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Rule

Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2009 Rates; Payments for Graduate Medical Education in Certain Emergency Situations; Changes to Disclosure of Physician Ownership in Hospitals and Physician Self-Referral Rules; Updates to the Long-Term Care Prospective Payment System; Updates to Certain IPPS-Excluded Hospitals; and Collection of Information Regarding Financial Relationships Between Hospitals

Action

Final Rules.

Summary

We are revising the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs to implement changes arising from our continuing experience with these systems, and to implement certain provisions made by the Deficit Reduction Act of 2005, the Medicare Improvements and Extension Act, Division B, Title I of the Tax Relief and Health Care Act of 2006, the TMA, Abstinence Education, and QI Programs Extension Act of 2007, and the Medicare Improvements for Patients and Providers Act of 2008. In addition, in the Addendum to this final rule, we describe the changes to the amounts and factors used to determine the rates for Medicare hospital inpatient services for operating costs and capital-related costs. These changes are generally applicable to discharges occurring on or after October 1, 2008. We also are setting forth the update to the rate-of-increase limits for certain hospitals and hospital units excluded from the IPPS that are paid on a reasonable cost basis subject to these limits. The updated rate-of-increase limits are effective for cost reporting periods beginning on or after October 1, 2008.

In addition to the changes for hospitals paid under the IPPS, this document contains revisions to the patient classifications and relative weights used under the long-term care hospital prospective payment system (LTCH PPS). This document also contains policy changes relating to the requirements for furnishing hospital emergency services under the Emergency Medical Treatment and Labor Act of 1986 (EMTALA).

In this document, we are responding to public comments and finalizing the policies contained in two interim final rules relating to payments for Medicare graduate medical education to affiliated teaching hospitals in certain emergency situations.

We are revising the regulatory requirements relating to disclosure to patients of physician ownership or investment interests in hospitals and responding to public comments on a collection of information regarding financial relationships between hospitals and physicians. In addition, we are responding to public comments on proposals made in two separate rulemakings related to policies on physician self-referrals and finalizing these policies.

Unified Agenda

 

Table of Contents Back to Top

Tables Back to Top

DATES: Back to Top

Effective Dates: This final rule is effective on October 1, 2008, with the following exceptions: Amendments to §§ 412.230, 412.232, and 412.234 are effective on September 2, 2008. Amendments to §§ 411.357(a)(5)(ii), (b)(4)(ii), (1)(3)(i) and (ii), and (p)(1)(i)(A) and (B) and the definition of entity in § 411.351 are effective on October 1, 2009.

Applicability Dates: The provisions of § 412.78 relating to payments to SCHs are applicable for cost reporting periods beginning on or after January 1, 2009. Our process for allowing certain hospitals to opt out of decisions made on behalf of hospitals (as discussed in section III.I.7. of this preamble) are applicable on August 19, 2008.

FOR FURTHER INFORMATION CONTACT: Back to Top

Gay Burton, (410) 786-4487, Operating Prospective Payment, MS-DRGs, Wage Index, New Medical Service and Technology Add-On Payments, Hospital Geographic Reclassifications, and Postacute Care Transfer Issues.

Tzvi Hefter, (410) 786-4487, Capital Prospective Payment, Excluded Hospitals, Direct and Indirect Graduate Medical Education, MS-LTC-DRGs, EMTALA, Hospital Emergency Services, and Hospital-within-Hospital Issues.

Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital Demonstration Program Issues.

Sheila Blackstock, (410) 786-3502, Quality Data for Annual Payment Update Issues.

Thomas Valuck, (410) 786-7479, Hospital Value-Based Purchasing and Readmissions to Hospital Issues.

Rebecca Paul, (410) 786-0852, Collection of Managed Care Encounter Data Issues.

Jacqueline Proctor, (410) 786-8852, Disclosure of Physician Ownership in Hospitals and Financial Relationships between Hospitals and Physicians Issues.

Lisa Ohrin, (410) 786-4565, and Don Romano, (410) 786-1401, Physician Self-Referral Issues.

SUPPLEMENTARY INFORMATION: Back to Top

Electronic Access Back to Top

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

Acronyms Back to Top

AARPAmerican Association of Retired Persons

AAHKSAmerican Association of Hip and Knee Surgeons

AAMCAssociation of American Medical Colleges

ACGMEAccreditation Council for Graduate Medical Education

AFArtrial fibrillation

AHAAmerican Hospital Association

AICDAutomatic implantable cardioverter defibrillator

AHIMAAmerican Health Information Management Association

AHICAmerican Health Information Community

AHRQAgency for Healthcare Research and Quality

AMAAmerican Medical Association

AMGAAmerican Medical Group Association

AMIAcute myocardial infarction

AOAAmerican Osteopathic Association

APR DRGAll Patient Refined Diagnosis Related Group System

ASCAmbulatory surgical center

ASITNAmerican Society of Interventional and Therapeutic Neuroradiology

BBABalanced Budget Act of 1997, Public Law 105-33

BBRAMedicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999, Public Law 106-113

BIPAMedicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Benefits Improvement and Protection Act of 2000, Public Law 106-554

BLSBureau of Labor Statistics

CAHCritical access hospital

CARE[Medicare] Continuity Assessment Record Evaluation [Instrument]

CARTCMS Abstraction Reporting Tool

CBSAsCore-based statistical areas

CCComplication or comorbidity

CCRCost-to-charge ratio

CDAC[Medicare] Clinical Data Abstraction Center

CDAD Clostridium difficile-associated disease

CIPICapital input price index

CMICase-mix index

CMSCenters for Medicare Medicaid Services

CMSAConsolidated Metropolitan Statistical Area

COBRAConsolidated Omnibus Reconciliation Act of 1985, 99

CoP[Hospital] condition of participation

CPIConsumer price index

CYCalendar year

DFRRDisclosure of financial relationship report

DRADeficit Reduction Act of 2005, Public Law 109-171

DRGDiagnosis-related group

DSHDisproportionate share hospital

DVTDeep vein thrombosis

ECIEmployment cost index

EMRElectronic medical record

EMTALAEmergency Medical Treatment and Labor Act of 1986, 99

ESRDEnd-stage renal disease

FAHFederation of Hospitals

FDAFood and Drug Administration

FHAFederal Health Architecture

FIPSFederal information processing standards

FQHCFederally qualified health center

FTEFull-time equivalent

FYFiscal year

GAAPGenerally Accepted Accounting Principles

GAFGeographic Adjustment Factor

GMEGraduate medical education

HACsHospital-acquired conditions

HCAHPSHospital Consumer Assessment of Healthcare Providers and Systems

HCFAHealth Care Financing Administration

HCRISHospital Cost Report Information System

HHAHome health agency

HHSDepartment of Health and Human Services

HICHealth insurance card

HIPAAHealth Insurance Portability and Accountability Act of 1996, Public Law 104-191

HIPCHealth Information Policy Council

HISHealth information system

HITHealth information technology

HMOHealth maintenance organization

HPMPHospital Payment Monitoring Program

HSAHealth savings account

HSCRC[Maryland] Health Services Cost Review Commission

HSRVHospital-specific relative value

HSRVccHospital-specific relative value cost center

HQAHospital Quality Alliance

HQIHospital Quality Initiative

HWHHospital-within-a hospital

ICD-9-CMInternational Classification of Diseases, Ninth Revision, Clinical Modification

ICD-10-PCSInternational Classification of Diseases, Tenth Edition, Procedure Coding System

ICRInformation collection requirement

IHSIndian Health Service

IMEIndirect medical education

IOMInstitute of Medicine

IPFInpatient psychiatric facility

IPPS[Acute care hospital] inpatient prospective payment system

IRFInpatient rehabilitation facility

LAMCsLarge area metropolitan counties

LTC-DRGLong-term care diagnosis-related group

LTCHLong-term care hospital

MAMedicare Advantage

MACMedicare Administrative Contractor

MCCMajor complication or comorbidity

MCEMedicare Code Editor

MCOManaged care organization

MCVMajor cardiovascular condition

MDCMajor diagnostic category

MDHMedicare-dependent, small rural hospital

MedPACMedicare Payment Advisory Commission

MedPARMedicare Provider Analysis and Review File

MEIMedicare Economic Index

MGCRBMedicare Geographic Classification Review Board

MIEA-TRHCAMedicare Improvements and Extension Act, Division B of the Tax Relief and Health Care Act of 2006, Public Law 109-432

MIPPAMedicare Improvements for Patients and Providers Act of 2008, Public Law 110-275

MMAMedicare Prescription Drug, Improvement, and Modernization Act of 2003, Public Law 108-173

MMSEAMedicare, Medicaid, and SCHIP Extension Act of 2007, Public Law 110-173

MPNMedicare provider number

MRHFPMedicare Rural Hospital Flexibility Program

MRSAMethicillin-resistant Staphylococcus aureus

MSAMetropolitan Statistical Area

MS-DRGMedicare severity diagnosis-related group

MS-LTC-DRGMedicare severity long-term care diagnosis-related group

NAICSNorth American Industrial Classification System

NCDNational coverage determination

NCHSNational Center for Health Statistics

NCQANational Committee for Quality Assurance

NCVHSNational Committee on Vital and Health Statistics

NECMANew England County Metropolitan Areas

NQFNational Quality Forum

NTISNational Technical Information Service

NVHRINational Voluntary Hospital Reporting Initiative

OESOccupational employment statistics

OIGOffice of the Inspector General

OMBExecutive Office of Management and Budget

O.R.Operating room

OSCAROnline Survey Certification and Reporting [System]

PEPulmonary embolism

PMSAs Primary metropolitan statistical areas

POAPresent on admission

PPIProducer price index

PPSProspective payment system

PRMProvider Reimbursement Manual

ProPACProspective Payment Assessment Commission

PRRBProvider Reimbursement Review Board

PSFProvider-Specific File

PSRProvider Statistical and Reimbursement (System)

QIGQuality Improvement Group, CMS

QIOQuality Improvement Organization

RAPSRisk Adjustment Processing System

RCEReasonable compensation equivalent

RHCRural health clinic

RHQDAPUReporting hospital quality data for annual payment update

RNHCIReligious nonmedical health care institution

RRCRural referral center

RUCAsRural-urban commuting area codes

RYRate year

SAFStandard Analytic File

SCHSole community hospital

SFYState fiscal year

SICStandard Industrial Classification

SNFSkilled nursing facility

SOCsStandard occupational classifications

SOMState Operations Manual

TEFRATax Equity and Fiscal Responsibility Act of 1982, 97

TMATMA [Transitional Medical Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension Act of 2007, Public Law. 110-09

TJATotal joint arthroplasty

UHDDSUniform hospital discharge data set

VAPVentilator-associated pneumonia

VBPValue-based purchasing

Table of Contents Back to Top

I. Background

A. Summary

1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)

2. Hospitals and Hospital Units Excluded From the IPPS

a. Inpatient Rehabilitation Facilities (IRFs)

b. Long-Term Care Hospitals (LTCHs)

c. Inpatient Psychiatric Facilities (IPFs)

3. Critical Access Hospitals (CAHs)

4. Payments for Graduate Medical Education (GME)

B. Provisions of the Deficit Reduction Act of 2005 (DRA)

C. Provisions of the Medicare Improvements and Extension Act Under Division B, Title I of the Tax Relief and Health Care Act of 2006 (MIEA-TRHCA)

D. Provision of the TMA, Abstinence Education, and QI Programs Extension Act of 2007

E. Issuance of a Notice of Proposed Rulemaking

1. Proposed Changes to MS-DRG Classifications and Recalibrations of Relative Weights

2. Proposed Changes to the Hospital Wage Index

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

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

5. Proposed Changes to the Payment Rates for Excluded Hospitals and Hospital Units

6. Proposed Changes Relating to Disclosure of Physician Ownership in Hospitals

7. Proposed Changes and Solicitation of Comments on Physician Self-Referral Provisions

8. Proposed Collection of Information Regarding Financial Relationships Between Hospitals and Physicians

9. Determining Proposed Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits

10. Impact Analysis

11. Recommendation of Update Factors for Operating Cost Rates of Payment for Inpatient Hospital Services

12. Disclosure of Financial Relationships Report (DFRR) Form

13. Discussion of Medicare Payment Advisory Commission Recommendations

F. Public Comments Received on the FY 2009 IPPS Proposed Rule and Issues in Related Rules

1. Comments on the FY 2009 IPPS Proposed Rule

2. Comments on Phase-Out of the Capital Teaching Adjustment Under the IPPS Included in the FY 2008 IPPS Final Rule With Comment Period

3. Comments on Policy Revisions Related to Payment to Medicare GME Affiliated Hospitals in Certain Declared Emergency Areas Included in Two Interim Final Rules With Comment Period

4. Comments on Proposed Policy Revisions Related to Physician Self-Referrals Included in the CY 2008 Physician Fee Schedule Proposed Rule

G. Provisions of the Medicare Improvements for Patients and Providers Act of 2008

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

A. Background

B. MS-DRG Reclassifications

1. General

2. Yearly Review for Making MS-DRG Changes

C. Adoption of the MS-DRGs in FY 2008

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

1. MS-DRG Documentation and Coding Adjustment

2. Application of the Documentation and Coding Adjustment to the Hospital-Specific Rates

3. Application of the Documentation and Coding Adjustment to the Puerto Rico-Specific Standardized Amount

4. Potential Additional Payment Adjustments in FYs 2010 Through 2012

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background

2. Summary of RTI's Report on Charge Compression

3. Summary of RAND's Study of Alternative Relative Weight Methodologies

4. Refining the Medicare Cost Report

5. Timeline for Revising the Medicare Cost Report

6. Revenue Codes Used in the MedPAR File

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

1. General Background

2. Statutory Authority

3. Public Input

4. Collaborative Process

5. Selection Criteria for HACs

6. HACs Selected During FY 2008 IPPS Rulemaking and Changes to Certain Codes

a. Foreign Object Retained After Surgery

b. Pressure Ulcers: Changes in Code Assignments

7. Candidate HACs

a. Manifestations of Poor Glycemic Control

b. Surgical Site Infections

c. Deep Vein Thrombosis (DVT)/Pulmonary Embolism (PE)

d. Delirium

e. Ventilator-Associated Pneumonia (VAP)

f. Staphylococcus aureus Septicemia

g. Clostridium difficile-Associated Disease (CDAD)

h. Legionnaires' Disease

i. Iatrogenic Pneumothorax

j. Methicillin-resistant Staphylococcus aureus (MRSA)

8. Present on Admission Indicator Reporting (POA)

9. Enhancement and Future Issues

a. Risk-Adjustment of Payments Related to HACs

b. Risk-Based Measurement of HACs

c. Use of POA Information

d. Transition to ICD-10

e. Healthcare-Associated Conditions in Other Payment Settings

f. Relationship to NQF's Serious Reportable Adverse Events

g. Additional Potential Candidate HACs, Suggested Through Comment

10. HAC Coding

a. Foreign Object Retained After Surgery

b. MRSA

c. POA

11. HACs Selected for Implementation on October 1, 2008

G. Changes to Specific MS-DRG Classifications

1. Pre-MDCs: Artificial Heart Devices

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

a. Transferred Stroke Patients Receiving Tissue Plasminogen Activator (tPA)

b. Intractable Epilepsy With Video Electroencephalogram (EEG)

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

a. Automatic Implantable Cardioverter-Defibrillators (AICD) Lead and Generator Procedures

b. Left Atrial Appendage Device

4. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue): Hip and Knee Replacements and Revisions

a. Brief History of Development of Hip and Knee Replacement Codes

b. Prior Recommendations of the AAHKS

c. Adoption of MS-DRGs for Hip and Knee Replacements for FY 2008 and AAHKS' Recommendations

d. AAHKS' Recommendations for FY 2009

e. CMS' Response to AAHKS' Recommendations

f. Conclusion

5. MDC 18 (Infections and Parasitic Diseases (Systemic or Unspecified Sites): Severe Sepsis

6. MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs): Traumatic Compartment Syndrome

7. Medicare Code Editor (MCE) Changes

a. List of Unacceptable Principal Diagnoses in MCE

b. Diagnoses Allowed for Males Only Edit

c. Limited Coverage Edit

8. Surgical Hierarchies

9. CC Exclusions List

a. Background

b. CC Exclusions List for FY 2009

10. Review of Procedure Codes in MS-DRGs 981, 982, and 983; 984, 985, and 986; and 987, 988, and 989

a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-DRGs 987 Through 989 to MDCs

b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984 Through 986, and 987 Through 989

c. Adding Diagnosis or Procedure Codes to MDCs

11. Changes to the ICD-9-CM Coding System

12. Other MS-DRG Issues

a. Heart Transplants or Implants of Heart Assist System and Liver Transplants

b. New Codes for Pressure Ulcers

c. Coronary Artery Stents

d. TherOx (Downstream(r) System)

e. Spinal Disc Devices

f. Spinal Fusion

g. Special Treatment for Hospitals With High Percentages of ESRD Discharges

H. Recalibration of MS-DRG Weights

I. Medicare Severity Long-Term Care Diagnosis Related Group (MS-LTC-DRG) Reclassifications and Relative Weights for LTCHs for FY 2009

1. Background

2. Changes in the MS-LTC-DRG Classifications

a. Background

b. Patient Classifications Into MS-LTC-DRGs

3. Development of the FY 2009 MS-LTC-DRG Relative Weights

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

b. Data

c. Hospital-Specific Relative Value (HSRV) Methodology

d. Treatment of Severity Levels in Developing Relative Weights

e. Low-Volume MS-LTC-DRGs

4. Steps for Determining the FY 2009 MS-LTC-DRG Relative Weights

5. Other Comments

J. Add-On Payments for New Services and Technologies

1. Background

2. Public Input Before Publication of a Notice of Proposed Rulemaking on Add-On Payments

3. FY 2009 Status of Technologies Approved for FY 2008 Add-On Payments

4. FY 2009 Applications for New Technology Add-On Payments

a. CardioWest [TM] Temporary Total Artificial Heart System (CardioWest [TM] TAH-t)

b. Emphasys Medical Zephyr® Endobronchial Valve (Zephyr® EBV)

c. Oxiplex®

d. TherOx Downstream® System

5. Regulatory Changes

III. Changes to the Hospital Wage Index

A. Background

B. Requirements of Section 106 of the MIEA-TRHCA

1. Wage Index Study Required Under the MIEA-TRHCA

a. Legislative Requirement

b. MedPAC's Recommendations

c. CMS Contract for Impact Analysis and Study of Wage Index Reform

d. Public Comments Received on the MedPAC Recommendations and the CMS/Acumen Wage Index Study and Analysis

e. Impact Analysis of Using MedPAC's Recommended Wage Index

2. CMS Proposals and Final Policy Changes in Response to Requirements Under Section 106(b) of the MIEA-TRHCA

a. Proposed and Final Revision of the Reclassification Average Hourly Wage Comparison Criteria

b. Within-State Budget Neutrality Adjustment for the Rural and Imputed Floors

c. Within-State Budget Neutrality Adjustment for Geographic Reclassification

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

D. Occupational Mix Adjustment to the FY 2009 Wage Index

1. Development of Data for the FY 2009 Occupational Mix Adjustment

2. Calculation of the Occupational Mix Adjustment for FY 2009

3. 2007-2008 Occupational Mix Survey for the FY 2010 Wage Index

E. Worksheet S-3 Wage Data for the FY 2009 Wage Index

1. Included Categories of Costs

2. Excluded Categories of Costs

3. Use of Wage Index Data by Providers Other Than Acute Care Hospitals Under the IPPS

F. Verification of Worksheet S-3 Wage Data

1. Wage Data for Multicampus Hospitals

2. New Orleans' Post-Katrina Wage Index

G. Method for Computing the FY 2009 Unadjusted Wage Index

H. Analysis and Implementation of the Occupational Mix Adjustment and the FY 2009 Occupational Mix Adjusted Wage Index

I. Revisions to the Wage Index Based on Hospital Redesignations

1. General

2. Effects of Reclassification/Redesignation

3. FY 2009 MGCRB Reclassifications

4. FY 2008 Policy Clarifications and Revisions

5. Redesignations of Hospitals Under Section 1886(d)(8)(B) of the Act

6. Reclassifications Under Section 1886(d)(8)(B) of the Act

7. Reclassifications Under Section 508 of Public Law 108-173

J. FY 2009 Wage Index Adjustment Based on Commuting Patterns of Hospital Employees

K. Process for Requests for Wage Index Data Corrections

L. Labor-Related Share for the Wage Index for FY 2009

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

A. Changes to the Postacute Care Transfer Policy

1. Background

2. Policy Change Relating to Transfers to Home With a Written Plan for the Provision of Home Health Services

3. Evaluation of MS-DRGs Under Postacute Care Transfer Policy for FY 2009

B. Reporting of Hospital Quality Data for Annual Hospital Payment Update 1. Background

a. Overview

b. Voluntary Hospital Quality Data Reporting

c. Hospital Quality Data Reporting Under Section 501(b) of Public Law 108-173

d. Hospital Quality Data Reporting Under Section 5001(a) of Public Law 109-171

2. Quality Measures for the FY 2010 Payment Determination and Subsequent Years

a. Quality Measures for the FY 2010 Payment Determination

b. Possible New Quality Measures, Measure Sets, and Program Requirements for the FY 2011 Payment Determination and Subsequent Years

c. Considerations in Expanding and Updating Quality Measures Under the RHQDAPU Program

3. Form and Manner and Timing of Quality Data Submission

4. RHQDAPU Program Procedures for FY 2009 and FY 2010

a. RHQDAPU Program Procedures for FY 2009

b. RHQDAPU Program Procedures for FY 2010

5. HCAHPS Requirements for FY 2009 and FY 2010

a. FY 2009 HCAHPS Requirements

b. FY 2010 HCAHPS Requirements

6. Chart Validation Requirements for FY 2009 and FY 2010

a. Chart Validation Requirements for FY 2009

b. Chart Validation Requirements for FY 2010

c. Chart Validation Methods and Requirements Under Consideration for FY 2011 and Subsequent Years

7. Data Attestation Requirements for FY 2009 and FY 2010

a. Data Attestation Requirements for FY 2009

b. Data Attestation Requirements for FY 2010

8. Public Display Requirements

9. Reconsideration and Appeal Procedures

10. RHQDAPU Program Withdrawal Deadlines for FY 2009 and FY 2010

11. Requirements for New Hospitals

12. Electronic Medical Records

13. RHQDAPU Data Infrastructure

C. Medicare Hospital Value-Based Purchasing (VBP) Plan

1. Medicare Hospital VBP Plan Report to Congress

2. Testing and Further Development of the Medicare Hospital VBP Plan

D. Sole Community Hospitals (SCHs) and Medicare-Dependent, Small Rural Hospitals (MDHs)

1. Background

2. Rebasing of Payments to SCHs

3. Volume Decrease Adjustment for SCHs and MDHs: Data Sources for Determining Core Staff Values

E. Rural Referral Centers (RRCs)

1. Case-Mix Index

2. Discharges

F. Indirect Medical Education (IME) Adjustment

1. Background

2. IME Adjustment Factor for FY 2009

G. Payments for Direct Graduate Medical Education (GME)

1. Background

2. Medicare GME Affiliation Provisions for Teaching Hospitals in Certain Emergency Situations

a. Legislative Authority

b. Regulatory Changes Issued in 2006 to Address Certain Emergency Situations

c. Additional Regulatory Changes Issued in 2007 To Address Certain Emergency Situations

d. Public Comments Received on the April 12, 2006 and November 27, 2007 Interim Final Rules With Comment Period

e. Provisions of the Final Rule

f. Technical Correction

H. Payments to Medicare Advantage Organizations: Collection of Risk Adjustment Data

I. Hospital Emergency Services Under EMTALA

1. Background

2. EMTALA Technical Advisory Group (TAG) Recommendations

3. Changes Relating to Applicability of EMTALA Requirements to Hospital Inpatients

4. Changes to the EMTALA Physician On-Call Requirements

a. Relocation of Regulatory Provisions

b. Shared/Community Call

5. Technical Change to Regulations

J. Application of Incentives To Reduce Avoidable Readmissions to Hospitals

1. Overview

2. Measurement

3. Shared Accountability

4. VBP Incentives

5. Direct Payment Adjustment

6. Performance-Based Payment Adjustment

7. Public Reporting of Readmission Rates

8. Potential Unintended Consequences of VBP Incentives

K. Rural Community Hospital Demonstration Program

V. Changes to the IPPS for Capital-Related Costs

A. Background

1. Exception Payments

2. New Hospitals

3. Hospitals Located in Puerto Rico

B. Revisions to the Capital IPPS Based on Data on Hospital Medicare Capital Margins

1. Elimination of the Large Add-On Payment Adjustment

2. Changes to the Capital IME Adjustment

a. Background and Changes Made for FY 2008

b. Public Comments Received on Phase Out of Capital IPPS Teaching Adjustment Provisions Included in the FY 2008 IPPS Final Rule With Comment Period and on the FY 2009 IPPS Proposed Rule

VI. Changes for Hospitals and Hospital Units Excluded From the IPPS

A. Payments to Excluded Hospitals and Hospital Units

B. IRF PPS

C. LTCH PPS

D. IPF PPS

E. Determining LTCH Cost-to-Charge Ratios (CCRs) Under the LTCH PPS

F. Change to the Regulations Governing Hospitals-Within-Hospitals

G. Report of Adjustment (Exceptions) Payments

VII. Disclosure Required of Certain Hospitals and Critical Access Hospitals (CAHs) Regarding Physician Ownership

VIII. Physician Self-Referral Provisions

A. General Overview

1. Statutory Framework and Regulatory History

2. Physician Self-Referral Provisions Finalized in this FY 2009 IPPS Final Rule

B. “Stand in the Shoes” Provisions

1. Background

a. Regulatory History of the Physician “Stand in the Shoes” Rules

b. Summary of Proposed Revisions to the Physician “Stand in the Shoes” Rules

c. Summary of Proposed DHS Entity “Stand in the Shoes” Rules

2. Physician “Stand in the Shoes” Provisions

3. DHS Entity “Stand in the Shoes” Provisions

4. Application of the Physician “Stand in the Shoes” and the DHS Entity “Stand in the Shoes” Provisions (“Conventions”)

5. Definitions: “Physician” and “Physician Organization”

C. Period of Disallowance

D. Alternative Method for Compliance With Signature Requirements in Certain Exceptions

E. Percentage-Based Compensation Formulae

F. Unit of Service (Per Click) Payments in Lease Arrangements

1. General Support for Proposal

2. Authority

3. Hospitals as Risk-Averse and Access to Care

4. Evidence of Overutilization: Therapeutic Versus Diagnostic

5. Per-Click Payments as Best Measure of Fair Market Value

6. Lithotripsy as Not DHS

7. Time-Based Rental Arrangements

8. Physician Entities as Lessors

9. Physicians and Physician Entities as Lessees

G. Services Provided “Under Arrangements” (Services Performed by an Entity Other Than the Entity That Submits the Claim)

1. Support for Proposal

2. MedPAC Approach

3. Authority for Proposal

4. Community Benefit and Access to Care

5. Hospitals as Risk-Averse

6. Proposal Based on Anecdotal Evidence

7. Cardiac Catheterization

8. Therapeutic Versus Diagnostic

9. Professional Fee Greater Than Incremental Return for Technical Component

10. Existing Exceptions Are Sufficient Potection

11. Suggested Changes to Definitions

12. Cause Claim To Be Submitted

13. Physician-Owned Implant Companies

14. Procedures Must Be Done in a Hospital Setting Because the ASC Does Not Pay Enough

15. Lithotripsy as Not DHS

16. Procedures That Are DHS Only When Furnished in a Hospital

17. Exceptions

18. Personally Performed Services

19. Outpatient Services Treated Differently Than Inpatient Services

20. Sleep Centers

21. Dialysis

22. Effective Date

H. Exceptions for Obstetrical Malpractice Insurance Subsidies

I. Ownership or Investment Interest in Retirement Plans

J. Burden of Proof

IX. Financial Relationships Between Hospitals and Physicians

X. MedPAC Recommendations

XI. Other Required Information

A. Requests for Data From the Public

B. Collection of Information Requirements

1. Legislative Requirement for Solicitation of Comments

2. Requirements in Regulatory Text

a. ICRs Regarding Physician Reporting Requirements

b. ICRs Regarding Risk Adjustment Data

c. ICRs Regarding Basic Commitments of Providers

3. Associated Information Collections Not Specified in Regulatory Text

a. Present on Admission (POA) Indicator Reporting

b. Add-On Payments for New Services and Technologies

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

d. Occupational Mix Adjustment to the FY 2009 Index (Hospital Wage Index Occupational Mix Survey)

C. Waiver of Proposed Rulemaking, Waiver of Delay in Effective Date, and Retroactive Effective Date

1. Requirements for Waivers and Retroactive Rulemaking

2. FY 2008 Puerto Rico—Specific Rates

3. Rebasing of Payments to SCHs

4. Technical Change to Regulations Governing Payments to Hospitals With High Percentage of ESRD Discharges

Regulation Text Back to Top

Addendum—Schedule of Standardized Amounts, Update Factors, and Rate-of-Increase Percentages Effective With Cost Reporting Periods Beginning on or After October 1, 2008 Back to Top

I. Summary and Background

II. Changes to the Prospective Payment Rates for Hospital Inpatient Operating Costs for FY 2009

A. Calculation of the Tentative Adjusted Standardized Amount

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

C. MS-DRG Relative Weights

D. Calculation of the Prospective Payment Rates

III. Changes to Payment Rates for Acute Care Hospital Inpatient Capital-Related Costs for FY 2009

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

B. Calculation of the Inpatient Capital-Related Prospective Payments for FY 2009

C. Capital Input Price Index

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

V. Tables

Table 1A.—National Adjusted Operating Standardized Amounts, Labor/Nonlabor (69.7 Percent Labor Share/30.3 Percent Nonlabor Share If Wage Index Is Greater Than 1)

Table 1B.—National Adjusted Operating Standardized Amounts, Labor/Nonlabor (62 Percent Labor Share/38 Percent Nonlabor Share If Wage Index Is Less Than or Equal to 1)

Table 1C.—Adjusted Operating Standardized Amounts for Puerto Rico, Labor/Nonlabor

Table 1D.—Capital Standard Federal Payment Rate

Table 2.—Hospital Case-Mix Indexes for Discharges Occurring in Federal Fiscal Year 2007; Hospital Average Hourly Wages for Federal Fiscal Years 2007 (2003 Wage Data), 2008 (2004 Wage Data), and 2009 (2005 Wage Data); and 3-Year Average of Hospital Average Hourly Wages

Table 3A.—FY 2009 and 3-Year Average Hourly Wage for Urban Areas by CBSA

Table 3B.—FY 2009 and 3-Year Average Hourly Wage for Rural Areas by CBSA

Table 4J.—Out-Migration Wage Adjustment—FY 2009

Table 5.—List of Medicare Severity Diagnosis-Related Groups (MS-DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean Length of Stay

Table 6A.—New Diagnosis Codes

Table 6B.—New Procedure Codes

Table 6C.—Invalid Diagnosis Codes

Table 6D.—Invalid Procedure Codes

Table 6E.—Revised Diagnosis Code Titles

Table 6F.—Revised Procedure Code Titles

Table 6G.—Additions to the CC Exclusions List (Available through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/)

Table 6H.—Deletions from the CC Exclusions List (Available through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/)

Table 6I.—Complete List of Complication and Comorbidity (CC) Exclusions (Available only through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/)

Table 6J.—Major Complication and Comorbidity (MCC) List (Available Through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/)

Table 6K.—Complication and Comorbidity (CC) List (Available Through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/)

Table 7A.—Medicare Prospective Payment System Selected Percentile Lengths of Stay: FY 2007 MedPAR Update—March 2008 GROUPER V25.0 MS-DRGs

Table 7B.—Medicare Prospective Payment System Selected Percentile Lengths of Stay: FY 2007 MedPAR Update—March 2008 GROUPER V26.0 MS-DRGs

Table 8A.—Statewide Average Operating Cost-to-Charge Ratios—July 2008

Table 8B.—Statewide Average Capital Cost-to-Charge Ratios—July 2008

Table 8C.—Statewide Average Total Cost-to-Charge Ratios for LTCHs—July 2008

Table 9A.—Hospital Reclassifications and Redesignations—FY 2009

Table 9B.—Hospitals Redesignated as Rural Under Section 1886(d)(8)(E) of the Act—FY 2009

Table 10.—Tentative Geometric Mean Plus the Lesser of .75 of the National Adjusted Operating Standardized Payment Amount (Increased To Reflect the Difference Between Costs and Charges) or .75 of One Standard Deviation of Mean Charges by Medicare Severity Diagnosis-Related Groups (MS-DRGs)—July 2008

Table 11.—FY 2009 MS-LTC-DRGs, Relative Weights, Geometric Average Length of Stay, and Short-Stay Outlier (SSO) Threshold

Appendix A: Regulatory Impact Analysis

I. Overall Impact

II. Objectives

III. Limitations of Our Analysis

IV. Hospitals Included in and Excluded From the IPPS

V. Effects on Excluded Hospitals and Hospital Units

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

A. Basis and Methodology of Estimates

B. Analysis of Table I

C. Effects of the Changes to the MS-DRG Reclassifications and Relative Cost-Based Weights (Column 2)

D. Effects of Wage Index Changes (Column 3)

E. Combined Effects of MS-DRG and Wage Index Changes (Column 4)

F. Effects of MGCRB Reclassifications (Column 5)

G. Effects of the Rural Floor and Imputed Rural Floor, Including the Transition To Apply Budget Neutrality at the State Level (Column 6)

H. Effects of the Wage Index Adjustment for Out-Migration (Column 7)

I. Effects of All Changes With CMI Adjustment Prior to Estimated Growth (Column 8)

J. Effects of All Changes With CMI Adjustment and Estimated Growth(Column 9)

K. Effects of Policy on Payment Adjustments for Low-Volume Hospitals

L. Impact Analysis of Table II

VII. Effects of Other Policy Changes

A. Effects of Policy on HACs, Including Infections

B. Effects of MS-LTC-DRG Reclassifications and Relative Weights for LTCHs

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

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

E. Effects of Policy Change to Methodology for Computing Core Staffing Factors for Volume Decrease Adjustment for SCHs and MDHs

F. Impact of the Policy Revisions Related to Payment to Hospitals for Direct Graduate Medical Education (GME)

G. Effects of Clarification of Policy for Collection of Risk Adjustment Data From MA Organizations

H. Effects of Policy Changes Relating to Hospital Emergency Services Under EMTALA

I. Effects of Implementation of Rural Community Hospital Demonstration Program

J. Effects of Policy Changes Relating to Payments to Hospitals-Within-Hospitals

K. Effects of Policy Changes Relating to Requirements for Disclosure of Physician Ownership in Hospitals

L. Effects of Policy Changes Relating to Physician Self-Referral Provisions

M. Effects of Changes Relating to Reporting of Financial Relationships Between Hospitals and Physicians

VIII. Effects of Changes in the Capital IPPS

A. General Considerations

B. Results

IX. Alternatives Considered

X. Overall Conclusion

XI. Accounting Statement

XII. Executive Order 12866

Appendix B: Recommendation of Update Factors for Operating Cost Rates of Payment for Inpatient Hospital Services

I. Background

II. Inpatient Hospital Update for FY 2009

III. Secretary's Final Recommendation

IV. MedPAC Recommendation for Assessing Payment Adequacy and Updating Payments in Traditional Medicare

I. Background Back to Top

A. Summary

1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)

Section 1886(d) of the Social Security Act (the Act) sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of hospital inpatient stays under a prospective payment system (PPS). Under these PPSs, Medicare payment for hospital inpatient operating and capital-related costs is made at predetermined, specific rates for each hospital discharge. Discharges are classified according to a list of diagnosis-related groups (DRGs).

The base payment rate is comprised of a standardized amount that is divided into a labor-related share and a nonlabor-related share. The labor-related share is adjusted by the wage index applicable to the area where the hospital is located. If the hospital is located in Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of-living adjustment factor. This base payment rate is multiplied by the DRG relative weight.

If the hospital treats a high percentage of low-income patients, it receives a percentage add-on payment applied to the DRG-adjusted base payment rate. This add-on payment, known as the disproportionate share hospital (DSH) adjustment, provides for a percentage increase in Medicare payments to hospitals that qualify under either of two statutory formulas designed to identify hospitals that serve a disproportionate share of low-income patients. For qualifying hospitals, the amount of this adjustment may vary based on the outcome of the statutory calculations.

If the hospital is an approved teaching hospital, it receives a percentage add-on payment for each case paid under the IPPS, known as the indirect medical education (IME) adjustment. This percentage varies, depending on the ratio of residents to beds.

Additional payments may be made for cases that involve new technologies or medical services that have been approved for special add-on payments. To qualify, a new technology or medical service must demonstrate that it is a substantial clinical improvement over technologies or services otherwise available, and that, absent an add-on payment, it would be inadequately paid under the regular DRG payment.

The costs incurred by the hospital for a case are evaluated to determine whether the hospital is eligible for an additional payment as an outlier case. This additional payment is designed to protect the hospital from large financial losses due to unusually expensive cases. Any outlier payment due is added to the DRG-adjusted base payment rate, plus any DSH, IME, and new technology or medical service add-on adjustments.

Although payments to most hospitals under the IPPS are made on the basis of the standardized amounts, some categories of hospitals are paid in whole or in part based on their hospital-specific rate based on their costs in a base year. For example, sole community hospitals (SCHs) receive the higher of a hospital-specific rate based on their costs in a base year (the higher of FY 1982, FY 1987, or FY 1996) or the IPPS rate based on the standardized amount. (We note that, as discussed in section IV.D.2. of this preamble, effective for cost reporting periods beginning on or after January 1, 2009, an SCH's hospital-specific rate will be based on their costs per discharge in FY 2006 if greater than the hospital-specific rates based on its costs in FY 1982, FY 1987, or FY 1996, or the IPPS rate based on the standardized amount.) Until FY 2007, a Medicare-dependent, small rural hospital (MDH) has received the IPPS rate plus 50 percent of the difference between the IPPS rate and its hospital-specific rate if the hospital-specific rate based on their costs in a base year (the higher of FY 1982, FY 1987, or FY 2002) is higher than the IPPS rate. As discussed below, for discharges occurring on or after October 1, 2007, but before October 1, 2011, an MDH will receive the IPPS rate plus 75 percent of the difference between the IPPS rate and its hospital-specific rate, if the hospital-specific rate is higher than the IPPS rate. SCHs are the sole source of care in their areas, and MDHs are a major source of care for Medicare beneficiaries in their areas. Both of these categories of hospitals are afforded this special payment protection in order to maintain access to services for beneficiaries.

Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of inpatient hospital services “in accordance with a prospective payment system established by the Secretary.” The basic methodology for determining capital prospective payments is set forth in our regulations at 42 CFR 412.308 and 412.312. Under the capital IPPS, payments are adjusted by the same DRG for the case as they are under the operating IPPS. Capital IPPS payments are also adjusted for IME and DSH, similar to the adjustments made under the operating IPPS. However, as discussed in section V.B.2. of this preamble, the capital IME adjustment will be reduced by 50 percent in FY 2009 (as established in the FY 2008 IPPS final rule with comment period). 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 specialty hospitals and hospital units are excluded from the IPPS. These hospitals and units are: rehabilitation hospitals and units; long-term care hospitals (LTCHs); psychiatric hospitals and units; children's hospitals; and cancer hospitals. Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS. Various sections of the Balanced Budget Act of 1997 (Pub. L. 105-33), the Medicare, Medicaid and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999 (Pub. L. 106-113), and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (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)), as discussed below. Children's hospitals, cancer hospitals, and RNHCIs continue to be paid solely under a reasonable cost-based system.

The existing regulations governing payments to excluded hospitals and hospital units are located in 42 CFR parts 412 and 413.

a. Inpatient Rehabilitation Facilities (IRFs)

Under section 1886(j) of the Act, as amended, rehabilitation hospitals and units (IRFs) have been transitioned from payment based on a blend of reasonable cost reimbursement subject to a hospital-specific annual limit under section 1886(b) of the Act and the adjusted facility Federal prospective payment rate for cost reporting periods beginning on or after January 1, 2002 through September 30, 2002, to payment at 100 percent of the Federal rate effective for cost reporting periods beginning on or after October 1, 2002. IRFs subject to the blend were also permitted to elect payment based on 100 percent of the Federal rate. The existing regulations governing payments under the IRF PPS are located in 42 CFR Part 412, Subpart P.

b. Long-Term Care Hospitals (LTCHs)

Under the authority of sections 123(a) and (c) of Public Law 106-113 and section 307(b)(1) of Public Law 106-554, the LTCH PPS was effective for a LTCH's first cost reporting period beginning on or after October 1, 2002. LTCHs that do not meet the definition of “new” under § 412.23(e)(4) are paid, during a 5-year transition period, a LTCH prospective payment that is comprised of an increasing proportion of the LTCH Federal rate and a decreasing proportion based on reasonable cost principles. Those LTCHs that did not meet the definition of “new” under § 412.23(e)(4) could elect to be paid based on 100 percent of the Federal prospective payment rate instead of a blended payment in any year during the 5-year transition. For cost reporting periods beginning on or after October 1, 2006, all LTCHs are paid 100 percent of the Federal rate. The existing regulations governing payment under the LTCH PPS are located in 42 CFR part 412, subpart O.

c. Inpatient Psychiatric Facilities (IPFs)

Under the authority of sections 124(a) and (c) of Public Law 106-113, inpatient psychiatric facilities (IPFs) (formerly psychiatric hospitals and psychiatric units of acute care hospitals) are paid under the IPF PPS. For cost reporting periods beginning on or after January 1, 2008, all IPFs are paid 100 percent of the Federal per diem payment amount established under the IPF PPS. (For cost reporting periods beginning on or after January 1, 2005, and ending on or before December 31, 2007, some IPFs received transitioned payments for inpatient hospital services based on a blend of reasonable cost-based payment and a Federal per diem payment rate.) The existing regulations governing payment under the IPF PPS are located in 42 CFR 412, Subpart N.

3. Critical Access Hospitals (CAHs)

Under sections 1814, 1820, and 1834(g) of the Act, payments are made to critical access hospitals (CAHs) (that is, rural hospitals or facilities that meet certain statutory requirements) for inpatient and outpatient services are based on 101 percent of reasonable cost. Reasonable cost is determined under the provisions of section 1861(v)(1)(A) of the Act and existing regulations under 42 CFR parts 413 and 415.

4. Payments for Graduate Medical Education (GME)

Under section 1886(a)(4) of the Act, costs of approved educational activities are excluded from the operating costs of inpatient hospital services. Hospitals with approved graduate medical education (GME) programs are paid for the direct costs of GME in accordance with section 1886(h) of the Act. The amount of payment for direct GME costs for a cost reporting period is based on the hospital's number of residents in that period and the hospital's costs per resident in a base year. The existing regulations governing payments to the various types of hospitals are located in 42 CFR part 413.

B. Provisions of the Deficit Reduction Act of 2005 (DRA)

Section 5001(b) of the Deficit Reduction Act of 2005 (DRA), Public Law 109-171, requires the Secretary to develop a plan to implement, beginning with FY 2009, a value-based purchasing plan for section 1886(d) hospitals defined in the Act. In section IV.C. of the preamble of this proposed rule, we discuss the report to Congress on the Medicare value-based purchasing plan and the current testing of the plan.

C. Provisions of the Medicare Improvements and Extension Act Under Division B, Title I of the Tax Relief and Health Care Act of 2006 (MIEA-TRHCA)

Section 106(b)(2) of the MIEA-TRHCA instructed the Secretary of Health and Human Services to include in the FY 2009 IPPS proposed rule one or more proposals to revise the wage index adjustment applied under section 1886(d)(3)(E) of the Act for purposes of the IPPS. The Secretary was also instructed to consider MedPAC's recommendations on the Medicare wage index classification system in developing these proposals. In section III. of the preamble of this final rule, we summarize Acumen's comparative and impact analysis of the MedPAC and CMS wage indices.

D. Provision of the TMA, Abstinence Education, and QI Programs Extension Act of 2007

Section 7 of the TMA [Transitional Medical Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension Act of 2007 (Pub. L. 110-90) provides for a 0.9 percent prospective documentation and coding adjustment in the determination of standardized amounts under the IPPS (except for MDHs, SCHs, and Puerto Rico hospitals) for discharges occurring during FY 2009. The prospective documentation and coding adjustment was established in FY 2008 in response to the implementation of an MS-DRG system under the IPPS that resulted in changes in coding and classification that did not reflect real changes in case-mix under section 1886(d) of the Act. We discuss our implementation of this provision in section II.D. of the preamble of this final rule and in the Addendum and in Appendix A to this final rule.

E. Issuance of a Notice of Proposed Rulemaking

On April 30, 2008, we issued in the Federal Register (73 FR 23528) a notice of proposed rulemaking that set forth proposed changes to the Medicare IPPS for operating costs and for capital-related costs in FY 2009. We also set forth proposed changes relating to payments for GME and IME costs and payments to certain hospitals and units that continue to be excluded from the IPPS and paid on a reasonable cost basis that would be effective for discharges occurring on or after October 1, 2008. In addition, we presented proposed changes relating to disclosure to patients of physician ownership and investment interests in hospitals, proposed changes to our physician self-referral regulations, and a solicitation of public comments on a proposed collection of information regarding financial relationships between hospitals and physicians.

Below is a summary of the major changes that we proposed to make:

1. Proposed Changes to MS-DRG Classifications and Recalibrations of Relative Weights In section II. of the Preamble to the Proposed Rule, We Included—

  • Proposed changes to MS-DRG reclassifications based on our yearly review.
  • Proposed application of the documentation and coding adjustment to hospital-specific rates resulting from implementation of the MS-DRG system.
  • Proposed changes to address the RTI reporting recommendations on charge compression.
  • Proposed recalibrations of the MS-DRG relative weights.

We also proposed to refine the hospital cost reports so that charges for relatively inexpensive medical supplies are reported separately from the costs and charges for more expensive medical devices. This proposal would be applied to the determination of both the IPPS and the OPPS relative weights as well as the calculation of the ambulatory surgical center payment rates.

We presented a listing and discussion of additional hospital-acquired conditions (HACs), including infections, that were proposed to be subject to the statutorily required quality adjustment in MS-DRG payments for FY 2009.

We presented our evaluation and analysis of the FY 2009 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).

We proposed the annual update of the MS-LTC-DRG classifications and relative weights for use under the LTCH PPS for FY 2009.

2. Proposed Changes to the Hospital Wage Index

In section III. of the preamble to the proposed rule, we proposed revisions to the wage index and the annual update of the wage data. Specific issues addressed include the following:

  • Proposed wage index reform changes in response to recommendations made to Congress as a result of the wage index study required under Public Law 109-432. We discussed changes related to reclassifications criteria, application of budget neutrality in reclassifications, and the rural floor and imputed floor budget neutrality at the State level.
  • Changes to the CBSA designations.
  • The methodology for computing the proposed FY 2009 wage index.
  • The proposed FY 2009 wage index update, using wage data from cost reporting periods that began during FY 2005.
  • Analysis and implementation of the proposed FY 2009 occupational mix adjustment to the wage index.
  • Proposed revisions to the wage index based on hospital redesignations and reclassifications.
  • The proposed adjustment to the wage index for FY 2009 based on commuting patterns of hospital employees who reside in a county and work in a different area with a higher wage index.
  • The timetable for reviewing and verifying the wage data used to compute the proposed FY 2009 wage index.
  • The proposed labor-related share for the FY 2009 wage index, including the labor-related share for Puerto Rico.

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

In section IV. of the preamble to the proposed rule, we discussed a number of the provisions of the regulations in 42 CFR Parts 412, 413, and 489, including the following:

  • Proposed changes to the postacute care transfer policy as it relates to transfers to home with the provision of home health services.
  • The reporting of hospital quality data as a condition for receiving the full annual payment update increase.
  • Proposed changes in the collection of Medicare Advantage (MA) encounter data that are used for computing the risk payment adjustment made to MA organizations.
  • Discussion of the report to Congress on the Medicare value-based purchasing plan and current testing and further development of the plan.
  • Proposed changes to the methodology for determining core staff values for the volume decrease payment adjustment for SCHs and MDHs.
  • The proposed updated national and regional case-mix values and discharges for purposes of determining RRC status.
  • The statutorily required IME adjustment factor for FY 2009 and technical changes to the GME payment policies.
  • Proposed changes to policies on hospital emergency services under EMTALA to address EMTALA Technical Advisory Group (TAG) recommendations.
  • Solicitation of public comments on Medicare policies relating to incentives for avoidable readmissions to hospitals.
  • Discussion of the fifth year of implementation of the Rural Community Hospital Demonstration Program.

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

In section V. of the preamble to the proposed rule, we discussed the payment policy requirements for capital-related costs and capital payments to hospitals. We acknowledged the public comments that we received on the phase-out of the capital teaching adjustment included in the FY 2008 IPPS final rule with comment period, and again solicited public comments on this phase-out.

5. Proposed Changes to the Payment Rates for Excluded Hospitals and Hospital Unit

In section VI. of the preamble to the proposed rule, we discussed proposed changes to payments to excluded hospitals and hospital units, proposed changes for determining LTCH CCRs under the LTCH PPS, and proposed changes to the regulations on hospitals-within-hospitals.

6. Proposed Changes Relating to Disclosure of Physician Ownership in Hospitals

In section VII. of the preamble of the proposed rule, we presented proposed changes to the regulations relating to the disclosure to patients of physician ownership or investment interests in hospitals.

7. Proposed Changes and Solicitation of Comments on Physician Self-Referral Provisions

In section VIII. of the preamble of the proposed rule, we proposed changes to the physician self-referral regulations relating to the “Stand in Shoes” provision and the period of disallowance for claims submitted in violation of the prohibition. In addition, we solicited public comments regarding physician-owned implant companies and gainsharing arrangements.

8. Proposed Collection of Information Regarding Financial Relationships Between Hospitals and Physicians

In section IX. of the preamble of the proposed rule, we solicited public comments on our proposed collection of information regarding financial relationships between hospitals and physicians.

9. Determining Proposed Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits

In the Addendum to the proposed rule, we set forth proposed changes to the amounts and factors for determining the FY 2009 prospective payment rates for operating costs and capital-related costs. We also established the proposed threshold amounts for outlier cases. In addition, we addressed the proposed update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2009 for hospitals and hospital units excluded from the PPS.

10. Impact Analysis

In Appendix A of the proposed rule, we set forth an analysis of the impact that the proposed changes would have on affected hospitals.

11. Recommendation of Update Factors for Operating Cost Rates of Payment for Inpatient Hospital Services

In Appendix B of the proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provided our recommendations of the appropriate percentage changes for FY 2009 for the following:

  • A single average standardized amount for all areas for hospital inpatient services paid under the IPPS for operating costs (and hospital-specific rates applicable to SCHs and MDHs).
  • Target rate-of-increase limits to the allowable operating costs of hospital inpatient services furnished by hospitals and hospital units excluded from the IPPS.

12. Disclosure of Financial Relationships Report (DFRR) Form

In Appendix C of the proposed rule, we presented the reporting form that we proposed to use for the proposed collection of information on financial relationships between hospitals and physicians discussed in section IX. of the preamble of the proposed rule.

13. Discussion of Medicare Payment Advisory Commission Recommendations

Under section 1805(b) of the Act, MedPAC is required to submit a report to Congress, no later than March 1 of each year, in which MedPAC reviews and makes recommendations on Medicare payment policies. MedPAC's March 2008 recommendations concerning hospital inpatient payment policies address the update factor for inpatient hospital operating costs and capital-related costs under the IPPS and for hospitals and distinct part hospital units excluded from the IPPS. We addressed these recommendations in Appendix B of the proposed rule. For further information relating specifically to the MedPAC March 2008 reports or to obtain a copy of the reports, contact MedPAC at (202) 220-3700 or visit MedPAC's Web site at: http://www.medpac.gov.

F. Public Comments Received on the FY 2009 IPPS Proposed Rule and Issues in Related Rules

1. Comments on the FY 2009 IPPS Proposed Rule

We received over 1,100 timely pieces of correspondence in response to the FY 2009 IPPS proposed rule issued in the Federal Register on April 30, 2008. These public comments addressed issues on multiple topics in the proposed rule. We present a summary of the public comments and our responses to them in the applicable subject-matter sections of this final rule.

2. Comments on Phase-Out of the Capital Teaching Adjustment Under the IPPS Included in the FY 2008 IPPS Final Rule With Comment Period

In the FY 2008 IPPS final rule with comment period, we solicited public comments on our policy changes related to phase-out of the capital teaching adjustment to the capital payment update under the IPPS (72 FR 47401). We received approximately 90 timely pieces of correspondence in response to our solicitation. In section V. of the preamble of the FY 2009 IPPS proposed rule, we acknowledged receipt of those public comments and again solicited public comments on the phase-out. We received numerous pieces of timely correspondence in response to the second solicitation. In section V. of this final rule, we summarize the public comments received on both the FY 2008 IPPS final rule with comment period and the FY 2009 IPPS proposed rule and present our responses.

3. Comments on Policy Revisions Related to Payment to Medicare GME Affiliated Hospitals in Certain Declared Emergency Areas Included in Two Interim Final Rules With Comment Period

We have issued two interim final rules with comment periods in the Federal Register that modified the GME regulations as they apply to Medicare GME affiliated groups to provide for greater flexibility in training residents in approved residency programs during times of disasters: On April 12, 2006 (71 FR 18654) and on November 27, 2007 (72 FR 66892). We received a number of timely pieces of correspondence in response to these interim final rules with comment period. In section IV.G. of the preamble of this final rule, we summarize and address these public comments.

4. Comments on Proposed Policy Revisions Related to Physician Self-Referrals Included in the CY 2008 Physician Fee Schedule Proposed Rule

On July 12, 2007, we issued in the Federal Register proposed revisions to physician payment policies under the CY 2008 Physician Fee Schedule (72 FR 38121). Among these proposed changes were a number of proposed changes relating to physician self-referral issues that we have not finalized: Burden of proof; obstetrical malpractice insurance subsidies; ownership or investment interest in retirement plans; units of service (per click) payments in space and equipment leases; “set in advance” percentage-based compensation arrangements; alternative criteria for satisfying certain exceptions; and services provided under arrangement. In section VIII. of the preamble to this final rule, we are addressing the public comments that we received on these proposed revisions, presenting our responses to the public comments, and finalizing these policies.

G. Provisions of the Medicare Improvements for Patients and Providers Act of 2008

After publication of the FY 2009 IPPS proposed rule, the Medicare Improvements for Patients and Providers Act of 2008, Public Law 110-275, was enacted on July 15, 2008. Public Law 110-275 contains several provisions that impact payments under the IPPS for FY 2009, which we discuss or are implementing in this final rule:

  • Section 122 of Public Law 110-275 provides that, for cost reporting periods beginning on or after January 1, 2009, SCHs will be paid based on an FY 2006 hospital-specific rate (that is, based on their updated costs per discharge from their 12-month cost reporting period beginning during Federal fiscal year 2007), if this results in the greatest payment to the SCH. Therefore, effective with cost reporting periods beginning January 1, 2009, SCHs will be paid based on the rate that results in the greatest aggregate payment using either the Federal rate or their hospital-specific rate based on their cost per discharge for 1982, 1987, 1996, or 2006. We address this provision under section IV.D.2. of the preamble of this final rule.
  • Section 124 of Public Law 110-275 extends, through FY 2009, wage index reclassifications for hospitals reclassified under section 508 of Public Law 108-173 (the MMA) and certain special hospital exceptions extended under the Medicare and Medicaid SCHIP Extension Act (MMSEA) of 2007 (Pub. L. 110-173). We discuss this provision in section III.I.7. and various other sections of this final rule. We note that because of the timing of enactment of Public Law 110-275, we are not able to recompute the FY 2009 wage index values for any hospital that would be reclassified under the section 508 provisions in time for inclusion in this final rule. We will issue the final FY 2009 wage index values and other related tables, as specified in the Addendum to this final rule, in a separate Federal Register notice implementing this extension that will be published subsequent to this final rule.

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

A. Background

Section 1886(d) of the Act specifies that the Secretary shall establish a classification system (referred to as DRGs) for inpatient discharges and adjust payments under the IPPS based on appropriate weighting factors assigned to each DRG. Therefore, under the IPPS, we pay for inpatient hospital services on a rate per discharge basis that varies according to the DRG to which a beneficiary's stay is assigned. The formula used to calculate payment for a specific case multiplies an individual hospital's payment rate per case by the weight of the DRG to which the case is assigned. Each DRG weight represents the average resources required to care for cases in that particular DRG, relative to the average resources used to treat cases in all DRGs.

Congress recognized that it would be necessary to recalculate the DRG relative weights periodically to account for changes in resource consumption. Accordingly, section 1886(d)(4)(C) of the Act requires that the Secretary adjust the DRG classifications and relative weights at least annually. These adjustments are made to reflect changes in treatment patterns, technology, and any other factors that may change the relative use of hospital resources.

B. MS-DRG Reclassifications

1. General

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

Currently, cases are classified into MS-DRGs for payment under the IPPS based on the following information reported by the hospital: the principal diagnosis, up to eight additional diagnoses, and up to six procedures performed during the stay. In a small number of MS-DRGs, classification is also based on the age, sex, and discharge status of the patient. The diagnosis and procedure information is reported by the hospital using codes from the International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM).

Comment: Several commenters expressed concern that only nine diagnosis codes and six procedure codes are used by Medicare to process each claim under the IPPS. The commenters stated that the implementation of new initiatives, such as the MS-DRG system, Present on Admission (POA) reporting, and the hospital-acquired condition (HAC) payment provision, depend on the capturing of all of the patient's diagnoses and procedures in order to fully represent the patient's severity of illness, complexity of care, and quality of care provided. In addition, the commenters stated that the adoption of “component” codes, such as the new ICD-9-CM codes for pressure ulcer stages, requires multiple diagnosis fields to represent a single diagnosis. The commenters recommended that CMS modify its systems so that the number of diagnoses codes processed would increase from 9 to 25 and the number of procedure codes processed would increase from 6 to 25. The commenters stated that hospitals submit claims to CMS in electronic format, and that the HIPAA compliant electronic transaction standard, HIPAA 837i, allows up to 25 diagnoses and 25 procedures. The commenters stated that CMS does not require its fiscal intermediaries (or MAC) to process codes beyond the first nine diagnosis codes and six procedure codes. The commenters indicated that complex classification systems such as the proposed MS-DRGs could use the information in these additional codes to improve patient classification.

Response: The commenters are correct that CMS does not process codes submitted electronically on the 837i electronic format beyond the first nine diagnosis codes and first six procedure codes. While HIPAA requires CMS to accept up to 25 ICD-9-CM diagnosis and procedure codes on the HIPAA 837i electronic format, it does not require that CMS process that number of diagnosis and procedure codes. We agree with the commenters that there is value in retaining additional data on patient conditions that would result from expanding Medicare's data system so it can accommodate additional diagnosis and procedure codes. We have been considering this issue while we contemplate refinements to our DRG system to better recognize patient severity of illness. However, extensive lead time is required to allow for modifications to our internal and contractors' electronic systems in order to process and store this additional information. We are unable to currently move forward with this recommendation without carefully evaluating implementation issues. However, we will continue to carefully evaluate this request to expand the process capacity of our systems.

The process of developing the MS-DRGs was begun by dividing all possible principal diagnoses into mutually exclusive principal diagnosis areas, referred to as Major Diagnostic Categories (MDCs). The MDCs were formulated by physician panels to ensure that the DRGs would be clinically coherent. The diagnoses in each MDC correspond to a single organ system or etiology and, in general, are associated with a particular medical specialty. Thus, in order to maintain the requirement of clinical coherence, no final MS-DRG could contain patients in different MDCs. For example, MDC 6 is Diseases and Disorders of the Digestive System. This approach is used because clinical care is generally organized in accordance with the organ system affected. However, some MDCs are not constructed on this basis because they involve multiple organ systems (for example, MDC 22 (Burns)). For FY 2008, cases are assigned to one of 745 MS-DRGs in 25 MDCs. The table below lists the 25 MDCs.

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

In general, cases are assigned to an MDC based on the patient's principal diagnosis before assignment to an MS-DRG. However, under the most recent version of the Medicare GROUPER (Version 26.0), there are 9 MS-DRGs to which cases are directly assigned on the basis of ICD-9-CM procedure codes. These MS-DRGs are for heart transplant or implant of heart assist systems; liver and/or intestinal transplants; bone marrow transplants; lung transplants; simultaneous pancreas/kidney transplants; pancreas transplants; and tracheostomies. Cases are assigned to these MS-DRGs before they are classified to an MDC. The table below lists the nine current pre-MDCs.

Pre-Major Diagnostic Categories (Pre-MDCs)
MS-DRG 103 Heart Transplant or Implant of Heart Assist System.
MS-DRG 480 Liver Transplant and/or Intestinal Transplant.
MS-DRG 481 Bone Marrow Transplant.
MS-DRG 482 Tracheostomy for Face, Mouth, and Neck Diagnoses.
MS-DRG 495 Lung Transplant.
MS-DRG 512 Simultaneous Pancreas/Kidney Transplant.
MS-DRG 513 Pancreas Transplant.
MS-DRG 541 ECMO or Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnosis with Major O.R.
MS-DRG 542 Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnosis without Major O.R.

Comment: One commenter noted that the MS-DRG titles for four MS-DRGs have changed in Table 5 (which lists all of the MS-DRGs) in the Addendum to the proposed rule: MS-DRG 154 (Other Ear, Nose, Mouth and Throat Diagnoses with MCC); MS-DRG 155 (Other Ear, Nose, Mouth and Throat Diagnoses with CC); MS-DRG 156 (Other Ear, Nose, Mouth and Throat Diagnoses without CC/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 the current titles for these MS-DRGs are: MS-DRG 154 (Nasal Trauma and Deformity with MCC); MS-DRG 155 (Nasal Trauma and Deformity with CC); MS-DRG 156 (Nasal Trauma and Deformity without CC/MCC); MS-DRG 250 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or AMI with MCC); and MS-DRG 251 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or AMI without MCC). The commenter inquired if these changes were discussed in the MS-DRGs section of the proposed rule.

Response: The commenter is correct in that we changed these MS-DRG titles to better reflect the modification we made when we adopted the MS-DRGs for FY 2008. Specifically, CMS DRGs 72 (Nasal Trauma Deformity) and 73 and 74 (Other Ear, Nose, Mouth and Throat Diagnoses Age 17, Age 0-17, respectively) were consolidated to create MS-DRGs 154, 155, 156 (72 FR 47156). There are other ear, nose, mouth, and throat diagnoses in addition to nasal trauma and deformity assigned to these MS-DRGs so we expanded the titles for MS-DRGs 154, 155, and 156. For MS-DRGs 250 and 251, “or AMI” was removed from the titles because these descriptors that were applicable in the CMS DRGs are no longer applicable in the MS-DRGs. We are making these corrections in this final rule.

In addition to these changes to the MS-DRG titles, we are also amending one other MS-DRG title. Due to the creation, after the proposed rule was published, of 6 new ICD-9-CM diagnosis codes for various types of fevers, we are revising the title for MS-DRG 864 from “Fever of Unknown Origin” to “Fever”.

Once the MDCs were defined, each MDC was evaluated to identify those additional patient characteristics that would have a consistent effect on hospital resource consumption. Because the presence of a surgical procedure that required the use of the operating room would have a significant effect on the type of hospital resources used by a patient, most MDCs were initially divided into surgical DRGs and medical DRGs. Surgical DRGs are based on a hierarchy that orders operating room (O.R.) procedures or groups of O.R. procedures by resource intensity. Medical DRGs generally are differentiated on the basis of diagnosis and age (0 to 17 years of age or greater than 17 years of age). Some surgical and medical DRGs are further differentiated based on the presence or absence of a complication or comorbidity (CC) or a major complication or comorbidity (MCC).

Generally, nonsurgical procedures and minor surgical procedures that are not usually performed in an operating room are not treated as O.R. procedures. However, there are a few non-O.R. procedures that do affect MS-DRG assignment for certain principal diagnoses. An example is extracorporeal shock wave lithotripsy for patients with a principal diagnosis of urinary stones. Lithotripsy procedures are not routinely performed in an operating room. Therefore, lithotripsy codes are not classified as O.R. procedures. However, our clinical advisors believe that patients with urinary stones who undergo extracorporeal shock wave lithotripsy should be considered similar to other patients who undergo O.R. procedures. Therefore, we treat this group of patients similar to patients undergoing O.R. procedures.

Once the medical and surgical classes for an MDC were formed, each diagnosis class was evaluated to determine if complications or comorbidities would consistently affect hospital resource consumption. Each diagnosis was categorized into one of three severity levels. These three levels include a major complication or comorbidity (MCC), a complication or comorbidity (CC), or a non-CC. Physician panels classified each diagnosis code based on a highly iterative process involving a combination of statistical results from test data as well as clinical judgment. As stated earlier, we refer readers to section II.D. of the FY 2008 IPPS final rule with comment period for a full detailed discussion of how the MS-DRG system was established based on severity levels of illness (72 FR 47141).

A patient's diagnosis, procedure, discharge status, and demographic information is entered into the Medicare claims processing systems and subjected to a series of automated screens called the Medicare Code Editor (MCE). The MCE screens are designed to identify cases that require further review before classification into an MS-DRG.

After patient information is screened through the MCE and any further development of the claim is conducted, the cases are classified into the appropriate MS-DRG by the Medicare GROUPER software program. The GROUPER program was developed as a means of classifying each case into an MS-DRG on the basis of the diagnosis and procedure codes and, for a limited number of MS-DRGs, demographic information (that is, sex, age, and discharge status).

After cases are screened through the MCE and assigned to an MS-DRG by the GROUPER, the PRICER software calculates a base MS-DRG payment. The PRICER calculates the payment for each case covered by the IPPS based on the MS-DRG relative weight and additional factors associated with each hospital, such as IME and DSH payment adjustments. These additional factors increase the payment amount to hospitals above the base MS-DRG payment.

The records for all Medicare hospital inpatient discharges are maintained in the Medicare Provider Analysis and Review (MedPAR) file. The data in this file are used to evaluate possible MS-DRG classification changes and to recalibrate the MS-DRG weights. However, in the FY 2000 IPPS final rule (64 FR 41500), we discussed a process for considering non-MedPAR data in the recalibration process. In order for us to consider using particular non-MedPAR data, we must have sufficient time to evaluate and test the data. The time necessary to do so depends upon the nature and quality of the non-MedPAR data submitted. Generally, however, a significant sample of the non-MedPAR data should be submitted by mid-October for consideration in conjunction with the next year's proposed rule. This date allows us time to test the data and make a preliminary assessment as to the feasibility of using the data. Subsequently, a complete database should be submitted by early December for consideration in conjunction with the next year's proposed rule.

As we indicated above, for FY 2008, we made significant improvement in the DRG system to recognize severity of illness and resource usage by adopting MS-DRGs that were reflected in the FY 2008 GROUPER, Version 25.0, and were effective for discharges occurring on or after October 1, 2007. The changes we proposed for FY 2009 (and are adopting in this final rule) will be reflected in the FY 2009 GROUPER, Version 26.0, and will be effective for discharges occurring on or after October 1, 2008. As noted in the FY 2009 IPPS proposed rule (73 FR 23538), our DRG analysis for the FY 2009 proposed rule was based on data from the September 2007 update of the FY 2007 MedPAR file, which contains hospital bills received through September 30, 2007, for discharges through September 30, 2007. For this final rule, our analysis is based on more recent data from the March 2008 update of the FY 2007 MedPAR file, which contains hospital bills received through March 31, 2008, for discharges occurring in FY 2007.

2. Yearly Review for Making MS-DRG Changes

Many of the changes to the MS-DRG classifications we make annually are the result of specific issues brought to our attention by interested parties. We encourage individuals with comments about MS-DRG classifications to submit these in a timely manner so they can be carefully considered for possible inclusion in the annual proposed rule and, if included, may be subjected to public review and comment. Therefore, similar to the timetable for interested parties to submit non-MedPAR data for consideration in the MS-DRG recalibration process, comments about MS-DRG classification issues should be submitted no later than early December in order to be considered and possibly included in the next annual proposed rule updating the IPPS.

The actual process of forming the MS-DRGs was, and will likely continue to be, highly iterative, involving a combination of statistical results from test data combined with clinical judgment. In the FY 2008 IPPS final rule (72 FR 47140 through 47189), we described in detail the process we used to develop the MS-DRGs that we adopted for FY 2008. In addition, in deciding whether to make further modification to the MS-DRGs for particular circumstances brought to our attention, we considered whether the resource consumption and clinical characteristics of the patients with a given set of conditions are significantly different than the remaining patients in the MS-DRG. We evaluated patient care costs using average charges and lengths of stay as proxies for costs and relied on the judgment of our medical advisors to decide whether patients are clinically distinct or similar to other patients in the MS-DRG. In evaluating resource costs, we considered both the absolute and percentage differences in average charges between the cases we selected for review and the remainder of cases in the MS-DRG. We also considered variation in charges within these groups; that is, whether observed average differences were consistent across patients or attributable to cases that were extreme in terms of charges or length of stay, or both. Further, we considered the number of patients who will have a given set of characteristics and generally preferred not to create a new MS-DRG unless it would include a substantial number of cases.

C. Adoption of the MS-DRGs in FY 2008

In the FY 2006, FY 2007, and FY 2008 IPPS final rules, we discussed a number of recommendations made by MedPAC regarding revisions to the DRG system used under the IPPS (70 FR 47473 through 47482; 71 FR 47881 through 47939; and 72 FR 47140 through 47189). As we noted in the FY 2006 IPPS final rule, we had insufficient time to complete a thorough evaluation of these recommendations for full implementation in FY 2006. However, we did adopt severity-weighted cardiac DRGs in FY 2006 to address public comments on this issue and the specific concerns of MedPAC regarding cardiac surgery DRGs. We also indicated that we planned to further consider all of MedPAC's recommendations and thoroughly analyze options and their impacts on the various types of hospitals in the FY 2007 IPPS proposed rule.

For FY 2007, we began this process. In the FY 2007 IPPS proposed rule, we proposed to adopt Consolidated Severity DRGs (CS DRGs) for FY 2008 (if not earlier). However, based on public comments received on the FY 2007 IPPS proposed rule, we decided not to adopt the CS DRGs (71 FR 47906 through 47912). Rather, we decided to make interim changes to the existing DRGs for FY 2007 by creating 20 new DRGs involving 13 different clinical areas that would significantly improve the CMS DRG system's recognition of severity of illness. We also modified 32 DRGs to better capture differences in severity. The new and revised DRGs were selected from 40 existing CMS DRGs that contained 1,666,476 cases and represented a number of body systems. In creating these 20 new DRGs, we deleted 8 existing DRGs and modified 32 existing DRGs. We indicated that these interim steps for FY 2007 were being taken as a prelude to more comprehensive changes to better account for severity in the DRG system by FY 2008.

In the FY 2007 IPPS final rule (71 FR 47898), we indicated our intent to pursue further DRG reform through two initiatives. First, we announced that we were in the process of engaging a contractor to assist us with evaluating alternative DRG systems that were raised as potential alternatives to the CMS DRGs in the public comments. Second, we indicated our intent to review over 13,000 ICD-9-CM diagnosis codes as part of making further refinements to the current CMS DRGs to better recognize severity of illness based on the work that CMS (then HCFA) did in the mid-1990s in connection with adopting severity DRGs. We describe below the progress we have made on these two initiatives, our actions for FY 2008, and our proposals for FY 2009 based on our continued analysis of reform of the DRG system. We note that the adoption of the MS-DRGs to better recognize severity of illness has implications for the outlier threshold, the application of the postacute care transfer policy, the measurement of real case-mix versus apparent case-mix, and the IME and DSH payment adjustments. We discuss these implications for FY 2009 in other sections of this preamble and in the Addendum to this final rule.

In the FY 2007 IPPS proposed rule, we discussed MedPAC's recommendations to move to a cost-based HSRV weighting methodology using HSRVs beginning with the FY 2007 IPPS proposed rule for determining the DRG relative weights. Although we proposed to adopt the HSRV weighting methodology for FY 2007, we decided not to adopt the proposed methodology in the final rule after considering the public comments we received on the proposal. Instead, in the FY 2007 IPPS final rule, we adopted a cost-based weighting methodology without the HSRV portion of the proposed methodology. The cost-based weights are being adopted over a 3-year transition period in1/3increments between FY 2007 and FY 2009. In addition, in the FY 2007 IPPS final rule, we indicated our intent to further study the HSRV-based methodology as well as other issues brought to our attention related to the cost-based weighting methodology adopted in the FY 2007 final rule. There was significant concern in the public comments that our cost-based weighting methodology does not adequately account for charge compression—the practice of applying a higher percentage charge markup over costs to lower cost items and services and a lower percentage charge markup over costs to higher cost items and services. Further, public commenters expressed concern about potential inconsistencies between how costs and charges are reported on the Medicare cost reports and charges on the Medicare claims. In the FY 2007 IPPS final rule, we used costs and charges from the cost report to determine departmental level cost-to-charge ratios (CCRs) which we then applied to charges on the Medicare claims to determine the cost-based weights. The commenters were concerned about potential distortions to the cost-based weights that would result from inconsistent reporting between the cost reports and the Medicare claims. After publication of the FY 2007 IPPS final rule, we entered into a contract with RTI International (RTI) to study both charge compression and to what extent our methodology for calculating DRG relative weights is affected by inconsistencies between how hospitals report costs and charges on the cost reports and how hospitals report charges on individual claims. Further, as part of its study of alternative DRG systems, the RAND Corporation analyzed the HSRV cost-weighting methodology. We refer readers to section II.E. of the preamble of this final rule for discussion of the issue of charge compression and the HSRV cost-weighting methodology for FY 2009.

We believe that revisions to the DRG system to better recognize severity of illness and changes to the relative weights based on costs rather than charges are improving the accuracy of the payment rates in the IPPS. We agree with MedPAC that these refinements should be pursued. Although we continue to caution that any prospective payment system based on grouping cases will always present some opportunities for providers to specialize in cases they believe have higher margins, we believe that the changes we have adopted and the continuing reforms we are making in this final rule for FY 2009 will improve payment accuracy and reduce financial incentives to create specialty hospitals.

We refer readers to section II.D. of the FY 2008 IPPS final rule with comment period for a full discussion of how the MS-DRG system was established based on severity levels of illness (72 FR 47141).

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

1. MS-DRG Documentation and Coding Adjustment

As stated above, we adopted the new MS-DRG patient classification system for the IPPS, effective October 1, 2007, to better recognize severity of illness in Medicare payment rates. Adoption of the MS-DRGs resulted in the expansion of the number of DRGs from 538 in FY 2007 to 745 in FY 2008. By increasing the number of DRGs and more fully taking into account severity of illness in Medicare payment rates, the 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), which appeared in the Federal Register on August 22, 2007, we indicated that we believe the adoption of the MS-DRGs had the potential to lead to increases in aggregate payments without a corresponding increase in actual patient severity of illness due to the incentives for improved documentation and coding. In that final rule with comment period, using the Secretary's authority under section 1886(d)(3)(A)(vi) of the Act to maintain budget neutrality by adjusting the standardized amount to eliminate the effect of changes in coding or classification that do not reflect real changes in case-mix, we established prospective documentation and coding adjustments of −1.2 percent for FY 2008, −1.8 percent for FY 2009, and −1.8 percent for FY 2010.

On September 29, 2007, the TMA, Abstinence Education, and QI Programs Extension Act of 2007, Public Law 110-90, was enacted. Section 7 of Public Law 110-90 included a provision that reduces the documentation and coding adjustment for the MS-DRG system that we adopted in the FY 2008 IPPS final rule with comment period to −0.6 percent for FY 2008 and −0.9 percent for FY 2009. To comply with section 7 of Public Law 110-90, in a final rule that appeared in the Federal Register on November 27, 2007 (72 FR 66886), we changed the IPPS documentation and coding adjustment for FY 2008 to −0.6 percent, and revised the FY 2008 payment rates, factors, and thresholds accordingly, with these revisions effective October 1, 2007.

For FY 2009, Public Law 110-90 requires a documentation and coding adjustment of −0.9 percent instead of the −1.8 percent adjustment established in the FY 2008 IPPS final rule with comment period. As required by statute, we are applying a documentation and coding adjustment of −0.9 percent to the FY 2009 IPPS national standardized amount. The documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period, as amended by Public Law 110-90, are cumulative. As a result, the −0.9 percent documentation and coding adjustment in FY 2009 is in addition to the −0.6 percent adjustment in FY 2008, yielding a combined effect of −1.5 percent.

Comment: A number of commenters disagreed with the need for the documentation and coding adjustment and reiterated concerns about the documentation and coding adjustment expressed in prior comments on the FY 2008 IPPS proposed rule. Several of the commenters recommended that CMS not apply the documentation and coding adjustment to the national standardized amount in FY 2009.

Response: The FY 2008 IPPS final rule (72 FR 47175 through 47186) established a documentation and coding adjustment for FY 2008, FY 2009, and FY 2010. The establishment of the documentation and coding adjustment was subject to notice and comment rulemaking. When we established the documentation and coding adjustment in the FY 2008 IPPS final rule with comment period, we considered concerns about the adjustment expressed by commenters on the FY 2008 IPPS proposed rule and provided responses to those public comments in the corresponding rule. Subsequently, Congress enacted Public Law 110-90, which mandated that the documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period be changed to −0.6 percent for FY 2008 and −0.9 percent for FY 2009. As required by law, we are applying the statutorily specified documentation and coding adjustment to the FY 2009 national standardized amount.

Comment: One commenter stated that Public Law 110-90 requires an adjustment of −0.9 percent for FY 2009, not a cumulative adjustment of −1.5 percent for FY 2009.

Response: The documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period are cumulative. That final rule indicated that CMS believes that a −4.8 percent adjustment for documentation and coding is necessary (72 FR 47816). Rather than implement the full adjustment in 1 year, the final rule phased it in over 3 years: −1.2 percent in FY 2008, −1.8 percent in FY 2009, and −1.8 percent in FY 2010, for a total of −4.8 percent. Public Law 110-90 requires that in implementing the FY 2008 IPPS final rule with comment period, we substitute 0.6 percent for the 1.2 percent FY 2008 documentation and coding adjustment established in that final rule and 0.9 percent for the 1.8 percent FY 2009 documentation and coding adjustment established in that final rule. Public Law 110-90 did not make any change to the cumulative nature of the documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period. Therefore, consistent with Public Law 110-90, we applied a −0.6 percent adjustment to the national standardized amount in FY 2008, and we are applying a −0.9 percent documentation and coding adjustment to the national standardized amount in FY 2009, which results in a cumulative effect of −1.5 percent by FY 2009.

Comment: Several commenters suggested that the documentation and coding adjustment is intended to address inappropriate upcoding, where a hospital's coding is not justified by the medical record. The commenters suggested that CMS undertake studies to identify inappropriate coding by individual providers.

Response: As we stated in the FY 2008 IPPS final rule with comment period, we do not believe there is anything inappropriate, unethical, or otherwise wrong with hospitals taking full advantage of coding opportunities to maximize Medicare payment as long as the coding is fully and properly supported by documentation in the medical record.

The documentation and coding adjustment was developed based on the recognition that the MS-DRGs, by better accounting for severity of illness in Medicare payment rates, would encourage hospitals to ensure they had fully and accurately documented and coded all patient diagnoses and procedures consistent with the medical record in order to garner the maximum IPPS payment available under the MS-DRG system. For example, under the previous CMS DRGs, “congestive heart failure, unspecified” (code 428.0) was a CC. Under the MS-DRGs, this unspecified code has been made a non-CC, while more specific heart failure codes have been made CCs or MCCs. Because of this, hospitals have a financial incentive under the MS-DRG system, which they did not have under the previous CMS DRG system, to ensure that they code the type of heart failure a patient has as precisely as possible, consistent with the medical record.

The statute requires that DRG recalibration be budget neutral. Due to the standard 2-year lag in claims data, when we recalibrated the MS-DRGs in FY 2008, the calculations were based on FY 2006 claims data that reflected coding under the prior CMS DRG system. As a result, the claims data upon which the DRG recalibrations were performed in FY 2008 did not reflect any improvements in documentation and coding encouraged by the MS-DRG system. Thus, our actuaries determined that a separate adjustment for documentation and coding improvements would be needed in order to ensure that the implementation of the MS-DRG system was budget neutral. This determination led to the establishment of the documentation and coding adjustment established in the FY 2008 IPPS final rule with comment period and amended by Public Law 110-90.

As with any other DRG system, there is potential under the MS-DRG system for an individual provider to inappropriately code and bill for services. The MS-DRG documentation and coding adjustment was not developed to address such program integrity issues. Rather, the program integrity safeguards in place to address inappropriate billing under the CMS DRG system remain in place under the MS-DRG system.

2. Application of the Documentation and Coding Adjustment to the Hospital-Specific Rates

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

In the FY 2009 IPPS proposed rule, we indicated that we continue to have concerns about this issue. Because hospitals paid based on the hospital-specific rate use the same MS-DRG system as other hospitals, we believe they have the potential to realize increased payments from coding improvements that do not reflect real increases in patients' severity of illness. In section 1886(d)(3)(A)(vi) of the Act, Congress stipulated that hospitals paid based on the standardized amount should not receive additional payments based on the effect of documentation and coding changes that do not reflect real changes in case-mix. Similarly, we believe that hospitals paid based on the hospital-specific rate should not have the potential to realize increased payments due to documentation and coding improvements that do not reflect real increases in patients' severity of illness. While we continue to believe that section 1886(d)(3)(A)(vi) of the Act does not provide explicit authority for application of the documentation and coding adjustment to the hospital-specific rates, we believe that we have the authority to apply the documentation and coding adjustment to the hospital-specific rates using our special exceptions and adjustment authority under section 1886(d)(5)(I)(i) of the Act. The special exceptions and adjustment authority authorizes us to provide “for such other exceptions and adjustments to [IPPS] payment amounts * * * as the Secretary deems appropriate.” In light of this authority, for the FY 2010 rulemaking, we plan to examine our FY 2008 claims data for hospitals paid based on the hospital-specific rate. In the FY 2009 IPPS proposed rule, we stated that if we find evidence of significant increases in case-mix for patients treated in these hospitals, we would consider proposing application of the documentation and coding adjustments to the FY 2010 hospital-specific rates under our authority in section 1886(d)(5)(I)(i) of the Act. As noted previously, the documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period are cumulative. For example, the −0.9 percent documentation and coding adjustment to the national standardized amount in FY 2009 is in addition to the −0.6 percent adjustment made in FY 2008, yielding a combined effect of −1.5 percent in FY 2009. Given the cumulative nature of the documentation and coding adjustments, if we were to propose to apply the documentation and coding adjustment to the FY 2010 hospital-specific rates, it may involve applying the FY 2008 and FY 2009 documentation and coding adjustments (−1.5 percent combined) plus the FY 2010 documentation and coding adjustment, discussed in the FY 2008 IPPS final rule with comment period, to the FY 2010 hospital-specific rates.

Comment: A number of commenters opposed application of the documentation and coding adjustment to the hospital-specific rates. MedPAC supported application of a documentation and coding adjustment to the prospective payment rates and the hospital-specific rates for all IPPS hospitals that are paid based on their reported case-mix. Another commenter supported application of a documentation and coding adjustment to the hospital-specific rates if analysis of FY 2008 claims data supports a positive adjustment and recommended a transition be considered if the data support a negative adjustment.

Response: We appreciate the comments received. We did not propose to apply the documentation and coding adjustment to the hospital-specific rates for FY 2009. Instead, as we indicated in the proposed rule and reiterated above, we intend to consider whether such a proposal is warranted for FY 2010. To gather information to evaluate these considerations, we plan to perform analyses on FY 2008 claims data to examine whether there has been a significant increase in case-mix for hospitals paid based on the hospital-specific rate. If we find that application of the documentation and coding adjustment to the hospital-specific rates for FY 2010 is warranted, we would include a proposal in the FY 2010 IPPS proposed rule, which would be open for public comment at that time.

3. Application of the Documentation and Coding Adjustment to the Puerto Rico-Specific Standardized Amount

Puerto Rico hospitals are paid based on 75 percent of the national standardized amount and 25 percent of the Puerto Rico-specific standardized amount. As noted previously, the documentation and coding adjustment we adopted in the FY 2008 IPPS final rule with comment period relied upon our authority under section 1886(d)(3)(A)(vi) of the Act, which provides the authority to adjust “the standardized amounts computed under this paragraph” to eliminate the effect of changes in coding or classification that do not reflect real changes in case-mix. Section 1886(d)(3)(A)(vi) of the Act applies to the national standardized amounts computed under section 1886(d)(3) of the Act, but does not apply to the Puerto Rico-specific standardized amount computed under section 1886(d)(9)(C) of the Act. In calculating the FY 2008 payment rates, we made an inadvertent error and applied the FY 2008 −0.6 percent documentation and coding adjustment to the Puerto Rico-specific standardized amount, relying on our authority under section 1886(d)(3)(A)(vi) of the Act. However, section 1886(d)(3)(A)(vi) of the Act authorizes application of a documentation and coding adjustment to the national standardized amount and does not apply to the Puerto Rico-specific standardized amount. In this final rule, we are correcting this inadvertent error by removing the −0.6 percent documentation and coding adjustment from the FY 2008 Puerto Rico-specific rates. The revised FY 2008 Puerto Rico-specific operating standardized amounts are: $1,471.10 for the labor share and $901.64 for the nonlabor share for a hospital with a wage index greater than 1 and $1,392.80 for the labor share and $979.94 for the non-labor share for a hospital with a wage index less than or equal to 1. The revised FY 2008 Puerto Rico capital payment rate is $202.89 (as discussed in section III.A.6.b. of the Addendum to this final rule). These revised rates are effective October 1, 2007, for FY 2008.

While section 1886(d)(3)(A)(vi) of the Act is not applicable to the Puerto Rico-specific standardized amount, we believe that we have the authority to apply the documentation and coding adjustment to the Puerto Rico-specific standardized amount using our special exceptions and adjustment authority under section 1886(d)(5)(I)(i) of the Act. Similar to SCHs and MDHs that are paid based on the hospital-specific rate, discussed in section II.D.2. of this preamble, we believe that Puerto Rico hospitals that are paid based on the Puerto Rico-specific standardized amount should not have the potential to realize increased payments due to documentation and coding improvements that do not reflect real increases in patients' severity of illness. Consistent with the approach described for SCHs and MDHs in section II.D.2. of the preamble of this final rule, for the FY 2010 rulemaking, we plan to examine our FY 2008 claims data for hospitals in Puerto Rico. As we indicated in the FY 2009 proposed rule, if we find evidence of significant increases in case-mix for patients treated in these hospitals, we would consider proposing application of the documentation and coding adjustments to the FY 2010 Puerto Rico-specific standardized amount under our authority in section 1886(d)(5)(I)(i) of the Act. As noted previously, the documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period are cumulative. Given the cumulative nature of the documentation and coding adjustments, if we were to propose to apply the documentation and coding adjustment to the FY 2010 Puerto Rico-specific standardized amount, it may involve applying the FY 2008 and FY 2009 documentation and coding adjustments (−1.5 percent combined) plus the FY 2010 documentation and coding adjustment, discussed in the FY 2008 IPPS final rule with comment period, to the FY 2010 Puerto Rico-specific standardized amount.

Comment: Some commenters opposed application of the documentation and coding adjustment to the Puerto Rico-specific standardized amount. MedPAC supported application of a documentation and coding adjustment to the prospective payment rates and the hospital-specific rates for all IPPS hospitals that are paid based on their reported case-mix.

Response: We appreciate the comments. We did not propose to apply the documentation and coding adjustment to the Puerto Rico-specific standardized amount for FY 2009. Instead, as we indicated in the proposed rule, we intend to consider whether such a proposal is warranted for FY 2010. To gather information to evaluate these considerations, we plan to perform analyses on FY 2008 claims data to examine whether there has been a significant increase in case-mix for hospitals in Puerto Rico. If we find that application of the documentation and coding adjustment to the Puerto Rico-specific standardized amount for FY 2010 is warranted, we would include a proposal in the FY 2010 proposed rule, which would be open for public comment at that time.

4. Potential Additional Payment Adjustments in FYs 2010 Through 2012

Section 7 of Public Law 110-90 also provides for payment adjustments in FYs 2010 through 2012 based upon a retrospective evaluation of claims data from the implementation of the MS-DRG system. If, based on this retrospective evaluation, the Secretary finds that in FY 2008 and FY 2009, the actual amount of change in case-mix that does not reflect real change in underlying patient severity differs from the statutorily mandated documentation and coding adjustments implemented in those years, the law requires the Secretary to adjust payments for discharges occurring in FYs 2010 through 2012 to offset the estimated amount of increase or decrease in aggregate payments that occurred in FY 2008 and FY 2009 as a result of that difference, in addition to making an appropriate adjustment to the standardized amount under section 1886(d)(3)(A)(vi) of the Act.

In order to implement these requirements of section 7 of Public Law 110-90, we are planning a thorough retrospective evaluation of our claims data. Results of this evaluation would be used by our actuaries to determine any necessary payment adjustments in FYs 2010 through 2012 to ensure the budget neutrality of the MS-DRG implementation for FY 2008 and FY 2009, as required by law. In the FY 2009 IPPS proposed rule, we described our preliminary analysis plans to provide the opportunity for public input.

In the proposed rule, we indicated that we intend to measure and corroborate the extent of the overall national average changes in case-mix for FY 2008 and FY 2009. We expect part of this overall national average change would be attributable to underlying changes in actual patient severity and part would be attributable to documentation and coding improvements under the MS-DRG system. In order to separate the two effects, we plan to isolate the effect of shifts in cases among base DRGs from the effect of shifts in the types of cases within base DRGs. The shifts among base DRGs are the result of changes in principal diagnoses while the shifts within base DRGs are the result of changes in secondary diagnoses. Because we expect most of the documentation and coding improvements under the MS-DRG system will occur in the secondary diagnoses, we believe that the shifts among base DRGs are less likely to be the result of the MS-DRG system and the shifts within base DRGs are more likely to be the result of the MS-DRG system. We also anticipate evaluating data to identify the specific MS-DRGs and diagnoses that contributed significantly to the improved documentation and coding payment effect and to quantify their impact. This step would entail analysis of the secondary diagnoses driving the shifts in severity within specific base DRGs.

In the proposed rule, we also stated that, while we believe that the data analysis plan described previously will produce an appropriate estimate of the extent of case-mix changes resulting from documentation and coding improvements, we may also decide, if feasible, to use historical data from our Hospital Payment Monitoring Program (HPMP) to corroborate the within-base DRG shift analysis. The HPMP is supported by the Medicare Clinical Data Abstraction Center (CDAC). From 1998 to 2007, the CDAC obtained medical records for a sample of discharges as part of our hospital monitoring activities. These data were collected on a random sample of between 30,000 to 50,000 hospital discharges per year. The historical CDAC data could be used to develop an upper bound estimate of the trend in real case-mix growth (that is, real change in underlying patient severity) prior to implementation of the MS-DRGs.

In the FY 2009 IPPS proposed rule, we solicited public comments on the analysis plans described above, as well as suggestions on other possible approaches for conducting a retrospective analysis to identify the amount of case-mix changes that occurred in FY 2008 and FY 2009 that did not reflect real increases in patients' severity of illness.

Comment: A few commenters, including MedPAC, expressed support for the analytic approach described in the proposed rule. A number of other commenters expressed concerns about certain aspects of the approach and/or suggested alternate analyses or study designs. In addition, one commenter recommended that any determination or retrospective evaluation by the actuaries of the impact of the MS-DRGs on case-mix be open to public scrutiny prior to the implementation of final payment adjustments for FY 2010 through FY 2012.

Response: We thank the commenters for their comments. We will take all of the comments into consideration as we continue development of our analysis plans. Our analysis, findings, and any resulting proposals to adjust payments for discharges occurring in FYs 2010 through 2012 to offset the estimated amount of increase or decrease in aggregate payments that occurred in FY 2008 and FY 2009 will be discussed in future years' proposed rules, which will be open for public comment.

Comment: One commenter expressed concern about the impact that an adjustment to the FY 2010 through FY 2012 payment rates could have on small rural hospitals. The commenter stated that if CMS finds that there was an increase in aggregate payments in FY 2008 or FY 2009 that requires an offsetting adjustment to the FY 2010 through FY 2012 payment rates, CMS should consider a transition period before fully implementing such ad adjustment.

Response: If our analysis suggests that an adjustment to the FY 2010 through FY 2012 payment rates is necessary, a proposal would be made in a future proposed rule and the public would have an opportunity to comment on the proposal at that time.

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background

In the FY 2008 IPPS final rule with comment period (72 FR 47188), we continued to implement significant revisions to Medicare's inpatient hospital rates by basing relative weights on hospitals' estimated costs rather than on charges. We continued our 3-year transition from charge-based relative weights to cost-based relative weights. Beginning in FY 2007, we implemented relative weights based on cost report data instead of based on charge information. We had initially proposed to develop cost-based relative weights using the hospital-specific relative value cost center (HSRVcc) methodology as recommended by MedPAC. However, after considering concerns raised in the public comments, we modified MedPAC's methodology to exclude the hospital-specific relative weight feature. Instead, we developed national CCRs based on distinct hospital departments and engaged a contractor to evaluate the HSRVcc methodology for future consideration. To mitigate payment instability due to the adoption of cost-based relative weights, we decided to transition cost-based weights over 3 years by blending them with charge-based weights beginning in FY 2007. In FY 2008, we continued our transition by blending the relative weights with one-third charge-based weights and two-thirds cost-based weights.

Also, in FY 2008, we adopted severity-based MS-DRGs, which increased the number of DRGs from 538 to 745. Many commenters raised concerns as to how the transition from charge-based weights to cost-based weights would continue with the introduction of new MS-DRGs. We decided to implement a 2-year transition for the MS-DRGs to coincide with the remainder of the transition to cost-based relative weights. In FY 2008, 50 percent of the relative weight for each DRG was based on the CMS DRG relative weight and 50 percent was based on the MS-DRG relative weight. We refer readers to the FY 2007 IPPS final rule (71 FR 47882) for more detail on 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 transitioned to cost-based relative weights, some commenters raised concerns about potential bias in the weights due to “charge compression,” which is the practice of applying a higher percentage charge markup over costs to lower cost items and services, and a lower percentage charge markup over costs to higher cost items and services. As a result, the cost-based weights would undervalue high cost items and overvalue low cost items if a single CCR is applied to items of widely varying costs in the same cost center. To address this concern, in August 2006, we awarded a contract to RTI to study the effects of charge compression in calculating the relative weights and to consider methods to reduce the variation in the CCRs across services within cost centers. RTI issued an interim draft report in March 2007 which was posted on the CMS Web site with its findings on charge compression. In that report, RTI found that a number of factors contribute to charge compression and affect the accuracy of the relative weights. RTI found inconsistent matching of charges in the Medicare cost report and their corresponding charges in the MedPAR claims for certain cost centers. In addition, there was inconsistent reporting of costs and charges among hospitals. For example, some hospitals would report costs and charges for devices and medical supplies in the Medical Supplies Charged to Patients cost center, while other hospitals would report those costs and charges in their related ancillary departments such as Operating Room or Radiology. RTI also found evidence that certain revenue codes within the same cost center had significantly different markup rates. For example, within the Medicare Supplies Charged to Patients cost center, revenue codes for devices, implantables, and prosthetics had different markup rates than the other medical supplies in that cost center. RTI's findings demonstrated that charge compression exists in several CCRs, most notably in the Medical Supplies and Equipment CCR.

RTI offered short-term, medium-term, and long-term recommendations to mitigate the effects of charge compression. RTI's short-term recommendations included expanding the distinct hospital CCRs to 19 by disaggregating the “Emergency Room” and “Blood and Blood Products” from the Other Services cost center and by estimating regression-based CCRs to disaggregate Medical Supplies, Drugs, and Radiology cost centers. RTI recommended, for the medium-term, to expand the MedPAR file to include separate fields that disaggregate several existing charge departments. In addition, RTI recommended improving hospital cost reporting instructions so that hospitals can properly report costs in the appropriate cost centers. RTI's long-term recommendations included adding new cost centers to the Medicare cost report, such as adding a “Devices, Implants and Prosthetics” line under “Medical Supplies Charged to Patients” and a “CT Scanning and MRI” subscripted line under “Radiology-Diagnostics”.

Among RTI's short-term recommendations, for FY 2008, we expanded the number of distinct hospital department CCRs from 13 to 15 by disaggregating “Emergency Room” and “Blood and Blood Products” from the Other Services cost center as these lines already exist on the hospital cost report. Furthermore, in an effort to improve consistency between costs and their corresponding charges in the MedPAR file, we moved the costs for cases involving electroencephalography (EEG) from the Cardiology cost center to the Laboratory cost center group which corresponds with the EEG MedPAR claims categorized under the Laboratory charges. We also agreed with RTI's recommendations to revise the Medicare cost report and the MedPAR file as a long-term solution for charge compression. We stated that, in the upcoming year, we would consider additional lines to the cost report and additional revenue codes for the MedPAR file.

Despite receiving public comments in support of the regression-based CCRs as a means to immediately resolve the problem of charge compression, particularly within the Medical Supplies and Equipment CCR, we did not adopt RTI's short-term recommendation to create four additional regression-based CCRs for several reasons. We were concerned that RTI's analysis was limited to charges on hospital inpatient claims, while typically hospital cost report CCRs combine both inpatient and outpatient services. Further, because both the IPPS and OPPS rely on cost-based weights, we preferred to introduce any methodological adjustments to both payment systems at the same time. We have since expanded RTI's analysis of charge compression to incorporate outpatient services. RTI has been evaluating the cost estimation process for the OPPS cost-based weights, including a reassessment of the regression-based CCR models using both outpatient and inpatient charge data. Because the RTI report was not available until after the conclusion of our proposed rule development process, we were unable to include a summary of the report in the FY 2009 IPPS proposed rule. The IPPS-related chapters of RTI's interim report were posted on the CMS Web site on April 22, 2008, for a 60-day comment period, and we welcomed comments on the report. In this final rule, we are providing a summary of RTI's findings and the public comments we received in section II.E.2. of the preamble of this final rule.

2. Summary of RTI's Report on Charge Compression

As stated earlier, subsequent to the release of the FY 2009 IPPS proposed rule, we posted on April 22, 2008, an interim report discussing RTI's research findings for the IPPS MS-DRG relative weights to be available during the public comment period on the FY 2009 IPPS proposed rule. This report can be found on RTI's Web site at: http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200804.pdf. The IPPS-specific chapters, which were separately displayed in the April 2008 interim report, as well as the more recent OPPS chapters, are included in the July 2008 RTI final report entitled, “Refining Cost-to-Charge Ratios for Calculating APC and DRG Relative Payment Weights,” that became available at the time of the development of this final rule. The RTI final report can be found on RTI's Web site at: http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf.

RTI's final report distinguished between two types of research findings and recommendations: Those pertaining to the accounting or cost report data and those related to statistical regression analysis. Because the OPPS uses a hospital-specific CCR methodology, employs detailed cost report data, and estimates costs at the claim level, CMS asked RTI to closely evaluate the accounting component of the OPPS cost-based weight methodology. In reviewing the cost report data for nonstandard cost centers used in the crosswalk, RTI discovered some problems concerning the classification of nonstandard cost centers that impact both the IPPS and the OPPS. RTI reclassified nonstandard cost centers by reading providers' cost center labels. Standard cost centers are preprinted in the CMS-approved cost report software, while nonstandard cost centers are identified and updated periodically through analysis of frequently used labels. Under the IPPS, the line reassignments only slightly impact the 15 national aggregate CCRs used in the relative weight calculation. However, improved cost report data for CT Scanning, MRI, Nuclear Medicine, Therapeutic Radiology, and Cardiac Catheterization through line reassignments allowed for the reduction in aggregation bias by expanding the number of national CCRs available to separately capture these and other services. Importantly, RTI found that, under the IPPS and the OPPS, this improvement to the cost reporting data reduces some of the sources of aggregation bias without having to use regression-based adjustments.

In general, with respect to the regression-based adjustments, RTI confirmed the findings of its March 2007 report that regression models are a valid approach for diagnosing potential aggregation bias within selected services for the IPPS and found that regression models are equally valid for setting payments under the OPPS. RTI also suggested that regression-based CCRs could provide a short-term correction until accounting data could be refined to support more accurate CCR estimates under both the IPPS and the OPPS. RTI again found aggregation bias in devices, drugs, and radiology and, using combined outpatient and inpatient claims, expanded the number of recommended regression-adjusted CCRs to create seven regression-adjusted CCRs for Devices, IV Solutions, Cardiac Catheterization, CT Scanning, MRI, Therapeutic Radiology, and Nuclear Medicine.

In almost all cases, RTI observed that potential distortions from aggregation bias and incorrect cost reporting in the OPPS relative weights were proportionally much greater than for MS-DRGs for both accounting-based and statistical adjustments because OPPS groups are small and generally price a single service. HCRIS line reassignments by themselves had little effect on most inpatient weights. However, just as the overall impacts on MS-DRGs were more moderate because MS-DRGs experienced offsetting effects in cost estimation among numerous revenue codes in an episode, a given hospital outpatient visit might include more than one service, leading to offsetting effects in cost estimation for services provided in the outpatient episode as a whole.

Notwithstanding likely offsetting effects at the provider-level, RTI asserted that, while some averaging is appropriate for a prospective payment system, extreme distortions in payments for individual services bias perceptions of service profitability and may lead hospitals to inappropriately set their charge structure. RTI noted that this may not be true for “core” hospital services, such as oncology, but has a greater impact in evolving areas with greater potential for provider-induced demand, such as specialized imaging services. RTI also noted that cost-based weights are only one component of a final prospective payment rate. There are other rate adjustments (wage index, IME, and DSH) to payments derived from the revised cost-based weights and the cumulative effect of these components may not improve the ability of final payment to reflect resource cost. With regard to APCs and MS-DRGs that contain substantial device costs, RTI cautioned that other prospective payment system adjustments (wage index, IME, and DSH) largely offset the effects of charge compression among hospitals that receive these adjustments. RTI endorsed short-term regression-based adjustments, but also concluded that more refined and accurate accounting data are the preferred long-term solution to mitigate charge compression and related bias in hospital cost-based weights.

As a result of this research, RTI made 11 recommendations. The first set of recommendations is more applicable to the OPPS because it uses more granular HCRIS data and concentrates on short-term accounting changes to current cost report data. This set includes a recommendation that CMS immediately implement a review of HCRIS cost center assignments based on text searches of providers' line descriptions and reassign lines appropriately. The second set addresses short-term regression-based and other statistical adjustments. The third set focuses on clarifying existing cost report instructions to instruct providers to use all applicable standard cost centers, adding new standard cost centers (for Devices, CT Scans, MRIs, Cardiac Catheterization, and Infusion Drugs), and creating new charge category summaries in the MedPAR to match the new cost centers on the cost report. Specifically, the new MedPAR groups would be for Intermediate Care (revenue codes 0206 and 0214), Devices (revenue codes 0274, 0275, 0276 and 0278), IV Solutions (revenue code 0258), CT Scanning (revenue codes 035x), Nuclear Medicine (revenue codes 034x, possibly combined with 0404), and Therapeutic Radiology (revenue codes 033x). RTI also recommends educating hospitals through industry-led educational initiatives directed at methods for capital cost finding, specifically encouraging providers to use direct assignment of equipment depreciation and lease costs wherever possible, or at least to allocate moveable equipment depreciation based on the dollar value of assigned depreciation costs. Lastly, although not directly the focus of its study, RTI mentions the problem of nursing cost compression in the relative weights, and notes that cost compression within inpatient nursing services is a significant source of distortion in the various IPPS' relative weights, possibly more so than any of the factors studied by RTI. RTI suggests that it may be best for hospitals to agree to expand charge coding conventions for inpatient nursing, which would foster increased use of patient-specific nursing incremental charge codes in addition to baseline unit-specific per-diem charges.

Comment: One commenter agreed with the enhancements made by RTI (in the portion of the RTI report that was made available to the public in the April 2008 report) to the model for disaggregating CCRs in the Medical Supplies cost center, but was “disappointed” that CMS did not post the complete report, including the impact of charge “decompression” on the APC weights under the OPPS, and urged CMS to release the full report as soon as possible to allow a comprehensive review of the findings applicable to both the IPPS and the OPPS.

Response: Because the final RTI report was not scheduled to be completed before July 2008, we were unable to make the complete report, including sections focusing on the OPPS, available to the public in April 2008. Because we wanted to give the public the benefit of a 60-day comment period on the IPPS sections of the RTI report that would generally coincide with the 60-day comment period on the FY 2009 IPPS proposed rule, we chose to make available in April 2008 those sections of the RTI report that specifically dealt with the IPPS MS-DRG relative weights. We note that on July 3, 2008, we included on the CMS Web site the link to the complete RTI report: http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf.

Comment: One commenter recommended that, for purposes of calculating the relative weights for FY 2009, CMS adopt RTI's recommendation to reassign cost center lines based on the provider's entered text description to correct errors in the assignment of costs and charges by hospitals in nonstandard cost centers on the cost report. The commenter also suggested that CMS adopt RTI's recommendation that, in the MedPAR file, intermediate care charges should be reclassified from the Intensive Care Unit cost center to the Routine cost center to correct a mismatch between where the intermediate care charges are assigned on the cost report (that is, in the Routine cost center) and where the charges are grouped in MedPAR (that is, with intensive care unit charges).

Response: The commenter's recommendations are important and are consistent with existing Medicare policy. Currently, the MedPAR file incorrectly groups intermediate care charges with intensive care unit charges; intermediate care charges and costs are, in fact, to be included in the General Routine (that is, Adults and Pediatrics) cost center on the cost report, in accordance with section 2202.7.II.B. of the PRM-1. However, in its July 2008 report, RTI found that HCRIS line reassignments by themselves had little effect on most inpatient weights (page 8). The impact of adopting these recommendations would likely be more pronounced if we were adopting regression-based CCRs for purposes of calculating the relative weights for FY 2009. However, because we are not using regression-based CCRs for FY 2009, we do not believe it is necessary to adopt the commenter's recommendations for the MS-DRG relative weights at this time, but will consider them for future rulemaking.

Comment: One commenter commended CMS for proposing to break out the existing line on the cost report for Medical Supplies Charged to Patients into two lines, one for costly devices and implants and the other for low-cost supplies, and for undertaking a comprehensive review of the cost report. However, the commenter observed that RTI's 2008 report demonstrates that additional lines are also needed to further break out drugs, radiology (CT scans and MRI scans) and cardiac catheterization because hospitals apply varying markups within these cost centers as well.

Response: We acknowledge, as RTI has found, that charge compression occurs in several cost centers that exist on the Medicare cost report. However, as we stated in the proposed rule, we proposed to focus 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.

We note that in the CY 2009 OPPS/ASC proposed rule (73 FR 41490), we are proposing to break the single standard Drugs Charged to Patient cost center, Line 56, into two standard cost centers, Drugs with High Overhead Cost Charged to Patients and Drugs with Low Overhead Cost Charged to Patients, to reduce the reallocation of pharmacy overhead cost from expensive to inexpensive drugs and biologicals. We use the term “pharmacy overhead” here to refer to overhead and related expenses such as pharmacy services and handling costs. This proposal is consistent with RTI's recommendation for creating a new cost center with a CCR that would be used to adjust charges to costs for drugs requiring detail coding. In the CY 2009 OPPS/ASC proposed rule, we note that comments on the proposed changes to the cost report for drugs should address any impact on both the inpatient and outpatient payment systems because both systems rely upon the Medicare hospital cost report for cost estimation. Furthermore, in that proposed rule, we specifically invited public comment on the appropriateness of creating standard cost centers for Computed Tomography (CT) Scanning, Magnetic Resonance Imaging (MRI), and Cardiac Catheterization, rather than continuing the established nonstandard cost centers for these services (73 FR 41431).

3. Summary of RAND's Study of Alternative Relative Weight Methodologies

A second reason that we did not implement regression-based CCRs at the time of the FY 2008 IPPS final rule with comment period was our inability to investigate how regression-based CCRs would interact with the implementation of MS-DRGs. In the FY 2008 final rule with comment period (72 FR 47197), we stated that we engaged RAND as the contractor to evaluate the HSRV methodology in conjunction with regression-based CCRs and we would consider their analysis as we prepared for the FY 2009 IPPS rulemaking process. We stated that we would analyze how the relative weights would change if we were to adopt regression-based CCRs and an HSRV methodology using fully-phased in MS-DRGs. We stated that we would consider the results of the second phase of the RAND study as we prepared for the FY 2009 IPPS rulemaking process. We had intended to include a detailed discussion of RAND's study in the FY 2009 IPPS proposed rule. However, due to some delays in releasing identifiable data to the contractor under revised data security rules, the report on this second stage of RAND's analysis was not completed in time for the development of the proposed rule. Therefore, we continued to have the same concerns with respect to uncertainty about how regression-based CCRs would interact with the MS-DRGs or an HSRV methodology, and we did not propose to adopt the regression-based CCRs or an HSRV methodology in the FY 2009 IPPS proposed rule. Nevertheless, we welcomed public comments on our proposals not to adopt regression-based CCRs or an HSRV methodology at that time or in the future. The RAND report on regression-based CCRs and the HSRV methodology was finalized at the conclusion of our proposed rule development process and was posted on the CMS Web site on April 22, 2008, for a 60-day comment period. Although we were unable to include a discussion of the results of the RAND study in the proposed rule, we welcomed public comment on the report. We are providing a summary of the report and the public comments we received below.

RAND evaluated six different methods that could be used to establish relative weights: CMS' current relative weight methodology and five alternatives. In particular, RAND examined:

  • How the relative weights differ across the alternative methodologies.
  • How well each relative weight methodology explained variation in costs.
  • Payment accuracy under each relative weight methodology and current facility-level adjustments.
  • Payment implications of alternatives to the current methodology for establishing relative weights.

RAND examined alternative relative weight methodologies including either our current methodology of 15 national CCRs or 19 CCRs that are disaggregated using the regression-based methodology, or hospital-specific CCRs for 15 cost center groupings. The expansion from 15 to 19 cost center groupings is intended to reduce charge compression in the relative weights introduced by combining services with different rates of charge markups into a single cost center for purposes of estimating cost. The hospital-specific CCRs are intended to account for differences in overall charging practices across hospitals (that is, smaller nonteaching hospitals tend not to have as much variation in rates of markup as larger teaching hospitals).

In addition, RAND analyzed our standardization methodologies that account for systematic cost differences across hospitals. The purpose of standardization is to eliminate systematic facility-specific differences in cost so that these cost differences do not influence the relative weights. The three standardization methodologies analyzed by RAND include the “hospital payment factor” methodology currently used by CMS, where a hospital's wage index factor, and IME and/or DSH factor are divided out of its estimated DRG cost; the HSRV methodology that standardizes the cost for a given discharge by the hospital's own costliness rather than by the effect of the systematic cost differences across groups of hospitals; and the HSRVcc methodology, which removes hospital-level cost variation by calculating hospital-specific charge-based relative values for each DRG at the cost center level and standardizing them for differences in case mix. Under the HSRVcc methodology, a national average charge-based relative weight is calculated for each cost center.

RAND conducted two different types of analyses to evaluate 5 alternative relative weight methodologies that varied use of 19 national CCRs and 15 hospital-specific CCRs, and HSRV and HSRVcc standardization methodologies along with components of the current relative weight methodology using 15 national CCRs and hospital payment factor standardization. The first type of analysis compared the five alternative relative weight methodologies to CMS' current relative weight methodology and compared average payment under each relative weight methodology across different types of hospitals. The second analysis examined the relative payment accuracy of the relative weight methodologies. RAND used the costs under 15 hospital-specific CCRs as its hospital cost baseline. RAND noted that the choice for its baseline may affect the results of the analysis because relative weight methodologies that are similar to the 15 hospital-specific CCR methodology may be assessed more favorably because they are likely to have similar costs, while relative weight methodologies that are different from the 15 hospital-specific CCR methodology may not be as favorable. The payment accuracy analysis used a regression technique to evaluate how well the relative weight methodologies explained variation in costs and how well the hospital payments under the relative weight methodologies matched the costs per discharge. Finally, RAND examined payment-to-cost ratios among different types of hospitals.

Overall, RAND found that none of the alternative methods of calculating the relative weights represented a marked improvement in payment accuracy over the current method, and there was little difference across methods in their ability to predict cost at either the discharge-level or the hospital-level. In their regression analysis, RAND found that after controlling for hospital payment factors, the relative weights are compressed. However, RAND also found that the hospital payment factors increase more rapidly than cost, so while the relative weights are compressed, these payment factors offset the compression so that total payment increases more rapidly than cost.

RAND does not believe the regression-based charge compression adjustments significantly improve payment accuracy. RAND found that relative weights using the 19 national disaggregated regression-based CCRs result in significant redistributions in payments among hospital groupings. With regard to standardization methodologies, while RAND found that there is no clear advantage to the HSRV method or the HSRVcc method of standardizing cost compared to the current hospital payment factor standardization method, its analysis did reveal significant limitations of CMS' current hospital payment factor standardization method. The current standardization method has a larger impact on the relative weights and payment accuracy than any of the other alternatives that RAND analyzed because the method “over-standardizes” by removing more variability for hospitals receiving a payment factor than can be empirically supported as being cost-related (particularly for IME and DSH). RAND found that instead of increasing proportionately with cost, the payment factors CMS currently uses (some of which are statutory), increase more rapidly than cost, thereby reducing payment accuracy. Further analysis is needed to isolate the cost-related component of the IPPS payment adjustments (some of which has already been done by MedPAC), use them to standardize cost, and revise the analysis of payment accuracy to reflect only the cost-related component. Generally, RAND believes it is premature to consider further refinements in the relative weight methodology until data from FY 2008 or later that reflect coding improvement and other behavioral changes that are likely to occur as hospitals adopt the MS-DRGs can be evaluated.

Comment: A number of commenters submitted comments on RAND's report. Some commenters supported RAND's methodology and findings. These commenters agreed with RAND's findings that regression-based CCRs would not have a material impact on payment accuracy. These commenters also agreed with RAND that CMS should wait until FY 2008 data are available to consider further refinements to the relative weight methodology.

Some commenters disagreed with RAND's methodology and findings that the regression-based CCRs offer no improvement in payment accuracy. RAND found that regression-based CCRs result in significant redistributions in payment within hospital groups with increases in payments concentrated to the cardiac and orthopedic surgical DRGs. RAND's payment to cost ratio analysis, which measures payment equity across groups of hospitals, found that adopting regression-based CCRs led to significant reductions in payment to cost ratio for rural hospitals. Commenters also indicated their belief that the payment-to-cost analysis is not the appropriate analysis to use because, in the hospital prospective payment system, costs at the DRG level are not precisely known. Furthermore, the commenters asserted RAND's analysis was flawed because, in its payment-to-cost analysis, RAND compared payment rates adjusted for charge compression with regression-based CCRs to payment rates unadjusted for charge compression. The commenters stated that when they compared payments adjusted for charge compression with regression-based CCRs to payment rates adjusted for charge compression, they found that regression-based CCRs improved payment accuracy. In addition, the commenters cited that RAND acknowledged that its choice for the baseline in comparing payment rates “may affect the results and conclusions of our analysis”.

Response: We appreciate the comments on the RAND report. Given the move to the MS-DRGs and the concerns surrounding documentation and coding and the most appropriate approach to improving payment accuracy, we generally agree with RAND's recommendation that it would be premature to revise the relative weights methodology until additional data from FY 2008 are available. With respect to the comments on RAND's analysis related to the regression-based CCRs, we understand the commenters' reasons for disputing RAND's choice to use a relative weight methodology that does not incorporate regression-based CCRs as its baseline for hospital costs. In RAND's payment-to-cost analysis, RAND used the relative weight methodology with 15 hospital-specific CCRs to determine the hospital costs baseline. RAND noted that, while it believes its choice of cost measure is appropriate, it recognizes that “the choice may affect the results of the analysis because relative weight methods that use the hospital-specific CCRs may be assessed more favorably than would have been the case had we used a different cost measure. Similarly, the use of 15 rather than 19 cost center CCRs may favor the relative weight methods that do not account for charge compression.” If a single method existed that clearly yielded the best measure of cost, it seems unlikely that a study to evaluate five alternative methods of calculating cost for the MS-DRG relative weights would have been necessary. We believe that it was within RAND's discretion to decide how best to conduct its payment analyses, and while there may be benefits and drawbacks to alternative approaches (including whether to use a baseline that adjusts for charge compression), RAND's choice is defensible. Accordingly, RAND's finding that regression-based CCRs do not improve payment accuracy cannot be summarily dismissed.

Comment: Many commenters opposed the HSRV methodology for standardization. The commenters cited RAND's findings that the HSRV methodology inappropriately compresses the relative weights. They believed that the methodology only improves the accuracy of the relative weights under the unlikely situations where all hospitals have identical mix of patients and costs structures, or if all hospitals have identical costs across all cost centers or if all hospitals have the same case-mix and the costs differ by a constant factor across all DRGs and all cost centers. The commenters agreed with RAND that it would be premature to consider further refinements to the methodology for setting relative weights, including the HSRV method of standardization, until data from FY 2008 or later can be evaluated.

Response: We appreciate the comments on the HSRV methodology, and we understand that many commenters continue to oppose to the HSRV methodology. In FY 2007, we did not adopt the HSRV methodology after consideration of concerns raised by commenters' opposition to the methodology. Instead, in the FY 2007 IPPS final rule (71 FR 47897), we stated that we would undertake further analysis to study the payment impacts of the HSRV methodology with regression-based CCRs under the MS-DRGs. We engaged RAND as our contractor to conduct this analysis, and in its report, RAND observed that relative weights that were based on hospital-specific CCRs with 15 cost centers that were standardized using the current standardization methodology would warrant further consideration as an improvement over the current relative weights. RAND did not find the HSRV or HSRVcc standardization methods to be preferable to the hospital payment factor method. However, RAND also cautioned that its results reveal some significant limitations of the current hospital payment factor method. Specifically, current IME and DSH payment adjustments increase more quickly than their cost, and when used for standardization, compress the relative weights. We agree with RAND that our current standardization process requires additional analysis, and therefore, we are not changing our current method of standardizing for FY 2009. We will continue to consider various options for improving payment accuracy.

Comment: One commenter supported RAND's finding that CMS should revise its hospital payment factor method for standardizing claims charges to remove the effects of hospital-specific factors (that is, wage index, IME, and DSH) that affect cost estimates. The commenter recommended that CMS could improve its standardization process by removing the effects of these factors by using empirical estimates rather than using current policy adjustments. The commenter noted that MedPAC and CMS have done empirical estimates of these factors in the past.

Response: One of the issues that the RAND report specifically addressed was standardization methods that account for systematic cost differences across hospitals. These methods include what RAND called the hospital payment factor method, which is CMS' current approach to standardizing claims charges, the HSRV methodology, and the HSRVcc methodology. Although RAND's results do not indicate that the HSRV or HSRVcc standardization method is clearly preferable to the hospital payment factor method, RAND found that the current hospital payment factor standardization method has significant limitations. Specifically, RAND found that the hospital payment factor method “over-standardizes” by using a hospital payment factor that is larger than can be empirically supported as being cost-related (particularly for IME and DSH) and that has a larger impact on the relative weights and payment accuracy than other elements of the cost-based methodology. However, RAND cautions that “re-estimating” these payment factors “raises important policy issues that warrant additional analyses” (page 49), particularly to “determine the analytically justified-levels using the MS-DRGs” (page 110). In addition, we note that RTI, in its July 2008 final report, also observed that the adjustment factors under the IPPS (the wage index, IME, and DSH adjustments) complicate the determination of cost and these factors “within the rate calculation may offset the effects of understated weights due to charge compression” (page 109). We understand that MedPAC has done analysis of what the empirically-justified levels of the IME and DSH adjustment should be. We cannot propose to change the IME and DSH factors used for actual payment under the IPPS because these factors are required by statute. After further studying the issue, we may consider proposing various options for improving payment accuracy when standardizing charges as part of the relative weights calculation.

Comment: Many commenters continued to oppose adoption of the regression-based CCRs, asserting that the charge compression issue is not urgent enough to warrant the use of substitute data for real cost and charge information. The commenters indicated that many hospitals believe that most increases or decreases in the MS-DRG relative weights will have a minimal dollar impact on their bottom line. They further stated that the RAND report asserts that the regression-based CCR adjustments would not materially impact payment accuracy. The commenters also agreed with CMS' position at the time of the proposed rule that there had not been sufficient time to evaluate the impact of a regression-based approach on inpatient or outpatient services, and on the MS-DRGs. The commenters further believed that calculating regression-based CCRs is “excessively complicated,” is difficult to validate, and may be flawed to the extent that the regressions would be based on data in which the mismatch between MedPAR charges and cost report costs and charges has not been corrected. The commenters believed that more accurate and uniform reporting and improvements to the cost report is the best approach to improving payment accuracy.

A number of commenters objected to the regression-based approach to break out the one CCR for all radiology services that CMS is currently using. The commenters noted that the RTI estimates suggest that hospitals mark up CT services on average by more than 1800 percent over cost (CCR 0.054), while routine radiology services are marked up by an average of more than 300 percent over cost. The commenters believed that this vast difference in the markup practices of hospitals seems implausible and, therefore, would result in significant payment distortions if CMS were to adopt RTI's disaggregated radiology CCRs or some related adjustment to the radiology CCR, for Medicare ratesetting. The commenters asserted that use of RTI's CCRs would significantly reduce payment for imaging-intensive DRGs in the inpatient setting for trauma services, but the impact on payments under the OPPS and the Medicare physician fee schedule (MPFS) imaging services capped by OPPS payments would be even more dramatic. The commenters believed that the CCRs for advanced imaging may reflect a misallocation of capital costs on the cost report. They further stated that this could indicate that many hospitals are reporting CT and MRI machines as fixed equipment and allocate the related capital costs as part of the facility's Building and Fixtures overhead cost center instead of reporting the capital costs directly in the Radiology cost center, resulting in RTI's estimate of the costs and CCRs for CT and MRI equipment to be too low. The commenters argued that, regardless of the reason for the low CCRs, the use of RTI's CCRs could result in aberrant payments for radiology services, where payments to a hospital for outpatient x-rays might be higher than the payment for a similar CT scan, and where the physician fee schedule rates for the technical component cost of the CT scan may also be less than the cost of these scans estimated by CMS, providing a disincentive for hospitals and physicians to provide these services. In concluding that RTI's analysis of the CCRs for imaging services is flawed, several commenters urged CMS to more carefully analyze CCRs for radiology before proposing any measures to change these CCRs. The commenters believed that if the underreported capital costs are considered, it is likely that the CCRs for CT scanning and MRI services would be approximately equal to the overall radiology CCR and no adjustment would be needed.

A significant number of commenters supported applying the regression-based CCRs as a temporary solution to address charge compression. The commenters believed that because CMS' proposed changes to the cost report would not have an impact on the relative weights until FY 2012, implementation of regression-based CCRs is necessary in the interim. The commenters cited what they believed is ample evidence, particularly from the RTI report and from MedPAC, that regression-based CCRs are appropriate as a short-term solution.

While several commenters agreed on the use of regression-based CCRs as a short-term solution to charge compression, many commenters gave varied suggestions as to how to implement these regression-based CCRs. The commenters suggested that CMS implement a 3-year phase-in of regression-based CCRs beginning in FY 2009 to mitigate any distributional impacts on hospitals. The commenters asked CMS to consider using a regression analysis for 25 percent of the estimated cost of medical supplies in FY 2009, then 50 percent in FY 2010, and 75 percent in FY 2011. The commenters further stated that once the data from the new cost centers for supplies and devices are available, the regression adjustments could be phased out, or remain in use even after FY 2012, should the data from the new cost centers still be incomplete at that time. Furthermore, the commenters believed that this transition would remove the need for a transition period to separate CCRs for medical devices and medical supplies once the cost report data are available.

Some commenters supported adoption of regression-based CCRs except for those within the radiology category. Other commenters suggested that CMS only implement regression-based CCRs for medical supplies and devices because the proposed changes to the cost report focused on the medical supplies and devices. They argued that CMS' proposed cost report changes for medical supplies and devices signifies that CMS believes it is most important to address charge compression in the medical supplies group.

One commenter recommended that, based on the findings in RTI's 2008 report, CMS should implement a total of 22 regression-based CCRs. (In its March 2007 report, RTI recommended that CMS expand the number of CCRs from 15 to 19 with the use of statistical adjustments to disaggregate medical devices from medical supplies, IV solutions and other drugs from drugs and CT scanning and MRI from radiology. In the interim RTI report posted on the CMS Web site on April 22, 2008, RTI increased the potential regression-based CCRs from 19 to 23 national CCRs after evaluating OPPS data with IPPS data.) The commenter believed that CMS should expand the number of CCRs from 15 to 22 with disaggregated CCRs for medical supplies, medical devices, IV solutions, other drugs and detail coded drugs, CT scans, MRI, therapeutic radiation and nuclear medicine. The commenter recommended implementing these regression-based CCRs to ensure payment equity across these types of services. Because of limited time to develop the final rule, the commenter recognized that it would be difficult for CMS to implement revised regression estimates. To account for this, the commenter recommended what the commenter believed is a relatively simple ratio technique, similar to RTI's methodology, to implement regression-based CCRs for the FY 2009 IPPS final rule. The commenter believed that CMS could use more detailed charge information from the Standard Analytic File (SAF) and the regression-based estimates from RTI's 2008 report to calculate national CCRs for the subgroups within drugs, supplies and radiology. The commenter stated that CMS would then compare those CCRs under RTI's regression-based estimates to the RTI-estimated national CCR for the broader category. To further clarify its recommendation, the commenter stated that, for example, if CMS were to disaggregate the supplies CCR, CMS would create regression-based CCRs for medical supplies and medical devices based on RTI's regression-based CCRs for those subgroups. Then a ratio would be calculated comparing those CCRs to the original RTI-estimated national CCR for the broader supplies category. Those ratios would then be multiplied by their own national overall CCR for the broader supplies category to obtain national CCRs for the subgroup that reflect updated cost and charge data.

Response: In the FY 2009 IPPS proposed rule (73 FR 23543), we stated several reasons why we did not propose to adopt any regression-based CCRs for FY 2009. Specifically, because a number of commenters on the FY 2008 proposed rule objected to the adoption of the regression-based CCRs, and because, at the time the FY 2009 IPPS proposed rule was under development, we did not yet have the results of the RTI study analyzing the effects of charge compression on inpatient and outpatient charges as well as the results of the RAND study analyzing how the relative weights would change if we were to adopt regression CCRs while simultaneously adopting the HSRV methodology using fully phased in MS-DRGs, we did not propose to adopt regression-based CCRs in the FY 2009 IPPS proposed rule. However, we did solicit public comments on our proposal not to adopt regression-based CCRs in the FY 2009 IPPS proposed rule. Consequently, as was the case during the FY 2008 IPPS proposed rule comment period, we received numerous public comments both against and in favor of adopting regression-based CCRs. Once again, we have considered all of the public comments we received. We have also considered the findings of the RAND report, and note that RAND believes that it may be premature to consider further refinements in the relative weight methodology until data using MS-DRGs from FY 2008 or later can be evaluated (page 108). Also noteworthy is RAND's belief that regression-based CCRs may not improve payment accuracy, and that it is equally if not more important to consider revisions to the current IPPS hospital payment factor standardization method in order to improve payment accuracy. We appreciate the recognition by one commenter that the time in which CMS must develop the final rule is limited, and the consideration given by this commenter in recommending a relatively simple approach to implementing the regression-based CCRs for FY 2009. Nevertheless, we agree with the commenters that believe that the best approach at this time to addressing charge compression is to focus on improving the accuracy of hospital cost reporting, coupled with long-term changes to the cost report discussed below so that CMS can continue to rely on hospital's reported cost and charge data. With respect to the CCR for radiology services, we note that the 2008 RTI report found that significant improvements and refinements to the radiology CCR can be achieved without using regression-based CCRs, simply by reallocating the costs and charges from nonstandard cost centers on the cost report and using increased charge detail from the SAF to supplement the radiology charges in the MedPAR. Therefore, as we stated in the FY 2009 IPPS proposed rule (73 FR XXXXX), we believe that ultimately, improved and more precise cost reporting is the best way to minimize charge compression and improve the accuracy of the cost weights. Accordingly, we are not adopting regression-based CCRs for the calculation of the FY 2009 IPPS relative weights.

We received public comments on the FY 2008 IPPS proposed rule raising concerns on the accuracy of using regression-based CCR estimates to determine the relative weights rather than on the Medicare cost report. The commenters noted that regression-based CCRs would not fix the underlying mismatch of hospital reporting of costs and charges. Instead, the commenters suggested that the impact of charge compression might be mitigated through an educational initiative that would encourage hospitals to improve their cost reporting. The commenters recommended that hospitals be educated to report costs and charges in a way that is consistent with how charges are grouped in the MedPAR file. In an effort to achieve this goal, hospital associations have launched an educational campaign to encourage consistent reporting, which would result in consistent groupings of the cost centers used to establish the cost-based relative weights. The commenters requested that CMS communicate to the fiscal intermediaries/MACs that such action is appropriate. In the FY 2008 IPPS final rule with comment period, we stated that we were supportive of the educational initiative of the industry, and we encouraged hospitals to report costs and charges consistently with how the data are used to determine relative weights (72 FR 47196). We would also like to affirm that the longstanding Medicare principles of cost apportionment in the regulations at 42 CFR 413.53 convey that, under the departmental method of apportionment, the cost of each ancillary department is to be apportioned separately rather than being combined with another ancillary department (for example, combining the cost of Medical Supplies Charged to Patients with the costs of Operating Room or any other ancillary cost center). (We note that, effective for cost reporting periods starting on or after January 1, 1979, the departmental method of apportionment replaced the combination method of apportionment where all the ancillary departments were apportioned in the aggregate (Section 2200.3 of the PRM-I).)

Furthermore, longstanding Medicare cost reporting policy has been that hospitals must include the cost and charges of separately “chargeable medical supplies” in the Medical Supplies Charged to Patients cost center (line 55 of Worksheet A), rather than in the Operating Room, Emergency Room, or other ancillary cost centers. Routine services, which can include “minor medical and surgical supplies” (Section 2202.6 of the PRM-1), and items for which a separate charge is not customarily made, may be directly assigned through the hospital's accounting system to the department in which they were used, or they may be included in the Central Services and Supply cost center (line 15 of Worksheet A). Conversely, the separately chargeable medical supplies should be assigned to the Medical Supplies Charged to Patients cost center on line 55.

We note that not only is accurate cost reporting important for IPPS hospitals to ensure that accurate relative weights are computed, but hospitals that are still paid on the basis of cost, such as CAHs and cancer hospitals, and SCHs and MDHs must adhere to Medicare cost reporting principles as well.

The CY 2008 OPPS/ASC final rule with comment period (72 FR 66600 through 66601) also discussed the issue of charge compression and regression-based CCRs, and noted that RTI is currently evaluating the cost estimation process underpinning the OPPS cost-based weights, including a reassessment of the regression models using both outpatient and inpatient charges, rather than inpatient charges only. In responding to comments in the CY 2008 OPPS/ASC final rule with comment period, we emphasized that we “fully support” the educational initiatives of the industry and that we would “examine whether the educational activities being undertaken by the hospital community to improve cost reporting accuracy under the IPPS would help to mitigate charge compression under the OPPS, either as an adjunct to the application of regression-based CCRs or in lieu of such an adjustment” (72 FR 66601). However, as we stated in the FY 2008 IPPS final rule with comment period, we would consider the results of the RAND study before considering whether to adopt regression-based CCRs, and in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66601), we stated that we would determine whether refinements should be proposed after reviewing the results of the RTI study.

On February 29, 2008, we issued Transmittal 321, Change Request 5928, to inform the fiscal intermediaries/MACs of the hospital associations' initiative to encourage hospitals to modify their cost reporting practices with respect to costs and charges in a manner that is consistent with how charges are grouped in the MedPAR file. We noted that the hospital cost reports submitted for FY 2008 may have costs and charges grouped differently than in prior years, which is allowable as long as the costs and charges are properly matched and the Medicare cost reporting instructions are followed. Furthermore, we recommended that fiscal intermediaries/MACs remain vigilant to ensure that the costs of items and services are not moved from one cost center to another without moving their corresponding charges. Due to a time lag in submittal of cost reporting data, the impact of changes in providers' cost reporting practices occurring during FY 2008 would be reflected in the FY 2011 IPPS relative weights.

Comment: One commenter urged CMS to audit cost reports closely to ensure initial and ongoing compliance with the new reporting requirements. Several commenters who, over the course of the past year, have supported an educational initiative to encourage hospitals to prepare their Medicare cost reports such that Medicare charges, total charges, and total costs are aligned with each other, and with the current categories in the MedPAR file, continued to believe that this educational initiative is an important effort. These commenters appreciated CMS' efforts to inform the fiscal intermediaries/MACs of this educational initiative and to work with hospitals to ensure proper cost reporting (in Transmittal 321, Change Request 5928, issued February 29, 2008). However, the commenters expressed concern that this transmittal did not address the need by some hospitals to elect a cost-estimated approach to ensure that costs and charges for supplies are aligned. The commenters urged CMS to instruct fiscal intermediaries/MACs not to reverse or undo reporting that relies on estimation approaches to achieve this alignment, provided that hospitals submit adequate documentation of their methodology.

Response: We agree that audit and compliance measures are important, and we will work within the audit budget to determine whether hospitals properly follow payment policies and the cost reporting instructions. With respect to Transmittal 321, Change Request 5928, CMS did remind fiscal intermediaries/MACs that “providers may submit cost reports with cost and charges grouped differently than in prior years, as long as the cost and charges are properly matched and Medicare cost reporting instructions are followed. Medicare contractors shall not propose adjustments that regroup costs and charges merely to be consistent with previous year's reporting if the costs and charges are properly grouped on the as-filed cost report.” However, Medicare payment is governed by longstanding principles contained in §§ 413.20 and 413.24 which we cannot instruct the fiscal intermediaries/MACs to overlook. In accordance with § 413.20, the principles of cost reimbursement require that providers maintain sufficient financial records and statistical data for proper determination of costs payable under the program. Furthermore, § 413.24(a) specifies that providers receiving payment on the basis of reimbursable cost must provide adequate cost data. This must be based on their financial and statistical records which must be capable of verification by qualified auditors. In addition, § 413.24(c) states that adequate cost information must be obtained from the provider's records to support payments made for services furnished to beneficiaries. The requirement of adequacy of data implies that the data be accurate and in sufficient detail to accomplish the purpose for which the data are intended. Adequate data capable of being audited are consistent with good business concepts and effective and efficient management of any organization. Furthermore, we note that these cost reimbursement principles continue to apply even under the IPPS. Specifically, § 412.53 states, “All hospitals participating in the prospective payment systems must meet the recordkeeping and cost reporting requirements of §§ 413.20 and 413.24 of this chapter.” Therefore, CMS cannot instruct the Medicare contractors to disregard these longstanding policies when auditing and settling cost reports.

4. Refining the Medicare Cost Report

In developing the FY 2009 IPPS proposed rule, we considered whether there were concrete steps we could take to mitigate the bias introduced by charge compression in both the IPPS and OPPS relative weights in a way that balances hospitals' desire to focus on improving the cost reporting process through educational initiatives with device industry interest in adopting regression-adjusted CCRs. Although RTI recommended adopting regression-based CCRs, particularly for medical supplies and devices, as a short-term solution to address charge compression, RTI also recommended refinements to the cost report as a long-term solution. RTI's draft interim March 2007 report discussed a number of options that could improve the accuracy and precision of the CCRs currently being derived from the Medicare cost report and also reduce the need for statistically-based adjustments. As mentioned in the FY 2008 IPPS final rule with comment period (72 FR 47193), we believe that RTI and many of the public commenters on the FY 2008 IPPS proposed rule concluded that, ultimately, improved and more precise cost reporting is the best way to minimize charge compression and improve the accuracy of cost weights. Therefore, in the FY 2009 IPPS proposed rule (73 FR 23544), we proposed to begin making cost report changes geared to improving the accuracy of the IPPS and OPPS relative weights. However, we also received comments last year asking that we proceed cautiously with changing the Medicare cost report to avoid unintended consequences for hospitals that are paid on a cost basis (such as CAHs, cancer hospitals, and, to some extent, SCHs and MDHs), and to consider the administrative burden associated with adapting to new cost reporting forms and instructions. Accordingly, we proposed to focus in the FY 2009 proposed rule on the CCR for Medical Supplies and Equipment because RTI found that the largest impact on the relative weights could result from correcting charge compression for devices and implants. When examining markup differences within the Medical Supplies Charged to Patients cost center, RTI found that its “regression results provide solid evidence that if there were distinct cost centers for items, cost ratios for devices and implants would average about 17 points higher than the ratios for other medical supplies” (January 2007 RTI report, page 59). This suggests that much of the charge compression within the Medical Supplies CCR results from inclusion of medical devices that have significantly different markups than the other supplies in that CCR. Furthermore, in the FY 2007 IPPS final rule and FY 2008 IPPS final rule with comment period, the Medical Supplies and Equipment CCR received significant attention by the public commenters.

Although we proposed to make improvements to mitigate the effects of charge compression only on the Medical Supplies and Equipment CCR as a first step, we invited public comments as to whether to make other changes to the Medicare cost report to refine other CCRs. In addition, we indicated that we were open to making further refinements to other CCRs in the future. Therefore, in the FY 2009 IPPS proposed rule, we proposed to add only one cost center to the cost report, such that, in general, the costs and charges for relatively inexpensive medical supplies would be reported separately from the costs and charges of more expensive devices (such as pacemakers and other implantable devices). We indicated that we would consider public comments submitted on the proposed rule for purposes of both the IPPS and the OPPS relative weights and, by extension, the calculation of the ambulatory surgical center (ASC) payment rates (73 FR XXXXX).

Under the IPPS for FY 2007 and FY 2008, the aggregate CCR for chargeable medical supplies and equipment was computed based on line 55 for Medical Supplies Charged to Patients and lines 66 and 67 for DME Rented and DME Sold, respectively. To compute the 15 national CCRs used in developing the cost-based weights under the IPPS (explained in more detail under section II.H. of the preamble of the proposed rule and this final rule), we take the costs and charges for the 15 cost groups from Worksheet C, Part I of the Medicare cost report for all hospital patients and multiply each of these 15 CCRs by the Medicare charges on Worksheet D-4 for those same cost centers to impute the Medicare cost for each of the 15 cost groups. Under this proposal, the goal would be to split the current CCR for Medical Supplies and Equipment into one CCR for medical supplies, and another CCR for devices and DME Rented and DME Sold.

In considering how to instruct hospitals on what to report in the cost center for medical supplies and the cost center for devices, we looked at the existing criteria for the type of device that qualifies for payment as a transitional pass-through device category in the OPPS. (There are no such existing criteria for devices under the IPPS.) The provisions of the regulations under § 419.66(b) state that for a medical device to be eligible for pass-through payment under the OPPS, the medical device must meet the following criteria:

a. If required by the FDA, the device must have received FDA approval or clearance (except for a device that has received an FDA investigational device exemption (IDE) and has been classified as a Category B device by the FDA in accordance with §§ 405.203 through 405.207 and 405.211 through 405.215 of the regulations) or another appropriate FDA exemption.

b. The device is determined to be reasonable and necessary for the diagnosis or treatment of an illness or injury or to improve the functioning of a malformed body part (as required by section 1862(a)(1)(A) of the Act).

c. The device is an integral and subordinate part of the service furnished, is used for one patient only, comes in contact with human tissues, and is surgically implanted or inserted whether or not it remains with the patient when the patient is released from the hospital.

d. The device is not any of the following:

  • Equipment, an instrument, apparatus, implement, or item of this type for which depreciation and financing expenses are recovered as depreciable assets as defined in Chapter 1 of the Medicare Provider Reimbursement Manual (CMS Pub. 15-1).
  • A material or supply furnished incident to a service (for example, a suture, customized surgical kit, or clip, other than a radiological site marker).
  • Material that may be used to replace human skin (for example, a biological or synthetic material).

These requirements are the OPPS criteria used to define a device for pass-through payment purposes and do not include additional criteria that are used under the OPPS to determine if a candidate device is new and represents a substantial clinical improvement, two other requirements for qualifying for pass-through payment.

For purposes of applying the eligibility criteria, we interpret “surgical insertion or implantation” to include devices that are surgically inserted or implanted via a natural or surgically created orifice as well as those devices that are inserted or implanted via a surgically created incision (70 FR 68630).

In proposing to modify the cost report to have one cost center for medical supplies and one cost center for devices, we proposed that hospitals would determine what should be reported in the Medical Supplies cost center and what should be reported in the Medical Devices cost center using criteria consistent with those listed above that are included under § 419.66(b), with some modification. Specifically, for purposes of the cost reporting instructions, we proposed that an item would be reported in the device cost center if it meets the following criteria:

a. If required by the FDA, the device must have received FDA approval or clearance (except for a device that has received an FDA investigational device exemption (IDE) and has been classified as a Category B device by the FDA in accordance with §§ 405.203 through 405.207 and 405.211 through 405.215 of the regulations) or another appropriate FDA exemption.

b. The device is reasonable and necessary for the diagnosis or treatment of an illness or injury or to improve the functioning of a malformed body part (as required by section 1862(a)(1)(A) of the Act).

c. The device is an integral and subordinate part of the service furnished, is used for one patient only, comes in contact with human tissue, is surgically implanted or inserted through a natural or surgically created orifice or surgical incision in the body, and remains in the patient when the patient is discharged from the hospital.

d. The device is not any of the following:

  • Equipment, an instrument, apparatus, implement, or item of this type for which depreciation and financing expenses are recovered as depreciable assets as defined in Chapter 1 of the Medicare Provider Reimbursement Manual (CMS Pub. 15-1).
  • A material or supply furnished incident to a service (for example, a surgical staple, a suture, customized surgical kit, or clip, other than a radiological site marker).
  • Material that may be used to replace human skin (for example, a biological or synthetic material).
  • A medical device that is used during a procedure or service and does not remain in the patient when the patient is released from the hospital.

We proposed to select the existing criteria for what type of device qualifies for payment as a transitional pass-through device under the OPPS as a basis for instructing hospitals on what to report in the cost center for Medical Supplies Charged to Patients or the cost center for Medical Devices Charged to Patients because these criteria are concrete and already familiar to the hospital community. However, the key difference between the existing criteria for devices that are eligible for pass-through payment under the OPPS in the regulations at § 419.66(b) and our proposed criteria stated above to be used for cost reporting purposes is that the device that is implanted remains in the patient when the patient is discharged from the hospital. Essentially, we proposed to instruct hospitals to report only implantable devices that remain in the patient at discharge in the cost center for devices. All other devices and nonroutine supplies which are separately chargeable would be reported in the medical supplies cost center. We believe that defining a device for cost reporting purposes based on criteria that specify implantation and adding that the device must remain in the patient upon discharge would have the benefit of capturing virtually all costly implantable devices (for example, implantable cardioverter defibrillators (ICDs), pacemakers, and cochlear implants) for which charge compression is a significant concern.

However, we acknowledge that a definition of device based on whether an item is implantable and remains in the patient could, in some cases, include items that are relatively inexpensive (for example, urinary catheters, fiducial markers, vascular catheters, and drainage tubes), and which many would consider to be supplies. Thus, some modest amount of charge compression could still be present in the cost center for devices if the hospital does not have a uniform markup policy. In addition, requiring as a cost reporting criterion that the device is to remain in the patient at discharge could exclude certain technologies that are moderately expensive (for example, cryoablation probes, angioplasty catheters, and cardiac echocardiography catheters, which do not remain in the patient upon discharge). Therefore, some charge compression could continue for these technologies. We believe this limited presence of charge compression is acceptable, given that the proposed definition of device for cost reporting purposes would isolate virtually all of the expensive items, allowing them to be separately reported from most inexpensive supplies.

The criteria we proposed above for instructing hospitals as to what to report in the device cost center specify that a device is not a material or supply furnished incident to a service (for example, a surgical staple, a suture, customized surgical kit, or clip, other than a radiological site marker) (emphasis added). We understand that hospitals may sometimes receive surgical kits from device manufacturers that consist of a high-cost primary implantable device, external supplies required for operation of the device, and other disposable surgical supplies required for successful device implantation. Often the device and the attending supplies are included on a single invoice from the manufacturer, making it difficult for the hospital to determine the cost of each item in the kit. In addition, manufacturers sometimes include with the primary device other free or “bonus” items or supplies that are not an integral and necessary part of the device (that is, not actually required for the safe surgical implantation and subsequent operation of that device). (We note that arrangements involving free or bonus items or supplies may implicate the Federal anti-kickback statute, depending on the circumstances.) One option is for the hospital to split the total combined charge on the invoice in a manner that the hospital believes best identifies the cost of the device alone. However, because it may be difficult for hospitals to determine the respective costs of the actual device and the attending supplies (whether they are required for the safe surgical implantation and subsequent operation of that device or not), we solicited comments with respect to how supplies, disposable or otherwise, that are part of surgical kits should be reported. We are distinguishing between such supplies that are an integral and necessary part of the primary device (that is, required for the safe surgical implantation and subsequent operation of that device) from other supplies that are not directly related to the implantation of that device, but may be included by the device manufacturer with or without charge as “perks” along with the kit. If it is difficult to break out the costs and charges of these lower cost items that are an integral and necessary part of the primary device, we would consider allowing hospitals to report the costs and charges of these lower cost supplies along with the costs and charges of the more expensive primary device in the cost report cost center for implantable devices. However, to the extent that device manufacturers could be encouraged to refine their invoicing practices to break out the charges and costs for the lower cost supplies and the higher cost primary device separately, so that hospitals need not “guesstimate” the cost of the device, this would facilitate more accurate cost reporting and, therefore, the calculation of more accurate cost-based weights. Under either scenario, even for an aggregated invoice that contains an expensive device, we believe that RTI's findings of significant differences in supply CCRs for hospitals with a greater percentage of charges in device revenue codes demonstrate that breaking the Medical Supplies Charged to Patients cost center into two cost centers and using appropriate revenue codes for devices, and crosswalking those costs to the proposed new “Implantable Devices Charged to Patients” cost center, will result in an increase in estimated device costs.

In summary, we proposed to modify the cost report to have one cost center for “Medical Supplies Charged to Patients” and one cost center for “Implantable Devices Charged to Patients.” We proposed to instruct hospitals to report only devices that meet the four criteria listed above (specifically including that the device is implantable and remains in the patient at discharge) in the proposed new cost center for Implantable Devices Charged to Patients. All other devices and nonchargeable supplies would be reported in the Medical Supplies cost center. This would allow for two distinct CCRs, one for medical supplies and one for implantable devices and DME rented and DME sold.

Comment: Many commenters supported the proposed cost reporting refinements to address charge compression in the medical supplies and devices CCR. However, most commenters stated that they preferred a more “comprehensive” approach to reforming the cost report, expressing concern that CMS is taking a “piecemeal” approach which does not address the underlying problem of using an “antiquated” cost reporting instrument to collect cost data that neither suits the needs of CMS in calculating the relative weights, nor does it fit with the current accounting practices of hospitals. One commenter stated generally that the cost report and MedPAR data sources were never intended to be integrated, which affects the accuracy of the DRG recalibration. The commenter wanted CMS to improve the accuracy of the cost report by incorporating a new schedule to “continue the reporting of revenue by UB revenue code by cost report line” and to calculate a weighted CCR by UB revenue code. The commenter believed this is a “major area of reform” to the cost report that would “greatly enhance the accuracy of costing data” not only for inpatient and outpatient PPS hospitals, but also for CAHs and children's and cancer hospitals. Nevertheless, these commenters supported CMS' proposal to split the “Medical Supplies Charged to Patients” cost center into one cost center for “Medical Supplies Charged to Patients,” and one for “Implantable Devices Charged to Patients” as a short-term approach, believing that this measure may help address charge compression in the relative weights of MS-DRGs that include medical supplies and devices. Another commenter encouraged CMS to complete a thorough review of charge compression and then separately propose rules that would provide hospitals with adequate notice to make the necessary changes, with implementation of those changes occurring no earlier than FY 2010. One commenter qualified its support for CMS' proposal on the contingency that CMS commits to working with the hospital industry to address the larger issues surrounding the cost reports as a data collection tool. Another commenter added that it did not oppose CMS' proposal, but stated that its “comments should not be viewed as an endorsement to adding additional cost centers in the future” and that CMS should “proceed with extreme caution with any additional incremental changes.” Other commenters were disappointed in what they characterized as “CMS' failure to work with the hospital field from the outset on such an important endeavor.” Another commenter suggested that CMS may want to use its database to run further analyses on charge compression because the majority of hospitals submitting clinical and financial data to the commenter have cost accounting systems. The commenters generally urged CMS to provide adequate notice to hospitals before making any changes to the cost report because hospitals will need to make significant revisions to their accounting and billing systems before the start of their fiscal years.

One commenter supported CMS' proposal for using the existing requirements for determining which devices qualify for pass-through payment under the OPPS, and whether a device is implantable and remains in the patient upon discharge, as the criteria for determining what types of implantable devices would be reported in the proposed new cost center. The commenter believed that the proposed criteria are objective and most accurately describe the type of medical devices that are most impacted by charge compression. However, a large number of commenters opposed CMS' proposed criteria for distinguishing between low-cost supplies and high-cost devices for reporting in the proposed new cost report cost centers. Rather than using CMS' proposed criteria which are based on the existing requirements for determining which devices qualify for pass-through payment under the OPPS, and whether a device is implantable and remains in the patient upon discharge, in addition to use of existing revenue codes, most commenters preferred that the cost report cost centers be defined exclusively based on the use of existing revenue codes and associated definitions. The commenters pointed out that using existing revenue codes and definitions as they have been currently established by the National Uniform Billing Committee (NUBC) makes sense, as these definitions have been in place for some time and are used across all payers, not just by CMS. The commenters believed that introduction of exceptions by CMS to what hospitals may include in certain revenue codes can be disruptive to hospitals' billing and accounting systems. Furthermore, they added, this method is consistent with the analytic approach and revenue centers used by RTI to develop the regression-based CCRs for medical devices. Accordingly, the commenters recommended that the proposed new cost centers on the cost report for “Medical Supplies Charged to Patients” and “Implantable Devices Charged to Patients” be defined exclusively on the following revenue code criteria: Specifically, revenue codes 0275 (Pacemaker), 0276 (Intraocular lens), 0278 (other implants), and 0624 (FDA investigational devices) would be used in the proposed new cost center for high-cost devices. The commenters noted that revenue code 0624 generally consists of higher cost implants, but indicated that this revenue code could be refined at a later point by the NUBC to provide a revenue code that could be reported when the FDA investigational device does not include implants. According to the commenters, all other revenue codes in the device/supply category (in 027x and 062x) would be reported in the lower cost medical supplies cost center on the cost report. The commenters acknowledged that distinguishing between low-cost supplies and high-cost devices through exclusive use of the existing revenue codes will not thoroughly separate low and high-cost items, and therefore, some amount of charge compression will remain in the proposed new “Implantable Devices Charged to Patients CCR.” Nevertheless, the commenters believed that use of existing revenue codes and definitions represents the most administratively simple and least burdensome approach to addressing charge compression; the incremental improvements of a more refined approach do not warrant more wholesale changes. One commenter, however, did recommend that CMS request new revenue codes from the NUBC as needed to identify all devices that would be reported in the new implantable devices cost center under the revised cost report definition of implantable device so as to minimize exclusion of innovative technologies and mitigate the impact of charge compression.

Response: In the FY 2009 IPPS proposed rule (73 FR 23546), we stated that we have begun a comprehensive review of the Medicare hospital cost report, and our proposal to split the current 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” is part of that initiative to update and revise the cost report. Under the effort to update the cost report and eliminate outdated requirements in conjunction with the PRA, changes to the cost report form and cost report instructions would be made available to the public for comment. Thus, the commenters would have an opportunity to suggest the more comprehensive reforms that they are advocating, and would similarly be able to make suggestions for ensuring that these reforms are made in a manner that is not disruptive to hospitals' billing and accounting systems, and are within the guidelines of GAAP, Medicare principles of reimbursement, and sound accounting practices. However, we note that while the commenters on the FY 2009 IPPS proposed rule appear to be advocating a more comprehensive and thorough approach to reforming the cost report, the public comments we received on the FY 2008 proposed rule urged us to proceed cautiously with changing the Medicare cost report to avoid unintended consequences for hospitals that are paid on a cost basis (such as CAHs, cancer hospitals, and, to some extent, SCHs and MDHs), and to consider the administrative burden associated with adapting to new cost report forms and instructions (73 FR 23544 and 72 FR 47193). We explained that because of these comments on the FY 2008 IPPS proposed rule, we decided to start out slowly with modifying the cost report to improve the data used in calculating the cost-based weights. Specifically, we chose to focus initially on the cost center for Medical Supplies Charged to Patients, because RTI found that the largest impact on the DRG relative weights could result from correcting charge compression for devices and implants. We are willing to work with and consider comments from finance and cost report experts from the hospital community as we work to improve and modify the hospital cost report. As noted above, in the CY 2009 OPPS/ASC proposed rule (73 FR XXXXX), we also are proposing to break the single standard pharmacy cost center 5600 into two standard cost centers, Drugs with High Overhead Cost Charged to Patients and Drugs with Low Overhead Cost Charged to Patients, and we are specifically inviting public comment on the appropriateness of creating standard cost centers for Computed Tomography (CT) Scanning, Magnetic Resonance Imaging (MRI), and Cardiac Catheterization, rather than continuing the established nonstandard cost centers for these services. Proposed changes to the cost report will impact both IPPS and OPPS, and public comments should address both systems.

We have considered the comments in favor of finalizing our proposal to split the current 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,” and the comments recommending that these cost centers be defined based solely on existing revenue codes. Although we believed that adopting the existing criteria for determining whether a device is eligible for pass-through payment under the OPPS to identify devices for the “Implantable Devices Charged to Patients” cost center was a reasonable proposal because the criteria are concrete and already familiar to the hospital community, we understand that hospitals are already familiar with the definitions of the existing revenue codes as well because they have been in place for some time. In addition, identifying devices based only on the existing revenue code definitions is more straightforward than also incorporating the criteria for devices that qualify for OPPS pass-through payment. Therefore, we agree with the commenters that use of the existing revenue code definitions is the simplest and least burdensome approach for hospitals to implement that would concretely, although not completely, address charge compression.

Accordingly, in this final rule, we are finalizing our proposed policy to split the current 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.” However, when determining what should be reported in these respective cost centers, rather than finalize our proposed policy to use existing criteria for determining which devices qualify for OPPS pass-through payment, with the modification that the implantable device must remain in the patient at discharge, we are instead adopting the commenters' recommendation that hospitals should use revenue codes established by the NUBC to determine what should be reported in the “Medical Supplies Charged to Patients” and the “Implantable Devices Charged to Patients” cost centers. We note that use of the existing revenue codes will still generally result in implantable devices being reported in the “Implantable Devices Charged to Patients” cost center because revenue codes 0275 (Pacemaker), 0276 (Intraocular lens), 0278 (other implants), and 0624 (FDA investigational devices) for the most part, generally would be used for reporting higher cost implants. However, use of the existing NUBC definitions would not require that the implantable device remain in the patient when the patient is discharged; therefore, in this respect, the policy we are finalizing differs from the one we proposed.

In the FY 2009 IPPS proposed rule (73 FR 23547), in an effort to improve the match between the costs and charges included on the cost report and the charges in the MedPAR file, we recommended that certain revenue codes be used for items reported in the new “Medical Supplies Charged to Patients” cost center and the new “Implantable Devices Charged to Patients” cost center, respectively. These recommendations were similar to the commenters' suggested method for use of existing revenue codes in determining whether an item should be reported in the proposed new supply or device cost center in the cost report. In this final rule, we are finalizing our policy to create a cost center for implantable devices. Under this policy, charges reported with revenue codes 0275 (Pacemaker), 0276 (Intraocular Lens), 0278 (Other Implants), and 0624 (Investigational Device (IDE)) would correspond to implantable devices reported in the new “Implantable Devices Charged to Patients” cost center. Items for which a hospital may have previously used revenue code 0270 (General Classification), but actually are an implantable device, should instead be billed with an implantable device revenue code. Conversely, items and supplies that are not implantable would be reported in the new “Medical Supplies Charged to Patients” cost center on the cost report. We would expect these items and supplies to be billed with revenue codes 0270 (general classifications), 0271 (nonsterile supply), 0272 (sterile supply), and 0273 (take-home supplies). In the proposed rule, we indicated that revenue code 0274 (Prosthetic/Orthotic Devices) and revenue code 0277 (Oxygen—Take Home) might be associated with the cost centers for Durable Medical Equipment (DME)-Rented and DME-Sold on the cost report. We received comments that indicated that all other (not implantable) supply revenue codes, including 0274, 0277, 0621, and 0622, should be associated with the new “Medical Supplies Charged to Patients” cost center. For the purpose of this final policy, we are most concerned with identifying the revenue code costs and charges that define the new “Implantable Devices Charged to Patients” cost center. With the exception of the present proposal, CMS typically does not specify a revenue code-to-cost center crosswalk that hospitals must adopt to prepare their cost report. Beyond the supply revenue codes we identified above for “Medical Supplies Charged to Patients,” we assume hospitals will include other appropriate supply revenue codes in this new cost center, which may or may not include 0621, 0622, 0274, and 0277.

Hospitals must continue to report ICD-9-CM codes and charges with an appropriate UB revenue code consistent with NUBC requirements. When reporting the appropriate revenue codes for services, hospitals should choose the most precise revenue code, or subcode if appropriate. As NUBC guidelines dictate: “It is recommended that providers use the more detailed subcategory when applicable/available rather than revenue codes that end in “0” (General) or “9” (Other).” Furthermore, hospitals are required to follow the Medicare cost apportionment regulations at 42 CFR 413.53(a)(1), which convey that, under the departmental method of apportionment, the cost of each ancillary department is to be apportioned separately rather than being combined with another department. In order to comply with the requirements of this regulation, hospitals must follow the Medicare payment policies in section 2302.8 of the PRM-I and the PRM-II in order to ensure that their ancillary costs and charges are reported in the appropriate cost centers on the cost report. We rely on hospitals to fully comply with the revenue code reporting instructions and Medicare cost apportionment policies.

In general, proper reporting would dictate that if an item is reported as an implantable device on the cost report, it is an item for which the NUBC would require use of revenue code 0275 (Pacemaker), 0276 (Intraocular Lens), 0278 (Other Implants), or 0624 (Investigational Device). Likewise, items reported as Medical Supplies should receive an appropriate revenue code indicative of supplies. We did indicate in the proposed rule that we might consider requesting additional revenue codes from the NUBC, but we note that because the majority of commenters have requested that they be allowed to use existing revenue codes to distinguish between the low cost supplies and high cost devices, we may wait and see what the results of that approach are before we request the creation of additional codes from the NUBC.

We would also like to caution that, as the commenters themselves acknowledged, the use of existing revenue code definitions to crosswalk devices and supplies to the device cost center and supplies cost center, respectively, will not separate high and low cost items as thoroughly as would the use of the proposed criteria for implantable devices that remain in the patient at discharge. Therefore, some degree of charge compression will remain in the medical devices cost center. Furthermore, this methodology, and the accuracy of the relative weights, is heavily dependent upon hospitals' reporting practices. While CMS is responsible for issuing cost reporting instructions that are clear, hospitals are responsible for ensuring that their cost reporting and billing practices are consistent and conform to Medicare policy.

Comment: A few commenters, who supported the proposal that only devices that are implantable and that remain in the patient at discharge should be reported in the new “Implantable Devices Charged to Patients” cost center, also expressed concern that there are instances where these criteria are too narrow. One commenter mentioned various types of implantable devices that do not remain in the patient at discharge, including atherectomy and thrombectomy catheters, laser sheaths for removal of pacemaker and defibrillator leads, and thrombolysis catheters. Two commenters mentioned one product, an external fixation device that is used to treat trauma of the upper and lower extremities and to assist in the treatment of severe fractures, and noted that this device is commonly removed from patients prior to discharge. The commenters believed that if this device is not assigned to a revenue code for an “implantable device,” the true implant costs for many of these discharges may not be recognized. One of the commenters asked that CMS consider exempting external fixation devices from the proposed “implantable device” standard, or provide another appropriate mechanism to ensure accurate cost reporting for this device. The other commenter also supported the creation of the devices cost center based on the use of existing revenue codes and associated definitions established by the NUBC. Another commenter stated that CMS' proposed definition of device as one that must remain in the patient at discharge could result in inconsistent billing and reporting because whether a device remains in the patient could depend on the particular patient's length of stay. The commenter used the example of an implantable port for medication delivery, where one patient is well enough to be discharged from the hospital but needs the port at home for extended IV therapy. Another patient with the same implantable medication port, however, may have additional complications and need to stay in the hospital longer, but may ultimately improve to the extent where he or she is discharged without the port. The commenter observed that, as a result, there could be a device that would qualify as an implant for some patients but not for others.

Response: In the FY 2009 IPPS proposed rule (73 FR 23545), we acknowledged that a definition of a device based on whether it is implantable and remains in the patient at discharge could, in some cases, include some relatively inexpensive items, and could also exclude some expensive items. Therefore, some charge compression could continue for these technologies. We also acknowledge the point of one of the commenters that depending upon a patient's severity of the illness and length of stay, a device may or may not qualify as an implantable device based on our proposed criteria. However, we note that, in response to the many comments we received as summarized previously, we have decided not to finalize our proposed definition of a device, which was based on the existing OPPS criteria for identifying devices that qualify for pass-through payment, with the additional requirement that the device must remain in the patient at discharge. Instead, as suggested by the vast majority of commenters, we are finalizing a policy that would distinguish between supplies and devices based on the existing revenue codes and definitions. Therefore, while the device must still be implantable to map to the new implantable device cost center, our final policy no longer includes the requirement that the device remain in the patient at discharge. We expect hospitals to follow the revenue code definitions in assigning the costs and charges of devices.

Comment: Commenters asked CMS to provide a contingency plan if the medical device CCR is substantially lower than the regression-based device CCR estimate or the current supplies CCR, once the data become available.

Response: We agree that we will need to evaluate the medical supply and device CCRs once the data become available for FY 2012 ratesetting. At that point and forward, we will continue to analyze the cost report data. However, we point out that we do not believe it is appropriate to “pick and choose” between CCRs; rather, the determining factor should be payment accuracy, regardless of whether one method increases or decreases payment for devices.

Comment: One commenter supported CMS' proposal to split the medical supplies cost center. However, the commenter stated that CMS' proposal could result in the relative weight for MS-DRG 001 (Heart Transplant or Implant of Heart Assist with MCCs) being reduced because the weight for MS-DRG 001 is not “device-driven” due to the presence of a large number of hospitalizations with relatively low device costs (heart transplant and combined heart-lung transplant), which could weaken the effect of the proposed cost center changes with respect to the relative weight for MS-DRG 001. To remedy this, the commenter requested, in part, that CMS create a cost center on the cost report that would enable CMS to capture more accurate data on LVADs. In addition, the commenter noted that CMS should remain open to cost centers that capture devices in the $500-$2,500 range (Class I implantable devices), and separate cost centers for devices in the $2,500-$100,000 range (Class II implantable devices). The commenter stated that it would continue to monitor CMS' policy changes in the coming years and will provide input to the CMS regarding the “impact to hospitals that provide lifesaving LVAD therapy to Medicare beneficiaries.”

Response: We do not believe it is appropriate at this time to create a new cost center, or further refine the device cost center based on cost categories, so as to capture data more accurately for LVADs. Instead, as an initial step, we believe it would be better to finalize the broader proposal of creating one cost center for supplies, and a cost center for implantable devices, which would include LVADs. We are receptive to the commenter's input to CMS regarding the impact to hospitals that provide LVAD therapy as part of our own monitoring and analyses of the cost-based relative weights, and if appropriate, we may consider further refining the implantable devices cost center in the future.

Comment: A number of commenters focused on the section of the 2007 RTI report that highlighted the problem of nursing care cost compression. The report found that nursing care represents about 41 percent of hospitals' costs, and these costs are allocated as fixed daily room rates, despite substantial evidence that daily nursing care hours and costs vary substantially among patients. As a result, the current DRG relative weights do not reflect differences in nursing care, leading to payment inaccuracy. One commenter noted that this creates a “perverse incentive for hospitals to cut nursing staff as reimbursement is not matched to the average amount of nursing time and costs within each DRG as are the ancillary services.” Some commenters reiterated their comments submitted on the FY 2008 IPPS proposed rule, recommending that CMS study adoption of Nursing Intensity Weights (NIWs), which is in use in the New York State Medicaid program. The commenters suggested that unbundling nursing care from current routine and intensive care daily rates and billing for nursing using the 023X revenue code for actual daily nursing time (nursing intensity) expended for individual patients provides a reasonable solution to the problem of nursing cost compression. Specifically, the commenters urged CMS to reconsider its proposal for FY 2009 and explore ways to:

(a) Implement the recommendations of the RTI report to unbundle nursing care from current accommodation (room and board) revenue codes using the 023X Nursing Incremental Charge UB04 revenue code.

(b) Modify the Medicare cost report to separate out nursing costs and hours of care to allow construction of a nursing cost to charge ratio within the existing routine and intensive care cost centers.

(c) Develop a method to evaluate nursing performance by case mix within the new severity adjusted DRGs using the unbundled 023X nursing hours and costs data.

(d) Incorporate the inpatient nursing performance measure into the emerging value-based purchasing effort in the coming fiscal years to identify low performing hospitals relative to the mean nursing intensity within MS-DRG and high cost hospitals.

The commenters believed that accomplishing these four recommendations will “improve overall payment accuracy, lead to a better understanding of how nursing care hours and costs are allocated to individual patients and by DRG within and across hospitals, identify hospital nursing performance, and inform policy makers on the state of inpatient nursing care in the United States.”

Response: The commenters raised similar concerns in response to the FY 2008 IPPS proposed rule. In response to those comments, we acknowledged RTI's finding in its January 2007 report that “because intensity of nursing is likely correlated with DRG assignment, this could be a significant source of bias in DRG weights,” and agreed that this issue should be studied further. We appreciate that the commenters have also given more thought to methods of addressing nursing cost compression, but we note that the initiation and eventual success of much of these efforts lie within the hospital community. In its July 2008 report, RTI states that, “the best long-term solution would be for the industry to agree to expand charge coding conventions for inpatient nursing, which would foster increased use of patient-specific nursing incremental charge codes in addition to baseline unit-specific per-diem charges. Additional detail in revenue codes would permit inpatient charges to be converted by CCRs in the same way as charges for ancillary service use are converted, to more accurately aggregate costs at the level of the system payment unit.” (page 118) Therefore, whether the preferred method would be to separate charges for nursing care from the accommodation revenue codes using the existing 023X (Incremental Nursing Care) revenue codes, or some other approach, we believe the hospital community must take the initiative to decide upon a uniform method of reporting nursing charges in such a manner that reflects the varying nursing intensity in caring for individual patients.

The commenters requested that the cost report be modified to separate nursing costs and hours of care to allow for the calculation of CCRs for routine care and intensive care, and we believe this could possibly be a long-term goal. We note that RTI observes that given the inconsistent use of patient-level nursing acuity data systems, “it is difficult to imagine an administratively feasible way to incorporate nursing acuity measures into standard Medicare reporting as a long-term solution for reducing nursing cost compression” (page 118). However, we encourage the nursing community, the hospital industry, and others to consider researching ideas for how nursing intensity can be recognized in the cost weights.

Comment: Several commenters responded to our solicitation for comments on how to report supplies that are part of surgical kits. The commenters generally did not support our proposal to require hospitals to separate the costs of supplies from devices within surgical kits. Some commenters recommended using the existing revenue codes so as not to increase the documentation burdens for hospitals. That is, the costs and charges of the kit should be reported consistent with the use of the revenue code, such that, for example, if the kit is billed with revenue code 0278 (Other Implants), it would be reported in the new “Implantable Devices Charged to Patients” cost center. These commenters acknowledged that this approach will not separate all low cost items, but will still reduce charge compression.

Another commenter stated that “unbundling” the device from the surgical kit would increase administrative costs for hospitals and vendors, and that more medical errors would likely result, which surgical packs were designed to reduce. Another commenter noted the terms CMS used in describing the supplies that are part of surgical kits, such as “integral to” or “unrelated to,” and “free” or “bonus” items. The commenter recommended that CMS consider clarifying these terms via an issuance such as a transmittal or an MLN Matters article rather than the Federal Register because all healthcare providers do not read it, and that CMS' clarification provide “rationale that is vital to understanding underlying compliance concerns associated with supply charge practices.” This commenter further recommended that as a long-term solution, CMS and the NUBC develop a revenue code called “Integrated Supplies” specifically to report supplies in customized kits, packs, and trays. This new revenue code would capture all of the routine supplies that are part of the package in one charge, except for the charge for the implantable device, which would be itemized separately on the invoice The commenter noted that most hospitals' chargemaster software allows multiple charges to be linked together as part of a “panel master.” Therefore, the Integrated Supplies revenue code could be linked with the various revenue codes used for implantable devices (0275, 0276, and 0278), without requiring vendors and hospitals to itemize every single supply in a kit separately on an invoice or the chargemaster.

One commenter stressed the value that packaging such items together has for hospitals, arguing that the kits reduce labor hours associated with the procedure, and that “hospitals do not purchase these packages for what CMS refers to as `bonus’ items, but for the efficiencies gained though the packaging of the items.” The commenter did not believe such kits should be considered a violation of the anti-kickback statute.

Response: In the FY 2009 IPPS proposed rule (73 FR 23545), we discussed how hospitals could accurately report the costs of an expensive device and the costs of less expensive supplies needed to implant that device on the cost report, given that often the device and the supplies are included on a single invoice from the manufacturer, making it difficult for the hospital to determine the cost of each item in the kit. We suggested that one option is for the hospital to split the total combined charge on the invoice in a manner that the hospital believes best identifies the cost of the device alone. However, because it may be difficult for hospitals to determine the respective costs of the actual device and the attending supplies (whether they are required for the safe surgical implantation and subsequent operation of that device or not), we solicited comments with respect to how supplies, disposable or otherwise, that are part of surgical kits should be reported. We distinguished between such supplies that are an integral and necessary part of the primary device (that is, required for the safe surgical implantation and subsequent operation of that device) from other supplies that are not directly related to the implantation of that device, but may be included by the device manufacturer with or without charge as “perks” along with the kit. We stated that if it is difficult to break out the costs and charges of these lower cost items that are an integral and necessary part of the primary device, we would consider allowing hospitals to report the costs and charges of these lower cost supplies along with the costs and charges of the more expensive primary device in the cost report cost center for implantable devices. However, we stated that to the extent that device manufacturers could be encouraged to refine their invoicing practices to break out the charges and costs for the lower cost supplies and the higher cost primary device separately, so that hospitals need not “guesstimate” the cost of the device, this would facilitate more accurate cost reporting and, therefore, the calculation of more accurate cost-based weights.

We have considered the public comments which essentially recommended that hospitals should not attempt to break out the costs of the expensive device from the attending supplies, but instead, that hospitals report the entire kit based on the single revenue code used for the device in the kit. We still believe that device manufacturers could make a better effort at refining their invoices to separately break out the charges and costs of the high-cost device from the low-cost supplies because this would likely lead to more accurate cost reporting and a further mitigation of charge compression. Certainly, if the supplies that are included in the kit are not integral to and necessary for the safe, surgical implementation of the device, we believe that it would be best for hospitals to report those costs and charges separately from the costs and charges for the implantable device. Nevertheless, because commenters are generally satisfied with an approach for reporting the costs and charges of the entire kit based on the revenue code that is used for the device in that kit, we will accept the commenters' recommendation and permit hospitals to follow this approach in reporting the costs and charges of surgical kits. As we noted in the proposed rule, even for an aggregated invoice that contains an expensive device, we believe that RTI's findings of significant differences in supply CCRs for hospitals with a greater percentage of charges in device revenue codes demonstrate that breaking the Medical Supplies Charged to Patients cost center into two cost centers, using appropriate revenue codes for devices, and mapping those costs to the new “Implantable Devices Charged to Patients” cost center, will result in an increase in estimated device costs that could lead to more accurate payment for those costs. However, we do appreciate the acknowledgement from the commenter that it is important for the industry to understand the rationale for compliance requirements and the recommendation of the commenter that a new revenue code for Integrated Supplies be created as a long-term solution for capturing costs and charges of incidental supplies, and we may consider this as part of other changes that may or may not require NUBC approval.

With respect to the commenter that argued that such kits should not be considered a violation of the anti-kickback statute, we note that we did not state that surgical kits should necessarily be considered a violation of the anti-kickback statute. The commenter made the point that hospitals do not purchase the kits for the value of the “bonus items,” but rather because of the increased efficiencies that result from packaging all the items necessary for a particular surgical procedure together. However, we point out that the IPPS proposed rule refers specifically to “free or `bonus’ items that are not an integral and necessary part of the device (that is, not actually required for the safe surgical implantation and subsequent operation of that device)” (73 FR 23545, emphasis added). Therefore, the parenthetical sentence in the proposed rule that follows the reference to “free” or “bonus” items refers to those free or bonus items that are not an integral and necessary part of the device implantation procedure and subsequent operation of that device. Specifically, we stated that “arrangements involving free or bonus items or supplies may implicate the Federal anti-kickback statute, depending on the circumstances” (73 FR 23545, emphasis added). That is, hospitals should be aware that, depending on the circumstances, kits that include other items that are unrelated to the safe implantation or operation of a device could possibly implicate the Federal anti-kickback statute.

Comment: One commenter advised that many hospitals do not report some charges in the Medical/Surgical Supplies revenue codes when they consider those items to be part of hospital room and board (that is, blood transfusion administration). The commenter stated that hospitals seek guidance from CMS to avoid discrepancies in reporting, and recommended that CMS define what is included in “room and board” to further standardize billing practices and promote consistency and continuity across all hospitals.

Response: CMS' longstanding policy with respect to what constitutes a routine service (sometimes called “room and board”) as compared to an ancillary service is discussed in the regulations at § 413.53(b) and in the PRM-I under Section 2202.6 (Routine Services) and Section 2202.8 (Ancillary Services). If an item is not specifically enumerated as a routine item or service in Section 2202.6, or an ancillary item or service in Section 2202.8, then the rules in Section 2203 of the PRM-I apply. This section requires that the common or established practice of providers of the same class in the same State should be followed. If there is no common or established classification of an item or service as routine or ancillary among providers of the same class in the same State, a provider's customary charging practice is recognized so long as it is consistently followed for all patients and does not result in an inequitable apportionment of cost to the program.

With respect to blood transfusion/administration, to which the commenter refers, this service should not be billed under the Medical/Surgical Supplies code, regardless of the hospital's accounting system. “Blood Transfusion/Administration” is a service rather than an item, and the blood itself is also not treated as a medical supply item. The cost report includes a standard cost center for “Blood Storing, Processing, and Transfusion” (Line 47 of Worksheet A, under the “Ancillary Service Cost Centers”), and there is a UB revenue code 0391 for Blood Administration, in addition to revenue codes in the 038X category for various blood products. However, the revenue codes for Medical/Surgical Supplies fall within another category, 027x. Because blood transfusion and blood products are not specifically mentioned in the definition of “routine services” in the PRM-1 under Section 2202.6, or in the definition of “ancillary services” in Section 2202.8, the commenter is asking whether it is appropriate not to bill a separate ancillary charge for the transfusions occurring in the routine cost centers, but to consider that the charge is encompassed in the routine Room and Board Charge under one of the Room and Board UB revenue codes.

In accordance with PRM-I, Section 2202.8, if the provider does not impose a separate charge in addition to a routine service charge, the service is considered not to be “ancillary”. As mentioned above, under PRM-I, Section 2203, the provider must consider the established practice of the same class of providers in the same State as to whether to include blood transfusion in the routine service charge (for both Medicare and non-Medicare patients). For blood transfused in the Operating Room, Emergency Room, or other ancillary cost centers, providers should be billing a separate charge (just as for implantable devices in case of Implantable Devices Charged to Patients) under UB revenue code 0391 (Blood Administration), and the cost and charges should be reported on Line 47 of the cost report.

Comment: A few commenters indicated that, with the changes that CMS is proposing to the reporting of costs and charges of medical devices on the cost report, the quality of the cost data that CMS will be collecting will improve. Accordingly, they stated that, the CCR for the new “Implantable Devices Charges to Patients” cost center will improve to the extent that applying it to the reported charges for devices from the cost report will generate an actual device cost and that this actual device cost should be an accurate reflection of the hospital's device acquisition cost. Therefore, the commenter suggested that this cost should be determined and incorporated into the process for calculating the relative weights, and that CMS should use the actual cost in the relative weight calculation rather than an imputed cost estimated by applying a national CCR to claims charge data, in instances where the imputed cost is lower than the cost reported by the hospital on its cost report.

Response: While we are optimistic that the addition of a new cost report line for implantable devices should certainly allow for the collection of more accurate cost data, we do not believe we can use this aggregate actual cost amount for setting relative weights. The costs and charges for all implantable devices for the hospital across all payers are collected and aggregated on the cost report. However, the cost of a specific device cannot be determined from this aggregated information. We have to estimate the cost of devices for each MS-DRG in each claim in order to estimate an average imputed cost for the entire MS-DRG, including device costs. Different MS-DRGs will include different kinds of devices, each with a different cost. We also do not believe it is appropriate to use the actual cost in the relative weight calculation rather than the imputed cost in instances where the imputed cost is lower than the cost reported by the hospital on its cost report, as the commenter suggested.

We also solicited comments on alternative approaches that could be used in conjunction with or in lieu of the four proposed criteria for distinguishing between what should be reported in the new cost centers for Implantable Devices and Medical Supplies, respectively. Another option we considered would distinguish between high-cost and low-cost items based on a cost threshold. Under this methodology, we would also have one cost center for Medical Supplies and one cost center for Devices, but we would instruct hospitals to report items that are not movable equipment or a capital expense but are above a certain cost threshold in the cost center for Devices. Items costing below that threshold would be reported in the cost center for Medical Supplies.

Establishing a cost threshold for cost reporting purposes would directly address the problem of charge compression and would enable hospitals to easily determine whether an item should be reported in the supply or the device cost center. A cost threshold would also potentially allow a broader variety of expensive, single use devices that do not remain in the patient at discharge to be reported in the device cost center (such as specialized catheters or ablation probes). While we have a number of concerns with the cost threshold approach, we nevertheless solicited public comments on whether such an approach would be worthwhile to pursue. Specifically, we are concerned that establishing a single cost threshold for pricing devices could possibly be inaccurate across hospitals. Establishing a threshold would require identifying a cost at which hospitals would begin applying reduced markup policies. Currently, we do not have data from which to derive a threshold. We have anecdotal reports that hospitals change their markup thresholds between $15,000 and $20,000 in acquisition costs. Recent research on this issue indicated that hospitals with average inpatient discharges in DRGs with supply charges greater than $15,000, $20,000, and $30,000 have higher supply CCRs (Advamed March 2006).

Furthermore, although a cost threshold directly addresses charge compression, it may not eliminate all charge compression from the device cost center because a fixed cost threshold may not accurately capture differential markup policies for an individual hospital. At the same time, we also are concerned that establishing a cost threshold may interfere with the pricing practices of device manufacturers in that the prices for certain devices or surgical kits could be inflated to ensure that the devices met the cost threshold. We believe our proposed approach of identifying a group of items that are relatively expensive based on the existing criteria for OPPS device pass-through payment status, rather than adopting a cost threshold, would not influence pricing by the device industry. In addition, if a cost threshold were adopted to distinguish between high-cost devices and low-cost supplies on the cost report, we would need to periodically reassess the threshold for changes in markup policies and price inflation over time.

Comment: Several commenters addressed the use of a cost threshold to determine whether an item should be categorized in the medical device cost center of the cost report. Some commenters believed that establishing a cost threshold to determine whether an item should be reported as a device or a supply would be inappropriate because it is difficult to ensure that charges are properly reported because there would not be any specific revenue codes for these high-cost and low-cost items. Further, commenters disagreed about what the threshold should be. (In the proposed rule, we had discussed that we have anecdotal evidence that inpatient discharges in DRGs with supply charges greater than $15,000, $20,000 and $30,000 have higher supply CCRs.) However, the commenters stated that if CMS used a cost threshold, it should be set lower at a range of $1,000 to $2,000. Another commenter recommended that CMS set a cost threshold at $4,000, so its nonimplantable device could qualify as a device for cost reporting purposes.

Response: In the proposed rule, we proposed to instruct hospitals to report only devices that met our criteria (including that a device is implantable and remains in the patient upon discharge) in the new cost center for “Implantable Devices Charged to Patients” and to report all other devices and supplies in the new “Medical Supplies Charged to Patients” cost center. However, we also solicited comments on alternative approaches that could be used in conjunction with or in lieu of our proposed criteria to distinguish between the new cost center for Implantable Devices and the new cost center for Medical Supplies. One alternative could have been that hospitals report items above a certain cost threshold in the Medical Devices cost center while items costing below the threshold would be reported in the Medical Supplies cost center. The few commenters on this proposal were generally opposed to establishing a cost threshold to differentiate between medical devices and medical supplies. As discussed in our proposed rule (73 FR 23546), we continue to be concerned that a cost threshold may affect pricing practices of device manufacturers where prices of certain devices could be inflated to ensure the item met the threshold to be classified as a device. Further, we believe it would be difficult to establish a cost threshold because we currently have no empirical data from which to establish one, and the commenters disagreed with the anecdotal evidence we presented that a potential cost threshold for devices could be between $15,000 and $20,000. Therefore, the policy that we are finalizing in this final rule does not include a cost threshold to determine whether items should be reported as a medical device or a medical supply.

Another option for distinguishing between high-cost and low-cost items for purposes of the cost report would be to divide the Medical Supplies Charged to Patients cost center based on markup policies by placing items with lower than average markups in a separate cost center. This approach would center on documentation requirements for differential charging practices that would lead hospitals to distinguish between the reporting of supplies and devices on different cost report lines. That is, because charge compression results from the different markup policies that hospitals apply to the supplies and devices they use based on the estimated costs of those supplies and devices, isolating supplies and devices with different markup policies mitigates aggregation in markup policies that cause charge compression and is specific to a hospital's internal accounting and pricing practices. If requested by the fiscal intermediaries/MACs at audit, hospitals could be required to submit documentation of their markup policies to justify the way they have reported relatively inexpensive supplies on one line and more expensive devices on the other line. We believe that it should not be too difficult for hospitals to document their markup practices because, as was pointed out by many commenters since the implementation of cost-based weights, the source of charge compression is varying markup practices. Greater knowledge of the specifics of hospital markup practices may allow ultimately for development of standard cost reporting instructions that instruct hospitals to report an item as a device or a supply based on the type of markup applied to that item. This option related to markup practices, the proposal to define devices based on four specific criteria, and the third alternative that would establish a cost threshold for purposes of distinguishing between high-cost and low-cost items could be utilized separately or in some combination for purposes of cost report modification. Again, in the proposed rule, we solicited comments on these alternative approaches. We also expressed interest in other recommendations for appropriate cost reporting improvements that address charge compression.

Comment: One commenter supported the use of the markup threshold to separate medical supplies from medical devices because, according to the commenter, it would be the most accurate way to mitigate charge compression as the source of charge compression is hospitals' varying markup practices. However, the commenter noted that establishing a markup threshold would require additional documentation from hospitals that could be burdensome. Other commenters believed that a markup threshold would likely separate medical devices that were very expensive or very inexpensive, but would not address medical devices that are moderately priced. The commenters who opposed a markup threshold noted that because there is great variability in markup practices among hospitals, it would be difficult to apply a national markup threshold. The commenters also noted that urban hospitals compared to rural hospitals would have very different charging practices.

Response: In the FY 2009 IPPS proposed rule, we listed several reasons why adopting a policy where high and low cost items would be divided based on markup policy could be appropriate (73 FR 23546). We also stated that this option would focus on documentation requirements, although we did not believe these documentation requirements would be too difficult. However, the commenters believed that this approach is too burdensome, and that it would be difficult to apply a national markup threshold given the varying markup practices among hospitals. Therefore, because most commenters approved of a revenue code-based approach to distinguishing between high-cost and low-cost items, we are not adopting a policy based on markup practices at this time.

5. Timeline for Revising the Medicare Cost Report

As mentioned in the FY 2008 IPPS final rule with comment period (72 FR 47198), we have begun a comprehensive review of the Medicare hospital cost report, and the finalized policy to split the current 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,” as part of our initiative to update and revise the hospital cost report. Under an effort initiated by CMS to update the Medicare hospital cost report to eliminate outdated requirements in conjunction with the PRA, we plan to propose the actual changes to the cost reporting form, the attending cost reporting software, and the cost report instructions in Chapter 36 of the Medicare PRM, Part II. We expect the proposed revision to the Medicare hospital cost report to be issued sometime after publication of this final rule. Because we are finalizing our proposal to create one cost center for “Medical Supplies Charged to Patients” and one cost center for “Implantable Devices Charged to Patients” in this final rule, the cost report forms and instructions should reflect those changes. In the FY 2009 IPPS proposed rule (73 FR 23547), we stated that we expect the revised cost report would be available for hospitals to use when submitting cost reports during FY 2009 (that is, for cost reporting periods beginning on or after October 1, 2008). We now believe the revised cost report may not be available until cost reporting periods starting after the Spring of 2009. Because there is approximately a 3-year lag between the availability of cost report data for IPPS and OPPS ratesetting purposes in a given fiscal year, we may be able to derive two distinct CCRs, one for medical supplies and one for devices, for use in calculating the FY 2012 or FY 2013 IPPS relative weights and the CY 2012 or CY 2013 OPPS relative weights.

Comment: Commenters generally expressed concern with the timeframe in which we proposed to implement the cost report changes. One commenter questioned hospitals' ability to quickly change their chargemaster to ensure that revenue codes are always reported in MedPAR consistently with the cost centers in which they are reported on the cost report. The commenter cautioned that initial calculations of the relative weights may not be accurate if hospitals do not have sufficient time to adapt to the new reporting requirements. Another commenter did not believe that the time between issuance of the final rule and October 1, 2008, is enough time for hospitals to make the changes to their processes and systems necessary to conform to the new cost reporting procedures. The commenter pointed out that hospital employees may need to be retrained, and new cost reporting technology may need to be purchased, all of which is costly to hospitals operating on tight margins. The commenter requested that CMS provide no less than 6 months lead time, but preferably 1 year, before implementing any changes to the cost report, asserting that an “overly-aggressive” timeframe in which to implement changes to the cost report may lead to inaccurate data, which runs counter to CMS' goal of improving the accuracy of its CCR data.

Response: We are sympathetic to the commenter's concerns, but we note that, thus far, we have not proposed to implement drastic changes to the cost report and cost reporting procedures that warrant overhaul of hospitals' current accounting systems. As we stated in the FY 2009 IPPS proposed rule (73 FR 23543), longstanding Medicare policy has been that, under the departmental method of apportionment, the cost of each ancillary department is to be apportioned separately rather than being combined with another ancillary department. Hospitals must include the cost and charges of separately “chargeable medical supplies” in the Medical Supplies Charged to Patients cost center (line 55 of Worksheet A), rather than in the Operating Room, Emergency Room, or other ancillary cost centers. Routine services, which can include “minor medical and surgical supplies” (Section 2202.6 of the PRM, Part 1), and items for which a separate charge is not customarily made, may be directly assigned through the hospital's accounting system to the department in which they were used, or they may be included in the Central Services and Supply cost center (line 15 of Worksheet A). Conversely, the separately chargeable medical supplies should be assigned to the Medical Supplies Charged to Patients cost center on line 55. Our proposal to split the existing Medical Supplies Charged to Patients cost center into two cost centers, one specifically for “Implantable Devices Charged to Patients,” is simply a refinement of what should be hospitals' existing cost reporting practices, wherein, rather than reporting all separately chargeable supplies and devices in one cost center, the devices would be reported in a separate, new cost center. We do not view this as a significant shift in cost reporting policy. Further, our adoption of the commenters' suggested method of separating supplies and devices based on existing revenue codes and NUBC definitions, with which all hospitals are already familiar, should minimize the disruption to hospitals' accounting and billing systems. Lastly, we note that, although participation in the hospital associations' educational initiatives has been voluntary, efforts have certainly been made by the hospital community over the past year to increase awareness and improve the accuracy of hospitals' cost reporting practices. Also, with respect to the commenter that questioned hospitals' ability to quickly change their chargemaster to ensure that revenue codes are always reported in the MedPACR file consistently with the cost centers in which they are reported on the cost report, as we stated in response to a previous comment, hospitals must use the billing codes as directed by the NUBC, regardless of the cost center in which the cost is reported on the cost report. Hospitals must continue to report ICD-9-CM codes and charges with an appropriate UB revenue code, consistent with NUBC requirements. When reporting the appropriate revenue code for services, hospitals should choose the most precise revenue code, or subcode if appropriate. As NUBC guidelines dictate: “It is recommended that providers use the more detailed subcategory when applicable/available rather than revenue codes that end in “0” (General) or “9” (Other).” Furthermore, with respect to the cost report, hospitals are required to follow the Medicare cost apportionment regulations at 42 CFR 413.53(a)(1) which convey that, under the departmental method of apportionment, the cost of each ancillary department is to be apportioned separately rather than combined with another department. In order to comply with the requirements of this regulation, hospitals must follow the Medicare payment policies in Section 2302/8 of the PRM-I and the PRM-II in order to ensure that their ancillary costs and charges are reported in the appropriate cost centers on the cost report. We rely on hospitals to fully comply with the revenue code reporting instructions and Medicare cost apportionment policies.

Therefore, we do not believe that it is necessary to significantly delay availability of the revised cost reporting form beyond the date that we proposed; that is, for cost reporting periods starting after the Spring of 2009. In practice, hospitals need not have modified their systems (to the extent necessary) by the Spring of 2009, but rather, by the time they are completing and submitting cost reports for cost reporting periods beginning after the Spring of 2009. Further, as we have stated previously, no change to the actual cost reporting form will be undertaken without first going through notice and comment procedures in accordance with the PRA.

6. Revenue Codes Used in the MedPAR File

An important first step in RTI's study (as explained in its March 2007 report) was determining how well the cost report charges used to compute CCRs matched to the charges in the MedPAR file. This match (or lack thereof) directly affects the accuracy of the DRG cost estimates because MedPAR charges are multiplied by CCRs to estimate cost. RTI found inconsistent reporting between the cost reports and the claims data for charges in several ancillary departments (Medical Supplies, Operating Room, Cardiology, and Radiology). For example, the data suggested that some hospitals often include costs and charges for devices and other medical supplies within the Medicare cost report cost centers for Operating Room, Radiology, or Cardiology, while other hospitals include them in the Medical Supplies Charged to Patients cost center. While the educational initiative undertaken by the national hospital associations is encouraging hospitals to consistently report costs and charges for devices and other medical supplies only in the Medical Supplies Charged to Patients cost center, equal attention must be paid to the way in which charges are grouped by hospitals in the MedPAR file. Several commenters on the FY 2008 IPPS proposed rule supported RTI's recommendation of including additional fields in the MedPAR file to disaggregate certain cost centers. One commenter stated that the assignment of revenue codes and charges to revenue centers in the MedPAR file should be reviewed and changed to better reflect hospital accounting practices as reflected on the cost report (72 FR 47198).

In an effort to improve the match between the costs and charges included on the cost report and the charges in the MedPAR file, in the FY 2009 IPPS proposed rule, we recommended that certain revenue codes be used for items reported in the proposed Medical Supplies Charged to Patients cost center and the proposed Implantable Devices Charged to Patients cost center, respectively. Specifically, under the proposal to create a cost center for implantable devices that remain in the patient upon discharge, revenue codes 0275 (Pacemaker), 0276 (Intraocular Lens), and 0278 (Other Implants) would correspond to implantable devices reported in the proposed Implantable Devices Charged to Patients cost center. Items for which a hospital may have previously used revenue code 0270 (General Classification), but actually meet the proposed definition of an implantable device that remains in the patient upon discharge should instead be billed with the 0278 revenue code. Conversely, relatively inexpensive items and supplies that are not implantable and do not remain in the patient at discharge would be reported in the proposed Medical Supplies Charged to Patients cost center on the cost report, and should be billed with revenue codes 0271 (nonsterile supply), 0272 (sterile supply), and 0273 (take-home supplies), as appropriate. Revenue code 0274 (Prosthetic/Orthotic devices) and revenue code 0277 (Oxygen—Take Home) should be associated with the costs reported on lines 66 and 67 for DME-Rented and DME-Sold on the cost report. Charges associated with supplies used incident to radiology or to other diagnostic services (revenue codes 0621 and 0622 respectively) should match those items used incident to those services on the Medical Supplies Charged to Patients cost center of the cost report, because, under this proposal, supplies furnished incident to a service would be reported in the Medical Supplies Charged to Patients cost center. (We refer readers to item b. as listed under the proposed definition of a device in section II.E.4. of the preamble of this final rule.) A revenue code of 0623 for surgical dressings would similarly be associated with the costs and charges of items reported in the proposed Medical Supplies Charged to Patients cost center, while a revenue code of 0624 for FDA investigational device, if that device does not remain in the patient upon discharge, could be associated with items reported on the Medical Supplies Charged to Patients cost center as well.

In general, proper reporting would dictate that if an item is reported as an implantable device on the cost report, it is an item for which the NUBC would require use of revenue code 0275 (Pacemaker), 0276 (Intraocular Lens), 0278 (Other Implants), or 0624 (Investigational Device). Likewise, items reported as Medical Supplies Charged to Patients should receive an appropriate revenue code indicative of supplies. We understand that many of these revenue codes have been in existence for many years and have been added for purposes unrelated to the goal of refining the calculation of cost-based weights. Accordingly, in the proposed rule, we acknowledged that additional instructions relating to the appropriate use of these revenue codes may need to be issued. In addition, CMS or the hospital associations, or both, may need to request new revenue codes from the NUBC. In either case, we do not believe either action should delay use of the new Medical Supplies and Implantable Devices CCRs in setting payment rates. However, in light of our proposal to create two separate cost centers for Medical Supplies Charged to Patients and Implantable Devices Charged to Patients, respectively, we solicited comments on how the existing revenue codes or additional revenue codes could best be used in conjunction with the revised cost centers on the cost report.

Comment: Two commenters supported CMS' efforts to better match costs and charges and reduce charge compression, but remained concerned about “three key problems” that result from using two different data sources (MedPAR and the cost report) to calculate relative weights:

  • First, the method used by CMS to group hospital charges for the MedPAR files differs from that used by hospitals to group Medicare charges, total charges, and overall costs on the cost report.
  • Second, hospitals group their Medicare charges, total charges, and overall costs in different departments on their cost reports for various reasons.
  • Third, hospitals across the country complete their cost reports in different ways, as allowed by CMS. In addition, interpretations of Medicare allowable costs vary from one fiscal intermediary/MAC to another.

The commenters were concerned that CMS' proposal might require hospitals to manually track a patient bill through several departments of the hospital to obtain information about implantable devices used, an effort that is difficult and inefficient. The commenters also stated that the combined use of hospital-specific charges and a national CCR result in a distortion of the MS-DRG relative weights and a shifting of Medicare payments among hospitals, not based on resource utilization, but rather on a mathematical calculation. One commenter recommended that CMS continue to collaborate with the workgroup heading up the educational initiative to develop a mechanism for determining the cost of implantable devices.

Response: The commenters are correct that hospitals do have some flexibility in how they report and group charges, but we note that hospitals must separately apportion the costs of each ancillary department and not combine them with other ancillary departments (Section 2200.3 of the PRM-I). Further, hospitals must include costs and charges of separately chargeable medical supplies in the cost center for Medical Supplies Charged to Patients (Section 2202.6 of the PRM-I), and effective for cost reporting periods beginning after the Spring of 2009, hospitals must include separately chargeable implantable medical devices in the new “Implantable Devices Charged to Patients” cost center. Further, because we are finalizing the policy that the existing revenue codes and definitions are to be used to determine whether an item is reported as a supply or an implantable device on the cost report, hospitals must ensure that they choose the most appropriate revenue codes in the 027x and 062x series to report supplies and implantable devices and subsequently matched to the appropriate cost center. As evidenced in the preceding comment summary, the vast majority of commenters believe that this is the least administratively burdensome approach for hospitals, and therefore, we are optimistic that the commenters' hospitals also have the capability to adapt to more careful cost reporting practices that are aligned with Medicare policy and the method used by CMS to group costs and charges in the relative weight calculation. We also do not believe that the use of hospital-specific charges together with national average CCRs redistributes Medicare payments among hospitals merely based on a mathematical calculation. As we stated in the FY 2008 IPPS final rule with comment period (72 FR 47197), “on the contrary, a system that improves payment accuracy and moderates the influence of individual hospital reporting practices on a national payment system is not one which haphazardly redistributes payments. We note that, in a report issued in July 2006, the GAO found that CMS' system of national CCRs shows promise to improve payment accuracy because it reduces the impact that individual hospital-reporting practices has on the DRG relative weights (GAO-06-880, “CMS's Proposed Approach to Set Hospital Inpatient Payments Appears Promising”).”

Comment: One commenter recommended that CMS revise the MedPAR file to be consistent with the 23 revenue center groups identified by the RTI report. The commenter believed this is a feasible long-term step because the MedPAR file is derived from a larger claims data set that has more detailed charge information that can be matched to the 23 revenue centers analyzed by RTI.

Response: In RTI's 2008 report, RTI recommended, as a medium-term goal, that CMS expand the MedPAR file to include separate fields that disaggregate several existing charge departments. RTI recommended that the new fields should include those used to compute the statistically disaggregated CCRs. To expand MedPAR, we would have to get detailed charge information from the Standard Analytic File. We agree that more detailed charge information on the MedPAR file would allow us to create more refined CCRs to mitigate charge compression. As we indicated in the FY 2008 final rule with comment period (72 FR 47198), we will consider suggestions for modifying the MedPAR in conjunction with other competing priorities we have for our information systems.

Comment: One commenter recommended that CMS update its device-dependent MS-DRG tables with a crosswalk to the specific Level II HCPCS device codes used in the associated surgical procedures. The commenter stated that although inpatient claims do not report HCPCS codes, most hospital chargemasters list device charges with the associated HCPCS codes and UB revenue center. The commenter further stated that when a device HCPCS code is entered on an inpatient claim, the HCPCS code is repressed but the device UB revenue code is shown on the claim along with the corresponding charge. The commenter believed the development of a HCPCS code to MS-DRG crosswalk would help providers validate that device charges are being uniformly captured on patients' claims, regardless of their inpatient or outpatient status. The commenter believed this crosswalk could also support development of a claim edit for both inpatient and outpatient claims based on the reporting of specific UB revenue codes and device HCPCS codes that would result in payment of a device-dependent MS-DRG or device-dependent APC.

Response: As the commenter noted, unlike the OPPS, payments under the IPPS are not based on HCPCS codes. The IPPS also differs from the OPPS in that under the IPPS, the costs of individual services, even those using expensive devices, are components of the costs of a much larger group of services provided to a particular patient, and therefore, larger payment groups using more claims insure against bias in an MS-DRG weight despite possible errors in reporting the charge for an expensive device. Further, adoption of such a claim edit policy could require burdensome changes in coding practices by some hospitals. Therefore, we are not adopting the commenter's recommendation.

Comment: One commenter urged CMS to undertake an analysis of the FY 2007 fourth quarter MedPAR claims to determine whether documentation and coding-related payment increases are evident, and whether they are peculiar to most hospitals or only to a subset of hospitals. The commenter asked that if CMS observes that only a subset of hospitals are driving the documentation and coding-related increases, CMS hold the blend of the CMS DRG and the MS-DRG relative weights at 50/50 for FY 2009. Another commenter recommended that, in FY 2009, CMS continue to blend the CMS DRG and MS-DRG relative weights at 50/50 because the FY 2007 MedPAR claims that are used to calculate the FY 2009 relative weights do not reflect the significant changes that were made to the IPPS in FY 2008 (that is, the move to MS-DRGs and the revised CC list). The commenter believed that delaying full implementation of the MS-DRG weights until FY 2010 would allow use of the FY 2008 MedPAR claims data, which would reflect a full year of services coded under the new MS-DRGs and CC list. The commenters argued that this will, in turn, help improve the accuracy and consistency of the cost-based MS-DRG relative weights.

Response: Because of the limited time we had available to address the public comments as well as analyze the FY 2007 fourth quarter MedPAR data, we were unable to perform an indepth analysis of where documentation and coding-related payment increases were most evident. However, we did perform some analysis, which did not show any obvious trends in subsets of hospitals. Furthermore, use of the FY 2007 MedPAR claims to set the FY 2009 MS-DRG relative weights represents the most recent and best data available from which to do so. Therefore, because we did not propose to delay the full implementation of the MS-DRGs and their attending relative weights in FY 2009, we are finalizing the transition to 100 percent MS-DRGs in FY 2009.

Comment: One commenter expressed concern about the effect that a new CCR for Medical Devices might have on its Medicaid reimbursement because Medicaid does not pay for devices and the CCR for Medical Supplies and Equipment would be diluted.

Response: The cost-based relative weights were developed solely using Medicare data. We are concerned that non-Medicare payers may be using our payment systems and rates without making refinements to address the needs of their own populations. We encourage non-Medicare payers to adapt the MS-DRGs and the relative weight methodology to better serve their needs.

Comment: Numerous commenters asked that CMS make changes to the cost report or other changes to resolve concerns with charge compression in hospital OPPS weights for pharmacy services, radiology services, radiopharmaceuticals, drugs and biologicals, and other services paid under the OPPS.

Response: These comments are out of the scope of this final rule because we proposed only to change the cost report to address charge compression for devices under both the IPPS and the OPPS. The CY 2009 OPPS/ASC proposed rule was published in the Federal Register on July 18, 2008 (73 FR 41416), and public comments on the effects of charge compression on the OPPS weights for items and services other than devices should be made in response to that proposed rule. The comment period for the OPPS/ASC proposed rule closes at 5 p.m. E.S.T. on September 2, 2008.

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

1. General Background

In its landmark 1999 report “To Err is Human: Building a Safer Health System,” the Institute of Medicine found that medical errors, particularly hospital-acquired conditions (HACs) caused by medical errors, are a leading cause of morbidity and mortality in the United States. The report noted that the number of Americans who die each year as a result of medical errors that occur in hospitals may be as high as 98,000. The cost burden of HACs is also high. Total national costs of these errors due to lost productivity, disability, and health care costs were estimated at $17 to $29 billion. [2] In 2000, the CDC estimated that hospital-acquired infections added nearly $5 billion to U.S. health care costs every year. [3] A 2007 study found that, in 2002, 1.7 million hospital-acquired infections were associated with 99,000 deaths. [4] Research has also shown that hospitals are not following recommended guidelines to avoid preventable hospital-acquired infections. A 2007 Leapfrog Group survey of 1,256 hospitals found that 87 percent of those hospitals do not follow recommendations to prevent many of the most common hospital-acquired infections. [5] The costs associated with hospital-acquired infections are particularly burdensome for Medicare, as Medicare covers a greater portion of patients with hospital-acquired infections than other payers. One study found that the payer mix for patients without infections was 37 percent Medicare, 28 percent commercial, 21 percent other, and 14 percent Medicaid, while the payer mix for patients with hospital-acquired infections was 57 percent Medicare, 17 percent commercial, 15 percent other, and 11 percent Medicaid. [6]

As one approach to combating HACs, including infections, in 2005 Congress authorized CMS to adjust Medicare IPPS hospital payments to encourage the prevention of these conditions. The preventable HAC provision at section 1886(d)(4)(D) of the Act is part of an array of Medicare value-based purchasing (VBP) tools that CMS is using to promote increased quality and efficiency of care. Those tools include measuring performance, using payment incentives, publicly reporting performance results, applying national and local coverage policy decisions, enforcing conditions of participation, and providing direct support for providers through Quality Improvement Organization (QIO) activities. CMS' application of VBP tools through various initiatives, such as this HAC provision, is transforming Medicare from a passive payer to an active purchaser of higher value health care services. We are applying these strategies for inpatient hospital care and across the continuum of care for Medicare beneficiaries.

Additionally, the President's FY 2009 Budget outlines another approach for addressing serious preventable adverse events (“never events”), including HACs (see section II.F.9. below for a discussion regarding which HACs are included in the list of Serious Reportable Adverse Events). The President's Budget proposal would: (1) Prohibit hospitals from billing the Medicare program for “never events” and prohibit Medicare payment for these events and (2) require hospitals to report any occurrence of these events or receive a reduced annual payment update.

Medicare's IPPS encourages hospitals to treat patients efficiently. Hospitals 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, complications acquired in the hospital do not generate higher payments than the hospital would otherwise receive for uncomplicated cases paid under the same DRG. To this extent, the IPPS encourages hospitals to avoid complications. However, complications, such as infections acquired in the hospital, can generate higher Medicare payments in two ways. First, the treatment of complications can increase the cost of a hospital stay enough to generate an outlier payment. However, the outlier payment methodology requires that a hospital experience a large loss on an outlier case, which serves as an incentive for hospitals to prevent outliers. Second, under the MS-DRGs that took effect in FY 2008, there are currently 258 sets of MS-DRGs that are split into 2 or 3 subgroups based on the presence or absence of a complicating condition (CC) or a major complicating condition (MCC). If a condition acquired during a hospital stay is one of the conditions on the CC or MCC list, the hospital currently receives a higher payment under the MS-DRGs (prior to the October 1, 2008 effective date of the HAC payment provision). Medicare will continue to assign a discharge to a higher paying MS-DRG if the selected condition is present on admission. (We refer readers to section II.D. of the FY 2008 IPPS final rule with comment period for a discussion of DRG reforms (72 FR 47141).) The following is an example of how an MS-DRG may be paid under the HAC provision:

Service: MS-DRG assignment * (examples below with CC/MCC indicate a single secondary diagnosis only) Present on admission (status of secondary diagnosis) Median payment
* Operating amounts for a hospital whose wage index is equal to the national average. Based on FY 2008 wage index.
Principal Diagnosis:    
• Intracranial hemorrhage or cerebral infarction (stroke) without CC/MCC—MS-DRG 066 $5,347.98
Principal Diagnosis:    
• Intracranial hemorrhage or cerebral infarction (stroke) with CC—MS-DRG 065 Y 6,177.43
Example Secondary Diagnosis:    
• Dislocation of patella-open due to a fall (code 836.4 (CC))    
Principal Diagnosis:    
• Intracranial hemorrhage or cerebral infarction (stroke) with CC—MS-DRG 065 N 5,347.98
Example Secondary Diagnosis:    
• Dislocation of patella-open due to a fall (code 836.4 (CC))    
Principal Diagnosis:    
• Intracranial hemorrhage or cerebral infarction (stroke) with MCC—MS-DRG 064 Y 8,030.28
Example Secondary Diagnosis:    
• Stage III pressure ulcer (code 707.23 (MCC))    
Principal Diagnosis:    
• Intracranial hemorrhage or cerebral infarction (stroke) with MCC—MS-DRG 064 N 5,347.98
Example Secondary Diagnosis:    
• Stage III pressure ulcer (code 707.23 (MCC))    

This example illustrates a payment scenario in which the CC/MCC indicates a single secondary diagnosis only. It is atypical for a hospitalized Medicare beneficiary to have only one secondary diagnosis. [7]

2. Statutory Authority

Section 1886(d)(4)(D) of the Act required the Secretary to select at least two conditions by October 1, 2007, that are: (a) High cost, high volume, or both; (b) assigned to a higher paying MS-DRG when present as a secondary diagnosis; and (c) could reasonably have been prevented through the application of evidence-based guidelines. Beginning October 1, 2008, Medicare can no longer assign an inpatient hospital discharge to a higher paying MS-DRG if a selected HAC is not present on admission. That is, the case will be paid as though the secondary diagnosis were not present. Medicare will continue to assign a discharge to a higher paying MS-DRG if the selected condition is present on admission. However, if any nonselected CC/MCC appears on the claim, the claim will be paid at the higher MS-DRG rate; to cause a lower MS-DRG payment, all CCs/MCCs on the claim must be selected conditions for the HAC payment provision. Section 1886(d)(4)(D) of the Act provides that the list of conditions can be revised from time to time, as long as the list contains at least two conditions. Beginning October 1, 2007, we required hospitals to begin submitting information on Medicare claims specifying whether diagnoses were present on admission (POA).

The POA indicator reporting requirement and the HAC payment provision apply to IPPS hospitals only. At this time, non-IPPS hospitals, including CAHs, LTCHs, IRFs, IPFs, cancer hospitals, children's inpatient hospitals, and hospitals in Maryland operating under waivers, are exempt from POA reporting and the HAC payment provision. Throughout this section, “hospital” refers to IPPS hospitals.

3. Public Input

In the FY 2007 IPPS proposed rule (71 FR 24100), we sought public input regarding conditions with evidence-based prevention guidelines that should be selected in implementing section 1886(d)(4)(D) of the Act. The public comments we received were summarized in the FY 2007 IPPS final rule (71 FR 48051 through 48053). In the FY 2008 IPPS proposed rule (72 FR 24716), we sought formal public comment on conditions that we proposed to select. In the FY 2008 IPPS final rule with comment period (72 FR 47200 through 47218), we summarized the public comments we received on the FY 2008 IPPS proposed rule, presented our responses, selected eight conditions to which the HAC provision will apply, and noted that we would be seeking comments on additional HAC candidates in the FY 2009 IPPS proposed rule.

In the FY 2009 IPPS proposed rule (73 FR 23547), we proposed several candidate HACs in addition to proposing refinements to the previously selected HACs. In this FY 2009 IPPS final rule, we summarize the public comments we received on the FY 2009 IPPS proposed rule, present our responses, select additional conditions to which the HAC payment provision will apply, and note that we will be seeking comments on additional HAC candidates in the FY 2010 IPPS proposed rule.

4. Collaborative Process

CMS experts worked closely with public health and infectious disease professionals from the CDC to identify the candidate preventable HACs, review comments, and select HACs. CMS and CDC staff also collaborated on the process for hospitals to submit a POA indicator for each diagnosis listed on IPPS hospital Medicare claims and on the payment implications of the various POA reporting options.

On December 17, 2007, CMS and CDC hosted a jointly-sponsored HAC and POA Listening Session to receive input from interested organizations and individuals. The agenda, presentations, audio file, and written transcript of the listening session are available on the CMS Web site at: http://www.cms.hhs.gov/HospitalAcqCond/07_EducationalResources.asp. CMS and CDC also received verbal comments during the listening session and subsequently received numerous written comments.

Comment: Several commenters recommended that CMS develop an advisory panel of clinicians and scientists to provide the agency with guidance on which conditions are appropriate for inclusion under this policy.

Response: We are committed to working with stakeholders as we refine and make additions to the HAC list each year. We intend to engage the public through rulemaking as discussed in section II.F.3. of this preamble and other mechanisms similar to those discussed above.

5. Selection Criteria for HACs

In selecting proposed candidate conditions and finalizing conditions as HACs, CMS and CDC staff evaluated each condition against the criteria established by section 1886(d)(4)(D)(iv) of the Act.

  • Cost or Volume—Medicare data [8] must support that the selected conditions are high cost, high volume, or both. We have not yet analyzed Medicare claims data indicating which secondary diagnoses were POA because POA indicator reporting began only recently; therefore, the currently available data for candidate conditions includes all secondary diagnoses.
  • Complicating Condition (CC) or Major Complicating Condition (MCC)—Selected conditions must be represented by ICD-9-CM diagnosis codes that clearly identify the condition, are designated as a CC or an MCC, and result in the assignment of the case to an MS-DRG that has a higher payment when the code is reported as a secondary diagnosis. That is, selected conditions must be a CC or an MCC that would, in the absence of this provision, result in assignment to a higher paying MS-DRG.
  • Evidence-Based Guidelines—Selected conditions must be considered reasonably preventable through the application of evidence-based guidelines. By reviewing guidelines from professional organizations, academic institutions, and entities such as the Healthcare Infection Control Practices Advisory Committee (HICPAC), we evaluated whether guidelines are available that hospitals should follow to prevent the condition from occurring in the hospital.
  • Reasonably Preventable—Selected conditions must be considered reasonably preventable through the application of evidence-based guidelines.

6. HACs Selected During FY 2008 IPPS Rulemaking and Changes to Certain Codes

The conditions that were selected for the HAC payment provision through the FY 2008 IPPS final rule with comment period are listed below. The HAC payment provision implications for these selected HACs will take effect on October 1, 2008. We refer readers to section II.F.6. of the FY 2008 IPPS final rule with comment period (72 FR 47202 through 47218) for a detailed analysis supporting the selection of each of these HACs.

Selected HAC Medicare data (FY 2007) CC/MCC (ICD-9-CM codes) Selected evidence-based guidelines
* A case represents a patient discharge identified from the MedPAR database that met the associated HAC diagnosis/procedure criteria (a secondary diagnosis on the HAC list and, where appropriate, a procedure code described in conjunction with a specific HAC).
** Standardized charge is the total charge for a patient discharge record based on the CMS standardization file. The average standardized charge for the HAC is the average charge for all patient discharge records that met the associated HAC criteria.
*** The number of cases of pressure ulcers reflects CC/MCC assignments for codes 707.00 through 707.07 and 707.09, which are currently being reported. New MCC codes 707.23 and 707.24 will be implemented on October 1, 2008.
Foreign Object Retained After Surgery • 750 cases *• $63,631/hospital stay.** 998.4 (CC) or 998.7 (CC) NQF Serious Reportable Adverse Event. NQF's Safe Practices for Better Healthcare available at the Web site: http://www.ahrq.gov/qual/nqfpract.htm.
Air Embolism • 57 cases • $71,636/hospital stay. 999.1 (MCC) NQF Serious Reportable Adverse Event. NQF's Safe Practices for Better Healthcare available at the Web site: http://www.ahrq.gov/qual/nqfpract.htm.
Blood Incompatibility • 24 cases • $50,455/hospital stay. 999.6 (CC) NQF Serious Reportable Adverse Event. NQF's Safe Practices for Better Healthcare available at the Web site: http://www.ahrq.gov/qual/nqfpract.htm.
Pressure Ulcer Stages III IV • 257,412 cases ***• $43,180/hospital stay. 707.23 (MCC) or 707.24 (MCC) NQF Serious Reportable Adverse Event. Available at the Web site: http://www.ncbi.nlm.nih.gov/books/bv.fcgi?rid=hstat2.chapter.4409.
Falls and Trauma: —Fracture. —Dislocation. —Intracranial Injury. —Crushing Injury. —Burn. —Electric Shock. • 193,566 cases • $33,894/hospital stay. Codes within these ranges on the CC/MCC list: 800-829, 830-839, 850-854, 925-929, 940-949, 991-994 NQF Serious Reportable Adverse Events address falls, electric shock, and burns. NQF's Safe Practices for Better Healthcare available at the Web site: http://www.ahrq.gov/qual/nqfpract.htm.
Catheter-Associated Urinary Tract Infection (UTI) • 12,185 cases • $44,043/hospital stay. 996.64 (CC) Also excludes the following from acting as a CC/MCC: 112.2 (CC), 590.10 (CC), 590.11 (MCC), 590.2 (MCC), 590.3 (CC), 590.80 (CC), 590.81 (CC), 595.0 (CC), 597.0 (CC), 599.0 (CC). Available at the Web site: http://www.cdc.gov/ncidod/dhqp/gl_catheter_assoc.html.
Vascular Catheter-Associated Infection • 29,536 cases • $103,027/hospital stay. 999.31 (CC) Available at the Web site: http://www.cdc.gov/ncidod/dhqp/gl_intravascular.html.
Surgical Site Infection-Mediastinitis After Coronary Artery Bypass Graft (CABG) • 69 cases • $299,237/hospital stay. 519.2 (MCC) And one of the following procedure codes: 36.10-36.19. Available at the Web site: http://www.cdc.gov/ncidod/dhqp/gl_surgicalsite.html.

In the FY 2009 IPPS proposed rule (73 FR 23552), we sought public comments on the following refinements to two of the previously selected HACs:

a. Foreign Object Retained After Surgery

In the FY 2009 IPPS proposed rule (73 FR 23552), we solicited public comments regarding the inclusion of ICD-9-CM diagnosis code 998.7 (Acute reaction to foreign substance accidentally left during a procedure) to more accurately and completely identify foreign object retained after surgery as an HAC.

Comment: Commenters universally supported the addition of ICD-9-CM code 998.7 to identify foreign object retained after surgery as an HAC. The commenters also reiterated their support for recognizing foreign object retained after surgery as an HAC.

Response: We appreciate the commenters' support. We refer readers to a more detailed discussion of HAC coding for foreign object retained after surgery in section II.F.10.a. of this preamble.

After consideration of the public comments received, we are finalizing our proposal to include diagnosis code 998.7 as an additional code to code 998.4 selected in FY 2008 to identify foreign object retained after surgery as an HAC under the HAC payment provision.

Foreign Object Retained After Surgery Back to Top
ICD-9-CM codes Code descriptor
998.4 Foreign body accidentally left during a procedure.
998.7 Acute reaction to foreign substance accidentally left during a procedure.

b. Pressure Ulcers

In the FY 2009 IPPS proposed rule (73 FR 23552), we proposed that, beginning October 1, 2008, the codes used to make MS-DRG adjustments for pressure ulcers under the HAC provision would include proposed MCC codes 707.23 and 707.24 (pressure ulcer stages III and IV).

Comment: Commenters supported the creation of the new ICD-9-CM codes 707.23 and 707.24 to capture the stage of the pressure ulcer and supported the use of these codes to identify pressure ulcer stages III and IV as HACs. However, some commenters expressed concern about the proposal to classify ICD-9-CM codes 707.23 and 707.24 as MCCs and to remove the CC/MCC classifications from the existing pressure site codes.

Response: We appreciate the commenters support for using codes 707.23 and 707.24 to identify pressure ulcer stages III and IV as HACs.

In response to the commenters' concerns regarding the CC/MCC classification for these codes, we refer readers to section II.G.12. of this preamble where we address specific concerns about the creation of new codes for identifying pressure ulcers.

After consideration of public comments received, we are adopting as final our proposal that, beginning October 1, 2008, the codes used to identify pressure ulcer stages III and IV as HACs include the following MCC codes:

Pressure Ulcers Back to Top
ICD-9-CM codes Code descriptor
707.23 Pressure ulcer, stage III.
707.24 Pressure ulcer, stage IV.

7. Candidate HACs

CMS and CDC have diligently worked together and with other stakeholders to identify and select candidates for the HAC payment provision. The additional candidate HACs selected in this FY 2009 IPPS final rule will have payment implications beginning October 1, 2008.

As in the FY 2009 IPPS proposed rule, we present in this final rule the statutory criteria for each HAC candidate in tabular format. Each table contains the following:

  • HAC Candidate—We sought public comment on all HAC candidates.
  • Medicare Data—We sought public comment on the statutory criterion of high cost, high volume, or both as it applies to each HAC candidate.
  • CC/MCC—We sought public comment on the statutory criterion that an ICD-9-CM diagnosis code(s) clearly identifies the HAC candidate.
  • Selected Evidence-Based Guidelines—We sought public comment on whether guidelines are available that hospitals should follow to prevent the condition from occurring in the hospital.
  • Reasonably Preventable—We sought public comment on whether each condition could be considered reasonably preventable through the application of evidence-based guidelines.

Comment: Many commenters recommended various general standards for determining which conditions could reasonably have been prevented through the application of evidence-based guidelines. The majority of commenters favored a zero, or near zero, standard for those conditions to be considered reasonably preventable when evidence-based guidelines are followed.

Response: We did not propose and did not specifically seek public comments on a general standard for reasonably preventable through the application of evidence-based guidelines in the FY 2009 IPPS proposed rule, and we are not setting a general standard in this final rule. We further note that the statute does not require that a condition be “always preventable” in order to qualify as an HAC, but rather that it be “reasonably preventable,” which necessarily implies something less than 100 percent.

After consideration of the public comments received and in light of the three statutory criteria, we are finalizing several additional conditions for the HAC payment provision. The additional conditions are defined by specific codes within the broad categories of manifestations of poor glycemic control, surgical site infections, and deep vein thrombosis/pulmonary embolism, as discussed below.

a. Manifestations of Poor Glycemic Control

Hyperglycemia and hypoglycemia are extremely common laboratory findings in hospitalized patients and can be complicating features of underlying diseases and some therapies. However, we believe that extreme manifestations of poor glycemic control are reasonably preventable through the application of evidence-based guidelines and sound medical practice while in the hospital setting; specifically, we believe that they are preventable through the use of routine serum glucose measurement and control which are basic elements of good hospital care.

We originally proposed the diagnosis codes representing four extreme manifestations of poor glycemic control as HACs, but we are not finalizing the following codes representing diabetic coma because the codes are nonspecific and more precise, specific codes are available to describe the condition: (1) Diabetes with coma, type II or unspecified type, not stated as controlled (250.30); (2) diabetes with coma, type I, not stated as controlled (250.31); (3) diabetes with coma, type II or unspecified type, uncontrolled (250.32); and (4) diabetes with coma, type I, uncontrolled (250.33).

Comment: Commenters generally considered all of the manifestations of poor glycemic control together. The majority of commenters agreed that these extreme manifestations of poor glycemic control are reasonably preventable through the application of evidence-based guidelines. In support of selecting this condition, one commenter provided additional evidence-based guidelines addressing glycemic control.

Response: We agree with commenters that extreme manifestations of poor glycemic control are reasonably preventable through the application of evidence-based guidelines. We are including the additional evidence-based guidelines submitted by a commenter in the chart for manifestations of poor glycemic control below.

Comment: Of the proposed codes representing the manifestations of poor glycemic control, hypoglycemic coma received the most attention from commenters. Many commenters considered hypoglycemic coma to be a strong candidate because it is included in the NQF's list of Serious Reportable Adverse Events.

Response: We agree with commenters that hypoglycemic coma is reasonably preventable through the application of evidence-based guidelines.

Comment: Although the majority of commenters supported the selection of diabetic ketoacidosis, nonketotic hyperosmolar coma, and hypoglycemic coma as HACs, CMS received a small number of comments opposing the selection of codes from the manifestations of poor glycemic control category. Some commenters expressed that recent studies demonstrate that tight glycemic control in septic patients leads to poorer outcomes. One commenter identified the diabetic patient population as high risk, citing an estimate that any person with insulin-treated diabetes will experience 0.5 to 1.0 severe hypoglycemic events annually, which appears to not necessarily be within the control of caregivers. [9]

Response: We have addressed the commenters' concerns about tight glycemic control and hypoglycemic events by selecting specific, narrow codes representing extreme manifestations as HACs. For example, the commenter's concern about the preventability of all hypoglycemic events is addressed by selecting as an HAC only the code representing hypoglycemic coma (251.0), an extreme manifestation. We further note that the statute does not require that a condition be “always preventable” in order to qualify as an HAC, but rather that it be “reasonably preventable,” which necessarily implies something less than 100 percent.

Comment: Commenters supported adding the following four secondary diabetes diagnosis codes: (1) ICD-9-CM code 249.10 (Secondary diabetes mellitus with ketoacidosis, not stated as uncontrolled, or unspecified); (2) ICD-9-CM code 249.11 (Secondary diabetes mellitus with ketoacidosis, uncontrolled); (3) ICD-9-CM code 249.20 (Secondary diabetes mellitus with hyperosmolarity, not stated as uncontrolled, or unspecified); and (4) ICD-9-CM code 249.21 (Secondary diabetes mellitus with hyperosmolarity, uncontrolled). These new secondary diabetes codes will be effective on October 1, 2008.

Response: We agree with commenters that the secondary diabetes codes should be included to capture the full range of extreme manifestations of poor glycemic control as HACs. The secondary diabetes codes are clinically similar to the proposed codes and including these codes more accurately captures the range of manifestations of poor glycemic control.

We are finalizing manifestations of poor glycemic control as an HAC because we have determined after considering the comments received that these conditions meet the statutory criteria. The following chart includes the codes that describe manifestations of the poor glycemic control as an HAC:

[Graphic not available; view image of printed page]

Manifestations of Poor Glycemic Control Back to Top
ICD-9-CM code Code descriptor
249.10 Secondary diabetes mellitus with ketoacidosis, not stated as uncontrolled, or unspecified.
249.11 Secondary diabetes mellitus with ketoacidosis, uncontrolled.
249.20 Secondary diabetes mellitus with hyperosmolarity, not stated as uncontrolled, or unspecified.
249.21 Secondary diabetes mellitus with hyperosmolarity, uncontrolled.
250.10 Diabetes with ketoacidosis, type II or unspecified type, not stated as uncontrolled.
250.11 Diabetes with ketoacidosis, type I [juvenile type], not stated as uncontrolled.
250.12 Diabetes with ketoacidosis, type II or unspecified type, uncontrolled.
250.13 Diabetes with ketoacidosis, type I [juvenile type], uncontrolled.
250.20 Diabetes with hyperosmolarity, type II or unspecified type, not stated as uncontrolled.
250.21 Diabetes with hyperosmolarity, type I [juvenile type], not stated as uncontrolled.
250.22 Diabetes with hyperosmolarity, type II or unspecified type, uncontrolled.
250.23 Diabetes with hyperosmolarity, type I [juvenile type], uncontrolled.
251.0 Hypoglycemic coma.

b. Surgical Site Infections

In the FY 2009 IPPS proposed rule (73 FR 23553), we requested public comments on the applicability of each of the statutory criteria to surgical site infections following certain procedures. We were particularly interested in receiving comments on the degree of preventability of these infections. We also requested, and received, public comment on additional surgical procedures that would qualify for the HAC provision by meeting all of the statutory criteria.

Comment: Numerous commenters raised issues regarding the applicability of each statutory criterion to surgical site infections generally, especially with regard to degree of preventability. Commenters raised concerns that patient characteristics and other factors can put patients at risk for surgical site infections regardless of the application of evidence-based guidelines. Commenters asserted that elective procedures have a tendency to be short-stay admissions or outpatient procedures, and if a surgical site infection presents after discharge, this HAC would not be captured under the inpatient provision.

Response: We agree that the risk of a typical patient undergoing a procedure is a factor in determining whether these conditions are reasonably preventable (see discussion of risk adjustment in section II.F.9. of this preamble), but we do not agree that the average length of stay following the procedure or the ability to perform the procedure at an alternative site are determinative factors for selecting HACs.

Comment: Some commenters emphasized that certain procedures typically thought of as elective by clinicians are not necessarily elective by patients. Two commenters noted that even if total knee replacement is considered nonemergent and therefore elective from a clinician's perspective, a patient may consider the surgery critical and urgent to avoid pain and immobility.

Response: We agree with the commenters that procedures typically thought of as elective based on urgency are not necessarily viewed as elective from the perspective of the patient's quality of life. Given lack of consensus regarding the classification of procedures as elective, we have discontinued referring to this broad category of surgical site infections as “following elective procedures.”

Comment: Many commenters asserted that surgical site infections following total knee replacement could be considered reasonably preventable, however those commenters questioned why CMS proposed this HAC because the candidate codes are CCs, and total knee replacement procedures typically map to MS-DRGs that only split to MCCs.

Response: We are unable to select this condition as an HAC because, as commenters noted, surgical site infection is a CC that does not trigger the higher paying MCC MS-DRG payment for total knee replacement procedures; thus, it does not meet the second statutory criterion. If a change to the MS-DRGs results in total knee replacement procedures mapping to MS-DRGs that split to CCs in the future, we could reconsider adding surgical site infections following total knee replacement as an HAC. In addition, we will be reviewing other ICD-9-CM MCC codes relevant to total knee replacement, and we will consider proposing those codes as future HAC candidates.

Comment: Commenters addressed the discrepancy between the proposed CC code (Other postoperative infection) and the MS-DRG split only to MCC for total knee replacement and suggested that CMS review and consider adding other procedures that map to MS-DRGs that split by CC. One commenter referenced a 2002 meta-analysis finding that antibiotic prophylaxis is successful in significantly reducing the rates of postoperative spinal infections. [10]

Response: We agree with the commenters' recommendations and considered additional orthopedic procedures. We identified the following MS-DRGs that split by CC:

  • MS-DRGs 453, 454, and 455 (Combined Anterior/Posterior Spinal Fusion with MCC, CC and without CC/MCC);
  • MS-DRGs 471, 472, and 473 (Cervical Spinal Fusion, with MCC, CC and without CC/MCC);
  • MS-DRGs 507 and 508 (Major Shoulder or Elbow Joint Procedures, with CC/MCC and without CC/MCC).

In response to commenters' suggestions, we are selecting certain orthopedic procedures that fall within the MS-DRGs listed above in the HAC surgical site infection category. The category of surgical site infection following certain orthopedic surgeries includes selected procedures that are often elective and that involve the repair, replacement, or fusion of various joints including the shoulder, elbow, and spine. In future rulemaking, we will work with stakeholders to identify additional procedures, orthopedic and other types, for which surgical site infections can be considered reasonably preventable through the application of evidence-based guidelines.

The following chart includes the codes that describe surgical site infection following certain orthopedic procedures as an HAC:

Surgical Site Infection Following Certain Orthopedic Procedures Back to Top
ICD-9-CM code Code descriptor
996.67 Infection and inflammatory reaction due to other orthopedic device and implant graft.
—OR—
998.59 Other postoperative infection.
—AND—
81.01 Atlas-axis fusion.
81.02 Other cervical fusion anterior.
81.03 Other cervical fusion posterior.
81.04 Dorsal/dorsolum fusion anterior.
81.05 Dorsal/dorsolum fusion posterior.
81.06 Lumbar/lumbosac fusion anterior.
81.07 Lumbar/lumbosac fusion lateral.
81.08 Lumbar/lumbosac fusion posterior.
81.23 Arthrodesis of shoulder.
81.24 Arthrodesis of elbow.
81.31 Refusion of atlas-axis.
81.32 Refusion of other cervical spine anterior.
81.33 Refusion of other cervical spine posterior.
81.34 Refusion of dorsal spine anterior.
81.35 Refusion of dorsal spine posterior.
81.36 Refusion of lumbar spine anterior.
81.37 Refusion of lumbar spine lateral.
81.38 Refusion of lumbar spine posterior.
81.83 Shoulder arthroplast NEC.
81.85 Elbow arthroplast NEC.

We proposed surgical site infections following ligation and stripping of varicose veins as an HAC, but we are not finalizing this procedure because these MS-DRGs do not currently split into severity levels based on the presence of a CC, and the surgical site infection code is a CC. Thus, surgical site infection following ligation and stripping of varicose veins does not currently meet the second statutory HAC selection criterion of triggering the higher-paying MS-DRG.

We solicited comments on each of the statutory criteria as they apply to surgical site infections following laparoscopic bypass and gastroenterostomy. Laparoscopic gastroenterostomy (44.38) includes several different types of gastric bypass procedures, all of which are done using a laparoscope to avoid surgically opening the abdomen (laparotomy). Gastroenterostomy (44.39) is a general term that describes surgically connecting the stomach to another area of the intestine.

Comment: Some commenters pointed out that the 208 cases cited in the FY 2009 IPPS proposed rule (73 FR 23553) is a relatively small number of cases, which may not meet the statutory criterion of high cost, high volume, or both.

Response: As noted in the FY 2009 IPPS proposed rule, the average cost of a case with a surgical site infection following laparoscopic gastric bypass and gastroenterostomy is $180,142 per hospital stay, which we consider high cost. Thus, this condition meets the high cost statutory criterion.

Comment: Many stakeholders from provider organizations, including medical specialty societies, cited that the population undergoing bariatric surgery for obesity is a high risk population per se; thus, the condition may not be considered reasonably preventable through the application of evidence-based guidelines. Commenters noted that these patients commonly have conditions, such as diabetes and hypertension, in addition to obesity, which are well-known risk factors for infections and other post-operative complications.

Response: We recognize that patients undergoing this procedure may typically be high risk; however, (1) selecting this procedure as an HAC will have the positive effect of encouraging attention to risk assessment prior to surgery and (2) conditions such as complicated forms of diabetes, hypertensive heart and kidney disease, and a body mass index of 40 or higher are CCs or MCCs under the IPPS payment system that, when present on the claim, will continue to trigger the higher-paying MS-DRG. Thus, the usual presence of additional CC/MCCs on claims for these procedures serves as an “inherent risk adjuster” to payment for typical bariatric surgery cases for obese patients. We further note that the statute does not require that a condition be “always preventable” in order to qualify as an HAC, but rather that it be “reasonably preventable,” which necessarily implies something less than 100 percent.

Comment: One commenter noted that gastroenterostomy is routinely used to bypass a damaged or obstructed duodenum in high risk populations such as cancer patients.

Response: In 2007, CMS issued Change Request (CR) 5477 regarding the proper use of ICD-9-CM codes for bariatric surgery for morbid obesity, available on the Web site at: http://www.cms.hhs.gov/Transmittals/downloads/R1233CP.pdf. This CR addresses the comment above by focusing on only those procedures with a primary diagnosis of obesity (278.01). Further, as referenced in CR 5477, bariatric surgery for obesity contains the following procedures: (1) Laparoscopic gastric bypass (44.38), (2) gastroenterostomy (44.39), and (3) laparoscopic gastric restrictive procedure (44.95). Laparoscopic gastric restrictive procedure (44.95) refers to the laparoscopic placement of a restrictive band around the stomach to reduce the effective size. By adopting the coding scheme laid out in CR 5477, we are finalizing not only 44.38 and 44.39, but also 44.95, as procedures within the HAC category of surgical site infections following bariatric surgery for obesity. The addition of Laparoscopic gastric restrictive procedure (44.95) more completely and accurately captures the range of surgical site infection following bariatric surgery for obesity as an HAC.

The following chart includes the codes that describe surgical site infection following bariatric surgery for obesity as an HAC:

Surgical Site Infection Following Bariatric Surgery for Obesity Back to Top
ICD-9-CM code Code descriptor
*As principal diagnosis.
278.01* Morbid obesity.
—AND—
998.59 Other postoperative infection.
—AND—
44.38 Laparoscopic gastroenterostomy.
—OR—
44.39 Other gastroenterostomy.
—OR—
44.95 Laparoscopic gastric restrictive procedure.

In the FY 2009 IPPS proposed rule, we requested, and received, public comment on additional surgical procedures that would meet the statutory criteria for a surgical site infection HAC.

Comment: A commenter recommended that CMS add surgical site infection following implantation of cardiac devices as an HAC. The commenter noted a recent estimate of approximately 300,000 pacemaker implants performed in 2007. [11] In addition, the commenter referenced that the estimated rate of infection following cardiac device implantation is 4 percent and that the cost to treat each pacemaker infection is approximately $25,000. [12] Further, the commenter cited evidence-based guidelines for preventing these infections. [13] [14] [15]

Response: We agree with the commenter that surgical site infection following certain cardiac device procedures is a strong candidate HAC. The condition is high cost and high volume, triggers a higher-paying MS-DRG, and may be considered reasonably preventable through the application of evidence-based guidelines. We did not propose this specific condition in the FY 2009 IPPS proposed rule; however, we expect to propose surgical site infection following certain cardiac device procedures, as well as surgical site infections following other types of device procedures, as future candidate HACs.

We are selecting surgical site infections following certain orthopedic procedures, and bariatric surgery for obesity. These procedures will join mediastinitis following coronary artery bypass graft (CABG), which was selected in the FY 2008 IPPS final rule with comment period, as surgical site infection HACs. We look forward to working with stakeholders to identify additional procedures, such as device procedures, in which surgical site infections can be considered reasonably preventable through the application of evidence-based guidelines.

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c. Deep Vein Thrombosis (DVT)/Pulmonary Embolism (PE)

In the FY 2009 IPPS proposed rule, we proposed DVT/PE as a candidate HAC. We solicited comments on each of the statutory criteria, with particular focus on the degree to which DVT can be diagnosed on hospital admission and can be considered reasonably preventable. DVT occurs when a blood clot forms in the deep veins of an extremity, usually the leg, and causes pain, swelling, and inflammation. PE occurs when a clot or piece of a clot migrates from its original site to the lungs, causing the death of lung tissue, which can be fatal.

Comment: The majority of commenters emphasized the inability to determine whether DVT was present on admission. The commenters were concerned about the lack of a standard clinical definition and diagnostic criteria, as well as difficulty in identifying at-risk patients. One commenter suggested that nearly half of all DVT/PEs are asymptomatic on admission. One commenter explained that obtaining the most accurate results would require expensive diagnostic testing of all patients, implying that this strategy would not be cost-effective and would, therefore, be unreasonable.

Response: The commenters' concerns about the ability to diagnose DVT do not preclude DVT/PE from being selected as an HAC, as the attending physician determines whether the condition was present on admission (“Y” POA reporting option) or whether presence on admission cannot be determined based on clinical judgment (“W” POA reporting option). Hospitals will continue to be paid the higher MS-DRG amount for HACs coded as “Y” or “W” (we refer readers to section II.F.8. of this preamble).

Comment: Regarding the preventability of DVT/PE, one commenter cited reduction of DVT/PE occurrence through mentoring and onsite consultation as a particularly effective intervention strategy.

Response: We agree that the occurrence of DVT/PE can be significantly reduced through the use of intervention strategies, including mentoring and onsite consultation.

Comment: A large proportion of commenters underscored the importance of considering risk factors in weighing the degree of preventability. Commenters noted that common risk factors, some of which cannot be modified, include clotting disorders, obesity, hypercoagulable state, cancer, HIV, or rheumatoid arthritis.

Response: We agree with commenters that the risk factors of a typical patient are important to consider when weighing the degree of preventability as it applies to DVT/PE (discussion of risk adjustment in section II.F.9. of this preamble). Selecting DVT/PE for these procedures as an HAC will have the positive effect of encouraging attention to risk assessment prior to surgery. Further, conditions such as clotting disorders, obesity, hypercoagulable state, cancer, HIV, and rheumatoid arthritis are CCs or MCCs under the IPPS payment system that, when present on the claim, will continue to trigger the higher-paying MS-DRG. Thus, the usual presence of additional CC/MCCs on claims for these procedures serves as an “inherent risk adjuster” to payment for total knee replacement and hip replacement cases.

Comment: Although no commenters submitted quantitative data to establish a rate of preventability, many commenters noted that adherence to evidence-based pharmacologic and nonpharmacologic interventions will not prevent all DVTs. One commenter suggested that DVT/PE should only be considered for the HAC payment provision when a patient did not receive proper prophylaxis.

Response: The fact that prophylaxis will not prevent every occurrence of DVT/PE does not preclude its selection as a reasonably preventable HAC. Further, as discussed in section IV.B. of this preamble, the Reporting Hospital Quality Data for the Annual Payment Update program includes a process of care measure regarding venous thromboembolism (VTE) prophylaxis within 24 hours prior to or after surgery. An analysis of publicly available data on Hospital Compare indicates that the national rate for the VTE prophylaxis measure for the third quarter of 2007 is approximately 82 percent. [16] We have concluded from these data that a significant number of patients are not receiving the recommended evidence-based prophylaxis. We further note that the statute does not require that a condition be “always preventable” in order to qualify as an HAC, but rather that it be “reasonably preventable,” which necessarily implies something less than 100 percent.

Comment: Commenters also noted that, in some cases, anticoagulation prophylaxis may be contraindicated based on individual patient factors, including an increased risk of bleeding in postoperative patients.

Response: We agree with commenters that, in some cases, anticoagulation prophylaxis may be contraindicated. However, we do not view this as precluding the selection of DVT/PE as an HAC, as evidence-based interventions beyond pharmacologic prophylaxis, such as mechanical prophylaxis and early movement, should also be applied.

Comment: Some commenters supported DVT/PE as reasonably preventable through the application of evidence-based guidelines for certain subpopulations, specifically following certain orthopedic procedures.

Response: We agree with commenters that DVT/PE is reasonably preventable in specific subpopulations, and we are therefore selecting DVT/PE following certain orthopedic surgeries, specifically certain hip and knee replacement surgeries, as HACs. Total knee replacement is a surgery performed to replace the entire knee joint with an artificial internal prosthesis because the native knee joint is no longer able to function, because it is very painful, or both, usually due to advanced osteoarthritis, and total hip replacement is the analogous operation involving the hip joint. Our decision may be construed as only applying to the MCC PE, rather than DVT/PE, following certain hip and knee replacement surgeries as HACs because of coding considerations. The MS-DRGs that these procedures typically map to do not currently split based on CCs, and DVT is a CC.

The following chart includes the codes that describe DVT/PE following certain orthopedic surgeries as an HAC:

Selected HAC Medicare data (FY 2007) CC/MCC (ICD-9-CM codes) Selected evidence-based guidelines
Deep Vein Thrombosis (DVT)/Pulmonary Embolism (PE) —Total Knee Replacement. —Hip Replacement. • 4,250 cases • $58,625/hospital stay. DVT: 453.40-453.42 (CC) OR PE: 415.11 (MCC) or 415.19 (MCC) AND Total Knee Replacement: (81.54) OR Hip Replacement: (00.85-00.87, 81.51-81.52) Available on the Web site: http://www.chestjournal.org/cgi/reprint/126/3_suppl/172S. Available on the Web site: http://orthoinfo.aaos.org/topic.cfm?topic=A00219.
Deep Vein Thrombosis (DVT)/Pulmonary Embolism (PE) Back to Top
ICD-9-CM codes Code descriptors
00.85 Resurfacing hip, total, acetabulum and femoral head.
00.86 Resurfacing hip, partial, femoral head.
00.87 Resurfacing hip, partial, acetabulum.
81.51 Total hip replacement.
81.52 Partial hip replacement.
81.54 Total knee replacement.
415.11 Iatrogenic pulmonary embolism and infarction.
415.19 Other pulmonary embolism and infarction—other.
453.40 Venous embolism and thrombosis of unspecified deep vessels of lower extremity.
453.41 Venous embolism and thrombosis of deep vessels of proximal lower extremity.
453.42 Venous embolism and thrombosis of deep vessels of distal lower extremity.

d. Delirium

Delirium is a relatively abrupt deterioration in a patient's ability to sustain attention, learn, or reason. Delirium is strongly associated with aging and treatment of illnesses that are associated with hospitalizations. Delirium affects nearly half of hospital patient days for individuals age 65 and older, and approximately three-quarters of elderly individuals in intensive care units have delirium. About 14 to 24 percent of hospitalized elderly individuals have delirium at the time of admission. Having delirium is a very serious risk factor, with 1-year mortality of 35 to 40 percent, a rate as high as those associated with heart attacks and sepsis. The adverse effects of delirium routinely last for months. Delirium is a clinical diagnosis, commonly assisted by screening tests such as the Confusion Assessment Method. The clinician must establish that the onset has been abrupt and that the deficits affect the ability to maintain attention, maintain orderly thinking, and learn from new information. Delirium is substantially under-recognized and is regularly conflated with dementia. Because of the high rate of mortality and incidence noted above, we proposed delirium as a candidate HAC, and provided the following information for consideration:

HAC candidate Medicare data (FY 2007) CC/MCC (ICD-9-CM code) Selected evidence-based guidelines
Delirium • 480 cases • $23,290/hospital stay. 293.1 (CC) Available on the Web site: http://www.ahrq.gov/clinic/ptsafety/chap28.htm.

We solicited comments on each of the statutory criteria, with particular focus on the degree to which delirium can be considered reasonably preventable through the application of evidence-based guidelines.

Comment: Most commenters strongly opposed placing delirium on the HAC list. Citing a study mentioned in the FY 2009 IPPS proposed rule (73 FR 23555), commenters emphasized that the ability to prevent only 30 to 40 percent of all delirium cases through the application of evidence-based guidelines does not, in their opinion, meet that statutory criterion. Many commenters stated that evidence-based guidelines, such as reducing certain medications, reorienting patients, assuring sleep and sensory input, and improving patient nutrition and hydration, were more appropriately used as process rather than outcome measures.

A number of commenters stated that it is difficult to define and diagnose a condition that varies in degree, such as delirium. They stated that symptoms of delirium may be intermittent. In addition, the commenters indicated that it may be difficult to differentiate between delirium and intensive care unit psychosis resulting from pre-admission hypoxia. Many commenters noted that delirium may be caused by many factors unrelated to clinical treatment. For example, commenters stated that delirium is a common symptom in Alzheimer's patients, who are likely to become disoriented in unfamiliar hospital surroundings. One commenter also noted that the diagnosis is difficult to make if a patient is intoxicated.

In addition to those commenters who expressed blanket support for selecting all candidate HACs, a few commenters explicitly supported inclusion of delirium as an HAC. One commenter suggested that delirium resulting from medication error could be reasonably prevented by implementation of computerized physician order entry systems. Another commenter suggested that prevention based on the six factors in the Confusion Assessment Model would improve intake assessment and health care quality.

Response: After consideration of the public comments received, we have decided not to select delirium as an HAC in this final rule. We will continue to monitor the evidence-based guidelines surrounding prevention of delirium. If evidence warrants, we may consider proposing delirium as an HAC in the future. Although we are not selecting delirium as an HAC, we would like to recognize two additional ICD-9-CM codes 292.81 (CC) and 293.0 (CC) that the commenters suggested to identify delirium and note that their input will be taken into account in any future reconsideration.

Delirium Back to Top
ICD-9-CM codes Code descriptors
292.81 Drug-induced delirium.
293.0 Delirium due to conditions classified elsewhere.
293.1 Subacute delirium.

e. Ventilator-Associated Pneumonia (VAP)

VAP is a serious hospital-acquired infection associated with high mortality, significantly increased length of stay, and high cost. It is typically caused by the aspiration of contaminated gastric or oropharyngeal secretions. The presence of an endotracheal tube facilitates both the contamination of secretions and aspiration. We presented the following information in the FY 2009 IPPS proposed rule for consideration:

HAC candidate Medicare data (FY 2007) CC/MCC (ICD-9-CM code) Selected evidence-based guidelines
Ventilator-Associated Pneumonia (VAP) • 30,867 cases • $135,795/hospital stay. 997.31 (CC) Available on the Web site: http://www.rcjournal.com/cpgs/09.03.0869.html.
Ventilator-Associated Pneumonia Back to Top
ICD-9-CM code Code descriptor
997.31 Ventilator-associated pneumonia.

The CDC recently updated the ICD-9-CM coding guidelines for proper use of code 997.31, which goes into effect on October 1, 2008. The ICD-9-CM Official Coding Guidelines are available at: http://www.cdc.gov/nchs/datawh/ftpserv/ftpICD9/ftpICD9.htm.

We solicited comments on each of the statutory criteria, with particular focus on the degree to which evidence-based guidelines can reasonably prevent VAP.

Comment: The majority of commenters addressed whether or not VAP could be considered reasonably preventable through the application of evidence-based guidelines. Citing literature mentioned in the IPPS FY 2009 proposed rule, commenters noted that VAP is only preventable 40 percent of the time, which, in their opinion, does not meet the statutory requirement for reasonably preventable through the application of evidence-based guidelines. (The proposed rule referenced the American Association of Respiratory Care (AARC) Evidence-Based Clinical Practice Guidelines as one example of an existing evidence-based standard designed to prevent VAP.) A few commenters questioned the narrow focus of the AARC's guidelines.

In addition to problems related to its preventability, many commenters also argued that VAP may be difficult to diagnose based on shortfalls associated with clinical definitions and diagnostic tests. The commenters stated that clinical cultures are not predictive for pneumonia, radiographic evidence of pneumonia is difficult to standardize, and vaccines do not protect against infection during the current hospital stay. The commenters pointed out that no standard definition of VAP exists—the definition is constructed of nonspecific clinical signs common to many complications; thus, because of its imprecise definition, selection of VAP as an HAC could be especially susceptible to unintended consequences. One commenter stated that the flexibility inherent to VAP's imprecise definitions coupled with threat of nonpayment created a “perverse incentive” to diagnose VAP as another condition. Commenters noted that patient risk factors may also impact the risk of developing VAP. For example, burn patients are especially susceptible to infections.

While some commenters indicated that VAP is a serious condition and could be a good candidate HAC in the future, the many commenters argued that current evidence and technology are not well-enough developed at this time to meet the statutory requirement of reasonably preventable through the application of evidence-based guidelines. One commenter pointed out that the Institute for Healthcare Improvement and the Joint Commission are currently evaluating alternative standards for VAP prevention.

Response: In light of the public comments that we received, we are not selecting VAP as an HAC. We will work in partnership with the CDC and closely monitor the evolving literature addressing the prevention of VAP through the application of evidence-based guidelines. If evidence warrants, we may consider proposing VAP as an HAC in the future.

f. Staphylococcus aureus Septicemia

Staphylococcus aureus is a bacterium that lives on multiple anatomic sites in most people. It usually does not cause physical illness, but it can cause a variety of infections ranging from superficial boils to cellulitis to pneumonia to life-threatening bloodstream infections (septicemia). It typically becomes pathogenic by infecting normally sterile tissue through traumatized tissue, such as cuts or abrasions, or at the time of invasive procedures and can be both an early and/or late complication of trauma or surgery. Staphylococcus aureus septicemia can also be a late effect of an injury or a surgical procedure. Risk factors for developing Staphylococcus aureus septicemia include advanced age, debilitated state, immunocompromised status, and history of an invasive medical procedure.

In the IPPS FY 2009 proposed rule, we presented the following information for consideration:

HAC candidate Medicare data (FY 2007) CC/MCC (ICD-9-CM codes) Selected evidence-based guidelines
Staphylococcus aureus Septicemia • 27,737 cases • $84,976/hospital stay. 038.11(MCC) or 038.12 (MCC) Available on the Web site: http://www.cdc.gov/ncidod/dhqp/gl_isolation.html.
Also excludes the following from acting as CC/MCC: 995.91 (MCC) 995.92 (MCC) 998.59 (CC) Available on the Web site: http://www.cdc.gov/ncidod/dhqp/gl_intravascular.html (Intravascular catheter-associated Staphylococcus aureus Septicemia only).
Staphylococcus aureus Septicemia Back to Top
ICD-9-CM codes Code descriptors
038.11 Staphylococcus aureus septicemia.
038.12 Methicillin-resistant Staphylococcus aureus septicemia.
995.91 Sepsis.
995.92 Severe sepsis.
998.59 Other postoperative infection.

We solicited comments on each of the statutory criteria, with particular focus on the degree to which this condition can be considered reasonably preventable through the application of evidence-based guidelines.

Comment: Many commenters described difficulty in determining whether an infection was present upon admission, as the development of infection while in a hospital may not necessarily indicate that the infection was hospital-acquired. The commenters suggested that Staphylococcus aureus septicemia may also result from permanent tunneled and nontunneled catheters used in cancer patients or through dialysis shunts. The commenters asserted that the risk of infection may be higher for different subpopulations of patients.

A large number of commenters suggested that the CDC's guidelines specific to vascular catheter-associated infections do not extend to Staphylococcus aureus septicemia generally. However, because the majority of Staphylococcus aureus septicemia events are related to catheters and skin lesions, commenters also argued that the previously selected HAC, vascular catheter-associated infections, will already capture the vast majority of preventable Staphylococcus aureus septicemia events. According to the commenters, adopting Staphylococcus aureus septicemia as an additional condition would yield little quality improvement but could cause expensive and unnecessary treatments for both hospitals and patients.

Response: In light of these public comments, we are not selecting Staphylococcus aureus septicemia as an HAC in this final rule. If evidence warrants, we may consider proposing Staphylococcus aureus septicemia as an HAC in the future. We note that several commenters recognized that Staphylococcus aureus septicemia cases are being addressed through the vascular catheter-associated infection HAC that was selected in the FY 2008 IPPS final rule with comment period.

g. Clostridium difficile-Associated Disease (CDAD)

Clostridium difficile is a bacterium that colonizes the gastrointestinal (GI) tract of a certain number of healthy people as well as being present on numerous environmental surfaces. Under conditions where the normal flora of the gastrointestinal tract is altered, Clostridium difficile can flourish and release large enough amounts of a toxin to cause severe diarrhea or even life-threatening colitis. Risk factors for CDAD include the prolonged use of broad spectrum antibiotics, gastrointestinal surgery, prolonged nasogastric tube insertion, and repeated enemas. CDAD can be acquired in the hospital or in the community. Its spores can live outside of the body for months and thus can be spread to other patients in the absence of meticulous hand washing by care providers and others who contact the infected patient.

In the IPPS FY 2009 proposed rule, we presented the following information for consideration:

HAC candidate Medicare data (FY 2007) CC/MCC (ICD-9-CM code) Selected evidence-based guidelines
Clostridium difficile-Associated Disease (CDAD) • 96,336 cases • $59,153/hospital stay. 008.45 (CC) Available on the Web site: http://www.cdc.gov/ncidod/dhqp/gl_isolation.html.
Available on the Web site: http://www.cdc.gov/ncidod/dhqp/id_CdiffFAQ_HCP.html#9.
Clostridium difficile-Associated Disease Back to Top
ICD-9-CM code Code descriptor
008.45 Clostridium difficile.

We solicited comments on each of the statutory criteria, with particular focus on the degree to which CDAD can be reasonably prevented through the application of evidence-based guidelines.

Comment: The majority of commenters addressed preventability and the inability to distinguish between community-acquired and hospital-acquired infections without culturing each patient to determine strain or type of infection. The commenters emphasized that CDAD is a known adverse side effect of appropriate broad spectrum antibiotic use. One commenter suggested establishing a unique ICD-9-CM code to identify cases of CDAD that occur other than as a side effect of broad spectrum treatment to distinguish situations of patient-to-patient transmission of Clostridium difficile that are more likely to be considered reasonably preventable. Commenters further asserted that the appropriate use of proton pump inhibitors and H2 blockers is also associated with CDAD infections and outbreaks. Many commenters stated that no specific evidence-based prevention guidelines are currently available, rather the CDC guidelines apply to patient-to-patient transmissions generally and do not apply to CDAD specifically. Many commenters addressed the difficulty of distinguishing between community-acquired and hospital-acquired infection as a barrier to adopting CDAD as an HAC.

Response: In light of these public comments, we are not selecting CDAD as an HAC in this final rule. However, we continue to receive strong support from consumers and purchasers to include CDAD as an HAC, and we will continue to consult with the CDC regarding the evidence-based prevention guidelines and coding for CDAD. If evidence warrants, we may consider proposing CDAD as an HAC in the future.

h. Legionnaires' Disease

Legionnaires' Disease is a type of pneumonia caused by the bacterium Legionella pneumophila. It is contracted by inhaling contaminated water vapor or droplets. It is not spread person-to-person. The bacterium thrives in warm aquatic environments and infections have been linked to large industrial water systems, including hospital water systems such as air conditioning cooling towers and potable water plumbing systems.

In the FY 2009 IPPS proposed rule, we presented the following information for consideration:

HAC candidate Medicare data (FY 2007) CC/MCC (ICD-9-CM code) Selected evidence-based guidelines
Legionnaires' Disease • 351 cases • $86,014/hospital stay 482.84 (MCC) Available at the Web site: http://www.cdc.gov/ncidod/dbmd/diseaseinfo/legionellosis_g.htm.
Available at the Web site: http://www.legionella.org/.
Legionnaires' Disease Back to Top
ICD-9-CM code Code descriptor
482.84 Legionnaires' disease.

We requested public comment regarding the applicability of each of the statutory criteria to Legionnaires' Disease, particularly addressing the degree of preventability of this condition through the application of evidence-based guidelines and the degree to which hospital-acquired Legionnaires' Disease can be distinguished from community-acquired cases. We also sought comments on additional water-borne pathogens that would qualify for the HAC provision by meeting the statutory criteria.

Comment: Many commenters noted that Legionnaries' Disease is not a high volume condition and questioned whether it should be prioritized as an HAC. In addition, the commenters emphasized that CDC's Environmental Infection Control Guidelines recognize that the mere presence of the bacterium Legionella in the water supply is not necessarily associated with Legionnaires' Disease, and that without evidence of a dose-response relationship, surveillance and treatment is not recommended. The commenters stated that even when decontamination efforts are pursued, there is no guarantee that treatment will ensure Legionella can be completely eradicated from hospital water intakes without damaging infrastructures. In addition, many commenters expressed concern regarding the unintended consequence of increasing the use of costly sterile water in hospitals.

When addressing the degree to which hospital-acquired Legionnaires' Disease can be distinguished from community-acquired cases, the commenters noted that the epidemiologic strain causing the disease is widespread in the community.

Response: In light of these public comments, we are not selecting Legionnaires' Disease as an HAC in this final rule. Although we are not selecting Legionnaires' Disease as an HAC in this final rule, we will continue to consult with the CDC about the evidence-based prevention guidelines. If evidence warrants, we may consider Legionnaires' Disease and other water-borne pathogens suggested by commenters and noted in section II.F.9. of this preamble (Enhancement and Future Issues) as HACs in the future.

i. Iatrogenic Pneumothorax

Iatrogenic pneumothorax refers to the accidental introduction of air into the pleural space, which is the space between the lung and the chest wall, by medical treatment or procedure. When air is introduced into this space, it partially or completely collapses the lung. Iatrogenic pneumothorax can occur during any procedure where there is the possibility of air entering the pleural space, including needle biopsy of the lung, thoracentesis, central venous catheter placement, pleural biopsy, tracheostomy, and liver biopsy. Iatrogenic pneumothorax can also occur secondary to positive pressure mechanical ventilation when an air sac in the lung ruptures, allowing air into the pleural space. In the FY 2009 IPPS proposed rule, we presented the following information for consideration:

HAC candidate Medicare data (FY 2007) CC/MCC (ICD-9-CM code) Selected evidence-based guidelines
Iatrogenic Pneumothorax • 22,665 cases • $75,089/hospital stay. 512.1 (CC) Available at the Web site: http://www.ncbi.nlm.nih.gov/pubmed/1485006.
Iatrogenic Pneumothorax Back to Top
ICD-9-CM code Code descriptor
512.1 Iatrogenic pneumothorax.

We solicited public comment on the applicability of each of the statutory criteria to this condition. We were particularly interested in receiving comments on the degree to which iatrogenic pneumothorax could be considered reasonably preventable through the application of evidence-based guidelines.

Comment: Most commenters opposed the selection of iatrogenic pneumothorax as an HAC. They indicated that the evidence-based guidelines often acknowledge that iatrogenic pneumothorax is a known, relatively common risk for certain procedures. Further, with regard to evidence-based guidelines, many commenters opposed designation of this condition as an HAC due to a lack of consensus within the medical community regarding its preventability. [17] Some commenters offered suggestions to exclude certain procedures or situations, including central line placement, thoracotomy, and use of a ventilator, if iatrogenic pneumothorax were to be selected as an HAC.

Response: In light of these public comments, we are not selecting iatrogenic pneumothorax as an HAC in this final rule. Although we are not selecting iatrogenic pneumothorax as an HAC in this final rule, we do recognize this as an adverse event that occurs frequently. We will continue to review the development of evidence-based guidelines for the prevention of iatrogenic pneumothorax. If evidence warrants, we may consider iatrogenic pneumothorax as an HAC in the future.

j. Methicillin-Resistant Staphylococcus aureus (MRSA)

In October 2007, the CDC published in the Journal of the American Medical Association an article citing high mortality rates from MRSA, an antibiotic-resistant “superbug.” The article estimates 19,000 people died from MRSA infections in the United States in 2005. The majority of invasive MRSA cases are health care-related—contracted in hospitals or nursing homes—though community-acquired MRSA also poses a significant public health concern. Hospitals have been focused for years on controlling MRSA through the application of CDC's evidence-based guidelines outlining best practices for combating the bacterium in that setting. In the proposed FY 2009 IPPS rule, we presented the following information for consideration:

Condition Medicare data (FY 2007) CC/MCC (ICD-9-CM code) Selected evidence-based guidelines
Methicillin-resistant Staphylococcus aureus (MRSA) (Code V09.0 includes infections with microorganisms resistant to penicillins) • 88,374 (V09.0) cases • $32,049/hospital stay. No CC/MCC Available at the Web site: http://www.cdc.gov/ncidod/dhqp/gl_isolation.html.

During its March 19-20, 2008 meeting, the ICD-9-CM Coordination and Maintenance Committee discussed several new codes to more accurately capture MRSA. The following new codes will be implemented on October 1, 2008:

Methicillin-Resistant Staphylococcus aureus Back to Top
ICD-9-CM codes Code descriptors
038.12 Methicillin-resistant Staphylococcus aureus septicemia.
041.12 Methicillin-resistant Staphylococcus aureus in conditions classified elsewhere and of unspecified site.
482.42 Methicillin-resistant Pneumonia due to Staphylococcus aureus.
V02.53 Carrier or suspected carrier of Methicillin-susceptible Staphylococcal aureus.
V02.54 Carrier or suspected carrier of Methicillin-resistant Staphylococcal aureus.
V12.04 Personal history of Methicillin-resistant Staphylococcal aureus.

Though we did not propose MRSA as a candidate HAC in the FY 2009 IPPS proposed rule, MRSA can trigger the HAC payment provision. For every infectious condition selected as an HAC, MRSA could be the etiology of that infection. For example, if MRSA were the cause of a vascular catheter-associated infection (one of the eight conditions selected in the FY 2008 IPPS final rule with comment period), the HAC payment provision would apply to that MRSA infection. As we noted in the FY 2008 IPPS final rule with comment period (72 FR 47212), colonization by MRSA is not a reasonably preventable condition according to the current evidence-based guidelines. Therefore, MRSA does not meet the “reasonably preventable” statutory criterion for an HAC.

Comment: The majority of commenters strongly supported the CMS decision not to propose MRSA as an HAC candidate.

Response: We appreciate the support of the commenters and reiterate that MRSA is addressed by the HAC payment provision in situations where it triggers a condition that we have identified as an HAC. We also direct readers to a detailed discussion regarding coding of MRSA in section II.F.10.b. of this preamble. As we noted in the FY 2009 IPPS proposed rule (73 FR 23559), we are pursuing collaborative efforts with other HHS agencies to combat MRSA. The Agency for Healthcare Research and Quality (AHRQ) has launched a new initiative in collaboration with CDC and CMS to identify and suppress the spread of MRSA and related infections. In support of this work, Congress appropriated $5 million to fund research, implementation, management, and evaluation practices that mitigate such infections.

CDC has carried out extensive research on the epidemiology of MRSA and effective techniques that could be used to treat the infection and reduce its spread. The following Web sites contain information that reflect CDC's commitment: (1) http://www.cdc.gov/ncidod/dhqp/ar_mrsa.html (health care-associated MRSA); (2) http://www.cdc.gov/ncidod/dhqp/ar_mrsa_ca_public.html (community-acquired MRSA); (3) http://www.cdc.gov/mmwr/preview/mmwrhtml/mm4908a1.htm; and (4) http://www.cdc.gov/handhygiene/.

AHRQ has made previous investments in systems research to help monitor MRSA and related infections in hospital settings, as reflected in material on its Web sites at: http://www.guideline.gov/browse/guideline_index.aspx and http://www.ahrq.gov/clinic/ptsafety/pdf/ptsafety.pdf.

8. Present on Admission Indicator Reporting (POA)

Collection of present on admission (POA) indicator data is necessary to identify which conditions were acquired during hospitalization for the HAC payment provision and for broader public health uses of Medicare data. Through Change Request (CR) No. 5679 (released June 20, 2007), CMS issued instructions requiring IPPS hospitals to submit POA indicator data for all diagnosis codes on Medicare claims. CMS also issued CR No. 6086 (released June 30, 2008) regarding instructions for processing non-IPPS claims. Specific instructions on how to select the correct POA indicator for each diagnosis code are included in the ICD-9-CM Official Guidelines for Coding and Reporting, available at the CDC Web site: http://www.cdc.gov/nchs/datawh/ftpserv/ftpicd9/icdguide07.pdf (POA reporting guidelines begin on page 92). Additional information regarding POA indicator reporting and application of the POA reporting options is available at the CMS Web site: http://www.cms.hhs.gov/HospitalAcqCond. CMS has historically not provided coding advice, rather we collaborate with the American Hospital Association (AHA) through the Coding Clinic for ICD-9-CM. CMS has been collaborating with the AHA to promote the Coding Clinic for ICD-9-CM as the source for coding advice about the POA indicator.

There are five POA indicator reporting options, as defined by the ICD-9-CM Official Coding Guidelines:

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

In the FY 2009 IPPS proposed rule for the HAC payment provision (73 FR 23559), we proposed to pay the CC/MCC MS-DRGs only for those HACs coded with “Y” and “W” indicators.

Comment: Commenters overwhelmingly supported payment for both the POA “Y” and “W” options.

Response: We agree with commenters and are finalizing our proposal to pay for both the POA “Y” and “W” options. We plan to analyze whether both the “Y” and “W” indicators are being used appropriately. Medicare program integrity initiatives closely monitor for inaccurate coding and coding that is inconsistent with medical record documentation.

We proposed to not pay the CC/MCC MS-DRGs for HACs coded with the “N” indicator.

Comment: Commenters were in favor of not paying for the POA “N” indicator option.

Response: We agree with the commenters and are finalizing our proposal to not pay for the POA “N” indicator option.

Comment: The majority of commenters opposed not paying for the POA “U” indicator option. Commenters expressed that the reporting of the POA indicators is still new, and hospitals continue to learn how to apply them, as well as educate their physicians on the required documentation without which POA reporting is impossible.

Response: Although we recognize that POA indicator reporting is new for some IPPS hospitals, we are finalizing the proposed policy of not paying for the “U” option. We believe that this approach will encourage better documentation and will result in more accurate public health data.

We plan to analyze whether both the “N” and “U” POA reporting options are being used appropriately. The American Health Information Management Association (AHIMA) has promulgated Standards of Ethical Coding that require accurate coding regardless of the payment implications of the diagnoses. That is, diagnoses and POA indicators must be reported accurately on claims regardless of the fact that diagnoses coded with an “N” or “U” indicator may no longer trigger a higher paying MS-DRG. Medicare program integrity initiatives closely monitor for inaccurate coding and coding inconsistent with medical record documentation.

Although we proposed, and are now finalizing, the policy of not paying the CC/MCC MS-DRGs for HACs coded with the “U” indicator, we recognize that there may be some exceptional circumstances under which payment might be made. Death, elopement (leaving against medical advice), and transfers out of a hospital may preclude making an informed determination of whether an HAC was present on admission. We sought public comments on the potential use of patient discharge status codes to identify exceptional circumstances.

Comment: The majority of commenters did not address the patient discharge status codes as an exception for payment when the “U” POA indicator is used. The commenters who did address this issue were in favor of using patient discharge status codes as an exception for payment.

Response: We will monitor the extent to which and under what circumstances the “U” POA indicator code is used. In the future, we may consider proposing use of the patient discharge status codes to recognize exceptions for payment.

9. Enhancement and Future Issues

In section II.F.9. of the FY 2009 IPPS proposed rule (73 FR 23560), we encouraged the public to provide ideas and models for combating preventable HACs through the application of VBP principles. We note that we are not proposing Medicare policy in this discussion. However, we believe that collaborating with stakeholders to improve the HAC policy is another step toward fulfilling VBP's potential to provide better health care for Medicare beneficiaries.

To stimulate reflection and creativity, we presented several enhancement options, including: (a) Applying risk adjustment to make the HAC payment provision more precise; (b) collecting HAC rates to obtain a more robust longitudinal measure of a hospital's incidence of these conditions; (c) using POA information in various ways to decrease the incidence of preventable HACs; (d) adopting ICD-10 to facilitate more precise identification of HACs; (e) applying the principle of the IPPS HAC payment provision to Medicare payments in other care settings; (f) using CMS' authority to address events on the NQF's list of Serious Reportable Adverse Events; and (g) additional potential candidate HACs, suggested through comment, for future consideration.

a. Risk-Adjustment of Payments Related to HACs

In the FY 2009 IPPS proposed rule, we suggested that payment adjustments made when one of the selected HACs occurs could be made more precise by reflecting various sources and degrees of individual patient or patient population risk. For example, a patient's medical history, current health status (including comorbidities), and severity of illness can affect the expected occurrence of conditions selected as HACs. Rather than not paying any additional amount when a selected HAC occurs during a hospitalization, payment reductions could be related to the expected occurrence of that condition (that is, the less likely the complication, the greater the payment reduction).

In general, most commenters supported the idea of risk-adjusted payments for HACs, noting that proportional payments could reduce the risk of unintended consequences, as compared to the current HAC payment policy, through more equitable treatment of both hospitals and patients. Specifically, a few commenters expressed concern that all-or-nothing payment for HACs may disproportionately impact urban, teaching, and academic hospitals that treat under-served populations. Commenters stated that, because these populations may be at greater risk for HACs, risk-adjusted payments could allow all hospitals to continue treating high-risk populations without being penalized for treating riskier patients.

Commenters proposed addressing patient risk factors on both the individual and population levels. The majority of commenters supported assessing risk at the individual patient level. Although this approach may offer the most precise risk adjustment, current technology and resources limit the ability to risk adjust at this level, as we discussed in the FY 2009 IPPS proposed rule. Risk adjustment at the subpopulation level, however, could capture and correct for high patient risk related to specific medical conditions. For example, many commenters noted that burn patients in particular are at high risk for some of the selected HACs, including infections. Other high-risk patient populations mentioned by commenters included trauma, immunosuppressed, and palliative care patients.

Other commenters emphasized that for certain HACs, risk adjustment strategies would not be appropriate. Commenters stated that payments for “never events,” such as retention of a foreign object after surgery, air embolism, and blood incompatibility, should never be adjusted for risk because such occurrences can be considered absolutely preventable.

b. Rate-Based Measurement of HACs

In the FY 2009 IPPS proposed rule, we suggested that a hospital's rates of HACs could be included as a measurement domain within each hospital's total performance score under a pay-for-performance model like the Medicare Hospital Value-Based Purchasing Plan. (We refer readers to section IV.C. of this preamble for a discussion of the Plan.) We asserted that measurement of rates over time could be a more meaningful, actionable, and fair way to adjust a hospital's MS-DRG payments for the incidence of HACs. The consequence of a higher incidence of measured conditions would be a lower VBP incentive payment, while public reporting of the measured rates of HACs would give hospitals an additional, nonfinancial incentive to prevent occurrence of the conditions.

The majority of commenters preferred a standardized framework for rate-based measurement and VBP payment implications for HACs, as opposed to not being paid the higher MS-DRG amount. Many commenters suggested determining expected rates of HACs and using those expected rates as benchmark targets for comparison, rewarding providers who stay at or below benchmark, while decreasing payment for those who exceed the benchmark.

Though the majority of commenters supported rate-based measurement of HACs, some commenters raised issues. A number of commenters noted that the extremely low incidence of “never events” could preclude meaningful rate-based measurement of the occurrence of those events. Other commenters opposed public reporting of the rates as a nonfinancial VBP incentive.

c. Use of POA Information

In the FY 2009 IPPS proposed rule, we asserted that POA data could be used to better understand and prevent the occurrence of HACs. Medicare data could be analyzed separately or in combination with private sector or State POA data, which are currently available in certain States. Health services researchers could use these data in a variety of ways to assess the incidence of HACs and to identify best practices for HAC prevention. In addition, publicly reported POA data could also be used to support better health care decision making by Medicare beneficiaries, as well as other health care consumers, professionals, and caregivers.

Commenters addressed various uses of POA data, including informing risk adjustment, making benchmark comparisons between and within hospitals, and public reporting. Commenters noted that POA data have important applications to risk adjustment for quality measurement. In the absence of risk adjustment mechanisms, one commenter suggested that CMS expand POA codes beyond those discussed in section II.F.8. of the preamble of the proposed rule to include a code that would preclude reduced payment if the provider attests that “the HAC is believed to be the result of a natural disease process/severe patient condition and is not believed to be indicative of the level of the quality of care provided.” Nearly all commenters addressing the use of POA data urged CMS to provide hospitals with timely feedback of POA information. Specifically, many commenters wanted CMS to provide each hospital with its POA rates and comparisons to peer hospitals.

Commenters' responses to publicly reporting POA data were mixed. A large number of commenters opposed public reporting of POA data, arguing that only measures endorsed by the NQF and adopted by the HQA should be considered for public reporting. A few commenters voiced concern that public reporting would discourage hospitals from accurately reporting POA data. A few commenters suggested a phased-in public reporting timeline for POA data, allowing hospital data to remain confidential for a period while hospitals adjust to new coding and reporting requirements. Nearly all commenters stated that, if POA data were to be publicly reported, the data should be posted on Hospital Compare.

d. Transition to ICD-10

In the FY 2009 IPPS proposed rule, we suggested that adopting ICD-10 codes to replace the outdated, vague codes of ICD-9-CM would allow CMS to capture more accurate and precise information about HACs. [18] Noting that the current ICD-9-CM codes are over three decades old, we proposed that ICD-10 codes more precisely capture information using current medical terminology. For example, ICD-9-CM codes for pressure ulcers do not provide information about the size, depth, or exact location of the ulcer, while ICD-10 has 125 codes to capture this information.

A number of commenters supported the adoption of ICD-10. Many of the commenters pointed out that the adoption of ICD-10 would facilitate more precise identification of HACs. Several commenters supported the adoption of ICD-10 with an appropriate 2-year transition period. Commenters stated that they have known since the 1990's that the ICD-9-CM coding structure was reaching its limits, and it was becoming increasingly difficult to identify new technologies that are commonly used in today's medical practices. The commenters stated that there is a critical need to move in a timely manner to CM and ICD-10-PCS because hospitals would have the ability to capture data more accurately, thus providing higher quality and more accurate data for reporting. Commenters urged the implementation of ICD-10 to ensure the availability of appropriate, consistent, and accurate clinical information reflective of patients' medical conditions and care provided. Commenters asserted that this would allow the nation to better measure quality, implement value-based purchasing, identify hospital-acquired conditions, and continue to refine a prospective payment system that improves recognition of variances in severity of illness.

One commenter expressed concern about the benefit of moving to ICD-10 and believed that its benefit in the outpatient setting had not been demonstrated. The commenter expressed concern about the cost of moving to a new coding system with the need to update software and redraft policies.

e. Healthcare-Associated Conditions in Other Payment Settings

In the FY 2009 IPPS proposed rule, we suggested that the broad principle of Medicare not paying for preventable healthcare-associated conditions could potentially be applied in Medicare payment settings beyond IPPS hospitals, including for example, hospital outpatient departments, SNFs, and physician practices. Although the implementation would be different for each setting, alignment of incentives across settings of care is an important goal for all of CMS' VBP initiatives. To stimulate public input, we have included a discussion in several Medicare payment regulations regarding application of the broad principle of Medicare not paying for preventable healthcare-associated conditions in payment settings beyond IPPS. The discussion was included in the following regulations: FY 2009 IRF proposed rule (73 FR 22688), the CY 2009 OPPS/ASC proposed rule (73 FR 41547), the FY 2009 SNF proposed rule (73 FR 25932), and the FY 2009 LTCH final rule (73 FR 26829).

Commenters' reaction to the notion of applying the IPPS HAC payment provision to other settings was mixed. A number of commenters recognized that this use of payment incentives could promote better continuity of care (including documentation) and a reduction in avoidable readmissions. Commenters noted that aligned payment incentives would force pre- and post-acute care settings to share accountability for preventing healthcare-associated conditions. One commenter who supported expanding the policy to nursing homes suggested that CMS consider including dehydration measures for nonpayment in that setting.

While many commenters recognized potential benefits, many other commenters raised concerns or opposed implementing the IPPS HAC payment provision in other settings. Generally, commenters who were opposed to expanding the policy's reach believed that doing so would be premature until CMS assesses the impacts of the policy in the IPPS setting. Commenters also raised concerns about applying the policy in particular settings. For example, many commenters stated that Medicare payment for the physician setting is extremely different from that of the IPPS setting and that attribution issues in particular would make the policy difficult to accurately and fairly implement.

Commenters suggested that, if CMS did implement a similar policy in the physician setting, the agency should ensure that the policy does not create disincentives for treating high-risk patients. From the long-term care perspective, one commenter noted that the risk of an adverse event occurring increases with the duration of the stay and so such a policy would be particularly concerning for LTCHs.

f. Relationship to NQF's Serious Reportable Adverse Events

In the FY 2009 IPPS proposed rule, we discussed how CMS has applied its authority to address the events on the NQF's list of Serious Reportable Adverse Events (also known as “never events”). We have adopted a number of items from the NQF's list of events as HACs. However, we also discussed that the HAC payment provision is not ideally suited to address every condition on the NQF's list.

Commenters unanimously asserted that CMS should not pay for never events. However, many commenters were concerned about the widespread misperception that HACs are never events, which can be considered absolutely preventable. Commenters urged CMS to explicitly differentiate its “reasonably preventable” HACs from the “never events” on the NQF's list of Serious Reportable Adverse Events.

Commenters suggested alternatives to Medicare's existing authority under the HAC provision to address never events. One commenter suggested that no higher CC/MCC MS-DRG payment should be made for claims including a selected HAC if that HAC overlaps with a never event. This would preclude a higher MS-DRG payment regardless of whether any other CC/MCCs that would otherwise trigger a higher MS-DRG payment are present on the claim.

g. Additional Potential Candidate HACs, Suggested Through Comment

We received the following suggestions of potential candidates for the HAC payment provision:

  • Surgical site infection following device procedures
  • Failure to rescue
  • Death or disability associated with drugs, devices, or biologics
  • Events on the NQF's list of Serious Reportable Adverse Events, not previously addressed by the HAC payment provision
  • Dehydration
  • Malnutrition
  • Water-borne pathogens, not previously addressed by the HAC payment provision.

We reiterate that we are not making policy in this subsection; rather, we are providing a summary of the comments. We would like to thank commenters for the thoughtful comments received, and we will take this input into consideration as we develop any future regulatory and/or legislative proposals to refine and enhance the HAC payment provision.

10 HAC Coding

This HAC coding section addresses additional coding issues that were raised by commenters regarding the selected and candidate HACs.

a. Foreign Object Retained After Surgery

Comment: One commenter requested that CMS provide technical guidance on how to address certain situations related to retained foreign objects. According to the commenter, in certain circumstances, it may be in the best interest of the patient not to remove the object. For example, the commenter stated that leaving a patient under anesthesia for a prolonged period of time and displacing internal organs in search of a surgical object left in the body may be more harmful than leaving the object inside the patient and completing a surgery in an expedited fashion. The commenter suggested that CMS clearly specify that the policy applies to an unintended retention of a foreign object, to allow physicians to exercise clinical judgment regarding the relative risk of leaving an object versus removing it.

Response: We believe that ICD-9-CM codes 998.4 and 998.7 clearly describe the application of the HAC provision to a foreign body “inadvertently” or “accidentally” left in a patient during a procedure.

b. MRSA

Comment: Commenters raised issues regarding the MRSA coding. One commenter stated that the recent addition of unique MRSA ICD-9-CM codes will allow for improved tracking of MRSA infections and will complement the surveillance efforts underway at the CDC and the AHRQ. The commenter stated that the creation of new MRSA-specific codes will generate better data on which to base important MRSA prevention and management policy decisions, and will allow the health care community to more effectively address this growing public health problem. The commenter stated that CMS could reflect the increased utilization of resources associated with MRSA diagnoses by making CC/MCC classifications for the following three MRSA codes: Code 038.12 (Methicillin-resistant Staphylococcus aureus septicemia—MCC); code 482.42 (Methicillin-resistant pneumonia due to Staphylococcus aureus—MCC); and code 041.12 (Methicillin-resistant Staphylococcus aureus in conditions classified elsewhere and of unspecified site—CC).

As justification for this request, the commenter pointed out that the predecessor codes for 038.12 and 482.42 are MCCs. The predecessor code for 038.12 is 038.11 (Staphylococcus aureus septicemia), which is an MCC. The predecessor code for 482.42 is 482.41 (Pneumonia due to Staphylococcus aureus), which is also an MCC.

The commenter's justification for making 041.12 a CC is not based on the predecessor code's CC/MCC assignment. The commenter acknowledged the predecessor code, 041.11 (Staphylococcus aureus) is a non-CC. The commenter reviewed data provided in the development of the original CC/MCC classifications for the MS-DRGs and acknowledged that the data did not clearly support making predecessor code 041.11 a CC. The commenter also recognized that clinical judgment was also used in deciding the non-CC/CC/MCC classification of each diagnosis code. Given CMS' use of both data and clinical evaluation, the commenter stated that code 041.11 “captures many minor and routine bacterial infections that are relatively simple and inexpensive to treat—in other words, diagnoses that do not lead to substantially increased use of hospital resources.” Therefore, the commenter found it understandable that the predecessor code, 041.11, was classified as a non-CC.

However, the commenter believed that the new MRSA specific code, 041.12, will allow differentiation between MRSA and other infections and will likely show that these MRSA infections are significantly more difficult and expensive to treat. Therefore, the commenter requested that code 041.12 be classified as a CC.

Response: The final CC/MCC classifications for new ICD-9-CM diagnosis codes are shown in Table 6A of the Addendum to this final rule. This table shows that we have classified codes 038.12 (Methicillin-resistant Staphylococcus aureus septicemia) and 482.42 (Methicillin-resistant pneumonia due to Staphylococcus aureus) as MCCs. We agree that, based on the predecessor code and our clinical evaluation, this MCC classification is warranted.

We disagree with classifying code 041.12 (Methicillin-resistant Staphylococcus aureus in conditions classified elsewhere and of unspecified site) as a CC. As is shown in Table 6A, we have classified this code as a non-CC. We agree with the commenter that the predecessor code was a non-CC. However, we also point out that all codes in the 041.00-041.9 category of bacterial infection in conditions classified elsewhere and of unspecified site are non-CCs. All of the codes in this category are used as an additional code to identify a bacterial agent in diseases that are classified by another more precise code. For instance, if a patient has a MRSA urinary tract infection or infected toenail, one would assign a code for the specific type and location of the infection (for example, urinary tract infection or infected toenail bed) and an additional code to fully describe the bacterial agent, such as MRSA. The CC/MCC classification would be determined by the more precise infection code (for example, urinary tract infection or infected toenail bed).

We do not believe it is appropriate to change the CC/MCC classification of one of the codes in the category of bacterial infection in conditions classified elsewhere and of unspecified site to a CC while leaving all of the others as non-CCs. Further, we believe it is more appropriate to assign a CC/MCC classification based on the more precise description of the patient's infection such as pneumonia, septicemia, or nail bed infection. Therefore, we have made code 041.12 a non-CC, as shown in Table 6A of the Addendum to this final rule.

c. POA

Comment: Commenters raised issues regarding the timing of laboratory testing (receiving results in 48-72 hours) and the effect this may have on the POA indicator reported for the HAC candidates proposed, such as Staphylococcus aureus septicemia and CDAD. The commenters expressed concern that when a lab test including cultures is performed upon admission, the results may not be available until 48-72 hours later. The commenters were not clear on how the POA indicator would be applied in this scenario.

Response: We acknowledge the commenter's concerns regarding correct assignment of the POA indicator when lab tests are involved. We refer the reader to the ICD-9-CM Official Guidelines for Coding and Reporting, Appendix I, Present on Admission Reporting Guidelines. These guidelines have been updated to address the issue of timeframe for POA identification and documentation. The updated guidelines recognize that in some clinical situations it may take a period of time after admission before a definitive diagnosis can be made. Determination of whether the condition was present on admission will be based on the applicable POA guidelines or on the physician's best clinical judgment. The guidelines address several scenarios, including those with infections and organisms, and how to assign the POA indicator. We also note that in this final rule we decided not to select at this time the proposed HAC cited by the commenter, Staphylococcus aureus septicemia, as an HAC.

11. HACs Selected for Implementation on October 1, 2008

The following table sets out a complete list of the HACs selected for implementation on October 1, 2008 in this final rule and in the FY 2008 IPPS final rule with comment period:

HAC CC/MCC (ICD-9-CM codes)
Foreign Object Retained After Surgery 998.4 (CC) 998.7 (CC)
Air Embolism 999.1 (MCC)
Blood Incompatibility 999.6 (CC)
Pressure Ulcer Stages III IV 707.23 (MCC) 707.24 (MCC)
Falls and Trauma: Codes within these ranges on the CC/MCC list:
—Fracture 800-829
—Dislocation 830-839
—Intracranial Injury 850-854
—Crushing Injury 925-929
—Burn 940-949
—Electric Shock 991-994
Catheter-Associated Urinary Tract Infection (UTI) 996.64 (CC)
Also excludes the following from acting as a CC/MCC:
112.2 (CC)
590.10 (CC)
590.11 (MCC)
590.2 (MCC)
590.3 (CC)
590.80 (CC)
590.81 (CC)
595.0 (CC)
597.0 (CC)
599.0 (CC)
Vascular Catheter-Associated Infection 999.31 (CC)
Manifestations of Poor Glycemic Control 250.10-250.13 (MCC)
250.20-250.23 (MCC)
251.0 (CC)
249.10-249.11 (MCC)
249.20-249.21 (MCC)
Surgical Site Infection, Mediastinitis, Following Coronary Artery Bypass Graft (CABG) 519.2 (MCC) And one of the following procedure codes: 36.10-36.19
Surgical Site Infection Following Certain Orthopedic Procedures 996.67 (CC)
998.59 (CC)
And one of the following procedure codes: 81.01-81.08, 81.23-81.24, 81.31-81.83, 81.83, 81.85
Surgical Site Infection Following Bariatric Surgery for Obesity Principal Diagnosis—278.01 998.59 (CC)
And one of the following procedure codes: 44.38, 44.39, or 44.95
Deep Vein Thrombosis and Pulmonary Embolism Following Certain Orthopedic Procedures 415.11 (MCC) 415.19 (MCC)
453.40-453.42 (MCC)
And one of the following procedure codes: 00.85-00.87, 81.51-81.52, or 81.54

G. Changes to Specific MS-DRG Classifications

1. Pre-MDCs: Artificial Heart Devices

Heart failure affects more than 5 million patients in the United States with 550,000 new cases each year, and causes more than 55,000 deaths annually. It is a progressive disease that is medically managed at all stages, but over time leads to continued deterioration of the heart's ability to pump sufficient amounts of adequately oxygenated blood throughout the body. When medical management becomes inadequate to continue to support the patient, the patient's heart failure would be considered to be the end stage of the disease. At this point, the only remaining treatment options are a heart transplant or mechanical circulatory support. A device termed an artificial heart has been used only for severe failure of both the right and left ventricles, also known as biventricular failure. Relatively small numbers of patients suffer from biventricular failure, but the exact numbers are unknown. There are about 4,000 patients approved and waiting to receive heart transplants in the United States at any given time, but only about 2,000 hearts per year are transplanted due to a scarcity of donated organs. There are a number of mechanical devices that may be used to support the ventricles of a failing heart on either a temporary or permanent basis. When it is apparent that a patient will require long-term support, a ventricular support device is generally implanted and may be considered either as a bridge to recovery or a bridge to transplantation. Sometimes a patient's prognosis is uncertain, and with device support the native heart may recover its function. However, when recovery is not likely, the patient may qualify as a transplant candidate and require mechanical circulatory support until a donor heart becomes available. This type of support is commonly supplied by ventricular assist devices (VADs), which are surgically attached to the native ventricles but do not replace them.

Devices commonly called artificial hearts are biventricular heart replacement systems that differ from VADs in that a substantial part of the native heart, including both ventricles, is removed. When the heart remains intact, it remains possible for the native heart to recover its function after being assisted by a VAD. However, because the artificial heart device requires the resection of the ventricles, the native heart is no longer intact and such recovery is not possible. The designation “artificial heart” is somewhat of a misnomer because some portion of the native heart remains and there is no current mechanical device that fully replaces all four chambers of the heart. Over time, better descriptive language for these devices may be adopted.

In 1986, CMS made a determination that the use of artificial hearts was not covered under the Medicare program. To conform to that decision, we placed ICD-9-CM procedure code 37.52 (Implantation of total replacement heart system) on the GROUPER program's MCE in the noncovered procedure list.

On August 1, 2007, CMS began a national coverage determination process for artificial hearts. SynCardia Systems, Inc. submitted a request for reconsideration of the longstanding noncoverage policy when its device, the CardioWest [TM] Temporary Total Artificial Heart (TAH-t) System, is used for “bridge to transplantation” in accordance with the FDA-labeled indication for the device. “Bridge to transplantation” is a phrase meaning that a patient in end-stage heart failure may qualify as a heart transplant candidate, but will require mechanical circulatory support until a donor heart becomes available. The CardioWest [TM] TAH-t System is indicated for use as a bridge to transplantation in cardiac transplant-eligible candidates at risk of imminent death from biventricular failure. The system is intended for use inside the hospital as the patient awaits a donor heart. The ultimate desired outcome for insertion of the TAH-t is a successful heart transplant, along with the potential that offers for cure from heart failure.

CMS determined that a broader analysis of artificial heart coverage was deemed appropriate, as another manufacturer, Abiomed, Inc., has developed an artificial heart device, AbioCor® Implantable Replacement Heart Device, with different indications. SynCardia Systems, Inc. has received approval of its device from the FDA for humanitarian use as destination therapy for patients in end-stage biventricular failure who cannot qualify as transplant candidates. The AbioCor® Implantable Replacement Heart Device is indicated for use in severe biventricular end-stage heart disease patients who are not cardiac transplant candidates and who are less than 75 years old, who require multiple inotropic support, who are not treatable by VAD destination therapy, and who cannot be weaned from biventricular support if they are on such support. The desired outcome for this device is prolongation of life and discharge to home.

On February 1, 2008, CMS published a proposed coverage decision memorandum for artificial hearts which stated, in part, that while the evidence is inadequate to conclude that the use of an artificial heart is reasonable and necessary for Medicare beneficiaries, the evidence is promising for the uses of artificial heart devices as described above. CMS supports additional research for these devices, and therefore proposed that the artificial heart will be covered by Medicare when performed under the auspices of a clinical study. The study must meet all of the criteria listed in the proposed decision memorandum. This proposed coverage decision memorandum may be found on the CMS Web site at: http://www.cms.hhs.gov/mcd/viewdraftdecisionmemo.asp?id=211.

Following consideration of the public comments received, CMS made a final decision to cover artificial heart devices for Medicare beneficiaries under “Coverage with Evidence Development” when beneficiaries are enrolled in a clinical study that meets all of the criteria set forth by CMS. These criteria can be found in the final decision memorandum on the CMS Web site at: http://www.cms.hhs.gov/mcd/viewdecisionmemo.asp?id=211. The effective date of this decision was May 1, 2008.

The topic of coding of artificial heart devices was discussed at the September 27-28, 2007 ICD-9-CM Coordination and Maintenance Committee meeting held at CMS in Baltimore, MD. We note that this topic was placed on the Committee's agenda because any proposed changes to the ICD-9-CM coding system must be discussed at a Committee meeting, with opportunity for comment from the public. At the September 2007 Committee meeting, the Committee accepted oral comments from participants and encouraged attendees or anyone with an interest in the topic to comment on proposed changes to the code, inclusion terms, or exclusion terms. We accepted written comments until October 12, 2007. As a result of discussion and comment from the Committee meeting, the Committee revised the title of procedure code 37.52 for artificial hearts to read “Implantation of internal biventricular heart replacement system” with an inclusion note specifying that this is the code for an artificial heart. This code can be found in Table 6F, Revised Procedure Code Titles, in the Addendum to this final rule. In addition, the Committee created new code 37.55 (Removal of internal biventricular heart replacement system) to identify explantation of the artificial heart prior to heart transplantation. This code can be found in Table 6B, New Procedure Codes, in the Addendum to this final rule.

To make conforming changes to the IPPS system with regard to the proposed revision to the coverage decision for artificial hearts, in the FY 2009 IPPS proposed rule (73 FR 23563), we proposed to remove procedure code 37.52 from MS-DRG 215 (Other Heart Assist System Implant) and assign it to MS-DRG 001 (Heart Transplant or Implant of Heart Assist System with Major Comorbidity or Complication (MCC)) and MS-DRG 002 (Heart Transplant or Implant of Heart Assist System without Major Comorbidity or Complication (MCC)). In addition, we proposed to remove procedure code 37.52 from the MCE “Non-Covered Procedure” edit and assign it to the “Limited Coverage” edit. In addition, we proposed to include in this edit the requirement that ICD-9-CM diagnosis code V70.7 (Examination of participant in clinical trial) also be present on the claim. We proposed that claims submitted without both procedure code 37.52 and diagnosis code V70.7 would be denied because they would not be in compliance with the proposed coverage policy.

Comment: Commenters supported CMS' proposal to remove procedure code 37.52 from MS-DRG 215 and reassign it to MS-DRGs 001 and 002. We did not receive any public comments regarding the corresponding change to the MCE.

Response: We appreciate the commenters' support.

Comment: One commenter suggested that CMS create a new MS-DRG combining all implantable heart assist devices to ensure that the proposed changes to cost centers reflect both LVAD device costs and implantable artificial hearts. The commenter suggested that if CMS were unwilling to create an MS-DRG combining all the implantable heart assist devices, an acceptable alternative would be to assign all ventricular assist devices identified by ICD-9-CM procedure code 37.66 (Insertion of implantable heart assist system) into MS-DRG 001, irrespective of the absence of a secondary diagnosis code determined to be an MCC.

Response: We believe that we have already appropriately created MS-DRGs combining heart transplantation, heart assist devices, and other VAD device insertion in MS-DRGs 001 and 002. As the coverage decision for artificial hearts has only become effective May 1, 2008, CMS has no data to suggest that the cost centers will not adequately reflect the cost of all implantable heart devices. We also point out that change to the structure of the MS-DRGs is most appropriately discussed in the proposed rule, so that the public has a chance to review the proposal and comment on it as it affects a facility or medical practice.

With regard to the alternative suggestion of assigning all VADs to MS-DRG 001, irrespective of the presence of an MCC, we point out that when the MS-DRGs were originally created for use beginning FY 2008, the data suggested the appropriateness of separating the patients based on their severity as determined by the presence of an MCC or a CC. We do not have convincing evidence that hospitals are not being adequately reimbursed for the VAD procedures. Therefore, we are not adopting this suggestion.

After consideration of the public comments received, in this final rule, we are assigning code 37.52 (now titled “Implantation of total internal biventricular heart replacement system”) to MS-DRGs 001 and 002, as proposed. In addition, we are removing code 37.52 from the “Non-Covered Procedure” edit and assign it to the “Limited Coverage” edit. This means that implantation of an artificial heart in a Medicare beneficiary will be covered when the implanting facility has met the criteria as set forth by CMS. In addition, both procedure code 37.52 and diagnosis code V07.7 must be present on the claim in order for the claim to be considered a covered Medicare service.

To reiterate, during FY 2008, we made mid-year changes to portions of the GROUPER program not affecting MS-DRG assignment or ICD-9-CM coding. However, as the final coverage decision memorandum for artificial hearts was published after the CMS contractor's testing and release of the mid-year product, changes to the MCE included in the proposed rule were not included in that revision of the GROUPER Version 25.0. GROUPER Version 26.0, which will be in use for FY 2009, contains the final changes that we are adopting in this final rule. The edits in the MCE Version 25.0 will be effective retroactive to May 1, 2008. (To reduce confusion, we note that the version number of the MCE is one digit lower than the current GROUPER version number; that is, Version 26.0 of the GROUPER uses Version 25.0 of the MCE.)

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

a. Transferred Stroke Patients Receiving Tissue Plasminogen Activator (tPA)

In 1996, the FDA approved the use of tissue plasminogen activator (tPA), one type of thrombolytic agent that dissolves blood clots. In 1998, the ICD-9-CM Coordination and Maintenance Committee created code 99.10 (Injection or infusion of thrombolytic agent) in order to be able to uniquely identify the administration of these agents. Studies have shown that tPA can be effective in reducing the amount of damage the brain sustains during an ischemic stroke, which is caused by blood clots that block blood flow to the brain. tPA is approved for patients who have blood clots in the brain, but not for patients who have a bleeding or hemorrhagic stroke. Thrombolytic therapy has been shown to be most effective when used within the first 3 hours after the onset of an embolic stroke, but it is contraindicated in hemorrhagic strokes.

For FY 2006, we modified the structure of CMS DRGs 14 (Intracranial Hemorrhage or Cerebral Infarction) and 15 (Nonspecific CVA and Precerebral Occlusion without Infarction) by removing the diagnostic ischemic (embolic) stroke codes. We created a new CMS DRG 559 (Acute Ischemic Stroke with Use of Thrombolytic Agent) which increased reimbursement for patients who sustained an ischemic or embolic stroke and who also had administration of tPA. The intent of this DRG was not to award higher payment for a specific drug, but to recognize the need for better overall care for this group of patients. Even though tPA is indicated only for a small proportion of stroke patients, that is, those patients experiencing ischemic strokes treated within 3 hours of the onset of symptoms, our data suggested that there was a sufficient quantity of patients to support the DRG change. While our goal is to make payment relate more closely to resource use, we also note that use of tPA in a carefully selected patient population may lead to better outcomes and overall care and may lessen the need for postacute care.

For FY 2008, with the adoption of MS-DRGs, CMS DRG 559 became MS-DRGs 061 (Acute Ischemic Stroke with Use of Thrombolytic Agent with MCC), 062 (Acute Ischemic Stroke with Use of Thrombolytic Agent with CC), and 063 (Acute Ischemic Stroke with Use of Thrombolytic Agent without CC/MCC). Stroke cases in which no thrombolytic agent was administered were grouped to MS-DRGs 064 (Intracranial Hemorrhage or Cerebral Infarction with MCC), 065 (Intracranial Hemorrhage or Cerebral Infarction with CC), or 066 (Intracranial Hemorrhage or Cerebral Infarction without CC/MCC). The MS-DRGs that reflect use of a thrombolytic agent, that is, MS-DRGs 061, 062, and 063, have higher relative weights than the hemorrhagic or cerebral infarction MS-DRGs 064, 065, and 066.

The American Society of Interventional and Therapeutic Neuroradiology (ASITN) (now the Society of NeuroInterventional Surgery (SNIS)) and the American Academy of Neurology Professional Association (AANPA) have made us aware of a treatment issue that is of concern to the stroke provider's community. In some instances, patients suffering an embolytic or thrombolytic stroke are evaluated and given tPA in a community hospital's emergency department, and then are transferred to a larger facility's stroke center that is able to provide the level of services required by the increased severity of these cases. The facility providing the administration of tPA in its emergency department does not realize increased reimbursement, as the patient is often transferred as soon a possible to a stroke center. The facility to which the patient is transferred does not realize increased reimbursement, as the tPA was not administered there. The ASITN/SNIS requested that CMS give permission to code the administration of tPA as if it had been given in the receiving facility. This would result in the receiving facility being paid the higher weighted MS-DRGs 061, 062, or 063 instead of MS-DRGs 064, 065, or 066. The ASITN/SNIS's rationale was that the patients who received tPA in another facility (even though administration of tPA may have alleviated some of the worst consequences of their strokes) are still extremely compromised and require increased health care services that are much more resource consumptive than patients with less severe types of stroke. We have advised the ASITN/SNIS that hospitals may not report services that were not performed in their facility.

We recognize that the ASITN/SNIS's concerns potentially have merit but the quantification of the increased resource consumption of these patients is not currently possible in the existing ICD-9-CM coding system. Without specific length of stay and average charges data, we are unable to determine an appropriate MS-DRG for these cases. Therefore, we advised the ASITN/SNIS and AANAP to present a request at the diagnostic portion of the ICD-9-CM Coordination and Maintenance Committee meeting on March 20, 2008, for creation of a code that would recognize the fact that the patient had received a thrombolytic agent for treatment of the current stroke. In the proposed rule, we indicated that if this request was presented at the March 20, 2008 meeting, it could not be approved in time to be published as a new code in Table 6A in the proposed rule. However, we indicated that if a diagnosis code was created by the National Centers for Health Statistics as a result of that meeting, it would be added to the list of codes published in the FY 2009 IPPS final rule effective on October 1, 2008. With such information appearing on subsequent claims, we will have a better idea of how to classify these cases within the MS-DRGs. Therefore, because we did not have data to identify these patients at the time we issued the FY 2009 IPPS proposed rule, we did not propose an MS-DRG modification for the stroke patients receiving tPA in one facility prior to being transferred to another facility.

The AANPA did make such a request at the Coordination and Maintenance Committee Meeting on March 20, 2008, which resulted in the creation of code V45.88 (Status post administration of tPA (rtPA) in a different facility within the last 24 hours prior to admission to current facility). This code can be found on Table 6A in the Addendum to this final rule.

Comment: All of the commenters approved the creation of a V-code to identify patients who had tPA administered at another hospital but were then transferred to a tertiary facility with the specialized stroke center resources to provide optimal patient care throughout the patient's entire hospital stay. According to two of the commenters, the description of patients who receive intravenous tPA administration at one facility but are then transferred to a tertiary hospital's stroke center are commonly referred to in the health care industry as “drip and ship”.

The commenters agreed with CMS' suggestion to recognize these patients by specific diagnostic coding, and suggested that CMS gather data in order to appropriately categorize these patients in the MS-DRG system. One commenter specifically suggested that data be collected via the new diagnostic code in FY 2009 with a view toward establishing a new MS-DRG or set of MS-DRGs in FY 2010.

Response: We appreciate the support from the industry regarding creation of a unique code and subsequent data gathering. We believe that the transferred patients who have received tPA are a unique category of patients, but without precise and evidentiary data, we are not able yet to evaluate whether a modification of the structure of the MS-DRG system concerning these stroke patients is warranted. We will continue to examine these cases and the broad category of stroke DRGs in our upcoming reviews of revisions to the MS-DRG classifications that may be warranted.

Comment: One commenter disagreed with CMS' suggestion that a new diagnostic code be approved and used to identify “drip and ship” cases. The commenter believed that CMS may not be able to identify this patient population based on the restriction of the CMS claims processing system. The commenter encouraged CMS to update the claims processing systems to accept the reporting of more than eight secondary diagnosis codes per claim.

Response: We believe that the commenter has misunderstood our statement in the proposed rule (73 FR 23563 and 23564). We stated: “* * * the quantification of the increased resource consumption of these patients is not currently possible in the existing ICD-9-CM coding system. Without specific length of stay and average charge data, we are unable to determine an appropriate MS-DRG for these cases.” This statement was made in the context of describing the need for a specific code describing patients to whom tPA had been administered in another setting and who then were transferred to a tertiary care hospital. We did not intend to open the CMS claims processing system for discussion of possible changes.

There are currently six stroke MS-DRGs as described above, with MS-DRGs 061, 062, and 063 identifying cases of acute ischemic stroke with use of thrombolytic agents, by severity, and MS-DRGs 064, 065, and 066 identifying cases of intracranial hemorrhage or cerebral infarction, again divided by severity as determined by the presence of an MCC, a CC, or neither a CC or an MCC. We believe to arbitrarily assign the “drip and ship” cases to any one of these six DRGs is capricious and lacks objectivity. Further, in the interest of longitudinal data, we point out that epidemiologists will be able to gather their statistics more logically if we ultimately assign the cases to the most appropriate MS-DRG(s) after it has been proven that the patients consume a certain level of resources during their inpatient hospital course of treatment.

Comment: One commenter encouraged CMS to assign all patients receiving tPA in a transferring hospital to the categorization of those patients in MS-DRGs 061, 062, and 063 at the receiving hospital as “the payment rate for these transferred patients should be the same as for patients treated with tPA in the admitting hospital because the remainder of the care is the same. The commenter believed that establishment of a separate code should not be a prerequisite to including these cases in MS-DRGs 061, 062, and 063 if CMS would allow hospitals to code the administration of tPA as if it had occurred at the receiving hospital until such time as a new code is established.

Response: The new diagnostic code V45.88 (Status post administration of tPA (rtPA) in a different facility within the last 24 hours prior to admission to current facility) has been established, and will be implemented for FY 2009 for those patients who are discharged on or after October 1, 2008. This will allow CMS sufficient time to collect accurate data on the most appropriate assignment of these patients in the MS-DRG system. We point out that other commenters have supported this position by urging CMS to gather data in order to create a new DRG for these patients. As we do not yet have comprehensive information on this category of patients regarding frequency, distribution, length of stay, or charge data, we do not believe it is appropriate to assign these cases to a potentially inappropriate MS-DRG. We point out the MS-DRGs system is a system of averages. If we assign cases to an MS-DRG based on what the industry believes to be warranted, but if later data for the cases reflect that the cases are less costly than assumed, the result would be that, in subsequent annual recalibrations, the relative weight(s) for those MS-DRGs would decrease. This would ultimately result in a lower payment for precisely those cases that should be receiving higher payment due to their complexity.

In addition, we reiterate our position regarding the submission of an ICD-9-CM code for a service that was not specifically performed at a facility receiving the transferred patient. Hospitals are not permitted to report services that were not performed in their facilities.

Comment: Two commenters suggested that, if a new code describing the administration of tPA at another facility is created, the new code be assigned to the list of major comorbidities and complications. The commenter suggested that this action would allow cases to be assigned to MS-DRG 064 (Intracranial Hemorrhage or Cerebral Infarction with MCC) or MS-DRG 067 (Nonspecific Cerebrovascular Accident and Precerebral Occlusion without Infarction with MCC).

The commenters also suggested that, if a new code describing the administration of tPA at another facility was not created, a proxy code that is already in the list of MCCs could be assigned to the “drip and ship” cases that would then allow hospitals to be compensated for this category of more severe patients. The commenters suggested code 286.5 (Hemorrhagic disorder due to intrinsic circulating anticoagulants) as a proxy code.

Response: We believe the types of action suggested by the commenters would result in a dilution of the principles upon which the MS-DRGs are structured. When we created the MS-DRGs for implementation beginning with FY 2008, we did so based on data and statistics. As we stated in the FY 2008 IPPS final rule: “The purpose of the MS-DRGs is to more accurately stratify groups of Medicare patients with varying levels of severity” (72 FR 47155). Therefore, we would not assign the new diagnostic code V45.88 that we have created (discussed earlier) to the list of MCCs or CCs without understanding the ramifications of such an action on the rest of the MS-DRGs and thus compromise our own need for accuracy. We refer the readers to the FY 2008 IPPS final rule that identifies the criteria we used to create the lists of MCCs and CCs (72 FR 47153). In the same vein, we would not randomly choose a code that is already assigned to the list of MCCs and suggest that hospitals include this code on their claims submission to insure placement of the case in a higher-weighted MS-DRG. We believe that this violate the intent of the construction of the CCs and MCCs. We also believe that the hospital personnel responsible for entering these codes on the claim would be reluctant to do so, given that the patient may not actually have this condition.

After consideration of the public comments received, we are specifying that, for FY 2009 and absent any other conditions or procedures that would result in an alternative MS-DRG assignment, stroke cases involving patients who receive intravenous tPA administration at one facility but are then transferred to a tertiary hospital's stroke center will continue to be assigned to MS-DRGs 064, 065, and 066. We will continue to monitor the cases of patients suffering an embolytic or thrombolytic stroke who are evaluated and given tPA in a community hospital's emergency department and then are transferred to another facility. In the future, we will evaluate our data for potential MS-DRG reassignment based on the use of the new diagnostic code V45.88, and we are strongly encouraging receiving hospitals to include this code on appropriate claims.

b. Intractable Epilepsy With Video Electroencephalogram (EEG)

As we did for FY 2008, we received a request from an individual representing the National Association of Epilepsy Centers to consider further refinements to the MS-DRGs describing seizures. Specifically, the representative recommended that a new MS-DRG be established for patients with intractable epilepsy who receive an electroencephalogram with video monitoring (vEEG) during their hospital stay. Similar to the initial recommendation, the representative stated that patients who suffer from uncontrolled seizures or intractable epilepsy are admitted to an epilepsy center for a comprehensive evaluation to identify the epilepsy seizure type, the cause of the seizure, and the location of the seizure. These patients are admitted to the hospital for 4 to 6 days with 24-hour monitoring that includes the use of EEG video monitoring along with cognitive testing and brain imaging procedures.

Effective October 1, 2007, MS-DRG 100 (Seizures with MCC) and MS-DRG 101 (Seizures without MCC) were implemented as a result of refinements to the DRG system to better recognize severity of illness and resource utilization. Once again, the representative applauded CMS for making changes in the DRG structure to better recognize differences in patient severity. However, the representative stated that a subset of patients in MS-DRG 101 who have a primary diagnosis of intractable epilepsy and are treated with vEEG are substantially more costly to treat than other patients in this MS-DRG and represent the majority of patients being evaluated by specialized epilepsy centers. Alternatively, the representative stated that he was not requesting any change in the structure of MS-DRG 100. According to the representative, the number of cases that would fall into this category is not significant. The representative further noted that this is a change from last year's request.

Epilepsy is currently identified by ICD-9-CM diagnosis codes 345.0x through 345.9x. There are two fifth digits that may be assigned to a subset of the epilepsy codes depending on the physician documentation:

  • “0” for without mention of intractable epilepsy
  • “1” for with intractable epilepsy

With the assistance of an outside reviewer, the representative analyzed cost data for MS-DRGs 100 and 101, which focused on three subsets of patients identified with a primary diagnosis of epilepsy or convulsions who also received vEEG (procedure code 89.19):

  • Patients with a primary diagnosis of epilepsy with intractability specified (codes 345.01 through 345.91)
  • Patients with a primary diagnosis of epilepsy without intractability specified (codes 345.00 through 345.90)
  • Patients with a primary diagnosis of convulsions (codes 780.39)

The representative acknowledged that the association did not include any secondary diagnoses in its analyses. Based on its results, the representative recommended that CMS further refine MS-DRG 101 by subdividing cases with a primary diagnosis of intractable epilepsy (codes 345.01 through 345.91) when vEEG (code 89.19) is also performed into a separate MS-DRG that would be defined as “MS-DRG XXX'' (Epilepsy Evaluation without MCC).

According to the representative, these cases are substantially more costly than the other cases within MS-DRG 101 and are consistent with the criteria for dividing MS-DRGs on the basis of CCs and MCCs. In addition, the representative stated that the request would have a minimal impact on most hospitals but would substantially improve the accuracy of payment to hospitals specializing in epilepsy care.

In the FY 2009 IPPS proposed rule, we discussed our performance of an analysis using FY 2007 MedPAR data. As shown in the table below, we found a total of 54,060 cases in MS-DRG 101 with average charges of $14,508 and an average length of stay of 3.69 days. There were 879 cases with intractable epilepsy and vEEG with average charges of $19,227 and an average length of stay of 5 days.

MS-DRG Number of cases Average length of stay Average charges
MS-DRG 100—All Cases 16,142 6.34 $27,623
MS-DRG 100—Cases with Intractable Epilepsy with vEEG (Codes 345.01, 345.11, 345.41, 345.51, 345.61, 345.71, 345.81, 345.91) 69 6.6 26,990
MS-DRG 100—Cases with Intractable Epilepsy without vEEG 328 7.81 32,539
MS-DRG 101—All cases 54,060 3.69 14,508
MS-DRG 101—Cases with Intractable Epilepsy with vEEG (Codes 345.01, 345.11, 345.41, 345.51, 345.61, 345.71, 345.81, 345.91) 879 5.0 19,227
MS-DRG 101—Cases with Intractable Epilepsy without vEEG 1,351 4.25 14,913

In applying the criteria to establish subgroups, the data do not support the creation of a new subdivision for MS-DRG 101 for cases with intractable epilepsy and vEEG, nor does the data support moving the 879 cases from MS-DRG 101 to MS-DRG 100. Moving the 879 cases to MS-DRG 100 would mean moving cases with average charges of approximately $19,000 into an MS-DRG with average charges of $28,000. Therefore, we did not propose to refine MS-DRG 101 by subdividing cases with a primary diagnosis of intractable epilepsy (codes 345.01 through 345.91) when vEEG (code 89.19) is also performed into a separate MS-DRG.

Comment: One commenter supported the National Association of Epilepsy Centers in recommending that MS-DRG 101 be subdivided for a subset of patients with a primary diagnosis of intractable epilepsy (codes 345.01 through 345.91) when EEG with video monitoring is reported. Similar to the Association's comments, the commenter stated that this subgroup of patients is most often admitted to hospitals with specialized epilepsy centers for a comprehensive evaluation to determine epilepsy seizure type, cause and location for consideration of surgery or to alter medications, and that the hospitalization is longer than the other cases in MS-DRG 101, resulting in higher costs (due to continuous 24-hour EEG with video monitoring (vEEG) and additional expensive diagnostic tests such as MRI, ictal SPECT, PET, and neuropsychological testing).

The commenter acknowledged that CMS has set specific criteria for the establishment of a new MS-DRG. According to the commenter, the FY 2007 data analyzed by the Association reported that the intractable epilepsy with vEEG cases exceed the average charge criteria as well as the minimum number of cases needed to establish a separate DRG. However, the total number of cases in the subgroup represents less than 2 percent of the cases in MS-DRG 101, while the criterion calls for a threshold of 5 percent. The commenter stated that the number of cases is small because most patients with intractable epilepsy admitted to the hospital for vEEG are younger than 65 years of age and are eligible for Medicare due to their disability. In addition, the commenter indicated that the population is typically covered by private insurance or Medicaid. The commenter asserted that the Medicare intractable epilepsy with vEEG cases will remain small, but asked that CMS establish the separate MS-DRG as it has done for pediatric and other small subgroups of patients.

Lastly, like the Association, the commenter noted that most of the admissions of the epilepsy subgroup occur in a relatively small number of hospitals with specialized epilepsy centers. The commenter believed that the establishment of a separate MS-DRG for the epilepsy subgroup would have a minimal impact on most hospitals, but would substantially improve the accuracy of payment to hospitals that specialize in epilepsy care.

Response: We appreciate the commenter's comments. As we indicated in the proposed rule and in this final rule, we performed an analysis of the FY 2007 MedPAR data. In applying the criteria to establish subgroups, the data did not support the creation of a new subdivision for MS-DRG 101 for cases with intractable epilepsy and vEEG.

As mentioned elsewhere in this final rule, we received several comments acknowledging CMS' discussion of the FY 2008 implementation of MS-DRGs and lack of data to support major MS-DRG changes for FY 2009. The commenters accepted CMS' proposal of not making significant revisions to the MS-DRGs until claims data under the new MS-DRG system are available. Therefore, as final policy for FY 2009, we are not modifying MS-DRG 101.

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

a. Automatic Implantable Cardioverter-Defibrillators (AICD) Lead and Generator Procedures

In the FY 2008 IPPS final rule with comment period (72 FR 47257), we created a separate, stand alone DRG for automatic implantable cardioverter-defibrillator (AICD) generator replacements and defibrillator lead replacements. The new MS-DRG 245 (AICD lead and generator procedures) contains the following codes:

  • 00.52, Implantation or replacement of transvenous lead [electrode] into left ventricular coronary venous system
  • 00.54, Implantation or replacement of cardiac resynchronization defibrillator pulse generator device only [CRT-D]
  • 37.95, Implantation of automatic cardioverter/defibrillator lead(s) only
  • 37.96, Implantation of automatic cardioverter/defibrillator pulse generator only
  • 37.97, Replacement of automatic cardioverter/defibrillator lead(s) only
  • 37.98, Replacement of automatic cardioverter/defibrillator pulse generator only

Commenters on the FY 2008 IPPS proposed rule supported this MS-DRG, which recognizes the distinct differences in resource utilization between pacemaker and defibrillator generators and leads. One commenter suggested that CMS consider additional refinements for the defibrillator generator and leads. In reviewing the standardized charges for the AICD leads, the commenter believed that the leads may be more appropriately assigned to another DRG such as MS-DRG 243 (Permanent Cardiac Pacemaker Implant with CC) or MS-DRG 258 (Cardiac Pacemaker Device Replacement with MCC). The commenter recommended that CMS consider moving the defibrillator leads back into a pacemaker DRG, either MS-DRG 243 or MS-DRG 258.

In response to the commenter, we indicated that the data supported separate MS-DRGs for these very different devices (72 FR 47257). We indicated that moving the defibrillator leads back into a pacemaker MS-DRG defeated the purpose of creating separate MS-DRGs for defibrillators and pacemakers. Therefore, we finalized MS-DRG 245 as proposed with the leads and generator codes listed above.

After publication of the FY 2008 IPPS final rule with comment period, we received a request from a manufacturer that recommended a subdivision for MS-DRG 245 (AICD Lead and Generator Procedures). The requestor suggested creating a new MS-DRG to separate the implantation or replacement of the AICD leads from the implantation or replacement of the AICD pulse generators to better recognize the differences in resource utilization for these distinct procedures.

The requestor applauded CMS' decision to create separate MS-DRGs for the pacemaker device procedures from the AICD procedures in the FY 2008 IPPS final rule (72 FR 47257). The requestor further acknowledged its support of the clinically distinct MS-DRGs for pacemaker devices. Currently, MS-DRGs 258 and 259 (Cardiac Pacemaker Device Replacement with MCC and without MCC, respectively) describe the implantation or replacement of pacemaker generators, while MS-DRGs 260, 261, and 262 (Cardiac Pacemaker Revision Except Device Replacement with MCC, with CC, without CC/MCC, respectively) describe the insertion or replacement of pacemaker leads.

The requestor believed that the IPPS “needs to continue to evolve to accurately reflect clinical differences and costs of services.” As such, the requestor recommended that CMS follow the same structure as it did with the pacemaker MS-DRGs for MS-DRG 245 to separately identify the implantation or replacement of the defibrillator leads (codes 37.95, 37.97, and 00.52) from the implantation or replacement of the pulse generators (codes 37.96, 37.98 and 00.54).

In the FY 2009 IPPS proposed rule, we discussed our analysis of the FY 2007 MedPAR data, in which we found a total of 5,546 cases in MS-DRG 245 with average charges of $62,631 and an average length of stay of 3.3 days. We found 1,894 cases with implantation or replacement of the defibrillator leads (codes 37.95, 37.97, and 00.52) with average charges of $42,896 and an average length of stay of 3.4 days. We also found a total of 3,652 cases with implantation or replacement of the pulse generator (codes 37.96, 37.98, 00.54) with average charges of $72,866 and an average length of stay of 3.2 days.

We agree with the requestor that the IPPS should accurately recognize differences in resource utilization for clinically distinct procedures. As the data demonstrate, average charges for the implantation or replacement of the AICD pulse generators are significantly higher than for the implantation or replacement of the AICD leads. Therefore, we proposed to create a new MS-DRG 265 to separately identify these distinct procedures.

Comment: Several commenters expressed their appreciation and applauded CMS for acting on the proposal to subdivide MS-DRG 245 and create a new MS-DRG to recognize the differences in resource utilization for the implantation or replacement of leads from the implantation or replacement of pulse generators. The commenters supported these refinements to the MS-DRG classification system and stated that this proposed modification would “reflect appropriate allocation and use of resources.”

Response: We appreciate the commenters' support. We proposed that the title for this new MS-DRG 265 would be “AICD Lead Procedures” and would include procedure codes that identify the AICD leads (codes 37.95, 37.97 and 00.52). We also proposed that the title for MS-DRG 245 would be revised to “AICD Generator Procedures” and include procedure codes 37.96, 37.98, and 00.54. We believe these changes will better reflect the clinical differences and resources utilized for these distinct procedures.

Therefore, in this final rule, we are finalizing our proposals to revise the title of MS-DRG 245 to read “AICD Generator Procedures”, which includes procedure codes 37.96, 37.98, 00.54 and to create a new MS-DRG 265 (AICD Lead Procedures) to include procedure codes 37.95, 37.97 and 00.52, effective October 1, 2009.

b. Left Atrial Appendage Device

Atrial fibrillation (AF) is the primary cardiac abnormality associated with ischemic or embolytic stroke. Most ischemic strokes associated with AF are possibly due to an embolism or thrombus that has formed in the left atrial appendage. Evidence from studies such as transesophageal echocardiography shows left atrial thrombi to be more frequent in AF patients with ischemic stroke as compared to AF patients without stroke. While anticoagulation medication can be efficient in ischemic stroke prevention, there can be problems of safety and tolerability in many patients, especially those older than 75 years. Chronic warfarin therapy has been proven to reduce the risk of embolism but there can be difficulties concerning its administration. Frequent blood tests to monitor warfarin INR are required at some cost and patient inconvenience. In addition, because warfarin INR is affected by a large number of drug and dietary interactions, it can be unpredictable in some patients and difficult to manage. The efficacy of aspirin for stroke prevention in AF patients is less clear and remains controversial. With the known disutility of warfarin and the questionable effectiveness of aspirin, a device-based solution may provide added protection against thromboembolism in certain patients with AF.

At the April 1, 2004 ICD-9-CM Coordination and Maintenance Committee meeting, a proposal was presented for the creation of a unique procedure code describing insertion of the left atrial appendage filter system. Subsequently, ICD-9-CM code 37.90 (Insertion of left atrial appendage device) was created for use beginning October 1, 2004. This code was designated as a non-operating room (non-O.R.) procedure, and had an effect only on cases in MDC 5, CMS DRG 518 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or Acute Myocardial Infarction). With the adoption of MS-DRGs in FY 2008, CMS DRG 518 was divided into MS-DRGs 250 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or AMI with MCC) and 251 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or AMI without MCC).

We have reviewed the data concerning this procedure code annually. Using FY 2005 MedPAR data for the FY 2007 IPPS final rule, 24 cases were reported, and the average charges ($27,620) closely mimicked the average charges of the other 22,479 cases in CMS DRG 518 ($28,444). As the charges were comparable, we made no recommendations to change the CMS DRG assignment for FY 2007.

Using FY 2006 MedPAR data for the FY 2008 IPPS final rule, we divided CMS DRG 518 into the cases that would be reflected in the MS-DRG configuration; that is, we divided the cases based on the presence or absence of an MCC. There were 35 cases without an MCC with average charges of $24,436, again mimicking the 38,002 cases with average charges of $32,546. There were 3 cases with an MCC with average charges of $62,337, compared to the 5,458 cases also with an MCC with average charges of $53,864. Again, it was deemed that cases with code 37.90 were comparable to the rest of the cases in CMS DRG 518, and the decision was made not to make any changes in the DRG assignment for this procedure code. As noted above, CMS DRG 518 became MS-DRGs 250 and 251 in FY 2008.

We have received a request regarding code 37.90 and its placement within the MS-DRG system for FY 2009. The requestor, a manufacturer's representative, asked for either the reassignment of code 37.90 to an MS-DRG that would adequately cover the costs associated with the complete procedure or the creation of a new MS-DRG that would reimburse hospitals adequately for the cost of the device. The requestor reported that the device's IDE clinical trial is nearing completion, with the conclusion of study enrollment in May 2008. The requestor will continue to enroll patients in a Continued Use Registry following completion of the trial. The requestor reported that it did not charge hospitals for the atrial appendage device, estimated to cost $6,000, during the trial period, but it will begin to charge hospitals upon the completion of the trial in May. The requestor provided us with its data showing what it believed to be a differential of $107 more per case than the payment average for MS-DRG 250, and a shortfall of $3,808 per case than the payment average for MS-DRG 251.

The requestor pointed out that code 37.90 is assigned to both MS-DRGs 250 and 251, but stated that the final MS-DRG assignment would be MS-DRG 251 when the patient has a principal diagnosis of atrial fibrillation (code 427.31) because AF is not presently listed as a CC or an MCC. We note that it is the principal diagnosis that is used to determine assignment of a case to the correct MDC and subsequently the MS-DRG. Secondary or additional diagnosis codes are the only codes that can be used to determine the presence of a CC or an MCC.

With regard to the request to create a specific MS-DRG for the insertion of this device titled “Percutaneous Cardiovascular Procedures with Implantation of a Left Atrial Appendage Device without CC/MCC”, we point out that the payments under a prospective payment system are predicated on averages. The device is already assigned to MS-DRGs containing other percutaneous cardiovascular devices; to create a new MS-DRG specific to this device would be to remove all other percutaneously inserted devices and base the MS-DRG assignment solely on the presence of code 37.90. This approach negates our longstanding method of grouping like procedures, and removes the concept of averaging. Further, to ignore the structure of the MS-DRG system solely for the purpose of increasing payment for one device would set an unwelcome precedent for defining all of the other MS-DRGs in the system. We also point out that the final rule establishing the MS-DRGs set forth five criteria, all five of which are required to be met, in order to warrant creation of a CC or an MCC subgroup within a base MS-DRG. The criteria can be found in the FY 2008 IPPS final rule with comment period (72 FR 47169). One of the criteria specifies that there will be at least 500 cases in the CC or MCC subgroup. To date, there are not enough cases assigned to code 37.90 that are reported within the MedPAR data.

Using FY 2007 MedPAR data, for the FY 2009 IPPS proposed rule, we reviewed MS-DRGs 250 and 251 for the presence of the left atrial appendage device. The following table displays our results:

MS-DRG Number of cases Average length of stay Average charges
250—All Cases 6,424 7.72 $60,597.58
250—Cases with code 37.90 4 6.50 65,829.51
250—Cases without code 37.90 6,420 7.72 60,594.32
251—All Cases 39,456 2.84 35,719.81
251—Cases with code 37.90 101 1.30 20,846.09
251—Cases without code 37.90 39,335 2.85 35,757.98

There were a total of 105 cases assigned code 37.90 that were reported for Medicare beneficiaries in the 2007 MedPAR data. There are 4 cases with an atrial appendage device in MS-DRG 250 that have higher average charges than the other 6,420 cases in the MS-DRG, and that have slightly shorter lengths of stay by 1.25 days. However, the more telling data are located in MS-DRG 251, which shows that the 101 cases in which an atrial appendage device was implanted have much lower average charges ($20,846.09) than the other 39,355 cases in the MS-DRG with average charges of $35,758.98. The difference in the average charges is approximately $14,912, so even when the manufacturer begins charging the hospitals the estimated $6,000 for the device, there is still a difference of approximately $8,912 in average charges based on the comparison within the total MS-DRG 251. Interestingly, the 101 cases also have an average length of stay of less than half of the average length of stay compared to the other cases assigned to that MS-DRG.

Because the data did not support either the creation of a unique MS-DRG or the assignment of procedure code 37.90 to another higher-weighted MS-DRG, we did not propose any change to MS-DRGs 250 and 251, or to code 37.90 for FY 2009. We believe, based on the past 3 years' comparisons, that this code is appropriately located within the MS-DRG structure.

We did not receive any comments on our proposal to make no changes to MS-DRGs 250 or 251, or on the assignment of code 37.90 (Insertion of left atrial appendage device) within the MS-DRG structure. Therefore, in the absence of comment to the contrary, and in the presence of what we believe to be compelling evidence concerning the accuracy of the placement of code 37.90 in the current MS-DRG structure, we are not modifying MS-DRG 250 or 251 or procedure code 37.90 for FY 2009.

As an additional note, we point out that the titles of MS-DRGs 250 and 251 have been changed for FY 2009. We have removed the reference to AMI, as that portion of the title was a holdover from the CMS DRGs last used in FY 2007. The correct titles are: 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 entire list of MS-DRGs can be found in Table 5 of the Addendum to this final rule.

4. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue): Hip and Knee Replacements and Revisions

For FY 2009, we again received a request from the American Association of Hip and Knee Surgeons (AAHKS), a specialty group within the American Academy of Orthopedic Surgeons (AAOS), concerning modifications of the lower joint procedure MS-DRGs. The request is similar, in some respects, to the AAHKS' request in FY 2008, particularly as it relates to separating routine and complex procedures. For the benefit of the reader, we are republishing a history of the development of DRGs for hip and knee replacements and a summary of the AAHKS FY 2008 request that were included in the FY 2008 IPPS final rule with comment period (72 FR 47222 through 47224) before we discuss the AAHKA's more recent request.

a. Brief History of Development of Hip and Knee Replacement Codes

In the FY 2006 IPPS final rule (70 FR 47303), we deleted CMS DRG 209 (Major Joint and Limb Reattachment Procedures of Lower Extremity) and created two new CMS DRGs: 544 (Major Joint Replacement or Reattachment of Lower Extremity) and 545 (Revision of Hip or Knee Replacement). The two new CMS DRGs were created because revisions of joint replacement procedures are significantly more resource intensive than original hip and knee replacements procedures. CMS DRG 544 included the following procedure code assignments:

  • 81.51, Total hip replacement
  • 81.52, Partial hip replacement
  • 81.54, Total knee replacement
  • 81.56, Total ankle replacement
  • 84.26, Foot reattachment
  • 84.27, Lower leg or ankle reattachment
  • 84.28, Thigh reattachment

CMS DRG 545 included the following procedure code assignments:

  • 00.70, Revision of hip replacement, both acetabular and femoral components
  • 00.71, Revision of hip replacement, acetabular component
  • 00.72, Revision of hip replacement, femoral component
  • 00.73, Revision of hip replacement, acetabular liner and/or femoral head only
  • 00.80, Revision of knee replacement, total (all components)
  • 00.81, Revision of knee replacement, tibial component
  • 00.82, Revision of knee replacement, femoral component
  • 00.83, Revision of knee replacement, patellar component
  • 00.84, Revision of knee replacement, tibial insert (liner)
  • 81.53, Revision of hip replacement, not otherwise specified
  • 81.55, Revision of knee replacement, not otherwise specified

Further, we created a number of new ICD-9-CM procedure codes effective October 1, 2005, that better distinguish the many different types of joint replacement procedures that are being performed. In the FY 2006 IPPS final rule (70 FR 47305), we indicated a commenter had requested that, once we receive claims data using the new procedure codes, we closely examine data from the use of the codes under the two new CMS DRGs to determine if future additional DRG modifications are needed.

b. Prior Recommendations of the AAHKS

Prior to this year, the AAHKS had recommended that we make further refinements to the CMS DRGs for knee and hip arthroplasty procedures. The AAHKS previously presented data to CMS on the important differences in clinical characteristics and resource utilization between primary and revision total joint arthroplasty procedures. The AAHKS stated that CMS' decision to create a separate DRG for revision of total joint arthroplasty (TJA) in October 2005 resulted in more equitable reimbursement for hospitals that perform a disproportionate share of complex revision of TJA procedures, recognizing the higher resource utilization associated with these cases. The AAHKS stated that this important payment policy change led to increased access to care for patients with failed total joint arthroplasties, and ensured that high volume TJA centers could continue to provide a high standard of care for these challenging patients.

The AAHKS further stated that the addition of new, more descriptive ICD-9-CM diagnosis and procedure codes for TJA in October 2005 gave it the opportunity to further analyze differences in clinical characteristics and resource intensity among TJA patients and procedures. Inclusive of the preparatory work to submit its recommendations, the AAHKS compiled, analyzed, and reviewed detailed clinical and resource utilization data from over 6,000 primary and revision TJA procedure codes from 4 high volume joint arthroplasty centers located within different geographic regions of the United States: University of California, San Francisco, CA; Mayo Clinic, Rochester, MN; Massachusetts General Hospital, Boston, MA; and the Hospital for Special Surgery, New York, NY. Based on its analysis, the AAHKS recommended that CMS examine Medicare claims data and consider the creation of separate DRGs for total hip and total knee arthroplasty procedures. The AAHKS stated that based on the differences between patient characteristics, procedure characteristics, resource utilization, and procedure code payment rates between total hip and total knee replacements, separate DRGs were warranted. Furthermore, the AAHKS recommended that CMS create separate base DRGs for routine versus complex joint revision or replacement procedures as shown below.

Routine Hip Replacements

  • 00.73, Revision of hip replacement, acetabular liner and/or femoral head only
  • 00.85, Resurfacing hip, total, acetabulum and femoral head
  • 00.86, Resurfacing hip, partial, femoral head
  • 00.87, Resurfacing hip, partial, acetabulum
  • 81.51, Total hip replacement
  • 81.52, Partial hip replacement
  • 81.53, Revision of hip replacement, not otherwise specified

Complex Hip Replacements

  • 00.70, Revision of hip replacement, both acetabular and femoral components
  • 00.71, Revision of hip replacement, acetabular component
  • 00.72, Revision of hip replacement, femoral component

Routine Knee Replacements and Ankle Procedures

  • 00.83, Revision of knee replacement, patellar component
  • 00.84, Revision of knee replacement, tibial insert (liner)
  • 81.54, Revision of knee replacement, not otherwise specified
  • 81.55, Revision of knee replacement, not otherwise specified
  • 81.56, Total ankle replacement

Complex Knee Replacements and Other Reattachments

  • 00.80, Revision of knee replacement, total (all components)
  • 00.81, Revision of knee replacement, tibial component
  • 00.82, Revision of knee replacement, femoral component
  • 84.26, Foot reattachment
  • 84.27, Lower leg or ankle reattachment
  • 84.28, Thigh reattachment

The AAHKS also recommended the continuation of CMS DRG 471 (Bilateral or Multiple Major Joint Procedures of Lower Extremity) without modifications. CMS DRG 471 included any combination of two or more of the following procedure codes:

  • 00.70, Revision of hip replacement, both acetabular and femoral components
  • 00.80, Revision of knee replacement, total (all components)
  • 00.85, Resurfacing hip, total, acetabulum and femoral head
  • 00.86, Resurfacing hip, partial, femoral head
  • 00.87, Resurfacing hip, partial, acetabulum
  • 81.51, Total hip replacement
  • 81.52, Partial hip replacement
  • 81.54, Total knee replacement
  • 81.56, Total ankle replacement

c. Adoption of MS-DRGs for Hip and Knee Replacements for FY 2008 and AAHKS' Recommendations

In the FY 2008 IPPS final rule with comment period (72 FR 47222 through 47226), we adopted MS-DRGs to better recognize severity of illness for FY 2008. The MS-DRGs include two new severity of illness levels under the then current base DRG 544. We also added three new severity of illness levels to the base DRG for Revision of Hip or Knee Replacement. The new MS-DRGs are as follows:

  • MS-DRG 466 (Revision of Hip or Knee Replacement with MCC)
  • MS-DRG 467 (Revision of Hip or Knee Replacement with CC)
  • MS-DRG 468 (Revision of Hip or Knee Replacement without CC/MCC)
  • MS-DRG 469 (Major Joint Replacement or Reattachment of Lower Extremity with MCC)
  • MS-DRG 470 (Major Joint Replacement or Reattachment of Lower Extremity without MCC)

We found that the MS-DRGs greatly improved our ability to identify joint procedures with higher resource costs. In the final rule, we presented data indicating the average charges for each new MS-DRG for the joint procedures.

In the FY 2008 IPPS final rule with comment period, we acknowledged the valuable assistance the AAHKS had provided to CMS in creating the new joint replacement procedure codes and modifying the joint replacement DRGs beginning in FY 2006. These efforts greatly improved our ability to categorize significantly different groups of patients according to severity of illness. Commenters on the FY 2008 proposed rule had encouraged CMS to continue working with the orthopedic community, including the AAHKS, to monitor the need for additional new DRGs. The commenters stated that MS-DRGs 466 through 470 are a good first step. However, they stated that CMS should continue to evaluate the data for these procedures and consider additional refinements to the MS-DRGs, including the need for additional severity levels. AAHKS stated that its data suggest that all three base DRGs (primary replacement, revision of major joint replacement, and bilateral joint replacement) should be separated into three severity levels (that is, MCC, CC, and non-CC). (We had proposed three severity levels for revision of hip and knee replacement (MS-DRGs 466, 467, and 468), and AAHKS agreed with this 3-level subdivision.)

The AAHKS recommended that the base DRG for the proposed two severity subdivision MS-DRGs for major joint replacement or reattachment of lower extremity with and without CC/MCC (MS-DRGs 483 and 484) be subdivided into three severity levels, as was the case for the revision of hip and knee replacement MS-DRGs. AAHKS also recommended that the two severity subdivision MS-DRGs for bilateral or multiple major joint procedures of lower extremity with and without MCC (MS-DRGs 461 and 462) be subdivided three ways for this base DRG. AAHKS acknowledged that the three way split would not meet all five of the criteria for establishing a subgroup, and stated that these criteria were too restrictive, lack face validity, and create perverse admission selection incentives for hospitals by significantly overpaying for cases without a CC and underpaying for cases with a CC. It recommended that the existing five criteria be modified for low volume subgroups to assure materiality. For higher volume MS-DRG subgroups, the AAHKS recommended that two other criteria be considered, particularly for nonemergency, elective admissions:

  • Is the per-case underpayment amount significant enough to affect admission vs. referral decisions on a case-by-case basis?
  • Is the total level of underpayments sufficient to encourage systematic admission vs. referral policies, procedures, and marketing strategies?

The AAHKS also recommended refining the five existing criteria for MCC/CC/without subgroups as follows:

  • Create subgroups if they meet the five existing criteria, with cost difference between subgroups ($1,350) substituted for charge difference between subgroups ($4,000);
  • If a proposed subgroup meets criteria number 2 and 3 (at least 5 percent and at least 500 cases) but fails one of the others, then create the subgroup if either of the following criteria are met:
  • At least $1,000 cost difference per case between subgroups; or
  • At least $1 million overall cost should be shifted to cases with a CC (or MCC) within the base DRG for payment weight calculations.

In response, we indicated that we did not believe it was appropriate to modify our five criteria for creating severity subgroups. Our data did not support creating additional subdivisions based on the criteria. At that time, we believed the criteria we established to create subdivisions within a base DRG were reasonable and establish the appropriate balance between better recognition of severity of illness, sufficient differences between the groups, and a reasonable number of cases in each subgroup. However, we indicated that we may consider further modifications to the criteria at a later date once we have had some experience with MS-DRGs created using the proposed criteria.

The AAHKS indicated in its response to the FY 2008 proposed rule that it continued to support the separation of routine and complex joint procedures. It believed that certain joint replacement procedures have significantly lower average charges than do other joint replacements. The AAKHS' data suggest that more routine joint replacements are associated with substantially less resource utilization than other more complex revision procedures. The AAHKS stated that leaving these procedures in the revision MS-DRGs results in substantial overpayment for these relatively simple, less costly revision procedures, which in turn results in a relative underpayment for the more complex revision procedures.

In response, we examined data on this issue and identified two procedure codes for partial knee revisions that had significantly lower average charges than did other joint revisions. The two codes are as follows:

  • 00.83 Revision of knee replacement, patellar component
  • 00.84 Revision of total knee replacement, tibial insert (liner)

The data suggest that these less complex partial knee revisions are less resource intensive than other cases assigned to MS-DRGs 466, 467, or 468. We examined other orthopedic DRGs to which these two codes could be assigned. We found that these cases have very similar average charges to those in MS-DRG 485 (Knee Procedures with Principal Diagnosis of Infection with MCC), MS-DRG 486 (Knee Procedures with Principal Diagnosis of Infection with CC), MS-DRG 487 (Knee Procedures with Principal Diagnosis of Infection without CC), MS-DRG 488 (Knee Procedures without Principal Diagnosis of Infection with CC or MCC), and MS-DRG 489 (Knee Procedures without Principal Diagnosis of Infection without CC).

Given the very similar resource requirements of MS-DRG 485 and the fact that these DRGs also contain knee procedures, we moved codes 00.83 and 00.84 out of MS-DRGs 466, 467, and 468 and into MS-DRGs 485, 486, 487, 488, and 489. We also indicated that we would continue to monitor the revision MS-DRGs to determine if additional modifications are needed.

d. AAHKS' Recommendations for FY 2009

The AAHKS' current request involves the following recommendations:

  • That CMS consolidate and reassign certain joint procedures that have a diagnosis of an infection or malignancy into MS-DRGs that are similar in terms of clinical characteristics and resource utilization. The AAKHS further identifies groups called Stage 1 and 2 procedures that it believes require significant differences in resource utilization.
  • That CMS reclassify certain specific joint procedures, which AAHKS refers to as “routine,” out of their current MS-DRG assignments. The three joint procedures that AAHKS classifies as “routine” are codes 00.73 (Revision of hip replacement, acetabular liner and/or femoral head only), 00.83 (Revision of knee replacement, patellar component), and 00.84 (Revision of total knee replacement, tibial insert (liner)). The AAHKS advocated removing these three “routine” procedures from the following DRGs: MS-DRGs 466, 467, and 468, MS-DRGs 485, 486, and 487, and MS-DRGs 488 and 489. The AAHKS refers to MS-DRGs 466, 467, and 468 as “complex” revision MS-DRGs, and recommended that the three “routine” procedures be moved out of MS-DRGs 466, 467, and 468 and MS-DRGs 485, 486, and 489 and into MS-DRGs 469 and 470 (Major Joint Replacement or Reattachment of Lower Extremity with and without MCC, respectively). The AAHKS contended that the three “routine” procedures have similar clinical characteristics and resource utilization to those in MS-DRGs 469.

The recommendations suggested by AAHKS are quite complex and involve a number of specific code lists and MS-DRG assignment changes. We discuss each of these requests in detail below.

(1) AAHKS Recommendation 1: Consolidate and reassign patients with hip and knee prosthesis related infections or malignancies.

The AAHKS pointed out that deep infection is one of the most devastating complications associated with hip and knee replacements. These infections have been reported to occur in approximately 0.5 percent to 3 percent of primary and 4 percent to 6 percent of revision total joint replacement procedures. These infections often result in the need for multiple reoperations, prolonged use of intravenous and oral antibiotics, extended inpatient and outpatient rehabilitation, and frequent followup visits. Furthermore, clinical outcomes following single- and two-stage revision total joint arthroplasty procedures have been less favorable than revision for other causes of failure not associated with infection.

In addition to the clinical impact, the AAHKS stated that infected total joint replacement procedures also have substantial economic implications for patients, payers, hospitals, physicians, and society in terms of direct medical costs, resource utilization, and the indirect costs associated with lost wages and productivity. The AAHKS stated that the considerable resources required to care for these patients have resulted in a strong financial disincentive for physicians and hospitals to provide care for patients with infected total joint replacements, an increased economic burden on the high volume tertiary care referral centers where patients with infected hip replacement procedures are frequently referred for definitive management. The AAHKS further stated that, in some cases, there are compromised patient outcomes due to treatment delays as patients with infected joint replacements seek providers who are willing to care for them.

Once a deep infection of a total joint prosthesis is identified, the first stage of treatment involves a hospital admission for removal of the infected prosthesis and debridement of the involved bone and surrounding tissue. During the same procedure, an antibiotic-impregnated cement spacer is typically inserted to maintain alignment of the limb during the course of antibiotic therapy. The patient is then discharged to a rehabilitation facility/nursing home (or to home if intravenous therapy can be safely arranged for the patient) for a 6-week course of IV antibiotic treatment until the infection has cleared.

After the completion of antibiotic therapy, the hip or knee may be reaspirated to look for evidence of persistent infection or eradication of infection. A second stage procedure is then undertaken, where the patient is readmitted, the hip or knee is reexplored, and the cement spacer removed. If there are no signs of persistent infection, a hip or knee prosthesis is reimplanted, often using bone graft and costly revision implants in order to address extensive bone loss and distorted anatomy. Thus, the entire course of treatment for patients with infected joint replacements is 4 to 6 months, with an additional 6 to 12 months of rehabilitation. Furthermore, clinical outcomes following revision for infection are poor relative to outcomes following revision for other aseptic causes. The AAHKS noted that patients with bone malignancy have a similar treatment focus—surgery to remove diseased tissue, chemotherapy to treat the malignancy, and implantation of the new prosthesis. They also have similar resource use. For simplicity, the AAHKS' discussion focused on infected joint prostheses, but it suggested that the issues it raises would apply to patients with a malignancy as well.

The AAHKS stated that these patients are currently grouped in multiple MS-DRGs, and the cases are often “outliers” in each one. AAHKS proposed to consolidate these patients with similar clinical characteristics and treatment into MS-DRGs reflective of their resource utilization.

The AAHKS states that these more severe patients are currently classified into the following MS-DRGs:

  • MS-DRGs 463, 463, and 465 (Wound Debridement and Skin Graft Excluding Hand, for Musculoskeletal-Connective Tissue Disease with MCC, with CC, without CC/MCC, respectively)
  • MS-DRGs 480, 481, and 482 (Hip and Femur Procedures Except Major Joint with MCC, with CC, without CC/MCC, respectively)
  • MS-DRGs 485, 486, and 487 (Knee Procedures with Principal Diagnosis of Infection and with MCC, with CC, and without CC/MCC, respectively)
  • MS-DRGs 488 and 489 (Knee Procedures without Principal Diagnosis of Infection and with CC/MCC and without CC/MCC, respectively)
  • MS-DRGs 495, 496, and 497 (Local Excision and Removal of Internal Fixation Devices Except Hip and Femur with MCC, with CC, and without CC/MCC, respectively)
  • Other MS-DRGs (The AAHKS did not specify what these other MS-DRGs were.)

The AAHKS indicated that cases with the severe diagnoses of infections, neoplasms, and structural defects have similarities. These similarities are due to an overlap of a severe diagnosis (including a principal diagnosis of code 996.66 (Infected joint prosthesis) and the resulting need for more extensive surgical procedures. The AAHKS stated that currently these patients are grouped into MS-DRGs by major procedure alone. AAHKS recommended that these cases be grouped into what it refers to as Stages 1 and 2 as follows:

  • Stage 1 would include the removal of an infected prosthesis and includes cases in MS-DRGs 463, 464, and 465, 480, 481, and 482, 485 through 489, and 495, 496, and 497. Stage 1 joint procedure codes would include codes 80.05 (Arthrotomy for removal of prosthesis, hip), 80.06 (Arthrotomy for removal of prosthesis, knee), 00.73 (Revision of hip replacement, acetabular liner and/or femoral head only), and 00.84 (Revision of knee replacement, tibial insert (liner)).
  • Stage 2 would include the implant of a new prosthesis and includes cases in MS-DRGs 461 and 462, 463, 464, and 465, 466, 467, and 468, and 469 and 470. Stage 2 joint procedure codes would include codes 00.70 (Revision of hip replacement, both acetabular and femoral components), 00.71 (Revision of hip replacement, acetabular component), 00.72 (Revision of hip replacement, femoral component), 00.80 (Revision of knee replacement, total (all components)), 00.81 (Revision of knee replacement, tibial component), 00.82 (Revision of knee replacement, femoral component), 00.85 (Resurfacing hip, total, acetabulum and femoral head), 00.86 (Resurfacing hip, partial, femoral head), 00.87 (Resurfacing hip, partial, acetabulum), 81.51 (Total hip replacement), 81.52 (Partial hip replacement), 81.53 (Revise hip replacement), 81.54 (Total knee replacement), 81.55 (Revise knee replacement), and 81.56 (Total ankle replacement).

As stated earlier, the AAHKS recommended patients with certain more severe diagnoses be grouped into a higher severity level. While most of AAHKS' comments focused on joint replacement patients with infections, the AAHKS also believed that patients with certain neoplasms require greater resources. To this group of infections and neoplasms, the AAHKS recommended the addition of four codes that capture acquired deformities. The AAHKS believed that these codes would capture admissions for the second stage of the treatment for an infected joint. The AAHKS stated that the significance of these diagnoses when they are reported as the principal code position was significant in predicting resource utilization. However, the impact was not as significant when the diagnosis was reported as a secondary diagnosis. The AAHKS recommended that patients with one of the following infection/neoplasm/defect principal diagnosis codes be segregated into a higher severity level.

Stage 1 Infection/Neoplasm/Defect Principal Diagnosis Codes

  • 170.7 (Malignant neoplasm of long bones of lower limb)
  • 171.3 (Malignant neoplasm of soft tissue, lower limb, including hip)
  • 711.05 (Pyogenic arthritis, pelvic region and thigh)
  • 711.06 (Pyogenic arthritis, lower leg)
  • 730.05 (Acute osteomyelitis, pelvic region and thigh)
  • 730.06 (Acute osteomyelitis, lower leg)
  • 730.15 (Chronic osteomyelitis, pelvic region and thigh)
  • 730.16 (Chronic osteomyelitis, lower leg)
  • 730.25 (Unspecified osteomyelitis, pelvic region and thigh)
  • 730.26 (Unspecified osteomyelitis, lower leg)
  • 996.66 (Infection and inflammatory reaction due to internal joint prosthesis)
  • 996.67 (Infection and inflammatory reaction due to other internal orthopedic device, implant, and graft)

Stage 2 Infection/Neoplasm/Defect Principal Diagnosis Codes (an Asterisk * Shows the Diagnoses Included in Stage 2 That Were Not Listed in Stage 1)

  • 170.7 (Malignant neoplasm of long bones of lower limb)
  • 171.3 (Malignant neoplasm of soft tissue, lower limb, including hip)
  • 198.5 (Secondary malignant neoplasm of bone and bone marrow) *
  • 711.05 (Pyogenic arthritis, pelvic region and thigh)
  • 711.06 (Pyogenic arthritis, lower leg)
  • 730.05 (Acute osteomyelitis, pelvic region and thigh)
  • 730.06 (Acute osteomyelitis, lower leg)
  • 730.15 (Chronic osteomyelitis, pelvic region and thigh)
  • 730.16 (Chronic osteomyelitis, lower leg)
  • 730.25 (Unspecified osteomyelitis, pelvic region and thigh)
  • 730.26 (Unspecified osteomyelitis, lower leg)
  • 736.30 (Acquired deformities of hip, unspecified deformity)
  • 736.39 (Other acquired deformities of hip) *
  • 736.6 (Other acquired deformities of knee) *
  • 736.89 (Other acquired deformities of other parts of limbs) *
  • 996.66 (Infection and inflammatory reaction due to internal joint prosthesis) *
  • 996.67 (Infection and inflammatory reaction due to other internal orthopedic device, implant, and graft) *

For the Stage 2 procedures, AAHKS also suggested the use of the following secondary diagnosis codes to assign the cases to a higher severity level. These conditions would not be the reason the patient was admitted to the hospital. They would instead represent secondary conditions that were also present on admission or conditions that were diagnosed after admission.

Stage 2 Infection/Neoplasm/Defect Secondary Diagnosis Codes

  • 170.7 (Malignant neoplasm of long bones of lower limb)
  • 171.3 (Malignant neoplasm of soft tissue, lower limb, including hip)
  • 711.05 (Pyogenic arthritis, pelvic region and thigh)
  • 711.06 (Pyogenic arthritis, lower leg)
  • 730.05 (Acute osteomyelitis, pelvic region and thigh)
  • 730.06 (Acute osteomyelitis, lower leg)
  • 730.15 (Chronic osteomyelitis, pelvic region and thigh)
  • 730.16 (Chronic osteomyelitis, lower leg)
  • 730.25 (Unspecified osteomyelitis, pelvic region and thigh)
  • 730.26 (Unspecified osteomyelitis, lower leg)
  • 996.66 (Infection and inflammatory reaction due to internal joint prosthesis)
  • 996.67 (Infection and inflammatory reaction due to other internal orthopedic device, implant, and graft)

(2) AAHKS Recommendation 2: Reclassify certain specific joint procedures.

The AAHKS suggested that cases with the infection/neoplasm/defect diagnoses listed above be segregated according to the Stage 1 and 2 groups listed above. The AAHKS made one final recommendation concerning joint procedure cases with infections. It identified a subset of patients who had a principal diagnosis of code 996.66 (Infection and inflammatory reaction due to internal joint prosthesis) and who also had a secondary diagnosis of sepsis or septicemia. The AAHKS believed that these patients are for the most part admitted with both the joint infection and sepsis/septicemia present at the time of admission. The codes for sepsis/septicemia are classified as MCCs under MS-DRGs. The AAHKS believed it is inappropriate to count the secondary diagnosis of sepsis/septicemia as an MCC when it is reported with code 996.66. The AAHKS believed that counting sepsis and septicemia as an MCC results in double counting the infections. It believed that the joint infection and septicemia are the same infection. The AAHKS recommended that the following sepsis and septicemia codes not count as an MCC when reported with code 996.66:

  • 038.0 (Streptococcal septicemia)
  • 038.10 (Staphylococcal septicemia, unspecified)
  • 038.11 (Staphylococcal aureus septicemia)
  • 038.19 (Other staphylococcal septicemia)
  • 038.2 (Pneumococcal septicemia [streptococcus pneumonia septicemia])
  • 038.3 (Septicemia due anaerobes)
  • 038.40 (Septicemia due to gram-negative organisms)
  • 038.41 (Hemophilus influenzae [H. Influenzae])
  • 038.42 (Escherichia coli [E. Coli])
  • 038.43 (Pseudomonas)
  • 038.44 (Serratia)
  • 038.49 (Other septicemia due to gram-negative organisms)
  • 038.8 (Other specified septicemias)
  • 038.9 (Unspecified septicemia)
  • 995.91 (Sepsis)
  • 995.92 (Severe sepsis)

e. CMS' Response to AAHKS' Recommendations

The MS-DRG modifications proposed by the AAHKS are quite complex and have many separate parts. We made changes to the MS-DRGs in FY 2008 as a result of a request by the AAHKS as discussed above, to recognize two types of partial knee replacements as less complex procedures. We have no data on how effective the new MS-DRGs for joint procedures are in differentiating patients with varying degrees of severity. Therefore, as we indicated in the proposed rule, we analyzed data reported prior to the adoption of MS-DRGs to analyze each of the recommendations made. We begin our analysis by focusing first on the more simple aspects of the recommendations made by the AAHKS.

(1) Changing the MS-DRG assignment for codes 00.73, 00.83, and 00.84.

As discussed previously, in FY 2008, the AAHKS recommended that CMS classify certain joint procedures as either routine or complex. We examined the data for these cases and found that the following two codes had significantly lower charges than the other joint revisions: 00.83 (Revision of knee replacement, patellar component) and 00.84 (Revision of knee replacement, tibial insert (liner)). Therefore, we moved these two codes to MS-DRGs 485, 486, and 487, and MS-DRGs 488 and 489.

As a result of AAHKS' most recent recommendations, we once again examined claims data for these two knee procedures (codes 00.83 and 00.84) as well as its request that we move code 00.73 (Revision of hip replacement, acetabular liner and/or femoral head only). Code 00.73 is assigned to MS-DRGs 466, 467, and 468. The following tables show our findings.

MS-DRG Number of cases Average length of stay Average charges
485—All Cases 1,122 12.20 $64,672.47
485—Cases with Code 00.83 or 00.84 179 11.83 64,446.68
485—Cases without Code 00.83 or 00.84 943 12.27 64,715.33
486—All Cases 2,061 8.03 40,758.55
486—Cases with Code 00.83 or 00.84 464 7.34 39,864.39
486—Cases without Code 00.83 or 00.84 1,597 8.23 41,018.34
487—All Cases 1,236 5.67 29,180.88
487—Cases with Code 00.83 or 00.84 284 5.61 31,231.79
487—Cases without Code 00.83 or 00.84 952 5.68 28,569.06
488—All Cases 2,374 5.17 30,180.80
488—Cases with Code 00.83 or 00.84 754 4.09 28,432.06
488—Cases without Code 00.83 or 00.84 1,620 5.67 30,994.73
489—All Cases 5,493 3.04 21,385.67
489—Cases with Code 00.83 or 00.84 2,154 3.07 23,122.18
489—Cases without Code 00.83 or 00.84 3,339 3.03 20,265.44
469—All Cases 29,030 8.17 56,681.64
470—All Cases 385,123 3.93 36,126.23
466—All Cases 3,888 9.18 76,015.66
466—Cases with Code 00.73 273 10.02 71,293.33
466—Cases without Code 00.73 3,616 9.12 76,372.06
467—All Cases 13,551 5.50 53,431.63
467—Cases with Code 00.73 1,078 5.94 43,635.63
467—Cases without Code 00.73 12,484 5.47 54,284.13
468—All Cases 19,917 3.94 44,055.62
468—Cases with Code 00.73 1,688 3.93 33,449.22
468—Cases without Code 00.73 18,232 3.94 45,037.09
469—All Cases 29,030 8.17 56,681.64
470—All Cases 385,123 3.93 36,126.23

The tables show that codes 00.73, 00.83, and 00.84 are appropriately assigned to their current MS-DRGs. The data do not support moving these three codes to MS-DRGs 469 and 470. Therefore, we did not propose a change of MS-DRG assignment for codes 00.73, 00.83, and 00.84 for FY 2009.

(2) Excluding sepsis and septicemia from being an MCC with code 996.66.

There are cases where a patient may be admitted with an infection of a joint prosthesis (code 996.66) and also have sepsis. In these cases, it may be possible to perform joint procedures as suggested by AAHKS. However, in other cases, a patient may be admitted with an infection of a joint prosthesis and then develop sepsis during the stay. Because our current data do not indicate whether a condition is present on admission, we could not determine whether or not the sepsis occurred after admission. Our data have consistently shown that cases of sepsis and septicemia require significant resources. Therefore, we classified the sepsis and septicemia codes as MCCs. Our clinical advisors do not believe it is appropriate to exclude all cases of sepsis and septicemia that are reported as a secondary diagnosis with code 996.66 from being classified as a MCC. We discuss septicemia as part of the HAC provision under section II.F. of the preamble of the proposed rule and this final rule. For the purposes of classifying sepsis and septicemia as non-CCs when reported with code 996.66, we do not support this recommendation. Therefore, in the proposed rule, we did not propose that the sepsis and septicemia codes be added to the CC exclusion list for code 996.66.

(3) Differences between Stage 1 and 2 cases with severe diagnoses.

As indicated in the proposed rule, we next examined data on AAHKS' suggestion that there are significant differences in resource utilization for cases they refer to as Stage 1 and 2. AAHKS stated that this is particularly true for those with infections, neoplasms, or structural defects. We used the list of procedure codes listed above that AAHKS describes as Stage 1 and 2 procedures. We also used AAHKS' designated lists of Stage 1 and 2 principal diagnosis codes to examine this proposal. This proposal entails moving cases with a Stage 1 or 2 principal diagnosis and procedure out of their current MS-DRG assignment in the following 19 MS-DRGs and into a newly consolidated set of MS-DRGs: MS-DRGs 463, 464, and 465, 480, 481, and 482, 485 through 489, and 495, 496, and 497.

As can be seen from the information below, there was not a significant difference in average charges between these Stage 1 and Stage 2 cases that have an MCC.

Stage 1 Total cases Average length of stay Average charges
Stage 1 Cases With Infection, Neoplasm, or Structural Defect      
With MCC 1,306 14.1 $79,232
Without MCC 4,115 7.6 $44,716
Stage 2 Cases With Infection, Neoplasm, or Structural Defect      
With MCC 1,072 10.9 $80,781
Without MCC 5,413 6.0 $57,355

Average charges for Stage 1 cases with an MCC was $79,232 compared to $80,781 for Stage 2. Stage 1 cases without an MCC had average charges of $44,716 compared to $57,355. These data do not support reconfiguring the current MS-DRGs based on this new subdivision.

(4) Moving joint procedure cases to new MS-DRGs based on secondary diagnoses of infection.

We examined AAHKS' recommendation that Stage 2 joint cases with specific secondary diagnoses of infection or neoplasm be moved out of their current MS-DRG assignments and into a newly constructed MS-DRG. We indicated in the proposed rule that we are reluctant to make this type of significant DRG change to the joint MS-DRGs based on the presence of a secondary diagnosis. This results in the movement of cases out of MS-DRGs which were configured based on the reason for the admission (for example, principal diagnosis) and surgery. The cases would instead be assigned based on conditions that are reported as secondary diagnoses. In some cases, the infection may have developed or be diagnosed during the admission. This would be a significant logic change to the MS-DRGs for joint procedures. This logic change would involve setting a new precedent of reassigning cases to a different MS-DRG if an infection is reported as a secondary diagnosis. The secondary diagnosis of infection could be present on admission or develop after the admission. Currently, secondary diagnoses are evaluated to determine if they are an MCC or CC, and then they can lead to the case being assigned to a higher severity level. The secondary diagnoses do not currently lead to the removal of the case from the MS-DRG and reassignment to a new MS-DRG. We have not had an opportunity to examine claims data based on hospital discharges under the MS-DRGs which began October 1, 2008. Our clinical advisors believe it would be more appropriate to wait for data under the new MS-DRG system to determine how well the new severity levels are addressing accurate payment for these cases before considering this approach to assigning cases to a MS-DRG.

(5) Moving cases with infection, neoplasms, or structural defects out of 19 MS-DRGs and into two newly developed MS-DRGs.

The last recommended by AAHKS that we considered was moving cases with a principal diagnosis of infection, neoplasm, or structural defect from their list of Stage 1 and 2 diagnoses and consolidating them into newly constructed and modified MS-DRGs. AAHKS could not identify an existing set of MS-DRGs with similar resource utilizations into which the Stage 1 cases could be assigned. Therefore, the AAHKS recommended that CMS create three new MS-DRGs for Stage 1 cases with infections, neoplasms and structural defects which would be titled “Arthrotomy/Removal/Component exchange of Infected Hip or Knee Prosthesis with MCC, with CC, and without CC/MCC”, respectively.

The AAHKS recommended moving Stage 2 cases out of MS-DRGs 466, 467, and 468, and 469 and 470 and into MS-DRGs 461 and 462. AAHKS recommended that MS-DRGs 461 and 462 be renamed “Major Joint Procedures of Lower Extremity—Bilateral/Multiple/Infection/Malignancy”.

As we indicated in the proposed rule, in reviewing these proposed changes, we had a number of concerns. The first concern was that these proposed changes would result in the removal of cases with varying average charges from 19 current MS-DRGs and consolidating them into two separate sets of MS-DRGs. As the data below indicate, the average charges vary from as low as $29,181 in MS-DRG 487 to $81,089 in MS-DRG 463. Furthermore, the average charges for these infection/neoplasm/structural defect cases are very similar to other cases in their respective MS-DRG assignments for many of these MS-DRGs. There are cases where the average charges are higher. In MS-DRG 469 and 470, the infection/neoplasm/structural defect cases are significantly higher. However, there are only 136 cases in MS-DRG 469 out of a total of 29,030 cases with these diagnoses. There are only 673 cases in MS-DRG 470 out of a total of 385,123 cases with one of these diagnoses. The table below clearly demonstrates the wide variety of charges for cases with these diagnoses.

MS-DRGs Number of cases Average length of stay Average charges
463—All Cases 4,747 16.25 $73,405.46
463—Cases with PDX of Infection/Malignancy/React 1,009 17.79 81,089.07
464—All Cases 5,499 10.21 44,387.73
464—Cases with PDX of Infection/Malignancy/React 1,420 10.59 46,800.60
465—All Cases 2,271 5.95 26,631.57
465—Cases with PDX of Infection/Malignancy/React 557 10.59 29,816.40
466—All Cases 3,888 9.18 76,015.66
466—Cases with PDX of Infection/Malignancy/React 890 10.67 79,334.69
467—All Cases 13,551 5.50 53,431.63
467—Cases with PDX of Infection/Malignancy/React 2,401 6.71 58,506.86
468—All Cases 19,917 3.94 44,055.62
468—Cases with PDX of Infection/Malignancy/React 1,994 4.76 54,322.03
469—All Cases 29,030 8.17 56,681.64
469—Cases with PDX of Infection/Malignancy/React 136 11.74 85,256.07
470—All Cases 385,123 3.93 36,126.23
470—Cases with PDX of Infection/Malignancy/React 673 6.44 59,676.31
480—All Cases 25,391 9.32 52,281.65
480—Cases with PDX of Infection/Malignancy/React 880 14.53 76,355.15
481—All Cases 68,655 5.94 32,963.64
481—Cases with PDX of Infection/Malignancy/React 878 8.78 48,655.30
482—All Cases 45,832 4.86 27,266.20
482—Cases with PDX of Infection/Malignancy/React 577 6.19 37,572.38
485—All Cases 1,122 12.20 64,672.47
485—Cases with PDX of Infection/Malignancy/React 1,122 12.20 64,672.47
486—All Cases 2,061 8.03 40,758.55
486—Cases with PDX of Infection/Malignancy/React 2,061 8.03 40,758.55
487—All Cases 1,236 5.67 29,180.88
487—Cases with PDX of Infection/Malignancy/React 1,236 5.67 29,180.88
488—All Cases 2,374 5.17 30,180.80
488—Cases with PDX of Infection/Malignancy/React 31 7.13 50,155.42
489—All Cases 5,493 3.04 21,385.67
489—Cases with PDX of Infection/Malignancy/React 36 3.72 35,313.84
495—All Cases 1,860 10.94 55,103.91
495—Cases with PDX of Infection/Malignancy/React 1,025 11.74 59,453.69
496—All Cases 5,203 5.95 32,177.29
496—Cases with PDX of Infection/Malignancy/React 2,759 6.98 36,940.99
497—All Cases 6,259 3.01 21,445.60
497—Cases with PDX of Infection/Malignancy/React 1,500 5.18 29,966.98

Given the wide variety of charges and the small number of cases where there are differences in charges, we do not believe the data support the AAKHS' recommendations. The data do not support removing these cases from the 19 MS-DRGs above and consolidating them into a new set of MS-DRGs, either newly created, or by adding them to MS-DRG 461 or 462, which have average charges of $80,718 and $57,355, respectively.

A second major concern involves redefining MS-DRGs 461 and 462 is that these MS-DRGs currently capture bilateral and multiple joint procedures. These MS-DRGs were specifically created to capture a unique set of patients who undergo procedures on more than one lower joint. Redefining these MS-DRGs to include both single and multiple joints undermines the clinical coherence of this MS-DRG. It would create a widely diverse group of patients based on either a list of specific diagnoses or the fact that the patient had multiple lower joint procedures.

Comment: While we did not receive any public comments specifically supporting the reassignment of codes 00.73, 00.83, and 00.84 to MS-DRGs 469 and 470, several commenters acknowledged CMS' discussion of the FY 2008 implementation of MS-DRGs and lack of data to support major MS-DRG changes for FY 2009. The commenters accepted CMS' proposal of not making significant revisions to the MS-DRGs until claims data under the new MS-DRG system are available.

Several commenters suggested an alternative way of capturing the more resource intensive joint procedure cases, particularly those involving an infected joint. The commenters recommended moving codes 80.05 (Arthrotomy for removal of hip prosthesis) and 80.06 (Arthrotomy for removal of knee prosthesis) into MS-DRGs 463 through 465 (Wound Debridement and Skin Graft Except Hand, for Musculoskeletal-Connective Tissue Disease with MCC, with CC, and without CC/MCC, respectively). (We note that code 80.05 is currently assigned to MS-DRGs 480 through 482 (Hip and Femur Procedures Except Major Joint with MCC, with CC, and without CC/MCC, respectively). Code 80.06 is currently assigned to MS-DRGs 495 through 497 (Local Excision and Removal Internal Fixation Devices Except Hip and Femur with MCC, with CC, and without CC/MCC, respectively).)

The commenters stated that a deep infection is one of the most devastating complications associated with hip and knee joint replacements, and that these cases require increased costs and resource utilization. The commenters believed that there is a strong financial disincentive for physicians and hospitals to provide care for patients with infected joint replacements. They indicated that this leads to an increased economic burden on tertiary care referral centers where patients with infected joint replacements are frequently referred for definitive management.

The commenters believed that codes 80.05 and 80.06 were a good proxy for cases of infected joints containing a previously implanted joint prosthesis. The commenters suggested that moving these two codes was considerably less complex than the previously discussed revisions to the joint DRGs. They also believed these two codes clearly captured cases with infected joint prostheses. The commenters believed that these codes would only be reported in cases of an infected joint where the previous infected prosthesis was removed and no new prosthesis was inserted. The commenters stated that when a previously implanted joint prosthesis is removed and replaced with a new prosthesis, coders assign only the code for the insertion of the new prosthesis. They added that they do not routinely assign an additional code for the removal of the joint prosthesis (code 80.05 or 80.06). The commenters also stated that when there is an infected joint, the joint prosthesis may be removed and extensive debridement may be provided involving bone and surrounding tissue. The commenters further stated that an antibiotic-impregnated cement spacer may be inserted to maintain alignment of the limb during the course of antibiotic therapy. According to the commenters, the new prosthesis will not be inserted until such time as the infection is fully resolved. In this case, the commenter stated that code 80.05 or 80.06 would be reported.

The commenters believed that when codes 80.05 or 80.06 are reported to capture the removal of a joint prosthesis, one can assume that the patient had a joint infection. Therefore, the commenters requested that codes 80.05 and 80.06 be reassigned to MS-DRGs 463, 464, and 465 because wound debridement is a treatment for infected joints.

Response: We agree with the commenters that we should not move codes 00.73, 00.83, and 00.84 to MS-DRGs 469 and 470. Our data do not support this change. Therefore, in this final rule for FY 2009, we are not moving codes 00.73, 00.83, and 00.84 to MS-DRGs 469 and 470.

We evaluated the alternative suggestion of moving codes 80.05 and 80.06 into MS-DRGs 463, 464, and 465. We disagree with the suggestion that the use of codes 80.05 and 80.06 serves as a good proxy for cases of infected joint prostheses. These two codes are used to capture the fact that a previously inserted joint prosthesis is now being removed. These prostheses can be removed for a variety of reason including wearing, breakage, and infection. Assuming that these cases are infections and then moving the cases to the debridement DRGs, MS-DRGs 463, 464, and 465, is inappropriate. We acknowledge that when a patient has an infected joint prosthesis, the prosthesis may be removed and treatment for the infection instituted, such as debridement. However, the most specific way of identifying these cases would be to examine the diagnosis code for the presence of an infection and to look for a debridement procedure code.

Furthermore, the current codes for removal of joint prostheses do not have specific instructions indicating that a coder must not report codes 80.05 and 80.06 when also reporting one of the joint revision codes. While the coding index implies that one does not need to report a code for the removal of the prosthesis when it is being replaced, it is not precluded under the codes. If a code is reported for the removal of the previous joint prosthesis along with a code for the joint revision, the proposed logic change would result in the case being assigned to MS-DRGs 463, 464, and 465 even though the patient did not have an infection or a debridement performed. This DRG assignment would be a result of the surgical hierarchy which places the debridement DRGs (MS-DRGs 463, 464, and 465) higher than the joint revision DRGs (MS-DRGs 466, 467, and 468). The proposed MS-DRG logic change could lead to the misclassification of many joint revision cases that did not have an infection or a debridement into the debridement DRGs.

We plan to discuss the need to provide more definitive coding notes under codes 80.05 and 80.06 at the September 24-25, 2008 ICD-9-CM Coordination and Maintenance Committee meeting to better clarify that one would not assign a code for the removal of a joint prosthesis if a new prosthesis is inserted. This clarification may be useful when considering future refinements to the joint procedure DRGs. However, at this time, we believe that codes 80.05 and 80.06 cannot be used as a definitive means of capturing cases of an infected joint prosthesis. We believe it is more appropriate to utilize diagnosis codes to clearly identify joint infections and debridement codes to indicate debridement. We will continue to examine means to better classify joint infections under the MS-DRGs. However, we are not moving codes 80.05 and 80.06 into MS-DRGs 463, 464, and 465 at this time. In addition, as stated previously, we also are not moving codes 00.73, 00.83, and 00.84 to MS-DRGs 469 and 470. We are making no changes to the joint procedure MS-DRGs for FY 2009.

Comment: One commenter provided additional recommendations to those discussed in the previous comment. The commenter stated that, after submission of his first comment, he had discovered a technical anomaly in the treatment of patients with hip and knee revision who also have a debridement that relates to the surgical hierarchy in MDC 8. The commenter pointed out that the wound debridement and skin graft MS-DRGs (MS-DRGs 463, 464, and 465) are currently sequenced before the revision of hip or knee replacement MS-DRGs (MS-DRGs 466, 467, and 468). Therefore, the commenter added, if codes are reported for revision of hip or knee replacement as well as for debridement of an infection, the case will be assigned to MS-DRGs 463, 467, or 465. The commenter believed that cases with both a debridement and a total revision prosthesis are more clinically similar to the revision cases than the debridement cases. Therefore, the commenter requested that the order of the wound debridement and skin graft MS-DRGs and the revision of the hip and knee MS-DRGs be reversed.

Response: We agree that the current logic for wound debridement of infections results in cases being assigned to MS-DRGs 463, 467, and 465. We also agree that joint revisions without debridements of infections are currently assigned to MS-DRGs 466, 467, and 468. We point out that this logic results in patients with infections being assigned to the exact MS-DRGs requested by the commenters in the prior discussion. We believe this current logic results in the appropriate assignment of joint revisions with and without debridements.

MS-DRGs 466, 467, and 468 contain revisions for both total and partial joint revisions. For instance, MS-DRGs 466, 467, and 468 includes revisions of the total hip joint as well as a partial hip revision of only the femoral component. The commenter believed that a subset of the revision cases, those with a total revision, are more clinically similar to the revision cases than to the debridement cases. For this reason, the commenter recommended that the surgical hierarchy be changed so that revision of a hip and knee prosthesis in MS-DRGs 466, 467, and 468 should be placed above the debridement MS-DRGs (MS-DRGs 463, 464, and 465). We point out that the surgical hierarchy is based on all cases within each DRG, not a subset. Furthermore, we have no MS-DRG claims data on which to evaluate the need to change the surgical hierarchy based on this recommendation. We note that this discussion reinforces the point that the current codes for debridement of an infection and joint revisions seem to correctly assign cases to the most appropriate MS-DRG. Therefore, in this final rule, we are not making any changes to the joint procedure MS-DRGs for FY 2009. We are deferring the examination of infections of joint replacements until such time as we have MS-DRG claims data.

Comment: Several commenters expressed their concern about the joint procedure MS-DRGs. The commenters supported CMS' efforts in the FY 2008 IPPS final rule to better reflect the clinical needs of patients and the resources used by hospitals. The commenters particularly appreciated CMS' adoption of the FY 2008 refined joint replacement MS-DRGs that better recognize patient acuity. However, the commenters believed that further refinements and additional MS-DRGs are needed for joint procedures. The commenters stated that the joint procedure MS-DRGs could be improved by making changes in FY 2009 to the MCC/CC classifications of specific codes that represent conditions impacting joint procedure patients. In particular, the commenters recommended the following changes:

  • Changing the following codes from non-CCs to CCs: 731.3 (Major osseous defects); 278.0 (Overweight and obesity); V85.35 (Body Mass index 35.0-35.9, adult); V85.36 (Body Mass index 36.0-36.9, adult); and V85.37 (Body Mass index 37.0-37.9, adult).
  • Changing the following codes from non-CCs to MCCs: 278.01 (Morbid obesity); V85.38 (Body Mass index 38.0-38.9, adult); and V85.39 (Body Mass index 39.0-39.9, adult).
  • Changing code V85.40 (Body Mass index 40 and over, adult) from a CC to an MCC.

The commenters also recommended that CMS continue to evaluate the MS-DRG assignments for codes 00.73 (Revision of hip replacement, acetabular liner and/or femoral head only) and 00.84 (Revision of total knee replacement, tibial insert (liner)). The commenters stated that once CMS receives MS-DRG data, these data may support reassigning these codes to other MS-DRGs.

Response: While we acknowledge that the commenters were concerned about the effect that the obesity may have on joint patients, we point out that specific codes are classified as CCs or MCCs based on how they affect a wide range of patients. In the creation of the MS-DRGs, clinical evaluation and claims data did support the current MCC/CC classifications for these codes. However, as we gain experience and data under the MS-DRG system, we will continue to examine ways to improve the joint procedure MS-DRGs. We do not have MS-DRG data to evaluate these MCC/CC reclassifications or the possible reassignment of codes 00.73 or 00.84 at this time.

Therefore, in this final rule, we are not changing the MCC/CC classifications or the MS-DRG reassignments for codes 00.73, 00.83, or 00.84 for FY 2009. We also are not making changes to the joint procedure MS-DRGs for FY 2009.

f. Conclusion

The AAHKS recommended a number of complicated, interrelated MS-DRG changes to the joint procedure MS-DRGs. We have not yet had the opportunity to review data for these cases under the new MS-DRGs. We did analyze the impact of these recommendations using cases prior to the implementation of MS-DRGs. The recommendations were difficult to analyze because there were so many separate logic changes that impacted a number of MS-DRGs. We did examine each major suggestion separately, and found that our data and clinical analysis did not support making these changes. Therefore, in the FY 2009 IPPS proposed rule, we did not propose any revisions to the joint procedure MS-DRGs for FY 2009, nor are we making any revisions in this final rule. We look forward to examining these issues once we receive data under the MS-DRG system. As we indicated in the proposed rule, we also welcome additional recommendations from the AAHKS and others on a more incremental approach to resolving its concerns about the ability of the current MS-DRGs to adequately capture differences in severity levels for joint procedure patients.

5. MDC 18 (Infections and Parasitic Diseases (Systemic or Unspecified Sites): Severe Sepsis

We received a request from a manufacturer to modify the titles for three MS-DRGs with the most significant concentration of severe sepsis patients. The manufacturer stated that modification of the titles will assist in quality improvement efforts and provide a better reflection on the types of patients included in these MS-DRGs. Specifically, the manufacturer urged CMS to incorporate the term “severe sepsis” into the titles of the following MS-DRGs that became effective October 1, 2007 (FY 2008)

  • MS-DRG 870 (Septicemia with Mechanical Ventilation 96+ Hours)
  • MS-DRG 871 (Septicemia without Mechanical Ventilation 96+ Hours with MCC)
  • MS-DRG 872 (Septicemia without Mechanical Ventilation 96+ Hours without MCC)

These MS-DRGs were created to better recognize severity of illness among patients diagnosed with conditions including septicemia, severe sepsis, septic shock, and systemic inflammatory response syndrome (SIRS) who are also treated with mechanical ventilation for a specified duration of time.

According to the manufacturer, “severe sepsis is a common, deadly and costly disease, yet the number of patients impacted and the outcomes associated with their care remain largely hidden within the administrative data set.” The manufacturer further noted that, although improvements have been made in the ICD-9-CM coding of severe sepsis (diagnosis code 995.92) and septic shock (diagnosis code 785.52), results of an analysis demonstrated an unacceptably high mortality rate for patients reported to have those conditions. The manufacturer believed that revising the titles to incorporate “severe sepsis” will provide various clinicians and researchers the opportunity to improve outcomes for these patients. Therefore, the manufacturer recommended revising the current MS-DRG titles as follows:

  • Proposed Revised MS-DRG 870 (Septicemia or Severe Sepsis with Mechanical Ventilation 96+ Hours)
  • Proposed Revised MS-DRG 871 (Septicemia or Severe Sepsis without Mechanical Ventilation 96+ Hours with MCC)
  • Proposed Revised MS-DRG 872 (Septicemia or Severe Sepsis without Mechanical Ventilation 96+ Hours without MCC)

Comment: Many commenters applauded CMS for helping to promote quality improvement efforts for patients with severe sepsis. The commenters expressed their support for revising the titles of MS-DRGs 870, 871, and 872 to include the term “Severe Sepsis”. The commenters agreed that MS-DRGs 870, 871, and 872 already include a significant concentration of patients with severe sepsis and the change would increase awareness as well as facilitate research to improve care and patient outcomes.

Response: As we indicated in the proposed rule, we agree that revising the current MS-DRG titles to include the term “Severe Sepsis” would better assist in the recognition and identification of this disease, which could lead to better clinical outcomes and quality improvement efforts. In addition, both severe sepsis (diagnosis code 995.92) and septic shock (diagnosis code 785.52) are currently already assigned to these three MS-DRGs. Therefore, as we proposed, in this final rule we are revising the titles of MS-DRGs 870, 871, and 872 to reflect severe sepsis in the titles for FY 2009, as suggested and listed above.

Comment: One commenter thanked CMS for the proposal to modify the titles for MS-DRGs 870, 871, and 872 by including the term “severe sepsis” and suggested that the title for MS-DRG 853 (Infectious and Parasitic Diseases with O.R. Procedure with MCC) be modified to include the term “severe sepsis and other” as well. The commenter stated that, based on an analysis the commenter conducted using Medicare discharge data, the concentration of patients with severe sepsis (code 995.92) and septic shock (code 785.52) in surgical MS-DRG 853 is comparable to the concentration of patients in medical MS-DRGs 870, 871, and 872.

According to the commenter's study, 43.1 percent of cases in MS-DRG 853 represent patients with severe sepsis. As a result of these findings, the commenter stated that revising the title for MS-DRG 853 to include the term “severe sepsis and other” would be consistent with the rationale for proposing to modify the titles to MS-DRGs 870, 871, and 872. The commenter asserted that this additional MS-DRG modification would also better assist in the recognition and identification of severe sepsis, leading to better clinical outcomes and quality improvement efforts.

Response: We appreciate the commenter's support for the proposal to modify the titles to MS-DRGs 870, 871, and 872 to include the term “Severe Sepsis”. As stated above, we agree and are finalizing the proposed revisions to the titles for MS-DRGs 870, 871, and 872 for FY 2009.

With regard to modifying the title to MS-DRG 853, we point out that the MS-DRG titles generally do not reflect all of the diagnoses or conditions that may have a significant concentration of patients within that particular MS-DRG. In other words, the foundation of the MS-DRG titles represents “Diagnostic-Related Groups” [emphasis added].

We have also received several comments acknowledging CMS' discussion of the FY 2008 implementation of MS-DRGs and the lack of data to support major MS-DRG changes at this time. Overall, the commenters accepted CMS' proposal of not making significant revisions to the MS-DRGs until claims data under this new system are available. Therefore, as final policy for FY 2009, we are not making any change to the title for MS-DRG 853.

Comment: One commenter agreed with CMS' proposal to revise the descriptions for MS-DRGs 870, 871, and 872 by including the term “Severe Sepsis” in the titles. However, the commenter also suggested that CMS continue to study technological advances that may provide earlier identification of sepsis and clinical findings that indicate endotoxemia as a “driver of morbidity and mortality in sepsis.”

The commenter believed that it would be essential to continue making modifications to the MS-DRG classification system to recognize newer technologies and treatments. Specifically, this commenter asked that CMS consider endotoxemia as an MCC, stating this would be consistent with the current MS-DRG system's designation of sepsis and septicemia as MCCs.

Response: We acknowledge the commenter's suggestion and appreciate the support for modifying the titles for MS-DRGs 870, 871, and 872 to include the term “Severe Sepsis”. As mentioned earlier, we are finalizing the proposed revisions to the titles for these MS-DRGs for FY 2009.

In response to the commenter's recommendation that the MS-DRG classification system continue to be modified for purposes of recognizing new technologies or treatments, we do have a process in place under which we annually evaluate data and specific issues brought to our attention to determine if revisions are warranted. We refer the reader to section II.B.2 of the preamble in this final rule for a discussion on this process, as well as section II.J. of the preamble of this final rule for a discussion on the new technology add-on payment policy.

The term “endotoxemia” is defined as the presence of endotoxins in the blood. This condition (or finding) is established on the basis of a laboratory test. The ICD-9-CM coding system currently indexes the term “endotoxemia” with the instructional note to “code to condition”. This instruction refers the coder to seek the underlying, definitive condition that is established and documented as a result of the laboratory finding of endotoxemia. Therefore, an ICD-9-CM code for endotoxemia does not exist and consideration cannot be given as to a severity level assignment such as MCC, as the commenter requested. However, as the commenter pointed out, the diagnoses of sepsis and septicemia are currently designated as MCCs and, as such; patients with these diagnoses are already appropriately identified in the classification system, despite the presence or absence of endotoxemia.

6. MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs): Traumatic Compartment Syndrome

Traumatic compartment syndrome is a condition in which increased pressure within a confined anatomical space that contains blood vessels, muscles, nerves, and bones causes a decrease in blood flow and may lead to tissue necrosis.

There are five ICD-9-CM diagnosis codes that were created effective October 1, 2006, to identify traumatic compartment syndrome of various sites.

  • 958.90 (Compartment syndrome, unspecified)
  • 958.91 (Traumatic compartment syndrome of upper extremity)
  • 958.92 (Traumatic compartment syndrome of lower extremity)
  • 958.93 (Traumatic compartment syndrome of abdomen)
  • 958.99 (Traumatic compartment syndrome of other sites)

Cases with one of the diagnosis codes listed above reported as the principal diagnosis and no operating room procedure are assigned to either MS-DRG 922 (Other Injury, Poisoning and Toxic Effect Diagnosis with MCC) or MS-DRG 923 (Other Injury, Poisoning and Toxic Effect Diagnosis without MCC) in MDC 21.

In the FY 2008 IPPS final rule with comment period when we adopted the MS-DRGs, we inadvertently omitted the addition of these traumatic compartment syndrome codes 958.90 through 958.99 to the multiple trauma MS-DRGs 963 (Other Multiple Significant Trauma with MCC), MS-DRG 964 (Other Multiple Significant Trauma with CC), and MS-DRG 965 (Other Multiple Significant Trauma without CC/MCC) in MDC 24 (Multiple Significant Trauma). Cases are assigned to MDC 24 based on the principal diagnosis of trauma and at least two significant trauma diagnosis codes (either as principal or secondary diagnoses) from different body site categories. There are eight different body site categories as follows:

  • Significant head trauma
  • Significant chest trauma
  • Significant abdominal trauma
  • Significant kidney trauma
  • Significant trauma of the urinary system
  • Significant trauma of the pelvis or spine
  • Significant trauma of the upper limb
  • Significant trauma of the lower limb

Therefore, in the FY 2009 IPPS proposed rule, we proposed to add traumatic compartment syndrome codes 958.90 through 958.99 to MS-DRGs 963 and MS-DRG 965 in MDC 24. Under this proposal, codes 958.90 through 958.99 would be added to the list of principal diagnosis of significant trauma. In addition, code 958.91 would be added to the list of significant trauma of upper limb, code 958.92 would be added to the list of significant trauma of lower limb, and code 958.93 would be added to the list of significant abdominal trauma.

We did not address the consolidation of heart transplant MS-DRGs or liver transplant MS-DRGs in the FY 2009 IPPS proposed rule. However, we received a comment on these issues.

Comment: One commenter representing a national association of health information professionals expressed appreciation to CMS for proposing to add the traumatic compartment syndrome codes to the multiple trauma MS-DRGs in order to correct a previous omission.

Response: We appreciate the commenter's support.

In this final rule, we are adopting as final our proposal to add traumatic compartment syndrome codes 958.90 through 958.99 to MS-DRGs 963 and MS-DRG 965 in MDC 24. Codes 958.90 through 958.99 are added to the list of principal diagnosis of significant trauma. In addition, code 958.91 is added to the list of significant trauma of upper limb, code 958.92 is added to the list of significant trauma of lower limb, and code 958.93 is added to the list of significant abdominal trauma.

7. Medicare Code Editor (MCE) Changes

As explained under section II.B.1. of the preamble of this final rule, the Medicare Code Editor (MCE) is a software program that detects and reports errors in the coding of Medicare claims data. Patient diagnoses, procedure(s), and demographic information are entered into the Medicare claims processing systems and are subjected to a series of automated screens. The MCE screens are designed to identify cases that require further review before classification into a DRG. For FY 2009, we proposed to make the following changes to the MCE edits:

a. List of Unacceptable Principal Diagnoses in MCE

Diagnosis code V62.84 (Suicidal ideation) was created for use beginning October 1, 2005. At the time the diagnosis code was created, it was not clear that the creation of this code was requested in order to describe the principal reason for admission to a facility or the principal reason for treatment. The NCHS Official ICD-9-CM Coding Guidelines therefore categorized the group of codes in V62.X for use only as additional or secondary diagnoses. It has been brought to the government's attention that the use of this code is hampered by its designation as an additional-only diagnosis. NCHS has therefore modified the Official Coding Guidelines for FY 2009 by making this code acceptable as a principal diagnosis as well as an additional diagnosis. In order to conform to this change by NCHS, we proposed to remove code V62.84 from the MCE list of “Unacceptable Principal Diagnoses” for FY 2009.

We did not receive any public comments on this proposal. Therefore, in this final rule, we are adopting as final our proposal to remove code V62.84 from the MCE list of “Unacceptable Principal Diagnoses” for FY 2009.

b. Diagnoses Allowed for Males Only Edit

There are four diagnosis codes that were inadvertently left off of the MCE edit titled “Diagnoses Allowed for Males Only.” These codes are located in the chapter of the ICD-9-CM diagnosis codes entitled “Diseases of Male Genital Organs.” We are proposing to add the following four codes to this MCE edit: 603.0 (Encysted hydrocele), 603.1 (Infected hydrocele), 603.8 (Other specified types of hydrocele), and 603.9 (Hydrocele, unspecified). We have had no reported problems or confusion with the omission of these codes from this section of the MCE, but in order to have an accurate product, we proposed that these codes be added for FY 2009.

We did not receive any public comments on these proposed MCE revisions. Therefore, for FY 2009, we are implementing the proposed changes as final by adding codes 603.0, 603.1, 603.8, and 603.9 to the MCE edit of diagnosis allowed for males only.

c. Limited Coverage Edit

As explained in section II.G.1. of the preamble of the proposed rule, we proposed to remove procedure code 37.52 (Implantation of internal biventricular heart replacement system) from the MCE “Non-Covered Procedure” edit and to assign it to the “Limited Coverage” edit. We proposed to include in this proposed edit the requirement that ICD-9-CM diagnosis code V70.7 (Examination of participant in clinical trial) also be present on the claim. We proposed that claims submitted without both procedure code 37.52 and diagnosis code V70.7 would be denied because they would not be in compliance with the coverage policy explained in section II.G.1. of this preamble.

We did not receive any public comments on this proposed MCE revision. Therefore, for FY 2009, we are implementing the proposed changes as final by removing code 37.52 from the “Non-Covered Procedures” edit and assigning it to the “Limited Coverage” edit. In addition, included in this edit is the requirement that ICD-9-CM diagnosis code V70.7 also be present on the claim. Claims submitted on behalf of Medicare beneficiaries that do not have both procedure code 37.52 and diagnosis code V70.7 will be denied, retroactive to May 1, 2008 (the date of the coverage decision memorandum described in section II.G.1. of the preamble of this final rule).

8. Surgical Hierarchies

Some inpatient stays entail multiple surgical procedures, each one of which, occurring by itself, could result in assignment of the case to a different MS-DRG within the MDC to which the principal diagnosis is assigned. Therefore, it is necessary to have a decision rule within the GROUPER by which these cases are assigned to a single MS-DRG. The surgical hierarchy, an ordering of surgical classes from most resource-intensive to least resource-intensive, performs that function. Application of this hierarchy ensures that cases involving multiple surgical procedures are assigned to the MS-DRG associated with the most resource-intensive surgical class.

Because the relative resource intensity of surgical classes can shift as a function of MS-DRG reclassification and recalibrations, we reviewed the surgical hierarchy of each MDC, as we have for previous reclassifications and recalibrations, to determine if the ordering of classes coincides with the intensity of resource utilization.

A surgical class can be composed of one or more MS-DRGs. For example, in MDC 11, the surgical class “kidney transplant” consists of a single MS-DRG (MS-DRG 652) and the class “kidney, ureter and major bladder procedures” consists of three MS-DRGs (MS-DRGs 653, 654, and 655). Consequently, in many cases, the surgical hierarchy has an impact on more than one MS-DRG. The methodology for determining the most resource-intensive surgical class involves weighting the average resources for each MS-DRG by frequency to determine the weighted average resources for each surgical class. For example, assume surgical class A includes MS-DRGs 1 and 2 and surgical class B includes MS-DRGs 3, 4, and 5. Assume also that the average charge of MS-DRG 1 is higher than that of MS-DRG 3, but the average charges of MS-DRGs 4 and 5 are higher than the average charge of MS-DRG 2. To determine whether surgical class A should be higher or lower than surgical class B in the surgical hierarchy, we would weight the average charge 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 charge is ordered above a surgical class with a higher average charge. For example, the “other O.R. procedures” surgical class is uniformly ordered last in the surgical hierarchy of each MDC in which it occurs, regardless of the fact that the average charge for the MS-DRG or MS-DRGs in that surgical class may be higher than that for other surgical classes in the MDC. The “other O.R. procedures” class is a group of procedures that are only infrequently related to the diagnoses in the MDC, but are still occasionally performed on patients in the MDC with these diagnoses. Therefore, assignment to these surgical classes should only occur if no other surgical class more closely related to the diagnoses in the MDC is appropriate.

A second example occurs when the difference between the average charges 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 charges are likely to shift such that the higher-ordered surgical class has a lower average charge than the class ordered below it.

For FY 2009, we proposed to revise the surgical hierarchy for MDC 5 (Diseases and Disorders of the Circulatory System) by reordering MS-DRG 245 (AICD Generator Procedures) above new MS-DRG 265 (AICD Lead Procedures).

We did not receive any public comments on the proposed change to the surgical hierarchy described above. Based on the test of the proposed revision using the March 2008 update of the FY 2007 MedPAR file and the revised GROUPER software, we found that the revision is still supported by the data. Therefore, we are incorporating the proposed revision to the surgical hierarchy as final for FY 2009.

9. CC Exclusions List

a. Background

As indicated earlier in the preamble of this final rule, under the IPPS DRG classification system, we have developed a standard list of diagnoses that are considered CCs. Historically, we developed this list using physician panels that classified each diagnosis code based on whether the diagnosis, when present as a secondary condition, would be considered a substantial complication or comorbidity. A substantial complication or comorbidity was defined as a condition that, because of its presence with a specific principal diagnosis, would cause an increase in the length of stay by at least 1 day in at least 75 percent of the patients. We refer readers to section II.D.2. and 3. of the preamble of the FY 2008 IPPS final rule with comment period for a discussion of the refinement of CCs in relation to the MS-DRGs we adopted for FY 2008 (72 FR 47152 through 47121).

b. CC Exclusions List for FY 2009

In the September 1, 1987 final notice (52 FR 33143) concerning changes to the DRG classification system, we modified the GROUPER logic so that certain diagnoses included on the standard list of CCs would not be considered valid CCs in combination with a particular principal diagnosis. We created the CC Exclusions List for the following reasons: (1) To preclude coding of CCs for closely related conditions; (2) to preclude duplicative or inconsistent coding from being treated as CCs; and (3) to ensure that cases are appropriately classified between the complicated and uncomplicated DRGs in a pair. As we indicated above, we developed a list of diagnoses, using physician panels, to include those diagnoses that, when present as a secondary condition, would be considered a substantial complication or comorbidity. In previous years, we have made changes to the list of CCs, either by adding new CCs or deleting CCs already on the list.

In the May 19, 1987 proposed notice (52 FR 18877) and the September 1, 1987 final notice (52 FR 33154), we explained that the excluded secondary diagnoses were established using the following five principles:

  • Chronic and acute manifestations of the same condition should not be considered CCs for one another.
  • Specific and nonspecific (that is, not otherwise specified (NOS)) diagnosis codes for the same condition should not be considered CCs for one another.
  • Codes for the same condition that cannot coexist, such as partial/total, unilateral/bilateral, obstructed/unobstructed, and benign/malignant, should not be considered CCs for one another.
  • Codes for the same condition in anatomically proximal sites should not be considered CCs for one another.
  • Closely related conditions should not be considered CCs for one another.

The creation of the CC Exclusions List was a major project involving hundreds of codes. We have continued to review the remaining CCs to identify additional exclusions and to remove diagnoses from the master list that have been shown not to meet the definition of a CC. [19]

For FY 2009, as we proposed, in this final rule we are making limited revisions to the CC Exclusions List to take into account the changes that will be made in the ICD-9-CM diagnosis coding system effective October 1, 2008. (See section II.G.11. of the preamble of this final rule for a discussion of ICD-9-CM changes.) We are making these changes in accordance with the principles established when we created the CC Exclusions List in 1987. In addition, as discussed in section II.D.3. of the preamble of this final rule, we are indicating on the CC exclusion list some updates to reflect the exclusion of a few codes from being an MCC under the MS-DRG system that we adopted for FY 2008.

Tables 6G and 6H, Additions to and Deletions from the CC Exclusion List, respectively, which will be effective for discharges occurring on or after October 1, 2008, are not being published in this final rule because of the length of the two tables. Instead, we are making them available through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS. Each of these principal diagnoses for which there is a CC exclusion is shown in Tables 6G and 6H with an asterisk, and the conditions that will not count as a CC, are provided in an indented column immediately following the affected principal diagnosis.

A complete updated MCC, CC, and Non-CC Exclusions List is also available through the Internet on the CMS Web site at: http:/www.cms.hhs.gov/AcuteInpatientPPS. Beginning with discharges on or after October 1, 2008, the indented diagnoses will not be recognized by the GROUPER as valid CCs for the asterisked principal diagnosis.

To assist readers in the review of changes to the MCC and CC lists that occurred as a result of updates to the ICD-9-CM codes, as described in Tables 6A, 6C, and 6E, we are providing the following summaries of those MCC and CC changes.

In the summary tables, the diagnosis codes with an asterisk (*) were discussed at the March 19-20, 2008 ICD-9-CM Coordination and Maintenance Committee meeting and were not finalized in time to include in the proposed rule. Code 998.33 in Table 6J1, marked with two asterisks (**), had a change in code title subsequent to the proposed rule. The new codes will be implemented on October 1, 2008.

Summary of Additions to the MS-DRG MCC List—Table 6I.1 Back to Top
Code Description
038.12* Methicillin resistant Staphylococcus aureus septicemia.
249.10 Secondary diabetes mellitus with ketoacidosis, not stated as uncontrolled, or unspecified.
249.11 Secondary diabetes mellitus with ketoacidosis, uncontrolled.
249.20 Secondary diabetes mellitus with hyperosmolarity, not stated as uncontrolled, or unspecified.
249.21 Secondary diabetes mellitus with hyperosmolarity, uncontrolled.
249.30 Secondary diabetes mellitus with other coma, not stated as uncontrolled, or unspecified.
249.31 Secondary diabetes mellitus with other coma, uncontrolled.
482.42* Methicillin resistant pneumonia due to Staphylococcus aureus.
535.71* Eosinophilic gastritis, with hemorrhage.
707.23 Pressure ulcer, stage III.
707.24 Pressure ulcer, stage IV.
777.50 Necrotizing enterocolitis in newborn, unspecified.
777.51 Stage I necrotizing enterocolitis in newborn.
777.52 Stage II necrotizing enterocolitis in newborn.
777.53 Stage III necrotizing enterocolitis in newborn.
780.72 Functional quadriplegia.
Summary of Deletions From the MS-DRG MCC List—Table 6I.2 Back to Top
Code Description
136.2 Specific infections by free-living amebae.
511.8 Other specified forms of pleural effusion, except tuberculous.
707.02 Pressure ulcer, upper back.
707.03 Pressure ulcer, lower back.
707.04 Pressure ulcer, hip.
707.05 Pressure ulcer, buttock.
707.06 Pressure ulcer, ankle.
707.07 Pressure ulcer, heel.
777.5 Necrotizing enterocolitis in fetus or newborn.
Summary of Additions to the MS-DRG CC List—Table 6J.1 Back to Top
Code Description
046.11 Variant Creutzfeldt-Jakob disease.
046.19 Other and unspecified Creutzfeldt-Jakob disease.
046.71 Gerstmann-Sträussler-Scheinker syndrome.
046.72 Fatal familial insomnia.
046.79 Other and unspecified prion disease of central nervous system.
059.01 Monkeypox.
059.21 Tanapox.
136.29 Other specific infections by free-living amebae.
199.2 Malignant neoplasm associated with transplant organ.
203.02 Multiple myeloma, in relapse.
203.12 Plasma cell leukemia, in relapse.
203.82 Other immunoproliferative neoplasms, in relapse.
204.02 Acute lymphoid leukemia, in relapse.
204.12 Chronic lymphoid leukemia, in relapse.
204.22 Subacute lymphoid leukemia, in relapse.
204.82 Other lymphoid leukemia, in relapse.
204.92 Unspecified lymphoid leukemia, in relapse.
205.02 Acute myeloid leukemia, in relapse.
205.12 Chronic myeloid leukemia, in relapse.
205.22 Subacute myeloid leukemia, in relapse.
205.32 Myeloid sarcoma, in relapse.
205.82 Other myeloid leukemia, in relapse.
205.92 Unspecified myeloid leukemia, in relapse.
206.02 Acute monocytic leukemia, in relapse.
206.12 Chronic monocytic leukemia, in relapse.
206.22 Subacute monocytic leukemia, in relapse.
206.82 Other monocytic leukemia, in relapse.
206.92 Unspecified monocytic leukemia, in relapse.
207.02 Acute erythremia and erythroleukemia, in relapse.
207.12 Chronic erythremia, in relapse.
207.22 Megakaryocytic leukemia, in relapse.
207.82 Other specified leukemia, in relapse.
208.02 Acute leukemia of unspecified cell type, in relapse.
208.12 Chronic leukemia of unspecified cell type, in relapse.
208.22 Subacute leukemia of unspecified cell type, in relapse.
208.82 Other leukemia of unspecified cell type, in relapse.
208.92 Unspecified leukemia, in relapse.
209.00 Malignant carcinoid tumor of the small intestine, unspecified portion.
209.01 Malignant carcinoid tumor of the duodenum.
209.02 Malignant carcinoid tumor of the jejunum.
209.03 Malignant carcinoid tumor of the ileum.
209.10 Malignant carcinoid tumor of the large intestine, unspecified portion.
209.11 Malignant carcinoid tumor of the appendix.
209.12 Malignant carcinoid tumor of the cecum.
209.13 Malignant carcinoid tumor of the ascending colon.
209.14 Malignant carcinoid tumor of the transverse colon.
209.15 Malignant carcinoid tumor of the descending colon.
209.16 Malignant carcinoid tumor of the sigmoid colon.
209.17 Malignant carcinoid tumor of the rectum.
209.20 Malignant carcinoid tumor of unknown primary site.
209.21 Malignant carcinoid tumor of the bronchus and lung.
209.22 Malignant carcinoid tumor of the thymus.
209.23 Malignant carcinoid tumor of the stomach.
209.24 Malignant carcinoid tumor of the kidney.
209.25 Malignant carcinoid tumor of foregut, not otherwise specified.
209.26 Malignant carcinoid tumor of midgut, not otherwise specified.
209.27 Malignant carcinoid tumor of hindgut, not otherwise specified.
209.29 Malignant carcinoid tumor of other sites.
209.30 Malignant poorly differentiated neuroendocrine carcinoma, any site.
238.77 Post-transplant lymphoproliferative disorder (PTLD).
279.50 Graft-versus-host disease, unspecified.
279.51 Acute graft-versus-host disease.
279.52 Chronic graft-versus-host disease.
279.53 Acute on chronic graft-versus-host disease.
346.60 Persistent migraine aura with cerebral infarction, without mention of intractable migraine without mention of status migrainosus.
346.61 Persistent migraine aura with cerebral infarction, with intractable migraine, so stated, without mention of status migrainosus.
346.62 Persistent migraine aura with cerebral infarction, without mention of intractable migraine with status migrainosus.
346.63 Persistent migraine aura with cerebral infarction, with intractable migraine, so stated, with status migrainosus.
349.31* Accidental puncture or laceration of dura during a procedure.
349.39* Other dural tear.
511.81 Malignant pleural effusion.
511.89 Other specified forms of effusion, except tuberculous.
649.70 Cervical shortening, unspecified as to episode of care or not applicable.
649.71 Cervical shortening, delivered, with or without mention of antepartum condition.
649.73 Cervical shortening, antepartum condition or complication.
695.12 Erythema multiforme major.
695.13 Stevens-Johnson syndrome.
695.14 Stevens-Johnson syndrome-toxic epidermal necrolysis overlap syndrome.
695.15 Toxic epidermal necrolysis.
695.53 Exfoliation due to erythematous condition involving 30-39 percent of body surface.
695.54 Exfoliation due to erythematous condition involving 40-49 percent of body surface.
695.55 Exfoliation due to erythematous condition involving 50-59 percent of body surface.
695.56 Exfoliation due to erythematous condition involving 60-69 percent of body surface.
695.57 Exfoliation due to erythematous condition involving 70-79 percent of body surface.
695.58 Exfoliation due to erythematous condition involving 80-89 percent of body surface.
695.59 Exfoliation due to erythematous condition involving 90 percent or more of body surface.
997.31 Ventilator associated pneumonia.
997.39 Other respiratory complications.
998.30 Disruption of wound, unspecified.
998.33** Disruption of traumatic injury wound repair.
999.81 Extravasation of vesicant chemotherapy.
999.82 Extravasation of other vesicant agent
Summary of Deletions to the MS-DRG CC List—Table 6J.2 Back to Top
Code Description
046.1 Jakob-Creutzfeldt disease.
337.0 Idiopathic peripheral autonomic neuropathy.
695.1 Erythema multiforme.
707.00 Pressure ulcer, unspecified site.
707.01 Pressure ulcer, elbow.
707.09 Pressure ulcer, other site.
997.3 Respiratory complications.
999.8 Other transfusion reaction.

Alternatively, the complete documentation of the GROUPER logic, including the current CC Exclusions List, is available from 3M/Health Information Systems (HIS), which, under contract with CMS, is responsible for updating and maintaining the GROUPER program. The current DRG Definitions Manual, Version 25.0, is available for $225.00, which includes $15.00 for shipping and handling. Version 26.0 of this manual, which includes the final FY 2009 DRG changes, is available in hard copy for $250.00. Version 26.0 of the manual is also available on a CD for $200.00; a combination hard copy and CD is available for $400.00. These manuals may be obtained by writing 3M/HIS at the following address: 100 Barnes Road, Wallingford, CT 06492; or by calling (203) 949-0303. Please specify the revision or revisions requested.

10. Review of Procedure Codes in MS DRGs 981, 982, and 983; 984, 985, and 986; and 987, 988, and 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). 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). CMS DRG 477 became MS-DRGs 987, 988, and 989 (Nonextensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC).

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 DRGs are intended to capture atypical cases, that is, those cases not occurring with sufficient frequency to represent a distinct, recognizable clinical group. MS-DRGs 984 through 986 (previously CMS DRG 476) are assigned to those discharges in which one or more of the following prostatic procedures are performed and are unrelated to the principal diagnosis:

  • 60.0, Incision of prostate
  • 60.12, Open biopsy of prostate
  • 60.15, Biopsy of periprostatic tissue
  • 60.18, Other diagnostic procedures on prostate and periprostatic tissue
  • 60.21, Transurethral prostatectomy
  • 60.29, Other transurethral prostatectomy
  • 60.61, Local excision of lesion of prostate
  • 60.69, Prostatectomy, not elsewhere classified
  • 60.81, Incision of periprostatic tissue
  • 60.82, Excision of periprostatic tissue
  • 60.93, Repair of prostate
  • 60.94, Control of (postoperative) hemorrhage of prostate
  • 60.95, Transurethral balloon dilation of the prostatic urethra
  • 60.96, Transurethral destruction of prostate tissue by microwave thermotherapy
  • 60.97, Other transurethral destruction of prostate tissue by other thermotherapy
  • 60.99, Other operations on prostate

All remaining O.R. procedures are assigned to MS-DRGs 981 through 983 and 987 through 989, with MS-DRGs 987 through 989 assigned to those discharges in which the only procedures performed are nonextensive procedures that are unrelated to the principal diagnosis. [20]

For FY 2009, we did not propose to change the procedures assigned among these DRGs. We did not receive any public comments on our proposal and, therefore, are adopting it as final for FY 2009 in this final rule.

a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-DRGs 987 Through 989 to MDCs

We annually conduct a review of procedures producing assignment to MS-DRGs 981 through 983 (formerly CMS DRG 468) or MS-DRGs 987 through 989 (formerly CMS DRG 477) on the basis of volume, by procedure, to see if it would be appropriate to move procedure codes out of these DRGs into one of the surgical 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 DRGs for the MDC in which the diagnosis falls. For FY 2009, we did not propose to remove any procedures from MS-DRGs 981 through 983 or MS-DRGs 987 through 989. We did not receive any public comments on our proposal and, therefore, we are adopting it as final for FY 2009 in this final rule.

b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984 Through 986, and 987 Through 989

We also annually review the list of ICD-9-CM procedures that, when in combination with their principal diagnosis code, result in assignment to MS-DRGs 981 through 983, 984 through 986, and 987 through 989 (formerly, CMS DRGs 468, 476, and 477, respectively), to ascertain whether any of those procedures should be reassigned from one of these three DRGs to another of the three DRGs based on average charges and the length of stay. We look at the data for trends such as shifts in treatment practice or reporting practice that would make the resulting DRG assignment illogical. If we find these shifts, we would propose to move cases to keep the 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.

For FY 2009, we did not propose to move any procedure codes among these DRGs. We did not receive any public comments on our proposal and, therefore, we are adopting it as final for FY 2009 in this final rule.

c. Adding Diagnosis or Procedure Codes to MDCs

Based on our review this year, as we proposed, we are not adding any diagnosis codes to MDCs for FY 2009. We did not receive any public comments on this subject.

11. Changes to the ICD-9-CM Coding System

As described in section II.B.1. of the preamble of this final rule, the ICD-9-CM is a coding system used for the reporting of diagnoses and procedures performed on a patient. In September 1985, the ICD-9-CM Coordination and Maintenance Committee was formed. This is a Federal interdepartmental committee, co-chaired by the National Center for Health Statistics (NCHS), the Centers for Disease Control and Prevention, and CMS, charged with maintaining and updating the ICD-9-CM system. The Committee is jointly responsible for approving coding changes, and developing errata, addenda, and other modifications to the ICD-9-CM to reflect newly developed procedures and technologies and newly identified diseases. The Committee is also responsible for promoting the use of Federal and non-Federal educational programs and other communication techniques with a view toward standardizing coding applications and upgrading the quality of the classification system.

The Official Version of the ICD-9-CM contains the list of valid diagnosis and procedure codes. (The Official Version of the ICD-9-CM is available from the Government Printing Office on CD-ROM for $27.00 by calling (202) 512-1800.) Complete information on ordering the CD-ROM is also available at: http://www.cdc.gov/nchs/products/_prods/subject/icd96ed.htm. The Official Version of the ICD-9-CM is no longer available in printed manual form from the Federal Government; it is only available on CD-ROM. Users who need a paper version are referred to one of the many products available from publishing houses.

The NCHS has lead responsibility for the ICD-9-CM diagnosis codes included in the Tabular List and Alphabetic Index for Diseases, while CMS has lead responsibility for the ICD-9-CM procedure codes included in the Tabular List and Alphabetic Index for Procedures.

The Committee encourages participation in the above process by health-related organizations. In this regard, the Committee holds public meetings for discussion of educational issues and proposed coding changes. These meetings provide an opportunity for representatives of recognized organizations in the coding field, such as the American Health Information Management Association (AHIMA), the American Hospital Association (AHA), and various physician specialty groups, as well as individual physicians, health information management professionals, and other members of the public, to contribute ideas on coding matters. After considering the opinions expressed at the public meetings and in writing, the Committee formulates recommendations, which then must be approved by the agencies.

The Committee presented proposals for coding changes for implementation in FY 2009 at a public meeting held on September 27-28, 2007 and finalized the coding changes after consideration of comments received at the meetings and in writing by December 3, 2007. Those coding changes are announced in Tables 6A through 6F in the Addendum to this final rule. The Committee held its 2008 meeting on March 19-20, 2008. New codes for which there was a consensus of public support and for which complete tabular and indexing changes were made by May 2008 will be included in the October 1, 2008 update to ICD-9-CM. Code revisions that were discussed at the March 19-20, 2008 Committee meeting but that could not be finalized in time to include them in the Addendum to the proposed rule are included in Tables 6A through 6F of this final rule and are marked with an asterisk (*).

Copies of the minutes of the procedure codes discussions at the Committee's September 27-28, 2007 meeting and March 19-20, 2008 meeting can be obtained from the CMS Web site at: http://cms.hhs.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp. The minutes of the diagnosis codes discussions at the September 27-28, 2007 meeting and March 19-20, 2008 meeting are found at: http://www.cdc.gov/nchs/icd9.htm. Paper copies of these minutes are no longer available and the mailing list has been discontinued. These Web sites also provide detailed information about the Committee, including information on requesting a new code, attending a Committee meeting, and timeline requirements and meeting dates.

We encourage commenters to address suggestions on coding issues involving diagnosis codes to: Donna Pickett, Co-Chairperson, ICD-9-CM Coordination and Maintenance Committee, NCHS, Room 2402, 3311 Toledo Road, Hyattsville, MD 20782. Comments may be sent by E-mail to: dfp4@cdc.gov.

Questions and comments concerning the procedure codes should be addressed to: Patricia E. Brooks, Co-Chairperson, ICD-9-CM Coordination and Maintenance Committee, CMS, Center for Medicare Management, Hospital and Ambulatory Policy Group, Division of Acute Care, C4-08-06, 7500 Security Boulevard, Baltimore, MD 21244-1850. Comments may be sent by E-mail to: patricia.brooks2@cms.hhs.gov.

The ICD-9-CM code changes that have been approved will become effective October 1, 2008. The new ICD-9-CM codes are listed, along with their DRG classifications, in Tables 6A and 6B (New Diagnosis Codes and New Procedure Codes, respectively) in the Addendum to this final rule. As we stated above, the code numbers and their titles were presented for public comment at the ICD-9-CM Coordination and Maintenance Committee meetings. Both oral and written comments were considered before the codes were approved. In the FY 2009 IPPS proposed rule, we only solicited comments on the proposed classification of these new codes.

For codes that have been replaced by new or expanded codes, and the corresponding new or expanded diagnosis codes are included in Table 6A. New procedure codes are shown in Table 6B. Diagnosis codes that have been replaced by expanded codes or other codes or have been deleted are in Table 6C (Invalid Diagnosis Codes). These invalid diagnosis codes will not be recognized by the GROUPER beginning with discharges occurring on or after October 1, 2008. Table 6D contains invalid procedure codes. These invalid procedure codes will not be recognized by the GROUPER beginning with discharges occurring on or after October 1, 2008. Revisions to diagnosis code titles are in Table 6E (Revised Diagnosis Code Titles), which also includes the MS-DRG assignments for these revised codes. Table 6F includes revised procedure code titles for FY 2009.

In the September 7, 2001 final rule implementing the IPPS new technology add-on payments (66 FR 46906), we indicated we would attempt to include proposals for procedure codes that would describe new technology discussed and approved at the Spring meeting as part of the code revisions effective the following October. As stated previously, ICD-9-CM codes discussed at the March 19-20, 2008 Committee meeting that received consensus and that were finalized by May 2008, are included in Tables 6A through 6F of the Addendum to this final rule.

Comment: One commenter was encouraged that CMS and the CDC have acted favorably on the commenter's proposal to create a new ICD-9-CM diagnosis code for heparin-induced thrombocytopenia (HIT).

According to the commenter, a specific code dedicated to this disease will provide more information regarding the prevalence of the condition and the cost associated with treating the disease. The increased focus on this condition can in turn promote proper screening to avoid its occurrence and improve patient safety. Accurate diagnosis and coding will also ensure that proper protocols are put in place and HIT specific treatment is rendered, thereby reducing adverse events when HIT does arise.

Response: We appreciate the comment. Effective October 1, 2008, an ICD-9-CM diagnosis code 289.84 (Heparin-induced thrombocytopenia (HIT)) is created.

Section 503(a) of Public Law 108-173 included a requirement for updating ICD-9-CM codes twice a year instead of a single update on October 1 of each year. This requirement was included as part of the amendments to the Act relating to recognition of new technology under the IPPS. Section 503(a) amended section 1886(d)(5)(K) of the Act by adding a clause (vii) which states that the “Secretary shall provide for the addition of new diagnosis and procedure codes on April 1 of each year, but the addition of such codes shall not require the Secretary to adjust the payment (or diagnosis-related group classification) * * * until the fiscal year that begins after such date.” This requirement improves the recognition of new technologies under the IPPS system by providing information on these new technologies at an earlier date. Data will be available 6 months earlier than would be possible with updates occurring only once a year on October 1.

While section 1886(d)(5)(K)(vii) of the Act states that the addition of new diagnosis and procedure codes on April 1 of each year shall not require the Secretary to adjust the payment, or DRG classification, under section 1886(d) of the Act until the fiscal year that begins after such date, we have to update the DRG software and other systems in order to recognize and accept the new codes. We also publicize the code changes and the need for a mid-year systems update by providers to identify the new codes. Hospitals also have to obtain the new code books and encoder updates, and make other system changes in order to identify and report the new codes.

The ICD-9-CM Coordination and Maintenance Committee holds its meetings in the spring and fall in order to update the codes and the applicable payment and reporting systems by October 1 of each year. Items are placed on the agenda for the ICD-9-CM Coordination and Maintenance Committee meeting if the request is received at least 2 months prior to the meeting. This requirement allows time for staff to review and research the coding issues and prepare material for discussion at the meeting. It also allows time for the topic to be publicized in meeting announcements in the Federal Register as well as on the CMS Web site. The public decides whether or not to attend the meeting based on the topics listed on the agenda. Final decisions on code title revisions are currently made by March 1 so that these titles can be included in the IPPS proposed rule. A complete addendum describing details of all changes to ICD-9-CM, both tabular and index, is published on the CMS and NCHS Web sites in May of each year. Publishers of coding books and software use this information to modify their products that are used by health care providers. This 5-month time period has proved to be necessary for hospitals and other providers to update their systems.

A discussion of this timeline and the need for changes are included in the December 4-5, 2005 ICD-9-CM Coordination and Maintenance Committee minutes. The public agreed that there was a need to hold the fall meetings earlier, in September or October, in order to meet the new implementation dates. The public provided comment that additional time would be needed to update hospital systems and obtain new code books and coding software. There was considerable concern expressed about the impact this new April update would have on providers.

In the FY 2005 IPPS final rule, we implemented section 1886(d)(5)(K)(vii) of the Act, as added by section 503(a) of Public Law 108-173, by developing a mechanism for approving, in time for the April update, diagnosis and procedure code revisions needed to describe new technologies and medical services for purposes of the new technology add-on payment process. We also established the following process for making these determinations. Topics considered during the Fall ICD-9-CM Coordination and Maintenance Committee meeting are considered for an April 1 update if a strong and convincing case is made by the requester at the Committee's public meeting. The request must identify the reason why a new code is needed in April for purposes of the new technology process. The participants at the meeting and those reviewing the Committee meeting summary report are provided the opportunity to comment on this expedited request. All other topics are considered for the October 1 update. Participants at the Committee meeting are encouraged to comment on all such requests. There were no requests approved for an expedited April l, 2008 implementation of an ICD-9-CM code at the September 27-28, 2007 Committee meeting. Therefore, there were no new ICD-9-CM codes implemented on April 1, 2008.

We believe that this process captures the intent of section 1886(d)(5)(K)(vii) of the Act. This requirement was included in the provision revising the standards and process for recognizing new technology under the IPPS. In addition, the need for approval of new codes outside the existing cycle (October 1) arises most frequently and most acutely where the new codes will identify new technologies that are (or will be) under consideration for new technology add-on payments. Thus, we believe this provision was intended to expedite data collection through the assignment of new ICD-9-CM codes for new technologies seeking higher payments.

Current addendum and code title information is published on the CMS Web site at: http://www.cms.hhs.gov/icd9ProviderDiagnosticCodes/01_overview.asp#TopofPage. Information on ICD-9-CM diagnosis codes, along with the Official ICD-9-CM Coding Guidelines, can be found on the Web site at: http://www.cdc.gov/ nchs/icd9.htm. Information on new, revised, and deleted ICD-9-CM codes is also provided to the AHA for publication in the Coding Clinic for ICD-9-CM. AHA also distributes information to publishers and software vendors.

CMS also sends copies of all ICD-9-CM coding changes to its contractors for use in updating their systems and providing education to providers.

These same means of disseminating information on new, revised, and deleted ICD-9-CM codes will be used to notify providers, publishers, software vendors, contractors, and others of any changes to the ICD-9-CM codes that are implemented in April. The code titles are adopted as part of the ICD-9-CM Coordination and Maintenance Committee process. Thus, although we publish the code titles in the IPPS proposed and final rules, they are not subject to comment in the proposed or final rules. We will continue to publish the October code updates in this manner within the IPPS proposed and final rules. For codes that are implemented in April, we will assign the new procedure code to the same DRG in which its predecessor code was assigned so there will be no DRG impact as far as DRG assignment. Any midyear coding updates will be available through the Web sites indicated above and through the Coding Clinic for ICD-9-CM. Publishers and software vendors currently obtain code changes through these sources in order to update their code books and software systems. We will strive to have the April 1 updates available through these Web sites 5 months prior to implementation (that is, early November of the previous year), as is the case for the October 1 updates.

12. Other MS-DRG Issues

a. Heart Transplants or Implants of Heart Assist System and Liver Transplants

Comment: One commenter representing transplant surgeons was concerned about the proposed reductions in the MS-DRG relative weights for MS-DRG 002 (Heart Transplant or Implant of Heart Assist System without MCC) and MS-DRG 006 (Liver Transplant without MCC). According to the commenter, the relative weight for MS-DRG 006 would decrease by approximately 33 percent and the relative weight for MS-DRG 002 would be reduced by 20 percent. The commenter also reported that only 30 percent of the heart transplant cases were assigned to MS-DRG 002 and 26 percent of the liver transplant cases were assigned to MS-DRG 006. The commenter questioned the statistical reliability of the data and recommended that CMS establish a single MS-DRG for heart transplants and a single MS-DRG for liver transplants.

The commenter stated that one factor that influences hospital costs and lengths of stay is the characteristics of the donor organ. The commenter stated that the donor risk index (DRI) and the model for end-stage liver disease (MELD) system which prioritizes patients waiting for liver transplants by severity of illness are two important factors for any severity index for transplant DRGs. This information is not identified in the MedPAR data. The commenter acknowledged that it is in the process of developing a proposal for NCHS to incorporate this information into potential ICD-9-CM diagnosis codes. The commenter stated that, until these factors can be incorporated into the data, it is not appropriate to have severity-based DRGs for heart and liver transplant procedures based on CC or MCC that have not been validated as predictors in the transplant population.

The commenter also requested that CMS create a new MS-DRG for combined liver/kidney transplants. These cases are currently assigned to the liver transplant DRGs 005-006 (Liver Transplant with MCC or Intestinal Transplant and Liver Transplant without MCC). While the commenter acknowledged that most of these cases would be assigned to MS-DRG 005, the MCC group, the commenter contended that a separate DRG is needed to address the significantly higher costs and length of stay associated with combined liver/kidney transplants.

Response: As we stated in the FY 2008 IPPS final rule (72 FR 47251), clinical evaluation and claims data supported the current MCC split for heart and liver transplants. Several commenters accepted CMS's proposal of not making significant revisions to the MS-DRGs until claims data under the new MS-DRG system are available. At this time, we do not have MS-DRG data to evaluate these significant changes. Therefore, we are not implementing any changes to the transplant MS-DRGs for FY 2009.

b. New Codes for Pressure Ulcers

As discussed in the FY 2008 IPPS final rule with comment period (72 FR 47205-47206), we referred the need for more detailed ICD-9-CM pressure ulcer codes to the CDC. The topic of expanding pressure ulcer codes to capture the stage of the ulcer was addressed at the September 27-28, 2007, meeting of the ICD-9-CM Coordination and Maintenance Committee. A summary report of that meeting is available on the Web site at: http://www.cdc.gov/nchs/about/otheract/icd9/maint/maint.htm.

At the September 2007 meeting of the ICD-9-CM Coordination and Maintenance Committee, numerous wound care professionals supported modifying the pressure ulcer codes to capture staging information. The stage of the pressure ulcer is a powerful predictor of severity and resource utilization. At the meeting, the ICD-9-CM Coordination and Maintenance Committee discussed the creation of pressure ulcer codes to capture staging information. The new codes, along with their CC/MCC classifications, are shown in Table 6A of the Addendum to the proposed rule and this final rule. The new codes are as follows:

  • 707.20 (Pressure ulcer, unspecified stage)
  • 707.21 (Pressure ulcer stage I)
  • 707.22 (Pressure ulcer stage II)
  • 707.23 (Pressure ulcer stage III)
  • 707.24 (Pressure ulcer stage IV)
  • 707.25 (Pressure ulcer unstageable)

Comment: Several commenters supported the ICD-9-CM diagnosis codes for pressure ulcer stages. The commenters also supported the revised terminology for the existing decubitus ulcer codes (707.00 through 707.09), stating that changing these code titles from decubitus ulcer to pressure ulcer is a more accurate and appropriate nomenclature. Further, the commenters asked for additional pressure ulcer stage codes beyond what was created for FY 2009, as shown in Table 6A of the Addendum to this final rule (codes 707.20 through 707.25). Instead of a single code for pressure ulcer, unstageable (707.25), the commenters requested the following:

  • Recommended new code: 707.25 (Deep tissue injury)
  • Recommended new code: 707.26 (Unstageable pressure ulcers)

The commenters asked that both of these proposed new codes be classified as MCCs because either condition can progress to a stage III or stage IV pressure ulcer. In addition, the commenters stated that unstageable pressure ulcers will be a stage III or stage IV if debridement takes place. However, the commenters added, debridement is not always indicated in unstageable pressure ulcers, so the wound may remain unstageable throughout the entire stay. The commenters further stated that deep tissue injury can deteriorate rapidly into a stage III or stage IV pressure ulcer, even with optimal treatment.

Response: As stated earlier, the creation of new codes for pressure ulcers was discussed at the ICD-9-CM Coordination and Maintenance Committee on September 28, 2007. CDC received formal comments on the proposed new codes through December 3, 2007. CDC considered a wide range of comments, including those mentioned above. CDC finalized the pressure ulcer stage codes, which included new codes 707.20 through 707.25. As mentioned above, CDC created a new ICD-9-CM code, 707.25 (Pressure ulcer, unstageable) to include pressure ulcers described as unstageable as well as pressure ulcers documented as deep tissue injury. The ICD-9-CM index specifically assigns pressure ulcers that are described as deep tissue injuries to code 707.25. These new codes will go into effect on October 1, 2008. After experience is gained using these new codes, the public can request that the ICD-9-CM Coordination and Maintenance Committee reconsider the issue of pressure ulcer coding.

We do not support the request to make ICD-9-CM code 707.25 (Pressure ulcer, unstageable) an MCC. Unstageable indicates that the stage of the pressure ulcer cannot be determined because it is covered by a dressing or because it is covered by a black eschar. If the ulcer does deteriorate and is determined to be a stage III or stage IV pressure ulcer, then stage III or IV codes will be reported. To classify an unstageable pressure ulcer as the same severity as a stage III or stage IV because it may become a stage III or stage IV is inappropriate. Therefore, we are not changing the MCC/CC classification of code 707.25 (Pressure ulcer, unstageable), and it will remain a non-CC.

The CDC has recently updated the ICD-9-CM coding guidance for pressure ulcers. Code assignments for pressure ulcer stages may be based on medical record documentation from clinicians who are not the patient's provider. The coding guidelines are available at: http://www.cdc.gov/nchs/datawh/ftpserv/ftpICD9/ftpICD9.htm.

c. Coronary Artery Stents

This topic was not raised by CMS in the proposed rule. However, four commenters have taken this opportunity to comment on the content of MS-DRG 246 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent with MCC or 4+ Vessels/Stents), and 248 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent with MCC or 4+ Vessels/Stents) in MDC 5 (Diseases and Disorders of the Circulatory System).

For a comprehensive review of the most recent discussion concerning coronary stents, both drug-eluting and non-drug-eluting, we refer readers to FY 2006 IPPS final rule (70 FR 47929 through 47295). In Table 6B of that rule, we published the new ICD-9-CM procedure codes describing newly created adjunct codes 00.40 through 00.43 (codes describing the number of blood vessels upon which a procedure had been performed) and 00.45 through 00.48 (codes describing the number of vascular stents which had been inserted). These codes were available for use beginning October 1, 2006, for FY 2007. We note that under the former CMS DRG structure, the DRGs containing either drug-eluting or non-drug-eluting stents were located in CMS DRG 556 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent without Major Cardiovascular Diagnosis), CMS DRG 557 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent with Major Cardiovascular Diagnosis), or CMS DRG 558 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent without Major Cardiovascular Diagnosis).

In response to a late comment during the last update cycle regarding insertion of four or more stents, CMS had reviewed, but did not publish, FY 2007 MedPAR data containing some statistics included in MS-DRGs 246 and 248. The ICD-9-CM procedure codes we reviewed were:

  • 00.66 (Percutaneous transluminal coronary angioplasty [PTCA] or coronary atherectomy)
  • 00.40 (Procedure on single vessel)
  • 00.41 (Procedure on two vessels)
  • 00.42 (Procedure on three vessels)
  • 00.43 (Procedure on four or more vessels)
  • 00.44 (Procedure on vessel bifurcation)
  • 00.45 (Insertion of one vascular stent)
  • 00.46 (Insertion of two vascular stents)
  • 00.47 (Insertion of three vascular stents)
  • 00.48 (Insertion of four or more vascular stents)

We arrayed the data several ways, looking at PTCA cases with 4+ vessels without 4+ stents (codes 00.66 with 00.43), with 4+ stents without 4+ vessels (codes 00.66 with 00.48), and the balance of the contents of MS-DRGs 246 and 248 eliminating PTCA plus 4+ vessels and 4+ stents (codes 00.66 plus 00.43) and (codes 00.66 plus 00.48). In addition, we reviewed the data on cases involving 1-3 vessels with 4+ stents (codes 00.40 through 00.42 with 00.48) and 1-3 stents with 4+ vessels (codes 00.45 through 00.47 with 00.43). We also reviewed MS-DRGs 246, 247, 248, and 249 containing the code for vessel bifurcation (code 00.44). The data we reviewed are represented in the tables below.

MS-DRGs Number of cases Average length of stay Average charges
246—All Cases 27,591 5.36 $65,423.34
246—Cases with PTCA with 4+ vessels without 4+ stents (Codes 00.66 with 00.43) 311 2.56 50,986.31
246—Cases with PTCA with 4+ stents without 4+ vessels (Codes 00.66 with 00.48) 5,697 2.73 66,275.14
246—Cases without Codes 00.66 with 00.43 or 00.66 with 00.48 21,289 6.13 65,329.96
247—All Cases 180,307 2.17 42,084.09
248—All Cases 12,979 6.03 59,016.01
248—Cases with PTCA with 4+ vessels without 4+ stents (Codes 00.66 with 00.48) 59 2.44 44,454.05
248—Cases with PTCA with 4+ stents withouth 4+ vessels (Codes 00.66 with 00.48) 1,474 3.57 57,210.58
248—Cases without Codes 00.66 with 00.43 or 00.66 with 00.48 11,396 6.38 59,318.54
249—All Cases 65,858 2.50 36,958.18
246—All Cases 27,591 5.36 65,423.34
246—Cases with 1-3 vessels with 4+ stents (Codes 00.40-00.42 with 00.48) 3,901 2.67 64,363.82
246—Cases with 1-3 stents with 4+ vessels (Codes 00.45-00.47 with 00.43) 214 2.45 50,425.73
246—Cases with procedure on vessel bifurcation (Code 00.44) 387 3.56 62,338.01
247—All Cases 180,307 2.17 42,084.09
247—Cases with procedure on vessel bifurcation (Code 00.44) 1,742 1.97 42,212.23
248—All Cases 12,979 6.03 59,016.01
248—Cases with 1-3 vessels with 4+ stents (Codes 00.40-00.42 with 00.48) 961 3.60 55,721.11
248—Cases with 1-3 stents with 4+ vessels (Codes 00.45-00.47 with 00.43) 45 2.36 45,491.68
248—Cases with procedure on vessel bifurcation (Code 00.44) 92 5.22 65,756.27
249—All Cases 65,858 2.50 36,958.18
249—Cases with procedure on vessels bifurcation (Code 00.44) 422 2.31 38,507.05

The results of our review do not suggest to us that there should be any proposal for change to MS-DRGs 246 or 248 for FY 2009 because there was no compelling evidence that the cases involving either 4+ vessels or 4+ stents were inappropriately placed in the MS-DRGs.

Comment: Three commenters urged CMS to revise the GROUPER logic to include ICD-9-CM procedure codes 00.42 and 00.47 in MS-DRG 246. In addition, the commenters suggested the CMS revise the GROUPER logic for the bare metal stents in MS-DRG 248 by assigning codes 00.42 and 00.47 there as well. One commenter stated that assigning these codes to the “with MCC” MS-DRGs increases payment accuracy.

Response: We agree that reassigning these codes to MS-DRG 246 and 248 would increase payment. However, at this time we are not convinced that a change of this nature would increase payment accuracy. As previously stated, we reviewed the data for cases involving 4+ vessels and 4+ stents as shown above in the tables, but did not specifically review the data for cases involving 3 vessels and/or 3 stents inserted at one operative episode. However, we note that while all three commenters submitted data based on the MedPAR files of FY 2007, their conclusions regarding the numbers of cases and the charges were not consistent among themselves, nor did their data match our figures, even to the number of cases under review.

We note that evaluation of CMS's data comparing insertion of 1-3 stents with 4+ vessels shows an average length of stay almost 3 days lower than the average length of stay for the entire MS-DRG 246, as well as average charges $15,000 lower than the average for the entire DRG. Another evaluation of CMS's data comparing insertion in 1-3 vessels with 4+ stents shows an average length of stay of 2.7 days lower than the average length of stay for the entire MS-DRG 246, as well as average charges more than $1,000 lower than the average for the entire DRG. We believe that these data do not support an MS-DRG change.

Comment: One commenter, a device manufacturer, believed that MS-DRGs 246 through 251 (percutaneous cardiovascular procedures with and without drug-eluting and non-drug-eluting stents and with and without MCCs) contain appropriate procedure code assignments. The commenter indicated its intent to continue to monitoring the data in these MS-DRGs in an effort to improve coding accuracy and appropriate hospital resource allocation, but, at this time, recommended no changes to this group of MS-DRGs.

Response: We appreciate the commenter's feedback and look forward to working with the industry to assure appropriate payment to hospitals under all MS-DRGs.

As stated above, the topic of reassigning certain procedure codes for numbers of cardiac stents in cardiac vessels was not discussed in the FY 2009 IPPS proposed rule; therefore, no proposals had been made by CMS. We believe it is inappropriate to make these MS-DRG modifications without claims data under the MS-DRG system. Therefore, we will continue to monitor MDC 5 and the stent MS-DRGs. Should there be evidence-based justification for reassignment of codes within these MS-DRGs, we will be open to proposing to make changes to the structure of the MS-DRG in the future.

d. TherOx (Downstream® System)

This topic was not discussed in the FY 2009 IPPS proposed rule. However, one commenter addressed this subject.

TherOx, manufacturer of the Downstream® System, also known as SuperSaturated Oxygen Therapy (SSO 2) or Aqueous Oxygen (AO) System, is a new technology involving the creation and delivery of superoxygenated arterial blood directly to reperfused areas of myocardial tissue. The concept is that this will reduce infarct size by minimizing microvascular damage in heart attack patients following percutaneous coronary intervention. The Downstream® System is the console portion of a disposable cartridge-based system that withdraws a small amount of the patient's arterial blood, mixes it with a small amount of saline, and supersaturates it with oxygen to create highly oxygen-enriched blood, which is delivered directly to the infarct-related artery via the TherOx infusion catheter. An additional 100 minutes of catheterization laboratory time is required for this procedure. According to the proposed package insert, the Downstream® System will be used for patients undergoing a percutaneous cardiovascular procedure in which a stent is implanted. According to the manufacturer, factoring in the average charges for supplies ($2,333), procedure time ($8,727) and device cost ($10,560), the additional charges unique to the Downstream® System are estimated to be $21,620.

At the September 27, 2007, a request was made before the ICD-9-CM Coordination and Maintenance Committee to consider establishing a new code to describe this intervention. A new code, 00.49 (SuperSaturated oxygen therapy) was created for use beginning October 1, 2008, for FY 2009. This code can be found in Table 6B of the Addendum to this final rule.

Comment: One commenter, the manufacturer of the Downstream® System, expressed concern about the assignment of code 00.49 as a non-O.R. procedure in the proposed rule. This is indicated by an “N” in the O.R. column of Table 6B, and indicates that the GROUPER program will not take this code into account when reviewing Medicare claims data for MS-DRG assignment. The manufacturer encouraged CMS to assign code 00.49 to MS-DRG 246 (Percutaneous Cardiovascular Procedures with Drug-Eluting Stent with MCC or 4+ Vessels/Stents), irrespective of the actual presence of a drug-eluting stent or an MCC.

The manufacturer also encouraged CMS to help ensure that hospitals adopt this unique and beneficial treatment option in a timely manner after its FDA approval by assigning cases using the technology to MS-DRG 246, stating that: “This action will provide appropriate reimbursement [to hospitals] for its use”. The manufacturer further noted that in 2002, CMS established DRG assignments for drug-eluting stents, a technology that had not yet been approved by the FDA. The manufacturer requested that CMS take similar action [to the precedent set for drug-eluting stents] for cases involving patients that have had an anterior ST-elevated myocardial infarction (STEMI) and have received a stent and the Downstream® System.

The manufacturer further noted that assigning all cases using the Downstream® System to MS-DRG 246 is consistent with CMS' past MS-DRG reclassifications, pointing out that, in the FY 2008 final rule, CMS reorganized several MS-DRGs to better recognize the costs of particular technologies. The example was given concerning the reassignment of all cases utilizing the Gliadel® Wafer to MS-DRG 023 after CMS found that the average charges for Gliadel® cases in MS-DRG 024 were 27 percent greater than the average charges for non-Gliadel® cases. The manufacturer encourages CMS to follow this example “by assigning all cases using the Downstream® System to MS-DRG 246 where the average charges of these cases will be more closely aligned with the overall average of charges in the MS-DRG.”

Response: We note that procedure code 00.49 is so new that it has not yet had a chance to be reflected in the MedPAR database. Therefore, we do not have data on the impact of the Downstream® System procedure, which is an adjunct therapy to PTCA. Without claims data, we cannot evaluate the commenter's suggestion that the use of the Downstream® System is equivalent to cases in MS-DRG 246 which include the insertion of drug-eluting stents with MCC or 4+ vessels/stent. We also believe that the Downstream® System is not a stand-alone procedure (that is, it is only performed after a PTCA has been done, and while the patient is still in the catheterization laboratory). Therefore, it is most appropriately described as non-O.R. in its GROUPER designation. This would continue to allow the MS-DRG assignment to be based on the definitive procedures performed such as a PTCA or the insertions of stents, and not on adjunctive procedures.

When we created the severity-based MS-DRGs for use beginning in FY 2008, we thoroughly reviewed over 13,000 diagnosis codes in order to establish realistic severity measures. We had two major goals: To create DRGs that would more accurately reflect the severity of the cases assigned to them; and to create groups that would have sufficient volume so that meaningful and stable payment weights could be developed. We developed a set of five criteria to determine whether an MS-DRG should be subdivided into subgroups based on the presence of a CC or an MCC, and determined that a subgroup had to meet all five criteria in order to be so subdivided. These criteria can be reviewed in the FY 2008 final rule with comment period (72 FR 47169). There was no criteria suggesting that device-based procedures be assigned to the MS-DRG with an MCC designation in order for additional reimbursement to be made available to hospitals.

The commenter used the example of our review of the Gliadel® Wafer and subsequent MS-DRG reassignment to bolster the argument that these Downstream® System cases should be assigned to MS-DRG 246. We point out that the commenter himself noted that this reassignment took place after CMS had reviewed the MedPAR data and was able to determine that the average charges for Gliadel® cases in MS-DRG 024 were 27 percent greater than the average charges for non-Gliadel® cases, thereby warranting such a change.

Without evidence-based data, we are reluctant to subjectively assign a technology to an MS-DRG based on assumption. Further, to ignore the structure of the MS-DRG system solely for the purpose of increasing payment for one device would set an unwelcome precedent for defining all of the other MS-DRGs in the system, as previously stated in the FY 2007 IPPS final rule (71 FR 47943). We believe that the MS-DRG structure for the percutaneous procedures with stent insertion (MS-DRGs 246, 247, 248, and 249, with and without volume of vessels and/or stents, and with or without CC/MCC) are appropriate MS-DRG assignments for the Downstream® System, and the cases will be assigned based on the presence of either a drug-eluting or a non-drug eluting stent, and the presence or absence of an MCC. Therefore, for FY 2009, because there is no data to support the assignment of procedure code 00.49 to MS-DRG 246, we are not making the change requested by the commenter. Should there be evidence-based justification for assignment of code 00.49 in the future, we will be open to making a proposal to change the structure of these MS-DRGs.

e. Spinal Disc Devices

This topic was not discussed in the FY 2009 IPPS proposed rule. However, one commenter addressed this subject.

Comment: One commenter representing a manufacturer of artificial disc devices recommended that CMS create a new MS-DRG for disc device procedures in MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue). Specifically, the commenter suggested that ICD-9-CM codes 84.58 (Implantation of interspinous process decompression device), 84.59 (Insertion of other spinal devices), 84.62 (Insertion of total spinal disc prosthesis, cervical), and 84.65 (Insertion of total spinal disc prosthesis, lumbosacral) be moved into a separate MS-DRG that combines procedures that utilize expensive implantable devices. According to the commenter, by creating this new MS-DRG, CMS would avoid classifying these procedures with procedures that do not utilize devices.

Response: We point out that ICD-9-CM code 84.58 was deleted effective October 1, 2007 (FY 2008). The procedure previously assigned to that code was reassigned to new ICD-9-CM code 84.80 (Insertion or replacement of interspinous process device(s)).

With regards to the creation of a new MS-DRG for the procedure codes 84.59, 84.62, and 84.65, we refer the reader to the FY 2008 IPPS proposed rule (72 FR 24733 through 24735) and the FY 2008 IPPS final rule with comment period (72 FR 47226 through 47232) for a discussion on the comprehensive evaluation of all the spinal DRGs in the development of the MS-DRG classification system. Effective October 1, 2007, all the aforementioned procedures were grouped together in MS-DRG 490 (Back and Neck Procedures Except Spinal Fusion with CC/MCC or Disc Device/Neurostimulator). The modifications made to the spinal DRGs for FY 2008 recognized the similar utilization of resources, differences in levels of severity and the complexity of the services being performed on patients undergoing those types of procedures.

In response to the suggested creation of a new, separate MS-DRG to combine spinal procedures that utilize expensive implantable devices, we note that the MS-DRG classification system (and more importantly, the IPPS), is not based solely on the cost of devices; it is not a device classification system. We refer the reader to section II.B.2. of the preamble to this final rule for a summary of the process and criteria utilized in determining whether specific MS-DRG modifications are warranted in a given year.

We note that several commenters acknowledged CMS' discussion of the FY 2008 implementation of the MS-DRGs and the lack of data to support major MS-DRG changes for FY 2009. In addition, several commenters accepted CMS' proposal of not making significant revisions to the MS-DRGs until claims data under the new MS-DRG system are available. Therefore, because we do not have claims data at this time to evaluate the need for revisions to MS-DRGs, we are not making any revisions to the MS-DRGs involving implantable spinal devices for FY 2009.

f. Spinal Fusion

This topic was not discussed in the FY 2009 IPPS proposed rule. However, one commenter addressed this subject.

Comment: Similar to last year, a manufacturer again requested that CMS reassign procedure code 84.82 (Insertion or replacement of pedicle-based dynamic stabilization device(s)), which was effective October 1, 2007, from MS-DRG 490 (Back and Neck Procedures Except Spinal Fusion with CC/MCC or Disc Device/Neurostimulator) to MS-DRG 460 (Spinal Fusion Except Cervical without MCC).

As a result of CMS' final policy for FY 2008 that assigned procedure code 84.82 to MS-DRG 490, the commenter reported that it conducted a number of analyses that included: (1) A clinical comparison of the implant procedure of dynamic stabilization and instrumented spinal fusion; (2) a comparison of average charge data in MS-DRGs 460 and 490 utilizing FY 2007 MedPAR data; and (3) a cost comparison of claims including the implant of the Dynesys® system compared to those of spinal fusion.

Due to the fact that claims data on procedure code 84.82 was unavailable in the MedPAR file, the commenter stated it utilized procedure code 84.59 (Insertion of other spinal devices) and conducted the same analysis CMS had done for FY 2008. Results of the commenter's analysis showed a large increase in the volume of cases with procedure code 84.59 assigned, which, according to the commenter, provided a more reliable number of cases to compare average charges.

Response: We appreciate the commenter's analysis and acknowledge the commenter's request. In response to the commenter's analyses of the charge data for procedure code 84.59, the Dynesys® system is not the only technology that was assigned to code 84.59 in the years that the commenter examined. During that time, there were a number of other spinal technologies that were under development or in clinical trials that were also assigned procedure code 84.59 because a unique code for their specific technology did not yet exist.

As stated in the FY 2008 final rule with comment period (72 FR 47228), we conducted a comprehensive review of the entire group of spine DRGs in the development of the MS-DRG system. In the analysis that we conducted, the data demonstrated that procedures assigned to MS-DRG 490 were not the same in terms of resource utilization, severity of illness, and complexity of care, as those assigned to MS-DRG 460 (Spinal Fusion Except Cervical without MCC). As we stated earlier, we received several comments acknowledging CMS' discussion of the recent implementation of MS-DRGs and lack of data to support major MS-DRG changes for FY 2009. The commenters accepted CMS' proposal of not making significant revisions to the MS-DRGs until claims data under the new MS-DRG system are available. Therefore, as final policy for FY 2009, we are not reassigning procedure code 84.82 from MS-DRG 490 to MS-DRG 460.

g. Special Treatment for Hospitals With High Percentages of ESRD Discharges

In our existing regulations under 42 CFR 412.104, we provide that CMS will make an additional payment to a hospital for inpatient services furnished to a beneficiary with end-stage renal disease (ESRD) who is discharged and who receives a dialysis treatment during a hospital stay, if the hospital has established that ESRD beneficiary discharges constitute 10 percent or more of its total Medicare discharges. However, as specified in the regulations, in determining a hospital's eligibility for this additional payment, we excluded from the hospital's ESRD beneficiary discharge count discharges classified into the following CMS DRGs: DRG 302 (Kidney Transplant); DRG 316 (Renal Failure); or DRG 317 (Admit for Renal Dialysis). As discussed in section II.C. of the preamble of this final rule, we adopted the MS-DRG classification system for FY 2008 to better recognize severity of illness. Under the MS-DRG system, these three DRGs have been changed. Therefore, we are revising § 412.104 to make the three DRG numbers and titles consistent with their replacement MS-DRGs. DRG 302 (Kidney Transplant) became MS-DRG 652; DRG 316 (Renal Failure) became MS-DRG 682 (Renal Failure with MCC), MS-DRG 683 (Renal Failure with CC), and MS-DRG 684 (Renal Failure without CC/MCC); and DRG 317 (Admit for Renal Dialysis) became MS-DRG 685 (Admit for Renal Dialysis).

H. Recalibration of MS-DRG Weights

In section II.E. of the preamble of this final rule, we state that we are fully implementing the cost-based DRG relative weights for FY 2009, which is the third year in the 3-year transition period to calculate the relative weights at 100 percent based on costs. In the FY 2008 IPPS final rule with comment period (72 FR 47267), as recommended by RTI, for FY 2008, we added two new CCRs for a total of 15 CCRs: One for “Emergency Room” and one for “Blood and Blood Products,” both of which can be derived directly from the Medicare cost report.

As we proposed, in developing the FY 2009 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 2007 MedPAR data used in this final rule include discharges occurring on October 1, 2006, through September 30, 2007, based on bills received by CMS through March 2008, from all hospitals subject to the IPPS and short-term, acute care hospitals in Maryland (which are under a waiver from the IPPS under section 1814(b)(3) of the Act). The FY 2007 MedPAR file used in calculating the relative weights includes data for approximately 11,554,993 Medicare discharges from IPPS providers. Discharges for Medicare beneficiaries enrolled in a Medicare Advantage managed care plan are excluded from this analysis. The data exclude CAHs, including hospitals that subsequently became CAHs after the period from which the data were taken. The second data source used in the cost-based relative weighting methodology is the FY 2006 Medicare cost report data files from HCRIS (that is, cost reports beginning on or after October 1, 2005, and before October 1, 2006), which represents the most recent full set of cost report data available. We used the March 31, 2008 update of the HCRIS cost report files for FY 2006 in setting the relative cost-based weights.

The methodology we used to calculate the DRG cost-based relative weights from the FY 2007 MedPAR claims data and FY 2006 Medicare cost report data is as follows:

  • To the extent possible, all the claims were regrouped using the FY 2009 MS-DRG classifications discussed in sections II.B. and G. of the preamble of this final rule.
  • The transplant cases that were used to establish the relative weights for heart and heart-lung, liver and/or intestinal, and lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively) were limited to those Medicare-approved transplant centers that have cases in the FY 2007 MedPAR file. (Medicare coverage for heart, heart-lung, liver and/or intestinal, and lung transplants is limited to those facilities that have received approval from CMS as transplant centers.)
  • Organ acquisition costs for kidney, heart, heart-lung, liver, lung, pancreas, and intestinal (or multivisceral organs) transplants continue to be paid on a reasonable cost basis. Because these acquisition costs are paid separately from the prospective payment rate, it is necessary to subtract the acquisition charges from the total charges on each transplant bill that showed acquisition charges before computing the average cost for each DRG and before eliminating statistical outliers.
  • Claims with total charges or total length 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 95.9 percent of the providers in the MedPAR file had charges for 10 of the 15 cost centers. Claims for providers that did not have charges greater than zero for at least 10 of the 15 cost centers were deleted.
  • Statistical outliers were eliminated by removing all cases that were beyond 3.0 standard deviations from the mean of the log distribution of both the total charges per case and the total charges per day for each DRG.

Once the MedPAR data were trimmed and the statistical outliers were removed, the charges for each of the 15 cost groups for each claim were standardized to remove the effects of differences in area wage levels, IME and DSH payments, and for hospitals in Alaska and Hawaii, the applicable cost-of-living adjustment. Because hospital charges include charges for both operating and capital costs, we standardized total charges to remove the effects of differences in geographic adjustment factors, cost-of-living adjustments, DSH payments, and IME adjustments under the capital IPPS as well. Charges were then summed by DRG for each of the 15 cost groups so that each DRG had 15 standardized charge totals. These charges were then adjusted to cost by applying the national average CCRs developed from the FY 2006 cost report data.

The 15 cost centers that we used in the relative weight calculation are shown in the following table. The table shows the lines on the cost report and the corresponding revenue codes that we used to create the 15 national cost center CCRs.

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We developed the national average CCRs as follows:

Taking the FY 2006 cost report data, we removed CAHs, Indian Health Service hospitals, all-inclusive rate hospitals, and cost reports that represented time periods of less than 1 year (365 days). We included hospitals located in Maryland as we are including their charges in our claims database. We then created CCRs for each provider for each cost center (see prior table for line items used in the calculations) and removed any CCRs that were greater than 10 or less than 0.01. We normalized the departmental CCRs by dividing the CCR for each department by the total CCR for the hospital for the purpose of trimming the data. We then took the logs of the normalized cost center CCRs and removed any cost center CCRs where the log of the cost center CCR was greater or less than the mean log plus/minus 3 times the standard deviation for the log of that cost center CCR. Once the cost report data were trimmed, we calculated a Medicare-specific CCR. The Medicare-specific CCR was determined by taking the Medicare charges for each line item from Worksheet D-4 and deriving the Medicare-specific costs by applying the hospital-specific departmental CCRs to the Medicare-specific charges for each line item from Worksheet D-4. Once each hospital's Medicare-specific costs were established, we summed the total Medicare-specific costs and divided by the sum of the total Medicare-specific charges to produce national average, charge-weighted CCRs.

After we multiplied the total charges for each DRG in each of the 15 cost centers by the corresponding national average CCR, we summed the 15 “costs” across each DRG to produce a total standardized cost for the DRG. The average standardized cost for each DRG was then computed as the total standardized cost for the DRG divided by the transfer-adjusted case count for the DRG. The average cost for each DRG was then divided by the national average standardized cost per case to determine the relative weight.

The new cost-based relative weights were then normalized by an adjustment factor of 1.50598 so that the average case weight after recalibration was equal to the average case weight before recalibration. The normalization adjustment is intended to ensure that recalibration by itself neither increases nor decreases total payments under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act.

The 15 national average CCRs for FY 2009 are as follows:

Group CCR
Routine Days 0.546
Intensive Days 0.486
Drugs 0.205
Supplies Equipment 0.345
Therapy Services 0.423
Laboratory 0.169
Operating Room 0.295
Cardiology 0.190
Radiology 0.171
Emergency Room 0.292
Blood and Blood Products 0.444
Other Services 0.432
Labor Delivery 0.476
Inhalation Therapy 0.199
Anesthesia 0.149

As we explained in section II.E. of the preamble of this final rule, we are completing our 2-year transition to the MS-DRGs. For FY 2008, the first year of the transition, 50 percent of the relative weight for an MS-DRG was based on the two-thirds cost-based weight/one-third charge-based weight calculated using FY 2006 MedPAR data grouped to the Version 24.0 (FY 2007) DRGs. The remaining 50 percent of the FY 2008 relative weight for an MS-DRG was based on the two-thirds cost-based weight/one-third charge-based weight calculated using FY 2006 MedPAR grouped to the Version 25.0 (FY 2008) MS-DRGs. In FY 2009, the relative weights are based on 100 percent cost weights computed using the Version 26.0 (FY 2009) MS-DRGs.

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. We are using that same case threshold in recalibrating the MS-DRG weights for FY 2009. Using the FY 2007 MedPAR data set, there are 8 MS-DRGs that contain fewer than 10 cases. Under the MS-DRGs, we have fewer low-volume DRGs than under the CMS DRGs because we no longer have separate DRGs for patients age 0 to 17 years. With the exception of newborns, we previously separated some DRGs based on whether the patient was age 0 to 17 years or age 17 years and older. Other than the age split, cases grouping to these DRGs are identical. The DRGs for patients age 0 to 17 years generally have very low volumes because children are typically ineligible for Medicare. In the past, we have found that the low volume of cases for the pediatric DRGs could lead to significant year-to-year instability in their relative weights. Although we have always encouraged non-Medicare payers to develop weights applicable to their own patient populations, we have heard frequent complaints from providers about the use of the Medicare relative weights in the pediatric population. We believe that eliminating this age split in the MS-DRGs will provide more stable payment for pediatric cases by determining their payment using adult cases that are much higher in total volume. All of the low-volume MS-DRGs listed below are for newborns. Newborns are unique and require separate DRGs that are not mirrored in the adult population. Therefore, it remains necessary to retain separate DRGs for newborns. In FY 2009, because we do not have sufficient MedPAR data to set accurate and stable cost weights for these low-volume MS-DRGs, we are computing weights for the low-volume MS-DRGs by adjusting their FY 2008 weights by the percentage change in the average weight of the cases in other MS-DRGs. The crosswalk table is shown below:

Low-volume MS-DRG MS-DRG title Crosswalk to MS-DRG
768 Vaginal Delivery with O.R. Procedure Except Sterilization and/or DC FY 2008 FR 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 FY 2008 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
790 Extreme Immaturity or Respiratory Distress Syndrome, Neonate FY 2008 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
791 Prematurity with Major Problems FY 2008 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
792 Prematurity without Major Problems FY 2008 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
793 Full-Term Neonate with Major Problems FY 2008 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
794 Neonate with Other Significant Problems FY 2008 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
795 Normal Newborn FY 2008 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).

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

I. Medicare Severity Long-Term Care (MS-LTC-DRG) Reclassifications and Relative Weights for LTCHs for FY 2009

1. Background

Section 123 of the BBRA requires that the Secretary implement a PPS for LTCHs (that is, a per discharge system with a diagnosis-related group (DRG)-based patient classification system reflecting the differences in patient resources and costs). Section 307(b)(1) of the BIPA modified the requirements of section 123 of the BBRA by requiring that the Secretary examine “the feasibility and the impact of basing payment under such a system [the long-term care hospital (LTCH) PPS] on the use of existing (or refined) hospital DRGs that have been modified to account for different resource use of LTCH patients, as well as the use of the most recently available hospital discharge data.”

When the LTCH PPS was implemented for cost reporting periods beginning on or after October 1, 2002, we adopted the same DRG patient classification system (that is, the CMS DRGs) that was utilized at that time under the IPPS. As a component of the LTCH PPS, we refer to the patient classification system as the “long-term care diagnosis-related groups (LTC-DRGs).” As discussed in greater detail below, 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 LTC-DRG relative weights 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 for the IPPS and the LTCH PPS, respectively, effective October 1, 2007 (FY 2008). For a full description of the development and implementation 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.) We believe the MS-DRGs (and by extension, the MS-LTC-DRGs) represent a substantial improvement over the previous CMS DRGs in their ability to differentiate cases based on severity of illness and resource consumption.

The MS-DRGs represent an increase in the number of DRGs by 207 (that is, from 538 to 745) (72 FR 47171). In addition to improving the DRG system's recognition of severity of illness, we believe the MS-DRGs are responsive to the public comments that were made on the FY 2007 IPPS proposed rule with respect to how we should undertake further DRG reform. The MS-DRGs use the CMS DRGs as the starting point for revising the DRG system to better recognize resource complexity and severity of illness. We have generally retained all of the refinements and improvements that have been made to the base DRGs over the years that recognize the significant advancements in medical technology and changes to medical practice.

Consistent with section 123 of the BBRA, as amended by section 307(b)(1) of the BIPA, and § 412.515, we use information derived from LTCH PPS patient records to classify LTCH discharges into distinct MS-LTC-DRGs based on clinical characteristics and estimated resource needs. We then assign an appropriate weight to the MS-LTC-DRGs to account for the difference in resource use by patients exhibiting the case complexity and multiple medical problems characteristic of LTCHs.

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.
  • Up to eight additional diagnoses.
  • Up to six procedures performed.
  • Age.
  • Sex.
  • Discharge status of the patient.

Upon the discharge of the patient from a LTCH, the LTCH must assign appropriate diagnosis and procedure codes from the most current version of the International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM). HIPAA Transactions and Code Sets Standards regulations at 45 CFR parts 160 and 162 require that no later than October 16, 2003, all covered entities must comply with the applicable requirements of Subparts A and I through R of Part 162. Among other requirements, those provisions direct covered entities to use the ASC X12N 837 Health Care Claim: Institutional, Volumes 1 and 2, Version 4010, and the applicable standard medical data code sets for the institutional health care claim or equivalent encounter information transaction (45 CFR 162.1002 and 45 CFR 162.1102). For additional information on the ICD-9-CM Coding System, we refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47241 through 47243 and 47277 through 47281). We also refer readers to the detailed discussion on correct coding practices in the August 30, 2002 LTCH PPS final rule (67 FR 55981 through 55983). Additional coding instructions and examples are published in the Coding Clinic for ICD-9-CM, a product of the American Hospital Association.

Medicare contractors (that is, fiscal intermediaries or MACs) enter the clinical and demographic information 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, the following types of cases are selected for further development:

  • Cases that are improperly coded. (For example, diagnoses are shown that are inappropriate, given the sex of the patient. Code 68.69 (Other and unspecified radical abdominal hysterectomy) would be an inappropriate code for a male.)
  • Cases including surgical procedures not covered under Medicare. (For example, organ transplant in a nonapproved transplant center.)
  • Cases requiring more information. (For example, ICD-9-CM codes are required to be entered at their highest level of specificity. There are valid 3-digit, 4-digit, and 5-digit codes. That is, code 262 (Other severe protein-calorie malnutrition) contains all appropriate digits, but if it is reported with either fewer or more than 3 digits, the claim will be rejected by the MCE as invalid.)

After screening through the MCE, each claim is classified into the appropriate MS-LTC-DRG by the Medicare LTCH GROUPER software. The Medicare GROUPER software, which is used under the LTCH PPS, is specialized computer software, and is the same GROUPER software program used under the IPPS. The GROUPER software was developed as a means of classifying each case into a MS-LTC-DRG on the basis of diagnosis and procedure codes and other demographic information (age, sex, and discharge status). Following the MS-LTC-DRG assignment, the Medicare contractor determines the prospective payment amount by using the Medicare PRICER program, which accounts for hospital-specific adjustments. Under the LTCH PPS, we provide an opportunity for the LTCH 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 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.

In the June 6, 2003 LTCH PPS final rule (68 FR 34122), we changed the LTCH PPS annual payment rate update cycle to be effective July 1 through June 30 instead of October 1 through September 30. In addition, because the patient classification system utilized under the LTCH PPS uses the same DRGs as those used under the IPPS for acute care hospitals, in that same final rule, we explained that the annual update of the LTC-DRG classifications and relative weights will continue to remain linked to the annual reclassification and recalibration of the DRGs used under the IPPS. Therefore, we specified that we will continue to update the LTC-DRG classifications and relative weights to be effective for discharges occurring on or after October 1 through September 30 each year. We further stated that we will publish the annual proposed and final update of the LTC-DRGs in the same notice as the proposed and final update for the IPPS (69 FR 34125).

In the RY 2009 LTCH PPS final rule (73 FR 26798), due to administrative considerations as well as in response to numerous comments urging CMS to establish one rulemaking cycle that would encompass the update of the LTCH PPS payment rates, which has been updated on a rate year basis, effective July 1 as well as the development of the MS-LTC-DRG weights, which are updated on a fiscal year basis, effective October 1, we amended the regulations at § 412.503 and § 412.535 in order to consolidate the rate year and fiscal year rulemaking cycles. Specifically, the annual update of the LTCH PPS payment rates (and description of the methodology and data used to calculate these payment rates) and the annual update of the MS-LTC- DRG classifications and associated weighting factors for LTCHs will be effective on October 1 of each Federal fiscal year beginning October 1, 2009. In order to revise the payment rate update from July 1 through June 30 to an October 1 through September 30 cycle, we extended the 2009 rate period to September 30, 2009, so that RY 2009 is 15 months. This 15-month rate year period is July 1, 2008, through September 30, 2009. We believe that extending RY 2009 by 3 months (to include July, August, and September) provides for a smooth transition to a consolidated annual update for both the LTCH PPS payment rates and the LTCH PPS MS-LTC-DRG classifications and weighting factors. Consequently, under the extension of RY 2009 to a 15-month rate period, after September 30, 2009, when the RY 2009 cycle ends, the LTCH PPS payment rates and other policy changes will subsequently be updated on an October 1 through September 30 cycle in conjunction with the annual update to the MS-LTC-DRG classifications and relative weights. Accordingly, the next update to the LTCH PPS payment rates, after the 15-month RY 2009, will begin October 1, 2009, coinciding with the 2010 Federal fiscal year.

In the past, the annual update to the DRGs used under the IPPS has been based on the annual revisions to the ICD-9-CM codes and was effective each October 1. As discussed in the FY 2009 IPPS proposed rule (73 FR 23591 through 23592), with the implementation of section 503(a) of Public Law 108-173, there is the possibility that one feature of the GROUPER software program may be updated twice during a Federal fiscal year (October 1 and April 1) as required by the statute for the IPPS. Section 503(a) of Public Law 108-173 amended section 1886(d)(5)(K) of the Act by adding a new clause (vii) which states that “the Secretary shall provide for the addition of new diagnosis and procedure codes in [sic] 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 by accounting for those ICD-9-CM codes in the MedPAR claims data earlier than the agency had accounted for new technology in the past. In implementing the statutory change, the agency has provided that ICD-9-CM diagnosis and procedure codes for new medical technology may be created and assigned to existing DRGs in the middle of the Federal fiscal year, on April 1. However, this policy change does not impact the DRG relative weights in effect for that year, which will continue to be updated only once a year (October 1). The use of the ICD-9-CM code set is also compliant with the current requirements of the Transactions and Code Sets Standards regulations at 45 CFR parts 160 and 162, promulgated in accordance with HIPAA.

As noted above, the patient classification system used under the LTCH PPS is the same patient classification system that is used under the IPPS. Therefore, the ICD-9-CM codes currently used under both the IPPS and the LTCH PPS have the potential of being updated twice a year. This requirement is included as part of the amendments to the Act relating to recognition of new medical technology under the IPPS.

Because we do not publish a midyear IPPS rule, any April 1 ICD-9-CM coding update will not be published in the Federal Register. Rather, we will assign any new diagnosis or procedure codes to the same DRG in which its predecessor code was assigned, so that there will be no impact on the DRG assignments (as also discussed in section II.G.11. of the preamble of this final rule). Any coding updates will be available through the Web sites provided in section II.G.11. of the preamble of this final rule and through the Coding Clinic for ICD-9-CM. Publishers and software vendors currently obtain code changes through these sources in order to update their code books and software system. If new codes are implemented on April 1, revised code books and software systems, including the GROUPER software program, will be necessary because the most current ICD-9-CM codes must be reported. Therefore, for purposes of the LTCH PPS, because each ICD-9-CM code must be included in the GROUPER algorithm to classify each case under the correct LTCH PPS, the GROUPER software program used under the LTCH PPS would need to be revised to accommodate any new codes.

In implementing section 503(a) of Public Law 108-173, there will only be an April 1 update if new technology diagnosis and procedure code revisions are requested and approved. We note that any new codes created for April 1 implementation will be limited to those primarily needed to describe new technologies and medical services. However, we reiterate that the process of discussing updates to the ICD-9-CM is an open process through the ICD-9-CM Coordination and Maintenance Committee. Requestors will be given the opportunity to present the merits for a new code and to make a clear and convincing case for the need to update ICD-9-CM codes for purposes of the IPPS new technology add-on payment process through an April 1 update (as also discussed in section II.G.11. of the preamble of this final rule).

At the September 27, 2007 ICD-9-CM Coordination and Maintenance Committee meeting, there were no requests for an April 1, 2008 implementation of ICD-9-CM codes. Therefore, the next update to the ICD-9-CM coding system will occur on October 1, 2008 (FY 2009). Because there were no coding changes suggested for an April 1, 2008 update, the ICD-9-CM coding set implemented on October 1, 2008, will continue through September 30, 2009 (FY 2009). The update to the ICD-9-CM coding system for FY 2009 is discussed in section II.G.11. of the preamble of this final rule.

Accordingly, in this final rule, as discussed in greater detail below and as we proposed, we are modifying and revising the MS-LTC-DRG classifications and relative weights to be effective October 1, 2008 through September 30, 2009 (FY 2009). As discussed in greater detail below, the MS-LTC-DRGs for FY 2009 in this final rule are the same as the MS-DRGs for the IPPS for FY 2009 (GROUPER Version 26.0) discussed in section II.B. of the preamble to this final rule.

2. Changes in the MS-LTC-DRG Classifications

a. Background

As discussed earlier, section 123 of Public Law 106-113 specifically requires that the agency implement a PPS for LTCHs that is a per discharge system with a DRG-based patient classification system reflecting the differences in patient resources and costs in LTCHs. Section 307(b)(1) of Public Law 106-554 modified the requirements of section 123 of Public Law 106-113 by specifically requiring that the Secretary examine “the feasibility and the impact of basing payment under such a system [the LTCH PPS] on the use of existing (or refined) hospital diagnosis-related groups (DRGs) that have been modified to account for different resource use of long-term care hospital patients as well as the use of the most recently available hospital discharge data.”

Consistent with section 123 of Public Law 106-113 as amended by section 307(b)(1) of Public Law 106-554 and § 412.515 of our existing regulations, the LTCH PPS uses information from LTCH patient records to classify patient cases into distinct LTC-DRGs based on clinical characteristics and expected resource needs. As described in section II.D. of the preamble of this final rule, for FY 2008, we adopted MS-DRGs under the IPPS because we believe that this system results in a significant improvement in the DRG system's recognition of severity of illness and resource usage. We stated that we believe these improvements in the DRG system are equally applicable to the LTCH PPS. The changes we are making in this FY 2009 IPPS final rule are reflected in the FY 2009 GROUPER, Version 26.0, that will be effective for discharges occurring on or after October 1, 2008, through September 30, 2009.

Consistent with our historical practice of having LTC-DRGs correspond to the DRGs applicable under the IPPS, under the broad authority of section 123(a) of Public Law 106-113, as modified by section 307(b) of Public Law 106-554, under the LTCH PPS for FY 2008, we adopted the use of MS-LTC-DRGs, which correspond to the MS-DRGs we adopted under the IPPS. In addition, as stated above, we are using the final FY 2009 GROUPER Version 26.0, established in section II.B. of this final rule, to classify cases effective for LTCH discharges occurring on or after October 1, 2008, and through September 30, 2009. The changes to the MS-DRG classification system that we are using under the IPPS for FY 2009 (GROUPER Version 26.0) are discussed in section II.B. of the preamble to this final rule.

Under the LTCH PPS, as described in greater detail below, we determine relative weights for each of the MS-LTC-DRGs to account for the difference in resource use by patients exhibiting the case complexity and multiple medical problems characteristic of LTCH patients. (Unless otherwise noted in this final rule, our MS-LTC-DRG analysis is based on LTCH data from the March 2008 update of the FY 2007 MedPAR file, which contains hospital bills received through March 31, 2008, for discharges occurring in FY 2007.)

LTCHs do not typically treat the full range of diagnoses as do acute care hospitals. Therefore, as we discussed in the August 30, 2002 LTCH PPS final rule (67 FR 55985), which implemented the LTCH PPS, and the FY 2008 IPPS final rule with comment period (72 FR 47283), we use low-volume quintiles in determining the DRG relative weights for DRGs with less than 25 LTCH cases (low-volume MS-LTC-DRGs). Specifically, we group those low-volume DRGs into 5 quintiles based on average charges per discharge. (A listing of the composition of low-volume quintiles for the FY 2008 MS-LTC-DRGs (based on FY 2006 MedPAR data) appears in section II.I.3. of the FY 2008 IPPS final rule with comment period (72 FR 47281 through 47288).) We also adjust for cases in which the stay at the LTCH is less than or equal to five-sixths of the geometric average length of stay; that is, short-stay outlier (SSO) cases, as discussed below in section II.I.4. of the preamble of this final rule.

b. Patient Classifications Into MS-LTC-DRGs

Generally, under the LTCH PPS, Medicare payment is made at a predetermined specific rate for each discharge; that is, payment varies by the DRG to which a beneficiary's stay is assigned. Just as cases have been classified into the MS-DRGs for acute care hospitals under the IPPS (discussed in section II.B. of the preamble of this final rule), cases have been classified into MS-LTC-DRGs for payment under the LTCH PPS based on the principal diagnosis, up to eight additional diagnoses, and up to six procedures performed during the stay, as well as demographic information about the patient. The diagnosis and procedure information is reported by the hospital using the ICD-9-CM coding system. Under the MS-DRGs for the IPPS and the MS-LTC-DRGs for the LTCH PPS, these factors will not change.

Section II.B. of the preamble of this final rule discusses the organization of the existing MS-DRGs, which we are maintaining under the MS-LTC-DRG system. As noted above, the patient classification system for the LTCH PPS is derived from the IPPS DRGs and is similarly organized into 25 major diagnostic categories (MDCs). Most of these MDCs are based on a particular organ system of the body and the remainder involves multiple organ systems (such as MDC 22, Burns). Accordingly, the principal diagnosis determines MDC assignment. Within most MDCs, cases are then divided into surgical DRGs and medical DRGs. Under the MS-DRGs, some surgical and medical DRGs are further defined for severity purposes based on the presence or absence of MCCs or CCs. The existing MS-LTC-DRGs are similarly categorized. (We refer readers to section II.B. of the preamble of this final rule for further discussion of surgical DRGs and medical DRGs.)

Therefore, consistent with the MS-DRGs, a base MS-LTC-DRG may be subdivided according to three alternatives. The first alternative includes division of the DRG into one, two, or three severity levels. The most severe level has cases with at least one code that is a major CC, referred to as “with MCC”. The next lower severity level contains cases with at least one CC, referred to as “with CC”. Those DRGs without an MCC or a CC are referred to as “without CC/MCC”. When data do not support the creation of three severity levels, the base DRG is divided into either two levels or the base is not subdivided.

The two-level subdivisions consist of one of the following subdivisions: “with CC/MCC” or “without CC/MCC.” In this type of subdivision, cases with at least one code that is on the CC or MCC list are assigned to the “with CC/MCC” DRG. Cases without a CC or an MCC are assigned to the “without CC/MCC” DRG.

The other type of two-level subdivision is as follows: “with MCC” and without MCC.” In this type of subdivision, cases with at least one code that is on the MCC list are assigned to the “with MCC” DRG. Cases that do not have an MCC are assigned to the “without MCC' DRG. This type of subdivision could include cases with a CC code, but no MCC.

3. Development of the FY 2009 MS-LTC-DRG Relative Weights

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

As we stated in the August 30, 2002 LTCH PPS final rule (67 FR 55981), one of the primary goals for the implementation of the LTCH PPS is to pay each LTCH an appropriate amount for the efficient delivery of medical care to Medicare patients. The system must be able to account adequately for each LTCH's case-mix in order to ensure both fair distribution of Medicare payments and access to adequate care for those Medicare patients whose care is more costly. To accomplish these goals, we have annually adjusted the LTCH PPS standard Federal prospective payment system rate by the applicable relative weight in determining payment to LTCHs for each case. (As we have noted above, we adopted the MS-LTC-DRGs for the LTCH PPS beginning in FY 2008. However, this change in the patient classification system does not affect the basic principles of the development of relative weights under a DRG-based prospective payment system.)

Although the adoption of the MS-LTC-DRGs resulted in some modifications of existing procedures for assigning weights in cases of zero volume and/or nonmonotonicity, as discussed in the FY 2008 IPPS final rule with comment period (72 FR 47289 through 47295) and the FY 2009 IPPS proposed rule and as detailed in the following sections, the basic methodology for developing the FY 2009 MS-LTC-DRG relative weights in this final rule continue to be determined in accordance with the general methodology established in the August 30, 2002 LTCH PPS final rule (67 FR 55989 through 55991). Under the LTCH PPS, relative weights for each MS-LTC-DRG are a primary element used to account for the variations in cost per discharge and resource utilization among the payment groups (§ 412.515). To ensure that Medicare patients classified to each MS-LTC-DRG have access to an appropriate level of services and to encourage efficiency, we calculate a relative weight for each MS-LTC-DRG that represents the resources needed by an average inpatient LTCH case in that MS-LTC-DRG. For example, cases in an MS-LTC-DRG with a relative weight of 2 will, on average, cost twice as much to treat as cases in an MS-LTC-DRG with a weight of 1.

b. Data

In the FY 2009 IPPS proposed rule (73 FR 23593), to calculate the proposed MS-LTC-DRG relative weights for FY 2009, we obtained total Medicare allowable charges from FY 2007 Medicare LTCH bill data from the December 2007 update of the MedPAR file, which were the best available data at that time, and we used the proposed Version 26.0 of the CMS GROUPER that was also proposed for use under the IPPS to classify LTCH cases for FY 2009. We also proposed that if more recent data became available, we would use those data and the finalized Version 26.0 of the CMS GROUPER in establishing the FY 2009 MS-LTC-DRG relative weights in the final rule. Consistent with that proposal, to calculate the MS-LTC-DRG relative weights for FY 2009, in this final rule, we obtained total Medicare allowable charges from FY 2007 Medicare LTCH bill data from the March 2008 update of the FY 2007 MedPAR file, which are the best available data at this time, and we used the Version 26.0 of the CMS GROUPER that will be used under the IPPS (as discussed in section III.B. of the preamble of this final rule).

Consistent with our historical methodology, as proposed, we have excluded the data from LTCHs that are all-inclusive rate providers and LTCHs that are reimbursed in accordance with demonstration projects authorized under section 402(a) of 90 or section 222(a) of 92. (We refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47282).) Therefore, in the development of the FY 2009 MS-LTC-DRG relative weights in this final rule, we have excluded the data of the 17 all-inclusive rate providers and the 2 LTCHs that are paid in accordance with demonstration projects that had claims in the FY 2007 MedPAR file.

c. Hospital-Specific Relative Value (HSRV) Methodology

By nature, LTCHs often specialize in certain areas, such as ventilator-dependent patients and rehabilitation and wound care. Some case types (DRGs) may be treated, to a large extent, in hospitals that have, from a perspective of charges, relatively high (or low) charges. This nonarbitrary 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, as we proposed, in this final rule, we used a hospital-specific relative value (HSRV) methodology to calculate the MS-LTC-DRG relative weights instead of the methodology used to determine the MS-DRG relative weights under the IPPS described in section II.H. of the preamble of this final rule. We believe this method will remove this hospital-specific source of bias in measuring LTCH average charges. Specifically, we are reducing the impact of the variation in charges across providers on any particular MS-LTC-DRG relative weight by converting each LTCH's charge for a case to a relative value based on that LTCH's average charge.

Under the HSRV methodology, we standardize charges for each LTCH by converting its charges for each case to hospital-specific relative charge values and then adjusting those values for the LTCH's case-mix. The adjustment for case-mix is needed to rescale the hospital-specific relative charge values (which, by definition, average 1.0 for each LTCH). The average relative weight for a LTCH is its case-mix, so it is reasonable to scale each LTCH's average relative charge value by its case-mix. In this way, each LTCH's relative charge value is adjusted by its case-mix to an average that reflects the complexity of the cases it treats relative to the complexity of the cases treated by all other LTCHs (the average case-mix of all LTCHs).

In accordance with the methodology established in the August 30, 2002 LTCH PPS final rule (67 FR 55989 through 55991), we continue to standardize charges for each case by first dividing the adjusted charge for the case (adjusted for SSOs under § 412.529 as described in section II.I.4. (step 3) of the preamble of this final rule) by the average adjusted charge for all cases at the LTCH in which the case was treated. SSO cases are cases with a length of stay that is less than or equal to five-sixths the average length of stay of the MS-LTC-DRG (§ 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.

Multiplying 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 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.

d. Treatment of Severity Levels in Developing Relative Weights

Under the MS-LTC-DRGs, for purposes of the setting of the relative weights, as we discussed in the FY 2009 IPPS proposed rule (73 FR 23594), there would be three different categories of DRGs based on volume of cases within specific MS-LTC-DRGs. MS-LTC-DRGs with at least 25 cases are each assigned a unique relative weight; low-volume MS-LTC-DRGs (that is, MS-LTC-DRGs that contain between one and 24 cases annually) are grouped into quintiles (described below) and assigned the weight of the quintile. No-volume MS-LTC-DRGs (that is, no cases in the database were assigned to those MS-LTC-DRGs) are crosswalked to other MS-LTC-DRGs based on the clinical similarities and assigned the relative weight of the crosswalked MS-LTC-DRG. (We provide in-depth discussions of our policy regarding weight setting for low-volume MS-LTC- DRGs in section II.I.3.e. of the preamble of this final rule and for no-volume MS-LTC-DRGs, under Step 5 in section II.I.4. of the preamble of this final rule.)

As described above, in response to the need to account for severity and pay appropriately for cases, we developed a severity-adjusted patient classification system which we adopted for both the IPPS and the LTCH PPS in FY 2008. As described in greater detail above, the MS-LTC-DRG system can accommodate three severity levels: “with MCC” (most severe); “with CC,” and “without CC/MCC” (the least severe) with each level assigned an individual MS-LTC-DRG number. In cases with two subdivisions, the levels are either “with CC/MCC” and “without CC/MCC” or “with MCC” and “without MCC”. For example, under the MS-LTC-DRG system, multiple sclerosis and cerebellar ataxia with MCC is MS-LTC-DRG 58; multiple sclerosis and cerebellar ataxia with CC is MS-LTC-DRG 59; and multiple sclerosis and cerebellar ataxia without CC/MCC is MS-LTC-DRG 60. For purposes of discussion in this section, the term “base DRG” is used to refer to the DRG category that encompasses all levels of severity for that DRG. For example, when referring to the entire DRG category for multiple sclerosis and cerebellar ataxia, which includes the above three severity levels, we would use the term “base-DRG.”

As noted above, while the LTCH PPS and the IPPS use the same patient classification system, the methodology that is used to set the DRG weights for use in each payment system differs because the overall volume of cases in the LTCH PPS is much less than in the IPPS. As a general rule, consistent with the methodology we used when we adopted the MS-LTC-DRGs in the FY 2008 IPPS final rule with comment period (72 FR 47278 through 47281), as we proposed, we determined the FY 2009 relative weights for the MS-LTC-DRGs using the following steps: (1) If an MS-LTC-DRG has at least 25 cases, it is assigned its own relative weight; (2) if an MS-LTC-DRG has between 1 and 24 cases, it is assigned to a quintile for which we compute a relative weight for all of the MS-LTC-DRGS assigned to that quintile; and (3) if an MS-LTC-DRG has no cases, it is crosswalked to another MS-LTC-DRG based upon clinical similarities to assign an appropriate relative weight (as described below in detail in Step 5 of the Steps for Determining the FY 2009 MS-LTC-DRG Relative Weights). Furthermore, in determining the FY 2009 MS-LTC-DRG relative weights, when necessary, as we proposed, we are making adjustments to account for nonmonotonicity, as explained below.

Theoretically, cases under the MS-LTC-DRG system that are more severe require greater expenditure of medical care resources and will result in higher average charges. Therefore, in the three severity levels, weights should increase with severity, from lowest to highest. If the weights do not increase (that is, if based on the relative weight methodology outlined above, the MS-LTC-DRG with MCC would have a lower relative weight than one with CC, or the MS-LTC-DRG without CC/MCC would have a higher relative weight than either of the others), there is a problem with monotonicity. Since the start of the LTCH PPS for FY 2003 (67 FR 55990), in determining the LTC-DRG relative weights, we have made adjustments in order to maintain monotonicity by grouping both sets of cases together and establishing a new relative weight for both LTC-DRGs. We continue to believe that utilizing nonmonotonic relative weights to adjust Medicare payments would result in inappropriate payments because, in a nonmonotonic system, cases that are more severe and require greater expenditure of medical care resources would be paid based on a lower relative weight than cases that are less severe and require lower resource use. The procedure for dealing with nonmonotonicity under the MS-LTC-DRG classification system is discussed in greater detail below in section II.I.4. (Step 6) of the preamble of this final rule.

e. Low-Volume MS-LTC-DRGs

In order to account for MS-LTC-DRGs with low volume (that is, with fewer than 25 LTCH cases), consistent with the methodology we established when we implemented the LTCH PPS (August 30, 2002; 67 FR 55984 through 55995), we group those “low-volume MS-LTC-DRGs” (that is, MS-LTC-DRGs that contained between 1 and 24 cases annually) into one of five categories (quintiles) based on average charges, for the purposes of determining relative weights (72 FR 47283 through 47288). In determining the FY 2009 MS-LTC-DRG relative weights in this final rule, as we proposed, we continue to employ this quintile methodology for low-volume MS-LTC-DRGs. In addition, in cases where the initial assignment of a low-volume MS-LTC-DRG to quintiles results in nonmonotonicity within a base-DRG, in order to ensure appropriate Medicare payments, consistent with our historical methodology, we are making adjustments to the treatment of low-volume MS-LTC-DRGs to preserve monotonicity, as discussed in detail below in section II.I.4 (Step 6 of the methodology for determining the FY 2009 MS-LTC-DRG relative weights). In this final rule, using LTCH cases from the March 2008 update of the FY 2007 MedPAR file, we identified 290 MS-LTC-DRGs that contained between 1 and 24 cases. This list of MS-LTC-DRGs was then divided into one of the 5 low-volume quintiles, each containing 58 MS-LTC-DRGs (290/5 = 58). As proposed, we assigned a low-volume MS-LTC-DRG to a specific low-volume quintile by sorting the low-volume MS-LTC-DRGs in ascending order by average charge in accordance with our established methodology. Specifically, for this final rule, the 290 low-volume MS-LTC-DRGs were sorted by ascending order by average charge and assigned to a specific low-volume quintile (as described below). After sorting the 290 low-volume MS-LTC-DRGs by average charge in ascending order, we grouped the first fifth (1st through 58th) of low-volume MS-LTC-DRGs (with the lowest average charge) into Quintile 1. This process was repeated through the remaining low-volume MS-LTC-DRGs so that each of the 5 low-volume quintiles contains 58 MS-LTC-DRGs. The highest average charge cases are grouped into Quintile 5. (We note that, consistent with our historical methodology, if the number of low-volume MS-LTC-DRGs had not been evenly divisible by 5, we would have used the average charge of the low-volume MS-LTC-DRG to determine which low-volume quintile would have received the additional low-volume MS-LTC-DRG.)

Accordingly, in order to determine the relative weights for the MS-LTC-DRGs with low-volume for FY 2009, as proposed, we used the five low-volume quintiles described above. The composition of each of the five low-volume quintiles shown in the chart below was used in determining the MS-LTC-DRG relative weights for FY 2009 (Table 11 of the Addendum to this final rule). We determined a relative weight and (geometric) average length of stay for each of the five low-volume quintiles using the methodology that we applied to the regular MS-LTC-DRGs (25 or more cases), as described in section II.I.4. of the preamble of this final rule. As we proposed, we assigned the same relative weight and average length of stay to each of the low-volume MS-LTC-DRGs that make up an individual low-volume quintile. We note that, as this system is dynamic, it is possible that the number and specific type of MS-LTC-DRGs with a low volume of LTCH cases will vary in the future. We use the best available claims data in the MedPAR file to identify low-volume MS-LTC-DRGs and to calculate the relative weights based on our methodology.

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We note that we will continue to monitor the volume (that is, the number of LTCH cases) in the low-volume quintiles to ensure that our quintile assignments result in appropriate payment for such cases and do not result in an unintended financial incentive for LTCHs to inappropriately admit these types of cases.

4. Steps for Determining the FY 2009 MS-LTC-DRG Relative Weights

In general, as we proposed, the FY 2009 MS-LTC-DRG relative weights in this final rule were determined based on the methodology established in the August 30, 2002 LTCH PPS final rule (67 FR 55989 through 55991). In summary, for FY 2009, we grouped LTCH cases to the appropriate MS-LTC-DRG, while taking into account the low-volume MS-LTC-DRGs (as described above), before the FY 2009 MS-LTC-DRG relative weights were determined. After grouping the cases to the appropriate MS-LTC-DRG (or low-volume quintile), we calculated the relative weights for FY 2009 by first removing statistical outliers and cases with a length of stay of 7 days or less (as discussed in greater detail below). Next, we adjusted the number of cases in each MS-LTC-DRG (or low-volume quintile) for the effect of SSO cases (as also discussed in greater detail below). The SSO adjusted discharges and corresponding charges were used to calculate “relative adjusted weights” in each MS-LTC-DRG (or low-volume quintile) using the HSRV method (described above). In general, to determine the FY 2009 MS-LTC-DRG relative weights in this final rule, as we proposed, we used the same methodology we used in determining the FY 2008 MS-LTC-DRG relative weights in the FY 2008 IPPS final rule with comment period (72 FR 47281 through 47299). However, as we proposed, we made a modification to our methodology for determining relative weights for MS-LTC-DRGs with no LTCH cases (as discussed in greater detail in Step 5 below). Also, we note that, although we are generally using the same methodology in this final rule (with the exception noted above) as the methodology used in the FY 2008 IPPS final rule with comment, the discussion presented below of the steps for determining the FY 2009 MS-LTC-DRG relative weights varies slightly from the discussion of the steps for determining the FY 2008 MS-LTC-DRG relative weights (presented in the FY 2008 IPPS final rule with comment) because we took this opportunity to refine our description to more precisely explain our methodology for determining the MS-LTC-DRG relative weights.

As discussed in the FY 2008 IPPS final rule with comment when we adopted the MS-LTC-DRGs, the adoption of the MS-LTC-DRGs with either two or three severity levels resulted in some slight modifications of procedures for assigning relative weights in cases of zero volume and/or nonmonotonicity (described in detail below) from the methodology we established when we implemented the LTCH PPS in the August 30, 2002 LTCH PPS final rule. As also discussed in the FY 2008 IPPS final rule with comment when we adopted the MS-LTC-DRGs, we implemented the MS-LTC-DRGs with a 2-year transition beginning in FY 2008. For FY 2008, the first year of the transition, 50 percent of the relative weight for a MS-LTC-DRG was based on the average LTC-DRG relative weight under Version 24.0 of the LTC-DRG GROUPER. The remaining 50 percent of the relative weight was based on the MS-LTC-DRG relative weight under Version 25.0 of the MS-LTC-DRG GROUPER. In FY 2009, the MS-LTC-DRG relative weights are based on 100 percent of the MS-LTC-DRG relative weights. Accordingly, in determining the FY 2009 MS-LTC-DRG relative weights in this final rule, there was no longer a need to include a step to calculate MS-LTC-DRG transition blended relative weights (see Step 7 in the FY 2008 IPPS final rule with comment period (72 FR 47295). Therefore, as we proposed, in this final rule, we determined the FY 2009 MS-LTC-DRG relative weights based solely on the MS-LTC-DRG relative weight under Version 26.0 of the MS-LTC-DRG GROUPER, which is discussed in section II.B. of the preamble of this final rule. Furthermore, as we proposed, we determined the final FY 2009 MS-LTC-DRG relative weights in this final rule based on the final Version 26.0 of the MS-LTC-DRG GROUPER that is presented in this final rule.

Below we discuss in detail the steps for calculating the FY 2009 MS-LTC-DRG relative weights. We note that, as we stated above in section II.I.3.b. of the preamble of this final rule, we have excluded the data of all-inclusive rate LTCHs and LTCHs that are paid in accordance with demonstration projects that had claims in the FY 2007 MedPAR file.

Step 1—Remove statistical outliers.

As we proposed, the first step in the calculation of the FY 2009 MS-LTC-DRG relative weights is to remove statistical outlier cases. Consistent with our historical relative weight methodology, we continue to define statistical outliers as cases that are outside of 3.0 standard deviations from the mean of the log distribution of both charges per case and the charges per day for each MS-LTC-DRG. These statistical outliers are removed prior to calculating the relative weights because we believe that they may represent aberrations in the data that distort the measure of average resource use. Including those LTCH cases in the calculation of the relative weights could result in an inaccurate relative weight that does not truly reflect relative resource use among the MS-LTC-DRGs.

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 2009 MS-LTC-DRG relative weights, the value of many relative weights would decrease and, therefore, payments would decrease to a level that may no longer be appropriate. We do not believe that it would be appropriate to compromise the integrity of the payment determination for those LTCH cases that actually benefit from and receive a full course of treatment at a LTCH, by including data from these very short-stays. Therefore, consistent with our historical relative weight methodology, in determining the FY 2009 MS-LTC-DRG relative weights, as we proposed, we removed LTCH cases with a length of stay of 7 days or less.

Step 3—Adjust charges for the effects of SSOs.

After removing cases with a length of stay of 7 days or less, we are left with cases that have a length of stay of greater than or equal to 8 days. As we proposed, as the next step in the calculation of the FY 2009 MS-LTC-DRG relative weights, consistent with our historical relative weight methodology, we adjusted 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 for LTCH discharges occurring on or after October 1, 2008). (We note that even if a case was removed in Step 2 (that is, cases with a length of stay of 7 days or less), it was paid as an SSO if its length of stay was less than or equal to five-sixths of the average length of stay of the MS-LTC-DRG.)

We made this adjustment by counting an SSO case as a fraction of a discharge based on the ratio of the length of stay of the case to the average length of stay for the MS-LTC-DRG for non-SSO cases. This has the effect of proportionately reducing the impact of the lower charges for the SSO cases in calculating the average charge for the MS-LTC-DRG. This process produces the same result as if the actual charges per discharge of an SSO case were adjusted to what they would have been had the patient's length of stay been equal to the average length of stay of the MS-LTC-DRG.

Counting SSO cases as full discharges with no adjustment in determining the FY 2009 MS-LTC-DRG relative weights would lower the FY 2009 MS-LTC-DRG relative weight for affected MS-LTC-DRGs because the relatively lower charges of the SSO cases would bring down the average charge for all cases within an MS-LTC-DRG. This would result in an “underpayment” for non-SSO cases and an “overpayment” for SSO cases. Therefore, as we proposed, we adjusted for SSO cases under § 412.529 in this manner because it results in more appropriate payments for all LTCH cases.

Step 4—Calculate the FY 2009 MS-LTC-DRG relative weights on an iterative basis.

Consistent with our historical relative weight methodology, as we proposed, we calculated the MS-LTC-DRG relative weights using the HSRV methodology, which is an iterative process. First, for each LTCH case, we calculate a hospital-specific relative charge value by dividing the SSO adjusted charge per discharge (see step 3) of the LTCH case (after removing the statistical outliers (see step 1)) and LTCH cases with a length of stay of 7 days or less (see step 2) by the average charge per discharge for the LTCH in which the case occurred. The resulting ratio was 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 MS-LTC-DRG, the FY 2009 relative weight was calculated by dividing the average of the adjusted hospital-specific relative charge values (from above) for the MS-LTC-DRG by the overall average hospital-specific relative charge value across all cases for all LTCHs. Using these recalculated MS-LTC-DRG relative weights, each LTCH's average relative weight for all of its cases (that is, its case-mix) were calculated by dividing the sum of all the LTCH's MS-LTC-DRG relative weights by its total number of cases. The LTCHs' hospital-specific relative charge values above were multiplied by these hospital-specific case-mix indexes. These hospital-specific case-mix adjusted relative charge values were then used to calculate a new set of MS-LTC-DRG relative weights across all LTCHs. This iterative process was continued until there was convergence between the weights produced at adjacent steps, for example, when the maximum difference is less than 0.0001.

Step 5—Determine an FY 2009 relative weight for MS-LTC-DRGs with no LTCH cases.

As we stated above, we determined the FY 2009 relative weight for each MS-LTC-DRG using total Medicare allowable charges reported in the best available LTCH claims data (that is, the March 2008 update of the FY 2007 MedPAR file for this final rule). Of the FY 2009 MS-LTC-DRGs, we identified a number of MS-LTC-DRGs for which there were no LTCH cases in the database. That is, based on data from the FY 2007 MedPAR file used for this final rule, no patients who would have been classified to those MS-LTC-DRGs were treated in LTCHs during FY 2007 and, therefore, no charge data were available for those MS-LTC-DRGs. Thus, in the process of determining the MS-LTC-DRG relative weights, we were unable to calculate relative weights for these MS-LTC-DRGs with no LTCH cases using the methodology described in Steps 1 through 4 above. However, because patients with a number of the diagnoses under these MS-LTC-DRGs may be treated at LTCHs, consistent with our historical methodology, as we proposed, we assigned relative weights to each of the no-volume MS-LTC-DRGs based on clinical similarity and relative costliness (with the exception of “transplant” MS-LTC-DRGs and “error” MS-LTC-DRGs as discussed below). In general, we determined FY 2009 relative weights for the MS-LTC-DRGs with no LTCH cases in the FY 2007 MedPAR file used in this final rule (that is, “no-volume MS-LTC-DRGs) by crosswalking each no-volume MS-LTC-DRG to another MS-LTC-DRG with a calculated relative weight (determined in accordance with the methodology described above). Then, the “no-volume” MS-LTC-DRG was assigned the same relative weight of the MS-LTC-DRG to which it was crosswalked (as described in greater detail below). As noted above, as proposed, we made a modification to our methodology for determining relative weights for MS-LTC-DRGs with no LTCH cases in this final rule, which is discussed in greater detail below. As also noted above, even where we are not changing our existing methodology, as we did in the FY 2009 IPPS proposed rule, we took this opportunity to refine our description to more precisely explain our proposed methodology for determining the MS-LTC-DRG relative weights in this final rule.

Specifically, in this final rule, as we proposed, we determined the relative weight for each MS-LTC-DRG using total Medicare allowable charges reported in the March 2008 update of the FY 2007 MedPAR file. Of the 746 MS-LTC-DRGs for FY 2009, we identified 203 MS-LTC-DRGs for which there were no LTCH cases in the database (including the 8 “transplant” MS-LTC-DRGs and 2 “error” MS-LTC-DRGs). For this final rule, as noted above and as we proposed, we assigned relative weights for each of the 203 no-volume MS-LTC-DRGs (with the exception of the 8 “transplant” MS-LTC-DRGs and the 2 “error” MS-LTC-DRGs, which are discussed below) based on clinical similarity and relative costliness to one of the remaining 543 (746−203= 543) MS-LTC-DRGs for which we were able to determine relative weights, based on FY 2007 LTCH claims data. (For the remainder of this discussion, we refer to one of the 543 MS-LTC-DRGs for which we were able to determine relative weight as the “crosswalked” MS-LTC-DRG.) Then, as we proposed, we assigned the no-volume MS-LTC-DRG the relative weight of the crosswalked MS-LTC-DRG. As discussed in the FY 2009 IPPS proposed rule (73 FR 23602), this approach differs from the one we used to determine the FY 2008 MS-LTC-DRG relative weights when there were no LTCH cases (72 FR 47290). Specifically, in determining the FY 2008 MS-LTC-DRG relative weights in the FY 2008 IPPS final rule with comment period, if the no volume MS-LTC-DRG was crosswalked to a MS-LTC-DRG that had 25 or more cases and, therefore, was not in a low-volume quintile, we assigned the relative weight of a quintile to a no-volume MS-LTC-DRG (rather than assigning the relative weight of the crosswalked MS-LTC-DRG). While we believe this approach would result in appropriate LTCH PPS payments (because it is consistent with our methodology for determining relative weights for MS-LTC-DRGs that have a low volume of LTCH cases (which is discussed above in section II.I.3.e. of this preamble)), upon further review during the development of the FY 2009 MS-LTC-DRG relative weights in this final rule, we now believe that assigning the relative weight of the crosswalked MS-LTC-DRG to the no-volume MS-LTC-DRG would result in more appropriate LTCH PPS payments because those cases generally require equivalent relative resource (and therefore should generally have the same LTCH PPS payment). The relative weight of each MS-LTC-DRG should reflect relative resource of the LTCH cases grouped to that MS-LTC-DRG. Because the no-volume MS-LTC-DRGs are crosswalked to other MS-LTC-DRGs based on clinical similarity and relative costliness, which usually require equivalent relative resource use, we believe that assigning the no-volume MS-LTC-DRG the relative weight of the crosswalked MS-LTC-DRG would result in appropriate LTCH PPS payments. (As explained below in Step 6, when necessary, we made adjustments to account for nonmonotonicity.)

Comment: Although we did not receive any comments on any of the specific proposed MS-LTC-DRG no-volume crosswalks presented in the table in the proposed rule, we received one general comment on our description of the proposed methodology to determine the proposed no-volume MS-LTC-DRGs crosswalks for FY 2009. Specifically, the commenter stated that, although it generally supported the proposed methodology for determining relative weights for the no-volume MS-LTC-DRGs, it was not clear how CMS was able to compare the “relative costliness” of the no-volume MS-LTC-DRGs to other MS-LTC-DRGs because, by definition, the no-volume MS-LTC-DRGs do not have costs associated with them (since there are no LTCH cases in the data). The commenter questioned whether CMS may have evaluated the relative costliness of the proposed no-volume FY 2009 MS-LTC-DRGs using prior years' LTCH data or if relative costliness was assessed based on the cost experience of those MS-DRGs under the IPPS. The commenter requested that, in the final rule, CMS provide additional detail on the “relative costliness” aspect of the proposed no-volume crosswalk methodology.

Response: We appreciate the commenter's support of our proposed methodology for determining relative weight for the no-volume MS-LTC-DRGs for FY 2009. As requested by the commenter, we are taking this opportunity to provide additional information on how we evaluated the relative costliness in determining the applicable MS-LTC-DRG to which a no-volume MS-LTC-DRG was cross-walked in order to assign an appropriate relative weight for the no-volume MS-LTC-DRGs in FY 2009. In general, most of the no-volume MS-LTC-DRGs historically have not had any cases in the LTCH data. Therefore, we typically are unable to evaluate relative costliness based on prior years' LTCH claims data. In evaluating the relative costliness for most of the no-volume MS-LTC-DRGs, a group of CMS Medical Officers, who have extensive knowledge and familiarity with both the IPPS and LTCH DRG-based payment systems, used their DRG experience to evaluate the relative costliness of the no-volume MS-LTC-DRGs. Specifically, the relative costliness of each of the no-volume MS-LTC-DRGs was assessed by taking into consideration factors such as relative resource use, clinical cohesiveness, and the comparableness of services provided, based on the collective IPPS and LTCH PPS experience of those Medical Officers. We also note, as discussed above, the no-volume MS-LTC-DRG crosswalks are based on both clinical similarity and relative costliness, including such factors as care provided during the period of time surrounding surgery, surgical approach (if applicable), length of time of surgical procedure, postoperative care, and length of stay. We believe in the rare event that there would be a few LTCH cases grouped to one of the no-volume MS-LTC-DRGs in the future, the relative weights assigned based on the crosswalked MS-LTC-DRGs will result in an appropriate LTCH PPS payment because the crosswalks, which are based on similar clinical similarity and relative costliness, generally require equivalent relative resource use.

In this final rule, we are adopting the methodology we proposed for determining the relative weights for the no-volume MS-LTC-DRGs. Our methodology for determining the relative weights for the no-volume MS-LTC-DRGs is as follows: We crosswalk the no-volume MS-LTC-DRG to an MS-LTC-DRG for which there are LTCH cases in the FY 2007 MedPAR file and to which it is similar clinically in intensity of use of resources and relative costliness as determined by criteria such as care provided during the period of time surrounding surgery, surgical approach (if applicable), length of time of surgical procedure, postoperative care, and length of stay. We then assign the relative weight of the crosswalked MS-LTC-DRG as the relative weight for the no-volume MS-LTC-DRG such that both of these MS-LTC-DRGs (that is, the no-volume MS-LTC-DRG and the crosswalked MS-LTC-DRG) would have the same relative weight. We note that if the crosswalked MS-LTC-DRG has 25 cases or more, its relative weight, which is calculated using the methodology described in steps 1 through 4 above, is assigned to the no-volume MS-LTC-DRG as well. Similarly, if the MS-LTC-DRG to which the no-volume MS-LTC-DRG is crosswalked has 24 or less cases, and therefore is designated to one of the low-volume quintiles for purposes of determining the relative weights, we assign the relative weight of the applicable low-volume quintile to the no-volume MS-LTC-DRG such that both of these MS-LTC-DRGs (that is, the no-volume MS-LTC-DRG and the crosswalked MS-LTC-DRG) have the same relative weight. (As we noted above, in the infrequent case where nonmonotonicity involving a no-volume MS-LTC-DRG results, additional measures as described in Step 6 are required in order to maintain monotonically increasing relative weights.)

For this final rule, a list of the no-volume FY 2009 MS-LTC-DRGs and the FY 2009 MS-LTC-DRG to which it is crosswalked (that is, the crosswalked MS-LTC-DRG) is shown in the chart below.

BILLING CODE 4120-01-P

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BILLING CODE 4120-01-C

To illustrate this methodology for determining the relative weights for the MS-LTC-DRGs with no LTCH cases, we are providing the following example, which refers to the no-volume MS-LTC-DRGs crosswalk information for FY 2009 provided in the chart above.

Example: Back to Top

There were no cases in the FY 2007 MedPAR file used for this final rule for MS-LTC-DRG 61 (Acute Ischemic Stroke with Use of Thrombolytic Agent with MCC). We determined that MS-LTC-DRG 70 (Nonspecific Cerebrovascular Disorders with MCC) was similar clinically and based on resource use to MS-LTC-DRG 61. Therefore, we assigned the same relative weight of MS-LTC-DRG 70 of 0.8718 for FY 2009 to MS-LTC-DRG 61 (Table 11 of the Addendum to this final rule).

Furthermore, for FY 2009, consistent with our historical relative weight methodology, as we proposed, we are establishing MS-LTC-DRG relative weights of 0.0000 for the following transplant MS-LTC-DRGs: Heart Transplant or Implant of Heart Assist System with MCC (MS-LTC-DRG 1); Heart Transplant or Implant of Heart Assist System without MCC (MS-LTC-DRG 2); Liver Transplant with MCC or Intestinal Transplant (MS-LTC-DRG 5); Liver Transplant without MCC (MS-LTC-DRG 6); Lung Transplant (MS-LTC-DRG 7); Simultaneous Pancreas/Kidney Transplant (MS-LTC-DRG 8); Pancreas Transplant (MS-LTC-DRG 10); and Kidney Transplant (MS-LTC-DRG 652). This is because Medicare will only cover these procedures if they are performed at a hospital that has been certified for the specific procedures by Medicare and presently no LTCH has been so certified. Based on our research, we found that most LTCHs only perform minor surgeries, such as minor small and large bowel procedures, to the extent any surgeries are performed at all. Given the extensive criteria that must be met to become certified as a transplant center for Medicare, we believe it is unlikely that any LTCHs will become certified as a transplant center. In fact, in the more than 20 years since the implementation of the IPPS, there has never been a LTCH that even expressed an interest in becoming a transplant center.

If in the future a LTCH applies for certification as a Medicare-approved transplant center, we believe that the application and approval procedure would allow sufficient time for us to determine appropriate weights for the MS-LTC-DRGs affected. At the present time, we only 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.

Again, we note that, as this system is dynamic, it is entirely possible that the number of MS-LTC-DRGs with no volume of LTCH cases based on the system will vary in the future. We used the most recent available claims data in the MedPAR file to identify no-volume MS-LTC-DRGs and to determine the relative weights in this final rule.

Step 6—Adjust the FY 2009 MS-LTC-DRG relative weights to account for nonmonotonically increasing relative weights.

As discussed in section II.B. of the preamble of this final rule, the MS-DRGs (used under the IPPS) on which the MS-LTC-DRGs are based provide a significant improvement in the DRG system's recognition of severity of illness and resource usage. The MS-DRGs contain base DRGs that have been subdivided into one, two, or three severity levels. Where there are three severity levels, the most severe level has at least one code that is referred to as an MCC. The next lower severity level contains cases with at least one code that is a CC. Those cases without an MCC or a CC are referred to as without CC/MCC. When data did not support the creation of three severity levels, the base was divided into either two levels or the base was not subdivided. The two-level subdivisions could consist of the CC/MCC and the without CC/MCC. Alternatively, the other type of two level subdivision could consist of the MCC and 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 the “with CC” and “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 do not increase (that is, if within a base MS-LTC-DRG, an MS-LTC-DRG with MCC has a lower relative weight than one with CC, 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. Consequently, in general, as we proposed, we combined MS-LTC-DRG severity levels within a base MS-LTC-DRG for the purpose of computing a relative weight when necessary to ensure that monotonicity is maintained. In determining the FY 2009 MS-LTC-DRG relative weights in this final rule, in general, we are using the same methodology to adjust for nonmonotonicity that we used to determine the FY 2008 MS-LTC-DRG relative weights in the FY 2008 IPPS final rule with comment (72 FR 47293 through 47295). However, as noted above and as we did in the proposed rule, we are taking this opportunity to refine our description to more precisely explain our methodology for determining the MS-LTC-DRG relative weights in this final rule. We note that we did not receive any comments on our refinement to the description of our methodology for adjusting for nonmonotonicity in determining the relative weights for FY 2009 that was presented in the FY 2009 IPPS proposed rule. In determining the FY 2009 MS-LTC-DRG relative weights in this final rule, under each of the example scenarios provided below, we combined severity levels within a base MS-LTC-DRG as follows:

The first example of nonmonotonically increasing relative weights for a MS-LTC-DRG pertains to a base MS-LTC-DRG with a three-level split and each of the three levels has 25 or more LTCH cases and, therefore, none of those MS-LTC-DRGs is assigned to one of the five low-volume quintiles. In this final rule, if nonmonotonicity was detected in the relative weights of the MS-LTC-DRGs in adjacent severity levels (for example, the relative weight of the “with MCC” (the highest severity level) is less than the “with CC” (the middle level), or the “with CC” is less than the “without CC/MCC”), we combined the nonmonotonic adjacent MS-LTC-DRGs and redetermined a relative weight based on the case-weighted average of the combined LTCH cases of the nonmonotonic MS-LTC-DRGs. The case-weighted average charge is calculated by dividing the total charges for all LTCH cases in both severity levels by the total number of LTCH cases for both MS-LTC-DRGs. The same relative weight is assigned to both affected levels of the base MS-LTC-DRG. If nonmonotonicity remains an issue because the above process resulted in a relative weight that was still nonmonotonic to the remaining MS-LTC-DRG relative weight within the base MS-LTC-DRG, we combined all three of the severity levels to redetermine the relative weights based on the case-weighted average charge of the combined severity levels. This same relative weight was then assigned to each of the MS-LTC-DRGs in that base MS-LTC-DRG.

A second example of nonmonotonically increasing relative weights for a base MS-LTC-DRG pertains to the situation where there are three severity levels and one or more of the severity levels within a base MS-LTC-DRG has less than 25 LTCH cases (that is, low volume). In this final rule, if nonmonotonicity occurs in the case where either the highest or lowest severity level (“with MCC” or “without CC/MCC”) has 25 LTCH cases or more and the other two severity levels are low volume (and therefore the other two severity levels are otherwise assigned the relative weight of the applicable low-volume quintile(s)), we combined the data for the cases in the two adjacent low-volume MS-LTC-DRGs for the purpose of determining a relative weight. If the combination resulted in at least 25 cases, we redetermined one relative weight based on the case-weighted average charge of the combined severity levels and assigned this same relative weight to each of the severity levels. If the combination resulted in less than 25 cases, based on the case-weighted average charge of the combined low-volume MS-LTC-DRGs, both MS-LTC-DRGs were assigned to the appropriate low-volume quintile (discussed above in section II.I.3.e. of this preamble) based on the case-weighted average charge of the combined low-volume MS-LTC-DRGs. Then the relative weight of the affected low-volume quintile was redetermined and that relative weight was assigned to each of the affected severity levels (and all of the MS-LTC-DRGs in the affected low-volume quintile). If nonmonotonicity persisted, we combined all three severity levels and redetermined one relative weight based on the case-weighted average charge of the combined severity levels and this same relative weight was assigned to each of the three levels.

Similarly, in nonmonotonic cases where the middle level has 25 cases or more but either or both of the lowest or highest severity level has less than 25 cases (that is, low volume), we combined the nonmonotonic low-volume MS-LTC-DRG with the middle level MS-LTC-DRG of the base MS- LTC-DRG. We redetermined one relative weight based on the case-weighted average charge of the combined severity levels and assigned this same relative weight to each of the affected MS-LTC-DRGs. If nonmonotonicity persisted, we combined all three levels for the purpose of redetermining a relative weight based on the case-weighted average charge of the combined severity levels, and assigned that relative weight to each of the three severity levels.

In the case where all three severity levels in the base MS-LTC-DRGs were low-volume MS-LTC-DRGs and two of the severity levels were nonmonotonic in relation to each other, we combined the two adjacent nonmonotonic severity levels. If that combination resulted in less than 25 cases, both low-volume MS-LTC-DRGs were assigned to the appropriate low-volume quintile (discussed above in section II.I.3.e. of this preamble) based on the case-weighted average charge of the combined low-volume MS-LTC-DRGs. Then the relative weight of the affected low-volume quintile was redetermined and that relative weight was assigned to each of the affected severity levels (and all of the MS-LTC-DRGs in the affected low-volume quintile). If the nonmonotonicity persisted, we combined all three levels of that base MS-LTC-DRG for the purpose of redetermining a relative weight based on the case-weighted average charge of the combined severity levels, and assigned that relative weight to each of the three severity levels. If that combination of all three severity levels resulted in less than 25 cases, we assigned that “combined” base MS-LTC-DRG to the appropriate low-volume quintile based on the case-weighted average charge of the combined low-volume MS-LTC-DRGs. Then the relative weight of the affected low-volume quintile was redetermined and that relative weight was assigned to each of the affected severity levels (and all of the MS-LTC-DRGs in the affected low-volume quintile).

Another example of nonmonotonicity involves a base MS-LTC-DRG with three severity levels where at least one of the severity levels has no cases. As discussed above in greater detail in Step 5, based on resource use intensity and clinical similarity, as we proposed, we crosswalked a no-volume MS-LTC-DRG to an MS-LTC-DRG that had at least one case. Under our methodology for the treatment of no-volume MS-LTC-DRGs, the no-volume MS-LTC-DRG was assigned the same relative weight as the MS-LTC-DRG to which the no-volume MS-LTC-DRG was crosswalked. For many no-volume MS-LTC-DRGs, as shown in the chart above in Step 5, the application of our methodology resulted in a crosswalked MS-LTC-DRG that is the adjacent severity level in the same base MS-LTC-DRG. Consequently, in most instances, the no-volume MS-LTC-DRG and the adjacent MS-LTC-DRG to which it was crosswalked did not result in nonmonotonicity because both of these severity levels would have the same relative weight. (In this final rule, under our methodology for the treatment of no-volume MS-LTC-DRGs, in the case where the no-volume MS-LTC-DRG was either the highest or lowest severity level, the crosswalked MS-LTC-DRG would be the middle level (“with CC”) within the same base MS-LTC-DRG, and therefore the no-volume MS-LTC-DRG (either the “with MCC” or the “without CC/MCC”) and the crosswalked MS-LTC-DRG (the “with CC”) would have the same relative weight. Consequently, no adjustment for monotonicity was necessary.) However, if our methodology for determining relative weights for no-volume MS-LTC-DRGs resulted in nonmonotonicity with the third severity level in the base MS-LTC-DRG, all three severity levels were combined for the purpose of redetermining one relative weight based on the case-weighted average charge of the combined severity levels. This same relative weight was assigned to each of the three severity levels in the base MS-LTC-DRG.

Thus far in the discussion, we have presented examples of nonmonotonicity in a base MS-LTC-DRG that has three severity levels. We apply the same process where the base MS-LTC-DRG contains only two severity levels. For example, if nonmonotonicity occurs in a base MS-LTC-DRG with two severity levels (that is, the relative weight of the higher severity level is less than the lower severity level), where both of the MS-LTC-DRGs have at least 25 cases or where one or both of the MS-LTC-DRGs is low volume (that is, less than 25 cases), we combine the two MS-LTC-DRGs of that base MS-LTC-DRG for the purpose of redetermining a relative weight based on the combined case-weighted average charge for both severity levels. This same relative weight is assigned to each of the two severity levels in the base MS-LTC-DRG. Specifically, if the combination of the two severity levels results in at least 25 cases, we redetermine one relative weight based on the case-weighted average charge and assign that relative weight to each of the two MS-LTC-DRGs. If the combination results in less than 25 cases, we assign both MS-LTC-DRGs to the appropriate low-volume quintile (discussed above in section II.I.3.e. of this preamble) based on their combined case-weighted average charge. Then the relative weight of the affected low-volume quintile is redetermined and that relative weight is assigned to each of the affected severity levels.

Step 7— Calculate the FY 2009 budget neutrality factor.

As we established in the RY 2008 LTCH PPS final rule (72 FR 26882), under the broad authority conferred upon the Secretary under section 123 of Public Law 106-113 as amended by section 307(b) of Public Law 106-554 to develop the LTCH PPS, beginning with the MS-LTC-DRG update for FY 2008, the annual update to the MS-LTC-DRG classifications and relative weights is done in a budget neutral manner such that estimated aggregate LTCH PPS payments would be unaffected, that is, would be neither greater than nor less than the estimated aggregate LTCH PPS payments that would have been made without the MS-LTC-DRG classification and relative weight changes. Specifically, in that same final rule, we established under § 412.517(b) that the annual update to the MS-LTC-DRG classifications and relative weights be done in a budget neutral manner. For a detailed discussion on the establishment of the requirement to update the MS-LTC-DRG classifications and relative weights in a budget neutral manner, we refer readers to the RY 2008 LTCH PPS final rule (72 FR 26880 through 26884). Updating the MS-LTC-DRGs in a budget neutral manner results in an annual update to the individual MS-LTC-DRG classifications and relative weights based on the most recent available data to reflect changes in relative LTCH resource use. To accomplish this, 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, as we proposed, we updated the MS-LTC-DRG classifications and relative weights for FY 2009 based on the most recent available data and included a budget neutrality adjustment that was applied in determining the MS-LTC-DRG relative weights.

To ensure budget neutrality in updating the MS-LTC-DRG classifications and relative weights under § 412.517(b), consistent with the budget neutrality methodology we established in the FY 2008 IPPS final rule with comment period (72 FR 47295 through 47296), in determining the budget neutrality adjustment for FY 2009 in this final rule, as we proposed, we used a method that is similar to the methodology used under the IPPS. Specifically, for FY 2009, after recalibrating the MS-LTC-DRG relative weights as we do under the methodology as described in detail in Steps 1 through 6 above, we calculated and applied a normalization factor to those relative weights to ensure that estimated payments were not influenced by changes in the composition of case types or the changes to the classification system. That is, the normalization adjustment is intended to ensure that the recalibration of the MS-LTC-DRG relative weights (that is, the process itself) neither increases nor decreases total estimated payments.

To calculate the normalization factor for FY 2009, as we proposed, we used the following steps: (1) We use the most recent available claims data (FY 2007) and the MS-LTC-DRG relative weights (determined above in Steps 1 through 6 above) to calculate the average CMI; (2) we group the same claims data (FY 2007) using the FY 2008 GROUPER (Version 25.0) and FY 2008 relative weights (established in the FY 2008 IPPS final rule with comment period (72 FR 47295 through 47296)) and calculate the average CMI: and (3), we compute the ratio of these average CMIs by dividing the average CMI determined in step (2) by the average CMI determined in step (1). In determining the MS-LTC-DRG relative weights for FY 2009, based on the latest available LTCH claims data, the normalization factor is estimated as 1.03887, which is applied in determining each MS-LTC-DRG relative weight. That is, each MS-LTC-DRG relative weight is multiplied by 1.03887 in the first step of the budget neutrality process. Accordingly, the relative weights in Table 11 in the Addendum of this final rule reflect this normalization factor. We also ensured that estimated aggregate LTCH PPS payments (based on the most recent available LTCH claims data) after reclassification and recalibration (the new FY 2009 MS-LTC-DRG classifications and relative weights) are equal to estimated aggregate LTCH PPS payments (for the same most recent available LTCH claims data) before reclassification and recalibration (the existing FY 2008 MS-LTC-DRG classifications and relative weights). Therefore, we calculated the budget neutrality adjustment factor by simulating estimated total payments under both sets of GROUPERs and relative weights using current LTCH PPS payment policies (RY 2009) and the most recent available LTCH claims data (FY 2007). As we discussed in the FY 2009 IPPS proposed rule (73 FR 23608), we have established payments rates and policies for RY 2009 prior to the development of the FY 2009 IPPS final rule (73 FR 26788 through 26874). Therefore, for purposes of determining the FY 2009 budget neutrality factor in this final rule, as we proposed, we simulated estimated total payments using the most recent LTCH PPS payment policies and LTCH claims data that are available at this time. As noted above, the most recent available LTCH claims data are from the March 2008 update of the FY 2007 MedPAR file.

Accordingly, we used RY 2009 LTCH PPS rates and policies in determining the FY 2009 budget neutrality adjustment in this final rule, using the following steps: (1) We simulated estimated total payments using the normalized relative weights under GROUPER Version 26.0 (as described above); (2) we simulated estimated total payments using the FY 2008 GROUPER (Version 25.0) and FY 2008 MS-LTC-DRG relative weights (as established in the FY 2008 IPPS final rule (72 FR 47295 through 47296)); and (3) we calculated the ratio of these estimated total payments by dividing the estimated total payments determined in step (2) by the estimated total payments determined in step (1). Then, each of the normalized relative weights was multiplied by the budget neutrality factor to determine the budget neutral relative weight for each MS-LTC-DRG.

Accordingly, in determining the MS-LTC-DRG relative weights for FY 2009 in this final rule, based on the most recent available LTCH claims data, we are establishing a budget neutrality factor of 1.04186, which was applied to the normalized relative weights (described above). The FY 2009 MS-LTC-DRG relative weights in Table 11 in the Addendum of this final rule reflect this budget neutrality factor.

Table 11 in the Addendum to this final rule lists the MS-LTC-DRGs and their respective budget neutral relative weights, geometric mean length of stay, and five-sixths of the geometric mean length of stay (used in the determination of SSO payments under § 412.529) for FY 2009.

5. Other Comments

Comment: While CMS did not propose for FY 2009 an adjustment for improved coding practices resulting from the transition to the MS-LTC-DRG system, one commenter urged CMS to wait until sufficient claims data under the MS-LTC-DRG system are available to provide CMS with a solid benchmark on coding behavior for the comparison between the previous LTC-DRG and current MS-LTC-DRG systems. The commenter believed that any evaluation of the need for an adjustment for improved coding practices should take into account all of the previous case-mix adjustments to the market basket and the self-correcting nature of the current policy of the budget neutral reweighting of the MS-LTC-DRG relative weights. Furthermore, the commenter believed that it would not be appropriate to apply a coding adjustment to the MS-LTC-DRGs where coding changes would not be expected to change as a result of the transitioning from LTC-DRGs to MS-LTC-DRGs (for example, in ventilator DRGs where there have been no changes from the LTC-DRG system to the MS-LTC-DRG system).

Response: At this time, we have not proposed any adjustment for FY 2009 to account for improved coding practices resulting from the transition to the MS-LTC-DRG system. In the FY 2008 IPPS final rule with comment period (72 FR 47297 through 47299), we indicated that we believe that the adoption of the MS-LTC-DRGs would create a risk of increased aggregate levels of payment as a result of increased documentation and coding. However, we acknowledged, at the time, that because we had not been able to determine an appropriate adjustment factor for LTCHs and because we have an established mechanism to adjust LTCH PPS payments to account for the effects of changes in documentation and coding practices, we believed that it was appropriate to continue to use this established process. We note that, in the FY 2008 IPPS final rule with comment period, we responded to comments similar to the one summarized above. In section II.D.4. of this final rule, we discuss the intended future evaluation of claims data and resulting case-mix growth from the implementation of the MS-DRG system. A similar retrospective evaluation will be conducted for MS-LTC-DRGs. The analysis, findings, and any resulting proposals to adjust payments to offset the estimated amount of increase or decrease in aggregate payments that occurred in FY 2008 and FY 2009 for LTCHs as a result of coding improvements, will be discussed in future years' proposed rules, which would be open for public comment.

Comment: One commenter addressed our discussion in the RY 2009 LTCH final rule on the possible application to LTCHs of the broad principle articulated in the HACs payment provision that goes into effect for acute care hospitals paid under the IPPS for FY 2009.

Response: We appreciate the commenter's support and remarks concerning the possible application of a HACs payment provision to LTCHs. Although we did not propose a HAC provision under the LTCH PPS nor did we discuss the possible application of one in the FY 2009 IPPS proposed rule, we will take into account the commenter's concerns and recommendations in our ongoing consideration of the applicability of a possible HACs policy for LTCHs.

J. 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 the process must apply to a new medical service or technology 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.”

The regulations implementing this provision establish three criteria for new medical services and technologies to receive an additional payment. First, 42 CFR 412.87(b)(2) states that 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 DRG weights through recalibration. Typically, there is a lag of 2 to 3 years from the point a new medical service or technology is first introduced on the market (generally on the date that the technology receives FDA approval/clearance) and when data reflecting the use of the medical service or technology are used to calculate the DRG weights. For example, data from discharges occurring during FY 2007 are used to calculate the FY 2009 DRG weights in this final rule. Section 412.87(b)(2) of our existing regulations provides that “a medical service or technology may be considered new within 2 or 3 years after the point at which data begin to become available reflecting the ICD-9-CM code assigned to the new medical service or technology (depending on when a new code is assigned and data on the new medical service or technology become available for DRG recalibration). After CMS has recalibrated the DRGs based on available data to reflect the costs of an otherwise new medical service or technology, the medical service or technology will no longer be considered ‘new’ under the criterion for this section.”

The 2-year to 3-year period during which a medical service or technology can be considered new would ordinarily begin on the date on which the medical service or technology received FDA approval or clearance. (We note that, for purposes of this section of the final rule, we refer to both FDA approval and FDA clearance as FDA “approval.”) However, in some cases, initially there may be no Medicare data available for the new service or technology following FDA approval. For example, the newness period could extend beyond the 2-year to 3-year period after FDA approval is received in cases where the product initially was generally unavailable to Medicare patients following FDA approval, such as in cases of a national noncoverage determination or a documented delay in bringing the product onto the market after that approval (for instance, component production or drug production has been postponed following FDA approval due to shelf life concerns or manufacturing issues). After the DRGs have been recalibrated to reflect the costs of an otherwise new medical service or technology, the medical service or technology is no longer eligible for special add-on payment for new medical services or technologies (§ 412.87(b)(2)). For example, an approved new technology that received FDA approval in October 2007 and entered the market at that time may be eligible to receive add-on payments as a new technology for discharges occurring before October 1, 2010 (the start of FY 2011). Because the FY 2011 DRG weights would be calculated using FY 2009 MedPAR data, the costs of such a new technology would be fully reflected in the FY 2011 DRG weights. Therefore, the new technology would no longer be eligible to receive add-on payments as a new technology for discharges occurring in FY 2011 and thereafter.

Section 412.87(b)(3) further provides that, to be eligible for the add-on payment for new medical services or technologies, the 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 DRG-prospective payment rate, we evaluate whether the charges for cases involving the new technology exceed certain threshold amounts. In the FY 2004 IPPS final rule (68 FR 45385), we established the threshold at the geometric mean standardized charge for all cases in the DRG plus 75 percent of 1 standard deviation above the geometric mean standardized charge (based on the logarithmic values of the charges and converted back to charges) for all cases in the DRG to which the new medical service or technology is assigned (or the case-weighted average of all relevant DRGs, if the new medical service or technology occurs in more than one DRG).

However, section 503(b)(1) of Public Law 108-173 amended section 1886(d)(5)(K)(ii)(I) of the Act to provide that, beginning in FY 2005, CMS will apply “a threshold * * * that is the lesser of 75 percent of the standardized amount (increased to reflect the difference between cost and charges) or 75 percent of one standard deviation for the diagnosis-related group involved.” (We refer readers to section IV.D. of the preamble to the FY 2005 IPPS final rule (69 FR 49084) for a discussion of the revision of the regulations to incorporate the change made by section 503(b)(1) of Pub. L. 108-173.) Table 10 in section XIX. of the interim final rule with comment period published in the Federal Register on November 27, 2007, contained the final thresholds that are being used to evaluate applications for new technology add-on payments for FY 2009 (72 FR 66888 through 66892). An applicant must demonstrate that the cost threshold is met using information from inpatient hospital claims.

We note that section 124 of Public Law 110-275 extends, through FY 2009, wage index reclassifications under section 508 of Public Law 108-173 (the MMA) and special exceptions contained in the final rule promulgated in the Federal Register on August 11, 2004 (69 FR 49105, 49107) and extended under section 117 of the MMSEA of 2007 (Pub. L. 110-173). The wage data affects the standardized amounts (as well as the outlier offset and budget neutrality factors that are applied to the standardized amounts), which we use to compute the cost criterion thresholds in Table 10 of this final rule. Therefore, the thresholds reflected in Table 10 of this final rule are tentative. A new Table 10 with revised thresholds will be published when section 124 of Public Law 110-275 is implemented and the wage index rates for FY 2009 are finalized. Subsequent to the publication of this final rule, we will publish a Federal Register document listing the final version of Table 10 that will be used to determine if an applicant for new technology add-on payments in FY 2010 meets the cost threshold for new technology add-on payments for FY 2010. The final thresholds also will be published on the CMS Web site.

In the September 7, 2001 final rule that established the new technology add-on payment regulations (66 FR 46917), we discussed the issue of whether the HIPAA Privacy Rule at 45 CFR parts 160 and 164 applies to claims information that providers submit with applications for new technology add-on payments. Specifically, we explained that health plans, including Medicare, and providers that conduct certain transactions electronically, including the hospitals that would be receiving payment under the FY 2001 IPPS final rule, are required to comply with the HIPAA Privacy Rule. We further explained how such entities could meet the applicable HIPAA requirements by discussing how the HIPAA Privacy Rule permitted providers to share with health plans information needed to ensure correct payment, if they had obtained consent from the patient to use that patient's data for treatment, payment, or health care operations. We also explained that, because the information to be provided within applications for new technology add-on payment would be needed to ensure correct payment, no additional consent would be required. The HHS Office of Civil Rights has since amended the HIPAA Privacy Rule, but the results remain. The HIPAA Privacy Rule no longer requires covered entities to obtain consent from patients to use or disclose protected health information for treatment, payment, or health care operations, and expressly permits such entities to use or to disclose protected health information for any of these purposes. (We refer readers to 45 CFR 164.502(a)(1)(ii), and 164.506(c)(1) and (c)(3), and the Standards for Privacy of Individually Identifiable Health Information published in the Federal Register on August 14, 2002, for a full discussion of changes in consent requirements.)

Section 412.87(b)(1) of our existing regulations provides that a new technology is an appropriate candidate for an additional payment when it represents “an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries.” For example, a new technology represents a substantial clinical improvement when it reduces mortality, decreases the number of hospitalizations or physician visits, or reduces recovery time compared to the technologies previously available. (We refer readers to the September 7, 2001 final rule for a complete discussion of this criterion (66 FR 46902).)

The new medical service or technology add-on payment policy under the IPPS provides additional payments for cases with relatively high costs involving eligible new medical services or technologies while preserving some of the incentives inherent under an average-based prospective payment system. The payment mechanism is based on the cost to hospitals for the new medical service or technology. Under § 412.88, if the costs of the discharge (determined by applying 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, Medicare payment is limited to the full DRG payment plus 50 percent of the estimated costs of the new technology.

Section 1886(d)(4)(C)(iii) of the Act requires that the adjustments to annual DRG classifications and relative weights must be made in a manner that ensures that aggregate payments to hospitals are not affected. Therefore, in the past, we accounted for projected payments under the new medical service and technology provision during the upcoming fiscal year, while at the same time estimating the payment effect of changes to the DRG classifications and recalibration. The impact of additional payments under this provision was then included in the budget neutrality factor, which was applied to the standardized amounts and the hospital-specific amounts. However, section 503(d)(2) of Public Law 108-173 provides that there shall be no reduction or adjustment in aggregate payments under the IPPS due to add-on payments for new medical services and technologies. Therefore, following section 503(d)(2) of Public Law 108-173, add-on payments for new medical services or technologies for FY 2005 and later years have not been subjected to budget neutrality.

Applicants for add-on payments for new medical services or technologies for FY 2010 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 the medical service or technology meets the high-cost threshold. Complete application information, along with final deadlines for submitting a full application, will be posted as it becomes available on our Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/08_newtech.asp#TopOfPage. To allow interested parties to identify the new medical services or technologies under review before the publication of the proposed rule for FY 2010, the Web site will also list the tracking forms completed by each applicant.

The Council on Technology and Innovation (CTI) at CMS oversees the agency's cross-cutting priority on coordinating coverage, coding and payment processes for Medicare with respect to new technologies and procedures, including new drug therapies, as well as promoting the exchange of information on new technologies between CMS and other entities. The CTI, composed of senior CMS staff and clinicians, was established under section 942(a) of Public Law 108-173. The Council is co-chaired by the Director of the Office of Clinical Standards and Quality (OCSQ) and the Director of the Center for Medicare Management (CMM), who is also designated as the CTI's Executive Coordinator.

The specific processes for coverage, coding, and payment are implemented by CMM, OCSQ, and the local claims-payment contractors (in the case of local coverage and payment decisions). The CTI supplements rather than replaces these processes by working to assure that all of these activities reflect the agency-wide priority to promote high-quality, innovative care, and at the same time to streamline, accelerate, and improve coordination of these processes to ensure that they remain up to date as new issues arise. To achieve its goals, the CTI works to streamline and create a more transparent coding and payment process, improve the quality of medical decisions, and speed patient access to effective new treatments. It is also dedicated to supporting better decisions by patients and doctors in using Medicare-covered services through the promotion of better evidence development, which is critical for improving the quality of care for Medicare beneficiaries.

CMS plans to continue its Open Door forums with stakeholders who are interested in CTI's initiatives. In addition, to improve the understanding of CMS' processes for coverage, coding, and payment and how to access them, the CTI is developing an “innovator's guide” to these processes. This guide will, for example, outline regulation cycles and application deadlines. 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.

In the meantime, we invite any product developers with specific issues involving the agency to contact us early in the process of product development if they have questions or concerns about the evidence that would be needed later in the development process for the agency's coverage decisions for Medicare.

The CTI aims to provide useful information on its activities and initiatives to stakeholders, including Medicare beneficiaries, advocates, medical product manufacturers, providers, and health policy experts. Stakeholders with further questions about Medicare's coverage, coding, and payment processes, or who want further guidance about how they can navigate these processes, can contact the CTI at CTI@cms.hhs.gov or from the “Contact Us” section of the CTI home page (http://www.cms.hhs.gov/CouncilonTechInnov/).

Comment: One commenter supported CMS' emphasis on the role of the CTI. The commenter also urged CMS to remain vigilant in ensuring that CTI's activities do not inadvertently layer new processes and requirements onto those already applicable to innovative medical technology.

Response: We appreciate the support from the commenter. As discussed in the proposed rule, we intend to continue to use the CTI to promote high quality, innovative care while working to streamline, accelerate and improve coordination of the coverage, coding, and payment processes.

2. Public Input Before Publication of a Notice of Proposed Rulemaking on Add-On Payments

Section 1886(d)(5)(K)(viii) of the Act, as amended by section 503(b)(2) of Public Law 108-173, provides for a mechanism for public input before publication of a notice of proposed rulemaking regarding whether a medical service or technology represents a substantial clinical improvement or advancement. The process for evaluating new medical service and technology applications requires the Secretary to—

  • Provide, before publication of a proposed rule, for public input regarding whether a new service or technology represents an advance in medical technology that substantially improves the diagnosis or treatment of Medicare beneficiaries;
  • Make public and periodically update a list of the services and technologies for which applications for add-on payments are pending;
  • Accept comments, recommendations, and data from the public regarding whether a service or technology represents a substantial clinical improvement; and
  • Provide, before publication of a proposed rule, for a meeting at which organizations representing hospitals, physicians, manufacturers, and any other interested party may present comments, recommendations, and data regarding whether a new medical service or technology represents a substantial clinical improvement to the clinical staff of CMS.

In order to provide an opportunity for public input regarding add-on payments for new medical services and technologies for FY 2009 prior to publication of the FY 2009 IPPS proposed rule, we published a notice in the Federal Register on December 28, 2007 (72 FR 73845 through 73847), and held a town hall meeting at the CMS Headquarters Office in Baltimore, MD, on February 21, 2008. 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 2009 new medical service and technology add-on payment applications before the publication of the FY 2009 IPPS proposed rule.

Approximately 70 individuals attended the town hall meeting in person, while approximately 20 additional participants listened over an open telephone line. Each of the four FY 2009 applicants presented information on its technology, including a focused discussion of data reflecting the substantial clinical improvement aspect of the technology. We considered each applicant's presentation made at the town hall meeting, as well as written comments submitted on each applicant's application, in our evaluation of the new technology add-on applications for FY 2009 in the FY 2009 proposed rule and in this final rule. We received two comments during the town hall meeting. In the proposed rule, we summarized the comments we received at the town hall meeting or, if applicable, indicated at the end of the discussion of each application that no comments were received on that new technology. We refer readers to the FY 2009 IPPS proposed rule at 73 FR 23611 for those comments and responses.

In addition to the comment summaries and our responses presented in the proposed rule, we received additional comments as summarized below.

Comment: A number of commenters addressed topics relating to the marginal cost factor for the new technology add-on payment, the potential implementation of ICD-10-CM, the use of external data in determining the cost threshold, and the use of the date that a ICD-9-CM code is assigned to a technology or the FDA approval date (whichever is later) as the start of the newness period.

Response: We did not request public comments nor propose to make any changes to any of the issues addressed above. Because these comments are out of the scope of the provisions in the proposed rule, we are not providing a complete summary of the comments or responding to them in this final rule.

3. FY 2009 Status of Technologies Approved for FY 2008 Add-On Payments

We did not approve any applications for new technology add-on payments for FY 2008. For additional information, we refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47305 through 47307).

4. FY 2009 Applications for New Technology Add-On Payments

We received four applications to be considered for new technology add-on payment for FY 2009. A discussion of each of these applications is presented below. We note that, in the past, we have considered applications during the rulemaking process that had not yet received FDA approval, but were anticipating FDA approval prior to publication of the IPPS final rule. In such cases, we generally provide a more limited discussion of those technologies in the proposed rule because it is not known if these technologies will meet the newness criterion in time for us to conduct a complete analysis in the final rule. This year, three out of four applicants had not yet received FDA approval of their technologies (Emphasys Medical Zephyr® Endobronchial Valve, Oxiplex®, and the TherOx Downstream® System) prior to issuance of the proposed rule. Consequently, we presented a limited analysis of them in the proposed rule. At the time of the development of this final rule, FDA approval was still pending for all three of the applicants. Therefore, those three applications are not eligible for consideration for FY 2009 new technology add-on payments because they do not meet the newness criterion (because, by definition, a technology that has not received FDA approval cannot be considered “new” for purposes of new technology add-on payments). Because those applications do not meet the newness criterion, the cost threshold criterion and the substantial clinical improvement criterion applicable to those applications are not discussed in this final rule. If FDA approval is received in time for consideration for the FY 2010 new technology add-on payment application process, we encourage those applicants to submit new technology add-on payments applications for consideration during the FY 2010 IPPS rulemaking process.

a. CardioWest TM Temporary Total Artificial Heart System (CardioWest TM TAH-t)

SynCardia Systems, Inc. submitted an application for approval of the CardioWest TM temporary Total Artificial Heart system (TAH-t) for new technology add-on payments for FY 2009. The TAH-t is a technology that is used as a bridge to heart transplant device for heart transplant-eligible patients with end-stage biventricular failure. The TAH-t pumps up to 9.5 liters of blood per minute. This high level of perfusion helps improve hemodynamic function in patients, thus making them better heart transplant candidates.

The TAH-t was approved by the FDA on October 15, 2004, for use as a bridge to transplant device in cardiac transplant-eligible candidates at risk of imminent death from biventricular failure. The TAH-t is intended to be used in hospital inpatients. One of the FDA's post-approval requirements is that the manufacturer agrees to provide a post-approval study demonstrating success of the device at one center can be reproduced at other centers. The study was to include at least 50 patients who would be followed up to 1 year, including (but not limited to) the following endpoints; survival to transplant, adverse events, and device malfunction.

In the past, Medicare did not cover artificial heart devices, including the TAH-t. However, on February 1, 2008, CMS proposed to reverse a national noncoverage determination that would extend coverage to this technology within the confines of an approved clinical study. (To view the proposed national coverage determination (NCD), we refer readers to the CMS Web site at http://www.cms.hhs.gov/mcd/viewdraftdecisionmemo.asp?from2=viewdraftdecisionmemo.aspid=211). On May 1, 2008, CMS issued a final NCD expanding Medicare coverage of artificial hearts when they are implanted as part of a study that is approved by the FDA and is determined by CMS to meet CMS' Coverage with Evidence Development (CED) clinical research criteria. (The final NCD is available on the CMS Web site at: http://www.cms.hhs.gov/mcd/viewdecisionmemo.asp?id=211.)

Because Medicare's previous coverage policy with respect to this device has precluded payment from Medicare, we do not expect the costs associated with this technology to be currently reflected in the data used to determine MS-DRGs relative weights. As we have indicated in the past, and as we discussed in the proposed rule, although we generally believe that the newness period would begin on the date that FDA approval was granted, in cases where the applicant can demonstrate a documented delay in market availability subsequent to FDA approval, we would consider delaying the start of the newness period. This technology's situation represents such a case. We also note that section 1886(d)(5)(K)(ii)(II) of the Act requires that we provide for the collection of cost data for a new medical service or technology for a period of at least 2 years and no more than 3 years “beginning on the date on which an inpatient hospital code is issued with respect to the service or technology.” Furthermore, the statute specifies that the term “inpatient hospital code” means any code that is used with respect to inpatient hospital services for which payment may be made under the IPPS and includes ICD-9-CM codes and any subsequent revisions. Although the TAH-t has been described by the ICD-9-CM code(s) (described below in the cost threshold discussion) since the time of its FDA approval, because the TAH-t has not been covered under the Medicare program (and, therefore, no Medicare payment has been made for this technology), this code is not “used with respect to inpatient hospital services for which payment” is made under the IPPS, and thus we assume that none of the costs associated with this technology would be reflected in the Medicare claims data used to recalibrate the MS-DRG weights for FY 2009. For this reason, as discussed in the proposed rule, despite its FDA approval date, it appeared that this technology would still be eligible to be considered “new” for purposes of the new technology add-on payment if and when the proposal to reverse the national noncoverage determination concerning this technology was finalized. Therefore, based on this information, we stated that we believed that the TAH-t would meet the newness criterion on the date that Medicare coverage began, consistent with issuance of the final NCD. Because the final NCD was issued and became effective on May 1, 2008, we believe that the TAH-t meets the newness criterion as of May 1, 2008.

Comment: One commenter, the manufacturer, agreed with CMS' statement in the proposed rule that the TAH-t appeared to meet the newness criterion even though it received FDA approval more than 3 years ago. The commenter stated that because the TAH-t had not been covered by Medicare in any setting until the coverage decision issued on May 1, 2008, the costs associated with the TAH-t are not yet reflected in the Medicare claims data used to recalibrate the FY 2009 MS-DRG relative weights.

Response: We agree with the commenter and, as we discussed in the proposed rule, we continue to believe that the TAH-t meets the newness criterion despite having received FDA approval more than 3 years ago because it was not covered by Medicare until May 1, 2008. Therefore, as stated above, we believe that the TAH-t meets the newness criterion as of May 1, 2008.

In an effort to demonstrate that TAH-t would meet the cost criterion, as presented in the proposed rule, the applicant submitted data based on 28 actual cases of the TAH-t. The data included 6 cases (or 21.4 percent of cases) from 2005, 13 cases (or 46.5 percent of cases) from 2006, 7 cases (or 25 percent of cases) from 2007, and 2 cases (or 7.1 percent of cases) from 2008. Currently, cases involving the TAH-t are assigned to MS-DRG 215 (Other Heart Assist System Implant). As discussed below in this section, we are proposing to remove the TAH-t from MS-DRG 215 and reassign the TAH-t to MS-DRGs 001 (Heart Transplant or Implant of Heart Assist System with MCC) and 002 (Heart Transplant or Implant of Heart Assist System without MCC). Therefore, to determine if the technology meets the cost criterion, it is appropriate to compare the average standardized charge per case to the thresholds for MS-DRGs 001, 002, and 215 included in Table 10 of the November 27, 2007 interim final rule (72 FR 66888 through 66889). The thresholds for MS-DRGs 001, 002, and 215 included in Table 10 are $345,031, $178,142, and $151,824, respectively. Based on the 28 cases the applicant submitted, the average standardized charge per case was $731,632. Because the average standardized charge per case is much greater than the thresholds cited above for MS-DRG 215 (and MS-DRGs 001 and 002, should the proposal to reassign the TAH-t be finalized), the applicant asserted that the TAH-t meets the cost criterion whether or not the costs were analyzed by using either a case-weighted threshold or case-weighted standardized charge per case.

In addition to analyzing the costs of actual cases involving the TAH-t, the applicant searched the FY 2006 MedPAR file to identify cases involving patients who would have potentially been eligible to receive the TAH-t. The applicant submitted three different MedPAR analyses. The first MedPAR analysis involved a search for cases using ICD-9-CM diagnosis code 428.0 (Congestive heart failure) in combination with ICD-9-CM procedure code 37.66 (Insertion of implantable heart assist system), and an inpatient hospital length of stay greater than or equal to 60 days. The applicant found two cases that met this criterion, which had an average standardized charge per case of $821,522. The second MedPAR analysis searched for cases with ICD-9-CM diagnosis code 428.0 (Congestive heart failure) and one or more of the following ICD-9-CM procedure codes: 37.51 (Heart transplant), 37.52 (Implantation of total heart replacement system), 37.64 (Removal of heart assist system), 37.66 (Insertion of implantable heart assist system), or 37.68 (Insertion of percutaneous external heart assist device), and a length of stay greater than or equal to 60 days. The applicant found 144 cases that met this criterion, which had an average standardized charge per case of $841,827. The final MedPAR analysis searched for cases with ICD-9-CM procedure code 37.51 (Heart transplant) in combination with one of the following ICD-9-CM procedure codes: 37.52 (Implantation of total heart replacement system), 37.65 (Implantation of external heart system), or 37.66 (Insertion of implantable heart assist system). The applicant found 37 cases that met this criterion, which had an average standardized charge per case of $896,601. Because only two cases met the criterion for the first analysis, consistent with historical practice, we would not consider it to be of statistical significance and, therefore, would not rely upon it to demonstrate whether the TAH-t would meet the cost threshold. However, both of the additional analyses seem to provide an adequate number of cases to demonstrate whether the TAH-t would meet the cost threshold. We assume that none of the costs associated with this technology would be reflected in the MedPAR analyses that the applicant used to demonstrate that the technology would meet the cost criterion. We note that, under all three of the analyses the applicant performed, it identified cases that would have been eligible for the TAH-t, but did not remove charges that were unrelated to the TAH-t, nor did the applicant insert a proxy of charges related to the TAH-t. However, as stated above, the average standardized charge per case is much greater than any of the thresholds for MS-DRGs 001, 002, and 215. Therefore, even if the applicant were to approximate what the costs of cases eligible to receive the TAH-t would have been by removing non-TAH-t associated charges and inserting charges related to the TAH-t, it appears that the average standardized charges per case for cases eligible for the TAH-t would exceed the relevant thresholds included in Table 10 (as discussed above) and would therefore appear to meet the cost criterion. In the FY 2009 IPPS proposed rule, we invited public comment on whether TAH-t met the cost criterion.

Comment: One commenter, the manufacturer, asserted that it believed that the TAH-t satisfied the cost criterion by exceeding the cost threshold and agreed with CMS' discussion in the proposed rule that the TAH-t appeared to meet the cost threshold.

Response: Based on data submitted by the applicant and discussed in the proposed rule, we noted that the TAH-t appeared to meet the cost threshold criterion. Using the March update of the FY 2007 MedPAR file, we searched for cases that matched the manufacturer's second and third MedPAR analyses described above. (As previously noted, because the first analysis only returned two cases, we did not simulate it for the final rule.) When we simulated the second and third analyses, we found a total of 75 cases and 79 cases, respectively (that mapped to CMS DRG 103 (Heart Transplant or Implant of Heart Assist System) which crosswalks to MS-DRGs 001 and 002), with an average standardized charge per case of $883,301 and $830,200, respectively. Therefore, because the average standardized charge exceeds the thresholds of MS-DRGs 001 and 002 ($345,031 and $178,142, respectively) based on data submitted by the applicant and on our ana