(2) would receive 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 HCO threshold, which would be the sum of the 

LTCH PPS payment for the LTCH PPS standard Federal payment rate case and the 

fixed-loss amount for such cases. The fixed-loss amount for LTCH PPS standard Federal 

payment rate cases would continue to be determined so that estimated HCO payments 
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would be projected to be equal to 8 percent of estimated total LTCH PPS payments for 

LTCH PPS standard Federal payment rate cases.

In this proposed rule, to codify our proposed changes to the HCO policy to 

account for the new statutory dual-rate LTCH PPS payment structure, we are proposing 

to revise paragraphs (a)(1), (a)(2), and (a)(3), and add a new paragraph (a)(4) to existing 

§ 412.525. In existing § 412.525 (a)(1), (a)(2), and (a)(3), we are proposing to make 

technical changes to the existing language to make it clear that the provisions in those 

paragraphs apply to LTCH discharges under both LTCH PPS payment rates (that is, site 

neutral payment rate cases as described at proposed new § 412.522(a)(1) and the standard 

Federal payment rate cases as described at proposed new § 412.522(a)(2)). Under the 

proposed added paragraph (a)(4) to § 412.524, we also are proposing to specify what the 

terms “applicable LTCH PPS prospective payment” and “applicable fixed-loss amount” 

mean for purposes of this paragraph. Specifically, we are proposing that, for purposes of 

§ 412.525(a), “applicable LTCH PPS prospective payment” would mean either the site 

neutral payment rate under proposed new § 412.522(c) for LTCH discharges described 

under proposed new § 412.522(a)(1) or the standard Federal prospective payment rates 

under § 412.523 for LTCH discharges described under proposed new § 412.522(a)(2). 

Similarly, we are proposing that, for purposes of § 412.525(a), “applicable fixed-loss 

amount” would mean either, for LTCH described under proposed new § 412.522(a)(1), 

the fixed-loss amount established for such cases, or, for LTCH discharges described 

under proposed new § 412.522(a)(2), the fixed-loss amount established for such cases. In 

addition, we are proposing to add language to paragraph (a) of § 412.525 to clarify that 
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the fixed-loss is the maximum loss that a LTCH can incur under the LTCH PPS for a 

case with unusually high costs “before receiving an additional payment,” and is not the 

maximum loss an LTCH can incur. We are proposing to make this clarification to 

highlight that the additional payment under the HCO policy is 80 percent (not 100 

percent) of the estimated costs above the outlier threshold (that is, the sum of the 

applicable LTCH PPS prospective payment and the applicable fixed-loss amount).

The current LTCH PPS HCO policy has a budget neutrality requirement in which 

the LTCH PPS standard Federal payment rate is reduced by an adjustment factor to 

account or the estimated proportion of HCO payments to total estimated LTCH PPS 

payments, that is, 8 percent. (We refer readers to § 412.523(d)(1) of the regulations.) 

This budget neutrality requirement is intended to ensure that the HCO policy would not 

result in any change in estimated aggregate LTCH PPS payments. Under our proposal to 

continue to apply the current HCO methodology as it relates to LTCH PPS standard 

Federal payment rate cases (other than determining a fixed-loss amount using only data 

from LTCH PPS standard Federal payment rate cases), we also would continue to apply 

the current budget neutrality requirement (described above). In accordance with the 

current LTCH PPS HCO policy budget neutrality requirement, we believe that the HCO 

policy for site neutral payment rate cases should also be budget neutral, meaning that the 

proposed site neutral payment rate HCO payments should not result in any change in 

estimated aggregate LTCH PPS payments. In order to achieve this, under proposed new 

§ 412.522(c)(2)(i),we are proposing to apply a budget neutrality factor to the payment for 

all site neutral payment rate cases described under proposed new § 412.522(a)(1), which 
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would also be established on an estimated basis. This approach is consistent with the 

HCO policy proposed for LTCH PPS standard Federal payment rate cases, which is 

budget neutral within the universe of LTCH PPS standard Federal payment rate cases. 

We are inviting public comments on this proposed approach and the alternative approach 

of applying a single budget neutrality factor to all LTCH PPS cases, irrespective of the 

site neutral payment rate.

In order to estimate the magnitude a proposed budget neutrality adjustment under 

our proposed HCO payment budget neutrality requirement for site neutral payment rate 

cases, we again relied on the assumption by our actuaries that site neutral payment rate 

cases would have lengths of stay and costs comparable to IPPS cases assigned to the 

same MS-DRG. Under the IPPS, the fixed-loss amount is estimated based on a 5.1 

percent target (79 FR 50378). In accordance with section 1886(d)(5)(A)(iv) of the Act, 

estimated operating IPPS HCO payments for any year are projected to be at least 

5 percent, but no more than 6 percent of estimated total operating DRG payments ,which 

does not include IME and DSH payments plus HCO payments. When setting the HCO 

threshold, we historically compute a 5.1 percent target by dividing the total operating 

IPPS HCO payments by the total operating IPPS DRG payments plus operating IPPS 

HCO payments (79 FR 50374). We believe that it would be reasonable to set the site 

neutral payment rate case HCO target at the IPPS HCO target because these cases are 

expected to have lengths of stay and costs comparable to IPPS cases assigned to the same 

MS-DRG. Furthermore, using the IPPS fixed-loss threshold for the site neutral payment 

rate cases would be expected to result in HCO payments for site neutral payment rate 
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cases that are similar in proportion as is seen in IPPS cases assigned to the same 

MS-DRG; that is, 5.1 percent. We recognize that, given the uncertainty surrounding the 

site neutral payment rate case population under the revised LTCH PPS and differences 

between the relative utilization of the MS-DRGs and MS-LTC-DRGs between the two 

systems, this prediction may not take effect. However, we must begin somewhere, and 

this proposed policy seems to be the best budget neutrality option at this time based on 

the information available to ensure LTCH PPS spending does not inappropriately 

increase under our proposal for site neutral payment rate HCO cases. As with all of our 

policies, we will continue to monitor HCOs payments under the LTCH PPS and, as 

necessary, propose modifications to this proposed method as needed based on what is 

observed during the implementation process.

Therefore, under proposed new § 412.522(c)(2)(i), we are proposing to adjust 

payments to site neutral payment rate cases (that is, LTCH PPS discharges described 

under proposed new § 412.522(a)(1)) by a budget neutrality factor so that the estimated 

HCO payments payable to site neutral payment rate cases do not result any increase in 

aggregate LTCH PPS payments. As discussed in greater detail in section V.D.4. of the 

Addendum to this proposed rule, in estimating total LTCH PPS payments in Federal 

FY 2016, we are proposing an adjustment to account for the varying effective dates of the 

statutory LTCH PPS payment changes required by section 1886(m)(6) of the Act, as 

amended by section 1206 of Pub. L. 113-67, which are effective for discharges occurring 

in cost reporting periods beginning on or after October 1, 2015.
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In addition to the proposed changes to the existing HCO policy under 

§ 412.525(a) and the budget neutrality adjustment to account for site neutral payment rate 

HCO payments under proposed § 412.522(c)(2)(i), we are proposing to make conforming 

changes to existing § 412.523 under paragraph (d)(1) to specify that the HCO target of 8 

percent in that provision only applies to HCO payments under § 412.525(a) as they relate 

to LTCH PPS standard Federal payment rate cases; that is, HCO payments made for 

discharges described under proposed new § 412.522(a)(2) and not all HCO payments 

described under proposed new § 412.525(a).

In summary, in this proposed rule, we are proposing to have separate HCO 

fixed-loss amounts and HCO targets (and corresponding budget neutrality adjustments) 

for site neutral payment rate cases and LTCH PPS standard Federal payment rate cases, 

respectively, under the new LTCH PPS dual-rate payment structure. For the reasons 

discussed above, we believe that separate and independent HCO fixed-loss amounts for 

each of the two types of LTCH PPS cases would result in the most appropriate payments 

under the LTCH PPS and achieve the stated goals of our HCO policy. In accordance 

with our proposed HCO policy for LTCH PPS standard Federal payment rate cases and 

site neutral payment rate cases, we are proposing that, beginning with FY 2016, our 

current HCO policy would apply to LTCH PPS standard Federal payment rate cases, such 

that LTCH PPS standard Federal payment rate cases would receive 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 LTCH PPS standard Federal payment HCO threshold (which would 

be the sum of the LTCH PPS standard Federal payment rate for the case and the 
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fixed-loss amount for such cases). The fixed-loss amount for LTCH PPS standard 

Federal payment rate cases would continue to be determined so that estimated HCO 

payments would be projected to equal 8 percent of estimated total LTCH PPS payments 

for LTCH PPS standard Federal payment rate cases. To maintain budget neutrality, the 

LTCH PPS standard Federal payment rate would continue to be adjusted by 8 percent to 

account for the estimated HCO payments to LTCH PPS standard Federal payment rate 

cases. Similarly, we are proposing that site neutral payment rate cases would receive 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 site neutral payment rate HCO threshold, which 

would be the sum of site neutral payment rate for the case and the fixed-loss amount for 

such cases. For site neutral payment rate cases, we are proposing to use the fixed-loss 

amount determined annually under the IPPS HCO policy, and we estimate that this would 

result in an estimated proportion of HCO payments to total LTCH PPS payments for site 

neutral payment rate cases of 5.1 percent. We are proposing that HCO payments to site 

neutral payment rate cases would be budget neutral, consistent with the current LTCH 

PPS HCO policy. To maintain budget neutrality, we are proposing to apply a budget 

neutrality factor to the LTCH PPS payments for site neutral payment rate cases. To 

codify the proposals discussed in this section, we are proposing to make changes to the 

existing HCO policy under § 412.525(a) and conforming changes to existing 

§ 412.523(d)(1), as well as a budget neutrality requirement for HCO payments to site 

neutral payment rate cases under proposed new § 412.522(c)(2)(i).

c. Limitation on Charges to Beneficiaries
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In accordance with existing regulations and for the consistency with other 

established hospital prospective payment systems polices, we are proposing to revise 

§ 412.507 to establish allowable charges to Medicare beneficiaries whose discharge from 

the LTCH is paid under the site neutral payment rate (as described in section VII.B.4. of 

the preamble of this proposed rule). Section 1206(a)(1) of Pub. L. 113-67 requires that, 

beginning with cost reporting periods occurring on or after October 1, 2015, all LTCH 

discharges be paid at the applicable site neutral payment rate unless certain criteria are 

met. In general, the site neutral rate payment would be based on the lesser of 100 percent 

of the estimated cost of the case or the IPPS comparable per diem amount (as discussed 

more detail in section VII.B.4.a. of the preamble of this proposed rule). We believe that, 

in general, the LTCH PPS payment an LTCH receives at the site neutral payment rate 

represents a full payment for purposes of determining allowable beneficiary charges for 

covered services. As such, using the broad authority conferred upon the Secretary under 

section 123(a)(1) of the BBRA, as amended by section 307(b) of the BIPA, we are 

proposing to revise § 412.507 to limit allowable charges to beneficiaries. Specifically, 

we are proposing that, if Medicare has paid the full site neutral payment rate for a 

discharge, an LTCH may only charge the beneficiary applicable deductibles and copay 

amounts until the high-cost outlier threshold is met. In addition, we are proposing to 

revise the terminology used under § 412.507 to differentiate between cases paid under the 

site neutral payment rate and those paid under the LTCH PPS standard Federal payment 

rate. We note that under this proposed revision, for a case paid under the site neutral 

payment rate, that payment applies to the LTCH’s costs for services furnished until the 
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high-cost outlier threshold is met, and LTCHs may charge the beneficiary for noncovered 

services in the same manner as if the case were paid under the LTCH PPS standard 

Federal payment rate, as specified under existing § 412.507. We are not proposing 

additional changes to our current provisions limiting charges to beneficiaries for 

discharges paid as SSO cases because, as explained in section VII.B.5. of the preamble of 

this proposed rule, we are not proposing to adopt any SSO payment adjustment policies 

for discharges paid under the site neutral payment rate at this time. We believe that these 

proposals concerning the limitation on charges to beneficiaries are in accordance with 

existing regulations and consistent with other established hospital payment systems 

policies.
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C. Proposed Medicare Severity Long-Term Care Diagnosis-Related Group 

(MS-LTC-DRG) Classifications and Relative Weights for FY 2016

1. Background

Section 123 of the BBRA required that the Secretary implement a PPS for LTCHs 

to replace the cost-based payment system under TEFRA. 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 the LTCH PPS on the use 

of “existing (or refined) hospital DRGs that have been modified to account for different 

resource use of LTCH patients.”

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 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 
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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 753 MS-DRG groupings. For FY 2016, there 

would be 758 MS-DRG groupings if we finalize all of the proposed changed discussed in 

section II.G. of the preamble of this proposed rule. 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 
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existing methodology for determining the proposed FY 2016 MS-LTC-DRG relative 

weights under the LTCH PPS.

In this proposed rule, in general, for FY 2016, we are proposing to use the same 

methodology and steps to determine the MS-LTC-DRG relative weights (as discussed in 

greater detail in section VII.C.3. of the preamble of this proposed rule). However, under 

the dual-rate LTCH PPS payment structure required by statute, we are proposing that, 

beginning with FY 2016, the annual recalibration of the MS-LTC-DRG relative weights 

would be determined (1) using only data from available LTCH PPS claims that would 

have qualified for payment under the new LTCH PPS standard Federal payment rate if 

that rate were in effect when claims data from time periods before the new statutory 

dual-rate LTCH PPS payment structure applies were used to calculate the relative 

weights, and (2) using only data from available LTCH PPS claims that qualify for 

payment under the new LTCH PPS standard Federal payment rate when claims data from 

time periods after the dual rate LTCH PPS payment structure applies are used to calculate 

the relative weights. For the remainder of this discussion, we use the phrase “applicable 

LTCH cases” or “applicable LTCH data” when referring to the resulting claims data set 

used to calculate the relative weights (as described in greater detail in section VII.C.3.c. 

of the preamble of this proposed rule). In addition, we are proposing to continue to 

exclude the data from all-inclusive rate providers and LTCHs paid in accordance with 

demonstration projects, as well as any Medicare Advantage claims from the 

MS-LTC-DRG relative weight calculations for the reasons discussed in section VII.C.3.c. 

of the preamble of this proposed rule.
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Under our proposal, the MS-LTC-DRG relative weights would not be used to 

determine the LTCH PPS payment for cases paid at the site neutral payment rate and data 

from cases paid at the site neutral payment rate or that would have been paid at the site 

neutral payment if the dual rate LTCH PPS payment structure had been in effect would 

not be used to develop the relative weights. (For details on our proposed application of 

the site neutral payment rate, we refer readers to section VII.B. of the preamble of this 

proposed rule. For additional information on our proposal to use data from applicable 

LTCH cases to determine the MS-LTC-DRG relative weights under the statutory 

dual-rate LTCH PPS payment structure, we refer readers to section VII.B.7.a. of the 

preamble of this proposed rule.)

Furthermore, for FY 2016, in using data from applicable LTCH cases to establish 

MS-LTC-DRG relative weights, we are proposing to continue to establish low-volume 

MS-LTC-DRGs (that is, MS-LTC-DRGs with less than 25 cases) using our quintile 

methodology in determining the MS-LTC-DRG relative weights because LTCHs do not 

typically treat the full range of diagnoses as do acute care hospitals. Therefore, for 

purposes of determining the relative weights for the large number of low-volume 

MS-LTC-DRGs, we group all of the low-volume MS-LTC-DRGs into five quintiles 

based on average charges per discharge. Then, under our existing methodology, we 

account for adjustments made to LTCH PPS standard Federal payment rate 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 five-sixths of the geometric average length of stay for the 

MS-LTC-DRG), and we make adjustments to account for nonmonotonically increasing 
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weights, when necessary. The methodology is premised on more severe cases under the 

MS-LTC-DRG system requiring greater expenditure of medical care resources and higher 

average charges such that, in the severity levels within a base MS-LTC-DRG, the relative 

weights should increase monotonically with severity from the lowest to highest severity 

level. (We discuss each of these components of our MS-LTC-DRG relative weight 

methodology in greater detail in section VII.C.3.g. of the preamble of this proposed rule.)

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.
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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.

Currently, for claims submitted on the 5010 format, up to 25 diagnosis codes and 

25 procedure codes are considered for an MS-DRG assignment. This includes one 

principal diagnosis and up to 24 secondary diagnoses for severity of illness 

determinations. (For additional information on the processing of up to 25 diagnosis 

codes and 25 procedure codes on hospital inpatient claims, we refer readers to section 

II.G.11.c. of the preamble of the FY 2011 IPPS/LTCH PPS final rule (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: 
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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.)

Currently, 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. Hospitals, including LTCHs, are required to use the ICD-10 coding 

system effective October 1, 2015. Consequently, providers will begin using the code sets 

under the ICD-10 coding system to report diagnoses (ICD-10-CM codes) and procedures 

(ICD-10-PCS codes) for Medicare hospital inpatient services under the MS-DRG system 
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(and by extension the MS-LTC-DRG system) beginning October 1, 2015. For additional 

information on the implementation of the ICD-10 coding system, we refer readers to 

section II.G.1. of the preamble of this proposed rule.

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).

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 
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contractor determines the prospective payment amount by using the Medicare PRICER 

program, which accounts for hospital-specific adjustments. Under the LTCH PPS, we 

provide an opportunity for LTCHs to review the MS-LTC-DRG assignments made by the 

Medicare contractor and to submit additional information within a specified timeframe as 

provided in § 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 2016

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, 2015, through September 30, 2016 (FY 2016) 

consistent with the proposed changes to specific MS-DRG classifications presented in 

section II.G. of the preamble of this proposed rule. Therefore, the proposed 

MS-LTC-DRGs for FY 2016 presented in this proposed rule are the same as the proposed 

MS-DRGs that are being proposed for use under the IPPS for FY 2016. Specifically, as 
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discussed in section II.G.1.b. of this preamble of this proposed rule, we are proposing to 

use the ICD-10 MS-DRGs Version 33 as the replacement logic for the ICD-9-CM based 

MS-DRGs Version 32 as part of the proposed MS-DRG updates (and by extension the 

MS-LTC-DRG) updates for FY 2016. The proposed GROUPER Version 33 is based on 

ICD-10-CM/PCS diagnoses and procedure codes, consistent with the requirement to use 

ICD-10 beginning October 1, 2015, as noted above and discussed in greater detail section 

II.G.1. of the preamble of this proposed rule. We are inviting public comments on how 

well the ICD-10 MS-DRGs Version 33 (and by extension the ICD-10 MS-LTC-DRGs 

Version 33) replicates the logic of the ICD-9 MS-DRGs Version 32 (and by extension 

ICD-9 MS-LTC-DRGs Version 32). (We note that, when referencing MS-LTC-DRGs 

Version 33 in the remainder of this section, we are referring to the ICD-10-based 

MS-LTC-DRGs Version 33 unless otherwise stated. Similarly, when referencing 

MS-LTC-DRGs Version 32 for the remainder of this section, we are referring to the 

ICD-9-based MS-LTC-DRGs Version 32 unless otherwise stated.) In addition, because 

the proposed MS-LTC-DRGs for FY 2016 are the same as the proposed MS-DRGs for 

FY 2016, the other proposed changes that affect MS-DRG (and by extension 

MS-LTC-DRG) assignments under proposed GROUPER Version 33, as discussed in 

section II.G. of the preamble of this proposed rule, including the proposed changes to the 

MCE software and the ICD-10 coding system, would also be applicable under the LTCH 

PPS for FY 2016.
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3. Development of the Proposed FY 2016 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. In order to make these annual adjustments under the new dual-rate LTCH 

PPS payment structure required by the statute, as previously discussed in section 

VII.B.7.a. of the preamble of this proposed rule, we are proposing, beginning with 

FY 2016, to recalibrate the MS-LTC-DRG relative weighting factors annually using data 

from applicable LTCH cases. Under this proposal, the resulting MS-LTC-DRG relative 

weights would continue to be used to adjust the LTCH PPS standard Federal rate when 

calculating the payment for standard payment rate cases. However, the MS-LTC-DRG 

relative weights would not be used to determine the LTCH PPS payment for cases paid 

under the site neutral payment rate. (For details on our proposed application of the site 

neutral payment rate, we refer readers to section VII.B. of the preamble of this proposed 

rule.)

The basic methodology used to develop the MS-LTC-DRG relative weights is 

generally consistent with the general methodology established when the LTCH PPS was 
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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. Development of the Proposed MS-LTC-DRG Relative Weights for FY 2016

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50170 through 50176), we 

presented our policies for the development of the MS-LTC-DRG relative weights for 

FY 2015. The basic methodology we used to develop the FY 2015 MS-LTC-DRG 

relative weights was the same as the methodology we used to develop the FY 2014 

MS-LTC-DRG relative weights in the FY 2014 IPPS/LTCH PPS final rule and was 
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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 proposed rule, we are proposing to continue to use the same general 

methodology to determine the proposed MS-LTC-DRG relative weights for FY 2016, 

including the proposed application of established policies related to, the hospital-specific 

relative value methodology, the treatment of severity levels in the proposed 

MS-LTC-DRGs, proposed low-volume and no-volume MS-LTC-DRGs, proposed 

adjustments for nonmonotonicity, and the steps for calculating the proposed 

MS-LTC-DRG relative weights with a proposed budget neutrality factor. However, as 

previously noted and discussed in greater detail in section VII.B.7.a. of the preamble of 

this proposed rule, under the dual-rate LTCH PPS payment structure required by statute, 

we are proposing that the FY 2016 MS-LTC DRG relative weights would be determined 

based only on data from applicable LTCH cases. We discuss the effects of our proposal 

concerning the data used to determine the FY 2016 MS-LTC-DRG relative weights on 

the various components of our existing methodology in the discussion that follows.

Furthermore, as we have done since the FY 2008 update, we are proposing to 

apply a two-step budget neutrality adjustment to 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). For additional information on the established two-step 
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budget neutrality methodology, we refer readers to the FY 2008 IPPS final rule 

(72 FR 47295 through 47296). Below we present our proposed methodology for 

determining the proposed MS-LTC-DRG relative weights for FY 2016 LTCH PPS 

standard Federal payment rate payments, which is generally consistent with the 

methodology presented in the FY 2015 IPPS/LTCH PPS final rule, except for the 

proposed use of applicable LTCH data.

c. Applicable LTCH Data

For this FY 2016 proposed rule, to calculate the proposed MS-LTC-DRG relative 

weights for FY 2016 LTCH PPS standard Federal payment rate payments, we obtained 

total charges from FY 2014 Medicare LTCH claims data from the December 2014 update 

of the FY 2014 MedPAR file, which are the best available data at this time, and the 

proposed Version 33 of the GROUPER to classify LTCH cases. Consistent with our 

historical practice, we are proposing that if more recent data become available, we would 

use those data and the finalized Version 33 of the GROUPER in establishing the FY 2016 

MS-LTC-DRG relative weights in the final rule. To calculate the proposed FY 2016 

MS-LTC-DRG relative weights under the new statutory dual-rate LTCH PPS payment 

structure that will be effective beginning October 1, 2015, as previously discussed in 

section VII.B.7.a. of the preamble of this proposed rule, beginning with the annual 

recalibration of the MS-LTC-DRG relative weights for FY 2016, we are proposing to use 

applicable LTCH data. Accordingly, we began by first evaluating the LTCH claims data 

in the December 2014 update of the FY 2014 MedPAR file to determine which LTCH 

cases would have met the criteria for exclusion from the site neutral payment rate under 
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proposed § 412.522(b) (as discussed in greater detail in section VII.B.3. of the preamble 

of this proposed rule) had the new dual-rate LTCH PPS payment structure been in effect 

at the time those claims were processed. We identified the FY 2014 LTCH cases that 

were not assigned to MS-LTC-DRGs 876, 880, 881, 882, 883, 884, 885, 886, 887, 894, 

895, 896, 897, 945 and 946, which, under our proposals, would identify LTCH cases that 

do not have a principal diagnosis relating to a psychiatric diagnosis or to rehabilitation (as 

discussed in section VII.B.3.b. of the preamble of this proposed rule); and that either—

● The admission to the LTCH was “immediately preceded” by discharge from a 

subsection (d) hospital and the immediately preceding stay in that subsection (d) hospital 

included at least 3 days in an ICU, as we define under the proposed ICU criterion 

(discussed in section VII.B.3.e. of the preamble of this proposed rule); or

● The admission to the LTCH was “immediately preceded” by discharge from a 

subsection (d) hospital and the claim for the LTCH discharge includes the applicable 

procedure code that indicates at least 96 hours of ventilator services were provided during 

the LTCH stay, as we define under the proposed ventilator criterion (discussed in section 

VII.B.3.f. of the preamble of this proposed rule). Claims data from December 2014 

update of the FY 2014 MedPAR file that reported ICD-9-CM procedure code 96.72 were 

used to identify cases involving at least 96 hours of ventilator services in accordance with 

the proposed ventilator criterion. (We note that the corresponding ICD-10-PCS code for 

cases involving at least 94 hours of ventilation services is 5A1955Z, effective as of 

October 1, 2015.)
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Then, consistent with our historical methodology, we excluded any claims in the 

resulting data set that were submitted by LTCHs that are all-inclusive rate providers and 

LTCHs that are reimbursed in accordance with demonstration projects authorized under 

section 402(a) of Pub. L. 90-248 or section 222(a) of Pub. L. 92-603. In addition, 

consistent with our historical practice, we excluded the Medicare Advantage (Part C) 

claims that were in the resulting data set based on the presence of a GHO Paid indicator 

value of “1” in the MedPAR files. The claims that remained after these three trims (that 

is, the applicable LTCH data) were then used to calculate the proposed relative weights 

for the LTCH PPS standard Federal payment rate payments for FY 2016.

In summary, in identifying the claims data for the development of the proposed 

FY 2016 MS-LTC-DRG relative weights in this proposed rule, we are proposing to use 

claims data after we trim the claims data of 10 all-inclusive rate providers and the 1 

LTCH that is paid in accordance with a demonstration project reported in the December 

2014 update of the FY 2014 MedPAR file, as well as any Medicare Advantage claims 

data for cases that would have met the criteria for exclusion from the site neutral payment 

rate under proposed § 412.522(b) if the new dual-rate LTCH PPS payment structure were 

in effect at the time those claims were processed. We are proposing to use the remaining 

data (that is, the applicable LTCH data) to calculate the proposed relative weights for the 

LTCH PPS standard Federal payment rate payments for FY 2016.

d. Hospital-Specific Relative Value (HSRV) Methodology

By nature, LTCHs often specialize in certain areas, such as ventilator-dependent 

patients. Some case types (MS-LTC-DRGs) may be treated, to a large extent, in 
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hospitals that have, from a perspective of charges, relatively high (or low) charges. This 

nonrandom distribution of cases with relatively high (or low) charges in specific 

MS-LTC-DRGs has the potential to inappropriately distort the measure of average 

charges. To account for the fact that cases may not be randomly distributed across 

LTCHs, consistent with the methodology we have used since the implementation of the 

LTCH PPS, we are proposing to continue to use a hospital-specific relative value 

(HSRV) methodology to calculate the proposed MS-LTC-DRG relative weights for 

FY 2016 LTCH PPS standard Federal payment rate payments. We believe this method 

removes this hospital-specific source of bias in measuring LTCH average charges (67 FR 

55985). Specifically, under this methodology, we are proposing to reduce the impact of 

the variation in charges across providers on any particular MS-LTC-DRG relative weight 

by converting each LTCH’s charge for an applicable LTCH case to a relative value based 

on that LTCH’s average charge for such cases.

Under the HSRV methodology, we standardize charges for each LTCH by 

converting its charges for each applicable LTCH 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; therefore, 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 applicable LTCH cases it treats 
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relative to the complexity of the applicable LTCH cases treated by all other LTCHs (the 

average LTCH PPS case-mix of all applicable LTCH cases across all LTCHs).

In accordance with our established methodology, we standardize charges for each 

applicable LTCH case by first dividing the adjusted charge for the case (adjusted for 

SSOs under § 412.529 as described in section VII.C.3.g. (Step 3) of the preamble of this 

proposed rule) by the average adjusted charge for all applicable LTCH 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 case-mix, 

but an average adjusted charge of $35,000. We believe that the adjusted charge of an 
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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 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: (1) MS-LTC-DRGs with at least 25 

applicable LTCH cases in the data used to calculate the relative weight, which are each 

assigned a unique relative weight; (2) low-volume MS-LTC-DRGs (that is, 

MS-LTC-DRGs that contain between 1 and 24 applicable LTCH cases that are grouped 

into quintiles (as described below) and assigned the relative weight of the quintile; and 

(3) no-volume MS-LTC-DRGs that are cross-walked to other MS-LTC-DRGs based on 

the clinical similarities and assigned the relative weight of the cross-walked 

MS-LTC-DRG (as described in greater detail below). We are proposing to use applicable 

LTCH cases to establish the same volume-based categories to calculate the FY 2016 

relative weights for LLTCH PPS standard Federal payment rate payments. This 

approach is consistent with our policies regarding the continued use of our existing 

methodology related to the treatment of severity levels as presented in the FY 2015 

IPPS/LTCH PPS final rule (79 FR 50172).

We provide in-depth discussions of our proposed policy regarding weight-setting 

for proposed low-volume MS-LTC-DRGs in section VII.C.3.f. of the preamble of this 
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proposed rule and for proposed no-volume MS-LTC-DRGs, under proposed Step 5 in 

section VII.C.3.g. of the preamble of this proposed rule.) Furthermore, in determining 

the proposed FY 2016 MS-LTC-DRG relative weights for LTCH PPS standard Federal 

payment rate payments, when necessary, we are proposing to make adjustments to 

account for nonmonotonicity, as discussed in greater detail below in proposed Step 6 of 

section VII.C.3.g. of the preamble of this proposed rule. 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 for LTCH PPS Standard Federal 

payment rate cases with low-volume (that is, with fewer than 25 applicable LTCH cases), 

consistent with our existing methodology for purposes of determining the FY 2015 

MS-LTC-DRG relative weights, we are proposing to employ the quintile methodology 

for proposed low-volume MS-LTC-DRGs, such that we group the proposed “low-volume 

MS-LTC-DRGs” (that is, proposed MS-LTC-DRGs that contain between 1 and 24 

applicable LTCH cases into one of five categories (quintiles) based on average charges 

(67 FR 55984 through 55995 and 72 FR 47283 through 47288). In cases where the initial 

assignment of a proposed low-volume MS-LTC-DRG to a quintile results in 

nonmonotonicity within a base-DRG, we are proposing to make adjustments to the 

resulting low-volume MS-LTC-DRGs to preserve monotonicity, as discussed in detail 

below in section VII.C.3.g. (Step 6) of the preamble of this proposed rule.
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We identified 250 proposed MS-LTC-DRGs that contained between 1 and 24 

applicable LTCH cases. This list of proposed MS-LTC-DRGs was then divided into one 

of the proposed 5 low-volume quintiles, each containing 50 MS-LTC-DRGs (250/5 = 

50). We assigned the proposed low-volume MS-LTC-DRGs to specific proposed 

low-volume quintiles by sorting the proposed low-volume MS-LTC-DRGs in ascending 

order by average charge in accordance with our established methodology. Based on the 

data available for this proposed rule, the number of proposed MS-LTC-DRGs with less 

than 25 applicable LTCH cases was evenly divisible by 5. Therefore, it was not 

necessary to employ our historical methodology for determining which of the 

low-volume quintiles contain an additional low-volume MS-LTC-DRG. If the number of 

MS-LTC-DRGs with less than 25 applicable LTCH cases from the most recent data 

available for the final rule does not divide evenly, we are proposing to use our historical 

methodology for determining which quintiles would contain the additional MS-LTCDRGs. For this proposed rule, after organizing the MS-LTC-DRGs by ascending order 

by average charge, we assigned the first fifth (1st through 50th) of proposed low-volume 

MS-LTC-DRGs (with the lowest average charge) into proposed Quintile 1. The 50 

proposed MS-LTC-DRGs with the highest average charge cases were assigned into 

proposed Quintile 5. Table 13A, listed in section VI. of the Addendum to this proposed 

rule and available via the Internet, lists the proposed composition of the proposed 

low-volume quintiles for MS-LTC-DRGs for FY 2016.

Accordingly, in order to determine the proposed FY 2016 relative weights for the 

proposed MS-LTC-DRGs with low-volume, we are proposing to use the five low-volume 
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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 

proposed methodology described in section VII.C.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 

low-volume quintile. We note that, as this system is dynamic, it is possible that the 

number and specific type of MS-LTC-DRGs with a low-volume of applicable LTCH 

cases will vary in the future. Furthermore, we note that we will continue to monitor the 

volume (that is, the number of applicable LTCH cases) in the low-volume quintiles to 

ensure that our quintile assignments used in determining the MS-LTC-DRG relative 

weights for LTCH PPS standard Federal payment rate payments result in appropriate 

payment for LTCH cases that would be grouped to proposed low-volume MS-LTCDRGs 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 2016 MS-LTC-DRG Relative Weights

In this proposed rule, we are proposing to use the same steps from our existing 

methodology to determine the proposed FY 2016 MS-LTC-DRG relative weights for 

LTCH PPS standard Federal payment rate payments. (For additional information on the 

original development of the steps in 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).) As stated previously in this section, this approach is 
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consistent with our policies regarding the continued use of our existing methodology, 

which was used to determine the FY 2015 MS-LTC-DRG relative weights as presented 

in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50173 through 50176). However, in 

doing so, we are proposing to use only applicable LTCH (as discussed in section 

VII.B.7.a. of the preamble of this proposed rule).

In summary, to determine the proposed FY 2016 MS-LTC-DRG relative weights, 

we are proposing to group applicable LTCH cases to the appropriate proposed 

MS-LTC-DRG, while taking into account the proposed low-volume quintiles (as 

described above) and cross-walking proposed no-volume MS-LTC-DRGs as described 

below. After establishing the appropriate proposed MS-LTC-DRG (or proposed 

low-volume quintile), we are proposing to calculate the FY 2016 relative weights for 

LTCH PPS standard Federal payment rate payments 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 applicable LTCH 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 applicable LTCH cases 

with a length of stay of 7 days or less (Step 2 below), which are the SSO-adjusted 

applicable LTCH cases and corresponding charges, we are proposing 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 2016 MS-LTC-DRG relative weights for LTCH PPS standard Federal 

payment rate payments.
CMS-1632-P 915

Step 1--Remove statistical outliers.

The first step in our proposed calculation of the proposed FY 2016 

MS-LTC-DRG relative weights for LTCH PPS standard Federal payment rate payments

is to remove statistical outlier cases from applicable LTCH cases. Consistent with our 

historical relative weight methodology, we are proposing to continue to define statistical 

outliers as cases that are outside of 3.0 standard deviations from the mean of the log 

distribution of both charges per case and the charges per day for each MS-LTC-DRG. 

These statistical outliers are removed prior to calculating the proposed relative weights 

because we believe that they may represent aberrations in the data that distort the 

measure of average resource use. Including those LTCH cases in the calculation of the 

proposed relative weights for LTCH PPS standard Federal payment rate payments could 

result in an inaccurate relative weight that does not truly reflect relative resource use 

among those MS-LTC-DRGs. (For additional information on what would be removed in 

this step of the relative weight methodology, we refer readers to 67 FR 55989 and 

74 FR 43959.)

Step 2--Remove cases with a length of stay of 7 days or less.

The MS-LTC-DRG relative weights reflect the average of resources used on 

representative cases of a specific type. Generally, cases with a length of stay of 7 days or 

less do not belong in a LTCH because these stays do not fully receive or benefit from

treatment that is typical in a LTCH stay, and full resources are often not used in the 

earlier stages of admission to a LTCH. If we were to include stays of 7 days or less in the 

computation of the FY 2016 MS-LTC-DRG relative weights, the value of many relative 
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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 2016 MS-LTC-DRG relative weights for LTCH PPS 

standard Federal payment rate payments, we are further proposing to remove LTCH 

cases with a length of stay of 7 days or less from applicable LTCH cases. (For additional 

information on what would be removed in 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 statistical outliers and cases with a length of stay of 7 days or less, 

we are left with applicable LTCH cases that have a length of stay greater than or equal to 

8 days. In this proposed rule, we refer to these cases as “trimmed applicable LTCH 

cases.” As the next step in the calculation of the proposed FY 2016 MS-LTC-DRG 

relative weights for LTCH PPS standard Federal payment rate payments, consistent with 

our historical approach, 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). Specifically, we are proposing to make this adjustment by 

counting an SSO case as a fraction of a discharge based on the ratio of the length of stay 

of the case to the average length of stay for the MS-LTC-DRG for non-SSO cases. This 

has the effect of proportionately reducing the impact of the lower charges for the SSO 
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cases in calculating the average charge for the MS-LTC-DRG. This process produces the 

same result as if the actual charges per discharge of an SSO case were adjusted to what 

they would have been had the patient’s length of stay been equal to the average length of 

stay of the MS-LTC-DRG.

Counting SSO cases as full LTCH cases with no adjustment in determining the 

proposed FY 2016 MS-LTC-DRG relative weights for LTCH PPS standard Federal 

payment rate payments would lower the proposed FY 2016 MS-LTC-DRG relative 

weight for affected MS-LTC-DRGs because the relatively lower charges of the SSO 

cases would bring down the average charge for all cases within a MS-LTC-DRG. This 

would result in an “underpayment” for non-SSO cases and an “overpayment” for SSO 

cases. Therefore, we are proposing to continue to adjust for SSO cases under § 412.529 

in this manner because it results in more appropriate payments for all LTCH PPS 

standard Federal payment rate 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 2016 MS-LTC-DRG relative weights on an 

iterative basis.

Consistent with our historical relative weight methodology, we are proposing to 

then calculate the FY 2016 MS-LTC-DRG relative weights for LTCH PPS standard 

Federal payment rate payments using the HSRV methodology, which is an iterative 

process. First, for each case, we calculate a hospital-specific relative charge value by 

dividing the charge per discharge after adjusting for SSOs of the LTCH case (from Step 

3) by the average charge per SSO-adjusted discharge for the LTCH in which the case 
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occurred. The resulting ratio is then multiplied by the LTCH’s case-mix index to 

produce an adjusted hospital-specific relative charge value for the case. An initial 

case-mix index value of 1.0 is used for each LTCH.

For each proposed MS-LTC-DRG, we calculated the proposed FY 2016 relative 

weight by dividing the SSO-adjusted average of the hospital-specific relative charge 

values for applicable LTCH cases (that is, the sum of the hospital-specific relative charge 

value from above divided by the sum of equivalent cases from step 3 for each MS-LTCDRG) for the proposed MS-LTC-DRG by the overall SSO-adjusted average 

hospital-specific relative charge value across all applicable LTCH cases for all LTCHs 

(that is, the sum of the hospital-specific relative charge value from above divided by the 

sum of equivalent applicable LTCH cases from step 3 for each MS-LTC-DRG). Using 

these recalculated MS-LTC-DRG relative weights, each LTCH’s average relative weight 

for all of its applicable LTCH cases (that is, its case-mix) is calculated by dividing the 

sum of all the LTCH’s MS-LTC-DRG relative weights by its total number of applicable 

LTCH cases. The LTCHs’ hospital-specific relative charge values (from above) are then 

multiplied by the hospital-specific case-mix indexes. The hospital-specific case-mix 

adjusted relative charge values are then used to calculate a new set of proposed 

MS-LTC-DRG relative weights across all LTCHs. This iterative process is continued 

until there is convergence between the relative weights produced at adjacent steps, for 

example, when the maximum difference was less than 0.0001. (We note that, although 

we are not proposing any changes to this step of our relative weight methodology in this 
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proposed rule, we have made some minor changes to the description of this step to clarify 

the application of our existing policy.)

Step 5--Determine a proposed FY 2016 relative weight for MS-LTC-DRGs with 

no applicable LTCH cases.

Using the trimmed applicable LTCH cases, we identified the proposed 

MS-LTC-DRGs for which there were no claims in the December 2014 update of the 

FY 2014 MedPAR file and, therefore, for which no charge data was available for these 

proposed MS-LTC-DRGs. 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 generally proposing to assign a proposed relative weight to each of 

the proposed no-volume MS-LTC-DRGs for LTCH PPS standard Federal payment rate 

cases based on clinical similarity and relative costliness (with the exception of 

“transplant” proposed MS-LTC-DRGs, “error” proposed MS-LTC-DRGs, and proposed 

MS-LTC-DRGs that indicate a principal diagnosis related to a psychiatric diagnosis or 

rehabilitation (referred to as the “psychiatric or rehabilitation” 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.)

We are proposing to cross-walk each proposed no-volume MS-LTC-DRG to 

another proposed MS-LTC-DRG for which we calculated a proposed relative weight 

(determined in accordance with the methodology described above). Then, the 

“no-volume” proposed MS-LTC-DRG would be assigned the same proposed relative 
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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 758 proposed MS-LTC-DRGs for FY 2016, we identified 368 

MS-LTC-DRGs for which there are no trimmed applicable LTCH cases (the number 

identified includes no trimmed applicable LTCH cases in the 8 “transplant” 

MS-LTC-DRGs, the 2 “error” MS-LTC-DRGs, and the 15 “psychiatric or rehabilitation” 

MS-LTC-DRGs, which are discussed below). We are proposing to assign proposed 

relative weights to each of the 343 no-volume proposed MS-LTC-DRGs that contained 

trimmed applicable LTCH cases based on clinical similarity and relative costliness to one 

of the remaining 390 (758 - 368= 390) proposed MS-LTC-DRGs for which we are able 

to propose relative weights based on the trimmed applicable LTCH cases in the FY 2014 

MedPAR file data using the steps described above. (For the remainder of this discussion, 

we refer to the “cross-walked” proposed MS-LTC-DRGs as the proposed 

MS-LTC-DRGs to which we cross-walked one of the 343 “no volume” proposed MSLTC-DRGs.) Then, we are generally proposing to assign the 343 no-volume proposed 

MS-LTC-DRG the proposed relative weight of the proposed cross-walked MS-LTCDRG. (As explained below in Step 6, when necessary, we make adjustments to account 

for nonmonotonicity.)

We are proposing to cross-walk the no-volume proposed MS-LTC-DRG to a 

proposed MS-LTC-DRG for which we are able to propose relative weights based on the 

December 2014 update of the FY 2014 MedPAR file, and to which it is similar clinically 

in intensity of use of resources and relative costliness as determined by criteria such as 
CMS-1632-P 921

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. 

(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 no-volume 

MS-LTC-DRGs in FY 2015, the relative weights assigned based on the cross-walked 

MS-LTC-DRGs would result in an appropriate LTCH PPS payment because the 

crosswalks, which are based on clinical similarity and relative costliness, would be 

expected to generally require equivalent relative resource use.

We then assigned the proposed relative weight of the cross-walked proposed 

MS-LTC-DRG as the proposed relative weight for the no-volume proposed 

MS-LTC-DRG such that both of these proposed MS-LTC-DRGs (that is, the no-volume 

proposed MS-LTC-DRG and the proposed cross-walked MS-LTC-DRG) have the same 

proposed relative weight (and average length of stay) for FY 2016. We note that, if the 

proposed cross-walked MS-LTC-DRG had 25 applicable LTCH cases or more, its 

proposed relative weight (calculated using the methodology described in Steps 1 through 

4 above) is assigned to the no-volume proposed MS-LTC-DRG as well. Similarly, if the 

proposed MS-LTC-DRG to which the no-volume proposed MS-LTC-DRG was crosswalked had 24 or less cases and, therefore, is designated to one of the proposed lowvolume quintiles for purposes of determining the proposed relative weights, we assigned 

the proposed relative weight of the applicable proposed low-volume quintile to the 

no-volume proposed MS-LTC-DRG such that both of these proposed MS-LTC-DRGs 
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(that is, the no-volume proposed MS-LTC-DRG and the proposed cross-walked 

MS-LTC-DRG) have the same proposed relative weight for FY 2016. (As we noted 

above, in the infrequent case where nonmonotonicity involving a no-volume proposed 

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 no-volume proposed 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 2016 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 2016 MS-LTC-DRGs with no applicable LTCH cases, we are providing 

the following example, which refers to the no-volume proposed MS-LTC-DRGs 

crosswalk information for FY 2016 provided in Table 13B.

Example: There were no trimmed applicable LTCH cases in the FY 2014 

MedPAR file that we are proposing to use 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) is similar clinically and based on resource use to proposed MS-LTC-DRG 61. 

Therefore, we assigned the same proposed relative weight (and average length of stay) of 

proposed MS-LTC-DRG 70 of 0.9045 for FY 2016 to proposed MS-LTC-DRG 61 (we 

refer readers to Table 11, which is listed in section VI. of the Addendum to this proposed 

rule and is available via the Internet).
CMS-1632-P 923

Again, we note that, as this system is dynamic, it is entirely possible that the 

number of MS-LTC-DRGs with no volume will vary in the future. We are proposing to 

use the most recent available claims data to identify the trimmed applicable LTCH cases 

from which we will determine the proposed relative weights in this proposed rule.

For FY 2016, consistent with our historical relative weight methodology, we are 

proposing to establish a relative weight of 0.0000 for the following transplant 

MS-LTC-DRGs: Heart Transplant or Implant of Heart Assist System with MCC

(MS-LTC-DRG 1); Heart Transplant or Implant of Heart Assist System without MCC 

(MS-LTC-DRG 2); Liver Transplant with MCC or Intestinal Transplant (MS-LTC-DRG 

5); Liver Transplant without MCC (MS-LTC-DRG 6); Lung Transplant (MS-LTC-DRG 

7); Simultaneous Pancreas/Kidney Transplant (MS-LTC-DRG 8); Pancreas Transplant 

(MS-LTC-DRG 10); and Kidney Transplant (MS-LTC-DRG 652). This is because 

Medicare will only cover these procedures if they are performed at a hospital that has 

been certified for the specific procedures by Medicare and presently no LTCH has been 

so certified. At the present time, we include these eight transplant MS-LTC-DRGs in the 

GROUPER program for administrative purposes only. Because we use the same 

GROUPER program for LTCHs as is used under the IPPS, removing these 

MS-LTC-DRGs would be administratively burdensome. (For additional information 

regarding our treatment of transplant MS-LTC-DRGs, we refer readers to the RY 2010 

LTCH PPS final rule (74 FR 43964).) In addition, consistent with our historical policy, 

we are proposing to establish a relative weight of 0.0000 for the 2 “error” 

MS-LTC-DRGs (that is, MS-LTC-DRG 998 (Principal Diagnosis Invalid as Discharge 
CMS-1632-P 924

Diagnosis) and MS-LTC-DRG 999 (Ungroupable)) because applicable LTCH cases 

grouped to these MS-LTC-DRGs cannot be properly assigned to an MS-LTC-DRG 

according to the grouping logic.

Furthermore, for FY 2016, we are proposing to establish a proposed relative 

weight equal to the respective FY 2015 relative weight of the MS-LTC-DRGs for the 

following “psychiatric or rehabilitation” proposed MS-LTC-DRGs: MS-LTC-DRG 876 

(O.R. Procedure with Principal Diagnoses of Mental Illness); MS-LTC-DRG 880 (Acute 

Adjustment Reaction & Psychosocial Dysfunction); MS-LTC-DRG 881 (Depressive 

Neuroses); MS-LTC-DRG 882 (Neuroses Except Depressive); MS-LTC-DRG 883 

(Disorders of Personality & Impulse Control); MS-LTC-DRG 884 (Organic Disturbances 

& Mental Retardation); MS-LTC-DRG 885 (Psychoses); MS-LTC-DRG 886 

(Behavioral & Developmental Disorders); MS-LTC-DRG 887 (Other Mental Disorder 

Diagnoses); MS-LTC-DRG 894 (Alcohol/Drug Abuse or Dependence, Left Ama); 

MS-LTC-DRG 895 (Alcohol/Drug Abuse or Dependence, with Rehabilitation Therapy); 

MS-LTC-DRG 896 (Alcohol/Drug Abuse or Dependence, without Rehabilitation 

Therapy with MCC); MS-LTC-DRG 897 (Alcohol/Drug Abuse or Dependence, without 

Rehabilitation Therapy without MCC); MS-LTC-DRG 945 (Rehabilitation with 

CC/MCC); and MS-LTC-DRG 946 (Rehabilitation without CC/MCC). Under our 

proposals to implement the new dual-rate LTCH PPS payment structure required by 

statute, LTCH discharges that are grouped to these 15 “psychiatric and rehabilitation” 

proposed MS-LTC-DRGs would not meet the criteria for exclusion from the site neutral 

payment rate. Therefore, there are no applicable LTCH cases to use in calculating a 
CMS-1632-P 925

proposed relative weight for these “psychiatric and rehabilitation” proposed 

MS-LTC-DRGs . In other words, under our proposed implementation of the “criterion 

for a principal diagnosis relating to a psychiatric diagnosis or to rehabilitation” (as 

discussed in section VII.B.3.b. of the preamble of this proposed rule), any LTCH PPS 

discharges grouped to any of the 15 “psychiatric and rehabilitation” proposed 

MS-LTC-DRGs would always be paid at the site neutral payment rate, and, therefore, 

those proposed MS-LTC-DRGs would never include any LTCH cases that meet the 

criteria for exclusion from the site neutral payment rate. However, section 

1886(m)(6)(B) of the Act establishes a transitional payment method for cases that will be 

paid at the site neutral payment rate for LTCH discharges occurring in cost reporting 

periods beginning during FY 2016 or FY 2017. As discussed in detail in section 

VII.B.4.b. of the preamble of this proposed rule, for LTCH discharges occurring in cost 

reporting periods beginning on or after October 1, 2015, and on or before 

September 30, 2017 (that is, discharges occurring in cost reporting periods beginning 

during FYs 2016 and 2017), the transitional payment amount for site neutral payment rate 

cases would be a blended payment rate, which would be calculated as 50 percent of the 

applicable site neutral payment rate amount for the discharge and 50 percent of the 

applicable LTCH PPS standard Federal payment rate. Because the LTCH PPS standard 

Federal payment rate is based on the relative weight of the MS-LTC-DRG, in order to 

determine the proposed transitional blended payment for site neutral payment rate cases 

grouped to one of the “psychiatric or rehabilitation” MS-LTC-DRGs in FY 2016, we 

must assign a relative weight to these MS-LTC-DRGs, which we are proposing would be 
CMS-1632-P 926

the FY 2015 relative weight. We believe that using the respective FY 2015 relative 

weight for each of the “psychiatric or rehabilitation” proposed MS-LTC-DRGs would 

result in appropriate payments for LTCH cases that would be paid at the site neutral 

payment rate under the transition policy provided by the statute because there are no 

clinically similar proposed MS-LTC-DRGs for which we were able to determine 

proposed relative weights based on applicable LTCH cases in the FY 2014 MedPAR file 

data using the steps described above. Furthermore, we believe that it would be 

administratively burdensome and introduce unnecessary complexity to the 

MS-LTC-DRG relative weight calculation to use the LTCH discharges in the MedPAR 

file data to calculate a relative weight for those 15 “psychiatric and rehabilitation” 

proposed MS-LTC-DRGs to be used for the sole purpose of determining half of the 

proposed transitional blended payment for site neutral payment rate cases during the 

transition period. 

Step 6--Adjust the proposed FY 2016 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 
CMS-1632-P 927

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 two-level 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, relative weights should increase by severity, from 

lowest to highest. If the relative weights decrease as severity increases (that is, if within a 

base MS-LTC-DRG, an MS-LTC-DRG with CC has a higher relative weight than one 

with MCC, or the MS-LTC-DRG “without CC/MCC” has a higher relative weight than 

either of the others), they are nonmonotonic. We continue to believe that utilizing 

nonmonotonic relative weights to adjust Medicare payments would result in inappropriate 

payments because the payment for the cases in the higher severity level in a base 

MS-LTC-DRG (which are generally expected to have higher resource use and costs) 

would be lower than the payment for cases in a lower severity level within the same base 

MS-LTC-DRG (which are generally expected to have lower resource use and costs). 

Therefore, in determining the proposed FY 2016 MS-LTC-DRG relative weights for 

LTCH PPS standard Federal payment rate payments in this proposed rule, consistent with 
CMS-1632-P 928

our historical methodology, we are proposing to combine proposed MS-LTC-DRG 

severity levels within a base MS-LTC-DRG for the purpose of computing a relative 

weight when necessary to ensure that monotonicity is maintained. For a comprehensive 

description of our existing methodology to adjust for nonmonotonicity, we refer readers 

to the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43964 through 43966). Any 

adjustments for nonmonotonicity that were made in determining the proposed FY 2016 

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 final rule and 

is available via the Internet on the CMS Web site.

Step 7-- Calculate the proposed FY 2016 MS-LTC-DRG reclassification and 

recalibration 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 
CMS-1632-P 929

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 proposed FY 2016 MS-LTC-DRG classifications and 

relative weights for LTCH PPS standard payment rate payments based on the most recent 

available LTCH data for applicable LTCH cases, and to apply a budget neutrality 

adjustment in determining the FY 2016 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. As discussed previously in this section, this 

approach is consistent with our general policies regarding the continued use of our 

existing methodologies, as presented in the FY 2015 IPPS/LTCH PPS final rule 

(79 FR 50175 through 50176)

In this proposed rule, in the first step of our proposed MS-LTC-DRG budget 

neutrality methodology, for FY 2016, 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 are not affected by changes in the 

composition of case types or the proposed changes to the classification system. That is, 

the normalization adjustment is intended to ensure that the recalibration of the proposed 

MS-LTC-DRG relative weights (that is, the process itself) neither increases nor decreases 

the average case-mix index.
CMS-1632-P 930

To calculate the normalization factor for FY 2016 (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 applicable LTCH cases from the most recent 

available data (that is, LTCH discharges from the FY 2014 MedPAR file) and group 

them using the proposed FY 2016 GROUPER (proposed Version 33) and the recalibrated 

proposed FY 2016 MS-LTC-DRG relative weights (determined in Steps 1 through 6 

above) to calculate the average case-mix index; (1.b.) we group the same applicable 

LTCH cases (as are used in Step 1.a.) using the FY 2015 GROUPER (Version 32) and 

FY 2015 MS-LTC-DRG relative weights and calculated the average case-mix index; and 

(1.c.) we compute the ratio of these average case-mix indexes by dividing the average 

CMI for FY 2015 (determined in Step 1.b.) by the average case-mix index for FY 2016 

(determined in Step 1.a.). As a result, in determining the proposed MS-LTC-DRG 

relative weights for FY 2016, each recalibrated proposed MS-LTC-DRG relative weight 

is multiplied by 1.28176 (determined in Step 1.c.) in the first step of the proposed budget 

neutrality methodology, which produces “normalized relative weights.”

In the second step of our proposed MS-LTC-DRG budget neutrality methodology, 

we calculate a second proposed budget neutrality factor consisting of the ratio of 

estimated aggregate FY 2016 LTCH PPS standard Federal payment rate payments for 

applicable LTCH cases (the sum of all calculations under Step 1.a. above) after 

reclassification and recalibration to estimated aggregate payments for FY 2015 LTCH 

PPS standard Federal payment rate payments for applicable LTCH cases before 
CMS-1632-P 931

reclassification and recalibration (that is, the sum of all calculations under Step 1.b. 

above).

That is, for this proposed rule, for FY 2016, under the second step of the proposed 

budget neutrality methodology, we are proposing to determine the proposed budget 

neutrality adjustment factor using the following three steps: (2.a.) we simulate estimated 

total FY 2016 LTCH PPS standard Federal payment rate payments for applicable LTCH 

cases using the normalized proposed relative weights for FY 2016 and proposed 

GROUPER Version 33 (as described above); (2.b.) we simulate estimated total FY 2015 

LTCH PPS standard Federal payment rate payments for applicable LTCH cases using the 

FY 2015 GROUPER (Version 32) and the FY 2015 MS-LTC-DRG relative weights in 

Table 11 of the Addendum to the FY 2015 IPPS/LTCH PPS final rule available on the 

Internet; and (2.c.) we calculate the ratio of these estimated total payments by dividing 

the value determined in Step 2.b. by the value determined in Step 2.a. In determining the 

proposed FY 2016 MS-LTC-DRG relative weights, each normalized proposed relative 

weight is then multiplied by a budget neutrality factor of 0.996599 (the value determined 

in Step 2.c.) in the second step of the proposed budget neutrality methodology to 

determine the proposed budget neutral FY 2016 relative weight for each proposed 

MS-LTC-DRG.

Accordingly, in determining the proposed FY 2016 MS-LTC-DRG relative 

weights in this proposed rule, consistent with our existing methodology, we are proposing 

to apply a normalization factor of 1.28176 and a budget neutrality factor of 0.996599

(computed as described above). Table 11, which is listed in section VI. of the Addendum 
CMS-1632-P 932

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 2016 (and reflect both the proposed normalization factor of 

1.28176 and the proposed budget neutrality factor of 0.996599).

D. Proposed Changes to the LTCH PPS Standard Federal Payment Rates for FY 2016

1. Overview of Development of the LTCH PPS Standard Federal Payment Rates

The basic methodology for determining LTCH PPS standard 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 payment 

rate for FY 2016, that is, effective for LTCH discharges occurring on or after October 1, 

2015 through September 30, 2016. As previously discussed, under the dual-rate LTCH 

PPS payment structure required by statute, we are proposing that, beginning with 

FY 2016, only LTCH discharges that meet the criteria for exclusion from the site neutral 

payment rate would be paid based on the LTCH PPS standard Federal payment rate 

specified at § 412.523. (For additional details on our proposals related to the dual-rate 

LTCH PPS payment structure required by statute, we refer readers to section VII.C. of 

the preamble of this proposed rule.)

For details on the development of the initial FY 2003 standard Federal rate, we 

refer readers to the August 30, 2002 LTCH PPS final rule (67 FR 56027 through 56037). 

For subsequent updates to the LTCH PPS standard Federal rate as implemented under 
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§ 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); FY 2014 IPPS/LTCH PPS final rule (78 FR 50760 

through 50765); and FY 2015 IPPS/LTCH PPS final rule (79 FR 50176 through 50180).

In this FY 2016 proposed rule, we present our proposals related to the proposed 

annual update to the LTCH PPS standard Federal payment rate for FY 2016, which 

includes the proposed annual market basket update. Consistent with our historical 

practice of using the best data available, we also are proposing to use more recent data, if 

available, to determine the FY 2016 annual market basket update to the LTCH PPS 

standard Federal payment rate in the final rule.

The application of the proposed update to the LTCH PPS standard Federal 

payment rate for FY 2016 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 payment rate for FY 2016 are discussed below, including the reduction 

to the annual update for LTCHs that fail to submit quality reporting data for fiscal year 

FY 2016 as required by the statute (as discussed in section VII.D.2.c. of the preamble of 
CMS-1632-P 934

this proposed rule). In addition, as discussed in section V.A. of the Addendum of this 

proposed rule, we are proposing to make an adjustment to the LTCH PPS standard 

Federal payment rate to account for the estimated effect of the changes to the area wage 

level adjustment for FY 2016 on estimated aggregate LTCH PPS payments, in 

accordance with § 412.523(d)(4).

2. Proposed FY 2016 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).

Section 3401(c) of the Affordable Care Act provides for certain adjustments to 

any annual update to the LTCH PPS standard Federal payment 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 final 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 
CMS-1632-P 935

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 standard Federal payment rate, 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 LTCH PPS standard Federal payment 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 
CMS-1632-P 936

year, and may result in payment rates for a rate 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 payment 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. We refer readers to 

section IV.A.1. of the preamble of this proposed rule for more information on the 

proposed FY 2016 MFP adjustment.

c. Proposed Adjustment to the Annual Update to the LTCH PPS Standard Federal 

Payment Rate under the Long-Term Care Hospital Quality Reporting Program 

(LTCH QRP)

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 Program (LTCH QRP). The reduction in the annual update to the LTCH PPS 

standard Federal payment rate for failure to report quality data under the LTCH QRP for 

FY 2014 and subsequent fiscal years is codified under § 412.523(c)(4) of the regulations.
CMS-1632-P 937

(As previously noted, 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.) The LTCH QRP, as required for FY 2014 and 

beyond by section 1886(m)(5)(A)(i) of the Act, applies a 2.0 percentage point reduction 

to any update under § 412.523(c)(3) for 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 (that is, in the form and manner and at the time specified by the Secretary 

under the LTCH QRP) (§ 412.523(c)(4)(i)). 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 

(§ 412.523(c)(4)(iii)). 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 (§ 412.523(c)(4)(ii)). We discuss the application 

of the 2.0 percentage point reduction under § 412.523(c)(4)(i) in our discussion of the 

annual market basket update to the LTCH PPS standard Federal payment rate for 

FY 2016 in section VII.D.2.e. of the preamble of this proposed rule. (For additional 
CMS-1632-P 938

information on the history of the LTCH QRP, including the statutory authority and the 

selected measures, we refer readers to section VIII.C. of the preamble of this proposed 

rule.)

d. Proposed Market Basket under the LTCH PPS for FY 2016

Under the authority of section 123 of the BBRA as amended by section 307(b) of 

the BIPA, 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 2016, we are proposing to continue to use the FY 2009-based 

LTCH-specific market basket to update the LTCH PPS for FY 2016. We continue to 

believe that the FY 2009-based LTCH-specific 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 2016

Consistent with our historical practice, we estimate the market basket update and 

the MFP adjustment based on IGI’s forecast using the most recent available data. Based 

on IGI’s first quarter 2015 forecast, the proposed FY 2016 full market basket estimate for 

the LTCH PPS using the FY 2009-based LTCH-specific market basket is 2.7 percent. 
CMS-1632-P 939

The current estimate of the MFP adjustment for FY 2016 based on IGI’s first quarter 

2015 forecast is 0.6 percent, as discussed in section IV.A. of the preamble of this 

proposed rule. In addition, consistent with our historical practice, we are proposing that 

if more recent data become subsequently available (for example, a more recent estimate 

of the market basket and the MFP adjustment), we would use such data, if appropriate, to 

determine the FY 2016 market basket update and the MFP adjustment in the final rule.

For FY 2016, section 1886(m)(3)(A)(i) of the Act requires that any annual update 

to the LTCH PPS standard Federal payment 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 proposed FY 2016 market 

basket update by the proposed FY 2016 MFP adjustment. To determine the proposed 

market basket update for LTCHs for FY 2016, as reduced by the MFP adjustment, 

consistent with our established methodology, we subtract the proposed FY 2016 MFP 

adjustment from the proposed FY 2016 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 

LTCH PPS standard Federal payment rate for FY 2016 be reduced by the “other 

adjustment” described in paragraph (4), which is 0.2 percentage point for FY 2016. 

Therefore, following application of the productivity adjustment, we are further proposing 

to reduce the adjusted proposed market basket update (that is, the full proposed 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 
CMS-1632-P 940

“other adjustment” required by the statute, we refer readers to the FY 2012 IPPS/LTCH 

PPS final rule (76 FR 51771).)

For FY 2016, section 1886(m)(5) of the Act requires that for LTCHs that do not 

submit quality reporting data as required under the LTCHQR Program, any annual update 

to an LTCH PPS standard Federal payment rate, after application of the adjustments 

required by section 1886(m)(3) of the Act, shall be further reduced by 2.0 percentage 

points. Therefore, the proposed update to the LTCH PPS standard Federal payment rate 

for FY 2016 for LTCHs that fail to submit quality reporting data under the LTCH QRP,

the full proposed LTCH PPS market basket increase estimate, subject to an adjustment 

based on changes in economy-wide productivity (“the MFP adjustment”) as required 

under section 1886(m)(3)(A)(i) of the Act and an additional reduction required by 

sections 1886(m)(3)(A)(ii) and 1886(m)(4) of the Act, will also be further reduced by 2.0 

percentage points.

In this proposed rule, in accordance with the statute, we are reducing the proposed 

FY 2016 full market basket estimate of 2.7 percent (based on IGI’s first quarter 2015 

forecast of the FY 2009-based LTCH-specific market basket) by the proposed FY 2016 

MFP adjustment of 0.6 percentage point (based on IGI’s first quarter 2015 forecast). 

Following application of the productivity adjustment, the adjusted proposed market 

basket update of 2.1 percent (2.7 percent minus 0.6 percentage point) is then 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 a proposed annual 
CMS-1632-P 941

market basket update under to the LTCH PPS standard Federal payment rate for FY 2016 

of 1.9 percent (that is, the most recent estimate of the LTCH PPS market basket proposed 

update of 2.7 percent, less the proposed MFP adjustment of 0.6 percentage point, and less

the 0.2 percentage point required under section 1886(m)(4)(E) of the Act). Accordingly, 

consistent with our proposal, we are proposing to revise § 412.523(c)(3) by adding a new 

paragraph (xii), which specifies that the LTCH PPS standard Federal payment rate for 

FY 2016 is the LTCH PPS standard Federal payment rate for the previous LTCH PPS 

year updated by 1.9 percent, and as further adjusted, as appropriate, as described in 

§ 412.523(d). For LTCHs that fail to submit quality reporting data under the LTCH 

QRP, under § 412.523(c)(3)(xi) in conjunction with § 412.523(c)(4), we are proposing to 

further reduce the proposed annual update to the LTCH PPS standard Federal payment 

rate by 2.0 percentage points in accordance with section 1886(m)(5) of the Act. 

Accordingly, consistent with our proposal, we are proposing to establish a proposed 

annual update to the LTCH PPS standard Federal payment rate of -0.1 percent (that is, 

1.9 percent minus 2.0 percentage points) for FY 2016 for LTCHs that fail to submit 

quality reporting data as required under the LTCH QRP. As stated above, consistent with 

our historical practice, we are proposing that if more recent data become subsequently 

available (for example, a more recent estimate of the market basket and the MFP 

adjustment) we would use such data, if appropriate, to establish an annual update to the 

LTCH PPS standard Federal payment rate for FY 2016 under § 412.523(c)(3)(xii) in the 

final rule. (We note that we also are adjusting the proposed FY 2016 LTCH PPS 

standard Federal payment rate by an area wage level budget neutrality factor in 
CMS-1632-P 942

accordance with § 412.523(d)(4) (as discussed in section V.B.5. of the Addendum of this 

proposed rule).)
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E. Moratoria on the Establishment of LTCHs and LTCH Satellite Facilities and on the 

Increase in the Number of Beds in Existing LTCHs and LTCH Satellite Facilities

Section 1206(b)(2) of Pub. L. 113-67, as amended by section 112(b) of the 

Protecting Access to Medicare Act of 2014 (PAMA) (Pub. L. 113-93), established “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 a discussion on our implementation of these moratoria, we refer readers to 

the FY 2015 IPPS/LTCH PPS final rule (79 FR 50189 through 50193). Since the 

implementation of these LTCH PPS policy moratoria, we have been informed that some 

confusion may exist regarding the exceptions to the moratorium on the establishment of 

new LTCH and LTCH satellite facilities, as well as the application of the moratorium on 

an increase in the number of beds in existing LTCH and LTCH satellite facilities.

Under existing regulations at 42 CFR 412.23(e)(6), we specify that, to qualify for 

an exception under the 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 in accordance with § 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.
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• The hospital or entity must have obtained an approved certificate of need in a 

State where one is required.

We believe that the existing regulation text regarding the moratorium on the 

establishment and classification of new LTCHs and LTCH satellite facilities could be 

misread as requiring fulfillment of all three conditions in order to qualify for an exception 

to the moratorium on the establishment of new LTCH and LTCH satellite facilities. This 

was not our intent, and we acknowledge that implementing the moratorium in that 

manner would have been directly contradictory to the statutory requirement. Technically, 

while we did not explicitly specify in the regulations text under § 412.23(e)(6) that only 

one of the listed criteria had to be met in order to qualify for an exception to the 

moratorium on the establishment of new LTCHs and LTCH satellite facilities (the 

language text states “as applicable”), we clearly stated it in the preamble of the FY 2015 

IPPS/LTCH PPS final rule. (We refer readers to the FY 2015 IPPS/LTCH PPS final rule 

(79 FR 50189 through 50193).) In addition, the requirement that one of the three 

exceptions had to be met in order to qualify for an exception to the moratorium was also 

indicated in our proposal to implement the initial application of the moratorium during 

the FY 2009 rulemaking cycle. (We refer readers to the FY 2009 IPPS/LTCH PPS final 

rule (73 FR 29705).)

As we stated in the preamble of the FY 2015 IPPS/LTCH PPS final rule), the 

provisions in the new moratorium are nearly identical to the language in the prior 

“expired” moratorium under section 114(d) of MMSEA (Pub. L. 110-173). As also 

noted, the mechanics of exceptions to the new and expired moratoria on the establishment 
CMS-1632-P 945

of new LTCHs and LTCH satellite facilities are analogous. Therefore, except as noted, 

to the extent that the new and expired moratoria were consistent, we proposed and 

adopted the identical implementation mechanisms. To minimize the confusion that may 

exist as a result of the existing regulations text, we are proposing to revise the regulations 

under § 412.23(e)(6)(ii) to more accurately convey the established policy that only one of 

the statutory conditions, as applicable, needs to be met in order to qualify for the 

exception to the new moratorium on the establishment of new LTCH and LTCH satellite 

facilities.

We have become aware of some confusion concerning what constitutes the 

“estimated cost of the project” with regard to the second exception. To alleviate 

confusion, we are clarifying our longstanding policy on what constitutes the “estimated 

cost of the project.” In discussing this exception in the FY 2015 IPPS/LTCH PPS final 

rule (79 FR 50189 through 50193), we noted that the “cost of the project” included the 

activities (plural) that were enumerated in the first prong of the exception. Those 

enumerated activities included “the actual construction, renovation, lease, or demolition 

for a long-term care hospital.” That is, our policy is that the sum total of any costs 

associated with any of the enumerated activities that comprised the project as a whole 

(with the project being the establishment of a new LTCH or a new LTCH satellite 

facility) would be considered in determining whether the facility met the amount 

specified in the statute. In using an “or” in this list of activities, we intended to 

acknowledge that any one project may or may not include every element listed (for 

example, new construction may not include any demolition), but if it does include an 
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element, our policy is that the cost of that element and the costs of any other of the listed 

elements in the project are to be summed to determine the total cost of the project. 

Therefore, under our longstanding policy, when determining whether 10 percent of the 

estimated cost of the project had been expended prior to the start of the moratorium, the 

“project” is the establishment of a new LTCH or LTCH satellite facility, not any one 

element that, when combined with other elements listed in the first prong, would lead to 

the establishment of the LTCH or LTCH satellite facility. For example, if an entity has 

expended 10 percent of the costs of demolition, but that amount is less than both 10 

percent of the estimated cost of the project, and less than the $2,500,000.00 ceiling 

amount, the entity would not qualify for this exception to the moratorium.

In addition, we are taking this opportunity to provide additional clarification on 

our policy concerning the moratorium on increases in the number of beds in existing 

LTCH and LTCH satellite facilities. As we noted in the FY 2015 IPPS/LTCH PPS final 

rule, while the expired moratorium specifically included an exception to the moratorium 

on the increase in the number of beds in existing LTCHs and LTCH satellite facilities, the 

new moratorium under section 1206(b)(2)(B) of Pub. L. 113-67 expressly noted that the 

exceptions to the expired moratoria would not apply under the “new” moratoria. Further 

amendments made by section 112(b) of Pub. L. 113-93, which create the exceptions to 

the current moratoria, did not change that express omission (79 FR 50189 through 

50193). Given the lack of any exception to the new moratorium on increasing the 

number of beds in an existing LTCH or LTCH satellite facility, an LTCH may not 

increase the total number of Medicare certified beds beyond the number that existed prior 
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to April 1, 2014, including when an existing LTCH meets one of the exceptions to the 

moratorium on the establishment of a new LTCH satellite facility. An LTCH satellite 

facility’s beds historically have been, and continue to be, counted as the LTCH’s beds. 

Therefore, under our existing regulation at § 412.23(e)(7)(iii), an existing LTCH cannot, 

through meeting the criteria for an exception to the new moratorium on the establishment 

of a new LTCH satellite facility, increase its total number of Medicare certified beds by 

establishing any number beds at the new LTCH satellite facility that would result in the 

total number of Medicare certified beds in that LTCH exceeding what existed prior to 

April 1, 2014. That is, if an existing LTCH meets one of the statutory exceptions and 

opens a new LTCH satellite facility during the moratorium, that new LTCH satellite 

facility’s beds must come from the movement of beds in existence prior to April 1, 2014, 

from other locations of the existing LTCH to the new LTCH satellite facility. This 

requirement also applies to any remote locations that may be established by an existing 

LTCH during the moratorium on new beds.

F. Proposed Changes to Average Length of Stay Criterion under Pub. L. 113-67 

(§ 412.23)

We are proposing to revise § 412.23 to implement the statutory changes to the 

calculation of the average length of stay for an LTCH under section 1206(a)(3) of Pub. L. 

113-67. As required by section 1861(ccc) of the Act, in order for a hospital to be 

classified as an LTCH, it must maintain an average length of stay of greater than 25 days 

as calculated by the Secretary (or meet the requirements of clause (II) of section 

1886(d)(1)(B)(iv) of the Act). Currently, the Medicare average length of stay is 
CMS-1632-P 948

calculated, in accordance with § 412.23(e)(3) of the regulations, by dividing the total 

number of covered and noncovered Medicare inpatient days by the total number of 

Medicare discharges. This calculation currently includes Medicare inpatient days and 

discharges that are paid under a Medicare Advantage (MA) plan. (For a full discussion 

of the inclusion of MA days in the average length of stay calculation, we refer readers to 

the FY 2012 IPPS/LTCH PPS final rule (76 FR 51774).) 

Section 1206(a)(3)(A) of Pub. L. 113-67 specifies that, in general, for discharges 

occurring in cost reporting periods beginning on or after October 1, 2015, applicable total 

Medicare inpatient days and discharges that are paid at the site neutral payment rate 

(discussed in section VII.B. of the preamble of this proposed rule), or for which payments 

are made under an MA plan, are to be excluded from the calculation of an LTCH’s 

average length of stay. In addition, section 1206(a)(3)(B) of Pub. L. 113-67 further 

requires that the exclusion of these inpatient days and discharges from the average length 

of stay calculation shall not apply to an LTCH that was classified as a subsection (d) 

hospital (as defined in section 1886(d)(1)(B) the Act) as of December 10, 2013. 

Therefore, under the broad authority conferred upon the Secretary under section 

123(a)(1) of the BBRA, as amended by section 307(b) of the BIPA and in accordance 

with section 1206(a) of Pub. L. 113-67, we are proposing to revise § 412.23 of the 

regulations to incorporate the statutory changes to the average length of stay calculation 

required by section 1206(a) of Pub. L. 113-67. Specifically, we are proposing to revise 

§ 412.23 by adding a new paragraph (e)(3)(vi) to specify that Medicare inpatient days 

and discharges paid at the site neutral payment rate or under an MA plan will not be 
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included in the calculation of an LTCH’s average length of stay. Furthermore, we 

proposing to add new paragraph (e)(3)(vii) to § 412.23 to specify that the provisions of 

the proposed new paragraph (vi) will not apply to an LTCH that was classified as a 

subsection (d) hospital (as defined in section 1886(d)(1)(B) the Act) as of 

December 10, 2013, consistent with the statute.
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VIII. Quality Data Reporting Requirements for Specific Providers and Suppliers

We seek to promote higher quality and more efficient healthcare 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, care coordination, and improving patient 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 Program (LTCH QRP) (also referred to as the LTCHQR Program);
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● 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 End-Stage Renal Disease Quality Incentive 

Program and Hospital VBP 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 a seamless component of care delivery. 

Establishing such a system will require interoperability between EHRs and CMS data 
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collection systems, additional infrastructure 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 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 

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 VBP Program under section 1886(o) of the 

Act, described in 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 IV.I. of the FY 2015 IPPS/LTCH PPS final rule (79 FR 50048 through 50087). 

Under the Hospital VBP Program, hospitals receive value-based incentive payments 

based on their 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 developed for the Hospital VBP Program. Given that 

measures adopted for the Hospital VBP Program must first have been specified under the 
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Hospital IQR Program, these two programs are linked 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.

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 

poorly performing hospitals based on their rates of HACs.

In the preamble of this proposed rule, we are proposing changes to the following 

Medicare quality reporting systems:

● In section VIII.A., the Hospital IQR Program.

● In section VIII.B., the PCHQR Program.

● In section VIII.C., the LTCH QRP.

In addition, in section VIII.D. of the preamble of this proposed rule, we are 

proposing changes to the Medicare EHR Incentive Program for eligible hospitals and 

CAHs.
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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 2015 IPPS/LTCH PPS final rule 

(79 FR 50217 through 50249) for the measures we have adopted for the Hospital IQR 

measure set through the FY 2017 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 available at 
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the HCAHPS 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 three years. We refer readers to the FY 2015 IPPS/LTCH PPS 

final rule (79 FR 50202 through 50203) for additional detail on the measure maintenance 

process.

We believe that it is important to have in place a subregulatory process to 

incorporate nonsubstantive updates to the measure specifications for measures we have 

adopted for the Hospital IQR Program so that these measures remain up-to-date. We 

refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53504 through 53505) 

and the FY 2015 IPPS/LTCH PPS final rule (79 FR 50203) for our policy for using the 

subregulatory process to make non-substantive updates to measures used for the Hospital 

IQR Program. We recognize that some changes made to NQF-endorsed measures 

undergoing maintenance review are substantive in nature and might not be appropriate 
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for adoption using a subregulatory process. We will continue to use rulemaking to adopt 

substantive updates made to measures we have adopted for the Hospital IQR Program.

c. Public Display of Quality Measures

Section 1886(b)(3)(B)(viii)(VII) of the Act was amended by the Deficit Reduction 

Act (DRA) of 2005. Section 5001(a) of the DRA requires that the Secretary establish 

procedures for making information regarding measures submitted available to the public 

after ensuring that a hospital has the opportunity to review its data before they are made 

public. We refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50776 

through 50778) for a more detailed discussion about public display of quality measures. 

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, we 

refer readers to the Web site at: http://www.medicare.gov/hospitalcompare. Other 

information not reported to Hospital Compare may be made available on other CMS 

Web sites such as http://www.cms.hhs.gov/HospitalQualityInits/ or 

https://data.medicare.gov.
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2. 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.

3. Removal and Suspension of Hospital IQR Program Measures

a. Considerations in Removing Quality Measures from the Hospital IQR Program

As discussed above, 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, suspend, or replace a measure. We refer readers to the 

FY 2011 IPPS/LTCH PPS final rule (75 FR 50185) and the FY 2015 IPPS/LTCH PPS 

final rule (79 FR 50203 through 50204) for more information on the criteria we consider 

for removing quality measures. 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 the FY 2015 IPPS/LTCH PPS final rule (79 FR 50203 through 50204), we also 

finalized our proposal to clarify the criteria for determining when a measure is “topped 
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out.” We are not proposing any changes to the two criteria that we use to determine 

whether or not a measure is “topped out.”

We use these previously adopted measure removal criteria to help evaluate when 

we should propose a measure for removal. However, we continue to believe that there 

are circumstances in which a measure that meets criteria for removal should be retained 

regardless, because the drawbacks of removing a measure could be outweighed by other 

benefits to retaining the measure. Therefore, because of the continued need to balance 

benefits and drawbacks as well as our desire to increase transparency, we are proposing 

additional factors to consider for measure removal and also include factors to consider in 

order to retain measures.

Specifically, we are proposing to take into consideration the following additional 

factors in determining whether a measure should be removed:

● Feasibility to implement the measure specifications.

In addition, we are proposing to remove one of the factors (“Availability of 

alternative measures with a stronger relationship to patient outcomes”) we take into 

consideration when determining whether to remove measures, because it is duplicates 

another factor (“The availability of a measure that is more strongly associated with 

desired patient outcomes for the particular topic”).

We are also proposing to take into consideration the following factors in 

determining whether a measure should be retained:

● Measure aligns with National Quality Strategy or CMS Quality Strategy goals;
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● Measure aligns with other CMS programs, including other quality reporting 

programs, or the EHR Incentive Program; and

● Measure supports efforts to move facilities towards reporting electronic 

measures

For example, we may consider retaining a measure that is statistically 

“topped-out” in order to align with the Medicare EHR Incentive Program. Below is a 

table of newly proposed and previously adopted factors that we would take into 

consideration in removing or retaining measures:

Factors CMS Considers in Removing or Retaining Measures

Measure Removal Factors

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. A measure does not align with current clinical guidelines or practice

3. The availability of a more broadly applicable measure (across settings, populations, 

or the availability of a measure that is more proximal in time to desired patient 

outcomes for the particular topic)

4. Performance or improvement on a measure does not result in better patient outcomes

5. The availability of a measure that is more strongly associated with desired patient 

outcomes for the particular topic

6. Collection or public reporting of a measure leads to negative unintended 

consequences other than patient harm

7. It is not feasible to implement the measure specifications*

“Topped-Out” Criteria
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Factors CMS Considers in Removing or Retaining Measures

1. • Statistically indistinguishable performance at the 75th and 90th percentiles; and

• Truncated coefficient of variation ≤ 0.10

Measure Retention Factors

1. Measure aligns with other CMS and HHS policy goals*

2. Measure aligns with other CMS programs, including other quality reporting 

programs, or the EHR Incentive Program

3. Measure supports efforts to move facilities towards reporting electronic measures

* Consideration proposed in this FY 2016 IPPS/LTCH PPS proposed rule

We note that these removal/retention factors continue to be considerations taken 

into account when deciding whether or not to remove measures; but they are not firm 

requirements.

We are inviting public comments on our proposal.

b. Proposed Removal of Hospital IQR Program Measures for the FY 2018 Payment 

Determination and Subsequent Years

We are proposing to remove the following nine measures, either in their entirety 

or just the chart-abstracted form, from the Hospital IQR Program measure set for the 

FY 2018 payment determination and subsequent years: STK-01: Venous 

Thromboembolism (VTE) Prophylaxis (NQF #0434), STK-06: Discharged on Statin 

Medication (NQF #0439), STK-08: Stroke Education (NQF endorsement removed), 

VTE-1: Venous Thromboembolism Prophylaxis (NQF #0371), VTE-2: Intensive Care 

Unit Venous Thromboembolism Prophylaxis (NQF #0372), VTE-3: Venous 
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Thromboembolism Patients with Anticoagulation Overlap Therapy (NQF #0373), 

IMM-1: Pneumococcal Immunization (NQF #1653), AMI-7a: Fibrinolytic Therapy 

Received Within 30 Minutes of Hospital Arrival (NQF #0164), and SCIP-Inf-4: Cardiac 

Surgery Patients with Controlled Postoperative Blood Glucose (NQF #0300).

(1) STK-01, STK-06, STK-08, VTE-1, VTE-2, and VTE-3

We are proposing to remove the chart-abstracted versions of STK-01, STK-06, 

STK-08, VTE-1, VTE-2, and VTE-3 because these measures are “topped-out.” 

However, we are proposing to retain STK-06, STK-08, VTE-1, VTE-2, and VTE-3 as 

electronic clinical quality measures for the FY 2018 payment determination and 

subsequent years. As we state above in section VIII.A.3.a. of the preamble of this 

proposed rule, in our discussion of factors we consider in removing or retaining a 

measure, “topped-out” status is only one of many factors which we consider.

In balancing the benefits and disadvantages of removing or retaining a measure, 

we believe that the benefits of retaining the electronic versions of these measures 

outweigh the possible disadvantages. Specifically, we believe that while these measures 

are statistically “topped-out,” retaining the electronic versions of the measures is 

beneficial because they align the Hospital IQR Program with the Medicare EHR 

Incentive Program. In addition, retaining the electronic version of the measures would 

allow us to monitor the effectiveness of measure reporting by EHRs and help to 

familiarize hospitals with reporting electronically specified measures to CMS under the 

Hospital IQR Program.
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Our data show that the electronically specified versions of these measures are 

reported with non-zero values by as many as 2,864 hospitals attesting under 2014 

Meaningful Use and that hospitals report on the full range of available electronic clinical 

quality measures, indicating the value of variety. Accordingly, we know that EHRs are 

certified to these measures, and that hospitals do indeed report them. The available data 

suggest that retaining STK-06, STK-08, VTE-1, VTE-2, and VTE-3 as electronic clinical 

quality measures furthers CMS’ high priority goal to enable the electronic reporting of 

quality data and to align the Hospital IQR and EHR Incentive Programs.

We also believe that reporting electronic clinical quality measures presents 

minimal burden on hospitals as compared to their chart-abstracted equivalents and that 

retaining the electronically specified versions of these measures is appropriate until we 

fully understand the differences between the chart-abstracted and electronic versions of 

quality measures. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50808) we stated 

that we do not believe that the measures, in their electronically specified form, are 

substantively different than their chart-abstracted form, although we recognized that the 

EHR-based extraction methodology is different from the chart-abstraction data collection 

methodology.

However, CMS now recognizes that although the intent of a measure is the same 

whether it is reported via chart-abstraction or electronically, the submission modes are 

not the same and measure rates may be different.

As described in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50258), we have 

only heard anecdotal comments about actual performance level differences between the 
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two modes of collection. We do not have sufficient data to be able to confirm these 

comments, but in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50273), we finalized a 

proposal to conduct a validation pilot test for electronically specified measures, which we 

intend to complete in 2015. Therefore, the results of this pilot are not yet available. As 

we have stated in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53555), determining 

the equivalence of electronic clinical quality measures and chart-abstracted measures 

would require extensive testing given that the data for the Hospital IQR Program supports 

public reporting for both the Hospital IQR and Hospital VBP Programs. Due to the 

reasons described above, we believe it is appropriate to retain the electronically specified 

version of these 6 measures at this time.

We are inviting public comment on our proposals.

(2) IMM-2 Influenza Immunization (NQF #1659)

One additional measure, IMM-2, has been determined to be statistically 

“topped-out;” however, after considering the benefits and disadvantages of removing or 

retaining this measure, we are retaining this measure in the Hospital IQR Program 

measure set for the FY 2018 payment determination and subsequent years, because the 

benefits outweigh the disadvantages. One of the factors that we consider when 

determining whether to remove or retain a measure is whether a measure aligns with 

National Quality Strategy (NQS) or CMS Quality Strategy goals. Currently, IMM-2 is 

the only Hospital IQR Program measure to address the Best Practices to Enable Healthy 

Living NQS Priority and CMS Quality Strategy goal. In addition, IMM-2 supports the 
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NQS priorities and CMS Quality Strategy goals to promote effective interventions to 

prevent and reduce the leading causes of mortality.79

(3) Removal of Immunization 1 (IMM-1) Pneumococcal Immunization (NQF #1653)

We adopted the IMM-1 Pneumococcal Immunization measure (NQF #1653) for 

the FY 2014 payment determination and subsequent years with data collection beginning 

with January 1, 2012 discharges (75 FR 50211). In October 2012, subsequent to the 

beginning of IMM-1 data collection on January 1, 2012, the Advisory Committee on 

Immunization Practices (ACIP) published new guidelines on pneumococcal 

vaccination.80 With the publication of the new ACIP guidelines, IMM-1, as specified in 

the Hospital IQR Program, was no longer compliant with current clinical guidelines.

As part of our efforts to re-specify IMM-1 to account for the many potential 

scenarios that must be considered when determining if pneumococcal vaccination is 

appropriate, we determined that it was not feasible to implement the measure 

specifications that incorporated the new guidelines given their complexity.

Specifically, the October 2012 ACIP guidelines recommended the routine use of 

13-valent pneumococcal conjugate (PCV13) vaccine for adults aged ≥19 years with 

certain comorbid conditions, and that PCV13 should be administered to eligible adults in 

addition to the 23-valent pneumococcal polysaccharide vaccine (PPSV23) that was 

currently recommended for these groups of adults. The timing of vaccination with 

 

79 The Centers for Disease Control and Prevention: Key Facts About Seasonal Flu Vaccine. Retrieved from: 

http://www.cdc.gov/flu/protect/keyfacts.htm.

80 MMWR October 12, 2012. Available at http://www.cdc.gov/mmwr/PDF/wk/mm6140.pdf. Accessed on 

October 31, 2012.
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PCV13 and PPSV23 is dependent upon if and when an individual has received the other 

vaccine.

In order to implement the measure consistent with these new guidelines, providers 

would need reliable, detailed data on: (1) whether or not a pneumococcal vaccine was 

previously administered, (2) which type of pneumococcal vaccine (PCV13 vs. PPSV23) 

was administered, and (3) when it was administered. When considering possible clinical 

scenarios of screening and vaccinating for pneumonia, current chart and electronic data 

do not consistently allow for successful abstraction of these varied and detailed historical 

facts, all of which are needed to appropriately administer a pneumococcal vaccine.

We believe that the measure, as updated by ACIP guidelines, would burden 

hospitals with data abstraction and yield results with only questionable meaningfulness 

and reliability. We outlined these pneumococcal vaccination implementation issues in 

the FY 2014 IPPS/LTCH PPS final rule (78 FR 50780 through 50781), and suspended 

data collection for IMM-1 until further notice.

Since the suspension of IMM-1, ACIP again updated its 2012 guidelines in 

September 2014.81 In reviewing the updated 2014 guidelines, we held discussions with 

other HHS agencies to identify implementation strategies for these updated guidelines. 

However, we were still unable to identify a consistent data source, such as a national 

immunization registry, that is available to hospitals which would provide sufficient 

patient-level clinical information to ensure that hospitals would be able to accurately and 

reliably determine whether they were following the guidelines. There continues to be a 

lack of detailed and reliable patient level data on prior pneumococcal vaccination that is 

 

81 MMWR September 2014. Available at http://www.cdc.gov/mmwr/pdf/wk/mm6337.pdf.
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readily available to all hospitals. Without detailed, reliable, and readily available data for 

hospitals, it will be difficult to determine if the pneumococcal vaccinations are 

appropriately administered.

In determining whether to remove the IMM-1 measure, we considered the factors 

stated above in section VIII.A.3.a. of the preamble of this proposed rule, in our 

discussion of considerations for the removal and retention of quality measures from the 

Hospital IQR Program. Based on the continued lack of ready access to comprehensive 

patient-level immunization data by hospital staff and the continued infeasibility to 

implement or align this measure with current clinical guidelines or practice, we are 

proposing to remove this measure from the Hospital IQR Program. We emphasize that, 

despite the proposed removal of the IMM-1 measure from the Hospital IQR Program, we 

understand and value the role pneumococcal vaccines play in preventing pneumococcal 

disease82 and we expect hospitals to continue to provide pneumococcal vaccinations for 

their hospital populations as appropriate.

We are inviting public comments on this proposal to remove IMM-1 from the 

Hospital IQR Program beginning in CY 2016 for the FY 2018 payment determination 

and subsequent years.

(4) Removal of AMI-7a Fibrinolytic Therapy Received within 30 Minutes of Hospital 

Arrival Measure (NQF #0164)

Our evaluation of the most recently available data shows that AMI-7a is not 

widely reported by hospitals, and according to the most recent data available, hospitals 

 

82 CDC: Pneumococcal Disease. Retrieved from: 

http://www.cdc.gov/pneumococcal/about/prevention.html.
CMS-1632-P 967

reporting this measure have less than the required number of cases to be publicly 

reported. In determining whether to remove AMI-7a as a chart-abstracted measure, we 

considered the factors stated in section VIII.A.3.a. of the preamble of this proposed rule 

in our discussion of considerations for the removal and retention of quality measures 

from the Hospital IQR Program. We are proposing to remove AMI-7a as a chartabstracted measure beginning in CY 2016 for the FY 2018 payment determination and 

subsequent years because performance on this measure does not result in better patient 

outcomes. Specifically, measure data are infrequently reported, as most acute myocardial 

infarction patients receive percutaneous coronary intervention instead of fibrinolytic 

therapy. In addition, we believe that the burden of requiring all hospitals to report data 

on this measure, when only a minority of facilities report enough cases to be publicly 

reported, outweighs the benefits of retaining the chart-abstracted version of this measure.

However, we are proposing to retain AMI-7a as an electronic clinical quality 

measure. We believe that once electronic capture of the measure is possible, the time and 

resources for electronic reporting should be significantly less as compared to manual 

abstraction. In addition, as discussed in section VIII.A.3.a. of the preamble of this 

proposed rule, retaining the electronically specified version of a measure allows us to 

support the alignment of the Hospital IQR Program and the Medicare EHR Incentive 

Program. In addition, retaining this measure will both allow us to monitor the 

effectiveness of measure reporting by EHRs and help familiarize hospitals with reporting 

electronically specified measures under the Hospital IQR Program.
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We are inviting public comments on our proposal to remove the chart-abstracted 

version of AMI-7a but retain the electronic version for the CY 2016/FY 2018 payment 

determination and subsequent years.

(5) Removal of SCIP-Inf-4 Cardiac Surgery Patients with Controlled Postoperative 

Blood Glucose (NQF #0300)

In the CY 2008 OPPS/ASC final rule with comment period (72 FR 66876), we 

finalized SCIP-Inf-4 Cardiac Surgery Patients with Controlled Postoperative Blood 

Glucose (NQF #0300) for the Hospital IQR Program for FY 2009 and subsequent years. 

We also stated that hospitals were required to begin submitting data for SCIP-Inf-4 

beginning with January 1, 2008 discharges.

Since the finalization of SCIP-Inf-4 for the Hospital IQR Program, the measure 

underwent routine NQF maintenance endorsement proceedings in 2012. During the NQF 

maintenance proceedings, the NQF Steering Committee discussed and recommended that 

the measure assess a lower blood glucose level target and lengthen the timeframe for 

achieving the lower blood glucose level target. As part of the maintenance endorsement 

renewal process, SCIP-Inf-4 was modified with the goal of achieving post-operative 

blood glucose levels of 180 mg/dl at 18-24 hours after surgery (previously, the timeframe 

was to achieve 200 mg/dl by 6 AM on post-operative days 1 and 2). We finalized the 

adoption of these measure refinements (see revised measure specifications at 

http://www.qualityforum.org/QPS/0300), in the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50788) with data collection beginning with January 1, 2014 discharges. We also 
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stated then that we would consider whether additional refinements should be made to 

better define the 18-24 hour timeframe for the measure.

Since finalizing the refinements to SCIP-Inf-4, we have been contacted by 

stakeholders and experts in the field of endocrinology regarding the newly refined goal of 

180 mg/dl within an 18-24 hour timeframe. Specifically, there are concerns about the 

following aspects of the measure: (1) defining “optimal glycemic control;” (2) measuring 

the correlation between optimal glycemic goals and better outcomes;83 and (3) using an 

arbitrary 18-24 hour timeframe that does not cover a physiologically meaningful period 

of time.

Experts in the endocrinology field have shared that providers’ enthusiasm to meet 

the measure blood glucose goals in the specified timeframe may lead to the following 

unintended consequences: (1) providers delaying patients’ meals until the 24-hour 

timeframe has passed; (2) providers keeping diabetic patients in intensive care units on 

insulin drips until the 24-hour timeframe has passed; (3) providers ensuring patients’ 

postprandial glucose levels are kept below 180 mg/dl by concurrent use of intravenous 

and subcutaneous insulin administration; and (4) undetected hypoglycemic events caused 

by using multiple forms of insulin administration since the measure does not assess blood 

glucose levels past 24 hours. Multiple stakeholders also indicate that the Society of 

 

83 Optimal glycemic research for 6 AM blood glucose control shows a weak correlation between optimal 

glycemic goals and better outcomes related to morbidity, mortality and length of stay, suggesting that this 

type of metric may not be valid. LaPar FJ, Isbell JM, Kern JA, Ailawadi G, Kron IL. Surgical Care 

Improvement Project measure for postoperative glucose control should not be used as a measure of quality 

after cardiac surgery. J Thorac Cardiovasc Surg 2014;147:1041-8.
CMS-1632-P 970

Thoracic Surgeons’ guidelines84 on preoperative through postoperative cardiac surgery 

glucose control, which helped inform CMS in maintenance of this measure, are currently 

being reviewed. Newer guidelines will address methods to monitor glycemic control in 

the post-cardiac surgical patient population. However, these guidelines are not currently 

available to guide further refinements of SCIP-Inf-4.

In view of stakeholder concerns, the seriousness of the potential negative 

unintended consequences, and recent analysis that shows the refined measure is 

“topped-out,” on January 9, 2015 we formally suspended the collection of data for 

SCIP-Inf-4 beginning with July 1, 2014 discharges. We refer readers to 

https://www.qualitynet.org/dcs/BlobServer?blobkey=id&blobnocache=true&blobwhere=

1228890406532&blobheader=multipart%2Foctet-stream&blobheadername1=ContentDisposition&blobheadervalue1=attachment%3Bfilename%3D2015-02-

IP.pdf&blobcol=urldata&blobtable=MungoBlobs for more information about the 

suspension.

In this proposed rule, we are proposing to remove SCIP-Inf-4 from the Hospital 

IQR Program effective beginning with CY 2016 discharges for the FY 2018 payment 

determination and subsequent years. We believe removal of this measure, rather than 

continued suspension, is appropriate for several reasons. First, performance on this 

measure does not result in better patient outcomes. Recent literature has highlighted that 

not meeting optimal glycemic control for a narrow point in time does not result in poorer 

 

84 Lazar HL, McDonnell M, Chipkin SR, Furnary AP, Engelman RM, Sadhu AR et al. The Society of 

Thoracic Surgeons Practice Guideline Series: Blood Glucose Management During Adult Cardiac Surgery. 

Ann Thorac Surg 2009; 87: 663-9.
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outcomes.85 Second, the measure does not align with current clinical guidelines or 

practice.86 As previously stated, stakeholders and experts in the field of endocrinology 

have voiced their concerns in these areas, especially with using an arbitrary 18-24 hour 

timeframe that does not cover a physiologically meaningful period of time, as current 

practice guidelines aim for overall glycemic control.87 Third, public reporting of a 

measure leads to negative unintended consequences other than patient harm. As 

mentioned above, these negative unintended consequences include potentially delaying 

patient meals or transition from the intensive care unit while keeping patients on insulin 

drips. For more information on the factors we consider for removing or retaining quality 

measures, we refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 50203 

through 50204) and section VIII.A.3.a. of the preamble of this proposed rule. The 

measure will remain suspended until CY 2016 discharges begin. Despite our proposed 

removal of SCIP-Inf-4, we continue to believe glycemic control is important, and we 

hope to include measures focusing on glycemic control in the Hospital IQR Program in 

the near future.

We are inviting public comments on our proposal to remove SCIP-Inf-4 from the 

Hospital IQR Program for the FY 2018 payment determination and subsequent years.

 

85 LaPar FJ, Isbell JM, Kern JA, Ailawadi G, Kron IL. Surgical Care Improvement Project measure for 

postoperative glucose control should not be used as a measure of quality after cardiac surgery. J Thorac 

Cardiovasc Surg 2014;147:1041-8.

86 Harold L. Lazar HL, McDonnell ME, Chipkin SR, Furnary AP, Engelman RM, Sadhu AR, Bridges CR 

and Haan CK. The Society of Thoracic Surgeons Practice Guideline Series: Blood Glucose Management 

During Adult Cardiac Surgery. Ann Thorac Surg 2009;87:663–9.

87 Harold L. Lazar HL, McDonnell ME, Chipkin SR, Furnary AP, Engelman RM, Sadhu AR, Bridges CR 

and Haan CK. The Society of Thoracic Surgeons Practice Guideline Series: Blood Glucose Management 

During Adult Cardiac Surgery. Ann Thorac Surg 2009;87:663–9.
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The table below lists the measures we are proposing for removal for the FY 2018 

payment determination and subsequent years.

Measures Proposed for Removal for the FY 2018 Payment Determination and 

Subsequent Years

“Topped-out” Measures

● STK-01: Venous Thromboembolism (VTE) Prophylaxis (NQF #0434)

● STK-06: Discharged on Statin Medication* (NQF #0439)

● STK-08: Stroke Education* (NQF endorsement removed)

● 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)

Other Measures Proposed for Removal

● IMM-1 Pneumococcal Immunization (NQF #1653)

● SCIP-Inf-4 Cardiac Surgery Patients with Controlled Postoperative Blood Glucose

(NQF #0300)

● AMI-7a Fibrinolytic Therapy Received Within 30 Minutes of Hospital Arrival* (NQF 

#0164)

* Proposed for retention as electronic clinical quality measures for the Hospital IQR Program FY 2018 

payment determination and subsequent years.

We are inviting public comment on our proposals.

4. Previously Adopted Hospital IQR Program Measures for the FY 2017 Payment 

Determination and Subsequent Years

a. Background

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50246), we described that the 

Hospital IQR Program measure set for the FY 2017 payment determination and 

subsequent years includes a total of 63 measures:

● 6 NHSN measures
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● 28 electronic clinical quality measures (voluntary; 11 of these have the option 

of being reported as chart-abstracted measures)

● 15 chart-abstracted measures (11 of these have the option of being reported as 

electronic clinical quality measures)

● 21 claims-based measures

● 1 survey measure

● 3 structural measures

In the FY 2015 IPPS/LTCH PPS final rule, we described that of the 63 measures 

making up the Hospital IQR Program measure set for the FY 2017 payment 

determination and subsequent years, 42 were previously finalized measures, 11 were 

measures newly adopted in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49865) and 

10 were measures that were determined to be “topped-out” but were retained in the 

Hospital IQR Program as voluntary electronic clinical quality measures (79 FR 50208).

The following table shows measures previously adopted for the Hospital IQR 

Program FY 2017 payment determination and subsequent years. For a detailed list of the 

Hospital IQR Program FY 2018 payment determination and subsequent years measure 

set, we refer readers to section VIII.A.7.f. of the preamble of this proposed rule.

Previously Adopted Hospital IQR Program Measures for the FY 2017 Payment 

Determination and Subsequent Years

Short Name Measure Name NQF #

NHSN

CLABSI National Healthcare Safety Network (NHSN) 

Central Line-Associated Bloodstream Infection 

(CLABSI) Outcome Measure

0139

Colon and Abdominal American College of Surgeons – Centers for 0753
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Previously Adopted Hospital IQR Program Measures for the FY 2017 Payment 

Determination and Subsequent Years

Short Name Measure Name NQF #

Hysterectomy SSI Disease Control and Prevention (ACS-CDC) 

Harmonized Procedure Specific Surgical Site 

Infection (SSI) Outcome Measure

CAUTI National Healthcare Safety Network (NHSN) 

Catheter-associated Urinary Tract Infection 

(CAUTI) Outcome Measure

0138

MRSA Bacteremia National Healthcare Safety Network (NHSN) 

Facility-wide Inpatient Hospital-onset Methicillinresistant Staphylococcus aureus (MRSA) 

Bacteremia Outcome Measure

1716

CDI National Healthcare Safety Network (NHSN) 

Facility-wide Inpatient Hospital-onset Clostridium 

difficile Infection (CDI) Outcome Measure

1717

HCP Influenza Vaccination Coverage Among Healthcare 

Personnel 

0431

Chart-abstracted

AMI-7a* Fibrinolytic Therapy Received Within 30 Minutes 

of Hospital Arrival

0164

ED-1* Median Time from ED Arrival to ED Departure for 

patients Admitted ED Patients

0495

ED-2* Admit Decision Time to ED Departure Time for 

Admitted Patients

0497

Imm-2 Influenza Immunization 1659

PC-01* Elective Delivery (Collected in aggregate, 

submitted via Web-based tool or electronic clinical 

quality measure)

0469

SCIP-Inf-4 Cardiac Surgery Patients with Controlled 

Postoperative Blood Glucose

0300

Sepsis Severe Sepsis and Septic Shock: Management 

Bundle (Composite Measure)

0500

STK-01 Venous Thromboembolism (VTE) Prophylaxis 0434

STK-04* Thrombolytic Therapy 0437

STK-06* Discharged on Statin Medication 0439

STK-08* Stroke Education N/A

VTE-1* Venous Thromboembolism Prophylaxis 0371

VTE-2* Intensive Care Unit Venous Thromboembolism 

Prophylaxis

0372

VTE-5* Venous Thromboembolism Discharge Instructions N/A

VTE-6* Incidence of Potentially Preventable Venous 

Thromboembolism

N/A
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Previously Adopted Hospital IQR Program Measures for the FY 2017 Payment 

Determination and Subsequent Years

Short Name Measure Name NQF #

Claims

MORT-30-AMI Hospital 30-Day, All-Cause, Risk-Standardized 

Mortality Rate (RSMR) Following Acute 

Myocardial Infarction (AMI) Hospitalization for 

Patients 18 and Older

0230

MORT-30-HF Hospital 30-Day, All-Cause, Risk-Standardized 

Mortality Rate (RSMR) Following Heart Failure 

(HF) Hospitalization for Patients 18 and Older

0229

MORT-30-PN Hospital 30-Day, All-Cause, Risk-Standardized 

Mortality Rate (RSMR) Following Pneumonia 

Hospitalization

0468

MORT-30-COPD Hospital 30-Day, All-Cause, Risk-Standardized 

Mortality Rate (RSMR) Following Chronic 

Obstructive Pulmonary Disease (COPD) 

Hospitalization

1893

STK Mortality Stroke 30-day Mortality Rate N/A

CABG Mortality Hospital 30-Day, All-Cause, Risk-Standardized 

Mortality Rate (RSMR) Following Coronary Artery 

Bypass Graft (CABG) Surgery

2558

READM-30-AMI Hospital 30-Day All-Cause Risk-Standardized 

Readmission Rate (RSRR) Following Acute 

Myocardial Infarction (AMI) Hospitalization

0505

READM-30-HF Hospital 30-Day, All-Cause, Risk-Standardized 

Readmission Rate (RSRR) Following Heart Failure 

(HF) Hospitalization

0330

READM-30-PN Hospital 30-Day, All-Cause, Risk-Standardized 

Readmission Rate (RSRR) Following Pneumonia 

Hospitalization

0506

READM-30-THA/TKA Hospital-Level 30-Day, All-Cause RiskStandardized Readmission Rate (RSRR) Following 

Elective Primary Total Hip Arthroplasty (THA) 

and/or Total Knee Arthroplasty (TKA)

1551

READM-30-HWR Hospital-Wide All-Cause Unplanned Readmission 

Measure (HWR)

1789

COPD READMIT Hospital 30-Day, All-Cause, Risk-Standardized 

Readmission Rate (RSRR) Following Chronic 

Obstructive Pulmonary Disease (COPD) 

Hospitalization

1891

STK READMIT 30-Day Risk Standardized Readmission Rate 

Following Stroke Hospitalization

N/A

CABG READMIT Hospital 30-Day, All-Cause, Unplanned, Risk- 2515
CMS-1632-P 976

Previously Adopted Hospital IQR Program Measures for the FY 2017 Payment 

Determination and Subsequent Years

Short Name Measure Name NQF #

Standardized Readmission Rate (RSRR) Following 

Coronary Artery Bypass Graft (CABG) Surgery

MSPB Payment-Standardized Medicare Spending Per 

Beneficiary (MSPB)

2158

AMI payment Hospital-Level, Risk-Standardized Payment 

Associated with a 30-Day Episode-of-Care for 

Acute Myocardial Infarction (AMI)

2431

HF Payment Hospital-Level, Risk-Standardized Payment 

Associated with a 30-Day Episode-of-Care For 

Heart Failure (HF)

2436

PN Payment Hospital-Level, Risk-Standardized Payment 

Associated with a 30-day Episode-of-Care For 

Pneumonia 

2579

Hip/knee complications Hospital-Level Risk-Standardized Complication 

Rate (RSCR) Following Elective Primary Total Hip 

Arthroplasty (THA) and/or Total Knee 

Arthroplasty (TKA)

1550

PSI 4 (PSI/NSI) Death among Surgical Inpatients with Serious, 

Treatable Complications

0351

PSI 90 Patient Safety for Selected Indicators (Composite 

Measure)

0531

Electronic Clinical Quality Measures

AMI-2 Aspirin Prescribed at Discharge for AMI 0142

AMI-7a* Fibrinolytic Therapy Received Within 30 Minutes 

of Hospital Arrival

0164

AMI-8a Primary PCI Received Within 90 Minutes of 

Hospital Arrival

0163

AMI-10 Statin Prescribed at Discharge N/A

CAC-3 Home Management Plan of Care Document Given 

to Patient/Caregiver

N/A

EHDI-1a Hearing Screening Prior to Hospital Discharge 1354

ED-1* Median Time from ED Arrival to ED Departure for 

Admitted ED Patients

0495

ED-2* Admit Decision Time to ED Departure Time for 

Admitted Patients

0497

HTN Healthy Term Newborn 0716

PC-01* Elective Delivery (Collected in aggregate, 

submitted via Web-based tool or electronic clinical 

quality measure)

0469

PC-05 Exclusive Breast Milk Feeding and the Subset 

Measure PC-05a Exclusive Breast Milk Feeding 

0480
CMS-1632-P 977

Previously Adopted Hospital IQR Program Measures for the FY 2017 Payment 

Determination and Subsequent Years

Short Name Measure Name NQF #

Considering Mother ́s Choice

PN-6 Initial Antibiotic Selection for 

Community-Acquired Pneumonia (CAP) in 

Immunocompetent Patients

0147

SCIP-Inf-1a Prophylactic Antibiotic Received Within One Hour 

Prior to Surgical Incision

0527

SCIP-Inf-2a Prophylactic Antibiotic Selection for Surgical 

Patients

0528

SCIP-Inf-9 Urinary Catheter Removed on Postoperative Day 1 

(POD 1) or Postoperative Day 2 (POD 2) with Day 

of Surgery Being Day Zero

N/A

STK-02 Discharged on Antithrombotic Therapy 0435

STK-03 Anticoagulation Therapy for Atrial 

Fibrillation/Flutter

0436

STK-04* Thrombolytic Therapy 0437

STK-05 Antithrombotic Therapy by the End of Hospital 

Day Two

0438

STK-06* Discharged on Statin Medication 0439

STK-08* Stroke Education N/A

STK-10 Assessed for Rehabilitation 0441

VTE-1* Venous Thromboembolism Prophylaxis 0371

VTE-2* Intensive Care Unit Venous Thromboembolism 

Prophylaxis

0372

VTE-3 Venous Thromboembolism Patients with

Anticoagulation Overlap Therapy

0373

VTE-4 Venous Thromboembolism Patients Receiving 

Unfractionated Heparin with Dosages/Platelet 

Count Monitoring by Protocol or Nomogram

N/A

VTE-5* Venous Thromboembolism Discharge Instructions N/A

VTE-6* Incidence of Potentially Preventable Venous 

Thromboembolism

N/A

Patient Survey

HCAHPS HCAHPS + 3-Item Care Transition Measure 

(CTM-3)

0166

0228

Structural

Registry for Nursing 

Sensitive Care

Participation in a Systematic Clinical Database 

Registry for Nursing Sensitive Care

N/A

Registry for General 

Surgery

Participation in a Systematic Clinical Database 

Registry for General Surgery

N/A

Safe Surgery Checklist Safe Surgery Checklist Use N/A
CMS-1632-P 978

* Measure is listed twice, as both chart-abstracted and electronic clinical quality measure.

b. NHSN Measures Standard Population Data

The previously adopted NHSN measures include the CAUTI, CLABSI, MRSA 

Bacteremia, CDI, colon and abdominal hysterectomy SSI measures, and HCP for the 

FY 2017 payment determination and subsequent years. We refer readers to the FY 2011 

IPPS/LTCH PPS final rule (75 FR 50200 through 50202) and the FY 2012 IPPS/LTCH 

PPS final rule (76 FR 51616 through 51618; 76 FR 51629 through 51633) for more 

information about these measures. These NHSN measures measure the incidence of 

HAIs in hospitals participating in the Hospital IQR Program. In order to calculate the 

NHSN measures for use in the Hospital IQR Program, CDC must go through several 

steps.

First, CDC determines each NHSN measure’s number of predicted infections. 

CDC determines this number using both specific hospital characteristics (for example, 

number of central line days for CLABSI) and infection rates that occurred among a 

standard population (sometimes referred to by CDC as “national baseline” but referred to 

here as “standard population data”). CDC currently uses data it collected in calendar year 

(CY) 2009 for the CAUTI measure’s standard population data.

In addition, for each NHSN measure, CDC calculates the Standardized Infection 

Ratio (SIR) by comparing a hospital’s reported number of HAIs with the standard 

population data. For more information about the way NHSN measures are calculated, 

please refer to the QualityNet Web page on HAI measures at: 

https://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage

%2FQnetTier2&cid=1228760487021.
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We would like to notify the public that CDC will update the standard population 

data to ensure the NHSN measures’ number of predicted infections reflect the current 

state of HAIs in the United States. The standard referent population that CDC uses to 

calculate the Standardized Infection Ratios (SIRs) is comprised of healthcare-associated 

infection data that CDC’s NHSN collects from healthcare facilities throughout the United 

States for infection events that occurred in a specified baseline time period. Beginning in 

CY 2016, CDC will use data collected for infection events that occurred in 2015 as the 

new standard referent population. To do so, CDC will collect HAI data that healthcare 

facilities are reporting for events that have or will occur in CY 2015 to use in updating 

the standard population data for HAI measures. This new CY 2015 standard population 

data for HAI measures will hereinafter be referred to as “new standard population data.”

While this is not a Hospital IQR Program proposal, we are still inviting public 

input on the CDC’s plans to update the standard population data for HAI measures.

5. Expansion and Updating of Quality Measures

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 

these considerations.

6. Proposed Refinements to Existing Measures in the Hospital IQR Program

We are proposing refinements to the measure cohorts for: (1) the Hospital 

30-day, All-cause, Risk-Standardized Mortality Rate (RSMR) following Pneumonia 

Hospitalization (NQF #0468) measure; and (2) the Hospital 30-day, All-cause, 
CMS-1632-P 980

Risk-Standardized Readmission Rate following Pneumonia Hospitalization (NQF #0506) 

measure. The proposed refined measures were included on a publicly available 

document entitled “List of Measures Under Consideration for December 1, 2014” in 

compliance with section 1890A(a)(2) of the Act, and they were reviewed by the MAP as 

discussed in its MAP Pre-Rulemaking Report.88 These measure refinements are discussed 

in greater detail below.

a. Proposed Refinement of Hospital 30-Day, All-cause, Risk-Standardized Mortality 

Rate (RSMR) following Pneumonia Hospitalization (NQF #0468) Measure Cohort

(1) Background

We are proposing a refinement to the previously adopted Hospital 30-Day, 

All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Pneumonia 

Hospitalization (NQF #0468) measure (hereinafter referred to as the CMS 30-day 

Pneumonia Mortality Measure), which expands the measure cohort. For the purposes of 

describing the refinement of this measure, we note that “cohort” is defined as the 

hospitalizations, or “index admissions,” that are included in the measure and evaluated to 

ascertain whether the patient subsequently died within 30 days of the index admission. 

This cohort is the set of hospitalizations that meet all of the inclusion and exclusion 

criteria, and we are proposing an expansion to this set of hospitalizations.

The previously adopted CMS 30-day Pneumonia Mortality Measure 

(72 FR 47351) includes hospitalizations for patients with a principal discharge diagnosis 

 

88 National Quality Forum “Process and Approach for MAP Pre-Rulemaking Deliberations 2015” found at: 

http://www.qualityforum.org/Publications/2015/01/Process_and_Approach_for_MAP_PreRulemaking_Deliberations_2015.aspx and “Spreadsheet of MAP 2015 Final Recommendations” available 

at: http://www.qualityforum.org/map/.
CMS-1632-P 981

of pneumonia indicating viral or bacterial pneumonia. For more cohort details on the 

measure as currently implemented, we refer readers to the measure methodology report 

and measure risk adjustment statistical model in the AMI, HF, PN, COPD, and Stroke 

Mortality Update zip file on our Web site at: http://www.cms.gov/Medicare/QualityInitiatives-Patient-Assessment-Instruments/HospitalQualityInits/MeasureMethodology.html.

The proposed measure refinement would expand the measure cohort to include 

hospitalizations for patients with a principal discharge diagnosis of aspiration pneumonia 

and for patients with a principal discharge diagnosis of either sepsis or respiratory failure 

who also have a secondary diagnosis of pneumonia present on admission. We anticipate 

that this refined measure will first be publicly reported on Hospital Compare with the 

proposed cohort change in CY 2016.

This refinement to the CMS 30-Day Pneumonia Mortality Measure is being 

proposed for several reasons. First, recent evidence has shown an increase in the use of 

sepsis and respiratory failure as principal diagnosis codes among patients hospitalized 

with pneumonia.89 Pneumonia patients with these principle diagnosis codes are not 

currently included in the measure cohort, and including them would better capture the 

complete patient population of a hospital with patients receiving clinical management and 

treatment for pneumonia.

Second, because patients with a principal diagnosis of sepsis and respiratory 

failure are not included in the current CMS 30-Day Pneumonia Mortality Measure 

 

89 Lindenauer PK, Lagu T, Shieh MS, Pekow PS, Rothberg MB. Association of diagnostic coding with 

trends in hospitalizations and mortality of patients with pneumonia, 2003-2009. Journal of the American 

Medical Association. Apr 4 2012;307(13):1405-1413.
CMS-1632-P 982

specifications, efforts to evaluate changes over time in pneumonia outcomes could be 

biased as coding practices change.

Finally, another published study90 has also demonstrated wide variation in the use 

of sepsis and respiratory failure codes as principal discharge diagnoses for pneumonia 

patients across hospitals, potentially biasing efforts to compare hospital performance on 

30-day mortality. These published studies and CMS analyses show that hospitals that use 

sepsis and respiratory failure codes for the principal diagnosis frequently have better 

performance on the CMS 30-Day Pneumonia Mortality Measure. This coding practice 

improves performance on the measure because patients with greatest severity of illness 

(for example, those with sepsis or respiratory failure) are systematically excluded from 

the measure under current measure specifications, leaving only patients with less severity 

of illness in the cohort.

In response to these emerging data, we examined coding patterns across hospitals 

caring for Medicare patients and sought to forecast the impact of enhancing or 

broadening the measure cohort to include the complete patient population, at each 

hospital, who are receiving clinical management and treatment for pneumonia. Our 

findings were consistent with a published study.91 That is, our results suggested that 

there is: (1) an increasing use of respiratory failure and sepsis as principal discharge 

 

90 Rothberg MB, Pekow PS, Priya A, Lindenauer PK. Variation in diagnostic coding of patients with 

pneumonia and its association with hospital risk-standardized mortality rates: a cross-sectional analysis. 

Annals of Internal Medicine. Mar 18 2014;160(6):380-388.

91 Rothberg MB, Pekow PS, Priya A, Lindenauer PK. Variation in diagnostic coding of patients with 

pneumonia and its association with hospital risk-standardized mortality rates: a cross-sectional analysis. 

Annals of Internal Medicine. Mar 18 2014;160(6):380-388.
CMS-1632-P 983

diagnoses for pneumonia patients, and (2) wide variation across hospitals in the use of 

these codes.

In addition to assessing the use of the principal diagnosis codes of sepsis and 

respiratory failure, we also analyzed coding patterns and the impact of expanding the 

pneumonia measure to include patients with the principal diagnosis of aspiration 

pneumonia. We noted after our analyses that aspiration pneumonia: (1) is a common 

reason for pneumonia hospitalization, particularly among the elderly; (2) is currently not 

included in the CMS hospital outcome measure specifications for pneumonia patients; 

and (3) appears to be similarly subject to variation in diagnosis, documentation, and 

coding. These findings suggest that a measure with an enhanced or broader cohort for the 

current CMS 30-Day Pneumonia Mortality Measure will ensure that the measure includes 

more complete and comparable populations across hospitals. Use of comparable 

populations would reduce measurement bias resulting from different coding practices 

across hospitals. We believe that measure results derived from refinement of the measure 

cohort in the manner we are proposing, which will include additional pneumonia patients 

that are not being included under the current measure specifications, will improve the 

fidelity of the measure’s assessment of quality and outcome for pneumonia.

The proposed 30-Day Pneumonia Mortality Measure with this expanded measure 

cohort was included on a publicly available document entitled “List of Measures Under 

Consideration for December 1, 2014” with identification number E0468 and has been 

reviewed by the MAP. The revised measure was conditionally supported pending NQF 

endorsement of the measure update, as detailed in the “Spreadsheet of MAP 2015 Final 
CMS-1632-P 984

Recommendations” available at: http://www.qualityforum.org/map/. This refined 

pneumonia mortality measure will be submitted to NQF for re-endorsement when the 

appropriate measure endorsement project has a call for measures this year. We will work 

to minimize potential confusion when publicly reporting the updated measure.

(2) Overview of Measure Cohort Change

The proposed measure refinement would expand the cohort to include 

hospitalizations for patients with a principal discharge diagnosis of aspiration pneumonia 

and for patients with a principal discharge diagnosis of sepsis or respiratory failure who 

also have a secondary diagnosis of pneumonia that is coded as present on admission. The 

data sources, exclusion criteria, assessment of the outcome of mortality, and 3 year data 

evaluation period all remain unchanged.

(3) Risk Adjustment

The statistical modeling approach as well as the measure calculation remain 

unchanged from the previously adopted measure. The risk adjustment approach also 

remains unchanged; however, we included additional risk variables to account for the 

discharge diagnoses added as part of the expanded cohort. For the full measure 

specifications of the proposed change to the measure, we refer readers to the AMI, HF, 

PN, COPD, and Stroke Readmission Update zip file on our Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html.
CMS-1632-P 985

(4) Effect of Refinement of Hospital 30-day, All-cause, Risk-Standardized Mortality 

Rate (RSMR) following Pneumonia Hospitalization Measure Cohort

Using administrative claims data for FY 2015 (that is, discharges between 

July 2010 - June 2013), we analyzed and simulated the effect of the proposed cohort 

refinements on the CMS 30-day Pneumonia Mortality Measure as if these changes had 

been applied for FY 2015. We note that these statistics are for illustrative purposes only, 

and we are not proposing to revise the measure calculations for the FY 2015 payment 

determination.

Expanding the measure cohort to include a broader population of patients adds a 

large number of patients, as well as additional hospitals (which would now meet the 

minimum threshold of 25 cases), to the CMS 30-day Pneumonia Mortality Measure. In 

the FY 2010 IPPS/LTCH PPS final rule (74 FR 43881), we established that if a hospital 

has fewer than 25 eligible cases combined over a measure’s reporting period, we would 

replace the hospital’s data with a footnote indicating that the number of cases is too small 

to reliably determine how well the hospital is performing. These cases are still used to 

calculate the measure; however, for hospitals with fewer than 25 eligible cases, the 

hospital’s mortality rates and interval estimates are not publicly reported for the measure. 

For more information about this minimum case threshold for public reporting, we refer 

readers to section VIII.A.13. of the preamble of this proposed rule. The increase in the 

size of the measure cohort proposed in this rule would change results for many hospitals 

and would change the number of hospitals that have greater than 25 cases.
CMS-1632-P 986

The previously adopted pneumonia mortality measure cohort includes 

976,590 patients and 4,418 hospitals for the FY 2015 payment determination. We noted 

the following effects for the CMS 30-Day Pneumonia Mortality Measure if the expanded 

cohort had been applied for FY 2015: (1) the expansion of the cohort would include an 

additional 686,605 patients (creating a total measure cohort size of 1,663,195 patients); 

(2) an additional 86 hospitals would meet the minimum 25 patient cases volume 

threshold over the 3-year measure period and would be publicly reported for the measure; 

(3) 41 percent of the refined measure cohort would consist of patients with a principal 

discharge diagnosis of aspiration pneumonia and patients with a principal discharge 

diagnosis of sepsis or respiratory failure who also have a secondary diagnosis of 

pneumonia present on admission; and (4) there would be an increase in the number of 

hospitals considered outliers and a shift in some hospitals’ outlier status classification, for 

example from “better than the national rate” to “no different than the national rate” or 

from “worse than the national rate” to “no different than the national rate.”

A detailed description of the refinements to the CMS 30-Day Pneumonia 

Mortality Measure and the effects of the change are available in the AMI, HF, PN, 

COPD, and Stroke Readmission Update zip file on our Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. We note that this file 

contains information for both Mortality and Readmission.
CMS-1632-P 987

We are inviting public comment on our proposal to refine the previously adopted 

Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) Following 

Pneumonia Hospitalization (NQF #0468) measure, expanding the measure cohort.

b. Proposed Refinement of Hospital 30-Day, All-Cause, Risk-Standardized Readmission 

Rate (RSRR) following Pneumonia Hospitalization (NQF #0506) Measure Cohort

(1) Background

In this proposed rule, we are proposing a refinement of the previously adopted 

measure, Hospital 30-day all-cause, risk-standardized readmission rate following 

pneumonia hospitalization (NQF #0506) (hereinafter referred to as the CMS 30-Day 

Pneumonia Readmission Measure) which expands the measure cohort. For the purposes 

of describing the refinement of this measure, we note that “cohort” is defined as the 

hospitalizations, or “index admissions,” that are included in the measure and evaluated to 

ascertain whether the patient was subsequently readmitted to the hospital within 30 days 

of the index admission. This cohort is the set of hospitalizations that meets all of the 

inclusion and exclusion criteria and we are proposing an expansion to this set of 

hospitalizations.

The previously adopted CMS 30-Day Pneumonia Readmission Measure, as 

specified in the FY 2009 IPPS PPS proposed rule (73 FR 23648) and adopted in the 

CY 2009 OPPS/ASC final rule with comment period (73 FR 68780 through 68781), 

includes hospitalizations for patients with a principal discharge diagnosis of pneumonia 

indicating viral or bacterial pneumonia. For measure cohort details of the currently 

implemented measure, we refer readers to the measure methodology report and measure 
CMS-1632-P 988

risk adjustment statistical model in the AMI, HF, PN, COPD, and Stroke Readmissions 

Update zip file on our Web site at: http://www.cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.

This proposed measure refinement would expand the measure cohort to include 

hospitalizations for patients with a principal discharge diagnosis of aspiration pneumonia 

and for patients with a principal discharge diagnosis of either sepsis or respiratory failure 

who also have a secondary diagnosis of pneumonia present on admission. The 

determination to refine the measure cohort was based on our evaluation of both the 

frequency and variation in utilization of these diagnosis codes, as such coding practices 

have been described in recently published studies. We anticipate that this measure will 

first be publicly reported with the proposed cohort change in CY 2016.

This refinement to the CMS 30-Day Pneumonia Readmission Measure is being 

proposed in response to recent evidence showing increasing use of the principal diagnosis 

codes of sepsis and respiratory failure among patients hospitalized with pneumonia. 

Including such patients will better represent the complete population of a hospital’s 

patients who are receiving clinical management and treatment for pneumonia. In 

addition, because patients with a principal diagnosis of sepsis and respiratory failure are 

not included in the current CMS 30-Day Pneumonia Readmission Measure 

specifications, efforts to evaluate changes over time in pneumonia outcomes could be 

biased as coding practices change.

Wide variation exists in the use of sepsis and respiratory failure codes across 

hospitals, potentially biasing efforts to compare hospital performance on 30-day 
CMS-1632-P 989

readmission rates92. While the referenced study93 evaluated the effect of coding practices 

on mortality measure performance, the rationale is applicable to readmission measure 

performance as well. The increased use of sepsis and respiratory failure diagnosis codes 

improves performance because the patients with greatest severity of illness (for example, 

those with sepsis or respiratory failure) are currently systematically excluded from the 

measure, leaving only patients with lesser severity of illness in the measure cohort.

In response to this emerging data, we examined coding patterns across hospitals 

caring for Medicare patients and sought to forecast the impact of broadening the measure 

cohort to include the complete population of patients at each hospital who are receiving 

clinical management and treatment for pneumonia. Our findings were consistent with a 

published study94 for mortality; that is, our results suggested that there is an increasing 

use of respiratory failure and sepsis as principal discharge diagnoses for pneumonia 

patients, as well as showed wide variation across hospitals in the use of these codes. In 

addition to assessing the use of the principal diagnosis codes of sepsis and respiratory 

failure, we also analyzed coding patterns and the impact of expanding the pneumonia 

measure to include patients with the principal diagnosis of aspiration pneumonia. We 

noted after our analyses that aspiration pneumonia: (1) is a common reason for 

pneumonia hospitalization, particularly among the elderly; (2) is currently not included in 

 

92 Rothberg MB, Pekow PS, Priya A, Lindenauer PK.: Variation in diagnostic coding of patients with 

pneumonia and its association with hospital risk-standardized mortality rates: a cross-sectional analysis. 

Annals of Internal Medicine. Mar 18 2014;160(6):380-388.

93 Rothberg MB, Pekow PS, Priya A, Lindenauer PK.: Variation in diagnostic coding of patients with 

pneumonia and its association with hospital risk-standardized mortality rates: a cross-sectional analysis. 

Annals of Internal Medicine. Mar 18 2014;160(6):380-388.

94 Rothberg MB, Pekow PS, Priya A, Lindenauer PK.: Variation in diagnostic coding of patients with 

pneumonia and its association with hospital risk-standardized mortality rates: a cross-sectional analysis. 

Annals of Internal Medicine. Mar 18 2014;160(6):380-388.
CMS-1632-P 990

the CMS hospital outcome measure specifications for pneumonia patients; and (3) 

appears to be similarly subject to variation in diagnosis, documentation, and coding. 

These findings suggest that expanding the measure cohort for the current CMS 30-Day 

Pneumonia Readmission Measure will ensure the measure includes more complete and 

comparable populations across hospitals. Use of comparable populations would reduce 

measurement bias resulting from different coding practices seen across hospitals. We 

believe that measure results derived from refinement of the measure cohort in the manner 

we are proposing, which will include additional pneumonia patients that are not being 

included under the current measure specifications, will improve the fidelity of the 

measure’s assessment of quality and outcome for pneumonia.

The proposed refined measure was included on a publicly available document 

entitled “List of Measures Under Consideration for December 1, 2014” with 

identification number E0506, has been reviewed by the MAP, and was conditionally 

supported pending NQF review of the measure update. In particular, MAP members 

noted that the measure should be considered for socio-demographic status (SDS) 

adjustment in the upcoming NQF trial period, reviewed for the empirical and conceptual 

relationship between SDS factors and risk-standardized readmission rates, and endorsed 

with appropriate consideration of SDS factors as determined by NQF standing 

committees. We refer readers to the “Spreadsheet of MAP 2015 Final 

Recommendations” available at: http://www.qualityforum.org/map/ for more 

information. When the appropriate measure endorsement project has a call for measures 
CMS-1632-P 991

in 2015, this measure will be submitted to the NQF for reendorsement with special 

consideration of the potential impact of SDS adjustment on the measure.

(2) Overview of Measure Cohort Change

The proposed measure refinement would expand the measure cohort to include 

hospitalizations for patients with a principal discharge diagnosis of aspiration pneumonia 

and for patients with a principal discharge diagnosis of sepsis or respiratory failure who 

also have a secondary diagnosis of pneumonia that is coded as present on admission. The 

data sources, exclusion criteria, assessment of the outcome of readmission, and previous 

3 years data evaluation period remain unchanged.

(3) Risk Adjustment

The statistical modeling approach as well as the measure calculation remain 

unchanged from the previously adopted measure. The risk adjustment approach also 

remains unchanged; however, we included additional risk variables to account for the 

discharge diagnoses added as part of the expanded cohort. For the full measure 

specifications of the proposed changes to the measure, we refer readers to the AMI, HF, 

PN, COPD, and Stroke Readmissions Update zip file on our Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html.

(4) Effect of Refinement of Hospital 30-Day, All-Cause, Risk-Standardized Readmission 

Rate (RSRR) following Pneumonia Hospitalization Measure Cohort

Using administrative claims data for FY 2015 (that is, discharges between 

July 2010 - June 2013); we analyzed and simulated the effect of the proposed measure 
CMS-1632-P 992

cohort refinements on the CMS 30-Day Pneumonia Readmission Measure as if these 

changes had been applied for FY 2015. We note that these statistics are for illustrative 

purposes only, and we are not proposing to revise the measure calculations for the 

FY 2015 payment determination. We anticipate that this measure will first be publicly 

reported with the proposed cohort change in CY 2016.

Based on our analysis, we anticipate that expanding the measure cohort to include 

a broader population of patients would add a large number of patients, as well as 

additional hospitals (which would now meet the minimum threshold of 25 cases), to the 

CMS 30-Day Pneumonia Readmission Measure. In the FY 2010 IPPS/LTCH PPS final 

rule (74 FR 43881), CMS established that if a hospital has fewer than 25 eligible cases 

combined over a measure’s reporting period, we would replace the hospital’s data with a 

footnote indicating that the number of cases is too small to reliably tell how well the 

hospital is performing. These cases are still used to calculate the measure; however, for 

hospitals with fewer than 25 eligible cases, the hospital’s readmission rates and interval 

estimates are not publicly reported for the measure. For more information about this 

minimum case threshold for public reporting, we refer readers to section VIII.A.13. of the 

preamble of this proposed rule. The increase in the size of the measure cohort proposed 

in this measure cohort would change results for many hospitals and would change the 

number of hospitals that have greater than 25 cases.

The previously adopted pneumonia readmission measure cohort includes 

1,094,959 patients and 4,451 hospitals for FY 2015 payment determination. We noted 

the following effects for the CMS 30-Day Pneumonia Readmission Measure if the 
CMS-1632-P 993

expanded cohort had been applied for FY 2015: (1) the expansion of the CMS 30-Day 

Pneumonia Readmission Measure cohort would include an additional 670,491 patients 

(creating a total measure cohort of 1,765,450 patients); (2) there would be an additional 

67 hospitals that meet the minimum 25 patient cases volume threshold over the 3-year 

applicable period and would be publicly reported for the measure; (3) patients with a 

principal discharge diagnosis of aspiration pneumonia and patients with a principal 

discharge diagnosis of sepsis or respiratory failure who also have a secondary diagnosis 

of pneumonia present on admission would represent 38 percent of the total expanded 

measure cohort; and (4) there would be an increase in the number of hospitals considered 

outliers and a shift in some hospitals’ outlier status classification, for example from 

“better than the national rate” to “no different than the national rate” or from “worse than 

the national rate” to “no different than the national rate.”

A detailed description of the refinements to the CMS 30-Day Pneumonia 

Readmission Measure and the effects of the change are available in the AMI, HF, PN, 

COPD, and Stroke Readmission Updates zip file on our Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html.

We are inviting public comment on our proposal to refine the previously adopted 

Hospital 30-day, All-Cause, Risk-Standardized Readmission Rate (RSRR) following 

Pneumonia Hospitalization (NQF #0506) measure, which expands the measure cohort.
CMS-1632-P 994

7. Proposed Additional Hospital IQR Program Measures for the FY 2018 Payment 

Determination and Subsequent Years

We are proposing to add eight new measures to the Hospital IQR Program for the 

FY 2018 payment determination and subsequent years. We are proposing to adopt seven 

new claims-based measures and one new structural measure: (1) Hospital Survey on 

Patient Safety Culture (structural); (2) Kidney/UTI Clinical Episode-Based Payment 

Measure (claims-based); (3) Cellulitis Clinical Episode-Based Payment Measure 

(claims-based); (4) Gastrointestinal Hemorrhage Clinical Episode-Based Payment 

Measure (claims-based); (5) Lumbar Spine Fusion/Re-Fusion Clinical Episode-Based 

Payment Measure (claims-based); (6) Hospital-Level, Risk-Standardized Payment 

Associated with an Episode-of-Care for Primary Elective THA/TKA (claims-based); 

(7) Excess Days in Acute Care after Hospitalization for Acute Myocardial Infarction

(claims-based); and (8) Excess Days in Acute Care after Hospitalization for Heart Failure

(claims-based).

The proposed measures were included on a publicly available document entitled 

“List of Measures Under Consideration for December 1, 2014”95 in compliance with 

section 1890A(a)(2) of the Act, and they were reviewed by the MAP as discussed in its 

MAP Pre-Rulemaking Report and Spreadsheet of MAP 2015 Final Recommendations.

96

 

95 Measure Applications Partnership: List of Measures Under Consideration (MUC) for December 1, 2014. 

Retrieved from http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=78318.

96 National Quality Forum “Process and Approach for MAP Pre-Rulemaking Deliberations 2015” found at: 

http://www.qualityforum.org/Publications/2015/01/Process_and_Approach_for_MAP_PreRulemaking_Deliberations_2015.aspx and “Spreadsheet of MAP 2015 Final Recommendations” available 

at: http://www.qualityforum.org/map/.
CMS-1632-P 995

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. The NQF currently holds this 

contract. However, section 1886(b)(3)(B)(IX)(bb) of the Act provides an exception that, 

in the case of a specified area or medical topic determined appropriate by the Secretary 

for which a feasible and practical measure has not been endorsed by the entity with a 

contract under section 1890(a) of the Act, the Secretary may specify a measure that is not 

so endorsed as long as due consideration is given to measures that have been endorsed or 

adopted by a consensus organization identified by the Secretary.

a. Hospital Survey on Patient Safety Culture

(1) Background

For the FY 2018 payment determination and subsequent years, we are proposing 

to adopt the Hospital Survey on Patient Safety Culture. This proposed structural measure 

assesses whether a hospital administers a patient safety culture survey. Improving the 

safety of patient care is a priority and a quality improvement goal for CMS. We believe 

this structural measure will allow us to gain an understanding of whether hospitals are 

using a survey of patient safety culture in their hospitals. Because the number of 

questions in this measure is limited to five and can be completed using a Web-based tool, 

we believe this structural measure will not add undue reporting burden to hospitals.

We note that patient safety culture surveys are useful tools for measuring 

organizational conditions that can lead to adverse events and other incidences that can 
CMS-1632-P 996

cause harm to patients in health care organizations.

97

 Patient safety culture surveys can 

be used to: (1) raise staff awareness about patient safety; (2) assess the current status of 

patient safety culture; (3) identify strengths and areas for improvement; and (4) examine 

trends in patient safety culture over time.98

There are multiple surveys that are currently used by the healthcare industry to 

assess patient safety culture including: the Pascal Metrics’ Safety Attitudes Questionnaire 

(SAQ),99 the Agency for Healthcare Research and Quality (AHRQ) Hospital Survey on 

Patient Safety Culture (HSOPSC),100 the Patient Safety Climate in Healthcare 

Organizations (PSCHO),101 and the Manchester Patient Safety Framework.

102

 However, 

it is not clear which patient safety culture survey is used most frequently, or how many 

hospitals consistently assess their performance on these surveys. One example of use of 

a patient safety culture survey is the HSOPSC, which is nonproprietary and available to 

hospitals at no cost. AHRQ developed the survey, with CMS input, released it in 2004, 

and subsequently displayed results from 653 hospitals in 2014.103 Use of the HSOPSC, 

as well as reporting results to AHRQ, was and continues to be voluntary. Among the 

 

97 Nieva VF, Sorra J.: Safety culture assessment: a tool for improving patient safety in healthcare 

organizations. Qual Saf Health Care 2003; 12:ii17–23.

98 Frequently Asked Questions: Surveys on Patient Safety Culture. October 2014. Agency for Healthcare 

Research and Quality, Rockville, MD. Available at: http://www.ahrq.gov/professionals/quality-patientsafety/patientsafetyculture/pscfaq.html.

99 Survey. (n.d.). Available at: http://www.pascalmetrics.com/solutions/survey/.

100 Hospital Survey on Patient Safety Culture. (n.d.). Available at: 

http://www.ahrq.gov/professionals/quality-patient-safety/patientsafetyculture/hospital/index.html.

101 Measurement Instrument Database for the Social Sciences. (n.d.). Available at: 

http://www.midss.org/content/patient-safety-climate-healthcare-organizations-pscho.

102 Dianne, P. (n.d.). Manchester Patient Safety Framework (MaPSaF). National Patient Safety Agency. 

Available at: http://www.nrls.npsa.nhs.uk/resources/?entryid45=59796.

103 Hospital Survey on Patient Safety Culture: 2014 User Comparative Database Report: Executive 

Summary. March 2014. Agency for Healthcare Research and Quality, Rockville, MD. Available at: 

http://www.ahrq.gov/professionals/quality-patientsafety/patientsafetyculture/hospital/2014/hosp14summ.html.
CMS-1632-P 997

reporting hospitals, there was variation in frequency of survey use, format of 

administration (Web versus paper) and staff sampling scheme.104

Through the proposed Hospital Survey on Patient Safety Culture Measure, we 

will begin to understand how hospitals are using surveys, like the examples cited above, 

in improving their patient safety culture. This proposed measure will allow CMS to 

collect data on whether a hospital conducts a patient safety culture survey, and if so, 

which tool they use, how frequently the tool is administered, and the response rate. This 

structural measure will help inform CMS of whether a measure targeting the culture of 

patient safety using a specific survey is feasible.

Finally, we note that the MAP supports this measure and specifically highlighted 

that a patient safety culture survey is an important tool for hospitals to use to build a 

system of quality improvement within health care facilities.105 While this measure is not 

currently NQF-endorsed, we are proposing this 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 VIII.A.7. of the preamble of this proposed rule. We considered other 

existing measures related to patient safety that have been endorsed by the NQF and we 

were unable to identify any NQF-endorsed measures that assess a patient safety culture,

and found no other feasible and practical measures on this topic. We also are not aware 

 

104 Hospital Survey on Patient Safety Culture: 2014 User Comparative Database Report: Executive 

Summary. March 2014. Agency for Healthcare Research and Quality, Rockville, MD. Available at: 

http://www.ahrq.gov/professionals/quality-patientsafety/patientsafetyculture/hospital/2014/hosp14summ.html.

105 National Quality Forum Measure Application Partnership. “Spreadsheet of MAP 2015 Final 

Recommendations.” Available at: http://www.qualityforum.org/map/.
CMS-1632-P 998

of any other measures that assess whether a hospital administers a survey on patient 

safety.

(2) Overview of Measure

Reporting on a patient safety culture survey involves providing answers to the 

following questions listed below. Hospitals would submit answers via a Web-based tool 

on the QualityNet Web site:

(A) Does your facility administer a detailed assessment of patient safety culture 

using a standardized collection protocol and structured instrument?

(B) What is the name of the survey that is administered?

(C) How frequently is the survey administered?

(D) Does your facility report survey results to a centralized location? (Optional 

response options include the following: national data repository; State-based data 

repository; health system repository; other; and do not report the data outside the facility.)

(E) During the most recent assessment:

(a) How many staff members were requested to complete the survey?

(b) How many completed surveys were received?

(These questions can allow calculation of a response rate.)

(3) Data Sources

For FY 2018 payment determination and subsequent years, we are proposing that 

data collection for this structural measure for hospitals occur from January 1 through 

December 31 of each calendar year, with data submission occurring the following year. 

For the first year, data collection would be from January 1, 2016 through 
CMS-1632-P 999

December 31, 2016. These data will be collected via a Web-based tool available on the 

QualityNet Web site.

We are inviting public comment on our proposal to adopt the Hospital Survey on 

Patient Safety Culture measure for the FY 2018 payment determination and subsequent 

years.

b. Clinical Episode-Based Payment Measures

(1) Background

Clinical episode-based payment measures are clinically coherent groupings of 

healthcare services that can be used to assess providers’ resource use. Combined with 

other clinical quality measures, they contribute to the overall picture of providers’ clinical 

effectiveness and efficiency. Episode-based performance measurement allows 

meaningful comparisons between providers based on resource use for certain clinical 

conditions or procedures, as noted in the NQF report for the “Episode Grouper 

Evaluation Criteria” project available at: 

http://www.qualityforum.org/Publications/2014/09/Evaluating_Episode_Groupers__A_R

eport_from_the_National_Quality_Forum.aspx) and in various peer-reviewed 

articles.106 Episode-based measurement further supports CMS’ efforts in response to the 

mandate in section 3003 of the Affordable Care Act that the Secretary develop an episode 

grouper to improve care efficiency and quality.

We are proposing four clinical episode-based payment measures for inclusion in 

the Hospital IQR Program beginning with the FY 2018 payment determination: the 

 

106 For example: Hussey, P. S., Sorbero, M. E., Mehrotra, A., Liu, H., & Damberg, S. L.: (2009). EpisodeBased Performance Measurement and Payment: Making It a Reality. Health Affairs, 28(5), 1406-1417. 

doi:10.1377/hlthaff.28.5.1406.
CMS-1632-P 1000

Kidney/Urinary Tract Infection Clinical Episode-Based Payment measure, the Cellulitis 

Clinical Episode-Based Payment measure, the Gastrointestinal Hemorrhage Clinical 

Episode-Based Payment measure, and the Lumbar Spine Fusion/Refusion Clinical 

Episode-Based Payment measure. The proposed measures evaluate the difference 

between observed and expected episode cost at the episode level before comparing at the 

provider level.

The MAP conditionally supported these measures pending NQF endorsement.107 

Once the call for measures for the Cost and Resource Use project at NQF is announced, 

these measures will be submitted for endorsement.

The measures we are proposing are described below, and detailed specifications 

can be found in the “Measure Methodology” report for proposed episodic payment 

measures, available at: http://www.qualitynet.org ˃ Hospital-Inpatient ˃ ClaimsBasedMeasures ˃ Proposed episodic payment measures ˃ Measure Methodology. The 

measures follow the general construction of the previously adopted, NQF-endorsed, 

Hospital IQR Program measure, Payment-Standardized Medicare Spending per 

Beneficiary (MSPB), described in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51626) 

and include standardized payments for Medicare Part A and Part B services.108 Similar to 

the MSPB measure, the episodes are risk adjusted for individual patient characteristics 

and other factors (for example, attributes of inpatient stays). Unlike the MSPB measure 

 

107 National Quality Forum. The report is available at: 

http://www.qualityforum.org/Publications/2015/01/Process_and_Approach_for_MAP_PreRulemaking_Deliberations_2015.aspx and the “Spreadsheet of MAP 2015 Final Recommendations” is 

available at: http://www.qualityforum.org/map/.

108 Detailed measure specifications can be found in the “Medicare Spending Per Beneficiary (MSPB) 

Measure Overview,” available at: 

http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier3&cid

=1228772053996.
CMS-1632-P 1001

however, these clinical episode-based measures include only Medicare Part A and B 

services that are clinically related to the triggering diagnosis or procedure.

Mathematically, the methodology described below first computes the provider’s 

Episode Amount (calculated as the average of the ratios of each episode’s observed costs 

to its expected costs multiplied by the national average observed episode cost) and then 

divides the provider’s Episode Amount by the episode-weighted median of all providers’ 

Episode Amounts (as shown in equation (A) below).

(A) Episode Measurej =

Episode Amountj

Episode−Weighted

Median of All Providers′

Episode Amounts

=

∑ (

Oij

Eij

)

i∈j

nj

∗ O̅

i∈I

Episode−Weighted

Median of All Providers′

Episode Amounts

where

Oij = observed episode cost for episode i in provider j,

Eij = expected episode cost for episode i in provider j, 

O̅

i∈I = average observed episode cost across all episodes i nationally, and

nj = total number of episodes for provider j.

This methodology builds on that which was submitted to the MAP, in response to 

MAP feedback, and in order to yield a national episode-weighted measure. We are 

proposing these clinical episode-based payment measures because they meet the 

following episode selection criteria we established for the purpose of selecting the best 

conditions and procedures to begin with, for clinical episode-based payment measures: 

(1) the condition constitutes a significant share of Medicare payments and potential 

savings for hospitalized patients during and surrounding a hospital stay; (2) there was a 

high degree of agreement among clinical experts consulted for this project that 
CMS-1632-P 1002

standardized Medicare payments for services provided during this 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 and potential savings for postacute 

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 among 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 

practitioners.

(2) Kidney/Urinary Tract Infection Clinical Episode-Based Payment Measure

(A) Background

Inpatient hospital stays and associated services assessed by the Kidney/Urinary 

Tract Infection Clinical Episode-Based Payment measure have high costs with substantial 

variation. In CY 2012, Medicare FFS beneficiaries experienced over 234,000 

kidney/urinary tract infection episodes triggered by related inpatient stays.109 Paymentstandardized, risk-adjusted episode costs for these episodes (cost of the hospitalization 

plus the cost of clinically related services in the episode window) totaled more than 

$2.5 billion in 2012, with an average episode cost of over $10,000. There is substantial 

variation in kidney/urinary tract infection episode costs−ranging from approximately 

$4,800 at the 5th percentile to approximately $27,000 at the 95th−that is driven by 

 

109 The number of episodes and associated costs are calculated using the methodology for developing 

hospital-based episode measures proposed by Acumen LLC and outlined in the supplemental 

documentation for the FY 2015 IPPS and LTCH Prospective Payment System Proposed Rule. Available at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-basedpurchasing/index.html.
CMS-1632-P 1003

variation in post-discharge costs clinically-related to the inpatient hospitalization. These 

clinically-related post-discharge costs are an indicator of the quality of care provided 

during the hospitalization.

The MAP conditionally supported this measure pending NQF review and 

endorsement. Members noted that this measure addresses the cost of care for common 

conditions, but other members expressed caution that the most efficient providers may 

reduce overall hospitalizations and that the remaining hospitalizations may be a biased 

sample for measuring performance across providers. In response to this concern, we note 

that this measure is limited by design to the inpatient hospital, which means that resource 

use is evaluated only for patients that have been hospitalized for the episode condition, 

and providers are evaluated relative to other providers treating hospitalized patients. To 

address the concern that providers involved in the hospitalization of only the most 

complex cases might be disadvantaged under the measure, we note that the episode is 

risk-adjusted to account for differences in patient characteristics that may affect costs, 

such that expected costs for more complex patients will be higher and expected costs for 

less complex patients will be lower. Risk adjustment is described in 

section VIII.A.7.b.(7)(B) of the preamble of this proposed rule. Once the call for 

measures for the Cost and Resource Use project at NQF is announced, this measure will 

be submitted for endorsement.

We are proposing this 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 VIII.A.7. of the preamble of this proposed rule. We considered other existing 
CMS-1632-P 1004

measures related to efficiency that have been endorsed by the NQF and we were unable 

to identify any NQF-endorsed measures that assess kidney/urinary tract infection. We 

also are not aware of any other measures that assess kidney/urinary tract infection 

treatment efficiency and found no other feasible and practical measures on this topic.

(B) Overview of Measure

The Kidney/Urinary Tract Infection Clinical Episode-Based Payment measure 

includes the set of services provided to treat, manage, diagnose, and follow up on 

(including postacute care) a kidney/urinary tract infection-related hospital admission. 

This measure, like the NQF-endorsed MSPB measure, assesses the cost of services 

initiated during an episode that spans the period immediately prior to, during, and 

following a beneficiary’s hospital stay (the “episode window”). In contrast to the MSPB 

measure, however, this measure includes Medicare payments for services during the 

episode window only if they are clinically related to the health condition that was treated 

during the index hospital stay.

(C) Data Sources

The Kidney/Urinary Tract Infection Clinical Episode-Based Payment measure is 

an administrative claims-based measure. It uses Part A and Part B Medicare 

administrative claims data from Medicare FFS beneficiaries hospitalized with an 

MS-DRG that identifies a kidney/urinary tract infection.

(D) Measure Calculation

The measure sums the Medicare payment amounts for clinically related Part A 

and Part B services provided during the episode window and attributes them to the 
CMS-1632-P 1005

hospital at which the index hospital stay occurred. Medicare payments included in this 

episode-based measure are standardized and risk-adjusted as described later in 

section VIII.A.7.b.(7)(B) of the preamble of this proposed rule. The period of 

performance for the measure is one year, beginning with calendar year 2016. Similar to 

the MSPB measure’s construction, this measure is expressed as a risk-adjusted ratio, 

which allows for ease of comparison over time, without need to adjust for inflation or any 

potential changes in CMS payment policy. The numerator is the Episode Amount, 

calculated as the average of the ratios of each episode’s observed costs to its expected 

costs multiplied by the national average observed episode cost. The denominator is the 

episode-weighted median of all providers’ Episode Amounts. A kidney/urinary tract 

infection episode begins 3 days prior to the initial (that is, index) admission and extends 

30 days following the discharge from the index hospital stay.

(E) Cohort

The measure cohort includes Medicare FFS beneficiaries hospitalized with an 

MS-DRG that indicates a kidney/urinary tract infection. Additional details including the 

exclusion criteria are described in section VIII.A.7.b.(6) of the preamble of this proposed 

rule.

We are inviting public comment on our proposal to adopt the Kidney/Urinary 

Tract Infection Clinical Episode-Based Payment measure for the FY 2018 payment 

determination and subsequent years.
CMS-1632-P 1006

(3) Cellulitis Clinical Episode-Based Payment Measure

(A) Background

Inpatient hospital stays and associated services assessed by the Cellulitis Clinical 

Episode-Based Payment measure have high costs with substantial variation. In CY 2012, 

Medicare FFS beneficiaries experienced more than 143,000 cellulitis episodes triggered 

by related inpatient stays.110 Payment-standardized, risk-adjusted episode costs for these 

episodes (cost of the hospitalization plus the cost of clinically related services in the 

episode window) totaled more than $1.4 billion in 2012, with an average episode cost of 

approximately $10,000. There is substantial variation in cellulitis episode costs−ranging 

from about $5,000 at the 5th percentile to about $24,000 at the 95th−that is driven by 

variation in post-discharge costs clinically-related to the inpatient hospitalization. These 

clinically related post-discharge costs are an indicator of the quality of care provided 

during the hospitalization.

The MAP conditionally supported this measure pending NQF review and 

endorsement. Members noted that this measure addresses the cost of care for an 

important condition. Other members expressed caution on the use of this measure noting 

that cellulitis is a highly variable condition that may be challenging to measure using an 

episode-based framework. Once the call for measures for the Cost and Resource Use 

project at NQF is announced, this measure will be submitted for endorsement. We note 

that there is substantial variation in cellulitis episode costs that is driven by variation in 

 

110The number of episodes and associated costs are calculated using the methodology for developing 

hospital-based episode measures proposed by Acumen LLC and outlined in the supplemental 

documentation for the FY 2015 IPPS and LTCH Prospective Payment System Proposed Rule. Available at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-basedpurchasing/index.html.
CMS-1632-P 1007

post-discharge costs clinically-related to the inpatient hospitalization. This variation 

suggests that there may be opportunity to improve the efficiency of care for cellulitis 

treatment.

We are proposing this 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 VIII.A.7. of the preamble of this proposed rule. We considered other existing 

measures related to efficiency that have been endorsed by the NQF and we were unable 

to identify any NQF-endorsed measures that assess cellulitis. We also are not aware of 

any other measures that assess cellulitis treatment efficiency, and found no other feasible 

and practical measures on this topic.

(B) Overview of Measure

The Cellulitis Clinical Episode-Based Payment measure includes the set of 

services provided to treat, manage, diagnose, and follow up on (including post-acute 

care) a cellulitis-related hospital admission. The Cellulitis Clinical Episode-Based 

Payment measure, like the MSPB measure, assesses the cost of services initiated during 

an episode that spans the period immediately prior to, during, and following a 

beneficiary’s hospital stay (the “episode window”). In contrast to the MSPB measure, 

the Cellulitis Clinical Episode-Based Payment measure includes Medicare payments for 

services during the episode window only if they are clinically related to the health 

condition that was treated during the index hospital stay.
CMS-1632-P 1008

(C) Data Sources

The Cellulitis Clinical Episode-Based Payment measure is an administrative 

claims-based measure. It uses Part A and Part B Medicare administrative claims data 

from Medicare FFS beneficiaries hospitalized with an MS-DRG that identifies cellulitis.

(D) Measure Calculation

The measure sums the Medicare payment amounts for clinically related Part A 

and Part B services provided during this episode window and attributes them to the 

hospital at which the index hospital stay occurred. Medicare payments included in this 

episode-based measure are standardized and risk-adjusted as described in 

section VIII.A.7.b.(7)(B) of the preamble of this proposed rule. The period of 

performance is one year, beginning with calendar year 2016. Similar to the MSPB 

measure’s construction, this measure is expressed as a risk-adjusted ratio, which allows 

for ease of comparison over time, without need to adjust for inflation or any potential 

changes in CMS payment policy. The numerator is the Episode Amount, calculated as 

the average of the ratios of each episode’s observed costs to its expected costs multiplied 

by the national average observed episode cost. The denominator is the episode-weighted 

median of all providers’ Episode Amounts. A cellulitis episode begins 3 days prior to the 

initial (that is, index) admission and extends 30 days following the discharge from the 

index hospital stay.
CMS-1632-P 1009

(E) Cohort

The measure cohort includes Medicare FFS beneficiaries hospitalized with an 

MS-DRG that indicates cellulitis. Additional details including the exclusion criteria are 

described in section VIII.A.7.b.(6) of the preamble of this proposed rule.

We are inviting public comment on our proposal to adopt the Cellulitis Clinical 

Episode-Based Payment measure for the FY 2018 payment determination and subsequent 

years.

(4) Gastrointestinal Hemorrhage Clinical Episode-Based Payment Measure

(A) Background

Inpatient hospital stays and associated services assessed by the GI Hemorrhage 

Clinical Episode-Based Payment measure have high costs with substantial variation. In 

calendar year 2012, Medicare FFS beneficiaries experienced 181,646 GI hemorrhage 

episodes triggered by related inpatient stays.111 Payment-standardized, risk-adjusted 

episode costs for these episodes (cost of the hospitalization plus the cost of clinically 

related services in the episode window) totaled nearly $2 billion in 2012, with an average 

episode cost of about $11,000. There is substantial variation in GI hemorrhage episode 

costs−ranging from approximately $6,500 at the 5th percentile to approximately $23,000 

at the 95th−that is driven by variation in post-discharge costs clinically related to the 

inpatient hospitalization. These clinically related post-discharge costs are an indicator of 

the quality of care provided during the hospitalization. For the purposes of reporting, and 

 

111 The number of episodes and associated costs are calculated using the methodology for developing 

hospital-based episode measures proposed by Acumen LLC and outlined in the supplemental

documentation for the FY 2015 IPPS and LTCH Prospective Payment System Proposed Rule. Available 

at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-valuebased-purchasing/index.html.
CMS-1632-P 1010

as suggested by the MAP, the GI hemorrhage episodes may be split into those treating an 

upper GI bleed and those treating a lower GI bleed due to clinical differences in patterns 

of care for those treatments. More information can be found in the supplemental 

documentation for the FY 2016 IPPS and LTCH Prospective Payment System Proposed 

Rule available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/hospital-value-based-purchasing/index.html.

The MAP conditionally supported this measure pending NQF review and 

endorsement. MAP members noted that this measure addresses the cost of care for GI 

bleeding. Several members expressed caution that the most efficient providers may 

reduce overall hospitalizations thus those inpatient hospitalizations that remain are a 

biased sample for measuring performance across providers. In response to these 

concerns, we note that this measure is limited by design to GI hemorrhage episodes 

treated in the inpatient hospital, which means that resource use is evaluated only for 

patients that have been hospitalized for the episode condition, and providers are evaluated 

relative to other providers treating hospitalized patients. With regard to the concern that 

efficient providers may reduce hospitalizations, leaving a biased sample of less efficient 

providers, we note that the episode is risk-adjusted to account for differences in patient 

characteristics that may affect costs, thus to the extent that variation in treatment prior to 

hospitalization results in patterns of sicker (or healthier) GI hemorrhage patients admitted 

to certain hospitals, risk adjustment addresses these differences. For example, for 

providers who admit comparatively less complex patients to the inpatient hospital for 

treatment of GI bleeds, risk adjustment would cause their expected costs to be lower. 
CMS-1632-P 1011

Risk adjustment is described in section VIII.A.7.b.(7)(B) of the preamble of this proposed 

rule. Once the call for measures for the Cost and Resource Use project at NQF is 

announced, this measure will be submitted for endorsement.

We are proposing this 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 VIII.A.7. of the preamble of this proposed rule. We considered other existing 

measures related to efficiency that have been endorsed by the NQF and we were unable 

to identify any NQF-endorsed measures that assess GI hemorrhage. We also are not 

aware of any other measures that assess GI hemorrhage treatment efficiency, and found 

no other feasible and practical measures on this topic.

(B) Overview of Measure

The Gastrointestinal Hemorrhage Clinical Episode-Based Payment measure 

includes the set of services provided to treat, manage, diagnose, and follow up on 

(including postacute care) a gastrointestinal hemorrhage-related hospital admission. This 

measure, like the MSPB measure, assesses the cost of services initiated during an episode 

that spans the period immediately prior to, during, and following a beneficiary’s hospital 

stay (the “episode window”). In contrast to the MSPB measure, the Gastrointestinal 

Hemorrhage Clinical Episode-Based Payment measure includes Medicare payments for 

services during the episode window only if they are clinically related to the health 

condition that was treated during the index hospital stay.
CMS-1632-P 1012

(C) Data Sources

The Gastrointestinal Hemorrhage Clinical Episode-Based Payment measure is an 

administrative claims-based measure. It uses Part A and Part B Medicare administrative 

claims data from Medicare FFS beneficiaries hospitalized with an MS-DRG that 

identifies a gastrointestinal hemorrhage.

(D) Measure Calculation

The measure sums the Medicare payment amounts for clinically related Part A 

and Part B services provided during the episode window and attributes them to the 

hospital at which the index hospital stay occurred. Medicare payments included in this 

episode-based measure are standardized and risk-adjusted as described in 

section VIII.A.7.b.(7) of the preamble of this proposed rule. The period of performance 

is 1 year, beginning with CY 2016. Similar to the MSPB measure’s construction, this 

measure is expressed as a risk-adjusted ratio, which allows for ease of comparison over 

time, without need to adjust for inflation or any potential changes in CMS payment 

policy. The numerator is the Episode Amount, calculated as the average of the ratios of 

each episode’s observed costs to its expected costs multiplied by the national average 

observed episode cost. The denominator is the episode-weighted median of all providers’ 

Episode Amounts. A gastrointestinal hemorrhage episode begins 3 days prior to the 

initial (that is, index) admission and extends 30 days following the discharge from the 

index hospital stay.
CMS-1632-P 1013

(E) Cohort

The measure cohort includes Medicare FFS beneficiaries hospitalized with an 

MS-DRG that indicates gastrointestinal hemorrhage. Additional details including the 

exclusion criteria are described in section VIII.A.7.b.(6) of the preamble of this proposed 

rule.

We are inviting public comment on our proposal to adopt the Gastrointestinal 

Hemorrhage Clinical Episode-Based Payment measure for the FY 2018 payment 

determination and subsequent years.

(5) Lumbar Spine Fusion/Refusion Clinical Episode-Based Payment Measure

(A) Background

Inpatient hospital stays and associated services assessed by the Spinal 

Fusion/Refusion Clinical Episode-Based Payment measure have high costs with 

substantial variation. In CY 2012, Medicare FFS beneficiaries experienced about 69,000 

spinal fusion/refusion episodes triggered by related inpatient stays.112 

Payment-standardized, risk-adjusted episode costs for these episodes (cost of the 

hospitalization plus the cost of clinically related services in the episode window) totaled 

more than $2.6 billion in 2012, with an average episode cost of approximately $38,000. 

There is substantial variation in spinal fusion/refusion episode costs−ranging from 

approximately $28,000 at the 5th percentile to approximately $60,000 at the 95th−that is 

driven by variation in post-discharge costs clinically related to the inpatient 

 

112 The number of episodes and associated costs are calculated using the methodology for developing 

hospital-based episode measures proposed by Acumen LLC and outlined in the supplemental 

documentation for the FY 2015 IPPS and LTCH Prospective Payment System Proposed Rule. Available 

at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-valuebased-purchasing/index.html.
CMS-1632-P 1014

hospitalization. These clinically related post-discharge costs are an indicator of the 

quality of care provided during the hospitalization.

The MAP conditionally supported this measure pending NQF review and 

endorsement. Some members raised concerns that patients with cancer should be 

excluded from this measure. Once the call for measures for the Cost and Resource Use 

project at NQF is announced, this measure will be submitted for endorsement. We note 

that this measure is titled “Spine Fusion/Refusion Clinical Episode-Based Payment 

Measure” in the MAP spreadsheet. Also, the episode is risk-adjusted to account for 

differences in patient characteristics, including the presence of cancer in the patient’s 

history, which may affect costs but are outside of providers’ control. Risk adjustment is 

described in section VIII.A.7.b.(7)(B) of the preamble of this proposed rule.

We are proposing this 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 VIII.A.7. of the preamble of this proposed rule. We considered other existing 

measures related to efficiency that have been endorsed by the NQF and we were unable 

to identify any NQF-endorsed measures that assess spinal fusion/refusion. We also are 

not aware of any other measures that assess spinal fusion/refusion treatment efficiency, 

and found no other feasible and practical measures on this topic.

(B) Overview of Measure

The Lumbar Spine Fusion/Refusion Clinical Episode-Based Payment measure 

includes the set of services provided to treat, manage, diagnose, and follow up on 

(including postacute care) a lumbar spine fusion/refusion-related hospital admission. The 
CMS-1632-P 1015

Lumbar Spine Fusion/Refusion Clinical Episode-Based Payment measure, like the MSPB 

measure, assesses the cost of services initiated during an episode that spans the period 

immediately prior to, during, and following a beneficiary’s hospital stay (the “episode 

window”). In contrast to the MSPB measure, the Lumbar Spine Fusion/Refusion Clinical 

Episode-Based Payment measure includes Medicare payments for services during the 

episode window only if they are clinically related to the health condition that was treated 

during the index hospital stay.

(C) Data Sources

The Lumbar Spine Fusion/Refusion Clinical Episode-Based Payment measure is 

an administrative claims-based measure. It uses Part A and Part B Medicare 

administrative claims data from Medicare FFS beneficiaries hospitalized with an 

MS-DRG and ICD-9-CM procedure code that identify a lumbar spine fusion/refusion.

(D) Measure Calculation

The measure sums the Medicare payment amounts for clinically related Part A 

and Part B services provided during the episode window and attributes them to the 

hospital at which the index hospital stay occurred. Medicare payments included in this 

episode-based measure are standardized and risk-adjusted as described in 

section VIII.A.7.b.(7) of the preamble of this proposed rule. The period of performance 

is 1 year, beginning with calendar year 2016. Similar to the MSPB measure’s 

construction, this measure is expressed as a risk-adjusted ratio, which allows for ease of 

comparison over time, without need to adjust for inflation or any potential changes in 

CMS payment policy. The numerator is the Episode Amount, calculated as the average 
CMS-1632-P 1016

of the ratios of each episode’s observed costs to its expected costs multiplied by the 

national average observed episode cost. The denominator is the episode-weighted 

median of all providers’ Episode Amounts. A lumbar spine fusion/refusion episode 

begins 3 days prior to the initial (that is, index) admission and extends 30 days following 

the discharge from the index hospital stay.

(E) Cohort

The measure cohort includes Medicare FFS beneficiaries hospitalized with an 

MS-DRG and ICD-9 Procedure code that indicate lumbar spine fusion/refusion. 

Additional details including the exclusion criteria are described in section VIII.A.7.b.(6) 

of the preamble of this proposed rule.

We are inviting public comment on our proposal to adopt the Lumbar Spine 

Fusion/Refusion Clinical Episode-Based Payment measure for the FY 2018 payment 

determination and subsequent years.

(6) Inclusion and Exclusion Criteria

A full list of the MS-DRG codes used to identify beneficiaries included in the 

final cohort for each of the proposed episode-based payment measures can be found in 

the “FY 2016 IPPS NPRM Episode Supplemental Documentation” report in the 

“Downloads” section at: “NPRM Episode Supplemental Documentation” report at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/hospital-value-based-purchasing/index.html.

The exclusion methodology applied to each of these measures is the same as the 

one used to calculate the previously adopted MSPB measure described in the FY 2012 
CMS-1632-P 1017

IPPS/LTCH PPS final rule (76 FR 51626) and available in the “MSPB Measure 

Information Form” at: 

http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage

%2FQnetTier4&cid=1228772057350. Episodes for beneficiaries that meet any of the 

following criteria are excluded from the measure:

● Lack of continuous enrollment in Medicare Parts A and B from 90 days prior 

to index admission through the end of the episode with Medicare as the primary payer.

● Death date during episode window.

● Enrollment in Medicare Advantage during the episode window.

In addition, claims that meet any of the following criteria do not trigger, or open, 

an episode:

● Claims with data coding errors, including missing date of birth or death dates 

preceding the date of the trigger event.

● Claims with payment ≤ 0.

● Acute inpatient stays that involved a transfer.

● Claims from a non-IPPS or non-subsection (d) hospital.

Claims that meet the following criterion will not be included in an episode:

● Claims with payment ≤ 0.

(7) Standardization and Risk-Adjustment

(A) Standardization

Standardization, or payment standardization, is the process of adjusting the 

allowed charge for a Medicare service to facilitate comparisons of resource use across 
CMS-1632-P 1018

geographic areas. Medicare payments included in these proposed episode-based 

measures would be standardized according to the standardization methodology 

previously finalized for the Hospital IQR Program MSPB measure in the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51626) and used for all of the payment measures 

included in the Value-Based Payment Modifier Program. The methodology removes 

geographic payment differences, such as wage index and geographic practice cost index, 

incentive payment adjustments, and other add-on payments that support broader 

Medicare program goals, such as add-on payments for indirect graduate medical 

education (IME) and add-ons for serving a disproportionate share of uninsured patients 

(DSH).

(B) Risk Adjustment

Risk adjustment uses patient claims history to account for case-mix variation and 

other factors. The steps used to calculate risk-adjusted payments align with the 

NQF-endorsed MSPB method as specified in the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51624 through 51626). Specifications for the risk-adjustment employed in the 

proposed episode-based payment measures are included in the “FY 2015 IPPS NPRM 

Episode Supplemental Documentation” report, Section 4, titled “Calculating the 

Hospital-Based Episode Measure,” which can be found in the “FY 2016 IPPS NPRM 

Episode Supplemental Documentation” report at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/hospital-value-based-purchasing/index.html.

We are inviting public comment on our proposals.
CMS-1632-P 1019

c. Hospital-Level, Risk-Standardized Payment Associated with a 90-Day 

Episode-of-Care for Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee 

Arthroplasty (TKA)

(1) Background

Between 2009 and 2012, there were 337,419 total hip arthroplasty (THA) 

procedures and 750,569 total knee arthroplasty (TKA) procedures for Medicare FFS 

patients 65 years and older.113 More than one-third of the US population 65 years and 

older suffers from osteoarthritis,114 a disabling condition for which elective THA/TKAs 

are most commonly performed. Estimates place the annual insurer cost of osteoarthritis 

in the United States at $149 billion, with Medicare payments to hospitals for THA/TKA 

exceeding $15 billion annually.115

There is evidence of variation in payments at hospitals for patients undergoing 

THA and/or TKA. The mean 90-day risk-standardized payment among Medicare FFS 

patients aged 65 or older with a qualifying elective primary THA/TKA procedure in 

2010–2012 was $23,248, and ranged from $16,421 to $35,123 across 2,614 hospitals.116 

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 

 

113 Suter L, Grady JL, Lin Z et al.: 2013 Measure Updates and Specifications: Elective Primary Total Hip 

Arthroplasty (THA) And/Or Total Knee Arthroplasty (TKA) All-Cause Unplanned 30-Day RiskStandardized Readmission Measure (Version 2.0). 2013. http://www.cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.

114 Osteoarthritis. 2011; http://www.cdc.gov/arthritis/basics/osteoarthritis.html.

115 Miller DC, Gust C, Dimick JB, Birkmeyer N, Skinner J, Birkmeyer JD.: Large variations in Medicare 

payments for surgery highlight savings potential from bundled payment programs. Health Aff (Millwood). 

Nov 2011;30(11):2107-2115.

116 Kim N, Ott LS, Lin Z et al.: Hospital-Level, Risk-Standardized Payment Associated with a 90-Day 

Episode-of-Care for Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee Arthroplasty 

(TKA) (Version 1.0). 2014. Available at: http://www.cms.gov/Medicare/Quality-Initiatives-PatientAssessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
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payment hospitals while other high payment hospitals may not have better outcomes. 

Thus, CMS believes that payment measures provide complementary information to 

quality measures.

Quality measures for THA/TKA, such as: (1) Hospital-level risk-standardized 

complication rate (RSCR) following elective primary total hip arthroplasty (THA) and/or 

total knee arthroplasty (TKA) (NQF #1550) (77 FR 53515 through 53518), and 

(2) Hospital-level risk-standardized readmission rate (RSRR) following elective primary 

total hip arthroplasty (THA) and/or total knee arthroplasty (TKA) (NQF #1551) 

(77 FR 53519 through 53521), are already adopted in the Hospital IQR Program and 

publicly reported, making THA/TKA an ideal procedure for which to assess payments for 

Medicare patients and relative hospital value. Including this proposed measure in the 

Hospital IQR Program and publicly reporting it on Hospital Compare would provide 

stakeholders with additional information about a hospital’s cost of care for THA/TKA 

that will complement information about a hospital’s quality of care. By including 

payments for 90 days after admission, this hospital-level resource use measure can 

capture the full spectrum of care and encourage collaboration and shared responsibility 

for patients’ health after their procedures.

We are proposing to include this non-NQF-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 VIII.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 by the NQF, and were unable to identify any measures that 
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assess hospital risk-standardized payment associated with a 90-day episode-of-care for 

elective primary THA/TKA. We also are not aware of any other 90-day episode-of-care 

THA/TKA measures that have been endorsed or adopted by a consensus organization, 

and found no other feasible and practical measures on this topic.

The MAP conditionally supported this measure on December 10, 2014 pending a 

timely review by the NQF Cost and Resource Use Standing Committee. The MAP 

recommended harmonizing and determining the most parsimonious approach to measures 

the costs of hip and knee replacements to minimize the burden and confusion of 

competing methodologies.117 Once the call for measures for the Cost and Resource Use 

project at NQF is announced, we will submit this measure for endorsement. In the 

meantime, we will consider ways to take these MAP recommendations into account.

(2) Overview of Measure and Rationale for Examining Payments for a 90-Day 

Episode-of-Care

The THA/TKA payment measure assesses hospital risk-standardized payment 

associated with a 90-day episode-of-care for elective primary THA/TKA for any hospital 

participating in the Hospital IQR Program.

When considering payments for Medicare patients, we focused on a 90-day 

episode-of-care triggered by admission for several key reasons. First, THA and TKA 

procedures require ongoing post-discharge care. Second, the 90-day preset window 

encourages hospitals to optimize post-discharge care. Third, mechanical complications 

 

117 National Quality Forum. The report is available at: 

http://www.qualityforum.org/Publications/2015/01/Process_and_Approach_for_MAP_PreRulemaking_Deliberations_2015.aspx and the “Spreadsheet of MAP 2015 Final Recommendations” is 

available at: http://www.qualityforum.org/map/.
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and wound or joint infections may present after 30 days and rates of these complications 

remain elevated for at least 90 days. Fourth, the 90-day post-admission timeframe is 

consistent with CMS’ THA/TKA complication measure, which captures specific 

complications up to 90 days after admission. Furthermore, we obtained input from a 

national Technical Expert Panel (TEP) on the most appropriate window for the 

episode-of-care. Based on TEP feedback, we chose a measure follow-up period of 

90 days that includes all payments for the initial 30 days of the episode, and all payments 

in a predefined set of care settings and services for days 31 through 90.

We refer readers to the measure methodology report and measure risk adjustment 

statistical model on our Measure Methodology page, under the “Downloads” section of 

the Web page. We refer readers to the “Hip and Knee Arthroplasty Payment” zip file on 

our Web site at: http://cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html.

(3) Data Sources

The proposed Hospital-Level, Risk-Standardized Payment Associated with a 

90-Day Episode-of-Care for Elective Primary THA and/or TKA measure uses Part A and 

Part B Medicare administrative claims data that contain payments for Medicare FFS 

beneficiaries who were hospitalized and underwent an elective THA/TKA. This measure 

will use 3 years of data.

(4) Outcome

The primary outcome of this measure is the hospital-level risk-standardized 

payment for an elective primary THA/TKA episode-of-care. This measure captures 
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payments for Medicare patients across multiple care settings, services, and supplies 

(inpatient, outpatient, skilled nursing facility, home health, hospice, physician/clinical 

laboratory/ambulance services, and durable medical equipment, prosthetics/orthotics, and 

supplies). This measure includes patient copayments as well as payments from 

coinsurance. While the approach to standardization in calculating payments over the 

episode is very similar to the previously adopted Hospital IQR measure, PaymentStandardized Medicare Spending Per Beneficiary (MSPB) as described in the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51626), the THA/TKA measure has a different cohort 

and risk-model. For more information on how MSPB is calculated, we refer readers to 

the measure development reports found on the QualityNet Web site at 

http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage

%2FQnetTier4&cid=1228772057350.

To isolate payment variation that reflects practice patterns rather than CMS 

payment adjustments, this 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 THA/TKA.
CMS-1632-P 1024

By risk standardizing the payment measure, we are able to adjust for case-mix at 

any given hospital and compare a specific hospital’s risk-standardized payment (RSP) to 

an average hospital with a similar case-mix. We define our analytic timeframe as 

beginning with the index admission for an elective primary THA/TKA to 90 days 

post-admission. The measurement includes all payments for the first 30 days after 

admission and only certain payments based on a pre-defined set of care settings and 

services for days 31-90.

(5) Cohort

The measure includes Medicare FFS patients aged 65 or older admitted for 

elective primary THA and/or TKA, and calculates payments made on behalf of these 

patients (including payments made by CMS, patients, and other insurers) over a 90-day 

episode-of-care beginning with the index admission. The measure cohort aligns with 

another previously adopted Hospital IQR Program measure – 90-day hospital-level 

risk-standardized complication rate (RSCR) following elective primary THA and/or TKA 

(NQF #1550) (77 FR 53516 through 53518). Consistent with this previously adopted 

measure, the proposed measure includes hospitalizations identified by a procedure code 

of either THA or TKA, as classified by the ICD-9-CM codes 81.51 and 81.54, 

respectively. 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).
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(6) Inclusion and Exclusion Criteria

This proposed measure includes hospitalizations for patients 65 years and older at 

the time of index admission. An index admission/hospitalization is the initial admission 

for a qualifying elective primary THA/TKA that triggers the 90-day episode-of-care for 

this payment measure. An index admission is the hospitalization to which the RSP 

outcome is attributed and includes index admissions for patients having a qualifying 

elective primary THA/TKA procedure. The measure excludes the following admissions 

from the measure cohort: (1) admissions for patients without at least 90 days of 

post-admission enrollment in FFS Medicare Parts A and B because this is necessary to 

identify the outcome (payments) in the dataset over the analytic period; (2) admissions 

for patients discharged against medical advice (AMA) because hospitals had limited 

opportunity to implement high quality care; (3) admissions for patients transferred to 

federal hospitals because we do not have claims data for these hospitals, so including 

these patients would cause payments to be underestimated; (4) admissions for patients 

with more than two THA/TKA procedure codes during the index hospitalization because, 

although clinically possible, it is highly unlikely that patients would receive more than 

two elective THA/TKA procedures in one hospitalization, and this may reflect a coding 

error; (5) admissions that could not be matched to admissions in the THA/TKA 

complication measure because, as part of our data processing, we matched our index 

THA/TKA admissions to the THA/TKA complication measure cohort to obtain the 

risk-adjustment variables; and (6) admissions without a DRG weight and the provider 
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received no payment because, without either DRG weight or payment data, we cannot 

calculate a payment for the patient’s 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. We refer readers 

to the measure risk adjustment statistical model on our Measure Methodology Web page, 

under the “Downloads” section of the Web page. Please see the “Hip and Knee 

Arthroplasty Payment” zip file on our Web site at: http://cms.gov/Medicare/QualityInitiatives-Patient-Assessment-Instruments/HospitalQualityInits/MeasureMethodology.html.

(8) Calculating the Risk-Standardized Payment (RSP)

The measure is calculated using a hierarchical generalized linear model with a log 

link and an inverse Gaussian distribution, which 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. This hierarchical generalized linear model is an 
CMS-1632-P 1027

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 THA/TKA hospitalization as well as select conditions indicated by secondary 

diagnosis codes on index admission. This methodology specifically does not, however, 

account for diagnoses present in the index admission that may indicate complications of 

care 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 result for the Hospital IQR Program, we computed an 

interval estimate, which is similar to the concept of a confidence interval, to characterize 
CMS-1632-P 1028

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 

Measure Methodology Web page, under the “Downloads” section. We refer readers to 

the “Hip and Knee Arthroplasty Payment” zip file on our Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html.

We are inviting public comment on our proposal to adopt the Hospital-Level, 

Risk-Standardized Payment Associated with a 90-Day Episode-of-Care for Elective 

Primary THA and/or TKA measure for the FY 2018 payment determination and 

subsequent years.

d. Excess Days in Acute Care after Hospitalization for Acute Myocardial Infarction

(1) Background

Acute myocardial infarction (AMI) is a priority area for outcomes measurement 

because it is a common condition associated with considerable morbidity, mortality, and 

healthcare spending. We note that AMI was the tenth most common principal discharge 

diagnosis among patients with Medicare in 2012.118 AMI also accounts for a large 

 

118 Agency for Healthcare Research and Quality (AHRQ). Healthcare Cost and Utilization Project (HCUP) 

http://hcupnet.ahrq.gov/.
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fraction of hospitalization costs, and it was the sixth most expensive condition billed to 

Medicare in 2011.119

Some of the costs for AMI can be attributed to high acute care utilization for 

post-discharge AMI patients in the form of readmissions, observation stays, and ED 

visits. We note that patients admitted for AMI have disproportionately high readmission 

rates, and that readmission rates following discharge for AMI are highly variable across 

hospitals in the United States.120, 121 For the previously adopted Hospital IQR Program 

measure, Hospital 30-Day All-Cause Risk-Standardized Readmission Rate (RSRR) 

following Acute Myocardial Infarction (AMI) Hospitalization (NQF #0505) (CY 2009 

OPPS/ASC final rule with comment period; 73 FR 68780 through 68781) (hereinafter 

referred to as READM-30-AMI), publicly reported 30-day risk-standardized readmission 

rates for AMI ranged from 17.5 percent to 30.3 percent for the time period between July 

2011 and June 2012.122 However, patients are not only at risk of requiring readmission in 

the post-discharge period. ED visits represent a significant proportion of post-discharge 

acute care utilization. Two recent studies conducted in patients of all ages have shown 

that 9.5 percent of patients return to the ED within 30 days of hospital discharge and that 

 

119 Torio CM, Andrews RM.: National Inpatient Hospital Costs: The Most Expensive Conditions by Payer, 

2011. HCUP Statistical Brief #160. 2013; http://www.hcup-us.ahrq.gov/reports/statbriefs/sb160.jsp.

120 Krumholz HM, Merrill AR, Schone EM, et al.: Patterns of hospital performance in acute myocardial 

infarction and heart failure 30-day mortality and readmission. Circulation. Cardiovascular Quality & 

Outcomes. Sep 2009;2(5):407-413.

121 Bernheim SM, Grady JN, Lin Z, et al.: National patterns of risk-standardized mortality and readmission 

for acute myocardial infarction and heart failure. Update on publicly reported outcomes measures based on 

the 2010 release. Circulation. Cardiovascular Quality & Outcomes. Sep 2010;3(5):459-467.

122 Centers for Medicare and Medicaid Services. Medicare Hospital Quality Chartbook Performance 

Report on Outcome Measures September 2013. September 2013; http://www.cms.gov/Medicare/QualityInitiatives-Patient-Assessment-Instruments/HospitalQualityInits/Downloads/-Medicare-Hospital-QualityChartbook-2013.pdf.
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about 12 percent of these patients are discharged from the ED and are not captured by the 

previously adopted Hospital IQR Program READM-30-AMI measure.123, 124

In addition, over the past decade, the use of observation stays has rapidly 

increased. Specifically, between 2001 and 2008, the use of observation services 

increased nearly three-fold,125 and significant variation has been demonstrated in the use 

of observation services for conditions such as chest pain.126 These rising rates of 

observation stays among Medicare beneficiaries have gained the attention of patients, 

providers, and policymakers.127 For example, a report from OIG noted that in 2012, 

Medicare beneficiaries had 1.5 million observation stays.128 Many of these observation 

stays lasted longer than the intended one day. This OIG report also noted the potential 

relationship between hospital use of observation stays as an alternative to short-stay 

inpatient hospitalizations as a response to changing hospital payment incentives.129

Thus, in the context of the previously adopted and publicly reported 

READM-30-AMI measure, the increasing use of ED visits and observation stays has 

raised concerns that the READM-30-AMI measure does not capture the full range of 

 

123 Rising KL, White LF, Fernandez WG, Boutwell AE.: Emergency Department Visits After Hospital 

Discharge: A Missing Part of the Equation. Annals of Emergency Medicine. 2013(0).

124 Vashi AA, Fox JP, Carr BG, et al.: Use of hospital-based acute care among patients recently discharged 

from the hospital. JAMA : the journal of the American Medical Association. Jan 23 2013;309(4):364-371.

125 Venkatesh AK GB, Gibson Chambers JJ, Baugh CW, Bohan JS, Schuur JD.: Use of Observation Care in 

US Emergency Departments, 2001 to 2008. PLoS One. September 2011;6(9):e24326.

126 Schuur JD, Baugh CW, Hess EP, Hilton JA, Pines JM, Asplin BR.: Critical pathways for postemergency outpatient diagnosis and treatment: tools to improve the value of emergency care. Academic 

Emergency Medicine. Jun 2011;18(6):e52-63.

127 Feng Z, Wright B, Mor V.: Sharp rise in Medicare enrollees being held in hospitals for observation 

raises concerns about causes and consequences. Health Affairs. Jun 2012;31(6):1251-1259.

128 Wright S.: Hospitals’ Use of Observation Stays and Short Inpatient Stays for Medicare Beneficiaries, 

OEI-02-12-00040. Washington, DC: Department of Health and Human Services: Office of Inspector 

General July 29, 2013.

129 Wright S.: Hospitals’ Use of Observation Stays and Short Inpatient Stays for Medicare Beneficiaries, 

OEI-02-12-00040. Washington, DC: Department of Health and Human Services: Office of Inspector 

General July 29, 2013.
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unplanned acute care in the post-discharge period. In particular, there exists concern that 

high use of observation stays could in some cases replace readmissions, and hospitals 

with high rates of observation stays in the post-discharge period may therefore have low 

readmission rates that do not accurately reflect the quality of care.130

In response to these concerns, CMS improved on a previously existing 

non-Hospital IQR Program measure entitled “30-Day Post-Hospital AMI Discharge Care 

Transition Composite” (NQF #0698). The improved measure (now called Excess Days

in Acute Care after Hospitalization for Acute Myocardial Infarction) is a risk-adjusted 

outcome measure for AMI that incorporates the full range of acute care use that patients 

may experience post-discharge: hospital readmissions, observation stays, and ED visits.

The measure assesses all-cause acute care utilization for post-discharge AMI 

patients for several reasons. First, from the patient perspective, acute care utilization for 

any cause is undesirable. It is costly, exposes patients to additional risks of medical care, 

interferes with work and family care, and imposes significant burden on caregivers. 

Second, limiting the measure to inpatient utilization may make it susceptible to gaming. 

Finally, it is often hard to exclude quality concerns and accountability based on the 

documented cause of a hospital visit. Therefore, this measure includes all-cause 

utilization.

We are proposing to include this improved measure under the exception authority 

in section 1886(b)(3)(B)(IX)(bb) of the Act as previously discussed in 

section VIII.A.7. of the preamble of this proposed rule. We considered existing measures 

 

130 Carlson J.: Faulty Gauge? Readmissions are down, but observational-status patients are up and that 

could skew Medicare numbers. Modern Healthcare. June 8, 2013 2013.
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related to care transitions that have been endorsed by the NQF. Existing process 

measures capture many important domains of care transitions such as education, 

medication reconciliation and follow-up, but all require chart review and manual 

abstraction. Existing outcome measures are focused entirely on readmissions or 

complications and do not include observation stays or ED visits. We also are not aware 

of any other measures that assess the quality of transitional care by measuring 30-day 

risk-standardized days in acute care (hospital readmissions, observation stays, and ED 

visits) following hospitalization for AMI that have been endorsed or adopted by a 

consensus organization, and found no other feasible and practical measures on this topic.

The MAP conditionally supported this measure on the condition that this measure 

is reviewed by NQF and endorsed. We refer readers to the Spreadsheet of MAP 2015 

Final Recommendations available at: http://www.qualityforum.org/map/, and note that in 

the document, this measure is entitled “Hospital 30-day, all-cause, unplanned 

risk-standardized days in acute care following acute myocardial infarction (AMI) 

hospitalization.” In particular, MAP members noted that the measure should be 

considered for SDS adjustment in the upcoming NQF trial period, reviewed for the 

empirical and conceptual relationship between SDS factors and risk-standardized days 

following acute care, and endorsed with appropriate consideration of SDS factors as 

determined by NQF standing committees. Some MAP members noted this measure 

could help address concerns about the growing use of observation stays. We note that 

this measure will be submitted to NQF with appropriate consideration for SDS, if 
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required, for endorsement proceedings once an appropriate measure endorsement project 

has a call for measures.

(2) Overview of Measure

This Excess Days in Acute Care after Hospitalization for AMI measure is a 

risk-standardized outcome measure that compares the number of days that patients are 

predicted to spend in acute care across the full spectrum of possible acute care events 

(hospital readmissions, observation stays, and ED visits) after discharge from a hospital 

for AMI, compared to the days expected based on their degree of illness.

(3) Data Sources

The proposed measure is administrative claims-based and will use 3 years of data. 

It uses Part A and Part B Medicare administrative claims data from Medicare FFS 

beneficiaries hospitalized for AMI.

(4) Outcome

The outcome of the measure is the excess number of days patients spend in acute 

care (hospital readmissions, observation stays, and ED visits) per 100 discharges during 

the first 30 days after discharge from the hospital, relative to the number spent by the 

same patients discharged from an average hospital. The measure defines days in acute 

care as days spent: (1) in an ED, (2) admitted to observation status, or (3) admitted as an 

unplanned readmission for any cause within 30 days from the date of discharge from the 

index AMI hospitalization. Readmission days are calculated as the discharge date minus 

the admission date. Admissions that extend beyond the 30-day follow-up period are 

truncated on day 30. Observation days are calculated by the hours in observation, 
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rounded up to the nearest half day. On the advice of our TEP, an ED treat-and-release 

visit is counted as one half day. ED visits are not counted as a full day because the 

majority of treat-and-release visits last fewer than 12 hours.

“Planned” readmissions are those planned by providers for anticipated medical 

treatment or procedures that must be provided in the inpatient setting. This measure 

excludes planned readmissions using the planned readmission algorithm previously 

developed for the READM-30-AMI measure. A more detailed discussion of exclusions 

follows below.

The measure counts all use of acute care occurring in the 30-day post-discharge 

period. For example, if a patient returns to the ED three times, the measure counts each 

ED visit as a half-day. Similarly, if a patient has two hospitalizations within 30 days, the 

days spent in each are counted. We take this approach to capture the full patient 

experience of need for acute care in the post-discharge period.

(5) Cohort

We defined the eligible cohort using the same criteria as the existing Hospital 

IQR Program measure, READM-30-AMI, except that this proposed measure does not 

include patients admitted to Veterans Administration hospitals. That is, the cohort 

includes Medicare FFS patients aged 65 years or older: (1) with a principal discharge 

diagnosis of AMI; (2) enrolled in Part A and Part B Medicare for the 12 months prior to 

the date of admission, and enrolled in Part A during the index admission; (3) who were 

discharged from a non-Federal acute care hospital; (4) who were not transferred to 
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another acute care facility; and (5) were alive at discharge. We defined the cohorts using 

the following ICD-9-CM diagnosis codes identified in inpatient claims data:

● 410.00 (Acute myocardial infarction of anterolateral wall, episode of care 

unspecified);

● 410.01 (Acute myocardial infarction of anterolateral wall, initial episode of 

care);

● 410.10 (Acute myocardial infarction of other anterior wall, episode of care 

unspecified);

● 410.11 (Acute myocardial infarction of other anterior wall, initial episode of 

care);

● 410.20 (Acute myocardial infarction of inferolateral wall, episode of care 

unspecified);

● 410.21 (Acute myocardial infarction of inferolateral wall, initial episode of 

care);

● 410.30 (Acute myocardial infarction of inferoposterior wall, episode of care 

unspecified);

● 410.31 (Acute myocardial infarction of inferoposterior wall, initial episode of 

care);

● 410.40 (Acute myocardial infarction of other inferior wall, episode of care 

unspecified);

● 410.41 (Acute myocardial infarction of other inferior wall, initial episode of 

care);
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● 410.50 (Acute myocardial infarction of other lateral wall, episode of care 

unspecified);

● 410.51 (Acute myocardial infarction of other lateral wall, initial episode of 

care);

● 410.60 (True posterior wall infarction, episode of care unspecified);

● 410.61 (True posterior wall infarction, initial episode of care);

● 410.70 (Subendocardial infarction, episode of care unspecified);

● 410.71 (Subendocardial infarction, initial episode of care);

● 410.80 (Acute myocardial infarction of other specified sites, episode of care 

unspecified);

● 410.81 (Acute myocardial infarction of other specified sites, initial episode of 

care);

● 410.90 (Acute myocardial infarction of unspecified site, episode of care 

unspecified);

● 410.91 (Acute myocardial infarction of unspecified site, initial episode of 

care).

(6) Exclusion Criteria

The measure excludes the following admissions from the measure cohort: 

(1) hospitalizations without at least 30 days of post-discharge enrollment in Part A and 

Part B FFS Medicare because the 30-day outcome cannot be assessed in this group since 

claims data are used to determine whether a patient was readmitted, was placed under 

observation, or visited the ED; (2) discharged against medical advice (AMA) because 
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providers did not have the opportunity to deliver full care and prepare the patient for 

discharge; (3) hospitalizations for patients admitted and discharged on the same day (and 

not transferred or deceased) because these patients likely did not suffer clinically 

significant AMI; and (4) hospitalizations for patients with an index admission within 

30 days of a previous index admission because additional AMI admissions within 

30 days are part of the outcome, and we choose not to count a single admission both as an 

index admission and a readmission for another index admission.

(7) Risk-Adjustment

The measure adjusts for variables that are clinically relevant and have strong 

relationships with the outcome. The measure seeks to adjust for case-mix differences 

among hospitals based on the clinical status of the patient at the time of the index 

admission. Accordingly, only comorbidities that convey information about the patient at 

that time or in the 12 months prior, and not complications that arise during the course of 

the index hospitalization, are included in the risk adjustment. The measure does not 

adjust for patients’ admission source or their discharge disposition (for example, skilled 

nursing facility) because these factors are associated with the structure of the healthcare 

system, not solely patients’ clinical comorbidities. Regional differences in the 

availability of post-acute care providers and practice patterns might exert undue influence 

on model results. In addition, these data fields are not audited and are not as reliable as 

diagnosis codes.

The outcome is risk adjusted using a two-part random effects model. This 

statistical model, often referred to as a “hurdle” model, accounts for the structure of the 
CMS-1632-P 1038

data (patients clustered within hospitals) and the observed distribution of the outcome. 

Specifically, it models the number of acute care days for each patient as: (a) a probability 

that they have a non-zero number of days; and (b) a number of days, given that this 

number is non-zero. The first part is specified as a logit model, and the second part is 

specified as a Poisson model, with both parts having the same risk-adjustment variables 

and each part having a random effect. This is an accepted statistical method that 

explicitly estimates how much of the variation in acute care days is accounted for by 

patient risk factors, how much by the hospital where the patient is treated, and how much 

is explained by neither. This model is used to calculate the predicted (including random 

effects) and expected (assuming random effects are zero) number of days for each 

patient, and the average difference between these for each hospital is used to construct 

the risk-standardized Excess Acute Care Days.

(8) Calculating Excess Acute Care Days (EACDs)

The EACD is calculated as the difference between the average of the predicted 

number of days spent in acute care for patients discharged from each hospital and the 

average number of days that would have been expected if those patients had been cared 

for at an average hospital, and then the difference is multiplied by 100 so that EACD 

represents EACD per 100 discharges. We multiply the final measure by 100 to be 

consistent with the reporting of the existing READM-30-AMI measure. A positive result 

indicates that patients spend more days in acute care post-discharge than expected; a 

negative result indicates that patients spend fewer days in acute care than expected.
CMS-1632-P 1039

We are inviting public comment on our proposal to adopt the Excess Days in 

Acute Care after Hospitalization for Acute Myocardial Infarction measure for the 

FY 2018 payment determination and subsequent years.

e. Excess Days in Acute Care after Hospitalization for Heart Failure

(1) Background

Heart failure is a priority area for outcomes measurement because it is a common 

condition associated with considerable morbidity, mortality, and healthcare spending. 

Heart failure was the second most common principal discharge diagnosis among patients 

with Medicare in 2012.131 Heart failure also accounts for a large fraction of 

hospitalization costs, and it was the third most expensive condition billed to Medicare in 

2011.132

Some of the costs for heart failure can be attributed to high acute care utilization 

for post-discharge heart failure patients in the form of readmissions, observation stays, 

and ED visits. Patients admitted for heart failure have disproportionately high 

readmission rates. Readmission rates following discharge for heart failure are highly 

variable across hospitals in the United States.133, 134 For the previously adopted Hospital 

IQR Program measure, Hospital 30-Day All-Cause Risk-Standardized Readmission Rate 

 

131 Agency for Healthcare Research and Quality (AHRQ). Healthcare Cost and Utilization Project (HCUP) 

http://hcupnet.ahrq.gov/.

132 Torio CM, Andrews RM. National Inpatient Hospital Costs: The Most Expensive Conditions by Payer, 

2011. HCUP Statistical Brief #160. 2013; Available at: http://www.hcupus.ahrq.gov/reports/statbriefs/sb160.jsp.

133 Krumholz HM, Merrill AR, Schone EM, et al.: Patterns of hospital performance in acute myocardial 

infarction and heart failure 30-day mortality and readmission. Circulation. Cardiovascular Quality & 

Outcomes. Sep 2009;2(5):407-413.

134 Bernheim SM, Grady JN, Lin Z, et al.: National patterns of risk-standardized mortality and readmission 

for acute myocardial infarction and heart failure. Update on publicly reported outcomes measures based on 

the 2010 release. Circulation. Cardiovascular Quality & Outcomes. Sep 2010;3(5):459-467.
CMS-1632-P 1040

(RSRR) following Heart Failure Hospitalization (NQF #0330) (READM-30-HF) 

(73 FR 46806 through 48610), publicly reported 30-day risk-standardized readmission 

rates for heart failure ranged from 17.5 percent to 30.3 percent for the time period 

between July 2011 and June 2012.135 However, patients are not only at risk of requiring 

readmission in the post-discharge period. ED visits represent a significant proportion of 

post-discharge acute care utilization. Two recent studies conducted in patients of all ages 

have shown that 9.5 percent of patients return to the ED within 30 days of hospital 

discharge and that about 12 percent of these patients are discharged from the ED and are 

not captured by the previously adopted Hospital IQR Program READM-30-HF 

measure.

136, 137

 Patients returning to the ED after heart failure hospitalization most 

commonly return for heart failure recurrence and chest pain.138

In addition, over the past decade, the use of observation stays has rapidly 

increased. Specifically, between 2001 and 2008, the use of observation services 

increased nearly three-fold,139 and significant variation has been demonstrated in the use 

of observation services for conditions such as chest pain.140 These rising rates of 

observation stays among Medicare beneficiaries have gained the attention of patients, 

 

135 Centers for Medicare and Medicaid Services. Medicare Hospital Quality Chartbook Performance 

Report on Outcome Measures September 2013. September 2013; Available at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Downloads/-Medicare-Hospital-Quality-Chartbook-2013.pdf.

136 Rising KL, White LF, Fernandez WG, Boutwell AE.: Emergency Department Visits After Hospital 

Discharge: A Missing Part of the Equation. Annals of Emergency Medicine. 2013(0).

137 Vashi AA, Fox JP, Carr BG, et al.: Use of hospital-based acute care among patients recently discharged 

from the hospital. JAMA : the journal of the American Medical Association. Jan 23 2013;309(4):364-371.

138 Vashi AA, Fox JP, Carr BG, et al.: Use of hospital-based acute care among patients recently discharged 

from the hospital. JAMA :The journal of the American Medical Association. Jan 23 2013;309(4):364-371.

139 Venkatesh AK GB, Gibson Chambers JJ, Baugh CW, Bohan JS, Schuur JD.: Use of Observation Care in 

US Emergency Departments, 2001 to 2008. PLoS One. September 2011;6(9):e24326.

140 Schuur JD, Baugh CW, Hess EP, Hilton JA, Pines JM, Asplin BR.: Critical pathways for 

post-emergency outpatient diagnosis and treatment: tools to improve the value of emergency care. 

Academic Emergency Medicine. Jun 2011;18(6):e52-63.
CMS-1632-P 1041

providers, and policymakers.141, 142, 143 For example, a report from the OIG noted that in 

2012, Medicare beneficiaries had 1.5 million observation stays.144 Many of these 

observation stays lasted longer than the intended one day. The OIG report also noted the 

potential relationship between hospital use of observation stays as an alternative to shortstay inpatient hospitalizations as a response to changing hospital payment incentives.

Thus, in the context of the currently adopted and publicly reported Hospital IQR 

Program READM-30-HF measure, the increasing use of ED visits and observation stays 

has raised concerns that the READM-30-HF measure does not capture the full range of 

unplanned acute care in the post-discharge period. In particular, there exists concern that 

high use of observation stays could in some cases replace readmissions, and hospitals 

with high rates of observation stays in the post-discharge period may therefore have low 

readmission rates that do not accurately reflect the quality of care.145

In response to these concerns, we improved on an existing non-Hospital IQR 

Program measure entitled “30-Day Post-Hospital HF Discharge Care Transition 

Composite” (NQF #0699). The improved measure (now called Excess Days in Acute 

Care after Hospitalization for Heart Failure) is a risk-adjusted outcome measure for heart 

 

141 Rising KL, White LF, Fernandez WG, Boutwell AE.: Emergency Department Visits After Hospital 

Discharge: A Missing Part of the Equation. Annals of Emergency Medicine. 2013(0).

142 Vashi AA, Fox JP, Carr BG, et al.: Use of hospital-based acute care among patients recently discharged 

from the hospital. JAMA : The Journal of the American Medical Association. Jan 23 2013;309(4):364-371.

143 Feng Z, Wright B, Mor V.: Sharp rise in Medicare enrollees being held in hospitals for observation 

raises concerns about causes and consequences. Health Affairs. Jun 2012;31(6):1251-1259.

144 Wright S.: Hospitals’ Use of Observation Stays and Short Inpatient Stays for Medicare Beneficiaries, 

OEI-02-12-00040. Washington, DC: Department of Health and Human Services: Office of Inspector 

General July 29, 2013.

145 Carlson J.: Faulty Gauge? Readmissions are down, but observational-status patients are up and that 

could skew Medicare numbers. Modern Healthcare. June 8, 2013 2013.
CMS-1632-P 1042

failure that incorporates the full range of acute care use that patients may experience 

post-discharge: hospital readmissions, observation stays, and ED visits.

The measure assesses all-cause acute care utilization for post-discharge heart 

failure patients for several reasons. First, from the patient perspective, acute care 

utilization for any cause is undesirable. It is costly, exposes patients to additional risks of 

medical care, interferes with work and family care, and imposes significant burden on 

caregivers. Second, limiting the measure to inpatient utilization may make it susceptible 

to gaming. Finally, it is often hard to exclude quality concerns and accountability based 

on the documented cause of a hospital visit. Therefore, this measure includes all-cause 

utilization.

We are proposing this improved 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 VIII.A.7. of the preamble of this proposed rule. We considered other existing 

measures related to care transitions that have been endorsed by the NQF. Existing 

process measures capture many important domains of care transitions such as education, 

medication reconciliation and follow-up, but all require chart review and manual 

abstraction. Existing outcome measures are focused entirely on readmissions or 

complications and do not include observation stays or ED visits. We also are not aware 

of any other measures that assess the quality of transitional care by measuring 30-day 

risk-standardized days in acute care (hospital readmissions, observation stays and ED 

visits) following hospitalization for heart failure that have been endorsed or adopted by a 

consensus organization, and found no other feasible and practical measures on this topic.
CMS-1632-P 1043

The MAP conditionally supported this measure on the condition that it is 

reviewed by NQF and endorsed. We note that this measure was entitled “Hospital 

30-day, all-cause, unplanned risk-standardized days in acute care following heart failure 

hospitalization,” in the MAP Spreadsheet. In particular, MAP members noted that the 

measure should be considered for SDS adjustment in the upcoming NQF trial period, 

reviewed for the empirical and conceptual relationship between SDS factors and 

risk-standardized days following acute care, and endorsed with appropriate consideration 

of SDS factors as determined by NQF standing committees. Some MAP members noted 

this measure could help address concerns about the growing use of observation stays. 

We note that this measure will be submitted to NQF with appropriate consideration for 

SDS, if required, for endorsement proceedings once an appropriate measure endorsement 

project has a call for measures.

(2) Overview of Measure

This Excess Days in Acute Care after Hospitalization for Heart Failure measure is 

a risk-standardized outcome measure that compares the number of days that patients are 

predicted to spend in acute care across the full spectrum of possible acute care events 

(hospital readmissions, observation stays, and ED visits) after discharge from a hospital 

for heart failure, compared to the days expected at an average hospital, based on their 

degree of illness.
CMS-1632-P 1044

(3) Data Sources

The proposed measure is administrative claims-based and will use 3 years of data. 

It uses Part A and Part B Medicare administrative claims data from Medicare FFS 

beneficiaries hospitalized for heart failure.

(4) Outcome

The outcome of the measure is the excess number of days patients spend in acute 

care (hospital readmissions, observation stays, and ED visits) per 100 discharges during 

the first 30 days after discharge from the hospital, relative to the number spent by the 

same patients discharged from an average hospital. The measure defines days in acute 

care as days spent: (1) in an ED, (2) admitted to observation status, or (3) admitted as an 

unplanned readmission for any cause within 30 days from the date of discharge from the 

index heart failure hospitalization. Readmission days are calculated as the discharge date 

minus the admission date. Admissions that extend beyond the 30-day follow-up period 

are truncated on day 30. Observation days are calculated by the hours in observation, 

rounded up to the nearest half day. On the advice of our TEP, an ED treat-and-release 

visit is counted as one half day. ED visits are not counted as a full day because the 

majority of treat-and-release visits last fewer than 12 hours.

“Planned” readmissions are those planned by providers for anticipated medical 

treatment or procedures that must be provided in the inpatient setting. This measure 

excludes planned readmissions using the planned readmission algorithm (78 FR 50786 

through 50787), a set of criteria for classifying readmissions that are likely to be planned 

among the general Medicare population using Medicare claims data, previously 
CMS-1632-P 1045

developed for Hospital IQR Program 30-day readmission measures, including the 

previously adopted READM-30-HF measure.

The measure counts all use of acute care occurring in the 30-day post-discharge 

period. For example, if a patient returns to the ED three times, the measure counts each 

ED visit as a half-day. Similarly, if a patient has two hospitalizations within 30 days, the 

days spent in each are counted. We take this approach to capture the full patient 

experience of need for acute care in the post-discharge period.

(5) Cohort

We defined the eligible cohort using the same criteria as the previously adopted 

Hospital IQR Program READM-30-HF measure (73 FR 46806 through 48610). The 

READM-30-HF cohort criteria are included in a report posted on our Measure 

Methodology Web page, under the “Downloads” section in the “AMI, HF, PN, COPD, 

and Stroke Readmission Updates” zip file on our Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. This measure differs from 

the READM-30-HF measure cohort in that this measure does not include patients 

admitted to Veterans Administration hospitals. That is, the cohort includes Medicare FFS 

patients aged 65 years or older: (1) with a principal discharge diagnosis of heart failure; 

(2) enrolled in Part A and Part B Medicare for the 12 months prior to the date of 

admission, and enrolled in Part A during the index admission; (3) who were discharged 

from a non-Federal acute care hospital; (4) who were not transferred to another acute care 
CMS-1632-P 1046

facility; and (5) were alive at discharge. We defined the cohorts using the following 

ICD-9-CM diagnosis codes identified in inpatient claims data:

● 402.01 (Malignant hypertensive heart disease with heart failure);

● 402.11 (Benign hypertensive heart disease with heart failure);

● 402.91 (Unspecified hypertensive heart disease 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);

● 04.11 (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 chronic kidney disease stage V or end stage renal disease);

● 404.91 (Hypertensive heart and chronic kidney disease, unspecified, with 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);

● 428.0 (Congestive heart failure, unspecified);

● 428.1 (Left heart failure);

● 428.20 (Systolic heart failure, unspecified);

● 428.21 (Acute systolic heart failure);

● 428.22 (Chronic systolic heart failure);
CMS-1632-P 1047

● 428.23 (Acute on chronic systolic heart failure);

● 428.30 (Diastolic heart failure, unspecified);

● 428.31 (Acute diastolic heart failure);

● 428.32 (Chronic diastolic heart failure);

● 428.33 (Acute on chronic diastolic heart failure)

● 428.40 (Combined systolic and diastolic heart failure, unspecified);

● 428.41 (Acute combined systolic and diastolic heart failure);

● 428.42 (Chronic combined systolic and diastolic heart failure);

● 428.43 (Acute on chronic combined systolic and diastolic heart failure);

● 428.9 (Heart failure, unspecified).

(6) Exclusion Criteria

The measure excludes the following admissions from the measure cohort: 

(1) hospitalizations without at least 30 days of post-discharge enrollment in Part A and 

Part B FFS Medicare because the 30-day outcome cannot be assessed in this group 

because claims data are used to determine whether a patient was readmitted, was placed 

under observation, or visited the ED; (2) discharged against medical advice (AMA) 

because providers did not have the opportunity to deliver full care and prepare the patient 

for discharge; and (3) hospitalizations for patients with an index admission within 

30 days of a previous index admission because additional heart failure admissions within 

30 days are part of the outcome, and we choose not to count a single admission both as an 

index admission and a readmission for another index admission.
CMS-1632-P 1048

(7) Risk-Adjustment

The measure adjusts for variables that are clinically relevant and have strong 

relationships with the outcome. The measure seeks to adjust for case-mix differences 

among hospitals based on the clinical status of the patient at the time of the index 

admission. Accordingly, only comorbidities that convey information about the patient at 

that time or in the 12 months prior, and not complications that arise during the course of 

the index hospitalization, are included in the risk adjustment. The measure does not 

adjust for patients’ admission source or their discharge disposition (for example, skilled 

nursing facility) because these factors are associated with the structure of the health care 

system, not solely patients’ clinical comorbidities. Regional differences in the 

availability of post-acute care providers and practice patterns might exert undue influence 

on model results. In addition, these data fields are not audited and are not as reliable as 

diagnosis codes.

The outcome is risk adjusted using a two-part random effects model. This 

statistical model, often referred to as a “hurdle” model, accounts for the structure of the 

data (patients clustered within hospitals) and the observed distribution of the outcome. 

Specifically, it models the number of acute care days for each patient as: (a) a probability 

that they have a non-zero number of days and (b) a number of days, given that this 

number is non-zero. The first part is specified as a logit model, and the second part is 

specified as a Poisson model, with both parts having the same risk-adjustment variables 

and each part having a random effect. This is an accepted statistical method that 

explicitly estimates how much of the variation in acute care days is accounted for by 
CMS-1632-P 1049

patient risk factors, how much by the hospital where the patient is treated, and how much 

is explained by neither. This model is used to calculate the predicted (including random 

effects) and expected (assuming random effects are zero) number of days for each 

patient, and the average difference between these for each hospital is used to construct 

the risk-standardized Excess Acute Care Days.

(8) Calculating Excess Acute Care Days (EACDs)

The EACD is calculated as the difference between the average of the predicted 

number of days spent in acute care for patients discharged from each hospital and the 

average number of days that would have been expected if those patients had been cared 

for at an average hospital, and then the difference is multiplied by 100 so that EACD 

represents EACD per 100 discharges. We multiply the final measure by 100 to be 

consistent with the reporting of the existing READM-30-HF measure. A positive result 

indicates that patients spend more days in acute care post-discharge than expected; a 

negative result indicates that patients spend fewer days in acute care than expected.

We are inviting public comment on our proposal to adopt the Excess Days in 

Acute Care after Hospitalization for Heart Failure measure for the FY 2018 payment 

determination and subsequent years.

f. Summary of Previously Adopted and Proposed Hospital IQR Program Measure Set for 

the FY 2018 Payment Determination and Subsequent Years

The table below outlines the Hospital IQR Program measure set for the FY 2018 

payment determination and subsequent years and includes both previously adopted and 

proposed measures.
CMS-1632-P 1050

Hospital IQR Program Measures for the FY 2018 Payment Determination and 

Subsequent Years

Short Name Measure Name NQF #

NHSN

CLABSI National Healthcare Safety Network (NHSN) Central 

Line-Associated Bloodstream Infection (CLABSI) 

Outcome Measure

0139

Colon and Abdominal 

Hysterectomy SSI

American College of Surgeons – Centers for Disease 

Control and Prevention (ACS-CDC) Harmonized 

Procedure Specific Surgical Site Infection (SSI) 

Outcome Measure

● Colon Procedures

● Hysterectomy Procedures

0753

CAUTI National Healthcare Safety Network (NHSN) 

Catheter-associated Urinary Tract Infection (CAUTI) 

Outcome Measure

0138

MRSA Bacteremia National Healthcare Safety Network (NHSN) 

Facility-wide Inpatient Hospital-onset Methicillinresistant Staphylococcus aureus (MRSA) Bacteremia 

Outcome Measure

1716

CDI National Healthcare Safety Network (NHSN) 

Facility-wide Inpatient Hospital-onset Clostridium 

difficile Infection (CDI) Outcome Measure

1717

HCP Influenza Vaccination Coverage Among Healthcare 

Personnel 

0431

Chart-abstracted

ED-1* Median Time from ED Arrival to ED Departure for 

Admitted ED Patients

0495

ED-2* Admit Decision Time to ED Departure Time for 

Admitted Patients

0497

Imm-2 Influenza Immunization 1659

PC-01* Elective Delivery (Collected in aggregate, submitted 

via Web-based tool or electronic clinical quality 

measure)

0469

Sepsis Severe Sepsis and Septic Shock: Management 

Bundle (Composite Measure)

0500

STK-04* Thrombolytic Therapy 0437

VTE-5* Venous Thromboembolism Discharge Instructions N/A

VTE-6* Incidence of Potentially Preventable Venous 

Thromboembolism

N/A
CMS-1632-P 1051

Hospital IQR Program Measures for the FY 2018 Payment Determination and 

Subsequent Years

Short Name Measure Name NQF #

Claims

MORT-30-AMI Hospital 30-Day, All-Cause, Risk-Standardized 

Mortality Rate (RSMR) Following Acute Myocardial 

Infarction (AMI) Hospitalization 

0230

MORT-30-HF Hospital 30-Day, All-Cause, Risk-Standardized 

Mortality Rate (RSMR) Following Heart Failure 

(HF) Hospitalization 

0229

MORT-30-PN Hospital 30-Day, All-Cause, Risk-Standardized 

Mortality Rate Following Pneumonia Hospitalization

0468

MORT-30-COPD Hospital 30-Day, All-Cause, Risk-Standardized 

Mortality Rate (RSMR) Following Chronic 

Obstructive Pulmonary Disease (COPD) 

Hospitalization

1893

STK Mortality Stroke 30-day Mortality Rate N/A

CABG Mortality Hospital 30-Day, All-Cause, Risk-Standardized 

Mortality Rate (RSMR) Following Coronary Artery 

Bypass Graft (CABG) Surgery

2558

READM-30-AMI Hospital 30-Day All-Cause Risk-Standardized 

Readmission Rate (RSRR) Following Acute 

Myocardial Infarction (AMI) Hospitalization

0505

READM-30-HF Hospital 30-Day, All-Cause, Risk-Standardized 

Readmission Rate (RSRR) Following Heart Failure 

(HF) Hospitalization

0330

READM-30-PN Hospital 30-Day, All-Cause, Risk-Standardized 

Readmission Rate (RSRR) Following Pneumonia 

Hospitalization

0506

READM-30-THA/TKA Hospital-Level 30-Day, All-Cause Risk-Standardized 

Readmission Rate (RSRR) Following Elective 

Primary Total Hip Arthroplasty (THA) and/or Total 

Knee Arthroplasty (TKA)

1551

READM-30-HWR Hospital-Wide All-Cause Unplanned Readmission 

Measure (HWR)

1789

COPD READMIT Hospital 30-Day, All-Cause, Risk-Standardized 

Readmission Rate (RSRR) Following Chronic 

Obstructive Pulmonary Disease (COPD) 

Hospitalization

1891

STK READMIT 30-Day Risk Standardized Readmission Rate 

Following Stroke Hospitalization

N/A

CABG READMIT Hospital 30-Day, All-Cause, Unplanned, Risk- 2515
CMS-1632-P 1052

Hospital IQR Program Measures for the FY 2018 Payment Determination and 

Subsequent Years

Short Name Measure Name NQF #

Standardized Readmission Rate (RSRR) Following 

Coronary Artery Bypass Graft (CABG) Surgery

MSPB Payment-Standardized Medicare Spending Per 

Beneficiary (MSPB)

2158

AMI Payment Hospital-Level, Risk-Standardized Payment 

Associated with a 30-Day Episode-of-Care for Acute 

Myocardial Infarction (AMI) 

2431

HF Payment Hospital-Level, Risk-Standardized Payment 

Associated with a 30-Day Episode-of-Care For Heart 

Failure (HF)

2436

PN Payment Hospital-Level, Risk-Standardized Payment 

Associated with a 30-day Episode-of-Care For 

Pneumonia 

2579

Hip/knee complications Hospital-Level Risk-Standardized Complication Rate 

(RSCR) Following Elective Primary Total Hip 

Arthroplasty (THA) and/or Total Knee Arthroplasty 

(TKA)

1550

PSI 4 (PSI/NSI) Death among Surgical Inpatients with Serious, 

Treatable Complications

0351

PSI 90 Patient Safety for Selected Indicators (Composite 

Measure)

0531

THA/TKA Payment** Hospital‐Level, Risk‐Standardized Payment 

Associated with an Episode-of-Care for Primary 

Elective Total Hip Arthroplasty and/or Total Knee 

Arthroplasty 

N/A

Kidney/UTI Payment** Kidney/Urinary Tract Infection Clinical EpisodeBased Payment MeasureN/A

Spine Fusion/ Refusion 

Payment**

Spine Fusion/Refusion Clinical Episode-Based 

Payment Measure

N/A

Cellulitis Payment** Cellulitis Clinical Episode-Based Payment Measure N/A

GI Payment** Gastrointestinal Hemorrhage Clinical Episode-Based 

Payment Measure

N/A

AMI Excess Days** Excess Days in Acute Care after Hospitalization for 

Acute Myocardial Infarction

N/A

HF Excess Days** Excess Days in Acute Care after Hospitalization for 

Heart Failure

N/A
CMS-1632-P 1053

Hospital IQR Program Measures for the FY 2018 Payment Determination and 

Subsequent Years

Short Name Measure Name NQF #

Electronic Clinical Quality Measure

AMI-2 Aspirin Prescribed at Discharge for AMI 0142

AMI-7a Fibrinolytic Therapy Received Within 30 Minutes of 

Hospital Arrival

0164

AMI-8a Primary PCI Received Within 90 Minutes of Hospital 

Arrival

0163

AMI-10 Statin Prescribed at Discharge N/A

CAC-3 Home Management Plan of Care Document Given to 

Patient/Caregiver

N/A

ED-1* Median Time from ED Arrival to ED Departure for 

Admitted ED Patients

0495

ED-2* Admit Decision Time to ED Departure Time for 

Admitted Patients

0497

EHDI-1a Hearing Screening Prior to Hospital Discharge 1354

HTN Healthy Term Newborn 0716

PC-01* Elective Delivery (Collected in aggregate, submitted 

via Web-based tool or electronic clinical quality 

measure)

0469

PC-05 Exclusive Breast Milk Feeding and the Subset 

Measure PC-05a Exclusive Breast Milk Feeding 

Considering Mother ́s Choice

0480

PN-6 Initial Antibiotic Selection for Community-Acquired 

Pneumonia (CAP) in Immunocompetent Patients

0147

SCIP-Inf-1a Prophylactic Antibiotic Received Within One Hour 

Prior to Surgical Incision

0527

SCIP-Inf-2a Prophylactic Antibiotic Selection for Surgical 

Patients

0528

SCIP-Inf-9 Urinary catheter Removed on Postoperative Day 1 

(POD 1) or Postoperative Day 2 (POD 2) with Day of 

Surgery Being Day Zero

N/A

STK-02 Discharged on Antithrombotic Therapy 0435

STK-03 Anticoagulation Therapy for Atrial 

Fibrillation/Flutter

0436

STK-04* Thrombolytic Therapy 0437

STK-05 Antithrombotic Therapy by the End of Hospital Day 

Two

0438

STK-06 Discharged on Statin Medication 0439

STK-08 Stroke Education N/A

STK-10 Assessed for Rehabilitation 0441
CMS-1632-P 1054

Hospital IQR Program Measures for the FY 2018 Payment Determination and 

Subsequent Years

Short Name Measure Name NQF #

VTE-1 Venous Thromboembolism Prophylaxis 0371

VTE-2 Intensive Care Unit Venous Thromboembolism 

Prophylaxis

0372

VTE-3 Venous Thromboembolism Patients with 

Anticoagulation Overlap Therapy

0373

VTE-4 Venous Thromboembolism Patients Receiving 

Unfractionated Heparin with Dosages/Platelet Count 

Monitoring by Protocol or Nomogram

N/A

VTE-5* Venous Thromboembolism Discharge Instructions N/A

VTE-6* Incidence of Potentially Preventable Venous 

Thromboembolism

N/A

Patient Survey

HCAHPS HCAHPS + 3-Item Care Transition Measure 

(CTM-3)

0166

0228

Structural

Patient Safety 

Culture**

Hospital Survey on Patient Safety Culture N/A

Registry for Nursing 

Sensitive Care

Participation in a Systematic Clinical Database 

Registry for Nursing Sensitive Care

N/A

Registry for General 

Surgery

Participation in a Systematic Clinical Database 

Registry for Registry for General Surgery

N/A

Safe Surgery Checklist Safe Surgery Checklist Use N/A

* Measure is listed twice, as both chart-abstracted and electronic clinical quality measure.

**Measures we are proposing beginning with FY 2018 and for subsequent years.

8. Electronic Clinical Quality Measures

In this proposed rule, we are clarifying our policy for one previously adopted 

voluntarily reported electronic clinical quality measure for the FY 2017 payment 

determination. Specifically, we are clarifying our requirements for the submission of 

STK-01 for CY 2015/FY 2017 payment determination. In addition, we are proposing to 

expand our electronic clinical quality measure policy in order to make reporting of 
CMS-1632-P 1055

electronic clinical quality measures required for the FY 2018 payment determination and 

subsequent years.

a. Previously Adopted Voluntarily Reported Electronic Clinical Quality Measures for the 

FY 2017 Payment Determination

For a discussion of our previously finalized electronic clinical quality measures 

and policies, we refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50811 

through 50819), and the FY 2015 IPPS/LTCH PPS final rule (79 FR 50241 through 

50253; 50256 through 50259; and 50273 through 50276).

b. Clarification for the Venous Thromboembolism (VTE) Prophylaxis (STK – 01) 

Measure (NQF #0434)

In this proposed rule, we are proposing to clarify reporting requirements for the 

Venous Thromboembolism (VTE) Prophylaxis (STK – 01) Measure (NQF #0434). In 

the FY 2016 IPPS/LTCH PPS final rule (78 FR 50808), we stated that hospitals need not 

report the STK-01 measure as part of the STK measure set if reporting electronically, 

because no electronic specification existed for STK-01. In other words, hospitals that 

successfully submit STK-02, STK-03, STK-04, STK-05, STK-06, STK-08, and STK-10 

as electronic clinical quality measures are not required to also chart-abstract and submit 

STK-01 in order to meet Hospital IQR Program requirements for the FY 2016 payment 

determination. However, hospitals that do not submit the specified electronic clinical 

quality measures must continue to chart-abstract and submit STK-01 as previously 

required. To review the details in the 2014 IPPS/LTCH PPS final rule, we refer readers 

to our Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-
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Payment/AcuteInpatientPPS/FY-2014- IPPS-Final-Rule-Home-Page-Items/FY-2014-

IPPS-Final-Rule-CMS-1599-F-Regulations.html.

We are clarifying that this policy continues for the CY 2015/FY 2017 payment 

determination. Hospitals that chose to submit the STK-02, STK-03, STK-04, STK-05, 

STK-06, STK-08, and STK-10 as electronic clinical quality measures are not required to 

also chart-abstract and submit STK-01 in order to meet Hospital IQR Program 

requirements for the FY 2017 payment determination. However, hospitals that do not 

submit the specified electronic clinical quality measures must continue to chart-abstract 

and submit STK-01 as previously required. We note that STK-01 is proposed for 

removal for CY 2016/FY 2018 payment determination and refer readers to 

section VIII.A.3.b. of the preamble of this proposed rule for more details.

We are inviting public comment on this proposal.

c. Proposed Requirements for Hospitals to Report Electronic Clinical Quality Measures 

for the FY 2018 Payment Determination and Subsequent Years

In this proposed rule, we are proposing to expand our electronic clinical quality 

measure policy in order to make reporting of electronic clinical quality measures 

required, rather than voluntary, under the Hospital IQR Program. Specifically, we are 

proposing that, beginning in CY 2016/FY 2018 payment determination and subsequent 

years, we will require hospitals to select and submit 16 electronic clinical quality 

measures covering three NQS domains from the 28 available electronic clinical quality 

measures. For the FY 2018 payment determination and subsequent years, we are 

proposing that hospitals must submit Q3 and Q4 data for 16 measures chosen by a 
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hospital and reported as electronic clinical quality measures. For example, for the 

FY 2018 payment determination, hospitals would be required to submit Q3 and Q4 

CY 2016 data for 16 measures of their choice. This proposal is in alignment with the 

Medicare EHR Incentive Program, as discussed in section VIII.D.2.b. of the preamble of 

this proposed rule.

Hospitals would not fail validation based on these data for CY 2016/FY 2018 

payment determination reporting because validation for electronic measures is currently 

under development. In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50269 through 

50273), we finalized a proposal to conduct a validation pilot test for electronically 

specified measures in FY 2015. The pilot is currently underway and therefore, the results 

are not yet available.

We will delay publicly reporting electronic clinical quality measure data 

submitted by hospitals for CY 2016/FY 2018 payment determination in order to allow 

time for us to evaluate the effectiveness of electronically reported clinical quality 

measure data. In the meantime, measures reported via electronic clinical quality measure 

will be marked with a footnote on Hospital Compare noting that: (1) the hospital 

submitted data via EHR; (2) data are being processed and analyzed; and (3) CMS will 

eventually publicly report this data once CMS determines the data to be reliable and 

accurate.

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50815 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 
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enough to be reported. We believe that our current proposal to delay public reporting of 

electronic clinical quality measure data submitted by hospitals for CY 2016/FY 2018 

payment determination is also in line with our existing policies. In future rulemaking, we 

will continue to address our intent to ensure that measures meet the reliability and 

validity requirements set for public reporting and that the measures are accurate and 

understandable before measures are publicly reported on Hospital Compare.

As shown in the table above entitled “Hospital IQR Program Measures for the 

FY 2018 Payment Determination and Subsequent Years,” 6 measures (ED-1, ED-2, 

STK-04, VTE-5, VTE-6, and PC-01) may be reported either via chart-abstraction or as 

electronic clinical quality measures. For the FY 2018 payment determination and 

subsequent years, hospitals may either report a full year of data (Q1 through Q4) in 

accordance with the submission requirements for chart-abstracted data, or electronically 

submit two quarters of data (Q3 and Q4) for each of these 6 measures. If hospitals 

choose to report these 6 measures electronically, the measures can be used to count 

toward the Hospital IQR Program’s 16 required electronic clinical quality measures. 

Hospitals choosing to report these 6 measures via chart-abstraction must select other 

electronic measures to meet the requirement to report 16 electronic clinical quality 

measures. Additional detail on submitting electronic data for measures can be found in 

section VIII.A.10.d.(3) of the preamble of this proposed rule.

We recognize that measure rates may not be comparable between measures 

reported via chart-abstraction and measures that are electronically specified. Collecting 

electronic measure data according to our proposal that hospitals must select and submit 
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16 electronic clinical quality measures will help us evaluate variations in data capture 

modes (chart-abstracted versus electronic clinical quality measures) in order to determine 

whether and what adjustments are necessary for the two different modes of collection. 

We refer readers to section VIII.A.3.b. of the preamble of this proposed rule, where we 

discuss CMS’ belief that, although the intent of a measure is the same whether it is 

reported via chart-abstraction or electronically, the submission modes and measure rates 

are not the same.

We also considered two alternative required electronic clinical quality measure 

reporting options. Alternative A would require hospitals to submit 10 of 28 quality 

measures: (1) VTE-1; (2) STK-02; (3) ED-1; (4) STK-05; (5) STK-06; (6) STK-10; 

(7) VTE-2; (8) STK-08; (9) ED-2; and (10) STK-03. Our data show that these measures 

are most frequently reported with non-zero values among hospitals attesting under 2014 

Meaningful Use. In addition, all 10 of these measures have been included in the Hospital 

IQR Program measure set as voluntary electronic clinical quality measures since 

CY 2014/FY 2016 payment determination (79 FR 50209 through 50211). Alternative B 

would require hospitals to submit 10 of 28 quality measures of each hospital’s choice. 

Both alternatives differ from our proposal only in the number and/or composition of the 

electronic clinical quality measures to be reported; that is, for both of these alternatives, 

the reporting periods and submission requirements would be the same as those proposed 

in this proposed rule.

However, we determined not to pursue these alternative reporting options as we 

believe that requiring hospitals to report more measures electronically is in line with our 
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goals to move towards electronic clinical quality measure reporting and to align with the 

EHR Incentive Program, which requires reporting on 16 clinical quality measures 

covering at least 3 domains.

We believe that our proposals will ultimately decrease reporting burden to 

hospitals. Once capture is possible within EHR, the time and resources needed to submit 

quality measures data are significantly less compared to manual abstraction. Electronic 

clinical quality measure collection does not require hospital staff time to find and pull 

paper medical records and manually review them to abstract data elements used in 

measure calculation. We acknowledge that there are initial costs, but believe that 

long-term benefits associated with electronic data capture outweigh those costs.

We welcome public comment on our proposal to require hospitals to select and 

submit 16 electronic clinical quality measures covering three NQS domains from the 

28 available electronic clinical quality measures for eligible hospitals and CAHs for the 

FY 2018 payment determination and subsequent years. We refer readers to 

section VIII.A.10.d.(3) of the preamble of this proposed rule for detail on reporting 

periods and submission deadlines for electronic clinical quality measures.

9. Future Considerations for Electronically Specified Measures: Consideration to 

Implement a New Type of Measure that Utilizes Core Clinical Data Elements

a. Background

We have implemented several claims-based measures comparing hospital 

performance on 30-day mortality, 30-day readmission, and complications following 

hospitalization for several conditions and procedures in the Hospital IQR, Hospital 
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Readmissions Reductions, and Hospital VBP Programs. Although these measures have 

been shown to provide valid information about hospital performance, the clinical 

community continues to express the opinion that data gathered directly from patients and 

used by clinicians to guide diagnostic decisions and treatment are preferable for risk 

adjustment of hospital outcome measures. In response to clinicians and providers’ 

feedback in public comment periods during measure development, and keeping with our 

goal to move toward the use of electronic health records (EHRs) for electronic quality 

measure reporting throughout CMS programs, where feasible, we are considering: 

(1) the use of core clinical data elements derived from EHRs for use in future quality 

measures (for example, risk adjustment of outcome measures); (2) the collection of 

additional administrative linkage variables to link a patient’s episode of care from EHR 

data with his administrative claim data, and (3) use of content exchange standards.

During a July 2014 public comment period on the CMS Call for Public Comment 

Web site146 for the hybrid hospital-wide readmission measure with administrative claims 

and electronic health record data, we received supportive feedback on the importance of 

the use of clinical data in hospital outcome measures. Commenters supported our efforts 

in examining new approaches to provide a more accurate assessment and portrayal of 

services provided by clinicians and hospitals, and the feedback also indicated their belief 

that it is very important that enriched clinical data from an EHR be used to supplement 

the clinically limited datasets available from administrative claims data. We note that 

 

146 CMS.gov. Measure Management System, Public Comment. Hybrid Hospital-Wide Readmission 

Measure with Claims and Electronic Health Record Data. Available at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/MMS/CallforPublicComment.html.
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reviewers can find the public comment summary report within the Hybrid Hospital-Wide 

Readmission Measure with Electronic Health Record Extracted Risk Factors 

(Version 1.1), in the “Downloads” section of our Measure Methodology Web page. We 

refer readers to the Core Clinical Data Elements and Hybrid Measures zip file found on 

our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html.

In response to this public feedback, as well as CMS policy goals, we have 

identified a set of 21 clinical variables, or core clinical data elements, which we note are 

routinely collected on hospitalized adults and feasibly extracted from hospital EHRs. We 

believe that these core clinical data elements can be adapted for future use as part of 

specific quality measures. During our testing, we found that these 21 core clinical data 

elements can be used to risk adjust 30-day mortality and 30-day readmission outcome 

measures. Although we have thus far only tested the core clinical data elements for use 

in the risk adjustment models of hospital-level outcome measures, they could be utilized 

in other ways in the future. We anticipate that EHRs will continue to improve capturing 

of relevant clinical data and we also anticipate future expansion of the list of core clinical 

data elements.

In the future, one way in which we envision using core clinical data elements in 

conjunction with other sources of data, such as administrative claims, is to calculate 

“hybrid” outcome measures, which are quality measures that utilize more than one source 

of data. We believe that these types of hybrid measures could enhance the current CMS 

administrative claims-based outcome measures by utilizing patient clinical data captured 
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in the EHR. We have shown that core clinical data elements captured in EHRs and used 

to risk adjust hospital outcome measures improve the discrimination of the measures, or 

the ability to distinguish good and poor performers, as assessed by the c-statistic, which

evaluates the measure’s ability to discriminate or differentiate among high and low 

performing hospitals.147, 148, 149 Finally, hybrid measure results would need to be 

calculated by CMS to determine hospitals’ risk-adjusted rates relative to national rates 

used in public reporting. With hybrid measures, hospitals would forward data extracted 

from the EHR, and CMS would perform the measure calculations.

To illustrate one way in which the 21 core clinical data elements can be used, we 

developed two hybrid measures: (1) Hospital 30-Day Risk-Standardized Acute 

Myocardial Infarction (AMI) Mortality eMeasure (NQF #2473); and (2) a hybrid 

hospital-wide 30-day readmission measure, which has not yet undergone NQF 

endorsement proceedings. However, the latter measure’s development was encouraged 

by the MAP.150 We note that the 2013 Core Clinical Data Elements Technical Report 

Version 1.1 (a methodology report) provides a more detailed review of the clinical core 

data elements. This document is posted on our Measure Methodology Web page, under 

the “Downloads” section in Core Clinical Data Elements and Hybrid Measures zip file, 

 

147 Hybrid 30-Day Risk-standardized Acute Myocardial Infarction Mortality Measure with Electronic 

Health Record Extracted Risk Factors (Version 1.1).

148 Hybrid Hospital-Wide Readmission Measure with Electronic Health Record Extracted Risk Factors 

(Version 1.1).

149 2013 Core Clinical Data Elements Technical Report (Version 1.1).

150 National Quality Forum. Measure Application Partnership. Available at: 

https://share.cms.gov/center/CCSQ/QMHAG/DHMM/Measures%20Development%20and%20Maintenanc

e/map/MAP%202014/MAP%202015/map_pre-rulemaking_final_report_2015.pdf. Accessed on 

February 5, 2015.
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available on our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-PatientAssessment-Instruments/HospitalQualityInits/Measure-Methodology.html.

b. Overview of Core Clinical Data Elements

Core clinical data elements are a set of clinical variables derived from EHRs that 

can be used to risk adjust hospital outcome measures. We have currently identified a set 

of 21 core clinical data elements that: (1) can be feasibly extracted from current EHR 

systems; (2) are available on most adult patients; and (3) are relevant to patient outcomes 

following hospitalization. These core clinical data elements are listed in the table below.
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Currently Identified Core Clinical Data Elements Considered for Risk-Adjustment of 

Hybrid Outcome Measures used in the Hospital setting

Data Elements Units of Measurement Time Window for First 

Captured Values

Patient Characteristics

Age at admission Years ---

Gender Male or female ---

First-Captured Vital Signs

Heart Rate Beats per minute 0-2 hours

Systolic Blood Pressure mmHg 0-2 hours

Diastolic Blood Pressure mmHg 0-2 hours

Respiratory Rate Breath per minute 0-2 hours

Temperature Degrees Fahrenheit 0-2 hours

Oxygen Saturation Percent 0-2 hours

Weight Pounds 0-24 hours

First-Captured Laboratory Results

Hemoglobin g/dL 0-24 hours

Hematocrit % red blood cells 0-24 hours

Platelet Count 0-24 hours

WBC Count Cells/mL 0-24 hours

Potassium mEq/L 0-24 hours

Sodium mEq/L 0-24 hours

Chloride mEq/L 0-24 hours

Bicarbonate mmol/L 0-24 hours

BUN mg/dL 0-24 hours

Creatinine mg/dL 0-24 hours

Glucose mg/dL 0-24 hours

Troponin ng/mL 0-24 hours

This set of core clinical data elements consists of the first captured vital signs, and 

the results of a complete blood count and basic chemistry panel. These core clinical data 

elements were selected because they were empirically shown to be captured during 

routine clinical practice on most adult hospitalized patients.151 Among other ways, one 

 

151 2013 Core Clinical Data Elements Technical Report (Version 1.1). Available at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html.
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way in which we envision using these core clinical data elements is to risk adjust 

outcomes measures, since the elements improve the discrimination of hospital outcome 

measures as assessed by c-statistic and enhances the face validity of measures for the 

clinical community, which continue to express a preference for these types of data to 

account for patients’ severity of illness.152

In the context of risk-adjustment, future hybrid measures would utilize some or all 

of the 21 core clinical data elements listed above, as well as any future feasible core 

clinical data elements. For example, the Hospital 30-day Risk-Standardized Acute 

Myocardial Infarction (AMI) Mortality eMeasure (NQF #2473) uses five core clinical 

data elements: age; heart rate; systolic blood pressure; troponin; and creatinine.153 In 

contrast, the hybrid hospital-wide measure uses 14 of the 21 core clinical data elements 

(age, heart rate, respiratory rate, temperature, systolic blood pressure, oxygen saturation, 

weight, hematocrit, white blood cell count, sodium, potassium, bicarbonate, creatinine 

and glucose).154 These two hybrid measures illustrate how specific core clinical data 

elements used in a given hybrid measure will vary depending on the core clinical data 

elements identified as relevant for and predictive of that measure outcome in the target 

cohort.

 

152 Hybrid 30-day Risk-standardized Acute Myocardial Infarction Mortality Measure with Electronic 

Health Record Extracted Risk Factors (Version 1.1) and Hybrid Hospital-Wide Readmission Measure with 

Electronic Health Record Extracted Risk Factors (Version 1.1). Available at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html.

153 Hybrid 30-day Risk-standardized Acute Myocardial Infarction Mortality Measure with Electronic 

Health Record Extracted Risk Factors (Version 1.1). Available at: http://www.cms.gov/Medicare/QualityInitiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.

154 Hybrid Hospital-Wide Readmission Measure with Electronic Health Record Extracted Risk Factors 

(Version 1.1). Available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html.
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We note that the 21 core clinical data elements included are already routinely 

recorded in the EHR by clinical staff at the beginning of an inpatient encounter to 

diagnose and treat patients. Collection of these core clinical data elements are in 

response to stakeholder preference, and in particular, for the use of clinical information in 

risk models, but is not meant to guide or alter the care patients receive. We believe 

clinical staff should continue to only perform measurements or tests that are appropriate 

for diagnostic assessment or treatment of patients.

We assessed the feasibility of extraction of the 21 core clinical data elements in 

models of readmission and mortality outcome measures (Core Clinical Data Elements 

Development is discussed below). For additional detail on testing and the measure 

methodologies, we refer readers to the 2013 Core Clinical Data Elements Technical 

Report Version 1.1 methodology report posted on our Measure Methodology Web page, 

under the “Downloads” section in Core Clinical Data Elements and Hybrid Measures zip 

file, on our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-PatientAssessment-Instruments/HospitalQualityInits/Measure-Methodology.html.

c. Core Clinical Data Elements Development

To identify this set of core clinical data elements, we first focused on those data 

elements that can be used to risk adjust hospital outcome measures. We developed a 

systematic five-step approach in which we: (1) established a set of criteria to assess the 

feasibility of consistently identifying and extracting EHR data elements, and convened a 

diverse group of health information technology experts and end users to apply these 

criteria to EHR data; (2) conducted a systematic review of the literature to identify 
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clinical data that has been shown to predict patient outcomes following acute care 

hospital admissions; (3) assessed the frequency and timing of capture of candidate data 

elements using a dataset from an active EHR data warehouse of a large healthcare system 

serving over 3.3 million beneficiaries;155 (4) tested the utility of feasible data elements in 

risk-adjusted hierarchical models of 30-day mortality following hospitalization for a 

variety of common and costly medical conditions (for example, heart failure, pneumonia, 

and stroke); and (5) tested the core clinical data elements as risk-adjustment variables in 

the previously adopted Hospital IQR Program measure, CMS 30-Day Hospital-Wide 

All-Cause Unplanned Readmission Outcome measure (NQF #1789) finalized in the 

FY 2013 IPPS/LTCH PPS final rule (77 FR 53521 through 53528), creating the hybrid 

hospital-wide readmission measure. These steps are discussed in more detail below.

To identify and test the core clinical data elements, a TEP was convened. TEP 

members applied feasibility criteria to each data type in the Quality Data Model (QDM) 

considering the context of adult hospitalized patients only. The QDM is an information 

model that provides a standardized description of the clinical information captured in 

EHRs, and provides a uniform framework to support quality measurement that utilizes 

EHR data. TEP members were asked to indicate whether at least one data element within 

each data type was: (1) consistently obtained in the target population (patients 18 years 

and older) based on current clinical practice; (2) captured with a standard definition and 

recorded in a standard format within the EHR; and (3) entered in structured fields that are 

feasibly retrieved from current EHR systems.

 

155 2013 Core Clinical Data Elements Technical Report Version 1.1. Available at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html.
CMS-1632-P 1069

Next, we conducted a systematic review of the literature to identify clinical data 

shown to be predictive of mortality and readmission in statistical models. A thorough 

review of studies revealed that several categories of clinical information from patient 

medical records captured during diagnostic assessment and treatment were commonly 

used to predict mortality and readmission. These included, but were not limited to, basic 

demographic information, laboratory test results, and vital sign findings. The results are 

described in the 2013 Core Clinical Data Elements Technical Report (Version 1.1) and is 

available on our Measure Methodology Web page, under the “Downloads” section in 

Core Clinical Data Elements and Hybrid Measures zip file found on our Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html.

In order to empirically establish the feasibility of potential clinical data elements 

identified by the TEP, we used a large multi-site database from a healthcare system 

serving over 3.3 million beneficiaries. We examined the format of the clinical data 

elements, the consistency and timing of capture, and the distribution of these extracted 

clinical data values across conditions, hospitals, and point of hospital entry. From the 

results of that analysis, we identified a list of clinical data elements that were consistently 

captured for more than 90 percent of adults admitted for common medical conditions. In 

addition, only the first clinical data elements captured close to the time a patient arrived 

at the facility were considered in order to reflect patients’ clinical status when they 

presented, and not the results of treatment received at the facility. Analyses showed that 

vital signs (heart rate, systolic blood pressure, diastolic blood pressure, respiratory rate, 
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temperature, and oxygen saturation) were captured within 2 hours of arrival to the 

hospital for most patients who were subsequently admitted to the same facility. In 

addition, analyses showed that weight and laboratory tests (hemoglobin, hematocrit, 

platelet, white blood cell (WBC) count, potassium, sodium, chloride, bicarbonate, blood 

urea nitrogen (BUN), creatinine, glucose, and troponin) were captured within 24 hours of 

arrival to the hospital for most patients who were subsequently admitted to the same 

facility. This was true whether patients were first assessed in the emergency department, 

or an inpatient unit. From these analyses, we specified the units of measurement and 

time window for first captured values for each of the 21 feasible and relevant core 

clinical data elements.

d. Core Clinical Data Elements Feasibility Testing Using Readmission and Mortality 

Models

In order to demonstrate that the core clinical data elements improved hospital 

outcome measures, we tested them in models of 30-day mortality and 30-day readmission 

following hospitalization from a variety of conditions. The 21 core clinical data elements 

shown in the table above were statistically significant predictors in at least one measure 

of 30-day mortality after admission for eight common medical conditions: AMI; 

congestive heart failure; pneumonia; acute cerebrovascular disease; septicemia (except 

during labor); diabetes mellitus with complications; coronary atherosclerosis; and cardiac 

dysrhythmias.

156

 All of the core clinical data elements listed above were also statistically 

significant predictors of readmission in the risk-adjusted models of 30-day readmission in 

 

156 Hybrid 30-Day Risk-standardized Acute Myocardial Infarction Mortality Measure with Electronic 

Health Record Extracted Risk Factors (Version 1.1). Available at: http://www.cms.gov/Medicare/QualityInitiatives-Patient-Assessment-Instruments/HospitalQualityInits/Measure-Methodology.html.
CMS-1632-P 1071

a hospital-wide cohort.157 The testing results demonstrate that the core clinical data 

elements enhanced the discrimination (assessed using the c-statistic) when used either in 

combination with or in place of administrative claims data for risk adjustment of 

currently reported CMS 30-day mortality and readmission outcome measures. For more 

detailed information on testing, we refer readers to the methodology reports posted on our 

Measure Methodology Web page, under the “Downloads” section in Core Clinical Data 

Elements and Hybrid Measures zip file, found on our Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html.

e. Use of Core Clinical Data Elements in Hospital Quality Measures for the Hospital 

IQR Program

In the future, we are considering requiring hospitals to electronically submit core 

clinical data elements in several contexts. One use considered would be to risk-adjust 

claims-based hybrid quality measures similar to what is described in our discussion 

above. In addition, we are also considering using core clinical data elements for quality 

measures that apply more generally to an all-payer population (that is, a population 

greater than or equal to 18 years of age). As we learn more about this method of data 

collection, we will be able to give more information. As it stands, we envision that use of 

core clinical data elements for an all payer population would not be limited to merely 

risk-adjustment or in claims-based hybrid measures. However, should we require 

reporting of core clinical data elements, it would be in the context of specific measures 

 

157 Hybrid Hospital-Wide Readmission Measure with Electronic Health Record Extracted Risk Factors 

(Version 1.1). Available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html.
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proposed through rulemaking for the Hospital IQR Program and potentially other CMS 

quality programs. Specific electronically submitted core clinical data elements required 

would depend on the individual measure adopted.

For claims-based hybrid measures, linking variables would be required to ensure 

that the datasets containing administrative claims data are correctly linked with EHR 

datasets containing the core clinical data elements for proper risk adjustment. The 

linkage variables would come from an additional requirement for hospitals to submit 

these variables. Such linkage variables, for example, might include admission and 

discharge dates, CMS certification number, and date of birth. Some of these linkage 

variables are already routinely collected by EHRs; however, actual linkage variables 

required for a specific hybrid measure would depend on empirical testing of approaches 

to linkage for individual measure cohorts.

f. Content Exchange Standard Considerations for Core Clinical Data Elements

Data can be collected in EHRs and health information technology (IT) systems 

using standardized formats to promote consistent representation and interpretation, as 

well as to allow for systems to compute data without needing human interpretation. 

These standards are referred to as content exchange standards, because the standard 

details how data should be represented and the relationships between data elements. This 

allows the data to be exchanged across EHRs and health IT systems while retaining their 

meaning. Commonly used content exchange standards include the Consolidated Clinical 

Data Architecture (C-CDA) and the Quality Reporting Data Architecture (QRDA). The 

C-CDA standard is frequently used for the representation of summary care records and 
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provides a format for electronically representing data within document templates and 

sections.158 The QRDA standard provides a document format and standard structure to 

electronically report quality measure data.159 QRDA allows for the use of CDA 

templates (the same underlying standard used in C-CDA) to represent quality measures 

using the QDM information model described above. Thus, QRDA could be considered a 

related standard to C-CDA for the specific quality reporting use case.

The core clinical data elements we are considering could be electronically 

reported to CMS formatted according to either the C-CDA or QRDA standard to promote 

consistent representation and more efficient calculation of hybrid measure results. These 

standards are also currently required for participation in the Medicare and Medicaid EHR 

Incentive Programs. Sections 1886(n) and 1814(l) of the Act, as added by the HITECH 

Act, authorize incentive payments under Medicare for eligible hospitals and critical 

access hospitals that successfully demonstrate the meaningful use of Certified EHR 

Technology (CEHRT). Section 1903(t)(6)(C) of the Act also requires that Medicaid 

providers adopt, implement, upgrade, or meaningfully use CEHRT if they are to receive 

incentives. We refer readers to the CEHRT definition adopted by the Office of the 

National Coordinator for Health IT (ONC) in its 2014 Edition standards and certification 

criteria final rule (77 FR 53972). ONC’s CEHRT definition is adopted in § 170.102 and 

includes the capabilities defined for the Base EHR, including certification to create 

transitions of care documents using the C-CDA standard and to successfully report 

 

158 Health Level 7 International. Product Brief. Available at: 

http://www.hl7.org/implement/standards/product_brief.cfm?product_id=379.

159 Health Level 7 International. Product Brief. Available at: 

http://www.hl7.org/implement/standards/product_brief.cfm?product_id=35.
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clinical quality measures using the QRDA standard (we refer readers to Table 6 of the 

ONC 2014 Edition standards and certification criteria final rule at 77 FR 54265).

We are specifically considering the use of QRDA Category I (QRDA-I) as the 

transmission standard for core clinical data elements to CMS, because the core clinical 

data elements specified for risk adjustment need to be captured in relation to the start of 

an inpatient encounter, to be certain the data has been appropriately connected to the 

encounter. The QRDA-I standard enables an individual patient-level quality report that 

contains quality data for one patient for one or more quality measures. For further detail 

on QRDA-I, the most recently available QRDA-I specifications can be found at: 

http://www.hl7.org/implement/standards/product_brief.cfm?product_id=35.

Regardless of whether C-CDA or QRDA-I was used for the reporting of core 

clinical data elements, we note that these data exchange standards would enhance 

alignment across CMS programs, as well as reduce EHR developer and provider burden 

by adopting standards that are already in place for the exchange of electronically 

specified clinical and quality data.

As part of this comment solicitation, we are inviting comment on whether EHR 

technology should be required to be certified under the ONC Health IT Certification 

Program160 for the submission of the core clinical data elements for participation in the 

Hospital IQR Program using the most appropriate content exchange standard (such as, 

and not limited to, QRDA-1 or C-CDA). We believe that certification could test and 

certify that EHR technology can properly collect the core clinical data elements formatted 

 

160 Health IT.gov. Certification Programs and Policy. Available at: http://healthit.gov/policy-researchersimplementers/about-onc-hit-certification-program.
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to the appropriate content exchange standard (such as, and not limited to QRDA-1 or 

C-CDA), promoting more standardized and consistently represented data that can be 

submitted to CMS to risk-adjust hybrid measures.

In summary, we are seeking public comment on the concept of collecting core 

clinical data elements, and in particular, we are interested in feedback specifically 

regarding: (1) the use of the core clinical data elements derived from EHRs for use in 

risk adjustment of outcome measures as well as other types of measures; (2) the 

collection of additional administrative linkage variables to link a patient’s episode of care 

from EHR data with his/her administrative claim data; and (3) the use of content 

exchange standards for reporting these data elements. Regarding the use of content 

exchange standards, we welcome input on the benefits and implementation 

considerations if CMS were to require QRDA-I, as well as the tradeoffs to requiring 

QRDA-I instead of C-CDA or other content exchange standards.
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10. 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 2015 and each subsequent year shall be reduced 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 data required to be submitted on measures specified by the Secretary in a form 

and manner, and at a time, specified by the Secretary. Previously, the applicable 

percentage increase for FY 2007 and each subsequent fiscal year until FY 2015 was 

reduced by 2.0 percentage points for subsection (d) hospitals failing to submit data in 

accordance with the description above. We note that, in accordance with the statute, 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, 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 must register and submit 

quality data through the secure portion of the QualityNet Web site. There are safeguards 
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in place in accordance with the HIPAA Security Rule to protect patient information 

submitted through this Web site.

b. Procedural Requirements for the FY 2018 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). We are not proposing any changes to the procedural 

requirements.

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 chart-abstracted measures.

d. Alignment of the Medicare EHR Incentive Program Reporting for Eligible Hospitals 

and CAHs with the Hospital IQR Program

(1) Background

We refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 50256 

through 50259) for our policies to align electronic clinical quality measures data 

reporting and submission periods on a calendar year basis for the FY 2017 payment 

determination for both the Medicare EHR Incentive Program for eligible hospitals and 

CAHs, and the Hospital IQR Program. In this proposed rule, we are proposing to: 
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(1) continue to require Certified Electronic Health Record Technology (CEHRT) 2014 

Edition and (2) update reporting periods and submission deadlines, for the FY 2018 

payment determination for the Hospital IQR Program.

(2) Proposed Electronic Clinical Quality Measure Certification for the FY 2018 Payment 

Determination

As described in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50251), for the 

Hospital IQR Program, hospitals that submit electronic clinical quality measures data for 

the FY 2017 payment determination are required to submit data using CEHRT 2014 

Edition, which is an Electronic Health Record certification. Although we required 

CEHRT, eligible hospitals were not required to ensure that their CEHRT products were 

recertified to the most recent version of the electronic specifications for the clinical 

quality measures. We also stated in the FY 2015 IPPS/LTCH PPS final rule 

(79 FR 50251), that for the FY 2017 payment determination, a hospital could submit 

electronic clinical quality measures for the Hospital IQR Program during CY 2015 even 

if they attest their aggregate measure numerators and denominators through the Medicare 

EHR Incentive Program. The hospital could submit as test data or production data. Test 

data submissions are submissions that do not count as submissions; they are practice 

submissions. Production data submissions are considered final submissions meant to 

fulfill Hospital IQR Program submission requirements.

We are proposing to continue the requirement for hospitals to use CEHRT 2014 

Edition161 when submitting electronic clinical quality measures for the CY 2016/FY 2018 

 

161 Meaningful Use in 2014. Retrieved from: http://www.cms.gov/Regulations-andGuidance/Legislation/EHRIncentivePrograms/EducationalMaterials.html.
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payment determination. We note that the Office of the National Coordinator for Health 

Information Technology (ONC) has proposed a new Edition of EHR technology which 

may be available for some providers as early as 2016 in its “2015 Edition Health 

Information Technology (Health IT) Certification Criteria, 2015 Edition Base Electronic 

Health Record (EHR) Definition, and ONC Health IT Certification Program 

Modifications” (hereafter known as the “2015 Edition proposed rule”) (80 FR 16804 

through 16921). However, we will require hospitals to continue to submit data for 

Hospital IQR Program purposes using the 2014 Edition for the FY 2018 payment 

determination. Any changes for the Hospital IQR Program because of ONC’s update will 

be proposed in future rule making.

We are inviting public comments on this proposal.

(3) Proposed Reporting Periods and Electronic Submission Deadlines for the FY 2018 

Payment Determination

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50256 through 50259), we 

finalized our policy that hospitals could voluntarily submit electronic clinical quality 

measure data for one calendar year (CY) quarter’s data for either CY Q1 

(January 1-March 31, 2015), CY Q2 (April 1–June 30, 2015), or CY Q3 

(July 1-September 30) by November 30, 2015.

In this proposed rule, for the FY 2018 payment determination, we are proposing 

changes to both the reporting periods and the submission deadlines.

For the FY 2018 payment determination, we are proposing that hospitals must 

submit both Q3 and Q4 of 2016 data for 16 measures reported as electronic clinical 
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quality measures. We also are proposing that for the FY 2018 payment determination, 

hospitals must submit the electronic clinical quality measure data for these two quarters 

(Q3 and Q4 of 2016) within 2 months after the end of the applicable calendar year 

quarter. For CY 2016, these deadlines would be November 30, 2016 for Q3 and 

February 28, 2017 for Q4. We refer readers to the table entitled “Proposed 

CY 2016/FY 2018 Payment Determination Hospital IQR Program Electronic Reporting 

Periods and Submission Deadlines for Eligible Hospitals,” below.

As part of our measure maintenance process, each year we make updates to the 

electronic specifications of the Clinical Quality Measures approved for submission in 

CMS programs. These annual updates are found on our Web site at: 

http://www.cms.gov/Regulations-and 

Guidance/Legislation/EHRIncentivePrograms/eCQM_Library.html. In developing these 

reporting periods and submission timelines, we considered hospitals’ and vendors’ ability 

to report electronic clinical quality measures and the burden associated with 

implementing the 2015 annual update. The May 2015 annual update of electronic 

clinical quality measure specifications will include changes to the Quality Data Model 

(QDM) and the Health Quality Measure Format (HQMF),162 and we recognize that 

hospitals may require additional time to implement the associated software changes. 

Because of this, we are proposing that hospitals must adopt the most recent annual update 

prior to data submission. For example, for the CY 2016/FY 2018 payment determination, 

hospitals would need to submit electronic clinical quality measure using the 2015 Annual 

 

162 eCQI Resource Center: Advance Notice of Proposed Changes for the 2015 eCQM Annual Update; 

Pre-release 2015 Annual Update specifications available in HQMF R2.1 format. Available at: 

http://www.healthit.gov/ecqi-resource-center/.
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Update. As a result and as stated above, we are proposing to delay the required reporting 

of electronic clinical quality measures to begin with Q3 of 2016, with a reporting 

deadline of November 30, 2016. The table below shows the required electronic clinical 

quality measure reporting periods and submission deadlines for CY 2016.

Proposed CY 2016/FY 2018 Payment Determination Hospital IQR Program 

Electronic Reporting Periods and Submission Deadlines for Eligible Hospitals

Discharge Reporting Periods Submission Deadline

January 1, 2016–March 31, 2016 N/A

April 1, 2016–June 30, 2016 N/A

July 1, 2016–September 30, 2016 November 30, 2016

October 1, 2016–December 31, 2016 February 28, 2017

We refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 50319 

through 50321) for a detailed discussion of the final policy in the Medicare EHR 

Incentive Program for eligible hospitals and CAHs as well as section VIII.D. of the 

preamble of this proposed rule where the EHR Incentive Program discusses its proposals 

to further align with the Hospital IQR Program.

We are inviting public comments on our proposals to continue the CEHRT 2014 

Edition requirement and update our electronic clinical quality measure data reporting and 

submission periods for the FY 2018 payment determination.

e. Sampling and Case Thresholds for the FY 2018 Payment Determination and 

Subsequent Years

We refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50221), the 

FY 2012 IPPS/LTCH PPS final rule (76 FR 51641), the FY 2013 IPPS/LTCH PPS final 
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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 making one proposal regarding our population and sampling 

policy. However, we are not proposing any changes to case thresholds.

Currently, hospitals must submit to CMS quarterly aggregate population and 

sample size counts for Medicare and nonMedicare discharges for all measures in the 

topic areas for which chart-abstracted data must be submitted. Hospitals are required to 

submit their aggregate population and sample size count for each topic area. In 

accordance with the policy we first adopted in the FY 2011 IPPS/LTCH PPS final rule 

(75 FR 50221), hospitals that have not treated patients in a specific topic area must still 

submit quarterly population and sample size counts for all Hospital IQR Program 

chart-abstracted data topics. For example, if a hospital has not treated AMI patients, the 

hospital is still required to submit a zero for its quarterly aggregate population and sample 

count for that topic in order to meet the requirement.

In this proposed rule, we are proposing to revise this policy so that, beginning 

with the FY 2018 payment determination and subsequent years, hospitals will be required 

to submit population and sample size data only for those measures that a hospital submits 

as chart-abstracted measures under the Hospital IQR Program. This differs from the 

current policy in that there may be instances where a hospital chooses to electronically 

submit a measure that can be submitted either via chart-abstraction or as an electronic 

clinical quality measure and under the proposed policy, we would not require population 

and sample size data in this case. Under the proposed policy, if a hospital submits a 
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measure as an electronic clinical quality measure, or if a measure becomes voluntary or 

suspended, the population and sample data would not be required.

We are inviting public comments on this proposal.

f. HCAHPS Requirements for the FY 2018 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), and the FY 2014 IPPS/LTCH 

PPS final rule (78 FR 50819 through 50820) for details on HCAHPS requirements. We 

are not proposing any changes to HCAHPS requirements.

Hospitals and HCAHPS survey vendors should 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 2018 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.
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h. Data Submission and Reporting Requirements for Healthcare-Associated Infection 

(HAI) Measures Reported via NHSN

For details on the data submission and reporting requirements for 

healthcare-associated infection (HAI) measures reported via the CDC’s National 

Healthcare Safety Network (NHSN) Web site, we refer readers to the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51629 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 50821 through 50822). Clarifications to the HAI data reporting and 

submission requirements policy can also be found in the FY 2015 IPPS/LTCH PPS final 

rule (79 FR 50259 through 50262). The data submission deadlines are posted on the 

QualityNet Web site at: http://www.QualityNet.org/. In this proposed rule, we are not 

proposing any changes to data submission and reporting requirements for HAI measures 

reported via the NHSN.

11. Proposed Modifications to the Existing Processes for Validation of Hospital IQR 

Program Data

a. Background

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; the 

FY 2013 IPPS/LTCH PPS final rule also contains a comprehensive summary of all 

procedures finalized in previous years and still in effect. Several modifications to these 
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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).

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50262 through 50273) for the 

FY 2017 payment determination and subsequent years, we finalized additional 

modifications to these processes. These 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 

of care measures; (d) processes to submit patient medical records for chart-abstracted 

measures; and (e) plans to validate electronic clinical quality measure data.

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50269 through 50273), we 

finalized a policy to conduct a validation pilot test for electronic clinical quality 

measures. We stated that we intended to complete pilot activities in CY 2015 

(79 FR 50271) and that continues to be our intention. We are not proposing any changes 

to our validation pilot test.

However, in this proposed rule, we are proposing modifications to existing 

processes for validation of chart-abstracted measures, specifically for the Influenza 

Immunization (NQF #1659) measure.

b. Proposed Modifications to the Existing Processes for Validation of Chart-Abstracted 

Hospital IQR Program Data

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50265 through 50273), we 

finalized a validation process, which included a separate validation stratum for the 

Influenza Immunization (NQF #1659) measure (the immunization measure validation 
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stratum) because that measure overlapped with the Hospital VBP Program. The finalized 

validation process for chart-abstracted measures included three separate validation strata: 

HAI, Immunization, and Other/Clinical Process of Care (79 FR 50265 through 50273). 

The Immunization stratum includes only one measure, Immunization for Influenza 

(NQF #1659). This Immunization measure was included in its own stratum because it is 

used in the Hospital VBP Program and we wanted to ensure that every hospital selected 

for validation would be validated in this topic area.

As discussed in section IV.F.2.b.(1) of the preamble of this proposed rule, we are 

proposing to remove the IMM-2 Influenza Immunization measure from the Hospital VBP 

Program. Given this proposed removal of the Influenza Immunization measure from the 

Hospital VBP Program, it is no longer necessary to ensure validation of this topic area by 

including a separate stratum for the Influenza measure. As a result, in this proposed rule, 

for the Hospital IQR Program beginning with the FY 2018 payment determination and 

for subsequent years, we are proposing to remove the separate immunization validation 

stratum and include the Influenza Immunization measure in the clinical process of care 

measure validation stratum. Under this proposal, we would continue to apply our 

chart-abstracted measure validation processes only to those chart-abstracted measures 

that are required under the Hospital IQR Program in a chart-abstracted form (as opposed 

to those measures that a hospital reports as electronic clinical quality measures, for 

example). This proposal is consistent with our proposed policy to require population and 

sample size data only for those measures that are required under the Hospital IQR 
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Program. We refer readers to section VIII.A.10.e. of the preamble of this proposed rule 

for more detail on that proposal.

We note that although this proposal includes an adjustment to the composition of 

the clinical process of care validation stratum, we are not proposing any changes to the 

overall validation sample size. Under the existing validation process, a total of eight 

charts are drawn for validation--five of which are drawn from the clinical process of care 

measures stratum and three of which are drawn from the immunization measure stratum. 

Under this proposal, however, while the total number of charts drawn is the same (eight), 

all eight measures will be drawn from the clinical process of care measure stratum, which 

would then include the Influenza Immunization measure. Accordingly, one sample of 

charts will be drawn from the clinical process of care measures.

The proposed removal of the immunization validation stratum and inclusion of 

the Influenza Immunization measure in the clinical process of care validation stratum 

would result in an expanded pool of clinical process of care topic areas sampled for 

validation to include STK, VTE, ED, Sepsis, and Immunization. As described in the 

FY 2015 IPPS/LTCH PPS final rule (79 FR 50266), all chart-abstracted measure topic 

areas included in the Hospital IQR Program, with the exception of the Perinatal Care 

topic area, are automatically included in the validation process. We do not include this 

topic area because the Elective Delivery PC-01 (NQF#0469) measure is reported in 

aggregate form, which is not consistent with our patient-level validation process 

(79 FR 50266).
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In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50268 through 50269), we 

outlined the weighting of each of three validation topic areas: Healthcare-associated 

infection (66.7 percent); Immunization (22.2 percent); and Other/Clinical Process of Care 

(11.1 percent). The table below shows the proposed effect on topic area weighting of our 

proposal to remove the immunization measure validation stratum and to move the 

Influenza Immunization (NQF #1659) measure to the clinical process of care validation 

stratum.

Proposed Topic Area Weighting for Validation for the 

FY 2018 Payment Determination and Subsequent Years

Topic Area Weight 

(Percent)

Healthcare-associated infection (HAI) 66.7

Other/Clinical Process of Care 33.3

Total 100.0

We are inviting public comments on our proposal to remove the immunization 

measure validation stratum, to move the Influenza Immunization (NQF #1659) measure 

to the clinical process of care validation stratum, and to reweight the topic areas for 

validation beginning with the FY 2018 payment determination and for subsequent years.

12. Data Accuracy and Completeness Acknowledgement Requirements for the FY 2018 

Payment Determination and Subsequent Years

We refer readers to the FY 2013 IPPS/LTCH PPS final rule (77 FR 53554) for 

details on Data Accuracy and Completeness Acknowledgement (DACA) requirements. 

We are not proposing any changes to the DACA requirements.
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13. Public Display Requirements for the FY 2018 Payment Determination and 

Subsequent Years

We refer readers to the FY 2008 IPPS final rule (72 FR 47364), 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. 

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 note that for the Mortality, Readmission, Complication, Payment and AHRQ 

measures, we will continue to replace publically reported data with a footnote for 

hospitals that do not have data for at least 25 cases combined during the reporting period. 

If there are fewer than 25 eligible cases, the measures are assigned to a separate category 

described as “The number of cases is too small (fewer than 25) to reliably tell how well 

the hospital is performing.” The measures are included in the calculation but are not 

publicly reported on Hospital Compare. For chart-abstracted or Web-based measures, if 

either the numerator or the denominator is greater than 0 and less than 11, the data are not 

reported on Hospital Compare, but rather data is displayed as “Not Available”. This 

guidance does not apply to calculated measures, only to those in which cases/patients 

could be identified. We also provide footnote explanations on the Hospital Compare

Web site at: http://www.medicare.gov/hospitalcompare/Data/Footnotes.html.
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We refer readers to section VIII.A.8.b. of the preamble of this proposed rule, 

where we are proposing to delay publicly reporting electronic clinical quality measure 

data submitted by hospitals for CY 2016/FY 2018 payment determination in order to 

allow time for us to evaluate the effectiveness of electronically reported clinical quality 

measure data. In the meantime, measures reported via electronic clinical quality 

measures will be marked with a footnote on Hospital Compare noting that: (1) the 

hospital submitted data via EHR; (2) data are being processed and analyzed; and (3) we 

will eventually publicly report this data once we determine the data to be reliable and 

accurate.

We are inviting public comments on our proposal.

14. Reconsideration and Appeal Procedures for the FY 2018 Payment Determination and 

Subsequent Years

We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51650 

through 51651), the FY 2014 IPPS/LTCH PPS 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.

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 exemptions policy.
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In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50277), we noted that we will 

refer to the process as the Extraordinary Circumstances Extensions or Exemptions 

process and, accordingly, finalized changes reflecting this updated language in the 

corresponding regulation text. We are not proposing any changes to the Hospital IQR 

Program’s extraordinary circumstances extensions or exemptions policy.
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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) of the Act 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” or “PCHs”) that specifically applies to PCHs that meet the 

requirements under 42 CFR 412.23(f). 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. For 

additional background information, including previously finalized measures and other 

policies for the PCHQR Program, we refer readers to the following final rules: the 

FY 2015 IPPS/LTCH PPS final rule (79 FR 50277 through 50288); the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50838 through 50846); and the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53556 through 53561).

2. Proposed Removal of Six Surgical Care Improvement Project (SCIP) Measures from 

the PCHQR Program Beginning with Fourth Quarter (Q4) 2015 Discharges and for 

Subsequent Years

We are proposing to remove six SCIP measures from the PCHQR Program 

beginning with fourth quarter (Q4) 2015 discharges and for subsequent years. Under this 

proposal, PCHs will meet reporting requirements for the FY 2016 and FY 2017 programs 

by submitting first quarter (Q1) through third quarter (Q3) 2015 data for these measures:

● Surgery Patients Who Received Appropriate Venous Thromboembolism 

Prophylaxis within 24 Hours Prior to Surgery to 24 Hours After Surgery (NQF #0218)
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● Urinary Catheter Removed on Post-Operative Day One (POD1) or 

Post-Operative Day Two (POD2) with Day of Surgery Being Day Zero (NQF #0453)

● Prophylactic Antibiotic Received Within One Hour Prior to Surgical Incision 

(NQF #0527)

● Prophylactic Antibiotic Selection for Surgical Patients (NQF #0528)

● Prophylactic Antibiotic Discontinued Within 24 Hours After Surgery End 

Time (NQF #0529)

● Surgery Patients on Beta-Blocker Therapy Prior to Admission who Received a 

Beta-Blocker During the Perioperative Period (NQF #0284)

We first adopted the six SCIP measures in the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50840 through 50841) and refer readers to that rule for a detailed discussion 

of the measures. As described in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50205), 

these measures have been determined to be topped-out in the Hospital IQR Program and 

were removed from that program. To meet FY 2016 and FY 2017 program requirements, 

we are proposing that PCHs would continue to submit these six measures for first quarter 

(Q1) 2015 through third quarter (Q3) 2015 discharges in accordance with the submission 

timeline we finalized in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50285). We are 

proposing to remove these measures from the PCHQR Program because we have 

removed them from the Hospital IQR Program and, because they have been removed 

from that program, it is no longer operationally feasible to collect these measures under 

the PCHQR Program. By removing these measures, we also would alleviate the 
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maintenance costs and administrative burden for PCHs associated with reporting them 

(79 FR 50205).

We are inviting public comments on these proposals.

3. Proposed New Quality Measures Beginning with the FY 2018 Program

a. Considerations in the Selection of Quality Measures

In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53556), the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50837 through 50838), and the FY 2015 IPPS/LTCH 

PPS final rule (79 FR 50278), 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. In this proposed rule, we are not proposing 

any changes to the principles we consider when developing and selecting measures for 

the PCHQR Program.

b. Summary of Proposed New Measures

For the FY 2018 PCHQR Program, we are proposing to adopt three new quality 

measures. These measures meet the requirement under section 1866(k)(3)(A) of the Act 

that measures specified for the PCHQR Program be endorsed by the entity with a contract 

under section 1890(a) of the Act (currently the NQF).

The proposed measures are as follows:

● Centers for Disease Control and Prevention (CDC) National Healthcare Safety 

Network (NHSN) Facility-Wide Inpatient Hospital-Onset Clostridium difficile Infection 

(CDI) Outcome Measure (NQF #1717) (CDC NHSN CDI Measure)
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● CDC NHSN Facility-Wide Inpatient Hospital-Onset Methicillin-Resistant 

Staphylococcus aureus (MRSA) Bacteremia Outcome Measure (NQF #1716) 

(CDC NHSN MRSA Measure)

● CDC NHSN Influenza Vaccination Coverage Among Healthcare Personnel 

(HCP) Measure (NQF #0431) (CDC NHSN HCP Measure)

The proposed measures were included on a publicly available document entitled 

“List of Measures Under Consideration (MUC) for December 1, 2014,”163 which is a list 

of quality and efficiency measures being considered for use in various Medicare 

programs. The proposed measures were also submitted to the Measure Applications 

Partnership (MAP), a public-private partnership convened by the NQF for the purpose of 

providing input to the Secretary on the selection of certain quality and efficiency 

measures. For the PCHQR Program, the MAP supported the inclusion of all three 

measures. The MAP’s recommendations can be found in the “Spreadsheet of MAP 2015 

Final Recommendations.”164

In addition, all three of the proposed measures are currently reported under the 

Hospital IQR Program as described in the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51630 through 51631). We refer readers to CDC’s Web site for detailed measure 

 

163 Measure Applications Partnership: List of Measures Under Consideration (MUC) for December 1, 

2014. Available at: 

http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=78318.

164 National Quality Forum “Process and Approach for MAP Pre-Rulemaking Deliberations 2015” 

Available at: 

http://www.qualityforum.org/Publications/2015/01/Process_and_Approach_for_MAP_PreRulemaking_Deliberations_2015.aspx; and “Spreadsheet of MAP 2015 Final Recommendations” 

Available at: http://www.qualityforum.org/map/.
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information for the three measures we are proposing.165, 166 The sections below outline 

our rationale for proposing to adopt these measures.

c. CDC NHSN Facility-Wide Inpatient Hospital-Onset Clostridium difficile Infection 

(CDI) Outcome Measure (NQF #1717)

Healthcare-associated infections (HAIs), such as CDI and MRSA, are a 

significant cause of morbidity and mortality. At any given time, approximately one in 

every 25 inpatients has an infection related to hospital care.167 These infections cost the 

U.S. healthcare system billions of dollars each year and lead to the loss of tens of 

thousands of lives. In addition, HAIs can have devastating emotional, financial and 

medical consequences.168 As a result of these adverse outcomes, we are committed to 

increasing patient safety by partnering with hospitals (for example, the CMS Partnership 

for Patients)169 to make hospital care safer, more reliable, and less costly by preventing 

injury and increased morbidity in patients, as well as allowing them to heal without 

complications.170

CDC reports that prolonged antibiotic exposure, a long length of stay in a 

healthcare setting, and the existence of a serious underlying illness or 

 

165 CDC. Surveillance for C. difficile, MRSA, and other Drug-resistant Infections. Available at: 

http://www.cdc.gov/nhsn/acute-care-hospital/cdiff-mrsa/index.html.

166 CDC. Surveillance for Healthcare Personnel Vaccination. Available at: 

http://www.cdc.gov/nhsn/acute-care-hospital/hcp-vaccination/index.html.

167 HHS National Action Plan to Prevent Health Care-Associated Infections: Road Map to Elimination. 

Available at: http://www.health.gov/hai/prevent_hai.asp#hai.

168 HHS National Action Plan to Prevent Health Care-Associated Infections: Road Map to Elimination. 

Available at: http://www.health.gov/hai/prevent_hai.asp#hai.

169 CMS Innovation Center Partnership for Patients. Available at: 

http://innovation.cms.gov/initiatives/partnership-for-patients/.

170 HHS National Action Plan to Prevent Health Care-Associated Infections: Road Map to Elimination. 

Available at: http://www.health.gov/hai/prevent_hai.asp#hai.
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immunocompromised condition (for example, cancer) increase the risk of CDI.171 As a 

result, we believe it is important to collect data on CDIs in the PCH setting, where cancer 

patients face increased exposure to these risk factors. Additionally, in recent years, CDIs 

have become more frequent, more severe, and more difficult to treat.172 Each year, CDI 

is linked to 14,000 American deaths.173 Infection is especially common in older adults, 

but also affects some otherwise healthy people who are not hospitalized and/or taking 

antibiotics.174

This proposed measure addresses the National Quality Strategy (NQS) Patient 

Safety domain. The measure reports the standardized infection ratio (SIR) of 

hospital-onset CDI Laboratory-identified events (LabID events) among all patients in the 

facility. The numerator includes the total number of observed hospital-onset CDI LabID 

events among all inpatients in the facility, excluding well baby-nurseries and Neonatal 

Intensive Care Units.175 The denominator includes the total number of predicted 

hospital-onset CDI LabID events, calculated by multiplying the number of inpatient days 

for the facility by the hospital-onset CDI LabID event rate for similar types of facilities 

(obtained from a standard population). 176, 177

 

171 CDC C. difficile FAQ. Available at: http://www.cdc.gov/HAI/organisms/cdiff/Cdiff_infect.html.

172 FY 2012 IPPS/LTCH PPS final rule (76 FR 51630 through 51631).

173 CDC Vital Signs. Available at: http://www.cdc.gov/vitalsigns/pdf/2012-03-vitalsigns.pdf.

174 FY 2012 IPPS/LTCH PPS final rule (76 FR 51630 through 51631).

175 NQF QPS. Available at: 

http://www.qualityforum.org/Qps/MeasureDetails.aspx?standardID=1717&print=0&entityTypeID=1.

176 NQF QPS. Available at: 

http://www.qualityforum.org/Publications/2013/02/Patient_Safety_Measures_Complications_-

_Phase_2.aspx.

177 FY 2012 IPPS/LTCH PPS final rule (76 FR 51630 through 51631).
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Beginning with a 2010-2011 baseline SIR of 1.0, we set a national goal to reduce 

the incidence of facility-onset CDI overall by 30 percent (to a SIR of 0.70) by no later 

than 2013. However, we were not able to meet that goal, and the rate of facility-onset 

CDI decreased by only 2 percent as of 2012 (to a SIR of 0.98). Therefore, we believe it 

is critical to continue collecting data on CDI in the hospital setting, and to adopt this 

measure for the PCH setting, in order to ensure the highest quality of care for cancer 

patients and continue our effort to support HHS’ National Action Plan to Prevent 

Healthcare Associated Infections (HAIs) and our proposed 2020 goal to reduce 

facility-onset of CDI by 30 percent from the 2015 baseline.178 The collection and 

evaluation of CDI data will allow PCH staff to evaluate whether their infection control 

efforts need improvement. We recognize the severe impact of CDI,179 and aim to 

continue efforts to increase patient protection and safety, and at the same time prevent 

adverse infections in the PCH setting.

By proposing this measure in the PCHQR Program, we aim to continue to provide 

a common mechanism (that is, reporting to CDC’s NHSN) that all hospitals, including 

PCHs, can use to uniformly submit and report measure data and inform their clinicians of 

the impact of targeted prevention efforts.

We are inviting public comments on our proposal to add the CDC NHSN CDI 

Outcome Measure to the PCHQR Program beginning with the FY 2018 program.

 

178 HHS National Action Plan to Prevent Health Care-Associated Infections: Road Map to Elimination: 

Proposed Targets. Available at: http://www.health.gov/hai/pdfs/HAI-Targets.pdf.

179 Ibid.
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d. CDC NHSN Facility-Wide Inpatient Hospital-Onset Methicillin-Resistant 

Staphylococcus aureus (MRSA) Bacteremia Outcome Measure (NQF #1716)

Invasive MRSA infections may cause approximately 18,000 deaths per year 

during a hospital stay.180 Cancer patients are at increased risk for MRSA infections, 

specifically older adults with weakened immune systems who are receiving hospital 

inpatient care.181 As a result, we believe it is important to collect data on MRSA in the 

PCH setting.

This proposed measure addresses the NQS Patient Safety domain. This measure 

reports the SIR of hospital-onset unique blood source MRSA LabID events among all 

inpatients in a facility. The numerator includes the total number of observed 

hospital-onset unique blood source MRSA LabID events among all inpatients in the 

facility.182 The denominator includes the total number of predicted hospital-onset unique 

blood source MRSA LabID events, calculated by multiplying the number of inpatient 

days for the facility by the hospital-onset MRSA bacteremia LabID event rate for similar 

types of facilities (obtained from a standard population). 183, 184

Beginning with a 2009 baseline SIR of 1.0, we set a national goal to reduce the 

incidence of facility-onset MRSA infections by 50 percent by 2020. However, by 2012 

the rate of facility-onset MRSA infections decreased by only 3 percent (to a SIR of 0.97). 

 

180 Catherine Liu, Arnold Bayer, et al.: Clinical Practice Guidelines by the Infectious Disease Society of 

America for the Treatment of Methicillin-Resistant Staphylococcus Aureus Infections in Adults and 

Children Infectious Disease Society of America 2011; 52:e18.

181 CDC. General Information about MRSA in Healthcare Settings: Available at: 

http://www.cdc.gov/mrsa/healthcare/index.html.

182 NQF QPS. Available at: 

http://www.qualityforum.org/Qps/MeasureDetails.aspx?standardID=1716&print=0&entityTypeID=1.

183 Ibid.

184 FY 2012 IPPS/LTCH PPS final rule (76 FR 51630).
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Therefore, we believe it is critical to continue collecting data on CDI in the hospital 

setting, and to adopt this measure for the PCH setting, to ensure the highest quality of 

care for cancer patients and continue our effort to support the HHS’ National Action Plan 

and the proposed 2020 goal to reduce facility-onset MRSA infections by 50 percent from 

the 2015 baseline.185

The collection and evaluation of MRSA data will allow PCH staff to evaluate 

whether their infection control efforts need improvement. By proposing this measure in 

the PCHQR Program, we aim to continue to provide a common mechanism (CDC 

NHSN) for all hospitals, including PCHs, to uniformly report measure data and inform 

their clinicians of the impact of targeted prevention efforts. Furthermore, we recognize 

the severe impact of MRSA and aim to continue our efforts to increase patient protection 

and safety, while at the same time preventing adverse infections in the PCH setting.

We are inviting public comments on our proposal to add the CDC NHSN MRSA 

Measure to the PCHQR Program beginning with the FY 2018 program.

e. CDC NHSN Influenza Vaccination Coverage Among Healthcare Personnel [HCP] 

Measure (NQF #0431) (CDC NHSN HCP Measure)

CDC estimates that in the United States, each year, on average 5 percent to 

20 percent of the population gets influenza and more than 200,000 people are 

hospitalized from seasonal influenza-related complications.186 Influenza seasons are 

unpredictable and can be severe. Over a period of 30 years, between 1976 and 2006, 

estimates of influenza-associated deaths per year in the United States ranged from a low 

 

185 HHS National Action Plan to Prevent Health Care-Associated Infections: Road Map to Elimination: 

Proposed Targets. Available at: http://www.health.gov/hai/pdfs/HAI-Targets.pdf.

186 CDC. Seasonal Influenza Q&A. Available at: http://www.cdc.gov/flu/about/qa/disease.html.
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of approximately 3,000 to a high of approximately 49,000 people. 187 Because influenza 

can become widespread and have serious consequences, the Advisory Committee on 

Immunization Practices (ACIP) recommends that all health care personnel (HCP) and 

persons in training for health care professions be vaccinated annually against influenza.188 

Persons who are infected with the influenza virus, including those with subclinical 

infection, can transmit the influenza virus to persons at higher risk for complications, 

such as immunocompromised cancer patients. Additionally, vaccination of HCP has 

been associated with reduced work absenteeism and fewer deaths among patients. 

Results of several studies also indicate that higher vaccination coverage among HCP is 

 

187 CDC. Estimating Seasonal Influenza-Associated Deaths in the United States: CDC Study Confirms 

Variability of Flu. Available at: http://www.cdc.gov/flu/about/disease/us_flu-related_deaths.html.

188 CDC. “Prevention and control of seasonal influenza with vaccines: Recommendations of the Advisory 

Committee on Immunization Practices (ACIP), 2009.” MMWR 58, no. Early Release (2009):1-52.
CMS-1632-P 1102

associated with lower incidence of nosocomial influenza.189, 190, 191 Such findings have 

led researchers to call for mandatory influenza vaccination of HCP.192

This proposed measure addresses the NQS Patient Safety domain. The measure 

reports the percent of HCP who receive the influenza vaccination.193 The numerator 

includes HCP in the denominator population who during the time from October 1 (or 

when the vaccine became available) through March 31 of the following year, either: 

(a) received an influenza vaccination administered at the facility, or reported in writing 

(paper or electronic) or provided documentation that the influenza vaccination was 

received elsewhere; (b) were determined to have a medical contraindication or history of 

Guillain-Barré Syndrome within 6 weeks after a previous influenza vaccination; 

(c) declined the influenza vaccination; or (d) had an unknown vaccination status.194 The 

denominator includes the number of HCP who are working in the health care facility for 

at least 1 working day between October 1 and March 31 of the following year, regardless 

of clinical responsibility or patient contact, and includes: (a) employees; (b) licensed 

 

189 Salgado CD, Giannetta ET, Hayden FG, Farr BM.: Preventing influenza by improving the vaccine 

acceptance rate of clinicians. Infection Control and Hospital Epidemiology 2004; 25: 923–928.

190 Potter J, Stott DJ, Roberts MA, et al.: Influenza vaccination of health-care workers in long-term-care 

hospitals reduces the mortality of elderly patients. Journal of Infectious Diseases 1997; 175:1–6.

191 Hayward AC, Harling R, Wetten S, et al.: Effectiveness of an influenza vaccine program for care home 

staff to prevent death, morbidity, and health service use among residents: cluster randomized controlled 

trial. British Medical Journal 2006; 333:1241–1246.

192 Talbot TR, Bradley SF, Cosgrove SE, et al.: SHEA position paper: Influenza vaccination of healthcare 

workers and vaccine allocation for healthcare workers during vaccine shortages. Infection Control and 

Hospital Epidemiology 2005; 26:882–890.

193 NQF QPS. Available at: http://www.qualityforum.org/Qps/0431.

194 Ibid.
CMS-1632-P 1103

independent practitioners; and (c) adult students/trainees and volunteers.195, 196 

Numerators and denominators are collected separately for each of the specified groups.

We believe it is important to collect data on this measure in order to ensure the 

highest quality of care for cancer patients in our effort to support one of the Healthy 

People 2020 goals of immunizing 90 percent of healthcare personnel nationally by 

2020.197 Overall, final 2013-14 influenza vaccination coverage among HCP was 

75.2 percent, similar to coverage of 72.0 percent in the 2012-13 season.198 We aim to 

increase patient protection and safety and at the same time prevent adverse outcomes (for 

example, transmitting influenza to patients, specifically high risk cancer patients, and 

premature death due to influenza) in the PCH setting.

We believe that this measure is applicable to the PCH setting based on CDC 

guidelines that patients who currently have cancer or who have had certain types of 

cancer in the past (such as lymphoma or leukemia), are at high risk for complications 

from influenza, including hospitalization and death. 199 The involvement of HCP in 

influenza transmission has been a longstanding concern.

200, 201

 Vaccination is an 

 

195 Ibid.

196 FY 2012 IPPS/LTCH PPS final rule (76 FR 51631).

197 Healthy People 2020. Immunization and Infectious Diseases. Available at: 

http://www.healthypeople.gov/2020/topics-objectives/topic/immunization-and-infectiousdiseases/objectives.

198 CDC. Influenza Vaccination Information for Health Care Workers. Available at: 

http://www.cdc.gov/flu/healthcareworkers.html.

199 CDC Preventing Infections in Cancer Patients. Available at: http://www.cdc.gov/cancer/flu/.

200 Maltezou HC, Drancourt M.: Nosocomial influenza in children. Journal of Hospital Infection 2003; 

55:83–91.

201 Salgado CD, Farr BM, Hall KK, Hayden FG.: Influenza in the acute hospital setting. The Lancet 

Infectious Diseases 2002; 2:145–155.
CMS-1632-P 1104

effective preventive measure against influenza, and can prevent many illnesses, deaths, 

and losses in productivity.202

By proposing this measure in the PCHQR Program, we aim to not only provide a 

common mechanism (CDC NHSN) for all hospitals, including PCHs, to uniformly report 

the measure data, but also to inform their clinicians of the impact of targeted prevention 

efforts. In addition, and most importantly, we believe that collecting this measure data in 

the PCH setting is necessary to support our effort to prevent unnecessary additional or 

prolonged hospitalizations (and associated costs), and to decrease premature death among 

cancer patients.

We are inviting public comments on our proposal to add the CDC NHSN HCP 

Measure to the PCHQR Program beginning with the FY 2018 program.

In summary, we are proposing three new measures for reporting beginning with 

the FY 2018 program. In conjunction with our proposal to remove the six SCIP measures 

from the PCHQR Program beginning with Q4 2015 discharges, the PCHQR measure set 

would consist of 16 measures beginning with the FY 2018 program. Our proposed 

policies regarding the form, manner, and timing of data collection for these measures are 

discussed in section VIII.B.7. of the preamble to this proposed rule.

The table below lists all previously adopted measures as well as the proposed new 

measures for the PCHQR Program beginning with the FY 2018 program. It does not 

include the measures we are proposing to remove.

 

202 Wilde JA, McMillan JA, Serwint J, Butta J, O’Riordan MA, Steinhoff MC.: Effectiveness of influenza 

vaccine in health care professionals: a randomized trial. The Journal of the American Medical Association 

1999; 281:908–913.
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Topic Summary of Finalized and Proposed PCHQR Program Measures Beginning 

with the FY 2018 Program 

Safety and Healthcare-Associated Infection—HAI

● CDC NHSN Central Line-Associated Bloodstream Infection (CLABSI) 

Outcome Measure (NQF #0139)*

● CDC NHSN Catheter-Associated Urinary Tract Infections (CAUTI) 

Outcome Measure (NQF #0138)*

● Harmonized Procedure Specific Surgical Site Infection (SSI) Outcome 

Measure* [currently includes SSIs following Colon Surgery and Abdominal 

Hysterectomy Surgery] (NQF #0753)*

● CDC NHSN Facility-wide Inpatient Hospital-onset Clostridium difficile

Infection (CDI) Outcome Measure (NQF #1717)**

● CDC NHSN Facility-wide Inpatient Hospital-onset Methicillin-resistant 

Staphylococcus aureus (MRSA) Bacteremia Outcome Measure (NQF #1716)**

● CDC NHSN Influenza Vaccination Coverage Among Healthcare Personnel 

[HCP] (NQF #0431)**

Clinical Process/Cancer-Specific Treatments

● Adjuvant Chemotherapy is Considered or Administered Within 4 Months 

(120 days) of Diagnosis to Patients Under the Age of 80 with AJCC III (lymph 

node positive) Colon Cancer (NQF #0223)*

● Combination Chemotherapy is Considered or Administered Within 4 Months 

(120 days) of Diagnosis for Women Under 70 with AJCC T1c, or Stage II or III 

Hormone Receptor Negative Breast Cancer (NQF #0559)*

● Adjuvant Hormonal Therapy (NQF #0220)*

Clinical Process/Oncology Care Measures

● Oncology: Radiation Dose Limits to Normal Tissues (NQF #0382)*

● Oncology: Plan of Care for Pain (NQF #0383)*

● Oncology: Pain Intensity Quantified (NQF #0384)*

● Prostate Cancer: Adjuvant Hormonal Therapy for High Risk Patients 

(NQF #0390)*

● Prostate Cancer: Avoidance of Overuse of Bone Scan for Staging Low-Risk 

Patients (NQF #0389)*

Patient Engagement/Experience of Care

● HCAHPS [Hospital Consumer Assessment of Healthcare Providers and 

Systems Survey] (NQF #0166)*

Clinical Effectiveness Measure

● External Beam Radiotherapy for Bone Metastases (NQF #1822)*

*Previously finalized measures.

** Proposed for the FY 2018 program and subsequent years in this proposed rule.
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4. Possible New Quality Measure Topics for Future Years

Future quality measure topics and quality measure domain areas are discussed in 

the FY 2015 IPPS/LTCH PPS final rule (79 FR 50280). In addition, we welcome public 

comment and specific suggestions for measure topics addressing the following CMS 

Quality Strategy domains: making care affordable; communication and coordination; and 

working with communities to promote best practices of healthy living.

5. Maintenance of Technical Specifications for Quality Measures

We maintain technical specifications for the PCHQR Program measures, and we 

periodically update those specifications. The specifications may be found on the 

QualityNet Web site at: 

https://qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQ

netTier2&cid=1228774479863.

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50281), we described a policy 

under which we use a subregulatory process to make nonsubstantive updates to measures 

used for the PCHQR Program. We are not proposing any changes to this policy in this 

proposed rule.

6. Public Display Requirements

a. Background

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 are to be 

made public with respect to the PCH prior to such data being made public. 
CMS-1632-P 1107

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 hospitals 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 PCHQR 

Program 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 two 

measures. In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50282), we finalized our 

proposal to display publicly in 2015 and subsequent years the data for one measure and 

our proposal to display publicly no later than 2017 the data for two additional measures. 

In summary, we have finalized proposals to publicly display five PCHQR measures on 

Hospital Compare, including three Cancer Specific Treatment measures and two CDC 

NHSN HAI measures.
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Summary of Finalized Public Display Requirements 

Measures Public Reporting

● Adjuvant Chemotherapy is Considered or Administered 

Within 4 Months (120 days) of Diagnosis to Patients Under the 

Age of 80 with AJCC III (lymph node positive) Colon Cancer 

(NQF #0223)

● Combination Chemotherapy is Considered or Administered 

Within 4 Months (120 days) of Diagnosis for Women Under 

70 with AJCC T1c, or Stage II or III Hormone Receptor 

Negative Breast Cancer (NQF #0559)

2014 and subsequent 

years

● Adjuvant Hormonal Therapy (NQF #0220) 2015 and subsequent 

years

● CDC NHSN Central Line-Associated Bloodstream Infection 

(CLABSI) Outcome Measure (NQF #0139)

● CDC NHSN Catheter-Associated Urinary Tract Infections 

(CAUTI) Outcome Measure (NQF #0138)

2017 and subsequent 

years

b. Proposed Additional Public Display Requirements

We are proposing to publicly display six additional PCHQR measures beginning 

in 2016 and for subsequent years:

● Oncology: Radiation Dose Limits to Normal Tissues (NQF #0382)

● Oncology: Plan of Care for Pain (NQF #0383)

● Oncology: Pain Intensity Quantified (NQF #0384)

● Prostate Cancer: Adjuvant Hormonal Therapy for High Risk Patients 

(NQF #0390)
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● Prostate Cancer: Avoidance of Overuse of Bone Scan for Staging Low-Risk 

Patients (NQF #0389)

● HCAHPS (NQF #0166)

We are inviting public comment on these proposals.

7. Form, Manner, and Timing of Data Submission

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 Proposed New Measures: CDC NHSN CDI 

(NQF #1717), CDC NHSN MRSA (NQF #1716), and CDC NHSN HCP (NQF #0431) 

Measures

We are proposing that PCHs submit CDC NHSN CDI, MRSA, and HCP measure 

data for all patients to the CDC through the NHSN database. This is the same 

procedural/reporting mechanism used for the CDC NHSN CLABSI and CAUTI 

measures that we finalized in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53563 

through 53564) and for the CDC SSI measure that we finalized in the FY 2014 
CMS-1632-P 1110

IPPS/LTCH PPS final rule (78 FR 50848 through 50850). The data submission and 

reporting procedures have been set forth by the CDC for NHSN participation in general 

and for submission of the CDC NHSN CDI, MRSA, and HCP measures to NHSN. We 

refer readers to the CDC’s Web site (http://www.cdc.gov/nhsn/cms/index.html) for 

detailed data submission and reporting procedures.

We are proposing to adopt a quarterly submission process for the CDC NHSN 

CDI and MRSA measures as shown in the table below. We have successfully 

implemented this reporting mechanism in the Hospital IQR Program (77 FR 53539), and 

we strongly believe that this type of data submission is the most feasible option because 

PCHs are currently reporting the CDC NHSN CAUTI, CLABSI, and CDC SSI measures 

to the CDC NHSN this way.

Proposed CDC NHSN CDI (NQF #1717) and CDC NHSN MRSA (NQF #1716) 

Measures Reporting Periods and Submission Timeframes Beginning with the 

FY 2018 Program

Program year 

(FY) Reporting periods (CY) Data submission deadlines (CY)

2018

Q1 2016 events

(January 1, 2016 – March 31, 2016) August 15, 2016

Q2 2016 events

(April 1, 2016 – June 30, 2016) November 15, 2016

Q3 2016 events 

(July 1, 2016 – September 30, 2016) February 15, 2017

Q4 2016 events

(October 1, 2016 – December 31, 2016) May 15, 2017

Subsequent 

Years

Q1 events

(January 1 – March 31 of year 2 years 

before the program year) 

August 15 of year 

two years before the 

program year 

Q2 events

(April 1 – June 30 of year 2 years before 

the program year)

November 15 of year 

2 years before the 

program year
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Proposed CDC NHSN CDI (NQF #1717) and CDC NHSN MRSA (NQF #1716) 

Measures Reporting Periods and Submission Timeframes Beginning with the 

FY 2018 Program

Program year 

(FY) Reporting periods (CY) Data submission deadlines (CY)

Q3 events

(July 1 – September 30 of year 2 years 

before the program year)

February 15 of year 

1 year before the 

program year

Q4 events

(October 1 – December 31 of year 2 years 

before the program year)

May 15 of 

year 1 year before the 

program year

For the CDC NHSN HCP measure, we are proposing that data be submitted 

annually by May 15 of the applicable year as shown in the table below. The vaccination 

period runs from October through March. The proposed reporting period for FY 2018 

will include Q4 2016 and Q1 2017 counts submitted by May 15, 2017.

Proposed CDC NHSN HCP (NQF #0431) Measure

Reporting Periods and Submission Timeframes Beginning with the FY 2018 

Program

Program year 

(FY) Reporting periods (CY) Data submission deadlines (CY)

2018

Q4 2016 counts

(October 1, 2016 – December 31, 2016) May 15, 2017 Q1 2017 counts

(January 1, 2017 – March 31, 2017)

Subsequent 

Years

Q4 counts

(October 1 – December 31 of year 2 years 

before the program year) May 15 of year 1 year 

before the program

year Q1 counts

(January 1 – March 31 of year 1 year 

before the program year)

We are inviting public comments on these proposals.
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As specified by CDC, the CDC NHSN CDI, MRSA, and HCP measures are 

reported on a facility-wide basis.203, 204 Accordingly, we are not proposing a sampling 

methodology for these measures because CDC requirements are to collect data on all 

patients or HCP in the facility. However, measures specifications could be technically 

updated by the measure steward (CDC). We refer readers to the CDC Web site for 

technical changes and/or updates (http://www.cdc.gov/nhsn/acute-carehospital/index.html).

We also intend to issue guidance to PCHs that will provide additional clarity 

regarding the specific data submission deadlines that we previously finalized for certain 

PCHQR measures. This guidance will be issued through the QualityNet Web site.

 

203 CDC Multidrug - Resistant Organism & Clostridium difficile Infection (MDRO/CDI) Module. 

Available at: http://www.cdc.gov/nhsn/PDFs/pscManual/12pscMDRO_CDADcurrent.pdf.

204 CDC HCP Vaccination Module. Available at: http://www.cdc.gov/nhsn/PDFs/HPSmanual/vaccination/HPS-flu-vaccine-protocol.pdf.
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C. Long-Term Care Hospital Quality Reporting Program (LTCH QRP)

1. Background and Statutory Authority

Section 3004(a) of the Affordable Care Act amended section 1886(m)(5) of the 

Act, requiring the Secretary to establish the Long-Term Care Hospital Quality Reporting 

Program (LTCH QRP). This program applies to all hospitals certified by Medicare as 

LTCHs. Beginning with the FY 2014 payment determination and subsequent years, the 

Secretary is required to reduce any annual update to the standard Federal rate for 

discharges occurring during such fiscal year by 2 percentage points for any LTCH that 

does not comply with the requirements established by the Secretary.

The Act requires that, for the FY 2014 payment determination and subsequent 

years, each LTCH submit data on quality measures specified by the Secretary in a form 

and manner, and at a time, specified by the Secretary. The Secretary is required to 

specify quality measures that are endorsed by the entity with a contract under 

section 1890(a) of the Act. This entity is currently the NQF. Information regarding the 

NQF is available at: 

http://www.qualityforum.org/Measuring_Performance/Measuring_Performance.aspx. 

The Act authorizes an exception under which the Secretary may specify 

non-NQF-endorsed quality measures in the case of specified areas or medical topics 

determined appropriate by the Secretary for which a feasible or practical measure has not 

been endorsed by the NQF, as long as due consideration is given to measures that have 

been endorsed or adopted by a consensus organization identified by the Secretary. We 
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refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 50286) for a detailed 

discussion of the history of the LTCH QRP.

In addition, section 1206(c) of the Pathway for SGR Reform Act of 2013 added 

section 1886(m)(5)(D)(iv) of the Act, which requires the Secretary to establish, not later 

than October 1, 2015, a functional status quality measure under the LTCH QRP for 

change in mobility among inpatients requiring ventilator support. We refer readers to the 

FY 2015 IPPS/LTCH PPS final rule (79 FR 50298) for a detailed discussion of the 

Functional Outcome Measure: Change in Mobility among Long-Term Care Hospital 

Patients Requiring Ventilator Support, which we adopted in the LTCH QRP for the 

FY 2018 payment determination and subsequent years to meet the requirements of 

section 1886(m)(5)(D)(iv) of the Act.

Finally, the Improving Medicare Post-Acute Care Transformation Act of 2014 

(Pub. L. 113-185) (the IMPACT Act of 2014) amended the Act in ways that affect the 

LTCH QRP. Specifically, section 2(a) of the IMPACT Act of 2014 added section 1899B 

of the Act, and section 2(c)(3) of the IMPACT Act of 2014 amended section 1886(m)(5) 

of the Act.

New section 1899B of the Act is titled Standardized Post-Acute Care (PAC) 

Assessment Data for Quality, Payment and Discharge Planning. Under 

section 1899B(a)(1) of the Act, the Secretary must require post-acute care (PAC) 

providers (defined in section 1899B(a)(2)(A) of the Act to include HHAs, SNFs, IRFs, 

and LTCHs) to submit standardized patient assessment data in accordance with section 

1899B(b) of the Act, data on quality measures required under section 1899B(c)(1) of the 
CMS-1632-P 1115

Act, and data on resource use and other measures required under section 1899B(d)(1) of 

the Act. The Act also sets out specified application dates for each of the measures. The 

Secretary must specify the quality, resource use, and other measures not later than the 

applicable specified application date defined in section 1899B(a)(2)(E) of the Act.

Section 1899B(b) of the Act describes the standardized patient assessment data 

that PAC providers are required to submit in accordance with section 1899B(b)(1) of the 

Act; requires the Secretary, to the extent practicable, to match claims data with 

standardized patient assessment data in accordance with section 1899B(b)(2) of the Act; 

and requires the Secretary, as soon as practicable, to revise or replace existing patient 

assessment data to the extent that such data duplicate or overlap with standardized patient 

assessment data, in accordance with section 1899B(b)(3) of the Act.

Sections 1899B(c)(1) and (d)(1) of the Act direct the Secretary to specify 

measures that relate to at least five stated quality domains and three stated resource use 

and other measure domains. Section 1899B(c)(1) of the Act provides that the quality 

measures on which PAC providers, including LTCHs, are required to submit 

standardized patient assessment data and other necessary data specified by the Secretary 

must be with respect to at least the following domains:

● Functional status, cognitive function, and changes in function and cognitive 

function;

● Skin integrity and changes in skin integrity;

● Medication reconciliation;

● Incidence of major falls; and
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● Accurately communicating the existence of and providing for the transfer of 

health information and care preferences of an individual to the individual, family 

caregiver of the individual, and providers of services furnishing items and services to the 

individual when the individual transitions (1) from a hospital or CAH to another 

applicable setting, including a PAC provider or the home of the individual, or (2) from a 

PAC provider to another applicable setting, including a different PAC provider, hospital, 

CAH, or the home of the individual.

Section 1899B(c)(2)(A) of the Act provides that, to the extent possible, the 

Secretary must require such reporting through the use of a PAC assessment instrument 

and modify the instrument as necessary to enable such use.

Section 1899B(d)(1) of the Act provides that the resource use and other measures 

on which PAC providers, including LTCHs, are required to submit any necessary data 

specified by the Secretary, which may include standardized assessment data in addition to 

claims data, must be with respect to at least the following domains:

● Resource use measures, including total estimated Medicare spending per 

beneficiary;

● Discharge to community; and

● Measures to reflect all-condition risk-adjusted potentially preventable hospital 

readmission rates.

Sections 1899B(c) and (d) of the Act indicate that data satisfying the eight 

measure domains in the IMPACT Act of 2014 is the minimum data reporting 
CMS-1632-P 1117

requirement. Therefore, the Secretary may specify additional measures and additional 

domains.

Section 1899B(e)(1) of the Act requires that the Secretary implement the quality, 

resource use, and other measures required under sections 1899B(c)(1) and (d)(1) of the 

Act in phases consisting of measure specification, data collection, and data analysis; the 

provision of feedback reports to PAC providers in accordance with section 1899B(f) of 

the Act; and public reporting of PAC providers’ performance on such measures in 

accordance with section 1899B(g) of the Act. Section 1899B(e)(2) of the Act generally 

requires that each measure specified by the Secretary under section 1899B of the Act be 

NQF-endorsed, but authorizes an exception under which the Secretary may select 

non-NQF-endorsed quality measures in the case of specified areas or medical topics 

determined appropriate by the Secretary for which a feasible or practical measure has not 

been endorsed by the NQF, as long as due consideration is given to measures that have 

been endorsed or adopted by a consensus organization identified by the Secretary. 

Section 1899B(e)(3) of the Act provides that the pre-rulemaking process required by 

section 1890A of the Act applies to quality, resource use, and other measures specified 

under sections 1899B(c)(1) and (d)(1) of the Act, but authorizes exceptions under which 

the Secretary may (1) use expedited procedures, such as ad hoc reviews, as necessary in 

the case of a measure required with respect to data submissions during the 1-year period 

before the applicable specified application date, or (2) alternatively, waive section 1890A 

of the Act in the case of such a measure if applying section 1890A of the Act (including 

through the use of expedited procedures) would result in the inability of the Secretary to 
CMS-1632-P 1118

satisfy any deadline specified under section 1899B of the Act with respect to the 

measure.

Section 1899B(f)(1) of the Act requires the Secretary to provide confidential 

feedback reports to PAC providers on the performance of such PAC providers with 

respect to quality, resource use, and other measures required under sections 1899B(c)(1) 

and (d)(1) of the Act beginning 1 year after the applicable specified application date.

Section 1899B(g) of the Act requires the Secretary to establish procedures for 

making available to the public information regarding the performance of individual PAC 

providers with respect to quality, resource use, and other measures required under 

sections 1899B(c)(1) and (d)(1) of the Act beginning not later than 2 years after the 

applicable specified application date. The procedures must ensure, including through a 

process consistent with the process applied under section 1886(b)(3)(B)(viii)(VII) of the 

Act for similar purposes, that each PAC provider has the opportunity to review and 

submit corrections to the data and information that are to be made public with respect to 

the PAC provider prior to such data being made public.

Section 1899B(h) of the Act sets out requirements for removing, suspending, or 

adding quality, resource use, and other measures required under sections 1899B(c)(1) and 

(d)(1) of the Act.

Section 1899B(i) of the Act requires that not later than January 1, 2016, and 

periodically thereafter (but not less frequently than once every 5 years), the Secretary 

must promulgate regulations to modify the Medicare conditions of participation (CoPs) 

and subsequent interpretative guidance applicable to PAC providers, hospitals, and CAHs 
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to, among other things, take into account quality, resource use, and other measures in the 

discharge planning process.

Section 1899B(j) of the Act requires the Secretary to allow for stakeholder input, 

such as through town halls, open door forums, and mailbox submissions, before the initial 

rulemaking process to implement section 1899B of the Act.

Section 2(c)(3) of the IMPACT Act of 2014 amended section 1886(m)(5) of the 

Act to address the payment consequences for LTCHs with respect to the additional data 

which LTCHs are required to submit under section 1899B of the Act. This section added 

new sections 1886(m)(5)(F) and (G) to the Act and made conforming changes. New 

section 1886(m)(5)(F) of the Act requires LTCHs (other than a hospital classified under 

section 1886(d)(1)(B)(iv)(II)) of the Act to submit the following additional data: (1) for 

the fiscal year beginning on the applicable specified application date and subsequent 

years, data on the quality, resource use, and other measures required under sections 

1899B(c)(1) and (d)(1) of the Act; and (2) for FY 2019 and subsequent years, the 

standardized patient assessment data required under section 1899B(b)(1) of the Act. 

Such data must be submitted in the form and manner, and at the time, specified by the 

Secretary. Finally, new section 1886(m)(5)(G) of the Act generally provides that to the 

extent that the additional data required under section 1886(m)(5)(F) of the Act duplicates 

other data required under section 1886(m)(5)(C) of the Act, submission of the former 

must be in lieu of submission of the latter.

As stated above, the IMPACT Act of 2014 adds a new section 1899B to the Act 

that imposes new data reporting requirements for certain post-acute care (PAC) 
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providers, including LTCHs. Sections 1899B(c)(1) and 1899B(d)(1) of the Act 

collectively require that the Secretary specify quality measures and resource use and 

other measures with respect to certain domains not later than the specified application 

date that applies to each measure domain and PAC provider setting. Section 

1899B(a)(2)(E) of the Act delineates the specified application dates for each measure 

domain and PAC provider. The IMPACT Act of 2014 also amends various other 

sections of the Act, including section 1886(m)(5) of the Act, to require the Secretary to 

reduce the otherwise applicable PPS payment to a PAC provider that does not report the 

new data in a form and manner, and at a time, specified by the Secretary. For LTCHs, 

amended section 1886(m)(5)(A)(i) of the Act would require the Secretary to reduce the 

payment update for any LTCH that does not satisfactorily submit the new required data.

Under the current LTCH QRP, the general timeline and sequencing of measure 

implementation occurs as follows: specification of measures; proposal and finalization of 

measures through notice-and-comment rulemaking; LTCH submission of data on the 

adopted measures; analysis and processing of the submitted data; notification to LTCHs 

regarding their quality reporting compliance with respect to a particular rate year; 

consideration of any reconsideration requests; and imposition of a payment reduction in a 

particular rate year for failure to satisfactorily submit data with respect to that rate year. 

Any payment reductions that are taken with respect to a rate year begin approximately 

one year after the end of the data submission period for that rate year and approximately 

two years after we first adopt the measure.
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To the extent that the IMPACT Act of 2014 could be interpreted to shorten this 

timeline so as to require us to reduce an LTCH’s PPS payment for failure to satisfactorily 

submit data on a measure specified under section 1899B(c)(1) or (d)(1) of the Act 

beginning with the same rate year as the specified application date for that measure, such 

a timeline would not be feasible. The current timeline discussed above reflects 

operational and other practical constraints, including the time needed to specify and adopt 

valid and reliable measures, collect the data, and determine whether an LTCH has 

complied with our quality reporting requirements. It also takes into consideration our 

desire to give LTCHs enough notice of new data reporting obligations so that they are 

prepared to timely start reporting the data. Therefore, we intend to follow the same 

timing and sequence of events for measures specified under sections 1899B(c)(1) and 

(d)(1) of the Act that we currently follow for other measures specified under the LTCH 

QRP. We intend to specify each of these measures no later than the specified application 

dates set forth in section 1899B(a)(2)(E) of the Act and are proposing to adopt them 

consistent with the requirements in the Act and Administrative Procedure Act. To the 

extent that we finalize a proposal to adopt a measure for the LTCH QRP that satisfies an 

IMPACT Act of 2014 measure domain, we intend to require LTCHs to report data on the 

measure for the rate year that begins two years after the specified application date for that 

measure. Likewise, we intend to require LTCHs to begin reporting any other data 

specifically required under the IMPACT Act of 2014 for the rate year that begins two 

years after we adopt requirements that would govern the submission of that data.
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2. General Considerations Used for Selection of Quality, Resource Use, and Other 

Measures for the LTCH QRP

We refer readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 50286 

through 50287) for a detailed discussion of the considerations we use for the selection of 

LTCH QRP quality measures. In this proposed rule, we apply the same considerations to 

the selection of quality, resource use, and other measures required under section 1899B 

of the Act for the LTCH QRP, in addition to the considerations discussed below.

The quality measures we are proposing address some of the measure domains that 

the Secretary is required to specify under sections 1899B(c)(1) and (d)(1) of the Act. The 

totality of the measures considered to meet the requirements of the IMPACT Act of 2014 

will evolve, and additional measures will be proposed over time as they become 

available.

To meet the first specified application date applicable to LTCHs under 

section 1899B(a)(2)(E) of the Act, which is October 1, 2016, we have focused on 

measures that:

● Correspond to a measure domain in section 1899B(c)(1) or (d)(1) of the Act 

and are setting-agnostic: for example, falls with major injury and the incidence of 

pressure ulcers;

● Are currently adopted for one or more of our PAC quality reporting programs 

that are already either NQF-endorsed and in place or finalized for use, or already 

previewed by the MAP with support;

● Minimize added burden on LTCHs;
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● Minimize or avoid, to the extent feasible, revisions to the existing items in 

assessment tools currently in use (for example, the LTCH CARE Data Set);

● Avoid, where possible, duplication of existing assessment items.

In our selection and specification of measures, we employ a transparent process in 

which we seek input from stakeholders and national experts and engage in a process that 

allows for pre-rulemaking input on each measure, as required by section 1890A of the 

Act. This process is based on a private-public partnership, and it occurs via the MAP. 

The MAP is composed of multi-stakeholder groups convened by the NQF, our current 

contractor under section 1890 of the Act, to provide input on the selection of quality and 

efficiency measures described in section 1890(b)(7)(B) of the Act. The NQF must 

convene these stakeholders and provide us with the stakeholders’ input on the selection 

of such measures. We, in turn, must take this input into consideration in selecting such 

measures. In addition, the Secretary must make available to the public by December 1 of 

each year a list of such measures that the Secretary is considering under title XVIII of the 

Act.

As discussed in section VIII.C.1. of the preamble of this proposed rule, section 

1899B(e)(3) of the Act provides that the pre-rulemaking process required by section 

1890A of the Act applies to the measures required under section 1899B, subject to certain 

exceptions for expedited procedures or, alternatively, waiver of section 1890A of the Act.

We initiated an Ad Hoc MAP process for the review of the quality measures 

under consideration for proposal in preparation for adoption of those quality measures 

into the LTCH QRP that are required by the IMPACT Act of 2014, and which must be 
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specified by October 1, 2016. The List of Measures under Consideration (MUC List) 

under the IMPACT Act of 2014 was made available to the public for comment during the 

MAP Meeting on February 9, 2015 (http://www.meetingsupport.com/downloads/703163/4524/PACLTC%20Ad%20Hoc%20Slides.pdf). Under 

the IMPACT Act of 2014, these measures must be standardized so they can be applied 

across PAC settings and must correspond to measure domains specified in 

sections 1899B(c)(1) and (d)(1) of the IMPACT Act of 2014. The specific cross-setting 

application of the measures under consideration for each such measure is discussed in the 

MAP Off-Cycle Deliberations 2015: Measures under Consideration to Implement 

Provisions of the IMPACT Act: Final Report available at: 

http://www.qualityforum.org/Setting_Priorities/Partnership/MAP_Final_Reports.aspx. 

The MAP reviewed each IMPACT Act of 2014-related quality measure proposed in this 

proposed rule for the LTCH QRP, in light of its intended cross-setting use. We refer 

readers to section VIII.C.6. of the preamble of this proposed rule for more information on 

the MAP’s recommendations.

As discussed in section VIII.C.1. of the preamble of this proposed rule, above, 

section 1899B(j) of the Act requires that we allow for stakeholder input as part of the 

pre-rulemaking process. To meet this requirement, we provided the following 

opportunities for stakeholder input: (1) our measure development contractor convened a 

technical expert panel (TEP) that included stakeholder experts and patient representatives 

on February 3, 2015; (2) we provided two separate listening sessions on 

February 10, 2015 and March 5, 2015; (3) we sought public input during the 
CMS-1632-P 1125

February 2015 Ad Hoc MAP process provided for the sole purpose of reviewing the 

measures we are proposing in reaction to the IMPACT Act of 2014; and (4) we sought 

public comment as part of our NQF measure maintenance submissions. In addition, we 

implemented a public mail box for the submission of comments in January 2015, 

PACQualityInitiative@cms.hhs.gov, which is accessible from our post-acute care quality 

initiatives Web site: http://www.cms.gov/Medicare/Quality-Initiatives-PatientAssessment-Instruments/Post-Acute-Care-Quality-Initiatives/IMPACT-Act-of-2014-andCross-Setting-Measures.html, and held a National Stakeholder Special Open Door Forum 

to seek input on the measures on February 25, 2015.

For measures that do not have NQF endorsement, or which are not fully supported 

by the MAP for the LTCH QRP, we are proposing measures that most closely align with 

the national priorities discussed in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50286 

through 50287), and for which the MAP supports the measure concept. Further 

discussion as to the importance and high-priority status of these measures in the LTCH 

setting is included under each quality measure proposal in the preamble of this proposed 

rule. In addition, for measures not endorsed by the NQF, we have sought, to the extent 

practicable, to adopt measures that have been endorsed or adopted by a national 

consensus organization, recommended by multi-stakeholder organizations, and/or 

developed with the input of providers, purchasers/payers, and other stakeholders.
CMS-1632-P 1126

3. Policy for Retention of LTCH QRP Measures Adopted for Previous Payment 

Determinations

In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53614 through 53615), for the 

LTCH QRP, 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 LTCH 

QRP 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, we refer readers to the 

FY 2013 IPPS/LTCH PPS final rule (77 FR 53614 through 53615).

In this proposed rule, we are not proposing any changes to this policy for 

retaining LTCH QRP measures adopted for previous payment determinations.

4. Policy for Adopting Changes to LTCH QRP Measures

In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53615 through 53616), we 

finalized a policy that if the NQF updates an endorsed measure that we have adopted for 

the LTCH QRP 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 LTCH QRP. Substantive changes will be proposed and 

finalized through rulemaking. We refer readers to the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53615 through 53616) for further information on what constitutes substantive 

and nonsubstantive changes to a measure. We are not proposing any changes to the 

policy for adopting changes to LTCH QRP measures.
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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), for the 

FY 2014 payment determination and subsequent years, we adopted updated versions of 

National Health Safety Network (NHSN) Catheter-Associated Urinary Tract Infection 

(CAUTI) Outcome Measure (NQF #0138) and the NHSN Central Line-Associated Blood 

Stream Infection (CLABSI) Outcome Measure (NQF #0139). For the FY 2015 payment 

determination and subsequent years, we retained the application of Percent of Residents 

with Pressure Ulcers That Are New or Worsened (Short Stay) measure (NQF #0678) to 

the LTCH setting (initially adopted in the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51745 through 51750)). We also adopted two new quality measures for the 

LTCH QRP 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 (Short Stay) (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) measure 
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(NQF #0678), for the LTCH QRP for the FY 2015 payment determination and 

subsequent years.

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50289 through 50305), we 

revised the data collection and submission period for the Percent of Residents or Patients 

Who Were Assessed and Appropriately Given the Seasonal Influenza Vaccine 

(Short-Stay) measure (NQF #0680).

Set out below are the quality measures, both previously adopted measures 

retained in the LTCH QRP 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.

LTCH QRP Quality Measures Previously 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 

Fiscal Years

NQF #0139 National Health Safety Network (NHSN) Central 

Line-Associated Blood Stream Infection 

(CLABSI) Outcome Measure

FY 2015 and

Subsequent 

Fiscal Years

NQF #0678 Percent of Residents or Patients with Pressure 

Ulcers That Are New or Worsened (Short Stay)

FY 2015 and

Subsequent 

Fiscal Years

NQF #0680 Percent of Residents or Patients Who Were 

Assessed and Appropriately Given the Seasonal 

Influenza Vaccine (Short Stay)

FY 2016 and

Subsequent 

Fiscal Years

NQF #0431 Influenza Vaccination Coverage among 

Healthcare Personnel

FY 2016 and

Subsequent 

Fiscal Years
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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).

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50289 through 50305), we: 

(1) revised the data collection and submission period for the application of the Percent of 

Residents Experiencing One or More Falls with Major Injury (Long Stay) measure 

(NQF #0674); and (2) adopted three new quality measures for the FY 2018 payment 

determination and subsequent years.

These measures are set out in the table below.
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LTCH QRP 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) FacilityWide Inpatient Hospital-Onset Methicillin-Resistant 

Staphylococcus aureus (MRSA) Bacteremia Outcome 

Measure

FY 2017 and 

Subsequent Years

NQF #1717 National Healthcare Safety Network (NHSN) FacilityWide Inpatient Hospital-Onset Clostridium difficile

Infection (CDI) Outcome Measure

FY 2017 and 

Subsequent Years

NQF #2512 All-Cause Unplanned Readmission Measure for 30 

Days Post-Discharge from Long-Term 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 2018 and 

Subsequent Years

NQF #2631* Percent of Long-Term Care Hospital Patients with 

an Admission and Discharge Functional Assessment 

and a Care Plan That Addresses Function

FY 2018 and 

Subsequent Years

NQF #2632* Functional Outcome Measure: Change in Mobility 

among Long-Term Care Hospital Patients Requiring 

Ventilator Support

FY 2018 and 

Subsequent Years

Not NQF 

endorsed

National Healthcare Safety Network (NHSN) 

Ventilator-Associated Event (VAE) Outcome 

Measure

FY 2018 and 

Subsequent Years

*Under review at NQF. We refer readers to: 

http://www.qualityforum.org/ProjectMeasures.aspx?projectID=73867, NQF #2631 and 

NQF #2632.

6. Previously Adopted LTCH QRP Quality Measures Proposed for the FY 2018 Payment 

Determination and Subsequent Years

For the FY 2018 payment determination and subsequent years, in addition to the 

measures we are retaining under our policy described in VIII.C.3. of the preamble of this 
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proposed rule, we are proposing four quality measures to reflect the NQF endorsement of one 

measure and to meet the requirements of the IMPACT Act of 2014. These proposed measures 

are: (a) All-Cause Unplanned Readmission Measure for 30 Days Post-Discharge from LTCHs 

(NQF #2512) to reflect NQF endorsement; (b) Percent of Residents or Patients with Pressure 

Ulcers That Are New or Worsened (Short Stay) (NQF #0678) to meet the requirements of the 

IMPACT Act of 2014; (c) an application of Percent of Residents Experiencing One or More 

Falls with Major Injury (Long Stay) (NQF #0674) to meet the requirements of the IMPACT 

Act of 2014; and (d) an application of Percent of LTCH Patients with an Admission and 

Discharge Functional Assessment and a Care Plan That Addresses Function (NQF #2631; 

under NQF review) to meet the requirements of the IMPACT Act of 2014. These quality 

measures are discussed in more detail below.

a. Proposal to Reflect NQF Endorsement: All-Cause Unplanned Readmission Measure 

for 30 Days Post-Discharge from LTCHs (NQF #2512)

The All-Cause Unplanned Readmission Measure for 30 Days Post-Discharge 

from LTCHs (NQF #2512) was adopted for use in the LTCH QRP in the FY 2014 

IPPS/LTCH PPS final rule (78 FR 50868 through 50874). We are proposing to adopt this 

measure to reflect that it is NQF-endorsed for use in the LTCH setting as of 

December 2014. Current specifications of this NQF-endorsed measure are available for 

download on the NQF Web site at: http://www.qualityforum.org/QPS/2512.

As adopted in the FY 2014 IPPS/LTCH PPS final rule, this is a Medicare FFS 

claims-based measure, and LTCHs are not required to report any additional data to CMS. 

Because we would calculate this measure based on claims data that are already reported 
CMS-1632-P 1132

to the Medicare program for payment purposes, we believe there would be no additional 

data collection burden on LTCHs resulting from our implementation of this measure as 

part of the LTCH QRP. In the FY 2014 IPPS/LTCH PPS final rule, we stated that we 

will calculate this measure using claims data beginning with FY 2013 and FY 2014 and 

provide initial feedback to LTCHs prior to public reporting of this measure. However, 

the NQF-endorsed measure (NQF #2512) is based on 2 consecutive calendar years of 

Medicare FFS claims data. Therefore, in addition to our proposal to adopt the 

NQF-endorsed version of this measure, we are proposing that the initial calculation of the 

measure and feedback to LTCHs, prior to public reporting of this measure, would be 

based on CY 2013 and CY 2014 Medicare FFS claims data related to readmissions 

post-LTCH discharge.

The description of this measure provided in the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50868 through 50874) noted this measure is the ratio of the number of 

risk-adjusted predicted unplanned readmissions for each LTCH, including the estimated 

facility effect, to the average number of risk-adjusted predicted unplanned readmissions 

for the same patients if treated at a facility with the average effect on readmissions. This 

ratio is referred to as the standardized risk ratio or SRR. The NQF-endorsed 

specifications compute the risk-standardized readmission rate (RSRR) for this measure. 

The RSRR is the SRR multiplied by the overall national raw readmission rate for all 

LTCH stays; it is expressed as a percentage rate rather than a ratio.

This measure, which was developed to harmonize with the Hospital-Wide 

All-Cause Unplanned Readmission Measure (NQF #1789) that is currently in use in the 
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Hospital IQR Program, continues to use the CMS Planned Readmission Algorithm as the 

main component for identifying planned readmissions. This algorithm was refined in the 

FY 2015 IPPS/LTCH PPS final rule (79 FR 50211 through 50216). The All-Cause 

Unplanned Readmission Measure for 30 Days Post Discharge from LTCHs (NQF #2512) for 

the LTCH QRP will utilize the most recently updated version of the algorithm. A 

complete description of the CMS Planned Readmission Algorithm, which includes lists 

of planned diagnoses and procedures, can be found on the CMS Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/Measure-Methodology.html. The additional post-acute 

care planned readmission types specified for this measure remain the same as when first 

adopted through the FY 2014 IPPS/LTCH PPS final rule. Documentation on the 

additional post-acute care planned readmissions for this measure is available at: 

http://www.qualityforum.org/ProjectTemplateDownload.aspx?SubmissionID=2512.

We are inviting public comments in response to (1) our proposal to adopt the 

NQF-endorsed version of All-Cause Unplanned Readmission Measure for 30 Days Post 

Discharge from LTCHs (NQF #2512) for the LTCH QRP and (2) our proposal that the 

initial feedback to LTCHs, prior to public reporting of this measure, would be based on 

CY 2013 and CY 2014 Medicare FFS claims data related to readmissions post-LTCH 

discharge.
CMS-1632-P 1134

b. Proposal to Address the IMPACT Act of 2014: Quality Measure Addressing the 

Domain of Skin Integrity and Changes in Skin Integrity: Percent of Residents or Patients 

with Pressure Ulcers That Are New or Worsened (Short Stay) (NQF #0678)

Section 1899B(c)(1) of the Act directs the Secretary to specify quality measures 

on which PAC providers are required under the applicable reporting provisions to submit 

standardized patient assessment data and other necessary data specified by the Secretary 

with respect to five quality domains, one of which is skin integrity and changes in skin 

integrity. The specified application date by which the Secretary must specify quality 

measures to address this domain for IRFs, SNFs, and LTCHs is October 1, 2016, and for 

HHAs is January 1, 2017. To satisfy these requirements, we are proposing to adopt the 

Percent of Residents or Patients with Pressure Ulcers that are New or Worsened 

(Short-Stay) (NQF #0678) measure, that we have already adopted for the LTCH QRP, as 

a cross-setting quality measure that satisfies the domain of skin integrity and changes in 

skin integrity. The reporting of data for this measure would affect the payment 

determination for the FY 2018 payment determination and subsequent years. In the 

LTCH setting, the measure assesses the percent of patients with Stage 2 through Stage 4 

pressure ulcers that are new or worsened since admission.

As described in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51754 through 

51756), pressure ulcers are high-cost adverse events and are an important measure of 

quality. For information on the detailed rationale for relevance, evidence, 

appropriateness, importance, and applicability of this quality measure in the LTCH QRP, 

we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51754 through 51756) 
CMS-1632-P 1135

and the FY 2014 IPPS/LTCH PPS final rule (78 FR 50861 through 50863). Measure 

specifications are available on the NQF Web site at: 

http://www.qualityforum.org/QPS/0678.

The IMPACT Act of 2014 requires the implementation of quality measures and 

resource use and other measures that are standardized and interoperable across PAC 

settings as well as the reporting of standardized patient assessment data and other 

necessary data specified by the Secretary. This requirement is in line with the NQF 

Steering Committee report, which stated that “to understand the impact of pressure ulcers 

across settings, quality measures addressing prevention, incidence, and prevalence of 

pressure ulcers must be harmonized and aligned.”205 The Percent of Residents or Patients 

with Pressure Ulcers That Are New or Worsened (Short Stay) (NQF #0678) measure is 

NQF-endorsed and has been successfully implemented using a harmonized set of data 

elements in three PAC settings (LTCHs, IRFs, and SNFs). As discussed in 

section VIII.C.6.b. of the preamble of this proposed rule, above, an application of this 

measure was adopted for the LTCH QRP in the FY 2012 IPPS/LTCH PPS final rule

(76 FR 51753 through 51756) for the FY 2014 payment determination, and the current 

NQF-endorsed version of the measure was adopted in the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50861 through 50863) for the FY 2015 payment determination and 

subsequent years. The measure has been in use in the LTCH QRP since October 1, 2012, 

 

205 National Quality Forum. National voluntary consensus standards for developing a framework for 

measuring quality for prevention and management of pressure ulcers. April 2008. Available at: 

http://www.qualityforum.org/Projects/Pressure_Ulcers.aspx.
CMS-1632-P 1136

and currently, LTCHs are submitting data for this measure using the LTCH Continuity 

Assessment Record and Evaluation (CARE) Data Set.

The Percent of Residents or Patients with Pressure Ulcers That Are New or 

Worsened (Short Stay) (NQF #0678) measure was adopted for use in the IRF Quality 

Reporting Program (QRP) in the FY 2012 IRF PPS final rule (76 FR 47876 through 

47878) for the FY 2014 payment determination and subsequent years and has been 

successfully submitted by IRFs using the Inpatient Rehabilitation Facility – Patient 

Assessment Instrument (IRF-PAI) since October 2012. It has also been implemented in 

the CMS Nursing Home Quality Initiative, using the Minimum Data Set (MDS) Version 

3.0 since 2011, and is currently publicly reported on CMS’ Nursing Home Compare at: 

http://www.medicare.gov/nursinghomecompare/search.html.

A TEP convened by our measure development contractor in February 2015, 

provided input on the technical specifications of this quality measure, as well as the 

applicability of this measure as a cross-setting measure across post-acute care settings, 

including the LTCH setting, to meet the requirements of the IMPACT Act of 2014. The 

TEP supported the applicability of this measure as a cross-setting measure across 

post-acute care settings and also supported our efforts to standardize items for data 

collection and submission of this measure as well as our efforts to standardize the 

measure for cross-setting development. In addition, the MAP met on February 9, 2015, 

and provided input to CMS on the measure. The MAP supported the use of Percent of 

Residents or Patients with Pressure Ulcers That Are New or Worsened (Short Stay) 

(NQF #0678) measure in the LTCH QRP as a cross-setting quality measure. More 
CMS-1632-P 1137

information about the MAP’s recommendations for this measure is included in The MAP 

Off-Cycle Deliberations 2015: Measures under Consideration to Implement Provisions of 

the IMPACT Act: Final Report which is available at: 

http://www.qualityforum.org/Setting_Priorities/Partnership/MAP_Final_Reports.aspx.

We are proposing that data collection for this measure continue to occur through 

the LTCH CARE Data Set submitted through the CMS Quality Improvement and 

Evaluation System (QIES) Assessment Submission and Processing (ASAP) system. 

LTCHs have been submitting data on the Percent of Residents or Patients with Pressure 

Ulcers That Are New or Worsened (Short Stay) (NQF #0678) measure through the 

LTCH CARE Data Set since October 2012. By building on the existing reporting and 

submission infrastructure for LTCHs, we intend to minimize the administrative burden 

related to data collection and submission for this measure under the LTCH QRP. For 

more information on LTCH QRP reporting using the QIES ASAP system, we refer 

readers to our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-PatientAssessment-Instruments/LTCH-Quality-Reporting/LTCHTechnicalInformation.html.

We are proposing that data collected using standardized items through the LTCH 

CARE Data Set would continue to be used to calculate this quality measure. LTCH 

CARE Data Set items used to identify new or worsened pressure ulcers consist of: 

M0800A (Worsening in Pressure Ulcer Status Since Prior Assessment, Stage 2); M0800B 

(Worsening in Pressure Ulcer Status Since Prior Assessment, Stage 3); and M0800C 

(Worsening in Pressure Ulcer Status Since Prior Assessment, Stage 4). In addition, we 

are proposing to continue to use items from the LTCH CARE Data Set to risk-adjust this 
CMS-1632-P 1138

quality measure. These items consist of: GG0160C206 (Functional Mobility; Lying to 

Sitting on Side of Bed), H0400 (Bowel Continence); I0900 (Peripheral Vascular Disease 

(PVD) or Peripheral Arterial Disease (PAD); I2900 (Diabetes Mellitus), K0200A 

(Height); and K0200B (Weight). More information about the LTCH CARE Data Set 

items is available in the LTCH QRP Manual available at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/index.html.

The specifications and data elements for the Percent of Residents or Patients with 

Pressure Ulcers That Are New or Worsened (Short Stay) (NQF #0678) measure for 

LTCHs are available in the LTCH QRP Manual at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/index.html.

We are inviting public comment on our proposal to adopt the Percent of Residents 

or Patients with Pressure Ulcers That Are New or Worsened (Short Stay) (NQF #0678) 

measure for the FY 2018 payment determination and subsequent years to fulfill the 

requirements of the IMPACT Act of 2014.

c. Proposal to Address the IMPACT Act of 2014: Quality Measure Addressing the 

Domain of Incidence of Major Falls: Application of Percent of Residents Experiencing One 

or More Falls with Major Injury (Long Stay) (NQF #0674)

Section 1899B of the Act directs the Secretary to specify quality measures on 

which PAC providers are required under the applicable reporting provisions to submit 

 

206 For the April 1, 2016 release of LTCH CARE Data Set, this item will be renumbered to GG0170C.
CMS-1632-P 1139

standardized patient assessment data and other necessary data specified by the Secretary 

with respect to five quality domains, one of which is the incidence of major falls. The 

specified application date by which the Secretary must specify quality measures to 

address this domain for IRFs, SNFs, and LTCHs is October 1, 2016, and for HHAs is 

January 1, 2019. To satisfy these requirements, we are proposing to adopt an application 

of the Percent of Residents Experiencing One or More Falls with Major Injury (Long 

Stay) (NQF #0674) measure in the LTCH QRP as a cross-setting quality measure that

addresses the domain of incidence of major falls. The purpose of our proposal is to 

establish this measure’s use as a cross-setting measure that satisfies the required adoption 

of such a measure under the domain of falls with major injury. There is no difference 

between this measure and the measure we previously adopted, beyond the proposed 

intent to use the measure to satisfy the requirements of the IMPACT Act of 2014. Data 

collection would start on April 1, 2016. The reporting of data for this measure would 

affect the payment determination for FY 2018 and subsequent years.

For the LTCH setting, this measure would report the percentage of patients who 

experienced one or more falls with major injury during the LTCH stay. This measure 

was developed by CMS and is NQF-endorsed, currently for long-stay residents of nursing 

facilities. It was adopted for the LTCH QRP in the FY 2014 IPPS/LTCH PPS final rule 

(78 FR 50874 through 50877). In the FY 2015 IPPS/LTCH PPS final rule, we adopted a 

revised start for data collection of April 1, 2016 and affecting FY 2018 payment 

determination and we adopted data collection and submission timelines for the FY 2018 

payment determination and subsequent years. For information on the detailed rationale 
CMS-1632-P 1140

for relevance, evidence, appropriateness, importance, and applicability of this quality 

measure in the LTCH QRP, we refer readers to these final rules.

Measure specifications are available on the NQF Web site at: 

http://www.qualityforum/QPS/0674.

The IMPACT Act of 2014 requires the implementation of quality measures and 

resource use and other measures that are standardized and interoperable across PAC 

settings as well as the reporting of standardized patient assessment data and other 

necessary data specified by the Secretary. The Percent of Residents Experiencing One or 

More Falls with Major Injury (Long Stay) (NQF #0674) measure is NQF-endorsed for 

long-stay residents of nursing facilities and has been successfully implemented in such 

settings. The NQF-endorsed measure has been in use as part of the CMS Nursing Home 

Quality Initiative since 2011. In addition, the measure is currently reported on the CMS 

Nursing Home Compare Web site at: 

http://www.medicare.gov/nursinghomecompare/search.html. As noted previously, this 

measure was adopted for use in the LTCH QRP in the FY 2014 IPPS/LTCH PPS final 

rule (78 FR 50874 through 50877). In the FY 2015 IPPS/LTCH PPS final rule 

(79 FR 50290 through 50291), we revised the data collection start date for this measure 

with data collection to begin starting April 1, 2016, and we adopted data collection and 

submission timelines for the FY 2018 payment determination and subsequent years.

We reviewed the NQF’s consensus endorsed measures and did not identify any 

NQF-endorsed cross-setting quality measures focused on falls with major injury 

applicable to multiple post-acute care settings. We are unaware of any other cross-setting 
CMS-1632-P 1141

quality measures for falls with major injury that have been endorsed or adopted by 

another consensus organization. Therefore, we are proposing an application of the 

measure, the Percent of Residents Experiencing One or More Falls with Major Injury 

(Long Stay) (NQF #0674) measure under the Secretary’s authority to select 

non-NQF-endorsed measure.

A TEP convened by our measure development contractor provided input on the 

measure specifications, as well as the feasibility and clinical appropriateness of 

implementing the measure across post-acute care settings, including the LTCH setting. 

The TEP supported the implementation of this measure across post-acute care settings 

and also supported CMS’ efforts to standardize this measure for cross-setting 

development. In addition, the MAP met on February 9, 2015, and provided input to CMS 

on the measure. The MAP conditionally supported the use of an application of the 

Percent of Residents Experiencing One or More Falls with Major Injury (Long Stay) 

(NQF #0674) measure in the LTCH QRP as a cross-setting quality measure. More 

information about the MAP’s recommendations for this measure is included in The MAP 

Off-Cycle Deliberations 2015: Measures under Consideration to Implement Provisions of 

the IMPACT Act: Final Report which is available at: 

http://www.qualityforum.org/Setting_Priorities/Partnership/MAP_Final_Reports.aspx.

More information on the Percent of Residents Experiencing One or More Falls 

with Major Injury (Long Stay) (NQF #0674) measure can be found on the NQF Web site 

at: http://www.qualityforum.org/QPS/0674. Updated specifications and details 

regarding the changes made to further harmonize this measure across post-acute care 
CMS-1632-P 1142

settings are located at: http://www.cms.gov/Medicare/Quality-Initiatives-PatientAssessment-Instruments/LTCH-Quality-Reporting/index.html.

We are proposing that data for this proposed quality measure be collected using 

the LTCH CARE Data Set, with submission through the QIES ASAP system. For more 

information on LTCH QRP reporting through the QIES ASAP system, we refer readers 

to the CMS Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-PatientAssessment-Instruments/LTCH-Quality-Reporting/LTCHTechnicalInformation.html. 

Data collected through a revised LTCH CARE Data Set would be used to calculate this 

quality measure. Consistent with the LTCH CARE Data Set reporting requirements, the 

application of the Percent of Residents Experiencing One or More Falls with Major 

Injury (Long Stay) (NQF #0674) measure would apply to all patients discharged from 

LTCHs. Data items in the revised LTCH CARE Data Set Version 3.00 would include: 

J1800, Any Falls Since Admission; and J1900, Number of Falls Since Admission.

The calculation of the proposed application of the measure would be based on 

item J1900C, Number of Falls with Major Injury Since Admission. The measure 

specifications for the Percent of Residents Experiencing One or More Falls with Major 

Injury (Long Stay) (NQF #0674) measure are available at:

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/index.html. We refer readers to 

section VIII.C.9.b. of the preamble of this proposed rule for more information on the data 

collection and submission timeline for this proposed quality measure.
CMS-1632-P 1143

We are inviting public comment on our proposal to adopt an application of the 

Percent of Residents Experiencing One or More Falls with Major Injury (Long Stay) 

(NQF #0674) measure, with data collection beginning on April 1, 2016 for the FY 2018 

payment determination and subsequent years to fulfill the requirements in the IMPACT 

Act of 2014.

d. Proposal to Address the IMPACT Act of 2014: Quality Measure Addressing the 

Domain of Functional Status, Cognitive Function, and Changes in Function and 

Cognitive Function: Application of Percent of LTCH Patients With an Admission and 

Discharge Functional Assessment and a Care Plan That Addresses Function (NQF #2631; 

under NQF review)

Section 1899B(c)(1) of the Act directs the Secretary to specify quality measures 

on which PAC providers are required under the applicable reporting provisions to submit 

standardized patient assessment data and other necessary data specified by the Secretary 

with respect to five quality domains, one of which is functional status, cognitive function, 

and changes in function and cognitive function. The specified application date by which 

the Secretary must specify quality measures to address this domain for IRFs and SNFs is 

October 1, 2016, for LTCHs is October 1, 2018, and for HHAs is January 1, 2019. To 

satisfy these requirements, we are proposing to adopt an application of the Percent of 

LTCH Patients with an Admission and Discharge Functional Assessment and a Care Plan 

that Addresses Function (NQF #2631; under NQF review) measure that we have already 

adopted in the LTCH QRP as a cross-setting quality measure that addresses the domain 

of functional status, cognitive function, and changes in function and cognitive function. 
CMS-1632-P 1144

The reporting of data for this measure would affect the payment determination for 

FY 2018 and subsequent years. This quality measure reports the percent of patients with 

both an admission and a discharge functional assessment and a goal that addresses 

function.

The National Committee on Vital and Health Statistics, Subcommittee on 

Health,207 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.” This statement is supported by 

research showing that patient functioning is associated with important patient outcomes 

such as discharge destination and length of stay in inpatient settings,208 as well as the risk 

of nursing home placement and hospitalization of older adults living in the community.

209

 

Functioning is important to patients and their family members.210, 211, 212

 

207 Subcommittee on Health National Committee on Vital Statistics, “Classifying and Reporting Functional 

Status” (2001).

208 Reistetter TA, Graham JE, Granger CV, Deutsch A, Ottenbacher KJ.: Utility of Functional Status for 

Classifying Community Versus Institutional Discharges after Inpatient Rehabilitation for Stroke. Archives 

of Physical Medicine and Rehabilitation, 2010; 91:345-350.

209 Miller EA, Weissert WG.: Predicting Elderly People’s Risk for Nursing Home Placement, 

Hospitalization, Functional Impairment, and Mortality: A Synthesis. Medical Care Research and Review, 

57; 3: 259-297.

210 Kurz, A. E., Saint-Louis, N., Burke, J. P., & Stineman, M. G.: Exploring the personal reality of 

disability and recovery: a tool for empowering the rehabilitation process. Qual Health Res, 18(1), 90-105 

(2008).

211 Kramer, A. M. (1997). Rehabilitation care and outcomes from the patient's perspective. Med 

Care, 35(6 Suppl), JS48-57.

212 Stineman, M. G., Rist, P. M., Kurichi, J. E., & Maislin, G.: Disability meanings according to 

patients and clinicians: imagined recovery choice pathways. Quality of Life Research, 18(3), 389-

398 (2009).
CMS-1632-P 1145

The majority of patients who receive post-acute care services, such as care 

provided by SNFs, HHAs, IRFs and LTCHs, have functional limitations, and many of 

these patients are at risk for further decline in function due to limited mobility and 

ambulation.213 The patient and resident populations treated by SNFs, HHAs, IRFs and 

LTCHs vary in terms of their functional abilities at the time of the post-acute care 

admission and their goals of care. For IRF patients and many SNF residents, treatment 

goals may include fostering the patient’s ability to manage his or her daily activities so 

that the patient can complete self-care and/or mobility activities as independently as 

possible, and, if feasible, return to a safe, active, and productive life in a communitybased setting. For HHA patients, achieving independence within the home environment 

and promoting community mobility may be the goal of care. For other HHA patients, the 

goal of care may be to slow the rate of functional decline in order to allow the person to 

remain at home and avoid institutionalization.214

Lastly, in addition to having complex medical care needs for an extended period 

of time, LTCH patients often have limitations in functioning because of the nature of 

their conditions, as well as deconditioning due to prolonged bed rest and treatment 

requirements (for example, ventilator use). The clinical practice guideline Assessment of 

Physical Function215 recommends that clinicians should document functional status at 

 

213 Kortebein P, Ferrando A, Lombebeida J, Wolfe R, Evans WJ.: Effect of 10 days of bed rest on skeletal 

muscle in health adults. JAMA; 297(16):1772-4.

214 Ellenbecker CH, Samia L, Cushman MJ, Alster K: Patient safety and quality in home health care. 

Patient Safety and Quality: An Evidence-Based Handbook for Nurses. Vol 1.

215 Kresevic DM.: Assessment of physical function. In: Boltz M, Capezuti E, Fulmer T, Zwicker D, 

editor(s). Evidence-based geriatric nursing protocols for best practice. 4th ed. New York (NY): Springer 

Publishing Company; 2012. p. 89-103.
CMS-1632-P 1146

baseline and over time to validate capacity, decline, or progress. Therefore, assessment 

of functional status at admission and discharge and establishing a functional goal for 

discharge as part of the care plan (that is, treatment plan) is an important aspect of patient 

care in all of these post-acute care settings.

Given the variation in patient and resident populations across the post-acute care 

settings, the functional activities that are typically assessed by clinicians for each type of 

post-acute care provider may vary. For example, the activity of rolling left and right in 

bed is an example of a functional activity that may be most relevant for low-functioning 

patients or residents who are chronically critically ill. Managing a full flight of stairs 

may be assessed for higher functioning patients or residents. However, certain functional 

activities, such as eating, oral hygiene, lying down in to sitting on the side of the bed, 

toilet transfers, and walking or wheelchair mobility are important activities for patients in 

each post-acute care setting.

Although functional assessment data are currently collected by SNFs, HHAs, 

IRFs and LTCHs, this data collection has employed different assessment instruments, 

scales, and item definitions. The data collected cover similar topics, but are not 

standardized across PAC settings. Further, the different sets of functional assessment 

items are coupled with different rating scales, making communication about patient 

functioning challenging when patients transition from one type of setting to another. 

Collection of standardized functional assessment data across SNFs, HHAs, IRFs and 

LTCHs, using common data items, would establish a common language for patient 

functioning, which may facilitate communication and care coordination as patients 
CMS-1632-P 1147

transition from one type of provider to another. The collection of standardized functional 

status data may also help improve patient or resident functioning during an episode of 

care by ensuring that basic daily activities are assessed at the start and end of each 

episode of care with the aim of determining whether at least one functional goal has been 

established.

The functional assessment items included in the proposed functional status quality 

measure were originally developed and tested as part of the Post-Acute Care Payment 

Reform Demonstration (PAC-PRD) version of the Continuity Assessment Record and 

Evaluation (CARE) Item Set, which was designed to standardize the assessment of 

patients’ status across acute care and post-acute care settings, including SNFs, HHAs, 

IRFs and LTCHs. 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’ or residents’ needs, evaluate patient progress and prepare patients or 

residents 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.”

216

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 

 

216 Barbara 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).
CMS-1632-P 1148

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”

217

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.”

218

The reports are 

available on our Post-Acute Care Quality Initiatives Web page at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/PostAcute-Care-Quality-Initiatives/CARE-Item-Set-and-B-CARE.html.

The cross-setting function quality measure we are proposing to adopt for the 

FY 2018 payment determination and subsequent years to meet the IMPACT Act of 2014 

requirements is a process measure that is an application of the Percent of LTCH Patients 

with an Admission and Discharge Functional Assessment and a Care Plan That 

Addresses Function measure (NQF #2631; under NQF review). This quality measure 

was developed by the CMS. It reports the percent of patients with both an admission and 

a discharge functional assessment and a treatment goal that addresses function. The 

treatment goal provides documentation that a care plan with a goal has been established 

for the patient.

We are proposing to use the data that will be collected and submitted using the 

LTCH CARE Data Set Version 3.00 for the Percent of LTCH Patients with an Admission 

 

217 Ibid.

218 Ibid.
CMS-1632-P 1149

and Discharge Functional Assessment and a Care Plan That Addresses Function measure 

(NQF #2631; under NQF review) measure starting April 1, 2016 in order to calculate this 

cross-setting application of the Percent of LTCH Patients with an Admission and 

Discharge Functional Assessment and a Care Plan That Addresses Function measure 

(NQF #2631; under NQF review) quality measure. The items in the cross-setting 

application of the Percent of LTCH Patients with an Admission and Discharge Functional 

Assessment and a Care Plan That Addresses Function measure (NQF #2631; under NQF 

review) are a subset of the items included in the Percent of LTCH Patients with an 

Admission and Discharge Functional Assessment and a Care Plan That Addresses 

Function measure (NQF #2631; under NQF review), which was finalized in the FY 2015 

IPPS/LTCH PPS final rule (79 FR 50291 through 50298). Therefore, the adoption of this 

quality measure to satisfy the requirements of the IMPACT Act of 2014 would not result 

in the addition of new items to the LTCH CARE Data Set Version 3.00 and, therefore, 

would not result in additional burden for data collection and data submission to LTCHs.

This process measure requires the collection of functional status admission and 

discharge assessment data using standardized clinical assessment items, or data elements, 

that assess specific functional activities, that is, self-care, mobility activities. The 

self-care and mobility function activities on the LTCH CARE Data Set Version 3.00 are 

coded using a 6-level rating scale that indicates the patient’s level of independence with 

the activity; higher scores indicate more independence. For this quality measure, 

documentation of a goal for one of the function items reflects that the patient’s care plan 
CMS-1632-P 1150

addresses function. The function goal is recorded at admission for at least one of the 

standardized self-care or mobility function items using the 6-level rating scale.

To the extent that a patient had an incomplete stay (for example, for the purpose 

of being admitted to an acute care facility), collection of discharge functional status data 

might not be feasible. Therefore, for patients with incomplete stays, admission functional 

status data and at least one treatment goal would be required; however, discharge 

functional status data would not be required to be reported.

A TEP convened by our measure development contractor provided input on the 

technical specifications of this quality measure, as well as the feasibility of implementing 

the measure across post-acute care settings, including the LTCH setting. The TEP 

supported the implementation of this measure across post-acute care settings and also 

supported our efforts to standardize this measure for cross-setting use.

In addition, the MAP met on February 9, 2015, and provided input to CMS on the 

measure. The MAP conditionally supported the use of an application of the Percent of

LTCH Patients With an Admission and Discharge Functional Assessment and a Care 

Plan That Addresses Function measure (NQF #2631; under NQF review) for use in the 

LTCH QRP as the cross-setting measure. The conditions stated by the MAP included 

that the measure should be endorsed by the NQF. Finally, the MAP reiterated its support 

for adding measures addressing function, noting the group’s special interest in this 

PAC/LTC core concept. More information about the MAP’s recommendations for this 

measure is discussed in The MAP Off-Cycle Deliberations 2015: Measures under 

Consideration to Implement Provisions of the IMPACT Act: Final Report which is 
CMS-1632-P 1151

available at: 

http://www.qualityforum.org/Setting_Priorities/Partnership/MAP_Final_Reports.aspx.

The measure we are proposing is an application of the Percent of Long-Term Care 

Hospital Patients With an Admission and Discharge Functional Assessment and a Care 

Plan that Addresses Function (NQF #2631), which is under NQF review for 

consideration of endorsement. The proposed measure is derived from the Percent of 

Long-Term Care Hospital Patients With an Admission and Discharge Functional 

Assessment and a Care Plan that Addresses Function quality measure. The specifications 

are available for review at the LTCH QRP Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-MeasuresInformation.html.

We reviewed the NQF's consensus endorsed measures and were unable to identify 

any NQF-endorsed cross-setting quality measures focused on assessment of function for 

post-acute care patients. We are also unaware of any other cross-setting quality measures 

for functional assessment that have been endorsed or adopted by another consensus 

organization. Therefore, we are proposing to adopt this functional assessment measure 

for use in the LTCH QRP for the FY 2018 payment determination and subsequent years 

under the Secretary’s authority to select non-NQF-endorsed measures.

As discussed previously, we are proposing that this cross-setting quality measure 

use a subset of data collected for Percent of LTCH Patients with an Admission and 

Discharge Functional Assessment and a Care Plan That Addresses Function (NQF #2631; 
CMS-1632-P 1152

under NQF review) using the LTCH CARE Data Set, with submission through the QIES 

ASAP system. For more information on LTCH QRP reporting through the QIES ASAP 

system, we refer readers to the CMS Web site at: http://www.cms.gov/Medicare/QualityInitiatives-Patient-Assessment-Instruments/LTCH-QualityReporting/LTCHTechnicalInformation.html.

The measure calculation algorithm is:

Step 1. For each LTCH stay, the records of patients discharged during the 

12-month target time period are identified and counted. This count is the denominator.

Step 2. The records of patients with complete stays are identified, and the number 

of these patient stays with complete admission functional assessment data and at least one 

self-care or mobility activity goal and complete discharge functional assessment data is 

counted.

Step 3. The records of patients with incomplete stays are identified, and the 

number of these patient records with complete admission functional status data and at 

least one self-care or mobility goal is counted.

Step 4. The counts from Step 2 (complete LTCH stays) and Step 3 (incomplete 

LTCH stays) are summed. The sum is the numerator count.

Step 5. The numerator count is divided by the denominator count to calculate this 

quality measure.

This measure is calculated at two points in time, at admission and discharge (we 

refer readers to section VIII.C.9.b. of the preamble of this proposed rule, Form, Manner 
CMS-1632-P 1153

and Timing of Quality data Submission, for more information on the proposed data 

collection and submission timeline for this proposed quality measure).

The items would assess specific self-care and mobility activities, and would be 

based on functional items included in the Post-Acute Care Payment Reform 

Demonstration version of the CARE Item Set. The items have been developed and tested 

for reliability and validity in SNFs, HHAs, IRFs, and LTCHs. More information 

pertaining to item testing is available on our Post-Acute Care Quality Initiatives Web 

page at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/Post-Acute-Care-Quality-Initiatives/CARE-Item-Set-and-B-CARE.html.

We are inviting public comments on our proposal to adopt the application of the 

Percent of LTCH Patients with an Admission and Discharge Functional Assessment and 

a Care Plan That Addresses Function measure (NQF #2631; under NQF review) that we 

have already adopted in the LTCH QRP as a cross-setting quality measure that addresses 

the domain of functional status, cognitive function, and changes in function and cognitive 

function to satisfy the requirement of the IMPACT Act of 2014, with data collection 

starting on April 1, 2016 for the FY 2018 payment determination and subsequent years. 

Further, we are inviting public comments on our proposal to use a subset of data collected 

for the Percent of LTCH Patients with an Admission and Discharge Functional 

Assessment and a Care Plan That Addresses Function measure (NQF #2631; under NQF 

review) to meet the requirements for this cross-setting quality measure that addresses the 

domain of functional status, cognitive function, and changes in function and cognitive 

function to satisfy the requirement of the IMPACT Act of 2014.
CMS-1632-P 1154

Lastly, in alignment with the requirements of the IMPACT Act of 2014 to develop 

quality measures and standardize data for comparative purposes, we believe that 

evaluating outcomes across the post-acute settings using standardized data is an 

important priority. Therefore, in addition to proposing a process-based measure for the 

domain in the IMPACT Act of 2014 of “Functional status, cognitive function, and 

changes in function and cognitive function,” which is included in this year's proposed 

rule, we also intend to develop outcomes-based quality measures, including functional 

status and other quality outcome measures to further satisfy this domain. These measures 

will be proposed in future rulemaking in order to assess functional change for each care 

setting as well as across care settings.

7. LTCH QRP Quality Measures for the FY 2019 Payment Determination and 

Subsequent Years

At this time, we are not proposing any additional LTCH QRP quality measures 

for the FY 2019 payment determination and subsequent years. Under our policy 

discussed in section VIII.C.3. of the preamble of this proposed rule, we will retain all 

previously adopted quality measures and, if finalized, the additional measures proposed 

in this rule for the FY 2019 payment determination and subsequent years.

8. LTCH QRP Quality Measures and Concepts under Consideration for Future Years

We are inviting public comments on importance, relevance, appropriateness, and 

applicability of each of the quality measures and quality measure concepts listed in the 

table below for future years in the LTCH QRP. Specifically, we are inviting public 

comments regarding the clinical importance to the LTCH patient population and the 
CMS-1632-P 1155

feasibility of data collection and implementation in the LTCH setting for these measures 

and measure concepts in order to inform and improve quality of care delivered to LTCH 

patients.
CMS-1632-P 1156

Future Measures and Measure Concepts under Consideration for the

LTCH QRP

National Quality Strategy (NQS) Priority: Patient Safety 

Ventilator Weaning (Liberation) Rate 

Compliance with ventilator process Elements during LTCH Stay

Venous Thromboembolism Prophylaxis 

Medication Reconciliation*

NQS Priority: Effective Communication and Coordination of Care

Transfer of health information and care preferences when an individual transitions*

All-Condition Risk-Adjusted Potentially Preventable Hospital Readmission Rate*

NQS Priority: Patient- and Caregiver-Centered Care

Discharge to community* 

Patient Experience of Care

Percent of Patients with Moderate to Severe Pain 

Advance Care Plan

NQS Priority: Affordable Care

Medicare Spending per Beneficiary*

* Indicates that this is a cross-setting measure domain listed in the IMPACT Act of 2014.

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. In addition, section 1886(m)(5)(F) of the Act 

requires that, for the fiscal year beginning on the specified application date, as defined in 

section 1899B of the Act, and each subsequent year, each LTCH submit to the Secretary 

data on measures specified by the Secretary under section 1899B of the Act. The data 

required under section 1886(m)(5)(C) and (F) of the Act must be submitted in a form and 
CMS-1632-P 1157

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 LTCH during the rate 

year must be reduced by 2 percentage points.

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 period 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.

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50307 through 50311), we:

● Revised the previously adopted data collection period 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 for the 

FY 2016 payment determination and subsequent years;

● Adopted data submission mechanisms for the FY 2018 payment determination 

and subsequent years for new LTCH QRP quality measures and for revisions to 

previously adopted quality measures;
CMS-1632-P 1158

● Adopted data collection periods and submission deadlines for certain measures 

under the LTCH QRP for the FY 2018 payment determination;

● Revised data collection timelines and submission deadlines for 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; and

● Adopted data collection timelines and submission deadlines under the LTCH 

QRP for the FY 2019 payment determination and subsequent years.

b. Proposed Timing for New LTCHs to Begin Reporting Data to CMS for the FY 2017 

Payment Determination and Subsequent Years

Beginning with the FY 2017 payment determination, we are proposing that a new 

LTCH be required to begin reporting quality data under the LTCH QRP by no later than 

the first day of the calendar quarter subsequent to 30 days after the date on its CMS 

Certification Number (CCN) notification letter. For example, if an LTCH’s CCN 

notification letter is dated March 15, then the LTCH would be required to begin reporting 

quality data to CMS beginning on July 1 (March 15 + 30 days = April 14 (quarter 2)). 

The LTCH would be required to begin collecting quality data on the first day of the 

quarter subsequent to quarter 2, which is quarter 3, or July 1. The collection of quality 

data would begin on the first day of the calendar year quarter identified as the start date, 

and would include all LTCH admissions and subsequent discharges beginning on, and 

subsequent to, that day; however, submission of quality data would be required by 

previously finalized or newly proposed quarterly deadlines. In order to determine which 
CMS-1632-P 1159

quality measure data an LTCH would need to begin submitting, we refer readers to 

section VIII.C.9.c. of the preamble of this proposed rule, below, as it will vary depending 

upon the timing of the CY quarter identified as a start date. We also are proposing to 

codify this requirement for the timing of new LTCHs to begin reporting for purposes of 

the LTCH QRP at new proposed § 412.560(a). We are inviting public comment on our 

proposals to add and codify this requirement for the timing of new LTCHs to begin 

reporting for purposes of the LTCH QRP.

c. Proposed Revisions to Previously Adopted Data Submission Timelines Under the 

LTCH QRP for the FY 2017 and FY 2018 Payment Determinations and Subsequent 

Years and Proposed Data Collection and Data Submission Timelines for Quality 

Measures Proposed in this Proposed Rule

In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53636 through 53637), we 

finalized new quarterly quality data submission deadlines for LTCHs. We contracted the 

deadlines from the original 4.5-month post-CY quarter submission deadlines, to 

1.5 month (approximately 45 days) deadlines. In order to align the data submission and 

correction deadlines with the IRF QRP and Hospital IQR Program as we near public 

reporting, and to meet the requirements of the IMPACT Act of 2014, we are proposing to 

revise the data submission and correction deadlines for quality measures previously 

adopted for the LTCH QRP for the FY 2017 and FY 2018 payment determinations and 

subsequent years.

We are proposing to adopt new deadlines that allow 4.5 months (approximately 

135 days) after the end of each calendar year quarter for quality data submission, 
CMS-1632-P 1160

beginning with quarter 4 2015 (October 2015 through December 2015). Under this new 

policy, LTCHs will have approximately 135 days following the end of each calendar year 

quarter, during which to submit, review, and correct their quality data for that CY quarter. 

We also are proposing data collection and data submission timelines for quality measures 

that we are proposing for the FY 2018 payment determination and subsequent years. 

Further, for the measures proposed in this proposed rule—Percent of Residents or 

Patients with Pressure Ulcers That Are New or Worsened (Short Stay) (NQF #0678), the 

application of Percent of Residents Experiencing One or More Falls with Major Injury 

(Long Stay) (NQF #0674), and the application of Percent of LTCH Patients with an 

Admission and Discharge Functional Assessment and a Care Plan That Addresses 

Function (NQF #2631)—we are proposing that the data collection and data submission 

timelines align with the proposed data collection and data submission timelines for each 

respective measure starting with April 1, 2016. Because the All-Cause Unplanned 

Readmission Measure for 30 Days Post Discharge from LTCHs (NQF #2512) is a 

Medicare FFS claims-based measure, the data collection and submission timelines are not 

applicable to this measure.

The tables below present the data collection period and data submission timelines 

for quality measures affecting the FY 2017 payment determination, as well as the 

revisions to the data collection period and data submission timelines for quality measures 

for the FY 2018 payment determination and subsequent years.
CMS-1632-P 1161

Details on Data Collection Period and Data Submission Timeline for Quality Measures Affecting the FY 2017 Payment 

Determination

Quality Measure NQF 

ID#

Submission 

Method

Data 

Collection 

Period

Proposed Data 

Submission 

Deadlines

APU 

Determination 

Affected

Percent of Residents or Patients with 

Pressure Ulcers That Are New or Worsened 

(Short Stay)

#0678

LTCH CARE 

Data Set/QIES 

ASAP 

1/1/15-

3/31/15

4/1/15-

6/30/15

7/1/15-

9/30/15

10/01/15-

12/31/15

5/15/15 (Q1)

8/15/15 (Q2)

11/15/15 (Q3)

Proposed 5/15/16 

(Q4)

FY 2017

NHSN Catheter-Associated Urinary Tract 

Infection (CAUTI) Outcome Measure 

#0138

CDC NHSN

NHSN Central-Line Associated 

Bloodstream Infections (CLABSI) Outcome 

Measure

#0139

NHSN Facility-wide Inpatient Hospitalonset Methicillin-resistant Staphylococcus 

aureus (MRSA) Bacteremia Outcome 

Measure 

#1716

NHSN Facility-wide Inpatient Hospitalonset Clostridium difficile Infection (CDI) 

Outcome Measure 

#1717
CMS-1632-P 1162

Details on Data Collection Period and Data Submission Timeline for Quality Measures Affecting the FY 2017 Payment 

Determination

Quality Measure NQF 

ID#

Submission 

Method

Data 

Collection 

Period

Proposed Data 

Submission 

Deadlines

APU 

Determination 

Affected

All-Cause Unplanned Readmission Measure 

for 30 Days Post Discharge from Long Term 

Care Hospitals*

#2512 Medicare FFS 

Claims Data N/A N/A For future public reporting

* This measure will not be used in determining compliance for the LTCH QRP because it is a claims-based measure and LTCHs do not report additional data to 

CMS.
CMS-1632-P 1163

Details on Data Collection and Submission Timeline for Quality Measures Affecting the FY 2018 Payment Determination and 

Subsequent Years

Quality Measure NQF ID# Submission 

Method

Data Collection 

Period

Proposed Data 

Submission 

Deadlines

APU 

Determination 

Affected

Percent of Residents or Patients 

with Pressure Ulcers That Are New 

or Worsened (Short Stay)

#0678 LTCH CARE Data 

Set/QIES ASAP 

1/1/16-3/31/16

4/1/16-6/30/16

7/1/16-9/30/16

10/01/16-12/31/16

Quarterly for each 

subsequent calendar 

year

8/15/16 (Q1)

11/15/16 (Q2)

2/15/17 (Q3)

5/15/17 (Q4)

Approximately 

135 days after 

the end of each 

quarter 

FY 2018

Subsequent Years

NHSN Catheter-Associated Urinary 

Tract Infection (CAUTI) Outcome 

Measure 

#0138

CDC NHSN

NHSN Central-Line Associated 

Bloodstream Infections (CLABSI) 

Outcome Measure

#0139

NHSN Facility-wide Inpatient 

Hospital-onset Methicillin-resistant 

Staphylococcus aureus (MRSA) 

Bacteremia Outcome Measure 

#1716

NHSN Facility-wide Inpatient 

Hospital-onset Clostridium difficile

Infection (CDI) Outcome Measure 

#1717
CMS-1632-P 1164

Details on Data Collection and Submission Timeline for Quality Measures Affecting the FY 2018 Payment Determination and 

Subsequent Years

Quality Measure NQF ID# Submission 

Method

Data Collection 

Period

Proposed Data 

Submission 

Deadlines

APU 

Determination 

Affected

Percent of Residents or Patients 

Who Were Assessed and 

Appropriately Given the Seasonal 

Influenza Vaccine

#0680 LTCH CARE Data 

Set/QIES ASAP

10/1/15-12/31/15

1/1/16-3/31/16

10/1-12/31

1/1-3/31 for 

subsequent years

5/15/16

8/15/16

5/15

8/15 for 

subsequent years

FY 2018

Subsequent Years

Influenza Vaccination Coverage 

among Healthcare Personnel #0431 CDC NHSN

10/1/15 (or when 

vaccine becomes 

available)-3/31/16

10/1 (or when 

vaccine becomes 

available)-3/31

8/15/16

8/15 for 

subsequent years

FY 2018

Subsequent Years

All-Cause Unplanned Readmission 

Measure for 30 Days Post Discharge 

from Long Term Care Hospitals*

#2512 Medicare FFS 

Claims Data N/A N/A For future public reporting

Application of Percent of Residents 

Experiencing One or More Falls 

with Major Injury (Long Stay)

#0674

LTCH CARE Data 

Set/QIES ASAP

4/1/16-6/30/16

7/1/16-9/30/16

10/1/16-12/31/16

FY 2018
CMS-1632-P 1165

Details on Data Collection and Submission Timeline for Quality Measures Affecting the FY 2018 Payment Determination and 

Subsequent Years

Quality Measure NQF ID# Submission 

Method

Data Collection 

Period

Proposed Data 

Submission 

Deadlines

APU 

Determination 

Affected

Percent of Long-Term Care 

Hospital Patients with an Admission 

and Discharge Functional 

Assessment and a Care Plan That 

Addresses Function 

#2631 

(Under 

NQF 

review)

Quarterly for each 

subsequent calendar 

year

11/15/16 (Q2)

2/15/17 (Q3)

5/15/17 (Q4)

Quarterly

approximately 

135 days after 

the end of each 

quarter for 

subsequent years

Subsequent Years

Change in Mobility Among LongTerm Care Hospital Patients 

Requiring Ventilator Support 

#2632 

(Under 

NQF 

review)
CMS-1632-P 1166

Details on Data Collection and Submission Timeline for Quality Measures Affecting the FY 2018 Payment Determination and 

Subsequent Years

Quality Measure NQF ID# Submission 

Method

Data Collection 

Period

Proposed Data 

Submission 

Deadlines

APU 

Determination 

Affected

Ventilator Associated Event N/A CDC NHSN

1/1/16-3/31/16

4/1/16-6/30/16

7/1/16-9/30/16

10/1/16-12/31/16

Quarterly for each 

subsequent calendar 

year

8/15/16 (Q1)

11/15/16 (Q2)

2/15/17 (Q3)

5/15/17 (Q4)

Quarterly

approximately 

135 days after 

the end of each 

quarter for each 

subsequent year

FY 2018

Subsequent Years
CMS-1632-P 1167

Details on Data Collection and Submission Timeline for Quality Measures Affecting the FY 2018 Payment Determination and 

Subsequent Years

Quality Measure NQF ID# Submission 

Method

Data Collection 

Period

Proposed Data 

Submission 

Deadlines

APU 

Determination 

Affected

Application of Percent of LongTerm Care Hospital Patients with an

Admission and Discharge 

Functional Assessment and a Care 

Plan That Addresses Function

#2631 

(Under 

NQF 

review)

LTCH CARE Data 

Set/QIES ASAP

4/1/16-6/30/16

7/1/16-9/30/16

10/1/16-12/31/16

Quarterly for each 

subsequent calendar 

year

11/15/16 (Q2)

2/15/17 (Q3)

5/15/17 (Q4)

Quarterly

approximately 

135 days after 

the end of each 

quarter for 

subsequent years

FY 2018

Subsequent Years

* This measure will not be used in determining compliance for the LTCH QRP because it is a claims-based measure and LTCHs do not report additional data to 

CMS.
CMS-1632-P 1168

We are inviting public comments on our proposals.

10. Previously Adopted LTCH QRP Data Completion Thresholds for the FY 2016 

Payment Determination and Subsequent Years

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50311 through 50314), we 

finalized specific LTCH QRP thresholds for completeness of LTCH data submissions. 

To ensure that LTCHs are meeting an acceptable standard for completeness of submitted 

data, we finalized the policy that, beginning with the FY 2016 payment determination 

and for each subsequent year, LTCHs must meet or exceed two separate data 

completeness thresholds: one threshold set at 80 percent for completion of quality 

measures data collected using the LTCH CARE Data Set and submitted through the 

QIES; and a second threshold set at 100 percent for quality measures data collected and 

submitted using the CDC NHSN.

In addition, we stated that we would apply the same thresholds to all measures 

adopted as the LTCH QRP expands and LTCHs report data on the finalized measure sets. 

That is, as we finalize new measures through the regulatory process, LTCHs will be held 

accountable for meeting the previously finalized data completion threshold requirements 

for each measure until such time that updated threshold requirements are proposed and 

finalized through a subsequent regulatory cycle.

Further, we finalized the requirement that a LTCH must meet or exceed both 

thresholds in order to avoid receiving a 2-percentage point reduction to their annual 

payment update for a given fiscal year, beginning with FY 2016 and for all subsequent 

payment updates. We are not proposing any changes to these policies. We refer readers 
CMS-1632-P 1169

to the FY 2015 IPPS/LTCH PPS final rule (79 FR 50311 through 50314) for a detailed 

discussion of the finalized data completion requirements of the LTCH QRP.

11. Future LTCH QRP Data Validation Process

Historically, we have built consistency and internal validation checks into our 

data submission specifications to ensure that the data elements of the LTCH CARE Data 

Set assessments conform to requirements such as proper format and facility information. 

These internal consistency checks are automated and occur during the LTCH data entry 

and 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/Quality-Initiatives-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 sections 1886(m)(5)(E) and 1899B(g) of the 

Act. In the FY 2015 IPPS/LTCH PPS proposed rule (79 FR 28275 through 28276), we 

proposed, for the FY 2016 payment determination and subsequent years, to validate the 

data elements submitted to CMS for quality purposes. We also proposed policies 

regarding the application of the 2-percentage point reduction for LTCHs that failed to 

meet the data accuracy threshold.
CMS-1632-P 1170

However, in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50314 through 

50316), we decided to further explore suggestions from commenters before finalizing the 

LTCH data validation process that we proposed. Therefore, we did not finalize the data 

validation proposals.

At this time, we are continuing to explore data accuracy validation methods and 

threshold policies that will limit the amount of burden and cost to LTCHs, while allowing 

us to establish estimations of the accuracy of LTCH QRP data. Therefore, in this 

proposed rule, we are not proposing any new policies related to data accuracy validation, 

but we plan to do so in future rulemaking cycles.

12. Proposed Public Display of Quality Measure Data for the LTCH QRP

Section 1886(m)(5)(E) of the Act requires the Secretary to establish procedures 

for making the LTCH QRP data available to the public. In so doing, the Secretary must 

ensure that LTCHs have the opportunity to review any such data with respect to the 

LTCH prior to its release to the public. Section 1899B(g) of the Act requires the 

Secretary to establish procedures for making available to the public information 

regarding the performance of individual PAC providers with respect to the measures 

required under section 1899B of the Act beginning not later than 2 years after the 

applicable specified application date. The procedures must ensure, including through a 

process consistent with the process applied under section 1886(b)(3)(B)(viii)(VII) of the 

Act for similar purposes, that each PAC provider has the opportunity to review and 

submit corrections to the data and information that are to be made public with respect to 

the PAC provider prior to such data being made public. We are proposing to display 
CMS-1632-P 1171

performance data related to the LTCH QRP quality measures, as applicable, required by 

the LTCH QRP by fall 2016 on a CMS Web site, such as the Hospital Compare Web site 

(http://www.hospitalcompare.hhs.gov), after a 30-day preview period. Additional 

information about preview report content and delivery will be announced on the LTCH 

QRP Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/index.html. LTCHs would be notified via CMS 

listservs, CMS mass e-mails and memorandums, LTCH QRP Web site announcements 

and Medicare Learning Network announcements regarding the release of preview reports, 

as well as the timing of the posting of provider data.

The Hospital Compare Web site is an interactive Web tool that assists 

beneficiaries by providing information on hospital quality of care to those who need to 

select a hospital. It further serves to encourage beneficiaries to work with their hospital 

to discuss the quality of care provided to patients, thereby providing an additional 

incentive to hospitals to improve the quality of care that they furnish. As we have done 

on some of the other CMS Compare Web sites, we will, at some point in the future, 

report public data using a quality rating system that gives each LTCH a rating of between 

one and five stars. Initially, however, we will not use the 5-star methodology, until such 

time that we are publicly reporting a sufficient number of quality metrics to allow for 

variation and the differentiation among LTCHs using this methodology. Decisions 

regarding how the rating system will determine an LTCH’s star rating and methods used 

for calculations, as well as a proposed timeline for implementation will be announced via 
CMS-1632-P 1172

regular LTCH communication channels, including listening sessions, memos, email 

notification, provider association calls, open door forums, and Web postings.

The initial display of information would contain performance data on four quality 

measures: (1) NHSN CAUTI Outcome Measure (NQF #0138); (2) NHSN CLABSI 

Outcome Measure (NQF #0139); (3) Percent of Residents or Patients with Pressure 

Ulcers that are New or Worsened (Short-Stay) (NQF #0678); and (4) All-Cause 

Unplanned Readmission Measure for 30 Days Post-Discharge from LTCHs 

(NQF #2512). We are proposing to publicly report data beginning with data collected on 

these measures for the first quarter of 2015, or discharges beginning January 1, 2015, 

with exception of the All-Cause Unplanned Readmission Measure for 30 Days 

Post-Discharge from LTCHs (NQF #2512). Rates would be displayed based on four 

(4) rolling quarters of data and would use discharges from January 1, 2015 through 

December 31, 2015 (CY 2015), for calculation, with exception of the measure All-Cause 

Unplanned Readmission Measure for 30 Days Post-Discharge from LTCHs 

(NQF #2512). With respect to LTCH performance related to the All-Cause Unplanned 

Readmission Measure for 30 Days Post-Discharge from LTCHs (NQF #2512), we are 

proposing to publicly report readmission rates beginning with Medicare FFS claims data 

for patient discharges starting with January 1, 2013. Readmission rates will be calculated 

using Medicare FFS claims data for two consecutive years (for example, readmission 

rates will be calculated using Medicare FFS claims data for January 1, 2013 through 

December 31, 2014 (CY 2013 and CY 2014)) and displayed on a calendar year basis.
CMS-1632-P 1173

Calculations for the CAUTI and CLABSI measures adjust for differences in the 

characteristics of hospitals and patients using a Standardized Infection Ratio (SIR). The 

SIR is a summary measure that takes into account differences in the types of patients that 

a hospital treats. The SIR may take into account the type of patient care location, 

laboratory methods, hospital affiliation with a medical school, bed size of the hospital, 

patient age, and American Society of Anesthesiologists’ classification of physical health. 

It compares the actual number of HAIs in a facility or State to a national benchmark 

based on previous years of reported data and adjusts the data based on several factors. A 

confidence interval with a lower and upper limit is displayed around each SIR to indicate 

that there is a high degree of confidence that the true value of the SIR lies within that 

interval. An SIR with a lower limit that is greater than 1.0 means that there were more 

HAIs in a facility or State than were predicted, and the facility is classified as “Worse 

than the U.S. National Benchmark.” If the SIR has an upper limit that is less than 1, the 

facility had fewer HAIs than were predicted and is classified as “Better than the U.S. 

National Benchmark.” If the confidence interval includes the value of 1, there is no 

statistical difference between the actual number of HAIs and the number predicted, and 

the facility is classified as “No Different than U.S. National Benchmark.” If the number 

of predicted infections is less than 1, the SIR and confidence interval cannot be 

calculated.

Calculations for the Percent of Residents or Patients with Pressure Ulcers That 

Are New or Worsened measure application (NQF #0678) would be risk-adjusted. 

Resident- or patient-level covariate risk adjustment is performed. Resident- or 
CMS-1632-P 1174

patient-level covariates are used in a logistic regression model to calculate a resident- or 

patient-level expected quality measure (QM) score (the probability that the resident or 

patient will evidence the outcome, given the presence or absence of patient characteristics 

measured by the covariates). Then, an average of all resident- or patient-level expected 

QM scores for the facility is calculated to create a facility-level expected QM score. The 

final facility-level adjusted QM score is based on a calculation which combines the 

facility-level expected score and the facility level observed score. Additional information 

about the covariates can be found at: http://www.qualityforum.org/QPS/0678.

Finally, calculation for performance on the measure All-Cause Unplanned 

Readmission Measure for 30 Days Post Discharge from IRFs (NQF #2502) will also be 

risk-adjusted. The risk adjustment methodology is available, along with the 

specifications for this measure, on our LTCH Quality Reporting Measures Information 

Web page at http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-MeasuresInformation.html.

We are currently developing reports that will allow providers to view the data that 

is submitted to CMS via the QIES ASAP system and the CDC’s NHSN (Percent of 

Residents or Patients with Pressure Ulcers That Are New or Worsened (Short Stay) 

(NQF #0678), the NHSN CAUTI Outcome Measure (NQF #0138) and the NHSN 

CLABSI Outcome Measure (NQF #0139), respectively). These reports, although not 

initially, will also include provider performance on any currently reported quality 

measure that is calculated based on CMS claims data that we plan on publicly reporting 
CMS-1632-P 1175

(All-Cause Unplanned Readmission Measure for 30 Days Post-Discharge from LTCHs

(NQF #2512)). Although real time results will not be available, the report will refresh all 

of the data submitted at least once a month.

We are proposing a process to give providers an opportunity to review and correct 

data submitted to the QIES ASAP system or to the CDC’s NHSN system by utilizing that 

report. Under this proposed process, providers would to have the opportunity to review 

and correct data they submit on all assessment-based measures. Providers can begin 

submitting data on the first admission of any reporting quarter. Providers are encouraged 

to submit data early in the submission schedule so that they can identify errors and 

resubmit data before the quarterly submission deadline. The data would be populated 

into reports that are updated at least once a month with all data that have been submitted. 

That report would contain the provider’s performance on each measure calculated based 

on assessment submissions to the QIES ASAP or CDC NHSN system. We believe that 

the submission deadline timeframe, which we have proposed in this proposed rule to 

extend from the current 1.5 month policy to 4.5 months beyond the end of each calendar 

year quarter, is sufficient time for providers to be able to submit, review data, make 

corrections to the data, and view their data. We are proposing that once the provider has 

an opportunity to review and correct quarterly data related to measures submitted via the 

QIES ASAP or CDC NHSN system, we would consider the provider to have been given 

the opportunity to review and correct this data. We would not allow patient-level data 

correction after the submission deadline or for previous years. This is because we must 

set a deadline to ensure timely computation of measure rates and payment adjustment 
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factors. Before we display this information, providers will be permitted 30 days to 

review their information as recorded in the QIES ASAP or CDC NHSN system.

We are inviting public comment on this proposal.

In addition to our proposal to publicly display LTCH performance data on the 

required quality measures under the LTCH QRP, we are also are proposing to publish a 

list of LTCHs that successfully meet the reporting requirements for the applicable 

payment determination on the LTCH QRP Web site at: 

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/. We are proposing updating the list after 

reconsideration requests are processed on an annual basis. We are proposing to codify 

the policy to publish a list of compliant LTCHs on the LTCH QRP Web site at new 

proposed § 412.560(d)(3).

We are inviting comment on our proposal to begin publicly reporting LTCH QRP 

data on quality measures required by the LTCH QRP, beginning in fall 2016.

13. Previously Adopted and Proposed LTCH QRP Reconsideration and Appeals 

Procedures for the FY 2017 Payment Determination and Subsequent Years

At the conclusion of each fiscal year reporting cycle, we review the data received 

from each LTCH to determine if the LTCH met the reporting requirements set forth for 

that reporting cycle. LTCHs that are found to be noncompliant will receive a reduction in 

the amount of 2 percentage points to their annual payment update for the applicable fiscal 

year. In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50317 through 50318), we 

described and adopted an updated process that enables an LTCH to request a 
CMS-1632-P 1177

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 LTCH QRP reporting requirements for a 

given reporting period.

We wish to clarify that any LTCH that wishes to submit a reconsideration request 

must do so by submitting an email to CMS containing all of the requirements listed on 

the LTCH QRP Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-PatientAssessment-Instruments/LTCH-Quality-Reporting/LTCH-Quality-ReportingReconsideration-and-Exception-and-Extension.html. Email sent to 

LTCHQRPReconsiderations@cms.hhs.gov is the only form of submission that will be 

accepted from an LTCH provider requesting reconsideration. Any reconsideration 

requests received through another channel, including the U.S. Postal Service (USPS) or 

telephone, will not be considered as a valid reconsideration request.

We are proposing to continue using the LTCH QRP reconsideration and appeals 

procedures that were adopted in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50317 

through 50318) and that have been posted on the LTCH QRP Web site for the FY 2017 

payment determination and subsequent years, with an exception regarding the way in 

which noncompliant LTCHs are notified of this determination.

Previously, only LTCHs found to be noncompliant with the reporting 

requirements set forth for a given payment determination received a notification of this 

finding along with instructions for requesting reconsideration in the form of a certified 

letter via the USPS. In an effort to communicate as quickly, efficiently, and broadly as 
CMS-1632-P 1178

possible with LTCHs regarding annual compliance, we are proposing changes to our 

communications method regarding annual notification of reporting compliance in the 

LTCH QRP. In addition to sending a letter via regular USPS mail, beginning with the 

FY 2016 payment determination and for subsequent fiscal years, we are proposing the 

QIES as a mechanism to communicate to LTCHs regarding their compliance with the 

reporting requirements for the given reporting cycle.

We note that all LTCHs have been required to use the QIES system in order to 

report on required LTCH QRP measures since October 1, 2012. Therefore, we are 

proposing that all Medicare-certified LTCH compliance letters be uploaded into the QIES 

for each LTCH to access. Instructions to download files from QIES may be found on the 

Web site at: https://www.qtso.com/LTCH.html. We are proposing to disseminate 

communications regarding the availability of compliance reports in LTCHs’ QIES files 

through routine channels to LTCHs and vendors, including, but not limited to, issuing 

memos, emails, Medicare Learning Network announcements, and notices on the LTCH 

QRP Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/.

The purpose of the compliance letter is to notify an LTCH that it has been 

identified as either being compliant or noncompliant with the LTCH QRP reporting

requirements for the given reporting cycle. If the LTCH is determined to be 

noncompliant, the notification would indicate that the LTCH is scheduled to receive a 

2 percentage point reduction to its upcoming annual payment update and that it may file a 

reconsideration request if it disagrees with this finding. LTCHs may request a 
CMS-1632-P 1179

reconsideration of a noncompliance determination through the CMS reconsideration 

request process.

We also are proposing that the notifications of our decision regarding received

reconsideration requests will be made available through the QIES. We are not proposing 

to change the process or requirements for requesting reconsideration, and we refer 

readers to the FY 2015 IPPS/LTCH PPS final rule (79 FR 50317 through 50318) for a 

discussion of the LTCH QRP reconsideration and appeals procedures.

We also are proposing to publish a list of LTCHs that successfully meet the 

reporting requirements for the applicable payment determination on the LTCH QRP Web 

site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/. We are proposing updating the list after 

reconsideration requests are processed on an annual basis.

We are proposing to codify the LTCH QRP reconsideration and appeal 

procedures at new proposed § 412.560(d) and (e).

We are inviting public comment on the proposals to change the communication 

mechanism to the QIES for the dissemination of compliance notifications and 

reconsideration decisions, to publish a list of compliant LTCHs on the LTCH QRP Web 

site, and to codify these processes at new proposed § 412.560(d)(1) and (d)(3).

14. Previously Adopted and Proposed LTCH QRP Submission Exception and Extension 

Requirements for the FY 2017 Payment Determination and Subsequent Years

We refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50883 

through 50885) and the FY 2015 IPPS/LTCH PPS final rule (79 FR 50316 through 
CMS-1632-P 1180

50317) for a detailed discussion of the LTCH QRP Submission Exception and Extension 

requirements. For the FY 2017 payment determination and subsequent years, we are not 

proposing any changes to the LTCH QRP requirements that we adopted in these final 

rules. However, we are proposing to codify the LTCH QRP Submission Exception and 

Extension Requirements at new § 412.560(c) and (d).

We remind readers that, in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50316 

through 50317), we stated that LTCHs must submit request an exception or extension by 

submitting a written request along with all supporting documentation to CMS via email 

to the LTCH mailbox at LTCHQRPReconsiderations@cms.hhs.gov. We further stated 

that exception or extension requests sent to CMS through any other channel would not be 

considered as a valid request for an exception or extension from the LTCH QRP’s 

reporting requirements for any payment determination. In order to be considered, a 

request for an exception or extension must contain all of the requirements as outlined on 

our Web site at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/LTCH-Quality-Reporting-Reconsideration-andDisaster-Waiver-Requests.html.

We are inviting public comments on our proposal to codify the LTCH QRP 

submission exception and extension requirements.
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D. Clinical Quality Measurement for Eligible Hospitals and Critical Access Hospitals 

Participating in the EHR Incentive Programs in 2016

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). Eligible hospitals and 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 FY 2015, for eligible hospitals and CAHs 

that are not meaningful users of CEHRT for certain associated reporting periods. 

Section 1903(a)(3)(F)(i) of the Act establishes 100 percent Federal financial participation 

(FFP) to States for providing incentive payments to eligible Medicaid providers 

(described in section 1903(t)(2) of the Act) to adopt, implement, upgrade and 

meaningfully use CEHRT.

Under sections 1886(n)(3)(A) and 1814(l)(3)(A) of the Act and the definition of 

“meaningful EHR user” under 42 CFR 495.4, eligible hospitals and CAHs must report on 

CQMs selected by CMS using CEHRT, as part of being a meaningful EHR user under 

the Medicare EHR Incentive Program. The set of CQMs from which eligible hospitals 
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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).

Section 1886(n)(3)(B)(iii) of the Act requires that, in selecting measures for eligible 

hospitals and CAHs for the Medicare EHR Incentive Program, and establishing the form 

and manner for reporting measures, 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.

In the EHR Incentive Program Stage 3 proposed rule219 (80 FR 16769), to further 

our alignment goal among CMS quality reporting programs for eligible hospitals and 

CAHs and avoid redundant or duplicative reporting among hospital programs, we stated 

our intent to address CQM reporting requirements for the Medicare and Medicaid EHR 

Incentive Program for eligible hospitals and CAHs for 2016, 2017, and future years in the 

IPPS rulemaking. We further stated our belief that receiving and reviewing public 

comments for various CMS quality programs at one time and finalizing the requirements 

for these programs simultaneously would allow us to better align these programs for 

eligible hospitals and CAHs, allow more flexibility into the Medicare and Medicaid EHR 

Incentive Programs, and add overall value and consistency by providing us the 

opportunity to address public comments that affect multiple programs at one time.

ONC, in its 2015 Edition proposed rule (80 FR 16844), also indicated that it 

intends to propose certification policy for the reporting of CQMs for eligible hospitals 

 

219 Medicare and Medicaid Programs: Electronic Health Record Incentive Program – Stage 3; proposed 

rule (80 FR 16731 through 16804) (“EHR Incentive Program Stage 3 proposed rule”).
CMS-1632-P 1183

and CAHs in or with annual IPPS rulemaking to better align with the reporting goals of 

other CMS programs.

2. CQM Reporting for the Medicare and Medicaid EHR Incentive Programs in 2016

a. Background

In the EHR Incentive Program Stage 2 final rule, we outlined the CQMs available 

for use in the EHR Incentive Programs beginning in 2014 for eligible hospitals and CAHs 

in Table 10 at 77 FR 54083 through 54087, as well as the form and method for 

submission at 77 FR 54087 through 54089. In this proposed rule, for CQM reporting for 

the EHR Incentive Programs in 2016, we are proposing to maintain the existing 

requirements established in earlier rulemaking for the reporting of CQMs, unless 

indicated otherwise in this proposed rule. These requirements include reporting on 

16 CQMs covering at least 3 NQS domains for eligible hospitals and CAHs 

(77 FR 54079).

As we expand the current measures to align with the National Quality Strategy 

and the CMS Quality Strategy220 and incorporate updated standards and terminologies in 

current CQMs, including updating the electronic specifications for these CQMs, and 

creating de novo CQMs, we plan to expand the set of CQMs available for reporting under 

the EHR Incentive Programs in CY 2017 and subsequent years. We will continue to 

engage stakeholders to provide input on future proposals for CQMs as well as requesting 

comment on future electronic specifications for new and updated CQMs.

 

220Available at: http://www.cms.gov/Medicare/Quality-Initiatives-Patient-AssessmentInstruments/QualityInitiativesGenInfo/CMS-Quality-Strategy.html.
CMS-1632-P 1184

b. Proposed CQM Reporting Period for the Medicare and Medicaid EHR Incentive 

Programs in CY 2016

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50319 through 50321), we 

began to shift CQM reporting to a calendar year basis for eligible hospitals and CAHs for 

the Medicare EHR Incentive Program. We established that for eligible hospitals and 

CAHs that submit CQMs electronically in 2015, the reporting period is one calendar 

quarter from Q1, Q2, or Q3 of CY 2015 (79 FR 50321).

In the EHR Incentive Program Stage 3 proposed rule, beginning in 2015, we 

proposed to change the definition of “EHR reporting period” in § 495.4 for EPs, eligible 

hospitals, and CAHs such that the EHR reporting period would begin and end in relation 

to a calendar year. In connection with that proposal, we are proposing that the reporting 

period for CQMs in 2016 for eligible hospitals and CAHs for the Medicare and Medicaid 

EHR Incentive Programs would also be based on the calendar year. 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.

For 2016 (FY 2018 payment determination), the Hospital IQR Program is 

proposing to require quarterly reporting and submission periods for eCQMs for the 3rd

and 4th CY quarters. We refer readers to section VIII.A.8.b. of the preamble of this 

proposed rule for further discussion of the proposals for the Hospital IQR Program. We 

believe it is important for us to maintain our goal of alignment between the Hospital IQR 
CMS-1632-P 1185

and EHR Incentive Programs. Therefore, we are proposing to align the reporting period 

in CY 2016 for eligible hospitals and CAHs that report CQMs electronically for the 

Medicare EHR Incentive Program with that of the Hospital IQR Program and require 

quarterly reporting and submission periods for eCQMs in the 3rd and 4th CY quarters.

In addition, in this proposed rule, the Hospital IQR Program is proposing to 

change its submission period for eCQMs from annual to quarterly submission, and 

proposing to change the submission deadline from November 30, 2015 to ending 

2 calendar months after the close of the reporting CY quarter (for CY 2016/FY 2018 

payment determination, the proposed deadlines are November 30, 2016 for Q3 and 

February 28, 2017 for Q4). We refer readers to the Hospital IQR Program discussion in 

section VIII.A.10.d.(3) of the preamble of this proposed rule for more information about 

these proposals. Therefore, to coincide with the submission period in the Hospital IQR 

Program, we also are proposing to align the Medicare EHR Incentive Program 

submission period for CY 2016 with the submission period proposed for the Hospital 

IQR Program.

We are proposing the following CQM reporting periods and submission deadlines 

for eligible hospitals and CAHs participating in the Medicare EHR Incentive Program in 

CY 2016:

● Eligible hospitals and CAHs Reporting CQMs by Attestation

++ For eligible hospitals and CAHs demonstrating meaningful use for the first 

time in 2016, any continuous 90-day reporting period within CY 2016; or one full 

calendar year reporting period for CY 2016. Attestation by February 28, 2017.
CMS-1632-P 1186

++ For eligible hospitals and CAHs that demonstrated meaningful use in any year 

prior to 2016, one full calendar year reporting period for CY 2016. Attestation by 

February 28, 2017.

● Eligible hospitals and CAHs Reporting CQMs Electronically --Two full 

quarters of data (Q3 and Q4 of CY 2016) submitted via electronic reporting within 

2 months after the close of each quarter (Q3 by November 30, 2016; Q4 by 

February 28, 2017).

We also are proposing that the CQM reporting period for eligible hospitals and 

CAHs participating in the Medicaid EHR Incentive Program would be any continuous 

90-day reporting period within CY 2016 for eligible hospitals and CAHs demonstrating 

meaningful use for the first time; and one full calendar year reporting period of CY 2016

for eligible hospitals and CAHs that demonstrated meaningful use in any year prior to 

2016. Providers should refer to their State Medicaid program for requirements on 

submission methods and deadlines.

We note that, beginning in CY 2017 and in subsequent years, we proposed in the 

Stage 3 proposed rule (80 FR 16739 through 16740) to require a reporting period of one 

full calendar year for CQM reporting for all providers participating in the EHR Incentive 

Programs, with a limited exception for Medicaid providers demonstrating meaningful use 

for the first time.

We are inviting public comment on these proposals.
CMS-1632-P 1187

c. CQM Reporting Form and Method for the Medicare EHR Incentive Program in 2016

In the EHR Incentive Program Stage 2 final rule (77 FR 54087 through 54089), 

we finalized the reporting methods for eligible hospitals and CAHs for the Medicare 

EHR Incentive Program, which included reporting electronically or by attestation. We 

finalized that eligible hospitals and CAHs that are beyond their first year of meaningful 

use will be required to electronically submit the selected 16 CQMs. Subsequent to the 

Stage 2 final rule, we determined that electronic submission of aggregate-level data using 

QRDA–III would not be feasible in 2014 and 2015, and thus, eligible hospitals and CAHs 

would have the option to continue to report aggregate CQM results through attestation for 

the reporting periods in 2014 and 2015 (78 FR 50904 through 50905; 79 FR 50321 

through 50322).

We are proposing to continue our existing policy that eligible hospitals and CAHs 

in any year of participation in the Medicare EHR Incentive Program in 2016 may report 

CQMs by attestation or electronically using the options previously outlined for electronic 

reporting either for single program participation in the Medicare EHR Incentive Program, 

or for participation in multiple programs if the requirements of the aligned quality 

program are met. The options for CQM submission for eligible hospitals and CAHs in 

the Medicare EHR Incentive Program are as follows:

● Eligible hospital and CAH options for Medicare EHR Incentive Program 

participation (single program participation)

++ Option 1: Attest to CQMs through the EHR Registration & Attestation 

System.
CMS-1632-P 1188

++ Option 2: Electronically report CQMs through QualityNet Portal.

● Eligible hospital and CAH options for electronic reporting for multiple 

programs (for example: EHR Incentive Program plus Hospital IQR Program 

participation --Electronically report through QualityNet Portal.

For the Medicaid EHR Incentive Program, States will continue to be responsible 

for determining whether and how electronic reporting of CQMs would occur, or if they 

wish to allow reporting through attestation. Any changes that States make to their CQM 

reporting methods must be submitted through the State Medicaid Health IT Plan (SMHP) 

process for CMS review and approval prior to being implemented.

We are proposing to continue our policy that electronic submission of CQMs 

would require the use of the most recent release of the CQM version for each CQM to 

which the EHR is certified. For electronic reporting in 2016, this means eligible hospitals 

and CAHs would be required to use the Spring 2015 release of the CQMs available at the 

CMS eCQM Library (http://cms.gov/Regulations-andGuidance/Legislation/EHRIncentivePrograms/eCQM_Library.html). We note that an 

EHR certified for CQMs under the 2014 Edition certification criteria does not need to be 

recertified each time it is updated to a more recent version of the CQMs. (For further 

information on CQM reporting, we direct readers to the EHR Incentive Program Web site 

where guides and tip sheets are available for each reporting option 

(www.CMS.gov/ehrincentiveprograms).) However, we encourage EHR developers to 

test any updates, including any changes to the CQMs and changes to the CMS reporting 

requirements based on the CMS QRDA implementation guide, on an annual basis.
CMS-1632-P 1189

The form and method of electronic submission is further explained in 

subregulatory guidance and the certification process. For example, the following 

documents are updated annually to reflect the most recent CQM electronic specifications: 

the CMS QRDA Implementation Guide; program specific performance calculation 

guidance; and CQM electronic specifications and guidance documents. These documents 

are located on the CMS eCQM Library (http://cms.gov/Regulations-andGuidance/Legislation/EHRIncentivePrograms/eCQM_Library.html).

We are inviting public comments on this proposal.

3. Certified EHR Technology for CQMs for the EHR Incentive Programs in 2016

a. Edition of Certified EHR Technology Requirements in 2016

As previously stated in the Medicare and Medicaid EHR Incentive Programs 

Stage 2 final rule (77 FR 54051 through 54053), CQM data submitted by eligible 

hospitals and CAHs are required to be captured, calculated, and reported using CEHRT. 

In accordance with this policy, for CQM reporting for the Medicare and Medicaid EHR 

Incentive Programs in 2016, eligible hospitals and CAHs must use EHR technology 

certified to at least the 2014 Edition certification criteria for CQMs, which are defined at 

45 CFR 170.314(c)(1) for the capture of data elements, 45 CFR 170.314(c)(2) for the 

calculation of CQMs, and 45 CFR 170.314(c)(3) for the submission of CQM data 

electronically.

However, in the 2015 Edition proposed rule (80 FR 16810 through 16872, 

16900), ONC has proposed a new Edition of certification criteria for EHR technology, 

which may be available for some providers as early as 2016. The 2015 Edition proposed 
CMS-1632-P 1190

rule (80 FR 16842 through 16846) would establish three certification criteria for CQMs 

and set a placeholder for a fourth certification criterion. These three criteria are:

● Proposed new § 170.315(c)(1) “CQMs – record and export” - to record and 

export data which aligns with the prior capture criteria.

● Proposed new § 170.315(c)(2) “CQMs – import and calculate” - to import and 

calculate data which aligns with the prior calculate criteria.

● Proposed new § 170.315(c)(4) “CQMs – filter” - to filter data which is a new 

function for CQM criteria in the 2015 Edition and is not currently proposed to be 

required by the EHR Incentive Programs.

ONC proposed (80 FR 16844) to reserve § 170.315(c)(3) “CQMs – report” – to 

report data electronically, including submission testing, to be proposed in or with annual 

IPPS and/or PFS rulemaking. ONC believes that, going forward, proposing a 2015 

Edition certification criterion for CQM reporting with CMS’ annual payment rules would 

allow better alignment of ONC’s certification policy and standards for electronically 

specified CQM, known as eCQMs, with reporting with other CMS programs that include 

eCQMs, such as the PQRS and Hospital IQR Programs, which update their measure 

specifications on an annual basis through rulemaking. Therefore, ONC is proposing a 

2015 Edition certification criterion for “CQMs - report” in section VIII.D.3.b. of the 

preamble of this proposed rule.

b. “CQMs – Report” Certification Criterion in ONC’s 2015 Edition Proposed Rule

As described previously in section VIII.D.3.a. of the preamble of this proposed

rule, ONC reserved the 2015 Edition certification criterion for “CQMs - report” (at 
CMS-1632-P 1191

proposed new § 170.315(c)(3)) to be proposed in conjunction with IPPS and/or PFS 

rulemaking. The 2014 Edition certification criterion for CQMs – electronic submission 

(at § 170.314(c)(3)) requires CEHRT to enable a user to electronically create a data file 

for transmission of clinical quality measurement data using the Quality Reporting 

Document Architecture (QRDA) Category I and Category III standards, and which can 

be electronically accepted by CMS. The QRDA standard provides a document format 

and standard structure to electronically report clinical quality measure data.221 The 

QRDA Category I standard enables an individual patient-level quality report that contains 

quality data for one patient for one or more quality measures. The QRDA Category III 

standard enables an aggregate quality report containing calculated summary data for one 

or more measures for a specified population of patients within a particular health system 

over a specific period of time.222

Building off of the 2014 Edition criterion for submission of CQMs, ONC is 

proposing a 2015 Edition certification criterion for “CQMs – report”223 at proposed new 

§ 170.315(c)(3) as part of the proposed 2015 Edition of certification criteria that would 

require a certified Health IT Module to enable a user to electronically create a data file 

for transmission of clinical quality measurement data using the “base” HL7 (that is, 

industry-wide, non-program-specific) Quality Reporting Data Architecture (QRDA) 

Category I and Category III standards, at a minimum. ONC also is proposing to allow 

 

221Available at: http://www.hl7.org/implement/standards/product_brief.cfm?product_id=35.

222Available at: http://www.hl7.org/implement/standards/product_brief.cfm?product_id=286.

223 As noted in the 2015 Edition proposed rule, ONC proposed to title proposed new § 170.315(c)(3) 

“CQMs - report” to better align with the use of the term “report” throughout the 2015 Edition. Also, ONC 

is proposing to discontinue to reference “electronic” in the title of certification criteria as it is assumes that 

all functions performed by certified health IT are done electronically. See 80 FR 16844.
CMS-1632-P 1192

optional certification for EHRs according to the CMS “form and manner” requirements 

defined in CMS’ QRDA Implementation Guide224 as part of this proposed criterion. We 

reiterate that this proposed certification criterion would apply to EPs, eligible hospitals, 

and CAHs.

CMS anticipates proposing to require EPs, eligible hospitals, and CAHs seeking 

to report CQMs electronically (if using proposed new § 170.315(c)(3)) as part of 

meaningful use under the EHR Incentive Programs for 2016 to adhere to the additional 

standards and constraints on the QRDA standards for electronic reporting as described in 

the CMS QRDA Implementation Guide. CMS anticipates proposing to revise the 

definition of “certified electronic health record technology (CEHRT)” at 42 CFR 495.4 to 

require certification to the optional portion of the 2015 Edition CQM reporting criterion 

(proposed at § 170.315(c)(3)) in the CY 2016 Medicare Physician Fee Schedule proposed 

rule later this year.

As noted previously, ONC proposed standards for proposed new § 170.315(c)(1) 

and § 170.315(c)(2) in the 2015 Edition proposed rule (80 FR 16844), but retained a 

placeholder for proposed new § 170.315(c)(3) so that this certification criterion for 

reporting could be proposed in conjunction with the proposals for CMS quality reporting 

programs in the IPPS and PFS rules. Therefore, in this proposed rule, for the 

requirements for the 2015 Edition certification criteria, ONC is proposing the following 

at proposed new § 170.315(c)(3) for clinical quality measurement to state that technology 

 

224 The CMS QRDA Implementation Guide can be accessed at http://www.cms.gov/Regulations-andGuidance/Legislation/EHRIncentivePrograms/eCQM_Library.html.
CMS-1632-P 1193

certified to the 2015 Edition must enable a user to electronically create a data file for 

transmission of clinical quality measurement data which is:

● At a minimum, in accordance with the standards specified in § 170.205(h) and 

§ 170.205(k); and

● Optionally, can be electronically accepted by CMS.

The standard specified in § 170.205(h) is the HL7 Implementation Guide (IG) for 

CDA Release 2: Quality Reporting Document Architecture – Category I, Draft Standard 

for Trial Use (DSTU) Release 2 (July 2012).225 The standard specified in § 170.205(k) is 

the HL7 Implementation Guide for CDA Release 2: Quality Reporting Document 

Architecture – Category III, DSTU Release 2 (November 2012).226

ONC previously adopted the July 2012 version of the QRDA Category I IG and 

the November 2012 version of the QRDA Category III IG in its 2014 Edition 

(77 FR 54232). Given the timing of this proposed rule and the expected deliverables for 

harmonized CQM and clinical decision support (CDS) standards (described further in the 

2015 Edition proposed rule at 80 FR 16842 through 16843), ONC is soliciting comment 

on a series of three options to determine if the version of QRDA Category I or the 

QRDA-like standards it should adopt for the certification criterion should be a more 

recent update to the standard. Specifically, ONC is soliciting comment on the following 

options for individual patient-level quality reports (QRDA Category I):

(1) The July 2012 QRDA Category I IG;

 

225Available at: http://www.hl7.org/implement/standards/product_brief.cfm?product_id=35.

226Available at: http://www.hl7.org/implement/standards/product_brief.cfm?product_id=286.
CMS-1632-P 1194

(2) The July 2012 QRDA Category I IG with the September 2014 Errata;227 and

(3) QRDA-like standards for individual patient-level quality reports based on the 

anticipated Quality Improvement and Clinical Knowledge (QUICK)228 Fast Health 

Interoperability Resources (FHIR)-based Draft Standard for Trial Use CQM standards.

Option 1 includes the same version of the QRDA Category I standard ONC 

adopted in the 2014 Edition. Option 2 includes this same version with the 

September 2014 Errata, which provides guidance on implementing QRDA Category I 

based on a new version of the underlying information model for representing quality 

measures (that is, the Quality Data Model based-Health Quality Measures Format 

Release 2.1229). Option 3 would include standards based on the harmonized CQM and 

CDS standards on which the industry is currently developing.

ONC is also soliciting comment on a fourth option of QRDA Category I standard 

it could consider adopting for this proposed certification criterion:

(4) The next release of the QRDA Category I IG (Release 3).230

While this option was not discussed in the 2015 Edition proposed rule, 

stakeholders have recently made ONC aware that the industry is in the process of 

updating the QRDA Category I to the next Release 3. ONC understands that Release 3 is 

expected to be balloted in May 2015. Release 3 would include major updates to align 

 

227Available at: http://www.hl7.org/implement/standards/product_brief.cfm?product_id=35. Note that in 

order to access the errata, the user should download the “HL7 Implementation Guide for CDA Release 2: 

Quality Reporting Document Architecture – Category I, DSTU Release 2 (US Realm)” package.

228Available at: 

http://www.hl7.org/special/Committees/projman/searchableProjectIndex.cfm?action=edit&ProjectNumber

=1045.

229Available at: http://www.hl7.org/implement/standards/product_brief.cfm?product_id=97.

230http://www.hl7.org/special/Committees/projman/searchableProjectIndex.cfm?action=edit&ProjectNumb

er=210.
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with the Quality Data Model, address comments from Release 2, and better align with the 

Consolidated CDA Release 2 used for transitions of care/summary care records.

While not discussed in the 2015 Edition proposed rule, ONC in this proposed rule 

is also soliciting comment on three options for aggregate-level quality reports (QRDA 

Category III) it could adopt for this certification criterion:

(1) The November 2012 QRDA Category III IG;

(2) The November 2012 QRDA Category III IG with the September 2014 

Errata;231 and

(3) QRDA-like standards for aggregate-level quality reports based on the 

anticipated Quality Improvement and Clinical Knowledge (QUICK)232 Fast Health 

Interoperability Resources (FHIR)-based Draft Standard for Trial Use CQM standards.

Option 1 includes the same version of the QRDA Category III standard which 

ONC adopted in the 2014 Edition. Option 2 includes this same version with the 

September 2014 Errata, which provides guidance on implementing QRDA Category III 

based on a new version of the underlying information model for representing quality 

measures (that is, the Quality Data Model based-Health Quality Measures Format 

Release 2.1233). Option 3 would include standards based on the harmonized CQM and 

CDS standards on which the industry is currently developing.

 

231 http://www.hl7.org/implement/standards/product_brief.cfm?product_id=286. Note that in order to 

access the errata, the user should download the “HL7 Implementation Guide for CDA Release 2: Quality 

Reporting Document Architecture – Category III, DSTU Release 1 (US Realm)” package.

232Available at: 

http://www.hl7.org/special/Committees/projman/searchableProjectIndex.cfm?action=edit&ProjectNumber

=1045.

233Available at: http://www.hl7.org/implement/standards/product_brief.cfm?product_id=97.
CMS-1632-P 1196

In connection with ONC, we are inviting public comment on these options and 

this proposal.

4. CQM Development and Certification Cycle

We stated in the Stage 2 final rule (77 FR 54055) that we do not intend to use 

notice and comment rulemaking as the means to update or modify CQM specifications. 

Given the necessity to update CQM specifications after they have been published to 

ensure their continued clinical relevance, accuracy, and validity, we publish annual 

updates to the electronic specifications for EHR submission. Although we require 

eligible hospitals and CAHs to submit the most updated versions of CQMs when 

reporting electronically, CEHRT is not required to be recertified on annual basis. CMS 

and ONC understand that standards for electronically representing CQMs continue to 

evolve, and believe there may be value in retesting certified Health IT Modules 

(including CEHRT) periodically to ensure that CQMs are being accurately calculated and 

represented, and that they can be reported to CMS in the “form and manner” required for 

the Hospital IQR Program and EHR Incentive Program. As mentioned previously, CMS 

and ONC encourage health IT developers to retest their certified technology annually, 

and are soliciting comment on the appropriate frequency for requiring retesting and 

recertification to the most updated versions of CQMs and most recent “form and manner” 

reporting requirements.

However, given the continuing evolution of technology and clinical standards, as 

well as the need for a predictable cycle from measure development to provider data 

submission, CMS intends to publish a request for information (RFI) on the establishment 
CMS-1632-P 1197

of an ongoing cycle for the introduction and certification of new measures, the testing of 

updated measures, and the testing and certification of submission capabilities. We 

encourage readers to submit their insights and recommendations for our consideration 

upon publication of that RFI.
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IX. 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 2015 “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 2016 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.

X. 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/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/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 
CMS-1632-P 1199

(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 2012 Medicare cost reports used to create the proposed FY 2016 prospective 

payment system wage index. Multiple versions of this file are created each year. For a 

complete schedule on the release of different versions of this file, we refer readers to the 

wage index schedule in section III.L. of the preamble of this proposed rule.

Processing Year Wage Data Year PPS Fiscal Year

2015 2012 2016

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 2016 IPPS Update.

2. CMS Occupational Mix Data Public Use File

This file contains the CY 2013 occupational mix survey data to be used to 

compute the occupational mix adjustment wage indexes. Multiple versions of this file are 
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created each year. For a complete schedule on the release of different versions of this 

file, we refer readers to the wage index schedule in section III.L. of the preamble of this 

proposed rule.

Media: Internet at: 

http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage.

Period Available: FY 2016 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 2016 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 2016 IPPS Update.
CMS-1632-P 1201

5. FY 2016 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 list of Core-Based Statistical Areas (CBSAs).

Media: Internet at: 

http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage.

Period Available: FY 2016 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.

 There are no longer data offered on a CD. All of the data collected are now 

available on the following Web site free for download: http://www.cms.gov/ResearchStatistics-Data-and-Systems/Downloadable-Public-Use-Files/CostReports/?redirect=/CostReports/

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 
CMS-1632-P 1202

activities. Beginning with December 1988, the individual records were enlarged to 

include pass-through per diems and other elements.

Media: Internet at: 

http://www.cms.hhs.gov/ProspMedicareFeeSvcPmtGen/03_psf_text.asp

Period Available: Quarterly Update.

8. CMS Medicare Case-Mix Index File

This file contains the Medicare case-mix index by provider number as published 

in each year’s update of the Medicare hospital inpatient prospective payment system. 

The case-mix index is a measure of the costliness of cases treated by a hospital relative to 

the cost of the national average of all Medicare hospital cases, using DRG/MS-DRG 

weights as a measure of relative costliness of cases. Two versions of this file are created 

each year to support the rulemaking.

Media: Internet at: 

http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage

Periods Available: FY 1985 through FY 2016.

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 each fiscal year. 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 2016 IPPS Update
CMS-1632-P 1203

10. IPPS Payment Impact File

This file contains data used to estimate payments under Medicare’s hospital 

impatient prospective payment systems for operating and capital-related costs. The data 

are taken from various sources, including the Provider-Specific File, HCRIS Cost Report 

Data, MedPAR Limited 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 2016 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 2016 IPPS Update.
CMS-1632-P 1204

12. Prospective Payment System (PPS) Standardizing File

This file contains information that standardizes the charges used to calculate 

relative weights to determine payments under the hospital inpatient operating and capital 

prospective payment systems. Variables include wage index, cost-of-living adjustment 

(COLA), case-mix index, indirect medical education (IME) adjustment, disproportionate 

share, and the Core-Based Statistical Area (CBSA). The file supports the rulemaking.

Media: Internet at: 

http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage.

Period Available: FY 2016 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 (AMI), pneumonia (PN) and heart failure (HF), 

coronary obstruction pulmonary disease (COPD), and total hip arthroplasty (THA)/total 

knee arthroplasty (TKA) and the proxy readmissions payment adjustment for each 

provider included in the program. In addition, the file contains information on the 

number of cases for each of the applicable conditions excluded in the calculation of the 

readmission payment adjustment factors, and it contains MS-DRG relative weight 

information to estimate the payment adjustment factors. The file supports the 

rulemaking.

Media: Internet at: 

http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage.
CMS-1632-P 1205

Period Available: FY 2016 IPPS Update.

For further information concerning these data tapes, contact the CMS Public Use 

Files Hotline at (410) 786-3691.

14. Medicare Disproportionate Share Hospital (DSH) Supplemental File

This file contains information on the calculation of the uncompensated care 

payments for FY 2016. 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 2016 IPPS Update.

Commenters interested in discussing any data used in constructing this proposed 

rule should contact Chioma Obi at (410) 786-6050.

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:
CMS-1632-P 1206

● 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 the 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 2017 must submit a formal 

request. A formal request includes a full description of the clinical applications of the 

medical service or technology and the results of any clinical evaluations demonstrating 

that the new medical service or technology represents a substantial clinical improvement. 

In addition, the request must contain a significant sample of the data to demonstrate that 

the medical service or technology meets the high-cost threshold.

We believe the burden associated with this requirement is exempt from the PRA 

under 5 CFR 1320.3(c), which defines the agency collection of information subject to the 

requirements of the PRA as information collection imposed on 10 or more persons within 

any 12-month period. This information collection does not impact 10 or more entities in 
CMS-1632-P 1207

a 12-month period. For FYs 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, and 2016, 

we received 1, 4, 5, 3, 3, 5, 5, 7, and 9 applications, respectively.

3. ICRs for the Proposed Occupational Mix Adjustment to the Proposed FY 2016 Wage 

Index (Hospital Wage Index Occupational Mix Survey)

Section III.F. of the preamble of this proposed rule discusses the proposed 

occupational mix adjustment to the proposed FY 2016 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 Pub. L. 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 OMB control number 0938-0907.

4. Hospital Applications for Geographic Reclassifications by the MGCRB

Section III.J.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 
CMS-1632-P 1208

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 OMB control number 0938–0573.

5. Proposed Elimination of the Simplified Cost Allocation Methodology for Hospitals

In section IV.H. of the preamble of this proposed rule, we are proposing to amend 

the regulations at 42 CFR 412.302 (d)(4) to limit a hospital’s ability to elect the 

simplified cost allocation methodology under the terms and conditions provided in the 

instructions for CMS Form 2552 to cost reporting periods beginning before

October 1, 2015. We are proposing to limit the election of the simplified cost allocation 

methodology because the allocation of the costs of capital-related movable equipment 

using this methodology yields less precise calculated CCRs. Currently, less than 1 

percent of hospitals have elected to use the simplified cost allocation methodology. 

Based on FY 2013 data, only 9 of 1,269 CAHs and 23 of 4,389 hospitals other than 

CAHs used the simplified cost allocation methodology. Furthermore, we believe that 

advances in technology have reduced the cost of recordkeeping, which has allowed 

hospitals to maintain accurate statistical data and afforded them the flexibility to change 

to a more precise allocation methodology.
CMS-1632-P 1209

Although we are proposing to eliminate the simplified cost allocation 

methodology for hospitals, we believe the currently approved burden estimates for the 

Hospital and Health Care Complex Cost Report (OMB control number 0938-0050) are 

still applicable to hospitals completing the Hospital and Health Care Complex Cost 

Report. The time required to address this proposed revision would be subsumed in the 

total burden estimate for an entity to comply with all of the requirements in the cost 

report.

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, Pub. L. 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 Deficit Reduction 

Act of 2005 (DRA). Section 1886(b)(3)(B)(viii)(III) of the Act, added by section 5001(a) 
CMS-1632-P 1210

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 is currently approved under OMB control number 0938-1022.

In this proposed rule, we are proposing refinements to the measure cohorts for: 

(1) the Hospital 30-Day All-Cause, Risk-Standardized Mortality Rate (RSMR) following 

Pneumonia Hospitalization measure (NQF #0468); and (2) the Hospital 30-Day 

All-Cause, Risk-Standardized Readmission Rate (RSRR) following Pneumonia 

Hospitalization measure (NQF #0506). We also are proposing eight additional measures 

to be added to the Hospital IQR Program measure set beginning with the FY 2018 

payment determination and for subsequent years. Seven of these measures are 

claims-based, and one measure is structural. The eight new measures are: (1) Hospital 

Survey on Patient Safety Culture (structural); (2) Kidney/UTI Clinical Episode-Based 

Payment (claims-based); (3) Cellulitis Clinical Episode-Based Payment (claims-based); 

(4) Gastrointestinal Hemorrhage Clinical Episode-Based Payment (claims-based); 

(5) Lumbar Spine Fusion/Re-Fusion Clinical Episode-Based Payment (claims-based); 

(6) Hospital-Level, Risk-Standardized Payment Associated with an Episode-of-Care for 

Primary Elective THA/TKA (claims-based); (7) Excess Days in Acute Care after 

Hospitalization for Acute Myocardial Infarction (claims-based); and (8) Excess Days in 

Acute Care after Hospitalization for Heart Failure (claims-based).
CMS-1632-P 1211

Because these 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 seven proposed 

claims-based measures. In addition, the burden associated with the structural measure we 

are proposing, Hospital Survey on Patient Safety Culture, is expected to be negligible; 

therefore, its proposed addition will not result in a significant burden increase.

We also are proposing nine measures for removal. We believe that there will be a 

reduction in burden for hospitals due to our proposed removal of seven of these 

measures, which are chart-abstracted: (1) STK-01 Venous Thromboembolism 

Prophylaxis (NQF #0434); (2) STK-06: Discharged on Statin Medication* (NQF #0439); 

(3) STK-08: Stroke Education* (NQF endorsement removed); (4) VTE-1: Venous 

Thromboembolism Prophylaxis* (NQF #0371); (5) VTE-2: Intensive Care Unit Venous 

Thromboembolism Prophylaxis* (NQF #0372); (6) VTE-3: Venous Thromboembolism 

Patients with Anticoagulation Overlap Therapy* (NQF #0373); and (7) AMI-7a 

Fibrinolytic Therapy Received Within 30 Minutes of Hospital Arrival* (NQF #0164). 

(An asterisk (*) indicates that the measure is proposed for retention as an electronic 

clinical quality measure for the FY 2018 payment determination in section VIII.A.8. of 

the preamble of this proposed rule.) Due to the burden associated with the collection of 

chart-abstracted data, we estimate that the proposed removal of AMI-7a would result in a 

burden reduction of approximately 219,000 hours across all hospitals. We estimate that 

the proposed removal of seven chart-abstracted measures will result in a burden reduction 

of approximately 522,000 hours across all hospitals.
CMS-1632-P 1212

Two of the nine measures proposed for removal have been previously suspended 

from the Hospital IQR Program. Therefore, their proposed removal would not affect 

burden to hospitals. These measures are: IMM-1 Pneumococcal Immunization 

(NQF #1653); and SCIP-Inf-4 Cardiac Surgery Patients with Controlled Postoperative 

Blood Glucose (NQF #0300). The suspension of IMM-1 is currently reflected under 

OMB control number 0938-1022. The suspension of SCIP-Inf-4, which was formalized 

on January 9, 2015,234 will be reflected in the PRA package being submitted this year 

under OMB control number 0938-1022.

For the FY 2018 payment determination and subsequent years, we also are 

proposing to require hospitals to submit 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 believe that the total burden associated with the electronic clinical quality 

measure reporting proposal will be similar to the burden outlined for hospitals in the EHR 

Incentive Program Stage 2 final rule (77 FR 54126 through 54133). In that final rule, the 

burden estimate for a hospital to attest and report all 16 electronic clinical quality 

measures is 2 hours and 40 minutes per submission (77 FR 54132). We believe that this 

estimate is accurate and appropriate to also apply to the Hospital IQR Program, given the 

alignment between the electronic clinical quality measure reporting requirements for both 

programs. In total, we expect the burden associated with our proposal to require hospitals 

 

234 QualityNet. Available at: 

https://www.qualitynet.org/dcs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1228890406532&

blobheader=multipart%2Foctet-stream&blobheadername1=ContentDisposition&blobheadervalue1=attachment%3Bfilename%3D2015-02-

IP.pdf&blobcol=urldata&blobtable=MungoBlobs
CMS-1632-P 1213

to report electronic clinical quality measures to be 5 hours and 20 minutes per hospital for 

two quarters of data submission, and 17,600 hours total for two quarters of data 

submission across the approximately 3,300 hospitals participating in the Hospital IQR 

Program. We estimate that reporting these electronic clinical quality measures can be 

accomplished by staff with a mean hourly wage of $16.42 per hour.235 Under OMB 

Circular A-76, in calculating direct labor, agencies should not only include salaries and 

wages, but also “other entitlements” such as fringe benefits.236 This Circular provides 

that the civilian position full fringe benefit cost factor is 36.25 percent. Therefore, using 

these assumptions, we estimate an hourly labor cost of $22.37 ($16.42 base salary + 

$5.95 fringe) and a total cost of $393,712 (17,600 hours x $22.37 per hour) across 

approximately 3,300 hospitals participating in the Hospital IQR Program to report 

16 electronic clinical quality measures for two quarters (Q3 and Q4).

For validation of chart-abstracted data for the FY 2018 payment determination 

and subsequent years, we require hospitals to provide 72 charts per hospital per year 

(with an average page length of 1,500), including 40 charts for HAI validation and 

32 charts for clinical process of care validation, for a total of 108,000 pages per hospital 

per year. We reimburse hospitals at 12 cents per photocopied page (79 FR 50346) for a 

total per hospital cost of $12,960. For hospitals providing charts digitally via a 

re-writable disc, such as encrypted CD-ROMs, DVDs, or flash drives, we will reimburse 

hospitals at a rate of 40 cents per disc.

 

235 http://www.bls.gov/ooh/healthcare/medical-records-and-health-information-technicians.html.

236 http://www.whitehouse.gov/omb/circulars_a076_a76_incl_tech_correction.
CMS-1632-P 1214

Under OMB number 0938-1022, we estimated that the total burden for the 

FY 2017 payment determination was 1,781 hours per hospital and 5.9 million hours 

across approximately 3,300 hospitals participating in the Hospital IQR Program. Using 

data on chart-abstracted measures from the 3rd quarter in 2013 through the 2nd quarter in 

2014, we have revised our burden estimate to include updates to the number of records 

reported per measure set, as well as the time associated with data collection. Considering 

the proposals described in this proposed rule, as well as our updated estimates for the 

number of records reported and the time associated with data reporting activities, we 

estimate a total burden of 2,293 hours per hospital and 7.6 million hours across 

approximately 3,300 hospitals participating in the Hospital IQR Program for the FY 2018 

payment determination. This burden estimate includes the full measure set proposed for 

the Hospital IQR Program FY 2018 payment determination and accounts for burden 

changes associated with all newly proposed measures as well as measures proposed for 

removal, as discussed above in this section.

In addition, this burden estimate accounts for other activities such as population 

and sampling, reviewing reports for claims-based measure sets, HAI validation templates, 

as well as all other forms and structural measures. The estimate excludes the burden 

associated with the NHSN and HCAHPS measures, both of which are submitted under 

separate information collection requests and are approved under OMB control 

numbers 0920-0666 and 0938-0981, respectively. The burden estimates in this proposed 

rule are the estimates for which we are requesting OMB approval.
CMS-1632-P 1215

7. ICRs for PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program

As discussed in section VIII.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 section VIII.B.5 of the preamble of this proposed rule, we are proposing that 

PCHs will submit data on three additional measures beginning with the FY 2018 

program: (1) CDCNHSN Facility-Wide Inpatient Hospital-Onset Methicillin-Resistant 

Staphylococcus aureus (MRSA) Bacteremia Outcome Measure (NQF #1716); (2) CDC 

NHSN Facility-Wide Inpatient Hospital-Onset Clostridium difficile Infection (CDI) 

Outcome Measure (NQF #1717); and (3) CDC NHSN Influenza Vaccination Coverage 

Among Healthcare Personnel Measure (NQF #0431). In conjunction with our proposal 

in section VIII.B.2. of the preamble of this proposed rule to remove the six SCIP 

measures from the PCHQR Program beginning with fourth quarter (Q4) 2015 discharges 

and for subsequent years, the PCHQR measure set would consist of 16 measures 

beginning with the FY 2018 program.

With respect to our proposal to add three measures beginning with the FY 2018 

program, this estimate excludes the burden associated with two of these measures (the 

CDC NHSN MRSA measure and the CDC NHSN CDI measure) both of which are 

submitted under separate information collection requests and are approved under a 
CMS-1632-P 1216

separate OMB control numbers (0920-0666).237 Using the same methodology as the 

FY2015 IPPS/LTCH PPS final rule,238 for the third proposed new measure (CDC NHSN 

Influenza Vaccination Coverage Among Healthcare Personnel measure), we estimate that 

it will take 10 minutes annually per PCH, or an additional 1.83 hours for all PCHs 

annually to report the measure.239

Our proposal to remove six SCIP measures would reduce the burden experienced 

by PCHs. We estimate a reduction in hourly burden of 6,468240 hours per year beginning 

with Q4 2015 and for subsequent program years across the 11 PCHs.

In summary, as a result of our proposals, we estimate a reduction of 6,466.17241

hours of burden per year associated with the proposals above for all 11 PCHs beginning 

with the FY 2018 program. Coupled with our estimated salary costs,242 we estimate that 

these proposed changes would result in a reduction in annual labor costs of $426,767.22 

beginning with the FY 2018 PCHQR Program.

8. ICRs for the Hospital Value-Based Purchasing (VBP) Program

In section IV.F. of the preamble of the proposed rule, we discuss proposed 

requirements for the Hospital VBP Program. Specifically, in this proposed rule, we are 

proposing to adopt one new measure beginning with the FY 2018 program year, the 

3-Item Care Transition Measure (CTM-3) (NQF #0228). We also are proposing to adopt 

 

237 OMB Control Number History. Available at: 

http://www.reginfo.gov/public/do/PRAOMBHistory?ombControlNumber=0920-0666.

238 FY 2015 IPPS/LTCH PPS final rule (79 FR 50443 through 50444).

239 Ibid.

240 [(49 cases per measure x 4 quarters) + 0.5 (abstraction/training time)] x11 PCHs=6,468 hours per year.

241 6,468 hours – 1.83 hours = 6,466.17 hours.

242 6,466.17 hours * $66/hour. [We are now estimating an hourly salary of $33 

(http://swz.salary.com/salarywizard/Staff-Nurse-RN-Hourly-Salary-Details.aspx). After accounting for 

employee benefits and overhead, this results in a total cost of $66 per labor hour].
CMS-1632-P 1217

one new measure beginning with the FY 2021 program year, the Hospital 30-Day, 

All-Cause, Risk-Standardized Mortality Rate (RSMR) Following Chronic Obstructive 

Pulmonary Disease (COPD) Hospitalization Measure (NQF #1893) (MORT-30-COPD).

As required under section 1886(o)(2)(A) of the Act, both 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 Program (LTCH QRP)

As discussed in sections VIII.C.5.a and VIII.C.5.b. of the preamble of this 

proposed rule, we are retaining the following 12 previously finalized quality measures for 

use in the LTCH QRP:

LTCH QRP Quality Measures Previously Adopted for the FY 2015 and FY 2016 

Payment Determinations and Subsequent Years

NQF 

ID Measure Title Payment Determination

Final Rule(s) in which 

Measure was Finalized

NQF 

#0138

National Health Safety 

Network (NHSN) CatheterAssociated Urinary Tract 

Infection (CAUTI) Outcome 

Measure

FY 2015 

payment 

determination 

and subsequent 

years

FY 2012 IPPS/LTCH PPS 

final rule; updated in 

FY 2013 IPPS/LTCH PPS 

final rule

NQF 

#0139

National Health Safety 

Network (NHSN) Central 

Line-Associated Blood 

Stream Infection (CLABSI) 

Outcome Measure

FY 2015 

payment 

determination 

and subsequent 

years

FY 2012 IPPS/LTCH PPS 

final rule; updated in 

FY 2013 IPPS/LTCH PPS 

final rule

NQF 

#0678

Percent of Residents or 

Patients with Pressure Ulcers 

That Are New or Worsened 

(Short Stay)

FY 2015 

payment 

determination 

and subsequent 

years*

FY 2012 IPPS/LTCH PPS 

final rule; updated in 

FY 2014 IPPS/LTCH PPS 

final rule

NQF Percent of Residents or FY 2016 FY 2015 IPPS/LTCH PPS 
CMS-1632-P 1218

LTCH QRP Quality Measures Previously Adopted for the FY 2015 and FY 2016 

Payment Determinations and Subsequent Years

NQF 

ID Measure Title Payment Determination

Final Rule(s) in which 

Measure was Finalized

#0680 Patients Who Were Assessed 

and Appropriately Given the 

Seasonal Influenza Vaccine 

(Short Stay)

payment 

determination 

and subsequent 

years

final rule

NQF 

#0431

Influenza Vaccination 

Coverage among Healthcare 

Personnel

FY 2016 

payment 

determination 

and subsequent 

years

FY 2015 IPPS/LTCH PPS 

final rule

* Proposed in this FY 2016 IPPS/LTCH PPS proposed rule for the FY 2018 payment determination and 

subsequent years

LTCH QRP Quality Measures Previously Adopted for the FY 2017 and FY 2018 

Payment Determinations and Subsequent Years

NQF ID Measure Title Payment 

Determination

Final Rule(s) in 

which Measure 

was Finalized

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

FY 2014 

IPPS/LTCH PPS 

final rule

NQF 

#1717

National Healthcare Safety Network 

(NHSN) Facility-Wide Inpatient 

Hospital-Onset Clostridium difficile

Infection (CDI) Outcome Measure

FY 2017 

payment 

determination 

and subsequent 

years

FY 2014 

IPPS/LTCH PPS 

final rule

NQF 

#2512

All-Cause Unplanned Readmission 

Measure for 30 Days Post-Discharge 

from Long-Term Care Hospitals**

FY 2017 

payment 

determination 

and subsequent 

years**

FY 2014 

IPPS/LTCH PPS 

final rule

Applicati

on of 

NQF 

#0674

Percent of Residents Experiencing 

One or More Falls with Major Injury 

(Long Stay)

FY 2018 

payment 

determination 

and subsequent 

years**

FY 2014 

IPPS/LTCH PPS 

final rule

NQF 

#2631*

Functional Status Quality Measure: 

Percent of Long-Term Care Hospital 

FY 2018 

payment 

FY 2015 

IPPS/LTCH PPS 
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LTCH QRP Quality Measures Previously Adopted for the FY 2017 and FY 2018 

Payment Determinations and Subsequent Years

NQF ID Measure Title Payment 

Determination

Final Rule(s) in 

which Measure 

was Finalized

Patients with an Admission and 

Discharge Functional Assessment and 

a Care Plan That Addresses Function

determination 

and subsequent 

years

final rule

NQF 

#2632*

Functional Status Quality Measure: 

Functional Outcome Measure: 

Change in Mobility among LongTerm Care Hospital Patients 

Requiring Ventilator Support

FY 2018 

payment 

determination 

and subsequent 

years

FY 2015 

IPPS/LTCH PPS 

final rule

Not NQF 

endorsed

National Healthcare Safety Network 

(NHSN) Ventilator-Associated Event 

(VAE) Outcome Measure

FY 2018 

payment 

determination 

and subsequent 

years

FY 2015 

IPPS/LTCH PPS 

final rule

* Under review at NQF. We refer readers to: 

http://www.qualityforum.org/ProjectMeasures.aspx?projectID=73867, NQF #2631 and NQF #2632.

** Proposed in this FY 2016 IPPS/LTCH PPS proposed rule for the FY 2018 payment determination and 

subsequent years

As discussed in sections VIII.C.6.a. through c. of the preamble of this proposed 

rule, we are proposing three previously finalized quality measures for use in the LTCH 

QRP for the FY 2018 payment determination and subsequent years. We are proposing 

two of these measures in order to establish their use as cross-setting measures that satisfy 

the required addition of quality measures under the domains of skin integrity and 

incidence of major falls, as mandated by section 1899B of the Act, as added by the 

IMPACT Act of 2014: Patients or Residents with Pressure Ulcers that are New or 

Worsened (NQF #0678), and an Application of Percent of Residents Experiencing One or 

More Falls with Major Injury (Long Stay) (NQF #0674). We are proposing a third 

previously finalized measure, All-Cause Unplanned Readmission Measure for 30 Days 
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Post-Discharge From Long-Term Care Hospitals (NQF #2512), in order to establish the 

newly NQF-endorsed status of this measure.

Finally, as discussed in sections VIII.C.6.d. of the preamble of this proposed rule,

for the FY 2018 payment determination and subsequent years we are proposing the 

addition of one new quality measure to the LTCHQR Program: Cross-Setting Functional 

Status Process Measure: an application of Percent of Patients or Residents with an 

Admission and Discharge Functional Assessment and a Care Plan that Addresses 

Function (NQF #2631; under review). This measure satisfies the addition of a quality 

measure under the third initially required domain of functional status, as mandated by 

section 1899B of the Act as added by the IMPACT Act of 2014.

Six of the measures being retained in this FY 2016 IPPS/LTCH PPS proposed 

rule are currently collected via the CDC NHSN. The NHSN is a secure, Internet-based 

HAI tracking system maintained and managed by the CDC. The NHSN enables 

healthcare 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. In this proposed rule, we have not proposed to adopt any new quality measures 

that are collected via the CDC’s NHSN. Therefore, at this time, there is no additional 

burden related to this submission method. Any burden related to NHSN-based quality 

measures we have retained in this proposed rule, has been previously discussed in the 

FY 2015 IPPS/LTCH PPS final rule (79 FR 50443 through 50445), and has been 
CMS-1632-P 1221

previously approved under OMB control number 0920-0666, with an expiration date of 

November, 31, 2016.

The All-Cause Unplanned Readmission Measure for 30 Days Post-Discharge 

From LTCHs (NQF #2512), which we have proposed in this proposed rule, is a Medicare 

FFS 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 

no additional information collection will be required from the LTCHs.

The remaining 6 measures will be collected utilizing the LTCH CARE Data Set 

(LCDS). The LCDS, in its current form (version 2.0), has been approved under OMB 

control number 0938-1163. Version 2.0 of the LCDS contains data elements related to 

patient demographic data, various voluntary questions, as well as data elements related to 

the following quality measures:

● Percent of Residents or Patients with Pressure Ulcers That Are New or 

Worsened (Short Stay) (NQF #0678)

● Percent of Residents or Patients Who Were Assessed and Appropriately Given 

the Seasonal Influenza Vaccine (Short Stay) (NQF #0680)

Version 3.0 of the LCDS is under development and will contain those data 

elements included in version 2.0, as well as additional data elements in order to allow for 

the collection of data associated with the following quality measures:

● Application of Percent of Residents Experiencing One or More Falls with 

Major Injury (Long Stay) (NQF #0674) (previously finalized in the FY 2015 IPPS/LTCH 

PPS final rule)
CMS-1632-P 1222

● Application of Percent of Long-Term Care Hospital Patients with an 

Admission and Discharge Functional Assessment and a Care Plan That Addresses 

Function (NQF # 2631 – under NQF review) (previously finalized in the FY 2015 

IPPS/LTCH PPS final rule)

● Functional Status Outcome Measure: Change in Mobility Among Long-Term 

Care Hospital Patients Requiring Ventilator Support (NQF #2632 – under NQF review) 

(previously finalized in the FY 2015 IPPS/LTCH PPS final rule)

Each time we add new data elements to the LCDS related to newly proposed or 

finalized LTCH QRP quality measures, we are required by the PRA to submit the 

expanded data collection instrument to OMB for review and approval. Section 1899B(m) 

of the Act, as added by IMPACT Act of 2014, provides that the PRA requirements do not 

apply to section 1899B of the Act and the sections referenced in subsection 

1899B(a)(2)(B) of the Act that require modifications in order to achieve the 

standardization of patient assessment data. We believe that version 3.0 of the LTCH 

CARE Data Set falls under the PRA provisions in 1899B(m) of the Act. We believe that 

all additional data elements added to version 3.0 of the LCDS are for the purpose of 

standardizing patient assessment data, as required under section 1899B(a) (1)(B) of the 

Act.

A comprehensive list of all data elements included in version 3.0 of the LCDS is 

available in the LTCH QRP Manual, as is a crosswalk outlining the differences between 

version 2.0 and 3.0 of the LCDS. The Manual accessible on the following LTCH Quality 

Reporting Measures Information Web page: http://www.cms.gov/Medicare/Quality-
CMS-1632-P 1223

Initiatives-Patient-Assessment-Instruments/LTCH-Quality-Reporting/LTCH-QualityReporting-Measures-Information.html. For a discussion of burden related to version 3.0 

of the LCDS, we refer readers to section I.M. of Appendix A of this proposed rule.

While the reporting of quality measures is an information collection, the PRA 

does not apply in accordance with the amendments to the Act made by IMPACT Act of 

2014. More specifically, section 1899B(m) of the Act provides that the PRA 

requirements do not apply to section 1899B of the Act and the sections referenced in 

subsection 1899B(a)(2)(B) of the Act that require modifications in order to achieve the 

standardization of patient assessment data.

10. ICRs for the Electronic Health Record (EHR) Incentive Program and Meaningful 

Use

In section VIII.D. of the preamble of this proposed rule , we discuss our proposals 

to align the Medicare EHR Incentive Program reporting and submission timelines for 

electronically submitted clinical quality measures for eligible hospitals and CAHs with 

the Hospital IQR Program’s reporting and submission timelines for 2016. Because these 

proposals for data collection would align with the reporting requirements in place for the 

Hospital IQR Program and eligible hospitals and CAHs still have the option to submit 

their clinical quality measures via attestation for the Medicare EHR Incentive Program, 

we do not believe there is any additional burden for this collection of information.

If you comment on these information collection and recordkeeping requirements, 

please do either of the following:
CMS-1632-P 1224

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-1632-P; Fax: 

(202) 395-6974; or Email: OIRA_submission@omb.eop.gov.

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.
CMS-1632-P 1225

List of Subjects

42 CFR Part 412

Administrative practice and procedure, Health facilities, Medicare, Puerto Rico, 

Reporting and recordkeeping requirements.

45 CFR Part 170

Computer technology, Electronic health record, Electronic information system, 

Electronic transactions, Health, Health care, Health information technology, Health 

insurance, Health records, Hospitals, Incorporation by reference, Laboratories, Medicaid, 

Medicare, Privacy, Reporting and recordkeeping requirements, Public Health, Security.

For the reasons stated in the preamble, the Centers for Medicare & Medicaid 

Services proposes to amend 42 CFR chapter IV as set forth below:

Title 42—Public Health

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT 

HOSPITAL SERVICES

1. The authority citation for part 412 continues to read as follows:

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

1395hh), sec. 124 of Pub. L. 106-113 (113 Stat. 1501A-332), sec. 1206 of Pub. L. 

113-67, and sec. 112 of Pub. L. 113-93.

2. Section 412.23 is amended by—

a. In paragraph (e)(3)(i), removing the cross-reference “paragraphs (e)(3)(ii) 

through (iv)” wherever it appears and adding in its place the cross-reference “paragraphs 

(e)(3)(ii) through (vi)”.
CMS-1632-P 1226

b. Adding new paragraph (e)(3)(vi).

c. Revising paragraph (e)(6)(ii) introductory text.

The addition and revision reads as follows:

§ 412.23 Excluded hospitals: Classifications.

* * * * *

(e) * * *

(3) * * *

(vi) For cost reporting periods beginning on or after October 1, 2015, the 

Medicare inpatient days and discharges that are paid at the site neutral payment rate 

specified at § 412.522(c)(1) or paid under a Medicare Advantage plan (Medicare Part C) 

will not be included in the calculation of the Medicare inpatient average length of stay 

specified under paragraph (e)(2)(i) of this section. The provisions of this paragraph 

(e)(3)(vi) do not apply to a hospital classified as a subsection (d) hospital (as defined in 

section 1886(d)(1)(B) the Act) as of December 10, 2013.

* * * * *

(6) * * *

(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) introductory text and (e)(1) through (5) of this 

section, or a long-term 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 one or 
CMS-1632-P 1227

more of the following criteria on or before December 27, 2007, or prior to April 1, 2014, 

as applicable:

* * * * *

3. Section 412.64 is amended by revising paragraphs (d)(1)(vi), (h)(4) 

introductory text, and (h)(4)(vi) introductory text, to read as follows:

§ 412.64 Federal rates for inpatient operating costs for Federal fiscal year 2005 and 

subsequent fiscal years.

* * * * *

(d) * * *

(1) * * *

(vi) For fiscal years 2015 and 2016, 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 (3) of this section, less a multifactor 

productivity adjustment (as determined by CMS) and less 0.2 percentage point.

* * * * *

(h) * * *

(4) For discharges on or after October 1, 2004 and before October 1, 2016, CMS 

establishes a minimum wage index for each all-urban State, as defined in paragraph 

(h)(5) of this section. This minimum wage index value is computed using the following 

methodology:

* * * * *
CMS-1632-P 1228

(vi) For discharges on or after October 1, 2012 and before October 1, 2016, the 

minimum wage index value for the State is the higher of the value determined under 

paragraph (h)(4)(iv) of this section or the value computed using the following alternative 

methodology:

* * * * *

4. 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 years 2014 and 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. For fiscal year 2016, CMS will base its estimates of 

the amount of hospital uncompensated care on utilization data for Medicaid and Medicare 

SSI patients, as determined by CMS in accordance with paragraphs (b)(2)(i) and (b)(4) of 

this section, using data on Medicaid utilization from 2012 or 2011 cost reports from the 

most recent HCRIS database extract, the 2012 cost report data submitted to CMS by IHS 

hospitals, and the most recent available data on Medicare SSI utilization.
CMS-1632-P 1229

* * * * *

5. Section 412.302 is amended by revising paragraph (d)(4) to read as follows:

§ 412.302 Introduction to capital costs.

* * * * *

(d) * * *

(4) For cost reporting periods beginning before October 1, 2015, hospitals may 

elect the simplified cost allocation methodology under the terms and conditions provided 

in the instructions for CMS Form 2552.

6. Section 412.503 is amended by adding a definition of “Subsection (d) 

hospital” in alphabetical order, to read as follows:

§ 412.503 Definitions.

* * * * *

Subsection (d) hospital means, for purposes of § 412.526, a hospital defined in 

section 1886(d)(1)(B) of the Social Security Act and includes any hospital that is located 

in Puerto Rico and that would be a subsection (d) hospital as defined in section 

1886(d)(1)(B) of the Social Security Act if it were located in one of the 50 States.

* * * * *

7. Section 412.507 is revised to read as follows:

§412.507 Limitation on charges to beneficiaries.

(a) Prohibited charges. Except as provided in paragraph (b) of this section, a 

long-term care hospital may not charge a beneficiary for any covered services for which 

payment is made by Medicare, even if the hospital’s costs of furnishing services to that 
CMS-1632-P 1230

beneficiary are greater than the amount the hospital is paid under the prospective 

payment system. If Medicare has paid at the full LTCH prospective payment system 

standard Federal payment rate, that payment applies to the hospital’s costs for services 

furnished until the high-cost outlier threshold is met. If Medicare pays less than the full 

LTCH prospective payment system standard Federal payment rate and payment was not 

made at the site neutral payment rate, that payment only applies to the hospital’s costs for 

those costs or days used to calculate the Medicare payment. If Medicare has paid at the 

full site neutral payment rate, that payment applies to the hospital’s costs for services 

furnished until the high-cost outlier is met.

(b) Permitted charges. (1) A long-term care hospital that receives a payment at 

the full LTCH prospective payment system standard Federal payment rate or the site 

neutral payment rate may only charge the Medicare beneficiary for the applicable 

deductible and coinsurance amounts under §§ 409.82, 409.83, and 409.87 of this chapter, 

and for items and services as specified under § 489.20(a) of this chapter.

(2) A long-term care hospital that receives a payment at less than the full LTCH 

prospective payment system standard Federal payment rate for a short-stay outlier case, 

in accordance with § 412.529 (which would not include any discharge paid at the site 

neutral payment rate), may only charge the Medicare beneficiary for the applicable 

deductible and coinsurance amounts under §§ 409.82, 409.83, and 409.87 of this chapter, 

for items and services as specified under § 489.20(a) of this chapter, and for services 

provided during the stay that were not the basis for the short-stay adjusted payment.

8. Section 412.517 is amended by adding a new paragraph (c) to read as follows:
CMS-1632-P 1231

§ 412.517 Revision of LTC-DRG group classifications and weighting factors.

* * * * *

(c) Beginning in FY 2016, the annual recalibration of the weighting factors 

described in paragraph (a) of this section is determined using long-term care hospital 

discharges described in § 412.522(a)(2).

9. Section 412.521 is amended by revising paragraph (a)(2) to read as follows:

§ 412.521 Basis of payment.

(a) * * *

(2) Except as provided for in § 412.526, the amount of payment under the 

prospective payment system is based on either the long-term care hospital prospective 

payment system standard Federal payment rate established in accordance with § 412.523, 

including adjustments described in § 412.525, or the site neutral payment rate established 

in accordance with § 412.522(c), or, if applicable during a transition period, the blend of 

the LTCH PPS standard Federal payment rate and the applicable site neutral payment rate 

described in § 412.522(c)(3).

* * * * *

10. A new § 412.522 is added to read as follows:

§ 412.522 Application of site neutral payment rate.

(a) General. For discharges in cost reporting periods beginning on or after 

October 1, 2015--
CMS-1632-P 1232

(1) Except as provided for in paragraph (b) of this section, all discharges are paid 

based on the site neutral payment rate as determined under the provisions of paragraph 

(c) of this section.

(2) Discharges that meet the criteria for exclusion from site neutral payment rate 

specified in paragraph (b) of this section are paid based on the standard Federal 

prospective payment rate established under § 412.523.

(b) Criteria for exclusion from the site neutral payment rate--(1) General. A 

discharge that meets the following criteria is excluded from the site neutral payment rate 

specified under this section.

(i) The discharge from the long-term care hospital does not have a principal 

diagnosis relating to a psychiatric diagnosis or to rehabilitation based on the LTC-DRG 

assignment of the discharge under § 412.513; and

(ii) The admission to the long-term care hospital was immediately preceded by a 

discharge from a subsection (d) hospital and meets either the intensive care unit criterion 

specified in paragraph (b)(2) of this section or the ventilator criterion specified in 

paragraph (b)(3) of this section. In order for an admission to a long-term care hospital to 

be considered immediately preceded for purposes of this section, the patient discharged 

from the subsection (d) hospital must be directly admitted to the long-term care hospital.

(2) Intensive care unit criterion. In addition to meeting the requirements of 

paragraph (b)(1) of this section, the discharge from the subsection (d) hospital that 

immediately preceded the admission to the long-term care hospital includes at least 

3 days in an intensive care unit (as defined in § 413.53(d) of this chapter), as evidenced 
CMS-1632-P 1233

by at least one of the revenue center codes on the claim for the discharge that indicate 

such services were provided for the requisite number of days during the stay.

(3) Ventilator criterion. In addition to meeting the requirements of paragraph 

(b)(1) of this section, the discharge from the long-term care hospital is assigned to a 

LTC-DRG based on the patient’s receipt of ventilator services of at least 96 hours, as 

evidenced by the procedure code on the discharge bill indicating such services were 

provided during the stay.

(c) Site neutral payment rate--(1) General. Subject to the provisions of 

paragraph (c)(2) of this section, the site neutral payment rate is the lower of--

(i) The inpatient hospital prospective payment system comparable per diem 

amount determined under § 412.529(d)(4), including any applicable outlier payments 

specified in § 412.525(a); or

(ii) 100 percent of the estimated cost of the case determined under the provisions 

of § 412.529(d)(2). The provisions for cost- to-charge ratios at § 412.529(f)(4)(i) through 

(iii) apply to the calculation of the estimated cost of the case under this paragraph.

(2) Adjustments. CMS adjusts the payment rate determined under paragraph 

(c)(1) of this section to account for—

(i) Outlier payments, by applying a reduction factor equal to the estimated 

proportion of outlier payments under § 412.525(a) payable for discharges from a longterm care hospital described in paragraph (a)(1) of this section to total estimated 

payments under the long-term care hospital prospective payment system to discharges 

from a long-term care hospital described in paragraph (a)(1) of this section.
CMS-1632-P 1234

(ii) A 3-day or less interruption of a stay and a greater than 3-day interruption of 

a stay, as provided for in § 412.531. For purposes of the application of the provisions of 

§ 412.531 to discharges from a long-term care hospital described under paragraph (a)(1) 

of this section, the long-term care hospital prospective payment system standard Federal 

payment-related terms, such as “LTC-DRG payment,” “full Federal LTC-DRG 

prospective payment,” and “Federal prospective payment,” mean the site neutral payment 

rate calculated under paragraph (c) of this section.

(iii) The special payment provisions for long-term care hospitals-within-hospitals 

and satellite facilities of long-term care hospitals specified in § 412.534.

(iv) The special payment provisions for long-term care hospitals and satellite 

facilities 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 facility of the long-term care hospital, as provided in § 412.536.

(3) Transition. For discharges in cost reporting periods beginning on or after 

October 1, 2015 and on or before September 30, 2017, payment for discharges under 

paragraph (c)(1) of this section are made using a blended payment rate, which is 

determined as--

(i) 50 percent of the site neutral payment rate amount for the discharge as 

determined under paragraph (c)(1) of this section; and

(ii) 50 percent of the standard Federal prospective payment rate amount for the 

discharge as determined under § 412.523.
CMS-1632-P 1235

(4) Reconciliation of payments under the site neutral payment rate. Payments 

under paragraph (c) of this section are reconciled in accordance with the following 

provisions:

(i) Any reconciliation of payments under the site neutral payment rate is based on 

the cost-to-charge ratio calculated based on a ratio of costs to charges computed from the 

relevant cost report and charge data determined at the time the cost report coinciding with 

the discharge is settled.

(ii) At the time of any reconciliation under paragraph (c)(4)(i) of this section, 

payments under the site neutral payment rate may be adjusted to account for the time 

value of any underpayments or overpayments. Any adjustment is based upon a widely 

available index to be established in advance by the Secretary, and is applied from the 

midpoint of the cost reporting period to the date of reconciliation.

(d) Discharge payment percentage. (1) For purposes of this section, the 

discharge payment percentage is a ratio, expressed as a percentage, of Medicare 

discharges that meet the criteria for exclusion from the site neutral payment rate as 

described under paragraph (a)(2) of this section to total Medicare discharges paid under 

this Subpart O during the cost reporting period.

(2) CMS will inform each long-term care hospital of its discharge payment 

percentage, as determined under paragraph (d)(1) of this section, for each cost reporting 

period beginning on or after October 1, 2015.

11. Section 412.523 is amended by adding a new paragraph (c)(3)(xii) and 

revising paragraph (d)(1) to read as follows:
CMS-1632-P 1236

§ 412.523 Methodology for calculating the Federal prospective payment rates.

* * * * *

(c) * * *

(3) * * *

(xii) For long-term care hospital prospective payment system fiscal year 

beginning October 1, 2015, and ending September 30, 2016. The LTCH PPS standard 

Federal payment rate for the long-term care hospital prospective payment system 

beginning October 1, 2015, and ending September 30, 2016, is the standard Federal 

payment rate for the previous long-term care hospital prospective payment system fiscal 

year updated by 1.9 percent, and further adjusted, as appropriate, as described in 

paragraph (d) of this section.

* * * * *

(d) * * *

(1) Outlier payments. CMS adjusts the LTCH PPS standard Federal payment 

rate by a reduction factor of 8 percent, the estimated proportion of outlier payments under 

§412.525(a) payable for discharges described in § 412.522(a)(2).

* * * * *

12. Section 412.525 is amended by revising paragraphs (a)(1), (2), and (3) and 

adding a new paragraph (a)(5), to read as follows:

§ 412.525 Adjustments to the Federal prospective payment.

(a) * * *
CMS-1632-P 1237

(1) CMS provides for an additional payment to a long-term care hospital if its 

estimated costs for a patient exceed the applicable long-term care hospital prospective 

payment system payment plus an applicable fixed-loss amount. For each long-term care 

hospital prospective payment system payment year, CMS annually establishes a 

fixed-loss amount that is the maximum loss that a long-term care hospital would incur 

under the applicable prospective payment system rate for a case with unusually high costs 

before receiving an additional payment.

(2) The fixed-loss amount for discharges from a long-term care hospital 

described under § 412.522(a)(2) is determined for the long-term care hospital prospective 

payment system payment year, using the LTC-DRG relative weights that are in effect at 

the start of the applicable long-term care hospital prospective payment system payment 

year.

(3) The additional payment equals 80 percent of the difference between the 

estimated cost of the patient's care (determined by multiplying the hospital-specific 

cost-to-charge ratio by the Medicare allowable covered charge) and the sum of the 

applicable long-term care hospital prospective payment system payment and the 

applicable fixed-loss amount.

* * * * *

(5) For purposes of this paragraph (a)--

(i) Applicable long-term care hospital prospective payment system payment

means:
CMS-1632-P 1238

(A) The site neutral payment rate established under § 412.522(c) for long-term 

care hospital discharges described under § 412.522(a)(1); or

(B) The standard Federal prospective payment rates established under § 412.523 

for long-term care hospital discharges described under § 412.522(a)(2).

(ii) Applicable fixed-loss amount means:

(A) For long-term care hospital discharges described under § 412.522(a)(1), the 

fixed-loss amount established for such cases as provided at § 412.522(c)(2)(i).

(B) For long-term care hospital discharges described under § 412.522(a)(2), the 

fixed-loss amount established for such cases as provided at § 412.523(e).

* * * * *

13. A new § 412.560 is added to read as follows:

§ 412.560 Participation, data submission, and other requirements under the 

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

(a) Participation in the LTCHQR Program. A long-term-care hospital must begin 

submitting quality data under the LTCHQR Program by no later than the first day of the 

calendar quarter subsequent to 30 days after the date on its CMS Certification Number 

(CCN) notification letter.

(b) Submission of data requirements and payment impact. (1) Except as 

provided in paragraph (c) of this section, a long-term care hospital must submit to CMS 

data on measures specified under sections 1886(m)(5)(D), 1899B(c)(1), and 1899B(d)(1) 

of the Act, as applicable, in a form and manner, and at a time, specified by CMS.
CMS-1632-P 1239

(2) A long-term care hospital that does not submit data in accordance with 

sections 1886(m)(5)(C) and 1886(m)(5)(F) of the Act with respect to a given fiscal year 

will have its annual update to the standard Federal rate for discharges for the long-term 

care hospital during the fiscal year reduced by 2 percentage points.

(c) Exception and extension request requirements. Upon request by a long-term 

care hospital, CMS may grant an exception or extension with respect to the quality data 

reporting requirements, for one or more quarters, in the event of certain extraordinary 

circumstances beyond the control of the long-term care hospital, subject to the following:

(1) A long-term care hospital that wishes to request an exception or extension 

with respect to quality data reporting requirements must submit its request to CMS within 

30 days of the date that the extraordinary circumstances occurred.

(2) A long-term care hospital must submit its request for an exception or 

extension to CMS via e-mail. E-mail is the only form that may be used to submit to CMS 

a request for an exception or an extension.

(3) The e-mail request for an exception or extension must contain the following 

information:

(i) The CCN for the long-term care hospital.

(ii) The business name of the long-term care hospital.

(iii) The business address of the long-term care hospital.

(iv) Contact information for the long-term care hospital’s chief executive officer 

or designated personnel, including the name, telephone number, title, e-mail address, and 

physical mailing address. (The mailing address may not be a post office box.)
CMS-1632-P 1240

(v) A statement of the reason for the request for the exception or extension.

(vi) Evidence of the impact of the extraordinary circumstances, including, but not 

limited to, photographs, newspaper articles, and other media.

(vii) The date on which the long-term care hospital will be able to again submit 

quality data under the LTCHQR Program and a justification for the proposed date.

(4) CMS may grant an exception or extension to a long-term care hospital that 

has not been requested by the long-term care hospital if CMS determines that—

(i) An extraordinary circumstance affects an entire region or locale; or

(ii) A systemic problem with one of CMS’ data collection systems directly 

affected the ability of the long-term care hospital to submit quality data.

(d) Reconsiderations of noncompliance decisions--(1) Written notification of 

noncompliance decision. CMS will send a long-term care hospital written notification of 

a decision of noncompliance with the quality data reporting requirements for a particular 

fiscal year. CMS also will use the Quality Improvement and Evaluation system (QIES) 

Assessment Submission and Processing (ASAP) System to provide notification of 

noncompliance to the long-term care hospital.

(2) Request for reconsideration of noncompliance decision. A long-term care 

hospital may request a reconsideration of CMS’ decision of noncompliance no later than 

30 calendar days from the date of the written notification of noncompliance. The 

reconsideration request by the long-term care hospital must be submitted to CMS via 

e-mail and must contain the following information:

(i) The CCN for the long-term care hospital.
CMS-1632-P 1241

(ii) The business name of the long-term care hospital.

(iii) The business address of the long-term care hospital.

(iv) Contact information for the long-term care hospital’s chief executive officer 

or designated personnel, including each individual’s name, title, e-mail address, 

telephone number, and physical mailing address. (The physical address may not be a 

post office box.)

(v) CMS’s identified reason(s) for the noncompliance decision from the written 

notification of noncompliance.

(vi) The reason for requesting reconsideration of CMS’ noncompliance decision.

(vii) Accompanying documentation that demonstrates compliance of the longterm care hospital with the quality reporting requirements. This documentation must be 

submitted electronically at the same time as the reconsideration request as an attachment 

to the e-mail. Any reconsideration request that fails to provide sufficient evidence of 

compliance will not be reviewed.

(3) CMS decision on reconsideration request. CMS will notify the long-term 

care hospital, in writing, of its final decision regarding any reconsideration request. CMS 

also will use the QIES ASAP System to provide notice of its final decision on the 

reconsideration request.

(e) Appeals of reconsideration requests. A long-term care hospital that is 

dissatisfied with a decision made by CMS on its reconsideration request may file an 

appeal with the Provider Reimbursement Review Board under part 405, subpart R, of this 

chapter.
CMS-1632-P 1242

For the reasons stated in the preamble, the Department of Health and Human 

Services proposes to further amend 45 CFR part 170 as previously proposed to be 

amended on March 30, 2015 (80 FR 16902) as follows:

TITLE 45—Public Welfare

PART 170--HEALTH INFORMATION TECHNOLOGY STANDARDS,

IMPLEMENTATION SPECIFICATIONS, AND CERTIFICATION CRITERIA 

AND CERTIFICATION PROGRAMS FOR HEALTH INFORMATION 

TECHNOLOGY

14. The authority citation for part 170 continues to read as follows:

Authority: 42 U.S.C. 300jj-11; 42 U.S.C.300jj-14; 5 U.S.C. 552.

15. Section 170.315 as proposed to be added on March 30, 2015 (80 FR 16905) 

is amended by adding paragraph (c)(3) to read as follows:

§ 170.315 2015 Edition health IT certification criteria.

* * * * *

(c) * * *

(3) Clinical quality measures--report. Enable a user to electronically create a data 

file for transmission of clinical quality measurement data:

(i) Mandatory. At a minimum, in accordance with the standards specified in 

§ 170.205(h) and § 170.205(k) of this chapter; and

(ii) Optional. That can be electronically accepted by CMS.

* * * * *
CMS-1632-P

Dated: April 13, 2015.

 Andrew M. Slavitt,

 Acting Administrator, Centers for 

 Medicare & Medicaid Services

Dated: April 15, 2015.

 Sylvia M. Burwell,

 Secretary, Department of Health and Human

 Services.

BILLING CODE 4120-01-P
CMS-1632-P 1247

Note: The following Addendum and Appendixes will not appear in the Code of 

Federal Regulations.

Addendum—Proposed Schedule of Standardized Amounts, Update Factors, 

Rate-of-Increase Percentages Effective with Cost Reporting Periods Beginning on or 

after October 1, 2015, and Payment Rates for LTCHs Effective for Discharges 

Occurring on or after October 1, 2015

I. Summary and Background

In this Addendum, we are setting forth a description of the methods and data we 

used to determine the proposed prospective payment rates for Medicare hospital inpatient 

operating costs and Medicare hospital inpatient capital-related costs for FY 2016 for 

acute care hospitals. We also are setting forth the rate-of-increase percentage for 

updating the target amounts for certain hospitals excluded from the IPPS for FY 2016. 

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 proposed figures for the standardized amounts, offsets, and budget 

neutrality factors. Therefore, in this proposed rule, we are setting forth the 

rate-of-increase percentage 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, 2015.

In addition, we are setting forth a description of the methods and data we used to 

determine the proposed standard Federal rate that would be applicable to Medicare 

LTCHs for FY 2016.
CMS-1632-P 1248

In general, except for SCHs and hospitals located in Puerto Rico, for FY 2016, 

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.D. of 

the preamble of 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 the MDH program expired for discharges beginning on 

April 1, 2015 under current law.

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 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 2016. In section III. of this Addendum, we discuss 

our proposed policy changes for determining the prospective payment rates for Medicare 
CMS-1632-P 1249

inpatient capital-related costs for FY 2016. In section IV. of this Addendum, we are 

setting forth the rate-of-increase percentage for determining the rate-of-increase limits for 

certain hospitals excluded from the IPPS for FY 2016. 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 2016. 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 on the CMS Web site.

II. Proposed Changes to Prospective Payment Rates for Hospital Inpatient 

Operating Costs for Acute Care Hospitals for FY 2016

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 proposing to use for determining the proposed 

prospective payment rates for FY 2016.

In summary, the proposed 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.
CMS-1632-P 1250

● 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 2016, 

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 readers to section IV.A. of the preamble of this proposed 

rule for a complete discussion on the proposed FY 2016 inpatient hospital update. Below 

is a table with these four options:
CMS-1632-P 1251

FY 2016

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

Proposed Market Basket 

Rate-of-Increase 2.7 2.7 2.7 2.7

Proposed 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

Proposed Adjustment for 

Failure to be a Meaningful 

EHR User under Section 

1886(b)(3)(B)(ix) of the 

Act 0.0 -1.35 0.0 -1.35

Proposed MFP Adjustment 

under Section 

1886(b)(3)(B)(xi) of the 

Act -0.6 -0.6 -0.6 -0.6

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 1.9 0.55 1.225 -0.125

● A proposed update of 1.9 percent to the Puerto Rico-specific standardized 

amount (that is, the proposed FY 2016 estimate of the market basket rate-of-increase of 

2.7 percent less a proposed adjustment of 0.6 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 Pub. L. 108-173, which sets the update to the Puerto Rico-specific 
CMS-1632-P 1252

standardized amount equal to the applicable percentage increase set forth under section 

1886(b)(3)(B)(i) of the Act.

● An adjustment to the standardized amount to ensure budget neutrality for DRG 

recalibration and reclassification, as provided for under section 1886(d)(4)(C)(iii) of the 

Act.

● An adjustment to ensure the wage index changes are budget neutral, as 

provided for under section 1886(d)(3)(E)(i) of the Act. We note that 

section 1886(d)(3)(E)(i) of the Act requires that when we compute such budget 

neutrality, we assume that the provisions of section 1886(d)(3)(E)(ii) of the Act 

(requiring a 62 percent labor-related share in certain circumstances) had not been 

enacted.

● An adjustment to ensure the effects of geographic reclassification are budget 

neutral, as provided for under section 1886(d)(8)(D) of the Act, by removing the FY 2015 

budget neutrality factor and applying a revised factor.

● As discussed below and in section III.G. of the preamble of this proposed rule, 

an adjustment to offset the cost of the 3-year hold harmless transitional wage index 

provisions provided by CMS as a result of the implementation of the new OMB labor 

market area delineations (beginning with FY 2015).

● An adjustment to ensure the effects of the rural community hospital 

demonstration program required under section 410A of Pub. L. 108-173, as amended by 

sections 3123 and 10313 of Pub. L. 111-148, which extended the demonstration program 
CMS-1632-P 1253

for an additional 5 years, are budget neutral as required under section 410A(c)(2) of 

Pub. L. 108-173.

● An adjustment to remove the FY 2015 outlier offset and apply an offset for 

FY 2016, 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 

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 

Pub. L. 110-90 until FY 2013.

For FY 2016, consistent with current law, we are applying the rural floor budget 

neutrality adjustment to hospital wage indexes. Also, consistent with section 3141 of the 

Affordable Care Act, instead of applying a State level rural floor budget neutrality 

adjustment to the wage index, we are applying a uniform, national budget neutrality 

adjustment to the FY 2016 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, 2016. Therefore, for FY 2016, in 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 would be reflected in the FY 2016 wage index.
CMS-1632-P 1254

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 requires us to update 

base-year per discharge costs for FY 1984 and then standardize the cost data in order to 

remove the effects of certain sources of cost variations among hospitals. These effects 

include case-mix, differences in area wage levels, cost-of-living adjustments for Alaska 

and Hawaii, IME costs, and costs to hospitals serving a disproportionate share of 

low-income patients.

For FY 2016, we are proposing to continue to use the national and Puerto 

Rico-specific labor-related and nonlabor-related shares (which are based on the 
CMS-1632-P 1255

FY 2010-based hospital market basket) that were used in FY 2015. Specifically, under 

section 1886(d)(3)(E) of the Act, the Secretary estimates, from time to time, the 

proportion of payments that are labor-related and adjusts 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 2016, as discussed in section III. of the preamble of this proposed rule, 

we are proposing to continue to use 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 

indexes 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 2016, 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 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 
CMS-1632-P 1256

Puerto Rico), the result is a proposed Puerto Rico-specific 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 on the CMS Web site.

2. Computing the National Average Standardized Amount and Puerto Rico-Specific 

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 2016 national 

average standardized amount and Puerto Rico-specific standardized amount irrespective 

of whether a hospital is located in an urban or rural location.
CMS-1632-P 1257

3. Updating the National Average Standardized Amount and Puerto Rico-Specific 

Standardized Amount

Section 1886(b)(3)(B) of the Act specifies the applicable percentage increase used 

to update the standardized amount for payment for inpatient hospital operating costs. We 

note that, in compliance with section 404 of the MMA, in this proposed rule, we are 

proposing to use the revised and rebased FY 2010-based IPPS operating and capital 

market baskets for FY 2016 (which replaced the FY 2006-based IPPS operating and 

capital market baskets in FY 2014). As discussed in section IV.A. of the preamble of this 

proposed rule, in accordance with section 1886(b)(3)(B) of the Act, as amended by 

section 3401(a) of the Affordable Care Act, we are proposing to reduce the FY 2016 

applicable percentage increase (which is based on IHS Global Insight, Inc.’s (IGI’s) first 

quarter 2015 forecast of the FY 2010-based IPPS market basket) by the MFP adjustment 

(the 10-year moving average of MFP for the period ending FY 2016) of 0.6 percentage 

point, which is calculated based on IGI’s first quarter 2015 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 2016 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 the 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 
CMS-1632-P 1258

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 2015 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 2016 is 2.7 percent. As discussed above, for 

FY 2016, 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.A. of the preamble of this proposed rule for a complete discussion on the 

proposed FY 2016 inpatient hospital update to the standardized amount. We also refer 

readers to the table above for the four possible 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 on the CMS Web site reflect these 

differential amounts.

Section 401(c) of Pub. L. 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 
CMS-1632-P 1259

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 Rico-specific standardized amount of 

1.9 percent for FY 2016.

Although the update factors for FY 2016 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 2016 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 2016 standardized amount to 

remove the effects of the FY 2015 geographic reclassifications and outlier payments 

before applying the FY 2016 updates. We then apply budget neutrality offsets for 

outliers and geographic reclassifications to the standardized amount based on proposed 

FY 2016 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 
CMS-1632-P 1260

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.

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 
CMS-1632-P 1261

identifying and adding the total Medicare Advantage IME payment amount to the budget 

neutrality adjustments.

In addition, 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).

Finally, consistent with our methodology established in the FY 2011 IPPS/LTCH 

PPS final rule (75 FR 50422 through 50423), we examined the MedPAR file and 

removed pharmacy charges for anti-hemophilic blood factor (which are paid separately 

under the IPPS) with an indicator of “3” for blood clotting with a revenue code of “0636” 

from the covered charge field for the budget neutrality adjustments. We also removed 

organ acquisition charges from the covered charge field for the budget neutrality 

adjustments because organ acquisition is a pass-through payment not paid under the 

IPPS.

The Bundled Payments for Care Improvement (BPCI) initiative, developed under 

the authority of section 3021 of the Affordable Care Act (codified at section 1115A of the 

Act), is comprised of four broadly defined models of care, which link payments for 

multiple services beneficiaries receive during an episode of care. Under the BPCI 

initiative, organizations enter into payment arrangements that include financial and 

performance accountability for episodes of care. On January 31, 2013, CMS announced 

the first set of health care organizations selected to participate in the BPCI initiative. 

Additional organizations were selected in 2014. For additional information on the BPCI 
CMS-1632-P 1262

initiative, we refer readers to the CMS Center for Medicare and Medicaid Innovation’s 

Web site at: http://innovation.cms.gov/initiatives/Bundled-Payments/index.html.

In the FY 2013 IPPS/LTCH PPS final rule (77 FR 53341 through 53343), for 

FY 2013 and subsequent fiscal years, we finalized a methodology to treat hospitals that 

participate in the BPCI initiative the same as prior fiscal years for the IPPS payment 

modeling and 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). For FY 2016, 

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.

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 
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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.E. of the preamble of this proposed rule for full 

details of our proposed FY 2016 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, value-based 

incentive payments are made in a fiscal year to eligible subsection (d) hospitals based on 

their performance on measures 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 
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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.F. of the preamble of this proposed rule for details regarding the Hospital VBP 

Program.

Both the hospital readmissions payment adjustment (reduction) and the hospital 

VBP payment adjustment (redistribution) are applied on a claim-by-claim basis by 

adjusting, as applicable, the base-operating DRG payment amount for individual 

subsection (d) hospitals, which affects the overall sum of aggregate payments on each 

side of the comparison within the budget neutrality calculations. For example, when we 

calculate the budget neutrality factor for MS-DRG reclassification and recalibration of 

the relative weights, we compare aggregate payments estimated using the prior year’s 

GROUPER and relative weights to estimated payments using the new GROUPER and 

relative weights. (We refer readers to section II.A.4.a. of this Addendum for 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 and FY 2015, for FY 2016 and subsequent years, we 

are proposing to continue to apply the proposed hospital readmissions payment 

adjustment and the proposed hospital VBP payment adjustment on each side of the 

comparison, consistent with the methodology that we adopted in the FY 2013 
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IPPS/LTCH PPS final rule (77 FR 53687 through 53688). That is, we are proposing to 

apply the proposed readmissions payment adjustment factor and the proposed 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 2016 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 FY 2016, in 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 2016 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 proposed policy regarding the reporting of 

hospital-specific readmission rates for FY 2016 in section IV.E.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).)
CMS-1632-P 1266

In addition, for FY 2016, in this proposed rule, for the purpose of modeling 

aggregate payments when determining all budget neutrality factors, we are proposing to 

use proxy hospital VBP payment adjustment factors for FY 2016 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 2016 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 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 and an additional statutory adjustment, will be available 

to make additional payments to Medicare DSH hospitals based on their share of the total 
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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 FY 2014, 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 2016 (as we did for FY 2014 and FY 2015), 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 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 is greater. As 

discussed in section IV.D. of the preamble to this proposed rule and below, we are 

proposing to continue the FY 2014 finalized methodology under which we would take 

into consideration uncompensated care payments in the comparison of payments under 
CMS-1632-P 1268

the Federal rate and the hospital-specific rate for SCHs. Therefore, we are proposing to 

include estimated uncompensated care payments in this comparison.

In addition, we are proposing to include an 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 2016. We did not include this adjustment for 

FY 2015 because that was the first year hospitals experienced a reduction to their 

applicable percentage increase due to whether they are meaningful EHR users and data 

were not available at that time. However, we believe it is appropriate to include this 

adjustment for FY 2016 because FY 2016 will be the second year for which hospitals will 

experience this reduction and data on the prior year’s performance are now available. 

Payments for hospitals would be estimated based on the proposed applicable standardized 

amount in Tables 1A and 1B for discharges occurring in FY 2016.

a. Proposed Recalibration of MS-DRG Relative Weights and Updated Wage 

Index--Budget Neutrality Adjustment

Section 1886(d)(4)(C)(iii) of the Act specifies that, beginning in FY 1991, the 

annual DRG reclassification and recalibration of the relative weights must be made in a 

manner that ensures that aggregate payments to hospitals are not affected. As discussed 

in section II.H. of the preamble of this proposed rule, we normalized the recalibrated 

MS-DRG relative weights by an adjustment factor so that the average case relative 

weight after recalibration is equal to the average case relative weight prior to 

recalibration. However, equating the average case relative weight after recalibration to 

the average case relative weight before recalibration does not necessarily achieve budget 
CMS-1632-P 1269

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 labor-related share for hospitals with wage 

indexes less than or equal to 1.0000 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 labor-related share of 62 percent. Consistent 

with current policy, for FY 2016, we are proposing to adjust 100 percent of the wage 
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index factor for occupational mix. We describe the occupational mix adjustment in 

section III.E. of the preamble of this proposed rule.

For FY 2016, 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 2014 discharge data to simulate 

payments and compared the following:

● Aggregate payments using the FY 2015 labor-related share percentages, the 

FY 2015 relative weights, and the FY 2015 pre-reclassified wage data, and applied the 

proposed FY 2016 hospital readmissions payment adjustments and estimated FY 2016 

hospital VBP payment adjustments; and

● Aggregate payments using the FY 2015 labor-related share percentages, the 

proposed FY 2016 relative weights, and the FY 2015 pre-reclassified wage data, and 

applied the same proposed FY 2016 hospital readmissions payment adjustments and 

estimated FY 2016 hospital VBP payment adjustments applied above.

Based on this comparison, we computed a proposed budget neutrality adjustment 

factor equal to 0.998335. As discussed in section IV. of this Addendum, we also are 

proposing to apply the MS-DRG reclassification and recalibration budget neutrality 

factor of 0.998335 to the hospital-specific rates that are effective for cost reporting 

periods beginning on or after October 1, 2015.

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 

adjustment factor, it was necessary to use a three-step process to comply with the 
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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 adjustment factor of 0.998335 (by using the same 

methodology described above to determine the proposed MS-DRG reclassification and 

recalibration budget neutrality factor for the Puerto Rico standardized amount and 

hospital-specific rates). Under the second step, to compute a proposed budget neutrality 

adjustment factor for wage index and labor-related share percentage changes we used 

FY 2014 discharge data to simulate payments and compared the following:

● Aggregate payments using the proposed FY 2016 relative weights and the 

FY 2015 pre-reclassified wage indexes, applied the FY 2015 labor-related share of 69.6 

percent to all hospitals (regardless of whether the hospital’s wage index was above or 

below 1.0000), and applied the proposed FY 2016 hospital readmissions payment 

adjustment and the estimated FY 2016 hospital VBP payment adjustment; and

● Aggregate payments using the proposed FY 2016 relative weights and the 

proposed FY 2016 pre-reclassified wage indexes, applied the proposed labor-related 

share for FY 2016 of 69.6 percent to all hospitals (regardless of whether the hospital’s 

wage index was above or below 1.0000), and applied the same proposed FY 2016 

hospital readmissions payment adjustments and estimated FY 2016 hospital VBP 

payment adjustments applied above.

In addition, we applied the proposed MS-DRG reclassification and recalibration 

budget neutrality adjustment factor (derived in the first step) to the payment rates that 
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were used to simulate payments for this comparison of aggregate payments from 

FY 2015 to FY 2016. By applying this methodology, we determined a proposed budget 

neutrality adjustment factor of 0.998681 for proposed changes to the wage index. 

Finally, we multiplied the proposed MS-DRG reclassification and recalibration budget 

neutrality adjustment factor of 0.998335 (derived in the first step) by the proposed budget 

neutrality adjustment factor of 0.998681 for proposed 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 0.997018.

b. Reclassified Hospitals—Proposed Budget Neutrality Adjustment

Section 1886(d)(8)(B) of the Act provides that certain rural hospitals are deemed 

urban. In addition, section 1886(d)(10) of the Act provides for the reclassification of 

hospitals based on determinations by the MGCRB. Under section 1886(d)(10) of the 

Act, a hospital may be reclassified for purposes of the wage index.

Under section 1886(d)(8)(D) of the Act, the Secretary is required to adjust the 

standardized amount to ensure that aggregate payments under the IPPS after 

implementation of the provisions of sections 1886(d)(8)(B) and (C) and 1886(d)(10) of 

the Act are equal to the aggregate prospective payments that would have been made 

absent these provisions. We note that the wage index adjustments provided for under 

section 1886(d)(13) of the Act are not budget neutral. Section 1886(d)(13)(H) of the Act 

provides that any increase in a wage index under section 1886(d)(13) shall not be taken 

into account in applying any budget neutrality adjustment with respect to such index 

under section 1886(d)(8)(D) of the Act. To calculate the proposed budget neutrality 
CMS-1632-P 1273

adjustment factor for FY 2016, we used FY 2014 discharge data to simulate payments 

and compared the following:

● Aggregate payments using the proposed FY 2016 labor-related share 

percentages, proposed FY 2016 relative weights and proposed FY 2016 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 2016 hospital readmissions payment adjustments and the 

estimated FY 2016 hospital VBP payment adjustments; and

● Aggregate payments using the proposed FY 2016 labor-related share 

percentages, proposed FY 2016 relative weights, and proposed FY 2016 wage data after 

such reclassifications, and applied the same proposed FY 2016 hospital readmissions 

payment adjustments and the estimated FY 2016 hospital VBP payment adjustments 

applied above.

We note that the reclassifications applied under the second simulation and 

comparison are those listed in Table 2 associated with this proposed, which is available 

via the Internet on the CMS Web site. This table reflects reclassification crosswalks 

proposed for FY 2016, and apply the proposed 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 0.988486 to ensure that the effects of these 

provisions are budget neutral, consistent with the statute.

The proposed FY 2016 budget neutrality adjustment factor was applied to the 

standardized amount after removing the effects of the FY 2015 budget neutrality 

adjustment factor. We note that the proposed FY 2016 budget neutrality adjustment 
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reflects FY 2016 wage index reclassifications approved by the MGCRB or the 

Administrator at the time of development of the proposed rule.

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.H. 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.H.2. 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 
CMS-1632-P 1275

neutrality adjustment for FY 2014. For FY 2015, as discussed in the FY 2015 

IPPS/LTCH PPS final rule (79 FR 49969 through 49971), we extended the imputed floor 

for another year using the higher of the value determined under the original methodology 

or the alternative methodology. As discussed in section III.H.2. 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 2016. 

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 proposed imputed 

floor in the proposed rural floor budget neutrality adjustment to the wage index.

Under the new OMB labor market area delineations adopted beginning with the 

FY 2015 wage indexes, New Jersey, Rhode Island, and Delaware are all-urban States. 

Therefore, for FY 2016, the proposed imputed floor was applied to the wage index for 

hospitals located in these three States.

Similar to our calculation in the FY 2015 IPPS/LTCH PPS final rule 

(79 FR 50369 through 50370), for FY 2016, we are proposing to calculate a national rural 

Puerto Rico wage index (used to adjust the labor-related share of the national 

standardized amount for hospitals located in Puerto Rico which receive 75 percent of the 

national standardized amount) and a rural Puerto Rico-specific wage index (which is used 

to adjust the labor-related share of the Puerto Rico-specific standardized amount for 

hospitals located in Puerto Rico that receive 25 percent of the Puerto Rico-specific 

standardized amount). Because there are no rural Puerto Rico hospitals with established 

wage data, our calculation of the proposed FY 2016 rural Puerto Rico wage index is
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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 

proposed FY 2016 rural Puerto Rico wage index is calculated based on the average of the 

proposed FY 2016 wage indexes 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 Juan-Carolina-Caguas, PR 

(CBSA 41980).

To calculate the national rural floor and imputed floor budget neutrality 

adjustment factors and the Puerto Rico-specific rural floor budget neutrality adjustment 

factor, we are proposing to use FY 2014 discharge data to simulate payments and the 

proposed post-reclassified national and Puerto Rico-specific wage indexes and compared 

the following:

● The national and Puerto Rico-specific simulated payments without the 

proposed national rural floor and proposed imputed floor and proposed Puerto 

Rico-specific rural floor applied; and

● The national and Puerto Rico-specific simulated payments with the proposed 

national rural floor and proposed imputed floor and proposed Puerto Rico-specific rural 

floor applied.
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Based on this comparison, we determined a proposed national rural budget 

neutrality adjustment factor of 0.990135 and the proposed Puerto Rico-specific budget 

neutrality adjustment factor of 0.987626. The national adjustment was applied to the 

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 Puerto 

Rico-specific wage indexes to produce a proposed Puerto Rico-specific rural floor budget 

neutral wage index.

d. Wage Index Transition Budget Neutrality

As discussed in section III.G. of the preamble of 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 determined that the transition to using the 

new OMB labor market area delineations would have the largest impact on hospitals that 

were located in an urban county that became rural under the new OMB delineations or 

hospitals deemed urban where the urban area became 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 finalized a policy to generally assign these counties the 

urban wage index value of the CBSA to which they are physically located in for FY 2014 

for FYs 2015, 2016, and 2017. Fiscal year 2016 will be the second year of this 3-year 

transition policy. We note that the 1-year blended wage index transitional policy for all 
CMS-1632-P 1278

hospitals that would experience any decrease in their wage index value expires in 

FY 2015.

As discussed in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50372 through 

50373), in the past, CMS has budget neutralized transitional wage indexes. We stated 

that because we established a policy that allows for the application of a transitional wage 

index only when it benefits 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 OMB delineations without any 

transitional provisions. Therefore, as we did for FY 2015, for FY 2016, 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 for the effect of the 3-year transitional wage index provisions 

would equal what payments would have been if we had fully adopted the new OMB 

delineations without providing these transitional provisions. To calculate the proposed 

transitional wage index budget neutrality factor for FY 2016, we used FY 2014 discharge 

data to simulate payments and compared the following:

● Aggregate payments using the OMB delineations for FY 2016, the proposed 

FY 2016 relative weights, proposed FY 2016 wage data after such reclassifications under 

sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act, application of the proposed 

rural floor budget neutrality adjustment factor to the wage index, and application of the 

proposed FY 2016 hospital readmissions payment adjustments and the estimated 

FY 2016 hospital VBP payment adjustments; and
CMS-1632-P 1279

● Aggregate payments using the OMB delineations for FY 2016, the proposed 

FY 2016 relative weights, proposed FY 2016 wage data after such reclassifications under 

sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act, application of the proposed 

rural floor budget neutrality adjustment factor to the wage index, application of the 3-year 

transitional wage indexes, and application of the same proposed FY 2016 hospital 

readmissions payment adjustments and the estimated FY 2016 hospital VBP payment 

adjustments applied above.

Based on these simulations, we calculated a proposed budget neutrality 

adjustment factor of 0.999995. Therefore, for FY 2016, we are proposing to apply a 

transitional wage index budget neutrality adjustment factor of 0.999995 to the national 

average and Puerto Rico-specific standardized amounts to ensure that the effects of these 

proposed transitional wage indexes are budget neutral.

We note that the proposed budget neutrality adjustment factor calculated above is 

based on the increase in payments in FY 2016 that would result from the second year of 

the 3-year transitional wage index policies. Therefore, we are proposing to apply this 

proposed budget neutrality adjustment factor as a one-time adjustment to the FY 2016 

national and Puerto Rico-specific standardized amounts in order to offset the increase in 

payments in FY 2016 as a result of this second year of the 3-year transitional wage index. 

For subsequent fiscal years, we would not take into consideration the adjustment factor 

applied to the national and Puerto Rico-specific standardized amounts in the previous 

fiscal year’s update when calculating the current fiscal year transitional wage index 
CMS-1632-P 1280

budget neutrality adjustment factor (that is, this adjustment will not be applied 

cumulatively).

e. Proposed Case-Mix Budget Neutrality Adjustment

(1) Background

Below we summarize the proposed recoupment adjustment to the FY 2016

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 Pub. L. 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 2016 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.

(2) 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 Pub. L. 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 and FY 2015, we applied a -0.8 percent adjustment to 
CMS-1632-P 1281

the standardized amount. For FY 2016, we are proposing to apply a -0.8 percent 

adjustment to the standardized amount. 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.

f. Proposed Rural Community Hospital Demonstration Program Adjustment

As discussed in section IV.I. of the preamble of this proposed rule, section 410A 

of Pub. L. 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 Pub. L. 108-173 requires that in 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 previous final rules, we have adjusted the national IPPS payment rates by an 

amount sufficient to account for the added costs of this demonstration program. In other 

words, we have applied budget neutrality across the payment system as a whole rather 

than merely across the participants of this demonstration program. We believe the 
CMS-1632-P 1282

language of the statutory budget neutrality requirement permits the agency to implement 

the budget neutrality provision in this manner. The statutory language requires that 

aggregate payments made by the Secretary do not exceed the amount which the Secretary 

would have paid if the demonstration was not implemented, but does not identify the 

range across which aggregate payments must be held equal.

For FY 2016, we are proposing to adjust the national IPPS payment rates 

according to the proposed methodology set forth in section IV.I. of the preamble of this 

proposed rule, to account for the estimated additional costs of the demonstration program 

for FY 2016. In addition, we are proposing to subtract from the budget neutrality offset 

amount for FY 2016 the amount by which the budget neutrality offset amount that was 

finalized in the FY 2009 IPPS final rule exceeds the actual costs of the demonstration for 

FY 2009 (as shown in the finalized cost reports for cost reporting periods beginning in 

FY 2009). The proposed total budget neutrality offset amount that we are proposing to be 

applied to the FY 2016 IPPS rates is $17,738,497. Accordingly, using the most recent 

data available to account for the estimated costs of the demonstration program, for 

FY 2016, we computed a proposed factor of 0.999808 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 
CMS-1632-P 1283

payment rate for the MS-DRG, any IME and DSH payments, any new technology add-on 

payments, and the “outlier threshold” or “fixed-loss” amount (a dollar amount by which 

the costs of a case must exceed payments in order to qualify for an outlier payment). We 

refer to the sum of the prospective payment rate for the MS-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 2016 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 
CMS-1632-P 1284

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.htm.

(1) Proposed FY 2016 Outlier Fixed-Loss Cost Threshold

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50977 through 50983), in 

response to public comments on the FY 2013 IPPS/LTCH PPS 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.

For FY 2016, we are proposing to continue to use the same methodology that we 

used in FY 2014 and FY 2015. As we have done in the past, to calculate the proposed 

FY 2016 outlier threshold, we simulated payments by applying proposed FY 2016 

payment rates and policies using cases from the FY 2014 MedPAR file. Therefore, in 

order to determine the proposed FY 2016 outlier threshold, we inflated the charges on the 

MedPAR claims by 2 years, from FY 2014 to FY 2016. As discussed in the FY 2015 

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.
CMS-1632-P 1285

In the FY 2015 IPPS/LTCH final rule (79 FR 50375), we stated that 

commenters were concerned that they were unable to replicate the calculation of the 

charge inflation factor that CMS used in the proposed rule. In response to those 

comments, we stated that, consistent with our longstanding policy since FY 2005, we 

continue to believe that it is optimal to use the most recent period of charge data available 

to measure charge inflation. We also stated we would consider how best to provide 

additional information on the charge inflation factor for future years. In response to those 

comments, below we are providing a table that provides covered charges and cases by 

quarter in the periods used to calculate the charge inflation factor.

Quarter

Covered Charges 

(January 1, 2013, 

through 

December 31, 

2013)

Cases

(January 1, 

2013, through 

December 31, 

2013)

Covered 

Charges 

(January 1, 

2014, through 

December 31, 

2014)

Cases 

(January 1, 

2014, through 

December 31, 

2014)

1 $126,534,546,428 2,640,744 $125,988,476,809 2,480,809

2 $118,741,812,697 2,507,483 $121,297,544,913 2,433,390

3 $115,745,380,133 2,425,636 $116,785,744,335 2,321,731

4 $119,331,676,066 2,406,770 $89,923,763,220 1,764,002

Total $480,353,415,324 9,980,633 $453,995,529,277 8,999,932

Under this new methodology, to compute the 1-year average annualized 

rate-of-change in charges per case for FY 2016, we are proposing to compare the average 

covered charge per case of $48,129 ($480,353,415,324 / 9,980,633 ) from the second 

quarter of FY 2013 through the first quarter of FY 2014 (January 1, 2013, through 

December 31, 2013) to the average covered charge per case of $50,444 

($453,995,529,277 / 8,999,932 ) from the second quarter of FY 2014 through the first 
CMS-1632-P 1286

quarter of FY 2015 (January 1, 2014, through December 31, 2014). This rate-of-change 

is 4.8 percent (1.048116) or 9.8 percent (1.098547) over 2 years.

As we have done in the past, in this FY 2016 IPPS/LTCH PPS proposed rule, we

are proposing to establish the proposed FY 2016 outlier threshold using hospital CCRs 

from the December 2014 update to the Provider-Specific File (PSF)--the most recent 

available data at the time of the development of this proposed rule. In the following

instances, we substituted and used the proposed FY 2016 statewide average operating 

and/or capital CCR instead of the operating and/or capital CCR from the PSF if a 

hospital’s operating and/or capital CCR is 0 or blank, if a hospital’s operating and/or 

capital CCR is above the ceilings described below. For FY 2016, we also are proposing 

to continue to apply an adjustment factor to the CCRs to account for cost and charge 

inflation (as explained below). We are proposing that, if more recent data became 

available, we would use that data to calculate the final FY 2016 outlier threshold.

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 case-weighted operating and capital CCR from the same 

period of the prior year.

Therefore, as we did for FY 2014 and FY 2015, for FY 2016, we are proposing to 

adjust the CCRs from the December 2014 update of the PSF by comparing the percentage 

change in the national average case-weighted operating CCR and capital CCR from the 

December 2013 update of the PSF to the national average case-weighted operating CCR 
CMS-1632-P 1287

and capital CCR from the December 2014 update of the PSF. We note that we used total 

transfer-adjusted cases from FY 2014 to determine the national average case-weighted 

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 because 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 proposed December 

2013 operating national average case-weighted CCR of 0.288792 and a proposed 

December 2014 operating national average case-weighted CCR of 0.280581. We then 

calculated the percentage change between the two national operating case-weighted 

CCRs by subtracting the December 2013 operating national average case-weighted CCR 

from the December 2014 operating national average case-weighted CCR and then 

dividing the result by the December 2013 national operating average case-weighted CCR. 

This resulted in a proposed national operating CCR adjustment factor of 0.971568.

We used the same methodology proposed above to adjust the capital CCRs. 

Specifically, we calculated a December 2013 capital national average case-weighted 

CCR of 0.025014 and a December 2014 capital national average case-weighted CCR 

of 0.024500. We then calculated the percentage change between the two national capital 

case-weighted CCRs by subtracting the December 2013 capital national average 

case-weighted CCR from the December 2014 capital national average case-weighted 

CCR and then dividing the result by the December 2013 capital national average 
CMS-1632-P 1288

case-weighted CCR. This resulted in a proposed national capital CCR adjustment factor 

of 0.979474.

Consistent with our methodology used 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 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 MAC inserts 

the CCR in the PSF until the beginning of FY 2016 is approximately 1 year. Therefore, 

as stated above, we believe a 1-year adjustment factor to the CCRs is appropriate.

As discussed above, for FY 2016, we are proposing to apply the second year of 

the 3-year transitional wage index because of the 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.H.3. of the 

preamble of this proposed rule, in accordance with section 10324(a) of the Affordable 

Care Act, we created a wage index floor of 1.0000 for all hospitals located in States 

determined to be frontier States. We note that the frontier State floor adjustments would 

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 

would receive a wage index less than 1.0000 due to the proposed 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 
CMS-1632-P 1289

estimating the proposed outlier threshold for FY 2016, it was necessary to apply the 

proposed 3-year transitional wage indexes and adjust the proposed wage index of those 

eligible hospitals in a frontier State when calculating the proposed outlier threshold that 

results in outlier payments being 5.1 percent of total payments for FY 2016. If we did 

not take the above into account, our estimate of total FY 2016 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 2016 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 note that we have instructed 

MACs to identify for CMS any instances where (1) a hospital’s actual CCR for the cost 

reporting period fluctuates plus or minus 10 percentage points compared to the interim 

CCR used to calculate outlier payments when a bill is processed; and (2) the total outlier 

payments for the hospital exceeded $500,000.00 for that period. Our simulations assume 

that CCRs accurately measure hospital costs based on information available to us at the 
CMS-1632-P 1290

time we set the outlier threshold. For these reasons, we are proposing not to make any 

assumptions regarding the effects of reconciliation on the outlier threshold calculation.

As described in sections IV.E. and IV.F. 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 proposed outlier threshold calculation 

or the proposed 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 proposed outlier fixed-loss cost threshold.

We note that, to the extent section 1886(r) of the Act modifies the 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 
CMS-1632-P 1291

section 1886(d)(5)(A). As we did for FYs 2014 and 2015, we also are proposing for 

FY 2016 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 per-discharge 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 

FYs 2014 and 2015 to calculate the outlier fixed-loss cost threshold, for FY 2016, we are 

proposing to include estimated FY 2016 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 

proposed outlier fixed-loss cost threshold methodology.

Using this methodology, we are proposing an outlier fixed-loss cost threshold for 

FY 2016 equal to the prospective payment rate for the MS-DRG, plus any IME, 
CMS-1632-P 1292

empirically justified Medicare DSH payments, estimated uncompensated care payment, 

and any add-on payments for new technology, plus $24,485.

We note that the proposed FY 2016 fixed-loss cost threshold is lower than the 

FY 2015 final outlier fixed-loss cost threshold of $24,626. We believe that the decrease 

in the charge inflation factor (compared to the FY 2015 charge inflation factor) 

contributed to a lower proposed outlier fixed-loss threshold for FY 2016. As charges 

decrease, so does the amount of outlier payments. As a result, it was necessary for us to 

lower the proposed outlier fixed-loss cost threshold to increase 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 2016 will result in outlier payments that will equal 5.1 percent of 

operating DRG payments and 6.43 percent of capital payments based on the Federal rate.

In accordance with section 1886(d)(3)(B) of the Act, we are proposing to reduce 

the FY 2016 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 proposed FY 2016 outlier threshold are as follows:
CMS-1632-P 1293

Operating

Standardized Amounts Capital Federal Rate

National 0.948999 0.935731

Puerto Rico 0.926818 0.925658

We are proposing to apply the outlier adjustment factors to the proposed FY 2016 

payment rates after removing the effects of the FY 2015 outlier adjustment factors on the 

standardized amount.

To determine whether a case qualifies for outlier payments, we apply 

hospital-specific CCRs to the total covered charges for the case. Estimated operating and 

capital costs for the case are calculated separately by applying separate operating and 

capital CCRs. These costs are then combined and compared with the outlier fixed-loss 

cost threshold.

Under our current policy at § 412.84, we calculate operating and capital CCR 

ceilings and assign a statewide average CCR for hospitals whose CCRs exceed 3.0 

standard deviations from the mean of the log distribution of CCRs for all hospitals. 

Based on this calculation, for hospitals for which the fiscal intermediary or MAC 

computes operating CCRs greater than 1.22 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 on the CMS Web site) 

contains the proposed statewide average operating CCRs for urban hospitals and for rural 
CMS-1632-P 1294

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, 2015, these statewide average ratios would replace the ratios posted on 

our Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/FY-2014-IPPS-Final-Rule-Home-Page-Items/FY-2014-

IPPS-Final-Rule-CMS-1599-F-Tables.html. Table 8B listed in section VI. of this 

Addendum (and available via the Internet on the CMS Web site) contains the comparable 

proposed statewide average capital CCRs. As previously stated, the proposed CCRs in 

Tables 8A and 8B would be used during FY 2016 when hospital-specific CCRs based on 

the latest settled cost report either are not available or are outside the range noted above. 

Table 8C listed in section VI. of this Addendum (and available via the Internet on the 

CMS Web site) 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 
CMS-1632-P 1295

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 2014 and FY 2015 Outlier Payments

In the FY 2015 IPPS/LTCH PPS final rule correction notice (79 FR 59681), we 

stated that, based on available data, we estimated that actual FY 2014 outlier payments 

would be approximately 5.68 percent of actual total MS-DRG payments. This estimate 

was computed based on simulations using the FY 2013 MedPAR file (discharge data for 

FY 2013 claims). That is, the estimate of actual outlier payments did not reflect actual 

FY 2014 claims, but instead reflected the application of FY 2014 payment rates and 

policies to available FY 2013 claims.

Our current estimate, using available FY 2014 claims data, is that actual outlier 

payments for FY 2014 were approximately 5.34 percent of actual total MS-DRG 

payments. Therefore, the data indicate that, for FY 2014, the percentage of actual outlier 

payments relative to actual total payments is higher than we projected for FY 2014. 

Consistent with the policy and statutory interpretation we have maintained since the 
CMS-1632-P 1296

inception of the IPPS, we do not make retroactive adjustments to outlier payments to 

ensure that total outlier payments for FY 2014 are equal to 5.1 percent of total MS-DRG 

payments.

We currently estimate that, using the latest CCRs from the December 2014 update 

of the PSF, actual outlier payments for FY 2015 will be approximately 4.88 percent of 

actual total MS-DRG payments, approximately 0.22 percentage point lower than the 

5.1 percent we projected when setting the outlier policies for FY 2015. This estimate of 

4.88 percent is based on simulations using the FY 2014 MedPAR file (discharge data for 

FY 2014 claims).

5. Proposed FY 2016 Standardized Amount

The adjusted standardized amount is divided into labor-related and 

nonlabor-related portions. Tables 1A and 1B listed and published in section VI. of this 

Addendum (and available via the Internet) contain the national standardized amounts that 

we are proposing to apply to all hospitals, except hospitals located in Puerto Rico, for 

FY 2016. The proposed Puerto Rico-specific amounts are shown in Table 1C listed and 

published in section VI. of this Addendum (and available via the Internet on the CMS 

Web site). 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. 
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In effect, the statutory provision means that we will apply a labor-related share of 62 

percent for all hospitals whose wage indexes 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 2016.

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 2016 are set forth in Table 1C listed and published in section VI. of 

this Addendum (and available via the Internet on the CMS Web site). This table also 

includes the proposed Puerto Rico-specific standardized amounts. The labor-related 

share applied to the proposed 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 Pub. L. 108-173, provides that the labor-related share for hospitals located in 

Puerto Rico be 62 percent, unless the application of that percentage would result in lower 

payments to the hospital.)

The following table illustrates the changes from the FY 2015 national 

standardized amount to the proposed FY 2016 national standardized amount. The second 

through fifth columns display the proposed changes from the FY 2015 standardized 

amounts for each applicable FY 2016 standardized amount. The first row of the table 

shows the updated (through FY 2015) average standardized amount after restoring the 
CMS-1632-P 1298

FY 2015 offsets for outlier payments, demonstration budget neutrality, geographic 

reclassification budget neutrality, new labor market delineation wage Index transition 

budget neutrality and the retrospective documentation and coding adjustment under 

section 7(b)(1)(B) of Pub. L. 110-90. The MS-DRG reclassification and recalibration 

and wage index budget neutrality adjustment factors are cumulative. Therefore, those 

FY 2015 adjustment factors are not removed from this table.
CMS-1632-P 1299

COMPARISON OF FY 2015 STANDARDIZED AMOUNTS TO THE PROPOSED 

FY 2016 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 2015 Base Rate after 

removing:

1. FY 2015 Geographic 

Reclassification Budget 

Neutrality (0.990429)

2. FY 2015 Rural 

Community Hospital 

Demonstration Program 

Budget Neutrality 

(0.999313)

3. Cumulative FY 2008, 

FY 2009, FY 2012, 

FY 2013 and FY 2014, FY 

2015 Documentation and 

Coding Adjustment as 

Required under Sections 

7(b)(1)(A) and 7(b)(1)(B) 

of Pub. L. 110-90 and 

Documentation and Coding 

Recoupment Adjustment as 

required under Section 631 

of the American Taxpayer 

Relief Act of 2012 (0.9329)

4. FY 2015 Operating 

Outlier Offset (0.948999) 

5. FY 2015 New Labor 

Market Delineation Wage 

Index Transition Budget 

Neutrality Factor 

(0.998854)

If Wage Index 

is Greater Than 

1.0000: 

Labor (69.6%): 

$4,324.23

Nonlabor 

(30.4%): 

$1,888.74

If Wage Index 

is Greater 

Than 1.0000: 

Labor 

(69.6%): 

$4,324.23

Nonlabor 

(30.4%): 

$1,888.74

If Wage Index 

is Greater 

Than 1.0000: 

Labor 

(69.6%): 

$4,324.23

Nonlabor 

(30.4%): 

$1,888.74

If Wage Index 

is Greater Than 

1.0000: 

Labor (69.6%): 

$4,324.23

Nonlabor 

(30.4%): 

$1,888.74

If Wage Index 

is less Than or 

Equal to 

1.0000: Labor 

(62%): 

$3,852.04

Nonlabor 

(38%): 

$2,360.93

If Wage Index 

is less Than or 

Equal to 

1.0000: Labor 

(62%): 

$3,852.04

Nonlabor 

(38%): 

$2,360.93

If Wage Index 

is less Than or 

Equal to 

1.0000: Labor 

(62%): 

$3,852.04

Nonlabor 

(38%): 

$2,360.93

If Wage Index 

is less Than or 

Equal to 

1.0000: Labor 

(62%): 

$3,852.04

Nonlabor 

(38%): 

$2,360.93

Proposed FY 2016 Update 

Factor 1.019 1.0055 1.01225 0.99875

Proposed FY 2016 

MS-DRG Recalibration and 

Wage Index Budget 

Neutrality Factor 0.997018 0.997018 0.997018 0.997018

Proposed FY 2016 

Reclassification Budget 

Neutrality Factor 0.988486 0.988486 0.988486 0.988486
CMS-1632-P 1300

The following table illustrates the proposed changes from the FY 2015 Puerto 

Rico-specific payment rate for hospitals located in Puerto Rico. The second column 

shows the proposed changes from the FY 2015 Puerto Rico specific payment rate for 

hospitals with a Puerto Rico-specific wage index greater than 1.0000. The third column 

Proposed FY 2016 Rural 

Community Demonstration 

Program Budget Neutrality 

Factor 0.999808 0.999808 0.999808 0.999808

Proposed FY 2016 

Operating Outlier Factor 0.948999 0.948999 0.948999 0.98999

Cumulative Factor: FY 

2008, FY 2009, FY 2012, 

FY 2013, FY 2014, FY 

2015 and FY 2016 

Documentation and Coding 

Adjustment as Required 

under Sections 7(b)(1)(A) 

and 7(b)(1)(B) of Pub. L. 

110-90 and Documentation 

and Coding Recoupment 

Adjustment as required 

under Section 631 of the 

American Taxpayer Relief 

Act of 2012 0.9255 0.9255 0.9255 0.9255

Proposed FY 2016 New 

Labor Market Delineation 

Wage Index Three Year 

Hold Harmless Transition 

Budget Neutrality Factor 0.999995 0.999995 0.999995 0.999995

Proposed National 

Standardized Amount for 

FY 2016 if Wage Index is 

Greater Than 1.0000; 

Labor/Non-Labor Share 

Percentage (69.6/30.4)

Labor: 

$3,813.40

Nonlabor: 

$1,665.63

Labor: 

$3,762.88

Nonlabor: 

$1,643.56

Labor: 

$3,788.14

Nonlabor: 

$1,654.60

Labor: 

$3,737.62

Nonlabor: 

$1,632.53

Proposed National 

Standardized Amount for 

FY 2016 if Wage Index is 

less Than or Equal to 

1.0000; Labor/Non-Labor 

Share Percentage (62/38)

Labor: 

$3,397.00

Nonlabor: 

$2,082.03

Labor: 

$3,351.99

Nonlabor: 

$2,054.45

Labor: 

$3,374.50

Nonlabor: 

$2,068.24

Labor: 

$3,329.49

Nonlabor: 

$2,040.66
CMS-1632-P 1301

shows the proposed changes from the FY 2015 Puerto Rico specific payment rate for 

hospitals with a Puerto Rico-specific wage index less than or equal to 1.0000. The first 

row of the table shows the updated (through FY 2015) Puerto Rico-specific payment rate 

after restoring the FY 2015 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 2015 PUERTO RICO-SPECIFIC PAYMENT RATE TO 

THE PROPOSED FY 2016 PUERTO RICO-SPECIFIC PAYMENT RATE

Proposed Update

(1.9 percent); Wage 

index is greater than 

1.0000; Labor/NonLabor Share 

Percentage (63.2/36.8)

Proposed Update

(1.9 percent);

Wage index is less than 

or equal to 1.0000; 

Labor/Non-Labor 

Share Percentage 

(62/38)

FY 2015 Puerto Rico Base Rate, 

after removing:

1. FY 2015 Geographic 

Reclassification Budget 

Neutrality (0.990429)

2. FY 2015 Rural Community 

Hospital Demonstration Program 

Budget Neutrality (0.999313)

3. FY 2015 Puerto Rico 

Operating Outlier Offset 

(0.926334)

4. FY 2015 New Labor Market 

Delineation Wage Index 

Transition Budget Neutrality 

Factor (0.998854)

Labor: $1,758.02

Nonlabor: $1,023.66

Labor: $1,724.64

Nonlabor: $1,057.04

Proposed FY 2016 Update Factor 1.019 1.019

Proposed FY 2016 MS-DRG 

Recalibration Budget Neutrality 

Factor 0.998335 0.998335
CMS-1632-P 1302

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

Tables 1A through 1C, as published in section VI. of this Addendum (and 

available via the Internet), contain the proposed labor-related and nonlabor-related shares 

that we are proposing to use to calculate the prospective payment rates for hospitals 

located in the 50 States, the District of Columbia, and Puerto Rico for FY 2016. This 

section addresses two types of adjustments to the standardized amounts that are made in 

determining the proposed prospective payment rates as described in this Addendum.

1. Proposed Adjustment for Area Wage Levels

Sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act require that we make an 

adjustment to the labor-related portion of the national and Puerto Rico prospective 

payment rates, respectively, to account for area differences in hospital wage levels. This 

adjustment is made by multiplying the labor-related portion of the adjusted standardized 

amounts by the appropriate wage index for the area in which the hospital is located. In 

Proposed FY 2016 

Reclassification Budget 

Neutrality Factor 0.988486 0.988486

Proposed FY 2016 Rural 

Community Hospital 

Demonstration Program Budget 

Neutrality Factor 0.999808 0.999808

Proposed FY 2016 New Labor 

Market Delineation Wage Index 

Three Year Hold Harmless 

Transition Budget Neutrality 

Factor 0.999995 0.999995

Proposed FY 2016 Puerto Rico 

Operating Outlier Factor 0.926818 0.926818

Proposed Puerto Rico-Specific 

Payment Rate for FY 2016

Labor: $1,638.15

Nonlabor: $953.86

Labor: $1,607.05

Nonlabor: $984.96
CMS-1632-P 1303

section III. of the preamble of this proposed rule, we discuss the data and methodology 

for the proposed FY 2016 wage index.

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

Section 1886(d)(5)(H) of the Act provides discretionary authority to the Secretary 

to make such adjustments as the Secretary deems appropriate to take into account the 

unique circumstances of hospitals located in Alaska and Hawaii. Higher labor-related 

costs for these two States are taken into account in the adjustment for area wages 

described above. To account for higher nonlabor-related costs for these two States, we 

multiply the nonlabor-related portion of the standardized amount for hospitals located in 

Alaska and Hawaii by an adjustment factor.

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.
CMS-1632-P 1304

Based on the policy finalized in the FY 2013 IPPS/LTCH PPS final rule, we are 

proposing to continue to use the same COLA factors in FY 2016 that were used in 

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 2016.

Proposed FY 2016 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 2016

In general, the operating prospective payment rate for all hospitals paid under the 

IPPS located outside of Puerto Rico, except SCHs, for FY 2016 equals the Federal rate 

(which includes uncompensated care payments). We note that the MDH program expired 

for discharges beginning on April 1, 2015 under current law.
CMS-1632-P 1305

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.D. of the 

preamble of this proposed rule, includes uncompensated care payments); the updated 

hospital-specific rate based on FY 1982 costs per discharge; the updated hospital-specific 

rate based on FY 1987 costs per discharge; the updated hospital-specific rate based on

FY 1996 costs per discharge; or the updated hospital-specific rate based on FY 2006 

costs per discharge to determine the rate that yields the greatest aggregate payment.

The prospective payment rate for SCHs for FY 2016 equals the higher of the 

applicable Federal rate, or the hospital-specific rate as described below.

The prospective payment rate for hospitals located in Puerto Rico for FY 2016 

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 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.
CMS-1632-P 1306

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 a specified 

formula. 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)

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.D. of the preamble of this proposed rule, includes uncompensated 

care payments); 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 
CMS-1632-P 1307

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.

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.D. 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 2016

Section 1886(b)(3)(B)(iv) of the Act provides that the applicable percentage 

increase applicable to the hospital-specific rates for SCHs equals the applicable 

percentage increase set forth in section 1886(b)(3)(B)(i) of the Act (that is, the same 

update factor as for all other hospitals subject to the IPPS). Because the Act sets the 

update factor for SCHs equal to the update factor for all other IPPS hospitals, the update 

to the hospital-specific rates for SCHs is subject to the amendments to 

section 1886(b)(3)(B) of the Act made by sections 3401(a) and 10319(a) of the 

Affordable Care Act. Accordingly, the proposed applicable percentage increases to the 

hospital-specific rates applicable to SCHs are the following:
CMS-1632-P 1308

FY 2016

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

Proposed Market Basket 

Rate-of-Increase 2.7 2.7 2.7 2.7

Proposed 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

Proposed Adjustment for 

Failure to be a Meaningful 

EHR User under Section 

1886(b)(3)(B)(ix) of the 

Act 0.0 -1.35 0.0 -1.35

Proposed MFP Adjustment 

under Section 

1886(b)(3)(B)(xi) of the 

Act -0.6 -0.6 -0.6 -0.6

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 Hospital 

Specific Rate 1.9 0.55 1.225 -0.125

For a complete discussion of the applicable percentage increase applied to the 

hospital-specific rates for SCHs, we refer readers to section IV.A. of the preamble of this 

proposed rule.

In addition, because SCHs use the same MS-DRGs as other hospitals when they 

are paid based in whole or in part on the hospital-specific rate, the hospital-specific rate is 

adjusted by a budget neutrality factor to ensure that changes to the MS-DRG 
CMS-1632-P 1309

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 

hospital-specific rate is adjusted by the proposed MS-DRG reclassification and 

recalibration budget neutrality factor of 0.998335, as discussed in section III. of this 

Addendum. The resulting rate is used in determining the proposed payment rate that an 

SCH would receive for its discharges beginning on or after October 1, 2015. We note 

that, in this proposed rule, for FY 2016, 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.

3. General Formula for Calculation of Prospective Payment Rates for Hospitals Located 

in Puerto Rico Beginning on or after October 1, 2015, and before October 1, 2016

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:
CMS-1632-P 1310

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 on the CMS Web site).
CMS-1632-P 1311

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.
CMS-1632-P 1312

III. Proposed Changes to Payment Rates for Acute Care Hospital Inpatient 

Capital-Related Costs for FY 2016

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 2016, which 

would be effective for discharges occurring on or after October 1, 2015.

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 
CMS-1632-P 1313

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 Pub. L. 108-173, the methodology for operating payments 

made to hospitals located in Puerto Rico under the IPPS was revised to make payments 

based on a blend of 25 percent of the applicable standardized amount specific to Puerto 
CMS-1632-P 1314

Rico hospitals and 75 percent of the applicable national average standardized amount. In 

conjunction with this change to the operating blend percentage, effective with discharges 

occurring on or after October 1, 2004, we also revised the methodology for computing 

capital payments made to hospitals located in Puerto Rico to be based on a blend of 

25 percent of the Puerto Rico capital rate and 75 percent of the national capital Federal 

rate (69 FR 49185).

A. Determination of the Proposed Federal Hospital Inpatient Capital-Related Prospective 

Payment Rate Update

In the discussion that follows, we explain the factors that we used to determine 

the proposed capital Federal rate for FY 2016. In particular, we explain why the 

proposed FY 2016 capital Federal rate increases approximately 0.8 percent, compared to 

the FY 2015 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 

approximately 2.0 percent during that same period. Because capital payments constitute 

about 10 percent of hospital payments, a percent change in the capital Federal rate yields 

only about a 0.1 percent change in actual payments to hospitals.

1. Projected Capital Standard Federal Rate Update

a. Description of the Update Framework

Under § 412.308(c)(1), the capital standard Federal rate is updated on the basis of 

an analytical framework that takes into account changes in a capital input price index 

(CIPI) and several other policy adjustment factors. Specifically, we adjust the projected 

CIPI rate-of-increase as appropriate each year for case-mix index-related changes, for 
CMS-1632-P 1315

intensity, and for errors in previous CIPI forecasts. The proposed update factor for 

FY 2016 under that framework is 1.3 percent based on the best data available at this time. 

The proposed update factor under that framework is based on a projected 1.3 percent

increase in the 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 

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 2016 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 2016.

The case-mix index is the measure of the average DRG weight for cases paid 

under the IPPS. Because the DRG weight determines the prospective payment for each 

case, any percentage increase in the case-mix index corresponds to an equal percentage 

increase in hospital payments.

The case-mix index can change for any of several reasons:

● The average resource use of Medicare patients changes (“real” case-mix 

change);

● Changes in hospital documentation and coding of patient records result in 

higher-weighted DRG assignments (“coding effects”); and

● The annual DRG reclassification and recalibration changes may not be budget 

neutral (“reclassification effect”).
CMS-1632-P 1316

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 2016, we are projecting a 0.5 percent total increase in the case-mix index. 

We estimated that the real case-mix increase will also equal 0.5 percent for FY 2016. 

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 2016 is 0.0 percentage 

point.

The capital update framework also contains an adjustment for the effects of DRG 

reclassification and recalibration. This adjustment is intended to remove the effect on 

total payments of prior year’s changes to the DRG classifications and relative weights, in 

order to retain budget neutrality for all case-mix index-related changes other than those 

due to patient severity of illness. Due to the lag time in the availability of data, there is a 

2-year lag in data used to determine the adjustment for the effects of DRG reclassification 

and recalibration. For example, we have data available to evaluate the effects of the 
CMS-1632-P 1317

FY 2014 DRG reclassification and recalibration as part of our update for FY 2016. We 

estimate that FY 2014 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 2016.

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 is calculated for the proposed FY 2016 update. Historically, when a

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. A forecast error of 0.0 

percentage point was calculated for the FY 2014 update. That is, current historical data indicate 

that the forecasted FY 2014 CIPI (1.2 percent) used in calculating the FY 2014 update factor was 

equal to the actual realized price increases (also 1.2 percent). Therefore, we are not proposing to 

make an adjustment for a forecast error in the update for FY 2016.
CMS-1632-P 1318

Under the capital IPPS update framework, we also make an adjustment for 

changes in intensity. Historically, we calculated this adjustment using the same 

methodology and data that were used in the past under the framework for operating IPPS. 

The intensity factor for the operating update framework reflected how hospital services 

are utilized to produce the final product, that is, the discharge. This component accounts 

for changes in the use of quality-enhancing services, for changes within DRG severity, 

and for expected modification of practice patterns to remove noncost-effective services. 

Our intensity measure is based on a 5-year average.

We calculate case-mix constant intensity as the change in total cost per discharge, 

adjusted for price level changes (the CIPI for hospital and related services) and changes 

in real case-mix. Without reliable estimates of the proportions of the overall annual 

intensity increases that are due, respectively, to ineffective practice patterns and the 

combination of quality-enhancing new technologies and complexity within the DRG 

system, we assume that one-half of the annual increase is due to each of these factors. 

The capital update framework thus provides an add-on to the input price index rate of 

increase of one-half of the estimated annual increase in intensity, to allow for increases 

within DRG severity and the adoption of quality-enhancing technology.

In this proposed rule, we are proposing to continue to use a Medicare-specific 

intensity measure that is based on a 5-year adjusted average of cost per discharge for 

FY 2016 (we refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50436) for 

a full description of our Medicare-specific intensity measure). Specifically, for FY 2016, 

we are proposing to use an intensity measure that is based on an average of cost per 
CMS-1632-P 1319

discharge data from the 5-year period beginning with FY 2009 and extending through 

FY 2013. Based on these data, we estimated that case-mix constant intensity declined 

during FYs 2009 through 2013. 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 2016. Therefore, we are proposing to make a 0.0 percentage point adjustment for 

intensity in the update for FY 2016.

Above, we described the basis of the components used to develop the proposed 

1.3 percent capital update factor under the capital update framework for FY 2016 as 

shown in the table below.

PROPOSED CMS FY 2016 UPDATE FACTOR TO THE CAPITAL FEDERAL 

RATE

Capital Input Price Index* 1.3

Intensity: 0.0

Case-Mix Adjustment Factors:

Real Across DRG Change -0.5

Projected Case-Mix Change 0.5

Subtotal 1.3

Effect of FY 2014 Reclassification and Recalibration 0.0

Forecast Error Correction 0.0

Total Update 1.3

*The capital input price index is based on the FY 2010-based CIPI.

b. Comparison of CMS and MedPAC Update Recommendation

In its March 2015 Report to Congress, MedPAC did not make a specific update 

recommendation for capital IPPS payments for FY 2016. (We refer readers to 
CMS-1632-P 1320

MedPAC’s Report to the Congress: Medicare Payment Policy, March 2015, Chapter 3, 

available on the Web site at: http://www.medpac.gov.)

2. Proposed Outlier Payment Adjustment Factor

Section 412.312(c) establishes a unified outlier payment methodology for 

inpatient operating and inpatient capital-related costs. A single set of thresholds is used 

to identify outlier cases for both inpatient operating and inpatient capital-related 

payments. Section 412.308(c)(2) provides that the standard Federal rate for inpatient 

capital-related costs be reduced by an adjustment factor equal to the estimated proportion 

of capital-related outlier payments to total inpatient capital-related PPS payments. The 

outlier thresholds are set so that operating outlier payments are projected to be 

5.1 percent of total operating IPPS DRG payments.

For FY 2015, we estimated that outlier payments for capital will equal 6.18 

percent of inpatient capital-related payments based on the capital Federal rate in 

FY 2015. 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 6.43 

percent for inpatient capital-related payments based on the proposed capital Federal rate 

in FY 2016. Therefore, we are proposing to apply an outlier adjustment factor of 0.9357 

in determining the proposed capital Federal rate for FY 2016. Thus, we estimate that the 

percentage of capital outlier payments to total capital Federal rate payments for FY 2016 

will be higher than the percentage for FY 2015.

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 
CMS-1632-P 1321

proposed FY 2016 outlier adjustment of 0.9357 is a -0.27 percent change from the 

FY 2015 outlier adjustment of 0.9382. Therefore, the proposed net change in the outlier 

adjustment to the capital Federal rate for FY 2016 is 0.9973 (0.9357/0.9382). Thus, the 

outlier adjustment would decrease the proposed FY 2016 capital Federal rate by 0.27 

percent compared to the FY 2015 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 2016, we compared (separately for the 

national capital rate and the Puerto Rico capital rate) estimated aggregate capital Federal 

rate payments based on the FY 2015 MS-DRG classifications and relative weights and 

the FY 2015 GAF to estimated aggregate capital Federal rate payments based on the 

FY 2015 MS-DRG classifications and relative weights and the proposed FY 2016 GAFs. 
CMS-1632-P 1322

To achieve budget neutrality for the changes in the national GAFs, based on calculations 

using updated data, we are proposing to apply an incremental budget neutrality 

adjustment factor of 0.9982 for FY 2016 to the previous cumulative FY 2015 adjustment 

factor of 0.9884, yielding a proposed adjustment factor of 0.9867 through FY 2016. For 

the Puerto Rico GAFs, we are proposing to apply an incremental budget neutrality 

adjustment factor of 0.9980 for FY 2016 to the previous cumulative FY 2015 adjustment 

factor of 1.0082, yielding a proposed cumulative adjustment factor of 1.0062 through 

FY 2016.

We then compared estimated aggregate capital Federal rate payments based on 

the FY 2015 MS-DRG relative weights and the proposed FY 2016 GAFs to estimated 

aggregate capital Federal rate payments based on the cumulative effects of the proposed 

FY 2016 MS-DRG classifications and relative weights and the proposed FY 2016 GAFs. 

The proposed incremental adjustment factor for DRG classifications and changes in 

relative weights is 0.9994 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 2016 are 0.9861 nationally and 1.0056 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.
CMS-1632-P 1323

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 2016 geographic reclassification 

decisions made by the MGCRB compared to FY 2015 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 2016

For FY 2015, we established a capital Federal rate of $434.97 (79 FR 59684). 

We are proposing to establish an update of 1.3 percent in determining the FY 2016 

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 
CMS-1632-P 1324

Federal rate of $438.40 for FY 2016. The proposed national capital Federal rate for 

FY 2016 was calculated as follows:

● The proposed FY 2016 update factor is 1.0013, that is, the proposed update is 

1.3 percent.

● The proposed FY 2016 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 0.9976.

● The proposed FY 2016 outlier adjustment factor is 0.9357.

(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 2016.)

Because the proposed FY 2016 capital Federal rate has already been adjusted for 

differences in case-mix, wages, cost-of-living, indirect medical education costs, and 

payments to hospitals serving a disproportionate share of low-income patients, we are not 

proposing to make additional adjustments in the capital Federal rate for these factors, 

other than the proposed budget neutrality factor for proposed changes in the MS-DRG 

classifications and relative weights and for proposed changes in the GAFs.

We are providing the following chart that shows how each of the proposed factors 

and adjustments for FY 2016 affects the computation of the proposed FY 2016 national 

capital Federal rate in comparison to the FY 2015 national capital Federal rate. The 

proposed FY 2016 update factor has the effect of increasing the capital Federal rate by 

1.3 percent compared to the FY 2015 capital Federal rate. The proposed GAF/DRG 
CMS-1632-P 1325

budget neutrality adjustment factor has the effect of decreasing the capital Federal rate by 

0.24 percent. The proposed FY 2016 outlier adjustment factor has the effect of 

decreasing the capital Federal rate by 0.27 percent compared to the FY 2015 capital 

Federal rate. The combined effect of all the proposed changes would increase the 

proposed national capital Federal rate by 0.79 percent compared to the FY 2015 national 

capital Federal rate.

COMPARISON OF FACTORS AND ADJUSTMENTS: FY 2015 CAPITAL 

FEDERAL RATE AND PROPOSED FY 2016 CAPITAL FEDERAL RATE

1 The 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 2015 to FY 2016 resulting from the application of the 

proposed 0.9976 GAF/DRG budget neutrality adjustment factor for FY 2016 is a proposed net change of 0.9976 (or -0.24 percent).

2 The 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 2016 outlier adjustment factor is 0.9357/0.9382, or 0.9973 (or -0.27 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 

FY 2015

Proposed 

FY 2016 Change

Percent

Change

Update Factor11.0150 1.0130 1.0130 1.3

GAF/DRG Adjustment 

Factor10.9993 0.9976 0.9976 -0.24

Outlier Adjustment Factor2 0.9382 0.9357 0.9973 -0.27

Capital Federal Rate $434.97 $438.40 .0079 0.79
CMS-1632-P 1326

a blend of 25 percent of the Puerto Rico capital rate and 75 percent of the capital Federal 

rate. The Puerto Rico capital rate is derived from the costs of Puerto Rico hospitals only, 

while the capital Federal rate is derived from the costs of all acute care hospitals 

participating in the IPPS (including Puerto Rico).

To adjust hospitals' capital payments for geographic variations in capital costs, we 

apply a GAF to both portions of the blended capital rate. The GAF is calculated using 

the operating IPPS wage index, and varies depending on the labor market area or rural 

area in which the hospital is located. We use the Puerto Rico wage index to determine 

the GAF for the Puerto Rico part of the capital-blended rate and the national wage index 

to determine the GAF for the national part of the blended capital rate.

Because we implemented a separate GAF for Puerto Rico in FY 1998, we also 

apply separate budget neutrality 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 
CMS-1632-P 1327

which the hospital is located (which is computed from national data for all hospitals in 

the United States and Puerto Rico).

For FY 2015, the special capital rate for hospitals located in Puerto Rico was 

$209.45 (79 FR 59683). With the changes we are proposing to make to the factors used 

to determine the proposed capital Federal rate, the proposed FY 2016 special capital rate 

for hospitals in Puerto Rico is $213.77.

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

FY 2016

For purposes of calculating payments for each discharge during FY 2016, the 

capital Federal rate is adjusted as follows: (Standard Federal Rate) x (DRG weight) x 

(GAF) x (COLA for hospitals located in Alaska and Hawaii) x (1 + DSH Adjustment 

Factor + IME Adjustment Factor, if applicable). The result is the adjusted capital Federal 

rate.

Hospitals also may receive outlier payments for those cases that qualify under the 

thresholds established for each fiscal year. Section 412.312(c) provides for a single set of 

thresholds to identify outlier cases for both inpatient operating and inpatient 

capital-related payments. The proposed outlier thresholds for FY 2016 are in 

section II.A. of this Addendum. For FY 2016, 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 
CMS-1632-P 1328

prospective payment rate for the MS-DRG plus the proposed fixed-loss amount of 

$24,485.

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 weighted-average of past capital purchase prices up to and 

including the current year.

We periodically update the base year for the operating and capital input price 

indexes to reflect the changing composition of inputs for operating and capital expenses. 

In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50603 through 50607), we rebased and 
CMS-1632-P 1329

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 2016

Based on the latest forecast by IHS Global Insight, Inc. (first quarter of 2015), we 

are forecasting the FY 2010-based CIPI to increase 1.3 percent in FY 2016. This reflects 

a projected 1.8 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 2016, partially offset by a projected 1.2 percent decline in 

vintage-weighted interest expense prices in FY 2016. The weighted average of these 

three factors produces the forecasted 1.3 percent increase for the FY 2010-based CIPI as 

a whole in FY 2016.
CMS-1632-P 1330

IV. Proposed Changes to Payment Rates for Excluded Hospitals: Proposed 

Rate-of-Increase Percentages for FY 2016

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-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. (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 proposed rule, the FY 2016 rate-of-increase percentage for updating the 

target amounts for the 11 cancer hospitals, children’s hospitals, the short-term acute care 

hospitals located in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and 

American Samoa, and RNHCIs is the estimated percentage increase in the FY 2016 IPPS 

operating market basket, in accordance with applicable regulations at § 413.40. Based on 

IHS Global Insight, Inc.’s 2015 first quarter forecast, we estimate that the FY 2010-based 

IPPS operating market basket update for FY 2016 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 2016.
CMS-1632-P 1331

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 2016. The annual updates for the IRF PPS 

and the IPF PPS are issued by the agency in separate Federal Register documents.
CMS-1632-P 1332

V. Proposed Updates to the Payment Rates for the LTCH PPS for FY 2016

A. Proposed LTCH PPS Standard Federal Rate for FY 2016

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 2016.

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 
CMS-1632-P 1333

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 to account 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, 2014, and 2015, 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.D.2. of the 

preamble of this proposed rule.
CMS-1632-P 1334

Section 1886(m)(3)(B) of the Act provides that the application of paragraph (3) of 

section 1886(m) of the Act may result in the annual update being less than zero for a rate 

year, and may result in payment rates for a rate year being less than such payment rates 

for the preceding rate year. (As noted in section VII.D.2.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 2015, consistent with our historical practice, we established an update to 

the LTCH PPS standard Federal rate based on the full estimated LTCH PPS market 

basket increase of 2.9 percent and the 0.7 percentage point reductions required by 

sections 1886(m)(3)(A)(i) and 1886(m)(3)(A)(ii) with 1886(m)(4)(E) of the Act. 

Accordingly, at § 412.523(c)(3)(xi) of the regulations, we established an annual update of 

2.2 percent to the standard Federal rate for FY 2015 (79 FR 50391through 50392).

For FY 2016, as discussed in greater detail in section VII.D.2. of the preamble of 

this proposed rule, we are proposing to establish an annual update to the LTCH PPS 

standard Federal payment rate based on the full estimated increase in the LTCH PPS 

market basket, less the MFP adjustment consistent with section 1886(m)(3)(A)(i) of the 

Act, and less the 0.2 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.D.2. of the 

preamble of this proposed rule, the annual update will be further reduced by 
CMS-1632-P 1335

2.0 percentage points for LTCHs that fail to submit quality reporting data in accordance 

with the requirements of the LTCH QRP under section 1886(m)(5) of the Act.

Specifically, in this proposed rule, based on the best available data, we are 

proposing to establish an annual update to the standard Federal rate of 1.9 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 0.6 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. For LTCHs that fail to submit the required 

quality reporting data for FY 2016 in accordance with the LTCH QRP , the proposed 

annual update is further reduced by 2.0 percentage points as required by section 

1886(m)(5) of the Act (as discussed in greater detail in section VII.D.2.c. of the preamble 

of this proposed rule). 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 2016. 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 0.6 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.

2. Development of the Proposed FY 2016 LTCH PPS Standard Federal Payment Rate

We continue to believe that the annual update to the LTCH PPS standard Federal 

payment 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 
CMS-1632-P 1336

practice, for FY 2016, we are proposing to apply the annual update to the LTCH PPS 

standard Federal rate from the previous year. Furthermore, in determining the proposed 

LTCH PPS standard Federal payment rate for FY 2016, we also are proposing to make 

certain regulatory adjustments, consistent with past practices. Specifically, in 

determining the proposed FY 2016 LTCH PPS standard Federal payment rate, we are 

proposing to apply a budget neutrality adjustment factor for the proposed changes related 

to the proposed area wage adjustment (that is, proposed changes to the wage data and 

proposed labor-related share) in accordance with § 412.523(d)(4). We also are proposing 

that if more recent data become available, we would use that data, if appropriate, to 

determine the update to the LTCH PPS standard Federal payment rate for FY 2016 in the 

final rule.

For FY 2015, we established an annual update to the LTCH PPS standard Federal 

rate of 2.2 percent for FY 2015 based on the full estimated LTCH PPS market basket 

increase of 2.9 percent, less the MFP adjustment of 0.5 percentage point consistent with 

section 1886(m)(3)(A)(i) of the Act and less the 0.2 percentage point required by sections 

1886(m)(3)(A)(ii) and (m)(4)(E) of the Act. Accordingly, at § 412.523(c)(3)(xi), we 

established an annual update to the standard Federal rate for FY 2015 of 2.2 percent. 

That is, we applied an update factor of 1.022 to the FY 2014 Federal rate of $40,607.31 

to determine the FY 2015 standard Federal rate. The standard Federal rate for FY 2015 

was further adjusted by an 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). We 

also applied an area wage level budget neutrality factor for FY 2015 of 1.0016703 to the 
CMS-1632-P 1337

standard Federal rate to ensure that any changes to the area wage level adjustment would 

not result in any change in estimated aggregate LTCH PPS payments. Consequently, we 

established a standard Federal rate for FY 2015 of $41,043.71 (calculated as 

$40,607.31 × 1.022 × 0.98734 × 1.001670) (79 FR 50392).

In this proposed rule, we are proposing to establish an annual update to the LTCH 

PPS standard Federal payment rate of 1.9 percent, which was determined using the 

methodology previously described. Therefore, consistent with our proposal, under 

proposed § 412.523(c)(3)(xii), we are proposing to apply a factor of 1.019 to the FY 2015 

standard Federal rate of $41,043.71 to determine the proposed FY 2016 LTCH PPS 

standard Federal payment rate. These proposed factors are based on IGI’s first quarter 

2015 forecast, which are the best available data at this time. For LTCHs that fail to 

submit quality reporting data for FY 2016 under the LTCH QRP, consistent with our 

proposal, under proposed § 412.523(c)(3)(xii), applied in conjunction with the provisions 

of § 412.523(c)(4), we are proposing to reduce the annual update to the LTCH PPS 

standard Federal payment rate by an additional 2.0 percentage points consistent with 

section 1886(m)(5) of the Act. In those cases, the LTCH PPS standard Federal payment 

rate would be updated by -0.1 percent (that is, a proposed update factor of 0.999) for 

FY 2016 for LTCHs that fail to submit the required quality reporting data for FY 2016 as 

required under the LTCH QRP. Consistent with § 412.523(d)(4), we also are proposing 

to apply a proposed area wage level budget neutrality factor to the FY 2016 standard 

Federal rate of 1.001444, which was determined using the methodology previously 

described. We are proposing to apply this area wage level budget neutrality factor to the 
CMS-1632-P 1338

FY 2016 LTCH PPS standard Federal payment rate to ensure that any changes to the area 

wage level adjustment (that is, the annual update of the wage index values and laborrelated share) will not result in any change (increase or decrease) in estimated aggregate 

LTCH PPS standard Federal payment rate payments. Accordingly, we are proposing to 

establish a LTCH PPS standard Federal payment rate of $41,883.93 (calculated as 

$41,043.71× 1.019 × 1.001444) for FY 2016. For LTCHs that fail to submit quality 

reporting data for FY 2016 in accordance with the requirements of the LTCHQRP under 

section 1886(m)(5) of the Act, we are proposing to establish a LTCH PPS standard 

Federal payment rate of $41,061.87 (calculated as $41,043.71× 0.999 × 1.001444) for 

FY 2016. Consistent with our historical practice, we are proposing that if more recent 

data is available, we would use such data to calculate the standard Federal rates for FY 

2016 in the final rule. We note, as discussed in section VII.B. of the preamble to this 

proposed rule, under our proposed application of the site neutral payment rate required 

under section 1886(m)(6) of the Act, this LTCH PPS standard Federal payment rate 

would only be used to determine payments for LTCH PPS standard Federal payment rate 

cases (that is, those LTCH PPS cases that meet the statutory criteria to be excluded from 

the site neutral payment rate).

B. Proposed Adjustment for Area Wage Levels for the LTCH PPS Standard Federal 

Payment Rate for FY 2016

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 
CMS-1632-P 1339

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) for the LTCH PPS 

Standard Federal Payment Rate

In adjusting for the differences in area wage levels under the LTCH PPS, the 

labor-related portion of an LTCH's 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 
CMS-1632-P 1340

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 classifications (labor market area definitions) 

currently used under the LTCH PPS, effective for discharges occurring on or after 

October 1, 2014, are based on the new OMB labor market area delineations based on the 

2010 Decennial Census data. We made these revisions because we believe that these 

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 these OMB delineations will 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 noted that this policy was consistent with the IPPS policy adopted in 

FY 2015 under § 412.64(b)(1)(ii)(D) of the regulations (79 FR 49951 through 49963). 

(For additional information on the CBSA-based labor market area (geographic 

classification) delineations currently used under the LTCH PPS and the history of the 

labor market area definitions used under the LTCH PPS, we refer readers to the FY 2015 

IPPS/LTCH PPS final rule (79 FR 50180 through 50185).)

In general, it is our historical practice to update the CBSA-based labor market 

area delineations annually based on the most recent updates issued by OMB. At the time 
CMS-1632-P 1341

of the development of this proposed rule, OMB had not issued any further updates 

subsequent to OMB Bulletin No. 13–01, which was dated February 28, 2013, and 

established revised delineations based on 2010 Census Bureau data that were 

subsequently adopted in the FY 2015 IPPS/LTCH PPS final rule. (The OMB bulletins 

are available on the OMB Web site at: http://www.whitehouse.gov/omb. Go to 

“Information For Agencies” and click on “Bulletins”.) Therefore, for FY 2016, we are 

proposing to continue to use the CBSA-based labor market area delineations currently 

used under the LTCH PPS (as adopted in the FY 2015 IPPS/LTCH PPS final rule 

(79 FR 50180 through 50185)). We believe that these CBSA-based labor market area 

delineations will 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 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.

3. Proposed Labor-Related Share for the LTCH PPS Standard Federal Payment Rate

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 
CMS-1632-P 1342

applicable LTCH PPS market basket. Additional background information on the 

historical development of the labor-related share under the LTCH PPS and the 

development of the RPL market basket can be found in the RY 2007 LTCH PPS final 

rule (71 FR 27810 through 27817 and 27829 through 27830) and the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51766 through 51769 and 51808).

For FY 2013, we revised and rebased the market basket used under the LTCH 

PPS by adopting the newly created FY 2009-based LTCH-specific market basket. In 

addition, we determined the labor-related share for FY 2013 as the sum of the FY 2013 

relative importance of each labor-related cost category of the FY 2009-based 

LTCH-specific market basket. 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 2015 IPPS/LTCH PPS final rule (79 FR 50393through 50394), we 

determined the LTCH PPS labor-related share for FY 2015 based on the FY 2015 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 2015. 

Specifically, based on IGI’s second quarter 2014 forecast of the FY 2009-based 

LTCH-specific market basket, we established a labor-related share under the LTCH PPS 

for FY 2015 of 62.306 percent.

For FY 2016, we are proposing to establish a labor-related share for the LTCH 

PPS standard Federal payment rate payments based on IGI’s first quarter 2015 forecast of 

the FY 2009-based LTCH-specific market basket. Consistent with our historical practice, 

we also are proposing that if more recent data become available, we would use such data, 
CMS-1632-P 1343

if appropriate, to determine the final FY 2016 labor-related share. In addition, we are 

proposing to specify the labor-related share to one decimal place, which is consistent with 

the IPPS labor-related share and the LTCH market basket update. The following table 

shows the proposed FY 2016 labor-related share relative importance using IGI’s first 

quarter 2015 forecast of the FY 2009-based LTCH-specific market basket. The sum of 

the relative importance for FY 2016 for operating costs (Wages and Salaries; Employee 

Benefits; Professional Fees Labor-Related, Administrative and Business Support 

Services; and All Other: Labor-Related Services) is 58.1percent. We are proposing to 

establish that the portion of capital-related costs that is influenced by the local labor 

market would continue to be estimated to be 46 percent. Because the relative importance 

for capital-related costs would be 9.0 percent of the FY 2009-based LTCH-specific 

market basket in FY 2016, we are proposing to take 46 percent of 9.0 percent to 

determine the labor-related share of capital-related costs for FY 2016, which would result 

in 4.1 percent (0.46 x 9.0). We then added that 4.1 percent for the capital-related cost 

amount to the 58.1 percent for the operating cost amount to determine the total proposed 

labor-related share for FY 2016. 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 for FY 2016 of 62.2 percent. This proposed labor-related share is 

determined using the same methodology as used in calculating all previous fiscal years 

LTCH labor-related shares.
CMS-1632-P 1344

PROPOSED FY 2016 LABOR-RELATED SHARE RELATIVE IMPORTANCE 

BASED ON THE FY 2009-BASED LTCH-SPECIFIC MARKET BASKET

Proposed FY 2016 

Labor-Related 

Share Relative 

Importance

Wages and Salaries 44.8

Employee Benefits 8.1

Professional Fees: Labor-Related 2.2

Administrative and Business

Support Services

0.5

All Other: Labor-Related Services 2.5

Subtotal 58.1

Proposed Labor-Related Portion of 

Capital Costs (46 percent)

4.1

Proposed Total Labor-Related 

Share

62.2

4. Proposed Wage Index for FY 2016 for the LTCH PPS Standard Federal Payment Rate

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 2015 LTCH PPS final rule (79 FR 50394through 50396), we calculated 

the FY 2015 LTCH PPS area wage index values using the same data used for the 

FY 2015 acute care hospital IPPS (that is, data from 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, as these were the most recent complete data 
CMS-1632-P 1345

available at that time. In that same final rule, we indicated that we computed the 

FY 2015 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 for the FY 2016 LTCH PPS standard Federal payment rate, under the broad 

authority of section 123 of the BBRA, as amended by section 307(b) of the BIPA, we are 

proposing to use wage data collected from cost reports submitted by IPPS hospitals for 

cost reporting periods beginning during FY 2012, without taking into account geographic 

reclassification under sections 1886(d)(8) and 1886(d)(10) of the Act. We are proposing 

to use FY 2012 wage data because these data are the most recent complete data available. 

We also noted that these are the same data used to compute the proposed FY 2016 acute 

care hospital inpatient wage index, as discussed in section III. of the preamble of this 

proposed rule. We are proposing to compute the proposed FY 2016 LTCH PPS standard 

Federal payment rate area wage index values consistent with the “urban” and “rural” 

geographic classifications (that is, labor market area delineations, as previously discussed 
CMS-1632-P 1346

in section V.B.2. of this Addendum) and 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. We also 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, consistent with 

the IPPS policy. Lastly, under our proposed methodology for determining the FY 2016 

LTCH PPS standard Federal payment rate 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.

Under our existing methodology, the LTCH PPS wage index value for urban 

CBSAs with no IPPS wage data would be 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 would be 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 2012 IPPS wage data that we are proposing to use to determine 

the proposed FY 2016 LTCH PPS standard Federal payment rate area wage index values 

in this proposed rule, there are no IPPS wage data for the urban area of Hinesville, GA 

(CBSA 25980). Consistent with the methodology discussed above, we calculated the 

proposed FY 2016 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 12A, which is listed in section VI. of the Addendum to 
CMS-1632-P 1347

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 the FY 2012 IPPS wage data that we are proposing to use to determine 

the proposed FY 2016 LTCH PPS standard Federal payment rate area wage index values 

in this proposed rule, there are no rural areas without IPPS hospital wage data. 

Therefore, it is not necessary to use our established methodology to calculate a proposed 

LTCH PPS standard Federal payment rate wage index value for proposed rural areas with 

no IPPS wage data for FY 2016. We note that, as IPPS wage data are dynamic, it is 

possible that the number of rural areas without IPPS wage data will vary in the future. 

The proposed FY 2016 LTCH PPS standard Federal payment rate wage index values that 

would be applicable for LTCH PPS standard Federal payment rate discharges occurring 

on or after October 1, 2015, through September 30, 2016, are presented in Table 12A (for 

urban areas) and Table 12B (for rural areas), which are listed in section VI. of the 

Addendum of this proposed rule and available via the Internet on the CMS Web site.

5. Proposed Budget Neutrality Adjustment for Proposed Changes to the LTCH PPS 

Standard Federal Payment Rate 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 
CMS-1632-P 1348

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).)

In this proposed rule, for FY 2016 LTCH PPS standard Federal payment rate 

cases, 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 adjustments or updates to the area wage 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). Specifically, we are proposing to determine an area wage level 

adjustment budget neutrality factor that would be applied to the LTCH PPS standard 

Federal payment rate under § 412.523(d)(4) for FY 2016 using the following 

methodology:
CMS-1632-P 1349

Step 1—We simulated estimated aggregate LTCH PPS standard Federal payment 

rate payments using the FY 2015 wage index values, including the 50/50 blended area 

wage index values, as applicable, and the FY 2015 labor-related share of 62.306 percent 

(as established in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50393 and 50397).

Step 2—We simulated estimated aggregate LTCH PPS standard Federal payment 

rate payments using the proposed FY 2016 wage index values (as shown in Tables 12A 

and 12B listed in the Addendum to this proposed rule and available via the Internet on the 

CMS Web site) and the proposed FY 2016 labor-related share of 62.2 percent (based on 

the latest available data as previously discussed previously in this Addendum).

Step 3—We calculated the ratio of these estimated total LTCH PPS standard 

Federal payment rate payments by dividing the estimated total LTCH PPS standard 

Federal payment rate payments using the FY 2015 area wage level adjustments 

(calculated in Step 1) by the estimated total LTCH PPS standard Federal payment rate 

payments using the proposed FY 2016 area wage level adjustments (calculated in Step 2) 

to determine the proposed area wage level adjustment budget neutrality factor for 

FY 2016 LTCH PPS standard Federal payment rate payments.

Step 4—We then applied the proposed FY 2016 area wage level adjustment 

budget neutrality factor from Step 3 to determine the proposed FY 2016 LTCH PPS 

standard Federal payment rate after the application of the proposed FY 2016 annual 

update (discussed previously in section V.A.2. of this Addendum).

We note that, under the statutory dual-rate LTCH PPS payment structure, only 

LTCH PPS cases that meet the statutory criteria to be excluded from the site neutral 
CMS-1632-P 1350

payment rate (that is, LTCH PPS standard Federal payment rate cases) would be paid 

based on the LTCH PPS standard Federal payment rate. Because the area wage level 

adjustment under § 412.525(c) is an adjustment to the LTCH PPS standard Federal 

payment rate, we only used data from claims that would have qualified for payment at the 

LTCH PPS standard Federal payment rate if such rate were in effect at the time of 

discharge to calculate the proposed FY 2016 LTCH PPS standard Federal payment rate 

area wage level adjustment budget neutrality factor described above. (For additional 

information on our proposed application of site neutral payment rate required under 

section 1886(m)(6) of the Act, we refer readers to section VII.B. of the preamble of this 

proposed rule.)

For this proposed rule, using the steps in the methodology described above, we 

determined a proposed FY 2016 LTCH PPS standard Federal payment rate area wage 

level adjustment budget neutrality factor of 1.001444. Accordingly, in section V.A.2. of 

the Addendum to this proposed rule, to determine the proposed FY 2016 LTCH PPS 

standard Federal payment rate, we are proposing to apply an area wage level adjustment 

budget neutrality factor of 1.001444, in accordance with § 412.523(d)(4). The proposed 

FY 2016 LTCH PPS standard Federal payment 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. 
CMS-1632-P 1351

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.

Under our current methodology, we 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) (77 FR 53712 through 53713). This methodology is based on a 

comparison of the growth in the Consumer Price Indexes (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 includes a 25-percent cap on 

the CPI-updated COLA factors. (For additional details on our current methodology for 

updating the COLA factors for Alaska and Hawaii, we refer readers to section VII.D.3. of 

the preamble of the FY 2013 IPPS/LTCH PPS final rule (77 FR 53481 through 53482).)

We continue to believe that determining updated COLA factors using this 

methodology would appropriately adjust the nonlabor-related portion of the LTCH PPS 

standard Federal payment rate for LTCHs located in Alaska and Hawaii. 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). Therefore, in this 

proposed rule, for FY 2016, 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 
CMS-1632-P 1352

use the COLA factors 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 as established in the FY 2014 

IPPS/LTCH PPS final rule. (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 to establish that the COLA factors shown in the 

following table would be used to adjust the nonlabor-related portion of the LTCH PPS 

standard Federal payment 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 2016 

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. Overview

a. Background

Under the broad authority conferred upon the Secretary by section 123 of the 

BBRA as amended by section 307(b) of the BIPA, in the regulations at § 412.525(a), we 
CMS-1632-P 1353

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. Under our current HCO policy at 

§ 412.525(a), 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 the current HCO policy, we make outlier payments for any discharges if 

the estimated cost of a case exceeds the adjusted payment under the LTCH PPS standard 

Federal payment rate plus a fixed-loss amount. Specifically, in accordance with existing 

§ 412.525(a)(3), 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 payment under the LTCH PPS standard 

Federal payment rate and the fixed-loss amount. The fixed-loss amount is the amount 

used to limit the loss that a hospital incurs under the outlier policy for a case with 

unusually high costs before the LTCH will receive any additional payments. This results 

in Medicare and the LTCH sharing financial risk in the treatment of extraordinarily costly 

cases. Under the current 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 (the 
CMS-1632-P 1354

adjusted LTCH PPS standard Federal payment rate payment plus the fixed-loss amount). 

The fixed percentage of costs is called the marginal cost factor. We calculate the 

estimated cost of a case by multiplying the Medicare allowable covered charge by the 

hospital’s overall hospital cost-to-charge ratio (CCR).

Under the current 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.

b. Application of the Site Neutral Payment Rate

Section 1206 of Pub. L. 113-67 establishes a new dual-rate LTCH PPS payment 

structure with two distinct payment rates for LTCH discharges, beginning in FY 2016. 

To implement this statutory change, as discussed in section VII.B. of the preamble of this 

proposed rule, we are proposing to pay hospitals for LTCH discharges that meet the 

criteria for exclusion from site neutral payment rate (that is, LTCH PPS standard Federal 

payment rate cases) based on the LTCH PPS standard Federal payment rate, which 

includes HCO payments determined under existing § 412.525(a). Furthermore, we are 
CMS-1632-P 1355

proposing that the site neutral payment rate is the lower of the IPPS comparable per diem 

amount as determined under § 412.529(d)(4) (including any applicable adjustments, such 

as outlier payments), or 100 percent of the estimated cost of the case as determined under 

existing § 412.529(d)(2), consistent with the statute.

Under the new statutory dual-rate LTCH PPS payment structure, as discussed in 

section VII.B.7.b. of the preamble of this proposed rule, we are proposing to establish 

two separate HCO targets— one for LTCH PPS standard Federal payment rate cases and 

one for site neutral payment rate cases. We are proposing to revise the regulations by 

making the proposed changes to the HCO policy to account for the new statutory dualrate LTCH PPS payment structure by revising paragraphs (a)(1), (a)(2), and (a)(3), and 

adding a new paragraph (a)(4) to existing § 412.525 of the regulations. Under our 

proposed HCO policy revised in accordance with the new statutory LTCH PPS payment 

structure, we are proposing to establish a fixed-loss amount and target for LTCH PPS 

standard Federal payment rate cases using the current LTCH PPS HCO policy, but 

limiting the data used under that policy to LTCH cases that would have been LTCH PPS 

standard Federal payment rate cases if the statutory changes had been in effect at the time 

of those discharges. Therefore, we are not proposing any modifications to the HCO 

methodology as it applies to LTCH PPS standard Federal payment rate cases other than 

determining a fixed-loss amount using only data from LTCH PPS standard Federal 

payment rate cases. Specifically, under our proposal, LTCH PPS standard Federal 

payment rate cases would receive 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 HCO 
CMS-1632-P 1356

threshold, which would be the sum of the LTCH PPS payment for the LTCH PPS 

standard Federal payment rate case and the fixed-loss amount for such cases. The fixedloss amount for LTCH PPS standard Federal payment rate cases would continue to be 

determined so that estimated HCO payments would be projected to be equal to 8 percent 

of estimated total LTCH PPS payments for LTCH PPS standard Federal payment rate 

cases.

Furthermore, we are proposing to revise the HCO policy under existing 

§ 412.525(a) to provide for high-cost outlier payments under the site neutral payment 

rate. Specifically, we are proposing that site neutral payment rate cases would receive an 

additional payment for HCOs that would be equal to 80 percent of the difference between 

the estimated cost of the case and the HCO threshold for site neutral payment rate 

discharges, which we are proposing would be the sum of site neutral payment rate for the 

case and the IPPS fixed-loss amount. In addition, in order to maintain budget neutrality, 

we are proposing to make the HCO payments for site neutral payment rate cases budget 

neutral by applying a proposed budget neutrality factor to the LTCH PPS payments for 

those site neutral payment rate cases. (Additional details on the proposed budget 

neutrality adjustment for HCO payments to site neutral payment rate cases is discussed 

subsequently in section V.D.4. of this Addendum.)

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 cases under § 412.525(a), SSO cases paid under the LTCH PPS in accordance with 
CMS-1632-P 1357

§ 412.529, and proposed site neutral payment rate cases paid in accordance with 

proposed § 412.522(c) (as discussed in section VII.B.4. of the preamble of this proposed 

rule). Although this section is specific to HCO cases, because CCRs and the policies and 

methodologies pertaining to them are used in determining payments for HCO, SSO, and 

proposed site neutral payment rate cases (to determine the estimated costs of these cases), 

we are discussing the determination of CCRs under the LTCH PPS for these three types 

of cases simultaneously in this section.

In determining HCO payments in accordance with § 412.525(a), SSO payments in 

accordance with § 412.529 and proposed site neutral payment rate payments in 

accordance with proposed § 412.522(c), 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), for 

HCOs,§ 412.529(f)(4)(ii) for SSOs, and proposed § 412.522(c)(1)(ii) for proposed site 

neutral payment rate cases. (We note that, in some instances under the provisions of the 

regulations at § 412.525(a)(4)(iv) and § 412.529(f)(4), and proposed § 412.522(c)(1)(ii), 

we may use an alternative CCR, such as the statewide average CCR, a CCR that is 

specified by CMS, or that is requested by the hospital.) 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 
CMS-1632-P 1358

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, based on IPPS total CCR data from the December 2014 update 

of the PSF, we are proposing to establish a total CCR ceiling of 1.345 under the LTCH 

PPS for FY 2016 in accordance with § 412.525(a)(4)(iv)(C)(2) for HCOs, 

§ 412.529(f)(4)(iii)(B) for SSOs, and proposed § 412.522(c)(1)(ii) for site neutral 

payment rate cases. We also are proposing that if more recent data become available, we 

would use that data to determine the LTCH PPS CCR ceiling for the FY 2016 final rule.
CMS-1632-P 1359

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) the SSO policy at 

§ 412.529(f)(4)(iii), and the proposed site neutral payment rate policy at proposed 

§ 412.522(c)(1)(ii), 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 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 short-term, acute care hospital), or data from other comparable LTCHs, 

such as LTCHs in the same chain or in the same region.)

Consistent with our historical practice of using the best available data, in this 

proposed rule, using our established methodology for determining the LTCH statewide 

average CCRs, based on the most recent complete IPPS “total CCR” data from the 
CMS-1632-P 1360

December 2014 update of the PSF, we are proposing to establish proposed LTCH PPS 

statewide average total CCRs for urban and rural hospitals that would be effective for 

discharges occurring on or after October 1, 2015 through September 30, 2016, in 

Table 8C listed in section VI. of the Addendum to this proposed rule (and available via 

the Internet). We also are proposing that if more recent data become available, we would 

use that data to determine the LTCH PPS statewide average total CCRs for FY 2016.

Under the current LTCH PPS labor market areas, all areas in Delaware, the 

District of Columbia, New Jersey, and Rhode Island are classified as urban. Therefore, 

there are no rural statewide average total CCRs listed for those jurisdictions in Table 8C. 

This policy is consistent with the policy that we established when we revised our 

methodology for determining the applicable LTCH statewide average CCRs in the 

FY 2007 IPPS final rule (71 FR 48119 through 48121) and is the same as the policy 

applied under the IPPS. In addition, although Connecticut and Massachusetts have areas 

that are designated as rural, there are no short-term, acute care IPPS hospitals or LTCHs 

located in those areas as of December 2014. 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 using this proxy 
CMS-1632-P 1361

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 HCO, SSO, and Proposed Site Neutral Payment Rate Payments

Under the HCO policy at § 412.525(a)(4)(iv)(D), the SSO policy at 

§ 412.529(f)(4)(iv), and as proposed for site neutral payment rate cases at proposed 

§ 412.522(c)(4), the payments for HCO, SSO, and site neutral payment rate cases are 

subject to reconciliation. Specifically, any reconciliation of 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. 

Our proposal to establish a reconciliation process for payments made to LTCHs for site 

neutral payment rate cases is discussed in section VII.B.4.a. of the preamble of this 

proposed rule. For additional information on the existing reconciliation policy, 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. Proposed High-Cost Outlier Payments for LTCH PPS Standard Federal Payment Rate 

Cases

a. Establishment of the Proposed LTCH PPS Fixed-Loss Amount for LTCH PPS 

Standard Federal Payment Rate Cases for FY 2016

When we implemented the LTCH PPS, under the broad authority of section 123 

of the BBRA as amended by section 307(b) of BIPA, we established a fixed-loss amount 
CMS-1632-P 1362

so that total estimated outlier payments are projected to equal 8 percent of total estimated 

payments under the LTCH PPS (67 FR 56022 through 56026). 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, we estimate the cost of the 

case by multiplying the Medicare covered charges from the claim by the LTCH’s CCR. 

Under the HCO policy at § 412.525(a), 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 standard Federal rate payment and the fixed-loss amount).

As noted above and as discussed in greater detail in section VII.B.7.b. of the 

preamble of this proposed rule, under the new statutory dual-rate LTCH PPS payment 

structure, we are proposing to establish two separate HCO targets—one for LTCH PPS 

standard Federal payment rate cases and one for site neutral payment rate cases. Under 

this proposal, for LTCH PPS standard Federal payment rate cases, we are proposing to 

establish a fixed-loss amount and target using the current LTCH PPS HCO policy, but to 

limit the data used under that policy to LTCH cases that would have been paid as LTCH 

PPS standard Federal payment rate cases, if that payment rate had been in effect at the 

time of those discharges. Therefore, we are not proposing to make any modifications to 

the existing LTCH PPS HCO payment methodology as it applies to LTCH PPS standard 

Federal payment rate cases, other than determining a fixed-loss amount using only data 

from LTCH PPS standard Federal payment rate cases. As such, LTCH PPS standard 

Federal payment rate cases would continue to receive an additional payment for any 
CMS-1632-P 1363

HCO case that would be equal to 80 percent of the difference between the estimated cost 

of the case and the HCO threshold, which would be the sum of the LTCH PPS payment 

for the LTCH PPS standard Federal payment rate case and the fixed-loss amount. The 

fixed-loss amount for LTCH PPS standard Federal payment rate cases would continue to 

be determined so that estimated HCO payments would be projected to equal 8 percent of 

estimated total LTCH PPS standard Federal payment rate cases, and a budget neutrality 

factor will continue to be applied to LTCH PPS standard Federal payment rate cases to 

offset that 8 percent so that HCO payments for LTCH PPS standard Federal payment rate 

cases would be budget neutral. Below we present our proposed calculation of the 

proposed LTCH PPS fixed-loss amount for LTCH PPS standard Federal payment rate 

cases for FY 2016, which is consistent with the methodology used to establish the FY 

2015 LTCH PPS fixed-loss amount. (Additional discussion of our HCO payment policy 

proposals for site neutral payment rate cases is discussed subsequently in section V.D.4. 

of this Addendum.)

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50399 through 50400), we 

presented our policies regarding the methodology and data we used to establish a 

fixed-loss amount of $14,972 for FY 2015, which was calculated using our existing 

methodology (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 fixed-loss amount for FY 2015, we used the most recent 

available LTCH claims data and CCR data, that is, LTCH claims data from the March 
CMS-1632-P 1364

2014 update of the FY 2013 MedPAR file and CCRs from the March 2014 update of the 

PSF, as these data were the most recent complete LTCH data available at that time.

In this proposed rule, we are proposing to continue to use our existing 

methodology to calculate a fixed-loss amount for LTCH PPS standard Federal payment 

rate cases for FY 2016 using the best available data that would maintain estimated HCO 

payments at the projected 8 percent of total estimated LTCH PPS payments for LTCH 

PPS standard Federal payment rate cases (based on the proposed rates and policies for 

these cases presented in this proposed rule). Specifically, based on the most recent 

complete LTCH data available (that is, LTCH claims data from the December 2014 

update of the FY 2014 MedPAR file and CCRs from the December 2014 update of the 

PSF), we are proposing to determine a fixed-loss amount for LTCH PPS standard Federal 

payment rate cases for FY 2016 that would result in estimated outlier payments projected 

to be equal to 8 percent of total estimated payments for these cases in FY 2016. Under 

the broad authority of section 123(a)(1) of the BBRA and section 307(b)(1) of the BIPA, 

we are proposing a fixed-loss amount of $18,768 for LTCH PPS standard Federal 

payment rate cases for FY 2016, and also to continue to make an additional HCO 

payment for the cost of an LTCH PPS standard Federal payment rate case that exceeds 

the HCO threshold amount 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 LTCH PPS 

standard Federal payment rate payment and the proposed fixed-loss amount for LTCH 

PPS standard Federal payment rate cases of $18,768).
CMS-1632-P 1365

We note that the proposed fixed-loss amount of $18,768 for LTCH PPS standard 

Federal payment rate cases for FY 2016 is higher than the FY 2015 fixed-loss amount of 

$14,792. This increase is largely attributable to the implementation of the new statutory 

dual-rate LTCH PPS payment structure, under which we have proposed to have separate 

HCO target amounts for LTCH PPS standard Federal payment rate cases and site neutral 

payment rate cases. The FY 2015 fixed-loss amount was determined based data from all 

LTCH cases—both those that would have been paid as site neutral payment rate cases 

and those that would have been paid as LTCH PPS standard Federal payment rate cases if 

the statutory changes had been in effect at that time. However, under our proposal, the 

proposed fixed-loss amount of $18,768 for FY 2016 would only be used to determine 

HCO payments made for LTCH PPS standard Federal payment rate cases. We currently 

estimate that the FY 2015 fixed-loss amount of $14,972 results in estimated HCO 

payments for LTCH PPS standard Federal payment rate cases of approximately 8.6 

percent of total estimated FY 2015 LTCH PPS payments to those cases, which exceeds 

the 8 percent target. Therefore, we believe that it is necessary and appropriate to increase 

the fixed-loss amount to maintain that, for LTCH PPS standard Federal payment rate 

cases, estimated HCO payments would equal 8 percent of estimated total LTCH PPS 

payments for those cases as required under the proposed revisions to § 412.525(a). (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 target that we are proposing would apply 
CMS-1632-P 1366

to total payments for LTCH PPS standard Federal payment rate cases 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. Consistent with our historical practice, we are proposing that if more recent data 

is available, we would use such data to calculate the FY 2016 fixed-loss amount for 

LTCH PPS standard Federal payment rate cases in the final rule.

b. Application of the High-Cost Outlier Policy to SSO Cases

Under our proposals to implement the dual-rate LTCH PPS payment structure 

required by statute, we are proposing that LTCH PPS standard Federal payment rate 

cases (that is, LTCH discharges that meet the criteria for exclusion from the site neutral 

payment rate) would continue to be paid based on the LTCH PPS standard Federal 

payment rate, and would include all of the existing payment adjustments under 

§ 412.525(d), such as the adjustments for SSO cases under § 412.529. (For additional 

information on our proposed payments for LTCH standard payment rate cases, we refer 

readers to section VII.B.4.c. of the preamble of this proposed rule.) Under some rare 

circumstances, an LTCH discharge can qualify as an SSO case (as defined in the 

regulations at § 412.529 in conjunction with § 412.503) and also as an HCO case, as 

discussed in the August 30, 2002 final rule (67 FR 56026). 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 
CMS-1632-P 1367

amount), the discharge is eligible for payment as an HCO. Therefore, for an SSO case in 

FY 2016, 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 

$18,768 and the amount paid under the SSO policy as specified in § 412.529).

4. Proposed High-Cost Outlier Payments for Site Neutral Payment Rate Cases

Under the new dual-rate LTCH PPS payment structure, the statute establishes two 

distinct payment rates for LTCH discharges beginning in FY 2016. Under this statutory 

change, as discussed in section VII.B. of the preamble of this proposed rule, we are 

proposing to pay for LTCH discharges that meet the criteria for exclusion from the site 

neutral payment rate (that is, LTCH PPS standard Federal payment rate cases) based on 

the LTCH PPS standard Federal payment rate. In addition, consistent with the statute, we 

are proposing that the site neutral payment rate is the lower of the IPPS comparable per 

diem amount as determined under § 412.529(d)(4), including any applicable outlier 

payments as specified in § 412.525(a); or 100 percent of the estimated cost of the case as 

determined under existing § 412.529(d)(2). Furthermore, we are proposing have two 

separate HCO targets-one for LTCH PPS standard Federal payment rate cases and one 

for site neutral payment rate cases.

For site neutral payment rate cases, we are proposing that such cases would 

receive an additional HCO payment for costs that exceed the HCO threshold that would 

be equal to 80 percent of the difference between the estimated cost of the case and the 

HCO threshold. We are proposing that the HCO threshold for site neutral payment rate 

cases would be the sum of the site neutral payment rate for the case and the IPPS 
CMS-1632-P 1368

fixed-loss amount. (We note that, as discussed in section VII.B.7.b. of the preamble of 

this proposed rule, in light of our HCO proposals in accordance with our implementation 

of the new statutory dual-rate LTCH PPS payment structure, any site neutral payment 

rate case that is paid 100 percent of the estimated cost of the case (because that amount is 

lower than the IPPS comparable per diem amount) would not be eligible to receive a 

HCO payment because, by definition, the estimated costs of such cases would never 

exceed the IPPS comparable amount by any threshold.) Under this proposal, we are 

proposing that HCO payments for site neutral payment rate cases would be budget 

neutral, such that the proposed site neutral payment rate HCO payments would not result 

in any change in estimated aggregate LTCH PPS payments. In order to achieve this, 

under proposed new § 412.522(c)(2)(i), we are proposing to apply a budget neutrality 

factor to the payments for all site neutral payment rate cases, which would be established 

on an estimated basis. (For additional details on our HCO policy proposals for site 

neutral payment rate cases, we refer readers to section VII.B.7.b. of the preamble of this 

proposed rule.)

As we discussed in section VII.B.7.b. of the preamble of this proposed rule, in 

order to estimate the magnitude a proposed budget neutrality adjustment for HCO 

payments for site neutral payment rate cases, we relied on the assumption by our 

actuaries that site neutral payment rate cases would have lengths of stay and costs 

comparable to IPPS cases assigned to the same MS-DRG. Because site neutral payment 

rate cases are expected to have lengths of stay and costs comparable to IPPS cases 

assigned to the same MS DRG, we project that our proposal to use the IPPS fixed-loss 
CMS-1632-P 1369

threshold for the site neutral payment rate cases would result in HCO payments for site 

neutral payment rate cases that are similar in proportion as is seen in IPPS cases assigned 

to the same MS-DRG; that is, 5.1 percent. Therefore, under proposed new 

§ 412.522(c)(2)(i), we are proposing to adjust all payments for site neutral payment rate 

cases by a budget neutrality factor so that the estimated HCO payments payable for site 

neutral payment rate cases do not result in any increase in aggregate LTCH PPS 

payments.

The statutory LTCH PPS payment changes required by section 1886(m)(6) of the 

Act (that is, the application of the site neutral payment rate) are effective for LTCH PPS 

discharges occurring in cost reporting periods beginning on or after October 1, 2015. In 

this proposed rule, to estimate total LTCH PPS site neutral payment rate payments in 

Federal FY 2016, we are proposing an adjustment to account for the varying effective 

dates of the statutory dual-rate LTCH PPS payment structure. In order to estimate 

FY 2016 LTCH PPS payments based on site neutral payment rate cases, it is necessary to 

account for the fact that LTCHs whose cost reporting periods begin after 

October 1, 2015, will receive the LTCH PPS standard Federal payment rates for all of 

their LTCH PPS cases, including their cases that would be site neutral payment rate 

cases, until the start of their next cost reporting period. For purposes of estimating site 

neutral payment rate payments in FY 2016, we examined LTCHs whose cost reporting 

periods begin in the first quarter of FY 2016 (that is, October through December 2015). 

We modeled that all of the FY 2016 site neutral payment rate cases associated with these 

LTCHs would be paid at the proposed transitional blended payment rate (that is, 50 
CMS-1632-P 1370

percent of the applicable site neutral payment rate amount for the discharge as 

determined under proposed new § 412.522(c)(1) and 50 percent of the applicable LTCH 

PPS standard Federal payment rate determined under § 412.523). All of the first quarter 

FY 2016 site neutral payment rate cases for LTCHs whose cost reporting periods begin 

after the start of the first quarter of FY 2016 were modeled as being paid at the LTCH 

PPS standard Federal payment rate for all discharges in that quarter. We then examined 

LTCHs whose cost reporting periods begin in the second quarter of FY 2016 (that is, 

January through March 2016). We modeled that all of the second, third, and fourth 

quarter FY 2016 site neutral payment rate cases associated with these LTCHs would be 

paid at the transitional blended payment rate. All of the second quarter FY 2016 site 

neutral payment rate cases for LTCHs whose cost reporting periods begin after the start 

of the second quarter of FY 2016 were modeled as being paid at the LTCH PPS standard 

Federal payment rate for all discharges in that quarter. Similarly, we examined LTCHs 

whose cost reporting periods begin in the third quarter of FY 2016 (that is, April through 

June 2016). We modeled that all of the third and fourth quarter FY 2016 site neutral 

payment rate cases associated with these LTCHs would be paid at the transitional 

blended payment rate. For all of the third quarter FY 2016 site neutral payment rate 

cases for LTCHs whose cost reporting periods begin after the start of the third quarter of 

FY 2016, we modeled as being paid at the LTCH PPS standard Federal payment rate. 

Finally, we examined LTCHs whose cost reporting periods begin in the fourth quarter of 

FY 2016 (that is, July through September of 2016). We modeled all of the fourth quarter 

FY 2016 site neutral payment rate cases associated with these LTCHs as being paid at the 
CMS-1632-P 1371

transitional blended payment rate. We believe that this approach is reasonable for the 

purpose of taking into account in our FY 2016 payment estimates given the fact that 

LTCHs whose cost reporting periods begin after October 1, 2015 will receive the LTCH 

PPS standard Federal payment rate as payment for all of their LTCH PPS cases, 

including their cases that would be categorized as site neutral payment rate cases, until 

the start of their next cost reporting period. Based on the fiscal year start dates recorded 

in the December update of the Provider Specific File, of the 418 LTCHs in our database 

of LTCH claims from the December 2014 update of the FY 2014 MedPAR files used for 

this proposed rule, the following percentages apply in the approach described above: 

10.85 percent of site neutral payment rate cases are from LTCHs whose cost reporting 

periods begin in the first quarter of FY 2016; 31.41 percent of site neutral payment rate 

cases are from LTCHs whose cost reporting periods begin in the second quarter of 

FY 2016; 10.83 percent of site neutral payment rate cases are from LTCHs whose cost 

reporting periods begin in the third quarter of FY 2016; and 46.91 percent of site neutral 

payment rate cases are from LTCHs whose cost reporting periods begin in the fourth 

quarter of FY 2016.

Using the approach described above to account for when LTCHs’ first cost 

reporting period begins on or after October 1, 2015, and based on the applicable LTCH 

claims in our database from the December 2014 update of the FY 2014 MedPAR files, 

we estimate that site neutral payment rate HCO payments would be approximately 2.3 

percent of total LTCH PPS payments for site neutral payment rate cases in FY 2016. 

Therefore, we are proposing to apply a budget neutrality factor of 0.976996 to all 
CMS-1632-P 1372

payments for site neutral payment rate cases in FY 2016 so that the estimated HCO 

payments payable to those cases do not result any increase in aggregate LTCH PPS 

payments, in accordance with proposed new § 412.522(c)(2)(i).

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” includes 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 
CMS-1632-P 1373

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.
CMS-1632-P 1374

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50400 through 50401), we 

discussed that, for FY 2015, based on the latest data available at that time, we projected 

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 equaling 

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. Therefore, the 

calculation of the “IPPS comparable amount” under § 412.529 and the “IPPS equivalent 

amount” under § 412.534 and § 412.536 for FY 2015 includes 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.

For FY 2016, as discussed in greater detail in section IV.D.3.d.(2) of the preamble 

of this proposed rule, based on the most recent data available, 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 63.69 

percent of that amount to reflect the change in the percentage of individuals who are 

uninsured. The resulting amount would then be used to determine the amount of 

uncompensated care payments that will be made to eligible IPPS hospitals in FY 2016. 

In other words, Medicare DSH payments prior to the amendments made by the 

Affordable Care Act would be adjusted to 47.77 percent (the product of 75 percent and 

63.69 percent) and the resulting amount would be used to calculate the uncompensated 
CMS-1632-P 1375

care payments to eligible hospitals. As a result, for FY 2016, we project that the 

reduction in the amount of Medicare DSH payments pursuant to section 1886(r)(1) of the 

Act, along with the payments for uncompensated care under section 1886(r)(2) of the 

Act, would result in overall Medicare DSH payments of 72.77 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 + 47.77 percent = 

72.77 percent).

We also are proposing that, consistent with our historical practice of using the 

most recent data available, 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 2016. In this proposed rule, for FY 2016, we are proposing to establish 

that the calculation of the “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 will be equal to 72.77 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.
CMS-1632-P 1376

F. Computing the Proposed Adjusted LTCH PPS Federal Prospective Payments for 

FY 2016

Section 412.525 sets forth the adjustments to the LTCH PPS standard Federal 

rate. Under the new statutory dual-rate LTCH PPS payment structure that begins in 

FY 2016, only LTCH PPS cases that meet the statutory criteria to be excluded from the 

site neutral payment rate would be paid based on the LTCH PPS standard Federal 

payment rate (as discussed in section VII.B. of the preamble of this proposed rule). 

Under § 412.525(c), the proposed LTCH PPS standard Federal rate is adjusted to account 

for differences in area wages by multiplying the proposed labor-related share of the 

LTCH PPS standard Federal payment for a case by the applicable LTCH PPS wage index 

(FY 2016 values are shown in Tables 12A through 12B listed in section VI. of the 

Addendum of this proposed rule and are available via the Internet). The proposed LTCH 

PPS standard Federal payment is also adjusted to account for the higher costs of LTCHs 

located in Alaska and Hawaii by the applicable COLA factors (the proposed FY 2016 

factors are shown in the chart in section V.D. of this Addendum) in accordance with 

§ 412.525(b). In this proposed rule, we are proposing to establish an LTCH PPS standard 

Federal payment rate for FY 2016 of $41,883.93, as discussed in section V.A.2. of the 

Addendum to this proposed rule. We illustrate the methodology to adjust the proposed 

LTCH PPS standard Federal rate for FY 2016 in the following example:

Example:

During FY 2016, a Medicare discharge that meets the criteria to be excluded from 

the site neutral payment rate, that is an LTCH PPS standard Federal payment rate case, is 
CMS-1632-P 1377

from an LTCH that is located in Chicago, Illinois (CBSA 16974). The proposed 

FY 2016 LTCH PPS wage index value for CBSA 16974 is 1.0295 (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 case is classified into 

MS-LTC-DRG 189 (Pulmonary Edema & Respiratory Failure), which has a proposed 

relative weight for FY 2016 of 0.9071 (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 2016 in accordance with the 

LTCHQRP under section 1886(m)(5) of the Act.

To calculate the LTCH’s total adjusted Federal prospective payment for this 

Medicare patient case in FY 2016, we computed the wage-adjusted proposed Federal 

prospective payment amount by multiplying the unadjusted proposed FY 2016 LTCH 

PPS standard Federal payment rate ($41,883.93) by the proposed labor-related share 

(62.2 percent) and the proposed wage index value (1.0295). This wage-adjusted amount 

was then added to the proposed nonlabor-related portion of the unadjusted proposed 

LTCH PPS standard Federal payment rate (37.8 percent; adjusted for cost of living, if 

applicable) to determine the adjusted proposed LTCH PPS standard Federal payment 

rate, which is then multiplied by the proposed MS-LTC-DRG relative weight (0.9071) to 

calculate the total adjusted proposed LTCH PPS standard Federal prospective payment 

for FY 2016 ($38,690.05). The table below illustrates the components of the calculations 

in this example.
CMS-1632-P 1378

Proposed LTCH PPS Standard Federal Prospective Payment 

Rate $ 41,883.93

Proposed Labor-Related Share x 0.622 

Proposed Labor-Related Portion of the LTCH PPS Standard 

Federal Payment Rate = $ 26,051.80

Proposed Wage Index (CBSA 16974) x 1.0295

Proposed Wage-Adjusted Labor Share of LTCH PPS 

Standard Federal Payment Rate = $ 26,820.33

Proposed Nonlabor-Related Portion of the LTCH PPS 

Standard Federal Payment Rate ($41,883.93 x 0.378) + $ 15,832.13

Adjusted Proposed LTCH PPS Standard Federal Payment 

Amount = $ 42,652.46

MS-LTC-DRG 189 Proposed Relative Weight x 0.9071

Total Adjusted Proposed LTCH PPS Standard Federal 

Prospective Payment = $ 38,690.05
CMS-1632-P 1379

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 2015, for the FY 2016 rulemaking cycle, the IPPS and LTCH tables 

will not be published in the Federal Register in the annual IPPS/LTCH PPS proposed 

and final rules 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 III. I. of the preamble to this proposed rule, we are 

proposing to streamline and consolidate the wage index tables for FY 2016 and 

subsequent fiscal years. In previous fiscal years, the wage index tables have consisted of 

the following 12 tables: Table 2 (acute care hospitals’ case-mix indexes; hospital wage 

indexes; hospital average hourly wages, and 3‐year average of hospital average hourly 

wages); Table 3A (relevant fiscal year and 3–year average hourly wage for acute care 

hospitals in urban areas by CBSA); Table 3B (relevant fiscal year and 3-year average 

hourly wage for acute care hospitals in rural areas by CBSA); Table 4A (wage index and 

capital geographic adjustment factor (GAF) for acute care hospitals in urban areas by 

CBSA and by State); Table 4B (wage index and capital GAF for acute care hospitals in 
CMS-1632-P 1380

rural areas by CBSA and by State); Table 4C (wage index and capital GAF for acute care 

hospitals that are reclassified by CBSA and by State); Table 4D (States designated as 

frontier, with acute care hospitals receiving at a minimum the frontier State floor wage 

index; urban areas with acute care hospitals receiving the statewide rural floor or imputed 

rural floor wage index); Table 4E (urban CBSAs and constituent counties for acute care 

hospitals); Table 4F (Puerto Rico wage index and capital GAF for acute care hospitals by 

CBSA); Table 4J (out-migration adjustment for acute care hospitals); Table 9A (hospital 

reclassifications and redesignations); and Table 9C (hospitals redesignated as rural under 

section 1886(d)(8)(e) of the Act). With the exception of Table 4E, we are proposing to 

consolidate the information from the 11 other tables listed above into 2 new tables. The 

wage index tables provided in previous fiscal years either display information by CMS 

Certification Number (CCN) or by CBSA number. The new Table 2 contains 

information by CCN and information from the following tables that have been provided 

in previous fiscal years: Tables 2, 4J, 9A, and 9C. The new Table 3 contains information 

by CBSA and information from the following tables that have been provided in previous 

fiscal years: Tables 3A, 3B, 4A, 4B, 4C, 4D, and 4F. We believe these two new tables 

will be easier for the public to navigate and find all the relevant data and information 

from the tables provided in previous fiscal years. Finally, in previous fiscal years, Table 

4E provided a list of urban CBSAs and constituent counties. Because of formatting 

technicalities, we found it difficult to consolidate the information from Table 4E into the 

proposed two new tables. Therefore, we are proposing to provide the data previously 
CMS-1632-P 1381

published as Table 4E for each annual proposed and final rule as one of our data files on 

our Web page (the same Web page where the county to CBSA crosswalk is posted).

As discussed in sections II.G.3.e., II.G.10.a., II.G.11., and II.G.13. of the 

preamble of this proposed rule, we developed the following ICD-10-CM and ICD-10-

PCS code tables for FY 2016: Table 6B--New Procedure Codes; Table 6I--Complete 

MCC List; Table 6J--Complete CC List; Table 6K--Complete List of CC Exclusions; 

Table 6L--Principal Diagnosis Is Its Own MCC List; Table 6M--Principal Diagnosis Is 

Its Own CC List; Table 6M.1--Additions to the Principal Diagnosis Is Its Own CC List; 

and Table 6P--ICD-10-PCS Code Translations for Proposed MS-DRG Changes. 

Table 6P contains multiple tables 6P.1a through 6P.2a that list the ICD-10-PCS code 

translations relating to specific MS-DRG proposals. In addition, under the HAC 

Reduction Program established by 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. However, as discussed in section IV.G. of the preamble of this proposed rule, 

we are not providing the hospital-level data as a table associated with this proposed rule. 

The hospital-level data for the FY 2016 HAC Reduction Program will be made publicly 

available once it has undergone the review and corrections process.

Finally, a hospital’s Factor 3 is the proportion of the uncompensated care amount 

that a DSH eligible hospital 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 DSH hospitals’ Medicaid days and Medicare SSI days. 

Table 18 associated with this proposed rule contains the FY 2016 Medicare DSH 
CMS-1632-P 1382

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 2016.

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 2016 proposed rule are available only 

through the Internet on the CMS Web site at: http://www.cms.gov/Medicare/MedicareFee-for-Service-Payment/AcuteInpatientPPS/index.html. Click on the link on the left 

side of the screen titled, “FY 2016 IPPS Proposed Rule Home Page” or “Acute 

Inpatient--Files for Download”.

Table 2.--Proposed Case-Mix Index and Wage Index Table by CCN--FY 2016

Table 3.--Proposed Wage Index Table by CBSA--FY 2016

Table 5.--Proposed List of Medicare Severity Diagnosis-Related Groups 

(MS-DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean Length of 

Stay--FY 2016.

Table 6B.--New Procedure Codes--FY 2016

Table 6I.—Proposed Complete Major CC List—FY 2016

Table 6J.—Proposed Complete CC List—FY 2016

Table 6K.—Proposed Complete List of CC Exclusions—FY 2016

Table 6L.--Proposed Principal Diagnosis Is Its Own MCC List--FY 2016

Table 6M.--Proposed Principal Diagnosis Is Its Own CC List--FY 2016
CMS-1632-P 1383

Table 6M.1.--Proposed Additions to the Principal Diagnosis Is Its Own CC 

List--FY 2016

Table 6P.--ICD-10-PCS Code Translations for Proposed MS-DRG Changes—

FY 2016

Table 7A.—Medicare Prospective Payment System Selected Percentile Lengths 

of Stay: FY 2014 MedPAR Update—December 2014 GROUPER V32.0 MS-DRGs

Table 7B.—Medicare Prospective Payment System Selected Percentile Lengths 

of Stay: FY 2014 MedPAR Update—December 2014 GROUPER V33.0 MS-DRGs

Table 8A.—Proposed FY 2016 Statewide Average Operating Cost-to-Charge 

Ratios (CCRs) for Acute Care Hospitals (Urban and Rural)

Table 8B.—Proposed FY 2016 Statewide Average Capital Cost-to-Charge Ratios 

(CCRs) for Acute Care Hospitals.

Table 10.—Proposed New Technology Add-On Payment Thresholds for 

Applications for FY 2017

Table 15.—Proposed FY 2016 Proxy Readmissions Adjustment Factors

Table 16.—Proposed Proxy Hospital Inpatient Value-Based Purchasing (VBP) 

Program Adjustment Factors for FY 2016

Table 18.—Proposed FY 2016 Medicare DSH Uncompensated Care Payment 

Factor 3

The following LTCH PPS tables for this FY 2016 proposed rule are available 

only through the Internet on the CMS Web site at 

http://www.cms.gov/Medicare/Medicare-Fee-for-Service-
CMS-1632-P 1384

Payment/LongTermCareHospitalPPS/index.html under the list item for Regulation 

Number CMS-1632-P:

Table 8C.—Proposed FY 2016 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 LTCH PPS Discharges Occurring from October 1, 2015 through September 30, 2016

Table 12A.—Proposed LTCH PPS Wage Index for Urban Areas for Discharges

Occurring From October 1, 2015 through September 30, 2016

Table 12B.—Proposed LTCH PPS Wage Index for Rural Areas for Discharges 

Occurring from October 1, 2015 through September 30, 2016

Table 13A.—Proposed Composition of Low-Volume Quintiles for 

MS-LTC-DRGs—FY 2016

Table 13B.—Proposed No-Volume MS-LTC-DRG Crosswalk for FY 2016

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 2016

Hospital Submitted 

Quality Data and is 

a Meaningful EHR 

User (Update = 1.9 

Percent)

Hospital Did NOT 

Submit Quality Data 

and is a Meaningful 

EHR User (Update = 

1.225 Percent)

Hospital Submitted 

Quality Data and is 

NOT a Meaningful 

EHR User (Update = 

0.55 Percent)

Hospital Did NOT 

Submit Quality Data 

and is NOT a 

Meaningful EHR 

User (Update = -

0.125 Percent)

Labor Nonlabor Labor Nonlabor Labor Nonlabor Labor Nonlabor

$3,813.40 $1,665.63 $3,788.14 $1,654.60 $3,762.88 $1,643.56 $3,737.62 $1,632.53
CMS-1632-P 1385

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 2016

Hospital Submitted 

Quality Data and is 

a Meaningful EHR 

User (Update = 1.9 

Percent)

Hospital Did NOT 

Submit Quality Data 

and is a Meaningful 

EHR User (Update = 

1.225 Percent)

Hospital Submitted 

Quality Data and is 

NOT a Meaningful 

EHR User (Update = 

0.55 Percent)

Hospital Did NOT 

Submit Quality Data 

and is NOT a 

Meaningful EHR 

User (Update = -

0.125 Percent)

Labor Nonlabor Labor Nonlabor Labor Nonlabor Labor Nonlabor

$3,397.00 $2,082.03 $3,374.50 $2,068.24 $3,351.99 $2,054.45 $3,329.49 $2,040.66
CMS-1632-P 1386

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 2016

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

1National Not 

Applicable

Not 

Applicable $3,397.00 $2,082.03

Puerto Rico $1,638.15 $953.86 $1,607.05 $984.96

1 For FY 2016, there are no CBSAs in Puerto Rico with a national wage index greater than 1.

TABLE 1D.—PROPOSED CAPITAL STANDARD FEDERAL PAYMENT 

RATES—FY 2016

Rate

National $468.51

Puerto Rico $230.93

TABLE 1E.— PROPOSED LTCH PPS STANDARD FEDERAL 

RATE--FY 2016

Full Update

(1.9 Percent)

Reduced 

Update*

(-0.1 Percent)

Standard Federal Rate $41,883.93 $41,061.87

 * For LTCHs that fail to submit quality reporting data for FY 2016 in accordance with the LTCH Quality 

Reporting Program (LTCHQRP), the annual update is reduced by 2.0 percentage points as required by 

section 1886(m)(5) of the Act.
CMS-1632-P 1387

Appendix A: Economic Analyses

I. Regulatory Impact Analysis

A. Introduction

We have examined the impacts of this proposed rule as required by Executive 

Order 12866 on Regulatory Planning and Review (September 30, 1993), Executive 

Order 13563 on Improving Regulation and Regulatory Review (February 2, 2011), the 

Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) 

of the Social Security Act, section 202 of the Unfunded Mandates Reform Act of 1995 

(March 22, 1995, Pub. L. 104-4), Executive Order 13132 on Federalism 

(August 4, 1999), and the Congressional Review Act (5 U.S.C. 804(2)).

Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits 

of available regulatory alternatives and, if regulation is necessary, to select regulatory 

approaches that maximize net benefits (including potential economic, environmental, 

public health and safety effects, distributive impacts, and equity). Executive Order 13563 

emphasizes the importance of quantifying both costs and benefits, of reducing costs, of 

harmonizing rules, and of promoting flexibility. A regulatory impact analysis (RIA) must 

be prepared for major rules with economically significant effects ($100 million or more 

in any 1 year).

We have determined that this proposed rule is a major rule as defined in 

5 U.S.C. 804(2). We estimate that the proposed changes for FY 2016 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 
CMS-1632-P 1388

statute, in conjunction with other proposed payment changes in this proposed rule, would 

result in an estimated $278 million increase in proposed FY 2016 operating payments (or 

0.3 percent change) and an estimated $160 million increase in proposed FY 2016 capital 

payments (or 2.0 percent change). These proposed changes are relative to payments 

made in FY 2015. The impact analysis of the proposed capital payments can be found in 

section I.I. of this Appendix. In addition, as described in section I.J. of this Appendix, 

LTCHs are expected to experience a decrease in payments by $250 million in FY 2016 

relative to FY 2015.

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 1.9 percent hospital update to the 

standardized amount (which includes the estimated 2.7 percent market basket update less 

0.6 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 proposed 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 
CMS-1632-P 1389

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 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.
CMS-1632-P 1390

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 2016, 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 

capital-related costs of acute care hospitals encompass most general short-term, acute 

care hospitals that participate in the Medicare program. There were 32 Indian Health 

Service hospitals in our database, which we excluded from the analysis due to the special 

characteristics of the prospective payment methodology for these hospitals. Among other 

short-term, acute care hospitals, 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) receive 

payment for inpatient hospital services they furnish on the basis of reasonable costs, 

subject to a rate-of-increase ceiling.

As of March 2015, there were 3,366 IPPS acute care hospitals included in our 

analysis. This represents approximately 56 percent of all Medicare-participating 

hospitals. The majority of this impact analysis focuses on this set of hospitals. There 
CMS-1632-P 1391

also are approximately 1,329 CAHs. These small, limited service hospitals are paid on 

the basis of reasonable costs rather than under the IPPS. IPPS-excluded hospitals and 

units, which are paid under separate payment systems, 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. 

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 2016 is discussed in section I.J. of this 

Appendix.

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

As of March 2015, there were 99 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, 248 rehabilitation hospitals and 884 rehabilitation units, and approximately 

430 LTCHs, are paid the Federal prospective per discharge rate under the IRF PPS and 

the LTCH PPS, respectively, and 495 psychiatric hospitals and 1,122 psychiatric units are 

paid the Federal per diem amount under the IPF PPS. As stated above, IRFs and IPFs are 

not affected by the rate updates discussed in this proposed rule. The impacts of the 

proposed changes on LTCHs are discussed in section I.J. of this Appendix.
CMS-1632-P 1392

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 update of the rate-of-increase limit (or target amount) 

is the estimated FY 2016 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 using the percentage increase in the FY 2010-based IPPS operating 

market basket to update the target amounts for FY 2016 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 first quarter 2015 

forecast of the FY 2010-based market basket increase, we are estimating that the 

FY 2016 update based on the IPPS operating market basket is 2.7 percent (that is, the 

current estimate of the market basket rate-of-increase). However, the Affordable Care 

Act requires an adjustment for multifactor productivity (currently estimated to be 0.6 

percentage point for FY 2016) and a 0.2 percentage point reduction to the market basket 

update resulting in a proposed 1.9 percent applicable percentage increase for IPPS 

hospitals that submit quality data and are meaningful EHR users, as discussed in section 

IV.A. 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 
CMS-1632-P 1393

Mariana Islands, and American Samoa, and RNCHIs that continue to be paid based on 

reasonable costs subject to rate-of-increase limits under § 413.40 of the regulations are 

not subject to the reductions in the applicable percentage increase required under the 

Affordable Care Act. Therefore, for those hospitals paid under § 413.40 of the 

regulations, the update is the percentage increase in the FY 2016 IPPS operating market 

basket, estimated at 2.7 percent, without the reductions described above under the 

Affordable Care Act.

The impact of the update in the rate-of-increase limit on those excluded hospitals 

depends on the cumulative cost increases experienced by each excluded hospital since its 

applicable base period. For excluded hospitals that have maintained their cost increases 

at a level below the rate-of-increase limits since their base period, the major effect is on 

the level of incentive payments these excluded hospitals receive. Conversely, for 

excluded hospitals with 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.
CMS-1632-P 1394

G. Quantitative Effects of the Proposed Policy Changes under the IPPS for Operating 

Costs

1. Basis and Methodology of Estimates

In this proposed rule, we are announcing proposed policy changes and proposed 

payment rate updates for the IPPS for FY 2016 for operating costs of acute care hospitals. 

The proposed FY 2016 updates to the capital payments to acute care hospitals are 

discussed in section I.I. of this Appendix.

Based on the overall percentage change in payments per case estimated using our 

payment simulation model, we estimate that total FY 2016 operating payments will 

increase by 0.3 percent compared to FY 2015. In addition to the applicable percentage 

increase, this amount reflects the proposed FY 2016 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 
CMS-1632-P 1395

payment impacts using this model. For those proposed changes, we have attempted to 

predict the payment impacts based upon our experience and other more limited data.

The data used in developing the quantitative analyses of proposed changes in 

payments per case presented below are taken from the FY 2014 MedPAR file and the 

most current Provider-Specific File (PSF) that is used for payment purposes. Although 

the analyses of the proposed changes to the operating PPS do not incorporate cost data, 

data from the most recently available hospital cost reports were used to categorize 

hospitals. Our analysis has several qualifications. First, in this analysis, we do not make 

adjustments for future changes in such variables as admissions, lengths of stay, or 

underlying growth in real case-mix. Second, due to the interdependent nature of the IPPS 

payment components, it is very difficult to precisely quantify the impact associated with 

each proposed change. Third, we use various data sources to categorize hospitals in the 

tables. In some cases, particularly the number of beds, there is a fair degree of variation 

in the data from the different sources. We have attempted to construct these variables 

with the best available source overall. However, for individual hospitals, some 

miscategorizations are possible.

Using cases from the FY 2014 MedPAR file, we simulated 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 proposed 

impact of payments for costs other than inpatient operating costs, are not analyzed in this 
CMS-1632-P 1396

section. Estimated payment impacts of the capital IPPS for FY 2016 are discussed in 

section I.I. of this Appendix.

We discuss the following changes below:

● The effects of the proposed application of the documentation and coding 

adjustment and the applicable percentage increase (including the proposed market basket 

update, the proposed multifactor productivity adjustment, and the applicable percentage 

reduction in accordance with the Affordable Care Act) to the standardized amount and 

hospital-specific rates.

● The effects of the proposed changes to the relative weights and MS-DRG 

GROUPER.

● The effects of the proposed changes in hospitals’ wage index values reflecting 

updated wage data from hospitals’ cost reporting periods beginning during FY 2012, 

compared to the FY 2011 wage data, to calculate the proposed FY 2016 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 continued implementation of the 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) that would be effective for FY 2016.

● The effects of the proposed rural floor and imputed floor with the application 

of the proposed national budget neutrality factor to the wage index.
CMS-1632-P 1397

● The effects of the second year of the 3-year transition for urban hospitals that 

were located in an urban county that become rural under the new OMB delineations or 

hospitals deemed urban where the urban area became rural under 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 implementation of section 1886(d)(13) of the Act, as added 

by section 505 of Pub. L. 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. This provision is not 

budget neutral.

● The total estimated change in payments based on the proposed FY 2016 

policies relative to payments based on FY 2015 policies that include the applicable 

percentage increase of 1.9 percent (or 2.7 percent market basket update with a proposed 

reduction of 0.6 percentage point for the multifactor productivity adjustment, and a 0.2 

percentage point reduction, as required under the Affordable Care Act).

To illustrate the impact of the proposed FY 2016 changes, our analysis begins 

with a FY 2015 baseline simulation model using: the FY 2015 applicable percentage 

increase of 2.2 percent and the documentation and coding recoupment adjustment of -0.8 

percent to the Federal standardized amount; the FY 2015 MS-DRG GROUPER 

(Version 32); the FY 2015 CBSA designations for hospitals based on the new OMB 
CMS-1632-P 1398

definitions; the FY 2015 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 

Pub. L. 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 2016, 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 

would receive an applicable percentage increase of 1.225 percent. At the time that this 

impact was prepared, 26 hospitals are estimated to not receive the full market basket 

rate-of-increase for FY 2015 because they failed the quality data submission process or 

did not choose to participate. For purposes of the simulations shown below, we modeled 

the proposed payment changes for FY 2016 using a proposed reduced update for these 

26 hospitals. However, we do not have enough information at this time to determine 

which hospitals will not receive the full update factor for FY 2016.
CMS-1632-P 1399

For FY 2016, in accordance with section 1886(b)(3)(B)(ix) of the Act, a hospital 

that has been identified as not an meaningful EHR user will be subject to a reduction of 

one-half of such applicable percentage increase determined without regard to 

section 1886(b)(3)(B)(ix), (xi), or (xii) of the Act. Therefore, for FY 2016, we are 

proposing that hospitals that are identified as not meaningful EHR users and do submit 

quality information under section 1886(b)(3)(B)(viii) of the Act would receive an 

applicable percentage increase of 0.55 percent. At the time that this impact analysis was 

prepared, 153 hospitals are estimated to not receive the full market basket 

rate-of-increase for FY 2015 because they are identified as not meaningful EHR users 

that do submit quality information under section 1886(b)(3)(B)(viii) of the Act. For 

purposes of the simulations shown below, we modeled the proposed payment changes for 

FY 2016 using a proposed reduced update for these 153 hospitals. We did not include 

these hospitals in the model for estimation purposes for FY 2015 because that was the 

first year hospitals experienced a reduction to their applicable percentage increase due to 

whether they are meaningful EHR users and data were not available at that time. 

However, we believe it is appropriate to include these 153 hospitals for estimation 

purposes in FY 2016 because FY 2016 will be the second year in which hospitals will 

experience this reduction and data on the prior year’s performance are now available. 

For purposes of the simulations shown below, we modeled the proposed payment 

changes for FY 2016 using a proposed reduced update for these 153 hospitals. However, 

we do not have enough information at this time to determine which hospitals will not 

receive the full update increase for FY 2016.
CMS-1632-P 1400

Hospitals that are identified as not meaningful EHR 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 would receive an applicable percentage increase of 

-0.125 percent, which reflects a one-quarter reduction of the market basket update for 

failure to submit quality data and a one-half reduction of the market basket update for 

being identified as not a meaningful EHR user. At the time that this impact was 

prepared, 24 hospitals are estimated to not receive the full market basket rate-of-increase 

for FY 2016 because they are identified as not meaningful EHR users that do not submit 

quality data under section 1886(b)(3)(B)(viii) of the Act. We did not include these 

hospitals in the model for estimation purposes for FY 2015 because that was the first year 

hospitals experienced a reduction to their applicable percentage increase due to whether 

they are meaningful EHR users and data were not available at that time. However, we 

believe it is appropriate to include these 24 hospitals for estimation purposes in FY 2016 

because FY 2016 will be the second year in which hospitals will experience this 

reduction and data on the prior year’s performance are now available. For purposes of 

the simulations shown below, we modeled the proposed payment changes for FY 2016 

using a proposed reduced update for these 24 hospitals. However, we do not have 

enough information at this time to determine which hospitals will not receive the full 

update increase for FY 2016.

Each proposed policy change, statutory or otherwise, is then added incrementally 

to this baseline, finally arriving at an FY 2016 model incorporating all of the proposed 

changes. This simulation allows us to isolate the effects of each proposed change.
CMS-1632-P 1401

Our final comparison illustrates the percent change in payments per case from 

FY 2015 to FY 2016. Three factors not discussed separately have significant impacts 

here. The first factor is the proposed update to the standardized amount. In accordance 

with section 1886(b)(3)(B)(i) of the Act, we are proposing to update the standardized 

amounts for FY 2016 using a proposed applicable percentage increase of 1.9 percent. 

This includes our forecasted IPPS operating hospital market basket increase of 

2.7 percent with a proposed reduction of 0.6 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 1.225 

percent. This proposed update includes a reduction of one-quarter of the market basket 

update for failure to submit these data. Hospitals that do comply with the quality data 

submission requirements but are not meaningful EHR users would receive an update of 

0.55 percent, which includes a reduction of one-half 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 an update of -0.125 percent. 

Under section 1886(b)(3)(B)(iv) of the Act, the update to the hospital-specific amounts 

for SCHs also are equal to the applicable percentage increase, or 1.9 percent if the 

hospital submits quality data and is a meaningful EHR user. In addition, we are 

proposing to update the Puerto Rico-specific amount by an applicable percentage 

increase of 1.9 percent.
CMS-1632-P 1402

A second significant factor that affects the proposed changes in hospitals’ 

payments per case from FY 2015 to FY 2016 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 2015 that are no longer reclassified in FY 2016. Conversely, 

payments may increase for hospitals not reclassified in FY 2015 that are reclassified in 

FY 2016.

A third significant factor is that we currently estimate that actual outlier payments 

during FY 2015 will be 4.9 percent of total MS-DRG payments. When the FY 2015 

IPPS/LTCH PPS final rule was published, we projected FY 2015 outlier payments would 

be 5.1 percent of total MS-DRG plus outlier payments; the average standardized amounts 

were offset correspondingly. The effects of the lower than expected outlier payments 

during FY 2015 (as discussed in the Addendum to this proposed rule) are reflected in the 

analyses below comparing our current estimates of FY 2015 payments per case to 

estimated proposed FY 2016 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 2016. 

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 3,366 acute care hospitals included in the 

analysis.
CMS-1632-P 1403

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 2,530 hospitals located in urban areas included in our analysis. 

Among these, there are 1,390 hospitals located in large urban areas (populations over 

1 million), and 1,140 hospitals in other urban areas (populations of 1 million or fewer). 

In addition, there are 836 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 2016 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 2,479; 1,383; 1,096; and 887, respectively.

The next three groupings examine the impacts of the proposed changes on 

hospitals grouped by whether or not they have GME residency programs (teaching 

hospitals that receive an IME adjustment) or receive Medicare DSH payments, or some 

combination of these two adjustments. There are 2,325 nonteaching hospitals in our 

analysis, 794 teaching hospitals with fewer than 100 residents, and 247 teaching hospitals

with 100 or more residents.
CMS-1632-P 1404

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 three rows examine the impacts of the proposed changes on rural 

hospitals by special payment groups (SCHs, RRCs). There were 211 RRCs, 327 SCHs, 

and 125 hospitals that are both SCHs and RRCs.

The next series of groupings are based on the type of ownership and the hospital's 

Medicare utilization expressed as a percent of total patient days. These data were taken 

from the FY 2013 or FY 2012 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 2016. The second grouping shows the MGCRB rural reclassifications. 

The final category shows the impact of the proposed policy changes on the 14 cardiac 

hospitals.
CMS-1632-P 1405

TABLE I.—IMPACT ANALYSIS OF PROPOSED CHANGES TO THE IPPS FOR OPERATING COSTS FOR 

FY 2016

Number 

of 

Hospitals

(1) 1

Proposed 

Hospital Rate 

Update and 

Documentation 

and Coding 

Adjustment

(2) 2

Proposed 

FY 2016 

Weights and 

DRG Changes 

with 

Application of 

Recalibration 

Budget 

Neutrality

(3) 3

Proposed 

FY 2016 

Wage Data 

under New 

CBSA 

Designations 

with 

Application of 

Wage Budget 

Neutrality

(4) 4

Proposed

FY 2016 

DRG, Rel. 

Wts., Wage 

Index 

Changes with 

Wage and 

Recalibration 

Budget 

Neutrality

(5) 5

FY 2016

MGCRB 

Reclassifications

(6) 6

Proposed

Rural and 

Imputed 

Floor with 

Application 

of National 

Rural and 

Imputed 

Floor 

Budget 

Neutrality

(7) 7

Application 

of the 

Proposed 

Frontier 

Wage Index 

and Proposed

Out-Migration 

Adjustment

(8) 8

All Proposed 

FY 2016 

Changes

(9) 9

All Hospitals 3,366 1.1 0 0 0 0 0 0.1 0.3

By Geographic 

Location:

Urban hospitals 2,530 1.1 0 0 0 -0.1 0 0.1 0.3

Large urban areas 1,390 1.1 0.1 0.1 0.2 -0.3 0 0.1 0.3

Other urban areas 1,140 1.1 0 -0.1 -0.2 0.1 0.1 0.2 0.3

Rural hospitals 836 1.5 -0.2 -0.4 -0.5 1.4 -0.3 0.1 -0.3

Bed Size (Urban): 

0-99 beds 666 1.1 -0.2 -0.1 -0.2 -0.6 0 0.3 0

100-199 beds 777 1.1 -0.1 0.1 0.1 0 0.2 0.2 0.3

200-299 beds 446 1.1 0 0 -0.1 0.1 0.1 0.1 0.4

300-499 beds 428 1.1 0 0 0 -0.2 0.1 0.2 0.4

500 or more beds 213 1.1 0.1 0 0.2 -0.2 -0.2 0 0.3

Bed Size (Rural): 

0-49 beds 329 1.4 -0.2 -0.3 -0.5 0.4 -0.3 0.3 -1

50-99 beds 298 1.5 -0.3 -0.3 -0.5 0.9 -0.3 0.2 -0.9

100-149 beds 121 1.6 -0.2 -0.3 -0.4 1.4 -0.2 0.2 0.3

150-199 beds 48 1.4 -0.2 -0.5 -0.6 2.1 -0.3 0.1 0.3

200 or more beds 40 1.3 -0.1 -0.6 -0.5 2.4 -0.3 0 0.1

Urban by Region:

New England 120 1.1 0 0.9 1 1.3 1.6 0 0.1

Middle Atlantic 318 1.1 0.1 0.4 0.4 0.5 -0.4 0.1 0.6

South Atlantic 407 1.1 0 0.1 0.1 -0.4 -0.4 0.1 0.3

East North Central 396 1.1 0 -0.1 -0.1 -0.4 -0.5 0 0.3

East South Central 150 1.1 0 -0.3 -0.3 -0.6 -0.4 0 -0.3

West North Central 165 1.1 0 -0.4 -0.4 -0.7 -0.4 0.8 0.4

West South Central 382 1.1 0 -0.4 -0.4 -0.5 -0.5 0 -0.3

Mountain 161 1.2 -0.1 0 -0.1 0 -0.1 0.2 0.4

Pacific 380 1 0 0 -0.1 -0.1 1.8 0.1 0.8
CMS-1632-P 1406

Number 

of 

Hospitals

(1) 1

Proposed 

Hospital Rate 

Update and 

Documentation 

and Coding 

Adjustment

(2) 2

Proposed 

FY 2016 

Weights and 

DRG Changes 

with 

Application of 

Recalibration 

Budget 

Neutrality

(3) 3

Proposed 

FY 2016 

Wage Data 

under New 

CBSA 

Designations 

with 

Application of 

Wage Budget 

Neutrality

(4) 4

Proposed

FY 2016 

DRG, Rel. 

Wts., Wage 

Index 

Changes with 

Wage and 

Recalibration 

Budget 

Neutrality

(5) 5

FY 2016

MGCRB 

Reclassifications

(6) 6

Proposed

Rural and 

Imputed 

Floor with 

Application 

of National 

Rural and 

Imputed 

Floor 

Budget 

Neutrality

(7) 7

Application 

of the 

Proposed 

Frontier 

Wage Index 

and Proposed

Out-Migration 

Adjustment

(8) 8

All Proposed 

FY 2016 

Changes

(9) 9

Puerto Rico 51 1.2 0 -1.1 -1 -1 0.1 0.1 -2.8

Rural by Region:

New England 22 1.3 -0.1 -0.5 -0.6 1.9 -0.4 0 -1.2

Middle Atlantic 55 1.5 -0.1 0.4 0.2 0.7 -0.3 0.1 -0.6

South Atlantic 128 1.4 -0.2 -0.1 -0.4 2.2 -0.4 0.2 0

East North Central 116 1.5 -0.2 -0.1 -0.3 1.3 -0.2 0.1 0.1

East South Central 164 1.1 0 -1 -0.9 2.6 -0.5 0.1 -1.2

West North Central 101 1.8 -0.3 -0.3 -0.5 0.2 0 0.3 0.7

West South Central 165 1.4 -0.1 -1 -0.9 1.5 -0.4 0.1 -1.1

Mountain 61 1.6 -0.3 -0.2 -0.4 0.2 -0.1 0.2 0.9

Pacific 24 1.6 -0.4 0.2 -0.3 0.1 -0.2 0 1

By Payment 

Classification:

Urban hospitals 2,479 1.1 0 0 0.1 -0.1 0 0.1 0.3

Large urban areas 1,383 1.1 0.1 0.1 0.2 -0.3 0 0.1 0.3

Other urban areas 1,096 1.1 0 -0.1 -0.2 0.1 0.1 0.2 0.4

Rural areas 887 1.4 -0.2 -0.3 -0.5 1.1 -0.2 0.3 -0.3

Teaching Status:

Nonteaching 2,325 1.2 -0.1 -0.1 -0.1 0.1 0.2 0.1 0.2

Fewer than 100 

residents 794 1.1 0 0 0 -0.1 0 0.2 0.3

100 or more 

residents 247 1.1 0.1 0.1 0.3 0 -0.2 0 0.3

Urban DSH:

Non-DSH 680 1.1 -0.1 0.1 0 0.1 0 0.2 1

100 or more beds 1,572 1.1 0 0 0.1 -0.1 0 0.1 0.2

Less than 100 beds 333 1.1 -0.1 0.1 0 -0.7 0 0.2 0.2

Rural DSH:

SCH 253 1.8 -0.3 -0.1 -0.4 0 -0.1 0 0.8

RRC 220 1.4 -0.2 -0.3 -0.5 1.6 -0.2 0.4 0.1

100 or more beds 33 0.9 0 -0.6 -0.5 1.8 -0.4 0.1 -1.5

Less than 100 beds 275 1 -0.1 -0.5 -0.5 1.3 -0.5 0.5 -2.7

Urban teaching and 

DSH:
CMS-1632-P 1407

Number 

of 

Hospitals

(1) 1

Proposed 

Hospital Rate 

Update and 

Documentation 

and Coding 

Adjustment

(2) 2

Proposed 

FY 2016 

Weights and 

DRG Changes 

with 

Application of 

Recalibration 

Budget 

Neutrality

(3) 3

Proposed 

FY 2016 

Wage Data 

under New 

CBSA 

Designations 

with 

Application of 

Wage Budget 

Neutrality

(4) 4

Proposed

FY 2016 

DRG, Rel. 

Wts., Wage 

Index 

Changes with 

Wage and 

Recalibration 

Budget 

Neutrality

(5) 5

FY 2016

MGCRB 

Reclassifications

(6) 6

Proposed

Rural and 

Imputed 

Floor with 

Application 

of National 

Rural and 

Imputed 

Floor 

Budget 

Neutrality

(7) 7

Application 

of the 

Proposed 

Frontier 

Wage Index 

and Proposed

Out-Migration 

Adjustment

(8) 8

All Proposed 

FY 2016 

Changes

(9) 9

Both teaching and 

DSH 846 1.1 0.1 0 0.1 -0.2 -0.1 0.1 0.2

Teaching and no 

DSH 132 1.1 -0.1 0.1 0 0.6 0.2 0.1 1.2

No teaching and 

DSH 1,059 1.1 0 -0.1 -0.1 -0.1 0.4 0.1 0.2

No teaching and no 

DSH 442 1.1 -0.1 0.2 0.1 -0.3 -0.1 0.2 1.1

Special Hospital 

Types:

RRC 211 1.1 -0.1 -0.6 -0.6 2.1 -0.3 0.5 -0.6

SCH 327 1.8 -0.3 -0.2 -0.4 0 -0.1 0 1

SCH and RRC 125 1.8 -0.3 -0.1 -0.4 0.4 0 0 1.2

Type of 

Ownership:

Voluntary 1,934 1.1 0 0 0 0 0 0.1 0.4

Proprietary 880 1.1 0 -0.1 -0.1 0 0.1 0.1 -0.1

Government 529 1.1 0 -0.1 0 -0.2 0.1 0.1 0

Medicare 

Utilization as a 

Percent of 

Inpatient Days:

0-25 713 1 0.1 0 0.1 -0.2 0.3 0.1 -0.6

25-50 2,110 1.1 0 0 0 0 -0.1 0.1 0.4

50-65 332 1.2 -0.1 -0.1 -0.2 0.5 0 0.1 0.5

Over 65 66 1.1 -0.1 0.4 0.2 0.2 0.1 0 0.6

FY 2016 

Reclassifications by 

the Medicare 

Geographic 

Classification 

Review Board: 

All Reclassified 

Hospitals 861 1.1 0 0 0 2 0 0 0.6
CMS-1632-P 1408

Number 

of 

Hospitals

(1) 1

Proposed 

Hospital Rate 

Update and 

Documentation 

and Coding 

Adjustment

(2) 2

Proposed 

FY 2016 

Weights and 

DRG Changes 

with 

Application of 

Recalibration 

Budget 

Neutrality

(3) 3

Proposed 

FY 2016 

Wage Data 

under New 

CBSA 

Designations 

with 

Application of 

Wage Budget 

Neutrality

(4) 4

Proposed

FY 2016 

DRG, Rel. 

Wts., Wage 

Index 

Changes with 

Wage and 

Recalibration 

Budget 

Neutrality

(5) 5

FY 2016

MGCRB 

Reclassifications

(6) 6

Proposed

Rural and 

Imputed 

Floor with 

Application 

of National 

Rural and 

Imputed 

Floor 

Budget 

Neutrality

(7) 7

Application 

of the 

Proposed 

Frontier 

Wage Index 

and Proposed

Out-Migration 

Adjustment

(8) 8

All Proposed 

FY 2016 

Changes

(9) 9

Non-Reclassified 

Hospitals 2,505 1.1 0 0 0 -0.9 0 0.2 0.1

Urban Hospitals 

Reclassified 585 1.1 0 0 0.1 1.9 0 0 0.7

Urban 

Nonreclassified 

Hospitals 1,894 1.1 0 0 0.1 -0.9 0 0.1 0.2

Rural Hospitals 

Reclassified Full 

Year 276 1.4 -0.2 -0.4 -0.5 2.3 -0.3 0 0.1

Rural 

Nonreclassified 

Hospitals Full Year 505 1.6 -0.2 -0.3 -0.5 -0.3 -0.2 0.3 -0.7

All Section 401 

Reclassified 

Hospitals: 58 1.4 -0.2 0 -0.2 -1 0.1 1.4 -0.7

Other Reclassified 

Hospitals (Section 

1886(d)(8)(B)) 55 1.2 -0.1 -0.4 -0.5 3.7 -0.5 0 -0.7

Specialty Hospitals

Cardiac specialty 

Hospitals 14 1.1 0.3 -0.7 -0.3 -1.1 0 0.9 1

1 Because data necessary to classify some hospitals by category were missing, the total number of hospitals in each category may not equal the national 

total. Discharge data are from FY 2014, and hospital cost report data are from reporting periods beginning in FY 2013 and FY 2012.

2 This column displays the payment impact of the proposed hospital rate update and the proposed documentation and coding adjustment including the 

proposed 1.9 percent adjustment to the national standardized amount and hospital-specific rate (the estimated 2.7 percent market basket update reduced 

by the proposed 0.6 percentage point for the multifactor productivity adjustment and the 0.2 percentage point reduction under the Affordable Care Act) 

and the proposed -0.8 percent documentation and coding adjustment to the national standardized amount.

3 This column displays the payment impact of the proposed changes to the Version 33 GROUPER, the proposed changes to the relative weights and the 

proposed recalibration of the MS-DRG weights based on FY 2014 MedPAR data in accordance with section 1886(d)(4)(C)(iii) of the Act. This column 

displays the application of the proposed recalibration budget neutrality factor of 0.998335 in accordance with section 1886(d)(4)(C)(iii) of the Act.
CMS-1632-P 1409

4 This column displays the payment impact of the proposed update to wage index data using FY 2012 cost report data and the OMB labor market area 

delineations based on 2010 Decennial Census data. This column displays the payment impact of the application of the proposed wage budget neutrality 

factor, which is calculated separately from the recalibration budget neutrality factor, and is calculated in accordance with section 1886(d)(3)(E)(i) of the 

Act. The proposed wage budget neutrality factor is 0.998681.

5 This column displays the combined payment impact of the proposed changes in Columns 3 through 4 and the proposed cumulative budget neutrality 

factor for MS-DRG and wage changes in accordance with section 1886(d)(4)(C)(iii) of the Act and section 1886(d)(3)(E) of the Act. The proposed 

cumulative wage and recalibration budget neutrality factor of 0.997018 is the product of the proposed wage budget neutrality factor and the proposed 

recalibration budget neutrality factor.

6

Shown here are the effects of geographic reclassifications by the Medicare Geographic Classification Review Board (MGCRB) along with the effects 

of the continued implementation of the new OMB labor market area delineations on these reclassifications. The effects demonstrate the proposed 

FY 2016 payment impact of going from no reclassifications to the reclassifications scheduled to be in effect for FY 2016. Reclassification for prior 

years has no bearing on the payment impacts shown here. This column reflects the proposed geographic budget neutrality factor of 0.988486.

7 This column displays the effects of the proposed rural floor and imputed floor based on the continued implementation of the new OMB labor market 

area delineations. The Affordable Care Act requires the rural floor budget neutrality adjustment to be 100 percent national level adjustment. The 

proposed rural floor budget neutrality factor (which includes the proposed imputed floor) applied to the wage index is 0.990135. This column also 

shows the effect of the 3-year transition for hospitals that were located in urban counties that became rural under the new OMB delineations or hospitals 

deemed urban where the urban area became rural under the new OMB delineations, with a budget neutrality factor of 0.999995.

8 This column shows the combined impact of the policy required under section 10324 of the Affordable Care Act that hospitals located in frontier States 

have a wage index no less than 1.0 and of section 1886(d)(13) of the Act, as added by section 505 of Pub. L. 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. These are nonbudget neutral policies.

9 This column shows the proposed changes in payments from FY 2015 to FY 2016. It reflects the impact of the proposed FY 2016 hospital update and 

the proposed adjustment for documentation and coding. It also reflects proposed changes in hospitals’ reclassification status in FY 2016 compared to 

FY 2015. It incorporates all of the proposed changes displayed in Columns 2, 5, 6, 7, and 8, (the proposed changes displayed in Columns 3 and 4 are 

included in Column 5). The sum of these impacts may be different from the proposed percentage changes shown here due to rounding and interactive 

effects.
CMS-1632-P 1410

a. Effects of the Proposed Hospital Update and 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 0.6 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 2016 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 1.1 percent update to the national standardized amount. This 

column also includes the proposed 1.9 percent update to the hospital-specific rates which 

includes the proposed 2.7 percent market basket update, the proposed reduction of 

0.6 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 1.1 percent increase in payments primarily 

due to the combined effects of the proposed hospital update and the proposed 

documentation and coding adjustment on the national standardized amount and the 

proposed hospital update to the hospital-specific rate. Hospitals that are paid under the 

hospital-specific rate, namely SCHs, would experience a 1.9 percent increase in 

payments; therefore, hospital categories with SCHs paid under the hospital-specific rate 

would experience increases in payments of more than 1.1 percent.
CMS-1632-P 1411

b. Effects of the Proposed Changes to the MS-DRG Reclassifications and Relative 

Cost-Based Weights with Recalibration Budget Neutrality (Column 3)

Column 3 shows the effects of the proposed changes to the MS-DRGs and 

relative weights with the application of the recalibration budget neutrality factor to the 

standardized amounts. Section 1886(d)(4)(C)(i) of the Act requires us annually to make 

appropriate classification changes in order to reflect changes in treatment patterns, 

technology, and any other factors that may change the relative use of hospital resources. 

Consistent with section 1886(d)(4)(C)(iii) of the Act, we are calculating a recalibration 

budget neutrality factor to account for the changes in MS-DRGs and relative weights to 

ensure that the overall payment impact is budget neutral.

As discussed in section II.E. of the preamble of this proposed rule, the FY 2016 

MS-DRG relative weights will be 100 percent cost-based and 100 percent MS-DRGs. 

For FY 2016, the MS-DRGs are calculated using the FY 2014 MedPAR data grouped to 

the Version 33 (FY 2016) MS-DRGs. The methodology to calculate the relative weights 

and the reclassification changes to the GROUPER are described in more detail in 

section II.H. of the preamble of this proposed rule.

The “All Hospitals” line in Column 3 indicates that proposed changes due to the 

MS-DRGs and relative weights would result in a 0.0 percent change in payments with the 

application of the proposed recalibration budget neutrality factor of 0.998335 on to the 

standardized amount. Hospital categories that generally treat more surgical cases than 

medical cases would experience increases in their payments under the proposed relative 

weights. Rural hospitals would experience a 0.2 percent decrease in payments because 
CMS-1632-P 1412

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 

0.1 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 proposed updated wage data using FY 2012 cost 

report data, 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 standards used in FY 2016 

are based on OMB standards published on February 28, 2013 (75 FR 37246 and 37252), 

and 2010 Decennial Census data (OMB Bulletin No. 13-01). (We refer readers to the FY 

2015 IPPS/LTCH PPS final rule (79 FR 49951 through 49963) for a full discussion on 

our adoption of the OMB labor market area delineations based on the 2010 Decennial 

Census data, 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 2016 is based on 

data submitted for hospital cost reporting periods beginning on or after October 1, 2011 

and before October 1, 2012. The estimated impact of the proposed updated wage data 

using the FY 2012 cost report data and the OMB labor market area delineations on 

hospital payments is isolated in Column 4 by holding the other payment parameters 
CMS-1632-P 1413

constant in this simulation. That is, Column 4 shows the proposed percentage change in 

payments when going from a model using the FY 2015 wage index, based on FY 2011 

wage data, the labor-related share of 69.6 percent, under the OMB delineations and 

having a 100-percent occupational mix adjustment applied, to a model using the FY 2016 

pre-reclassification wage index based on FY 2012 wage data with the labor-related share 

of 69.6 percent, under the new OMB delineations, also having a 100-percent occupational 

mix adjustment applied, while holding other proposed payment parameters such as use of 

the Version 33 MS-DRG GROUPER constant. The proposed FY 2016 occupational mix 

adjustment is based on the CY 2013 occupational mix survey.

In addition, the column shows the impact of the application of the proposed wage 

budget neutrality to the national standardized amount. In FY 2010, we began calculating 

separate wage budget neutrality and recalibration budget neutrality factors, in accordance 

with section 1886(d)(3)(E) of the Act, which specifies that budget neutrality to account 

for wage 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 2016, we are calculating the wage budget neutrality factor to 

ensure that payments under updated wage data and the 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 FY 2016 wage budget 

neutrality factor is 0.998681, and the proposed overall payment change is 0.0 percent.
CMS-1632-P 1414

Column 4 shows the impacts of updating the wage data using FY 2012 cost 

reports. Overall, the new wage data and the labor-related share, combined with the 

proposed wage budget neutrality adjustment, would lead to no change for all hospitals as 

shown in Column 4.

In looking at the wage data itself, the proposed national average hourly wage 

increased 1.02 percent compared to FY 2015. Therefore, the only manner in which to 

maintain or exceed the previous year’s wage index was to match or exceed the national 

1.02 percent increase in average hourly wage. Of the 3,302 hospitals with wage data for 

both FYs 2015 and 2016, 1,673 or 50.7 percent would experience an average hourly 

wage increase of 1.02 percent or more.

The following chart compares the shifts in wage index values for hospitals due to 

proposed changes in the average hourly wage data for FY 2016 relative to FY 2015. 

Among urban hospitals, 9 would experience a decrease of 10 percent or more, and 

13 urban hospitals would experience an increase of 10 percent or more. One hundred and 

fifty-four urban hospitals would experience an increase or decrease of at least 5 percent 

or more but less than 10 percent. Among rural hospitals, 9 would experience a decrease 

of at least 5 percent but less than 10 percent, but no rural hospitals would experience an 

increase of greater than or equal to 5 percent but less than 10 percent. No rural hospital 

would experience increases or decreases of 10 percent or more. However, 806 rural 

hospitals would experience increases or decreases of less than 5 percent, while 2,305 

urban hospitals would experience increases or decreases of less than 5 percent. Six urban 

hospitals would not experience a change in their wage index, and all rural hospitals 
CMS-1632-P 1415

would experience a change in their proposed wage indexes. These figures reflect 

proposed changes in the “pre-reclassified, occupational mix-adjusted wage index,” that 

is, the proposed wage index before the application of proposed geographic 

reclassification, the proposed rural and imputed floors, the proposed out-migration 

adjustment, and other proposed wage index exceptions and adjustments. (We refer 

readers to sections III.G.2. through III.I. of the preamble of this proposed rule for a 

complete discussion of the exceptions and adjustments to the wage index.) We note that 

the proposed “post-reclassified wage index” or proposed “payment wage index,” which is 

the proposed wage index that includes all such proposed exceptions and adjustments (as 

reflected in Tables 2 and 3 associated with this proposed rule, which are available via the 

Internet on the CMS Web site) is used to adjust the 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 proposed payment 

wage index and total payment.

The following chart shows the projected impact of proposed changes in the area 

wage index values for urban and rural hospitals.
CMS-1632-P 1416

Proposed FY 2016 Percentage Change in Area 

Wage Index Values Number of Hospitals

Urban Rural

Increase 10 percent or more 13 0

Increase greater than or equal to 5 percent and less than 

10 percent 60 0

Increase or decrease less than 5 percent 2,305 806

Decrease greater than or equal to 5 percent and less 

than 10 percent 94 9

Decrease 10 percent or more 9 0

Unchanged 6 0

d. Combined Effects of the Proposed MS-DRG and Wage Index Changes (Column 5)

Section 1886(d)(4)(C)(iii) of the Act requires that changes to MS-DRG 

reclassifications and the relative weights cannot increase or decrease aggregate payments. 

In addition, section 1886(d)(3)(E) of the Act specifies that any updates or adjustments to 

the wage index are to be budget neutral. We computed a proposed wage budget 

neutrality factor of 0.998681 and a proposed recalibration budget neutrality factor of 

0.998335 (which is also applied to the proposed Puerto Rico-specific standardized 

amount and the proposed 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 0.997018, or approximately 0.3 percent, which is applied to the national 

standardized amounts. Because the wage budget neutrality and the recalibration budget 

neutrality are calculated under different methodologies according to the statute, when the 

two budget neutralities are combined and applied to the standardized amount, the overall 

payment impact is not necessarily budget neutral. However, in this proposed rule, we are 
CMS-1632-P 1417

estimating that the proposed changes in the MS-DRG relative weights and proposed 

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 bases other than where they are 

geographically located). The proposed changes in Column 6 reflect the per case payment 

impact of moving from this baseline to a simulation incorporating the MGCRB decisions 

for FY 2016.

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 0.988486 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 
CMS-1632-P 1418

generally benefits hospitals in rural areas. We estimate that the geographic 

reclassification would increase payments to rural hospitals by an average of 1.4 percent. 

By region, all the rural hospital categories would experience increases in payments due to 

MGCRB reclassifications.

New Table 2 listed in section VI. of the Addendum to this proposed rule and 

available via the Internet on the CMS Web site reflects the proposed reclassifications for 

FY 2016.

f. Effects of the Proposed Rural and Imputed Floor, Including Application of National 

Budget Neutrality (Column 7)

As discussed in section III.B. of the preamble of the FY 2009 IPPS final rule, the 

FY 2010 IPPS/RY 2010 LTCH PPS final rule, the FYs 2011, 2012, 2013, 2014, and 2015 

IPPS/LTCH PPS final rules, and this proposed rule, section 4410 of Pub. L. 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 and in FY 2014 and FY 2015 for 

1 additional year. Prior to FY 2013, 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 and FY 2015, 

we extended the imputed rural floor, as calculated under the original methodology and 
CMS-1632-P 1419

the alternative methodology. Due to the adoption of the new OMB labor market area 

delineations in FY 2015, the State of Delaware also became an all-urban state and thus 

eligible for an imputed floor. For FY 2016, we are proposing to extend the imputed rural 

floor for 1 year, as calculated under the original methodology and the alternative 

methodology. As a result, New Jersey, Rhode Island, and Delaware would be able to 

receive an imputed floor. In New Jersey, 16 out of 64 hospitals would receive the 

imputed floor, and 4 out of 11 hospitals in Rhode Island would receive the imputed floor 

for FY 2016. For FY 2016, no hospitals would benefit from the imputed floor in 

Delaware because the CBSA wage index for each CBSA in Delaware under the new 

OMB delineations is equal to or higher than the imputed rural 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 2016 rural floor budget neutrality factor to be applied to the wage index of 0.990135, 

which would reduce proposed wage indexes by 0.99 percent.

Column 7 shows the projected impact of the proposed rural floor and imputed 

floor with the national rural floor budget neutrality factor applied to the wage index based 

on the OMB labor market area delineations. The column compares the proposed 

post-reclassification FY 2016 wage index of providers before the proposed rural floor and 

imputed floor adjustment and the proposed post-reclassification FY 2016 wage index of 

providers with the proposed rural floor and imputed floor adjustment based on the OMB 

labor market area delineations. Only urban hospitals can benefit from the rural and 
CMS-1632-P 1420

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 budget neutrality adjustment that is applied 

nationally to their wage index.

We estimate that 383 hospitals would benefit from the rural and imputed floors in 

FY 2016, while the remaining 2,983 IPPS hospitals in our model would have their wage 

index reduced by the proposed rural floor budget neutrality adjustment of 0.990135 (or 

0.99 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 rural floor budget neutrality factor. Urban hospitals in the 

New England region would experience a 1.6 percent increase in payments primarily due 

to the application of the proposed rural floor in Massachusetts. Thirty-nine urban 

providers in Massachusetts are expected to receive the rural floor wage index value, 

including the proposed rural floor budget neutrality of 0.990135, increasing payments 

overall to Massachusetts by an estimated $98 million. We estimate that Massachusetts 

hospitals would receive approximately a 3.1 percent increase in IPPS payments due to the 

application of the proposed rural floor in FY 2016.
CMS-1632-P 1421

Urban Puerto Rico hospitals are expected to experience a 0.1 percent change in 

payments as a result of the application of the 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 0.987626 or 1.2 percent. The Puerto Rico-specific wage index adjusts the 

Puerto Rico-specific standardized amount, which represents 25 percent of payments to 

Puerto Rico hospitals. 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 

urban Puerto Rico hospitals that do not benefit from the rural floor that have their wage 

indexes downwardly adjusted by the rural floor budget neutrality adjustment. As a result, 

overall, urban Puerto Rico hospitals would experience a 0.1 percent change in payments 

due to the application of the proposed rural floor with rural floor budget neutrality.

There are 16 hospitals out of the 64 hospitals in New Jersey that would benefit 

from the proposed extension of the imputed floor and would receive the proposed 

imputed floor wage index value under the OMB labor market area delineations, including 

the proposed rural floor budget neutrality of 0.990135 which we estimate would increase 

payments to those imputed floor hospitals by $20 million (overall, the State would not 

see an increase in payments due to the other hospitals in the State that would experience 

decreases in payments due to the proposed rural floor budget neutrality adjustment). 

Four Rhode Island hospitals would benefit from the proposed imputed rural floor 

calculated under the alternative methodology and would receive an additional $4.5 

million (overall, the State would receive an additional $2.6 million). No hospitals would 
CMS-1632-P 1422

benefit from the proposed imputed floor in Delaware because the CBSA wage index for 

each CBSA in Delaware under the new OMB delineations is equal to or higher than the 

proposed imputed rural floor.

Column 7 also shows the projected effects of the second year of the 3-year hold 

harmless provision for hospitals that were located in an urban county that became rural 

under the new OMB delineations or hospitals deemed urban where the urban area became 

rural under the new OMB delineations. As discussed in section III.G.2. of the preamble 

of this proposed rule, under this transition, hospitals that were located in an urban county 

that became rural under the new OMB delineations will generally be assigned the urban 

wage index value of the CBSA in which they are physically located in FY 2014 for a 

period of 3 fiscal years (that is, FYs 2015, 2016, and 2017). In addition, as discussed in 

section III.G.3. of the preamble of this proposed rule, under this transition, hospitals that 

were deemed urban where the urban area became rural under the new OMB delineations 

will generally be assigned the area wage index value of hospitals reclassified to the urban 

CBSA (that is, the attaching wage index, if applicable) to which they were designated in 

FY 2014. For FY 2016, we are applying the 3-year transition wage index adjustments in 

a budget neutral manner, with a budget neutrality factor of 0. 999995.

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 
CMS-1632-P 1423

floor wage index for FY 2016. Column 3 displays the percentage of total payments each 

State would receive or contribute to fund the rural floor and imputed floor with national 

budget neutrality. The column compares the proposed post-reclassification FY 2016 

wage index of providers before the proposed rural floor and imputed floor adjustment and 

the proposed post-reclassification FY 2016 wage index of providers with the proposed

rural floor and imputed floor adjustment. Column 4 displays the estimated payment 

amount that each State would gain or lose due to the application of the proposed rural 

floor and imputed floor with national budget neutrality.
CMS-1632-P 1424

Proposed FY 2016 IPPS Estimated Payments Due to Proposed Rural Floor and 

Imputed Floor with National Budget Neutrality

State

Number 

of 

Hospitals

(1)

Number of 

Hospitals That 

Would Receive 

the Proposed 

Rural Floor or 

Imputed Floor

(2)

Proposed Percent 

Change in Payments 

due to Application 

of Proposed Rural 

Floor and Imputed 

Floor with Budget 

Neutrality

(3)

Proposed 

Difference

(in millions)

(4)

Alabama 86 3 -0.4 $-7.28

Alaska 6 1 -0.3 $-0.53

Arizona 55 4 -0.5 $-8.36

Arkansas 46 2 -0.3 $-3.08

California 303 207 2.4 $233.75

Colorado 47 5 0.3 $3.78

Connecticut 31 7 -0.5 $-7.46

Delaware 6 0 -0.6 $-2.53

Washington, D.C. 7 0 -0.5 $-2.4

Florida 170 14 -0.3 $-16.98

Georgia 105 0 -0.5 $-12.17

Hawaii 12 1 -0.4 $-1.11

Idaho 14 0 -0.4 $-1.17

Illinois 127 2 -0.5 $-24.84

Indiana 91 0 -0.5 $-11.83

Iowa 35 0 -0.5 $-4.3

Kansas 53 0 -0.4 $-3.7

Kentucky 65 1 -0.4 $-7.09

Louisiana 98 1 -0.5 $-6.53

Maine 20 0 -0.5 $-2.4

Massachusetts 61 39 3.1 $98.3

Michigan 96 0 -0.5 $-21.72

Minnesota 50 0 -0.3 $-6.2

Mississippi 64 0 -0.5 $-4.86

Missouri 78 2 -0.4 $-8.38

Montana 12 2 0.2 $0.45

Nebraska 25 0 -0.4 $-2.44

Nevada 24 4 0.3 $2.35

New Hampshire 13 2 -0.2 $-1.19

New Jersey 64 16 0 $0.43

New Mexico 25 0 -0.3 $-1.37

New York 156 2 -0.6 $-43.7

North Carolina 84 0 -0.4 $-14.21
CMS-1632-P 1425

Proposed FY 2016 IPPS Estimated Payments Due to Proposed Rural Floor and 

Imputed Floor with National Budget Neutrality

State

Number 

of 

Hospitals

(1)

Number of 

Hospitals That 

Would Receive 

the Proposed 

Rural Floor or 

Imputed Floor

(2)

Proposed Percent 

Change in Payments 

due to Application 

of Proposed Rural 

Floor and Imputed 

Floor with Budget 

Neutrality

(3)

Proposed 

Difference

(in millions)

(4)

North Dakota 6 0 -0.3 $-0.81

Ohio 132 6 -0.5 $-17.27

Oklahoma 86 4 -0.4 $-4.94

Oregon 34 0 -0.5 $-4.67

Pennsylvania 153 5 -0.5 $-21.49

Puerto Rico 51 10 0.1 $0.15

Rhode Island 11 4 0.7 $2.59

South Carolina 56 5 -0.2 $-2.38

South Dakota 19 0 -0.3 $-0.97

Tennessee 99 19 -0.4 $-9.65

Texas 317 3 -0.5 $-30.36

Utah 34 2 -0.4 $-1.95

Vermont 6 0 -0.3 $-0.61

Virginia 78 1 -0.4 $-11.47

Washington 49 6 0.1 $1.49

West Virginia 29 3 -0.2 $-1.24

Wisconsin 66 0 -0.5 $-7.58

Wyoming 11 0 -0.2 $-0.24

g. Effects of the Application of the Proposed Frontier State Wage Index and Proposed 

Out-Migration Adjustment (Column 8)

This column shows the combined effects of the application of section 10324(a) of 

the Affordable Care Act, which requires that we establish a minimum post-reclassified 

wage-index 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 Pub. L. 108-173, which 

provides for an increase in the wage index for hospitals located in certain counties that 
CMS-1632-P 1426

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, 4 States (Montana, North Dakota, South Dakota, and Wyoming) are 

considered frontier States and 47 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 $58 million. Rural and urban 

hospitals located in the West North Central region would experience an increase in 

payments by 0.3 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 

Pub. L. 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 
CMS-1632-P 1427

resident county, post-reclassification and the higher wage index work area(s), weighted 

by the overall percentage of workers who are employed in an area with a higher wage 

index. There are an estimated 325 providers that would receive the out-migration wage 

adjustment in FY 2016. Rural hospitals generally qualify for the adjustment, resulting in 

a 0.1 percent increase in payments. This provision appears to benefit Section 401 

hospitals and RRCs in that they would experience a 1.4 percent and 0.5 percent increase 

in payments, respectively. This out-migration wage adjustment also is not budget 

neutral, and we estimate the impact of these providers receiving the out-migration 

increase would be approximately $39 million.

h. Effects of All Proposed FY 2016 Changes (Column 9)

Column 9 shows our estimate of the proposed changes in payments per discharge 

from FY 2015 and FY 2016, resulting from all proposed changes reflected in this 

proposed rule for FY 2016. It includes combined effects of the previous columns in the 

table.

The proposed average increase in payments under the IPPS for all hospitals is 

approximately 0.3 percent for FY 2016 relative to FY 2015. As discussed in section II.D. 

of the preamble of this proposed rule, this column includes the proposed FY 2016 

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 1.9 percent to 

the national standardized amount. This proposed annual hospital update includes the 

2.7 percent market basket update, the proposed reduction of 0.6 percentage point for the 
CMS-1632-P 1428

multifactor productivity adjustment, and the 0.2 percentage point reduction under 

section 3401 of the Affordable Care Act. Hospitals paid under the hospital-specific rate 

would receive a 1.9 percent hospital update described above. As described in Column 2, 

the proposed annual hospital update with the proposed documentation and coding 

recoupment adjustment for hospitals paid under the national standardized amount 

combined with the proposed annual hospital update for hospitals paid under the 

hospital-specific rate would result in a 1.1 percent increase in payments in FY 2016 

relative to FY 2015. The impact of moving from our estimate of FY 2015 outlier 

payments, 4.9 percent, to the proposed estimate of FY 2016 outlier payments, 

5.1 percent, would result in an increase of 0.2 percent in FY 2016 payments relative to 

FY 2015. 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 proposed 

values in Column 9 may not equal the sum of the proposed estimated percentage changes 

described above.

Overall payments to hospitals paid under the IPPS due to the applicable 

percentage increase and changes to policies related to MS-DRGs, geographic 

adjustments, and outliers are estimated to increase by 0.3 percent for FY 2016. Hospitals 

in urban areas would experience a 0.3 percent increase in payments per discharge in 

FY 2016 compared to FY 2015. Hospital payments per discharge in rural areas are 

estimated to decrease by 0.3 percent in FY 2016.
CMS-1632-P 1429

3. Impact Analysis of Table II

Table II presents the projected impact of the proposed changes for FY 2016 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 2015 with the proposed 

estimated average payments per discharge for FY 2016, 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 proposed 

estimated percentage changes shown in the last column of Table II equal the proposed 

estimated percentage changes in average payments per discharge from Column 9 of 

Table I.
CMS-1632-P 1430

TABLE II.--IMPACT ANALYSIS OF PROPOSED CHANGES FOR FY 2016 

ACUTE CARE HOSPITAL OPERATING PROSPECTIVE PAYMENT SYSTEM

(PAYMENTS PER DISCHARGE)

Number 

of 

Hospitals

(1)

Estimated 

Average 

FY 2015 

Payment 

Per 

Discharge

(2)

Estimated 

Average 

FY 2016 

Payment 

Per 

Discharge

(3)

Proposed

FY 2016 

Changes

(4)

All Hospitals 3,366 11,336 11,366 0.3

By Geographic Location:

Urban hospitals 2,530 11,690 11,727 0.3

Large urban areas 1,390 12,444 12,480 0.3

Other urban areas 1,140 10,777 10,813 0.3

Rural hospitals 836 8,398 8,377 -0.3

Bed Size (Urban): 

0-99 beds 666 9,223 9,225 0

100-199 beds 777 9,866 9,896 0.3

200-299 beds 446 10,616 10,661 0.4

300-499 beds 428 11,934 11,976 0.4

500 or more beds 213 14,306 14,342 0.3

Bed Size (Rural): 

0-49 beds 329 6,996 6,927 -1

50-99 beds 298 7,914 7,844 -0.9

100-149 beds 121 8,286 8,311 0.3

150-199 beds 48 9,104 9,135 0.3

200 or more beds 40 10,004 10,017 0.1

Urban by Region:

New England 120 12,840 12,848 0.1

Middle Atlantic 318 13,135 13,212 0.6

South Atlantic 407 10,396 10,424 0.3

East North Central 396 10,960 10,997 0.3

East South Central 150 10,003 9,973 -0.3

West North Central 165 11,472 11,522 0.4

West South Central 382 10,612 10,583 -0.3

Mountain 161 12,047 12,089 0.4

Pacific 380 14,921 15,038 0.8

Puerto Rico 51 7,666 7,448 -2.8

Rural by Region:

New England 22 11,325 11,195 -1.2
CMS-1632-P 1431

Number 

of 

Hospitals

(1)

Estimated 

Average 

FY 2015 

Payment 

Per 

Discharge

(2)

Estimated 

Average 

FY 2016 

Payment 

Per 

Discharge

(3)

Proposed

FY 2016 

Changes

(4)

Middle Atlantic 55 8,473 8,422 -0.6

South Atlantic 128 7,839 7,841 0

East North Central 116 8,731 8,744 0.1

East South Central 164 7,522 7,433 -1.2

West North Central 101 9,275 9,339 0.7

West South Central 165 7,196 7,115 -1.1

Mountain 61 9,731 9,815 0.9

Pacific 24 11,521 11,634 1

By Payment Classification:

Urban hospitals 2,479 11,718 11,757 0.3

Large urban areas 1,383 12,450 12,487 0.3

Other urban areas 1,096 10,804 10,845 0.4

Rural areas 887 8,565 8,539 -0.3

Teaching Status:

Nonteaching 2,325 9,451 9,471 0.2

Fewer than 100 residents 794 11,012 11,047 0.3

100 or more residents 247 16,464 16,513 0.3

Urban DSH:

Non-DSH 680 10,091 10,195 1

100 or more beds 1,572 12,096 12,121 0.2

Less than 100 beds 333 8,643 8,656 0.2

Rural DSH:

SCH 253 8,611 8,677 0.8

RRC 220 9,267 9,277 0.1

100 or more beds 33 7,695 7,580 -1.5

Less than 100 beds 275 6,640 6,459 -2.7

Urban teaching and DSH:

Both teaching and DSH 846 13,227 13,257 0.2

Teaching and no DSH 132 11,441 11,580 1.2

No teaching and DSH 1,059 9,897 9,913 0.2

No teaching and no DSH 442 9,448 9,555 1.1

Special Hospital Types:

RRC 211 9,459 9,405 -0.6

SCH 327 9,962 10,065 1
CMS-1632-P 1432

Number 

of 

Hospitals

(1)

Estimated 

Average 

FY 2015 

Payment 

Per 

Discharge

(2)

Estimated 

Average 

FY 2016 

Payment 

Per 

Discharge

(3)

Proposed

FY 2016 

Changes

(4)

SCH and RRC 125 10,597 10,719 1.2

Type of Ownership:

Voluntary 1,934 11,504 11,550 0.4

Proprietary 880 10,007 9,996 -0.1

Government 529 12,252 12,248 0

Medicare Utilization as a Percent of 

Inpatient Days:

0-25 713 13,536 13,454 -0.6

25-50 2,110 11,258 11,304 0.4

50-65 332 9,423 9,470 0.5

Over 65 66 9,484 9,541 0.6

FY 2016 Reclassifications by the 

Medicare Geographic Classification 

Review Board:

All Reclassified Hospitals 861 11,360 11,431 0.6

Non-Reclassified Hospitals 2,505 11,325 11,338 0.1

Urban Hospitals Reclassified 585 11,961 12,048 0.7

Urban Nonreclassified Hospitals 1,894 11,624 11,644 0.2

All Rural Hospitals Reclassified 276 8,861 8,869 0.1

Rural Nonreclassified Hospitals 505 7,846 7,790 -0.7

All Section 401 Reclassified Hospitals 58 9,792 9,722 -0.7

Other Reclassified Hospitals (Section 

1886(d)(8)(B)) 55 7,786 7,731 -0.7

Specialty Hospitals

Cardiac Specialty Hospitals 14 12,652 12,780 1
CMS-1632-P 1433

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 
CMS-1632-P 1434

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.

As discussed in section II.F. of the preamble of this proposed rule, for FY 2016, 

we are not proposing to add or remove any categories of HACs for FY 2016.

The HAC payment provision went into effect on October 1, 2008. Our savings 

estimates for the next 5 fiscal years are shown below:
CMS-1632-P 1435

Year Savings

(in 

millions)

FY 2016 $28

FY 2017 $29

FY 2018 $31

FY 2019 $32

FY 2020 $34

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 nine 

technologies for which we received applications for add-on payments for new medical 

services and technologies for FY 2016, as well as the status of the new technologies that 

were approved to receive new technology add-on payments in FY 2015. 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.5. of the preamble of this proposed rule, we have not yet 

determined whether any of the nine technologies for which we received applications for 

consideration for new technology add-on payments for FY 2016 will meet the specified 

criteria. Consequently, it is premature to estimate the potential payment impact of these 

nine technologies for any potential new technology add-on payments for FY 2016. We 

note that if any of the nine technologies are found to be eligible for new technology addon payments for FY 2016, in the FY 2016 IPPS/LTCH PPS final rule, we would discuss 

the estimated payment impact for FY 2016.
CMS-1632-P 1436

In section II.I.4. of the preamble of this proposed rule, we are proposing to 

discontinue new technology add-on payments for Voraxaze®, the Zenith® F.Graft, and 

the Zilver®PTX® Drug Eluting Peripheral Stent for FY 2016 because these technologies 

will have been on the U.S. market for 3 years. We also are proposing to continue making 

new technology add-on payments for KcentraTM, the Argus®II Retinal Prosthesis 

System, the CardioMEMSTM HF Monitoring System, the MitraClip® System, and the 

RNS®System in FY 2016 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 2016 as if every claim that would 

qualify for a new technology add-on payment would receive the maximum add-on 

payment. 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 2016 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 2016 payments by $3,601,437. For the CardioMEMSTM HF Monitoring System, 

based on the applicant’s estimate from FY 2015, we currently estimate that new 

technology add-on payments for the CardioMEMSTM HF Monitoring System will 

increase overall FY 2016 payments by $11,315,625. For the MitraClip® System, based 
CMS-1632-P 1437

on the applicant’s estimate from FY 2015, we currently estimate that new technology 

add-on payments for the MitraClip® System will increase overall FY 2016 payments by 

$27,000,000. For the RNS®System, based on the applicant’s estimate from FY 2015, we 

currently estimate that new technology add-on payments for the RNS®System will 

increase overall FY 2016 payments by $12,932,500.

3. Effects of the Proposed Changes to Medicare DSH Payments for FY 2016

As discussed in section IV.D. of the preamble of this proposed rule, under section 

3133 of the Affordable Care Act, 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, equal to 

an estimate of 75 percent of what otherwise formerly would have been paid as Medicare 

DSH payments that is 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 

uncompensated care payment methodology has redistributive effects based on the 

proportion of a Medicare DSH’s low-income insured patient days (sum of Medicaid 

patient days and Medicare SSI patient days) relative to the low-income insured patient 

days for all Medicare DSH hospitals (that is, Factor 3). The reduction to Medicare DSH 

payments due to the uncompensated care payment methodology is not budget neutral.
CMS-1632-P 1438

In this FY 2016 IPPS/LTCH PPS proposed rule, the amount to be distributed as 

uncompensated care payments to DSH eligible hospitals is 75 percent of what otherwise 

would have been paid for Medicare DSH payment adjustments adjusted by a proposed 

Factor 2 of 63.69 percent; for FY 2015, 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 76.19 percent. In addition, for FY 2016, we are proposing to 

use data from the more recent of hospitals’ full year 2012 or full year 2011 cost reports 

from the March 2015 update of the HCRIS database, 2012 cost report data submitted to 

CMS by IHS hospitals, and the most recent data (which we anticipate to be 2013 data at 

the time we are developing the final rule) on SSI ratios to calculate Factor 3. That is, we 

are proposing to hold constant the 2012 and 2011 cost report years used to obtain 

Medicaid days in the FY 2015 IPPS/LTCH PPS final rule but to use updated cost report 

data from a later extract of the HCRIS, to continue to use the 2012 cost report data 

submitted to CMS by IHS hospitals, and to use the most recent SSI ratios to calculate 

Factor 3 for FY 2016.

To estimate the impact of the combined effect of proposed changes to reductions 

in the uninsured and additional statutory adjustments (Factor 2) and Medicaid patient 

days (a component of Factor 3) on the calculation of Medicare DSH payments, we 

compared DSH payments estimated in the FY 2015 IPPS/LTCH PPS final rule to 

proposed DSH payments based on proposals in this FY 2016 IPPS/LTCH PPS proposed 

rule.
CMS-1632-P 1439

For FY 2015, for each hospital, we calculated the sum of (a) 25 percent of the 

estimated amount of what would have been paid as Medicare DSH in FY 2015 in the 

absence of section 3133 of the Affordable Care Act and (b) 75 percent of the estimated 

amount of what would have been paid as Medicare DSH payments in the absence of 

section 3133, adjusted by a Factor 2 of 76.19 percent and multiplied by Factor 3 as stated 

in the FY 2015 IPPS/LTCH PPS final rule and correction notice.

For FY 2016, we calculated the sum of (a) 25 percent of the estimated amount of 

what would be paid as Medicare DSH payments in FY 2016 absent section 3133 and 

(b) 75 percent of the estimated amount of what would have been paid as Medicare DSH 

payments absent section 3133, adjusted by a Factor 2 of 63.69 percent, as proposed, and 

multiplied by a Factor 3 calculated using the more recent of the hospitals’ full year 2012 

or full year 2011 cost report from the December 2014 update of the HCRIS database, 

2012 cost report data submitted to CMS by IHS hospitals, and 2012 SSI ratios. We note 

that we used the most recent data available to estimate Factor 3 for FY 2016, as some of 

the data sources to be used under our proposed changes are not yet available.

Our analysis included 2,234 hospitals projected to receive Medicare DSH 

payments in FY 2016 and did not include hospitals in the Rural Community Hospital 

Demonstration, hospitals that departed the Medicare program as of December 31, 2014, 

Maryland hospitals, SCHs that are expected to be paid based on their hospital-specific 

rates, and hospitals that are not included in 2010 MedPAR file (for example, new 

hospitals). In addition, low-income insured days from merged or acquired hospitals were 

combined into the surviving hospital’s CCN, and the nonsurviving CCN was excluded 
CMS-1632-P 1440

from the analysis. The estimated impact of these proposed changes across a consistent 

universe of estimated FY 2016 DSHs, by hospital characteristic, is presented in the table 

below.

MODELED DISPROPORTIONATE SHARE PAYMENT FOR ESTIMATED FY 

2016 DSH HOSPITALS BY HOSPITAL TYPE: MODEL DSH DOLLARS

(in millions)

(0) (1) (2) (4)

Number of 

Estimated FY 

2016 DSH 

Hospitals

FY 2015 Final 

Rule 

Estimated 

DSH $*

FY 2016 NPRM 

Estimated DSH 

$*

Percentage 

Change

Total 2,234 $10,993 $9,738 -11.4%

By Geographic Location

Urban Hospitals 1,745 $10,443 $9,253 -11.4%

Large Urban Areas 921 $6,595 $5,838 -11.5%

Other Urban Areas 824 $3,848 $3,415 -11.3%

Rural Hospitals 488 $549 $485 -11.7%

Unknown 1 $1 $0 -15.0%

Bed Size (Urban)

0 to 99 Beds 261 $165 $143 -12.9%

100 to 249 Beds 776 $2,443 $2,160 -11.6%

250 to 499 Beds 507 $4,104 $3,642 -11.3%

500+ Beds 201 $3,732 $3,307 -11.4%

Bed Size (Rural)

0 to 99 Beds 352 $220 $192 -13.1%

100 to 249 Beds 123 $263 $234 -10.9%

250 to 499 Beds 12 $65 $58 -10.1%

500+ Beds 1 $1 $1 -10.9%

Urban by Region

East North Central 288 $1,412 $1,249 -11.5%

East South Central 125 $664 $590 -11.2%

Middle Atlantic 211 $1,845 $1,640 -11.1%

Mountain 104 $491 $431 -12.3%

New England 80 $431 $386 -10.5%

Pacific 284 $1,733 $1,555 -10.3%
CMS-1632-P 1441

Puerto Rico 31 $78 $65 -17.3%

South Atlantic 291 $1,944 $1,708 -12.1%

West North Central 95 $484 $426 -11.9%

West South Central 236 $1,360 $1,204 -11.5%

Rural by Region

East North Central 59 $50 $44 -12.3%

East South Central 145 $185 $164 -11.6%

Middle Atlantic 26 $35 $31 -12.8%

Mountain 21 $15 $13 -13.5%

New England 9 $16 $14 -10.9%

Pacific 8 $10 $10 -7.7%

South Atlantic 83 $117 $104 -11.1%

West North Central 29 $22 $19 -13.3%

West South Central 108 $98 $87 -11.5%

By Payment Classification

Urban Hospitals 1,756 $10,437 $9,247 -11.4%

Large Urban Areas 935 $6,605 $5,847 -11.5%

Other Urban Areas 821 $3,832 $3,400 -11.3%

Rural Hospitals 477 $555 $491 -11.6%

Unknown 1 $1 $0 -15.0%

Teaching Status

Nonteaching 1,397 $3,394 $2,993 -11.8%

Fewer than 100 residents 601 $3,660 $3,249 -11.2%

100 or more residents 235 $3,939 $3,496 -11.2%

Unknown 1 $1 $0 -15.0%

Type of Ownership

Voluntary 1,344 $7,161 $6,353 -11.3%

Proprietary 448 $1,616 $1,426 -11.7%

Government 442 $2,216 $1,959 -11.6%

Medicare Utilization 

Percent

0-25 381 $2,828 $2,485 -12.1%

25-50 1,460 $7,405 $6,579 -11.2%

50-65 331 $686 $608 -11.3%

Over 65 61 $73 $65 -10.9%

Unknown 1 $1 $0 -15.0%

Source: Dobson | DaVanzo analysis of 2011-2012 Hospital Cost Reports, 2010 MedPAR, and FY2015 Final Rule 

IPPS Impact File.

*Estimated DSH dollars calculated by [0.25 * estimated section 1886(d)(5)(F) payments] + [0.75 * estimated section 

1886(d)(5)(F) payments * Factor 2 * Factor 3]. When summed across all hospitals projected to receive DSH payments, 

the Model DSH is $9,378 million in 2016 and $10,993 million in 2015. For the FY 2015 IPPS/LTCH PPS final rule, 

Factor 2 is equal to 76.19 percent. The proposed Factor 2 for FY 2016 is 63.69 percent.
CMS-1632-P 1442

The impact analysis found that changes from the FY 2015 IPPS/LTCH PPS final 

rule were primarily driven by two components: (1) a reduction in the percentage of 

individuals who are uninsured, from 13.75 percent in the FY 2015 IPPS/LTCH PPS final 

rule to 11.5 percent in this FY 2016 proposed rule; and (2) changes in the number of 

Medicaid days for 2012 (or 2011) obtained from each hospitals’ March 2014 HCRIS 

update of their Medicare cost report (used in the FY 2015 IPPS/LTCH PPS final rule) to 

the Medicaid days reported in the December 2014 HCRIS update (used in this FY 2016 

proposed rule). The change in the percentage of individuals who are uninsured is a 

national estimate affecting all hospitals equally, while the change in Medicaid days is 

hospital-specific. For purposes of this proposed rule, the SSI ratios used in this analysis 

are the same 2012 SSI ratios used in the FY 2015 IPPS/LTCH PPS final rule and 

correction notice because the 2013 ratios are not yet available.

The impact analysis table above shows that across all projected disproportionate 

share hospitals, FY 2016 DSH payments, including both empirically justified DSH 

payments and uncompensated care payments, are estimated at approximately $9.738 

billion, or a decrease of 11.4 percent from FY 2015 DSH payments ($10.993 billion). 

This is solely the result of a proposed reduction in Factor 2. As a result, we project that

proposed payments for FY 2016 to hospitals paid under the IPPS would be reduced 

overall by 1.0 percent as compared to overall payments to hospitals paid under the IPPS 

in FY 2015.

** Percent change is determined as the difference between Medicare DSH payments modeled for the FY 2016 

IPPS/LTCH PPS proposed rule (column 2) and Medicare DSH payments modeled for the FY 2015 IPPS/LTCH PPS 

final rule (column 1) divided by Medicare DSH payments modeled for the FY 2015 final rule (column 1) times 100 

percent .
CMS-1632-P 1443

Differences in the percent reduction in DSH payments were relatively small 

across most hospital categories because the overall average percent change in Medicaid 

days was relatively small compared to the overall percent reduction in the estimate of the 

percentage of individuals who are uninsured. Variation in the reductions in DSH 

payments were influenced by the change in the number of Medicaid days (the number of 

Medicaid days increased by 0.453 percent for all included hospitals from the FY 2015 

IPPS/LTCH PPS final rule to this FY 2016 IPPS/LTCH PPS proposed rule) and each 

hospital characteristic group’s relative proportion of Medicaid to SSI days. We note that 

SSI days used in this analysis have not changed since the FY 2015 IPPS/LTCH PPS final 

rule; however, we anticipate using 2013 SSI days for the FY 2016 IPPS/LTCH PPS final 

rule. Rural hospitals are expected to experience a slightly larger decrease compared to 

urban hospitals, as defined by geographic location or payment classification. Among 

rural and urban hospitals, small hospitals (0 to 99 beds) are expected to receive greater 

reductions in DSH payments compared to their larger counterparts, respectively. By 

region, urban hospitals located in Puerto Rico are expected to receive disproportionately 

larger reductions in DSH payments, while Pacific urban hospitals are expected to receive 

disproportionately smaller reductions in DSH payments. Rural hospitals located in the 

Mountain region also are projected to receive larger reductions in DSH payments, while 

rural hospitals in the Pacific region are projected to receive smaller reductions relative to 

the universe of projected FY 2016 DSHs. Although urban hospitals in Puerto Rico are 

projected to receive disproportionately larger reductions in DSH payments, they are still 

expected to receive more in Medicare DSH and uncompensated care payments under 
CMS-1632-P 1444

section 3133 than if they were paid the amount they previously would have received 

under the former statutory formula for Medicare DSH payments. Nonteaching hospitals 

are projected to receive a larger reduction in DSH payments than both small and large 

teaching hospitals. Government hospitals are projected to receive larger reductions in 

DSH payments than not-for-profit hospitals, but smaller reductions compared to forprofit hospitals. In addition, hospitals with higher Medicare utilization are projected to 

receive smaller reductions in DSH payments relative to hospitals with lower Medicare 

utilization.

4. Effects of Proposed Reduction under the Hospital Readmissions Reduction Program

In section IV.E. of the preamble of this proposed rule, we discuss our proposals 

for FY 2016 for the Hospital Readmissions Reduction Program (established under section 

3025 of the Affordable Care Act), which requires a reduction to a hospital’s base 

operating DRG payments to account for excess readmissions. For FY 2016, the 

reduction 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). A hospital’s base operating DRG payment (that is, wage-adjusted 

DRG payment amount, as discussed in section IV.E. of the preamble of this proposed 

rule) is the portion of the IPPS payment subject to the readmissions payment adjustment 
CMS-1632-P 1445

(DSH, IME, outliers and low-volume add-on payments are not subject to the 

readmissions adjustment). In this proposed rule, we estimate that 2,655 hospitals will 

have their base operating DRG payments reduced by their proxy FY 2016 

hospital-specific readmissions adjustment. As a result, we estimate that the Hospital 

Readmissions Reduction Program would result in no material change in payments 

relative to FY 2015.

5. Effects of Proposed Changes under the FY 2016 Hospital Value-Based Purchasing 

(VBP) Program

In section IV.F. of the preamble of this proposed rule, we discuss the Hospital 

VBP Program under which the Secretary makes value-based incentive payments to 

hospitals based on their performance on measures during the performance period with 

respect to a fiscal year. These incentive payments will be funded for FY 2016 through a 

reduction to the FY 2016 base operating DRG payment for each discharge of 

1.75 percent, as required by section 1886(o)(7)(B) of the Act. The applicable percentage 

for FY 2017 and subsequent years is 2 percent. The total amount available for valuebased incentive payments must be equal to the total amount of reduced payments for all 

hospitals for the fiscal year, as estimated by the Secretary.

We estimate the available pool of funds for value-based incentive payments in the 

FY 2016 program year, which, in accordance with section 1886(o)(7)(C)(iv) of the Act, 

will be 1.75 percent of base operating DRG payments, or a total of approximately $1.49 

billion. This estimated available pool for FY 2016 is based on the historical pool of 
CMS-1632-P 1446

hospitals that were eligible to participate in the FY 2015 program year and the payment 

information from the December 2014 update to the FY 2014 MedPAR file.

The proposed estimated impacts of the FY 2016 program year by hospital 

characteristic, found in the table below, are based on historical TPSs. We used the 

FY 2015 program year’s 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 2014 update to the 

FY 2014 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 2016 program year, the number of 

hospitals that would receive an increase in base operating DRG payment amount is 

slightly higher than the number of hospitals that would receive a decrease. Among urban 

hospitals, those in the New England, South Atlantic, East North Central, East South 

Central, West North Central, West South Central, Mountain, and Pacific regions would 

have an increase, on average, in the base operating DRG payment amount. Urban 

hospitals in the Middle Atlantic region would receive an average decrease in the base 

operating payment amount. Among rural hospitals, those in all regions would have an 

increase, on average, in base operating DRG payment amounts.

On average, hospitals that receive a higher percent of DSH payments would 

receive decreases in the base operating DRG payment amount. With respect to hospitals’ 
CMS-1632-P 1447

Medicare utilization (MCR), those hospitals with an MCR above 65 percent would have 

the largest increase, on average, in base operating DRG payment amounts.

Nonteaching hospitals would have an average increase, and teaching hospitals 

would experience an average decrease, in the base operating DRG payment amount.
CMS-1632-P 1448

Impact Analysis of Base Operating DRG Payment Amount Proposed 

Changes Resulting from the FY 2016 Hospital VBP Program

Number of 

Hospitals

Average 

Percentage 

Change

BY GEOGRAPHIC LOCATION: 

All Hospitals 3,089 0.133%

Large Urban 1,262 0.046%

Other Urban 1,066 0.137%

Rural Area 760 0.269%

Missing* 1 1.009%

Urban hospitals 2,328 0.088%

0-99 beds 515 0.506%

100-199 beds 735 0.025%

200-299 beds 445 -0.055%

300-499 beds 423 -0.075%

500 or more beds 210 -0.088%

Rural hospitals 760 0.269%

0-49 beds 251 0.453%

50-99 beds 299 0.250%

100-149 beds 123 0.075%

150-199 beds 49 0.044%

200 or more beds 38 0.126%

BY REGION: 

Urban By Region 2,328 0.088%

New England 116 0.045%

Middle Atlantic 306 -0.057%

South Atlantic 389 0.038%

East North Central 376 0.106%

East South Central 139 0.042%

West North Central 154 0.366%

West South Central 332 0.178%

Mountain 157 0.048%

Pacific 359 0.093%
CMS-1632-P 1449

Impact Analysis of Base Operating DRG Payment Amount Proposed 

Changes Resulting from the FY 2016 Hospital VBP Program

Number of 

Hospitals

Average 

Percentage 

Change

Rural By Region 760 0.269%

New England 20 0.384%

Middle Atlantic 55 0.170%

South Atlantic 123 0.330%

East North Central 114 0.281%

East South Central 135 0.269%

West North Central 93 0.333%

West South Central 140 0.162%

Mountain 56 0.346%

Pacific 24 0.228%

By MCR Percent

0-25 395 0.146%

25-50 1,972 0.098%

50-65 558 0.167%

Over 65 93 0.305%

Missing 70 0.506%

BY DSH Percent:

0-25 1,477 0.248%

25-50 1,329 0.061%

50-65 138 -0.163%

Over 65 144 -0.115%

BY TEACHING STATUS:

Non-Teaching 2,085 0.209%

Teaching 1,003 -0.028%

Actual FY 2016 program year’s TPSs will not be reviewed and corrected by 

hospitals until after the FY 2016 IPPS/LTCH PPS final rule has been published. 

Therefore, the same historical universe of eligible hospitals and corresponding TPSs from 

the FY 2015 program year will be used for the updated impact analysis in that final rule.
CMS-1632-P 1450

6. Effects of Proposed Changes to the HAC Reduction Program for FY 2016

In section IV.G. of the preamble of this proposed rule, we discuss the proposed 

changes to the HAC Reduction Program for FY 2016. We note that section 3008 of the 

Affordable Care Act added section 1886(p) to the Act to provide an incentive for certain 

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 program years. 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. For a further description of our 

policies for the HAC Reduction Program, we refer readers to the FY 2014 IPPS/LTCH 

PPS final rule (78 FR 50707 through 50729) and the FY 2015 IPPS/LTCH PPS final rule 

(79 FR 50087 through 50104). These policies describe the general framework for 

implementation of the HAC Reduction Program including: (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 hospitalspecific 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. We are not proposing any changes to these policies 

for the implementation of the FY 2016 HAC Reduction Program.

We note that hospitals received a payment reduction for the first time in FY 2015. 

The table and analysis that we are presenting below are a simulation of the proposed 
CMS-1632-P 1451

FY 2016 HAC Reduction Program using historical data. This table and analysis will be 

revised with updated available data in the FY 2016 IPPS/LTCH PPS final rule. We note 

that, as described earlier in this proposed rule, because scores will undergo 30-day review 

and correction by the hospitals that will not conclude until after the publication of the 

final rule, we will not provide hospital-level data or a hospital-level payment impact in 

conjunction with the FY 2016 IPPS/LTCH PPS proposed or final rule.

For FY 2016, we note that we finalized a Total HAC Score methodology in the 

FY 2015 IPPS/LTCH PPS final rule (79 FR 50087 through50104) that assigns weights 

for Domain 1 and Domain 2 at 25 percent and 75 percent, respectively. The table below 

presents data on the estimated proportion of hospitals in the worst-performing quartile of 

the Total HAC Score by hospital characteristic, based on this methodology.

To estimate the impact of the FY 2016 HAC Reduction Program, we used the 

following: the AHRQ Patient Safety Indicator (PSI) 90 measure results based on 

Medicare FFS discharges from July 2012 through June 2014 and version 4.5a of the 

AHRQ software. For CDC Central Line-Associated Bloodstream Infection (CLABSI), 

Catheter-Associated Urinary Tract Infection (CAUTI), and Colon and Abdominal 

Hysterectomy Surgical Site Infection (SSI) measure results, the following was used: the 

standardized infection ratios (SIRs) calculated with hospital surveillance data reported to 

the National Healthcare Safety Network (NHSN) for infections occurring between 

January 2012 and December 2013. We used the FY 2015 Final Impact File to analyze 

the results by hospital characteristic.
CMS-1632-P 1452

Of the 3,317 hospitals included in this analysis, 3,277 hospitals had information 

for geographic location, region, bed size, DSH percent, and teaching status; 3,233 had 

information for ownership; and 3,159 had information for Medicare days as a percent of 

total inpatient days (MCR percent). These differences in the number of hospitals listed 

for each characteristic are due to the source of the hospital characteristic data. Maryland 

hospitals are not included in the identification of the worst-performing quartile for the 

HAC Reduction Program in FY 2016 and, therefore, are not represented in the table 

below.

The third column in the table indicates the percent of hospitals in each category of 

the specified characteristic. For example, within geographic region, 40.6 percent of 

hospitals (or 1,329 hospitals) are characterized as large urban, 33.9 percent of hospitals 

(or 1,110 hospitals) are characterized as other urban, and 25.6 percent of hospitals (or 838 

hospitals) are characterized as rural. The fifth column in the table indicates the 

proportion of hospitals for each characteristic that we estimate will be in the worstperforming quartile of Total HAC Scores and will receive a payment reduction under the 

FY 2016 HAC Reduction Program. For example, with regard to geographic location, we 

estimate 20.8 percent of hospitals (or 277 hospitals) characterized as large urban would 

be subject to a payment reduction; 20.1 percent of hospitals (or 223 hospitals) 

characterized as other urban would be subject to a payment reduction; and 15.9 percent of 

hospitals (or 133 hospitals) characterized as rural would be subject to a payment 

reduction.
CMS-1632-P 1453

With regard to geographic location of urban hospitals by bed size, 17.4 percent of 

hospitals (or 108 hospitals) characterized as urban hospitals with bed size of 1 – 99 beds 

would be subject to a payment adjustment; 17.5 percent of hospitals (or 129 hospitals) 

characterized as urban hospitals with bed size of 100 – 199 beds would be subject to a 

payment adjustment; 19.1 percent of hospitals (or 85 hospitals) characterized as urban 

hospitals with bed size of 200 – 299 beds would be subject to a payment adjustment; 22.9 

percent of hospitals (or 62 hospitals) characterized as urban hospitals with bed size of 300 

– 399 beds would be subject to a payment adjustment; 33.1 percent of hospitals (or 51 

hospitals) characterized as urban hospitals with bed size of 400 – 499 beds would be 

subject to a payment adjustment; and 30.8 percent of hospitals (or 65 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, 19.6 percent 

of hospitals (or 64 hospitals) characterized as rural hospitals with bed size of 1 – 49 beds 

would be subject to a payment adjustment; 14.0 percent of hospitals (or 42 hospitals) 

characterized as rural hospitals with bed size of 50 – 99 beds would be subject to a 

payment adjustment; 9.7 percent of hospitals (or 12 hospitals) characterized as rural 

hospitals with bed size of 100 – 149 beds would be subject to a payment adjustment; 8.2 

percent of hospitals (or 4 hospitals) characterized as rural hospitals with bed size of 150 –

199 beds would be subject to a payment adjustment; and 28.2 percent of hospitals (or 11 

hospitals) characterized as rural hospitals with bed size of 200 or more beds would be 

subject to a payment adjustment.
CMS-1632-P 1454

With regard to region of urban hospitals, 29.6 percent of hospitals (or 34 

hospitals) characterized as urban in the New England region would be subject to a 

payment adjustment; 27.8 percent of hospitals (or 88 hospitals) characterized as urban in 

the Mid-Atlantic region would be subject to a payment adjustment; 18.7 percent of 

hospitals (or 75 hospitals) characterized as urban in the South Atlantic region would be 

subject to a payment adjustment; 17.0 percent of hospitals (or 66 hospitals) characterized 

as urban in the East North Central region would be subject to a payment adjustment; 15.5 

percent of hospitals (or 23 hospitals) characterized as urban in the East South Central 

region would be subject to a payment adjustment; 19.9 percent of hospitals (or 32 

hospitals) characterized as urban in the West North Central region would be subject to a 

payment adjustment; 15.4 percent of hospitals (or 57 hospitals) characterized as urban in 

the West South Central region would be subject to a payment adjustment; 25.6 percent of 

hospitals (or 42 hospitals) characterized as urban in the Mountain region would be 

subject to a payment adjustment; and 22.2 percent of hospitals (or 83 hospitals) 

characterized as urban in the Pacific region would be subject to a payment adjustment.

With regard to region of rural hospitals, 40.0 percent of hospitals (or 8 hospitals) 

characterized as rural in the New England region would be subject to a payment 

adjustment; 16.4 percent of hospitals (or 9 hospitals) characterized as rural in the MidAtlantic region would be subject to a payment adjustment; 12.6 percent of hospitals (or 

16 hospitals) characterized as rural in the South Atlantic region would be subject to a 

payment adjustment; 14.9 percent of hospitals (or 17 hospitals) characterized as rural in 

the East North Central region would be subject to a payment adjustment; 8.9 percent of 
CMS-1632-P 1455

hospitals (or 14 hospitals) characterized as rural in the East South Central region would 

be subject to a payment adjustment; 23.1 percent of hospitals (or 24 hospitals) 

characterized as rural in the West North Central region would be subject to a payment 

adjustment; 16.5 percent of hospitals (or 27 hospitals) characterized as rural in the West 

South Central region would be subject to a payment adjustment; 18.6 percent of hospitals 

(or 13 hospitals) characterized as rural in the Mountain region would be subject to a 

payment adjustment; and 19.2 percent of hospitals (or 5 hospital) characterized as rural in 

the Pacific region would be subject to a payment adjustment.

With regard to the DSH percent characteristic, 18.2 percent of hospitals (or 289 

hospitals) characterized in the 0 – 24 DSH percent would be subject to a payment 

adjustment; 18.8 percent of hospitals (or 258 hospitals) characterized in the 25-49 DSH 

percent would be subject to a payment adjustment; 26.8 percent of hospitals (or 41 

hospitals) characterized in the 50 – 64 DSH percent would be subject to a payment 

adjustment; and 27.4 percent of hospitals (or 45 hospitals) characterized in the 65 and 

over DSH percent would be subject to a payment adjustment.

With regard to the teaching status characteristic, 16.2 percent of hospitals (or 366 

hospitals) characterized as nonteaching would be subject to a payment adjustment; 21.4 

percent of hospitals (or 165 hospitals) characterized as fewer than 100 residents would be 

subject to a payment adjustment; and 42.3 percent of hospitals (or 102 hospitals) 

characterized as 100 or more residents would be subject to a payment adjustment.

With regard to the urban teaching and DSH characteristic, 28.4 percent of 

hospitals (or 235 hospitals) characterized as teaching and DSH would be subject to a 
CMS-1632-P 1456

payment adjustment; 18.9 percent of hospitals (or 24 hospitals) characterized as teaching 

and no DSH would be subject to a payment adjustment; 15.2 percent of hospitals (or 161 

hospitals) characterized as no teaching and DSH would be subject to a payment 

adjustment; 18.7 percent of hospitals (or 80 hospitals) characterized as no teaching and 

no DSH would be subject to a payment adjustment; and 15.9 percent of hospitals (or 133 

hospitals) characterized as nonurban would be subject to a payment adjustment.

With regard to the type of ownership characteristic, 19.8 percent of hospitals (or 

371 hospitals) characterized as voluntary would be subject to a payment adjustment; 15.1 

percent of hospitals (or 128 hospitals) characterized as proprietary would be subject to a 

payment adjustment; and 22.4 percent of hospitals (or 115 hospitals) characterized as 

government would be subject to a payment adjustment.

With regard to the MCR percent characteristic, 27.4 percent of hospitals (or 119 

hospitals) characterized in the 0 – 24 MCR percent would be subject to a payment 

adjustment; 19.1 percent of hospitals (or 386 hospitals) characterized in the 25 – 49 MCR 

percent would be subject to a payment adjustment; 14.4 percent of hospitals (or 84 

hospitals) characterized in the 50 – 64 MCR percent would be subject to a payment 

adjustment; and 7.0 percent of hospitals (or 8 hospitals) characterized in the 65 and over 

MCR percent would be subject to a payment adjustment.
CMS-1632-P 1457

ESTIMATED PROPORTION OF HOSPITALS IN THE WORST-PERFORMING 

QUARTILE (>75th PERCENTILE) OF THE TOTAL HAC SCORE FOR THE FY 2016 

HAC REDUCTION PROGRAM (by hospital characteristic)

Hospital 

Characteristic

Number 

of 

Hospital

(a)

Percent

(b)

Number of 

Hospitals in 

the WorstPerforming

Quartile

Percent of 

Hospitals in the 

WorstPerforming 

Quartile

(c)

Total (d) 3,317 100 644 19.4

By Geographic 

Location

All hospitals: 

Large urban (e) 1,329 40.6 277 20.8

Other urban 1,110 33.9 223 20.1

Rural 838 25.6 133 15.9

Urban hospitals:

1-99 beds 620 25.4 108 17.4

100-199 beds 738 30.3 129 17.5

200-299 beds 445 18.2 85 19.1

300-399 beds 271 11.1 62 22.9

400-499 154 6.3 51 33.1

500 or more 

beds 211 8.7 65 30.8

Rural hospitals:

1-49 beds 326 38.9 64 19.6

50-99 beds 300 35.8 42 14.0

100-149 beds 124 14.8 12 9.7

150-199 beds 49 5.8 4 8.2

200 or more 

beds 39 4.7 11 28.2

By Region

Urban by region

New England 115 4.7 34 29.6

Mid-Atlantic 316 13.0 88 27.8

South Atlantic 401 16.4 75 18.7

East North 

Central 389 15.9 66 17.0

East South 

Central 148 6.1 23 15.5

West North 

Central 161 6.6 32 19.9

West South 

Central 371 15.2 57 15.4

Mountain 164 6.7 42 25.6

Pacific 374 15.3 83 22.2

Rural by region
CMS-1632-P 1458

ESTIMATED PROPORTION OF HOSPITALS IN THE WORST-PERFORMING 

QUARTILE (>75th PERCENTILE) OF THE TOTAL HAC SCORE FOR THE FY 2016 

HAC REDUCTION PROGRAM (by hospital characteristic)

Hospital 

Characteristic

Number 

of 

Hospital

(a)

Percent

(b)

Number of 

Hospitals in 

the WorstPerforming

Quartile

Percent of 

Hospitals in the 

WorstPerforming 

Quartile

(c)

New England 20 2.4 8 40.0

Mid-Atlantic 55 6.6 9 16.4

South Atlantic 127 15.2 16 12.6

East North 

Central 114 13.6 17 14.9

East South 

Central 158 18.9 14 8.9

West North 

Central 104 12.4 24 23.1

West South 

Central 164 19.6 27 16.5

Mountain 70 8.4 13 18.6

Pacific 26 3.1 5 19.2

By DSH Percent 

(f)

0-24 1,584 48.3 289 18.2

25-49 1,376 42.0 258 18.8

50-64 153 4.7 41 26.8

65 and over 164 5.0 45 27.4

By Teaching 

Status (g)

Non-teaching 2,265 69.1 366 16.2

Fewer than 100 

residents 771 23.5 165 21.4

100 or more 

residents 241 7.4 102 42.3

By Urban 

Teaching and 

DSH (f,g)

Teaching and 

DSH 827 25.2 235 28.4

Teaching and 

no DSH 127 3.9 24 18.9

No teaching and 

DSH 1,058 32.3 161 15.2

No teaching and 

no DSH 427 13.0 80 18.7

Non-urban 838 25.6 133 15.9

By Type of 

Ownership:

Voluntary 1,873 57.9 371 19.8

Proprietary 846 26.2 128 15.1
CMS-1632-P 1459

ESTIMATED PROPORTION OF HOSPITALS IN THE WORST-PERFORMING 

QUARTILE (>75th PERCENTILE) OF THE TOTAL HAC SCORE FOR THE FY 2016 

HAC REDUCTION PROGRAM (by hospital characteristic)

Hospital 

Characteristic

Number 

of 

Hospital

(a)

Percent

(b)

Number of 

Hospitals in 

the WorstPerforming

Quartile

Percent of 

Hospitals in the 

WorstPerforming 

Quartile

(c)

Government 514 15.9 115 22.4

By MCR Percent:

0-24 435 13.8 119 27.4

25-49 2,026 64.1 386 19.1

50-64 584 18.5 84 14.4

65 and over 114 3.6 8 7.0

Source: FY 2016 HAC Reduction Program Proposed Rule Results provided by R&A contract. Scores are 

based on AHRQ PSI 90 data from July 2012 through June 2014 and CLABSI, CAUTI, and SSI results 

from January 2012 to December 2013. Hospital Characteristics are based on the FY 2015 Final Impact File 

last updated on September 30, 2014.

Notes:

(a) The total number of hospitals with hospital characteristic data (3,277 for geographic location, bed size, 

and teaching status; 3,233 for type of ownership; and 3,159 for MCR) do not add up to the total number of 

hospitals we estimate would be eligible for the FY 2016 HAC Reduction Program (3,317) because 40 

hospitals are not included in the FY 2015 Final Impact File and not all hospitals have data for all 

characteristics.

(b) This column is the percent of all hospitals with each characteristic that we estimate would be eligible 

for the FY 2016 HAC Reduction Program and are included in the FY 2015 Final Impact File. Percentages 

may not sum to 100 due to rounding.

(c) This column is the percent of hospitals within each characteristic that we estimate would be in the 

worst-performing quartile.

(d) Total excludes the 46 Maryland hospitals.

(e) Large urban hospitals are hospitals located in large urban areas with populations over 1 million.

(f) A hospital is considered to be a DSH hospital if it has a DSH patient percentage greater than zero.

(g) A hospital is considered to be a teaching hospital if it has an IME adjustment factor for Operation PPS 

(TCHOP) greater than zero.

7. Effects of Proposed Elimination of Simplified Cost Allocation Methodology Used by 

Hospitals

In section IV.H. of the preamble of this proposed rule, we discuss our proposal to 

amend the regulations at 42 CFR 412.302(d)(4) to limit a hospital’s ability to elect the 

simplified cost allocation methodology under the terms and conditions provided in the 
CMS-1632-P 1460

instructions for CMS Form 2552 to cost reporting periods beginning before 

October 1, 2015. We are proposing to limit the election of the simplified cost allocation 

methodology because the allocation of the costs of capital-related movable equipment 

using this methodology yields less precise calculated CCRs. Furthermore, we believe 

that advances in technology have reduced the cost of recordkeeping, which has allowed 

hospitals to maintain accurate statistical data and afforded them the flexibility to change 

to a more precise allocation methodology. Although these proposed changes would 

impact some small rural hospitals, including CAHs, the vast majority of hospitals do not 

use the simplified cost allocation methodology. Based on FY 2013 data, only 9 of 1,269 

CAHs and 23 of 4,389 hospitals other than CAHs used the simplified cost allocation 

methodology. In addition, when the simplified cost allocation methodology was 

implemented in 1996, it was expected that it also would likely result in reduced Medicare 

payments to hospitals. We believe that the proposed changes would not have a 

significant impact on the operations of a substantial number of small rural hospitals. We 

also do not believe that the proposed changes would affect beneficiary access to care, as 

affected hospitals will continue to be paid for services provided to Medicare 

beneficiaries.

We are inviting public comments on this analysis of impact.

8. Effects of Implementation of Rural Community Hospital Demonstration Program

In section IV.I. of the preamble of this proposed rule, for FY 2016, we discuss our 

implementation of section 410A of Pub. L. 108-173, as amended, which requires the 

Secretary to conduct a demonstration that would modify reimbursement for inpatient 
CMS-1632-P 1461

services for up to 30 rural community hospitals. Section 410A(c)(2) requires that in 

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.I. of the preamble of this proposed rule, in the 

IPPS final rules for each of the previous 11 fiscal years, we have estimated the additional 

payments made by the program for each of the participating hospitals as a result of the 

demonstration. In order to achieve budget neutrality, we are proposing to adjust the 

national IPPS rates by an amount sufficient to account for the added costs of this 

demonstration. In other words, we are proposing to apply budget neutrality across the 

payment system as a whole rather than 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 in section IV.I.2. of the preamble of this proposed rule. We note that the 

phase-out of the demonstration has begun with the 7 “pre-expansion” participating 

hospitals that were selected for the demonstration during 2004 and 2008 concluding their 

participation during FY 2015. Therefore, we are proposing that the financial experience 

of these hospitals not be included in the estimated demonstration cost for FY 2016. Of 
CMS-1632-P 1462

the 15 hospitals that were selected in 2011 as a result of the expansion of the 

demonstration under the Affordable Care Act, 11 hospitals are scheduled to end their 

participation in the demonstration during FY 2016. Eight of these 11 hospitals are 

scheduled to end their participation in the demonstration prior to September 30, 2016. 

For each of these 8 hospitals, we are proposing to estimate the reasonable cost amount 

and the amount that would otherwise be paid without the demonstration for FY 2016 on a 

prorated basis, multiplying the estimated amounts for each hospital (as derived from “as 

submitted” cost reports for cost reporting periods ending in CY 2013) by the fraction of 

the number of months that it will participate in the demonstration during FY 2016 in 

relation to the total 12-month period. Accordingly, the proposed budget neutrality offset 

amount used to determine the proposed adjustment to the national IPPS rates to account 

for estimated demonstration costs for FY 2016 for these 15 hospitals is $26,195,949. In 

addition, in this proposed rule, we are proposing to subtract from the budget neutrality 

offset amount for FY 2016 the amount by which the budget neutrality offset amount that 

was finalized in the FY 2009 IPPS/LTCH PPS final rule exceeds the actual costs of the 

demonstration for FY 2009 (as shown in the finalized cost reports for cost reporting 

periods beginning in FY 2009) ($8,457,452). Therefore, the resulting total ($17,738,497) 

is the amount for which a proposed adjustment to the IPPS rates for FY 2016 would be 

calculated.

9. Effects of the Proposed Changes to MS-DRGs Subject to the Postacute Care Transfer 

Policy and the Special Payment Policy
CMS-1632-P 1463

In section IV.J. of the preamble to this proposed rule, we discuss proposed 

changes to the list of MS-DRGs subject to the postacute care transfer policy and the DRG 

special payment policy. As reflected in Table 5 listed in section VI. of the Addendum to 

this proposed rule (which is available via the Internet on the CMS Web site), using 

criteria set forth in regulations 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 payment policies. We note that we are not proposing to make any changes 

in these payment policies in this FY 2016 proposed rule. We are proposing to include 

two proposed new MS-DRGs on the list of MS-DRGs subject to the postacute care 

transfer policy and the DRG special payment policy as a result of our proposals to revise 

the MS-DRG classifications for FY 2016. Specifically, we are proposing that two 

proposed new MS-DRGs would qualify for the postacute care transfer policy and the 

DRG special payment policy in FY 2016. Column 4 of Table I in this Appendix A shows 

the effects of the proposed changes to the MS-DRGs and the relative payment weights 

and 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 

DRG 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 for determining the proposed changes due to the MS-DRGs and relative 

payment weights account for and include changes in the status of MS-DRG postacute 

care transfer and special payment policies. We refer readers to section I.G. of this 
CMS-1632-P 1464

Appendix A for a detailed discussion of payment impacts due to MS-DRG 

reclassification policies.
CMS-1632-P 1465

I. Effects of Proposed Changes in the Capital IPPS

1. General Considerations

For the impact analysis presented below, we used data from the December 2014 

update of the FY 2014 MedPAR file and the December 2014 update of the 

Provider-Specific File (PSF) that is used for payment purposes. Although the analyses of 

the proposed changes to the capital prospective payment system do not incorporate cost 

data, we used the December 2014 update of the most recently available hospital cost 

report data (FYs 2012 and 2013) 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 2014 update of the FY 2014 MedPAR file, we 

simulated payments under the capital IPPS for FY 2015 and FY 2016 for a comparison of 

total payments per case. Any short-term, acute care hospitals not paid under the general 

IPPS (for example, Indian Health Service hospitals and hospitals in Maryland) are 

excluded from the simulations.
CMS-1632-P 1466

The methodology for determining a capital IPPS payment is set forth at 

§ 412.312. The basic methodology for calculating the proposed capital IPPS payments in 

FY 2016 is as follows:

(Standard Federal Rate) x (DRG weight) x (GAF) x (COLA for hospitals located 

in Alaska and Hawaii) x (1 + DSH Adjustment Factor + IME adjustment factor, if 

applicable).

In addition to the other adjustments, hospitals may 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 2015 and 2016.

● We estimate that Medicare discharges will be approximately 11.2 million in 

FY 2015 and 11.3 million in FY 2016.

● The capital Federal rate was updated beginning in FY 1996 by an analytical 

framework that considers changes in the prices associated with capital-related costs and 

adjustments to account for forecast error, changes in the case-mix index, allowable 

changes in intensity, and other factors. As discussed in section III.A.1.a. of the 

Addendum to this proposed rule, the proposed update is 1.3 percent for FY 2016.
CMS-1632-P 1467

● In addition to the proposed FY 2016 update factor, the proposed FY 2016 

capital Federal rate was calculated based on a proposed GAF/DRG budget neutrality 

adjustment factor of 0.9976 and a proposed outlier adjustment factor of 0.9357. 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 2016.

2. Results

We used the actuarial model described above to estimate the potential impact of 

our proposed changes for FY 2016 on total capital payments per case, using a universe of 

3,366 hospitals. As described above, the individual hospital payment parameters are 

taken from the best available data, including the December 2014 update of the FY 2014 

MedPAR file, the December 2014 update to the PSF, and the most recent cost report data 

from the December 2014 update of HCRIS. In Table III, we present a comparison of 

estimated total payments per case for FY 2015 and estimated total payments per case for 

FY 2016 based on the proposed FY 2016 payment policies. Column 2 shows estimates 

of payments per case under our model for FY 2015. Column 3 shows estimates of 

payments per case under our model for FY 2016. Column 4 shows the proposed total 

percentage change in payments from FY 2015 to FY 2016. The proposed change 

represented in Column 4 includes the proposed 1.3 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.
CMS-1632-P 1468

The simulation results show that, on average, proposed capital payments per case 

in FY 2016 are expected to increase as compared to capital payments per case in 

FY 2015. This expected increase is due to the proposed approximately 0.8 percent 

increase in the capital Federal rate for FY 2016 as compared to the FY 2015 capital 

Federal rate and, to a lesser degree, proposed changes to the MS-DRG reclassifications 

and recalibrations and proposed changes in outlier payments. (For a discussion of the 

determination of the capital Federal rate, we refer readers to section III.A. of the 

Addendum to this proposed rule.) Overall, across all hospitals, the proposed changes to 

the GAFs are expected to slightly increase 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.

The increase in capital payments per case due to the effects of proposed changes 

to the MS-DRG reclassifications and recalibrations is expected to be slightly greater for 

urban hospitals, as are the increases in capital payments per case due to proposed changes 

in outlier payments. However, most of the urban and rural areas would experience an 

offset to the projected increase in capital payments per case due to the effects of proposed 

changes to the GAFs.

The net impact of these proposed changes is an estimated 2.0 percent change in 

capital payments per case from FY 2015 to FY 2016 for all hospitals (as shown below in 

Table III).
CMS-1632-P 1469

The geographic comparison shows that, on average, hospitals in all classifications 

(urban and rural) would experience an increase in capital IPPS payments per case in 

FY 2016 as compared to FY 2015. Capital IPPS payments per case for hospitals in 

“large urban areas” have an estimated increase of 2.2 percent, while hospitals in rural 

areas, on average, are expected to experience a 0.9 percent increase in capital payments 

per case from FY 2015 to FY 2016. Capital IPPS payments per case for “other urban 

hospitals” are estimated to increase 1.9 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 changes in the GAFs. Rural 

hospitals in all but two rural regions are projected to experience a decrease in capital 

payments due to the effect of proposed changes in the GAFs, while hospitals in only half 

of the urban regions are projected to experience a decrease in capital payments due to the 

effect of the proposed changes in the GAFs.

The comparisons by region show that the estimated increases in capital payments 

per case from FY 2015 to FY 2016 in urban areas range from a 2.7 percent increase for 

the Pacific urban region to a 1.5 percent increase for the East South Central and New 

England urban regions, and a 0.5 percent increase for Puerto Rico. For rural regions, the 

Pacific rural region is projected to experience the largest increase in capital IPPS 

payments per case of 1.8 percent; the Middle Atlantic rural region is projected to 

experience the smallest increase in capital IPPS payments per case of 0.3 percent; and the 

West South Central rural region is projected to have no change in capital payments per 

case in FY 2016 compared to FY 2015 payments per case. In most urban and rural
CMS-1632-P 1470

regions, proposed changes in the GAFs contribute to only a small projected increase in 

capital payments, for example, proposed changes in the GAFs are a major factor for the 

West South Central rural region, which is not expected to experience any increase in 

capital payments per case in FY 2016 compared to FY 2015. However, the proposed 

changes in the GAFs have the opposite effect for the Pacific urban and rural regions 

where they are a primary contributor to the expected larger than average increase in 

capital IPPS payments per case.

Hospitals of all types of ownership (that is, voluntary hospitals, government 

hospitals, and proprietary hospitals) are expected to experience an increase in capital 

payments per case from FY 2015 to FY 2016. The proposed increase in capital payments 

for voluntary and proprietary hospitals is estimated to be 1.9 percent. For government 

hospitals, the proposed increase is estimated to be 2.1 percent.

Section 1886(d)(10) of the Act established the MGCRB. Hospitals may apply for 

reclassification for purposes of the wage index for FY 2016. 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 2016, we show the proposed average capital payments per 

case for reclassified hospitals for FY 2016. Urban reclassified hospitals are expected 

experience an increase in capital payments of 2.4 percent; urban nonreclassified hospitals 

are expected to experience an increase in capital payments of 1.9 percent. The estimated 

percentage increase for rural reclassified hospitals is 1.3 percent, and for rural 

nonreclassified hospitals, the estimated percentage increase is 0.8 percent.
CMS-1632-P 1471

TABLE III.—COMPARISON OF TOTAL PAYMENTS PER CASE

[FY 2015 PAYMENTS COMPARED TO PROPOSED FY 2016 PAYMENTS]

Number of 

hospitals

Average 

FY 2015 

payments/ 

case

Average

Proposed

FY 2016 

payments/ 

case

Change

By Geographic Location:

All hospitals....................................................................................................... 3,366 873 890 2.0

Large urban areas (populations over 1 million).................................................. 1,390 965 986 2.2

Other urban areas (populations of 1 million of fewer) ........................................ 1,140 836 851 1.9

Rural areas ....................................................................................................... 836 592 598 0.9

Urban hospitals ................................................................................................ 2,530. 906 925 2.0

0-99 beds ...................................................................................................... 666 738 749 1.5

100-199 beds ................................................................................................ 777 791 806 1.8

200-299 beds ................................................................................................ 446 830 847 1.9

300-499 beds ................................................................................................ 428 921 941 2.1

500 or more beds .......................................................................................... 213 1,081 1,105 2.2

Rural hospitals ................................................................................................836 .. 592 598 0.9

0-49 beds ...................................................................................................... 329 491 497 1.2

50-99 beds .................................................................................................... 298 549 556 1.1

100-149 beds ................................................................................................ 121 592 597 0.8

150-199 beds ................................................................................................48 649 654 0.8

200 or more beds ..........................................................................................40 708 713 0.7

By Region:

Urban by Region ............................................................................................... 2,530 906 925 2.0

New England................................................................................................120. 995 1,010 1.5

Middle Atlantic............................................................................................... 318 1,006 1,030 2.4

South Atlantic................................................................................................ 407 804 820 2.0

East North Central......................................................................................... 396 871 888 1.9

East South Central ........................................................................................ 150 770 782 1.5

West North Central........................................................................................ 165 892 907 1.7

West South Central ....................................................................................... 382 823 838 1.9

Mountain ....................................................................................................... 161 937 955 1.9

Pacific ........................................................................................................... 380 1,151 1,182 2.7

Puerto Rico ...................................................................................................51 399 402 0.5

Rural by Region ................................................................................................ 836 592 598 0.9

New England.................................................................................................22 818 822 0.6

Middle Atlantic...............................................................................................55 581 583 0.3

South Atlantic................................................................................................ 128 555 563 1.4

East North Central......................................................................................... 116 617 625 1.2

East South Central ........................................................................................ 164 539 543 0.7

West North Central........................................................................................ 101 638 645 1.1

West South Central ....................................................................................... 165 525 525 0.0

Mountain .......................................................................................................61 665 675 1.4

Pacific ...........................................................................................................24 772 786 1.8

By Payment Classification:

All hospitals....................................................................................................... 3,366 873 890 2.0

Large urban areas (populations over 1 million).................................................. 1,383 966 987 2.2

Other urban areas (populations of 1 million of fewer) ........................................ 1,096 840 856 1.9

Rural areas ....................................................................................................... 887 605 610 0.8

Teaching Status:

Non-teaching................................................................................................ 2,325. 741 754 1.7

Fewer than 100 Residents............................................................................. 794 850 867 1.9

100 or more Residents .................................................................................. 247 1,231 1,260 2.4

Urban DSH:

100 or more beds ...................................................................................... 1,572 929 949 2.1
CMS-1632-P 1472

TABLE III.—COMPARISON OF TOTAL PAYMENTS PER CASE

[FY 2015 PAYMENTS COMPARED TO PROPOSED FY 2016 PAYMENTS]

Number of 

hospitals

Average 

FY 2015 

payments/ 

case

Average

Proposed

FY 2016 

payments/ 

case

Change

Less than 100 beds ................................................................................... 333 665 677 1.8

Rural DSH:

Sole Community (SCH/EACH)................................................................... 253 558 566 1.3

Referral Center (RRC/EACH) .................................................................... 220 663 667 0.7

Other Rural:

100 or more beds ..................................................................................33 586 577 -1.4

Less than 100 beds ............................................................................... 275 488 494 1.1

Urban teaching and DSH:

Both teaching and DSH................................................................................. 846 1,004 1,026 2.2

Teaching and no DSH................................................................................... 132 915 931 1.8

No teaching and DSH.................................................................................... 1,059 780 795 1.9

No teaching and no DSH............................................................................... 442 807 823 1.9

Rural Hospital Types:

Non special status hospitals .......................................................................... 2,701 901 920 2.1

RRC/EACH ................................................................................................... 211 728 735 1.0

SCH/EACH ................................................................................................... 327 666 674 1.3

SCH, RRC and EACH ................................................................................... 125 725 733 1.2

Hospitals Reclassified by the Medicare Geographic Classification 

Review Board:

FY2016 Reclassifications:

All Urban Reclassified ................................................................................... 585 926 949 2.4

All Urban Non-Reclassified............................................................................ 1,894 903 920 1.9

All Rural Reclassified .................................................................................... 276 627 636 1.3

All Rural Non-Reclassified............................................................................. 505 544 548 0.8

Other Reclassified Hospitals (Section 1886(d)(8)(B)) ....................................48 597 586 -1.8

Type of Ownership:

Voluntary....................................................................................................... 1,934 886 903 1.9

Proprietary .................................................................................................... 880 788 802 1.9

Government ................................................................................................529 .. 918 938 2.1

Medicare Utilization as a Percent of Inpatient Days:

0-25............................................................................................................... 713 979 1,000 2.2

25-50............................................................................................................. 2,110 874 891 1.9

50-65............................................................................................................. 332 739 752 1.7

Over 65 .........................................................................................................66 758 774 2.1
CMS-1632-P 1473

J. Effects of Proposed Payment Rate Changes and Policy Changes under the LTCH PPS

1. Introduction and General Considerations

In section VII. of the preamble 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 2016. 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.

There are 418 LTCHs included in this impacts analysis, which includes data for 

78 nonprofit (voluntary ownership control) LTCHs, 326 proprietary LTCHs, and 14

LTCHs that are government-owned and operated. (We note that, although there are 

currently approximately 430 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 2016 

MS-LTC-DRG relative weights (discussed in section VII.C.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 application of the new 

site neutral payment rate required by section 1886(m)(6)(A) of the Act (discussed in 
CMS-1632-P 1474

section VII.B. of the preamble of this proposed rule), the proposed 1.9 percent annual 

update to the LTCH PPS standard Federal payment rate in accordance with section 

1886(m)(5)(C) of the Act (which is based on the full estimated increase of the proposed 

LTCH PPS market basket and the reductions required by sections 1886(m)(3) and (m)(4) 

of the Act), the proposed update to the MS-LTC-DRG classifications and relative weights 

for the LTCH PPS standard Federal payment rate cases, the proposed update to the wage 

index values and labor-related share for the LTCH PPS standard Federal payment rate 

cases, and the best available claims and CCR data to estimate the proposed change in 

payments for FY 2016.

Under the new statutory dual-rate LTCH PPS structure, there will be two distinct 

payment rates for LTCH discharges beginning in FY 2016. Under this statutory change, 

as discussed in section VII.B. of the preamble of this proposed rule, we are proposing to 

provide payment for LTCH discharges that meet the criteria for exclusion from site 

neutral payment rate (that is, LTCH PPS standard Federal payment rate cases) based on 

the LTCH PPS standard Federal payment rate. In addition, consistent with the statute, we 

are proposing that the site neutral payment rate is the lower of the IPPS comparable per 

diem amount as determined under § 412.529(d)(4), including any applicable outlier 

payments as specified in § 412.525(a); or 100 percent of the estimated cost of the case as 

determined under existing § 412.529(d)(2). In addition, under our proposals, there would 

be two separate HCO targets -- one for LTCH PPS standard Federal payment rate cases 

and one for site neutral payment rate cases. The statute also establishes a transitional 

payment method for cases that will be paid the site neutral payment rate for LTCH 
CMS-1632-P 1475

discharges occurring in cost reporting periods beginning during FY 2016 or FY 2017. As 

discussed more fully in section VII.B.4.b. of the preamble of this proposed rule, the 

transitional payment amount for site neutral payment rate cases is a blended payment 

rate, which would be calculated as 50 percent of the applicable site neutral payment rate 

amount for the discharge as determined under proposed new § 412.522(c)(1) and 50 

percent of the applicable LTCH PPS standard Federal payment rate for the discharge 

determined under § 412.523.

Based on the best available data for the 418 LTCHs in our database that were 

considered in the analyses used for this proposed rule, we estimate that overall LTCH 

PPS payments in FY 2016 would decrease by approximately 4.6 percent (or about $251 

million). This projection takes into account estimated payments for LTCH cases that 

would have met the new statutory patient-level criteria and been paid the LTCH PPS 

standard Federal payment rate if that rate had been in effect at the time of the discharge, 

and estimated payments for LTCH cases that would not have met those new statutory 

patient-level criteria and been paid under the site neutral payment rate if that rate had 

been in effect at the time of the discharge described below.

Because the statute specifies that the site neutral payment rate effective date for a 

given LTCH is determined based on the date on which that LTCH’s cost reporting period 

begins on or after October 1, 2015, our estimate of FY 2016 LTCH PPS payments for site 

neutral payment rate cases includes an adjustment to account for this rolling effective 

date. Our proposed approach, applied to the FY 2014 data that were used for the analyses 

in this proposed rule, accounts for the fact that LTCHs with cost reporting periods that 
CMS-1632-P 1476

begin after October 1, 2015, will continue to be paid for all discharges (including those 

that do not meet the patient-level criteria for exclusion from the site neutral payment rate) 

at the LTCH PPS standard Federal payment rate until the start of their first cost reporting 

period beginning after October 1, 2015. Therefore, in order to estimate total LTCH PPS 

payments for site neutral payment rate cases in FY 2016, we first identified LTCHs with 

cost reporting periods that would begin in the first quarter of FY 2016 (that is, October 

through December 2015), and modeled those LTCHs estimated FY 2016 site neutral 

payment rate payments based on the proposed transitional blended payment rate. We 

then modeled the estimated first quarter FY 2016 payments to LTCHs with cost reporting 

periods that would begin after the first quarter of FY 2016 using the LTCH PPS standard 

Federal payment rate. We then identified the LTCHs with cost reporting periods that 

would begin in each of the remaining three quarters of FY 2016, and applied an 

analogous analysis to estimate payments in each respective quarter of FY 2016. (For full 

details on our proposed method of estimating payments under our proposals for FY 2016, 

we refer readers to the description presented in section V.D.4. of the Addendum to this 

proposed rule.) We believe that this approach is a reasonable means of taking the rolling 

effective date into account when estimating FY 2016 payments.

Based on the FY 2014 LTCH cases that were used for the analyses in this 

proposed rule, approximately 46 percent of LTCH cases would have been classified as 

site neutral payment rate cases if the site neutral payment rate had been in effect in 

FY 2014 (that is, 46 percent of such LTCH cases would not have met the patient-level

criteria for exclusion from the site neutral payment rate). Our Office of the Actuary 
CMS-1632-P 1477

estimates that the percent of LTCH PPS cases that will be paid at the site neutral payment 

rate in FY 2016 will not change significantly from the historical data. Taking into 

account the proposed transitional blended payment rate and other proposed policies 

applicable to the site neutral payment rate cases in FY 2016, and our approach to account 

for the rolling effective date for the new site neutral payment rate, we estimate that 

aggregate LTCH PPS payments for these site neutral payment rate cases will decrease by 

approximately 14.3 percent (or about $293 million).

Approximately 54 percent of LTCH cases are expected to meet the patient-level

criteria for exclusion from the site neutral payment rate in FY 2016, and be paid based on 

the LTCH PPS standard Federal payment rate for the full year. We estimate that total 

LTCH PPS payments for these LTCH PPS standard Federal payment rate cases in FY 

2016 would increase approximately 1.2 percent (or approximately $42 million). This 

estimated increase in LTCH PPS payments for LTCH PPS standard Federal payment rate 

cases in FY 2016 is primarily a result of the proposed 1.9 percent annual update to the 

LTCH PPS standard Federal payment rate for FY 2016 (discussed in section V.A. of the 

Addendum to this proposed rule) and an estimated decrease in HCO payments for these 

cases.

Based on the 418 LTCHs that were represented in the FY 2014 LTCH cases that 

were used for the analyses in this proposed rule, we estimate that aggregate FY 2016 

LTCH PPS payments would be approximately $5.169 billion, as compared to estimated 

aggregate FY 2015 LTCH PPS payments of approximately $5.420 billion, resulting in an 

estimated overall decrease in LTCH PPS payments of approximately $251 million. 
CMS-1632-P 1478

Because the combined distributional effects and estimated payment changes exceed 

$100 million, this proposed rule is a major economic rule. We note that this estimated 

$251 million decrease in LTCH PPS payments in FY 2016 (which includes estimated 

payments for LTCH PPS standard Federal payment rate cases and site neutral payment 

rate cases) does not reflect changes in LTCH admissions or case-mix intensity, which 

would also affect the overall payment effects of what is proposed in this rule.

The LTCH PPS standard Federal payment rate for FY 2015 is $41,043.71. For 

FY 2016, we are proposing to establish a LTCH PPS standard Federal payment rate of 

$41,883.93, which reflects the proposed 1.9 percent annual update to the LTCH PPS 

standard Federal payment rate and the proposed area wage budget neutrality factor of 

1.001444 to ensure that the proposed changes in the wage indexes and labor-related share 

do not influence aggregate payments. For LTCHs that fail to submit data for the LTCH 

QRP, in accordance with section 1886(m)(5)(C) of the Act, we are proposing to establish 

a LTCH PPS standard Federal payment rate of $41,061.87. This proposed reduced 

LTCH PPS standard Federal payment rate reflects the proposed updates described above 

as well as the required 2.0 percentage point reduction to the annual update for failure to 

submit data to the LTCH QRP. We note that the proposed factors described above to 

determine the FY 2016 LTCH PPS standard Federal payment rate are applied to the 

FY 2015 LTCH PPS standard Federal rate set forth under § 412.523(c)(3)(xi) (that is, 

$41,034.71).

Table IV (column 6) shows that the estimated change attributable solely to the 

proposed annual update to the LTCH PPS standard Federal payment rate is projected to 
CMS-1632-P 1479

result in an increase of 1.6 percent in payments per discharge for LTCH PPS standard 

Federal payment rate cases from FY 2015 to FY 2016, on average, for all LTCHs. In 

addition to the annual update to the LTCH PPS standard Federal payment rate for 

FY 2016, this estimated increase in aggregate proposed LTCH PPS payments to LTCH 

PPS standard Federal payment rate cases of 1.6 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 LTCH PPS standard Federal payment 

rate, as well as the penalty that is applied to the annual update of LTCHs that do not 

submit the required LTCH QRP data. Therefore, for all hospital categories, the projected 

increase in payments based on the LTCH PPS standard Federal payment rate to LTCH 

PPS standard Federal payment rate cases is somewhat less than the proposed 1.9 percent 

annual update for FY 2016.

As discussed in section V.B. of the Addendum to this proposed rule, we are 

proposing to update the wage index values for FY 2016 based on the most recent 

available data, and we are proposing to continue to use labor market areas based on the 

OMB CBSA delineations. In addition, we are proposing to slightly lower the 

labor-related share from 62.306 percent to 62.2 percent under the LTCH PPS for 

FY 2016, based on the most recent available data on the relative importance of the 

proposed labor-related share of operating and capital costs based on the FY 2009-based 

LTCH-specific market basket. We also are proposing to apply an area wage level budget 

neutrality factor of 1.001444 to ensure that the proposed changes to the wage data and 

labor-related share do not result in a change in estimated aggregate LTCH PPS payments 
CMS-1632-P 1480

to LTCH PPS standard Federal payment rate cases, which increases the proposed LTCH 

PPS standard Federal payment rate by approximately 0.14 percent. 

We currently estimate total HCO payments for LTCH PPS standard Federal 

payment rate cases are projected to decrease from FY 2015 to FY 2016. Using the 

FY 2014 LTCH cases that were used for the analyses in this proposed rule, we estimate 

that the FY 2015 HCO threshold of $14,972 (as established in the FY 2015 IPPS/LTCH 

PPS final rule) would result in estimated HCO payments for LTCH PPS standard Federal 

payment rate cases in FY 2015 that are above the estimated 8 percent target. 

Specifically, we currently estimate that HCO payments for LTCH PPS standard Federal 

payment rate cases will be approximately 8.6 percent of the estimated total LTCH PPS 

standard Federal payment rate payments in FY 2015. Combined with our estimate that 

FY 2016 HCO payments for LTCH PPS standard Federal payment rate cases would be 

8.0 percent of estimated total LTCH PPS standard Federal rate payments in FY 2016, this 

results in the estimated decrease of approximately 0.6 percent between FY 2015 and 

FY 2016.

In calculating these estimated HCO payments we increased estimated costs by our 

actuaries’ projected market basket percentage increase factor. This increase in estimated 

costs also results in a projected increase in SSO payments in FY 2016. We estimate that 

these increased SSO payments in FY 2016 would increase total payments for LTCH PPS 

standard Federal rate payment cases by 0.2 percent. (Payments for SSO cases represent 

approximately 12.5 percent of the estimated total LTCH PPS payments for standard 

Federal payment rate cases.)
CMS-1632-P 1481

Table IV below shows the estimated impact of the proposed payment rate and 

policy changes on LTCH PPS payments for LTCH PPS standard Federal payment rate

cases for FY 2016 by comparing estimated FY 2015 LTCH PPS payments to estimated 

FY 2016 LTCH PPS payments. (As noted earlier, our analysis does not reflect changes 

in LTCH admissions or case-mix intensity.) The projected increase in payments from 

FY 2015 to FY 2016 for LTCH PPS standard Federal payment rate cases of 1.2 percent is 

attributable to the impacts of the proposed change to the LTCH PPS standard Federal 

payment rate (1.6 percent in Column 6) and the effect of the estimated decrease in HCO 

payments for LTCH PPS standard Federal payment cases (-0.6 percent), and the 

estimated increase in proposed payments for SSO cases (0.2 percent).

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, which are projected to result in an overall decrease in estimated aggregate 

LTCH PPS payments, and the resulting LTCH PPS payment amounts would result in 

appropriate Medicare payments that are consistent with the statute.

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 1.2 percent increase in estimated payments for LTCH 

PPS standard Federal payment rate cases. This estimated impact is based on the FY 2014 

data for the 21 rural LTCHs (out of 418 LTCHs) that were used for the analyses in this 
CMS-1632-P 1482

proposed rule. We note that these impacts do not include LTCH PPS site neutral 

payment rate cases for the reasons discussed in section J.3 of this Appendix.

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.

Section 1886(m)(6)(A) of the Act establishes a new dual-rate LTCH PPS payment 

structure with two distinct payment rates for LTCH discharges beginning in FY 2016. As 

discussed in section VII.B. of the preamble of this proposed rule, under this statutory 

change, LTCH discharges that meet the patient-level criteria for exclusion from the site 

neutral payment rate (that is, LTCH PPS standard Federal payment rate cases) would be 

paid based on the LTCH PPS standard Federal payment rate. LTCH discharges that 

would be paid at the site neutral payment rate would generally be paid the lower of the 

IPPS comparable per diem amount, including any applicable HCO payments or 100 

percent of the estimated cost of the case. The statute also establishes a transitional 

payment method for cases that will be paid at the site neutral payment rate for LTCH 
CMS-1632-P 1483

discharges occurring in cost reporting periods beginning during FY 2016 or FY 2017, 

under which the site neutral payment rate cases would be paid a blended payment rate 

calculated as 50 percent of the applicable site neutral payment rate amount for the 

discharge and 50 percent of the applicable LTCH PPS standard Federal payment rate for 

the discharge. (For additional details on the proposed application of the site neutral 

payment rate beginning in FY 2016, we refer readers to section VII.B. of the preamble of 

this proposed rule.)

As discussed above in section I.J.1. of this Appendix, we project a decrease in 

aggregate LTCH PPS payments in FY 2016 of approximately $251 million. This 

estimated decrease in payments reflects the projected increase in payments to LTCH PPS 

standard Federal payment rate cases of approximately $42 million and the projected 

decrease in payments to site neutral payment rate cases of approximately $293 million 

under the new dual-rate LTCH PPS payment rate structure required by the statute 

beginning in FY 2016.

As discussed in section VII.B.7.b. of the preamble of this proposed rule, our 

actuaries project cost and resource changes for site neutral payment rate cases due to the 

site neutral payment rates required under the statute. Specifically, our actuaries project 

that the costs and resource use for cases paid at the site neutral payment rate would likely 

be lower, on average, than the costs and resource use for cases paid at the LTCH PPS 

standard Federal payment rate, and would likely mirror the costs and resource use for 

IPPS cases assigned to the same MS-DRG. While we are able to incorporate this 

projection at an aggregate level into our payment modeling, because the historical claims 
CMS-1632-P 1484

data that we are using in this proposed rule to project estimated FY 2016 LTCH PPS 

payments (that is, FY 2014 LTCH claims data) do not reflect this actuarial projection, we 

are unable to model the impact of the change in LTCH PPS payments for site neutral 

payment rate cases at the same level of detail with which we are able to model the 

impacts of the changes to LTCH PPS payments for LTCH PPS standard Federal payment 

rate cases. Therefore, Table IV below only reflects changes in LTCH PPS payments for 

LTCH PPS standard Federal payment rate cases and, unless otherwise noted, the 

remaining discussion in section J.3 refers only to the impact on LTCH PPS payments for 

LTCH PPS standard Federal payment rate cases. Below we present our provider impact 

analysis for the proposed changes that affect LTCH PPS payments for LTCH PPS

standard Federal payment rate cases.

b. Impact on Providers

Under the new dual-rate LTCH PPS payment structure, the statute establishes two 

distinct payment rates for LTCH discharges occurring in cost reporting periods beginning 

on or after October 1, 2015. Under that statute, any discharges that occur on or after 

October 1, 2015, but prior to the start of the LTCH’s FY 2016 cost reporting period will 

be paid at the LTCH PPS standard Federal payment rate. On or after the start of an 

LTCH’s FY 2016 cost reporting period, discharges are paid based on the nature of the 

case. As described previously, LTCH PPS standard Federal payment rate cases are 

defined as LTCH discharges that would meet the proposed patient-level criteria to be 

excluded from the typically lower site neutral payment rate, and site neutral payment rate 

cases are defined as LTCH discharges that would not meet the proposed patient-level
CMS-1632-P 1485

criteria and would generally be paid the generally lower site neutral payment rate. For 

discharges occurring in cost reporting periods beginning in FY 2016 or 2017, however, 

the statute specifies that site neutral payment rate cases will be paid based on a 

transitional payment method that would be calculated as 50 percent of the applicable site 

neutral payment rate amount and 50 percent of the applicable LTCH PPS standard 

Federal payment rate.

The basic methodology for determining a per discharge payment for LTCH PPS 

standard Federal payment rate cases is set forth under § 412.515 through § 412.536. In 

addition to adjusting the LTCH PPS standard Federal payment rate by the MS-LTC-DRG 

relative weight, we make adjustments to account for area wage levels and SSOs. LTCHs 

located in Alaska and Hawaii also have their payments adjusted by a COLA. As 

explained previously, under our proposed application of the new dual-rate LTCH PPS 

payment structure required under section 1886(m)(6) of the Act, the LTCH PPS standard 

Federal payment rate would generally only be used to determine payments for LTCH 

PPS standard Federal payment rate cases (that is, those LTCH PPS cases that meet the 

statutory criteria to be excluded from the site neutral payment rate). Under the new 

statutory changes to the LTCH PPS, LTCH discharges that would not meet the statutory 

patient-level criteria for exclusion would be paid the site neutral payment rate, which we 

are proposing to calculate as the lower of the IPPS comparable per diem amount as 

determined under § 412.529(d)(4), including any applicable outlier payments, or 100 

percent of the estimated cost of the case as determined under existing § 412.529(d)(2). In 

addition, when certain thresholds are met, LTCHs also would be able to receive HCO 
CMS-1632-P 1486

payments for both LTCH PPS standard Federal payment rate cases and site neutral 

payment rate cases that are paid at the IPPS comparable per diem amount.

To understand the impact of the changes to the LTCH PPS payments for LTCH 

PPS standard Federal payment rate cases presented in this proposed rule on different 

categories of LTCHs for FY 2016, it is necessary to estimate payments per discharge for 

FY 2015 using the rates, factors, and the policies established in the FY 2015 IPPS/LTCH 

PPS final rule and estimate payments per discharge for FY 2016 using the rates, factors, 

and the policies proposed in this FY 2016 IPPS/LTCH PPS proposed rule (as discussed in 

section VII. of the preamble of this proposed rule and section V. of the Addendum to this 

proposed rule). As discussed elsewhere in this rule, these estimates 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. The resulting analyses can then 

be used to compare how our proposals applicable to LTCH PPS standard Federal 

payment rate cases affect different groups of LTCHs.

For the following analysis, we group hospitals based on characteristics provided 

in the OSCAR data, FY 2012 through FY 2013 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.
CMS-1632-P 1487

c. Calculation of LTCH PPS Payments for LTCH PPS Standard Federal Payment Rate 

Cases

For purposes of this impact analysis, to estimate the per discharge payment effects 

of our proposed policies on payments for LTCH PPS standard Federal payment rate 

cases, we simulated FYs 2015 and 2016 payments on a case-by-case basis using 

historical LTCH claims from the FY 2014 MedPAR files that would have met the criteria 

to be paid at the LTCH PPS standard Federal payment rate if the statutory patient-level 

criteria had been in effect at the time of discharge for those cases. For modeling FY 2015 

LTCH PPS payments, we used the FY 2015 standard Federal rate of $41,043.71, or 

$40,240.51 for LTCHs that failed to submit quality data as required under the 

requirements of the LTCH QRP, which reflects the 2.0 percentage points reduction 

required by section 1886(m)(5)(C) of the Act. Similarly, for modeling FY 2016 LTCH 

PPS standard Federal rate payments, we used the proposed FY 2016 standard Federal 

payment rate of $41,883.93, or $41,061.87 for LTCHs that failed to submit quality data 

as required under the requirements of the LTCH QRP, again, to reflect the 2.0 percentage 

points reduction required by section 1886(m)(5)(C) of the Act. In each case, we applied 

the applicable adjustments for area wage levels and the COLA for LTCHs located in 

Alaska and Hawaii. Specifically, for modeling FY 2015 LTCH PPS payments, we used 

the current FY 2015 labor-related share (62.306 percent); the wage index values 

established in the Tables 12A through 12D listed in the Addendum to the FY 2015 

IPPS/LTCH PPS final rule (which are available via the Internet on the CMS Web site), 
CMS-1632-P 1488

including the transitional blended wage index for the implementation of the CBSA 

delineations in FY 2015; the FY 2015 fixed-loss amount for LTCH PPS standard Federal 

payment rate cases of $14,972 (as discussed in section V.D. of the Addendum to that 

final rule) and the FY 2015 COLA factors (shown in the table in section V.C. of the 

Addendum to that final rule) to adjust the FY 2015 nonlabor-related share (37.694 

percent) for LTCHs located in Alaska and Hawaii. Similarly, for modeling FY 2016

LTCH PPS payments, we used the proposed FY 2016 LTCH PPS labor-related share 

(62.2 percent), the proposed FY 2016 wage index values from Tables 12A and 12B listed

in section VI. of the Addendum to this proposed rule (which are also available via the 

Internet on the CMS Web site), the proposed FY 2016 fixed-loss amount for LTCH PPS 

standard Federal payment rate cases of $18,768 (as discussed in section V.D.3. of the 

Addendum to this proposed rule), and the proposed FY 2016 COLA factors (shown in the 

table in section V.C. of the Addendum to this proposed rule) to adjust the proposed 

FY 2016 nonlabor-related share (37.8 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 decrease in HCO payments for LTCH PPS 

standard Federal payment rate cases (as described previously in section J.1. of this 

Appendix). In modeling proposed payments for SSO and HCO cases for LTCH PPS 

standard Federal payment rate cases, we applied an inflation factor of 5.0 percent 

(determined by the Office of the Actuary) to update the 2014 costs of each case.

The impacts presented below reflect the estimated “losses” or “gains” among the 

various classifications of LTCHs from FY 2015 to FY 2016 based on the proposed 
CMS-1632-P 1489

payment rates and policy changes applicable to LTCH PPS standard Federal payment rate 

cases presented in this proposed rule. Table IV illustrates the estimated aggregate impact 

of the change in LTCH PPS payments for LTCH PPS standard Federal payment rate 

cases among various classifications of LTCHs. (As discussed previously, these impacts 

do not include LTCH PPS site neutral payment rate cases.)

● 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 expected to meet the 

LTCH PPS standard Federal payment rate criteria.

● The fourth column shows the estimated FY 2015 payment per discharge for 

LTCH cases expected to meet the LTCH PPS standard Federal payment rate criteria (as 

described above).

● The fifth column shows the estimated FY 2016 payment per discharge for 

LTCH cases expected to meet the LTCH PPS standard Federal payment rate criteria (as 

described above).

● The sixth column shows the percentage change in estimated payments per 

discharge for LTCH cases expected to meet the LTCH PPS standard Federal payment 

rate criteria from FY 2015 to FY 2016 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).

● The seventh column shows the percentage change in estimated payments per 

discharge for LTCH cases expected to meet the LTCH PPS standard Federal payment 

rate criteria from FY 2015 to FY 2016 for proposed changes to the area wage level 
CMS-1632-P 1490

adjustment (that is, the proposed wage indexes and the proposed labor-related share), 

including the application of a proposed area wage level budget neutrality factor (as 

discussed in section V.B. of the Addendum to this proposed rule).

● The eighth column shows the percentage change in estimated payments per 

discharge for LTCH cases expected to meet the LTCH PPS standard Federal payment 

rate criteria from FY 2015 (Column 4) to FY 2016 (Column 5) for all proposed changes 

(and includes the effect of estimated changes to HCO and SSO payments).
CMS-1632-P 1491

TABLE IV: IMPACT OF PROPOSED PAYMENT RATE AND POLICY 

CHANGES TO LTCH PPS PAYMENTS FOR STANDARD PAYMENT RATE 

CASES FOR FY 2016 (ESTIMATED FY 2015 PAYMENTS COMPARED TO 

ESTIMATED FY 2016 PAYMENTS)

LTCH Classification

(1)

Number 

of 

LTCHs

(2)

Number of 

LTCH PPS 

Standard 

Federal 

Payment 

Rate Cases 

(3)

Average 

FY 2015 

LTCH PPS 

Payment 

Per Case 

(4)

Proposed 

Average 

FY 2016 

LTCH PPS 

Standard 

Federal 

Payment Rate 

Payment 

Per Case1

(5)

Proposed

Percent 

Change in 

Payments 

Per Case 

Due to the 

Annual 

Update to 

the LTCH 

PPS

Standard 

Federal 

Rate2

(6)

Proposed

Percent Change 

in Payments Per 

Case Due to 

Proposed 

Changes to the 

Area Wage 

Level Adjustment 

with Budget 

Neutrality3

(7)

Proposed

Percent 

Change in 

Payments 

Per Case 

from 

FY 2015 to 

FY 2016 for 

All 

Proposed 

Changes4

(8)

ALL PROVIDERS 416 73,427 $46,024 $46,564 1.6 0.0 1.2

BY LOCATION:

 RURAL 21 2,156 $39,110 $39,284 1.5 -0.8 0.4

 URBAN 395 71,271 $46,233 $46,784 1.6 0.0 1.2

 LARGE 197 42,434 $48,434 $49,023 1.6 0.1 1.2

 OTHER 198 28,837 $42,993 $43,489 1.6 -0.2 1.2

BY PARTICIPATION DATE:

 BEFORE OCT. 1983 13 

 

2,057 $42,043 $43,120 1.6 0.7 2.6

 OCT. 1983 - SEPT. 1993 43 9,076 $51,663 $52,209 1.6 0.1 1.1

 OCT. 1993 - SEPT. 2002 179 32,454 $44,666 $45,290 1.7 0.0 1.4

 OCTOBER 2002and AFTER 181 29,840 $46,059 $46,469 1.6 -0.1 0.9

BY OWNERSHIP TYPE:

 VOLUNTARY 77 9,907 $46,853 $47,348 1.6 0.0 1.1

 PROPRIETARY 326 62,153 $45,776 $46,324 1.6 0.0 1.2

 GOVERNMENT 13 

 

1,367 $51,255 $51,789 1.6 -0.1 1.0

BY REGION:

 NEW ENGLAND 13 2,907 $41,660 $42,687 1.5 0.7 2.5

 MIDDLE ATLANTIC 28 5,296 $51,636 $51,981 1.7 -0.1 0.7

 SOUTH ATLANTIC 61 12,072 $46,280 $46,832 1.6 0.1 1.2

 EAST NORTH CENTRAL 69 12,164 $46,524 $47,034 1.7 0.0 1.1

 EAST SOUTH CENTRAL 33 5,146 $44,648 $44,996 1.6 0.0 0.8

 WEST NORTH CENTRAL 25 3,777 $46,228 $46,678 1.6 -0.2 1.0

 WEST SOUTH CENTRAL 129 19,498 $40,447 $41,060 1.6 -0.1 1.5

 MOUNTAIN 33 4,245 $46,867 $47,528 1.6 0.2 1.4

 PACIFIC 25 8,322 $56,266 $56,714 1.6 -0.2 0.8

BY BED SIZE:

 BEDS: 0-24 27 1,517 $42,268 $42,916 1.6 0.5 1.5

 BEDS: 25-49 191 24,668 $44,141 $44,640 1.6 -0.1 1.1

 BEDS: 50-74 119 20,342 $46,764 $47,129 1.6 -0.3 0.8

 BEDS: 75-124 46 12,998 $49,200 $49,817 1.6 0.2 1.3

 BEDS: 125-199 21 7,703 $45,705 $46,370 1.6 0.1 1.5

 BEDS: 200 + 12 6,199 $45,741 $46,676 1.7 0.3 2.0
CMS-1632-P 1492

1 Estimated FY 2016 LTCH PPS payments to LTCH cases that are expected to meet the LTCH PPS 

standard Federal payment rate criteria based on the proposed payment rate and factor changes applicable to 

LTCH PPS standard Federal payment rate cases presented in the preamble of and the Addendum to this 

proposed rule.

2

Percent change in estimated payments per discharge for LTCH cases that are expected to meet the LTCH 

PPS standard Federal payment rate criteria from FY 2015 to FY 2016 for the proposed annual update to the 

LTCH PPS standard Federal rate.

3

Percent change in estimated payments per discharge for LTCH cases that are expected to meet the LTCH 

PPS standard Federal payment rate criteria from FY 2015 to FY 2016 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).

4

Percent change in estimated payments per discharge for LTCH cases that are expected to meet the LTCH 

PPS standard Federal payment rate criteria from FY 2015 (shown in Column 4) to FY 2016 (shown in

Column 5), including all of the proposed changes to the rates and factors applicable to LTCH PPS standard 

Federal payment rate cases presented in the preamble and the Addendum to this proposed rule. Note, this 

column, which shows the percent change in estimated payments per discharge for all proposed changes, 

does not equal the sum of the percent changes in estimated payments per discharge for the proposed annual 

update to the LTCH PPS standard Federal payment rate (column 6) and the proposed changes to the area 

wage level adjustment with budget neutrality (Column 7) due to the effect of estimated changes in both 

estimated payments to SSO cases that are paid based on estimated costs and aggregate HCO payments for 

LTCH cases that are expected to meet the LTCH PPS standard Federal payment rate criteria (as discussed 

in this impact analysis), as well as other interactive effects that cannot be isolated.

d. Results

Based on the FY 2014 LTCH cases (from 418 LTCHs) that were used for the 

analyses in this proposed rule, we have prepared the following summary of the impact (as 

shown above in Table IV) of the proposed LTCH PPS payment rate and proposed policy 

changes for LTCH PPS standard Federal payment rate cases presented in this proposed 

rule. The impact analysis in Table IV shows that estimated payments per discharge for 

LTCH PPS standard Federal payment rate cases are expected to increase 1.2 percent, on 

average, for all LTCHs from FY 2015 to FY 2016 as a result of the proposed payment 

rate and policy changes applicable to LTCH PPS standard Federal payment rate cases 

presented in this proposed rule. This estimated 1.2 percent increase in LTCH PPS 

payments per discharge to LTCH PPS standard Federal payment rate cases from FY 2015 

to FY 2016 for all LTCHs (as shown in Table IV) was determined by comparing 
CMS-1632-P 1493

estimated FY 2016 LTCH PPS payments (using the proposed payment rates and factors 

discussed in this proposed rule) to estimated FY 2015 LTCH PPS payments for LTCH 

discharges which would be LTCH PPS standard Federal payment rate cases if the new 

statutory dual-rate LTCH PPS payment structure had been in effect at the time of the 

discharge (as described in section I.J.3. of this Appendix).

As stated previously, we are proposing to update the LTCH PPS standard Federal 

payment rate for FY 2016 by 1.9 percent based on the latest estimate of the LTCH PPS 

market basket increase (2.7 percent), the proposed reduction of 0.6 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 LTCH QRP, as required by section 1886(m)(5)(C) of the Act, a 2.0 

percentage point reduction would be applied to the proposed annual update to the 

standard Federal rate. As explained earlier in this section, for most categories of LTCHs 

(as shown in Table IV, Column 6), the proposed payment increase due to the proposed 

1.9 percent annual update to the LTCH PPS standard Federal payment rate is projected to 

result in approximately a 1.6 percent increase in estimated payments per discharge for 

LTCH PPS standard Federal payment rate cases for all LTCHs from FY 2015 to 

FY 2016. This is because our estimate of the proposed changes in payments due to the 

proposed update to the LTCH PPS standard Federal payment rate also reflects estimated 

payments for SSO cases that will be paid using special methodologies that are not 

affected by the update to the LTCH PPS standard Federal payment rate. Consequently, 

we estimate that proposed payments to LTCH PPS standard Federal payment rate cases 
CMS-1632-P 1494

may increase by less than 1.9 percent for certain hospital categories due to the proposed 

annual update to the LTCH PPS standard Federal payment rate for FY 2016.

(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 3 percent of all LTCH PPS standard Federal 

payment rate cases are expected to be treated in these rural hospitals. The impact 

analysis presented in Table IV shows that the overall average percent increase in 

estimated payments per discharge for LTCH PPS standard Federal payment rate cases 

from FY 2015 to FY 2016 for all hospitals is 1.2 percent. For rural LTCHs, the overall 

percent change for LTCH PPS standard Federal payment rate cases is estimated to be a 

0.4 percent increase, while for urban LTCHs, we estimate the increase would be 1.2 

percent. Both large urban and other urban LTCHs are projected to experience an increase 

of 1.2 percent in estimated payments per discharge for LTCH PPS standard Federal 

payment rate cases from FY 2015 to FY 2016, 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 expected percentage of LTCH PPS 

standard Federal payment rate cases (approximately 44 percent) are in LTCHs that began 

participating in the Medicare program between October 1993 and September 2002, and 
CMS-1632-P 1495

they are projected to experience a 1.4 percent increase in estimated payments per 

discharge for LTCH PPS standard Federal payment rate cases from FY 2015 to FY 2016, 

as shown in Table IV.

Approximately 3 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 (2.6 percent) in estimated payments per discharge for LTCH 

PPS standard Federal payment rate cases from FY 2015 to FY 2016, as shown in 

Table IV, which is primarily due to a projected larger than average increase in payments 

due to the proposed changes to the area wage adjustment. Approximately 10 percent of 

LTCHs began participating in the Medicare program between October 1983 and 

September 1993. These LTCHs are projected to experience a 1.1 percent increase in 

estimated payments for LTCH PPS standard Federal payment rate cases from FY 2015 to 

FY 2016. LTCHs that began participating in the Medicare program after 

October 1, 2002, which treat approximately 40 percent of all LTCH PPS standard Federal 

payment rate cases, are projected to experience a 0.9 percent increase in estimated 

payments from FY 2015 to FY 2016.

(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 19 percent of LTCHs are identified as voluntary (Table IV). The majority 

(nearly 78 percent) of LTCHs are identified as proprietary while government-owned and 

operated LTCHs represent approximately 3 percent of LTCHs. Based on ownership type, 
CMS-1632-P 1496

voluntary LTCHs are expected to experience an average increase in payments to LTCH 

PPS standard Federal payment rate cases of 1.1 percent; proprietary LTCHs are expected 

to experience an increase of 1.2 percent in payments to LTCH PPS standard Federal 

payment rate cases, while government-owned and operating LTCHs are expected to 

experience an increase in payments to LTCH PPS standard Federal payment rate cases of 

1.0 percent from FY 2015 to FY 2016.

(4) Census Region

Estimated payments per discharge for LTCH PPS standard Federal payment rate 

cases for FY 2016 are projected to increase for LTCHs located in all regions in 

comparison to FY 2015. Of the 9 census regions, we project that the increase in 

estimated payments per discharge to LTCH PPS standard Federal payment rate cases 

would have the largest positive impact on LTCHs in the New England region (2.5 percent 

as shown in Table IV), which is largely attributable to the proposed changes in the area 

wage level adjustment.

In contrast, LTCHs located in the Middle Atlantic, East South Central, and Pacific 

regions are projected to experience the smallest increase in estimated payments per 

discharge for LTCH PPS standard Federal payment rate cases from FY 2015 to FY 2016. 

The lower than national average estimated increase in payments of 0.7 percent for the 

Middle Atlantic regions and 0.8 percent for the East South Central and Pacific regions is 

primarily due to estimated decreases in payments associated with the proposed changes to 

the area wage level adjustment.
CMS-1632-P 1497

(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. All bed size 

categories are projected to receive an increase in estimated payments per discharge for 

LTCH PPS standard Federal payment rate cases from FY 2015 to FY 2016. We project 

that large LTCHs (200+ beds) would experience a 2.0 percent increase in payments for 

LTCH PPS standard Federal payment rate cases, which is higher than the national 

average mostly due to a larger than average increase from the proposed area wage level 

adjustment. Similarly, we project that both small LTCHs (0 - 24 beds) and relatively 

large LTCHs (125 – 199 beds) would experience a 1.5 percent increase in payments for 

LTCH PPS standard Federal payment rate cases, which is also higher than the national 

average mostly due to increases in the proposed area wage level adjustment. LTCHs 

with 25 to 49 beds and 75 to 124 beds are expected to experience a nearly average 

increase in payments per discharge for LTCH PPS standard Federal payment rate cases 

from FY 2015 to FY 2016 (1.1 percent and 1.3 percent, respectively), while LTCHs with 

between 50 and 74 beds are expected to experience a smaller than average increase in 

payments per discharge for LTCH PPS standard Federal payment rate cases from 

FY 2015 to FY 2016 (0.8 percent).

4. Effect on the Medicare Program

As stated previously, we project that the provisions of this proposed rule would 

result in an increase in estimated aggregate LTCH PPS payments to LTCH PPS standard 

Federal payment rate cases in FY 2016 relative to FY 2015 of approximately $42 million 
CMS-1632-P 1498

(or approximately 1.2 percent) for the 418 LTCHs in our database. Although, as stated 

previously, the hospital-level impacts do not include LTCH PPS site neutral payment rate 

cases, we estimate that the provisions of this proposed rule would result in a decrease in 

estimated aggregate LTCH PPS payments to site neutral payment rate cases in FY 2016 

relative to FY 2015 of approximately $293 million (or approximately 14.3 percent) for 

the 418 LTCHs in our database. Therefore, we project that the provisions of this 

proposed rule would result in a decrease in estimated aggregate LTCH PPS payments to 

all cases in FY 2016 relative to FY 2015 of approximately $251 million (or 

approximately 4.6 percent) for the 418 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 as a result of this proposed rule, but 

we continue to expect that paying prospectively for LTCH services will enhance the 

efficiency of the Medicare program.
CMS-1632-P 1499

K. Effects of Proposed Requirements for the Hospital Inpatient Quality Reporting (IQR) 

Program

In section VIII.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 2018 payment determination.

In this proposed rule, we are proposing to remove nine measures from the 

Hospital IQR Program for the FY 2018 payment determination and subsequent years:

● STK-01 Venous Thromboembolism (VTE) Prophylaxis (NQF #0434);

● STK-06: Discharged on Statin Medication* (NQF #0439);

● STK-08: Stroke Education* (NQF endorsement removed);

● 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);

● AMI-7a Fibrinolytic Therapy Received Within 30 Minutes of Hospital 

Arrival* (NQF #0164);

● IMM-1 Pneumococcal Immunization (NQF #1653); and 

● SCIP-Inf-4 Cardiac Surgery Patients with Controlled Postoperative Blood 

Glucose (NQF #0300).
CMS-1632-P 1500

(An asterisk (*) indicates that the measure is proposed for retention as an 

electronic clinical quality measure for the FY 2018 payment determination in 

section VIII.A.8. of the preamble of this proposed rule.)

The anticipated effect of removing these measures would be a reduction in the 

burden associated with the collection of chart-abstracted data. Due to the burden 

associated with the collection of chart-abstracted data, we estimate that the proposed 

removal of AMI-7a would result in a burden reduction of approximately 219,000 hours 

across all hospitals. We estimate that the proposed removal of the 6 VTE and STK 

chart-abstracted measures would result in a burden reduction of approximately 

522,000 hours across all hospitals. The remaining two measures proposed for removal 

have been previously suspended from the Hospital IQR Program. Therefore, their 

proposed removal would not affect burden to hospitals. In total, we estimate that the 

removal of 6 measures would result in a total burden reduction of approximately 741,000 

hours for the FY 2018 payment determination across all hospitals.

We are retaining six of the chart-abstracted measures proposed for removal as 

electronic clinical quality measures. We believe that retaining a variety of electronic 

clinical quality measures would result in increased hospital familiarity with electronic 

reporting. We further believe retaining some measures as electronic clinical quality 

measures would not affect the overall burden, as these measures were available for 

electronic reporting under previous requirements.

In this proposed rule, we are proposing refinements to the measure cohorts for: 

(1) the Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR) 
CMS-1632-P 1501

Following Pneumonia Hospitalization measure (NQF #0468); and (2) the Hospital 

30-Day, All-Cause, Risk-Standardized Readmission Rate (RSRR) Following Pneumonia 

Hospitalization measure (NQF #0506). Expanding the measure cohort to include a 

broader population of patients adds a large number of patients, as well as additional 

hospitals, to the CMS 30-day Pneumonia RSMR and RSRR measures. However, this 

expansion would not affect the burden on hospitals or hospital performance on the 

Hospital IQR Program because these measures are claims-based and, therefore, require 

no additional effort on hospitals’ part to submit the required data.

We also are proposing to add eight additional measures to the Hospital IQR 

Program measure set beginning with the FY 2018 payment determination and for 

subsequent years. Seven of these measures are claims-based, and one measure is 

structural. The eight proposed new measures are:

● Hospital Survey on Patient Safety Culture (structural);

● Kidney/UTI Clinical Episode-Based Payment (claims-based);

● Cellulitis Clinical Episode-Based Payment (claims-based);

● Gastrointestinal Hemorrhage Clinical Episode-Based Payment (claims-based);

● (Lumbar Spine Fusion/Re-Fusion Clinical Episode-Based Payment 

(claims-based);

● Hospital-Level, Risk-Standardized Payment Associated with an 

Episode-of-Care for Primary Elective THA/TKA (claims-based);

● Excess Days in Acute Care after Hospitalization for Acute Myocardial 

Infarction (claims-based); and
CMS-1632-P 1502

● Excess Days in Acute Care after Hospitalization for Heart Failure 

(claims-based).

We believe adopting the seven claims-based measures above would have no 

effect on hospital burden because they do not require additional effort on the part of 

hospitals. We further believe adopting the Hospital Survey on Patient Safety Culture 

measure would have a negligible effect on hospital burden, but may result in hospital 

staff spending time to respond to the Survey.

For the FY 2018 payment determination and subsequent years, we also are 

proposing to require hospitals to submit 16 measures electronically using CEHRT 2014 

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 believe this proposal would increase the burden associated 

with electronic clinical quality measure reporting because electronic reporting was 

previously voluntary. The total burden increase is estimated to be 5 hours and 20 minutes 

per hospital.

We note that we are proposing to change the requirements for population and 

sampling such that hospitals would be required to submit population and sample size data 

only for those measures that a hospital submits as chart-abstracted measures under the 

Hospital IQR Program. We believe this proposal would result in a minimal decrease in 

burden as hospitals would not have to report population and sample size if they 

electronically report any of the measures that can be reported either as an electronic 

clinical quality measure or via chart-abstraction.
CMS-1632-P 1503

We also note that we are proposing to modify the existing processes for validation 

of chart-abstracted Hospital IQR Program data to remove one stratum. This proposal 

would not affect hospital burden. Detailed information on the estimated burden 

specifically associated with information collection for the Hospital IQR Program for the 

FY 2018 payment determination is included in section X.B.6 of the preamble of this 

proposed rule.

In addition to the activities described above, participation in the Hospital IQR 

Program requires hospitals to participate in a number of other activities, including: 

(1) reviewing reports for claims-based measure sets; (2) completing HAI validation 

templates for CLABSI and CAUTI; (3) completing HAI validation templates for MRSA 

bacteremia and CDI; and (4) completing other forms and structural measures. The 

cumulative effects of these activities on facility burden are expected to be substantially 

similar to that stated for FY 2017.

In general, however, we anticipate that, because of the new requirements we are 

proposing for reporting for the FY 2018 payment determination (if finalized), the number 

of hospitals not receiving the full annual percentage increase may be higher than average. 

Information is not available to determine the precise number of hospitals that would not 

meet the proposed requirements to receive the full annual percentage increase for the 

FY 2018 payment determination. Historically, 100 hospitals, on average, 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 2018 payment determination (if finalized), the number of hospitals 
CMS-1632-P 1504

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 the new requirements, we anticipate that, over 

the long run, this number would decline as hospitals gain more experience with these 

requirements.

Finally, under OMB Control Number 0938-1022, we estimated that the total 

burden for the FY 2017 payment determinations was 1,781 hours per hospital and 5.9 

million hours across approximately 3,300 hospitals participating in the Hospital IQR 

Program. We estimate here that the total burden for the FY 2018 payment determination 

would increase to 2,293 hours per hospital and 7.6 million hours across approximately 

3,300 hospitals due to the proposals discussed above and updates to the historical data 

used to determine the number of cases reported and time for reporting per measure set. 

The table below describes the hospital burden associated with the Hospital IQR Program 

requirements.
CMS-1632-P 1505

Burden Impact of Hospital IQR Program Requirements for FY 2018

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 1,131 hours 906 hours -225 hours

Review reports 

for claims-based 

measures

3,300 4 hours 4 hours 0

Electronic 

Clinical Quality 

Measure 

Reporting

Unknown 0 hours (electronic 

clinical quality 

measure reporting 

voluntary for 

FY 2017)

5 hours 20 minutes +5 hours 20 

minutes

Validation 

templates

Up to 600 72 hours 107 hours +35 hours

Electronic 

Clinical Quality 

Measure 

validation test

Up to 100 16 hours 0 hours (no test this 

year)

-16 hours

Validation 

charts 

photocopying

Up to 600 $8,496 $12,960 +$4,464

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.

L. Effects of Proposed Requirements for the PPS-Exempt Cancer Hospital Quality 

Reporting (PCHQR) Program for FY 2018

In section VIII.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), 
CMS-1632-P 1506

which we refer to as the PPS-Exempt Cancer Hospital Quality Reporting (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 section VIII.B.3. of the preamble of this proposed rule, we are proposing that 

PCHs will submit data on three additional measures beginning with the FY 2018 

program: (1) the CDC NHSN Facility-Wide Inpatient Hospital-Onset 

Methicillin-Resistant Staphylococcus aureus (MRSA) Bacteremia Outcome Measure 

(NQF #1716); (2) the CDC NHSN Facility-Wide Inpatient Hospital-Onset Clostridium 

difficile Infection (CDI) Outcome Measure (NQF #1717); and, (3) the CDC NHSN 

Influenza Vaccination Coverage Among Healthcare Personnel Measure (NQF #0431). In 

conjunction with our proposal in section VIII.B.2. of the preamble of this proposed rule 

to remove the six SCIP measures from the PCHQR Program beginning with fourth 

quarter (Q4) 2015 discharges and for subsequent years, the PCHQR measure set would 

consist of 16 measures for the FY 2018 program.

The impact of the proposed new requirements for the PCHQR Program is 

expected to be minimal overall because all 11 PCHs are already submitting quality 

measure data to the CDC NHSN and are familiar with this reporting process. Beginning 

with Q1 2013 events, PCHs have been submitting Central Line-associated Bloodstream 

Infection (CLABSI) and Catheter-Associated Urinary Tract Infection (CAUTI) data to 

the CDC NHSN (77 FR 53566). Similarly, beginning with Q1 2014 events, PCHs have 

been submitting Surgical Site Infections (SSI) data to the CDC NHSN (78 FR 50849). 

As a result, PCHs are familiar with the CDC NHSN IT infrastructure and programmatic 
CMS-1632-P 1507

operations. In addition to fostering transparency and facilitating public reporting, we 

believe our requirements uphold our goals in improving quality of care and achieving 

better health outcomes, which outweighs 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, healthcare associated infection prevention programs, and 

research and development activities, among others.

M. Effects of Proposed Requirements for the Long-Term Care Hospital Quality 

Reporting Program (LTCH QRP) for FY 2018

In section VIII.C.1. 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) and (F) 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.
CMS-1632-P 1508

In the FY 2015 IPPS/LTCH PPS final rule (76 FR 50443 through 50445), 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 LTCH QRP. There are 

approximately 442 LTCHs currently reporting quality data to CMS. At the time that this 

analysis was prepared, 47, or approximately 10 percent, of these LTCHs did not receive 

the full annual percentage increase for the FY 2015 annual payment update 

determination. Information is not available to determine the precise number of LTCHs 

that will not meet the requirements to receive the full annual percentage increase for the 

FY 2016 payment determination.

We believe that a majority of LTCHs will continue to collect and submit data for 

the FY 2017 payment determination and subsequent years because they will continue to 

view the LTCH QRP as an important step in improving the quality of care patients 

receive in the LTCHs. We believe that the burden associated with the LTCH QRP is the 

time and effort associated with data collection.

In this FY 2016 IPPS/LTCH PPS proposed rule, we are retaining 12 previously 

finalized measures, two of which we are proposing in order to establish their use as 

cross-setting measures that satisfy the required addition of quality measures under the 

domains of skin integrity and incidence of major falls, as mandated by the section 1899B 

of the Act: Percent of Residents or Patients with Pressure Ulcers That Are New or 

Worsened (Short Stay) (NQF #0678), and an Application of Percent of Residents 

Experiencing One or More Falls with Major Injury (Long Stay) (NQF #0674). We are 

proposing a third previously finalized measure, All-Cause Unplanned Readmission 
CMS-1632-P 1509

Measure for 30 Days Post-Discharge From LTCHs (NQF #2512), in order to establish the 

newly NQF-endorsed status of this measure. Finally, we are proposing the application of 

Percent of LTCH Patients With an Admission and Discharge Functional Assessment and 

a Care Plan That Addresses Function (NQF #2631; under review), which satisfies the 

addition of a quality measure under the third initially required domain of functional 

status, as mandated by section 1899B of the Act.

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50443 through 50445) we 

discussed burden estimates that were inclusive of the 12 previously finalized measures 

we are retaining in this proposed rule. We previously estimated the total cost for all 

12 quality measures to be $17,410 per LTCH annually, or $7,695,423 for all LTCHs 

annually (79 FR 50443 through 50445); or $2,992,384 for all quality measures reported 

via the CDC’s NHSN; and $4,703,039 for all quality measures reported to CMS using the 

LTCH CARE Data Set version 2.0. For a list of the 12 previously finalized measures 

included in the above burden estimate, we refer readers to the FY 2015 IPPS/LTCH PPS 

final rule.

The burden calculation discussed in the FY 2015 IPPS/LTCH PPS final rule 

(79 FR 50443 through 50445) accounts for any burden associated with newly proposed 

measures in this FY 2016 IPPS/LTCH PPS proposed rule. The measure Percent of 

Residents or Patients with Pressure Ulcers That Are New or Worsened (Short Stay) 

(NQF #0678) is currently being reported by LTCHs using version 2.01 of the LTCH 

CARE Data Set, which has burden approval under OMB control number 0938-1163. The 

burden associated with the proposed application of the measure Percent of Residents 
CMS-1632-P 1510

Experiencing One or More Falls with Major Injury (Long Stay) (NQF #0674) is 

discussed at length in the FY 2015 IPPS/LTCH PPS final rule, and is included in the 

above total annual burden figures in that rule, as well as listed above.

The measure All-Cause Unplanned Readmission Measure for 30 Days 

Post-Discharge from LTCHs (NQF #2512) is calculated based on CMS FFS claims data, 

and therefore does not have any associated data reporting burden for LTCH providers.

The new quality measure we are proposing to include in the LTCH QRP,

Cross-Setting Functional Status Process Measure: Percent of Patients or Residents with 

an Admission and Discharge Functional Assessment and a Care Plan that Addresses 

Function, is not specifically discussed in the FY 2015 IPPS/LTCH PPS final rule. 

However, the data elements used to report this quality measure to CMS are included in 

that discussion and burden estimate in that final rule, because we are proposing to use a 

subset of the same data elements that are used to report the previously finalized measure 

Percent of Long-Term Care Hospital Patients with an Admission and Discharge 

Functional Assessment and a Care Plan That Addresses Function, which is included in 

that burden estimate. Therefore, the proposed addition of this quality measure to the 

LTCH QRP does not increase burden on LTCHs.

Currently, LTCHs use two separate data collection mechanisms to report quality 

data to CMS: the CDC’s NHSN, which is used to report all Healthcare Associated 

Infection (HAI) and vaccination data (used to calculate CAUTI, CLABSI, MRSA, CDI, 

VAE, and healthcare personnel Influenza vaccination measures); and the Quality 

Improvement and Evaluation System Assessment Submission and Processing 
CMS-1632-P 1511

(QIES-ASAP) system, which is used by LTCHs to report quality data via the LTCH 

CARE Data Set.

The data collection burden associated with the reporting of the quality measures 

(HAI and vaccination) reported via the CDC’s NHSN is discussed in the FY 2015 

IPPS/LTCH PPS final rule (79 FR 50443 through 50445). However, we note that these 

measures are stewarded by the CDC, and the reporting burden is approved under OMB 

control number 0920-0666.

The remaining quality measures are reported to CMS by LTCHs using the LTCH 

CARE Data Set (LCDS). Currently, LTCHs are using version 2.01 of the LCDS

(approved under OMB control number 0938-1163) which includes data elements related 

to two quality measures: Percent of Patients or Residents with Pressure Ulcers that are 

new or Worsened (NQF #0678), and Percent of Residents or Patients Who Were 

Assessed and Appropriately Given the Seasonal Influenza Vaccine (NQF #0680).

We have developed a subsequent iteration of the LCDS (version 3.0), which will 

also include data elements for the three quality measures we previously finalized in the 

FY 2015 IPPS/LTCH PPS final rule: Application of Percent of Residents Experiencing 

One or More Falls with Major Injury (Long Stay) (NQF #0674); Percent of Long-Term 

Care Hospital Patients with an Admission and Discharge Functional Assessment and a 

Care Plan That Addresses Function (NQF #2631- under NQF review); and Functional 

Status Outcome Measure: Change in Mobility Among Long-Term Care Hospital Patients 

Requiring Ventilator Support (NQF #2632 – under NQF review). We refer readers to 
CMS-1632-P 1512

section X.B.9. of the preamble of this proposed rule for a discussion of the additional data 

elements in Version 3.0 of the LCDS.

Version 3.0 of the LTCH CARE Data Set will also be used to report the newly 

proposed measure Cross-Setting Functional Status Process Measure: Percent of Patients

or Residents with an Admission and Discharge Functional Assessment and a Care Plan 

that Addresses Function. However, the data items that will inform this measure are a 

subset of the data elements currently used to report the LTCH-specific measure, Percent 

of Long-Term Care Hospital Patients with an Admission and Discharge Functional 

Assessment and a Care Plan That Addresses Function (NQF #2631 – under review by 

NQF). Therefore this proposed measure would not add any data collection burden 

beyond that discussed in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50443 through 

50445), in which NQF #2631 was finalized.

LTCH burden related to the submission of version 3.0 of the LCDS, has been 

previously discussed in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50443 through 

50445), and is included in the total annual burden noted in that rule, which is $17,410 per 

LTCH annually, or $7,695,423 for all LTCHs annually. We believe that this estimate 

remains unchanged as a result of the LTCH QRP proposals in this proposed rule.

N. Effects of Proposed Requirements Regarding Electronic Health Record (EHR) 

Meaningful Use Program

In section VIII.D. of the preamble of this proposed rule, we discuss proposed 

requirements for the EHR Incentive Program. We are proposing CQM reporting 

requirements, including reporting periods and submission periods, as well as CQMs 
CMS-1632-P 1513

required and information about CQM specifications’ updates, for the Medicare EHR 

Incentive Program for eligible hospitals and CAHs for 2016. We note that these 

proposals would only apply for eligible hospitals and CAHs submitting CQMs 

electronically in CY 2016. Because these proposals for data collection would align with 

the reporting requirements in place for the Hospital IQR Program and eligible hospitals 

and CAHs still have the option to submit their clinical quality measures via attestation for 

the Medicare EHR Incentive Program, we do not believe these proposals would have a 

significant impact.

II. Alternatives Considered

This proposed rule contains a range of proposed policies. It also provides 

descriptions of the statutory provisions that are addressed, identifies the proposed 

policies, and presents rationales for our decisions and, where relevant, alternatives that 

were considered.

III. Overall Conclusion

1. Acute Care Hospitals

Table I of section I.G. of this Appendix demonstrates the estimated distributional 

impact of the IPPS budget neutrality requirements for the proposed MS-DRG and wage 

index changes, and for the wage index reclassifications under the MGCRB. Table I also 

shows an overall increase of 0.3 percent in operating payments. As discussed in section 

I.G. of this Appendix, we estimate that proposed operating payments will increase by 

approximately $278 million in FY 2016 relative to FY 2015. However, when we account 

for the impact of the changes in Medicare DSH payments and the impact of the new 
CMS-1632-P 1514

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.D. of the preamble of this proposed 

rule, we estimate that operating payments will decrease by approximately $11 million 

relative to FY 2015. We currently estimate that the changes in new technology add-on 

payments for FY 2016 will decrease spending by approximately $31 million due to the 

expiration of three new technology add-on payments. This estimate, combined with our 

estimated decrease in FY 2016 operating payment of $11 million, result in an estimated 

decrease of approximately $42 million for FY 2016. We estimate that hospitals will 

experience a 2.0 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 $163 million increase in 

capital payments in FY 2016 compared to FY 2015. The proposed cumulative operating 

and capital payments would result in a net increase of approximately $121 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 a decrease in estimated payments per 

discharge in FY 2016. 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 2016. Accordingly, based on the best 

available data for the 418 LTCHs in our database, we estimate that FY 2016 LTCH PPS 
CMS-1632-P 1515

payments will decrease approximately $251 million relative to FY 2015 as a result of the 

proposed payment rates and factors presented in this proposed rule.

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 costs to the Federal Government associated with the policies in this proposed

rule are estimated at $143 million.

Table V.—Accounting Statement: Classification of Proposed Estimated 

Expenditures under the IPPS from FY 2015 to FY 2016

Category Transfers

Annualized Monetized Transfers $143 million

From Whom to Whom Federal Government to IPPS Medicare Providers

B. LTCHs

As discussed in section I.J. of this Appendix, the impact analysis of the payment 

rates and factors presented in this proposed rule under the LTCH PPS, is projected to 

result in a decrease in estimated aggregate LTCH PPS payments in FY 2016 relative to 

FY 2015 of approximately -$251 million based on the data for 418 LTCHs in our 
CMS-1632-P 1516

database that are subject to payment under the LTCH PPS. Therefore, as required by 

OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf),

in Table VI below, we have prepared an accounting statement showing the classification 

of the expenditures associated with the provisions of this proposed rule as they relate to 

the 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 418 LTCHs in our database. All expenditures are classified as transfers to 

Medicare providers (that is, LTCHs).

The savings to the Federal Government associated with the proposed policies for 

LTCHs in this proposed rule are estimated at $251 million.

TABLE VI.—Accounting Statement: Classification of Proposed Estimated 

Expenditures from the FY 2015 LTCH PPS to the FY 2016 LTCH PPS

Category Transfers

Annualized Monetized Transfers -$251 million

From Whom to Whom Federal Government to LTCH Medicare Providers

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 
CMS-1632-P 1517

small business (having revenues of less than $7.5 million to $38.5 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.J. 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 
CMS-1632-P 1518

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 2015, that threshold level is approximately $144 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.
CMS-1632-P 1519

Appendix B: Recommendation of Update Factors for Operating Cost Rates of 

Payment for Inpatient Hospital Services

I. Background

Section 1886(e)(4)(A) of the Act requires that the Secretary, taking into 

consideration the recommendations of MedPAC, recommend update factors for inpatient 

hospital services for each fiscal year that take into account the amounts necessary for the 

efficient and effective delivery of medically appropriate and necessary care of high 

quality. Under section 1886(e)(5) of the Act, we are required to publish update factors 

recommended by the Secretary in the proposed and final IPPS rules, respectively. 

Accordingly, this Appendix provides the recommendations for the update factors for the 

IPPS national standardized amount, the Puerto Rico-specific standardized amount, the 

hospital-specific rate for SCHs, and the rate-of-increase limits for certain hospitals 

excluded from the IPPS, as well as LTCHs. In prior years, we have made a 

recommendation in the IPPS proposed rule and final rule for the update factors for the 

payment rates for IRFs and IPFs. However, for FY 2016, 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.
CMS-1632-P 1520

II. Inpatient Hospital Update for FY 2016

A. Proposed FY 2016 Inpatient Hospital Update

As discussed in section IV.B of the preamble to this proposed rule, 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 66 2/3 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 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 2016 adjustment of 

0.2 percentage point may result in the applicable percentage increase being less than zero.
CMS-1632-P 1521

Based on the most recent data available for this FY 2016 IPPS/LTCH PPS 

proposed rule, in accordance with section 1886(b)(3)(B) of the Act, we are proposing to 

base the proposed FY 2016 market basket update used to determine the applicable 

percentage increase for the IPPS on the IHS Global Insight, Inc. (IGI’s) first quarter 2015 

forecast of the FY 2010-based IPPS market basket rate-of-increase with historical data 

through fourth quarter 2014, 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.A.1. of the preamble of this FY 2016 IPPS/LTCH PPS proposed rule, 

we are proposing an MFP adjustment of 0.6 percent for FY 2016. Therefore, based on 

IGI’s first quarter 2015 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.
CMS-1632-P 1522

FY 2016

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

Proposed Market Basket 

Rate-of-Increase 2.7 2.7 2.7 2.7

Proposed 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

Proposed Adjustment for 

Failure to be a Meaningful 

EHR User under Section 

1886(b)(3)(B)(ix) of the 

Act 0.0 -1.35 0.0 -1.35

Proposed MFP Adjustment 

under Section 

1886(b)(3)(B)(xi) of the 

Act -0.6 -0.6 -0.6 -0.6

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 1.9 0.55 1.225 -0.125

B. Proposed Update for SCHs for FY 2016

Section 1886(b)(3)(B)(iv) of the Act provides that the FY 2016 applicable 

percentage increase in the hospital-specific rate for SCHs equals the applicable 

percentage increase set forth in section 1886(b)(3)(B)(i) of the Act (that is, the same 
CMS-1632-P 1523

update factor as for all other hospitals subject to the IPPS). We note that the MDH 

program expired for discharges beginning on April 1, 2015 under current law.

As mentioned above, the update to the hospital specific rate for SCHs is subject to 

section 1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a) and 10319(a) of the 

Affordable Care Act. Accordingly, 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.

C. Proposed FY 2016 Puerto Rico Hospital Update

Section 401(c) of Pub. L. 108-173 amended section 1886(d)(9)(C)(i) of the Act 

and states that, for discharges occurring in a fiscal year (beginning with FY 2004), the 

Secretary shall compute an average standardized amount for hospitals located in any area 

of Puerto Rico that is equal to the average standardized amount computed under 

subclause (I) for FY 2003 for hospitals in a large urban area (or, beginning with FY 2005, 

for all hospitals in the previous fiscal year) increased by the applicable percentage 

increase under subsection (b)(3)(B) for the fiscal year involved. Therefore, the update to 

the Puerto Rico-specific operating standardized amount is subject to the applicable 

percentage increase set forth in section 1886(b)(3)(B)(i) of the Act as amended by 

sections 3401(a) and 10319(a) of the Affordable Care Act (that is, the same update factor 

as for all other hospitals subject to the IPPS). Accordingly, we are proposing an 

applicable percentage increase to the Puerto Rico-specific standardized amount of 

1.9 percent.
CMS-1632-P 1524

D. Proposed Update for Hospitals Excluded from the IPPS

Section 1886(b)(3)(B)(ii) of the Act is used for purposes of determining the 

percentage increase in the rate-of-increase limits for children’s 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 American 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, 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 are among the remaining types of hospitals still 

paid under the reasonable cost methodology, subject to the rate-of-increase limits. As we 

finalized in the FY 2015 IPPS/LTCH PPS final rule (79 FR 50156 through 50157), the 

FY 2016 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 2016 IPPS operating market basket 

percentage increase is 2.7 percent.
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E. Proposed Update for LTCHs for FY 2016

Section 123 of Pub. L. 106-113, as amended by section 307(b) of Pub. L. 106-554 

(and codified at section 1886(m)(1) of the Act), provides the statutory authority for 

updating payment rates under the LTCH PPS. Under section 1886(m)(6)(A) of the Act 

as added by section 1206(a) of Pub. L. 113-67, beginning in cost reporting periods 

starting on or after October 1, 2015, all LTCH discharges are paid according to the site 

neutral payment rate unless certain criteria are met. For LTCH cases that meet the 

criteria for exclusion, the site neutral payment rate does not apply and payment will be 

made without regard to the provisions of section 1886(m)(6) of the Act. For cases that 

meet the criteria for exclusion from the site neutral payment rate, payment will continue 

to be based on the LTCH PPS standard Federal payment rate as determined in § 412.523. 

(For additional details on the change to LTCH PPS payments under section 

1886(m)(6)(A) of the Act, specifically the establishment of the site neutral payment rate, 

we refer readers to section VII.B.3. of the preamble of this proposed rule.)

As discussed in section V.A. of the Addendum to this proposed rule, we are 

proposing to establish an update to the LTCH PPS standard Federal rate for FY 2016 

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 LTCHQRP 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 
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MFP adjustment described under section 1886(b)(3)(B)(xi)(ii) of the Act is currently 

estimated to be 0.6 percent for FY 2016. In addition, section 1886(m)(3)(A)(ii) of the 

Act requires that any annual update for FY 2016 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 2015 forecast of the FY 2016 LTCH PPS market basket increase, we 

are proposing to establish an annual update to the LTCH PPS standard Federal rate of

1.9 percent (that is, the current FY 2016 estimate of the market basket rate-of-increase of 

2.7 percent less a proposed adjustment of 0.6 percentage point for MFP and less 0.2 

percentage point). Accordingly, we are proposing to apply an update factor of 1.9 

percent in determining the LTCH PPS standard Federal rate for FY 2016. For LTCHs 

that fail to submit quality data for FY 2016, we are proposing to apply an annual update 

to the LTCH PPS standard Federal rate of -0.1 percent (that is, the proposed annual 

update for FY 2016 of 1.9 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 a proposed update factor of -0.1 percent in determining the LTCH PPS 

standard Federal rate for FY 2016.

III. Secretary’s Recommendations

MedPAC is recommending an inpatient hospital update equal to 3.25 percent for 

FY 2016. 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 
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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. For the Puerto Rico-specific 

standardized amount, we are recommending an update of 1.9 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 2016, consistent with policy set forth in section VII. of the preamble of 

this proposed rule, for LTCHs that submit quality data, we are recommending an update 

of 1.9 percent to the LTCH PPS standard Federal rate. For LTCHs that fail to submit 

quality data for FY 2016, we are proposing to apply an annual update to the LTCH PPS 

standard Federal rate of -0.1 percent.

IV. MedPAC Recommendation for Assessing Payment Adequacy and Updating 

Payments in Traditional Medicare

In its March 2015 Report to Congress, MedPAC assessed the adequacy of current 

payments and costs and the relationship between payments and an appropriate cost base. 
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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 2015 MedPAC report, which 

is available on the Web site at http://www.medpac.gov for a complete discussion on this 

recommendation. MedPAC expects Medicare margins to remain low in 2015. 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. However, 

under current law, payment margins are projected to decline which could result in 

negative Medicare margins industry wide. Specifically, MedPAC noted several current 

law policy changes are scheduled to reduce payments in FY 2015 and FY 2016. Because 

of these changes and reduced payments, MedPAC asserted that an update of 3.25 percent 

in the base payment is warranted. MedPAC maintains that Medicare payment rates 

should be determined by analysis of payment adequacy rather than an across-the-board 

sequester reduction. Therefore, MedPAC recommended that hospitals receive base 

payment rates that are 3.25 percent higher than the FY 2015 base payment rates, and 

there should be no sequester adjustment. However, MedPAC concluded that if the 

Congress increases hospital payments by reinstating expiring special payments, the full 

3.25 percent update would not be warranted.

Response: With regard to MedPAC’s recommendation of an update to the 

hospital inpatient rates equal to 3.25 percent, for FY 2016, as discussed above, section 

1886(b)(3)(B) of the Act, as amended by sections 3401(a) and 10319(a) of the Affordable 

Care Act, sets the requirements for the FY 2016 applicable percentage increase. 
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Therefore, we are proposing an applicable percentage increase for FY 2016 of 

1.9 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 update to the capital rate is discussed in section III. of the Addendum to 

this proposed rule.

[FR Doc. 2015-09245 Filed: 4/17/2015 04:15 pm; Publication Date: 4/30/2015]