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Rule

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

Action

Final Rules And Interim Final Rule With Comment Period.

Summary

We are revising the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals to implement changes arising from our continuing experience with these systems and to implement certain provisions of the Affordable Care Act and other legislation. In addition, we describe the changes to the amounts and factors used to determine the rates for Medicare acute care hospital inpatient services for operating costs and capital-related costs. We also are setting forth the update to the rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis subject to these limits.

We are updating the payment policy and the annual payment rates for the Medicare prospective payment system (PPS) for inpatient hospital services provided by long-term care hospitals (LTCHs) and setting forth the changes to the payment rates, factors, and other payment rate policies under the LTCH PPS. In addition, we are finalizing the provisions of the August 27, 2009 interim final rule that implemented statutory provisions relating to payments to LTCHs and LTCH satellite facilities and increases in beds in existing LTCHs and LTCH satellite facilities under the LTCH PPS.

We are making changes affecting the: Medicare conditions of participation for hospitals relating to the types of practitioners who may provide rehabilitation services and respiratory care services; and determination of the effective date of provider agreements and supplier approvals under Medicare.

We are also setting forth provisions that offer psychiatric hospitals and hospitals with inpatient psychiatric programs increased flexibility in obtaining accreditation to participate in the Medicaid program. Psychiatric hospitals and hospitals with inpatient psychiatric programs will have the choice of undergoing a State survey or of obtaining accreditation from a national accrediting organization whose hospital accreditation program has been approved by CMS.

We are also issuing an interim final rule with comment period to implement a provision of the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 relating to Medicare payments for outpatient services provided prior to a Medicare beneficiary's inpatient admission.

Unified Agenda

Changes to Long Term Care Prospective Payment System Based on Specific Provisions in the Medicare, Medicaid, and SCHIP Extension Act of 2007 (CMS-1493-IFC)

1 action from May 2008

  • May 2008
    • Interim Final Rule

Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System

5 actions from May 4th, 2010 to August 16th, 2010

  • May 4th, 2010
  • June 18th, 2010
    • NPRM Comment Period End
  • June 2nd, 2010
  • July 2nd, 2010
    • Second NPRM Comment Period End
  • August 16th, 2010
 

Table of Contents Back to Top

Tables Back to Top

DATES: Back to Top

Effective Date: These rules are effective on October 1, 2010, except for amendments to § 412.2(c)(5) introductory text, (c)(5)(iii), and (c)(5)(iv); § 412.405; § 412.521(b)(1); § 412.540; § 412.604(f); § 413.40(c)(2) introductory text, (c)(2)(iii), and (c)(2)(iv), that are effective on June 25, 2010 and apply to services furnished on or after June 25, 2010. In accordance with sections 1871(e)(1)(A)(i) and (ii) of the Social Security Act, the Secretary has determined that retroactive application of these regulatory amendments is necessary to comply with the statute and that failure to apply the changes retroactively would be contrary to public interest:

Comment Period: To be assured consideration, comments on the interim final rule with comment period (CMS-1498-IFC) that appears as section IV.M., of the preamble of this document and includes amendments to § 412.2(c)(5) introductory text, (c)(5)(iii), and (c)(5)(iv); § 412.405; § 412.521(b)(1); § 412.540; § 412.604(f); § 413.40(c)(2) introductory text, (c)(2)(iii), and (c)(2)(iv) must be received at one of the addresses provided below, no later than 5 p.m. EST on September 28, 2010. Comments on other sections of this document will not be considered.

ADDRESSES: Back to Top

When commenting on issues presented in the interim final rule with comment period, please refer to file code CMS-1498-IFC. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

You may submit comments in one of four ways (please choose only one of the ways listed):

1. Electronically. You may submit electronic comments on this regulation at http://www.regulations.gov. Follow the instructions for “Comment or Submission” and enter the file code CMS-1498-IFC to submit comments on this interim final rule.

2. By regular mail. You may mail written comments (one original and two copies) to the following address ONLY:

Centers for Medicare & Medicaid Services, Department of Health and Human Services,Attention: CMS-1498-IFC, P.O. Box 8011, Baltimore, MD 21244-1850.

Please allow sufficient time for mailed comments to be received before the close of the comment period.

3. By express or overnight mail. You may send written comments (one original and two copies) to the following address ONLY:

Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1406-IFC, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

4. By hand or courier. If you prefer, you may deliver (by hand or courier) your written comments (one original and two copies) before the close of the comment period to either of the following addresses:

a. Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201

(Because access to the interior of the HHH Building is not readily available to persons without Federal Government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for persons wishing to retain a proof of filing by stamping in and retaining an extra copy of the comments being filed.)

b. 7500 Security Boulevard, Baltimore, MD 21244-1850.

If you intend to deliver your comments to the Baltimore address, please call telephone number (410) 786-7195 in advance to schedule your arrival with one of our staff members.

Comments mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period.

For information on viewing public comments, see the beginning of the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Back to Top

Tzvi Hefter, (410) 786-4487, and Ing-Jye Cheng, (410) 786-4548, Operating Prospective Payment, MS-DRGs, Hospital Acquired Conditions (HAC), Wage Index, New Medical Service and Technology Add-On Payments, Hospital Geographic Reclassifications, Acute Care Transfers, Capital Prospective Payment, Excluded Hospitals, Direct and Indirect Graduate Medical Education Payments, Disproportionate Share Hospital (DSH), and Critical Access Hospital (CAH) Issues.

Michele Hudson, (410) 786-4487, and Judith Richter, (410) 786-2590, Long-Term Care Hospital Prospective Payment System and MS-LTC-DRG Relative Weights Issues.

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

James Poyer, (410) 786-2261, Reporting of Hospital Quality Data for Annual Payment Update—Program Administration, Validation, and Reconsideration Issues.

Shaheen Halim (410) 786-0641, Reporting of Hospital Quality Data for Annual Payment Update—Measures Issues Except Hospital Consumer Assessment of Healthcare Providers and Systems

Elizabeth Goldstein (410) 786-6665 Reporting of Hospital Quality Data for Annual Payment Update—Hospital Consumer Assessment of Healthcare Providers and Systems Measures Issues.

Marcia Newton, (410-786-5265) and CDR Scott Cooper (U.S. Public Health Service), (410) 786-9465, Hospital Conditions of Participation for Rehabilitation Services and Respiratory Therapy Care Issues.

Marilyn Dahl, (410) 786-8665, Provider Agreement and Supplier Approval Issues.

Melissa Harris, (410) 786-3397 or Adrienne Delozier, (410) 786-0278, Accreditation of Providers of Inpatient Psychiatric Services to Individuals under Age 21 Issues.

SUPPLEMENTARY INFORMATION: Back to Top

Inspection of Public Comments: All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following Web site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions at that Web site to view public comments.

Comments received timely will also be available for public inspection, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951.

Electronic Access 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 Web page address is http://www.gpoaccess.gov/), by using local WAIS client software, or by telnet to swais.access.gpo.gov, then login as guest (no password required). Dial-in users should use communications software and modem to call (202) 512-1661; type swais, then login as guest (no password required).

Acronyms Back to Top

3M3M Health Information System

AAHKSAmerican Association of Hip and Knee Surgeons

AAMCAssociation of American Medical Colleges

ACGMEAccreditation Council for Graduate Medical Education

AHAAmerican Hospital Association

AHICAmerican Health Information Community

AHIMAAmerican Health Information Management Association

AHRQAgency for Healthcare Research and Quality

ALOSAverage length of stay

ALTHAAcute Long Term Hospital Association

AMAAmerican Medical Association

AMGAAmerican Medical Group Association

AOAAmerican Osteopathic Association

APR DRGAll Patient Refined Diagnosis Related Group System

ARRAAmerican Recovery and Reinvestment Act of 2009, Public Law 111-5

ASCAmbulatory surgical center

ASCAAdministrative Simplification Compliance Act of 2002, Public Law 107-105

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

BICBeneficiary Identification Code

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

COLACost-of-living adjustment

CoP[Hospital] condition of participation

CPIConsumer price index

CRNACertified Registered Nurse Anesthetist

CYCalendar year

DPPDisproportionate patient percentage

DRADeficit Reduction Act of 2005, Public Law 109-171

DRGDiagnosis-related group

DSHDisproportionate share hospital

ECIEmployment cost index

EDB[Medicare] Enrollment Database

EMRElectronic medical record

FAHFederation of Hospitals

FDAFood and Drug Administration

FFYFederal fiscal year

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

HCOHigh-cost outlier

HCRISHospital Cost Report Information System

HHAHome health agency

HHSDepartment of Health and Human Services

HICANHealth Insurance Claims Account Number

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

HIPC Health 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-CMInternational Classification of Diseases, Tenth Revision, Clinical Modification

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

ICRInformation collection requirement

IHSIndian Health Service

IMEIndirect medical education

I-OInput-Output

IOMInstitute of Medicine

IPFInpatient psychiatric facility

IPPS[Acute care hospital] inpatient prospective payment system

IRFInpatient rehabilitation facility

LAMCsLarge area metropolitan counties

LOSLength of stay

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

NALTHNational Association of Long Term Hospitals

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

NPNurse practitioner

NQFNational Quality Forum

NTISNational Technical Information Service

NTTAANational Technology Transfer and Advancement Act of 1991 (Pub. L. 104-113)

NVHRINational Voluntary Hospital Reporting Initiative

OACT[CMS'] Office of the Actuary

OBRA 86Omnibus Budget Reconciliation Act of 1996, 99

OESOccupational employment statistics

OIGOffice of the Inspector General

OMBExecutive Office of Management and Budget

OPMU.S. Office of Personnel Management

O.R.Operating room

OSCAROnline Survey Certification and Reporting [System]

PAPhysician assistant

PIPPeriodic interim payment

PLIProfessional liability insurance

PMSAsPrimary metropolitan statistical areas

POAPresent on admission

PPACAPatient Protection and Affordable Care Act, Public Law 111-148

PPIProducer price index

PPSProspective payment system

PRMProvider Reimbursement Manual

ProPACProspective Payment Assessment Commission

PRRBProvider Reimbursement Review Board

PRTFsPsychiatric residential treatment facilities

PSFProvider-Specific File

PS&RProvider Statistical and Reimbursement (System)

QIGQuality Improvement Group, CMS

QIOQuality Improvement Organization

RCEReasonable compensation equivalent

RHCRural health clinic

RHQDAPUReporting hospital quality data for annual payment update

RNHCIReligious nonmedical health care institution

RPLRehabilitation psychiatric long-term care (hospital)

RRCRural referral center

RTIResearch Triangle Institute, International

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

SSNSocial Security number

SSOShort-stay outlier

TEFRATax Equity and Fiscal Responsibility Act of 1982, 97

TEPTechnical expert panel

TMATMA [Transitional Medical Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension Act of 2007, Public Law 110-90

UHDDSUniform hospital discharge data set

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

3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)

4. Critical Access Hospitals (CAHs)

5. Payments for Graduate Medical Education (GME)

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

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

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

1. Issuance of May 4, 2010 IPPS/LTCH PPS Proposed Rule

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

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

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

d. Proposed FY 2011 Policy Governing the IPPS for Capital-Related Costs

e. Proposed Changes to the Payment Rates for Certain Excluded Hospitals: Rate-of-Increase Percentages

f. Proposed Changes to the LTCH PPS

g. Proposed Changes Relating to Effective Date of Provider Agreements and Supplier Approvals

h. Proposed Changes to Medicare Conditions of Participation Affecting Hospital Rehabilitation Services and Respiratory Care Services

i. Proposed Changes to the Accreditation Requirements for Medicaid Providers of Inpatient Psychiatric Services for Individuals under Age 21

j. Determining Proposed Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits for Acute Care Hospitals

k. Determining Proposed Prospective Payments Rates for LTCHs

l. Impact Analysis

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

n. Discussion of Medicare Payment Advisory Commission Recommendations

2. Issuance of June 2, 2010 IPPS/LTCH PPS Proposed Rule

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

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

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

A. Background

B. MS-DRG Reclassifications

1. General

2. Yearly Review for Making MS-DRG Changes

C. Adoption of the MS-DRGs in FY 2008

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

1. Background on the Prospective MS-DRG Documentation and Coding Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90

2. Prospective Adjustment to the Average Standardized Amounts Required by Section 7(b)(1)(A) of Public Law 110-90

3. Recoupment or Repayment Adjustments in FYs 2010 through 2012 Required by Public Law 110-90

4. Retrospective Evaluation of FY 2008 Claims Data

5. Retrospective Analysis of FY 2009 Claims Data

6. Prospective Adjustment for FY 2010 and Subsequent Years Authorized by Section 7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(vi) of the Act

7. Recoupment or Repayment Adjustment for FY 2010 Authorized by Section 7(b)(1)(B) of Public Law 110-90

8. Background on the Application of the Documentation and Coding Adjustment to the Hospital-Specific Rates

9. Documentation and Coding Adjustment to the Hospital-Specific Rates for FY 2011 and Subsequent Fiscal Years

10. Background on the Application of the Documentation and Coding Adjustment to the Puerto Rico-Specific Standardized Amount

11. Documentation and Coding Adjustment to the Puerto Rico-Specific Standardized Amount

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background

a. Summary of FY 2009 Changes and Discussion for FY 2011

b. Summary of the RAND Corporation Study of Alternative Relative Weight Methodologies

2. FY 2011 Changes and Timeline for Changes to the Medicare Cost Report

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

1. Background

a. Statutory Authority

b. HAC Selection

c. Collaborative Process

d. Application of HAC Payment Policy to MS-DRG Classifications

e. Public Input Regarding Selected and Potential Candidate HACs

f. POA Indicator Reporting

2. HAC Conditions for FY 2011

3. RTI Program Evaluation Summary

a. Background

b. RTI Analysis on POA Indicator Reporting Across Medicare Discharges

c. RTI Analysis on POA Indicator Reporting of Current HACs

d. RTI Analysis of Frequency of Discharges and POA Indicator Reporting for Current HACs

e. RTI Analysis of Circumstances When Application of HAC Provisions Would Not Result in MS-DRG Reassignment for Current HACs

f. RTI Analysis of Coding Changes for HAC-Associated Secondary Diagnoses for Current HACs

g. RTI Analysis of Estimated Net Savings for Current HACs

h. Previously Considered Candidate HACs—RTI Analysis of Frequency of Discharges and POA Indicator Reporting

i. Current and Previously Considered Candidate HACs—RTI Report on Evidence-Based Guidelines

j. Current HACs and Previously Considered Candidate HACs

G. Changes to Specific MS-DRG Classifications

1. Pre-Major Diagnostic Categories (MDCs)

a. Postsurgical Hypoinsulinemia (MS-DRG 008 (Simultaneous Pancreas/Kidney Transplant))

b. Bone Marrow Transplants

2. MDC 1 (Nervous System): Administration of Tissue Plasminogen Activator (tPA) (rtPA)

3. MDC 5 (Diseases and Disorders of the Circulatory System): Intraoperative Fluorescence Vascular Angiography (IFVA) and X-Ray Coronary Angiography in Coronary Artery Bypass Graft Surgery

a. New MS-DRGs for Intraoperative Fluorescence Vascular Angiography (IFVA) with CABG

b. New MS-DRG for Intraoperative Angiography, by any Method, with CABG

c. New Procedure Codes

d. MS-DRG Reassignment of Intraoperative Fluorescence Vascular Angiography (IFVA)

4. MDC 6 (Diseases and Disorders of the Digestive System): Gastrointestinal Stenting

5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue): Pedicle-Based Dynamic Stabilization

6. MDC 15 (Newborns and Other Neonates with Conditions Originating in the Perinatal Period)

a. Discharges/Transfers of Neonates to a Designated Cancer Center or a Children's Hospital

b. Vaccination of Newborns

7. Medicare Code Editor (MCE) Changes

a. Unacceptable Principal Diagnosis Edit: Addition of Code for Gastroparesis

b. Open Biopsy Check Edit

c. Noncovered Procedure Edit

8. Surgical Hierarchies

9. Complication or Comorbidity (CC) Exclusions List

a. Background

b. CC Exclusions List for FY 2011

10. Review of Procedure Codes in MS-DRGs 981 through 983, 984 through 986, and 987 through 989

a. Moving Procedure Codes from MS-DRGs 981 through 983 or MS-DRGs 987 through 989 to MDCs

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

c. Adding Diagnosis or Procedure Codes to MDCs

11. Changes to the ICD-9-CM Coding System, Including Discussion of the Replacement of the ICD-9-CM System with the ICD-10-CM and ICD-10-PCS Systems in FY 2014

a. ICD-9-CM Coding System

b. Code Freeze

c. Processing of 25 Diagnosis Codes and 25 Procedure Codes on Hospital Inpatient Claims

12. Other Issues Not Addressed in the Proposed Rule

a. Rechargeable Dual Array Deep Brain Stimulation System

b. IntraOperative Electron RadioTherapy (IOERT)

c. Brachytherapy

d. Excisional Debridement

H. Recalibration of MS-DRG Weights

I. Add-On Payments for New Services and Technologies

1. Background

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

3. FY 2011 Status of Technologies Approved for FY 2010 Add-On Payments

a. Spiration® IBV® Valve System

b. CardioWest TM Temporary Total Artificial Heart System (CardioWest TM TAH-t)

4. FY 2011 Applications for New Technology Add-On Payments

a. Auto Laser Interstitial Thermal Therapy (AutoLITT TM) System

b. LipiScan TM Coronary Imaging System

c. LipiScan TM Coronary Imaging System with Intravascular Ultrasound (IVUS)

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

A. Background

B. Wage Index Reform

1. Wage Index Study Required under the MIEA-TRHCA

a. Legislative Requirement

b. Interim and Final Reports on Results of Acumen's Study

2. FY 2009 Policy Changes in Response to Requirements under Section 106(b) of the MIEA-TRHCA

a. Reclassification Average Hourly Wage Comparison Criteria

b. Budget Neutrality Adjustment for the Rural and Imputed Floors

3. Floor for Area Wage Index for Hospitals in Frontier States

4. Plan for Reforming the Wage Index under Section 3137(b) of Affordable Care Act

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

D. Occupational Mix Adjustment to the FY 2011 Wage Index

1. Development of Data for the FY 2011 Occupational Mix Adjustment Based on the 2007-2008 Occupational Mix Survey

2. New 2010 Occupational Mix Survey for the FY 2013 Wage Index

3. Calculation of the Occupational Mix Adjustment for FY 2011

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

1. Included Categories of Costs

2. Excluded Categories of Costs

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

F. Verification of Worksheet S-3 Wage Data

G. Method for Computing the FY 2011 Unadjusted Wage Index

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

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

1. General

2. Effects of Reclassification/Redesignation

3. FY 2011 MGCRB Reclassifications

a. FY 2011 Reclassification Requirements and Approvals

b. Applications for Reclassifications for FY 2012

c. Appeals of MGCRB Denials of Withdrawals and Terminations

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

5. Reclassifications under Section 1886(d)(8)(B) of the Act

6. Reclassifications under Section 508 of Public Law 108-173

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

K. Process for Requests for Wage Index Data Corrections

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

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

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

1. Background

a. Overview

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

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

d. Hospital Quality Data Reporting under Section 3001(a)(2) and 3401(a)(2) of Public Law 111-148

e. Quality Measures

f. Maintenance of Technical Specifications for Quality Measures

g. Public Display of Quality Measures

2. Retirement of RHQDAPU Program Measures

a. Considerations in Retiring Quality Measures from the RHQDAPU Program

b. Retirement of Quality Measures under the RHQDAPU Program for the FY 2011 Payment Determination and Subsequent Years

3. Expansion Plan for Quality Measures for the FY 2012, FY 2013, and FY 2014 Payment Determinations

a. Considerations in Expanding and Updating Quality Measures under the RHQDAPU Program

b. RHQDAPU Program Quality Measures for the FY 2012 Payment Determination

c. RHQDAPU Program Quality Measures for the FY 2013 Payment Determination

d. RHQDAPU Program Quality Measures for the FY 2014 Payment Determination

4. Possible New Quality Measures for Future Years

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

a. RHQDAPU Program Requirements for FY 2012, FY 2013, and FY 2014

b. Additional RHQDAPU Program Procedural Requirements for FY 2012, FY 2013, and FY 2014 Payment Determinations

6. RHQDAPU Program Disaster Extensions and Waivers

7. Chart Validation Requirements for Chart-Abstracted Measures

a. Chart Validation Requirements and Methods for the FY 2012 Payment Determination

b. Supplements to the Chart Validation Process for the FY 2013 Payment Determination and Subsequent Years

8. Data Accuracy and Completeness Acknowledgement Requirements for the FY 2012 Payment Determination and Subsequent Years

9. Public Display Requirements for the FY 2012 Payment Determination and Subsequent Years

10. Reconsideration and Appeal Procedures for the FY 2011 Payment Determination

11. RHQDAPU Program Withdrawal Deadlines

12. Electronic Health Records

a. Background

b. EHR Testing of Quality Measures Submission

c. HITECH Act EHR Provisions

13. Qualification of Registries for RHQDAPU Data Submission

14. RHQDAPU and Hospital Value-Based Purchasing

B. Payment for Transfers of Cases from Medicare Participating Acute Care Hospitals to Nonparticipating Hospitals and CAHs

1. Background

2. Policy Change

C. Rural Referral Centers (RRCs)

1. Case-Mix Index (CMI)

2. Discharges

D. Payment Adjustment for Low-Volume Hospitals

1. Background

2. Temporary Changes for FYs 2011 and 2012

E. Indirect Medical Education (IME) Adjustment

1. Background

2. IME Adjustment Factor for FY 2011

3. IME-Related Changes in Other Sections of this Final Rule

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

1. Background

2. CMS' Current Data Matching Process for the SSI Fraction

3. Baystate Medical Center v. Leavitt Court Decision

4. CMS' Proposed Process for Matching Medicare and SSI Eligibility Data

a. Inclusion of Stale Records and Forced Pay Records in the SSI Eligibility Data Files

b. Use of SSNs in the Revised Match Process

c. Timing of the Match

5. CMS Ruling 1498-R

6. Clarification of Language on Inclusion of Medicare Advantage Days in the SSI Fraction of the Medicare DSH Calculation

G. Medicare-Dependent, Small Rural Hospitals (MDHs): Change to Criteria

1. Background

2. Medicare-Dependency: Counting Medicare Inpatients

3. Extension of the MDH Program

H. Payments for Direct Graduate Medical Education (GME) Costs

1. Background

2. Identifying “Approved Medical Residency Programs”

a. Residents in Approved Medical Residency Programs

b. Determining Whether an Individual Is a Resident or a Physician

c. Formal Enrollment and Participation in a Program

3. Electronic Submission of Affiliation Agreements

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

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

1. Background

2. Eligible Counties

a. Development of Risk Adjustment Model

b. Calculation of County Level Part A and Part B Spending

3. Application of the Age/Sex/Race Adjustment to Part A and Part B County Spending

4. Qualifying Hospitals and Annual Payment Amounts

5. Payment Determination and Distribution

6. Hospital Weighting Factors

7. Results

8. Finalization of Eligible Counties, Qualifying Hospitals and Qualifying Hospitals' Weighting Factors

K. Rural Community Hospital Demonstration Program

L. Technical Change to Regulations

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

1. Introduction

2. Background for Policy

3. Requirements of Section 102 of Public Law 111-192

4. Application of the Provisions of Section 102 of Public Law 111-192

5. Waiver of Notice of Proposed Rulemaking

6. Collection of Information Requirements

7. Response to Public Comments

8. Regulatory Impact Analysis

N. Changes in the Inpatient Hospital Market Basket Update

1. FY 2010 Inpatient Hospital Update

2. FY 2011 Inpatient Hospital Update

3. FY 2010 and FY 2011 Puerto Rico Hospital Update

V. Changes to the IPPS for Capital-Related Costs

A. Overview

B. Exception Payments

C. New Hospitals

D. Hospitals Located in Puerto Rico

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

1. Background on the Prospective MS-DRG Documentation and Coding Adjustments for FY 2008 and FY 2009

2. Retrospective Evaluation of FY 2008 Claims Data

3. Retrospective Analysis of FY 2009 Claims Data

4. Prospective MS-DRG Documentation and Coding Adjustment to the National Capital Federal Rate for FY 2011 and Subsequent Years

5. Documentation and Coding Adjustment to the Puerto Rico-Specific Capital Rate

F. Other Changes for FY 2011

VI. Changes for Hospitals Excluded from the IPPS

A. Excluded Hospitals

B. Critical Access Hospitals (CAHs)

1. Background

2. CAH Optional Method Election for Payment of Outpatient Services

3. Costs of Provider Taxes as Allowable Costs for CAHs

a. Background and Statutory Basis

b. Clarification of Payment Policy for Provider Taxes

C. Report of Adjustment (Exceptions) Payments

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

A. Background of the LTCH PPS

1. Legislative and Regulatory Authority

2. Criteria for Classification as a LTCH

a. Classification as a LTCH

b. Hospitals Excluded from the LTCH PPS

3. Limitation on Charges to Beneficiaries

4. Administrative Simplification Compliance Act (ASCA) and Health Insurance Portability and Accountability Act (HIPAA) Compliance

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

1. Background

2. Patient Classifications into MS-LTC-DRGs

a. Background

b. Changes to the MS-LTC-DRGs for FY 2011

3. Development of the FY 2011 MS-LTC-DRG Relative Weights

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

b. Development of the MS-LTC-DRG Relative Weights for FY 2011

c. Data

d. Hospital-Specific Relative Value (HSRV) Methodology

e. Treatment of Severity Levels in Developing the MS-LTC-DRG Relative Weights

f. Low-Volume MS-LTC-DRGs

g. Steps for Determining the RY 2011 MS-LTC-DRG Relative Weights

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

1. Overview of Development of the LTCH Payment Rates

2. Market Basket for LTCHs Reimbursed under the LTCH PPS

a. Overview

b. Revision of Certain Market Basket Updates as Required by the Affordable Care Act

c. Changes to Reflect the Market Basket Update for LTCHs for RY 2010

d. Market Basket under the LTCH PPS for FY 2011

e. Market Basket Update for LTCHs for FY 2011

f. Labor-Related Share under the LTCH PPS for FY 2011

3. Adjustment for Changes in LTCHs' Case-Mix Due to Changes in Documentation and Coding Practices That Occurred in a Prior Period

a. Background

b. Evaluation of FY 2009 Claims Data

c. FY 2011 Documentation and Coding Adjustment

D. Change in Terminology from “Rate Year” to “Fiscal Year” and Other Changes

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

1. Background

2. Amendments Relating to Payment Adjustment to LTCHs and LTCH Satellite Facilities Made by Section 4302 of the ARRA

3. Amendment to the Moratorium on the Increase in Number of Beds in Existing LTCHs or LTCH Satellite Facilities Made by Section 4302 of the ARRA

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

VIII. Determination of Effective Date of Provider Agreements and Supplier Approvals

A. Background

B. Departmental Appeals Board Decision

C. Revisions to Regulations

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

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

A. Background

B. Revision of Policy and Regulations

XI. MedPAC Recommendations

XII. Other Required Information

A. Requests for Data from the Public

B. Collection of Information Requirements

1. Legislative Requirement for Solicitation of Comments

2. Requirements in Regulation Text

a. ICRs Regarding Withdrawing an Application, Terminating an Approved 3 Year Reclassification, or Canceling a Previous Withdrawal or Termination (Revised § 412.273)

b. ICRs Regarding Condition of Participation: Respiratory Care Services (§ 482.57)

3. Additional Information Collection Requirements

a. Present on Admission (POA) Indicator Reporting

b. Add-On Payments for New Services and Technologies

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

d. Occupational Mix Adjustment to the FY 2011 Index (Hospital Wage Index Occupational Mix Survey)

e. Hospital Applications for Geographic Reclassifications by the MGCRB

f. Direct GME Payments: General Requirements

Regulation Text

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

I. Summary and Background

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

A. Calculation of the Adjusted Standardized Amount

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

C. MS-DRG Relative Weights

D. Calculation of the Prospective Payment Rates

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

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

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

C. Capital Input Price Index

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

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

A. LTCH PPS Standard Federal Rate for FY 2011

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

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

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

VI. Tables

Table 1A—National Adjusted Operating Standardized Amounts, Labor/Nonlabor (68.8 Percent Labor Share/31.2 Percent Nonlabor Share If Wage Index Is Greater Than 1)

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

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

Table 1D—Capital Standard Federal Payment Rate

Table 1E—LTCH Standard Federal Prospective Payment Rate

Table 2—Acute Care Hospitals Case-Mix Indexes for Discharges Occurring in Federal Fiscal Year 2009; Hospital Wage Indexes for Federal Fiscal Year 2011; Hospital Average Hourly Wages for Federal Fiscal Years 2009 (2005 Wage Data), 2010 (2006 Wage Data), and 2011 (2007 Wage Data); and 3-Year Average of Hospital Average Hourly Wages

Table 3A—FY 2011 and 3-Year Average Hourly Wage for Acute Care Hospitals in Urban Areas by CBSA

Table 3B—FY 2011 and 3-Year Average Hourly Wage for Acute Care Hospitals in Rural Areas by CBSA

Table 4A.—Wage Index and Capital Geographic Adjustment Factor (GAF) for Acute Care Hospitals in Urban Areas by CBSA and by State—FY 2011

Table 4B.—Wage Index and Capital Geographic Adjustment Factor (GAF) for Acute Care Hospitals in Rural Areas by CBSA and by State—FY 2011

Table 4C.—Wage Index and Capital Geographic Adjustment Factor (GAF) for Acute Care Hospitals That Are Reclassified by CBSA and by State—FY 2011

Table 4D-1 (This table is discontinued due to section 3141 of the Affordable Care Act returning the rural floor budget neutrality to a uniform national adjustment.)

Table 4D-2.—States Designated as Frontier, with Acute Care Hospitals Receiving at a Minimum the Frontier State Floor Wage Index; Urban Areas with Acute Care Hospitals Receiving the Statewide Rural Floor or Imputed Floor Wage Index—FY 2011

Table 4E.—Urban CBSAs and Constituent Counties for Acute Care Hospitals—FY 2011

Table 4F.—Puerto Rico Wage Index and Capital Geographic Adjustment Factor (GAF) for Acute Care Hospitals by CBSA—FY 2011

Table 4J.—Out-Migration Adjustment for Acute Care Hospitals—FY 2011

Table 5.—List of Medicare Severity Diagnosis-Related Groups (MS-DRGs), Relative Weighting Factors, and Geometric and Arithmetic Mean Length of Stay—FY 2011

Table 6A.—New Diagnosis Codes

Table 6B.—New Procedure Codes

Table 6C.—Invalid Diagnosis Codes

Table 6D.—Invalid Procedure Codes

Table 6E.—Revised Diagnosis Code Titles

Table 6F.—Revised Procedure Code Titles

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

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

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

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

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

Table 7A.—Medicare Prospective Payment System Selected Percentile Lengths of Stay: FY 2009 MedPAR Update—March 2010 GROUPER V27.0 MS-DRGs

Table 7B.—Medicare Prospective Payment System Selected Percentile Lengths of Stay: FY 2009 MedPAR Update—March 2010 GROUPER V28.0 MS-DRGs

Table 8A.—Statewide Average Operating Cost-to-Charge Ratios (CCRs) for Acute Care Hospitals—July 2010

Table 8B.—Statewide Average Capital Cost-to-Charge Ratios (CCRs) for Acute Care Hospitals—July 2010

Table 8C.—Statewide Average Total Cost-to-Charge Ratios (CCRs) for LTCHs—July 2010

Table 9A.—Hospital Reclassifications and Redesignations—FY 2011

Table 9C.—Hospitals Redesignated as Rural under Section 1886(d)(8)(E) of the Act—FY 2011

Table 10.—Geometric Mean Plus the Lesser of .75 of the National Adjusted Operating Standardized Payment Amount (Increased To Reflect the Difference Between Costs and Charges) or .75 of One Standard Deviation of Mean Charges by Medicare Severity Diagnosis-Related Groups (MS-DRGs)—July 2010

Table 11.—MS-LTC-DRGs, Relative Weights, Geometric Average Length of Stay, Short-Stay Outlier Threshold, and IPPS Comparable Threshold for Discharges Occurring from October 1, 2010 through September 30, 2011 under the LTCH PPS

Table 12A.—LTCH PPS Wage Index for Urban Areas for Discharges Occurring from October 1, 2010 through September 30, 2011

Table 12B.—LTCH PPS Wage Index for Rural Areas for Discharges Occurring from October 1, 2010 through September 30, 2011

Appendix A—Regulatory Impact Analysis

I. Overall Impact

II. Objectives of the IPPS

III. Limitations of Our Analysis

IV. Hospitals Included in and Excluded from the IPPS

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

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

A. Basis and Methodology of Estimates

B. Analysis of Table I

C. Effects of the Changes to the MS-DRG Reclassifications and Relative Cost-Based Weights (Column 1)

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

E. Effects of Wage Index Changes (Column 3)

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

G. Combined Effects of MS-DRG and Wage Index Changes (Column 5)

H. Effects of MGCRB Reclassifications (Column 6)

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

J. Effects of the Wage Index Adjustment for Out-Migration (Column 8)

K. Effects of All Changes Prior to Documentation and Coding (Or CMI) Adjustment (Column 9)

L. Effects of All Changes With CMI Adjustment (Column 10)

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

N. Impact Analysis of Table II

VII. Effects of Other Policy Changes

A. Effects of Policy on HACs, Including Infections

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

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

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

E. Effects of Change in Criteria for MDHs

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

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

1. Background

2. Identifying “Approved Medical Residency Programs”

3. Submission of Electronic Affiliation Agreements

4. Technical Correction to the Regulations Relating to the Cost of Approved Nursing and Allied Health Education Activities

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

I. Effects of Implementation of Rural Community Hospital Demonstration Program

J. Effects of Changes Relating to CAHs

1. CAH Optional Method of Payment for Outpatient Services

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

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

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

VIII. Effects of Changes in the Capital IPPS

A. General Considerations

B. Results

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

A. Introduction and General Considerations

B. Impact on Rural Hospitals

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

D. Effect on the Medicare Program

E. Effect on Medicare Beneficiaries

X. Effects of Policy Changes Relating to Accreditation Requirements for Medicaid Providers of Inpatient Psychiatric Services to Individuals under Age 21

XI. Alternatives Considered

XII. Overall Conclusion

A. Acute Care Hospitals

B. LTCHs

XIII. Accounting Statements

A. Acute Care Hospitals

B. LTCHs

XIV. Executive Order 12866

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

I. Background

II. Inpatient Hospital Update for FY 2011

III. Secretary's Recommendation

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

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 eligible outlier payment is added to the DRG-adjusted base payment rate, plus any DSH, IME, and new technology or medical service add-on adjustments.

Although payments to most hospitals under the IPPS are made on the basis of the standardized amounts, some categories of hospitals are paid in whole or in part based on their hospital-specific rate based on their costs in a base year. For example, sole community hospitals (SCHs) receive the higher of a hospital-specific rate based on their costs in a base year (the highest of FY 1982, FY 1987, FY 1996, or FY 2006) or the IPPS Federal rate based on the standardized amount. Through and including FY 2006, a Medicare-dependent, small rural hospital (MDH) received the higher of the Federal rate or the Federal rate plus 50 percent of the amount by which the Federal rate is exceeded by the higher of its FY 1982 or FY 1987 hospital-specific rate. As discussed below, for discharges occurring on or after October 1, 2007, but before October 1, 2012, an MDH will receive the higher of the Federal rate or the Federal rate plus 75 percent of the amount by which the Federal rate is exceeded by the highest of its FY 1982, FY 1987, or FY 2002 hospital-specific rate. SCHs are the sole source of care in their areas, and MDHs are a major source of care for Medicare beneficiaries in their areas. Specifically, section 1886(d)(5)(D)(iii) of the Act defines an SCH as a hospital that is located more than 35 road miles from another hospital or that, by reason of factors such as isolated location, weather conditions, travel conditions, or absence of other like hospitals (as determined by the Secretary), is the sole source of hospital inpatient services reasonably available to Medicare beneficiaries. In addition, certain rural hospitals previously designated by the Secretary as essential access community hospitals are considered SCHs. Section 1886(d)(5)(G)(iv) of the Act defines an MDH as a hospital that is located in a rural area, has not more than 100 beds, is not an SCH, and has a high percentage of Medicare discharges (not less than 60 percent of its inpatient days or discharges in its cost reporting year beginning in FY 1987 or in two of its three most recently settled Medicare cost reporting years). Both of these categories of hospitals are afforded this special payment protection in order to maintain access to services for beneficiaries.

Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of inpatient hospital services “in accordance with a prospective payment system established by the Secretary.” The basic methodology for determining capital prospective payments is set forth in our regulations at 42 CFR 412.308 and 412.312. Under the capital IPPS, payments are adjusted by the same DRG for the case as they are under the operating IPPS. Capital IPPS payments are also adjusted for IME and DSH, similar to the adjustments made under the operating IPPS. In addition, hospitals may receive outlier payments for those cases that have unusually high costs.

The existing regulations governing payments to hospitals under the IPPS are located in 42 CFR part 412, subparts A through M.

2. Hospitals and Hospital Units Excluded From the IPPS

Under section 1886(d)(1)(B) of the Act, as amended, certain hospitals and hospital units are excluded from the IPPS. These hospitals and units are: Rehabilitation hospitals and units; long-term care hospitals (LTCHs); psychiatric hospitals and units; children's hospitals; and cancer hospitals. Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS. Various sections of the Balanced Budget Act of 1997 (BBA, Pub. L. 105-33), the Medicare, Medicaid and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999 (BBRA, Pub. L. 106-113), and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA, Pub. L. 106-554) provide for the implementation of PPSs for rehabilitation hospitals and units (referred to as inpatient rehabilitation facilities (IRFs)), LTCHs, and psychiatric hospitals and units (referred to as inpatient psychiatric facilities (IPFs)). (We note that the annual updates to the LTCH PPS are now included as part of the IPPS annual update document. Updates to the IRF PPS and IPF PPS are issued as separate documents.) Children's hospitals, cancer hospitals, and RNHCIs continue to be paid solely under a reasonable cost-based system subject to a rate-of-increase ceiling on inpatient operating costs per discharge.

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

3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)

The Medicare prospective payment system (PPS) for LTCHs applies to hospitals described in section 1886(d)(1)(B)(iv) effective for cost reporting periods beginning on or after October 1, 2002. The LTCH PPS was established under the authority of sections 123(a) and (c) of Public Law 106-113 and section 307(b)(1) of Public Law 106-554 (as codified under section 1886(m)(1) of the Act). During the 5-year (optional) transition period, a LTCH's payment under the PPS was based on an increasing proportion of the LTCH Federal rate with a corresponding decreasing proportion based on reasonable cost principles. Effective for cost reporting periods beginning on or after October 1, 2006, all LTCHs are paid 100 percent of the Federal rate. The existing regulations governing payment under the LTCH PPS are located in 42 CFR part 412, subpart O. Beginning October 1, 2009, we issue the annual updates to the LTCH PPS in the same documents that update the IPPS (73 FR 26797 through 26798).

4. Critical Access Hospitals (CAHs)

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

5. Payments for Graduate Medical Education (GME)

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

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

On March 23, 2010, the Patient Protection and Affordable Care Act (PPACA), Public Law 111-148 was enacted. Following the enactment of Public Law 111-148, the Health Care and Education Reconciliation Act of 2010, Public Law 111-152 (enacted on March 30, 2010), amended certain provisions of Public Law 111-148 and certain sections of the Social Security Act, and, in certain instances, included certain “freestanding” provisions that affect implementation of the IPPS and the LTCH PPS. (Pub. L. 111-148 and Pub. L. 111-152 are collectively referred to as the “Affordable Care Act.”) A number of the provisions of the Affordable Care Act affected the updates to the IPPS and the LTCH PPS and the providers and suppliers that were addressed in the FY 2011 IPPS/LTCH PPS proposed rule that appeared in the Federal Register on May 4, 2010 (75 FR 23852). However, due to the timing of the passage of the legislation, we were unable to address those provisions in the May 4, 2010 proposed rule. Therefore, on June 2, 2010, we issued in the Federal Register two additional documents:

1. A supplemental proposed rule (75 FR 30918) to the FY 2010 IPPS/LTCH PPS proposed rule published on May 4, 2010, that proposed to implement certain provisions of the Affordable Care Act. These proposed provisions are outlined in section I.D.2. of this final rule, and are being finalized in the appropriate subject-matter sections of this final rule.

2. A notice (75 FR 31118) that contained the final wage indices, hospital reclassifications, payment rates, impacts, and other related tables, effective for the FY 2010 IPPS and the RY 2010 LTCH PPS, that were required by or directly resulted from implementation of provisions of the Affordable Care Act.

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

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

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

1. Issuance of May 4, 2010 IPPS/LTCH PPS Proposed Rule

On May 4, 2010, we issued in the Federal Register the FY 2011 IPPS/LLTCH PPS proposed rule (75 FR 23852). In that proposed rule, we set forth proposed changes to the Medicare IPPS for operating costs and for capital-related costs of acute care hospitals in FY 2011. We also set forth proposed changes relating to payments for IME costs and payments to certain hospitals and units that continue to be excluded from the IPPS and paid on a reasonable cost basis.

In addition, in that proposed rule, we set forth proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2011. We note that because the annual update of payment rates for the LTCH PPS now takes place on the same schedule and in the same publication as for the IPPS, for the sake of clarity, in section VII.D. of the proposed rule, we proposed to use “fiscal year (FY)” instead of “rate year (RY)” when referring to updates and changes to the LTCH PPS to be effective October 1, 2010. Therefore, throughout the proposed rule (and this final rule), we use the phrase “fiscal year (FY)” in referring to updates and changes to the LTCH PPS.

Below is a summary of the major changes that we proposed to make in the May 4, 2010 proposed rule:

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

In section II. of the preamble of the proposed rule, we included—

  • Proposed changes to MS-DRG classifications based on our yearly review.
  • Proposed application of the documentation and coding adjustment for FY 2011 resulting from implementation of the MS-DRG system.
  • A discussion of the Research Triangle International, Inc. (RTI) and RAND Corporation reports and recommendations relating to charge compression.
  • Proposed recalibrations of the MS-DRG relative weights.

We also presented a listing and discussion of hospital-acquired conditions (HACs), including infections, that are subject to the statutorily required quality adjustment in MS-DRG payments for FY 2011.

We discussed the FY 2011 status of two new technologies approved for add-on payments for FY 2010 and presented our evaluation and analysis of the FY 2011 applicants for add-on payments for high-cost new medical services and technologies (including public input, as directed by Pub. L. 108-173, obtained in a town hall meeting).

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

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

  • Budget neutrality for the rural floor and imputed floor.
  • Changes to titles and principal cities of CBSA designations.
  • The proposed FY 2011 wage index update using wage data from cost reporting periods beginning in FY 2007.
  • Analysis and implementation of the proposed FY 2011 occupational mix adjustment to the wage index for acute care hospitals, including discussion of the 2010 occupational mix survey.
  • Proposed revisions to the wage index for acute care hospitals based on hospital redesignations and reclassifications.
  • The proposed adjustment to the wage index for acute care hospitals for FY 2011 based on commuting patterns of hospital employees who reside in a county and work in a different area with a higher wage index.
  • The timetable for reviewing and verifying the wage data used to compute the proposed FY 2011 hospital wage index.
  • Determination of the labor-related share for the proposed FY 2011 wage index.

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

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

  • The reporting of hospital quality data as a condition for receiving the full annual payment update increase.
  • Payment for transfer cases from Medicare participating hospitals to nonparticipating hospitals and CAHs.
  • A change to the definition criteria for MDHs.
  • The proposed updated national and regional case-mix values and discharges for purposes of determining RRC status.
  • The statutorily required IME adjustment factor for FY 2011.
  • The proposed policy change relating to the determination of the SSI ratio of the Medicare fraction in the formula for determining the payment adjustments for disproportionate share hospitals.
  • A proposed clarification of “approved medical residency programs” policies relating to payment for IME and direct GME and our proposal to accept the electronic submission of Medicare GME affiliation agreements.
  • Proposed policy change for payments for services furnished by certified registered nurse anesthetists (CRNAs) in rural hospitals and CAHs.
  • Discussion of the status of the Rural Community Hospital Demonstration Program.

d. Proposed FY 2011 Policy Governing the IPPS for Capital-Related Costs

In section V. of the preamble to the proposed rule, we discussed the proposed payment policy requirements for capital-related costs and capital payments to hospitals for FY 2011 and the proposed MS-DRG documentation and coding adjustment for FY 2011.

e. Proposed Changes to the Payment Rates for Certain Excluded Hospitals: Rate-of-Increase Percentages

In section VI. of the preamble of the proposed rule, we discussed—

  • Proposed changes to payments to excluded hospitals.
  • Proposed changes relating to the election by CAHs of the optional method of payment for outpatient services
  • Proposed clarification of the policies on costs of provider taxes as allowable costs for CAHs.

f. Proposed Changes to the LTCH PPS

In section VII. of the preamble of the proposed rule, we set forth proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2011, including the annual update of the MS-LTC-DRG classifications and relative weights for use under the LTCH PPS for FY 2011 and the proposed documentation and coding adjustment under the LTCH PPS for FY 2011.

g. Proposed Changes Relating to Effective Date of Provider Agreements and Supplier Approvals

In section VIII. of the preamble of the proposed rule, we set forth our proposed change in the provisions for determining the effective date of provider agreements and supplier approvals and to make changes to assure that accredited and nonaccredited facilities are treated in the same manner in determining this effective date.

h. Proposed Changes to Medicare Conditions of Participation Affecting Hospital Rehabilitation Services and Respiratory Care Services

In section IX. of the preamble of the proposed rule, we proposed changes to the Medicare conditions of participation regarding which practitioners are allowed to order rehabilitation and respiratory care services in the hospital setting.

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

In section X. of the preamble of the proposed rule, we proposed to remove the requirement for accreditation by The Joint Commission of psychiatric hospitals and hospitals with inpatient psychiatric programs. Hospitals with inpatient psychiatric programs would be afforded the flexibility in obtaining accreditation by a national accrediting organization whose hospital accrediting program has been approved by CMS. (We note that we proposed a similar change for psychiatric rehabilitation treatment facilities, which we are not adopting in this final rule.)

j. Determining Proposed Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits for Acute Care Hospitals

In the Addendum to the proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2011 prospective payment rates for operating costs and capital-related costs for acute care hospitals. We also proposed to establish the threshold amounts for outlier cases. In addition, we addressed the proposed update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2011 for certain hospitals excluded from the IPPS.

k. Determining Proposed Prospective Payment Rates for LTCHs

In the Addendum to the proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2011 prospective standard Federal rate. We also proposed to establish the proposed adjustments for wage levels, the labor-related share, the cost-of-living adjustment, and high-cost outliers, including the fixed-loss amount, and the LTCH cost-to-charge ratios (CCRs) under the LTCH PPS.

l. Impact Analysis

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

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

In Appendix B of the proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provided our recommendations of the appropriate percentage changes for FY 2011 for the following:

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

n. Discussion of Medicare Payment Advisory Commission Recommendations

Under section 1805(b) of the Act, MedPAC is required to submit a report to Congress, no later than March 1 of each year, in which MedPAC reviews and makes recommendations on Medicare payment policies. MedPAC's March 2010 recommendations concerning hospital inpatient payment policies address the update factor for hospital inpatient operating costs and capital-related costs under the IPPS, for hospitals and distinct part hospital units excluded from the IPPS. We addressed these recommendations in Appendix B of the proposed rule. For further information relating specifically to the MedPAC March 2008 report or to obtain a copy of the report, contact MedPAC at (202) 220-3700 or visit MedPAC's Web site at: http://www.medpac.gov.

2. Issuance of June 2, 2010 Proposed Rule

A number of the provisions of the Affordable Care Act affected the IPPS and the LTCH PPS and the applicable providers and suppliers. Due to the timing of the passage of the legislation, we were unable to address these provisions in the FY 2011 IPPS/LTCH PPS proposed rule that appeared in the May 4, 2010 Federal Register (75 FR 23852). Therefore, various proposed policies and payment rates in that proposed rule did not reflect the new legislation. We noted in that proposed rule that we would issue separate Federal Register documents addressing the provisions of the Affordable Care Act that affected our proposed policies and payment rates for FY 2010 and FY 2011 under the IPPS and for RY 2010 and FY 2011 under the LTCH PPS.

On June 2, 2010, we issued a supplemental proposed rule in the Federal Register (75 FR 30918) that addressed the following FY 2011 policies and provisions of the Affordable Care Act:

  • Hospital wage index improvement related to geographic reclassification criteria for FY 2011 (section 3137 of Pub. L. 111-148).
  • National budget neutrality in the calculation of the rural floor for hospital wage index (section 3141 of Pub. L. 111-148).
  • Protections for frontier States (section 10324 of Pub. L. 111-148).
  • Revisions of certain market basket updates (sections 3401 and 10319 of Pub. L. 111-148 and section 1105 of Pub. L. 111-152).
  • Temporary improvements to the low-volume hospital adjustment (sections 3125 and 10314 of Pub. L. 111-148).
  • Extension of Medicare-dependent hospitals (MDHs) (section 3124 of Pub. L. 111-148).
  • Additional payments in FYs 2011 and 2012 for qualifying hospitals in the lowest quartile of per capital Medicare spending (section 1109 of Pub. L. 111-152).
  • Extension of the rural community hospital demonstration (sections 3123 and 10313 of Pub. L. 111-148).
  • Technical correction related to CAH services (section 3128 of Pub. L. 111-148).
  • Extension of certain payment rules for LTCH services and of moratorium on the establishment of certain hospitals and facilities and increases in beds in existing LTCHs or LTCH satellite facilities (sections 3106 and 10312 of Pub. L. 111-148).

We also noted that we planned to issue further instructions implementing the provisions of the Affordable Care Act that affect the policies and payment rates for FY 2010 under the IPPS and for RY 2010 under the LTCH PPS in a separate document published elsewhere in June 2, 2010 Federal Register.

In this final rule, we are finalizing both the provisions of the May 4, 2010 proposed rule and the June 2, 2010 supplemental proposed rule in one document.

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

We received over 700 public comments on the May 4, 2010 FY 2011 IPPS/LTCH PPS proposed rule and approximately 33 public comments on the June 2, 2010 FY 2011 IPPS/LTCH PPS supplemental proposed rule. One comment addressed the comment period for the supplemental proposed rule.

Comment: One commenter objected to our decision to shorten the usual 60-day comment period for the supplemental proposed rule. The commenter did not believe that CMS had the authority to shorten the comment period and stated that the period allowed for comment on the policies in the supplemental proposed rule was insufficient.

Response: We disagree with the commenter that the waiver of the full 60-day comment period in the supplemental proposed rule was insufficient. As we explained in the supplemental proposed rule, due to the timing of the enactment of the Affordable Care Act, the policies and payment rates outlined in the FY 2011 IPPS/LTCH proposed rule published in the Federal Register on May 4, 2010, did not reflect the changes made by that law to the IPPS and LTCH PPS. The supplemental proposed rule addressed the changes that affect our policies and payment rates for FY 2011 under the IPPS and the LTCH PPS. We refer readers to the waiver of 60-day comment period discussion in the supplemental proposed rule (75 FR 30971), and we welcome the opportunity to provide additional details regarding our decision to waive the 60-day comment period.

Our decision to shorten the customary 60-day comment period is consistent with past agency practice (see, for example, 74 FR 26603 (June 3, 2009), 74 FR 43952 (August 27, 2009), and 68 FR 34772 (June 10, 2003)), as well as the language of section 1871(b)(2)(C) of the Act. We read section 1871(b)(2)(C) of the Act to permit a waiver of any or all of the procedures set forth in section 1871(b)(1) of the Act, including the 60-day comment period, if good cause exists.

We believe the commenter's description of the period allowed for comment overstated the inconvenience that the shortened comment period may have created. We believe that the detailed and thoughtful comments that we received in response to the contents of the supplemental proposed rule support our position that there was time for meaningful public participation in the development of these policies. In addition, as the commenter admits, parties had 28 days from the posting of the supplemental proposed rule to submit comments to CMS, and a Listserv posting alerted outside parties to the posting of agency regulations.

The FY 2011 IPPS/LTCH PSS final rule must be effective as of October 1, 2010, the start of FY 2011. Given this statutory deadline, we believe it was necessary to shorten the time period, as permitted by section 1871(b)(2)(C) of the Act. As we explained in the waiver of 60-day comment period discussion in the supplemental proposed rule, unless we shortened the comment period, there would have been no opportunity for the agency to appropriately consider the comments we received and resolve whether any of the proposed policies would be modified in light of comments received. The comment period set forth in the supplemental proposed rule provided the agency with the minimum time needed for a careful consideration of the public comments on both the FY 2011 IPPS/LTCH PPS final rules. Moreover, a full 60-day comment period from the date of publication in the Federal Register, which is what the comment period would be if the commenter's reading of section 1871(b)(2)(C) of the Act were adopted by the agency, would have extended into August, which would have been impracticable, given the required effective date of October 1, 2010.

The remaining public comments we received on the two proposed rules addressed issues on multiple topics in both of the proposed rules. We present a summary of the public comments and our responses to them in the applicable subject-matter sections of this final rule.

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

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

In section VII.E. of the preamble of this final rule, we respond to the public comment that we received in a timely manner on this interim final rule with comment period and finalize the interim final rule.

II. Changes to Medicare Severity Diagnosis-Related Group (MS-DRG) Classifications and Relative Weights 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, Medicare pays for inpatient hospital services on a rate per discharge basis that varies according to the DRG to which a beneficiary's stay is assigned. The formula used to calculate payment for a specific case multiplies an individual hospital's payment rate per case by the weight of the DRG to which the case is assigned. Each DRG weight represents the average resources required to care for cases in that particular DRG, relative to the average resources used to treat cases in all DRGs.

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

B. MS-DRG Reclassifications

1. General

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

Currently, cases are classified into MS-DRGs for payment under the IPPS based on the following information reported by the hospital: the principal diagnosis, up to eight additional diagnoses, and up to six procedures performed during the stay. (We refer readers to section II.G.11.c. of this final rule for a discussion of our efforts to increase our internal systems capacity to process diagnosis and procedures on hospital claims to 25 diagnosis codes and 25 procedure codes prior to the use of the International Classification of Diseases, 10th Revision, Clinical Modification (ICD-10-CM) for diagnosis coding and the International Classification of Diseases, 10th Revision, Procedure Coding System (ICD-10 PCS) for inpatient hospital procedure coding, effective October 1, 2013.) In a small number of MS-DRGs, classification is also based on the age, sex, and discharge status of the patient. The diagnosis and procedure information is reported by the hospital using codes from the International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM) prior to October 1, 2013. We refer readers to section II.G.11.b. of this final rule for a reference to the replacement of ICD-9-CM, Volumes 1 and 2, including the Official ICD-9-CM Guidelines for Coding and Reporting, Volume 3, with the ICD-10-CM and ICD-10-PCS, including the Official ICD-10-CM and ICD-10-PCS Guidelines for Coding and Reporting, effective October 1, 2013 (FY 2014).

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

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

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

Pre-Major Diagnostic Categories (Pre-MDCs) Back to Top
MS-DRG001 Heart Transplant or Implant of Heart Assist System with MCC.
MS-DRG002 Heart Transplant or Implant of Heart Assist System without MCC.
MS-DRG003 ECMO or Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnosis with Major O.R.
MS-DRG004 Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnosis with Major O.R.
MS-DRG005 Liver Transplant with MCC or Intestinal Transplant.
MS-DRG006 Liver Transplant without MCC.
MS-DRG007 Lung Transplant.
MS-DRG008 Simultaneous Pancreas/Kidney Transplant.
MS-DRG009 Bone Marrow Transplant.
MS-DRG010 Pancreas Transplant.
MS-DRG011 Tracheostomy for Face, Mouth, and Neck Diagnoses with MCC.
MS-DRG012 Tracheostomy for Face, Mouth, and Neck Diagnoses with CC.
MS-DRG013 Tracheostomy for Face, Mouth, and Neck Diagnoses without CC/MCC.

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

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

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

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

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

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

The records for all Medicare hospital inpatient discharges are maintained in the Medicare Provider Analysis and Review (MedPAR) file. The data in this file are used to evaluate possible MS-DRG classification changes and to recalibrate the MS-DRG weights. However, in the FY 2000 IPPS final rule (64 FR 41499 and 41500), we discussed a process for considering non-MedPAR data in the recalibration process. We stated that for use of non-MedPAR data to be feasible for purposes of DRG recalibration and reclassification, the data must, among other things: (1) Be independently verified; (2) reflect a complete set of cases (or a representative sample of cases); and (3) enable us to calculate appropriate DRG relative weights and ensure that cases are classified to the “correct” DRG, and to one DRG only, in the recalibration process. Further, in order for us to consider using particular non-MedPAR data, we must have sufficient time to evaluate and test the data. The time necessary to do so depends upon the nature and quality of the non-MedPAR data submitted. Generally, however, a significant sample of the non-MedPAR data should be submitted by mid-October for consideration in conjunction with the next year's proposed rule. This date allows us time to test the data and make a preliminary assessment as to the feasibility of using the data. Subsequently, a complete non-MedPAR database should be submitted by early December for consideration in conjunction with the next year's proposed rule.

As we indicated above, for FY 2008, we made significant improvements in the DRG system to recognize severity of illness and resource usage by adopting MS-DRGs that were reflected in the FY 2008 GROUPER, Version 25.0, and were effective for discharges occurring on or after October 1, 2007. Our MS-DRG analysis for the FY 2011 proposed rule was based on data from the September 2009 update of the FY 2009 MedPAR file, which contained hospital bills received through September 30, 2009, for discharges occurring through September 30, 2009. For this FY 2011 final rule, our MS-DRG analysis is based on data from the March 2010 update of the FY 2009 MedPAR file, which contained hospital bills received through March 31, 2010, for discharges occurring through September 30, 2009.

2. Yearly Review for Making MS-DRG Changes

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

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

C. Adoption of the MS-DRGs in FY 2008

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

For FY 2007, we began this process. In the FY 2007 IPPS proposed rule, we proposed to adopt Consolidated Severity DRGs (CS DRGs) for FY 2008 (if not earlier). Based on public comments received on the FY 2007 IPPS proposed rule, we decided not to adopt the CS DRGs. In the FY 2007 IPPS final rule (71 FR 47906 through 47912), we discussed several concerns raised by public commenters regarding the proposal to adopt CS DRGs. We acknowledged the many public comments suggesting the logic of Medicare's DRG system should continue to remain in the public domain as it has since the inception of the PPS. We also acknowledged concerns about the impact on hospitals and software vendors of moving to a proprietary system. Several commenters suggested that CMS refine the existing DRG classification system to preserve the many policy decisions that were made over the last 20 years and were already incorporated into the DRG system, such as complexity of services and new device technologies. Consistent with the concerns expressed in the public comments, this option had the advantage of using the existing DRGs as a starting point (which was already familiar to the public) and retained the benefit of many DRG decisions that were made in recent years. We stated our belief that the suggested approach of incorporating severity measures into the existing DRG system was a viable option that would be evaluated.

Therefore, we decided to make interim changes to the existing DRGs for FY 2007 by creating 20 new DRGs involving 13 different clinical areas that would significantly improve the CMS DRG system's recognition of severity of illness. We also modified 32 DRGs to better capture differences in severity. The new and revised DRGs were selected from 40 existing CMS DRGs that contained 1,666,476 cases and represented a number of body systems. In creating these 20 new DRGs, we deleted 8 existing DRGs and modified 32 existing DRGs. We indicated that these interim steps for FY 2007 were being taken as a prelude to more comprehensive changes to better account for severity in the DRG system by FY 2008.

In the FY 2007 IPPS final rule (71 FR 47898), we indicated our intent to pursue further DRG reform through two initiatives. First, we announced that we were in the process of engaging a contractor to assist us with evaluating alternative DRG systems that were raised as potential alternatives to the CMS DRGs in the public comments. Second, we indicated our intent to review over 13,000 ICD-9-CM diagnosis codes as part of making further refinements to the current CMS DRGs to better recognize severity of illness based on the work that CMS (then HCFA) did in the mid-1990's in connection with adopting severity DRGs. We describe below the progress we have made on these two initiatives and our actions for FYs 2008, 2009, and 2010, and our proposed and final actions for FY 2011 based on our continued analysis of reform of the DRG system. We note that the adoption of the MS-DRGs to better recognize severity of illness has implications for the outlier threshold, the application of the postacute care transfer policy, the measurement of real case-mix versus apparent case-mix, and the IME and DSH payment adjustments. We discuss these implications for FY 2011 in other sections of this preamble and in the Addendum to this final rule.

In the FY 2007 IPPS proposed rule, we discussed MedPAC's recommendations to move to a cost-based HSRV weighting methodology using HSRVs beginning with the FY 2007 IPPS proposed rule for determining the DRG relative weights. Although we proposed to adopt the HSRV weighting methodology for FY 2007, we decided not to adopt the proposed methodology in the final rule after considering the public comments we received on the proposal. Instead, in the FY 2007 IPPS final rule, we adopted a cost-based weighting methodology without the HSRV portion of the proposed methodology. The cost-based weights were adopted over a 3-year transition period 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 reports to determine departmental level cost-to-charge ratios (CCRs) which we then applied to charges on the Medicare claims to determine the cost-based weights. The commenters were concerned about potential distortions to the cost-based weights that would result from inconsistent reporting between the cost reports and the Medicare claims. After publication of the FY 2007 IPPS final rule, we entered into a contract with RTI International (RTI) to study both charge compression and the extent, if any, to which our methodology for calculating DRG relative weights is affected by inconsistencies between how hospitals report costs and charges on the cost reports and how hospitals report charges on individual claims. Further, as part of its study of alternative DRG systems, the RAND Corporation analyzed the HSRV cost-weighting methodology. We refer readers to section II.E. of the preamble of this final rule for a discussion of the issue of charge compression and the cost-weighting methodology for FY 2011.

We believe that revisions to the DRG system to better recognize severity of illness and changes to the relative weights based on costs rather than charges are improving the accuracy of the payment rates in the IPPS. We agree with MedPAC that these refinements should be pursued. Although we continue to caution that any prospective payment system based on grouping cases will always present some opportunities for providers to specialize in cases they believe have higher margins, we believe that the changes we have adopted and the continuing reforms we are making in this final rule for FY 2011 will improve payment accuracy and reduce financial incentives to create specialty hospitals.

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

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

1. Background on the Prospective MS-DRG Documentation and Coding Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90

As we discussed earlier in this preamble, we adopted the MS-DRG patient classification system for the IPPS, effective October 1, 2007, to better recognize severity of illness in Medicare payment rates for acute care hospitals. The adoption of the MS-DRG system resulted in the expansion of the number of DRGs from 538 in FY 2007 to 745 in FY 2008. (Currently, there are 746 MS-DRGs for FY 2010; there will be 747 MS-DRGs in FY 2011, with the deletion in this final rule of one MS-DRG and the creation of two new MS-DRGs.) By increasing the number of MS-DRGs and more fully taking into account patient severity of illness in Medicare payment rates for acute care hospitals, MS-DRGs encourage hospitals to improve their documentation and coding of patient diagnoses. In the FY 2008 IPPS final rule with comment period (72 FR 47175 through 47186), we indicated that the adoption of the MS-DRGs had the potential to lead to increases in aggregate payments without a corresponding increase in actual patient severity of illness due to the incentives for additional documentation and coding. In that final rule with comment period, we exercised our authority under section 1886(d)(3)(A)(vi) of the Act, which authorizes us to maintain budget neutrality by adjusting the national standardized amount, to eliminate the estimated effect of changes in coding or classification that do not reflect real changes in case-mix. Our actuaries estimated that maintaining budget neutrality required an adjustment of −4.8 percent to the national standardized amount. We provided for phasing in this −4.8 percent adjustment over 3 years. Specifically, we established prospective documentation and coding adjustments of −1.2 percent for FY 2008, −1.8 percent for FY 2009, and −1.8 percent for FY 2010.

On September 29, 2007, Congress enacted the TMA [Transitional Medical Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension Act of 2007, Public Law 110-90. Section 7(a) of Public Law 110-90 reduced the documentation and coding adjustment made as a result of the MS-DRG system that we adopted in the FY 2008 IPPS final rule with comment period to −0.6 percent for FY 2008 and −0.9 percent for FY 2009. Section 7(a) of Public Law 110-90 did not adjust the FY 2010 −1.8 percent documentation and coding adjustment promulgated in the FY 2008 IPPS final rule with comment period. To comply with section 7(a) of Public Law 110-90, we promulgated a final rule on November 27, 2007 (72 FR 66886) that modified the IPPS documentation and coding adjustment for FY 2008 to −0.6 percent, and revised the FY 2008 payment rates, factors, and thresholds accordingly. These revisions were effective on October 1, 2007.

For FY 2009, section 7(a) of Public Law 110-90 required a documentation and coding adjustment of −0.9 percent instead of the −1.8 percent adjustment established in the FY 2008 IPPS final rule with comment period. As discussed in the FY 2009 IPPS final rule (73 FR 48447) and required by statute, we applied a documentation and coding adjustment of −0.9 percent to the FY 2009 IPPS national standardized amount. The documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period, as amended by Public Law 110-90, are cumulative. As a result, the −0.9 percent documentation and coding adjustment for FY 2009 was in addition to the −0.6 percent adjustment for FY 2008, yielding a combined effect of −1.5 percent.

2. Prospective Adjustment to the Average Standardized Amounts Required by Section 7(b)(1)(A) of Public Law 110-90

Section 7(b)(1)(A) of Public Law 110-90 requires that, if the Secretary determines that implementation of the MS-DRG system resulted in changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 or FY 2009 that are different than the prospective documentation and coding adjustments applied under section 7(a) of Public Law 110-90, the Secretary shall make an appropriate adjustment under section 1886(d)(3)(A)(vi) of the Act. Section 1886(d)(3)(A)(vi) of the Act authorizes adjustments to the average standardized amounts for subsequent fiscal years in order to eliminate the effect of such coding or classification changes. These adjustments are intended to ensure that future annual aggregate IPPS payments are the same as the payments that otherwise would have been made had the prospective adjustments for documentation and coding applied in FY 2008 and FY 2009 reflected the change that occurred in those years.

3. Recoupment or Repayment Adjustments in FYs 2010 Through 2012 Required by Public Law 110-90

If, based on a retroactive evaluation of claims data, the Secretary determines that implementation of the MS-DRG system resulted in changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 or FY 2009 that are different from the prospective documentation and coding adjustments applied under section 7(a) of Public Law 110-90, section 7(b)(1)(B) of Public Law 110-90 requires the Secretary to make an additional adjustment to the standardized amounts under section 1886(d) of the Act. This adjustment must offset the estimated increase or decrease in aggregate payments for FYs 2008 and 2009 (including interest) resulting from the difference between the estimated actual documentation and coding effect and the documentation and coding adjustment applied under section 7(a) of Public Law 110-90. This adjustment is in addition to making an appropriate adjustment to the standardized amounts under section 1886(d)(3)(A)(vi) of the Act as required by section 7(b)(1)(A) of Public Law 110-90. That is, these adjustments are intended to recoup (or repay) spending in excess of (or less than) spending that would have occurred had the prospective adjustments for changes in documentation and coding applied in FY 2008 and FY 2009 precisely matched the changes that occurred in those years. Public Law 110-90 requires that the Secretary make these recoupment or repayment adjustments for discharges occurring during FYs 2010, 2011, and 2012.

4. Retrospective Evaluation of FY 2008 Claims Data

In order to implement the requirements of section 7 of Public Law 110-90, we indicated in the FY 2009 IPPS final rule (73 FR 48450) that we planned a thorough retrospective evaluation of our claims data. We stated that the results of this evaluation would be used by our actuaries to determine any necessary payment adjustments to the standardized amounts under section 1886(d) of the Act to ensure the budget neutrality of the MS-DRGs implementation for FY 2008 and FY 2009, as required by law. In the FY 2009 IPPS proposed rule (73 FR 23541 through 23542), we described our preliminary plan for a retrospective analysis of inpatient hospital claims data and invited public input on our proposed methodology.

In that proposed rule, we indicated that we intended to measure and corroborate the extent of the overall national average changes in case-mix for FY 2008 and FY 2009. We expected that the two largest parts of this overall national average change would be attributable to underlying changes in actual patient severity of illness and to documentation and coding improvements under the MS-DRG system. In order to separate the two effects, we planned to isolate the effect of shifts in cases among base DRGs from the effect of shifts in the types of cases within-base DRGs.

The MS-DRGs divide the base DRGs into three severity levels (with MCC, with CC, and without CC); the previously used CMS DRGs had only two severity levels (with CC and without CC). Under the CMS DRG system, the majority of hospital discharges had a secondary diagnosis which was on the CC list, which led to the higher severity level. The MS-DRGs significantly changed the code lists of what was classified as an MCC or a CC. Many codes that were previously classified as a CC are no longer included on the MS-DRG CC list because the data and clinical review showed these conditions did not lead to a significant increase in resource use. The addition of a new level of high severity conditions, the MCC list, also provided a new incentive to code more precisely in order to increase the severity level. We anticipated that hospitals would examine the MS-DRG MCC and CC code lists and then work with physicians and coders on documentation and coding practices so that coders could appropriately assign codes from the highest possible severity level. We note that there have been numerous seminars and training sessions on this particular coding issue. The topic of improving documentation practices in order to code conditions on the MCC list was also discussed extensively by participants at the March 11-12, 2009 ICD-9-CM Coordination and Maintenance Committee meeting. Participants discussed their hospitals' efforts to encourage physicians to provide more precise documentation so that coders could appropriately assign codes that would lead to a higher severity level. Because we expected most of the documentation and coding changes under the MS-DRG system would occur in the secondary diagnoses, we believed that the shifts among base DRGs were less likely to be the result of the MS-DRG system and the shifts within-base DRGs were more likely to be the result of the MS-DRG system. We also anticipated evaluating data to identify the specific MS-DRGs and diagnoses that contributed significantly to the documentation and coding payment effect and to quantify their impact. This step entailed analysis of the secondary diagnoses driving the shifts in severity within specific base DRGs.

In that same proposed rule, we also stated that, while we believed that the data analysis plan described previously would produce an appropriate estimate of the extent of case-mix changes resulting from documentation and coding changes, we might decide, if feasible, to use historical data from our Hospital Payment Monitoring Program (HPMP) to corroborate the within-base DRG shift analysis. The HPMP is supported by the Medicare Clinical Data Abstraction Center (CDAC).

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

A few commenters, including MedPAC, expressed support for the analytic approach described in the FY 2009 IPPS proposed rule. A number of other commenters expressed concerns about certain aspects of the approach and/or suggested alternate analyses or study designs. In addition, one commenter recommended that any determination or retrospective evaluation by the actuaries of the impact of the MS-DRGs on case-mix be open to public scrutiny prior to the implementation of the payment adjustments beginning in FY 2010.

We took these comments into consideration as we developed our proposed analysis plan and in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24092 through 24101) solicited public comment on our methodology and analysis. For the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we performed a retrospective evaluation of the FY 2008 data for claims paid through December 2008. Based on this evaluation, our actuaries determined that implementation of the MS-DRG system resulted in a 2.5 percent change due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008.

In the analysis of data for that proposed rule, we found that the within-base DRG increases were almost entirely responsible for the case-mix change, supporting our conclusion that the 2.5 percent estimate was an accurate reflection of the FY 2008 effect of changes in documentation and coding under the MS-DRG system. In fact, almost every base DRG that was split into different severity levels under the MS-DRG system experienced increases in the within-base DRGs. We then further analyzed the changes in the within-base DRGs to determine which MS-DRGs had the highest contributions to this increase. The results of the analysis for the proposed rule provided additional support for our conclusion that the proposed 2.5 percent estimate accurately reflected the FY 2008 increases in documentation and coding under the MS-DRG system. While we attempted to use the CDAC data to distinguish real increase in case-mix growth from documentation and coding in the overall case-mix number, we found aberrant data and significant variation across the FY 1999 through FY 2007 analysis period. It was not possible to distinguish changes in documentation and coding from changes in real case-mix in the CDAC data. Therefore, we concluded that the CDAC data would not support analysis of real case-mix growth that could be used in our retrospective evaluation of the FY 2008 claims data.

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43768 through 43772), we responded to comments on our methodology for the retrospective evaluation of FY 2008 claims data. Commenters raised concerns that our estimate in the proposed rule did not fully consider other potential causes of increased case-mix, such as patients requiring less complex services receiving care in other settings and healthier patients enrolling in Medicare Advantage plans in increasing numbers. Other commenters indicated that factors such as the changes in the CC/MCC definitions, limitations on the number of codes used by CMS for payment and ratesetting, resequencing of secondary diagnoses, the transition to the cost-based weights, less use of not otherwise specified codes, and increases in real case-mix due to health care reform efforts also resulted in an inaccurate documentation and coding analysis. One commenter indicated that, of the overall case-mix increase, 1.0 percent to 1.5 percent is real case-mix increase, while 1.0 percent to 1.5 percent is due to documentation and coding or other increases.

In considering these comments concerning historical real case-mix, in the FY 2010 final rule, we calculated overall increases in case-mix for the period from FY 2000 to FY 2007 using the cases from each year and the GROUPER and the relative weights applicable for each year. The results ranged from −0.7 to +1.4 percent.

Overall case-mix growth is predominately comprised of three factors: real case-mix growth; a documentation and coding effect; and a measurement effect. Under the reasonable assumption that there has been a relatively small measurement effect in those years, the assertion that there is a historical pattern of steady annual increases of 1.2 to 1.3 percent in real case-mix implies that the documentation and coding effect in many of the years in the FY 2000 to FY 2007 time period was negative. For example, as discussed in that rule (74 FR 43769), we estimated a recent measurement effect of +0.3 percent. There was an overall case-mix growth of −0.2 percent in FY 2007. The overall case-mix growth of −0.2 percent net of a measurement effect of +0.3 percent results in growth of +0.1 percent. Had real case-mix growth been +1.2 percent in FY 2007, therefore, it would imply a negative documentation and coding effect of approximately −1.1 percent. It is not obvious why documentation and coding would have had such a large negative effect in FY 2007, or in any other year where the overall case-mix change is significantly less than the average annual trend claimed by the commenters, calling into question the assertion that real case-mix growth is a steady 1.2 to 1.3 percent per year.

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43770 through 43771), we indicated that our estimate of the overall case-mix growth for FY 2008 based on more recent data than the data used in the FY 2010 proposed rule was 2.0 percent, still less than our actuaries' estimate of a 2.5 percent documentation and coding increase. With respect to the concerns raised by commenters about our finding of negative real case-mix growth in FY 2008, a finding of negative real case-mix growth is consistent with the fact that, in some years, overall case-mix growth has been negative.

5. Retrospective Analysis of FY 2009 Claims Data

We performed the same analysis for FY 2009 claims data using the same methodology as we did for FY 2008 claims in the FY 2010 final rule. We note that in the FY 2011 IPPS/LTCH PPS proposed rule, we performed this analysis using FY 2009 claims paid through December 2009. In this FY 2011 IPPS/LTCH PPS final rule, we have updated the analysis with FY 2009 claims paid through March 2010, as we discussed in the proposed rule. We note that, for non-Puerto Rico IPPS hospitals, the estimates are unchanged from those in the proposed rule.

We first divided the case-mix index (CMI) obtained by grouping the FY 2009 claims data through the FY 2009 GROUPER (Version 26.0) by the CMI obtained by grouping these same FY 2009 claims through the FY 2007 GROUPER (Version 24.0). This resulted in a value of 1.056. Because these cases are the same FY 2009 cases grouped using Versions 24.0 and 26.0 of the GROUPER, we attribute this increase primarily to two factors: (1) The effect of changes in documentation and coding under the MS-DRG system; and (2) the measurement effect from the calibration of the GROUPER. We estimated the measurement effect from the calibration of the GROUPER by dividing the CMI obtained by grouping cases in the FY 2007 claims data through the FY 2009 GROUPER by the CMI obtained by grouping cases in these same claims through the FY 2007 GROUPER. This resulted in a value of 1.0019. In order to isolate the documentation and coding effect, we then divided the combined effect of the changes in documentation and coding and measurement (1.056) by the measurement effect (1.0019) to yield 1.054. Therefore, our estimate of the documentation and coding increase that did not reflect real changes in case-mix for discharges was 5.4 percent.

In parallel to our analysis in the proposed rule, we then sought to corroborate this 5.4 percent estimate by examining the increases in the within-base DRGs as compared to the increases in the across base DRGs as described earlier in our analysis plan. In other words, we looked for improvements in code selection that would lead to a secondary diagnosis increasing the severity level to either a CC or an MCC level. We found that the within-base DRG increases were almost entirely responsible for the case mix change, supporting our conclusion that the 5.4 percent estimate was an accurate reflection of the FY 2009 effect of changes in documentation and coding under the MS-DRG system. We then further analyzed the changes in the within-base DRGs to determine which MS-DRGs had the highest contributions to this increase. The results of the analysis for the proposed rule provided additional support for our conclusion that the proposed 5.4 percent estimate accurately reflected the FY 2009 increases in documentation and coding under the MS-DRG system.

As reflected in the above chart, for short-term acute care hospitals, SCHs, and MDHs, there is approximately an 8 percentage point increase in the discharge severity with MCCs from 20 percent to 28 percent, and a corresponding decrease of approximately 8 percentage points in discharge severity without CC/MCC from 57 percent to 49 percent.

Consistent with the expectations of our medical coding experts concerning areas with potential for documentation and coding improvements, the top contributors were heart failure, chronic obstructive pulmonary disease, and simple pneumonia and pleurisy. Heart failure is a very common secondary diagnosis among Medicare hospital admissions. The heart failure codes are assigned to all three severity levels. Some codes are classified as non-CCs, while other codes are on the CC and MCC lists. By changing physician documentation to more precisely identify the type of heart failure, hospitals are able to appropriately change the severity level of cases from the lowest level (non-CC) to a higher severity level (CC or MCC) through coding. This point was stressed repeatedly at the March 11-12, 2009 ICD-9-CM Coordination and Maintenance Committee meeting as coders discussed their work with physicians on this coding issue. Many of the participants indicated that additional work was still needed with their physicians in order to document conditions in the medical record more precisely.

The results of this analysis provided additional support for our conclusion that the proposed 5.4 percent estimate accurately reflected the FY 2009 increases in documentation and coding under the MS-DRG system.

As in prior years, the FY 2008 and FY 2009 MedPAR files are available to the public to allow independent analysis of the FY 2008 and FY 2009 documentation and coding effect. Interested individuals may still order these files through the Web site at: http://www.cms.hhs.gov/LimitedDataSets/ by clicking on MedPAR Limited Data Set (LDS)-Hospital (National). This Web page describes the file and provides directions and further detailed instructions for how to order.

Persons placing an order must send the following: a Letter of Request, the LDS Data Use Agreement and Research Protocol (refer to the Web site for further instructions), the LDS Form, and a check for $3,655 to:

Mailing address if using the U.S. Postal Service: Centers for Medicare & Medicaid Services, RDDC Account, Accounting Division, P.O. Box 7520, Baltimore, MD 21207-0520.

Mailing address if using express mail: Centers for Medicare & Medicaid Services, OFM/Division of Accounting—RDDC, 7500 Security Boulevard, C3-07-11, Baltimore. MD 21244-1850.

6. Prospective Adjustment for FY 2010 and Subsequent Years Authorized by Section 7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(vi) of the Act

Based on our evaluation of FY 2008 Medicare claims data that were most current at the time of the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, the estimated 2.5 percent change in FY 2008 case-mix due to changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 exceeded the −0.6 percent prospective documentation and coding adjustment applied under section 7(a) of Public Law 110-90 by 1.9 percentage points. Under section 7(b)(1)(A) of Public Law 110-90, the Secretary is required to make an appropriate adjustment under section 1886(d)(3)(A)(vi) of the Act to the average standardized amounts for subsequent fiscal years in order to eliminate the full effect of the documentation and coding changes on future payments. As we have consistently stated since the initial implementation of the MS-DRG system, we do not believe it is appropriate for expenditures to increase due to MS-DRG-related changes in documentation and coding that do not reflect real changes in case-mix.

We also estimated in the FY 2010 IPPS/RY 2010 LTCH PPS proposed and final rules that the additional change in case-mix due to changes in documentation and coding that do not reflect real changes in case-mix for discharges occurring during FY 2009 was 2.3 percent, which would exceed by 1.4 percentage points the −0.9 percent prospective documentation and coding adjustment for FY 2009 applied under section 7(a) of Public Law 110-90. We had the statutory authority to adjust the FY 2010 rates for this estimated 1.4 percentage point increase. However, given that Public Law 110-90 requires a retrospective claims evaluation for the additional adjustments (as described in section II.D.3. of this preamble), we stated in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule and final rule (74 FR 24096 and 43772, respectively) that we believed our evaluation of the extent of the overall national average changes in case-mix for FY 2009 should also be based on a retrospective evaluation of all FY 2009 claims data. Because we did not receive all FY 2009 claims data prior to publication of the FY 2010 final rule, we indicated we would address any difference between the additional increase in FY 2009 case-mix due to changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2009 and the −0.9 percent prospective documentation and coding adjustment applied under section 7(a) of Public Law 110-90 in the FY 2011 rulemaking cycle.

In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24096), we solicited public comment on the proposed −1.9 percent prospective adjustment to the standardized amounts under section 1886(d) of the Act to address the effects of documentation and coding changes unrelated to changes in real case-mix in FY 2008. In addition, we solicited public comments on addressing in the FY 2011 rulemaking cycle any differences between the increase in FY 2009 case-mix due to changes in documentation and coding changes that do not reflect real changes in case-mix for discharges occurring during FY 2009 and the −0.9 percent prospective documentation and coding adjustment applied under section 7(a) of Public Law 110-90. In response to the proposed rule, MedPAC summarized its comments on when CMS should reduce payment rates to prevent further overpayments and to recover overpayments occurring in 2008 and 2009 as follows: “We support CMS's proposal to reduce IPPS payments in 2010 by 1.9 percent to prevent further overpayments. While we and the CMS actuaries believe that a 1.9 percent reduction will not fully prevent overpayments from continuing in 2010, this is a reasonable first step toward reducing overpayments.” Most of the other commenters opposed the proposed −1.9 percent prospective FY 2010 adjustment for FY 2008 documentation and coding increases, but supported the proposal not to apply a FY 2010 prospective adjustment for estimated FY 2009 documentation and coding increases. Many commenters expressed concern over the financial impact of the proposed −1.9 percent adjustment and the methodology for calculating the adjustment. Other commenters recommended that CMS seek to extend the timeframe beyond 2 years to phase in the then-estimated −6.6 percent adjustment to the standardized amount.

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule in response to these commenters, we indicated that we fully understood that our proposed adjustment of −1.9 percent would reduce the increase in payments that affected hospitals would have received in FY 2009 in the absence of the adjustment. We explained that, although we are required to make a prospective adjustment to eliminate the full effect of coding or classification changes that did not reflect real changes in case-mix for discharges occurring during FY 2008, we believed we had some discretion regarding when to implement this adjustment. Section 7(b)(1)(A) of Public Law 110-90 requires that if the Secretary determines that implementation of the MS-DRG system resulted in changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 or FY 2009 that are different than the prospective documentation and coding adjustments applied under section 7(a) of Public Law 110-90, the Secretary shall make an “appropriate” adjustment under section 1886(d)(3)(A)(vi) of the Act.

Therefore, we determined that it would be appropriate to postpone adopting documentation and coding adjustments as authorized under section 7(a) of Public Law 110-90 and section 1886(d)(3)(A)(vi) of the Act until a full analysis of case-mix changes could be completed. We indicated that, while we had the statutory authority to make this −1.9 percent prospective adjustment entirely in FY 2010, we believed it would be prudent to wait until we had completed data on the magnitude of the documentation and coding effect in FY 2009. Specifically, we stated that if the documentation and coding effect were to be less in FY 2009 than our estimates at that time, it could lessen the anticipated adjustment that we had estimated we would have had to make for FY 2008 and FY 2009 combined. We indicated that, in future rulemaking, we would consider applying a prospective adjustment based upon a complete analysis of FY 2008 and FY 2009 claims data, beginning in FY 2011. We indicated that we intended to address any difference between the increase in FY 2009 case-mix due to changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2009 and the −0.9 percent prospective documentation and coding adjustment applied under section 7(a) of Public Law 110-90 in the FY 2011 rulemaking cycle.

After analysis of the FY 2009 claims data for this FY 2011 IPPS/LTCH PPS final rule, we have found a total prospective documentation and coding effect of 1.054. After accounting for the −0.6 percent and the −0.9 percent documentation and coding adjustments in FYs 2008 and 2009, we find a remaining documentation and coding effect of 3.9 percent. As we have discussed, an additional cumulative adjustment of −3.9 percent would be necessary to meet the requirements of section 7(b)(1)(A) of Public Law 110-90 to make an adjustment to the average standardized amounts in order to eliminate the full effect of the documentation and coding changes on future payments. Unlike section 7(b)(1)(B) of Public Law 110-90, section 7(b)(1)(A) does not specify when we must apply the prospective adjustment, but merely requires us to make an “appropriate” adjustment. Therefore, we believe we have some discretion as to the manner in which we apply the prospective adjustment of −3.9 percent. Applying the full prospective adjustment of −3.9 percent for FY 2011, in combination with the proposed recoupment adjustment of −2.9 percent, discussed below, would require an aggregate adjustment of −6.8 percent. As we discuss more fully below, it has been our practice to moderate payment adjustments when necessary to mitigate the effects of significant downward adjustments on hospitals, to avoid what could be widespread, disruptive effects of such adjustments on hospitals. As we also discuss below, we are required to implement the adjustment in section 7(b)(1)(B) of Public Law 110-90 no later than FY 2012, and accordingly, in the FY 2011 proposed rule, we proposed an adjustment under that section for FY 2011 (75 FR 23870-23871). Therefore, we believe it is appropriate to not implement any or all of the −3.9 percent prospective adjustment in FY 2011. Accordingly, we did not propose a prospective adjustment under section 7(b)(1)(A) of Public Law 110-90 for FY 2011 (75 FR 23868-23870). We note that, as a result, payments in FY 2011 (and in each future year until we implement the requisite adjustment) will be 3.9 percent higher than they would have been if we had implemented an adjustment under section 7(b)(1)(A) of Public Law 110-90. Our actuaries estimate that this 3.9 percentage point increase will result in an aggregate payment of approximately $4 billion. We also note that payments in FY 2010 are expected to be 3.9 percent higher than they would have been if we had implemented an adjustment under section 7(b)(1)(A) of Public Law 110-90, which our actuaries estimate will increase aggregate payments by approximately $4 billion in FY 2010.

In the FY 2011 IPPS/LTCH PPS proposed rule, we sought public comment on our proposal not to apply in FY 2011 the −3.9 percent prospective adjustment to the average standardized amounts required under section 7(b)(1)(A) of Public Law 110-90 in order to eliminate the full effect of the documentation and coding changes on future payments. We note that this proposal would require us to apply the −3.9 percent adjustment in future payment years, which may be applied all at once in a single year or phased in over more than one year. As noted earlier, we have updated our analysis with FY 2009 data on claims paid through March 2010 for this FY 2011 IPPS/LTCH PPS final rule.

MedPAC addressed the issue of providing for the required −3.9 percent prospective adjustment to the average standardized amounts required under section 7(b)(1)(A) of Public Law 110-90. We discuss its recommendation in the context of our proposal for a recoupment adjustment below.

7. Recoupment or Repayment Adjustment for FY 2010 Authorized by Section 7(b)(1)(B) of Public Law 110-90

As indicated in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43773), we estimated a 2.5 percent change (estimated from analysis of more recent data for the FY 2010 final rule than the data used for that proposed rule) due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008, exceeding the −0.6 percent prospective documentation and coding adjustment applied under section 7(a) of Public Law 110-90 by 1.9 percentage points. We stated that our actuaries had estimated that this 1.9 percentage point increase resulted in an increase in aggregate payments of approximately $2.2 billion. As described earlier, section 7(b)(1)(B) of Public Law 110-90 requires an adjustment for discharges occurring in FYs 2010, 2011, and/or 2012 to offset the estimated amount of this increase in aggregate payments (including interest). Although section 7(b)(1)(B) of Public Law 110-90 requires us to make this adjustment in FYs 2010, 2011, and/or 2012, we have discretion as to when during this 3-year period we will apply the adjustment.

We did not propose to make an adjustment to the FY 2010 average standardized amounts to offset, in whole or in part, the estimated increase in aggregate payments for discharges occurring in FY 2008, but stated in the proposed rule that we intended to address this issue in future rulemaking. That is, we stated that we would address recouping the additional expenditures that occurred in FY 2008 as a result of the 1.9 percentage point difference between the actual changes in documentation and coding that do not reflect real changes in case-mix (2.5 percent), and the −0.6 percent adjustment applied under Public Law 110-90 in FY 2011 and/or FY 2012, as required by law. We indicated that, while we had the statutory authority to make this −1.9 percent recoupment adjustment entirely in FY 2010, we were delaying the adjustment until FY 2011 and FY 2012 because we did not yet have any data on the magnitude of the documentation and coding effect in FY 2009. We stated that as we have the authority to recoup the aggregate effect of this 1.9 percentage point difference in FY 2008 IPPS payments in FY 2011 or FY 2012 (with interest), delaying this adjustment would have no effect on Federal budget outlays. We indicated that we intended to wait until we have a complete year of data on the FY 2009 documentation and coding effect before applying a recoupment adjustment for IPPS spending that occurred in FY 2008 or we estimate will occur in FY 2009.

As discussed above, section 7(b)(1)(B) of Public Law 110-90 requires the Secretary to make an adjustment to the standardized amounts under section 1886(d) of the Act to offset the estimated increase or decrease in aggregate payments for FY 2009 (including interest) resulting from the difference between the estimated actual documentation and coding effect and the documentation and coding adjustments applied under section 7(a) of Public Law 110-90. This determination must be based on a retrospective evaluation of claims data. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43774), we stated that because we would not receive all FY 2009 claims data prior to publication of the final rule, we would address any increase or decrease in FY 2009 payments in future rulemaking for FY 2011 and 2012 after we perform a retrospective evaluation of the FY 2009 claims data. At that time, our actuaries estimated that this adjustment would be approximately −3.3 percent. This reflected the difference between the estimated 4.8 percent cumulative actual documentation and coding changes for FY 2009 (2.5 percent for FY 2008 and an additional 2.3 percent for FY 2009) and the cumulative −1.5 percent documentation and coding adjustments applied under section 7(a) of Public Law 110-90 (−0.6 percent in FY 2008 and −0.9 percent in FY 2009). We noted that the actual adjustments were multiplicative and not additive. This estimated 4.8 percent cumulative actual documentation and coding changes for FY 2009 included the impact of the changes in documentation and coding first occurring in FY 2008 because we believed hospitals would continue these changes in documentation and coding in subsequent fiscal years. Consequently, we believed that these documentation and coding changes would continue to impact payments under the IPPS absent a prospective adjustment to account for the effect of these changes.

We note that, unlike the adjustment to the standardized amounts under section 7(b)(1)(A) of Public Law 110-90 described earlier, any adjustment to the standardized amounts under section 7(b)(1)(B) of Public Law 110-90 would not be cumulative, but would be removed for subsequent fiscal years once we have offset the increase in aggregate payments for discharges for FY 2008 expenditures and FY 2009 expenditures, if any.

In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24096), we did not propose to offset the 1.9 percent increase in aggregate payments (including interest) for discharges occurring in FY 2008 resulting from the adoption of the MS-DRGs, but to instead address this issue in future rulemaking for FYs 2011 and 2012.

In response to the FY 2010 proposed rule, MedPAC stated in its comments on the adjustment to the standardized amounts under section 7(b)(1)(B) of Public Law 110-90: “In addition, it would be desirable for CMS to minimize year-to-year changes in payment adjustments it must make to recover overpayments that were made in 2008 and 2009. To achieve this goal, CMS should consider spreading the recovery of 2008 overpayments over 3 years, beginning in 2010.” Some commenters recommended that CMS seek to extend the timeframe beyond 2 years to phase in the estimated −6.6 percent adjustment to the standardized amount. The commenters asked CMS to seek necessary legislative action to accommodate such a policy. Most commenters expressed concern with the significant negative financial impacts that would be incurred by providers if CMS adopted that proposed −1.9 percent documentation and coding adjustment in FY 2010. The commenters cited providers' already small or negative margins for Medicare payments, and requested that CMS not further reduce payments during the current period of economic instability and reduced State funding. Other commenters indicated that it would be appropriate to delay any adjustment to the standardized amounts under section 7(b)(1)(B) of Public Law 110-90 until after CMS has the opportunity to fully examine the FY 2009 claims data.

In response to these comments in FY 2010, we indicated that we recognized that any adjustment to account for the documentation and coding effect observed in the FY 2008 and FY 2009 claims data may result in significant future payment reductions for providers. However, we indicated that we are required under section 7(b)(1)(B) of Public Law 110-90 to recapture the difference of actual documentation and coding effect in FY 2008 and FY 2009 that is greater than the prior adjustments. We agreed with the commenters who requested that CMS delay any adjustment and, for the reasons stated above, indicated that we expect to address this issue in this FY 2011 rulemaking.

As indicated in section II.D.4. of this preamble, the change due to documentation and coding that did not reflect real changes in case mix for discharges occurring during FY 2008 and FY 2009 exceeded the −0.6 and −0.9 percent prospective documentation and coding adjustment applied under section 7(a) of Public Law 110-90 for those 2 years respectively by 1.9 percentage points in FY 2008 and 3.9 percentage points in FY 2009. In total, this change exceeded the cumulative prospective adjustments by 5.8 percentage points. Our actuaries currently estimate that this 5.8 percentage point increase resulted in an increase in aggregate payments of approximately $6.9 billion. We note that there may be a need to actuarially adjust the recoupment adjustment to accurately reflect accumulated interest. Therefore, an aggregate adjustment of −5.8 percent in FYs 2011 and 2012, subject to actuarial adjustment to reflect accumulated interest, is necessary in order to meet the requirements of section 7(b)(1)(B) of Public Law 110-90 to adjust the standardized amounts for discharges occurring in FYs 2010, 2011, and/or 2012 to offset the estimated amount of the increase in aggregate payments (including interest) in FYs 2008 and 2009. In the FY 2011 proposed rule (75 FR 23871), we stated that we intend to take into account the need to reflect accumulated interest in proposing a recoupment adjustment under section 7(b)(1)(B) of Public Law 110-90 for FY 2012. We indicated that we will invite public comments on our proposal at that time.

It is often our practice to phase in rate adjustments over more than one year in order to moderate the effect on rates in any one year. Therefore, consistent with the policies we have adopted in many similar cases, in the FY 2011 proposed rule, we proposed to make an adjustment to the standardized amount of −2.9 percent, representing approximately half of the aggregate adjustment required under section 7(b)(1)(B) of Public Law 110-90, for FY 2011. An adjustment of this magnitude allows us to moderate the effects on hospitals in one year while simultaneously making it possible to implement the entire adjustment within the timeframe required under section 7(b)(1)(B) of Public Law 110-90. As we have previously noted, unlike the prospective adjustment to the standardized amounts under section 7(b)(1)(A) of Public Law 110-90 described earlier, the recoupment or repayment adjustment to the standardized amounts under section 7(b)(1)(B) of Public Law 110-90 is not cumulative, but would be removed for subsequent fiscal years once we have offset the increase in aggregate payments for discharges for FY 2008 expenditures and FY 2009 expenditures. In keeping with our practice of moderating payment adjustments when necessary, we stated that we anticipated that the proposal will have an additional, and significant, moderating effect on implementing the requirements of section 7(b)(1)(B) of Public Law 110-90 for FY 2012. Specifically, we noted an advantage of the proposal for FY 2011 is that we anticipate removing the proposed FY 2011 −2.9 percent adjustment from the rates in FY 2012, when it would also be necessary under current law to apply the remaining approximately −2.9 percent adjustment required by section 7(b)(1)(B) of Public Law 110-90. These two steps in FY 2012, restoring the FY 2011 −2.9 percent adjustment, and applying the remaining adjustment of approximately −2.9 percent, would effectively cancel each other out. The result would be an aggregate adjustment of approximately 0.0 percent (subject to the need to account for accumulated interest, as discussed above) under section 7(b)(1)(B) of Public Law 110-90 in FY 2012. However, while we noted this anticipated effect of the FY 2011 proposal, we did not make a formal proposal for the further implementation of section 7(b)(1)(B) of Public Law 110-90 in FY 2012 in the FY 2011 proposed rule.

In the FY 2011 IPPS/LTCH PPS proposed rule, we sought public comment on our proposal to offset part of the total 5.8 percent increase in aggregate payments (including interest) for discharges occurring in FY 2008 and FY 2009 resulting from the adoption of the MS-DRGs in FY 2011, noting that this proposal would result in a −2.9 percent adjustment to the standardized amount. We noted that we intended to update our analysis with FY 2009 data on claims paid through March 2009 (sic) for this FY 2011 IPPS/LTCH PPS final rule. (We note that the March 2009 update date for claims data in the proposed rule should have been March 2010.) As intended, we have updated our analysis with FY 2009 data on claims paid through March 2010 in this FY 2011 IPPS/LTCH PPS final rule.

We received numerous comments on our proposal, especially from national and regional hospital associations, hospital systems, and individual hospitals. MedPAC also commented on our proposal.

Comment: One commenter requested that CMS refrain from using “negative terminology” to refer the documentation and coding improvement practices that, in response to the introduction of MS-DRGs, resulted in overall case-mix increase. While CMS frequently refers to implementing negative payment adjustments to account for this case-mix increase, the commenter requested that CMS we refer to any such adjustment as a “budget-neutrality adjustment.” The commenter contended that referring to “overpayments” and “negative payment adjustments” inaccurately portrays coding professionals in a poor manner, and is counterproductive to CMS' goal of improving the quality and consistency of health care data.

Response: When describing the MS-DRG documentation and coding adjustment, we have not intended to suggest that these adjustments are necessary because coders have acted inappropriately, unethically, or otherwise in bad faith by employing documentation and coding improvement practices associated with the adoption of the MS-DRG system. Under the previous DRG definitions, it was possible for high-severity cases not to be paid more than cases with lower severity. The MS-DRGs were introduced as part of the effort to ensure that the relative Medicare payment rates that hospitals received more reasonably matched the resources that hospitals expended in furnishing care, and CMS encouraged hospitals to code as accurately as possible with that goal in mind.

However, it is our finding that the systematic effect of changing documentation and coding in order to receive the fullest payment for providing care to beneficiaries under the MS-DRGs has led to an increase in aggregate payments that do not reflect real changes in case-mix severity, and the statute specifically requires that we adjust for and recover these associated overpayments due to such documentation and coding improvements. We believe our use of certain terminology (to which the commenter took exception) is the most accurate description of the specific statutorily required activities that CMS must pursue.

Comment: Numerous commenters detailed the potentially severe negative fiscal impact that would be experienced by providers if the proposed documentation and coding improvement adjustment were to be implemented. Many commenters contended that their individual hospital documentation and coding practices were not specifically changed or did not change at the levels shown by our analysis with the introduction of MS-DRGs, and that they would be unfairly penalized by the payment adjustment. Some of these commenters provided examples that they believed supported their claims. Another commenter requested that CMS implement a more refined payment adjustment methodology that would not penalize hospitals with compliant and ethical documentation and coding standards.

Response: We understand the concerns about possible financial disruption that may be caused by the proposed documentation and coding improvement payment adjustment. However, we are required by section 7(b)(1)(B) of Public Law 110-90 to implement the appropriate recoupment or repayment adjustment based on our analysis no later FY 2012. These payment adjustments are necessary to correct past overpayments due to increases in aggregate payments that do not reflect real changes in case-mix severity, but instead are caused solely by documentation and coding improvements. We proposed a phase-in implementation of the required adjustments to allow hospitals time to adjust to future payment differences and to moderate the effect of this adjustment in any given year. We do not believe that it would prudent to postpone making any recoupment adjustment beyond FY 2011. A postponement would require us to make the entire −5.8 percent adjustment that is warranted by our analysis in just one year (FY 2012) in order to meet the statutory requirement of section 7(b)(1)(B) of Public Law 110-90. Such a delay in making the required adjustment would not be to the financial benefit of hospitals.

Under Medicare's prospective payment systems, it is neither feasible nor possible to quantify any amount of case-mix increase due to documentation and coding improvements by a specific hospital. Therefore, it is necessary for CMS to propose a national adjustment to meet the statutory requirement of section 7(b)(1)(B) of Public Law 110-90 to calculate and recover any overpayments caused by documentation and coding improvements due to the introduction of the MS-DRG system.

Comment: In its public comment, MedPAC describes the history and nature of the documentation and coding adjustment. MedPAC stated that “CMS adopted the MS-DRGs to improve the distribution of payments.” Specifically, it discussed how, under the DRG definitions used previously, high-severity cases may have been paid similarly to cases with low or moderate severity. MedPAC emphasized that “the shift to MS-DRGs was taken to improve the distribution of payments, not change the aggregate level of payments.” Further, MedPAC described the financial incentive for hospitals to improve documentation and coding under the MS-DRG system, and also the statutory requirement for CMS to ensure that changes in the DRGs and relative weights do not increase or decrease aggregate IPPS payments absent those changes, noting that Public Law 110-90 provided for specific requirements related to payments for FYs 2008 and 2009. MedPAC pointed out that, as a result of these combined legal requirements, our proposals “do not represent payment cuts, but rather offset unintended overpayments to hospitals.”

MedPAC performed an independent analysis of claims data to determine the effect of documentation and coding in FYs 2008 and 2009. MedPAC stated, “[i]n our judgment, CMS's analytic methods are valid. Using similar methods, our analysis of Medicare hospital inpatient claims for 2007-2009 confirms all of CMS's findings.” (We note that, in line with our evaluation of claims data in for this final rule, MedPAC's retrospective evaluation of the same claims data yielded nearly identical results.)

MedPAC's analysis demonstrated that the cumulative effect of documentation and coding in FY 2009 was 5.4 percent and the cumulative overpayment in FY 2009 was 5.8 percent. Furthermore, because CMS has already implemented adjustments of −0.6 percent and −0.9 percent in FYs 2008 and 2009 respectively, MedPAC concurred that the necessary adjustment under section 7(b)(1)(B) of Public Law 110-90 requires CMS to prospectively reduce payment rates by −3.9 percent to prevent further increases in aggregate spending due to the change to MS-DRGs. (As we discuss elsewhere in this section, unlike the recoupment adjustment, the statute does not prescribe a specific timeframe within which we must implement the prospective adjustment.) In fact, MedPAC concluded, “CMS correctly estimated the effect of documentation and coding on case mix and patients.”

However, while acknowledging the concerns we expressed in opting to phase in implementing the full retrospective adjustment (−5.8 percent) together with the prospective adjustment (−3.9 percent), noting that this combined adjustment of −9.7 percent “may be financially disruptive”), MedPAC expressed concerns that our proposal to adjust rates by −2.9 percent, which is half of the retrospective adjustment needed to address the cumulative overpayment in FY 2011, is insufficient to fully offset unintended overpayments to hospitals. Furthermore, MedPAC stated that such a delay in implementing offsets for the operating and capital IPPS will cause a progressive accumulation in overpayments, which cannot be recovered based upon current statutory authority. MedPAC stated plainly that “CMS will not achieve budget neutrality unless Congress directs it to recover all overpayments.”

As such, MedPAC recommended, for both the operating and capital IPPS, that “overpayments should be stopped [and] all overpayment should be recovered.” In making that recommendation, MedPAC directed CMS to its March 2010 Report to Congress where it recommended that Congress change the law to require CMS to recover all overpayments with interest. It noted that this would shift our focus to the prevention of future overpayments in the operating and capital IPPS. MedPAC further noted that such a shift might be implemented as prospective adjustments and would results in slower accumulation of future overpayments. Specifically, it summarized its recommendations for both the operating and capital IPPS as:

  • MedPAC's approach would reduce payments in increments of no more than 2 percent for 3 years.
  • Hospitals would continue to receive their scheduled updates, which would offset much of their reduction.
  • After 3 years, hospitals would receive their scheduled updates without any additional offsets.
  • After roughly 6 years, overpayments would be fully recovered, and hospitals would see an increase in payments of roughly 2 percent in addition to their scheduled update.

In the absence of the changes in law that would permit such an approach, MedPAC provided an alternative multiyear approach in its public comments in response to our request for comments on our proposal to offset part of the cumulative overpayment in FY 2011 and our proposal not to apply the remaining prospective adjustment in FY 2011. MedPAC recommended that CMS recover the FY 2008 and 2009 overpayments as quickly as possible to mitigate the need for further and more drastic payment corrections. In FY 2012, MedPAC recommended completing the retrospective adjustment, with accumulated interest, to fulfill the requirements of section 7(b)(1)(B) of Public Law 110-90 and then making additional prospective adjustments in that year of −2.0 percent. The nature of the retrospective adjustment would moderate the impact of the total adjustment for FY 2012, and MedPAC estimated the net effect to be roughly 2.0 percent. (As we discuss below, one reason for the moderating effect of the recoupment adjustment is that it is only a 1-year adjustment, rather than a permanent and cumulative adjustment. As a result, the FY 2011 recoupment adjustment would be removed from the FY 2012 rate before any new adjustments are applied. For example, in FY 2012, the −2.9 percent adjustment from FY 2011 would be removed by adding 2.9 percent to the FY 2012 rate before making any additional adjustments through rulemaking.) In FY 2013, MedPAC recommended completing the prospective adjustment for increases that occurred in FYs 2008 and 2009, noting that, again, in FY 2013, the impact of the prospective adjustment would be moderated by the expiration of the retrospective adjustment in the prior year.

Response: We appreciate MedPAC's independent validation and support of our methodology. We note that MedPAC stated that its estimate for the cumulative documentation and coding effect for FYs 2008 and 2009 net of measurement error is 5.4 percent. This estimate was derived using the same data sources and analogous methodologies as the analysis set forth by CMS in this FY 2011 IPPS/LTCH-PPS final rule and matches the CMS estimate in the prior discussion.

Furthermore, we agree with MedPAC's conclusions on the overall financial implications of implementing our proposed −2.9 percent payment rate adjustment. We share MedPAC's concerns about delaying the prevention of future overpayments in both the capital and operating IPPS, but we appreciate its acknowledgment of CMS' discretion regarding the timing of implementation of the prospective adjustment and of the potential financial disruption from implementation of the full prospective reduction in FY 2011 (−3.9 percent) in addition to the proposed retroactive adjustment (−2.9 percent). We also appreciate MedPAC's concerns for prioritizing the recoupment of FYs 2008-2009 overpayments for the operating IPPS because CMS lacks the statutory authority to adjust for further accumulation of these overpayments beyond FY 2012. MedPAC appropriately pointed out the moderating effect of the multiyear approach to implementing the retroactive adjustment to recover overpayments in FYs 2008 and 2009. The expiration of these adjustments in the following year mitigates any negative adjustments made in that following year. We thank MedPAC for its specificity in setting forth an approach for completing the adjustments prescribed under sections 7(b) and (c) of Public Law 110-90 and will take these recommendations into consideration in future rulemaking. Finally, we concur with MedPAC's statement that these adjustments associated with Public Law 110-90 and section 1886(d)(3)(vi) of the Act should not be seen as payment cuts, but as offsets to unintended overpayments to hospitals.

Comment: Most commenters, including the AHA, agreed that there were documentation and classification increases that were in excess of the statutory 0.6 percent and 0.9 percent adjustments specified in Public Law 110-90. However, as in prior rulemaking on this issue, most commenters again questioned the methodology employed by MedPAC and our actuaries to determine the magnitude of the excess. These comments were generally similar to or cited the comment from the AHA, which stated in summary:

“The AHA believes there is a fundamental flaw in CMS' methodology for determining the effect of documentation and coding changes on the FY 2008 and FY 2009 CMIs. Specifically, in its analysis, CMS states that the increase in payments it found could not be due to real case-mix change because its analysis looks at only one year of patient claims. However, we assert that the increase cannot be deemed documentation and coding change either, because, again, the analysis looks at only one year of patient claims.”

“Our analysis, which used multiple years of patient claims, clearly shows that a significant portion of the change CMS found is actually the continuation of historical trends, rather than the effect of documentation and coding changes due to implementation of MS-DRGs. This analysis found a documentation and coding effect of 0.9 percent for FYs 2008 and 2009.”

The AHA also submitted trend analyses in support of its contention that real case-mix is increasing as corroboration of its alternative finding of a documentation and coding effect of 0.9 percent. These materials included a trend analysis of the percentage of Medicare discharges involving the ICU, a trend analysis of data from the Medical Expenditure Panel Survey (MEPS), and a trend analysis of data from the Healthcare Cost and Utilization Project (HCUP).

Some commenters, including the AHA, also stated that even without taking into account the alternative analyses presented by the AHA, the CMS methodology overstates the documentation and classification growth due to an understatement in the CMI value obtained when grouping the FY 2009 claims data through the FY 2007 pre MS-DRG GROUPER. This assertion was also based on a trend analysis.

Response: As stated earlier, we agree with MedPAC's comment that “CMS correctly estimated the effect of DCI on case mix and payments * * * . In our judgment, CMS's analytic methods are valid. Using similar methods, our analysis of Medicare hospital inpatient claims for 2007-2009 confirms all of CMS's findings.”

We also agree with the commenters, including the AHA, to the extent that they indicated that there were documentation and classification increases that were in excess of the statutory 0.6 percent and 0.9 percent adjustments specified in Public Law 110-90. However, we disagree with the commenters' assertion that there is a fundamental flaw in the analytical approach used by our actuaries and MedPAC to determine the magnitude of the documentation and classification increase because our methodology primarily utilizes a single year (FY 2009) of claims data. As stated in prior rulemaking, most recently in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23867), overall case-mix growth is predominately comprised of three factors: Real case-mix growth; a documentation and classification effect; and a measurement effect. Section 7(b)(1)(B) of Public Law 110-90 requires that the Secretary make appropriate adjustment following a determination that the implementation of the MS-DRG system “resulted in changes in coding and classification that did not reflect real changes in case mix.” Section 7 of Public Law 110-90 does not require that we use a specific methodology when conducting this analysis, and we believe that the use of the FY 2009 claims data allows us to directly remove real changes in case-mix from the calculation, consistent with the statutory requirement. Differences in case-mix calculated using the pre- and post-MS-DRG GROUPERs on the FY 2009 data, as detailed previously in this final rule, cannot reflect real case-mix change, by definition, because the same set of patients and claims is being processed under the two GROUPERs. The corroborative analyses performed by MedPAC and our actuaries more directly examine shifts in cases from lower severity and cost MS-DRGs to higher severity and cost groups within the same base DRG than the alternative approach submitted by the commenters who asserted that real growth in case mix follows a historical trend line. The alternative approach does not disaggregate the overall growth in case mix into its three components as does the methodology we set forth that MedPAC corroborates. As MedPAC stated in its comment letter:

“The share of cases without a CC or MCC declined more than 6 percentage points in 2008 and an additional 2 percentage points in 2009, while the shares of cases with a MCC increased by more than 6 and 3 percentage points, respectively * * * When we looked at all 259 base DRGs that are split in some fashion based on secondary diagnoses, we found that all but one had essentially the same pattern of shifts in 2008 and 2009 toward the highest severity and cost MS-DRG and away from the lowest severity or cost MS-DRG. In 68 of these base DRGs, the cumulative shift from 2007 to 2009 in the share of cases toward the highest-weighted MS-DRG was at least 10 percentage points.”

Nevertheless, despite our position that our methodology more directly measures the relevant increase, we did examine the alternative approach favored by commenters for calculating the documentation and classification increase. As a general statement, the approach of examining historical trends to estimate what case-mix would have been in the absence of the adoption of the MS-DRGs should not necessarily yield significantly different results from the analysis done by our actuaries and MedPAC if an appropriate historical trend can be determined. We have concerns about the determination of an appropriate historical trend.

We believe that the determination of an appropriate historical trend is less straightforward than our methodology, which, as described above, simply removes real case-mix growth from the calculation. One issue with the trend analysis is the determination of the appropriate time period on which to base the trend. We note in our examination of the AHA approach that it begins with the case-mix change for FY 2001. MedPAC, in its comment letter, provided an analysis of the change in actual case-mix from FY 1998 to FY 2009:

“We calculated the annual percent change in the national aggregate case-mix index (CMI) for the period from 1997 to 2009. These actual CMI values are based on the DRG version, relative weights, and transfer policies that were in effect for each year. To calculate the percent change for each year, we used national aggregate average CMIs for the cohort of hospitals paid under the IPPS in each pair of adjacent years. We also excluded all hospitals that had converted to critical access hospital status (CAH) by the end of 2009.”

We created the following table summarizing the results of MedPAC's analysis.

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

We note that the sustained negative changes in actual CMI from FY 1998 through FY 2000 are not reflected in the AHA analysis. If included, they would significantly increase the AHA estimate of documentation and coding growth because the slope of the AHA trend line would be significantly less.

A second critical issue with the AHA approach is the determination of the appropriate cohort of hospitals to include in the calculation. For example, if a hospital converts to CAH status, decisions with respect to the inclusion or exclusion of data from the time period before the conversion will influence the trend analysis. In FY 2000, there were approximately 300 CAHs, but, by FY 2007, there were approximately 1,300 CAHs. We note that MedPAC excluded all hospitals that had converted to CAH status by the end of 2009. It was not apparent how the data from these hospitals was treated in the AHA approach. CAHs tend to have lower than average case-mix values; therefore, including the data from one or more years before the conversion and then excluding the data after the conversion artificially increases the trend line and decreases the magnitude of the documentation and classification estimate.

Given these concerns about the appropriateness of the AHA historical trend, it follows that we are concerned about extrapolating the AHA historical trend into FY 2009. AHA's extrapolation assumes that changes in case-mix increase at a linear and, therefore, consistent rate, when, in fact, changes in case-mix do not necessarily follow a consistent pattern over time, as MedPAC's case-mix analysis pointed out.

After a careful review of the comments, we continue to find the methodology used by our actuaries and MedPAC to determine the magnitude of the changes in coding and classification that did not reflect real changes in case mix to be the most appropriate methodology because it directly removes real changes in case-mix from the calculation consistent with the statutory requirement. We also question the time period and cohort selections made by the AHA in its analysis and the appropriateness of extrapolating this AHA trend to FY 2009 when a much more straightforward methodology exists for estimating documentation and coding growth.

Comment: One commenter, while supporting the proposed FY 2011 adjustment of −2.9 percent, stated that CMS should not implement any further adjustment in FY 2012 without a more detailed quantification of the factors contributing to case-mix growth so that CMS can separate the factors that should be included in the adjustment from the factors that should be excluded. For example, the commenter appears to believe that the effect of resequencing the diagnosis codes on a claim (as opposed to the addition of new or different diagnosis codes) should not be included in the section 7 adjustments because the commenter believes this is not a documentation and coding change, even if the resequencing results in classification to a higher MS-DRG. Other factors cited by the commenter included new diagnosis codes and certain definitional changes to the base-DRGs.

Response: Section 7 of Public Law 110-90 requires us to adjust for changes in “coding and classification” that do not reflect real changes in case-mix. We believe that the reclassifications cited by the commenter are properly accounted for in the documentation and coding adjustment; these factors may affect the MS-DRG classification and affect payment without a corresponding real increase in patient severity of illness. For this reason, we believe that the effects of these factors are appropriately included in the section 7 adjustments, consistent with section 7(b)(1)(B) of Public Law 110-90, which requires adjustments to the extent that “implementation” of the MS-DRG system results in “coding and classification that did not reflect real change in case-mix.”

After consideration of the public comments we received, as well as MedPAC's detailed analysis, we have decided to finalize our proposal to make an adjustment to the standardized amount of −2.9 percent, representing approximately half of the aggregate recoupment adjustment required under section 7(b)(1)(B) of Public Law 110-90, for FY 2011. We are persuaded by MedPAC's analysis, and by our own review of the methodologies recommended by various commenters, that the methodology we have employed to determine the required recoupment adjustment is sound. We understand the concerns expressed by many commenters about the potential adverse financial effects on hospitals. However, we are required by the statute to implement this adjustment no later than FY 2012. We do not believe that it would be in the interest of hospitals to delay this required adjustment entirely until FY 2012. Rather, we have sought, as we commonly do, to moderate the potential impact on hospitals by phasing in the required adjustment over more than one year. The adjustment to the standardized amount of −2.9 percent that we are finalizing represents approximately half of the aggregate adjustment required under section 7(b)(1)(B) of Public Law 110-90 for FY 2011. As we noted in making the proposal, there is a distinct advantage to phasing in the required adjustment in this manner. As we stated above, a major advantage of making the −2.9 percent adjustment to the standardized amount in FY 2011 is that, because the required recoupment adjustment is not cumulative, we can anticipate removing the FY 2011 −2.9 percent adjustment from the rates in FY 2012, when it would also be necessary under current law to apply the remaining approximately −2.9 percent adjustment required by section 7(b)(1)(B) of Public Law 110-90. These two steps in FY 2012, restoring the FY 2011 −2.9 percent adjustment and then applying the remaining adjustment of approximately −2.9 percent, would effectively cancel each other out. The result would be an aggregate adjustment of approximately 0.0 percent (subject to the need to account for accumulated interest, as discussed above) under section 7(b)(1)(B) of Public Law 110-90 in FY 2012. However, while we again note this anticipated effect of the FY 2011 policy, we have not yet made a formal proposal for the further implementation of section 7(b)(1)(B) of Public Law 110-90 in FY 2012. Nevertheless, this anticipated consequence of adopting a −2.9 percent adjustment for FY 2011 should substantially reduce the potential financial impact of this required adjustment on hospitals. We believe that this is a reasonable and fair approach which satisfies the requirements of the statute while substantially moderating the impact on hospitals.

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

8. Background on the Application of the Documentation and Coding Adjustment to the Hospital-Specific Rates

Under section 1886(d)(5)(D)(i) of the Act, SCHs are paid based on whichever of the following rates yields the greatest aggregate payment: the Federal rate; the updated hospital-specific rate based on FY 1982 costs per discharge; the updated hospital-specific rate based on FY 1987 costs per discharge; the updated hospital-specific rate based on FY 1996 costs per discharge; or the updated hospital-specific rate based on FY 2006 costs per discharge. Under section 1886(d)(5)(G) of the Act, MDHs are paid based on the Federal national rate or, if higher, the Federal national rate plus 75 percent of the difference between the Federal national rate and the updated hospital-specific rate based on the greatest of the FY 1982, FY 1987, or FY 2002 costs per discharge. In the FY 2008 IPPS final rule with comment period (72 FR 47152 through 47188), we established a policy of applying the documentation and coding adjustment to the hospital-specific rates. In that final rule with comment period, we indicated that because SCHs and MDHs use the same DRG system as all other hospitals, we believe they should be equally subject to the budget neutrality adjustment that we are applying for adoption of the MS-DRGs to all other hospitals. In establishing this policy, we relied on section 1886(d)(3)(A)(vi) of the Act, which provides us with the authority to adjust “the standardized amount” to eliminate the effect of changes in coding or classification that do not reflect real change in case-mix.

However, in the final rule that appeared in the Federal Register on November 27, 2007 (72 FR 66886), we rescinded the application of the documentation and coding adjustment to the hospital-specific rates retroactive to October 1, 2007. In that final rule, we indicated that, while we still believe it would be appropriate to apply the documentation and coding adjustment to the hospital-specific rates, upon further review, we decided that the application of the documentation and coding adjustment to the hospital-specific rates is not consistent with the plain meaning of section 1886(d)(3)(A)(vi) of the Act, which only mentions adjusting “the standardized amount” under section 1886(d) of the Act and does not mention adjusting the hospital-specific rates.

In the FY 2009 IPPS proposed rule (73 FR 23540), we indicated that we continued to have concerns about this issue. Because hospitals paid based on the hospital-specific rate use the same MS-DRG system as other hospitals, we believe they have the potential to realize increased payments from documentation and coding changes that do not reflect real increases in patients' severity of illness. In section 1886(d)(3)(A)(vi) of the Act, Congress stipulated that hospitals paid based on the standardized amount should not receive additional payments based on the effect of documentation and coding changes that do not reflect real changes in case-mix. Similarly, we believe that hospitals paid based on the hospital-specific rates should not have the potential to realize increased payments due to documentation and coding changes that do not reflect real increases in patient severity of illness. While we continue to believe that section 1886(d)(3)(A)(vi) of the Act does not provide explicit authority for application of the documentation and coding adjustment to the hospital-specific rates, we believe that we have the authority to apply the documentation and coding adjustment to the hospital-specific rates using our special exceptions and adjustment authority under section 1886(d)(5)(I)(i) of the Act. The special exceptions and adjustment provision authorizes us to provide “for such other exceptions and adjustments to [IPPS] payment amounts * * * as the Secretary deems appropriate.” In the FY 2009 IPPS final rule (73 FR 48448 through 48449), we indicated that, for the FY 2010 rulemaking, we planned to examine our FY 2008 claims data for hospitals paid based on the hospital-specific rate. We further indicated that if we found evidence of significant increases in case-mix for patients treated in these hospitals that do not reflect real changes in case-mix, we would consider proposing application of the documentation and coding adjustments to the FY 2010 hospital-specific rates under our authority in section 1886(d)(5)(I)(i) of the Act.

In response to public comments received on the FY 2009 IPPS proposed rule, we stated in the FY 2009 IPPS final rule that we would consider whether such a proposal is warranted for FY 2010. To gather information to evaluate these considerations, we indicated that we planned to perform analyses on FY 2008 claims data to examine whether there has been a significant increase in case-mix for hospitals paid based on the hospital-specific rate. If we found that application of the documentation and coding adjustment to the hospital-specific rates for FY 2010 is warranted, we indicated that we would include a proposal to do so in the FY 2010 IPPS proposed rule.

9. Documentation and Coding Adjustment to the Hospital-Specific Rates for FY 2011 and Subsequent Fiscal Years

In the FY 2010 IPPS/RY 2010 LTCH proposed rule and final rule (74 FR 24098 through 24100 and 74 FR 43775 through 43776, respectively), we discussed our performance of a retrospective evaluation of the FY 2008 claims data for SCHs and MDHs using the same methodology described earlier for other IPPS hospitals. We found that, independently for both SCHs and MDHs, the change due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 slightly exceeded the proposed 2.5 percent result discussed earlier, but did not significantly differ from that result.

Again, for the FY 2010 proposed rule, we found that the within-base DRG increases were almost entirely responsible for the case-mix change. In that proposed rule, we presented two Figures to display our results.

Therefore, consistent with our statements in prior IPPS rules, we proposed to use our authority under section 1886(d)(5)(I)(i) of the Act to prospectively adjust the hospital-specific rates by the proposed −2.5 percent in FY 2010 to account for our estimated documentation and coding effect in FY 2008 that does not reflect real changes in case-mix. We proposed to leave this adjustment in place for subsequent fiscal years in order to ensure that changes in documentation and coding resulting from the adoption of the MS-DRGs do not lead to an increase in aggregate payments for SCHs and MDHs not reflective of an increase in real case-mix. The proposed −2.5 percent adjustment to the hospital-specific rates exceeded the −1.9 percent adjustment to the national standardized amount under section 7(b)(1)(A) of Public Law 110-90 because, unlike the national standardized rates, the FY 2008 hospital-specific rates were not previously reduced in order to account for anticipated changes in documentation and coding that do not reflect real changes in case-mix resulting from the adoption of the MS-DRGs.

In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24100), we solicited public comment on the proposed −2.5 percent prospective adjustment to the hospital-specific rates under section 1886(d)(5)(I)(i) of the Act and our proposal to address in the FY 2011 rulemaking cycle any changes in FY 2009 case-mix due to changes in documentation and coding that do not reflect real changes in case-mix for discharges occurring during FY 2009. We also indicated that we intended to update our analysis with FY 2008 data on claims paid through March 2008 [sic] for the FY 2010 IPPS final rule. (We note that the March 2008 update claims paid data date in the proposed rule should have been March 2009.)

Consistent with our approach for IPPS hospitals discussed earlier, in the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we also delayed adoption of a documentation and coding adjustment to the hospital-specific rate until FY 2011. Similar to our approach for IPPS hospitals, we indicated that we would consider, through future rulemaking, phasing in the documentation and coding adjustment over an appropriate period. We also indicated that we would address, through future rulemaking, any changes in documentation and coding that do not reflect real changes in case-mix for discharges occurring during FY 2009. We noted that, unlike the national standardized rates, the FY 2009 hospital-specific rates were not previously reduced in order to account for anticipated changes in documentation and coding that do not reflect real changes in case-mix resulting from the adoption of the MS-DRGs. However, as we noted earlier with regard to IPPS hospitals, if the estimated documentation and coding effect determined based on a full analysis of FY 2009 claims data is more or less than our current estimates, it would change, possibly lessen, the anticipated cumulative adjustments that we currently estimate we would have to make for the FY 2008 and FY 2009 combined adjustment. Therefore, we believed that it would be more prudent to delay implementation of the documentation and coding adjustment to allow for a more complete analysis of FY 2009 claims data for hospitals receiving hospital-specific rates.

BILLING CODE 4120-01-P

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Consistent with our analysis of IPPS hospitals, the two charts above show that we found after analysis of FY 2009 discharge data that the distribution of severity discharges for MDHs and SCHs both proportionally shifted from the without CC/MCC to with MCC category. This analysis was updated to include data for FY 2009 claims paid through March 2010. Similarly, we found using a methodology consistent with our analysis of IPPS hospitals that the change due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2009 slightly exceeded the proposed 2.5 percent result discussed earlier, but did not significantly differ from that result.

As we have noted above, because SCHs and MDHs use the same MS-DRG system as all other hospitals, we believe they have the potential to realize increased payments from documentation and coding changes that do not reflect real increases in patient severity of illness. Therefore, we believe they should be equally subject to a prospective budget neutrality adjustment that we are applying for adoption of the MS-DRGs to all other hospitals. We believe the documentation and coding estimates for all subsection (d) hospitals should be the same. While the findings for the documentation and coding effect for all IPPS hospitals are similar to the effect for SCHs and slightly different to the effect for MDHs, we continue to believe that this is the appropriate policy so as to neither advantage or disadvantage different types of providers. As we have also discussed above, our best estimate, based on the most recently available data, is that a cumulative adjustment of −5.4 percent is required to eliminate the full effect of the documentation and coding changes on future payments. Unlike the case of standardized amounts paid to IPPS hospitals, we have not made any previous adjustments to the hospital-specific rates paid to SCHs and MDHs to account for documentation and coding changes. Therefore, the entire −5.4 percent adjustment remains to be implemented.

As discussed above, in the FY 2011 IPPS/LTCH PPS proposed rule, we proposed to make an adjustment to the standardized amount for IPPS hospitals of −2.9 percent under section 7(b)(1)(B) of Public Law 110-90, for FY 2011. As we also discussed above, it has been our practice to moderate payment adjustments when necessary to mitigate the effects of significant downward adjustments on hospitals, to avoid what could be widespread, disruptive effects of such adjustments on hospitals. Because payments for non-SCH and non-MDH IPPS hospitals and SCHs and MDHs are determined on the basis of the same MS-DRG system, SCHs and MDHs have the potential to realize increased payments from documentation and coding changes that do not reflect real increases in patient severity of illness. Therefore, in determining the level and pace of adjustments to account for such documentation and coding changes, we believe that it is important to maintain, as much as possible, both consistency and equity among these classes of hospitals. In addition, as in the case of the documentation and coding adjustment for non-SCH and non-MDH IPPS hospitals, we also believe that it is important to provide as much as possible for moderating the effects of adjustments on hospital payments. Therefore, we proposed an adjustment of −2.9 percent in FY 2011 to the hospital-specific rates paid to SCHs and MDHs. This proposal is consistent with our proposed adjustment for IPPS hospitals in two ways. First, as in the case of the IPPS adjustment, we did not propose to implement the entire adjustment that is warranted by our data (in this case, 5.4 percent) in one year. Second, we proposed to maintain consistency by proposing the same numerical level of adjustment for both groups of hospitals in FY 2011. While this proposed adjustment to the hospital-specific rates represented somewhat over half of the entire adjustment that is appropriate for SCHs and MDHs, it would allow us to maintain complete consistency, at least for FY 2011, in the effects on the relevant classes of hospitals. Although the proposed adjustment for SCHs and MDHs is cumulative and prospective, as opposed to the noncumulative recoupment adjustment we proposed for other IPPS hospitals, we believe that proposing equal numerical adjustments in this first year is the most appropriate means to maintain such consistency and equity at this time. We indicated in the proposed rule that we will continue, as much as possible, consistent with sections 7(b)(1) of Public Law 110-90 and section 1886(d)(5)(I)(i) of the Act, to take such consistency and equity into account in developing future proposals for implementing documentation and coding adjustments.

In the FY 2011 IPPS/LTCH PPS proposed rule, we sought public comment on the proposed −2.9 percent prospective adjustment to hospital-specific rates under section 1886(d)(5)(I)(i) of the Act and addressing in future rulemaking cycles changes in FY 2008 and FY 2009 case-mix due to changes in documentation and coding that do not reflect real changes in case-mix for discharges occurring during FY 2008 and FY 2009, noting that our current estimates of the remaining adjustment is −2.5 percent. We stated that we intended to update our analysis with FY 2009 data on claims paid through March 2009 (sic) for this FY 2011 IPPS/LTCH PPS final rule and have updated our analysis with FY 2009 data on claims paid through March 2010 in this FY 2011 IPPS/LTCH PPS final rule. (We note that the March 2009 update date for claims paid data in the proposed rule should have been March 2010.)

Comment: Numerous commenters requested that CMS withdraw its proposal to apply the documentation and coding adjustment to SCHs and MDHs and questioned CMS' statutory authority to apply this adjustment to providers receiving a hospital-specific rate. The commenters argued that because section 1886(d)(3)(A)(vi) of the Act only authorizes application of a documentation and coding adjustment to the standardized amount, Congress' specific instruction as to the applicability of this type of adjustment makes it impermissible for CMS to apply the adjustment to the hospital-specific rates. Furthermore, commenters contend that, due to their critical role in isolated communities, any negative documentation and coding adjustment to SCHs and MDHs would endanger their ability to provide the type of care that Congress specifically sought to protect by establishing their special Medicare payment systems.

Response: We continue to disagree with the commenters that the Secretary's broad authority to make exceptions and adjustment to payment amounts under section 1886(d)(3)(A)(vi) of the Act cannot be applied in this instance. We have discussed the basis for applying such an adjustment in prior rules (in the FY 2009 proposed rule (73 FR 23540), the FY 2009 final rule (73 FR 48448), and the FY 2010 proposed rule (74 FR 24098)) and do not agree that the language in section 1886(d)(3)(A)(vi) of the Act limits our authority under section 1886(d)(5)(I)(i) of the Act to make such an adjustment. We recognize that SCHs and MDHs are entitled, through legislation, to receive the hospital-specific rate in order to compensate for their unique service requirements in the provider community. Similar to our approach with IPPS hospitals, we are implementing a phase-in of the documentation and coding adjustment over an appropriate period, beginning in FY 2011. We will continue to separately analyze SCH and MDH claims data to ensure than any future adjustment is appropriate for these provider types.

Comment: MedPAC responded to our request for comments regarding the level of adjustment for special categories of hospitals, such as hospitals paid under the hospital-specific payment rate, by pointing out that these hospitals have the same financial incentives for documentation and coding improvements and the same ability to benefit from increased payments that do not reflect real changes in case-mix severity of illness levels. Therefore, MedPAC recommended that “all IPPS hospitals should be treated the same.” At the same time, MedPAC also stated that “delaying prevention of overpayments * * * creates a problem because overpayments will continue to accumulate in 2010 and later years until the effect of documentation and coding improvement is fully offset in the payment rates.” In setting forward its multiyear recommendation to CMS for complying with the requirements of section 7 of Public Law 110-90, MedPAC emphasized “minimizing the accumulation of overpayments.”

Response: We thank MedPAC for its comments and agree that it is appropriate to conclude that hospitals paid under the hospital-specific rate have experienced a 5.4 percent increase in documentation and coding in FYs 2008 and 2009, insofar as these hospitals had the same financial incentives to improve documentation and coding as other IPPS hospitals, as confirmed by the analysis we have described above. We further agree with MedPAC that it is appropriate to focus on minimizing the accumulation of overpayments; we interpret this statement to mean that MedPAC recommends that CMS move forward as quickly as possible with appropriate prospective adjustments. We appreciate MedPAC's guidance that “all hospitals be treated the same,” and we agree that it is important to treat various classes of similarly situated hospitals in our payment policy determinations in a consistent manner.

Therefore, we are finalizing our proposal to apply an adjustment of −2.9 percent in FY 2011 to the hospital-specific rates paid to SCHs and MDHs. This adjustment is prospective in nature. We continue to believe that such an adjustment is appropriate because, as MedPAC noted, all hospitals have the same financial incentives for documentation and coding improvements, and the same ability to benefit from the resulting increase in aggregate payments that do not reflect real change in case-mix severity of illness levels. As we describe above, our analysis of claims data shows that the documentation and coding effect for all IPPS hospitals is similar to the effect for SCHs and slightly different to the effect for MDHs, and we believe the documentation and coding estimates for all subsection (d) hospitals should be the same. This adjustment also maintains, as much as possible, consistency in the treatment of various classes of hospitals that are similarly situated with respect to their ability to adjust their documentation and coding practices. Specifically, this adjustment is consistent with our adjustment for other IPPS hospitals in two ways. First, as in the case of the IPPS adjustment, we are not implementing the entire adjustment that is warranted by our data (in this case, 5.4 percent) in 1 year. Second, we are treating hospitals in a consistent manner by applying the same numerical level of adjustment for both groups of hospitals in FY 2011. While this adjustment to the hospital-specific rates represents somewhat over half of the entire adjustment that is appropriate for SCHs and MDHs, it would allow us to maintain complete consistency, at least for FY 2011, in the effects on the relevant classes of hospitals. Although the proposed adjustment for SCHs and MDHs is cumulative and prospective, as opposed to the noncumulative recoupment adjustment we proposed for other IPPS hospitals, we believe that applying equal numerical adjustments in this first year is the most appropriate means to maintain such consistency and equity at this time. As we indicated in the proposed rule, we will continue, as much as possible, consistent with sections 7(b)(1) of Public Law 110-90 and section 1886(d)(5)(I)(i) of the Act, to take such consistency and equity into account in developing future proposals for implementing documentation and coding adjustments.

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

a. Background

Puerto Rico hospitals are paid based on 75 percent of the national standardized amount and 25 percent of the Puerto Rico-specific standardized amount. As noted previously, the documentation and coding adjustment we adopted in the FY 2008 IPPS final rule with comment period relied upon our authority under section 1886(d)(3)(A)(vi) of the Act, which provides the Secretary the authority to adjust “the standardized amounts computed under this paragraph” to eliminate the effect of changes in coding or classification that do not reflect real changes in case-mix. Section 1886(d)(3)(A)(vi) of the Act applies to the national standardized amounts computed under section 1886(d)(3) of the Act, but does not apply to the Puerto Rico-specific standardized amount computed under section 1886(d)(9)(C) of the Act. In calculating the FY 2008 payment rates, we made an inadvertent error and applied the FY 2008 −0.6 percent documentation and coding adjustment to the Puerto Rico-specific standardized amount, relying on our authority under section 1886(d)(3)(A)(vi) of the Act. However, section 1886(d)(3)(A)(vi) of the Act authorizes application of a documentation and coding adjustment to the national standardized amount and does not apply to the Puerto Rico specific standardized amount. In the FY 2009 IPPS final rule (73 FR 48449), we corrected this inadvertent error by removing the −0.6 percent documentation and coding adjustment from the FY 2008 Puerto Rico-specific rates.

While section 1886(d)(3)(A)(vi) of the Act is not applicable to the Puerto Rico-specific standardized amount, we believe that we have the authority to apply the documentation and coding adjustment to the Puerto Rico-specific standardized amount using our special exceptions and adjustment authority under section 1886(d)(5)(I)(i) of the Act. Similar to SCHs and MDHs that are paid based on the hospital-specific rate, we believe that Puerto Rico hospitals that are paid based on the Puerto Rico-specific standardized amount should not have the potential to realize increased payments due to documentation and coding changes that do not reflect real increases in patient severity of illness. Consistent with the approach described for SCHs and MDHs, in the FY 2009 IPPS final rule (73 FR 48449), we indicated that we planned to examine our FY 2008 claims data for hospitals in Puerto Rico. We indicated in the FY 2009 IPPS proposed rule (73 FR 23541) that if we found evidence of significant increases in case-mix for patients treated in these hospitals, we would consider proposing application of the documentation and coding adjustments to the FY 2010 Puerto Rico-specific standardized amount under our authority in section 1886(d)(5)(I)(i) of the Act.

b. Documentation and Coding Adjustment to the Puerto Rico-Specific Standardized Amount

For the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we performed a retrospective evaluation of the FY 2008 claims data for Puerto Rico hospitals using the same methodology described earlier for IPPS hospitals paid under the national standardized amounts under section 1886(d) of the Act. We found that, for Puerto Rico hospitals, the increase in payments for discharges occurring during FY 2008 due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 was approximately 1.1 percent. When we calculated the within-base DRG changes and the across-base DRG changes for Puerto Rico hospitals, we found that responsibility for the case-mix change between FY 2007 and FY 2008 is much more evenly shared. Across-base DRG shifts accounted for 44 percent of the changes, and within-base DRG shifts accounted for 56 percent. Thus, the change in the percentage of discharges with an MCC was not as large as that for other IPPS hospitals. In Figure 4 in the FY 2010 proposed rule, we showed that, for Puerto Rico hospitals, there was a 3 percentage point increase in the discharges with an MCC from 22 percent to 25 percent and a corresponding decrease of 3 percentage points from 58 percent to 55 percent in discharges without a CC or an MCC.

In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24101), we solicited public comment on the proposed −1.1 percent prospective adjustment to the hospital-specific rates under section 1886(d)(5)(I)(i) of the Act and our intent to address in the FY 2011 rulemaking cycle any changes in FY 2009 case-mix due to changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2009. We also stated that we intended to update our analysis with FY 2008 data on claims paid through March 2009 for the FY 2010 IPPS final rule.

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43777), we indicated that, given these documentation and coding increases, consistent with our statements in prior IPPS rules, we would use our authority under section 1886(d)(5)(I)(i) of the Act to adjust the Puerto Rico-specific rate. However, in parallel to our decision to postpone adjustments to the Federal standardized amount, we indicated that we were adopting a similar policy for the Puerto Rico-specific rate for FY 2010 and would consider the phase-in of this adjustment over an appropriate time period through future rulemaking. The adjustment would be applied to the Puerto Rico-specific rate that accounts for 25 percent of payments to Puerto Rico hospitals, with the remaining 75 percent based on the national standardized amount. Consequently, the overall reduction to the payment rates for Puerto Rico hospitals to account for documentation and coding changes will be slightly less than the reduction for IPPS hospitals paid based on 100 percent of the national standardized amount. We noted that, as with the hospital-specific rates, the Puerto Rico-specific standardized amount had not previously been reduced based on estimated changes in documentation and coding associated with the adoption of the MS-DRGs. However, as we note earlier for IPPS hospitals and hospitals receiving hospital-specific rates, if the estimated documentation and coding effect determined based on a full analysis of FY 2009 claims data is more or less than our current estimates, it would change, possibly lessen, the anticipated cumulative adjustments that we currently estimate we would have to make for the FY 2008 and FY 2009 combined adjustment. Therefore, we believed that it would be more prudent to delay implementation of the documentation and coding adjustment to allow for a more complete analysis of FY 2009 claims data for Puerto Rico hospitals.

Consistent with our approach for IPPS hospitals for FY 2010, we indicated that we would address in the FY 2011 rulemaking cycle any change in FY 2009 case-mix due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2009. We noted that, unlike the national standardized rates, the FY 2009 hospital-specific rates were not previously reduced in order to account for anticipated changes in documentation and coding that do not reflect real changes in case-mix resulting from the adoption of the MS-DRGs.

As we have noted above, similar to SCHs and MDHs, hospitals in Puerto Rico use the same MS-DRG system as all other hospitals and we believe they have the potential to realize increased payments from documentation and coding changes that do not reflect real increases in patient severity of illness. Therefore, we believe they should be equally subject to the prospective budget neutrality adjustment that we intend to apply to prospective payment rates for IPPS hospitals including SCHs and MDHs in order to eliminate the full effect of the documentation and coding changes associated with implementation of the MS-DRG system.

In the above chart, consistent with our findings for IPPS hospitals, for Puerto Rico hospitals, there is a corresponding increase in the discharge severity with MCCs compared to a decrease in discharge severity in the without CC/MCC category. This analysis reflects FY 2009 claims paid through March 2010.

Using the same methodology we applied to estimate documentation and coding changes under IPPS for non-Puerto Rico hospitals, as we have also discussed above, our best estimate, based on the most recently available data (FY 2009 claims paid through March 2010), is that a cumulative adjustment of −2.6 percent is required to eliminate the full effect of the documentation and coding changes on future payments from the Puerto Rico- specific rate. Unlike the case of standardized amounts paid to IPPS hospitals, we have not made any previous adjustments to the hospital-specific rates paid to Puerto Rico hospitals to account for documentation and coding changes. Therefore, the entire −2.6 percent adjustment remains to be implemented.

As we stated above, we believe it important to maintain both consistency and equity among all hospitals paid on the basis of the same MS-DRG system. At the same time, however, we recognize that the estimated cumulative impact on aggregate payment rates resulting from implementation of the MS-DRG system was smaller for Puerto Rico hospitals as compared to IPPS hospitals and SCHs and MDHs. Therefore, in the FY 2011 IPPS LTCH PPS proposed rule (75 FR 23876), we proposed an adjustment of −2.4 percent in FY 2011 to Puerto Rico-specific rate that accounts for 25 percent of payments to Puerto Rico hospitals, with the remaining 75 percent based on the national standardized amount, which we proposed to adjust as described above. Consequently, the overall reduction to rates for Puerto Rico hospitals to account for the documentation and coding changes will be slightly less than the reduction for IPPS hospitals based on 100 percent of the national standardized amount. We noted that the proposed prospective adjustment would have eliminated the full effect of the documentation and coding changes (as estimated at the time) on the portion of future payments to Puerto Rico hospitals based on the Puerto Rico-specific rate. We believe that this a full prospective adjustment is the most appropriate means to take into full account the effect of documentation and coding changes on payments, and to maintain equity as much as possible between hospitals paid on the basis of different prospective rates. (As discussed below, the estimated −2.4 percent adjustment that we calculated in the proposed rule no longer represents a “full prospective adjustment.”) One reason for proposing the full prospective adjustment for the Puerto Rico-specific rate in FY 2011 was to maintain equity as much as possible in the documentation and coding adjustments applied to various hospital rates in FY 2011. Because our proposal was to make an adjustment that represents the full adjustment that is warranted for the Puerto Rico-specific rate, we indicated that we do not anticipate proposing any additional adjustments to the this rate for documentation and coding effects.

In the FY 2011 proposed rule, we sought public comment on the proposed full prospective adjustment, which we estimated at that time to be −2.4 percent, to the Puerto Rico-specific standardized amount under section 1886(d)(5)(I)(i) of the Act. We stated that we intended to update our analysis with FY 2009 data on claim paid through March 2009 (sic) for this FY 2011 IPPS/LTCH PPS final rule. (We note that the March 2009 update date for claims paid data in the proposed rule should have been March 2010.) We have updated our analysis, as planned, with FY 2009 data on claims paid through March 2010 in this FY 2011 IPPS/LTCH PPS final rule. This updated data analysis shows that a cumulative adjustment of −2.6 percent is required to eliminate the full effect of the document and coding changes on future payments from the Puerto Rico-specific rate.

Comment: MedPAC responded to our request for comments regarding the level of adjustment for special categories of hospitals, such as Puerto Rico hospitals, by pointing out that these hospitals have the same financial incentives for documentation and coding improvements and the same ability to benefit from increased payments that do not reflect real change in case-mix severity of illness levels. Therefore, MedPAC recommended that “all IPPS hospitals should be treated the same.” At the same time, MedPAC also stated that “delaying prevention of overpayments * * * creates a problem because overpayments will continue to accumulate in 2010 and later years until the effect of documentation and coding improvement is fully offset in the payment rates.” In setting forward its multiyear recommendation to CMS for complying with the requirements of section 7 of Public Law 110-90, MedPAC emphasizes “minimizing the accumulation of overpayments.”

Response: We thank MedPAC for its comments and agree that Puerto Rico hospitals have had the same financial incentives to improve documentation and coding as other IPPS hospitals. We further agree with MedPAC that it is appropriate to focus on minimizing the accumulation of overpayments; we interpret this statement to mean that MedPAC recommends that CMS move forward as quickly as possible with appropriate prospective adjustments. We appreciate MedPAC's guidance that “all hospitals be treated the same,” and we agree that it is important for our payment policy determinations to treat various classes of hospitals that are similarly situated with respect to the ability to adjust their documentation and coding practices in as consistent a manner as possible.

Therefore, we are finalizing our proposal to apply an adjustment to the Puerto Rico specific rate in FY 2011 using our authority under section 1886(d)(5)(I)(i) of the Act as proposed (that is, a full prospective adjustment). We note that our updated data analysis shows that this adjustment will be −2.6 percent. We continue to believe that such an adjustment is appropriate because, as MedPAC found, all hospitals have the same financial incentives for documentation and coding improvements and the same ability to benefit from the resulting change in case-mix. As we indicated in the proposed rule, we will continue, as much as possible, consistent with sections 7(b)(1) of Public Law 110-90 and section 1886(d)(5)(I)(i) of the Act, to take such consistency and equity into account in developing future proposals for implementing documentation and coding adjustments.

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background

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

In FY 2008, we adopted severity-based MS-DRGs, which increased the number of DRGs from 538 to 745. Many commenters raised concerns as to how the transition from charge-based weights to cost-based weights would continue with the introduction of new MS-DRGs. We decided to implement a 2-year transition for the MS-DRGs to coincide with the remainder of the transition to cost-based relative weights. In FY 2008, 50 percent of the relative weight for each DRG was based on the CMS DRG relative weight and 50 percent was based on the MS-DRG relative weight.

In FY 2009, the third and final year of the transition from charge-based weights to cost-based weights, we calculated the MS-DRG relative weights based on 100 percent of hospital costs. We refer readers to the FY 2007 IPPS final rule (71 FR 47882) for a more detailed discussion of our final policy for calculating the cost-based DRG relative weights and to the FY 2008 IPPS final rule with comment period (72 FR 47199) for information on how we blended relative weights based on the CMS DRGs and MS-DRGs.

a. Summary of the RTI Study of Charge Compression and CCR Refinement

As we transitioned to cost-based relative weights, some public commenters raised concerns about potential bias in the weights due to “charge compression,” which is the practice of applying a higher percentage charge markup over costs to lower cost items and services, and a lower percentage charge markup over costs to higher cost items and services. As a result, the cost-based weights would undervalue high-cost items and overvalue low-cost items if a single CCR is applied to items of widely varying costs in the same cost center. To address this concern, in August 2006, we awarded a contract to RTI to study the effects of charge compression in calculating the relative weights and to consider methods to reduce the variation in the CCRs across services within cost centers. RTI issued an interim draft report in January 2007 with its findings on charge compression (which was posted on the CMS Web site at: http://www.cms.hhs.gov/reports/downloads/Dalton.pdf). In that report, RTI found that a number of factors contribute to charge compression and affect the accuracy of the relative weights. RTI's findings demonstrated that charge compression exists in several CCRs, most notably in the Medical Supplies and Equipment CCR.

In its interim draft report, RTI offered a number of recommendations to mitigate the effects of charge compression, including estimating regression-based CCRs to disaggregate the Medical Supplies Charged to Patients, Drugs Charged to Patients, and Radiology cost centers, and adding new cost centers to the Medicare cost report, such as adding a “Devices, Implants and Prosthetics” line under “Medical Supplies Charged to Patients” and a “CT Scanning and MRI” subscripted line under “Radiology-Diagnostics”. Despite receiving public comments in support of the regression-based CCRs as a means to immediately resolve the problem of charge compression, particularly within the Medical Supplies and Equipment CCR, we did not adopt RTI's recommendation to create additional regression-based CCRs. (For more details on RTI's findings and recommendations, we refer readers to the FY 2009 IPPS final rule (73 FR 48452).) RTI subsequently expanded its analysis of charge compression beyond inpatient services to include a reassessment of the regression-based CCR models using both outpatient and inpatient charge data. This interim report was made available in April 2008 during the public comment period on the FY 2009 IPPS proposed rule and can be found on RTI's Web site at: http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200804.pdf. The IPPS-specific chapters, which were separately displayed in the April 2008 interim report, as well as the more recent OPPS chapters, were included in the July 3, 2008 RTI final report entitled, “Refining Cost-to-Charge Ratios for Calculating APC [Ambulatory Payment Classification] and DRG Relative Payment Weights,” that became available at the time of the development of the FY 2009 IPPS final rule. The RTI final report can be found on RTI's Web site at: http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf.

RTI's final report found that, under the IPPS and the OPPS, accounting improvements to the cost reporting data reduce some of the sources of aggregation bias without having to use regression-based adjustments. In general, with respect to the regression-based adjustments, RTI confirmed the findings of its March 2007 report that regression models are a valid approach for diagnosing potential aggregation bias within selected services for the IPPS and found that regression models are equally valid for setting payments under the OPPS.

RTI also noted that cost-based weights are only one component of a final prospective payment rate. There are other rate adjustments (wage index, IME, and DSH) to payments derived from the revised cost-based weights, and the cumulative effect of these components may not improve the ability of final payment to reflect resource cost. RTI endorsed short-term regression-based adjustments, but also concluded that more refined and accurate accounting data are the preferred long-term solution to mitigate charge compression and related bias in hospital cost-based weights. For a more detailed summary of RTI's findings, recommendations, and public comments we received on the report, we refer readers to the FY 2009 IPPS final rule (73 FR 48452 through 48453).

b. Summary of the RAND Corporation Study of Alternative Relative Weight Methodologies

One of the reasons that we did not implement regression-based CCRs at the time of the FY 2008 IPPS final rule with comment period was our inability to investigate how regression-based CCRs would interact with the implementation of MS-DRGs. In the FY 2008 final rule with comment period (72 FR 47197), we stated that we engaged the RAND Corporation as the contractor to evaluate the HSRV methodology in conjunction with regression-based CCRs, and that we would consider its analysis as we prepared for the FY 2009 IPPS rulemaking process.

RAND evaluated six different methods that could be used to establish relative weights; CMS' current relative weight methodology of 15 national CCRs and 5 alternatives, including a method in which the 15 national CCRs are disaggregated using the regression-based methodology, and a method using hospital-specific CCRs for the 15 cost center groupings. In addition, RAND analyzed our standardization methodologies that account for systematic cost differences across hospitals. The purpose of standardization is to eliminate systematic facility-specific differences in cost so that these cost differences do not influence the relative weights. Overall, RAND found that none of the methods it studied of calculating the relative weights represented a marked improvement in payment accuracy over the current method, and there was little difference across methods in their ability to predict cost at either the discharge-level or the hospital-level. In their regression analysis, RAND found that, after controlling for hospital payment factors, the relative weights are compressed (that is, understated). However, RAND also found that the hospital payment factors are overstated and increase more rapidly than cost. Therefore, while the relative weights are compressed, these payment factors offset the compression such that total payments to hospitals increase more rapidly than hospitals' costs.

In the FY 2009 IPPS final rule (73 FR 48453 through 48457), we provided a summary of the RAND report and the public comments we received in response to the FY 2009 IPPS proposed rule. The report may be found on RAND's Web site at: http://www.rand.org/pubs/working_papers/WR560/.

2. Proposed and Final Policy Changes for FY 2011 and Timeline for Changes to the Medicare Cost Report

In the FY 2009 IPPS final rule (73 FR 48458 through 48467), in response to the RTI's recommendations concerning cost report refinements, and because of RAND's finding that regression-based adjustments to the CCRs do not significantly improve payment accuracy, we discussed our decision to pursue changes to the cost report to split the cost center for Medical Supplies Charged to Patients into one line for “Medical Supplies Charged to Patients” and another line for “Implantable Devices Charged to Patients.” We acknowledged, as RTI had found, that charge compression occurs in several cost centers that exist on the Medicare cost report. However, as we stated in the final rule, we focused on the CCR for Medical Supplies and Equipment because RTI found that the largest impact on the MS-DRG relative weights could result from correcting charge compression for devices and implants. In determining what should be reported in these respective cost centers, we adopted the commenters' recommendation that hospitals should use revenue codes established by AHA's National Uniform Billing Committee to determine what should be reported in the “Medical Supplies Charged to Patients” and the “Implantable Devices Charged to Patients” cost centers.

When we developed the FY 2009 IPPS final rule, we considered all of the public comments we received both for and against adopting regression-based CCRs. Also noteworthy is RAND's belief that regression-based CCRs may not significantly improve payment accuracy, and that it is equally, if not more, important to consider revisions to the current IPPS hospital payment factor standardization method in order to improve payment accuracy. For FY 2010, we solicited comments on improving the standardization process, although we did not make any changes to the standardization process for FY 2010. We also stated that we continued to believe that, ultimately, improved and more precise cost reporting is the best way to minimize charge compression and improve the accuracy of the cost weights. Accordingly, a new subscripted line 55.30 for Implantable Devices Charged to Patients was created in July 2009 as part of CMS' Transmittal 20 update to the existing cost report Form CMS-2552-96. This new subscripted cost center is available for use for cost reporting periods beginning on or after May 1, 2009.

With respect to the initiative to reform, update, and streamline the Medicare cost report, which has been the subject of many comments and our responses in the IPPS (and OPPS) Federal Register notices of rulemaking over the past several years, CMS is continuing to work on this project. The new draft hospital cost report Form CMS-2552-10 was published in the Federal Register on July 2, 2009, and was subject to a 60-day review and comment period, which ended August 31, 2009. CMS received numerous comments on the draft hospital cost report Form CMS-2552-10, specifically regarding the creation of new cost centers from which data would be ultimately used in the relative weights calculation. The public comments on the July 2, 2009 Federal Register notice were incorporated in a Federal Register notice that was issued on April 30, 2010 (75 FR 22810). We now plan to issue the final hospital cost report Form CMS-2552-10 later this summer. However, in part, in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23878 through 23880), we provided a summary of the public comments received on the July 2, 2009 notice that specifically related to the relative weights and responded to those comments. Our responses to the comments in the FY 2011 IPPS/LTCH PPS proposed rule constituted our proposals for FY 2011 regarding the relative weights.

Several commenters asked that CMS create cost centers to house the costs of magnetic resonance imaging (MRI), Computed Tomography (CT), nuclear medicine services, cardiac catheterization, drugs that require detailed coding, and magnetoencephalography (MEG). One commenter indicated, that in RTI's July 2008 report (http://www.rti.org/reports/cms/), RTI made an argument that CMS should create new standard cost centers in which hospitals would report the costs of MRI scans, CT scans, cardiac catheterization, and drugs that require detailed coding, in addition to the new cost center for “Implantable Devices Charged to Patients.” The commenter stated that these additional lines are needed to distinguish items and services that hospitals tend to markup differently within existing revenue centers, citing RTI's finding that CT scans have a significantly higher markup than most other radiology services. The commenter indicated that when CMS uses the overall radiology department CCR to convert charges for CT scans to costs, it overestimates the cost of these services, resulting in overstated relative weights for MS-DRGs under the IPPS and for APCs under the OPPS that incorporate CT scanning. The commenter argued that having a separate cost center for each of these services would resolve the problem. The commenter also stated that, while CMS has done something similar with the creation of the cost center for high cost medical devices, making cost center changes for some services, but not others, where such changes are warranted could create additional distortion in the relative weights. The commenter further argued that cost center changes should be made for all service areas with significant volume where services with sizable differences in markup are currently combined in a single cost center. The commenter asserted that creating these cost centers should not create reporting burden for hospitals because the RTI report indicated that roughly one-third of the hospitals are already reporting costs for CT scans, MRI scans, and cardiac catheterization under the specific nonstandard cost centers currently available in the cost report.

Another commenter also recommended the creation of the cost centers for CT scans, MRI scans, and nuclear medicine services, but for different reasons than the first commenter. Specifically, this commenter believed these new cost centers are necessary in order for the high capital costs to be appropriately allocated to these services and to be correctly reflected in the CCRs that are used in the establishment of the MS-DRG and APC payment rates for the services. The commenter stated that, under the existing cost report structure, some providers are allocating high capital costs for these services in a single radiology line, diluting the high capital costs associated with CT scans, MRI scans, and nuclear medicine services across all radiology services, including low cost services. Therefore, the commenter concluded that the resulting radiology CCRs that CMS applies to charges for CT scans, MRI scans, and nuclear medicine services to arrive at the relative costs used to set payment rates for both the IPPS and OPPS understate the cost of high cost radiology services and overstate the cost of low cost radiology services, resulting in payments that are too low for the high cost services. The commenter indicated that CMS should not only create these new cost centers but should also require all hospitals to use them, and should issue explicit instructions on how to report the costs of these services in the new standard cost centers.

We agree that it is appropriate to create standard cost centers for CT scans, MRI scans, and cardiac catheterization and to require that hospitals report the costs and charges for these services under new cost centers on the revised Medicare cost report Form CMS 2552-10. As we discussed in the FY 2009 IPPS and CY 2009 OPPS proposed and final rules, RTI found that the costs and charges of CT scans, MRI scans, and cardiac catheterization differ significantly from the costs and charges of other services included in the standard associated cost center. RTI also concluded that both the IPPS and OPPS relative weights would better estimate the costs of those services if CMS were to add standard costs centers for CT scanning, MRIs, and cardiac catheterization in order for hospitals to report separately the costs and charges for those services and in order for CMS to calculate unique CCRs to estimate the cost from charges on claims data.

In its analysis, RTI concluded that the estimated costs for CT scanning and MRI scans would decline significantly and that the estimated cost for cardiac catheterization would increase modestly if specific standard cost centers were used. RTI found that cardiac catheterization has very different cost inputs from most cardiac testing (for example, electrocardiograms or cardiac stress testing) captured in the 5300 “Electrocardiology” cost center and that the accuracy of the CCR for both types of services, cardiac catheterization and other cardiac testing, would improve with creation of a standard cost center for cardiac catheterization. RTI also found that one-third of hospitals already report cardiac catheterization costs and charges separately through the available nonstandard cost center or through subscripted lines to the “Electrocardiology” cost center. Similarly, RTI found that approximately one-third of hospitals already separately report the costs for CT scanning and MRI scans on their Medicare cost report through subscripted lines and the available nonstandard cost centers. We believe the current prevalence of reporting for the nonstandard cost centers for these three services suggests a modest hospital burden required to adopt these cost centers.

We discussed the possibility of creating standard cost centers for these three different services in our CY 2009 OPPS proposed and final rule with comment period (73 FR 41432 and 73 FR 68525) and solicited general comments on RTI's recommendations. The commenters who objected to the creation of the standard cost centers for CT scanning and MRI scans largely did so based on RTI projected lower estimated costs for these services if CMS created these cost centers. The commenters suggested that the current CCRs for advanced imaging may reflect a misallocation of capital costs and requested that CMS not adopt separate cost centers or statistical adjustment simulating lower CCRs for CT scanning and MRI until CMS could understand how providers are allocating the extensive capital costs for these services to the revenue producing cost centers. We also received comments suggesting that the accuracy of estimated costs would improve with better allocation, potentially increasing the CCR as more capital cost would be appropriately allocated to both CT scanning and MRI and not spread across all services in the radiology cost center. We noted in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68525) that our recommended allocation of moveable equipment costs in Worksheet B of the Medicare cost report is based on dollar value, and that it would be important to encourage improved accuracy of capital allocation through dollar value or direct assignment if we were to make these cost centers standard cost centers.

In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23879), we stated that, at that time, we did not know the impact on CCRs and estimated costs of adopting standard cost centers specific to CT scanning and MRI. However, we stated our belief that these areas constitute significant payment under both the IPPS and OPPS and that these are common imaging services already widely reported by hospitals. Therefore, in the proposed rule, we proposed to adopt new standard cost centers for CT scanning and MRI. We agreed with those commenters who asserted that creation of standard cost centers for CT scanning and MRI would improve the accuracy of cost estimation for these services, in part by creating incentives for hospitals to more accurately allocate the capital and equipment associated with these services.

With regard to cardiac catheterization, we received one comment on the CY 2009 OPPS/ASC proposed rule suggesting that hospitals might find it difficult to allocate costs for these services to specific cost centers, especially for cardiac catheterization, and that allocated overhead costs would, in most cases, be an estimate (73 FR 68527). However, given the number of hospitals already reporting the nonstandard cost center for cardiac catheterization and the number subscripting these costs and charges (approximately 50 percent, according to RTI's July 2008 report (pages 71 and 72) at: http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf), we believe that hospitals do allocate overhead costs to a cardiac catheterization-specific cost center.

We also received public comments on the cost report notice urging us to create standard cost centers for nuclear medicine services, for drugs that require detailed coding, and for MEG. In the proposed rule, we indicated that we continue to believe that it is not appropriate to create standard cost centers for these three services. The Medicare cost report already contains standard cost center 4300 (Radioisotope) to capture the costs and charges for the radioisotopes used in nuclear medicine services, the items that may have significantly different costs and hospital markup than the supplies and equipment used in other radiology services. Moreover, the cost report already contains standard cost center 4100 (Diagnostic Radiology) in which the costs of staff, minor equipment, and supplies for diagnostic nuclear medicine services can be reported. Major moveable equipment should be allocated to this cost center on Worksheet B unless the provider received approval from its contractor for direct assignment of the costs (Provider Reimbursement Manual (PRM), Part I, Section 2307). Therefore, we continue to believe that creating a new standard cost center for nuclear medicine services is not necessary. We also continue to believe that it is not appropriate to create a standard cost center for drugs that require detailed coding. We refer readers to the CY 2009 OPPS/ASC final rule with comment period (73 FR 68655) for a detailed discussion on our final decision not to create this cost center. Finally, with respect to MEG services, the extremely low volume of claims for MEG services furnished to Medicare beneficiaries in the hospital outpatient setting and the extremely low number of hospitals that report these codes relative to the volumes we typically have considered in adding both standard and nonstandard cost centers to the cost report lead us to conclude that a specific cost center for MEG is not justified at this time.

Comment: Commenters both supported and opposed our proposal to establish standard cost centers for the reporting of costs for CT scanning and for MRI. Some commenters supported the proposal because they agree with RTI's finding that there is aggregation bias in the radiology cost centers. RTI found that CT and MRI scans have a significantly higher markup in their respective nonstandard cost centers or subscripted standard cost center lines than most other radiology services. The commenters indicated that when CMS uses the overall radiology department CCR that “ignores” costs and charges reported in the CT and MRI nonstandard cost centers and other subscripted cost centers to convert charges to costs for CT and MRI scans, it overestimates the cost of these services, resulting in overstated relative weights for MS-DRGs under the IPPS and for APCs under the OPPS that incorporate CT scanning. These commenters believed that the creation of standard cost centers for CT scanning and MRI services will result in more accurate estimation of the cost of these services.

Some commenters who objected to the proposal believed that it is premature to establish these new standard cost centers without understanding the payment implications of these changes on both IPPS relative weights and OPPS payments. The commenters were concerned that adoption of these cost centers would result in very low CCRs for these services, as already observed in the nonstandard cost centers and estimated by RTI in its July 2008 report. Some commenters stated that if the proposal were finalized, they believe that a chest CT scan would be paid at the same level as a routine chest X-ray under the OPPS. Commenters also were concerned that estimating costs on claims data using CCRs based on cost and charge data from standard cost centers for CT scanning and MRI services would adversely impact payment for the technical component of imaging services paid under the Medicare Physician Fee Schedule (MPFS), which is capped at the level paid under the OPPS fee schedule. Commenters suggested that CMS examine all the costs incorporated into CT scans and MRI services before accepting very low CCRs for these services. Some commenters suggested that CMS should analyze the CCR methodology by performing specific procedure cost comparisons of low value versus high value diagnostic imaging equipment for both inpatient and outpatient settings to ensure that the CCRs accurately reflect the cost of capital equipment used in the procedure cost.

Response: After consideration of these comments, we continue to believe that the creation of standard cost centers for CT scanning and MRI services is necessary because of the potentially significant improvement in the accuracy of estimated costs, as recommended by RTI. We understand the commenters' concerns that the final CCRs for CT scans and MRI maybe low in light of current cost report data findings and that this may result in lower payment for CT scans and MRI services. We do not believe that we can assess whether inappropriate payments would result with our current data and, for that reason, we believe that we should collect standard cost center cost and charge data for these areas, using those data to assess the resulting CCRs specific to CT scanning and MRI services as a means of eliminating aggregation bias for these and other radiology services in the IPPS and OPPS. Therefore, we are establishing standard cost centers for CT scanning and MRI services in hospital cost reports for cost report periods beginning on or after May 1, 2010. We believe that establishing these standard cost centers is necessary to improving the accuracy of estimating costs for imaging services and will allow us to perform the impact assessment that some commenters want us to do.

In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23880), we also noted that there is typically a 3-year lag between the availability of the cost report data that we use to calculate the relative weights both under the IPPS and the OPPS and a given fiscal or calendar year, and therefore, the data from the proposed standard cost centers for CT scans, MRI, and cardiac catheterization respectively, should they be finalized, would not even be available for possible use in calculating the relative weights earlier than 3 years after Form CMS-2552-10 becomes available. We stated that at that time, we would analyze the data and determine if it is appropriate to use those data to create distinct CCRs from these cost centers for use in the relative weights for the respective payment systems. Therefore, we wish to reassure the commenters that there is no need for immediate concern regarding possible negative payment impacts on MRI and CT scans under the IPPS and OPPS because the cost report data that would be used for the calculation of the relative weights is at least 3 years from being available. We will first thoroughly analyze and run impacts on the data and provide the public with the opportunity to comment, as usual, before distinct CCRs for MRI and CT scans would be finalized for use in the calculation of the relative weights. Our decision to finalize our proposal regarding cost centers for these services is only the first step to a longer process during which we will continue to consider public comment.

In this final rule, we are finalizing our proposal to create standard cost centers for MRI and CT scans on the new Medicare cost report Form CMS-2552-10, and urge all hospitals to properly report their costs and charges for MRI, CT scans, and all other services so that, in several years' time, we will have reliable data from all hospitals on which to base a decision as to whether to incorporate additional CCRs into the relative weight calculation. We note that the impact on physician payment for the technical component of these services that results from changes to payment to hospitals is not within scope of the proposed rule.

Comment: Some commenters stated that the current reporting of the high cost of CT and MRI equipment results in inaccurate estimates of the cost of these services. Specifically, they asserted that some hospitals consider CT and MRI equipment costs to be capital costs, which are spread across various cost centers based on square footage or another allocation methodology, resulting in an underallocation of capital costs to the radiology department and CT and MRI nonstandard cost centers and inappropriately low CCRs for these services. In addition, the commenters believed that some hospitals report CT and MRI equipment costs as part of hospital fixtures and not as moveable equipment, allocating their direct capital costs across the whole hospital, rather than to the radiology cost center. One commenter stated the revised Medicare cost report Form 2552-10 recommended using a simplified cost allocation methodology where movable equipment is allocated on a square footage basis, which appeared contrary to the IPPS proposed rule that discussed that a dollar value could be used as the statistical basis for cost allocation.

Finally, some commenters stated that hospitals do not have an incentive to report these costs accurately in disaggregated cost centers, given the time and resources to do the cost allocation. They believed that hospitals have a modest incentive to spread their capital cost across all services rather than allocating imaging equipment costs in the imaging cost centers. One commenter argued that because many non-Medicare third party payers continue to pay hospitals on the basis of a percentage of charges and, to the extent that specific allocation of equipment and other capital costs to MRI and CT scans reduces the charges for other services, hospital may have a financial disincentive to specifically allocate those costs. The commenter also pointed out that, in some States, cost reporting practices are required to conform to State regulatory requirements, which may be inconsistent with specific allocation of capital costs.

Response: Section 104 of the PRM-1 contains definitions of buildings (section 104.2), building equipment (section 104.3), major moveable equipment (section 104.4), and minor equipment (section 104.5) that apply for purposes of cost report completion. We believe that it is clear that CT and MRI equipment are “major moveable equipment” and are neither a building cost nor a building equipment cost. Specifically, section 104.4 of the PRM-1 defines “major moveable equipment” as follows: “The general characteristics of this equipment are: (a) A relatively fixed location in the building; (b) capable of being moved, as distinguished from building equipment; (c) a unit cost sufficient to justify ledger control; (d) sufficient size and identity to make control feasible by means of identification tags; and (e) a minimum life of approximately three years. Major moveable equipment includes such items as accounting machines, beds, wheelchairs, desks, vehicles, x-ray machines, etc.” In addition to this longstanding instruction, we believe that our view that CT scanning and MRI equipment are major moveable equipment is supported by the 2008 edition of “Estimated Useful Lives of Depreciable Hospital Assets,” which states that the estimated useful life of a CT scanner is 5 years, an MRI is 5 years, and an X-ray unit is 7 years. Therefore, we believe that our longstanding policy makes it clear that CT scanning and MRI equipment is major moveable equipment and should be reported as such on the cost report. As major moveable equipment, the costs should be reported together with the rest of the hospital's major moveable equipment cost in the “Capital Related Cost—Moveable Equipment” cost center(s) on Worksheet A (lines 2 and 4). The costs in this cost center are allocated to all the hospital's cost centers that use major moveable equipment (including CT and MRI) using “dollar value” or “square feet” if the provider obtained the contractor's approval under Provider Reimbursement Manual, Part II (PRM-II), Section 3617, to use the simplified cost allocation methodology. However, a hospital that is concerned that this method of allocation may result in inaccurate CCRs (on Worksheet C, Part I) for the CT scan, MRI, and other ancillary cost centers may request contractor approval under section 2307 of the PRM-I to directly assign the cost of moveable equipment to all of the hospital's cost centers that use moveable equipment, including CT scans and MRI. If the hospital meets all of the criteria in section 2307 of the PRM-I, the contractor may approve the direct assignment method. This would ensure that the high cost of the CT scanning and MRI equipment would be reflected in the CCR that would be calculated for those departments and that would be used to estimate the cost of CT scanning and MRI services. In any case, hospitals with accounting systems that include the cost of CT scanning and MRI equipment in the “Capital Related Costs—Building and Fixtures” cost center should correct their cost reporting practices to come into compliance with CMS longstanding policy in this regard. Reporting of costs and charges on the Medicare cost report must be compliant with Medicare cost reporting principles, regardless of differing payment structures and incentives of other payers or State reporting requirements.

Comment: Commenters raised concerns about rural hospitals being unable to accurately report costs in CT scanning, MRI and cardiac catheterization cost centers. One commenter noted that rural hospitals, like CAHs, provide some of these radiology services internally or through arrangement, and that it is difficult for them to track the costs for these cost centers. The commenter requested that CAHs be exempt from the requirement to report their costs in the proposed standard cost centers. Other commenters noted that the proposed creation of a standard cardiac catheterization cost center would pose a significant burden to hospitals to change their cost reporting to allocate costs to this cost center. In particular, they stated that smaller hospitals may have fewer resources to be able to separate their costs and charges for these cost centers, which would pose a significant burden. The commenters indicated that, for example, while revenue code 481 “Cardiology-Catheterization Lab” contains cardiac catheterization charges, there are some revenue codes that contain other charges for cardiac catheterization, like revenue codes 360 and 361, “Operating Room-General” and “Operating Room-Minor,” respectively.

Response: As we stated in the CY 2009 OPPS final rule (73 FR 68522), with regard to creation of new cost centers, hospitals that do not currently maintain distinct departments or accounts in their internal accounting systems for CT scanning, MRI, or cardiac catheterization are not required to create distinct departments or accounts. We do not expect additional burden for reporting under these new standard cost centers to be significant because hospitals that provide these services and maintain a separate account for these services in their internal accounting records to capture the costs and charges are currently required in accordance with § 413.53(a)(1) to report these cost centers in the cost report, even if CMS does not identify a cost center code for the department(s). Specifically, under those regulations defining the departmental method of cost apportionment, the hospital must separately apportion the cost of each ancillary department. CMS defines a cost center in PRM-I, Section 2302.8, as an organizational unit, generally a department or its subunit, having a common functional purpose for which direct and indirect costs are accumulated, allocated, and apportioned. With respect to the comments regarding the revenue codes for cardiac catheterization, if the hospital operates a separate department for cardiac catheterization and maintains a separate General Ledger account for this department, the hospital would be expected to report the costs and charges in the new cardiac catheterization standard cost center and ensure that the charges are billed under appropriate UB revenue codes.

Comment: Some commenters supported the proposal to create a standard cost center for cardiac catheterization services. However, some commenters objected to the proposal to create a standard cost center for Cardiac Catheterization. Some commenters were uncertain whether it would have a significant impact on charge compression and believed that it may not be necessary to secure more accurate estimated costs. Commenters were concerned that RTI's analysis of charge compression in the cardiology cost centers may be flawed; when RTI analyzed the costs and charges included in the current nonstandard cardiac catheterization cost center, RTI hypothesized that the nonstandard cardiac catheterization cost center contains costs from services that were not cardiac catheterization. As such, commenters believed that hospitals may not be reporting their costs appropriately for this cost center.

Response: We continue to believe that it is appropriate to create a standard cost center to capture the cost and charges of cardiac catheterization services in hospitals that maintain the cost of such services in distinct departments or accounts, and that standardizing where hospitals report their costs and charges for cardiac catheterization will improve the estimation of the cost of this high volume Medicare service for both the IPPS and the OPPS. Moreover, once the information from a standard cardiac catheterization cost center is available, we will carefully evaluate the effect on the CCRs that are derived from these data and will make the decision regarding whether to implement the resulting CCRs, as usual, through our public Federal Register proposed and final notice process. However, in this final rule, we are finalizing our proposal to add a standard cost center to the cost report for cardiac catheterization.

Comment: Commenters opposed a regression-based approach for addressing charge compression in the relative weights where CMS would use regression-based CCRs in the relative weights methodology. The commenters preferred more accurate and uniform cost reporting, to mitigate charge compression in the cost-based relative weights.

Response: We agree that more accurate cost reporting is a better means of mitigating charge compression than applying regression-based adjustments and, for this reason, have proposed to create certain cost centers that we believe will ultimately result in more refined CCRs, thereby leading to better estimates of hospital cost for MRI, CT scanning, and cardiac catheterization services about which the public has repeatedly raised concerns due to the hospital practice of setting charges for low cost services at a much higher percentage of cost than the percentage by which the charge for high cost services exceeds the cost of those services.

Comment: One commenter stated that CMS should work closely with the hospital industry for comprehensive cost report reform rather than have piecemeal changes to the cost report. The commenter believed that CMS' collaboration with the industry would promote cost report simplification.

Response: We have just completed a major redesign of the hospital cost report in which the public had multiple opportunities to provide input to the specific proposed revisions. However, that larger redesign, reassessment, and revision effort does not negate the need to make additional targeted changes as appropriate to resolve particular identified problems, such as aggregation bias in the payment for devices, CT scanning, MRI services and cardiac catheterization. As discussed above, the proposal to create standard cost centers for CT scanning, MRI services and cardiac catheterization evolved from the findings of the RTI report of aggregation bias in the payment of several types of services paid under the IPPS and OPPS, including, but not limited to, high cost medical devices for which CMS created a standard cost center for cost report periods beginning on and after May 1, 2009. We believe that the creation of standard cost centers for CT scanning, MRI services, and cardiac catheterization is both appropriate and that CMS has provided numerous opportunities for public input.

Comment: One commenter recommended that CMS issue explicit, unambiguous guidance to hospitals on how to improve allocation of large capital costs to the radiology cost center. The commenter noted that the draft Medicare cost report Form 2552-10 did not provide any mandatory reporting guidance to hospitals on how to improve the accuracy of cost allocation for imaging equipment.

Response: We believe that the current instructions on allocation of the cost of major moveable equipment needed to provide CT scans, MRIs, and other radiology services are clear. We refer readers to the regulations at 42 CFR 413.24(b) and 413.24(f) and CMS instructions in Sections 2304 through 2320 of the PRM-I and Sections 3617 and 3618 of the PRM-II.

Comment: One commenter raised a number of concerns about what CT and MRI information hospitals should report in these cost centers. Those concerns include whether equipment installation or de-installation or equipment maintenance costs are reported in this cost center and whether costs associated with supplies related to MRI and CT equipment (like diagnostic contrast agents) are reported in this cost center. The commenter speculated whether each new item of advanced diagnostic equipment warranted a new cost center. The commenter requested that CMS provide guidance to the hospital industry on what types of costs should be reported in these cost centers.

Response: As with any other ancillary cost center, the providers would report the direct cost accumulated in the CT scanning or MRI departmental accounts that are reflected in the general ledger working trial balance.

Comment: One commenter recommended that CMS work with the Medicare contractors to simplify the cost allocation process, which the commenter found to be lengthy and burdensome. The commenter stated that if hospitals want to change the order of allocation or their allocation statistics, they must make a written request to their fiscal intermediary or MAC 90 days prior to the end of the cost reporting period. The commenter stated that the hospital must demonstrate that the change more accurately allocates costs and provide supporting documentation. The fiscal intermediary or MAC has 60 days to decide whether or not to approve or deny the request, while the provider must maintain both sets of cost allocation statistics in the meantime. The commenter requested that CMS simplify this process.

Response: We believe that the current process provides Medicare contractors with the minimum time needed to evaluate a contractor request to change the order of allocation or their allocation statistics, given the importance of the decision and the need for the contractor to assess whether the change would result in a more valid determination of hospital costs.

Comment: Commenters encouraged CMS to ensure that hospitals are appropriately allocating costs to the Implantable Devices Charged to Patients cost center, which was a standard cost center that we added for cost report periods beginning on and after May 1, 2009, as a result of the findings of the RTI report that there is aggregation bias in our estimates of the cost of expensive medical devices.

Response: Hospitals are expected to comply with our regulations at 42 CFR 413.24(b)(1) and 413.24(f) and to follow the instructions in Sections 2304 through 2320 of the PRM-I and Sections 3617 and 3618 of the PRM-II, as well as all other related instructions when allocating cost to the Implantable Devices Charged to Patients cost center. Medicare contractors review how hospitals allocate costs on the Medicare cost report for all cost centers, including the Implantable Devices Charged to Patients cost center, in accordance with their audit plans.

Comment: One commenter opposed the HSRV methodology for standardization of the relative weights. The commenter found this methodology to be inappropriate in a cost-based relative weight methodology and only appropriate for removing the effects of different markup practices in a charge-based relative weight methodology.

Response: We appreciate the comment but note that we did not propose any changes with respect to the HSRV methodology for standardizing the relative weights.

In summary, we are establishing standard cost centers for CT scanning, MRI services, and cardiac catheterization in hospital cost reports for cost report periods beginning on or after May 1, 2010.

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

1. Background

a. Statutory Authority

Section 1886(d)(4)(D) of the Act addresses certain hospital-acquired conditions (HACs), including infections. Section 1886(d)(4)(D) of the Act specifies that by October 1, 2007, the Secretary was required to select, in consultation with the Centers for Disease Control and Prevention (CDC), at least two conditions that: (a) Are high cost, high volume, or both; (b) are assigned to a higher paying MS-DRG when present as a secondary diagnosis (that is, conditions under the MS-DRG system that are CCs or MCCs); and (c) could reasonably have been prevented through the application of evidence-based guidelines. Section 1886(d)(4)(D) of the Act also specifies that the list of conditions may be revised, again in consultation with CDC, from time to time as long as the list contains at least two conditions.

Section 1886(d)(4)(D)(iii) of the Act requires that hospitals, effective with discharges occurring on or after October 1, 2007, submit information on Medicare claims specifying whether diagnoses were present on admission (POA). Section 1886(d)(4)(D)(i) of the Act specifies that effective for discharges occurring on or after October 1, 2008, Medicare no longer assigns an inpatient hospital discharge to a higher paying MS-DRG if a selected condition is not POA. Thus, if a selected condition that was not POA manifests during the hospital stay, it is considered a HAC and the case is paid as though the secondary diagnosis was not present. However, even if a HAC manifests during the hospital stay, if any nonselected CC/MCC appears on the claim, the claim will be paid at the higher MS-DRG rate. Under the HAC payment policy, all CCs/MCCs on the claim must be HACs in order to generate a lower MS-DRG payment. In addition, Medicare continues to assign a discharge to a higher paying MS-DRG if a selected condition is POA.

The POA indicator reporting requirement and the HAC payment provision apply to IPPS hospitals only. Non-IPPS hospitals, including CAHs, LTCHs, IRFs, IPFs, cancer hospitals, children's hospitals, hospitals in Maryland operating under waivers, rural health clinics, federally qualified health centers, RNHCIs, and Department of Veterans Affairs/Department of Defense hospitals, are exempt from POA reporting and the HAC payment provision. Throughout this section, the term “hospital” refers to an IPPS hospital.

The HAC provision found in section 1886(d)(4)(D) of the Act is part of an array of Medicare value-based purchasing (VBP) tools that we are using to promote increased quality and efficiency of care. Those tools include measuring performance, using payment incentives, publicly reporting performance results, applying national and local coverage policy decisions, enforcing conditions of participation, and providing direct support for providers through Quality Improvement Organization (QIO) activities. The application of VBP tools, such as this HAC provision, is transforming Medicare from a passive payer to an active purchaser of higher value health care services. We are applying these strategies for inpatient hospital care and across the continuum of care for Medicare beneficiaries.

These VBP tools are highly compatible with the underlying purposes as well as existing structural features of Medicare's IPPS. Under the IPPS, hospitals are encouraged to treat patients efficiently because they receive the same DRG payment for stays that vary in length and in the services provided, which gives hospitals an incentive to avoid unnecessary costs in the delivery of care. In some cases, conditions acquired in the hospital do not generate higher payments than the hospital would otherwise receive for cases without these conditions. To this extent, the IPPS encourages hospitals to avoid complications.

However, the treatment of certain conditions can generate higher Medicare payments in two ways. First, if a hospital incurs exceptionally high costs treating a patient, the hospital stay may generate an outlier payment. Because the outlier payment methodology requires that hospitals experience large losses on outlier cases before outlier payments are made, hospitals have an incentive to prevent outliers. Second, under the MS-DRGs system that took effect in FY 2008 and that has been refined through rulemaking in subsequent years, certain conditions can generate higher payments even if the outlier payment requirements are not met. Under the MS-DRG system, there are currently 259 sets of MS-DRGs that are split into 2 or 3 subgroups based on the presence or absence of a CC or an MCC. The presence of a CC or an MCC generally results in a higher payment. However, since we implemented the HAC provisions, if a secondary diagnosis acquired during a hospital stay is a HAC and no other CCs or MCCs are present, the hospital receives a payment under the MS-DRGs as if the HACs were not present. (We refer readers to section II.D. of the FY 2008 IPPS final rule with comment period for a discussion of DRG reforms (72 FR 47141).)

b. HAC Selection

Beginning in FY 2007, we have proposed, solicited, and responded to public comments and have implemented section 1886(d)(4)(D) of the Act through the IPPS annual rulemaking process. For specific policies addressed in each rulemaking cycle, we direct readers to the following publications: the FY 2007 IPPS proposed rule (71 FR 24100) and final rule (71 FR 48051 through 48053); the FY 2008 IPPS proposed rule (72 FR 24716 through 24726) and final rule with comment period (72 FR 47200 through 47218); the FY 2009 IPPS proposed rule (73 FR 23547), and final rule (73 FR 48471); and the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24106) and final rule (74 FR 43782). A complete list of the 10 current categories of HACs is included in section II.F.2. of this preamble.

In the FY 2011 IPPS/LTCH proposed rule (75 FR 23880 through 23898), we did not propose any additional HACs or changes to policies already established under the authority of section 1886(d)(4)(D) of the Act.

c. Collaborative Process

As noted in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23881), in establishing the HAC payment policy under section 1886(d)(4)(D) of the Act, our experts have worked closely with public health and infectious disease professionals from across the Department of Health and Human Services, including CDC, the Agency for Healthcare Research and Quality (AHRQ), and the Office of Public Health and Science (OPHS), to identify the candidate preventable HACs, review comments, and select HACs. CMS and CDC have also collaborated on the process for hospitals to submit a POA indicator for each diagnosis listed on IPPS hospital Medicare claims and on the payment implications of the various POA reporting options. As discussed below, we have also used rulemaking and Listening Sessions to obtain public input.

d. Application of HAC Payment Policy to MS-DRG Classifications

As described above, in certain cases application of the HAC payment policy provisions can result in MS-DRG reassignment to a lower paying MS-DRG. The following diagram portrays the logic of the HAC payment policy provision as adopted in the FY 2008 IPPS final rule with comment period (72 FR 47200) and in the FY 2009 IPPS final rule (73 FR 48471):

e. Public Input Regarding Selected and Potential Candidate HACs

In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23880 through 23898), we did not propose to add or remove categories of HACs, nor did we propose any changes to previously established policies.

Given the timeliness of the HAC discussion, particularly when considered within the context of recent legislative health care reform initiatives, however, we remain eager to engage in an ongoing public dialogue about the various aspects of this policy. We plan to continue to include updates and findings from the RTI evaluation on CMS' Hospital-Acquired Conditions and Present on Admission Indicator Web site available at: http://www.cms.hhs.gov/HospitalAcqCond/.

f. POA Indicator Reporting

Collection of POA indicator data is necessary to identify which conditions were acquired during hospitalization for the HAC payment provision as well as for broader public health uses of Medicare data. In the FY 2011 IPPS/LTCH PPS proposed rule, we listed the instructions and change requests that were issued to IPPS hospitals and also to non-IPPS hospitals regarding the submission of POA indicator data for all diagnosis codes on Medicare claims and the processing of non-PPS claims (75 FR 23381) We also indicated that specific instructions on how to select the correct POA indicator for each diagnosis code were included in the ICD-9-CM Official Guidelines for Coding and Reporting, available on the CDC Web site at: http://www.cdc.gov/nchs/data/icd9/icdguide09.pdf. We reiterate that additional information regarding POA indicator reporting and application of the POA reporting options is available on the CMS Web site at: http://www.cms.hhs.gov/HospitalAcqCond although, historically we have not provided coding advice. Rather, we collaborate with the American Hospital Association (AHA) through the Coding Clinic for ICD-9-CM. We continue to collaborate with the AHA to promote the Coding Clinic for ICD-9-CM as the source for coding advice about the POA indicator.

As discussed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23882) as well as in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43784), there are five POA indicator reporting options, as defined by the ICD-9-CM Official Guidelines for Coding and Reporting:

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

In the FY 2009 IPPS final rule (73 FR 48486 through 48487), we adopted final payment policies to: (1) Pay the CC/MCC MS-DRGs for those HACs coded with “Y” and “W” indicators; and (2) not pay the CC/MCC MS-DRGs for those HACs coded with “N” and “U” indicators.

On or after January 1, 2011, hospitals are required to begin reporting POA indicators using the 5010 electronic transmittal standards format. The 5010 format removes the need to report a POA indicator of “1” for codes that are exempt from POA reporting. The POA indicator of “1” is currently being used because of reporting restrictions from the use of the 4010 electronic transmittal standards format.

Comment: Several commenters supported CMS' plans to no longer require a POA indicator of “1” for codes exempt from the POA reporting requirement with the implementation of the new 5010 electronic transaction standards.

Response: We appreciate the commenters' support of our efforts to move to the new 5010 electronic transaction standards format. We agree that the use of this format will prove beneficial for a number of reasons, including POA indicator reporting as well as facilitating the move to the use of ICD-10 coding systems.

Hospitals reporting with the 5010 format on and after January 1, 2011, will no longer report a POA indicator of “1” for POA exempt codes. The POA field will instead be left blank for codes exempt from POA reporting. We plan to issue CMS instructions on this reporting change.

2. HAC Conditions for FY 2011

As changes to diagnosis codes and new diagnosis codes are proposed and finalized for the list of CCs and MCCs, we modify the list of selected HACs to reflect these changes. In Table 6A in the Addendum to the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24207), we listed the proposed addition of five new ICD-9-CM diagnosis codes to replace existing ICD-9-CM code 999.6 (ABO incompatibility reaction) for FY 2011. ICD-9-CM code 999.6 is currently the only code identified under the Blood Incompatibility HAC category. We proposed to delete code 999.6 and form a new subcategory of code 999.6 to identify new diagnoses relating to ABO incompatibility reaction due to transfusion of blood or blood products. These diagnoses meet the criteria for the Blood Incompatibility HAC category based on the predecessor code 999.6 being a selected HAC.

As shown in Table 6C in the Addendum to the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24210), we proposed that code 999.6 become invalid as a diagnosis code in FY 2011 with the creation of this new ICD-9-CM subcategory. This proposed new subcategory would allow room for expansion and the creation of the following new diagnosis codes:

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

We invited public comments on the proposed adoption of the five ICD-9-CM diagnosis codes as CCs that are listed above which, if finalized, would be added to the current HAC Blood Incompatibility category.

Comment: Several commenters supported CMS' proposal to add new ICD-9-CM codes 999.60, 999.61, 999.62, 999.63, and 999.69, to replace code 999.6, to specify ABO incompatibility reaction for FY 2011 and their classification as CCs.

Response: We appreciate the support of the commenters. We are finalizing our proposal to make code 999.6 an invalid code and to add codes 999.60, 999.61, 999.62, 999.63, and 999.69 as CCs to the HAC blood incompatibility category for FY 2011.

Comment: Some commenters questioned why the five ICD-9-CM codes (999.60, 999.61, 999.62, 999.63, and 999.69) were being proposed to replace the existing code (999.6) to identify blood incompatibility when the analysis indicated that only an extremely low volume of discharges (23) reported this condition as a secondary diagnosis.

Response: The five ICD-9-CM codes listed above were proposed and finalized through the ICD-9-CM Coordination and Maintenance Committee meeting process. Further information regarding the diagnosis coding proposal for Hemolytic Transfusion Reactions (HTR) from the September 17, 2009 meeting can be located at the following CDC Web site: http://www.cdc.gov/nchs/icd/icd9cm_maintenance.htm.

For the reasons set forth in the proposed rule, we are finalizing our proposal to make code 999.6 an invalid code and to add codes 999.60, 999.61, 999.62, 999.63, and 999.69 as CCs to the HAC blood incompatibility category for FY 2011.

In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23882 and 23883), we also invited public comment on our proposal that the current list of HAC categories and the ICD-9-CM codes that had been finalized through FY 2010 continue to be subject to the HAC payment provision for FY 2011. We also indicated that the final FY 2011 list of HAC conditions would include the proposed five new refinement codes to identify blood incompatibility as CCs if these codes were finalized. We received public comments on our proposal that the listed conditions continue to be subject to the HAC payment provisions which are summarized below.

Comment: One commenter stated that the current HAC categories and codes finalized through FY 2010 are, for the most part, rational based on the statutory criteria that HACs must be high cost, high volume, or both and reasonably preventable through the application of evidence based guidelines. However, the commenter expressed reservations regarding the inclusion of deep vein thrombosis (DVT) and pulmonary embolism (PE) following certain orthopedic procedures. The commenter stated that the proportion of these events that can be prevented with evidence-based guidelines is unclear, given that there is uncertainty about the ideal length of time DVT prophylaxis should be continued postoperatively, differing practices and guidelines for DVT prophylaxis, and patient-specific factors (that is, thrombophilia) that can impact risk of postoperative venous thromboembolism. The commenter stated that an unintended consequence of this HAC category could be excess bleeding occurrences from longer prescriptions of anticoagulation in attempts to comply with the measure. The commenter stated that, rather than including DVTs and PEs under the HAC provision, these conditions may be more appropriately managed as a measure under the RHQDAPU, as is being proposed for reducing avoidable readmissions.

Response: We appreciate the commenter's support for the current HAC categories. We also appreciate the commenter's concern regarding whether DVTs and PEs following certain orthopedic procedures are reasonably preventable, given evidence-based guidelines. We are providing data on the frequency of our 10 categories of HACs for the first time in this year's rulemaking. As the public reviews these data and evaluates the effectiveness of the HAC program, we will be soliciting recommendations for refinements to this list. As discussed earlier, section 1886(d)(4)(D) of the Act specifies that the HAC list of conditions may be revised, in consultation with CDC, from time to time as long as the list contains at least two conditions. We did not propose any modification to the HAC list in the proposed rule. We instead shared data on the HACs, which we have discussed earlier. As we move forward, we will be working with the health care industry to refine and update the HAC list. Therefore, we will not remove DVTs and PEs following certain orthopedic procedures from the HAC list at this time.

Comment: One commenter requested that CMS clarify how a hospital can appeal a decision under which a particular patient falls under the HAC policy and is ineligible for a higher DRG payment. The commenter believed that an appeals process is essential to ensure accountability.

Response: As we explained in the FY 2008 IPPS final rule (72 FR 47216), under 42 CFR 412.60(d), a hospital has 60 days after the date of the notice of the initial assignment of a discharge to an MS-DRG to request a review of that assignment. The hospital may submit additional information as part of its request. A hospital that believes a discharge was assigned to the incorrect MS-DRG as a result of the payment adjustment for HACs may request review of the MS-DRG assignment by its fiscal intermediary or MAC consistent with § 412.60(d) of the regulations.

As final policy for FY 2011, the following conditions will continue to be subject to the HAC payment provision:

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We refer readers to section II.F.6. of the FY 2008 IPPS final rule with comment period (72 FR 47202 through 47218) and to section II.F.7. of the FY 2009 IPPS final rule (73 FR 48474 through 48486) for detailed analyses supporting the selection of each of the HACs selected through FY 2010.

3. RTI Program Evaluation Summary

a. Background

On September 30, 2009, a contract was awarded to Research Triangle Incorporated (RTI) to evaluate the impact of the Hospital-Acquired Condition-Present on Admission (HAC-POA) provisions on the changes in the incidence of selected conditions, effects on Medicare payments, impacts on coding accuracy, unintended consequences, and infection and event rates. This is an intra-agency project with funding and technical support coming from CMS, OPHS, AHRQ, and CDC. The evaluation will also examine the implementation of the program and evaluate additional conditions for future selection.

RTI's evaluation of the HAC-POA provisions is divided into several parts, only some of which were completed prior to the publication date of the FY 2011 IPPS/LTCH PPS proposed rule. In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23883 through 23898), we summarized the analyses that were completed. RTI's analyses of POA indicator reporting, frequencies and net savings associated with current HACs, and frequencies of previously considered candidate HACs reflect MedPAR claims from October 2008 through June 2009.

We received a number of public comments regarding the evaluation conducted by RTI, despite the fact that we did not propose any new policies or policy revisions based on the evaluation. Several of these public comments are addressed later in another section of this preamble, but we believe that it is appropriate to acknowledge the following issues here.

Comment: Several commenters expressed concern that the RTI evaluation did not include an analysis on the costs of complying with the HAC-POA provision. According to the commenters, compliance with our HAC-POA policy results in additional costs to providers and individuals, as well as to the Medicare program by necessitating additional expensive preadmission screening tests in order to achieve more accurate admission documentation. The commenters also stated that the estimated savings to Medicare is not accurate if providers are utilizing additional resources to perform these expensive tests on their patients.

Response: We understand the seriousness of this concern and refer to our original discussion of HAC-POA issues in the FY 2009 IPPS final rule (73 FR 23547 through 23559) in which we included a comprehensive discussion of what we understood to be the full impact of this policy. We will continue to evaluate the financial costs of compliance with our HAC-POA program, as well as its impact on our overall goal of providing the highest quality of care for Medicare beneficiaries at the most reasonable costs.

Comment: Several commenters commended CMS for making the early findings of the RTI study, as well as HAC-POA data, available to the public. The commenters encouraged CMS to continue to make additional findings available.

Response: We agree with the commenters that it continues to be important to make HAC-POA data and findings available to the public prior to proposing any significant updates to the HAC list. As RTI continues its work, we will share the findings and additional HAC-POA data.

Comment: Several commenters expressed interest in seeing data on the most common secondary diagnoses on the CC and MCC list that are reported along with an HAC code.

Response: We have asked RTI to include a list of the most commonly reported secondary CC and MCC diagnoses and display this list along with the other HAC-POA data on its Web site at: http://www.rti.org/reports/cms.

In this final rule, we are updating our summary of the analyses with additional data that have become available since issuance of the proposed rule.

b. RTI Analysis on POA Indicator Reporting Across Medicare Discharges

To better understand the impact of HACs on the Medicare program, it is necessary to first examine the incidence of POA indicator reporting across all eligible Medicare discharges. As mentioned previously, only IPPS hospitals are required to submit POA indicator data for all diagnosis codes on Medicare claims. Therefore, all non-IPPS hospitals were excluded, as well as providers in waiver States (Maryland) and territories other than Puerto Rico.

In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23880 through 23898), we provided a preliminary analysis on claims data from October 2008 through June 2009. Since publication of that proposed rule, an additional 3 months of data for FY 2009 that include claims from July 2009 through September 2009 have become available. Below we present the cumulative results of RTI's findings for FY 2009.

Using MedPAR claims data from October 2008 through September 2009, RTI found a total of approximately 65.22 million secondary diagnoses across approximately 9.3 million discharges. As shown in Chart A below, the majority of all secondary diagnoses (83.69 percent) were reported with a POA indicator of “Y,” meaning the condition was POA.

c. RTI Analysis on POA Indicator Reporting of Current HACs

Following the initial analysis of POA indicator reporting for all secondary diagnoses, RTI then evaluated POA indicator reporting for specific HAC-associated secondary diagnoses. The term “HAC-associated secondary diagnosis” refers to those diagnoses that are on the selected HAC list and were reported as a secondary diagnosis. Chart B below shows a summary of the HAC categories with the frequency in which each HAC was reported as a secondary diagnosis and the corresponding POA indicators assigned on the claims. It is important to note that, because more than one HAC-associated diagnosis code can be reported per discharge (that is, on a single claim), the frequency of HAC-associated diagnosis codes may be more than the actual number of discharges that have a HAC-associated diagnosis code reported as a secondary diagnosis. Below we discuss the frequency of each HAC-associated diagnosis code and the POA indicators assigned to those claims.

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

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In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23885), we welcomed public comments on the data presented that could provide insight into the accuracy of those data, the use of comparative data sets or analysis, and how aspects of the coding system might influence these data.

Comment: One commenter expressed its past and continuing support of the HAC-POA program. This commenter applauded CMS' efforts to evaluate the payment and clinical impacts of the HAC-POA policy and for making the preliminary data available for public comment. However, the commenter reported that it found the preliminary published POA data for certain conditions interesting. Specifically, the commenter noted that the POA data for the catheter-associated urinary tract infection (CAUTI) condition was unexpected in that 85 percent of the cases reporting that condition as a secondary diagnosis were assigned a POA indicator of “Y” (meaning that the condition was present on admission). The commenter further noted that there were other conditions whose POA data analysis results were equally unexpected. This commenter stated it looked forward to reviewing further analyses and understanding how the POA indicator is being documented and the accuracy of the documentation.

Response: We appreciate and acknowledge the commenter's support of the HAC-POA provision. As stated earlier, one aspect of the HAC-POA program evaluation is to examine the accuracy of coding, which includes a review of the POA indicator data. RTI will continue to study these data and, when they become available, we plan to publish the results.

Comment: Commenters expressed concern about the accuracy of POA indicator reporting for the HACs related to intracranial injury with loss of consciousness. One commenter stated that it has come to the attention of the American Hospital Association's Central Office on ICD-9-CM that there have been different interpretations of the POA coding guidelines for the reporting of the following ICD-9-CM code categories:

  • 850 Concussions;
  • 851 Cerebral laceration and contusion;
  • 852 Subarachnoid, subdural, and extradural hemorrhage, following injury;
  • 853 Other and unspecified intracranial hemorrhage following injury; and
  • 854 Intracranial injury of other and unspecified nature.

The commenter pointed out that the above mentioned ICD-9-CM code categories require a fifth digit to specify whether there was a loss of consciousness, and the approximate length of time that the patient was unconscious. The commenter stated that, currently, the POA guidelines state to “assign `N' if any part of the combination code was not present on admission.” The commenter further indicated that, in some instances, coders have assigned “N” to these codes if the patient lost consciousness after admission, even though the intracranial injury occurred prior to admission. The commenter stated that loss of consciousness is a component of intracranial injuries rather than a separate condition. The commenter believed that this guideline has resulted in data implying that the intracranial injuries were a result of trauma sustained after admission to the hospital, when the injury occurred prior to admission.

The commenter stated that this POA guideline was discussed by the Editorial Advisory Board for Coding Clinic for ICD-9-CM. After review, the commenter stated that the Board determined that the POA guideline should be clarified so that coders will understand that these intracranial injury cases that have a loss of consciousness after admission should be assigned a POA indicator of “Y” rather than a “N.” The commenter stated that this advice will be provided in a future issue of Coding Clinic for ICD-9-CM. The commenter pointed out that CMS collaborated in this decision.

Response: We agree that there appears to be inconsistency in how coders interpret and apply the official POA coding guideline for these combination codes that include loss of consciousness. CMS participated as a voting member of the American Hospital Association's Editorial Advisory Board for Coding Clinic for ICD-9-CM to develop clarifications on the POA reporting for combination codes that involve loss of consciousness. We agree that this clarification will lead to greater consistency and accuracy in POA indicator reporting. CMS looks forward to continuing its efforts as part of the American Hospital Association's Editorial Advisory Board for Coding Clinic for ICD-9-CM to provide guidance on accuracy of coding and the reporting of POA indicators. Hospitals look to this publication to provide detailed guidance on ICD-9-CM code and POA reporting. We encourage hospitals to send any other questions about ICD-9-CM codes or POA indicator selection to the American Hospital Association so that the Editorial Advisory Board can continue its role of providing instruction on the accurate selection and reporting of both ICD-9-CM codes and POA indicators.

As described earlier, in the FY 2009 IPPS final rule (73 FR 48486 through 48487), we adopted as final our proposal to: (1) Pay the CC/MCC MS-DRGs for those HACs coded with “Y” and “W” indicators; and (2) not pay the CC/MCC MS-DRGs for those HACs coded with “N” and “U” indicators. We also discussed the comments we received urging CMS to strongly consider changing the policy and to pay for those HACs assigned a POA indicator of “U” (documentation is insufficient to determine if the condition was present at the time of admission). We stated we would monitor the extent to which and under what circumstances the “U” POA reporting option is used. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we also discussed and responded to comments regarding HACs coded with the “U” indicator (74 FR 43784 and 43785). As shown in Chart B above, RTI's analysis provides some data on a total of 404 HAC-associated secondary diagnoses reported with a POA indicator of “U.” Of those diagnoses, 270 (0.2 percent) were assigned to the Falls and Trauma HAC category.

In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23885), we stated that we continue to believe that better documentation will result in more accurate public health data. Because the RTI analysis we summarized in the FY 2011 IPPS/LTCH PPS proposed rule was based on preliminary data, we did not propose to change our policy under which CMS does not pay at the higher CC/MCC amount when a selected HAC diagnosis code is reported with a POA indicator of “U.”

Comment: Several commenters asked CMS to change our policy under which we do not pay at the higher CC/MCC amount when a HAC code reported with a POA of “U.” (A POA indicator of “U” means that documentation was insufficient to determine if the condition was present at the time of the inpatient admission.) The commenters stated that while hospitals are continuing to work on coding and documentation improvement issues with physicians who practice in their facilities, in some cases, hospitals have not been successful in obtaining clear documentation to clarify whether or not a condition was present on admission. They added that when physicians do not provide clear documentation in the medical record, a POA indicator of “U” is assigned. The commenters asked that CMS allow these cases with poor documentation to result in a higher payment if the HAC code is reported with a “U.”

Response: We are committed to improving the accuracy of health care data. Accurate and complete documentation within the health record is important for patient management, outcome measurement, and quality improvement, as well as payment accuracy. We believe that it would be inappropriate to pay a higher amount to hospitals based on incomplete or poor documentation. If accurate information is not available within the health record for a hospital to report a precise POA indicator, hospitals are encouraged to seek this additional documentation from their physicians and/or other hospitals if the hospital treated a patient who was transferred. For these reasons, we believe that reducing payment for conditions on the HAC list with poor documentation is appropriate. Therefore, we did not propose to change our approach to discounting the CC or MCC assignment for selected HACs reported with a POA indicator of “U.” We will maintain our existing policy and not allow HACs with a POA indicator of “U” to lead to the higher payment.

In the FY 2011 IPPS/LTCH PPS proposed rule, we encouraged readers to further review the RTI detailed report which demonstrates the frequency of each individual HAC-associated diagnosis code within the HAC categories. For example, in the Foreign Object Retained After Surgery HAC category, there are two unique ICD-9-CM diagnosis codes to identify that condition: code 998.4 (Foreign body accidentally left during a procedure) and code 998.7 (Acute reaction to foreign substance accidentally left during a procedure). In the updated detailed RTI report, readers can view that code 998.4 was reported 428 times and code 998.7 was reported 13 times, for a total of 441 times, as shown in Chart B above. The RTI detailed report is available at the following Web site: http://www.rti.org/reports/cms/.

d. RTI Analysis of Frequency of Discharges and POA Indicator Reporting for Current HACs

RTI further analyzed the effect of the HAC provision by studying the frequency in which a HAC-associated diagnosis was reported as a secondary diagnosis with a POA indicator of “N” or “U” and, of that number, how many resulted in MS-DRG reassignment. In Chart C below, Column A shows the number of discharges for each HAC category where the HAC-associated diagnosis was reported as a secondary diagnosis. For example, there were 33 discharges that reported Air Embolism as a secondary diagnosis. Column C shows the number of discharges for each HAC reported with a POA indicator of “N” or “U.” Continuing with the example of Air Embolism, the chart shows that, of the 33 reported discharges, 24 discharges (72.73 percent) had a POA indicator of “N” or “U” and was identified as a HAC discharge. There were a total of 24 discharges to which the HAC policy applies and that could, therefore, have had an MS-DRG reassignment. Column E shows the number of discharges where an actual MS-DRG reassignment occurred. As shown in Column E, the number of discharges with an Air Embolism that resulted in actual MS-DRG reassignments is 12 (50 percent of the 24 discharges with a POA indicator of “N” or “U”). Thus, while there were 24 discharges (72.73 percent of the original 33) with an Air Embolism reported with a POA indicator of “N” or “U” identified as a HAC discharge that could have caused MS-DRG reassignment, the end result was 12 (50 percent) actual MS-DRG reassignments. There are a number of reasons why a selected HAC reported with a POA indicator of “N” or “U” will not result in MS-DRG reassignment. These reasons were illustrated with the diagram in section II.F.1.c. of this preamble and will be discussed in further detail in section II.F.3.e. of this preamble.

Chart C below also shows that, of the 264,810 discharges with a HAC-associated diagnosis as a secondary diagnosis, 3,416 discharges ultimately resulted in MS-DRG reassignment. As we discuss below, there were 15 claims that resulted in MS-DRG reassignment where two HACs were reported on the same admission. The four HAC categories that had the most discharges resulting in MS-DRG reassignment were: (1) Falls and Trauma; (2) Pulmonary Embolism and DVT Orthopedic (Orthopedic PE/DVT); (3) Pressure Ulcer Stages III & IV; and (4) Catheter-Associated Urinary Tract Infection (UTI). Codes falling under the Falls and Trauma HAC category were the most frequently reported secondary diagnoses with 126,078 discharges. Of these 126,078 discharges, 5,312 (4.21 percent) were coded as not POA and identified as HAC discharges. This category also contained the greatest number of discharges that resulted in an MS-DRG reassignment. Of the 5,312 discharges within this HAC category that were not POA, 1,577 (29.69 percent) resulted in an MS-DRG reassignment.

Of the 264,810 total discharges reporting HAC-associated diagnoses as a secondary diagnosis, 3,110 discharges were coded with a secondary diagnosis of Orthopedic PE/DVT. Of these 3,110 discharges, 2,335 (75.08 percent) were coded as not POA and identified as HAC discharges. This category contained the second greatest number of discharges resulting in an MS-DRG reassignment. Of the 2,335 discharges in this HAC category that were not POA, 1,024 discharges (43.85 percent) resulted in an MS-DRG reassignment.

The Pressure Ulcer Stages III & IV category had the second most frequently coded secondary diagnoses, with 99,656 discharges. Of these discharges, 1,316 (1.32 percent) were coded as not POA and identified as HAC discharges. This category contained the third greatest number of discharges resulting in an MS-DRG reassignment. Of the 1,316 discharges in this HAC category that were not POA, 384 discharges (29.18 percent) resulted in an MS-DRG reassignment.

The Catheter-Associated UTI category had the third most frequently coded secondary diagnoses, with 14,089 discharges. Of these discharges, 2,333 (16.56 percent) were coded as not POA and identified as HAC discharges. This category contained the fourth greatest number of discharges resulting in an MS-DRG reassignment. Of the 2,333 discharges in this HAC category that were not POA, 223 discharges (9.56 percent) resulted in a MS-DRG reassignment.

The remaining 6 HAC categories only had 208 discharges that ultimately resulted in MS-DRG reassignment. We note that, even in cases where a large number of HAC-associated secondary diagnoses were coded as not POA, this finding did not necessarily translate into a large number of discharges that resulted in MS-DRG reassignment. For example, only 26 of the 2,573 Vascular Catheter-Associated Infection secondary diagnoses that were coded as not POA and identified as HAC discharges resulted in a MS-DRG reassignment.

There were a total of 417 discharges with a HAC-associated secondary diagnosis reporting a POA indicator of “N” or “U” that were excluded from acting as a HAC discharge (subject to MS-DRG reassignment) due to the CC Exclusion List logic within the GROUPER. The CC Exclusion List identifies secondary diagnosis codes designated as a CC or MCC that are disregarded by the GROUPER logic when reported with certain principal diagnoses. For example, a claim with the principal diagnosis code of 250.83 (Diabetes with other specified manifestations, type 1 [juvenile type], uncontrolled) and a secondary diagnosis code of 250.13 (Diabetes with ketoacidosis, type 1, [juvenile type], uncontrolled) with a POA indicator of “N” would result in the HAC-associated secondary diagnosis code 250.13 being ignored as a CC. According to the CC Exclusion List, code 250.13 is excluded from acting as a CC when code 250.83 is the principal diagnosis. As a result, the HAC logic would not be applicable to that case. For a detailed discussion on the CC Exclusion List, we refer readers to section II.G.9. of this preamble.

Discharges where the HAC logic was not applicable due to the CC Exclusion List occurred among the following 4 HAC categories: Pressure Ulcer Stages III and IV (44 cases), Falls and Trauma (311 cases), Catheter-Associated UTI (9 cases), Vascular Catheter-Associated Infection (4 cases), and Manifestations of Poor Glycemic Control (49 cases). Further information regarding the specific number of cases that were excluded for each HAC-associated secondary diagnosis code within each of the above mentioned HAC categories is also available. We refer readers to the RTI detailed report at the following Web site: http://www.rti.org/reports/cms/.

In summary, Chart C below demonstrates that there were a total of 264,810 discharges with a reported HAC-associated secondary diagnosis. Of the total 264,810 discharges, 14,681 (5.68 percent) discharges included HACs that were reported with a POA indicator of “N” or “U” and were identified as a HAC discharge. Of these 14,681 discharges, the number of discharges resulting in MS-DRG reassignments was 3,416 (22.72 percent).

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An extremely small number of discharges had multiple HACs reported during the same stay. In reviewing the 9.3 million claims, RTI found 60 cases in which two HACs were reported on the same discharge. Chart D below summarizes these cases. There were 9 cases in which a Falls and Trauma HAC was reported in addition to a Pressure Ulcer Stages III & IV HAC. Twenty of the cases with two HACs involved Pressure Ulcer Stages III & IV and 24 cases involved Falls or Trauma. Other multiple HAC cases included 10 Catheter-Associated UTI cases and 6 Vascular Catheter-Associated Infection cases.

Some of these cases with multiple HACs reported had both HAC codes ignored in the MS-DRG assignment. Of these 60 claims, 15 did not receive higher payments based on the presence of one or both of these reported HACs and we describe these claims below in section II.F.3.g.(2) of this preamble. Depending on the MS-DRG to which the cases were originally assigned, ignoring the HAC codes would have led to a MS-DRG reassignment if there were no other MCCs or CCs reported, if the MS-DRG was subdivided into severity levels, and if the case were not already in the lowest severity level prior to ignoring the HAC codes.

e. RTI Analysis of Circumstances When Application of HAC Provisions Would Not Result in MS-DRG Reassignment for Current HACs

As discussed in section II.F.1. and illustrated in the diagram in section II.F.1.c. of this preamble, there are instances when the MS-DRG assignment does not change even when a HAC-associated secondary diagnosis has a POA indicator of either “N” or “U.” In analyzing our claims data, RTI identified four main reasons why a MS-DRG assignment would not change despite the presence of a HAC. Those four reasons are described below and are shown in Chart E below. Column A shows the frequency of discharges that included a HAC-associated secondary diagnosis. Column B shows the frequency of discharges where the HAC-associated secondary diagnosis was coded as not POA and identified as a HAC discharge. Column C shows the frequency of discharges in which the HAC-associated secondary diagnosis coded as not POA resulted in a change in MS-DRG. Columns D, E, F, and G show the frequency of discharges in which the HAC-associated secondary diagnosis coded as not POA did not result in a change in MS-DRG assignment. Columns D, E, F, and G are explained in more detail below.

(1) Other MCCs/CCs Prevent Reassignment

Column D (Other MCC/CCs that Prevent Reassignment) in Chart E below indicates the number of cases reporting a HAC-associated secondary diagnosis code that did not have a MS-DRG reassignment because of the presence of other secondary diagnoses on the MCC or CC list. A claim that is coded with a HAC-associated secondary diagnoses and a POA status of either “N” or “U” may have other secondary diagnoses that are classified as an MCC or a CC. In such cases, the presence of these other MCC and CC diagnoses will still lead to the assignment of a higher severity level, despite the fact that the GROUPER software is disregarding the ICD-9-CM code that identifies the selected HAC in making the MS-DRG assignment for that claim. For example, there were 96 cases in which the ICD-9-CM codes for the Foreign Object Retained After Surgery HAC category were present, but the presence of other secondary diagnoses that were MCCs or CCs resulted in no change to the MS-DRG assignment. Chart E shows that a total of 8,208 cases did not have a change in the MS-DRG assignment because of the presence of other reported MCCs and CCs.

(2) Two Severity Levels Where HAC Does Not Impact MS-DRG Assignment

Column E (Number of MS-DRGs with Two Severity Levels Where HAC Does Not Impact MS-DRG Assignment) shows the frequency with which discharges with a HAC as a secondary diagnosis coded as not POA did not result in an MS-DRG change because the MS-DRG is subdivided solely by the presence or absence of an MCC. A claim with a HAC and a POA indicator of either “N” or “U” may be assigned to an MS-DRG that is subdivided solely by the presence or absence of an MCC. In such cases, removing a HAC ICD-9-CM CC code will not lead to further changes in the MS-DRG assignment. Examples of these MS-DRG subdivisions are shown in the footnotes to the chart and include the following examples:

  • MS-DRGs 100 and 101 (Seizures with or without MCC, respectively)
  • MS-DRGs 102 and 103 (Headaches with or without MCC, respectively)

The codes that fall under the HAC category of Foreign Object Retained After Surgery are CCs. If this case were assigned to a MS-DRG with an MCC subdivision such as MS-DRGs 100 and 101, the presence of the HAC code would not affect the MS-DRG severity level assignment. In other words, if the Foreign Object Retained After Surgery code was the only secondary diagnosis reported, the case would be assigned to MS-DRG 101. If the POA indicator was “N,” the HAC Foreign Object Retained After Surgery code would be ignored in the MS-DRG assignment logic. Despite the fact that the code was ignored, the case would still be assigned to the same, lower severity level MS-DRG. Therefore, there would be no impact on the MS-DRG assignment.

Column E in Chart E below shows that there were a total of 1,793 cases where the HAC code was “N” or “U” and the MS-DRG assignment did not change because the case was already assigned to the lowest severity level.

(3) No Severity Levels

Column F (Number of MS-DRGs with No Severity Levels) shows the frequency with which discharges with an HAC as a secondary diagnosis coded as not POA did not result in an MS-DRG change because the MS-DRG is not subdivided by severity levels. A claim with a HAC and a POA of “N” or “U” may be assigned to a MS-DRG with no severity levels. For instance, MS-DRG 311 (Angina Pectoris) has no severity level subdivisions; this MS-DRG is not split based on the presence of an MCC or a CC. If a patient assigned to this MS-DRG develops a secondary diagnosis such as a Stage III pressure ulcer after admission, the condition would be considered to be a HAC. The code for the Stage III pressure ulcer would be ignored in the MS-DRG assignment because the condition developed after the admission (the POA indicator was “N”). Despite the fact that the ICD-9-CM code for the HAC Stage III pressure ulcer was ignored, the MS-DRG assignment would not change. The case would still be assigned to MS-DRG 311. Chart E below shows that 1,255 cases reporting a HAC-associated secondary diagnosis did not undergo a change in the MS-DRG assignment based on the fact that the case was assigned to a MS-DRG that had no severity subdivisions (that is, the MS-DRG is not subdivided based on the presence or absence of an MCC or a CC, rendering the presence of the HAC irrelevant for payment purposes).

(4) MS-DRG Logic

Column G (MS-DRG Logic Issues) shows the frequency with which a HAC as a secondary diagnosis coded as not POA did not result in an MS-DRG change because of MS-DRG assignment logic. There were nine discharges where the HAC criteria were met and the HAC logic was applied, however, due to the structure of the MS-DRG logic, these cases did not result in MS-DRG reassignment. These cases may appear similar to those discharges where the MS-DRG is subdivided into two severity levels by the presence or absence of an MCC and did not result in MS-DRG reassignment; however, these discharges differ slightly in that the MS-DRG logic also considers specific procedures that were reported on the claim. In other words, for certain MS-DRGs, a procedure may be considered the equivalent of an MCC or CC. The presence of the procedure code dictates the MS-DRG assignment despite the presence of the HAC-associated secondary diagnosis code with a POA indicator of “N” or “U”.

For example, a claim with the principal diagnosis code of 441.1 (Thoracic aneurysm, ruptured) with HAC-associated secondary diagnosis code of 996.64 (Infection and inflammatory reaction due to indwelling urinary catheter) and diagnosis code 599.0 (Urinary tract infection, site not specified), having POA indicators of “Y”, “N”, “N”, respectively, and procedure code 39.73 (Endovascular implantation of graft in thoracic aorta), results in an assignment to MS-DRG 237 (Major Cardiovascular Procedures with MCC or Thoracic Aortic Aneurysm Repair). In this case, the thoracic aortic aneurysm repair is what dictated the MS-DRG assignment and the presence of the HAC-associated secondary diagnosis code, 996.64, did not affect the MS-DRG assigned. Other examples of MS-DRGs that are subdivided in this same manner are as follows:

  • MS-DRG 029 (Spinal procedures with CC or Spinal Neurostimulators)
  • MS-DRG 129 (Major Head & Neck Procedures with CC/MCC or Major Device)
  • MS-DRG 246 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent with MCC or 4+ Vessels/Stents)

Column G in the chart below shows that four of the nine cases that did not result in MS-DRG reassignment due to the MS-DRG logic were in the Catheter Associated UTI HAC category, three cases were in the Falls and Trauma HAC category, one case was in the Foreign Body Retained After surgery HAC category, and one case was in the Vascular Catheter-Associated Infection HAC Category.

In conclusion, a total of 11,265 cases (8,208 + 1,793 + 1,255 + 9) did not have a change in MS-DRG assignment, regardless of the presence of a HAC. The reasons described above explain why only 3,416 cases had a change in MS-DRG assignment despite the fact that there were 14,681 HAC cases with a POA of “N” or “U.” We refer readers to the RTI detailed report at the Web site: http://www.rti.org/reports/cms for further information.

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f. RTI Analysis of Coding Changes for HAC-Associated Secondary Diagnoses for Current HACs

In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23892), we discussed RTI's preliminary analysis on coding changes using 9 months of claims data from October 2008 through June 2009. We noted that, in addition to studying claims from October 2008 through June 2009, RTI evaluated claims data from 2 years prior to determine if there were significant changes in the number of discharges with a HAC being reported as a secondary diagnosis. For this FY 2011 IPPS/LTCH PPS final rule analysis, RTI examined an additional 3 months of claims data for each fiscal year (FY 2007 and FY 2008), and compared these data to the updated FY 2009 data. Below we summarize the results of the fiscal year to fiscal year comparison using 12 months of claims data.

RTI's analysis found that there was an overall increase in the reporting of secondary diagnoses that are currently designated as HACs from FY 2007 to FY 2008. The most significant increase was in the Catheter-Associated UTI HAC category, with 12,459 discharges being reported in FY 2007, while 15,408 discharges were reported in FY 2008, an increase of 2,949 cases. The next significant increase was in the Falls and Trauma HAC category with 151,321 discharges being reported in FY 2007, while 153,600 discharges were reported in FY 2008, an increase of 2,279 cases.

However, the analysis also found that there was an overwhelming decrease in the HAC-associated secondary diagnoses reported from FY 2008 to FY 2009. The most significant decrease was in the Falls and Trauma HAC category, with 153,600 discharges being reported in FY 2008, while 125,505 discharges were reported in FY 2009, a decrease of 28,095 cases. We point out that because diagnosis codes for the Pressure Ulcer Stages III & IV HAC did not become effective until October 1, 2008, there are no data available for FY 2007 or FY 2008.

We refer readers to the RTI detailed report for all the conditions in each fiscal year (FY 2007 through FY 2009) as described above at the following Web site: http://www.rti.org/reports/cms/.

g. RTI Analysis of Estimated Net Savings for Current HACs

RTI estimated the net savings generated by the HAC payment policy based on 12 months of MedPAR claims from October 2008 through September 2009.

(1) Net Savings Estimation Methodology

The payment impact of a HAC is the difference between the IPPS payment amount under the initially assigned MS-DRG and the amount under the reassigned MS-DRG. The amount for the reassigned MS-DRG appears on the MedPAR files. To construct this, RTI modeled the IPPS payments for each MS-DRG following the same approach that we use to model the impact of IPPS annual rule changes. Specifically, RTI replicated the payment computations carried out in the IPPS PRICER program using payment factors for IPPS providers as identified in various CMS downloaded files. The files used are as follows:

  • Version 26 of the Medicare Severity GROUPER software (applicable to discharges between October 1, 2008 and September 30, 2009). IPPS MedPAR claims were run through this file to obtain needed HAC-POA output variables.
  • The FY 2009 MS-DRG payment weight file. This file includes the weights, geometric mean length of stay (GLOS), and the postacute transfer payment indicators.
  • CMS standardized operating and capital rates. Tables 1A through 1C, as downloaded from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/IPPS2009, include the full update and reduced update amounts, as well as the information needed to compute the blended amount for providers located in Puerto Rico.
  • The IPPS impact files for FY 2009, also as downloaded from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/IPPS2009/. This file includes the wage index and geographic adjustment factors, plus the provider type variable to identify providers qualifying for alternative hospital-specific amounts and their respective HSP rates.
  • The IPPS impact files for FY 2010, as downloaded from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/10FR/. This file includes indirect medical education (IME) and disproportionate share (DSH) percent adjustments that were in effect as of March 2009.
  • CMS historical provider-specific files (PSF). This includes the indicator to identify providers subject to the full or reduced standardized rates and the applicable operating and capital cost-to-charge ratios. A SAS version was downloaded from the Web site at: http://www.cms.hhs.gov/ProspMedicareFeeSvcPmtGen/04_psf_SAS.asp.

There were 50 providers with discharges in the final HAC analysis file that did not appear in the FY 2009 impact file, of which 11 also did not appear in the FY 2010 impact file. For these providers, we identified the geographic CBSA from the historical PSF and assigned the wage index using values from Tables 4A and 4C as downloaded from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/IPPS2009/. For providers in the FY 2010 file but not the FY 2009 file, we used IME and DSH rates from FY 2010. The 11 providers in neither impact file were identified as non-IME and non-DSH providers in the historical PSF file.

The steps for estimating the HAC payment impact are as follows:

Step 1: Rerun the Medicare Severity Grouper on all records in the analysis file. This is needed to obtain information on actual HAC-related MS-DRG reassignments in the file, and to identify the CCs and MCCs that contribute to each MS-DRG assignment.

Step 2: Model the base payment and outlier amounts associated with the initial MS-DRG if the HAC were excluded using the computations laid out in the CMS file “Outlier Example FY 2007 new.xls,” as downloaded from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/04_outlier.asp#TopOfPage, and modified to accommodate FY 2009 factors.

Step 3: Model the base payment and outlier amounts associated with the final MS-DRG where the HAC was excluded using the computations laid out in the CMS file “Outlier Example FY 2007 new.xls,” as downloaded from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/04_outlier.asp#TopOfPage and modified to accommodate FY 2009 factors.

Step 4: Compute MS-DRG base savings as the difference between the nonoutlier payments for the initial and final MS-DRGs. Compute outlier amounts as the difference in outlier amounts due under the initial and final reassigned MS-DRG. Compute net savings due to HAC reassignment as the sum of base savings plus outlier amounts.

Step 5: Adjust the model to incorporate short-stay transfer payment adjustments.

Step 6: Adjust the model to incorporate hospital-specific payments for qualifying rural providers receiving the hospital-specific payment rates.

It is important to mention that using the methods described above, the MS-DRG and outlier payments amounts that are modeled for the final assigned MS-DRG do not always match the DRG price and outlier amounts that appear in the MedPAR record. There are several reasons for this. Some discrepancies are caused by using single wage index, IME and DSH factors for the full period covered by the discharges, when in practice these payment factors can be adjusted for individual providers during the course of the fiscal year. In addition, RTI's approach disregards any Part A coinsurance amounts owed by individual beneficiaries with greater than sixty covered days in a spell of illness. Five percent of all HAC discharges showed at least some Part A coinsurance amount due from the beneficiary, although less than two percent of reassigned discharges (55 cases in the analysis file) showed Part A coinsurance amounts due. Any Part A coinsurance payments would reduce the actual savings incurred by the Medicare program.

There are also a number of less common special IPPS payment situations that are not factored into RTI's modeling. These could include new technology add-on payments, payments for blood clotting factors, reductions for replacement medical devices, adjustments to the capital rate for new providers, and adjustments to the capital rate for certain classes of providers who are subject to a minimum payment level relative to capital cost.

(2) Net Savings Estimate

Chart F below summarizes the estimated net savings of current HACs based on MedPAR claims from October 2008 through September 2009, based on the methodology described above. Column A shows the number of discharges where a MS-DRG reassignment for each HAC category occurred. For example, there were 12 discharges with an Air Embolism that resulted in an actual MS-DRG reassignment. Column B shows the total net savings caused by MS-DRG reassignments for each HAC category. Continuing with the example of Air Embolism, the chart shows that the 12 discharges with an MS-DRG reassignment resulted in a total net savings of $148,394. Column C shows the net savings per discharge for each HAC category. For the Air Embolism HAC category, the net savings per discharge is $12,366.

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As shown in Chart F above, the total net savings calculated for the 12-month period from October 2008 through September 2009 was roughly $18.78 million. The three HACs with the largest number of discharges resulting in MS-DRG reassignment, Falls and Trauma, Orthopedic PE/DVT, and Pressure Ulcer Stages III & IV, generated $17.17 million of net savings for the 12 month period. Estimated net savings for the 12-month period associated with the Falls and Trauma category were $8.09 million. Estimated net savings associated with Orthopedic PE/DVT for the 12-month period were $6.92 million. Estimated net savings for the 12-month period associated with Pressure Ulcer Stages III & IV were $2.16 million.

The mean net savings per discharge calculated for the 12-month period from October 2008 through September 2009 was roughly $5,522. The HAC categories of Air Embolism; SSI, Mediastinitis, Following Coronary Artery Bypass Graft (CABG); and SSI Following Certain Orthopedic Procedures had the highest net savings per discharge, but represented a small proportion of total net savings because the number of discharges that resulted in MS-DRG reassignment for these HACs was low. With the exception of Blood Incompatibility, where no savings occurred because no discharges resulted in MS-DRG reassignment, SSI Following Bariatric Surgery for Obesity and Catheter-Associated UTI had the lowest net savings per discharge.

We refer readers to the RTI detailed report available at the following Web site: http://www.rti.org/reports/cms/.

As mentioned previously, an extremely small number of cases in the 12-month period of FY 2009 analyzed by RTI had multiple HACs during the same stay. In reviewing our 9.3 million claims, RTI found 60 cases where two HACs were reported on the same admission as noted in section II.F.3. d. of this preamble. Of these 60 claims, 15 resulted in MS-DRG reassignment. Chart G below summarizes these cases. There were 15 cases that had two HACs not POA that resulted in an MS-DRG reassignment. Of these, 5 discharges involved Pressure Ulcer Stages III & IV and Falls and Trauma and 4 discharges involved Orthopedic PE/DVT and Falls and Trauma.

As we discuss in section II.F.1.b. of this preamble, implementation of this policy is part of an array of Medicare VBP tools that we are using to promote increased quality and efficiency of care. We again point out that a decrease over time in the number of discharges where these conditions are not POA is a desired consequence. We recognize that estimated net savings should likely decline as the number of such discharges decline. However, we believe that the sentinel effect resulting from CMS identifying these conditions is critical. (We refer readers to section IV.A. of this preamble for a discussion of the inclusion of the incidence of these conditions in the RHQDAPU program.) It is our intention to continue to monitor trends associated with the frequency of these HACs and the estimated net payment impact through RTI's program evaluation and possibly beyond.

h. Previously Considered Candidate HACs—RTI Analysis of Frequency of Discharges and POA Indicator Reporting

RTI evaluated the frequency of conditions previously considered, but not adopted as HACs in prior rulemaking, that were reported as secondary diagnoses (across all 9.3 million discharges) as well as the POA indicator assignments for these conditions. Chart H below indicates that the three previously considered candidate conditions most frequently reported as a secondary diagnosis were: (1) Clostridium Difficile-Associated Disease (CDAD), which demonstrated the highest frequency, with a total of 85,096 secondary diagnoses codes being reported for that condition, of which 28,844 reported a POA indicator of “N”; (2) Staphylococcus aureus Septicemia, with a total of 22,433 secondary diagnoses codes being reported for that condition, with 5,004 of those reporting a POA indicator of “N”; and (3) Iatrogenic Pneumothorax, with a total of 20,673 secondary diagnoses codes being reported for that condition, with 17,602 of those reporting a POA indicator of “N.” As these three conditions had the most significant impact for reporting a POA indicator of “N,” it is reasonable to believe that these same three conditions would have the greatest number of potential MS-DRG reassignments. The frequency of discharges for the previously considered HACs that could lead to potential changes in MS-DRG assignment is discussed in the next section. We take this opportunity to remind readers that because more than one previously considered HAC diagnosis code can be reported per discharge (on a single claim) that the frequency of these diagnosis codes may be more than the actual number of discharges with a previously considered candidate condition reported as a secondary diagnosis.

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

In summary, Chart I below demonstrates there were a total of 203,844 discharges with a previously considered candidate HAC reported as a secondary diagnosis. Of those, 57,902 discharges were reported with a POA indicator of “N” or “U.” The total number of discharges that could have resulted in MS-DRG reassignments is 3,527.

i. Current and Previously Considered Candidate HACs—RTI Report on Evidence-Based Guidelines

The RTI program evaluation includes an updated report that provides references for all evidence-based guidelines available for each of the selected and previously considered candidate HACs that provide recommendations for the prevention of the corresponding conditions. Guidelines were primarily identified using the AHRQ National Guidelines Clearing House (NGCH) and the CDC, along with relevant professional societies. Guidelines published in the United States were used, if available. In the absence of U.S. guidelines for a specific condition, international guidelines were included.

Evidence-based guidelines that included specific recommendations for the prevention of the condition were identified for each of the 10 selected conditions. In addition, evidence-based guidelines were also found for the previously considered candidate conditions.

Comment: Several commenters stated that CMS should not pay for HACs only when evidence-based guidelines indicate that the occurrence of an event can be reduced to zero, or near zero. The commenters stated that some patients, particularly high-risk, co-morbid individuals, may still develop conditions on the HAC list even though protocols have been strictly followed.

Response: We thank the commenters for this comment. The statute requires that CMS only choose conditions to be selected HACs if they could “reasonably” be prevented through the application of evidence-based guidelines. We noted in the FY 2008 IPPS final rule that we only selected those conditions where, if hospital personnel are engaging in good medical practice, the additional costs of the hospital-acquired condition will, in most cases, be avoided (72 FR 47201).

RTI prepared a final report to summarize its findings regarding evidence-based guidelines, which can be found on the Web site at: http://www.rti.org/reports/cms.

j. Final Policy Regarding Current HACs and Previously Considered Candidate HACs

We believe that the updated RTI analysis summarized above does not provide additional information that would require us to change our previous determinations regarding either current HACs (as described in section II.F.2. of this preamble) or previously considered candidate HACs in the FY 2008 IPPS final rule with comment period and FY 2009 IPPS final rule (72 FR 47200 through 47218 and 73 FR 48471 through 48491, respectively). Accordingly, in the FY 2011 IPPS/LTCH PPS proposed rule, we did not propose to add or remove categories of HACs, although we proposed to revise the Blood Incompatibility HAC category as discussed and finalized in section II.F.2. of this preamble. We also note that in section II.F.3.b. of this preamble, we discuss our current policy regarding the treatment of the “U” POA indicator. However, we continue to encourage public dialogue about refinements to the HAC list.

We refer readers to section II.F.6. of the FY 2008 IPPS final rule with comment period (72 FR 47202 through 47218) and to section II.F.7. of the FY 2009 IPPS final rule (73 FR 48474 through 48491) for detailed discussion supporting our determination regarding each of these conditions.

G. Changes to Specific MS-DRG Classifications

In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23898 through 23910), we invited public comment on each of the MS-DRG classification proposed changes described below, as well as our proposals to maintain certain existing MS-DRG classifications, which are also discussed below. In some cases, we proposed changes to the MS-DRG classifications based on our analysis of claims data. In other cases, we proposed to maintain the existing MS-DRG classification based on our analysis of claims data. Below, we also summarize the public comments that we received, if any, on our proposals, present our responses to these comments, and state our final policies.

1. Pre-Major Diagnostic Categories (MDCs)

a. Postsurgical Hypoinsulinemia (MS-DRG 008 (Simultaneous Pancreas/Kidney Transplant))

Diabetes mellitus is a pancreatic disorder in which the pancreas fails to produce sufficient insulin, or in which the body cannot process insulin. Many patients with diabetes will eventually experience complications of the disease, including poor kidney function. When these patients show signs of advanced kidney disease, they are usually referred for transplant evaluation. Currently, many doctors recommend that individuals with diabetes being evaluated for kidney transplantation also be considered for pancreas transplantation. A successful pancreas transplant may prevent, stop, or reverse the complications of diabetes.

Occasionally, secondary diabetes may be surgically induced following a pancreas transplant. This condition would be identified by using ICD-9-CM diagnosis code 251.3 (Postsurgical hypoinsulinemia). However, currently the list of principal diagnosis codes assigned to surgical MS-DRG 008 (Simultaneous Pancreas/Kidney Transplant) does not include diagnosis code 251.3. Therefore, when diagnosis code 251.3 is assigned to a case as a principal diagnosis, the case is not assigned to MS-DRG 008. Instead, these cases are grouped to MS-DRG 652 (Kidney Transplant) under MDC 11 (Diseases and Disorders of the Kidney and Urinary Tract). The use of diagnosis code 251.3 as a principal diagnosis without a secondary diagnosis of diabetes mellitus and with a procedure code for pancreas transplant only during that admission results in assignment of the case to MS-DRG 628, 629, or 630 (Other Endocrine, Nutritional & Metabolic Operating Room Procedures with MCC, with CC, and without CC/MCC, respectively). These MS-DRGs are assigned to MDC 10 (Endocrine, Nutritional and Metabolic Diseases and Disorders).

As we stated in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23898), we believe that the exclusion of diagnosis code 251.3 from the list of principal diagnosis codes assigned to surgical MS-DRG 008 is an error of omission. Therefore, in that proposed rule, we proposed to add diagnosis code 251.3 to the list of principal or secondary diagnosis codes assigned to MS-DRG 008. As a conforming change, we also proposed to add diagnosis code 251.3 to the list of principal or secondary diagnosis codes assigned to MS-DRG 010 (Pancreas Transplant).

Comment: Commenters concurred with CMS' proposal to add diagnosis code 251.3 to the list of principal or secondary diagnosis codes assigned to MS-DRG 008. In addition, the commenters concurred with the proposal to add diagnosis code 251.3 to the list of principal or secondary diagnosis codes assigned to MS-DRG 010.

Response: We appreciate the support for our proposals.

We are adopting as final without modification our proposals to add diagnosis code 251.3 to the list of acceptable principal diagnoses in MS-DRG 008 and, as a conforming change, to add diagnosis code 251.3 to the list of acceptable principal or secondary diagnoses in MS-DRG 010.

b. Bone Marrow Transplants

As we discussed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23898), we received two requests to review whether cost differences between an autologous bone marrow transplant (where the patient's own bone marrow or stem cells are used) and an allogeneic bone marrow transplant (where bone marrow or stem cells come from either a related or unrelated donor) necessitate the creation of separate MS-DRGs to more appropriately account for the clinical nature of the services being rendered as well as the costs. One of the requestors stated that there are dramatic differences in the costs between the two types of transplants where allogeneic cases are significantly more costly.

Bone marrow transplantation and peripheral blood stem cell transplantation are used in the treatment of certain cancers and bone marrow diseases. These procedures restore stem cells that have been destroyed by high doses of chemotherapy and/or radiation treatment. Currently, all bone marrow transplants are assigned to MS-DRG 009 (Bone Marrow Transplant).

For the FY 2011 IPPS/LTCH PPS proposed rule, we performed an analysis of the FY 2009 MedPAR data and found 1,664 total cases assigned to MS-DRG 009 with average costs of approximately $43,877 and an average length of stay of approximately 21 days. Of these MS-DRG 009 cases, 395 of them were allogeneic bone marrow transplant cases reported with one of the following ICD-9-CM procedure codes: 41.02 (Allogeneic bone marrow transplant with purging); 41.03 (Allogeneic bone marrow transplant without purging); 41.05 (Allogeneic hematopoietic stem cell transplant without purging); 41.06 (Cord blood stem cell transplant); or 41.08 (Allogeneic hematopoietic stem cell transplant). The average costs of these allogeneic cases, approximately $64,845, were higher than the overall average costs of all cases in MS-DRG 009, approximately $43,877. The average length of stay for the allogeneic cases, approximately 28 days, was slightly higher than the average length of stay for all cases assigned to MS-DRG 009, approximately 21 days.

We found 1,269 autologous bone marrow transplant cases reported with one of the following ICD-9-CM procedure codes: 41.00 (Bone marrow transplant, not otherwise specified); 41.01 (Autologous bone marrow transplant without purging); 41.04 (Autologous hematopoietic stem cell transplant without purging); 41.07 (Autologous hematopoietic stem cell transplant with purging); or 41.09 (Autologous bone marrow transplant with purging). The average costs of these cases, approximately $37,350, was less than the overall average costs of all cases in MS-DRG 009 and the average costs associated with the allogeneic bone marrow transplant cases. The average length of stay, of approximately 19 days, was less than the average lengths of stay for all the cases assigned to MS-DRG 009 and for the allogeneic bone marrow transplant cases. We included in our analysis of the autologous bone marrow transplants cases, 5 cases that were reported with procedure code 41.00 (Bone marrow transplant, not otherwise specified). These 5 cases had average costs of approximately $41,084 and an average length of stay of approximately 12 days, which was similar to the other autologous bone marrow transplant cases.

The table below illustrates our findings:

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

As a result of our analysis, the data support the requestor's suggestion that there are cost differences associated with the autologous bone marrow transplants and allogeneic bone marrow transplants and warrants a separate MS-DRG for these procedures. Therefore, in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23898 and 23899), we proposed to delete MS-DRG 009 and create two new MS-DRGs: MS-DRG 014 (Allogeneic Bone Marrow Transplant) and MS-DRG 015 (Autologous Bone Marrow Transplant). We proposed that proposed MS-DRG 014 would include cases reported with one of the following ICD-9-CM procedure codes:

  • 41.02, Allogeneic bone marrow transplant with purging
  • 41.03, Allogeneic bone marrow transplant without purging
  • 41.05, Allogeneic hematopoietic stem cell transplant without purging
  • 41.06, Cord blood stem cell transplant
  • 41.08, Allogeneic hematopoietic stem cell transplant

We proposed that proposed MS-DRG 015 would include cases reported with one of the following ICD-9-CM procedure codes:

  • 41.00 (Bone marrow transplant, not otherwise specified)
  • 41.01 (Autologous bone marrow transplant without purging)
  • 41.04 (Autologous hematopoietic stem cell transplant without purging)
  • 41.07 (Autologous hematopoietic stem cell transplant with purging)
  • 41.09 (Autologous bone marrow transplant with purging)

Comment: Several commenters supported our proposed changes and stated that these proposed MS-DRGs more precisely recognize the substantial differences in clinical complexity and costs associated with allogeneic and autologous bone marrow transplants, allowing for more appropriate hospital reimbursement.

Response: We appreciate the support of the commenters.

Comment: Two commenters who supported the proposed reclassification of the proposed bone marrow transplant MS-DRGs requested further refinement to account for severity of illness. The commenters suggested a three-way split for each proposed MS-DRG: With MCC, with CC, and without MCC or CC. A few commenters stated that the clinical and cost differences between unrelated and related allogeneic transplants necessitate further reclassification of proposed MS-DRG 014. However, one of the commenters pointed out that there were no ICD-9-CM codes to classify allogeneic transplant cases by cell source.

Response: As we outlined in our FY 2008 IPPS/LTCH PPS final rule with comment period published in the Federal Register on August 22, 2007 (72 FR 47169), in designating an MS-DRG as one that would be subdivided into subgroups based on the presence of a CC or an MCC, we developed a set of criteria to facilitate our decision-making process. In order to warrant creation of a CC or an MCC subgroup within a base MS-DRG, the subgroup must meet all of the following five criteria:

  • A reduction in variance of charges of at least 3 percent.
  • At least 5 percent of the patients in the MS-DRG fall within the CC or MCC subgroup.
  • At least 500 cases are in the CC or MCC subgroup.
  • There is at least a 20-percent difference in average charges between subgroups.
  • There is a $4,000 difference in average charges between subgroups.

We did not further subdivide proposed MS-DRG 014 and MS-DRG 015 into severity levels as the commenters suggested because the proposed MS-DRGs did not meet our criteria for subdivision. With regard to the commenter who stated that there were no ICD-9-CM codes to classify allogeneic transplant cases by cell source, we note that, contrary to the commenter's statement about the lack of being able to report the donor source, there are three ICD-9-CM procedure codes that identify the donor source of the transplant: 00.91 (Transplant from live related donor); 00.92 (Transplant from live non-related donor); and 00.93 (Transplant from cadaver). We refer the commenter to section II.G.7. of this preamble for further information if the commenter is interested in submitting suggestions on coding issues.

After consideration of the public comments we received, we are finalizing our proposal to delete MS-DRG 009, and to create two new MS-DRGs: MS-DRG 014 (Allogeneic Bone Marrow Transplant) and MS-DRG 015 (Autologous Bone Marrow Transplant). New MS-DRG 014 will include cases reported with one of the following ICD-9-CM procedure codes: 41.02; 41.03; 41.05; 41.06; or 41.08.

New MS-DRG 015 will include cases reported with one of the following ICD-9-CM procedure codes: 41.00; 41.01; 41.04; 41.07; or 41.09.

2. MDC 1 (Nervous System): Administration of Tissue Plasminogen Activator (tPA) (rtPA)

During the comment period for the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we received a public comment that had not been the subject of a proposal in that proposed rule. The commenter had requested that CMS conduct an analysis of diagnosis code V45.88 (Status post administration of tPA (rtPA) in a different facility within the last 24 hours prior to admission to current facility) under MDC 1 (Diseases and Disorders of the Nervous System). Diagnosis code V45.88 was created for use beginning October 1, 2008, to identify patients who are given tissue plasminogen activator (tPA) at one institution, then transferred and admitted to a comprehensive stroke center for further care. This situation is referred to as the “drip-and-ship” issue that was discussed at detail in the FY 2009 IPPS final rule (73 FR 48493).

According to the commenter, the concern at the receiving facilities is that the costs associated with [caring for] more complex stroke patients that receive tPA are much higher than the cost of the drug, presumably because stroke patients initially needing tPA have more complicated strokes and outcomes. However, because these patients do not receive the tPA at the second or transfer hospital, the receiving hospital will not be assigned to one of the higher weighted tPA stroke MS-DRGs when it admits these patients whose care requires the use of intensive resources. The MS-DRGs that currently include codes for the use of tPA are: 061 (Acute Ischemic Stroke with Use of Thrombolytic Agent with MCC); 062 (Acute Ischemic Stroke with Use of Thrombolytic Agent with CC); and 063 (Acute Ischemic Stroke with Use of Thrombolytic Agent without CC/MCC). These MS-DRGs have higher relative weights in the hierarchy than the next six MS-DRGs relating to brain injury. The commenter requested an analysis of the use of diagnosis code V45.88 reflected in the MedPAR data for FY 2009 and FY 2010. The commenter believed that the data would show that the use of this code could potentially result in a new MS-DRG or a new set of MS-DRGs in FY 2011.

In addressing this public comment in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43798), we noted that the comment was out of scope for the FY 2010 proposed rule and reiterated that the deadline for requesting data review and potential MS-DRG changes had been the previous December. In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23899), we indicated that we were then able to address the commenter's concern because we had been able to conduct an analysis of MedPAR claims data for this diagnosis code for that proposed rule.

For the FY 2011 proposed rule, we undertook an analysis of MedPAR claims data for FY 2009. Our analysis reflected the data study specifically asked for by the requestor, that is, a review of the analysis of the presence or absence of diagnosis code V45.88. For our analysis in the proposed rule, we did not include claims for patient cases assigned to MS-DRGs 061, 062, or 063. Patients whose cases were assigned to these MS-DRGs would have been given the tPA at the initial hospital, had they been admitted there, with assignment of procedure code 99.10 (Injection or infusion of thrombolytic agent), prior to their transfer to a comprehensive stroke center. The tPA should not have been given at the receiving hospital if it had already been administered at the transferring hospital; therefore, inclusion of procedure code 99.10 on the receiving hospital's claims would constitute erroneous coding. Likewise, we did not include MS-DRGs 067 and 068 (Nonspecific CVA & Precerebral Occlusion without Infarction with MCC, and without MCC, respectively), or MS-DRG 069 (Transient Ischemia). We believe that claims assigned to MS-DRGs 067, 068, and 069 were unlikely to contain cases in which tPA had been administered.

Our data analysis included MS-DRGs 064, 065, and 066 (Intracranial Hemorrhage or Cerebral Infarction with MCC, with CC, and without CC/MCC, respectively) because claims involving diagnosis code V45.88 would be properly reported in the data for these MS-DRGs for FY 2009. This analysis can be viewed in the FY 2011 IPPS/LTCH PPS proposed rule published in the Federal Register on May 4, 2010 (75 FR 23899 through 23900). Based on our review of the data for all cases in MS-DRGs 064, 064, and 066, compared to the subset of cases containing the V45.88 secondary diagnosis code, we concluded that the movement of cases with diagnosis code V45.88 as a secondary diagnosis from MS-DRGs 064, 065, and 066 into MS-DRGs 061, 062, and 063 was not warranted.

We determined that the differences in the average lengths of stay and the average costs were too small to warrant an assignment to the higher weighted MS-DRGs. Likewise, neither the lengths of stay nor the average costs were deemed substantial enough to justify the creation of an additional MS-DRG for transferred tPA cases, or to create separate MS-DRGs that would mirror the MCC, CC or without CC/MCC severity levels.

Therefore, for FY 2011, we did not propose any change to MS-DRGs 061, 062, 063, 064, 065, or 066, or any change involving the assignment of diagnosis code V45.88.

Comment: One commenter agreed with CMS' proposal to not make any changes to this group of MS-DRGs. The commenter also suggested revisiting this topic and reviewing the data after CMS begins capturing 25 diagnosis codes and 25 procedure codes in future claims data. Another commenter suggested that diagnosis code V45.88 may be underreported, or, even if reported, may appear in a position [on the claim] that is lower than the nine diagnosis codes currently processed by Medicare.

Response: The HIPAA ASC X12 Technical Reports Type 3, Version 005010 (Version 5010) standards system update is discussed at length elsewhere in this preamble. Currently, CMS' claims processing system recognizes up to nine diagnosis codes and up to six procedure codes for MS-DRG determination. The ability to process up to 16 additional diagnosis codes and up to 19 additional procedure codes will begin on January 1, 2011, according to the Version 5010 update. We will be interested to see the difference in our MedPAR data that results from the additional diagnosis and procedure codes, and we will continue to follow the tPA, “drip-and-ship,” and diagnosis code V45.88 topic in our annual analysis.

Comment: One commenter requested that CMS continue to monitor the costs and lengths of stays for these patients identified by diagnosis code V45.88 in order to determine whether, with improved coding compliance and accurate cost reporting, there will be any change to the initial findings such that MS-DRG assignments for the care of these patients need to be changed.

Response: We review MS-DRG assignments annually and will continue to monitor this category of patients in the future.

Comment: One commenter believed that the CMS data reported in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23899 through 23900) reflects that the V45.88 diagnosis code is being underused and that the numbers do not truly represent the much more common occurrence of stroke centers receiving stroke patients who already had tPA administered. With this underuse in mind, the commenter requested that CMS issue a transmittal or MLN Matters article that would inform physicians and coders alike about the existence of the code and simultaneously educate them on the proper use of the code.

Response: While CMS is responsible for both changes to the ICD-9-CM procedure coding system through the ICD-9-CM Coordination and Maintenance Committee and the incorporation of the resulting diagnostic and procedure coding changes in CMS' initiatives, we do not provide coding advice. CMS looks to our partners in the industry to fulfill this responsibility, specifically through the AHA in their publication Coding Clinic for ICD-9-CM and through the AHIMA in their coding training programs.

In addition, we suggest that this commenter encourage its societies to educate their members through their newsletter or through coding and documentation presentations at society meetings.

Comment: One commenter was concerned that the data analysis described above and displayed in the proposed rule did not properly compare certain patient populations. The commenter suggested that patients with ICD-9-CM codes associated with ischemic stroke that have an accompanying V-code be compared to those ischemic stroke patients with the ICD-9-CM codes who were not treated with tPA. The commenter suggested limiting the MS-DRGs to 064, 065, and 066, as well as 067 and 068, and further noted that the V-code should only be used for ischemic stroke patients who have received tPA at another hospital. The commenter believed that ischemic stroke patients who have not received tPA at another hospital should not be included in the V-code count. The commenter also recommended that cases in which hemorrhage is the cause of the stroke should not be included with cases of ischemic stroke since costs associated with these diseases are often different from each other. The commenter indicated that a more refined analysis of the data would show that these cases should be split into separate MS-DRGs, which would allow the cost differences to become apparent.

Response: With regard to use of the V-code for ischemic stroke patients who have received tPA at another hospital, we point out that the correct use of V45.88 was created for that category of patients. Correct coding practice as well as the code title itself of V45.88 (Status post administration of tPA (rtPA) in a different facility within the last 24 hours prior to admission to current facility) precludes inclusion of this code by the sending hospital.

With regard to the comment that ischemic stroke patients who have not received tPA at another hospital should not be included in the V-code count, we point out that these patients had not been included in the analysis published in the proposed rule; neither were they included in the analysis presented in this final rule. They would not appear in the data as having received tPA at another facility. Instead, if they had received tPA at the second or receiving hospital, that hospital would have coded those cases with ICD-9-CM procedure code 99.10 (Injection or infusion of thrombolytic agent), and the cases would have been assigned to MS-DRGs 061, 062, and 063 (Acute Ischemic Stroke with use of Thrombolytic Agent with MCC, with CC, or without CC/MCC, respectively).

In our original analysis for the proposed rule, we believe that we did address all of the commenter's concerns. However, for this final rule, in response to the commenter's request, we have arrayed the data from the original analysis in the following table in a manner that is divided into more categories. We also have included MS-DRGs 067 and 068 in the comparison as well, per the commenter's request.

BILLING CODE 4120-01-P

BILLING CODE 4120-01-C

The analysis of MS-DRGs 067 and 068 above does not include a breakdown for cases of hemorrhage. That is because the principal diagnoses contained in these two MS-DRGs describe occlusion without infarct, by arterial site, except for diagnosis code 436 (Acute but ill-defined, cerebrovascular disease). The commenter believes diagnosis code 436 is often interpreted to be a “stroke, not otherwise specified” code and has been used to describe stroke events without a clear etiology, and wanted the analysis included for that reason.

When CMS created the MS-DRGs for use beginning October 1, 2007 (FY 2008), our purpose was, and remains, to accurately stratify groups of Medicare patients with varying levels of severity. Two of our major goals were to create DRGs that would more accurately reflect the severity of the cases assigned to them and to create groups that would have sufficient volume so that meaningful and stable payment weights could be developed. In designating an MS-DRG as one that could be subdivided into subgroups based on the presence of a CC or MCC, we developed a set of five criteria to facilitate our decision making process. The subgroup must meet all of the five criteria in order for division into CC or MCC splits to be considered. The entire discussion surrounding this process can be found in the FY 2008 IPPS/LTCH PPS final rule with comment period (72 FR 47169).

Even with additional review of the data, we are unable to justify either moving the “drip-and-ship” cases to higher weighted MS-DRGs or to consider creation of unique MS-DRGs for these cases. There is a paucity of data to substantiate such a change, whether due to underreporting of diagnosis code V45.88, or whether the tPA administered in another hospital was not documented in the receiving hospital's records, or whether the code was reported to CMS but was further down the list than the nine diagnosis codes considered for MS-DRG assignment. The differences in the average lengths of stay and the average costs represented in the above table are too small to warrant an assignment to the higher weighted MS-DRGs, and the differences in the length of stay and costs are not substantial enough to justify the creation of additional MS-DRGs. Therefore, for FY 2011, we are not making any changes to MS-DRGs 061, 062, 063, 064, 065, 066, 067, and 068; nor are we making changes to the MS-DRG assignment of diagnosis code V45.88.

We will continue to monitor these MS-DRGs and diagnosis code V45.88 in upcoming annual reviews of the IPPS.

3. MDC 5 (Diseases and Disorders of the Circulatory System): Intraoperative Fluorescence Vascular Angiography (IFVA) and X-Ray Coronary Angiography in Coronary Artery Bypass Graft Surgery

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43785 through 43787), we discussed a request we received to reassign cases reporting the use of intraoperative fluorescence vascular angiography (IFVA) with coronary artery bypass graft (CABG) procedures from MS-DRGs 235 and 236 (Coronary Bypass without Cardiac Catheterization with and without MCC, respectively) to MS-DRG 233 (Coronary Bypass with Cardiac Catheterization with MCC) and MS-DRG 234 (Coronary Bypass with Cardiac Catheterization without MCC). Effective October 1, 2007, procedure code 88.59 (Intraoperative fluorescence vascular angiography (IFVA)) was established to describe this technology.

In addition, we also discussed receiving related requests (74 FR 43798 through 43799) that were outside the scope of issues addressed for MDC 5 in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule. There were three components to these requests. The first component involved the creation of new MS-DRGs. One request was to create four new MS-DRGs that would differentiate the utilization of resources between intraoperative angiography and IFVA when utilized with CABG. A second request was to create only one new MS-DRG to separately identify the use of intraoperative angiography, by any method, in CABG surgery. The second component involved reviewing the ICD-9-CM procedure codes. Currently, the ICD-9-CM procedure codes do not distinguish between preoperative, intraoperative, and postoperative angiography. Procedure code 88.59 (Intraoperative fluorescence vascular angiography (IFVA)) is one intraoperative angiography technique that allows visualization of the coronary vasculature. The third component involved reassigning cases with procedure code 88.59 to the “Other Cardiovascular MS-DRGs”: MS-DRGs 228, 229, and 230 (Other Cardiothoracic Procedures with MCC, CC, and without CC/MCC, respectively). We stated our intent to consider these requests during the FY 2011 rulemaking process.

After publication of the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we were contacted by one of the requestors, the manufacturer of the IFVA technology. We met with the requestor in mid-November 2009 to discuss evaluating the data for IFVA (procedure code 88.59) again in consideration of a proposal to create new MS-DRGs and to discuss a request for a new procedure code(s).

IFVA technology consists of a mobile device imaging system with software. It is used to test cardiac graft patency and technical adequacy at the time of coronary artery bypass grafting (CABG). While this system does not involve fluoroscopy or cardiac catheterization, it has been suggested that it yields results that are similar to those achieved with selective coronary arteriography and cardiac catheterization. Intraoperative coronary angiography provides information about the quality of the anastomosis, blood flow through the graft, distal perfusion, and durability. For additional information regarding IFVA technology, we refer readers to the September 28-29, 2006 ICD-9-CM Coordination and Maintenance Committee meeting handout at the following Web site: http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp#TopOfPage.

a. New MS-DRGs for Intraoperative Fluorescence Vascular Angiography (IFVA) With CABG

As stated in the FY 2010 IPPS/LTCH PPS proposed rule (75 FR 23900), the manufacturer requested that we create four new MS-DRGs for CABG to distinguish CABG surgeries performed with IFVA and those performed without IFVA. According to the requestor, these four new MS-DRGs would correspond to the existing MS-DRG for CABG but would also include intraoperative angiography. The requestor proposed the following four new MS-DRGs:

MS-DRG XXX (Coronary Bypass with Cardiac Catheterization with MCC with Intraoperative Angiography).

MS-DRG XXX (Coronary Bypass with Cardiac Catheterization without MCC with Intraoperative Angiography).

MS-DRG XXX (Coronary Bypass without Cardiac Catheterization with MCC with Intraoperative Angiography).

MS-DRG XXX (Coronary Bypass without Cardiac Catheterization without MCC with Intraoperative Angiography).

For the FY 2011 proposed rule, using claims data from the FY 2009 MedPAR file, we examined cases identified by procedure code 88.59 in MS-DRGs 233, 234, 235, and 236. As shown in the table below, for both MS-DRGs 235 and 236, the cases utilizing IFVA technology (code 88.59) have a shorter length of stay and lower average costs compared to all cases in MS-DRGs 235 and 236. There were a total of 10,281 cases in MS-DRG 235 with an average length of stay of 10.61 days and average costs of $34,639. There were 114 cases identified by procedure code 88.59 with an average length of stay of 10.38 days with average costs of $28,238. In MS-DRG 236, there were a total of 22,410 cases with an average length of stay of 6.37 days and average costs of $23,402; and there were 186 cases identified by procedure code 88.59 with an average length of stay of 6.54 days and average costs of $19,305. Similar to the data reported last year, the data for FY 2009 clearly demonstrate that the IFVA cases (identified by procedure code 88.59) are assigned appropriately to MS-DRGs 235 and 236. We also examined cases identified by procedure code 88.59 in MS-DRGs 233 and 234. Likewise, in MS-DRGs 233 and 234 cases identified by code 88.59 reflect shorter lengths of stay and lower average costs compared to the remainder of the cases in those MS-DRGs; and there were a total of 16,475 cases in MS-DRG 233 with an average length of stay of 13.47 days and average costs of $42,662. There were 58 cases identified by procedure code 88.59 with an average length of stay of 12.12 days and average costs of $35,940. In MS-DRG 234, there were a total of 23,478 cases with an average length of stay of 8.61 days and average costs of $29,615; and there were 67 cases identified by procedure code 88.59 with an average length of stay of 8.85 days and average costs of $25,379. The data clearly demonstrate the IFVA cases (identified by procedure code 88.59) are appropriately assigned to MS-DRGs 233 and 234.

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

We stated in the proposed rule that if the cases identified by procedure code 88.59 were proposed to be reassigned from MS-DRGs 235 and 236 to MS-DRGs 233 and 234, they would be significantly overpaid. In addition, we indicated that because the cases in MS-DRGs 235 and 236 did not actually have a cardiac catheterization performed, a proposal to reassign cases identified by procedure code 88.59 would result in lowering the relative weights of MS-DRGs 233 and 234 where a cardiac catheterization is truly performed.

In summary, in the proposed rule, we indicated that the data do not support moving IFVA cases (procedure code 88.59) from MS-DRGs 235 and 236 to MS-DRGs 233 and 234. Therefore, we did not propose to make any MS-DRG modifications for cases reporting procedure code 88.59 for FY 2011.

Comment: Several commenters agreed with CMS' proposal to not make any MS-DRG modifications in FY 2011 for cases reporting procedure code 88.59. One commenter, the manufacturer, reported that they worked with a consulting group to conduct an analysis on a subset of MedPAR claims data that reported procedure code 88.59. According to the data presented, the consultant's methodology for the analysis involved examining only cases from the facilities that reported procedure code 88.59, in any procedure code sequencing position, in each one of the four MS-DRGs previously discussed (233, 234, 235, or 236). The manufacturer asserted that results of the consultant's analysis varied significantly from the CMS data and that their data supported reassignment of cases reporting procedure code 88.59 from MS-DRGs 235 and 236 to MS-DRGs 233 and 234.

Response: We acknowledge the commenters who supported our proposal to not make any MS-DRG modifications for cases reporting procedure code 88.59 for FY 2011. In response to the manufacturer who worked with the consulting group, we point out that the process of evaluating MS-DRG reclassifications is not based on subsets of facility-specific data, but rather, as stated earlier in section II.B.2 of the preamble to this final rule, in deciding whether to make modifications to the MS-DRGs we consider whether the resource consumption and clinical characteristics of the patients with a given set of conditions are significantly different than the remaining patients in the MS-DRG. In addition, in evaluating resource costs, we consider both the absolute and percentage differences in average costs between the cases we select for review and the remainder of cases in the MS-DRG. As the manufacturer noted, the consultant's analysis submitted for consideration was based on a subset of facility-specific claims reporting code 88.59. Therefore, it is not comparable to the analysis conducted by CMS. While the consultant's analysis included cases that reported procedure code 88.59, it did not reflect the differences in comparison to MedPAR claims data, as the CMS analysis did, that are representative of the remaining Medicare patients grouped in the above mentioned relevant MS-DRGs.

In addition, the manufacturer also submitted the consultant's summary of observations from the analysis which stated two key points:

(1) The number of discharges they observed in the MedPAR data was slightly higher than the volumes reported in the proposed rule. They believed this may be the result of slightly different data files between what they examined and what CMS used. The volume differences are comparatively small.

(2) They were unable to account for differences in their cost calculation for cases reporting procedure code 88.59 and the CMS published results. Their hypothesis was that, because these represent a small number of cases, cost report differences may be playing a significant role in the calculation.

Currently, CMS' systems only process up to six procedure codes and, as the commenter stated, the consultant's methodology considered procedure code 88.59 in any sequencing position. Therefore, it is unclear how many cases may have been reported after the sixth position. Effective January 1, 2011, the HIPAA ASC X12 Technical Reports Type 3, Version 005010 (Version 5010) standards system update will become effective. The version 5010 format will allow facilities to report up to 25 diagnoses and 25 procedure codes, and CMS' systems will begin to process all 25 diagnosis and procedure codes. (Further detail regarding this issue is discussed in section II.G.11. of this final rule.).

Lastly, the manufacturer concluded that “the cost data continue to be unreliable due to the sample size and inherent limitations of cost reporting.” We reiterate that the analysis conducted by the manufacturer and consultant were not comparable to the analysis conducted by CMS that examined cases reporting procedure code 88.59 against all cases in the specified MS-DRGs versus the consultant's analysis that only provided data on those facilities that are using the technology and their associated costs. Therefore, we are finalizing our proposal to not reassign cases reporting procedure code 88.59 for FY 2011.

b. New MS-DRG for Intraoperative Angiography, by Any Method, With CABG

We also received a request to create a single MS-DRG for any type of intraoperative angiography utilized in CABG surgery. The requestor suggested the following title for the proposed new MS-DRG: XXX Coronary Bypass with Intraoperative Angiography, by any Method.

As we indicated in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23901), currently, the only ICD-9-CM procedure code that identifies an intraoperative angiography is procedure code 88.59 (Intraoperative fluorescence vascular angiography), as described in the previous section. Due to the structure of the ICD-9-CM procedure classification system, it is not possible to distinguish when other types of angiography are performed intraoperatively. Therefore, we indicated that we were unable to evaluate any data, other than that for procedure code 88.59, as shown in the tables above. We did not propose to create a new MS-DRG in FY 2011 for coronary bypass with intraoperative angiography, by any method.

Comment: Several commenters agreed with CMS' proposal to not create a new MS-DRG in FY 2011 for coronary bypass with intraoperative angiography, by any method. Another commenter, the manufacturer, acknowledged the limitations of the ICD-9-CM coding structure and the ability to currently only identify one method of intraoperative angiography. The manufacturer stated that the creation of a new ICD-9-CM procedure code to identify intraoperative angiography by conventional X-ray angiography would allow CMS to obtain accurate data on intraoperative or completion angiography by either method.

Response: We appreciate the commenter's support of our proposal to not create a new MS-DRG in FY 2011 for coronary bypass with intraoperative angiography, by any method. We also acknowledge the manufacturer's concern regarding the inability to identify intraoperative angiography by conventional X-ray angiography. As discussed previously (75 FR 23901) and in further detail below, proposals for creating a new procedure code must be submitted to the ICD-9-CM Coordination and Maintenance Committee for consideration.

c. New Procedure Codes

In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23901), we indicated that, in response to our invitation to submit public comments regarding the proposal not to make any MS-DRG modifications for cases reporting procedure code 88.59 in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24106-24107), one requestor presented another option involving the creation of new ICD-9-CM procedure codes. According to the requestor, the purpose of these new codes would be to separately identify the two technologies used to perform intraoperative coronary angiography in CABG surgery: X-ray coronary angiography with cardiac catheterization and fluoroscopy versus intraoperative fluorescence coronary angiography (IFVA). The requestor stated that due to the structure of the current codes and MS-DRGs for CABG, it is difficult to identify when x-ray angiography is performed.

X-ray angiography is commonly performed as a separate procedure in a catheterization laboratory. Currently, there are no procedure codes to distinguish if this angiography was performed preoperatively, intraoperatively, and/or postoperatively. We informed the requestor that they could submit a proposal for creating a new procedure code(s) to the ICD-9-CM Coordination and Maintenance Committee for its consideration. Therefore, in the FY 2011 proposed rule, we indicated that this topic would be further evaluated through the ICD-9-CM Coordination and Maintenance Committee meeting process.

Comment: Similar to comments made at the March 9-10, 2010 ICD-9-CM Coordination and Maintenance Committee meeting, one commenter, the manufacturer, stated that the resource utilization costs for a diagnostic cardiac catheterization, which is routinely performed in a catheterization laboratory may differ from those costs incurred for performing intraoperative completion angiography concomitant with a coronary artery bypass graft procedure in a surgical suite. However, the manufacturer noted that, regardless of the technology (IFVA or X-ray angiography), performance of intraoperative completion angiography in a surgical suite involves similar resources. The commenter further noted that an intraoperative completion angiography performed with X-ray angiography cannot be separately identified from a diagnostic cardiac catheterization due to the coding structure. According to the commenter, this scenario creates a payment incentive for physicians to select X-ray technology to perform a completion angiography, despite the known risks to patients associated with exposure to radiation because the code used to report X-ray angiography (cardiac catheterization) is recognized in the MS-DRG assignment. The commenter urged CMS to remove this incentive by ensuring that procedure code 88.59 will impact MS-DRG assignment in the same way that the code for X-ray angiography does.

Response: As stated above, requests for updates and changes to the procedure coding system are discussed through the ICD-9-CM Coordination and Maintenance Committee meeting process. At the March 9-10, 2010 meeting, a proposal was submitted by the manufacturer and presented. Details of the initial proposal regarding intraoperative angiography with coronary artery bypass graft discussed at the March 2010 ICD-9-CM Coordination and Maintenance Committee meeting along with the summary report of the meeting can be located at the following CMS Web site: http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp.

Currently, there is not a mechanism to analyze if both technologies utilize similar resources in the surgical suite as the manufacturer asserts since, as stated several times, the coding structure does not currently distinguish between intraoperative X-ray angiography and IFVA. Despite the inability to currently differentiate between the two technologies in an intraoperative setting, we disagree that physicians have a payment incentive to utilize X-ray angiography over IFVA to perform a completion angiography. The current MS-DRG assignments are based on claims data for the purposes of maintaining clinically coherence, accounting for patient's severity of illness, ensuring similar utilization of resources and complexity of services and are not formulated to provide incentives as the commenter indicated. We believe that physicians provide the most clinically appropriate, quality of care and make decisions with respect to the individual patient's needs and not subject patients to inherent risk.

In response to the manufacturer's request urging CMS to ensure that IFVA impacts the MS-DRG assignment in the same way as a cardiac catheterization currently does, as stated in the FY 2010 IPPS/LTCH PPS final rule (74 FR 43787), it would be inappropriate to reassign cases reporting the use of IFVA to higher weighted MS-DRGs merely as an incentive for hospitals to invest in the IFVA technology.

As stated earlier, at the March 2010 meeting, an initial proposal was presented and, as a result, one aspect of the two-part proposal was finalized that involves an update to an existing code and the creation of a new code for IFVA. Effective October 1, 2010 (FY 2011), procedure code 88.59 has been revised to uniquely identify intraoperative coronary fluorescence vascular angiography and new code 17.71 has been created to identify noncoronary intraoperative fluorescence vascular angiography. We do not agree with the manufacturer's comment that these new code changes for FY 2011 will facilitates the MS-DRG case reassignment that the commenter proposed for procedure code 88.59 and believed was appropriate for policy. CMS does believe additional data are needed to fully evaluate the volume of cases and resources involved to perform intraoperative completion angiography using X-ray technology versus IFVA. Therefore, CMS is planning to discuss other options at a future ICD-9-CM Coordination and Maintenance Committee meeting.

In summary, we are finalizing our proposal not to make any changes to MS-DRGs 233, 234, 235 or 236 for cases reporting the use of procedure code 88.59.

d. MS-DRG Reassignment of Intraoperative Fluorescence Vascular Angiography (IFVA)

In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23901 and 23902), we indicated that we had received a request suggesting that we reassign procedure code 88.59 (Intraoperative Fluorescence Vascular Angiography), to the “Other Cardiovascular MS-DRGs”: MS-DRGs 228, 229, and 230 (Other Cardiothoracic Procedures with MCC, CC, and without CC/MCC, respectively). The requestor noted that these MS-DRGs have three levels of severity and that other procedures assigned to these MS-DRGs (for example, transmyocardial revascularization) are frequently performed at the same time as a CABG. The requestor believed that reassigning cases that report IFVA (procedure code 88.59) to these MS-DRGs would not result in a significant overpayment to hospitals.

In the FY 2011 proposed rule, we pointed out that, in the surgical hierarchy, MS-DRGs 228, 229, and 230 rank higher than MS-DRGs 233, 234, 235, and 236, which were evaluated in the above tables for CABG procedures performed with IFVA (procedure code 88.59). The surgical hierarchy reflects the relative resource requirements of various surgical procedures. For example, if a CABG surgery were performed along with another procedure currently assigned to MS-DRGs 228, 229, and 230, the case would be assigned to one of the “Other Cardiothoracic Procedures MS-DRGs” (228, 229, and 230) because patients with multiple procedures are assigned to the highest surgical hierarchy to which one of the procedures is assigned.

Therefore, as the data shown above did not demonstrate that IFVA utilized an equivalent (or additional) amount of resources as a cardiac catheterization to warrant a proposal to reassign IFVA cases to MS-DRGs 233 and 234 and the fact that IFVA cases with CABG performed with a procedure assigned to MS-DRGs 228, 229, and 230 would already be grouped to those same MS-DRGs, we did not propose to reassign cases reporting procedure code 88.59 to MS-DRGs 228, 229, and 230 for FY 2011.

Comment: Several commenters supported the proposal not to reassign cases reporting procedure code 88.59 to MS-DRGs 228, 229, and 230.

Response: We appreciate the commenters' support.

We are finalizing our proposal to not reassign cases reporting procedure code 88.59 to MS-DRGs 228, 229, and 230 for FY 2011.

4. MDC 6 (Diseases and Disorders of the Digestive System): Gastrointestinal Stenting

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR43799), we discussed a request we received to create new MS-DRGs in FY 2011 to better identify patients who undergo the insertion of a gastrointestinal stent. The request was considered outside the scope of issues addressed in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule; therefore, we stated our intent to consider this request during the FY 2011 rulemaking process.

Gastrointestinal stenting is performed by inserting a tube (stent) into the esophagus, duodenum, biliary tract or colon to reestablish or maintain patency of these structures and allow swallowing, drainage, or passage of waste. The commenter requested that the new MS-DRGs be subdivided into three severity levels (with MCC, with CC, and without CC/MCC) to better align payment rates with resource consumption and improve the clinical coherence of these cases.

In its own analysis using FY 2008 MedPAR data, the commenter identified gastrointestinal stenting cases using relevant diagnosis codes and a combination of procedure codes with revenue code 0278 in MS-DRGs 374, 375, and 376 (Digestive Malignancy with MCC, with CC, and without CC/MCC, respectively), MS-DRGs 391and 392 (Esophagitis, Gastroenteritis and Miscellaneous Digestive Disorders with MCC and without MCC, respectively), and MS-DRGs 393, 394, and 395 (Other Digestive System Diagnoses with MCC, with CC, and without CC/MCC, respectively) in MDC 6 (Diseases and Disorders of the Digestive System); and MS-DRGs 435, 436, and 437 (Malignancy of Hepatobiliary System or Pancreas with MCC, with CC, and without CC/MCC, respectively) in MDC 7 (Diseases and Disorders of the Hepatobiliary System and Pancreas).

As stated above, the commenter utilized a combination of procedure codes along with revenue code 0278 for its analysis. There were a total of six procedure codes included, of which, only three (procedure codes 42.81, 51.87, and 52.93) actually describe the insertion of a stent. The complete list of procedure codes is as follows:

  • 42.81 (Insertion of permanent tube into esophagus)
  • 45.13 (Other endoscopy of small intestine)
  • 45.22 (Endoscopy of large intestine through artificial stoma)
  • 46.85 (Dilation of intestine)
  • 51.87 (Endoscopic insertion of stent (tube) into bile duct)
  • 52.93 (Endoscopic insertion of stent (tube) into pancreatic duct)

The commenter aggregated the results by the previously mentioned MS-DRG groupings and did not present results for individual stenting procedures. According to the commenter, mean standardized charges for gastrointestinal stenting procedures were higher than those for nonstenting procedures across all levels of severity of illness. In addition, the commenter believed that the difference in charges was not simply related to the costs of the stents, but rather that the extent of the difference in charges reflected the severity of illness and resource intensity associated with gastrointestinal stenting procedures.

As indicated in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23902), in response to the commenter's request, we pointed out that we do not utilize revenue codes in our process to evaluate if new MS-DRGs are warranted. The use of revenue codes in the MS-DRG reclassification process would require a major structural change from the current process that has been utilized since the inception of the IPPS. In addition, the commenter included procedure codes in its analysis that do not identify the insertion of a stent; thereby, the data are unreliable. Furthermore, two procedure codes describing the insertion of a colonic stent were recently implemented, effective with discharges occurring on or after October 1, 2009—procedure code 46.86 (Endoscopic insertion of colonic stent(s)) and procedure code 46.87 (Other insertion of colonic stent(s)). However, we do not have data currently available on these two new procedure codes to include them in a comprehensive analysis. Lastly, as the commenter indicated, the differences between those procedures with and without stents is a reflection on the severity of illness and resource consumption associated with these types of procedures. The commenter also acknowledged that patients receiving a gastrointestinal stent who are severely debilitated due to prolonged illness are reflected by the fact that the majority of cases are assigned to MS-DRGs for patients with MCCs (major complications or comorbidities). Therefore, the medical MS-DRGs to which these procedures are currently assigned already account for the severity of illness and intensity of resources utilized.

For the FY 2011 IPPS/LTCH PPS proposed rule, using FY 2009 MedPAR data, we analyzed the three procedure codes that truly identify and describe the insertion of a stent (procedure codes 42.81, 51.87, and 52.93) within the MS-DRGs referenced above. Similar to the commenter's findings, our analysis demonstrated a small volume of cases in which insertion of a gastrointestinal stent occurred in the specified MS-DRGs. Of the 411,390 total cases across the digestive system MS-DRGs the requestor identified, there were only 2,011 cases that involved the actual insertion of a gastrointestinal stent. These cases had average costs ranging from a low of $5,846 to a high of $17,626. Based on these findings, in the proposed rule, we indicated that we did not believe it was appropriate to assign cases with such disparity in costs into a single, new MS-DRG. Furthermore, in applying the five criteria used to establish new MS-DRGs, we indicated that the data do not support the creation of new MS-DRGs with three severity levels (with MCC, with CC, and without CC/MCC).

For the reasons stated above, we invited the public to submit comments on our proposal not to make any MS-DRG modifications to cases involving the use of gastrointestinal stents for FY 2011.

Comment: Several commenters in general supported CMS' proposal not to make any MS-DRG modifications involving the use of gastrointestinal stents for FY 2011. One commenter expressed appreciation for CMS' efforts to consider its request to create a new series of MS-DRGs for gastrointestinal stent placement cases. The commenter acknowledged the lack of specific ICD-9-CM procedure codes for colonic and duodenal stent placement in the data and CMS' practice of not using revenue codes to help distinguish between different types of procedures. The commenter agreed that the lack of specific codes and not using revenue codes in the MS-DRG grouping logic precludes CMS' ability to implement the requested MS-DRG modifications for gastrointestinal stents for FY 2011. The commenter indicated that it will continue to monitor these cases in future years and, if appropriate, request the creation of new MS-DRGs.

Response: We agree with the commenters that our data and claims analysis support our proposal to not make any MS-DRG modifications to cases involving the use of gastrointestinal stents for FY 2011. Therefore, we are finalizing our proposal to not make any MS-DRG modifications to cases involving the use of gastrointestinal stents for FY 2011.

5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue): Pedicle-Based Dynamic Stabilization

As we did for FY 2009 (73 FR 45820), we received a request from a manufacturer to reassign procedure code 84.82 (Insertion or replacement of pedicle-based dynamic stabilization device(s)), effective October 1, 2007, from MS-DRG 490 (Back and Neck Procedures Except Spinal Fusion with CC/MCC or Disc Device/Neurostimulator) to MS-DRG 460 (Spinal Fusion Except Cervical without MCC). According to the manufacturer, the technology that is identified by this procedure code, the Dynesys® Dynamic Stabilization System, is clinically similar to lumbar spinal fusion and requires similar utilization of resources.

Dynamic stabilization is a concept that utilizes a flexible system to stabilize the spine without fusion. The primary goals of dynamic stabilization are to limit the amount of unnatural spinal motion and preserve as much of the patient's natural anatomic structures as possible. The Dynesys® Dynamic Stabilization System is comprised of three components with specific functions: titanium alloy pedicle screws that anchor the system to the spine; a polyethylene-terephthalate (PET) cord that connects the Dynesys® screws; and a polycarbonate-urethane (PCU) spacer that runs over the cord between the Dynesys® screws. The system is placed under tension creating a dynamic interaction between the components.

The MS-DRGs are comprised of clinically coherent groups of patients who consume similar utilization of resources and complexity of services. The insertion of a Dynesys® Dynamic Stabilization System is clinically not a lumbar fusion. As stated previously, dynamic stabilization is a concept that utilizes a flexible system to stabilize the spine without fusion. Therefore, in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23903), we stated that it would be clinically inappropriate to reassign cases reporting procedure code 84.82 in the fusion MS-DRG.

In conclusion, the Dynesys® Dynamic Stabilization System is currently FDA approved for use only as an adjunct to spinal fusion, there is uncertainty regarding the coding and reporting of procedure code 84.82, as well as off-label use, and currently, all other similar nonfusion devices are assigned to MS-DRG 490.

For the reasons listed above, we did not propose to reassign cases reporting procedure code 84.82 from MS-DRG 490 to MS-DRG 460 for FY 2011.

Comment: Several commenters supported CMS' proposal not to reassign cases reporting procedure code 84.82 from MS-DRG 490 to MS-DRG 460 for FY 2011. One commenter, the manufacturer, stated that they conducted a clinical comparison of Dynesys® as well as an analysis of charges and costs associated with MS-DRGs 490 and 460, specifically procedure codes 84.82 (Insertion or replacement of pedicle-based dynamic stabilization device(s)), and 81.08 (Lumbar and lumbosacral fusion, posterior technique). According to the manufacturer, the analysis demonstrated that the resource utilization of Dynesys® as a nonfusion device is similar to that of fusion and is greater than that of other procedures grouped in MS-DRG 490.

Response: We appreciate the manufacturer's analysis. As stated previously, and as the manufacturer stated in its comments, the FDA has not yet approved the Post-Market Approval (PMA) application to expand the indication of Dynesys® for use as a non-fusion device. Dynesys® is currently approved as an adjunct to spinal fusion; therefore, when reported correctly, cases utilizing the Dynesys® technology are appropriately assigned to the fusion MS-DRGs. We will continue to monitor the resource utilization of procedure codes 84.82 and 81.08 to determine if future MS-DRG reassignments or new MS-DRGs are warranted. For FY 2011, we are finalizing our proposal not to reassign cases with procedure code 84.82 from MS-DRG 490 to MS-DRG 460.

6. MDC 15 (Newborns and Other Neonates With Conditions Originating in the Perinatal Period)

a. Discharges/Transfers of Neonates to a Designated Cancer Center or Children's Hospital

As discussed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23903), we received a request to add patient discharge status code 05 (Discharged/transferred to a designated cancer center or children's hospital) to the MS-DRG GROUPER logic for MS-DRG 789 (Neonates, Died or Transferred to Another Acute Care Facility). Currently, neonate cases with the discharge status code 05 are being assigned to MS-DRG 795 (Normal Newborn).

The definition of discharge status code 05 was changed on April 1, 2008, from “discharged/transferred to another type of health care institution not defined elsewhere in this code list” to “discharged/transferred to a designated cancer center or children's hospital.” For the FY 2011 proposed rule, we examined cases in the FY 2009 MedPAR file but did not find any cases with the discharge status code 05 that were assigned to either MS-DRG 789 or MS-DRG 795. However, we indicated that we believed the request has merit in identifying neonate cases appropriately. Therefore, for FY 2011, we proposed to add discharge status code 05 to the MS-DRG GROUPER logic for MS-DRG 789.

Comment: Some commenters supported the proposed change to the MS-DRG GROUPER logic for discharge status 05. A few commenters commended CMS for responding to industry requests related to MDC 15, especially in light of the limited impact on the Medicare population while acknowledging that other payers also utilize the MS-DRG classification system. One commenter recommended adding the logic for discharge status code 05 to the MS-DRG GROUPER logic for all newborn cases assigned to MS-DRGs: 790 (Extreme Immaturity or Respiratory Distress Syndrome, Neonate), 791 (Prematurity with Major Problems), 792 (Prematurity without Major Problems), 793 (Full Term Neonate with Major Problems), 794 (Neonate with Other Significant Problems), and 795 so that these cases may be appropriately grouped to the MS-DRG 789 for transferred neonates.

Response: We appreciate the support of the commenters. To clarify our proposed policy change, we are adding discharge status code 05 to the MS-DRG GROUPER logic for assigning cases to MS-DRG 789. This change will result in any case identified with discharge status 05, which would have normally been assigned to MS-DRGs 790 through 795, being reassigned to MS-DRG 789, as the commenter recommended.

After consideration of the public comments we received, we contend that this logic change has merit and, therefore, are adopting it as final for FY 2011. All newborn cases assigned to MS-DRGs 790 through 795 and indentified with discharge status 05 will be reassigned to MS-DRG 789 for transferred neonates.

b. Vaccinations of Newborns

As discussed in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23903), we received a request to examine the assignment of code V64.05 (Vaccination not carried out because of caregiver refusal) to MS-DRG 794 (Neonate with Other Significant Problems). Code V64.05 is currently being reported when a physician documents that a parent/caregiver has refused immunization for a child. The reporting of this code as a principal or secondary diagnosis impacts the MS-DRG assignment for normal newborns cases being assigned to MS-DRG 794.

For the FY 2011 proposed rule, we examined cases in the FY 2009 MedPAR file but did not find any cases of code V64.05 assigned to MS-DRG 794. Our medical advisors agree that code V64.05 should not be assigned to MS-DRG 794. We determined that the presence of code V64.05 does not indicate that there is a significant problem with the newborn and should not be assigned to MS-DRG 794. Therefore, as we indicated in the FY 2011 proposed rule, we believe that assignment of code V64.05 to MS-DRG 795 (Normal Newborn) would be more appropriate for this code because it does not identify a significant problem.

The logic for MS-DRG 795 contains a list of principal diagnosis codes for normal newborn and no secondary diagnosis or a list of only secondary diagnosis codes. Therefore, in the proposed rule, for FY 2011, we proposed to remove code V64.05 from MS-DRG 794 and add this code to the only secondary diagnosis list for MS-DRG 795.

Comment: Commenters supported this proposed change.

Response: We appreciate the commenters support. As stated above, we believe that the assignment of code V64.05 to MS-DRG 795 is appropriate.

After consideration of the public comments we received, we are adopting our proposal to remove code V64.05 from MS-DRG 794 and to add it to the only secondary diagnosis list for MS-DRG 795 as final for FY 2011.

7. Medicare Code Editor (MCE) Changes

As explained under section II.B.1. of the preamble of this final rule, the Medicare Code Editor (MCE) is a software program that detects and reports errors in the coding of Medicare claims data. Patient diagnoses, procedure(s), and demographic information are entered into the Medicare claims processing systems and are subjected to a series of automated screens. The MCE screens are designed to identify cases that require further review before classification into a MS-DRG. In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23903), we indicated that we intended to make the following changes to the MCE edits and invited public input on whether or not we should do so:

a. Unacceptable Principal Diagnosis Edit: Addition of Code for Gastroparesis

It was brought to our attention that diagnosis code 536.3 (Gastroparesis) has a “code first underlying disease” note. This note indicates that diagnosis code 536.3 should not be used as a principal diagnosis. Therefore, diagnosis code 536.3 should have been included on the list of unacceptable principal diagnoses in the MCE.

We agree that diagnosis code 536.3 should have been included on the list of unacceptable principal diagnoses in the MCE. Therefore, in the proposed rule for FY 2011, we indicated that we intended to add diagnosis code 536.3 to that list in the MCE.

Comment: A number of commenters opposed the proposed change because they believed that this sequencing change in the order of reported codes would eliminate Medicare coverage for the condition of gastroparesis.

Response: The commenters erroneously believed that this sequencing change in the order of reported codes would eliminate Medicare coverage for the condition of gastroparesis. Therefore, we are taking the opportunity in this final rule to clarify that at no time did we intend to withdraw coverage for gastroparesis. We believe that many commenters mistakenly assumed that if diagnosis code 536.3 were not permitted to be in the principal diagnosis position, it would become a noncovered condition by Medicare. This is not CMS' intent, nor would it have been the result of our proposed change. As one commenter stated: “The effect of the proposed edit would be that idiopathic gastroparesis * * * could not be sequenced as a principal diagnosis. We recognize that an inconsistency currently exists between the MCE and the `code first underlying disease' associated with [code] 536.3. We understand the issue is not with the MCE, but rather the note.”

We agree with the commenters and with the medical community that diagnosis code 536.3 should not be included in the MCE's Unacceptable Principal Diagnosis Edit, and hereby withdraw our suggestion to put it on that list. Diagnosis code 536.3 will not be added to the MCE in FY 2011.

We understand that the matter of the “code first” note will be addressed by the ICD-9-CM Coordination & Maintenance Committee in September 2010.

b. Open Biopsy Check Edit

The Open Biopsy Check edit in the MCE dates back to the early years of the IPPS when the surgical and medical DRGs were not as expansive as they are today. In the mid-1980s when the Open Biopsy Check edit was created, the ICD-9-CM codes did not have many biopsy procedure codes that clearly showed the approach, such as codes for open, percutaneous, and closed biopsies. Furthermore, under the current MS-DRGs, the open biopsy codes do not have as significant an impact as they did in the early versions of the DRGs. We believe that the Open Biopsy Check edit no longer serves a useful purpose. Therefore, in the FY 2011 proposed rule, we indicated that we intended to delete the entire Open Biopsy Check edit from the MCE, which meant removing the following 63 codes from the edit:

  • 01.11 (Closed [Percutaneous] [Needle] biopsy of cerebral meninges)
  • 01.12 (Open biopsy of cerebral meninges)
  • 01.13 (Closed [Percutaneous] [Needle] biopsy of brain)
  • 01.14 (Open biopsy of brain)
  • 04.11 (Closed [Percutaneous] [Needle] biopsy of cranial or peripheral nerve or ganglion)
  • 04.12 (Open biopsy of cranial or peripheral nerve or ganglion)
  • 06.11 (Closed [Percutaneous] [Needle] biopsy of thyroid gland)
  • 06.12 (Open biopsy of thyroid gland)
  • 07.11 (Closed [Percutaneous] [Needle] biopsy of adrenal gland)
  • 07.12 (Open biopsy of adrenal gland)
  • 22.11 (Closed [Endoscopic] [Needle] biopsy of nasal sinus)
  • 22.12 (Open biopsy of nasal sinus)
  • 25.01 (Closed [Needle] biopsy of tongue)
  • 25.02 (Open biopsy of tongue)
  • 26.11 (Closed [Needle] biopsy of salivary gland or duct)
  • 26.12 (Open biopsy of salivary gland or duct)
  • 31.43 (Closed [Endoscopic] biopsy of larynx)
  • 31.44 (Closed [Endoscopic] biopsy of trachea)
  • 31.45 (Open biopsy of larynx or trachea)
  • 33.24 (Closed [Endoscopic] biopsy of bronchus)
  • 33.25 (Open biopsy of bronchus)
  • 33.26 (Closed [Percutaneous] [Needle] biopsy of lung)
  • 33.28 (Open biopsy of lung)
  • 34.25 (Closed [Percutaneous] [Needle] biopsy of mediastinum)
  • 34.26 (Open mediastinal biopsy)
  • 41.32 (Closed [Aspiration] [Percutaneous] biopsy of spleen)
  • 41.33 (Open biopsy of spleen)
  • 42.24 (Closed [Endoscopic] biopsy of esophagus)
  • 42.25 (Open biopsy of esophagus)
  • 44.14 (Closed [Endoscopic] biopsy of stomach)
  • 44.15 (Open biopsy of stomach)
  • 45.14 (Closed [Endoscopic] biopsy of small intestine)
  • 45.15 (Open biopsy of small intestine)
  • 45.25 (Closed [Endoscopic] biopsy of large intestine)
  • 45.26 (Open biopsy of large intestine)
  • 48.24 (Closed [Endoscopic] biopsy of rectum)
  • 48.25 (Open biopsy of rectum)
  • 50.11 (Closed (Percutaneous) [Needle] biopsy of liver)
  • 50.12 (Open biopsy of liver)
  • 51.12 (Percutaneous biopsy of gallbladder or bile ducts)
  • 51.13 (Open biopsy of gallbladder or bile ducts)
  • 52.11 (Closed [Aspiration] [Needle] [Percutaneous] biopsy of pancreas)
  • 52.12 (Open biopsy of pancreas)
  • 54.23 (Biopsy of peritoneum)
  • 54.24 (Closed [Percutaneous] [Needle] biopsy of intra-abdominal mass)
  • 55.23 (Closed [Percutaneous] [Needle] biopsy of kidney)
  • 55.24 (Open biopsy of kidney)
  • 56.32 (Closed percutaneous biopsy of ureter)
  • 56.34 (Open biopsy of ureter)
  • 57.33 (Closed [Transurethral] biopsy of bladder)
  • 57.34 (Open biopsy of bladder)
  • 60.11 (Closed [Percutaneous] [Needle] biopsy of prostate)
  • 60.12 (Open biopsy of prostate)
  • 60.13 (Closed [Percutaneous] biopsy of seminal vesicles)
  • 60.14 (Open biopsy of seminal vesicles)
  • 62.11 (Closed [Percutaneous] [Needle] biopsy of testis)
  • 62.12 (Open biopsy of testis)
  • 68.13 (Open biopsy of uterus)
  • 68.14 (Open biopsy of uterine ligaments)
  • 68.15 (Closed biopsy of uterine ligaments)
  • 68.16 (Closed biopsy of uterus)
  • 85.11 (Closed [Percutaneous] [Needle] biopsy of breast)
  • 85.12 (Open biopsy of breast)

We did not receive any public comments regarding the proposal to delete the Open Biopsy Check edit from the MCE. Therefore, because there were no objections to the proposal, we are deleting the Open Biopsy Check edit from the MCE. The edit containing the codes listed above will be removed, effective for October 1, 2010 (FY 2011).

c. Noncovered Procedure Edit

The ICD-9-CM procedure codes 52.80 (Pancreatic transplant, not otherwise specified) and 52.82 (Homotransplant of pancreas) alone (that is, without procedure code 55.69 (Other kidney transplantation)) are considered noncovered procedures, except when either one is combined with at least one specific principal or secondary diagnosis code. These specific diagnosis codes identify Type I diabetes mellitus, not stated as uncontrolled, or else identified as uncontrolled.

To conform to the proposed change to Pre-MDC MS-DRGs 008 and 010 as discussed in section II.G.1. of the FY 2011 IPPS/LTCH PPS proposed rule, in which we proposed to add code 251.3 (Postsurgical hypoinsulinemia) to those MS-DRGs, we indicated in that FY 2011 proposed rule that we intended to add procedure code 251.3 to the list of acceptable principal or secondary diagnosis codes in the MCE.

We did not receive any public comments on our proposal to add procedure code 251.3 to the list of acceptable principal or secondary diagnosis codes in the MCE. Therefore, because there were no objections to this proposal, we are adding procedure code 251.3 (Postsurgical hypoinsulinemia) to the MCE in the list of acceptable principal or secondary codes associated with procedure codes 52.80 (Pancreatic transplant, not otherwise specified) and 52.82 (Homotransplant of pancreas).

8. Surgical Hierarchies

Some inpatient stays entail multiple surgical procedures, each one of which, occurring by itself, could result in assignment of the case to a different MS-DRG within the MDC to which the principal diagnosis is assigned. Therefore, it is necessary to have a decision rule within the GROUPER by which these cases are assigned to a single MS-DRG. The surgical hierarchy, an ordering of surgical classes from most resource-intensive to least resource-intensive, performs that function. Application of this hierarchy ensures that cases involving multiple surgical procedures are assigned to the MS-DRG associated with the most resource-intensive surgical class.

Because the relative resource intensity of surgical classes can shift as a function of MS-DRG reclassification and recalibrations, we reviewed the surgical hierarchy of each MDC, as we have for previous reclassifications and recalibrations, to determine if the ordering of classes coincides with the intensity of resource utilization.

A surgical class can be composed of one or more MS-DRGs. For example, in MDC 11, the surgical class “kidney transplant” consists of a single MS-DRG (MS-DRG 652) and the class “major bladder procedures” consists of three MS-DRGs (MS-DRGs 653, 654, and 655). Consequently, in many cases, the surgical hierarchy has an impact on more than one MS-DRG. The methodology for determining the most resource-intensive surgical class involves weighting the average resources for each MS-DRG by frequency to determine the weighted average resources for each surgical class. For example, assume surgical class A includes MS-DRGs 1 and 2 and surgical class B includes MS-DRGs 3, 4, and 5. Assume also that the average costs of MS-DRG 1 is higher than that of MS-DRG 3, but the average costs of MS-DRGs 4 and 5 are higher than the average costs of MS-DRG 2. To determine whether surgical class A should be higher or lower than surgical class B in the surgical hierarchy, we would weigh the average costs of each MS-DRG in the class by frequency (that is, by the number of cases in the MS-DRG) to determine average resource consumption for the surgical class. The surgical classes would then be ordered from the class with the highest average resource utilization to that with the lowest, with the exception of “other O.R. procedures” as discussed below.

This methodology may occasionally result in assignment of a case involving multiple procedures to the lower-weighted MS-DRG (in the highest, most resource-intensive surgical class) of the available alternatives. However, given that the logic underlying the surgical hierarchy provides that the GROUPER search for the procedure in the most resource-intensive surgical class, in cases involving multiple procedures, this result is sometimes unavoidable.

We note that, notwithstanding the foregoing discussion, there are a few instances when a surgical class with a lower average cost is ordered above a surgical class with a higher average cost. For example, the “other O.R. procedures” surgical class is uniformly ordered last in the surgical hierarchy of each MDC in which it occurs, regardless of the fact that the average costs for the MS-DRG or MS-DRGs in that surgical class may be higher than those for other surgical classes in the MDC. The “other O.R. procedures” class is a group of procedures that are only infrequently related to the diagnoses in the MDC, but are still occasionally performed on patients in the MDC with these diagnoses. Therefore, assignment to these surgical classes should only occur if no other surgical class more closely related to the diagnoses in the MDC is appropriate.

A second example occurs when the difference between the average costs for two surgical classes is very small. We have found that small differences generally do not warrant reordering of the hierarchy because, as a result of reassigning cases on the basis of the hierarchy change, the average costs are likely to shift such that the higher-ordered surgical class has a lower average costs than the class ordered below it.

As we proposed, based on the changes that we are making for FY 2011, as discussed in section II.C.2. of this preamble, we are revising the surgical hierarchy for Pre-MDCs and MDC 10 (Endocrine, Nutritional and Metabolic Diseases and Disorders) to reflect the resource intensiveness of the MS-DRGs, as follows:

In Pre-MDCs, we are reordering new MS-DRG 014 (Allogeneic Bone Marrow Transplant) above MS-DRG 007 (Lung Transplant); and new MS-DRG 015 (Autologous Bone Marrow Transplant) above MS-DRG 010 (Pancreas Transplant).

In MDC 10, we are reordering MS-DRG 614 (Adrenal and Pituitary Procedures With CC/MCC) and MS-DRG 615 (Adrenal and Pituitary Procedures Without CC/MCC) above MS-DRG 625 (Thyroid, Parathyroid and Thyroglossal Procedures With MCC).

Comment: Commenters generally supported our proposals without any objections.

Response: Based on the test of the proposed revisions using the March 2010 update of the FY 2009 MedPAR file and the revised GROUPER software, we found that the revisions are still supported by the data. Therefore, we are incorporating the proposed revisions to the surgical hierarchy as final for FY 2011.

9. Complications or Comorbidity (CC) Exclusions List

a. Background

As indicated earlier in the preamble of this final rule, under the IPPS MS-DRG classification system, we have developed a standard list of diagnoses that are considered CCs. Historically, we developed this list using physician panels that classified each diagnosis code based on whether the diagnosis, when present as a secondary condition, would be considered a substantial complication or comorbidity. A substantial complication or comorbidity was defined as a condition that, because of its presence with a specific principal diagnosis, would cause an increase in the length of stay by at least 1 day in at least 75 percent of the patients. We refer readers to section II.D.2. and 3. of the preamble of the FY 2008 IPPS final rule with comment period for a discussion of the refinement of CCs in relation to the MS-DRGs we adopted for FY 2008 (72 FR 47121 through 47152).

b. CC Exclusions List for FY 2011

In the September 1, 1987 final notice (52 FR 33143) concerning changes to the DRG classification system, we modified the GROUPER logic so that certain diagnoses included on the standard list of CCs would not be considered valid CCs in combination with a particular principal diagnosis. We created the CC Exclusions List for the following reasons: (1) To preclude coding of CCs for closely related conditions; (2) to preclude duplicative or inconsistent coding from being treated as CCs; and (3) to ensure that cases are appropriately classified between the complicated and uncomplicated DRGs in a pair. As we indicated above, we developed a list of diagnoses, using physician panels, to include those diagnoses that, when present as a secondary condition, would be considered a substantial complication or comorbidity. In previous years, we have made changes to the list of CCs, either by adding new CCs or deleting CCs already on the list.

In the May 19, 1987 proposed notice (52 FR 18877) and the September 1, 1987 final notice (52 FR 33154), we explained that the excluded secondary diagnoses were established using the following five principles:

  • Chronic and acute manifestations of the same condition should not be considered CCs for one another.
  • Specific and nonspecific (that is, not otherwise specified (NOS)) diagnosis codes for the same condition should not be considered CCs for one another.
  • Codes for the same condition that cannot coexist, such as partial/total, unilateral/bilateral, obstructed/unobstructed, and benign/malignant, should not be considered CCs for one another.
  • Codes for the same condition in anatomically proximal sites should not be considered CCs for one another.
  • Closely related conditions should not be considered CCs for one another.

The creation of the CC Exclusions List was a major project involving hundreds of codes. We have continued to review the remaining CCs to identify additional exclusions and to remove diagnoses from the master list that have been shown not to meet the definition of a CC. [2]

(1) Limited Revisions Based on Changes to the ICD-9-CM Diagnosis Codes

For FY 2011, as we proposed, we are making limited revisions to the CC Exclusions List to take into account the changes made in the ICD-9-CM diagnosis coding system effective October 1, 2009. (We refer readers to section II.G.11. of the preamble of this final rule for a discussion of ICD-9-CM changes.) We are making these changes in accordance with the principles established when we created the CC Exclusions List in 1987. In addition, we are indicating on the CC Exclusions List some changes as a result of updates to the ICD-9-CM codes to reflect the exclusion of codes from being MCCs under the MS-DRG system that we adopted in FY 2008.

(2) Suggested Changes to Severity Levels for Obesity-Related and Major Osseous Defect Diagnosis Codes

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43793 through 43794), we indicated that several commenters on the FY 2010 IPPS proposed rule recommended that CMS consider making further adjustments to the MS-DRG assignments based on obesity and major osseous defects. The commenters stated that obesity, high Body Mass Index (BMI) ratings, and major osseous defects add to the complexity of care for patients such as those patients undergoing orthopedic procedures. The commenters recommended the following changes to the list of MCCs and CCs:

Several commenters recommended that CMS add the following diagnosis codes, which are classified as non-CCs, to the CC or MCC list:

  • 731.3 (Major osseous defects)
  • V85.35 (Body mass index 35.0-35.9, adult)
  • V85.36 (Body mass index 36.0-36.9, adult)
  • V85.37 (Body mass index 37.0-37.9, adult)
  • V85.38 (Body mass index 38.0-38.9, adult)
  • V85.39 (Body mass index 39.0-39.9, adult)

Several commenters recommended that CMS add the following diagnosis code, which is on the CC list, to the MCC list:

  • V85.40 (Body mass index 40 and over, adult)

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we stated that we believed these comments were outside the scope of the proposals in the FY 2010 proposed rule. We did not propose significant revisions to the MS-DRGs in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24091) for these codes. We stated that we were encouraging individuals with comments about MS-DRG classifications to submit these comments no later than early December of each year so they can be carefully considered for possible inclusion in the annual proposed rule and, if included, may be subjected to public review and comment. Therefore, we did not add these codes to the MCC list or the CC list for FY 2010. We stated that we would consider their appropriateness for inclusion in next year's annual proposed rule.

In addition to the diagnosis codes mentioned above, we also have received requests that we consider changing the following diagnosis codes from a non-CC to a CC:

  • 278.00 (Obesity NOS)
  • 278.01 (Morbid obesity)
  • 278.02 (Overweight)

For the FY 2011 IPPS/LTCH PPS proposed rule, we analyzed claims data for the diagnosis codes mentioned above related to obesity and major osseous defects. We used the same approach we used in initially creating the MS-DRGs and classifying secondary diagnosis codes as non-CCs, CCs, or MCC. A detailed discussion of the process and criteria we used in this process is described in the FY 2008 IPPS final rule (72 FR 47158 through 47161). We refer the readers to this discussion for complete information on our approach to developing the non-CC, CC, and MCC lists. Each diagnosis for which Medicare data were available was evaluated to determine its impact on resource use and to determine the most appropriate CC subclass (non-CC, CC, or MCC) assignment. In order to make this determination, the average cost for each subset of cases was compared to the expected cost for cases in that subset. The following format was used to evaluate each diagnosis:

Code Diagnosis Cnt1 C1 Cnt2 C2 Cnt3 C3

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

The following chart shows the analysis for each of the obesity related and major osseous defect diagnosis codes that are currently classified as non-CCs.

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

The C1 findings do not support a reclassification of any of these diagnosis codes from a non-CC to a CC. As can be seen by the C1 findings, the codes range from a low of 0.9729 for code V85.35 to a high of 1.3833 for diagnosis code 731.3. These findings are consistent with a classification as a non-CC. Therefore, for FY 2011, as we proposed, we are not changing the CC classification of any of the diagnosis codes mentioned in the chart above from a non-CC to a CC. Our clinical advisors agree with this recommendation.

For the FY 2011 proposed rule, we also examined claims data for diagnosis code V85.4 (Body mass index 40 and over, adult), which is classified as a CC. We received a request to reclassify this code as a MCC. The following chart summarizes our findings for this diagnosis code:

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

We note that the C1 finding of 1.2323 does not support a reclassification of this diagnosis code from a CC to a MCC. This finding is much more consistent with classifying the code as a non-CC. Our clinical advisors recommended that CMS not reclassify this diagnosis code from a CC to a non-CC for FY 2011. They recommended that CMS analyze data associated with this diagnosis code again in the future to determine if it continues to act like a non-CC. For the FY 2011 proposed rule, we did not recommend any change in the severity classification of diagnosis code V85.4. We proposed to retain it as a CC for FY 2011. We welcomed public comments on our proposal not to change the severity levels of the diagnosis codes mentioned above.

Comment: Several commenters in general supported the proposal not to change the following codes from a non-CC to a CC or MCC based on our data and clinical analysis: 278.00; 278.01; 278.02; 731.3; V85.35; V85.36; V85.37; V85.38; and V85.39.

The commenters also supported our proposal not to change code V85.40 from a CC to an MCC.

One commenter stated that it understood that the request to change the severity level for the obesity related codes was not supported by the current hospital claim data. The commenter expressed appreciation for CMS' consideration of its recommendation. However, the commenter expressed concerns that hospitals may not be fully reporting codes that describe obesity, and, therefore, all resources associated with obesity related cases may not be included in the hospital claims data. The commenter requested that CMS actively encourage hospitals to report codes that more fully describe obesity and its related conditions. The commenter stated that if hospitals increased their reporting of obesity related conditions, our national data would be more accurate and would more fully reflect hospital resource use associated with these patients.

Another commenter also acknowledged that the data did not support a change in the severity level for the obesity related codes. This commenter also expressed that hospitals may be underreporting obesity cases, and requested that hospitals be encouraged to more fully and accurately code and report these conditions. Once a more complete data set is available to describe these patients, the commenter recommended that the issue be reviewed again.

Response: We agree with the commenters that our data and clinical analysis support our proposal not to change the severity level for the obesity related codes. We appreciate the commenters' statement about our consideration and review of this issue. We agree that it is important to provide clear documentation and accurate coding for all patient diagnoses and conditions, including obesity related conditions. As discussed in section II.G.11.c. of this preamble, we are expanding the number of diagnosis and procedure codes processed so that more codes are available to describe each patient's hospitalization. The clinical data and the comments received support our recommendation not to change the severity levels for the obesity related codes. Therefore, we are finalizing our proposal to continue classifying the following codes as non-CCs for FY 2011.

  • 278.00 (Obesity NOS)
  • 278.01 (Morbid obesity)
  • 278.02 (Overweight)
  • 731.3 (Major osseous defects)
  • V85.35 (Body mass index 35.0-35.9, adult)
  • V85.36 (Body mass index 36.0-36.9, adult)
  • V85.37 (Body mass index 37.0-37.9, adult)
  • V85.38 (Body mass index 38.0-38.9, adult)
  • V85.39 (Body mass index 39.0-39.9, adult)

We are also finalizing our proposal to continue classifying the following code as a CC for FY 2011.

  • V85.40 (Body mass index 40 and over, adult)

(3) Suggested Change to the Severity Level for Alzheimer's Disease Diagnosis Code

We received a request to change the severity classification for diagnosis code 331.0 (Alzheimer's disease). Currently, this diagnosis code is classified as a non-CC. For the FY 2011 IPPS/LTCH PPS proposed rule, we analyzed claims data for this diagnosis code. The following chart shows our findings:

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

The C1 finding of 1.1381 for Alzheimer's disease supports the current classification of this diagnosis code as a non-CC. Our clinical advisors agree with this classification. Therefore, we did not propose to change the severity classification of diagnosis code 331.0 from a non-CC to a CC for FY 2011. We believe the code is appropriately classified as a non-CC.

Comment: Several commenters in general supported CMS' proposal not to change diagnosis code 331.0 from a non-CC to a CC for FY 2011. They stated that the data supported this decision. One commenter stated that the analysis provided by CMS supports the proposal that diagnosis code 331.0 should continue to be a non-CC. The commenter suggested that this issue be revisited after CMS begins processing 25 codes instead of the current limitation of 9 diagnosis codes.

Response: We agree with the commenters that our data support our proposal not to change diagnosis code 331.0 from a non-CC to a CC for FY 2011. Therefore, we are finalizing our proposal to continue classifying diagnosis code 331.0 as a non-CC for FY 2011. We will revisit the severity level classification of diagnosis code 331.0 once we begin processing claims using the increase in the number of diagnosis codes to 25.

(4) Change to the Severity Level for Acute Renal Failure, Unspecified Diagnosis Code

We received a request to reclassify the diagnosis code, which captures acute renal failure, 584.9 (Acute kidney failure, unspecified) from a MCC to a CC. The commenter stated that this code is being widely used to capture degrees of renal failure that range from that which is caused by mild dehydration with only minor laboratory abnormalities all the way through severe renal failure that requires dialysis. The commenter pointed out that there are no clinical criteria for assigning diagnosis code 584.9. The attending physician must simply document the presence of acute renal failure for the diagnosis code to be assigned. The concern is that the diagnosis code for acute kidney failure, unspecified (diagnosis code 584.9) is being assigned to patients with a low clinical severity level.

We also point out that the Editorial Advisory Board of Coding Clinic for ICD-9-CM has received a number of requests to clarify the use of diagnosis code 584.9. Coders are observing the terminology of “acute renal failure” being applied to patients who are simply dehydrated. These patients do not require renal dialysis, and they do not appear to be severely ill. Coders have stated that there appears to be an increase in the use of the terminology of acute renal failure for patients who were previously referred to as acute renal insufficiency. When acute renal insufficiency is documented, the ICD-9-CM index directs the use of code 593.9 (Unspecified disorder of kidney and ureter). Diagnosis code 593.9 includes acute renal insufficiency and is classified as a non-CC. The problem is further compounded by the fact that there is no consistent convention among clinicians for documenting acute renal insufficiency versus acute renal failure.

For the FY 2011 IPPS/LTCH PPS proposed rule, we examined claims data on diagnosis code 584.9, and our findings are shown in the table below:

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

The C1 finding of 1.8364 is more consistent with a classification of a CC. Our clinical advisors agreed that cases captured by diagnosis code 584.9 are more appropriately classified as a CC. This unspecified type of kidney failure is clearly not capturing patients with a MCC severity level. Therefore, we proposed to change the severity level for diagnosis code 584.9 from a MCC to a CC for FY 2011.

Comment: Most commenters opposed our proposal to change diagnosis code 584.9 (Acute kidney failure, unspecified) from an MCC to a CC. However, one commenter supported the proposal to change the severity level classification of acute renal failure cases from an MCC to a CC. The commenter stated that there has been an increased reporting of acute renal failure which is primarily due to increased physician education by clinical documentation improvement programs. The commenter further stated that the statistical analysis offered in the proposed rule was sufficient to support this change.

Response: We agree that the claims data support our proposal to change diagnosis code 584.9 from an MCC to a CC. We respond to the specific comments opposing our proposed changes in the following comments and responses.

Comment: Several commenters suggested that the introduction of the terminology of acute kidney injury may have added to the inconsistent classification of the disease process. One commenter stated that, in 2004, the Acute Dialysis Quality Initiative work group provided a definition and classification system for acute renal failure, described by the acronym RIFLE (Risk of renal dysfunction, Injury to the kidney, Failure or Loss of kidney function, and End-stage kidney disease). The commenter stated that clinical researchers have since applied the RIFLE system to the clinical evaluation of acute kidney injury. Several commenters stated that the FY 2009 update to the coding classification system, which classifies acute kidney injury and acute renal failure with the same code, may be diluting the patient mix. The commenters stated that inconsistency in the application of diagnosis code 584.9 results in dilution of the data and an inaccurate reflection of the severity level for acute renal failure.

Another commenter stated that claims data on diagnosis code 584.9 may be flawed due to the variable terminology used by physicians and changes in the ICD-9-CM classification. This commenter stated that physicians often use the terms “acute renal insufficiency” and “acute renal failure” interchangeably, and that this results in cases of acute renal insufficiency being classified as acute renal failure. The commenter also stated that physicians often use the term “acute kidney injury” to mean either acute renal insufficiency or acute renal failure, and that the term “acute kidney injury” is indexed in ICD-9-CM to diagnosis code 584.9. Therefore, the commenter stated that cases of acute kidney injury are also being classified as acute renal failure. The commenter stated that these inconsistencies result in diagnosis code 584.9 capturing a mix of cases, including both acute renal insufficiency as well as true acute renal failure cases, and that this has diluted national data for diagnosis code 584.9 and is an inaccurate reflection of the severity level for acute renal failure. The commenters recommended that diagnosis code 584.9 remain an MCC while CMS works on ways to revise the codes or improve documentation guidelines.

Response: We agree that diagnosis code 584.9 captures a range of severity levels. Patients are not consistently at the highest severity level as shown by our claims data. As discussed above, our claims data show that patients with this code as a secondary diagnosis are similar to those who are at a CC level. We do not believe it is appropriate to defer a decision on reclassification of the severity level of diagnosis code 584.9 until future coding or guideline modifications can be considered because our claims data clearly support the proposed change. Should a new range of codes be developed, we will consider what severity levels should be applied to each new code and include this analysis as part of future rulemaking.

Comment: One commenter stated that the definition of conditions assigned to diagnosis code 584.9 is inadequate as it encompasses patients with both small and large elevations of creatinine that still meet the definition of acute kidney injury. Furthermore, the commenter pointed out that diagnosis code 584.9 does not identify severe cases of renal failure requiring dialysis. However, the commenter opposed changing diagnosis code 584.9 from an MCC to a CC as it would penalize those institutions treating more severe cases of renal failure. The commenter indicated its plans to contact the National Center for Health Statistics to request that fifth digits be added to diagnosis code 584.9 to distinguish those in various stages of renal failure. Other commenters also agreed that diagnosis code 584.9 was vague and suggested that the code be subdivided to add additional information on the stages of the renal function. The commenters suggested using existing standards from the Acute Kidney Injury Network or the National Kidney Foundation to develop stages for kidney injury that could be captured with the new codes.

Another commenter agreed that the diagnosis of acute renal failure should not be used to describe mild dehydration and renal insufficiency when only minor lab abnormalities are present. The commenter believed that criteria were needed to better define the stages of acute renal failure. The commenter stated that appropriate guidelines were needed for both physicians and coders who are attempting to differentiate between a mildly dehydrated patient and one with true acute renal failure. Until such time as these documentation guidelines are developed, the commenter asked that diagnosis code 584.9 not be changed from an MCC to a CC.

Response: We agree that diagnosis code 584.9 captures a wide range of severity levels. We also agree that the use of this code does not mean that the patient's renal capacity is so impaired as to require renal dialysis. As stated earlier, our data indicate that most of these cases are at a CC severity level, not an MCC. As stated earlier, we do not believe it is appropriate to defer a decision on reclassification of the severity level of diagnosis code 584.9 until future coding or guideline modifications can be considered. Should a new range of codes be developed, we will consider what severity levels should be applied to each new code and include this within future rulemaking.

Comment: Several commenters objected to a change of severity levels for diagnosis code 584.9 from an MCC to a CC because of the financial impact the change would have on their hospitals. Several hospitals stated that this change would reduce their annual Medicare payments by $1.0 to $3.6 million per year. Other commenters stated that this change could lead to a reduction of 2 percent or more in total Medicare payments to their facilities. The commenters acknowledged that the code does not consistently capture patients at the highest severity level and that there was no clear convention among clinicians for documenting acute renal insufficiency versus acute renal failure. The commenters asked that the change not be made because of the payment impact on their hospitals.

Response: We agree that diagnosis code 584.9 captures patients who are not consistently at the highest severity level. Classifying these patients at the highest severity level greatly distorts our national data. It gives the impression that a large number of patients have an MCC severity level when they may in fact have only minor renal symptoms. Our data support that patients with diagnosis code 584.9 are more appropriately classified at the CC severity level. These acute renal failure patients captured with this code do not utilize the resources of other conditions on the MCC list. We believe the data support changing the code from an MCC to a CC. We believe our claims data show that this change will lead to more accurate payment, even if it does reduce some hospital payments. We do not believe it is appropriate to inflate payments for hospitals that report a higher incidence of this code, yet are treating patients with a lower severity level.

Comment: Other commenters who disagreed with the proposed change from an MCC to a CC, acknowledged that this unspecified code captures a range of severity levels from those patients with only a minimal elevation in serum creatinine or simple dehydration to those patients who are actually in acute renal failure. Some of the commenters stated that, while the code may currently capture patients with low severity levels, the patients still need treatment and monitoring to prevent any worsening in their conditions. The commenters also acknowledged that there is no clear convention among clinicians for documenting acute renal insufficiency versus acute renal failure. The commenters stated that this has been a problematic area on which there have been consensus conferences and publications from a variety of quality and renal organizations. The commenters stated that additional work was needed to develop a clear consensus for documenting acute renal failure. The commenters urged CMS to pursue greater standardization for the clinical documentation of acute renal failure. Until such time as the clinical documentation improves, the commenters recommended that CMS continue to classify diagnosis code 584.9 as an MCC.

Response: We agree that there is not a consistent use of the term acute renal failure. As mentioned earlier, this term has been used to describe a wide range of severity levels. However, our claims data show that the term is being used predominately to describe those patients who are not at the highest severity level. The patients are more like others with a CC severity level. We do not believe that it is appropriate for CMS to wait for a consensus to build about how to use and document the term acute renal failure. We believe it is more appropriate to base our decision on current claims data and clinical review. Regardless of the different uses of the term “acute renal failure” and the inclusion of a wide range of severity levels, the current data show that the code is more properly a CC and not an MCC. As mentioned by a number of commenters, the term “acute renal failure” is being used for a wide variety of patients, most of which do not have a high severity level. We also point out that we proposed reclassifying only the unspecified acute renal failure code from an MCC to a CC. We are leaving the more precise acute renal failure codes as MCCs. For instance, these more precise acute renal failure codes will remain on the MCC list:

  • 584.5 (Acute kidney failure with lesion of tubular necrosis);
  • 584.6 (Acute kidney failure with lesion of renal cortical necrosis);
  • 584.7 (Acute kidney failure with lesion of renal medullary [papillary] necrosis); and
  • 584.8 (Acute kidney failure with other specified pathological lesion in kidney).

We proposed to remove only the code for an unspecified type of acute kidney failure from the MCC list and to add it to the CC list. Our data support this reclassification.

After consideration of the public comments we received, we are finalizing our proposal to change diagnosis code 584.9 (Acute kidney failure, unspecified) from an MCC to a CC.

Comment: One commenter asked that CMS also examine whether the following encephalopathy codes should be removed from the MCC list. The commenter stated that claims analysis may show a justification for removing these codes from the MCC list.

  • 348.30 Encephalopathy, unspecified
  • 348.31 Metabolic encephalopathy
  • 348.39 Other encephalopathy
  • 349.82 Toxic encephalopathy

Response: We believe this comment is outside the scope of the FY 2011 IPPS/LTCH PPS proposed rule. We did not propose to change the severity level classification for any of the encephalopathy codes. We will examine this issue as part of next year's proposed rule. Therefore, we are not making any changes to the severity level classifications of the encephalopathy codes mentions above.

Tables 6G and 6H, Additions to and Deletions from the CC Exclusion List, respectively, which are effective for discharges occurring on or after October 1, 2010, are not being published in the Addendum to this final rule because of the length of the two tables. Instead, we are making them available through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS. Each of these principal diagnoses for which there is a CC exclusion is shown in Tables 6G and 6H in the Addendum to this final rule with an asterisk, and the conditions that will not count as a CC, are provided in an indented column immediately following the affected principal diagnosis.

A complete updated MCC, CC, and Non-CC Exclusions List is also available through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS. Beginning with discharges on or after October 1, 2010, the indented diagnoses will not be recognized by the GROUPER as valid CCs for the asterisked principal diagnosis.

To assist readers in identifying the changes to the MCC and CC lists that occurred as a result of updates to the ICD-9-CM codes, as described in Tables 6A, 6C, and 6E of the Addendum to this final rule, we are providing the following summaries of those MCC and CC changes.

BILLING CODE 4120-01-P

BILLING CODE 4120-01-C

Alternatively, the complete documentation of the GROUPER logic, including the current CC Exclusions List, is available from 3M/Health Information Systems (HIS), which, under contract with CMS, is responsible for updating and maintaining the GROUPER program. The current MS-DRG Definitions Manual, Version 27.0, is available for $250.00, which includes shipping and handling. Version 27.0 of the manual is also available on a CD for $200.00; a combination hard copy and CD is available for $400.00. Version 28.0 of this manual, which includes the final FY 2011 MS-DRG changes, will be available in CD only for $225.00. These manuals may be obtained by writing 3M/HIS at the following address: 100 Barnes Road, Wallingford, CT 06492; or by calling (203) 949-0303, or by obtaining an order form at the Web site: http://www.3MHIS.com. Please specify the revision or revisions requested.

10. Review of Procedure Codes in MS DRGs 981 Through 983; 984 Through 986; and 987 Through 989

Each year, we review cases assigned to former CMS DRG 468 (Extensive O.R. Procedure Unrelated to Principal Diagnosis), CMS DRG 476 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis), and CMS DRG 477 (Nonextensive O.R. Procedure Unrelated to Principal Diagnosis) to determine whether it would be appropriate to change the procedures assigned among these CMS DRGs. Under the MS-DRGs that we adopted for FY 2008, CMS DRG 468 was split three ways and became MS-DRGs 981, 982, and 983 (Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively). CMS DRG 476 became MS-DRGs 984, 985, and 986 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively). CMS DRG 477 became MS-DRGs 987, 988, and 989 (Nonextensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively).

MS-DRGs 981 through 983, 984 through 986, and 987 through 989 (formerly CMS DRGs 468, 476, and 477, respectively) are reserved for those cases in which none of the O.R. procedures performed are related to the principal diagnosis. These MS-DRGs are intended to capture atypical cases, that is, those cases not occurring with sufficient frequency to represent a distinct, recognizable clinical group. MS-DRGs 984 through 986 (previously CMS DRG 476) are assigned to those discharges in which one or more of the following prostatic procedures are performed and are unrelated to the principal diagnosis:

  • 60.0, Incision of prostate
  • 60.12, Open biopsy of prostate
  • 60.15, Biopsy of periprostatic tissue
  • 60.18, Other diagnostic procedures on prostate and periprostatic tissue
  • 60.21, Transurethral prostatectomy
  • 60.29, Other transurethral prostatectomy
  • 60.61, Local excision of lesion of prostate
  • 60.69, Prostatectomy, not elsewhere classified
  • 60.81, Incision of periprostatic tissue
  • 60.82, Excision of periprostatic tissue
  • 60.93, Repair of prostate
  • 60.94, Control of (postoperative) hemorrhage of prostate
  • 60.95, Transurethral balloon dilation of the prostatic urethra
  • 60.96, Transurethral destruction of prostate tissue by microwave thermotherapy
  • 60.97, Other transurethral destruction of prostate tissue by other thermotherapy
  • 60.99, Other operations on prostate

All remaining O.R. procedures are assigned to MS-DRGs 981 through 983 and 987 through 989, with MS-DRGs 987 through 989 assigned to those discharges in which the only procedures performed are nonextensive procedures that are unrelated to the principal diagnosis. [3]

Our review of MedPAR claims data showed that there were 59 cases in which procedures related to the prostate were arrayed across 10 different MDCs. None of the 59 cases were cases that should logically be assigned to any of the other MDCs. For example, there were a total of 16 cases of other transurethral prostate surgery that occurred in MDC 5 (Diseases and Disorders of the Circulatory System). In addition, none of the cases had lengths of stay or average charges that would indicate that these cases were anything other than some of the expected irregularities of medical care. Therefore, for FY 2011, we did not propose to change the procedures assigned among these MS-DRGs.

We did not receive any public comments on our proposal and, therefore, are adopting it as final.

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

We annually conduct a review of procedures producing assignment to MS-DRGs 981 through 983 (Extensive O.R. procedure unrelated to principal diagnosis with MCC, with CC, and without CC.MCC, respectively) or MS-DRGs 987 through 989 (Nonextensive O.R. procedure unrelated to principal diagnosis with MCC, with CC, and without CC/MCC, respectively) on the basis of volume, by procedure, to see if it would be appropriate to move procedure codes out of these MS-DRGs into one of the surgical MS-DRGs for the MDC into which the principal diagnosis falls. The data are arrayed in two ways for comparison purposes. We look at a frequency count of each major operative procedure code. We also compare procedures across MDCs by volume of procedure codes within each MDC.

We identify those procedures occurring in conjunction with certain principal diagnoses with sufficient frequency to justify adding them to one of the surgical MS-DRGs for the MDC in which the diagnosis falls. Our review of claims data showed that there were 4,443 cases in MS-DRGs 981 through 983. These 4,443 cases were arrayed across 18 MDCs. The single most common procedure was code 00.66 (Percutaneous transluminal coronary angioplasty [PTCA] of coronary atherectomy), 21 cases, located in MDC 1 (Diseases and Disorders of the Nervous System). These cases represent a very small volume of cases that are unlikely to indicate medical practice trends. In addition, from a clinical coherence standpoint, we do not believe it benefits the GROUPER system to add cardiac procedures to the nervous system MDC. The same situation was evident in MS-DRGs 987 through 989. There were a total of 1,601 cases across 17 MDCs and, again, the cases did not represent clinically coherent examples of medical care that warranted movement of procedure codes into additional MS-DRGs. Examples of cases that we reviewed included six cases of bone biopsies in MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs) and one case of a destruction of a lesion of the knee in MDC 13 (Diseases and Disorders of the Female Reproductive System). Again, the volume of these cases is negligible, and clinical coherence is not demonstrated to the degree that a change in the MS-DRGs is warranted. Therefore, for FY 2011, we did not propose to remove any procedures from MS-DRGs 981 through 983 or MS-DRGs 987 through 989 into one of the surgical MS-DRGs for the MDC into which the principal diagnosis is assigned.

We did not receive any public comments on our proposal and, therefore, are adopting it as final.

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

We also annually review the list of ICD-9-CM procedures that, when in combination with their principal diagnosis code, result in assignment to MS-DRGs 981 through 983, 984 through 986 (Prostatic O.R. procedure unrelated to principal diagnosis with MCC, with CC, or without CC/MCC, respectively), and 987 through 989, to ascertain whether any of those procedures should be reassigned from one of these three MS-DRGs to another of the three MS-DRGs based on average charges and the length of stay. We look at the data for trends such as shifts in treatment practice or reporting practice that would make the resulting MS-DRG assignment illogical. If we find these shifts, we would propose to move cases to keep the MS-DRGs clinically similar or to provide payment for the cases in a similar manner. Generally, we move only those procedures for which we have an adequate number of discharges to analyze the data.

To reiterate, our review of claims data showed that 18 MDCs were represented in MS-DRGs 981 through 983, for a total of 4,443 cases. There were 10 MDCs represented in MS-DRGs 984 through 986, which contained 59 cases. In addition, our review of claims data for MS-DRGs 987 through 989 showed 1,601 cases across 17 MDCs. However, these cases represent such disparate situations as one case of a large bowel incision assigned to MDC 1 (Diseases and Disorders of the Nervous System) and one case of a revision of the femoral component of a hip replacement assigned to MDC 3 (Diseases and Disorders of the Ear, Nose, Mouth, and Throat). We do not believe that any of these cases represent shifts in either treatment practice or reporting practice. As these types of cases do not represent clinical coherence, we do not believe that the addition of these procedure codes identified in our review would positively benefit the overall MS-DRG logic. Therefore, for FY 2011, we did not propose to move any procedure codes among these MS-DRGs.

We did not receive any public comments on our proposal and, therefore, are adopting it as final.

c. Adding Diagnosis or Procedure Codes to MDCs

Based on the review of cases in the MDCs as described above in sections G.10.a. and b., we did not propose to add any diagnosis or procedure codes to MDCs for FY 2011.

We did not receive any public comments on our proposal and, therefore, are adopting it as final.

11. Changes to the ICD-9-CM Coding System, Including Discussion of the Replacement of the ICD-9-CM Coding System With the ICD-10-CM and ICD-10-PCS Systems in FY 2014

a. ICD-9-CM Coding System

As described in section II.B.1. of the preamble of this final rule, the ICD-9-CM is a coding system currently used for the reporting of diagnoses and procedures performed on a patient. In September 1985, the ICD-9-CM Coordination and Maintenance Committee was formed. This is a Federal interdepartmental committee, co-chaired by the National Center for Health Statistics (NCHS), the Centers for Disease Control and Prevention, and CMS, charged with maintaining and updating the ICD-9-CM system. The Committee is jointly responsible for approving coding changes, and developing errata, addenda, and other modifications to the ICD-9-CM to reflect newly developed procedures and technologies and newly identified diseases. The Committee is also responsible for promoting the use of Federal and non-Federal educational programs and other communication techniques with a view toward standardizing coding applications and upgrading the quality of the classification system.

The Official Version of the ICD-9-CM contains the list of valid diagnosis and procedure codes. (The Official Version of the ICD-9-CM is available from the Government Printing Office on CD-ROM for $19.00 by calling (202) 512-1800.) Complete information on ordering the CD-ROM is also available at: http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/05_CDROM.asp#TopOfPage. The Official Version of the ICD-9-CM is no longer available in printed manual form from the Federal Government; it is only available on CD-ROM. Users who need a paper version are referred to one of the many products available from publishing houses.

The NCHS has lead responsibility for the ICD-9-CM diagnosis codes included in the Tabular List and Alphabetic Index for Diseases, while CMS has lead responsibility for the ICD-9-CM procedure codes included in the Tabular List and Alphabetic Index for Procedures.

The Committee encourages participation in the above process by health-related organizations. In this regard, the Committee holds public meetings for discussion of educational issues and proposed coding changes. These meetings provide an opportunity for representatives of recognized organizations in the coding field, such as the American Health Information Management Association (AHIMA), the American Hospital Association (AHA), and various physician specialty groups, as well as individual physicians, health information management professionals, and other members of the public, to contribute ideas on coding matters. After considering the opinions expressed at the public meetings and in writing, the Committee formulates recommendations, which then must be approved by the agencies.

The Committee presented proposals for coding changes for implementation in FY 2011 at a public meeting held on September 16-17, 2009 and finalized the coding changes after consideration of comments received at the meetings and in writing by November 20, 2009. Those coding changes are announced in Tables 6A through 6F in the Addendum to this final rule. The Committee held its 2010 meeting on March 9-10, 2010. New codes for which there was a consensus of public support and for which complete tabular and indexing changes are made by May 2010 will be included in the October 1, 2010 update to ICD-9-CM. Code revisions that were discussed at the March 9-10, 2010 Committee meeting but that could not be finalized in time to include them in the Addendum to the FY 2011 IPPS/LTCH PPS proposed rule are included in Tables 6A through 6F of the Addendum to this final rule and are marked with an asterisk (*).

Copies of the minutes of the procedure codes discussions at the Committee's September 16-17, 2009 meeting and March 9-10, 2010 meeting can be obtained from the CMS Web site at: http://cms.hhs.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp. The minutes of the diagnosis codes discussions at the September 16-17, 2009 meeting and March 9-10, 2010 meeting are found at: http://www.cdc.gov/nchs/icd.htm. These Web sites also provide detailed information about the Committee, including information on requesting a new code, attending a Committee meeting, and timeline requirements and meeting dates.

We encourage commenters to address suggestions on coding issues involving diagnosis codes to: Donna Pickett, Co-Chairperson, ICD-9-CM Coordination and Maintenance Committee, NCHS, Room 2402, 3311 Toledo Road, Hyattsville, MD 20782. Comments may be sent by e-mail to: dfp4@cdc.gov.

Questions and comments concerning the procedure codes should be addressed to: Patricia E. Brooks, Co-Chairperson, ICD-9-CM Coordination and Maintenance Committee, CMS, Center for Medicare Management, Hospital and Ambulatory Policy Group, Division of Acute Care, C4-08-06, 7500 Security Boulevard, Baltimore, MD 21244-1850. Comments may be sent by e-mail to: patricia.brooks2@cms.hhs.gov.

The ICD-9-CM code changes that have been approved will become effective October 1, 2010. The new ICD-9-CM codes are listed, along with their MS-DRG classifications, in Tables 6A and 6B (New Diagnosis Codes and New Procedure Codes, respectively) in the Addendum to this final rule. As we stated above, the code numbers and their titles were presented for public comment at the ICD-9-CM Coordination and Maintenance Committee meetings. Both oral and written comments were considered before the codes were approved.

In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23911), we solicited comments on the proposed classification of these new codes, which were shown in Tables 6A and 6B of the Addendum to the proposed rule.

Comment: A few commenters supported our proposals. One commenter, representing one of the national hospital associations, recommended that the new codes 488.01 (Influenza due to identified avian influenza virus with pneumonia) and 488.11 (Influenza due to identified novel H1N1 influenza virus with pneumonia) be assigned to the pneumonia MS-DRGs to be consistent with the MS-DRG definitions and classification of diagnosis code 487.0 (Influenza with pneumonia).

Response: We agree with the commenters. Therefore, both codes 488.01 and 488.11 will be assigned to MS-DRGs 193 through 195 (Simple Pneumonia with Pleurisy With MCC, Simple Pneumonia with Pleurisy With CC, and Simple Pneumonia with Pleurisy Without CC/MCC, respectively) as reflected in Table 6A of this final rule.

Comment: The same commenter representing one of the hospital associations also questioned the CC designation for two new codes: 780.33 (Post traumatic seizures) and 278.03 (Obesity hypoventilation syndrome). In the proposed rule (75 FR 24207 through 24208), both codes were listed as non-CCs in Table 6A. The commenter pointed out that specific seizures (convulsions) codes such as 780.31 (Febrile convulsion (simple), unspecified) and 780.32 (Complex febrile convulsions) are classified as a CC and to be consistent within the classification system, code 780.33 should also be classified as a CC.

The commenter recommended further analysis for code 278.03 (Obesity hypoventilation syndrome) to determine if this condition meets the definition of a CC. The commenter pointed out that obesity hypoventilation syndrome is a condition where overweight patients cannot breathe appropriately resulting in low blood oxygen levels and high blood carbon dioxide levels. This condition puts a strain on the heart and lungs and may eventually lead to a more serious condition such as heart failure or respiratory failure. This condition would have to be closely monitored while the patient is in the hospital and may require respiratory treatment such as CPAP, BIPAP, or even mechanical ventilation depending on the severity of the condition. Such services involve intensive monitoring where, for example, in an intensive care unit, expensive and technically complex services or extensive care requiring a greater number of caregivers is required.

Response: Our medical advisors agree with the commenter's assessment that both codes should be classified as CCs. Therefore, we are amending the proposed non-CC designation for both codes 788.03 and 278.03 and classifying them as CCs in Table 6A. These changes are reflected in Table 6A in this final rule.

Comment: Several commenters addressed the MS-DRG placement of new procedure code 35.97 (Percutaneous mitral valve repair with implant) that was created for use beginning on October 1, 2010. The commenters urged CMS to assign this code to the same MS-DRG as open surgery so that higher payment would result.

Response: In addition to the MitraClip® device not yet being FDA approved, we have no claims data on which to evaluate such a MS-DRG assignment. However, the most important concept for denying these requests is that the MitraClip® device is delivered percutaneously. To assign this percutaneous procedure to MS-DRGs utilizing an open approach would not conform to the structure of the MS-DRGs, and disregards the concept of clinical coherence. We have no evidence-based data with which to justify any other MS-DRG assignment than those where the current percutaneous valve procedures are now assigned. Therefore, procedure code 35.97 is assigned to MS-DRGs 246, 247, 248, 249, 250, and 251.

Comment: Two comments urged CMS to assign new procedure code 37.37 (Excision or destruction of other lesion or tissue of heart, thoracoscopic approach) to MS-DRGs 228, 229, and 230 (Other Cardiothoracic Procedure with MCC, with CC, and without CC/MCC, respectively).

Response: CMS' practice has been, where practicable, to assign new ICD-9-CM codes to the same MS-DRG(s) as their predecessor codes. For this reason, procedure code 37.37 has been assigned to MS-DRGs 228, 229, and 230, as described above.

For codes that have been replaced by new or expanded codes, the corresponding new or expanded diagnosis codes are included in Table 6A in the Addendum to this final rule. New procedure codes are shown in Table 6B in the Addendum to this final rule. Diagnosis codes that have been replaced by expanded codes or other codes or have been deleted are in Table 6C (Invalid Diagnosis Codes) in the Addendum to this final rule. These invalid diagnosis codes will not be recognized by the GROUPER beginning with discharges occurring on or after October 1, 2010. Table 6D in the Addendum to this final rule contains invalid procedure codes. These invalid procedure codes will not be recognized by the GROUPER beginning with discharges occurring on or after October 1, 2010. Revisions to diagnosis code titles are in Table 6E (Revised Diagnosis Code Titles) in the Addendum to this final rule, which also includes the MS-DRG assignments for these revised codes. Table 6F in the Addendum to this final rule includes revised procedure code titles for FY 2011.

In the September 7, 2001 final rule implementing the IPPS new technology add-on payments (66 FR 46906), we indicated we would attempt to include proposals for procedure codes that would describe new technology discussed and approved at the Spring meeting as part of the code revisions effective the following October. As stated previously, ICD-9-CM codes discussed at the March 9-10, 2010 Committee meeting that receive consensus and that were finalized by May 2010 are included in Tables 6A through 6F in the Addendum to this final rule.

Section 503(a) of Public Law 108-173 included a requirement for updating ICD-9-CM codes twice a year instead of a single update on October 1 of each year. This requirement was included as part of the amendments to the Act relating to recognition of new technology under the IPPS. Section 503(a) amended section 1886(d)(5)(K) of the Act by adding a clause (vii) which states that the “Secretary shall provide for the addition of new diagnosis and procedure codes on April 1 of each year, but the addition of such codes shall not require the Secretary to adjust the payment (or diagnosis-related group classification) * * * until the fiscal year that begins after such date.” This requirement improves the recognition of new technologies under the IPPS system by providing information on these new technologies at an earlier date. Data will be available 6 months earlier than would be possible with updates occurring only once a year on October 1.

While section 1886(d)(5)(K)(vii) of the Act states that the addition of new diagnosis and procedure codes on April 1 of each year shall not require the Secretary to adjust the payment, or DRG classification, under section 1886(d) of the Act until the fiscal year that begins after such date, we have to update the DRG software and other systems in order to recognize and accept the new codes. We also publicize the code changes and the need for a mid-year systems update by providers to identify the new codes. Hospitals also have to obtain the new code books and encoder updates, and make other system changes in order to identify and report the new codes.

The ICD-9-CM Coordination and Maintenance Committee holds its meetings in the spring and fall in order to update the codes and the applicable payment and reporting systems by October 1 of each year. Items are placed on the agenda for the ICD-9-CM Coordination and Maintenance Committee meeting if the request is received at least 2 months prior to the meeting. This requirement allows time for staff to review and research the coding issues and prepare material for discussion at the meeting. It also allows time for the topic to be publicized in meeting announcements in the Federal Register as well as on the CMS Web site. The public decides whether or not to attend the meeting based on the topics listed on the agenda. Final decisions on code title revisions are currently made by March 1 so that these titles can be included in the IPPS proposed rule. A complete addendum describing details of all changes to ICD-9-CM, both tabular and index, is published on the CMS and NCHS Web sites in May of each year. Publishers of coding books and software use this information to modify their products that are used by health care providers. This 5-month time period has proved to be necessary for hospitals and other providers to update their systems.

A discussion of this timeline and the need for changes are included in the December 4-5, 2005 ICD-9-CM Coordination and Maintenance Committee minutes. The public agreed that there was a need to hold the fall meetings earlier, in September or October, in order to meet the new implementation dates. The public provided comment that additional time would be needed to update hospital systems and obtain new code books and coding software. There was considerable concern expressed about the impact this new April update would have on providers.

In the FY 2005 IPPS final rule, we implemented section 1886(d)(5)(K)(vii) of the Act, as added by section 503(a) of Public Law 108-173, by developing a mechanism for approving, in time for the April update, diagnosis and procedure code revisions needed to describe new technologies and medical services for purposes of the new technology add-on payment process. We also established the following process for making these determinations. Topics considered during the Fall ICD-9-CM Coordination and Maintenance Committee meeting are considered for an April 1 update if a strong and convincing case is made by the requester at the Committee's public meeting. The request must identify the reason why a new code is needed in April for purposes of the new technology process. The participants at the meeting and those reviewing the Committee meeting summary report are provided the opportunity to comment on this expedited request. All other topics are considered for the October 1 update. Participants at the Committee meeting are encouraged to comment on all such requests. There were no requests approved for an expedited April l, 2010 implementation of an ICD-9-CM code at the September 16-17, 2009 Committee meeting. Therefore, there were no new ICD-9-CM codes implemented on April 1, 2010.

Current addendum and code title information is published on the CMS Web site at: http://www.cms.hhs.gov/icd9ProviderDiagnosticCodes/01_overview.asp#TopofPage. Information on ICD-9-CM diagnosis codes, along with the Official ICD-9-CM Coding Guidelines, can be found on the Web site at: http://www.cdc.gov/nchs/icd9.htm. Information on new, revised, and deleted ICD-9-CM codes is also provided to the AHA for publication in the Coding Clinic for ICD-9-CM. AHA also distributes information to publishers and software vendors.

CMS also sends copies of all ICD-9-CM coding changes to its Medicare contractors for use in updating their systems and providing education to providers.

These same means of disseminating information on new, revised, and deleted ICD-9-CM codes will be used to notify providers, publishers, software vendors, contractors, and others of any changes to the ICD-9-CM codes that are implemented in April. The code titles are adopted as part of the ICD-9-CM Coordination and Maintenance Committee process. Thus, although we publish the code titles in the IPPS proposed and final rules, they are not subject to comment in the proposed or final rules. We will continue to publish the October code updates in this manner within the IPPS proposed and final rules. For codes that are implemented in April, we will assign the new procedure code to the same MS-DRG in which its predecessor code was assigned so there will be no MS-DRG impact as far as MS-DRG assignment. Any midyear coding updates will be available through the Web sites indicated above and through the Coding Clinic for ICD-9-CM. Publishers and software vendors currently obtain code changes through these sources in order to update their code books and software systems. We will strive to have the April 1 updates available through these Web sites 5 months prior to implementation (that is, early November of the previous year), as is the case for the October 1 updates.

b. Code Freeze

The International Classification of Diseases, 10th Revision (ICD-10) coding system applicable to hospital inpatient services will be implemented on October 1, 2013, as described in the Health Insurance Portability and Accountability Act (HIPAA) Administrative Simplification: Modifications to Medical Data code Set Standards to Adopt ICD-10-CM and ICD-10-PCS final rule (74 FR 3328 through 3362, January 16, 2009). The ICD-10 coding system includes the International Classification of Diseases, 10th Revision, Clinical Modification (ICD-10-CM) for diagnosis coding and the International Classification of Diseases, 10th Revision, Procedure Coding System (ICD-10-PCS) for inpatient hospital procedure coding, as well as the Official ICD-10-CM and ICM-10-PCS Guidelines for Coding and Reporting. In the January 16, 2009 ICD-10-CM and ICD-10-PCS final rule (74 FR 3328 through 3362), there was a discussion of the need for a partial or total freeze in the annual updates to both ICD-9-CM and ICD-10-CM and ICD-10-PCS codes. The public comment addressed in that final rule stated that the annual code set updates should cease l year prior to the implementation of ICD-10. The commenters stated that this freeze of code updates would allow for instructional and/or coding software programs to be designed and purchased early, without concern that an upgrade would take place immediately before the compliance date, necessitating additional updates and purchases.

We responded to comments in the ICD-10 final rule that the ICD-9-CM Coordination and Maintenance Committee has jurisdiction over any action impacting the ICD-9-CM and ICD-10 code sets. Therefore, the issue of consideration of a moratorium on updates to the ICD-9-CM, ICD-10-CM, and ICD-10-PCS code sets in anticipation of the adoption of ICD-10-CM and ICD-10-PCS would be addressed through the Committee at a future public meeting.

At the March 11-12, 2009 ICD-9-CM Coordination and Maintenance Committee meeting, the public was notified that there would be a discussion of whether there was a need to freeze updates to ICD-9-CM and/or ICD-10-CM and ICD-10-PCS prior to the implementation of ICD-10. The audience was asked to consider this issue and be prepared to discuss the topic at the September 16-17, 2009 ICD-9-CM Coordination and Maintenance Committee meeting. Advance written comments on this topic were welcomed. The first part of the meeting was devoted to this topic.

CMS received comments in advance of the meeting. CMS staff summarized these advanced comments at the meeting as follows:

No ICD-9-CM or ICD-10-CM/PCS updates beginning October 1, 2010 (36 months for implementation activities without annual code updates). This approach involves updating ICD-9-CM and ICD-10 codes on October 1, 2010, and not updating them again until after ICD-10 implementation on October 1, 2013. The commenters mentioned the extensive work needed to prepare for the transition to ICD-10 which will affect vendors, payers, providers, trainers, clearinghouses, and all claims handling organizations. The commenters stated that the 36 months between the last ICD-9-CM and ICD-10 updates on October 1, 2010 and the implementation of ICD-10 on October 1, 2013, were necessary to prepare and train for the transition.

No ICD-9-CM or ICD-10-CM/PCS updates beginning October 1, 2011 (24 months for implementation activities without annual code updates). This approach involves updating ICD-9-CM and ICD-10 codes on October 1, 2011, and not updating them again until after ICD-10 implementation on October 1, 2013. The commenters raised similar concerns to those mentioned above. The commenters stated that, if codes continue to change, the changes would make it difficult for vendors, payers, and providers to be ready and for coder training to be successful. One commenter suggested that a provision be developed to perform limited annual updates to capture new technologies or new diagnoses.

No ICD-10-CM/PCS updates beginning October 1, 2012 but continue annual updates to ICD-9-CM. This commenter supported annual updates to ICD-9-CM to capture advances in medical science. However, the commenter supported a freeze of ICD-10 beginning October 1, 2012, to give the industry time to update systems and prepare for ICD-10 implementation.

No ICD-10 updates on October 1, 2012, but update ICD-9-CM without interruption. (No period for implementation activities without annual code updates.) The commenter recommended no ICD-10 updates on October 1, 2012, but then updating ICD-10 again on October 1, 2013. The commenter recommended updating ICD-9-CM continuously through a final update on October 1, 2012. The commenter stated that having a two or three year gap between updating the code books would lead to a loss of data. The commenter stated that there is a need to retain the ability to update the code books to capture conditions such as Swine flu.

Update both ICD-9-CM and ICD-10-CM/PCS annually through October 1, 2013 (no period for implementation activities without annual code updates). The commenter stated that codes should not be frozen prior to the implementation of ICD-10. The commenter stated that freezing the updates would inhibit the recognition of new technologies.

Many of the commenters suggested a resumption of updates to ICD-10-CM and ICD-10-PCS beginning on October 1, 2014. However, one commenter suggested annual updates of ICD-10-CM and ICD-10-PCS without interruptions, including on October 1, 2013.

The topic was then opened for public discussion at the Committee meeting. CMS received a variety of comments from the participants that mirrored the advance written comments. These comments ranged from those supporting a complete freeze for both coding systems to those who recommended that both coding systems continue to be updated annually prior to ICD-10 implementation. There were also many comments that supported a more limited update process beginning on October 1, 2011, or October 1, 2012, which would allow only a small number of new codes to capture new technologies or new diseases. A number of commenters pointed out that section 503(a) of Public Law 108-173 included a requirement for updating ICD-9-CM codes twice a year to capture new technologies. The commenters stated that CMS must make a provision to capture new technologies despite any requests to freeze code updates.

Commenters voiced concerns about the impact on vendors creating new ICD-10 products when both ICD-9-CM and ICD-10-CM and ICD-10-PCS codes were extensively updated on an annual basis. Commenters stated that vendors and educators were reluctant to begin ICD-10 products and training materials until there was a period of stability without extensive annual updates. Some commenters stated that it was important for physician offices to have time to prepare for the implementation of ICD-10. Reducing the annual ICD-9-CM and ICD-10 annual updates would be helpful to physician offices.

Other commenters stated that it was important to update codes annually so that information on new diseases and technologies can be captured. These commenters stated that vendors, providers, system maintainers, and coders were used to annual code updates, and that they should continue.

One commenter requested that ICD-10-CM codes be frozen on October 1, 2011 so that ICD-10-CM codes could be coordinated with the Diagnostic and Statistical Manual of Mental Disorders (DSM), Fifth Edition. The commenter stated that the American Psychiatric Association plans to publish the fifth edition in 2012. Updates to ICD-10-CM on or after October 1, 2011, would disrupt those plans.

One commenter suggested an approach that would greatly reduce the number of updates and provide more stability in the coding systems during the implementation period. This commenter suggested that the large, regular code updates on ICD-9-CM be discontinued beginning on October 1, 2011, or October 1, 2012. The commenter suggested that CMS and CDC raise the bar for new code requests at that time and only consider requests for new codes that clearly describe a new technology or a new disease. The commenter stated that this may lead to the creation of some new procedure codes which do not ultimately receive FDA approval, as is the case now.

CMS and CDC have carefully reviewed the comments received at the ICD-9-CM Coordination and Maintenance Committee meeting as well as the written comments submitted. Most commenters proposed a limited freeze on code updates to both ICD-9-CM and ICD-10-CM and ICD-10-PCS code sets, with an exception made for adding codes for new technologies and diseases. Providing this exception would comply with section 503(a) of Public Law 108-173, which, as previously stated, includes a requirement for updating ICD-9-CM codes twice a year to capture new technologies. There was support for making the last regular update on October 1, 2011. The commenters recommended that the ICD-9-CM Coordination and Maintenance Committee continue to discuss any new code updates for both coding systems. However, new codes would only be added to ICD-9-CM or ICD-10 to capture new technologies, as required by section 503(a) of Public Law 108-173. Other coding issues raised would be held for consideration after ICD-10 is implemented.

In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23913), we solicited additional input on this subject, especially in light of the requirements on hospitals for meaningful use of electronic health records. We welcomed public comments that explore whether a freeze is needed to help with adoption of health IT, given other priorities such as achievement of meaningful use and implementation of ICD-10 by FY 2013. We welcomed input on having the last regular, annual update to both ICD-9-CM and ICD-10 be made on October 1, 2011. On October 1, 2012, there would be only limited code updates to both the ICD-9-CM and ICD-10 coding systems to capture new technologies and diseases. On October 1, 2013, there would be only limited code updates to ICD-10 to capture new technologies and diagnoses. Any other issues raised would be considered for implementation in ICD 10 on October 1, 2014, a year after ICD-10 is implemented. We agree with commenters that there is a need to provide the provider, payer, and vendor community time to prepare for the implementation of ICD-10 and the accompanying system and product updates. The vendor community is especially interested in providing a more stable code set for ICD-10 while they are developing new products.

Comment: A number of commenters supported the recommendation that the last regular update to ICD-9-CM and ICD-10-CM/PCS be implemented on October 1, 2011, with only limited code updates to both ICD-9-CM and ICD-10-CM/PCS on October 1, 2012, to capture new technologies and procedures as well as new diseases. Commenters stated that successful implementation of ICD-10 will require significant planning, education, and systems modifications. Continuing regular updates to ICD-9-CM and ICD-10-CM/PCS would make the implementation of these new coding systems more costly and complex. The commenters recommended that updates occurring on October 1, 2012, be limited to proposals for urgently needed codes. They stated that such proposals should make a “clear and convincing” case to the ICD-9-CM Coordination and Maintenance Committee, including public comment as to why the proposal cannot wait for the next regularly scheduled updates. An example of the emergence of a new disease such as H1N1 influenzas was provided.

Several commenters who supported the limited freeze stated that, by accommodating the process for the capture of new technologies and disease during this period, CMS is not only in compliance with section 503(a) of Public Law 108-173 requirements for new technology, but also anticipates that new diagnosis codes may be needed to capture new diseases, as we have seen with the Avian and H1N1 influenzas. The commenters called this a thoughtful approach which should allow the freeze of code sets while still accommodating new codes for new technologies and procedures as well as urgent needs to capture new diseases. Several commenters also stated that most practicing physicians and their staff have not had sufficient opportunity to become familiar with ICD-10-CM. They believed that this freeze will allow physicians and physician specialty groups a better opportunity to become familiar with the codes common to their specialty prior to the implementation of ICD-10. Other comments who supported the recommendations for a limited code freeze recommended that CMS and CDC develop strict criteria that a code proposal must meet in order to qualify for the limited update during the freeze period.

Several commenters recommended that there be no updates to ICD-10-CM/PCS on October 1, 2013, unless absolutely necessary. They indicated that an example of an urgent need was that of a pandemic that could not be otherwise reported with existing codes. The commenters stated that they understood the statutory requirements for add-on payments for new technology under the inpatient payment system, and urged CMS to consider alternative solutions to recognize such new technologies. Other commenters opposed any ICD-10 code updates on October 1, 2013. The commenters stated that a total freeze was needed on October 1, 2013, to enable users of the classification system the opportunity to prepare for ICD-10.

One commenter who strongly supported the limited freeze offered an example of the possible impact of not pursuing a code freeze would have on its organization. This organization is currently working with clients to complete the necessary software updates for the adoption of ICD-10 by early next year. Based on its analysis, the work is not confined to systems but also involves coding and billing activities for healthcare claims. The commenter stated that there would be an impact on physician documentation, problem lists, decision support, laboratory, emergency department, radiology, nursing, scheduling, registration management, and other internal systems. The commenter opined that, by continuing regular code updates without a freeze, they would have to rework activities and spend cycle time doing maintenance updates to software and content updates they had already performed to include additional annual code updates. The ICD-10 updates they make will need to be tested and maintenance activities performed to build the necessary reference data to support production adoption of ICD-10.

One commenter strongly opposed the partial freeze for FY 2012. The commenter stated that accurate, specific code assignment is a prerequisite for accurate physician and hospital profiling and value-based purchasing. The commenter stated that ICD-10-CM is an imperfect system and that refinements to ICD-9-CM should be carried over to ICD-10 prior to its implementation date of October 1, 2013. The commenter urged CMS to continue to work on refining ICD-10. Another commenter opposed any freeze of ICD-9-CM or ICD-10 codes. The commenter stated that codes should continue to be updated as usual each year so that physician and hospital efficiency can be more accurately measured with accurate codes.

Several commenters supported the limited freeze, but requested that the last regular code updates be on October 1, 2012, instead of 2011. The commenters stated that a 3-year freeze from October 1, 2011 through October 1, 2014 was overly long.

Response: We will review all comments received on the partial freeze as part of the ICD-9-CM Coordination and Maintenance Committee process as well as these additional comments received and summarized above. A final decision on whether or not there will be a partial code freeze will be announced at the September 15-16, 2010 ICD-9-CM Coordination and Maintenance Committee. An agenda for this meeting will be posted on the CMS Web site by mid-August 2010 at http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp.

We believe that this advance notice of a partial code freeze provides the health care industry ample time to request last major code updates to ICD-9-CM and ICD-10, which could be discussed at the September 15-16, 2010 and the March 2011 ICD-9-CM Coordination and Maintenance Committee meeting. Codes discussed at these two meetings would be considered for the final major code updates on October 1, 2011. Any code issues raised after that time would be addressed at the ICD-9-CM Coordination and Maintenance Committee meetings in September 2011 through March 2013 to determine if they represented new technologies or new diseases. Any new technologies and diseases would be added during the regular annual updates. Other code requests would be held for implementation on October 1, 2014.

We welcome additional input on having the last regular code updates to ICD-9-CM and ICD-10 on October 1, 2011, and to only add codes for new technologies and diseases on October 1, 2012 and 2013. We also welcome additional input on having the next regular update to ICD-10 occur again on October 1, 2014.

Information on ICD-10 can be found on the CMS Web site at: http://www.cms.hhs.gov/ICD10. The final ICD-10 version of MS-DRGs would be adopted under the formal rulemaking process as part of our annual IPPS updates.

c. Processing of 25 Diagnosis Codes and 25 Procedure Codes on Hospital Inpatient Claims

We have received repeated requests from the hospital community to process all 25 diagnosis codes and 25 procedure codes submitted on electronic hospital inpatient claims. Hospitals can submit up to 25 diagnoses and 25 procedures; however, CMS' current system limitations allow for the processing of only the first 9 diagnoses and 6 procedures. While CMS accepts all 25 diagnoses and 25 procedures submitted on the claims, we do not process all of the codes because of these system limitations. We recognize that much valuable information is lost by not processing the additional diagnosis and procedure codes that are reported by hospitals.

We responded to hospitals' requests that we process up to 25 diagnosis codes and 25 procedure codes in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43798). In that final rule, we referred readers to the ICD-10 final rule (74 FR 3328 through 3362) where we discuss the updating of Medicare systems prior to the implementation of ICD-10 on October 1, 2013. We mentioned that part of the system updates in preparation for ICD-10 is the “expansion of our ability to process more diagnosis and procedure codes.” In the FY 2009 IPPS final rule (73 FR 48433 through 48444), we also responded to multiple requests to increase the number of codes processed from 9 diagnosis and 6 procedure codes to 25 diagnosis and 25 procedure codes.

CMS is currently undergoing extensive system updates as part of the move to 5010, which includes the ability to accept ICD-10 codes. This complicated transition involves converting many internal systems prior to October 1, 2013, when ICD-10 will be implemented. One important step in this planned conversion process is the expansion of our ability to process additional diagnosis and procedure codes. We are currently planning to complete the expansion of this internal system capability so that we are able to process up to 25 diagnoses and 25 procedures on hospital inpatient claims as part of the HIPPA ASC X12 Technical Reports Type 3, Version 005010 (Version 5010) standards system update. CMS will be able to process up to 25 diagnosis codes and 25 procedure codes when received on the 5010 format starting on January 1, 2011. We recognize the value of the additional information provided by this coded data for multiple uses such as for payment, quality measures, outcome analysis, and other important uses. We will continue to pursue this additional processing capacity as aggressively as possible in response to the multiple requests from the hospital industry. We appreciate the support of the health care community for this extensive system update process that will allow us to process more of this important data. Therefore, for claims submitted on the 5010 format beginning January 1, 2011, we will increase the capacity to process diagnosis and procedure codes on hospital inpatient claims from the current 9 diagnoses and 6 procedures up to 25 diagnoses and 25 procedures.

Comment: Several commenters commended CMS on its plans to accept and process up to 25 diagnoses and 25 procedures on hospital inpatient claims submitted on the 5010 format beginning January 1, 2011. One commenter expressed appreciation for CMS' recognition that a complete picture of patients' clinical conditions and procedures is necessary in order to accurately measure quality, analyze outcomes, assess severity of illness, and determine reimbursement.

Response: We appreciate the support for our plan to accept and process up to 25 diagnoses and 25 procedures on hospital inpatient claims submitted on the 5010 format beginning January 1, 2011. We will keep the providers updated on our progress in this activity.

ICD-10 MS-DRGs

We received comments on the creation of the ICD-10 version of the MS-DRGs, which will be implemented on October 1, 2013 (FY 2014) when we implement the reporting of ICD-10 codes. While we did not propose an ICD-10 version of the MS-DRGs, CMS has been actively involved in converting our current MS-DRGs from ICD-9-CM codes to ICD-10 codes and sharing this information through the ICD-9-CM Coordination and Maintenance Committee. CMS undertook this early conversion project to assist other payers and providers in understanding how to go about their own conversion projects. We posted ICD-10 MS-DRGs based on V26.0 (FY 2009) of the MS-DRGs. We also posted a paper that describes how CMS went about completing this project and suggestions for others to follow. All of this information can be found on our Web site at: http://www.cms.gov/ICD10/ 17_ICD10_MS_DRG_Conversion_Project.asp. We will continue to keep the public updated on our maintenance efforts for ICD-10-CM and ICD-10-PCS coding systems as well as the General Equivalence Mappings that assist in conversion through the ICD-9-CM Coordination and Maintenance Committee. Information on these committee meetings can be found at: http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp.

Comment: Several commenters recommended that the ICD-10 MS-DRG GROUPER logic be available no later than the FY 2013 rulemaking period, with an extended public comment period in order to allow providers sufficient time to analyze and model the proposed MS-DRG groupings prior to its implementation on October 1, 2013.

Response: CMS initiated early efforts to convert the MS-DRGs from ICD-9-CM codes to ICD-10 codes. As discussed earlier, the public was informed of this project through the ICD-9-CM Coordination and Maintenance Committee. Summary reports of those meetings where this ICD-10 conversion of MS-DRGs took place can be found at http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp. Currently, we have Version 26.0 of the ICD-10 MS-DRGs posted for public review. During FY 2011, we will post Version 28.0 of the ICD-10 MS-DRGS based on the FY 2011 MS-DRGs (Version 28.0) that we are finalizing in this final rule. This ICD-10 MS-DRG Version 28.0 will also include the CC Exclusion List, which was not posted with Version 26.0. We will be discussing this update at the September 15-16, 2010 ICD-9-CM Coordination and Maintenance Committee Meeting. A complete agenda for this meeting will be posted in mid-August 2010 at: http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp. The registration site for the meeting will open on August 13, 2010. We will continue to work with the public to explain how we are approaching the conversion of MS-DRGs to ICD-10 and will post drafts of updates as they are developed for public review. The final version of the ICD-10 MS-DRGs to be implemented in FY 2014 will be subject to notice and comment rulemaking. In the meantime, we will provide extensive and detailed information on this activity through the ICD-9-CM Coordination and Maintenance Committee.

12. Other Issues Not Addressed in the Proposed Rule

We received a number of public comments on issues that were not within the scope of the proposals in the FY 2011 IPPS/LTCH PPS proposed rule.

a. Rechargeable Dual Array Deep Brain Stimulation System

We received a public comment requesting that CMS assign the combination of procedure codes representing rechargeable systems for deep brain stimulation therapy, code 02.93 (Implantation or replacement of intracranial neurostimulator lead(s)), and code 86.98 (Insertion or replacement of dual array rechargeable neurostimulator pulse generator) to MS-DRGs 023 and 024 (Craniotomy with Major Device Implant/Acute Complex CNS PDX with MCC or Chemo Implant and Craniotomy with Major Device Implant/Acute Complex CNS PDX without MCC, respectively). The commenter stated that this would allow all full system dual array deep brain stimulation cases to be appropriately grouped to the same MS-DRGs. The commenter stated that the procedures to implant the rechargeable and nonrechargeable dual array systems are similar clinically and with respect to resource utilization. Currently, codes 02.93 and 86.98 are assigned to MS-DRGs 025 through 027 (Craniotomy and Endovascular Intracranial Procedures with MCC, Craniotomy and Endovascular Intracranial Procedures with CC, and Craniotomy and Endovascular Intracranial Procedures without MCC/CC, respectively).

This comment is outside the scope of the FY 2011 IPPS/LTCH PPS proposed rule, as we did not propose any changes to MS-DRGs 023 and 024 for rechargeable systems for deep brain stimulation therapy. Therefore, we are not addressing this issue for FY 2011. As we stated in FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23864), we encourage individuals with comments about MS-DRG classifications to submit these comments no later than early December of each year so they can be carefully considered for possible inclusion in the annual proposed rule and, if included, may be subject to public review and comment.

b. IntraOperative Electron RadioTherapy (IOERT)

We received a public comment requesting that CMS update the MS-DRG mapping assignments for procedure code 92.41 (Intra-operative electron radiation therapy) to ensure the cost of this technology is captured in each MS-DRG involving tumor removal in the rectum, head/neck, pancreas, lung, genitourinary, soft tissue, and breast. IntraOperative Electron RadioTherapy (IOERT) is the direct application of radiation to a tumor and/or tumor bed while the patient is undergoing surgery for cancer. Currently, this code is not assigned to a specific MS-DRG.

This comment is outside the scope of the FY 2011 IPPS/LTCH PPS proposed rule, as we did not propose any changes to the MS-DRG for IOERT. We refer the commenter to section II.B.2 of the proposed rule (75 FR 23864) where we discuss the timeline for submission of comments about MS-DRG classifications.

c. Brachytherapy

We received a public comment requesting that CMS assign procedure code 92.27 (Implantation or insertion of radioactive elements) to various MS-DRGs where the use of brachytherapy sources has been expanded. In addition, it was recommended that appropriate separate payment for the brachytherapy sources be allowed so that hospitals may be reimbursed appropriately for the unique source cost per patient. Brachytherapy, also called seed implantation, involves placing radioactive sources in or near the tumor either as a permanent or temporary implant.

This comment is outside the scope of the FY 2011 IPPS/LTCH PPS proposed rule, as we did not propose any changes to the MS-DRG for brachytherapy. We refer the commenter to section II.B.2 of the proposed rule (75 FR 23864) where we discuss the timeline for submission of comments about MS-DRG classifications.

d. Excisional Debridement

We received a public comment recommending that procedure code 86.22 (Excisional debridement of wound, infection, or burn) be reclassified from an OR procedure to a non-OR procedure. The commenter stated that many excisional debridements are not performed in the operating room setting, but instead are done in wound clinics, physician offices, and in patient rooms. The commenter interpreted the classification of code 86.22 to be that of a proxy for severity of illness before MS-DRGs were implemented. With the more serious pressure ulcers, Stages 3 and 4, being classified as MCCs, according to the commenter, the need to classify code 86.22 as an OR is no longer necessary.

This comment is outside the scope of the FY 2011 IPPS/LTCH PPS proposed rule, as we did not propose any changes for excisional debridement. We refer the commenter to section II.B.2 of the proposed rule (75 FR 23864) where we discuss the timeline for submission of comments about MS-DRG classifications.

H. Recalibration of MS-DRG Weights

As we proposed, in developing the FY 2011 system of weights, we used two data sources: Claims data and cost report data. As in previous years, the claims data source is the MedPAR file. This file is based on fully coded diagnostic and procedure data for all Medicare inpatient hospital bills. The FY 2009 MedPAR data used in this final rule include discharges occurring on October 1, 2008, through September 30, 2009, based on bills received by CMS through March 31, 2010, from all hospitals subject to the IPPS and short-term, acute care hospitals in Maryland (which are under a waiver from the IPPS under section 1814(b)(3) of the Act). The FY 2009 MedPAR file used in calculating the proposed relative weights includes data for approximately 10,898,371 Medicare discharges from IPPS providers. Discharges for Medicare beneficiaries enrolled in a Medicare Advantage managed care plan are excluded from this analysis. The data exclude CAHs, including hospitals that subsequently became CAHs after the period from which the data were taken. The second data source used in the cost-based relative weighting methodology is the FY 2008 Medicare cost report data files from HCRIS (that is, cost reports beginning on or after October 1, 2007, and before October 1, 2008), which represents the most recent full set of cost report data available. We used the March 31, 2010 update of the HCRIS cost report files for FY 2008 in setting the relative cost-based weights.

The methodology we used to calculate the DRG cost-based relative weights from the FY 2009 MedPAR claims data and FY 2008 Medicare cost report data is as follows:

  • To the extent possible, all the claims were regrouped using the proposed FY 2011 MS-DRG classifications discussed in sections II.B. and G. of the preamble of this final rule.
  • The transplant cases that were used to establish the relative weights for heart and heart-lung, liver and/or intestinal, and lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively) were limited to those Medicare-approved transplant centers that have cases in the FY 2009 MedPAR file. (Medicare coverage for heart, heart-lung, liver and/or intestinal, and lung transplants is limited to those facilities that have received approval from CMS as transplant centers.)
  • Organ acquisition costs for kidney, heart, heart-lung, liver, lung, pancreas, and intestinal (or multivisceral organs) transplants continue to be paid on a reasonable cost basis. Because these acquisition costs are paid separately from the prospective payment rate, it is necessary to subtract the acquisition charges from the total charges on each transplant bill that showed acquisition charges before computing the average cost for each MS-DRG and before eliminating statistical outliers.
  • Claims with total charges or total lengths of stay less than or equal to zero were deleted. Claims that had an amount in the total charge field that differed by more than $10.00 from the sum of the routine day charges, intensive care charges, pharmacy charges, special equipment charges, therapy services charges, operating room charges, cardiology charges, laboratory charges, radiology charges, other service charges, labor and delivery charges, inhalation therapy charges, emergency room charges, blood charges, and anesthesia charges were also deleted.
  • At least 96.1 percent of the providers in the MedPAR file had charges for 10 of the 15 cost centers. Claims for providers that did not have charges greater than zero for at least 10 of the 15 cost centers were deleted.
  • Statistical outliers were eliminated by removing all cases that were beyond 3.0 standard deviations from the mean of the log distribution of both the total charges per case and the total charges per day for each MS-DRG.
  • Effective October 1, 2008, because hospital inpatient claims include a POA indicator field for each diagnosis present on the claim, only for purposes of relative weight-setting, the POA indicator field was reset to “Y” for “Yes” for all claims that otherwise have an “N” (No) or a “U” (documentation insufficient to determine if the condition was present at the time of inpatient admission) in the POA field.

Under current payment policy, the presence of specific HAC codes, as indicated by the POA field values, can generate a lower payment for the claim. Specifically, if the particular condition is present on admission (that is, a “Y” indicator is associated with the diagnosis on the claim), then it is not a HAC, and the hospital is paid for the higher severity (and, therefore, the higher weighted MS-DRG). If the particular condition is not present on admission (that is, an “N” indicator is associated with the diagnosis on the claim) and there are no other complicating conditions, the DRG GROUPER assigns the claim to a lower severity (and, therefore, the lower weighted MS-DRG) as a penalty for allowing a Medicare inpatient to contract a HAC. While the POA reporting meets policy goals of encouraging quality care and generates program savings, it presents an issue for the relative weight-setting process. Because cases identified as HACs are likely to be more complex than similar cases that are not identified as HACs, the charges associated with HACs are likely to be higher as well. Thus, if the higher charges of these HAC claims are grouped into lower severity MS-DRGs prior to the relative weight-setting process, the relative weights of these particular MS-DRGs would become artificially inflated, potentially skewing the relative weights. In addition, we want to protect the integrity of the budget neutrality process by ensuring that, in estimating payments, no increase to the standardized amount occurs as a result of lower overall payments in a previous year that stem from using weights and case-mix that are based on lower severity MS-DRG assignments. If this would occur, the anticipated cost savings from the HAC policy would be lost.

To avoid these problems, we reset the POA indicator field to “Y” only for relative weight-setting purposes for all claims that otherwise have a “N” or an “U” in the POA field. This resetting “forced” the more costly HAC claims into the higher severity MS-DRGs as appropriate, and the relative weights calculated for each MS-DRG more closely reflect the true costs of those cases.

Once the MedPAR data were trimmed and the statistical outliers were removed, the charges for each of the 15 cost groups for each claim were standardized to remove the effects of differences in area wage levels, IME and DSH payments, and for hospitals in Alaska and Hawaii, the applicable cost-of-living adjustment. Because hospital charges include charges for both operating and capital costs, we standardized total charges to remove the effects of differences in geographic adjustment factors, cost-of-living adjustments, and DSH payments under the capital IPPS as well. Charges were then summed by MS-DRG for each of the 15 cost groups so that each MS-DRG had 15 standardized charge totals. These charges were then adjusted to cost by applying the national average CCRs developed from the FY 2008 cost report data.

The 15 cost centers that we used in the relative weight calculation are shown in the following table. The table shows the lines on the cost report and the corresponding revenue codes that we used to create the 15 national cost center CCRs.

BILLING CODE 4120-01-P

BILLING CODE 4120-01-C

We developed the national average CCRs as follows:

Taking the FY 2008 cost report data, we removed CAHs, Indian Health Service hospitals, all-inclusive rate hospitals, and cost reports that represented time periods of less than 1 year (365 days). We included hospitals located in Maryland as we are including their charges in our claims database. We then created CCRs for each provider for each cost center (see prior table for line items used in the calculations) and removed any CCRs that were greater than 10 or less than 0.01. We normalized the departmental CCRs by dividing the CCR for each department by the total CCR for the hospital for the purpose of trimming the data. We then took the logs of the normalized cost center CCRs and removed any cost center CCRs where the log of the cost center CCR was greater or less than the mean log plus/minus 3 times the standard deviation for the log of that cost center CCR. Once the cost report data were trimmed, we calculated a Medicare-specific CCR. The Medicare-specific CCR was determined by taking the Medicare charges for each line item from Worksheet D-4 and deriving the Medicare-specific costs by applying the hospital-specific departmental CCRs to the Medicare-specific charges for each line item from Worksheet D-4. Once each hospital's Medicare-specific costs were established, we summed the total Medicare-specific costs and divided by the sum of the total Medicare-specific charges to produce national average, charge-weighted CCRs.

After we multiplied the total charges for each MS-DRG in each of the 15 cost centers by the corresponding national average CCR, we summed the 15 “costs” across each MS-DRG to produce a total standardized cost for the MS-DRG. The average standardized cost for each MS-DRG was then computed as the total standardized cost for the MS-DRG divided by the transfer-adjusted case count for the MS-DRG. The average cost for each MS-DRG was then divided by the national average standardized cost per case to determine the relative weight.

The new cost-based relative weights were then normalized by an adjustment factor of 1.57489 so that the average case weight after recalibration was equal to the average case weight before recalibration. The normalization adjustment is intended to ensure that recalibration by itself neither increases nor decreases total payments under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act.

The 15 national average CCRs for FY 2011 are as follows:

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

Since FY 2009, the relative weights have been based on 100 percent cost weights based on our MS-DRG grouping system.

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

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

I. Add-On Payments for New Services and Technologies

1. Background

Sections 1886(d)(5)(K) and (L) of the Act establish a process of identifying and ensuring adequate payment for new medical services and technologies (sometimes collectively referred to in this section as “new technologies”) under the IPPS. Section 1886(d)(5)(K)(vi) of the Act specifies that a medical service or technology will be considered new if it meets criteria established by the Secretary after notice and opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act specifies that a new medical service or technology may be considered for new technology add-on payment if, “based on the estimated costs incurred with respect to discharges involving such service or technology, the DRG prospective payment rate otherwise applicable to such discharges under this subsection is inadequate.” We note that beginning with FY 2008, CMS transitioned from CMS-DRGs to MS-DRGs.

The regulations implementing these provisions specify three criteria for a new medical service or technology to receive the additional payment: (1) The medical service or technology must be new; (2) the medical service or technology must be costly such that the DRG rate otherwise applicable to discharges involving the medical service or technology is determined to be inadequate; and (3) the service or technology must demonstrate a substantial clinical improvement over existing services or technologies. These three criteria are explained below in the ensuing paragraphs in further detail.

Under the first criterion, as reflected in 42 CFR 412.87(b)(2), a specific medical service or technology will be considered “new” for purposes of new medical service or technology add-on payments until such time as Medicare data are available to fully reflect the cost of the technology in the MS-DRG weights through recalibration. Typically, there is a lag of 2 to 3 years from the point a new medical service or technology is first introduced on the market (generally on the date that the technology receives FDA approval/clearance) and when data reflecting the use of the medical service or technology are used to calculate the MS-DRG weights. For example, data from discharges occurring during FY 2009 are used to calculate the FY 2011 MS-DRG weights in this final rule. Section 412.87(b)(2) of the regulations therefore provides that “a medical service or technology may be considered new within 2 or 3 years after the point at which data begin to become available reflecting the ICD-9-CM code assigned to the new medical service or technology (depending on when a new code is assigned and data on the new medical service or technology become available for DRG recalibration). After CMS has recalibrated the MS-DRGs, based on available data to reflect the costs of an otherwise new medical service or technology, the medical service or technology will no longer be considered `new' under the criterion for this section.”

The 2-year to 3-year period during which a medical service or technology can be considered new would ordinarily begin on the date on which the medical service or technology received FDA approval or clearance. (We note that, for purposes of this section of this final rule, we generally refer to both FDA approval and FDA clearance as FDA “approval.”) However, in some cases, there may be few to no Medicare data available for the new service or technology following FDA approval. For example, the newness period could extend beyond the 2-year to 3-year period after FDA approval is received in cases where the product initially was generally unavailable to Medicare patients following FDA approval, such as in cases of a national noncoverage determination or a documented delay in bringing the product onto the market after that approval (for instance, component production or drug production has been postponed following FDA approval due to shelf life concerns or manufacturing issues). After the MS-DRGs have been recalibrated to reflect the costs of an otherwise new medical service or technology, the medical service or technology is no longer eligible for special add-on payment for new medical services or technologies (as specified under § 412.87(b)(2)). For example, an approved new technology that received FDA approval in October 2008 and entered the market at that time may be eligible to receive add-on payments as a new technology for discharges occurring before October 1, 2011 (the start of FY 2012). Because the FY 2012 MS-DRG weights would be calculated using FY 2010 MedPAR data, the costs of such a new technology would be fully reflected in the FY 2012 MS-DRG weights. Therefore, the new technology would no longer be eligible to receive add-on payments as a new technology for discharges occurring in FY 2012 and thereafter.

We do not consider a service or technology to be new if it is substantially similar to one or more existing technologies. That is, even if a technology receives a new FDA approval, it may not necessarily be considered “new” for purposes of new technology add-on payments if it is “substantially similar” to a technology that was approved by FDA and has been on the market for more than 2 to 3 years. In the FY 2006 IPPS final rule (70 FR 47351), we explained our policy regarding substantial similarity in detail and its relevance for assessing if the hospital charge data used in the development of the relative weights for the relevant DRGs reflect the costs of the technology. In that final rule, we stated that, for determining substantial similarity, we consider (1) whether a product uses the same or a similar mechanism of action to achieve a therapeutic outcome, and (2) whether a product is assigned to the same or a different DRG. We indicated that both of the above criteria should be met in order for a technology to be considered “substantially similar” to an existing technology. However, in that same final rule, we also noted that, due to the complexity of issues regarding the substantial similarity component of the newness criterion, it may be necessary to exercise flexibility when considering whether technologies are substantially similar to one another. Specifically, we stated that we may consider additional factors, depending on the circumstances specific to each application.

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43813 and 43814), we noted that the discussion of substantial similarity in the FY 2006 IPPS final rule related to comparing two separate technologies made by different manufacturers. Nevertheless, we stated that the criteria discussed in the FY 2006 IPPS final rule also are relevant when comparing the similarity between a new use and existing uses of the same technology (or a very similar technology manufactured by the same manufacturer). In other words, we stated that it is necessary to establish that the new indication for which the technology has received FDA approval is not substantially similar to that of the prior indication. We explained that such a distinction is necessary to determine the appropriate start date of the newness period in evaluating whether the technology would qualify for add-on payments (that is, the date of the “new” FDA approval or that of the prior approval), or whether the technology could qualify for separate new technology add-on payments under each indication.

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43814), we added a third factor of consideration to our analysis of whether a new technology is substantially similar to one or more existing technologies. Specifically, in making a determination of whether a technology is substantially similar to an existing technology, we will consider whether the new use of the technology involves the treatment of the same or similar type of disease and the same or similar patient population (74 FR 24130), in addition to considering the already established factors described in the FY 2006 IPPS final rule (that is, (1) whether a product uses the same or a similar mechanism of action to achieve a therapeutic outcome; and (2) whether a product is assigned to the same or a different DRG). As we noted in the FY 2010 IPPS/RY 2010 LTCH PPS final rule, if all three components are present and the new use is deemed substantially similar to one or more of the existing uses of the technology (that is beyond the newness period), we would conclude that the technology is not new and, therefore, is not eligible for the new technology add-on payment.

Under the second criterion, § 412.87(b)(3) further provides that, to be eligible for the add-on payment for new medical services or technologies, the MS-DRG prospective payment rate otherwise applicable to the discharge involving the new medical services or technologies must be assessed for adequacy. Under the cost criterion, to assess the adequacy of payment for a new technology paid under the applicable MS-DRG prospective payment rate, we evaluate whether the charges for cases involving the new technology exceed certain threshold amounts. In the FY 2004 IPPS final rule (68 FR 45385), we established the threshold at the geometric mean standardized charge for all cases in the MS-DRG plus 75 percent of 1 standard deviation above the geometric mean standardized charge (based on the logarithmic values of the charges and converted back to charges) for all cases in the MS-DRG to which the new medical service or technology is assigned (or the case-weighted average of all relevant MS-DRGs, if the new medical service or technology occurs in more than one MS-DRG).

However, section 503(b)(1) of Public Law 108-173 amended section 1886(d)(5)(K)(ii)(I) of the Act to provide that, beginning in FY 2005, CMS will apply “a threshold * * * that is the lesser of 75 percent of the standardized amount (increased to reflect the difference between cost and charges) or 75 percent of one standard deviation for the diagnosis-related group involved.” (We refer readers to section IV.D. of the preamble to the FY 2005 IPPS final rule (69 FR 49084) for a discussion of the revision of the regulations to incorporate the change made by section 503(b)(1) of Pub. L. 108-173.) Table 10 that was included in the IPPS/LTCH PPS final rule published in the Federal Register on August 27, 2009, contained the final thresholds that we used to evaluate applications for new technology add-on payments for the proposed rule for FY 2011 (74 FR 44173). However, we issued a supplemental proposed rule in the Federal Register on June 2, 2010 (75 FR 30756) that addressed the provisions of the Affordable Care Act that affected our proposed policies and payment rates for FY 2011 under the IPPS and the LTCH PPS. In addition, we issued a Federal Register notice on June 2, 2010 (75 FR 31118) and further instructions that addressed the provisions of the Affordable Care Act that affected the policies and payment rates for FY 2010 under the IPPS and the LTCH PPS. In these documents, we updated Table 10 that was published in the Federal Register on August 27, 2009 and Table 10 in the Addendum to the FY 2011 IPPS/LTCH PPS proposed rule to reflect the changes made by the Affordable Care Act.

In the September 7, 2001 final rule that established the new technology add-on payment regulations (66 FR 46917), we discussed the issue of whether the HIPAA Privacy Rule at 45 CFR parts 160 and 164 applies to claims information that providers submit with applications for new technology add-on payments. Specifically, we explained that health plans, including Medicare, and providers that conduct certain transactions electronically, including the hospitals that would be receiving payment under the FY 2001 IPPS final rule, are required to comply with the HIPAA Privacy Rule. We further explained how such entities could meet the applicable HIPAA requirements by discussing how the HIPAA Privacy Rule permitted providers to share with health plans information needed to ensure correct payment, if they had obtained consent from the patient to use that patient's data for treatment, payment, or health care operations. We also explained that, because the information to be provided within applications for new technology add-on payment would be needed to ensure correct payment, no additional consent would be required. The HHS Office for Civil Rights has since amended the HIPAA Privacy Rule, but the results remain. The HIPAA Privacy Rule does not require a covered entity to obtain consent from patients to use or disclose protected health information for the covered entity's treatment, payment, or health care operations purposes, and expressly permits such entities to use or to disclose protected health information for these purposes and for the treatment purposes of another health care provider and the payment purposes of another covered entity or health care provider. (We refer readers to 45 CFR 164.502(a)(1)(ii) and 164.506(c)(1) and (c)(3) and the Standards for Privacy of Individually Identifiable Health Information published in the Federal Register (67 FR 53208 through 53214) on August 14, 2002, for a full discussion of consent in the context of the HIPAA Privacy Rule.)

Under the third criterion, § 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 cost to charge ratios (“CCRs”) as described in § 412.84(h)) exceed the full DRG payment (including payments for IME and DSH, but excluding outlier payments), Medicare will make an add-on payment equal to the lesser of: (1) 50 percent of the estimated costs of the new technology (if the estimated costs for the case including the new technology exceed Medicare's payment); or (2) 50 percent of the difference between the full DRG payment and the hospital's estimated cost for the case. Unless the discharge qualifies for an outlier payment, Medicare payment is limited to the full MS-DRG payment plus 50 percent of the estimated costs of the new technology.

Section 1886(d)(4)(C)(iii) of the Act requires that the adjustments to annual MS-DRG classifications and relative weights must be made in a manner that ensures that aggregate payments to hospitals are not more or less than they were in the prior fiscal year (i.e., they are “budget neutral”). Therefore, in the past, we accounted for projected payments under the new medical service and technology provision during the upcoming fiscal year, while at the same time estimating the payment effect of changes to the MS-DRG classifications and recalibration. The impact of additional payments under this provision was then included in the budget neutrality factor, which was applied to the standardized amounts and the hospital-specific amounts. However, section 503(d)(2) of Public Law 108-173 provides that there shall be no reduction or adjustment in aggregate payments under the IPPS due to add-on payments for new medical services and technologies. Therefore, in accordance with section 503(d)(2) of Public Law 108-173, add-on payments for new medical services or technologies for FY 2005 and later years have not been subjected to budget neutrality.

In the FY 2009 IPPS final rule (73 FR 48561 through 48563), we modified our regulations at § 412.87 to codify our current practice of how CMS evaluates the eligibility criteria for new medical service or technology add-on payment applications. We also amended § 412.87(c) to specify that all applicants for new technology add-on payments must have FDA approval for their new medical service or technology by July 1 of each year prior to the beginning of the fiscal year that the application is being considered.

The Council on Technology and Innovation (CTI) at CMS oversees the agency's cross-cutting priority on coordinating coverage, coding and payment processes for Medicare with respect to new technologies and procedures, including new drug therapies, as well as promoting the exchange of information on new technologies between CMS and other entities. The CTI, composed of senior CMS staff and clinicians, was established under section 942(a) of Public Law 108-173. The Council is co-chaired by the Director of the Office of Clinical Standards and Quality (OCSQ) and the Director of the Center for Medicare (CM), who is also designated as the CTI's Executive Coordinator.

The specific processes for coverage, coding, and payment are implemented by CM, OCSQ, and the local claims-payment contractors (in the case of local coverage and payment decisions). The CTI supplements, rather than replaces, these processes by working to assure that all of these activities reflect the agency-wide priority to promote high-quality, innovative care. At the same time, the CTI also works to streamline, accelerate, and improve coordination of these processes to ensure that they remain up to date as new issues arise. To achieve its goals, the CTI works to streamline and create a more transparent coding and payment process, improve the quality of medical decisions, and speed patient access to effective new treatments. It is also dedicated to supporting better decisions by patients and doctors in using Medicare-covered services through the promotion of better evidence development, which is critical for improving the quality of care for Medicare beneficiaries.

CMS plans to continue its Open Door forums with stakeholders who are interested in CTI's initiatives. In addition, to improve the understanding of CMS' processes for coverage, coding, and payment and how to access them, the CTI has developed an “innovator's guide” to these processes. The intent is to consolidate this information, much of which is already available in a variety of CMS documents and in various places on the CMS Web site, in a user-friendly format. This guide was published in August 2008 and is available on the CMS Web site at: http://www.cms.hhs.gov/CouncilonTechInnov/Downloads/InnovatorsGuide8_25_08.pdf.

As we indicated in the FY 2009 IPPS final rule (73 FR 48554), we invite any product developers or manufacturers of new medical technologies to contact the agency early in the process of product development if they have questions or concerns about the evidence that would be needed later in the development process for the agency's coverage decisions for Medicare.

The CTI aims to provide useful information on its activities and initiatives to stakeholders, including Medicare beneficiaries, advocates, medical product manufacturers, providers, and health policy experts. Stakeholders with further questions about Medicare's coverage, coding, and payment processes, or who want further guidance about how they can navigate these processes, can contact the CTI at CTI@cms.hhs.gov or from the “Contact Us” section of the CTI home page (http://www.cms.hhs.gov/CouncilonTechInnov/).

We note that applicants for add-on payments for new medical services or technologies for FY 2012 must submit a formal request, including a full description of the clinical applications of the medical service or technology and the results of any clinical evaluations demonstrating that the new medical service or technology represents a substantial clinical improvement, along with a significant sample of data to demonstrate that the medical service or technology meets the high-cost threshold. Complete application information, along with final deadlines for submitting a full application, will be posted as it becomes available on our Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/08_newtech.asp. To allow interested parties to identify the new medical services or technologies under review before the publication of the proposed rule for FY 2012, the Web site also will list the tracking forms completed by each applicant.

Comment: A number of commenters addressed topics relating to the substantial similarity criteria, marginal cost factor for the new technology add-on payment, the potential implementation of ICD-10-CM, the use of external data in determining the cost threshold, paying new technology add-on payments for 2 to 3 years, mapping new technologies to the appropriate MS-DRG, and the use of the date that a ICD-9-CM code is assigned to a technology or the FDA approval date (whichever is later) as the start of the newness period.

Response: We did not request public comments nor propose to make any changes to any of the issues summarized above. Because these comments are outside of the scope of the provisions included in the proposed rule, we are not providing a complete summary of the comments or responding to them in this final rule.

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

Section 1886(d)(5)(K)(viii) of the Act, as amended by section 503(b)(2) of Public Law 108-173, provides for a mechanism for public input before publication of a notice of proposed rulemaking regarding whether a medical service or technology represents a substantial clinical improvement or advancement. The process for evaluating new medical service and technology applications requires the Secretary to—

  • Provide, before publication of a proposed rule, for public input regarding whether a new service or technology represents an advance in medical technology that substantially improves the diagnosis or treatment of Medicare beneficiaries;
  • Make public and periodically update a list of the services and technologies for which applications for add-on payments are pending;
  • Accept comments, recommendations, and data from the public regarding whether a service or technology represents a substantial clinical improvement; and
  • Provide, before publication of a proposed rule, for a meeting at which organizations representing hospitals, physicians, manufacturers, and any other interested party may present comments, recommendations, and data regarding whether a new medical service or technology represents a substantial clinical improvement to the clinical staff of CMS.

In order to provide an opportunity for public input regarding add-on payments for new medical services and technologies for FY 2011 prior to publication of the FY 2011 IPPS/RY 2011 LTCH PPS proposed rule, we published a notice in the Federal Register on November 27, 2009 (74 FR 62339 through 62342), and held a town hall meeting at the CMS Headquarters Office in Baltimore, MD, on February 19, 2010. In the announcement notice for the meeting, we stated that the opinions and alternatives provided during the meeting would assist us in our evaluations of applications by allowing public discussion of the substantial clinical improvement criterion for each of the FY 2011 new medical service and technology add-on payment applications before the publication of the FY 2011 proposed rule.

Approximately 80 individuals registered to attend the town hall meeting in person, while additional individuals listened over an open telephone line. Each of the three FY 2011 applicants presented information on its technology, including a discussion of data reflecting the substantial clinical improvement aspect of the technology. We considered each applicant's presentation made at the town hall meeting, as well as written comments submitted on the applications, in our evaluation of the new technology add-on applications for FY 2011 in the FY 2011 proposed rule and this final rule.

In response to the published notice and the new technology town hall meeting, we received 11 written comments regarding applications for FY 2011 new technology add-on payments. We summarized these comments or, if applicable, indicated that there were no comments received, at the end of each discussion of the individual applications in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23926 and 23927).

3. FY 2011 Status of Technologies Approved for FY 2010 Add-On Payments

a. Spiration® IBV® Valve System

Spiration, Inc. submitted an application for new technology add-on payments for the Spiration® IBV® Valve System (Spiration® IBV®). The Spiration® IBV® is a device that is used to place, via bronchoscopy, small, one-way valves into selected small airways in the lung in order to limit airflow into selected portions of lung tissue that have prolonged air leaks following surgery while still allowing mucus, fluids, and air to exit, thereby reducing the amount of air that enters the pleural space. The device is intended to control prolonged air leaks following three specific surgical procedures: lobectomy; segmentectomy; or lung volume reduction surgery (LVRS). According to the applicant, an air leak that is present on postoperative day 7 is considered “prolonged” unless present only during forced exhalation or cough. In order to help prevent valve migration, there are five anchors with tips that secure the valve to the airway. The implanted valves are intended to be removed no later than 6 weeks after implantation.

With regard to the newness criterion, the Spiration® IBV® received a HDE approval from the FDA on October 24, 2008. We were unaware of any previously FDA-approved predicate devices, or otherwise similar devices, that could be considered substantially similar to the Spiration® IBV®. However, the applicant asserted that the FDA had precluded the device from being used in the treatment of any patients until the Institutional Review Board (IRB) granted approvals regarding its study sites. Therefore, the Spiration® IBV® met the newness criterion once it obtained at least one IRB approval because the device would then be available on the market to treat Medicare beneficiaries.

After evaluation of the newness, costs, and substantial clinical improvement criteria for new technology payments for the Spiration® IBV® and consideration of the public comments we received on the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, including the additional analysis of clinical data and supporting information submitted by the applicant, we approved the Spiration® IBV® for new technology add-on payments for FY 2010. In that final rule, we noted that the Spiration® IBV® was the only device currently approved for the purpose of treating prolonged air leaks following lobectomy, segmentectomy, and LVRS patients in the United States. We stated that without the availability of this device, patients with prolonged air leaks (following lobectomy, segmentectomy, and LVRS) might otherwise remain inpatients in the hospital (and have a longer length of stay than they might otherwise have without the Spiration® IBV®) or might even require additional invasive surgeries to resolve the air leak. We also noted that use of the Spiration® IBV® may lead to more rapid beneficial resolution of prolonged air leaks and reduce recovery time following the three lung surgeries mentioned above.

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43823), we indicated that we remained interested in seeing whether the clinical evidence continues to find it to be effective. This approval was on the basis of using the Spiration® IBV® consistent with the FDA approval (HDE). Accordingly, we emphasized the need for appropriate patient selection. Therefore, we limited the add-on payment to cases involving prolonged air leaks following lobectomy, segmentectomy, and LVRS in MS-DRGs 163, 164, and 165. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43823), we stated that cases involving the Spiration® IBV® that are eligible for the new technology add-on payment are identified by assignment to MS-DRGs 163, 164, and 165 with procedure code 33.71 or 33.73 in combination with one of the following procedure codes: 32.22, 32.30, 32.39, 32.41, or 32.49.

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we stated that the average cost of the Spiration® IBV® is reported as $2,750. Based on data from the FY 2010 application, the average amount of valves per case is 2.5. Therefore, the total maximum cost for the Spiration® IBV® was expected to be $6,875 per case ($2,750 × 2.5). Under § 412.88(a)(2) of our regulations, new technology add-on payments are limited to the lesser of 50 percent of the average cost of the device or 50 percent of the costs in excess of the MS-DRG payment for the case. As a result, we finalized a maximum add-on payment for a case involving the Spiration® IBV® as $3,437.50.

In the FY 2011 IPPS/LTCH PPS proposed rule, we did not propose any changes to the new technology add-on payments for the Spiration® IBV®. We did not receive any public comments on whether to continue or discontinue the new technology add-on payment for the Spiration® IBV® for FY 2011. Therefore, for FY 2011, we are continuing new technology add-on payments for cases involving the Spiration® IBV® in FY 2011, with a maximum add-on payment of $3,437.50. However, we did receive one public comment on the MS-DRGs and codes used to identify which cases involving the Spiration® IBV® are eligible for the new technology add-on payment.

Comment: One commenter, the manufacturer, explained that the coding requirements described above that identify cases of the Spiration® IBV® for new technology add-on payments do not account for all cases where a hospital may be using the device to treat patients with prolonged air leaks following lobectomy, segmentectomy, and LVRS consistent with the product's HDE approval. These cases occur when the hospital inserting the Spiration® IBV® did not perform the initial lobectomy, segmentectomy, or LVRS surgery; instead, the hospital inserting the device received the beneficiary as a transfer case. The commenter explained that there are instances when a hospital performs the initial surgery and then determines that treatment of the patient with the IBV® valve is appropriate but the hospital has not been approved to perform the IBV® valve insertion procedure under the HDE regulations. Therefore, the hospital must transfer the patient to an approved facility for treatment with the IBV® valve. If it were possible to consider this situation as one case, the commenter believed that, between the two hospitals, the new technology payment criteria as specified for FY 2010 (identified by assignment to MS-DRGs 163, 164, and 165 with procedure code 33.71 or 33.73 in combination with one of the following procedure codes: 32.22, 32.30, 32.39, 32.41, or 32.49) would be met. However, because insertion of the IBV® valve is limited to approved facilities, the commenter believed that that the hospital receiving such a patient for treatment for prolonged air leak following lobectomy, segmentectomy, and LVRS likely reports the case under ICD-9-CM diagnosis code 512.1 (Iatrogenic pneumothorax) as the principal diagnosis in the absence of a more specific code for prolonged air leak and because the second hospital did not perform the initial lobectomy, segmentectomy, or LVRS surgery. Such cases would be assigned to MS-DRGs 199, 200, or 201 (Pneumothorax with MCC, with CC, or with CC or MCC, respectively) based on the principal ICD-9-CM diagnosis code of 512.1 and are therefore ineligible for the new technology add-on payment based on the specifications finalized in FY 2010. In this situation, because the transferring hospital that performed the initial surgery did not insert the IBV® valve, it would also be ineligible for the new technology add-on payment. The commenter recommended that CMS allow an add-on payment in such cases by linking transfer hospitalizations cases that had an IBV® valve inserted at the receiving hospital to a previous claim in the patient's history to ensure that the patient had previously undergone a lobectomy, segmentectomy, or LVRS as reported by one of the following procedure codes: 32.22, 32.30, 32.39, 32.41 or 32.49. This would ensure that the Spiration® IBV® is being used consistent with its FDA approved indication for the treatment of prolonged air leaks following lobectomy, segmentectomy, or LVRS.

Response: We thank the commenter for the comments. We agree with the manufacturer that it is appropriate that all cases in which the Spiration® IBV® Valve is inserted consistent with its HDE approval be eligible for the approved new technology add-on payment. For this reason, we are expanding the new technology add-on payment for the Spiration® IBV® Valve to cases that map to MS-DRGs 199, 200, and 201 with an assigned principal diagnosis code of 512.1. In accordance with the FDA HDE approval, only approved hospital centers with an Internal Review Board (IRB) may implant the device. According to the manufacturer, all sites must be approved before the device will be shipped for use. The approval process includes an evaluation of the facility, training of physicians, an institutional compliance agreement, IRB process and documentation, and a purchasing agreement. The IRB ensures that the patient had a lobectomy, segmentectomy, or LVRS and had a prolonged air leak and then approves the device to be implanted in the patient. Therefore, due to the strict requirements associated with the HDE approval of this technology, even if a patient was transferred to a hospital for device implantation and the lobectomy, segmentectomy, or LVRS was not performed at that hospital (and, therefore, the surgery is not billed on the same claim as the implantation of the device), we believe our concerns regarding patient selection are addressed and that the hospital implanting the device is doing so to treat prolonged post-surgical air leaks. The manufacturer asserted that, in this transfer situation, the beneficiary's case would typically be assigned to diagnosis code 512.1, which maps to MS-DRGs 199, 200, and 201. For this reason, we are expanding the new technology add-on payment for the Spiration® IBV® Valve to cases that map to these MS-DRGs.

We performed an analysis to determine if the technology would still meet the cost criteria by adding these additional MS-DRGs to the applicant's cost analysis in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43820). The cases that map to MS-DRGs 199, 200, and 201 are small in number and, therefore, have a minimal effect on the case-weighted average standardized per case and the case-weighted threshold published in the FY 2010/RY 2010 LTCH PPS final rule. Therefore, the Spiration® IBV® would still meet the cost criteria with the inclusion of these additional MS-DRGs.

For FY 2011, in addition to making new technology add-on payments for cases of the Spiration® IBV® that map to MS-DRGs 163, 164, and 165 (with procedure code 33.71 or 33.73 in combination with one of the following procedure codes: 32.22, 32.30, 32.39, 32.41, or 32.49), we will make the new technology add-on payment for cases of the Spiration® IBV® that map to MS-DRGs 199, 200, and 201 with the presence of a diagnosis code of 512.1 in combination with procedure code 33.71 and 33.73. This determination will ensure that the hospital implanting the device receives the new technology add-on payment. We note that, in these cases, the transferring hospital performing the surgery will be subject to the transfer policy and would not receive the new technology add-on payment because it did not implant the device.

b. 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) in FY 2009. The TAH-t is a technology that is used as a bridge to heart transplant device for heart transplant-eligible patients with end-stage biventricular failure. The TAH-t pumps up to 9.5 liters of blood per minute. This high level of perfusion helps improve hemodynamic function in patients, thus making them better heart transplant candidates.

The TAH-t was approved by the FDA on October 15, 2004, for use as a bridge to transplant device in cardiac transplant-eligible candidates at risk of imminent death from biventricular failure. The TAH-t is intended to be used in hospital inpatients. One of the FDA's post-approval requirements is that the manufacturer agrees to provide a post-approval study demonstrating that success of the device at one center can be reproduced at other centers. The study was to include at least 50 patients who would be followed up to 1 year, including (but not limited to) the following endpoints: survival to transplant; adverse events; and device malfunction.

In the past, Medicare did not cover artificial heart devices, including the TAH-t. However, on May 1, 2008, CMS issued a final national coverage determination (NCD) expanding Medicare coverage of artificial hearts when they are implanted as part of a study that is approved by the FDA and is determined by CMS to meet CMS' Coverage with Evidence Development (CED) clinical research criteria. (The final NCD is available on the CMS Web site at: http://www.cms.hhs.gov/mcd/viewdecisionmemo.asp?id=211.)

We indicated in the FY 2009 IPPS/RY 2009 LTCH PPS final rule (73 FR 48555) that, because Medicare's previous coverage policy with respect to this device had precluded payment from Medicare, we did not expect the costs associated with this technology to be currently reflected in the data used to determine the relative weights of MS-DRGs. As we have indicated in the past, and as we discussed in the FY 2009 IPPS/RY 2009 LTCH PPS final rule, although we generally believe that the newness period would begin on the date that FDA approval was granted, in cases where the applicant can demonstrate a documented delay in market availability subsequent to FDA approval, we would consider delaying the start of the newness period. This technology's situation represented such a case. We also noted that section 1886(d)(5)(K)(ii)(II) of the Act requires that we provide for the collection of cost data for a new medical service or technology for a period of at least 2 years and no more than 3 years “beginning on the date on which an inpatient hospital code is issued with respect to the service or technology.” Furthermore, the statute specifies that the term “inpatient hospital code” means any code that is used with respect to inpatient hospital services for which payment may be made under the IPPS and includes ICD-9-CM codes and any subsequent revisions. Although the TAH-t has been described by the ICD-9-CM code(s) since the time of its FDA approval, because the TAH-t had not been covered under the Medicare program (and, therefore, no Medicare payment had been made for this technology), this code could not be “used with respect to inpatient hospital services for which payment” is made under the IPPS, and thus we assumed that none of the costs associated with this technology would be reflected in the Medicare claims data used to recalibrate the MS-DRG relative weights for FY 2009. For this reason, as discussed in the FY 2009 IPPS/RY 2009 LTCH PPS final rule, despite the FDA approval date of the technology, we determined that TAH-t would still be eligible to be considered “new” for purposes of the new technology add-on payment because the TAH-t met the newness criterion on the date that Medicare coverage began, consistent with issuance of the final NCD, effective on May 1, 2008.

After evaluation of the newness, costs, and substantial clinical improvement criteria for new technology add-on payments for the TAH-t and consideration of the public comments we received in response to the FY 2009 IPPS/RY 2009 LTCH PPS proposed rule, we approved the TAH-t for new technology add-on payments for FY 2009 (73 FR 48557). We indicated that we believed the TAH-t offered a new treatment option that previously did not exist for patients with end-stage biventricular failure. However, we indicated that we recognized that Medicare coverage of the TAH-t is limited to approved clinical trial settings. The new technology add-on payment status does not negate the restrictions under the NCD nor does it obviate the need for continued monitoring of clinical evidence for the TAH-t. We remain interested in seeing whether the clinical evidence demonstrates that the TAH-t continues to be effective. If evidence is found that the TAH-t may no longer offer a substantial clinical improvement, we reserve the right to discontinue new technology add-on payments, even within the 2- to 3-year period that the device may still be considered to be new. We also continued to make new technology add-on payments for the TAH-t in FY 2010. We welcome public comment regarding whether there is new evidence that demonstrates that the TAH-T continues to be effective and whether it should still be considered to be a substantial clinical improvement for FY 2011.

The new technology add-on payment for the TAH-t for FY 2010 is triggered by the presence of ICD-9-CM procedure code 37.52 (Implantation of total heart replacement system), condition code 30, and the diagnosis code reflecting clinical trial—V70.7 (Examination of participant in clinical trial). For FY 2010, we finalized a maximum add-on payment of $53,000 (that is, 50 percent of the estimated operating costs of the device of $106,000) for cases that involve this technology.

Our practice has been to begin and end new technology add-on payments on the basis of a fiscal year. In general, we extend add-on payments for an additional year only if the 3-year anniversary date of the product's entry on the market occurs in the latter half of the fiscal year (70 FR 47362). The TAH-t is still eligible to be considered “new” for purposes of the new technology add-on payment because the 3-year anniversary date of the TAH-t entry on the market was in the second half of the fiscal year and the TAH-t met the newness criterion on the date that Medicare coverage began, consistent with issuance of the final NCD, effective on May 1, 2008. Therefore, for FY 2011, we proposed to continue new technology add-on payments for cases involving the TAH-t in FY 2011 with a maximum add-on payment of $53,000.

Comment: Commenters supported our proposal to continue add-on payments for the TAH-t. The commenters believed that the TAH-t continues to represent a substantial clinical improvement for patients with biventricular heart failure in need of a heart transplant. One commenter, the manufacturer of the TAH-t, stated that the TAH-t continues to be the only biventricular replacement device that is available for patients, Medicare or otherwise, with biventricular failure. The commenter noted that the device is indicated for use as a “bridge to transplant” in cardiac transplant-eligible patients who are at risk of imminent death. The commenter stated that the device is approved by the FDA “* * * for use in-hospital, and, under a currently approved investigational device exemption (“IDE”) clinical study out of hospital as well.” The commenter stated that the TAH-t has been implanted in over 865 patients worldwide and that between January 1, 2009 and June 11, 2010, there were 15 TAH-t implants in the United States. Of these 15 patients, 10 were continuing on support, 4 received heart transplants, and 1 expired; the commenter stated that without the device, it is likely that all of the patients would have expired. The commenter asserted that it recently began to employ the use of a “* * * smaller, portable driver, known as the “Freedom Driver” as part of the TAH-t system.” The commenter noted that the Freedom Driver allows increased patient mobility so that patients may leave the hospital while waiting for a donor heart and that the Freedom Driver further demonstrated that the TAH-t was a substantial clinical improvement. The commenter asserted that the new driver increased the operating cost of the device from $106,000 to $124,700 and requested that the new technology add-on payment be increased from $53,000 to $62,350, accordingly.

Response: We agree with the commenters that, for patients with biventricular heart failure, the TAH-t continues to represent a substantial clinical improvement. With respect to the manufacturer's request for an increase in the new technology add-on payment amount for FY 2011, we note that the version of the TAH-t that contains the Freedom Driver is not currently approved to be marketed by the FDA. Rather, the device is being studied in a clinical trial under an IDE. The IDE allows the investigational device to be used in a clinical study in order to collect safety and effectiveness data to support a Premarket Approval (PMA) application or a Premarket Notification [510(k)] submission to FDA. An approved IDE permits a device to be shipped lawfully for the purpose of conducting investigations of the device without complying with other requirements of the Federal Food, Drug, and Cosmetic Act that would apply to devices in commercial distribution. For example, sponsors are not required to have an approved PMA application or cleared Premarket Notification 510(k), register their establishment, or list the device while the device is under investigation. Sponsors of IDEs are also exempt from the Quality System (QS) Regulation except for the requirements for design control, if applicable (unless the sponsor states an intention to comply with these requirements). An IDE does not constitute FDA approval to market the device. Once the clinical trial conducted under an IDE has been completed, the device may receive FDA approval or clearance to be legally marketed. If the modified TAH-t device using the Freedom Driver does receive FDA approval, we would require that a new technology application be formally submitted for review for new technology add-on payments for the TAH-t device using the Freedom Driver at that time. Because we have not received such an application and because the modified device is not yet approved by the FDA, we are unable to increase the new technology add-on payments for TAH-T for FY 2011. We would encourage the manufacturer to submit a new technology add-on payment application if and when it expects to receive FDA approval for the modified TAH-t with the Freedom Driver.

Therefore, as we proposed, we are continuing new technology add-on payments for cases involving the TAH-t in FY 2011 with a maximum add-on payment of $53,000.

4. FY 2011 Applications for New Technology Add-On Payments

We received five applications to be considered for new technology add-on payment for FY 2011. However, two applicants withdrew their applications: Nycomed Austria GmbH, which submitted an application for new technology add-on payments for FY 2011 for TachoSil®; and Zimmer, which submitted an application for new technology add-on payments for FY 2011 for the Dynesys Dynamic Stabilization System. Nycomed Austria GmbH withdrew its application from further review in January 2010, and Zimmer withdrew its application in February 2010. Because both applications were withdrawn prior to the town hall meeting and publication of the FY 2011 IPPS/LTCH PPS proposed rule, we are not discussing these two applications in this final rule.

A discussion of the remaining three applications is presented below. At the time the proposed rule was developed, one of the technologies had not yet received FDA approval. Since that time, that technology, the LipiScan TM IVUS, has received FDA approval.

a. Auto Laser Interstitial Thermal Therapy (AutoLITT TM) System

Monteris Medical submitted an application for new technology add-on payments for FY 2011 for the AutoLITT TM. We note that the applicant submitted an application for new technology add-on payments for FY 2010 but withdrew its application prior to the FY 2010 IPPS/RY 2010 LTCH PPS final rule. AutoLITT TM is a minimally invasive, MRI-guided laser tipped catheter designed to destroy malignant brain tumors with interstitial thermal energy causing immediate coagulation and necrosis of diseased tissue. The technology can be identified by ICD-9-CM procedure codes 17.61 (Laser interstitial thermal therapy [LITT] of lesion or tissue of brain under guidance), and 17.62 (Laser interstitial thermal therapy [LITT] of lesion or tissue of head and neck under guidance), which became effective on October 1, 2009.

The applicant asserts that the AutoLITT TM delivers laser energy to the lesion with a proprietary 3mm diameter probe that directs the energy radially (that is, at right angle to the axis of the probe, or side-firing) toward the targeted tumor tissue in a narrow beam profile and at the same time, a proprietary probe cooling system removes heat from tissue not directly in the path of the laser beam, ostensibly protecting it from thermal damage and enabling the physician to selectively ablate only targeted tissue. The AutoLITT TM received a 510K FDA clearance in May 2009. The AutoLITT TM is indicated for use to necrotize or coagulate soft tissue through interstitial irradiation or thermal therapy in medicine and surgery in the discipline of neurosurgery with 1064 nm lasers. The AutoLITT TM may be used in patients with glioblastoma multiforme brain (GBM) tumors. The applicant stated in its application and through supplemental information that, due to required updates, the technology was actually introduced to the market in December 2009. The applicant explained that it was necessary to reduce the thermal damage lines from three to one and complete International Electrotechnical Commission/Underwriter Laboratory testing, which led to the introduction of the technology to the market in December 2009, although the technology was approved by FDA in May 2009. The applicant also stated through supplementary information to its application that the first sale of the product took place on March 19, 2010. However, because the product was already available for use in December 2009, it appears that the newness date would begin in December 2009. In the FY 2011 IPPS/LTCH PPS proposed rule, we welcomed public comments on this issue.

With regard to the newness criterion, in the FY 2011 IPPS/LTCH PPS proposed rule, we expressed concern that the AutoLITT TM may be substantially similar to the device that it listed as its predicate device in its application to the FDA for approval. Specifically, in making a determination of substantial similarity, we consider the following: (1) Whether a product uses the same or similar mechanism of action to achieve a therapeutic action; (2) whether a product is assigned to the same or different MS-DRG; and (3) whether the new use of a technology involves the treatment of the same or similar type of disease and the same or similar patient population. The applicant identified Visual-ase as its predicate device (which was approved by the FDA in 2006), which is also used to treat tumors of the head and neck. The applicant maintains that AutoLITT TM can be distinguished from the Visual-ase by its mechanism of action (that is, side-firing laser versus elliptical firing). Additionally, as mentioned above, the technology contains a proprietary probe cooling system that removes heat from tissue not directly in the path of the laser beam. In the FY 2011 IPPS/LTCH PPS proposed rule, we welcomed comments from the public regarding whether or not the AutoLITT TM is substantially similar to the Visual-ase and if it meets the newness criteria.

Comment: One commenter described the components of the AutoLITT TM that should qualify the AutoLITT TM as “new”. Specifically, the commenter noted that the probe uses side-firing and has a gas-cooled tip. The commenter noted that probe drive is an MRI-compatible steering device and the software for the device provides thermal dose reporting in real time. In addition, the commenter explained that the software is designed to provide real time feedback to the surgeon and also to provide a discrete line of thermal dosage at the expanding boundary or isotherm. The commenter further explained that this isotherm is used by the surgeon to control treatment in comparison to the delineated pre-defined treatment or tumor boundary and also provides this information in a volume (that includes treatment and two axial planes) so that the surgeon can monitor and plan, in real time, the next heating cycle to complete the treatment regimen.

Response: We thank the commenter for the additional information on the AutoLITT TM. After reviewing all of the information provided by the applicant and the public, we believe that the AutoLITT TM uses a different mechanism of action when compared to the Visual-ase. We agree with the applicant that the AutoLITT TM can be distinguished from the Visual-ase by its side-firing laser versus elliptical-firing. In addition, the AutoLITT TM contains a proprietary probe cooling system that removes heat from tissue not directly in the path of the laser beam, while the Visual-ase does not contain this cooling system. Therefore, we do not believe the AutoLITT TM is substantially similar to the Visual-ase. Because the AutoLITT TM was available on the market beginning with December 2009 (and is not substantially similar to its predicate device), the technology is still within the 2 to 3 year newness period.

In an effort to demonstrate that AutoLITT TM meets the cost criterion, the applicant used 2007 Medicare data from the Healthcare Cost and Utilization Project (HCUP). We first note that the applicant believes that cases eligible for the AutoLITT TM will map to MS-DRG 25 (Craniotomy and Endovascular Intracranial Procedures with MCC), MS-DRG 26 (Craniotomy and Endovascular Intracranial Procedures with CC), and MS-DRG 27 (Craniotomy and Endovascular Intracranial Procedures without CC or MCC). The applicant explained through supplemental information to its application that most cases of the AutoLITT TM would map to MS-DRG 25 in the near-term. As the technology becomes more widely available, the applicant asserted that clinicians will use the technology instead of performing a craniotomy for brain cancer. Additionally, the applicant asserted that clinicians will expand their use of the technology beyond GBM to other different types of brain cancers, including metastases, which would map to other MS-DRGs aside from MS-DRG 25. The applicant further stated that life expectancy with brain cancer is predicated on the removal of as much of the cancer as possible and asserted that over time the AutoLITT TM will do a better job of removing the majority of the cancer that is present within the brain tissue compared to other procedures. The applicant believes that physicians using the AutoLITT TM have a better tool to remove more cancer, necrotize it more precisely, and access parts of the brain that surgical resection cannot access. Lastly, the applicant believes that the minimally invasive nature of the procedure will also result in broader usage to other less complicated procedures (as clinical and patient awareness expands).

The applicant searched HCUP hospital data for cases potentially eligible for the AutoLITT TM that was assigned one of the following ICD-9-CM primary diagnosis codes: A diagnosis code that begins with a prefix of 191 (Malignant neoplasm of brain); diagnosis code 225.0 (Benign neoplasm of brain and other parts of nervous system); or diagnosis code 239.6 (Neoplasm of the brain of unspecified nature). The applicant found 41,021 cases and weighted the standardized charge per case based on the number of cases found within each of the diagnosis codes listed above rather than the percentage of cases that would group to different MS-DRGs. Based on this analysis, the applicant calculated an average standardized charge per case of $57,511. While the applicant's analysis established a case-weighted average charge per case in the aggregate, it did not provide a case-weighted average standardized charge per case by MS-DRG (as required by the application).

The applicant also noted that their estimate of the case-weighted average standardized charge per case of $57,511 did not include charges related to the AutoLITT TM. Therefore, it is necessary to add the charges related to the device to the case-weighted average standardized charge per case in evaluating the cost threshold criterion. Although the applicant submitted data related to the estimated cost of the AutoLITT TM per case, the applicant stated that the cost of the device was proprietary information. Based on a study of charge compression data by RTI [4] and charge master data from Stanford University and University of California, San Francisco, the applicant estimates $38,886 in charges related to the AutoLITT TM (we note that some of the data used a markup of 294 percent of the costs). Adding the estimated charges related to the device to the average standardized charge per case resulted in a total average standardized charge per case of $96,397 ($57,511 plus $38,886). We note, in the applicant's discussion of substantial clinical improvement below, the applicant maintains that improved clinical outcomes using nonfocused LITT included reduced recovery time and a reduced rate of complications. Therefore, in the FY 2011 IPPS/LTCH PPS proposed rule, we sought public comment on how reduced recovery time and a reduced rate of complications would affect the total case-weighted average standardized charge per case and the average length of stay (for cases eligible for the AutoLITT TM).

Comment: The applicant submitted supplemental information and noted that, compared to a craniotomy, surgery involving the AutoLITT TM requires an MRI and/or interventional MRI. The commenter indicated that the addition of the MRI requires additional resources, namely a MRI technician, at a minimum, and a radiologist, as needed, to review images. In total, these additions would increase the level of resources a hospital would use to treat these patients, both in terms of direct costs (for example, labor, contracted physician resources, etc.), and fixed and indirect costs (for example, MRI, use of radiology office space, etc.) The commenter further added that overall additional time for the procedure (also a cost) is currently required to conduct an AutoLITT TM case compared to the standard of care (that is, craniotomy as asserted by the applicant). The commenter reported that during the clinical trials, cases of AutoLITT TM ranged from 10 to 12 hours (including OR, MRI, and Anesthesia time as opposed to 4 to 6 hours for a craniotomy). As efficiencies are gained in the hospitals working with the technology, the applicant predicts that this time will be reduced to 7 hours within the next year or so. In addition, the commenter believed that the updated HCUP analysis, which we discuss below, supports a standardized charge of $96,947. This supplemental data correlate to 2010 pricing information that the applicant received from two institutions demonstrating an approximate charge (not standardized) of $103,000 per case.

Response: We thank the commenter for providing this information. We considered this information in our decision (indicated below) on whether the AutoLITT TM meets the cost criterion.

As noted above, the applicant's analysis established a case-weighted average charge per case in the aggregate, but it did not provide a case-weighted average standardized charge per case by MS-DRG. However, the applicant explained through supplemental information to its application that the total average standardized charge per case significantly exceeds the cost threshold established by CMS for FY 2011 in Table 10 (74 FR 44173) of $84,185 for MS-DRG 25. As noted above, due to section 3401(a) of the Affordable Care Act which adjusted the FY 2010 applicable percentage increase (thus requiring CMS to revise the FY 2010 standardized amounts), for this final rule, we used the revised FY 2011 thresholds as published in the FY 2010 IPPS/RY 2010 LTCH PPS notice issued in the Federal Register on June 2, 2010 (75 FR 31213) to determine if the AutoLITT TM met the cost criterion. Therefore, using the revised FY 2011 thresholds, the total average standardized charge per case would also exceed the cost thresholds established by CMS of $58,591 for MS-DRG 26 and $47,033 for MS-DRG 27. Because the total average standardized charge per case exceeds the threshold amount for each individual MS-DRG to which the technology would map (MS-DRGs 25, 26, and 27), the applicant maintains that the AutoLITT TM would meet the cost criterion. In the FY 2011 IPPS/LTCH PPS proposed rule, we invited public comment on whether or not the AutoLITT TM meets the cost criterion for a new technology add-on payment for FY 2011.

Comment: In supplemental information provided to CMS, the applicant noted that, after further reviewing its cost analysis from the HCUP hospital data that was presented in the FY 2011 IPPS/LTCH PPS proposed rule, the applicant discovered that it inadvertently used discharges from all hospitals, including non-Medicare data, instead of only using Medicare data. Therefore, the applicant updated its analysis from the proposed rule and filtered the claims data in the HCUP database for Medicare claims with the same primary diagnosis codes listed above. Instead of the FY 2007 MedPAR database, the applicant used the most recent updated MedPAR database on the HCUP Web site, which was the FY 2008 MedPAR file. The applicant found a total of 12,816 cases with an average standardized charge of $58,061. Similar to above, adding the estimated charges related to the device to the average standardized charge per case resulted in a total average standardized charge per case of $96,947 ($58,061 plus $38,886). As noted above, the analysis from the HCUP database established a case-weighted average charge per case in the aggregate, but it did not provide a case-weighted average standardized charge per case by MS-DRG. Similar to above, the applicant maintains that the total average standardized charge per case significantly exceeds the revised cost thresholds established by CMS for FY 2011 in Table 10 (75 FR 31213) of $84,164 for MS-DRG 25. Additionally, the applicant maintains that the total average standardized charge per case would also exceed the cost thresholds established by CMS of $58,591 for MS-DRG 26 and $47,033 for MS-DRG 27.

Response: Even with the applicant's revised HCUP analysis, the applicant still did not establish a case-weighted average standardized charge per case by MS-DRG as required by 42 CFR 412.87(b)(3). To determine whether the applicant met the cost criterion, we performed an analysis of MedPAR data. We searched the FY 2009 MedPAR file for cases with a primary diagnosis that begins with a prefix of 191; diagnosis code 225.0; or diagnosis code 239.6. We found 1,711 cases (or 34.2 percent of all cases) in MS-DRG 25, 1,587 cases (or 31.7 percent of all cases) in MS-DRG 26, and 1,702 cases (or 34 percent of all cases) in MS-DRG 27. The average standardized charge per case was $86,678 for MS-DRG 25, $63,089 for MS-DRG 26, and $47,033 for MS-DRG 27, equating to a case-weighted average standardized charge per case of $65,685.

The average standardized charge per case does not include charges related to the AutoLITT TM; therefore, it is necessary next to add the charges related to the device to the average standardized charge per case to evaluate whether the cost threshold criterion is met. As noted above, the applicant estimates $38,886 in charges related to the AutoLITT TM. Adding the estimated charges related to the device to the average standardized charge per case (based on the case distribution from the FY 2009 MedPAR claims data analysis) resulted in a case-weighted average standardized charge per case of $104,571 ($65,685 plus $38,886).

Although we have established a case-weighted average standardized charge per case, the case-weighted average standardized charge per case above does not take into consideration reduced recovery time and a reduced rate of complications that would affect the total case-weighted average standardized charge per case and the average length of stay. Both would decrease the costs associated with the AutoLITT device. Therefore, we made the following calculations, taking into consideration our concerns as stated above, in order to determine if the AutoLITT TM meets the cost criteria. The average length of stay for cases we found in the FY 2009 MedPAR file was 7.4 days. This results in an average charge per day of $8,824 (the case-weighted average standardized charge of $65,685 divided by 7.4 days). However, we note that the first day of an inpatient hospitalization is typically more expensive than subsequent days in the stay. Nonetheless, absent specific charge per day data, we are equally dividing charges for purposes of evaluating the decreased costs associated with the reduced length of stay using AutoLITT TM. This should provide us with a lower charge estimate than what it otherwise would be if we had actual charge data. That is, if the device meets the cost criterion based on the lower estimate, it should meet it based on the actual data, which would be higher. Based on data from the applicant's clinical trial, the average length of stay for cases with the AutoLITT TM was 3.8 days. Using the difference of 3.6 days (7.4 days minus 3.8 days) from cases in the FY 2009 MedPAR file to the applicant's clinical trial, we determined it is necessary to deduct a total of $32,154 in charges (3.6 times $8,824) from the case-weighted average standardized charge per case of $65,685, as determined above. This resulted in a reduced case-weighted average standardized charge per case of $33,531. We then added the estimated charges related to the device to the reduced average standardized charge per case and determined a revised case-weighted average standardized charge per case of $72,417 ($33,531 plus $38,886 (charges related to the AutoLITT TM); all calculations above were performed using unrounded numbers).

Using the revised FY 2010 thresholds published in Table 10 (75 FR 31213), the case-weighted threshold for MS-DRGs 25, 26, and 27 was $63,408 (again, all calculations above were performed using unrounded numbers). Based on this analysis, the revised case-weighted average standardized charge per case for the applicable MS-DRGs exceed the case-weighted threshold amount. Additionally, we also conducted a sensitivity test with a majority of cases mapping to MS-DRG 25 (because the applicant maintained that most patients' conditions would be an MCC and the case would map to this MS-DRG and because patients with GBM are more likely to be more severely ill than patients with other types of tumors) and the remaining cases mapping to MS-DRGs 26 and 27. With a majority of cases mapping to MS-DRG 25, we used a higher percentage of charges from MS-DRG 25 to determine the case-weighted threshold and the case-weighted average standardized charge per case, which would make it more difficult for the case-weighted average standardized charge per case to exceed the case-weighted threshold (because the threshold for MS-DRG 25 is the highest of MS-DRGs 25, 26, and 27). The sensitivity test demonstrated that even with a majority of cases mapping to MS-DRG 25, the case-weighted standardized charge per case would exceed the case-weighted threshold.

After reviewing all of the data summarized above, we believe the applicant has provided a sufficient explanation for the additional charges associated with the AutoLITT TM, even with a reduced recovery time and a reduced rate of complications. Additionally, our analysis of the FY 2009 MedPAR data demonstrates that the average standardized charge per case (for cases eligible for the AutoLITT TM) does exceed the case-weighted cost threshold (even with a majority of cases mapping to a MS-DRG). Furthermore, the applicant did provide charge data from two centers verifying the expected high charges associated with the cases of the AutoLITT TM. Therefore, we believe that the AutoLITT TM meets the cost criterion.

With respect to the substantial clinical improvement criterion, the applicant maintains that it meets this criterion in its application. Specifically, the applicant stated that several non-AutoLITT TM clinical trials have demonstrated that nonfocused LITT (and more recently, the use of LITT plus MRI) improved survival, quality of life, and recovery in patients with advanced GBM tumors and advanced metastatic brain tumors that cannot be effectively treated with surgery, radiosurgery, radiation, chemotherapy, or any currently available clinical procedure. In a number of these patients, nonfocused LITT was the treatment of last resort, due to either the unresponsiveness to or inability of these therapies to treat the brain tumor (due to tumor location, type, or size, among other reasons). The applicant also maintains that when compared to craniotomy, it offers improved clinical outcomes using nonfocused LITT, including reduced recovery time and a reduced rate of complications (that is, infection, brain edema). The applicant stated that these factors, as discussed in the FY 2001 final rule (66 FR 46914 through 46915) demonstrate that the AutoLITT TM meets the new technology criterion for substantial clinical improvement.

The applicant further asserts that AutoLITT TM would represent a substantial clinical improvement over existing standards of care for a number of reasons and should build upon less sophisticated, nonfocused LITT therapies. These clinical improvements cited by the applicant include: a less invasive method of tumor ablation, potentially leading to lower complication rates post procedure (infection, edema); an ability to employ multiple interventions over shorter periods of time and an ability to be used as a treatment of last resort (radiosurgery is limited due to radiation dosing and craniotomy is limited to 1 to 2 procedures); an ability to be used in hard-to-reach brain tumors (the AutoLITT TM may be used as a treatment of last resort); and a shorter recovery time (the possibility for same day surgery, which has been demonstrated above with nonfocused LITT).

In the FY 2011 IPPS/LTCH PPS proposed rule, we stated that, while we recognize the future potential of this interesting therapy, we have concerns that, to date, the AutoLITT TM has been used for the treatment of only a few patients as part of a safety evaluation with no comparative efficacy data and, therefore, there may not be sufficient objective clinical evidence to determine if the AutoLITT TM meets the substantial clinical improvement criteria. The applicant did note in its presentation at the new technology town hall meeting that it is currently conducting a clinical trial with a summary report expected in the near future. In the FY 2011 IPPS/LTCH PPS proposed rule, we welcomed additional clinical data to demonstrate whether the AutoLITT TM meets the substantial clinical improvement criterion and invited public comment on whether or not the AutoLITT TM meets the substantial clinical improvement criterion.

Comment: A number of commenters who are physicians agreed with the applicant that the AutoLITT TM meets the substantial clinical improvement criterion. Two commenters (that conducted the clinical trial) described their experience with the AutoLITT TM in the clinical trial for use in patients with recurrent GBM who were demonstrated to be refractory to other treatment options. (We note that this clinical trial is also discussed below in a separate comment from the manufacturer). The commenters treated 10 patients with the AutoLITT TM and noted the following: (1) A short recovery time that allowed patient discharges within 2 to 3 days, compared to 3 to 5 days following a craniotomy; (2) patients were able to ambulate more quickly, typically within 3 to 4 hours, compared to craniotomy which often takes 6 or more hours of recovery time prior to becoming ambulatory (The commenters noted that this is important in the prevention of venous thrombosis, commonly seen in patients with GBM.); and (3) adverse events have been minimal and do not exceed those published for first or second craniotomies for glioblastomas. [5] The commenters noted that, over time, adverse events are likely to decrease as clinical experience is gained with the AutoLITT TM and will likely be less than those experienced with craniotomy, due to the less invasive nature of the AutoLITT TM.

Other commenters who have reviewed the most recent clinical data on the AutoLITT TM expressed their support for the clinical benefits of the AutoLITT TM. One commenter stated it foresees using the AutoLITT TM on deep seated primary tumors for which total resection would risk a major insult to the brain and/or its functional structures. The commenter further stated that use of the AutoLITT TM would minimize hospitalization, and possibly reduce complications, such as thromboembolic events, seen with other therapies. Another commenter added that there are many patients with metastases to the brain and more than 10 percent of patients who receive Gamma Knife treatment for such brain metastases have recurrence of the metastasis at or near the original site. The commenter stated it would consider the AutoLITT TM as an alternative to Gamma Knife treatment in these cases because Gamma Knife treatment dramatically increases the risk of symptomatic radiation necrosis. All of these commenters stated that the AutoLITT TM offers additional quality of life in patients with GBM due to its reduced recovery time and its use as a less invasive alternative treatment to other available treatment options.

Response: We appreciate these comments. Some commenters described their positive experiences using the AutoLITT TM which reduced recovery time for the patient. Other commenters noted that they would use the AutoLITT TM as an alternative to other available treatments because it is less invasive and provides an improved quality of life for the patient outside the hospital. We considered the comments above in our determination (indicated below) on whether the AutoLITT TM represents a substantial clinical improvement.

Comment: The manufacturer submitted two public comments that addressed the substantial clinical improvement criterion. The first comment reiterated that options available to treat patients with brain tumors are limited in general, and these limitations are magnified by the fact that many patients are refractory to currently available options such as surgical resection via craniotomy and radiotherapy. The comment further stated that the literature on AutoLITT TM and LITT has demonstrated that the AutoLITT TM offers another clinically viable option to brain cancer patients, especially after other options have failed.

Below we highlight some of the results of the clinical studies cited by the commenter:

  • Time to progression of disease and survival were longer for brachytherapy plus LITT compared to brachytherapy; [6]
  • Survival time using LITT/MRI therapy was substantially longer than the natural history of the disease and longer than using chemotherapy alone. After a short surgeon learning curve, the median survival time increase by up to a factor of 4× (p = 0.0267); [7]
  • Use of MRI guidance in brain surgery alone has demonstrated a statistically significant reduction in major complications versus surgery without MRI guidance (p = 0.019); [8] and
  • The combination of LITT and MRI guidance for treating metastatic intracranial tumors has been evaluated for safety and feasibility [9] in a study of four patients that were refractory to other treatments. The patients demonstrated on follow up that in all cases the procedure was well tolerated without secondary effect and patients were discharged within 14 hours after the procedure. Upon a 90-day follow up, tumor volume demonstrated a gradual and steady decrease, with no recurrence within the thermal ablation zones.

The commenter concluded that it carefully reviewed the available literature on LITT and believes that the AutoLITT TM has demonstrated the following positive clinical benefits for patients: a robust and clinical validated integrated platform of clinically useful technologies (LITT, MRI guidance, real time MR monitoring of thermal energy applications) that works within the existing clinical frameworks available at major medical centers; effective abilation of targeted tumor tissue; short length of stay; ability to ambulate early; and minimally lasting or late developing side effects. As a result, the commenter believes that the AutoLITT TM represents a new, clinically viable option for brain cancer patients and meets the substantial clinical improvement criteria.

The other comment from the manufacturer discussed the applicant's clinical trial. Some of these data were discussed above in the comments we received from physicians in support of the AutoLITT TM. The manufacturer provided more detail about the design of the clinical study. The manufacturer stated that it conducted a clinical trial of 10 patients with tumors in locations that either made access to the tumor without risk of complications difficult or made total gross resection of the entire mass impossible or impractical without significant risk. All patients treated in the study had first or second GBM tumors with poor prognosis. The Karnofsky Performance Scale used to measure functional and mental status was assessed pre- and post-treatment and remained the same or improved during the post treatment interval. Finally, as also mentioned in the comments from the physicians in support of the AutoLITT TM, all patients in the clinical study were discharged within 2 to 7 days with a mean of 3.8 days, which compares favorably to a 12-day average length of stay for cases that map to MS-DRG 25.

Response: We thank the applicant and all of the commenters for providing additional clinical data to demonstrate that the AutoLITT TM meets the substantial clinical improvement criteria. With respect to substantial clinical improvement, we considered all of the case-specific clinical information presented by the applicant and the public to determine whether there is evidence to support a conclusion that use of the AutoLITT TM represents a substantial clinical improvement. Specifically, we focused our review on the peer-reviewed medical literature and the results of the clinical studies. We remain concerned that no prospective comparative data exist to help understand the benefit of the technology compared to other modalities.

However, we agree that the AutoLITT TM can improve clinical outcomes by providing an alternative treatment for brain tumors that potentially has a lower risk of adverse events and is less invasive compared to craniotomy. Also, the comments we received from the physicians and the manufacturer noted that the AutoLITT TM provides a new treatment option in cases where no existing treatment was available due to the risk of complications or total gross resection of the entire mass made impossible or impractical without significant risk. Lastly, we received positive comments from physicians who indicated that the AutoLITT TM is a less invasive treatment than other alternative treatments such as craniotomy and produced positive clinical outcomes by reducing average length of stay, quicker ambulation, and a reduction of other adverse events that occur in cases of first or second craniotomies for glioblastomas. Although we continue to believe that limited, anecdotal reports from physicians using a new technology are insufficient to demonstrate substantial clinical improvement over existing technologies, such information, when considered together with peer-reviewed medical literature and results of clinical studies, can help to inform our decision. Therefore, after reviewing the totality of the evidence, we have determined that the AutoLITT TM meets the substantial clinical improvement criterion.

Accordingly, after consideration of the clinical evidence received, we are approving the AutoLITT TM for new technology add-on payments in FY 2011. Consistent with the applicant's clinical trial, the add-on payment is intended only for use of the device in cases of Glioblastoma Multiforme. Therefore, we intend to limit the new technology add-on payment to cases involving the AutoLITT TM in MS-DRGs 25, 26, and 27. Cases involving the AutoLITT TM that are eligible for the new technology add-on payment will be identified by assignment to MS-DRGs 25, 26, and 27 with a procedure code of 17.61 in combination with a primary diagnosis codes that begins with a prefix of 191. We note that using the procedure and diagnosis codes above and restricting the add-on payment to cases that map to MS-DRGs 25, 26, and 27 is consistent with information provided by the applicant, which demonstrated that cases of the AutoLITT TM would only map to MS-DRGs 25, 26, and 27. Procedure code 17.62 does not map to MS-DRGs 25, 26, or 27 under the GROUPER software and, therefore, is ineligible for new technology add-on payment.

The average cost of the AutoLITT TM is reported as $10,600 per case. Under § 412.88(a)(2) of the regulations, new technology add-on payments are limited to the lesser of 50 percent of the average cost of the device or 50 percent of the costs in excess of the MS-DRG payment for the case. As a result, the maximum add-on payment for a case involving the AutoLITT TM is $5,300.

b. LipiScan TM Coronary Imaging System

InfraReDx, Inc. submitted an application for new technology add-on payments for FY 2011 for the LipiScan TM Coronary Imaging System (LipiScan TM). We note that an application was also submitted for FY 2010, but the application was denied on the grounds that it did not meet the substantial clinical improvement criterion at that time. The application for FY 2011 contains some additional clinical and charge data that were not available at the time that the FY 2010 new technology add-on payment decisions were made.

The LipiScan TM device is a diagnostic tool that uses Intravascular Near Infrared Spectroscopy (INIRS) during an invasive coronary catheterization to scan the artery wall in order to determine coronary plaque composition. The purpose of the device is to identify lipid-rich areas in the artery because such areas have been shown to be more prone to rupture. The procedure does not require flushing or occlusion of the artery. INIRS identifies the chemical content of plaque by focusing near infrared light at the vessel wall and measuring reflected light at different wavelengths (that is, spectroscopy). The LipiScan TM system collects approximately 1,000 measurements per 12.5 mm of pullback, with each measurement interrogating an area of 1 to 2 mm [2] of lumen surface perpendicular to the longitudinal axis of the catheter. When the catheter is in position, the physician activates the pullback and rotation device and the scan is initiated providing 360 degree images of the length of the artery. The rapid acquisition speed for the image freezes the motion of the heart and permits scanning of the inside of the arterial wall in less than 2 minutes. When the catheter pullback is completed, the console displays the scan results, which are referred to as a “chemogram” image. The chemogram image requires reading by a trained user, but, according to the applicant, was designed to be simple to interpret.

With regard to the newness criterion, the LipiScan TM received a 510K FDA clearance for a new indication on April 25, 2008, and was available on the market immediately thereafter. On June 23, 2006, InfraReDx, Inc. was granted a 510K FDA clearance for the “InfraReDx Near Infrared (NIR) Imaging System.” Both devices are under the common name of “Near Infrared Imaging System” according to the 510K summary document from the FDA. However, the InfraReDx NIR Imaging System device that was approved by the FDA in 2006 was approved “for the near infrared imaging of the coronary arteries,” whereas the Lipiscan TM device cleared by the FDA in 2008 is for a modified indication. The modified indication specified that Lipiscan TM is “intended for the near-infrared examination of coronary arteries * * *, the detection of lipid-core-containing plaques of interest * * * [and] for the assessment of coronary artery lipid core burden.” In the FY 2010 IPPS/RY 201 LTCH PPS proposed rule (74 FR 24132 through 24134), we noted that we had concerns with whether Lipiscan TM was substantially similar to its predicate device that was approved by the FDA in 2006. However, those concerns were addressed by the manufacturer during the comment period. Specifically, the manufacturer stated that there were technical problems with the original device and that LipiScan TM had to be modified in the following ways:

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

The problems with the LipiScan TM device that was approved in 2006 were addressed in the second device that was granted FDA approval in April 2008. The LipiScan TM device was not marketed until after its second FDA clearance. Therefore, we no longer needed to make a determination as to whether the newer device was substantially similar to the predicate device and we determined in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43815) that Lipiscan TM would be considered to be “new” to the market as of the date of its FDA approval in April 2008. Because a technology may be considered new for a period of up to 3 years if, during the third year, the technology is new for more than 6 months of the fiscal year, it appears that the technology would still be in the newness period for FY 2011. In the FY 2011 IPPS/LTCH PPS proposed rule, we welcomed public comment on whether Lipiscan TM meets the newness criterion.

Comment: One commenter, the manufacturer, stated that the LipiScan TM met the newness criterion based on its FDA approval date.

Response: We agree that the LipiScan TM is new as of the date of its supplemental FDA approval, April 25, 2008, because the manufacturer provided information to us to show that the device was not marketed until after the supplemental FDA approval. Accordingly, Lipiscan TM meets the newness criterion.

We note that the Lipiscan TM technology is identified by ICD-9-CM procedure code 38.23 (Intravascular spectroscopy), which became effective October 1, 2008, and cases involving the use of this device generally map to MS-DRG 246 (Percutaneous Cardiovascular Procedures with Drug-Eluting Stent(s) with MCC or 4+ Vessels/Stents); MS-DRG 247 (Percutaneous Cardiovascular Procedures with Drug-Eluting Stent(s) without MCC); MS-DRG 248 (Percutaneous Cardiovascular Procedures with Non-Drug-Eluting Stent(s) with MCC or 4+ Vessels/Stents); MS-DRG 249 (Percutaneous Cardiovascular Procedures with Non-Drug-Eluting Stent(s) without MCC); MS-DRG 250 (Percutaneous Cardiovascular Procedures without Coronary Artery Stent with MCC); and MS-DRG 251 (Percutaneous Cardiovascular Procedures without Coronary Artery Stent without MCC).

In an effort to demonstrate that the technology meets the cost criterion, the applicant used the FY 2010 IPPS/RY 2010 LTCH PPS final rule After Outliers Removed (AOR) file (posted on the CMS Web site) to identify cases potentially eligible for Lipiscan TM. The applicant believes that every case within MS-DRGs 246, 247, 248, 249, 250, and 251 is eligible for Lipiscan TM. In addition, the applicant believes that Lipiscan TM will be evenly distributed across patients in each of those six MS-DRGs (16.7 percent within each MS-DRG). Using data from the AOR file, the applicant found the average standardized charge per case for MS-DRGs 246, 247, 248, 249, 250, and 251 was $67,531, $44,485, $62,936, $40,149, $59,416, and $38,864, respectively, equating to a case-weighted average standardized charge per case of $52,230 (calculation performed using unrounded numbers). The applicant indicated that the case-weighted average standardized charge per case does not include charges related to Lipiscan TM; therefore, it is necessary to add the charges related to the device to the average case-weighted standardized charge per case to evaluate the cost threshold criterion. Although the applicant submitted data related to the estimated cost per case of Lipiscan TM, the applicant stated that the cost of the device is proprietary information. Based on a sampling of all 10 non-Veterans Administration hospitals that are actively using the device, the applicant determined that the average charge for the device was $7,497. Adding the estimated average charge related for the device to the case-weighted standardized charge per case (based on the case distribution from the applicant's FY 2010 AOR analysis) results in a total case-weighted average standardized charge per case of $59,727 ($52,230 plus $7,497). In the FY 2011 IPPS/LTCH PPS proposed rule, we used the FY 2011 thresholds published in Table 10 of the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44173) to determine if the Lipiscan TM met the cost criterion. For this final rule, due to the provisions of section 3401(a) of the Affordable Care Act which adjusted the FY 2010 applicable percentage increase (thus requiring CMS to revise the FY 2010 standardized amounts), we used the revised FY 2011 thresholds as published in the FY 2010 IPPS/RY 2010 LTCH PPS notice issued in the Federal Register on June 2, 2010 (75 FR 31213) to determine if the Lipiscan TM meet the cost criterion. Based on the revised FY 2011 Table 10 thresholds, the case-weighted threshold for MS-DRGs 246, 247, 248, 249, 250, and 251 is $56,466 (all calculations above were performed using unrounded numbers). Because the applicant's calculation of the total case-weighted average standardized charge per case for the applicable MS-DRGs exceeds the case-weighted threshold amount, the applicant maintains that Lipiscan TM meets the cost criterion.

We note that in the applicant's analysis of the cost criterion, instead of determining the case-weighted average standardized charge per case and the case-weighted threshold amount based on the actual number of cases from the FY 2010 AOR file in the applicable MS-DRGs that are eligible for the Lipiscan TM, the applicant's analysis assumed an even distribution of patients in the applicable MS-DRGs. However, the data from the FY 2010 AOR file shows a varied distribution of cases in each of the applicable MS-DRGs. We believe the more appropriate way to determine the case-weighted average standardized charge per case and the case-weighted threshold amount for evaluating the cost criterion is to use the actual distribution of cases in the applicable MS-DRGs based on the number of cases from the AOR file because this would more accurately reflect the number and type of Medicare cases typically treated in the applicable MS-DRGs. Moreover, this would better conform to the applicant's assertion that the probability of use of Lipiscan TM is the same in each of those six MS-DRGs. Using data from the FY 2011 AOR file (in the proposed rule, we used the FY 2010 AOR file; however, for this final rule, we used the most recent data available, which is the FY 2011 AOR file), for MS-DRGs 246, 247, 248, 249, 250, and 251, there were 30,663, 141,780, 14,281, 46,037, 7,591, and 36,059 cases, respectively. Using this case distribution and the average standardized charge per case for MS-DRGs 246, 247, 248, 249, 250, and 251 (that is, $73,006, $48,275, $67,954, $44,336, $65,238, and $44,504, respectively, as stated above), we calculated that the case-weighted average standardized charge per case is $51,353. As the applicant indicated above, the case-weighted average standardized charge per case does not include charges related to Lipiscan TM. Therefore, it is necessary to add the average charge of $7,497 related to the device to the case-weighted standardized charge per case to evaluate the cost threshold criterion. Adding the estimated charges related to the device to the case-weighted average standardized charge per case (based on the case distribution from the FY 2011 AOR final rule file) results in a total case-weighted average standardized charge per case of $58,850 ($51,353 plus $7,497). Using the revised FY 2011 thresholds published in Table 10 of the FY 2010 IPPS/RY 2010 LTCH PPS notice (75 FR 31213) and the actual case distribution from the FY 2011 AOR file, the case-weighted threshold for MS-DRGs 246, 247, 248, 249, 250, and 251 is $52,940 (all calculations above were performed using unrounded numbers). Because this alternative calculation of total case-weighted average standardized charge per case for the applicable MS-DRGs also exceeds the case-weighted threshold amount, it appears that Lipiscan TM would meet the cost criterion. In the FY 2011 IPPS/LTCH PPS proposed rule, we invited public comment on whether or not Lipiscan TM meets the cost criterion. We did not receive any public comments on whether or not Lipiscan TM meets the cost criterion. Therefore, for FY 2011, we have determined that Lipiscan TM meets the cost criterion.

With regard to substantial clinical improvement, we determined that the FY 2010 new technology add-on payment application for Lipiscan TM did not meet the substantial clinical improvement criterion because the evidence and information available at the time the new technology decisions were made did not allow CMS to determine that the application represented a substantial clinical improvement over existing technologies. Specifically, we found that there was a lack of evidence that demonstrated that Lipiscan TM affected the medical management of patients in which the device was used.

The applicant maintains that the device meets this criterion for the following reasons. The applicant noted that from November 2008 to 2009, the number of patients in whom Lipiscan TM has been used for clinical purposes has increased from 100 to 500 and during the same period, the number of hospitals using the product has increased from 6 to 16. In addition, the applicant asserts that “during the past year, two Lipiscan TM publications demonstrate that dilation of a lipid core plaque is responsible for slow or no reflow and myocardial infarction during the procedure.” The applicant noted that this is important because “several treatments are available that could prevent this stenting complication.” The applicant referenced the “700 patient PROSPECT Study” which was presented at the Transcatheter Cardiovascular Therapeutics Conference in September 2009 and found that 20.4 percent of patients experience a new event in the 3.4 years following stenting. The applicant pointed to that finding as evidence that there is a need for improved safety and efficacy of stenting and maintained that Lipiscan TM offers clinicians the ability to make decisions that result in such improvements.

The PROSPECT (Providing Regional Observations to Study Predictors of Events in the Coronary Tree) study is a cohort study of patients with acute coronary syndrome who underwent percutaneous coronary angioplasty and stenting (percutaneous coronary intervention). Following the procedure, angiography and intravascular ultrasound (IVUS) were performed. If a patient had a subsequent event, a new angiogram and IVUS image were obtained and compared to the original results. The investigators reported that “angiographically mild lesions with certain morphologic features on grayscale and IVUS present with a 3 year cardiac event rate of 17%, versus other morphologies (indistinguishable by conventional angiograms) with three year event risks of less than 1%.” We are concerned that with this type of study design, it is not possible to determine whether the information for the IVUS image would have altered the angioplasty and stenting procedures since the images were collected after the procedure. The results are suggestive, but a prospective study is needed to determine the clinical utility of IVUS and whether use of IVUS leads to changes in clinical practice or improvements in health outcomes. The PROSPECT study generated a hypothesis that use of IVUS may help determine which plaques are vulnerable to future events but further clinical research is needed to confirm this hypothesis. We note that the PROSPECT study was presented at the Transcatheter Cardiovascular Therapeutics Conference in September 2009, but that the study results have yet to be published in a peer-reviewed journal. We also note that methods and conclusions from a study may change from what was verbally presented during the peer review process that is required to publish the study results.

As it did in its prior application, the applicant noted that the September 1, 2001 final rule states that one facet of the criterion for substantial clinical improvement is “the device offers the ability to diagnose a medical condition in a patient population where the medical condition is currently undetectable or offers the ability to diagnose a medical condition earlier in a patient population than allowed by currently available methods. There must also be evidence that use of the device to make a diagnosis affects the management of the patient” (66 FR 46914). The applicant believes that Lipiscan TM meets all facets of this criterion. The applicant asserted that the device is able to detect a condition that is not currently detectable. The applicant explained that LipiScan TM is the first device of its kind to be able to detect lipid-core-containing plaques of interest and to assess of coronary artery lipid core burden. The applicant further noted that FDA, in its approval documentation, has indicated that “This is the first device that can help assess the chemical makeup of coronary artery plaques and help doctors identify those of particular concern.”

In addition, the applicant stated that the LipiScan TM chemogram permits a clinician to detect lipid-core-containing plaques in the coronary arteries compared to other currently available devices that do not have this ability. The applicant explained that the angiogram, the conventional test for coronary atherosclerosis, shows only minimal coronary narrowing. However, the applicant indicated that the LipiScan TM chemogram has the ability to reveal when an artery contains extensive lipid-core-containing plaque at an earlier stage.

The applicant also noted that the device has the ability to make a diagnosis that better affects the management of the patient. Specifically, the applicant asserted that LipiScan TM“is currently used in the management of patients undergoing coronary stenting to improve the safety and efficacy of the procedure” and that while stenting has steadily improved, its results are not optimal in approximately 30 percent of cases due to 3 problems: (1) Peri-stenting MI due to embolization of lipid core contents and side branch occlusion; (2) major adverse coronary events (MACE) post stenting from difficulties at the stented site; and (3) MACE post stenting for non-stented vulnerable sites. We note that in order to demonstrate that the technology represents a substantial clinical improvement, there must be evidence that use of the device to make a diagnosis affects the medical management of the patient and leads to improved clinical outcomes.

The applicant described three case studies where each of the above problems was addressed by use of the LipiScan TM. In addition, the applicant asserts that the chemogram results are available to the interventional cardiologist during the PCI procedure, and have been found to be useful in decision-making. According to the applicant, physicians have reported changes in therapy based on LipiScan TM findings in 20 to 50 percent of patients in which the device has been used. According to the applicant, the most common use of LipiScan TM results has been by physicians for selection of the length of artery to be stented. In some cases a longer stent has been used when there is a lipid-core-containing plaque adjacent to the area that is being stented because a flow-limiting stenosis is present. The applicant also noted that, in some cases, physicians have chosen to use down-stream protective devices during stenting procedures on the basis of information gathered by use of Lipiscan TM in several patients, and that this has directly impacted their outcome by capturing emboli and preventing further cardiac damage. Therefore, the applicant contends that the use of LipiScan TM by clinicians to select the length of artery to be stented and as an aid in selection of intensity of lipid-altering therapy, demonstrates that LipiScan TM affects the management of patients.

In the proposed rule, we stated that while we recognized that the identification of lipid-rich plaques in the coronary vasculature holds promise in the management of coronary artery disease, we were concerned that statements in the FDA approval documents, as well as statements made by investigators in the literature, suggest that the clinical implications of identifying these lipid-rich plaques are not yet certain and that further studies need to be done to understand the clinical implications of obtaining this information.

The applicant also submitted commentary from a group of interventional cardiologists who currently utilize the LipiScan TM device explaining the clinical benefits of the device. The applicant further noted that the device may have other potential uses that would be of clinical benefit, and studies are currently being conducted to investigate these other potential uses. The applicant explained that LipiScan TM offers promise as a means to enhance progress against the two leading problems in coronary disease management: (1) The high rate of second events that occur even after catheterization, revascularization, and the institution of optimal medical therapy; and (2) the failure to diagnose coronary disease early, which results in sudden death or MI being the first sign of the disease in most patients. The applicant further stated that the identification of coronary lipid-core-containing plaques, which can most readily be done in those already undergoing catheterization, is likely to be of benefit in the prevention of second events. In the longer term, the applicant stated that the identification of lipid-core-containing plaques by LipiScan TM may contribute to the important goal of primary prevention of coronary events, which, in the absence of adequate diagnostic methods, continue to cause extensive morbidity, mortality and health care expenditures in Medicare beneficiaries and the general population.

In the FY 2011 IPPS/LTCH PPS proposed rule, we welcomed public comment regarding whether or not the LipiScan TM technology represents a substantial clinical improvement for the Medicare population.

Comment: One commenter, a trade association for interventional cardiologists, stated that it appreciated CMS' clarification in the proposed rule that “a new diagnostic technology can meet the substantial clinical improvement criterion not just by demonstrating improvement in clinical outcomes, but also on the basis of evidence showing changes in the management of the patient.” This commenter stated that, in light of the “clarification,” it supported the approval of the LipiScan TM for new technology add-on payments.

Response: This comment mischaracterizes CMS' position regarding the required showing for a diagnostic technology to meet the substantial clinical improvement criterion. CMS has not stated that a new diagnostic technology can meet the substantial clinical improvement criterion not just by demonstrating improvement in clinical outcomes, but also on the basis of evidence showing changes in the management of the patient. As we stated in the September 7, 2001 Federal Register, we follow certain guidelines to determine whether a technology represents a substantial clinical improvement. For a diagnostic technology, we make this determination by judging whether the technology “offers the ability to diagnose a medical condition in a patient population where that medical condition is currently undetectable or offers the ability to diagnose a medical condition earlier in a patient population than allowed by currently available methods. There must also be evidence that use of the device to make a diagnosis affects the management of the patient.” (66 FR 46914)

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43818), we further discussed what evidence an applicant must show in order to meet the substantial clinical improvement criterion for diagnostic technologies. We continue to believe that it would not be appropriate to provide additional payments for new diagnostic tools that fail to significantly change the management of patients, thereby improving clinical outcomes.

Comment: Commenters supported deeming the Lipiscan TM to be a substantial clinical improvement over currently available technologies. The manufacturer stated that the use of LipiScan TM increased from 100 cases in late 2008 to 900 cases by June 2010, and that the number of hospitals using the technology has increased from 16 to 22. Additionally, over 350 patients are enrolled in the manufacturer's registry of cases involving LipiScan TM, COLOR. The manufacturer asserted that the data now available clearly identify three specific clinical implications of the detection of lipid core plaque: (1) To predict and minimize the occurrence of peri-stenting MI; (2) to identify the length of artery to be stented; and (3) to assist in selection of the intensity of pharmacologic therapy following stenting.

The manufacturer submitted the chemogram images of 44 stabilized patients who were stented and in whom enzymes are available to determine if an MI occurred during stenting. Some of the 44 patients had the presence of large lipid core plaque; others did not. Eight of these patients were found to have experienced an MI during stenting (as identified by a cardiac enzyme elevation of greater than or equal to 3x ULN).

With respect to LipiScan TM's ability to predict and minimize the occurrence of peri-stenting MI, the manufacturer referenced a doctor who had used filters or embolic protection during stenting. That doctor's summary is presented is the next paragraph. With respect to identifying the length of artery to be stented, the manufacturer stated that “a case has now been observed in which acute stent thrombosis occurred when a stent * * * ended in a lipid core plaque, as documented in vivo by LipiScan TM.” The manufacturer asserted that the evidence linking stent thrombosis to termination of a stent in a lipid core plaque has led physicians to use the image provided by LipiScan TM as a factor determining the length of artery to be stented. With respect to LipiScan TM assisting in the selection of the intensity of medical therapy post-stenting, the manufacturer maintained that “the development of [LipiScan TM] now makes it possible to perform in vivo assessment of the relationship between the presence of lipid core plaque and coronary event.” The manufacturer submitted before and after chemograms in which the baseline chemogram did not show lipid core plaque. In subsequent days, ranging from 42 to 316 days, the manufacturer added, the patients still had no lipid rich plaque. The manufacturer asserted that these cases “correctly predicted the continued patency of the artery and the absence of a coronary event related to that artery.” The manufacturer showed a baseline and 325 day follow-up of a patient who did have lipid rich plaque at baseline and had a re-stenosis of the lipid rich area 325 later.

The commenters who supported this technology generally made anecdotal assertions in which the information provided by LipiScan TM was useful to them in managing their patients. One commenter, a physician, stated that he had used the identification of lipid core plaque (as identified by LipiScan TM) in an attempt to protect patient from the high risk of peri-stenting MI by “placing a distal protection filter beyond the lipid core stenosis to be dilated.” This commenter asserted that such filters are used in dilation of saphenous vein grafts which have rates of periprocedural MI that can be reduced by approximately 40 percent if embolic protection is used. The commenter used protection devices before stenting in the native coronary arteries seven patients with large lipid core plaque as assessed by LipiScan TM. A filter was used in six patients and a proximal embolic protection was used in one patient. The commenter stated that he believed that the rate of infarction was lower in these seven patients than it would have been had embolic protection devices not been utilized, and that the two infarctions that did occur were smaller than they would have been if the full load of debris mobilized by balloon inflation—included the debris collected in the first basket—would have lodged in the distal vessels.

Another physician stated that there “have been anecdotal cases by multiple operators of the catastrophic no reflow phenomenon in patients who underwent angioplasty of a lipid rich stenosis [LipiScan TM] imaging may be able to identify these patients and hopefully prevent this catastrophic complication” The same commenter stated that the diagnostic information provided by the LipiScan TM chemogram “can be combined with well-established treatments * * * as a means to reduce stenting complications and peri-stenting MI.” Some commenters believed they could reduce the incidence of heart attacks that occur during stenting by using a filter to remove the lipid-rich plaque.

Another commenter stated that, although he does not perform interventional cardiology procedures, he was interested in how the information provided by LipiScan TM could contribute to the prevention of initial and secondary coronary events. He described an asymptomatic man who participated in a clinical research study designed to evaluate the noninvasive identification of patients at increased risk of coronary events. He stated that the patient had a “noninvasive CTA” and that positive results led to a cardiac catherization in which LipiScan TM was used. Based on the chemogram, which showed extensive lipid core plaque, the clinicians decided to treat this patient with intensive lipid altering therapy. The commenter did not describe any followup for that patient.

Another commenter, a physician, stated that he performed approximately 70 procedures with the LipiScan TM since 2008. The commenter asserted that in roughly 75 percent of these procedures, the “lesion characterization information provided by the Lipiscan image affected [his] diagnosis of the patient's condition.” In approximately 50 percent of the procedures, the commenter stated that the imaging information affected his treatment of the patient's condition. The commenter further stated that the most significant changes involved his decisions about which segments of the artery required treatment, the length of stent to employ, and the type of stent he chose to employ. The commenter provided information on three specific cases in which he used LipiScan TM. In two of the cases, he indicated that he was better able to choose the length of stent and in one case, the use of LipiScan TM helped guide the selection of the type of stent to be used; although the patient did suffer a heart attack, the stenting was able to proceed.

Response: In the case of LipiScan TM, we note that existing technologies may not be able to adequately identify lipid-rich plaques. However, methods exist currently for diagnosing CAD, including intravascular ultrasound (IVUS) and optical coherence tomography (OCT). We also reiterate that such diagnostic capability must also be linked to “evidence that use of the device to make a diagnosis affects the management of the patient.” In this case, the evidence currently available to CMS consists of anecdotal claims made by the applicant and one other commenter that the identification of such plaques affects the management of the patient. A review of the literature yielded no additional evidence base to support the applicant's claim regarding the effect of this technology on patient management. Furthermore, as we stated last year, we continue to believe that the prognostic implications of detecting lipid-rich plaque are not yet sufficiently well understood and documented in the peer-reviewed evidence base to conclude that its identification will lead to widespread and evidence-based changes in the management of CAD.

We believe that a diagnostic technology must necessarily have evidence-based, significant, and positive effects on the management of patients, thereby resulting in improved clinical outcomes generally accepted by clinicians, in order to meet the threshold of representing an advance that substantially improves, relative to technologies previously available, the diagnosis of Medicare beneficiaries.

In response to the comments that the LipiScan, combined with a filter could reduce the incidence of peri-stenting MI, we note that use of such a filter in the coronary vasculature is not currently approved by the FDA and therefore is “off-label” to the extent that it is already being employed by physicians. The most recent article submitted to us by the applicant (dated 2010), an “Imaging Vignette” which does not appear to have been published yet, concludes: “Additional studies are needed to quantitate the ability of NIRS to predict the occurrence of peri-stenting infarction and to test, in a randomized trial, the strategy of NIRS guided use of a distal protection device” (Goldstein, et al). We agree with the commenters that use of such filter may ultimately reduce the incidence of peri-stenting MI to the extent that it aides the physician in placing the stent such that it does not cause the lipid core plaque to rupture. However, absent FDA approval for this indication, we do not believe it is appropriate to consider this use as part of our evaluation of substantial clinical improvement for the LipiScan TM. We also agree with the vignette's conclusion that additional clinical studies are needed to evaluate this claim.

Therefore, while we recognize that Lipiscan TM provides the ability to detect lipid-rich plaque which is currently undetectable by any other means, we are nonetheless still concerned that there is significant uncertainty within the clinical community regarding the prognostic implications of obtaining this information. We believe the evidence supplied by the applicant and the commenters that the device is affecting the management of the patient is not able to be validated broadly and is still anecdotal. Further, the discussions of the technology in the scientific studies submitted by the applicant acknowledge the possible potential of the technology to affect treatment in the future, but all stated that additional studies are necessary to determine its actual clinical utility. Specifically, in an editorial published in 2008, the author wrote, “In conclusion, further studies are warranted to determine if detection of [lipid core plaque of interest] by [near infrared spectroscopy] imaging will contribute to enhanced prediction of outcomes in patients with known CAD” (Young, 2008). Also, in a letter to the editor in the Journal of the College of Cardiology, another author wrote about his experience with three patients over a period of three weeks to share his “initial observations.” The author wrote that “* * * preliminary results suggest that intravascular investigation of chemical composition of a coronary plaque has become a clinical reality [but] it remains to be seen whether chemograms would perform better than the ultrasound of whether they will be able to predict adverse events and faciltate development of clinically effective strategies for management of vulnerable plaques before it is too late.” (Maini, 2008) (emphasis added).

In addition, we are concerned that there continues to be relatively few cases in which Lipiscan TM has been used relative to the patient population in which it could potentially be used. As we have previously explained, we do not consider merely anecdotal claims that a device affects the management of the patient as sufficient evidence to demonstrate that a new diagnostic device affects the management of the patient, particularly where the device could be used for a relatively large patient population. Specifically, the applicant claims that the device could potentially be used in every patient who undergoes coronary angiography. To date, the device is only in use in 22 hospitals total and, as noted above, there has been no data published, or even reported, from the hospitals where the device has been used, to indicate that management of patients has changed and that patients who received LipiScan TM had better clinical outcomes than those who did not.

We believe that the lack of comparative data from hospitals showing statistically valid improved outcomes for the patients who received LipiScan TM compared to those who did not receive the technology further supports our previously stated view that the prognostic implications of detecting lipid-rich plaque are still not well enough understood and therefore the detection of such plaque cannot be reasonably assumed to automatically lead to evidence-based, significant, and positive in the management of patients with CAD generally accepted by clinicians, much less lead to improved clinical outcomes. We agree with the commenters and applicant that the identification of lipid-rich plaques by LipiScan TM may potentially hold promise and ultimately lead to changes in the management of CAD and that Lipiscan TM has the potential to provide additional benefits in clinical outcomes of patients with CAD. However, we do not believe the evidence and information available at this time allows us to determine that it meets the substantial clinical improvement criterion.

Accordingly, we are not approving Lipiscan TM for new technology add-on payments for FY 2011.

c. LipiScan TM Coronary Imaging System With Intravascular Ultrasound (IVUS)

InfraReDx, Inc. submitted an application for new technology add-on payments for FY 2011 for the LipiScan TM Coronary Imaging System with Intravascular Ultrasound (LipiScan TM IVUS). The LipiScan TM IVUS device is a diagnostic device that uses Intravascular near infrared spectroscopy (INIRS) combined with intravascular ultrasound (IVUS) during an invasive coronary angiography to determine the chemical composition of coronary plaques, which is accomplished using near infrared spectroscopy (INIRS) and to visualize stents and the structural features of coronary lesions, which is accomplished using IVUS. This new technology combines both capabilities in a single catheter. The IVUS part of the device utilizes sound to interrogate the artery and, according to the applicant, provides an image of the size of the plaque, the degree of stenosis produced by the plaque, the size of the artery and the degree of expansion of the stent. The device consists of a single-use catheter, a console and a “single pullback with the artery.” The device is intended to be used in patients already undergoing coronary stenting.

We note that the LipiScan TM IVUS device is identified by ICD-9-CM procedure codes 38.23 (Intravascular spectroscopy) and 00.24 (Intravascular imaging of coronary vessels). Cases involving the use of this device generally map to MS-DRG 246 (Percutaneous Cardiovascular Procedures with Drug-Eluting Stent(s) with MCC or 4+ Vessels/Stents); MS-DRG 247 (Percutaneous Cardiovascular Procedures with Drug-Eluting Stent(s) without MCC); MS-DRG 248 (Percutaneous Cardiovascular Procedures with Non-Drug-Eluting Stent(s) with MCC or 4+ Vessels/Stents); MS-DRG 249 (Percutaneous Cardiovascular Procedures with Non-Drug-Eluting Stent(s) without MCC); MS-DRG 250 (Percutaneous Cardiovascular Procedures without Coronary Artery Stent with MCC); and MS-DRG 251 (Percutaneous Cardiovascular Procedures without Coronary Artery Stent without MCC).

With respect to the newness criterion, we noted in the proposed rule that this device was not currently approved by the FDA, but the manufacturer anticipated that FDA approval will be granted in the second quarter of 2010. We also noted that IVUS has existed for over 20 years. Therefore, IVUS, on its own, would not meet the newness criterion. The applicant asserted that one difference from the Lipiscan TM product, for which it has also submitted an application for new technology add-on payments, is that the catheter for the combined product is filled with saline (which is required for transmission of sound). The manufacturer has also stated that the combined device only requires the use of one catheter, as opposed to two separate ones. The manufacturer asserted that the single-use catheter for the combined technologies is only supplied by InfraReDx (the manufacturer of LipiScan TM). However, we noted that a physician could use LipiScan TM and IVUS as two separate products in the same patient (through the use of two catheters) and still be able to obtain the INIRS image and the ultrasound that are achieved through the combined product albeit separately.

In the FY 2011 IPPS/LTCH PPS proposed rule, we welcomed public comments regarding whether the combined LipiScan TM IVUS device should be considered to be “new” as of the date of the existing LipiScan TM device received FDA approval or whether it should be considered new from the FDA approval date for LipiScan TM IVUS (should such an approval be granted). We also welcomed public comments regarding whether LipiScan TM IVUS, as a combined technology, should be considered to be substantially similar to each individual technology separately as of the date that each separate technology received FDA approval (or the date that each technology became available on the market, if either technology was not available on the market until a date after FDA approval).

As stated above, in making a determination of substantial similarity, we consider the following: (1) Whether a product uses the same or similar mechanism of action to achieve a therapeutic action; (2) whether a product is assigned to the same or a different DRG; and (3) whether new use of a technology involves treatment of the same or similar type of disease and the same or similar patient population. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we stated that “due to the complexity of issues regarding the substantial similarity component of the newness criterion, it may be necessary to exercise flexibility when considering whether technologies are substantially similar to one another” (74 FR 43813).

Comment: One comment, the manufacturer, stated that it agreed with the proposed rule statement of “it appears that LipiScan TM IVUS meet the newness criterion.” Additionally, the commenter stated that should the LipiScan TM IVUS receive FDA approval, it should be considered new because LipiScan TM IVUS provides the individual benefits of both LipiScan and IVUS, “plus accurate co-registration, synergistic benefits, and enhanced safety and ease of use we believe that the LipiScan TM IVUS multimodality imaging catheter should be considered new if and when it receives clearance by the FDA and is marketed.” The commenter did not specifically address the three criteria considered under substantial similarity.

Response: We note that the LipiScan TM IVUS received a 510(k) approval from the FDA on June 30, 2010, prior to the July 1 deadline that applicants for new technology must meet in order to be evaluated under the newness criterion. The FDA approval letter did not provide information that would distinguish the LipiScan TM IVUS from its predicate devices. In addition, the manufacturer did not provide enough information for us to distinguish the LipiScan TM IVUS from the LipiScan TM, which is what we specifically questioned in the proposed rule. (Indeed, we note that the uses for both devices appear to be markedly similar.) Also, we did not state in the proposed rule that the technology meets the newness criterion, as the commenter suggested. We note that under FDA's 510(k) approval process, there must be at least one predicate device that is “substantially equivalent.” However, as we have stated previously, we do not believe that a determination of substantial equivalence by FDA under the 510(k) approval process necessarily means that a technology is substantially similar to its predicate device(s) for purposes of the new technology add-on payment.

Moreover, none of the public commenters specifically addressed whether the LipiScan TM IVUS was substantially similar to the LipiScan TM. Specifically, none of the public commenters, including the manufacturer, addressed: (1) Whether the products use the same or similar mechanism of action to achieve a therapeutic action; (2) whether the products are assigned to the same or a different DRG; and (3) whether new use of a technology involves treatment of the same or similar type of disease and the same or similar patient population. As a result, we do not believe that we have sufficient information to make an affirmative decision regarding whether the LipiScan TM IVUS is substantially similar to the LipiScan TM. Accordingly, we are not making a determination regarding whether the LipiScan TM IVUS is substantially similar to its predicate device or the LipiScan TM in this final rule. However, we note that whether or not LipiScan TM IVUS was substantially similar to LipiScan TM, the LipiScan TM IVUS is still within its newness period for FY 2011 (because the LipiScan TM was new as of April 2008 and is still within its “newness” window for FY 2011). Accordingly, we believe that LipiScan TM IVUS meets the newness criterion for FY 2011, but we do not have sufficient information regarding whether or not the start of the newness period began in April 2008 or June 2010. Therefore, we are not making a determination in this rulemaking regarding the start of the newness period.

In an effort to demonstrate that the technology meets the cost criterion, the applicant used the FY 2010 IPPS/RY 2010 LTCH PPS final rule AOR file (posted on the CMS Web site) to identify cases potentially eligible for Lipiscan TM IVUS. The applicant believes that every case within MS-DRGs 246, 247, 248, 249, 250, and 251 is eligible for Lipiscan TM IVUS. In addition, the applicant believes that Lipiscan TM IVUS will be evenly distributed across patients in each of those six MS-DRGs (16.7 percent within each MS-DRG). Using data from the AOR file, the applicant found the average standardized charge per case for MS-DRGs 246, 247, 248, 249, 250, and 251 was $67,531, $44,485, $62,936, $40,149, $59,416, and $38,864 respectively, equating to a case-weighted average standardized charge per case of $52,230 (calculation performed using unrounded numbers). The applicant indicated that the case-weighted average standardized charge per case does not include charges related to Lipiscan TM IVUS. Therefore, it is necessary to add the charges related to the device to the average case-weighted standardized charge per case to evaluate the cost threshold criterion. Although the applicant submitted data related to the estimated cost per case of Lipiscan TM IVUS, the applicant stated that the cost of the device is proprietary information. The applicant analyzed Hospital Cost Report Information System (HCRIS) data from 2008 to determine the charges related to the device. Specifically, the applicant searched for the 100 cardiac catheterization labs that had the highest volume of cases in the United States. Based on the HCRIS data from these 100 laboratories, the applicant determined the mean CCR was 0.188 with a markup of 532 percent, yielding a charge of $15,960 for Lipiscan TM IVUS. (We note that this estimate of charges related to the Lipiscan TM IVUS is significantly higher than the estimate of charges related to the Lipiscan TM device derived from a sample of hospitals.) Adding the estimated average charge related for the device to the case-weighted standardized charge per case (based on the case distribution from the applicant's FY 2010 AOR analysis) results in a total case-weighted average standardized charge per case of $68,190 ($52,230 plus $15,960). In the FY 2011 IPPS/LTCH PPS proposed rule, we used the FY 2011 thresholds published in Table 10 of the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44173) to determine if the Lipiscan TM IVUS meets the cost criterion. For this final rule, due to the provisions of section 3401(a) of the Affordable Care Act which adjusted the FY 2010 applicable percentage increase (thus requiring CMS to revise the FY 2010 standardized amounts), we used the revised FY 2011 thresholds as published in the FY 2010 IPPS/RY 2010 LTCH PPS notice that appeared in the Federal Register on June 2, 2010 (75 FR 31213) to determine if the Lipiscan TM IVUS meets the cost criterion. Based on the revised FY 2011 Table 10 thresholds, the case-weighted threshold for MS-DRGs 246, 247, 248, 249, 250, and 251 is $56,466 (all calculations above were performed using unrounded numbers). Because the applicant's calculation of the total case-weighted average standardized charge per case for the applicable MS-DRGs exceeds the case-weighted threshold amount, the applicant maintains that Lipiscan TM IVUS meets the cost criterion.

We note that in the applicant's analysis of the cost criterion, instead of determining the case-weighted average standardized charge per case and the case-weighted threshold amount based on the actual number of cases from the FY 2010 AOR file in the applicable MS-DRGs that are eligible for the Lipiscan TM IVUS, the applicant's analysis assumed an even distribution of patients in the applicable MS-DRGs. However, the data from the FY 2010 AOR file shows a varied distribution of cases in each of the applicable MS-DRGs. We believe the more appropriate way to determine the case-weighted average standardized charge per case and the case-weighted threshold amount for evaluating the cost criterion is to use the actual distribution of cases in the applicable MS-DRGs based on the number of cases from the AOR file because this would more accurately reflect the number and type of Medicare cases typically treated in the applicable MS-DRGs. Moreover, this would better conform to the applicant's assertion that the probability of use of Lipiscan TM IVUS is the same in each of those six MS-DRGs. Using data from the FY 2011 AOR file (in the proposed rule, we used the FY 2010 AOR file; however, for this final rule, we used the most recent data available, which are contained in the FY 2011 AOR file), for MS-DRGs 246, 247, 248, 249, 250, and 251, there were 30,663, 141,780, 14,281, 46,037, 7,591, and 36,059 cases respectively. Using this case distribution and the average standardized charge per case for MS-DRGs 246, 247, 248, 249, 250, and 251 (that is, $73,006, $48,275, $67,954, $44,336, $65,238, and $44,504, respectively, as stated above), the case-weighted average standardized charge per case is $46,949. As the applicant indicated above, the case-weighted average standardized charge per case does not include charges related to Lipiscan TM IVUS. Therefore, it is necessary to add the average charge of $15,960 related to the device to the case-weighted standardized charge per case to evaluate the cost threshold criterion. Adding the estimated charges related to the device to the case-weighted average standardized charge per case (based on the case distribution from the FY 2010 AOR final rule file) results in a total case-weighted average standardized charge per case of $62,909 ($46,949 plus $15,960). Using the revised FY 2011 thresholds published in Table 10 of the FY 2010 IPPS/RY 2010 LTCH PPS notice (75 FR 31215) and the actual case distribution from the AOR file, the case-weighted threshold for MS-DRGs 246, 247, 248, 249, 250, and 251 is $52,940 (all calculations above were performed using unrounded numbers). Because this alternative calculation of total case-weighted average standardized charge per case for the applicable MS-DRGs exceeds the case-weighted threshold amount, it appears that Lipiscan TM IVUS would meet the cost criterion.

In addition to the analysis above, the applicant searched the FY 2008 MedPAR file for cases potentially eligible for use of the Lipiscan TM IVUS. Because the technology can potentially be used for all cases within MS-DRGs 246 through 251, the applicant searched the FY 2008 MedPAR file for all cases within these MS-DRGs. The applicant found 30,265 cases (or 9.7 percent of all cases) in MS-DRG 246; 147,695 cases (or 47.4 percent of all cases) in MS-DRG 247; 19,642 cases (or 6.3 percent of all cases) in MS-DRG 248; 67,840 cases (or 21.8 percent of all cases) in MS-DRG 249; 8,120 cases (or 2.6 percent of all cases) in MS-DRG 250; and 38,022 cases (or 12.2 percent of all cases) in MS-DRG 251. The average standardized charge per case was $66,958 for MS-DRG 246, $50,192 for MS-DRG 247, $72,099 for MS-DRG 248, $45,086 for MS-DRG 249, $71,355 for MS-DRG 250, and $46,141 for MS-DRG 251, equating to a case-weighted average standardized charge per case of $45,964.

Similar to above, the average standardized charge per case does not include charges related to the Lipiscan TM IVUS; therefore, it is necessary to add the charges related to the device to the average standardized charge per case in evaluating the cost threshold criterion. Although the applicant submitted data related to the estimated cost of Lipiscan TM IVUS per case, the applicant noted that the cost of the device was proprietary information. Based on 2008 HCRIS data from the cardiac catheterization laboratories for all IPPS hospitals, the applicant determined a mean cost-to-charge ratio of 0.246 with a markup of 351 percent, yielding a charge of $10,543 for Lipiscan TM IVUS. Assuming that the Lipiscan TM IVUS device was marked up 351 percent, the total case-weighted average standardized charge per case for cases involving the use of Lipiscan TM IVUS would be $56,507 ($45,964 plus $10,543) across MS-DRGs 246 through 251.

Using the revised FY 2011 thresholds published in Table 10 of the FY 2010 IPPS/RY 2010 LTCH PPS notice (75 FR 31215), the case-weighted threshold for MS DRGs 246, 247, 248, 249, 250, and 251 is $52,671 (all calculations above were performed using unrounded numbers). Because the applicant's calculation of the total case-weighted average standardized charge per case for the applicable MS-DRGs exceeds the case-weighted threshold amount, the applicant maintains that Lipiscan TM IVUS meets the cost criterion. In the FY 2011 IPPS/LTCH PPS proposed rule, we invited public comment on whether or not Lipiscan TM IVUS meets the cost criterion. We did not receive any public comments in this regard. Accordingly, we find that for FY 2011 Lipiscan TM IVUS meets the cost criterion.

With regard to substantial clinical improvement, the applicant asserts that LipiScan TM IVUS lends all the same benefits of LipiScan TM by itself (see discussion of LipiScan TM with respect to clinical improvement in the above application analysis) and also gives added benefits of IVUS. Specifically, the applicant maintains that LipiScan TM IVUS is superior to perfusion imaging and coronary angiography because those procedures only provide information about the lumen, but not the wall of the vessel. The applicant asserts that it is superior to IVUS (by itself) because IVUS alone cannot identify plaque composition. The applicant further maintains that LipiScan TM IVUS provides a substantial clinical benefit over Optical Coherence Tomography (OCT) because OCT cannot be used if blood is present in the field of view and identification of lipid by OCT is “time-consuming with a requirement for expert interpretation.” In contrast, “the LipiScan TM IVUS signal is available immediately after the coronary pullback and does not require expert interpretation.”

The applicant also states that LipiScan TM IVUS makes it possible to find the lipid core plaques that are strongly associated with peri-stenting MI and adverse events post-MI that current methods of diagnosis fail to find.

Finally, the applicant asserts that LipiScan TM IVUS affects the management of the patient by improving the safety and efficacy of stenting. Further, the applicant states that while stenting has steadily improved, its results are not optimal in approximately 30 percent of cases due to three problems: (1) Peri-stenting MI due to embolization of lipid core contents and side branch occlusion; (2) major adverse coronary events (MACE) post stenting from difficulties at the stented site; and (3) MACE post stenting for non-stented vulnerable sites.

The applicant described three case studies where each of the above problems were addressed by use of the LipiScan TM IVUS. LipiScan TM IVUS achieves its utility to differentiate lipid core plaque from fibrotic plaque, a differentiation that cannot be made by angiography or grayscale IVUS.

The applicant referenced the “700 patient PROSPECT Study” which was presented at the Transcatheter Cardiovascular Therapeutic Conference in September 2009 and found that 20.4 percent of patients experience a new event in the 3.4 years following stenting. The applicant pointed to that finding as evidence that there is a need for improved safety and efficacy of stenting and maintained that Lipiscan TM offers clinicians the ability to make decisions that result in such improvements. We note that the applicant did make this assertion with regard to Lipiscan TM and not Lipiscan TM IVUS.

The PROSPECT (Providing Regional Observations to Study Predictors of Events in the Coronary Tree) study is a cohort study of patients with acute coronary syndrome who underwent percutaneous coronary angioplasty and stenting (percutaneous coronary intervention). Following the procedure, angiography and IVUS were performed. If a patient had a subsequent event, a new angiogram and IVUS image were obtained and compared to the original results. The investigators reported that “angiographically mild lesions with certain morphologic features on grayscale and IVUS present with a 3 year cardiac event rate of 17%, versus other morphologies (indistinguishable by conventional angiograms) with three year event risks of less than 1%.” We are concerned that with this type of study design, it is not possible to determine whether the information for the IVUS image would have altered the angioplasty and stenting procedures since the images were collected after the procedure. The results are suggestive, but a prospective study is needed to determine the clinical utility of LipiScan TM and whether use of IVUS leads to changes in clinical practice or improvements in health outcomes. The PROSPECT study generated a hypothesis that use of IVUS may help determine which plaques are vulnerable to future events but further clinical research is needed to confirm this hypothesis. We note that the PROSPECT study was presented at the Transcatheter Cardiovascular Therapeutics Conference in 2009, but that the study results have yet to be published in a peer-reviewed journal. We also note that methods and conclusions from a study may change from what was verbally presented during the peer review process that is required to publish the study results.

We are concerned that, in the LipiScan TM IVUS application, the applicant has generally repeated the statements made regarding use of LipiScan TM alone and has not provided information that indicates that combined use of LipiScan TM plus IVUS offers additional clinical benefit, although the applicant did maintain that the use of one catheter to co-register of the near infrared (NIR) mirrors and the ultrasound transducer can enhance the accuracy of output and can have safety benefits. Indeed, we note that most of the studies that were presented in an effort to demonstrate that LipiScan TM by itself was a substantial clinical improvement were also included to support the LipiScan TM IVUS application. The applicant did not present any published peer-reviewed journal articles that were specifically related to the clinical merits of the combined LipiScan TM IVUS device.

In the FY 2011 IPPS/LTCH PPS proposed rule, we welcomed public comments on whether the LipiScan TM IVUS represents a substantial clinical improvement over existing technologies as well as public comments on what is the appropriate comparison device for LipiScan TM IVUS.

Comment: Many of the commenters who supported the LipiScan TM application also stated that, should the LipiScan TM IVUS receive FDA approval, they believed that it would offer similar benefits to the LipiScan TM. For this reason, these commenters were supportive of LipiScan TM IVUS being approved for the new technology add-on payments. The manufacturer commented that the LipiScan TM IVUS “has been constructed and used successfully in seven patients in Rotterdam, Netherlands” and that it was featured in a live case presentation at “EuroPCR,” “the leading meeting of interventional cardiologists in Europe.” The manufacturer also stated that LipiScan TM IVUS provides the benefits of LipiScan TM and IVUS plus several synergistic benefits. Specifically, the manufacturer noted the co-registration of the near infrared (NIR) mirrors and the ultrasound transducer enhances the accuracy of the output. The IVUS shows the location of the catheter in the artery while the NIR enhances the interpretation of the grayscale IVUS image. The manufacturer stated that “once NIR has clearly shown that a lipid core is present, it is possible to re-examine the IVUS image for features such as an estimate of cap thickness.” The manufacturer also stated that there are safety benefits associated with using one catheter to obtain both the NIR image and the IVUS image and noted that with each insertion of a catheter comes the risk of an adverse event such as a stroke or myocardial infarction. Additionally, the manufacturer stated that combining both technologies into one catheter reduces procedure time, radiation exposure and contrast utilization. The manufacturer stated that a peer-reviewed manuscript has been published by Garg, et al.

Response: According to the applicant, there have only been seven cases in which the LipiScan TM IVUS has been used, none of them in the United States (and, ostensibly, none on a Medicare beneficiary). Despite the applicant's claims that the combined LipiScan TM IVUS technology enhances the benefits of either LipiScan TM or IVUS alone as well as LipiScan TM and IVUS used simultaneously, but with two separate catheters, we do not believe that there is enough clinical evidence relating to this technology to support this claim or to demonstrate that the technology is a substantial clinical improvement over other existing diagnostic technologies. That is, the evidence available at this time does not support that the LipiScan TM IVUS affects the medical management of the patient which, in turn, leads to improved clinical outcomes. We also note that we did not believe that there was enough clinical evidence available at this time to substantiate the claims that LipiScan TM by itself is a substantial clinical improvement. To the extent that the same information was submitted to support the applicant's LipiScan TM IVUS application, we also find, for the reasons discussed above, that the evidence is insufficient to demonstrate that the LipiScan TM IVUS represents a substantial clinical improvement over existing technologies. The manuscript that the applicant referred to simply describes what the technology does and how it is used; it does not provide any details as to how the technology affects the medical management of patients nor does it provide evidence that use of the LipiScan TM IVUS ultimately leads to improved clinical outcomes for patients. Although we recognize that the combination of these two existing technologies may ultimately lead to better clinical outcomes for patients undergoing coronary stenting, no data is available at this time to support that notion.

Accordingly, we are not approving the LipiScan TM IVUS device for new technology add-on payments for FY 2011.

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

A. Background

Section 1886(d)(3)(E) of the Act requires that, as part of the methodology for determining prospective payments to hospitals, the Secretary must adjust the standardized amounts “for area differences in hospital wage levels by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level.” In accordance with the broad discretion conferred under the Act, we currently define hospital labor market areas based on the definitions of statistical areas established by the Office of Management and Budget (OMB). A discussion of the FY 2011 hospital wage index based on the statistical areas, including OMB's revised definitions of Metropolitan Areas, appears under section III.C. of this preamble.

Beginning October 1, 1993, section 1886(d)(3)(E) of the Act requires that we update the wage index annually. Furthermore, this section of the Act provides that the Secretary base the update on a survey of wages and wage-related costs of short-term, acute care hospitals. The survey must exclude the wages and wage-related costs incurred in furnishing skilled nursing services. This provision also requires us to make any updates or adjustments to the wage index in a manner that ensures that aggregate payments to hospitals are not affected by the change in the wage index. The adjustment for FY 2011 is discussed in section II.B. of the Addendum to this final rule.

As discussed below in section III.I. of this preamble, we also take into account the geographic reclassification of hospitals in accordance with sections 1886(d)(8)(B) and 1886(d)(10) of the Act when calculating IPPS payment amounts. Under section 1886(d)(8)(D) of the Act, the Secretary is required to adjust the standardized amounts so as to ensure that aggregate payments under the IPPS after implementation of the provisions of sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act are equal to the aggregate prospective payments that would have been made absent these provisions. The budget neutrality adjustment for FY 2011 is discussed in section II.A.4.b. of the Addendum to this final rule.

Section 1886(d)(3)(E) of the Act also provides for the collection of data every 3 years on the occupational mix of employees for short-term, acute care hospitals participating in the Medicare program, in order to construct an occupational mix adjustment to the wage index. A discussion of the occupational mix adjustment that we are applying beginning October 1, 2010 (the FY 2011 wage index) appears under section III.D. of this preamble.

B. Wage Index Reform

1. Wage Index Study Required Under the MIEA-TRHCA

a. Legislative Requirement

Section 106(b)(1) of the MIEA-TRHCA (Pub. L. 109-432) required MedPAC to submit to Congress, not later than June 30, 2007, a report on the Medicare wage index classification system applied under the Medicare IPPS. Section 106(b) of MIEA-TRHCA required the report to include any alternatives that MedPAC recommends to the method to compute the wage index under section 1886(d)(3)(E) of the Act.

In addition, section 106(b)(2) of the MIEA-TRHCA instructed the Secretary of Health and Human Services, taking into account MedPAC's recommendations on the Medicare wage index classification system, to include in the FY 2009 IPPS proposed rule one or more proposals to revise the wage index adjustment applied under section 1886(d)(3)(E) of the Act for purposes of the IPPS. The Secretary was also to consider each of the following:

  • Problems associated with the definition of labor markets for the wage index adjustment.
  • The modification or elimination of geographic reclassifications and other adjustments.
  • The use of Bureau of Labor Statistics (BLS) data or other data or methodologies to calculate relative wages for each geographic area.
  • Minimizing variations in wage index adjustments between and within MSAs and statewide rural areas.
  • The feasibility of applying all components of CMS' proposal to other settings.
  • Methods to minimize the volatility of wage index adjustments while maintaining the principle of budget neutrality.
  • The effect that the implementation of the proposal would have on health care providers and on each region of the country.
  • Methods for implementing the proposal(s), including methods to phase in such implementations.
  • Issues relating to occupational mix such as staffing practices and any evidence on quality of care and patient safety including any recommendation for alternative calculations to the occupational mix.

In the FY 2009 IPPS final rule (73 FR 48563 through 48567), we discussed the MedPAC's study and recommendations, the CMS contract with Acumen, L.L.C. for assistance with impact analysis and study of wage index reform, and public comments we received on the MedPAC recommendations and the CMS/Acumen study and analysis.

b. Interim and Final Reports on Results of Acumen's Study

(1) Interim Report on Impact Analysis of Using MedPAC's Recommended Wage Index

In the FY 2009 IPPS final rule (73 FR 48566 through 48567), we discussed the analysis conducted by Acumen comparing use of the MedPAC recommended wage indices to the current CMS wage index. We refer readers to section III.B.1.e. of that final rule for a full discussion of the impact analysis as well as to Acumen's interim report available on the Web site: http://www.acumenllc.com/reports/cms.

(2) Acumen's Final Report on Analysis of the Wage Index Data and Methodology

Acumen's final report addressing the issues in section 106(b)(2) of the MIEA-TRHCA is divided into two parts. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43824), we provided a description of Acumen's analyses for both parts. The first part of Acumen's final report analyzed the strengths and weaknesses of the data sources used to construct the MedPAC and CMS indexes. The first part of the report was published on Acumen's Web site after the publication of the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule. In its conclusion, Acumen suggested that MedPAC's recommended methods for revising the wage index represented an improvement over the existing methods, and that the BLS data should be used so that the MedPAC approach can be implemented.

The second part of Acumen's final report focuses on the methodology of wage index construction and covers issues related to the definition of wage areas and methods of adjusting for differences among neighboring wage areas, as well as reasons for differential impacts of shifting to a new index. Acumen published the second part of its final report in March 2010 on its Web site at: http://www./acumenllc.com/reports/cms. In particular, the report analyzes MedPAC's recommended method of improving upon the definition of the wage areas used in the current wage index. MedPAC's method first blends MSA and county-level wages and then implements a “smoothing” step that limits differences in wage index values between adjacent counties to no more than 10 percent. Acumen found MedPAC's method to be an improvement over the current wage index construct. However, although MedPAC's method diminishes the size of differences between adjacent areas, Acumen suggested that MedPAC's method does not guarantee an accurate representation of a hospital labor market and would not necessarily eliminate or reduce hospitals' desire to reclassify for a higher wage index. Acumen recommended further exploration of labor market area definitions using a wage area framework based on hospital-specific characteristics, such as commuting times from hospitals to population centers, to construct a more accurate hospital wage index. Acumen suggested that such an approach offers the greatest potential for replacing or greatly reducing the need for hospital reclassifications and exceptions.

We indicated in the FY 2009 IPPS final rule (73 FR 48566) that, in developing any proposal(s) for additional wage index reform that may be included in the FY 2010 IPPS proposed rule, we would consider all of the public comments on the MedPAC recommendations that we had received in that proposed rulemaking cycle, along with the interim and final reports to be submitted to us by Acumen. As Acumen's study was not complete at the time of issuance of the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we did not propose any additional changes to the hospital wage index for the FY 2010 IPPS. We also did not propose any additional changes regarding reforming the wage index for the FY 2011 IPPS. We welcomed comments regarding the second part of Acumen's final report.

Comment: Several commenters addressed the data source for constructing the wage index. One commenter supported the use of BLS data and suggested that a simplified, standard dataset will eliminate unnecessary reclassifications and inconsistencies among Medicare contractors and create a more valid wage index calculation. Other commenters reiterated the concerns about the shortcomings of the BLS data that they expressed in public comments summarized in the FY 2009 IPPS final rule (73 FR 48564). One commenter suggested that CMS use data that reflect the price of labor rather than the cost of labor in constructing the wage index. The commenter also suggested that the wage index include data from SNFs and other postacute care settings because the wage index is also applied in those Medicare provider payment systems.

Regarding the methodology for constructing the wage index, several commenters shared Acumen's concern that MedPAC's blending and smoothing methodology may not be well suited for the Medicare wage index because it may mask actual geographic variations in wage levels. However, the commenters supported MedPAC's suggestion of varying wage indices by more refined areas, such as counties. Several commenters also expressed interest in Acumen's suggestion for further exploration of labor market area definitions based on hospital specific characteristics, such as the commuting times from hospitals to population centers.

One national hospital association recommended that CMS consider the following guiding principles as it evaluates options for improving the wage index system:

“Any new system should—

  • Be fair and accurately reflect the labor marketplace for hospitals, e.g., consider only hospital wage and benefit costs rather than broader labor market costs;
  • Provide predictable payments;
  • Be stable;
  • Be transparent so that the data may be examined and verified;
  • Minimize the administrative burden on hospitals;
  • Utilize the most current information possible;
  • Define boundaries that capture meaningful relationships between labor markets, to reduce the need for exceptions and reclassifications;
  • Due to the imperfection of any current labor market definition that we are aware of, provide an exception process for hospitals with labor costs atypical for areas to which they have been assigned;
  • Use consistent definitions, methodologies, rules, and interpretations across the nation for the acquisition and application of data;
  • Include a transition from the old to the new system that is not disruptive; it should include a phased-in transition period if necessary to protect hospitals from abrupt reductions in payment levels; and
  • Not let perfection be the enemy of the better.”

Commenters generally urged CMS to move forward cautiously and ensure a thorough process for evaluating changes to the existing wage index.

Response: As discussed in section III.B.4. of the preamble in this final rule, section 3137(b) of the Affordable Care Act requires the Secretary of Health and Human Services to submit to Congress, not later than December 31, 2011, a report that includes a plan to reform the Medicare wage index applied under the Medicare IPPS. We will consider the MedPAC's and Acumen's reports and findings, along with all of the public comments and suggestions we have received, as we evaluate ways for improving the wage index.

2. FY 2009 Policy Changes in Response to Requirements Under Section 106(b) of the MIEA-TRHCA and Subsequent Changes Under Sections 3137(c) and 3141 of the Affordable Care Act

To implement the requirements of section 106(b) of the MIEA-TRHCA and respond to MedPAC's recommendations in its June 2007 report to Congress, in the FY 2009 IPPS final rule (73 FR 48567 through 48574), we made policy changes to the wage index relating to geographic reclassification average hourly wage comparison criteria and rural and imputed floor budget neutrality. (We refer readers to the FY 2009 IPPS final rule for a full discussion of the basis for the proposals, the public comments received, and the FY 2009 final policy.) In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43825), we reiterated these policy changes, especially as they related to the FY 2010 IPPS. However, provisions of the Affordable Care Act recently changed the reclassification average hourly wage comparison criteria and rural and imputed floor budget neutrality policies that we adopted in FY 2009.

a. Reclassification Average Hourly Wage Comparison Criteria

In the FY 2009 IPPS final rule, we adopted the policy to adjust the reclassification average hourly wage standard, comparing a reclassifying hospital's (or county hospital group's) average hourly wage relative to the average hourly wage of the area to which it seeks reclassification. (We refer readers to the FY 2009 IPPS final rule for a full discussion of the basis for the proposals the public comments received and the FY 2009 final policies.) We provided for a phase-in of the adjustment over 2 years. For applications for reclassification for the first transitional year, FY 2010, the average hourly wage standards were set at 86 percent for urban hospitals and group reclassifications, and 84 percent for rural hospitals. For applications for reclassification for FY 2011 (for which the application deadline was September 1, 2009) and for subsequent fiscal years, the average hourly wage standards were 88 percent for urban and group reclassifications and 86 percent for rural hospitals. Sections 412.230, 412.232, and 412.234 of the regulations were revised accordingly. These policies were adopted in the FY 2009 IPPS final rule and were reflected in the wage index in the Addendum to the FY 2011 IPPS proposed rule, which appeared in the Federal Register on May 4, 2010.

However, as we discussed in the supplemental proposed rule to the FY 2011 IPPS/LTCH PPS proposed rule issued in the Federal Register on June 2, 2010 (75 FR 30919), the provisions of section 3137(c) of the Affordable Care Act revised the average hourly wage standards. Specifically, section 3137(c) restored the average hourly wage standards that were in place for FY 2008 (that is, 84 percent for urban hospitals, 85 percent for group reclassifications, and 82 percent for rural hospitals) for applications for reclassification for FY 2011 and for each subsequent fiscal year until the first fiscal year beginning on or after the date that is one year after the Secretary of Health and Human Services submits a report to Congress on a plan for reforming the wage index under section 3137(b) of the Affordable Care Act. Section 3137(c) of the Affordable Care Act also requires the revised average hourly wage standards to be applied in a budget neutral manner. We note that section 3137(c) of the Affordable Care Act does not provide for the revised average hourly wage standards to be applied retroactively, nor does it change the statutory deadline for applications for reclassification for FY 2011. Under section 1886(d)(10) of the Act, the Medicare Geographic Classification Review Board (MGCRB) considers applications by hospitals for geographic reclassification for purposes of payment under the IPPS. Hospitals must apply to the MGCRB to reclassify 13 months prior to the start of the fiscal year for which reclassification is sought (generally by September 1). For reclassifications for the FY 2011 wage index, the deadline for applications was September 1, 2009 (74 FR 43838).

As we discussed in the June 2, 2010 FY 2011 supplemental proposed rule (75 FR 30919 and 30920), in our proposed implementation of section 3137(c) of the Affordable Care Act, we requested the assistance of the MGCRB in determining, for applications received by September 1, 2009, whether additional hospitals would qualify for reclassification for FY 2011 based on the revised average hourly wage standards of 84 percent for urban hospitals, 85 percent for group reclassifications, and 82 percent for rural hospitals restored by section 3137(c). We determined that 18 additional hospitals would qualify for reclassification for FY 2011. In addition, 5 hospitals, for which the MGCRB granted reclassifications to their secondary requested areas for FY 2011, would qualify for reclassifications instead to their primary requested areas because they now meet the average hourly wage criteria to reclassify to those areas. Therefore, in accordance with § 412.278 of the regulations, in which paragraph (c) provides the Administrator discretionary authority to review any final decision of the MGCRB, we submitted a letter to the Administrator requesting that she review and amend the MGCRB's decision and grant the 23 hospitals their requested reclassifications (or primary reclassifications) for FY 2011. The proposed wage index in the Addendum to the June 2, 2010 supplemental proposed rule (75 FR 30984) reflected these changes in hospital reclassifications, although the Administrator had not issued all of her decisions by the issuance date of the supplemental proposed rule. We stated that any changes to the FY 2011 wage index, as a result of the Administrator's actual decision issued under § 412.278(c), or an amendment of the Administrator's decision issued under § 412.278(g), would be reflected in the FY 2011 IPPS final rule. As a result of her review, the Administrator amended the MGCRB's decision for 22 of the 23 hospitals for the FY 2011 wage index. One hospital had decided to withdraw its approved reclassification for FYs 2011 through 2013 and, instead, “fall back” to its prior reclassification for FYs 2010 through 2012. (We refer readers to 42 CFR 412.273 and the discussion on withdrawals, terminations, and “fall back” reclassifications in section III.I.3.a. of the preamble in this final rule.)

In the June 2, 2010 supplemental proposed rule (75 FR 30973), we proposed to amend §§ 412.230, 412.232, and 412.234 to reflect the average hourly wage reclassification criteria restored by section 3137(c) of the Affordable Care Act.

Comment: Several commenters urged CMS to use its administrative discretion to open an additional short window of opportunity for FY 2011 reclassification application. The commenters stated that some hospitals did not meet the average hourly wage criteria in effect as of the September 1, 2009 deadline, and, therefore, did not apply for reclassification for FY 2011; however, they meet the revised criteria and should be allowed a fair and equitable opportunity to reclassify. The commenters suggested that only a fairly limited number of hospitals would apply, so the workloads for CMS and the MGCRB should be manageable.

Response: As we discussed above, the deadline for application for reclassification is established through statute, under section 1886(d)(10) of the Act. Therefore, we believe that if the Congress had intended for hospitals to be afforded another opportunity to apply for reclassification for FY 2011 due to the revisions made by section 3137(c) of the Affordable Care Act, the Congress also would have established such opportunity through a provision of the law. We also believe that the commenters may have underestimated the workload and time required for the suggested additional window of opportunity and that such opportunity, instead, would have been very disruptive to the development and publication of the IPPS proposed and final rates for FY 2011. Given the amount of time it would have taken after the March 23, 2010 enactment date of the law for CMS to (1) Establish and implement a process for the additional application period, (2) allow hospitals sufficient time to submit their applications to the MGCRB, and (3) allow a sufficient period of time for the MGCRB to review the applications and make its decisions, the additional reclassifications would not have been determined in time for inclusion in the FY 2011 IPPS/LTCH PPS proposed rule or the supplemental proposed rule, and there would not be sufficient time to gather and consider comments regarding the effects of this application period on other nonreclassified hospitals as well as the hospitals that were able to take advantage of the second window for application.

We believe that our proposed implementation of section 3137(c) is the least disruptive and intended approach. Therefore, we are adopting our proposal as final in this FY 2011 IPPS/LTCH PPS final rule. The wage index in the Addendum to this final rule reflects the reclassifications that resulted from the Administrator's reversal of the MGCRB's decision for 22 hospitals that applied by September 1, 2009 and meet the revised average hourly wage criteria. In addition, we are adopting as final, without modification, the proposed revisions to §§ 412.230, 412.232, and 412.234 of the regulations to codify the revised average hourly wage criteria.

b. Budget Neutrality Adjustment for the Rural and Imputed Floors

In the FY 2009 IPPS final rule (73 FR 48574 through 48575), we adopted State level budget neutrality (rather than the national budget neutrality adjustment) for the rural and imputed floors, effective beginning with the FY 2009 wage index and incorporated this policy in our regulation at § 412.64(e)(4). Specifically, the regulations specified that CMS makes an adjustment to the wage index to ensure that aggregate payments after implementation of the rural floor under section 4410 of the Balanced Budget Act of 1997 (Pub. L. 105-33) and the imputed floor under § 412.64(h)(4) are made in a manner that ensures that aggregate payments to hospitals are not affected and that, beginning October 1, 2008, we would transition from a nationwide adjustment to a statewide adjustment, with a statewide adjustment fully in place by October 1, 2010.

These policies for the rural and imputed floors were adopted in the FY 2009 IPPS final rule and were reflected in the proposed wage index in the Addendum to the FY 2011 IPPS/LTCH PPS proposed rule, published in the Federal Register on May 4, 2010 (75 FR 23937 and 23938). However, as we discussed in the June 2, 2010 supplemental FY 2011 IPPS/LTCH PPS proposed rule (75 FR 30920), these policies were recently changed by the provisions of section 3141 of the Affordable Care Act. Specifically, section 3141 of the Affordable Care Act rescinded our policy that established a statewide budget neutrality adjustment for the rural and imputed floors and, instead, restored a uniform, national adjustment to the area wage index, beginning with the FY 2011 wage index.

In addition, we note that the imputed floor is set to expire on September 30, 2011. As we indicated in the supplemental proposed rule, we are not reading the language of section 3141 of the Affordable Care Act as altering this expiration date. Section 3141 of the Affordable Care Act requires that the Secretary “administer subsection (b) of such section 4410 and paragraph (e) of * * * section 412.64 in the same manner as the Secretary administered such subsection (b) and paragraph (e) for discharges occurring during fiscal year 2008 (through a uniform, national adjustment to the area wage index).” Thus, section 3141 of the Affordable Care Act is governing how we apply budget neutrality, under the authorities of § 412.64(e) and section 4410(b) of the Balanced Budget Act, but it does not alter § 412.64(h) of our regulations (which includes the imputed floor and its expiration date). To the extent there is an imputed floor, section 3141 of the Affordable Care Act governs budget neutrality for that floor, but it does not continue the imputed floor beyond the expiration date already included in our regulations.

In the FY 2011 IPPS/LTCH PPS supplemental proposed rule issued in the Federal Register on June 2, 2010, we proposed to revised the regulations at § 412.64(e) to reflect the changes made by section 3141 of the Affordable Care Act that restored a uniform, national adjustment to the area wage index, beginning with the FY 2011 wage index. We did not propose any other special rules or procedures for implementing the provisions of section 3141.

Comment: A few commenters favored the provision of section 3141 to restore the national adjustment to the wage index; other commenters objected to the provision.

Response: We appreciate the support of the commenters. Regarding the comment objecting to the provision, we are obligated to implement the provisions of the law.

In accordance with the law, we are adopting as a final policy in this final rule, a uniform, national budget neutrality adjustment for the rural and imputed floors, which, for FY 2011, is a factor of 0.996641. The wage index in the Addendum to this final rule reflects this policy. In addition, we are adopting as final, without modification, the proposed changes to § 412.64(e) of the regulations to incorporate the restoration provisions of section 3141 of the Affordable Care Act.

3. Floor for Area Wage Index for Hospitals in Frontier States

Section 10324(a)(1) of the Affordable Care Act amended section 1886(d)(3)(E) of the Act by adding a provision under new subsection (iii) to establish an adjustment to create a wage index floor of 1.00 for all hospitals located in States determined to be “frontier States,” beginning in FY 2011. The new section 1886(d)(3)(E)(iii)(II) of the Act defines a “frontier State” as a State in which at least 50 percent of the counties in the State are determined to be “frontier counties.” The new section 1886(d)(3)(E)(iii)(III) of the Act defines a “frontier county” as a county in which the population per square mile is less than 6 persons. The new section 1886(d)(3)(E)(iii)(IV) of the Act specifies that this provision for the frontier State floor shall not apply to hospitals that are receiving a nonlabor-related share adjustment under section 1886(d)(5)(H) of the Act, that is, hospitals in Alaska or Hawaii.

To implement the provision for the frontier State floor adjustment, in the FY 2011 IPPS/LTCH PPS supplemental proposed rule published in the Federal Register on June 2, 2010 (75 FR 30920), we proposed to identify frontier Counties by analyzing population data and county definitions based upon the most recent annual Population Estimates published by the U.S. Census Bureau. We proposed to divide each county's population total by each county's reported land area (according to the decennial census) in square miles to establish population density. We also proposed to update this analysis from time to time, such as upon publication of a subsequent decennial census and, if necessary, add or remove qualifying States from the list of frontier States based on the updated analysis.

In accordance with section 1886(d)(3)(E)(iii) of the Act, as added by section 10324(a)(1) of the Affordable Care Act, all PPS hospitals located within a State that qualifies as a frontier State will receive either the higher of its post-reclassification wage index rate, or a wage index with a minimum value of 1.00. In the June 2, 2010 supplemental proposed rule, we proposed that, for a hospital that is geographically located in a frontier State and is reclassified under section 1886(d)(10) of the Act to a CBSA in a non-frontier State, the hospital would receive a wage index that is the higher of the reclassified area wage index or the minimum wage index of 1.00. In accordance with section 10324(a)(2) of the Affordable Care Act, the frontier State adjustment will not be subject to budget neutrality under section 1886(d)(3)(E) of the Act, and will only be extended to hospitals geographically located within a Frontier State. In the June 2, 2010 supplemental proposed rule, we proposed to calculate and apply the frontier State floor adjustments after rural and imputed floor budget neutrality adjustments are calculated for all labor market areas, so as to ensure that no hospital in a Frontier State will receive a wage index of less than 1.00 due to the rural and imputed floor adjustment. We invited public comment on these proposals regarding our methods for determining frontier States, and for calculation and application of the adjustment.

In the June 2, 2010 supplemental proposed rule (75 FR 30971), we proposed to establish a new paragraph (m) under § 412.64 to incorporate the provisions of section 1886(d)(3)(E)(iii) of the Act, as added by section 10324(a)(1) of the Affordable Care Act.

Comment: Commenters supported the proposed methods for implementation of the frontier States floor adjustment to the area wage index provided for under section 1886(d)(3)(E)(iii) of the Act.

Response: We appreciate the commenters' support.

In this final rule, we are implementing the frontier State floor adjustment using the criteria described above that we are finalizing in this final rule. For the final FY 2011 IPPS wage indices, based on the criteria described above, we identified the following frontier States that will receive the floor adjustment for FY 2011. These frontier States also are identified by a footnote in Table 4D-2 of the Addendum to this final rule.

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

After consideration of the public comments we received, we are adopting as final, without modification, the proposed addition of new paragraph (m) under § 412.64 of the regulations to incorporate the provisions of section 1886(d)(3)(E)(iii) of the Act, as added by section 10324(a)(1) of the Affordable Care Act, by specifying the criteria for adjusting the wage index to account for the frontier State floor adjustment, the amount of the wage index adjustment, and our process for determining and posting the wage index adjustments.

4. Plan for Reforming the Wage Index Under Section 3137(b) of Affordable Care Act

As we discussed in the June 2, 2010 supplemental proposed rule (75 FR 30919), section 3137(b) of the Affordable Care Act requires the Secretary of Health and Human Services to submit to Congress, not later than December 31, 2011, a report that includes a plan to reform the Medicare wage index applied under the Medicare IPPS. In developing the plan, the Secretary of Health and Human Services must take into consideration the goals for reforming the wage index that were set forth by MedPAC in its June 2007 report entitled, “Report to Congress: Promoting Greater Efficiency in Medicare”, including establishing a new system that—

  • Uses Bureau of Labor of Statistics (BLS) data, or other data or methodologies, to calculate relative wages for each geographic area;
  • Minimizes wage index adjustments between and within MSAs and statewide rural areas;
  • Includes methods to minimize the volatility of wage index adjustments while maintaining budget neutrality in applying such adjustments;
  • Takes into account the effect that implementation of the system would have on health care providers and on each region of the country;
  • Addresses issues related to occupational mix, such as staffing practices and ratios, and any evidence on the effect on quality of care or patient safety as a result of the implementation of the system; and
  • Provides for a transition.

In addition, section 3137(b)(3) of the Affordable Care Act requires the Secretary of Health and Human Services to consult with relevant affected parties in developing the plan. Although the provisions of section 3137(b) of the Affordable Care Act will not have an actual impact on the FY 2011 wage index, we notified the public of the provisions in the supplemental proposed rule so that they would have an opportunity to provide comments and suggestions on how they may participate in developing the plan.

Comment: A few commenters encouraged CMS to involve the industry in the process. One commenter in particular suggested that CMS should adopt an advisory commission approach in addressing future changes to the wage index.

Response: We will consider these suggestions in developing our plan for meeting the requirements of section 3137(b) of the Affordable Care Act.

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

The wage index is calculated and assigned to hospitals on the basis of the labor market area in which the hospital is located. In accordance with the broad discretion under section 1886(d)(3)(E) of the Act, beginning with FY 2005, we define hospital labor market areas based on the Core-Based Statistical Areas (CBSAs) established by OMB and announced in December 2003 (69 FR 49027). For a discussion of OMB's revised definitions of CBSAs and our implementation of the CBSA definitions, we refer readers to the preamble of the FY 2005 IPPS final rule (69 FR 49026 through 49032).

As with the FY 2010 final rule, in the FY 2011 proposed rule, we proposed to provide that hospitals receive 100 percent of their wage index based upon the CBSA configurations. Specifically, for each hospital, we proposed to determine a wage index for FY 2011 employing wage index data from hospital cost reports for cost reporting periods beginning during FY 2007 and using the CBSA labor market definitions. We consider CBSAs that are MSAs to be urban, and CBSAs that are Micropolitan Statistical Areas as well as areas outside of CBSAs to be rural. In addition, it has been our longstanding policy that where an MSA has been divided into Metropolitan Divisions, we consider the Metropolitan Division to comprise the labor market areas for purposes of calculating the wage index (69 FR 49029) (regulations at § 412.64(b)(1)(ii)(A)).

On December 1, 2009, OMB announced changes to the principal cities and, if applicable, titles of a number of CBSAs and Metropolitan Divisions (OMB Bulletin No. 10-2). The changes to the principal cities and titles are as follows:

  • San Marcos, TX qualifies as a new principal city of the Austin-Round Rock, TX CBSA. The new title is Austin-Round Rock-San Marcos, TX CBSA.
  • Delano, CA qualifies as a new principal city of the Bakersfield, CA CBSA. The new title: Bakersfield-Delano, CA CBSA.
  • Conroe, TX qualifies as a new principal city of the Houston-Sugar Land-Baytown, TX CBSA. The CBSA title is unchanged.
  • North Port, FL qualifies as a new principal city of the Bradenton-Sarasota-Venice, FL CBSA. The new title is North Port-Bradenton-Sarasota, FL CBSA. The new code is CBSA 35840.
  • Sanford, FL qualifies as a new principal city of the Orlando-Kissimmee, FL CBSA. The new title is Orlando-Kissimmee-Sanford, FL CBSA.
  • Glendale, AZ qualifies as a new principal city of the Phoenix-Mesa-Scottsdale, AZ CBSA. The new title is Phoenix-Mesa-Glendale, AZ CBSA.
  • Palm Desert, CA qualifies as a new principal city of the Riverside-San Bernardino-Ontario, CA CBSA. The CBSA title is unchanged.
  • New Braunfels, TX qualifies as a new principal city of the San Antonio, TX CBSA. The new title is San Antonio-New Braunfels, TX CBSA.